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THE NEXT TERRORIST FINANCIERS: 

STOPPING THEM BEFORE THEY START 

HEARING 

BEFORE THE

TASK FORCE TO INVESTIGATE 

TERRORISM FINANCING 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

JUNE 23, 2016 

Printed for the use of the Committee on Financial Services 

Serial No. 114–94 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

TASK FORCE TO INVESTIGATE TERRORISM FINANCING

MICHAEL G. FITZPATRICK, Pennsylvania, Chairman 

ROBERT PITTENGER, North Carolina, Vice 

Chairman 

PETER T. KING, New York 

STEVE STIVERS, Ohio 

DENNIS A. ROSS, Florida 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

DAVID SCHWEIKERT, Arizona 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

FRENCH HILL, Arkansas 

STEPHEN F. LYNCH, Massachusetts, 

Ranking Member 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

AL GREEN, Texas 

KEITH ELLISON, Minnesota 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

KYRSTEN SINEMA, Arizona 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

June 23, 2016 .................................................................................................... 1 

Appendix: 

June 23, 2016 .................................................................................................... 41 

WITNESSES 

THURSDAY, JUNE 23, 2016 

Cassara, John A., former U.S. Intelligence Officer and Treasury Special 

Agent ..................................................................................................................... 9 

Farah, Douglas, President, IBI Consultants LLC; and Senior Non-Resident 

Associate, Americas Program, Center for Strategic and International Studies .......................................................................................................................... 13 

Gurule, Hon. Jimmy, Law Professor, University of Notre Dame Law School .... 7 

Realuyo, Celina B., Professor of Practice, William J. Perry Center for Hemispheric Defense Studies, National Defense University ..................................... 11 

Zarate, Juan C., Chairman and Co-Founder, Financial Integrity Network; 

and Chairman and Senior Counselor, Center on Sanctions and Illicit Finance, Foundation for Defense of Democracies ................................................. 5 

APPENDIX 

Prepared statements: 

Cassara, John A. ............................................................................................... 42 

Farah, Douglas ................................................................................................. 52 

Gurule, Hon. Jimmy ......................................................................................... 62 

Realuyo, Celina B. ............................................................................................ 71 

Zarate, Juan C. ................................................................................................. 87 

(1) 

THE NEXT TERRORIST FINANCIERS: 

STOPPING THEM BEFORE THEY START 

Thursday, June 23, 2016 

U.S. HOUSE OF REPRESENTATIVES, 

TASK FORCE TO INVESTIGATE

TERRORISM FINANCING, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The task force met, pursuant to notice, at 10:13 a.m., in room 

2128, Rayburn House Office Building, Hon. Michael Fitzpatrick 

[chairman of the task force] presiding. 

Members present: Representatives Fitzpatrick, Pittenger, Ross, 

Barr, Rothfus, Poliquin, Hill; Lynch, Foster, and Sinema. 

Also present: Representatives Garrett and Carney. 

Chairman FITZPATRICK. The Task Force to Investigate Terrorism 

Financing will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the task force at any time. Also, without objection, members of the 

full Financial Services Committee who are not members of the task 

force may participate in today’s hearing for the purpose of questioning the witnesses. 

The Chair now recognizes himself for 4 minutes for an opening 

statement. 

Thank you, everyone, for joining us today for the eleventh and 

final hearing of the House Financial Services Committee’s Task 

Force to Investigate Terrorism Financing. Today’s hearing is entitled, ‘‘The Next Terrorist Financiers: Stopping Them Before They 

Start.’’ 

I would like to again thank Chairman Hensarling and Ranking 

Member Waters, as well as my colleagues here, for their unwavering support as we have investigated the threat of terror finance. I 

would also like to take a moment to thank Liana Rosen and Martin 

Weiss of the Congressional Research Service for the invaluable assistance that they have provided to this body. 

On June 12, 2016, we watched in horror as a lone terrorist pledging allegiance to ISIS carried out the Nation’s worst terror attack 

since 9/11. As we continue to grieve and pray for those devastated 

by this attack, we must redouble our efforts to be clear in our resolve to protect our Nation and her citizens from radical Islamic 

terrorism that continues to target us. Our efforts to combat this 

radicalism must be carried out on multiple fronts through diplomatic action, military force, and countering the finances used to 

carry out these attacks. 

2 

As chairman of this Task Force to Investigate Terrorism Financing, I have joined with Ranking Member Lynch, Vice Chair 

Pittenger, and this dedicated bipartisan body to investigate and 

evaluate the efforts made by the United States to counter and dismantle the financial networks funding these terrorist organizations. 

Our investigation has covered a range of topics, including the 

vulnerabilities of the global financial system, trade-based money 

laundering, the importance of assisting the developing world, and 

the sale and trafficking of illicit goods. During this time, it has become evident the United States must be able to work freely with 

its international partners and seamlessly adapt to evolving money 

laundering and terror financing tactics. 

For this reason, the task force will be proposing a series of bills 

which aim to improve communication and coordination amongst 

various government agencies, allow for increased information sharing, and ensure the Treasury is properly supported and recognized 

for its role in our Nation’s national security strategy. These bills, 

coupled with the report containing the task force’s findings, will 

provide a clear blueprint for the United States so it may continue 

to evolve and improve in its fight to ensure terror groups are unable to financially support their operations. 

Today, for the eleventh and final hearing of this task force, we 

will recap what we have learned with these five expert witnesses 

who have previously lent their voices to this discussion in past 

hearings. Together, we will discuss the necessary changes Congress 

must consider to better enable U.S. agencies in our fight. 

At this time, I would like to recognize a member of the bipartisan 

task force, Ms. Sinema of Arizona, our colleague, who has been a 

valuable asset and trusted friend during the course of these hearings, for an opening statement. 

Ms. SINEMA. Thank you, Chairman Fitzpatrick. 

Over the course of the past 10 hearings, this task force has found 

that U.S. Government efforts to counter the financing of terrorism 

lack sufficient coordination, and that the United States has no unified national strategy to guide our counterfinancing efforts. We 

need a whole of government CTF strategy that enhances detection, 

deterrence, and prosecution, and ultimately furthers our broader 

national security goals. 

I appreciate the witnesses’ testimony in past hearings, and agree 

that the Federal Government must change its approach and 

mindset to counter the financing of terrorism. I look forward to 

hearing more from our witnesses today about ways to improve the 

effectiveness of our counterterrorism financing efforts and to better 

align these efforts with our broader national interests. 

Thank you to Chairman Fitzpatrick and Ranking Member Lynch 

for their leadership on this task force. I look forward to continuing 

our work with colleagues on both sides of the aisle to keep money 

out of terrorists’ hands and build on our progress to strengthen 

America’s security. 

I yield back. 

Chairman FITZPATRICK. At this time, I would like to recognize 

the vice chairman of the task force, Mr. Robert Pittenger of North 

Carolina, who was one of the first Members of the House to bring 

3 

ideas on CTF and on money laundering proposals to the full House 

Financial Services Committee. I recognize Mr. Pittenger for an 

opening statement. 

Mr. PITTENGER. Thank you, Mr. Chairman. I deeply appreciate 

your great leadership on this important task force. And Mr. Pinder, 

thank you for your supportive role in all that we do. 

And thank you, distinguished panelists, for the critical role that 

you play with us—for some of you, this will be your second or third 

time to be with us—and the counsel that you provide to us. We recognize better the importance of terrorism financing. This is an important tool for us to be able to defeat the Islamic terrorists. 

This week, I just returned from a forum with over 100 members 

of Parliament and other government officials from 30 countries. As 

we seek to collaborate with them on issues of terrorism financing 

and intelligence and cybersecurity matters, the one thing that I 

have observed is that our partners around the world generally seek 

to work with us, but they don’t have the tools. They don’t have the 

understanding. And they need the resources that must be provided. 

So the input that you provide this task force has really been critical. 

So I welcome your input today and your advice, and frankly, the 

experience that you have had, observations, even since the last 

time we met. So thank you for being with us. We look forward to 

our further dialogue. 

I yield back. 

Chairman FITZPATRICK. We now welcome our witnesses. 

Mr. Juan Zarate is chairman and senior counselor at the Center 

on Sanctions and Illicit Finance at the Foundation for Defense of 

Democracies. Mr. Zarate served as the Deputy Assistant to the 

President and the Deputy National Security Adviser for Combating 

Terrorism from 2005 until 2009, and was responsible for developing 

and implementing all aspects of the U.S. Government’s counterterrorism strategy. Mr. Zarate was the first ever Assistant Secretary 

of the Treasury for Terrorist Financing and Financial Crimes. He 

is also a former Federal prosecutor who served on terrorism prosecution teams prior to 9/11, including the investigation of the USS 

Cole attack in Yemen. 

Mr. Zarate is a graduate of Harvard College and Harvard Law 

School, and is a former Rotary International Fellow at the University of Salamanca in Spain. Mr. Zarate testified before the task 

force’s April 22, 2015, hearing entitled, ‘‘A Survey of Global Terrorism and Terrorist Financing.’’ 

The Honorable Jimmy Gurule is a law professor at Notre Dame 

Law School. Mr. Gurule joined the Notre Dame Law School faculty 

in 1989, and became a full professor in 1996. The professor has 

also worked in a variety of high-profile public law enforcement positions, including Under Secretary for Enforcement at the U.S. Department of the Treasury from 2001 until 2003; Assistant Attorney 

General for the Office of Justice Programs at DOJ from 1990 until 

1992; and Assistant U.S. Attorney, where he served as Deputy 

Chief of the major narcotics section of the Los Angeles U.S. Attorney’s Office from 1985 to 1989. 

4 

He earned his bachelor’s degree from the University of Utah in 

1974, and his juris doctorate from the University of Utah College 

of Law in 1980. 

Mr. John Cassara is a former United States Intelligence Officer 

and Treasury Special Agent. He has over 26 years of experience in 

the Federal Government intelligence and law enforcement communities. An expert in anti-money laundering and terror financing, 

Mr. Cassara invented the concept of international trade transparency units, and recently released a book on the topic this past 

fall entitled, ‘‘Trade-Based Money Laundering: The Next Frontier 

in International Money Laundering Enforcement.’’ He has lectured 

around the world on a variety of transnational crime issues, and 

is currently an industry adviser. 

Mr. Cassara holds a master’s degree in international management from the American Graduate School of International Management in Phoenix, Arizona. He graduated magna cum laude from 

the University of California San Diego, with a bachelor’s degree in 

political science. 

Professor Celina Realuyo is a professor of practice at the William 

J. Perry Center for Hemispheric Studies at the National Defense 

University. Prior to joining the National Defense University in 

2007, Ms. Realuyo served as the State Department Director of 

Counterterrorism Finance Programs in the U.S. Secretary of 

State’s Office of the Coordinator for Counterterrorism. She has also 

cochaired the terror financing work group. Professor Realuyo has 

previously been a private banker in London with Goldman Sachs 

International, and also previously had a distinguished career as a 

United States foreign service officer. 

She holds an MBA from the Harvard Business School, an M.A. 

from Johns Hopkins University School of Advanced International 

Studies, and a bachelor’s degree from the Georgetown University 

School of Foreign Service. 

Mr. Douglas Farah is president of IBI Consultants LLC, and is 

also a senior non-resident associate for the Americas Program at 

the Center for Strategic and International Studies. From 1985 to 

2005, Mr. Farah worked as a journalist, primarily as a foreign correspondent and investigative reporter for The Washington Post. 

Since leaving the Post in 2004, Mr. Farah has worked as a consultant to the United States Government on national intelligence reform, nonstate armed actors, critical infrastructure protection, 

criminal terrorist pipelines, bulk cash smuggling to Mexico, as well 

as other topics. He is also the author of two books, and he appears 

regularly in a national and international medium, and has been 

published in more than a dozen journals and magazines. 

Mr. Farah graduated from the American Cooperative School in 

La Paz, Bolivia. He also received a bachelor’s degree with highest 

honors from the William Allen White School of Journalism at the 

University of Kansas, with a bachelor’s in honors in Latin American studies from the University of Kansas. 

The witnesses will now be recognized for 5 minutes each to give 

an oral presentation of their written testimony. 

And without objection, the witnesses’ written statements will be 

made a part of the record. 

5 

Once the witnesses have finished presenting their testimony, 

each member of the task force will have 5 minutes within which 

to ask questions. 

For the witnesses, on your table are three lights, which you are 

familiar with. Yellow means you have 1 minute remaining. Red 

means your time is up. 

At this point, Mr. Zarate, you are now recognized for 5 minutes. 

STATEMENT OF JUAN C. ZARATE, CHAIRMAN AND CO-FOUNDER, FINANCIAL INTEGRITY NETWORK; AND CHAIRMAN AND 

SENIOR COUNSELOR, CENTER ON SANCTIONS AND ILLICIT 

FINANCE, FOUNDATION FOR DEFENSE OF DEMOCRACIES 

Mr. ZARATE. Mr. Chairman, thank you for that kind introduction. 

Ranking Member Lynch, Vice Chairman Pittenger, distinguished 

members of this task force, I am honored to be before you yet again 

to testify on the evolving threats and issues tied to terrorist financing and illicit financing. I am especially honored to be with this 

panel, all of whom I consider friends and from whom I have 

learned quite a bit throughout their careers. 

Let me begin by commending this task force for not only your 

diligence but your bipartisan efforts to focus on these issues. Over 

a year ago, when many thought that this issue did not have relevance, I think much has happened over the last year to not only 

prove the relevance of this task force but the importance of your 

work. And I want to thank your committee staff, including Joe 

Pinder, for his continued efforts over the course of many years in 

this regard. 

But there have been many things that have happened since we 

last met. Terrorist organizations and criminal networks have continued to leverage local and regional economies and the global commercial system to profit and evade scrutiny. Growing regional and 

proxy battles in the Middle East, South Asia, and Africa have increased the risk that terrorist and militant groups are taking advantage of crises to create for-profit militancy and networks. Terrorist infiltration and control of urban environments in places like 

Mosul, Sirte, and Raqqa have complicated how the U.S. Government and our allies attempt to disrupt terrorist financing, putting 

a premium on dislodging terrorist organizations physically from 

key sites and resources. 

The application of U.S. law and pressure from targeted sanctions 

to exclude Hezbollah from the Lebanese financial system has created enormous pressure in Lebanon, with Hezbollah leadership 

speaking out against the closing of Hezbollah-related bank accounts and a bomb exploding just recently in front of Blom Bank 

in Beirut. 

The Panama Papers and tax-related leaks have raised important 

questions about the limits of financial transparency and accountability, and whether the current anti-money laundering system 

globally is effective. Complications and burdens on the legitimate 

financial community in the application of sanctions and financial 

crime risk management have continued to abut against the public 

policy needs for financial inclusion. 

New technologies enabling the digital economy are providing not 

only enormous opportunities for innovation and access, but illicit 

6 

actors are also finding ways to leverage tools like digital currency 

to create illicit bazaars via the Internet and access capital without 

scrutiny, as we saw in the Silk Road and Liberty Reserve cases. 

And continued and significant cyber attacks by state and nonstate 

actors on the financial sector have demonstrated yet again that the 

financial system remains at the heart of the cyber storm. 

These are just a few of the examples and recent developments 

that continue to illuminate and complicate the terrorist and illicit 

financial landscape. Billions of dollars in illicit trade and money 

laundering continue to reach the hands of criminals and illicit actors, despite best efforts. More needs to be done. And I know this 

task force has done quite a bit of work, but let me suggest seven 

categories of work to focus on. 

First, we need to continue to sharpen the tools that we use in 

our toolkit. The playbook that we have used since 9/11 must remain strategic, its implementation focused on effectiveness. And it 

must be reinforced with a strengthened and committed international system devoted to the protection of the international financial system and our collective security. 

Two, the United States must find strategic ways of using targeted unwinding of sanctions to our strategic benefit. We are seeing the challenges of this now with Iran, Cuba, and even Burma. 

The United States should ensure that it is using its power of 

unwinding the way that we use the power of targeted sanctions to 

full effect. 

Three, we must have a more aggressive information-sharing system between public and private authorities, within sectors, and 

across borders. We are working on a 20th Century model that is 

crashing up against the 21st Century economy and expectations. 

We need to think differently about how information is shared, analyzed, and used to protect the financial system. 

Fourth, we have to balance financial exclusion and inclusion by 

finding ways of sharing the risk. The twin goals of financial integrity and inclusion can be met with some creative collaboration. 

Fifth, we must focus on the effectiveness of the AML/CFT and 

sanction system. And we should not be shy about leading the world 

in its enforcement and in judging the world in terms of effectiveness. 

Sixth, we must realize and address the convergence of cyber and 

financial warfare. As I said, the financial community is now at the 

center of the cyber storm, and the recent bank heist involving the 

SWIFT network was a wake-up call for the attack on the trust and 

integrity of that system. There needs to be a more aggressive approach to private sector defense of its systems and public-private 

collaboration to defend critical financial systems. 

And finally, we need the resources to be able to regulate and enforce. This means resources not just for Treasury, OFAC, and 

FinCEN, the usual bodies, but also the IRS, CID, and others that 

are forced and need to enforce these laws and regulations. 

Finally, Mr. Chairman, these are tools and strategies that need 

to be embedded in a broader strategy of national and economic security. And this is not just confined to the quiver of economic sanctions or targeted financial measures. This has to include the development of strategies of financial inclusion that use elements of U.S. 

7 

economic influence, private investment to benefit good behavior 

and to promote what our allies are trying to do around the world. 

It also involves developing defensive economic strategies with our 

allies to counter the potential economic influence and pressure that 

countries like Russia and China are already wielding. 

In the 21st Century, Mr. Chairman, economic security underpins 

the Nation’s ability to project its power and influence. And the 

power to affect the budgets of America’s enemies is an enormous 

power that needs to be tended carefully and wielded wisely. And 

America’s enemies, especially nimble terrorist organizations that 

often blend with criminality, will continue to find ways to work 

around the international pressure and strictures put upon them. 

This is why the campaign against terrorist financing is not a 

static venture, but instead, an ongoing and critical part of the challenging terrorist and international security landscape. The U.S. 

Government must continue to innovate and find new ways and 

partners to make it harder, costlier, and riskier for terrorist groups 

around the world to raise and move money. 

Mr. Chairman, thank you again for the privilege of testifying 

today. I would be happy to answer any questions you or your colleagues may have. 

[The prepared statement of Mr. Zarate can be found on page 87 

of the appendix.] 

Chairman FITZPATRICK. Thank you. 

Professor Gurule, you are recognized for 5 minutes. 

STATEMENT OF THE HONORABLE JIMMY GURULE, LAW 

PROFESSOR, UNIVERSITY OF NOTRE DAME LAW SCHOOL 

Mr. GURULE. Chairman Fitzpatrick, Ranking Member Lynch, 

Vice Chairman Pittenger, and other distinguished members of the 

Task Force to Investigate Terrorism Financing, permit me to begin 

by thanking you for inviting me to testify on the important and 

timely topic of, ‘‘The Next Terrorist Financier: Stopping Them Before They Start.’’ 

As we approach the 15-year anniversary of the 9/11 terrorist attacks that tragically took the lives of approximately 3,000 innocent 

civilians, it is imperative that the U.S. Government continue to 

evaluate and enhance the effectiveness of such counterterrorism 

measures as curtailing terror financing in order to protect national 

security and save innocent lives. To that end, I would like to propose four recommendations to the task force and the broader committee to strengthen the U.S. Government’s counterterrorist financing efforts. 

The first recommendation deals with economic sanctions. Shortly 

after the 9/11 terror attacks, President George W. Bush signed Executive Order 13224. It authorizes the President as delegated to 

the Secretary of the Treasury to designate individuals and entities 

as specially designated global terrorists (SDGT’s). That designation 

has important legal implications. 

First, any assets located in the United States of such individuals 

and entities have to be frozen. Second, U.S. persons are prohibited 

from doing business with the SDGTs, the specially designated global terrorists. 

8 

Initially, the executive order designated 12 individuals and 15 

entities as SDGTs. At present, there are now over 1,000 such individuals, such SDGTs. And while the executive order has been an 

effective tool in curtailing the funding to Al Qaeda, which relies 

largely on support from external donors and corrupt charities sympathetic to their cause, it has been less effective with respect to the 

Islamic State. 

The Islamic State poses a different terrorist financing challenge. 

It obtains its money primarily from external sources, including the 

sale of oil and gas, extortion and taxation, kidnapping for ransom, 

looting banks, selling stolen equities, and human trafficking—selling young girls and women as sex slaves. The Islamic State’s annual budget has been estimated to be as high as $2 billion. 

The reason why the executive order again has been less effective 

with respect to the Islamic State is that the individuals who have 

been targeted under the executive order, members of the Islamic 

State, senior leaders of the Islamic State, do not have resources in 

the United States. They don’t have assets in the United States to 

be blocked. Furthermore, there is no evidence that U.S. persons are 

doing business with such individuals. 

I don’t want to diminish the importance of being designated 

under the executive order, but in large part it becomes more symbolic in kind of highlighting and identifying these individuals as 

bad actors than actually curtailing the funding of the Islamic State. 

And so what I propose, in addition—not in place of but in addition 

to—would be that Congress pursue a model similar to that which 

has been used against Iran, and which is focused not only on primary sanctions but secondary sanctions. 

Primary sanctions prohibit U.S. persons from doing business 

with the target. Secondary sanctions prohibit foreign persons and 

foreign entities from doing business with the entity. And I think we 

need a sanction regime that is similar to the Comprehensive Iran 

Sanctions and Accountability and Divestment Act of 2010, which 

does exactly that: prohibits foreign businesses from contributing to 

the energy sector of Iran. And we need something similar for the 

Islamic State. 

My second recommendation deals with the criminal enforcement 

and, specifically, the material support statute. I think the Department of Justice has a very checkered record of prosecuting major, 

underscoring major, terrorist financiers. I think to that end the efforts could be enhanced if Congress amended the terrorist financing statute 18 U.S.C. 2339C to lower the scienter threshold from 

requiring the government to prove that the defendant knowing and 

with the intent—or intended the funds to be used to finance violent 

crimes. 

Instead, it seems to me that it should be a crime if an individual 

donates to, let’s say, a lone wolf terrorist knowing that individual 

is engaged in terrorist acts or intends to engage in terrorist acts. 

That type of conduct should be prohibited under the statute, and 

currently it is not. 

My third recommendation deals with the Justice Against Sponsors of Terrorism Act (JASTA). On May 17, 2016, the U.S. Senate 

unanimously passed JASTA. I think that it plays an important 

role. Civil actions play an important role with respect to deterring 

9 

terrorist behavior and going after the funding of terrorism. I think 

it is important that any state that sponsors acts of terrorism on 

U.S. soil should be held accountable. And the Act seeks to accomplish that objective. 

And then lastly, my fourth recommendation deals with the development of a national counterterrorist financing strategy to effectively go after the money of Al Qaeda, the Islamic State, and the 

next major terrorist organizations. It is imperative that the United 

States develop a comprehensive, coordinated counterterrorist financing strategy. Unfortunately, no such strategy exists today. 

The counterterrorist financing strategy needs to be adaptive. It 

needs to anticipate different methods of raising money and moving 

money globally. It needs to be, again, proactive on the front end, 

not simply reacting to the crisis of the day. 

So with that, thank you very much, and I look forward to answering questions during the question-and-answer session. Thank 

you. 

[The prepared statement of Mr. Gurule can be found on page 62 

of the appendix.] 

Chairman FITZPATRICK. Thank you, Professor. 

Mr. Cassara, you are recognized for 5 minutes. 

STATEMENT OF JOHN A. CASSARA, FORMER U.S. 

INTELLIGENCE OFFICER AND TREASURY SPECIAL AGENT 

Mr. CASSARA. Chairman Fitzpatrick, Ranking Member Lynch, 

Vice Chairman Pittenger, and members of the task force, thank 

you for the opportunity to testify today. It is an honor for me to 

be here and, in particular, to be included on this panel with friends 

and such distinguished colleagues. 

In 2008, I wrote an essay published by the Department of State 

entitled, ‘‘Mobile Payments—A Growing Threat.’’ Eight years later, 

that threat has materialized. The growth of access to cellular devices is breathtaking. In 1990, there were approximately 11 million 

mobile phones worldwide. In 2016, the number of mobile lines and 

service has surpassed global population. There are now approximately 410 million mobile money accounts in the world, with approximately 270 mobile money services operating in 93 countries. 

More than 1 billion mobile money transactions were processed in 

December 2015. We should cheer these developments. 

The G20 included financial inclusion on its priority agenda to 

help over 2 billion adults around the world who have limited access 

to financial institutions. I know many task force members have 

traveled extensively in the developing world. Undoubtedly, you 

have observed how easy access to M-payments via the ubiquitous 

cell phone is transforming lives by providing a much-needed link 

to financial services at a very reasonable price. 

Users are not required to have a bank account or a credit card. 

Countries without modern financial infrastructures are able to 

leapfrog directly into cutting edge networks. M-payments allow the 

purchase of products and services. Salaries and government benefits can be credited to cellular devices. M-payments have empowered small business creation, and remittances from migrant workers are sent home via the use of cell phones. 

10 

However, this wonderful development is going to have some very 

dangerous side effects. I would like to explain how M-payments are 

used in the three stages of money laundering. 

The first stage is placement of illicit cash into financial institutions. One of the most prevalent techniques is structuring or 

smurfing. For example, a professional money launderer takes a 

large amount of drug dollars and divides it into small amounts. He 

gives the small sums to runners or smurfs to deposit. The transactions are done in ways that attempt to avoid mandated financial 

transparency reporting requirements. 

M-payments offer criminals a new way to place the proceeds of 

crime. For example, runners are recruited and given proceeds of 

criminal activity or even charitable or terror finance contributions. 

They are given instructions to go to M-payment establishments and 

use the illicit funds to load up their cell phones with e-value under 

the maximum threshold level. The runners are then directed to forward the mobile money credit to master accounts controlled by the 

money launderer. This technique has been called digital smurfing. 

The next objective is to layer the dirty money by multiple transfers, thereby confusing the paper trail and adding multiple levels 

of venue and jurisdiction. With M-payments, layering will be taken 

to new levels. In most jurisdictions, mobile value can be transferred 

from person to person and account to account, and then directed to 

a financial institution or money service business either in the host 

country or perhaps sent to another country or even an offshore 

haven. Mobile value could even be credited to an online account or 

perhaps used to purchase virtual currencies in cyberspace. Informal value transfer systems such as hawala can also be added to 

the equation. 

Finally, a criminal organization uses the place and layered funds 

to integrate them into the economy by purchasing, say, for example, property, equities, and commercial enterprises. For example, 

the daughter of one of the worst kleptocrats in Africa has invested 

in cell phone carriers and M-payment providers in multiple countries. 

While there are currently few documented cases of money laundering and terror finance related to M-payments, in large part this 

is because the countries where M-payments are present and our 

terrorist adversaries operate, have few, if any, anti-money laundering or terrorist-financed prosecutions and convictions. I believe 

we should move quickly to engineer new forms of data collection 

and analytic tools into M-payment systems, and put in place effective regulatory and enforcement countermeasures. Please see my 

written testimony for more details, including recommendations. 

Thank you again for the honor of being here. I look forward to 

answering any questions you may have. 

[The prepared statement of Mr. Cassara can be found on page 42 

of the appendix.] 

Chairman FITZPATRICK. Thank you. 

Professor Realuyo, you are now recognized. 

11 

STATEMENT OF CELINA B. REALUYO, PROFESSOR OF PRACTICE, WILLIAM J. PERRY CENTER FOR HEMISPHERIC DEFENSE STUDIES, NATIONAL DEFENSE UNIVERSITY 

Ms. REALUYO. Thank you, Chairman Fitzpatrick, Vice Chairman 

Pittenger, Ranking Member Lynch, and task force members, for the 

opportunity to appear before you again today to discuss improving 

efforts to combat terrorist financing through more public-private 

partnerships. I am honored to be here alongside those of us who 

started the financial front of the war on terror in the wake of 9/ 

11. 

Today, we face a broad spectrum of threats such as global terrorism, transnational organized crime, and cyber attacks that requires a multidisciplinary approach to comprehend and counter. 

The convergence of terrorism and crimes threaten state sovereignty 

and our economy. Governments can no longer guarantee the security, prosperity, and rule of law that their people expect. Average 

citizens who see something and say something are often the first 

to identify threats. They know their industries and their communities best. Therefore, governments need to actively engage the 

public to detect, dismantle, and deter illicit actors. By fostering robust public-private partnerships, together we can better counter 

terrorism and crime at home and abroad. 

This is particularly true for threat financing, since funding is the 

most critical of enablers for terrorism, crime, and corruption. We 

have witnessed how financial intelligence, economic targeting, and 

sanctions have helped us to counter threats around the world since 

9/11. This is the case of our current campaign against ISIL, where 

we see momentum on both the financial and military fronts in Iraq 

and Syria. 

Since I last appeared before this committee in May 2015, following the money trail has been instrumental in degrading ISIL’s 

ability to generate revenue and fund its criminalized caliphates. 

Defense Secretary Ash Carter, as recently as Monday here in 

Washington, said, ‘‘We have seen results in targeting ISIL’s leaders 

and finances through Operation Inherent Resolve. Our attacks on 

its economic infrastructure, from its oil wells to its stashes of cash, 

are putting a stranglehold on the group.’’ 

As we speak here today, ISIL is on its heels in Iraq and Syria, 

as Iraqi forces have just begun to liberate Fallujah and prepare to 

move on Mosul. But ISIL, unfortunately, is proving to be a very 

adaptive adversary. Terrorism expert Jean-Charles Brisard said 

that despite constant coalition air strikes, ISIL still has a $2 billion 

empire. As oil revenues have decreased by 30 percent, it is more 

reliant on taxation in the territories that it still occupies. Therefore, reestablishing control of those territories is paramount to defeating ISIL militarily, financially, as well as psychologically. 

ISIL has expanded its reach beyond Iraq and Syria, as we have 

seen with the tragic attacks in Paris and Brussels. It is present in 

19 countries, including a new caliphate in Libya. And ISIL’s influence has reached our own shores. FBI Director Comey says that 

upwards of 200 Americans have traveled or tried to fight for ISIL. 

And the FBI has some 1,000 ISIL-related cases open nationwide. 

It has inspired homegrown terrorists like those responsible for the 

deadly attacks in San Bernadino and Orlando. 

12 

For the FBI and joint terrorism task forces that I train on terrorist financing, financial forensics are a critical component of all 

of their investigations. While these latest attacks don’t cost very 

much money, the public can assist law enforcement in identifying 

suspicious activities before terrorist attacks occur rather than 

afterwards. 

Since the 1970s, the U.S. Government has worked with the private sector to pursue financial crimes, like tax evasion and money 

laundering. Since 9/11, we have seen constructive public-private 

partnerships. The financial intelligence and information-sharing 

working group imparts case studies and red flags for financial 

crimes. Similarly, the Financial Services Information Sharing and 

Analysis Center disseminates timely physical and cyber threats to 

alert its members, reflecting the changing nature of the domain 

that is cyber. 

Over the past decade, we have definitely increased our ability to 

detect terrorist financing, levied effective economic sanctions 

against both state actors as well as terrorist groups, and raised 

awareness on how our evolving financial system can be exploited 

to fund terrorism and crime. But we could do more to thwart future 

terrorist financiers with the following five measures that I propose. 

Number one, integrate the financial instrument of national 

power more deliberately into U.S. strategies to counter emerging 

threats. Number two, strengthen domestic and international financial intelligence and information-sharing mechanisms to counter 

threat financing. Number three, dedicate more human financial 

and technological resources to those responsible for pursuing terrorist financing across the U.S. Government. Number four, research the drivers of the illicit economy and anticipate how new financial innovations could be used by future terrorist financiers. 

And lastly, empower the public and private sector, and more importantly, individuals, to actively detect and support our counterterrorism financing operations. 

In a chapter that will be coming out in a book that we are publishing called, ‘‘Beyond Convergence,’’ next month, I write about 

something called C3 through P3, and it is that we need to communicate, cooperate, and collaborate through public-private partnerships to counter the complexity of threats and safeguard our national security, whether it is talking about terrorist financing, 

countering violent extremism, or the new threats that we face in 

the cyber domain. 

Thank you, Mr. Chairman and task force members, for your time 

and attention, but more importantly, for highlighting the importance of the financial instrument of national power that those of us 

on this panel have been advocating for the last 15 years. And I look 

forward to your questions. 

[The prepared statement of Ms. Realuyo can be found on page 71 

of the appendix.] 

Chairman FITZPATRICK. Thank you very much, Professor. 

And Mr. Farah, you are now recognized for 5 minutes. 

13 

STATEMENT OF DOUGLAS FARAH, PRESIDENT, IBI CONSULTANTS LLC; AND SENIOR NON-RESIDENT ASSOCIATE, AMERICAS PROGRAM, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES 

Mr. FARAH. Chairman Fitzpatrick, Ranking Member Lynch, and 

members of the task force, thank you for the opportunity to testify 

on this important issue of the changing nature of terrorist financing. I speak only for IBI Consultants and myself at this hearing. 

I would like to address three main issues today: the emergence 

of criminalized states; the use of commodities, particularly gold, in 

the terrorist and criminal financial structures; and the use of offshore havens. 

In my 3 decades of focusing on transnational organized crime 

and illicit money flows, I have found that there is really very little 

new under the sun. What has changed in recent years is the volume of the streams of illicit money flows in which terrorists and 

allied transnational criminal organizations can hide their money 

movements. I believe the emergence of criminalized states in Latin 

America, Africa, and the former Soviet Union, meaning states 

where the senior leadership is involved on behalf of the state in 

transnational organized criminal activity, is a primary factor. The 

fact that these illicit flows are now embedded within state structures is a key factor in making it difficult to halt such financial 

flows. 

In the Western Hemisphere, it is the involvement of numerous 

states led by Venezuela in an ongoing criminal enterprise that 

makes disrupting and dismantling financial networks so difficult. 

The government of Nicolas Maduro, along with the governments of 

Evo Morales in Bolivia, Rafael Correa in Ecuador, Daniel Ortega 

in Nicaragua, and Salvador Sanchez Ceren in El Salvador, grouped 

under the umbrella of the Bolivarian Alliance for the Peoples of 

Our America, or ALBA, has actively helped the FARC, Hezbollah, 

Spanish ETA separatists and other designated terrorists and criminal organizations develop a significant presence not only in Latin 

America but across the world. 

In each of the ALBA nations, as detailed in my written testimony, the leaders control hundreds of millions of dollars that do 

not pass through the national budget or any other accounting 

mechanism, and serve essentially as slush funds for the ALBA 

leadership and their allies in transnational organized crime and, 

potentially, terrorists. 

Within the context of these vast, economically irrational money 

flows already moving through criminalized states, the growing 

amount of unusual mining and exporting of minerals, particularly 

gold in Latin America, must be viewed with concern. The relatively 

high price of gold, coupled with the ease of movement, placement, 

and sale, and the striking lack of control over the movement of the 

commodity make it particularly attractive to both criminal and terrorist groups. 

Colombian President Juan Manuel Santos estimated that gold 

provided $2 billion a year to terrorist and criminal groups in his 

country, outstripping cocaine as the primary financial asset. While 

it takes 6 months to grow coca and process a kilo of cocaine, along 

with significant technical skills, low-cost and low-skill gold mining 

14 

in Colombia—in the Colombian jungle can easily yield 2 kilos of 

gold a month. A kilo of cocaine sells for about $2,570 in the Colombian jungle, while a kilogram of gold can fetch up to 19 times that 

much. The precious metal is also relatively easy to legalize, while 

cocaine remains illegal and heavily penalized. 

Because the FARC and its allies in Venezuela want to disguise 

the origin of their gold after it is mined, they often move it through 

Guyana, Suriname, Nicaragua, and Ecuador to avoid detection of 

gold entering the market from places that might arouse suspicion 

of either terrorist or transnational criminal connections. Those 

using gold often disguise the origin of the gold so that they can 

avoid detection and paying taxes, thus you have the unusual situation where Peru and others were exporting—they were moving 

their gold to Colombia and declaring it as Colombian gold as they 

moved it out so that Colombia on paper was exporting more gold 

than it actually produced. 

The massive leak of internal documents at the Panamanian law 

firm Mossack Fonseca, now known as the Panama Papers, also 

gives an unsettling view of just how easy it is to use law firms in 

certain jurisdictions to incorporate entities where the real owners 

are never disclosed, and then use those entities to move massive 

sums of money to offshore havens where the anonymity is not only 

preserved but enhanced and reinforced. 

While privacy issues are real and valid, the current structure 

represents one of the most glaring weaknesses in the financial 

structures that are used by a host of illicit actors, including terrorists and transnational criminal organizations. It is easy but dangerous to forget that Al Qaeda and Hamas used extensive offshore 

structures in the Bahamas to move money around the globe, both 

prior to and following the attacks of 9/11, something Juan Zarate 

worked extensively on when he was at the Treasury Department 

and helped shut down a significant flow of funds at that time. 

This opaque world overlaps with the vast unregulated world of 

gold and other commodity movements, and both intersect in the 

growing number of criminal state jurisdictions. This amounts to a 

perfect storm for terrorist financiers and transnational criminal organizations to hide and move cash and cash value across the world 

in ways that are virtually untraceable. 

I offer recommendations on dealing with these issues in my written testimony. And I welcome the chance to answer any questions 

you may have. 

Thank you again for the valuable work of this task force. And 

thank you for the opportunity to testify again here. 

[The prepared statement of Mr. Farah can be found on page 52 

of the appendix.] 

Chairman FITZPATRICK. Thank you, Mr. Farah. 

And thank you to all the witnesses for your testimony here today 

and your work with the task force, as well as the staff in preparation for the hearings and for the bills that are going to be introduced. 

Mr. Cassara, in your written statement, you note that FinCEN’s 

MSB registration process, the money service businesses, have been 

less than effective. I think you state that they were weak. Can you 

15 

identify some specific examples of weakness and then how you 

would address it, if you were us? 

Mr. CASSARA. Just a little bit of background. I was at FinCEN. 

Before 9/11, the head of FinCEN at the time, Stan Morris, was 

very concerned about what he called money service businesses 

(MSBs). He contracted with a accounting firm, one of the Big 8 accounting firms, to do a study. And the numbers came back that 

there were approximately—at that time; this was about 2000— 

240,000 MSBs in the United States. Very little was done with that 

information. 

Then, 9/11 happened. The PATRIOT Act was passed. After that, 

MSBs in this country are supposed to be registered with Treasury’s 

FinCEN, and I think they are supposed to be licensed in 47 or 48 

of the 50 States. There are approximately—I haven’t been on the 

site recently—40,000 MSBs that have registered with FinCEN, 

which means, if that earlier study was correct, that 200,000 are 

missing. 

If you go back to the 2007 national anti-money laundering strategy report, that strategy report says, in effect, that approximately 

20 percent of MSBs are registered with FinCEN. In other words, 

where are the missing MSBs? MSBs, as you all know, are everything from PayPal to mom-and-pop check cashing companies to 

hawaladars to casas de cambio along the Southwest border. We 

have not done a very good job of getting them registered. Of course, 

if they are not registered, they are not filing suspicious activity reports. The program hasn’t worked as it was constructed. 

Chairman FITZPATRICK. So what would your recommendation be? 

Mr. CASSARA. Well, I can defer to my distinguished colleagues 

here, but the IRS, I believe, has the mandate to work with regulators to go out and ensure that those MSBs are in fact registered. 

That hasn’t been done. In my opinion as well, there should be more 

outreach to the money service business communities, particularly 

in the various ethnic communities in this country because, quite 

frankly, a lot of them don’t know that they are supposed to be registered. More work needs to be done in this area. 

Chairman FITZPATRICK. Would any of the other panelists like to 

add anything to that? 

Mr. Zarate? 

Mr. ZARATE. I think there are three things that could be done, 

Mr. Chairman. I think one is the outreach that John has talked 

about. I think there is always awareness-building that has to be 

done, not just in the traditional money service business sector, as 

John mentioned, but also with new digital payment sectors, the 

bitcoin community, et cetera, which now have to register if they are 

acting and transacting as money service business. So there is a lot 

of outreach that still has to be done. Education. So that would help. 

Second, is the enforcement of the regulations themselves. As I 

mentioned in my remarks and in my testimony, the need for resources is very real. The IRS has been given the mandate to go out 

and regulate on behalf of FinCEN. The Bank Secrecy Act in this 

sector, frankly, they just don’t have the resources to do it at the 

scale to deal with the nationwide sort of disbursement of the sector. 

Part of that is also enlisting State authorities a bit more. These are 

State-regulated entities in many regards. 

16 

Third, is that money service businesses now have the challenge 

of having bank accounts. And I think there is something here to 

be done in the context of financial inclusion, as I had remarked, to 

work with the formal financial system, in particular the major 

global banks, as well as smaller regional banks, to try to work with 

money service businesses, not only to register them, but to make 

sure that they have access to the financial system, and understand 

what their obligations are as a regulated entity under the antimoney laundering rules of this country. 

So I think those three categories of activities would take us far 

afield from where we are and would certainly be an improvement. 

Chairman FITZPATRICK. Professor Gurule? 

Mr. GURULE. Yes, I would add, I think first there has to be a 

prioritizing with respect to if there are 240,000, at a minimum, 

MSBs, I think that resources should be spent on identifying the 

largest MSBs that are moving the largest amount of money annually to ensure that those particular MSBs are registered. One way 

to ensure that might be, for example, to require that when the 

MSB files its tax returns with the IRS, it must submit some statement, some affirmative statement, that they are in fact registered 

with the Treasury Department. So they have an affirmative obligation to state that. And if they fail to state it, then that should raise 

a red flag. If they falsely state it, then they could be prosecuted for 

making a material false statement, which is a Federal violation. 

Chairman FITZPATRICK. My time has expired. 

I recognize Mr. Lynch for 5 minutes. 

Mr. LYNCH. Thank you, Mr. Chairman. At the outset, let me just 

thank Chairman Fitzpatrick and also Vice Chair Pittenger for the 

great work, and to all the members on the task force. 

And I want to say thank you to this all-star panel. You have all 

been up here multiple times testifying on various issues, cuttingedge subjects in this area. And I just want to say thank you for 

all the work you have done. As I said before, you have all been up 

here multiple times. And in wrapping up this iteration of the task 

force, we really benefited greatly not only from your testimony 

today but also from your advice, your counsel, helping us to formulate legislative responses to the problems that we have talked 

about here. And we have some of those that we will roll out after 

the conclusion of this hearing. But I just want to say thank you for 

your service to our country, and thank you for allowing us to be 

the beneficiaries of your expertise. 

The members of this task force are well-traveled. My colleagues, 

there is nobody on this task force who hasn’t put in a lot of frequent flyer miles trying to drill down on this problem. We just 

came back not too long ago from Nigeria and Tanzania. And there 

are some wonderful, wonderful things being done, Mr. Cassara, 

with mobile payments, as you mentioned. And it is incredible what 

is happening in parts of the Third World where, for example, in Nigeria where mobile payments are now financing a solar energy culture there where electricity is being brought into some of the most 

remote areas of that country. And with the growth of their population, it has been really incredible what they are doing with very 

small micro payments, but giving these villages in some pretty reVerDate Nov 24 2008 16:41 Aug 16, 2017 Jkt 025849 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\25849.TXT TERI
17 

mote places the ability to import electricity into their homes. It is 

revolutionizing that country. 

But as you all have indicated, it also presents a real problem for 

us in trying to track the flow of terrorist financiers. And we have 

done some work up on the Syrian border. We met with—members 

of this task force have met with a half a dozen—they are a socalled moderate Syrian rebel groups, but I am not so sure how 

moderate they really were or are. But the bottom line is they are 

all using WhatsApp and they are all financing their operations. 

And these are the rebel groups. And I would bet that their counterparties there, ISIL and other groups there, the al-Nusrah Front, 

are also using the same mobile apps to finance their efforts as well. 

So our ability to drill down on this is really—the pace—well, the 

velocity of change is so quick, it has been breathtaking. And it has 

been very difficult for us, because just when you think you are 

catching up, something new will come out. You know, the last thing 

we looked at was sort of a model of this bitcoin platform that uses 

blockchain. And now we are trying to catch up to that to see if this 

presents another area of vulnerability. 

Mr. Cassara, in the area of mobile payments especially, and all 

the panelists, you have all been working on this, what are the single most persistent vulnerabilities that you see there? We had trouble, for example, getting some of the companies to take down sites 

where we know there has been chatter. In other cases, we also 

know that there has been work being done on a video game platform. So they go into these chat rooms, and I am sure that there 

is—finance is a component of what is going on there as well. How 

do we—what is the most effective way to get at that problem? 

Mr. CASSARA. Thank you for the question. I think the largest 

threat dealing with M-payments is the simple volume of M-payments. For example, according to experts, there are about 1 billion 

mobile money transactions in a given month. If only 1 percent of 

those are suspect, okay, 1 percent, so fraud, money laundering, suspect charitable contributions, terror finance, whatever it is, you are 

talking about 120 million suspect transactions a year. And you 

think 1 percent is too high? Break it down. Say it is half of 1 percent. So you are talking 60 million suspect transactions a year. It 

is overwhelming. 

And we, the 93 countries where this is going on, don’t have any 

systematic way to analyze the very volume of these things to put 

in place red flags so that law enforcement, even the financial intelligence units can get involved with tracking these things. 

Another tremendous problem, and something I would like to go 

into a little bit more detail on, is the fact of where these very systems operate. You mentioned Syria, you mentioned Nigeria, the 

Philippines, Pakistan, Bangladesh, and Afghanistan. These are 

some of the areas in the world where we have the very weakest law 

enforcement. And so there aren’t any cases. And this is something 

that we need to address. 

Mr. LYNCH. Okay. Thank you. 

My time has expired. I yield back. Thank you, Mr. Chairman. 

Chairman FITZPATRICK. The vice chairman of the task force, Mr. 

Pittenger, is recognized. 

18 

Mr. PITTENGER. Thank you, Mr. Chairman. Thank you for, I 

think, a very sobering analysis. And the scope and impact of what 

we now clearly see through of the transfers from mobile payments, 

from bitcoin, from gold is enormously challenging. 

We have our own structures inside Treasury with FinCEN and 

OTA and OFAC. And yet, as I shared earlier, we have our allies, 

our friends, who seek, for the most part, to cooperate with us, but 

have very limited resources. What else do we need to be doing to 

support our own agencies and to broaden their capacities to the extent that they can address the issues that were brought up today 

and broaden our ability to help our friends around the globe? 

I was with President el-Sisi last December. I am going to see him 

again at the end of next week. And he, in spirit, I believe, wants 

to be supportive. They lack enormous technological support. We 

saw that, of course, in South America as well. So speak to that and 

what we need to be doing resource-wise inside our own financial institutions to support them, to address these prevailing challenges, 

and how we can better support our allies around the world? 

Juan, would you like to start? 

Mr. ZARATE. Thank you, that is a great and expansive question. 

I think the first thing we need to do is make sure we have a system that actually ensures transparency and accountability, that 

then allows the regulators and authorities that are responsible for 

ensuring that our system isn’t being misused by criminals or terrorists, actually can see what is there. And I think there has been 

a lot of progress this past year with the issuance of the customer 

due diligence rule from Treasury, something we had talked about 

a year ago as being necessary. That is incredibly important to getting to the ultimate beneficial ownership of corporate entities. 

The beneficial ownership legislation that has been presented to 

Congress, I think, needs to be taken up and looked at carefully to 

determine how best to get at who owns the entities in this country 

that are acquiring vast amounts of real estate, or perhaps even trying to hide their hand in placement or movement of funds. So I 

think that is critical, first and foremost. There has to be that. 

Second, what I mentioned in terms of information sharing, we do 

have to move to a more aggressive model of information sharing, 

in particular with the private sector. The private sector is required 

to help, by law, they want to help, by now, culture and by being 

hit over the head with enforcement actions. And we need to find 

ways of enabling them to be the gatekeepers of the financial system, which helps the government regulate bad behavior. So I think 

that is critical. 

And third, I think we need to be more demanding of our foreign 

partners. The reality is that the United States, for the last 20 

years, has been the only country in the world that has an Office 

of Foreign Assets Control (OFAC) that is responsible for administering and enforcing sanctions. No other country in the world has 

had a similar entity. And the reality is, we need our partners 

around the world to have a discipline around the enforcement of 

these measures, and it is part of the reason why I argue that we 

need to continue to push the enforcement of these issues and sanctions, in part because we have been put in a position of driving 

that international agenda and focus. You have seen it with the 

19 

FIFA corruption case; you have seen it with sanctions; you have 

seen it on terrorist financing. That will remain our role, but we 

need to be demanding of our foreign counterparts, in particular 

governments and banking centers that do have capacity and resources to do this well. 

Mr. GURULE. Domestically, I think that there needs to be a better job of information sharing between the Federal regulators and 

DOJ. With respect to HSBC, for example, there are multiple instances where the OCC, which was responsible for auditing and ensuring compliance of HSBC with the Bank Secrecy Act (BSA), 

found multiple violations where the bank was in noncompliance 

with the BSA. And the question is, was that information being 

shared with the FBI? Was that information being shared with 

DOJ? I think there needs to be a stronger partnership between 

those two agencies. 

The Federal regulators are really on the front lines of auditing 

these banks to ensure compliance with the BSA and counterterrorist financing regulations, and we need to ensure that once they 

find a problem, once they find, for example, a failure to file SARs, 

or an ineffective—or they are in noncompliance with respect to having written policies and procedures to prevent terrorist financing, 

we need to engage and make sure that the FBI is involved in looking more closely to see whether or not that noncompliance has resulted in money laundering, the use of the bank by drug cartels 

and terrorists. 

And then second, something that I spoke to just briefly in my 

oral statement, the importance of a counterterrorist financing 

strategy. So to ensure greater coordination, to ensure—between 

Federal agencies, interagency coordination, to ensure prioritizing, 

to ensure that we are not only confronting the current threat, but 

anticipating the future threats and the future methods which the 

terrorists are going to use to move money globally. We need to be 

thinking through that, and ensure that we are not simply reacting 

to the problem and the crisis of today. 

Mr. PITTENGER. My time has expired, but I sure would love to 

hear more. 

Chairman FITZPATRICK. The gentleman from Illinois, Mr. Foster, 

is recognized for 5 minutes. 

Mr. FOSTER. Thank you, Mr. Chairman. And thank you to our 

witnesses. 

When I step back and look at this problem, I think of it sort of 

in two different levels. The first thing is, can we define a world in 

which money laundering is impossible? And then what are the essential features of such a world? And then to step back again, do 

we actually want to live in such a world, because of the implications for the costs and the privacy that will be essential for this. 

And so to start with the first part of the question, what are the 

essential elements of a world where it would be impossible to launder money? Okay. I think at a minimum, you have to get rid of 

anonymous shell corporations in the United States. And is there 

anyone who thinks that even needs an asterisk? It is essentially 

mandatory that you not be able to hide behind that. And that is 

a big part of this, starting by cleaning up our own house first, that 

we have to make the United States a model for at least inside the 

20 

United States, we would not be able to launder money internally. 

My predecessor in Congress just started a jail term for failing to 

attempt to launder money and as part of some other criminal activity. 

But another essential part of this has to be mandatory 

traceability of financial transactions. You simply cannot allow electronic financial transactions where the beneficial owner is not recorded, and it would be some kind of crime not to do that. And is 

there any way around that as an absolute requirement to a regime 

that would make it impossible? Well, thank you. I think I agree. 

And then you have to—because of the volume problem, you are 

going to have to have the ability to do big data analytics on this 

in some way that does not cause privacy concerns, which is a heck 

of a problem and gets to the second part of my question. 

Another essential part, I think, has to be authentication, that 

you have to know when someone claims he is this person, that he 

is the beneficial owner, that you have to have something akin to 

a national digital ID card, where you can’t cheat on it to know that 

you actually know the beneficial owner, and have an electronic 

record of who that person is and it is not some third party. 

So it seems to me that all of these are essential just to clean up 

the financial part and to make it impossible to launder through the 

financial system. And then, as has been brought up by our witnesses, there are two more steps. You have to internationalize this, 

which to me means you are going to have to simply deny access to 

the United States and the world-regulated financial system to any 

country that doesn’t adopt essentially equivalent rules. I think that 

is unavoidable. 

And then, finally, you have to deal with the commodities problem, that everything from Bitcoin, to gold, to hard-to-value assets 

will have to come under the same regime that I have just described 

for financial services. This is a very Draconian set of requirements. 

I think, however, we can waste a heck of a lot of time and money 

if we define a system that has gaping loopholes in it that people 

can immediately drive a truck through. And so, it seems to me that 

we are really facing a binary choice. Do we want to make it impossible to launder money, or do we want to have all of the things I 

have just described? 

Is there something that is sort of wrong with that big picture 

analysis? Are there things that I am missing in this? I have to say 

that I am not convinced which road we want to go down, because 

you are talking about a world where cash is simply not—the benefits of cash where you can have anonymous transactions would not 

be allowed, at least electronically. And a lot of people, including 

me, have a lot of worries about going down that road. 

Are there big points that I have missed in that sort of binary 

choice that we have to make? Mr. Farah, you look like you are 

reaching for the— 

Mr. FARAH. I think that is really a good description of what—sort 

of the macro questions that we are facing. And I think that, to me, 

there is something of a middle ground in taking away the really 

easy advantages that illicit groups have in ways that don’t impinge 

on your privacy or your ability to actually conduct business. I 

think, as John Cassara was talking about, the sheer volume, most 

21 

of it for good stuff, there is a threshold at which if you overregulate, you kill business and our commerce comes to a grinding halt. 

So I think that things like not allowing anonymous shell corporations, I think that basic regulation of commodities and an accounting of how—for example, why, for a certain amount of time, Colombia was exporting more gold than it produced. Those should raise 

red flags. That is not rocket science. That is sort of basic due diligence on your commodities and how they move. The fact that in 

several countries where gold move extensively, you have free trade 

zones built into the airports, so you can fly gold in, walk it to the 

free trade zone without ever declaring it, and reship it to another 

country without it ever transiting in any formal way. That is the 

most basic loopholes that you can begin to close. I think if you— 

Mr. FOSTER. So how rapidly will people—let’s say you close those 

loopholes. Then you have Bitcoin or things like that, and there will 

be billions of dollars flowing immediately. Are we— 

Mr. FARAH. I think the key is to raise the cost of illicit transactions to the point where they are no longer quite so lucrative and 

quite so easy, and over time, you build up, as we have done with 

some success in some ways with drug trafficking money, where you 

began enough regulations that it is no longer that easy, that cheap, 

and that—and with absolute impunity. You raise the cost over 

time. And I think, as I think many of my colleagues addressed, 

that these are rapidly adaptive groups, that you have to be able to 

think rapidly and ahead of the curve, which is something that bureaucracy is not very good at, but if you raise the cost over time, 

you diminish the impact of illicit behavior. 

Mr. FOSTER. Okay. And I guess my time has expired, but I thank 

everyone for their thoughtful participation in this, because it is a 

real decision our society is going to have to make. Thank you. 

Chairman FITZPATRICK. The gentleman from Pennsylvania, Mr. 

Rothfus, is recognized for 5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. I thank the panel for 

being with us today to continue this serious conversation that we 

have been having about terror financing. I would like to direct my 

first question to Professor Gurule. 

In your testimony, you discussed the importance of secondary 

sanctions, and you recommend that the United States both 

strengthen existing sanctions, and potentially impose new ones, 

like those in the Comprehensive Iran Sanctions Accountability and 

Divestment Act of 2010 aimed at the Islamic State. As you know, 

however, the Joint Comprehensive Plan of Action (JCPOA), commonly known as the Iran Nuclear Deal, actually lifted many secondary sanctions against Iran and created loopholes, for example, 

regarding the sale of commercial passenger aircraft, which Boeing 

is already seeking to exploit. 

Do you think it was wise for the President to waive these sanctions as part of the JCPOA? 

Mr. GURULE. Well, I think that perhaps it would have been better to have waited to decide to lift the sanctions, to determine 

whether or not Iran is in compliance with its obligations under the 

Joint Comprehensive Plan of Action. To lift those immediately after 

the agreement was signed perhaps is questionable. 

22 

Mr. ROTHFUS. There are two aspects in dealing with Iran: one is 

the nuclear; but the other is that it is the world’s leading sponsor 

of terrorism. Wouldn’t lifting these secondary sanctions weaken our 

efforts to combat the world’s leading state sponsor of terrorism? 

Mr. GURULE. Well, certainly. And let’s keep in mind that I think 

it was the secondary sanctions that really put the squeeze on Iran, 

and I think forced them to the bargaining table and forced them 

to agree to make certain concessions with respect to developing 

their nuclear sector. And then to take kind of that principal leverage that was used against Iran to bring them to the bargaining 

table and then to lift that, again, raises some serious questions 

whether or not that was premature, whether or not we should have 

waited, permitted some time to determine whether or not Iran is 

going to live up to its obligations under the agreement. 

Mr. ROTHFUS. In your testimony, you also recommend that the 

United States should develop a comprehensive counterterrorist financing strategy. My concern is that the President can’t even articulate an actual strategy to combat the Islamic State militarily. 

It is really not surprising that the Administration has also failed 

to develop a strategy to counter the financing of such groups. 

In your opinion, why hasn’t the Administration done this work 

to develop a plan to cut down on terrorist financing? 

Mr. GURULE. It is a good question that you raise. And one possible answer is that it isn’t a priority of the Administration, despite 

public statements to the contrary, and it certainly goes to the question of the effectiveness of the current U.S. Government’s counterterrorist financing efforts. 

I worked at the Treasury Department. I know how committed 

those employees are, how hard they work to counter this effort, but 

I think that their efforts would be enhanced if it was done in a 

more thoughtful, forward-leaning, forward-thinking, comprehensive 

manner, in terms of targeting priorities, anticipating future methods of moving money for terrorists around the world, and then 

there are specific strategies that have been developed in coordination with other important government agencies to combat those 

threats. So I think the failure to have such a strategy has undermined our overall efforts. 

Mr. ROTHFUS. Mr. Zarate, your testimony also talks about the 

need to develop this comprehensive strategy. Here we are more 

than 2 years—it is June 2016—since the Islamic State was dismissed by the President as the ‘‘JV team.’’ Do you have any insights as to why we don’t have this comprehensive strategy outlined yet from the Administration? Any insights? 

Mr. ZARATE. Congressman, I think we were caught flat-footed, to 

be quite honest. I think our withdrawal in 2011 left us blind to 

what was happening in Iraq. We had established the Iraq Threat 

Finance Cell in 2006, precisely to look at the financial intelligence 

and information around how Al Qaeda and other terrorist groups 

in the insurgency were raising and moving money. That was dismantled, and I think we were caught flat-footed; we just didn’t 

have eyes on the ground, we were no longer looking at it. So I 

think that is one of the reasons. And think we have been playing 

catch-up. 

23 

And to Professor Gurule’s point, in order for sanctions, or secondary sanctions, or any type of tool to work, we have to have the 

intelligence, we have to understand how these financial infrastructures work. We have to understand who their moneymen are; we 

have to understand what brokers they are relying upon; we have 

to understand what the intersection is with the regional and global 

economy; how money service businesses are potentially implicated. 

All of that has to be done, and I think we are playing catch-up. 

And to Professor Gurule’s point, I think we have colleagues at 

the Treasury Department who are working assiduously and with 

enormous energy to try to get at this problem, but I think we are 

doing a lot of catch-up work. 

Mr. ROTHFUS. I yield back. 

Chairman FITZPATRICK. The gentleman from California, Mr. 

Sherman, is recognized. 

Mr. SHERMAN. There is, obviously, division in any political organization, such as the Administration. It may explain why we are 

not going after certain targets. There are those in the Administration trying to do everything possible to reduce the economic power 

of Iran, and now the Administration is considering a $100 billion 

Boeing jet deal so that Iran will be able to efficiently airlift thugs 

to Damascus, where thousands of people will be killed as a direct 

result of that airlift capacity and where hundreds of thousands will 

be driven into exile as a result of that capacity. Perhaps the biggest 

terrorist financial transaction will be licensed by Treasury, that is 

to say, a $100 billion transaction for an airline available to the 

IRGC for its airlift capacity. 

I should also point out that—and this is outside the scope of this 

task force—when we look at financial problems, it is not just our 

enemies; it is our so-called friends. If people want to say, why do 

we have ISIS? We have ISIS because we have Malaki. Why did one 

of the best equipped and most lavishly provisioned armies in the 

history of the Middle East not only fade into nothing, but give its 

weapons to ISIS on the way out, and then leave the money in the 

Mosul Bank? You have to look at Mr. Malaki and we have to wonder why we ever put him into power. 

I want to focus with Mr. Zarate and Mr. Gurule on just how 

much evidence you need to put an entity on the terrorism list. I 

think the book, ‘‘Treasury’s War,’’ says there was once an 80/20 

rule. If you are 80 percent sure, put them on. Now, I see an awful 

lot of IRGC entities that aren’t on. And I wonder—you look at what 

the legal standard is, which is you can put them on unless the 

courts determine it is arbitrary and capricious. That basically 

means the law says you get to do almost anything you want to do. 

I don’t know—I think it is incredibly rare that any entity has gone 

into a U.S. court and said, take us off the list, it is arbitrary and 

capricious to put us on. Some have appealed to the Administration, 

but never has the Administration, to my knowledge, been overruled 

by the court system. So basically, the Administration can do what 

they want. 

Has the thinking in Treasury swung too far in the direction of 

we need more proof, more documents, more files, and more review 

before we put an entity on the list? Gentlemen? 

24 

Mr. ZARATE. Congressman, the standard is a reasonable basis to 

believe that the individual meets the criteria of the executive order, 

and so there has to be a body of evidence. And with the USA PATRIOT Act allowing for the use of intelligence and protecting that 

information, intelligence can also be used as part of the body of evidence. But you are right, that is the lowest standard in the legal 

context that you would allow, and the appellate review is obviously 

the most permissive under U.S. law. 

I think three things are at play: one, there has been more reticence to avoid litigation, because there have been challenges, and 

I think there is a bit of resistance there; two, I think there has 

been a recalibration as to when to use targeted sanctions most effectively. Is it effective to put people on these lists if they don’t 

have any financial connectivity, don’t have any business interest; 

so a more strategic thinking around how you use the list and for 

what purposes— 

Mr. SHERMAN. Are you saying that there are circumstances 

where it is pretty obvious they are a terrorist organization, but you 

just don’t bother to put them on the list because they don’t seem 

to have much of a bank account? 

Mr. ZARATE. It is not necessarily terrorist organizations, but particular individuals, for example, who may be foot soldiers, for example, in Mosul who may not be transacting, may not be have any 

financial benefit. And, frankly, one of the concerns that the Treasury has to deal with is banks and financial institutions dealing 

with a laundry list, as Professor Gurule mentioned, over a thousand STGTs, and the STN list is even longer; so a desire not to clog 

the system with irrelevant names, or less strategic names. So I 

think that is a serious issue. 

And the third is diplomatically, what makes sense. A lot of times, 

the U.S. Treasury and the State Department use the list in a diplomatic way to push action, for example, the Saudi government. And 

sometimes, listing an individual or entity makes sense, and sometimes having a quiet conversation to get the same effect and impact 

makes sense. And so I think there is some degree of that balance 

that takes place. 

So those would be the three reasons I would give as to why you 

have seen the phenomenon you have described. 

Mr. SHERMAN. Mr. Gurule, should we be listing entities more 

quickly, do you think? 

Mr. GURULE. I think that, as you stated, the legal standard is incredibly low. And then on appeal, if a designation is challenged by 

the person who has been listed, again, it is a very deferential 

standard to the administrative agency, arbitrary or capricious. And 

I would say 99 times out of 100, the designee loses. There are very, 

very few cases in which the designation is overturned. So it 

shouldn’t be for fear that, oh, we are going to lose this and it is 

going to be overturned by a Federal judge. 

I guess my concern is listing individuals primarily kind of for 

symbolic value. Okay, now we have listed, we have publicized that 

this guy is a senior member of ISIS, now he has been out and now 

the world knows, and so that has some value, but if there are no 

assets in the United States to be blocked, if there is no evidence 

that U.S. persons are doing business with Abu Bakr al-Baghdadi, 

25 

it seems to me that the designation does not have much value in 

terms of the objective of curtailing funding. If that is ultimately 

what the objective is, then— 

Mr. SHERMAN. Part of the objective is just to punish and name 

shame the individual, but I will agree, maybe you don’t want to do 

privates, but a colonel or a general is worth putting on. 

I just want to, for the record, indicate that this contract to sell 

wea-—planes, I was about to say weapons, because that is what 

they are also, is not $100 billion, but it is tens of billions of dollars. 

I yield back. 

Chairman FITZPATRICK. Mr. Poliquin of Maine is recognized for 

5 minutes. 

Mr. POLIQUIN. Thank you, Mr. Chairman, very much. And I appreciate you bringing these distinguished witnesses before us, and 

all the great work that we have done in the past year on this issue. 

In a very frightening way, I think we all saw in Orlando that for 

all kinds of reasons, terrorism has now reached our shores. And 

this is something a lot of folks have been very concerned about for 

a very long period of time, so many issues that we have already 

discussed today. Lacking a priority by this Administration to stay 

on offense has put us in a very difficult situation, in my opinion. 

Ms. Realuyo, let me ask you this question: What impact, if any, 

would the defeat of ISIS have on a broader impact on interrupting 

money flows to terrorist organizations around the world who look 

to harm us? 

Ms. REALUYO. We have to take a look at the fight against ISIL 

in a specific way. And you have seen various Administration officials actually tout the progress that is being made, if we categorize 

it as a campaign against ISIL in Iraq and Syria. So we have seen 

that militarily and financially. But what has happened is that the 

group has actually metastasized, and this is what the fear is, is 

that they are actually sending people who are—the foreign fighters, 

we are now up to 40,000 foreign fighters, according to the CIA, who 

have traveled to Syria to fight alongside ISIS, including over 200 

Americans. 

Now, the problem that we have is that return of the foreign 

fighters, and I know several of you serve on the Homeland Security 

Committee, where that is the concern that we have. Then the third 

batch that we are worried about is the fight in the Levant, then 

those who are returning to places like Brussels and Paris. And the 

third iteration, which sadly we have seen here in the United 

States, are those who are inspired. 

I think the victims and the families of victims of any terror attack are not making this distinction between ISIL-directed and 

ISIL-inspired. I think a lot of us are kind of caught up with what 

was the categorization of, sadly, the attack in Orlando or San 

Bernardino. The effect is the same, right, if we think of terrorism 

defined as the act of violence against innocents for a political or 

ideological or religious cause. 

What we are seeing, though, is that even if we were to defeat 

ISIL, which is very important, there are three phases of the campaign against ISIL. There is the physical, which is the military. 

There is the financial, which actually has done very well in the last 

year since I last appeared before you. They are down year on year, 

26 

about 30 percent. And as we know, they need money to actually 

pay the foreign fighters and then, more importantly, sustain its caliphate. 

And then the psychological one is what I think is now really coming to the forefront of the average Americans. What does it take 

and how are these people inspired so far away in basements across 

the United States, or in the U.K., or in France, or in Brussels? This 

is the question that we have to ask. 

What is important is that defeat of ISIL, because of its ability 

to propagandize, and then, more importantly, inspire and train, 

which is what we saw in the case of the European attacks, foreign 

fighters who will then return to their home countries to wage jihad 

against their local populations. So it is a very complex issue that 

really has metastasized in a way that not just the United States, 

but other countries across the world now are trying to grapple 

with, this idea of homegrown versus ISIS-directed, and then, more 

importantly, the fight that we see now on the ground, particularly 

in Iraq. In the last couple of days, we have seen the Iraqi forces 

take up arms, and are actually trying to clear and hold parts of 

Fallujah. 

But the financial piece—and to address the other question: So in 

the White House strategy of November 2014, there were nine lines 

of effort, and line number five is disrupting ISIL’s financing. When 

we take a look at grading—since I am a professor, we grade, 

right—the nine lines of effort, the military and the financial have 

actually—we have seen progress on both fronts, but as we have 

seen, these attacks don’t take a lot of money. 

So you have to really keep fighting the fight physically, financially, and more importantly, psychologically. And I know that 

there are other hearings on the Hill this week that are looking at 

this concept of countering violent extremism, both here in the 

United States and abroad. 

Mr. POLIQUIN. Mr. Cassara—if I may, Mr. Chairman. If you 

could pick one thing, one thing only, what would be your primary 

issue to interrupt? What would have the greatest impact, based on 

all the hearings that we have had and all those that you have participated in, all the work that you have done in your career, the 

one thing that would have the greatest impact at interrupting 

money flows to terrorist organizations, what would that be? 

Mr. CASSARA. The thing that I would like to see the most, and 

it impacts more than terror finance, I would like to see trade transparency. We talked about this in the previous hearing. I think it 

is doable. I think the time is right. I think it impacts terror finance; it impacts underground finance; and it impacts revenue 

streams for governments. I think the time has come to aim towards 

international trade transparency. 

Mr. POLIQUIN. Mr. Zarate, same question to you, sir. 

Mr. ZARATE. Without a doubt, disruption and dislodgement of 

terrorists’ control of resources and territory that they use to develop diversified portfolios and war economies. Groups that occupy 

real territory in urban environments not only are able to tax, develop trade schemes, exploit the resources, but they also use those 

environments to serve as an economic shield. 

27 

We have been reluctant to be more aggressive in Mosul precisely 

because we have to worry about the day after, and we have to 

worry about the financial and other infrastructure of that city. The 

reality is ISIS has used that city to fund itself, and to use that as 

a hub, along with Raqqa and its control of other cities, to develop 

a war economy. That is why some estimates have them raising $2 

billion, and even with our best efforts, they continue to raise hundreds of millions of dollars. And so, I would say, whether it is ISIS 

or Al Qaeda or the FARC or Hezbollah, their ability to actually leverage resources and territory is probably the most fundamental 

thing you can do to disrupt terrorist financing today. 

Mr. POLIQUIN. Thank you very much. 

Mr. Chairman, I appreciate it very much. I yield back my time. 

Chairman FITZPATRICK. The gentleman from Arkansas, Mr. Hill, 

is recognized for 5 minutes. 

Mr. HILL. Thank you, Mr. Chairman. And thank you and Congressman Lynch for your significant leadership, and I appreciate 

the ranking member and the chairman of the full Financial Services Committee in sponsoring this task force, because I think it has 

been so important, and I think it has been a demonstration really 

across the Congress of returning to something that was a tenet of 

mine some 30-plus years ago, which was a strong, consistent, bipartisan view on foreign policy matters. And I want to thank Mr. 

Lynch and Mr. Fitzpatrick for demonstrating that in this matter, 

and thank the staff for their hard work, since they also have other 

things to do here at the Financial Services Committee. And thanks 

to our panel for coming back and for your full participation over 

the last year. 

I just can’t help but react to some of the commentary. You know, 

I think the issue that terror finance has really not been on the 

radar screen of this Administration until more recently is due to 

what I think is an a la carte NSC process that has thwarted the 

best judgment of our professionals at the State Department and 

our professionals at the Department of Defense. And it is not my 

opinion, it is Leon Panetta’s opinion, it is Bob Gates’ opinion, it is 

the Joint Chiefs’ opinion, and therefore, we have been behind the 

curve on so many of these issues, as my friend, Mr. Sherman, 

noted. 

And one of those we have been behind the curve on is terror finance. If we had had a better process in working with the Iraqis, 

I don’t think we would have seen the explosion of ISIS out of Syria 

into Iraq, and by not reacting, they got the terror network they 

have today. If we were doing today what—2 years ago or 3 years 

ago, they would not have the terror network that we are so concerned about. So since San Bernardino and Paris, I do commend 

the Administration for changing the rules of engagement, including 

terror finance targets as military targets. It is something I think 

we talked about in our very first hearing of this group. 

Well, as everyone on the panel knows, I have a pet project in this 

terror finance arena, and so I would like to get some views on it. 

First, I commend the Treasury’s draft on eliminating this foreignowned, single-member LLC issue. I think that is a good catch, one 

I personally didn’t know about, that they didn’t even register to get 

28 

a taxpayer ID number, so I think that is an important catch and 

will have lasting benefits. 

Mr. Zarate, as we have talked before and as we have had testimony on this panel, we have talked about this issue, though, of 

beneficial ownership, and the Treasury proposal, in my view, sort 

of misses the mark, because it is too broad, it is 24.9 percent or 

25 percent, it is relying on the usual suspects, i.e., the banks to 

sort of police it and basically report it through a SAR process, 

which is good, or okay, but it is extremely cumbersome, paperbased, burdensome on small institutions, I think way after the fact, 

not very timely, and I don’t think will be effective, and it will end 

up being a major new paper-shuffling exercise. 

But as I have argued in here, I think the IRS data and sharing 

the IRS data, particularly now that we add single-member non-citizen-owned LLCs is the most robust way to have a single data 

source that is all digitized, and it is already in the possession of 

the Federal Government. 

So how do we add properly in 26 U.S.C. 6103 the ability for 

FinCEN to have access to the ownership information you find on 

a K-1 for an LLC and maintain privacy rights and follow our normal procedures? I will start with you, Juan, if I might. 

Mr. ZARATE. Congressman, thank you. And I know that you have 

been focused on this issue for some time. I think you have to create 

a particular carve-out for the IRS to be able to share this information. And to your point, the information doesn’t do much good if it 

is locked up in an archive and isn’t made available to those who 

actually have to regulate and look for problematic trends, individuals, and networks. 

I would also say there has to be a way for the markets to actually understand with whom they are doing business, and so, there 

should be some sharing of the burden. I agree with you, the burden 

shouldn’t always be on the banks to have to determine ultimate 

beneficial ownership, but that does then put the onus on corporate 

registration regimes and entities, including at the State level, to 

actually understand and to have available information about corporations and LLCs that are based in those jurisdictions. 

So I don’t disagree with you, but I think there has to be a very 

specific carve-out to protect privacy and civil liberties, but it has 

to be real time, and there has to be some market mechanism by 

which market actors can share information about who their customers are, because ultimately, we want banks, financial institutions, regulated bodies to understand who they are doing business 

with. 

Mr. HILL. I will yield back, Mr. Chairman, and go another round 

if you have one. Thank you. 

Chairman FITZPATRICK. The gentleman from Kentucky, Mr. Barr, 

is now recognized. 

Mr. BARR. Thank you, Mr. Chairman, and Ranking Member 

Lynch. Thank you for your leadership on this task force over the 

last year. This has been an important exercise in determining how 

we can better disrupt and degrade terrorist organizations through 

the financial streams that seem to end up in terrorists’ hands. And 

thank you to the panel for your insightful testimony. 

29 

I wanted to focus a little bit on this Orlando attack, because the 

FBI has said to us in the aftermath of this tragedy that these are 

the kinds of attacks that are the most difficult to disrupt, the most 

difficult to detect, a lone-wolf scenario, a self-radicalized individual 

for whom normal intelligence gathering efforts are incapable of disrupting these kinds of lone wolf attacks. 

So outside of the Bank Secrecy Act, or referencing the Bank Secrecy Act, is there anything that Federal law enforcement can do 

to identify financial transactions of individuals who are on watch 

lists that could maybe detect, before a tragedy like this, individuals 

who might engage in this kind of activity? Does anyone want to 

weigh in on that? 

Ms. REALUYO. I think, sadly, the Orlando attack shows that people did see something and say something, well beyond the financial 

piece. So from what we know that has been disclosed through the 

reporting and open sources, he obviously transferred the deed for 

a very small value. Someone had to actually do that transaction. 

It is not a banking transaction, but there were probably lawyers involved. 

The other thing as well, our system, because of this $10,000 

threshold, we are always looking at the nature of the transaction 

as opposed to these kind of what I call institutionalized levels. 

So the other thing I study is transactional organized crime, and, 

sadly, we have seen human trafficking as a scourge that is really 

dealing with the migration patterns through the Americas, around 

the world. A lot of those transactions are below that $10,000 

threshold. But we also need to see and figure out, and that is what 

I wrote my testimony on, is how can you actually have the public 

who do see something, say something, know how to approach law 

enforcement or the government, whether they work at a bank or 

another financial institution, or some sort of interaction where they 

can actually take their complaints and, more importantly, their 

suspicions in a safe way to those who could prevent the next Orlando or San Bernardino. 

We saw this too. I had the privilege of going and working with 

the L.A. Joint Terrorism Task Force the day after the San 

Bernardino attacks, and it was pretty interesting to see that after 

the attack, a lot of the neighbors were saying, well, we saw suspicious things taking place, but we didn’t want to say something. 

So I think it goes beyond just financial services, but if we can 

actually educate our public and, sadly, we also have a new generation. So my students at George Washington University who just 

graduated, they were children on 9/11. For them, it was a movie. 

We all know exactly where we were and, more importantly, we 

were inculcated in that culture of see something, say something, 

and we have to get the next generation to be just as aware that 

these people have this intent, irrespective of what the motivation 

is, and want to use violence against innocent people. 

Mr. BARR. To follow up with any of the other witnesses, in the 

financial system, is there a blind spot? Is there something that we 

are not doing in our financial system that we should be doing to 

help identify suspicious financial activity that might tip Federal 

law enforcement to weapon purchases, things like that? 

30 

Mr. GURULE. I think it is difficult, because, again, the lone-wolf 

terror attack does not involve a lot of money. These are financed 

with a few thousand dollars at most. I can’t imagine that the Orlando shooting cost Mateen more than that. And so I think it is 

very difficult to identify any financial transaction that would alert 

or raise some red flag, and then cause law enforcement to react. 

But I am concerned about people who have knowledge of someone 

who is going to commit a terrorist attack, such as the wife and 

other associates of Omar Mateen, and there is no legal obligation 

to disclose that information to the police. 

It is interesting, however, that if you are a schoolteacher, you 

have to disclose information regarding a child who has been physically abused, or you believe has been sexually abused. If you are 

a nurse or a doctor, you have to disclose that to the police, but if 

you are a citizen and you have reason to believe that your boyfriend or close associate is going to launch a terror attack, you have 

no legal obligation to disclose that to anyone. You have not committed a crime by keeping that information to yourself. 

And by the way, if you provide that person some money, let’s say 

for benign purposes, or some other material support, that isn’t even 

a crime. Under the Material Support statute dealing with lone-wolf 

terrorists, it is only a crime if you provide the material support 

knowing or intending that that support will be used to commit a 

violent crime. So if you provide it for a benign purpose, you haven’t 

committed a crime, and you are not prosecutable. 

And so one of the recommendations that I made is that I think 

that those particular statutes, 2339(a) and 2339(b), need to have a 

lower scienter like 2339(b) that says, if you knowingly provide material support to a foreign terrorist organization (FTO), regardless 

of your intent, that is a crime. And I think that we need to bring 

those two statutes in line with 2339(b), and I am not saying eliminate the knowing or intending, but make it a lesser crime if you 

have knowledge that the person is a terrorist, or about to commit 

a terrorist attack, and you provide that person material support. 

Mr. BARR. Thank you. 

Chairman FITZPATRICK. The gentleman’s time has expired. 

We are going to go to a second round of questions. And the gentleman from North Carolina, Mr. Pittenger, is recognized. 

Mr. PITTENGER. Thank you so much, Mr. Chairman. I really appreciate your leadership on this important task force. 

One reference to Mr. Poliquin’s statement and inquiry dealt with 

the data, and your response, I believe, Juan, was that we have legislation that hopefully will get passed before we break, to collect 

data from Customs and Treasury and Commerce, bill of lading and 

other export-import data, and then assimilate that and then provide it to FinCEN and other departments, so Customs and others. 

So at least we are moving that direction on that. 

Ms. Realuyo, I would like to ask you, and Mr. Farah, your 

thoughts in terms of the nexus between the criminal element and 

the terrorist. I know that you are getting ready to have a conference in that regard. And just speak to that issue, if you would. 

Ms. REALUYO. Several years ago, Doug and I began taking a look 

at this convergence of terrorism and crime. Traditionally, terrorist 

groups have state sponsors, and there are still state sponsors that 

31 

do exist, in the case of Iran supporting Hezbollah, but what we 

have seen with contracting Al Qaeda core, which was basically 

funded by donors, as opposed to what we see now in terms of ISIL 

and its other affiliates, Boko Haram, Al Qaeda in the Islamic 

Maghreb, they are actually reliant on criminal activities to support 

and sustain themselves, and some groups have actually moved 

away from the terrorist aspirations and just become criminal 

groups. 

What we are seeing, then, is an actual need now to combine 

those who are doing the law enforcement, military intelligence, information gathering, and then, more importantly, operations to 

counter crime and counter terrorism in a much more interdisciplinary and interagency way. 

So the way we are looking at this is actually we refer to them 

now academically at the National Defense University as illicit networks, which will also include nuclear proliferators, as well as all 

of their facilitators. And this is what we are trying to do, is when 

you take a look at—and Doug can speak much more in depth about 

this, drug trafficking transactions are actually supporting terrorist 

groups, as we have seen through the Lebanese Canadian Bank, is 

that case was briefed to you all here before, but this question that 

we were limiting ourselves by having silos of excellence here in 

Washington, right? Those who did counterterrorism only looked at 

terrorist groups, and those who worked on crime or drug trafficking 

were very siloed. 

What we are seeing now is that our adversaries who threaten 

sovereignty and, more importantly, our economic viability, are actually joining forces, if not becoming these hybrid groups, and that 

is the case when we take a look at things like the FARC, 

Hezbollah, Shining Path, and then, more importantly, the metastasis of ISIL, which is really an auto-financed group, it is something we hadn’t really seen before, that has actually created its 

own territory across two countries. 

I defer to Doug, who can go much more granularly into this convergence that we have actually seen on the ground. 

Mr. FARAH. Thank you, Celina. 

I think it was in the early days a few years back, there was a 

lot of resistance to the idea, because the idea was that terrorists 

didn’t care about money and criminals didn’t care about ideology or 

whatever was diving terrorists. And over time, it became abundantly clear, and I think in the early days, Juan and John and others were working on in the policy world and on the ground seeing 

exactly how, for example, Al Qaeda was able to use blood diamond 

flows controlled by Hezbollah in West Africa to move and hide their 

value. And as you see that I talked about today, gold and other 

things are available to them. And it doesn’t matter anymore on the 

ground really what you belong to if you are—because so many 

groups are in the money-making business together. And I think 

that goes back to one of the points I was making in my testimony 

about states that allow this or protect transnational organized 

crime as instruments of policy. 

So when you have Venezuela using the FARC, which is both a 

designated terrorist organization and a major drug trafficking organization, as an instrument of their foreign policy and allowing 

32 

them safe harbor and constructing in their country a safe space 

where Hezbollah can come, where multiple other terrorist organizations can come, learn how to benefit from the drug trafficking and 

exchange methodologies and thoughts, then you have an entirely 

different level of complicity and convergence in ways that are very, 

very hard to disentangle. 

Mr. PITTENGER. Can I ask you a quick question? Do you have a 

concern with FARC, the agreement between FARC and Venezuela? 

Mr. FARAH. Yes, sir, I do. I would say there is a potential, there 

is a template that other groups have followed that I think that the 

FARC is very well advised on and is likely to follow. I think the 

primary leader, or the designer of the template are both the FMLN 

in El Salvador and the FSLN in Nicaragua, where they learned 

that they could take control of the state. Hugo Chavez and Fidel 

Castro are not exempt from this as well. They also are the brains 

behind how to move into the process as a political force, get rid of 

all the moderates in that political force that you create, and go almost directly into illicit financing mechanisms to perpetuate yourself in power with the complete absence of accountability. 

I think in my written testimony, I noted that, for example, Dan- iel Ortega has acknowledged that he gets about $500 million a year 

from Venezuela, supposedly from the sale of oil, which is not nearly 

that much, which is essentially his personal slush fund. It 

doesn’t—it is 20 percent of the national budget that is not allocated 

in the national budget in any way and which there is no oversight. 

In El Salvador, you have Alba Petroleos, which is generating, by their own accounts, $1 billion a year, which is 23 percent of the national budget, which does not go through any appropriations process, any oversight whatsoever, and is simply the slush fund of senior party leaders, who have deep ties to the FARC, which allows 

the FARC to move money out and launder it through their state 

structure. 

So I think that is an enormous problem, which the FARC is 

going to take full advantage as they move forward, because I think 

at the end of the day, one, it comes down to one’s assumptions. The 

FARC are genuinely interested in becoming—incorporating into the 

peace process and joining the democratic process, because that is 

what they believe, or is it an extension, is the peace process an extension of their political agenda to take power and hold it over a 

long period of time? I believe the latter. 

Mr. PITTENGER. I thank each of you for your invaluable insight 

and assistance. 

I yield back. 

Chairman FITZPATRICK. The ranking member, Mr. Lynch, is now 

recognized. 

Mr. LYNCH. Thank you again, Mr. Chairman. 

Professor Realuyo, in your remarks, you identified those five or 

six points that you really got to focus. I want to talk about point 

four, which is enhancing our financial intelligence in some of these 

areas, and especially Iraq and Syria where that is going on. 

We have a bill that I think has four Republican Members and 

four Democratic Members here, to establish basically a reward system that allows and enables the Secretary of the Treasury to prepare a reward system for intelligence coming out of that area. One 

33 

of our great difficulties is that we don’t have boots on the ground 

in a lot of these spots. You are right, it is a very unique auto financing system, they have control of territory, and we don’t have 

a whole lot of information coming out. So one of the thoughts was 

to, and not only in this case with ISIL, but with other—I think Mr. 

Cassara has described them as criminalized nation states, being 

able to get information through whistleblowers or people who will 

come forward. 

Do you think that is a practical approach to try to incentivize 

some greater intelligence capacity within our partner states, and 

also with insurgencies that are going up against Bashar al-Assad 

and some of these other, more criminalized nation states? 

Ms. REALUYO. What I think you are referring to is something we 

call Rewards for Justice, a type of model. And it actually worked 

in terms of the very beginning of our engagement in Iraq to find 

Saddam Hussein and his sons. And actually, those who helped 

identify and locate Saddam Hussein are now living in the United 

States as their reward for justice. So it is an interesting way to 

complement the types of things that we are doing on the financial 

front, but also internally, we still need to invest a lot more in terms 

of those who are within our U.S. Government on how to use and 

then, more importantly, validate that type of information that 

might be coming, because if it is just a question of, like, we call 

confidential informants that we use throughout law enforcement 

agencies, such as the DEA, we have to figure out a better way to 

do that. 

So the question is, how do we enhance our own intelligence capabilities, whether they be in our military or across the greater and 

broader U.S. Government, on how to keep up with—and this is the 

thing, I think, most of us are quite concerned with. I know Juan 

and I have talked about it. 

Financial innovation and financial technology is moving at an 

unprecedented pace, and unfortunately, a lot of the talent and 

those who can detect the backdoors to these very constructive technologies that help us, whether they be virtual currencies or mobile 

payments, we need to get that kind of brain trust into the U.S. 

Government to help us take a look at these new anomalies. And 

that is what we are looking at, more ways to proactively promote 

public-private partnerships, which has been embarked, by the way, 

in the area of cybersecurity, because the firms that we are working 

with really understand the cost of these cyber breaches, we should 

impart that into financial services and the broader sector with the 

same aplomb as we are doing in the cyber sector. 

Mr. LYNCH. Great. 

And, Mr. Zarate, you have had a good perspective inside Treasury. One of the frustrating parts for us on this committee is when 

we—we were in the Gulf recently, and we got—one of our Treasury 

attaches is trying to interface with the FIUs in those areas. We 

have one young agent there who is handling five different countries. So we are understaffed. And with the complications with 

money coming out of the Gulf going up to Iraq and Syria, it is a 

real problem. 

We have a bipartisan amendment to try to push through some 

more money to FinCEN and parts of Treasury that would deal with 

34 

that, OTA and other departments. How critical is that to—as the 

professor pointed out, we are in a competition for this talent, and 

the folks who are really, really keen on some of the cutting-edge 

technology in the financial services area are being pulled away by 

big money, understandably, by the private firms, and that is why 

these partnerships are so important. 

How critical is it to make sure that we get the resources to hire 

the people, and especially with—as Mr. Gurule has indicated, I forget how many money service businesses are out there, but just to 

get coverage on that, how important is it to pump more money into 

FinCEN and Treasury so that we plus-up our capacity within the 

government? 

Mr. ZARATE. I think it is incredibly important. And I think you 

are right that we have been under-resourced in a whole range of 

areas in this domain for a good period of time. And I will tell you 

that what you saw out in the Gulf was actually leaps and bounds 

beyond what we had when I was there, when we were fighting for 

budget dollars just to put one attache out there. Now you have, I 

think, three in the Gulf region. But I think you are absolutely 

right. The international presence has to be deeper. The technical 

expertise has to be present, and you are right that the market 

itself is sucking the expertise out of the U.S. Government. I work 

a lot with the private sector now on the outside, and a lot of these 

major global banks look like Treasury alumni associations— 

Mr. LYNCH. Yes. 

Mr. ZARATE. —and all of the key global compliance officers are 

all Treasury alumni, and for good reason— 

Mr. LYNCH. Yes. 

Mr. ZARATE. —for good reason, but it does demonstrate that 

there is a real demand in the private sector and in the public domain. 

A final point: I think we now realize, and this comes from the 

years of experience that is represented on this panel, that these 

issues are not just critical to financial regulation, but they are central to our national security. And we have underinvested in this domain, both in the context of our tools and resources, but also our 

long-term strategic thinking in this domain. If you look at this compared to our DOD dollars, and those are important, I am a huge 

fan of our kinetics and our military force and projection, but if you 

look at it in comparison, it is miniscule, when in many regards, 

this is a key asymmetric power for our country, and we need to be 

thinking strategically, we need to be adapting quickly, and we need 

to contend with the fact that our enemies are thinking pretty creatively around our controls and our power, and that starts, first 

and foremost, with the office we created, the Office of Terrorism 

and Financial Intelligence, they need to be resourced. 

Mr. LYNCH. Thank you. I know I am over my time, and I appreciate the chairman’s indulgence, but just to put a finer point on the 

talent cycle here, even here on our subcommittees and task forces, 

Treasury is hiring away our staff, because someone else is hiring 

away their staff. And so, I guess it is— 

Mr. ZARATE. Robbing Peter to pay Paul. 

35 

Mr. LYNCH. There is just—we have to train a lot more people on 

the things we are working on, but I am preaching to the choir here. 

As a group, you have been tremendous on this stuff. 

I yield back. 

Chairman FITZPATRICK. The gentleman from Arkansas, Mr. Hill, 

is recognized. 

Mr. HILL. Thank you, Mr. Chairman. Just before I switch subjects, if I could return back to this issue of beneficial ownership 

and just continue my visit here on that. 

So I understand the States and State incorporation laws, and 

there is a lot to be done there, and I am for any innovative suggestions on that. But still, regardless of that, whether I incorporate in 

Delaware or I incorporate in Arkansas, if I have an LLC, and it is 

domestic, I have a taxpayer ID number. And every year I file a balance sheet and K-1s for all those investors, at every percentage, not 

25 percent, but at .9999 percent. 

Therefore, I think it is a superior support with also a legal basis 

that it has to be accurate or you violated Federal law. Whereas, the 

statutes on, do I fill out my LLC information form with the Secretary of State, I am not sure how imposing that is. 

So I would like other members of the panel to kind of react to 

Mr. Zarate’s and my little colloquy we have had. Any other 

thoughts on this subject? 

Mr. GURULE. I would add simply that, again, it seems to me that 

it is a critical component of know-your-customer. Know-your-customer has been a fundamental principle guiding transparency with 

financial institutions through the Bank Secrecy Act for decades. 

Mr. HILL. Right. 

Mr. GURULE. And I think that it is really part and parcel of that. 

I don’t think that the principle of know-your-customer is being fully 

implemented if we don’t know who the beneficial owner is of the 

particular company that is the customer of the bank. We have a 

CIP program that again requires—regulations require a customer 

to identify itself, and his name and address basically. And I don’t 

think that goes far enough. 

And so I think to fully implement the requirement of KYC to 

fully understand who you are doing business with, we need that information. And I don’t think that it is an unreasonable request to 

impose on banks. 

Mr. HILL. Fair enough. And I don’t—I can understand that point 

of view. And people already have that Gramm-Leach-Bliley obligation. It is a legal obligation they have. They have an obligation to 

file an SAR when they see something that merits that. So those are 

already in place. In other words, they should know their beneficial 

owners, particularly in a credit situation. I would argue they know 

them all intimately because of the guaranty process to get that 

credit facility put in place. 

But I am up here at a macro level saying, if I was trying to collect big data and I wanted it in a consistent format, and use some 

discovery techniques that are consistent with the Fourth Amendment, all this talk about whether the banks have it digitized or it 

is in paper in their files and all is, you know, a more—it is less 

robust than an IRS solution if I were looking for the needle in the 

haystack. So that is my comment on that. 

36 

Anybody else want to go there? Probably not. Good. I have worn 

you out. 

So let me, if I could, switch to—well, let me do one thing before 

I switch to Section 314. How about the idea of a utility format for 

this data repository at the state level? We have automated secretaries of state, we have paper-based, we have robust Internet accessibility. I would still argue it is not timely and it is not impressive. 

But we can automate it. 

So what about a utility-type structure? Mr. Zarate, do you want 

to start with that, and then others, to tackle this beneficial ownership issue? 

Mr. ZARATE. Congressman, I think the utility model is incredibly 

important to pursue, not just in the context of ultimate beneficial 

ownership information (UBO), but more broadly to provide a new 

model for how the anti-money laundering system itself works. 

I think we will talk about 314 in a second, but the reality is the 

current system is very much stovepiped institution by institution, 

transaction by transaction. We are now moving into an age when 

not only can we deal with big data, but we have potential use of 

AI technologies, the ability to collect data and analyze it in ways 

that are helpful not only to look at the past but also even predictive ways. And there are ways of collectivizing the risk and looking at vulnerabilities across sectors, as opposed to just one institution at a time. 

And so to your point, I think a utility for purposes of State registry of corporations and ultimate beneficial ownership, is a great 

idea because people need access to that information, be they a bank 

or a car dealer or another regulated entity. But more broadly, and 

I think a big idea that stems from this, is we need to think aggressively about how we use new technologies to actually make this 

system more effective, to use the data we have. We have a lot of 

data. And it is part of what this task force has been looking at. And 

to use that technology to actually protect privacy and civil liberties, 

while also making the information more valuable on a real-time 

basis. 

So we have talked a lot about this over the years, but there is 

now an opportunity, given the technology, to create a sense of a 

utility not just around particular data points, but around the entire 

system itself. 

Mr. HILL. Thank you. 

Mr. Chairman, may I have—would you yield me a minute? 

I just want to touch on 314 about this issue of collaboration, Professor Realuyo, you mentioned—do you anticipate that the best approach to that is another center like our center in Pittsburgh on 

cyber or do you view it as just statutory protections that allow collaboration when it is needed? What do you think the best way to 

achieve collaboration is from our point of view as legislators, where 

there needs to be a framework, some sort of a legislative framework change made? 

Ms. REALUYO. I have my lawyers here. But the real problem, and 

more importantly, we have been working on at our agency on 

counterterrorism and countercrime issues. You have to—on top of 

having actual requirements for information sharing and mechanisms for really timely information sharing, because we see now 

37 

that our adversaries are moving in milliseconds. And if you are 

aware of an app called WhatsApp that the rest of the world is 

using, you can really send instructions quite quickly. And we are 

only catching up in terms of this piece. 

You have to create this culture of sharing. And I think it has 

taken—for example, the military, for jointness, it has taken decades for them to actually become what they call purple. So we need 

to incite, and more importantly, when we are looking inside the 

tragedies like Orlando and San Bernadino, highlight the fact that 

we are not sharing at light speed, even though our adversaries are 

operating at light speed, and then use legislation that compels and 

create mechanisms. 

So you have to have the actual legal framework, and then within 

the legal framework, have the institutions who have—led by people 

with political will to actually enforce that legislation, and then 

have these actual mechanisms that can incorporate real-time data 

and information, and then pass it along to those in law enforcement or in the intelligence or military to actually act upon it. 

We have greatly improved in the last 15 years since the tragic 

attacks of September 11th, but we have to see how these different 

facets help us to achieve the mission of countering terrorist financing. 

Mr. HILL. Would any other panel members like to comment on 

that? 

Mr. ZARATE. I can weigh in and defend Celina, if you like, sir. 

A couple of things—I think the Pittsburgh Center is an important 

model because it creates a discipline around the information sharing that is more than just sharing one piece of data at a time. It 

is about looking at trends, looking at particular cases. 

In the U.K., they are experimenting with a model called JMLIT, 

which is a joint money laundering task force that is actually combining the private sector and the public sector in a more aggressive 

way. So I think more aggressive information-sharing models work. 

One thing to keep in mind—and I know this task force has traveled a lot and has great influence when you meet with counterparts. One of the restraints internationally, though, is in laws 

around the world that prevent the sharing of customer data and information, even within a global institution. So a major global bank, 

let’s say based in the United States, can’t necessarily see on a realtime basis information about a customer or a transaction that happens in Malaysia or that happens in Turkey, in part because there 

are restrictions as to how that data can flow outside the borders 

of that country. 

In a global enterprise, when we are asking institutions to manage their risk and where we want real-time information sharing, 

that is a 19th Century model for how we manage risk. And I think 

we have to take that up not only internally, but also with our counterparts around the world. 

Mr. HILL. Thank you, Mr. Chairman. I yield my time back. 

Chairman FITZPATRICK. The gentleman from Arkansas, Mr. Hill, 

has yielded back. And with that, the time for all questions has expired. 

I also want to again thank our witnesses for their testimony, not 

just today, but for your willingness to appear before this task force 

38 

on multiple occasions and for providing your expertise even between hearings. 

One of the things we tried to do with this task force was recognize the body of sort of your life’s work, what you do each and 

every day, which is think about and work to protect our country, 

the citizens, the economy, and bring that focus back here to the 

House Committee on Financial Services. 

And one of the other goals I had for the task force was to make 

sure that, as we look back at the work between the members of the 

task force and between parties, that there would be no light between us, since we are all singularly focused on the goal of chasing 

down terror finance, cutting it off, and keeping our country safe. 

And that occurred largely as a result of the work of Ranking Member Stephen Lynch, who has been really an incredible partner 

throughout this process. And I want to thank Mr. Lynch for his 

work. 

And the work that we have going forward, we have a series of 

bills that are going to be coming out here. 

And finally, I think the witnesses would all recognize that the 

work we do is supported by a lot of staff back in the office. They 

are the ones who keep the wheels turning. And Joe Pinder—when 

this idea was first brought to the Committee on Financial Services 

and presented to Mr. Pinder, not only did Joe immediately embrace 

the idea of going forward with this task force, he had already in 

his mind been thinking about this for some time; this is something 

he has a special interest in, and he has brought an incredible expertise to this. 

And so, Joe, I want to thank you for what you do, what you have 

have done for the task force, what you do for our committee, and 

have done for our country. 

But the members of the task force have committed a lot of time 

and effort over the course of the last year. I see French Hill is still 

here at the very end. And French has never missed a meeting, and 

has been an incredible resource with his background both in the 

Administration and now as a Member of Congress, as well as in 

the financial services sector. He is laser-focused on the issues, not 

just the ones he talked about here today, but the ones he has been 

talking to us about for the last more than 12, probably 18, months 

as we went through this work. 

So with that, I just want to again thank the witnesses for what 

you have done for us. We are going to keep in touch. When the report comes out, that will be a result of staff work. There is a series 

of bills that will be introduced very shortly. And as those bills are 

introduced, it is our commitment to the witnesses to keep you engaged with us as we ask for your support. We believe these bills 

are as bipartisan as the work of this task force has been, and we 

hope to see them on the Floor soon and hopefully over to the Senate after they pass the House of Representatives. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without obVerDate Nov 24 2008 16:41 Aug 16, 2017 Jkt 025849 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 K:\DOCS\25849.TXT TERI
39 

jection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

With that, and without objection, this hearing is adjourned. 

Thank you very much. 

[Whereupon, at 12:20 p.m., the hearing was adjourned.] 

(41) 

A P P E N D I X 

June 23, 2016 

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25849.001

John A. Cassara 

Written Statement for the Hearing On 

"The Next Terrorist Financiers: 

Stopping Them before They Start" 

Before the 

Task Force to Investigate Terrorism Financing 

Of the House Financial Services Committee 

June 23,2016 at 10:00 A.M. 

Chairman Fitzpatrick, Ranking Member Lynch and members of the Task Force to 

Investigate Terrorism Financing, thank you for the opportunity to testify today. It 

is an honor for me to be here. 

On February 3, 2016, I was similarly honored to appear before this Task Force to 

testifY on a topic of great concern -trade based money laundering and value 

transfer. i 

I am pleased to note that as a result of the referenced hearing, there has been 

additional focus on trade-based money laundering (TBML) and its links to terror 

finance. I am also heartened that the Task Force has explored some of the 

recommendations in my testimony. 

The focus oftoday's hearing is to summarize findings but also identifY emerging 

terrorism financing threats so that we can act to mitigate coming dangers. So this 

morning, I would like to shift my focus away from TBML and take this 

opportunity to discuss another topic that I have also been concerned about for 

many years. It is already dramatically transforming financial services in areas of 

the world in which our adversaries operate. 

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25849.002

Exponential Growth 

In 2008, I wrote an essay published by the Department of State titled "Mobile 

Payments a Growing Threat."ii Eight years later, the threat has materialized. 

Mobile payments is actually an umbrella term that covers diverse high-tech money 

transfer systems such as digital precious metals, Internet payment services, prepaid 

calling cards, and M-payments (i.e., money and e-value transfer via the use of cell 

phones). 

(Note: I am limiting my remarks to mobile network operators where transactions 

are generally processed over the operators' wireless network/s. I will not address 

mobile payment services offered by financial institutions or the mobile payment 

service provider model where the provider offers mobile payment capabilities to its 

service users which may include merchants.) 

The growth of access to cellular devices is breathtaking. In 1990, there were 

approximately 11 million mobile phones worldwide.iii In 2016, the number of 

mobile lines in service has surpassed the global population!iv By 2010, more 

people will have mobile phones than electricity and running water. v 

The GSMA, an organization that represents the global mobile industry, estimates 

that there are now approximately 411 million mobile money accounts in the world. 

The total was increased by almost a third in 2015. There are approximately 270 

mobile money services operating in 93 countries. More than one billion mobile 

money transactions were processed in December, 2015. vi 

We should cheer these developments. The G-20 included "financial inclusion" on 

its priority agenda to help over two billion adults around the world who have 

limited access to financial institutions. vii As an example, only an estimated four 

percent of Mauritanian adults have bank accounts. viii 

I know many of Task Force members are international travelers. Many of you 

have traveled extensively in the developing world. Undoubtedly, you have 

observed how easy access to M-payments via the ubiquitous cell phone is 

transfom1ing lives by providing a much needed link to contemporary financial 

services at a reasonable price. Users are not required to have a bank account or 

credit card. Countries without modem financial and communications 

infrastructure are able to "leapfrog" directly into cutting edge networks. 

For example, in Tanzania only 12 percent of the population is engaged in the 

formal financial sector. Mobile banking services fill the gap and, as a result, are 

2 
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25849.003

expanding rapidly. The Central Bank of Tanzania estimates that the equivalent of 

$650 million is transferred each month through mobile transfers. ix 

In Kenya, using 2013 data, an astounding 43 percent of Kenya's GDP flowed 

through M-Pesa, the country's leading mobile money service provider.x Twentythree million Kenyans use M-Pesa or 90% of the adult population. There over 

100,000 M-Pesaagents in Kenya.xi 

How it Works 

The following is a very simple summary of how money moves via cell phone. 

I. The subscriber/user gives cash to an M-payment outlet. Sometimes these 

are nothing more than a small "mom and pop" kiosk or a convenience store 

in a rural village or city street. The user pays a small fee generally based on 

the amount of money involved. 

2. TheM-payment center transfers the money electronically through the phone 

company to the receiver's cell phone. 

3. The recipient receives a text message informing him/her that the transfer to 

his "electronic-wallet" is complete. 

4. The recipient uses the credits. 

M-payments allow the purchase of products, services, payment of bills, the transfer 

of money person to person (P2P), the facilitation of micro payments for low value 

repetitive goods such as mass transit, the settlement of utility bills, payment of 

taxes, school fees, health, and many other services. Salaries and government 

benefits can be credited to cellular devices. M-payments have empowered small 

business creation. Remittances from migrant workers are sent home via the use of 

cell phones. 

Unfortunately, this wonderful development in financial services is also going to 

have dangerous side effects that I believe deserve the attention of this Task Force. 

Money Laundering and Terror Finance Dangers 

I spent a career traveling the world investigating financial crimes such as fraud, 

money laundering and terrorist finance. I firmly believe that unless we move 

quickly to engineer new forms of data collection and analytic tools in M-payment 

systems and also put in place regulatory and enforcement countermeasures we will 

pay a very heavy price. In fact, there are signs that the abuse of the mobile 

payment industry by criminal elements is already happening. 

3 
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25849.004

I would like to reference the three distinct stages of money laundering and explain 

how M-payments are used in all three. 

The first stage of money laundering is "placement" of illicit cash into a financial 

institution. There are many ways this occurs. One of the most prevalent methods 

both in the United States and around the world is "structuring," sometimes also 

known as "smurfing." For example, a professional money launderer takes a large 

amount of drug dollars and divides it into small amounts. He gives the small sums 

of money to "runners" or "smurfs" to deposit. The transactions are done in ways 

that attempt to avoid government mandated financial transparency reporting 

requirements. Financial transparency equates to financial intelligence. To put 

things in context, in the United States approximately 17 million pieces of financial 

intelligence are forwarded to the Treasury's Financial Crimes Enforcement 

Network (FinCEN) every year. Financial intelligence helps analysts and law 

enforcement officers follow the money trail. Most countries have similar types of 

financial transparency countermeasures. 

With M-payments criminals now have a new way to "place" the proceeds of crime 

into financial networks. For example, a professional money launderer recruits a 

number of runners and gives them the proceeds of criminal activity. Small street 

sales of drugs, stolen property, or even suspect charitable or terror financing 

contributions can be laundered in this manner. The runners then go to M-payment 

establishments and use the illicit funds to load up their cell phones with money or 

"e-value" under the maximum threshold level. At the end of the day, the runner 

will be directed to forward the mobile money credit to master accounts controlled 

by the money launderer. This technique has been labeled by the Asian 

Development Bank as "digital smurfing." In contrast to money laundering where 

cash is placed into traditional financial institutions and sometimes money service 

businesses (MSBs), these structured M-payment placements are not transparent. 

With few exceptions, financial intelligence is not generated. And practically 

speaking, as I describe below, digital smurfing in most countries of concern is 

immune to law enforcement counter measures. 

The second stage of money laundering is "layering." Once the illicit funds are 

"placed" into a financial institution, the objective is to layer the dirty money by 

multiple transfers and transactions thereby confusing the paper trail and adding 

multiple levels of venue and jurisdiction. Layering makes it very difficult for 

criminal investigators to "follow the money." 

With M-payments, layering will be taken to new levels. In most jurisdictions, 

mobile value can be transferred from account to account and then directed to a 

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financial institution or MSB either in the host country or perhaps wired to another 

country or even an offshore haven. Mobile value can even be credited to an online account or perhaps used to purchase virtual currencies in cyberspace. A 

myriad of formal and informal money transfer systems such as hawala can also be 

added to the equation to further frustrate criminal investigators trying to follow the 

money trail. M-payments can also be used in hawala networks as a 21st century 

means of settling accounts between brokers. In short, layering schemes are only 

limited by the criminal's imagination. 

The third stage of money laundering is defined as "integration." Once the dirty 

money is placed and layered, fronts for a criminal organization integrate the 

laundered money back into the economy. They might buy luxury vehicles, palatial 

homes, invest in shopping centers, the stock markets, and commercial enterprises 

of all sorts. 

For example, the daughter of one ofthe worst kleptocrats in Africa has a net worth 

of billions of dollars. The country concerned has tremendous natural resources. 

The money controlled by the kleptocrat's family could be described as "fruits of 

corruption." In order to help "integrate" or legitimize the laundered ill-gotten 

gains, the kelptocrat's daughter has invested in cell phone carriers and M-payment 

providers in multiple countries. 

In another example cited by the U.S. Department of State, in the West African 

country of Cote d'Ivoire funds are already being laundered via these M-payment 

techniques. In Uganda, also according to State Department reporting, "a 

significant portion of financial transactions ... take place in the form of 'mobile 

money' payments and transfers, which could be abused by individuals and entities 

engaged in money laundering, terrorist financing, or other forms of financial crime. 

. . While the AMLA (financial intelligence unit/FlU) requires financial institutions 

to conduct comprehensive customer due diligence, it does not put the same 

requirements on mobile money transfers."xii 

While sub-Sahara Africa is the region where mobile money is most widely spread, 

South Asia, the Caribbean, Latin America, and the Middle East are also rapidly 

expanding mobile financial services. Per industry sources, the following are a few 

examples of some of the most successful examples of M-payments; the 

Philippines, Bangladesh, Pakistan, and Afghanistan.xiii Some ofthese countries 

already boast millions ofM-payment users. 

Unfortunately, these same countries also face terror finance challenges and 

likewise have extremely weak anti-money laundering/counter-terrorist finance 

(AMLICFT) enforcement. In all of the above examples, due diligence practiced by 

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mandated reporting entities such as banks, money service businesses (MSBs), and 

designated non-financial businesses and professions is generally very weak. The 

FlUs are challenged- if not ineffectual- and law enforcement and prosecutors are 

hampered by a lack of expertise and capacity. To put things in perspective, in 

2015 the Philippines had 0 convictions for money laundering; Bangladesh had 1 

conviction; Pakistan had 0 convictions, and in 2014 (the last year statistics are 

available) Afghanistan reported only 4 money laundering convictions. 

Realistically, there are no current tools to help law enforcement and intelligence 

officers identify and untangle suspicious M-payments in these and other countries 

where our adversaries operate. And as far as I am aware, none are on the horizon. 

My point is that some skeptics might claim that there are few current cases linking 

mobile payments with money laundering and terror finance. I am convinced that 

currently there are many incidents and they will increase rapidly in the coming 

years. Cases are simply not recognized because the necessary technical 

infrastructures are not in place to trigger "red-flags." Moreover, there is a lack of 

understanding of the new M-payment threat and a corresponding lack of financial 

crimes investigative capacity in most of the countries concerned. There has been a 

rush by entrepreneurs and mobile payment carriers to develop the technology and 

deliver services while for the most part ignoring countermeasures that could be 

engineered into the systems to help thwart money laundering and terror financing. 

Some countries are being careful. For example, M-payments in Lesotho are 

flourishing. So the Central Bank of Lesotho mandated that mobile money systems 

such Ecocash and M-Pesa must adhere to the Lesotho Money Laundering and 

Proceeds of Crime Act. The Central Bank issued guidance that was developed to 

conform to "international best practices and standards." M-payment providers are 

mandated to follow AMLICFT compliance programs. All transactions must be 

local and the amounts transferred have daily and monthly limits. In order to 

transfer higher amounts, know-your-customer (KYC) rules apply and subscribers 

are required to present their passport and proof of their sources of income. The 

system also has unusual behavior triggers which can lead to a suspicious 

transaction report (STR) being filed with the financial intelligence unit (FlU). xiv 

The Lesotho model will help mitigate the digital smurfing risk. It will work for 

them because the size of the customer base is manageable. Lesotho has a 

population of two million. The real challenge will be to implement M-payment 

AMLICFT safeguards for large user communities. 

For example, there are more mobile phones in Brazil than people, with 

approximately 275 million subscribers in a population of approximately 200 

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million or approximately 100 times the population of Lesotho. Brazil is the 

fourth largest mobile market in the world. Yet despite the extensive mobile device 

penetration, mobile payments have been relatively slow to catch on. That will 

change soon.xv 

Action Taken by the United States 

So what is the United States government doing? The short answer is not much. 

Eight years ago when I first wrote about "the growing threat ofM-payments," the 

idea of money laundering and terror finance via cell phones was mostly theoretical. 

In the interim, Treasury's Financial Crimes Enforcement Network (FinCEN) was 

given the mandate to sort out the myriad of legal, regulatory, and enforcement 

issues. Little was done. 

U.S. regulators did make clear that existing financial services regulations apply to 

mobile banking and mobile payments providers. FinCEN announced "that the 

acceptance and transmission of currency, funds, or other value that substitutes for 

currency from one person and the transmission of currency, funds, or other value 

that substitutes for currency to another person or location, by any means, 

constitutes money transmission" and is ... "subject to relevant FinCEN regulations 

for AMLICFT purposes, either as part ofthe requirements on banks applying to all 

of their products and services, or as part of the requirements on money 

transmitters, a subset of regulated "money services businesses." xvi As such, mobile 

banking and mobile payment providers are required to register with FinCEN, be 

licensed in most of the states where they operate, and follow traditional financial 

intelligence reporting norms. 

However, it gets complicated. According to the government's own data, FinCEN's 

MSB registration program has not been successful. xvii The diversity and 

accessibility ofthe MSB sector presents challenges for regulation and oversight. xviii 

Moreover, many of the businesses involved in the transfer of money through 

mobile devices aren't financial institutions. Some argue that companies involved 

in mobile payment systems that don't meet the established definition of providing 

banking services aren't subject to anti-money laundering enforcement scrutiny, 

regulation, or even consumer protection laws. Undoubtedly, more years will go by 

while industry pushes back against the requirements. 

In addition, there doesn't seem to be a sense of urgency to deal with these issues. 

While the use of M-payments will continue to grow, we have a social-economic 

culture that includes very well-established electronic payments systems with 

numerous existing options to meet consumer needs outside of mobile. Moreover, 

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some observers in the U.S. have voiced concerns about M-payment 

interoperability, security, availability, consumer protection, etc. 

Yet in most jurisdictions overseas, these concerns do not dominate discussion. As 

noted, many countries are hampered by weak anti-money laundering controls, 

enforcement, lack of capacity and expertise, corruption, and the lack of political 

will to seriously confront money laundering. M-payments are thriving in these 

same areas and I believe they represent clear and present money laundering and 

terror finance dangers that will accelerate globally in the very near future for the 

simple reason that criminal networks always gravitate towards the weak link. 

What Should be Done? 

Similar to my earlier testimony on TBML, I am somewhat optimistic about 

engineering AMLICFT safeguards into M-payments. As with TBML, M-payments 

generate big data. Advanced analytics can be applied. For example, current fraud 

frameworks and security intelligence platforms are agile and can be adapted to 

various architectures and use cases. They are currently being used by both global 

banks and telecom companies for financial crime detection, public security and 

regulatory purposes. Technology enables identity management capabilities and 

risk scoring using rules, predictive models, anomaly detection, as well as link and 

association analysis. In short, "red-flags" can be engineered into M-payment 

systems that could automatically trigger alerts, suspend suspect transactions, and 

generate the filing of financial intelligence reports with the host country's FIU. 

The worldwide growth of mobile money services does necessitate banking and 

telecom regulators to work together to allow mobile platforms to work. This type 

of cooperation is challenging. And while there will be some costs for theMpayment industry, I believe M-payment providers should welcome robust antifraud and AMLICFT safeguards because they cannot afford being labeled as 

facilitating financial crime. 

Overseas, ready markets already exist forM-payment AMLICFT safeguards. I 

encourage U.S. data and analytics innovators to get involved. If government does 

not wish to take the lead, I would like to see industry or a neutral and wellrespected organization or think-tank convene an open forum where concerned law 

enforcement representatives, regulators, representatives from mobile carriers, and 

big data and analytics companies can discuss both the challenges and the 

opportunities of engineering AMLICFT countermeasures into M-Payment systems. 

Perhaps an analytic solution could be developed and shared with interested mobile 

operating platforms and host country FlUs in the developing world. The 

safeguards could be made available in ways similar to the Egmont Group's "secure 

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web" communications network and the United Nations Office on Drugs and Crime 

(UNO DC) standard software system "GoAML" which is made available to FlUs 

around the world. 

In addition, I believe that applicable law enforcement and intelligence agencies 

should heighten their awareness and reporting on the growing threat ofMpayments. 

As this Task Force understands, it's much easier and less expensive to take proactive steps in the early stages of new financial threats rather than to wait and play 

"catch-up." We should not wait and react to a crisis if we can identi:f'y one in the 

making. 

I appreciate the opportunity to appear before you today and I'm happy to answer 

any questions you may have. 

1 John Cassara, Testimony: "Trading with the Enemy: Trade-Based Money Laundering is the 

Growth Industry in Terror Finance;'" available online at: 

http:/ldemocrats.financialservices.house.gov/uploadedfiles/02.03.20 16 john a. cas sara testimo 

!!Wf 

11 2008 International Narcotics Control Strategy Report (INCSR) Volume II on Money 

Laundering, U.S. Department of State; available online at: 

http://www.state.gov/j/inl/rls/nrcrpt/2008/vol2/htm Ill 0 1346.htm 11 ; "Electronic Finance: A New Approach to Financial Sector Development?" World Bank 

Discussion Paper 431 

iv David Runde, "M-Pesa and the Rise of the Global Mobile Money Market," August 12, 2015, 

Forbes; available online: http://www .forbes.com/sites/danielrunde/20 15/08/12/m-pesa-and-therise-of-the-global-mobile-money-market/#663d7 4 f723 f5 

v Roger Cheng, "By 2020, More People will Own a Phone than have Electricity," February 3, 

2016, CNET; available online: http://www.cnet.com/news/by-2020-more-people-will-own-aphonc-than-have-elcctricity/ 

vi Daniel Thomas, "Vodaphone Rings Up Record Growth on Mobile Money Platform," 

Financial Times, April24, 2016; available onlinehttps://next.ft.com/content/0242219e-087f11e6-b6d3-746f8e9cdd33: 

VII "Advancing Financial Inclusion to Improve the Lives of the Poor," CGAP, available online at: 

http://wvlw.cgap.org/topics/financial-inclusion 

v

111 2014 lntemational Narcotics Strategy Report (lNCSR) Volume II on Money Laundering, U.S. 

Department of State; see entry under Mauritania 

'x 2016 State Department International Narcotics Control Strategy Report (lNCSR). Volume II 

on Money Laundering; available online at: 

http://www.state.gov/documcnts/organization/258726.pdf 

9 
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x Runde 

x• "The Future of Money," 60 Minutes, November 22, 20 15; available online via You Tube: 

https://www.youtube.com/watch?v=AHigQttKajc&list=PL55ohbFcgaDMbYiVxzP6cpJPDVMIDp V3 

XH 20161NCSR 

'

111Runde 

xtv John Cassara, "Out of Africa- AML Compliance for Mobile Payments," June 12, 2015, 

Mobile Payments Today; available online: http://www.mobilepaymentstoday.com/articles/outof-africa-aml-compliance-for-mobile-payments/ 

xv Bethan Cowper, "Brazil is the Country to Watch for Mobile Payments," Banking 2015; 

available online at: 

http://www.paymentssource.com/news/paythink!brazil-is-the-country-to-watch-for-mobilepayments-3019867 -l.html 

xvi For more infom1ation, see "The Future of Money: Where do Mobile Payments Fit in the 

Current Regulatory Structure?": Hearing Before the Subcommittee on Financial Institutions and 

Consumer Credit, !12th Cong. (2012) (statement of James H. Freis, Jr., Director, Fin. Crimes 

Enforcement Network, U.S. Dept. of Treasury), available online at: 

http ://financialservices.house.gov /uploadedfiles/james _freis _testimony. pdf 

xvu 2007 National Money Laundering Strategy Report; available at: 

http://www. treasury. gov /resource-center/terrorist-iII ic it-finance/Documents/ nm Is. pdf XVIH Ibid 

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Testimony of Douglas Farah 

President, IBl Consultants LLC 

Senior Visiting Fellow National Defense University Center for Complex Operations 

Senior Non-Resident Associate, Americas Program, CSIS 

Before the Task Force to Investigate Terrorism Financing 

House Committee on Financial Services 

The Next Terrorist Financiers: Stopping Them Before They 

Start 

June 23, 2016 

Rayburn House Office Building Room 2128 
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Chairman Fitzpatrick, Ranking Member Lynch, and members of the Task Force: 

Thank you for the opportunity to testif'y on the important issue of the changing nature of 

terrorist financing.! want to state clearly that I speak only for IBI Consultants and myself at 

this hearing, and not on behalf of either the National Defense University or CSIS. 

I have been asked to address new mechanisms that terrorists are using to finance their 

activities, hide and move the value of their resources, and generate income. I would like to 

address several issues that I think are important, and that are often carried out in 

conjunction with transnational criminal organizations (TCOs). 

A Historic Overview and the Rise of "Criminalized States" 

In my three decades of focusing on transnational crime and 15 years working extensively on 

threat finance issues, I have found that there is very little new under the sun. Some new 

domains, such as cyber, have emerged and offer different alternatives but most of the 

money moves through the same general structures that they have for many years. These 

include trade based money laundering; the use of commodities such as diamonds, emeralds, 

and gold; bulk cash shipments; and informal money transfer systems. 

The use of gold and precious stones by terrorist groups and TCOs has been widely 

documented but little understood. In 2002, I wrote a front-page investigation in the 

Washington Post on how a! Qaeda and the Tali ban used gold for financial transactions and 

how the organizations shipped millions of dollars in gold from Afghanistan and elsewhere 

to Dubai immediately following 9/11. It was one of the key financial lifelines that allowed 

the organizations to survive. 1 

In 2004 I wrote a book on how a! Qaeda, Hezbollah and other terrorist groups, as well as 

multiple criminal syndicates used West Africa's "blood diamond" trade to move and store 

millions of dollars of value. 2 My colleague here today, john Casara, was one of the first in the 

U.S. government to try to focus on gold issues and has written extensively and compellingly 

on the issue. 

Those terrorist organizations used these methodologies for the same reason Colombia's 

Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revo/ucionarias de ColombiaFARC), Hezbollah and other terrorist groups use them today- because it is easy, low risk 

and largely unregulated. Dubai remains the center of the world gold and diamond trade and 

virtually every major gold bullion firm under investigation or convicted in the use of gold 

for terrorist financiers has a significant presence in that Emirate. 

What has changed in recent years is the volume of the streams of illicit money flows in 

which terrorists and allied TCOs can hide their money movements. There are many factors 

at play in the rapid expansion of these flows, but I would like to start by reiterating a 

1 Douglas Farah, "Al Qaeda's Road Paved with Gold: Secret Shipments Traced Through Lax System in 

United Arab Emirates," The Washington Post, February 17, 2002, p. AOl. 2 Douglas Farah, Blood From Stones: The Secret Financial Network of Terror, Broadway Books, New 

York, 2004. 

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concept or a construct that I shared with this task force when I testified before you in May 

2015: criminalized states and the hybrid criminal/terrorist structures they support. 

By criminalized state I mean states where the senior leadership is aware of and involved 

either actively or through passive acquiescence- on behalf of the state, in transnational 

criminal organizations (TCOs ), where TCOs are used as an instrument of statecraft, and 

where levers of state power are incorporated into the operational structure of one or more 

TCOs.3Jn these states the government, relying on revenues from illicit activities to survive, 

often facilitate the overlapping activities with different terrorist organizations. 

The existence of these criminalized states in Latin America, Africa, and parts of the former 

Soviet Union is a primary factor that facilitates terrorist and TCO financial movements, 

today, and one that has allowed for a significant increase in these activities. The fact that 

these illicit flows are embedded within state structures is also one of the key factors in 

making it difficult to halt such financial flows or to punish those engaged in such illicit 

activities. 

This emerging combination of threats comprises a hybrid of criminal-terrorist and stateand non-state franchises, combining multiple nations acting in concert, and traditional TCOs 

and terrorist groups acting as proxies for the nation-states that sponsor them. No longer is 

the state/non-state dichotomy viable in tackling these problems, just as the TCO /terrorism 

divide is increasingly disappearing.4 

In the Western Hemisphere, it is the involvement of numerous states led by Venezuela in an 

ongoing criminal enterprise that make disrupting and dismantling the financial networks so 

difficult. The government of Nicolas Maduro, along with the governments of Evo Morales in 

Bolivia, Rafael Correa in Ecuador, Daniel Ortega in Nicaragua and Salvador Sanchez Ceren in 

El Salvador, view the Revolutionary Armed Forces of Colombia (Fuerzas Armadas 

Revolucionarias de Colombia - FAR C), a designated terrorist organization by the United 

States and Europe,s as well as a major cocaine trafficking organization, as a strategic ally. 

This same bloc of countries, grouped under the umbrella of the Bolivarian Alliance for the 

Peoples of Our America (Alianza Bolivariana Para los Pueblos de Nuestro America -ALBA), 

has actively helped Hezbollah, the Spanish separatist ETA organization and other 

designated terrorist entities to establish a significant presence in Latin America. Hezbollah, 

in turn is a proxy for the nation of Iran and has access to the financial structures discussed 

3 This definition is drawn from my study of transnational organized crime in Latin America. For a full 

discussion see: Douglas Farah, Transnational Organized Crime, Terrorism, and Criminalized States in 

!.a tin America: An Bmerging Tier-One National Security Priority (Carlisle, PA: Strategic Studies 

Institute, U.S. Army War College, August 2012), accessed at: 

http://www.strategicstudiesinstitute.arnw.mil /pubs/display.cfm?publD-1117 

4 Douglas Farah, Transnational Organized Crime, Terrorism, and Criminalized States in Latin America: 

An Emerging Tier-One National Security Priority, op cit. 

5 "FARC Terrorist Indicted for 2003 Grenade Attack on Americans in Colombia," Department of 

justice Press Release, September 7, 2004. accessed at: 

h!;tp_Jj:w_\'l!\'ll.u.£ill2i,gov /op<J/pr /2004/September /04 crm 599.htm and: Official journal of the 

European Union, Council Decision of Dec. 21, 2005, accessed at: 

http: //europa.eu.int/eurlex/lex/LexUriServ /site /en/oj /2005/l 340 II 34020051223en00640066.p 

.df 

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below because their own state sponsor -Iran- protects them and Iran's Latin American 

allies in ALBA 

In my previous testimony, I discussed the vast flows of inexplicable resources that wash 

through the ALBA government financial structures. Both presidents Ortega in Nicaragua 

and Sanchez Cen'n in El Salvador are former leaders of revolutionary movements in their 

home countries and have deep historic and abiding ties to both the FARC and the 

Chavez/Maduro criminal structure. 

Ortega has publicly acknowledged receiving some $500 million dollars a year that flow 

directly to him and his family members, reportedly from the sale of subsidized Venezuelan 

oil through the state run company Albanisa. However, little such oil actually exists. Yet the 

money flowing through the Albanisa structure is equivalent to about 20 percent of the 

nation's annual budget, but is completely unregulated and unaccounted for. 

In El Salvador, the governing Farabundo Marti National Liberation Front (FMLN) controls 

ALBA Petr61eos, which is 60 percent owned by PDVSA, the Venezuelan state oil company. 

Sanchez Ceren is a member of the ALBA leadership, as is Ortega. 

According to public statements of FMLN leaders such as jose Luis Merino, ALBA Petr61eos 

began with $1 million from PDVSA in 2007 and by the end 2013 had revenues of $862 

million, with no explanation for the massive growth.6 Merino, who is a senior ALBA 

Petr6leos advisor, publicly stated that he knew that "many people are nervous because 

ALBA Petr6leos was born six or seven years ago with $1 million and now has $400 million. 

Let me correct myself, $800 million, and we are trying to change the lives ofSalvadorans."7 

The following year ALBA Petr6leos leaders said the company generated $1 billion in 

revenues. Yet there is no legal economic activity to undergird anything close to that amount 

of revenue. 

This represents about 23 percent of the national budget. However, like Albanisa, the 

revenues do not flow into the national treasury, are not allocated through the normal 

budgetary process and are subject to no oversight. They are directly controlled by party 

elites, with no accountability. Investigations in El Salvador show that the ALBA Petr61eos 

structure has moved at least $291 million through eight shell companies to offshore safety 

in Panama. a 

The Growing Importance of Gold in TCO and Terrorist Structures 

Within the context of these vast, economically irrational money flows already moving 

through criminalized states, the growing amount of unusual mining and exporting of 

minerals, particularly gold in Latin America must be viewed with concern. 

The relatively high price of gold, coupled with the ease of movement, ease of placement and 

sale, and a striking lack of control over the movement of the commodity make it particularly 

6 These figures are taken from ALBA Petr6leos official financial filings. 

7 "jose Luis Merino defiende a Alha Petr6leos por ataques de ANEP," Verdad Digital, October 31, 2013. 

8 Efren Lemus, "Alba tiene ocho offshore en Panama y asi reduce impuesto en El Salvador," El Faro, 

Aprilll, 2016, accessed at: http:l/wvvw.elfaro.net/es/201604/el salvador/18388/Alba-tiene-ochooffsbore-en-Panam%C3%A1-y-as%C30;!.AD·reduce-impuestos-en-El-Salvador.htm 

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attractive to both criminal and terrorist groups. The fact that gold movements are not 

required to be reported as financial transactions mean that almost-pure ore can be moved 

with great ease and little risk, and converted to cash almost immediately and again at little 

risk 

It is even easier if state institutions, rather than trying to find and halt the illicit movements 

of gold are complicit in that movement across borders. U.S. and European law enforcement 

investigations have documented multiple cases of Venezuelan government officials, in 

addition to aiding and abetting the flow of FARC-produced cocaine to the United States and 

Europe, moving gold illegally through the free trade zones of Curacao, Panama and 

elsewhere. 

As one recent study noted, "There are two broad characteristics of gold and the gold market 

which make it enticing to criminal groups. The first is the nature and size of the market 

itself, which is highly reliant on cash as the method of exchange. The second is the 

anonymity generated from the properties of gold, which make tracking its origins very 

difficult to do. These factors make gold highly attractive to criminal syndicates wishing to 

hide, move or invest their illicit proceeds."9 

Due to the almost complete lack of risk, moving gold is increasingly becoming a preferred 

method of payment for other illicit products, such as cocaine. And in some cases, illegal 

mining is replacing cocaine trafficking as the primary illicit commodity moved to the 

international market.'O 

"Today criminal mining moves more resources to illegal groups, the guerrillas and mafias, 

than narco-trafficking," said Colombian President Juan Manuel Santos last year. He 

estimated the revenue from illegal gold mining to be more than $2 billion.'1 

According to one study, while it takes six months to grow coca and process a kilo of cocaine, 

along with significant technical skills, low-cost and low-skill gold mining in the Colombian 

jungle can yield 2 kilos a month. In addition, "a kilogram of cocaine can sell for about 5 

million pesos ($2,5 70) in the Colombian jungle while a kilogram of gold can fetch 19 times 

that, or similar to global market prices .... The precious metal is also relatively easy to 

legalize while cocaine remains banned. As soon as it's excavated and away from the mine 

it's legaJ."l2 

As the inter governmental Financial Action Task Force (FATF) noted in its 2015 report title 

"Money Laundering/terrorist financing: Risks and vulnerabilities associated with gold," 

9 Financial Action Task Force, "Money laundering/terrorist financing: risks and vulnerabilities 

associated with gold," july 2015, accessed at: http: !/www.fatfgafi.org/media /fatf /documents /reports (M L-TF -risks-vulnerabilities-associated-with·gold.pdf 10 "Mineria illegal desplaza ala coca en ocho regions," El Tiempo (Colombia}, September 12, 2012, 

accessed at: http: l/www.eltiempo.com /archivo /documento (CMS-12214227 11 "Mineria supera a! narcotrafico en ingresos: Santos," CM& Noticias, August 11, 2015, accessed at: 

http: I !www.cm i co m.co I m j ne ria-supera -a!-narcotra fico-en-ingresos-santos 12 Cecilia )amasmie, "Illegal gold profits for rebels in Colombia five times larger than cocaine," 

Mining.com, june 24, 2013, accessed at: http: //www.mining.comlillegal-gold-mining-profits-forrcbe ls-in -colombia-five-times-larger-than-coca i ne·68 5 92 I 

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Gold is an ext.remely attractive vehicle for laundering money. It provides a mechanism for 

organised crime groups to convert illicit cash into a stable, anonymous, transformable and 

easily exchangeable asset to realise or reinvest the profits of their criminal activities. 

The gold market is a target for criminal activity because it is highly lucrative. Understanding 

the various stages of the gold market continuum, and the types of predicate offending that can 

occur in each stage, is critical in identifYing money laundering and terrorist financing risks 

emanating from this industry. 13 

Because of the ease of using gold, where many large gold smelting and refining companies 

act as banks as well as commodity brokers, when the formal financial system comes under 

pressure, this is an easy, low risk and cost free alternative. 

When the U.S. government's inter-agency investigation successfully took action against the 

Lebanese Canadian Bank (LCB) in 2011, designating the bank both a "primary money 

laundering concern" and primary financial vehicle for Hezbollah, the bank collapsed.14 This 

left multiple important stakeholders with the need to find alternative financial service 

providers and ways to both launder and move cash value. Recent U.S. and European law 

enforcement investigations show that many of those providing financial services to 

Hezbollah and TCOs through LCB are now moving resources through a web of gold 

companies based in Dubai. 

This new rush to gold has brought noticeable distortions to the gold market, though few 

steps have been taken to examine them. Those using gold often disguise the origin of the 

gold so as to avoid scrutiny in the country of origin. Thus Peruvian gold purchasers may 

move the gold out of Medellfn, Colombia, and show the origin as Colombian, a situation that 

led to a time recently when Colombia on paper was exporting more gold than it actually 

produced. 

Because the FARC and its allies in Venezuela want to disguise the origin of their gold after it 

is mined, they often move it through Guyana, Suriname, Nicaragua and/or Ecuador to avoid 

detection of gold entering the market from places where such movements would arouse 

suspicions ofTCO and terrorist connections. 

A joint investigation by Ojo Publico, a consortium of news outlets in South America, into gold 

mining found that: 

Through a travel to mining centers in Peru, Bolivia, Ecuador and Colombia, accessing to 

judicial and police documents on illegal trafficking of metal and analyzing the exportation of 

gold from South America, OjoPublico identified the major financiers of the gold fever that has 

devastated large parts of South America in recent years-a group of companies from the US, 

Switzerland, Italy and the United Arab Emirates, associated or linked to the London Bullion 

Market Association (LBMA), the union that sets the international price of gold and that 

gathers the major traders of this asset in the world. 

13 Financial Action Task Force, op. cit. 

14 U.S. Department of Treasury, "Treasury Identifies Lebanese Canadian Bank Sal as a 'Primary 

Money Laundering Concern," Press release, February 10, 2011, accessed at: 

bttps; (lwww. treasuo•.gov /press-center/press-releases /Pages /tgl OS Z.aspx 

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These companies -Meta/or Technologies and MKS Finance,from Switzerland; Northern Texas 

Refinery (NTR Metals) and Republic Metals Corporation (RMC),from the US; ltalpreziosifrom 

Italy and Kaloti group from the emirate of Dubai-, are also suspected of buying hundreds of 

tons of illegal gold from south American exporting firms managed by illegal mining operators 

linked to money laundering, organized crime and cross-border smuggling of metal. The 

judicial authorities of Peru have targeted these companies (which also acquire gold in 

Medellin, La Paz and Guayaquil) because of the 25 criminal cases opened after the confiscation 

of one ton of metal in Callao between 2013 and 2014, and because of other processes of money 

laundering from illegal mining."IS 

The same consortium later found that many of the companies it had traced in its original 

investigations had set up an offshore financial structure in the British Virgin Islands (BVI) 

under the guidance of the Mossak Fonseca law firm based in Panama but with offices 

operating in Lima, Peru and elsewhere.I6 

The case of Gold ex, where the company was accused by Colombian officials of laundering 

billions of dollars for the FARC and other criminal organizations, shows the template of how 

illicit gold moves and is used for laundering. 

Colombian prosecutors handling the case say the company moved some 4 7 tons of gold, 

valued at $1.4 billion, over a six-year period prior to the arrest of its leader. Gold ex records 

showed a host of anomalous and illegal activities that were carried out but are seldom 

investigated or prosecuted. In this case, however, prosecutor Luz Angela Bahaman 

concluded that "it is not possible to come to any conclusion except that all of the gold and all 

of this income they were trying to justify was of illegal origins and came from illegal 

organizations that needed to create a structure to launder their profits." 17 

The conclusions were based on a series of irregularities that are common in the illicit gold 

trade and across the world of commodities. As one report noted about the Gold ex case: 

At the indictment hearing in january this year, the prosecutor described how Gold ex sourced 

its gold from a network of ephemeral supply companies whose life cycle rarely exceeded three 

years. The companies financed millions of dollars of gold purchases with just thousands in 

capital and conducted hundreds of transactions in a single day without having a single 

contract employee, Gold ex company records show. Their offices could be found in the most 

unexpected locations, such as scrapyards or a family home in a village in the state of La 

Guajira, where the owner swears there has been no gold trading in the 50 years since her 

great-grandfather built the house. 

15 Oscar Castilla C., Nelly Luna Amancio y Fabiola Torres Lopez, "Dirty Gold: Chasing the Trace of the 

London Bullion Market," OjoPublico, june 9, 2015, accessed at: hl!pdLQJo-puhJ.ico.com/dirty-goldc: 

chasing-the-trace-of-the-london-bullion-market/ 

16 Oscar Castilla C., "Panama Papers: Las Islas Virgenes de !a Mineria !legal," OjoPublico, April15, 

2016, accessed at: http: //panamapapers.ojo-publico.com /articulo llas-islas-vir~-de-la- minerialilegal/ 

17 james Sargent and Michael Norby, "Blood gold: From conflict zones in Colombia to jewelry stores 

in the US," AI jazeera America, November 18, 2015, accessed at: 

http: 1/arnerjca.aljazeera.com /articles /20 15/11/18/blood-gold-colombia.html 

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Purchase records show that the gold these companies supplied to Goldex was bought from 

thousands of dead people and people who never existed. Yet more of the precious metol was 

registered as having come from people who told prosecutors they had never been involved in 

the gold trade, in some cases because they had been living on the streets for yearsJB 

Figure 1: Illicit Financing/Money Laundering with Gold. Created by Liana Reyes·Reardon, IBI 

Consultants 

The Vital Roll of Offshore Havens 

The massive leak of the internal documents of the Panamanian law firm Mossack Fonseca, 

now known as the Panama Papers, gives an unsettling view of just how easy it is to use law 

firms in certain jurisdictions to incorporate entities where the real owners are never 

Ill Sargent and Norby, op cit. 

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disclosed, and then use those entities to move massive sums of money to offshore havens 

where the anonymity is preserved.'9 

While privacy issues are real and valid, the current structure represents one of the most 

glaring weaknesses in the financial structures that are used by a host of illicit actors, 

including terrorists and TCOs. It is easy but dangerous to forget that al Qaeda and Hamas 

used extensive offshore structures in the Bahamas to move money around the globe for 

terrorist groups, including al Qaeda, prior to and following the attacks of 9/11.20 

This opaque world overlaps with the vast unregulated world of gold and other commodity 

movements, and both intersect in the growing number of "criminal state" jurisdictions. This 

amounts to a perfect storm for terrorist financiers and TCOs to hide and move cash and cash 

value across the world in ways that are virtually untraceable. 

As it stands now, law firms in Panama, Delaware, and multiple other jurisdictions inside and 

outside the United States can establish a company with bearer shares and that company can 

then open bank accounts in jurisdictions that pride themselves on bank secrecy. There is no 

requirement that the real owner( s) of the company or account ever be known. 

With those structures in place, large gold refineries acting as banks can then wire the value 

of gold deposited in their offices to those anonymous companies for deposit in hidden bank 

accounts. 

All of this makes the work of law enforcement difficult if not impossible in tracing financial 

flows, even when the official strongly suspects the involvement of terrorists TCOs. While 

this secretive and opaque financial architecture exists, there is very little need for terrorist 

groups and TCOs to invent a host of new ways to move money and finance their activities. 

The current system, with its multiple vulnerabilities outside the regulated world where we 

focus most of our attention, works just fine. 

Conclusions 

I want to thank the Task Force to Investigate Terrorism Financing for the effort it has put 

forth to better understand the serious issues associated with this topic, and for the light it 

19 International Consortium of Investigative journalists," Giant Leak of Offshore Financial Records 

Exposes Global Array of Crime and Corruption," ICI), April3, 2016, accessed at: 

https:f/panamapapers.icij.org/20160403-panama-papers-global-overvi~w.html 

20 In Congressional testimony on February 12, 2002, Assistant Treasury Secretary juan Zarate the 

services provided by Bank a! Taqwa based in the Bahamas, noting that: "There is some evidence to 

indicate that those who support terrorist groups use shell banks and companies and perhaps 

correspondent accounts to collect and move money. On November 7, 2001, the Treasury Department 

listed Bank al-Taqwa, a Bahamian-based shell bank, as a terrorist financing source. In 1997, it was 

reported that the $60 million collected annually for Hamas was moved to accounts with Bank Al 

Taqwa. As of October 2000, Bank Al Taqwa appeared to be providing a clandestine line of credit to a 

close associate of bin Laden and as of late September 2001, bin Laden and his al·Qaida organization 

received financial assistance from the chairman of that bank." See: Treasury Deputy Assistant 

Secretary juan Zarate, "Testimony Before the House Financial Subcommittee," U.S. Department of 

Treasury, February 12,2002, accessed at: https:/!www.treas~rcss-center/pressreleases /Pages /po 1 009.aslll 

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has shed on the financial structures that enable and facilitate the financing of terrorism. 

While the formal instruments for moving money are understood and regulated, the growing 

use of commodities and the ease of using anonymous offshore structures remain significant 

gaps that are easily exploited and seldom examined. 

Part of the growing use of gold and other commodities is due to the measureable success 

the Treasury Department and some of the region's nascent Financial Intelligence Units have 

had in moving against the formal banking sector. For example, the joint Treasury /DEA case 

in Honduras late last year against the Rosenthal clan that shut down Banco Continental for 

its alleged involvement in drug trafficking and money launderingzr was an important signal 

in the region that law enforcement was willing to tackle politically powerful families and 

their financial institutions. 

But little attention is being paid to the multiple anomalies that are blooming across the 

region. These include: a major diamond polishing center in a region with few diamonds to 

justify its existence; a gold refinery with capacity to refine four times the annual output of 

the host country; hosts of gold buying companies with few resources that grow, spread and 

disappear almost as quickly as mushrooms; small banks operating in marginal jurisdictions 

that show highly unusual rates of growth in their financial deposits and other activities; and 

government-sponsored mega projects that claim to spends hundreds of millions of dollars 

but in reality exist only on paper as a vehicle for laundering money. 

Irrational economic behavior on a large scale shrouded in opaque or non-existent reporting 

is almost always indicative of significant TCO and/or terrorist activities. These behaviors 

are multiplying, particularly in criminalized states, across the globe. This creates the river 

that allows the funding of terrorism to grow more difficult to detect and disrupt 

Thank you. 

21 Steven Dudley, "US Releases Indictment Against Honduran Behemoth," InSight Crime, October 7, 

2015, accessed at: http://www.insightcrime.org/ncws-anal)rsis/us-releases-indictment-againsthonduras-elite 

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Written Testimony of 

Jimmy Gurule* 

Professor of Law 

Notre Dame Law School 

Before the 

Task Force to Investigate Terrorism Financing 

June 23, 2016 

Chairman Fitzpatrick, Ranking Member Lynch, and other distinguished members of the 

!14th Congress' Task Force to Investigate Terrorism Financing: 

Permit me to begin by thanking you for inviting me here to testify on the important and 

timely topic of"The Next Terrorist Financiers: Stopping Them Before They Start." 

As we approach the fifteen-year anniversary of the 9/11 terrorist attacks that tragically took 

the lives of almost 3,000 innocent civilians, it is imperative that the U.S. government continue to 

evaluate and enhance the effectiveness of such counter-terrorism measures as curtailing terror 

financing in order to protect national security and save innocent lives. 

The government's counter-terrorism strategy must be proactive, not reactive, anticipating 

how, when, and where ISIS, al Qaeda, and the next major terrorist organization will attack the 

United States and kill Americans. The terrorist attack that recently took place in Orlando, Florida, 

where forty-nine innocent people were killed and over fifty others were seriously injured, as well 

as the mass shooting that occurred on December 2, 2015 in San Bernardino, California, leaving 

fourteen dead and twenty-two others seriously wounded, serve as stark reminders of what is at 

stake in this undertaking. 

Depriving terrorists of funding is central to an effective counter-terrorism strategy. 

"Terrorists seldom kill for money, but they always need money to kill." 1 And while Omar Mateen, 

the person responsible for the largest mass shooting in the nation's history, and Syed Rizwan 

Farook and Tashfeen Malik, the San Bernardino shooters, did not need much money to finance 

their terrorist attacks, the Islamic State, the terrorist organization that inspired their hatred of 

Americans, requires substantial financial resources to pursue its goal of establishing a Caliphate 

State. 

At the super-structure or organizational level, the Islamic State needs money to recruit and 

train terrorist fighters, and to pay their salaries. The terror group also needs funding to purchase 

vehicles, weapons, ammunition, and explosives. Moreover, the Islamic State has exploited social 

' Professor Gurule served as Treasury Under Secretary for Enforcement from 200 I to 2003. 1 Terry Davis, Sec'y Gen. of the Council of Europe, Speech at the First Joint Plenary Meeting ofMONEYV AL with 

the Financial Action Task Force (Feb. 21, 2007), 

http://www.coe.intftfdghl/monitoringlmoneyval/ Activities/Speech/Terry"lo20DavisJPien.pdf. 

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media--most notoriously Twitter-to send its propaganda across the glohe in order to recruit and 

radicalize people vulnerable to its message. 

A recent report published by the Brookings Institution states: 

By virtue of its large number of supporters and highly organized tactics, ISIS has 

been able to exert an outsized impact on how the world perceives it, by 

disseminating images of graphic violence (including the beheading of Western 

journalists and aid workers and more recently, the immolation of a Jordanian pilot), 

while using social media to attract new recruits and inspire lone actor attacks. 2 

The Brookings Institution reports that between September 2014 and December 2014, the 

number of Twitter accounts used by supporters of the Islamic State is conservatively estimated to 

be at 46,000. 3 In short, the Islamic State needs money to sustain its global social media campaign 

and finance other terrorist-related activities. 

(A) Increasing the Use of Secondary Sanctions 

Shortly after the 9/11 terrorist attacks, President George W. Bush signed Executive Order 

13224 (E.O. 13224), invoking his congressional grant of authority under the International 

Emergency Economic Powers Act. 4 E.O. 13224 declared a national emergency with respect to 

"grave acts of terrorism and threats of terrorism committed by foreign terrorists, including the 

terrorist attacks ... committed on September 11, 2001 ... and the continuing and immediate threat 

of further acts on United States nationals or the United States."5 

Initially, the Executive Order designated twelve individuals and fifteen entitles as 

"Specially Designated Global Terrorists" (SDGTs) and identified them in the Annex to the order. 

To date, the number of SDGTs has grown exponentially, to approximately 1,000 individuals and 

entities6 Throughout, E.O. 13224 has been the centerpiece of the government's counter-terrorist 

financing efforts. 7 

E.O. 13224 authorizes the Secretary of the Treasury, in consultation with the U.S. Secretary 

of State and Attorney General, to designate additional persons and entities as an SDGT and block 

2 J.M. Berger & Jonathon Morgan, The ISIS Twitter Census: Defining and Describing the Population ofiSIS 

Supporters on Twitter, CTR. FOR MIDDLE E. POL'Y AT BROOKINGS, no. 20 (Brookings Project on U.S. Rel. with the 

Islamic World), Mar. 2015, at 2. 

'Id. 

"International Emergency Economic Powers Act (JEEP A), Title 11 of Pub. L. No. 95-223, 91 Stat. 1626 (codified at 

50 U.S. C.§ 1701, et seq. (2012)). 5 Exec. Order No. 13224, 3 C.F.R. § 786 (2001), reprinted as amended in 50 U.S. C.§ 1701 note (Supp. IV 2004) 

[hereinafter E.O. 13224]. 6 See Dep't of Treasury, OFAC, Terrorist Assets Report, 2014. Annual Report to the Congress on Assets in the 

United States, 23d, at 6, https://www.treasury.gov/resource-center/sanctions!Programs/Documents/tar2014.pdf. 7 The discussion herein ofE.O. 13224 is taken in large part from GEOFFREY CORNET AL., NATIONAL SECURITY 

LAW: PRINCIPLES AND POLICY 402·-04 (20 15). 

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the assests located in the United States of such persons or entities who (I) "'act for or on behalf of" 

or are "'owned or controlled by" SDGTs, (2) "assist in, sponsor, or provide financial, material, or 

technological support for'' SDGTs, or (3) are "otherwise associated with" SDGTs. 8 Further, E.O. 

13224 authorizes the Secretary of State, in consultation with the Secretary of the Treasury and the 

Attorney General, to designate as SDGTs persons determined "to have committed, or to pose a 

significant risk of committing, acts of terrorism that threaten the security of United States nationals 

or the national security, foreign policy, or economy of the United States."9 

E.O. 13224 has been an effective tool in curtailing funding to al Qaeda, which largely relies 

on support from external donors or corrupt charities sympathetic to their cause and having assets 

within the United States. Such individuals and entities have been designated as SDGTs, which 

requires their assets located in the United States to be blocked and prohibits all U.S. persons from 

conducting financial transactions with such designated parties. 

The Islamic State poses a different terrorist financing challenge. Unlike al Qaeda, the 

Islamic State is primarily self-funded, obtaining the vast majority of its revenue from (I) oil and 

gas sales, (2) extortion and taxation, (3) kidnapping-for ransom, (4) looting banks, (5) selling 

stolen antiquities, and (6) human trafficking--that is, selling young girls and women as sex 

slaves. 10 The Islamic State's annual budget is an estimated $2 billion. 11 Further, despite recent 

military airstrikes aimed at destroying the infrastructure that allows the Islamic State to pump 

Syrian oil, and the fact that global oil prices have fallen, the terror group continues to generate as 

much as $200 to $500 million a year from its oil exports. 12 

E.O. 13224 has proven less effective in depriving the terrorist organization of funding. 

Assistant Secretary for Terrorist Financing Daniel Glaser stated, "[t]hey derive so much of their 

resources internally, that more traditional counterterror finance tools we would apply, say in the 

case of AI Qaeda, to cut off a terror organization from its income sources are not applicable in this 

case." 13 As such, targeting Abu Bakr a!-Baghdadi, the leader of the Islamic State, for designation 

under E.O. 13224 has limited practical value and only symbolic significance. He has no assets 

located in the United States subject to blocking, and there is no evidence that any U.S. persons are 

doing business with him. 

8 E.O. 13224, supra note 5, at§ l(c)-{d)(i)-(ii). 9 Id at sec. !(b). 10 DavidS. Cohen, Treasury Under Sec'y for Terrorism and Fin. Intelligence, Remarks at the Carnegie Endowment 

for lnt'l Peace, "Attacking ISIL's Financial Foundation" (Oct. 23, 2014), http://www.treasury.gov/presscenter/prcss-releases/Pages/j;2672.aspx. 

"See Jose Pagliery, Inside the $2 Billion ISIS War Machine, CNN (Dec. II, 2015,9:09 PM), 

http://moncy .cnn.com/20 15/ 12/06/news/isis-funding/. 12 See id, see also Patrick Wintour, Oil Revenue Collapse Means ISIS Reliant on Gulf Funds, Inquiry• Hears, THE 

GUARDIAN (Mar. 8, 201 6, 12:15 AM), http://gu.com/pl4hctg/sbl (claiming that military attacks on oil infrastructure, 

falling global oil prices, and the low quality of Syrian oil have reduced annual oil revenues to $200 million); Hamza 

Hendawi & Qassim Abdul-Zahra, ISIS is Making up to $50 Million a Month from Oil Sales, BUSINESS INSIDER (Oct. 

23, 2015, 2:46AM), http:/lwww.businessinsider.com/isis-making-50-million-a-month-from-oil-sales-20!5-lO. 13 Mathew Rosenberg, Nicholas Kulish & Steven Lee Myers, Predatory Islamic State Wrings Money fi'om Those It 

Rules, N.Y. TIMES (Nov. 29, 2015), htlp:l/nyti.msi!Op4fja. 

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The government must adapt to the terrorist-financing challenges posed by the Islamic State. 

A good model is the economic sanctions regime imposed on Iran, which heavily relied on 

secondary sanctions. "Ordinarily, when the United States imposes economic sanctions, it imposes 

primary sanctions only-to restrict its own companies and citizens (or other people who are in the 

United States) from doing business with a rogue regime, terrorist group, or other international 

pariah." 14 Secondary sanctions "involve additional economic restrictions designed to inhibit nonU.S. citizens and companies abroad from doing business with a target of primary U.S. sanctions." 15 

Congress should consider enacting legislation against the Islamic State similar to the 

Comprehensive Iran Sanctions, Accountability, and Divestment Act of2010 (CISADA), which 

imposed important secondary sanctions on foreign entities doing business with Iran. 16 The 

C!SADA was intended to force foreign firms to choose between participating in the U.S. 

commercial market or entering into energy-related transactions with Iran. The CISADA greatly 

expanded the scope of prohibited activities to include efforts by foreign companies to (I) sell, 

lease, or provide to Iran any goods, services, technology, information or support that would allow 

Iran to maintain or expand it petroleum refineries and (2) to supply refined petroleum products to 

Iran. 17 

The CISADA sanctions any activities that "directly and significantly" assist Iran in either 

developing its oil refining capacity or obtaining refined petroleum. 18 Moreover, the prohibited 

transactions under the Act either must be done knowingly or involve circumstances in which the 

party "should have known, of the conduct, circumstances, or the result." 19 By inserting the 

negligence standard, which extends liability to parties who "should have known," the CISADA 

significantly expanded corporate liability beyond the existing Iran Sanctions Act of 1996 (ISA), 

under which parent corporations were liable only for approving or facilitating prohibited 

transactions. 20 

The CISADA requires the President to impose at least three different economic sanctions 

on foreign companies found in violation of the Act, and the statute added three new sanctions to 

the previous six authorized under the I SA. 21 These include: (1) prohibitions on foreign exchange 

14 .leffiey A Meyer, Second Fhoughts on Secondary Sanctions, 30 U. PA. J. INT'L L. 905, 905 (2014). 

15 !d. 

16 Comprehensive Iran Sanctions, Accountability, and Divestment Act (CJSADA) of20 I 0, Pub. L. No 111-195, 124 

Stat. 1312 (codified at 22 U.S.C. § 8501 note (2012)). The Iran and Libya Sanctions Act of 1996 (renamed the Iran 

Sanctions Act of 1996) is Pub. L. I 04-172, II 0 Stat. 1541, as amended by Pub. L. No. 1ll-195, § 102, 124 Stat. 

1312, 13!7-28 is referred to in para. (!0) of the CISADA, which is set out as a note under section 1701 of title 50, 

War and National Defense. Accord CORNET AL., supra note 7, at 387-88 (discussing the scope of the CISADA). 17 See id. § 102. 

18 ld. 19 ld. See also OFAC Iranian Financial Sanctions Regulations, 31 C.F.R. pt. 561 (20 10) (implementing subsections 

l04(c) and (d) and other related provisions ofCISADA). 20 See U.S. Dep't of State, Additional Information for the Iran and Libya Sanctions Act, 61 Fed. Reg. 66067,66068 

(Dec. 16, 1996). 21 See CISADA § 102(b). 

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transactions subject to United States' jurisdiction; (2) prohibitions on transfers of credit or payment 

between, by, through, or to financial institutions that are subject to the United States' jurisdiction; 

and (3) prohibitions on transacting or exercising any right, power, or privilege with respect to 

property subject to the jurisdiction of the United States. 22 

Legislation similar to CISADA should be enacted to impose sanctions on those foreign 

companies contributing to the development of the Islamic State's oil sector. As previously noted, 

U.S. military airstrikes have seriously damaged the Islamic State's oil infrastructure in territories 

it controls in Syria. However, the Islamic State should be prevented from repairing and rebuilding 

these damaged oil refineries with the assistance of foreign firms. To this end, secondary sanctions 

could be statutorily imposed on any foreign entities selling parts or providing technical support or 

services to assist the Islamic State in prohibited repair. 

E.O. 13224 has limited application to foreign companies doing business with the Islamic 

State. Under section 2(a) of E.O. l 3224, U.S. persons arc prohibited from dealing in property 

blocked under the order and from providing funds, goods or services to SDGTs. 23 The sanctions 

available under E.O. 13224 would therefore only apply if the foreign firm providing assistance to 

the Islamic State was designated as an SDGT and had property in the United States subject to 

blocking. Tn such a case, U.S. persons would be prohibited from doing business with the 

designated foreign company. However, it is unclear whether a foreign firm assisting the Islamic 

State could be so designated under E.O. 13224. While assisting the Islamic State in rebuilding its 

oil infrastructure might plausibly constitute providing services "in support of]] such acts of 

terrorism" in violation of section l(d)(i) of the Executive Order, this argument is highly tenuous. 

Finally, the Islamic State itself has been designated an SDGT pursuant to E.O. 13224. 

Therefore, U.S. persons are prohibited from dealing with the terrorist organization. However, the 

executive order does not prohibit foreign firms and individuals from conducting business with the 

Islamic State. 

The legislation I am proposing that Congress enact would allow for secondary sanctions 

beyond what is currently permitted under E.O. 13224. Regardless of whether a foreign firm held 

property within the United States or had been designated an SDGT, the entity would be subject to 

22 !d. § 102(b)(2). Prior to the CISADA, the President could choose from among six sanctions to impose on foreign 

entities: 

( 1) denial of Export-Import Bank assistance for exports; 

(2) denial of export licenses or other specific requests under U.S. export control; 

(3) denial of loans exceeding $!0 million from U.S. financial institutions in any twelve month 

period; 

(4) prohibition on sanctioned financial institutions from designation as a primary dealer in U.S. 

debt or as a repository for U.S. government funds; 

(5) ban on procurement contracts with the U.S. government; and 

(6) case-by-case imposition of import restrictions. 

Iran and Libya Sanctions Act of 1996, Pub. L. No. 104-172, § 6, 110 Stat. 1541, 1545 (codified at 50 U.S.C. § 1701 

note (2012)). 23 E.O. 13224, supra note 5, at§ 2(a). 

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a wide array of economic sanctions similar to those imposed against foreign businesses assisting 

Iran in developing its oil-refining capacity. Further, a CISADA-type oflcgislation would provide 

the President with a more nuanced set of punitive measures for combating those foreign enterprises 

that aid and do business with the Islamic State. 

(B) Prosecuting Terrorist Financiers under the Material Support Statutes 

The Department of Justice has a dismal record of prosecuting financiers of terrorism. Since 

September II, 200 I, there has been only one major terrorist financing prosecution. In November 

2008, a federal jury convicted five leaders of the Holy Land Foundation for Relief and 

Development (HLFRD) for providing material support to Hamas, a designated foreign terrorist 

organization (FTO). 24 The HLFRD was a charity incorporated in the United States by the five 

criminal defendants and was used to raise money for Hamas. There have been no major 

prosecutions of individuals responsible for raising money for at Qaeda or affiliated terrorist 

organizations. Further, the provision of the United States Code, 18 U.S.C. § 2339C, which 

expressly prohibits raising and providing funds to terrorists, has rarely been used. 

Individuals who raise money for foreign terrorist organizations or provide funding to such 

groups should be prosecuted under the material support statutes: 18 U.S.C. §§ 2339A, 2339B, and 

2339C. Moreover, individuals providing financial support to "lone wolf' terrorists should also be 

punished. 

Section 2339B prohibits the provision of material support or resources, including financial 

resources, to an FTO. 25 To prove a violation of§ 2339B, the defendant must have knowledge that 

the organization is a designated FTO or has engaged or engages in acts of terrorism. 26 The 

24 See Press Release, Dep't ofJustice, Federal Judge Hands Down Sentences in the Holy Land Foundation Case 

(May 27, 2009), https://www.justice.gov/opalpr/federalciudge-hands-downs-sentences-holy-land-foundation-case. 25 18 U.S.C. § 2339B (2012). For purposes of§ 2339B, a "foreign terrorist organization" is an organization 

designated as a terrorist organization under section 219 of the Immigration and Nationality Act, which is codified 

under section ll89 of title 8, Aliens and Nationality. Section 219 authorizes the Secretary of State to designate a 

group as a '"foreign terrorist organization'' if the group meets certain criteria: 

{A) the organization is a foreign organization~ 

(B) the organization engages in terrorist activity (as defined in section 1l82(aX3XB) of this title) 

or terrorism (as defined in section 2656f(d)(2) of title 22) [sic], or retains the capacity and 

intent to engage in terrorist activity or terrorism; and 

(C) the terrorist activity or terrorism of the organization threatens the security of United States 

nationals or the national security of the United States. 

8 U.S.C. § ll89(a)(l) (2012). 26 Section 2339B provides: 

To violate this paragraph, a person must have knowledge that the organization is a designated 

terrorist organization (as defined in subsection (g)(6), that the organization has engaged or engages 

in terrorist activity (as defined in section 212(a)(3)(B) of the Immigration and Nationality Act), or 

that the organization has engaged or engages in terrorism (as defined in section l40(dX2) of the 

Foreign Relations Authorization Act, Fiscal Years 1988 and 1989). 

18 U.S.C. § 2339B(a)(1 ). 

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government is not required to prove that the defendant intended to further the FTO's terrorist 

activities. That prohibition is based on a finding that FTOs "are so tainted by their conduct that 

any contribution to such an organization facilitates that conduct."27 However, § 2339B is limited 

to the provision of material support or resources to an FTO, and does not apply where the recipient 

is a lone wolf terrorist. 

Section 2339C makes it a crime to "provide or collect" funds with the intention that the 

funds be used, or with the knowledge that such funds are to be used, to commit one of the terrorismrelated crimes enumerated in the statute. Section 2339C is broader in scope than § 2339B, as it is 

not limited to raising or providing funds to an FTO. However, § 2339C requires proof of a 

heightened scienter not required under § 2339B. The government must prove that the defendant 

had knowledge or acted with the intent that the funds be used to commit a violent crime. The 

statute does not prohibit providing funds to a lone wolf terrorist if the funds were provided for a 

benign purpose. 

To better stop terrorist financiers, Congress should amend § 2339C to prohibit the 

provision or collection of funds with knowledge that the recipient has engaged in acts of terrorism 

or intends to commit a terrorist act in the future. Individuals should not be permitted to knowingly 

provide financial resources to persons they know have engaged or intend to engage in acts of 

terrorism. Providing funds with knowledge that the recipient has engaged or engages in terrorist 

acts should be a separate offense under the statute. Ultimately, § 2339C should be amended to 

require proof of the same scienter requirement needed to support a conviction under§ 2339B. 

(C) Justice Against State Sponsors of Terrorism Act 

Civil tort actions that seek large monetary damages provide an invaluable supplement to 

criminal enforcement actions and economic sanctions intended to deter and punish acts of 

terrorism. Private lawsuits brought by the victims of international terrorism can have a deterrent 

effect against corrupt charities, donors, financial institutions, foreign states, and front organizations 

that provide financial support and other services to terrorist organizations. 28 

On May 17, 2016, the U.S. Senate unanimously passed the Justice Against Sponsors of 

Terrorism Act (JAST A) in an effort to strengthen civil terrorism causes of action. 29 This proposed 

legislation ensures that those who aid and abet terrorist attacks on U.S. soil are held accountable 

for their conduct, even if such offenders are foreign sovereigns or their instrumentalities. The 

JASTA does so through modest amendments to the Foreign Sovereign Immunities Act (FSIA) and 

the Anti-Terrorism Act (ATA), each of which recognizes this fundamental principle. The proposal 

27 Antiterrorism and Effective Death Penalty Act (AEDPA) of 1996, Pub. L. No. 104-132, § 30l(a)(7), 110 Stat 

1214, 1247, note following 18 U.S.C. § 2339B (Findings and Purpose). 28 See JJMMY GURULE, UNFUNDING TERROR: THE LEGAL RESPONSE TOniE FINANCING OF GLOBAL TERRORISM 324-

69 (2008) (providing a comprehensive discussion of private causes of action with which to hold terrorist financiers 

accountable). 

29 Justice Against Sponsors of Terrorism Act, S. 2040, !14th Cong. (20 15). 

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is a narrowly drawn statute that will deter international terrorism, guarantee the vtctlms of 

terrorism have their day in court, and grant the executive new powers to resolve civil terrorism 

cases through diplomatic means. 

The bill's new immunity exception, proposed to amend chapter 97 of Title 28 by inserting 

section 1605B, provides in part: 

A foreign state shall not be immune from the jurisdiction of the courts of the United 

States in any case in which money damages are sought against a foreign state for 

physical injury to person or property or death occurring in the United States and 

caused by (I) an act of international terrorism in the United States; and (2) a tortious 

act or acts of the foreign state, or of any official, employee, or ... agency, regardless 

where the tortious act or acts of the foreign state occurred. 30 

This provision ensures that U.S. courts will have jurisdiction over a tort involving an act 

of international terrorism committed by a foreign state on U.S. soil. The JASTA further provides 

that, where jurisdiction against a foreign state is satisfied, a U.S. national may bring a civil claim 

against a foreign state pursuant to the Anti-Terrorism Act.31 

The Anti-Terrorism Act of 1992, codified at18 U.S.C. § 2333, provides a private right of 

action to any U.S. national injured by reason of an act international terrorism. The federal courts 

are currently divided on whether the provision allows claims premised on a theory of aiding and 

abetting. 32 Generally, plaintiffs have a much easier burden of proof in a jurisdiction that perrnits 

§ 2333 liability based on aiding and abetting. The disagreement as to the scope of the ATA could 

lead to inconsistent verdicts, depending on whether the plaintiff must prove that the defendant 

himself committed an act of international terrorism, or merely that he aided and abetted some other 

actor in doing so. 

The JASTA removes this confusion by expressly recognizing a cause of action for aiding 

and abetting liability in the very narrow circumstance of international terrorism. It is important to 

note that the bill provides for aiding or conspiracy liability under the ATA only when the act of 

international terrorism was committed, planned, or authorized by a designated FfO. It does not 

apply to individuals who have no association with an FTO. Further, the proposed aiding and 

abetting liability provision requires prove of knowledge and substantial assistance. 

30 Justice Against Sponsors of Terrorism Act, S. 2040, !14th Cong., § 3(a) (as passed by Senate, May 17, 2016). 31 The Antiterrorism Act of 1990·---the short title to section 132 of the Military Construction Appropriations Act of 

1990-was reenacted by the Federal Courts Administration Act (FCA) of 1992, Pub. L. No. 102-572, Title X, § 

1003, 106 Stat. 4506. Section 1003(c), which appears as an 18 U.S. C.§ 2331 note. Though the reenacted law was 

not designated as a short title, the collection of the FCA 's "terrorism" provisions is colloquially referred to as the 

"Anti-Terrorism Act" of 1992. 18 U.S.C. § 2333 is the civil remedies provision of the Act. added Oct. 29, 1992, 

Pub. L. No. 102-572, Title X,§ l003(a)(4), 106 Stat. 4506, codified as amended . 

• 

30 See Jimmy Gurule, !folding Banks Liable Under the Anti-Terrorism Act for Providing Financial Services to 

Terrorists: An Inefftctive Legal Remedy in Need of Reform. 41 NOTRE DAME J. LEGIS. 184, 206-{)9 (2015). 

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Finally, sponsors of the JASTA recognize that terror victims' demands for justice may 

complicate international diplomacy in certain circumstances. To address this concern, section 5 

of JAST A gives the chief executive the power to intervene in any civil litigation against a foreign 

state alleging support for terrorism and then to obtain a stay of the proceedings while governmentto-government discussions proceed. Ultimately, the JASTA will allow families victimized by 

terrorism to proceed in court against their attackers and enablers and hold them accountable for 

their actions. For all of the above reasons, this proposed legislation should be enacted into law. 

(D) Developing a National Counter-Terrorist Financing Strategy 

The threat of international terrorism is dynamic and constantly changing and evolving. The 

Department of State has designated over fifty foreign terrorist organizations that threaten U.S 

national security, and virtually every year new terrorist groups are added to the government's list. 33 

Today, the terrorism threat confronting the United States is radically different from the threat posed 

by al Qaeda in 2001. However, the one thing that remains constant is that terrorists need money 

to terrorize. At the same time, terrorists have diverse sources of funding. To effectively prevent 

terrorists from plotting attacks against the United States and killing Americans at home and abroad, 

the U.S. government must stem the flow of funds to terrorist organizations. 

To accomplish this critical objective, the United States should develop a comprehensive 

counter-terrorist financing (CTF) strategy. No such strategy exists today. The government's CTF 

strategy must be proactive, not merely reactive, focusing not merely on funding methods currently 

used by terrorist organizations, but also responding to emerging methods and techniques to collect 

and transfer funds internationally to support terrorist activities. 

The CTF should address how the Islamic State's ill-gotten funds from its various illicit 

activities are transferred globally to finance its terrorist activities. The strategy should include a 

plan to curtail terrorist funds derived from each of these revenue sources. Furthermore, the CTF 

strategy should seek to address how other terrorist organizations are raising money, and what 

methods they are using to move money globally. 

Finally, the CTF strategy needs to be adaptive. As the United States successfully disrupts 

the flow of funds to terrorists from one source, for example, transactions through financial 

institutions, the CTF strategy must consider new and alternative methods of money transfer that 

the terrorists will likely use next The government's strategy must adjust accordingly and set forth 

a new plan that curtails the flow of funds to terrorists from this different origin. It is imperative 

that the U.S. government develop a comprehensive CTF strategy along these lines to more 

effectively respond to the diverse and innovative methods used to finance global terrorism and 

disrupt its efforts. 

33 As of June 2, 2016, the number was at fifty-eight, to be exact See U.S. Dep't of State, Bureau of Counterterrorism 

and Countering Violent Extremism, Country Reports on Terrorism 2015, at 349-50, 

http://www.state.gov/docurnents/organization/258249.pdf. 

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Statement of 

Celina B. Rcaluyo* 

Professor of Practice 

William J. Perry Center for Hemispheric Defense Studies 

at National Defense University 

on 

"Communicating, Cooperating and Collaborating through Public-Private 

Partnerships to Counter the Financing of Terrorism and Crime" 

at a Hearing Entitled 

"The Next Terrorist Financiers: Stopping Them Before They Start" 

Before the Task Force to Investigate Terrorism Financing, 

Committee on Financial Services, 

U.S. House of Representatives 

June 23,2016 

* The views expressed in this testimony are my own and do not necessarily reflect the 

views of the William J. Perry Center for Hemispheric Defense Studies, National Defense 

University, or the Department of Defense. 

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Thank you Chairman Fitzpatrick, Vice Chairman Pittenger, Ranking Member 

Lynch, and members of the Task Force to Investigate Terrorism Financing for the 

opportunity to appear before this committee today to testiJ'y on U.S. efforts to combat the 

financing of terrorism and money laundering that threaten U.S. national security interests 

at home and abroad. Today we face a broad spectrum of security threats such as global 

terrorism, transnational organized crime, economic crises, cyber attacks, extreme natural 

disasters and revisionist states that have made national security more challenging than 

ever before. The complexity of these security threats, particularly from illicit networks, 

such as terrorists, criminals and prolifcrators, requires a multi-disciplinary approach to 

comprehend and counter them effectively. 

The convergence of these illicit networks and the magnitude, velocity and 

violence associated with their illegal activities are overwhelming governments and 

threatening state sovereignty and our economy. Governments can no longer guarantee the 

security, prosperity, rule of law and governance that their people expect and deserve. 

Often, average citizens who "see something and say something" are the first to recognize 

anomalies and identiJ'y threats; they know their industries, workplaces and communities 

best. For these reasons, governments need to actively identiJ'y and engage partners in the 

private and civic sectors to better detect, dismantle and deter the bad actors that 

undermine our security, economy and society. By fostering more robust partnerships 

among the public, private and civic sectors of society, together, we can better counter the 

convergence of illicit networks in the U.S. and overseas. 

Money serves as the lifeblood for any activity, licit or illicit; financing is the most 

critical of enablers for terrorism, crime and corruption. In the post-9/ll world, we have 

witnessed how "following the money trail" has enhanced our efforts to counter the threats 

around the world. Since international financial flows are not controlled or managed by 

governments, public-private partnerships with the many facets of the financial services 

industry arc essential in combating threats to the international banking system, such as 

terrorist financing, money laundering, political corruption and cybercrimc. Governments 

2 
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no longer enjoy a monopoly on national security or the use of force as they did in the 

past; therefore, they need to adopt a "whole of society" approach to understand and 

address the evolving threats to our security and prosperity in this globalized world. In the 

21 51 century, all sectors need to communicate, cooperate and collaborate (C3

) through 

public private partnerships (P3) to counter the convergence of illicit networks and 

safeguard national security. 

U.S. and Coalition Efforts to Counter the Islamic State in Syria and the Levant (ISIL) 

Before elaborating on the importance of public-private sector collaborations to 

counter threat finance and protect the international financial system, let me provide a 

contextual update on U.S. and Coalition efforts to counter the financing of ISIL. ISIL is 

the most prominent example ofthe terror-crime convergence threatening Iraq, Syria and 

beyond. "Following the money trail" oflSIL has been instrumental in our understanding 

and planning for the detection, disruption and dismantling oflSIL and its support 

networks. The methodical use of the financial instrument of national power, through 

financial intelligence gathering and targeting key leadership and their critical assets, has 

degraded ISIL's revenue-generating abilities and its capacity to fund and sustain its 

eriminalizcd caliphate. 

As articulated by the White House, the U.S. has built a global coalition of over 60 

partner nations with the goal of degrading and ultimately defeating ISIL. In November 

2014, President Obama set forth a comprehensive strategy featuring nine lines of 

collective effort to counter ISIL: 

I. Supporting Effective Governance in Iraq 

2. Denying ISIL Safe-Haven 

3. Building Partner Capacity 

4. Enhancing Intelligence Collection on ISIL 

5. Disrupting ISIL's Finances 

6. Exposing ISJI)s True Nature 

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7. Disrupting the Flow of Foreign Fighters 

8. Protecting the Homeland 

9. Humanitarian Support1 

Since I last appeared before this committee in May 2015, we have witnessed 

progress on the military and financial fronts of the fight against ISIL. According to the 

State Department 2015 Country Reports on Terrorism, TSIL remains the greatest threat 

globally, maintaining a formidable force in Iraq and Syria, including a large number of 

foreign terrorist fighters. That said, ISIL's capacity and territorial control in Iraq and 

Syria reached a high point in spring 2015, but began to erode over the second half of the 

year. For example, at the end of20l5, 40 percent of the territory that ISIL controlled at 

the beginning of that year had been liberated. In Syria, local forces expelled ISIL fighters 

from several key cities along the routes connecting the two ISIL strongholds of Raqqa 

and Mosul, and reclaimed about ll percent of the territory ISIL once controlled. These 

losses demonstrated the power of coordinated government action to mobilize against and 

confront terrorism. 2 

The loss of territory ISIL governs and controls in Iraq and Syria in 2015 also 

resulted in diminished funds available to it. ISIL relies heavily on extortion and the 

levying of"taxes" on local populations under its control, as well as oil smuggling, kidnap 

for ransom, looting, antiquities theft and smuggling, foreign donations and human 

trafficking. Coalition airstrikes targeted ISIL's energy infrastructure modular refineries, 

petroleum storage tanks and crude oil collection points as well as many millions that 

were literally stored in bulk cash storage sites. These airstrikes have significantly 

degraded ISlL's ability to generate revenue. The U.S. led this international effort, 

1 The White House,!' ACT SHEET: The Administration's Strategy to Counter the Islamic State of Iraq and 

fhe Levant (ISIL) and the Updated l'Y 2015 Overseas Contingency Operations Request. November 7, 2014, 

.h.!!Q.§i/www.whitehouse.gov/thc-press-office/2014/ll/()7/fact:sh!:S!:~dminist!1ltio.!l:s:slrategy:£9J.!llter: 

islamicc.~@Je-irag:~nd-lev~ 

2 U.S. State Department Country Reports on Terrorism 2015, Strategic Assessment, 

http://www .state.gov/j/ct/rls/crt/20 15/257 513.htm 

4 
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including through the UN, to confront ISIL's oil smuggling and its antiquities dealing, 

delivering additional blows to its financial infrastructure.3 

More recently, appearing before the Senate Armed Services Committee on April 

28, 2016, Secretary of Defense Carter described the headway that the Coalition has made 

to counter ISIL on the military front through "Operation Inherent Resolve."4 The United 

States has spent $6.4 billion on counter-IS military operations since August 8, 2014, with 

an average daily cost of$1 LS million.5 Secretary Carter said: "We've seen results in 

targeting ISIL's leaders and finances. We're systematically eliminating ISIL's "cabinet," 

having taken out its so-called ministers of war and finance. We captured one of the 

principals ofiSIL's chemical warfare enterprise, removed external plotters from the 

battlefield, and most recently took out the ISIL emir for southern Mosul, weakening 

ISIL's ranks there. And our attacks on ISIL's economic infrastructure- from oil wells 

and trucks to cash storage to ISIL's financial leaders is putting a stranglehold on ISIL's 

ability to pay its fighters, undermining its ability to govern, and making it harder to 

attract new recruits. 6 

ISIL is on its heels in Iraq and Syria as the Iraqi armed forces seek to retake 

control ofFallujah and Mosul, key ISIL strongholds. The Fallujah offensive, which 

began May 22, follows a series of ISIL defeats in western An bar province, a longtime 

Sunni Muslim stronghold and a bastion of support for anti-government militants since the 

U.S.-led invasion of Iraq in 2003. Iraqi government forces, backed by training, advice 

and air support from a U.S.-lcd international coalition, retook Ramadi in December 2015 

and Hit four months later. After Fallujah, the northem city ofMosul is the last major 

3 Ibid. 

4 U.S. Department of Defense Operation Inherent Resolve website, 

!:mJ2JiY.:l"_YL<!efense.gov/home/featuces/2Q14/081:'Li@m' 

5 U.S. Department of Defense, "Operation Inherent Resolve: Targeted Operations against ISIL Terrorists," 

!Jttp ://_\V_\V_\L@fense.gQ.'{D'/C,Ys/S.P~£i.al:::&'l'.()rts/Qll_ 14 Inherent-Resolve 6 Secretary of Defense Testimony, Statement on Counter-ISJL Operations and U.S. Military Strategy in the 

Middle East before the Senate Anned Services Committee, As Delivered by Secretary of Defense Ash 

Carter, Washington, D.C., April28, 2016 Secretary of Defense Ash Carter Testimony, 

http :_//www ,defe11se.gov /N~ws/Speeches/Specch-View/ Article/7 449 36/stateme0t -on -countcr-isi lQp_egtj()ns-and-u~-militllJY:.sl!:ill.<egy-in-the-middle-eas 

5 
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urban area in Iraq controlled by Islamic State that promises to be a fierce battle against 

the group. 7 

TSIL- An Adaptive Adversary 

While the momentum of the counter-ISIL offensive by the Coalition looks 

promising on the military and financial fronts, ISIL is proving to be a very adaptive 

adversary and is expanding its reach well beyond Iraq and Syria. ISIL has a diversified 

spectrum of criminal and revenue-generating activities that provides it the flexibility to 

respond to Coalition attacks on its financial infrastructure. Terrorism experts JeanCharles Brisard and Damien Martinez, in a May 2016 report at the Center for the 

Analysis of Terrorism, stated "despite the constant airstrikcs on its oil infrastructure, ISIL 

still has a $2 billion empire; and it's making up lost revenue by squeezing the population 

under its control through raising taxes. ISIL's military defeat is not imminent. As things 

stand, ISIL economic collapse remains some way off in the mid-tem1."8 

The report posits that ISIL made $2.4 billion in 2015, a $500 million drop from 

the center's revenue estimate the previous year. The main reason ISIL is still making 

billions is taxes. ISIL's extortion ofthe people trapped inside its territory in Iraq and 

Syria has skyrocketed from $360 million in 2014 to $800 million in 2015, according to 

researchers. According to the U.S. Treasury Department, the Coalition's effort to disrupt 

the ISIL's economy is working. "We are seeing progress ... since late-2015, ISIL's 

production of oil has declined by about 30%. Their ability to generate revenue has been 

reduced by at least that much," Treasury said.9 As oil revenues have declined, ISIL is 

becoming more reliant on extortion and taxation in the territories that it still occupies. 

Therefore, re-establishing control of those territories is essential to defeating ISIL 

militarily, financially, and psychologically. 

7 Ghassan Adnan and Asa Fitch, '"Iraqi Counterterrorism Forces Enter Fallujah," Wall Street Journal, June 

8, 2016, http://www. wsj.com/articlcs!ira£Ii:<:ounterterro!Jsnl:Jor<e_~~-enter-£~!lujah-1_:165389277 8 Jose Pagliery, "ISIS Makes Up for Lost Oil Cash with Rising Taxes and Fees," May 31,2016, CNN.com, 

http://money .cnn.com/20 16/05/3 !/news/isis-oil-taxes/ 9 Ibid. 

6 
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ISIL 's Influence Beyond Syria and Iraq 

ISIL's claim to be a caliphate has raised concerns that its ambitions stretch well 

beyond Syria and Iraq. The tragic terrorist attacks in Paris on November 13, 2015 and the 

claimed downing of a Russian plane over the Sinai just weeks earlier demonstrate that 

ISIL's aspirations arc global in natnre. ISIL is thinking beyond the Middle East-and, 

increasingly, it is demonstrating capabilities to act beyond the region as well. Militant 

groups in Egypt, Nigeria, Pakistan, Afghanistan, Indonesia and the Philippines have 

taken up the ISIL's trappings and sworn allegiance to its leader, a!-Baghdadi. According 

to the Heritage Foundation, in just two years-from fall2013 to fali2015-ISIS 

established a presence in at least 19 countries. 10 

Libya represents ISIL's new caliphate. According to the State Department, ISIL's 

branch in Libya was estimated to have up to 5,000 terrorist fighters. The group has seized 

territory that spans more than 150 miles of Mediterranean coastline between the cities of 

Tripoli and Benghazi. It also conducted attacks in Libya's oil crescent and in Sabratha, 

near the border with Tunisia. However, ISIL also suffered losses in Libya in 

confrontations with militia groups, in particular in the eastern Libyan city of Darnah. 11 

The U.S. and its European allies arc increasingly concerned about ISIL's expansion in 

North Africa, have intensified pressure on Libya's divided governments and factions to 

reconcile, and signaled they are considering expanding military operations there. 12 

The conflicts in Syria and Traq have attracted foreign fighters by the thousands. 

Middle Eastern and Western intelligence agencies have raised concern that their citizens 

who have joined the fighting in Iraq and Syria will become radicalized and then use their 

10 Lisa Curtis, Luke Coffey, David Inserra, Daniel Kochis, Walter Lohman, Joshua Meservey, James 

Phillips and Robin Simcox, Combatting the ISIS Foreign Fighter Pipeline: A Global Approach, The 

Heritage Foundation, January 2016, 

http://www .heritagc""_rg/r£,<;ear~Jl!J:9'1orts/20 !6/0 l.Lcom batt!ng::!h~:isi s:forci gn,flghter::PiQ.~li_ne-f!c@il:gt): 

llQllf()aeh 

11 U.S. State Department Country Reports on Terrorism 2015, Strategic Assessment, 

!illp :I lw'Yw .sl!!!£,g()yj.ilfJ{!:!§L<::DL20 15/257 513 .htm 12 Zachary Laub, Online Writer/Editor, and Jonathan Masters, Deputy Editor, CFR Backgrounder, The 

Islamic State, Council on Foreign Relations, March 22,2016, http://www.cfr.org/j!'Jqlislamic-§_1:;11£1111'llill 

7 
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passports to cany out attacks in their home countries. Unfortunately, we have seen this to 

be the case in recent terror attacks in Paris and Brussels. U.S. Director of National 

Intelligence James Clapper estimated in February 2015 that more than thirteen thousand 

foreign fighters joined Sunni Arab antigovernment extremist groups, including the 

Islamic State, in Syria, and that more than 3,400 of more than twenty thousand foreign 

Sunni militants hailed from Western countries. (Estimates of the group's total forces 

range from around thirty thousand to more than a hundred thousand.)13 

The influence ofiSIL has reached U.S. homeland. In July 2015, FBI Director 

Corney estimated that upwards of 200 Americans have traveled or attempted to travel to 

Syria to fight alongside ISIL 14 In addition to recruiting foreign fighters, ISIL has inspired 

homegrown terrorists responsible for the deadly December 2015 San Bernardino and 

more recently the June 12, 2016 Orlando attacks. Just days before the Orlando attack, 

FBI Director James Corney eerily spoke about the three prongs to the ISIL threat: the 

recruitment to travel, the recruitment to violence in place, and then what you saw a 

preview of in Brussels and in Paris hardened fighters coming out, looking to kill 

people. Corney reiterated that the FBI has close to I ,000 open cases nationwide involving 

people at various stages of ISIL recruitment 15 The Orlando attack at the Pulse nightclub 

left 49 dead and 53 wonnded, representing the deadliest mass shooting in U.S. history. 

Omar Mateen, a self-radicalized 29-year old U.S. citizen of Afghan descent, who pledged 

allegiance to ISIL on a 911 call during the attack, perpetrated the terrorist act, according 

to the initial FBI investigation. 16 

The contemporary threat posed by ISIL to global security has been empowered by 

a dangerous convergence of terrorism and crime that generates significant income for the 

13 Zachary Laub, Online Writer/Editor, and Jonathan Masters, Deputy Editor, CFR Backgrounder, The 

Islamic State, Council on Foreign Relations, March 22,2016, ~JJpf['Y""''Y·cfr.illlli'ir!!CJLi§h!\lll<Ci>!i!!ClPJA~H 14 Julian Hattem, "FBI: More than 200 Americans have tried to fight for JS!S, The Hill, July 8, 2015, 

h!Jrr:llthe)lill.coll!.t'J2.(l!jcy/national-se<;_\lrity/247256-more-than-200_-_american§.-.tried:t.9_:fight-for-isis-fbi-say,;_ 

15 Associated Press, "FBI Director: No Decrease In Number Of US ISIS Cases," Minnesota CBS Local 

News, June 7, 2016, h\tr>J!mill,nesota.cgslocal.com/2016106/07/fbi-isis/ 16 Ralph Ellis, Ashley Fantz, Faith Karimi and Eliott C. McLaughlin, "Orlando shooting: 49 killed, shooter 

pledged ISIS allegiance," CNN.com, June 13,2016, http:ll~w.cnn._con_l/2016/061L2/us/orl;..!!<!9.::..l!igh\clu.Q: 

§_@oting,l 

8 
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group. The systematic practice of"taxation," oil smuggling, kidnapping for ransom, 

human trafficking, and antiquities looting across the territory it occupies provide vital 

resources for the group's military, financial, recruitment, and propaganda campaigns. 

Continued supply and demand for illicit goods and services, and ISIL control of the 

supply chains in these criminal markets, provide it with an ideal operating environment 

its illicit activities that now expands beyond Iraq and Syria. Neutralizing this synergy 

requires a global coalition that encompassing the public, private and civic sectors on a 

transnational level. While raising awareness of ISIL's brutal crimes like sexual slavery 

and antiquities trafficking can reduce demand, the most effective manner to counter it 

remains the military, financial, and ideological defeat of the ISIL and a reinstatement of 

control of the occupied territories in Iraq and Syria and beyond. 17 

Public-Private Sector Collaboration to Safeguard the International Financial System 

Since the 1970's, the U.S. government recognized the need to work with the 

private sector to pursue financial crimes like fraud, tax evasion, and money laundering. 

Under the Bank Secrecy Act of 1970, or BSA for short, U.S. financial institutions are 

required to assist U.S. government agencies to detect and prevent money laundering. 

Specifically, the BSA requires banks to keep records of cash purchases, file reports of 

cash transactions exceeding $10,000, and report suspicious activity that might indicate 

money laundering, tax evasion, or other criminal activities. 18 Financial institutions are 

required to know their clients (and their clients' clients), monitor their transactions for 

anomalies, and report concerns to the authorities. 

In the U.S., FinCEN (the Financial Crimes Enforcement Network) serves as the 

country's financial intelligence unit (FlU), collecting and analyzing suspicious 

transaction reports; FinCEN has counterparts globally, providing the opportunity for 

global cooperation. Once it came to light that AI Qaeda used the formal banking system 

to finance the 9/11 attacks, banks and other financial institutions, concerned with 

17 Celina B. Realuyo, "The ISIS Convergence," American Foreign Policy Council Defense Dossier, March 

016, HTTp://WW¥{.AFPC.ORG/FILES!DEFEN:';E_DOSSIER_MARCH_ISSUE_l6.PDF 

U.S. Bank Secrecy Act, FinCEN website, !illp:!/www.fif1cen.gov/statutes regs/bsal 

9 
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rcputational risk, realized they had a new and vital task -- to detect and report possible 

cases of terrorist financing. Now bankers needed to understand and identify how terrorist 

groups raise, move, store, and use money and what vulnerabilities exist in banking 

system to prevent future cases of terrorist financing. Not only did the modes and rules 

change, but so did the forward-leaning posture of the industry which became more 

motivated to interact and share infom1ation with the government and fellow financial 

institutions. 

U.S. Counterterrorism Financing and Anti-Money Laundering Efforts 

The U.S. law enforcement and intelligence community works closely with 

officials at various financial institutions, many of whom have been vetted and hold an 

active security clearance, to investigate and prosecute specific cases ofterrorist financing 

and money laundering. Increasingly, bank officials arc former law enforcement agents or 

bank regulators. The financial sector has invested billions in human, technological, and 

financial resources to enhance their AMLICTF (anti-money laundering/counterterrorist 

financing) compliance capabilities. While these relationships between the public and 

private sectors have been quite productive, particularly in detecting Iranian sanctions 

violations, some financial institutions have expressed frustration regarding the lack of 

information flow from the government on the impact this cooperation has had on actual 

cases. Not knowing the details about the value of these submissions makes it harder to be 

compliant and misses the opportunity to fine-tune a company's internal capacity to 

identify violations and suspicious activity. The private sector continually calls for better 

two-way communications and more information to justify and effectively direct the 

immense investment in AMLICTF programs to the board and shareholders who require 

proof that the money was well spent. 

There arc many examples of successful venues through which private industry 

and government work together. In 2010, the Financial Intelligence and Information 

Sharing Working Group (FilS WG) was established following the completion of a 

public-private partnership pilot project under the auspices of the Office of the Director of 

10 
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National Intelligence's Office of Private Sector Partnerships. The original project's 

content aside, both the analysts and the business people involved found that the shared 

communication about threat-finance typologies and red flags was productive. To keep the 

dialogue going, the participants started a free-standing group which organically 

blossomed due to the information-sharing gaps in this area. While the group has no 

affiliation with the government, the FIIS WG is intended to provide experts in the 

financial services industry and the U.S. government with a forum to informally discuss 

relevant topics, including protection of critical financial infrastructure, prevention of 

fraud, and counterterrorist financing and money laundering. 

FilS WG meetings and the relationships formed at those events facilitate 

information flow and bridge cultural gaps between government and industry. The FIIS 

WG eventually found a home with the American Security Project, (a non-partisan public 

policy & research organization in Washington, D.C.) Its members include hundreds of 

representatives of both public and private sector entities, including regulatory, 

intelligence, defense, and law enforcement agencies, financial institutions, think tanks, 

consultancies, and academia. 19 The FilS WG has become a peer-to-peer community of 

practice and useful forum to exchange knowledge and experience about red flags, trends, 

emerging financial technologies, new payment systems, virtual currencies, alternative 

value systems, and the threats and vulnerabilities that accompany them. 

Besides the banks themselves, several trade associations and nongovernmental 

organizations have become actively involved in raising awareness, training, and 

educating the financial industry on the threats to the international financial system from 

financial crimes. One such example is ACAMS, the Association of Certified Anti-Money 

Laundering Specialists. It is the largest international membership organization dedicated 

to enhancing the knowledge, skills and expertise in AMLICTF (anti-money laundering 

and countering terrorist financing) and financial crime detection and prevention. 

Members represent various financial institutions, regulatory bodies, law enforcement 

19 American Security Project Threat Finance and Financial intelligence website, 

h!!pj/www.americansecurityproject.or~.m\llet!ic-operatiQns/threat-finance-and-financial-intelligence/ 

11 
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agencies and industry sectors. A CAMS circulates and discusses the latest trends and case 

studies in money laundering and terrorist financing through seminars, forums, 

international conferences, and local chapters. 20 The participation of senior U.S. 

government officials from the Departments of Treasury, Justice, and Homeland Security, 

the bank regulators, and law enforcement agencies, responsible for combating terrorist 

financing and money laundering, at A CAMS events demonstrates the active outreach 

conducted by the U.S. government to promote public-private partnerships. 

Countering Emerging Threats to the Financial Sector 

Another example of cross-sector collaboration to protect the international 

financial system is the Financial Services Information Sharing and Analysis Center (FSISAC.) It serves as the global financial industry's "go-to" resource for cyber and physical 

threat intelligence analysis and sharing. FS-ISAC is unique in that it was created by and 

for members in 1999 to prepare for Y2K and operates as a member-owned nonprofit 

entity. It was established by the financial services sector in response to the 1998 

Presidential Directive 63, (later updated by the 2003 Homeland Security Presidential 

Directive 7) that mandated that the public and private sectors share information about 

physical and cyber security threats and vulnerabilities to help protect the U.S. critical 

infrastructure, of which the financial sector is a vital component.21 

In response to emerging global threats in cyberspace to the financial sector, FSTSAC's board extended its charter in 2013 to share information among financial services 

fim1s around the world. Constantly gathering reliable and timely information from 

financial services providers, commercial security firms, federal/national, state and local 

government agencies, law enforcement and other trusted resources, the FS-JSAC can 

quickly disseminate physical and cyber threat alerts and other critical infonnation to other 

organizations. This information includes analysis and recommended solutions from 

leading industry experts. 

20 A CAMS Mission website, http:/lwww.acams.org/join-acainsl#tabl;>ed-nave'\Vhat-is~aca_ms 21 Financial Services lnfonnation Sharing and Analysis Center website, ]1ttps:/lwww.fsisac.con:lli!bout 

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The Center's Critical Infrastructure Notification System (CINS) allows the FSlSAC to send security alerts to multiple recipients around the globe ncar-simultaneously, 

while providing for user authentication and delivery confinnation. The system also 

provides an anonymous information sharing capability across the entire financial services 

industry; this protects members' proprietary information and client confidentiality. When 

they receive a submission, industry experts verify and analyze the threat and identifY any 

recommended solutions before alerting FS-ISAC members. This procedure assures that 

member firn1s receive the latest tried-and-true procedures and best practices for guarding 

against known and emerging security threats.22 Peer-to-peer collaboration brokercd by 

formal organizations like FS-ISAC, combined with notifications to the appropriate 

government officials in the U.S. and elsewhere, is an example of timely and effective 

mechanisms to detect, address, and prevent threats to the financial system in the 

traditional and cybcr domains. 

International Cooperation and Public-Private Partnerships 

Unilateral, individual country efforts are not enough to counter terrorist financing 

and money laundering. Our international financial system is far more interconnected and 

interdependent than ever before. International cooperation between the public and private 

sectors is therefore paramount. The Financial Action Task Force (FATF) is an intergovernmental body established in 1989 by the ministers of its 34 member jurisdictions. 

The FA TF sets standards and promotes effective implementation of legal, regulatory and 

operational measures for combating money laundering, terrorist financing and other 

related threats to the integrity of the international financial system. It serves as a "policymaking body" working to generate the necessary political will to bring about national 

legislative and regulatory reforms to protect in the global financial system. The FA TF has 

developed a series of recommendations that arc recognized as the international standard 

22 Ibid 

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for combating of money laundering and the financing of terrorism and proliferation of 

weapons of mass destruction. 23 

The FATF values private sector expertise and operational knowledge, as essential 

resources to evaluate the application of the AML/CFT requirements to business practices, 

and to encourage the practical adoption of the standards. The private sector can serve as a 

helpful sounding board to "test" or assess the potential impact of measures under 

consideration, or brainstorm on possible technical solutions in a specific field affecting 

the financial industry. It is also an important way to learn about market developments and 

access new information regarding emerging threats and vulnerabilities to the global 

financial system.24 The F ATF Private Sector Consultative Forum is the formal means to 

reach out to and cooperate with private sector stakeholders. It holds open consultations 

with interested stakeholders and sets up working groups to examine specific issues 

including financial innovations like mobile payments, virtual currencies, store of value 

cards that could be vulnerable to money laundering or terrorist tinancing. 25 These 

examples of domestic and international public-private partnership have strengthened the 

international financial system to detect and deter terrorist financing, money laundering 

and other financial crimes. According to declassified intelligence reports, groups like AI 

Qaeda and the Mexican drug cartels decided to refrain from using the formal banking 

sector due to the enhanced compliance and monitoring measures adopted by the private 

sector. 

Strengthening U.S. Capabilities and Promoting Public-Private Sector Collaboration to 

Combat Terrorism, Crime and Corruption 

The U.S. and its allies have increased their efforts to detect the financing of 

terrorism and crime, levied economic sanctions, and raised awareness among the private 

23 FATF website, llttp://ww'Y.J3!!f::g"fi.org/about/ 24 FATF Recommendations 20!2, "Public and private sector partnership in fighting financial crime," 

)illp://www.fatfg,.!iQrgi_Qocuments/documents/publicandprivatesec!orpartn~j.Jllightingfinancialqime.htm! 

25 FATF "G8 Public-Private Sector Dialogue on anti-money laundering and countering the financing of 

terrorism (AMLICFT)," l:l.!!PJL\Vww~fhlf::g_<lf!Jllil!'nublis;ations/fatfgener!l_l/dQ£\!~!ltS/QQS<l§.~tJ 3.h[ml 

14 
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and civic sectors about how bad actors can exploit the international financial system to 

fund their networks and deadly operations. These endeavors to leverage the financial 

instrument of national power against terrorism, crime and corruption are laudable but 

could be further expanded at the national, regional and international levels with the 

following measures: 

1. Integrate the financial instrument of national power more deliberately into future 

U.S. strategies to counter emerging transnational threats; 

2. Strengthen U.S. and international financial intelligence and information-sharing 

mechanisms to more effectively combat terrorism, crime and corruption; 

3. Dedicate more financial, human and technological resources to government 

agencies, responsible for investigating, prosecuting and countering terrorist 

financing, money laundering and other financial crimes. The 2017 fiscal year 

budget request for the Treasury Department for the Office of Terrorism and 

Financial Intelligence was only $117 million to curb terrorist financing, including 

ISIL financing, and to implement sanctions targeting Iran, North Korea, Syria, as 

well as $115 million for the Financial Crimes Enforcement Network.26 

4. Set aside a percentage of forfeited assets and/or fines levied on financial 

institutions for sanctions evasion, money laundering and compliance infractions to 

fund domestic and international capacity building programs; 

5. Retain and expand a vigorous designation and sanctions regime against state 

sponsors of terrorism, foreign terrorist organizations, transnational criminal 

organizations, foreign narcotics kingpins and specially designated nationals; 

6. Promote public-private partnerships; raise awareness among bank and non-bank 

financial institutions of emerging trends in money laundering and terrorist 

financing to keep up with the unprecedented pace of technological change; 

7. Empower the private and civic sectors to actively to detect and deter financial 

crimes and contribute to counter threat finance strategies and operations; and 

26 U.S. Department of Treasury FY2017 Budget in Brief fact Sheet, 

!:J.t1m;j /www.tr<:?.S.J!l:Y_gQyiaboutJbudg<:!.:J2.crformaJ]ce/budgehn.::hrief/Dogumenls/FY l?FactSheet,ggf 

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8. Encourage more fom1al research and study of the illicit economy and anticipate 

how new financial innovations, services, technology, such as virtual currencies 

and block chain, could possibly be used and abused by terrorists and criminals to 

finance and facilitate their operations. 

In conclusion, terrorists, criminals and their facilitators are presenting complex, 

asymmetrical threats to U.S. national security interests at home and abroad. The 

dangerous convergence of illicit networks challenges the sovereignty, security and 

prosperity of the nation state and must be actively addressed. These illicit networks 

require critical enablers, most importantly financing, to realize their destructive agendas 

of terrorism or crime. Stemming the flow of funding to groups, like ISIL, can 

significantly degrade their violent operations and impact. As these illicit networks adapt 

and evolve, we must constantly update our methods of detecting, disrupting, dismantling 

and deterring our adversaries with the financial instrument of national power. Only 

through proactive interagency, multi-sectorial and international strategies can we 

effectively counter terrorism, crime and corruption around the world. 

Thank you, Mr. Chairman and committee members for your time and attention. 

16 
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iNTEGRITY 

NETWORK 

The Honorable Juan C. Zarate 

Chainnan Co-Founder 

Financial Network 

Senior Counselor 

Center on and Illicit 

Former Deputy Assistant President and 

Deputy National Advisor for Combatting 

h<>-tnrP the 

House Financial Services Committee 

The Task Force to Investigate Terrorism 

Financing 

The Next Terrorist Financiers: 

Stopping Them Before They Start 

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Juan Zarate June 23, 2016 

Financial Integrity Network 

Chainnan Fitzpatrick, Ranking Member Lynch, Vice Chairman Pittenger, and distinguished 

members of the Task Force to Investigate Terrorism Financing. l am honored to testify before 

you to discuss the evolving challenges and threats from terTorist and illicit financing. l am 

especially pleased to be testifying with former colleagues and distinguished experts in this field. 

Let me begin by commending this Task Force and the Committee for its diligent work and focus 

on terrorist financing over the past year. This Task Force has resurrected important policy 

conversations and oversight to ensure the effective application of U.S. tools, intonnation, 

authorities, and strategies to tackle the challenges of terrorist financing and illicit financing. 

These arc issues that affect our national security and the integrity and strength of the global 

financial system. 

l was privileged to testify at the first hearing on April22, 2015, and noted at the time that the 

work of the Committee would prove even more relevant as the terrorist threat evolved and 

America's enemies adapted to find ways to raise and move money for their causes. I also 

testified that there would be a need to tackle core issues of transparency and accountability in the 

global financial system to ensure that we could protect the U.S. financial system from abuse. 

Much of my testimony today builds on those prior reflections and recommendations. 

Since the Task Force began its work, much has happened to underscore the need to focus on 

terrorist financing and illicit finance and the importance of the strength, resilience, and 

integrity ofthe U.S. and intemational financial and commercial systems. 

Terrorist organizations and criminal networks have continued to leverage local and 

regional economies and the global commercial system to both profit and evade scrutiny, 

with the U.S. and other governments attempting to expose and disrupt significant illicit 

financial and trade networks and nodes from Panama to Afghanistan. 

Growing regional and proxy battles in the Middle East, South Asia, and Africa have 

increased the risk that terrorist and militant groups arc taking advantage of crises, lack of 

govcmance, and fund flows to rejuvenate longstanding financial support from donors, 

charities, and state sponsors. 

Terrorist infiltration and control of urban environments, populations, and resources - in 

cities like Mosul, Sirtc, and have complicated how the U.S. government and our 

allies attempt to disrupt financing, putting a premium on dislodging terrorist 

organizations physically from key sites and sources of revenue. 

The application of U.S. law to exclude Hizballah from the Lebanese financial system has 

created enormous pressure in Lebanon, with Hizballah leadership speaking out against 

the closing of Hizballah-rclatcd bank accounts and a bomb exploding in front of Blom 

Bank in Beirut on June 12, 2016. 

The Panama Papers and tax-related leaks have raised important questions about the limits 

of financial transparency, accountability, and traceability and whether the current antimoney laundering/countering the financing of terrorism (AMLICFT) system is elfcctive. 

Complications and burdens on the legitimate financial community in the application of 

sanctions and financial crime risk management have continued to abut against the public 

policy needs for financial inclusion. 
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Juan Zarate 

Financiallntcgrity Network 

June 23, 2016 

New technologies enabling the digital economy arc providing enormous opportunities for 

financial access and innovation, but illicit actors are finding ways to leverage tools like 

digital currency to create illicit bazaars via the Internet and access capital without 

scrutiny, as seen in the Silk Road and Liberty Reserve cases. 

Continued, significant cyber attacks by state and non-state actors on financial institutions 

and networks, to include the recent heist affecting the Bangladeshi Central Bank and 

others via the SWIFT network, have tested the trust in the international 

financial system and continued to that the financial sector remains at the 

heart of the cyber storm. 

These arc just some examples and recent developments that continue to illuminate and 

complicate the terrorist and illicit financing Billions of dollars in illicit trade and 

money laundering continue to reach the hands and illicit actors. There is much work 

to be done to ensure the United States and our partners around the world arc making it harder, 

costlier, and riskier for terrorist groups and illicit actors to raise and move money across and 

within borders. 

Indeed, the terrorist threat and its underlying ideology have continued to metastasize, and the 

global threat of terrorism has adapted quickly. Terrorist organizations continue to to the 

pressure placed on their global financial networks since 9/ll and have learned to and 

manage their own budgets by becoming for-profit organizations taking advantage of the 

economic resources and opportunities where they Just as the problem of terrorism is 

more global and diversified today than ever before, means and resources that networks and 

groups have to raise and move money have become more varied and localized. 

Though under increasing pressure, the so-called Islamic State of Iraq and al-Sham (ISIS) has 

maintained its hold on key territory even beyond the Syrian and Iraqi theaters -- and has erased 

or reshaped borders in the heart of the Middle East. Its finances in Iraq and Syria have been 

disrupted thanks to targeted air strikes on oil infrastructure and cash centers, but the group 

continues to raise millions of dollars in revenue and manages a diversified war economy as it 

attempts to govern and expand its reach. 

To contain the global reach of terrorist groups and to thwart the manifestation of their ambitions, 

we must disrupt their financing and force them to make operational and strategic choices. After 

9/11, the U.S. government understood that defending the country and undermining terrorism 

required deterring, disrupting, and dismantling terrorist funding sources and networks, as these 

arc all essential to the broader counterterrorism mission. Whether it is Al Qacda, ISIS, or 

Hizballab, the reality is that terrorist groups need money to operate their networks, logistics, 

maintain teuitory or influence, and to plan strategically against the United States and our allies. 

Any terrorist group, illicit network, or rogue state seeking significant global reach and impact 

needs access to the financial and commercial system. Financial tlows and budgets become even 

more important as groups like ISIS, Boko Haram, and al Shabaab attempt to govern and operate 

local economics. 

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Juan Zarate June 23,2016 

Financial Integrity Network 

Money is their enabler, but it's also their Achilles' heeL lfyou can cut offfunding flows to rogue 

groups or states, you can restrict their ability to and govern, and force them to make 

choices-not only budget decisions, but also choices. 

Financial strategies arc powerfhl tools that can constrict our enemies' current activities and their 

strategic reach. Yes, one suicide bombing may cost a terrorist organization less than $1,000, but 

if that organization cannot pay for all the sophisticated training it would like, cannot adequately 

maintain its international alliances, and cannot develop all the programs and operations it 

imagines, then its ultimate impact will be limited. In maximalist tcnns, we can alter the enemy's 

behavior by affecting its bottom line. 

The Threat of Terrorist and Illicit Financing 

This strategy to combat terrorist tinancing is not a silver bullet nor is it immune to the enemies' 

defenses. Terrorists and rogue actors have adapted to this kind of financial pressure. 

Terrorist Financing in 2016 

lSlS, al Qacda, and their affiliates have had to adapt, and their affiliates have grown more 

independent and innovative in developing self~funding mechanisms while individual members 

and cells usc local means to raise necessary funds. The future of terrorist financing parallels the 

more fractured and localized nature of al Qaeda itself and will present new challenges and 

opportunities for counterterrorism olT!cials. 

ISIS runs a war economy in territory it controls, with a diversified portfolio providing them 

income. Revenue from running oil operations in fraq and Syria has been a major source of 

revenue for the group as it has taken advantage of the black market in oil, old Iraqi oil 

smuggling routes, and developed mobile refineries and transport to transact with brokers and 

even the Assad regime in Syria. The U.S. and coalition airstrikcs and pressure on the ground in 

Iraq have dislodged ISIS from some of its oil infrastructore, but it continues to hold facilities and 

fields in Syria. I! will continue to seck control of oil installations and resources. 

With its control of territory and the second largest city in Iraq, Mosul, ISIS is able to tax and 

extort the local population raising taxes and fees as pressure mounts- control food supplies to 

ensure submission by local tribes and populations, engage in kidnap for ransom and other 

criminality, and trade illegally in antiquities from the historic sites it desecrates. It also had 

access to approximately ninety banks in the Iraqi territory it controls which have been ordered 

cut off from transactions by the Central Bank of Iraq - but may also have maintain access to 

banks in Syria and continues to have access to currency exchange house and money service 

businesses in the territories it controls~~ from Libya to Iraq. 

This access to urban environments, economies, and local financial institotions even small 

money service businesses is different than the safe havens and terrorist risks of the 

past. Their a hi lity to leverage financial institutions, even as they are cut otT from cross-border 

transactions, presents real risks to the legitimate financial system. This makes sanctions and 

financial crime risk management all the more important now. The territories and economies 

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Juan Zarate June 23, 2016 

Financial Integrity Network 

terrorists control have allowed them to usc economic shields to avoid complete isolation and 

destruction, as U.S. and coalition lurces have to be mindful of civil populations, infrastructure, 

and to contend with the "day after" effects of !SIS rule. 

Fortunately, the pressure against ISfS is reducing its revenues. With less territory under its 

control, the loss of historic sites like Palmyra, fewer foreigners to kidnap and barter, and reduced 

access to revenue such as salaries sent into Mosul, its income sources have been hurt. This has 

forced ISIS to reduce pay to its fighters. Targeting of financiers has helped reduce financial 

leadership as well. 

ISIS is resilient, and this model of financing is not new. For years, al Qacda in Iraq (AQI) had 

siphoned oil, extorted and kidnapped fur ransom, and robbed banks to raise money, especially as 

it came under pressure from the U.S. and Iraqi governments. The group attempted to rob the 

Central Bank oflraq on June 13, 2010, and engaged in a July 2011 online funding appeal. Now, 

AQI's successor ISIS robs the coffers of the banks in cities it enters and controls. In Mosnl, they 

raided the Central Bank facility and stole over $600 million. ln Sirte, Libya, they stole over $4 

million. 

In addition, as ISIS continues among violent Sunni extremists and 

demonstrates continuously that it is an fighting force against President Assad in Syria 

and his allies in Iran, as well as Shia enemies throughout the Middle East, the group is likely to 

obtain more ftmding from foreign donors, in particular from the Gulf, and through crowdsourcing and other grassroots' fundraising. 

The estimates of the ISIS' income and resources vary widely and change as the battlefield shifts, 

with reports from the Congressional Research Service, the United Nations Al Qaida and Talcban 

Monitoring Group, and the Financial Action Task Foree providing fidelity regarding sources and 

means of funding. U.S. officials remind us that ISIS must expend resources in order to govern 

and maintain its momentum, as ISIS is losing ground tlnancially. 

ISIS' and al Qacda's regional outposts also rely more heavily on diffuse and localized funding 

schemes, ot!cn relying on criminal activities such as extortion, kidnapping, and financial fraud 

that provide fruitful sources of funding. These activities, however, also expose networks and 

members to attention from local authorities and cnfurcement. 

Al Qaeda in the Islamic Maghreb (AQIM) has mastered the kidnapping for ransom business, 

taking European hostages and ransoming them to the tnuc of tens of millions of dollars a year 

paid for hy govemmcnts and insurance companies. TI1is, along with AQIM involvement in drug 

smuggling through the Sahel into Southern Europe, has allowed AQIM to become a funding 

engine for the broader al Qacda movement, with support in the past to Boko Haram in Nigeria 

and perhaps even other sympathetic groups emerging in North Africa. And the al Qaeda affiliate 

in Somalia, the al Shabaab movement, has created the most diversified and innovative funding, 

with a combination of taxes and fees, diaspom remittances, and a charcoal tradebased money-laundering scheme to millions of dollars. This explains why the United 

Nations has imposed sanctions on charcoal exports from Somalia in an attempt to cut off an 

important revenue source lur the a! Shabaab moncymcn. 

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Because a! Qaeda is seeking alternative financial sources and cf1icicnt vehicles tor moving 

money, it will continue to develop relationships and operations that tic its financing to the 

infrastrncturc and operations of other Today, al Qaeda in the Indian Subcontinent 

(AQIS) relics on donations from and supporters in the Persian Gulf and Arab states 

while also increasingly collaborating and sharing resources with Pakistani based militant groups 

and leveraging its cells in cities like Karachi. For example, al Qaeda is known to share resources 

and secure funding from Lashkar e Taiba, Pakistan's largest and most capable terrorist 

organization. According to General Carter Ham, Boko Haram, a! Shabaab, and al Qaeda have 

shared funds and traded explosives. 

Although a! Qaeda has been hurt financially, elements of the old funding networks that sustained 

the Afghan and Arab mujahidcen, a! Qaeda core, Islamists in Chechnya, AQI, and other clements 

of the AQ network still exist. Sympathizers, deep-pocket donors, and charities and other 

organizations can be used to funnel money to sympathetic causes. 

These networks have been weakened over time, but they have also revitalized around specific 

causes important to Islamic extremists, of which the most important now is Syria. Syria is 

providing the most fertile ground for a resnirection of the old financing and recruitment networks 

out of the Arabian Gulf, Iraq, and North Africa - as extremists help drive the fight against 

Assad in Damascus. With the need and call for humanitarian funding for refugees and those in 

desperate need, groups like ISIS or Jabhat al Nusra, al Qaeda's Syrian affiliate, ean use charity to 

raise money- and develop their governance and social operations. Dangerously, these groups 

have learned that to survive in these environments and not be rejected by the populace, they have 

to fight while baking bread and mending wounds. External funding allows them to do this. 

The deepening conflict between Sunni and Shia in countries throughout the Middle East and 

South Asia- along with the tumult stemming from the Arab Revolutions is also providing an 

opportunity for these networks to be rejuvenated. Thus, galvanizing events, conflicts, or causes 

could help resurrect these established networks and means by which they have justitled support 

for Islamist causes and moved money transnationally, often relying on front companies, 

traditional hawala, and cash couriers. 

Authorities then must maintain scrntiny over these networks and financiers and ensure consistent 

oversight using existing measures to combat money laundering and terrorism financing. The U.S. 

government must also press its Gulf allies to prevent the financing of violent extremists groups 

quietly and through targeted designations as the Treasury has with respect to terrorist financiers 

in Qatar and Kuwait It must also find avenues of cooperation, as with the joint designation on 

April 7, 2015, of the AI Furqan Foundation Welfare Trnst with fhe Kingdom of Saudi Arabia. 

Finally, the U.S. government must pressure Iran to stop the facilitation of financing for terrorist 

groups in and through its territ01y including for a! Qacda and the Taleban, as evidenced in the 

travel from Iran of Taleban leader Mullah Mansour before he was killed, according to press 

reports. 

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The Blending oflllicit Financial Networks 

Importantly, money allows seemingly disparate networks and groups to blend their operations 

and facilitate their activities. Money and the potential for profit - grease relationships that 

would ordinarily never exist. This adaptive collaboration is seen already in the case of drug 

trafficking, where groups like Hizballah and AQIM have profited from the drug trade from South 

America through West Africa and the Sahel into Europe. In the past, al Qacda and groups like 

Lashkar-c-Taiba (LeT) have benefited from alliances with Indian crime lord Dawood Ibrahim 

and his organized crime network. The overlaps between the criminal underworld, illicit financial 

activity, and terrorist operations and fimding will continue to evolve as marriages of convenience 

emerge in common areas of operation. Focusing on key financial conduits, nodes, and networks 

that serve not just terrorists but transnational criminals will be critical for counterterrorism 

officials. 

The grand global anns traffickers of this era, like Manzar al Kassar and Viktor Bout, have 

proven this rule. They were willing to service any t,rroup or regime willing to pay the right price 

often selling arms to warring sides in the same conflict. This principle of opportunistic profit 

and operations is now implicating the interactions of networks of all ideological stripes. There is 

money to be made and logistical networks to be harnessed to achieve criminal and political 

goals. 

This blend of purposes is seen most clearly in the conversion of terrorist groups into drug 

trafficking organizations like the FARC in Colombia, the Taleban in Afghanistan, and 

Lebanese Hizballah. With Hizballah, the U.S. government continues to expose the connections 

between the group and international drug trafficking and money laundering. Recent actions by 

the DEA and Treasury to dismantle networks ofHizballah's "Business Affairs Component" have 

exposed financial and trade nodes that the Hizballah operates and led to arrests and enforcement 

actions around the world. Treasury's Section 311 action against Lebanese Canadian Bank (LCB) 

in 2011, exposed the hundreds of millions of dollars Hizbaltah was moving as part of its drug 

money laundering scheme globally. Overall, the U.S. government has designated Hizballah 

supporters in twenty countries around the world. 

Ideology gives way to opportunity. The reason is money. America's enemies dmg tra11icking 

cartels, organized crime groups, militant groups, and terrorists -- are funding each other, as a 

matter of convenience and opportunity. 

These connections also tie groups together and allow them to work together more broadly. The 

DEA, the FBI, and the intelligence community have t<xused more and more attention on the 

nexus between drngs and tcJTor with teJTorist groups assuming the role of drug trafficking 

organizations and drug trafficking organizations taking on the characteristics and violent 

methodologies of terrorist groups. The U.S. Attorney for the Sout11em District of New York has 

merged its international drng and foreign terrorism sections because of the intimate link between 

the two. 

Crime can pay, making it an especially attractive avenue for fundraising for networks and groups 

with global ambitions. Where there is money to be made and moved, financial institutions will 

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be implicated. Banks and financial intermediaries will continue to weigh the balance between 

making significant amounts of money while doing business with suspect customers aud the need 

to apply the most stringent financial controls and standards on money flowing through its 

systems. We have seen this over and over, with multinational banks targeted by regulatOiy 

authorities aud investigators for taking chances with their efforts to evade sanctions and scrutiny. 

Growing Sophistication & Jl!icit Financing Channefs 

Illicit financial networks continue to grow in sophistication and take advantage of the 

international financial system to and move money. Sophisticated organized crime groups 

and drug cartels usc the same in the international financial and commercial systems to 

build their financial empires. Drugs, illicit goods, and money all flow, and facilitators and illicit 

money managers help devise ways to hide and layer transactions and evade scrutiny. 

The Panama Papers leaks reveal how corporate vehicles formed by Mossack FonSl.'Ca were used 

by some, like Rami Maklouf (the cousin of Bashar a! Assad), and the former Qaddafi regime, to 

evade sanctions and move and hide millions of dollars in wealth. The recent arrest of "King 

Midas," the chief money launderer for the Sinaloa cartel in Mexico revealed an intricate network 

of financial interests that allowed him to handle and hide nearly $4 billion over ten years for the 

organization, according to press accounts. Treasury actions to include the Section 311 action 

against Banca Privada d'Andorra last year have revealed intricate schemes run by third-party 

money launderers to move mouey lor clients in Venezuela, Russia, and China. And FinCEN's 

recent Geographic Targeting Order for high-value real estate purchases in New York and Miami 

especially through shell companies is an attempt to gather information about a real money 

laundering vulnerability in the United States. 

In many cases, the old methodologies of money laundering and tax evasion arc refreshed, with 

greater awareness of the controls in place through regulation and financial due diligence. 

Sanctions evasion blends seamlessly into other financial crimes like tax evasion and money 

laundering. Some money launderers have learned how to banks' compliance systems and 

work around existing sanctions and financial crime 

New technologies and innovations in the storage and movement of money and value are 

reshaping the international financial landscape. This is especially the case in developing 

economies and communities without access to lorma! financial outlets, which arc relying more 

heavily on mobile devices and mechanisms for storing and transferring money. The pace of 

growth of these systems in the developing world has been staggering. By 2009, the developing 

world accounted for three-quarters of the more than tour billion mobile handsets in use. Prepaid 

cards, as an alternate way to store and transfer value, have gained momentum over the years as a 

replacement for standard currency transactions, with more innovation on the horizon. Crowd 

sourcing and fundraising facilitated by social media and the Internet a problem anticipated by a 

Treasury Department reported issued in 2003 - arc now a regular means by which terrorist 

groups raise and move money. 

tn addition, the development of online, altcruativc currencies and new mechanisms for virtual 

barter will further open the Internet for potential exploitation by illicit actors. The Liberty 

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Financial Integrity Network 

Reserve and Silk Road networks demonstrated the rapid evolution of digital illicit marketplaces 

where all forms of illicit goods and activities -- drugs, arms, and human trafficking were 

blended and facilitated by digital cunencies. The new economy has begun to implicate tcnorist 

financing as well. On November 23, 2011, police arrested four for involvement in a 

$2 million remote toll seam that started in 2009. cell gained access to AT&T customers and 

telephone operating systems to pass revenues to the suspects or their associates. The group 

hijacked telephone intrastmcture and rerouted calls to collect funds and transfers from unwitting 

users. These funds were then sent on to support Jemaah Islamiyah, the Indonesian-based al 

Qacda network, and Lashkar-c-Taiba. 

Tracking the mass volumes of rapid and anonymous money flows around the world aud getting 

in front of new technologies to allow for lawful and appropriate tracking will remain major 

challenges for law enforcement, intelligence, and regulatory officials, especially because groups 

and individuals are able to hide and their identities and ownership interests. Digital 

currencies -replacing the traditional use and the traditional controls and chokepoints 

that are attached to international money flows have emerged as efficient, yet potentially 

problematic ways to raise, move, or hide illicit capitaL 

Tn many cases, financial interests have served as the impetus for new ways to evade the financial 

pressure of the United Stales, new structures to profit from markets of opportunity, and new 

relationships to subvert the legitimate financial system. The enemy has learned to adapt against 

the tools and methods used to pressure it financially. 

Emerging Challenges to Financial Integrity and Security 

The international environment for financial integrity has matured rapidly. There arc now clear 

international standards and heightened expectations tor transparency and accountability, with the 

dctinition of financial crime expanding to include issues like tax evasion along with the 

broadened use of financial sanctions to address national security risks. The sanctions and antimoney laundering worlds have begun to blend with expectations that the financial and 

commercial communities take ownership of managing the real risks to their institutions. 

Jurisdictions too are now being judged by the effectiveness of their AMLICFT and sanctions 

systems. Though expectations arc high, performance has fallen short and the global effort to 

protect the integrity of the financial system has proven imperfect and often ineffective. 

The Panama Papers revealed systemic weaknesses that have been understood by experts for 

some time. The leaks have revealed to the public what was already known to many of us. There 

arc comers of the international financial system in some jurisdictions, certain institutions, and 

in specillc sectors - that have not received the light of international scrutiny and attention. 

Corporate formation agents and facilitators have ollcn operated under the cloak of bank secrecy 

or lack of regulation. Investment advisors have not been subjected previously to regulation or 

scrutiny. Some lawyers have acted as financial facilitators, planners, and conduits for illicit 

activity. The gatekeepers of significant financial activity have taken advantage of the opacity of 

corporate structures and often been exempted from anti-money laundering regulation. 

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This is why the Treasury's new Customer Due Diligence rule, requiring financial institutious to 

verify the ultimate beneficial owners of companies, is a critical and important step in creating 

greater transparency in the system. This is also why proposed legislation requiring companies to 

know and file information on their ultimate beneficial owners is a critical next step to ensure that 

U.S. companies are not being used by intcmational criminals and sanctions evaders to hide or 

move illicit capital and investments. 

Systemically, there are some additional worrying signs. In Europe, the legal structure and basis 

for the use of targeted sanctions against individuals and entities, based on United Nations 

designations, remains under cnom1ous stress. The need to reconcile ex-unte due process for 

individuals with the preventative demands of asset freezes and designations continues to 

challenge the mechanism by which the European Union adopts and enforces targeted sanctions. 

Without a solid foundation and a snstainable system, the European Union and countries will 

remain reluctant to adopt aggressive measures to stop terrorist financing using these tools. 

In addition, the ecosystem that allows for this form of financial warfare and isolation is resilient 

but fragile. The forced isolation of more and more actors and the tendency of the private sector 

to decline doing business in at-risk sectors, jurisdictions, and with suspect actors raises the 

possibility of reaching a tipping point where the effectiveness of these tools begins to diminish. 

This is especially the case when the use of financial sanctions and regulations arc used to address 

more diverse range of diplomatic and political ills and concerns - like human smnggling, child 

labor, and human rights abuses. 

With the threat of financial sanctions, public opprobrinm, and the potential erosion of reputation 

for banking suspect actors, legitimate financial actors arc exiting from problematic markets. This 

raises concerns that less credible or scrnpulous financial actors will fill the vacunm. It further 

raises the concem that legitimate and credible financial institutions will abandon markets most in 

need of access to capital and an improved culture of compliance and embedding of global 

standards across the board. For authorities, this would entail a potential loss of visibility into 

certain financial activity. 

W c have seen this happening already -- with banks stung by enforcement actions and painful, 

public settlements beginning to exit markets and business lines wholesale, money service 

businesses in North America struggling to find banking relationships with major banks, and 

embassies searching to maintain bank accounts in the United States and Switzerland. 

An inherent and dynamic tension has emerged between the isolation of suspect behavior from the 

fom1al financial system and the incorporation of more of the world into the tonnal financial 

system. Going forward, the core principle of isolating and exiling actors from the legitimate 

financial system for policymakcrs needs to be balanced with the need to ensure that rogue actors 

can be captured and affected by the legitimate financial system. 

More worrisome, our ability to use these powers conld diminish as the economic landscape 

changes. Treasury's power ultimately stems trom the ability of the United States to use its 

financial powers with global effect This ability, in tum, derives from the centrality and stability 

of New York as a global financial center, the importance of the dollar as a reserve currency, and 

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the demonstration effects of any steps, regulatory or otherwise, taken by the United States in the 

broader international system. 

1f the U.S. economy loses its predominance, or the dollar sufficiently weakens, our ability to 

wage financial warfare against terrorists and America's enemies could wane. 1t is vital that 

policymakers and ordinary Americans understand what is at stake and how this new brand of 

financial warfare evolved. For it is only a matter of time until U.S. competitors use the lessons of 

the past decade to wage linancial battles of their own-especially against the United States. 

Opportunities Ahead 

The need to combat terrorist tinancing is just as important today as it was after 9/ll. We need to 

constrict the budgets oflSIS and al Qaeda and to cut tbe financial and resource links between the 

groups in order to contain their capabilities, reach, and ambitions. Congress, the Administration, 

and the private sector must work together in some key areas. 

Sharpening Our Tools & Enlisting New Networks 

The playbook designed over the past thirteen years is still sharp and can be wielded with effect 

against targeted actors and networks of concern. The continued reliance on these measures for 

tactical and strategic purposes by the U.S. government is a testament to their importance. The usc 

of linancial intelligence, tools and suasion, entbrccmcnt, and linancial diplomacy can all be used 

aggressively to attack terrorist and illicit financing as it hits key chokepoints and the linancial 

system. But the use of these tools must remain strategic, their implementation focused on 

effectiveness, and they must he reinforced with a strengthened and committed international 

system devoted to the protection of the international t1nancial system and our collective security. 

Indeed, one of the great strengths of the campaign to combat terrorist financing and illicit finance 

is that it is based on international nonns and that arc subscribed to by all the relevant 

banking centers and jnrisdictions and now understood by the private sector. These 

standards, established by the Financial Action Task Force and reinforced by the World Bank, 

lntemational Monetary Fund (IMF), the United Nations, and countries around the world, forn1 

the baseline for the integrity of a financial system that is intended to be transparent, accountable, 

and safe. This also means that the sanctions that has formed the core of these campaigns 

must be driven by the United States but more fully by the legitimate capitals of tbc 

world. They must be encouraged to take on the task of combating terrorist linancing in their 

countries and globally-- as we have seen recently in Kenya in the wake of al Shabaab attacks. 

The blending of terror and criminality, along with the local means groups arc using to raise and 

move money, expose them to local and regional disruption, even if they arc not using tbe formal 

financial system. Thus, drug enforcement agents, customs officers, policemen, and tax 

authorities all become even more relevant in the world of illicit linance as terrorist groups 

exploit the scams in the international system. This offers opportunities for the United States and 

other law enforcement agencies to partner in more creative ways, to amplifY the intelligence, 

financial, and military cooperation that already may exist between countries. We have seen this 

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kind of partnership bear fruit in countries around the world, as authorities monitor cash couriers, 

financial crime, and fraud and corruption schemes. 

Finally, we need to opcrationalize the type of financial and strategic suasion that has made the 

campaign against terrorist financing effective over the past decade. There arc new partners in the 

international system who need to be enlisted as we combat new forms of terrorist financing. 

For example, to combat the looting of antiquities for profit by ISIS, the United States should help 

empower and enlist a whole set of actors and networks already committed to the preservation of 

peoples, texts, and culture including leading archaeologists, anthropologists, universities, 

heritage trusts, museums, libraries, and even activist celebrities. The Antiquities Coalition, 

UNESCO, and other organizations have already sounded the alarn1, and the lJ .S. should leverage 

their insights, networks, and activism to stem the flow of funds to ISIS from this trade. 

A new coalition should he galvanized to stop the funding of terror and conflict from the illicit 

wildlife trade - especially the decimation of elephants and rhinos in Africa for their valuable 

ivory. This trade, which will bring the extinction of some of the world's most magnificent 

animals, is exploited for profit by terrorist and militant actors, like a! Shabaab, the Lord's 

Resistance Army, and the Janjawecd, along with drug trafficking organizations from South Asia 

and China. The United States could help galvanize and energize the international efforts to 

prevent these environment crimes and focns a strategy on disrupting the financial and 

commercial networks that enable this trade to flourish. This effmt would combine the 

environmental activists with the national security community. In this manner, we could serve 

both our natural and national security, with a new set of allies in the international system. 

The power to affect the budgets of America's enemies is an cnorn10us power that needs to be 

tended carefully and wielded wisely. And America's enemies especially nimble terrorist 

organizations will continue to find ways to work around the international pressure and 

strictures put upon them. This is why the campaign against terrorist financing is not a static 

venture but instead an ongoing and critical part of the changing terrorist and international 

security landscape. The U.S. government, led by the Treasury, must continue to innovate and 

find new ways and partners to make it harder, costlier, and riskier for terrorist groups around the 

world to raise and move money. 

Targ;eted Unwinding 

The United States has grown incredibly sophisticated in the usc of sanctions and financial 

measures to drive strategies of financial exclusion. Yet, as the U.S. Treasury begins to tmwind 

certain sanctions programs and dclist individuals and entities from longstanding sanctions lists, 

the United States should consider how best to manage targeted unwinding measures to achieve 

our strategic goals. Unwinding can occur because a change of behavior has been achieved, 

political or diplomatic goals met, or as a tool of continued persuasion. There arc good and 

important reasons to unwind sanctions, but the way in which sanctions are unwound can 

reinforce our strategic goals and reinforce the influence of our financial measures. 

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Blunt unwinding may give a rogue regime too much in a deal, could reinforce the regime's hold 

on power and resources available to it, and may not allow for the targeting of relief to build the 

private sector or altemates sources of power or influence. lt also may not allow for steps staged 

or targeted- that would force a regime to change its illicit financial behavior. 

This is a challenge now with Iran, Cuba, and even Bum1a. These arc not just risky countries 

because they are sanctioned regimes aud countries. They are inherently suspect and present 

financial crimes risks because of the nature of their autocratic and corrupt economies, the opacity 

of their systems, and the usc of the economy by the regimes for a range of dangerous or illicit 

activities. 

A system of targeted unwinding could advance the strategic goal that an illicit regime or 

networks not misuse au economy and financial system to benefit terrorists, proxies, and 

accelerate its netarious international ambitions and capabilities. ft could also accelerate refom1s 

that match international standards and expectations. If such a system could prove effective, it 

might spur responsible reform within a country as it tries to reintegrate into the global system. 

The United States should ensure that it is using its power of unwinding to full effect. 

More Aggressive Information Sharing Systems 

lf the AMLICFT system is to work, there needs to he more a more aggressive and expansive 

infonnation-sharing environment In the first instance, this means taking advantage of publicprivate information sharing systems, like Section 314(a) of the USA PATRIOT Act, to focus 

collaboration on systemic and real vulnerabilities in key sectors. This moves the classic 

Bank Secrecy Act system currently in place, but instead entails more collaboration 

between regulated financial institntions, regulations, and law enforcement to target 

vulnerabilities and networks of conccm. This episodically and is taking shape faster in 

places like the United Kingdom. There needs to a more aggressive model of cooperation 

between regulated financial entities and authorities in the United States. 

This also means allowing global financial institutions the ability to share suspect account and 

transactional information across borders within their institutions. Currently, privacy and data 

protection laws often impede an institution's ability to share data within its own network. 

Without this, a financial institution not see the risks and vulnerabilities in its own system 

without costly or time-consuming aronnds. This is a 20'h eeutury model crashing against a 

21" century economy and expectations. With illicit actors moving at the speed of the digital 

economy, these roadblocks to intcmal information sharing have to be overcome or removed. 

Importantly, Section 314(b) of the Patriot Act must be expanded to allow financial institutions to 

share infornmtion within their respective sectors more consistently and rapidly. This requires that 

we begin to think about information sharing in the private sector as enabling the discovery of 

sector-wide vulnerabilities like criminal networks that usc multiple accounts at dif1crcnt 

institutions - as well as the cflcctivcncss of our preventative measures against sector-wide risks. 

With the onset of new technologies that facilitate the collection of big data and predictive 

analysis, technology firms should help regulated industries create models that allow the private 

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sector to share and analyze data more rapidly and effectively, while sharing the burden and costs 

of compliance. 

We need to begin to think differently about how information is shared, analyzed, and used to 

protect the integrity of the financial system and our national security. 

Balancing Financial Exclusion and Inclusion hy Sharing the Risk 

Governments have been demanding regulated financial communities to serve as gatekeepers of 

the financial system, so as to ensure that and institutions arc not misused by criminal or 

terrorist actors. Governments have been concerned that institutions, particularly major 

global banks, have exited from markets, business lines, and customers in reaction to 

perceived regulatory and real The global banks have felt whipsawed by this dual message 

and pressure, while sectors such as money service businesses and certain communities have 

found themselves without banking services. 

Where there is a need for financial services or international flows of funds, the international 

community should tind a way of such flows. When those financial flows or 

transactions as with remittances to and in zones represent heightened and perhaps 

unmanageable sanctions and financial crime risk, then there needs to be a shared solution to 

create safe corridors or cham1cls for such financial activity. 

If such flows are important to unstable economics or remittance-dependent countries, then 

governments and intcmational financial institutions, like the IMF and World Bank, need to 

devise ways to build comfort in the risks that can be taken by providing safe channels for t1ows 

or helping to validate ecosystems of financial transparency that meet acceptable international 

standards. No system is perfect, and in a risk-based AMUCFT model there is an acceptance of a 

certain degree of risk. Without some public sector or international assumption of risk, the private 

sector will avoid environments that present costly and unjustifiable risk. The twin goals of 

tinancia! integrity and inclusion can be met with some creative collaboration. 

Focusing on Ejjixtiveness of the AMLICFTand Sanctions c\);stems 

The United States should continue to focus its domestic and intcmational efforts on the eftective 

implementation of the AML/CFT system globally. This is not just about supporting the efforts of 

the Financial Action Task Force to assess jurisdictions - though that is critical. This is about 

ensuring that international norms, sanctions, and the heightened expectations in the international 

system arc being met and reinforced. 

The United States must remain committed to its own financial transparency. Our rc'Conomy 

cannot be seen or used as a money-laundering conduit or haven tor illicit actors of any stripe. We 

need the transparency envisioned in the reccnt.ly published CDD rule and the proposed beneficial 

ownership legislation presently before the Congress. This will entail demanding similar 

transparency and regulation in jurisdictions around the world, including those emerging as m<Uor 

economies or out from under sanctions. 

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The United States must continue to enforce sanctions and its financial crimes and anti-corruption 

laws to ensure that financial security threats arc being addressed. The United States has 

consistently been the driver in using its toolkit to expose terrorist and criminal networks, and its 

work to enforce anti-corruption laws has resulted in global impact, as seen in the F!F A 

corruption cases. The United States should not be shy in driving enforcement, as long as it is 

justified by the facts and clearly intended to meet the demands of the U.S. legal system and 

international nonns. It should also ask the same of its pattners, especially the enforcement of 

sanctions which is often left to the United States. 

With the private sector, the United States should find ways of building the capacity of the 

financial sector to manage financial crimes and sanctions risk. This entails engaging key 

jurisdictions and working with partners to ensure linancial instit11tions of various sizes and 

sophistication understand their obligations and how to meet them. American efforts to ensure 

the integrity of the financial system depends on its efTective implementation globally. 

Addressing the Convergence ofCyber and Financial Ww:fare 

The frequency and sophistication of attacks on banks are increasing, with each attack 

representing a more dangerous intrusion and demonstration of systemic vulnerabilities. The 

recent attacks on the SWIFT system were a wake-up call for the international community that the 

systemic vulnerabilities are real. CitiBank alone reports ten million cybcr attacks on its system a 

month. Banks arc prime targets for organized cybcr criminals. Banks hold not just 

money and customer accounts, but collect and centralize sensitive customer data and some 

clients' intellectual property. 

More importantly, banks have been into a more serious and sustained cyber financial 

battle. Nation states and their realize that banks serve as both key systemic actors 

important for the functioning of the global economy and as chief protagonists in the isolation of 

rogue regimes and actors from the financial system. Thns, the financial community finds itself 

drawn into combined financial and cyber battles- neither of which it controls. This has led cyber 

security experts in the banking commnnity to admit openly, "We arc at war." 

Western banks and the financial system arc now encountering the convergence between 

economic and cybcr warfare. Major and minor state powers, along with super-empowered 

individuals and networks, can harness economic interdependence and cyber weapons to increase 

their global power status at the expense of their geopolitical rivals. The danger emerging is a 

coalition of actors - perhaps states using non-state proxies in cybcr space -- launching financial 

and cybcr assaults. 

The need for urgent attention to this convergence within the financial community and among 

Washington policymakcrs is clear. The current level of interaction between stakeholders is not 

sufficient to address the growing threat from cybcr financial attacks. There needs to be a more 

aggressive approach to private sector defense of its systems and public-private collaboration to 

defend critical tinancial systems. 

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This approach would borrow in part from the post 9/ll anti-money laundering and sanctions 

model to leverage financial suasion rogue capital and actors as a way of protecting the 

financial system. The President's 1, 2015 Executive Order allowing for the use of sanctions 

to address malicious cybcr activity is an important cornerstone to this approach and related cybcr 

financial deterrence. This would also entail a more aggressive "cybcr privatecring" model to 

empower and enlist the private sector to better defend its systems in coordination with the 

government. 

W c need to begin to address the convergence of cyber and financial warfare as the leading front 

in systemic vnlncrabilities to the integrity and safety of the international financial system. 

All of these measures will help maintain core elements of the U.S. toolkit and ensure we are able 

to drive the intcmational agenda to isolate terrorist and rogue actors. lt will also help build more 

integrity and security in the international financial system. 

Strategic Impact of the Counter Terrorist Financing Mission 

The strategies that resulted in this period after 9/ll focused squarely on protecting the broader 

international financial system and financial tools to put pressure on legitimate financial 

institutions to reject dealings with rogue and illicit financial actors. The usc of this type 

of financial power and its focus on tciTorist financing in particular have revealed some 

fundamental policy issues and paved the way for new ways of thinking about national security. 

The focus on financial intelligence continues to reveal links and associations between America's 

enemies and networks otherwise unseen through conventional intelligence. Financial trails 

don't lie, and they can reveal relationships of convenience and for profit, such as between a! 

Qaeda and Iran or between groups like HizbaUah and al Qaeda in the Islamic Maghreb and Sonth 

American drug cartels. The "follow the money" doctrine and financial network analysis puts into 

relief both emerging threats and the enemies' vulnerabilities. 

Treasury's designation process which reveals openly and notoriously the underlying financial 

infrastructure of terrorist organizations and rogue groups - not only resulted in international 

financial isolation but also raises dinicult and fundamental issues of national security import. For 

example, the question of how to deal with Gulf a!lies - such as Qatar and Kuwait that have 

supported extremist causes and groups, especially in the wake of the Syrian crisis, often come 

through the designation process. In addition, new debates emerged and continue to be relevant, 

including how to treat organizations like the Muslim Brotherhood, with its leadership raising 

money and advocating the usc of suicide bombers. The question of how to treat financial 

facilitation should continue to emerge difficult policy questions. 

The targeting of financial facilitators also provided novel insights for a new type of deterrence. 

Though a terrorist trigger pnller may not be dctcrrablc in the last instant of an attack, others in 

the network and business cycle like bankers and financiers -- could be deterred if they 

recognized that their resources and were at risk. Such deterrence whether public or 

quiet could affect the availability and the ability of networks to execute significant 

plots and expand global networks. This insight also ailowcd us to think dilfcrcntly about how to 

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affect weapon of mass destruction (WMD)-tcrrorism by looking at the threat as a business cycle 

- from the source of nuclear material to the and facilitators to the end users. 

Deterrence then was not just aimed at suicide but instead at all of those in the cycle 

who might touch on the proliferation and deployment of WMD. The focus on llnancial support 

to America's enemies will continue to present new opportunities to influence their activities. 

1n addition, it is in the context of financial warfare that the United States experienced its most 

consistent questions and tradcoffs about the use of cyber weapons to disrupt the enemy's 

financial resources. Concem over the effects on the financial system and conlldcnce in the 

United States as the keeper of the modem capitalist system has constrained the use of such 

weapons. Ironically, this is the arena in which the United States financial system now faces its 

greatest vulnerability. 

Importantly, using financial power and suasion to affect America's enemies and their budgets 

well beyond U.S. borders provided a form of asymmetric power that the lJnited States could 

use against non-state networks exploiting the global system. In many ways, tl;ls was a strategic 

window into a new way to leverage power in the 21" century- which docs not require kinetics 

and relics heavily on the influence and decisiuns of private sector actors. Devising and 

leveraging this new type of strategic suasion is a critical and new way of thinking about how to 

leverage American power as power dynamics devolve and shift globally. 

A Comprehensive U.S. National Economic Strategy 

The tools discussed and the strategies of financial exclusion need to be embedded in broader 

strategies of national and economic security. The United States and the international community 

have hcgun to wrestle with the complications of an interconnected global environment where 

economic power, access to resources, and cutting-edge technologies arc redefining national 

power. The myriad vulnerabilities and opportunities in this shifting landscape require a new 

national economic security strategy. 

Countries such as China and Russia are already playing a new gco-economic game, where 

economic power is leveraged aggressively for national advantage. ln this vein, the United States 

should concentrate on sharpening its tools and reinforce the strength and resilience of a 

transparent international financial system, along with its partners. This should not just be a 

strategy of llnancial exclusion. 

The United States should find ways to develop strategies of financial inclusion, using its 

economic influence, private investment, and commercial interests abroad to help allies, reinforce 

strategic interests, and complement the strategies of financial exclusion. Good behavior and 

allies around the world should be rewarded with investment and opportunities to work with the 

United States and our private sector, and U.S. economic tools should not be seen as simply 

contincd to the quiver of economic sanctions. 

Importantly, the United States should develop defensive economic strategies with our allies to 

counter the potential inJ1uencc and pressure that countries like Russia and China may wield. 

Intcmational alliances should be recast to ensure key resource and supply redundancy, while 

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trade deals should create new opportunities lor influence and economic advantage. The TransPacific Partnership is a major step in the right direction. The United States should deploy new 

doctrines of deterrence like a "boomerang deterrent" making it patently unwise for countries to 

try to attack or weaken the U.S. given the entanglement of the international commercial and 

financial systems. 

The U.S. government's approach to its economic vulnerabilities is also scattered- with strategies 

to protect supply chain security, combat transnational organised crime, secure the cyber domain, 

protect critical infrastructure, and promote U.S. private sector interests abroad to compete with 

state-owned enterprises. As the Venn diagram of economic and national security overlaps ever 

more exactly, the U.S. should craft a deliberate strategy that aligns economic strength with 

national secmity interests more explicitly and completely. It should also design this strategy with 

its allies squarely in mind. 

The intelligence community should prioritisc collection and analysis to focus on the global 

landscape through this lens. The Departments of Commerce, Energy, and Defense should sit 

down together and then with the private sector to dctem1ine bow to maintain investments and 

access to strategic materials and capabilities critical to national security. Our homeland security 

enterprise should locus on protecting and building redundancies in the key infrastructure and 

digital systems essential for national survival. Law cntorccmcnt and regulators should have 

access to beneficial ownership infonnation for suspect investments and companies formed in the 

United States. 

The U.S. president should also review the traditional divide between the public and private 

sectors where cooperation is essential. We should view the relationship between government 

agencies such as the Export-Import Bank, Overseas Private Investment Corporation (OPIC), 

and US AID and businesses as core to the promotion of (] .S. interests, creating alliances based 

not just on trade and development but also on shared economic vulnerabilities and opportunities. 

The White House needs to ensure that its national and economic experts arc sitting at the 

same table crafting and driving tbc strategy while the private sector. 

In doing this, the U.S. and Western liberal democracies must rcaffirn1 their core principles. 

Western capitalist societies should not strive to be like either China or Russia, and analysts 

should not automatically overestimate the strength of such alternate systems and inadvertently 

create structures that move us towards a state authoritarian modeL On the contrary, the United 

States should commit to remaining the vanguard of the global free trade, capitalist system, while 

preserving the independence of the private sector and promoting ethical American business 

practices. The United States and its allies should not retreat from the globalised environment 

they helped shape but instead take full advantage of the innovation and international appeal of 

American and Western business and technology. 

In the twenty-first century, economic security underpins the nation's ability to project its power 

and inl1uence. The United States must remain true to its values but start playing a new, deliberate 

game of gco-cconomics to ensure its continued security and strength. 

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Thank you again for the privilege of testifying. I would be happy to answer any questions and 

provide more detail as requested. 

0 

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