[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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