[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



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





                                   
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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

                              ----------                              
                                                                   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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