SPEAKERS CONTENTS INSERTS
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Thursday, September 30, 2004
U.S. House of Representatives,
Subcommittee on Domestic and
International Monetary Policy and
Subcommittee on Oversight and
Committee on Financial Services,
The subcommittees met, pursuant to call, at 10:04 a.m., in Room 2128, Rayburn House Office Building, Hon. Peter T. King [chairman of the Subcommittee on Domestic and International Monetary Policy] presiding.
Present for the Subcommittee on Domestic and International Monetary Policy: Representatives King, Kelly, Biggert, Paul, Maloney, Gutierrez and Inslee.
Present for the Subcommittee on Oversight and Investigations: Kelly, Paul, Gutierrez, and Inslee.
Chairman KING. [Presiding.] Good morning. This joint hearing of the Subcommittee on Domestic and International Monetary Policy, Trade and Technology, and the Subcommittee on Oversight will come to order. Without objection, all opening statements will be made a part of the record.
The Subcommittee on Domestic and International Monetary Policy and the Subcommittee on Oversight chaired by my colleague from New York, Mrs. Kelly, meet jointly today to receive testimony from Treasury and State regarding their efforts in the global fight against terrorist financing.
Page 2 PREV PAGE TOP OF DOC We are fortunate to have the Honorable Juan Zarate, Assistant Secretary for Terrorist Financing from Treasury, and the Honorable Tony Wayne, with whom I shared a plane ride back once from Northern Ireland, very pleasant, Assistant Secretary for Economic and Business Affairs at the State Department here with us today.
Mrs. Maloney and I have agreed to have our opening statements made part of the record.
I will ask Mrs. Kelly if she would like to make an opening statement.
Mrs. KELLY. Thank you very much.
I would like to thank my colleague from New York, Chairman King, for co-chairing this important hearing on our government's efforts to combat international terrorist financing.
Earlier this summer, the Financial Services Committee held a hearing on the findings of the 9/11 Commission report and the commission staff's monograph on terrorist financing. After reviewing both reports, it is clear that we have made much progress in our international efforts to weed out terrorist financing money since 9/11 and the passage of the USA PATRIOT Act.
Today, though, the Administration continues to work with its foreign counterparts to enhance cross-border information sharing arrangements and to promote stronger anti-terrorist financing regimes in specific countries. In fact, the Administration is currently working within the FATF, the Financial Action Task Force. This is an intergovernmental agency policy body composed of 33 member countries and territories to develop best practice standards for combating terrorist finance.
At the same time, the number of financial intelligence units qualifying for membership in the Egmont Group, an international forum for coordinating global anti-terrorist financing and anti-money-laundering efforts, has grown from 58 in 2001 to 94 today. Finally, the FATF standards are now a permanent part of the financial sector assessment program reviews undertaken by the International Monetary Fund.
Page 3 PREV PAGE TOP OF DOC While the impact of all of these efforts is currently being felt across the world, we must continuously improve our ability to work with the international community to weed out terrorist financing and shut down new and emerging threats. In order to strengthen our government's hand, there are several areas that I would like to explore today, including a Treasury-led certification program and a secondary ban under the USA PATRIOT Act.
Yesterday, the Financial Services Committee passed legislation to implement recommendations of the 9/11 Commission report to ensure that we are protecting the American people. The legislation is a comprehensive response to the monograph on terrorist financing. However, I do believe there are several areas that Congress must explore to encourage cooperation from foreign governments and financial institutions.
The creation of a Treasury-led certification program would acknowledge the vitally important international aspect of our fight against terror finance and ensure that countries are cooperating in these efforts. Under such a proposal, the Treasury Department would be required to report annually to Congress any countries of concern that are not cooperating in anti-terrorist financing efforts and impose sanctions that would withhold some of their bilateral assistance. As the 9/11 Commission staff's monograph on terrorist financing suggests, terror networks rely on a variety of methods for moving and generating financial sustenance, which do not respect national borders.
We have seen that there are countries which do not share our determination and our vigilance to crack these funding systems, who create sanctuaries for terrorists who route their financial lifelines. A certification program would send a clear message to the world that would have to be heeded, because if you do not cooperate in the war against terror, you would lose some of the bilateral assistance that you may receive from the United States.
The other area that I would like to explore today is the potential secondary ban under the USA PATRIOT Act. Under Section 311 of the PATRIOT Act, the government is authorized to impose special measures against countries or financial institutions that are found to be of primary money-laundering concern. Section 311 provides a useful lever when dealing with other nations, but we have found that perhaps there are limits to its usefulness that might be removed to great benefit.
Page 4 PREV PAGE TOP OF DOC It has become evident that if a banking institution does not have a notable correspondent banking relationship with American banks, Section 311 may not necessarily create a powerful incentive, and the kind that we had hoped to have. As such, careful consideration should be given to the concept of a secondary boycott under the PATRIOT Act. Under such a proposal, countries or financial institutions that continue to knowingly deal with entities that we have designated to be of primary money-laundering concern would be subject to the same sanctions.
Not only are the entities which are designated to be of primary money-laundering concern subject to section 311, but so are other entities that would continue to deal with them. In other words, it would be a secondary boycott after the primary boycott. This change to current law would strengthen and lengthen our reach with Section 311, and substantively reinforce the motivation which led to our passage and enactment of the original provision in 2001.
The American people expect nothing less than the highest level of cooperation from foreign government and financial institutions. I look forward to hearing the view of this panel on these and other issues today. I thank the witnesses for their testimony.
[The prepared statement of Hon. Sue W. Kelly can be found on page 35 in the appendix.]
Chairman KING. The gentleman from Illinois.
Mr. GUTIERREZ. Thank you, Chairman King and Chairwoman Kelly for calling this hearing to discuss the international aspects of the 9/11 legislation we marked up yesterday. I believe that the 9/11 legislation we passed out of committee is a significant step in our continuing effort to fight terrorist financing and money laundering.
I want to particularly thank Chairwoman Kelly for our longstanding partnership on these issues, and in particular for her assistance and cosponsorship of a provision that was accepted in yesterday's legislation that will strengthen bank examinations by providing a 1-year cooling-off period for bank examiners before they can work for the bank they supervised.
Page 5 PREV PAGE TOP OF DOC I look forward to the testimony of the witnesses here today, and yield back the balance of my time.
Chairman KING. The gentlelady from Illinois, the Vice Chair of the subcommittee, Mrs. Biggert.
Mrs. BIGGERT. Thank you, Mr. Chairman. I would, in the interest of time, submit my statement for the record.
Chairman KING. Without objection.
I am pleased today to welcome our two witnesses. I would first ask Assistant Secretary Zarate if he would proceed.
Without objection, your written statements will be made a part of the record, and you will be each recognized for a 5-minute summary of your testimony. Thank you.
STATEMENT OF HON. JUAN ZARATE, ASSISTANT SECRETARY FOR TERRORIST FINANCING, DEPARTMENT OF TREASURY
Mr. ZARATE. Thank you, Chairman King, Chairman Kelly. Thank you very much, distinguished members of both subcommittees. Thank you for inviting me here today to talk about our very important efforts, our international efforts to combat terrorist financing. I am honored to be testifying alongside Assistant Secretary Wayne, who has been and continues to be an important partner in our international efforts.
As we all know quite clearly, the terrorist threat we face is not simply an American problem born on September 11. From Madrid to Mombassa, Casablanca to Jakarta, and most recently in Beslan and Moscow, the horrific inhumanity of terrorism knows no bounds of territory, religion or race. The international nature of terrorism is acutely apparent when looking at the global terrorist financing networks that have been used to support al Qaeda and other like-minded terrorist groups.
Whether it is donors in the Gulf or charities in Europe, businesses in East Asia or extortion in South America, terrorist groups have used and continue to use the full spectrum of methods to raise money. Terrorist supporters and facilitators continue to rely on a variety of methods to move money, especially now with the use of couriers. As we have done collectively since September 11, we must attack the sources of funding, follow the financial footprints of terrorist groups and build safeguards in the financial sector worldwide to prevent, deter, and dismantle the terrorist infrastructure.
Page 6 PREV PAGE TOP OF DOC Under the President's leadership, we have forged international cooperation to deal comprehensively with the issue of terrorist financing in, frankly, an unprecedented manner. In our efforts to fight terrorist financing in both the short and long term, we have developed international standards to combat terrorist financing, enhanced greater global capacity, broadened and deepened our own regulatory system, built international systems to share information about suspect networks. We have frozen and seized terrorist-related assets, arrested and isolated key financial intermediaries and donors, and generally improved the international safeguards around the financial system.
The designations of terrorist financiers under the President's Executive Order have not only resulted in the freezing and seizing of over $200 million worldwide, but have served as a catalyst internationally to dealing with concrete issues of concern like the abuse of charities. Though our work on designations, and most recently in using Section 311 to label foreign banks as primary money-laundering concerns, garners much of the public attention, it is perhaps the quiet, long-term structural changes that we have ushered internationally that will have the greatest impact in this ongoing fight.
The Treasury, along with the State Department and others, has helped promote the implementation and enforcement of effective international standards of financial transparency and accountability. This is important because we must do everything to empower foreign governments and the private sector to prevent tainted money from entering the financial system and to make it riskier for terrorists to raise and move money.
This work is perhaps seen most visibly in our leadership in the Financial Action Task Force and work with the other international bodies like the IMF and World Bank. The FATF, which as you know is the international standard-setting body for anti-money-laundering and now counterterrorist financing, has laid out what is required of countries to deal with the changing face of threats to our financial system.
Page 7 PREV PAGE TOP OF DOC Thanks to these efforts, countries have begun to regulate informal banking systems like hawalas, include originator information on cross-border wire transfers, freeze and seize terrorist-related funds, overtly criminalize terrorist financing, and increase vigilance over the nonprofit sector.
There are many examples of progress on all of these fronts around the world. Countries such as those in the Gulf Cooperative Council have taken steps to begin regulation and oversight of charities and donations abroad. Islamic states have moved forward on regulating and harmonizing accounting and oversight principles for Islamic banking. Countries such as the United Arab Emirates have begun the process of regulating alternative remittance systems.
These efforts will be expanded this fall with the establishment of two new FATF-style regional bodies, one in Central Asia and one in the Middle East and North Africa. A major achievement this past year, as Chairwoman Kelly mentioned, was the finalization of the agreement with the IMF and World Bank to make permanent the adoption and use of the FATF standards as part of the Financial Sector Assessment Program. What this means is that the entire world will now be judged against those standards as part of the regular and intensive reviews by those institutions.
As a result of all of these efforts, we have made it harder, costlier and riskier for al Qaeda and other like-minded terrorist groups to raise and move money around the world. We are constricting their financial breathing space and tightening the noose around their network every day.
Our engagement on terrorist financing and money-laundering issues worldwide has really and in real terms framed and clarified the global mission, and that is to disrupt and deter criminal financial activity that threatens our national and international security.
This is now the axiom of the international community and it is so because the U.S. government, largely due to Treasury and State Department efforts, has helped to shape the way the international community thinks about these issues.
Page 8 PREV PAGE TOP OF DOC I thank this committee and Congress for your continued support on these important issues. I look forward to discussing those with you today and working further with you on these matters.
[The prepared statement of Hon. Juan Zarate can be found on page 51 in the appendix.]
Chairman KING. Thank you, Secretary Zarate.
Assistant Secretary Wayne?
STATEMENT OF HON. E. ANTHONY WAYNE, ASSISTANT SECRETARY FOR ECONOMIC AND BUSINESS AFFAIRS, DEPARTMENT OF STATE
Mr. WAYNE. Thank you very much, Mr. Chairman and Madam Chairman and distinguished members. It is a great pleasure to be here with you today, and it is a pleasure to be here with Juan Zarate, who has been an essential partner ever since the fall of 2001, working our way through and learning how to take on and tackle these serious problems of terrorist financing.
The Department of State, as many others, very much commends the recommendations of the 9/11 Commission, as taking forward in important ways our discussions of how to tackle terrorist financing. We also particularly think that the staff monograph on terrorist financing has some very valuable insights that we can draw from.
My written testimony goes through in greater detail what we have accomplished since 9/11 and the very complicated work agenda ahead of us. I would like to focus a little bit on what the Treasury Department and we and others are now facing as we look at where we go from here. What are some of the tradeoffs? What are some of the challenges that we look at ahead?
Page 9 PREV PAGE TOP OF DOC Clearly, the most obvious objective is to cut off the flow of funds to terrorists. The 9/11 Commission report pointed out we were not talking about large amounts of money here. But still, if we can reduce that amount of money and make it harder to use, it means it is likely the smaller the scope of activities that terrorists can plan, the number of attacks they can carry out.
When we publicly freeze funds, we are also, in naming the name of terrorists and their financiers, alerting unwitting donors of what they might be contributing to or what they might be being solicited about. And, we are dissuading other donors who might be tempted to support some of these groups, from actually going ahead and doing that, because the think they will have the chance of being caught and being named.
When we designate either nationally or at the U.N. or bilaterally with others, we have made it more difficult for terrorists to use the financial system. But as we have made it more difficult for them to use that banking system, they have been shifting to other, less reliable and more cumbersome methods, such as cash couriers.
Now, this means that we need to adapt, too, and we have been adapting and shifting our priorities, both nationally and internationally, as they start using more cash couriers, as they look at these alternative remittance systems known in the Middle East as hawalas; as they look to use NGOs and charities more effectively. We need to draw on a variety of tools that we have available to face these new challenges.
This includes technical assistance. In the case of cash couriers, perhaps now to better train customs officials. It means that we need better and different kinds of law enforcement cooperation. It means we need strengthened and more defined international norms and standards. Now, that is a lot of what FATF is dealing with now, as Juan Zarate mentioned. But we need to keep working, both to understand the challenge and to develop the international consensus on the ways to tackle these problems.
Page 10 PREV PAGE TOP OF DOC Another important objective, which the 9/11 Commission points out, is that if you can follow the money, you can get to the terrorists. So we know that this is important to do, and you can do it in designating. Sometimes in designating, you are alerting financial institutions to actually look for and find leads, and they can report that back. But in other cases, we are going to decide it is not best to do something publicly, because you want to avoid alerting the terrorists that you are on their trail.
It is often not just a simple either-or decision here. You are looking at what is the right mix of tools that we want to use in this particular case. In addition to designating and having law enforcement investigations and actions, and collecting more intelligence, we have other things we might want to do. We look at this on a case-by-case basis in our interagency consultations.
Sometimes, we might want to send a U.S. government official and a delegation to a country to privately address what the problems are and what they need to do. Sometimes, we will want to give them a targeted assistance program because we may discover they do not know how to track the money in their banking system. And sometimes, we will look at non-public cooperation between intelligence or law enforcement.
So with this array of tools, we really have a way of going after these problems. That array of tools is possible because we brought together in our own system, as we have learned over the past several years, so many U.S. government agencies that have really broken those barriers down that used to exist between agencies.
So when we get together, we do not just have the State Department and the Treasury there. We have Justice, Homeland Security, Defense, and the law enforcement and intelligence agencies really trying to put into practice the same things that the 9/11 Commission stressed as very important, breaking down those walls and sharing information.
One of the lessons, a very important lesson that I have drawn in my experience in this time is that you really need to choreograph all the agencies effectively. As we have worked this through and looked at it overall, we have come up with a system where the NSC is pulling everybody together and choreographing what we are doing in terrorist finance, as they have done in other cross-cutting national security issues.
Page 11 PREV PAGE TOP OF DOC When we do decide to do something publicly, there is another set of issues that come up that we need to weigh. Here, the State Department does have some important value-added in the process. First, we need to make an effective public case. We need to make sure that when we go forward with something, other governments are going to say ''yes, we agree with you.'' Especially if we go to the U.N., where we have to share this in a declassified way with people. It has to be persuasive.
That often involves very hard tradeoffs, as we are thinking about it. As you know, when we are looking at all source information about a terrorist or a supporter, it is often highly classified. We have to make important tradeoffs because there are good reasons that that information is classified. So as we are going through the pros and cons and the best way to go forward, we try to bring our expertise to bear in the State Department as what will persuade other governments.
We try to use our diplomatic channels to quietly talk with other governments and explain to them what is needed, and then after we have decided to go forward, to get other governments to join us in designating and to support that designation process. Now, each case, of course, that we deal with is unique. We usually mix several of the different tools together as we go forward.
We will use different channels of communication. Often, the State Department and the Treasury Department will send the same message via their channels. This is the same with other agencies, but we do it in a very well coordinated and precise way as we go forward.
We also try to draw on the expertise of our embassies all around the world. We have asked that in every embassy there is a Terrorist Finance Coordinating Officer. It is often the number two person in the embassy, the Deputy Chief of Mission, that can bring together all the different elements of that embassy and give us the best understanding of how we can influence a government: what is going on politically and economically and culturally that we need to know and factor in when we are trying to build cooperation on these issues.
Page 12 PREV PAGE TOP OF DOC We have found there is no off-the-shelf answer to this. It is something that we look at case by case and wrestle through intellectually back here, too, but we get that real value-added of people who know the country as we are doing this.
We also from the State Department work very hard to lead the effort to mobilize the international cooperation that we have, not just bilaterally, but working regionally and multilaterally, whether it is at the U.N. or other places. I was just over last week, and Juan has been several other places, but I was just in Brussels. We put together an interagency team from Treasury and with OFAC coming along, with the Justice Department, with FBI and with my colleagues from the counterterrorism part of the State Department.
We met with over 100 experts from all over the European Union to really talk through the challenges that we face in terrorist financing, and they face, too. And then the day after, we had a more restricted and more classified discussion with the European Union on what we could do to make our cooperation better. We came up with some really interesting ideas.
Chairman KING. Secretary Wayne, sorry to interrupt. Can you sum up?
Mr. WAYNE. I am sorry. I am almost at the end.
Chairman KING. Okay. Thank you.
Mr. WAYNE. Only this much left. I just wanted to say, we did this in part because we know they have different legal systems than we do. They have different rules and regulations, and we need to find those common ways forward that people grappling with these issues can do when they agree on the common purpose and good will get together to work these things out.
In all of this, in fact as we go forward, as the 9/11 Commission says, in every area, and that is certainly true in terrorist finance, we need strong international cooperation. We have to engage with our allies, with our friends, and with others, and improve that cooperation. We have been doing a good job of it. We have to keep doing it. With your support, we look forward to keeping doing that.
Page 13 PREV PAGE TOP OF DOC I will just add, that I think that is very important also, as you talk to your colleagues in parliaments and other places around the world, it can help us immensely for you to pass the message, too, about how important it is to get this right.
Thank you very much.
[The prepared statement of Hon. E. Anthony Wayne can be found on page 37 in the appendix.]
Chairman KING. Thank you both very much for your testimony.
I would like to follow up on something that Secretary Wayne said, but actually address the question to both of you. That is on the choreography involved with the Treasury Department, State Department, Justice Department, Homeland Security, and make the analogy to the intelligence community, where partly as a result of the 9/11 Commission, a consensus is developing that there should be one type or another of a national intelligence director.
We can debate about the exact terms, but there seems to be a consensus that there needs to be greater coordination and centralization.
Do you think the current system that you have, this choreography that you have, is efficient to work? Or can you consider the appointment of a czar just for the purpose of cracking down or coordinating the effort against terrorist financing?
Mr. WAYNE. Let me take the first crack at this. We have learned and adapted since 9/11 and tried to improve. I think we have significantly improved the way we work together with other agencies, the way we share information, and the way we talk through on a case-by-case basis the range of different options that we have available.
We have come up with a system where the National Security Council pulls all the agencies together. The grouping is currently chaired by Fran Townsend, who is also the Homeland Security Adviser. She also chairs the Counterterrorism Security Group, which does the broader counterterrorism work. I know Juan participates there. I do not participate in that group. Mr. Townsend or her deputy chair our PCC, depending on sometimes everybody is not available.
Page 14 PREV PAGE TOP OF DOC We really have worked it out so we get together in a small group of people with all the right clearances and talk through what are the big issues, what are the big targets, what are the right ways to go about it. It works. It is working very well.
Chairman KING. Secretary Zarate?
Mr. ZARATE. Chairman, just to add to what Secretary Wayne has indicated. I think the NSC is in essence serving in the role of the czar, if you will, the coordinator, the master coordinator of these efforts.
Chairman KING. In effect, that is Fran Townsend, right?
Mr. ZARATE. That is right. I think that is an important development for two reasons. One, the campaign against terrorist financing is one part of the larger campaign against terrorism. To divide the two in any real or substantive or bureaucratic way I think does damage to the notion that attacking terrorist financing is part of a strategic approach to dealing with the larger issue of terrorism.
The other potential problem with creating some new figure or new bureaucracy to deal with these things is the issue of terrorist financing is ultimately a cross-cutting issue from a disciplinary standpoint. It is a regulatory issue. It is an administrative function issue. It is a law enforcement issue. It deals with intelligence. It is a diplomatic issue. So it is the full range of national powers and influences and expertise that is really implicated in terms of the effort against terrorist financing.
So I think the way it is constructed now, the way it has worked has worked well. I think the 9/11 Commission and the monograph really signaled that.
Chairman KING. So if I could ask a question which again is more of a value judgment on your part, can you describe generally and specifically to the extent you can the level of intensity of cooperation you are getting from other governments? I mean, are they doing this because they have to, because they really want to? How serious do they see this issue in other governments? Are they just doing it to keep us happy?
Page 15 PREV PAGE TOP OF DOC Mr. WAYNE. Let me start off again. I know Juan will add on this, because we each sort of go to different parts of the world at different times, but we do it in a very coordinated way so we get to work with the same group of countries.
In general, the vast, vast majority of governments want to cooperate. There are a big chunk of governments that do not have the capability to cooperate. We find this particularly in developing countries around the world. Also, there is a difference between wanting to cooperate and having an effective inter-ministerial, or we would call it interagency system that works.
Not surprisingly, in many countries around the world ministries do not talk to each other very often about things that they consider their prerogative. There is a lot of breaking down of barriers that has to go on as it went on in the United States. So what we have been doing in our effort over the past several years, and it varies from country to country, it is hard to really categorize it, it means working very hard with each of our partners.
There are a number of countries where there is no question that they are quite like-minded. We together dwell on trying to figure out the right way to go about it. That was a reflection of what I was doing last week with my colleagues in the European Union. We had 100 people, prosecutors, designators, policy people, who are really trying in their own capitals to grapple with this issue and working on it.
In other places, we have found people very eager to work together. One of the examples, in fact, we shared with the Europeans last week was the results of some training we had done in Latin America with a country that had not had the ability to really track money laundering or terrorist financing. We explained how as we trained people up and they had then used that to find a terrorist financing network. Again, a country with limited capabilities, but with the will to take it on, and it had made a big difference.
Page 16 PREV PAGE TOP OF DOC Mr. ZARATE. Chairman King, just to add briefly to what Secretary Wayne indicated. I think generally my impression and the impression of Treasury officials who have traveled around the world and who meet with their foreign counterparts all the time, including this weekend with the IMF and World Bank meetings where the Secretary and other Treasury officials will be meeting with quite a few finance ministers and central bank governors from around the world, there is the political will to deal with this issue, largely because in particular from the finance ministry perspective, the lack of security and the threat of terrorism affects very tangibly economic development and the security of the world economy, not to mention the physical security and national security of many countries around the world.
So I think that is there, and countries have taken very important steps to put legal structures in place, regulatory structures in place. The challenge that we face, and Secretary Wayne mentioned this in his opening statement, is to get to the point where countries are able to enforce their laws effectively to the point where they are able to take action that we need them to take effectively and efficiently. That, I think, is the greatest challenge for us.
I just returned from Saudi Arabia and the United Arab Emirates, where the change in attitude since 9/11 I think has been dramatic. The level of activity on the issues related to terrorist financing and financial flows is dramatic. The level of cooperation has grown immensely over the past three years.
Chairman KING. My friend from Illinois.
Mr. GUTIERREZ. Thank you very much, Chairman King.
Assistant Secretary Juan Zarate and Anthony Wayne, thank you for coming this morning. I want to thank you for your commitment and your hard work. I can tell every time you come to testify that you are very committed to this, your enthusiasm for your job. I can tell you are two people that wake up in the morning happy to go to work. That is a good thing. I am really excited that you are there doing that work.
Page 17 PREV PAGE TOP OF DOC Let me ask you just a quick couple of questions. How would the certification program affect Treasury's work in convincing other countries to adopt anti-money-laundering and anti-terrorism standards as recommended by the FATF?
Mr. ZARATE. Congressman, it is hard to speculate, but I think it could complicate it. That is in part because the system we have in place in terms of using the FATF to set the standards, using the FATF non-cooperative country and territory list process to encourage cooperation with the FATF. And then perhaps most importantly now, the work with the IFIs, the IMF and the World Bank, to establish the assessment process, to get countries into compliance, is incredibly important.
I think we are at the stage now, and from Treasury's perspective, and I know Tony is of the same mind, we want to and need to keep a country's feet to the fire on all of this, and that is why we spend so much time dealing with our foreign counterparts. That being said, there are better ways of doing that, and subtle ways of doing that which tend to be much more cooperative, and in the end hopefully achieve better results.
I think we have seen that. We have seen that with countries like Russia, for example, in the NCCT process; countries like Egypt and Israel. The NCCT process is the process by which countries have been designated by the international community, by the FATF, for noncompliance with anti-money-laundering standards. So the multilateral approach, the cooperative approach has largely been effective. I think that is something that we need to still utilize.
Mr. GUTIERREZ. The World Bank and the IMF annual meetings are this week. What action items are on the agenda in this particular area?
Mr. ZARATE. One of the things that we mentioned here is the growing concern that we have with respect to the use of cash couriers. Terrorist financing is always on the agenda at these meetings, and through the Secretary, the Deputy Secretary and other Treasury officials, I have a number of meetings set up as well, deal with very specific issues that we want and need countries to address. It is one of the great values of having these meetings here in Washington, in that we can meet with the 180 or so finance ministers and central bank governors from around the world to address these issues.
Page 18 PREV PAGE TOP OF DOC So it is always front and center. It is front and center with the G-7 finance ministers and the G-7 Group has been frankly a political driver on this issue, and they will continue to look at this issue. In the last meeting, the G-7 finance ministers called for not just the G-7 countries, but the rest of the world to start concentrating on the cash courier issue, which frankly has led to some very important developments.
First and foremost is the establishment of international standards with respect to how to deal with this issue, which had previously never been set. We anticipate that that standard will be approved by the FATF in October at the plenary in just a couple of weeks. That also sets forth the possibility for establishing best practices, red flags, greater communication, information sharing.
So all of those things fall into place once there is a political commitment by important countries to set that agenda item forth. That is what has happened in the past. We will continue to reiterate that issue and others at these meetings.
Mr. GUTIERREZ. A quick follow-up question. So as we have shut down their financing, their networks and their banks and done these things, the cash couriers, have we caught any of them? Are we having any success in that particular area?
Mr. ZARATE. Congressman, I can tell you that there has been some success. I cannot speak in this forum about particulars, but that is certainly the case. That is an issue that we raised with our Saudi counterparts, with our Emirate counterparts on our recent trip. I know it is something that Tony and others have raised with our E.U. counterparts. There is a growing concern.
Congressman, I do not want to overstate it, because it certainly is the case that terrorist supporters still use traditional means or more formal means of moving money. I think we have a tendency to overstate the trend. What I indicated in my opening statement is that all means are still being used to raise funds, and certainly we see the collection of vehicles to move money around the world still being used. But it is certainly much harder and much riskier, and I think we are a victim of our own success in the sense that terrorists are now using couriers instead of banks to move money around the world.
Page 19 PREV PAGE TOP OF DOC Mr. GUTIERREZ. Thank you, Secretary Wayne and Secretary Zarate, once again for coming and for the zeal and enthusiasm you bring to your work.
Thank you, Chairman King.
Chairman KING. I thank the gentleman.
Now, the Chair of the Oversight Subcommittee, Mrs. Kelly.
Mrs. KELLY. Thank you.
There was a report in The Wall Street Journal yesterday about an agreement that the Federal Reserve struck with the ABN-Amro bank stemming from indications that the bank was not following our anti-money-laundering laws. It did not ensure that the customers were not foreign shell banks and did not make the due diligence requirements with regard to some of the correspondent accounts.
According to the article, a money laundering expert who reviewed the agreement between the Fed and the ABN-Amro said it was clear from the language of the agreement that when it came to money laundering, ABN-Amro ''had no program. They had just blown off the whole business of serious money laundering controls.''
I understand this is a case primarily involving the Fed, but Treasury clearly holds the responsibility for administering our anti-money-laundering laws. As you know, some members of this committee are concerned that our current anti-money-laundering system needs to be strengthened.
So for the benefit of the committee, Mr. Zarate, could you please detail Treasury's involvement with this situation and tell me when did Treasury become aware of the problem, and specifically when did FinCEN become aware of the problem?
Mr. ZARATE. Chairman Kelly, this is a matter currently before FinCEN, the Financial Crimes Enforcement Network. It is under investigation, so it would be inappropriate for me to comment specifically about the case.
Page 20 PREV PAGE TOP OF DOC Mrs. KELLY. You could not even tell me when FinCEN found out?
Mr. ZARATE. Chairman Kelly, that I can get for you, certainly. I do not have that here with me now, but we can certainly get back to you with the date that we became aware of it. But Chairman Kelly, this points to the larger issue that you have been concerned about, that this committee has been concerned about, and frankly the Secretary and the Deputy Secretary have been concerned about, which is ensuring that our regulatory community is looking very diligently and adroitly at the issue of anti-money-laundering and anti-terrorist financing controls.
This is particularly important post-PATRIOT Act, where there are additional requirements. The regulatory structure has been broadened and deepened, not just for the banks, but also for non-bank financial institutions. This is incredibly important.
Chairman Kelly, as you know, we are in the process of finalizing agreements with the regulatory bodies for the banking sector to ensure that FinCEN is getting appropriate information with respect to substantial violations related to anti-money-laundering controls. I think what we are seeing, Chairman Kelly, is a very real commitment on the part of the regulators to start looking at these issues carefully. I think this is one example of that, and we will continue to work with the regulators very closely on this issue.
Mrs. KELLY. Thank you, but there is a subsequent article in today's Wall Street Journal that indicates that the Fed action came only after the Justice Department asked the Fed to step in. It seems as though the Fed actually noticed problems back in 2002, but did not take any substantive action until the Justice Department took action. Is that true?
Mr. ZARATE. Chairman Kelly, I would have to go back and check to see what the sequence is. Certainly, I cannot speak for the Fed, but we are working very closely with the Federal Reserve now on this issue. We are working very closely with the Justice Department as well, and FinCEN is reviewing the matter with alacrity and with utter seriousness.
Page 21 PREV PAGE TOP OF DOC Mrs. KELLY. Perhaps you would report back to the committee to let us know.
I would like to ask another question. You will recall this year, Mr. Zarate, that earlier the UBS was fined by the Federal Reserve and disciplined by the Swiss banking regulators for failing to comply with certain contracts that were executed between the Swiss bank in its Swiss headquarters and the Federal Reserve for the distribution of U.S. bank notes outside the United States. That is true, right?
Mr. ZARATE. Correct, Madam Chair.
Mrs. KELLY. It is still under investigation by this committee. At the time the Federal Reserve fine was levied, the public notice indicated that the law enforcement investigations were under way. It would appear that any such law enforcement investigations would need to refer to alleged violations of regulations issued by the Treasury Department's OFAC.
So here is my question. Can you confirm whether or not OFAC was investigating UBS for actions associated with its conduct of the ECI business for the Federal Reserve?
Mr. ZARATE. Treasury and OFAC, Madam Chair, are working with the Department of Justice to investigate this matter. Our jurisdiction, as you know, would lie in the activities of U.S. persons involved in the violation of OFAC-related regulations. So that is a matter that we are looking at, and the Department of Justice is looking at as well.
Mrs. KELLY. Is that still under investigation?
Mr. ZARATE. It is still under investigation, Madam Chair.
Mrs. KELLY. I wonder if you would be willing to brief our committee about that as soon as that investigation is finished and you are able to talk about it.
Mr. ZARATE. I would be more than happy to brief, Madam Chair, as appropriate.
Page 22 PREV PAGE TOP OF DOC Mrs. KELLY. I would like to turn to you, Mr. Wayne, and ask you a question. You mentioned that you were, I believe it was you, that you went to Saudi Arabia, or was it Mr. Zarate? What is the news from Saudi Arabia? Because in January of 2003, the United Nations asked that every nation have within 3 months a plan that would be in place to combat terrorist financing. To this date, there are over 100 nations from the United Nations that still have not complied with their own mandate that they get this done.
So I would like to know about Saudi Arabia, because they announced with this great fanfare that they were setting this office up, but they really have not, at least the last time I heard, which was fairly recently. They have not assigned anybody to the office. There was nobody on the payroll to follow what Saudi Arabia was doing to follow the terrorist money. What is the news from Saudi Arabia?
Mr. ZARATE. Madam Chair, with respect to the United Nations reports, that is an issue of concern to the State Department and to us. I was actually just up in New York meeting with Ambassador Munoz from the 1267 Committee to talk in part about the need to have greater international compliance and reporting.
The news from Saudi Arabia, Madam Chair, is generally positive. I will tell you that with respect to the establishment of the financial intelligence unit, they have started to move toward establishing that office. I met the Deputy Director of the FIU who is being assigned. We were given details with respect to how many people would be working in the office, from which departments. We met with the Ministry of Interior to ensure that the FIU was treated as a serious part and a partner of their terrorist financing efforts. So that is an important and interesting development.
With respect to the charities reforms, certainly your concern is our concern as well in that the consolidation of the charities and the way the charities move money abroad is of central concern to us. We have pushed the Saudi government very hard and very clearly to establish that committee and that board to ensure that Saudi money is going to intended good purposes around the world.
Page 23 PREV PAGE TOP OF DOC As it now stands, the Saudis have stopped the flow of money abroad through official charitable channels, meaning all of the committees that they have established for a variety of purposes to send money to crisis regions, has stopped. That being said, we want to see this Charity Commission stood up. We want to see it active.
We also want the Saudis, and we said quite clearly to them again on this trip, see a way of dealing clearly with groups like IIRO and WAMY, which are multinational charitable organizations that are operating out of Saudi Arabia.
So that is front and center on our agenda. We will continue to raise those issues.
Mrs. KELLY. Mr. Zarate, I have one more question. When will the MOUs between Treasury and the banking regulators be finished?
Mr. ZARATE. Madam Chair, I am hoping that those will be completed very soon. By ''very soon,'' I will signal by the end of the week.
Mrs. KELLY. Stuart Levey testified that they would be done in September. So hopefully they will be done and we will be able to be informed by the Treasury that we have those things in place. Is that correct?
Mr. ZARATE. Chairman Kelly, we are going to try to stick to Under Secretary Levey's commitment and we will certainly let you know.
Mrs. KELLY. Thank you very much.
Chairman KING. The Vice Chair of the subcommittee, the gentlelady from Illinois.
Mrs. BIGGERT. Thank you, Mr. Chairman, and thank you, Madam Chairman, to both of you for holding this hearing.
My question is for both of you gentlemen. Yesterday, Chairman King and I introduced an amendment in committee on the 9/11 Implementation Act. It was approved. Our amendment was to ensure that the Treasury Department's role as the lead federal agency in international financial matters is clear, even as the State Department is really seeking I think expansion of its diplomatic capabilities. The text was to ensure that the Secretary of the Treasury is the lead U.S. representative and negotiator to international financial institutions and multilateral financial policymaking bodies.
Page 24 PREV PAGE TOP OF DOC It was our feeling that we must keep our Treasury experts, and in collaboration with the State Department experts, on the frontlines in our dealings with international financial bodies, abroad as well as at home, and that we have consistent financial leadership and a consistent financial message.
Now, having said that, both or your testimonies goes into unprecedented cooperation amongst our government agencies. It appears very much that the two of you collaborate very much. Are we going to have problems? This is out of committee now and it will go to the floor. Are we going to have problems in this area as far as turf wars or do you envision that this is the way that it should be, and that we will keep everybody working together, and this will help to improve the collaboration?
Mr. ZARATE. I think the cooperation to date has been very good, very strong on these efforts. I think what has proven important, and I think Tony would agree with me, is that having Treasury channels of communication, finance ministry to finance ministry, Treasury to central banks, and Treasury to the international financial institutions and various regional bodies, is extremely helpful, in part because those ministries and those bodies tend to be more technical; tend to be focused on the implementation of the important steps that we have been talking about. There is a certain degree of credibility that exists within that world, within the world of the finance ministries, that helps in terms of implementing the standards and the efforts that we want to protect the international financial system.
So I would dare say that there has never been a doubt that Treasury is important internationally. I think the State Department has used us well, and as well we have relied on the State Department and the great work that they do around the world. I do not expect that to change.
One word of caution when talking about potential codification of coordination. There does come a point when coordination does become a buzz word for inaction or calcification of bureaucracy. I think we need to be careful not to over-establish bodies and interagency bureaucracies to coordinate functions, because that ruins in fact part of the flexibility that we have had that has been part of our success to date.
Page 25 PREV PAGE TOP OF DOC Mrs. BIGGERT. Thank you.
Mr. WAYNE. I would just add that, in fact I think the coordination is unprecedented; that it is reflected in a broader degree of coordination because the Treasury Department is now a full member of the National Security Council. What that means is not just on terrorist financing, but when we are dealing with any country around the world, whether we are dealing with Afghanistan or Iraq or Africa, you have the Treasury Department right there with the State Department and Defense, and chaired by the National Security Council, bringing this all together.
That has created an atmosphere that has made it much easier for us to coordinate on these specific issues. We do not send a message out on terrorist financing that is not cleared by the Treasury Department. They do not send a message out that we have not talked about, to get the message consistent. Because otherwise, we are undermining ourselves, if we are sending different messages. We recognize that we each have different channels that are very important.
It is clear that the Treasury Department and the Secretary of Treasury has the lead with the international financial institutions. That works out extremely well.
Mrs. BIGGERT. Thank you. I commend you.
Mr. Zarate, regarding the recent security threats announced at the end of July, I note that there were two categories of financial institutions that were identified. One was the private U.S. firms and the other was the international financial institutions. What role did the U.S. Treasury Department through the executive directors that sit on the boards at the IMF and the World Bank, work with those international financial institutions to respond to the security alerts?
Mr. ZARATE. We have a very important office within Treasury that deals with critical infrastructure protection led by Assistant Secretary Wayne Abernathy. Wayne and others in his shop deal very closely with the Department of Homeland Security, as well as with our EDs to ensure the safety and security of the financial institutions, to ensure that all the measures are being taken to ensure their physical security, as well as the critical infrastructure security of these institutions.
Page 26 PREV PAGE TOP OF DOC I will say that Wayne and his people within Treasury were seminal partners in terms of helping to bridge the divide with the financial institutions as the information came out. I will say, and I have said this to the private sector, the threat warnings to the financial institutions makes very tangible the fact that these institutions are literally on the front line in the war against terrorism and terrorist financing.
It is important for us to do our best to inform them and to keep them as safe as possible, because they are important parts of the economic security of our country and of the world.
Mrs. BIGGERT. Thank you.
I yield back, Madam Chairman.
Mrs. KELLY. [Presiding.] Thank you very much.
Mr. PAUL. Thank you, Madam Chairman.
A while back in our history, we had a lot more respect for the Fourth Amendment than we do today. I see that we have had a gradual erosion of that principle that our persons, our papers and the effects are to be secure. Then there was another blow to that principle with legislation following 9/11 out of the legitimate fears that this country experienced.
Yesterday, there was a court ruling dealing with the privacy issue. A federal court ruled that wholesale or blanket searching of records of customers on the Internet and on telephone records violated the Fourth Amendment, although we in the Congress said such searches were perfectly all right. So there is a contest going on now. Those in the courts who still believe a little bit in the Fourth Amendment and those in the Congress who seem not to care too much.
Mr. Wayne, you mentioned, and this is a statement I agree with, that if you follow the money, you get to the terrorists. That sounds like a pretty good idea. But I have problems with following the money of 200 million Americans while the terrorists are getting lost in the maze, and this is more or less what the 9/11 Commission said. They said that there was too much material that was never looked at. Even if the new regulations had been in effect, it would not have helped catch the al Qaeda, which is the real issue today, how can we prevent what happened.
Page 27 PREV PAGE TOP OF DOC They said they did not even use the banking system enough that they would have been detected. So there is a question about the impracticality of following everybody's money and then there is also the constitutional question about whether or not we should be doing it. You do not write the laws. You are trying to enforce them. There is a bit of a discussion going on between the courts and the Congress right now.
But my question is this. Do you think, under today's circumstances that you are very much involved in, in trying to protect our country, do you think it is necessary for us in the Congress to give up a little bit of our freedoms, to sacrifice liberty, to be more casual about the privacy issue in order to be more secure? Is this a legitimate sacrifice?
Mr. ZARATE. Congressman, I leave that balancing act to Congress and to you. Our job, as you indicated, is to implement the law and to enforce it to the best of our ability, to safeguard the U.S. economy, the American people, and our financial system. You have raised a number of issues. I cannot speak to the case that you referred to. I am not familiar with it and I leave it to the Department of Justice to react to it.
I would like to mention, though, with respect to the 9/11 Commission and the monograph, two points. First, I think what has changed since 9/11 is a greater awareness in the financial community, not just the banking community, but also the non-bank financial institutions, with respect to potential activity related to terrorism. There is greater awareness.
We have provided more guidance, and frankly we have used the powers you provide in section 314(a) to get more specific information out to the financial community in real time, which has led to very important leads in the money laundering and terrorist financing field.
Mr. PAUL. May I ask you a question along those lines? How much would you be handicapped if you were always required to get the proper search warrant, rather than being able to look at the records rather casually? Would that put a big handicap into your ability to do the job you are trying to do?
Page 28 PREV PAGE TOP OF DOC Mr. ZARATE. Congressman, if you are talking about requiring a search warrant, for example, before the filing of a suspicious activity report or before sending out lead information to the private sector via section 314(a), it would be a major handicap. And it would affect greatly the work of law enforcement, not just in tracking domestically potential terrorists and terrorist financiers, but also internationally.
Part of the challenge, and I think this is one of the conclusions from the 9/11 Commission, is that prior to 9/11 we were not doing a good job of sharing information, of putting the dots together. And I think the more that we restrict our ability to share information, the more we are at risk of not putting those dots together.
I would like to just indicate one of the issues raised by the 9/11 monograph was an issue with respect to our blocking of assets. As Secretary Wayne mentioned, designation of individuals and the freezing of assets in a preventive way is an incredibly important tool and an important part of what we do. In each instance in which that authority has been used and challenged in court, the U.S. government and the Treasury Department have won in court, at the District Court level and as well at the appellate court level.
So I want to mention that for the record because there is often a discussion of civil rights in the context of what we do. And I wanted to indicate that the Congress has appropriately given us powers that fall within the constructs of the Constitution and are exercised, frankly, judiciously within the law.
Mrs. KELLY. Thank you, Mr. Paul.
Mr. INSLEE. Thank you very much.
I wanted to ask you about some information I received, to see if it is accurate or not. I was looking at a letter contained in a piece called Money Laundering Alert by Samuel Bodman. And that revealed that OFAC as of May 2004 had an average of 21.43 employees dedicated to enforcing Cuba country problems, that is broadly speaking; an average of 16 employees to track Iraqi terrorists and locate the missing assets of Saddam Hussein; and 16 to monitor al Qaeda.
Page 29 PREV PAGE TOP OF DOC Are those numbers accurate, roughly accurate, grossly distorted?
Mr. ZARATE. Congressman, there has been a bit of a distortion, I think, in the media with respect to the numbers and the commitment within OFAC and within Treasury to deal with terrorist financing.
The majority of the assets within OFAC analytically have been used to track terrorist financing, not just al Qaeda, but other like-minded terrorist groups around the world like Jemaah Islamiyah, North African groups, et cetera. So that has been part of our effort.
We have also worked and been an important part, along with our State Department colleagues, in finding and repatriating Iraqi assets around the world. Ambassador Joe Saloom from Tony's office has been an important part of that, and we have repatriated over $2.7 billion to the Iraqi people, due in large part to the work of folks at OFAC.
Congressman Inslee, I do want to note, and I think it is a bit unfair to OFAC and to the Treasury Department when some of these media articles come out. OFAC is the enforcement-sanction body of the U.S. government. It enforces 29 different sanctions that are important to the U.S. government for a variety of purposes. Cuba is one of those, but we also have others, Zimbabwe, Syria, others that are of import to us. That is a part of our national security. It is part of our mandate and it is important for us to do that work as well.
Mr. INSLEE. I appreciate all that work, but the ratio of the Americans killed by al Qaeda to the Americans killed by Fidel in the last 10 years is 2,900 to 1. The ratio of your inspectors chasing Fidel and people going down to Cuba is about 1.3 to 1. Those ratios to me and my constituents make no sense whatsoever, given the emergent nature we are in, where Osama bin Laden is on the loose, and you are not chasing him with the assets that we are paying you to chase him with.
You are out there fooling around with what is going on with tourists going to Cuba, rather than chasing the guy that killed 3,000 Americans. I am just telling you from one district of this country, and I only have one district I represent, that is a gross mis-application of resources.
Page 30 PREV PAGE TOP OF DOC Now, it seems to me, I understand you have statutory obligations, but it seems to me in the nature of the threat we face today, you would have a ratio of about 3,000 to 1 chasing down al Qaeda assets, rather than people who want to go play ping-pong in Cuba. Now, tell me why my assessment is not accurate?
Mr. ZARATE. Chairman, first of all I would hope that
Mr. INSLEE. I am not the Chairman. I am just a minor member of the committee.
Mr. ZARATE. Excuse me, Congressman. With respect to the numbers, I would hope that you and others would certainly go back to your constituents with the real numbers and the real fact that we are devoting not just within OFAC, but within FinCEN, within our office, within the State Department and other parts of the U.S. government, considerable resources and an overabundance of resources to do precisely what you and everyone else wants to do.
Mr. INSLEE. Could I stop you just for a second, because I want to make sure that I understand your answer. The best numbers that I have seen are from this May 4 letter that said there are 21.43 employees dedicated to enforcing Cuba sanctions and 16 to monitoring al Qaeda. Now, if those numbers are not accurate, could you give me the numbers, please? Could you give me the number of people chasing Cuban tourists to the number chasing Osama bin Laden's money? Could you give me some numbers?
Mr. ZARATE. Congressman, I would be very happy to get you the exact numbers. Those numbers fluctuate in large part because we switch and rotate analysts to deal with emerging issues, for example emerging terrorist financing concerns in East Asia or North Africa. But we would be very happy to get that back to you.
Congressman, I do want to indicate, though, that with respect to the Cuba program, the bulk of those resources are used to license individuals who want to go down to travel, to do business in Cuba. So a part of the function is not as you construe a function of tracking Castro's assets, but in fact providing a service to the American people to allow the kind of interchange that Congress and the Administration wants and needs us to do. So I think that construal is a bit unfair.
Page 31 PREV PAGE TOP OF DOC Mr. INSLEE. Let me just give you two comments. One, I will not be satisfied, and more importantly I do not think my constituents will be satisfied, until the ratio of those numbers are about nine to one at least, number one. And number two, you could help us by removing some of the necessity, by removing some of these travel restrictions to Cuba, so instead of hiring people in bureaucracies to push paper to go to Cuba, we can change our policy and we can direct the national resources of this country to protecting people from getting killed by al Qaeda.
I am just telling you that is a much higher priority at this moment in our national life. I encourage you to think about that issue, and the next time we talk maybe you will have a better ratio and I will feel a little more secure.
Mrs. KELLY. Thank you, Mr. Inslee.
Gentlemen, I understand from the reading and the research we have done that privacy laws of various countries seem to prevent some of them from scanning records to find out whether or not shell companies are there and whether or not those companies are hiding Saddam's assets. I would like to ask both of you what progress we have made in our ability to scan for shell companies and to overcome the obstacles and to help other countries do this as well.
You can take it, whichever want to pick that up.
Mr. ZARATE. Chairman Kelly, we have had quite a bit of progress on this front. As you are aware, we have designated well over 200 Iraqi parastatals, as well as front companies that were used by Saddam as part of his economic web around the world, in some instances to try to procure weapons systems; in some cases to try to move and hide money. So we have had a good deal of success.
One of those companies, Al-Wasel and Babel, we designated and it has been shut down, according to the United Arab Emirates, part of the reason I wanted to visit to make sure that had happened. So that has been important. That has been an incredibly helpful step.
Page 32 PREV PAGE TOP OF DOC What we are still struggling with, as you have indicated, are instances where certain countries have not been as cooperative or as forthcoming, and we have tried to deal with that on a bilateral basis diplomatically and otherwise to try to get access to information and to get action out of these countries.
Mrs. KELLY. Mr. Wayne, do you have anything to add to that?
Mr. WAYNE. Only that this issue and other privacy issues do come up as we are working through a number of the terrorist financing questions. Of course, it is most easy to make progress on this when we can get a consensus galvanized unfortunately by something very serious and sad that happened, or even the new possibilities in the case of Iraq where we are able to have a United Nations consensus that yes, we should be tracking down Saddam's assets, which thus allowed committed countries around the world to cooperate with us in this effort.
Similarly, just to take it on the side of al Qaeda, we have in the U.N. the 1267 Committee list which commits people to act on al Qaeda-related groups or Taliban-related groups. When you get into the other terrorist groups, you have to work on a bilateral or a regional basis to build consensus, and sometimes you run into these privacy issues.
For example, as we are were talking with the European experts last week and others, they were talking of some of this tradeoff in their own legal system, not on the shell companies so much, but on what is the basis on which you should freeze money. Should it be at a standard that we and some other countries have of a preventive basis of good reason to believe? Or do you need the same level of going to a criminal prosecution?
That is, in part, why we needed to get people in those cases together to talk this through, because we are working from different standards. That is not precisely on your shell company issue, but it is an issue that cuts across some of the most difficult issues we face.
Page 33 PREV PAGE TOP OF DOC Mrs. KELLY. Obviously, the origin of my question is the Oil-for-Food. The GAO report indicated that in May that there was some difficulty here with regard to the foreign companies's laws. I am hopeful that you are working to try to break that apart. We need, if anything, to talk about a serious and sad situation. The Oil-for-Food scam is a serious and sad situation, especially for those poor people in Iraq. I feel very strongly that our government needs to help other countries focus on the problems that we have.
I also wanted to ask you another question, and that is that the IMF and the World Bank, we know that they are providing technical assistance to member countries to strengthen the financial regulatory and supervisory frameworks. I would like to know what type of technical assistance is being provided, and are you going to provide any follow-up for it?
Mr. ZARATE. Chairman Kelly, the IMF and World Bank certainly are a part of that process of providing technical assistance, but there are also other bodies providing technical assistance largely, frankly, on a bilateral basis and in some cases a regional or multilateral basis. For example, the Group of 8 countries has a group called the Counterterrorism Assessment Group which is charged with doing precisely this, to provide technical assistance in the area of terrorist financing, as well as other counterterrorism areas.
Specifically with respect to the IMF and the World Bank, those institutions provide technical expertise with respect to the types of financial controls that should be in place in the banking system, the types of regulations and controls that should be in place in non-bank financial institutions, and frankly now with the marriage with the FATF standards, how best to put into practice the FATF standards that are required of all countries around the world.
So it is putting in place the systems that make sense and using the technical expertise that both of those bodies are building up.
Mrs. KELLY. Mr. Zarate, beyond the Group of 8, who else is involved in this?
Page 34 PREV PAGE TOP OF DOC Mr. ZARATE. I will leave part of this to Tony, because certainly the United Nations is a part of this. The 1373 Committee has a part of its mandate to marry both those in need of assistance with those countries willing to provide assistance. They have been trying their best to do that.
I will allow Tony to editorialize as to whether or not it has been effective. But in any event, there have been multiple attempts to do this. The FATF itself has done quite a bit in terms of assessments and providing some technical expertise to countries around the world.
Mrs. KELLY. Thank you.
Mr. WAYNE. I will just add that within the U.S. government we have also made a concerted effort to have a coordinated approach to the kind of technical assistance we provide in this area. It comes from a wide range of departments, not just the State Department and the Treasury Department. We bring about 20 offices together on a regular basis to coordinate and plan where we are providing that technical assistance.
In addition, as Juan Zarate has said, we coordinate bilaterally very closely with the United Kingdom, with France, with Australia, with Spain. In the G-8, as he said, we have put together now a comparative listing of where we are all giving assistance. Just last week at the E.U., they asked to start coordinating because they are starting a new program which they did not have before to effectively provide technical assistance in the area of terrorist financing with us and others.
We have also worked in APEC and in the OAS to start this, but in a number of areas it is a nascent process. Overall, there is no question that the need is greater than the current provision of technical assistance. Part of that is money and part of it is finding the right kind of specialist to go out to these places and actually train people.
Page 35 PREV PAGE TOP OF DOC So we are working at expanding this circle and getting the circle talking and communicating with itself, and within that circle, but there is no question that there is more to do.
Mrs. KELLY. I want to go back to that question. Do you intend to stay with this and follow up with regard to making sure the IMF and the World Bank are in fact doing it? Forgive me for being slightly cynical, but when we have the United Nations promulgating rules and regulations for themselves, and then nobody living up to what they said; with 100 nations that have not even put anything in place; haven't even reported back to the United Nations, I am a little cynical about the fact that this work is actually going to get done. I think it may need a follow-up. Will you do that?
Mr. ZARATE. Chairman Kelly, absolutely. We work very closely on a daily basis. There are very skilled folks in the office of international affairs and the people in our office work very closely with the IMF and the World Bank, and we know that the institutions are not only committed to it from a political perspective, but have started to build the technical expertise to actually do this, which is important. We work closely with those experts. We know them personally. We talk to them on a daily basis, so that is important.
I would like to mention, Chairman Kelly, that in terms of dealing with other countries, and this goes to your Iraq question as well, we follow up very aggressively. The Director of my office, Danny Glaser, just came back from Syria and Jordan to deal with some very serious concerns we have, in particular with the Commercial Bank of Syria which was given the section 311 designation. He is the head of our U.S. delegation to the FATF and has done a phenomenal job.
We are also looking at creative ways of enlisting the private sector in terms of building capacity. We have something called the Buddy Bank Initiative, where we are working on a pilot basis to try to enlist the more developed banks to help lesser developed countries and banks to build up the capacity in their private sector to deal with these issues.
Page 36 PREV PAGE TOP OF DOC So we are dealing aggressively with all of these issues. We are trying to think creatively, and we are trying to use all of the powers and resources at our disposal.
Mrs. KELLY. Thank you very much.
Ms. Biggert, did you have another question?
Mrs. BIGGERT. Just a very brief question. Can you identify the next main areas for attention within the FATF in light of the attention that the G-7 is devoting to informal value transfer networks? And does this create a tension within G-8's other initiative to lower costs and make more accessible remittance worldwide?
Mr. ZARATE. That is a very good question. With respect to next challenges, I think in part dealing with the courier issue is very important. As we have seen, many countries around the world have not necessarily thought about this issue, have not created systems internally to coordinate their customs service with their intelligence services with their banking regulators. So that is very important and will be a focus of the FATF in October, and will be a focus of the FATF-style regional bodies around the world.
I think the larger issue for all of us, and I think this is why the arrangement with the IMF and the World Bank is so important, is the implementation and enforcement of all of these standards. With respect to alternative remittance systems and money remitters, that means bringing to the light of day a sector that frankly has been unregulated to date, and making sure that there is transparency and accountability, and that we do so in a way that balances precisely the concerns that you have mentioned, which is not driving these services underground, ensuring that they are accessible services to populations, especially expatriate populations.
Frankly the effort to bring those populations into the formal financial sector is part and parcel of our efforts to deal with the issue of unregulated money flows throughout the world. So you have hit on something very important to us. It is something we are working on very closely with some regional banks, as well as countries around the world. That is certainly an important priority for us moving forward.
Page 37 PREV PAGE TOP OF DOC Mr. WAYNE. If I could just add, Congresswoman, you have hit on a very important point here because I think we all remember that one of the recommendations of the 9/11 Commission was that we need to focus on creating jobs and prosperity and possibilities for young people around the world.
Remittances are a very legitimate source of sending money home from workers who are overseas. So you have to make that both legitimate and inexpensive for people to do. That is one of the challenges. That is why there are several different approaches to this going on around the world. The United Arab Emirates has taken one approach, which is to have a light kind of licensing system for hawaladars in their area, but one that brings them into the formal system. In Pakistan, they have taken another approach which is basically to make the banks cheaper and to have everything go through the banks.
Part of this is experimenting, and we are watching what works best, but they both recognize that it is legitimate to send the money back home. In fact, as you correctly pointed out in the G-8, they pointed out how important it is to get remittances going home to countries and creating jobs and into that capital that can be invested and help new businesses back home. So we are trying to balance this as we go forward. We are trying to keep in mind, as we create the Millennium Challenge Account and other development effects, that this work is really part of our battle against terrorism; that development is a pillar of our national security strategy.
Mrs. BIGGERT. Thank you very much.
I yield back.
Mrs. KELLY. Thank you.
Mr. Inslee, do you have another question?
Mr. INSLEE. Thank you very much.
I wanted to follow up on what we were talking about earlier about trying to figure out where this policy originated regarding use of resources in Cuba relative to al Qaeda. I just tumbled on something kind of interesting. In 2003, this is according to a report released to the Senate Committee on Finance, that OFAC at a cost of $3 million had an average of 21 full-time employees working on Cuba sanctions, triple the number of employees it had in the program at the beginning of 2002.
Page 38 PREV PAGE TOP OF DOC In the same report, OFAC revealed that it employed no Arabic interpreters and that it had only two employees who spoke Arabic ''at a level of moderate proficiency.'' This is apparently the response in October 2003, President Bush began an initiative to further strengthen the enforcement of the Cuba travel ban by instructing the Department of Homeland Security to ''increase inspections of travelers and shipments to and from Cuba.''
Shortly after that, the DHS issued a press release saying that it will ''step up enforcement of travel restrictions to Cuba that are already in place, using intelligence and investigative resources to identify travelers or businesses engaged in activities that circumvent the embargo.''
From that, it appears to me that the President of the United States is the one responsible for making a decision that instead of putting additional resources into the hunt for al Qaeda and its money, he has taken the resources that could have gone there and put it in this effort in Cuba. Is that generally an accurate assessment on who is responsible for this prioritization?
Mr. ZARATE. Congressman, the President and this Administration, and in particular the Secretary, have committed to and have been committed to doing everything possible to disrupt and dismantle the financial infrastructure of al Qaeda and other like-minded terrorist groups. We have done that. I think the 9/11 Commission report signals that, and we have done a very good job.
I think focusing on the numbers in the way that you are tends to distort the level of commitment that exists within the U.S. government to this effort. Again as I mentioned, OFAC is just one part, a very important part, but just one part of our effort to attack terrorist financing. The analysts do phenomenal work, but their work is complementary to the work being done by the intelligence services, by law enforcement, by our diplomats, by our policymakers, by others at FinCEN.
Page 39 PREV PAGE TOP OF DOC So to take that in isolation and to use that as a representation of the level of commitment of this Administration or of the Secretary of the Treasury to combating terrorist financing is both wrong and misleading.
Mr. INSLEE. I appreciate what you had to say, but I do not think you answered my question. I wanted to ask who is responsible for making this decision. As best as I can tell, it is the President of the United States who directed you to increase your spending involving Cuba sanctions and Cuba tourism policies. Instead of taking the money that went into that Cuba effort, and shifting it to the hunt for al Qaeda, the President decided to put it into Cuba.
Now, if it was not the President who decided to do that, who did it? Could you give me a name? Who made this decision?
Mr. ZARATE. Congressman, the President established the Commission for Assistance to Establish a Free Cuba, which was an interagency commission led by the State Department to establish policies to promote both in the short term and the long term the ability to bring peace and prosperity and freedom to the Cuban people. The reality is that we can walk and chew gum at the same time.
As I mentioned, we have 29 sanctions programs that we administer. Forty percent of our resources are devoted to terrorist financing within OFAC. Again, OFAC just being one office within the Treasury Department, within the whole of the U.S. government. Thirty-five percent of our OFAC resources are devoted to country programs; 20 percent are devoted to our drug trafficking program which has been incredibly important and effective in dealing with the Cali cartel in Colombia, most recently with a very important designation on that.
Mr. INSLEE. Let me ask you, what I assume you are saying is that we have maxed out. We have all the resources we could possibly use to hunt down al Qaeda. I have a very difficult time believing that because between 1994 and 2003, OFAC brought 4,301 civil penalty enforcement actions regarding Cuba, and 2 regarding terrorism.
Page 40 PREV PAGE TOP OF DOC Now, I guess I should ask you specifically, are you telling me that you could not use effectively additional resources to try to cut off the funds from going to terrorist activities, including al Qaeda? Is that what you are telling me? You could not use another person effectively?
Mr. ZARATE. Congressman, I cannot speak to what happened in the prior Administration, but what I can tell you is that this Administration has made the combating of terrorist financing a priority. The Secretary of the Treasury and the Secretary of State have made it a priority and we have done everything possible.
We can always use more resources to do everything we are doing, whether it is implementing effectively and responsibly the Cuba sanction program, the Burmese sanction program, the Syrian sanction program, the Zimbabwe sanction program, or the drug trafficking program. We do that as efficiently and effectively and judiciously as possible.
Mrs. KELLY. Thank you, Mr. Inslee. I am sorry.
Mr. INSLEE. Thank you, Madam Chair.
Mrs. KELLY. The Chair notes that some members may have additional questions for the panel which they may wish to submit in writing. So without objection, the hearing record will remain open for 30 days for members to submit written questions to these witnesses and to place their responses in the record.
We are very grateful for the testimony that you both provided here today. We also hear your concerns and we also applaud you for the steps that you have taken to cooperate for all of us to experience a world that is becoming more and more free from terrorist activities. So we thank you very much.
With that, this hearing is adjourned.
[Whereupon, at 11:28 a.m., the subcommittees were adjourned.]
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