    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

                        LOW COST, HIGH IMPACT: COMBATING

                         THE FINANCING OF LONE WOLF AND

                         SMALL SCALE TERRORIST ATTACKS

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

                                    HEARING

                                   BEFORE THE

                           SUBCOMMITTEE ON TERRORISM

                              AND ILLICIT FINANCE

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               SEPTEMBER 6, 2017

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 115-37

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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
    STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
    BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
    BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
    BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
    SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
    STEVE STIVERS, Ohio                  AL GREEN, Texas
    RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
    DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
    ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
    ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
    ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
    KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
    LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
    SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
    ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
    BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
    MIA LOVE, Utah                       DENNY HECK, Washington
    FRENCH HILL, Arkansas                JUAN VARGAS, California
    TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
    LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
    DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
    BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
    ALEXANDER X. MOONEY, West Virginia
    THOMAS MacARTHUR, New Jersey
    WARREN DAVIDSON, Ohio
    TED BUDD, North Carolina
    DAVID KUSTOFF, Tennessee
    CLAUDIA TENNEY, New York
    TREY HOLLINGSWORTH, Indiana

                      Kirsten Sutton Mork, Staff Director
                 Subcommittee on Terrorism and Illicit Finance

                       STEVAN PEARCE, New Mexico Chairman

    ROBERT PITTENGER, North Carolina,    ED PERLMUTTER, Colorado, Ranking
        Vice Chairman                        Member
    KEITH J. ROTHFUS, Pennsylvania       CAROLYN B. MALONEY, New York
    LUKE MESSER, Indiana                 JAMES A. HIMES, Connecticut
    SCOTT TIPTON, Colorado               BILL FOSTER, Illinois
    ROGER WILLIAMS, Texas                DANIEL T. KILDEE, Michigan
    BRUCE POLIQUIN, Maine                JOHN K. DELANEY, Maryland
    MIA LOVE, Utah                       KYRSTEN SINEMA, Arizona
    FRENCH HILL, Arkansas                JUAN VARGAS, California
    TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
    LEE M. ZELDIN, New York              RUBEN KIHUEN, Nevada
    WARREN DAVIDSON, Ohio                STEPHEN F. LYNCH, Massachusetts
    TED BUDD, North Carolina
    DAVID KUSTOFF, Tennessee

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        September 6, 2017............................................     1
    Appendix:
        September 6, 2017............................................    37

                                   WITNESSES
                          Wednesday, September 6, 2017

    Hughes, Seamus, Deputy Director, Program on Extremism, The George
      Washington University..........................................    10
    Levitt, Matthew, Director, Stein Program on Counterterrorism and
      Intelligence, the Washington Institute for Near East Policy....     5
    Moreno, Joseph V., Partner, Cadwalader, Wickersham & Taft LLP....     8
    Reynolds, Frederick, Global Head of Financial Crime Legal,
      Barclays.......................................................    11

                                    APPENDIX

    Prepared statements:
        Hughes, Seamus...............................................    38
        Levitt, Matthew..............................................    48
        Moreno, Joseph V.............................................    63
        Reynolds, Frederick..........................................    71

                        LOW COST, HIGH IMPACT: COMBATING

                         THE FINANCING OF LONE-WOLF AND

                         SMALL-SCALE TERRORIST ATTACKS

                                  ----------

                          Wednesday, September 6, 2017

                 U.S. House of Representatives,
                              Subcommittee on Terrorism
                                   and Illicit Finance,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 2:11 p.m., in
    room 2128, Rayburn House Office Building, Hon. Stevan Pearce
    [chairman of the subcommittee] presiding.
        Members present: Representatives Pearce, Pittenger,
    Rothfus, Tipton, Williams, Poliquin, Love, Hill, Emmer, Zeldin,
    Davidson; Perlmutter, Maloney, Foster, Kildee, Delaney, Sinema,
    Vargas, Gottheimer, Kihuen, and Lynch.
        Ex officio present: Representative Waters.
        Chairman Pearce. The Subcommittee on Terrorism and Illicit
    Finance will come to order.
        Without objection, the Chair is authorized to declare a
    recess of the subcommittee at any time. Also without objection,
    members of the full Financial Services Committee who are not
    members of the Subcommittee on Terrorism and Illicit Finance
    may participate in today's hearing.
        Today's hearing is entitled, ``Low Cost, High Impact:
    Combating the Financing of Lone-Wolf and Small-Scale Terrorist
    Attacks.''
        I now recognize myself for 2 minutes to give an opening
    statement. I want to thank everyone for joining us today.
    Today's hearing will examine issues concerning small-scale acts
    of terrorism and the mechanism used to fund this type of
    terrorism. Although overall numbers remain low, one study has
    found that since the 1970s, lone-wolf attacks have grown almost
    50 percent in the United States, and by over 400 percent in
    other Western countries.
        Law enforcement as well has previously expressed concern
    that there is a greater likelihood of lone-wolf terrorism than
    large-scale attacks in the United States. One of the likely
    reasons is the relatively low cost for funding such an attack.
    Roughly 75 percent of extremist terrorist plots in Europe
    occurring between 1994 and 2013 have an average cost of just
    $10,000.
        As we will hear today, whether an act of terrorism is
    directly funded by a known terrorist group or carried out by a
    sympathizer, the relatively low financial cost presents a
    hurdle to tracking the movement of funding through the
    financial system. Whether it be through petty crime, working a
    temporary job, misappropriating government benefits, or
    engaging in scam transactions, terrorist organizations are
    utilizing new means to finance their operations, and are
    increasingly turning to newer financial technologies as well as
    less traditional transfer methods to move their funds.
        As we have seen a change in tactics to lone-wolf terrorist
    acts, what is clear, however, is that the cooperation between
    policymakers, law enforcement, intelligence agencies, and
    financial institutions is necessary to detect, identify, and
    disrupt the funding of those actors.
        In today's hearing, I hope our witnesses can discuss how we
    are currently combating terrorism and illicit finance including
    what tools and partnerships are working well in the effort to
    detect and disrupt lone-wolf and small-cell attacks. I would
    also appreciate any comments about deficiencies in our system
    that may impede our fight against terrorist finance.
        Finally, I would welcome a discussion about the new and
    innovative technological solutions that are being developed to
    help tackle this problem. Inhibiting terrorist financing is not
    a new problem, but I hope that today we can shed some light on
    this issue and help inform this subcommittee on ways in which
    we can help disrupt that flow of money.
        Again, I would like to thank our witnesses for being here
    today. I look forward to their expert testimony on this very
    important issue.
        I now recognize the gentleman from Colorado, Mr.
    Perlmutter, for 2 minutes for an opening statement.
        Mr. Perlmutter. Thank you, Mr. Chairman. And thank you to
    each of our witnesses for being here today.
        This subcommittee takes on some difficult but important
    issues. In recent years, we have seen a rise in lone-actor
    terrorist attacks. While these terrorists are often inspired by
    extremist ideologies, they have little to no specific help from
    terrorist organizations, and the attacks are often self-
    financed, making them more difficult to uncover and prevent.
        We have seen that lone-actor terrorists can be radicalized
    by foreign as well as domestic extremism. In the San Bernardino
    shooting, the Orlando nightclub attack, and the Boston Marathon
    bombing, the terrorists were inspired by foreign terrorist
    organizations.
        However, in the Charleston church shooting, the car attack
    in Charlottesville, and the Planned Parenthood shooting in
    Colorado Springs, the terrorists were motivated by domestic
    extremism. Regardless of the source of radicalization, we must
    look for ways to prevent the financing of these kinds of
    activities. The low cost of these attacks can be challenging to
    our current antiterrorism financial protocols, but that doesn't
    make them any less important to stop.
        I am eager to hear from our witnesses on how to recognize
    financial patterns in small-scale terrorism, how the government
    or financial institutions can better block extremist networks,
    and other ideas on how to disrupt lone-actor terrorism
    financing.
        With that, I yield back, Mr. Chairman.
        Chairman Pearce. The gentleman's time has expired. The
    Chair now recognizes the gentleman from North Carolina, Mr.
    Pittenger, for 1 minute.
        Mr. Pittenger. Thank you, Mr. Chairman, and Ranking Member
    Perlmutter, for hosting today's hearing on combating lone-wolf
    terrorism and small-scale terrorist attacks.
        I would also like to thank our distinguished panelists for
    lending their expertise to our subcommittee, particularly Mr.
    Reynolds. Thank you for your engagement in working with us and
    traveling to other countries to carry the important message of
    terrorism finance and how we can prevent the bad guys from
    getting the money.
        Last Congress, I pursued legislation that would punish
    those who move to support lone-wolf terrorists. Furthermore, I
    will continue to pursue legislation that arms law enforcement
    and assists our partners abroad to mitigate the impact of
    potential terrorist attacks.
        Lone-wolf and small-scale terrorist attacks continue to
    threaten the United States and the rest of the world. It is
    important that we continue to track illicit finance and illegal
    transactions by cooperating with the private sector to thwart
    these bad actors.
        Mr. Chairman, I look forward to today's important hearing,
    and I yield back.
        Chairman Pearce. The gentleman's time has expired. The
    Chair now recognizes the gentleman from Minnesota, Mr. Emmer,
    for 2 minutes.
        Mr. Emmer. Thank you, Mr. Chairman, for yielding, and thank
    you for holding this hearing today.
        This subcommittee has held a number of important hearings
    during its inaugural session. And today's topic will hopefully
    help us better understand and address what seems to be a shift
    in the way acts of terror and violence are carried out.
        While we will never forget the images of a large-scale
    attack like the one we witnessed almost 16 years ago against
    the World Trade Centers and the Pentagon, there is an increased
    and concerning pattern of smaller, less coordinated attacks
    around the globe.
        Less than a month ago, a terrorist using a rented cargo van
    targeted and killed 14 people in a popular tourist location in
    Barcelona, Spain. Just over a year ago, on September 17, 2016,
    a suspected terrorist wielding kitchen knives wounded 10 people
    at a shopping mall in my district in Minnesota. The attacker
    was fortunately subdued by the heroic actions of another
    Minnesotan before any innocent lives were lost. However, areas
    of recreation and enjoyment must now be viewed as potential
    soft targets, where even the most common household items can be
    used as a weapon.
        Our financial institutions have and will continue to play a
    critical role in the fight against terrorism. As food and water
    are essential to sustaining life, terror organizations need
    financing and resources to further their agenda of violence and
    hate. We must continue our efforts to deprive them of these
    essential resources, and we must constantly evolve as the
    threats facing our Nation so often do.
        I look forward to hearing from our witnesses today and
    working with my colleagues on this subcommittee to find ways we
    can partner with our financial services sector to better track
    and defeat small-dollar, small-scale acts of terror in the
    future.
        Thank you, and I yield back the remaining balance of my
    time.
        Chairman Pearce. The gentleman yields back. The Chair now
    welcomes each one of our witnesses today.
        To introduce Mr. Moreno, I would like to recognize
    Representative Lee Zeldin.
        Mr. Zeldin. Thank you, Mr. Chairman.
        Mr. Joseph Moreno is a partner in the white collar defense
    and investigations group at the law firm of Cadwalader,
    Wickersham and Taft. Mr. Moreno rejoined Cadwalader after
    serving at the U.S. Department of Justice in the National
    Security Division's Counterterrorism Section where he
    investigated and prosecuted international money laundering,
    material support, structuring, and terrorist financing cases.
    He was also appointed a Special Assistant U.S. Attorney for the
    Eastern District of Virginia where he prosecuted a wide variety
    of criminal cases regarding the Classified Information
    Procedures Act, the Foreign Intelligence Surveillance Act, and
    the USA PATRIOT Act.
        In 2014, Mr. Moreno was appointed as a consultant to the
    Federal Bureau of Investigation where he served on the staff of
    the FBI's 9/11 Review Commission.
        Prior to joining his current firm, Mr. Moreno was an
    associate in the structured finance and white collar crime
    group at the law firm Skadden Arps. Mr. Moreno earned his
    undergraduate degree in political science cum laude from Stony
    Brook University in the greatest Congressional district in
    America, New York 1, and his JD cum laude from St. John's
    University School of Law.
        A decorated combat veteran, Mr. Moreno is a Lieutenant
    Colonel in the U.S. Army Reserve. And I was honored to serve
    with Mr. Moreno, because we were in the same Army Reserve unit
    until recently.
        Thank you, and I yield back.
        Chairman Pearce. Dr. Matthew Levitt, I understand that you
    have a hard stop at 4:00? Okay. So at that time, I will excuse
    you. The rest of you are good until 7:00?
        Okay. Checking. That was a little grimace there instead
    of--
        Okay. Dr. Levitt is the Director of the Stein Program on
    Counterterrorism and Intelligence at the Washington Institute
    for Near East Policy. From 2008 through 2009, he served as
    State Department Counterterrorism Advisor to the Special Envoy
    for Middle East Regional Security. From 2005 to early 2007, he
    served as Deputy Assistant Secretary for Intelligence and
    Analysis at the U.S. Department of the Treasury.
        From 2001 to 2005, Dr. Levitt served the Washington
    Institute as founding director of its terrorism research
    program, which was established in the wake of the September
    11th attacks. Previously, he served as counterterrorism
    intelligence analyst at the Federal Bureau of Investigation.
        Dr. Levitt holds a bachelor's degree in political science
    from Yeshiva University, as well as a master's degree in law
    and diplomacy, and a doctorate from Tufts University Fletcher
    School of Law and Diplomacy.
        Thank you for being here, Dr. Levitt.
        Mr. Seamus Hughes is the deputy director of the Program on
    Extremism at George Washington University. Mr. Hughes
    previously worked at the National Counterterrorism Center
    (NCTC) serving as lead staffer on the U.S. Government effort to
    implement a national countering violent extremism strategy.
        Prior to NCTC, Mr. Hughes served as a Senior
    Counterterrorism Advisor for the U.S. Senate Homeland Security
    and Governmental Affairs Committee.
        On the Hill, Mr. Hughes authored numerous legislative
    bills, including sections of the 9/11 Commission
    Recommendations Act, and the Special Agent Samuel Hicks
    Families of Fallen Heroes Act.
        He is a graduate of the University of Maryland and a
    recipient of the National Security Council outstanding service
    award and two NCTC Director's Awards for outstanding service.
    Mr. Hughes also teaches classes at George Washington University
    and Georgetown University.
        Thank you for being here, Mr. Hughes.
        Mr. Frederick Reynolds is global head of financial crime
    legal for Barclays. Mr. Reynolds joined Barclays from Bank of
    America where he was an FIU executive and was responsible for
    global AML investigations, global AML detection and monitoring,
    risk data analytics, and AML behavior modeling.
        Prior to entering the private sector, Mr. Reynolds served
    as the Deputy Director of Treasury's Financial Crimes
    Enforcement Network, or FinCEN. Prior to being appointed the
    Deputy Director of FinCEN from 2010 to 2012, he was Deputy
    Chief of the Asset Forfeiture and Money Laundering section at
    the Department of Justice where he oversaw numerous high-
    profile money laundering and financial crime cases, including
    ones involving Mexican cartels, terrorist financing, and
    transnational organized crime.
        From 2006 to 2010, Mr. Reynolds was a Federal prosecutor at
    DOJ where he investigated and prosecuted high-profile cases
    involving significant money laundering, and financial crime in
    violations of the International Emergency Economic Powers Act
    and the Bank Secrecy Act.
        Prior to joining DOJ, Mr. Reynolds was the assistant
    attorney general for the Republic of Palau and a litigation
    associate for several private firms. Mr. Reynolds has an
    undergraduate degree from Brandeis University and a law degree
    from Emory University School of Law.
        Each one of you will now be recognized for 5 minutes to
    give an oral presentation of your testimony. And without
    objection, each of your written statements will be made a part
    of the record.
        Dr. Levitt, you are now recognized.

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

        Mr. Levitt. Thank you, Chairman Pearce, Ranking Member
    Perlmutter, and distinguished members of the Terrorism and
    Illicit Finance Subcommittee of the House Financial Services
    Committee. It is an honor and a privilege to testify before you
    today.
        Unlike large attacks orchestrated over time by large
    groups, lone- offender and small-group attacks can be carried
    out very quickly with minimal funding and preparation. The
    result is that, in some cases, authorities can be denied both
    the lag time within which they can run an effective
    investigation and the benefit of key traditional trip wires,
    like the ability to be able to follow travel, communications,
    and financial trails, that in the past have proved to be
    especially productive lines of investigative inquiry.
        Lone offenders and small groups are--their attacks are on
    the rise, especially coming on the heels of explicit calls by
    groups like the Islamic State and al-Qaida for like-minded
    followers to carry out attacks in their home countries.
        ISIL has been pushing such attacks for years now. In an
    online 2015 book entitled, ``How to Survive in the West: A
    Mujahid Guide,'' the group argued, and I quote, ``With less
    attacks in the West being group-networked attacks and an
    increasing amount of lone-wolf attacks, it will be more
    difficult for intelligence agencies to stop an increasing
    amount of violence and chaos from spreading in the West.''
        The terrorist threat from lone offenders in small groups is
    also magnified by the phenomenon of returning foreign terrorist
    fighters. Some of these battle-hardened fighters move on to new
    battlefronts. Some may return disgruntled and disillusioned.
    Some are sure to return intending to do harm.
        The 2015 National Terrorist Financing Assessment Risk notes
    one case from Houston of an individual who planned to travel
    abroad to fight with radical groups in Syria by using an
    expected tax refund to cover his expenses. The same types of
    simple funding could also underwrite attacks at home. And this
    includes the variety of trends that we need to look at here, as
    you have all mentioned, the low cost of attacks, one particular
    issue. The self-financing is another. That can be using your
    own salary. And there is nothing at all suspicious about that.
    It could be small-scale crime. It could be borrowing money from
    family or friends, either with or without the knowledge that it
    intends to do some harm.
        Just last week, an Uzbek man in Brooklyn pled guilty to
    conspiring to provide material support to the Islamic State in
    a related case. There are legal and illegal financial loans.
        But one of the things I think is most interesting is that
    the idea of the lone wolf is actually a little bit of a
    misnomer. In more cases, people are ``known wolves'' rather
    than ``lone wolves,'' either from what they are posting on
    social media or from what they are telling their close friends
    and family, or from external activities. External support
    continues to be something that is a useful line of
    investigation.
        Last month, U.S. investigators uncovered an ISIS financial
    network that was transferring money to an operative in the U.S.
    through false eBay transactions. The recipient, Mohamed El-
    Shinawy in Maryland, pretended to sell printers on eBay as a
    cover for the payments he was receiving through PayPal and
    Western Union for operational purposes in the United States.
        The U.N. Security Council has reported that despite
    military pressure and falling revenues, the ISIL core continues
    to send funds to affiliates worldwide using a combination of
    money or value transfer services and the transport of bulk
    cash. This transferring of money is an opportunity for us, even
    with small-scale incidents.
        The U.N. Security Council report goes on to note that the
    ISIL core has sent money to places where it does not have
    affiliates, which, according to a member state assessment, is
    an attempt to prepare for its eventual military defeat in Syria
    and Iraq. In other words, not only is ISIL preparing to move
    funds to its other provinces, it is also moving funds to other
    places where newly inspired followers or returning foreign
    terrorist fighters can use or access ISIL funds to carry out
    attacks. Australian officials report similar issues.
        The bottom line is that countering homegrown financing is
    not something new. The 9/11 Commission Report specifically
    talked about how, while terrorists have shown considerable
    creativity in how they move money, we have had some success.
    But over time, if some of their terrorist operations do not
    require as much outside money that may--they may be more self-
    funding either through legitimate employment or low-level
    criminal activity.
        We should have anticipated this coming. And, therefore,
    there are several things that we could be thinking about. The
    first is that lone offenders and small groups still need money.
    And despite the challenges noted above, even the Financial
    Action Task Force (FATF) underscores that their need for money
    means we have opportunities.
        Consider the case of Dhiren Barot in the U.K., where
    financial trails played one small part in identifying who he
    was. He was only known as Musa al-Hindi and was thwarted in his
    plot several years ago to blow up a limousine filled with gas
    canisters in the City of London.
        Second, the private sector has access to tremendous
    financial information and can be better positioned to act on it
    and share it with us if we provided them greater insight.
        Now, in the U.S. Government, we do this type of thing all
    the time. We assess and reassess what the trends are. FinCEN
    does this all the time in terms of updating its automated
    business rules that develops in terms of how it and its
    partners search Bank Secrecy Act information. There is a lot
    more that we could be doing here. And a great example is the
    U.K.'s joint money laundering intelligence task force. That is
    a great example in the U.K.
        And finally, financial intelligence is not going to solve
    all of your problems. There will be some cases in a true lone-
    wolf situation where someone has no connectivity to others and
    is taking money out of their own bank account, and this
    particular tool set will not be as effective.
        But financial intelligence continues to surprise. In one
    instance, financial intelligence helped the U.S. Air Force
    determine what oil refineries to target in Iraq and Syria. And
    so, we should not rule this out as a tool that will no longer
    be effective. We just have to find new ways to partner with the
    private sector to make it as effective as possible.
        Thank you very much.
        [The statement of Dr. Levitt can be found on page 48 of the
    appendix.]
        Chairman Pearce. The Chair will now recognize Mr. Moreno
    for 5 minutes.

    STATEMENT OF JOSEPH V. MORENO, PARTNER, CADWALADER, WICKERSHAM
                               & TAFT LLP

        Mr. Moreno. Chairman Pearce, Vice Chairman Pittenger,
    Ranking Member Perlmutter, and distinguished members of the
    subcommittee, thank you so much for the invitation to appear
    before you today. It is truly an honor to be part of this
    discussion.
        Since the attacks of September 11th, we have been largely
    successful in preventing the next catastrophic attack, and have
    prosecuted hundreds of financiers, facilitators, and charities
    for supporting terrorism. However, as pointed out, identifying
    and preventing lone-wolf or small-scale terrorist attacks
    presents a unique set of challenges. Lone-wolf attackers are
    typically self-radicalized with no direct connection to an
    organized terrorist group. With minimal training and
    coordination, they can carry out a mass shooting, detonate
    explosives, or drive a vehicle into a crowd of civilians.
        These attacks are frequently self-funded at amounts often
    considered too small to detect solely through the tracking of
    financial transactions. But studies show there is almost always
    some identifiable behavior leading up to a lone-wolf attack,
    whether it be an online manifesto, training, reconnaissance, or
    the acquisition of weapons or other materials.
        Knowing this, we must continue exploring ways to identify
    these behaviors before an attack takes place. First, we should
    take a hard look at whether we can better utilize our existing
    prosecution tools and financial reporting framework. The Bank
    Secrecy Act criminalizes the act of money structuring or making
    transactions under $10,000 to cause a bank to fail to report
    that transaction to the Federal Government. Structuring
    prosecutions and the use of asset forfeitures have come under
    criticism in recent years due to cases where the funds of law-
    abiding citizens were seized, and they were left fighting to
    get their money back.
        As a result, both the IRS and the Department of Justice
    have taken the position they will focus only on structuring
    cases that involve significant criminal activity. The problem
    with this approach is that it focuses only on where the money
    originates, not on where the money is going.
        If a person is making multiple withdrawals of just under
    $10,000 within days, or withdrawals from multiple bank branches
    or multiple ATMs on the same day, for example, they are
    probably trying to hide what they plan to do with that money.
        We should also examine how we utilize suspicious activity
    reports prepared by banks and other financial institutions. We
    need to explore better technology to flag small transactions
    that may be indicative of illicit use, such as artificial
    intelligence systems designed to detect suspicious activity in
    real time.
        At the same time, we need to make sure that joint Federal
    and local SAR review teams have the personnel and funding they
    require to get through and follow up on the tremendous volume
    of reports they receive each year. The suspicious activity
    reporting process is seriously impeded if the reports are not
    actually reviewed and acted on.
        Second, we need to look at ways that would-be attackers
    anonymously solicit, move, and spend money. If we were having
    this conversation 15 years ago, we would focus primarily on
    hawalas, cash couriers, and charities.
        Now, new payment methods such as virtual currencies, crowd-
    funding technologies, mobile payment applications, and online
    peer-to-peer payment systems provide persons with ever-
    expanding methods to raise and move funds anonymously. As these
    technologies develop, we must ensure that our reporting
    requirements keep pace.
        Another emerging issue is the proliferation of pre-paid
    cards. Today, anyone can go into a supermarket and buy packages
    of pre-paid cards in cash which can be used to purchase
    virtually anything. You don't even need the physical card to
    make a purchase. Individuals can cut and paste the account
    number, expiration date, and security code into an email or
    text message and effectively transfer that purchasing power
    anywhere in the world. By doing so, they effectively convert
    their cash to a form of anonymous buying power, significantly
    working around the financial reporting safeguards that apply to
    traditional credit and debit cards.
        Finally, we should consider other methods to address this
    issue. There have been proposals to regulate various types of
    consumer products commonly used in attacks, such as ammonium
    nitrate. Tagging agents currently required for plastic
    explosives could be required for use in gunpowder in bullets
    and fireworks to help trace those products after an attack.
    Data on the purchases of items such as pressure cookers, diesel
    fuel, and other products could also be collected and tracked.
        At the same time, we must continue aggressive surveillance
    and infiltration of websites and social media used to spread
    propaganda, raise funds, and incite violence. And operators
    such as Facebook and Twitter must be pressed to enforce their
    terms of service and close accounts that are used to incite
    illegal activity.
        Just as we strive to cut off terrorist organizations from
    financial systems, we must also make it as difficult as
    possible for them to use the internet to finance and coordinate
    attacks.
        Finally, many lone-wolf attackers, at some point,
    demonstrate indicia of depression, paranoia, or violence prior
    to an attack. In most communities, the only option for
    reporting someone is to call the police or the FBI. If there
    was a mechanism for some sort of mental health intervention,
    concerned friends and family members may be more willing to get
    that individual the help they need before they go down the path
    to violence.
        I fully acknowledge that each of these options comes with
    costs, both to taxpayers and consumers and to individual
    privacy. And these costs must be weighed against the likelihood
    these activities would, in fact, be effective, either as
    prevention and disruption, or for criminal prosecution after
    the fact.
        Addressing the threat of lone-wolf and small-scale
    terrorist attacks presents many challenges, and I applaud this
    subcommittee for taking on this difficult issue and opening up
    this bipartisan dialogue. And I stand ready to answer any
    questions you may have.
        Thank you, sir.
        [The prepared statement of Mr. Moreno can be found on page
    63 of the appendix.]
        Chairman Pearce. Thank you.
        And the Chair will now recognize Mr. Hughes.

        STATEMENT OF SEAMUS HUGHES, DEPUTY DIRECTOR, PROGRAM ON
              EXTREMISM, THE GEORGE WASHINGTON UNIVERSITY

        Mr. Hughes. Thank you.
        Chairman Pearce, Ranking Member Perlmutter, distinguished
    members of the subcommittee, it is a privilege to be invited to
    speak on the threat of extremist financing in the United
    States.
        Extremism inspired by jihadist groups, like al-Qaida and
    ISIS, remains a potent threat to the United States. Since 2014,
    133 individuals have been charged with ISIS-related activities
    in the United States. The vast majority of these individuals
    are U.S. citizens, speaking of a threat of homegrown terrorism.
        While violent plots often garner the most attention, a
    broad swath of cases demonstrate the enduring relevance of
    finance-related activities by jihadists in the West.
        This testimony concerns ISIS-related extremism, but there
    are other extremist organizations that pose a threat to
    national security. Recently, the FBI and the DHS issued a joint
    intelligence bulletin stating that actors of the white
    supremacist extremist movement will likely continue to pose a
    threat of lethal violence within the next year.
        Despite these concerns, few studies to date unpack the
    financing of domestic extremism groups. There are significant
    differences between financing schemes utilized by domestic
    extremists and their jihadist counterparts.
        Funding a designated terrorist organization is a criminal
    offense under the material support statute, whereas there is no
    statutory designation for domestic extremist groups. The result
    is domestic extremist groups are not under the same pressure to
    disguise their funding as foreign terrorist organizations.
        However, I will focus primarily on my testimony on ISIS.
    The activity of ISIS here in the U.S. ranges from individuals
    using cryptocurrencies online to coordinated clusters
    supporting actors abroad. Impactful terrorist attacks do not
    require large sums of money, but, rather, low-level costs such
    as plane tickets, guns, or rental cars. In this way,
    participation in terrorist organizations is easier than it has
    been before. For counterterrorism practitioners, detecting
    suspicious financial transactions is difficult. Modern
    terrorist financing entails a range of behaviors that disguise
    illicit activity or circumvent detention altogether.
        A brief review of the ISIS and America cases highlights the
    diversity of the modern-day terrorist financing. In one type of
    scheme, individuals, or groups of individuals, crowdsourced
    moneys for foreign fighters who were already in ISIS-controlled
    territory. One illuminating example is a case of a husband-and-
    wife team in Missouri who raised money for the Bosnian
    Diaspora, and then gave that money to a high-ranking Bosnian
    American ISIS commander.
        Another type of financing is where individuals or groups
    garner resources to fund someone to travel overseas. This form
    of activity was especially common when traveling to ISIS was
    easier. Matt mentioned the case of a young man from Brooklyn
    who was financing two people to go join ISIS. In Minnesota, we
    had three men who were using fraudulent student loans to fund
    their travels. However, in the case of the terrorist attack in
    San Bernardino, the attacker allegedly used legal financial
    loans to acquire the money necessary to purchase weapons. And
    sometimes it is a back and forth. Sometimes ISIS is the
    instigator for funding. A good case of that is Mohamed Jalloh
    in Virginia, or Aaron Daniels in Ohio, who were giving money to
    al-Sudani, an external ISIS commander, to fund his attacks.
        One of the most striking cases of ISIS-related financing in
    the U.S. is that of Mohamed Elshinawy. Elshinawy was working
    with an ISIS commander in Syria. That commander gave him money
    through a series of U.K. shell companies, and then funded the
    money through Maryland so he could get enough funding to attack
    the United States. All told, he got about $8,700 before he was
    arrested.
        The review of the cases reveals four broader trends in the
    terrorist financing and counterfinancing programs. First,
    government regulations is not the only approach to deter
    extremists. A public-private partnership of best practices can
    sometimes augment a government-led approach.
        Second, countering violent extremism programs should target
    violent extremists of various ideological shades, not just the
    Omar Mateens of the world, but also the Dylann Roofs.
        Third, financing has largely become decentralized, as
    illustrated by the Maryland case. Terrorists now have a
    multitude of online platforms to exchange funds. Additionally,
    relatively small transactions are unlikely to draw attention,
    allowing terrorist finances to hide in plain sight.
        Lastly, initiatives aimed at detecting and disrupting
    finance-related activities should account for emerging
    technologies, whether it is violent extremists that mark their
    transfers in cryptocurrencies, or hide their funds in plain
    sight, committed terrorist actors are clearly willing to take
    the road less traveled to advance their aims.
        Thank you very much for your time, and I look forward to
    your questions.
        [The prepared statement of Mr. Hughes can be found on page
    38 of the appendix.]
        Chairman Pearce. The Chair now recognizes Mr. Reynolds for
    5 minutes.

    STATEMENT OF FREDERICK REYNOLDS, GLOBAL HEAD OF FINANCIAL CRIME
                            LEGAL, BARCLAYS

        Mr. Reynolds. Thank you, Chairman Pearce, Vice Chairman
    Pittenger, and Ranking Member Perlmutter. I appreciate the
    opportunity to appear before you here today to discuss how the
    financial sector and law enforcement can work together to
    combat lone-wolf terrorist attacks.
        Over my career, I witnessed the critical role that
    financial institutions play in the detection and prevention of
    money laundering and terrorism financing. Without their
    assistance, it would be difficult, if not impossible, for law
    enforcement to follow the money.
        Recently, we have witnessed the rise of lone-wolf terrorist
    attacks. Because these attacks are often inspired by, but
    unconnected to larger terrorist groups, the techniques that we
    typically employ to track the terrorists are, at times, ill-
    suited to this new threat.
        When looking to identify the financial indicators of lone-
    wolf attacks, the challenge for financial institutions is
    threefold. First, lone-wolf attacks are characterized by low-
    dollar financial transactions. This makes our traditional
    detection and reporting tools less effective.
        Second, lone wolves don't exhibit typical terrorist
    financing behavior, frequently using their own clean money for
    the attack. Or said differently, their financial behavior
    blends with the myriad legitimate transactions conducted every
    day by law-abiding customers.
        Third, financial institutions are currently limited by
    domestic laws in their ability to share information between
    institutions or even across borders within the same
    institution. This can result in financial institutions being
    unable to identify normal client behavior.
        Given these challenges, how do financial institutions
    differentiate between normal customer activity and a customer
    planning a lone-wolf attack? Often, a single piece of
    information--an account number, an IP address, or even a
    telephone number--becomes a Rosetta Stone that allows financial
    institutions to correctly identify a nefarious actor engaging
    in what might be otherwise innocuous conduct.
        While not a silver bullet, continuing to receive these
    Rosetta Stones from law enforcement and modernizing the current
    sharing system, is critical to the detection and prevention of
    future attacks.
        A few areas where information sharing could be improved
    include: authorizing U.S. financial institutions to share SARs
    with foreign branches and affiliates; explicitly expanding the
    types of information sharing permitted under the Section 314(b)
    safe harbor; deprioritizing the investigation and reporting of
    low-value activity and allowing financial institutions to
    reallocate these resources to higher value intelligence
    activities; encouraging the formation of a U.S. joint money
    laundering intelligence task force; and clarifying financial
    institutions' ability to discuss the filing of SARs when
    working together on a case, and encouraging them to jointly
    file a SAR.
        I would like to take a moment to illustrate the power of
    information sharing by discussing an investigation that
    Barclays conducted after law enforcement alerted us to an IP
    address that it believed was connected to a terrorism suspect.
        Using this IP address, Barclays identified Mr. A, who was a
    student. Mr. A received money from a variety of sources,
    including over 522,000 pounds from Mr. C, 10,000 British pounds
    from Mr. J, and 4,000 pounds from Mr. C.
        Through further network analysis, we identified that Mr. C
    was part of a broader funding mechanism for potential terrorist
    activities. Additionally, we found that in addition to funding
    Mr. A, Mr. J also funded Mr. M, whom Barclays had previously
    tracked and reported as a potential foreign terrorist fighter.
    In Mr. H and Mr. B, whom Mr. A also funded, both had
    characteristics of foreign terrorist fighters. Perhaps most
    interestingly, we determined that Mr. A transferred money to a
    heavy machinery company that makes oil field placement parts.
        From one IP address, we were able to identify related
    individuals who may have funded multiple foreign terrorist
    fighters, purchased oil-filled parts, and had links to others
    who were also funding or supporting suspected terrorist
    activities. While not every IP address will yield such
    potentially significant results, this case illustrates the
    power of the public-private partnership.
        Before I close, I would be remiss if I did not address the
    very real issue of customer privacy. Barclays takes our
    customers' privacy interests seriously. And rather than cast an
    impossibly wide net that includes data from millions of
    innocent customers, targeted information sharing allows us to
    focus on the few high-value cases where true national security
    risks are present. Moreover, by increasing our understanding of
    these transactions, it will allow us to discount alerts that
    would otherwise turn into SARs, because we cannot understand
    the purpose of the transaction. So while at first it seems
    counterintuitive, robust information sharing actually enhances
    individual privacy, though admittedly not for the lone-wolf
    terrorist.
        Financial institutions want to get this right. We are
    committed to ensuring that terrorists do not use our
    institutions to fund their activities. But we cannot do it
    alone. We need to be able to share and receive information both
    from law enforcement and between financial institutions to be
    most effective in identifying terrorist financing.
        I would like to, once again, thank the subcommittee for the
    opportunity to speak on this important topic as well as for its
    continued engagement on this important national security issue.
    I look forward to your questions.
        Thank you.
        [The prepared statement of Mr. Reynolds can be found on
    page 71 of the appendix.]
        Chairman Pearce. Thank you, each one of you, for your
    presentations today.
        The Chair will now recognize himself for 5 minutes for
    questions.
        Mr. Reynolds, you appropriately, at the end of your
    presentation, talked about the need for privacy concerns and
    special people who are uninvolved.
        How do you see that playing out in our attempts to detect
    and deter? Tell me a little bit more about that?
        Mr. Reynolds. I think it is a great question, Mr. Chairman.
    And I think that in many ways, we have to balance, obviously,
    customer privacy and some of the new technology that we have to
    exploit data.
        One of the reasons why I am a great supporter of increased
    information sharing is because I think it allows financial
    institutions, first and foremost, to target particular
    individuals, or particular cells or groups, and to do network
    analysis that is a great benefit to law enforcement.
        So, again, rather than casting a very broad net, it allows
    us to really focus on the individuals who are of most concern
    to law enforcement which, in my view, helps protect customer
    privacy.
        Second, especially in the United States, very often because
    of the way the rules are structured, where an institution
    cannot discern, really, from what is in front of it, the
    lawful, or commercially reasonable purpose for the transaction,
    very often by default, you have to file a SAR. So in my view,
    very often institutions have to file SARs on cases where, if
    they had additional information on that particular customer,
    that particular transaction, they very well might not file that
    SAR. So I do think it both enhances our ability to focus on
    those suspects that present the greatest national security
    issues, but also allows us not to file on customers whom, I
    think with just a little more information, we could probably
    understand the point of the transaction and, therefore, we
    wouldn't need to file a SAR.
        Chairman Pearce. And on page 3, Mr. Reynolds, in your
    testimony, you talk about the need for financial institutions
    to be able to receive and share information.
        In your opinion, is that sharing going on currently, or do
    we need a change in law, a change in regulations? And if the
    sharing is ongoing, do you think that it is not enough or--give
    me a little bit more flesh there, if you can.
        Mr. Reynolds. Sure.
        So it currently is going on. I would have to say that I
    think our law enforcement partners are working very hard, most
    especially the FBI, at sharing information. So I do want to
    give credit where credit is due. I do think there is a great
    amount of sharing that goes on. I think, though, that, really,
    we could do more. And I think if we had more targeted sharing
    we would do better.
        On Section 314(b), I think that is where we probably do
    need either a regulatory or a legislative fix. Currently, under
    the regulations and law, institutions can only share where
    there is a suspicion of money laundering or terrorism
    financing. So what that essentially means is, once you have
    already detected something you have decided is suspicious, that
    is the point when you are really allowed to share.
        Really, in my view, we need to back that up, because some
    of the benefit to sharing is actually detecting the activity in
    the first place. I think if you look at lone-wolf terrorism,
    like we are looking at here today, this is a great example
    where if we moved that sharing line back and institutions were
    allowed to share at an earlier stage, I think we would have a
    greater ability to both understand transactions, so exclude
    innocent suspects, but also focus on those suspects who present
    the greatest risk.
        Chairman Pearce. Dr. Levitt, if you could, I would like
    your opinion on the privacy issue also, and how we are
    balancing that, and what your long-term concerns would be.
    Because typically, in my opinion, we establish a protocol, and
    then we try to work up to the edge of the protocol. Sometimes,
    we might go over that. And so I would like your insights, if
    you could?
        Mr. Levitt. I agree completely with Mr. Reynolds that we
    have to take the privacy concerns into account in the very
    first moment and balance these equally important concerns. I
    also think that if we provide more information, we could have
    better SARs filing.
        It was my experience at Treasury that we would sometimes
    find ourselves swimming in a sea of unnecessary SARs. And it
    takes time to go through those. So even from the law
    enforcement side, from the government side, this has great
    utility.
        It is difficult, though, because if we do expand the
    ability, for example, under Section 314(b), if we move the
    needle earlier in the process as the baseline, so you are going
    to be opening up more accounts to potential investigation on
    the potentially negative side. The potential positive side is
    that you will be in a better position to rule out the people
    that you don't really need to be looking at. But you could be
    looking at a larger number of accounts in the first instance.
    And so I think we need to be clear about what it is we are
    concerned about with privacy.
        I think the biggest thing is how that information is
    handled. What is the purpose of looking, how you look, what is
    done with that information as opposed to, in that first
    instance, how strong is the baseline for the look. Because I
    agree, right now the baseline is such that if you don't already
    have a money laundering or terror financing concern, you can't
    look. And for the purpose of lone offenders or lone wolves,
    that is a little bit too late.
        Chairman Pearce. Thank you. My time has expired.
        I now recognize the gentleman from Colorado, Mr.
    Perlmutter, for 5 minutes for questions.
        Mr. Perlmutter. I want to follow a similar line. Mr.
    Reynolds, Mr. Hughes, you talked about public-private
    partnerships. And, Mr. Reynolds, you gave us the example of Mr.
    A, Mr. B, Mr. C, Mr. D, Mr. H, and Mr. J. But it all came off
    of one IP address that was delivered to you.
        So explain to me--are you expecting something from law
    enforcement to help you focus? Because basically, this was
    coming from probably--and I think, Mr. Hughes, you talked about
    it--some social media statement or something that tipped off
    law enforcement to help you focus. So is that what you are
    expecting from the FBI or somebody?
        Mr. Reynolds. I think that is absolutely right,
    Congressman. In this case, it was an IP address that was given
    to us. And what we found is, while the bank--and I won't speak
    for every bank, but I think most banks have strong programs and
    work very hard to detect these on their own.
        What we have found is that, where we are given that piece
    of information, whether it is an IP address or a phone number
    or a name or an account number, very often it is that initial
    thread that we are able to pull that really allows us to do
    some very, very exciting network analysis and allows us to
    really build out the network. Because, again, when you are
    talking about lone-wolf terrorists, very often, their activity
    looks very much like a normal consumer.
        Mr. Perlmutter. Would it have made any difference? In your
    example, you said that one of the transfers was for 522,000
    pounds. If it were a smaller amount, would you have not been
    tipped off?
        Mr. Reynolds. No. I think, actually, we would have still
    found that. The 522,000, to be clear, was not one transfer, it
    was multiple transfers over time. So what we did is we
    essentially started from Mr. A, who was the initial person we
    detected using that IP address, and then started to build out
    using other factors, and looked and really built the network
    out for Mr. A, and then found a lot of the actors. And then it
    jumped to--as you can see in the chart, there are various parts
    of the chart, it is quite large. In fact, we sort of condensed
    some of it to make it fit on one page.
        But at the end of the day, we found, actually, multiple
    groups that were all in concert and acting together. We saw
    links between them, whether it be addresses or transfers. And
    so what we were able to do to the--this was the U.K. Government
    who had given us this information--we were able to then turn
    back to the U.K. Government and give them a chart. And, again,
    we obviously don't have visibility into exactly what these
    individuals were doing other than their financial footprint,
    but we were able to give the U.K. Government a very clear
    picture of what, at least to us, looked like a financing
    network. And it really came from that one IP address.
        Mr. Perlmutter. Mr. Hughes?
        Mr. Hughes. Yes. I think you are absolutely right. In many
    ways, you are just looking--law enforcement is going to be a
    thread, and you want to pull it to see how big the sweater is,
    right? And so you are looking for law enforcement to give you
    something that is going to give you leads.
        I would note, though, when you look at the actual homegrown
    terrorism attacks, the successful attacks, the overwhelming
    vast majority were already on the FBI's radar prior to attack.
    And so it is not necessarily the lack of information. It is the
    lack of the ability to act, and sometimes people haven't
    crossed the legal threshold. Sometimes the FBI doesn't have the
    resources to run things down. And so I think that is where the
    public-private partnership comes into play.
        So going to Barclays and saying, I have this, I know there
    is something there. You have some resources there. Can you help
    me pull this thread a little bit more? I think that is where we
    play a role.
        Mr. Perlmutter. All right. Mr. Moreno, I want to switch to
    domestic terrorism for a second, because you talked about that
    and the difference between the laws available for detecting a
    foreign kind of financial assistance versus domestic. And I am
    thinking of Timothy McVeigh and Terry Nichols blowing up the
    Murrah Building in Oklahoma City.
        So I don't know how much that ammonium nitrate, or whatever
    it was he packed into that truck cost him, maybe you guys have
    some estimate, but how--I am worried about those guys too--
    would you say we can best stop that murderous act?
        Mr. Moreno. Yes, sir. I think that the approach for
    domestic attacks is a bit different. I know there has been talk
    about potentially criminalizing or creating a proper Federal
    crime for domestic terrorism versus just what we have now,
    which is basically application of State and Federal law.
        As far as the ammonium nitrate from the Oklahoma City
    bombing--we have had DHS-proposed rules for about 10 years now.
    The fact is that we just haven't seen a lot of further
    explosives attacks with ammonium nitrate use. So I think in
    each one of these cases, we really have to balance the costs:
    the cost to the government; the cost to the consumer; and the
    cost to people's privacy. People do not want to be tracked. And
    are we going to be running down every time someone goes to Home
    Depot and buys fertilizer versus a significant purchase of
    product used in an attack like that?
        So, I think in each case, we have to take the lessons
    learned from the attack and figure out how much we are willing
    to invade the privacy of consumers versus the potential for the
    use of that same sort of material in a future attack.
        Mr. Perlmutter. Thank you.
        Mr. Chairman, I yield back.
        Chairman Pearce. The gentleman's time has expired. And the
    Chair now recognizes the Vice Chair of the subcommittee, Mr.
    Pittenger, for 5 minutes.
        Mr. Pittenger. Thank you, Mr. Chairman.
        Mr. Reynolds, from your experience at FinCEN, how many SARs
    report were filed each year?
        Mr. Reynolds. It is very significant. I don't know the
    current total. But I know that about 2 million SARs are filed
    each year.
        Mr. Pittenger. This is from financial institutions here in
    the United States?
        Mr. Reynolds. Yes, sir.
        Mr. Pittenger. Can you say to what extent or range, from
    your experience at Bank of America and at Barclays, how many
    reports that you would have to file each year?
        Mr. Reynolds. From Barclays, it is probably in the several
    thousand. For Bank of America, it is well over 100,000 a year.
        Mr. Pittenger. Yes, sir.
        And from your testimony, what you have said, that the--if
    you had the legal capacity to receive information from the
    Federal Government in terms of particular IDs and individuals
    that they are pursuing, that would then reduce, in vast amount,
    the number of individuals that you are having to send reports
    on and give oversight to; is that correct?
        Mr. Reynolds. Yes, I would completely agree with that.
        Mr. Pittenger. Yes, sir.
        So let's look at sharing data between institutions and your
    own and other institutions.
        While there has been latitude there, is there a restriction
    or an inhibition to do that reference to legal concerns? Is
    there a need for a safe harbor for institutions to make sure
    that they can do this? Is there a gray area there that we need
    to clarify?
        Mr. Reynolds. There is. Under current regulation, the way
    it reads right now is that you have to have a suspicion of
    money laundering or terrorism financing. So as one of my fellow
    panelists pointed out, at that point, it really is too late
    because--
        Mr. Pittenger. It's very subjective in some respects.
        Mr. Reynolds. It has already happened. It is much too late.
    And I think the real benefit of the sharing, whether it is from
    the government or whether it is under the safe harbor between
    institutions, really comes where institutions can leverage the
    power of the data analytics that they have now, and they can
    look across the data. And I think, to your point, which I think
    is exactly the correct one, is that it both allows us to target
    those people who are suspicious, because you can see multiple
    sides of the transaction, as opposed to just the side that
    Barclays or just the side that Bank of America sees. You can
    see all different sides of the transaction. So it allows you to
    better target those individuals you really care about.
        But likewise, by being able to see all sides of the
    transaction, you actually are able to discount a great number
    of these SARs that we would otherwise file just simply because
    we lack information to discount the suspicion, which really is
    the standard, that if you can't discount the suspicion, you
    have to file.
        And so in many cases, I think we file where, if we knew a
    little more, we probably wouldn't have to.
        Mr. Pittenger. Yes, sir. I think it is well said.
        It is so important for us right now to pull back and take a
    full view of how--of assessing this and come up with a
    different basis for how we can pursue these individuals. And I
    think all of us who cherish our privacies and civil liberties,
    we would respect the type of engagement that you have proposed
    today.
        Mr. Reynolds. Thank you.
        Mr. Pittenger. Thank you.
        Mr. Hughes, I would like to ask you, with reference to
    those who provide material support to lone-wolf terrorists, are
    we doing enough to punish them, or are there any gaps that law
    enforcement or Congress could address?
        Mr. Hughes. In regards to material support, I don't believe
    so, because the material support clause is actually quite
    elastic and broad-based. So unlike other countries, if you are
    driving to the airport to go jump on a plane to go to Syria,
    you can get arrested for the drive. And so the material support
    clause, right or wrong, gives law enforcement a large latitude
    to do that.
        We have also seen law enforcement be pretty creative in the
    way they do arrests for individuals they may be concerned about
    that doesn't rise to a level. A good case is in California, 2
    young men got arrested for 26 charges of bank fraud. They were
    clearly ISIS supporters through and through. But there wasn't
    enough to rise to a material support of the case. So I think
    you are seeing that law enforcement, in many ways, aren't
    allowing the system to light up in the way they used to,
    because they are concerned about these lone-wolf attacks. The
    gentleman who stabbed 10 people in Minnesota, right? And so
    they are not letting people talk to other people. And they are
    closing in earlier on, and so they are more willing to use
    forward-leaning prosecutions.
        Mr. Pittenger. Thank you.
        Thirty seconds, Mr. Levitt. To what extent are foreign
    governments involved, in your opinion, in helping fund bad
    actors affiliated with or otherwise associated known terrorist
    organizations?
        Mr. Levitt. State sponsorship is still a very major
    problem. It is a separate problem from the lone-wolf or lone
    offender problems. To the contrary, we have lots of good
    partners around the world. As you heard before, the Barclays
    case involves the U.K., where people are trying to work
    together with us to deal with foreign terrorist travelers in
    particular. But there still are plenty of countries out there,
    the Irans of the world, et cetera, that pose significant
    problems. But I would argue that is a separate problem.
        Mr. Pittenger. Is Qatar a concern to you?
        Mr. Levitt. I had the opportunity to testify on Qatar
    recently. And, yes, Qatar is a concern. It is also not the only
    concern in the region. Some of the issues that have been raised
    about Qatar are very substantive, and some of them are not. So
    it is a complicated issue. It doesn't fit into a black-or-
    white, but there is more that Qatar could do as there is more
    that others in the region could do.
        Mr. Pittenger. Thank you.
        Chairman Pearce. The gentleman's times has expired. The
    Chair now recognizes the ranking member of the full Financial
    Services Committee, the gentlelady from California, Ms. Waters,
    for 5 minutes.
        Ms. Waters. Thank you very much, Mr. Chairman.
        In the years since 9/11, our Nation has witnessed its share
    of attacks by homegrown violent extremists inspired by foreign
    terrorist organizations. This includes the San Bernardino
    shooters who tragically took the lives of 14 and wounded 21
    others, as well as the Pulse nightclub shooter who callously
    took the lives of 49 and wounded another 53 innocent victims.
        However, as the recent events in Charlottesville, which
    took the life of Heather Heyer and two VA State troopers, have
    reminded us, extremists radicalized by foreign terrorist groups
    are not the only terrorists with the capacity and the will to
    target and kill American citizens. Indeed, domestic terrorist
    attacks have become more frequent in recent years.
        I just took a look at what has happened since 1992: Ruby
    Ridge standoff, three killed, two wounded; Oklahoma City
    bombing, 168 killed, over 680 wounded; 2009, United States
    Holocaust Memorial Museum shooting, one killed, one wounded;
    2012, Wisconsin sheikh temple shooting, killed six, wounded
    four; 2013 Los Angeles International Airport shooting, attack
    on TSA, officer killed, one wounded; 6/2015 Planned Parenthood
    shooting, killed three, wounded nine; 2017, Portland train
    attack, killed two, wounded one; Charlottesville, car ram
    attack, killed 3, wounded 19; and I am worried about these
    domestic attacks.
        As a matter of fact, I was forced to focus on it a little
    bit more yesterday at my office in Los Angeles. One of the
    people opening the mail opened an envelope, and a bunch of
    powder fell out with a note about me dying and killing Hillary
    Clinton, and on and on and on.
        This is getting more frequent. And I know that we have
    privacy concerns and information sharing and all of that. But I
    am wondering, what can we do to get a handle, a fix on these
    lone killers? And not simply just throw our hands up and say we
    can't really do anything because of privacy concerns. And I am
    wondering, particularly at our financial institutions and
    banks, et cetera, if questionnaires that do not invade privacy,
    but simply ask questions about what the intentions are for the
    use of certain money under certain circumstances, and those
    people can say whatever they want to, and they can respond in
    whatever way they want to. But if resources are used to go out
    and commit killings, et cetera, they will have lied on the
    questionnaire. And perhaps that can trigger some kind of action
    to begin to prevent this kind of domestic terrorism. I think we
    should focus a lot on domestic terrorism also.
        So I would like to ask again, given all that you have said
    about how difficult it is and the privacy concerns, do you have
    any thoughts about what we can do to begin to deal with the KKK
    and the white nationalists, the extremists, the alt right, they
    are on the internet, they are Breitbart. If you look at
    YouTube, you see how much they want to kill me and others. What
    can we do?
        Anybody?
        Mr. Hughes. I think there are a couple of things back
    there.
        First is, I absolutely agree it is not an either/or
    proposition. You should be worried about the Omar Mateens, the
    Orlando shooters of the world as much as you are the James
    Fields and the Dylann Roofs of the world. And I am concerned,
    when we look at these issues, that we tend to bifurcate it and
    make it into buckets. There are different programs that we
    could address on these things.
        Domestic extremists tend to use criminal activities in
    order to fund their attacks in a way that jihadists don't. So
    they are usually more likely to pop on the radar on these
    things. There are a number of different organizations that are
    doing interventions and spaces on far right and domestic
    extremism groups like Life After Hate in Chicago.
        Ms. Waters. Thank you very much. I am going to have to
    interrupt. I have to yield to Mr. Gottheimer. He has to go, so
    I will yield to him.
        Mr. Gottheimer. Thank you very much.
        I want to recognize the program on extremism for bringing
    light to the recent report that a senior ISIS official used
    eBay and PayPal to funnel a terrorist in the United States.
        Today, I am writing to FinCEN to urge them to take
    additional steps to curb money laundering and suspicious
    financial transactions online. As technology advances and lone-
    wolf terrorists continue to innovate, how can Federal
    enforcement efforts keep pace to crack down illicit use of new
    transaction methods? And I am open to anyone responding.
        Mr. Levitt. I will just say in brief, because no one else
    was lighting up, that that is actually a success case. I mean,
    that gentleman was stopped. That means of transfer, as
    sophisticated as it was, was identified. I would not cite that
    as a case of, oh, my God, we need to do more. I would cite that
    as a case of, they are trying to get sophisticated. We are
    pretty sophisticated, too. We were on top of that. We thwarted
    that case.
        But your overall point is absolutely on target. And that is
    the whole purpose of this hearing, I think, to figure out how
    we can fine-tune our tools in those cases which are the
    exception to prove the rule, which is to say that they truly
    are lone wolves, where they are using their own money or they
    are taking out a loan legitimately, or doing some type of crime
    that might not come on our radar. These are the cases that are
    really different.
        For the vast majority of other things, we have pretty good
    systems in place. They can be fine-tuned in various ways to
    facilitate better sharing within the financial community
    between government and financial services. We have been talking
    a lot about government providing information to banks. That is
    very important. We also need to talk about the information that
    banks see so they can provide usable SARs to investigators.
        But what is different here is, what do we do about those
    cases where someone is taking $50, a knife out of the drawer,
    $2,000. And the answer is, we are going to have to couple this
    toolkit with a whole bunch of others, including old-school
    HUMINT and basic investigations, because this is not going to
    solve all our problems. There will be cases where finance is
    not going to be the biggest part of our toolkit.
        Mr. Gottheimer. Thank you.
        Chairman Pearce. The gentlelady's time has expired. The
    Chair now recognizes Mr. Rothfus for 5 minutes.
        Mr. Rothfus. Thank you, Mr. Chairman.
        Dr. Levitt, I want to start with you. Mr. Reynolds had
    talked about a case where law enforcement came to Barclays, I
    think with an IP address, and so that the investigation was
    able to go forward on that basis.
        Can you think of any information not currently available to
    law enforcement that might allow authorities to identify lone
    wolves if financial institutions started gathering that
    information? Again, in the case that Mr. Reynolds cited, it was
    the law enforcement that came with the IP address to the
    financial institutions. But can you think of other information
    a financial institution might be gathering that would help in a
    detection?
        Mr. Levitt. In advance of this hearing, I gave this a lot
    of thought. And the simple answer is, I don't yet have a great
    answer. Because most of the activity, as you have heard my
    fellow panelists say, that we are talking about in a true lone-
    wolf situation, is going to look completely innocent with the
    exception of someone who engages in crime or misfiles or lies
    on a loan application where we might find out about them for
    other purposes. But someone who just takes out money from their
    bank accounts, or gets a job for a couple of months or asks mom
    or dad or a sister or whomever for funds, that is going to be
    very, very hard to track.
        The only thing I can think of is this: We need to take a
    close look at the very granular, detailed information that we
    collect, the type of thing that makes the analysts really
    excited, right? The email address, the phone number, the
    driver's license number, and more recently, the IP address. Are
    there other types of things that we could be collecting that
    would actually be useful, not collecting for collection's sake?
    I think a lot of people were surprised about how incredibly
    powerful the IP address could be as a tool, and especially at a
    time when people might be lone wolves, but will still say
    something on social media.
        Mr. Rothfus. Mr. Moreno, you identified a number of types
    of financial services that the lone wolves utilize. I think you
    mentioned the pre-paid cards and other things. Is there a
    favored type of financial services that lone wolves use?
        Mr. Moreno. Sir, I don't know if there is any one favored
    method, but there is certainly a buffet of options that are now
    at the disposal of folks, that weren't there even 5 years ago.
    And I think really the point is, if people think they can move
    money, solicit money, raise money, in a more anonymous fashion,
    then they will try to do so.
        Mr. Rothfus. Would it not lose some anonymity, though? The
    case you cited, I think we could take the payment card
    information and send it via text. I guess if you have a throw-
    away phone, you can maintain anonymity there. But it would put
    some fingerprints on it, wouldn't it?
        Mr. Moreno. It would, sir, yes. But I think there are
    additional steps. So, for example, for pre-paid cards, we can
    put limits on how and what can be purchased with those types of
    pre-paid cards. People can buy packs of 4 or 8 or 12 of them
    and put together a few hundred dollars. Or if we said that you
    can only use those types of cards in certain retail storefront
    locations and not online, or if you could not aggregate them
    and buy expensive items, or if you needed the physical card,
    and perhaps a chip with it. I think there are some reforms we
    can do to sort of plug those gaps. And I think we can look at
    those types of plugging actions in all varieties of these new
    kinds of emerging ways of payment. But I think really the key
    is to shine light on who is using this, both as a deterrent, so
    people don't think they can get away with these sorts of
    transactions anonymously, but also as a way to prevent and
    prosecute after the fact.
        Mr. Rothfus. Mr. Reynolds, we talked a little bit about
    that suspicious standard in 314(b). Can you give some examples
    of activities that might be detected by earlier information
    sharing if not for that standard in there?
        Mr. Reynolds. Sure. Let me give an example that we have
    seen in other cases. I saw this when I was on the government
    side, but I think it would be equally applicable to terrorist
    financing. You may have a person who, for instance, would have
    a bank account at bank A, and there is money going in and out
    of the account, nothing terribly suspicious. So if you just
    look at that, if a person who works at sort of a mid-level job,
    the pay coming in looks commensurate with the job, so there is
    no reason to look at that account again. If I then told you
    that in addition to having an account at bank A, this person
    had an account at bank B, C, D, E, and F, and we saw money
    coming into all of those accounts as well, suddenly that person
    is incredibly suspicious. But this is exactly the sort of
    information that you could not share currently.
        Mr. Rothfus. Would there be a limiting principle, though,
    for a financial institution as it does this kind of information
    sharing, if it is not a suspicion standard?
        Mr. Reynolds. So, again, I think in the law, the definition
    of ``suspicious,'' obviously, is very technical in the law. And
    what I would argue is certainly to the extent that you don't
    have a need to look at a customer, then I don't think you
    should be looking at that customer. And certainly, in my
    experience, that has been the rule that everyone lives by. What
    I would say is that I think that there are some opportunities.
    If you are using larger data sets, you don't actually have
    people looking at that data. So the data itself is sitting
    there. But it is not something that people are going through.
    No one is looking at it. No one is saying, oh, I saw that Mr.
    Reynolds likes to buy comic books, and he has spent $500. There
    is no one actually looking at that. What it is, instead, is it
    is algorithms that are running across the data. And one of your
    algorithms may be, for instance, to look for an individual who
    has these certain financial parameters and has five or more
    accounts across institutions.
        Now, there may be a very good reason that person does and
    it could be quickly discounted by an analyst. But I would
    suggest that is the sort of thing that you would want an actual
    human being to then look at and determine, okay, this looks out
    of character for this person. This is not what we would expect
    for this particular customer. So let's look a little closer and
    understand, why do they not look like everyone else? And I
    think that is the fundamental point that we are talking about,
    is that thread, whether it is provided by the government or
    provided by big data, that thread to pull on.
        Chairman Pearce. The gentleman's time has expired.
        The Chair will now recognize Mr. Lynch for 5 minutes.
        Mr. Lynch. Thank you, Mr. Chairman. And I thank the ranking
    member. I want to thank the witnesses for your help as well.
    Some of you are frequent flyers to this subcommittee. So I
    really appreciate it.
        With respect to lone-wolf and individual-actor events, I
    worry that we are not using the right tools. There is that old
    saying that when the only tool on your tool belt is a hammer,
    everything starts to look like a nail. And so we have a fairly
    robust financial services community that is highly regulated.
    We have the USA PATRIOT Act. So we have those tools that we can
    use to try to track organizations and how they are funding
    terrorism.
        I am not so sure that is applicable with individual actors,
    though. I can say that the cases that I have been most familiar
    with, the Marathon bombings and a couple of other so-called
    lone-wolf attacks that have come before the committee. It was
    really behavioral abnormalities that really presented
    themselves. And in looking back, those were the things that
    sort of--would have raised the red flags, not--well, there was
    one case where the gentleman purchased a large knife. But even
    that was fairly--in retrospect, it looked serious. But when it
    happened, it probably wasn't.
        Mr. Hughes, you appeared before the subcommittee when we
    talked about deradicalization. And some of those approaches,
    better communications with our folks in the Muslim community,
    mosques. We had a couple of cases where the imams said that an
    individual was acting out and was a security concern even
    within the mosque. Those type of reporting events are probably,
    in my mind, more applicable to the individual cases than trying
    to look at somebody's bank account and figure out what they are
    doing there. Are you of the mind that doing this, from a
    financial standpoint, is the best way to get at these
    individual actors and so-called lone-wolf terrorists? Anybody?
        Mr. Hughes. Let me jump in, and then maybe my colleagues
    can join in, too. I tend to believe that the financial reviews
    are probably going to be later on in the investigation. And so
    the case that you had mentioned, the young man in Massachusetts
    with the large knife, he was also talking to Junaid Hussain in
    Raqqa. So that is your red flag. And the issue becomes that he
    hadn't crossed the legal threshold. So there was a full
    investigation, but not enough to arrest. And so there is not a
    safety net to kind of veer these folks towards disengagement,
    deradicalization, the stuff Mr. Moreno talked about. There is
    no ability for the mosque in Boston to send those two folks
    somewhere else. And until we figure that out, that is actually
    the gaping hole. If you talk to the FBI, they are saying, ``We
    don't have enough men and women to sit and run 8-hour shifts
    outside of a kid's house until they turn 18.''
        Mr. Lynch. Right.
        Mr. Hughes. So I need to have different tools. Because I
    really want to focus on the guy that I am really worried about
    in Indiana, but I can't, because I know this guy in Boston is
    also concerning. So we have to provide some non-law-enforcement
    off-ramps to both law enforcement but also communities to build
    those partnerships. And you are absolutely right. In about 60
    to 70 percent of the cases, depending on how you look at the
    studies, there is a bystander effect. People see something
    concerning but don't know what to do with it. And so they are
    watching this train wreck happen in slow motion. And we as a
    Federal Government, and we as community partners, have not
    provided any kind of tools and responsibilities for folks to
    deal with this.
        Mr. Lynch. Anybody else? Mr. Levitt? Dr. Levitt, I'm sorry.
        Mr. Levitt. That is fine. The only one who cares about the
    ``Doctor'' is my mother and--well, maybe she is watching. Thank
    you.
        Mr. Lynch. Well, that is important then.
        Mr. Levitt. From Massachusetts, she cares.
        Mr. Lynch. There you go.
        Mr. Levitt. Look, the first thing to say is that these are
    not mutually exclusive. The question isn't, do we do financial
    lines of inquiry or do we work with communities to try and off-
    ramp people who can be off-ramped, and do other things for
    people who can't, but work with communities who are there on
    the ground and have that--of course, we do all these different
    things. And in different cases, different tools will be
    applicable. I think what we are going to find is that in the
    case of lone or--because this bystander effect may be a little
    bit more known--wolves, what we are going to find is that
    financial information or intelligence is not going to be the
    panacea, but it will be a piece. It will plug a hole of
    something. It will help make a link. It will help contribute to
    a link chart. And while we would love for all of this to be as
    preemptive as possible, sometimes it won't be.
        Mr. Lynch. Right.
        Mr. Levitt. But the financial piece will almost always be
    really important in the post-blast of what happened. So if you
    look back--I was the government's expert witness in the Boston
    Marathon case. There is a financial piece there too. And that
    is always very important. So it is not a question of either-or.
    It is just leveraging all of them, and that is why I keep
    saying there is going to be a financial role in this, and there
    is more we can do. But at the end of the day, the true lone
    offender, whether from a foreign ideology or domestic ideology,
    and those are both terrorists who need to be dealt with, we
    have to use our entire tool kit. And money is not always going
    to be the strongest tool for some guy who is just taking a
    couple hundred dollars out of his or her bank account.
        Chairman Pearce. The gentleman's time has expired.
        Mr. Lynch. Thank you. And I yield back. I thank the
    chairman.
        Chairman Pearce. The Chair will now recognize the gentleman
    from Colorado, Mr. Tipton, for 5 minutes.
        Mr. Tipton. Thank you, Mr. Chairman. It's a complex issue,
    when we are talking about trying to be able to track anything
    from somebody who wants to be able to buy a knife to someone
    who wants to buy ammonium nitrate, how to be able to draw those
    together, a $50 purchase versus a $1,500 purchase, to be able
    to navigate that and to be able to identify them.
        Mr. Levitt, when you were making your opening statement,
    said something that I thought was interesting, that the private
    sector has a lot of information if we give them greater
    insight. And I think you were just alluding to some of that.
    But what greater insight can we give to the private sector?
    What are going to be the triggers to be able to notify
    authorities of what to look for? And to a degree, something
    that we haven't hit an awful lot on, how do we still protect
    some of those privacy concerns?
        Mr. Levitt. The government is constantly looking at other
    information that is not available to the public and identifying
    trends. Some of those trends could be very useful; some of them
    will be less useful. Sometimes the government won't know what
    trend is useful until it speaks to the private sector, the
    people who are experts in banking and finance, and sees that
    they can add something to the conversation and demonstrate
    that, well, it is significant in this type of activity, but not
    in the other. If we are not having a really ongoing, regular,
    and robust public/private dialogue where the government is
    saying, here are things we are really looking at, we are really
    interested in, and the private sector is saying, okay, great,
    here is what we need more from you to be able to give you more
    effective SARs, then we are missing an opportunity.
        I do think the U.K., as some of my fellow panelists have
    pointed out, has a new and interesting model. It may not be
    perfect for us. But the National Crime Agency oversees this
    effort to have an ongoing discussion and dialogue. Part of that
    would have to be, as I think it was Mr. Reynolds who said,
    combined with an effort to enable banks to talk to one another
    and convince them that it is in their interests as well. But I
    do think we need to push in that direction. Because at the end
    of the day, we are not talking about $1,500. We are talking
    about $50 or $4 or no dollars if you are taking something out
    of the kitchen drawer.
        Mr. Tipton. Thank you.
        And you bring up an important point. Mr. Reynolds, maybe if
    you would speak on this a little bit more? You had stated that
    Barclays has maybe several thousand SARs reports, I think, and
    Bank of America may have a couple of hundred thousand. In terms
    of that communication between our financial institutions, is
    this proprietary? Is it something that is inhibiting that sort
    of conversation from going on? And, also, would you maybe speak
    a little bit to knowing your customer in terms of maybe not
    making that SAR simply because you know what that customer's
    business is like?
        Mr. Reynolds. Absolutely. This actually is one of the
    restrictions that we labor under right now is institutions
    can't discuss SARs amongst themselves. So, for instance, if
    Barclays were to file a SAR on company A, and Bank of America
    had that same customer, we are actually not allowed, under
    domestic law, to discuss with Bank of America the fact that we
    filed a SAR, which is somewhat ironic, because probably the
    single strongest factor to suggest that a customer may be
    suspicious is the fact that you filed a SAR. And that is
    actually the one thing you can't talk to your peer institutions
    about. So it becomes a very, very delicate discussion where not
    only can you not mention a SAR, but you can't discuss anything
    that would give an indication that you filed or did not file a
    SAR as to that customer. So these discussions are incredibly
    technical and very difficult to have, which makes it
    increasingly difficult, I think, to share, even when you are
    jointly working on a case. Under current guidance, you can't--
    for instance, let's say you have been working with Bank of
    America under 314(b) on a case, I can't say to Bank of America,
    I really think this is suspicious, I am going to file a SAR.
    That would be illegal. So that becomes very, very challenging
    to share information about that.
        In terms of Know Your Customer (KYC), I think you are
    absolutely right. My view is that the bank which owns that
    customer really has the best opportunity to know what that
    customer looks like, what they should be doing, what they
    shouldn't be doing, and what looks suspicious. And so if I am
    able to speak to another institution who owns that customer and
    has the KYC for that customer, they can very often explain to
    me very quickly why what looks suspicious to me is actually not
    suspicious at all. And so then I am not wasting government time
    by filing a SAR, and I am not wasting quality analyst
    investigator time further investigating that case.
        But, likewise, by getting KYC information from another
    institution, I can better understand that customer and I may
    actually determine that something that looks ordinary otherwise
    may actually be suspicious. So I absolutely agree with that.
    But I think that the sharing of KYC information, to the extent
    we can under Safe Harbor, is a very effective way to understand
    those customers better and determine whether their behavior is
    suspicious or not.
        Chairman Pearce. The gentleman's time has expired.
        Mr. Tipton. Thank you, Mr. Chairman. I yield back.
        Chairman Pearce. The Chair now recognizes Mrs. Maloney for
    5 minutes.
        Mrs. Maloney. I thank the chairman for recognizing me, and
    I thank the chairman and the ranking member for holding this
    hearing on so-called lone-wolf terrorist attacks. It is
    particularly important to me since I have had some in my
    district, and, in fact, one about 6 months ago in the Chelsea
    area where a homemade bomb went off. It didn't kill anyone, but
    it injured many.
        So, my question is on terrorism financing. It appears,
    according to press reports and other reports I have read, that
    terrorists are moving away from the financial system because of
    the oversight of the banks, of the know-your-customer
    requirements, and are going to bitcoins. There have been
    several published reports that criminals used bitcoins to
    finance the sale or purchase of sex trafficking victims and
    other illegal activities, and drugs, and guns, and other areas.
        What is the penalty for using bitcoins in our financial
    system to finance criminal activity? Is there a sanction? Is
    there a fee? Is there a penalty that is placed on someone who
    uses bitcoins for dangerous purposes?
        And, actually, Mr. Perlmutter, and Mr. Chairman, we should
    look at bitcoins. Because they are escalating forward in our
    economy as a way of financing crime, really terrible crimes.
        But, what is the penalty for using bitcoins? What is your
    knowledge of bitcoins and financing crimes?
        Mr. Reynolds. I can start on that. From the penalty
    perspective, ma'am, the penalty would be no different for using
    bitcoins as for using any other form of currency. So whether it
    is cash, wires, checks, pre-paid cards, or bitcoin, the
    penalties will all be the same. Bitcoin is considered currency
    under U.S. law. So if you laundered money or funded terrorism
    with bitcoin, the same penalties would be applicable as if you
    did it with U.S. dollars. I think the challenge is that bitcoin
    obviously presents a greater ability to remain anonymous,
    which, obviously, a wire transfer, a traditional wire transfer,
    would not. So I think that is the key difference between the
    two. But in terms of penalties, they would be the same.
        Mrs. Maloney. Talking about being anonymous, in the
    district that I represent, many criminals don't use the banking
    system, they just purchase real estate because there are no
    questions asked. They have $100 million, or $100,000, or
    whatever, and they go buy a piece of real estate, no questions
    asked. You sell it, and you have your money to do whatever you
    want.
        And a number of us have worked on legislation to bring an
    accounting for what we call beneficial ownership, that people
    should have to reveal the true beneficial ownership. What is
    your feeling on that? Would that be a source of combating
    terrorism financing?
        Mr. Reynolds. I will start again. I am a strong supporter
    of the legislation. So I would strongly encourage passing it. I
    think it would be tremendously helpful, both to law
    enforcement--looking from my law enforcement background, I know
    it would have been tremendously useful to have it when I was a
    prosecutor--and from a financial institution's perspective. It
    would also be incredibly valuable for the work that we do.
        Mrs. Maloney. And the The Committee on Foreign Investment
    in the United States (CFIUS) bill which looks at foreign
    investment from the lens of whether or not it is a threat to
    our national security, how do you feel that law is operating?
    Do you think it needs to be strengthened? It is a tool to
    combat terrorism, and financing, and financial terrorism in
    other areas, the CFIUS bill?
        Mr. Levitt. I haven't thought about that question for this
    hearing because it seems to me it is a slightly different
    issue. I think of CFIUS--and I worked in CFIUS at one point in
    government. It is incredibly important. But traditionally,
    actually, it is something different than terrorism. There are
    sometimes terrorism pieces to it. But, overall, it is about
    larger issues. And certainly, in terms of the lone offender and
    the small scale, I don't know of any case that has come
    anywhere the size of something that would be real estate
    purchases or FIS. That is a much larger, broader terror finance
    question.
        Mrs. Maloney. And do you think you could just look at the
    transactions in a lone wolf, in a bank, and suspect, this lone
    wolf didn't--a pressure cooker, where he put everything in
    there and created a pressure cooker bomb. But purchasing these
    items would not set off any red lights. And so how can we get
    more red lights that would help us track these lone wolves?
        Mr. Hughes. There are some programs. The FBI runs
    InfraGard, which works with private companies to essentially
    set up trip wires to alert folks. So, a good case, Najibullah
    Zazi buys a bunch of materials in Denver to build a bomb, and
    the local beauty salon, calls the FBI and says, I am a little
    worried about this guy. And so to the extent we can kind of
    build up those relationships and get that type of public/
    private partnership going a little bit more, I think it would
    be useful.
        Mrs. Maloney. Thank you. My time is up.
        Chairman Pearce. The gentlelady's time has expired.
        The Chair now recognizes the gentleman from Texas, Mr.
    Williams, for 5 minutes.
        Mr. Williams. Thank you, Mr. Chairman. And I thank all of
    you for your testimony today. We appreciate it greatly.
        I will get right into the questioning.
        Dr. Levitt, terrorist financing has shifted dramatically
    over the years, due in large part to the increased use of
    social media that we talked about. In your opinion, where do
    you think the future of terrorist financing lies? And what
    measures can we take to combat it?
        Mr. Levitt. So, in my experience, terror financing is a non
    static issue. It is constantly changing. It is changing based
    on the actions we take to combat it and to restrict the
    environment in which illicit actors can finance their behaviors
    and also based on what opportunities present themselves. And
    that means it is not always moving in one direction. When the
    terror finance tracking program was exposed several years ago,
    we saw that--we worried that maybe some terrorists would stop
    using the formal banking sector. They still did. But they also
    went back old school and they used cash couriers.
        If you look at the U.N. Security Council's latest report on
    the Islamic State, they, too, have member states reporting that
    today, as the Islamic State is on its back heels, it is
    increasingly using cash couriers. And so, we have to constantly
    assess and reassess, figure out which tools are going to be
    most effective. I think that is part of the conversation that
    could then be had, or be better had, between the public and
    private sectors, not just what is the latest, sexiest thing,
    but where on that spectrum are things right now at any given
    time.
        Mr. Williams. Good.
        Mr. Reynolds, from your experience in both the public and
    now the private sector, can you explain how the government can
    fully investigate and exploit these terrorist networks while
    ensuring that the American citizen's right to privacy is
    protected?
        Mr. Reynolds. Yes. I think the key to that, again, is to
    the extent that we coordinate between the public and the
    private sector, the way that I always viewed it in the
    government is that the public sector tends to have a very good
    horizontal view. But they don't always have very good
    tremendous depth on any particular customer, or certainly to
    their finances, whereas financial institutions have very good
    depth. So they have very good vertical, but they lack the
    horizontal that the public sector has. I think that if, in a
    very targeted way, you can bring together the threats that the
    public sector has identified, and bring those to the private
    sector, the private sector can then work to expand out those
    networks and tell the public sector what it doesn't know.
        There were certainly cases that I was involved with over
    time where we may have thought we had the ring leader of a
    particular--whether it be terrorism financing or whether it be
    money laundering. But we thought we had the ring leader. We
    brought that to a financial institution who then came back to
    us and said, actually, you have a mid-level person, here is
    this whole other level to the organization that you didn't know
    about, but we were able to determine that they are all
    connected because, for example, they used the same device ID,
    which meant they used the same iPad or the same computer to
    access bank accounts.
        So I think that is just one example of where, if you
    combine those two pieces of information, I think it both
    focuses the efforts so, again, we are not sort of trolling
    among millions of customers looking for bad people. We are
    really focused on the individuals and the information that we
    know credibly has some link to potentially bad activity, and it
    will allow us to then, hopefully, move resources away from this
    sort of lower value intelligence activities and really focus
    them on the higher value, which I think, in my view at least,
    enhances privacy.
        Mr. Williams. Good. Thank you.
        Mr. Moreno, can you explain how law enforcement and
    intelligence agencies share information? And do you believe
    that the government is proficient in this task or are there
    specific areas of improvement that you would recommend? If so,
    what would they be?
        Mr. Moreno. Sir, I am normally not a person to say, throw
    money at a problem and that will fix it. But, as a former
    prosecutor, I can tell you that I think we have fantastic
    techniques. We have fantastic people. We have great statutes.
    However, additional resources in these areas would always be
    welcomed.
        So, for example, the SAR review process, I can say from my
    experience that financial institutions do a great job at
    investing in technology and issuing SARs. But there are not
    always enough folks to review them. So when they are reviewed,
    it could be months afterwards. So in terms of thorough review
    of SARs and rapid response to the suspicions that are arisen,
    we can always use more people. Joint terrorism task forces are
    a great way to integrate Federal, State and local law
    enforcement to share information. But they are also often
    short-staffed. So in this area, this is a place where I would
    say we have a lot of the right tools already. What we sometimes
    lack is the resources to implement them.
        Mr. Williams. Mr. Reynolds, quickly, we have a small amount
    of time here, is there another country that is surpassing the
    United States in their ability to target and neutralize
    terrorist financing?
        Mr. Reynolds. I would not say surpassing, but I think the
    U.K. is equivalent to it. And I think the U.K. has some very
    exciting now programs and pilots that they are implementing
    that I would suggest the U.S. should look strongly at
    implementing as well.
        Chairman Pearce. The gentleman's time has expired.
        Mr. Williams. Thank you, again. I yield my time back.
        Chairman Pearce. And the Chair now recognizes the gentleman
    from Minnesota, Mr. Emmer, for 5 minutes.
        Mr. Emmer. Thank you, Mr. Chairman.
        Chairman Pearce. And just be advised we have votes coming
    up. We are going to try to get all the questions in before the
    votes.
        Mr. Emmer. And thanks to the panel for being here today.
        Mr. Moreno, and I am probably going to be too general, but
    as we talk about what ways we can address the changing threat
    landscape, if a terrorist can cause mass destruction casualties
    with just a few thousand dollars, I think you would agree that
    we can't just lower the currency transaction report
    requirement. What, in addition--and maybe you have covered this
    several times today--but can you succinctly give me what, in
    addition to that, could we do to--is it the algorithms that we
    heard earlier that Mr. Reynolds was talking about? How are we
    going to get ahold of this thing?
        Mr. Moreno. Yes, sir. I don't think that changing the
    limits upward or downward is an easy fix. I think, if anything,
    you might get more reports but not necessarily better reports.
    I think we can downscale what we do, I think, to try to better
    focus on transactions that are suspicious even if they are at
    the four-figure, or possibly even three-figure level.
        Mr. Emmer. And, again, putting in algorithms that identify
    specific characteristics of a transaction?
        Mr. Moreno. Yes, sir. There is always going to be a manual
    review process. But that should be coupled and in parallel with
    new technologies, algorithms, artificial intelligence, to flag
    these transactions. And I know that banks are already investing
    in those technologies. But I think we can always do more to
    encourage that.
        Mr. Emmer. And, Mr. Reynolds, I wanted to go next to how
    can we leverage technology, specifically following up on what
    Mr. Moreno referred to, be it artificial analysis, the data
    analytics, which you have talked about quite a bit, or
    something else to make these suspicious activity reports more
    valuable? And I see that--and I should have thought about this
    before the hearing when I was preparing. But when Mr. Moreno
    said we have to have the bodies to review them too, we forget
    that is a huge piece on the back end of it. But just how can we
    leverage this technology even better?
        Mr. Reynolds. I am a huge believer in the big data and
    technology. But I agree with you that it really has to be a
    combination of human effort and technology. Technology will
    only get you so far. I think the first step is to really use
    technology to look for outliers. Because, ultimately, a lot of
    these folks are trying to look like everyone else. That is sort
    of the point of what they are trying to do. But, fundamentally,
    they aren't like everyone else. And so there are, at times,
    telltale signs.
        Now, it may be that we can't tell the difference without
    the law enforcement information. In some cases, we can. And so
    I think what we need to do is leverage as much as we can, big
    data, to hold together and to recognize that when the BSA
    system was formed 40 years ago now, we were paper, no cell
    phones, no internet. Now we are high-speed wire transactions,
    internet, and paper money is, in many ways, not king anymore.
    So I think recognizing that and leveraging the data abilities
    we have is key. But then I agree with you. Then I think what we
    need to do is try to take those precious resources we have,
    which are the human resources, and I think really focus them on
    the most important national security issues. I think right now
    we are sort of spread across the whole waterfront. In my view,
    I think what would be better is to really focus them on the
    most serious threats and not spread them against what I would
    consider to be the less serious threat.
        Mr. Emmer. And I was going to move on to something else.
    But what would you define as the most serious threats?
        Mr. Reynolds. I think when we are--I would expect, in many
    cases, law enforcement would ultimately provide that to us, and
    they would tell the institutions what are the most serious
    threats. But I think, from my perspective, looking at things
    like terrorism, human trafficking, serious money laundering,
    serious fraud, cyber activities, those would be the areas where
    I would most like to focus resources. And I think if we did
    that, I think that we would provide more valuable intelligence
    on these national security issues.
        Mr. Emmer. That is helpful. When you said it, I was
    thinking in terms of size and scope as opposed to the actual--
    what the issue was.
        Mr. Levitt, I want to go back to the private sector. Can
    you talk some more about how we can get more people in the
    private sector to first recognize that what they are looking at
    is not normal? I think they do. I typically see things that are
    out of the ordinary. But we still, I think, are hesitant to
    raise the red flag and call authorities and say, there is
    something you need to look at here. Are there some other things
    we should be doing to try and encourage people in the private
    sector to notice or be observant of things out of the ordinary
    and report them?
        Mr. Levitt. I guess I challenge the premise. I think the
    banks are actually quite good at this, and they are quite eager
    to be good. If anything, there has been over-reporting of SARs
    to be overly cautious. I think the biggest issue is that if you
    have--in the truest lone wolf, you will not have outliers. You
    will not have telltale signs. There will be nothing to look at
    unless law enforcement, for some other investigative angle,
    happens to know that there is something going on. And then the
    bank can say, well, wait a minute, this guy is only taking out
    $100 every 2 weeks, but he has never done that before. And
    suddenly $100 is the issue, not--
        Mr. Emmer. I see my time has run out. But I would point
    out, I am thinking more of this testimony earlier. And I
    thought it was you talking about mental health issues, they
    exhibit things beforehand, typically, and we have to figure out
    a way to observe that and report it. This is what we had
    reported in the St. Cloud stabbing. There were mental health
    concerns before this incident. And I see my time has expired.
        Chairman Pearce. The gentleman's time has expired.
        The Chair now recognizes the gentleman from Ohio, Mr.
    Davidson, for 5 minutes.
        Mr. Davidson. Thank you, Mr. Chairman. And thank you to our
    guests. I really appreciate your testimony. And thanks for your
    expertise.
        Mr. Reynolds, you work in the private sector for a
    financial institution. And I am just curious. Barclays is
    publicly traded, right? I haven't personally looked at the
    annual report closely enough to know, but how much do you
    actually spend on reporting for suspicious activity? Just how
    much of that annual budget goes to this?
        Mr. Reynolds. Honestly, I don't know the exact figure. I
    know that it is fairly substantial in terms of staff. But I
    couldn't give you an exact figure. I apologize.
        Mr. Davidson. Okay. That is all right. And I guess my
    question is, given that it is a substantial figure, it is not
    an insignificant figure that is down in the footnotes as
    rounded out, but it may be summed up in the other operating
    costs somewhere, how much revenue does this generate for
    Barclays?
        Mr. Reynolds. Zero.
        Mr. Davidson. Zero.
        Okay. So my question is, when we listen to these part B
    discussions about, frankly, some of the financial institutions,
    anxious to start collaborating with one another and sharing
    information across each other, for a portion of their bank that
    derives zero revenue for the bank, why is it that banks are so
    ready to engage in law enforcement activity that generates
    nothing of value for the company? I really appreciate that you
    want to help with national security. I guess my question is,
    why?
        Mr. Reynolds. I think it is fairly simple: I think the bank
    wants to do the right thing. I think that certainly the bank
    does not want to bank terrorists. It doesn't want to bank money
    launderers. It doesn't want to bank human traffickers. And so,
    certainly, regardless of law enforcement impact, the bank
    wouldn't want these individuals in their bank anyway. So I
    think the bank would spend money and dedicate resources to make
    sure that we don't have those sorts of customers. I think there
    is an attendant law enforcement benefit as well. But I think
    certainly just from wanting to be a good corporate citizen and
    doing the right thing, the bank doesn't want to bank these
    people.
        Mr. Davidson. Okay. So, defensively. Fundamentally, you
    have something to gain because your bank would have a bad
    reputation if you became known as the destination for human
    trafficking financing, for example. So there is a defensive
    interest in it for the banks. I guess when you look at it, you
    say, all right, Know Your Customer, know these activities, and
    you go beyond, maybe open this up to Dr. Levitt, Mr. Moreno, we
    have spent a fair bit of time on privacy. And I guess my
    question is, we are down to the point where we are talking
    about tracking knife purchases and using big data. It is
    already bad enough that you can't fly with a knife, certain
    size knives, you go, okay. Nail clippers, maybe. We got past
    some of that. Things like this.
        At some point, does owning a knife need to be on a
    suspicious report? If I bought a set of knives for the kitchen,
    do we need to investigate all those? I guess, you see how far
    down we are into the dialogue. And you have private sector
    folks who are going to spend more and more, add two or three
    floors to the building to focus on this, not to mention all the
    resources we devote to doing this, and in the balance is
    privacy for people. How do we make sure that we can do--well,
    we can always do more, but in this case this happened. I guess,
    how--when the Federal Government operated the Post Office, as
    we do still today, and there weren't tons of rivals, the
    government actually still had possession of the data. And they
    sent it from point A to point B, and without a warrant, they
    didn't open it up. Lots of things could have been in the mail.
    But, officially, we didn't search every package. As far as I
    know, FedEx doesn't open every package that gets sent. Yet, if
    it is financial data, fundamentally you don't have anywhere
    near the same safeguards. So, I guess, how do we get that
    balance right?
        Mr. Levitt. I guess I would just say, in a nutshell, that
    you ultimately do have, pretty much, that same protection. We
    are not looking at every transaction. We couldn't look at every
    transaction. Even if we wanted to, and we don't, no one is
    looking at every knife purchase. The whole point is to be
    focusing only on those cases where, through a variety of
    different investigative tools, whether it is financial, or the
    community coming forward, or intelligence, or whatever it is
    that there is reason to believe to have suspicion that
    something is off. And we have clear requirements for what hits
    that threshold. And as Mr. Hughes talked about, sometimes we
    can't hit the threshold on terrorism, and so we do something
    else. You don't want to overreact and say, now people are using
    knives, so knives are the big problem. They are not. But you
    also want to recognize that because a knife is inexpensive, you
    can't just assume that the kind of things you had put in place
    to notice something just under a $10,000 threshold is going to
    catch this.
        Chairman Pearce. The gentleman's time has expired.
        Mr. Davidson. My time has expired, so I yield back.
        Chairman Pearce. The gentleman's time has expired.
        I now recognize the gentleman from Arkansas, Mr. Hill.
        Mr. Hill. I thank the chairman and I thank the ranking
    member. This is an important hearing. Thanks for having it.
    Little Rock had its own situation with a lone wolf back in June
    of 2009 when a dry cleaner's worker from Memphis who was
    opening up a new location in Little Rock had become
    radicalized, and at 10 o'clock in the morning he went up and
    shot, at point-blank range, two Army recruiters there, killing
    one of them, Andy Long, and wounding my friend, Private Quinton
    Ezeagwula. It was a tragic deal. So I appreciate having this
    hearing. And my predecessor, Tim Griffin, and I worked hard for
    Quinton and Andy to earn the Purple Heart for that tragedy.
        I was just reading a book during August, ``In the Skin of a
    Jihadist,'' which is a book about radicalization in France and
    just how few dollars are used in this arena. So I am very
    sensitive to this issue of a lone wolf. And having seen it in
    reality in Arkansas, and then reading about just how modest the
    financing is in this arena, and just how prevalent it has
    become in Europe. So for banks of all sizes, Mr. Reynolds, I am
    just curious, if there is off-the-shelf software for their
    operation, instead of the kind of expense that Barclays or Bank
    of America would have to go to, that integrates data to make
    filing a SAR a more sophisticated activity, rather than just
    the bank transaction that goes across the counter or through
    the wire room, where a bank of any size can note disposable
    cell phone purchases, and tickets purchased to certain
    countries on the credit card, if, in fact, they are a credit
    card issuer.
        Tell me how a bank could really enhance their SAR filing
    from the obvious. Because that is one of the things. We file
    SARs in banks just based on things that we observe. We don't
    actually go hunting for SARs. Perhaps Barclays does. So talk to
    me, the difference, but seeing something that is suspicious,
    and then I have a staff who is hunting through all my customers
    looking for something that is suspicious.
        Mr. Reynolds. Sure. There are really two ways to attack the
    problem. Some institutions just employ one, and some
    institutions employ both. To your point about commercially
    available solutions, there are a great number of commercially
    available solutions that can range from solutions for very,
    very small banks. So it is a solution that is tailored for a
    small community bank that will look for various red flag
    indicators, and will ultimately push those to the relevant AML
    officer. Very often, a small community bank, there isn't hordes
    of people. There is an AML officer, and that is the person
    who--
        Mr. Hill. Who does many jobs.
        Mr. Reynolds. --wears many, many hats, and who works very
    hard in those institutions. That software is incredibly useful
    to them because it does help them identify some of those
    transactions.
        Mr. Hill. Does it bring in non-bank data, though? Does it
    integrate non-bank data at all?
        Mr. Reynolds. So for some of the smaller solutions, it
    typically would not. There are other commercially available
    solutions that will, for instance, bring in negative news on
    customers. So if there is publicly available news on your
    customers, it will bring that in. There are some solutions that
    will go out and look on the web to see if there is derogatory
    information about customers you may have that will bring that
    in as well.
        The second set of solutions that you typically have for
    institutions are what I refer to as sort of advanced analytics,
    a lot of different great companies that are doing some
    fantastic work in this area. And what those solutions are is to
    your point of institutions proactively looking for risks within
    the institution. So that is where, again, they are not looking
    at individual customers, per se, until they find something. But
    what they are doing is looking across the data to look for
    outliers to look for things that just don't make sense for
    their customer set. And then they focus analysts in on that
    particular issue. Most large institutions, in my experience, do
    both. Because given their data sets, just having sort of a
    standard platform that is looking for red flags is good, and
    that is what is required. But most banks invest above and
    beyond what is required and do the proactive analytics as well.
    Smaller institutions, I think, probably stick to the former.
    But, again, because they are smaller, I don't know that
    proactive analytics for a smaller institution would be quite as
    useful.
        Mr. Hill. Quickly, you were talking about Know Your
    Customer, sharing that information, you do acknowledge that
    banks can call another bank and say: Are you satisfied with
    your Know-Your-Customer information about customer X? That is
    permitted under the law, isn't it?
        Mr. Reynolds. Absolutely. That is permitted under Section
    314(b).
        Mr. Hill. Thank you very much.
        Chairman Pearce. The gentleman's time has expired.
        I would like to thank each one of our witnesses for your
    testimony today. You have been very gracious with your time and
    your answers.
        The Chair notes that some Members may have additional
    questions for this panel, which they may wish to submit in
    writing. Without objection, the hearing record will remain open
    for 5 legislative days for Members to submit written questions
    to these witnesses and to place their responses in the record.
    Also, without objection, Members will have 5 legislative days
    to submit extraneous materials to the Chair for inclusion in
    the record. This hearing is adjourned.
        [Whereupon, at 3:54 p.m., the hearing was adjourned.]

                                A P P E N D I X

                               September 6, 2017

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