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24–982 PDF 2006

S. HRG. 109–269

NOMINATION OF JANICE B. GARDNER TO BE

ASSISTANT SECRETARY OF THE TREASURY FOR

INTELLIGENCE AND ANALYSIS

HEARING

BEFORE THE

SELECT COMMITTEE ON INTELLIGENCE

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

JUNE 16, 2005

Printed for the use of the Select Committee on Intelligence

(

Available via the World Wide Web: http://www.access.gpo.gov/Congress/Senate

(II)

SELECT COMMITTEE ON INTELLIGENCE

[Established by S. Res. 400, 94th Cong., 2d Sess.]

PAT ROBERTS, KANSAS, Chairman

JOHN D. ROCKEFELLER IV, WEST VIRGINIA, Vice Chairman

ORRIN G. HATCH, Utah

MIKE DeWINE, Ohio

CHRISTOPHER S. BOND, Missouri

TREN LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

CHUCK HAGEL, Nebraska

SAXBY CHAMBLISS, Georgia

CARL LEVIN, Michigan

DIANNE FEINSTEIN, California

RON WYDEN, Oregon

EVAN BAYH, Indiana

BARBARA A. MIKULSKI, Maryland

JON S. CORZINE, New Jersey

BILL FRIST, Tennessee, Ex Officio

HARRY REID, Nevada, Ex Officio

BILL DUHNKE, Staff Director and Chief Counsel

ANDREW W. JOHNSON, Minority Staff Director

KATHLEEN P. MCGHEE, Chief Clerk

(III)

C O N T E N T S

Hearing held in Washington, DC:

June 16, 2005 .................................................................................................... 1

Statement of:

Roberts, Hon. Pat, Chairman, a U.S. Senator from the State of Kansas .... 1

Rockefeller, Hon. John D. IV, Vice Chairman, a U.S. Senator from the

State of West Virginia .................................................................................. 2

Bond, Hon. Christopher S., a U.S. Senator from the State of Missouri,

prepared statement ....................................................................................... 3

Testimony of:

Gardner, Janice B., Nominee to be Assistant Secretary for Intelligence

and Analysis, U.S. Department of the Treasury ........................................ 4

Prepared statement .......................................................................................... 3

Supplemental Materials:

Questionnaire for Completion by Presidential Nominees ............................. 17

Additional Pre-hearing Questions for Janice B. Gardner ............................. 37

Letter to the Honorable Pat Roberts, Chairman, Senate Select Committee

on Intelligence, from Kenneth R. Schmalzbach, Assistant General

Counsel (General Law & Ethics) and Designated Agency Ethics Official .................................................................................................................. 44

Letter to Marilyn L. Glynn, Acting Director, U.S. Office of Government

Ethics, from Kenneth R. Schmalzbach, Assistant General Counsel (General Law & Ethics) and Designated Agency Ethics Official ...................... 45

Letter to the Honorable Pat Roberts, Chairman, Select Committee on

Intelligence, from Marilyn L. Glynn, Acting Director, U.S. Office of

Government Ethics ....................................................................................... 46

Public Financial Disclosure ............................................................................. 47

Letter to Kenneth R. Schmalzbach, Assistant General Counsel (General

Law & Ethics) and Designated Agency Ethics Official, from Janice

B. Gardner ..................................................................................................... 53

(1)

NOMINATION OF JANICE B. GARDNER TO BE

ASSISTANT SECRETARY OF THE TREASURY

FOR INTELLIGENCE AND ANALYSIS

THURSDAY, JUNE 16, 2005

U.S. SENATE,

SELECT COMMITTEE ON INTELLIGENCE,

Washington, DC.

The Select Committee met, pursuant to notice, at 3:22 p.m., in

room SDG–50, Dirksen Senate Office Building, the Honorable Pat

Roberts (Chairman of the Committee) presiding.

Present: Senators Roberts and Rockefeller.

OPENING STATEMENT OF SENATOR PAT ROBERTS, CHAIRMAN

Chairman ROBERTS. The Committee will come to order.

The Committee meets today to consider the nomination of Janice

Bradley Gardner to serve as Assistant Secretary of the Treasury

for Intelligence and Analysis. Ms. Gardner, the Committee welcomes you here today and we thank you for your commitment and

for your contributions up to this point on behalf of our country.

If confirmed, Ms. Gardner will be the first person to serve in this

position since it was created by Congress in the Intelligence Authorization Act for Fiscal Year 2004. That legislation also established the new Office of Intelligence and Analysis—OIA—to replace

the Treasury Department’s Office of Intelligence Support—OIS. So,

I guess you’re leading off with the alphabet instead of down toward

the end.

In creating this new office and position, the House and Senate

conferees sought to ensure full, appropriate and timely sharing of

information and analysis with regard to financial networks associated with international terrorism. Thus, the OIA is intended to

streamline and to centralize the U.S. Government’s capabilities to

track terrorist financing networks all across the globe.

In fulfilling this goal, the Office of Intelligence and Analysis has

two primary functions—first, the creation and maintenance of a robust analytical capability to provide the OIA with in-depth analysis

to target and attack the financial infrastructure of terrorist groups;

and, second, to provide an enhanced intelligence liaison for Treasury’s senior leadership with respect to the full range of international economic and political issues.

Now, given these functions, we fully expect the OIA to be treated

as a full partner—a full partner—in the intelligence community, receiving all intelligence, law enforcement and other information necVerDate 03-FEB-2003 13:38 Feb 28, 2006 Jkt 024982 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 D:\INTELL\24982.TXT SSC2 PsN: SSC2
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essary for it to fulfill its mission. The Vice Chairman and I call

that information access.

While the funding and personnel levels of the Office of Intelligence and Analysis are classified, the fiscal year 2006 budget request for OIA reflects, I think, the significant expansion of Treasury’s role within the intelligence community. If confirmed, Ms.

Gardner will be responsible for managing these resources in such

a way as to ensure the fulfillment of the intent of Congress in creating the OIA. I hope that she will work closely with us as we exercise oversight of the OIA and its work as part of the intelligence

community.

Ms. Gardner comes to this task with an impressive background

of public service in the intelligence community. She is an analyst

by training. She has served in a variety of positions within the

community, including the Office of the Director of Central Intelligence, the National Security Council, the Office of the Vice President and, most recently, the Treasury Department.

Ms. Gardner, the Committee looks forward to hearing your views

about the issues, tasks and challenges that will confront the OIA

as well as your plans to address them.

Before hearing from the nominee, I’m happy to recognize the distinguished Vice Chairman for any remarks that he might wish to

make.

Senator Rockefeller.

OPENING STATEMENT OF

SENATOR JOHN D. ROCKEFELLER IV, VICE CHAIRMAN

Vice Chairman ROCKEFELLER. Thank you, Mr. Chairman.

We meet today to consider the nomination of you, Ms. Janice

Gardner, to serve as the first Assistant Secretary of the Treasury

for Intelligence and Analysis, and it is a historic occasion. I rarely

come to this room. This is only the second hearing I’ve ever been

to in this room. It’s the first time that an intelligence official from

the Treasury Department has come before this Committee for a

confirmation hearing. And, interestingly, it’s also the hearing room

that accommodated the Church Committee, which I did not know,

and then in turn became the original committee space for the Intelligence Committee before our current offices were constructed in

the Hart Building.

I am pleased that the new Treasury Department Office of Intelligence and Analysis, to be headed by the Assistant Secretary, will

not only expand Treasury’s role in the intelligence community, but

will play an important role in enhancing the intelligence community’s ability to address terrorist finance issues, which our former

Chairman, Bob Graham, keeps calling me about and wondering

why we’re not making more progress.

In the post-9/11 security environment, there are few more important intelligence priorities than being able to successfully collect

against and analyze how terrorist organizations such as al-Qa’ida

fund their operations. The intelligence community must be able to

gain a thorough understanding of terrorist financing from the

banking and mainstream financial sector. In addition, we must be

able to understand and monitor alternative terrorist financing

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mechanisms—for example, the trade in commodities such as gold

or diamonds.

The Treasury Department’s expertise in this area should significantly improve the intelligence community’s ability to understand

and ultimately disrupt the financial lifeline that supports terrorist

groups around the world.

The nominee seems well qualified for this important position.

Ms. Gardner, I join the Chairman in welcoming you to the Committee today and am anxious to listen to what you have to say.

Thank you, Mr. Chairman.

[The prepared statement of Senator Bond follows:]

PREPARED STATEMENT OF HON. CHRISTOPHER S. BOND, U.S. SENATOR

FROM MISSOURI

Ms. Gardner, it was a pleasure meeting you last week and having the opportunity

to hear about the several successful programs that Treasury is pursuing in support

of the Global War on Terrorism. As we discussed, it is imperative that the Intelligence Community and the Treasury Department, as our lead organization in this

part of the fight, continue to stay hot on the trails of money used by those who

would do us harm by striking the homeland and attacking U.S. soldiers, citizens

and our interests abroad. I commend both you and your colleagues at Treasury for

the work you’ve done, and that you do, every day.

I intend to support fully your confirmation as Assistant Secretary for Intelligence

and Analysis at Treasury. You are impressively qualified for this position. Your experience as a manager and analyst at the Central Intelligence Agency, a forwarddeployed analyst with the State Department, as well as service at the National Security Council and in the Vice-President’s Office make you an ideal nominee. While

you understand the craft of intelligence, because you’ve practiced it, and in the field,

you also have a very solid policy background which an Assistant Secretary for Intelligence and Analysis will undoubtedly need.

Further, you have a proven track record at Treasury. As the Deputy Assistant

Secretary for Intelligence and Analysis, you have been a key player in standing up

the Office of Intelligence and Analysis (OIA). You drafted OIA’s strategic plan, created new intelligence products and most importantly, have helped translate that intelligence into action by the Treasury Department. Treasury will face challenges, as

do all members of the Intelligence Community, in fighting and working against existing enemies whose tactics invariably change and new ones looming over the horizon. Meeting these challenges and defeating our enemies requires solid leadership

and vision along with a commitment to action—-qualities you have demonstrated to

possess.

And so, I look forward to your continued efforts to enhance Treasury’s intelligence

capabilities and to produce more and more authoritative intelligence products in

support of the Department’s and United States government’s counter-terrorism and

law enforcement efforts. Thank you for your continued service to our country. I wish

you success during the confirmation process.

Chairman ROBERTS. I thank the Vice Chairman for his comments.

Ms. Gardner, you may begin. Welcome to the Committee.

[The prepared statement of Ms. Gardner follows:]

PREPARED STATEMENT OF JANICE B. GARDNER, NOMINEE TO BE ASSISTANT

SECRETARY FOR INTELLIGENCE AND ANALYSIS, U.S. DEPARTMENT OF THE TREASURY

Chairman Roberts, Ranking Member Rockefeller and distinguished Members of

this committee, it is an honor for me to appear before you today. It is a privilege

to have been nominated by President Bush to be the first Assistant Secretary of the

Treasury for Intelligence and Analysis. I thank him, Secretary John Snow and DNI

Negroponte for their confidence in recommending me for this important position. If

confirmed, I look forward to working closely with this Committee, the U.S. Senate

and your colleagues in the House of Representatives to disrupt financing for terrorism and other national security threats.

I’d also like to thank my friends and colleagues who are here with me today. This

work is truly a team effort, and I greatly appreciate their support. Although my parVerDate 03-FEB-2003 13:38 Feb 28, 2006 Jkt 024982 PO 00000 Frm 00007 Fmt 6633 Sfmt 6621 D:\INTELL\24982.TXT SSC2 PsN: SSC2
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ents are not here today, I’d also like to thank them for all their encouragement and

support over the years.

I am a career intelligence professional with over 20 years of experience. I first

came to the Department of the Treasury in November 2002 as the Secretary’s intelligence briefer and senior liaison officer. When the Office of Terrorism and Financial

Intelligence (TFI) was created last year, I became the Deputy Assistant Secretary

for the new Office of Intelligence and Analysis (01A). Over the past year, I have

helped Under Secretary Levey lead the effort to set up the new office.

I’ve been fortunate to have a variety of challenging analytical and managerial assignments throughout my career. I started as an intelligence analyst working on

East Asia, primarily Japan and Korea. I served on a rotation to the State Department as an economic officer in the U.S. Embassy in Tokyo. My first management

assignment came in 1993 as chief of the Persian Gulf Branch in the Office of Near

East and South Asian Analysis. I have also served in some key staff positions, including the executive assistant in the Office of the Director of Central Intelligence,

the DCI representative to the National Security Council and staff officer in the Vice

President’s office. Prior to being assigned to the Treasury Department, I served as

Deputy Director of the Foreign Broadcast Information Service, where I oversaw

roughly 1,000 U.S. and foreign national staff and independent contractors.

Mr. Chairman, if confirmed, I would focus on five key strategic areas:

• For the first time, the Department’s intelligence office is producing all-source

intelligence analysis on terrorist financing and other national security threats. Prior

to the creation of OIA, the intelligence office served primarily as a liaison office for

senior policymakers in the Department. The new office is now working to provide

insightful intelligence analysis that is focused on supporting the full range of Treasury’s authorities to cutoff illicit financing. While the office has already developed a

current intelligence process, if confirmed, I would build a capability to produce strategic intelligence analysis that supports long-term policy development directed at

national security threats to the financial system.

• The Office is also working to enhance intelligence support to the Department on

the full range of political and economic issues. As a member of the National Security

Council, Treasury needs timely intelligence on fast-breaking events, as well as indepth analysis from experts from the intelligence community. Thus, if confirmed, I

would work to better integrate intelligence into the policy process and improve support to all aspects of the Department’s mission.

• As a member of the Intelligence Community, the Department needs to reinvigorate its relationship with the rest of the community. The Secretary has already met

with the new Director of National Intelligence, and, if confirmed, I plan to devote

much of my focus and energy to re-engage Treasury in IC forums. As you know, our

office is the smallest component in the IC, but I believe that it can make a significant contribution to the community on both collection and production issues.

• Under the Treasury Order that created the Office of Terrorism and Financial

Intelligence, the Office of Intelligence and Analysis was designated to coordinate

and oversee all intelligence analysis within the Department. The Department houses

the bulk of the financial information in the U.S. Government, as well as expertise

on the global financial system. OIA will serve as the focal point that fuses financial

data from the Office of Foreign Assets Control (OFAC) and Financial Crimes Enforcement Network (FinCEN), as well as the Intelligence Community.

• As a new office, OIA must make a significant investment in its future, particularly in its human resources and information technology infrastructure. I’ve been

spending a large portion of my time as the Deputy Assistant Secretary trying to ensure that we have the capability to produce the kind of sophisticated analytical

products that OIA is uniquely positioned to provide. If confirmed, I will work closely

with Under Secretary Levey, the Assistant Secretary for Management and the Chief

Information Officer to ensure that the office has the tools necessary to get the job

done.

Mr. Chairman, Senator Rockefeller, I am grateful for this opportunity to appear

before you today. I would be pleased to answer any questions you and the other

Members of the Committee may have.

STATEMENT OF JANICE B. GARDNER, ASSISTANT SECRETARY

OF THE TREASURY FOR INTELLIGENCE AND ANALYSISDESIGNATE

Ms. GARDNER. Thank you very much. Chairman Roberts, Ranking Member Rockefeller, it is really an honor for me to appear before you today. It’s a privilege to be nominated by President Bush

5

to be the first, as you mentioned, Assistant Secretary of the Treasury for Intelligence and Analysis. And I also thank Secretary Snow

for his confidence in recommending me to this important position.

I met with Ambassador Negroponte and General Hayden yesterday, and I also greatly appreciate their support for me in this position.

If confirmed, I look forward to working closely with this Committee, the Senate, as well as your colleagues in the House of Representatives to disrupt financing for terrorism and other national

security threats.

As you noted, I’m a career intelligence professional with over 20

years of experience. I first came to Treasury as the Secretary’s intelligence briefer in 2002 and the senior liaison officer. When the

Office of Terrorism and Financial Intelligence was created last

year, I became the Deputy Assistant Secretary for the new Office

of Intelligence and Analysis, and over the past year I’ve been helping Under Secretary Levey stand up this new office.

I’ve been fortunate to have a variety of challenging analytical

and managerial positions throughout my career. I started as an intelligence analyst working on East Asia, primarily Japan and the

Koreas. I’ve served in some key staff positions, as you noted, including executive assistant in the Office of the DCI, served as the

DCI rep at the National Security Council, and also worked in the

Vice President’s office. So I’ve been very lucky to have these good

opportunities.

Mr. Chairman, if I’m confirmed, I would focus on five strategic

areas. First, as you noted, for the first time the Department’s intelligence office will be producing all-source intelligence. Before this

office was created, we were primarily a liaison shop, which was

passing both raw and finished intelligence to the senior policymakers in the building. While the office has already developed

some processes for the current intelligence process, if confirmed I

would build a capacity to produce strategic intelligence analysis

that supports long-term policy development directed at national security threats to the financial system.

Second, the office is also working to enhance the existing function that we had in terms of the full range of political and economic

support for the Department. As you know, the Treasury Department is also a member of the National Security Council, and the

senior policymakers need just-in-time intelligence for fast-breaking

items, as well as in-depth analysis from the intelligence community. So, if confirmed, I would work to better integrate intelligence

into the policy process and improve all aspects of support to the

Department’s mission.

Third, as a member of the intelligence community, the department really needs to reinvigorate its relationship with the rest of

the intelligence community. The Secretary has already met with

DNI Negroponte and, if confirmed, I would plan to devote a lot of

my time and energy to re-engage Treasury in IC forums. As you

know, our office is the smallest of the intelligence components, but

I believe that it can make a significant contribution in terms of

both collection and production issues.

Fourth, the Office of Intelligence and Analysis has been designated as the office that will coordinate and oversee all intelVerDate 03-FEB-2003 13:38 Feb 28, 2006 Jkt 024982 PO 00000 Frm 00009 Fmt 6633 Sfmt 6601 D:\INTELL\24982.TXT SSC2 PsN: SSC2
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ligence analysis throughout the Department. The Department

houses the bulk of financial information across the board in the

U.S. Government, as well as expertise in the global financial system. If confirmed, I will work closely with the Directors of the Office of Foreign Asset Control, OFAC, as well as the Financial

Crimes Enforcement Network, called FinCEN, to build a broad analytical capacity within the Department.

And finally, as a new office, OIA must make significant investments in its future and as a new office that’s primarily human resources as well as information technology infrastructure. I’ve been

spending a major part of my time as the Deputy Assistant Secretary trying to ensure that we have the capability to produce the

kind of sophisticated analytical products that I believe OIA is

uniquely positioned to provide. If confirmed, I would work closely

with Under Secretary Levey, the chief information office, as well as

the Assistant Secretary for Management, to ensure that the office

has the tools necessary to get the job done.

So, Mr. Chairman and Senator Rockefeller, I am grateful for this

opportunity to appear before you today, and I’d be pleased to answer any questions that you may have.

Chairman ROBERTS. I have some questions for you that are routine but, nevertheless, are very important and I will proceed with

those at this time.

Does the nominee agree to appear before the Committee here or

in other venues when invited?

Ms. GARDNER. Yes, I do.

Chairman ROBERTS. Ms. Gardner, do you agree to send Treasury

intelligence officials to appear before the Committee and designated staff, when invited?

Ms. GARDNER. Yes.

Chairman ROBERTS. Do you agree to provide documents or any

materials requested by the Committee so that it can carry out its

oversight and legislative responsibilities?

Ms. GARDNER. Yes.

Chairman ROBERTS. Will you ensure that all Treasury Department entities provide such material to the Committee, when requested?

Ms. GARDNER. Yes, I do.

Chairman ROBERTS. Do you agree to provide such other information that the Committee may require so that it can carry out its

oversight and legislative responsibilities?

Ms. GARDNER. Yes, I do.

Chairman ROBERTS. I thank you for your responses.

My first question is in regard to the focus of your enhanced analysis capability. Before the creation of the OIA, the Department’s intelligence office did not produce any analytical products. The

former Office of Intelligence Support served primarily in a liaison

function, ensuring that the products of other intelligence community components were disseminated to the principals in the Department. Explain in brief how you plan to expand the range of analytical products that the Office of Intelligence and Analysis will

produce.

Ms. GARDNER. The vision for the office is to create a center of expertise for terrorist financing as well as the financial underpinVerDate 03-FEB-2003 13:38 Feb 28, 2006 Jkt 024982 PO 00000 Frm 00010 Fmt 6633 Sfmt 6601 D:\INTELL\24982.TXT SSC2 PsN: SSC2
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nings of other national security threats. Like INR, our office is

largely a departmental intelligence shop, basically taking intelligence from throughout the intelligence community and making it

actionable intelligence. I know that’s somewhat of an overused

phrase, but what we’re doing is trying to take the intelligence that

comes into the building and apply the full range of Treasury authorities that we could use against them.

So the current intelligence process is just making sure that when

we get the information that we’re able to give it to the policymakers, who can then assign an action and we can ensure followup.

We’re also trying to build a strategic intelligence capacity, looking at systemic issues. I think that other organizations are very

good at being experts on the terrorist group itself, but I think we

are very well positioned to provide unique information in the

Treasury Department because, as I mentioned, it houses the bulk

of the financial information from throughout the world.

For example, the private sector. We have an excellent relationship with the banking community, the financial sector, and we do

get suspicious activity reporting through the FinCEN, which is the

Financial Crimes Enforcement Network.

We also have access within the department to a wide range of

expertise on the global financial network. We also have relationships with finance ministries across the world, which is very

unique and provides information that I think we couldn’t get elsewhere. We also have access to information from financial intelligence units, about 100 of them, throughout the world, also

through FinCEN.

So what we’d like to do is fuse all of the open source information

that we’re getting from FinCEN, which is a major open source collector on financial data, as well as the intelligence information and

being able to provide that to look at targets for action short-term

by the Department and looking at longer-term systemic trends

such as how are bad guys moving money. Based on the information

that we are seeing every day, we would look at trends and patterns

of how money is being moved across, whether it’s the formal financial sector or the informal sector.

Chairman ROBERTS. Well, I thank you for that comprehensive

answer. This is going to be, I suppose, some could say an unfair

question, but what would you say would be your highest analytical

priority? You mentioned the bad guys. I’m assuming that you

would probably say that.

Ms. GARDNER. I think that our key priorities are in this order—

al-Qa’ida and its affiliates and their financial networks. What we’re

trying to get is not just the key nodes, individuals or groups, but

looking at the entire network, because, as you know, you shut

down one node and another node pops up. And also the way that

al-Qa’ida is becoming kind of more decentralized, looking at not

just al-Qa’ida but all its affiliate groups. So that would be our No.

1 priority.

But also, following closely behind that is financing for the Iraqi

insurgency. We spend a lot of our analytical capacity on that.

And more broadly, as I mentioned before, the financial

underpinnings of broader national security threats. You can think

8

about some of the countries, the rogue countries that I’m referring

to, but if a National Security Council question is how do we deal

with country X, Treasury can come to the table with unique tools

and authorities—sanctions, a broad range of instruments. So we’re

looking at broader national security threats.

We’re also looking at financial networks of proliferators. That’s

a new area for us. And then down lower on the list would be issues

such as keptocrats.

Chairman ROBERTS. To what extent, if any—I’m going to switch

subjects on you now—has the Office of Intelligence and Analysis

provided any input into the developing regulations as Congress

goes through the re-authorization of the USA PATRIOT Act?

Ms. GARDNER. As the Office of Intelligence, we have not been directly involved in the framing of the regulations. Our umbrella office, the Office of Terrorism and Financial Intelligence, and

FinCEN and others are taking the lead on that.

Chairman ROBERTS. So if I ask how has the PATRIOT Act helped

the Treasury Department’s Office of Terrorism and Financial Intelligence address the terrorist finance issue, that’s a little premature

or can you answer that?

Ms. GARDNER. Well, more broadly speaking, we are a beneficiary

of information from the PATRIOT Act. For example, the Bank Secrecy Act, which was amended within the PATRIOT Act, that relates to FinCEN and they are the large collector of that information—the suspicious activity reporting, the currency trade, the

CTRs. We are a beneficiary of that information, but we’re not the

actual collector. We’re primarily the analytical arm of the Treasury

Department.

Chairman ROBERTS. You’ve talked a lot about being an equal

partner in the interagency discussions in regard to terror financing.

In your experience as Acting Assistant Secretary, has the OIA received the quality and quantity of intelligence it needs from other

agencies to execute its mission?

Ms. GARDNER. We actually have an excellent relationship with

the rest of the intelligence community on terrorist financing. We

have a very well-established policy coordinating committee that

meets almost weekly. We just met yesterday. And what we try to

do is systematically look at the threats, look at the whole range of

what can CIA bring to the table, FBI, DHS, NSA and others. And

I think that we actually have a very productive interagency process

for terrorist financing.

Chairman ROBERTS. I’m probably unintentionally taking away a

question that the Vice Chairman will ask you, but what steps do

you plan to take to improve information access—that’s our latest

buzzword and interest—for and by the Department of the Treasury?

Ms. GARDNER. Information access from other organizations?

Chairman ROBERTS. Yes, ma’am. Not information-sharing. Information-sharing does connote somebody owns it and they’ll push it

to you when they decide, as opposed to you having a seat at the

table and having the same mission and thereby having information

access.

Ms. GARDNER. Well, as I mentioned, I think that we have a variety of forums where we can have the information access, as you

9

suggested. There are a number of ways, both personally, one-onone. We have lots of very good bilateral relationships with the rest

of the intelligence community, but also multilateral, through the

interagency process.

And one area where we do probably need to do some more work

is in the information technology side, to make sure that we have

information access.

Chairman ROBERTS. Have you had any discussions with our new

Director of National Intelligence with regard to the relationship between your shop and the intelligence community?

Ms. GARDNER. Yes. As I mentioned, I met with Ambassador

Negroponte and General Hayden yesterday, and they were very

supportive and offered anything that they could do to help, especially in the area of things like information technology, where I

think they can have input. And Ambassador Negroponte has also

met with Secretary Snow and they have a very good relationship.

Chairman ROBERTS. Was there any discussion with the DNI’s office regarding the new procedures and priorities for developing

your budget?

Ms. GARDNER. Not directly, yet. We have had discussions with

their staff in terms of the former Community Management Staff.

We’re starting discussions right now.

Chairman ROBERTS. So that’s a priority consideration.

Ms. GARDNER. Yes.

Chairman ROBERTS. How do you envision the process for formulating your fiscal year 2007 budget?

Ms. GARDNER. Well, within the Department we’ve already

launched our fiscal year 2007 budget process, and we will coordinate that very closely with the DNI’s office. As you know, as a departmental office, we go through two chains. We have the Treasury

appropriations chain, but then we have the intelligence oversight

chain. So we actually are going through two channels for that.

Chairman ROBERTS. We had hoped you could go through one, but

that was not the case.

It’s been 18 months since the position for which you have been

nominated was established in law, and I’m told that in order to

have a core staff upon which to build, the Department of Treasury

basically detailed the Foreign Terrorist Division from the Office of

Foreign Assets Control to the Office of Intelligence and Analysis.

First, is that correct? If so, do you have any thoughts on the detailing of the whole Foreign Terrorism Division to your shop?

Ms. GARDNER. After 9/11, there was a great need for intelligence

analysis on terrorist financing, and at the time, the former Office

of Intelligence Support, OIS, really didn’t have the wherewithal to

build that analytical capability. And OFAC, to its credit, stepped

up and filled the void. The work that they do is basically building

evidentiary packages for designation of terrorist groups. So primarily it is an intelligence analysis function. About 90 percent of

their work is based on intelligence sources.

So when OIA was created, it made sense to move that function

over to OIA, and we had many discussions with the Director of

OFAC, who I have an excellent relationship with, of how do we

split this function. If OIA did the targeting and then OFAC did the

analysis, how do we break up that line in the process?

10

And it really didn’t make sense to break it at any point where

you would have two centers of expertise on the same groups that

we were trying to designate. So I believe, and the Secretary has

stated, that the decision was not driven by resources, although we

did look at overlap. So I think that we started on April 1 with the

transfer of the detail of OFAC analysts, and I believe that we’ve

made excellent progress, even in this short time.

I think OFAC actually has benefited from this move. They are

better able now to leverage IC resources. They were doing work

that was 90 percent intelligence sources. For example, they weren’t

reading the current intelligence every day. And if they were preparing the packages, they weren’t updating and making sure that

new targets were being considered. And now that we have a better

line into the intelligence community, they have a better opportunity to work with them in terms of downgrading information

that’s usable at the U.N. or with foreign governments. We also now

have hired a full-time requirements officer, so now these OFAC analysts have access to feeding requirements into the intelligence

community. And even things like intelligence community training

they now have access to.

So I believe they are better integrated into the intelligence process as well as the policy process. So I think it’s a win-win situation

where OFAC has benefited and the Department has benefited.

Chairman ROBERTS. Well, you’ve just taken away about four of

my questions and done it very well. One was, can you assure the

Committee that OIA will be supportive of OFAC at the level necessary to ensure the latter can achieve its mission? You’ve answered that.

Does the Administration’s budget request for fiscal year 2006

provide for the hiring of personnel and the procurement of your

requisite equipment that you deem essential to do the job?

Ms. GARDNER. Yes. If we are able to get our 2006 request, that

would take us a long way to fulfilling our mission.

Chairman ROBERTS. Has the Office of Intelligence and Analysis

met its hiring objectives?

Ms. GARDNER. For fiscal year 2005 we have met all our objectives

except for the Assistant Secretary and that person’s special assistant.

Chairman ROBERTS. What about 2006? How confident are you?

Ms. GARDNER. I’m very confident. We had 800 applicants for the

positions that we were advertising in fiscal year 2005, so we’ve

been able to attract some very good candidates.

Chairman ROBERTS. Eight hundred applicants for how many positions?

Ms. GARDNER. For this fiscal year, seven.

Chairman ROBERTS. Seven? That’s very impressive.

What additional resources or authorities do you need for OIA to

effectively and efficiently meet its duties and responsibilities?

Here’s your chance.

Ms. GARDNER. Well, as I said, if we are able to get our full request for fiscal year 2006, I think we will be able to fulfill our mission.

Chairman ROBERTS. Without objection, a statement by Senator

Bond will appear at the appropriate place in the record following

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the statement by the distinguished Vice Chairman, who I recognize

at this point.

Vice Chairman ROCKEFELLER. Thank you, Mr. Chairman.

This is not exactly on point, but it just occurred to me that I

think it was right here that Senator Frank Church revealed for the

very first time to me that the President and his people had been

reading my mail for the previous 20 years. I was on Nixon’s enemies list. I don’t quite know why—probably my personality. But

I’m just trying to think of all the letters that he must have read.

I think I was dating my wife at the time. I thought I was all sort

of interesting historically.

Chairman ROBERTS. If you’re looking to me, No. 1, I have not had

any access to that, other than what you’ve told me, which has been

very interesting.

Vice Chairman ROCKEFELLER. Thank you.

Chairman ROBERTS. It’s not often you get me speechless, Jay, but

on that one I think you did.

[Laughter.]

Vice Chairman ROCKEFELLER. I know. I know. Candor is a marvelous thing.

In its monograph, so to speak, on terrorist financing, on page 4

of the 9/11 Commission, they stated that prior to September 11,

those attacks, that ‘‘terrorist financing was not a priority for either

domestic or foreign intelligence collection. As a result, intelligence

reporting on the issue was episodic, insufficient and often inaccurate.’’ Do you concur with that?

Ms. GARDNER. Before 9/11, I was not working on terrorist financing, but I can speak to the past several years that I’ve been working on the issue. It has become a priority, and I think that the various INTs do a wide range of collection. I don’t want to get into too

much detail. But I think that it is very robust at this point in

terms of collection.

Vice Chairman ROCKEFELLER. You earlier mentioned analysis as

opposed to collection. You made a differentiation between the two.

So do you believe that collection and analysis on terrorist financing

has improved since 9/11?

Ms. GARDNER. Yes. As I mentioned, the collection I think is fairly

robust. And on the analytical side I think that we could probably

do a little more on the strategic intelligence, and that’s what we’re

trying to do, on the systemic problems—how do we deal with it—

rather than just individual targets.

But yes, I think it has improved.

Vice Chairman ROCKEFELLER. I didn’t know about FinCEN. I

should have. And you indicated that there were approximately 100

other countries that you work with. Is it on these kinds of matters?

There has been not necessarily agreement between various governments in the general collection of intelligence or the analysis

from the collection of intelligence. But in your area it’s been more

agreed upon.

Ms. GARDNER. Well, the financial intelligence units around the

world are members of what’s called the Egmont Group, and

FinCEN is the United States’ FIU, the financial intelligence unit.

And intelligence is a bit of a misnomer. It’s not like clandestine collection. But it’s an informational unit where they have exchanges.

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Some of the units are in the finance ministries. Some of them are

in the ministries of interior. Some of them are in central banks.

There’s a wide variety.

But FinCEN manages that program, and we have access to the

counterterrorism-related information from that program.

Vice Chairman ROCKEFELLER. All right. Has intelligence reporting since 9/11 led the Treasury Department to make changes? To

be honest with you, I know under both Democratic and Republican

administration’s the Treasury has tended to focus on certain issues,

and it’s been my opinion—not particularly on this one. So do you

think that the Treasury Department, since 9/11, has made changes

in its general approach to tracking and disrupting terror financing,

or has it confirmed the validity of the Department’s current strategy?

Ms. GARDNER. Yes. I’m actually very glad you asked that question, because that’s the very purpose of the new Office of Terrorism

and Financial Intelligence, led by an Under Secretary. We only

have three Under Secretaries at Treasury—one of them for international affairs, one for domestic affairs, and now we have one specifically for terrorism and financial intelligence. I think that’s critical.

And the new approach that we’re trying to take is a very holistic,

integrated approach. In the past, Treasury didn’t have an umbrella

organization, so if a problem went to OFAC, the outcome would be

a designation, because that’s what they do. If the issue was directed at FinCEN, it would probably be a PATRIOT Act 311 designation.

Now what we’re doing is we have a targeting meeting every week

where the Office of Intelligence and Analysis tees up the target—

whether it’s an individual, a group, trend, rogue nation—and we

say what are the range of Treasury authorities that we can put toward this target. It can be anything from going to the financial

task force—financial action task force—which is a multilateral organization where we can basically tell country X you can’t be a

member of this international club because your standards aren’t

high enough. Or it could be a designation. It could be a range of

actions.

So I think that the new strategy that Treasury has, you are

right. Before TFI existed, the Office of Terrorism and Financial Intelligence, we didn’t have the wherewithal to look at the full range

of Treasury authorities. We didn’t have an intelligence arm that

could provide the analysis to support these authorities.

Now we have that kind of integrated approach and that’s exactly

what TFI is about.

Vice Chairman ROCKEFELLER. OK. I have this feeling, not necessarily correctly, that Treasury—well, for example, Rubin sort of

told Clinton what to do on free trade, occasionally the word ‘‘fair’’

was mentioned, but not very often. I think John Snow, who ran a

railroad that I fought for 20 years or 30 years in West Virginia, has

his attributes, but I’m not sure that the focus on what we’re talking

about here would fall within either his level of interest or whatever. I don’t know how to put that delicately, so I just didn’t do it

very delicately.

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Treasury has had a problem asserting itself at the table on nonspecifically Treasury issues, if you know what I mean. Now you’ve

indicated that you’ve got a new leader and you’ve got you, who

we’re going to confirm, and seven others. And you’ve had a good

conversation with Negroponte.

But actually this question of following the money trail is so

hugely important. We in our work tend not to get into that as

much because we’re not as good at that. So that means you have

to be really, really good. And I want to know why I should look at

you and feel good about the future, not with relation to you, but

with relation to your place at the table, Negroponte, the traditional

position of the Treasury Department.

Ms. GARDNER. I believe the Department has demonstrated a tremendous amount of commitment to this new office, both in terms

of resources. As you know, we created both the Office of Terrorism

and Financial Intelligence as well as OIA out of the budget cycle.

So in 2004 and 2005 the Secretary took resources from international affairs, domestic finance, other parts of the Department in

order to stand up TFI. I think that demonstrates a large amount

of commitment of the senior leadership.

In terms of budget priorities for the next fiscal year, the Secretary has indicated, both publicly and within the Department,

that TFI is a priority. So I believe we’ve been the beneficiary of

that. And he has devoted a significant amount of his time and attention with us. Of course we have weekly intelligence briefings,

but more regularly we brief him for the National Security Council

meetings, and in many cases not just terrorist finance specifically,

but the underpinnings, financial underpinnings of national security

threats is an area in which Treasury has a unique niche and a contribution it can make at the National Security Council table.

So I believe that we are making a contribution. We do have a

seat at the table. As well as on the area of terrorist financing, the

policy coordination committee that I referred to earlier, we have a

full seat at the table. We help drive the agenda. We share equally,

the information access that you mentioned, from the intelligence

community.

I believe that we are making good progress with our new office.

We’ve been around for a year, so I’m sure there’s more progress

that we can make, but I think, in terms of commitment, you have

that from the Department.

Vice Chairman ROCKEFELLER. I’m glad to hear that.

Just on a general basis, as you look at the importance of following the money trail—and that is a path and a skill which is absolutely essential for anything else that anybody does in the intelligence world, the policymaking world or whatever—could you go

over again the structure you have or will have and defend it in its

capacity, size, intricacy?

Ms. GARDNER. The Office of Intelligence and Analysis will have

I think a robust analytical capability. Without going into numbers

and dollars, we are divided up organizationally in terms of both the

al-Qa’ida and its affiliates, Iraq, Syria, Iran. We have transnational

threats. We have East Asia and Central Eurasia. I think we’re organized in a way where we can get, both functionally and geographically, the full range of targets.

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We also have the intelligence support side, where we’re still

going to be supporting the rest of the Department on the full range

of political and economic issues.

So I believe we do have the capability to fulfill the full mission

that we’ve articulated, as well as the resources.

Vice Chairman ROCKEFELLER. OK. I’m going to ask two more

questions. It has been suggested that the intelligence community is

neglecting the important role played by offshore banks, shell companies and business fronts in funding terrorism. Do you share this

view? If so, why is this critical area not receiving more attention—

if you believe that is the case? Is it because of the possible negative

impact on economies in the Caribbean and elsewhere?

Ms. GARDNER. As I mentioned earlier in my statement, we are

a work in progress and we’ve started on the current intelligence

process. One of the areas that I mentioned that we need to work

more on are these kind of systemic issues or functional issues, not

in terms of this is the target, this is the threat, but how are people

moving money. This is one of the areas, I think, that we do need

to look into. I think it is currently a gap. We don’t currently have

people working on this.

But I think that that’s what this office could offer—looking over

the horizon at these kinds of strategic issues. We have not to date.

Vice Chairman ROCKEFELLER. So there’s a lot of work to be done.

Ms. GARDNER. There’s more work to be done, definitely.

Vice Chairman ROCKEFELLER. Finally, there is Hawala. The

transfer of funds through so-called informal value transfer systems,

often referred to by the term ‘‘hawala,’’ present a difficult challenge

to all of us in the intelligence community. Studies have shown that

Hawala can serve a vital role in helping immigrant workers send

funds to their families, especially for countries that lack developed

financial systems.

However, that same system has proven itself highly susceptible

to abuse by terrorist financiers. What policies has Treasury drawn

up regarding the regulation of Hawala, and how has Treasury

worked with foreign jurisdictions to improve the oversight of same?

Ms. GARDNER. That is an area where the Treasury Department

has focused a lot of its energies. As you know, as the multinational

pressure comes down on the terrorist organizations and there’s

more pressure on them in terms of how do we move and raise

funds, they are looking more at non-traditional areas such as

Hawala, couriers and, as you mentioned earlier Senator, diamonds,

gold. That’s an area that we are looking at.

But our sister organization on the policy side within the Office

of Terrorism and Financial Intelligence has spent a lot of time in

the FATF—the Financial Action Task Force, where I think there

are 33 member countries, or 35—where they have talked with foreign governments on setting better standards on Hawala regulations. Areas in South Asia, even I think, have come a long way in

terms of giving greater scrutiny to Hawala and making sure that

they are better regulated.

So on the policy side I think we’ve done a significant amount of

work, but they continue to work on that area as well.

Vice Chairman ROCKEFELLER. Thank you.

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Chairman ROBERTS. Ms. Gardner, I know this question doesn’t

fall squarely within your area of responsibility, but I would appreciate your response and I think you can simply take it for the

record and get back to me with a written response. I would actually

prefer a written response, and it doesn’t have to be done yesterday.

I have heard from a number of small banks in many of my rural

communities in my home State of Kansas—and I’m sure the Vice

Chairman has heard the same thing. It’s in regard to the filing of

something called SARs—and we’re not talking about the disease,

unless paperwork and regulations are a disease, which in Washington a good case could be made for that—but the filing of suspicious activity reports. And these banks, almost to a person, believe current regulations require them to file more suspicious activity reports than are warranted. They even think there are quotas.

We’re talking about banks with less than $100 million in terms of

their total assets—$60 million, $40 million—very small communities.

And I think this is in response in large part—we very typically

do this in Washington—to the Riggs Bank case in which the bank

was fined a considerable amount for systemic failure to report. And

I understand that. As a matter of fact, I think, Mr. Vice Chairman,

we have in our PATRIOT Act and perhaps you have in your standard operating procedure that you are fined $1 million or twice the

amount.

For a small bank like that, that really poses a hardship, and they

get into defensive filings. And we don’t have people out there that

really have the expertise to do that, to become what I call sort of

a bad news bear to go around and form all the rest of the limited

people in the bank to be of help to their local community. In most

cases, there’s one bank. So consequently everybody knows everybody else.

So I guess my question is—or I know my question is—what’s the

Department doing to address the concerns that cause the defensive

filings? And on the intel side, will these defensive filings cause

more difficulty for you in gathering actual intelligence from the

SARs reports?

You can respond now very briefly, but if you could respond in a

written response for the record, I would certainly appreciate it.

Ms. GARDNER. On the first part of the question, I think you are

right, that that’s a question for my counterpart who heads

FinCEN. Director Fox has been spending a lot of time on this issue,

talking to the private sector. And I would take that back to the Department to answer on that one.

In terms of the intelligence community and our ability to sift

through volumes of data, the volume problem is definitely real. The

more information you have—how do you get the needle in the haystack? That’s why I believe, first, we do have access to all the

counterterrorism SARs, so we get those as well as hotline tips. And

we integrate that in with the rest of the classified information.

But I think that’s where our information technology system

comes in. We do need to have better tools to be able to mine

through that volume of data, and that’s something that we’re working on as well.

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Chairman ROBERTS. We need information out to these small community banks. We have the story of Aunt Harriet, who lived in the

community for 80 years and came in and had to show her driver’s

license to the local teller or whoever it was that she was doing

business with, and couldn’t figure out why on earth, since she’d

been Aunt Harriet for 80 years, why in the Lord’s name she should

have to show her driver’s license. But the person thought that

that’s what she had to do to comply with the SARs regulation. I

think you can get where we’re headed.

Without objection, the record will remain open until the close of

business tomorrow for Members to submit statements or questions

for the record. We do appreciate your appearance before the Committee and your forthrightness in responding to the Committee.

And I am very hopeful that you will be confirmed soon.

Is there any other comment the distinguished Vice Chairman

would like to make?

Vice Chairman ROCKEFELLER. Just one, and that is you raised a

very interesting point when you talked about the network for the

proliferators. It caught my attention because that’s incredibly subtle, dangerous and where accuracy is needed. Can you just tell me

what you meant by that?

Ms. GARDNER. Sure. The WMD Commission made a recommendation that we take our regime to deal with terrorist financing and apply that toward the financial network of proliferators,

and we’re working on trying to establish that process now. We

work very closely with the intelligence community. They really

have the expertise in terms of proliferators, but we’re trying to

buildup that expertise as well and have a similar robust program

as we do for terrorist financing.

Vice Chairman ROCKEFELLER. Thank you.

Chairman ROBERTS. Very good. We thank you very much.

[Whereupon, at 4:12 p.m., the Committee adjourned.]

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