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PATRIOT ACT OVERSIGHT: INVESTIGATING PATTERNS OF TERRORIST FINANCING
TUESDAY, FEBRUARY 12, 2002
U.S. House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Financial Services,
The subcommittee met, pursuant to call, at 2:00 p.m. in room 2167, Rayburn House Office Building, Hon. Sue W. Kelly, [chairwoman of the subcommittee], presiding.
Present: Chairwoman Kelly; Representatives Tiberi, Gutierrez, Crowley, Clay, Bereuter, Grucci, and Bachus.
Chairwoman KELLY. This hearing of the Subcommittee on Oversight and Investigations will come to order. I want to thank all Members of Congress who are present today. Without objection, all Members present will participate fully in the hearing, and all opening statements and questions will be made part of the official hearing record.
On September 11th, the world we live in fundamentally changed with the horrendous acts of terrorists. After putting aside the initial shock, the Nation quickly responded to President Bush's call to join in the fight against the evildoers responsible for the attack.
Page 2 PREV PAGE TOP OF DOC In the Financial Services Committee, we acted swiftly to construct consensus legislation to ensure our law enforcement has the best tools possible to identify the patterns of financing used by terrorists and hence stop the terrorists before any future acts could occur. With this Act, we seek to prevent terrorists from using our money system as an unwilling accomplice of their evil acts.
President Bush signed the USA PATRIOT Act into law October 26th. With his signature, he ended not only the prologue of this subcommittee's efforts to combat money laundering operations which many benefit many terrorists, but also it's the beginning of things that we need to continue to consider.
This hearing is just part of a long-term agenda that this subcommittee has to ensure that we do all in our power to break up terrorist cells by making use of our financial system to raise every red flag possible. In this effort, the anti-money laundering provisions of Title III of the PATRIOT Act are a good step in the right direction. However, much more will be necessary before we reach our goal of eradicating the threat of terrorism. In this effort, we will remain vigilant to balance our efforts to ensure that we do not infringe upon the rights and liberties of Americans.
This is, of course, a narrow line to walk. And that's why our education as to questions of money laundering and terrorism financing must be continuous. I believe we have an excellent opportunity here today to further our knowledge of these latest developments in the war against terrorism. In the past 5 months, we have had an unprecedented investigative effort by law enforcement to identify, freeze and seize terrorist assets. We have never had as many law enforcement officers focused on the same goal. And from this, we have learned countless lessons about the familiarity of the terrorists with our laws and their sophistication in avoiding any suspicion.
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In their effort to blend in, the terrorists responsible for the September 11th attack opened bank accounts, used money orders, wire transfers and credit cards. We also know that the terrorists also relied on fraud and ID theft, and they continue to do that today. They obtain drivers licenses, hazardous material licenses and open bank accounts. One issue I found particularly intriguing is the issue of ''hawalahs.'' This is an Arabic word which means ''word of mouth.'' Hawalah is an international underground economic system by which financial operators in different locations honor each other's financial obligations by making payments wherever needed. In essence, hawalah continues because people look for ways to avoid taxes and tariffs in their efforts to send funds to other countries. And we also know that it's a way of moving cash without any trace.
Such activities have no apparent victim other than the Government, and it involves people who can be legitimate businessmen in every other way. But everyone involved in the transaction profits. And such transactions are extremely difficult to detect.
The PATRIOT Act contained a number of provisions that seek to combat hawalahs, and I will be most interested in hearing if any of the investigative efforts have brought us closer to closing down illegal hawalahs. It's my understanding that the November 7th action taken against Al Barakaat has provided a great deal of information on the modern operation of hawalahs.
We will also hear from law enforcement and industry on this issue and explore potential new patterns that they may have identified as terrorist financing schemes. This subcommittee thanks you all for your appearance here today. We understand the sensitive nature of the information that we're discussing, and with that in mind we have hope that we will continue to have a dialogue with you to address our concerns that the PATRIOT Act is enough to allow you to do the job which Congress intended when we enacted the PATRIOT Act.
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I would like to let Members of the subcommittee and their staff know that it is my intention to enforce the 5-minute rule, and I would appreciate their cooperation in this.
I also want to say that with this panel, we have a new sound system in this room. You have the power over your own microphones. You have to turn them on and turn them off. So if we can't hear you, it's your responsibility to make sure we can.
Now I will recognize my good friend from Chicago, Luis Gutierrez, the distinguished Ranking Member of this subcommittee for his opening statement. Mr. Gutierrez.
Mr. GUTIERREZ. Chairwoman Kelly, thank you for holding this hearing today. I would like to commend Senator Sarbanes for moving this legislation in the Senate and Chairman Oxley and Ranking Member LaFalce for their leadership in the House.
This afternoon, we will hear testimony about the financial aspects of the ongoing war on terrorism and about the implementation of anti-money laundering provisions incorporated in the PATRIOT Act, a bill which I and other Members were proud to support. This landmark legislation will give our country the necessary tools to fight terrorists by blocking the schemes used to finance their horrific crimes.
Treasury Secretary O'Neill recently said that $104 million had been frozen since the September attacks. However, we do not know whether this sum represents most or just a small percentage of the pool of the potential money that could be used to finance terrorist attacks. Although we have made progress, we have much work to do.
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To eliminate Al Qaeda, we need the appropriate law enforcement tools and personnel to continue the financial assault on terrorism made possible by the PATRIOT Act. Our fight against terrorism financing is a broad-based effort extending beyond the Al Qaeda network. It means nothing to build a concerted effort between financial institutions and law enforcement agencies at home without instituting similar actions abroad. The help of other nations is therefore essential.
We need expeditious compliance with the new laws. Many of these regulations are scheduled to be implemented throughout this year. But it is imperative that Treasury acts quickly and effectively in their search for terrorists and their co-conspirators.
Before I conclude, I would like to touch on another related issue that is of great concern to me. While I strongly support the increased protections against terrorist activity which the USA PATRIOT Act created, I would like to urge some caution and common sense when it comes to promulgating regulations that address some areas. I am particularly concerned with the implementation of some of these rules as they pertain to verification of identification, which may pose a great risk to immigrants trying to enter our banking system. Currently, approximately 28 million foreign-born people live in the United States, the majority of whom are making enormous contributions to America's stability and security, economic and otherwise.
I hope, and I think we all agree, that law enforcement officials will use financial data to focus on those people, native or foreign-born, who truly pose a threat to our country, rather than those, including immigrants, who are making us safer and stronger as a Nation. If banks are required to compare clients' names with a list of known terrorists, how will accuracy be guaranteed? There are many common names on the list, and the possibility exists for incorrect matches. How will banks respond if a customer's name matches the list? How will they go about verifying the customer's identity? I am very concerned that the answers to these questions could have a detrimental effect on immigrants and could pose an additional burden on immigrants' ability to receive and/or interest in receiving and seeking valid banking services.
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One's inability to enter the banking system results in a higher cost of borrowing, a lack of access to home mortgages and other basic services, and a range of other problems. Without access to banking services, the unbanked are forced to turn to payday lenders and check-cashing vendors, who in most cases charge outrageous fees for services. In the last 5 years, check-cashing outlets have doubled, and their revenues exceeded $2 billion in the year 2000. It often means vulnerability to crime, robberies and other abuses to which many immigrants are subjected mainly because they are unable to enter the financial services sector due to their immigration status. Worse yet, these victims may never report these incidents for fear of deportation. They come here seeking a better life through their hard work, and I must note, their taxes. These people are making better lives for all of us in America. And at the same time, they are also working to make life better for the people in their home countries; for relatives who use that money for basic necessities such as food and shelter.
During the past 20 years, remittances to Latin America, for example, have increased not only in volume, but as a share of the national income and total imports. This year, approximately $9 billion will be sent to Mexico via remittances, representing Mexico's third largest form of foreign income. However, such transfers are costly due to the large range of fees, many of which are hidden. Unfortunately, this group of immigrants usually can't use alternatives to remittances offered by banks because of prohibitions on individual's ability to open accounts without tax identification numbers and/or Social Security numbers. Giving immigrants access to banking will not make the United States weaker. It will enrich communities here and in other countries, creating steady income and jobs for people who might otherwise migrate to the U.S. to find work. Currently, Wells Fargo, First Bank of the Americas, credit unions and other financial institutions offer programs to help more immigrants become part of the banking system by accepting identification cards issued by the Mexican consulate and offering free checking services to those affected by regulations.
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I hope that in implementing the PATRIOT Act regulations, Treasury takes these concerns into consideration. I know that Congress, when drafting this bill, did not intend to further alienate a group of people who already are largely separated from our banking system. We, as legislators, have no greater duty than to protect our country and our people from future terrorist acts. To do so, we need speedy, yet careful, implementation of the PATRIOT Act. But in achieving that goal, we need not forget the needs of those who rightfully seek access to the important financial services that most of us take for granted.
Thank you again, Chairwoman Kelly, for holding this important hearing, and I appreciate having the opportunity to share my views on these important issues of vital importance to our Nation.
Chairwoman KELLY. Thank you very much, Mr. Gutierrez.
Mr. Bereuter, have you an opening statement?
Mr. BEREUTER. Madam Chairwoman, yes I do. Thank you very much for letting me sit in on the subcommittee since I'm not a Member of this subcommittee. I find that the topic of your hearing today is very important, and also, has overlapped with my service on the House Permanent Select Committee on Intelligence. And since I have a committee conflict later and may not have a chance to ask this question, I wanted to ask it in effect in advance in my opening statement.
And I would address it particularly to Ms. Warren and Mr. Lormel and say that this subcommittee and the Congress had made a great effort to increase the efficiency of the country's financial intelligent unit, FinCEN. However, I am aware that as Treasury and Justice Departments work to meet the reporting requirements of Section 906(b) of the USA PATRIOT Act, there may be a behind-the-scenes tug of war over the fate of the Foreign Terrorist Asset Tracking Center and possibly about FinCEN's role as an agency neutral central repository of financial information that can be used to investigate both terrorist financing and money laundering.
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I am concerned that if parallel financial intelligence databases are set up, the U.S. Government will both spend money unnecessarily and decrease investigative and enforcement effiency. And so I'm hoping that in your testimony you might supplement it by assuring if you can that the FBI or the Department of Justice are not trying, frankly, to hijack or usurp the role of FinCEN.
And Mr. Lormel, in your testimony, particularly on page 4, you devote a great deal of discussion to the activities of the Financial Review Group, which you say has developed, quote: ''a centralized financial database,'' and developed predictive analysis models to deal with terrorist financing. And frankly, I thought that was the job of FinCEN. So then can you explain how having parallel computer systems, if I read it correctly, is not expensive, duplicative and inefficient? These are things I hope you might be able to address in your comment, particularly those of Mr. Lormel and Ms. Warren.
Thank you, Madam Chairwoman.
Chairwoman KELLY. Thank you, Mr. Bereuter.
Mr. Crowley, welcome. Have you a statement?
Mr. CROWLEY. Yes I do, Madam Chairwoman.
Chairwoman KELLY. Please proceed.
Page 9 PREV PAGE TOP OF DOC Mr. CROWLEY. Thank you, Chairwoman Kelly and Ranking Member Gutierrez. This hearing will permit us to have an important discussion on a critical element in the war against terrorism. The USA PATRIOT Act is a landmark piece of legislation. It provides the law enforcement and intelligence communities, as well as the financial services industry, with tools required to help stop terrorists before they are able to act. No law, regulation, or policy that addresses finance has ever had as significant an impact on America's security as this legislation is likely to have. Aggressive, but intelligent, implementation is critical for the legislation to succeed.
I am concerned that the Administration may not be acting quickly enough or allocating sufficient resources to have a significant impact on the financing of global terrorism. The United States must work with our European allies and other partners in the war against terrorism to shut down
the operations of groups like Al Qaeda and Hamas. We must also ensure, however, that they have the information required to act swiftly and decisively.
It was recognized that our European allies may have different views on the Israeli-Palestinian peace process, but we should not permit them to use divergent political views as an excuse to refrain from cracking down on terrorist groups.
We must crack down on illegal hawalahs which terrorists use to move funds around the world without a trace. However, we must also recognize the important role that legitimate hawalahs play in communities of immigrants, like mine, who lack the resources to pay exorbitant transfer fees and whose families overseas have no access to formal banking. These legitimate institutions must be permitted to continue to operate within the bounds of the law.
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I am eager to hear from the Administration's panelists how the Administration plans to use the tools given to it by the USA PATRIOT Act. I am interested also to learn from the other panelists how the financial industry and immigrant communities are likely to be affected by this Act.
And, Madam Chairwoman, I just also want to state that I will also in all likelihood be pulled away for a resolution on the floor that I am sponsoring. So if you would forgive me when that time comes, and will the panelists also as well. Thank you very much. I yield back.
Chairwoman KELLY. Thank you very much, Mr. Crowley.
At this point, if there are no more opening statements, I would like to introduce the witnesses on our first panel. Before us we have the Honorable Juan Zarate, the Deputy Assistant Secretary for Terrorism and Violent Crimes for the Office of Enforcement in the U.S. Department of the Treasury. We welcome you, Mr. Zarate. Accompanying Mr. Zarate we have Mr. John Varrone, the Assistant Commissioner for the Office of Investigations in the U.S. Customs Service, and along with him, we have also Mr. R. Richard Newcomb, who is the Director of the Office of Foreign Assets Control for the U.S. Department of the Treasury; and James F. Sloan, who is the Director of the Financial Crimes Enforcement Network in the U.S. Department of the Treasury.
Then we will hear from the Honorable Mary Lee Warren, who is Deputy Assistant Attorney General for the Criminal Division of the U.S. Department of Justice. Welcome. And finally, we have Dennis Lormel, who is the Chief of the Financial Crimes Section of the Criminal Investigations Division for the FBI.
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We start now with Mr. Juan Zarate. Thank you very much, Mr. Zarate, for joining us. Without objection, all your written statements will be made a part of this record. I am going to recognize each of you for 5 minutes. Obviously there are certain time constraints on Members of the subcommittee. They will be moving in and out as floor action dictates. But the lights in front of you, if you haven't done this before, indicate how much time you have. The green light is that you are in the first 4 minutes of your testimony. The yellow light means that that's the warning light. You have 1 more minute. And when it's red, I would hope that you would then summarize anything you have left in the testimony knowing that your testimony will be made, the written testimony, all of it will be made a part of the record.
So we will begin now with you, Mr. Zarate.
STATEMENT OF HON. JUAN C. ZARATE, DEPUTY ASSISTANT SECRETARY, TERRORISM AND VIOLENT CRIME, U.S. DEPARTMENT OF THE TREASURY
Mr. ZARATE. Thank you, Madam Chairwoman, and again I apologize for the snafu in terms of getting you the written testimony before the hearing.
Madam Chairwoman and distinguished Members of the Subcommittee on Oversight and Investigations, thank you for inviting me to testify today about the measures the Treasury Department has taken to disrupt terrorist financing, the lessons we have learned to date about patterns of terrorist fundraising and money movement, and how the provisions of the recently enacted and seminal USA PATRIOT Act are helping us in our mission.
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With me today, as Madam Chairwoman indicated, are three individuals who are assisting the Treasury Department in their counterterrorist financing efforts: James Sloan, Director of FinCEN; Richard Newcomb, Director of the Office of Foreign Assets Control; and John Varrone, Assistant Commissioner, U.S. Customs Service. Thank you for having all three of us here to address you, all four, that is.
Before I begin my remarks, I would like to thank this subcommittee and Congress in general for your support in our efforts to uncover and uproot the sources of terrorist financing. The passage of the USA PATRIOT Act has served as an important step in allowing us to prosecute this war on terrorist financing aggressively and in a unified manner. In that respect, I also want to thank, as Deputy Secretary Dam did 2 weeks ago, our sister agencies and departments, including the intelligence community, for their unprecedented levels of cooperation in these efforts.
Madam Chairwoman, before I speak to the issues raised in your invitation letter, I would like to read to you a portion of the Al Qaeda manual that I think is instructive to our discussion today. The manual, as you may know, was discovered during the search of an Al Qaeda member's home in England and was introduced in evidence during the embassy bombings trial in New York. The third lesson in the manual, entitled ''Counterfeit Currency and Forged Documents'', discusses financial security precautions that Al Qaeda members should take to secure their operations. It reads as follows:
1. Dividing operational funds into two parts. One part is to be invested in projects that offer financial return, and the other is to be saved and not spent except during operations.
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2. Not placing operational funds all in one place.
3. Not telling the organization members about the location of the funds.
4. Having proper protection while carrying large amounts of money.
5. Leaving the money with non-members and spending it as needed.
Madam Chairwoman, as you can see, this is an enemy that understands the need to cover their financial tracks while simultaneously fueling funds into new acts of terror. Because we are facing an enemy with faceless tentacles planted around the world, we must employ all our assets to track and disrupt the financing of Al Qaeda and other terrorist groups of global reach.
That is precisely why after September 11th the President directed the Treasury Department to lead the Nation's war against global terrorist financing. We have followed the President's orders and marshalled the Treasury Department's unique financial forensic expertise and experience in financial and electronic crimes as well as our contacts with the financial community both here and abroad and our unique ability to take immediate action to freeze terrorist-related assets.
Treasury, in close partnership with the State Department, the Defense Department, the Department of Justice, the Federal Bureau of Investigation, the intelligence community, and many other parts of the Federal Government, has been dealing with the terrorist financing issue on multiple levels. Allow me very briefly to highlight the efforts the Treasury Department has taken along with these sister agencies to tackle the global problem.
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Led in part by the Office of Foreign Assets Control, along with the Department of Justice and the Department of State, we have identified and designated 168 individuals and entities as terrorist-related entities pursuant to the President's September 23rd Executive Order. In this process we have identified, among other entities, front companies, charities, a bank, and a hawalah conglomerate that served as the financial support networks for Al Qaeda and other global terrorist groups.
We have shut down the operations of these entities in the United States and abroad. And since September 11th, the U.S. and other countries have frozen more than $104 million in terrorist-related assets. Since the attacks, the U.S. alone has blocked over $34 million.
The process of identifying and investigating targets is ongoing, and we are currently investigating other financial entities, businesses, groups and persons for listing. We also created Operation Green Quest, which is a new multi-agency financial enforcement initiative intended to augment existing counterterrorist efforts in order to focus on terrorist financing. This task force is led by the Customs Service, and includes the IRS, Secret Service, the ATF, OFAC, FinCEN, the Postal Inspection Service, the FBI, DOJ, the Naval Criminal Investigative Service, and we are dealing with other agencies as well.
Green Quest brings together the extensive financial expertise of the Treasury Bureaus along with the exceptional experience of our partner agencies. Green Quest's work, along with the Department of Justice, has led to 11 arrests, 3 indictments, the seizure of nearly $4 million, and bulk cash seizurescash smugglingof over $9 million. Green Quest, along with the FBI and other agencies, has also traveled abroad to follow leads, exploit documents recovered, and to provide assistance to foreign governments.
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We have also been committed to the FBI's Financial Review Group, which is a seminal part of the focus on terrorist financing. Immediately after the attacks, we deployed our Treasury assets to the FRG to deal with the September 11th attacks and the financing surrounding those attacks.
I see that my time is rapidly approaching.
Chairwoman KELLY. Is gone.
Mr. ZARATE. It's gone. Let me just address a couple of things, if I can, Madam Chairwoman. To address the questions in your letter, in our investigations and in our actions, we've identified, as I mentioned, several means and methods that terrorists have used to funnel money, one of which is charities. On two different occasions we identified and designated charities under the President's Executive Order and we have found that charities are used both here and abroad as a way of siphoning money to terrorist groups.
Second, Madam Chairwoman, you mentioned the Al Barakaat operation. Al Barakaat was a significant blow, we believe, to bin Laden's ability to move money internationally. Al Barakaat was a money remitting system that operated abroad as a hawalah system to move money into Somalia through Dubai. The Al Barakaat operation was located in upward of 40 countries. We worked closely with our foreign partners in addition to the United Arab Emirates to shut down Al Barakaat's operations, and we feel that we have done so. And it is a success story, quite honestly, with respect to shutting down a means that Al Qaeda was using to move funds.
Page 16 PREV PAGE TOP OF DOC Very briefly, Madam Chairwoman, as I mentioned, the USA PATRIOT Act is an essential tool for us at this point. The information-sharing provisions, the provisions that allow us to target specific risks in the financial markets with respect to abuse of our financial system, as well as coordinating efforts with the financial industry, are essential elements to our efforts with respect to tracking terrorist financing.
Madam Chairwoman, I would be more than happy to answer any questions, and I thank you for your time and your interest and certainly your support in our efforts.
Chairwoman KELLY. Thank you very much, Mr. Zarate.
Next we would like to hear from Mary Lee Warren.
STATEMENT OF MARY LEE WARREN, DEPUTY ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE
Ms. WARREN. Thank you, Madam Chairwoman. And thank you, Ranking Member, Mr. Gutierrez, and other Members of the subcommittee.
I am honored to appear before the subcommittee to outline Justice's progress on the financial front on the ongoing war on terrorism. I appreciate this opportunity and will try and give you a brief summary of our efforts, including information developed by the Financial Review Group, an interagency task force supporting FBI's Counterterrorism Division, as well as the Department's actions taken so far under the USA PATRIOT Act.
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We are grateful for the USA PATRIOT Act and your quick action after the September 11th events. We intend to and already are using it vigorously and I believe responsibly.
In offering a brief summary of the Department's workof course, I am not at liberty to disclose ongoing criminal investigations or information that might compromise those investigationsbut, I can give a brief overview of the areas and ways in which we are working.
Through financial analysis, we continue our work to reconstruct the web of planning and finance that supported the September 11th terror attacks. At the same time we are trying to work to detect other threats to our national security, whether by persons affiliated with Al Qaeda or with other groups. We have found that in almost all areas of the criminal law, following the money is the way to determine what has happened. It also provides evidence of the conspiracy itself, of its membership, and of its criminal activities, evidence that we use in court.
As you know, the Attorney General has the responsibility for investigating all acts of terrorism in the Federal system, and looking into terrorism financing is a critical part of our larger anti-terrorism strategy to seek out and eliminate those terrorist organizations attempting to destroy us.
Within days of September 11th, the Attorney General, exercising this authority, established the Financial Review Group within the FBI's Counterterrorism Division. We include, as Mr. Zarate said, important help from the Treasury Department and all of its components. We also have enormous support from the National Drug Intelligence Center. Many sections of the Criminal Division of the Department of Justice as well as Assistant United States Attorneys also assist in that operation.
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And over the past several months, we have been able to compile and analyze financial information gathered by Federal agents working domestically and internationally as well as information from the U.S. Attorneys offices from across the country in the course of their ongoing terrorism investigations.
By having this central repository for relevant evidenceall those bank records, travel records, credit card and retail receiptsfor in-depth financial and forensic analysis, we have been able to integrate and use that information with the other terrorism evidence that we collect and being able to cross that information has helped to spur the larger investigations along. I don't believe it's duplicative of what the Foreign Terrorist Asset Tracking Center does or of FinCEN. Indeed, we rely very heavily on FinCEN's assistance in our work.
At the same time that the Attorney General established the Financial Review Group, he also established a task force of prosecutors to work with the Financial Review Group. Prosecutors from Washington as well as from across the country. They work in a network with the Financial Review Group in this large anti-terrorism strategy. They also work with the FBI's Joint Terrorism Task Forces across the country in a coordinated effort to collect and analyze and disseminate information.
We are using computerized ''data mining'' to learn more about the information that we already have, to learn about terrorist acts in the past and to try and predict those that might harm us in the future.
Page 19 PREV PAGE TOP OF DOC We have learned ways that the terrorists use fraud in credit cards and licenses, as the Chair noted, and we are proceeding against them. We have collected an enormous amount of material, as reported in the larger statement, and our analysis continues. One thing that I would like to mention is just in terms of the September 11th investigation, we do have some charts that show money that came into the terrorists from the United Arab Emirates through wire transfers, passing through a New York bank to a Florida bank to the terrorists, in this instance, the one who crashed Flight 175 into the South Tower of the World Trade Center, Marwan Al-Shehhi, and Mohamed Atta, the one who crashed the American Airlines Flight 11 into the North Tower of the World Trade Center.
The next chart shows the movement of the money out. They cleared their accounts and transferred the money back to the United Arab Emirates just before September 11thSeptember 8th, 9th and 10th, clearing those accounts. These charts show only a very few of the transactions that we are studying. The work, of course, is continuing.
I look forward to a later time when it may be appropriate to provide the subcommittee with additional information from these now still ongoing criminal investigations of the September 11th events and much more widely.
In terms of implementation of the USA PATRIOT Act, we have already brought charges in the Commonwealth of Massachusetts for operating an illegal money transferring business. We have seized for forfeiture assets attributed to terrorists. No one has come forward to claim that money, not surprisingly. We have used the correspondent bank forfeiture provision of the new Act and many others. We are working with Treasury in terms of their heavy obligations of promulgating regulations in the various areas provided by the Act.
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Again, I express our appreciation for the support the subcommittee and the committee have demonstrated for the Administration's anti-money laundering efforts, and I look forward to opportunities to continue to work with the committee and its staff as we implement the USA PATRIOT Act. If there are any gaps that we find or repairs that need making or any uncertainties that emerge, we look forward to identifying those with the subcommittee so that we can continue our work. Thank you.
Chairwoman KELLY. Thank you very much, Ms. Warren. We look forward to working with you also.
Next we have finally on this panel, Mr. Dennis Lormel.
STATEMENT OF DENNIS M. LORMEL, CHIEF, FINANCIAL CRIMES SECTION, CRIMINAL INVESTIGATIONS DIVISION, FEDERAL BUREAU OF INVESTIGATION
Mr. LORMEL. We in the Bureau appreciate the opportunity to participate today. I have submitted a written statement, as Mr. Bereuter has alluded to, and hopefully, sir, we can address your concerns, because I don't think you have it in the right context in terms of that whole thing, and hopefully I will have time to address that.
In terms of what we have done to date, we have taken a two-track approach in our investigation. We have conducted a comprehensive financial investigation of the 19 hijackers. We have gone beyond the 19 hijackers to the support mechanisms, and collateral to that, we have established a template for future investigations in terms of developing proactive, preventive and predictive terrorist financial investigations.
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To accomplish this, we have to rely onand it's not just an FBI-driven initiative, it's a coalition, as my colleagues at the table will attest to and you've heard, we're all partners in this endeavor, be it through our Financial Review Group or Customs' Green Quest and OFAC, we're all working together. Clearly, each of those other agencies and the whole gamut of agencies that work financial investigations are part of our initiative.
We are conducting a broad-based and multi-faceted investigation. In one area, we are trying to conduct predictive and preventive-type analytical investigative means. And in that regard, we're conducting data mining projects, which includes the SAR database, which obviously is administered by FinCEN, and working with FinCEN, we are extracting certain algorithms and anomalies and clearly working hand-in-hand with FinCEN. Our database, sir, is one that is meant to be a financial terrorist database, more encompassing than just focused on the terrorist aspects, and certainly meant to work in conjunction and augment the other agencies.
Real quickly, let me hit statistics. Some of the things we've gotten. Through our investigation to date, we have collected over 321,000 financial documents of over 10,500 individuals in terms of account information and the like, and we've entered over 104,000 of those documents in our database, which again, we are using for predictive analytical capabilities.
I would like to add that on a daily basis, we share our database downloads with Operation Green Quest, and we are working in conjunction with each other in regard to the information coming out of that and in terms of future investigative leads.
When you look at the terrorist financing, we've got to look at a number of levels here. You've got terrorist organizations. There are terrorist organizational fundraising mechanisms, which clearly we all have that interest interrorist organizational funding expended in furtherance of terrorist activities, and then terrorist-specific funding.
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What I'd like to concentrate on for you is the terrorist-specific funding at this point in terms of what we found. We've done a pretty comprehensive review of the 19 hijackers. In my statement, you will see a pretty good overview of financial profiles, of account profiles, transaction profiles and so on. And in that regard, the 19 hijackers were mission-specific. So they are a mission-specific cell, if you would.
If you look at the Germans, they're a little different. If you look at the Spanish, they operated differently. Looking at the Spanish, they incorporated credit card fraud into their activity. An interesting note is the 19 hijackers here pretty much used true identity, and they pretty much used debit cards as opposed to credit cards to facilitate their fraudulent activities.
In terms of the cells in Malaysia and in terms of the cells in Singapore, you'll find people that were more of a sleeper oriented-type base where they had legitimate jobs and where they had legitimate work activities, and any terrorist funding would have been funneled in and meshed into the legitimate type of funding and earnings.
I'm coming to the close on my statements, but in response, sir, to your immediate concern on the Foreign Terrorist Asset Tracking Center, I think part of the concern there, and it's not that the Bureau or the Department are attempting to muscle in, so to speak, on that, but the issue at hand is in light of the PATRIOT Act and the acts after September 11th, if in fact the FTAT is better housed at OFAC or handled in a different fashion, maybe through CIA. And that is being addressed at the deputy director level. And in fact, on Friday, there will be meeting among the deputies to discuss this. It's an ongoing topic.
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We all clearly agree that there needs to be a collective repository, and we need to have our collective capabilities and assets aligned with each other to have the best impact and certainly the most effective approach to the terrorist problem. So clearly, and I hope it's not construed that the Bureau, the Department or any of these agencies are trying to work against each other. We are actually working very hard together. Certainly we have interagency concerns that we work through. So I'd hope, Mr. Bereuter, we can have a discussion and dialogue to allay any concerns you may have. Ma'am?
Chairwoman KELLY. Thank you very much.
With the unanimous consent of the subcommittee, I am going to change the order of the questioning, because a number of the Members are on very tight time schedules. They have a deep, strong interest in the topic. And with that being said, with the unanimous consent of the subcommittee, I'm going to allow Mr. Bereuter to go first and give him 2 minutes for questioning. Then we will go to Mr. Crowley for 2 minutes for questioning so that he can be excused if he needs to go. Both of these Members, then, I remind you that you can submit written questions to our witnesses following that. We will pick up Mr. Tiberi, who is also on a very tight time schedule. Then we will go back to regular order.
So, with that being said, Mr. Bereuter.
Mr. BEREUTER. Madam Chairwoman, Mr. Gutierrez, I very much appreciate your special courtesy and other Members as well.
Page 24 PREV PAGE TOP OF DOC Mr. Lormel, you have the essence of my question and you attempted to address it here, but the concerns are real. And I'm not sure I'm taking it out of context. It's something that probably we will need to have some further discussion and reassurance on. But you did say, if I understood you correctly just in your comments, your oral comments here, that the databaseand I assume you're talking about the Financial Review databasewill be focused on terrorist financing.
But that looks like exactly one of the functions that FinCEN was supposed to proceed with. And while there may be an interagency effort going on to examine where it best ought to be located so that we don't havehopefully, you have the same objectivesduplicative database and duplicative functions in general, the Congress and this subcommittee in particular has tried to cultivate FinCEN before September 11th in effect for this particular function. So I'm not sure why there is any discussion about an alternative terrorist finance database and analytical center. I'll leave it there and see how you'd like to respond further if you have any at this point.
Mr. LORMEL. One of the things we're attempting is to serve as an operational support mechanism for our terrorism section and in furtherance of those terrorist investigations, you know, clearly we've collected evidence. We're certainly not attempting to duplicate anything FinCEN is doing. And maybe I'll ask Jim Sloan for some help. Because I don't see that we are duplicating anything that FinCEN was intended to do. And clearly, we are sharing information.
Mr. BEREUTER. But aren't you also, if I may interrupt, aren't you also attempting to create a database as a part of it, wherein FinCEN was supposed to do that for money laundering and terrorist purposes and other functions?
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Mr. LORMEL. Yes, we have. And clearly, ours is an operational, investigative database. I think FinCEN's more I'll say regulatory geared, and between the two clearly there will be overlap. But I think there's clearly room for both. In an automated sense, in terms of what can be shared, I don't see a real problem.
Mr. BEREUTER. Madam Chairwoman, I'll just conclude with a comment and say that one of the concerns we've had pre- and post-September 11th is a different culture, different objective in the FBI, and that is, that you are interested, understandably, in putting people in prison and protecting evidence. But certain information has to be shared rather broadly with other domestic as well as intelligence agencies. And if, in fact, you establish your own database, we may be working to reinforce what has been a problem.
Mr. LORMEL. If I may, ma'am, I'd like to respond to that, because on a daily basis, we give a download of our data to Customs. And we have FinCEN agents and analysts assigned to our task force. So if I've given you the impression that we're being parochial, please, that's anything but the truth. As of September 11th in this regard, I'm not a terrorist agent. I've been a criminal investigator since September 11th. The only thing I've worked is financial terrorism. And believe me, there's nothing in my being that is not team oriented. And I insist that the people that work for me share that model, and clearly, we are working in conjunction with.
Now we can have semantics about should we or shouldn't we have a database. The bottom line is, we need to attack financial terrorism, and one of the best mechanisms to do it is for us to have that capability. If I could, I'll defer to Jim.
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Mr. BEREUTER. I'll defer to the Chairwoman. If you want to have us continue, that's up to you.
Chairwoman KELLY. Mr. Sloan, you wanted to say something. Please do make it short, because these other Members also need the courtesy.
Mr. SLOAN. Yes, ma'am, certainly. Clearly, we would be paying very close attention at FinCEN to a parallel database being constructed at the FBI. Perhaps it's the way in which the words were presented on paper, but in fairness to the Financial Review Group, as well as our other clients, Operation Green Quest or OFAC's FTAT, the product that FinCEN is delivering to them is a finished product of analytical wealth developed from our databases.
And in the case of the FBI, they do combine in their database, 6(e) grand jury material, and other material that's coming from a lot of different sources that FinCEN certainly wouldn't have access to from the financial aspect. Perhaps the choice of words is unfortunate, but their database is not something that we would be endorsing if we thought it was in exact parallel to what we're providing. They are an important client, and they do get the product of our database. And we're paying close attention to making sure that our resources are not competing with one another.
Chairwoman KELLY. Thank you very much, Mr. Sloan.
Page 27 PREV PAGE TOP OF DOC Mr. CROWLEY. Thank you, Madam Chairwoman. I appreciate the courtesy you extended. Thank you very much. I have a series of questions. I'm only going to ask one and I'll submit the others in writing and appreciate again the courtesy extended.
Al Qaeda is responsible for the deaths of thousands of U.S. citizens. In my district, as a result of the September 11th attack, at least 105 of my constituents were killed in the attack on the World Trade Center. Hamas and Islamic Jihad admit to killing dozens and wounding hundreds of innocent civilians, including Americans, in Israel and throughout the globe.
The U.S. Government has prevented the former U.S. hostages in Iran, people who dedicated their lives to public service and who gave up 444 days of their lives as prisoners of the Iranian regime, from claiming damages from the Iranian government's frozen assets. Will assets belonging to Al Qaeda, Hamas, Islamic Jihad and other terrorist groups that are confiscated under the authorities of the USA PATRIOT Act be subject to court judgments if the victims or the survivors, including the 105 constituents and their survivors that I represent, seek damages for their pain and suffering? And that would be addressed either to Justice or to Treasury.
Mr. ZARATE. I could address that briefly, Congressman. And I will pass it off to Rick Newcomb, who administers the programs under which assets are frozen by the U.S. Government by OFAC. Presently under the President's Executive Order, the assets that are frozen are not subject to court orders or are not subject to payment to victims or victims' families. That's consistent with the way sanctions programs generally have been administered by the United States Government.
Our intent is to freeze the assets. For example, in the case of the Afghanistani assets, it is often the case that the assets are at some point unfrozen and given back to the established regime, in this case, the regime in Afghanistan.
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But I will pass the question off to Rick Newcomb, who can answer perhaps in more detail your question.
Mr. NEWCOMB. Thank you, Mr. Crowley. We have had such claim settlement programs, most recently in legislation entitled Mack Laudenberg for claimants against Cuba for the shootdown of Brothers to the Rescue and for various claimants that had judgments in Federal court against the government of Iran. Those are the only two active claim settlement programs that we currently administer, and those are almost complete at this time, based on claimants having adjudicated judgments. Should there be another claim settlement program, we may be called upon to implement that, but at this time, we have no such program.
Chairwoman KELLY. Thank you, Mr. Crowley.
Mr. TIBERI. Thank you, Madam Chairwoman.
My question is directed at two of you, Ms. Warren and Mr. Zarate. And I apologize if you addressed this before I got here. I leafed through both your testimonies and didn't see it.
My question revolves around a provision requiring financial institutions to verify the identity of individuals when opening up a new account in the PATRIOT Act, and the House added a provision, as you may know, that dealt with criminal penalties for consumers who falsify information to those financial institutions. And my question to both Justice and to Treasury is through your rulemaking process, are you pursuing that provision?
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Mr. ZARATE. Congressman I can address that first. I believe you're referring to Section 326 of the PATRIOT Act. If that's the provision you're referring to, sir, yes, we are proceeding with issuing regulations. For that matter, we're proceeding aggressively and on time, for the most part, with issuing relevant regulations with respect to all PATRIOT Act provisions.
As Congressman Gutierrez indicated in his opening statement, there are certainly considerations that we need to take into account and are taking into account with respect to privacy interests and sensitivities of that nature. That's precisely why we have set forth aggressively with working groups, interagency working groups, working with Federal regulators, working with the Department of Justice very closely to implement regulations on a timely basis.
Ms. WARREN. Maybe if I could just extend that remark a bit. As Mr. Zarate said, we at Justice are working closely with them on those regulations. But in a more general way, we often use that kind of fraud that is found, and if the accounts have been opened on counterfeit information, we use that kind of fraud in furtherance of our investigations of larger criminal acts.
Recently the U.S. Attorney's office, working with Federal agencies in Utah, looked at fraud in, for instance, Social Security numbers, and found that 60 people at the Salt Lake City International Airport had used fraudulent documents to get jobs at the airport in very significant positions just before the Olympics started out there.
Page 30 PREV PAGE TOP OF DOC Just 2 or 3 days ago in Miami, a similar effort was launched by the Federal agencies and the U.S. Attorney's office there when they found that fraud had been used in immigration documents for commercial pilots as well as ground access people at the Miami International Airport as well as the Broward County Airport.
These are of enormous significance to homeland security, these kinds of special areas. And we look at that kind of fraud as an adjunct to these larger investigations. With Mr. Zarate, we at Justice agree that this has to be handled with the right balance so that individuals who ought to have access to financial services have that right along with everyone else in the United States, whether they are immigrants or natural born. So it is a sensitive area, but an important one.
Chairwoman KELLY. Thank you, Mr. Tiberi.
Now, I'd like to ask a couple of questions. One, I'd like to address to Mary Lee Warren and Mr. Zarate. I'd like to know if the current laws that you have to work with now are sufficient to ensure that the currency and securities markets are able to detect and halt the illegal movement of funds. We've talked about the bank accounts. We've talked about hawalah. I'd like to know whether or not these current laws that we have in the PATRIOT Act are enough for you to address the possibility of money transfer with currency and securities markets. And I'd like to ask that question specifically of the two of you.
Mr. ZARATE. We think at this stage that the PATRIOT Act does, to a certain extent, give us appropriate regulatory authority to look at those industries that you have mentioned. In particular, the securities interest. As you are well aware, Madam Chairwoman, the PATRIOT Act provides that securities and broker dealers will have to start complying with the suspicious activity report requirements under the Bank Secrecy Act starting by April 24th, which is when we are scheduled to issue the final regulation. That we think will provide a very strong measure for tracking money going through those dealers. In fact, we think it will form part of the mosaic that is currently put together by FinCEN when they look at SARs from other industries as well as CTRs and other information that they have in the Bank Secrecy Act database.
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Madam Chairwoman, as you know as well, financial institutions are defined very broadly in the PATRIOT Act. And we're looking at ways of applying the anti-money laundering provisions, in particular, Section 356, to certain industries, including currency exchange, pawnbrokers, other industries that may be of concern to us and could provide a way and a means for money launderers, criminals, and terrorist financiers to move money.
So we are certainly cognizant of those vulnerabilities and are extremely willing and aggressive to use those provisions to look at those industries.
Chairwoman KELLY. Thank you.
Ms. WARREN. I agree with Mr. Zarate, and we look forward to the implementation dates of the regulations. I think thereafter, as we watch the regulations come on line and the responses from the industry, we'll know better whether we need additional help. But at the moment, it looks like we're really well positioned to be able to follow the money through those particular services businesses.
Chairwoman KELLY. Thank you very much. Ms. Warren, I wanted to ask you, on page 16 of your statement you mention, and I'm quoting: ''The very restrictive 1-year limitation of 18 U.S.C. Section 984.'' Does that limitation, that 1-year limitation, need to be extended in your opinion? And if so, how long do you think would be the ideal?
Page 32 PREV PAGE TOP OF DOC Ms. WARREN. We have suggested in the past that it be extended to at least 2 years. Chasing the money around the globe is often difficult, even difficult to find a physical location of some banks. With the addition of the PATRIOT Act and our ability to proceed against correspondent accounts in the United States, we are able to move more swiftly. But the sophistication of some money laundering schemes and the rapid rate that money moves internationally sometimes take us a much longer time to trace than 1 year. And we would be at a severe loss not being able to complete our investigation within that time and use the advantage of the PATRIOT Act.
So far, we have been able to use that provision, 319, to very good advantage within the 1-year limitation period. Again, I think we will need to watch it now that we have the ability to proceed against the correspondent account and not have to find some Pacific atoll bank and try and find someone to serve our process on. Again, as I said in the beginning, this is something that we look forward to working with the subcommittee on as we discover whether it will work or not under the conditions presented.
Chairwoman KELLY. I'm out of time, so I'm going to call on Mr. Gutierrez, but I want to say that we may go into a second round, because there are still some very pertinent and significant questions that need to be addressed right now.
Mr. GUTIERREZ. Thank you very much.
Mr. Zarate, in the ABA Resource Guide, it states that neither a visa or foreign passport identification system, quote: ''should be able to stand on its own as a form of identification.'' Would a potential cardholder be required to provide a Social Security number or a U.S. Government-issued ID, State driver's license to open an account?
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Mr. ZARATE. Congressman Gutierrez, we are currently working on minimum requirements for account openings. And that's part and parcel of our implementation of Section 326 of the PATRIOT Act. I tend to agree with the statement in the ABA document in the sense that those documents can be and often are counterfeited. So we are looking at ways to establish minimum requirements for account opening.
We are subject to the PATRIOT Act provisions, required to issue a report on better ways to enable financial institutions to monitor and to verify documents used. We haven't come to any conclusions yet, but we are working diligently on that report. And I certainly understand your concerns, Congressman Gutierrez, with respect to the possible hindrance to opening accounts to immigrants who have to rely on those types of documents. So it's something we're thinking about very thoroughly.
Mr. GUTIERREZ. So you don't have any idea of what the minimum? When will we have the regulations, do you feel? Can you give us an estimate, Mr. Zarate?
Mr. ZARATE. To be quite honest, Congressman, I don't have the timetable in front of me. But the timetable set forth by Congress are quite vigorous, so I assume it's very soon.
Mr. GUTIERREZ. Sometimes a little too vigorous. We haven't quite got the airports ready for the luggage yet.
Mr. ZARATE. Yes. And we're working as hard as we can to get that out, and we certainly will work closely with this subcommittee in terms of getting you that information as soon as we have it.
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Again, I'd like to stress, this is very much an interagency process in terms of how we are dealing with these issues. It's also a process by which we are talking directly with different industries where we need to find out how best we can regulate and how best to come out with regulations that are going to be effective and efficient. So that's part of our strategy.
Mr. GUTIERREZ. Number one, I want to thank you for your work and for coming to testify here today. And I say that to all of the panelists here today. And I just want to figure out how wethere are a lot of people, obviously, that come in harm's way. Another part of our justice system deals with them, because of the fact that they have to cash their checks at currency exchanges and carry large amounts of cash. I would think it would be safer and better for us and for our intelligence services to have people at banking institutions versus currency exchanges. We know more about the people. We have an address on the person. We have more information about where they work. And, obviously, we know where they're sending money versus Western Union or Moneygram.
And if we force people byand I know you have a broad definition of ''banking services''and if we force people to stop using traditional banking services, what I have been seeing lately, Mr. Zarate and other members, is that, for example, the Mexican government. They are issuing a matricula. It's a form of identification that they certify using a Mexican passport. And maybe we should work with countries such as Mexico and other countries to see what kinds of ID. I mean, what we're talking about is undocumented workers in the United States, to be clear. Those that are documented don't need and can obtain other forms of identification.
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And then they come by my office, for example. Because one of the interesting things about our Department of Justice and our justice system is that they can't get a work permit, but we're happy to takethe IRS is happy to give them a tax identification number so that we can know what they paid in withholding. I mean, it's just a fact. It's one of thoseI didn't come to criticize, it's just one of those things.
But since we have that going on and I can get them a tax identification numbermy wife is a branch managerand we get them tax identification, between that and the matricula, they can establish an account. We have an institution saying, yes, this is who this is. And we go for purposes of them fulfilling their financial responsibilities. So people come by my office all the time and I tell them, fill out your income tax because, you know, if President Bush and President Fox figure it out and we have another program like we had in 1986, the Immigration Reform and Control Act, we certainly don't want you to be disallowed because you didn't pay income taxes.
And what we've found is, in a broad definition, people that are working, paying taxes and following our laws, we should understand that they are not disappearing. So we've got 8 million people, approximately, in the United States, 12 million according to some folks. I think it's probably closer to 8 million. But we have a lot of people, and we are working, I think.
There's going to be a meeting after the 20th of March between President Fox and President Bush. I know they're going to engage in that conversation once again on a process of legalization. They have different terminologies for it.
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But we are engaged in that process, and I hope you would take that into consideration so that we can get hard working people the kind of banking services that they need and they can send their money, not for terrorist activity, but just back to mom and dad and the wife and the kids, and we can help stimulate economies abroad. Thank you all for being here this afternoon. I really appreciate it. Thank you for your work.
Chairwoman KELLY. Thank you very much, Mr. Gutierrez.
We have been joined by Mr. Grucci. Mr. Grucci, have you questions at this time?
Mr. GRUCCI. No, Madam Chairwoman, not at this time, thank you.
Chairwoman KELLY. Thank you very much. Then I'd like to go for a second round to start with Mr. Tiberi.
Mr. TIBERI. Thank you, Madam Chairwoman.
I'm going to go back again to Mr. Zarate and Ms. Warren. You mention, Ms. Warren, in the context of money laundering. And in fact you mentioned out in Utah. Can I get back to the point again of individual money launderers who go into a bank and use a false ID or false identification of any kind to open a bank account? In the PATRIOT Act there was a provision the House added that we wanted to see those individuals be criminalized for that act. Can you please comment on what Justice is doing with respect to the rule on that individual who seeks to defraud the bank by using false identification?
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Ms. WARREN. I can tell you that we haven't had any prosecutions under that yet. We are still collecting information and look forward to the Treasury regulations on exactly what will be appropriate bank account opening identification that will help us learn more about how to proceed in that particular area.
We have a long history of proceeding in terms of fraud for credit and have learned a great deal when there have been applications for loans at banks where there's fraud involved, whether in the identification or in the amount of collateral available. I think there's a lot that we can transfer there to learn more about how to proceed here.
Mr. TIBERI. Thank you. Mr. Zarate, in terms of the rule with respect to that provision, where are we on that?
Mr. ZARATE. We are proceeding on schedule, sir. Something I failed to mention when I answered your question the first time, one of the things we're looking at is possible administrative sanctions as well under the Bank Secrecy Act. As Ms. Warren has indicated, we are looking for the right balance here for the financial community. They have to be able to rely on documents provided by individuals for account opening and other transactions.
At the same time, we must send a message to those who use fraudulent documents and who attempt to defraud the bank in the way you described that that's not acceptable. And one of the options we are looking at is the administrative sanction possibility. But we are also working with Justice to look at the potential criminalization.
Page 38 PREV PAGE TOP OF DOC Mr. TIBERI. You would agree with the provision that was passed, the language that was passed in the PATRIOT Act with respect to the criminalization, as you mention, of providing the false information?
Mr. ZARATE. Generally, yes. I mean, we are looking at the best way of implementing that provision and the timing of it. But certainly, yes.
Mr. TIBERI. You agree with the legislative intent then?
Mr. ZARATE. Certainly.
Mr. TIBERI. Thank you.
Chairwoman KELLY. Mr. Gutierrez.
Mr. GUTIERREZ. Apparently we did a little better than with the screening at the airports, and it's a year enactment. So we'll have an opportunity for all of us to talk. I'm not saying that lightly. It's just I'm happy we gave ourselves a little more time. We were real quick with checking of the bags and we haven't quite got the screeners.
Mr. ZARATE. Thank you.
Mr. GUTIERREZ. So, I'm sure, given the work that you've already done, and I know we're going to receive the recommendations by April, and then by the end, so we have some time to look at these things. Thanks once again.
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Mr. ZARATE. Thank you, Congressman.
Chairwoman KELLY. Thank you, Mr. Gutierrez.
I have a couple of questions that I'd like to ask. Section 373 of the PATRIOT Act was amended to strengthen law enforcement's ability to stop illegal money service businesses like the unlicensed hawalahs. How significant do you feel that change has been? This is a multi-choice question here. I'd like to know how significant you feel that change has been. I'd like to know if you're actually able to use it as we've done the law, and whether or not that amended version in Section 1960 was the basis for the Al Barakaat arrests in Boston. I believe that it was, but I'm not sure. So I'd like to know about that. And I will throw that out to the two of you.
Ms. WARREN. It was the basis for the Section 1960 charges in the district of Massachusetts. It's the way we are proceeding against the principals of the Boston branch of Al Barakaat. So it has a significant effect. We were able to combine those charges with all the other efforts against Al Barakaat, brought together on a single day to have a real broad based impact on an effective hawalah institution. I'm sure we'll continue to use that section as we uncover other unlicensed money transmitting businesses and as we learn more about how they are used for illicit purposes.
Chairwoman KELLY. Thank you very much.
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Mr. ZARATE. I agree with Ms. Warren. It was an essential part of the Al Barakaat takedown in Boston. And though neither Ms. Warren nor I can comment on ongoing investigations, I can assure this subcommittee that that provision is proving helpful.
With respect to regulation of MSBs generally, I think that this issue addresses Congressman Gutierrez's concerns about the marginalization of people to using non-banking institutions. One of the beautiful portions of the PATRIOT Act is that it now allows us to start regulating and start looking at transactions that occur in some of these marginalized institutions, which are sometimes mom and pop wire remitting companies.
To date, we've had, I think, fairly good success in terms of getting these companies registered. Mr. Sloan could perhaps talk to that more specifically. And we think that this is going to provide not only the enforcement element that Ms. Warren has talked about, but also an additional tool with respect to getting more information. Because they will be subject to the Bank Secrecy Act provisions with respect to filing SARs, and those regulations are forthcoming.
Chairwoman KELLY. Mr. Sloan, do you want to address that?
Mr. SLOAN. Madam Chairwoman, as Mr. Zarate indicated, the money services businesses rule that took effect on New Year's Eve, December 31st, is somewhat of a success story as far as the registration of those in the United States that choose to register as money services businesses. Clearly, if somebody is operating as a hawala and they choose not to register, then it becomes an additional tool for law enforcement in that regard.
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But to follow on to Mr. Zarate's comment, the registration process is helping us to determine the universe of the so-called money services businesses in the United States. We began this process by utilizing the data that was coming from the 45 States that actually regulated this industry at the State level, and taking that data we were able to determine that there were probably around 11,000 principals out there that needed to be registered. We essentially contacted every one of them and found out that there's probably closer to 9,000 principals who are money services businesses who are legitimate. And as of 2 weeks ago, about 8,700 of them have registered with FinCEN and the Government.
So the registration process is a success story, and the reason it's important, with regard to your comment, is that it then becomes an even more important tool for law enforcement when they, through surveillance or undercover activity or just general investigative activity, determine that someone is offering themselves as a money remitter in an informal or underground way. It's another tool for law enforcement.
Chairwoman KELLY. Mr. Sloan, speaking of tools, it's come to my intention that the Financial Crimes Enforcement Network does not make use of the Social Security Administration's death master file. Instead, you use a third party source for that information.
Last Friday, I sent a letter to Secretary O'Neill asking him to look into this. And I wanted to bring this to your attention. With unanimous consent, I'm going to insert a copy of this letter in the record. I wanted to bring that to your attention. I think that may be a resource for you you may want to look at.
Page 42 PREV PAGE TOP OF DOC Mr. SLOAN. Madam Chairwoman, the Secretary's office has already delivered your letter to me. And just for the record, we are examining, and we're working with the Social Security Administration Office of Inspector General, who incidentally is part of the FinCEN network.
We are actually developing some state of the art artificial intelligence tools, that given the right safeguards, this information will be incredibly important to us. You're right. We've been using a third party source of information, and the timeliness is not what we would hope.
Chairwoman KELLY. Mr. Grucci.
Mr. GRUCCI. Thank you, Madam Chairwoman. Just a couple of questions if I could.
Mr. Zarate, what gaps in regulations or authority to regulate exist and what is the Treasury doing to fill them?
Mr. ZARATE. Congressman, as Ms. Warren indicated earlier, I think it's too early to tell with respect to potential gaps in the regulatory framework and our authority to enforce those regulations. Right now, because we are in the middle of implementing aggressively the provisions of the PATRIOT Act, our concentration and our focus has been on those implementation efforts.
Generally, we think that the broad scope of the PATRIOT Act, and as I mentioned earlier, for example, the broad definition of what a financial institution is, provides us a wonderful tool to think about and potentially regulate industries that have not fallen directly under our regulatory strictures to date.
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Mr. GRUCCI. Maybe I should have been a little bit more specific. I really meant in the context of credit cards.
Mr. ZARATE. We are looking at that. In particular, the sections that are of most use to us with respect to the credit card industry, are Sections 252, which provide for or ask for an anti-money laundering regime to be established by institutions, all financial institutions. This could affect credit card companies.
But as you know, Congressman, credit card transactions and credit card use in general is an extremely complex process. You have issuers. You have acquirers, you have associations, you have the merchants and then you have the actual customer. To date, we feel that the provisions of the Bank Secrecy Act allow us to at least track some of those transactions that occur, because at some point during the transaction, a U.S. financial institution is involved, whether it's as the issuer or as the actual participant in the transaction.
That being said, we are looking at ways of regulating the credit card industry. And we are fully engaging, again, as I said before, in the interagency process to do that.
Mr. GRUCCI. Just one more quick question if I may. Could you elaborate on what steps the Treasury is taking to address the potential abuse of credit cards for terrorist financing and money laundering?
Mr. ZARATE. Certainly. Immediately after the September 11th attacks, the U.S. Secret Service, which has expertise in credit card use and abuse and investigations, was immediately tasked by the FBI and by the Treasury Department to look into credit card use by the 19 hijackers. That was the first thing that we did.
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Second, we have engaged the Secret Service's New York Electronic Crimes Task Force, which deals with credit card issues and credit card fraud in the investigations by the FBI's FRG as well as in Operation Green Quest.
Finally, we are working to regulate, potentially regulate the credit card industry so that we are able, as I said before, to create a full mosaic of what transactions we're looking at, what suspicious transactions look like, what anomalous transactions we can identify. But quite honestly, at this stage, it's very hard to tell what further regulations we can ask for to make those things happen.
But we are fully engaged in the issue and certainly recognize that credit card use can form a way of not only laundering money, but of financing terrorist cells around the world.
Mr. GRUCCI. Thank you. Thank you, Madam Chairwoman.
Mr. LORMEL. Madam Chairwoman, if I may?
Chairwoman KELLY. Yes.
Mr. LORMEL. Just as a follow up, from an investigative standpoint, we really haven't seen that much, the real significant use of credit cards. Initially we thought that the 19 hijackers had an extensive amount of credit cards and we thought they were involved in bust-out schemes. But when we got through the name associations, we found that they were heavily involved with debit cards as opposed to credit cards, because they couldn't get credit cards here in the U.S.
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The only place where we have seen a substantial use of credit cards for fraud is with a cell of the terrorists in Spain. Certainly we see credit card abuses and fraud, and we've had a project ongoing with Secret Service in that regard, but we haven't seen a crossover into terrorism.
Chairwoman KELLY. Thank you very much. Yes, the credit card issue is a thorny one, and it's an ongoing one, and we do continue to need to address it.
If there are no more questions, the Chair notes that some Members will have additional questions, and there are Members who had intended to be here today who for one reason or another have not been able to be here. And they may wish to submit questions in writing. So without objection, we will hold the hearing record open for 30 days for Members to submit written questions to the witnesses and to place their responses in the record.
I thank this first panel very much. You have all been very indulgent with your time, and we are grateful. You are excused with the subcommittee's great appreciation for your time. And the second panel, without ado, we hope you will please take your seats. Thank you so much.
Mr. ZARATE. Thank you, Madam Chairwoman.
Chairwoman KELLY. On our second panel we have Mr. Steven Emerson, who is the Executive Director of the Investigative Project. Next we are going to hear from Mr. Jeffrey Neubert, the President and CEO of the New York Clearing House Association. Next we are going to hear from Mr. John Byrne, who is Senior Counsel and Compliance Manager for the ABA, the American Bankers Association. And finally, we will hear from Mr. John A. Herrera, the Vice President of Latino-Hispanic Affairs for the Self Help Credit Union, who is testifying on behalf of the Credit Union National Association and the World Council of Credit Unions.
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I want to thank all of you for taking your time today to share your thoughts with us on this very interesting topic. And without objection, your written statements in full will be made a part of the record.
You will each be recognized for 5 minutes in turn. I want to remind you that I will try to enforce the 5-minute rule. And we will begin with you, Mr. Emerson.
STATEMENT OF STEVEN EMERSON, EXECUTIVE DIRECTOR, THE INVESTIGATIVE PROJECT
Mr. EMERSON. Thank you very much. I would like to ask that the chart that was prepared in the testimony on page 3 be also introduced into the record which I think provides a very good display of the worldwide Al Qaeda network through the use of charities, front groups, websites, human rights groups. It's on page 3 of the testimony. And I think the degree to which the Al Qaeda, as well as other organizational networks connected to terrorism, have been able to enrich their coffers as well as fund the organizations' movements worldwide based on the legitimate institutions goes to the heart of the problem that underlay the ability of terrorists to hide under the radar screen and to execute their horrific atrocity on 9/11.
I will say this. I am not a member of the Government. I operate as a terrorism investigator and analyst. I operate an institution that collects material documents and intelligence on radical Middle Eastern and Islamic terrorist organizations and their infrastructure. We have obviously been working very diligently since 9/11 to find out exactly how these organizations have been able to fund terrorist acts. Primarily, I think we have come to the conclusion, at least tentativelyand I will say this. I think Government agents and officials in various agencies deserve a great deal of credit for the very hard work, the tireless work that they have engaged in since 9/11 in terms of trying to play catch-up against a terrorist entity that is very elusive, very secretive, and often disguises their financing in clandestine ways.
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Without going into the macro detail as outlined in the testimony, the basic paradigm by which Al Qaeda has been able to enrich its coffers as well as fund its activities, not just Al Qaeda, but also Hamas, Hizballah, the Islamic Jihad and other terrorist groups, have been primarily through five or six different conduits over the last 10 years.
One is the use of charitable organizations, non-profits, some of them which are actual tax deductible organizations in the United States, which have become conduits for the movement of people, the transfer of assets and actual movement of actual terrorist institutional apparatuses such as passports and other credentials. These charitable conduits have primarily been able to operate because of the fact that they are not investigated. And I think one of the problems that we need to ensure in the future is that the IRS be given more abilities to ensure that the declared charitable aim of these organizations is kept true to what the statements are made and not used falsely.
Number two, there are financial institutions, corporate front companies similar to companies that have been used by organized crime. There is also internet-based funding that has solicited tens of thousands dollars that we have tracked for Jihad-based organizations over the last 5 years. I believe that the ability of terrorist movements, in particular Al Qaeda, but also for Hamas, Hizballah and others, to exploit the freedoms in the United States, also to evade restrictions because of the fact that they are adhering, at least on paper, to the declared aim of what papers they have filed on behalf of their financial institutions goes to the core of why 9/11 needs to have a much greater degree of analytical attention I think focused on the future of how terrorists can raise money.
Page 48 PREV PAGE TOP OF DOC Clearly, transferring money through bank accounts and credit card transactions has been a major vehicle. But I think terrorists have been on the winning end in terms of being able to advance their agenda by basically exploiting the loopholes and the freedoms, the naivete, the generosity of the United States, has included which USAID has unwittingly assisted some radical Islamic charities by giving them actual financial assistance and a platform on the basis of their declarations to USAID.
I see that my time is up, and I ask that the rest of my testimony be submitted. Thank you.
Chairwoman KELLY. All of the written testimony will be submitted in full in the written record. And I appreciate the fact that you are sensitive to the time.
Next we turn to you, Mr. Neubert, and I hope you've had more than a turkey sandwich before you arrived here. That was an interesting piece of testimony you submitted.
STATEMENT OF JEFFREY P. NEUBERT, PRESIDENT AND CEO, THE NEW YORK CLEARING HOUSE ASSOCIATION, L.L.C.
Mr. NEUBERT. Thank you very much, Madam Chairwoman. And, yes, I have. And I thank you and Ranking Member Gutierrez and the rest of the Members of the subcommittee. I am Jeff Neubert of the New York Clearing House. The Clearing House has been in business for nearly 150 years and has been involved in the payment system throughout that entire time.
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We operate electronic payment systems that process more than eight million transactions per day involving about $1.5 trillion U.S. dollars. We also clear and settle paper checks and operate electronic check payment services. And very importantly and germane to today's testimony is the fact that the Clearing House has served as a forum for its members to discuss common interests and to identify and prevent potential problems in the financial sector as well as to deal with financial and other crises. And it seems to me and us that there's never been a problem more urgent, more global than the need to combat international terrorism.
I want to thank you for the opportunity to tell you today about the extraordinary cooperative effort between the financial services community, financial regulators and law enforcement in response to the attacks of September 11th. There have been two principal aspects of this effort. The first was to assure the continued operation of the payment services and the payment infrastructure and the clearing of settlement payments in the immediate aftermath of the attack, and the second was to identify and prevent the funding of terrorists, including the Intercept Forum, which is a team of 34 public and private sector organizations which are working together to find ways to identify, reduce and ultimately eliminate the flow of funds to and from terrorist organizations.
On the first aspect, the critical payment systems continued to operate in large part due to the public and private sectors banding together in the hours and days immediately following those attacks. And that teamwork and cooperation continues today. Senior officials from both the public and private sectors did and are working together to find ways to eliminate terrorist access to our financial system. And we are committed to do our part. It's part of a broader campaign, and much like the military and political effort, the fight on the financial front is a long-term commitment and it will take time to fully accomplish our mission.
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What emerged in the aftermath of this tragedy is an unprecedented, it seems to me, shared purpose. For those of us in financial services, our unity of purpose with law enforcement and bank regulatory authorities is to prevent individuals and organizations from taking advantage of our financial system.
I was particularly touched by this since my offices are mere blocks from the Trade Center, and I was in my office both during the time of the attack, the implosions, and for 3 days thereafter. But there was no time to think about the disaster at that time other than to make sure all of my employees were safe and sound, which I thank the Lord they were. Rather, I turned my attention, as did my team, to making sure the payment systems continued to operate. We immediately reached out to the Federal Reserve, and with their agreement, we set up a series of conference calls which took place beginning at 10:30 the morning of the 11th and continued throughout the days and evenings of that week to make sure that the fundamental infrastructure of the payment systems not only for banks, but for the securities industry and other financial industries continued to operate. And I'm glad to say that indeed they did.
Perhaps, because of our traditional role and maybe, because of those calls and the relative success we had that first week, the Clearing House was called into service again on October 1st when I received a call from one of our board members asking if we would convene a forum to discuss and determine what financial institutions, working with the public sector could do to eliminate the flow of funds to terrorists and their organizations.
On October 11th, exactly one month after the attack, we convened our first Intercept Forum meeting and we had 100 percent attendance from 34 public and private sector organizations who quickly determined that the mission of our group would be to determine ways to identify and intercept the flow of funds to and from terrorists and their organizations and thereby deter and ultimately eliminate that flow.
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From that mission, we divided into five task groups. Each group is co-chaired by a public and private sector executive and involves public and private sector professionals working on those task groups all with the same mission, to identify and interrupt the flow of funds to terrorists.
I think that this forum is a great example of the public and private sectors' ability to come together, to meet and discuss and take positions and move forward. And from the very first meeting, it was very clear to all who were present that we had a common purpose and that teamwork was the fundamental mantra of our group.
I thank you for your time this afternoon for the opportunity to enter my testimony with you.
Chairwoman KELLY. Thank you very much.
We go now to Mr. Byrne.
STATEMENT OF JOHN J. BYRNE, SENIOR COUNSEL AND COMPLIANCE MANAGER, AMERICAN BANKERS ASSOCIATION
Mr. BYRNE. Madam Chairwoman, Congressman Gutierrez, I am pleased to be here today to present our views on the important work of the industry to address the changes in our country's money laundering laws since the passage of the USA PATRIOT Act.
Page 52 PREV PAGE TOP OF DOC Madam Chairwoman, we pledged in October to support fully efforts to find and prosecute the perpetrators of these heinous acts and their supporters and work with Congress and this subcommittee to enact new tools in the campaign against terrorism. We helped fulfill that pledge with our strong support of the USA PATRIOT Act, and we continue to work closely with the Government to ensure that any new tools created are used effectively to achieve our mutual goal. That goal, of course, is to prevent our Nation's financial system from being used by terrorists.
In my statement today, I'd like to briefly cover several points. First of all, the banking industry strongly supported Title III of the USA PATRIOT Act. As we now enter the regulatory implementation process, it is more important than ever that Congressional intent be followed and that the industry continue to work with the appropriate agencies charged with the anti-terrorism efforts.
The ABA has also prepared, and we are releasing today, a resource guide for our members addressing the importance of a strong and effective account opening procedure. This guide, attached to this testimony for your information, is the product of extensive work and input from both the private and public sectors. As the Treasury Department considers its regulatory obligation to draft a regulation dealing with the verification of identities at the account opening stage, we believe this guide will be of great assistance.
I would like to also direct your attention to a number of the provisions in Title III. A few of these we believe can improve the industry's and the Government's ability to address terrorist activities. Specifically, Section 314, Cooperative Efforts to Deter Money Laundering, requires the Treasury Department to issue regulations to, quote: ''encourage further cooperation'' among financial institutions, their regulatory authorities and law enforcement authorities through the sharing of information on terrorist and money laundering activities. The ABA has long stressed the need for clarity on what information can be shared to protect our institutions from being used unwittingly by criminals.
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The Federal agencies have opined on the ability of banks to share fraud-related information as long as the fact of a Suspicious Activity Report being filed is not disclosed. The industry, however, needs additional guidance, we believe this regulation has the potential of assisting us in that effort.
While we await the Treasury's proposal, the industry remains hopeful that the rule will actually facilitate information and not place unnecessary burdens on the industry. For example, the ''notice'' requirementnotice to Treasury that financial institutions are sharing informationhas the potential of discouraging the transfer of information if it becomes a major unnecessary reporting requirement. The ABA believes that Section 314 should permit the filing of SARs as compliant with the notice provisions. While we realize that there may be mechanical problems with this approach, we would still argue that it should be considered.
Section 355 of the Act is another important provision. This section addresses a long-standing industry concern for preventing criminal activity by permitting depository institutions to provide information in a written employment reference to other institutions concerning the possible involvement in potentially unlawful activity by a current or former employee. The passage of 355 should greatly enhance the industry's ability to protect its institutions and account holders. In order to encourage banks to use this new authority, we are publishing an article on how to implement this in the March-April edition of our Bank Compliance magazine. The author, Robert Serino, the former Deputy Chief Counsel of the Office of the Comptroller of the Currency, points out that Section 355 will protect financial institutions and their employees from liability when they take steps to keep dishonest individuals out of the financial services industry.
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Finally, Section 326 of the Act requires the Secretary to issue regulations to establish minimum procedures for financial institutions to use in verifying the identity of a customer during the account opening process. The ABA as part of its overall effort has been moving to address this issue aggressively, even in advance of the regulatory process. In fact, ABA began a process to address the account opening issue prior to the passage of the Act and obviously before the Notice of Proposed Rulemaking.
We have learned today from our witnesses and in the press that the 9/11 terrorists that utilized financial institutions did so by opening up checking accounts with minimal identification and low dollar amounts. In fact, the identification offered were visas and the potential customers did not possess Social Security numbers. Section 326, when implemented across industry lines, will prevent criminals from using any financial enterprises following these rules.
Madam Chairwoman, I will end here and just say we welcome the opportunity to answer any questions you might have and appreciate the opportunity to present today before the subcommittee.
Chairwoman KELLY. Thank you very much. I appreciate your keeping that condensed and right on time. Thank you so much.
Now we go to Mr. Herrera.
STATEMENT OF JOHN A. HERRERA, VICE PRESIDENT FOR LATINO/HISPANIC AFFAIRS, SELF-HELP CREDIT UNION, ON BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION AND WORLD COUNCIL OF CREDIT UNIONS
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Mr. HERRERA. Buenas tardes, Chairwoman Kelly, Ranking Member Gutierrez, and Members of the subcommittee. Thank you for the opportunity to provide comments on implementation of the USA PATRIOT Act. I am John Herrera, Vice President of Self-Help Credit Union and founding member and current Board Chair of the Latino Community Credit Union with offices in Durham and Charlotte, North Carolina. I appear before you today on behalf of the Credit Union National Association, and the World Council of Credit Unions.
I would like to commend Congress for the swift passage of the PATRIOT Act and assure the subcommittee that credit unions are committed to being a part of the effort to ensure that terrorists and those seeking to abuse our financial markets through money laundering are identified, pursued and punished.
It is also important to recognize that the United States, which is facing its highest level of immigration since the Depression era, has a growing population of unbanked individuals. There are an estimated 28.4 million foreign-born individuals residing in the United States today, comprising over 12.4 percent of our work force. Half of these immigrants are from Latin America. This recent influx of immigrants has been identified by Federal Reserve Board Chairman Alan Greenspan as one of the key reasons for the unprecedented period of economic growth and low inflation during the 1990s.
Ninety percent of the Latino Community Credit Union's 4,000 members are immigrants. Two-thirds of them have never previously had a financial account in their lives. Nationwide, approximately 60 percent of all Latino immigrants are unbanked, compared to 10 percent of the total U.S. population that is unbanked.
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Regarding the PATRIOT Act, credit unions went to work with the Treasury Department and the National Credit Union Administration to support implementing regulations that are consistent with Congressional intent. We certainly appreciate the importance of meeting our compliance responsibilities, particularly after September 11th.
But one concern relates to Section 326, which requires the Treasury Department to study whether foreign nationals must obtain an additional identification number, which will function similarly to a Social Security number or a tax identification number.
Another concern is with the proposal to establish a database to be maintained by the Government to identify foreign nationals seeking to open accounts. In addition to raising privacy concerns, the security goals of these proposals seem to be met by the Office of Foreign Assets Control. Today, credit unions and banks generally open non-interest-bearing accounts for undocumented members and then assist them in obtaining individual tax identification numbers so that they can earn interest and pay taxes. In fact, the World Council has even published a manual on how to serve undocumented individuals which I will offer to place in the record.
If we had to refuse opening a non-interest-bearing account pending the tax ID number, the potential member would revert to the world of less secure cash transactions, often becoming victims of crime and predatory lenders. Again, I want to work with the Treasury and Congress to avoid having a chilling effect on the ability of unbanked individuals to use traditional financial institutions.
Page 57 PREV PAGE TOP OF DOC I would also like to briefly call attention to the issue of money transfers, given their importance in immigrant communities. The Inter-American Development Bank estimates that an additional $3 billion per year could be sent to Latin America by immigrants in the United States if the costs of transmissions were more reasonable.
Our efforts to reach low-income and unbanked individuals, however, will be significantly enhanced with a policy change. We propose that credit unions be permitted to provide check cashing and remittance services to non-members, such as those within the field of membership. CUNA agrees with the National Credit Union Administration, which recently requested such a legislative change in the Federal Credit Union Act of Chairman Oxley. Such a change would provide an excellent opportunity for individuals to access a low-cost, viable alternative to less regulated and higher cost financial intermediaries.
In conclusion, to quote James W. Ziglar, the Immigration Commissioner, ''the events of September 11 were caused by evil, not by immigration.'' Many credit unions throughout the country such as the Latino Community Credit Union are leading the way in ensuring that immigrants have access to affordable financial services. And, as we seek to protect our homeland, it is important to maintain access to our financial services industry.
Thank you for this opportunity to comment, and I would be glad to answer any questions from the subcommittee.
Chairwoman KELLY. Thank you very much.
I have a couple of questions for this panel. One that I think I'd like to ask you, Mr. Byrne, on page 4 of your testimony, you mentionI'm quoting here: ''The Federal agencies have opined on the ability of banks to share fraud related information as long as the fact of a SAR being filed is not disclosed. The industry, however, needs additional guidance, and this regulation has the potential of assisting us in that effort.'' Is this sufficient with the regulation or do you need more?
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Mr. BYRNE. We hope that this will be sufficient. The issue, very briefly, and it happened obviously prior to 9/11, was banks want to share information on check fraud or debit card fraud or something like that between institutions. And it was always unclear to us that if somebody had filed a Suspicious Activity Report, you clearly can't disclose that fact to the other institution. But the agencies have said from time to time that you could share some of the elements in the SARs. You always run the risk that if you tell another bank, here's the check fraud, that you may also innocently disclose the fact that you did something about it and filed a SAR and that potentially there's an issue.
Section 314, we believe, can be the answer. And certainly if it's done carefully and it takes that into consideration, we think we may not need any more. We won't know till the proposal comes out. We're looking very carefully. We've offered some of our suggestions already to the Treasury. But we're looking forward to that as something that will help not only the institution, but will protect the account holders as well as the safety and soundness of the industry.
Chairwoman KELLY. Thank you very much for that clarification. Mr. Emerson, what's your estimate of the total amount of funding that organizations in the United States have raised for Al Qaeda and for other terrorist groups?
Mr. EMERSON. That's a very difficult question to answer precisely because of the nature of the clandestine conduits that are used to funnel money. For example, non-profit charities may account for tens of millions of dollars over the last few years to militant Islamic groups. And the problem is that when you look at the accounts of some of these groups, you won't find a ledger or a cash transaction for weapons or for any type of military component, so that the real burden becomes proving that the organization is serving as a conduit in terms of its worldwide operations.
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Based on what we have looked at in terms of documents from the Government, as well as open source material and other documents we've obtained and information, it is certainly within the realm of probability that Al Qaeda worldwide, because it's hard to compartmentalize the money they raised here or brought in, certainly raised worldwide through their network of front companies in terms of their use of the internet, the use of charitable conduits and false human rights groups, probably on the magnitude of $25 to minimally $50 million every year.
Again, because of the way the structure is set up, it's hard to pinpoint exactly where the money is at any one time. They're multinational and global and can shift monies on a moment's notice, and it's very hard. It's like squeezing air in a balloon in terms of focusing on one, let's say subsidiary of a militant Islamic charity. It can transfer its money immediately to another chapter overseas and eradicate any trace of where the money was.
Chairwoman KELLY. When they raise this money, are they using the U.S. mail? Are they doing it at rallies? Is it coming in in cash? Do they use things like people writing checks, using credit cards and so on? How are they raising this money?
Mr. BYRNE. Well, in fact, all of the above. And one of the problems is also discerning at least when they raise it publicly, let's say at a rally or through the internet or through the mail, whether in fact the donor is really knowingly contributing to a terrorist conduit or whether he's doing it naively or she's doing it naively.
And so you have a situation where they can freely advertise raising money for families in Chechnya or families in, quote: ''Palestine,'' and the donor may not know that it's actually going to fuel Hamas or funding the Al Qaeda movement in Chechnya. On the other hand, at rallies where you hear ''Death to America'' and then they pass the hat around, you can be pretty sure that the monies are going to a nefarious purpose.
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So it's very difficult to get a handle on this. The tax returns of 990s, which are the annual tax returns, provide some indication. But my suspicion is that that represents only a fraction of the amount of monies raised in the United States. And some of those 990s actually show transfers of money from the Middle East into the U.S. where they're parked and laundered, and then they are shipped out in the following year.
Chairwoman KELLY. That takes me to another question with regard to the security that banks and other entities are taking within all of you in financial situations. I'm wondering whether or not you are going back and looking at, as we are in the airline industry, are you looking at who is working for you? Is it possible for people to put someone in your financial institutions, a plant that could disrupt the flow of what you're doing or subvert it in another way? Are you going back and having a look at who's working for you? What kind of implementation have you put, what kind of things have you put in place? And Mr. Byrne, I think really I'm going more at you than check clearing and so on. But, credit unions also have an obligation, I think, to all of us who use them.
Mr. BYRNE. Madam Chairwoman, that's an excellent question. And in fact, there is a partial response in the PATRIOT Act. Section 355 of the Act deals with the issue that we have been grappling with for quite a while, and that is if we dismiss somebody for committing a crime or we believe has committed a crime, but it's such a low dollar amount that nobody prosecutes that individual, they go to an institution down the road, and we can't tell that institution why we dismissed the employee. Section 355 of the PATRIOT Act, which you obviously passed last year gives us some ability to do that, and that obviously will deal with some issues.
Page 61 PREV PAGE TOP OF DOC We also do fingerprint every new employee. The Clearing House is involved in that project as are we. And you run those fingerprints by the FBI, and if you get a match of someone who's been convicted before, that does help weed out some of this. So it does address it to some degree, 355 plus the fingerprint program which many of our banks are engaged in.
Chairwoman KELLY. Do you use biometrics?
Mr. BYRNE. That's a bank-by-bank decision. I think some banks are exploring those possibilities, but I couldn't tell you that it's an industry practice. Some groups are using it, others are still looking at the technology.
Chairwoman KELLY. Thank you very much.
Mr. GUTIERREZ. Thank you very much.
Let me ask Mr. Herrera, how can we comply with the US PATRIOT Act and the regulations and at the same time serve the unbanked, undocumented immigrant community of the United States?
Mr. HERRERA. Congressman Gutierrez, that's a really good question and I think we want to work together on finding the most efficient way to do that. I think we already have at the credit union level a lot of policies and security procedures that are in place to track suspicious movements. Just to give you an example, wire transfers are one of the most popular services that we provide in my credit union. Every time we do a wire transfer overseas, we match that name against the list of OFAC.
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I think it's better to have more information, and we really know, credit unions are uniquely positioned in the sense that we really know our members. We're more intrinsically linked. Our membersI'm sorry. I just lost my train of thought. I believe the systems that we have in place are very efficient. We really have a very special relationship with our members and our board of directors, I mean, we work with volunteer communities. We are membership organizations. From the personnel to the folks that work in credit unions, we really know who our members are. We are limited by fields of membership. So we just don't serve everyone. But I think that uniquely qualifies us to be more aware of any illegal use by potential terrorists.
Mr. GUTIERREZ. I think that it's probably going to be incumbent upon organizations such as yours to come up with those scenarios and structures that is going to allow the undocumented immigrant community to continue to send their remittances back home. I obviously agree with you.
But I think you can see by the tenor of the debate here in Washington, DC. and the declarations that are made by law enforcement officers time and time again, there has been a continuing linkage between terrorists and immigrants, almost to the point where one has become synonymous with the other. That's an unfortunate reality and an untrue reality, but it's one that we continue to see more and more today.
The people that came here to strike against our country on September 11th weren't immigrants. They were terrorists. They didn't come here to contribute, to work, to sweat, to toil, to bring us their creativity and their imagination as other immigrant groups that came before them. They came here with one sole express purpose: To try to destroy this Nation.
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We know that there are millions of immigrants in this country that come here to work and provide vital services. But I think that unless we come up with our own series of safeguards, the day in which I can give someone as a Member of Congress or relate to someone as a Member of Congress and get them their tax identification card and/or their consulate offices issuing some kind of identification form, those days may come to an end, thereby taking an immigrant community that wants to continue toand I don't know that people are going to be in the mood to hear and discuss the debate.
Let's remember that President Fox was here on September 5th and 6th. And I remember when the Democratic and the Republican party couldn't get closer to him. There was a big debate here in Washington, DC. who was the biggest friend of the immigrant community, who had done more, who was going to do more. And then, 5 days later, it was like we washed our hands like Pontius Pilot of the immigrant community and people couldn't run away faster from the immigrant community and the policies that we were addressing at that point.
I'm hopeful that we can engage in a serious debate of what we do with our immigrant community in a serious light, and not one affected adversely by the actions of terrorists on September 11th. Because it's pretty unfair, as you and I both know. This Government, as a member of it, and this Congress, has showed absolutely no will to bring about an effort to deport the 8 million people. There is no funding for their deportation. There is no political will for their deportation. There is no program. And no Member of Congress has ever articulated a manner in which to do that.
So given the absence of will, that means that we are acquiescing to their presence here in this country. We all know it. Every time we bite into a piece of fruit, everyone knows that 60 percent of all of the agriculture industry in this country is undocumented workers, but we eat the apple. We chew on the grapes. Every time we go into a restaurant there's a nice clean plate. ''Oh, it's nice and clean in here and the food is delicious.'' We know who's washing those dishes. Everybody in this room knows who's washing those dishes.
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And we walk into a beautiful building and it's marvelous, so nicely shined, we step on it and we say, ''Oh, let me not slip. This is such a wonderful place.'' Or walk into a hotel room and say, ''Isn't this a wonderfully cleaned room?'' We sleep in the rooms. They even take care of our children and raise our most precious asset, our most precious commodity. What is it? Our children. Every day I see them, they go ''Toma comida. Guidamera.'' Take care of her. Feed her. And then they go off to work.
So we know they're here. Everyone in this room. And I'm happy you brought up Mr. Greenspanand I'll conclude in 15 seconds. Mr. Greenspan says that one of the reasons of our unprecedented economic growth in this Nation during the decade of the 1990s was the immigrant community, because they keep inflation down. Because they work hard and toil at the jobs that most people born in the United States of America, citizens of this country, would never consider doing.
So in the absence of a program to eliminate them, and since they're here, I think we should allow them to continue to have banking services and not confuse one with the other. And I think that's going to be a real challenge for this House and I thank you for your work, Mr. Herrera.
Mr. HERRERA. Thank you, Mr. Gutierrez.
Chairwoman KELLY. Mr. Bachus, welcome. Thank you.
Mr. BACHUS. Mr. Emerson, you're an expert on Osama bin Laden and his operations and Al Qaeda and their financial network around the world. As you well know, he was based in the country of Sudan for the first half of the 1990s, I think he left in 1996. And there has been, many believe, I'll just put it that way, that since his departure in 1996, the Sudan has continued to give financial and logistical and diplomatic support to Osama bin Laden and to Al Qaeda. What's your assessment? Are you in the camp that agrees with that?
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Mr. EMERSON. I definitely believe that the Sudan has continuedbin Laden was in the Sudan from 1991 through 1996, and he left under, quote: ''government pressure'' at that point because of the appropriate pressure, but not enough appropriate pressure placed on by the Clinton Administration. And I know there have been some reports that he was offered up to the United States.
But frankly, the Sudanese government has continued to engage and support international terrorism and involve itself in the operations of Al Qaeda, as evidenced most recently in terms of testimony in open source material by the trial of the embassy bombing defendants from Kenya and Tanzania who describe the role of the Sudan in supporting Al Qaeda.
Now the question could be asked, what has happened since 9/11? Frankly, any superficial effort to sort of please the United States must be contrasted with the continuation of support for other terrorist groups such as Hamas or the Islamic Jihad, the training camps that are in the Sudan today, and the extent to which there has been no accountability for the years of support that the Sudan provided to Al Qaeda and to bin Laden personally.
Mr. BACHUS. It's interesting what you talk about, after September 11th. When our Government was saying that Sudan is a member of the alliance and they're cooperating with us. After they made some of those statements, I actually read in the Wall Street Journal where some of the Sudanese government officials said ''We're going through the motions. We're really not cooperating.''
Page 66 PREV PAGE TOP OF DOC I very much suspect any so-called cooperation we're getting with Sudan. Do you think it's real in any way?
Mr. EMERSON. I think that there is, you know, it's an illusory type of cooperation. On the one hand, they may trumpet a certain amount of public statements or public acts. On the other hand, there is no doubt that Al Qaeda terrorists operate and have used Sudanese passports and continue to use them. And Sudanese financial institutions have been directly involved in the support of Al Qaeda. And it was only because the U.S. Government froze the assets of some of those groups, institutions, that those monies were not available. It was not because of the Sudan freezing the assets of those groups after 9/11.
Mr. BACHUS. You know, there are certain financial institutions that have been linked with Osama bin Laden, and two of those are in Sudan. That's Taba Investments and Al-Shamal.
Mr. EMERSON. Al-Shamal Bank. Exactly.
Mr. BACHUS. Al-Shamal Bank. Number one, what role does Taba Investments play in the Osama bin Laden financial network? And number two, I know Al-Shamalis that how you pronounce it?
Mr. EMERSON. Yes, sir.
Mr. BACHUS. They wired $250,000 to an Osama bin Laden operative in Texas back in what, 1993? And they bought a plane for Osama bin Laden. Can you update us on those two financial institutions? And also, to your knowledge, does Al-Shamal Bank maintain any correspondent accounts, either directly or indirectly, with any U.S. financial institution?
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Mr. EMERSON. Let me just take the last question. I'm not familiar with whether they maintain any corresponding accounts. As far as Al-Shamal, as well as Taba Investments, they were direct bin Laden financially owned acquisitions. He was the largest shareholder.
Mr. BACHUS. Yes, he owned it actually, didn't he?
Mr. EMERSON. Right. Although there were other shareholders, he directly controlled both institutions. And they were used to basically provide wire transfers and liquidity to the bin Laden empire, which consisted of more thanI'm looking here at the chart that we assembledthe minimum of a dozen financial institutions and another one-and-a-half dozen companies worldwide that generated, quote: ''legitimate profit,'' but were serving as a vehicle basically for terrorism.
As far as what the current status is, I will have to get back to you about what the exact current status is in the last 5 months about Shamal and Taba Investments. But I can assure you that up until 9/11, they were very active. And again, it was only because of the Executive Orders issued by the President that their financial operations were interrupted. It was not because of any unilateral action by the Sudanese government.
Mr. BACHUS. And I'll just close by saying, you know, the Sudanese government since 9/11 has actually strafed people in the south of the Sudan when they were picking up food drops. They continue to say that they're waging Jihad against the people of the Christian and other faiths in the south of the Sudan.
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Mr. EMERSON. The black minority, the Christian black minority has been subjected to what human rights organizations called genocide. And they've killed tens of thousands. And that has continued. That has not stopped at all since 9/11.
Mr. BACHUS. So it's hard for me to believe that we have a comfortable alliance with people that are doing what we witnessed on September 11. Thank you.
Chairwoman KELLY. Thank you very much, Mr. Bachus. I don't believe there's any more questions from the subcommittee, and so the Chair will note that Members may have additional questions of this panel as well, which they may wish to submit in writing. Without objection, the hearing record is going to remain open for 30 days for Members to submit those written questions to these witnesses and to place their responses in the record.
This panel is excused, and we are very grateful for your testimony on a very interesting topic. Thank you very much. We appreciate your time. The hearing is adjourned.
[Whereupon, at 4:24 p.m., the hearing was adjourned.]