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

                           SURVEY OF TERRORIST GROUPS

                          AND THEIR MEANS OF FINANCING

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

                                    HEARING

                                   BEFORE THE

                           SUBCOMMITTEE ON TERRORISM

                              AND ILLICIT FINANCE

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                               SEPTEMBER 7, 2018

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 115-116

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                               _________

                     U.S. GOVERNMENT PUBLISHING OFFICE

    31-576 PDF              WASHINGTON : 2018

                     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

                         Shannon McGahn, 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 7, 2018............................................     1
    Appendix:
        September 7, 2018............................................    33

                                   WITNESSES
                           Friday, September 7, 2018

    Bauer, Katherine, Blumenstein-Katz Family Fellow, Washington
      Institute for Near East Policy.................................     4
    Clarke, Colin P., Senior Political Scientist, RAND Corporation...    10
    Fanusie, Yaya J., Director of Analysis, Center on Sanctions and
      Illicit
      Finance, Foundation for Defense of Democracies.................     6
    Segal, Oren, Director, Center on Extremism, Anti-Defamation
      League.........................................................     7
    Soufan, Ali H., Chairman and Chief Executive Officer, The Soufan
      Center.........................................................     9

                                    APPENDIX

    Prepared statements:
        Bauer, Katherine.............................................    34
        Clarke, Colin P..............................................    57
        Fanusie, Yaya J..............................................    66
        Segal, Oren..................................................    77
        Soufan, Ali H................................................   118

                           SURVEY OF TERRORIST GROUPS

                          AND THEIR MEANS OF FINANCING

                                  ----------

                           Friday, September 7, 2018

                         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 9:22 a.m., in
    room 2128, Rayburn House Office Building, Hon. Stevan Pearce
    [chairman of the subcommittee] presiding.
        Present: Representatives Pearce, Pittenger, Rothfus,
    Tipton, Hill, Emmer, Zeldin, Davidson, Budd, Kustoff,
    Perlmutter, Maloney, Himes, Foster, Sinema, Vargas, Gottheimer,
    Kihuen, Lynch, and Waters.
        Chairman Pearce. The subcommittee will come to order.
        Without objection, the Chair is authorized to declare a
    recess of the subcommittee at any time. Members of the
    committee who are not members of the Subcommittee on Terrorism
    and Illicit Finance may participate in today's hearing. All
    members will have 5 legislative days within which to submit
    extraneous materials to the Chair for inclusion in the record.
        This hearing is entitled, ``Survey of Terrorist Groups and
    Their Means of Financing.'' I will 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 the current landscape of terrorism around
    the world and the ways that these groups are financing their
    operations.
        Terrorist organizations cannot function without financial
    resources to organize and carry out violent actions. Congress
    must understand the full nature of the current threats facing
    our Nation and the globe. We must remain vigilant in
    identifying and cutting off the funding mechanism of these
    organizations that pose a threat to global safety. This vital
    piece of our Nation's antiterrorist strategy cannot be
    overlooked.
        On April 22, 2015, the Terrorism Financial Task Force of
    the 114th Congress held a similar hearing to examine which
    terrorist groups posed the greatest threats to global
    stability. In the 3 years since that initial hearing, terrorist
    organizations have adapted and changed their ways of managing
    their operations.
        I would like to bring up the example of the Islamic state,
    better known as ISIS, to highlight how the global landscape has
    changed since that hearing. At their peak in 2014, ISIS was
    generating around $81 million a month through taxes, oil sales,
    smuggling, and extortion. Additionally, during this time, the
    group controlled 41,000 square miles of territory in Iraq and
    Syria and ruled over 8 million people.
        Currently, ISIS has lost 98 percent of their territory in
    these two countries, and more than 7.7 million people have been
    liberated from ISIS' oppression. While the loss of this
    territory has caused their revenues to plummet greatly, the
    group still is able to pay terrorist cells and spread violence
    globally.
        While ISIS may be one of the most glaring examples of a
    terrorist organization being forced to change their operations
    as a result of global intervention, there are many more
    throughout the world, from al-Qaida running fundraising
    operations and campaigns with cryptocurrencies to Hezbollah
    operating drug trafficking rings in South America. We must
    ensure that Congress understands the full nature of the threats
    that we are currently facing.
        This hearing will provide up-to-date information about
    which terrorist groups represent the highest threat and the new
    ways that they are financing their operations and
    infrastructure. I would like to thank our witnesses for being
    here today, and look forward to their expert testimony on these
    important issues.
        I now would recognize the gentleman from Colorado for 2
    minutes for an opening statement.
        Mr. Perlmutter. Thank you, Mr. Chairman.
        I will keep my remarks brief because we are going to have
    votes on the floor pretty early this morning.
        Thank you, Mr. Chairman. And thank you to all the panelists
    for being here to share your insight on major terrorist groups
    and how they finance their operations.
        Terrorism takes many different forms, and bad actors
    finance their operations in many different ways. While there is
    no one silver bullet to shut down all of this financing, the
    United States and its allies must remain vigilant and adapt to
    a continually changing landscape.
        Additionally, we must ensure law enforcement at the local,
    State, National, and international levels have the tools and
    information sharing necessary to reduce and prevent terrorism.
        This subcommittee has learned a great deal about emerging
    technologies like cryptocurrencies, which present new
    challenges to law enforcement, but traditional financing
    methods such as drug trafficking, extortion, and kidnapping
    remain prevalent. We have to ensure we are devoting attention
    to both these age-old and emerging financing methods in our
    anti-terror efforts.
        I look forward to the panelists' testimony today to update
    us on current terrorist groups and steps we can take to cut off
    their money.
        Thank you, Mr. Chairman, and I yield back.
        Chairman Pearce. The gentleman yields back.
        The Chair now recognizes the gentleman from North Carolina
    for an opening statement for 1 minute.
        Mr. Pittenger. Thank you, Mr. Chairman.
        I want to just thank each of you for being here today. It
    is important for us to hear from you. And I would rather hear
    from you than listen to me, so I would like to waive my
    remarks. Thank you.
        Chairman Pearce. Thank you.
        Now we would like to recognize our guests, our witnesses
    today. First of all, Katherine Bauer. Ms. Bauer is the
    Blumenstein-Katz Family Fellow at the Washington Institute for
    the Near East Policy. She is a former Treasury official who
    served as the Department's financial attache in Jerusalem and
    the Gulf.
        Before leaving Treasury in late 2015, she served several
    months as Senior Policy Adviser for Iran in the Office of
    Terrorist Financing and Financial Crimes. Prior to working at
    the Treasury, Ms. Bauer was a nonproliferation graduate fellow
    at the Department of Energy's National Nuclear Security
    Administration. A graduate of Macalester College, she received
    her master's degree in Middle East Studies and International
    Economics at Johns Hopkins University.
        Mr. Ali Soufan is the Chief Executive Officer of The Soufan
    Center. Mr. Soufan is a former FBI supervisory special agent
    who investigated and supervised highly sensitive and complex
    international terrorism cases, including the East African
    Embassy bombings, the attack on the USS Cole, and the events
    surrounding 9/11.
        Mr. Soufan also serves as a member of the Homeland Security
    Advisory Council. He is an honors graduate from Mansfield
    University of Pennsylvania and also received a master of arts
    from Villanova University.
        Yaya Fanusie is the Director of Analysis for the Foundation
    for Defense of Democracies' Center on Sanctions and Illicit
    Finance. Yaya spent 7 years as both an economics and
    counterterrorism analyst in the CIA where he regularly briefed
    the White House-level policymakers, U.S. military personnel,
    and Federal law enforcement.
        After government service, Yaya worked with a small
    consulting firm where he led a team of analysts working on
    multibillion dollar recovery efforts involving a global
    corruption ring. He received a master's degree in international
    affairs from Columbia University and received his bachelor's
    degree in economics from UC Berkeley.
        Mr. Oren Segal is the Director of the Anti-Defamation
    League, Center on Extremism, which combats extremism,
    terrorism, and all forms of hate in the real world and online.
    Much of Mr. Segal's time with ADL has been devoted to
    evaluating the activity and the tactics of extremist groups and
    movements, training law enforcement officers, and publishing
    reports and articles on a wide range of extremist topics.
        In 2006, Mr. Segal was recognized by the FBI for his
    exceptional service in the public interest. He is a graduate of
    Wheaton College in Massachusetts.
        Now I would like to recognize Mr. Rothfus to introduce our
    last guest witness today.
        Mr. Rothfus.
        Mr. Rothfus. Thank you, Mr. Chairman.
        It is a real privilege today to welcome Dr. Colin Clarke,
    all the way from western Pennsylvania. And it is great to have
    you here today. We just met last week talking about some of
    these very issues.
        Dr. Clarke is a Senior Political Scientist at the RAND
    Corporation where his research focuses on terrorism,
    insurgency, and criminal networks. At RAND, Dr. Clarke has
    directed studies on ISIS financing, the future of terrorism,
    and transnational crime, and lessons learned from all
    insurgencies between the end of World War II and 2009. He is
    also an Associate Fellow at the International Center for
    Counterterrorism, a nonresident senior fellow at the Foreign
    Policy Research Institute, and a member of the Pardee RAND
    Graduate School Faculty, and a lecturer at Carnegie Mellon
    University.
        He received his BA in communications from Loyola College,
    an MS in international relations from New York University, and
    a Ph.D. in international security policy from the University of
    Pittsburgh.
        Welcome, Dr. Clarke.
        I yield back.
        Chairman Pearce. The gentleman yields back.
        Now it is time to hear from our witnesses and their
    testimony.
        Ms. Bauer, you are recognized for 5 minutes. Thank you
    again for being here.

                      STATEMENT OF KATHERINE BAUER

        Ms. Bauer. Good morning. Thank you, Chairman.
        Chairman Pearce, Ranking Member Perlmutter, and
    distinguished members of the subcommittee, it is an honor to be
    testifying before you today.
        Although the threat of terrorism spans the globe, my
    written testimony focuses on Middle East-based groups, notably
    the so-called Islamic state, al-Qaida, and Iranian support for
    terrorism, tracing the evolution of their financing
    methodologies, and the U.S. and foreign government responses,
    as well as discussing the effectiveness of the CFT, or
    counterterrorist financing toolkit.
        In the next few minutes I will summarize some of the key
    trends, challenges, and opportunities, which I discuss in
    greater detail in my written testimony.
        The threat of extremism and terrorism across the Middle
    East is increasingly complex. Since 9/11, the U.S. and its
    allies have dramatically improved their capacity to detect,
    disrupt attacks through increased information sharing, and to
    undermine such groups through the deployment of sophisticated,
    diplomatic, military, and financial initiatives.
        Nonetheless, years of conflict in Syria, Iraq, Yemen, and
    elsewhere have provided fertile ground for terrorist groups and
    extremist ideologies. These conflicts have spurred humanitarian
    crises and stoked sectarianism. Although al-Qaida historically
    relied on external donations as it and, more recently, the
    Islamic state, established global networks of affiliates, their
    methods of financing have diversified.
        A number of dynamics underlie these changes, including
    counterterrorism efforts broadly and counterterrorist financing
    efforts specifically, but also the breakdown of political
    systems and the proliferation of ungoverned spaces that have
    allowed terrorist organizations to increasingly hold territory
    to tax and extort the local population and to even control,
    extract, and sell resources.
        Terrorist organizations have also capitalized on trends of
    globalization that facilitate even greater movement of ideas,
    people, and funds. Disrupting foreign sources of financing
    alone, therefore, will not bankrupt such groups. As terrorist
    financing methodologies evolve, responses from the
    international community to counter such threats must also
    adapt.
        Despite the fact that many terrorist organizations appear
    better resourced than ever before, counterterrorist financing
    remains a valuable endeavor. To counter the threat of terrorist
    financing, the United States and its partners deploy an
    increasingly sophisticated toolkit marshaling actionable
    financial intelligence, regulatory and sanctions authorities,
    and engagement with public and private stakeholders.
        Such measures are deployed alongside other elements of
    power, such as diplomatic and military efforts. Consider the
    Islamic state, which in many ways represented unprecedented CFT
    challenge. Building on the extension of the U.N. 1267 mandate,
    the U.S.-led counter-ISIL coalition developed and implemented a
    dual-track approach that relied on isolating IS-controlled
    territory from the global financial system and depriving the
    group of access to revenue.
        While the former included supporting government of Iraq-led
    measures to cut salaries and take offline banks and exchange
    houses in IS-controlled territory, the latter involved military
    strikes on IS oil infrastructure and cash depots.
        Private sector financial data gleaned by finance ministries
    and shared with U.S. military and law enforcement agencies
    helped to identify such targets by providing insight into which
    refineries and oil pumps were generating cash for the group.
    Despite these successes, sustained attention is required.
        Today, IS remains well-resourced, able to pay salaries, and
    send funds abroad to its affiliates, as well as mount attacks.
    Regional regulators have taken important steps to try to ensure
    that the financial system is a hostile environment for such
    activity, but there is much more that needs to be done.
        Even so, counterterrorist financing alone will not defeat
    the threat of terrorism, and it is not meant to. In order to
    achieve durable counterterrorism successes, counterterrorist
    financing must proceed alongside efforts to counter extremist
    ideologies and promote good governance.
        Critics are right to highlight the high cost of anti-money
    laundering (AML) and CFT regulation on financial institutions,
    as well as in pointing to the need to better balance some of
    the competing but equally important priorities, such as the
    efficient delivery of timely humanitarian aid amid concerns
    that terrorists continue to abuse charity as a way to raise,
    launder, and move funds, as well as protecting access to
    banking and remittent services in conflict zones and high-risk
    areas.
        Both have been the subject of intense discussion on ways to
    ease the CFT burden on banks and charities, including in
    hearings before the subcommittee. More progress can and should
    be made on both of these fronts. It is in the interest of
    broader counterterrorism objectives to do so.
        Thank you for the opportunity to testify today, and I look
    forward to your questions.
        [The prepared statement of Ms. Bauer can be found on page
    34 of the appendix.]
        Chairman Pearce. Thank you.
        Mr. Fanusie, you are recognized for 5 minutes.

                      STATEMENT OF YAYA J. FANUSIE

        Mr. Fanusie. Good morning Chairman Pearce, Vice Chairman
    Pittenger, and Ranking Member Perlmutter. On behalf of the
    Foundation for Defense of Democracies and its Center on
    Sanctions and Illicit Finance, CSIF, thank you for the
    opportunity to testify today.
        Cryptocurrencies may become the way we transact in the
    future, but they are also becoming a part of the illicit
    financing toolkit available to terrorists. CSIF has documented
    multiple jihadist cryptocurrency fundraising campaigns on
    social media.
        Cryptocurrencies and blockchain technology are not innately
    illicit and should not necessarily be feared. Like most
    technological innovations, they can be utilized for good or
    ill, depending on the user. The good news is that most
    terrorists, particularly those operating on jihadist
    battlefields, inhabit environments that are not currently
    conducive to cryptocurrency use. Still, there are multiple
    examples of terrorist cryptocurrency funding campaigns in my
    written statement, but in the interest of time, I will
    highlight one.
        Late last year, CSIF began monitoring a jihadist funding
    campaign on Telegram, calling itself al-Sadaqah, Arabic for the
    charitable giving. The group claimed to be raising bitcoin
    funds for fighters in Syria. We monitored al-Sadaqah's social
    media channels and analyzed their bitcoin address, which it
    would highlight regularly asking followers to donate
    anonymously with bitcoin.
        In its initial campaign, it sought $750 for camp
    reinforcements. Within weeks, we noticed the address, the
    bitcoin address received $685 worth of bitcoin. The group
    continued requesting funding for logistical supplies, but only
    received a handful of bitcoin transactions, none of them as
    large as the $685 early in the campaign.
        However, as the address lagged in receiving donations, they
    introduced techniques for supporters to give funds--or new
    techniques. At one point, the group encouraged followers to
    purchase bitcoin vouchers for a website that took payment in
    euros. The group posted sites where supporters could use
    bitcoin ATMs to buy cryptocurrencies. Clearly, the campaign
    organizers were trying to make the bitcoin process easier for
    novices.
        Their most significant adaptation, though, was eventually
    branching out beyond bitcoin. By early 2018, the group posted
    on Telegram that they were accepting cryptocurrencies like
    Monero, Verge, and Dash. These are tokens that are less
    traceable than bitcoin.
        The above case makes a few things clear: One, some
    terrorist organizations are looking to add cryptocurrency
    donations to their funding streams; but, two, their efforts
    thus far have not been very fruitful, probably because
    cryptocurrency's technical complexities, extremist preference
    for cash, and the traceability of most public blockchain
    protocols deters wider use.
        Terrorist adoption of cryptocurrencies, in a way, simply
    mirrors that of the general public. This also means that if
    public cryptocurrency adoption increases, terrorist groups will
    probably begin to transact more in digital tokens. So the U.S.
    must keep up with this technology and address new risk emerging
    from an evolving financial ecosystem.
        I have a few actions, recommended actions that policymakers
    and also the tech industry should take to mitigate risk. One,
    counterthreat financing units must learn blockchain analysis.
    All units and agencies that investigate terrorist funding need
    to become proficient in analyzing cryptocurrency transactions.
        Two, financial authorities should engage more
    cryptocurrency exchanges. Most people purchase their digital
    currency from exchanges. Many of these exchanges have ramped up
    their AML compliance the past few years, but many smaller
    exchanges trade in a greater variety of alternative tokens,
    especially these privacy coins. Many within the industry do
    want to keep terrorists and bad actors off their platforms, and
    authorities should work with those firms to protect citizens
    from terrorism without stifling technological innovation.
        Three, cryptocurrency enthusiasts themselves should flag
    illicit wallets. Enthusiasts who care about the integrity of
    the cryptocurrency industry should flag illicit activity
    associated with terrorists and other illicit actors. In a
    sense, there should be a repository, perhaps developed by
    entrepreneurs in the private sector, where everyday users can
    flag illicit addresses from various blockchain systems. Such a
    site could be built with protocols to review--or should be
    built to review and vet submissions for credibility before
    publishing. But such a resource would make it easier for
    investigators to find illicit activity and help everyday users
    stay clear of problematic wallets. This could also be applied
    to ransomware and other illicit cyber criminals.
        Cold hard cash, in conclusion, is still king. But jihadist
    groups are building diverse portfolios. Illicit actors adopt
    new technologies earlier than the wider public. When paper
    checks, credit cards, and PayPal each emerged, criminals
    exploited them early on. There are enough case studies of
    jihadist groups experimenting with cryptocurrencies to suggest
    that law enforcement and the intelligence community must
    prepare for terrorists to try to exploit digital tokens as the
    technology spreads.
        On behalf of the Foundation for Defense of Democracies and
    its Center on Sanctions and Illicit Finance, thank you for the
    opportunity to testify. I look forward to your questions.
        [The prepared statement of Mr. Fanusie can be found on page
    66 of the appendix.]
        Chairman Pearce. Thank you, Mr. Fanusie.
        Mr. Segal, you are recognized for 5 minutes.

                         STATEMENT OF OREN SEGAL

        Mr. Segal. Good morning, Chairman Pearce, Ranking Member
    Perlmutter, and members of the subcommittee. My name is Oren
    Segal, and I serve as the Director of the Anti-Defamation
    League Center on Extremism. Thank you for the opportunity to
    testify today.
        Since 1913, the mission of the ADL has been to stop the
    defamation of the Jewish people and to secure fair treatment
    and justice for all. For decades, ADL has fought against anti-
    Semitism and all forms of bigotry by monitoring and exposing
    extremists who spread hate and commit acts of violence.
        America continues to face these threats of crime, of
    violence from a number of different extremist movements,
    including white supremacists, antigovernment extremists,
    individuals who are motivated by radical interpretations of
    Islam, left-wing extremists, and others. ADL's research into
    these threats demonstrates that hatred and violence is not the
    sole domain of any one extremist movement, and we ignore any
    one of these movements at our peril.
        ADL tracks murders and terrorist plots by these groups
    every year, with data stretching back to the 1970's. Over the
    past 10 years, domestic extremists of all kinds have killed at
    least 387 people in the United States. Of those deaths, the
    vast majority, approximately 71 percent, were at the hands of
    right-wing extremists, such as white supremacists and
    antigovernment extremists. These statistics are available in
    our report, which I have attached to my testimony.
        Although extremist-related killings comprise a fraction of
    the total number of homicides in the United States each year,
    they often have an outsize impact, creating fear and anxiety in
    entire communities or even the entire country.
        Just last month, ADL launched an interactive heat map which
    provides data on various extremist activity in the country,
    including murders and plots, shootouts with police, public
    displays of white supremacist propaganda, and anti-Semitic
    incidents nationwide. It can be filtered by region and by type.
    And this may be a useful tool to see what incidents have
    occurred in your own districts.
        Unlike some foreign terrorist organizations that receive
    large amounts of financial resources from state sponsors,
    extremist movements in the United States are generally self-
    funded. In response to recent white supremacist activity, we
    conducted a study of the ways that white supremacists raise
    their money.
        I would like to provide just a few details on these
    findings because this movement is in the midst of a resurgence
    and also because the dynamics are reflected in the way other
    violent extremists operate within the country. Recent
    advancements in online funding and social media usage have
    provided white supremacists with more fundraising and
    recruitment opportunities.
        White supremacists quickly discovered for themselves the
    usefulness of these dedicated social media internet platforms
    like GoFundMe, Kickstarter, and others. Certain funding
    modalities like bitcoin and other cryptocurrencies are ripe for
    exploitation as extremists get more tech savvy.
        But as mainstream funding platforms become aware of the
    exploitation of their services, they have increasingly moved to
    shut these extremists out. And we welcome these efforts. In
    fact, ADL helps identify these cases for the industry to assure
    that they are adhering to their own terms of services. And
    while these companies need to police their own platforms, there
    is a role for civil society in government.
        My written testimony outlines several policy
    recommendations geared toward better understanding and
    preventing extremism from across the ideological spectrum.
    These include government officials and civil society leaders,
    who must use their bully pulpit to send loud, clear, and
    consistent messages that hatred and violent extremism is
    unacceptable.
        The Administration should resource a full range of CVE
    programs to counter all forms of violent extremism. Congress
    should pass legislation directing executive agencies to track
    statistics and regularly report on domestic violent extremism,
    including the extremism discussed today. And policymakers
    should urge tech companies to continue to provide and improve
    their terms of service and rigorously enforce their own
    guidelines.
        Thank you very much for the opportunity to testify today. I
    would be pleased to answer any questions that any of the
    members may have. Thank you.
        [The prepared statement of Mr. Segal can be found on page
    77 of the appendix.]
        Chairman Pearce. Thank you.
        Mr. Soufan, you are recognized for 5 minutes.

                       STATEMENT OF ALI H. SOUFAN

        Mr. Soufan. Thank you, sir.
        Chairman Pearce, Ranking Member Perlmutter, distinguished
    members, thank you for hearing my statement today.
        During this session on terrorist financing, you will hear a
    great deal about the means by which terrorists fund their
    organizations, taxation and extortion, sales of stolen oil,
    looted artifacts, opium, organized crime, donations, and
    ransoms. These are all vital mechanisms to understand. And my
    fellow witnesses here represent some of the leading experts in
    the field.
        In my statement, however, I would like to take a step back
    and invite members to consider the wider geopolitical factors
    that together afford terrorists the opportunity to raise money.
    I am speaking of the many conflicts around the world in which
    such groups participate, especially those in Syria, North
    Africa, and Yemen.
        Terrorists use these wars to boost their resources in
    several ways. Let me briefly highlight two.
        First, they systematically embed themselves in the messy
    specifics of each conflict to the point where it becomes
    difficult to separate them from legitimate local combatants.
    They may use this cover to create front organizations through
    which to funnel funds. For example, one example was a Ahrar al-
    Sham, which means free people of the Levant. As its name
    suggests, Ahrar al-Sham wanted to be seen as a nationalist
    group rather than a jihadi one. In reality, it cooperated with
    al-Nusrah, and its leader was a man whom the Treasury
    Department called al-Qaida's representative in Syria. Yet their
    rebranding stuck. The group reportedly received funds and
    material from sources in the Gulf states and Turkey, all
    American allies.
        The logic behind such support is as old as the conflict
    itself: My enemy's enemy is my friend. But in this case, it
    represents an extremely dangerous line of thinking.
        Today, in the complex civil war in Yemen, Saudi Arabia and
    its allies finds themselves, in effect, on the same side of al-
    Qaida in the Arabian Peninsula. AQAP has strengthened its ties
    to Yemen's Sunni tribes and militias, to the point where it
    would be difficult, if not impossible, to support those groups
    without indirectly supporting al-Qaida.
        Last month, the Associated Press reported that the Saudi-
    led coalition had resorted to paying AQAP to retreat from
    strategic holdings, in the process allowing them to retain
    their weapons and stolen assets. This is worrying, especially
    given active U.S. support for the coalition.
        Second, terrorist groups benefit from heavy-handed foreign
    intervention. In the Middle East today, Saudi Arabia has set
    itself as a Sunni counterweight to Iran. But in doing so, both
    regional powers, Saudi Arabia and Iran, have prolonged already
    bloody conflict and lent them a vicious sectarian edge.
        Bloodshed plays into the jihadis' overall game plan, which
    has always been exploiting these conflicts and weaponizing
    sectarianism. In the chaos of war, jihadi groups have seized
    territory from across the region, opening the door to all kinds
    of fundraising opportunities from taxation and extortion to
    outright robbery.
        Regional conflicts have also provided a recruitment
    bonanza. For example, almost 45,000 foreign fighters from
    around the globe had joined the so-called Islamic state in Iraq
    and Syria. Another example, as one AQAP commander has been
    quoted as saying with respect to the front lines in Yemen, ``If
    we send 20 fighters, we come back with 100.'' Indeed, AQAP has
    grown from around 1,000 members before the Yemen conflict to
    about 7,000 today.
        Seventeen years ago, almost to the day, the United States
    was attacked by a terrorist organization of around 400 members
    based primarily in Afghanistan. We responded swiftly and
    defeated that version of al-Qaida. Today, however, a new jihadi
    threat has emerged around the world. It consists of many
    different radical organizations deeply embedded in local
    conflict that has made them difficult to target.
        But there is a common factor linking these groups,
    including the so-called Islamic state, as well as every al-
    Qaida franchise. That factor is the ideology of salafi jihadism
    that manifests itself in the narrative of Osama bin Laden. We
    must dedicate ourself to destroying that narrative. Only when
    we do so we finally defeat them.
        Thank you once again, and I welcome your questions.
        [The prepared statement of Mr. Soufan can be found on page
    118 of the appendix.]
        Chairman Pearce. Thank you, Mr. Soufan.
        Dr. Clarke, you are recognized for 5 minutes.

                      STATEMENT OF COLIN P. CLARKE

        Mr. Clarke. Thank you, Chairman Pearce, Ranking Member
    Perlmutter, and distinguished members of the subcommittee, for
    inviting me to testify today.
        As you will hear from my testimony, I believe ISIS is going
    to be around for a long time, enabled in part by its finances,
    which means that countering its ability to operate is critical
    to U.S. national security.
        My testimony will address three fundamental issues. First,
    what is terrorist financing and where does it fit within the
    broader historical context; second, how do terrorists generate
    income, how have their methods changed over time, and what are
    the current trends; third, with ISIS as the most significant
    terrorist threat we are facing today, how might this group
    attempt to finance a renewed campaign of terror in the future.
        Terrorist financing is the raising, storing, and movement
    of funds acquired through licit or illicit methods for the
    purpose of committing terrorist acts or sustaining the
    logistical structure of a terrorist organization. Financing is
    used to augment militant groups' ability to execute attacks and
    fund organizational components aimed to increase group
    cohesion.
        The way terrorist groups have earned funds has shifted
    drastically over time. During the cold war, superpowers funded
    proxy groups that engaged in insurgencies and committed acts of
    terrorism. In the aftermath of the dissolution of the Soviet
    Union, great-power geopolitical competition came to a temporary
    halt, as did the sponsorship of terrorist proxy groups.
        Several high-profile groups no longer benefited from the
    largesse of state sponsorship and turned to criminal activities
    to fund their organizations. There were changes in the
    frequency and strength of cooperation among terrorists and
    criminals who were forced into a marriage of convenience to
    survive.
        To insulate their organizations from shocks similar to
    those like losing an external sponsor, terrorist groups moved
    to insource the bulk of their financing, giving rise to terms
    like ``do-it-yourself organized crime'' and the ``crime-terror
    nexus.'' ISIS has embraced the notion of the crime-terror nexus
    going to great lengths to recruit members from the criminal
    underworld. We saw this with the individuals involved in the
    Paris November 2015 and Brussels March 2016 attacks.
        ISIS is different from previous terrorist groups because
    the territory it controlled provided extremely lucrative
    resources such as oil and a renewable funding source in the
    form of a taxable population. ISIS generated its wealth from
    three primary sources: Taxation and extortion, the looting of
    banks, and oil and gas. Like other terrorist groups, ISIS also
    relied on a range of criminal activities, including kidnapping
    for ransom and antiquity smuggling.
        External state sponsorship, at least to date, has not been
    a major source of ISIS financing.
        The struggle against ISIS has proven that serious
    challenges remain. As its territory is further reduced, ISIS
    will compensate for losses in certain revenue streams by
    increasing revenue generation elsewhere. Every facet of ISIS
    revenue should be nominated for targeting or sanctioning, with
    the most difficult areas to counter, namely taxation and
    extortion, a longer-term objective tied to postconflict
    reconstruction.
        This is especially important given the group's history with
    extorting construction companies. Reconstruction aid to newly
    liberated cities will provide an attractive target for ISIS to
    make money without holding or controlling territory.
        At present, there are no law enforcement or security
    service entities capable of preventing ISIS from making large
    sums of money from reconstruction contract skimming. The
    policing assets that do exist are underfunded and their
    resources are already strained.
        As the caliphate disappears, much of the counter-ISIS
    mission in Iraq should transition from military force to law
    enforcement. This means investing more resources in training
    Iraqi and other law enforcement entities, an effort that must
    be more comprehensive than simply supplying equipment.
        In Syria, the situation is far more difficult, since Assad
    remains in power and there is no semblance of state security
    services capable of policing rebel-held pockets of the country.
        Traditional counterterrorism financing tools must be used
    to continue to keep ISIS isolated from external patrons and
    state sponsors of terrorism, even though, as I mentioned, to
    date, the group has largely avoided external state sponsorship.
        Many terrorist groups attempt to circumvent the form of
    financial system, but their transactions occasionally intersect
    with various touch points, including corresponded banks in the
    region. Therefore, bank regulators and financial intelligence
    units of partner nations must be intimately involved in
    monitoring and identifying suspicious transactions.
        In short, the coalition must continue to track financial
    flows into ISIS-held territory to monitor whether changes are
    occurring and closely monitor financial flows from countries
    where wealthy individuals have historically funded jihadist
    causes.
        Thank you for the opportunity to testify today.
        [The prepared statement of Mr. Clarke can be found on page
    57 of the appendix.]
        Chairman Pearce. Thank you, Dr. Clarke.
        This is now time for us to move to questions from the
    committee members. I would recognize myself for 5 minutes.
        Mr. Soufan, you mentioned that the only thing to do is to
    change the narrative of Bin Ladenism. How would you recommend
    that we go about that?
        Mr. Soufan. Yes, sir. That is a good question. I think we
    need to recognize what kind of threat are we facing, and the
    threat today is a narrative by Osama bin Laden, and that
    narrative has different components. Component number one, it
    hijacked religious terminology in order to put out a political
    message. Number two, it created a conspiracy narrative in the
    Muslim world that the United States and the West are against
    Islam, and there is a crusade between the Christians and the
    Jews to defeat the Muslim world. And not a lot of people, in
    the beginning, believed in that but, unfortunately, that
    narrative is becoming more and more popular in the Middle East.
        I think the intelligence operations that we do are
    extremely important. The law enforcement is extremely
    important. The military is extremely important. But we need to
    have a diplomatic effort to have a message out to counter what
    al-Qaida is saying, to counter what ISIS is saying and from a
    political perspective. But also we need to force our so-called
    allies to have the religious establishment to stand up and
    counter the religious arguments that these guys are doing.
    Unfortunately, 17 years after 9/11, we still did not do that
    successfully.
        Chairman Pearce. OK. Thank you.
        Dr. Clarke, according to some press today, one could be led
    to the idea that ISIS has effectively been removed from the
    territory. Your testimony moves in the opposite direction from
    that, and you are saying that still, oil is a significant
    source of revenue for ISIS. Is that more or less--am I hearing
    you correctly?
        Mr. Clarke. So I think it is correct that ISIS has lost the
    majority of its territory. I think 98 percent of its territory
    from--at one point, they controlled territory the size of Great
    Britain. They are still active in the Euphrates River Valley,
    and within the last month, month and-a-half, have moved back in
    and around Deir ez-Zor in parts of northeastern Syria and are
    once again attempting to regain--
        Chairman Pearce. Any estimates of how much, say, the oil
    revenues are? Are they still engaged in the archeological
    antiquities, the sale of those?
        Mr. Clarke. To a lesser extent, but they are seeking to
    regain control of the oil because it is so lucrative in and
    around Deir ez-Zor.
        Chairman Pearce. You mentioned in, I think it is page 6 of
    your testimony, that there are very little law enforcement
    efforts to counteract. If there are law enforcement efforts
    from any of the countries worldwide, who would be one of the
    examples of good interaction on the part of the police and the
    funding of the agencies?
        Mr. Clarke. So I would look to the Italian Carbonari,
    because they actually have experience combatting organized
    crime, and from what I understand, they actually are somewhat
    active in Iraq. My statement that there is an absence of law
    enforcement refers more so to Syria, where there is just a
    giant vacuum and large swaths of rural eastern Syria outside
    the writ of control of Assad. But also, there are Kurdish
    groups operating, there is the SDF and others in it, so in many
    ways an ungoverned space.
        Chairman Pearce. Ms. Bauer, are you seeing any activities
    in Central or South America from the terrorist organizations?
    As we raise the pressure in the Middle East, are you seeing
    that eruption other places?
        Ms. Bauer. Hezbollah networks in Central and South America
    have long been an interest and a focus. The Treasury
    Department, for example, identified a network in the tri-border
    area in the middle part of the last decade, the Barakat Clan,
    and it sanctioned them. But beyond the financing of course,
    operational networks and Hezbollah's work with criminal
    networks and drug traffickers in that region are also of
    concern.
        One thing that I think is positive to note, there has been
    some recent action by countries in the region. For example,
    with regard to Barakat, the Argentinians have taken up the
    issue. They froze assets of the Barakat Clan over the summer,
    and have also committed to cooperation with the U.S. to go
    after Hezbollah funding in the tri-border area.
        Chairman Pearce. Thank you. My time is expired.
        I would recognize the gentleman from Colorado for 5
    minutes.
        Mr. Perlmutter. Thanks, Mr. Chairman.
        My first question is to you, Mr. Fanusie. While the
    Financial Action Task Force, FATF, has issued guidance,
    currently its formal recommendations do not cover
    cryptocurrencies. So with terrorist finance in mind, should the
    U.S. Department of Treasury be pushing FATF or other
    international bodies for more targeted action on
    cryptocurrencies?
        Mr. Fanusie. Yes. The short answer is yes. I do believe
    that FATF has signaled that it wants to update its
    recommendations to actually specify virtual currencies in a
    more precise way. Right now, there is definitely a loophole
    there.
        But, there should be clarity on the issue of how do virtual
    currencies differ from wire transfers. Right now, there is
    language within FATF's recommendations that do talk about wire
    transfers, but you can't really apply those to virtual
    currencies. So there should be that.
        I believe even the G20 has recently said that by October,
    they are planning to have a session where they are going to
    provide a better definition of virtual currencies and how that
    should relate to anti-money laundering. But they are going to
    base their decision or their language off of FATF. So I know
    that there is some movement there, but it just hasn't been
    fleshed out.
        Mr. Perlmutter. Thank you. Because we have had other panels
    that have talked about the cryptocurrencies and, bitcoin and
    Litecoin are pretty easy, through their blockchain, to follow,
    but others get more and more obscure and opaque. So I would
    hope that we take all of that into consideration too.
        Mr. Fanusie. Yes. And one thing I would say, there is
    actually benefit in looking at what the U.S. has done when
    FinCEN in 2013 put out guidance, which was very clear about how
    cryptocurrency businesses should operate, basically under
    mostly the same laws that money transmitters and money service
    businesses operate.
        We have actually done some studying where we saw that
    guidance, it appears, accounted for there being less illicit
    finance in North American exchanges compared to Europe. So much
    of the world is catching up in terms of implementing
    regulation. So I think as the U.S. model becomes perhaps more
    of a standard, the Europeans, the EU is actually trying to
    follow up and update their regulations. So I think it is
    trickling down, but it has to happen sooner.
        Mr. Perlmutter. All right. Mr. Segal, and to the rest of
    the panel--and I am probably stealing Mrs. Maloney's thunder
    here, but I would be curious whether it is domestic terrorists
    or international, jihadist, whatever, whether or not you are
    seeing them use shell companies, phony front men, women,
    whatever, to shield their financing and what you might suggest
    we do about that.
        Mr. Segal. Yes. Most of the domestic extremists, whether
    they are white supremacists, antigovernment, or even those who
    are inspired by ISIS and al-Qaida but who have lived here or
    raised here, they are able to mask in some ways some of their
    online donations.
        So if you have an online crowdfunding site, you don't
    always necessarily have to even use your real name. Or in some
    cases what they do is pretend to raise money for some cause
    that doesn't sound particularly volatile or extremist as a way
    to fool people into providing them money.
        Sovereign citizens in this country who pose a very
    significant violent risk are engaged in all sorts of scams from
    mortgage fraud to fake money, essentially monopoly money where
    they convince people that they are able to pay off their
    student loans, et cetera.
        Yes, in some ways they are hiding behind fake entities, but
    in many ways they don't really have to, because a lot of their
    activity and their beliefs are not illegal in this country.
        Mr. Perlmutter. Anybody else?
        Ms. Bauer. Yes. I think that one of the interesting ways
    that terrorist groups use front companies is for procurement.
    So if you think as organizations get more globalized and have
    these global networks and are buying things more in bulk, they
    are acting like a lot of other illicit actors in terms of
    setting up false fronts to get dual-use goods.
        Some of these have been exposed. Hezbollah has used front
    companies in the Gulf to procure parts for UAVs that were being
    deployed in Syria. The Islamic state has procured IED
    components in bulk and other precursors and things like that.
    So I actually see this as a vulnerability, because from an
    intelligence standpoint, if you can identify them, once you can
    make that public through a sanctions action, then they are
    exposed, and they are no longer valuable, and they are hard to
    set up, and this takes effort and resources to do it. And so
    you force them to change their modus operandi and do something
    slightly different.
        Mr. Perlmutter. All right. My time is expired, so I thank
    you all for your testimony, and I yield back.
        Chairman Pearce. The gentleman yields back.
        The Chair now recognizes the gentleman from North Carolina,
    Mr. Pittenger, for 5 minutes.
        Mr. Pittenger. Thank you, Mr. Chairman. I thank each of you
    again for being here.
        I think we all recognize that terrorists receive funds from
    various sources. We have state sponsors, extortions,
    antiquities, foundations, oil, trade-based money laundering,
    drugs, taxes, bank looting. I think we also recognize that they
    transfer money in many ways. There is hawalas. You have, of
    course, some measure of cryptocurrencies, cash. We are able
    to--they do wire transfers.
        What I am trying to understand is, at the end of the day,
    how much of those funds need to ultimately get into the
    international financial system? How much do they need to
    receive cash to help them fund their requirements? And to that
    end, how capable are we in tracking those funds? How capable
    are we with technology and software? How capable are certain
    countries? How capable are our various embassies? Do we have
    adequate attaches?
        Anybody. Who would like to start out?
        Ms. Bauer, we are just going to go down the line. We will
    start with you, if you want.
        Ms. Bauer. OK. Thank you. There are a lot of questions
    there. I think that the question of how much they use the
    international financial system, it is incredibly efficient. And
    if they are confident that they can use it in a way that they
    won't be detected, I think that is often a choice that illicit
    actors make.
        Their needs are--
        Mr. Pittenger. At the end of the day, do you believe that
    they ultimately need to cash out? Whether they have gone
    through antiquities or have diamonds or oil or whatever, at the
    end of the day, do they need cash?
        Ms. Bauer. At the end of the day, they usually need cash,
    but cash, it depends on geography, cross-border, cash smuggling
    is an issue. If you look at networks in the Gulf that were at
    the beginning of the Syrian conflict, aggregating funds and
    moving them likely not through the financial system.
        I wanted to address your question also about whether or not
    we are well enough resourced in terms of financial attaches,
    since that is a role that I have been in, and it is an
    important issue to me.
        Mr. Pittenger. Quickly, if you can.
        Ms. Bauer. OK. I think that attaches play a critical role
    in being able to engage in a technical conversation with their
    counterparts at finance ministries and at central banks. And so
    I think it is very important in the countries where we do need
    to have a robust bilateral conversation that there is an
    attache there.
        Mr. Pittenger. Mr. Fanusie.
        Mr. Fanusie. I will just say quickly, or I will point out
    that I think one way to think about this is, I think it is
    understood that much money laundering, much illicit finance
    activity does pass through the financial system. A lot of it
    does. It is very difficult to catch this.
        The thing I will say, though, is, the volume is what is
    important. So the bigger the activity, the easier it is to find
    and to disrupt. The big issue is the onesies and twosies, the
    small transactions.
        To pivot back on the cryptocurrencies issue, I think that
    is where we are there, that if you have small transactions, it
    is going to be much more difficult to intercede. But, generally
    speaking, yes, a lot still does go through, but the bigger it
    is, the more--
        Mr. Pittenger. How capable is our software and how adept
    are we in effectively using that? And how capable are our
    allied countries in embracing and utilizing the available
    technology?
        Mr. Fanusie. Depends on--if we are thinking about the
    banking system, the traditional banking system--
        Mr. Pittenger. Yes.
        Mr. Fanusie. --it totally--it varies. The financial
    intelligence units in different countries have different
    capabilities. That is one of the things that the Egmont Group
    works on. It really depends. And that is the issue, that you do
    have a lot of anti-money laundering arbitrage that happens in
    jurisdictions where they don't have the same level--maybe they
    have the software but perhaps not the same level of training
    that we have in the U.S.
        Mr. Pittenger. Quickly, does FATF create through its peer-
    to-peer accountability? Is that a good model?
        Mr. Fanusie. I am not familiar--I am sorry.
        Mr. Pittenger. FATF, Financial Action Task Force.
        Mr. Fanusie. Correct. Correct.
        Mr. Pittenger. It does peer-to-peer review of its 40
    requirements to be fully engaged with it. Is that a good
    structure?
        Mr. Fanusie. I am not sure I have that much insight on
    their review model, so I can't speak in depth to that.
        Mr. Pittenger. My time has expired. Thank you.
        Chairman Pearce. The gentleman's time is expired.
        The Chair now recognizes Mr. Lynch for 5 minutes.
        Mr. Lynch. Thank you, Mr. Chairman.
        We had a chance to meet with some of the rebel groups that
    are fighting in Syria against Bashar al-Assad a couple of years
    ago, and we asked each of these five or six rebel leaders what
    they were using to communicate with inside Syria. They all said
    the WhatsApp. So they are all using that. They had end-to-end
    encryption back then. I think they may still have it to a
    certain extent.
        But more recently, we have seen that they have switched
    over to Telegram. Some of these terrorist groups are using that
    because of a couple of features. One is, they have self-
    destruct, automatic self-destruct on some of their messaging
    platforms, so that after a certain amount of time or after the
    message is read, it is automatically destroyed.
        And they also can change out the SIM card. The SIM card can
    be swapped out. It makes it increasingly difficult for FBI--
    thank you, Mr. Soufan--and others to actually track them down.
        So what is the status right now in terms of our ability to
    track some of this terrorist financing and terrorist activity
    in terms of social media? Are we still one step behind them?
    Are we getting full cooperation from Facebook and others and
    Twitter?
        I saw the interviews over the past couple of days of their
    CEOs, but they said we will have to get back to you when we
    asked them questions of this nature. But what do you see, Mr.
    Soufan, in terms of that?
        And by the way, thank you. Thank you all for your service
    to the country and to protecting our democracy.
        Mr. Soufan. Thank you, sir. I don't know the capabilities
    of the intelligence community now. I am out of the government.
    But I trust my former colleagues in the intelligence community
    and in the FBI and the military. I think they have a really
    good handle on how to deal with their communication, especially
    when it is on WhatsApp or other encrypted platforms,
        However, there was a big problem between the intelligence
    community and the law enforcement community and Silicon Valley
    on the issue of encryption. And I don't think that is solved.
    The same thing goes with the platforms. If you go and see how
    these groups, groups like al-Qaida or ISIS, or any of these
    extremist jihadi groups communicate, they use these platforms a
    lot.
        Most of the recruitment that we see here in the United
    States is not a face-to-face recruitment. We don't have what,
    for example, they have in Europe. What we have are people
    getting recruited, being brainwashed because they are watching
    YouTube videos, because they are spending time on a WhatsApp
    group. So you don't need training camps or safe houses in order
    to brainwash folks now--
        Mr. Lynch. I need to reclaim my time because I have another
    question for you.
        You said at the outset that really what we have to do is
    change the narrative, change this bin Laden narrative that the
    Christians in the U.S. and the Jews in Israel are against
    Islam, that is the central narrative that he uses to recruit
    and to perpetuate terrorism.
        Do you think that--you look at some of our recent action,
    do you think that the Muslim ban that was announced by
    President Trump, do you think that feeds the narrative that the
    U.S. is against Islam?
        Mr. Soufan. Sir, the narrative is based on a conspiracy.
        Mr. Lynch. Come on, now. I need a yes or no answer. I only
    have 44 seconds. Do you think it feeds--I am just asking your
    professional opinion. Do you think that feeds the narrative?
        Mr. Soufan. Absolutely it feeds the narrative.
        Mr. Lynch. OK. I have another question for you. Do you
    think cutting off the funding to Palestinians, do you think
    that feeds the narrative?
        Mr. Soufan. That does not help, because somebody else will
    get the money.
        Mr. Lynch. Right, it doesn't. OK. Do you think moving the
    U.S. Embassy to Jerusalem, do you think that helps, or does it
    feed the narrative that the U.S. is against Islam?
        Mr. Soufan. It does not help, no.
        Mr. Lynch. OK. That is all I have to ask. OK. Now, if you
    would like to extrapolate, expand on your answers, go right
    ahead. You have 13 seconds.
        Mr. Soufan. If we view this conflict as a clash of
    civilization, then the conspiracy of bin Laden wins. If you
    view it as it really is and enter civilizational clash where we
    see Shia fighting Sunnis, Kurds fighting Arabs, Persians
    fighting Turks, or whatever--and I think that is how we need to
    view it--then we will be dealing with the roots of the
    conflicts. And if we don't deal with the roots of the conflict,
    that threat will continue to mutate as it has been mutated in
    the last 20 years.
        Mr. Lynch. Thank you very much. I yield back.
        Chairman Pearce. The gentleman's time is expired.
        The Chair would now recognize the gentleman from Colorado,
    Mr. Tipton, for 5 minutes.
        Mr. Tipton. Thank you, Mr. Chairman. And I thank the panel
    for taking the time to be able to be here.
        Mr. Clarke, you had mentioned earlier that we must be able
    to monitor cash-flows into ISIS-controlled areas. We have a
    pretty robust system here in the United States to be able to
    track some of those dollars with FATF that we have. Are we
    really seeing that coordination with our allies? Others have a
    real concern about terrorism. Are there any consequences if
    they don't employ those methods to be able to do it?
        Mr. Clarke. So the most difficult part, sir, about
    monitoring ISIS finances is that the group is largely self-
    contained. So a lot of money wasn't flowing from outside, from
    external state sponsors like it had with al-Qaida a decade and-
    a-half earlier. Part of that is because terrorist groups are
    learning organizations, and they have seen how effective
    Treasury and other partners have been.
        The other piece to that is that ISIS, unlike previous
    terrorist groups, controlled such large swaths of territory
    that they didn't need to go out looking for other methods of
    fundraising and financing. The other piece to that, back in
    Europe with the foreign fighter piece, is that these
    individuals were taking advantage of what I call small dollar
    terrorism.
        So they were through petty theft, robbery, minor drug
    trafficking, sales of counterfeit items, and defaulting on
    loans, getting enough money to go, quote/unquote, ``take a
    holiday in Turkey,'' which was enough to pay for their one-way
    ticket to actually show up and fight.
        I was questioned once, they said, someone asked me--it was
    a journalist--well, aren't these people concerned they are
    defaulting on all these loans? And I joked, I said, well, when
    your plan is to martyr yourself, you are not really concerned
    about your credit score. And I think--I said it tongue in
    cheek, but it is largely true.
        Three-quarters of terrorist attacks cost less than $10,000.
    And so if you are aware of that and you are purposely trying to
    stay under the radar and you can raise funds through small
    dollar terrorism--Magnus Ranstorp called it micro financing the
    caliphate--and that poses a really significant threat to
    monitoring these transactions because they are in such small
    denominations.
        Mr. Tipton. Thank you.
        Mr. Fanusie, you talked a little bit about some of the
    blockchain end of this. Given we have gotten some internal
    transfers that are going on, it is a little problematic for us
    to be able to track that with blockchain, if they are making
    transfers, small dollar amounts or otherwise. I think you had
    cited $685, is that correct, in terms of one of the largest
    ones? Is there a real challenge that we need to be looking at?
    Are there some methods we should look at in terms of
    blockchain, given the disparity that we would have in terms of
    how that money can now move?
        Mr. Fanusie. The way to think about or to approach the
    blockchain transactions is, one, to think about there is a
    public ledger. So you can actually see transactions right as
    they move across the blockchain, and actually this is what we
    did. I think there is a different way to think, though, about
    these type of payments compared to what we are used to in the
    conventional banking system.
        So if I identify a terrorist group that has made a
    transaction, my problem, whether I am law enforcement or
    regulators, we do not have the ability to freeze an account or
    freeze a cryptocurrency address like we do with regular bank
    accounts. So it calls for even a new way of thinking.
        The only way that you could access those funds, if you are
    a third party, if you are an outsider, is if you have a private
    key with--I won't get too technical, but you have to have
    something that person--even if you arrest the person, you may
    not be able to get at those funds. So we have to actually think
    differently about how do we approach illicit finance and
    getting to terrorists who are using it.
        It is a really different ball game. The analysis that we
    outlined that we need, we need tools where you do more of this.
    You can't just rely on looking at a transaction manually. You
    need to use software that actually uses algorithms to help you
    track and trace and maybe de-anonymize a little bit on the
    blockchain. That is something that I know people are looking
    at, but I would say that we actually need more expertise in
    that type of analysis in the government.
        Mr. Tipton. Great. And thank you for that.
        And regarding some of the international communities, is
    there any type of suspicious activity that is identified really
    that generally is going to point to terrorism financing?
        Mr. Fanusie. So in terms of maybe, you mean, state sponsors
    being involved not so much with terrorism or terrorist
    financing. But I will say that we are concerned about this
    experimentation with some state actors, Venezuela, Iran most
    recently, and Russia in particular, to create alternative
    blockchain systems.
        There is a long-term issue there. In the short term, I am
    not worried about a terrorist maybe using the Venezuelan petro,
    which probably doesn't really even exist. I am not worried
    about that, but I am worried about these states getting
    together and making an alternative system that could be
    resistant to sanctions in the long term.
        Chairman Pearce. The gentleman's time is expired.
        The Chair would now recognize the Ranking Member of the
    full committee, Ms. Waters, for 5 minutes.
        Ms. Waters. Thank you very much, Mr. Chairman, for
    scheduling today's hearing to examine the current state of
    terrorism and financing of these terrible acts. While the types
    of terrorist attacks have changed since September 11, 2001, the
    need for terrorists to raise funds and pay for their activities
    has not.
        As we contemplate new or improved programs to counter the
    financing of terrorism, our efforts must not forget the
    continuing threat from domestic terrorists and extremists.
    These include the ISIS-inspired attack in San Bernardino, which
    killed and injured 36 people, the deadly white supremacist mass
    shooting at the historic Emanuel AME Church in Charleston, and
    last year's murder of Ms. Heather Heyer as white nationalists
    marched in Charlottesville.
        The Anti-Defamation League has determined that over the
    last 10 years approximately 71 percent of the U.S. deaths from
    extremists were at the hands of right-wing extremists such as
    white supremacists, antigovernment extremists, and so-called
    sovereign citizens.
        The financing methods that these terrorists and extremists
    use can be harder to uncover. For example, they raise money for
    organization and operations with credit card overpayments, cash
    and even cryptocurrency payments sent by mail, petty crime, and
    simple fraud or tax evasion.
        What is concerning to me is whether the Administration
    understands the present and growing threat from these right-
    wing extremists and is taking appropriate action to thwart
    them. The President's own comments strongly suggest otherwise.
    I hope this hearing will consider all of these terrorist groups
    and the individuals who seek to harm us.
        So I am very pleased that the witnesses are here today.
        And to Mr. Segal, I would like to raise a question. ADL has
    done exhaustive work in reviewing decades of terrorist acts by
    extremists of all kinds. As I have noted in my opening
    comments, your Center on Extremism found that, of all
    extremist- or terrorist-related murders in the U.S. over the
    last decade, including attacks in San Bernardino and
    Charleston, nearly three-quarters were committed by right-wing
    extremist groups. This is an astonishing number. What do these
    statistics tell us about domestic terror now and in the future?
        Mr. Segal. Thank you, Congresswoman.
        Yes, I think one of the realities in this country is, when
    people think of the threat of terrorism, in many ways they are
    still thinking of the threat from abroad and foreign terrorist
    organizations and their ability to influence, as Mr. Soufan
    said, with the narrative that they are creating.
        There are narratives in this country that are being created
    every day by individuals living in this country that are as
    equally evil or equally trying to stereotype particular
    communities in order to uplift the extremist ideologies that
    they represent.
        For example, white supremacists believe that, whether it is
    multiculturalism or liberalism or, frankly, the Jews, that they
    need to fight back in order to win their country back to what
    it once was or what they perceive it once was.
        While that is protected speech in this country, most
    domestic extremists are not actually affiliated with any group.
    And that is why you see many of the attacks that have been, for
    lack of a better term, successful, that have been deadly, have
    been carried out by people who share this ideology but may not
    actually be linked to any specific group.
        The Congresswoman mentioned Dylann Roof, for example.
    Again, very much influenced by these ideologies of violence and
    hate that are very much homegrown and created in this country,
    but he was not affiliated with a particular group that is easy
    to, say, designate and try to deal with.
        When you look, whether it is the past 10 years, 71 percent
    of terrorist attacks--excuse me, terrorist murders have been
    carried out by right-wing extremists, whether you look at 25
    years and over 150 right-wing terrorist plots and attacks in
    this country, it is something that we do believe is ignored but
    we don't have the luxury to ignore any longer.
        Ms. Waters. In the last few seconds that I have, of course
    there has been a lot of discussion about how they acquire money
    and resources, and I heard some talk about the cryptocurrency.
        And the gentleman who just responded to that question, I
    was just going through blockchain with someone last evening,
    trying to get up to speed on it. And unless you have a token or
    you have a key, you can't get in there and determine what
    people are doing, whether they are investing or they are
    raising money or trading or what have you.
        So I am very interested in what methods are being used to
    raise money for these domestic terrorist acts.
        Mr. Segal. Yes, so domestic terrorists essentially are
    primarily self-funded. Some of them have jobs. Some of them are
    looking to raise money online through donations. Some, indeed,
    are using social media sites and cryptocurrencies to try to
    raise some money.
        Ms. Waters. Are they using GoFundMe?
        Mr. Segal. They sure are. I will say GoFundMe, Kickstarter,
    and others have done a pretty good job, though, when they are
    made aware, of kicking them off and enforcing their terms of
    service. So that is one way to prevent that.
        But, again, the cost of actual--the fundraising that occurs
    within white supremacists, for example, does not necessarily
    correlate with the violence they commit. They don't need all
    that much money, frankly, in order to create fear and anxiety
    in our communities.
        Ms. Waters. Thank you very much.
        And I yield back.
        Chairman Pearce. The gentlelady's time has expired.
        Be advised that we have votes. We have 8 minutes left in a
    vote series. There is just one vote. It is my understanding
    that we have members of the committee who will ask questions
    after the vote series. If you do not have the ability to stay
    afterwards and to reconvene, then you can submit your questions
    in writing. We will accept those.
        And we will ask that you all respond to them.
        But, for the moment, we will recess and go to the floor,
    vote, and come back. We have just one vote, so cycle as fast as
    we can.
        The committee stands in recess.
        [Recess.]
        Chairman Pearce. The committee will come to order.
        The Chair would now recognize Mr. Rothfus for 5 minutes for
    questions.
        Mr. Rothfus. Thank you, Mr. Chairman.
        Thank you for your patience, panel. We do get interrupted
    from time to time with those votes. I am glad it was just a
    quick one-vote series.
        I would like to maybe ask Ms. Bauer about this. It has been
    said by some in the intelligence community that they believe
    AQAP still poses a considerable risk to the U.S. homeland in
    terms of a terror attack. What are the local sources of income
    for AQAP?
        Ms. Bauer. So AQAP is engaged in a variety of different
    sorts of raising funds. Most recently, they had a financial
    windfall when they were able to take control of the Port of
    Mukalla and raised a reported, I believe, $2 million a day off
    of port fees. They also robbed a branch of the central bank of
    Yemen and may have recovered as much as $100 million. So they
    have been well-resourced at this point.
        In the past, they have relied on kidnapping for ransom and
    were able to more than double their budget during a short
    period--or their revenue, I should say--during a short period
    around 2013. So their financial status has just been on an
    upward trend for several years. And now they have been pushed
    out of Mukalla, but they are believed to have a substantial
    cushion.
        Mr. Rothfus. What U.S. policies, what resources, what
    programs do we have that are disrupting AQAP's ability to
    gather resources right now?
        Ms. Bauer. So there have been a number of designations of
    financiers related to AQAP. I would say, notably, one was part
    of a tranche of sanctions actions that was done under the
    Terror Finance Targeting Center, which is an initiative between
    the U.S. and the GCC states to cooperate both on information-
    sharing as well as taking joint actions. And they have taken
    actions against a number of Yemen-based financiers and
    facilitators from both AQAP and the Islamic state. So I think
    those are notable because it shows that the Gulf states are
    taking some ownership of the issue themselves and are closer to
    the conflict.
        Also, the UAE, in particular, has been involved in the
    Saudi-led coalition in Yemen and, I would say, sees the
    counterterrorism mission as equally important, if not
    interrelated to the mission of pushing back Iranian influence
    there. And so I think that the regional efforts have been very
    important.
        Mr. Rothfus. We can switch to Hezbollah a little bit and
    particularly what has been going on in Latin America and the
    Politico article that came out last year. What is your
    understanding regarding how Hezbollah is raising funds
    currently to sustain its organization and pursue terrorism-
    related operations?
        Ms. Bauer. So Hezbollah receives a significant amount of
    funding from Iran. Recently, the U.S. Government has said that
    could be as much as $700 million to $800 million a year.
        But they have also always relied on a worldwide network for
    financing as well as for operational support. That network has
    come under considerable pressure. And if you look at
    Hezbollah's financial status right now, going back to 2016,
    then-Acting Under Secretary of the Treasury Adam Szubin said
    that Hezbollah was in its worst financial shape in decades. And
    I think that there is every indication that continues.
        In fact, Secretary General Hassan Nasrallah just recently
    admitted, according to Lebanese press, that Hezbollah is
    experiencing a financial crisis. And I think that is because of
    this concerted effort to go after commercial fronts that were
    magnified by HIFPA, by the Hezbollah International Financing
    Prevention Act, which extended secondary sanctions to
    Hezbollah-related entities.
        And so it really has pushed them out of the financial
    system. It is trying to drive a wedge between Hezbollah and its
    allies that provide commercial and operational cover. And I
    think it has made it harder for them to get funds from their
    global network as well.
        Mr. Rothfus. I wonder if anybody can answer this question.
    I am running out of time. But, this country continues to watch
    the situation in Afghanistan. And we recently lost another one
    of our servicemembers. And we are spending considerable sums
    over there, and it continues to have significant instability in
    the operation of many terrorist organizations.
        We look at Pakistan and what they have been doing. We look
    at Russia. We look at Iran and these countries seeking to
    destabilize Afghanistan through whatever means.
        Are there things that we should be doing with respect to
    Iran, Russia, Pakistan that would help stem the flow of funds
    to these terrorist organizations in Afghanistan?
        That is an open-ended question, I guess, maybe if one wants
    to take a crack. And I might want to follow up with all of you
    and seek some guidance on this very serious--
        Mr. Soufan. Sir, I think the war in Afghanistan has been
    the longest war, and I think what we do is we are depending a
    lot on our military. I think we need to bring also the
    diplomats into this, because you need a political solution in
    Afghanistan that includes the Taliban, the Afghan Government,
    and a lot of the regional powers that have so much equity in
    the future of Afghanistan. And as long as we don't have this
    kind of a political engagement, then I think this is going to
    continue.
        Chairman Pearce. The gentleman's time has expired.
        The Chair would now recognize the gentleman from Arkansas,
    Mr. Hill, for 5 minutes.
        Mr. Hill. Mr. Chairman, thank you for holding this hearing
    and having these quality witnesses to give us this overview of
    all the networks.
        It has been very helpful to our work to hear your testimony
    today.
        Following up on my friend from Pennsylvania's question on
    Hezbollah, I am curious, in terms of the ways and means of
    financial resources there, are they coming principally overland
    into Syria and Lebanon, or is it still principally in and out
    of Lebanon?
        And give me some geographic focus on the flow of the money.
    No matter where the global organization is deriving that money,
    Africa or South America or wherever, how is it--tell me about
    the geography of how those funds are getting into the ground in
    either Lebanon or Syria.
        Ms. Bauer.
        Ms. Bauer. So I think it is hard to know exactly how the
    funds are moving. I think if you broaden the aperture a little
    bit and you look at how Iran resources its proxies in the
    Levant, a big part of that is through an airbridge that has
    been more active during the Syrian conflict but existed before,
    moving fighters and goods and arms to and from Iran, often
    fighters for training, and funds as well.
        But a lot of the funding, I would say, just to clarify a
    point that I made before about Hezbollah's financial crisis, is
    in part because, despite the fact that they get so much money
    from Iran, their expenses have increased. And that is because
    of the conflict in Syria and that the funding is going not just
    to support Hezbollah's military efforts but Iranian proxies
    more broadly.
        So I think I would just leave it at that.
        Mr. Hill. All of us are concerned with Iran's engagement
    there and the expansion of their ground forces and air force
    and support of Hezbollah in terms of targeting Israel. I think
    all of us share our concern there. And trying to cut off the
    money flow there is equally important to our military
    objectives.
        Mr. Fanusie, I was very intrigued by your testimony. Thanks
    for being here today.
        Would you think that expanding--and I am asking this as a
    hypothetical question, so perhaps it is already expanded and
    that is something I am not aware of--expanding the idea of
    reporting a SAR (suspicious activity report) or on the crypto
    exchanges or wallet aspects or even miners, that they have some
    obligation to report a SAR over in the cryptocurrency arena?
        And then can you envision how one would have a parallel to
    a currency transaction report in that arena? So I am presuming
    in my question that this is an exchange that is not affiliated
    with a commercial bank or someone who is already subject to the
    AML/BSA laws.
        Can you share some thoughts on that?
        Mr. Fanusie. So most exchanges, if they are under U.S.
    jurisdiction, even if they are not affiliated with a bank, if
    they are a cryptocurrency exchange, they do have to file SARs.
    So they have to look at transactions, they have to do a lot of
    the same things that Western Union or MoneyGram would have to
    do. So that already does exist. And for U.S. exchanges, that
    has been in effect since 2013.
        But, again, when you go outside the U.S., then you do have
    the issue where you have exchanges, and anyone, whether they
    are in the U.S. or not, they technically could anonymously
    access one of these other exchanges where you don't have those
    built-in requirements. So there is still a gap; there is a
    global gap.
        Mr. Hill. And this idea of an exchange, of course, is just
    almost in the eye of the beholder. We refer to it as an
    exchange. It could be just a digital site that is setting
    itself out as an exchange of this cryptocurrency, perhaps of
    their own creation.
        Mr. Fanusie. Yes.
        Mr. Hill. And so those are in--are they found in
    jurisdictions that we either have an MLAT with or who have a
    fairly robust securities regulatory apparatus?
        Mr. Fanusie. So they are--it runs the gamut. They are all
    over.
        But even to follow up on your point about how informal this
    can be, even though I said there has been guidance and folks in
    the U.S. have to follow FinCEN guidance on this, but there have
    been examples of folks who have been very informal, because
    they held a lot of bitcoin, have served as basically money
    transmitters, without registering. That has happened. In fact,
    there was a recent prosecution of someone who laundered
    millions of dollars just doing it on his own.
        The biggest thing to maybe look out for is there are
    different types of exchanges now that are being developed,
    smaller ones where the trading happens more by software and
    there is less need for customer identification. That is
    something that is experimental, but it is one of the things
    that I would flag as something to watch, because that is going
    to be even more difficult to get the entity to follow AML
    requirements.
        Mr. Hill. Thank you for your contribution.
        And thank you, Chairman.
        Chairman Pearce. The gentleman's time has expired.
        The Chair would now recognize Mr. Davidson for 5 minutes.
        Mr. Davidson. Thank you, Chairman.
        And thank you all for your written testimony and for the
    dialog that we have had. It is very helpful and greatly
    appreciated.
        Mr. Fanusie, I really appreciate the crypto side. I am
    working on a bill with initial coin offerings. Of course, lots
    of these aren't currencies. Most of them really aren't--even
    bitcoin is more of a commodity than a true currency so far. But
    there are a lot of voids, as you have highlighted.
        I guess, once you have identified an address, how easy is
    it, what tools are necessary, what legal framework is necessary
    to detect and prosecute the--you highlight a case where you
    have flagged this address. Once that is converted--the off-ramp
    basically--to hard currency, whatever it is, how can we detect
    that?
        Mr. Fanusie. So this is where the framework is really very
    similar to what we already have in place, because--you are
    right in asking that. Once they off-ramp, they have to go
    through--anyone that is acting illicitly still, if they want
    cash, if they want euros, if they want dollars, they have to go
    through somewhere, and those endpoints are the chokepoint,
    because there--
        Mr. Davidson. And that is the best place to catch them, to
    identify the person behind this otherwise fairly anonymous IP
    address.
        Mr. Fanusie. Right. Because usually they would have to
    register somewhere in order to do that. Because they are going
    into the regular banking system. So those are the chokepoints.
        Mr. Davidson. Right. So I was impressed with the ability to
    detect the address. Now, if we can continue to monitor that
    address for the off-ramp, I am hopeful that we can have some
    successful prosecutions.
        Mr. Segal, I appreciate the work that you have done, and
    the written testimony, to highlight threats domestically. You
    did allude to this political spectrum but spent a lot of the
    topic on right-wing groups and whatnot. But I am particularly
    curious, I didn't see a single mention of the group Antifa. How
    do they get their money?
        Mr. Segal. Right. So Antifa, just like any other movement
    in this country, is self-funded. To show up at a white
    supremacist rally to protest, or even if they want to engage in
    physical confrontation, maybe you get a bus ticket, maybe you
    get a ride from a friend, you need to spend some money on food.
    It is not--they are getting money the way I think most people
    would get money who want to join a protest.
        Mr. Davidson. Just bring your bike lock and you are ready.
        Mr. Segal. Right.
        Mr. Davidson. OK. Thank you.
        Ms. Bauer, I appreciate the--really, the Politico story
    gets lots of press, but, frankly, the head of our committee in
    February 2017, you had highlighted that this Operation
    Cassandra had been stalled due to concerns about the impact on
    the Iran negotiations. So thank you for your expertise in that
    matter and, frankly, some ongoing dialog with my colleagues.
        I am curious about the progress with Cassandra and the
    prosecutions related to this and particularly with Hezbollah's
    ongoing activity with drug trafficking or other types of
    trafficking.
        Ms. Bauer. So I can say, first of all, I think that the
    situation was much more nuanced than the media portrayed it to
    be. And I think that the thrust of the point I was making in
    the testimony that was cited there was, first of all, to note
    all of the actions and the sustained attention to the issue
    under the Obama Administration. Because, really, as I said just
    earlier, Hezbollah has been put in a difficult financial
    position, and that is because of concerted effort on that
    front.
        And I would encourage you, if you want to look at a
    chronological approach to the different issues related to this,
    that my colleague Matt Levitt wrote a detailed piece in Lawfare
    that came out a few months ago that goes over really every step
    of the way. But I think there are often plenty of reasons why
    things aren't done, and he goes through a lot of those
    different reasons.
        Today, Hezbollah does likely continue to engage in criminal
    activity, or at least individuals affiliated with them. That
    has always been part of the question, how close the affiliation
    is. And that is something that has drawn a lot of attention, as
    you mentioned, from the law enforcement community, from other
    parts of the U.S. Government, as well as from Congress.
        Mr. Davidson. OK.
        As my time expires, I guess, ideally, for all, but if
    someone can mention, the link between drug trafficking and
    illicit finance. Frankly, with 72,000 dead Americans due to
    overdoses, it is hard for me to not see drug traffickers as
    real threats to our national security. Any comment on the funds
    there?
        Chairman Pearce. The gentleman's time has expired.
        The Chair would now recognize the gentleman, Mr. Himes, for
    5 minutes.
        Mr. Himes. Thank you, Mr. Chairman.
        And thank you all for being here.
        I had a bunch of questions about terrorist finance, but I
    got to thinking about a broader question that I would love to
    just get your opinions on.
        My other committee is Intelligence. I spend a lot of time
    looking at the remarkable tactical capability we have,
    including our ability to disrupt financing when we want. And it
    is really remarkable tactically and spectacularly unsuccessful
    strategically. And what I mean by that is that 10 years have
    gone by and we have more groups and more places and more
    ungoverned space, particularly with respect to radical Sunni
    groups.
        So my question is: As good as we are tactically, what are
    we getting wrong strategically?
        And we have 4 minutes and 15 seconds. That is a Ph.D.
    thesis. But I didn't want to miss this opportunity to just get
    40 seconds from each of you about a tangible thing, not
    abstractions, not more soft power and better diplomacy, a
    tangible thing we can do.
        I look at this and I see us lining up with appalling
    dictators and quirky monarchies in ways that probably have
    blowback for us. I don't see us really helping to generate the
    economic growth that provides opportunity.
        So let me just start on the left, and I would love to hear
    some tangible things that we could do that would change the
    strategic picture and actually begin to shrink the threat
    globally from Sunni radicals.
        About 30 seconds each.
        Ms. Bauer. OK. So I think, in the short time provided, that
    one of the things we can do better, since the lack of rule of
    law, these ungoverned spaces is part of the problem, is to
    focus more on rule-of-law efforts and specifically financial
    regulation, since that is my area of focus, I think, in
    conflict and post-conflict areas.
        I think the Iraqi Central Bank has done a good job to try
    to take on this issue in just the last couple of years and that
    this contributes to efforts to try to constrain the Islamic
    state financially.
        Mr. Himes. Thank you.
        Mr. Fanusie.
        Mr. Fanusie. I would point to engaging elements of our
    communities that should be engaged more in counterterrorism,
    so, let's say, the Muslim American community. This narrative
    that is out there that we have discussed, there is also a
    narrative where folks within our communities are hesitant to--
    actually, let me phrase this properly.
        There is a sense that counterterrorism efforts impact the
    Muslim community improperly. And I think there should be more
    engagement with Muslim counterterrorism offices, Muslim
    counterterrorism analysts and folks in law enforcement who can
    articulate what it is like to work in counterterrorism and be
    of the faith. And that is something that you don't hear about,
    you don't see it that much, and I think it is missing in our
    narrative about counterterrorism.
        Mr. Himes. Thank you.
        Mr. Segal.
        Mr. Segal. I would just add perhaps, in a similar vein,
    using former extremists to deliver the messages to those who
    are potentially at risk of believing these narratives. They
    have been there, they know what it is like, they have gotten
    out. And that could serve as a good model.
        Mr. Himes. Thank you. Thank you.
        Mr. Soufan. I think, as you correctly mentioned, these
    groups are way bigger in numbers than they used to be on the
    eve of
    9/11. The ideology showed a lot of resiliency. I think I will
    say that sectarianism now is a new nature of the conflict and
    the new banner for recruitment. I think the Arab Spring shifted
    the calculus of a lot of these groups to be involved through
    their own strategy of management of savagery to have control of
    land, as we have seen in Iraq and in Syria and in other places.
        And I think these conflicts that are happening today in
    Yemen, in Syria, in North Africa are giving a new oxygen for
    these groups. In order to have a better strategic picture for
    the United States, we need to work on solving these conflicts.
    And without solving these conflicts, I think the military, the
    intelligence alone can only best, I think, marginally, really,
    affect the outcome of what is happening.
        Mr. Clarke. Thank you, Congressman.
        We talk all the time about ungoverned space. Just a note on
    that. And I use that term myself, but I think we should better
    think about it as alternatively governed space. Because that
    space is governed; we just don't like who is governing it. And
    that gives you a sense of what is going on there.
        What could we do to be less myopic? Annunciate a clear and
    cogent policy for Syria beyond destroying the Islamic state. I
    don't know what our Syria policy is. Amazingly, 17 years into
    Afghanistan, I don't know what the policy is there.
        Mr. Himes. Yes.
        Thank you. You have all done the impossible. That was
    actually really interesting.
        I will just close by noting that--I don't know how to
    evaluate all of that; I will take it you are all experts. But
    it is striking to me that what you listed--better working with
    local Muslims, better working with ex-extremists trying to tamp
    down conflict--we are actually doing the opposite of many of
    those things, or at least not talking about those things. I
    would just highlight that. Because, again, I think tactically
    we are stunningly good at what we do, but we are just not
    moving the strategic picture on this issue.
        Anyway, thank you, Mr. Chairman, for your indulgence.
        And thank you all.
        Chairman Pearce. I would recognize now the gentleman from
    North Carolina, Mr. Budd, for 5 minutes.
        Mr. Budd. Thank you, Mr. Chairman. I appreciate you holding
    this hearing.
        Mr. Himes, I appreciate your line of questioning. That was
    very insightful.
        And all of our witnesses and panelists today, a lot of
    talent up there. So we appreciate you coming in, for your time.
        I want to start by giving a special shout-out to you, Yaya
    Fanusie, for the Foundation for the Defense of Democracies. You
    have been very helpful to us, and you have been nothing but
    excellent in our requests to you. So whenever we have a
    question on terrorism/illicit financing, you have been
    excellent and responsive.
        Anyone else, any of my colleagues over here, I wish they
    would use you. And as I have found out today, lots of other
    talented panelists, so thank you.
        Yaya, after that high praise, I want to ask you some
    questions. So I want to start with Hezbollah and move into
    crypto.
        First, how would you describe Hezbollah's current financial
    activities and sources of support in West Africa, also East
    Africa, and then Southern Africa.
        Mr. Fanusie. So this is something that we are looking at
    closely at FDD. In fact, my colleague, who you may be aware of,
    Emanuele Ottolenghi, who is a big expert on Hezbollah outside
    of the Levant--Hezbollah is active. Hezbollah, for a long time,
    has had networks within Africa, going from all the places that
    you mentioned--west, southern, central, and east.
        So Hezbollah, I would assess, is still very active there,
    as it is in Latin America. It relies on its networks, business,
    businessmen, particularly who may have ties to Lebanon,
    historical ties to Lebanon.
        Also, Africa serves as an intermediary point for
    trafficking and laundering. The drug trafficking that emanates
    from South America has to make its way to Europe, and Africa is
    actually a stopping ground for some of those routes. So Africa
    continues to be a part of their narcotrafficking network.
        Mr. Budd. Yaya, particularly in South America, you
    mentioned--and then I heard this area come up--Ms. Bauer, you
    mentioned the tri-border area, or the Triple Frontier. Is it
    that area, in particular, or is it broader than that in South
    America?
        Mr. Fanusie. That is a key nexus, a key location because
    there is so much illicit activity that happens there, and you
    have a lot of Hezbollah folks who participate in it. It is
    almost free rein for a lot of illicit activity.
        But the networks do go throughout South America because of
    the drug trafficking. So where you see the drug trade, you are
    going to see a lot of Hezbollah influence emanating up further,
    Colombia, Venezuela, and other parts of Latin America.
        Mr. Budd. I understand. Thank you.
        So what new U.S. efforts are we doing to interdict all that
    support?
        Mr. Fanusie. I think we have mentioned some of the things
    in terms of HIFPA going through. We recently had--almost a year
    ago, we had the narcotrafficking Department of Justice task
    force or investigation group, and that is operating.
        I don't know. You could say it has probably been a mixed
    bag, in a sense, in that there have been more designations. I
    don't think we have had as many Latin America designations,
    though, so I think maybe there is a gap there.
        So there is still more work to do, and it is likely that
    there is going to continue to be pressure for Hezbollah to ramp
    up its efforts because of the rising drug trade and what is
    going on with Iran, as we have mentioned, that there actually
    may be a financial crunch on Hezbollah with Iran facing more
    financial pressure itself.
        Mr. Budd. In your mention of Hezbollah, I want to use that
    as a shifting-over point to go over to cryptocurrencies. What
    are you seeing Hezbollah do in regards to cryptocurrencies, in
    particular?
        Mr. Fanusie. Yes, this is something that we have our eye
    on. We have not seen much. There is some scant reporting about
    some perhaps shady businessmen connected to Hezbollah who may
    be trying to get into the fintech space. This is actually
    something that we are trying to investigate more.
        Mr. Budd. OK.
        Mr. Fanusie. So it is something that is on our radar.
        Mr. Budd. Let me transition to state actors who are
    increasingly creating national cryptocurrencies. Venezuela,
    Iran, Russia--those come to mind.
        Can you describe in detail how the efforts of state actors
    to create national cryptocurrencies impacts terror financing?
    And if you need to lay, in the time we have remaining, a little
    bit of a backdrop of who is doing what there.
        Mr. Fanusie. OK. I would also say there is a long term and
    the short term. Venezuela tried to create a cryptocurrency. It
    is not clear if it is even in existence. Russia says it wants
    to do--Iran also--a type of cryptocurrency system.
        I would say, in the short term, this is not a major issue
    for terrorist financing, because a terrorist is not going to
    want Venezuelan Petro more than it wants bitcoin or Monero.
        The only issue, I would say, is, in the long term, the
    potential for these groups for these states to maybe coordinate
    and create an alternative financial system--I am not saying
    that is going to happen, and I think there are a lot of
    barriers to that. But that would be the risk, that there is an
    alternative method of financing and transacting that is global.
    And right now that doesn't exist, but that is a thing that we
    should prevent.
        Mr. Budd. Very good.
        It seems my time has expired. Thank you to each of you.
        Chairman Pearce. The gentleman's time has expired.
        I would like to thank each one of our witnesses for your
    testimony today and for the gracious time you spent while we
    were in recess.
        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.
        I just ask that, if you would please, respond as promptly
    as you are able.
        Chairman Pearce. This hearing is adjourned.
        [Whereupon, at 11:11 a.m., the subcommittee was adjourned.]

                                A P P E N D I X

                               September 7, 2018

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