[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
FROM TIMBER TO TUNGSTEN: HOW THE
EXPLOITATION OF NATURAL RESOURCES
FUNDS ROGUE ORGANIZATIONS AND REGIMES
=======================================================================
HYBRID HEARING
BEFORE THE
SUBCOMMITTEE ON NATIONAL SECURITY,
INTERNATIONAL DEVELOPMENT
AND MONETARY POLICY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 4, 2021
__________
Printed for the use of the Committee on Financial Services
Serial No. 117-60
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
46-299 PDF WASHINGTON : 2022
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri ANN WAGNER, Missouri
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut ROGER WILLIAMS, Texas
BILL FOSTER, Illinois FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
Charla Ouertatani, Staff Director
Subcommittee on National Security, International
Development and Monetary Policy
JIM A. HIMES, Connecticut, Chairman
JOSH GOTTHEIMER, New Jersey ANDY BARR, Kentucky, Ranking
MICHAEL SAN NICOLAS, Guam Member
RITCHIE TORRES, New York PETE SESSIONS, Texas
STEPHEN F. LYNCH, Massachusetts ROGER WILLIAMS, Texas
MADELEINE DEAN, Pennsylvania FRENCH HILL, Arkansas
ALEXANDRIA OCASIO-CORTEZ, New York LEE M. ZELDIN, New York
JESUS ``CHUY'' GARCIA, Illinois WARREN DAVIDSON, Ohio
JAKE AUCHINCLOSS, Massachusetts ANTHONY GONZALEZ, Ohio
C O N T E N T S
----------
Page
Hearing held on:
November 4, 2021............................................. 1
Appendix:
November 4, 2021............................................. 35
WITNESSES
Thursday, November 4, 2021
Araya, Kidan, Member, Illicit Trafficking Working Group, Women of
Color Advancing Peace and Security; and Board Member, Africa
Policy Accelerator, CSIS....................................... 6
Fruth, Joshua T., Co-Founder and Chief Strategy Officer, Section
2 Financial Intelligence Solutions, LLC........................ 12
Garcia Zendejas, Carla, Director, People, Land, and Resources,
Center for International Environmental Law (CIEL).............. 8
Mavrellis, Channing, Illicit Trade Director, Global Financial
Integrity...................................................... 10
Miles, Kathleen, Director of Analysis, Center on Illicit Networks
and Transnational Organized Crime (CINTOC)..................... 4
APPENDIX
Prepared statements:
Araya, Kidan................................................. 36
Fruth, Joshua T.............................................. 48
Garcia Zendejas, Carla....................................... 92
Mavrellis, Channing.......................................... 98
Miles, Kathleen.............................................. 116
Additional Material Submitted for the Record
Himes. Hon. Jim A.:
Written statement of the Coalition for a Prosperous America.. 121
Written responses to questions for the record from Kidan
Araya...................................................... 131
Written responses to questions for the record from Joshua T.
Fruth...................................................... 134
Written responses to questions for the record from Carla
Garcia Zendejas............................................ 144
Written responses to questions for the record from Channing
Mavrellis.................................................. 151
Auchincloss, Hon. Jake:
Written responses to questions for the record from Joshua T.
Fruth...................................................... 159
FROM TIMBER TO TUNGSTEN: HOW
THE EXPLOITATION OF NATURAL
RESOURCES FUNDS ROGUE
ORGANIZATIONS AND REGIMES
----------
Thursday, November 4, 2021
U.S. House of Representatives,
Subcommittee on National Security,
International Development
and Monetary Policy,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:07 a.m., in
room 2128, Rayburn House Office Building, Hon. Jim A. Himes
[chairman of the subcommittee] presiding.
Members present: Representatives Himes, Torres, Dean,
Auchincloss; Barr, Sessions, Williams of Texas, Hill, Zeldin,
Davidson, and Gonzalez of Ohio.
Ex officio present: Representative Waters.
Chairman Himes. The Subcommittee on National Security,
International Development and Monetary Policy will come to
order. Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time. Also, without
objection, members of the full Financial Services Committee who
are not members of this subcommittee are authorized to
participate in today's hearing.
Today's hearing is entitled, ``From Timber to Tungsten: How
the Exploitation of Natural Resources Funds Rogue Organizations
and Regimes.''
I welcome the witnesses. Thank you for being here. As you
have probably noticed, there is going to be some weird
combination of in-person and remote, and it is a pretty busy
day, so people will be coming in and out. But thanks very much
for being here.
And I now recognize myself for an opening statement of 4
minutes or less.
The illicit exploitation of natural resources has
catastrophic effects in many dimensions. Proceeds go to fund
violent extremists, terrorists, or to feed corruption. The
environment is devastated. Local populations who might
otherwise benefit from their natural endowment are left out, or
worse, impressed into the destruction of the environment that
they inhabit.
When developed safely and equitably, materials like timber,
charcoal, gold, and rare earth minerals can create good-paying
jobs, encourage foreign investment, and lift communities out of
poverty. Environmental crime slams the door on all of that.
This is not a small problem. Experts estimate that illicit
natural resources generate more than $100 billion a year in
revenue, making it the fastest-growing international crime. The
worst offenders in this space rely on many of the same tactics
that this subcommittee has scrutinized before: shell and front
companies to hide ownership; trade-based schemes to transport
goods; and vast networks of financial players that avoid anti-
money laundering laws and anti-corruption measures.
Sadly, examples abound and bring this crime into our day-
to-day lives. Gold that was illegally mined by the FARC and the
National Liberation Army in southern Venezuela could be in our
smartphones, tablets, and computers. Teak, timber, and rosewood
that was smuggled by Boko Haram or Al Shabaab in Africa could
be used to make boats and furniture. And sanctioned persons in
Afghanistan may have supplied the talc used in paint and
plastics.
Companies that deal in these materials have a
responsibility to implement strong supply chain monitoring, but
Congress must also review the conditions that enable these
criminals to thrive.
As threats in this space evolve, so, too, must our
strategies for combating money laundering, terrorism, finance,
and environmental crime. The tools and resources that are
already at our disposal can help disrupt these threats.
Banks, non-governmental organizations (NGOs,) and
international law enforcement agencies play a role in
identifying illicit flows and tracking criminals. But despite
many improvements in detection and reporting systems, natural
resource exploitation remains a lucrative and booming industry
for terrorists and criminals.
We need to discuss how we can improve legal remedies,
refine information sharing, and encourage the private sector to
implement standards that recognize risks and suspicious
behaviors.
Our methods of financial negotiation need to adapt, our
analysis must get sharper, and we must collaborate with our
partners by offering assistance and expertise where it is
needed most. By working together, we can ensure that our best
and strongest ideas to dismantle environmental crime networks
are brought to the forefront.
With that, I would like to welcome our panel of witnesses
and thank them for helping us shine a light on this issue
today.
And I now recognize the ranking member of the subcommittee,
the gentleman from Kentucky, Mr. Barr, for 5 minutes for an
opening statement.
Mr. Barr. Thank you, Mr. Chairman. I appreciate you holding
this hearing, and I thank the witnesses for appearing before
us.
Today's hearing is entitled, ``From Timber to Tungsten: How
the Exploitation of Natural Resources Funds Rogue Organizations
and Regimes.''
As our witnesses will undoubtedly explain today, timber and
tungsten are just two examples of the many valuable natural
resources that have the potential to be exploited. Other
examples include oil, coal, rare earth elements, and countless
other natural resources that have commercial applications.
These resources can be a source of pride and prosperity for
the nations and communities that hold them. However, the
resources are increasingly making it into the hands of bad
actors, rogue regimes, terrorist organizations, or organized
crime syndicates, and used to finance terrorism and other
illegal activities.
In a 2021 report, the Financial Action Task Force (FATF)
estimated that illicit extraction or harvesting of resources
like oil, timber, metals, and minerals generated between $110
billion and $281 billion per year.
Environmental crime typically occurs in regions with robust
stores of valuable natural resources, but without stable
governments that can provide security or enforce existing laws,
this, in turn, perpetuates the struggles for the people in
these parts of the world.
The enrichment of bad actors through resource exploitation
requires vast and sophisticated networks of shell companies,
intermediaries, and money-laundering operations, and, in some
cases, direct collaboration and coordination with corrupt
government leaders.
The U.S. and other nations have dedicated resources to
combating money laundering and countering terrorist financing,
but today's hearing will inform us where the gaps remain, what
more we can do, and the possible long-term strategic
consequences of illicit resource extraction by our adversaries.
The Chinese Communist Party (CCP) has made no secret of its
intent to grow its sphere of influence, monitor its citizens
and others around the globe, and control the means of
production and telecommunications to gain leverage globally.
This is evident in the context of our hearing today. One
example is China's relationship with the Democratic Republic of
the Congo (DRC), where China had trapped the DRC with massive
debt through its Belt and Road Initiative, and was able to
leverage that vulnerability to gain control over the DRC's
cobalt reserves.
Nowhere is the threat of malign Chinese influence more
evident than in Afghanistan. In the near term, we must focus on
bringing to safety Americans and Afghan allies still trapped in
Afghanistan, fighting to survive the brutal Taliban regime.
Once we have accomplished that goal, we must turn our attention
to the long-term strategic implications of our withdrawal from
Afghanistan, and specifically through the lens of competition
with China as they seek to usurp the U.S. as the preeminent
global economic superpower.
This hearing will allow us to examine this problem through
one specific lens: how the Taliban and other terror groups, the
Chinese, and non-state actors, can take advantage of the vast
resources available in Afghanistan.
Afghanistan has some of the most valuable stores of rare
earth elements in the world, including many that play an
important role in emerging technologies and are becoming
increasingly scarce.
In 2010, the U.S. conducted a geological survey of
Afghanistan to identify natural resources present in the
country. Afghanistan is believed to hold more than $1 trillion
worth of mineral resources. The survey identified stores of
gold, copper, tin, and rare earth elements needed in the
production of advanced batteries. Those resources were largely
untapped because of the precarious security situation in the
country.
Given the shift in power in Afghanistan, the Taliban,
potentially through collaboration with the Chinese, who met
with Taliban leaders in Doha just last week, may be able to
harvest these elements and control the supply of scarce
resources needed to fuel growth in the United States and other
advanced economies, including key elements needed for electric
vehicles such as lithium and neodymium.
The Administration's haste to fully abandon gasoline-
powered vehicles and choke off energy production to fuel those
vehicles make us less reliant on domestic energy and subjects
us to the will of adversaries, whom we will increasingly rely
on to provide us with the materials we need to live in our
daily lives. And this could be one example of where the climate
goals of this Administration directly conflict with our
national security needs.
I look forward to hearing from our witnesses today on this
important topic. The problem of illicit natural resource
extraction and environmental crime financing bad actors is
widespread, complex, and has potential long-term implications
on U.S. national security. The insights on the problem and
advice for specific solutions we hear today will help guide our
policymaking.
Thank you, and I yield back.
Chairman Himes. I thank the ranking member, and I welcome
today's distinguished witnesses: Ms. Kathleen Miles, the
director of analysis with the Center on Illicit Networks and
Transnational Organized Crime; Ms. Kidan Araya, a member of the
Illicit Trafficking Working Group, Women of Color Advancing
Peace and Security, and a board member of the Africa Policy
Accelerator at CSIS; Ms. Carla Garcia Zendejas, the director of
people, land, and resources at the Center for International
Environmental Law; Ms. Channing Mavrellis, the illicit trade
director at Global Financial Integrity; and Mr. Joshua Fruth,
the chief strategy officer of Section 2 Financial Intelligence
Solutions.
Witnesses are reminded that their oral testimony will be
limited to 5 minutes. You should be able to see a timer on the
desk in front of you that will indicate how much time you have
left. I would ask that you be mindful of the timer, and quickly
wrap up your testimony once your 5 minutes have expired, so
that we can be respectful of both the other witnesses' and the
subcommittee members' time.
And without objection, your written statements will be made
a part of the record.
Ms. Miles, you are now recognized for 5 minutes to give an
oral presentation of your testimony.
STATEMENT OF KATHLEEN MILES, DIRECTOR OF ANALYSIS, CENTER ON
ILLICIT NETWORKS AND TRANSNATIONAL ORGANIZED CRIME (CINTOC)
Ms. Miles. Good morning, Chairman Himes, Ranking Member
Barr, and members of the subcommittee. It is an honor to be
here today before you to discuss resource crime and its
intersection with organized crime.
My name is Kathleen Miles. I am the director of analysis at
the Center on Illicit Networks and Transnational Organized
Crime (CINTOC), and the CEO of Ex Arca, an information company
that tracks money and influence in politics. At both CINTOC and
Ex Arca, I work on uncovering how various illicit networks
generate revenue.
At CINTOC, I have led projects in Africa on wildlife
trafficking and its intersection with other serious organized
crime such as drugs and human trafficking.
Prior to my work at CINTOC, I worked for Booz Allen
Hamilton, supporting the U.S. intelligence community in
counter-threat finance and financial operations. And during
that time, I worked on the Afghan Threat Finance Cell.
Over many years working at the nexus of illicit finance and
organized crime, I have come to the following conclusion: Any
time we talk about illicit and illegal commodities and
organized criminal groups, we are really discussing the ability
of these networks to create, launder, and utilize wealth.
Today, I am going to discuss two topics: natural resource
trafficking and why illicit actors increasingly exploit this
lucrative crime sector; and solutions going forward.
At CINTOC, we have discovered that criminal supply chains
are typically commodity-agnostic. In other words, they operate
the same way whether they are moving timber, drugs, or people.
Additionally, illicit organizations function the same as
commercial firms, constantly working to maximize competitive
advantage and profits.
Natural resource crime allows illicit networks to diversify
revenue sources while reducing risk and keeping profits high.
Additionally, criminal actors are less likely to get caught,
and if they do, they face lower penalties than compared to
other serious crime, like drug and human trafficking.
In a 2016 investigation in Tanzania, I was tracking the
network of a high-profile Iranian operative and businessman.
This individual and his network operated front companies that
provided cover for drugs and ivory shipments. His network also
used his corrupt political influence to secure uranium mining
rights for a Russian company. By helping to procure the mining
rights, this Iranian individual made more money and posed a
greater threat to U.S. national security than the drugs he was
also trafficking.
Natural resources create a particularly difficult problem
for law enforcement. At the most basic level, a major problem
is simply the lack of knowledge and the ability to identify
which shipments are legal and which are not.
While illicit drugs are a high priority for law
enforcement, who receive requisite training, access to experts,
and specialized education, their understanding of natural
resource trafficking is oftentimes spotty and inconsistent,
even in cases when these resources are worth more than the
drugs on the illicit market.
This inconsistent training means natural resources can
literally hide in plain sight and be used to comingle assets.
If we want to thwart illicit finance, we need to take a more
holistic approach looking at the business enterprise of the
network and not leave money on the table.
If you remember one thing I have said today, please let it
be this: Transnational crime organizations operate like any
other import and export business. Their focus is on moving
products from one place to another as efficiently as possible,
and they do not move just one commodity. However, our law
enforcement system is organized by commodity. From the DEA to
the ATF, to the Fish and Wildlife Service, enforcement
officials are siloed by their authorities, expertise, and
commodity.
In order to be more efficient, our law enforcement teams
ought to work to understand the entire range of goods smuggled
by each network they target and then work to disrupt the
systems that enable that network, systems like social media
platforms that facilitate organized crime.
CINTOC's research has uncovered organized crime groups
using Facebook to market and sell illegally-sourced timber,
elephant ivory, and even plots of land in the rainforest. This
is just the tip of the iceberg. There are dozens of other
groups engaged in resource crimes operating on Facebook,
Instagram, and other platforms. Social media platforms provide
a space for organized criminals to meet, market, and sell goods
that is global, ungoverned, and largely anonymous.
As Congress debates how to reform the laws governing
cyberspace, I implore you to consider reforms to Section 230 of
the Communications Decency Act that would remove the liability
shield for tech platforms that host and enable criminal
commerce.
This cannot wait. We are already seeing how wildlife
markets on social media platforms are accelerating the
extinction risks of iconic and endangered species.
CINTOC and our partners with the Alliance to Counter Crime
Online recommend the following changes: stripping immunities
for hosting terror and serious crime content; putting the onus
on tech firms to monitor their platforms; regulating that firms
must report crime and terror activity, along with the full data
of the users who uploaded it to law enforcement; and
appropriating resources to law enforcement to contend with this
data.
Distinguished subcommittee members, if it is illegal in
real life, it should be illegal to host it online.
Thank you for inviting me to speak today.
[The prepared statement of Ms. Miles can be found on page
116 of the appendix.]
Chairman Himes. Thank you, Ms. Miles.
Ms. Araya, you are now recognized for 5 minutes.
STATEMENT OF KIDAN ARAYA, MEMBER, ILLICIT TRAFFICKING WORKING
GROUP, WOMEN OF COLOR ADVANCING PEACE AND SECURITY; AND BOARD
MEMBER, AFRICA POLICY ACCELERATOR, CSIS
Ms. Araya. Chairman Himes, Ranking Member Barr, and
distinguished members of the subcommittee, thank you for
inviting me today to speak at this critically important
hearing.
My name is Kidan Araya, and I come here before you as
someone who has researched and spent time listening to
communities who have been negatively impacted by illicit
natural resource governance in Africa. My expertise lies in
illicit timber trafficking in Africa, but my testimony today
will offer insight comparable to a variety of resources that
are illicitly traded on the continent.
Africa is often considered the continent with the highest
concentration of natural resources but also the continent with
some of the highest rates of illicit capital trade.
The United Nations estimates that every year, nearly 89
billion U.S. dollars of illicit capital leaves the continent.
The African Development Bank estimates that the overall
economic impact is 120 billion U.S. dollars per year for the
illicit trade of natural resources specifically.
Corruption and bribery are key drivers of what sustains
illicit trafficking of natural resources and bolsters its
existence. Illegal trade exploits governance weaknesses in
countries across the supply chain and a lack of enforcement of
laws and at ports in those countries.
Natural resources often reside in impoverished local
communities, oftentimes rural, where individuals are recruited
to illegally extract resources with the usual promises of
steady income or development. Illicit trade of natural
resources also takes advantage of a lack of corporate
transparency and resource traceability in Africa.
The financial crimes committed resulting in lost tax
revenue throughout the illicit trade of natural resources in
Africa deserve attention. For example, tax evasion from gold in
Africa alone was valued at an estimated $40 billion U.S.,
according to a United Nations report.
The bribery and corruption that continues to fuel the
illicit trade can often be cash-based or free gifts, making it
difficult to trace. Africa stands out from other continents in
that an overwhelming percentage, some estimate up to 95
percent, of all transactions are made in cash.
There are various financiers and beneficiaries of illicit
natural resource trade, including corrupt regimes and terrorist
and/or armed conflict groups. Such an example can be seen in
The Gambia, West Africa. Yahya Jammeh, the former president of
The Gambia was reportedly involved in running an illicit timber
trafficking cartel in the country.
During 2014 to 2017, an estimated $163 million worth of
timber was illegally exported from The Gambia into China, with
most of that considered to be conflict timber imported from
neighboring Senegal, bound in territories controlled by a local
terrorist group.
Terrorist groups in Somalia and Mozambique have also
reportedly used the illicit trade of natural resources such as
charcoal, timber, and precious gems to finance their trade to
varying degrees.
It is important to note that illicit crime also robs
individuals and communities of their ability to earn a fair
living. Illicit trade is a term that we throw out there, but we
need to remind ourselves that this is a transnational crime, it
is dangerous activity, and the presence of this crime keeps
communities in cycles of poverty, insecurity, and instability.
I have spoken with young people who told me they got
involved in the fight against illegal deforestation after
witnessing the lack of opportunity in their communities drive
their friends to seek out dangerous, often deadly, migration
journeys for a better life.
If these young people can risk their safety to speak out
against illicit trade, sometimes in the presence of violent,
corrupt, and very powerful entities, countries such as the U.S.
can surely step up to do even more to end illicit trade in
natural resources in Africa.
There are policy opportunities to address this issue. The
progress and actions that African countries are pursuing to
reduce illicit trade in natural resources should be a part of
the African Growth and Opportunity Act. Renewal conversations,
especially for high-risk illicit trade countries, as tackling
environmental crime and recovering much needed tax revenue,
will significantly help accomplish bilateral goals of helping
African states become economically independent.
Aiding in anticorruption efforts abroad, and clearly
communicating that policies such as the Global Magnitsky Act
expand and apply to high-level individuals who are involved in
facilitating environmental crime, could also be helpful.
The U.S. can also bolster climate adoption financing and
local community development projects, while encouraging
international bodies to do so, and helping out communities who
have been harmed environmentally and economically by illicit
natural resource extraction.
Illicit trafficking of natural resources in Africa benefits
from being in the shadows and is oftentimes not discussed. I
hope today can play an important role in changing that. Further
analysis can be found in my written testimony.
Thank you for your time today.
[The prepared statement of Ms. Araya can be found on page
36 of the appendix.]
Chairman Himes. Thank you, Ms. Araya.
Ms. Garcia Zendejas, you are now recognized for 5 minutes.
STATEMENT OF CARLA GARCIA ZENDEJAS, DIRECTOR, PEOPLE, LAND, AND
RESOURCES, CENTER FOR INTERNATIONAL ENVIRONMENTAL LAW (CIEL)
Ms. Garcia Zendejas. Thank you, Chairman Himes and Ranking
Member Barr, for the opportunity to appear before this
subcommittee today. I am Carla Garcia Zendejas, director of
people, land, and resources at the Center for International
Environmental Law (CIEL), a nonprofit organization that uses
the power of law to protect the environment, promote human
rights, and ensure a just and sustainable society.
Forests play a vital role in mitigating climate change,
protecting biodiversity, and supporting the lives and
livelihoods of indigenous peoples and local communities.
Deforestation and forest degradation, driven by unsustainable
and illegal logging, threaten the ability of forest ecosystems
to fulfill these functions.
For decades, CIEL has worked to reduce the demand of
illegal and unsustainable timber using legal tools such as the
Lacey Act, the European Union Timber Regulation, and the
Convention on International Trade in Endangered Species
(CITES).
While communities worldwide facing deforestation experience
many of these issues I will address today, I will focus my
remarks on Peru, to offer an in-depth examination of the
diversity of impacts that one country faces.
Even with a concerted effort to improve forest management
institutions, much with the financial and technical support of
the United States, Peruvian forests and the communities that
depend on them are still at great risk. Illegal logging in Peru
has a direct consequence on many issues including climate
change.
In 2020, Peru experienced the highest rate of deforestation
in 20 years. More than 500,000 acres were lost. Illegal logging
and the illegality of the forest trade in Peru also serves as a
primary driver of criminal activities that occur on the land
where forests have been destroyed, often enabling criminal
organizations to exploit the land once it has been clear cut.
Illegal logging serves as a vector for violence, crime,
corruption, and exploitation, targeting landowners,
environmental defenders, and indigenous peoples. Illicit uses
of the land include gold mining, and plantations for coconut
and palm oil. Illegal gold mining is now the most profitable
illicit activity in Peru, not drug trafficking.
Criminal networks exist throughout the gold supply chain,
and exporters have legitimate companies that serve to
effectively launder the ore along the way. Illegal logging and
its related international trade is considered the third-largest
crime in the world.
As CIEL uncovered in our 2019 report, ``Authorized to
Steal,'' public officials enable criminal networks to harvest
timber in the Peruvian Amazon illegally. Some of the violations
are committed by organized crime networks comprised of forestry
agents, public officials, and private corporations colluding to
extract and sell illegally sourced wood.
Our reporting on the Amazon regions of Loreto and Ucayali
demonstrates that while improvements have been made in the
Peruvian legal framework to allow for enhanced forest
management systems, it is precisely these digital systems that
are used by corrupt Peruvian forest officials, in conjunction
with fraudulent timber harvest approvals, to foster criminal
activity.
And although Peru does impose criminal and administrative
penalties on those involved in trafficking and selling
illegally-logged wood, there is a lack of enforcement and
prosecution of these crimes.
Our investigation showed that laundering illegal timber
with official documents can only occur with the involvement of
public officials. In September, criminal charges were filed in
the Yacu Kallpa case, the largest illegal logging case in
Peru's history.
Prosecutors are now seeking to hold more than 90 people
responsible for falsifying documents and evading laws. These
individuals are allegedly responsible for illegal logging and
trafficking in $1.6 million of Amazonian wood, intended for
export in the Dominican Republic, Mexico, and the United
States.
The criminal charges came only weeks after a U.S. district
court for the District Court of Columbia decision announced
that Global Plywood, responsible for purchasing an illegal
shipment of wood bound for the U.S., pleaded guilty for
violating the Lacey Act.
Recent indictments are the result of the Operacion Amazonas
investigation led in Peru by OSINFOR and the Peruvian Customs
and Tax Authority. There has not been a similar operation since
2015.
The ensuing investigation led to the largest amount of
illegal timber ever destroyed under the Lacey Act, with an
agreement to destroy the larger shipment, worth approximately
$1 million.
I would also note that Peruvian officials, including a
former head of OSINFOR, received death threats for their
actions. OSINFOR was designed to increase transparency and
combat corruption, yet the Peruvian government and the timber
industry have strived to erode its independence and
effectiveness.
Another effective tool is the Annex on Forest Sector
Governance of the U.S.-Peru Trade Agreement, which contains
verification and enforcement measures. Using the Forest Annex,
the Office of the United States Trade Representative (USTR)
requested verification of timber shipments, then blocked the
importation of timber from La Oroza in 2017, after illegalities
were verified in Peru.
The success of legal frameworks in halting illegal logging
is dependent on whether companies believe the risk of
prosecution outweigh the profits from illegal timber.
To solve the ongoing crisis, the U.S. should continue to
use the Lacey Act, the Forest Annex, and existing laws
prohibiting the importation of illegally-harvested wood, while
incorporating similar provisions into other legislation.
Thank you.
[The prepared statement of Ms. Garcia Zendejas can be found
on page 92 of the appendix.]
Chairman Himes. Thank you, Ms. Garcia Zendejas.
Ms. Mavrellis, you are recognized for 5 minutes.
STATEMENT OF CHANNING MAVRELLIS, ILLICIT TRADE DIRECTOR, GLOBAL
FINANCIAL INTEGRITY
Ms. Mavrellis. Chairman Himes, Ranking Member Barr, and
distinguished members of the subcommittee, it is an honor and a
privilege to testify before you today.
My testimony will focus on the intersection of natural
resource exploitation and illicit state and nonstate actors,
and provide an overview of the dynamics and threats and
shortcomings in our response, as well as recommendations.
Natural resources have long been used to finance conflict
and crime. In fact, crimes involving natural resources can
often be more problematic than traditional transnational crimes
like drug trafficking, because the threshold for government
corruption is very low, the risk of prosecution and punishment
even lower, yet the rewards are comparable or even higher.
Despite the magnitude of the value and the seriousness of
the impacts, the conversation around conflict and the
exploitation of natural resources in the U.S., as well as
globally, has traditionally remained very narrow, typically
directed at how tungsten, tin, tantalum, and gold, as well as
diamonds, are used by armed rebel groups in Africa as a source
of financing in their attempt to overthrow the state.
This restricted focus ignores three important points.
First, conflict can occur over access to any natural resource,
and any natural resource can be used to fund conflict.
Second, conflict is greater than civil wars between armed
groups and the state. It can also involve conflicts between
criminal organizations, terrorist groups, civil society,
civilians, and the private sector, including violence as well
as human rights abuses.
Finally, conflict occurs on every continent, impacting both
developed and developing countries. For example, as highlighted
in Global Financial Integrity's recent report, ``Financial
Crime in Latin America and the Caribbean,'' emeralds have been
at the center of the major conflicts in Colombia since the
1960s.
The industry is mired with high-profile assassinations, the
use of armed groups by emerald magnates to protect their
interests from state and nonstate actors, as well as mines and
mining companies owned by major drug trafficking organizations.
For Equatorial Guinea, natural resources play an
overwhelmingly large role in the economy, as well as financing
the Obiang regime's looting. While the Minister of Agriculture
and Forestry, now first Vice President Teodoro Nguema Obiang,
had a government salary of $4,000 per month. However, during an
8-year period, he spent more than $300 million on luxury real
estate, vehicles, and goods. These funds came from enriching
himself off of the country's natural resources, specifically
forcing timber, oil, and gas companies which sought to operate
in Equatorial Guinea to pay millions of dollars in bribes.
Meanwhile, as noted by the State Department, the government
continues to commit a wide range of significant human rights
abuses.
Research by secure fisheries and the U.N. Security Council
has shown that illegal, unreported, and and unregulated (IUU)
fishing by foreign vessels in Somali waters, primarily vessels
from Iran, Yemen, and southeast Asia, is fueling public anger
and perpetuating conflict, including piracy.
Additionally, the Global Initiative Against Transnational
Organized Crime has identified a potential overlap between the
vessels, operators, owners, and agents involved in IUU fishing
in Somalia and in arms trafficking from Iran to Somalia and
Yemen.
It is extremely important to stress that transnational
crime, including the exploitation of natural resources, is not
just conducted by transnational criminal organizations. As
illustrated in the examples above, state actors such as rogue
and kleptocratic regimes, as well as nonstate actors including
armed groups, terrorist groups, and private sector businesses,
also play a pivotal role in engaging in, facilitating, and
perpetuating these activities.
The Financial Action Task Force's recent report on
environmental crime highlighted what many of us in this
community have known for a long time: Corruption, trade-based
fraud, shell and front companies, as well as gatekeepers, play
a significant role in both facilitating these crimes as well as
laundering the related proceeds.
The use of natural resource exploitation as a funding
source, either directly or indirectly, clearly allows rogue
actors and their regimes to continue their activities and to
further entrench their power, while generating conflicts.
There is also a serious threat to U.S. businesses, as
natural resource supply chains often provide poor visibility,
presenting serious risks to the businesses and financial
institutions directly and indirectly involved. Transparency in
the sourcing of natural resources, particularly critical
minerals, is also important to ensure the resiliency of
American supply chains.
Additionally, exploiting natural resources controlled by
rogue regimes and actors presents huge financial and
reputational and legal risks to businesses and investors.
Similarly, it can create an unfair business advantage, as those
companies that illegally produce and/or trade in natural
resources have lower input costs.
The following are my top three recommendations, with
additional recommendations included in my written testimony.
First, expand Section 1502 and reissue with Section 1504 of
the Dodd-Frank Act to encompass a wider geographic and species
commodity focus.
Second, the Financial Crimes Enforcement Network (FinCEN)
should interpret other similar entities in the Corporate
Transparency Act to the broadest extent possible.
Finally, Congress should extend Bank Secrecy Act/Anti-Money
Laundering (BSA/AM)L obligations to gatekeepers that are
currently uncovered or exempted, in particular, legal
professionals, company formation agents, accountants, and real
estate.
Thank you, and I look forward to your questions.
[The prepared statement of Ms. Mavrellis can be found on
page 98 of the appendix.]
Chairman Himes. Thank you, Ms. Mavrellis.
And Mr. Fruth, you are recognized for 5 minutes.
STATEMENT OF JOSHUA T. FRUTH, CO-FOUNDER AND CHIEF STRATEGY
OFFICER, SECTION 2 FINANCIAL INTELLIGENCE SOLUTIONS, LLC
Mr. Fruth. Chairman Himes, Ranking Member Barr, and
distinguished members of the subcommittee, I am honored to
appear before you today to discuss how environmental crime in
Afghanistan will enable China to choke off supply chains, and
fund terrorists with attack ambitions, and how to employ
humanitarian assistance and interagency soft power policy
options to mitigate these threats.
I am co-founder of Risk Consultancy Section 2, but I have
spent my career in the intelligence community, law enforcement,
and banking compliance fields as an AML director. I am here
today as a private citizen.
From 2018 to 2019, I deployed as a Department of Defense
(DOD) contractor assigned to the Drug Enforcement
Administration (DEA), embedded with U.S. Special Operations as
the lead counter-threat finance adviser to two successive
commanding generals of NATO Special Operations in Afghanistan,
Major Generals Buck Elton and Chris Donahue.
On November 1st, General Elton and I coauthored a White
Paper that serves as the basis for my testimony today. It was
submitted into the record.
We argue that there are two types of environmental crime in
Afghanistan with national security implications, including the
drug trade and Chinese mining of rare earths.
The Taliban have been involved in the opiates business for
decades, but the Afghan drug trade recently changed for the
worst. Around late 2017, the Taliban discovered a plant in the
mountains of central Afghanistan, comprised of highly pure
ephedra, which is used in the production of amphetamines.
Within a year, they developed an industrial-scale crystal
methamphetamine production infrastructure and earned more
operating revenue than they had in the past 20 years in the
heroin business.
In mid-2019, a major U.S.- and Afghan-partnered operation
destroyed the Taliban's methamphetamine trade, but they have
since reconstituted that capability.
At the end of that assignment, I authored a White Paper for
U.S. Central Command on post-drawdown threat finance solutions,
available by request to Members at a higher classification.
Without global recognition or access to frozen funds, the
Taliban could consolidate, professionalize, and industrialize
the drug trade and become the world's largest drug cartel and
narco terror state. Worst case, they could align themselves
with Mexican cartels, due to their mutual Chinese
interlocutors, supplying precursor chemicals and money-
laundering services. The drug trade has killed more Americans
than the war on terror, and it is likely those profits will be
used to fund additional attacks.
Under the protection of a narco terror state, supported by
foreign intelligence agencies, armed with American weapons, and
funded by drugs and Chinese mining operations, U.S. officials
are correct in their assessment that ISIS-K and al-Qaida may
have the capability to attack the homeland in just 6 to 12
months. They may exploit our porous southern border undercover
as refugees fleeing Afghanistan's humanitarian crisis. Without
positive identification, pockets of ungoverned spaces emerge
for terrorists to exploit poor population resource controls and
develop U.S. operating bases for attack planning.
The most serious environmental issue in Afghanistan is a
hybrid threat financial facilitation network built around China
extracting rare minerals. We assess they have incentivized
Pakistan to manage and pay off Afghan terror groups to mitigate
risks to mining.
Afghanistan is known as the Saudi Arabia of lithium, with
1.4 million metric tons of rare earths worth over a trillion
dollars. Many of these are used to produce lithium ion
batteries for electric cars.
Neodymium is used in magnets that dramatically extend the
driving range of EV batteries. On September 21st, the
Department of Commerce initiated an investigation into the
national security impacts of neodymium magnet imports.
If China gains control of Afghanistan's neodymium, lithium,
cobalt, and dysprosium deposits, it threatens the American auto
industry as we rapidly transition to electrification.
China is undercutting us in other rare earth markets, and
our domestic deposits can't keep up with our demands. We import
80 percent of our rare earths from China, but only 23 percent
of our oil from the Middle East. The Organization of the
Petroleum Exporting Countries (OPEC) accounts for 40 percent of
the world's oil, while China represents 75 percent of global
lithium-ion battery cell capacity, compared to America's 7
percent.
If China seizes Afghanistan's rare earths and Taiwan's
semiconductor industry, it could choke off technology supply
chains for military, diplomatic, and trade leverage.
Beijing is expanding their space-, land-, and sea-based
telecommunications infrastructure, flooding the market with
Huawei and ZTE hardware. Once they control the rare earth
source materials, emerging technologies, hardware, and 5G
infrastructure, they can collect intelligence on end users
around the world, while concurrently controlling the
information environment to China's benefit.
We provided policy recommendations in the White Paper for
how to employ noncombat interagency authorities and
capabilities to counter these risks. However, these solutions
are contingent on evacuating the estimated 14,000 U.S.
permanent legal residents, Afghan Special Immigrant Visa (SIV)
allies, and underserved population groups.
We face a ripe environment for high-value hostage-taking
and humanitarian abuses, and anticipate that China and Pakistan
may use these matters as negotiating leverage to weaken our
disruption efforts.
Failure to act could also diminish our credibility with
partners and surrogate intelligence networks whom we need to
execute these objectives. We recommend leveraging medical and
food aid to facilitate evacuation operations, thereby avoiding
direct terrorist financing, while also reminding the Afghan
people how sharply our values contrast with those of the
Taliban.
While our combat mission is over, our national security
challenges in Afghanistan have only just begun. We can debate
the merits of our past decisions at any time, but there is only
one time to resolve the issues of the present, and that time is
now.
[The prepared statement of Mr. Fruth can be found on page
48 of the appendix.]
Chairman Himes. Thank you, Mr. Fruth.
I now recognize myself for 5 minutes for questions.
Ms. Miles, let me start with you. I was intrigued by your
proposal of removing Section 230 protections. There is
obviously precedent for that with respect to prostitution.
My first question about that is, given the vast array--we
have heard a lot of examples here today--if we could snap our
fingers, which we can't, but if we could snap our fingers and
remove the civil liability protection in 230 for trade in
illicit goods, would we be talking about a very substantial
attack on this trade or would it be marginal?
Ms. Miles. We believe it to be pretty substantial. We see a
lot of connection between organized crime groups across
different continents, whether they are in South America,
messaging and working with people in Africa or Asia. We believe
that by attacking the social media systems that are helping to
propagate this crime, we would have a pretty substantial impact
on the overall crime networks.
Chairman Himes. And the social media platforms have been
discussed lately here. I wonder if you could anticipate what
their objections would be in this narrow realm, and whether or
not you believe those objections would be meritorious?
Obviously, we have done this before, so I am just wondering,
what would that dynamic look like with the platforms?
Ms. Miles. I think the platforms are concerned about
opening up liability. They don't want to be sued every time
someone sells a joint on Facebook. And so, we can keep the
liability tailored to say, serious organized crime, people
engaged in moving metric tons of drugs, people engaged in human
trafficking--these are serious crimes that we can all agree
on--to mitigate liability from smaller crimes that are harder
to police on the platform.
I would also say that I think Facebook in particular spent
a lot of time recently talking about how much they are dealing
with organized crime on their platform, and I would like to
remind everyone that they have only spent 4 percent of their
annual revenue over 5 years, and they have spent almost 20
percent on public relations.
Chairman Himes. Thank you. I appreciate that.
This question is for Mr. Fruth to start with, but then I
will open it up. I happen to sit on the Select Committee on
Intelligence as well, and I wonder--I will start with Mr.
Fruth, because he may have the most direct experience, but I'll
open it up afterwards.
In as much as their activities are visible, is the
intelligence community (IC) sufficiently focused on this
threat? And let me expand it beyond the intelligence community
to include law enforcement. We haven't heard a lot more about
what the IC and law enforcement could do in addition to what
they are doing today.
Mr. Fruth?
Mr. Fruth. Thank you, Mr. Chairman, for the question. I
think that we have certainly transitioned away from a counter
insurgency environment to incorporate more of an emphasis on
great power competition, and I take that to encompass China,
Russia, Iran, and to a lesser extent, other jurisdictions as
well.
I do think that the geographic combatant command area of
responsibility emphasis where it is geographic in nature, could
potentially silo us in some places where we could potentially
be focused more functionally on the problem set pertaining to
China. But I do think we have made more of a shift in the last
few years in that direction.
Chairman Himes. Thank you. I appreciate that.
Do any of the other witnesses have a view on the question
of whether the IC and the law enforcement sector could be doing
more, and if so, how?
Ms. Miles?
Ms. Miles. I really think, from my experience both working
in the intelligence community and with Federal law enforcement
and outside of it, we really need to have more people working
cross-function and cross-region. When you are talking about
someplace like China, for some reason, our China experts focus
on China. We need to have China experts focusing on
Afghanistan, Africa, South America, and North America. By
bringing and marrying functional and regional experts, we can
have a more holistic approach of dealing with the problems.
Chairman Himes. Thank you, I appreciate that.
For my last question, I think, let me target it at Ms.
Araya and Ms. Garcia Zendejas. Another area we haven't talked a
bunch about is consumer preference. We see consumers really
driving change in areas like electric vehicles and that sort of
thing.
What can we do, narrowly speaking, Congress--and I point at
you because you talked about things that go into consumer
products like wood, that sort of thing--what can we to do as
Congress or what can we do more broadly as a society to really
raise the awareness amongst consumers about how they might
participate in tamping down this trade?
Ms. Araya. Thank you, Mr. Chairman. I think one way that we
could do that is to promote the transparency and to let
consumers know that this is going on. Many times when I have
talked to people about my work with illicit timber trafficking,
or the stories that communities have shared with me about how
they are exploited, many of my friends in the United States
have no idea that is what is going on.
And I also think that another way to do that effectively is
to celebrate companies who are doing the right thing and who
are being transparent in their supply chains. And that is
something that I think Congress could uplift and let the
American people know that these are the companies that we
should be looking to seek business with.
Chairman Himes. Okay. Ms. Garcia Zendejas, I am out of
time, so very quickly.
Ms. Garcia Zendejas. I think it goes into the same point of
highlighting those that do good, and actually pointing out
those who don't, in a more public setting, because few people
are aware of the Lacey Act and what the Lacey Act can do, but
knowing that USTR is doing great things is something that
should be promoted.
Chairman Himes. Thank you. Thanks very much.
I now recognize the distinguished ranking member of the
subcommittee, Mr. Barr, for 5 minutes of questions.
Mr. Barr. I thank my friend, the chairman, again, for his
leadership in holding this hearing. And I really appreciate the
excellent testimony and insights of our witnesses.
I want to continue to hone in on China. We all know that
China has a long-term strategy and a multi-pronged approach to
usurp the United States as the preeminent global superpower.
Within the purview of today's hearing, we have heard that China
is seeking to secure and cut off key elements of the supply
chain, including rare earth elements that make everyday
technology possible.
Mr. Fruth, in a post-drawdown Afghanistan, how are the
Chinese exploiting the rise of the Taliban to secure rare earth
elements in the country, what is the intel on that, and can you
elaborate on the relationship between the Chinese and Taliban
forces and other terrorist groups, perhaps, as it relates to
natural resource extraction?
Mr. Fruth. Thank you for the question. I think that, first
and foremost, China wants to get rare earths from anywhere it
can. It doesn't matter if it is DRC, Australia, Brazil--they
will choke us out of any market they can.
Afghanistan, however, is an absolute treasure trove as it
pertains to rare earths. I think that the Chinese, amongst
Pakistan, were the first to recognize the legitimacy of the
Taliban Islamic Emirate regime, and I think that China and
Pakistan have complementary needs.
The Taliban want the recognition, they want the
humanitarian aid, and they need money and assistance in
governance. China is interested in the China-Pakistan economic
corridor, their Belt and Road Initiative, the rare earths, and
obviously they want security for their mining operations. So, I
think they are going to employ Pakistan and the Taliban to
essentially manage all of the other insurgent groups in
Afghanistan, to ensure that there is a secure environment for
them.
In terms of the other terrorist groups, obviously we have
seen a connection between the Taliban and al-Qaida and Haqqani
over history. However, we saw the Taliban and ISIS-K fighting
up and through 2019 when the Taliban nearly obliterated ISIS-K,
pushed them through Nangarhar into the Peshawar in Pakistan. We
assess that the situation has changed. There is an old saying
in Afghanistan about, ``turning your turban,'' which is
essentially a local reference to changing your loyalties to
favor the victor.
We in the West oftentimes simplify these groups, but there
are a lot of gray areas in Afghanistan. A lot of ISIS-K members
may actually be working as proxies for the Taliban right now.
Mr. Barr. Let's talk about electric vehicles (EVs) and rare
earth in that context. Afghanistan is home to key deposits of
lithium and neodymium, two key elements in the creation of
batteries for emerging technology, including EVs. With the fall
of the Afghan government, and China's likely emerging
partnership with the Taliban, they will be able to harvest and
exclude from the market key stores of these materials.
Again, Mr. Fruth, what impact might this have on the U.S.
auto industry, specifically in the context of a growing shift
to electric vehicles?
Mr. Fruth. Well, a couple of things. I think, number one,
transportation is one of our 16 components of critical
infrastructure. So, I think the most immediate concern that I
have is the supply chain issues. If they can choke off the
market and hold the American auto industry hostage, that could
apply negotiating leverage in other policy matters.
I think beyond that, I am worried from a cybersecurity
perspective about vulnerabilities that could emanate from China
making components that go into these vehicles, particularly as
they make gains in the autonomous and quantum and AI fields.
Mr. Barr. This is what I meant when I said in my opening
statement that the national security strategy of abandoning
Afghanistan could be in direct conflict with the
Administration's climate goals and move toward EVs.
Let's talk about the geology of Afghanistan really quickly.
The United States has conducted geological surveys of
Afghanistan, identifying stores of valuable natural resources.
Mr. Fruth, I recognize that you are not a geologist, but
you have focused on great power competition, including as it
relates to China. What might be the impact if those U.S.
Government geological surveys become available to the Taliban,
and/or the Chinese if they engage in partnerships with the
Taliban, for resource extraction?
Mr. Fruth. Thank you for the question, and thank you for
the point that I am not a geologist or a scientist. But I would
say that effectively, it improves the conditions for China to
exploit Afghanistan's rare minerals.
They are mapped better. I think the airfields have been
improved dramatically in the 20 years that we have been there.
They can pull copper from Mes Aynak. They can pull gold and
rare earths from Ghazni, Kandahar, Nimruz, and Herat. And then
they can drive down from Nimruz and Farah. They can drive down
the Pakistan-Iran border to the port of Gwadar for
international shipping or they can just go through Badakhshan
as part of their Belt and Road Initiative into China.
Mr. Barr. My time is running out, but in the White Paper,
you allude to a collaboration with Pakistan. Can you elaborate
on Pakistan's goals through the relationship with China and
Afghanistan?
Mr. Fruth. Sure. Pakistan is essentially acting as an
intermediary between China and these Sunni terror groups. They
are financially incentivized by China to do so. They are in a
difficult current economic state. They are reliant on their
loans from the IMF with quarterly periodic reviews and
disbursement periods, and they are FATF grey-listed.
So, I think that one of the ways to potentially combat this
is to apply financial pressure on Pakistan as the gatekeeper of
this hybrid threat network that includes China and four Sunni
terror groups.
Mr. Barr. Thank you. I yield back.
Chairman Himes. The gentleman yields back.
The gentleman from New York, Mr. Torres, is now recognized
for 5 minutes.
Mr. Torres. Thank you, Mr. Chairman.
Mr. Fruth, I actually found your testimony to be
terrifying. I have felt for a long time that one of the
greatest national security threats to the United States is our
dependency for advanced semiconductors on Taiwan, which is at
ever-rising risk of an invasion from China. And China is facing
a demographic crisis and could become more provocative and
desperate over time.
Do you see the risk of China controlling rare materials in
Afghanistan comparable to the risk of China controlling
semiconductors in Taiwan? Do you see them as comparable
national security threats?
Mr. Fruth. Representative Torres, that is an excellent
question. I actually don't even see them in that respect. I see
them as two parts of the same plan. I think they want to seize
Afghanistan for the rare earths, and they want to seize Taiwan
for, not only the semiconductors, but also the silicon.
Mr. Torres. So, how do we address it? Because it is not
clear to me what the solution is.
Mr. Fruth. I agree with the other witness who had mentioned
that this is a functional problem set versus a geographic
problem set. So, I think we can't silo ourselves.
I think if we are in a post-drawdown environment and we
know that military options, at least from a combat perspective,
aren't on the table, I do think there are options that I have
laid out in the White Paper that I submitted into my testimony
for interagency capabilities and authorities, and also with our
other host nation mission partners that we had in the past and
our allies to apply pressure through the Departments of
Commerce, Treasury, and State, and through other elements of
DOD, to combat both of these threats.
But I think we just need to understand the geostrategic
implications of China trying to secure the semiconductors and
the rare earths, in terms of controlling the supply chains, as
well as laying the infrastructure for telecommunications.
Because their goal is to control the hearts and minds of
Americans and others around the world by controlling the
telecommunications business, as well as the information
environment, through psychological operations and deception.
Mr. Torres. Ms. Miles, I was struck by your testimony. If I
understood your testimony correctly, the enforcement apparatus
of the United States is too siloed, focusing on particular
commodities and particular criminals. But you seem to think
that we need to take a more systemic approach to enforcement,
focusing on the supply chain, which is agnostic about
particular commodities. So, what should we do to break down the
silos that prevent effective enforcement?
Ms. Miles. Thank you so much for your question. I really
think that to effectively address the silos, you kind of have
to start breaking it down and breaking down specifically the
groups inside the U.S. Federal Government that focus commodity-
based and putting them into task forces, putting them into
groups, and enabling those groups to leverage all 18
intelligence communities' authorities, all 18 intelligence
communities' knowledge, to systematically go after networks.
And then, I think simultaneously, you really have to take a
look at strengthening some of the banking laws around
transparency and strengthening the laws around technology.
We are seeing a globalization, especially on social media
platforms, of organized crime, and if we don't get our hands
around how these groups are interacting with each other in
cyberspace, we are never going to be able to combat them.
Mr. Torres. But it sounds like we need either a new entity
or an interagency task force specifically focused on illicit
natural resource extraction, because it spans across multiple
jurisdictions--enforcement jurisdictions.
Ms. Miles. Yes.
Mr. Torres. Okay. Ms. Mavrellis, as you know, there can be
a direct line that runs from illicit natural resource
extraction to international supply chains to the shelves of
U.S. retail stores.
If you are an American business and you become aware that
your supply chains are entangled with illicit natural resource
extraction, what are your legal obligations? What happens when
you fail to meet those legal obligations? And a third question
would be, are most businesses even aware of their entanglement
with illicit natural resource extraction?
Ms. Mavrellis. Thank you for the question. I am going to
address your last question first. I think you have to recognize
that there are those businesses that knowingly choose to do
this, and there are those that don't really understand what
they are getting involved in.
What I would recommend is, and it is based more for
terrorism, but the Customs Trade Partnership Against Terrorism
(CTPAT) could be really well-used and expanded to looking at
natural resource supply chains. It requires businesses in the
U.S. who want to have essentially kind of a preferred status
with Customs and Border Protection (CBP) to introduce due
diligence programs. They recently introduced regulations or
requirements to have trade-based money laundering programs
within these companies to better understand that, Hey, if I am
selling a good overseas, and I am getting payments in cash for
this, or I am getting payments from third parties, this is a
red flag indicator.
So, I think there is a lot more we can do from the private-
sector side as well as--sorry--from kind of the CBP side, from
the USTR side, in terms of promoting these programs for
businesses that use or engage in natural resources.
Chairman Himes. The gentleman's time has expired.
The gentleman from Ohio, Mr. Davidson, is recognized for 5
minutes.
Mr. Davidson. Thank you, Mr. Chairman. Thank you to our
witnesses, and I really appreciate the focus on China in
particular.
Ms. Miles, your construction is so important and, frankly,
would be so relevant here in Congress. Often we focus in silos
or committees of jurisdiction instead of focusing on problems.
And if you want to solve a problem, generally you align
authority, responsibility, and accountability, and we have to
do that within our government for a whole-of-government
approach, whether it is China or solving illicit finance, for
example.
When we look at finance, a lot of times we focus on the
banking system or the payment system. In America, we have our
traditional banking system. We have some derivatives of money
services businesses. But over the course of the war on terror,
we had to confront alternative payment systems like hawala
networks.
Right now, in fintech, we are confronting cryptocurrencies,
and people don't understand crypto right now, just like lots of
people still don't understand hawala.
Mr. Fruth, you have had to solve this problem of illicit
finance and the bad actors regardless of how the system moves.
Can you offer any insights on following the money?
Mr. Fruth. I appreciate the question, Congressman. I don't
think there is anything nefarious about cryptocurrency. I think
when we deal with bad actors, they are going to exploit fiat
currency, they are going to exploit cryptocurrency; it is just
one mechanism or another.
I will say that we are seeing cryptocurrency being
exploited by both transnational criminal organizations as well
as terrorist groups.
Thinking back to August of last year, DOJ announced over
300 cryptocurrency wallets associated with ISIS, al-Qaida, and
Hamas. Of course, we know that ISIS-K and al-Qaida are present
in Afghanistan. They have external operations attack ambitions
against the West. And we have seen a nexus, for example, with
the cartels and Chinese financial facilitators, utilizing
cryptocurrency, operating in the casino business. So, we may
see those two different typologies meet, if we have an EXOPs
threat of those Sunni insurgent groups coming to the United
States.
But I would say that there is nothing inherently wrong with
cryptocurrency. It is just one stage in a multi-pronged,
layering process that we would see that incorporates both fiat
and cryptocurrency.
Mr. Davidson. Yes, thank you. And a lot of times, people
come up with solutions that go macro. And I think about Dodd-
Frank's conflict minerals reporting requirement.
Prior to coming to Congress, I was in manufacturing, and we
would fill out conflict minerals reports on tin, for example,
because it is a component that goes into steel. I had a little
metal stamping company in Ohio, but I was required to fill this
out, and I can assure you, we didn't have the resources or even
access to the resources to figure out whether U.S. Steel--how
they source their metal or make it or whatever. But we had all
of these reporting requirements.
I don't think it was really focused on solving the problem,
but it had a macroeconomic impact on small businesses all over
America.
The conflict minerals were coming in at the border, so the
companies that were the importers of record could be used. And
we also have tools that help focus that, like sanctions, not so
much passive things like forcing the Securities and Exchange
Commission to be a regulatory body, but actually things with
teeth and power that use resources to get at it like the Office
of Foreign Assets Control (OFAC) and our sanctions regimes.
So as you think about that, Mr. Fruth, you are not a
financial regulator, but to talk about this in the United
States with crypto markets, there are folks who want to
outright ban all of this technology in order to stop the
possibility that somebody would use it in illicit finance.
Thankfully, we haven't done that to the U.S. dollar, but
could you highlight the right way to focus on the root problem
of illicit use?
Mr. Fruth. I don't know that it is a regulatory issue per
se as much as it is a resource allocation issue. I am a
certified cryptocurrency investigator. I have worked some
interesting cryptocurrency cases.
In 2018, I wrote an article for Reuters entitled, ``Crypto-
cleansing,'' which was the basis of how a lot of folks in the
AML business came to understand the art of the. ``how,'' in
terms of how to launder money through cryptocurrency.
Again, I would say that, right now, it is an education
issue, having a common operating picture across public and
private sector partners with equities in the problem set versus
a regulatory issue. That is not to say that there isn't a
regulatory framework needed to help support cryptocurrency,
but, again, I don't think there is anything innately nefarious
about cryptocurrency. There is a public ledger of transactions.
There are ways to obfuscate that, such as going through
mixers or homomorphic-encrypted, note-to-note encrypted privacy
coins. But generally speaking, I think it is just one component
or stage within a money-laundering process that is going to
include fiat currency anyway.
Mr. Davidson. Thank you. I look forward to scheduling a
subsequent briefing about the classified nature of China's
extraction of rare earth minerals in Afghanistan.
And I yield back.
Chairman Himes. The gentleman's time has expired.
The gentleman from Massachusetts, Mr. Auchincloss, who is
also the Vice Chair of the Full Committee, is now recognized
for 5 minutes.
Mr. Auchincloss. Thank you, Mr. Chairman.
I want to focus on Afghanistan. Following the drawdown,
there are really three imperatives, I think. One is to prevent
the rise of a narco terror state in Afghanistan, and Mr. Fruth,
you have outlined that, I think quite compellingly, in your
testimony.
The second is to provide the conditions for economic
development and humanitarian protections in this country, and
that is perhaps the most urgent, given the starvation and
privations being faced by a majority of the population this
coming winter.
And, finally, to counter the Chinese Communist Party's
hegemony over rare earth element mining that is going to propel
its dominance in energy and information technology, and that
would actually increase the strategic value of Taiwan to it, to
create that synergistic value that, Mr. Fruth, you again have
outlined.
And it strikes me that a lot of the approaches being put
forward right now to meet those three imperatives are very
defensive, and they are very focused on governmental solutions.
And I would offer that really we need to be a little bit more
proactive and leaning into public-private partnerships here in
that we could be pushing forward for our own responsible rare
earth element mining in Afghanistan, first at Mes Aynak and
then elsewhere.
This would short-circuit the rise of a narco terror state
by creating a licit economy that is distinct from the illicit
one. This could disrupt the Chinese Communist Party's attempts
to gain hegemony over rare earth elements (REE) mining in
Central Asia, and it could create revenue streams that, if
properly framed, could be reinvested into the population and
into physical infrastructure in the country. There are a lot of
challenges to do in that: commercial; diplomatic; security; and
legal.
And starting with you, Ms. Garcia Zendejas, I am wondering
if I could hear from the panel about what lessons we might draw
from responsible mining practices in Africa, from the
establishment of special economic zones globally, or how we
might think about being proactive in Afghanistan for NATO-
domiciled companies to start looking to invest there, so that
we are the ones establishing working protections, we are the
ones establishing control over the rare earth elements, that we
are the ones establishing revenue streams that are fed back
into the population as opposed to being siphoned off by a
kleptocracy. How can we go about framing this so that it is a
triple-line win?
Ms. Garcia Zendejas. Thank you. Thank you for the question.
I would like to speak a bit about Colombia to respond to your
question.
There are legitimate infrastructure development projects in
Colombia, many of which have been funded by the Inter-American
Development Bank, where the U.S. has approved and supported
these investments, for example, of the Hidroituango, the
largest dam in Colombia.
The communities there have been fighting against this dam,
unfortunately, because it is in the middle of a conflict zone
where the FARC and drug traffickers are still very much
entrenched. There are mining interests that are both legal and
illegal that are part of this area also.
Just a few days ago, the leader of the Cartel Del Golfo was
arrested and may be extradited to the United States. That
cartel has been controlling that area, so they have been
supporting and trying to kill indigenous and environmental
defenders who oppose this dam project and who oppose legal
projects.
Mr. Auchincloss. So, what is the lesson for Afghanistan
from this?
Ms. Garcia Zendejas. The lesson for Afghanistan is that,
even with legitimate development projects, if you do not take
care of assessing the contextual risk in the situation, you
will only exacerbate the situation of human rights violations.
There needs to be a solid ground where communities and all
of the risks that are in place are assessed, and due diligence
is required, so any public-private partnership can come into a
somewhat stable situation.
Mr. Auchincloss. In my final 20 seconds, Mr. Fruth?
Mr. Fruth. I don't think there is any chance that China and
Pakistan will allow us into Afghanistan to engage in any type
of mining contracts.
Mr. Auchincloss. I yield back.
Chairman Himes. The gentleman yields back.
The gentleman from Texas, Mr. Williams, is recognized for 5
minutes.
Mr. Williams of Texas. Thank you, Mr. Chairman.
Every question I get from my constituents regarding
national security has to do with the Biden Administration's
disastrous Afghanistan withdrawal. In order to satisfy their
arbitrary deadline, we rushed out of the country without any
cohesive strategy. American soldiers lost their lives, American
citizens are still stranded in the Taliban-controlled capital,
and we left military equipment in the hands of a deadly
terrorist group.
We surrendered all of our leverage that would allow us to
monitor the Taliban's activities as they look to rebuild and
monetize their drug networks to carry out attacks across the
globe. So, it was an inexcusable blunder that will be a stain
on President Biden for the rest of history.
Mr. Fruth, my question is, given your experience on the
ground in Afghanistan, I want to get your thoughts on this
debacle, and can you describe what you think the long-term
national security consequences will be from these actions?
Mr. Fruth. Thank you for the question. I think, from my
perspective as an intelligence professional, I am just looking
at the current state environment and the future state rather
than looking backwards.
I would say that I would concur that we need to get our
folks out of the country, as well as our Afghan SIV allies. I
think we also need to look out for disenfranchised and
vulnerable populations in Afghanistan as well, so that in a
future state, because we are not going to be there militarily,
if we want to utilize all of our soft power interagency
capabilities and authorities to deter the unholy alliance
between China, Pakistan, and various terrorist groups in the
country, I think in order to do that, we need to make sure that
a robust kidnap-for-ransom environment isn't used by our near-
peer state adversaries as a means of negotiation that undercuts
and undermines our negotiating leverage and disruption efforts.
Mr. Williams of Texas. It seems like many of my Democrat
colleagues want to turn a blind eye to the absolute disaster at
the southern border that the Biden Administration has caused.
And I live in Texas.
Over 2 million people have illegally crossed into our
country in 2021 alone, and we have no idea, absolutely no idea,
how many others have evaded Border Patrol and are currently
residing in our country illegally.
Instead of trying to stop the surge of illegal entries into
our country, Democrats are trying to incentivize even more
people to come in. The Biden Administration wants to pay an
unbelievable amount of money, almost half-a-million dollars
each, to individuals who were separated at the border, when
they made the choice to enter the country illegally.
This is more money than some of the families of 9/11
receive, and it is disgraceful. There is also over a hundred
billion dollars earmarked in the Build Back Better scam just
for illegal immigrants, which would be paid for by raising
taxes on small business. So, instead of stopping the flood of
people coming to our country, the Democrats are incentivizing
more to show up.
Mr. Fruth, again, can you talk about the national security
implications of having the southern border as porous as it has
ever, ever been?
Mr. Fruth. Thank you for the question, Congressman. I think
my main concern with a porous border isn't the 2 million people
a year or what have you; it is the 400,000 to 500,000 people
that CBP would call, ``got-aways.'' A got-away is somebody that
maybe we picked up on the camera and took a picture of, but we
have never identified or spoken to them and we don't know who
they are.
I think the popular misconception is that folks crossing
the border, the migrants, are from three or four different
countries. That is just not true. They are from 150 different
countries. So, we don't know if they are narcos, sex
traffickers, foreign intelligence officers, or terrorists.
Also, we are in an environment where we have an ongoing
pandemic, and I am concerned that we don't know if these folks
are vaccinated, we don't know if they are exhibiting symptoms,
and that concerns me as well.
But back to the kind of main components of those risks.
From a narcotics perspective, we know that we have a fentanyl
murder epidemic in this country. It is absolutely a murder
epidemic. It involves China and it involves the Mexican
cartels. They are putting the fentanyl in other powders in
Mexico, and they are actually starting to professionally press
the counterfeit pills in this country. So, they are embedding
their operatives in this country.
Just this past week, we had an active ISIS threat here in
Northern Virginia, just down the street from where I live. So,
obviously, I am concerned about those folks crossing the
border, particularly in light of the Under Secretary of Defense
for Policy saying that they could be here in 6 to 12 months.
I am also concerned about sex traffickers. We know that
folks who are crossing the border with the coyotes, the
smugglers, oftentimes are forced to pay for their smuggling
through debt servitude and sexual exploitation. And, of course,
we are concerned about foreign intelligence officers from a
number of different jurisdictions penetrating our borders.
Mr. Williams of Texas. How about that half-a-million
dollars going to people who are breaking the law? What do you
think about that, quickly? Do you think that is a good idea?
Mr. Fruth. I don't have any feedback on that, Congressman.
Mr. Williams of Texas. I have a lot of feedback. It is not
good.
I yield back.
Chairman Himes. The gentleman yields back.
The gentlewoman from Pennsylvania, Ms. Dean, is recognized
for 5 minutes.
Ms. Dean. Thank you, Mr. Chairman. And I thank our
witnesses for coming today and testifying before us.
An issue that is close to my heart is protecting endangered
and at-risk wildlife. I care a lot about elephant slaughter for
the illegal trade of ivory, and other wildlife trafficking.
And, therefore, I want to do anything we can to combat that.
Ms. Miles, I would like to start with you. How do criminal
enterprises or rogue actors take advantage of, and profit from,
wildlife trafficking? And do they avoid law enforcement
scrutiny of their operations through the trafficking of
wildlife?
Ms. Miles. Thank you so much for your question. Typically,
in my experience, people who are trafficking wildlife,
especially the people who are able to take elephant ivory off
the Continent of Africa and transport it across continents into
Asia and into markets for selling, are organized criminals. And
they don't care what is in the box. Whether it is heroin or
ivory, they have created corrupted pathways that allow them to
bring illicit goods from the supply to market.
I think when we really want to talk about how to solve the
ivory trade issue, we have to be looking at, where do these
routes already exist, how are we moving drugs, how are we
moving timber, how are we moving every other resource, and
attack the network across every single commodity that they are
trafficking.
Ms. Dean. So, we have to check and understand the routes,
and interfere and disrupt the routes, and the network that is
going on?
Ms. Miles. Yes.
Ms. Dean. In addition to that, just last week, I led a
letter with a bipartisan group of my colleagues urging the
Japanese government to close the country's domestic legal ivory
market. So, I am hoping that part of the solution would be to
stop the marketing at other countries, in other locations.
One of my gravest concerns is that the legal ivory market
complicates enforcement efforts for illegal ivory poaching by
creating something of a gray market where illegally trafficked
items are mixed in with legal items. Do you have a comment on
that?
Ms. Miles. Yes. We see that all the time, the commingling
of licit and illicit goods. It works well to do it with ivory
but also with other items as well.
Ms. Dean. Thank you.
Ms. Araya and Ms. Zendejas, are there other instances where
illegal wildlife trafficking is mixed into legal commerce
because of the existence of an open market in a specific
country?
Ms. Araya?
Ms. Araya. Thank you, Congresswoman, for the question. Yes,
there is. And I would like to use my time to also state that a
key way to combat both wildlife trafficking and the mixture of
licit goods with illicit goods is supporting African
governments in fighting this crime.
As other witnesses have stated, there is the transnational
crime, and there needs to be work done in the countries that
are demanding these resources, and there also needs to be work
done in the countries that are exporting this. And we have
talked about corruption and bribery and how that has made it
difficult for this trade to stop, but there are African
countries that do want to do the right thing. One example of
that is Gabon, which actually has an ivory trade, and has
spoken out against forest crimes where traffickers not only
illegally deforest the forest, but they take away the ivory of
elephants.
I think allowing those champions to know that they are
supported by the U.S., and to have a strengthened bilateral
enforcement can also prove as an example to other African
countries that this is possible, that they can receive the
support, that they can stop this. And I think that will have a
big impact, because if it is not allowed to leave the
continent, then these transnational criminals don't have a
business.
Ms. Dean. I really appreciate your pointing that out, that
there are countries of origin that want to interfere and
disrupt this corrupt, illicit, illegal, and inhumane trade.
Thank you for pointing that out and, of course, the country of
Gabon.
Ms. Zendejas, did you want to add to the conversation?
Ms. Garcia Zendejas. No, I don't have anything to add on
that.
Ms. Dean. Yes, Ms. Mavrellis?
Ms. Mavrellis. We did a report at Global Financial
Integrity in 2018, looking at the illegal trade in great apes,
and we saw a lot of issues in terms of particularly CITES
permits being used. With the live animals, it is very easy to
launder them into the trade, particularly when you have
governments like Guinea that were providing them.
But when looking at the whole supply chain, there are
certain critical points that we need to target, definitely
supporting what the other witness said in terms of keeping it
on the continent. A lot of the times, looking at the trade in
great apes, there were just three or four international
suppliers that were perfect chokepoints to go after. Instead,
we focus on either just the poacher or the people buying them.
Ms. Dean. And if you don't mind offline--
Chairman Himes. The gentlelady's time has expired. We will
take additional information for the record.
The gentleman from Arkansas, Mr. Hill, is now recognized
for 5 minutes.
Mr. Hill. I appreciate that, Mr. Chairman.
It's nice to have this panel here. It is a good discussion.
We have had several discussions on trade-based money laundering
over the past few years, oil-fueled ISIS murder throughout
Syria and Iraq and it took us 2 years--
Chairman Himes. The gentleman will briefly suspend. I think
your microphone may be off, Mr. Hill.
Mr. Hill. Maybe I was using--
Chairman Himes. We will start the clock again.
Mr. Hill. Gosh, you are so generous. Thank you. I thank the
chairman. I was speaking into Mr. Williams' microphone. Sorry
about that.
Well, thanks for the panel being here. We have had an
effort to have trade-based money laundering at the forefront of
this subcommittee for a number of years, including when it was
just a task force. So, it is good to have you back.
Smuggling oil out of Syria and Iraq fueled ISIS and funded
ISIS for years, and it was pressure from this committee and
from others in the Congress that caused the Obama
Administration to change policy and interdict that oil before
it crossed the border into Turkey. So, we know how these
commodities fuel bad actors around the country.
I was in the Congo not long ago, in Brazzaville, and we
have an embassy there that only has 14 people in it. So, for us
to really do anything very significant to aid in stopping
deforestation in the Congo is challenging. And that trip to
Africa reinforced, Ms. Araya, your comments about corruption.
It is hard for us to take actions here about interdicting
terror finance or trade-based money-laundering finance and
transnational crime when it is the countries' leadership itself
that is facilitating it. And that is endemic in all of the
continents of the world, but particularly, I would say, in
Africa and Latin America.
Mr. Fruth, quick question, should we impose Magnitsky
sanctions for trade-based money laundering in some of these
countries of concern?
Mr. Fruth. That is not for me to say, Congressman, but I
think that there are a lot of different authorities and
capabilities that we can utilize against these countries, their
leadership, whether it be OFAC designations, whether it be
State Department designations, whether it be Commerce entity
listing--I think there is a wide range of different
capabilities that we can use, but certainly corruption is an
issue, and it is an issue in Afghanistan as well.
Mr. Hill. Yes. We talked about how there is no Mutual Legal
Assistance (MLAT) treaty with China. I think that was
referenced in somebody's testimony. Can somebody talk about the
value of having a legal treaty, extradition-type treaty, MLAT
treaty with a country? Does that speed up the ability of
catching people engaged in trade-based money laundering?
Ms. Mavrellis?
Ms. Mavrellis. It depends. We just completed a report
looking at financial crime in Latin America and the Caribbean.
And our chapter looking at money laundering, it is really
excellent to have that because it facilitates intelligence
sharing, but there are a lot of issues in terms of two
different types of legal systems--civil and common law--having
to deal with each other.
They are talking with different languages. It is not just
Spanish and English, but also different types of legal
structures. And so, there are issues communicating in terms of
what level of evidence is needed, and it is hard sometimes for
our partner countries to know what is sufficient evidence to
get assistance from the United States.
Mr. Hill. I heard you reference conflict minerals, and, of
course, in the Dodd-Frank Act, we imposed an enormous, costly
regulation on public companies on conflict minerals.
And I want to quote from The Washington Post: ``The
legislation signed into law by President Obama set off a chain
of events that has propelled millions of miners and their
families deeper into poverty. According to interviews with
miners, community leaders, activists, and Congolese and Western
officials, if Obama's law wasn't signed, the ban would not have
existed.''
And it goes on to talk about the negative consequences of
trying to use the public securities laws to tackle this
problem.
It has really been costly. I think it is overdone. I don't
think that is the right tool to use.
Should we consider a special suspicious activity report
(SAR) for trade-based money laundering where we enhance, maybe
go beyond the financial system on a suspicious activity report?
Mr. Fruth, you are nodding. Do you have a comment on that?
Mr. Fruth. Yes. I am a big fan of more boxes on the SAR
forms. As a person, I don't know how many other folks here
have, but I have actually written SARs and I have also received
SARs, on both the public and private sector side. And I am a
big fan of allowing more boxes on the SAR form, so by the time
FinCEN actually receives that, we have a more detailed
understanding of what the different threat landscape is and
predicate sources of funds in different schemes. So, I would
absolutely concur with that.
Mr. Hill. Is that the kind of thing you think that would
enhance the public-private partnership that has been outlined
today?
Mr. Fruth. I do. I think FinCEN is one of the most
underutilized agencies within the U.S. Government and certainly
an asset for law enforcement, the intelligence community, et
cetera. So, I think expanding out detail on those SAR forms,
such as your suggestion about trade-based money laundering, is
an excellent idea.
Mr. Hill. Thank you for that. I would invite the panelists
to comment on that in writing to the subcommittee. That would
be helpful to understand your thoughts on the details of the
partnership. I thank you for the testimony.
And I yield back.
Chairman Himes. The gentleman's time has expired.
The gentleman from Ohio, Mr. Gonzalez, is recognized for 5
minutes. He is coming to us remotely.
Mr. Gonzalez of Ohio. Thank you, Chairman Himes and Ranking
Member Barr, for holding this hearing. And thank you to our
witnesses. It has certainly been an enlightening hearing so
far, and I appreciate everybody's contributions and questions.
Mr. Fruth, I want to start with you. In your testimony, you
highlight that there is over a trillion dollars worth of rare
earth minerals in Afghanistan. We talked a bit about that.
About a decade or so ago, the Obama Administration made a
similar indication, but the reports at the time seemed to
indicate that getting the proper mining infrastructure to
properly access these minerals could take several years to
establish.
If China were to immediately insert themselves into the
country now to begin exploiting the resources there, how
quickly do you think it would take them to establish the mining
capabilities in the country?
Mr. Fruth. Thank you for the question, Congressman. And as
a fellow Ohioan, it is good to see you. I was born and raised
in Ohio.
First off, I am not a geologist. I worked in the
intelligence community over the course of my career, so I can't
speak to that. What I can say is, whatever our assessment was
10 years ago, I don't even know if that is the relevant
qualitative factor that I would look at. It is more about what
China's assessment is.
China has prioritized drawing rare earths from Afghanistan.
So however we look at the situation, the reality is that China
has prioritized this. And whether it takes them 2 years to
extract these minerals or 10 years, China is playing the long
game. They are looking at the next decades. If they can control
these rare earths, that is going to supply them with the
critical components that they need for their emerging
technology over the course of the next decade.
So I don't know that it is so much a matter of whether it
is a 2-year ordeal or a 10-year ordeal. The fact of the matter
is, if they secure these rare earths, they are going to extract
them, however much time it takes.
Mr. Gonzalez of Ohio. Yes. And I could tell by your
brilliance that you must be from Ohio, so I am just glad that
you reminded me of that.
But that being said, so obvious follow-up to that question
is, what should we be doing now to best prepare ourselves? How
do we prevent China from taking over rare earths and securing
that supply chain? And how do we prevent Afghanistan from
basically being in a similar relationship status with China as
North Korea is?
Mr. Fruth. Excellent question. So, two parts. China is
financially undercutting us from a cost perspective in all of
these emerging rare earth theaters, which tells me that they
actually prioritize being able to choke the market off more
than they prioritize the profit margins coming from these rare
earths. So, that is point number one.
Point number two, if we look at this hybrid threat
collective that I have outlined in my testimony, in Afghanistan
right now, it includes China, it includes various terrorist
organizations, and it includes Pakistan.
China knows that they can't manage all of the different
divisions--political, religious, ideological, Tribal, et
cetera--throughout Afghanistan, so they are employing Pakistan
to do that on their behalf.
So my answer to you on that would be, we need to apply lots
and lots and lots of pressure on Pakistan, who has proclaimed
to be our friend for the last 20 years and taken aid from us,
and even possibly bombed our friends in the Northern Resistance
Front in the Panjshir with laser-guided munitions that we
provided to them to bomb ISIS and al-Qaida.
So, they are not our friends, they are not behaving as an
ally, and we should start applying financial and economic
pressure on them accordingly, and that could help break down
the security situation that they are trying to provide for
China to extract these rare earths.
Mr. Gonzalez of Ohio. Thank you for that. And one last
question on Pakistan. Where do you see the biggest leverage
points there from a U.S. perspective? I think you highlighted
some, but just maybe drill down a little bit deeper?
When you said, put pressure on Pakistan, where are we best
equipped to do that?
Mr. Fruth. Pakistan has been in a difficult economic
position for some time. If you think back, I think 2016, 2017,
the New York Department of Financial Services levied $225
million in fines at Habib Bank Limited and removed their New
York correspondent branch license. If you remember, that was
absolutely detrimental to the Pakistani economy, and the entire
global financial system started contemplating whether they
should de-risk Pakistan.
Now, they are FATF grey-listed. Their energy minister just
came out, I think a couple of days ago, and said that they
think that they are actually going to get off the FATF grey
list here soon.
I think it is absurd. I don't think they should be off the
FATF grey list. If anything, I think we should be applying more
pressure and looking at our partnerships with the IMF,
considering the conditions that were set out in their IMF
loans, and reviewing, with an interagency effort, whether or
not they have violated those conditions with recent revelations
from the interior minister that they were the custodians of the
Taliban for the past 20 years, that they sheltered them, and
that they have been providing thousands of kids from Pakistani
madrasas every year to reconstitute the Taliban against U.S.
interests in Afghanistan.
Mr. Gonzalez of Ohio. Thank you. Your testimony has been
very, very enlightening. I appreciate all that, and I look
forward to following up in person.
And I yield back.
Chairman Himes. The gentleman's time has expired.
I now recognize the gentleman from Texas, Mr. Sessions, for
5 minutes, who is coming to us remotely.
Mr. Sessions. Yes. Mr. Chairman, thank you very much, and
thank you also to Ranking Member Barr.
My question really, I think, is for Ms. Araya, or to anyone
who is on this panel. But what I am interested in, and I really
want to follow up on the conversation about animals and
poaching and the ability that we have to cede the destruction
of at least Africa and where these animals are indigenous to,
and you have made a powerful recommendation in your testimony
to expand funding programs for the International Affairs
Department of the U.S. Fish and Wildlife Service, providing
technical assistance and to use technology that helps.
And I just wanted to talk about this, because the problem
that I see is yet in the funding packages that some of our
colleagues have put out, they seem to not be able to
distinguish between legitimate trade and the ability that we
have to protect these animals from poaching. And I think the
U.S. Fish and Wildlife Service is important, and I would like
to hear that conversation that anyone on the panel may have
about the funding levels.
Ms. Araya. Thank you, Congressman, for your comment. I
can't provide comments on a specific funding package, but I
think it is very important for more funding to go towards U.S.
agencies such as U.S. Fish and Wildlife, APHIS, even certain
parts of the U.S. Department of State, that are governing
illicit trafficking, because, as I mentioned before, there are
governments, there is law enforcement in these countries who do
want the help, they do want capacity-building in order to
detect different wildlife trafficking, different species of
timber, different illicit goods, but they don't have the
current capacity or knowledge or funding to do so.
When I was on the continent, I met different guards--forest
guards, wildlife guards--who said that they actually wanted to
do more to curb this trade locally, but they didn't have the
funds to do that, especially compared to many of these
traffickers who are on the ground, who have weapons, who are
considered to be violent. It was very difficult for them to
even go against that.
I think letting our African partners know that the U.S.
takes this very seriously, and for the United States to provide
funding to our experts in our country who can provide that
technical assistance to aid our African country partners in
doing this important work to end wildlife crime, illicit
environmental crime, will be very critical moving forward.
Mr. Sessions. Thank you. I did listen to your conversation,
as well as some of the members of this committee who have
talked about capacity-building relationships, continuing those,
but perhaps the most important part was actually engaging the
partners where they would choose to do that.
Does anyone else on the panel have any conversation
specifically related to that?
Ms. Garcia Zendejas. Thank you. Thank you for the question.
I would like to mention that wildlife trafficking levels in
Peru are even higher than illicit trade in timber.
But I wanted to highlight an effective operation, which was
Operacion Amazonas, and it was successful precisely because of
this interagency, very broad effort. It included the Peruvian
Customs and Tax Authority. It included the supervising offices
for forest. It included the Peruvian environmental prosecutor,
the attorney general for ministry and the environment,
including the World Customs Organization and INTERPOL.
That has been the most successful operation that has led to
these indictments both in the U.S. and in Peru, and it is this
cross-sector effort that made it possible.
Mr. Sessions. Anyone else?
Ms. Mavrellis. I would just like to add, I think having and
placing U.S. Fish and Wildlife Service staff, as recommended in
the Preventing Future Pandemics Act, within other governments,
within other countries, is extremely critical to sharing that
knowledge and capacity-building to those countries, to help
them know how to engage in investigations, particularly the
financial side of the investigations.
I think it is also important to involve the private sector,
looking at things like United for Wildlife and the efforts
pushed through there, involving the transportation sector,
involving the financial sector, and educating them and
involving them in detecting this and stopping this.
Mr. Sessions. I want to thank you, Mr. Chairman. I think
the discussion of INTERPOL also is important and finding
willing partners.
Mr. Chairman, I want to thank you very much, and I yield
back my time.
Chairman Himes. The gentleman's time has expired.
I now recognize for 5 minutes the Chair of the Full
Committee, the distinguished gentlewoman from California,
Chairwoman Waters.
Chairwoman Waters. Thank you so very much, Chairman Himes.
I am very pleased to be able to participate in this hearing
today. And I would like to direct this question to Ms.
Mavrellis.
Earlier this year, Congress passed the Corporate
Transparency Act of 2020 (CTA) and the Anti-Money Laundering
Act of 2020 into law. The tools and authorities provided in
these laws include reporting on the beneficial owners of U.S.-
registered shell companies and improving information sharing
between financial institutions and government regarding red
flags and other threat indicators.
As Treasury and other agencies work to implement these laws
through rulemaking, what do agencies like the Financial Crimes
Enforcement Network (FinCEN) need to do to ensure that the
actions taken are effective?
For example, what should be included in the rule to ensure
that the beneficial owners of currently anonymous shell
companies do not escape the mandated reporting requirements?
Ms. Mavrellis. Thank you very much for the question, Madam
Chairwoman. Coming from Global Financial Integrity, the work
that we do with the Financial Accountability and Corporate
Transparency Coalition (FACT), for us, it is extremely
important for FinCEN to interpret, ``other similar entities,''
to include partnerships, sole proprietorships, trusts,
foundations, and business associations, unless a particular
entity qualifies for an exemption.
It is a difficult issue because you have companies being
incorporated at a State level, while all of this regulation
going on is at a Federal level. So having the widest definition
possible really helps to make sure that no types of entities
fall through the cracks.
It also really tries to keep the transparency objectives of
the CTA, making sure that it is highly useful to law
enforcement, to national security and intelligence agencies, as
well as the financial institutions. It helps to bring us into
better compliance or into better harmony with our other allies,
like the U.K. and the EU.
I also want to stress the importance of the financial
institution information sharing. I think the FinCEN Exchange
needs to be promoted and really expanded to be like what we see
with other colleagues, like the U.K.'s Joint Money Laundering
Intelligence Taskforce (JMLIT). They have working groups that
work together to put out papers, and to identify red flags. And
I think we really need to work with financial institutions to
encourage them to feel more comfortable sharing information
between themselves.
They are allowed to under the PATRIOT Act, but I think
there is a lot of hesitation legally to do so, as well as to do
it within FinCEN Exchange. So, FinCEN Exchange can be a more
informal relationship for them to have the connection, share
the information, and it can be very productive, I think.
Chairwoman Waters. Thank you very much. And I think I heard
part of that just as I was coming in about the kinds of
interactions that could or should be taking place to help them
to do their job.
Are you aware of the need for additional resources for
FinCEN?
Ms. Mavrellis. Absolutely. They have a huge mandate, and
their staffing is about 300, so significant amounts of
resources need to go in, and not just in terms of having good
pay for the staffers but having more human capacity to handle
this. I think it is extremely important that they are able to
accomplish this task.
They are having to handle just a wide remit of different
activities. In terms of just thinking about the number of
Suspicious Activity Reports (SARs) and Currency Transaction
Records (CTRs) that they have to handle each year, having the
capacity to really evaluate them and getting actionable
intelligence from them is just--you could put a price on it,
but it is priceless to be able to do so.
Chairwoman Waters. Thank you very much. In working with my
staff and with the Chair of this subcommittee, we have
identified the fact that there is a need for additional
resources. And we have made some moves, but this should be a
bipartisan effort in order to get the resources that are needed
to do what we expect them to do. So, I thank you.
And I yield back the balance of my time.
Chairman Himes. The gentlewoman yields back.
And I believe this concludes our questioning. I would like
to thank our witnesses for their testimony today and for a very
engaging discussion.
The Chair notes that some Members may have additional
questions for these witnesses, 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.
With that, this hearing is adjourned.
[Whereupon, at 11:44 a.m., the hearing was adjourned.]
A P P E N D I X
November 4, 2021
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