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

                       SURVEY OF TERRORIST GROUPS

                      AND THEIR MEANS OF FINANCING



                               BEFORE THE

                       SUBCOMMITTEE ON TERRORISM

                          AND ILLICIT FINANCE

                                 OF THE


                     U.S. HOUSE OF REPRESENTATIVES


                             SECOND SESSION


                           SEPTEMBER 7, 2018


       Printed for the use of the Committee on Financial Services

                           Serial No. 115-116


31-576 PDF              WASHINGTON : 2018      



                    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
TED BUDD, North Carolina

                     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

                            C O N T E N T S

Hearing held on:
    September 7, 2018............................................     1
    September 7, 2018............................................    33

                       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 
  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


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 
    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 
    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 
    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 
    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 
    Welcome, Dr. Clarke.
    I yield back.
    Chairman Pearce. The gentleman yields back.
    Now it is time to hear from our witnesses and their 
    Ms. Bauer, you are recognized for 5 minutes. Thank you 
again for being here.


    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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.
    Chairman Pearce. The committee will come to order.
    The Chair would now recognize Mr. Rothfus for 5 minutes for 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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