[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
COULD AMERICA DO MORE? AN
EXAMINATION OF U.S. EFFORTS
TO STOP THE FINANCING OF TERROR
=======================================================================
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
__________
SEPTEMBER 9, 2015
__________
Printed for the use of the Committee on Financial Services
Serial No. 114-48
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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
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota
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
ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine
FRENCH HILL, Arkansas
C O N T E N T S
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Page
Hearing held on:
September 9, 2015............................................ 1
Appendix:
September 9, 2015............................................ 43
WITNESSES
Wednesday, September 9, 2015
Larkin, Daniel, retired FBI Unit Chief, and Founder of the
National Cyber Forensics and Training Alliance................. 9
Modell, Scott, Managing Director, the Rapidan Group.............. 5
Rosenberg, Elizabeth, Senior Fellow and Director, Energy,
Economics, and Security Program, Center for a New American
Security....................................................... 11
Shelley, Louise, Director, Terrorism, Transnational Crime and
Corruption Center, George Mason University..................... 7
APPENDIX
Prepared statements:
Larkin, Daniel............................................... 44
Modell, Scott................................................ 52
Rosenberg, Elizabeth......................................... 57
Shelley, Louise.............................................. 66
Additional Material Submitted for the Record
King, Hon. Peter:
Report of the American Gaming Association entitled,
``American Gaming Association Best Practices for Anti-Money
Laundering Compliance,'' dated December 2014............... 80
COULD AMERICA DO MORE? AN
EXAMINATION OF U.S. EFFORTS
TO STOP THE FINANCING OF TERROR
----------
Wednesday, September 9, 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 10:04 a.m., in
room HVC-210, the Capitol Visitor Center, Hon. Michael
Fitzpatrick [chairman of the task force] presiding.
Members present: Representatives Fitzpatrick, Pittenger,
Stivers, Ross, Barr, Rothfus, Schweikert, Williams, Hill;
Lynch, Sherman, Meeks, Green, Ellison, Himes, Foster, Kildee,
and Sinema.
Ex officio present: Representative Waters.
Chairman Fitzpatrick. The Task Force to Investigate
Terrorism Financing will come to order. The title of today's
task force hearing is, ``Could America Do More? An Examination
of U.S. Efforts to Stop the Financing of Terror.''
Without objection, the Chair is authorized to declare a
recess of the task force at any time.
Also, without objection, members of the full Financial
Services Committee who are not members of the task force may
participate in today's hearing for the purpose of questioning
the witnesses.
The Chair now recognizes himself for 3 minutes for an
opening statement.
As expert witnesses in prior hearings have correctly noted,
the threat of new, expansive criminal networks capable of self-
funding and financing terror is a very real risk around the
globe. From the Middle East to South America to the U.S.
financial institutions, the threats posed by an evolving sphere
of terror syndicates require a robust response both
internationally and domestically. While the United States has
significant tools at its disposal to degrade and inhibit
terrorist financing and money laundering, it is unclear to what
extent such tools have been effectively utilized.
As part of this task force's vital mission, today's hearing
will examine the current state of counterterrorist financing
efforts within the Federal Government to ensure that they are
meeting their intended purpose and, should they not be, to
identify areas which need improvement.
Furthermore, it must prepare us to evaluate the degree of
cooperation between the various Federal agencies involved in
countering terrorist financing and assess whether there should
be more involvement between the government and the private
sector to increase successful outcomes. Throughout the life of
this task force, we have heard from a myriad of experienced
professionals who have expressed insight from both the public
and the private sectors. There have been several mentions of
legislative actions Congress could take to strengthen U.S.
anti-money laundering and counterterror finance measures, such
as revising the Bank Secrecy Act to allow greater communication
and data sharing among banks or amending beneficial ownership
and control rules to ensure local and State enforcement
personnel have the ability to get information pertinent to any
AML/CTF investigation.
Improving the U.S. counterterrorism finance capabilities
could be a simple matter of increased funding for agencies
which are currently overwhelmed. Since its inception, FinCEN
has taken on an increasing number of responsibilities, thanks
in part to the ever-evolving field of cyber warfare, payment
systems, and the inclusion of policing money services
businesses. With the addition of so many responsibilities,
isn't it necessary to provide additional resources to ensure
effective implementation?
This is a small selection of topics I wish to discuss with
our panel today. This task force has clearly sounded the alarm
of the threat posed by self-financing terrorist organizations
and must ensure every option is considered in the U.S. response
to this danger. Today's hearing is an important part of
accomplishing the mission of this group in better protecting
American lives from increasingly well-funded and financed
terror syndicates. I look forward to the testimony of our
witnesses and the discussion between our Members.
I now recognize for an opening statement the ranking member
of the task force, the gentleman from Massachusetts, Mr. Lynch.
Mr. Lynch. Thank you, Mr. Chairman.
I also want to thank Vice Chairman Pittenger for holding
today's hearing. And I want to thank our distinguished
witnesses for their willingness to help us with our work on
this task force. I am pleased with the efforts our task force
has made since it was created earlier this year. During our
first congressional hearing this past April, we confronted the
diversity and scope of terrorist threats which have become more
varied and localized since the September 11th attacks. Our
subsequent hearings have investigated outstanding challenges
related to terrorist financing, including beneficial ownership,
cybersecurity threats, the nexus between crime, corruption, and
terrorism, and the Iran nuclear deal and the implications that
may have on our antiterrorist financing efforts.
At today's fifth and final hearing in this iteration of the
task force, we will examine policy proposals that aim to help
improve our Nation's efforts to combat terrorist financing.
Detecting and disrupting the flow of funding to terrorist
groups is essential in our fight against terrorism. And we are
all very aware of the threats presented by terrorist
organizations, such as the Islamic State and Hezbollah in the
Middle East, and Boko Haram and Al-Shabaab in Africa. Without
financial resources, these organizations will not be able to
fund their attacks, pay their fighters, and otherwise support
their operations. Thus, to effectively stop these groups, we
must cut off their funding.
One of the ways we can do this is by supporting regional
financial intelligence units (FIUs). This is why I am pleased
with our witness Scott Modell's recommendations that we take
full advantage of the information collected and stored by FIUs.
I also agree with Mr. Modell's suggestion that we explore new
ways to better analyze and use that information collected by
FIUs in order to stop illicit money flows. During overseas
codels, I try to make it a point to meet with regional FIUs to
get updates on efforts to combat terrorist financing around the
world. Witnessing the important work of FIUs around the globe
demonstrates 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. It is also crucial to
strengthen the relationship between FIUs, particularly with the
Financial Crimes Enforcement Network, our FIU, the U.S.
financial intelligence unit. This should be done in accordance
with the landmark recommendations issued by the Financial
Action Task Force, which is an intergovernmental body
consisting of over 30 member jurisdictions dedicated to
strengthening worldwide antiterrorist financing and anti-money
laundering policies. I look forward to hearing from our
witnesses so that we can examine these issues further. I yield
back the balance of my time.
Chairman Fitzpatrick. I now recognize for an opening
statement the vice chairman of the task force, the gentleman
from North Carolina, Mr. Pittenger, for 2 minutes.
Mr. Pittenger. Thank you, Mr. Chairman.
And thank you, Mr. Ranking Member, for your hard work and
dedication to these issues throughout the efforts of the task
force. Over the past five hearings, briefings, and roundtables,
we have gained important insight into the threats facing our
Nation, how they are funded, and the many obstacles we face in
intercepting those funds.
Just last week, the chairman, my friend, Mr. Meeks, and
myself had the chance to meet with officials in Europe and the
Middle East to further understand these threats and those
obstacles. The theme of my discussions was Iran and the $100
billion it will receive as part of this Administration's deal.
Preventing those dollars from funding terror should be a major
priority. The delegation visited FATF in Paris, Turkey, Qatar,
and Kuwait. We got a chance to see firsthand the challenges
that they face.
While I oppose this Iran deal, it should be a diplomatic
priority for this Administration to reach out to those
countries and others in the region to ensure that they utilize
their resources, capabilities, and incentives to fully enforce
their counterterrorism finance laws within their sovereign
borders. But this hearing is on the challenges we face
domestically. Over these past few months, we have often heard
about information sharing. And increasing the information we
have and use will give us a better opportunity to stop the flow
of funds to terrorists. Our hearing today will focus on exactly
that, the steps we can take to better ensure that we are
cutting the funding to terrorists, and protecting the security
of America against our enemies.
I look forward to the testimony from the witnesses before
us and the opportunity to strengthen our efforts. And I look
forward to working with my colleagues on this task force in a
bipartisan manner to implement the ideas before us today.
Thank you, Mr. Chairman. I yield back.
Chairman Fitzpatrick. I now recognize the gentlelady from
Arizona, Ms. Sinema, for an opening statement.
Ms. Sinema. Thank you, Chairman Fitzpatrick, and Ranking
Member Lynch. The title of today's hearing is, ``Could America
Do More? An Examination of U.S. Efforts to Stop the Financing
of Terror.'' The answer is clearly yes. I appreciate our
witnesses' testimony and I agree that the Federal Government
must change its approach and mindset to counter the financing
of terrorism. My focus throughout these hearings has been on
countering ISIL funding. ISIL fights locally and inspires
terror internationally. But it is different from other
transnational terror organizations. Its economic engagement
with the outside world is limited. And it derives most of its
funds from areas near or under its control.
This task force has received testimony that the internal
sale of oil is a significant source of income. But it is the
taxation, extortion, and theft throughout the entire supply
chain that funds the organization. ISIL levies taxes and fees
at every stage of production, at key roadway crossings, ports
of entry, and areas under its control. It replicates this model
in other markets, like banking, where it robs and then operates
local bank branches, gaining money through the taxation or
extortion of the population and businesses it controls. Given
the closed nature of the majority of ISIL's revenue streams,
how can we do more to counter ISIL's revenue sources? I look
forward to hearing more from our witnesses today about how we
should restructure our counterfinance operations so we have the
flexibility to effectively counter ISIL's largely domestic
revenue streams and fight other terrorist organizations with
different funding models.
Thank you, Mr. Chairman. I yield back.
Chairman Fitzpatrick. We now welcome our witnesses.
And I recognize Mr. Rothfus of Pennsylvania for the purpose
of introducing his constituent from Pennsylvania.
Mr. Rothfus. Thank you, Mr. Chairman. It is my pleasure to
welcome and to introduce Mr. Dan Larkin from my hometown of
Pittsburgh, Pennsylvania. Mr. Larkin served in the FBI for more
than 24 years and established the first cyber fusion unit for
the Federal Government, enabling government and law enforcement
to effectively co-locate with subject matter experts from
industry and academia. This unit substantially enhances
resource sharing to the mutual benefit of all participants.
Private sector partners include numerous financial services
organizations, telecommunications, technology, and e-commerce.
Law enforcement partners include a growing list of Federal,
State, and local agencies, as well as international
investigators from more than a dozen countries.
Mr. Larkin also developed one of the first high-tech crime
task forces in the United States. This unique collaboration of
assets also led to the development of the first national
public-private alliance to identify and combat cybercrime. It
is known as the National Cyber Forensics and Training Alliance.
Mr. Larkin also co-authored the FBI National Cybercrime
Strategy in 2002.
Again, it is my pleasure to welcome Mr. Larkin here today.
And I am sure that we will all benefit from his experience and
expertise on these important issues.
Chairman Fitzpatrick. Welcome, Mr. Larkin.
Mr. Scott Modell is managing director at the Rapidan Group.
Mr. Modell is a highly decorated former Central Intelligence
Agency officer who served for 13 years in the Directorate of
Operations with five tours conducting Iranian operations in
Latin America, Western Europe, and the Middle East. He also
participated in post-9/11 operations in Afghanistan as a member
of paramilitary counterterrorism teams composed of CIA officers
and local Afghan forces. Mr. Modell is fluent in Spanish,
Farsi, and Portuguese, and received his master's degree from
the Georgetown School of Foreign Service.
Dr. Louise Shelley is founder and director of the Terrorism
Transnational Crime and Corruption Center at George Mason
University. Dr. Shelley is also the Omer L. And Nancy Hirst
Endowed Chair and professor at George Mason University. Dr.
Shelley is a leading expert on the relationship between
terrorism, organized crime, and corruption, as well as human
trafficking, transnational crime, and terrorism. From 1995
until 2014, Dr. Shelley ran programs in Russia and Ukraine,
with leading specialists on the problems of organized crime and
corruption. Dr. Shelley holds a master's degree in criminology
and a Ph.D. in sociology, both from the University of
Pennsylvania. She received her undergraduate degree from
Cornell University in Russian literature and penology.
Elizabeth Rosenberg is the senior fellow and director of
the Energy, Economics, and Security Program at the Center for a
New American Security. Ms. Rosenberg served as a senior advisor
at the U.S. Department of the Treasury, where she helped to
develop and implement financial and energy sanctions. She also
helped to formulate anti-money laundering and counterterrorist
financing policy and oversee financial regulatory enforcement
activities. Ms. Rosenberg received an MA in Near Eastern
Studies from New York University and a BA in politics and
religion from Oberlin College.
The witnesses will now be recognized for 5 minutes each to
give an oral presentation of their written testimony.
And 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; yellow; and red.
Yellow means you have 1 minute remaining. And red means your
time is up. The microphone is sensitive, so please make sure
you are speaking directly into it.
With that, Mr. Modell, you are recognized for 5 minutes.
Welcome.
STATEMENT OF SCOTT MODELL, MANAGING DIRECTOR, THE RAPIDAN
GROUP
Mr. Modell. Chairman Fitzpatrick, Ranking Member Lynch,
and members of the task force, good morning. Thank you for the
opportunity to testify today. Terrorism financing has become
one of the most pressing national security challenges. Yet, in
my opinion, the plans, programs, and practitioners are falling
short of where they need to be. My contention today is simple:
many in the U.S. Government know just enough to be dangerous
about finance or transnational organized crime but not enough
to significantly impact crime or terror organizations.
For the past decade or so, the U.S. Government has
attempted to develop a professional cadre of law enforcement
agents, civilian and military intelligence officers, analysts,
and others to pursue a new field of operations which has been
called counter threat finance. Their purpose was to effectively
counter the financial and logistical depth and sustain the
capacity of our adversaries who are engaged in irregular
warfare. It was thought that hitting the finances, financiers,
and illicit networks would become an important means of
warfare. But progress has been limited.
Looking ahead, it would serve us well to take an agency-by-
agency account of what we collectively know about terrorism
finance, an audit of each agency's CTF track record and current
trajectory, and ways to either add or pare down their
respective roles and missions as part of a whole-of-government
approach. This should not seek to bring all agencies together
all the time. Threat mitigation working groups or interagency
task forces and the like are usually stood up with the best of
intentions and may last for a while but often end with poor
results.
A few of my recommendations today include the following:
Number one, we need a detailed and comprehensive starting point
for ourselves and for our liaison partners. We need to agree on
how to better prosecute a results-dependent intelligence and
law enforcement campaign, not just a series of one-off strikes,
arrests, or asset recruitments. The way to begin is by building
a CTF order of battle that maps key networks on a global scale,
along with a tactically flexible and transnational plan of
attack.
Number two, I say we need to take the gloves off. I think
that intelligence collection, law enforcement actions, and even
covert action must take place inside some of the worst
financial havens and terrorist-enabling states such as Kuwait,
Qatar, and Lebanon. Too many U.S. missions around the world
maintain an ultra-cautious posture when it comes to
investigations, arrests, and other operational activities
inside countries where financial terrorism targets are active.
A prime example is Hezbollah. We too often avoid operations
against Hezbollah's illicit financial apparatus inside Lebanon
because we don't want to destabilize the Lebanese banking
system or embarrass corrupt Lebanese government officials who
work alongside Hezbollah.
Number three, we need to develop career professionals who
better understand finance and transnational organized crime. To
attack prime terror pipelines that run through the
international trade and banking system, we need to have more
officers who have hands-on expertise to be able to think
creatively in this space in order to understand the constantly
evolving illicit trade craft and sophistication employed by
truly transnational organizations. This requires basic and
advanced training in international finance banking and trade,
of which there is not nearly enough today.
Number four, I think we need to rebuild the operational
capacity of our Treasury attaches, start by taking complete
after-action account of OFAC designations on key target sets,
starting with Iran. If you want to put Treasury on a war
footing, it needs to better understand precisely how our
sanctions designations and so forth have affected banks,
investment companies, exchange houses, and other financial
nodes of terrorist networks, how those entities and individuals
have countered, and the degrees to which they have been
disrupted, dismantled, or destroyed.
Stronger Treasury force should be engaged in up-close and
personal investigations of banks, hawalas, exchange houses, and
others that continue to operate even after being designated.
The last two things I would suggest are, one, information
operations, usually reserved for the military, but it is a
capability that I think could be used effectively in the CTF
realm. To magnify the impact of CTF law enforcement operations,
information operations should use U.S. and local media outlets
to expose terrorists and their supporters, educate publics that
are largely unaware of how terrorists move money through
corrupt financial systems, and warn them of the consequences of
abetting terrorists. Information operations can also be used to
positively bolster the reputation of foreign police, intel and
military efforts, or to negatively embarrass governments,
companies, and individual collaborators.
Finally, I would say the Rewards for Justice Program--in my
experience, money is probably the single biggest incentive to
sources, facilitators, and testifiers who assist U.S. law
enforcement investigations and operations or intelligence
operations, for that matter. I think we need to think about how
to use Rewards for Justice in a much more creative way as a
tool to motivate not only individual sources, but also our
foreign liaison partners. A coalition of well-intentioned
states, which I think we have, that is based on a common
aversion to transnational organized crime is good, but it will
only go so far. I think we will have a lot more success when it
is linked to potential financial reward. Thank you.
[The prepared statement of Mr. Modell can be found on page
52 of the appendix.]
Chairman Fitzpatrick. Thank you, Mr. Modell.
Dr. Shelley, you are now recognized for 5 minutes.
STATEMENT OF LOUISE SHELLEY, DIRECTOR, TERRORISM, TRANSNATIONAL
CRIME AND CORRUPTION CENTER, GEORGE MASON UNIVERSITY
Ms. Shelley. Thank you. It is a great honor to be here and
address this task force. I think we need to broaden our concept
away from terrorist financing and focus on the concept of the
business of terrorism. Why do I believe this? Terrorism
financing looks at what has been done and is being done to fund
a terrorist organization. It is reactive, rather than
proactive. But terrorist groups function like multinational
businesses and are always looking for future opportunities to
stay in business. Therefore, the business of terrorism examines
more broadly the way terrorists generate funds and solicit
personnel for future activity, just as we have seen with ISIS
and its sophisticated recruiting schemes. The business of
terrorism looks at marketing strategies, targets of
opportunity, and other methods that they use. And terrorist
financing fails to address the fact that terrorists are acting
like businesspeople and need to be countered as business
competitors. That is why it is very useful to partner much more
with the business community, as I will be talking about.
Almost all terrorism these days is funded by crime,
although much of transnational crime remains independent of
terrorism. Therefore, we need to stop stovepiping the separate
responses to crime and terrorism and to analyze them together
and have countermeasures that work in this way. This is being
done successfully by the New York and Los Angeles Police
Departments, integrating local efforts with Federal efforts.
And it needs to be expanded to other jurisdictions. We need to
focus more on the drug trade and concentrate not only on the
drug trade but concentrate on the smaller scale illicit trade
that supports so much terrorism in the United States, Europe,
and North Africa. One of the Kouachi brothers responsible for
the Charlie Hebdo massacre in Paris traded in counterfeit Nikes
and cigarettes. Similar crime is found as crucial support to
terrorists by NYPD.
Terrorists use corruption to execute their business
activities just as organized crime always has. Therefore, we
need to integrate analyses of corruption into crime and terror
analyses. Public-private partnerships are key in addressing the
business of terrorism. Businesses have insights on how to
combat business competitors. And these insights need to be
shared with governmental personnel who have less experience
with business. And I also give illustrations in my written
testimony of concrete examples of successes. And I am sure we
will hear more about this in the cyber area. We can hear about
this in the energy sector.
And we need to collect intelligence on terrorist financing
derived from diverted and counterfeit examples of commodities.
But I should also add that I think we need to also be focusing
on money laundering by terrorist groups into the real estate
sector. We have a hole in the PATRIOT Act in reference to real
estate. And I believe it is being exploited not just generally
but even in the Washington, D.C. area, talking to real estate
agents. So I think that this is an area that needs much more
focus.
What do we need to be doing? We need to be focusing on
terrorist business rather than just financing, looking at trade
and products, targets of opportunity, use of technology, as we
are going to hear, and recruitment of personnel. We need to
establish working and advisory groups with sectors of the
business community whose products are likely targets of
terrorists. I know there have been good working relationships
with the technology sector, but not as much with those in
manufacturing goods, pharmaceuticals, cigarettes, and oil, that
need to be integrated into this. As I mentioned previously, we
need to be using terrorists or antiterrorist models based on
LAPD and NYPD. And we need to develop more controls over crypto
currencies such as bitcoin and many other emerging Web-based
currencies that are hard to trace and are key to the financing
and the trade of terrorists that is going on both in the real
and the virtual world. Thank you.
[The prepared statement of Dr. Shelley can be found on page
66 of the appendix.]
Chairman Fitzpatrick. Thank you, Dr. Shelley.
Mr. Larkin, you are recognized for 5 minutes.
STATEMENT OF DANIEL LARKIN, RETIRED FBI UNIT CHIEF, AND FOUNDER
OF THE NATIONAL CYBER FORENSICS AND TRAINING ALLIANCE
Mr. Larkin. Good morning, Chairman Fitzpatrick, Ranking
Member Lynch, and members of the task force. I appear today as
a former FBI Unit Chief and the founder of the National Cyber
Forensics and Training Alliance, better known as the NCFTA.
Thank you for the opportunity to share some personal
experiences I have had in my 24-plus years with the FBI in
developing models of better cyber threat collaboration between
the public and private sectors. I understand the task force is
interested in functional models that might foster additional
public-private partnerships to assist in the fight against
international money laundering and terrorist financing. I
believe the NCFTA serves as an excellent model for such
collaboration.
Successful public-private collaborations are essential in
combatting cyber threats. The vast majority of computer
networks belong to the private sector. And, as a result, most
of the intelligence on those threats resides with the private
sector as well. Effective public-private collaboration also
depends on trust amongst the parties, which has to be earned,
as well as strong privacy protections and transparency to
ensure the trust of the public.
The genesis of the successful NCFTA model actually began in
the 1990s after I was reassigned from FBI headquarters to the
Pittsburgh division of the FBI. In the late 1990s, it was
apparent that business was rapidly moving to the Internet and,
not surprisingly, so were the criminals. FBI Pittsburgh had a
long history of working multiagency task forces to address a
variety of criminal activity. And at this time, the idea was
developed to launch a new, high-tech, cyber task force. I
initially gained support of the law enforcement community for
this task force and also suggested that we include
representatives from the CERT Coordination Center, which was
established in the 1980s at Carnegie Mellon University in
Pittsburgh. Representatives from that organization at that time
had become experts in cyber threats. And they were essentially
in our backyard.
Ultimately, the relationship between law enforcement and
the CERT Coordination Center would prove instrumental to the
formation of the NCFTA. But first, we had to overcome some
reluctance on the part of CERT Coordination Center members to
work with the FBI and other law enforcement. This was largely
due to the concerns that information shared with law
enforcement regarding potential vulnerabilities might become
public. To overcome these concerns, I suggested that we detail
an FBI cyber agent to the CERT Coordination Center to
essentially serve as a fly on the wall and to offer support for
the CERT Coordination Center and their clients. This program
demonstrated that the FBI could actually work with the CERT
Coordination Center members and help them more fully understand
the scope of the threats they are facing and that the CERT team
and its clients could actually work cooperatively work with the
FBI without negative consequences. This immersion program also
encouraged individuals to get to know each other, gain a better
understanding of resources that might be shared, and to
collaborate.
This environment helped to develop trusted relationships
among participants and became an early principle of the NCFTA
model. This early success of this immersion program led to a
focus group meeting in 1988 with approximately 30 cross-sector
organizations that came together to consider embedding
resources in a common location in their common fight against
international cyber threats. Out of this focus group, a White
Paper was developed which summarized the core objectives of a
new public-private alliance which eventually became the NCFTA.
These objectives include the continuation of a neutral,
meet-in-the-middle environment to foster public-private
collaboration, including the sharing of knowledge and expertise
among public and private subject matter experts; the
identification of joint initiative based primarily on a
consensus view of the private sector on priority threats; use
of nondisclosure agreements among parties to protect
confidential and proprietary information; and training programs
to help ensure common understanding of permissible private
sector involvement in information sharing, as well as best
practices for identifying and combatting cyber threats.
As a result of these efforts and the work of numerous
individuals, the NCFTA was officially incorporated in 2002 as a
501(c)(3) nonprofit. Since that time, numerous investigative
initiatives have been developed through the NCFTA with cross-
sector partners spawning hundreds of investigations, both
domestically and foreign. A common thread through many of these
investigations has been international organized crime, money
laundering, and, in some cases, ties to terrorist financing.
Today, numerous private sector organizations imbed
resources at the NCFTA, alongside a growing pool of domestic
and international law enforcement. Hundreds of additional
subject matter experts connect to the NCFTA through various
realtime communications channels.
So, what are some of the key takeaways from the NCFTA both
in combatting cybercrime and considering future public-private
partnerships? Significant global threats may initially manifest
themselves only to the private sector. Their true significance
and scope, however, may not be realized until those dots are
fully connected through resources like those at the NCFTA.
Cybercriminals will enlist many different and creative schemes
to generate funds. And efforts to respond must also continue to
evolve with the same or more advanced creativity.
The NCFTA leverages existing resources in giving them a
better environment in which to perform. From this perspective,
it is a very efficient workforce multiplier. Relationships are
vital to making the collaboration work. And they can be
fragile. Making it personal, knowing your partner's
perspectives and needs is essential. And the human capital
development aspects of the NCFTA are substantial. Thank you
again for the opportunity to address the task force. I am
pleased to respond to any questions at the appropriate time.
[The prepared statement of Mr. Larkin can be found on page
44 of the appendix.]
Chairman Fitzpatrick. Thank you.
And, finally, Ms. Rosenberg, you are recognized for 5
minutes.
STATEMENT OF ELIZABETH ROSENBERG, SENIOR FELLOW AND DIRECTOR,
ENERGY, ECONOMICS, AND SECURITY PROGRAM, CENTER FOR A NEW
AMERICAN SECURITY
Ms. Rosenberg. Thank you, Chairman Fitzpatrick, Vice
Chairman Pittenger, Ranking Member Lynch, and distinguished
members of this task force. I appreciate the opportunity to
testify before you today on U.S. efforts to stop the financing
of terrorism. The proliferation of terrorist threats and the
growing diffusion and autonomy of terrorists cells
internationally demands a whole-of-government response.
Stemming the flow of terrorist financing is critical to this
effort. The most important defenses against terrorist financing
are rigorous Know Your Customer (KYC) and customer due
diligence (CDD) practices. With robust KYC and CDD measures,
financial institutions can detect and freeze terrorist-linked
financial flows and suspicious activity.
Financial policymakers, regulators, and law enforcement
officials, of course, have responsibility for ensuring that
requirements for such safeguards in the U.S. financial system
are strong and that they are upheld. They use the suspicious
activity reporting by financial institutions, often produced as
a result of KYC and CDD practices along with intelligence
analysis, to stem terrorist financing and activity. This may
occur in the form of Treasury Department sanctions
designations, legal enforcement actions against terrorists, and
Defense Department targeting of terrorist threats abroad. To
close a critical gap in U.S. efforts to combat terrorist
financing, policymakers should advance new requirements for
tougher CDD practices and disclosure of beneficial ownership
information for legal entities.
The Treasury Department is working on a new CDD rule, as I
am sure many of you are aware. And the 2016 Federal budget
includes new requirements for beneficial ownership information
gathering and sharing tied to the corporate formation process.
These initiatives should be swiftly and fully advanced as
crucial measures to improve sanctions enforcement and combat
criminal and terrorist activity.
Additional steps that would further strengthen financial
sector resiliency against terrorist financing threats include
new measures to extend anti-money laundering and countering the
financing of terrorism or CFT requirements to unregulated
financial entities, including investment advisers and real
estate agents, as was just mentioned, and, as well, to new
digital currencies. Congress should take the leading role in
setting new policy in these areas.
To address another serious deficiency in U.S. CFT efforts,
policymakers should work to remove barriers that prevent the
flow of customer and beneficial ownership data across national
boundaries. Such barriers make it difficult for global
financial institutions to identify and track illicit finance
across the jurisdictions in which they operate. These
restrictions also make it difficult for government officials to
identify and target sanctions evasion or criminal activity to
connect the dots. And the restrictions also hinder efforts to
identify new nodes in terrorist networks and links between
terrorist groups and criminal enterprises or their criminal
activities.
To be sure, sharing information related to terrorism
threats presents civil liberties, competition, and financial
inclusion challenges. Nevertheless, to facilitate effective law
enforcement and successfully combat terrorist financing,
policymakers must urgently contemplate new strategies for
facilitating the flow of financial data across national
borders. A good policy goal would be to significantly ease the
transfer of beneficial ownership data between banks with
correspondent relationships that are in different
jurisdictions.
To achieve this, Treasury Department officials and
financial services policy leaders in Congress should engage
foreign counterparts, advocating for legislative changes, where
appropriate, to allow such information sharing. They can also
explore the idea of safe harbor frameworks between the United
States and foreign financial jurisdictions to create
mechanisms, including appropriate safeguards, for cross-border
financial data flows. As terrorist threats are global, we rely
significantly on the strength of foreign financial systems and
the will of our foreign financial regulatory and law
enforcement counterparts to combat terrorist financing.
Investing in partner capacity building to combat this threat is
directly beneficial to our own national interests. Congress
should expand current Federal efforts to help foreign partners
strengthen KYC and CDD requirements in their own jurisdictions,
as well as laws that criminalize the financing of terrorism or
support for terrorism. Allocating funds in the current budget
to the new counterterrorism partnership fund will help advance
these efforts.
Finally, as an additional measure to combat terrorist
financing, legislators should set the tone for ensuring that
our government aggressively exposes and targets terrorist
financing with financial sanctions. This involves careful
oversight of the Treasury and State Departments, which have the
responsibility for implementing sanctions and, crucially, the
appropriation of sufficient resources to these agencies and to
the intelligence community to fulfill this important mission.
Thank you for the opportunity to testify today. I look forward
to answering any questions you may have for me.
[The prepared statement of Ms. Rosenberg can be found on
page 57 of the appendix.]
Chairman Fitzpatrick. Thank you, Ms. Rosenberg, and I
thank all of the witnesses for not just your testimony, but
also for the many different roles you have played, and for your
service to our Nation in protecting the safety and security of
our institutions, and ultimately our citizens and our country.
I now recognize myself for 5 minutes. Each of the members
of the task force will have 5 minutes to ask questions.
Each of you, in your testimony, has identified challenges
or gaps in anti-money laundering and counterterror financing
efforts and laws currently on the books here in the United
States.
Mr. Larkin, you have identified a 501(c)(3), sort of a
private effort in which you have engaged. And I just want to
start by asking you to identify those gaps in policy that the
NCFTA, the National Cyber Forensics and Training Alliance,
seeks to address.
Mr. Larkin. Thank you. Primarily, the NCFTA leverages, as
I mentioned, existing cross-sector resources. And I think, as
pointed out by Dr. Shelley and some others, the information
that is out there available to us that possibly will identify
early warning signs of terrorist financing or other significant
activity might manifest itself in a number of different ways,
across a number of different sectors. The NCFTA allows for
those cross-sector groups to come together and have a more
active discussion on what they are seeing that is relevant on
that radar screen.
Also, the NCFTA has become sort of a unique workforce
development entity. They actually bring in three cycles of grad
students every year to train alongside industry and law
enforcement and to become better cyber analysts for all of us
to leverage. So that has become a phenomenal human capital
development project. Actually, as well, it has become an
unprecedented coordination deconfliction entity with domestic
and international law enforcement working very actively
together in this environment where they don't typically do that
in other settings.
Chairman Fitzpatrick. Dr. Shelley, you testified that you
believe that U.S. efforts to date have been more reactive than
proactive. And you actually identified a gap that you see and
you identified the PATRIOT Act in the real estate space, a
loophole that is being exploited by those who want to do us
harm. And I would ask each of the witnesses, if you could, to
identify the gap that you think is most serious, and a
legislative fix, if you have one, a suggestion that you might
make, whether regulatory or legislative, I will say.
And we will start with Mr. Modell.
Mr. Modell. Again, I think Congress needs to look very
closely at covert authorities to reexamine the possibility of
going beyond the military. One of the things I mentioned was
looking at ways of better using resources overseas, giving
Treasury and law enforcement the authority it needs to work
closely with the military to actually magnify the impact of CTF
operations overseas. A lot of it has to do with education
overseas, awareness. And I think that the ability to operate
with just relying entirely on financial intelligence units
simply isn't enough.
Chairman Fitzpatrick. Mr. Modell, do you see the Treasury
officials who are serving us overseas in different embassies
more as representatives or diplomats or law enforcement?
Mr. Modell. In my experience, they are much more
diplomatically inclined. They are representatives. And they are
not involved to the degree they need to be in rolling up their
sleeves and doing day-to-day investigations. They don't have
the support. They don't have the coverage. And they don't have
the resources.
Chairman Fitzpatrick. Dr. Shelley?
Ms. Shelley. I would also add that I think we need to have
more funding of research. Just as Mr. Larkin was talking about
having graduate students at CERT and how helpful this is, I
think to help locate some of these new areas of financing, we
need analysis.
To give an example, on ISIS, working with my former
graduate students, I had the identification of Captagon, which
is a drug that is produced synthetically in the Middle East,
and seems to be used extensively as a funding source for
terrorism, but is not cropping up in our research and analysis.
So part of this is we need to have financial support and
authorization in different government agencies to help fund
cross-national research in this area that allows us to see
things that other people are not identifying.
Chairman Fitzpatrick. Mr. Larkin?
Mr. Larkin. One of the existing inhibitors that is still
out there today is clarity on what are the safe harbor
provisions. Within the financial services industry, I think
there are clearer safe harbor provisions within PATRIOT Act
314(b) and obviously the SARs, safe harbor. But the reality is
that the stakeholder community that actually has the
information and that needs to share is much broader than
financial services. So some of the early warning signs will
manifest within telecommunications, and some will be in retail,
merchant, e-commerce, and other areas where there is a
hesitation to share information because they don't truly feel
there is a clear safe harbor that protects those organizations
from doing so.
Chairman Fitzpatrick. Thank you.
Ms. Rosenberg?
Ms. Rosenberg. Thank you. I will speak to this briefly.
The greatest area of concern I would highlight is the
inadequacy of current laws requiring or inadequacy of laws that
could require the gathering and sharing of beneficial ownership
information, particularly at the company formation process. It
requires a congressional fix. Regulation cannot do it alone. It
is an area that was publically identified almost a decade ago
by the Financial Action Task Force in which the United States
has a critical deficiency. It does not lead the world in this
area. And it should.
Chairman Fitzpatrick. Have you taken a look at any
legislation currently pending here in Congress? There are some
bills.
Ms. Rosenberg. Yes. Particularly the language that is
written into the current 2016 budget that would create the
opportunity for gathering beneficial ownership information by
the IRS and its sharing without a court order in the process of
conducting investigations would go a long way to helping but it
is not fully adequate.
Chairman Fitzpatrick. I thank the witnesses again.
And I will recognize Mr. Lynch for 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman.
The typical way that we have been addressing anti-money
laundering and counterterrorism efforts on this task force has
been, and I think for our FIUs as well, partnering with central
banks in other countries and setting up FIUs. I know that the
members on this task force have been to Tunisia, Jordan,
Morocco, obviously Afghanistan and Iraq, a bunch of countries,
just trying to get them to adopt anti-money laundering
legislation and then enforce that. And the idea there is to
squeeze out the terrorists from using the formal financial
system.
We have a different animal in ISIL. They are autonomous. A
lot of the things that we normally do to shut them out are not
effective because they rely on, they have rolled over a couple
of Iraqi banks, a couple of Syrian financial institutions. They
are using taxation in cities like Mosul and other places. They
are using antiquities sales. They have a pretty active oil or
at least petroleum trade program going in terms of the Syrian
and, until recently, the Turkish border. So they are generating
all this revenue. And it just seems that our model that we
usually use to fight this is not effective against them because
they are a different situation.
Do you have any ideas about how to approach that problem?
Because, obviously, the successful things we have been using
against other situations where you have Al Shabaab or Hezbollah
raising money sort of on the margins or on the seams of a
legitimate banking system or using hawalas or hawaladars to
finance small operations. Again, if you go back to what ISIL is
doing, they are autonomous. And we can't seem to get at them
using our usual toolbox. Do you have any ideas about how we
might be more effective against them?
Mr. Modell? And I will go right down the line.
Mr. Modell. In my brief experience in working with DOD,
the answer to that question, I think, in short is this is brute
force on the ground, doing the things that you just referred
to. This isn't them penetrating banks in Switzerland. This
requires brute force. You have to take a very close look at the
DOD processes that are involved in getting the proper
authorities for taking action, kinetic action, against
legitimate targets in country. And I think it is too cumbersome
to get to key targets in places like Syria where, again, you
have a terrorist force that is exercising its will by brute
force and terrorism. So, for me, it is a military authorities
issue to a large degree.
Mr. Lynch. I understand. Our problem is separating them
from the population. If we just use brute force in Mosul, we
are going to have a lot of folks signing up for ISIL pretty
quickly because of the civilian casualties. That is the
problem.
Mr. Modell. I think there is enough information about
validated targets to actually reduce the potential for
collateral damage. It is just a matter, to a large degree, from
what I heard, of political will to actually go forward and do
things on the ground.
Mr. Lynch. Thank you for sharing that. Thank you.
Dr. Shelley?
Ms. Shelley. The problem that you are describing with ISIL
is in large part a problem of trade-based money laundering and
fundraising. And I think there are things that can be done
other than military action. For example, the Captagon trade,
which is being taxed and has become a much more important
revenue source according to colleagues in the Middle East, has
precursor chemicals. And we could be following much more in
cutting off some of the precursor chemicals that are leading to
this production.
We could be working with some of the problems of corruption
that have been identified in Kurdish Iraq that have helped move
the oil into Iraq. We could be working more in Turkey trying to
follow the initial financial flows. So there are things that
business does, an analysis of what is going on in anomalies in
their market that would be extremely helpful in trying to
identify and target their opportunities.
Mr. Lynch. Thank you, Dr. Shelley.
Mr. Larkin?
Mr. Larkin. I have to say that being almost 5 years
removed from the FBI, I don't have enough detail on what you
are talking about to actually speak to it. So, I apologize.
Mr. Lynch. That is fair enough, Ms. Rosenberg?
Ms. Rosenberg. In addition to the military options that
were laid out, there are a number of options I would bring to
your attention in the financial services sector that can be
brought to bear against this challenge. Specifically, working
with the banks that have local bank branches in this area to
ensure as a basic principle that this can be the area under
ISIS control is a closed economy and to try and prevent money
that comes in and out. Of course, the local bank branches
inside the territory is one area. So creating restrictions on
any wire transfers moving in and out or additional precautions
on deposits made there or removed from there. Additionally,
working with the local financial regulators and neighboring
jurisdictions, Turkey, in particular, to ensure that where
money comes into those financial institutions there from the
smugglers, from the truck drivers, from anyone who is moving
these counterfeit goods, stolen antiquities, illegally marketed
oil, that they are stopped and the money is arrested before it
can enter the formal financial system and be moved.
Additionally, looking at the cash that is couriered into
ISIS territory by foreign fighters, who are asked, they are
solicited by ISIL leaders to bring with them money into this
territory. That is an issue for border control to arrest cash
moving in, as well as for cyber financial authorities looking
at the movement by wire of money into ISIS territory by these
foreign fighters.
Mr. Lynch. Thank you. I yield back.
Chairman Fitzpatrick. The vice chairman of the task force,
Mr. Pittenger, is recognized for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman.
Ms. Rosenberg, in your testimony you talked about the
necessity for information sharing, those obstacles that exist.
When David Cohen testified last year, when he was with
Treasury, he said that we are looking to do our part to improve
the sharing of information by exploring changes to the rules
governing information sharing among financial institutions and
between financial institutions and the government. This
included the flow of information from the government to
financial institutions and between financial institutions
themselves. Are you aware of any changes that have been made
since that time? And what changes should we make to achieve
this goal that would give us an increase in information?
Ms. Rosenberg. Thank you for the question. I believe you
mean changes since Undersecretary Cohen's testimony. I am not
aware of particular changes that have occurred since his
testimony. Although the effort to try and expand opportunities
for sharing information between government and the private
sector moving in both ways presents a particular challenge, as
well as you mentioned between financial institutions
themselves. The option I suggested in the context of across
national border information sharing contemplating safe harbor
arrangements I think may pose an interesting example to
explore. Creating protections or a comfort, if you will, for
financial institutions to be able to bring forward potential
risks or threats without the fear of liability in such a safe
harbor arrangement is critical.
One option that already exists is specific outreach by
government institutions to stakeholder communities within
certain financial sectors, for example, through people who have
security clearances outside of the government and who are able
to, in a confidential manner, discuss potential threats. Of
course, there are competition, anticompetition challenges
associated with that. But much more needs to be done in that
area to make sure that everyone, they are common stakeholders
in preventing terrorist movement, terrorist financial movement,
they are able to do their job.
Mr. Pittenger. Thank you very much. As a result of the
Iran deal, there are 46 banks in Iran that will be lifted in
their sanctions and be able to transmit funds through the SWIFT
authority. The Administration says it will impose sanctions on
these banks if they continue to transfer funds for financial
terror. How can the Financial Services Committee and the
Congress enforce this statement made by the Administration? And
what support would you give of congressional efforts to remove
the Administration's waiver authority to lift sanctions from
Iranian banks?
Mr. Modell, we will start with you.
Mr. Modell. One of the biggest things that I have been
asking myself as I am looking at the Iran deal and I am looking
at it play out and wondering how the implementation is going to
go, assuming we get that far, is how are you going to
recalibrate our own government resources overseas to figure out
if they are cheating, if they are not cheating, if they are
going to go back to doing what they have done for so long,
which is their own whole-of-government approach? It uses the
private sector. It uses charities. It uses banks. So what you
are talking about is a massive problem. So for Congress to
figure, to start thinking about what is it the U.S. Government
can better do to figure out how Iran is going to honor its
agreement or not. We need to start thinking about all of our
existing relationships with financial intelligence units, all
the ways in which, whether it is the FBI or the agency
overseas, how they are collecting, what they are collecting on,
how they are going to work with the IAEA. The reintegration of
Iranian banks causes a huge problem because that illicit
apparatus hasn't gone away. It was frozen. When it is unfrozen,
it is going to go back to doing what it did before, to a large
degree.
Mr. Pittenger. Dr. Shelley?
Ms. Shelley. I don't have Mr. Modell's specialization on
this. But I will add that there is another component other than
foundations and their use that he enumerated, which is the
problem of Iranian involvement in criminal activity, such as
trafficking in women to Turkey as a way of generating funds.
This has been written about and researched in Turkey. So what
we are looking at is not just an overt network, but a criminal
network that will be generating funds that needs to be watched
of how that money moves and how it integrates with the
financial system.
Mr. Pittenger. Thank you.
Mr. Larkin, quickly?
Mr. Larkin. I apologize, I don't have the background or
expertise to answer that.
Mr. Pittenger. All right.
Ms. Rosenberg?
Ms. Rosenberg. Thank you, Congressman.
There are a couple of suggestions I would make. The first
is to ensure that additional sanctions under E.O. 13224 for
terrorism concerns are aggressively pursued against Iranian
financial institutions. Successful efforts in that domain will
rely on excellent new intelligence work which I think needs
greater resources in order to make sure that the kind of
diverse money laundering schemes associated with terrorism can
be found that may come forward in the future.
In addition, the 311 action taken by Treasury's FinCEN
previously could be revised and updated to highlight particular
concerns related to Iran's support for terrorism and its use of
financial institutions in order to give clarity and information
to financial institutions in the United States and, of course,
elsewhere about the particular methodologies of concern that
they may anticipate seeing in the future.
Mr. Pittenger. Thank you very much.
I yield back.
Chairman Fitzpatrick. We have been joined by the ranking
member of the full Financial Services Committee, Ms. Waters,
and I recognize her for questions.
Ms. Waters. Thank you very much.
I wish we had a lot more time to talk about the agreement
in Iran because it has been stated so many times that when we
lift the sanctions, over $100 billion will be available to
Iran. And some say that much of that would be used for
terrorist activities, et cetera.
However, I think I better go to Dr. Louise Shelley. In your
prepared remarks, you wrote that the New York and Los Angeles
Police Departments are particularly effective at following the
money connected to terrorism. And you suggest that the model
they employ where resources for combatting crime and terrorism
are shared could be replicated across the country. That is very
impressive. And since I am from Los Angeles, I would like to
get a sense of how that works. And what kind of systems do they
have to track the financing of terrorism?
Ms. Shelley. Thank you for this very good question. In my
book, ``Dirty Entanglements: Corruption, Crime, and
Terrorism,'' I provide an illustration and quite significant
detail of how the joint activities between the crime and
analytical branch of the police and the terrorism branch are
coordinated so that literally the police are going out and
doing their undercover work, undercover work on the crime. And
that often leads to hints of terrorist activity. And then they
have regular meetings where they integrate their observations
and their insights from their informants with Federal law
enforcement.
So, in this remarkable case, they found a linkage between a
Chechen funding cell that was working with an Armenian
organized crime group through a front charity that was shipping
hundreds of cars out of Los Angeles to raise money that were
going back to support Chechens in the attack in Beslan that
killed hundreds of children and family members. And recently we
had a joint French-American meeting, which we called Track 1\1/
2\ Diplomacy, and we had a presenter from LAPD present to this
group because the French have had so many tragedies lately by
not having this integrated analysis. And they thought this was
one of the best lessons learned and hoped to bring this over to
inform the French government soon.
Ms. Waters. So given that information and that fine
example that you just shared with us, can you see any
possibility of Federal legislation that would incentivize or
inspire police departments across the country to develop those
kind of integrated systems where they would have those working
on crime talking with those working on terrorism, sharing that
information, and making it work to be able to identify money
laundering and terrorism, et cetera? Do you have any thoughts
about possible legislation that could help?
Ms. Shelley. I think that is your bailiwick is to come up
with the legislation. But that is exactly why I wanted to bring
it to your attention so that there would be efforts made in
this. Thank you.
Ms. Waters. We better start thinking about that. Thank you
very much.
I yield back the balance of my time.
Chairman Fitzpatrick. The gentleman from Pennsylvania, Mr.
Rothfus, is recognized for 5 minutes.
Mr. Rothfus. Thank you, Mr. Chairman.
Mr. Larkin, I would like to talk a little bit with you.
CyFin, one of the National Cyber Forensics and Training
Alliances' initiative-based models, is dedicated to
identifying, mitigating, and neutralizing cyber threats
targeted at the financial services industry. As I understand
it, the initiative has grown to include more than 75 members
and played a key role in developing and advancing significant
investigations by domestic and international law enforcement
agencies. This has resulted in millions of dollars in
compromised accounts that had been secured before financial
losses could occur. CyFin and the NCFTA generally seem to be
great examples of private-public partnerships and the benefits
of information sharing. Do you know whether these instructions
are being replicated anywhere?
Mr. Larkin. That is being considered. I know that the FBI
and other agencies are considering how this model is working
today and whether or not it can be replicated in other regions.
But one of the prime considerations in doing that is to ensure
that it is a complimentary project and not something that is
viewed as competing.
Mr. Rothfus. Would there be anything that would inhibit
the development of such other organizations?
Mr. Larkin. Not that I am aware of. I think it is just
attending to the fundamental premises that the NCFTA holds and
to make sure that, again, those succeeding models are set up in
a way that they are complementary and coordinated with the
current one.
Mr. Rothfus. Mr. Modell, you mentioned in your testimony
that there should be greater oversight of correspondent banking
between financial institutions and foreign entities. I agree
that correspondent accounts present a great challenge. And I
would be interested to hear whether you have any specific
recommendations on policy changes to address this issue or
suggestions on how this greater oversight might be structured.
Mr. Modell. We did a number of things with DEA and a
couple of other government agencies looking at the way that
Hezbollah runs transnational organized crime, particularly
trade-based money laundering. And we were looking at the ways
that they were working with the Iranians running money through
correspondent accounts through the United States. We were
looking at it from a very operational perspective,
correspondent baking accounts emerged as a clear target set
that we need to do more against. From a legislative
perspective, I have to apologize, I don't have any
recommendations specific for you.
Ms. Rosenberg. Congressman, could I speak to that?
Mr. Rothfus. Yes.
Ms. Rosenberg. Thank you. From my perspective, the best
way that financial institutions that maintain correspondent
banking accounts with each other have to make sure that the
money flowing through customer accounts, wire transfers, what
have you, is safe and legitimate money is to make sure that
they can properly exchange information about the client,
including beneficial ownership information. National level
restrictions that prevent the flow of that information make it
such that that information cannot always be shared, even within
the same financial institution that crosses a national
boundary, which can mean that it is possible for the financial
institution and the financial system broadly to be abused. So
the ability for financial institutions to make their decisions
about which correspondent banking relationships to maintain is
significantly affected and will be supported if that
information can be shared across national boundaries.
Mr. Rothfus. Thank you.
If I could just pop back to Mr. Modell for a second. You
suggest that informational operations campaigns should be used
to educate the public on how terrorist organizations move their
illicit money and to embarrass foreign governments, businesses,
and individuals in an effort to keep them out of corrupt
financial systems. You suggest that this is particularly
appropriate for Iran. And as we consider the Iran deal, we know
that part of the deal, as Congressman Pittenger reminded us, is
that many Iranian banks, companies, and individuals will be
delisted for purposes of both U.S. and international sanctions.
Some have suggested that this delisting brings new legitimacy
to these entities, even if they are part of the Islamic
revolutionary guard corps. With that in mind, how harmful do
you think the nuclear agreement will be to this effort of
keeping people out of the corrupt Iranian financial system?
Mr. Modell. I think that--one of the biggest oversights of
the agreement is exactly that. If we are going to go forward
and try to figure out how to build a compliance and
verification mechanism on Iran's nuclear program, in other
words, are they going to live by the fundamental tenets of the
agreement, how are we not all on the same page with regard to
illicit procurement or their re-entering into the banking
system? To answer your question, I think when you are going to
bring back IRGC-related entities, when you are going to bring
back banks online, you are doing a real disservice to the
international financial systems. So when you are talking about
information operations and their ability to actually deal with
this gap in the Iran deal, it is about exposing things that
need to be exposed.
Mr. Rothfus. Would businesses in Europe, China, and
Russia--really, are they going to be shamed out of entering the
Iranian marketplace?
Mr. Modell. In my opinion, I think people underestimate
the degree to which the European businesses see the risk in
returning to Iran, particularly if the United States is going
to maintain a hardline approach. I think some will not be
deterred. I think when you talk about China, for instance, and
certain partners that are already ready to engage or have been
engaging despite sanctions, like the Chinese and the North
Koreans, there are going to be certain business environments
that aren't going to be affected whatsoever. And information
operations in those environments wouldn't work because we
wouldn't have the local support of local media outlets and
partners in any case.
Chairman Fitzpatrick. The gentleman's time has expired.
The Chair now recognizes the gentleman from New York, Mr.
Meeks, for 5 minutes.
Mr. Meeks. Thank you, Mr. Chairman.
Let me first thank you, Mr. Chairman, for leading a great
trip where we did a lot of investigations in talking to
individuals, whether it was from France, Turkey, Qatar, or
Kuwait. And I know we tried to get into Lebanon, but
unfortunately, we couldn't get in there. But we had a good
conversation with its prime minister. So I very much appreciate
the trip and I gained a lot of knowledge on the travel talking
about this very subject matter. I want to first thank you for
that. It was very good.
And given that, because one of the things that seemed clear
to me on this trip is that the group that is a threat to
everybody, whether it is the United States, whether it is
Israel, whether it is even Iran and Russia and France, is this
group called ISIL or Daesh. And everybody seems to be very much
concerned about how they were being funded and how the dollars
would go through.
So, to that, let me ask, first, Mr. Modell, because I
believe in your writing, you discussed how intelligence
collection for law enforcement and covert action needs to take
place within countries that, using your words, are the most
financial safe havens and terrorism enablers. Now, I was really
taken aback to some degree when we were in Kuwait and Qatar,
particularly, because they seemed to be very forward with what
they were trying to do and what they could not do, or had not
been done. A lot of that had to deal with some of the cultural
questions, like a lot of people utilize cash as opposed to
credit cards or anything else. Cash is harder to trace, et
cetera, and a lot of them were making new laws with regards to
the charity law because money was being funneled through that.
But there also seem to be some concerns culturally, because
culturally they bank differently than, say, Westerners have,
different things, and that nature.
So my question to you is, how would such actions take place
in these areas where they have the potential of destabilizing?
When I talk about the Kuwait, for example, the June 26th date,
for the first time, they had their own bombing at a mosque.
They seem to be very focused on doing what they need to do to
try to be very helpful here, but at the same time, they said,
we have to move things to give confidence to our people. So how
do you balance, what do you see the balance of the two, so that
we could make sure we don't destabilize other regions of the
area as we try to make sure we prevent them from passing
dollars through?
Mr. Modell. Yes, thanks for your question. I think it goes
down to the fundamental issue of liaison relationships. You
have to have more people who are constantly engaging with the
Qataris, and the Kuwaitis, and saying: Listen, we have
priorities. We realize you can't subvert your entire banking
system because it is totally corrupt with terrorist financiers.
But there have to be priorities. There has to be more action.
In the case of Qatar, there are serious Al Qaeda and ISIS
financiers sitting in Doha, and they know it. So it is not a
cultural issue. It is not an unawareness issue. It is that they
have their own motivations for doing what they do. And they
have their red lines. For us to strike the right balance
between understanding where their red lines and limitations are
and our need to actually stop the flow of money into Syria and
Iraq, that is why I am calling for a different type of
engagement overseas.
If you have Treasury people who are covering four, five, or
six different countries or FBI or agency people who don't have
the adequate amount of resources to actually engage in a
fulsome way with financial intelligence units, with the police,
with the military, with law enforcement, and incentivize them
and really develop a systematic way of creating a culture
there, a liaison relationship culture, where they natural
incentives--and I talked about some of the things that we can
offer them to do that--you are not going to get any changes.
I will give you an example. The DEA has told me very
frequently in certain places in the Gulf, when they approach
the financial intelligence units or when they approach their
police counterparts or their counterdrug counterparts, they get
nowhere. They get the requests delivered and they say, we will
get back to you, and they don't get back to you. So if it is
financial issues, there are the blank stares. If it happens to
be really serious narcotic issues, they will. Again, I think it
is a matter of political pressure combined with changing the
culture and changing the incentives on the ground, and that
starts at liaison relationships overseas.
Mr. Meeks. Let me try to get one question in with the time
I have remaining to Mr. Larkin. Because, Mr. Larkin, you talk
about in your remarks cybersecurity landscape, law enforcement,
needs private industry's help more than the reverse. So, given
this, what types of incentives exist that we might give and how
might they be improved to ensure that government has the
appropriate level of access to actual threat information, and
how do we protect, utilize public-partnerships? How should they
be structured so that we can also have privacy and promote
transparency?
Mr. Larkin. Thank you for the question. I think the model
that the NCFTA presents is one that has been given a lot of
thought in setting up the policies and procedures for how
information is shared and how those relationships are
developed. I think, as I mentioned earlier, the incentives, or
I guess the confusion around how information can and should be
shared and when largely comes from a misunderstanding on what
the safe harbors are, what the appropriate sharing of
information can be. I think the FBI and other agencies have
gotten better about sharing information back with industry, and
I think they have learned over the years that there are a lot
of good things that come from that; when you arm industry with
more specifics about what the threat looks like from your side,
they can actually go find more information and bring it to you
in a more timely and more effective manner.
Chairman Fitzpatrick. The gentleman's time has expired.
I recognize the gentleman from Florida, Mr. Ross, for 5
minutes.
Mr. Ross. Thank you, Mr. Chairman. Mr. Chairman, it is my
understanding that this is the last meeting of this task force.
Is that correct?
Chairman Fitzpatrick. I'm sorry?
Mr. Ross. It is my understanding this is the last meeting
of this task force?
Chairman Fitzpatrick. Yes, it is.
Mr. Ross. And that is a shame, because I think the task
force with you, Mr. Chairman, and with the ranking member has
done a very diligent job objectively identifying some of the
greatest threats that we see today in terrorism financing. And
I would implore Chairman Hensarling to do more to keep this
task force going.
Because what we have learned, I think, in the brief period
this task force has been around is undisputed that Iran is the
largest state sponsor of terrorism. And despite ongoing
sanctions, they continue to finance terrorism activity
throughout the world, that they are led by extremist clerics,
who are committed to the destruction of Israel and Iran, and
that if this Iranian deal goes through, the relief of at least
$100 billion in sanctions would flow more money to terrorist
groups throughout the world and make this world even less safe.
Ms. Rosenberg, you speak of allowing for other
opportunities, if you will, when we are in an engagement of
usual and customary financial transactions through the
infrastructure of the financial services arena, for example,
continued stronger anti-money laundering, increased sanctions.
Those sound good. How do we go about implementing that? In
other words, we are about ready to probably see the release of
sanctions against what has been deemed to be the central bank
of terrorism, Iran, and yet, we know that we have to do
something so long as they are within the infrastructure, if you
will, of financial services, and those would include further
sanctions. What would you propose?
Ms. Rosenberg. Thank you for the question. In order to
counter the threat that Iran poses to our financial system and,
indeed, to our national interests as the state sponsor of
terror, there are a number of things that we can do from a
policy and regulatory perspective to address this. One is the
modification of the 311 on Iran, as I mentioned previously.
Additionally, I would suggest doubling down on sanctions
targeting the IRGC and its links to terrorism. So though many
sanctions including all the most significant economically
punishing ones on Iran will be lifted on implementation day
under this deal, assuming that takes place, sanctions on IRGC
and those that are imposed under terrorism theories are not
going to be lifted, and secondary penalties would still be
associated with them.
Mr. Ross. And that has proven to be very effective too,
the lifting of sanctions.
Ms. Rosenberg. Yes. I agree. It seems that way to me, at a
minimum, from the perspective of identifying, naming, and
shaming entities associated with that and arresting their
ability to use the financial system.
Mr. Ross. Thank you. I appreciate that.
Mr. Modell, quickly, I know--and I will have you address
that as well. But I think you had a point that I think is very
important that we have to realize. And for those terrorist
organizations out there that avail themselves of what we
consider to be terrorist, traditional terrorist means, which
don't use the infrastructure of the financial services arena,
brute force is an element, and is it not an element that we
have to consider as one of the tools if we are going to
successfully combat the financing of terrorism throughout this
world?
Mr. Modell. Yes. Unfortunately, in a place like Syria,
based on the stories that I have heard, trying to compel truck
drivers to abide by the laws, try to create greater border
security, all of those things I think would eventually have to
happen, and we have to focus on that in the next phase. I think
now, unfortunately, there has to be smart, designated, kinetic
activity, at least setting ourselves up to do that.
Mr. Ross. I agree. And I think we have to realize that as
an essential tool in our tool box in order to combat this.
Really quickly, yesterday, 15 governors, one of which is my
governor from the great State of Florida, sent a letter to the
President essentially saying that the Iranian deal highlights
concerns that lifting Federal sanctions would only result in
Iran having more money available to fund terrorism. They quote
the Acting Under Secretary of the Treasury for Terrorism and
Financial Crimes as saying that he expects to continue to see
Iran funding Hezbollah and its other violent terrorist proxies.
The States do have sanctions. These States do have
sanctions against Iran. They don't want to be forced into it
because this has been deemed not to be a treaty, and therefore,
State law preempts right here, and they are not required to
lift for their sanctions.
My concern is that if these 15 States don't lift their
sanctions, which I support them not doing, are we going to see
Iran then look at this deal and say, U.S., you have breached--
you are in violation of this deal, because you haven't lifted
all sanctions? Is that a viable consequence, which then could
lead to Iran saying, ``Look, you breached the deal, U.S., all
bets are off. It doesn't matter what you have done with the
sanctions, because you have lifted them, but we are going to go
forward with what you want to do?''
Mr. Modell, I will start with you.
Mr. Modell. There are two things I would consider. I think
the number one goal of the Iranians in the removal of lifting
sanctions and pressure and the normalization of the nuclear
program was to restore normal trade relations with Asia and
Europe. America would be a bonus potentially down the road. But
if U.S. States start causing problems, keep sanctions on, start
changing the fabric of the deal to some degree, or at least the
spirit of the deal, I don't think it will have an impact, to be
honest with you.
But let me just go back really quickly to what you were
saying before. I think one of the things that we can do as Iran
comes back into the financial system is expose the fact that
they don't have a financial intelligence unit. They don't
report suspicious transactions. They don't abide by FATF
regulations. They are large state-run terrible foundations,
which control billions and millions of dollars, unreportable to
any authority whatsoever. And they have long been linked to
terrorism. So an exposure of that in the media, in a positive
media campaign for education, transparency would go a long way.
Mr. Ross. Thank you.
And I see my time has expired, Mr. Chairman. Thank you.
Chairman Fitzpatrick. The Chair now recognizes the
gentleman from Texas, Mr. Green, for 5 minutes.
Mr. Green. Thank you, Mr. Chairman. I would echo the
commentary made by my colleague with reference to the benefits
that we have derived from these various hearings, and I salute
you and my ranking member for the way you have worked together
to help facilitate the free flow of information. Thank you very
much.
With reference to information sharing, there are arguments
made with reference to technology being a problem, and then
there are other arguments that are made with reference to
organizational inertia, infrastructure, and culture.
How much of the fusion of information between various
agencies is impeded by culture, organizational inertia, and
structure within the various entities that should be conversing
with each other?
Ms. Shelley, you ventured into this a little bit earlier.
Would you care to respond?
Ms. Shelley. Yes. I would be happy to.
I see that in many areas, what I would call emerging areas
of terrorist financing such as wildlife, our research is
showing that the trade in this is going through key
facilitators, some of whom are linked to terrorist
organizations.
But we have such a segmentation of the way we are looking
at drug issues, illicit wildlife trade, trafficking in animals,
movement of money, that we are not coordinating and seeing that
the same networks are doing them. And then, we are are not
targeting the individuals who are doing this properly in terms
of denying them visas to the United States, denying them access
to American financial institutions and, particularly, American
real estate.
And so we are much better with looking at banks and looking
at financial institutions, but many of the areas of trade that
intersect with this have links to the United States, and our
institutions are not working together to help cut this off.
Mr. Green. How much of that, if you can in some way
quantify it, is related to technology, the inability to
automate a system that will allow this type of information to
flow between entities? How much of it is related to the
technology versus the culture within the various organizations?
Do we have organizations that have somehow structured
themselves such that it is very difficult for them to pass
information on even when there is a desire to do so?
Ms. Shelley. I am not sure that it is necessarily a
failure to pass information. I think it is a failure to have
adequate coordination among different branches of the U.S.
Government that never thought that they were dealing with the
same crime and terrorist networks so that you do not have the
enforcement arm of Fish and Wildlife working in the past with
DEA, working with the Defense Department.
And so it is not so much a problem in this case that I have
given you of lack of information--of technology, but of absence
of coordination within our structures.
And as the point has been--and I have tried to make is that
we also have linked it between this trade-based money
laundering that is funding terrorism and our own economy. And
we are also not making those connections either.
Mr. Larkin. If I can speak to that?
Mr. Green. Yes, sir.
Mr. Larkin. I can say from my experience it is largely
cultural. And I can say from what we have witnessed in
developing the NCFTA and getting the agencies to come together
that previously hadn't and a lot of cross-sector organizations
to, it has never been a technology challenge. It has been a
cultural mindset challenge. It has been a lack of incentive to
come together as opposed to just saying, what is the right
thing to do? So I think that is getting better than it used to
be, but I don't think technology been a significant issue in
that regard.
Mr. Green. I see one additional person--Mr. Modell, you
are nodding. Do you have something you would like to say?
Mr. Modell. I would just say, one of the things that Dr.
Shelley mentioned before is the Captagon issue. Captagon is a
drug used widely throughout the Middle East. And when you look
at the U.S. Government's approach to going after a group like
Hezbollah, right, one of our leading terrorist challenges, I
agree with Mr. Larkin, it is a real bureaucratic problem. The
intelligence community sees Hezbollah as not very involved in
drug trafficking. They see them as a terrorist organization,
and our main objective is to stop terrorist attacks. And I
don't disagree with that, but when you look at the extent to
which a group like Hezbollah is a global transit national
organized criminal network, right, and the disagreement among
U.S. Government agencies as to that truth, that reality and how
to approach it, you are going to run into some real problems,
real limitations. And so for me I would just like to emphasize,
it is really is a bureaucratic issue. We are not all on the
same page with regard to tackling these issues.
Mr. Green. I have exceeded my time.
Thank you, Mr. Chairman. I yield back.
Chairman Fitzpatrick. The gentleman from Arkansas, Mr.
Hill, is recognized for 5 minutes.
Mr. Hill. Thank you, Mr. Chairman.
And thank you, Mr. Ranking Member, for your excellent
stewardship of this task force.
Dr. Shelley, I would like to begin with you and talk a
little bit about this real estate exception to the money
laundering statutes that you have referenced. Presuming a buyer
has a bank and withdraws money from that bank, and presuming a
seller has a bank and deposits the proceeds into that bank,
describe kind of more specifically the gap that you have
identified that is being exploited. And you even referenced
right here in the booming real estate market of the beltway. So
could you go into a little bit more detail about that?
Ms. Shelley. I would be delighted to.
What you can do to move this money is that you can set up a
company, and then you have the money moved from overseas into
the front company that is going to buy the real estate for you.
And then you buy this piece of real estate that is quite
expensive. I believe this happened in the house next to me. And
nobody ever commented on this buyer. He was buying massive
amounts of real estate in Washington, and nobody had to report
this. It was a person of, I want to say, but from the Middle
East, whom if you did a search on Google, you would find him
linked to many charities that are marked by our law enforcement
community and intelligence community.
And so you could move this money through a front company
very easily. I have had real estate agents telling me the
things that are going on in Georgetown where money has moved
out of Yemen and some of the purchasers are even dead people
who have been buying property. I brought this to the attention
of people in Treasury, and no one ever went and followed up
with these real estate agents to find out what these anomalies
were in our financial markets.
Mr. Hill. So do you think that a solution would be that
REALTORS would be subject to filing a SAR? Is that the
direction you would take?
Ms. Shelley. That is absolutely an essential part of it.
And I think we have to tighten up the requirements on the real
estate community. We have to have seminars. We have to have
much more responsibility because from what I have been
observing, it seems to be a central target. Just as we are
having many corrupt officials, many transnational criminals
moving money into real estate, a piece of this seems to be
supporting terrorist groups as well.
Mr. Hill. And in my example, you are just suggesting they
are not caught on the depository end of either one of those
transactions is your presumption?
Ms. Shelley. Exactly.
Mr. Hill. So that leads me, Ms. Rosenberg, to the issue of
beneficial ownership. Obviously, the IRS captures everybody who
is involved as a director in a Form 990 in the nonprofit
sector, and they have an elaborate disclosure capability that
is online and publicly available. And for all passthrough
companies, like Dr. Shelley is talking about, Subchapter S or
an LLC, which is the most common form of real estate ``shell
company'' process, the IRS has all that beneficial information
and that you file, obviously, a K-1 to one of those beneficial
owners every year on that real estate.
So my question to you is, what is it that we are not doing?
We have the information at the IRS, and if there is a criminal
investigation, you are not suggesting that the IRS doesn't turn
that over to a U.S. Attorney or an FBI agent, are you? Or are
you?
Ms. Rosenberg. I think you can with a court order, the
challenge is making that information more easily accessible and
movable to various authorities in a position to investigate and
pursue appropriate legal action or who are in a position of
needing to understand the methodologies in order to create
better policy to prevent threats in the--from terrorist threats
and others from accessing and using the financial system.
Additionally, that is at the IRS level, and this doesn't extend
to the creation of legal entities at the State level, where it
would be quite useful to gather additional beneficial ownership
information from legal entities when they are formed and
verifying that information over time.
Mr. Hill. Wouldn't you suggest, though, that the burden
shouldn't be there on a commercial bank but ought to be on the
secretaries of States and on the update requirements for
beneficial ownership change at the State level and which would
be rarely automated, I would assume, in all 50 States? So we
haven't heard a lot of discussion about the responsibility of
individual secretaries of State at the state level for
incorporation standards. What should the--what role does the
Federal Congress have on that?
Ms. Rosenberg. Partly because of the burden it would place
collecting and verifying this information on the States and
putting it at the Secretary of State level and others, there is
not a great level of interest by the States in pursuing new
laws and policies in this domain, which is one of the reasons
why it was incumbent upon Congress to create national-level
policy in this area. I don't want to diminish the significance
and the burden that this will be on the Sates, but as has been
testified by my colleagues from the panel and by other
witnesses in your prior hearings, the nature of the threat that
is posed by abuse of our financial system by terrorists and
entities involved in corrupt activities is commensurate with
the burden that it would be on our financial system and on the
Sates in order to make this a reality.
Mr. Hill. I thank the panel.
And I yield back, Mr. Chairman. Thank you.
Chairman Fitzpatrick. The Chair will now recognize the
gentleman from Texas, Mr. Williams, for 5 minutes.
Mr. Williams. Thank you, Mr. Chairman. I, too, would like
to thank you and the ranking member for your leadership on this
committee.
Over the last few months, this task force has explored an
array of topics and received in-depth testimony from witnesses
throughout the government and the private sector that has
helped members of this task force better understand the
challenges we face in dealing with terrorism financing. These
challenges are real for me personally--sometimes hit too close
to home--because I am a car dealer. Now, I want to start by
discussing the topic of money laundering with the witnesses
today. We talked a lot about that today, especially the
laundering that exists here in the United States. From some of
your previous testimony and also earlier when we had other
folks here, we heard about legitimate businesses knowingly or
unknowingly supporting terrorist organizations who launder
money right here in our own backyard.
My first question to you, Ms. Rosenberg, is, in your view,
what are the key terrorist financing money laundering threats
facing the U.S. international financial systems to date? You
have talked a little bit about that. Could you repeat it?
Ms. Rosenberg. The key threats, maybe I could take this by
offering you my views on the key vulnerable abilities by which
these threats can enter and abuse our financial system. So I
mentioned the hole that exists in the gathering and the sharing
of beneficial ownership information, as well as information
sharing, not just to highlight one particular challenge that
exists across national boundaries. But the challenge of sharing
information and, indeed, aligning expectation between
independent regulators and overseers within our own financial
system is a challenge. And by that, I mean the challenge in
coordinating law enforcement financial supervisory authorities
and policymakers in their various expectations and about what
best practices are and what kind of activity should be pursued
with law enforcement activity.
Mr. Williams. ``Sharing'' is a big word here, isn't it?
Now, also, the private sector has a role in this in working
in conjunction with the Federal authorities to stop some of the
money laundering schemes from existing. I bring this up because
there are legitimate businesses trying to sell a product. For
example, we have heard testimony about terrorist groups in the
United States using the car market to launder hundreds of
millions of dollars. We even heard a figure of a billion
dollars going back and forth. As I said, I am a small business
owner. I am a car dealer. And when I heard this, it amazed me.
And I know how this works, but, Mr. Modell, what would you--
could you focus a little bit on this relationship with the car
industry and all this money going back and forth and what you
think we need to focus on and who we need to talk to?
Mr. Modell. I follow the Lebanese use of this. The used
cars that are purchased here and sent to West Africa--I think
previous testifiers have discussed that. In my discussions with
the DEA and the FBI and others who have been involved in
pursuing that, they have expressed some degree of frustration
that, first of all, nothing is done in West Africa whatsoever.
So you have massive West African car lots that are sitting
there with cars piling up. The purpose was just to bring them
to transfer drugs or to launder money en route to Europe or
other areas in the Middle East. These are global things that we
don't have enough cooperation with our partners overseas. So
starting with overseas nodes of cooperation, that has to
improve.
Here in the United States, I think when you go to Detroit
and other places where there are car dealers who have been
implicated in this, I don't think we have been punitive enough.
I think they are still in business. They haven't been put out
of business. So I think tougher measures have to be put at hand
to actually stop this type of activity. And my sense is that is
not happening.
Mr. Williams. We need to talk to the auctions, don't we?
And we also need to find a track to the banks. Because I know
how people buy cars through an auction.
Ms. Shelley. Yes.
Mr. Williams. And it is a legitimate concern and one you
would agree we need to address further, another reason I hope
we continue our task force because this is something that
really concerns me.
One more: According to assessments, some $300 million worth
of criminal proceeds are laundered through the U.S. financial
system each year, probably more, I think we would agree. How
significant is this number relative to the amount of such funds
laundered worldwide? Dr. Shelley?
Ms. Shelley. I think that the laundering of money is
significant, and I wanted to add that there has been money
traced through from the car industry, the used car industry,
into our financial system, and this is a very significant
amount of money, probably estimated at least $100 million and
probably a multiple of that linked to just that element of
terrorist financing. So we have a lot more that we could be
doing looking at this trade-based money laundering and how it
turns up in our financial system.
Mr. Larkin. Can I make a quick comment, too? Actually, one
of the initiatives that I mentioned as developed out of the
NCFTA with significant input from the industry, one of those
initiatives is an international auto auction and sale and fraud
initiative that has been going on for quite a number of years
with significant international organized crime and money
laundering. It is a great example of how law enforcement and
industry can come together to better identify how these threats
look at the earliest stages and empower industry with more
constructive knowledge about what money is going through their
hands that is bad money.
Mr. Williams. We will visit some more. Thank you for your
testimony.
I yield back.
Chairman Fitzpatrick. The gentleman from California, Mr.
Sherman, is recognized for 5 minutes.
Mr. Sherman. Thank you.
Certainly, one source of terrorism is Iran. We are entering
into this deal in which we are supposed to waive the sanctions
that were enacted to deal with their nuclear program. But in
doing so, we are going to be waiving the sanctions that were
designed to discourage them from engaging in terrorism.
The most specific example of this is the Iran Sanctions
Act, which in its terms, which Congress declared we had three
major reasons, only one of which was weapons of mass
destruction, and weapons of mass destruction includes nuclear
missile and biological and chemical concerns. I will strike
``missile'' from that because the structure was the weapons,
not the delivery systems. But still, nuclear was one-third of
one-third of Congress' announced reason for adopting the Iran
Sanctions Act. Under this deal, it is going to be waived.
What I am concerned with is especially designated nationals
list, which is the no-go list for international finance. And
you have a lot of countries that are on the list because of
their involvement in nuclear activities that we never bothered
to put on the list because of their involvement in terrorist
activities, for example, Bank Melli, which has been involved
with Palestinian Islamic jihad, Hezbollah, Quds force, et
cetera.
Dr. Shelley, are you confident that the United States will
put Bank Melli on the terrorist list, or are we going to ignore
their support for terrorism in the future because they used to
be involved in proliferation activities?
Ms. Shelley. I think that is a great question. I think we
have to do a lot of very careful analysis and make sure that we
are not throwing the baby out with the bath water. And so--
Mr. Sherman. I want to assure you, Bank Melli is the
stinkiest bath water out there. This is not a beautiful baby.
But I want to go on to something else, and that is, the
real benefits to remittances. They go to the poorest people in
the world. They do more for development than our whole foreign
aid program.
What can we do to make sure that people who want to send
400 bucks a week are able to do so at reasonable cost without--
I mean, yes, it is possible, ISIS could get--such small amounts
of money could benefit a terrorist organization. But, frankly,
I don't think we can prevent ISIS from getting its hands on 400
bucks here, 400 bucks there.
Are we going--I will go back to baby and bath water. The
baby is legitimate remittances. Are we doing too much to
restrict remittances to families in Somalia, Iraq, and other
places? Dr. Shelley?
Ms. Shelley. In the past, we have done some superb--
Treasury has done some superb analysis on when remittances are
not being used for their intended purposes. That is that people
are generating too many remittances based on their income,
which leads to a geographic targeting order. And that is why I
put this emphasis on research and analysis in that if a few
individuals are sending $400 a month, that should not be
restricted. But if you are finding that there are nodes that
are being abused where people are sending much, much more and
that can be identified, then you have a problem, but it is not
that hard to identify.
Mr. Sherman. TSA has a trusted traveler program. Should we
have a system here in the United States where you can fill out
a form to the government, ``here is who I am, here is how much
I make, I plan to send roughly this amount, depending upon
circumstances, to my relatives in such and such a country,''
and be certified as trustworthy when you lay out a plan that
make sense?
Ms. Shelley. I am not as concerned about the individuals
being trustworthy, but much of what goes on behind illicit
finance are facilitators. And so we need to be focusing on the
facilitators, and when we see that they are being abused and go
after them rather than the small fry who are sending their
money.
Mr. Sherman. And I would add, I think it was Mr. Modell
talking about being tough enough, the Iraqi Government that we
support with blood and treasure, is paying people in Mosul
because they were on the civil servant list. And as far as we
know is providing free electricity for which ISIS is free to
collect a bill. So we have to start treating this economics
element seriously.
And I yield back.
Chairman Fitzpatrick. The gentleman from Kentucky, Mr.
Barr, is recognized for 5 minutes.
Mr. Barr. Thank you, Mr. Chairman, and Chairman
Fitzpatrick, Vice Chairman Pittenger, and Ranking Member Lynch.
I also want to join my colleagues in complimenting you all for
your leadership in convening this task force and giving the
testimony that we have heard here today and the other hearings
before this task force. We obviously have many gaps and
deficiencies in the way in which our country counters terrorism
financing. And I look forward to working with each of you in
developing perhaps a legislative package that adopts some of
the recommendations made here today and in--from the other
witnesses we have heard from in other hearings.
With respect to the proposed Iran nuclear deal, the joint
comprehensive plan of action, I wanted to ask Mr. Modell a
question about the impact that a finalized deal would have on
the existing deficiencies that you testified about. In
particular, you testified that terrorism finance has become one
of our most pressing national security challenges, yet the
plans, programs, and practitioners are falling far short of
where they need to be. My question to you, Mr. Modell, is will
we fall further behind if this deal is finalized? And,
secondly, is there a way to quantify how much further behind
will we be if this deal is finalized?
In other words, how much additional pressure will this
place on the efforts to counter the financing of terrorism?
Mr. Modell. Thank you for your question. The simple answer
to your question is yes, I think we will fall further behind
because if you look at the thousands of individuals and
entities that have been designated as a result of Iran's
illicit activities over the years that are now going to be
exonerated essentially by this deal, of course, it is a
setback. Those are people who are willfully engaged in criminal
activity on behalf of the Iranian regime. So the idea that they
are suddenly going to be brought back into Iran or some sort of
international system in which they behave according to laws and
regulations and good behavior doesn't make much sense to me. I
don't know why that large, very large group of people, many of
whom we don't have full understanding of what they are doing
now or to the extent to which sanctions have actually impacted
them over time, the assumption that those people no longer need
to be watched is disturbing. So, yes, I think the answer is
yes.
Mr. Barr. Can you give us a concrete example of how the
sanctions relief in the deal would complicate our efforts or
make more difficult the existing efforts to counter the
financing of terrorism and, specifically, you referenced
Hezbollah. You talked about the deficiencies in operations
against Hezbollah as illicit financial apparatus within
Lebanon. Maybe you could take that as the example.
How would the deal, the sanctions relief in the deal,
specifically complicate our efforts to counter those activities
in southern Lebanon?
Mr. Modell. If you believe that the deal was going to lead
to a windfall of tens if not over a hundred billion dollars to
the Iranian government, and there have been disputes as to how
that takes place and over what time, but nevertheless a very
large amount of money, go back to 2012 and 2013, when the U.S.
Government was getting very clear indications that because of
the sanctions entire units of the IRGC who were acting overseas
in places like Syria and Iraq and Lebanon and other places
where we have a real problem with them, where our interests
collide, those units were put on hold, those activities were
put on hold. When President Rouhani was elected in Iran, and we
started to move towards a deal and now that we have a deal in
place, the economy started to turn around. And now we have the
promise of this money, operational budgets have already gone
up. The entire budget of the IRGC and the Iranian intelligence
force publically, as stated, has gone up. It has gone up by 50
percent over the last year. So the idea that you are not going
to have a situation where those same entities, which we have
had problems with for 36 years are not going to increase their
activities in things that we find problematic or contrary to
our interests.
Mr. Barr. Sorry. Can you elaborate also--with my limited
time remaining, you testified about how it would be more
complicated to verify compliance on the nuclear components of
the deal if we are not fully tracking the flow of Iranian
sanctions relief. Can you elaborate on that? Because Secretary
Kerry has told Members of Congress and the public that most of
the sanctions relief--he has attempted to assure us that most
of the sanctions relief will go to internal improvements within
Iran. So the question is, can you elaborate on the verification
of the nuclear component to the agreement?
Mr. Modell. First of all, I think that when you look at
Iran's external apparatus for doing all the things, a lot of
things with its nuclear program that we have found so
problematic, in other words, illicit procurement, things that
directly aid their program, you need to have a vast mechanism
in place, U.S., U.S. allies, and the IAE working together.
Without having an understanding of how that is going to work
and how the Iranians are going to spend their money, or if you
actually believe, like I do, that the Iranians have already
strongly indicated that a significant amount of the money is
going to be spent outside, contrary to what Secretary Kerry
says, then you have the makings of a real problem.
Let me just touch briefly on what you said about Lebanese
Hezbollah. One of the things that Lebanese Hezbollah, one of
the reasons why it is such a problem, why Iran and Hezbollah
have created this apparatus, it is so difficult to counter, is
one of the things that Dr. Shelley mentioned was trade-based
money laundering, repeatedly mentioning that. Since the early
days of Hezbollah, Iranians and Hezbollah have gotten together
and they had a very clear vision of how to create a commercial
apparatus that enabled terrorist activity, criminal activity.
That exists today. Iran still benefits from that, whether it is
Hezbollah-related or nuclear-related, and that is going to
continue.
Mr. Barr. Thank you. I yield back.
Chairman Fitzpatrick. The gentleman from Minnesota, Mr.
Ellison, is recognized for 5 minutes.
Mr. Ellison. Thank you, Mr. Chairman, and thank you, Mr.
Ranking Member, for this hearing. I also would like to thank
all of our panelists who have been so responsive and helpful to
our understanding.
My first question is to Ms. Rosenberg. Ms. Rosenberg, on
this Iran deal, you did publish an article, for which I want to
commend you, and I thought it was well-written. One of the
things you said is a successful agreement is by far the best
way to reduce Iran's nuclear threat, but for any deal to work,
Tehran needs to know that if it cheats, economic pain will turn
in full force.
If you believe the deal, what we do have--there is a deal,
there is a fair chance that there will remain one, how should
we move forward given that we are going to have to monitor
whatever--and have--provide oversight to how things are going?
If we assume that the people who want to kill the deal are not
successful, and that is a fair assumption at this point, what
is your assessment on the day after, and what we should be
doing?
Ms. Rosenberg. Thank you, Congressman, for the question.
I think that the appropriate way to move forward for the
United States policymakers in particular is to ensure that the
deal--assuming it does move forward--is carefully and
aggressively implemented, and that includes the orientation of
U.S. policymakers to act independently if necessary or
certainly collectively within the mechanism of the U.N. to
reimpose sanctions in part or in whole if Iran is shown to be
cheating on its commitments. There is nothing in this agreement
that says that the U.N. has to completely reimpose all
sanctions which puts quite a high bar on Iran's cheating in
order to do so. It can do so--the U.N. can snap back partial
sanctions. The United States should also affirm its right and
ability to reimpose sanctions or take other measures outside of
those financial coercion mechanisms in order to make sure that
Iran is complying with the deal.
And relevant to the conversation that was just occurring
before you had your time on the floor here, I think it is true
that we should be concerned that Iran will be a greater threat,
terrorist threat, through itself and through its practice in
the region if the United States and allies abroad do nothing
further. That is why we have heard a number of suggestions
about additional steps U.S. policymakers should take in order
to ensure that Iran is not able to move money around itself or
through its proxies. For concerns about countering trade-based
money laundering that Hezbollah and others are associated with,
as well as Iran's use of newly undesignated financial
institutions, to the extent that there is a current evidentiary
record supporting that will illuminate illicit finance and that
Iranian banks are engaged in, that should be exposed publicly.
The United States should designate those banks under terrorism
authority, and we should urge our international partners to
join us in designating those banks in order to keep them
outside of the legal financial system and not able to move
illicit Iranian funds around the financial system.
Mr. Ellison. Thank you. Let me ask you a question on a
different topic.
About the IRS, in particular, the bank secrecy examiners at
the IRS are critical in fighting against terrorist financing.
How many BSA examiners work at the IRS, if you know? And I hate
asking people how many because that is like an on-the-spot
question. But if you know, good. If you don't, generally. Are
there enough, and how many institutions are they responsible
for examining?
I guess my real question is, do we have the kind of--do we
have the complement of people that we need in order for the IRS
to fulfill its mission under the bank secrecy examiners--with
the bank secrecy examiners?
Ms. Rosenberg. Off the top of my head, I cannot remember a
number of BSA examiners. I might have when I was still at
Treasury. I am sure we can find that number.
Mr. Ellison. I wasn't trying to--
Ms. Rosenberg. No, no problem.
Mr. Ellison. --put you on the spot.
Ms. Rosenberg. But I think to your point about whether
they have the adequate examination capacity, much has been said
about the inadequacy of Federal functional regulators or
examiners to adequately cover both the financial institutions
as well as the nonfinancial institutions that are at risk for
terrorist financing and other corruption and criminal activity.
There are ideas that exist about how to transfer some of
FinCen's for example, examination authorities to the IRS and to
other--divulge those to other State regulatory authorities in
order to look after potential illicit activity occurring at
bank and nonbank financial institutions. But certainly the
reason for such creative thinking is because there is currently
an inadequacy in that area.
Mr. Ellison. I just want to say thanks for your great
work, and I look forward to reading your next article.
I yield back.
Chairman Fitzpatrick. The gentleman from Arizona, Mr.
Schweikert, is recognized for 5 minutes.
Mr. Schweikert. Thank you, Mr. Chairman.
Dr. Shelley, first, I want to compliment you, because at
least in your testimony, both written and what you have said,
you have come closer to anyone in this committee on my
fixation, my concern. We seem to be having a discussion that
somehow the terrorism financing world is out there using the
SWIFT system, and we are seeing the wire transfers and not
understanding the scale of the distributive opportunities. When
their story is coming from border patrol agents of money moving
in diamonds and other types of products, when we are seeing
stories of completely informal financing mechanisms, when we
are seeing stories that it is money laundering for hire. So
today you may be a terrorist; tomorrow you may be a
narcotrafficker; next week you may be someone engaging in
counterfeit products; and the week after that it is the folks
who stole data who are trying to monetize it. And it is
becoming a profession out there with its own accountants, with
its own systems.
Dr. Shelley, how do I break my brothers and sisters and
those in the bureaucracy out of the mindset that we can do this
as a Treasury banking regulator and understanding the
distributive world that is around us and the perverse
professionalism that seems to be going into the movement of bad
actors' cash?
Ms. Shelley. Well, thank you for your kind words, but they
also captured my enormous concern on this issue. And I am very
thankful for the support that is here, I got from the Andrew
Carnegie Foundation, to go out and be a public intellectual on
these issues and write more on this.
I cannot think of a more burning issue than the need to get
out of this stovepipe way of thinking about it, and we have,
all of us contributing to this discussion, where Mr. Modell was
talking about Hezbollah and its involvement in the Captagon and
the drug trade, and Mr. Larkin, what they are doing on the
computers. And there is a whole thing that we haven't mentioned
much today of the dark Web in which we cannot even be following
very easily, except through undercover law enforcement, what is
going on in this illicit trade in the virtual world, which is
something that you need to be looking at much more in the
future.
But I think we need a reconceptualization of this, and any
advice or support that I can provide or way we can work
together to change this mindset is of paramount need for our
country.
Mr. Schweikert. Dr. Shelley, in your research, in your
reading, have you come across reasonably factual antidotes of
things that you have been shocked on the creativity of how
these bad actor dollars are moving--bad actor resources are
moving and how much of it is actually being moved not in a cash
equivalent but in commodities and our services, our documents,
or even data?
Ms. Shelley. I think a it is a huge amount, particularly
in the Middle East. As I say, it's a cultural tradition that
goes back thousands of years. You go back to Hammurabi's Code
in Mesopotamia, and they were already dealing with fences and
how to prevent illicit trade through stolen goods.
And so, particularly in that environment, we are dealing
with trade issues, and that is the financing core of it. But
what we haven't also talked about is how some of this massive
illicit trade that we have in illicit markets in Europe is
being used to help fund people's passage to help join ISIS, and
also the money that they are bringing with them. It is a global
illicit trade.
Mr. Schweikert. I had someone who was insisting that they
have studied this world and said many of the bad actors don't
even like to touch cash, because it is too expensive to wash,
and it is heavy, and they prefer moving high-value commodities,
whether it be an exotic car or diamonds and those things.
Ms. Shelley. Or ivory tusks.
Mr. Schweikert. And my fear, Mr. Chairman, is we seem to
be looking at this issue almost as traditional Westerners, with
the accounting and finance backgrounds instead of
understanding, just as we talk about the new distributive
economy that is happening around us, well, I hate to say it,
but those engaged in bad acts, whether it be terrorism, whether
it be drugs, or everything else out there, may be also creating
their own web of creativity.
And, with that, I yield back.
Chairman Fitzpatrick. The gentleman from Ohio, Mr.
Stivers, is recognized for 5 minutes.
Mr. Stivers. Thank you, Mr. Chairman.
I would like to commend the chairman for his leadership of
this task force and the ranking member as well for your hard
work here. And it is unfortunate that this is our last meeting
of the task force because I think there is a lot more work to
be done.
Ms. Rosenberg, it has already kind of come up a little bit.
Mr. Ross talked about this a little bit, but the fact that the
Iran deal could give up to $50 billion to Iran immediately,
which could then be diverted to terrorism, does that, for you,
give us a reason to maybe continue something like this task
force, to continue to monitor what is going on out is there?
Ms. Rosenberg. Absolutely. And, unfortunately, that $50
billion is only a marginal constituency in a broader threat
about which this task force and indeed many other stakeholders
should be concerned.
Mr. Stivers. Thank you.
Mr. Modell, you and Dr. Shelly talked a little bit about
and emerging means of financing. I think you talked about
mobile payment technology, trade-based methods. Dr. Shelley
just referred to bitcoin a few minutes ago and the dark Web.
Are we creating sufficient protections against these
emerging means of financing terrorism activities?
Mr. Modell. In my opinion, no. And I think it goes back to
what Dr. Shelley and others have alluded to, and that is we
don't have enough people in government who have the
sophistication to be able to understand what the current
illicit mechanisms are, and what the next generation of illicit
mechanisms will be. I keep going back to Hezbollah, because
they have been so successful at evolving into an organization
that epitomizes the problems we are talking about here. First,
it is used cars. Then, they are involved in diamonds. Then, it
is used clothing. So you are avoiding the use of cash. They
have had mastery of it, and it has been part of their long-term
vision, and it will go on.
Mr. Stivers. Thank you.
Dr. Shelley, you and Mr. Larkin, kind of following on what
Mr. Modell just said, have suggested that we do a better job of
public-private partnerships. And Mr. Larkin is sort of
advocating for how effective it has already been, the one that
he is involved in. You talk about how DHS doesn't do enough
corporate advisory work where they work with people who know
what is going on out there. To both of you, wouldn't that help?
Whoever wants to start.
Ms. Shelley. I couldn't agree with you more. The Overseas
Security Advisory Council (OSAC) at the State Department has
helped them. I think we need that in this area as well with
many, many corporations feeding in information and sharing and
giving insights.
Mr. Larkin. I agree. And part of my written and oral
testimony was intended to say that we have to be careful about
defining the threat too quickly and not backing off in looking
at the whole landscape because, as pointed out by my
colleagues, they are going to generate funds through any means
possible.
Mr. Stivers. It is an evolving threat, to your point, and
we need a very mobile and robust defense.
Mr. Larkin. Right. And I think there can be more. It has
gotten better, but I think there can be more information coming
back from law enforcement as to what they found that the true
terrorism groups are doing.
Mr. Stivers. Just like in cyber defense, we don't do a
very good job of sharing information back from the government
to the people who face the threat.
Mr. Larkin. Right. It's getting better, but there is still
a lot of room for improvement.
Mr. Stivers. And I think your organization, by the way, is
a great model we can learn from. I really appreciate your being
here, Mr. Larkin.
Mr. Larkin. Thank you.
Mr. Stivers. Mr. Modell, you are putting your finger in
the air.
Mr. Modell. I just want to throw something out there, as
you are looking for a congressional going forward with the
Iranian implementation--
Mr. Stivers. And that is what I would like to talk about
here, yes.
Mr. Modell. I would just say, according to the structure,
the way, the deal, the way I have read it is every 90 days and
every 180 days, the Obama Administration and future
Administrations are going to have to report to Congress the
extent to which they are complying with the deal. Having a task
force continue and having them look specifically at the extent
to which they are complying with financially related issues,
whether it is terrorism or nuclear-related, would probably be
very useful.
Mr. Stivers. Great idea. One last follow-up for Dr.
Shelley, the other thing you suggested is because of the tie
between crime and terrorism financing that we better coordinate
our efforts. Could DHS do a better job of helping communities?
I know the New York and Los Angeles Police Departments have
done a pretty good job. But could DHS do a better job of
helping build capacity across our country in local law
enforcement, and if so, how?
Ms. Shelley. I think that they could help take the model
that has been developed in New York and Los Angeles--that face
so many threats and have had so few acts of terrorism--and put
this together and have lessons learned, handbooks that we would
do, and generally a much greater operational effort to change
the culture in many urban areas and regions of the United
States.
Mr. Stivers. Thank you.
Mr. Chairman, with your indulgence, could the panelists
show by hands, could you raise your hand if you think the task
force should continue? I will note that was unanimous.
Thank you, Mr. Chairman, for your great work.
And thank you, Mr. Lynch, for your work.
You guys have worked together on this in a way that
Congress needs to continue. And I hope it continues through
extending this task force. And I will certainly personally urge
the chairman of the Financial Services Committee to allow you
to continue the incredible work you have started. Thank you to
the panelists.
I yield back.
Chairman Fitzpatrick. Without objection, two additional
Members will be recognized for follow-up questions, beginning
with the ranking member, Mr. Lynch.
Mr. Lynch. Thank you, Mr. Chairman. And thank you for your
kind words. Mr. Larkin, we had an opportunity a couple months
ago to go into Gaziantep in southern Turkey to meet with a
group of Syrian rebels who are largely engaged in opposition to
Bashar al-Assad and his regime in Syria but also against ISIL
on occasion. We met with them to determine what efforts that we
might bring to that fight, especially against ISIL. In our
conversations, a number of these different rebel leaders
indicated that they used a messaging platform called WhatsApp.
It is pretty common. It provides full encryption, not end-to-
end encryption. But, interestingly, it now has a banking app so
that they can transfer funds in and out. The depository bank
that is connected to that I think is Axis Bank in India. And we
have a great relationship with India, especially with the anti-
money laundering and terrorist financing implications
considered.
But if the rebels are using this as a regular funding app,
I am sure that ISIL and others are doing exactly the same
thing. And I wanted to know what are the implications here for
us to try to wall off ISIL, even if, as Mr. Modell indicated,
it is great that Turkey is in the fight now. And, actually, it
looks like they are beginning to police their border in an
effective way. Syria is still a mess, a very porous border. We
have been out there to Al Qaim on the Iraq border. It is tough
enough physically to close off that border. If this financing
is going on through WhatsApp and I am sure it will just morph
into something else. These things seem to be--they trend from
time to time. What are the implications though for us to try to
shut off financing if it is so easy to do wirelessly? And there
seems to be great connectivity in that area to use these apps.
What are the implications from a cyber security standpoint?
Mr. Larkin. Thanks for the question. I can speak from my
view of what we do and what we have done at the NCFTA in
working with the technology experts out there. One of the
regular discussions that occurs is, what is the implication of
this new product or service that is out there, this new app,
what are the impacts that we are going to see, and what are the
things that we can potentially do to help be more proactive
about the intelligence or the capabilities that can be brought
together? I don't know the specific details of how that app
works. But that is a good example of how the resources that
come together at the NCFTA literally brainstorm on those things
every day. And it is an environment that you can do that where
you really couldn't do that in government space or probably had
difficulty doing it in individual corporate space. But you can
in a sort of a meet-in-the-middle neutral environment where
that kind of conversation is a regular part what is discussed.
I think there is good opportunities. The implications--I can't
speak to the specifics of what those are if we don't do that.
But I can tell you that I think we are moving in the right
direction.
Mr. Lynch. Maybe that is a conversation I should have with
FinCEN off-line then.
Ms. Rosenberg. May I speak to that issue?
Mr. Lynch. Sure, Ms. Rosenberg. Absolutely.
Ms. Rosenberg. Congressman, I think you have just laid out
the perfect argument for why it is important for the bank, that
banks, that app, to have a strong AML program. Now, that bank
has correspondent banks which may exist in the United States.
And there are financial regulators in the United States and in
India which have a responsibility to ensure that app banked by
that bank in India does not engage in money laundering or
terrorist financing activities. So U.S. financial regulators
have an opportunity directly for institutions in our
jurisdiction to require them to engage in appropriate customer
due diligence, to make sure that none of any illicit finance
moving through that app can come back into our financial
system.
Mr. Lynch. It works well, KYC, know your customer, works
very well when the person is walking into the bank. I guess I
have problems conceptualizing how that happens electronically
when we are doing it as a wireless messaging platform, and it
is instantaneous. I guess I have a--
Ms. Rosenberg. If that bank in India is doing its job,
what it will have, doing a good job, what it will do is gather
adequate information about that app, who the beneficial owners
are of this app, the kind of activity that app will be engaged
in domestically, internationally, et cetera. And if anything
moves beyond, they should have a requirement to file any kind
of suspicious activity reports which, if it is properly shared
with law enforcement in the United States and internationally,
then that information will be disclosed. There are many links
in that chain that can be weak ones. Nevertheless, that is the
argument you have just laid out for a strong program.
Mr. Lynch. All right. Thank you very much.
I yield back. Thank you.
Chairman Fitzpatrick. The vice chairman of the task force,
Mr. Pittenger, is recognized as well.
Mr. Pittenger. Thank you, Mr. Chairman.
I would just like to probe a little bit further with data
integration. We have had discussions with Secretary Lu, as well
as those who are involved in our border control, and find out
that we have limitations in terms of data sharing there, albeit
FinCEN has very sophisticated software in great capacities. We,
as well, have had discussions with the major banks and how
their capacities could be enhanced with closer integration with
our systems. What structures would you recommend potentially
with the private sector, and/or what oversight legislation or
regulatory change would you recommend considering the privacy
issues that would enable our data capacities to be better
shared among agencies and among the private sector?
Mr. Larkin, we will start with you.
Mr. Larkin. Okay. Thanks for the question. In my
experience, in developing the NCFTA in particular, we have
learned that sensitive information regarding personally
identifiable information (PII) is often not needed. So anything
that can be done to strip out PII from that information that we
are trying to share is typically something that is not part of
what we recommend sharing. It is the threat data. So if we can
get people to understand that the inbound threat, how it looks
coming at the company or coming at the person is specific to
the threat actor and specific to the device they are using or
the technique they are using or the malware they are using,
that is the valuable information that we want to share, as well
as where the exfiltration is headed, whether it is data or
funds or other things that are going to be monetized. So the
inbound and the outbound side of the information sharing are
the critical pieces. If there are ways to strip off the PII in
the middle and then move towards creating sort of a broader
safe harbor for information sharing among cross-sector
stakeholders, I think that is a worthwhile conversation to
have.
Mr. Pittenger. Your response, Ms. Rosenberg?
Ms. Rosenberg. Thank you. You mentioned border control. So
one of the challenges for U.S. financial institutions, such as
Bank of America, Citibank, et cetera, exists when they are
trying to put together suspicious activity that exists within
their own financial institution across borders. So, for the
United States and in Mexico, for example, if they suspect there
is activity associated with bulk cash movement, drug,
narcotrafficking and the movement of drug money across a
national border, the U.S.-Mexico one in particular, it can be
difficult for them to move suspicious activity reports within
their own financial institution that are not designed to ever
move outside of it in order to put these pieces together and
communicate them to Federal regulators. In addition, the idea
that I had mentioned previously about contemplating safe harbor
arrangements that would allow the sharing of this information
and possibly a self-certification mechanism similar to what
exists organized by the Commerce Department for technology
sharing, technology information sharing, may be a model that
can be borrowed from in the case of financial services.
Mr. Pittenger. Thank you. How can FinCEN better track
trade-based money laundering with our Customs data?
Ms. Rosenberg. One of the challenges for FinCEN is, of
course, putting together the appropriate--understanding the
methodologies that are used by criminals. The case you just
mentioned is trade-based money laundering. Having the adequate
reporting from financial institutions when they flag certain
suspicious activities that they identify as associated with
trade-based money laundering--and the Hezbollah example is an
excellent one--allows them to then comb through their own,
organize and analyze their own massive bank of SAR material in
order to create the methodologies that they can then share with
the law enforcement community either as particular leads or in
the form of illuminating the particular methodology that would
exist from a criminal enterprise, which can then allow law
enforcement counterparts to build cases and pursue them.
Mr. Pittenger. Thank you.
I yield back my time.
Chairman Fitzpatrick. The gentleman yields back.
With that, the questions are completed for the hearing
today. I do want to thank the witnesses here today. You have
identified some risks, some gaps in our system. You have
identified some potential legislative fixes. And you have been
very responsive. So we appreciate your time and your service.
And I have to say that during our 6 months of hearings, we
have had some outstanding panelists who have come to help us to
do our work, which we believe is important. And we know that
you believe that as well.
And during those 6 months, in my work with Ranking Member
Lynch, Vice Chairman Pittenger, and really all the members of
the task force, there has been no light between us on the work
that is set out before us, identifying the gaps, finding the
solutions, protecting our people, our country, and our
constituents, including our constituents who work in the
important financial service areas and industries, not just in
this country but abroad. So all of you have helped us do that.
And I do want to recognize the hard work of the committee
staff, especially Mr. Joe Pinder, Mr. Bill You, Chris
Matarangas, of my staff, the staff of the ranking member, Mr.
Lynch, and all the members of the committee, of course, without
which the staff, I am sure we agree that we wouldn't--
Mr. Lynch. And Jackie Cahan. She's on my staff.
Chairman Fitzpatrick. We appreciate all that work. And I
think we all agree we still have a lot of work to do. And you
have helped us accomplish that.
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.
So with that, the hearing is adjourned. Thank you.
[Whereupon, at 12:17 p.m., the hearing was adjourned.]
A P P E N D I X
September 9, 2015
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