[Congressional Record (Bound Edition), Volume 152 (2006), Part 17]
[Senate]
[Pages 22402-22405]
[From the U.S. Government Publishing Office, www.gpo.gov]




                      TESTIMONY OF MALLORY FACTOR

  Mr. SHELBY. Mr. President, I ask unanimous consent that the following 
testimony given by Mr. Mallory Factor before the Senate Committee on 
Banking, Housing, and Urban Affairs on September 29, 2004, and before 
the Senate Committee on Governmental Affairs on June 15, 2004, be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

 Written Testimony of Mallory Factor Before the Committee on Banking, 
  Housing, and Urban Affairs, United States Senate, September 29, 2004

       Chairman Shelby, Senator Sarbanes, and Distinguished 
     Members of this Committee, thank you for inviting me to 
     testify today about my views on the critical issue of curbing 
     terror financing.
       Chairman Shelby, I would like to commend you in particular 
     for your unwavering commitment to addressing the financing of 
     terror. The work that this Committee is undertaking is 
     extremely important to the United States and the world. Thank 
     you for your leadership.
       My testimony will focus on terror financing emanating from 
     within the Kingdom of Saudi Arabia. Clearly, there are 
     numerous other states that allow terror financing to continue 
     and that should be examined also. I have chosen to focus on 
     Saudi Arabia because of the enormous resources that are 
     funneled from within Saudi Arabia to terrorist groups around 
     the world.
       My recommendations are contained in a report of an 
     Independent Task Force on Terrorist Financing, sponsored by 
     the Council on Foreign Relations, on which I served as Vice-
     Chair. Since the report, along with its various appendices, 
     is almost 300 pages in length, I will only be able to 
     highlight core points and ask that the full report and its 
     appendices be placed into the record.
       I would like to thank the Task Force Chairman, Maurice R. 
     Greenberg, who has been a leader in bringing this issue to 
     the nation's attention. I would also like to thank Council 
     President Richard Haass for his commitment to this topic and 
     to the Task Force's mission. I am testifying in my personal 
     capacity, as is customary, and not on behalf of the Task 
     Force or the Council on Foreign Relations.
       Among the core findings of the first Terrorist Financing 
     Task Force report, released in October 2002, was that ``For 
     years, individuals and charities based in Saudi Arabia have 
     been the most important source of funds for al-Qaeda; and for 
     years, Saudi officials have turned a blind eye to this 
     problem.''
       It should be noted that the Task Force found no evidence 
     that the Saudi government--as an institution--participated in 
     the financing of terror directly. However, the Saudi 
     government has clearly allowed individual and institutional 
     financiers of terror to operate and prosper within Saudi 
     borders.
       The Bush administration has accomplished a great deal since 
     9/11. Some of the Administration's achievements in this area 
     have been integrating terrorist financing into the U.S. 
     government's overall counterterrorism effort, securing 
     unprecedented international support for UN sanctions against 
     al-Qaeda, strengthening international standards for financial 
     supervision through the Financial Action Task Force (FATF), 
     issuing significant and meaningful regulations under the 
     Patriot Act and implementing a wide-ranging strategy to 
     engage Saudi Arabia on the subject of financial and 
     ideological support of extremists. Still, there is much work 
     to be done.
       I would like to set forth the following framework of 
     constructive, forward looking recommendations for improving 
     U.S. efforts against terrorism financing.
       First, U.S. policymakers must build a new framework for 
     U.S.-Saudi relations. The terror financing issue is situated 
     in the complex and important bilateral relationship between 
     the United States and Saudi Arabia. For decades, U.S.-Saudi 
     Arabia relations have been

[[Page 22403]]

     built upon a consistent framework understood by both sides: 
     Saudi Arabia would be a constructive actor with regard to the 
     world's oil markets and regional security issues, and the 
     United States would help provide for the defense of Saudi 
     Arabia, work to address the Israeli-Palestinian conflict, and 
     not raise any significant questions about Saudi Arabian 
     domestic issues, either publicly or privately.
       More recently however, this framework has come under strain 
     because al-Qaeda, a terrorist organization rooted in issues 
     central to Saudi Arabian domestic affairs, has murdered 
     thousands of Americans. Al-Qaeda and similar organizations 
     continue to conspire to kill even more Americans and to 
     threaten our way of life.
       Changed circumstances require a new policy framework for 
     U.S.-Saudi relations. When domestic Saudi issues threaten 
     Americans at home and abroad, the U.S. must pay attention to 
     those Saudi ``domestic'' issues that impact U.S. security 
     such as terrorist financing and the global export of Islamic 
     extremism. These issues can no longer be ``off the table''; 
     they must be front and center in our bilateral relationship.
       This transition is already well underway, as evidenced by 
     turbulence in the bilateral relationship since 9/11. Some 
     Bush administration officials have privately characterized 
     the current state of affairs in Saudi Arabia as a ``civil 
     war'' and suggested that the appropriate objective for U.S. 
     policy in this context is to help the current regime prevail. 
     I agree, but believe the domestic Saudi problem will not be 
     solved by dispersing al-Qaeda cells and members in Saudi 
     Arabia alone. Rather, the ``civil war'' will be won only when 
     the regime confronts directly and unequivocally addresses the 
     ideological, religious, social, and cultural realities that 
     fuel al-Qaeda, its imitators, and its financiers all over the 
     world.
       Second, Saudi Arabia must fully implement its new laws and 
     regulations and take additional steps to further improve its 
     efforts to combat terrorist financing. In addition to 
     implementing its recently enacted laws and regulations in 
     this area, Saudi Arabia should also deter the financing of 
     terrorism by publicly punishing those Saudi individuals and 
     organizations that have funded terrorist organizations. 
     Although a recent report by FATF noted several prosecutions 
     in Saudi Arabia under the terror financing laws, arrests and 
     punitive steps against financiers of terror have only taken 
     place in the ``shadows''. I am not aware of any publicly 
     announced arrests, trials or incarcerations in Saudi Arabia 
     relating to the financing of terrorism. Saudi Arabia must 
     also increase the financial transparency and programmatic 
     verification of its global charities and publicly release 
     audit reports of those charities. Saudi Arabia should ratify 
     and implement treaties that create binding international 
     legal obligations relating to combating money laundering and 
     terrorist financing.
       Third, multilateral initiatives need to be better 
     coordinated, appropriately funded, and invested with clear 
     punitive authorities. The need for a new international 
     organization specializing in terrorist financing issues, as 
     recommended by the Task Force's initial report, has 
     diminished as a result of significant efforts being 
     undertaken by a variety of international actors. The need for 
     proper coordination and clearer mandates has increased for 
     the same reason. It is now time to minimize duplicative 
     efforts and reallocate resources to the most effective and 
     appropriate lead organization.
       Fourth, the executive branch should formalize its efforts 
     to centralize the coordination of U.S. measures to combat 
     terrorist financing. My understanding is that, in practice, 
     responsibilities for the coordination of terrorist financing 
     issues have shifted from the Treasury Department to the White 
     House. I commend the Bush Administration for this action. 
     However, setting up a formal allocation of responsibilities 
     is crucial to maintain continuity and focus as the specific 
     individuals involved in these efforts turn over. Therefore, 
     allocation of responsibility to the White House needs to be 
     formalized through a National Security Presidential Directive 
     (NSPD) or otherwise.
       Fifth, Congress should enact a Treasury-led certification 
     regime specifically on terrorist financing. Many governments 
     are working on shutting down terror financing from within 
     their borders, but many are not. Congress should adopt a 
     certification regime under which the Treasury Department 
     provides a written certification on an annual basis 
     (classified if necessary) detailing the steps that foreign 
     nations have taken to cooperate in U.S. and international 
     efforts to combat terror financing. In the absence of a 
     presidential national security waiver, jurisdictions that do 
     not receive this certification would be subject to sanctions 
     provided by section 311 of the Patriot Act--including denial 
     of U.S. foreign assistance monies and limitations on access 
     to the U.S. financial system.
       The Administration has used the powers granted to it by 
     section 311 of the Patriot Act but only once in the terror 
     financing context. Section 311 allows Treasury to require 
     domestic financial institutions and agencies to take 
     ``special measures'' against certain parties, including both 
     institutions and jurisdictions, believed by the Treasury to 
     be engaged in money laundering/terror financing. These 
     special measures can include placing prohibitions or 
     conditions on ``correspondent'' or ``payable through'' 
     accounts involving the parties engaged in the money 
     laundering/terror financing.
       Of course, foreign financial institutions and jurisdictions 
     that do not have significant financial relations with the 
     United States would not be meaningfully impacted by Section 
     311 sanctions imposed by the United States. However, a 
     similar sanction imposed in the money laundering context 
     resulted in the targeted jurisdiction promulgating desired 
     legislative and regulatory changes.
       A certification regime for terror financing would ensure 
     that these special measures are used appropriately and 
     thoughtfully against ``rogue'' jurisdictions. A separate 
     certification regime for terror financing--distinct from any 
     other reporting requirements on the promulgation of terror 
     itself or money laundering--ensures that stringent 
     requirements are maintained specifically with respect to each 
     jurisdiction's practices on terror financing without 
     consideration of other issues.
       I commend Congresswoman Sue Kelly and others who have 
     introduced legislation in the House, as H.R. 5124, that would 
     require a terror financing certification regime.
       Sixth, the UN Security Council should broaden the scope of 
     the UN's al-Qaeda and Taliban Sanctions Committee. The UN 
     Security Council should specifically impose international 
     sanctions on other groups and individuals that have been 
     designated as terrorists, as Hamas has been by the United 
     States and E.U. I understand that these UN committees 
     continue to discuss various actions but have not taken any 
     affirmative action as yet. Furthermore, the UN should 
     require, as a matter of international law, that member states 
     take enforcement action against groups, persons and entities 
     designated by the Sanctions Committee. The enabling 
     resolution for these expanded authorities should explicitly 
     reject the notion that acts of terror may be legitimized by 
     the charitable activities or political motivations of the 
     perpetrator. The UN should make it clear that no cause, 
     however legitimate, justifies the use of terror.
       Seventh, the U.S. government should increase sharing of 
     information with the financial services sector as permitted 
     by Section 314(a) of the PATRIOT Act so that this sector can 
     cooperate more effectively with the U.S. government in 
     identifying financiers of terror. Helping private sector 
     financial institutions become effective partners in 
     identifying financiers of terror should be a top priority. 
     The procedures set forth in Section 314(a) of the PATRIOT 
     Act, which promote information sharing between the U.S. 
     government and financial institutions to increase detection 
     of terror financing, are not working as well as they should. 
     The U.S. government is still not providing financial 
     institutions with adequate information to enable the 
     institutions to detect terror financing and identify unknown 
     perpetrators. The government is still using financial 
     institutions primarily to assist in investigating known or 
     suspected terror financiers, not in identifying unknown ones. 
     In addition, our government does not currently have the 
     appropriate resources to process and make full use of 
     information that is flowing to it from financial 
     institutions.
       I recognize that the information that would enable 
     financial institutions to become effective partners with the 
     U.S. government in identifying terror financing may be highly 
     protected intelligence information. In other industries such 
     as defense and transportation, however, persons can be 
     designated by the U.S. government to receive access to 
     certain high value information as necessary. A similar 
     approach could be used to facilitate information sharing and 
     cooperation between the U.S. government and private financial 
     institutions.
       Eighth, the National Security Council (NSC) and the White 
     House Office of Management and Budget (OMB) should conduct a 
     cross-cutting analysis of the budgets of all U.S. government 
     agencies as they relate to terrorist financing. Monitoring 
     the financial and human resources that are actually devoted 
     to the various tasks involved in combating terrorist 
     financing will facilitate fully informed, strategic decisions 
     about whether resource allocations are optimal or functions 
     are duplicative. For this reason, the NSC and OMB should 
     conduct a cross-cutting analysis of all agencies' budgets in 
     this area, to gain clarity about who is doing what, how well, 
     and with what resources. With such a cross-cut in hand, the 
     Administration and Congress can begin to assess the 
     efficiency of existing efforts and the adequacy of 
     appropriations relative to the threat.
       Ninth, the U.S. government and private foundations, 
     universities, and think tanks should increase efforts to 
     understand the strategic threat posed to the United States by 
     radical Islamic militancy, including specifically the methods 
     and modalities of its financing and global propagation. At 
     the dawn of the Cold War, the U.S. government and U.S. 
     nongovernmental organizations committed substantial public 
     and philanthropic

[[Page 22404]]

     resources to endow Soviet studies programs across the United 
     States. The purpose of these efforts was to increase the 
     level of understanding in this country of the profound 
     strategic threat posed to the United States by Soviet 
     Communism. A similar undertaking is now needed to understand 
     adequately the threat posed to the United States by radical 
     Islamic militancy, along with its causes, which we believe 
     constitutes the greatest strategic threat to the United 
     States at the dawn of this new century. To be commensurate 
     with the threat, much more will need to be done by private 
     U.S. foundations, universities, and think tanks in a 
     sustained, deliberate, and well-financed manner.
       I look forward to your questions.
                                  ____


Statement of Mallory Factor, Senate Committee on Governmental Affairs, 
  ``An Assessment of Current Efforts To Combat Terrorism Financing,'' 
                             June 15, 2004

       Madame Chairman, Senator Lieberman and Distinguished 
     Members of the Committee:
       I am honored to testify here today to report to you on the 
     recommendations of the Independent Task Force of the Council 
     on Foreign Relations on Terrorist Financing, of which I have 
     served as Vice-Chair.
       Madame Chairman and Senator Lieberman, I would like to 
     commend you for your unwavering commitment to these issues. 
     The work this Committee is undertaking is of critical 
     importance to the United States and the world. Thank you for 
     your important leadership.
       Until relatively recently, too little was done to curb the 
     flow of funds to terrorists and extremists. That is why the 
     Council on Foreign Relations sponsored this Task Force in 
     2002 and renewed its mandate more recently. I would like to 
     thank Council President Richard Haass for all that he has 
     done to make this Task Force a success.
       Our distinguished bi-partisan Task Force is chaired by 
     Maurice R. Greenberg and directed by William F. Wechsler and 
     Lee S. Wolosky. They led this Task Force in the interest of 
     serving our nation. I believe they have succeeded.
       I would particularly like to commend Lee Wolosky, without 
     whose leadership, judgment, diplomacy, draftsmanship and 
     dedicated efforts this task force would not have been a 
     success. Lee worked tirelessly to reach consensus among task 
     force members on the report and its recommendations.
       The Bush administration has accomplished a great deal since 
     9/11. Some of the administration's achievements in this area 
     have been integrating terrorist financing into the U.S. 
     government's overall counterterrorism effort, securing 
     unprecedented international support for UN sanctions against 
     al-Qaeda, strengthening international standards for financial 
     supervision through FATF, issuing significant and meaningful 
     regulations under the PATRIOT Act and implementing a wide-
     ranging strategy to engage Saudi Arabia on the subject of 
     financial and ideological support of extremists. Still, there 
     is much work to be done and I believe that the Task Force 
     report sets forth a framework of constructive, forward 
     looking recommendations for improving U.S. efforts against 
     terrorism financing.
       Our report focuses on terror financing from within the 
     Kingdom of Saudi Arabia because of the enormous resources 
     emanating from that state that fund terrorist activities. 
     Clearly, there are numerous other states that finance terror 
     and that should be examined also.
       The Kingdom of Saudi Arabia has accomplished a great deal 
     since May 2003. Most notably, Saudi Arabia has enacted 
     extensive laws and regulations which, if fully implemented, 
     would significantly reduce the flow of funds from within 
     Saudi Arabia to terrorists. However, we have not found Saudi 
     Arabia to be effectively enforcing these laws and regulations 
     as Lee Wolosky has discussed. Many issues still need to be 
     addressed before Saudi Arabia will have an acceptable regime 
     in place to combat terror financing.
       Our task force report generally reaffirms the 
     recommendations made in the Task Force's first report and 
     makes nine new recommendations. I will discuss them in 
     varying levels of detail and would welcome the opportunity to 
     discuss any of them in greater length in response to your 
     questions.
       First, we urge U.S. policymakers to build a new framework 
     for U.S.-Saudi relations. We recognize the broader context of 
     the complex and important bilateral relationship in which the 
     terrorist financing issue is situated. For decades, U.S.-
     Saudi Arabia relations have been built upon a consistent 
     framework understood by both sides: Saudi Arabia would be a 
     constructive actor with regard to the world's oil markets and 
     regional security issues, and the United States would help 
     provide for the defense of Saudi Arabia, work to address the 
     Israeli-Palestinian conflict, and not raise any significant 
     questions about Saudi Arabian domestic issues, either 
     publicly or privately.
       More recently however, this framework has come under strain 
     because al-Qaeda, a terrorist organization rooted in issues 
     central to Saudi Arabian domestic affairs, has murdered 
     thousands of Americans. Al-Qaeda and similar organizations 
     continue to conspire to kill even more Americans and to 
     threaten our way of life.
       Changed circumstances require a new policy framework for 
     U.S.-Saudi relations. When domestic Saudi problems threaten 
     Americans at home and abroad, the U.S. must pay attention to 
     those Saudi ``domestic'' issues that impact U.S. security 
     such as terrorist financing and the global export of Islamic 
     extremism. These issues can no longer be ``off the table''; 
     they must be front and center in our bilateral relationship.
       We acknowledge that this transition is already well 
     underway, as evidenced by the turbulence in the bilateral 
     relationship since 9/11. We note that some Bush 
     administration officials have privately characterized the 
     current state of affairs in Saudi Arabia as a ``civil war'' 
     and suggested that the appropriate objective for U.S. policy 
     in this context is to help the current regime prevail. We 
     agree, but we believe the domestic Saudi problem will not be 
     solved by dispersing al-Qaeda cells and members in Saudi 
     Arabia alone. Rather, the ``civil war'' will be won only when 
     the regime confronts directly and unequivocally addresses the 
     ideological, religious, social, and cultural realities that 
     fuel al-Qaeda, its imitators, and its financiers all over the 
     world.
       Second, we recommend that Saudi Arabia fully implement its 
     new laws and regulations and take additional steps to further 
     improve its efforts to combat terrorist financing. In 
     addition to implementing its recently enacted laws and 
     regulations in this area, Saudi Arabia should also deter the 
     financing of terrorism by publicly punishing those Saudi 
     individuals and organizations that have funded terrorist 
     organizations. It should increase the financial transparency 
     and programmatic verification of its global charities and 
     publicly release audit reports of those charities. Saudi 
     Arabia should also ratify and implement treaties that create 
     binding international legal obligations relating to combating 
     money laundering and terrorist financing.
       Third, we suggest that multilateral initiatives be better 
     coordinated, appropriately funded, and invested with clear 
     punitive authorities. The need for a new international 
     organization specializing in terrorist financing issues, as 
     recommended by our initial report, has diminished as a result 
     of significant efforts being undertaken by a variety of 
     international actors. The need for proper coordination and 
     clearer mandates has increased for the same reason. It is now 
     time to minimize duplicative efforts and reallocate resources 
     to the most effective and appropriate lead organization.
       Fourth, we believe that the executive branch should 
     formalize its efforts to centralize the coordination of U.S. 
     measures to combat terrorist financing. Our understanding is 
     that, in practice, responsibilities for the coordination of 
     terrorist financing issues have shifted from the Treasury 
     Department to the White House, as we recommended in our 
     original Task Force report. I commend the Bush Administration 
     for this action. However, we believe that this allocation of 
     responsibility to the White House needs to be formalized 
     through a National Security Presidential Directive (NSPD) or 
     otherwise.
       Fifth, we recommend that Congress enact a Treasury-led 
     certification regime specifically on terrorist financing. The 
     financial support for terrorism is the life-blood of global 
     terrorism and requires its own certification regime. A 
     separate certification process will ensure that stringent 
     requirements are maintained specifically with respect to a 
     nation's policies and practices on terrorist financing 
     without consideration of other issues.
       I believe that the Saudi Arabia Accountability Act of 2003, 
     S. 1888, sponsored by Senator Arlen Specter and co-sponsored 
     by Chairman Collins and others would provide a good starting 
     point for a terrorist financing certification regime if it 
     were narrowed to focus solely on the financing of terrorism 
     and expanded to apply to other nations.
       We understand that certification regimes are generally 
     disfavored by the executive branch (which must implement 
     them) and favored by the legislative branch (which they 
     empower). Although controversial, they also have the ability 
     to galvanize quickly action consistent with U.S. interests. 
     Moreover, they require official findings of fact that have 
     the effect of promoting transparency and compelling sustained 
     U.S. attention to important topics that, on occasion, U.S. 
     officials find it more expedient to avoid.
       For these reasons, we believe that Congress should pass and 
     the President should sign legislation requiring the executive 
     branch to submit to Congress on an annual basis a written 
     certification (classified if necessary) detailing the steps 
     that foreign nations have taken to cooperate in U.S. and 
     international efforts to combat terrorist financing. We 
     suggest that in the absence of a presidential national 
     security waiver, states that do not receive this 
     certification would be subject to sanctions--including denial 
     of U.S. foreign assistance monies and limitations on access 
     to the U.S. financial system.
       Sixth, we urge the U.N. Security Council to broaden the 
     scope of the U.N.'s al-Qaeda and Taliban Sanctions Committee. 
     The UN

[[Page 22405]]

     Security Council should specifically impose international 
     sanctions on other groups and individuals that have been 
     designated as terrorists, as Hamas has been by the United 
     States and E.U. Furthermore, it should require, as a matter 
     of international law, that member states take enforcement 
     action against groups, persons and entities designated by the 
     Sanctions Committee. The enabling resolution for these 
     expanded authorities should explicitly reject the notion that 
     acts of terror may be legitimized by the charitable 
     activities or political motivations of the perpetrator. No 
     cause, however legitimate, justifies the use of terror; 
     indeed, the use of terror delegitimizes even the most worthy 
     causes.
       Seventh, we suggest that the U.S. government increase 
     sharing of information with the financial services sector as 
     permitted by Section 314 of the USA PATRIOT ACT so that this 
     sector can cooperate more effectively with the U.S. 
     government in identifying incidences of terror financing. 
     International financial institutions subject to U.S. 
     jurisdiction are among our best sources of raw financial 
     intelligence to identify terror financing, but these 
     institutions need to be given appropriate information from 
     the U.S. government on what to look for. Currently, the 
     procedures required by Section 314 of the Patriot Act which 
     are designed to promote cooperation with financial 
     institutions in identifying terror financing are not working 
     as effectively as they might. We suggest greater information 
     sharing between the U.S. government and the financial 
     institutions within the framework of the Patriot Act in order 
     to allow these institutions to cooperate more effectively 
     with the U.S. government in identifying incidences of terror 
     financing.
       Eighth, we recommend that the National Security Council 
     (NSC) and the White House Office of Management and Budget 
     (OMB) conduct a cross-cutting analysis of the budgets of all 
     U.S. government agencies as they relate to terrorist 
     financing. We understand this recommendation is difficult to 
     implement; however, we think that monitoring the financial 
     and human resources that are actually devoted to the various 
     tasks involved in combating terrorist financing will 
     facilitate fully informed, strategic decisions about whether 
     resource allocations are optimal or functions are 
     duplicative. For this reason, the NSC and OMB should conduct 
     a cross-cutting analysis of all agencies' budgets in this 
     area, to gain clarity about who is doing what, how well, and 
     with what resources. Only with such a cross-cut in hand can 
     we begin to make assessments regarding the efficiency of our 
     existing efforts and the adequacy of appropriations relative 
     to the threat. We commend Jody Myers, the former NSC staffer, 
     for suggesting a similar cross-cutting analysis in his Senate 
     testimony given last month.
       Ninth, we urge the U.S. government and private foundations, 
     universities, and think tanks to increase efforts to 
     understand the strategic threat posed to the United States by 
     radical Islamic militancy, including specifically the methods 
     and modalities of its financing and global propagation. At 
     the dawn of the Cold War, the U.S. government and U.S. 
     nongovernmental organizations committed substantial public 
     and philanthropic resources to endow Soviet studies programs 
     across the United States. The purpose of these efforts was to 
     increase the level of understanding in this country of the 
     profound strategic threat posed to the United States by 
     Soviet Communism. A similar undertaking is now needed to 
     understand adequately the threat posed to the United States 
     by radical Islamic militancy, along with its causes, which we 
     believe constitutes the greatest strategic threat to the 
     United States at the dawn of this new century. To be 
     commensurate with the threat, much more will need to be done, 
     not only in Washington, but also by private U.S. foundations, 
     universities, and think tanks, in a more sustained, 
     deliberate, and well-financed manner than that afforded 
     through ad hoc initiatives such as our Task Force.
       I look forward to your questions.

                          ____________________