[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
A SURVEY OF GLOBAL TERRORISM.
AND TERRORIST FINANCING
=======================================================================
HEARING
BEFORE THE
TASK FORCE TO INVESTIGATE
TERRORISM FINANCING
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
APRIL 22, 2015
__________
Printed for the use of the Committee on Financial Services
Serial No. 114-15
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
SCOTT GARRETT, New Jersey GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico RUBEN HINOJOSA, Texas
BILL POSEY, Florida WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK, STEPHEN F. LYNCH, Massachusetts
Pennsylvania DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin KEITH ELLISON, Minnesota
ROBERT HURT, Virginia ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina BILL FOSTER, Illinois
RANDY HULTGREN, Illinois DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania DENNY HECK, Washington
LUKE MESSER, Indiana JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
ROBERT DOLD, Illinois
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
Task Force to Investigate Terrorism Financing
MICHAEL G. FITZPATRICK, Pennsylvania, Chairman
ROBERT PITTENGER, North Carolina, STEPHEN F. LYNCH, Massachusetts,
Vice Chairman Ranking Member
PETER T. KING, New York BRAD SHERMAN, California
STEVE STIVERS, Ohio GREGORY W. MEEKS, New York
DENNIS A. ROSS, Florida AL GREEN, Texas
ANN WAGNER, Missouri KEITH ELLISON, Minnesota
ANDY BARR, Kentucky JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois
DAVID SCHWEIKERT, Arizona DANIEL T. KILDEE, Michigan
ROBERT DOLD, Illinois KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine
FRENCH HILL, Arkansas
C O N T E N T S
----------
Page
Hearing held on:
April 22, 2015............................................... 1
Appendix:
April 22, 2015............................................... 45
WITNESSES
Wednesday, April 22, 2015
Jones, Seth G., Director, International Security and Defense
Policy Center, RAND Corporation................................ 12
Schanzer, Jonathan, Vice President for Research, Foundation for
Defense of Democracies......................................... 10
Zarate, Hon. Juan C., Senior Advisor, Center for Strategic and
International Studies (CSIS), and Chairman and Senior
Counselor, Center on Sanctions and Illicit Finance, Foundation
for Defense of Democracies..................................... 8
APPENDIX
Prepared statements:
Waters, Hon. Maxine.......................................... 46
Jones, Seth G................................................ 47
Schanzer, Jonathan........................................... 58
Zarate, Hon. Juan C.......................................... 76
Additional Material Submitted for the Record
Jones, Seth G.:
Written responses to questions for the record submitted by
Representatives Wagner and Ellison......................... 91
A SURVEY OF GLOBAL TERRORISM.
AND TERRORIST FINANCING
----------
Wednesday, April 22, 2015
U.S. House of Representatives,
Task Force to Investigate
Terrorism Financing,
Committee on Financial Services,
Washington, D.C.
The task force met, pursuant to notice, at 10:03 a.m., in
room HVC-210, the Capitol Visitor Center, Hon. Michael
Fitzpatrick [chairman of the task force) presiding.
Members present: Representatives Fitzpatrick, Pittenger,
King, Stivers, Ross, Wagner, Rothfus, Schweikert, Dold, Hill;
Lynch, Sherman, Meeks, Green, Ellison, Foster, Kildee, and
Sinema.
Ex officio present: Representative Hensarling.
Chairman Fitzpatrick. The Task Force to Investigate
Terrorism Financing will come to order. The title of today's
task force hearing is, ``A Survey of Global Terrorism and
Terrorist Financing.''
Without objection, the Chair is authorized to declare a
recess of the task force at any time.
The Chair now recognizes himself for 3 minutes for an
opening statement.
Thank you, everyone, for joining us today for the first
hearing of the House Financial Services Committee's Task Force
to Investigate Terrorism Financing. I would like to begin by
first thanking Chairman Hensarling and Ranking Member Waters
for working to establish this important task force and
reaffirming this committee's commitment to using its role to
address the threat of terrorism.
It is estimated that the terrorist attacks of September 11,
2001, cost al Qaeda just $500,000 to plan and execute. Today,
in 2015, the United States once again faces the specter of
terrorism, this time from groups such as the Islamic State,
which has a reported net worth of over $2 billion, the product
of self-funding methods such as illicit oil sales, human
trafficking, regional taxation, and antiquity dealing.
Today's terror organizations are more evolved, thanks in no
small part to better methods of funding and financing their
dangerous brands of hate, extremism, and violence. The threats
to freedom and democracy posed by the Islamic State and groups
like it circle the globe, and the United States can ill afford
to combat these enemies on the battlefield alone. Any global
strategy against terror groups worldwide must attack at their
funding source. Organizations, no matter how ideologically
fanatical, can't effectively function without requisite
resources.
To address this vital piece of our Nation's anti-terrorism
strategy, this bipartisan task force has been established and
charged with ensuring the Federal Government is using every
tool at its disposal to deprive groups like the Islamic State,
Boko Haram, and other terrorist organizations of the funds they
rely on to advance their warped ideology.
Over the course of the next 6 months, the task force will
investigate financing and will work to determine if the rules
and regulations the United States Government has in place are
effective.
As legislators entrusted with protecting the American
people, we cannot sit back and wait for terror to come to us.
While our military engages with terrorists on the battlefield,
and law enforcement works to protect our homeland, Congress
needs to make sure that we understand the nature of the threat
and how we can strike our enemy by every means. By working
together, Congress will find substantive, bipartisan solutions
to expand and strengthen Federal policies as well as set an
example internationally, ensuring that America leads at every
level of the global response to terror, from the Islamic State
to drug cartels.
So it is my hope that today's dialogue between our diverse
bipartisan group of Members and the expert panel of witnesses
joining us leads us to a better understanding of the challenges
facing us, and shapes our discussion of long-term solutions
moving forward.
At this time, I would like to recognize the task force's
ranking member and my colleague, Mr. Lynch from Massachusetts.
He has been a valuable asset and trusted bipartisan partner as
we begin this important investigation. Mr. Lynch?
Mr. Lynch. Thank you, Mr. Chairman. I appreciate your kind
remarks.
Mr. Chairman, this new iteration of the Task Force to
Investigate Terrorism Financing is sort of a continuation of an
effort that has been under way for some years. I want to just
thank Chairman Hensarling and Ranking Member Waters really for
the insight. We have been doing this work, but not under the
auspices of this committee, sort of out as a separate task
force, and I am just very thankful and delighted that Chairman
Hensarling and Ranking Member Waters have seen the importance
of this and have really resourced it and taken a very serious
approach to the work that we were doing basically as
volunteers, myself and Mr. King of New York and others who
preceded us.
But we all understand, I think, that detecting and
disrupting the flow of funding to terrorist groups is a crucial
part of our fight against terrorism. And while it has proven to
be challenging work, it is also vital and worthwhile, and I am
honored to serve as the ranking member. And I want to thank Ms.
Waters especially for allowing me to head this up for the
Democratic side, and I look forward to working with Chairman
Fitzpatrick, Vice Chair Pittenger, and the rest of my
colleagues on the task force to improve our efforts to halt
terrorist financing.
Now, we are all very much aware of the threats presented by
terrorist organizations, including ISIL and al Qaeda in the
Middle East, and Boko Haram and Al Shabaab in Africa. Without
the financial resources, these organizations will not be able
to effectively carry out their attacks, pay their fighters, and
otherwise support their operations.
Thus, one way to disrupt and to stop these groups, we
believe, is to cut off their funding. In particular, we must
support the important work of the Financial Action Task Force,
an intergovernmental body consisting of over 30 member
jurisdictions, which is dedicated to strengthening our
worldwide anti-terrorism financing and anti-money-laundering
policies. And also financial intelligence units (FIUs), the
national centers that receive, investigate, and share financial
intelligence with law enforcement agencies and international
financial intelligence counterparts across the globe.
This, of course, includes our own Financial Crimes
Enforcement Network (FinCEN) which is our FIU responsible for
safeguarding our financial system from illicit use by
collecting, analyzing, and sharing financial intelligence with
U.S. law enforcement agencies and others around the world. And
they have been terrific. I have worked with them in Jordan, in
Afghanistan, and recently in Nigeria, Morocco, and Tunisia.
They have been doing wonderful, wonderful work and they, as
well as the Treasury Department, have been an outstanding
presence on our behalf around the globe.
According to the U.S. State Department's 2014 International
Narcotics Control Strategy Report, many of the terrorist hot
spots around the world, including Kenya and Somalia, do not
have adequate systems in place to track and stop the flow of
funds to terrorist groups. This makes them increasingly
vulnerable to money laundering and financial fraud.
Last month, members of our committee had a chance to travel
to Nigeria as part of a congressional delegation through the
House Committee on Oversight and Government Reform, and while
there, we had an opportunity to examine the progress of
regional counterterrorism efforts to combat the terrorist group
Boko Haram. We arrived in Nigeria amidst media reports that
Boko Haram had officially pledged its allegiance to ISIL, and
in the immediate aftermath of a series of terrorist bombings
perpetrated on March 7, 2015, in Maiduguri, the capital of
Borno State in northeastern Nigeria, which killed over 50
people and left about 140 people wounded.
While in Nigeria, I met with the Nigerian Financial
Intelligence Unit's acting director, Francis Usani. During our
meeting, it became apparent that the effectiveness of the
government of Nigeria's counterterrorism efforts against Boko
Haram will greatly depend on its ability to address regional
terrorist financing and money laundering activities.
So we in the United States can play a significant role by
supporting the Nigerian FIU in further developing its anti-
terrorist financing and anti-money-laundering capabilities
through advanced legal and operational training and
technological assistance.
Witnessing the important work of Nigeria's FIU during this
recent congressional delegation demonstrated the need for the
United States to continue to support international government
efforts to develop robust legal, regulatory, and operational
frameworks to combat terrorist financing and money laundering.
This should be done in accordance with the landmark
recommendations issued by the Financial Action Task Force on
Money Laundering (FATF).
While the United States Government is highly committed to
its counterterrorism efforts, we must ensure that our
government is also doing all it can to curb the flow of funding
to terrorist groups, and evolve as these organizations
constantly shift their funding methods.
So in closing, I look forward to hearing the testimony from
our witnesses so we can examine the issues further. I yield
back the balance of my time. Thank you, Mr. Chairman.
Chairman Fitzpatrick. I now recognize for an opening
statement the vice chairman of the task force, the gentleman
from North Carolina, Mr. Pittenger, for 1 minute.
Mr. Pittenger. Thank you, Mr. Fitzpatrick. Thank you for
your leadership as chairman here. And I want to pay particular
thanks to Chairman Hensarling for the role that he has played
and the leadership, as he understands the role of the Financial
Services Committee and what we can do to help intercept the
funding, the terrorist funding and, as a result, not enable our
adversaries to bring about their objectives. I would like to
thank Ranking Member Lynch for his continued dedication to
these issues, and also thank all of the Members who have
committed their time and their efforts to this important task
force.
As Members of Congress, our first constitutional duty is to
provide for the safety and the defense of our country. It is a
duty to which we all are wholly committed. The threats around
the world are growing, whether it is ISIL, Iran-backed
terrorists in the Middle East, China, North Korea and Asia,
Russian aggression, or Al Shabaab and Boko Haram in Africa, not
to mention the drug lords right here in the Americas.
I believe one of the most effective tools we have to
counter these groups is through undermining the funding for
those who seek to harm America and our way of life. Now is the
time for great vigilance on the part of our counterterrorist
financing system, and our successes in intercepting these funds
will save countless lives. Whether it is through international
organizations such as the U.N., or FATF, NATO, or through
bilateral partnerships, but through efforts of our own
government and private sector, we need to look at these issues
carefully.
I look forward to working together with each of you on this
task force, and as such, creating solutions to the many
problems we are facing. Thank you, and I yield back.
Chairman Fitzpatrick. I now recognize the ranking member of
our Oversight and Investigations Subcommittee, the gentleman
from Texas, Mr. Green, for 1 minute.
Mr. Green. Thank you, Chairman Fitzpatrick. And I thank Mr.
Lynch, the ranking member, as well. I also would like to become
one of the many who will thank the honorable chairman and the
ranking member of the full Financial Services Committee,
Chairman Hensarling and Ranking Members Waters. I think this is
a most appropriate opportunity for us to do a good many things
that will reap good benefits.
Let me ask, Mr. Chairman, unanimous consent to include in
the record an opening statement from the Honorable Maxine
Waters if there are no objections.
Chairman Fitzpatrick. Without objection, it is so ordered.
Mr. Green. Thank you.
Mr. Chairman, I think this gives us a unique opportunity to
follow the money. And I think following the money can give us
an opportunity to understand who our friends are, which is
exceedingly important, who our frenemies are, and who our
enemies are. We have a duty, as has been indicated, to protect
the American people. This committee will work, my belief is, in
a bipartisan fashion. And I think we have to do this, because,
to be very candid, those who want to terrorize and take lives,
they don't do it in a partisan way. This is an opportunity for
us to show the kind of unity that can benefit the American
people.
I thank you so much for the time, and I yield back.
Chairman Fitzpatrick. I now recognize for an opening
statement the gentleman from Illinois, Mr. Dold, for 1 minute.
Mr. Dold. Thank you, Mr. Chairman. And I want to echo my
colleagues' thanks to our chairman, Chairman Hensarling, for
his leadership and vision to create this task force, and the
ranking member as well.
This is a really important topic. The United States and our
allies are currently facing threats from a constantly evolving
array of terrorist organizations operating around the world.
Many of the terrorist organizations depend on a common source
of funding, mainly from the Islamic Republic of Iran. Some may
mistakenly be under the impression that a nuclear deal is the
only thing standing in the way of Iran's acceptance as a good,
legitimate actor on the international stage. Such an
interpretation would be horribly incorrect. The fact remains
that the government of Iran continues to be the world's leading
state sponsor of terrorism, providing funding to Hezbollah in
Lebanon, Hamas, al Qaeda in Somalia, Bashir Assad's regime in
Syria, the Houthi rebels in Yemen, Iran's own Islamic
Revolutionary Guard Corps and more, including funding for
attacks in the western hemisphere.
We must prevent Iran from having the resources to create
instability and terror activity around the world. I am greatly
concerned by the recent reports that Iran would receive what
amounts to a signing bonus of up to $50 billion upon completion
of a nuclear deal.
I am interested in hearing today from our witnesses to
underscore how Iran would use those billions to finance
increased terror activity around the globe and more
specifically in the western hemisphere. Thank you.
Chairman Fitzpatrick. I now recognize the gentleman from
New York, Mr. Meeks, for an opening statement of 1 minute.
Mr. Meeks. Thank you, Mr. Chairman, and Mr. Ranking Member.
It has now been a little over a decade ago since we
witnessed one of the most devastating attacks on our homeland,
and it happened to be in the City that I love, New York City.
Since then, we have enhanced our ability to choke off terrorist
financing around the globe. However, global threats continue to
emerge, and we need to continue to respond in an aggressive and
vigorous way. These issues are very important to my City and to
us as a Nation, especially having witnessed firsthand the
atrocities of terrorism, while also being the financial capital
of the world, New York, with a large concentration of
international financial institutions that are also facing
enormous challenges dealing with this evolving and complicated
risk.
Terrorism financing is clearly an emerging threat, and as
ranking member on the House Foreign Affairs Committee's
Subcommittee on Europe, Eurasia, and Emerging Threats, it is a
topic on which I spend a lot of time. Therefore, Mr. Chairman,
I look forward to working with you and all of my colleagues on
the task force in seeking more effective approaches that do not
overly restrict financial institutions, but ensures that we
have the proper protection and safeguards in place for all of
our citizens. I yield back.
Chairman Fitzpatrick. I now recognize for an opening
statement the gentleman from New York, Mr. King, for 1 minute.
Mr. King. Thank you, Mr. Chairman. And at the outset, let
me also thank Chairman Hensarling for establishing this task
force. And I thank the ranking member, Ms. Waters, and also
Steve Lynch for the interest and effort that he has shown in
this vital issue over the years.
Like Mr. Meeks, coming from New York we saw firsthand the
horrors of an al Qaeda attack. I lost over 150 friends,
neighbors, and constituents. None of us ever wants to go
through anything like that again. So this is absolutely
essential, because financing is an integral part of the
terrorist network. I think it is especially true now in ISIL,
because while al Qaeda may have been able to carry out attacks
with limited financing, the fact is that ISIL does require
large amounts of funding because of the extent of its power
right now, because of the land mass it controls, and because of
the large numbers of personnel for whom it has to provide
funding.
So with that, I look forward to the work of this task
force, I thank the chairman for establishing it, and I look
forward, as I know we all do, to working in a very bipartisan
way. I yield back the balance of my time.
Chairman Fitzpatrick. I now recognize the gentlelady from
Arizona, Ms. Sinema, for 1 minute.
Ms. Sinema. Thank you, Mr. Chairman, and Ranking Member
Lynch for forming and leading this important task force.
The Islamic State has become one of the world's most
violent, dangerous, and well-financed terrorist groups. In
2014, the Islamic State generated approximately $1 million per
day. These funds were raised predominantly through the sale of
smuggled oil, but other funding streams include taxation,
extortion, and kidnapping for ransom. Over the past year, this
group raked in $45 million in ransom payments, and the
terrorist kidnapping operation only continues to grow.
Kayla Mueller, from my home State of Arizona, was one of
these captives. She was kidnapped while leaving a Doctors
Without Borders hospital in Aleppo, Syria. The Islamic State
demanded $6.6 million and the release of U.S. prisoners in
exchange for Kayla's life. After spending 18 months in
captivity, Kayla died in the custody of the Islamic State.
I met Kayla when she was a student at Northern Arizona
University, working to stop genocide in Darfur. She was mature,
thoughtful, dedicated, humble, and above all, caring. Her work
on behalf of humanitarian causes will never be forgotten and
her legacy of love and generosity, even in the face of terror,
will be forever remembered.
Terrorist groups such as the Islamic State constantly
develop new ways to finance their deadly operations and
threaten America. To keep our country safe, we must be one step
ahead of them. I am committed to working with my colleagues to
keep money out of the hands of terrorists and find solutions
that protect America's safety and security. I yield back.
Chairman Fitzpatrick. And I now recognize for an opening
statement the chairman of our full Financial Services
Committee, the gentleman from Texas, Mr. Hensarling, for 1
minute.
Chairman Hensarling. Thank you, Mr. Chairman. First, I
don't recall a hearing where I have ever been thanked so often
by so many Members on the other side of the aisle. I am very
glad this is on the record. But on a serious note, I think what
it shows is that when it comes to protecting our homeland, when
it comes to protecting our citizens, we, again, are Americans
first. I want to thank the ranking member for working to put
together this bipartisan task force.
I want to thank you, Mr. Chairman, for your commitment to
the issue, and I want to thank you in advance for your
leadership. I want to thank the ranking member, Mr. Lynch, as
well, and the vice chairman, Mr. Pittenger of North Carolina,
and all the Members. You are charged with an incredible
responsibility here. We know that the terrorist threat is
constantly evolving, morphing, metastasizing, and so are their
finances, and so you are each charged to ensure this task force
thoroughly examines and evaluates any need to upgrade and
improve our Nation's ability to starve the terrorists of the
financial resources they need to carry out their evil attacks.
I can think of no more somber responsibility than you have. I
thank you for undertaking it, I look forward to the task force
getting on with its work, and I look forward to hearing the
witnesses in this hearing. Thank you, Mr. Chairman.
Chairman Fitzpatrick. We now welcome our witnesses. Mr.
Juan Zarate is currently senior advisor at the Center for
Strategic and International Studies. He is also chairman and
senior counselor for the Foundation for Defense of Democracies.
Mr. Zarate served as the Deputy Assistant to the President, and
the Deputy National Security Advisor for Combating Terrorism
from 2005 until 2009. Prior to joining the National Security
Council, Mr. Zarate was the first Assistant Secretary of the
Treasury for Terrorist Financing and Financial Crimes. He also
served as a prosecutor in the Department of Justice's terrorism
and violent crimes section. Mr. Zarate received his
undergraduate degree from Harvard College and his law degree
from Harvard Law School.
Dr. Jonathan Schanzer is vice president of research for the
Foundation for Defense of Democracies. Prior to this
assignment, Dr. Schanzer worked as a Terrorism Finance Analyst
at the United States Department of the Treasury. He is also a
former research fellow at the Washington Institute for Near
East Policy. Dr. Schanzer has an undergraduate degree from
Emory University, a master's degree from the University of
Jerusalem, and a Ph.D. from King's College, London. He also
studied Arabic at the American University in Cairo.
Mr. Seth Jones is director of the International Security
and Defense Policy Center at the RAND Corporation. Mr. Jones
served as the representative for the commander, U.S. Special
Operations Command to the Assistant Secretary of Defense for
Special Operations. Prior to that, he served as a plans officer
and advisor to the commanding general, United States Special
Operations Forces in Afghanistan. Mr. Jones holds a bachelor's
degree from Bowdoin College, and a Ph.D. and a master's degree
from the University of Chicago.
The witnesses will now be recognized for 5 minutes to give
an oral presentation of their testimony. Without objection, the
witnesses' written statements will be made a part of the
record. Once the witnesses have finished presenting their
testimony, each member of the task force will have 5 minutes
within which to ask questions.
On your table, there are three lights. Green means go,
yellow means you are running out of time, and red means you are
out of time. The microphone is very sensitive, so please make
sure that you are speaking directly into it.
And with that, Mr. Zarate, you are now recognized for 5
minutes. Thank you.
STATEMENT OF THE HONORABLE JUAN C. ZARATE, SENIOR ADVISOR,
CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES (CSIS), AND
CHAIRMAN AND SENIOR COUNSELOR, CENTER ON SANCTIONS AND ILLICIT
FINANCE, FOUNDATION FOR DEFENSE OF DEMOCRACIES
Mr. Zarate. Chairman Fitzpatrick, thank you very much for
the kind introduction and the invitation, and Ranking Member
Lynch, Vice Chair Pittenger, and distinguished members of the
Task Force to Investigate Terrorist Financing, I am honored to
be testifying before you today and I thank you for the
invitation.
I am very pleased to be sharing the panel, and will
certainly defer hard questions to my colleagues to my right,
Jonathan Schanzer and Seth Jones. I count them both as friends,
but these are two of the Nation's best experts on the continued
evolution and threat from terrorism, and I know they will be a
great resource to you and to the Congress.
I have been privileged to work on the fight against
terrorism since before 9/11, first as a Federal prosecutor,
then as a Treasury official, and later as the Deputy National
Security Advisor for these issues. Now, I sit on the outside
with others studying, analyzing, and writing problems of
terrorism and the evolution of terrorist financing.
I will tell you that the threat of terrorism is growing
more diverse and dangerous, and the work of this new task force
and of the committee in focusing on terrorist financing is more
important now than ever before. The global threat of terrorism
is adapting quickly, with the ideology spawned by al Qaeda
taking hold in crisis regions and ungoverned spaces around the
world. The so-called Islamic State has taken territory and
erased borders in the heart of the Middle East, and runs a
diversified war economy, earning hundreds of millions of
dollars as it attempts to govern and expand its reach.
At the same time, terrorist organizations have adapted to
the pressure placed on their global financial networks since 9/
11 and have learned to raise and manage their own budgets by
becoming for-profit organizations that take advantage of the
economic resources and opportunities where they operate.
Just as the problem of terrorism is more global and
diversified today than ever before, the means and resources
that networks and groups have to raise and move money have
become more varied and localized. To contain the global reach
of terrorist groups and to thwart the manifestation of their
ambitions, we must disrupt their financing and force them to
make operational and strategic choices.
After 9/11, we all understood that defending the country
and undermining terrorism required deterring, disrupting, and
dismantling terrorist funding sources and networks. Whether it
is al Qaeda, the Islamic State, or Hezbollah, the reality is
terrorist groups need money to operate their networks,
implement logistics, maintain territory or influence, and to
plan strategically against the United States.
Any terrorist group, illicit network, or even a rogue state
seeking significant global reach and impact, needs access to
the financial and commercial system. Financial flows and
budgets become even more important as groups like the Islamic
State, Boko Haram, and Al Shabaab attempt to govern and operate
local economies, often baking bread and mending wounds while
fighting. Money is their enabler, but it is also their Achilles
heel. If you can cut off funding flows to rogue groups of
states, you can restrict their ability to operate and govern,
and force them to make choices, not only budget decisions, but
also strategic choices.
No doubt one terrorist operation can cost as little as a
thousand dollars to execute, but if that organization cannot
pay for all the sophisticated training it would like, cannot
adequately maintain its international and local alliances,
cannot maintain and develop all the programs and operations it
imagines, then its ultimate impact will be limited.
In maximalist terms, we can alter the enemy's behavior and
constrain its reach by affecting its bottom line. We have had
much success in the past doing this, but the economy and
ecosystem in which the enemy operates is constantly adapting,
and our playbook must not remain static. We know that terrorist
groups have devised new ways to run local economies and take
advantage of the territory they control. The Islamic State runs
a diversified war economy, from oil to the antiquities trade.
al Qaeda and the Islamic Maghreb has mastered the kidnap-for-
ransom business. The al Qaeda affiliate in Somalia, Al Shabaab,
runs a very creative charcoal-trade-based money laundering
scheme to raise millions of dollars. Dangerously, the conflict
in Syria and the growing Sunni-Shia divide is resurrecting old,
established networks and means by which terrorists have
justified support for their cause.
All the while, new technologies and innovations in the
storage and movement of money and value are reshaping the
international financial landscape.
There are also systemic concerns. The European system
remains under stress, and inherent and dynamic tension has
emerged between the isolation of suspect behavior and the need
for financial inclusion. In addition, the U.S. economy and its
power and its reach and the role of the dollar remains central
to the ability to use these authorities. But there are real
opportunities to continue to be effective in our campaign. The
playbook designed over the past 13 years is still sharp and can
be wielded with effect against targeted actors and networks of
concerns.
The blending of terror and criminality exposes networks and
terrorist groups to law enforcement and other pressure. We can
operationalize the type of financial and strategic suasion that
has made the campaign against terrorist financing effective,
finding new allies around the world. For example, to combat the
looting of antiquities for profit by the Islamic State, the
United States should help empower and enlist a whole set of
actors and networks already committed to the preservation of
people, texts and cultures.
And finally, Mr. Chairman, a new coalition should be
galvanized to stop the funding in terror and conflict from the
illicit wildlife trade, especially the decimation of elephants
and rhinos in Africa for their valuable ivory, which is going
to fund groups like Al Shabaab and the Lord's Resistance Army.
The campaign against terrorist financing cannot be treated
as a static venture, but it is an ongoing and critical part of
the changing landscape and the fight against terrorism. We must
constantly do everything possible to make it harder, costlier,
and riskier for terrorist groups around the world to raise and
move money.
And with that, I thank you for your time and attention, and
I look forward to your questions.
[The prepared statement of Mr. Zarate can be found on page
76 of the appendix.]
Chairman Fitzpatrick. The gentleman's time has expired.
Dr. Schanzer, you are now recognized for 5 minutes.
STATEMENT OF JONATHAN SCHANZER, VICE PRESIDENT FOR RESEARCH,
FOUNDATION FOR DEFENSE OF DEMOCRACIES
Mr. Schanzer. Chairman Fitzpatrick, Ranking Member Lynch,
Vice Chair Pittenger, and members of the task force, on behalf
of the Foundation for Defense of Democracies (FDD) and its
Center on Sanctions and Illicit Finance, thank you for the
opportunity to testify today. I am honored to appear here
alongside Juan and Seth.
For the brief time that I have allotted today, I would like
to talk about two areas of concern: Iran and Turkey. Mr.
Chairman, as you know, Iran is the world's leading state
sponsor of terrorism. Following the nuclear framework announced
on April 2nd and with the final deal expected by June 30th, the
White House appears poised to provide Iran with billions of
dollars in sanctions relief. This includes an estimated $100
billion that has been held in semi-restricted accounts in
China, India, Japan, South Korea, and Turkey. Plus, after
sanctions are suspended, Iran will be able to sell an extra $18
billion in oil. In total, Iran is set to receive up to $120
billion from this deal.
Mr. Chairman, a lot has been said about the nuclear deal,
but one thing is worth noting for today's hearing: The
sanctions relief could amount to the largest infusion of cash
to a state sponsor of terrorism in modern history. Iran will
now have more cash to bankroll terrorist groups like Hezbollah,
Palestinian Islamic Jihad, the Houthis in Yemen, Shiite
militias in Iraq, and more. And, actually, in today's Wall
Street Journal there was a note about tens of millions of
dollars from Iran flowing to the terrorist group Hamas.
Mr. Chairman, congressional oversight on the Iran deal will
therefore be crucial, and so will oversight over the remaining
sanctions architecture if a deal is reached. The enforcement of
existing Executive Orders, and the creation of new ones when
appropriate, will be vital to curbing Iranian support to
terrorism.
Mr. Chairman, Congress must also do more to halt the flow
of terrorism finance in Turkey. This NATO ally of ours has
quietly become a real problem. Turkey's southeastern frontier,
the territory along its 565-mile border with Syria, is now akin
to Peshawar, Pakistan, in the 1990s. It is the primary gateway
for today's jihadists, including the Islamic State and the
Nusra Front.
Turkish authorities have not only turned a blind eye to the
border traffic, they have also been accused of actively
assisting fighters to cross the border and shipping weapons as
well. Multiple reports further suggest that extremist
financiers, mainly from Persian Gulf countries, have been
camped out in hotels along the southeastern Turkish frontier.
The Islamic State also continues to profit from the sale of
oil and antiquities through Turkish territory. At its peak,
between $1 million and $2 million worth of oil was reportedly
smuggled daily to Turkey's border area to be sold through
middlemen. It is difficult to calculate the exact amount the
Islamic State receives from the antiquities trade, but The
Guardian reports that the group made an estimated $36 million
by selling artifacts from one area alone.
Meanwhile, Turkey has become the top external headquarters
for Hamas. Living there is Saleh Arouri, the founder of the
Qassam Brigades from the West Bank. Arouri is suspected of
raising funds for Hamas and of leading the group's West Bank
operations. There is also Imad al-Alami, about a dozen other
Hamas figures, and two well-known Hamas financiers.
There are further indications that Turkey has been
assisting jihadists in Libya since 2013. Greek and Egyptian
authorities have snared some weapons shipments, while Libyan
authorities have stopped others. In February, Libya's
internationally recognized prime minister accused Turkey of
arming the Fajr coalition, and a recent U.N. Report found that
Turkish firms are violating the arms embargo and shipping
weapons to anti-government factions.
Turkey, it should also be noted, facilitated a massive Iran
sanctions busing operation between 2012 and 2013. This ``gas-
for-gold'' scheme was shut down by Congress, but not before
Iran hauled in some $13 billion in gold.
Based on a leaked prosecutor's report last year, Iran may
have also benefited from another roughly $100 billion in
illicit Turkish transfers. This scheme included gold traders
from Istanbul, UAE money traders, Iranian and Chinese banks,
and an astounding list of senior Turkish government officials.
Looking ahead, Washington must challenge Turkey on its
wide-ranging support for illicit actors. Economic pressure, a
review of military cooperation, or even a review of its NATO
status could be used to alter Turkey's behavior.
Mr. Chairman, my written testimony covers a range of other
issues, including the intersection of crime and terrorism,
challenges associated with Gulf Arab states, and Egypt's
successful attempts to combat Hamas finance. I am happy to
discuss if these are of interest. On behalf of FDD, I thank you
for inviting me to testify.
[The prepared statement of Dr. Schanzer can be found on
page 58 of the appendix.]
Chairman Fitzpatrick. Thank you, Dr. Schanzer.
Mr. Jones, you are now recognized for 5 minutes.
STATEMENT OF SETH G. JONES, DIRECTOR, INTERNATIONAL SECURITY
AND DEFENSE POLICY CENTER, RAND CORPORATION
Mr. Jones. Thank you, Mr. Chairman, Ranking Member Lynch,
Vice Chair Pittenger, and other members of the task force.
Thank you for arranging and organizing this task force, and
thank you for its bipartisan nature. I think those outside of
government right now support the way in which you are doing
this and the subject as well.
I am going to divide my comments into two sections: the
first provides an overview of the evolving landscape, including
the financial components; and the second offers some
preliminary conclusions. Let me say before I begin, as I look
around the world and see attacks over the past several months
in Sydney, Australia, in Paris, in Ottawa, Canada, just north
of us, and even the arrests within the last couple of days in
Minnesota and San Diego of the ISIL-inspired individuals who
were planning to go there to conduct jihad in the Levant, do
demonstrate the important nature of the work that the task
force is doing and the threats that continue against the United
States.
Let me begin by focusing first on the nature of the threat
and the financing component, and I am going to focus on really
three sets of groups which I consider most important: the first
is al Qaeda and its affiliates; the second is ISIL and its
affiliates, which are growing; and then the third is the
Hezbollah component.
What is interesting, as I look at these groups, these sets
of groups, is how diverse the funding is, how challenging the
anti-financing, the counter-financing efforts have to be, and
the redundancy which these groups have had in trying to protect
themselves from our and our allies' efforts.
On the al Qaeda front, there still is a threat. We tend to
focus predominantly, including in the media, on the ISIL
threat, but there is a threat that emanates from Somalia, from
Yemen, from North Africa, from Syria, and now with al Qaeda's
newest affiliate, the one in the Indian subcontinent from this
organization. It continues to receive financing and funding
from a range of different sources. I think Juan mentioned
earlier that kidnapping is one source from which they have
brought in hundreds of millions of dollars over the last
several years.
I will note interestingly on the al Qaeda in the Arabian
Peninsula front, which I still consider the most dangerous
threat to the United States, based on its consistent plotting
against the homeland, again, diverse set of funding from zakat,
from mosque collections, from a range of licit and illicit
activities, including from territory that they control and
increasingly control with the collapse of governance in the
country that is running farms, that is kidnapping in the
country, that is taxing locals. But it is also very important--
they have raided a number of banks over the past several
months, including in Al Mukalla along the Gulf of Aden that has
brought in hundreds of millions of dollars, by one account,
about $325 million over the last several months from bank
raiding.
Second would be Da'ish, or ISIL, and its affiliates. As one
of my colleagues, Patrick Johnston, testified several months
ago, they have really done an important different step from
other al Qaeda groups in limiting their financing from Gulf
donors and focusing mostly on financing from within the Levant
itself, smuggling oil, as several people have noted here,
selling stolen goods, kidnapping and extortion, seizing bank
accounts, and then as Juan noted earlier, smuggling
antiquities. There is considerable diversity among a number of
affiliates, including Boko Haram.
And then finally, the Hezbollah dimension should not be
forgotten. Hezbollah continues to have a notable presence in
Latin America and an important role in the drug financing as
well.
In terms of next steps, let me just conclude by
highlighting three sets of issues which I would stress are
worth considering. One is that there are more jihadist and
terrorist groups than we have seen since I began focusing on
this in 1988. That means being very careful on the groups that
we are focusing on. And I would say I would put into this
category of high-threat groups a small subset that is focusing
on strikes in the U.S. homeland and strikes against the United
States overseas. That is al Qaeda in the Arabian Peninsula;
that is core al Qaeda, including Khorasan group in Syria; that
is Da'ish, or the Islamic State; some of the inspired
individuals; and Hezbollah, depending on how the Iran deal goes
and Hezbollah continues to operate; the focusing on a subset of
groups as being the most dangerous to U.S. security.
Second, using a range of the tools, including sanctions of
individuals, attacking money laundering and charitable
organizations continue to be important.
My final comment really is the third area, which I think we
are the weakest at, which is targeting local sources of
revenue, and that is identifying and targeting where they are
keeping money. It is not just in banks anymore. We know in
Yemen that they are targeting it in warehouses. So I would just
focus, again, and in the question-and-answer period on the
local sources of funding in addition to the formal banking and
other apparatuses as a key element. Thank you very much for
your time.
[The prepared statement of Mr. Jones can be found on page
47 of the appendix.]
Chairman Fitzpatrick. The Chair thanks the witnesses for
their opening statements, and now recognizes himself for 5
minutes.
I want to say just sort of at the outset that I believe we
all appreciate not just the time that you have spent here with
us today, but the significant amount of time with our committee
and each of us leading up to today's hearing as each of the
witnesses has really dedicated yourselves to public service,
service for our Nation in one of the most important and
sensitive and significant areas that I can think of. So we want
to start out by thanking you for everything you have done for
our country.
Mr. Zarate, in your opening statement, you talked about the
complement of the different organizations, from al Qaeda to Al
Shabaab, from 2001 to 2015, from operations that cost as little
as $1,000 to multi-million-dollar operations. So a lot has
changed over the last 15 years; some has not changed, some has
stayed the same.
I was wondering, if you could, just a sort of deeper
discussion on this question of terror financing, how it has
changed, has it increased, has it diminished as a global
threat, say, during the last 10 to 15 years?
Mr. Zarate. Mr. Chairman, thank you. And, again, it is an
honor to be here, so any help we can provide, I am absolutely
willing to do so.
I would categorize this in three different ways. I would
say that there remains the networks that have long been the
historic sources of funding for violent jihadi groups around
the world as well as state sponsors, and so those sources are
there. What we did post-9/11 was to disrupt, dismantle them,
deter them, suppress them, but with the rise of the Sunni-Shia
fight, with the festering conflict in Syria, with, again, the
need for humanitarian and charitable giving, some of those same
networks, deep pocket donors, charities, again, are important
and come to the fore.
You saw just the other day the U.S. Treasury in concert
with the Kingdom of Saudi Arabia jointly designated the Al
Furqan Foundation, a renamed charity from the past that
continued to operate and continues to raise funds in Pakistan
for purposes of al Qaeda. And so that is a demonstration that
these networks, including networks, by the way, al Qaeda
networks in Iran, which the Treasury has exposed, continue to
operate to raise and move money. So that is there.
Secondly, to Seth's point, and this is embedded in the
testimony, these groups have grown more local in raising funds,
and much of that revolves around their control of territory.
The reality of terrorist financing in 2015 is that in order
to disrupt terrorist financing of the type that we are
describing, you have to dislodge these groups from territory.
And so there is an even more important complement between our
counterterrorism and our military campaigns and our
counterterrorist financing campaigns than ever before, because
to dislodge ISIL from its sources of resources, you have to
dislodge them from Mosul; you have to take away the oil
resources they have; you have to cut off the channels that they
use to get money and antiquities to brokers in Turkey and
Kurdistan. So there is a physical dimension to the problem that
you didn't necessarily see in the 2002-2005 period.
Finally, I think you have a blending of these groups. There
is a quickening of the terrorist threat and the adaptation,
where not just terrorist groups are beginning to operate.
General Carter Ham talked about the coordination between al
Qaeda and the Islamic Maghreb, Boko Haram, and Al Shabaab, for
example, sharing money and weapons. But you also have groups
like Hezbollah deeply embedded and working with organized crime
and drug trafficking groups. And so what you have in this fluid
global environment are groups and networks, terrorists and
criminals, beginning to operate for profit with each other. And
that, in addition, I think, creates not just challenges, but
also opportunities.
So that is a way I would frame this. I would say you have
the old networks that are still of concern and are being
resurrected, the local dimension, which revolves around control
of territory, and then the blending of these networks and
threats that raise and move money.
Chairman Fitzpatrick. Dr. Schanzer, any follow-up?
Mr. Schanzer. Yes. I would agree with just about everything
that Juan has just stated, but I think I would note two things.
One thing that has not changed at all is the challenge of deep
pocket donors in the Gulf states. We knew that this was a
problem in the immediate aftermath of 9/11, and when you look
at the statements that have come out of the Treasury
Department, we continue to see challenges out of Saudi Arabia,
Kuwait, Qatar, et cetera. This is an issue that we have not
fully tackled yet. There has been better cooperation in some
cases, but in some cases we continue to see these intransigent
countries where they are not cracking down enough. I am
thinking of Qatar in particular. It is an incredibly
problematic jurisdiction.
One other note, and that is that we have, to a certain
extent, become victims of our own success. The Treasury has
done an excellent job of driving all these actors out of the
formal financial sector. It is a lot harder for them to move
money in our banking system, so what they have done, as Juan
has just noted, is they are now working more underground, with
local sources of funding. It makes it that much harder. And we
heard from Mr. Lynch earlier about the cooperation that is
needed, for example in Africa and other areas of weak central
authority. This becomes incredibly crucial once the formal
financial sector has been shut down.
Chairman Fitzpatrick. My time has expired. I now recognize
the ranking member of the task force, Mr. Lynch, for 5 minutes.
Mr. Lynch. Thank you. And, again, thanks for your work on
behalf of our country. I appreciate it.
The way ISIL, or Da'ish, is configured is qualitatively
different than what we have been dealing with in the past with
al Qaeda and Hezbollah. They actually control a huge swath of
territory in Iraq and Syria. They also control some of those
oil fields up around Mosul. So we have had a really hard time
with their cross-border transfers. And we have been out to Al
Qaim on the Iraq-Syrian border, and it is a very porous area in
terms of security. Those smuggling routes have been in
operation for 1,200 years, and they are still going strong.
Mr. Schanzer, your comments on Turkey are spot on. We went
up--myself and Mr. Ellison went up to the Syrian border, a
couple of the refugee camps there, and we were able to look at
some of our aerial and satellite imagery where you have trucks
going across from Da'ish-controlled areas going into Turkey
selling that oil, and yet when we confronted the senior members
of the Turkish government, they were in complete denial even
though we pointed out the evidence.
So we have some real trust issues there, and I am glad you
spoke to that issue. But it appears that, as you said in your
recent remarks, we are a victim of our own success in a way by
driving out through this regulatory deployment of
disincentivizing banks because of the reputational damage and
the risk for them to engage in terrorist financing.
We have done very well on that part, but FinCEN and
Treasury and the way we have deployed against this threat
doesn't seem to address this new iteration, which is cross-
border transfer of resources, whether it is oil or cash or
whatever it is, we don't seem to be really configured in a way
to address that.
Do you have a sense of how we could better post up against
what they are doing now?
Mr. Schanzer. Thank you for the question. And look, it is a
challenge. Part of the structures right now entail FATF working
with countries to establish norms to which they will be able to
better, for example, handle cross-border trafficking in both
cash smuggling and weapons transfers and the like, but at the
end of the day, speaking to Turkey in particular, the issue is
about cooperation. And as you note, if the Turks, for example,
are not willing to work with us, are not willing to acknowledge
the problem, we are going to have some challenges.
And so my assessment is that we need to work with the Turks
to perhaps address some of their concerns about Syria. We know
that a lot of the reason why they have opened this border is
because they seek the downfall of Bashar al Assad, and they are
very frustrated with us because we have reneged on our promises
with regard to the red line, et cetera, from a couple of years
ago.
Mr. Lynch. Yes.
Mr. Schanzer. That said, as legitimate as those grievances
may be, we are going to have to get tougher with the Turks
about that border. It is 565 miles long. It is manageable, but
we are going to need better cooperation; they are going to have
to stop the flow of weapons, the flow of fighters.
Mr. Lynch. Thank you. I have one more minute. And Mr. Jones
and Mr. Zarate, thank you as well.
One of the other things that we have been having a hard
time getting at is the resource flow through hawalas. Have
there been any--and I know, Mr. Jones, you mentioned zakat in
terms of revenue source as well, and I think there is straight-
out taxation going on in parts of the territory that Da'ish
controls right now, but have we been able to get at this
informal value transfer system, the hawalas and hawaladars that
operate in these areas, because a lot of it is based on trust,
I know it is tied closely to the mosque, and I know there is
some reluctance of even our friends in that region to get
involved or disrupt that. Have we had any measurable success in
that regard?
Mr. Jones. Mr. Lynch, that is a great question. The hawalas
have been clearly identified by multiple U.S. agencies as being
a source of serious concern, and they have been for some time.
There has been some success in interdicting some of the money
that has flown through hawalas if they are putting it in the
financial system, so if they are putting it in bank accounts
that have been disrupted. The challenge, though, is almost an
intelligence one if they are using second, third, and fourth
parties to hide that money in whether it is bank accounts or,
in some cases, we have seen it in Yemen in warehouses, storing
it in warehouses, is identifying the location of it.
So that is one issue. And, frankly, it is more of an
intelligence challenge than it is necessarily of at least
immediately disrupting.
Mr. Lynch. Yes, Mr. Zarate?
Mr. Zarate. Mr. Lynch, it is a great question. The U.S.
Government has been focused on this for quite some time. I was
in Abu Dhabi for the issuance of the first declaration on the
need to regulate hawalas. And since then, the FATF, the U.S.
Government, and others have focused on this in a regulatory
perspective, and so countries like the UAE have tried to
register hawalas as money service businesses, tried to impose
anti-money-laundering regulations to try to bring transparency
and accountability.
But Seth is right, much of this is getting into the
networks. And the United States has done that relatively well,
I think. If you look at the Afghan Threat Finance Cell, which
was established by the DEA and the military, they have actually
raided and gotten into some suspect hawaladars. Treasury has
designated some of them. And at the end of the day, hawaladars,
which basically rely on trusted brokers to transfer value
across borders, really do provide an ability to follow the
money. They keep meticulous records, they often know their
customers better than bank tellers know their customers, and it
is a matter of ensuring that those hawalas and hawaladars are
not doing anything illegal and not dealing with terrorists. And
I think that is a regulatory challenge, it is an enforcement
challenge, and it is also an intelligence challenge.
Chairman Fitzpatrick. The gentleman's time has expired.
Mr. Lynch. Thank you.
Chairman Fitzpatrick. I now recognize the vice chairman of
the task force, Mr. Pittenger, for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman. And thanks to each
of you again for the extraordinary availability and access that
we have had to you for briefings on these issues.
Dr. Schanzer, with the influx of likely hundreds of billion
dollars, $50 billion at the signing of an agreement, as
described, what capabilities do we have in terms of
intelligence and manpower to intercept the transfer of these
funds and the use of these funds that would clearly be diverted
to Hamas or Hezbollah, the Houthis, or even a growing interest
in Latin America? Can you address that?
Mr. Schanzer. Thank you, Congressman, it is a good
question. And the way that I would answer it is this: that we
already have a number of Executive Orders that could help us
enforce counterterror finance. I am talking about Executive
Order 13224, for example, which is our primary counterterrorism
Executive Order. And so, we have those things in place.
The question is, can Treasury, in relatively short order,
begin to identify the people who will be responsible for moving
that money and to block them from the formal financial sector,
to name and shame them? And we are talking about--we already
have a lot of these people identified, but there are many, many
more, and so if we are going to start to remove some of this
sanction's architecture that has kept Iran out of our formal
financial sector, I believe we are going to need to backfill
right now and really place a lot of effort on trying to
identify the ways that they may try to swarm the system with
terror finance.
It is a question, I think, of Treasury's priorities,
Treasury's staffing, and the overall will of the international
community. My concern is that we are going to try to placate
the Iranians right now and to give them as much leeway as
possible under this new framework, with the idea that it is
very delicate diplomacy and that we don't want to disrupt it,
but if we are going to be going about our counterterrorism
finance taskings, we really should be looking at ways to
designate more and more right now with those few months we have
remaining.
Mr. Pittenger. Just very quickly, if you could as a follow-
up, how realistic are we on these snap-back sanctions on Iran?
Mr. Schanzer. Snap-back sanctions, I think, are a fallacy,
from my perspective. The idea that we are going to start to
allow a number of multi-national corporations to go in and
start to invest hundreds of millions of dollars into Iranian
infrastructure, and then 3 months later tell them that they are
no longer able to be there because of a violation, you are
going to see a lag time, you are going to see negotiations and
bartering, you are going to see--the countries involved who are
going to stand to lose a lot of money, they are going to try to
negotiate an extension, they are going to probably try to
define down the definition of what cheating looks like.
And to be clear, we expect Iran to be engaged in
incremental cheating, smaller cheating, not large-scale,
because they know that if they go too large-scale, it could
trigger something like this. So there is going to be a very
delicate dance here with the reimposition of sanctions. I do
not have a lot of confidence that we will be able to snap them
back as the Administration says we might.
Mr. Pittenger. Thank you.
Mr. Zarate, give me some idea in terms of information-
sharing among agencies within our own government, and also with
the financial private sector. Can we do a better job of
improving that to track the data?
Mr. Zarate. Congressman, there is no doubt you can always
improve how the system is operating, but I think in the context
of counterterrorism and then in particular, counterterrorist
financing, information-sharing is about as good as you get in
government. That is not just the Treasury agencies, but the
other agencies in government that have a role to play, the FBI,
DHS, the intelligence community. So it works incredibly well.
And I think one thing that I saw develop over time was not
just the pipes and transoms that allow information to be shared
between organizations, but also communities of interest who
actually know and like working with each other around the issue
of terrorist financing. And so you have a counterpart, I think,
within the executive, within the interagency that knows how to
work these issues.
Now with the private sector, that is a bit more delicate,
of course. They are obligated to share information under the
Bank Secrecy Act, suspicious activity reports, currency
transaction reports, that happens by obligation, more pressure
on banks to do that properly, of course. And banks now have
gotten the picture that they are on the front lines, they are
the gatekeepers to the financial system and have a role to
play. Like it or not, that is their role. And they are now
devising internally better systems to understand their own
exposure and to share that information with government.
The problem I see, Congressman, is that is done in
stovepipes still, that is done institution to government
agency, as opposed to thinking about where is the exposure in
the banking sector writ large, or in other non-bank financial
sectors in the United States, and that is where you see the
seams in the system that terrorists exploit, Russian organized
crime exploits, and others that are trying to use and access
the U.S. financial system for illicit purposes. So I see that
as really the main challenge moving forward.
Mr. Pittenger. Thank you. I yield back.
Chairman Fitzpatrick. The Chair now recognizes the
gentleman from New York, Mr. Meeks, for 5 minutes.
Mr. Meeks. Thank you, Mr. Chairman.
Let me just pick up, because that is where some of my
concern, Mr. Zarate, is also where we are not looking. I
listened, and most of you have said that we have done a pretty
good job dealing with our financial institutions, are doing all
that we can in that area, but it seems as though that--and I
think, Mr. Zarate, you talked about it a little bit in your
testimony about social media and this new technology, and then
the dark web to raise funds and cover tracks. Can you talk to
me a little bit, how is that--do you see a lot of this
terrorism funding now, are people trying to hide their money
through these--the webs, different webs, dark web and social
media and things of that nature?
Mr. Zarate. That is a great question, Congressman. I think
you have two dimensions to this. One is the reality that you
have sophisticated actors using the formal financial system in
creative ways, layering their activities more and more over
time, and using those seams in the system that I described to
their advantage. For example, you have seen FinCEN put out
recently a Section 311 designation of an Andorran bank. As part
of that designation, they laid out three individuals and
schemes where individuals were providing money laundering
advice and schemes for the customers of that bank and others
involved in that network, in Venezuela, in China, and
elsewhere. And so there are formal mechanisms and sophisticated
actors that take advantage of the blind spots we have in our
system.
In one respect, Congressman, we have not done well in
understanding where there is beneficial ownership held by
criminal actors or illicit actors in our system. We still don't
have a regulation out that lays out what the requirements are
consistently across-the-board for the financial community as to
what beneficial ownership and control actually means and what
the requirements are for those institutions. Believe it or not,
in 2015 we are still not there. So that is an example in that
first dimension.
Mr. Meeks. Is that something that this committee should be
targeting?
Mr. Zarate. I think you should be asking hard questions of
the Treasury and the Administration, my former friends and
colleagues. This is something they have been working on for a
long time, but you need to ask that question, and things like,
where are investments going in the United States, how are bank
accounts being used, who is opening corporations in the United
States, and using those corporations as fronts? These are
critical questions.
Secondly, the dark web dimension of what you described, the
digital currency space, I see sort of two elements emerging.
One, those in the digital currency space that actually want
digital currency to be part of the formal financial system, or
at least a helpful part of financial payment systems, and they
are trying to finds ways of complying, they are trying to
create their technological design in ways that allows that to
happen.
The other side of it are sort of the more anarchist types,
the folks who started things like Darkwallet, that are actually
intended to not only hide movement of money, but to actually
break the system. The designer of that program, somebody I have
debated on the radio, who has literally said, ``I want to
create this as a money laundering vehicle.''
And so, yes, there are those out there who are trying to
use new technologies to actually evade scrutiny and counter the
very notion of an open and transparent financial system.
Mr. Meeks. And listening to your testimony--and anyone
could answer this--because I am really concerned, and I have
heard and know and understand the threat with Iran and what
they are doing to help finance. And then on the other side with
al Qaeda, you mentioned Saudi Arabia and Qatar, et cetera, and
we need cooperation some kind of way between the countries in
the region and others, Turkey, in order to be successful to try
to wipe this thing out.
What are we missing? What can this committee look at and
dig deep and ask other questions in that regard so that we
could make sure that this crossing of financing is not taking
place and more cooperation with the various countries in the
region?
Mr. Schanzer. I will take just a quick shot at this.
In short, we need to learn how to walk and chew gum at the
same time. We need to figure out how to go after the Sunni
networks. We need to figure out how to go after the Iranian
networks. And in some cases it has gotten very complicated
because, of course, the Iranians are working with us on some
level to combat ISIL, and then we are working with the Sunnis
to combat the Iranian proxies in Yemen, for example, against
the Houthis. And so it has gotten incredibly complicated.
The long and short of it is that we need to hold the same
standards for both sides. We need to continue to go after the
Sunni actors and the Shiite actors and to try to just keep our
eye on the ball.
I don't think we have done a good job at that. I think we
continue to make deals with one side or the other. We are
afraid to go after some of these Turkish actors because the
Turks are training up a force right now that is supposed to
fight Da'ish. It is a Gordian knot that we are going to need to
untangle at some point.
Chairman Fitzpatrick. The gentleman's time has expired.
The Chair now recognizes the gentleman from New York, Mr.
King, for 5 minutes.
Mr. King. Thank you, Mr. Chairman.
Let me thank all the witnesses for their testimony today
and also for the service they have rendered. I know Mr. Jones
has testified before the Homeland Security Committee a number
of times. Mr. Zarate and I have been on panels. And, Dr.
Schanzer, I have certainly admired your work over the years. So
thank you for what you are doing.
And I am going to try not to repeat the same questions that
have been asked. Certainly follow up on Mr. Lynch or Mr. Meeks.
It seems that because of the work done by people like Mr.
Zarate and others, the financial institutions--let me just go
back.
I would like to focus on ISIL. And it would appear that
much of the work that you did and Treasury did in the early
2000s would prevent ISIL from using financial institutions to
obtain funding. So let me ask you, how can this committee and
how can the Treasury Department, just focusing on ISIL, what
powers do we have to prevent ISIL from raising funding since so
much of it seems to come from within the areas that they
occupy?
Mr. Jones, you can go first.
Mr. Jones. Yes, Mr. King, that is a very good question.
One area that I would strongly suggest, and having been
involved in some of this myself, is encouraging our--I think,
as Juan noted earlier, there has been pretty good cooperation,
especially on the terrorism financing realm. And I would say
that is probably most true back in Washington. But where I
think there is room for improvement is on the ground.
I will take the special operations community, which does a
pretty good job of putting target packages together and going
after individuals or networks. I think the financial side has
been a secondary or a tertiary concern, including in places
like Iraq, so the focus ends up being people who are building
bombs and IEDs.
And so I would strongly suggest that we elevate the
importance of targeting the financial nodes in places like
Iraq. That means our military forces on the ground, including
our SOF, our intel community folks on the ground, working with
the Treasury and the intel community to identify the key
financial nodes, including the ones that Jonathan mentioned
earlier, the ones that are going across the border into Turkey.
And this will be using and working with our Iraqi, our local
partners, including in northern parts, our Sunni allies along
the border, and targeting those financial nodes.
The air strikes and other aspects of operations are
focusing on the security components, in my view, not the
financial components. I think that should be a very, very
important part of this at the tactical and operational level. I
think that is probably our biggest weakness.
Mr. King. Dr. Schanzer?
Mr. Schanzer. Look, for me, it is somewhat simple. In
actually trying to implement it, it is not simple, but you can
break it down into its components parts. You have to stop the
oil smuggling. And for that, you have to work to shut down the
border areas where it is being done. It is primarily Turkey,
although Kurdistan and to a certain extent Iran. And we need to
work on those borders. We need to make sure that the oil can't
get across.
That is going to represent some, let's say, 30 percent of
the--obviously, we don't know the exact numbers, but let's just
say it is 30 percent right now of the income for the Islamic
State.
Then you have to shut down the donor networks. That means
you need to start working with these Gulf countries that
continue to supply money to the Islamic State. It means doing
it in their own jurisdictions.
It also means doing it in these border towns that we have
seen across southern Turkey where they are camped out in hotel
rooms, and they are literally doling out cash to the jihadists
when they come back. And they will show them, they will hold up
their phone and they will show them the videos of the attacks
that they carried out in exchange for more payment from these
donor financiers. That has to stop, and we have to start to
work with these Gulf countries.
You have to shut down the antiquity sales. We have to
figure out who these people are who are paying for the
antiquities after these cities are being looted by the Islamic
State.
Mr. King. I am running out of time. If I could go to Mr.
Zarate on that, as a follow-up on that.
If you were in Treasury today, what could you do to address
the issues Mr. Jones and Dr. Schanzer mentioned?
Mr. Zarate. The first thing I would do, sir, is reinstate
the Iraq Threat Finance Cell, which we had created in 2006, to
look at how al Qaeda in Iraq and the insurgents were funding
themselves. They are engaged in bank robbery, oil smuggling,
kidnap for ransom. All the things we are talking about now,
they were doing on a microscale then. And you need the
intelligence and analysis to map it, Congressman.
Second, they do touch the formal financial system. Keep in
mind, there are approximately 90 banks in Iraq that fall under
ISIL' territory. They control some banks, we think, in Syria.
And so at some dimension, they are still touching the formal
financial system.
And then to Jonathan's point, these markets are very
important. I think I would have a mapping project around the
particular markets, oil, antiquities, look at the brokers, the
money service businesses, all that at some point begin to touch
the formal financial system.
And then I would bring in the law enforcement community
more aggressively to say, look, we have trade transparency
units at customs. We have agents at DEA who know how to get
into these networks. We have to get to the customs and port
authorities to cut this off.
And so I would have an all-out effort that isn't just about
Treasury authorities, but it is about the complement of
authorities on the ground with the intelligence community, the
military, and law enforcement.
Mr. King. Thank you.
Let me apologize to Dr. Schanzer. The clock was running
out, that is why I had to go to Mr. Zarate.
Thank you very much for your testimony.
And thank you, Mr. Chairman.
Chairman Fitzpatrick. Thank you.
The Chair recognizes the gentleman from Texas, Mr. Green,
for 5 minutes.
Mr. Green. Thank you, Mr. Chairman.
Permit me to ask about the U.N. We have talked about the
necessity for cooperation. And I would like to know to what
extent is that achievable through the U.N., and are there
obstacles to achieving success in the U.N.? And just be brief,
because I have a couple of other areas that I would like to
explore, so I will trust that you will move forward quickly.
Mr. Zarate. Congressman Green, good question.
The U.N. is incredibly important in this regard. The
sanctions regimes that are established under the Chapter 7
obligation, making it mandatory for all countries to put in
place the provisions, has been a very important parallel and
complement to all of the targeted sanctions programs that the
United States has put in place.
And so Executive Order 13224, which is our terrorist
financing Executive Order that has been implemented, is
complemented by U.N. Security Council Resolution 1267, and more
broadly, 1373. There is, from February of this year, a new U.N.
sanctions resolution on ISIL funding.
And that is important because it obligates countries then
to do what the U.N. demands. And in some countries there isn't
really independent authority other than what is demanded by the
U.N. And so that in many ways enables the global community to
try to shut down financing in other markets for these terrorist
groups.
Mr. Green. I am going to accept that answer, and I will
come back to you if there are others who would like to give an
additional answer, because I want to talk for a moment about
Hezbollah in Latin America. I understand that they are there
for a reason. They seem to be in the drug business, according
to what I have been told.
Can you give me some indication as to whether or not they
are spending some of this capital in Latin America to produce a
certain outcome, and if so, what do you think that outcome is?
Mr. Jones. That is a very good question. I think there is a
lot on Hezbollah's activities that we are not entirely clear
about, but I think that what we are clear about is that they
are raising substantial funds, and they do have relationships
with a number of drug cartels in Latin America.
As for their broader goals, one goal, in addition to
financing, does appear to be their interest in spreading what I
would call this broader Shia network operating not just in
South America, but also in Central America. That means
developing a relationship with IRGC Quds Force, Iran's
paramilitary arm, and then spreading that relationship into
places like Venezuela, Ecuador, and Peru. There are informal
Shia community centers across Latin America where we know
Hezbollah individuals have gone in and established
relationships.
I think there is also a potential concern down the road
that if they were to need to strike at some point, as they have
in the past, including in Argentina, they have cells in place
that they could use to conduct terrorist strikes.
Mr. Green. Anyone else care to add anything more?
Mr. Schanzer. I would just add one thing to what Seth said.
We have been watching Argentina very closely lately after the
apparent murder of Alberto Nisman. This is the investigator who
was looking into an alleged, very deep relationship between the
current government in Argentina and the Iranians. We are still
trying to get a sense of what was happening, but he was
prepared to provide very significant testimony about this
relationship and ended up being shot in the head and killed.
And so, we are watching this very closely. There is a lot
of concern that Iran may be looking at Argentina as an area of
influence that they would like to expand upon. And that could
include nuclear cooperation, include financial cooperation,
looking to set some kind of a perch in Latin America.
I would also just maybe add one more thing about the U.N.:
It has been crucial in terms of international cooperation
against al Qaeda and the Taliban. One thing that I would note
is that it is lacking in that it will not designate Hezbollah,
it will not designate Hamas. There is really a constrained
group of actors that the U.N. is willing to designate, and so
it allows for countries to say, well, we don't need to go after
Hezbollah or Hamas because they are not part of the U.N.
system.
Mr. Green. Thank you.
With the time left, I am very concerned about young people
in this country who travel to these distant places at some
amount of expense. To travel from the United States to Turkey
for a teenager requires some amount of money, and I am curious
as to whether or not these organizations are sending money to
them or finding some way to fund this travel, or are they doing
it with their own resources?
Mr. Jones. I think, Mr. Green, the answer depends on which
cases we are looking at. I think with the recent case of the
six individuals from Minnesota, two of whom were arrested in
San Diego, they used that money themselves. They were going to
be paid once they landed in either Turkey or Syria. And so, the
networks would have picked up their funding once they got into
territory controlled by ISIL.
But my understanding is they used their own money to buy
the plane tickets, and they cleared out their accounts before
they left. It doesn't cost a lot to fly over there, but it does
cost a lot for them to stay once they are there.
Mr. Green. Thank you.
And thank you for being generous with the time, Mr.
Chairman.
Chairman Fitzpatrick. The Chair recognizes the gentleman
from Florida, Mr. Ross, for 5 minutes.
Mr. Ross. Thank you, Mr. Chairman.
Mr. Zarate, to follow up on what one of my colleagues, Mr.
Pittenger, was talking about, prior to 9/11 there was this
almost independent activity amongst the investigative agencies
of the United States. Since 9/11, have you seen greater
cooperation, including in information technology, so that there
is a greater sharing of resources and intelligence?
Mr. Zarate. I think the answer is yes, absolutely. Part of
that is the necessity of the threat. Of course, part of it is
the institutions that have been created to do that precisely as
their mission, the National Counterterrorism Center, for
example, some of the intelligence offices. Keep in mind that in
2004 the Treasury created the first-ever Office of Intelligence
and Analysis that Jonathan was a key part of, the only finance
ministry in the world, by the way, that has an Office of
Intelligence embedded in it.
Mr. Ross. And is there still room to grow, or do we have
the safety net in place?
Mr. Zarate. No, there is room to grow, in two respects.
One, there is need in the government, despite the post-Snowden
criticism, for better technology to consolidate information. I
think the reality is we do not correlate data as well as most
citizens think we do, the government.
Mr. Ross. Right.
Mr. Zarate. And I think that technology needs to improve.
I think there also needs to be, as I alluded to before, a
better sort of dynamic of sharing information with the private
sector to understand where the real vulnerabilities lie in the
system. Not the one-off cases, not the one-off suspicions, but
where are the real systemic weaknesses in key sectors? That is
still to be done.
Mr. Ross. And those vulnerabilities are even significantly
domestic, are they not? In other words, is there not a
significant threat of terrorist dollars being invested
domestically here and that we are having problems following?
Mr. Zarate. Terrorist, criminal, illicit, and they often
blend, and I think that is a real danger. You saw, for example,
with the Hezbollah case tied to the Lebanese Canadian bank, the
use of 20 used car lots in the United States, and financial
mechanisms in North America to funnel money from South America
into West Africa, back into Lebanon, into the coffers of
Hezbollah to the tune of hundreds of millions of dollars.
And so there is no question that in a global financial
commercial system, the United States remains central, and we
have vulnerabilities just like other parts of the system.
Mr. Ross. Any particular regulations or anything that you
would recommend at this point domestically that we would use
that aren't already in place to try to track the investment of
these terrorist funds?
Mr. Zarate. I would go back to Treasury and the U.S.
Government and ask, where are we on the beneficial ownership
rules that are required of the system? This is part of the
customer due diligence that is required of financial
institutions by regulation. And the reality is we don't have a
common set of expectations put out by regulation as to what
that really means and what that means in terms of State
cooperation formation and in terms of how we monitor beneficial
ownership in our banking system.
Mr. Ross. One other question. With regard to, Dr. Schanzer,
when you talked about the $50 billion that may be a signing
bonus for Iran in the nuclear deal, is there any way to follow
that? Do we have anything in place that would allow us to
follow that?
Mr. Schanzer. Technically, if they move this money through
the formal financial sector and you could watch electronic
transfers--
Mr. Ross. But that is unlikely, isn't it?
Mr. Schanzer. That is exactly right. You are looking at a
country that has gotten very good at working through cutouts
and through front companies. In some cases, we have been
hearing about pallets of cash arriving in Hezbollah-controlled
territory in Lebanon or in Yemen. And so that is, of course,
incredibly difficult to follow. You just have to have great
intelligence of the fact that it is on its way.
Mr. Ross. Right. And, in fact, would you say that there is
a great deal of cooperation between the various terrorist
groups, between Hezbollah, Hamas, Al Shabaab? Would one ever
draw the conclusion that there is a terrorist central bank?
Mr. Schanzer. I would say that Iran is probably the
terrorist central bank in terms of the connections that it has
across all these various terrorist groups. And there is this
notion out there that Sunnis and Shiites don't work together,
but as Juan mentioned earlier, there is a significant cell of
al Qaeda operatives and financiers who are based in Iran.
Mr. Ross. And I will give you my last minute here to follow
up on what Mr. Zarate talked about with regard to, what would
you do if you were in charge? I know we want to work with
Turkey, but if they are not going to work with us, how do we
enforce? We have the U.N. that does resolutions but won't
enforce resolutions in non-U.N. countries. What would you do?
What would you suggest, what action should we take in order to
make sure that there is an enforcement provision to stop the
flow of these dollars?
Mr. Schanzer. I think there are a couple of options
available, and all of them will make people a little bit
uncomfortable because we have this very deep relationship with
the Turks, a longstanding friendship, a NATO alliance. But I
think that we could, for example, start to designate
individuals that we understand are part of this trade.
You could look at financial institutions as well that are
part of these networks. Now, this could induce a certain amount
of shock to the Turkish system, and, of course, President
Erdogan has been--
Mr. Ross. But it might get their attention.
Mr. Schanzer. Yes, it will get their attention. I am not
saying to do it all at once and sort of drop napalm.
Mr. Ross. Right, an incremental way to do it.
Mr. Schanzer. But really targeted financial sanctions that
could start to spook them a little bit.
Mr. Ross. Thank you. I yield back.
Chairman Fitzpatrick. The gentleman from Minnesota, Mr.
Ellison, is recognized for 5 minutes.
Mr. Ellison. I would like to thank the chairman and the
ranking member.
Gentlemen, thanks for all the good work you are doing to
protect our country. It is really important. And I just want to
echo the sentiments of my colleagues who have asked good
questions and praised you for the hard work you do.
But I want to get your views on the other side of the
problem, which is doing such a good job that good people
earning money in, say, my district in Minnesota, have a tough
time getting it to their good family members in Somalia. It is
not just a problem that my constituents come to me about, there
is also a national security angle here too, because it is not
good for Somalia, which relies on 40 percent of its gross
domestic product for foreign remittances, to lose that and then
be subject to the truly bad people.
I think it is important for me to point out that the people
who recruit my constituents, or try to, or send money to Al
Shabaab with money that they try to raise, are the true enemies
of the Somali people and my constituents. And I thank you for
trying to stop them.
But how do we thread the needle such that we stop the bad
money, which you guys are really good at doing, but allow the
people who are legitimately just trying to make sure school
fees and meals and all that, that money is getting through,
which I think you would agree is the overwhelming majority.
Could you all speak to this?
Mr. Zarate. Congressman, this is a critical point. It is
something I mentioned in my testimony, and I mentioned in my
book, that the strategies of financial exclusion, which is
really what we have been perfecting over the last 13 years,
could reach a tipping point where you begin to harm the very
important policies of financial inclusion.
And to your point, that begins to do several things. One,
it is denying access to the financial system to those who need
it and who we want to have access to it. That is everything
from charities to money remitters to those in the financial
system trying to get money abroad.
And that has been an effect of the de-risking that the
financial community has been engaged in. Banks are saying:
Look, it is not worth our time or the risk to engage in Somali
remittances, for example. We don't know if Al Shabaab, pirates,
or some other criminals are going to be on the back end of that
receiving money.
And so I think there is a range of things that need to be
done, first and foremost, I think with the industries involved,
both the banks and the money remitters, organizations like
Dahab-shil, which is the big Somali remitter, which is dealing
with this issue not just in the United States, as you know,
Congressman, but also in the U.K. acutely with the Somali
British community.
They need to come up with ways of understanding who their
customers are on the back end, because without that last mile
of assurance, there aren't going to be many legitimate
financial institutions that are willing to stick their neck out
to say: We want to do business with these folks without knowing
who we are doing business with. And so I think that is first
and foremost.
Second, we need to be creative with what governments can do
in terms of safe harbors or safe corridors.
Mr. Ellison. I agree.
Mr. Zarate. The U.K. government is experimenting. I know
you have been working with the Treasury and the White House on
this. And I think that is important. I think we need to be
creative.
Third, we need to be better with our intelligence. To
Seth's point, we actually need to understand where these money
flows are going because, as you say, much of it is going for
good causes, to feed families.
Some of these charities are doing good things, and we don't
want to shut that out of the system, in part because that
provides information and intelligence, in part because it is
good for the global economy, and in part because you do want
compliance and legitimate actors in these spaces. You don't
want these spaces absented and filled by nefarious actors or
those who aren't really going to care about what the U.S.
Congress or what the U.S. Treasury says.
And so we are really at an interesting moment because it is
not just what your constituents are dealing with, sir, but it
is really what the financial community is dealing with in terms
of derisking, because the banks feel at risk and other sectors
need to do their--
Mr. Ellison. Let me dive back in with my minute here. I
just want to point out that as I talk to OCC, Treasury, FinCEN,
the whole gang, I think that we had one Member of Congress who
asked them all--we had a meeting with all of them and the
question was asked, ``Who is in charge?'' And they all said,
``We all have a piece of it.''
I think that for the financial services sector it would
help a lot if we could say, ``You can do this, you cannot do
this,'' and try to get on the same page with that too.
Look, the United States spends a lot of money on AMISOM,
which is the international security force in Somalia. What if
we spent some money to help stand up a Somali central bank that
met international AML standards?
I don't have any time left, but I wonder if you could try
to respond to that. It seems like a dollar well-spent to me.
Mr. Zarate. I think a central bank in Somalia would still
have to deal with some of those last-mile risks that we are
talking about. And I agree with you, there needs to be
creativity, there needs to be more clarity. I think the real
challenge when you talk about terrorist financing writ large
and conflict zones is there is always going to be ambiguity,
and the question then is how do you manage the risk around
money flows in that ambiguous space.
And I think you see it in spades in Somalia, you see it
obviously in Syria, you see it around the world, where you
actually do want funds to go in for proper and good purposes,
but you have to figure out a way that those dollars or pounds
aren't getting into the wrong hands.
Mr. Ellison. Thank you.
Chairman Fitzpatrick. The gentleman from Pennsylvania, Mr.
Rothfus, is recognized for 5 minutes.
Mr. Rothfus. Thank you, Mr. Chairman.
And thank you, gentlemen, for being here today, and for
your long service to the country and the work you have been
doing.
Dr. Schanzer, I wanted to ask you a question. In your
testimony you detailed the actions of Iran, Turkey, Saudi
Arabia, Kuwait, Qatar, and Egypt to fund terrorism around the
world. And you all mentioned, the entire panel mentioned that
apart from Iran, all these countries are widely regarded as
allies of the United States.
Dr. Schanzer, out of these allies that you mentioned, which
country is the worst offender in terms of terrorism financing,
and what are we doing to address it?
Mr. Schanzer. Thank you, Congressman. I should just note as
a caveat that I wanted to note that Egypt is doing a
particularly good job right now. I don't want to include them
in the hit list that I provided you.
But look, when we look around right now, the Treasury Under
Secretary, David Cohen, who is now at the CIA, noted last year
that Kuwait was the worst. Although I think we have less
insight into all of the different actors, and we have
identified one minister, for example, who was ultimately forced
out of his job because he himself was involved in fundraising
for ISIL and other extremist groups.
But, again, we don't have a lot of insight there. The
Qataris are another major problem. We know that Hamas is based
there. We know that a number of individuals who have been
designated by the U.S. Government, in fact designated by the
U.N., have returned home to Qatar and they are there with
impunity. They are not in jail. They are able to travel. So the
Qataris have done a rather horrible job of enforcing our
designations, and they don't seem terribly concerned.
Mr. Rothfus. I want to follow up on that point, because you
mentioned ``deep-pocket donors'' in Gulf states. Do we know the
identities of these donors?
Mr. Schanzer. In many cases, we do.
Mr. Rothfus. And where are their deep pockets? Where are
they keeping assets that they can then draw on to fund terror?
Mr. Schanzer. This is the ultimate question that we are
trying to answer. And this is where cooperation with the United
States Government, I think both carrot and stick, is going to
be incredibly important. The fact that we know these people are
there, we know the fact that they are involved in this illicit
financial activity--
Mr. Rothfus. Are they holding assets in Kuwaiti banks or
Qatari banks?
Mr. Schanzer. We believe so.
Mr. Rothfus. Mr. Jones and Mr. Zarate, same question with
respect to identifying donors. And we had some discussion here
about individuals who set up at hotels in Turkey and fund
terror. Do we know the identities of some of these people?
Mr. Jones. Yes, in many cases we do.
If I can just add one caveat: The challenge that we have
with groups like ISIL, though, is that they are increasingly
not relying on state donors for their assistance. That is what
makes this group different from some of the other ones we have
identified. They are specifically trying to get away from this
vulnerability and not rely on Gulf donors.
Virtually every piece of declassified intelligence
documents that have come out from the Counterterrorism Center
have strongly suggested they are getting away--something like 1
or 2 percent comes from outside donors. So some groups--and
this is why I think it becomes important to differentiate--are
really trying to get away from that.
Mr. Zarate. Seth is right, but that may be increasing over
time as their control of oil resources, for example, is
diminished and their brand continues to expand. And so what you
have seen I think in recent months has been more not only
momentum internationally with more groups flying the banner of
ISIL, but more micropayments in.
So you have seen cases, for example, from Australia, from
North America, from around the world where it is not so much
that ISIL is sending funds out, but they are demanding
micropayments in. And so you have the problem of deep-pocket
donors potentially, but also micro-investors in the Islamic
States venture, and so that is a real challenge.
In terms of deep-pocket donors, this has always been the
golden fleece of the counterterrorist financing mission. Who
are these individuals? And I am a little less optimistic that
we know exactly who they are.
Mr. Rothfus. But we know some of them.
Mr. Zarate. We know some of them. And we also aren't always
sure we know what their motivations are. In the context of
Syria, this is what makes it so complicated. Are these
individuals raising funds for humanitarian needs for refugees
or are they intending their funds to go to Jabhat al-Nusra and
the Islamic State to buy bombs and bullets?
It is very hard to figure that out. And so, who is a deep-
pocket donor or not becomes a very difficult question and an
intelligence challenge.
Mr. Rothfus. I wanted to just talk to, really quickly, Dr.
Schanzer, about Iran. I agree with you that Iran continues to
be the worst actor and presents the greatest threat to the
United States and our allies in the Middle East. So assuming
there is a deal agreed to by June 30th, how much of a sanctions
architecture will remain at all, and will it be effective in
preventing Iran from sponsoring terrorism, whether Hezbollah,
Hamas, the Houthi rebels, militants in Afghanistan, or the
Islamic Revolutionary Guard?
Mr. Schanzer. As we understand it, we are going to see the
erosion of the U.N. sanctions architecture, the erosion of the
European sanctions architecture. It is likely that they will be
put back on--
Mr. Rothfus. But just really quick, given their sponsoring
of terror, wouldn't sanctions be justified independent of a
nuclear program?
Mr. Schanzer. This is where I think congressional oversight
should be crucial.
Mr. Rothfus. Thank you, Mr. Chairman.
Chairman Fitzpatrick. The gentleman's time has expired.
The gentleman from California, Mr. Sherman, is recognized
for 5 minutes.
Mr. Sherman. Thank you.
One of the things we ought to be worried about is the
financing of ISIL intentionally by our friends. You have the
Iraqi government making payments to civil servants in Mosul.
That money is taken, in part or in full, by ISIL. I have asked
numerous Administration witnesses, and they haven't answered it
one way or the other, but it is my understanding that the Iraqi
government provides electricity to Mosul and ISIL collects the
electric bill.
So the government of Iraq does not seem to be all that
serious. Yes, the people of Mosul are citizens of Iraq, but
General de Gaulle, during World War II, never sent free coal,
oil, or food to the people of occupied France, for a very good
reason. He was serious about dislodging the Nazi occupiers.
One question I have for whichever witness feels best or
most interested in answering is, what can we set up so that
Americans with families in Somalia can send money to their
family members knowing that it is getting to the right person
and not going to Al Shabaab?
Mr. Zarate. Congressman, good question. We addressed this a
bit with Congressman Ellison earlier.
I think the challenge here is there is no easy solution
because the question, regardless of the mechanism, whether it
is something from a U.S. Government facility, a safe harbor
through the private sector, some new central bank function in
Somalia, all ideas have been out there.
The question is, how do we assure ourselves and those
sending money and the regulators and enforcers that the last
mile of transaction is understood? That is to say, we
understand where the money is actually going and who is
receiving it.
Mr. Sherman. Yes. Even if it gets to the right person, that
person could be robbed by Al Shabaab the next day.
Mr. Zarate. Right.
Mr. Sherman. But could we certify certain financial
operators that this is a company that will get the money to
your relative and is not associated with terrorists?
Mr. Zarate. I think there is a way of thinking about that,
sort of a consumer best practice that is part of it. But there
is not going to be, I think, from the U.S. Government, at least
based on what I know--I am not in government anymore--a white
list provided or a safe harbor that will give a get-out-of-
jail-free card.
Mr. Sherman. The easiest thing for our government to do is
to do nothing and then decry the problem and say there is
nothing that can be done, because if they were issued such a
white list they would solve maybe 90 percent of the problem,
but there would be at least one mistake on that list and then
we would skewer them for it.
Mr. Zarate. Right.
Mr. Sherman. Let me go on to the next question.
Southeast Turkey has become a jurisdiction for terrorist
financing, weapons smuggling, illegal oil sales, a flow of
fighters into Syria. This, of course, serves Jabhat al-Nusra,
as well as the Islamic State. Have any of our witnesses seen
evidence that Ankara is deliberately turning a blind eye to
those using its territory to aid Jabhat al-Nusra or the Islamic
State?
Mr. Schanzer. Congressman Sherman, I recently wrote an
article with a colleague of mine at FDD where we tried to
address this problem. We have seen several indications,
unfortunately. One indication was, in fact, a conversation that
took place with a senior government official who confronted the
Turks about this issue specifically and was told that this was
something that the Turks needed to do for now in order to bring
down the regime of Bashar al-Assad, and that after Assad falls,
then they would be able to take care of the problem in a way
that only the Turks knew how.
Now, color me a little skeptical that this is something
that you can roll back. I think that actually over time the
fact that they have allowed extremists of various stripes to go
in has actually created a security problem on the other side of
the Turkish border. We now understand that there is
infrastructure there representing the Nusrah Front, ISIL, other
Salafi and jihadi groups. And so if the Turks begin to crack
down now, you could see blowback inside Turkey. And I think
that has a lot to do with why the Turks have allowed this
problem to get worse over time.
Mr. Sherman. I should point out, however, that the Iranian-
led alliance of Assad, Iran, the Houthi, Hezbollah, has killed
far more Americans and is far more dangerous in the future than
even those who have made these gruesome videos or who attacked
us on 9/11.
I believe my time has expired.
Chairman Fitzpatrick. The Chair recognizes the gentleman
from Illinois, Mr. Dold, for 5 minutes.
Mr. Dold. Thank you, Mr. Chairman.
And I want to thank our witnesses for your service to our
country, and thank you for testifying today.
I wanted to start with Mr. Jones, if I could. Mr. Jones,
your testimony highlights the expansion of Hezbollah and Iran
into the Western Hemisphere, specifically in Latin America. I
was wondering if you could walk us through the growth of
Hezbollah and Iran's terror activities in Latin America.
Mr. Jones. Sure. The growth of Hezbollah in part is a
function of Iran's growth over the past decade or two.
Particularly the key node for a while, while Chavez was alive,
was through Venezuela. And so Venezuela, Ecuador, and Bolivia
became key nodes for Hezbollah activity in the country, the
tri-border area in particular, but also Margarita Island, ended
up being key nodes for Hezbollah activity. They have
increasingly gained revenue, access to drugs that are flowing
from places like Latin America into West Africa and then back
into Lebanon.
I think there is also an interest in building, and we have
seen some of that, including in Central America, an
infrastructure that can conduct what we call in the military
realm kinetic strikes, if that is viewed as important,
generally against either Israel or Israeli Embassies or
potentially U.S. ones in the future, if there was a decision to
do that.
I can go into a lot more detail here or later, but I think
that is a 30,000-foot--
Mr. Dold. No, I appreciate that, and we certainly want you
to go into more detail, at least I would, and we can do that
offline but not here during questioning.
One of, obviously, the concerns we have is this growing
footprint, not just as we are focusing right now in the Middle
East, but this is growing and expanding as this role of terror
throughout the world.
Dr. Schanzer, I wanted to talk for a second just on
sanctions with Iran. You talked a little bit about it with Mr.
Rothfus. And as we look at this Iran deal and the potential $50
billion coming in, Iran is notorious in terms of just being the
greatest state sponsor of terror. Can you give us an idea in
terms of the sanctions infrastructure that was in place, did
that have an impact of stopping some of the terror financing?
Mr. Schanzer. In short, the answer is yes. And I believe
that sanctions infrastructure was ultimately what prompted the
Iranians to come to the table to negotiate.
Let's just say I am disappointed at the way that we have
already released a significant amount of those funds over time.
There has been $900 million at a time just to keep Iran at the
table, and that has added up to almost $15 billion by the time
we reach the deadline.
Then, on top of that, we are going to see perhaps that $50
billion signing bonus. And then there is going to be another
$50 billion from the semi-accessible accounts that Iran has in
places like China and Japan and Turkey and others. And so, that
is all going to be released as well.
Mr. Dold. So that is over $100 billion: $117 billion.
Mr. Schanzer. We are talking about roughly $120 billion all
in when this deal is made, that is what Iran stands to gain,
not to mention the ongoing sale of oil, which they will
continue to do.
But the most crucial aspect of the sanctions architecture
is actually the SWIFT system, the banking software that Iran
was kicked off of, save about a dozen banks. That is
ultimately, I think, the thing that the Iranians are most eager
to see reinstated.
And one of the things that I am curious about, and it could
be something that this task force could look into, is what
SWIFT plans to do in the event of a final deal with Iran. Will
they allow all of these banks to get back on to the system? If
they do, then you are really going to see a massive flood of
Iranian cash going back and forth on the formal financial
network.
Mr. Dold. Your hearing today--talk to the American public,
they don't think Congress works in a bipartisan fashion. Let me
just emphasize to you all that this is an issue that is wildly
bipartisan in terms of trying to protect the United States. We
looked at each of you and others to try to help us. This isn't
just us deciding to call you up before Congress and spend some
time. We want to figure out what we can be doing to have a
legitimate impact on trying to stem the tide of terror
financing around the globe.
And so with my 16 seconds, Mr. Zarate, can you give us some
more concrete examples of what we should be doing, either
through Treasury or through oversight, and it obviously is not
going to necessarily be legislation?
Mr. Zarate. You are absolutely right, Congressman. I think
this issue has always been bipartisan and it always should be.
Mr. Dold. Absolutely.
Mr. Zarate. And I commend you all for treating it as such.
Three key areas: First, I would say, what more can we do to
sharpen the tools and the power that we have to reach beyond
our borders to use the tools of financial exclusion?
Second, we need to look at what our defensive posture is,
because we have taught the world how to use these tools. The
Russians and the Chinese have begun to understand how to use
resources and the economy as weapons in hybrid warfare and
otherwise. So, what does that look like?
And third, to the discussion we were having earlier, what
does a strategy of financial inclusion look like as a
complement to the strategies of financial exclusion?
Those are three thematic areas I would look at, and I think
you have lots of work to do within those categories.
Mr. Dold. I look forward to working with you all.
Thank you, Mr. Chairman.
Chairman Fitzpatrick. The gentleman from Arkansas, Mr.
Hill, is recognized for 5 minutes.
Mr. Hill. Thank you, Mr. Chairman.
And I thank all of you for your testimony today and for
your work to protect the homeland.
Of course, American banks are heavily regulated in the bank
secrecy arena--CTRs and SARs have been referred to. Talk to me
a little bit about the Middle East, North African arrangements
and the international banks that are not Western European, Far
East, or American, on what they do in the money laundering
regime in that regard, the equivalent of a Bank Secrecy Act and
reporting regime.
Mr. Zarate. Part of the strength of this effort, and it is
important to note, is that it is international in scope. And so
it is not just what Congressman Green was talking about in
terms of the U.N. system, but you do have these international
norms and principles that are adopted by the Financial Action
Task Force, and leveraged by the IMF, the World Bank, Interpol,
and the U.N.
And so you do have these standards of anti-money-
laundering, anti-terrorist-financing, anti-proliferation-
financing, which are the heart of the international system. So
everyone is supposed to be playing by those rules.
The challenge is, of course, you have different levels of
capacity, but interestingly, the private sector, which has been
at the forefront of this, has been pressured to put in place
the kinds of anti-money-laundering systems and sanctions
screening processes that adhere to law, are very sensitive not
just to their own jurisdictions, but to what the U.S. Treasury
and what Western banking capitals demand.
Why? Because they need the connectivity for correspondent
banking purposes. They have to plug back into that system. And
so not just their own governments, but these Western banks are
now demanding to know and to be assured that their systems
actually work, that they know their customers, that they can
screen transactions, that they can implement the OFAC sanctions
from Treasury, even in the heart of Africa.
That is really a good news story and it is part of the
structure. The difficulty is not all jurisdictions and not all
banks are in the same place, and we have to lift all boats to
the same level of compliance. That is a hard thing to do.
Mr. Hill. Mr. Jones talked about targeting financial
targets as a part of our espionage operation, and I would like
to hear a little bit more about that. When you referenced that
a trade was made with $13 billion of gold, by my quick
calculations that is about 338 tons of gold. So I am curious
how that was transported, assuming it is not just done through
a customs receipt.
Mr. Jones. I think that comment came from Mr. Schanzer.
Mr. Hill. If you both maybe address it, talking about, do
we set an expectation in special ops, for example, that they
are given a mission of looking for opportunity on the financial
side as opposed to a security threat? So maybe Dr. Schanzer, go
first on the gold question, then I will go to Mr. Jones on
that.
Mr. Schanzer. Sure. Congressman Hill, the $13 billion that
I mentioned was actually over 2 years there were transactions
that were taking place between Turkey and Iran where the
Iranians were selling oil and the Turks were sending back gold.
They have found a loophole in the sanction system that enabled
them to do this as long as the gold was not destined to the
government of Iran, but rather to individuals.
And so what they were doing is literally taking gold that
was coming out of the bazaar in Istanbul, melting it down into
bricks, and sending them back one shipment at a time, and doing
that over the course of 2 years. Now, as it happens, Congress
caught wind of that and shut down what we are now calling the
``golden loophole.''
What was remarkable to me about that was that we actually
gave it a 6-month burn before it was actually put in place. So
for an additional 6 months--and this is still inexplicable to
me--this trade was allowed to continue and the Iranians and the
Turks were allowed to continue to settle up.
And so in total, it ended up being $13 billion. But those,
whatever it was, 338 tons that you mentioned, that took place
over many airplane shipments over the course of 2 years.
Mr. Jones. On the targeting, here is my general sense, and
I was in the Yemen region recently. My strong sense, the focus
of our efforts, just to use the Yemen example as one case in
point, the focus of our efforts in Yemen right now are
primarily targeting al Qaeda in the Arabian Peninsula
operatives, that includes our strikes, that includes some of
the limited training that we have done, not on the financial
sides.
So if we take the Al Mukalla bank that was raided, about
$325,000, $350,000, but we have seen hundreds of thousands of
dollars raided by other bank accounts. Some of that was kept in
warehouses. My sense is the focus of our efforts is not going
to target finding these locations and raiding them. They are
targeting individuals from the ideological committees, from the
military committees of al Qaeda, and not the financial
committees. And I would say that needs to be a major priority.
Let me just say on the other banking question that Juan
answered, we have had very good cases of organizations and
banks, like Kabul Bank, which have been used for terrorism
financing, for money laundering. And I saw President Ghani when
he was here recently. He has been willing to look a lot more
carefully at banking efforts and the use of Kabul Bank for
that.
So I think getting allies in place and leveraging their
interest and willingness to do that is helpful. And I would
highlight the Kabul Bank case as a positive news story.
Mr. Hill. Thank you for your generosity, Mr. Chairman.
Chairman Fitzpatrick. The gentlelady from Missouri, Mrs.
Wagner, is recognized for 5 minutes.
Mrs. Wagner. I thank you very much, Chairman Fitzpatrick
and Ranking Member Lynch. Thank you for your support and your
dedication.
I am grateful to Chairman Hensarling for establishing this
task force, and to all of you, our panelists, for your service
and for joining us today to go over the current landscape of
terrorist financing, which is quickly changing and growing.
I had the privilege and the honor of serving for 4 years as
a United States Ambassador in one of the financial hubs of
Western Europe, which was Luxembourg. And, Mr. Zarate, we
worked on a few things together. And I must tell you, stopping
terrorist financing as a United States Ambassador during that
time period was probably some of the most rewarding work that I
have ever done, and I am thrilled to be a member of this task
force.
Since arriving in Congress, I have taken on another top
priority in addition to the work I do on Financial Services and
on other committees, and that is to combat human trafficking
both domestically here in the United States and abroad.
I am very glad to hear that the Senate has reached an
agreement to move forward on important legislation addressing
human trafficking here in the United States. However, it is an
even greater problem abroad, and I saw this firsthand as a
United States Ambassador. Reports indicate that terrorist
groups are engaging in it, both to produce revenue for their
organizations and to decimate communities that they occupy.
Groups such as ISIL and Boko Haram have been known to
kidnap women and children and either sell them, as we have
talked about a little bit here in terms of the kidnapping, or
keep them as slaves.
To what extent, and I will open this up to all of our
panelists, is human trafficking occurring among terrorist
groups, and how is this being used as a source of terrorist
financing?
Mr. Jones. One perspective is that, certainly I think it is
occurring with every major organization we are talking about,
so it is a problem. It is not their only source of revenue. My
sense is where the most significant components of revenue come
from are in extortion and ransom paid as part of human
trafficking efforts. And we have seen groups like Boko Haram do
this, al Qaeda in the Islamic Maghreb do this--seize
individuals as part of human trafficking networks and then sell
them.
So I think this is one issue. I am not entirely convinced
this has been a major effort of our intelligence community and
our military in targeting them, certainly not as much as they
could.
Mrs. Wagner. I would agree, and that is why I would ask,
are there any that you are aware of, any current policies or
activities, both in the United States or internationally, that
are being utilized to crack down on human trafficking by
terrorist organizations in order to receive that revenue and
that terrorist financing money?
Mr. Zarate. Madam Ambassador, it is great seeing you again.
Mrs. Wagner. It is good to see you.
Mr. Zarate. And thank you for your work in Luxembourg. The
key work done in banking centers around the world after 9/11
was critical. So thank you.
I think what you have seen with human trafficking is that
it has been handled in three categories. The first is as sort
of its known niche issue, and so it hasn't been seen as a
broader dimension of the problem of terrorist financing or
illicit financing writ large. Second, it is seen in the context
of particular conflicts or crises, and so you get a lot of
focus when it comes to Syria, for example, or particular
crises. And then third, where it does touch terrorism and
illicit conduct, it is largely in the ransom context, as Seth
said.
And so you don't have an overarching sense of, okay, let's
look at human trafficking from the perspective of a major
source of illicit finance for not just terrorist groups, but
transnational organized crime groups that are often aligned
with or operating in parallel with these terrorist groups.
And when I talk in my testimony about needing to look for
new allies in the international system, this is precisely what
I am talking about. It may not be that we need an overarching
sanctions regime around this issue, but we do need to coalesce
around the issues that are providing sources of funding for
terrorist groups: wildlife trafficking; human trafficking; and
antiquities. These are issues where you do have communities of
interest who have information, and have the ability to shut it
down. And we need to empower them as part of a broader
strategy.
Mrs. Wagner. I appreciate that, and I would ask the
chairman if this is something that we can certainly as a group
and as a task force look into in terms of more that can be done
to restrict specifically human trafficking and the money that
is being realized by these groups.
Briefly, and I know it has been touched on, I just want to
say, and you brought it up, about the sale of artifacts and
antiquities, this is a growing, growing, area. And I would say
it is the Islamic State's second source of terrorist financing.
I have been working with some key outside groups and
stakeholders. They are going to be meeting with the committee
and doing some briefings. And I look forward to following up on
this. This is an untouched area. But in the art world,
antiquities and artifacts are the second-leading source in
terms of terrorist financing, and this is, again, something
that I look forward to the committee being briefed on and
delving into.
So I appreciate all of your time and service.
Thank you, Mr. Chairman. I yield back.
Chairman Fitzpatrick. I appreciate the gentlelady's work in
this area.
The gentleman from Arizona, Mr. Schweikert, is recognized
for 5 minutes.
Mr. Schweikert. Thank you, Mr. Chairman.
I have a couple of, sort of, scenario questions. The first
one I would love to get my head around is, it is always follow
the money, tainted money from around the world, whether it be
drug trade or other rather evil or dodgy activities, how does
it flow right now? How is it washed, how is it laundered, how
is it moved so in many ways it is spendable? And are those
mechanics now being used to move terrorist money?
So the scenario I am going to ask you to walk me through
is, is there a nexus now of the cocaine trade washing money?
Are those infrastructures now being used to move terrorist
money?
Mr. Zarate. I think it is a great question, Congressman,
because there is in some ways different ways of raising money
and moving money depending on the category of groups that you
are talking about. But at the end of the day, there is a
melding of methodologies among the types of networks that we
are concerned about.
Mr. Schweikert. But methodologies are service providers, as
we might call them.
Mr. Zarate. Both.
Mr. Schweikert. Are there mercenaries out there saying,
``Look, my job is I wash cash and move it.''
Mr. Zarate. Yes. And, again, the Section 311 action under
the PATRIOT Act put out by FinCEN just recently that designated
as a primary money-laundering concern this Andorran bank made
very clear that they were doing this in part because that bank
was being used to facilitate the funneling of tainted money
from around the world through very particular money-laundering
service providers. And so, that is exactly right.
You also have cases, and I alluded to this earlier, of
Hezbollah, for example, engaging in drug trafficking, working
with drug-trafficking organizations, and then figuring out ways
to launder the money. And so you had a bank like the Lebanese
Canadian Bank operating in Canada with a presence in Beirut,
serving as the financial vehicle through which the funds for
that drug trade and the sale in used cars was actually then
funneled back to Beirut for purposes of Hezbollah. So that is
an example of where you get the blending of the methodologies.
Mr. Schweikert. And for everyone, because I can work on a
scenario in my head, and hopefully it is not too fanciful, of
where you end up with a worldwide sort of consortium washing
money, and in some ways it is almost like the mechanics of,
okay, we have so much value here, credit our account there. And
you start being able to move value around without actually even
picking up the pallets of cash. Am I wrong?
Mr. Schanzer. You are not wrong. And a great example of
that was there was a corruption report that was leaked out of
Istanbul last year and we saw this massive network of gold
traders that were based in Istanbul, money traders that were
based in the UAE, Chinese banks, Iranian banks. And there was
an incredibly complex scheme where--I will give you a great
example of a tactic known as over-invoicing, where a UAE
company sold sugar to Turkey at $438 a pound. That is some good
sugar. And it was ultimately then sent back into the coffers of
the Iranians.
Mr. Schweikert. That is almost the perfect example of the
scenarios, and yet they could use legitimate trade channels
through that overpricing.
In the last 90 seconds we have, could you walk a scenario
through with me. Just randomly, I am in Great Britain, I want
to provide a large block of cash to terrorists or warfighters
in Syria. How does that money make its way? Walk me through the
path.
Mr. Zarate. You could do it several ways. You could do it
through aid organizations. You could establish a charity or use
existing charities and use the licenses and exemptions and the
sanctions regime to actually move money into charities that you
know are being used or that are controlled by a terrorist
organization. So that is a simple example through the terrorism
context.
You could, if you wanted to grow more complicated, you
could establish a front company, base it in any sort of
offshore banking center, establish a bank account in a certain
name, make sure you understand who the intermediary is in a
particular bank, for example, in Turkey, and you establish the
account. You have complicit bankers perhaps helping you do
that. And the money gets shipped to Turkey, the cash exported
through ATM or otherwise, and then moved across the border into
Syria.
Mr. Schweikert. All right. Thank you.
Mr. Chairman, at some point, I think it would be
fascinating to build a handful of little charts so there is
sort of the graphic representation of, here is how illicit
money flows, and even start to take a look at it moving around
the world, and then maybe also the weapons and products of
human destruction that sort of move the other direction with
the money.
And with that, I yield back.
Chairman Fitzpatrick. Comments are noted.
The gentleman from Maine, Mr. Poliquin, is recognized for 5
minutes.
Mr. Poliquin. Thank you, Mr. Chairman.
Gentlemen, all of us who are in public office take an oath
to support and defend the Constitution, which, of course,
extends to making sure that our families are protected here in
the homeland and beyond. I want to thank all of you gentlemen
for the great work that you are doing helping keep our
Americans safe. This is a nonpartisan issue, which I am
thrilled about. All of us in this room and all of our American
families, I think, have been increasingly alarmed at the growth
of terrorism and the level of savagery that has been displayed.
So it is really critical that we stay as a country on offense;
we must prevent this risk from coming to our homeland beyond
the way it has already happened.
Now, we probably also remember 9/11 beyond the horrific
loss of life; it put us into a recession. And so the threat of
terrorism around the world is also to disrupt our quality of
life, our way of life, our prosperity, and our freedoms,
because when you have an economy that goes into a recession as
a result of a terrorist attack, of course, you don't have the
tax revenues to educate your kids, to build your roads, or to
defend yourself. So you are doing great work and I am thrilled
to be a part of this.
Now, a couple of things I have heard today already as my
colleague from Minnesota and my colleague from California, all
mentioning the same issue that we have up in our Second
District of Maine and throughout our State is how do we
continue to make sure that our immigrant populations are able
to help their families back home without that money falling in
the hands of terrorists? We have about 5,000 Somali immigrants
in the State of Maine, and a good portion of them live in
Lewiston in my district. Many of them are shop owners,
hardworking, and they send $100 or $200 a month back home to
their relatives such that they can be clothed and fed and be
educated.
And we all have a vested interest in this, because if those
folks back home in Somalia have better lives, then they are
less tempted to engage in terrorist activities, which keeps us
safe here at home.
So we clearly have to fix this problem. You talked about
the last mile from the point at which the funds are received in
Somalia and to make sure they get in the right hands. Have you
folks engaged with any of our regulators, the Federal Reserve,
the FDIC, you have certainly done a lot of work in this regard,
to make sure there are processes, there can be processes? How
do we solve this problem to make sure that our Somali families
in Lewiston who are now unable, through the normal banking
channels, to get this money back home to their relatives, don't
start using other conduits that may, in fact, be shady and/or
illegal and be an increasing threat to our homeland? Sir?
Mr. Zarate. I certainly talk to my former colleagues at
Treasury about this, and they are seized with the problem. I
think the challenge for the U.S. Government is, as we talked
about before, government is very wary of providing full-blown
assurances or guarantees of any sort that would allow the
private sector sort of the assurance to be able to do this kind
of business.
That said, I do think there is a need for creativity here.
This is a new kind of problem and one where we need to balance
the need of financial exclusion, make sure Al Shabaab, for
example, isn't getting remittances, but realizing exactly what
you described, which is these remittances are essential for the
economy in Somalia and important for our Diaspora communities,
and so what does that look like. I think there have been some
creative ideas, but I haven't seen movement around what those
ideas actually would become.
Mr. Poliquin. Would that jurisdiction, in your opinion,
sir, be relative to this committee? What would be the process
you would suggest that we go through to make sure we solve this
problem for our families throughout this country?
Mr. Zarate. From my experience as the Assistant Secretary
of the Treasury for these issues, any time Congress sent a
letter to the Secretary of the Treasury, it got the Treasury
Department's attention.
Mr. Poliquin. Got it. Thank you very much. I would like to
move on to another question, if I may. I think I have time, Mr.
Chairman, for one more.
There has been a little bit of discussion today about if
the sanctions are lifted on Iran, it would result in a cash
infusion to their economy of $120 billion to $170 billion,
depending on some of the numbers with which we all are
comfortable. Could you give me an idea, Mr. Schanzer, of what
that represents to the Iranian GDP on an annual basis, and
also, what would that money buy them and how would that
possibly affect a risk to our U.S. security?
Mr. Schanzer. Thank you for the question. I don't have all
the economic numbers handy, but I am happy to send you those.
We can have our office send them over to you later today if you
would like.
The thing that I think is worth noting, though, is that
what we have is roughly $100 billion that has been held in
these offshore accounts. That $100 billion has only been able
to be tapped by the Iranians for approved goods. So in other
words, it has only allowed them to buy medicine, food, all the
things that would make sure that there is no dual-use items and
those sorts of things. So now what you are going to have is the
opening up of these floodgates where there will be no
restrictions whatsoever.
So it is not really--from my perspective, it is not about
the GDP or what percentage is--what kind of increase we are
getting, it is the fact that you are going to have the
restrictions lifted entirely on where they can send their money
and how they can do it. Of course, there will be regulations
that remain in place, the Executive Orders that we discussed
and the like, but the Iranians are going to have a much freer
hand with that cash.
Mr. Poliquin. Thank you very much, gentlemen. Keep up the
good work.
Chairman Fitzpatrick. The gentleman from Kentucky, Mr.
Barr, is recognized for 5 minutes.
Mr. Barr. Thank you, Mr. Chairman, and thank you for your
leadership on this task force. As we are approaching the end of
this hearing, I want to just express my appreciation for being
included on the task force. This is perhaps the most important
responsibility that we have as Members of Congress, to make
sure that the American people are safe, that our allies are not
threatened by terrorism, and in our capacity as members of the
Financial Services Committee, obviously stemming the tide of
funding for these terrorist organizations is a critical part of
that objective. Thank you to our panelists for your expertise
and your contributions in this area.
And if I could just follow up on my colleague from Maine
and his very good line of questioning with respect to Iran, Dr.
Schanzer, if you could just elaborate a little bit not just
about what it would mean to have an additional $120 billion-
plus in sanctions relief for the GDP of Iran, but specifically,
if you could elaborate on your testimony, your written
testimony about how--what can we predict or what might we
foresee in the way of scenarios of channeling of these
additional dollars that Iran would accumulate as a result of
additional oil sales and banking activities, international
banking activities in the way of prior conduct, specifically
Hamas, Hezbollah, and the rebels in Yemen.
Mr. Schanzer. Thank you, Congressman. So what we have is a
pretty prolific country here in terms of terrorism finance.
Hundreds of millions of dollars have flowed from Iran to Hamas.
We have seen missiles being sent from Bandar Abbas over to
Sudan, from Sudan smuggled up into Egypt, and then from there
across the Sinai Peninsula into the Gaza Strip, and we are
talking about thousands and thousands of those rockets. Of
those 3,500 rockets that were fired into Israel last year,
many, many of them came from Iran. Iran has also been taking
people out of the Gaza Strip, and training them on how to
manufacture these rockets themselves. So a lot of this is
investing in human capital as well. We can expect this to
continue.
We believe also that some of the tunnel-digging equipment
that has been used by Hamas has been provided by Iran. So there
is a broad range of activity here; the direct financing; and
the rocket-making and the training.
Hezbollah, also hundreds of millions of dollars. They right
now are currently believed to be in possession of 90,000
rockets, many of them Iran-supplied, facing south at Israel
right now, and they, of course, maintain a vast infrastructure
across the globe.
Mr. Barr. So to the direct question is--if I could just
interject--if this proposed agreement is finalized, can we
anticipate, given the sanctions relief that would be made
available to the government in Tehran, a rapid acceleration of
this type of financing of these terrorist organizations?
Mr. Schanzer. Absolutely, across-the-board. Houthis, the
Assad regime, Hezbollah, Palestinian Islamic Jihad, Hamas,
every one of these groups stands to benefit. They are all
salivating right now at this idea of a cash infusion.
Mr. Barr. And I know the other witnesses would like to
weigh in. As you weigh in, could you just comment on the
earlier testimony that Congress would need to work to backfill
the sanctions? What do you mean by that, and how is that even
possible, given the level of sanctions relief that is
contemplated under this agreement?
Mr. Zarate. Congressman, I think one core question for the
U.S. Government is how do we treat the Revolutionary Guard of
Iran? They are designated under the U.N. Sanctions for nuclear
purposes. They are not designated for purposes of terrorism.
The Quds Force is, which is a part of the Revolutionary Guard.
And so one dimension that you could consider is, what does the
U.S. Government and Congress consider in terms of the
Revolutionary Guard. Why is that important? Because in addition
to what Jonathan has laid out with such great articulation, you
have the Revolutionary Guard engaged in infrastructure
projects.
Cyber activities against U.S. banks: Keep in mind that the
distributed denial of service attacks that affected U.S. banks,
some of them have come from Iran.
And you have major corruption in the context of the mullahs
and the ayatollahs running bone yards around the world. And so
it is not just all of the very nefarious things that Jonathan
has laid out, it is these other systemic things that the
Revolutionary Guard and the regime itself can now finance and
fund and continue to do. And I think Congress has a
responsibility to ensure that those kinds of activities aren't
allowed to continue in the wake of a nuclear deal where we may
be hamstringing ourselves to use the sanctions regimes that
apply to those other activities.
Mr. Barr. One final question for Mr. Jones: Da'ish and
ISIL, how effective have American efforts been so far at
stopping the flow of financing to ISIL?
Mr. Jones. I think the evidence is pretty straightforward.
They are well-funded. There have been some successful efforts
to limit their money from oil smuggling and the money that is
coming from refineries, but they are well-funded. They are
getting that money centrally and pushing it out to a range of
places, including in Anbar province. But I would say across-
the-board, they have sufficient amounts of funding to continue
to operate not just in Iraq and Syria, but to continue to make
and establish networks in Afghanistan and in Pakistan, where we
have seen them, in Libya, in Somalia, and in Yemen and a range
of other locations. So it has not dented their ability to try
to expand.
Mr. Barr. Thank you. My time has expired, and I thank you
for your testimony. And it just goes to show we have a lot of
work ahead of us. Thank you. I yield back.
Chairman Fitzpatrick. The gentleman yields back.
On behalf of the task force, I want to, again, thank the
witnesses for your testimony and your time here 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.
Without objection, this hearing is adjourned.
[Whereupon, at 12:14 p.m., the hearing was adjourned.]
A P P E N D I X
April 22, 2015
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