SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOC
PROGRESS SINCE 9/11: THE EFFECTIVENESS
OF THE U.S. ANTI-TERRORIST FINANCING
EFFORTS
Tuesday, March 11, 2003
U.S. House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to call, at 2:08 p.m., in Room 2128, Rayburn House Office Building, Hon. Sue W. Kelly [chairwoman of the subcommittee] presiding
Present: Representatives Kelly, Garrett, Murphy, Brown-Waite, Gutierrez, Inslee, Crowley, Hinojosa, Lynch, and Oxley (ex-officio).
Chairwoman KELLY. Good afternoon. Thank you all for being here.
In 1993, when terrorists set off a bomb in the garage of the World Trade Center with the intention of killing thousands of innocent people and disrupting the international financial system, Americans saw for the first time the planning and organizational capabilities of the worldwide Islamic terrorist network.
Since then and throughout the 1990s, terrorist forces continued their agenda of senseless killing by bombing the U.S. Marines Khobar Tower barracks in Saudi Arabia, U.S. embassies in two African countries, and the USS Cole, resulting in hundreds of deaths.
Sadly, policymakers at that time underestimated the enemy's strength, skill, and fervor, and failed to treat these events as interconnected parts of a war for which the enemy had been preparing since the mid- to late-1980s.
Page 2 PREV PAGE TOP OF DOC
And then, on September 11, 2001, the enemy's attacks had horrifying results with the loss of close to 3,000 Americans with the attacks on New York and Washington and the plane in Pennsylvania. September 11th also exposed the vulnerabilities of our Nation's financial system and how our free and open American way of life is used by the terrorists to further their war against America.
None of these attacks would have been possible without money, and we are now just learning the extent of how and where terrorists get the money they need to attack our country. The terrorists have developed a powerful fund-raising machine right here in America, cynically using charities and religious institutions to murderous effect. The terrorists' effects have yielded a moral harvest of blood money aimed not at helping the needy, but used instead to fuel deadly violence against Americans.
Although we are making progress in the war against terrorist financing here and throughout the world, the enemy is smart, resourceful, numerous, and changes tactics frequently. When there is a weakness in our system, terrorists will find it and exploit it. One day they use phony charities, and the next, businesses as fronts for smuggling bulk cash, and the next day, coupon fraud.
Efforts since September 11th including the passage and enforcement of the USA PATRIOT Act have resulted in numerous arrests in this area. From New York to Michigan to Florida to Texas, Federal authorities have disrupted this network, slowing the flow of money to America's enemies.
I am sure I speak on behalf of all the members of the committee when I congratulate the law enforcement team represented on our first panel for their role in the March 1st capture of Khalid Shaikh Mohammed, the financial mastermind of al-Qaeda and the planner of the September 11th attacks. It is my hope that this significant development will allow law enforcement to piece together a money trail to help us tighten the noose on Osama bin Laden and break up the al-Qaeda network.
Page 3 PREV PAGE TOP OF DOC
Our principal focus today will be the activities of various groups and charities in the U.S. which have been raising money on behalf of terrorist groups such as al-Qaeda, the Palestinian Islamic Jihad, Hamas, Hezbollah, and other members of the global terrorist network. The charities have warm, caring names like the Benevolence Foundation, the Holy Land Foundation, and Global Relief Foundation, but their intentions are anything but benevolent.
Federal agents and prosecutors continue to ferret out illegal transfers of funds from these groups allegedly aimed to support terrorist activities. Just last week, it was discovered that a Brooklyn mosque may have helped funnel millions of dollars to al-Qaeda. The leader of the effort, a Yemeni cleric, boasted that he had personally delivered $20 million to Osama bin Laden.
On February 28th, five men were sentenced for providing material support to Hezbollah through a cigarette smuggling scheme. On February 26th, five men were indicted in New York and Idaho for conspiring to illegally raise and send $2.7 million to Iraq through the Help the Needy charity.
Also, on February 26th, 16 men were arrested for fraudulently redeeming more than $4.5 million in coupons from five States. The funds were laundered through a Yonkers, New York, check-cashing business and sent to the West Bank.
On February 20th, four members of the Palestinian Islamic Jihad terrorist group were indicted and four others arrested on a total of 50 counts, including fraudulently raising money and illegal material support and wire transfers. Among the four arrested was Sami Al-Arian, a professor at the University of South Florida.
The indictment alleges that the defendants used U.S. locations as the North American base for Islamic Jihad. On December 18th, a senior member of Hamas, his wife, and five brothers working at a Texas computer company, were indicted for money laundering. One of the brothers, Ghassan Elashi, was also vice president of the Holy Land Foundation, which the Treasury Department closed in December of 2001 for serving as a Hamas front.
Page 4 PREV PAGE TOP OF DOC
It is clear terrorists have learned to use our wealth and goodwill against us. My fear is, despite the fact that we have made these important arrests, this is only the tip of the iceberg.
And then there is Saddam Hussein. There is plenty of evidence linking terrorists such as Hamas, Hezbollah, al-Qaeda to Saddam Hussein. Hamas opened an office in Baghdad in 1999, and Iraq has hosted conferences attended by the Palestinian Islamic Jihad.
Published reports cite U.S. intelligence officials as sources for recent reports that Saddam Hussein might subcontract to Hezbollah and Hamas a terrorist strike here in the United States or abroad. And recently, before Congress, CIA Director George Tenet testified that Hezbollah has been casing and surveilling American facilities. According to Secretary of State Colin Powell, a senior al-Qaeda associate Abu Musab al-Zarqawi moved his poison and explosives operation from Afghanistan to northeastern Iraq after U.S. forces liberated Afghanistan.
This information is disturbing on its own. It is even more disturbing to know that millions of dollars may have been raised through a mosque in Brooklyn, schemes in Detroit, or North Carolina or elsewhere in the United States, to advance the efforts to help al-Qaeda, Hamas, and others who wage war against America.
At today's hearing, we will review the charities and schemes that have allegedly been used by groups to aid terrorists and the counter measures that law enforcement has employed to smoke out and prosecute the enemy's allies. Our experts on our second panel work with law enforcement and can further tie together for us the domestic groups, the schemes, and the terrorists they help. Both panels, I hope, will provide some important lessons from these cases for the financial community and for this committee as we consider potential amendments to the USA PATRIOT Act. If another attack on America occurs, it will have been funded at least in part right here on American shores.
Page 5 PREV PAGE TOP OF DOC
We need to know how the enemy funds its operations here and now, and we need to know how to stop it, and that is the focus of today's hearing.
I thank you all for being here today. I turn now to the chairman of the committee, Mr. Oxley.
Mr. OXLEY. I thank the chairlady, and I would like to take this opportunity to offer my thanks and appreciation to you for holding this particularly timely hearing.
The issue of terrorist financing has become one of critical importance to our Nation, dating from the 1993 bombing of the World Trade Center. The hearing this afternoon will serve two distinct purposes. The first is to share with the members of this subcommittee how our government has been able to successfully block the efforts of terrorists whose goal is to destroy America, and secondly, to find ways to improve the USA PATRIOT Act.
As you know, much of the legislative language drafted by the Financial Services Committee was incorporated into the USA PATRIOT Act and signed into law by the President in November of 2001. Law enforcement's efforts have, by necessity, not ended there, however, for as we have seen, nearly every blocking and freezing of suspected terrorist funds has been met with new and insidious efforts to render such protocols both outdated and outmoded.
While I am justifiably proud of this committee's efforts to date, I am also not unmindful that improvements and refinements will be necessary and needed. Our enemies are determined to pursue their ruinous efforts to bring our great Nation to its knees. For that reason, we are resolved to put into the hands of our law enforcement agencies all of the weapons that they will need to deal successfully with the ongoing threat of these terrorist activities within our borders.
To that end, I again thank the chairlady for her focus on this critical effort and her good work today and in the future, and I yield back.
Page 6 PREV PAGE TOP OF DOC
Chairwoman KELLY. Thank you very much, Mr. Oxley.
Chairwoman KELLY. We next turn to you, Mr. Gutierrez.
Mr. GUTIERREZ. Good afternoon. Thank you for holding this hearing. I will be brief since the purpose of the hearing is to get an update from the agencies and experts that have been instrumental in the fight against international money laundering and terrorist financing.
Our fight against terrorist financing is a broad-based effort, extending well beyond the al-Qaeda network. In today's global marketplace, it means nothing to build a concerted effort between financial institutions and law enforcement agencies at home without instituting similar actions abroad. Enhancing international cooperation between local agencies and countries around the world is essential to eliminating terrorist networks and to winning the fight against international money laundering practices.
The USA PATRIOT Act was a critical step in giving our enforcement personnel the necessary anti-money laundering provisions to fight terrorists by blocking the schemes used to finance their horrific crimes. Attorney General Ashcroft recently said that 124 million in financial assets belonging to terrorist groups, including al-Qaeda, have been frozen since the September 11th attacks.
Although we have made progress, we have much work to do. We do not know whether the frozen assets represent most or just a small percentage of the pool of potential money that could be used to finance terrorism around the globe.
In order to truly stop terrorism, we need to strengthen the cooperation and coordination. Encouraging information sharing collaboration among local, State, Federal, and international law enforcement also is critical to eliminating al-Qaeda. And we need to ensure that our priorities concentrate equally on both prevention and response. State and local governments need to have the capacity and the resources to respond to the threat of terrorists, and especially when they serve our Nation's first responders, proper training, technical assistance and support is critical.
Page 7 PREV PAGE TOP OF DOC
Before I conclude, I would like to urge Treasury to expeditiously complete the provisions that have yet to be promulgated, particularly those dealing with the verification of identity. A recent GAO study requested by Chairwoman Kelly and myself regarding the use of Treasury's electronic transfers—excuse me—electronic funds transfer and electronic transfer account programs found that about 11 million Federal benefit recipients, about half of those receive checks from banks. More shockingly, the study found that approximately 55.8 million U.S. adults are currently unbanked; that is 20 percent of all U.S. adults.
GAO also found that the primary obstacle to using electronic fund transfer was that many Federal check recipients didn't have bank accounts. We all know that without access to banking services, individuals are forced to turn to payday lenders and check-cashing vendors who very often charge exorbitant fees, sometimes with interest reaching 500 percent.
The inability to enter the banking center results in higher costs of borrowing and lack of access to home mortgages. The proposed rule requires a financial institution to contain statutorily prescribed procedures. It describes them in detail, certain minimum elements that each must contain. The procedures as proposed by Treasury require important elements that would further safeguard our banking system from terrorist financing and at the same time will not hinder the ability of unbanked individuals to access our financial institutions.
I look forward to the testimonies that will be presented today. Thank you, Madam Chair.
Chairwoman KELLY. Thank you, Mr. Gutierrez.
Mr. Inslee.
Mr. INSLEE. Thank you, Madam Chair, for holding this hearing, a very important one given the times we are in. And I hope that we will focus on three areas during this hearing:
First, I hope we will have a serious exploration of whether or not we have really eased up on some of our enforcement with some of other countries that have been associated with very knowing and very obvious financing of terrorism. And there is a concern in my district and, I think, across the land that as a result of some of our national interests in other pursuits, particularly the war in Iraq, that perhaps the Federal Government has not been sufficiently aggressive with some of the countries that have mollycoddled these folks who have financed terrorism.
Page 8 PREV PAGE TOP OF DOC
The most obvious suspect that my constituents are concerned about comes from the apparent fact that much of the financing for the September 11th attack came from financiers in the Mideast and Saudi Arabia, perhaps the United Arab Emirates, and that the United States Federal Government, to our knowledge, at least from what we hear in my district, has not been acting with any particular sanction against those countries to enforce the known need to cut off the funding for these snakes. And I hope that we will hear a discussion about what our Federal Government has been doing in this regard.
And let me tell you why there is concern in my district about this. There is concern in my district that because of our Federal Government's current interest in pursuing the war in Iraq and its interest in basing some of our military forces and our interest in gaining support for the U.N. Resolution that we have not been sufficiently assertive, aggressive, and in a way to get a result from these countries, because we have sort of taken a little pressure off in order to get them to help us in other ways in the war in Iraq. And I think that would be most unfortunate and shortsighted.
So we hope that we will hear discussion about that. We hope that we are wrong, and we hope those concerns are unfounded, but we need to address that issue.
Second, we are going to hear testimony from the American Bankers Association and, perhaps, that there has been a little bit of misprioritization of what we have been looking for when we are looking for a fight against terrorism, and we have got, perhaps, a little something different; and we would like to know about that issue.
And third, I hope that we will hear today about a way to make this system workable for Americans of Muslim extraction, many whom are great Americans—some of whom are biochemists in my district, engineers at Boeing, computer scientists at Microsoft—to make sure that they are not sort of swept into this when they have acted legally. And we want to make sure that they have confidence that their legal actions are not swept into an illegal misunderstanding.
Page 9 PREV PAGE TOP OF DOC
So I hope that we can address those three issues. I look forward to this hearing. Thank you.
Chairwoman KELLY. Thank you very much.
Mr. Murphy.
Mr. MURPHY. Thank you, Madam Chairman. I want to welcome the distinguished folks who will be talking to us today, because I know that these witnesses share your concern and all of our concern that your job is every bit as important as what has taken place with our law enforcement throughout the Nation—the CIA, the FBI, and the police—as well as our military overseas.
Perhaps because I come from a health care background as a psychologist, I look upon this as using a disease model, and that is, you treat the symptoms, as one needs to do, but you also identify the source of the disease. You wipe out the disease and you prevent it from ever taking root again.
What I want to hear about today will be the aggressive, the thorough, and the relentless mechanisms you are using to track every dollar, because I know it must weigh heavily upon your hearts that every dollar that gets into the hands of terrorists is a dollar that could be used to kill Americans or to harm us.
Plus, also, we know that they are using that—not only using our economy to fund their terrorism, but in turn affecting our economy negatively.
So I know you are going to give us some interesting news on the things that are happening, but I also want to let you know how grateful we are as Members of Congress for your relentless determination to continue to root out the sources of funding for terrorism, and I look forward to your testimony.
Thank you, Madam Chair.
Chairwoman KELLY. Thank you, Mr. Murphy.
Page 10 PREV PAGE TOP OF DOC
If there are no further opening statements, I will introduce our first panel:
Ms. Alice Fisher, Deputy Assistant Attorney General of the Criminal Division at the Justice Department; Mr. Richard Hoglund, Interim Director of the Office of Customs Investigations in the Bureau of Immigration and Customs Enforcement, part of the new Homeland Security, and he is accompanied by Ms. Marcy Forman, Executive Director, Operation Green Quest; and Mr. James Sloan, Director of the Financial Crimes Enforcement Network in the Department of the Treasury.
We thank all of you for taking the time to be here today and to testify before us, and I welcome you on behalf of the committee. Without objection, your written statements and any attachments that you have will be made part of the record.
You will now be recognized for a five-minute summary of your testimony. When the light changes color on the timer before you, it will move to yellow, that is the time to begin to summarize your testimony, and then it will start blinking red, and that is time to stop.
Chairwoman KELLY. So let us begin now with you, Ms. Fisher.
STATEMENT OF ALICE FISHER, DEPUTY ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE
Ms. FISHER. Thank you Chairwoman Kelly and distinguished members of the panel. I am honored to be here to discuss the Department of Justice efforts in terrorist financing enforcement. As Deputy Assistant Attorney General in the Criminal Division, I oversee the Counterterrorism Section and a component of the Counterterrorism Section which is the DOJ Terrorist Financing Task Force.
Page 11 PREV PAGE TOP OF DOC
The Department's single and overarching goal since 9/11 has been to prevent future terrorist acts on the United States and its citizens. Curtailing the financing of terrorists is a critical component of that effort. We take this mission very seriously, targeting the financiers of terrorism as aggressively as those terrorists who commit violent acts.
Currently, the Department is pursuing over 70 criminal terrorist financing or material support investigations in 22 States. Over the past 18 months, we have charged 61 individuals in cases involving terrorist support to such groups as al-Qaeda, Hamas, Hezbollah, and Palestinian Islamic Jihad, or PIJ. We have charged 33 persons in cases involving the terrorism-related sanctions program of the International Emergency Economics Power Act, or IEEPA. And finally, we have charged over 20 individuals with illegally operating an unlicensed money remitting service, or hawala. These charged individuals face lengthy prison sentences, and our message is clear: We will bring justice to the entire network of terror.
Congress has been a very valuable partner in this fight. By passing the USA PATRIOT Act, Congress provided us with powerful new tools to combat terrorism financing. The PATRIOT Act enhanced the crime of providing material support or resources, 18 U.S.C., Section 2339B, which now carries a penalty of up to 15 years and, in some cases, life imprisonment.
We have enforced this law to disrupt terrorist Jihad cells in Buffalo, Portland, Seattle, and Detroit. We have also used it to charge individuals engaged in drugs for weapons for terrorists, in drugs-for-weapons plots in Houston and San Diego. And just recently in Charlotte, North Carolina, in the first such case to be decided by a jury, Mohammed Hammoudeh, the leader of the Charlotte Hezbollah cell, was convicted and sentenced to 155 years in prison.
Two recent material-support-for-terrorism cases demonstrate the Department's commitment to choke off support to terrorism and punish the perpetrators. Just last week, the Attorney General announced material support to al-Qaeda and Hamas charges brought in Brooklyn, New York, against two Yemeni nationals, Mohammed Ali Hasan Al-Moayad and his assistant Mohshen Yaha Zayed, who were arrested in Germany following an undercover sting operation in cooperation with German law enforcement.
Page 12 PREV PAGE TOP OF DOC
The complaint alleges that Al-Moayad claimed to have personally given $20 million to Osama bin Laden. Using an undercover informant, the FBI caught Al-Moayad boasting about his involvement in providing money, recruits, and supplies to al-Qaeda, Hamas, and other terrorist groups in part from monies he collected from collections at the Al Farouq mosque in Brooklyn. He also claimed to be Osama bin Laden's spiritual advisor.
In Tampa, Florida, the Department charged Sami Al-Arian and seven other defendants, all leaders and supporters of the terrorist group, the Palestinian Islamic Jihad, or PIJ, with conspiracy to provide material support and conspiracy to commit murder among other charges. The indictment alleges that PIJ is responsible for the murder of over 100 innocent people, including two Americans.
As detailed in the indictment, Al-Arian was the secretary of the Shura Council, or the worldwide governing group of PIJ, and actively engaged in PIJ operations. The defendants managed the affairs of PIJ, including the acquisition and spending of funds and administering the financial affairs of PIJ. For example, the indictment alleges that Al-Arian had a letter written from him which requested a financial donation to the PIJ and stated that the bombers in a recent terror operation had left families in debt, and urged a financial contribution so that PIJ could continue its terror operations.
Al-Arian attempted to hide his support for PIJ after the group was designated as a foreign terrorist organization in 1997, but court-approved electronic surveillance of his office revealed his continued active support for PIJ long after the designation.
The Charlotte Hezbollah case is another key example of how the Department has aggressively pursued terrorist financing. What started out as the suspicion of a local off-duty sheriff ultimately uncovered a massive cigarette smuggling and tax evasion scheme which involved several Lebanese men who were part of the Hezbollah cell which had received instructions from and provided financial support to well-known terrorists in Beirut. These defendants purchased night vision devices, stun guns, mine and metal detectors, advanced aircraft design software, drilling and blasting equipment, laser range finders, and global positioning systems. As I already mentioned, the lead defendant received a 155-year prison sentence.
Page 13 PREV PAGE TOP OF DOC
We have also stemmed the flow of terrorist financing by targeting organizations that purport to raise charitable funds, but in fact serve as fund-raisers for terrorist organizations. For example, we indicted the Chairman of Holy Land Foundation, the Executive Director for Benevolence Foundation, who just last month pleaded guilty in Chicago. And a few weeks ago Dr. Rafil Dhafir and others were charged in Syracuse with using their charity, Help the Needy, to illegally transfer money to Iraq.
To sum up quickly, the tools that we have been using and that Congress provided to us have had an impact. And I would just like to quote from a defendant in a conversation that he had with an informant in the Portland cell up in Oregon. He said, quote:
''Everybody is scared to give up any money to help us. You know what I am saying? Because that law that Bush wrote about, you know, supporting terrorism, whatever, the whole thing, everybody is scared. He made a law that says, for instance, I left, out of the country and I fought, right, but I wasn't able to afford a ticket. But you bought my plane ticket. You gave me the money to do it. By me going and fighting and me fighting and doing that, they can—by this new law, they can come and take you and put you in jail.''.
The Department is therefore grateful for all the tools that Congress provided, and I am happy to answer any questions that you have.
Chairwoman KELLY. Thank you so much, Ms. Fisher.
[The prepared statement of Alice Fisher can be found on page 135 in the appendix.]
Chairwoman KELLY. Mr. Hoglund.
STATEMENT OF RICHARD HOGLUND, INTERIM DIRECTOR, OFFICE OF CUSTOMS INVESTIGATIONS, BUREAU OF IMMIGRATION AND CUSTOMS ENFORCEMENT, U.S. DEPARTMENT OF HOMELAND SECURITY, ACCOMPANIED BY MARCY FORMAN, EXECUTIVE DIRECTOR, OPERATION GREEN QUEST
Page 14 PREV PAGE TOP OF DOC
Mr. HOGLUND. Chairwoman Kelly and distinguished members of the subcommittee, it is a privilege to appear before you today to discuss the efforts undertaken by Operation Green Quest and its role in terrorist finance. With me today is Marcy Forman, the Executive Director of Operation Green Quest.
The survival of terrorist organizations is directly related to their ability to raise funds and transfer them internationally in a clandestine manner to support their operations. Terrorist entities often move their money by exploiting weaknesses in domestic and international finance systems. I welcome this opportunity to discussion Operation Green Quest's mission, methodology, goals, and successes as they relate to terrorist financing.
Established in October 2001, Operation Green Quest has employed a broad, systematic strategy to detect, disrupt, and dismantle terrorist financial networks. Operation Green Quest has realized this goal by bringing the full scope of the government's financial expertise to bear against systems, individuals, and organizations that serve as sources of terrorist funding.
From inception, Operation Green Quest has met its mission head on. Operation Green Quest has proactively and covertly targeted charities, nongovernmental organizations, illegal money service businesses, and alternate remittance systems, and various entities using bulk cash smuggling as a conduit to fund terrorist activity. Green Quest actively identifies and develops sources of information and routinely exploits Bank Secrecy Act data to include suspicious activity reports, currency and monetary instrument reports, and currency transaction reports.
Examples of Operation Green Quest's successes include the Virginia-based charities case, which is a Bureau of Immigration and Customs Enforcement, BICE, led multiagency task force investigation of suspected money laundering, tax fraud, and terrorist material support violations being committed by individuals and companies located in northern Virginia. These conglomerates of businesses, charities, and nongovernment organizations are suspected of funneling funds to terrorist groups.
Page 15 PREV PAGE TOP OF DOC
On March 20, 2002, 29 search warrants were executed by 130 Federal, State, and local law enforcement officers on businesses, residences, and Internet servers identified by this investigation. In November 2002, two multiagency search warrants led by BICE agents were executed on a Boston-based computer software company, allegedly funded by a designated terrorist in violation of the International Emergency Economic Powers Act.
In December 2002, a BICE agent-led investigation in Seattle of a money remitting company with approximately 30 remitting agents nationwide culminated in the execution of a total of 36 search warrants, six arrests, and 19 indictments for money laundering and violations of the International Emergency Economic Powers Act. This investigation identified approximately $28 million wired through the main violator's account, $12 million of which was traced to an embargoed country.
In December 2002, BICE-led investigation in Detroit identified several individuals and businesses that operated as unlicensed money remitters that sent funds to Yemen in violation of 18 U.S.C. 1960, operating as an unregistered money-remitting business. As a result, 10 search warrants, five seizure warrants, and six arrest warrants were executed. In addition, five bank accounts were seized, totaling $234,000, along with a quantity of narcotics.
In December 2002, there was an investigation that effected a bulk cash seizure of $280,000 in currency, concealed within clothing, destined for the Middle East. Subsequently, search warrants on businesses related to the initial seizure resulted in additional seizure of $2.2 million in currency and the arrest of the owner of the business. The owner has been indicted for bulk currency smuggling.
Based in Washington and led by the new Bureau of Immigration and Customs Enforcement, Operation Green Quest serves as a command and coordination center and is essentially a place for one-stop shopping in terrorist finance investigations. Operation Green Quest collects, develops, manages, and disseminates leads to appropriate field offices for investigative action. As such, it is the repository and clearinghouse for terrorist financial investigations and is able to prioritize, identify investigative overlaps, and redirect resources to meet operational objectives.
Page 16 PREV PAGE TOP OF DOC
Operation Green Quest is a multiagency center, and in addition to the Bureau of Immigration and Customs Enforcement, it is comprised of representatives from the Internal Revenue Service, Secret Service, Office of Foreign Assets Control, Financial Crimes Enforcement Network, Federal Bureau of Investigation, Naval Criminal Investigative Service, Postal Inspection Service, Bureau of Alcohol, Tobacco & Firearms, and the Coast Guard.
Many of these successes of Operation Green Quest can be attributed to the aggressive outreach of the financial and trade communities. Operation Green Quest views the finance and trade communities as the frontline in identifying suspicious activity and potential financiers of terrorist activities.
In conclusion, I would like to thank the distinguished members of this subcommittee for the opportunity to speak before you today, and we invite your questions as we proceed. Thank you.
Chairwoman KELLY. Thank you very much, Mr. Hoglund.
[The prepared statement of Richard Hoglund can be found on page 144 in the appendix.]
Chairwoman KELLY. Mr. Sloan.
STATEMENT OF JAMES SLOAN, DIRECTOR, FINANCIAL CRIMES ENFORCEMENT NETWORK, U.S. DEPARTMENT OF THE TREASURY
Mr. SLOAN. Madam Chairwoman, members of the subcommittee, and Chairman Oxley, thank you for this opportunity to appear before you today to discuss the Financial Crimes Enforcement Network, or FinCEN, and its role in combating money laundering and the fight against terrorist financing.
Page 17 PREV PAGE TOP OF DOC
The recent formation of the Executive Office for Terrorist Financing and Financial Crimes within the Department of the Treasury, I think, further underscores the FinCEN's expertise in using the Bank Secrecy Act to help identify and track the financial aspect of terrorist and other criminal activity. This continued commitment to financial crime and money laundering is a significant indication that the Treasury Department expects to stay in the forefront of these important issues following the relocation of several of its enforcement bureaus to the Department of Homeland Security.
My statement today will update the committee on FinCEN's programs, as well as the significant progress we have made in meeting our obligations under Title III of the USA PATRIOT Act. Thank you for the opportunity to submit a longer written statement for the record.
As administrator of the Bank Secrecy Act, FinCEN must ensure that the data it collects under that authority is truly beneficial to law enforcement and is collected in a manner that represents the least burden to the financial community. We continually try to strike a balance between law enforcement needs and the burden placed upon the industry. Industry has been extremely responsive in complying with Bank Secrecy Act regulations, I believe because it recognizes that reasonable regulations are part of the shared price we all have to pay for combating terrorism and financial crime.
The Congress and, most importantly, this committee recognized the need to expeditiously make additional tools available to law enforcement to fight money laundering and terrorist financing after the attacks of September 11, 2001 by passing the USA PATRIOT Act. This prompt action reinforced the importance of using data such as suspicious activity reporting and other Bank Secrecy Act information to help pinpoint the nexus between crime and its associated financial activity.
The Act's intent that the long-term expansion of the BSA to broad categories of financial service providers be placed on a very fast track resulted in a dramatic increase in FinCEN's responsibilities. I will briefly highlight the progress FinCEN has made to date on implementing many of those provisions. I believe you have charts in your briefing materials, as well, which might help illustrate FinCEN's PATRIOT Act accomplishments.
Page 18 PREV PAGE TOP OF DOC
One of the most comprehensive provisions of Title III was the requirement that all financial institutions, as defined by the Bank Secrecy Act, be required to establish anti-money laundering programs. To cover this potentially large and diverse number of entities in a judicious manner, FinCEN chose a risk-based approach. We focused first on traditional financial institutions, and then proceeded to cover entities that are most likely the places a money launderer would go to launder the funds. As a result, regulations in various stages of the rule-making process are in place for industries as varied as casinos, insurance companies, credit card owners, and dealers in precious metals and jewels, just to name a few.
Because of the proven value of suspicious activity reporting, the expansion of that reporting to financial sectors beyond depository institutions had been a priority even before the PATRIOT Act. The Act helped accelerate the process, and we now have suspicious activity reporting requirements in place for brokers and dealers, casinos, currency exchangers, and mutual funds.
FinCEN has worked very hard this year to provide additional guidance to the industry. Today, in fact, we have issued an Advisory on Informal Value Transfer Systems describing indicators of terrorist financing and providing information about filing suspicious activity reports related to that type of suspicious activity. We have also issued two Suspicious Activity Reviews within the past year that provide feedback to industry, as well as summaries of cases in which suspicious activity has played an important role.
FinCEN just issued its fifth Suspicious Activity Review, a copy of which I know has been provided to the subcommittee. The review is a semiannual report which discusses trends and patterns found in a comprehensive review of SAR filing. The latest issue focuses on terrorist financing methods that use nonprofit organizations, as well as Informal Transfer Systems such as hawalas.
One of the most challenging tasks given to FinCEN has been to develop, under Section 314 of the Act, new ways to share information rapidly between law enforcement and the financial institutions, and to enable these institutions to share information among themselves.
Page 19 PREV PAGE TOP OF DOC
As I said, we are acutely aware that all the regulations come with a burden in varying degrees to diverse sectors of the financial industry. We are constantly trying to find ways to ease this obligation, but there is always going to be some cost, which we will work to ensure is justified by the law enforcement benefit.
The implementation of 314(a) is just an example. Section 314 gave FinCEN the opportunity to craft a tool that would fill a gap in our law enforcement ability to quickly respond to pinpoint the financial support for acts of terrorism or serious financial crime. FinCEN quickly developed a system that could transmit names of suspects to several thousand financial institutions and receive reports back of matches, all within days. The system was not meant to obtain documents or be a substitute for subpoenas, but rather to serve as a locator that could be followed up by law enforcement with a subpoena or other appropriate legal process.
We met the deadline and developed the system known as 314(a), which is designed to serve all participants from large corporate banks to small rural banks with limited technical systems; 314 has proven to be extremely helpful to law enforcement.
In requesting the information, law enforcement has assured us that the requests are related only to the most significant terrorist and money laundering investigation. The FBI's Terrorist Finance Operations Center and the Customs Bureau's Green Quest are major users of the system. We will continue to work with them and all the participants on a regular basis to improve efficiency as necessary.
Other key sections of Title III that FinCEN has been diligently working on include: crafting rules to comply with Section 326, which requires financial institutions to verify customer identification in connection with the opening of accounts; special due diligence measures for institutions that maintain correspondent accounts for foreign institutions; and Section 311, which authorizes the Secretary of the Treasury to impose special measures against foreign jurisdictions or institutions that are found to be serious money laundering concerns and under which Treasury designated two jurisdictions in December 2002, Ukraine and Nauru.
Page 20 PREV PAGE TOP OF DOC
Madam Chairwoman, in closing, the threats we deal with today have taken on new dimensions from those that existed when the legal structure for anti-money laundering was first created. Traditional methods for laundering have mutated over time to take advantage of the new technologies, diverse institutions, and industries.
On behalf of FinCEN, I would like to thank you for the opportunity to discuss with you our accomplishments, as well as our unique role in the fight against terrorist financing. I will be happy to answer any questions.
Chairwoman KELLY. Thank you, Mr. Sloan.
[The prepared statement of James Sloan can be found on page 166 in the appendix.]
Chairwoman KELLY Ms. Fisher, Mr. Hoglund, Khalid Sheikh Mohammad was Osama bin Laden's money man and the mastermind of his most destructive operations, including the September 11th attack that killed 3,000 people. He was the contact man for all al-Qaeda operatives, what one expert called the mission man. Working together with Mustafa Al-Hasawi, the al-Qaeda paymaster caught with him, Mohammed set up and used checking accounts, debit cards, credit cards from financial institutions in Dubai, the UAE, and the United States. Hasawai is named in a false statements case against Al-Marri, a former Peoria, Illinois, man who is being held without bail in New York and accused of credit card fraud and lying to the FBI about calls the government says he made to Hasawai's phone number in the two months before the September 11th attacks. Al-Marri illegally possessed more than 15 access devices or credit card numbers, and his computer files contained hundreds of apparent credit card numbers.
Now that we have the mastermind and the paymaster in custody, how much closer are we to finding Osama bin Laden and all of his operatives here in the United States, the people who have funded his reign of terror?
Page 21 PREV PAGE TOP OF DOC
And a second follow-up to that is, have you be able to identify a money trail that provides clues on possible future al-Qaeda operations? And I am specifically focusing on you, Ms. Fisher and Mr. Hoglund.
Ms. Fisher, would you like to start?
Ms. FISHER. Certainly.
Without being able to get into any classified information or any intelligence information, I would want to assure the committee that the Intelligence Community—the FBI, the CIA, et cetera—are following up on all leads that we get in the terrorism investigation in general. And so we follow the money trail wherever it goes. And the case that I believe that you mentioned in New York with Mr. Al-Marri, I believe he is right now serving jail time for his credit card fraud. So, certainly the investigations continue.
Chairwoman KELLY. Mr. Hoglund?
Mr. HOGLUND. We are actively pursuing the leads as they are developed through the Intelligence Community, and in conjunction with the FBI, to see, are there specific areas of interest that Green Quest should approach vis-a-vis perhaps some other areas. And so, I mean, we are chasing this down as the information becomes available to us.
Chairwoman KELLY. Ms. Fisher, have you identified the money trail that money—I am interested in whether or not you have been able to identify—or maybe you just cannot say that in public—that the ones that—the money trails that show that there is money funneled from the United States to the al-Qaeda operation?
Ms. FISHER. Well, certainly we have some charged cases that are public that show money going from the U.S. to the al-Qaeda operation. For example, the case that I described in my opening statement and that you described in your opening statement is part of a scheme where two individuals were funneling money, some of which they obtained in a mosque in Brooklyn, by one of the defendant's own words, to al-Qaeda, to Osama bin Laden personally.
Page 22 PREV PAGE TOP OF DOC
And so, clearly, those are the types of money trails that we constantly are following up on. And where we can and where it is appropriate, we charge those individuals and prosecute them to the fullest extent that we can.
Chairwoman KELLY. Thank you.
The recent indictments against the four Syracuse men for money laundering and providing material support to individuals in Iraq and the other public documents about the case allege the following:
That the four defendants used Help the Needy, a charity, to funnel at least $2.7 million through three banks in New York and the Jordan Islamic Bank to the defendants' families and unnamed individuals in Baghdad; that they used false papers and I.D.s to open the accounts. They never obtained the license required by law to legally provide aid to Iraq. They did not seek the required tax-exempt charitable status from the IRS until August of 2002, and never filed the necessary annual disclosure forms for Help the Needy. They lied to contributors without helping the needy and the oppressed, and they had some financial relationship with two other so-called charities which were shut down for helping terrorists, the two charities being the Global Relief and the Benevolence Foundations.
Without disclosing any of the investigatory details, is it safe to say that all Federal law enforcement is continuing to look for individuals living and working here in the United States who are providing legal—illegal material support?
I am sorry; let me rephrase that.
Of the people who are living and working here in the United States of America providing illegal and material support to terrorists who work with Saddam Hussein's regime in Baghdad? And they may be supporting Saddam himself.
Can I just ask you three to answer that question? Is that too long?
Ms. FISHER. I think I got it.
Page 23 PREV PAGE TOP OF DOC
The case that you have described, the Help the Needy case in Syracuse, we have charged four defendants. Two of the defendants, specifically for their crimes, face up to 265 years in prison; and they are charged with sending money to Iraq, as you noted, $2.7 million to Iraq without getting the appropriate license. And so they are violating IEEPA in doing that and that is what they are charged with.
I think it is safe to say, from the Department of Justice's and the FBI's perspective—and I am sure that the other agencies will echo this, because we are all in this together—we are following the trail of terrorist money wherever it goes, all groups. And whether it is illegally being funneled to Iraq or it is being illegally funneled to Hamas, Hezbollah, al-Qaeda, we are aggressively pursuing it on all tracks.
Chairwoman KELLY. Yes, Ms. Forman.
Ms. FORMAN. Madam Chairwoman, if I may. We are addressing all those high-threat areas, specifically right now, Iraq and other Middle Eastern countries; and we are using all the tools in our arsenal to accomplish that. Operation Green Quest's mission is to disrupt and dismantle the funding mechanisms, and that is what we are targeting, those funding mechanisms that can be exploited.
In addition, with our new counterparts, the Immigration Service, we are using our new authorities to work with them to identify those individuals who are still here in the United States so we can gather more intelligence, more information, to identify further targets. Thank you.
Chairwoman KELLY. Mr. Sloan.
Mr. SLOAN. Madam Chairwoman, I would just add that, we are not the silver bullet nor are we an investigator, but we like to think, that both Justice and Homeland Security and the investigative resources of Treasury are using what we might consider to be a rather large arrow in their quiver successfully and following the money where it leads. We contribute to that success, but we don't obviously investigate it ourselves.
Page 24 PREV PAGE TOP OF DOC
Chairwoman KELLY. Thank you very much. My time is up.
Mr. Gutierrez.
Mr. Inslee.
Mr. INSLEE. Thank you, Madam Chair.
I appreciate having the people who are really responsible for telling Americans where the money came from and is coming from for these terrorist activities, so I appreciate your being here.
One of the questions I have asked a lot is, why hasn't America acted in regard to some of the countries that have not been responsible, as responsible as they should be in cutting off this flow of money to these terrorist organizations? And when you look through September 11th, the attack, what we know about, we know Afghanistan was associated with the attack. We know that Yemen was to some degree. We know there was training done in Germany and plotting in Germany, perhaps some in other countries.
We know that—according to a nonpartisan organization, the Council on Foreign Relations, that published a report in October of this year, they stated that ''Saudi Arabian-based charities have been the most important source of funds for al-Qaeda, and that for years Saudi officials have been turning a blind eye to this problem,''.
There seems to be a relative consensus of those who have evaluated this situation. We know that 15 of the 19 hijackers, their nationality was Saudi Arabian. We know that in an article published March 10th, Al-Hasawi—and I apologize if I mispronounce the name—a Saudi national, has been described as the paymaster of the September 11th operation and its financial mastermind and has provided documents to the German authorities suggesting that he wasn't working alone.
But to my knowledge, there have not been any sanctions against any other governments for their failure to act in an aggressive, assertive, responsible way to cut off this funding since September 11th, including Saudi Arabia or any other country, other than our action against Afghanistan, which was certainly a strong sanction, but no others.
Page 25 PREV PAGE TOP OF DOC
And it is troublesome to my constituents that, while we are about to start a war in Iraq, to our knowledge—and now I am going to ask you that question in a minute—there has not been a paper trail of funds to September 11th; we haven't acted with sanctions to some of these other countries that have not acted in a responsible fashion as international citizens to help us cut off these funds.
So I have two questions:
First, have there been sanctions against any other nation, associated with their failure to help us in a responsible manner to cut off these funds? And, if not, why not?
That is just a general question to any of you if you would like to help us with an answer. I see there are no volunteers at the moment.
Maybe, Mr. Sloan, I can draft you.
Mr. SLOAN. Well, you can draft me, sir, but I probably won't have an answer for you.
From our perspective, clearly we like to think that we look at the transactions that might lead us to suspect flows of money that might be financing terrorism. We certainly would look at that from a national basis; we would turn those clues over—I hate to point in their direction, but we would be turning them over to the investigative agencies or even to OFAC for IEEPA sanctions.
We don't have a role in applying sanctions to individual countries. However, we do pay attention and we try to encourage attention being paid to those jurisdictions that might be considered noncooperative countries and territories for the purpose of anti-money laundering activity. And we work very closely with our partners around the world in that regard to highlight certain jurisdictions that might present such a problem for us.
Mr. INSLEE. And have any countries been identified as noncooperating countries under that definition?
Page 26 PREV PAGE TOP OF DOC
Mr. SLOAN. There are several countries that are considered under the Financial Action Task Force deliberations as noncooperative countries or territories in the anti-money laundering efforts.
Mr. INSLEE. And what are those countries?
Mr. SLOAN. We can provide you with a list of them. There are perhaps a dozen or more.
[The following information can be found on page 181 in the appendix.]
Mr. INSLEE. Are any of them associated with funds financing the September 11th attack?
Mr. SLOAN. I mean, I wouldn't sit here today and say that they specifically are involved in the September 11th attack. I mean, they have been listed as such noncooperative territories for the purposes of not having systems in place.
Mr. INSLEE. Thank you.
What countries were involved in financing the September 11th attack? And when I say countries, I would like to define that broadly. Any country that had a person of their nationality associated with it, whether as a transmission agent or as a contributor, any bank that is located in a particular country.
Broadly speaking, what countries were involved in some way, or people within those countries, with financing the September 11th attack?
Who would be the best person to help me on that? I hope some of you have some information about that. It is a relatively important question, so we will give you a moment.
Ms. FISHER. My understanding is that—what has been made public was that there was at least some money coming through the UAE and some through Germany. Not to say that it was from those countries, but that the money—you asked about transmitting, and so some of the money came from those two; and that has been made public.
Page 27 PREV PAGE TOP OF DOC
I just want to be careful not to say anything further at this point because I am not quite sure what has been made public and what hasn't. And so, if you would like, we can try to get with the people over at FBI, the Terrorist Financing Operations Section, who are wonderful, and try to get you that information.
Mr. INSLEE. I would appreciate that.
And obviously Saudi Arabia in some fashion, one of their nationals was involved apparently, Al-Hasawi.
Would you bear with me, just one more question?
Chairwoman KELLY. If we need to do another round, we can do it then.
Mr. INSLEE. Thank you. I will be back.
Chairwoman KELLY. I will hold the record open, and you can submit the question in writing if we don't do the round.
Mr. Oxley.
Mr. OXLEY. Thank you.
Mr. Sloan, FinCEN recently announced its new system for requesting investigatory assistance from the banks as mandated by Section 314 of the PATRIOT Act. As you know, if set up to be managed properly, it is going to go a long way in providing hot tips in this very complicated field, and it gives us an opportunity for a quick turnaround by investigators. What is the mechanism for ensuring that requests for assistance are prioritized in favor of the most important money laundering and terrorist investigations?
Mr. SLOAN. Mr. Chairman, we have met with the law enforcement side of that equation, principally the FBI, Customs Service, DEA, and asked quite frankly that they prioritize within their agencies those cases that either have a terrorist connection or are of extremely high and sensitive priority relative to money laundering investigations.
Page 28 PREV PAGE TOP OF DOC
As I understand it—and I don't want to speak for each of the agencies because there are probably various mechanisms within each agency—but none of the cases surface to the possibility of transmission over the 314(a) process unless they have been cleared in a field office by the agent in charge or in some instances at the national headquarters. In fact, I was even confronted at church recently by an FBI agent, who knows I am director of FinCEN, who remarked about the fact that he had received a notice that was broadcast through the entire Bureau about how the criteria, at least within the Bureau, for use of 314 needed to be strictly adhered to so that we are not giving the impression that we are abusing the system. So I am confident that the bureaus that are taking advantage of this are, in fact, putting in place mechanisms that will assure that these are the highest priority cases.
Mr. OXLEY. We want to make certain that every effort is made to make certain that that works smoothly. I know there will be some issues raised on our second panel regarding that implementation. I think it is a legitimate concern. On the other hand, the potential—upside potential is great, as you indicated. As you indicated in your testimony, Section 314 is a critical component of the PATRIOT Act; and we would plan to work closely with Secretary Snow towards making certain it works and works fairly and effectively throughout the system.
Let me ask each one of you, you have had now some experience under the PATRIOT Act and specifically under the anti-money-laundering provisions that our committee drafted. Give us some sense about what tweaking perhaps may be needed, either administratively or from a legislative perspective, to make this work in an effectual manner of identifying and going after assets of terrorist organizations and at the same time protecting individual rights and also providing as much flexibility for the banking system as we possibly can.
Ms. Fisher, let me begin with you.
Ms. FISHER. I didn't come prepared with any certain tweaks, although others on the panel might.
Page 29 PREV PAGE TOP OF DOC
I will say that the PATRIOT Act tools that were provided by Congress have been very useful, particularly in the hawala area. We have used it over two dozen times to charge individuals who were engaged in unlicensed money remitting, and we think that that is a critical tool.
The other one that I think that is going to become very useful in the future and we have used a few times now is Section 319(a) which allows us to forfeit funds deposited in foreign banks if those funds can be forfeited by the U.S. And the foreign bank has a U.S. Corresponding bank. We have used that on four occasions, one of which relates to a terrorist organization. So we think that that will, hopefully, be very useful in the future.
Mr. OXLEY. Mr. Hoglund.
Ms. FORMAN. If I may, the PATRIOT Act has been useful in the attack of terrorist financing, specifically in the use of the money service businesses as well as the bulk cash statute. The bulk cash statute has been used increasingly in our outbound currency operations. And in terms of the proposal for modification, 1960, the money service business requirement to be registered, it would be useful as a predicate offense for Title III electronic intercept. That would be one suggestion.
Mr. OXLEY. Thank you.
Mr. Sloan.
Mr. SLOAN. In addition to following onto your first question, I mean, clearly we need to be tweaking the systems that are in place. I think that is going to be a constant effort to make sure that the balance between the burden we are imposing upon the industry and the benefit we are providing to law enforcement strikes the right balance. So that tweaking will always continue.
But with regard to perhaps looking at the PATRIOT Act and some of the requirements, the first one that comes to mind, the PATRIOT Act allowed us for the first time to provide in our arsenal, if you will, information that comes from the 8300 Form, which is the nonfinancial institution collection of cash in a business. For years, it was reported only to the IRS; but the PATRIOT Act now allows us to provide that information to law enforcement but only starting with reports filed since January 1 of 2002. I think we would like to see the possibility of looking into the archived information and providing access to a greater database for law enforcement efforts, and that is one that comes to mind.
Page 30 PREV PAGE TOP OF DOC
Mr. OXLEY. How does that work? Does that have to be requested by the FBI?
Mr. SLOAN. In a fashion not dissimilar to the currency transaction reports or the suspicious activity reports or, as Mr. Hoglund mentioned, the currency monetary instrument reports, they are part of a database, the BSA database. Right now, we can combine all of that information and try to draw a picture of the money flow; and they have become incredibly important. The problem is that we don't have access to that information, as good as it is, if it was collected prior to January 1, 2002.
Again, I am just adding this as something that I am fully aware that the FBI and I have talked about.
I am handed information, and I don't want to bore you with it——
Mr. OXLEY. This just in.
Mr. SLOAN. We heard by both speakers about the issue of the so-called unregistered money services businesses, referred to as hawalas. When we registered—we required the registration of the money services businesses. We were essentially registering about 10,000 or 11,000 principals and potentially a quarter of a million service providers, check cashiers, et cetera; and hawalas are part of that operation.
State requirements for violating the registration requirement are that ignorance of the law is no excuse. That doesn't apply, I understand, in the Federal law for 18 U.S.C. 1960. It may be an additional, important tool for law enforcement, particularly in the area of the informal value transfer systems that are trying to stay below the radar screen and maintain their anonymity in the transfer of funds.
Chairwoman KELLY. Mr. Crowley.
Mr. CROWLEY. Thank you, Madam Chair; and thank you for calling this important hearing.
Page 31 PREV PAGE TOP OF DOC
Mr. Sloan—thank you to all the panelists for being here today.
Mr. Sloan, a number of previous reports indicated that the Treasury Department was unhappy with the level of support provided by some of our allies, particularly in Europe, in the fight against terrorism through money laundering. Could you discuss—and I am making reference to an article in last February's 2002 Wall Street Journal about particularly Germany and Russia and their participation and cooperation, I should say, with our country in this effort.
Additionally, I would be interested to hear from you about two of the specific allies in south Asia, Bangladesh and India, and their cooperation in this war against terrorism through money laundering.
Mr. SLOAN. I can comment on them generally. FinCEN is America's FIU, financial intelligence unit, and as such, we are a member of the organization known as the Egmont Group. The Egmont Group is a group of nations that are joined together—rather a diverse group I might add—to share information about financial criminal activity, money laundering and, since September 11, even the potential for terrorist financing. Russia has come on board as a member of that group, along with 69 other nations.
We—from that small corner of the world in dealing with our foreign counterparts, we are very comfortable that we, FinCEN, are getting good cooperation. I can't speak to the larger picture of cooperation relative to matters outside the so-called Egmont group of FIUs, but I am comfortable, whether it is Russia or India. In fact, FinCEN did a study in accordance with the requirements of the PATRIOT Act, Section 359, that required us to develop a report on the informal value transfer systems and report to Congress. That report has been completed, and we actually worked with the Indian government's law enforcement community because of the prevalence of such IVTS activity in their nation.
So from my corner of the world, we are getting the cooperation that I think is appropriate. I can't speak for the larger picture that I think you are moving towards, but I am comfortable with our exchange of information.
Page 32 PREV PAGE TOP OF DOC
Mr. CROWLEY. I have some other questions of the second panel, so what I would like to do is yield the balance of my time to my colleague from Washington.
Mr. INSLEE. I thank you, Mr. Crowley.
I was asking you about what the sources of the funding for the September 11 attack were, and Ms. Fisher was good enough to identify the United Arab Emirates and Germany. I think that was the end of the list. Then I added Saudi Arabia, because at least there were some Saudi Arabian nationals, 15 of the 19. So, in some sense, some Saudi Arabian nationals were involved. But there were other countries that—I didn't hear any involvement from Spain, from Italy, from Yemen or, interestingly enough to many Americans I think if they knew this, from Iraq.
It is interesting to many Americans because 42 percent of Americans in a recent poll I saw had the belief that Saddam Hussein was involved in the attack of September 11. This is one of the justifications that has been inserted for the propriety of the war that is about to start; and I just want to make sure I understand and Americans understand that the agencies represented here today, the Department of Justice, the Department of Homeland Security, the Department of Treasury and Operation Green Quest, do not have information indicating that Saddam Hussein financed with one dollar or one dinar the attack of September 11. Is that the situation?
Ms. FISHER. I just want to clarify what I had said before, which is when I mentioned U.A. And Germany that it was the public information that I felt comfortable with testifying to, that there may be other information within the Department that has not been made public or as I sit here today I am not sure that it has been made public that I can't testify to. So I wanted to clarify the record on that.
Mr. INSLEE. Can anyone add any other information?
Mr. HOGLUND. I can't testify to your specific question, but, as we have said, Operation Green Quest, the purpose was to exploit the systems that can be used in terrorist financing, and we certainly have cases and evidence of funds going to Iraq. However, what those funds have been used for, I am in no position to say at this point.
Page 33 PREV PAGE TOP OF DOC
To your larger question as well, I think one example—we will follow the money wherever it is going. The Ptech case in Boston, which I can't go into any great detail, but that involves a specially designated Saudi Arabian business man and that investigation pertains to that individual's business dealings in the United States and where that trail, that business may lead in relation to that individual.
Mr. INSLEE. Well, just so you will know, I have gone to a lot of briefings here in the Capitol. I have been pretty attentive to what the President has been saying, because I think that is very important. I have been listening very carefully to the agencies that you represent—well, I think. And to my knowledge, at the moment, at the moment, the United States Government has not suggested a shred of evidence to indicate that there was financing for the September 11 attack from Iraq. That is a very important fact that I think Americans ought to know if it is true.
If it is not true, if it is not true, if there is evidence of a financial connection between Saddam Hussein and the September 11 attacks, Americans need to know that; and I would encourage you to talk to the administration. Because if there is such evidence, we ought to know about it; and today we don't. Yet 42 percent of people have reached this conclusion, and I think that is very interesting.
I yield back the remaining part of my time.
Chairwoman KELLY. Mr. Inslee, there is more time left.
In my opening statement, I believe that I did make a connection, and I will give you that passage, of the connection between Saddam Hussein and the financing of the terrorism. I will give you a copy of that so you can see that, and perhaps you would like to talk to some of these people in private.
I go now to Mr. Murphy.
Mr. MURPHY. Thank you, Madam Chairman.
Page 34 PREV PAGE TOP OF DOC
I want to clarify one of the questions you were just asked. You are not saying there is no connection between Iraq or any terrorist organizations that operate within Iraq? You are saying at this time you have to be careful what you disclose, correct?
Ms. FISHER. I think the question, as I understood it, was, is there any money that we have traced back to Iraq going to the September 11——
Mr. MURPHY. Not necessarily the government of Iraq but in the organization.
Ms. FISHER. As I sit here, I am aware that some money flowed through the countries that I mentioned, but as to the source of the funds or otherwise, I am not clear in my mind what is public and not public, and I don't want to talk about things that I know are classified. I make no comment. Don't draw any conclusions from what I have said one way or the other.
Mr. MURPHY. Let me ask about other sources.
Among some of the organizations that have been set up that the money has flowed through, in some circumstances it has been well-intended citizens who have given money intended for charity to help the poor or other needy within those countries? If so, what sort of due diligence should citizens take when approached to give money to charities? Is there anything else we need to do to require more disclosure from charities to say where the money is going to?
Ms. FISHER. Clearly, I can mention that the defendants charged in the cases are alleged to have defrauded the people that donated. One is the case in Syracuse involving Help the Needy, where it is alleged that the people that ran that charity defrauded the people that actually gave money and that that money was filtered through to Iraq without a license but that there were statements made in their propaganda that either said they had a license or something along those lines, so they were actually trying to defraud them.
Also, in the case of Enaam Arnaout, who was the executive director of Benevolence who recently pled guilty in Chicago, I believe also there were allegations that some of the victims didn't know that their money was actually—may be targeted, as alleged, to go to fund the Chechnian rebels.
Page 35 PREV PAGE TOP OF DOC
I think it is possible that some of the victims don't know.
Mr. MURPHY. They receive this through cash, checks, credit card or all of the above?
Ms. FISHER. All of the above.
Mr. MURPHY. On another aspect—certainly I believe, as members of the committee believe, that the vast majority of Muslims in this country are law-abiding citizens who care a great deal for this Nation as well as for other Muslims throughout the world. Can you state for the record the level of cooperation you have received from other folks who are of the Muslim community and what they have provided you with?
Ms. FISHER. We have gotten excellent cooperation from the Muslim community. The case in Buffalo, the Lackawanna cell that we have charged of the individuals who went to Afghanistan to attempt to train, the Muslim community in Buffalo was excellent in their cooperation. I think that, from a law enforcement perspective and criminal enforcement perspective, we have great cooperation from the Muslim community from across the country.
Mr. MURPHY. Going back to my questions then, in general, for the American public, anybody who is approached by any organization purporting to be helping the needy in Mideast countries, they need to check out those organizations themselves and ask for a license and not just be told that is the case. Perhaps should they follow up with law enforcement agencies to say that they have been approached by them?
Ms. FISHER. Well, they certainly can. We have gotten a lot of inquiries from the public, and we try to help them. I think FinCEN has some best practices on these issues that they might be able to talk about.
I would also note that there are—people dedicated as terrorist groups or terrorist organizations are listed, like foreign terrorist organizations are listed by the Department of State. Also, the people—individuals and organizations that are listed pursuant to IEEPA are also available on the Web site so people can check those organizations out before they donate.
Page 36 PREV PAGE TOP OF DOC
Mr. MURPHY. Thank you very much.
Thank you, Madam Chairman.
Chairwoman KELLY. I want to call to people's attention that we have some slides with the interconnections of things showing on the back wall. You may want to take a look at that as people are talking. It does put some things in place.
Mr. Gutierrez.
Mr. GUTIERREZ. I get caught up in the slide up there.
Let me ask Ms. Fisher, since 9/11, the proceeds from drugs appear in some cases to be very lucrative channels for funding criminal activity such as terrorism. Could you explain what percentage of your efforts are being dedicated in this area?
Ms. FISHER. I would hate to try to quantify it, but I can tell you that we see this as a significant problem and a potential significant source for funds for terrorism.
There is two particular cases that I have mentioned that we have charged in this area. One is a case out of San Diego where the defendants are charged with attempting to exchange heroin for Stinger missiles, so it was a drugs-for-weapons case. Another case we have charged in Houston relates to another kind of negotiation, drugs for weapons, with the weapons going to AUC which is a terrorist group of Colombia.
So we are focusing on that. We think that drug proceeds as well as other proceeds from illegal activity such as the cigarette smuggling, which was the case in North Carolina, are often used to fund terrorist organizations and violent acts abroad.
Mr. GUTIERREZ. The importance of cooperation and coordination among local, State, Federal and cooperation in the enforcement and the prevention of terrorist financing, could you tell me a little bit about what is going on at our level to help cities and States? Are we providing any financial assistance to those cities and States? Just what are we doing?
Page 37 PREV PAGE TOP OF DOC
Whoever amongst the panel who feels most qualified to answer the question.
Mr. SLOAN. FinCEN has quite a successful program known as Gateway. Gateway links all 50 States, Puerto Rico and the District of Columbia with FinCEN. FinCEN trains the individuals at each of the State capitols. They may be in the Attorney General's Office or in a division of the State police of an individual State, and it allows each of the States to sort of tap into the FinCEN network and join with their counterparts at the Federal level in not only sharing leads and information but deconflicting cases.
We think that this has been a very important tool. In fact, last year alone, we had over 1,600 cases in which State and local law enforcement were linked with either a Federal case or another State and local case by virtue of coming through the FinCEN network.
We meet regularly with this group. Actually, in most instances, having been both a local police officer and a Federal agent, I can usually tell you it works the other way around, where the Federal agency claims they are there to help you. In this case, the State and local activity dealing with Gateway is something that the Federal agencies are starting to join, which is making it a more successful operation, from our perspective.
Mr. GUTIERREZ. Thank you.
I guess if we could—maybe Ms. Fisher or Mr. Sloan, Mr. Hoglund can at some point after the hearing, because there has been this issue raised about what we have been doing in this country and the actions of our Federal Government vis-a-vis Iraq specifically and the financing and because I don't want to put an onus on you about what you can and cannot say, if you could just respond in writing at a later point and say, members of the committee, here is what we think. That way you don't have to say, God I won't say anything—because I don't want you to say anything. I don't. And I understand that that could be a problem. So think about that so we can have the information.
Because I haven't seen it all come together. I see the chart up there, but I hear the testimony. I know money went to Bosnia. I know money went here. But I look at September 11, and I don't see the connection specifically in terms of the financing of that or other issues, and I think that that is an important issue.
Page 38 PREV PAGE TOP OF DOC
Lastly, let me just share with Mr. Hoglund that I think one of the things you might want to consider, because I know that the Justice Department and I know the Attorney General is taking many, many steps in order to watch, monitor, surveil the going on of people or peoples within the United States of America, and he wants to know what is going on here because we need to know. But we have got like 10 million people that he knows, which all of you know and which I know are in the United States without documentation, most of whom are working in the United States.
I went to the Holiday Inn, and the young lady asked me when there could be a program where she could get legalized. I went to IKEA and as they were putting the furniture in my car, the guy said, Gutierrez, do you think there is going to be a legalization program? When I went to go get my gardening equipment—you get my drift—and the guy picking up my dishes in the restaurant—either I am a magnet for people who are undocumented in this country or they are everywhere and they are a part of our life. And I think they are a part of our life, whether it is the lady cleaning up my room, the guy at the gardening center or the one helping me put equipment from the IKEA.
It doesn't matter. Given that they are here working and in jobs that are pretty low-paying jobs and that we have an issue of security, I mean, we want to know who is in the country.
A funny thing occurred to me that I think I could identify for you, with you. Ten million people, I am sure they would give up their fingerprints, give you pictures themselves and tell you their life history if they could get a card. And I don't say this jokingly. There is 10 million of them. Issue a security card if they are working and obeying all of the laws and contributing. Maybe we should bring them in. Those will be 10 million fewer people you will have to watch or monitor because you will know. They will join our banking system.
Page 39 PREV PAGE TOP OF DOC
Mr. CROWLEY. Now you know why he is a magnet.
Mr. GUTIERREZ. Maybe we should bring them into our system, and I mean that genuinely, because I keep watching your efforts to know what is going on in the country. So just a suggestion.
Thank you, Madam Chair, for your courtesy.
Chairwoman KELLY. Thank you.
Ms. Brown-Waite.
Ms. BROWN-WAITE. Thank you very much, Madam Chair.
Coming from the Tampa Bay area, the arrest of Sami Al-Arian was very interesting to many people. The question that I have is, when the whole issue began, I contacted Judy Ginshaft at the university and I said to her I wanted her to interview every single student that he had contact with and see if there was any attempt on his part to openly advocate violence against America, against any American. Her comment at the time was something like, well, that is not really my job; and I am not getting a lot of help from the Department of Justice or the FBI. Tell me what changed from—and this was before 9/11 that this call took place—tell me what changed, other than 9/11.
Ms. FISHER. As far as the cooperation with the Department of Justice or what changed about his activities?
Ms. BROWN-WAITE. First of all, he wasn't in the classroom because he was on administrative leave all that time.
Ms. FISHER. I want to make sure I understand the question.
Ms. BROWN-WAITE. What changed his activities?
Ms. FISHER. I think that the Indictment explains. It is quite lengthy, and it is about 120 pages. It explains years of activities by Mr. Al-Arian and other defendants that are charged in the case that make it very clear that they were very involved for some time in the leadership of the PIJ here in the United States.
Page 40 PREV PAGE TOP OF DOC
Ms. BROWN-WAITE. Ms. Fisher, with all due respect, I have read it. It is old information that was there before 9/11. I am asking you again, what changed? Because that information—the clear majority of it was information of activities before 9/11. What happened that all of a sudden he is now arrested? That information was known and out there.
I think my basic question is—and I didn't see it in the Indictment—that you were ever able to tie in any kind of advocating of violence that he engaged in while a professor at the university. And, believe me, I am not defending the man at all.
Ms. FISHER. I understand your question now. I am sorry. I may have been a little dense as to it.
Something very significant happened over the past year with regard to this case, and I think it is a great example of information sharing and some of the tools we were given by the PATRIOT Act for information sharing on intelligence and some of the tools we were given by the Court of Appeals for the FISA Court of Review with regard to now allowing our intelligence operation share information with our prosecutors.
So for a long time, and as it is outlined in the Indictment, the activities went on, and they were monitored for intelligence reasons, but they weren't necessarily fully shared with prosecutors that were looking at criminal charges in the case. With the PATRIOT Act in the recent—just last year—FISA Court of Review opinion, it allowed us to share that information back and forth; and, at that point, it was appropriate to bring the charges. So I hope it gives a little bit better answer to you question.
Ms. BROWN-WAITE. It does. And I wasn't here last year. I am a new Member.
First of all, in response to a previous question, you said that the charities that are questionable are now on-line. You have a list of them on-line. Was this the case before 9/11?
Page 41 PREV PAGE TOP OF DOC
Ms. FISHER. Yes, absolutely. The designation process for IEEPA purposes has been in existence I think since 1995, and I believe that some of the members of PIJ had been listed as early as 1995—that is correct. As far as foreign terrorist organizations, the 36 organizations that are listed by the Secretary of State in conjunction with the Department of Justice and the Treasury, that process started in 1997. Those are 2 years, and they are renewed every 2 years.
Ms. BROWN-WAITE. One last question. Are universities still insisting upon a subpoena or court order before they will release information when you are trying to find out whether or not a student is an alien in a particular college? Are some States still requiring that? And, if so, can you supply us with a list of the States that are?
Ms. FISHER. I am not aware of any problems in this regard, but I would like to check and ask around a little bit because there may be some that we are not aware of. So if we could supplement an answer.
Ms. BROWN-WAITE. If you could get back to the committee Chair.
Chairwoman KELLY. Ms. Fisher, if you could supply that list, please try to do that and bring it to the committee.
Mr. Garrett?
Mr. GARRETT. Good afternoon. Can any one of you provide us with more detail on the degree, if any, of foreign cooperation or the lack thereof—specifically, if you could address the countries that have strengthened their anti-laundering laws in response to the PATRIOT Act?
Ms. FORMAN. If I could address that. We are working very closely with various foreign governments in Europe, specifically, England, Italy—we have Italy—representatives from the Italian police in our office today. We are working with Switzerland.
Page 42 PREV PAGE TOP OF DOC
We have entered into the first memorandum of understanding to work in international terrorist financial investigations where we exchange law enforcement officers to work on the case and ensure the timely exchange of information. We are working with Canada, and we are working with countries in Asia.
We also follow the foreign leads, once again tracking and following the funds. We have created financial investigative teams solely made up of Green Quest agents and analysts, and sometimes in combination with the Federal Bureau of Investigation, and we travel overseas and meet with these foreign governments to track the money.
Mr. GARRETT. To follow up on that, you gave us some of the countries that are stepping up to the plate, it sounds like, working with you; and specifically on the money laundering side, are there those that you have reached out or we have been seeking assistance from and they are not giving us the assistance that we would prefer?
Ms. FORMAN. We are working with various governments—''we'' being the Bureau of Immigration and Customs Enforcement, 31 foreign attache officers. Some countries are more readily available to provide information, and some are less. But we are working to chip away at that resistance and getting some of the information that we need.
Mr. GARRETT. So there is none specifically that come to mind that we should be doing anything we can from this end as far as encouraging them to step up to the plate more so than they have done in the past?
Ms. FORMAN. Not at this time. We recently just provided training in Qatar and Kuwait. We are working with other governments that have requested and we have reached out to provide this additional training so they know what to look for. In some instances, it is they just don't know what to look for, and they don't know what those signs are, and we are helping them with that.
Page 43 PREV PAGE TOP OF DOC
Mr. GARRETT. Any European nations that we should be specifically asking more assistance from than they have been in the past?
Ms. FORMAN. Not that I am aware of at this time.
Mr. GARRETT. I don't know if this is yours or the rest of the panel. Recently, the Deputy Secretary of State was quoted as saying, maybe the Hezbollah is actually the A team of terrorists, instead of al-Qaeda. There is news every day with regard to finding Osama bin Laden. If we were to find him today, tomorrow or in the near future and therefore perhaps cut off or decapitate the head of al-Qaeda, wouldn't Hezbollah still remain a significant force despite that?
Ms. FORMAN. I think I will refer this to my DOJ colleague.
Ms. FISHER. Well, I certainly think that Hezbollah and al-Qaeda and the other terrorist organizations are a significant threat against the U.S., so our efforts certainly don't stop at al-Qaeda, whether it is in terrorist financing or the war on terrorism. We think it is global and that it is broad reaching to all the terrorist organizations.
Mr. GARRETT. Does it change your focus of your efforts or your energies if that capture were to come tomorrow? You would still be looking at al-Qaeda but would be changing your focus from there elsewhere or would you continue on the path that you are on right now?
Ms. FISHER. I think we are continuing all paths right now. I mean, I think we are focused on all of the organizations that we think pose a threat to U.S.
Mr. GARRETT. I thank you very much for your answers.
I yield back.
Chairwoman KELLY. If there are no more questions, the Chair notes that some members who were unable to be here or even the ones who were here may have additional questions for the panel and they may wish to submit those questions in writing. So without objection, the hearing record——
Page 44 PREV PAGE TOP OF DOC
Mr. Crowley, I thought you went.
Mr. CROWLEY. You did recognize me. Could I have an opportunity for a second round or maybe a possibility for a second round?
Mrs. KELLY. I don't think so, because we have some planes that need to be caught. So if you don't mind——
Mr. CROWLEY. Could I make one statement very quick?
Chairwoman KELLY. By all means.
Mr. CROWLEY. We usually tend to want to help our colleagues' attempts to make some questions, and I yielded some time. Had I known where the direction of the questioning went, I may not have been so quick to yield my time to my colleague.
Because I think you failed to make the one point and that is Saddam Hussein has supported terrorism in the Middle East, specifically in Israel, in which it is my understanding he has given $25,000 to each family of a homicide bomber, a person who straps explosives on themselves and walks into a crowded mall or into a bus and blows themselves up. To me, there is no difference between a person who does that and a person who gets into an airplane and flies into the Twin Towers in New York City, killing themselves and taking innocent lives; and that is a connection that I think the American people can certainly understand.
Chairwoman KELLY. Thank you, Mr. Crowley.
Without objection, this hearing record is going to remain open for 30 days; and members will be able to submit their questions and place their responses in the record.
This panel is excused, and we do thank you very much. We are sensitive to the fact that you have limits on what you can say, and we appreciate the fact that you attempted to answer our questions to the best of your ability. We are very grateful for your time, and this panel is excused with our appreciation. Thank you very much.
As the second panel takes their seats at the table, I am going to begin the introductions. For our second panel we welcome Steve Emerson, the Director of The Investigative Project; Mr. Matthew Epstein, Assistant Director of The Investigative Project; Mr. Larry Johnson, CEO of BERG Associates; Mr. John Moynihan, Senior Investigator for BERG Associates; and Mr. John Byrne, Senior Counsel and Compliance Manager for the American Bankers Association.
Page 45 PREV PAGE TOP OF DOC
I want to thank each one of you for testifying before us today, and I welcome you on behalf of the full committee.
Without objection, your written statements and any attachments will be made for part of the record.
You will be recognized for a 5-minute summary of your testimony. When the light changes color on the timer before you, you should move toward the finish.
Chairwoman KELLY. If you are all settled and ready, we begin with you, Mr. Emerson.
STATEMENT OF STEVE EMERSON, DIRECTOR, THE INVESTIGATIVE PROJECT
Mr. EMERSON. Thank you for the opportunity to testify, Madam Chairman.
I want to let you know that you have a very excellent staff. Even though there is a pay freeze right now, they should be compensated with lots of praise. Andy has done a great job and also knows how to use a Blackberry very well.
Chairwoman KELLY. You realize what that is going to cost this committee?
Mr. EMERSON. You can put a supplemental in.
It has been 18 months to the day since the horrific events of 9/11. The question is, where we do we stand?
Consider this one interesting fact. In the 8 years before 9/11, there are a total of just two prosecutions in the United States of terrorist financing. Since 9/11, there have been at least 70 criminal investigations, $113 million in frozen assets; and, according to informed sources, there are at least another 100 investigations in different preliminary stages. Terrorists raising tens of millions of dollars have existed in the United States for more than a decade. They include every single veritable member of militant Islamic organizations: Al-Qaeda, Hamas, Hezbollah, Palestine Islamic Jihad. They exist not just in the major cities but in small towns as well as major cities from Seattle, Washington; Boston, Massachusetts; Moscow, Idaho; Syracuse, New York; Charlotte, North Carolina; Tampa, Florida; Dallas, Texas; Portland, Washington; Plainfield, Indiana; Buffalo, New York. I could go on listing numerous other cities.
Page 46 PREV PAGE TOP OF DOC
The question is, how did they operate here? They didn't list their names generically. They operated under false cover. They had innocent-sounding names. They operated under humanitarian cover, under religious cover, under human rights cover.
Example, the al-Qaeda organization operated from its very inception under an organization called the Benevolence International Foundation. It was deliberately set up in the United States to provide a conduit for al-Qaeda in terms of its financing worldwide.
Same thing for al-Qaeda in terms of Global Relief. It was shut down, as was Benevolence International, after 9/11. Iraq, as we heard this afternoon, operated—it got moneys through Help the Needy, a fake organization based in Syracuse, New York, and other places in the United States. Moneys were going into illicit purposes.
Hezbollah operated a cigarette-smuggling scheme in Charlotte, North Carolina.
Al-Qaeda just used recently, as the indictments in New York revealed last week, the Al Farouq mosque in Brooklyn.
The Palestine Islamic Jihad, one of the most notorious terrorist groups in the world today, operated from at least 1984 through the present under false cover in the United States under the monikers of an academic group, The World Islamic Studies Enterprise, the Islamic Committee for Palestine, as well as the Islamic Academy of Florida through the operations of a professor at the University of South Florida at Tampa.
Of course, Hamas, that would also belong, I believe, together with Hezbollah, as the A team of terrorist groups, operated through an organization that received nonprofit status called the Holy Land Foundation for Relief and Development. Wiretaps by the FBI in 1993 and 1994, unfortunately and tragically only translated and transcribed in 2001, show that Hamas officials knew exactly what they were doing in setting up a fund-raising mechanism in the United States, knowing exactly how far to press the limits of the U.S. Law.
Page 47 PREV PAGE TOP OF DOC
At the end of the day, I believe we will find tens of millions of dollars, perhaps totaling even more than 100, that have been raised by militant Islamic groups from the early 1990s through 9/11.
What are the common denominators that are common to all these schemes?
One, al-Qaeda, Hamas, Palestine Islamic Jihad deliberately set up in the U.S. To exploit our freedoms, religious tolerance, pluralism and lax financial controls.
Number two, Saudi Arabia support for militant Islamic groups, including charities today that operate in the United States, including the Muslim World League and the International Islamic Relief Organization, organizations that have been directly tied to al-Qaeda and financing of terrorist groups and have not had their assets frozen, their influence is able to prevent acquisition and seizure of terrorist assets in the United States.
Number three, the disparate and compartmented number of agencies collecting information made it very easy for terrorist groups to find the crevices and the cracks to evade any detection.
And bottom line is that in the last 10, 15 years the terrorists had a lot of time to create elaborate financial schemes.
The U.S. Government is doing a phenomenal job, I believe, in terms of trying to play catch-up. We still have a long way to go.
In working with Federal agencies and working with those investigators on the ground, thousands of unsung heroes have emerged since 9/11; and I believe this country owes a great deal of dedication to them.
Chairwoman KELLY. Thank you very much, Mr. Emerson.
[The prepared statement of Steve Emerson can be found on page 69 in the appendix.]
Page 48 PREV PAGE TOP OF DOC
Chairwoman KELLY. Mr. Epstein.
STATEMENT OF MATTHEW EPSTEIN, ASSISTANT DIRECTOR, THE INVESTIGATIVE PROJECT
Mr. EPSTEIN. Chairwoman Kelly, distinguished members of the panel, thank you for the opportunity to testify.
In 1993, Osama bin Laden told senior al-Qaeda lieutenants that three Muslim charities provide the primary sources of al-Qaeda financial support, including the Muslim World League and Benevolence International Foundation. Far from nebulous, back-room organizations in faraway lands, these charities set up major operations right here in the United States. Just as the security and strength of our financial and corporate institutions attract unparalleled investment capital, they also attract financiers of al-Qaeda terrorist organizations.
In 1989 and 1990, the Muslim World League based in Saudi Arabia established branch offices in Falls Church, Virginia, under the operational arm, the International Islamic Relief Organization and Sanabel Al-Kheer. In the United States, the board of trustees of these organizations included two suspected al-Qaeda financiers. From 1991 through 1999, IIRO laundered millions of dollars through private U.S. Front companies, including a privately-held Islamic investment bank financed by two specially-designated terrorists and a chemical company located in Chicago, Illinois, that was raided by FBI agents in 1997 as part of a terrorism and money laundering investigation.
An accountant at the Islamic bank told the FBI that he feared that moneys transferred overseas may have been used to finance the East African embassy bombings. IIRO's tax forms revealed that the vast majority of the money was channeled to operations in Bosnia, which we now know supported al-Qaeda infiltration into Western Europe.
Page 49 PREV PAGE TOP OF DOC
In 1993, al-Qaeda operatives established the Benevolence International Foundation in Chicago, Illinois. From 1993 to 1999, BIF collected over $12 million by way of personal checks, wire transfers and stock donations. Moneys were then transferred overseas by wire to al-Qaeda-controlled accounts and ultimately withdrawn in cash to support al-Qaeda operations.
As seen in the recent Palestinian Islamic Jihad out of Tampa, Florida, money is the lifeblood of terrorist organizations.
The PATRIOT Act has made major impact in slowing terrorist financing. However, continued vigilance is mandatory as terrorist organizations quickly adapt to U.S. Counterterrorism legislation.
Indeed, following the passage of the 1996 Antiterrorism and Effective Death Penalty Act, FBI wiretaps caught senior terrorist leaders in the United States discussing exceptions in the material support restrictions for medical aid. As a result, U.S.-based front charities began using medical equipment as currency for terrorism support.
As a new generation of al-Qaeda leaders mature, we need to remain flexible and nimble in identifying and quashing all forms of financial support for international terrorism. Deserving particular attention are, one, charities, businesses and individuals with operations in conflict areas, including Bosnia, Chechnya, Afghanistan and the Sudan; two, financiers holding interests in dozens of shell companies in the United States with substantial overseas financial activity; three, unorthodox leasing activity and real estate transactions.
Our enforcement agencies and task forces, including Operation Green Quest, the Criminal Division of the Department of Justice, the Department of Treasury, the FBI, IRS, INS and Customs, as well as the numerous U.S. Attorneys throughout the country have made great strides in shutting down financial operations. Continued vigilance and interagency cooperation is necessary as al-Qaeda regroups to press our Nation's resolve.
Page 50 PREV PAGE TOP OF DOC
Chairwoman KELLY. Thank you very much, Mr. Epstein.
[The prepared statement of Matthew Epstein can be found on page 104 in the appendix.]
Chairwoman KELLY. Mr. Johnson.
STATEMENT OF LARRY JOHNSON, CEO, BERG ASSOCIATES
Mr. JOHNSON. Pleased to be here today with my partner and friend, John Moynihan.
Oftentimes, you don't get the chance to do this on the Hill, but John, on October 21, was up here before this committee. He was the one who suggested you need to do something about the unlicensed money remitting business. Congress did something, this committee in particular; and, as we heard in the panel before, it has been one of the most single important acts in going after the terrorist network.
Terrorists need two things to thrive and prosper. They have to have a safe haven, which means they either have a state that sponsors them or they are set up in a dysfunctional state and they need money. You cut the money out from under them, you take their heart away, because money requires—you have to train people, you have to feed them, you have to transport them. In reality, the money part of this and the work this committee has done has been more important than anything that the Department of Defense has done in killing them. I am in favor of killing the terrorist, but when you take the money away, you go a long way towards helping protect us.
Page 51 PREV PAGE TOP OF DOC
What we do in our company, we are fortunate to support the Department of Justice in some investigations, but we also work in the private sector and get out in areas such as the Colon Free Zone of Panama and some of the other free zones. We see these merchants that operate within the international financial system, and that international financial system is much like a superhighway that provides those who want to engage in terrorism a road that they can get things done.
The most significant change we have seen with terrorist activity vis-a-vis financing is with the end of the Cold War and the real dramatic decline in state sponsorship—while it is true Iran, Iraq, Syria continue to provide sponsorship—what we have seen is those groups that do remain have engaged in the whole spectrum of economic activity, ranging from criminality to setting up legitimate businesses with charitable organizations in the middle.
I would like particularly to make reference to the case cited with Hezbollah in North Carolina. Those individuals, when they finally arrested them, they had two-page rap sheets. That means they had committed felonies prior and misdemeanors and had not been prosecuted because the crimes were considered below the threshold.
The other part of that case, the point that needs to be made which is so important, these folks that are engaged in these terrorist activities understand how to game our system; and if they can get underneath the law, they can break it but not be prosecuted, they will do so. As John will be able to elaborate in more detail, we are still seeing that.
I have a power point presentation that I would like to run through to illustrate how the charitable organizations have done this.
This was a case that was conducted out in Chicago—still active. It was done as a civil forfeiture, civil seizure. The FBI agent on it was a man named Bob Wright.
The Quranic Literacy Institute set itself up as a charitable organization, ostensibly to teach people how to read the Koran. The names that are listed there was the president, the corporate secretary and trustee. The person to the side, Mohammed Salah, has a question mark by his name, because when he went and presented documents to a bank to get a loan he said he was an employee of that organization and he had letters from the president that said he was an employee of the organization and yet there was no corroborating information, no paycheck, no W-2, no contract. The man was a pseudo employee using this charitable organization as a device by which to conduct operations which you will see led to terrorist financing of Hamas.
Page 52 PREV PAGE TOP OF DOC
If we go to the next slide, here we see one of the individuals that was alluded to by the previous panel by the name of Yassin Kadi, a Saudi citizen. He is also involved with the Ptech case. This individual, Tamer Al-Rafai, had a corporation, Golden Marble. He was asked to go purchase a piece of property. To purchase that piece of property, what can only be described as a gift from Mr. Yassin Kadi, who sent the money to him. No loan agreement, no requirement to pay it back, sent him the $820,000, gave him instructions. They prepared three different checks of different amounts that were then passed to the Quranic Literacy Institute for being cashed later. They held onto those checks until they got the 501(c)(3) status as a charitable organization; and, ultimately, later on, they used that property as an asset to draw money from it to then shift into the hands of a terrorist group in the Middle East, Hamas.
If we go to the final slide, this shows the kind of money laundering activity that you would see with drug organizations. But it is important to note, this is not typical money laundering. This does not start with a predicate crime. It starts with legally raised money, in some instances. But what they have done in this case, money came from Faisal Financial Services of Geneva, that is King Faisal of Saudi Arabia, who diverted some money directly into the bank account of Mohammed Salah. Other funds were sent to Ubu Marzook, the political director of Hamas. Two other individuals, one known and one unknown, Gazi Abu Samah and someone in Dubai, also sent money directly to Ubu Marzook. Marzook then channeled this money to Mohammed Salah, who carried it to Middle East; and it was used both to pay for families of people engaged in suicide terrorist attacks as well as to fund terrorist operations.
I would like to tell you that this is an exception, but what Steve and Matt talked about and what John will talk about, it is typical of how these groups can exploit charitable operations.
I think the work the committee has done on this front has been important, and I commend you for it.
Page 53 PREV PAGE TOP OF DOC
Chairwoman KELLY. Thank you very much, Mr. Johnson.
[The prepared statement of Larry Johnson can be found on page 149 in the appendix.]
Chairwoman KELLY. Mr. Moynihan.
STATEMENT OF JOHN MOYNIHAN, SENIOR INVESTIGATOR, BERG ASSOCIATES
Mr. MOYNIHAN. Thank you, Madam Chairwoman.
On the occasion of my last appearance before the committee, I testified about BERG experiences with the understanding of the numerous and formal financial systems that operate around the world. At that time, the committee had great interest in hearing about my experiences with hawala, black market peso and other parallel money markets and how money moves in these underground financial systems. We helped shed light on the ways to implement programs to stem the flow of illicit dollars within criminal terrorist groups like al-Qaeda.
The committee may recall I specifically recommended a Federal law criminalizing the act of engaging in money exchange without a license needed to be adopted. Indeed, the PATRIOT Act, enacted within a few months, modified the law, Section 1960 of Title 18, U.S. Code, making it a more important, effective tool in the use of prosecution of unlicensed money remitters. We would like to applaud the actions of the committee in moving that legislation amendment forward and making the law a more effective tool to combat international organized crime and terrorism.
Likewise, we would like to applaud the efforts of the various Federal law enforcement agencies which have aggressively investigated and penetrated these hawalas, black market financial systems over the past 18 months. You should know that our work as a government contractor brings us in close personal contact with Federal investigations. From a variety of Federal agencies we can personally assume, the committee, that good use is being made of Title 3 of the PATRIOT Act. Important investigations are being conducted, and significant advances in the war against organized crime and international terrorism are being made using the recommendations within these Chambers of 1960, Title 18.
Page 54 PREV PAGE TOP OF DOC
With that said, more needs to be done. Today we would like to address another important area of international money movement which in our experience has proven to be a very effective means of laundering criminal proceeds internationally; that being the use or, more correctly, abuse of cash letters, sometimes referred to as an international pouch.
So what is a cash letter? In layman's terms, a cash letter is an interbank transmittal letter that accompanies checks or cash instruments that are sent from one bank to another internationally. Large banks receive cash letters on a daily basis from correspondent banks. These cash letters can often contain hundreds or thousands of checks that are bundled together and sent to a corresponding bank for collection.
Once received, the checks must be sorted and processed and ultimately forwarded to the payee banks for collection. Checks are often routed through the Federal Reserve System and other bank or regional check processing centers for collection.
In short, the cash letter agreement between banks is a depository action that is in place to ensure that foreign banks get paid for checks they accept for deposit from abroad.
In recent years we have personally noticed an increase in the use of cash letters as a vehicle for international money laundering. As wire transfers and other forms of traditional laundering have come under increased scrutiny regulation, organized crime groups and terrorists have turned to other methods of moving their money internationally. Consequently, the international movement of bulk quantities of personal checks now figures prominently in money laundering or money movement schemes.
First some relevant background. Banks open bank accounts for other banks. These are known as correspondent accounts. These correspondent accounts are used for the movement of funds between banks. Many times the correspondent will send monetary instruments from the overseas locations to the United States to be deposited into the correspondent bank account. Those checks, money orders, cashier's checks, et cetera, are accompanied by a deposit slip that details the value of the instruments with the date and the accompanying checking account number that the funds are to be deposited into. This in essence is a cash letter.
Page 55 PREV PAGE TOP OF DOC
These cash letters are sent to designated areas of the bank for processing. Some banks handle as many as 5- to 7 million checks a day for processing. Therefore, when these cash letters are delivered to the banks by shipping companies in pouches and overnight bags from abroad, it would be extremely difficult to ensure that those instruments are not the subject of or facilitating money laundering.
How do these instruments end up in the hands of correspondent banks abroad? There are many ways in which this could happen. As an extension to the last time we were here regarding 18 USC 1960 involving unlicensed money remittances, many people seek to send monies abroad.
In the interest of time, I am going to cut short this speech and cut to the chase. Here is the deal. These checks come from abroad, they land in our banks; they are accompanied by a deposit ticket. Once these millions of checks arrive, they are deposited into accounts. These accounts then—correspondent accounts are credited for the value of these checks. But what we miss in our investigations is the offsetting credit that goes along with the deposit of these checks abroad. For instance, if a series of checks were sent to a Middle Eastern bank, those checks are accepted. They are then put in a pouch, U.S. Denominator checks, and they are sent here to the United States and deposited into the corresponding account. It is those credits on the other side of the ocean that we miss all the time. It is those credits that are then funneled back to the folks in those foreign countries. It is those credits that are used for criminal activities.
Here in the United States we should be able to recognize that the way these checks come in, the huge volumes of these checks come in, and the way they are purchased, structured, and enumerated are examples of money laundering. We need to capture this, and 18 USC 1960 could be better aided if we were able to establish that people who do these types of crimes either through correspondent accounts or personal accounts should be held to the standard of having a presence here. The mere fact that an individual has an account here should constitute presence in the law, and that is something that should be addressed for further prosecution.
Page 56 PREV PAGE TOP OF DOC
Thank you.
Mrs. KELLY. Thank you very much.
[The prepared statement of John Moynihan can be found on page 152 in the appendix.]
Mrs. KELLY. Mr. Byrne.
STATEMENT OF JOHN BYRNE, SENIOR COUNSEL AND COMPLIANCE MANAGER, AMERICAN BANKERS ASSOCIATION
Mr. BYRNE. Thank you, Madam Chair, Chairman Oxley, members of the subcommittee. The ABA appreciates this opportunity to discuss the myriad of challenges faced by the financial industry and the government in addressing the scourge of terrorist financing. Our members have been diligently working to assist the government, and our comments today are offered to simply improve the system.
Seventeen months after the enactment of the USA PATRIOT Act, an act the ABA strongly supported, the effects of these new laws and regulations on terrorist financing and money laundering are still being assessed. ABA was particularly pleased to learn of the Treasury Department's commitment to continue to provide oversight in this area after the regulations have been finalized. The creation of a Treasury task force on the PATRIOT Act as well as the creation of the Office on Terrorist Financing and Financial Crimes are welcomed developments.
Our association has offered the following as needed areas of improvement to USA PATRIOT Act oversight: The creation of an office for USA PATRIOT Act oversight; immediate development of a staff commentary for PATRIOT Act and Bank Secrecy Act interpretation; a review of the 314(a) demands for record searches that were discussed earlier today; formal commitment from all functional regulators for uniform and consistent PATRIOT Act exam procedures; coordination between the Treasury's Office of Foreign Assets Control and the financial institution regulators to improve advice to the regulated community; and improved guidance and communication on all SAR-related issues, particularly in the area of terrorist financing.
Page 57 PREV PAGE TOP OF DOC
We provided detail on all of these recommendations in our written testimony, and some of these are being addressed by our government partners, but I would like to briefly cover several issues.
There is no clearer example of a positive public policy goal not being met than the implementation of section 314 of the USA PATRIOT Act. While we recognize that government is faced with tremendous challenges to track terrorist funds, section 314 warrants a thorough review to ensure consistency with both congressional intent and the need to establish a more workable system.
In November of 2002, FinCEN and the primary Federal regulators put into place a brief moratorium on section 314(a) information requests. This moratorium was a direct result of the confusion faced by the recipients of the request to our industries. In several instances the information requests went to employees no longer with the bank, came in bunches several times a day, and had a very quick 7-day response deadline. In addition, many of our members complained that there was no apparent connection to terrorism or money laundering in the requests. In fact, the requests seemed to be a dumping ground for law enforcement cold cases clearly not anticipated by Congress.
Since that time, I am happy to report, the regulators, FinCEN, and Treasury have made adjustments and revised the process to address a number of logistical issues and to develop additional guidance. The announced changes include some of the following: The 314(a) requests from FinCEN are to be batched and issued ever 2 weeks rather than every single day unless otherwise indicated in the request. After receiving a 314(a) request, institutions will have 2 weeks rather than 1 to complete their searches and respond with any matches.
While these changes appear helpful, the initial responses we are getting from the industry are that there are still tremendous operational and communication problems with the new round of 314(a) demands. We urge this subcommittee to seek a status report from FinCEN and law enforcement on how the new system is working. We should point out, however, that the Treasury Department and the regulators just this morning met with several of us from the industry to try to assess our concerns, and they are committed to improving the system. We appreciate the efforts from Treasury, the regulators, and FinCEN, but we must have law enforcement cooperation for that system to be improved.
Page 58 PREV PAGE TOP OF DOC
Finally, similar to PATRIOT Act interpretive issues, there remains an ongoing need for regulatory agencies, law enforcement, and FinCEN to assist Suspicious Activity Report filers with issues as they arise. This need is particularly obvious in the area of terrorist financing. This crime is difficult to discern as it often appears as normal transactions. We have learned from many government experts and our experts today on this panel that the financing of terrorist activities often can occur in fairly low dollar amounts with basic financial products. Guidance is extremely necessary. The only real guidance we have received to date comes from FinCEN's SAR activity review, but we need more.
Madam Chair, the ABA has been in the forefront of industry efforts to develop a strong public-private partnership in the areas of anti-money laundering and now terrorist financing detection. We continue to support the policy goals expressed by Congress, but there needs to be a workable and efficient process. We encourage Congress to stay involved in this important oversight effort. Thank you.
Mrs. KELLY. Thank you very much, Mr. Byrne.
[The prepared statement of John Byrne can be found on page 62 in the appendix.]
Mrs. KELLY. I would like to start the questioning with just a couple of questions.
Mr. Emerson and Mr. Johnson, what can you tell us about the recent arrests of Iraqis in the United States who are aiding terrorist groups financially? I am sorry. The recent arrest of the Iraqis in the United States.
Mr. EMERSON. The arrests that were announced recently show that Iraq and some of its front groups and front organizations were raising money in very sophisticated ways, carefully utilizing the loopholes in the financial reporting requirements for charities as well as the lack of enforcement in the IRS nonprofit division, which is unfortunate, not owing to their deficiency, but rather a lack of resources in the past in terms of enforcing and investigating the nonprofit component—the veracity of the nonprofit components that are being declared by these groups.
Page 59 PREV PAGE TOP OF DOC
So Iraq—I think this is, to be quite honest, the tip of the iceberg. I think we have not seen large numbers of prosecutions because the monies raised in the ways raised by Iraq have been much more circuitous than some of the traditional, if I can use that word, methods used by Hamas and let us say the Palestine Islamic Jihad. I think Iraq has been much more adept at using private citizens in the United States and using third-party conduits, and the monies as we see in the indictment announced out of Syracuse went to bank accounts in Jordan, which were then filtered into Iraq to support the regime in ways that we still have yet to uncover.
Mrs. KELLY. Thank you.
Mr. Johnson.
Mr. JOHNSON. Just add to that—look, Iraq under the U.N. Security Council Resolution 587 back in 1991 was supposed to stop sponsoring terrorism; not just give up weapons of mass destruction, but end support for terrorism. And for the last 12 years they have continued, we know—forget about al-Qaeda. They are directly involved with financing Arab Liberation Front, Palestinian Liberation Front, and carrying out terrorist attacks inside Israel.
Part of the problem we had for years with al-Qaeda is, because al-Qaeda's activities didn't rise to the threshold, it was basically—it was a problem, but not attacked. And the same thing is possible with Iraq where, yeah, they are killing some Israelis, but they are not killing us,so it is not a problem.
I think the issue is you have got to go after the financing. And clearly they have been involved in the United States and raising money that is going back to Iraq. Trying to be able to put all the pieces together to show a direct link why the change to the actual violence is difficult.
And one final point that goes back to a point raised in the other panel. The intelligence information ofttimes is very right and has a lot to offer, but is not shared with law enforcement. And we saw that in the case of Sami al-Arian. I don't know right now what the Intelligence Community has within its hands that is not getting into the hands of law enforcement where they can prosecute, but my friends within both the Intelligence and Law Enforcement Communities say that is still a problem. That wall has to come down further.
Page 60 PREV PAGE TOP OF DOC
Mrs. KELLY. Thank you.
I want to go now to Mr. Byrne and ask you about a question. Mr. Moynihan suggested something regarding the correspondent accounts. I am sure you heard what he said. I would be very interested in what your response is to what his suggestion was.
Mr. BYRNE. Madam Chair, there are a variety of ways in which obviously money laundering can occur, and I have been working on these issues for 20 years, and every time we stop a system, a new system opens up. The PATRIOT Act does in general say that institutions have to have certain due diligence regarding correspondent bank activity and private bank activity, but the bottom line still remains unless there is some protection at the entry of the system, that no matter what we do on our side, we are only—it is only going to be half the battle. So if we are getting checks or we are getting other instruments from another institution, we can do our due diligence with that institution; but John has already pointed out, we are talking millions of transactions sometimes in the same day. So we really need a lot of guidance in this situation from law enforcement, from the government to say what to look for. Otherwise, I think to pull out pouches and cash letters and have us go through all the checks based on the fact that they have come from a certain country or certain institution may not be sufficient.
So while I am not discounting what he has raised, I think it is fairly complicated. It just really shows the need for partnership both with the government and the private sector and with our international counterparts, which we don't always get.
Mrs. KELLY. Do any of you know roughly the volume of cash letter agreements between the biggest banks in the United States? And if you do or if you don't, can you help us in starting some inquiries into this so we can find out?
Mr. MOYNIHAN. I don't have the quantified total value, but when the inquiries are made, it is clearly billions. It is billions of dollars. And it is not just between correspondent accounts—and I tried to get to that in my statement, but I ran out of time—it is also individuals open off-shore companies, they come to the United States and they open accounts, and our banks will, in fact, do their due diligence. A lot of times they do the best that they can on some of these things. It is just then individuals use those accounts as a mechanism for cash letter agreements.
Page 61 PREV PAGE TOP OF DOC
So it is not just correspondent banks. I am in the middle of four criminal cases right now doing this, and it is going on on a massive level. It is really quite large. And why individuals would do this would be to bypass—not all cash letter agreements are money-laundering vehicles, but in the cases that I am involved with, individuals who don't want to be identified in a wire transfer as a beneficiary or an originator might want to write a check, as Mr. Byrne had pointed out, in small dollar amounts. The pooling of those checks will be sent abroad. Someone might collect 2- or 300 of these checks. Those checks are presented to a foreign bank. That foreign bank, because they are U.S. denominator dollars, will send them back here for credit. You can't put a U.S. dollar check into a dinar account, so those checks are sent back here. It is thousands and thousands; it is millions of checks in billions of dollars. It is a big business, and, as Mr. Byrne pointed out, it is very tough to police. And as Mr. Inslee has asked a number of times about which countries should be involved, international cooperation is extremely important on this because it is a tremendous vulnerability in the money-laundering area right now.
Mrs. KELLY. Thank you very much.
My time has run out. Mr. Inslee.
Mr. INSLEE. Thank you.
Thanks for joining us today. I am not sure if you were here when we were talking earlier, but I and many of my constituents have a concern that we have not been sufficiently assertive with other countries in their obligations to assist in this international problem of terrorism. And you may have heard me say this, but the Council on Foreign Relations concluded, quote: Saudi Arabian-based charities have been the most important source of funds for al-Qaeda, and that for years Saudi officials have been turning a blind eye to this problem, close quote.
This morning some of our agency officials told us that some of the money came for the September 11th attack through or by or in some sense associated with the United Arab Emirates. I am sure there are a number of countries that you could express concerns about.
Page 62 PREV PAGE TOP OF DOC
The question I have is—and to my knowledge, the United States has not given any sanction to any of these countries, at least the two that I mentioned, Saudi Arabia or United Arab Emirates, for what appears to be a failure to come to terms with elements in their society that have been consciously, willfully, and, unfortunately, successfully funding these terrorism networks.
Now, just starting with Saudi Arabia and the United Arab Emirates, I would like to know if any of you share that concern. And I ask you generally the question: Have we been sufficiently assertive with these governments? Have we sort of taken a dive, so to speak, because we have other interests that for some reason or another administrations have thought were paramount that would not allow us to really use our economic force and otherwise to compel them to get down to brass tacks and cut off this money?
If you can tell me if any of you share that concern or you think that is misplaced, I would appreciate any of your input.
Mr. EMERSON. Congressman Inslee, I think you raise a very valid point. I think that because Saudi Arabia, frankly, and the other Persian Gulf oil producers have amassed so much money in oil wealth and now petrodollars investments, they have essentially purchased clout. And while I—what I think is going on in the United States Government today is essentially you have the Justice Department and FBI willing to pursue wherever criminal investigations lead, including Saudi Arabia financiers. On the other hand, the State Department has a role in what indictments are issued and what STGs in terms of terrorist groups are designated.
And I think the State Department together with other members of the government that are more sensitive to foreign policy issues in terms of good diplomatic relations with the Saudis have basically been part of what I call the Saudi lobby, not because they are doing the bidding of the Saudis, but this goes back 15 years. It goes back through the Clinton administration; it goes back even prior to the Clinton administration in terms of the amount of money and influence garnered by the Saudis in terms of insulating themselves from the very effects of an aggressive consistent counterterrorism policy that treats all nations as equally. And Saudi Arabia has been able to evade some of the sanctions, unfortunately, that would have applied if they didn't have the money.
Page 63 PREV PAGE TOP OF DOC
There has been an—I say uneven application of counterterrorist sanctions within the regime itself. There have been some Saudi citizens that have been placed under house arrest officially, like Yassin al-Qadi or Mohammad Jamil Halifal, only for us to find out that they are free to go about and continue their financing. We even find that members of the bin Laden family were not as compartmented out from bin Laden himself, and that there are intercommingling relationships between the Saudi royal family, between the radical Islamic clergy and radical Islamic charities that had a hand in financing, sustaining the al-Qaeda infrastructure.
I know one of the questions you asked before was what about the 9/11 and Iraq, 9/11 and Saudi Arabia. Now, let me just briefly state that there is no evidence that Iraq was involved in 9/11, but there is plenty of evidence that Iraq has been involved in terrorism, number one. Number two, there is no evidence that Saudi Arabia was involved in 9/11 itself, because the transactions came from Dubai or Germany, I think one from Spain. But in terms of sustaining the al-Qaeda infrastructure, Saudi Arabia was absolutely critical, pivotal to the survival and sustenance of al-Qaeda. If it wasn't for Saudi Arabian protection—recently the wife of a major suspect in the United States was secretly spirited back to Saudi Arabia unbeknownst to the FBI and the State Department by the Saudi Embassy in Washington, even though we wanted to investigate her and her husband's ties to 9/11.
Mr. INSLEE. Well, let me tell you at least one Member's of Congress reaction to this. We are sending our men and women to defend some of these countries right now with their lives, and to me it is scandalous that we have not exercised the authority of the United States Government granted by Congress, and it is probably multiple administrations, as you have indicated, to crack down on these networks. And, to me, we have got to get serious about this. And I am going to—I appreciate your answer.
One quick question if I can, Mr. Byrne, And this is switching gears for a minute. I represent a lot of folks who are in the high-tech industry, biochemists, engineers, computer scientists who are of the Muslim faith and who are great Americans, pay their taxes, raise great kids, pillars of the community. You would trust them like anybody else. And they have been, many of them, very afraid because they don't want to get lumped into the terrorists. And they are very afraid now, any time they have any transaction with any of their family members back in the Mideast, that they are going to end up swept up in this web. And it is a real concern. I have met with quite a number of them that have, I think, sincere concerns about that.
Page 64 PREV PAGE TOP OF DOC
Is there any advice you could give to them or to the government how to have an effective system to cut off this terrorist financing and yet give confidence to law-abiding citizens that do have international transactions that they don't get swept up in this?
Mr. BYRNE. Congressman Inslee, there is a regulation that is due to be final in the next month or so out of the PATRIOT Act, section 326, that is going to require all financial institutions to have account opening, what I call, due diligence. No matter who you are, you will have to provide certain identification information, your name, address, your date of birth, your Social Security number if you have it. And the banks, investment companies, and others will have to try to verify that information. So whether you are Muslim, or whether you are Irish, it is not going to matter. So everybody will be treated the same.
And so my advice would be to individuals that want to open up accounts at financial institutions, recognize that no one is being singled out. That will actually have a dual benefit, I think, of helping those that fear identity theft, because actually we will be making sure that everybody has to do some sort of verification. It will have to be either by passport, by driver's license, or some other document; or, we have to verify the information.
I think that alone at the entry point, provided it is done for everyone no matter who you are, as a new customer will raise the comfort level of everyone to let them know that we are not singling any particular group out. And obviously we rely on the government to tell us what countries are problems, what types of transactions are problems. And we get that information, we put them into our systems.
But the bottom line is good solid citizens should have nothing to fear to simply provide information about who they are when they open up accounts. And I think that will have a dual benefit, both to comply with the law, and also it is going to apply to everyone.
Mr. INSLEE. Thank you.
Page 65 PREV PAGE TOP OF DOC
Mrs. KELLY. Thank you very much, Mr. Byrne.
Mr. Inslee, I just want to make one remark with regard to what you said. I think what you meant was U.S. troops are amassing to disarm Iraq, not they are not out there to try to defend a country. They are defending our country by trying to disarm Iraq. I just wanted to kind of——
Mr. INSLEE. Well, let me, if I may, respond just briefly to that. Listening to the President, my understanding is that he has given multiple reasons for this, which certainly includes the security of the United States, but as I have heard him, he also believes that he is protecting the neighboring countries, as we protected Kuwait and reinstalled the monarchy after the first war. So that is the nature of my statement. I was trying to give credit to the President for that motivation.
Mrs. KELLY. Thank you.
Mr. Oxley.
Mr. OXLEY. Thank you.
Let me first say what a most interesting hearing this has been, I think mostly educational for the Members, and we appreciate all the testimony from this panel as well as the previous one.
Let me address this to Mr. Johnson and to Mr. Emerson now. We had an opportunity to hear you on a number of occasions both here and on television, and we appreciate your expert opinions. And I think it is particularly helpful for my constituents to get a better understanding of this whole issue that on 9/11 was thrust in front of them so fiercely that it was very difficult for people to come to grips with the fact that we were victims of terrorism, and that this feeling of invulnerability that we had was shattered in the aftermath. I think your lucid explanations on television have been very, very helpful in that regard, and I want to thank you for your service.
Page 66 PREV PAGE TOP OF DOC
As you know, the PATRIOT Act was multifaceted. Our committee's participation involved the anti-money laundering section. But just as effective were—in my estimation were the electronic surveillance capabilities, enhanced surveillance capabilities for the FBI and other law enforcement agencies. It is also true that those sections were sunsetted for 4 years, and so the clock is essentially ticking on those provisions as we speak. I have grave concerns that it sends a signal that somehow we think that at the end of 4 years, the war on terrorism will be over, and I wonder if you would—both of you gentlemen would speak to that and perhaps give some advice as to what may very well transpire.
Mr. Emerson.
Mr. EMERSON. Mr. Chairman, I share your concerns. One of the issues, of course, before the House and the Senate today is the issue of adopting legislation that might amend the FISA law to basically prevent the situation that occurred in August of 2001 when Zacarias Moussaoui was the subject of a Federal investigation, and the FBI agents in Minnesota were not able to get FBI headquarter permission to apply a FISA to him.
Now, of course, as you know from the PATRIOT Act, the biggest gainer of the—there have been major generators of intelligence, but what the PATRIOT Act did was to allow a lot of the electronic surveillance to be used in criminal investigations, and that was a major boon and a major step forward in the prosecution of the Islamic Jihad in Florida, because there have been for years collected pursuant to wiretaps that were FISA wiretaps, but could not be used in criminal prosecutions.
If any of this enabling legislation that would allow the use of FISA material to be denied to prosecutors in counterterrorist investigations, this would be a major step backwards in terms of shutting down terrorist groups.
In addition, I agree with you that to the extent that terrorist groups or their supporters understand that the sunset legislation has now got a clock ticking, and now we are 3 years away from certain provisions of the enhanced electronic surveillance from being going into sunset, then they will have a great incentive; just wait out the 3 years, and resume their activities the day after they know that the law has gone out of existence.
Page 67 PREV PAGE TOP OF DOC
Mr. JOHNSON. I would just second what Steve said. I think part of the problem we run into, we keep trying to fragment this, that we are going—I hear the FBI—well, the FBI is going to focus on terrorism, and DEA is going to deal with drugs. Well, you know, it is a—you know, a news flash. The folks that engage with drug trafficking also engage with terrorism, and to—part of the problem we get is when we keep trying to slice the salami so thin to fit with different law enforcement agencies, that the fragmentation we saw before 9/11 where the picture really was pretty clear if you could have integrated it.
So I think it is important, if nothing else, to try to prevent the sunsetting of those provisions, because more often than not we are not going to be talking about hundreds of thousands of cases. The good news is it is a relatively small but active group of people, and it is just—it is the same thing that police see in normal, everyday crime. The people that commit most of the crimes are criminals that have already been in the system. It is not, you know, Joe average American that wakes up someday that says, I am going to do this. And if there is concern about civil liberties, which I think are justified, there are ways, I think, that you can put together a committee of wise people that can go along with the FISA judge to weigh up on a case by case to ensure that it is not abused.
But just as Steve pointed out, these folks are so agile when they are engaged with this activity to make money, whether it is to process drug proceeds or to engage in terrorism, and that they are much faster than our bureaucracies in adapting to change. So I think instead of giving them a green light saying, hey, wake up, wait it out 3 years, and then you are back in business, I think we ought to take that off the table.
Mr. EMERSON. Let me just point out one interesting fact, that I think—I am not 100 percent sure—that there are only 113 extra approved wiretaps pursuant to the PATRIOT Act since its passage last year. That was it. Even though there are major cries that this is going to invade thousands of Americans and there would be incredible spying on Americans, 113 or whatever the number, 120 is relatively a small number that was approved pursuant to the provisions of the enhanced electronic surveillance of the PATRIOT Act.
Page 68 PREV PAGE TOP OF DOC
Mr. OXLEY. And, in fact, the provisions of acquiring the capability is still in the law, still followed. You still have to jump through all the hoops; you have to get the approval of the court, you have to show probable cause, you have to show a reliable source. All of that information has never changed, and I think sometimes that is lost in the debate. And I appreciate you gentlemen bringing that to the attention of the committee.
Let me ask Mr. Byrne, and you may have already commented on this, but you heard the testimony for Mr. Sloan from FinCEN earlier in the first panel particularly regarding section 314 of the act. Are you uncomfortable with that, the provisions that he spoke about and that I asked him about, in terms of the hot tip concept, cooperating with banks? And if not, what suggestions would you give to make that work better?
Mr. BYRNE. We think the section, Mr. Chairman, is a worthy section. I agree with you, it gives you an opportunity for a quick, you know, hot tip, if you will, that these five individuals are being investigated. What we didn't want to see and we saw prior to November was a flurry of requests over several days, hundreds of names.
I think FinCEN is in a tough position, because their role is not really to be the gatekeeper for the information; they simply are a conduit from the different agencies. So it is really up to the FBI and Customs to have a gatekeeping function so that they will not let everything go through the system.
I think that is starting to happen. This morning we met with the regulators in Treasury and hope to meet with law enforcement about that issue. We want it to work. But the first week that it was rolled back out last week, we would see 108 names, 200 aliases. Frequently the names would be simply just the last name or some other variation, which is very difficult to search, especially for small banks that have to rely on outside vendors.
So there is a lot of operational issues that I think we can fix.
The bigger picture on whether or not there will be a gatekeeping function is really, I think, for you folks to make sure that it occurs. That is not our venue, but we would feel more comfortable that it wasn't simply an agent trying to say, well, this is a case I haven't looked at for a while; let us see what we find here. If you use it for priorities, our members are more than willing to search. But we think the volume has gotten a little out of hand the first time. I am confident they will fix this, and that is what we hope to see happen.
Page 69 PREV PAGE TOP OF DOC
Mr. OXLEY. Thank you.
Thank you, Madam Chairwoman.
Mrs. KELLY. Thank you, Mr. Oxley.
Mr. Hinojosa.
Mr. HINOJOSA. Thank you, Madam Chair.
My first question is addressed to Steve Emerson. Experts believe that numerous other charitable organizations, both in the United States and abroad, may be funneling at least a portion of their funds to terrorist groups. In the broadest terms, have the United States and the international community cut off the largest players already, or have you just scratched the surface of more entrenched networks of funds?
Mr. EMERSON. You raise an excellent question. We know what we know, and unfortunately we don't know what we don't know. We know that in the United States we have shut down at least three or four major conduits in the last year and a half. We know worldwide we have shut down probably three or four dozen major conduits. There have been more than 100, 150 actual seizures or freezing of assets or actual designation of terrorist groups or their front organizations.
Now, I think that these constitute the first primary tier of support, but it is the only ones that were manifest to U.S. investigators or to other law enforcement agencies. I think there is a second tier out there of third-party bankholders, of front companies, of actual commercial companies that are holding the assets, of very, very thickly disguised veneers that make it almost impossible to identify the terrorist component within the organizations that exist under the veneer of being very normal, existing as a regular organization or charity, and that is the real problem.
The number of investigators required to make one single case in the United States can number in the hundreds to disentangle the incredible sophisticated labyrinth of financial transactions. And you apply that number to how many cases could be made, you just don't have that number of investigators.
Page 70 PREV PAGE TOP OF DOC
And so I think that we have seen a major dent, but I think that the Islamic terrorist groups have been able—they have been very pragmatic in readjusting. And I think that once they discover that the air is squeezed in one side—money is fungible, and they find other conduits.
So we are almost fighting the last war, and I think one of the things that I see very aggressively done by the Treasury Department, which I think is very effective, is trying to get a handle on what the future context of terrorist apparatus would be in terms of their financial distributions in the United States and worldwide.
Mr. HINOJOSA. Thank you.
The next question I want to address to John Byrne with American Bankers Association. Earlier I believe that Congressman Gutierrez from Illinois spoke about the undocumented workers in the United States. I don't know how many million we have, but they certainly are here in the United States. And I understand that we have several million who, of course, do not have a bank account. So the Matricula Consular has been discussed in our committee by a lot of the members of this Financial Services Committee, and we think that there will be a response by the Treasury on this section 326 of the PATRIOT Act.
My question to you is what is the opinion of the members of ABA about using them?
Mr. BYRNE. Congressman, the membership is split not necessarily 50/50, but there are banks that accept—gladly accept the matricula card and have seen certainly that value in terms of reaching out to that community, and they have seen extensive increase, obviously, in those that want to bank with our financial institutions. Others have taken a wait and see approach for a couple of reasons. One is that the Treasury, as you know, has told us that it is acceptable to use that card for identification under the soon to be finalized 326 regulations, but it is not required. And then there have been some groups that have been sending out basically threatening letters and faxes to some of our banks in, I think, Nebraska and North Carolina, saying by accepting the matricula card, the banks are violating, of all things, the U.S. Constitution, which obviously isn't correct at all.
Page 71 PREV PAGE TOP OF DOC
We have reported that back to Treasury. We expect that the Treasury will say ultimately that it is up to the institution; that it is an acceptable form of identification for 326 purposes, but there is a risk-based analysis that has to go into effect. So a bank that decides that that card alone isn't enough may ask that particular customer for some evidence of residency, be it a utility bill or apartment lease. What we are going to say in terms of our association is it is really up to the bank. We will tell them how many banks are using it, talk to those banks, and try to understand the successes they have had, for example; but if you want to decide to take a wait and see approach, you can talk to other institutions.
So we are kind of in the middle on this because we don't have clear guidance yet, but we certainly have a number of banks who have found it very successful, and we certainly think that we would put other banks in touch with those institutions, but we obviously need some guidance from the Federal Government, because we could say clearly one thing or the other. But at this point you will find a number of banks that are willing to accept the card as a primary form of identification.
Mr. HINOJOSA. If the Treasury rules in the way that you anticipate, are the banks prepared with Spanish-language forms that would be easy for those individuals to be able to use it for opening bank accounts and encouraging them? And do you have individuals in the banks who can speak Spanish so that it would make it easier to communicate?
Mr. BYRNE. That is a very valid question. It is a bank-by-bank answer. I don't know the answer to that. I know, for example, Wells Fargo and Bank of America certainly have those capabilities and have those individuals. I can't tell you all the banks that accept the card have set up those systems, but certainly that makes a lot of sense, obviously, and we would be happy to find out from the banks that are accepting the card what their systems are. But certainly that is a valid point, but we really would have no way of knowing that without polling all of our members.
Page 72 PREV PAGE TOP OF DOC
Mr. HINOJOSA. Thank you. Appreciate your answer.
And thank you, Madam Chair.
Mrs. KELLY. Thank you.
Mr. Garrett.
Mr. GARRETT. Thank you.
I want to follow up on the question that you were just—the line that you were just raising, but before I do that, one quick question.
Can you speak for a moment on the differences that banks would have with regard to reporting requirements for terrorist funding—financing, which we have been hearing about, versus, I guess, old-fashioned traditional money laundering?
Mr. BYRNE. Congressman, we have a 20-year history of money laundering examples, and certainly there are companies that provide software and systems to detect what is ostensibly monies derived from a criminal activity and in an attempt to disguise the source of the funds by putting it into an institution. That is what money laundering generally is.
Terrorist financing is taking monies and getting it to criminals. Very difficult to determine. The FBI has briefed us that the 9/11 hijackers did what they did for less than $300,000 over 26 different accounts and 2- or $3,000 checking accounts.
We need a lot of help in that area, And, as I said in my testimony, to date FinCEN's SAR activity review that gives us examples of terrorist financing is really the only concrete examples we have seen thus far. Operation Green Quest has offered some examples regarding charities, and certainly these gentlemen have given us additional information, but it really is difficult without government help to set up a system to detect the financing of terrorism. We really have to rely on our partners in the government, unlike money laundering where we can set up systems and maybe find that ourselves.
Page 73 PREV PAGE TOP OF DOC
Mr. GARRETT. I see. Thank you.
What I have seen here today, and what we have known before on the graphs that you have shown show the sophistication that goes into the entire money-laundering process, or, I should say, terrorist-financing process, and that it is not just your common criminal that is engaged in these activities, so to speak. So could any of you speak to the issue of how difficult is it now for them to obtain the needed documentation to either travel outside of this country into the foreign countries and back again? Or, more importantly, maybe going along this line, how difficult is it to get the documentation that they need to do to get the jobs here to do either legal or illegal activities?
Mr. JOHNSON. Well, let me give you one first-hand experience with an individual. He is a Lebanese Muslim out of—living in Panama, runs one of the largest businesses there. He is not directly involved with terrorism, but people that he knows are. And I was dealing with him because he was involved with making and selling a counterfeit product that was knocking off a U.S. manufacturer's product. I threatened him in his office with the possibility that he could lose his U.S. visa because he had a visa to travel. He laughed at me, opened his drawer. He pulled out—he had a Canadian passport, he had a Dutch passport, he had an English passport. He was fine. You know, he didn't need a visa.
And the point is that the individuals that are going to get involved with these financing schemes, whether you are trying to take dirty money and clean it up or take money that comes from legal sources and move it into criminal channels for either, you know, conventional criminality or terrorist activity, they are—they come out, if you will, out of a merchant background. They are very creative and very entrepreneurial, and they know how to game the system.
Mr. GARRETT. If I may interrupt there. The comment before Mr. Byrne was we need to have fairness as far as within the banking community as far as requiring people coming in to ask everyone for their identification. And we shouldn't feel put upon that they are going to be asking me or my wife now for some sort of identification, even though I have lived in the town for 20 years, and I have been working with this banker in Rotary for the last 20 years, and he knows who I am.
Page 74 PREV PAGE TOP OF DOC
Mr. JOHNSON. Sure.
Mr. GARRETT. So isn't there a sense, though, of a degree of let us have a little common sense as far as who we should be asking this documentation from if we know that these people can get it?
Mr. JOHNSON. In our experience—and we have been—made money laundering cases that have led to seizures right now and close to $180 million over the last 4 years. We say that the ideal world would be a world in which you had the requirements that Panama has to open a bank account in Panama with the enforcement that you have in the United States, because, very candidly, the requirements for opening accounts in the United States are not near what they are in Panama. And we see this—we have seen this over and over again with checks.
You know, Colombian drug lords would offer people vacations to come up to the United States. They had to open five different accounts. We had people that open up—you know, they would use different names, and they would take those starter checks back, and that was funding the black market peso exchange, some of which funds have been used for terrorism.
So I think there is an important role for making sure that the people that go in and open an account, that you can verify that they do live where they live and have a business where they live. We are right now involved with a case where an individual submitted seven checks; it was worth $800,000, two different individuals. They are up in the New York City area. None—and they are ostensibly business checks. None of the business names check out with the addresses, and this is a major U.S. bank.
Mr. GARRETT. But if on the one hand you are telling me that these individuals in this trade are able to open up a drawer and pull out all the documentation they need, then it is the legitimate citizen who is put upon to say that I have to go out and prove myself in a case. And now we are hearing that the Treasury may be even considering using consular cards, which is basically documentation from—which we have absolutely no control whatsoever as to who is getting those. And my understanding is that basically you are talking about illegals who are using consular cards in the primary sense.
Page 75 PREV PAGE TOP OF DOC
Mr. JOHNSON. But still, the individual using those passports, it is still—they are legitimate legal documents. And the point is do the compliance to verify that the name on the document fits with an address and a place, because a lot of times what we are seeing are names and addresses that don't fit with the place, and that should be a tip to get someone alerted to say we need to look at that.
Mrs. KELLY. Mr. Johnson, I just want to ask a follow-up to that. Would biometrics help?
Mr. JOHNSON. Yeah. I mean, it is just going to confirm that the person—at last when you make up the ID, that the person whose fingerprints or iris is put on the card with the photograph is, in fact, the person that you are looking at. So, yeah, that would help.
Mrs. KELLY. Thank you.
Mr. Matheson.
Mr. LYNCH. I am Mr. Lynch.
Mrs. KELLY. Mr. Lynch, I apologize.
Mr. LYNCH. It is okay, Madam Chair; I am new.
First of all, I want to thank the members of the panel for helping the committee with its work and the Congress and its work, and also helping our Nation deal with our antiterrorist financing efforts.
I have two questions. And I understand your efforts, and I am actually reassured by your successes, but I am also very concerned about the scope of the problem that you have described today. And my question is in two parts.
One, is there a framework that exists now—and I have heard Mr. Byrne mention section 226 of the PATRIOT Act, the amendment that is being suggested or offered. Is there a framework that we can use in the first instance to detect some of the money laundering and terrorist activity that is going on in these financial institutions at the front end? And are there mechanisms where, as Mr. Johnson described, there are some thickly veiled institutions or businesses that might have some level of legitimate business there, but they are actually funding money to terrorists? Is there a framework that we can use to adopt to address that situation as well?
Page 76 PREV PAGE TOP OF DOC
And the second part of my question is we have been talking about the operation of U.S. banks basically today. What has been your experience? And you have all had extensive experiences with these global investigations. What has been your experience in dealing with the EU, the European banks and Asian banks? Are they coming forward with a legitimate and genuine effort to deal with a lot of this illegal and terrorist-related financing?
Mr. JOHNSON. Let me start with your last question and then work backwards.
I think the need for international cooperation is critical, and one way in the door for that—because of the United States and the role of the U.S. dollar in the international economy, we do have some definite leverage there, and one leverage, I think, is through correspondent banking relationships, because ultimately when people are wanting to move money, whether it is with the cash letters that John described earlier or with wire transfers, you are ultimately trying to get dollars, and those dollars go through our system at some point.
I think it is important then to work with the banking industry, but to raise the level of compliance requirements to ensure that those banks or those countries which want to play out on the margins than pay a penalty. There was an article about the Iraqi bank, the Rafidian, and you can see in that article as they describe that there are different branches in Cairo and Amman. Depending on who you call and what you say you want to do, you get a different answer. And ultimately at the end of the day, if you want to send money to Iraq or move funds which shouldn't be moved, you can.
So I think the leverage should come from the correspondent banking relationship.
Also within that, it is imperative that each bank do good compliance internally. We saw in the Bank of New York a Russian money laundering case that we worked on as well, that the problem was there, they didn't follow their own internal policies; that the internal policies for monitoring and compliance were not complied with.
Page 77 PREV PAGE TOP OF DOC
At the end of the day, we don't want to interfere with normal economic activity, but what we can find is you can usually tell what is a normal economic activity and what is abnormal. If you are a manufacturer of farming equipment in Illinois, as an example, and you are selling a tractor into Colombia—and this is a real case—and you are getting paid out of a checking account in Wisconsin? That is no knock on Wisconsin. But if you are buying a tractor in Colombia, it ought to be on a draft or a wire transfer out of Colombia, not on a U.S. bank account in Wisconsin. That is where the warning signs should go up.
Mr. LYNCH. Thank you.
What about the second part of the question, which is the Europeans, Asians?
Mr. JOHNSON. You know, that is where I get to, their—you know, it is uneven. When you look at like HBSC banks——
Mr. LYNCH. Are you being generous when you say it is uneven?
Mr. JOHNSON. Yes.
Mr. LYNCH. Okay.
Thank you.
Mrs. KELLY. Thank you very much. There are some Members, I am sure, who have additional questions for this panel, and they may wish to submit those in writing. So, without objection, the hearing record will remain open for 30 days for Members to submit written questions to the witnesses and to put the responses in the record.
Mrs. KELLY. The second panel is excused with the committee's great appreciation for your long time here.
I want to briefly thank all the Members, and especially our staff, for their assistance in making this hearing possible. This hearing is hereby adjourned.
[Whereupon, at 4:54 p.m., the subcommittee was adjourned.]
Page 78 PREV PAGE TOP OF DOC