[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]


 
                        TERRORIST FINANCING AND
                           THE ISLAMIC STATE

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           NOVEMBER 13, 2014

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-99
                           
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking 
    Chairman                             Member
SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
    Emeritus                         NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              BRAD SHERMAN, California
EDWARD R. ROYCE, California          GREGORY W. MEEKS, New York
FRANK D. LUCAS, Oklahoma             MICHAEL E. CAPUANO, Massachusetts
SHELLEY MOORE CAPITO, West Virginia  RUBEN HINOJOSA, Texas
SCOTT GARRETT, New Jersey            WM. LACY CLAY, Missouri
RANDY NEUGEBAUER, Texas              CAROLYN McCARTHY, New York
PATRICK T. McHENRY, North Carolina   STEPHEN F. LYNCH, Massachusetts
JOHN CAMPBELL, California            DAVID SCOTT, Georgia
MICHELE BACHMANN, Minnesota          AL GREEN, Texas
KEVIN McCARTHY, California           EMANUEL CLEAVER, Missouri
STEVAN PEARCE, New Mexico            GWEN MOORE, Wisconsin
BILL POSEY, Florida                  KEITH ELLISON, Minnesota
MICHAEL G. FITZPATRICK,              ED PERLMUTTER, Colorado
    Pennsylvania                     JAMES A. HIMES, Connecticut
LYNN A. WESTMORELAND, Georgia        GARY C. PETERS, Michigan
BLAINE LUETKEMEYER, Missouri         JOHN C. CARNEY, Jr., Delaware
BILL HUIZENGA, Michigan              TERRI A. SEWELL, Alabama
SEAN P. DUFFY, Wisconsin             BILL FOSTER, Illinois
ROBERT HURT, Virginia                DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio                  PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee       JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana          KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina        JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois             DENNY HECK, Washington
DENNIS A. ROSS, Florida              STEVEN HORSFORD, Nevada
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania
LUKE MESSER, Indiana

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    November 13, 2014............................................     1
Appendix:
    November 13, 2014............................................    57

                               WITNESSES
                      Thursday, November 13, 2014

Cohen, Hon. David S., Under Secretary for Terrorism and Financial 
  Intelligence, United States Department of the Treasury.........     7
Gurule, Hon. Jimmy, Law Professor, Notre Dame Law School.........    36
Johnston, Patrick B., Ph.D., Political Scientist, the RAND 
  Corporation....................................................    40
Levitt, Matthew, Ph.D., Director, Stein Program on 
  Counterterrorism and Intelligence, The Washington Institute for 
  Near East Policy...............................................    38

                                APPENDIX

Prepared statements:
    Hinojosa, Hon. Ruben.........................................    58
    Cohen, Hon. David S..........................................    62
    Gurule, Hon. Jimmy...........................................    71
    Johnston, Patrick B..........................................    86
    Levitt, Matthew..............................................    96


                        TERRORIST FINANCING AND
                           THE ISLAMIC STATE

                              ----------                              


                      Thursday, November 13, 2014

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:04 a.m., in 
room 2167, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, Lucas, 
Garrett, Neugebauer, Bachmann, Pearce, Posey, Fitzpatrick, 
Westmoreland, Luetkemeyer, Huizenga, Duffy, Hurt, Stivers, 
Fincher, Stutzman, Mulvaney, Hultgren, Ross, Pittenger, Barr, 
Rothfus, Messer; Waters, Maloney, Sherman, Meeks, Capuano, 
Clay, Lynch, Scott, Green, Ellison, Perlmutter, Himes, Sewell, 
Foster, Kildee, Murphy, Delaney, Sinema, Beatty, Heck, and 
Horsford.
    Chairman Hensarling. The committee will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    Before we begin, if you think you are in a strange room, 
you are. We did not change the portraits. As I have announced 
previously to the committee, our hearing room, I think, is the 
last hearing room in the Rayburn Building to receive a sound 
upgrade and other modifications to make the room ADA-compliant.
    So as a reminder to all Members, we will be a Nomadic tribe 
between now and, theoretically, the end of March, we hope that 
doesn't mean mid-May, and we will take whatever committee room 
our friends will allow us to have. So if you see Chairman 
Shuster on the Floor, please thank him for his kindness in 
allowing our committee to use his committee room.
    This hearing is entitled, ``Terrorist Financing and the 
Islamic State.'' I wish to advise Members who are unaware, we 
have two panels today, and of course we also have organizing 
meetings for the 114th Congress that are ensuing, and so we are 
going to release the Administration witness, Secretary Cohen, 
at noon. We will convene the second panel at that time, and 
then the hearing will be gaveled down at 1:00 p.m.
    Please know this will be our first hearing on this vitally 
important topic. It will not be our last in the next Congress. 
So Members who don't have an opportunity to ask questions, if 
need be, we can certainly call the witnesses back in the 
future, and at least for those on the Republican side of the 
aisle, once the second panel begins, wherever we last left off 
in the queue, those who didn't have an opportunity to ask 
questions of the first panel, we will start with you on the 
second panel.
    I now wish to recognize myself for one minute for an 
opening statement.
    The 9/11 Commission estimated that al Qaida's brutal, evil 
attack on 9/11 cost the terrorists approximately half a million 
dollars. So for half a million dollars, terrorists were able to 
murder almost 3,000 of our fellow countrymen and inflict 
immeasurable suffering upon our Nation. Today, we face another 
terrorist enemy for which half a million dollars appears to be 
pocket change, an organization that reportedly raises between 
$1 million and $2 million a day.
    And unlike al-Qaeda and other terrorist groups with which 
we are familiar, who rely mainly on private donations and state 
sponsorship to fund their activities, ISIL is internally 
financed, and apparently is sitting on assets of almost $2 
billion.
    So today's hearing continues this committee's ongoing 
efforts to ensure our Government is doing everything possible 
to stop the Islamic State and other terrorists from using the 
global financial system to pay for their evil activities. 
Fighting the financial war against terror will demand constant 
innovation and improvement. The tools we have used in the past 
may not be suitable for the future.
    I look forward to hearing from all the witnesses on what 
may be necessary to upgrade, innovate, and improve our 
capabilities to starve the terrorists of the money they so 
desperately need to carry out their attacks.
    I will now recognize the ranking member for 3 minutes for 
an opening statement.
    Ms. Waters. Thank you very much, Mr Chairman, for 
scheduling today's hearing.
    I would like to thank Under Secretary Cohen and each of our 
other witnesses for being here today.
    I am looking forward to hearing about the Administration's 
efforts to degrade ISIL's financial capability and to review 
the effectiveness of our current legal framework in deterring 
terrorists' financing and money laundering.
    The Islamic State, also known as ISIL or ISIS, is an 
incredibly violent organization that has shown a particularly 
callous disregard for human life, employing shocking and brutal 
tactics that include beheading, mass murder, and rapes, and 
more recently, allegations of chemical weapons use. The group 
is a tremendously destabilizing force across large swaths of 
Iraq and Syria, and its brutal campaigns have appropriately 
drawn the condemnation of the broader international community.
    In addition to the horrific massacres, kidnappings, and 
decapitations, officials now believe that ISIL is one of the 
richest terrorist groups to ever exist, with estimated assets 
in excess of $1 billion. Unlike most other terrorist groups, 
which tend to rely heavily on foreign sponsors, ISIL generally 
raises its funds internally, limiting the opportunities 
traditionally available to the Treasury Department to cut them 
off from the formal financial system.
    Regardless, Treasury's ability to sanction and block assets 
remains vital to ensure that over the long run the United 
States and our allies can shut down any funds that are tied to 
illicit oil sales, extortion, and kidnapping for ransom, and as 
we make progress in curtailing ISIL's internal funding schemes, 
it may be forced to rely more heavily on types of funding that 
would most likely have to float through the formal financial 
system. To guard against this and all other efforts to finance 
terrorist activities, Treasury, our financial regulators, the 
Department of Justice, and Congress must work diligently to 
strengthen the enforcement and deterrent value of our 
counterterrorism and anti-money-laundering laws.
    Due to concerns that the Department of Justice and 
regulators have not met the task of holding banks and their 
executives sufficiently accountable for blatant violations of 
law designed to staunch the flow of funds to terrorist groups, 
I joined with my Democratic colleagues earlier this Congress in 
introducing legislation that would close loop holes, encourage 
the flow of information related to illicit activity, and 
strengthen civil powers to hold bank executives accountable for 
their role in safeguarding our national security, among other 
things.
    So I hope that as part of this committee's discussion of 
the adequacy of international banking policy, we take a hard 
look at the proposal that Democrats have put forth but which 
has yet to be considered by this committee.
    I yield back the balance of my time.
    Chairman Hensarling. The Chair now recognizes the chairman 
of our Capital Markets Subcommittee, the gentleman from New 
Jersey, Mr. Garrett, for 1 minute.
    Mr. Garrett. And I thank the chairman for holding this 
important hearing today on terrorist financing and ISIS.
    ISIS inherits the rightful claim to the evil legacies of 
senseless brutality and inhumanity, and there is no doubt that 
if given the opportunity, ISIS would try to harm Americans here 
in the homeland, and as a Member of Congress who represents the 
district across the river from what once was the World Trade 
Center twin towers, I know that we cannot be cavalier about 
security threats such as ISIS.
    Unfortunately, our Commander in Chief hasn't always 
appreciated ISIS' threat to this Nation. Accordingly, I am 
concerned about just how seriously our Commander in Chief, 
President Obama, has taken this threat, and so I look forward 
to today's hearing and today's witnesses, including an 
Administration official. I hope to get a better understanding 
of what has been done and what must be done to not only 
degrade, but actually eliminate this terrorist threat.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from California, Mr. Sherman, for a minute and a half.
    Mr. Sherman. Thank you, Mr. Chairman.
    I spent a substantial amount of time on these issues at our 
Terrorism and Nonproliferation Subcommittee over on the House 
Foreign Affairs Committee. We have learned that Qatar is a 
major source of funds, both at the governmental level, but also 
allowing its citizens to donate to Hezbollah, Hamas, and ISIS. 
ISIS is now much more internally-funded. At one point, it 
relied more on donations.
    There are those who attack the President's--who I think 
have an overly simplistic view of the situation. ISIS is evil. 
But many of ISIS' enemies are just as evil and more dangerous 
than ISIS. Given this complicated circumstance, simplistic 
attacks on policy don't really further our situation.
    I am concerned that the electricity continues to be on in 
all the cities that ISIS controls. This means that either we 
are providing that electricity from dams under the control of 
the Iraqi government or we are allowing ISIS to operate 
electric generation facilities. Either way, ISIS is able to 
sell electricity because we are unwilling to turn the lights 
off. We are in a difficult circumstance because the civilians 
who live under ISIS' rule are, to some extent, hostages, and, 
to some extent, supporters of ISIS, but we did not hesitate to 
bomb strategic targets in occupied Europe, and we cannot 
hesitate to bomb strategic targets in ISIS-controlled Northern 
Iraq and Eastern Syria.
    Finally, we have learned that the control of the New York 
Fed and its ability to clear dollar transactions is perhaps the 
most powerful sanction that we have against terrorist states 
like Iran, and I will be interested to see whether that would 
play a role in ISIS. In any case, it has brought Iran to the 
point where they are willing to pretend to negotiate with us in 
Geneva.
    I yield back.
    Chairman Hensarling. The Chair now recognizes the vice 
chairman of our Oversight and Investigations Subcommittee, the 
gentleman from Pennsylvania, Mr. Fitzpatrick, for 2 minutes.
    Mr. Fitzpatrick. Thank you, Mr. Chairman.
    This past month I had the opportunity to travel to the 
region to investigate terror financing. I had meetings in Qatar 
and Turkey with Department of State and Department of the 
Treasury officials to round out my understanding of terror 
financing, and specifically the threat posed by ISIS.
    I look forward to working with my colleagues on this 
committee to provide oversight over the Government's response 
to ISIS and ensure that we have all the tools necessary to meet 
this very unique challenge.
    ISIS is an enemy unlike any other that we have faced up to 
this point. Though they have their roots in al-Qaeda in Iraq, 
they have not only learned from their previous experiences, 
they have, in fact, evolved, and they are not just an 
organization committed to acts of terrorism, but have designs 
on establishing their own state and are, in fact, currently 
governing a large area in the region.
    This structure creates a unique challenge for one of the 
means that we have traditionally employed to combat terrorist 
threats, which is to go after their money and their resources.
    This mission to degrade and ultimately defeat ISIS requires 
a coordinated response between the Executive and the 
Legislative Branches. Our national security transcends all 
other considerations, and I look forward to hearing today how 
we can work together to protect the American people.
    I yield back.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Massachusetts, Mr. Lynch, for a minute and a half.
    Mr. Lynch. Thank you very much, Mr. Chairman.
    I want to thank the Secretary and the other panelists for 
working with the committee and helping us with our work.
    As co-Chair of the Congressional Task Force on 
Antiterrorism Financing, along with my colleague, Mr. King from 
New York, who is the Republican co-Chair, we have done a lot of 
work in this area in the traditional sense where we are trying 
to block terrorist organizations from using a legitimate 
financial system. This problem presents a different type of 
issue where a lot of revenue is being generated internally by 
ISIS and it is a totally different scale. We are talking $1 
million to $2 million a day, as the chairman pointed out, in 
terms of their revenue.
    I would be very interested in hearing from the Secretary on 
what we are doing in Turkey along the border--the northern 
border of Syria there.
    Like my colleague, I just came back from Erbil and looked 
at the situation in Northern Iraq as well as in Turkey, and we 
are very concerned about the porous nature of that border and 
how illicit shipments are still being handled both through 
Turkey and through parts of Syria. So I would be interested in 
hearing the Secretary's comments on that.
    I do want to say thank you for the work you have done so 
far. I think it has been commendable in terms of the anti-
money-laundering and anti-terrorist-financing work that you 
have done.
    Thank you.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Florida, Mr. Ross, for 1 minute.
    Mr. Ross. Thank you, Mr. Chairman, and thank you for 
holding this hearing. I also want to thank our distinguished 
panelists for their testimony today.
    As you pointed out, Mr. Chairman, it cost the terrorists 
who targeted and murdered thousands of Americans citizens on 9/
11 approximately $500,000 to plan and execute their coordinated 
attack, and in a single day, ISIL is estimated to bring in more 
than double that amount through illicit business practices.
    ISIL is a threat to America and the free world. We must 
dismantle and destroy this terrorist organization before more 
American lives are put at risk. From selling oil on the black 
market to taxing and extorting local businesses to kidnapping 
for ransom, ISIL is a criminal organization with numerous 
financial resources that have perpetuated their reign of terror 
in unstable regions across the Middle East.
    I look forward to working with my colleagues on this 
committee to ensure the Federal Government uses every tool at 
its disposal to prevent ISIL and all terrorist groups from 
acquiring the funds to continue their reign of terror.
    I yield back.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentlelady from Ohio, Mrs 
Beatty, for 1 minute.
    Mrs. Beatty. Thank you, Chairman Hensarling, Ranking Member 
Waters, Under Secretary Cohen, and the other panelists.
    Today, we are examining the critical and important topic of 
terrorist financing in the Islamic State, specifically how the 
terrorist group known as ISIL obtains and deploys financial 
resources to further their operations in Iraq, Syria, and the 
Middle East.
    Each night, my constituents turn on the news, and they find 
reports of ISIL's acts and the brutality against religious 
minorities, women, aid workers, and journalists. This must 
stop, and the financing is the kill switch.
    While the military is providing air support and aid to 
moderate rebels and legitimate governments in the Middle East 
to defeat ISIL, we must also highlight the efforts of other 
agencies within the Administration and how Federal resources 
may be coordinated to erode and ultimately eradicate ISIL.
    The U.S. Government is actively combating terrorist 
financing, attempting to choke off sources of funding for ISIL 
and related organizations.
    Mr. Chairman and my other colleagues here, I look forward 
to working with you because the hearing on this topic not only 
protects our financial interests but our national security 
interests as well.
    Thank you, and I yield back.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Indiana, Mr. Stutzman, for 1 minute.
    Mr. Stutzman. Thank you, Mr. Chairman, and thank you for 
calling this very important hearing.
    Mr. Chairman, Islamic State is one of the most well-armed, 
well-equipped, and well-financed terror organizations the world 
has ever seen. They are potentially the most barbaric as well, 
using tactics that include torture, kidnapping for ransom, and 
beheading of innocent people, including two Americans, James 
Foley and Steve Sotloff.
    Since 2013, they have recruited thousands of fighters from 
around the world, swept through Iraq and Syria, taken over 
cities, and killed thousands of innocent people who did not 
conform to their ways.
    It is reported that Islamic State now controls around 60 
percent of the oil fields in Syria, which are bringing in 
massive daily revenues to fund their operations.
    One of the most effective ways the United States has 
disrupted terrorists in the past has been to cut off their 
financing, limiting their ability to plot and plan attacks. 
Thwarting Islamic State's multiple revenue streams and their 
ability to spend money they already have requires new tactics.
    So today I am looking forward to hearing exactly how we are 
identifying and blocking financial intermediaries that could 
keep Islamic State in a strong position. Is our current 
strategy working? Are our allies doing all that they can to 
help coordinate this effort?
    Thank you to the witnesses for appearing today and I look 
forward to this conversation.
    I yield back.
    Chairman Hensarling. Last but not least, the Chair 
recognizes the gentleman from North Carolina, Mr. Pittenger, 
for 1 minute.
    Mr. Pittenger. Thank you, Mr. Chairman, for calling this 
very critical hearing.
    The threat from ISIS seems to be growing exponentially. In 
the summer, we were told there were about 15,000 soldiers. Now, 
we are told that there are between 40,000 and 80,000 soldiers. 
We are training 5,000 moderate Syrians right now. Our best hope 
and our best opportunity appears to me to be to intercept this 
transport of funds coming from the sale of oil. Of course, 
there is extortion and ransoms and other means. It does beg the 
question of whether we have enough military intel ops on ground 
to make these interceptions.
    Another area of real opportunity is, of course, with data 
mining software that is available. I have met with FinCEN and 
with OFAC several times as chairman of the Task Force on 
Terrorism, and also with many national software companies, and 
with the very sophisticated software available, I do hope that 
the Department is making every effort to utilize the software 
to engage these funds as they get into the international 
financial system.
    Thank you. I yield back.
    Chairman Hensarling. We now turn to our Treasury Department 
witness, David Cohen, the Under Secretary for Terrorism and 
Financial Intelligence, a position to which he was confirmed in 
June of 2011. At Treasury, Mr. Cohen leads the Department's 
Policy, Enforcement, Regulatory and Intelligence functions 
aimed at identifying and disrupting the lines of financial 
support to international terrorist organizations.
    Prior to his current service, Under Secretary Cohen held 
other positions at Treasury. He also practiced law in the 
private sector.
    We welcome you, Mr. Under Secretary, to the committee. 
Without objection, your full written statement will be made a 
part of the record.
    You are now recognized for a 5-minute summary of your 
testimony.

STATEMENT OF THE HONORABLE DAVID S. COHEN, UNDER SECRETARY FOR 
TERRORISM AND FINANCIAL INTELLIGENCE, UNITED STATES DEPARTMENT 
                        OF THE TREASURY

    Mr. Cohen. Good morning, Chairman Hensarling, Ranking 
Member Waters, and distinguished members of the committee, I 
thank you for the invitation to appear before you today to 
testify on this very important topic. I will focus my testimony 
this morning on the Treasury Department's efforts to undermine 
ISIL's financial strengths as part of the Administration's 
comprehensive strategy to disrupt, degrade, and ultimately 
defeat ISIL.
    We are determined to defeat ISIL not just because of its 
brazen atrocities, but also because it threatens core U.S. 
interests. ISIL threatens American personnel and facilities. It 
threatens our regional allies, and if left unchecked, it could 
ultimately pose a direct threat to the U.S. homeland. That is 
why, under the leadership of President Obama, a broad coalition 
of more than 60 partners has come together to stop this threat.
    ISIL has grabbed the world's attention for its astounding 
brutality, but also, as this committee knows, for its 
substantial wealth. So I would like to outline how we at 
Treasury are focused on undermining ISIL's financial 
foundation.
    Our work is one of several complementary lines of effort 
being undertaken by the international coalition. These include 
military operations and training, additional humanitarian 
assistance, stemming the flow of foreign terrorist fighters 
into and out of Syria and Iraq, and exposing the hypocrisy of 
ISIL propaganda.
    The military components of the strategy are also bolstering 
our work in attacking ISIL's financial foundation. As with the 
rest of the campaign, our efforts to combat ISIL's financing 
will take time, patience, and extensive collaboration, but so 
long as ISIL terrorizes the people of Iraq and Syria, imperils 
the broader Middle East, and threatens U.S. interests, we will 
remain to committed to degrading its financial strength. Our 
strategy involves 3 mutually supportive elements.
    The first is working to cut off ISIL's main sources of 
funding. ISIL has raised a significant amount of money from 
selling oil that it extracts from the fields of Iraq and Syria. 
From mid-June until recently, ISIL's daily oil revenue was 
approximately $1 million, although it is now likely lower, 
thanks mostly to coalition air strikes.
    To further disrupt this market we are targeting for 
sanctions anyone who trades in ISIL's stolen oil. It is true 
that ISIL's oil moves in illicit networks that are largely 
outside of the formal economy, but at some point that oil is 
acquired by someone who makes use of the financial system and 
is thus vulnerable to sanctions.
    We are also working with our Turkish and Kurdish partners, 
as well as with regional companies, to clamp down on ISIL's 
cross-border smuggling.
    Next, ISIL, like other terrorist organizations, kidnaps 
civilians to profit from ransoms paid to obtain their release. 
ISIL has taken in at least $20 million from ransoms this year. 
To address this, we are redoubling our engagement with foreign 
partners as we urge them to subscribe to a no-ransoms policy. 
Refusing to pay ransoms to terrorist organizations not only 
makes it less likely that innocent civilians will be kidnapped, 
it also deprives terrorists of funding critical to their deadly 
aspirations.
    ISIL also takes in some funds from external financial 
supporters, and we will continue to target them for sanctions. 
We intend to make sure that donations do not become more 
significant to ISIL as we squeeze its other revenues.
    As the revenue that ISIL generates from crime and 
extortion, essentially by demanding cash at gunpoint, shutting 
down this source of funding ultimately will require breaking 
ISIL's hold on territory.
    But Treasury still has a crucial role to play, and that 
brings me to the second element of our strategy: Restricting 
ISIL's access to the international financial system in order to 
impair its ability to collect funds from abroad and to store, 
move, and use the funds it acquires locally. ISIL's ability to 
make the most effective use of its money or to fund external 
operations depends on its access to the banking system. So we 
are working with the Iraqi authorities, Iraqi banks, and 
international banks and regulators to prevent ISIL from using 
bank branches located in territories where it operates.
    The third element of our strategy aims to dismantle ISIL's 
financial foundation through targeted sanctions on its 
leadership and financial facilitators. This will make it harder 
for ISIL to conduct commercial activity and also clearly 
identify who stands behind this evil organization.
    Before concluding, I would like to make one final point. We 
should not confuse funding with financial strength. While ISIL 
today is well-funded, a terrorist group's overall financial 
strength turns not just on its income, but also on its expenses 
and its ability to spend money freely. In that regard, ISIL 
faces significant financial burdens. Paying its fighters and 
attempting to govern sprawling territory is expensive, and ISIL 
does not have the money to meet its costs. As we make progress 
in diminishing ISIL's revenues and its freedom to use them, we 
will further exploit this vulnerability.
    Thank you, and I look forward to addressing your questions.
    [The prepared statement of Under Secretary Cohen can be 
found on page 62 of the appendix.]
    Chairman Hensarling. The Chair now recognizes himself for 5 
minutes for questions.
    Mr. Under Secretary, my understanding is that the ability 
to block terrorist funds derives from Executive Order 13224 
that was issued by President Bush shortly after 9/11. As part 
of that Executive Order, certain entities and individuals can 
be designated as specially designated global terrorists, and I 
think the initial list has grown from maybe 27 to now 800, 
which, as you know, is important because it means that funds in 
the United States can be blocked. U.S. persons and entities are 
no longer permitted to do business with those on the list.
    It is my understanding that so far, only four members of 
ISIS have been designated specially designated global 
terrorists by Treasury, and it is my understanding that these 
four are not involved with the major funding sources of the 
illicit petroleum trade to the black market. So it strikes me 
as a little bit of a low number.
    Can you briefly describe some of the challenges here and 
what should be the expectation of this committee and the 
American people going forward?
    Mr. Cohen. Yes. Absolutely, Mr. Chairman. As you note, the 
authority to impose sanctions on terrorists and terrorist 
financiers derives from Executive Order 13224. It is an 
authority that we have used extensively in attacking the 
financial foundations of a wide variety of terrorist 
organizations, including al-Qaeda and ISIL's predecessor, al-
Qaeda in Iraq, and so we have, over the years, used this 
authority to designate more than two dozen individuals and 
entities, some of whom are in the current manifestation of 
ISIL, and some of whom are part of ISIL's antecedents in al-
Qaeda in Iraq, and we are continuing to look for opportunities 
to use this tool to designate these individuals because, as you 
note, it freezes their assets, it prevents their use of the 
U.S. financial system, but equally importantly, it also has 
ramifications overseas--
    Chairman Hensarling. I understand what it does, Mr. Under 
Secretary, but we only have four people on the list. So is this 
an intelligence challenge? Is it a priority challenge? Again, 
what should be our expectation there?
    Mr. Cohen. Specifically with regard to your question on the 
oil trade, there is work that needs to be done to get better 
insight into precisely who is involved in that oil trade and 
our intel agencies are working day and night to develop that 
intelligence, and we are working with partners in the region as 
well to help us gain better insight into that. As we identify 
the individuals who are involved in that oil trade, they are 
vulnerable to designation under this authority.
    As I noted in my remarks, what we are particularly eager to 
identify are the individuals who have some foothold in the 
formal financial system because we can designate people who are 
in Syria and Iraq who have no--
    Chairman Hensarling. Mr. Under Secretary, if I could, my 
time is running out, and I am going to attempt to set a good 
example here.
    Besides the question of priorities, we have mentioned the 
Executive Order. Is there any other legal authority that the 
Administration is positing that it needs on a go-forward basis 
to deal with ISIL terrorist financing?
    Mr. Cohen. Mr. Chairman, I think we have the legal 
authorities that we need, mostly the Executive Order 13224. We 
have a host of other authorities that are potentially available 
to us to address terrorist financing and the financial activity 
related to it.
    One of the keys to our ability to designate, which is just 
one aspect of our plan of attack--
    Chairman Hensarling. I understand.
    Mr. Cohen. --is to develop better insight, better intel. I 
can tell you that work is under way. We have--
    Chairman Hensarling. With the remaining time I have, let me 
get this last question in, which deals with intel.
    My search of the record seems to indicate that there has 
been really only one significant terrorist financing 
prosecution by the Justice Department, and as a Texan, it 
received a lot of press in my hometown of Dallas:  The United 
States of America v. the Holy Land Foundation, but I am unaware 
of any other major terrorist financing prosecution. I 
understand you are representing Treasury and not Justice here, 
but can you at least describe the intel sharing between 
Treasury and Justice because, again, one significant 
prosecution seems to be a dearth.
    Mr. Cohen. Mr. Chairman, I am not sure that there has only 
been one terrorist financing prosecution. I think, in fact, 
there have been many, but I would--
    Chairman Hensarling. ``Significant'' may be a term of art, 
so proceed.
    Mr. Cohen. I would defer to my colleagues at the Department 
of Justice, whom I understand file an annual report with 
Congress about their activities in prosecuting terrorist 
financing. So, I will leave it to them.
    In terms of information-sharing between Treasury and 
Justice, we are very, very closely linked up with Justice on a 
policy level and also on an information-sharing level. I think 
probably the best, but by no means the only, is our 
relationship between FinCEN, our financial intelligence unit, 
and the Justice Department in sharing information that FinCEN 
obtains regarding financial activity that could potentially be 
used for a whole host of financial prosecution.
    Chairman Hensarling. Thank you, Mr. Under Secretary. I have 
run past my time.
    The Chair now recognizes the ranking member for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    The questions that I have, perhaps, are questions that 
should only be asked in a classified briefing, and so rather 
than delving into some of the questions that I have about what 
we have not been able to do, I will simply say this: Many of us 
were shocked and surprised that we appear to know so little 
about ISIS when the information finally reached public view.
    It is inconceivable when we have what we think is one of 
the best intelligence agencies in the world that ISIS could 
have developed this far with sophisticated operations for 
selling oil and other kinds of things that it is doing without 
us knowing what they were doing.
    So without asking the questions that I would ask in a 
classified briefing, I would simply ask you: Have you been 
engaged, has Treasury been engaged with the CIA and others who 
have the responsibility for intelligence in ways that we can 
catch up with how far they have developed and what they are 
doing?
    I heard what you said about their inability to spend the 
money and the fact that they are short maybe of money because 
of the payouts that they have to do, et cetera, but how can we 
have confidence in that kind of representation without knowing 
what you have done to fix the system or to mend the lack of 
communication that got us to the point where we are with too 
little information about ISIS?
    Mr. Cohen. Congresswoman Waters, I don't want to understate 
our insight into ISIL financing on a whole host of areas 
because I do think we have good information. We need better 
information, but we are not, by any means, completely blind to 
how ISIL is raising its funds.
    On the oil transactions in particular, the situation there 
is that this oil smuggling that ISIL is now taking advantage of 
had been going on for quite some period of time. You had people 
who were essentially stealing oil from Iraqi and Syrian wells 
and selling it through this black market that has existed in 
that part of the world for a long time, but what changed was 
when ISIL came in and took over some of these fields, it became 
ISIL that was the beneficiary of this pre-existing smuggling 
network.
    In years past when it was not a terrorist organization that 
was involved in this smuggling network, it frankly wasn't a 
high priority for our intelligence community to understand 
exactly who was involved in the smuggling of Iraqi or Syrian 
oil. It is now, obviously, an enormously high priority to 
identify these individuals, but what has changed is you now 
have ISIL as the beneficiary because they have some control 
over the oil coming out of the ground.
    The work to identify external funding networks for ISIL is 
something that we have been very much involved in for many 
years, understand, and to take action against the funding 
networks that are coming out of the Gulf.
    Congressman Sherman referenced Qatar earlier. We have been 
deeply engaged with Qatar, Kuwait, Saudi Arabia, and the United 
Arab Emirates over the years to both better understand the 
financing networks in the Gulf and to take action to cut those 
funding networks off. So we are working very, very closely with 
our intelligence community, the CIA and other members of the 
intelligence community, so that we have the information that we 
need in order to execute the policy or--
    Ms. Waters. I don't want to cut you off, but my time is 
running out.
    Let me just say that to date, many of us are uncomfortable 
with the fact that ISIS has gotten as far as it has gotten, 
raised as much money as it has raised, and is wreaking havoc in 
the way that it is doing without us having known more about 
them. We invest a lot of money in our intelligence operation 
here in this country, and we just don't expect to be this far 
behind ever because of it.
    I yield back the balance of my time.
    Chairman Hensarling. As a reminder to all Members, to state 
the obvious, this is an open hearing. In a sidebar conversation 
between myself and the ranking member, we anticipate a 
classified hearing very early in the next Congress.
    The Chair now recognizes the gentleman from New Jersey, the 
chairman of our Capital Markets Subcommittee, Mr. Garrett.
    Mr. Garrett. Thanks again, Mr. Chairman.
    I have had a number of concerns with this Administration's 
approach to combating ISIS. From the very beginning, the 
Administration, including the President, has underestimated the 
threat that ISIS poses to the region and to the United States. 
His early characterization of ISIS, as we all know now, as the 
``JV team,'' suggests perhaps that the President was not 
informed of the threat, and so it is also concerning that the 
reports then also indicate that the President missed more than 
half of his security briefings at the beginning of the 
Administration.
    So looking to you now, from your perspective within the 
Department of the Treasury, do you believe that the necessary 
information is now being communicated to the President, and 
from your position, do you think the information was always 
being communicated to the President and other senior 
Administration officials over the last year-and-a-half?
    Mr. Cohen. Congressman, I don't accept the premise of your 
question. I think the President and the national security team 
as a whole has been focused on the terrorist threat that we see 
coming out of--
    Mr. Garrett. The premise of the question was that the 
President saw this as not a significant terrorist threat. The 
President said that this was the ``JV team,'' so meaning that 
there were other more looming issues. That is from the 
President's comments.
    So you are saying the President misspoke when he said that 
it wasn't a problem before and now it is a problem?
    Mr. Cohen. I will obviously allow the President to speak 
for himself on this. What I am telling you is that the national 
security team, from the President on down, has been focused 
like a laser on the threat of terrorism coming from this part 
of the world, and, frankly, from elsewhere as well, throughout 
this Administration.
    Mr. Garrett. That is really the question--
    Mr. Cohen. I can tell you that because I have been part of 
this team from the outset. We have been working day and night 
to degrade al-Qaeda, and degrade al-Qaeda affiliates, as well 
as the terrorist organizations that have grown up in the 
turmoil in Syria, whether it is al-Nusrah funds or ISIL.
    We are working extraordinarily hard to ensure that we have 
both the information that we need in order to address the 
terrorist financing threats and the way that these 
organizations are financed--
    Mr. Garrett. And just as a semantic point, because you used 
a term that the President often uses, which is to degrade and 
eliminate, you used the term there. That is why I bring it up.
    Has our intention always been, from the Treasury's 
perspective, simply to degrade al-Qaeda and now ISIS, or has 
our intention has been to eliminate them?
    Mr. Cohen. I think I said degrade, disrupt, and defeat 
ISIL, and--
    Mr. Garrett. Because during other military engagements--we 
just had Veterans Day, and when we talk about World War II, we 
never said, ``We are going to degrade our enemies there, the 
axis of power.'' We said, ``We are going to defeat them.'' And 
during the other wars as well, we didn't say we were simply 
going to degrade our enemies, we said we were going to defeat 
them.
    I have taken a note that both the President and now you as 
well simply say that our intentions here seem to be to degrade 
them, to allow them to exist for a period of time and then take 
that step--
    Mr. Cohen. Can I just be very clear? The ultimate objective 
is to defeat ISIL, to defeat al-Qaeda. There is a process 
involved here that, particularly on the financing side, 
initially what we are looking to do is to degrade their access 
to funding, ultimately leading to the defeat of this terrorist 
organization.
    Mr. Garrett. I would hope.
    Mr. Cohen. There is no misunderstanding.
    Mr. Garrett. Okay. I assume you consult and you coordinate 
with DOD as well, and it is my understanding that the United 
States employs something called a Threat Finance Cell to gather 
on-the-ground intelligence to track illicit financial 
transactions in the Middle East.
    You are nodding, ``yes.''
    It is also my understanding that these units have been 
pulled out of Iraq as a result of the President's troop 
withdrawal.
    Can you explain to this committee how this lack of resource 
has impacted our fight against terrorist financing, and also 
within the time we have here, I think the Administration is 
also talking about removing them from Afghanistan as well, 
these Threat Finance Cells. Will that have an impact upon your 
intelligence gathering if that goes forward?
    Mr. Cohen. Actually, picking up on the chairman's direction 
of the classified supplements to this hearing, I can give you a 
more expansive answer in that setting.
    I can tell you, though, that we are--the Iraq Threat 
Finance Cell that had existed a decade ago was dismantled when 
the activity--the fighting on the ground was ramping down, but 
I would actually like to leave the second half of this answer 
to a classified setting, if I could.
    Mr. Garrett. Okay.
    Mr. Cohen. What we are doing to enhance our intel 
collection.
    Mr. Garrett. Okay.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, the 
ranking member of our Capital Markets Subcommittee, Mrs. 
Maloney.
    Mrs. Maloney. Thank you.
    Mr. Cohen, ISIS is the richest terrorist organization on 
Earth, and financially sophisticated. Unlike the other 
terrorist organizations we have dealt with that raise their 
money from outside sources, they basically raise it and spend 
it internally in Iraq and Syria, and one way to crack down on 
them is to crack down on the shell companies that are financing 
terrorism.
    Toward this end, last year Ranking Member Waters, 
Representative King, and others on the other side of the aisle 
and I introduced a bill called the Incorporation Transparency 
and Law Enforcement Assistance Act, which would require the 
disclosure of very basic information from corporations of who 
their beneficial owners are. I was very pleased in August when 
Treasury proposed a rule to implement many parts of my bill, 
and I would like to know what is the update on this. Has it 
been successful? Have you cut off revenues? What is happening 
with the rule that you put into place?
    Mr. Cohen. Congresswoman, you highlight a very important 
issue with the issue of shell companies. The rule that you are 
referring to, we proposed a final rule in August. The comment 
period on that final rule--actually, I think the comment period 
expired in August. We are in the process of reviewing the 
comments that--I think we received over 120 comments on that 
proposed rule.
    Because it is in ongoing rulemaking, I should probably not 
get into any more detail on where we are in terms of issuing 
the rule, but we are deeply committed and have been for a 
number of years, as I know you have, to getting better 
transparency into the beneficial owner of legal entities.
    In that regard, I would also note that in the President's 
budget this year there is a proposal for legislation that would 
enhance our insight into the beneficial owners of legal 
entities at the time they are formed so that we would be able 
to address this in two ways: both when an entity opens a bank 
account, we will have insight into the beneficial owner of the 
entity at that stage; and also when a company is formed, we 
will have better insight into who the beneficial owner is of a 
company that is formed. So we are continuing to pursue this 
very vigorously, and I--
    Mrs. Maloney. It just seems like common sense to me and 
something we should have implemented yesterday. And I think 
that is something that we could jointly work on, is requiring 
this and helping you move forward with your rulemaking more 
quickly by passing it in a bipartisan way in Congress.
    Secondly, you testified that they are making money off of 
extortion and their territorial gains as they went into Mosul 
and took over the bank and so forth.
    One of the ways that we can contain them is to obviously go 
after their territory, but also go after how they can hold onto 
that territory, which is huge cars, tanks, infrastructure, and 
equipment.
    Have we moved to block their ability to purchase this, 
sanction companies, the materials that they need to hold onto 
geographic areas?
    Mr. Cohen. Clearly, one important line of effort to address 
ISIL's hold on geographic territory is the Defense Department's 
line of activity working with the Iraqi security forces--
    Mrs. Maloney. Obviously, we support the military, but I 
am--they also have a procurement system. Can we cut off their 
ability to purchase cars, tanks--
    Mr. Cohen. Absolutely--
    Mrs. Maloney. And are we moving to do that?
    Mr. Cohen. Yes. Part of our strategy is to deprive ISIL of 
access to the financial system. Because, obviously, one way 
that they can try to procure vehicles, weapons, what have you--
    Mrs. Maloney. We could just cut off their banks in the 
territories. Have we looked at that?
    Mr. Cohen. Yes. We have, and we have worked very closely 
with the Iraqi Central Bank and with the Iraqi banks that have 
branches in the territory where ISIL operates to ensure that 
ISIL does not have the opportunity to use those banks to make 
payments for whatever reason, including the reasons that you 
cite.
    Mrs. Maloney. And then of course the third area is to cut 
off their revenue from the illegal oil sales that they are 
controlling, and they can't all be in cash. It is too much 
money. You were saying it was like a million a day. Now it is 
down to a million or two a week. What are we doing to cut off 
the transactions that are not in cash? It has to be through 
banks.
    Chairman Hensarling. Very brief answer, please.
    Mr. Cohen. Yes. We are working to understand exactly how 
those transactions occur, whether it is entirely in cash or 
through banks. If it is through banks, we will be able to 
address that.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Texas, the chairman of our Housing and Insurance 
Subcommittee, Mr. Neugebauer.
    Mr. Neugebauer. Thank you, Mr. Chairman, and Secretary 
Cohen, thank you for being here.
    As you were kind of laying out the plan that Treasury has 
for the counterterrorism financing, I think one of the 
questions that came to my mind was--two things. One, how long 
do you think it will take to get this plan to the point where 
we see some diminishing amount of resources going to ISIL?
    Mr. Cohen. Congressman, it is a very good question, and it 
is a hard question to answer. I think we have begun to see some 
diminishment in ISIL's revenue from the oil sales. As I noted, 
they were earning, on average, about a million dollars a day 
over the summer.
    In particular, because of the air strikes on the ISIL 
mobile refineries, as well as other military activity, we have 
seen a decrease in what we estimate to be the revenue from the 
oil sales from about a million dollars a day to several million 
dollars a week. So, there is some progress there.
    The history of our counter-terrorist financing work, not 
ISIL-related but more generally, has been that it is small 
steps you can see over time that are having a real impact. So I 
don't expect I am going to be able to come back to this 
committee a month from now and be able to give you a balance 
sheet that says: Okay. This is exactly what ISIL has today, and 
then a month later show a decrease. I do think that the 
strategy that we are employing will impair ISIL's access to 
funding. It will impair their ability to use the funding that 
they have, and we will see a real impact on ISIL as a result, 
but it is going to take the dedicated effort over some period 
of time.
    Mr. Neugebauer. Now, one of the things that also came to 
mind was that we almost sound like we are ramping up this 
antiterrorism funding infrastructure, but we have been fighting 
these terrorists for a very long time.
    So are we just now really taking this issue seriously, or 
have we been taking it seriously but this is a different 
situation? I'm not clear as to where we have been and why we 
are just now, I think, maybe taking this more seriously.
    Mr. Cohen. We have been working for years on degrading the 
access of terrorist organizations to funding, whether, it is 
al-Qaeda, al-Qaeda affiliates, Hezbollah, Hamas, Lashkar-e-
Taiba, Haqqani network, you name it, we are working on this, 
including al-Nusrah funds and al-Qaeda in Iraq, which was the 
predecessor to ISIL, as well as ISIL.
    What we are obviously doing is talking more about the 
integrated strategy that we have to defeat ISIL and to go after 
its financing, but this is a reflection of a lot of work that 
has been done over many years.
    Mr. Neugebauer. Recently, in September ISIL released 46 
hostages from Turkey. And the Turkish president said no ransom 
was paid. The President of the United States said no ransom was 
paid, but there are a lot of different ways to remunerate or to 
compensate for someone, and I think it is kind of outside of 
ISIL's pattern here of releasing hostages, even though you 
state that they are using hostages to raise money.
    Are you absolutely sure that there was no quid pro quo for 
releasing those hostages between Turkey and ISIL?
    Mr. Cohen. Congressman, recognizing the chairman's 
admonition about this being an open hearing, I think this might 
be a topic better addressed in a closed session.
    I can tell you that it is U.S. policy not to pay ransom and 
not to make any other type of concession to hostage takers, 
including, obviously, terrorist organizations. We are very 
aggressive in our efforts to ensure that others around the 
world adhere to a similar policy. We think that is the best way 
to protect all of our citizens, is for everybody to adhere to a 
no-ransoms, no-concessions policy.
    Mr. Neugebauer. Final question quickly before my time runs 
out.
    What are the metrics that you use to--in other words, you 
have this plan that you have implemented. What are some of the 
metrics that you are using that say: Okay. This indicates we 
are being successful?
    Mr. Cohen. Most importantly is we will continue to get 
insight into how ISIL is raising its funds and its ability to 
use the funds, and we can get reflections on the extent to 
which it feels that it is under financial stress.
    Again, it is not going to be a pretty balance sheet, but we 
do get information on the financial wherewithal of these 
organizations, and we will be able to track it that way.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from California, Mr. 
Sherman.
    Mr. Sherman. Yes. Some of my colleagues have talked about 
the surprising strength of ISIS. I think instead it is the 
incredible and surprising weakness of the Iraqi government and 
military, which easily conceded territory, handed over weapons, 
left the bank vault open in Mosul and elsewhere.
    The problem is the government in Baghdad. We, under a 
previous Administration, installed Mr. Maliki, a man whose evil 
is exceeded only by his incompetence; a man who refused to 
enter a status of forces agreement not only with this 
Administration, but refused to enter such a long-term agreement 
with the prior Administration that had installed him, and 
instead wanted and succeeded in getting American troops out so 
that he could further oppress the Sunnis in the middle of his 
country.
    Second, we are talking a lot about how powerful ISIS is. 
Let us keep in mind the Hezbollah/Assad/Iran alliance or axis 
is far more powerful, has far more money, and has a far greater 
capacity to carry out terrorist actions outside the Middle East 
than ISIS does.
    Looking at ISIS' finance, we have had discussions of their 
export and smuggling of oil. Do we have--and this comes from 
the gentleman from Illinois, Mr. Foster--the technology to 
sample oil that might be on sale in Turkey and say we know what 
field that oil came from? That came from an ISIS-controlled 
field in Syria. That came from Northern Iraq. Is that 
technology available or is oil more or less fungible?
    Mr. Cohen. Your question is at the outer edges of my 
knowledge of oil, but I can tell you this mostly from my work 
on the Iran sanctions effort.
    Different oil has different properties. It is often 
possible to tell where oil comes from, although I am also told 
that there is some similarities among fields. So I can't tell 
you where great certainty that we will be able to do that, but 
I believe so.
    Mr. Sherman. We all want to go after ISIS. The policy issue 
is do we go after ISIS in a way that causes harm to the 
civilians under its control? As I said in my opening statement, 
we didn't hesitate to bomb occupied Europe.
    If a business person of good character and reputation in 
Mosul wants to buy something from Europe using the 
international banking system, a civilian item, do we try to 
stop that?
    Mr. Cohen. Congressman, it is a--we obviously would not try 
to stop a decent citizen in Mosul trying to buy a--
    Mr. Sherman. We certainly did in World War II, which we 
seem to have taken more seriously. You couldn't just say: Hey. 
I am in occupied Marseille. I want to buy a shipment of food 
from Argentina. Let's ship it on over. Use the banking system, 
use the--but you are saying that if I need a replacement part 
for my factory in Mosul, I can just buy it online?
    Mr. Cohen. No. I am not saying that, and in particular--
    Mr. Sherman. Do we prevent the honest business person in 
occupied Mosul from conducting civilian transactions?
    Mr. Cohen. What prevents most directly the honest citizen 
of Mosul from conducting transactions is ISIL and ISIL's effort 
to control that territory, but the use of the banking system to 
facilitate a transaction coming out of Mosul is something that 
we are, as I noted earlier, attempting to prevent. We are--
    Mr. Sherman. Okay. You have answered this question, but 
with two inconsistent answers.
    If you get an international banking transaction where a 
civilian business person not affiliated with ISIS, but located 
in Mosul, is moving his investments around on Wall Street or is 
trying to buy replacement parts for his factory, is that 
something where, if a bank is involved in that transaction, 
they will be sanctioned?
    Mr. Cohen. And it is not related to ISIL in any way? Is 
that the question?
    Mr. Sherman. No. Except that the guy is located in Mosul.
    Mr. Cohen. There is obviously an intelligence question 
embedded in there: Do we know that this person is or is not 
affiliated with ISIL? If he is not affiliated with ISIL, it is 
not a sanctionable transaction.
    That being said--
    Mr. Sherman. When we get serious, it will be. We did not 
wage World War II and say every Marseilles businessman can 
conduct international business just because we love the French. 
We noticed that was Nazi territory.
    I yield back.
    Mr. Cohen. Could I just briefly answer, please?
    Chairman Hensarling. Briefly.
    Mr. Cohen. Our efforts to prevent ISIL from making use of 
the banking system would effectively prevent that transaction, 
but we are not targeting the civilian in Mosul who is currently 
being dominated and subjugated by ISIL.
    These people are victims as well. But what we are trying to 
do is to prevent ISIL from making use of the financial system.
    Mr. Sherman. So the lights are on in Mosul.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New Mexico, Mr. 
Pearce.
    Mr. Pearce. Thank you, Mr. Chairman.
    And thank you, Mr. Cohen, for being here.
    Okay. I appreciate your efforts to create national security 
and diminish the terrorist threat.
    You lay out a fairly complex strategy in your report here. 
Are you in the rooms where those strategies are being 
formulated--
    Mr. Cohen. Absolutely.
    Mr. Pearce. --sort of? Yes.
    So on a scale of 1 to 10, when you talk about depleting the 
resources, say from oil production, you would be familiar with 
the processes and the targets and things like that?
    Mr. Cohen. In terms of the military targets?
    Mr. Pearce. Yes. You are sitting there. You are fairly 
comprehensive in your report here. Are you in that room, is all 
I am asking?
    Mr. Cohen. We are linked up closely with the Defense 
Department in terms of its overall effort. But I'm not--
    Mr. Pearce. Okay. Well, let's go a different direction 
then.
    On a scale of 1 to 10, how committed are you to stopping 
the oil revenues from coming in? The Administration, 1 to 10.
    Mr. Cohen. I would give that a 10, Congressman.
    Mr. Pearce. Okay. So why don't you stop it this afternoon? 
If you really want to do it--you are in the room--you can stop 
it today.
    You can move 30,000 barrels of oil a day, basically, is 
what the report is saying, that sell for anywhere from $25 to 
$60 a barrel, which results in three-quarters of a billion 
dollars to $1.8 billion a day. To move 30,000 barrels of oil 
requires 250 trucks.
    Now, your report starts talking about insurance--choking 
off the funding for insurance. If you start bombing the trucks, 
the insurers will cut the insurance off themselves. You don't 
have to track one insurance company down.
    It is the trucks moving the oil to market. And you have 
access to that. Satellites tell you every movement, every 
highway, every oil field. You know which oil fields are under 
the control. I wonder why you are not stopping the oil today, 
because can you do it. It is well within your grasp, and you 
have the technology. You have the information.
    You don't have to sort through all the banking. You don't 
have to track straw companies. You don't have to find out which 
people in Marseilles are taking the oil. Stop the flow of the 
oil. It is very simple.
    Why don't you do it?
    Mr. Cohen. Congressman, as you know, the Defense Department 
has conducted air strikes--
    Mr. Pearce. No. You are telling me that it is not 
important, then. It is not a number 10 on the list of the 
Administration or they would have stopped it today.
    It doesn't matter what the Department of Defense says. The 
American people--you say in your report that American interests 
are at stake. Then, stop the flow of the oil.
    Every single drop of oil, speaking as someone who comes 
from a county that makes its entire living on oil, goes from a 
well into a tank. Now, you can either blow up the tanks, you 
can blow up the trucks, or you can blow up the connection 
between the two.
    You don't just put oil by 5-gallon cans into a tanker 
truck. You put it in through a delivery mechanism. So you don't 
have to blow up the tanks. Just blow up the delivery mechanism 
that loads it on the trucks.
    This is a very simple operation and, yet, you all do not 
appear to have a number 10 commitment to the process of 
stopping the oil today or you would do it.
    Do you have any--I really am curious, because people in my 
State are extremely alarmed by the fact that the terrorists are 
funding themselves through oil revenues and they know how to 
stop it. They could stop it this afternoon.
    Mr. Cohen. Congressman, I am not a military targeter.
    Mr. Pearce. It doesn't require a military target. I asked 
you what is your commitment from this Administration to stop 
the flow of oil. You said it is a number 10. That is the 
highest on the scale of 1 to 10.
    And if the commitment is there, you don't have to be a 
military targeter. Just stop the oil. We can shut it off today. 
It is a very simple process if you have a commitment.
    The other result I come up with is that maybe the 
commitment is lacking, the commitment to absolutely stop the 
funding for ISIS.
    Mr. Cohen. If I had a switch that I could turn to--
    Mr. Pearce. You told me you are in the room, sir. Is anyone 
in the room talking about this? Has anyone suggested that we 
stop the flow of oil today?
    If it is a number 10 item, if we have a desire on a 10 
scale, number 10, to stop the flow of oil, why hasn't somebody 
said, ``Let's stop the flow of oil. Let's quit working around 
the corners. Let's quit looking at insurance companies. Let's 
quit looking at financing. Who takes the oil? We don't have to 
know any of that?''
    Stop it in its tracks. It is very simple.
    Mr. Cohen. Okay. I understand your point, Congressman.
    Mr. Pearce. If you would take that message back, maybe 
someone would contact someone in the oil field and find out 
what it takes to blow up a 120-barrel tanker. It is not very 
complex.
    I don't know that we have the technology in our county, but 
I suspect it exists in the Department of Defense. But we just 
sit here and let them get $2 billion a day while the American 
people live in fear? It is irresponsible on the part of the 
Administration.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New York, the 
ranking member of our Financial Institutions Subcommittee, Mr. 
Meeks.
    Mr. Meeks. Thank you, Mr. Chairman.
    Mr. Under Secretary, in your remarks at the Carnegie 
Endowment, I believe you stated that you were working to limit 
ISIL's ability to transact through Iraq, Syria, and 
international banking systems.
    However, it is the hawala system, which is the informal 
value transfer system based on the performance and honor in the 
Middle East, with a huge network of money brokers, that has 
been in place for centuries.
    And if the international community imposes sanctions on 
persons and institutions under ISIL control, there is a chance 
that the sanctions would not only be as effective as we like, 
but it would push money into this informal, hard-to-regulate 
network.
    So my question is: Is the U.S. Treasury looking into hawala 
brokers who, according to written testimony that we have 
received here today, are able to move ISIL money sort of 
through Iraq and Syria and abroad? What are we doing in that 
regard?
    Mr. Cohen. Absolutely, Congressman, the hawala networks are 
part of the financial system in Iraq and Syria, as well as the 
more formal banking system. And as we are working to exclude 
ISIL from the ability to use the formal financial system, we 
are very much focused on ensuring that they can't use and can't 
turn to the hawala system to a greater extent than they already 
use it.
    I will say that we have had success in Afghanistan, 
Pakistan in particular, in targeting hawalas for sanctions and 
disrupting their activity. Because these hawalas, although they 
are an informal mechanism for value exchange, ultimately also 
have intersections with the formal financial system.
    These brokers need to at some point have accounts at banks. 
And that is another means by which we can disrupt the use of 
informal financial networks to transact outside of the formal 
financial system.
    Mr. Meeks. Because the concern here is, from what I also 
understand, utilizing the hawala system and others, that is the 
mechanism that ISIL has used, also, to send payments to its 
fighters and workers and regional leaders and that is what is 
enticing some folks to come, because they are looking for it.
    So are we looking at ways that we can prevent them from 
getting this money so that these payments are interrupted and 
the folks won't get--they won't be able to entice folks to join 
them because of the revenue that they are able to generate?
    Mr. Cohen. Absolutely. And what we are looking to do is 
identify who the hawala brokers are and how those hawala 
brokers intersect with the formal financial system. Because, at 
some point, essentially, the payment message that goes through 
a hawala system needs to get translated into actual cash or 
other--being delivered to somebody on the other end.
    We do have, when we get insight into who is involved there, 
ways to disrupt that activity. So that is very much one of the 
things that we are working on with our partners in the 
intelligence community.
    Mr. Meeks. Now, here is also a question I have that I think 
is difficult. I know we have to try to weigh these lines, and I 
am trying to make sure that we don't turn against--or have all 
the folks over in the region against us, et cetera.
    So I was wondering what steps is Treasury taking to close 
the financial systems to sponsors of terrorist organizations 
such as ISIL, but at the same time keeping remittance channels 
open to legitimate actors, including the millions of--because 
there are a lot of immigrants and immigrant families who 
provide critical financial lifelines to their family members 
back in their home countries.
    I have some in my district, for example, who send money. 
And so, we have this thin line to work. I have some coming to 
my office asking me, so I thought that I would ask you to see 
what you have to say.
    How is Treasury working on that?
    Mr. Cohen. Right. We are working on the remittance issue 
broadly to try to ensure that legitimate remittances coming 
from the United States going to communities around the world 
are able to flow. And I see Congressman Ellison here. We have 
had a number of conversations on this issue.
    I think--and I can go into more detail on sort of the 
variety of steps that we are taking, including providing 
guidance to the banking community, implementing legislation 
that Congressman Ellison sponsored that was signed into law 
over the summer to try to ensure that the money service 
businesses can continue to operate.
    With respect to remittances into Iraq, our efforts to cut 
off the banking activity in the area where ISIL operates will 
not prevent remittances going into Baghdad, for instance, but 
ought to prevent ISIL from getting access to funds in the areas 
where it is operating, which I think is very much in our 
interests.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Pennsylvania, 
the vice chairman of our Oversight and Investigations 
Subcommittee, Mr. Fitzpatrick.
    Mr. Fitzpatrick. I thank the chairman.
    And, as I said, Mr. Secretary, before I traveled to the 
region last month, I had the chance to meet with some of your 
analysts and employees of the Treasury. I found them to be very 
helpful and very thorough in the information.
    I did want to follow up on some of what Mr. Meeks was 
asking about the hawala systems, which are informal, they have 
been around a long time, and pose quite a challenge, I think, 
in terms of trying to follow the money and how it flows into 
terrorist organizations.
    Does the Department of the Treasury have a handle on how 
many there are, say in Iraq or in Qatar, and perhaps as a 
percentage of the bigger banking system there?
    Mr. Cohen. Congressman, first of all, I do want to commend 
you for your interest in this issue. And I actually was in 
Qatar, I think, just after you were there and got a briefing on 
your meetings. I think they were very useful, and I appreciate 
your interest in this issue.
    In terms of the hawala networks, let me get back to you 
with specific information on this. I can tell you, though, that 
the hawala networks that cross the borders--so from Iraq or 
Syria into--whether it is Qatar or into Saudi Arabia, into 
Kuwait, UAE--we are--you can work on both ends of this issue, 
both on what is happening in the area where ISIL is operating, 
but, also, in the--on the other end, where the funds may be 
being transmitted in the first instance.
    And so part of our strategy is to work with our partners in 
the Gulf to cut down on the source of financing, cut down on 
the ability to transfer money, whether through the formal 
system or through the informal hawala system, so that the money 
doesn't flow into Iraq and Syria to ISIL.
    Mr. Fitzpatrick. When you say, ``cut down on the source,'' 
you are talking about the source being the illicit gains from 
the oil?
    Mr. Cohen. No, I mean principally from donations that are 
collected in the Gulf.
    Mr. Fitzpatrick. Okay.
    Mr. Cohen. The oil sales, I think, are actually more of an 
issue going north into the Kurdish region in Iraq or into 
Turkey.
    And as I was answering an earlier question, what we are 
trying to get a good handle on is how those payments are made, 
whether through cash changing hands, through a hawala system, 
through the formal financial system. Whatever the mechanism may 
be, we are looking for the key there so that we can disrupt 
that financial activity.
    Mr. Fitzpatrick. Right. What makes ISIS unique is their 
ability to self-finance their terror interests. They use the 
oil--this is different from other terror organizations--to fund 
their recruitment, their training, their equipping.
    And so, while we are taking a look at this--why ISIS is 
unique and how to deal with that, I think you are correct that 
we can't forget the more traditional sources. You were talking 
about donations.
    On that subject, one of the meetings that I had in Qatar 
was with the minister of labour and social affairs. His name is 
Abdullah Saleh al-Khulaifi. And he was talking about a new law 
that they have in Qatar to crack down on funding that comes 
through what they call Qatari charities, that we have a concern 
some of it may ultimately find its way to radical Islamists.
    Does Treasury have faith that law will work?
    Mr. Cohen. The law that was adopted, I think, just in 
September in Qatar is well-designed. It can cut down on the 
misuse of charitable organizations to provide funding to 
terrorist organizations. What it requires is solid 
implementation.
    I had similar meetings to the ones you had. We have been 
pressing the Qataris to move from a situation where they have 
the right structures in place, the right laws in place, the 
right institutions in place, to being more effective in cutting 
down on funding that comes out of Qatar for terrorist 
organizations.
    We have recently seen some very positive steps that Qatar 
has taken after your trip and some of the engagement that we 
have had. They have deported an individual who was involved in 
illicit charitable fundraising in Qatar. It wasn't really 
charitable fundraising. It was fundraising for terrorist 
organizations.
    They have committed to implementing their charities law--
and there are other laws--to more effectively cut down on 
terrorist financing. There is still work to be done there. But 
I think some of the recent steps are a harbinger of some good 
things to come. But there is clearly work that needs to get 
done.
    Mr. Fitzpatrick. Are you able to identify other regimes in 
the area that need to do more?
    Mr. Cohen. I think we haven't been shy about identifying 
Qatar and Kuwait as the two jurisdictions in the Gulf where 
additional steps could be taken.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman.
    Again, Mr. Secretary, thanks for your willingness to 
testify. I just want to just make one observation. I do share 
the frustration that some of my colleagues across the aisle 
have expressed about stanching the flow of oil and degrading 
some of the facilities that are currently under the control of 
ISIS.
    But I do want to point out that, for instance, the Baiji 
oil refinery about--I don't know--maybe about 75 miles--maybe 
150 miles north of Baghdad--I have been there a couple of 
times. It is not really--it is low tech, but it is the largest 
refinery that they have there in that region.
    If we had destroyed that a month ago, I think the Iraqi 
government, last week--2 weeks ago the Iraqi forces retook that 
refinery. So now it is pumping oil for the Iraqi government. It 
is a key asset. If we had gone in there and destroyed that 
asset, that refinery, it would have been a huge setback for the 
Iraqi government to retake and reestablish their oil flow.
    We have a similar situation in the Kirkuk region, where it 
is in dispute right now between Kurdish forces and ISIL. Sure, 
we could go in there and destroy those oil wells, but there is 
a long-standing problem there.
    We had a similar problem with Saddam Hussein when we first 
went in there about whether to destroy these oil facilities or 
whether to allow them to continue to operate and then capture 
them. So that will be an ongoing challenge for us as we go 
forward.
    What I would like to talk to you about, Mr. Secretary, is 
the actual shipment of what is going on right now over the 
Turkish border. We have been largely unsuccessful in 
interrupting that oil flow. And I was in Irbil in Kurdistan 
recently. I actually had a chance to talk to the foreign 
secretary in Turkey.
    And I have to say, between our intelligence and what we 
heard on the ground there, there is widespread abuse and sale 
of oil by ISIL forces over the Turkish border, and we have to 
get at that. We have to disrupt that. And I am not confident 
that is happening now, and I am not at all confident that we 
are getting cooperation from the Turkish government.
    The same situation is ongoing in Syria in Al-Qaim. There 
are smuggling routes there that have been in use for about a 
thousand years. We weren't able to stop them. Back when we had 
the oil embargo against Saddam Hussein, after the fact, we 
found out that was porous, that there were dozens of countries 
that were taking illicit oil.
    So there are two ways we can get at this. One is to--
eventually, this oil is going to find its way to a legitimate 
country and a legitimate company to which you could apply 
sanctions.
    But before it gets there--back in 2006-2008 in Iraq, we had 
Threat Finance Cells--and we used this as well in Afghanistan--
where we actually partnered up Treasury folks and DOD.
    We had military. So it was a joint operation where they 
actually had boots on the ground. They could identify shipments 
that were going over the Turkish border, like they are right 
now, and we were able to disrupt that.
    And I am just curious why we got away from that model where 
we had military paired up with Treasury folks and were actually 
doing a pretty good job at disrupting that oil flow? It is 
commodity exchanges now cross-border that is really financing 
about 75 percent of ISIS' revenue.
    So I would just like to hear your thoughts about what we 
might do in the future, if we could restart those Threat 
Finance Cells and maybe reestablish some type of control.
    Mr. Cohen. On the issue of the Threat Finance Cells, as I 
noted earlier, I think I would like to address that in a closed 
hearing.
    More broadly, we are enhancing our efforts to collect 
intelligence, including intelligence on these smuggling 
networks, which you know have been in existence for thousands 
of years.
    That doesn't mean that we can't get better fidelity on who 
is involved, where it is going across the border, and how we 
can stop it, including through financial actions that we can 
take to designate those who take the oil and are in some 
respects part of the formal economy. We can use financial tools 
against them. We are also engaging with the private sector to 
stop this.
    But there are other mechanisms that rely on intelligence, 
and I hope at some point we can get into more detail on that.
    Mr. Lynch. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from Minnesota, 
Mrs. Bachmann, who also serves as a valued member of the 
Intelligence Committee.
    Mrs. Bachmann. Thank you, Secretary Cohen, for being here.
    And thank you, Mr. Chairman.
    The State that I represent, Minnesota, has a tragic nexus 
to terrorism. We are the only State that has a convicted member 
of Al-Qaeda from 9/11. That was Moussaoui.
    My largest city in my district is St. Cloud, Minnesota. 
That was the site where Moussaoui went to receive his 
instruction in how to fly a plane. He was interested in how you 
take off a plane. He wasn't so interested in how you land a 
plane. He became the only convicted terrorist from 9/11.
    Since that time, we have had over 50 Minnesotans go and 
fight on behalf of Al-Shabaab. We also have the largest number 
of Americans who have left the United States to fight on behalf 
of the Islamic State. The first two Americans killed, fighting 
on behalf of the Islamic State, were both from the State of 
Minnesota.
    We know that today there are those who are American 
citizens, with American passports, who have left the United 
States, who knowingly have gone to fight with the Islamic 
State, who have been involved with beheadings, shootings, 
raping of innocent women, killing of innocent children, burying 
alive in August innocent women and children in mass graves.
    We also know that these individuals are being allowed to 
transit out of Syria and Iraq back to western nations, whether 
it is Europe, whether it is in the UK, or whether it is in the 
United States of America.
    Our country today is freely allowing the return of 
terrorists who have given allegiance to the Islamic State back 
to the United States on the basis of their American citizenship 
and on their passport.
    That makes a lot of Americans very nervous, especially 
people in my State of Minnesota, wondering, with battlefield 
experience, with relationships, and with perhaps directives 
from those who are giving the orders in the Islamic State to 
come back and begin plots in the United States.
    I am wondering what is being done to follow these 
individuals, whether it is through financial transactions or 
any other way. I am wondering why they are allowed back into 
the United States? I wonder why in the world we don't pull 
their passports and prevent them from coming to the United 
States in the first place?
    Why do we allow them in?
    Why are they allowed to resume their lives after they have 
joined a murderous band that is killing innocent women and 
children across the country? Why are we allowing that? Why 
aren't we using our resources to thwart this?
    There has only been one serious investigation of terrorist 
financing since 2008, and that is the Holy Land Foundation 
trial. It was a Muslim charity in the State of Texas. That 
happened in 2008 from the Department of Justice.
    I assume that you are working, Mr. Secretary, with the 
Department of Justice closely on this matter. And I am 
wondering, what sort of prosecutions are going on?
    Because I can tell you, from my State of Minnesota, this 
has not receded. This has only gone up tempo. What sort of 
prosecutions are going on? Why is it that 6 years later there 
have been zero prosecutions coming out of the Department of 
Justice? Are you working with the Department of Justice? Are 
you identifying individuals?
    There are over 40 known individuals who have now returned 
to the United States who are terrorists, who have participated 
in terrorist activities, and who are freely walking about. It 
seems they have more protections than the American people. This 
is concerning to us now.
    We also know that the Department of Justice has boxes and 
boxes and boxes of documentation--known documentation from the 
Holy Land Foundation trial. Have they allowed you to look 
through those boxes? This is material that identifies known 
terrorist networks for terrorist financing. We, as Members of 
Congress, have not had one bit of access to those boxes of 
documentation.
    I would ask you, Mr. Secretary, are you aware of these 
boxes of documentation regarding terrorist financing with the 
Holy Land Foundation trial? Have you requested those boxes? 
Have you looked through those boxes? What do you know about 
that? And what are you doing to prevent terrorists from 
returning to a wonderful American life and putting innocent 
American citizens at risk from plots and attacks here in our 
homeland?
    Mr. Cohen. In the time I have remaining, let me try and 
address that.
    The effort to identify both individuals from the United 
States who are traveling to Iraq and Syria as foreign terrorist 
fighters and those who seek to return is one where there is an 
enormous amount of energy and resources dedicated, including 
from the Treasury Department, in trying to understand how to 
identify these people through tracing their financial 
transactions. And my counterparts, in particular the Department 
of Homeland Security and the FBI, allowed them to describe it 
in more detail.
    But you can rest assured that the threat of the foreign 
terrorist fighter flow both going to Syria and Iraq and coming 
back, whether into Europe or especially into the United States, 
is something that this Administration is highly--
    Mrs. Bachmann. Secretary Cohen, I don't rest very well 
because they are allowed free reentry into the United States.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Scott.
    Mr. Scott. Thank you very much, Mr. Chairman.
    I am over here, Mr. Cohen. Over here in the corner. How are 
you?
    An area that I think we are not putting enough attention to 
is on our Arab and Muslim nations who are over in the Middle 
East. I don't believe for 1 minute that we are getting the 
level of cooperation, the level of backbone and insert into 
this issue as we should.
    We are never going to solve the Middle East problem. We are 
never going to solve this problem of terrorism and certainly 
not this problem of financing the terrorists if Saudi Arabia, 
if Jordan, if Egypt, if the United Arab Emirates, if Turkey, if 
Iran--if these countries and these nations do not come 100 
percent and buy into this, then they will look at it and look 
as if they are playing the American people for fools. And I, 
for one, am not going to stand for that.
    Now, I believe one of the weak points within the 
Administration's effort on this is a failure to come to 
Congress and get the type of resolution with the backbone and 
the balls in it that will do some good. We give Egypt, we give 
Saudi Arabia, $6 billion, $7 billion every year. It is Congress 
who controls the purse strings.
    And if we had the resolution, the Administration would be 
much stronger now, because in that resolution there are enough 
of us in Congress who would demand that Saudi Arabia, that 
Egypt, that Turkey, that the United Arab Emirates, all would 
come in or else they would feel the sting of our pulling back 
the billions of dollars that taxpayers' moneys are going into 
it.
    Now, money laundering--do you think they could launder this 
money without the cooperation of those nation states who have 
the banking system in place to do it, the oil that they are 
getting so much of their money from? Do you think that they 
could do that without Turkey's cooperation? No.
    And so, unless we get very serious about this--and if the 
Administration has 62 nations in this coalition, this Congress 
ought to know what they are doing to stop this financing.
    Finally, we wouldn't have these terrorist groups if it 
weren't for Saudi Arabia. Do you think we would have Al Qaeda? 
Osama bin Laden comes right out of the royal family there. Do 
you think we would have ISIS if we did not have Al-Qaeda in 
Iraq and if we did not make sure we contain that area?
    So what I am saying is that we need to send a message back 
to the world that Congress wants in on this. The people elected 
the Congress of the United States not to just sit back and 
twiddle our thumbs.
    We need to reach out and give this President the backbone 
he needs, if we are going to solve this financial situation, 
and demand that these Arab nations, these Muslim nations, not 
only put their boots on the ground to fight and take back their 
religion that has been hijacked, but put forth every effort 
they can and to work cooperatively with us to make sure that in 
no way are they contributing to this.
    And if they are, we would look like fools in America to 
continue to give millions of our taxpayers' dollars to these 
nations while they, on the one hand, take our money and, on the 
other hand, support these terrorist groups, as Iran is doing. 
They have Hezbollah and Hamas. Saudi Arabia originated Al 
Qaeda. You have Al-Shabaab, Egypt coming up with the 
brotherhood--the Muslim Brotherhood. Come on. Only a joint, 
strong resolution, working with the President, then this Nation 
will take the United States seriously on this.
    What do you say about that?
    Mr. Cohen. Congressman, let me just address your last point 
about a resolution coming out of Congress. And, indeed, the 
Administration has requested authorization for the effort 
against ISIL.
    I think the President and the Administration have been very 
clear that we are stronger when Congress, as you say, has its 
backbone into this, and I think the Administration is looking 
to work with Congress for authorization for this plan.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Florida, Mr. 
Posey, for 5 minutes.
    Mr. Posey. Thank you, Mr. Chairman.
    Mr. Secretary, is ISIS engaged in any narcotrafficking?
    Mr. Cohen. Congressman, not that I am aware of, sitting 
right here. But let me ensure that--there is something I don't 
know about. But I am not aware of any narcotrafficking by ISIL.
    Mr. Posey. Okay. I know they have given the Taliban credit 
for almost 100 percent of the heroin trade and FARC, the 
Colombian rebels, almost 100 percent, ultimately, of the 
cocaine trade.
    And, one way to go after terrorist funds is for Americans 
who are terrorized--or victims of terrorism to sue their 
attackers and go after their frozen assets under Section 201 of 
the Terrorism Risk Insurance Act, known as TRIA. The plaintiffs 
cannot, however, currently seize the funds of terrorists 
related to narcotraffickers.
    And my question for you is going to be what you are doing 
or what steps you are taking to help change that. But I guess, 
until you can qualify your position on ISIS being involved in 
narcoterrorism, this might not be the right time.
    Mr. Cohen. Congressman, as I say, I am not aware that ISIL 
is involved in narcotrafficking. I will follow up on that with 
you.
    On the broader issue of attacking terrorist organizations' 
use of narcotrafficking as a way to raise funds--you mentioned 
the Taliban; you mentioned the FARC--we have been aggressive in 
the use of our authorities to try and prevent that, disrupt 
that. We use the Kingpin Act as a way to identify the major 
narcotics traffickers and then to build out the networks and 
apply sanctions against those who are involved in that 
activity.
    I can assure you that, if we see in the ISIL situation 
something akin to what we have seen with the Taliban or with 
the FARC, we won't hesitate to use those same authorities in 
this instance.
    Mr. Posey. But, again, with Kingpin, there is a big hole 
there for narcotrafficking. And, of course, it has been the 
subject of one of the hearings that we had previously. And some 
would say we really need to be locking that up as much as we 
can.
    Mr. Cohen. So I am not aware of the particular deficiency 
that you are identifying, but I am happy to follow up on that 
issue.
    Mr. Posey. Okay. Thank you, Mr. Chairman.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Texas, Mr. Green, the ranking member of our Oversight and 
Investigations Subcommittee.
    Mr. Green. Thank you, Mr. Chairman.
    And I thank the witness for appearing today.
    My feelings are ambivalent on this topic of kidnapping for 
ransom. It is my understanding that ISIL has received as much 
as $20 million. I also understand that this undercuts the goal 
of eliminating their access to funds if we don't take a strong 
position on these kidnappings.
    My feelings are ambivalent because I have a constituent who 
has a son who is being held captive. We are not sure who is 
holding her son captive.
    But I visited with this mother and father, and I know that 
they want their son returned home safely. And while I 
understand that we can't pay ransoms, I have been with them. 
And while I don't feel their pain, I have seen the evidence of 
it.
    And you are in a tough position. But I want you to do all 
that you can, please. Please do all that you can to try to get 
these people who are being held hostage returned home safely.
    It is a balancing act. It is contrary to what our policy 
is. And I understand this. But we have to do everything that we 
can to prevent these dastards--that is with a ``d,'' not a 
``b''--from performing the dastardly deeds that have been shown 
worldwide.
    If you could, please, sir, kind, sir, kindly give some 
indication as to the balancing act and what we are trying to do 
to make sure that this mother gets her son returned home 
safely.
    Mr. Cohen. Congressman, I think you have put it 
beautifully. And I think it is an incredibly difficult issue. I 
share your feelings that you described. I can't imagine the 
pain that a family goes through in this situation.
    Our policy is one, as you note, that is intended to protect 
Americans by removing the incentive to take hostages in the 
first place and to not provide another source of funding to 
these horrific organizations that take hostages, and commit 
other terrorist acts.
    We have seen evidence that it, in fact, does protect 
Americans, as these terrorist organizations choose not to take 
Americans hostage because they know that they will not get paid 
ransom. It obviously does not work in every instance, as the 
situation you are citing identifies and reflects, but it 
protects our citizens over the long term and as a whole.
    In terms of getting our citizens back who are held hostage, 
I am sure you are aware over the summer there was a rescue 
attempt made to try and free James Foley, who was being held 
hostage by ISIL. It unfortunately was not successful.
    But the fact that we will not pay ransoms or make other 
concessions to terrorists does not mean that we are leaving our 
citizens in the hands of these dastardly people. We try 
everything we possibly can ourselves and working with partners 
to free our hostages, short of conceding to their demands for 
ransom payments or other concessions.
    It is, as you say, an emotionally fraught, difficult issue, 
but it is a policy that I think we need to employ ourselves 
and, frankly, we need to get our partners around the world to 
employ because it is to the benefit of all of our citizens 
ultimately.
    Mr. Green. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Luetkemeyer, the vice chairman of our Housing and Insurance 
Subcommittee.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Secretary Cohen, I want to frame my remarks--or my 
questions this morning with regards to the United States 
banking system providing access and being complicit in 
terrorist financing and money laundering.
    I am kind of concerned about the things that have been 
going on recently with regards to activities by different 
banking regulators and DOJ and how they are carrying out their 
duties. And, in fact, I think you are going a little too far 
with it. I certainly support their going after the bad actors.
    But, anyway, in your remarks that you made earlier this 
week with regards to derisking, while I think it is essential 
we have laws in place to combat terrorist financing, our 
regulators have no--I am concerned that the broad derisking we 
have seen in financial institutions is having a negative 
situation. I know that there was concern voiced also by the 
Comptroller of the Currency recently about this.
    And in your remarks--I have a copy of your speech you gave 
to the ABA Money Laundering Enforcement Conference earlier this 
week--you talk about that. And I would just like for you to 
tell us how you believe banks and bank regulators should judge 
risk and how it should not be done on a case-by-base basis.
    Mr. Cohen. Congressman, the foundation of our anti-money-
laundering regulatory regime is a risk-based approach where we 
ask our financial institutions to assess the risks of the 
customers that they have on board or they are thinking of 
taking on board on a case-by-case basis and make a judgment 
whether the risk profile of that particular customer is one 
that the institution feels that it is in a position to manage.
    The concern that I was addressing in the speech earlier 
this week was that some institutions were acting in sort of a 
wholesale manner to just cut off entire categories of 
customers, entire jurisdictions from correspondent account 
relationships, without an assessment of the actual risk posed 
by that particular customer.
    And what I was advocating was that institutions and those 
of us in Government who are responsible for overseeing the 
institutions adhere to the risk-based approach and to a case-
by-case analysis--
    Mr. Luetkemeyer. Perfect.
    Mr. Cohen. --in approaching that.
    Mr. Luetkemeyer. Thank you for that.
    You are an expert on terrorist financing. And I am just 
kind of curious. Can you tell us what types of activities lead 
to ISIS financing?
    Some of these regulators are going after folks with firearm 
sales, fireworks sales, payday lenders, tobacco sales. Are 
these folks who engage in terrorist financing activities? Have 
you run into any--let me rephrase it. Have you had any actions 
against any of these folks for terrorist financing activities?
    Mr. Cohen. I am not aware of any actions against any of the 
entities you just described for terrorist financing--
    Mr. Luetkemeyer. Any of those industries. Yes. Okay.
    Mr. Cohen. --certainly with respect to ISIL.
    Mr. Luetkemeyer. Very good.
    I know that the Financial Crimes Enforcement Network, 
FinCEN, put out a paper earlier this week, in fact, with 
regards to money service businesses laundering money for 
terrorists. And they are concerned about the same thing that 
you are talking about in derisking, about the banks 
indiscriminately terminating accounts.
    How closely do you work with these folks? You work with 
them every day, I assume. Right?
    Mr. Cohen. These folks work for me.
    Mr. Luetkemeyer. Work for you. Okay. There we go.
    So you are aware of this paper. You are aware of this 
statement and support their conclusions as well, I assume.
    Mr. Cohen. Yes, sir.
    Mr. Luetkemeyer. Very good.
    One last question here. Your remarks during the week also 
mentioned a few reforms needed to make our anti-money-
laundering capability stronger.
    One of those was a safe harbor from civil liability for 
financial institutions that file a suspicious activity report, 
a SAR.
    I wholeheartedly agree with that recommendation, which is 
included in my--a bill that I offered, H.R. 4986, the End 
Operation Chokepoint Act.
    Can you tell the committee why you believe that the safe 
harbor is important and how this will help financial 
institutions in the fight against terrorist financing?
    Mr. Cohen. The issue there is that there is a difference of 
interpretation in some court decisions about whether--when an 
institution files a suspicious activity report, whether they 
could be brought into court, subject to civil liability if they 
didn't have--are unable to prove a good-faith basis for filing 
the report.
    These reports, which are confidential, based on suspicion 
of potential illegal activity, that are filed with FinCEN, used 
by law enforcement to pursue cases, not as the end point, but 
as an opening point into cases, are incredibly valuable.
    And what we are looking to do is to ensure that 
institutions can comply with their obligations to file these 
reports without fear of civil liability.
    Mr. Luetkemeyer. Thank you.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    As a reminder to all Members, we are going to excuse our 
Administration witness fairly close to 1:00 and empanel the 
second panel, which means that the Chair plans to call upon--
I'm sorry--noon--excuse me--noon. I don't want our witness to 
panic.
    I will call upon Mr. Ellison, Mr. Pittenger, and Mr. 
Perlmutter. And then we will release our first witness and we 
will welcome our second panel.
    So at this time the gentleman from Minnesota, Mr. Ellison, 
is recognized.
    Mr. Ellison. Mr. Cohen, thanks for your service to our 
country and your hard work to help combat terrorist financing.
    Earlier you mentioned the Money Remittance Improvement Act, 
which is a bipartisan piece of legislation passed through 
Congress earlier this year. Now we are in the phase where we 
want to see it implemented.
    I wonder if you might elaborate on how you see the bill 
being adopted, absorbed into the financial community, so that 
we can stop bad people from getting money and allow the decent 
people to remit money.
    Mr. Cohen. Congressman, I think this is an important piece 
of legislation. I commend you for pushing it through the House 
and getting it signed.
    Mr. Ellison. I had help even from the other side.
    Mr. Cohen. Exactly.
    The way that it will be used and be effective is it allows 
the Federal regulators to rely on State examinations for 
purposes of overseeing compliance with the anti-money-
laundering regulations.
    That will expand our ability to get insight into the 
quality of the anti-money-laundering efforts across the 
country, particularly in the money services industry. And that 
will, I think, enhance the confidence that financial 
institutions have in taking on money service businesses as 
customers.
    So to get back to the derisking question, what we are 
hoping to foster is an environment where institutions do, in 
fact, engage in a--continue, really, to engage in a case-by-
case analysis of risk. And the better the information, the 
better the foundation for that risk assessment, I think the 
better off we all are.
    Mr. Ellison. Thank you.
    Now I want to just say I would like to work with you to 
help more financial institutions understand what is available 
under the Act.
    Let me ask you another question. And then I will pass it so 
we can have as many people as possible ask you a few questions.
    Do you feel like our international partners--we have enough 
cooperation with people in the Middle East, and the European 
world? Do you think we have enough international cooperation to 
identify and freeze off some of the sources of terrorist 
financing in dealing with ISIL?
    Mr. Cohen. That is a big question.
    The answer is, we have cooperation. It varies, as you might 
expect, from country to country. We have some partners that are 
100 percent committed and effective, and other partners where I 
think there is work to be done.
    One of the things that we do at the Treasury Department is 
travel around the world to try and enhance the effectiveness of 
partners in cutting off terrorist financing. It is a big part 
of my job, and a big part of the job of the folks who I work 
with.
    We have made enormous progress over the last decade or so 
in improving international efforts to combat terrorist 
financing. But, this is a task that is never going to be 
complete, and there is still, obviously, some work to be done.
    Mr. Ellison. Thank you again.
    And I yield back.
    Chairman Hensarling. The gentleman has yielded back.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. Pittenger.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Secretary Cohen, following up on Congressman Pearce's 
questions, during Operation Desert Storm we had an average of 
1,100 strikes a day. Twelve years later against Saddam Hussein, 
during Operation Iraqi Freedom, we had 800 strikes a day. In 
the last 2 months against ISIS, we have had a total of 412 
strikes, an average of 7 a day.
    Is this limited amount of air strikes as a result of not 
having the intel on the ground as a result of precipitously 
pulling out our forces several months ago or is it a lack of 
the will by the Administration to take out particularly these 
transfers of oil out of country?
    Mr. Cohen. Congressman, I am not sure it is either of 
those. But I am really not in a position to comment on the 
military campaign.
    Mr. Pittenger. Secretary Cohen, are you in dialogue with 
DOD? Are you in conversation? Are you in meetings with them 
regarding our approach and how we would seek to dismantle, 
disrupt, and destroy these transports of oil out of country, 
given that is the most significant manner of which--that ISIS 
has obtained their $1 million to $2 million of revenue a day?
    Mr. Cohen. Absolutely. And the conversations that I am 
involved in, as you might expect, are conversations about 
policy and broad approach. I don't sit at CENTCOM. I am not 
doing targeting on the day-in-day-out basis.
    But in terms of the overall policy direction and the 
contribution that I cited that the Defense Department can make 
to efforts to undermine ISIL's financial strength, that is 
something that, as part of the overall integrated strategy that 
General Allen is leading, is part of the conversation.
    Mr. Pittenger. Do you believe it--number one, that it is in 
our best interests and, also, the best strategy if we would 
seek to destroy all of the transports out of country?
    Mr. Cohen. All of the illicit oil transports?
    Mr. Pittenger. Illicit transport of oil out of the country.
    Mr. Cohen. It would seem to me that one of the ways we can 
impair the oil trade is to stop them from bringing it out of 
the country. What I am not in a position to comment on is the 
practicality of doing that. It is just not my area of 
expertise.
    Mr. Pittenger. I appreciate that.
    Please convey our continued concerns on the manner of the 
limited approach that we have had in terms of our commitment to 
air strikes in various capacities, but particularly related to 
trying to disrupt the income flow back to the ISIS.
    On another matter, I mentioned earlier the availability of 
technology. There are very robust analytic software programs. I 
have worked for a dozen years with major software companies, 
originally related to Medicaid fraud.
    But, in these discussions, we have transferred now to 
talking about how we can dismantle the terrorist funding and 
the transfer of it outside the United States and inside the 
United States.
    And, as such, I wrote Jennifer Calvery, the Director of the 
Financial Crimes Enforcement Network, on September 4th and 
requested a meeting to make sure that the Department is 
utilizing every possible analytic support software available, 
and I would appreciate your help and response so I could meet 
with Ms. Calvery. It would be most appreciated.
    Mr. Cohen. Certainly, Congressman.
    And I can tell you that FinCEN, which Director Calvery 
oversees, has recently gone through an IT enhancement. It has 
some advanced analytical tools available to it.
    And they are using those tools to go through the reports 
that they receive from U.S. financial institutions to identify 
potential fundraising for ISIL and to push that out on a very 
rapid basis to our law enforcement colleagues. So that is 
happening, but I will convey your request.
    Mr. Pittenger. If you could help bring about a meeting with 
her, I would very much appreciate it.
    I yield back.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Colorado, Mr. 
Perlmutter.
    Mr. Perlmutter. Mr. Secretary, thanks for your testimony 
today. And I want to compliment Treasury and the 
Administration. The stock markets are hitting new highs again 
today, from where we were 6 years ago.
    I want to follow up on the line of questioning Mr. 
Pittenger was just asking you. He was talking about how one of 
your points was we got revenue, we got the flow of money, and 
we have expense. Okay. I get back to basics. Okay?
    So in the revenue side of this, you have the production 
piece, which is what he was talking about, ``Can we eliminate 
or destroy the production?'' I would rather focus on the price.
    We have had a 30 percent reduction in the price of oil in 
the last 5 months. So West Texas Intermediate has gone from 103 
down to 75. Just basic economics would say to me that has to 
hurt these guys somehow, that they have less money for any 
barrel of oil that they have.
    Can you tell us kind of what you see the drop in oil prices 
doing to ISIS and its revenue stream? And then I will get to 
expenses in a second.
    Mr. Cohen. Congressman, the price at which ISIL is selling 
the oil that it is stealing has never been at the open market 
price for reasons I am sure you understand. Whether the drop in 
oil price has also forced a decline in the discount that ISIL 
is taking off the oil it is selling, I just don't know the 
answer to that question, but let me see if there is something--
    Mr. Perlmutter. What price in the black market, if you 
will, do you think they are selling it at?
    Mr. Cohen. Can I get back to you on that in a different 
setting?
    Mr. Perlmutter. What--okay. So let me move to the expense 
side. So on the expense side there is some cost to extract oil 
from the ground and then refine. Do we have any sense of what 
it costs them to produce this oil?
    Mr. Cohen. I think not a lot because this is not a sort of 
sophisticated operation. We have seen them take over wells, 
but, also, sort of in some respects destroy the wells and 
just--and have the oil pool and are taking it that way.
    So I can't give you a dollar figure on what it costs for 
them to produce a barrel of oil or for them to refine it in one 
of their mobile refineries. There is obviously some expense 
involved there, but--
    Mr. Perlmutter. Yes. I am not trying to stump you on this.
    Mr. Cohen. Well, you did.
    Mr. Perlmutter. This is just sort of basic stuff that I am 
trying to understand. Everybody else has kind of gone into 
monologues about what is going on in the Middle East. So, just 
basic price, production expense of producing this.
    Let me change it just a little bit. On the revenue side, we 
have oil and there is some revenue stream that is coming from 
oil. And I would like a little more specificity from you on how 
the price of oil affects that.
    What other pieces of revenue does this get? Does it get 
it--you mentioned sort of charity from some other countries. 
Does it have other earnings? What other kinds of revenue do 
they have?
    Mr. Cohen. And just on the price of oil, I can provide you 
with more detail on that. I would just like to do it in a 
different setting.
    The other sources of funding for ISIL are ransoms from 
kidnapping, extortion, and crime from within the territory 
where they are operating, essentially forcing people to hand 
over cash at gunpoint, and, to some extent, donations from 
external sources, from wealthy donors overseas. Those are the 
four most significant sources of funding for ISIL.
    Mr. Perlmutter. All right. So now moving to their total 
expense, obviously, they have to be paying their soldiers or 
whatever they are called, their fighters, their terrorist 
group--they have to be paying somebody something. And your 
point was, at some point, whatever revenue they have is going 
to outstrip those expenses.
    Can you elaborate on that?
    Mr. Cohen. Yes. Particularly as we make progress in 
squeezing down their revenue streams, their expenses for paying 
fighters for attempting to deliver social services of some sort 
in the territory where they are operating will outstrip their 
revenue.
    Just in terms of the fighters, if you assume that they have 
30,000 fighters, give or take, we have information that they 
pay their fighters about $1,000 a month. That comes to $360 
million a year in just the expenses for fighters.
    Now, that figure is obviously a soft number. I don't know 
if that is exactly right. But it gives you sort of an idea of 
the magnitude of the expenses.
    If you look at what the Iraqi government has budgeted--had 
budgeted for this year for the territories where ISIL is 
currently operating for the delivery of social services, it was 
well over $2 billion.
    Now, nobody expects ISIL to deliver social services to the 
same extent as the Iraqi government was planning to, but ISIL 
does try to portray itself as if it were a government that can 
deliver social services. That is going to be quite a 
substantial expense.
    Mr. Perlmutter. Thank you, Mr. Chairman.
    Chairman Hensarling. Under Secretary Cohen, we appreciate 
your testimony today. We will release you at this time and 
invite the witnesses for the second panel to please come to the 
witness table as quickly as possible.
    Mr. Cohen. Thank you, Mr. Chairman.
    Chairman Hensarling. Thank you.
    We will now turn to our second panel of witnesses, whom I 
will briefly introduce.
    We will first welcome the Honorable Jimmy Gurule, a law 
professor at Notre Dame Law School. Professor Gurule has 
notable experience in the field of terrorism and finance, 
drawing on his 10 years at both Treasury and the Department of 
Justice.
    Next, we will welcome Dr. Matthew Levitt, the Director of 
the Stein Program on Counterterrorism and Intelligence at The 
Washington Institute for Near East Policy. Dr. Levitt 
previously served as Deputy Assistant Secretary for 
Intelligence and Analysis at Treasury.
    Last, but not least, Dr. Patrick Johnston is a political 
scientist at the RAND Corporation, where he specializes in 
counterinsurgency and counterterrorism, especially in 
Afghanistan and the Phillipines.
    Without objection, your full statements will be made a part 
of the record.
    I am not sure who has testified before Congress before, but 
like the traffic light system, we have a green, yellow, and red 
lighting system. The yellow will go off when you have 1 minute 
to go. I ask that you each observe the 5-minute time 
allocation.
    Professor Gurule, you are now recognized for a summary of 
your testimony.

 STATEMENT OF THE HONORABLE JIMMY GURULE, LAW PROFESSOR, NOTRE 
                        DAME LAW SCHOOL

    Mr. Gurule. Thank you, Chairman Hensarling, Ranking Member 
Waters, and other distinguished members of the House Committee 
on Financial Services.
    Permit me to begin by thanking you for inviting me to 
testify before the committee on the timely and important topic 
of primary sources of funding for the Islamic State of Iraq and 
Syria, also known as ISIS.
    To enhance the U.S. Government's counter-terrorist 
financing strategy against ISIS, I would like to make several 
recommendations.
    First recommendation: Targeted blocking actions. The 
centerpiece of the Government's counter-terrorist financing 
strategy is to freeze the assets of suspected terrorists, 
terrorist-related entities, deep-pocket donors, and other 
financial supporters and facilitators of terrorism and prohibit 
such individuals and entities from doing business in the United 
States. The strategy is a preemptive strategy intended to 
prevent the financing of terrorist attacks and the killing of 
innocent civilians.
    More specifically, the authority to block ISIS-related 
funds derives from Executive Order 13224 that was actually 
issued after the terrorist attacks of September 11, 2001, by 
President George W. Bush. Unfortunately, the Treasury 
Department has not yet gained its footing with respect to ISIS-
related designations.
    The ISIS-related designations by the Treasury Department 
raised two primary concerns.
    First, few individuals associated with ISIS have been 
designated for asset freeze under Executive Order 13224. This 
year there have been only four. Two of the designations did not 
involve individuals involved in any way with terrorist 
financing. A third individual was a relatively lower level 
facilitator with respect to moving money from Kuwait to Syria. 
And then the fourth was involved in raising money from deep-
pocket donors and external funding.
    None, unfortunately, of the Treasury designations include 
individuals engaged in any of the major sources of internal 
funding for ISIS. Absolutely none. I have a very basic 
fundamental question, and that is: Who is the finance minister 
for ISIS? Who is he? And why is that individual not on the 
Treasury list under Executive Order 13224?
    It seems to me that there needs to be a direct nexus 
between the Treasury Department's designations and the 
principal sources of internal funding for ISIS. Whether, again, 
we are talking about illicit oil trade, ransom payments, 
trafficking, trading in stolen artifacts in Iraq and Syria, 
extortion payments, those are the individuals that the Treasury 
Department should be focusing on for designating blocking their 
assets, if any, in the United States.
    It seems to me--and I don't know if this is the case--that 
it would seem to make good sense that there should be financial 
intelligence teams focused on each of the principal sources of 
internal fundraising for ISIS.
    There should be a financial intelligence team dealing with 
the payment of hostage ransom payments and where those monies 
go. There should be an intelligence team dealing with oil--the 
illicit oil trade and how that is happening, who is involved in 
that, and designating individuals involved in the illicit oil 
trade.
    Second recommendation: Enhanced terrorist financing 
prosecutions. There has already been some discussion of this, 
so I will keep my remarks on this front very brief.
    The bottom line is that the Department of Justice has a 
mixed record on prosecuting terrorist financing cases. Since 
the September 11, 2001, terrorist attacks, there have been 
very, very few major terrorist financing cases.
    I am aware of one, which there has been reference to, the 
Holy Land Foundation case. It was a charity and, by the way, a 
charity that was involved in raising money for Hamas.
    I am not aware of any significant terrorist financing 
prosecutions dealing with terrorist financiers of Al Qaeda and 
certainly none dealing with terrorist financiers of ISIS.
    To increase the number of terrorist financing prosecutions, 
my recommendation is that the Treasury Department should 
intensify and accelerate its efforts in sharing financial 
intelligence information with DOJ so the DOJ has the evidence 
that it needs to bring criminal indictments against terrorist 
financiers and take those indictments to successful 
prosecution.
    The last recommendation has to do with the Bank Secrecy Act 
(BSA). And I would just add that under the BSA, there have been 
over the last 10 years only two enforcement actions by FinCEN 
where fines have been imposed on banks for noncompliance with 
the BSA dealing with terrorist financing. I think that effort 
needs to be enhanced.
    Thank you very much.
    [The prepared statement of Professor Gurule can be found on 
page 71 of the appendix.]
    Chairman Hensarling. Dr. Levitt, you are now recognized for 
a summary of your testimony.

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

    Mr. Levitt. Thank you, Chairman Hensarling, Ranking Member 
Waters, and distinguished members of the committee. It is an 
honor to be here to discuss this timely and important issue.
    The U.S. Government effort to counter the Islamic State, or 
ISIS, is focused on five mutually enforcing lines of effort, 
one of which aims to stop ISIS financing and funding. That may 
prove to be a difficult task in large part due to the 
differences between the funding models employed by ISIS and 
Jabhat al-Nusrah or other Al Qaeda affiliates, but not one that 
is beyond the international community's capabilities.
    Combating ISIS's financing is an important component of the 
international campaign against the only group to be too extreme 
even for Al Qaeda. Counter-finance tools have been proven 
uniquely effective both as a means to stem the flow of funds to 
terrorist groups, but also as sources of actionable financial 
intelligence that can then be leveraged to even greater 
success. Sometimes, you let the money flow so you can watch it 
and tag it.
    There is no doubt that in those areas where ISIS financing 
crosses international borders or leverages the international 
financial system, especially the formal financial sector, but, 
banks, but even alternate--alternative financial transfer 
mechanism, like hawalas--in those cases, the traditional tool 
set developed in the years since 9/11 will continue to prove to 
be effective means of countering ISIS financing.
    This includes ISIS's income from illicit oil smuggling, 
donations from those few deep-pocket donors we know about in 
the Gulf and elsewhere, kidnap-for-ransom payments, efforts to 
access the antiquities black market to sell looted ancient 
artifacts and more, but this is unlikely to be enough to fully 
dismantle ISIS.
    Unlike Al Qaeda and other groups, ISIS was financially 
self-sufficient for about 8 years as a terrorist and insurgent 
group before committing itself to running a proto-state. 
Remember that before it renamed itself the Islamic State, it 
was ISIS, before that, the Islamic State of Iraq, Al Qaeda in 
Iraq, Majlis Shura al-Mujahidin, Jamaat al-Tawhid wa-l-Jihad. 
It went through many iterations.
    And then, like other groups which are reliant on state 
sponsors, major donors, or abuse of charities, AQI, now ISIS, 
was financially independent for years by virtue of engaging in 
tremendously successful criminal activity enterprises 
domestically within Iraq.
    Today, criminal enterprise still accounts for significant 
ISIS financing, complementing the group's other lucrative 
sources of income, especially the sale of illicit oil. But on 
its own, criminal enterprise is an insufficient source of 
funding for a group committed not just to terrorist and 
insurgent activity, but to capturing, holding, and 
administering territory, which involves significant 
expenditures and, therefore, requires much more significant 
revenue streams.
    Therefore, while it is true that ISIS criminal enterprises 
within Iraq are currently beyond the reach of traditional law 
enforcement and regulatory action, we do not have an Iraq 
Threat Finance Cell on the ground in Iraq like we once did. 
Focusing even only on those areas that are vulnerable to 
current tool sets will effectively deny ISIS the money it needs 
to hold and administer the Islamic State.
    Meanwhile, while military tools would, under other 
circumstances, be the last thing one would think might be--one 
might think of as a logical means of combatting crime, the fact 
is that air strikes against ISIS have already significantly 
undermined some of the group's criminal enterprises, and 
further such strikes should continue that trend. They don't 
hold territory. They can't tax people in that territory. They 
can't abuse domestic resources, et cetera.
    And while the prospects of real political reform in Iraq 
are bleak today, should the Iraqi government at some point re-
prioritize governance and the rule of law over sectarianism and 
corruption, then perhaps local Iraqi law enforcement could at 
some future point investigate and prosecute ISIS criminal 
enterprises in their country as the domestic criminal 
activities they are.
    Treasury's ISIS strategy focuses on imposing financial 
sanctions on anyone who trades in ISIS's stolen oil, inducing 
our foreign partners to put an end to kidnap-for-ransom 
payments, targeting external donor networks for sanctions, 
restricting ISIS's access to the international financial 
system, and employing targeted sanctions against ISIS's 
leadership and facilitators.
    I think those should be done in those places where it will 
make the most difference, not where we will feel good about 
ourselves in the morning. If, in fact, most of those things are 
happening domestically in Iraq, targeting them with Treasury 
designations actually doesn't do a thing.
    It is a wise strategy using these Treasury tools that we 
currently have, but I encourage people to look beyond these 
tools, as I am sure Treasury already is, to envision the kind 
of tools Treasury and its partners might need to adapt and deal 
with an evolving illicit financial threat.
    I submit there is no agency that does this better, thinking 
outside the box to develop the strategies needed to deal with 
tomorrow's threats. Treasury's Terrorism and Financial 
Intelligence branch did that after 9/11 to deal with the threat 
of Al Qaeda. It did it in an even more substantial way in 2005, 
2006, when it developed tools and strategies to contend with 
Iran's illicit financial conduct support for terrorism and 
nuclear proliferation. It came up with the Iraq Threat Finance 
Cell in Iraq, et cetera. And I expect that we will see 
similarly creative tools coming up soon.
    So, a few policy prescriptions. First, I will say this. 
There is no silver bullet to dismantle ISIS financing, let 
alone to ultimately defeat the organization. ISIS presents a 
unique set of circumstances, and Treasury should continue to do 
what it does best: assess the situation, and develop new tools 
to deal with an evolving threat.
    But there is circumstantial evidence that Treasury's full-
court press is already working far away from Iraq's borders. 
Consider the case of a jihadist on trial in Germany for joining 
a group in Syria allied to the Islamic State who struggled to 
send funds to the Middle East largely because of measures 
Treasury and others have put in place.
    The court proceedings in Germany and local media reports 
describe a picture of a jihadist forced to send a member to 
Europe for supplies because it had become too hard for them to 
transfer money without being traced.
    That is not all. The extremists used the wire transfer 
service of Western Union to send money around the world, but 
had become so nervous of transactions being monitored, they 
were afraid to pick up the money.
    So just a couple of--
    Chairman Hensarling. If you could summarize quickly, 
please.
    Mr. Levitt. Absolutely.
    We have to use the military to disrupt the oil, no 
question, and, also, to move ISIS back from controlled 
territory so it cannot engage in criminal activities in those 
areas.
    Even though today major donors are not a big part of ISIS 
financing, as soon as we have more success in cracking down on 
its existing streams, that will increase.
    And so, as I get into in my written statement, we need to 
focus on Qatar in particular but also Kuwait. The fact that 
they have passed a new law does not in and of itself mean 
anything. They need to enforce the law.
    We need to isolate ISIS from the national financial system 
to be sure. But in the long run, at the end of the day, the 
only way to stop criminal enterprise within Iraq is for law 
enforcement within Iraq to be able to do the job.
    Thank you very much.
    [The prepared statement of Dr. Levitt can be found on page 
96 of the appendix.]
    Chairman Hensarling. Dr. Johnston, you are now recognized 
for a summary of your testimony.

 STATEMENT OF PATRICK B. JOHNSTON, PH.D., POLITICAL SCIENTIST, 
                      THE RAND CORPORATION

    Mr. Johnston. Chairman Hensarling, Ranking Member Waters, 
and distinguished committee members, thank you for allowing me 
to testify.
    Today I will discuss how ISIL accumulated the wealth that 
made it the richest terrorist group in the world, how ISIL's 
money amplifies the threat that it poses and challenges and 
opportunities for degrading its finances.
    Before I begin, I just want to note that countering ISIL's 
funding is both difficult and important. The methods ISIL uses 
to raise and move money make it a hard target for traditional 
counter-terrorist finance instruments.
    Nonetheless, money is a critical component of all of ISIL's 
activities, and failing to degrade ISIL financially would 
increase the threat that it poses both in the region and to 
Europe, as well as the U.S. homeland.
    So in my testimony I want to make three main points. My 
written testimony contains a fuller discussion of each.
    My first point is that ISIL raises almost all of its money 
within the territory that it controls. This has been discussed 
already by other members, so I will be belief.
    The funding scheme differs from a lot of the terrorist 
organizations that some of these tools and instruments that 
Treasury uses now were developed for, and this is challenging, 
given the way that ISIL makes its money internally, which I 
will discuss in turn.
    I have had a chance to look behind the curtain, to a 
degree, through some historical documents that were captured 
during the second Iraq war between 2005 and 2010 from--that 
were captured from the Islamic State of Iraq before it became 
the Islamic State of Iraq and the Levant.
    And these documents show with meticulous detail how the 
group raised money during this period and how the group spent 
money, and they were fairly comprehensive over certain time 
periods in 2005 and 2006 and 2009 and 2010.
    And what these documents show, I think really importantly, 
are two different things. One is that this group has been 
making its money, at least in Mosul, in basically the same way 
for at least the last 6 years and probably longer.
    So this is nothing new, despite the change in the group's 
name and it creeping up on the United States and the world 
after the U.S. withdrawal, but the group has been there and 
using a lot of the same kinds of methods that it is using now.
    Now, the main difference in really what is going on in 
Mosul and with ISIL is the scale at which it raises funds. And 
so what we are able to see through looking at the group's 
captured financial ledgers is that, in Mosul, in 2008 and 2009, 
the group, known then as the Islamic State of Iraq, was making 
about $1 million total per month, on average. And now, as we 
know, just from oil revenues alone, revenues have been 
estimated between $1 million and 3 million per day.
    So it is an enormous increase and one that I think needs to 
be appreciated when we think about how threatening we viewed Al 
Qaeda and Iraq and the Islamic State of Iraq and then, with the 
additional finances that the group has now, what that might 
mean for their capabilities and then also for their ability to 
sustain a long-term protracted fight against various enemies.
    There are real challenges in disrupting ISIL's finances 
through targeted sanctions against its leadership and 
restricting its access to the international financial system. I 
think that Under Secretary Cohen is correct that key 
individuals involved in financial activities that benefit ISIL 
should be targeted for sanctions and that ISIL--it does benefit 
from access to the international financial system.
    But these facts don't negate another fact, which is that a 
large share of ISIL's revenue is made internally. It is moved 
through informal channels or in cash by networks of 
intermediaries, among other methods that are used. And all of 
these methods combined make it difficult to collect the precise 
financial intelligence that is necessary to effectively apply 
targeted sanctions.
    Absent such intelligence, we are left with a fairly blunt 
set of financial instruments at our disposal that are unlikely 
to cut off ISIL from key revenue sources that could sustain the 
organization for the next several years or longer.
    My third point covers a few things that could be done to 
disrupt and degrade ISIL's internal financing. And so this 
refers specifically to extortion and various types of crime.
    Robust partnerships with local, regional and U.S. 
Government interagency partners will be necessary to collect 
the high-quality intelligence on ISIL's local funding sources, 
methods.
    Several steps could be taken, including enhancing 
intelligence cooperation with Kurdistan and Iraqi partners to 
identify oil facilitators, prioritizing collection on the 
quantities and prices of oil over time that facilitators and 
intermediaries are smuggling to maintain basic situational 
awareness of ISIL's financial capabilities as an early warning 
of sorts, and identifying and monitoring all external contracts 
for areas in and around the territory that ISIL controls, 
allowing action to be taken to reduce ISIL extortion revenue by 
stopping these contracts if they are not absolutely necessary 
for the population's well-being.
    So just to recap, the three main points are the importance 
of ISIL's internal funding scheme, the challenges associated 
with targeted financial sanctions and efforts to cut off a 
group like ISIL's access to the international economy, and to 
use this as sort of the primary tool kit to degrade the 
specific threats, financial capabilities, and an improved 
financial intelligence as a way ahead to understand the threat 
better and then to conduct targeted operations, whether by 
Treasury, DOD, or other agencies.
    Thank you.
    [The prepared statement of Dr. Johnston can be found on 
page 86 of the appendix.]
    Chairman Hensarling. I want to thank each of the gentlemen 
for their testimony.
    The Chair now recognizes the gentleman from Pennsylvania, 
Mr. Rothfus.
    Mr. Rothfus. Thank you, Mr. Chairman.
    Professor Gurule, you talked a little bit about the 
specially designated global terrorists and that we have only 
had four identified, I think, with ISIS, and you made a good 
point about who is the finance minister for ISIS.
    Can you just give us a little historical context going back 
to the early 2000s when you were in public service and 
individuals we would have been identifying within Al Qaeda just 
to compare and contrast?
    Mr. Gurule. Thank you for the question.
    First of all, we have to keep in mind that the method of 
raising money by Al Qaeda is very different than the method 
that ISIS uses to raise money.
    Al Qaeda relied almost entirely on external sources of 
funding. And so, for example, we focused on corrupt charities 
that were raising money for Al Qaeda and related affiliated 
terrorist groups.
    And when I was Under Secretary, I think we designated as 
specially designated global terrorists over 20, maybe--actually 
higher than that--probably closer to 40--charities for that 
purpose. But, again, the focus was on external sources.
    ISIS is very different. It is principally a self-funded 
organization. And so what Treasury has to do is they have to 
pivot. They have to refocus. They have to recalibrate their 
efforts to the dynamic that they are currently facing with 
respect to ISIS funding.
    And my point is I think they are struggling to make that 
change, to make that adjustment, and it is borne out by the 
fact that we only have--there are only four designations today.
    Mr. Rothfus. Do you believe that there would be individuals 
that Treasury would be aware of today that could be designated?
    Mr. Gurule. I would certainly hope so. Because, if they are 
not, then the situation is even more dire than it appears.
    Mr. Rothfus. We have talked a little bit with the Under 
Secretary and other panelists have mentioned some of the 
countries in the area, and I wonder if each of the members of 
the panel can address this.
    The Under Secretary talked about how there is still more 
work that needs to be done, for example with Qatar and what 
they are doing. We talked about the charity law that Qatar has 
in place. I think the Under Secretary had previously made 
statements about Qatar and Kuwait being permissive 
jurisdictions for terrorist financing.
    What kind of things could these countries be doing now that 
they are not doing today?
    Mr. Levitt. A lot. Mostly these are countries that have 
passed fantastic laws on the books when you look at them black 
and white on paper.
    I have gone to the Middle East many times, and sat with 
some of these individuals. They have given me enough copies--
hard copies, soft copies--that I could wallpaper my house with 
them.
    But when you get them privately and you ask them, ``This is 
a great law, 3.1. Have you ever implemented it?'' ``No.'' 
``Have you ever used this?'' ``No.''
    There are very few cases, especially in Kuwait and Qatar, 
of any type of implementation, even the case that the Under 
Secretary was able to point to earlier, a case where Qatar did 
deport someone.
    They didn't prosecute the individual. They didn't hold the 
individual accountable. The individual was deported and is now 
presumably continuing that activity from someplace else.
    I get into Qatar in great detail in my written report with 
the concerns--the Financial Action Task Force, the 
International Monetary Fund and others, including people who 
have gone to Qatar and investigated, like myself, with their 
ability to implement. There are similar concerns about Kuwait.
    If I could just add on the question of the SGDTs, we lose--
what we should not be asking Treasury is to designate as many 
people as possible. What we want Treasury to do is to designate 
as many people as possible when designating them would have an 
impact.
    There is an innumerable number of people around the world 
related to ISIS and other groups that you could under that--the 
threshold--hit the threshold--legal threshold and you could 
designate them.
    But they don't have assets here. They don't have assets 
around the world. In this case, they are doing things 
domestically in Iraq. It would not make a difference just to 
add them to the list.
    What we want to do ultimately is to make a difference. So 
what we need to be doing in particular is not just focusing on 
the guy who today has the title of finance minister and is in 
Iraq doing things only within Iraq, but those middlemen who are 
facilitating oil payments or anything that crosses borders. 
That is where these designations have teeth.
    Mr. Rothfus. Are there leverage points that Treasury--or 
anywhere in the Administration that we could use to encourage, 
whether it is Kuwait, Qatar, or Turkey or other countries in 
the region, to follow through?
    Mr. Gurule. I think there are. One of the concerns that I 
have is whether or not these vast sums of money that are being 
generated internally by ISIS are entering banks in Qatar and 
that we should be scrutinizing and working very closely to 
ensure that those banks are implying the--or applying the 
relevant anti-money-laundering, terrorist financing regulations 
that they should.
    And, if not, perhaps their banking licenses--if they have 
U.S. branches in the United States, perhaps those banking 
licenses should be revoked or other restrictions should be 
imposed on their ability to do business in the United States.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman.
    And I want to thank the panel. Thank you very much. You 
have all helped us enormously today.
    Dr. Johnston, I had a chance to read some of your earlier 
stuff back in August and then your testimony today. You 
indicate today that you believe there might be a surplus--that 
ISIS might have a surplus of about $2 billion.
    How do you think they are holding that from a custodial 
sense? How do you think they hold that reserve of about $2 
billion?
    Mr. Johnston. So, this is purely speculation. But I think 
the easiest way to hold it would be in the banks that it 
overran when it overran Mosul and to be able to store the money 
securely in a facility that is intended to store money of a 
high quantity, I think, is a reasonable guess. But there could 
be wide distribution of it. It could be in other countries. And 
so I suspect it is some of each of those.
    Mr. Lynch. Yes.
    The one vulnerability they have now that traditionally 
terrorist organizations have not had is that they have to 
defend their turf.
    And I know that your report--I think all of you have hit on 
this, that our response to the traditional financing of Al 
Qaeda, as the Professor has outlined--our response was really 
sanctions and restrictions on proper banking practices and 
things like that, anti-money-laundering statutes.
    But the way that ISIS is operating now, they are internally 
generating this revenue. So they are not relying principally on 
Qatar or Saudi Arabia as Al Qaeda did in the past. So we really 
have to get at the oil revenue.
    I understand, Professor, in your report that you indicate 
the second largest source of revenue for ISIS is the selling of 
antiquities, but that is an--I think they will exhaust that at 
some point. It is really the oil that is going to be their--if 
they are going to have a sustainable system here and 
organization, it is going to be the oil.
    How do we get at that, Dr. Johnston, in terms of our 
strategy? I know that we are doing targeted missile strikes and 
bombings. But to really take away the capacity to produce oil, 
you have to occupy the ground. And I am just curious if you 
think that our current strategy that really looks at population 
centers like Mosul is the right strategy.
    Would it not be better for us to encourage the Iraqis and 
the Kurds to really focus on the oil production areas and try 
to take them away from ISIS control?
    Mr. Johnston. Thanks for the question.
    I think that the appropriate way to do this is pretty much 
what is being done right now, actually, and that is using air 
strikes to limit the freedom of movement and ability to move 
oil and smuggle it as easily as ISIL was able to before the air 
strikes started, meanwhile buying time for an advise-and-assist 
effort and capacity-building effort to try to stand up, in some 
cases, local security forces or the Iraqi Army to conduct 
effective operations essentially to push ISIL back from the 
territory that it has controlled.
    Mr. Lynch. I appreciate that. And I don't mean to cut you 
off.
    But from 2003 to 2011, we spent $24 billion, the United 
States taxpayer--we spent $24 billion training 938,000 Iraqis 
how to fight and to equip them, train them. And here we have 
30,000 Sunni that are overrunning the country and Syria.
    And I just--in the race against time, as this ISIS gets 
stronger and stronger, we are back again with this training 
operation. And I just--I just have some misgivings about--what 
is that saying? That the definition of insanity is doing the 
same thing over and over again and hoping for a different 
result?
    I have just a little bit--I think the training piece in 
Kurdistan where we did not train before is probably money well 
spent, but I am a little skeptical about what we are doing with 
the folks we trained already.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Kentucky, Mr. 
Barr, for 5 minutes.
    Mr. Barr. Thank you, Mr. Chairman.
    Let me just direct this first question to Dr. Levitt. Would 
you assess that the primary source of revenue for ISIL is the 
oil revenue?
    Mr. Levitt. By far.
    Mr. Barr. Okay. And so how effective have U.S. efforts been 
so far--the coalition's efforts been so far at targeting the 
middlemen in Iraqi--the Iraqi Kurds or the Turkey--to the 
Turkish elements that are--that constitute the middlemen? How 
effective have we been at identifying those middlemen that are 
delivering the oil to other parties?
    Mr. Levitt. There is very little in the open source about 
it. When I talk to people privately, my understanding is there 
has been some progress in identifying these people. Then it 
takes some time to put together packages and fully get to the 
point where you can actually designate somebody. But I expect 
that those types of designations will be forthcoming.
    We have seen more success in working with partners in 
places like Turkey and in the Kurdish areas in the north of 
Iraq where the problem isn't so much criminal middlemen, but 
corrupt politicians who are involved in this as well.
    Keep in mind these are oil-smuggling routes and individuals 
have been involved in this for years since the Oil-for-Food 
Programme. And so combatting something that has that kind of 
traction is difficult.
    Mr. Barr. What about air strikes with these mobile 
refineries? How effective has that been so far?
    Mr. Levitt. The Military says they have been very, very 
effective. And if you look at the numbers, we at one point were 
saying that ISIS was making as much as $3 million a day, and 
now most say about a million, maybe even a little less.
    So I would that is about a two-thirds reduction. That is 
tremendously successful, nowhere near where we need to be yet, 
but very much headed in the right direction.
    Mr. Barr. And to follow up on Mr. Lynch's line of 
questioning, is there any way--even if we have had some modest 
success with respect to these mobile refineries and the air 
strikes, is there any way that we can truly combat--or is it 
practical to believe that we can truly combat the source of oil 
revenue without retaking identifiable oil fields from ISIL 
control?
    Mr. Levitt. To fully deal with the problem, you are going 
to have to retake the oil fields. But even short of that, if 
you can deny your adversary the ability to extract, to move, to 
refine that oil, if they are sitting on it, but not making 
money on it or only making as much money as they can make 
domestically, which is happening already, in some cases, then 
you can further degrade their capabilities.
    Mr. Barr. And how well do we know whether or not the Assad 
Regime is a primary purchaser or a small purchaser of some of 
this illicit oil trade?
    Mr. Levitt. My understanding is there is no question but 
that the Assad Regime purchases ISIS oil, has been doing so for 
some time. Keep in mind we are talking about oil fields on both 
sides of the border.
    In fact, one of the points I didn't get to in my oral 
remarks is the need to make sure that we are doing things--
including doing things combatting their financing not only in 
Iraq, but also within Syria. But the extent of that, which I am 
sure fluctuates, I don't know exactly.
    Mr. Barr. What about Turkish cooperation with respect to 
the oil trade?
    Mr. Levitt. My understanding is that Turkish cooperation 
has increased significantly. It is going to be difficult, 
though. As I said, this is something that has been going on for 
years and years and years.
    The price of oil in southern Turkey is very expensive per 
liter, more expensive than if you have ever rented a car in 
Europe. That says something.
    And so there is a built-in supply and demand. Even at the 
sharp discounts that people are selling the oil for in southern 
Turkey, you can still make a profit because the market will 
bear it because market oil is so high.
    Mr. Barr. A quick final--shifting gears to the issue of 
kidnapping for ransom, Under Secretary Cohen's testimony was 
that it has been U.S. policy for many years to refuse the 
payment of ransoms or make other concessions to hostage-takers.
    Can any of you assess how the release of the five Taliban 
war criminals from Guantanamo in exchange for Sergeant Bergdahl 
impacted the U.S. position with respect to sending that signal 
to partner nations?
    Mr. Gurule. My response is that it wasn't helpful. I think 
it is inconsistent, and I think it is sending a mixed message 
to our European allies who we are being critical of--France and 
Spain--for making ransom payments for the release of ISIS 
hostages. I think it, again, was counterproductive and it 
undermines our effort.
    At the end of the day, this is a significant--it may not be 
the most significant source of ISIS funding, but if ISIS is 
making $20 million a year--or up to this point, this year, $20 
million, that is significant, and we need to undercut that 
ability. And when we are engaging in this type of conduct, I 
think it is counterproductive.
    Mr. Barr. Thank you.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Wisconsin, Mr. 
Duffy, for 5 minutes.
    Mr. Duffy. Thank you, Mr. Chairman.
    A lot of topics have been covered today. But my concern 
with the Administration is its initial designation of ISIS as 
being a ``JV team.''
    I looked at the strategy of the Administration in regard to 
its mission to disrupt, degrade, and defeat ISIS. I take issue 
with the way they lay they out. I wish they would just say, 
``We are going to defeat ISIS.''
    But spending $500 million in trying to train 500 
``moderate'' rebels to take on 40,000 to 80,000 jihadists 
doesn't seem like a sound strategy to defeat this group of 
radicals.
    And then, as I think it was Mr. Rothfus who indicated, on 
average, seven bombing missions a day compared to what we had 
previously done in prior engagements seems far too little and 
somewhat too late.
    So my concern has been with the Administration's strategy, 
and I am concerned that the lackluster approach that I have 
just referenced is also taking place on the finance side.
    Does the panel think that Treasury has been adequately 
engaged on the terror finance side of disrupting the money that 
flows to ISIS?
    Mr. Gurule?
    Mr. Gurule. As I stated in my opening statement, I think 
they are struggling. And I think certainly they have good 
intentions and they--
    Mr. Duffy. Treasury is struggling.
    Mr. Gurule. --but I think they are struggling with gaining 
their traction, gaining their footing. That is reflected in the 
low number of designations.
    Mr. Duffy. Right.
    ISIS isn't struggling. Treasury is struggling. Is that--
    Mr. Gurule. Treasury. Yes.
    Mr. Duffy. To the panel, I think Mr. Pearce asked this 
question, but I am maybe a little bit confused.
    Moving oil is not like moving nuggets of gold or diamonds. 
Right? It is a pretty--there is a large quantity of oil that 
has to be moved from the oil fields and/or the refineries. Is 
that correct?
    Mr. Gurule. We are talking about 20,000 to 30,000 barrels a 
day. Now, there may be some--it is not an exact figure, but it 
is a significant amount of oil that is being transported every 
single day.
    Mr. Duffy. And once it is sold, I understand it can be more 
difficult to identify those who are participating in the 
finance side and the purchase side and the middleman side of 
oil.
    But does it seem impossible that we couldn't bomb tankers 
of oil as they leave the refinery or leave the wells? Why 
aren't we engaging in military action to destroy the oil as it 
leaves? Is there--I just don't have the answer to that 
question. Why aren't we doing that, to anyone on the panel?
    Mr. Levitt?
    Mr. Levitt. I don't have the answer to that. It is more of 
a military question than not. My guess is that, if it were that 
simple, we would be doing it, because there is no one who 
disagrees with the premise of what you are saying.
    Sometimes, they are small trucks. I think that people watch 
too much TV and think that we have complete aerial coverage of 
everything that is happening at all times. But I don't have the 
perfect answer to your question.
    I would just say that I am absolutely certain that the 
approach at Treasury is not lackluster in the least. People are 
working very, very hard on these issues. It is the nature of 
the problem that they are facing.
    If what Congress really wanted them to do is just designate 
40 people, we could do that tomorrow.
    Mr. Duffy. But I am not saying that.
    We are moving large quantities of oil, and we have drones 
in the air. We have air superiority. That we can't take that 
out is somewhat of concern.
    And we are not dealing with a small terror network either. 
We are dealing with large amounts of money. And I would imagine 
that it is easier to trace large amounts of money than a few 
million dollars here and there to different terror networks.
    We are talking about hundreds of millions of dollars. 
Right?
    Mr. Levitt. Correct. And while you are--yes. I would just 
challenge the idea that we have complete coverage everywhere at 
all times, but it is better asked to a military person.
    Mr. Duffy. Fair enough. I want to switch to another topic.
    The United States and Turkey are co-leading an initiative 
within the Financial Action Task Force. Are you all aware of 
that?
    Is it fair to say that Turkey was just removed from the 
gray list from that task--from the task force?
    Mr. Levitt. That is right. And that was a lot of Treasury 
and other work to get them listed and then to get them to the 
point where they could be de-listed.
    At the end of the day, though, we don't have a choice as to 
who sits on the borders of Syria and Iraq. And so, if you can 
get Turkey not only to get off that list, but now to be helpful 
on this--which, by the way, isn't a favor to us--this is on 
their border, not ours--then that is a good thing.
    But you are absolutely right to expect that we need to sit 
on them very, very carefully.
    Mr. Duffy. And so, looking at Turkey, Kuwait, Iraq, Qatar, 
are we applying adequate pressure to those countries to get 
them to engage with us on the finance side of ISIS?
    Mr. Gurule. I think there is always more that can be done. 
And one of the points that I made in my written testimony is I 
think that there has been ineffective or inadequate use of the 
BSA enforcement actions.
    Under the BSA, FinCEN can impose significant civil fines on 
banks that are not complying with the counter-terrorist 
financing regulations. And with respect to counter-terrorist 
financing, I think Treasury, FinCEN, has done a pretty good job 
on the anti-money-laundering side.
    But with respect to designating--or I should say fining 
banks that are not in compliance with the terrorist financing 
regulations, I have only identified two banks in the last 10 
years, and those include the Arab Bank and the Doha Bank from 
Qatar. So I think we can be doing--Treasury could be doing a 
much better job in that area.
    Mr. Duffy. Thank you. My time has expired.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from California, Mr. 
Sherman.
    Mr. Sherman. ISIS rules territory and extracts money from 
that territory. That is probably its biggest source of revenue. 
The lights are on in Mosul. Okay. Not all the time. But 
electricity continuity is shoddy in much of Iraq.
    Before this outbreak, a lot of the electricity for Mosul 
came from the Mosul Dam. Is that dam still providing 
electricity to those living under ISIS? Does anyone have an 
answer? Is ISIS collecting money from the people who receive 
that electricity?
    Dr. Levitt?
    Mr. Levitt. Yes. My understanding is that the dam isn't 
under their control. They are not--
    Mr. Sherman. I know.
    Mr. Levitt. --getting money from any of it.
    Mr. Sherman. They don't control the dam. But how are they 
getting the electricity for Mosul?
    Mr. Levitt. My understanding is that the government that 
controls the dam is still allowing electricity to go into the 
city because there are citizens who live there.
    Mr. Sherman. And that is basically the point. The 
electricity goes into Mosul. ISIS collects for that 
electricity--
    Mr. Levitt. I don't know that that last part is true.
    Mr. Sherman. We do know that they are in a position to 
collect for the electricity.
    Mr. Levitt. We know that they are in a position to tax for 
anything they want.
    Mr. Sherman. Right. They tax--
    Mr. Levitt. For the air they breathe or anything else, but 
I don't know that there is anything--
    Mr. Sherman. When we were serious about World War II, we 
didn't provide electricity or food or anything else to the 
people of France when they lived under Nazi occupation. Yet, 
you are saying the Iraqi government is providing electricity to 
Mosul.
    Is the Iraqi government being paid for that?
    Mr. Levitt. I don't know. But I think that the Iraqi 
government--
    Mr. Sherman. So it supports the economy of Mosul and the 
other areas under ISIS control. ISIS then taxes those people. 
And it is very hard to wage war if you supply strategic assets 
to areas under enemy control. I have never seen that done in a 
war in the past.
    Mr. Levitt. I hear your point.
    I just say we are short of world war right now. And if you 
want one sure way for the central government in Iraq to go even 
further to losing the support of more of their constituencies, 
deny electricity to Iraqi citizens who are--
    Mr. Sherman. So let me get this in.
    You supply the economy under ISIS's control. ISIS then 
taxes that economy, and that is--did we lose the hearts and 
minds of those who were resisting Nazis because we not only did 
not provide free food or electricity to the people of France--
obviously, electricity wouldn't have worked, but food--but, in 
fact, we prevented food imports in France? Didn't we retain the 
support of the civilian population that was under Nazi 
occupation? Is there any other war you could point to where 
free electricity goes from one side to the other?
    Mr. Levitt. Again, unless you have information, I don't 
know that it is free electricity. I don't know if they are 
taxing electricity. But this is a deeply sectarian war more 
than anything else. And so the further you make divisions 
between the sectarian communities in Iraq, the worse it is 
going to be.
    Mr. Sherman. So you are for a policy of supporting the 
strategic elements of the economy under ISIS control. That is 
certainly--
    Mr. Levitt. I think you know that is not what I said.
    Mr. Sherman. What?
    Mr. Levitt. I think you know that is not what I said.
    Mr. Sherman. You can clarify for the record in writing what 
your position is.
    Now, I guess that would also apply to petroleum. If you are 
in favor of the lights being on in Mosul, then people ought to 
be able to drive from north Mosul to south Mosul.
    We are preventing them from exporting oil. Have we done 
everything possible to prevent them from producing enough oil 
for the civilians under their control?
    Professor Gurule?.
    Mr. Gurule. Again, I think this is, as we have already 
discussed, a very important source of income for--
    Mr. Sherman. I am not talking about exporting the oil. I am 
talking about providing for the millions of civilians under 
their control.
    Mr. Gurule. I don't think it has been a priority. I don't 
think it has--
    Mr. Sherman. So turning off--we did not hesitate to bomb 
oil fields during World War II. We did not think that making 
sure that the people of France could drive around Paris was 
essential to retaining the support of those civilians.
    The idea that there would be people driving civilian cars 
in Mosul, but that somehow the tanks now captured by ISIS would 
not have--obviously, a lot of this hearing is focused on the 
oil exported by ISIS, but ISIS has no shortage of oil for its 
own military operations and even for the civilians under its 
control.
    I yield back.
    Chairman Hensarling. The gentlemen yields back.
    The Chair wishes to announce that we will clear the 
remaining three Members who are in the hearing room and then we 
will adjourn the hearing.
    The Chair recognizes the gentleman from Virginia, Mr. Hurt, 
vice chairman of our Capital Markets Subcommittee.
    Mr. Hurt. Thank you, Mr. Chairman.
    And I want to thank the witnesses for providing testimony 
today.
    I represent Virginia's 5th District. And I can tell you 
that most of the people that I represent have concerns about 
the way this Administration has approached this crisis in Syria 
and Iraq, and I think that there is a lot of concern that the 
Administration either didn't know or ignored critical 
information that could have prevented us from being in the 
situation that we find ourselves.
    With that said, I was interested in the testimony of each 
of you as it relates to the hard work that goes into 
identifying those who should be subject to the sanctions that 
are allowed by U.S. law and law of other countries, and it 
strikes me that information has to be gathered, really, on the 
ground and it has to come to Treasury through, again, 
Department of Defense and intelligence agencies who are in the 
business.
    And so I guess my question is, after listening to Under 
Secretary Cohen for 2 hours, I came away with a little concern 
that maybe he is not, and Treasury is not at the table as much 
as he indicated that it was.
    And I wanted to start with you, Dr. Johnston, and then 
maybe get comments from the other two witnesses.
    But my question is this. Secretary Cohen indicated that he 
was, I think in his words, at the table. There were a lot of 
questions he couldn't answer, and perhaps that is the nature of 
an open meeting like this in an unclassified setting.
    But I do wonder whether or not he is getting the 
cooperation and the precise information about these targets 
from intelligence agencies and from the Defense Department and 
is he getting what--is Treasury getting what it needs to be 
able to make these decisions and impose these sanctions?
    And then, secondly, if not, what can be done to make sure 
that Treasury is at the table? Because I think we all agree, 
those of us sitting here today, that stopping the financing is 
extremely important.
    So, Dr. Johnston, if I could start with you?
    Mr. Johnston. On the first part of the question, I think it 
is hard to say the extent to which he is at the table for any 
given decision.
    But my sense is that the Treasury has done extremely well 
in working with interagency partners, to include the Department 
of Defense and various parts of the intelligence community, to 
get the capabilities that it needs to make the impact that is 
desired for policy outcome.
    Mr. Hurt. Why do you say that, though? Can you just explain 
that?
    Mr. Johnston. Since 9/11 and the realization that terrorist 
financing really matters, and that to disrupt terrorist 
networks and terrorist attacks, going after their financing is 
really a useful instrument to have among the various tools that 
we have.
    Treasury couldn't do it alone. It didn't have the capacity. 
And it has worked successfully with interagency partners in 
Iraq, among other places, during the second war.
    But I think that for the purposes of the current Treasury 
effort, it is still a young effort, and I think that, really, 
their programs and approach is kind of still developing.
    And I think that we will see more as the policy becomes 
clearer and kind of the overall posture and footprint that the 
Administration wants to have becomes clearer. Treasury's role 
and the--
    Mr. Hurt. Okay. Thank you.
    Just briefly--we only have a few seconds--but the question 
is: Are they getting enough information? Are they at the table? 
And, if not, how do we--what can we do, as a Congress, to help 
that out?
    Mr. Levitt. I think the portion where Mr. Cohen was saying 
that he was at the table, but he couldn't answer the questions, 
was on military strikes. And I don't think they are at the 
meeting where specific targets are being selected.
    But not only are they at the meeting at the senior level, 
his level, at the Assistant Secretary level, but Treasury now 
has its own office of intelligence and analysis, which I once 
helped run. And because of that, they are not only getting 
information from, they are actually part of, the intelligence 
community in every way.
    So part of the problem is not that there has not been 
enough effort, it is not that there are not enough people at 
the table, but that developing the intelligence takes time. It 
is an excellent question as to why we are only developing that 
intelligence now. That is a very strong question.
    But the interagency structure, the way people from other 
agencies and departments are located at Treasury and vice versa 
means that they are at the table.
    Mr. Hurt. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from Pennsylvania, the 
vice chairman of our Oversight and Investigations Subcommittee, 
Mr. Fitzpatrick.
    Mr. Fitzpatrick. I thank the chairman.
    And I have a question for Dr. Levitt or perhaps any of the 
witnesses who might want to answer about the mobile 
refineries.
    What do they look like? More importantly, where are they 
coming from? Who is manufacturing them? And how are they 
delivered to the regions where the oil fields exist?
    Mr. Levitt. I would love to know that, too.
    I am not an oil expert, so I can't answer this in any 
detail. But I think it is quite clear that these were there 
already. It is not something that suddenly has been imported 
into Iraq from someplace. This is a capability they have had.
    Apparently, they are relatively low tech. So you put--it is 
a very small refinery put in the back of a truck. But more than 
that I don't think.
    Mr. Fitzpatrick. Do you believe they are manufactured in 
that region or are they being imported from somewhere else?
    Mr. Levitt. My understanding is that this is something that 
is slapped together. And so it is being put together by people 
right there. I don't get the sense that this is something that 
is being imported.
    And to the extent that I am wrong, that this is something 
more sophisticated that needs to be imported, my sense is that 
this happened some time ago. This is stuff that has already 
been there in Iraq.
    Mr. Fitzpatrick. And then, once the oil is refined, you 
have testified that the Assad Regime is purchasing some of that 
oil.
    Some of it is being smuggled into the southern region of 
Turkey, where you said the price of gasoline is higher than we 
would expect here or you would see in Europe. If you are 
purchasing barrels of oil at $30 or so a barrel, you have 
reason to know that this may be illicit oil.
    Are we doing enough at Treasury, the United States, our 
intelligence agencies, to determine who the middlemen are that 
are purchasing oil at $30 a barrel and then make sure that we 
are following that money into what accounts?
    Mr. Levitt. That is exactly what Treasury and others are 
doing, identifying those middlemen. That is, I think, what 
Under Secretary Cohen was referring to, and it is what I 
discussed more explicitly in my testimony.
    I think there is also a significant more diplomatic push to 
get the Turks to do more in southern Turkey. People know that 
this is illicit oil. They really don't care.
    Oil costs so much there, people are--have been for years 
putting basically garden hoses across to Orontes River and just 
air-pumping oil from the Syrian side to the Turkish side. There 
is lots of ingenious ways that this is being moved and there is 
a market for it.
    There are lots of ingenious ways that this is being moved 
and there is a market for it.
    Mr. Gurule. One of the concerns that I have or the banks 
that are helping move the proceeds, the profits from the sale 
of the ISIS oil, if in fact ISIS is making between $1 million 
to $2 million a day, that money is not being transported in 
shoeboxes and placed under somebody's mattress.
    That money has to be entering into the financial system at 
some point, and I think we need to do a better job. The 
Department of Justice--the Department of the Treasury, needs to 
be doing a better job or intensify its efforts, let me say 
that, to identify the financial institutions that are knowingly 
receiving and transferring ISIS-related funds.
    Mr. Fitzpatrick. So where are the gaps in the system then?
    Mr. Gurule. One of the gaps could be the fact that some of 
that money may be going to Iraqi banks. I think principally 
foreign banks, and of course, the United States' lack of 
control over foreign banks, banks in Qatar, banks in Kuwait, 
banks in Iraq. I think that is the difficulty. But at the same 
time that those banks have U.S. branches in the United States, 
we do have control over those. So there would be an opportunity 
where we could exert greater leverage with respect to the U.S. 
branches to ensure that the foreign banks aren't being used to 
move ISIS, oil money.
    Mr. Fitzpatrick. Nothing further, thank you.
    Chairman Hensarling. The gentleman yields back.
    The last Member to be recognized will be the gentleman from 
North Carolina, Mr. Pittenger.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Professor Gurule, in your testimony you stated that there 
were only two banks which had violated our Bank Secrecy Act, 
the Arab Bank in Jordan, and the Arab Bank in New York, if I 
heard correctly, and that is just over the last 10 years. Is 
that as a result of our lack of capacity to track these folks, 
or are there others who are complicit that we haven't been 
successful yet in tracking?
    Mr. Gurule. That is the question. The question is why is it 
the FinCEN I think has done a fairly good job in terms of 
sanctioning banks that do not have compliant AML, anti-money-
laundering regimes, that comply with the BSA.
    But with respect to counter-terrorist financing, it doesn't 
seem to be a priority, and I wonder, is that because of a lack 
of resources, personnel within FinCEN? Maybe there are just not 
enough bodies to be engaged in oversight with respect to 
whether these banks pose a high risk for terrorist financing, 
or perhaps the weak spot may be with the other Federal 
regulators; that the other Federal regulators aren't focusing 
and emphasizing on whether or not these banks are in compliance 
with the counter-terrorist financing regulations under the BSA.
    But it seems to me that it is unacceptable that we could 
have only two banks, where if you look at the actual orders 
issued by FinCEN, the only two banks where I could find 
references in those orders to threats regarding terrorist 
financing.
    Mr. Pittenger. Yes, sir. In that light, as we look at our 
partners throughout the world, we have relationships with them, 
many of whom we given the tens, and even hundreds of millions 
of dollars of foreign aid, it is always of concern to me of how 
we are not honored by our relationships with our partners, and 
particularly in this situation that is so critical for our 
national security and for theirs as well.
    To what extent, what would you advise us as a Congress in 
going forward in how we could put greater pressure on these 
respective countries and their banks to be in compliance with 
our BSA requirements?
    Mr. Gurule. One point that I haven't made in my testimony 
today, has to do with the Antiterrorism Act. And it does have a 
civil provision that authorizes private litigants to bring 
civil tort actions against individuals who commit actions of 
international terrorism. And I think that statute could be 
enhanced through amendment to make it a more effective remedy 
for victims of terrorism including people and entities that aid 
and abet terrorists. For example, banks that knowingly provide 
financial services and transfer money to suspected terrorists.
    There is a problem. There are several problems with the 
current legislation as it stands. One, it doesn't explicitly 
authorize aiding and abetting, and if we are going after the 
banks, they are really the aiders and abetters. So the 
plaintiffs are left with the dilemma of having to prove that 
the bank is primarily responsible for the acts of international 
terrorism through secondary action by being an aider and 
abetter with respect to the acts of terrorists.
    So I think in that way we could unleash the plaintiffs, we 
could unleash an army of litigants to go after banks and 
charities and other entities that are facilitating the 
financing of terrorism. And again, I think from an equitable 
standpoint, it is the right thing to do. These are victims. 
These are the surviving family members of victims of violent 
actions of terrorism.
    Mr. Pittenger. Thank you, I yield back.
    Chairman Hensarling. The gentleman yields back.
    There are no other Members in the queue, so I want to thank 
our witnesses for their testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    This hearing stands adjourned.
    [Whereupon, at 1:07 p.m., the hearing was adjourned.]
                            A P P E N D I X



                           November 13, 2014
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