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97–451 PDF 2004

COMBATING INTERNATIONAL

TERRORIST FINANCING

JOINT HEARING

BEFORE THE

SUBCOMMITTEE ON 

DOMESTIC AND INTERNATIONAL 

MONETARY POLICY, TRADE AND TECHNOLOGY

AND THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

SEPTEMBER 30, 2004

Printed for the use of the Committee on Financial Services

Serial No. 108–114

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

DOUG OSE, California 

JUDY BIGGERT, Illinois 

MARK GREEN, Wisconsin 

PATRICK J. TOOMEY, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

JOHN B. SHADEGG, Arizona 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

MELISSA A. HART, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

TIM MURPHY, Pennsylvania 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JAY INSLEE, Washington 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

KEN LUCAS, Kentucky 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

MIKE ROSS, Arkansas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

RAHM EMANUEL, Illinois 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

CHRIS BELL, Texas 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON DOMESTIC AND INTERNATIONAL MONETARY POLICY, TRADE AND

TECHNOLOGY

PETER T. KING, New York, Chairman

JUDY BIGGERT, Illinois, Vice Chairman 

JAMES A. LEACH, Iowa 

MICHAEL N. CASTLE, Delaware 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

DOUG OSE, California 

JOHN B. SHADEGG, Arizona 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

TIM MURPHY, Pennsylvania 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

CAROLYN B. MALONEY, New York 

BERNARD SANDERS, Vermont 

MELVIN L. WATT, North Carolina 

MAXINE WATERS, California 

BARBARA LEE, California 

PAUL E. KANJORSKI, Pennsylvania 

BRAD SHERMAN, California 

DARLENE HOOLEY, Oregon 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

RAHM EMANUEL, Illinois 

CHRIS BELL, Texas 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

SUE W. KELLY, New York, Chair

RON PAUL, Texas, Vice Chairman 

STEVEN C. LATOURETTE, Ohio 

MARK GREEN, Wisconsin 

JOHN B. SHADEGG, Arizona 

VITO FOSSELLA, New York 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

TIM MURPHY, Pennsylvania 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

LUIS V. GUTIERREZ, Illinois 

JAY INSLEE, Washington 

DENNIS MOORE, Kansas 

JOSEPH CROWLEY, New York 

CAROLYN B. MALONEY, New York 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

ARTUR DAVIS, Alabama 

CHRIS BELL, Texas 

(V)

C O N T E N T S 

Page 

Hearing held on: 

September 30, 2004 .......................................................................................... 1

Appendix: 

September 30, 2004 .......................................................................................... 28

WITNESSES 

THURSDAY, SEPTEMBER 30, 2004

Wayne, Hon. E. Anthony, Assistant Secretary for Economic and Business 

Affairs, Department of State ............................................................................... 6

Zarate, Hon. Juan, Assistant Secretary for Terrorist Financing, Department 

of Treasury ............................................................................................................ 4

APPENDIX 

Prepared statements: 

King, Hon. Peter T. .......................................................................................... 30

Biggert, Hon. Judy ........................................................................................... 32

Kelly, Hon. Sue W. ........................................................................................... 35

Wayne, Hon. E. Anthony ................................................................................. 37

Zarate, Hon. Juan ............................................................................................. 51

(1)

COMBATING INTERNATIONAL 

TERRORIST FINANCING 

Thursday, September 30, 2004

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON DOMESTIC AND

INTERNATIONAL MONETARY POLICY AND

SUBCOMMITTEE ON OVERSIGHT AND

INVESTIGATIONS

COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittees met, pursuant to call, at 10:04 a.m., in Room 

2128, Rayburn House Office Building, Hon. Peter T. King [chairman of the Subcommittee on Domestic and International Monetary 

Policy] presiding. 

Present for the Subcommittee on Domestic and International 

Monetary Policy: Representatives King, Kelly, Biggert, Paul, 

Maloney, Gutierrez and Inslee. 

Present for the Subcommittee on Oversight and Investigations: 

Kelly, Paul, Gutierrez, and Inslee. 

Chairman KING. [Presiding.] Good morning. This joint hearing of 

the Subcommittee on Domestic and International Monetary Policy, 

Trade and Technology, and the Subcommittee on Oversight will 

come to order. Without objection, all opening statements will be 

made a part of the record. 

The Subcommittee on Domestic and International Monetary Policy and the Subcommittee on Oversight chaired by my colleague 

from New York, Mrs. Kelly, meet jointly today to receive testimony 

from Treasury and State regarding their efforts in the global fight 

against terrorist financing. 

We are fortunate to have the Honorable Juan Zarate, Assistant 

Secretary for Terrorist Financing from Treasury, and the Honorable Tony Wayne, with whom I shared a plane ride back once from 

Northern Ireland, very pleasant, Assistant Secretary for Economic 

and Business Affairs at the State Department here with us today. 

Mrs. Maloney and I have agreed to have our opening statements 

made part of the record. 

I will ask Mrs. Kelly if she would like to make an opening statement. 

Mrs. KELLY. Thank you very much. 

I would like to thank my colleague from New York, Chairman 

King, for co-chairing this important hearing on our government’s 

efforts to combat international terrorist financing. 

Earlier this summer, the Financial Services Committee held a 

hearing on the findings of the 9/11 Commission report and the comVerDate 0ct 09 2002 11:33 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 G:\DOCS\97451.TXT FIN1 PsN: MICAH
2

mission staff’s monograph on terrorist financing. After reviewing 

both reports, it is clear that we have made much progress in our 

international efforts to weed out terrorist financing money since 9/

11 and the passage of the USA PATRIOT Act. 

Today, though, the Administration continues to work with its foreign counterparts to enhance cross-border information sharing arrangements and to promote stronger anti-terrorist financing regimes in specific countries. In fact, the Administration is currently 

working within the FATF, the Financial Action Task Force. This is 

an intergovernmental agency policy body composed of 33 member 

countries and territories to develop best practice standards for combating terrorist finance. 

At the same time, the number of financial intelligence units 

qualifying for membership in the Egmont Group, an international 

forum for coordinating global anti-terrorist financing and antimoney-laundering efforts, has grown from 58 in 2001 to 94 today. 

Finally, the FATF standards are now a permanent part of the financial sector assessment program reviews undertaken by the 

International Monetary Fund. 

While the impact of all of these efforts is currently being felt 

across the world, we must continuously improve our ability to work 

with the international community to weed out terrorist financing 

and shut down new and emerging threats. In order to strengthen 

our government’s hand, there are several areas that I would like 

to explore today, including a Treasury-led certification program and 

a secondary ban under the USA PATRIOT Act. 

Yesterday, the Financial Services Committee passed legislation 

to implement recommendations of the 9/11 Commission report to 

ensure that we are protecting the American people. The legislation 

is a comprehensive response to the monograph on terrorist financing. However, I do believe there are several areas that Congress 

must explore to encourage cooperation from foreign governments 

and financial institutions. 

The creation of a Treasury-led certification program would acknowledge the vitally important international aspect of our fight 

against terror finance and ensure that countries are cooperating in 

these efforts. Under such a proposal, the Treasury Department 

would be required to report annually to Congress any countries of 

concern that are not cooperating in anti-terrorist financing efforts 

and impose sanctions that would withhold some of their bilateral 

assistance. As the 9/11 Commission staff’s monograph on terrorist 

financing suggests, terror networks rely on a variety of methods for 

moving and generating financial sustenance, which do not respect 

national borders. 

We have seen that there are countries which do not share our 

determination and our vigilance to crack these funding systems, 

who create sanctuaries for terrorists who route their financial lifelines. A certification program would send a clear message to the 

world that would have to be heeded, because if you do not cooperate in the war against terror, you would lose some of the bilateral 

assistance that you may receive from the United States. 

The other area that I would like to explore today is the potential 

secondary ban under the USA PATRIOT Act. Under Section 311 of 

the PATRIOT Act, the government is authorized to impose special 

3

measures against countries or financial institutions that are found 

to be of primary money-laundering concern. Section 311 provides a 

useful lever when dealing with other nations, but we have found 

that perhaps there are limits to its usefulness that might be removed to great benefit. 

It has become evident that if a banking institution does not have 

a notable correspondent banking relationship with American 

banks, Section 311 may not necessarily create a powerful incentive, 

and the kind that we had hoped to have. As such, careful consideration should be given to the concept of a secondary boycott under 

the PATRIOT Act. Under such a proposal, countries or financial institutions that continue to knowingly deal with entities that we 

have designated to be of primary money-laundering concern would 

be subject to the same sanctions. 

Not only are the entities which are designated to be of primary 

money-laundering concern subject to section 311, but so are other 

entities that would continue to deal with them. In other words, it 

would be a secondary boycott after the primary boycott. This 

change to current law would strengthen and lengthen our reach 

with Section 311, and substantively reinforce the motivation which 

led to our passage and enactment of the original provision in 2001. 

The American people expect nothing less than the highest level 

of cooperation from foreign government and financial institutions. 

I look forward to hearing the view of this panel on these and other 

issues today. I thank the witnesses for their testimony. 

[The prepared statement of Hon. Sue W. Kelly can be found on 

page 35 in the appendix.] 

Chairman KING. The gentleman from Illinois. 

Mr. GUTIERREZ. Thank you, Chairman King and Chairwoman 

Kelly for calling this hearing to discuss the international aspects 

of the 9/11 legislation we marked up yesterday. I believe that the 

9/11 legislation we passed out of committee is a significant step in 

our continuing effort to fight terrorist financing and money laundering. 

I want to particularly thank Chairwoman Kelly for our longstanding partnership on these issues, and in particular for her assistance and cosponsorship of a provision that was accepted in yesterday’s legislation that will strengthen bank examinations by providing a 1-year cooling-off period for bank examiners before they 

can work for the bank they supervised. 

I look forward to the testimony of the witnesses here today, and 

yield back the balance of my time. 

Chairman KING. The gentlelady from Illinois, the Vice Chair of 

the subcommittee, Mrs. Biggert. 

Mrs. BIGGERT. Thank you, Mr. Chairman. I would, in the interest 

of time, submit my statement for the record. 

Chairman KING. Without objection. 

I am pleased today to welcome our two witnesses. I would first 

ask Assistant Secretary Zarate if he would proceed. 

Without objection, your written statements will be made a part 

of the record, and you will be each recognized for a 5-minute summary of your testimony. Thank you. 

4

STATEMENT OF HON. JUAN ZARATE, ASSISTANT SECRETARY 

FOR TERRORIST FINANCING, DEPARTMENT OF TREASURY 

Mr. ZARATE. Thank you, Chairman King, Chairman Kelly. Thank 

you very much, distinguished members of both subcommittees. 

Thank you for inviting me here today to talk about our very important efforts, our international efforts to combat terrorist financing. 

I am honored to be testifying alongside Assistant Secretary Wayne, 

who has been and continues to be an important partner in our 

international efforts. 

As we all know quite clearly, the terrorist threat we face is not 

simply an American problem born on September 11. From Madrid 

to Mombassa, Casablanca to Jakarta, and most recently in Beslan 

and Moscow, the horrific inhumanity of terrorism knows no bounds 

of territory, religion or race. The international nature of terrorism 

is acutely apparent when looking at the global terrorist financing 

networks that have been used to support al Qaeda and other likeminded terrorist groups. 

Whether it is donors in the Gulf or charities in Europe, businesses in East Asia or extortion in South America, terrorist groups 

have used and continue to use the full spectrum of methods to 

raise money. Terrorist supporters and facilitators continue to rely 

on a variety of methods to move money, especially now with the 

use of couriers. As we have done collectively since September 11, 

we must attack the sources of funding, follow the financial footprints of terrorist groups and build safeguards in the financial sector worldwide to prevent, deter, and dismantle the terrorist infrastructure. 

Under the President’s leadership, we have forged international 

cooperation to deal comprehensively with the issue of terrorist financing in, frankly, an unprecedented manner. In our efforts to 

fight terrorist financing in both the short and long term, we have 

developed international standards to combat terrorist financing, enhanced greater global capacity, broadened and deepened our own 

regulatory system, built international systems to share information 

about suspect networks. We have frozen and seized terrorist-related assets, arrested and isolated key financial intermediaries and 

donors, and generally improved the international safeguards 

around the financial system. 

The designations of terrorist financiers under the President’s Executive Order have not only resulted in the freezing and seizing of 

over $200 million worldwide, but have served as a catalyst internationally to dealing with concrete issues of concern like the abuse 

of charities. Though our work on designations, and most recently 

in using Section 311 to label foreign banks as primary money-laundering concerns, garners much of the public attention, it is perhaps 

the quiet, long-term structural changes that we have ushered internationally that will have the greatest impact in this ongoing fight. 

The Treasury, along with the State Department and others, has 

helped promote the implementation and enforcement of effective 

international standards of financial transparency and accountability. This is important because we must do everything to empower foreign governments and the private sector to prevent tainted money from entering the financial system and to make it riskier 

for terrorists to raise and move money. 

5

This work is perhaps seen most visibly in our leadership in the 

Financial Action Task Force and work with the other international 

bodies like the IMF and World Bank. The FATF, which as you 

know is the international standard-setting body for anti-moneylaundering and now counterterrorist financing, has laid out what 

is required of countries to deal with the changing face of threats 

to our financial system. 

Thanks to these efforts, countries have begun to regulate informal banking systems like hawalas, include originator information 

on cross-border wire transfers, freeze and seize terrorist-related 

funds, overtly criminalize terrorist financing, and increase vigilance 

over the nonprofit sector. 

There are many examples of progress on all of these fronts 

around the world. Countries such as those in the Gulf Cooperative 

Council have taken steps to begin regulation and oversight of charities and donations abroad. Islamic states have moved forward on 

regulating and harmonizing accounting and oversight principles for 

Islamic banking. Countries such as the United Arab Emirates have 

begun the process of regulating alternative remittance systems. 

These efforts will be expanded this fall with the establishment of 

two new FATF-style regional bodies, one in Central Asia and one 

in the Middle East and North Africa. A major achievement this 

past year, as Chairwoman Kelly mentioned, was the finalization of 

the agreement with the IMF and World Bank to make permanent 

the adoption and use of the FATF standards as part of the Financial Sector Assessment Program. What this means is that the entire world will now be judged against those standards as part of 

the regular and intensive reviews by those institutions. 

As a result of all of these efforts, we have made it harder, costlier 

and riskier for al Qaeda and other like-minded terrorist groups to 

raise and move money around the world. We are constricting their 

financial breathing space and tightening the noose around their 

network every day. 

Our engagement on terrorist financing and money-laundering 

issues worldwide has really and in real terms framed and clarified 

the global mission, and that is to disrupt and deter criminal financial activity that threatens our national and international security. 

This is now the axiom of the international community and it is 

so because the U.S. government, largely due to Treasury and State 

Department efforts, has helped to shape the way the international 

community thinks about these issues. 

I thank this committee and Congress for your continued support 

on these important issues. I look forward to discussing those with 

you today and working further with you on these matters. 

Thank you. 

[The prepared statement of Hon. Juan Zarate can be found on 

page 51 in the appendix.] 

Chairman KING. Thank you, Secretary Zarate. 

Assistant Secretary Wayne? 

6

STATEMENT OF HON. E. ANTHONY WAYNE, ASSISTANT SECRETARY FOR ECONOMIC AND BUSINESS AFFAIRS, DEPARTMENT OF STATE 

Mr. WAYNE. Thank you very much, Mr. Chairman and Madam 

Chairman and distinguished members. It is a great pleasure to be 

here with you today, and it is a pleasure to be here with Juan 

Zarate, who has been an essential partner ever since the fall of 

2001, working our way through and learning how to take on and 

tackle these serious problems of terrorist financing. 

The Department of State, as many others, very much commends 

the recommendations of the 9/11 Commission, as taking forward in 

important ways our discussions of how to tackle terrorist financing. 

We also particularly think that the staff monograph on terrorist financing has some very valuable insights that we can draw from. 

My written testimony goes through in greater detail what we 

have accomplished since 9/11 and the very complicated work agenda ahead of us. I would like to focus a little bit on what the Treasury Department and we and others are now facing as we look at 

where we go from here. What are some of the tradeoffs? What are 

some of the challenges that we look at ahead? 

Clearly, the most obvious objective is to cut off the flow of funds 

to terrorists. The 9/11 Commission report pointed out we were not 

talking about large amounts of money here. But still, if we can reduce that amount of money and make it harder to use, it means 

it is likely the smaller the scope of activities that terrorists can 

plan, the number of attacks they can carry out. 

When we publicly freeze funds, we are also, in naming the name 

of terrorists and their financiers, alerting unwitting donors of what 

they might be contributing to or what they might be being solicited 

about. And, we are dissuading other donors who might be tempted 

to support some of these groups, from actually going ahead and 

doing that, because the think they will have the chance of being 

caught and being named. 

When we designate either nationally or at the U.N. or bilaterally 

with others, we have made it more difficult for terrorists to use the 

financial system. But as we have made it more difficult for them 

to use that banking system, they have been shifting to other, less 

reliable and more cumbersome methods, such as cash couriers. 

Now, this means that we need to adapt, too, and we have been 

adapting and shifting our priorities, both nationally and internationally, as they start using more cash couriers, as they look at 

these alternative remittance systems known in the Middle East as 

hawalas; as they look to use NGOs and charities more effectively. 

We need to draw on a variety of tools that we have available to 

face these new challenges. 

This includes technical assistance. In the case of cash couriers, 

perhaps now to better train customs officials. It means that we 

need better and different kinds of law enforcement cooperation. It 

means we need strengthened and more defined international norms 

and standards. Now, that is a lot of what FATF is dealing with 

now, as Juan Zarate mentioned. But we need to keep working, both 

to understand the challenge and to develop the international consensus on the ways to tackle these problems. 

7

Another important objective, which the 9/11 Commission points 

out, is that if you can follow the money, you can get to the terrorists. So we know that this is important to do, and you can do it 

in designating. Sometimes in designating, you are alerting financial institutions to actually look for and find leads, and they can 

report that back. But in other cases, we are going to decide it is 

not best to do something publicly, because you want to avoid alerting the terrorists that you are on their trail. 

It is often not just a simple either-or decision here. You are looking at what is the right mix of tools that we want to use in this 

particular case. In addition to designating and having law enforcement investigations and actions, and collecting more intelligence, 

we have other things we might want to do. We look at this on a 

case-by-case basis in our interagency consultations. 

Sometimes, we might want to send a U.S. government official 

and a delegation to a country to privately address what the problems are and what they need to do. Sometimes, we will want to 

give them a targeted assistance program because we may discover 

they do not know how to track the money in their banking system. 

And sometimes, we will look at non-public cooperation between intelligence or law enforcement. 

So with this array of tools, we really have a way of going after 

these problems. That array of tools is possible because we brought 

together in our own system, as we have learned over the past several years, so many U.S. government agencies that have really broken those barriers down that used to exist between agencies. 

So when we get together, we do not just have the State Department and the Treasury there. We have Justice, Homeland Security, 

Defense, and the law enforcement and intelligence agencies really 

trying to put into practice the same things that the 9/11 Commission stressed as very important, breaking down those walls and 

sharing information. 

One of the lessons, a very important lesson that I have drawn 

in my experience in this time is that you really need to choreograph all the agencies effectively. As we have worked this through 

and looked at it overall, we have come up with a system where the 

NSC is pulling everybody together and choreographing what we are 

doing in terrorist finance, as they have done in other cross-cutting 

national security issues. 

When we do decide to do something publicly, there is another set 

of issues that come up that we need to weigh. Here, the State Department does have some important value-added in the process. 

First, we need to make an effective public case. We need to make 

sure that when we go forward with something, other governments 

are going to say ‘‘yes, we agree with you.’’ Especially if we go to 

the U.N., where we have to share this in a declassified way with 

people. It has to be persuasive. 

That often involves very hard tradeoffs, as we are thinking about 

it. As you know, when we are looking at all source information 

about a terrorist or a supporter, it is often highly classified. We 

have to make important tradeoffs because there are good reasons 

that that information is classified. So as we are going through the 

pros and cons and the best way to go forward, we try to bring our 

8

expertise to bear in the State Department as what will persuade 

other governments. 

We try to use our diplomatic channels to quietly talk with other 

governments and explain to them what is needed, and then after 

we have decided to go forward, to get other governments to join us 

in designating and to support that designation process. Now, each 

case, of course, that we deal with is unique. We usually mix several 

of the different tools together as we go forward. 

We will use different channels of communication. Often, the 

State Department and the Treasury Department will send the 

same message via their channels. This is the same with other 

agencies, but we do it in a very well coordinated and precise way 

as we go forward. 

We also try to draw on the expertise of our embassies all around 

the world. We have asked that in every embassy there is a Terrorist Finance Coordinating Officer. It is often the number two person in the embassy, the Deputy Chief of Mission, that can bring together all the different elements of that embassy and give us the 

best understanding of how we can influence a government: what is 

going on politically and economically and culturally that we need 

to know and factor in when we are trying to build cooperation on 

these issues. 

We have found there is no off-the-shelf answer to this. It is something that we look at case by case and wrestle through intellectually back here, too, but we get that real value-added of people who 

know the country as we are doing this. 

We also from the State Department work very hard to lead the 

effort to mobilize the international cooperation that we have, not 

just bilaterally, but working regionally and multilaterally, whether 

it is at the U.N. or other places. I was just over last week, and 

Juan has been several other places, but I was just in Brussels. We 

put together an interagency team from Treasury and with OFAC 

coming along, with the Justice Department, with FBI and with my 

colleagues from the counterterrorism part of the State Department. 

We met with over 100 experts from all over the European Union 

to really talk through the challenges that we face in terrorist financing, and they face, too. And then the day after, we had a more 

restricted and more classified discussion with the European Union 

on what we could do to make our cooperation better. We came up 

with some really interesting ideas. 

Chairman KING. Secretary Wayne, sorry to interrupt. Can you 

sum up? 

Mr. WAYNE. I am sorry. I am almost at the end. 

Chairman KING. Okay. Thank you. 

Mr. WAYNE. Only this much left. I just wanted to say, we did this 

in part because we know they have different legal systems than we 

do. They have different rules and regulations, and we need to find 

those common ways forward that people grappling with these 

issues can do when they agree on the common purpose and good 

will get together to work these things out. 

In all of this, in fact as we go forward, as the 9/11 Commission 

says, in every area, and that is certainly true in terrorist finance, 

we need strong international cooperation. We have to engage with 

our allies, with our friends, and with others, and improve that coVerDate 0ct 09 2002 11:33 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 G:\DOCS\97451.TXT FIN1 PsN: MICAH
9

operation. We have been doing a good job of it. We have to keep 

doing it. With your support, we look forward to keeping doing that. 

I will just add, that I think that is very important also, as you 

talk to your colleagues in parliaments and other places around the 

world, it can help us immensely for you to pass the message, too, 

about how important it is to get this right. 

Thank you very much. 

[The prepared statement of Hon. E. Anthony Wayne can be found 

on page 37 in the appendix.] 

Chairman KING. Thank you both very much for your testimony. 

I would like to follow up on something that Secretary Wayne 

said, but actually address the question to both of you. That is on 

the choreography involved with the Treasury Department, State 

Department, Justice Department, Homeland Security, and make 

the analogy to the intelligence community, where partly as a result 

of the 9/11 Commission, a consensus is developing that there 

should be one type or another of a national intelligence director. 

We can debate about the exact terms, but there seems to be a 

consensus that there needs to be greater coordination and centralization. 

Do you think the current system that you have, this choreography that you have, is efficient to work? Or can you consider the 

appointment of a czar just for the purpose of cracking down or coordinating the effort against terrorist financing? 

Mr. WAYNE. Let me take the first crack at this. We have learned 

and adapted since 9/11 and tried to improve. I think we have significantly improved the way we work together with other agencies, 

the way we share information, and the way we talk through on a 

case-by-case basis the range of different options that we have available. 

We have come up with a system where the National Security 

Council pulls all the agencies together. The grouping is currently 

chaired by Fran Townsend, who is also the Homeland Security Adviser. She also chairs the Counterterrorism Security Group, which 

does the broader counterterrorism work. I know Juan participates 

there. I do not participate in that group. Mr. Townsend or her deputy chair our PCC, depending on sometimes everybody is not available. 

We really have worked it out so we get together in a small group 

of people with all the right clearances and talk through what are 

the big issues, what are the big targets, what are the right ways 

to go about it. It works. It is working very well. 

Chairman KING. Secretary Zarate? 

Mr. ZARATE. Chairman, just to add to what Secretary Wayne has 

indicated. I think the NSC is in essence serving in the role of the 

czar, if you will, the coordinator, the master coordinator of these 

efforts. 

Chairman KING. In effect, that is Fran Townsend, right? 

Mr. ZARATE. That is right. I think that is an important development for two reasons. One, the campaign against terrorist financing is one part of the larger campaign against terrorism. To divide 

the two in any real or substantive or bureaucratic way I think does 

damage to the notion that attacking terrorist financing is part of 

a strategic approach to dealing with the larger issue of terrorism. 

10

The other potential problem with creating some new figure or 

new bureaucracy to deal with these things is the issue of terrorist 

financing is ultimately a cross-cutting issue from a disciplinary 

standpoint. It is a regulatory issue. It is an administrative function 

issue. It is a law enforcement issue. It deals with intelligence. It 

is a diplomatic issue. So it is the full range of national powers and 

influences and expertise that is really implicated in terms of the 

effort against terrorist financing. 

So I think the way it is constructed now, the way it has worked 

has worked well. I think the 9/11 Commission and the monograph 

really signaled that. 

Chairman KING. So if I could ask a question which again is more 

of a value judgment on your part, can you describe generally and 

specifically to the extent you can the level of intensity of cooperation you are getting from other governments? I mean, are they 

doing this because they have to, because they really want to? How 

serious do they see this issue in other governments? Are they just 

doing it to keep us happy? 

Mr. WAYNE. Let me start off again. I know Juan will add on this, 

because we each sort of go to different parts of the world at different times, but we do it in a very coordinated way so we get to 

work with the same group of countries. 

In general, the vast, vast majority of governments want to cooperate. There are a big chunk of governments that do not have the 

capability to cooperate. We find this particularly in developing 

countries around the world. Also, there is a difference between 

wanting to cooperate and having an effective inter-ministerial, or 

we would call it interagency system that works. 

Not surprisingly, in many countries around the world ministries 

do not talk to each other very often about things that they consider 

their prerogative. There is a lot of breaking down of barriers that 

has to go on as it went on in the United States. So what we have 

been doing in our effort over the past several years, and it varies 

from country to country, it is hard to really categorize it, it means 

working very hard with each of our partners. 

There are a number of countries where there is no question that 

they are quite like-minded. We together dwell on trying to figure 

out the right way to go about it. That was a reflection of what I 

was doing last week with my colleagues in the European Union. 

We had 100 people, prosecutors, designators, policy people, who are 

really trying in their own capitals to grapple with this issue and 

working on it. 

In other places, we have found people very eager to work together. One of the examples, in fact, we shared with the Europeans 

last week was the results of some training we had done in Latin 

America with a country that had not had the ability to really track 

money laundering or terrorist financing. We explained how as we 

trained people up and they had then used that to find a terrorist 

financing network. Again, a country with limited capabilities, but 

with the will to take it on, and it had made a big difference. 

Juan? 

Mr. ZARATE. Chairman King, just to add briefly to what Secretary Wayne indicated. I think generally my impression and the 

impression of Treasury officials who have traveled around the 

11

world and who meet with their foreign counterparts all the time, 

including this weekend with the IMF and World Bank meetings 

where the Secretary and other Treasury officials will be meeting 

with quite a few finance ministers and central bank governors from 

around the world, there is the political will to deal with this issue, 

largely because in particular from the finance ministry perspective, 

the lack of security and the threat of terrorism affects very tangibly 

economic development and the security of the world economy, not 

to mention the physical security and national security of many 

countries around the world. 

So I think that is there, and countries have taken very important 

steps to put legal structures in place, regulatory structures in 

place. The challenge that we face, and Secretary Wayne mentioned 

this in his opening statement, is to get to the point where countries 

are able to enforce their laws effectively to the point where they 

are able to take action that we need them to take effectively and 

efficiently. That, I think, is the greatest challenge for us. 

I just returned from Saudi Arabia and the United Arab Emirates, where the change in attitude since 9/11 I think has been dramatic. The level of activity on the issues related to terrorist financing and financial flows is dramatic. The level of cooperation has 

grown immensely over the past three years. 

Chairman KING. My friend from Illinois. 

Mr. GUTIERREZ. Thank you very much, Chairman King. 

Assistant Secretary Juan Zarate and Anthony Wayne, thank you 

for coming this morning. I want to thank you for your commitment 

and your hard work. I can tell every time you come to testify that 

you are very committed to this, your enthusiasm for your job. I can 

tell you are two people that wake up in the morning happy to go 

to work. That is a good thing. I am really excited that you are 

there doing that work. 

Let me ask you just a quick couple of questions. How would the 

certification program affect Treasury’s work in convincing other 

countries to adopt anti-money-laundering and anti-terrorism standards as recommended by the FATF? 

Mr. ZARATE. Congressman, it is hard to speculate, but I think it 

could complicate it. That is in part because the system we have in 

place in terms of using the FATF to set the standards, using the 

FATF non-cooperative country and territory list process to encourage cooperation with the FATF. And then perhaps most importantly now, the work with the IFIs, the IMF and the World Bank, 

to establish the assessment process, to get countries into compliance, is incredibly important. 

I think we are at the stage now, and from Treasury’s perspective, 

and I know Tony is of the same mind, we want to and need to keep 

a country’s feet to the fire on all of this, and that is why we spend 

so much time dealing with our foreign counterparts. That being 

said, there are better ways of doing that, and subtle ways of doing 

that which tend to be much more cooperative, and in the end hopefully achieve better results. 

I think we have seen that. We have seen that with countries like 

Russia, for example, in the NCCT process; countries like Egypt and 

Israel. The NCCT process is the process by which countries have 

been designated by the international community, by the FATF, for 

12

noncompliance with anti-money-laundering standards. So the multilateral approach, the cooperative approach has largely been effective. I think that is something that we need to still utilize. 

Mr. GUTIERREZ. The World Bank and the IMF annual meetings 

are this week. What action items are on the agenda in this particular area? 

Mr. ZARATE. One of the things that we mentioned here is the 

growing concern that we have with respect to the use of cash couriers. Terrorist financing is always on the agenda at these meetings, 

and through the Secretary, the Deputy Secretary and other Treasury officials, I have a number of meetings set up as well, deal with 

very specific issues that we want and need countries to address. It 

is one of the great values of having these meetings here in Washington, in that we can meet with the 180 or so finance ministers 

and central bank governors from around the world to address these 

issues. 

So it is always front and center. It is front and center with the 

G-7 finance ministers and the G-7 Group has been frankly a political driver on this issue, and they will continue to look at this 

issue. In the last meeting, the G-7 finance ministers called for not 

just the G-7 countries, but the rest of the world to start concentrating on the cash courier issue, which frankly has led to some 

very important developments. 

First and foremost is the establishment of international standards with respect to how to deal with this issue, which had previously never been set. We anticipate that that standard will be approved by the FATF in October at the plenary in just a couple of 

weeks. That also sets forth the possibility for establishing best 

practices, red flags, greater communication, information sharing. 

So all of those things fall into place once there is a political commitment by important countries to set that agenda item forth. That 

is what has happened in the past. We will continue to reiterate 

that issue and others at these meetings. 

Mr. GUTIERREZ. A quick follow-up question. So as we have shut 

down their financing, their networks and their banks and done 

these things, the cash couriers, have we caught any of them? Are 

we having any success in that particular area? 

Mr. ZARATE. Congressman, I can tell you that there has been 

some success. I cannot speak in this forum about particulars, but 

that is certainly the case. That is an issue that we raised with our 

Saudi counterparts, with our Emirate counterparts on our recent 

trip. I know it is something that Tony and others have raised with 

our E.U. counterparts. There is a growing concern. 

Congressman, I do not want to overstate it, because it certainly 

is the case that terrorist supporters still use traditional means or 

more formal means of moving money. I think we have a tendency 

to overstate the trend. What I indicated in my opening statement 

is that all means are still being used to raise funds, and certainly 

we see the collection of vehicles to move money around the world 

still being used. But it is certainly much harder and much riskier, 

and I think we are a victim of our own success in the sense that 

terrorists are now using couriers instead of banks to move money 

around the world. 

13

Mr. GUTIERREZ. Thank you, Secretary Wayne and Secretary 

Zarate, once again for coming and for the zeal and enthusiasm you 

bring to your work. 

Thank you, Chairman King. 

Chairman KING. I thank the gentleman. 

Now, the Chair of the Oversight Subcommittee, Mrs. Kelly. 

Mrs. KELLY. Thank you. 

There was a report in The Wall Street Journal yesterday about 

an agreement that the Federal Reserve struck with the ABN-Amro 

bank stemming from indications that the bank was not following 

our anti-money-laundering laws. It did not ensure that the customers were not foreign shell banks and did not make the due diligence requirements with regard to some of the correspondent accounts. 

According to the article, a money laundering expert who reviewed the agreement between the Fed and the ABN-Amro said it 

was clear from the language of the agreement that when it came 

to money laundering, ABN-Amro ‘‘had no program. They had just 

blown off the whole business of serious money laundering controls.’’

I understand this is a case primarily involving the Fed, but 

Treasury clearly holds the responsibility for administering our antimoney-laundering laws. As you know, some members of this committee are concerned that our current anti-money-laundering system needs to be strengthened. 

So for the benefit of the committee, Mr. Zarate, could you please 

detail Treasury’s involvement with this situation and tell me when 

did Treasury become aware of the problem, and specifically when 

did FinCEN become aware of the problem? 

Mr. ZARATE. Chairman Kelly, this is a matter currently before 

FinCEN, the Financial Crimes Enforcement Network. It is under 

investigation, so it would be inappropriate for me to comment specifically about the case. 

Mrs. KELLY. You could not even tell me when FinCEN found out? 

Mr. ZARATE. Chairman Kelly, that I can get for you, certainly. I 

do not have that here with me now, but we can certainly get back 

to you with the date that we became aware of it. But Chairman 

Kelly, this points to the larger issue that you have been concerned 

about, that this committee has been concerned about, and frankly 

the Secretary and the Deputy Secretary have been concerned 

about, which is ensuring that our regulatory community is looking 

very diligently and adroitly at the issue of anti-money-laundering 

and anti-terrorist financing controls. 

This is particularly important post-PATRIOT Act, where there 

are additional requirements. The regulatory structure has been 

broadened and deepened, not just for the banks, but also for nonbank financial institutions. This is incredibly important. 

Chairman Kelly, as you know, we are in the process of finalizing 

agreements with the regulatory bodies for the banking sector to ensure that FinCEN is getting appropriate information with respect 

to substantial violations related to anti-money-laundering controls. 

I think what we are seeing, Chairman Kelly, is a very real commitment on the part of the regulators to start looking at these issues 

carefully. I think this is one example of that, and we will continue 

to work with the regulators very closely on this issue. 

14

Mrs. KELLY. Thank you, but there is a subsequent article in today’s Wall Street Journal that indicates that the Fed action came 

only after the Justice Department asked the Fed to step in. It 

seems as though the Fed actually noticed problems back in 2002, 

but did not take any substantive action until the Justice Department took action. Is that true? 

Mr. ZARATE. Chairman Kelly, I would have to go back and check 

to see what the sequence is. Certainly, I cannot speak for the Fed, 

but we are working very closely with the Federal Reserve now on 

this issue. We are working very closely with the Justice Department as well, and FinCEN is reviewing the matter with alacrity 

and with utter seriousness. 

Mrs. KELLY. Perhaps you would report back to the committee to 

let us know. 

I would like to ask another question. You will recall this year, 

Mr. Zarate, that earlier the UBS was fined by the Federal Reserve 

and disciplined by the Swiss banking regulators for failing to comply with certain contracts that were executed between the Swiss 

bank in its Swiss headquarters and the Federal Reserve for the 

distribution of U.S. bank notes outside the United States. That is 

true, right? 

Mr. ZARATE. Correct, Madam Chair. 

Mrs. KELLY. It is still under investigation by this committee. At 

the time the Federal Reserve fine was levied, the public notice indicated that the law enforcement investigations were under way. It 

would appear that any such law enforcement investigations would 

need to refer to alleged violations of regulations issued by the 

Treasury Department’s OFAC. 

So here is my question. Can you confirm whether or not OFAC 

was investigating UBS for actions associated with its conduct of 

the ECI business for the Federal Reserve? 

Mr. ZARATE. Treasury and OFAC, Madam Chair, are working 

with the Department of Justice to investigate this matter. Our jurisdiction, as you know, would lie in the activities of U.S. persons 

involved in the violation of OFAC-related regulations. So that is a 

matter that we are looking at, and the Department of Justice is 

looking at as well. 

Mrs. KELLY. Is that still under investigation? 

Mr. ZARATE. It is still under investigation, Madam Chair. 

Mrs. KELLY. I wonder if you would be willing to brief our committee about that as soon as that investigation is finished and you 

are able to talk about it. 

Mr. ZARATE. I would be more than happy to brief, Madam Chair, 

as appropriate. 

Mrs. KELLY. I would like to turn to you, Mr. Wayne, and ask you 

a question. You mentioned that you were, I believe it was you, that 

you went to Saudi Arabia, or was it Mr. Zarate? What is the news 

from Saudi Arabia? Because in January of 2003, the United Nations asked that every nation have within 3 months a plan that 

would be in place to combat terrorist financing. To this date, there 

are over 100 nations from the United Nations that still have not 

complied with their own mandate that they get this done. 

So I would like to know about Saudi Arabia, because they announced with this great fanfare that they were setting this office 

15

up, but they really have not, at least the last time I heard, which 

was fairly recently. They have not assigned anybody to the office. 

There was nobody on the payroll to follow what Saudi Arabia was 

doing to follow the terrorist money. What is the news from Saudi 

Arabia? 

Mr. ZARATE. Madam Chair, with respect to the United Nations 

reports, that is an issue of concern to the State Department and 

to us. I was actually just up in New York meeting with Ambassador Munoz from the 1267 Committee to talk in part about the 

need to have greater international compliance and reporting. 

The news from Saudi Arabia, Madam Chair, is generally positive. 

I will tell you that with respect to the establishment of the financial intelligence unit, they have started to move toward establishing that office. I met the Deputy Director of the FIU who is 

being assigned. We were given details with respect to how many 

people would be working in the office, from which departments. We 

met with the Ministry of Interior to ensure that the FIU was treated as a serious part and a partner of their terrorist financing efforts. So that is an important and interesting development. 

With respect to the charities reforms, certainly your concern is 

our concern as well in that the consolidation of the charities and 

the way the charities move money abroad is of central concern to 

us. We have pushed the Saudi government very hard and very 

clearly to establish that committee and that board to ensure that 

Saudi money is going to intended good purposes around the world. 

As it now stands, the Saudis have stopped the flow of money 

abroad through official charitable channels, meaning all of the committees that they have established for a variety of purposes to send 

money to crisis regions, has stopped. That being said, we want to 

see this Charity Commission stood up. We want to see it active. 

We also want the Saudis, and we said quite clearly to them again 

on this trip, see a way of dealing clearly with groups like IIRO and 

WAMY, which are multinational charitable organizations that are 

operating out of Saudi Arabia. 

So that is front and center on our agenda. We will continue to 

raise those issues. 

Mrs. KELLY. Mr. Zarate, I have one more question. When will the 

MOUs between Treasury and the banking regulators be finished? 

Mr. ZARATE. Madam Chair, I am hoping that those will be completed very soon. By ‘‘very soon,’’ I will signal by the end of the 

week. 

Mrs. KELLY. Stuart Levey testified that they would be done in 

September. So hopefully they will be done and we will be able to 

be informed by the Treasury that we have those things in place. 

Is that correct? 

Mr. ZARATE. Chairman Kelly, we are going to try to stick to 

Under Secretary Levey’s commitment and we will certainly let you 

know. 

Mrs. KELLY. Thank you very much. 

Chairman KING. The Vice Chair of the subcommittee, the 

gentlelady from Illinois. 

Mrs. BIGGERT. Thank you, Mr. Chairman, and thank you, 

Madam Chairman, to both of you for holding this hearing. 

16

My question is for both of you gentlemen. Yesterday, Chairman 

King and I introduced an amendment in committee on the 9/11 Implementation Act. It was approved. Our amendment was to ensure 

that the Treasury Department’s role as the lead federal agency in 

international financial matters is clear, even as the State Department is really seeking I think expansion of its diplomatic capabilities. The text was to ensure that the Secretary of the Treasury is 

the lead U.S. representative and negotiator to international financial institutions and multilateral financial policymaking bodies. 

It was our feeling that we must keep our Treasury experts, and 

in collaboration with the State Department experts, on the 

frontlines in our dealings with international financial bodies, 

abroad as well as at home, and that we have consistent financial 

leadership and a consistent financial message. 

Now, having said that, both or your testimonies goes into unprecedented cooperation amongst our government agencies. It appears 

very much that the two of you collaborate very much. Are we going 

to have problems? This is out of committee now and it will go to 

the floor. Are we going to have problems in this area as far as turf 

wars or do you envision that this is the way that it should be, and 

that we will keep everybody working together, and this will help 

to improve the collaboration? 

Mr. ZARATE. I think the cooperation to date has been very good, 

very strong on these efforts. I think what has proven important, 

and I think Tony would agree with me, is that having Treasury 

channels of communication, finance ministry to finance ministry, 

Treasury to central banks, and Treasury to the international financial institutions and various regional bodies, is extremely helpful, 

in part because those ministries and those bodies tend to be more 

technical; tend to be focused on the implementation of the important steps that we have been talking about. There is a certain degree of credibility that exists within that world, within the world 

of the finance ministries, that helps in terms of implementing the 

standards and the efforts that we want to protect the international 

financial system. 

So I would dare say that there has never been a doubt that 

Treasury is important internationally. I think the State Department has used us well, and as well we have relied on the State Department and the great work that they do around the world. I do 

not expect that to change. 

One word of caution when talking about potential codification of 

coordination. There does come a point when coordination does become a buzz word for inaction or calcification of bureaucracy. I 

think we need to be careful not to over-establish bodies and interagency bureaucracies to coordinate functions, because that ruins in 

fact part of the flexibility that we have had that has been part of 

our success to date. 

Mrs. BIGGERT. Thank you. 

Mr. WAYNE. I would just add that, in fact I think the coordination is unprecedented; that it is reflected in a broader degree of coordination because the Treasury Department is now a full member 

of the National Security Council. What that means is not just on 

terrorist financing, but when we are dealing with any country 

around the world, whether we are dealing with Afghanistan or Iraq 

17

or Africa, you have the Treasury Department right there with the 

State Department and Defense, and chaired by the National Security Council, bringing this all together. 

That has created an atmosphere that has made it much easier 

for us to coordinate on these specific issues. We do not send a message out on terrorist financing that is not cleared by the Treasury 

Department. They do not send a message out that we have not 

talked about, to get the message consistent. Because otherwise, we 

are undermining ourselves, if we are sending different messages. 

We recognize that we each have different channels that are very 

important. 

It is clear that the Treasury Department and the Secretary of 

Treasury has the lead with the international financial institutions. 

That works out extremely well. 

Mrs. BIGGERT. Thank you. I commend you. 

Mr. Zarate, regarding the recent security threats announced at 

the end of July, I note that there were two categories of financial 

institutions that were identified. One was the private U.S. firms 

and the other was the international financial institutions. What 

role did the U.S. Treasury Department through the executive directors that sit on the boards at the IMF and the World Bank, work 

with those international financial institutions to respond to the security alerts? 

Mr. ZARATE. We have a very important office within Treasury 

that deals with critical infrastructure protection led by Assistant 

Secretary Wayne Abernathy. Wayne and others in his shop deal 

very closely with the Department of Homeland Security, as well as 

with our EDs to ensure the safety and security of the financial institutions, to ensure that all the measures are being taken to ensure their physical security, as well as the critical infrastructure 

security of these institutions. 

I will say that Wayne and his people within Treasury were seminal partners in terms of helping to bridge the divide with the financial institutions as the information came out. I will say, and I 

have said this to the private sector, the threat warnings to the financial institutions makes very tangible the fact that these institutions are literally on the front line in the war against terrorism 

and terrorist financing. 

It is important for us to do our best to inform them and to keep 

them as safe as possible, because they are important parts of the 

economic security of our country and of the world. 

Mrs. BIGGERT. Thank you. 

I yield back, Madam Chairman. 

Mrs. KELLY. [Presiding.] Thank you very much. 

Mr. Paul? 

Mr. PAUL. Thank you, Madam Chairman. 

A while back in our history, we had a lot more respect for the 

Fourth Amendment than we do today. I see that we have had a 

gradual erosion of that principle that our persons, our papers and 

the effects are to be secure. Then there was another blow to that 

principle with legislation following 9/11 out of the legitimate fears 

that this country experienced. 

Yesterday, there was a court ruling dealing with the privacy 

issue. A federal court ruled that wholesale or blanket searching of 

18

records of customers on the Internet and on telephone records violated the Fourth Amendment, although we in the Congress said 

such searches were perfectly all right. So there is a contest going 

on now. Those in the courts who still believe a little bit in the 

Fourth Amendment and those in the Congress who seem not to 

care too much. 

Mr. Wayne, you mentioned, and this is a statement I agree with, 

that if you follow the money, you get to the terrorists. That sounds 

like a pretty good idea. But I have problems with following the 

money of 200 million Americans while the terrorists are getting 

lost in the maze, and this is more or less what the 9/11 Commission said. They said that there was too much material that was 

never looked at. Even if the new regulations had been in effect, it 

would not have helped catch the al Qaeda, which is the real issue 

today, how can we prevent what happened. 

They said they did not even use the banking system enough that 

they would have been detected. So there is a question about the impracticality of following everybody’s money and then there is also 

the constitutional question about whether or not we should be 

doing it. You do not write the laws. You are trying to enforce them. 

There is a bit of a discussion going on between the courts and the 

Congress right now. 

But my question is this. Do you think, under today’s circumstances that you are very much involved in, in trying to protect 

our country, do you think it is necessary for us in the Congress to 

give up a little bit of our freedoms, to sacrifice liberty, to be more 

casual about the privacy issue in order to be more secure? Is this 

a legitimate sacrifice? 

Mr. ZARATE. Congressman, I leave that balancing act to Congress 

and to you. Our job, as you indicated, is to implement the law and 

to enforce it to the best of our ability, to safeguard the U.S. economy, the American people, and our financial system. You have 

raised a number of issues. I cannot speak to the case that you referred to. I am not familiar with it and I leave it to the Department 

of Justice to react to it. 

I would like to mention, though, with respect to the 9/11 Commission and the monograph, two points. First, I think what has 

changed since 9/11 is a greater awareness in the financial community, not just the banking community, but also the non-bank financial institutions, with respect to potential activity related to terrorism. There is greater awareness. 

We have provided more guidance, and frankly we have used the 

powers you provide in section 314(a) to get more specific information out to the financial community in real time, which has led to 

very important leads in the money laundering and terrorist financing field. 

Mr. PAUL. May I ask you a question along those lines? How 

much would you be handicapped if you were always required to get 

the proper search warrant, rather than being able to look at the 

records rather casually? Would that put a big handicap into your 

ability to do the job you are trying to do? 

Mr. ZARATE. Congressman, if you are talking about requiring a 

search warrant, for example, before the filing of a suspicious activity report or before sending out lead information to the private secVerDate 0ct 09 2002 11:33 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 G:\DOCS\97451.TXT FIN1 PsN: MICAH
19

tor via section 314(a), it would be a major handicap. And it would 

affect greatly the work of law enforcement, not just in tracking domestically potential terrorists and terrorist financiers, but also 

internationally. 

Part of the challenge, and I think this is one of the conclusions 

from the 9/11 Commission, is that prior to 9/11 we were not doing 

a good job of sharing information, of putting the dots together. And 

I think the more that we restrict our ability to share information, 

the more we are at risk of not putting those dots together. 

I would like to just indicate one of the issues raised by the 9/11 

monograph was an issue with respect to our blocking of assets. As 

Secretary Wayne mentioned, designation of individuals and the 

freezing of assets in a preventive way is an incredibly important 

tool and an important part of what we do. In each instance in 

which that authority has been used and challenged in court, the 

U.S. government and the Treasury Department have won in court, 

at the District Court level and as well at the appellate court level. 

So I want to mention that for the record because there is often 

a discussion of civil rights in the context of what we do. And I 

wanted to indicate that the Congress has appropriately given us 

powers that fall within the constructs of the Constitution and are 

exercised, frankly, judiciously within the law. 

Mrs. KELLY. Thank you, Mr. Paul. 

Mr. Inslee? 

Mr. INSLEE. Thank you very much. 

I wanted to ask you about some information I received, to see if 

it is accurate or not. I was looking at a letter contained in a piece 

called Money Laundering Alert by Samuel Bodman. And that revealed that OFAC as of May 2004 had an average of 21.43 employees dedicated to enforcing Cuba country problems, that is broadly 

speaking; an average of 16 employees to track Iraqi terrorists and 

locate the missing assets of Saddam Hussein; and 16 to monitor al 

Qaeda. 

Are those numbers accurate, roughly accurate, grossly distorted? 

Mr. ZARATE. Congressman, there has been a bit of a distortion, 

I think, in the media with respect to the numbers and the commitment within OFAC and within Treasury to deal with terrorist financing. 

The majority of the assets within OFAC analytically have been 

used to track terrorist financing, not just al Qaeda, but other likeminded terrorist groups around the world like Jemaah Islamiyah, 

North African groups, et cetera. So that has been part of our effort. 

We have also worked and been an important part, along with our 

State Department colleagues, in finding and repatriating Iraqi assets around the world. Ambassador Joe Saloom from Tony’s office 

has been an important part of that, and we have repatriated over 

$2.7 billion to the Iraqi people, due in large part to the work of 

folks at OFAC. 

Congressman Inslee, I do want to note, and I think it is a bit unfair to OFAC and to the Treasury Department when some of these 

media articles come out. OFAC is the enforcement-sanction body of 

the U.S. government. It enforces 29 different sanctions that are important to the U.S. government for a variety of purposes. Cuba is 

one of those, but we also have others, Zimbabwe, Syria, others that 

20

are of import to us. That is a part of our national security. It is 

part of our mandate and it is important for us to do that work as 

well. 

Mr. INSLEE. I appreciate all that work, but the ratio of the Americans killed by al Qaeda to the Americans killed by Fidel in the last 

10 years is 2,900 to 1. The ratio of your inspectors chasing Fidel 

and people going down to Cuba is about 1.3 to 1. Those ratios to 

me and my constituents make no sense whatsoever, given the 

emergent nature we are in, where Osama bin Laden is on the 

loose, and you are not chasing him with the assets that we are paying you to chase him with. 

You are out there fooling around with what is going on with 

tourists going to Cuba, rather than chasing the guy that killed 

3,000 Americans. I am just telling you from one district of this 

country, and I only have one district I represent, that is a gross 

mis-application of resources. 

Now, it seems to me, I understand you have statutory obligations, but it seems to me in the nature of the threat we face today, 

you would have a ratio of about 3,000 to 1 chasing down al Qaeda 

assets, rather than people who want to go play ping-pong in Cuba. 

Now, tell me why my assessment is not accurate? 

Mr. ZARATE. Chairman, first of all I would hope that——

Mr. INSLEE. I am not the Chairman. I am just a minor member 

of the committee. 

Mr. ZARATE. Excuse me, Congressman. With respect to the numbers, I would hope that you and others would certainly go back to 

your constituents with the real numbers and the real fact that we 

are devoting not just within OFAC, but within FinCEN, within our 

office, within the State Department and other parts of the U.S. government, considerable resources and an overabundance of resources 

to do precisely what you and everyone else wants to do. 

Mr. INSLEE. Could I stop you just for a second, because I want 

to make sure that I understand your answer. The best numbers 

that I have seen are from this May 4 letter that said there are 

21.43 employees dedicated to enforcing Cuba sanctions and 16 to 

monitoring al Qaeda. Now, if those numbers are not accurate, could 

you give me the numbers, please? Could you give me the number 

of people chasing Cuban tourists to the number chasing Osama bin 

Laden’s money? Could you give me some numbers? 

Mr. ZARATE. Congressman, I would be very happy to get you the 

exact numbers. Those numbers fluctuate in large part because we 

switch and rotate analysts to deal with emerging issues, for example emerging terrorist financing concerns in East Asia or North Africa. But we would be very happy to get that back to you. 

Congressman, I do want to indicate, though, that with respect to 

the Cuba program, the bulk of those resources are used to license 

individuals who want to go down to travel, to do business in Cuba. 

So a part of the function is not as you construe a function of tracking Castro’s assets, but in fact providing a service to the American 

people to allow the kind of interchange that Congress and the Administration wants and needs us to do. So I think that construal 

is a bit unfair. 

Mr. INSLEE. Let me just give you two comments. One, I will not 

be satisfied, and more importantly I do not think my constituents 

21

will be satisfied, until the ratio of those numbers are about nine 

to one at least, number one. And number two, you could help us 

by removing some of the necessity, by removing some of these travel restrictions to Cuba, so instead of hiring people in bureaucracies 

to push paper to go to Cuba, we can change our policy and we can 

direct the national resources of this country to protecting people 

from getting killed by al Qaeda. 

I am just telling you that is a much higher priority at this moment in our national life. I encourage you to think about that issue, 

and the next time we talk maybe you will have a better ratio and 

I will feel a little more secure. 

Thank you. 

Mrs. KELLY. Thank you, Mr. Inslee. 

Gentlemen, I understand from the reading and the research we 

have done that privacy laws of various countries seem to prevent 

some of them from scanning records to find out whether or not 

shell companies are there and whether or not those companies are 

hiding Saddam’s assets. I would like to ask both of you what 

progress we have made in our ability to scan for shell companies 

and to overcome the obstacles and to help other countries do this 

as well. 

You can take it, whichever want to pick that up. 

Mr. ZARATE. Chairman Kelly, we have had quite a bit of progress 

on this front. As you are aware, we have designated well over 200 

Iraqi parastatals, as well as front companies that were used by 

Saddam as part of his economic web around the world, in some instances to try to procure weapons systems; in some cases to try to 

move and hide money. So we have had a good deal of success. 

One of those companies, Al-Wasel and Babel, we designated and 

it has been shut down, according to the United Arab Emirates, part 

of the reason I wanted to visit to make sure that had happened. 

So that has been important. That has been an incredibly helpful 

step. 

What we are still struggling with, as you have indicated, are instances where certain countries have not been as cooperative or as 

forthcoming, and we have tried to deal with that on a bilateral 

basis diplomatically and otherwise to try to get access to information and to get action out of these countries. 

Mrs. KELLY. Mr. Wayne, do you have anything to add to that? 

Mr. WAYNE. Only that this issue and other privacy issues do 

come up as we are working through a number of the terrorist financing questions. Of course, it is most easy to make progress on 

this when we can get a consensus galvanized unfortunately by 

something very serious and sad that happened, or even the new 

possibilities in the case of Iraq where we are able to have a United 

Nations consensus that yes, we should be tracking down Saddam’s 

assets, which thus allowed committed countries around the world 

to cooperate with us in this effort. 

Similarly, just to take it on the side of al Qaeda, we have in the 

U.N. the 1267 Committee list which commits people to act on al 

Qaeda-related groups or Taliban-related groups. When you get into 

the other terrorist groups, you have to work on a bilateral or a regional basis to build consensus, and sometimes you run into these 

privacy issues. 

22

For example, as we are were talking with the European experts 

last week and others, they were talking of some of this tradeoff in 

their own legal system, not on the shell companies so much, but 

on what is the basis on which you should freeze money. Should it 

be at a standard that we and some other countries have of a preventive basis of good reason to believe? Or do you need the same 

level of going to a criminal prosecution? 

That is, in part, why we needed to get people in those cases together to talk this through, because we are working from different 

standards. That is not precisely on your shell company issue, but 

it is an issue that cuts across some of the most difficult issues we 

face. 

Mrs. KELLY. Obviously, the origin of my question is the Oil-forFood. The GAO report indicated that in May that there was some 

difficulty here with regard to the foreign companies’s laws. I am 

hopeful that you are working to try to break that apart. We need, 

if anything, to talk about a serious and sad situation. The Oil-forFood scam is a serious and sad situation, especially for those poor 

people in Iraq. I feel very strongly that our government needs to 

help other countries focus on the problems that we have. 

I also wanted to ask you another question, and that is that the 

IMF and the World Bank, we know that they are providing technical assistance to member countries to strengthen the financial 

regulatory and supervisory frameworks. I would like to know what 

type of technical assistance is being provided, and are you going to 

provide any follow-up for it? 

Mr. ZARATE. Chairman Kelly, the IMF and World Bank certainly 

are a part of that process of providing technical assistance, but 

there are also other bodies providing technical assistance largely, 

frankly, on a bilateral basis and in some cases a regional or multilateral basis. For example, the Group of 8 countries has a group 

called the Counterterrorism Assessment Group which is charged 

with doing precisely this, to provide technical assistance in the 

area of terrorist financing, as well as other counterterrorism areas. 

Specifically with respect to the IMF and the World Bank, those 

institutions provide technical expertise with respect to the types of 

financial controls that should be in place in the banking system, 

the types of regulations and controls that should be in place in nonbank financial institutions, and frankly now with the marriage 

with the FATF standards, how best to put into practice the FATF 

standards that are required of all countries around the world. 

So it is putting in place the systems that make sense and using 

the technical expertise that both of those bodies are building up. 

Mrs. KELLY. Mr. Zarate, beyond the Group of 8, who else is involved in this? 

Mr. ZARATE. I will leave part of this to Tony, because certainly 

the United Nations is a part of this. The 1373 Committee has a 

part of its mandate to marry both those in need of assistance with 

those countries willing to provide assistance. They have been trying 

their best to do that. 

I will allow Tony to editorialize as to whether or not it has been 

effective. But in any event, there have been multiple attempts to 

do this. The FATF itself has done quite a bit in terms of assessVerDate 0ct 09 2002 11:33 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 G:\DOCS\97451.TXT FIN1 PsN: MICAH
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ments and providing some technical expertise to countries around 

the world. 

Mrs. KELLY. Thank you. 

Mr. Wayne? 

Mr. WAYNE. I will just add that within the U.S. government we 

have also made a concerted effort to have a coordinated approach 

to the kind of technical assistance we provide in this area. It comes 

from a wide range of departments, not just the State Department 

and the Treasury Department. We bring about 20 offices together 

on a regular basis to coordinate and plan where we are providing 

that technical assistance. 

In addition, as Juan Zarate has said, we coordinate bilaterally 

very closely with the United Kingdom, with France, with Australia, 

with Spain. In the G-8, as he said, we have put together now a 

comparative listing of where we are all giving assistance. Just last 

week at the E.U., they asked to start coordinating because they are 

starting a new program which they did not have before to effectively provide technical assistance in the area of terrorist financing 

with us and others. 

We have also worked in APEC and in the OAS to start this, but 

in a number of areas it is a nascent process. Overall, there is no 

question that the need is greater than the current provision of 

technical assistance. Part of that is money and part of it is finding 

the right kind of specialist to go out to these places and actually 

train people. 

So we are working at expanding this circle and getting the circle 

talking and communicating with itself, and within that circle, but 

there is no question that there is more to do. 

Mrs. KELLY. I want to go back to that question. Do you intend 

to stay with this and follow up with regard to making sure the IMF 

and the World Bank are in fact doing it? Forgive me for being 

slightly cynical, but when we have the United Nations promulgating rules and regulations for themselves, and then nobody living 

up to what they said; with 100 nations that have not even put anything in place; haven’t even reported back to the United Nations, 

I am a little cynical about the fact that this work is actually going 

to get done. I think it may need a follow-up. Will you do that? 

Mr. ZARATE. Chairman Kelly, absolutely. We work very closely 

on a daily basis. There are very skilled folks in the office of international affairs and the people in our office work very closely with 

the IMF and the World Bank, and we know that the institutions 

are not only committed to it from a political perspective, but have 

started to build the technical expertise to actually do this, which 

is important. We work closely with those experts. We know them 

personally. We talk to them on a daily basis, so that is important. 

I would like to mention, Chairman Kelly, that in terms of dealing 

with other countries, and this goes to your Iraq question as well, 

we follow up very aggressively. The Director of my office, Danny 

Glaser, just came back from Syria and Jordan to deal with some 

very serious concerns we have, in particular with the Commercial 

Bank of Syria which was given the section 311 designation. He is 

the head of our U.S. delegation to the FATF and has done a phenomenal job. 

24

We are also looking at creative ways of enlisting the private sector in terms of building capacity. We have something called the 

Buddy Bank Initiative, where we are working on a pilot basis to 

try to enlist the more developed banks to help lesser developed 

countries and banks to build up the capacity in their private sector 

to deal with these issues. 

So we are dealing aggressively with all of these issues. We are 

trying to think creatively, and we are trying to use all of the powers and resources at our disposal. 

Mrs. KELLY. Thank you very much. 

Ms. Biggert, did you have another question? 

Mrs. BIGGERT. Just a very brief question. Can you identify the 

next main areas for attention within the FATF in light of the attention that the G-7 is devoting to informal value transfer networks? And does this create a tension within G-8’s other initiative 

to lower costs and make more accessible remittance worldwide? 

Mr. ZARATE. That is a very good question. With respect to next 

challenges, I think in part dealing with the courier issue is very 

important. As we have seen, many countries around the world have 

not necessarily thought about this issue, have not created systems 

internally to coordinate their customs service with their intelligence services with their banking regulators. So that is very important and will be a focus of the FATF in October, and will be a 

focus of the FATF-style regional bodies around the world. 

I think the larger issue for all of us, and I think this is why the 

arrangement with the IMF and the World Bank is so important, 

is the implementation and enforcement of all of these standards. 

With respect to alternative remittance systems and money remitters, that means bringing to the light of day a sector that frankly 

has been unregulated to date, and making sure that there is transparency and accountability, and that we do so in a way that balances precisely the concerns that you have mentioned, which is not 

driving these services underground, ensuring that they are accessible services to populations, especially expatriate populations. 

Frankly the effort to bring those populations into the formal financial sector is part and parcel of our efforts to deal with the 

issue of unregulated money flows throughout the world. So you 

have hit on something very important to us. It is something we are 

working on very closely with some regional banks, as well as countries around the world. That is certainly an important priority for 

us moving forward. 

Mr. WAYNE. If I could just add, Congresswoman, you have hit on 

a very important point here because I think we all remember that 

one of the recommendations of the 9/11 Commission was that we 

need to focus on creating jobs and prosperity and possibilities for 

young people around the world. 

Remittances are a very legitimate source of sending money home 

from workers who are overseas. So you have to make that both legitimate and inexpensive for people to do. That is one of the challenges. That is why there are several different approaches to this 

going on around the world. The United Arab Emirates has taken 

one approach, which is to have a light kind of licensing system for 

hawaladars in their area, but one that brings them into the formal 

system. In Pakistan, they have taken another approach which is 

25

basically to make the banks cheaper and to have everything go 

through the banks. 

Part of this is experimenting, and we are watching what works 

best, but they both recognize that it is legitimate to send the 

money back home. In fact, as you correctly pointed out in the G8, they pointed out how important it is to get remittances going 

home to countries and creating jobs and into that capital that can 

be invested and help new businesses back home. So we are trying 

to balance this as we go forward. We are trying to keep in mind, 

as we create the Millennium Challenge Account and other development effects, that this work is really part of our battle against terrorism; that development is a pillar of our national security strategy. 

Mrs. BIGGERT. Thank you very much. 

I yield back. 

Mrs. KELLY. Thank you. 

Mr. Inslee, do you have another question? 

Mr. INSLEE. Thank you very much. 

I wanted to follow up on what we were talking about earlier 

about trying to figure out where this policy originated regarding 

use of resources in Cuba relative to al Qaeda. I just tumbled on 

something kind of interesting. In 2003, this is according to a report 

released to the Senate Committee on Finance, that OFAC at a cost 

of $3 million had an average of 21 full-time employees working on 

Cuba sanctions, triple the number of employees it had in the program at the beginning of 2002. 

In the same report, OFAC revealed that it employed no Arabic 

interpreters and that it had only two employees who spoke Arabic 

‘‘at a level of moderate proficiency.’’ This is apparently the response 

in October 2003, President Bush began an initiative to further 

strengthen the enforcement of the Cuba travel ban by instructing 

the Department of Homeland Security to ‘‘increase inspections of 

travelers and shipments to and from Cuba.’’

Shortly after that, the DHS issued a press release saying that it 

will ‘‘step up enforcement of travel restrictions to Cuba that are already in place, using intelligence and investigative resources to 

identify travelers or businesses engaged in activities that circumvent the embargo.’’

From that, it appears to me that the President of the United 

States is the one responsible for making a decision that instead of 

putting additional resources into the hunt for al Qaeda and its 

money, he has taken the resources that could have gone there and 

put it in this effort in Cuba. Is that generally an accurate assessment on who is responsible for this prioritization? 

Mr. ZARATE. Congressman, the President and this Administration, and in particular the Secretary, have committed to and have 

been committed to doing everything possible to disrupt and dismantle the financial infrastructure of al Qaeda and other likeminded terrorist groups. We have done that. I think the 9/11 Commission report signals that, and we have done a very good job. 

I think focusing on the numbers in the way that you are tends 

to distort the level of commitment that exists within the U.S. government to this effort. Again as I mentioned, OFAC is just one 

part, a very important part, but just one part of our effort to attack 

26

terrorist financing. The analysts do phenomenal work, but their 

work is complementary to the work being done by the intelligence 

services, by law enforcement, by our diplomats, by our policymakers, by others at FinCEN. 

So to take that in isolation and to use that as a representation 

of the level of commitment of this Administration or of the Secretary of the Treasury to combating terrorist financing is both 

wrong and misleading. 

Mr. INSLEE. I appreciate what you had to say, but I do not think 

you answered my question. I wanted to ask who is responsible for 

making this decision. As best as I can tell, it is the President of 

the United States who directed you to increase your spending involving Cuba sanctions and Cuba tourism policies. Instead of taking the money that went into that Cuba effort, and shifting it to 

the hunt for al Qaeda, the President decided to put it into Cuba. 

Now, if it was not the President who decided to do that, who did 

it? Could you give me a name? Who made this decision? 

Mr. ZARATE. Congressman, the President established the Commission for Assistance to Establish a Free Cuba, which was an 

interagency commission led by the State Department to establish 

policies to promote both in the short term and the long term the 

ability to bring peace and prosperity and freedom to the Cuban 

people. The reality is that we can walk and chew gum at the same 

time. 

As I mentioned, we have 29 sanctions programs that we administer. Forty percent of our resources are devoted to terrorist financing within OFAC. Again, OFAC just being one office within the 

Treasury Department, within the whole of the U.S. government. 

Thirty-five percent of our OFAC resources are devoted to country 

programs; 20 percent are devoted to our drug trafficking program 

which has been incredibly important and effective in dealing with 

the Cali cartel in Colombia, most recently with a very important 

designation on that. 

Mr. INSLEE. Let me ask you, what I assume you are saying is 

that we have maxed out. We have all the resources we could possibly use to hunt down al Qaeda. I have a very difficult time believing that because between 1994 and 2003, OFAC brought 4,301 civil 

penalty enforcement actions regarding Cuba, and 2 regarding terrorism. 

Now, I guess I should ask you specifically, are you telling me 

that you could not use effectively additional resources to try to cut 

off the funds from going to terrorist activities, including al Qaeda? 

Is that what you are telling me? You could not use another person 

effectively? 

Mr. ZARATE. Congressman, I cannot speak to what happened in 

the prior Administration, but what I can tell you is that this Administration has made the combating of terrorist financing a priority. The Secretary of the Treasury and the Secretary of State 

have made it a priority and we have done everything possible. 

We can always use more resources to do everything we are doing, 

whether it is implementing effectively and responsibly the Cuba 

sanction program, the Burmese sanction program, the Syrian sanction program, the Zimbabwe sanction program, or the drug trafVerDate 0ct 09 2002 11:33 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 G:\DOCS\97451.TXT FIN1 PsN: MICAH
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ficking program. We do that as efficiently and effectively and judiciously as possible. 

Mrs. KELLY. Thank you, Mr. Inslee. I am sorry. 

Mr. INSLEE. Thank you, Madam Chair. 

Mrs. KELLY. The Chair notes that some members may have additional questions for the panel which they may wish to submit in 

writing. So without objection, the hearing record will remain open 

for 30 days for members to submit written questions to these witnesses and to place their responses in the record. 

We are very grateful for the testimony that you both provided 

here today. We also hear your concerns and we also applaud you 

for the steps that you have taken to cooperate for all of us to experience a world that is becoming more and more free from terrorist 

activities. So we thank you very much. 

With that, this hearing is adjourned. 

[Whereupon, at 11:28 a.m., the subcommittees were adjourned.] 

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September 30, 2004

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