[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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