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95–189 PDF 2004

S. Hrg. 108–683

AN ASSESSMENT OF CURRENT EFFORTS TO

COMBAT TERRORISM FINANCING

HEARING

BEFORE THE

COMMITTEE ON 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JUNE 15, 2004

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

DAVID A. KASS, Chief Investigative Counsel 

EDWARD W. PRIESTOP, Federal Bureau of Investigations Detailee 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Counsel 

DAVID BARTON, Minority Professional Staff Member 

AMY B. NEWHOUSE, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Collins ................................................................................................. 1

Senator Lieberman ........................................................................................... 3

Senator Coleman .............................................................................................. 5

Senator Lautenberg .......................................................................................... 6

Senator Akaka .................................................................................................. 7

Senator Levin .................................................................................................... 8

Senator Specter ................................................................................................. 27

Senator Pryor .................................................................................................... 29

Prepared statement: 

Senator Voinovich ............................................................................................. 35

WITNESSES 

TUESDAY, JUNE 15, 2004

Lee S. Wolosky, Co-Director, Independent Task Force on Terrorism Financing, Counsel, Boies, Schiller and Flexner, LLP ................................................. 11

Mallory Factor, Vice-Chairman, Independent Task Force on Terrorism Financing, President, Mallory Factor, Inc ............................................................. 14

Hon. David D. Aufhauser, Counsel, Williams and Connolly, LLP, Former 

General Counsel, U.S. Department of the Treasury ......................................... 16

ALPHABETICAL LIST OF WITNESSES

Aufhauser, Hon. David D.: 

Testimony .......................................................................................................... 16

Prepared Statement ......................................................................................... 46

Factor, Mallory: 

Testimony .......................................................................................................... 14

Prepared Statement ......................................................................................... 41

Wolosky, Lee S.: 

Testimony .......................................................................................................... 11

Prepared Statement ......................................................................................... 36

APPENDIX 

Questions and responses for the Record from Senator Akaka for: 

Mr. Wolosky ...................................................................................................... 51

Mr. Factor ......................................................................................................... 52

Mr. Aufhauser ................................................................................................... 53

‘‘An Update on the Global Campaign Against Terrorist Financing,’’ Second 

Report of an Independent Task Force on Terrorist Financing Sponsored 

by the Council on Foreign Relations, June 15, 2004 ......................................... 54

Letter from Stanton D. Anderson, McDermott Will & Emery, dated June 

30, 2004 ................................................................................................................. 312

Response letter to Stanton D. Anderson, Esq. from William F. Wechsler 

and Lee S. Wolosky, Esq., dated August 3, 2004, with an attachment ........... 315

(1)

AN ASSESSMENT OF CURRENT EFFORTS TO 

COMBAT TERRORISM FINANCING 

TUESDAY, JUNE 15, 2004

U.S. SENATE, 

COMMITTEE ON GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:30 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Susan M. Collins, 

Chairman of the Committee, presiding. 

Present: Senators Collins, Coleman, Specter, Lieberman, Levin, 

Akaka, Lautenberg, and Pryor. 

OPENING STATEMENT BY CHAIRMAN COLLINS 

Chairman COLLINS. The committee will come to order. 

Good morning. Today the Governmental Affairs Committee will 

conduct a review of current efforts underway to combat terrorism 

financing. 

This is the third hearing the Committee has held during the past 

year on this issue of great global importance. The focus of our hearing today is a new report by the Independent Task Force on Terrorism Financing sponsored by the Council on Foreign Relations. 

The Council’s first report, released in October 2002, begins with 

these words: ‘‘The fog of war has long befuddled military and political leaders. Of all the battle fronts in today’s war on terrorism, few 

are as foggy as efforts to combat terrorist financing.’’

As both of these reports make clear, however, this fog is no natural phenomenon. It is entirely manmade. Terrorism thrives in the 

shadows. It prospers by deceit and deliberate confusion. It is a perverted world in which murderers are called freedom fighters and 

in which building schools and health clinics can excuse the slaughter of innocents. 

The answer is relentless scrutiny and then taking forceful and effective action. 

This new report focuses primarily upon the actions taken by the 

Governments of the United States and of the Kingdom of Saudi 

Arabia. It provides an insightful analysis of the progress that has 

been made and of the challenges that remain. 

As the report observes, Saudi Arabia has, on a comparative 

basis, taken more legal and regulatory actions to combat terrorism 

financing than many other Muslim States. However, the size, the 

reach and the wealth of persons and institutions there with connections to violent terrorist groups put the kingdom on the front lines 

of this battle. 

2

There are other engines of terrorism financing, but as David 

Aufhauser, one of our distinguished witnesses, testified just 1 year 

ago, Saudi Arabia is, in many ways, the epicenter of terrorism financing. As the Council’s first report stated, individuals and charities based in Saudi Arabia have been the most important source 

of funds for al Qaeda. 

A phrase that occurs again and again throughout this new report 

is political will. In some instances, it is evident and growing. In 

others it is still woefully lacking. This mixed result characterizes 

Saudi Arabia. The Saudi government deserves credit for undertaking considerable legislative and regulatory reforms. Questions 

remain, however, about whether these reforms are being consistently, effectively, and vigorously implemented. 

For example, the kingdom recently dissolved the notorious Al 

Haramain charity and it has created a new organization to coordinate and oversee private Saudi charitable giving abroad. This is a 

very positive step that should significantly diminish the ability of 

al Qaeda and other terrorist groups to raise and move funds using 

charities as conduits. There remain, however, serious questions. 

Most important, what are the Saudi’s doing to crack down on the 

International Islamic Relief Organization, the World Assembly of 

Muslim Youth, and the Muslim World League, three of the charities alleged to have the most troubling terrorism connections. 

Terrorists attacking Saudi Arabia from within the country have 

been killed and many Saudi law enforcement personnel have given 

their lives. Yet this report also notes that since September 11, 2001 

we know of not a single Saudi donor of funds to terrorist groups 

who has been publicly punished. 

Perhaps most troubling is the continued gap between what Saudi 

leaders say to the world and what some of them have to say to 

their own people. Following the al Qaeda attacks in early May, 

Crown Prince Abdullah said on Saudi TV that ‘‘Zionism is behind 

the terrorist attacks in the kingdom. . . . I am 95 percent sure of 

that.’’ That astonishing and inflammatory remark was reiterated a 

few days later by the Saudi Foreign Minister. The Saudi Interior 

Minister then left no doubt as to the meaning when he bluntly 

stated that al Qaeda is backed by Israel. 

This is not just a lack of political will. This is political blindness. 

To say that the Kingdom of Saudi Arabia is a full partner in the 

war against terrorism while such inflammatory and anti-Semitic 

statements are being made would certainly be vastly premature. 

On an encouraging note, the report details significant progress 

by the U.S. Government in combating terrorism financing. A key 

recommendation of the first task force report in 2002 was for the 

Administration to centralize the coordination of efforts to combat 

terrorism financing. This has been accomplished to a significant degree. 

The Administration also deserves credit for prompting the Saudis 

to begin to undertake serious reforms and to extend meaningful cooperation to American terrorism investigations. The progress represented by the enactment of the Saudi legal reforms, the Saudi actions against al Qaeda cells in the kingdom, and the creation of the 

Joint Terrorism Financing Task Force should not be understated. 

These are indeed important achievements. 

3

But the report also finds several troubling shortcomings and includes a number of thought-provoking recommendations for change. 

I am particularly intrigued by the task force’s recommendation for 

Congress to enact a certification regime that would require the 

President to certify whether foreign nations are fully cooperating 

with the fight against terrorism financing. If the President did not 

make this certification or issue a waiver in the interest of national 

security, non-cooperating nations would face an array of sanctions. 

This type of regime has been employed in the war on illegal drugs. 

The report suggests that it be in place for the fight against terrorist funds as well. 

We, the Governments of the United States, Saudi Arabia, and all 

responsible nations, have made considerable progress in combating 

terrorism. But this struggle is not easily won and money remains 

the lifeblood of many terrorist operations. We must not rest until 

we have done everything in our power to halt the flow of money 

that breathes life into these groups. We must exercise relentless 

scrutiny and take strong action. And as this report emphasizes so 

clearly, we must have the sustained will necessary to win the war 

against terrorism. 

Senator Lieberman. 

OPENING STATEMENT BY SENATOR LIEBERMAN 

Senator LIEBERMAN. Thank you very much, Chairman Collins for 

convening this hearing, and also, I must say, for that excellent 

opening statement. 

Our subject for today is about one of the most important battlefronts in our war against terror and that is the effort to stop the 

funding of terrorists. If we can succeed in choking off the money 

that sustains terrorist activities we can literally reduce the death 

and destruction the terrorists cause. 

The Council on Foreign Relations, in its report today, has done 

a real service. The report should help us refocus, reexamine and redouble our efforts to cut off the flow of money to international terrorist groups. Of course, that includes leading us to take again a 

hard and demanding look at financial support for terrorism from 

Saudi Arabian sources. 

Immediately after September 11, President Bush signed an executive order aimed at blocking terrorist funds. In one sense our 

overarching question in this hearing and our Committee’s continuing investigations is what progress has been made in implementing that order. 

It is clear that in the first few months following the President’s 

announcement there was very significant success. Over $100 million in terrorist money was blocked or frozen around the world. 

But, in the 2 years since then only $30 million has been stopped. 

So that both the United Nations Monitoring Group on Terrorist Financing and Congress’s own General Accounting Office concluded 

at the end of 2003 that American efforts have sadly not stemmed 

the flow of money to terror groups. 

We will want to ask our witnesses today why this has happened 

and what we can do together to make sure that we do cut off the 

flow of money. The Council on Foreign Relations report does sugVerDate 0ct 09 2002 10:06 Dec 13, 2004 Jkt 095189 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\95189.TXT SAFFAIRS PsN: PHOGAN
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gest the beginning of a series of answers about where some of the 

problems may be. 

I thought one surprising possible cause that the report cites is 

the fact that the Administration has only used new authorities 

under the Patriot Act, the much-maligned Patriot Act, to crack 

down on the assistance of foreign financial institutions for terrorism only one time and that was quite recently against a Syrian 

bank. I would like to get a little background about why we think 

that has happened and whether the witnesses believe that there 

are other areas in which we can use that Patriot Act authority. 

Second, the Council report tells us that the coordination of America’s efforts to block terrorist funding has bounced around a bit 

among the National Security Council, the Counsel of the Treasury 

Department, and the FBI. In fact, there have been five different 

people in charge since September 11. And, that uncertainty and 

changes in leadership may have undermined the coordination and 

the effectiveness of our anti-terror financing efforts. 

Leadership has now shifted, with some clarity it appears to me, 

to the National Security Council, although not through any formal 

process that would give it continuity and institutional permanence. 

I think that is greatly to be desired. 

I note for the record the nodding of at least two of the witnesses 

to that suggestion. 

I do also note that one of our witnesses today, former Treasury 

Department General Counsel David Aufhauser, believes that this 

leadership role, in fact, should reside at the Treasury Department. 

I would be interested in hearing his views on that matter during 

his testimony. 

But either way, whether at the Treasury Department or at the 

NSC, leadership has got to be made certain, and in that sense, institutionalized. It should no longer be left to ad hoc and uncertain 

arrangements. 

The Intelligence Committees of Congress reported a while back 

in their joint inquiry into September 11 that the tendrils of Bin 

Laden’s al Qaeda terrorist network extend into as many as 60 

countries. That means our war against this network and those who 

finance it must be just as extensive. 

The Council reports, hopefully, that 117 nations have signed now 

the International Convention to Suppress Terror Financing, which 

is up from four at the time of the September 11 attacks. So we 

have gone from four countries who are signatories to 117. That is 

the good news. 

The bad news is that most of those countries, the Council 

reports, do not have either the actual tracking capabilities or the 

resources to track laundered money. I want to hear from the witnesses about what we can do to make that bad news better. 

In working to cut off funding for terrorism, Saudi Arabia, long 

a very important and close ally of the United States of America, 

becomes a necessary focus of attention. Bin Laden was a Saudi but 

more to the point 15 of the 19 September 11 hijackers were Saudis 

and questions continue to remain about financial connections between Saudi money and terror funding within the United States. 

Before the May 2003 terrorist bombings in Riyadh many independent analysts, including the Council on Foreign Relations, have 

5

told us that Saudi officials may have talked the talk on cooperating 

with the United States in the blocking of terrorism financing and 

investigating and prosecuting of those who were involved in it. But 

then, in many cases, did not walk the walk. In fact, they turned 

a blind eye to Saudi money going to organizations directly or indirectly supporting terrorism. 

Again, I stress that is not my conclusion, that is the conclusion 

of many independent analysts. Today’s CFR report points encouragingly to positive signs of intelligence sharing and law enforcement cooperation between the Saudis and the United States, again 

particularly since the May 2003 bombings in Riyadh. It says there 

is evidence that the actions taken by the Saudi government since 

then have actually hindered Bin Laden’s financial operations and 

forced foreign-based terror groups to begin to try to raise their 

funds locally. That cooperation and progress between the United 

States and the Saudis is important and must grow. 

In fact a joint U.S.-Saudi task force on these subjects was established last August to help the Saudis clamp down on terrorism financing, but the Council report tells us jarringly that the work of 

the joint task force has not led yet to one public arrest or prosecution of anyone in Saudi Arabia for financing terrorism. And that is 

hard to understand, particularly as the Council on Foreign Relations report indicates that there are two Saudis named Yasin Qadi 

and Wa’el Hamza Julaidan, who have been declared financiers of 

terrorism by the U.S. Government. 

So we have made some progress in tracking and stopping terrorist financing but we, in Congress, still need to consider whether 

our urgent need to starve the terrorists of funding is being hampered by an uncertain organizational structure, by turf battles and 

perhaps by continuing defensiveness about our special relationship 

with the Saudi government and the Saudi ruling family. 

In a day and age of terrorism which brings death and destruction 

not just to us and others but to Saudis themselves, we ought to be 

able best to preserve our relationship with the Saudis with total 

honesty and the most aggressive joint efforts against terrorism. 

The CFR report and today’s hearing, I hope, will begin to give 

us some answers to these questions which have become, in fact, life 

and death questions. 

Thank you, Chairman Collins. 

Chairman COLLINS. Thank you Senator. Senator Coleman. 

OPENING STATEMENT OF SENATOR COLEMAN 

Senator COLEMAN. Thank you, Chairman Collins. And thank you 

for your commitment to relentless scrutiny of this issue by holding 

a series of hearings on the report by the Council on Foreign Relations regarding terrorist financing. 

Just two observations. One, it is clear that a new framework for 

the U.S.-Saudi relationship needs to be put into play focusing on 

accountability, accountability for terrorist financing. We have to 

see concrete results. 

Second, in light of last week where we had a celebration of the 

life of Ronald Reagan and his optimism and belief that we would 

win the Cold War, and we did, I have the same optimism that we 

are going to win this struggle against terrorism, the same optiVerDate 0ct 09 2002 10:06 Dec 13, 2004 Jkt 095189 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\95189.TXT SAFFAIRS PsN: PHOGAN
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mism. But it is going to take resolve, it is going to take commitment. This report and these series of hearings go a long way to bolstering that optimism and making it a reality. 

So again, I look forward to hearing the witnesses’ testimony. 

Thank you for your leadership. 

Chairman COLLINS. Senator Lautenberg. 

OPENING STATEMENT OF SENATOR LAUTENBERG 

Senator LAUTENBERG. Thank you, Madam Chairman, for holding 

this important hearing. 

President Bush has said it, that money is the lifeblood of terrorism. And if we want to win the global war on terrorism, it is 

critical that we find out who is financing terrorism, how they are 

doing it, what we can do to stop it. And I am disappointed that we 

do not have any Administration official available to us today but 

these are good witnesses, Madam Chairman, and I am sure we will 

learn a lot. 

Cooperation between Congress and the Administration is imperative. And we face a daunting challenge when it comes to attacking 

the financial infrastructure that makes terrorism function. That is 

why I am puzzled that we did not take an obvious step a few weeks 

ago when I offered an amendment to the Department of Defense 

Authorization Bill to close the loophole that allows American companies to do business through foreign subsidiaries with nations 

that sponsor terrorism. 

I salute Chairman Collins for her vote. The amendment was defeated 49 to 50 and I am grateful that the Chairman was one of 

three Republicans to support the amendment. And I hope that she 

has the capacity to convince the rest of the caucus of the amendment’s merits because I will keep offering it until the Senate 

adopts it. 

For the life of me, I do not know how we can condone U.S. companies doing business with rogue states like Iran. 60 Minutes had 

a segment just a few months ago detailing an interest that, for instance, Halliburton had with a sham foreign subsidiary in the 

Grand Caymans so that it could sell oil field equipment to Iran. 

Nothing more, by the way, than an address, a drop station. There 

was nothing else there. But it enabled Halliburton to do business 

with Iran and other rogue states. 

I have had members of my staff look into this and sure enough 

they found evidence of the business activity that existed between 

this subsidiary and a London-based subsidiary of the National Iranian Oil Company called Kala Limited. The State Department has 

verified that Iran supports Hamas and Hezbollah and Islamic 

Jihad. 

I was in Israel some years ago when a terrorist attack by Islamic 

Jihad killed eight people. And I was there just a few weeks ago 

when a terrorist killed 10 people in the port city of Ashtarak. And 

we cannot forget when Hezbollah attacked the Marine barracks in 

Beirut, killing 241 of our soldiers. 

Does it make sense for an American company to help Iranians 

produce oil more efficiently when they use those extra profits to finance terrorist groups that have killed Americans? I went to four 

viewings and funerals last week in the State of New Jersey, people 

7

who died in the service of their country. And to think that an 

American company could be helping to finance indirectly those terrorist organizations is a national disgrace. We had a chance to 

close that loophole and we failed. 

I am also concerned, as was suggested by Chairman Collins and 

by the Ranking Member, Senator Lieberman, about the complicity 

that seems to be in existence in Saudi Arabia and without criticism 

coming sufficiently from the Administration. Saudi Arabia still has 

not designated groups like Hamas as terrorist organizations. And 

as much as 60 percent of Hamas’ annual budget is donated from 

Saudi sources. And although the Saudis have passed some antimoney-laundering laws, they do not seem to be enforcing them. 

So I appreciate that we have a delicate relationship with countries like Saudi Arabia. But if we are going to protect Americans, 

which is the primary concern, here and abroad from the scourge of 

terrorism, we have got to find out who is financing it even if we 

disturb some of our buddies in the process. 

I thank you, Madam Chairman, for holding this hearing. 

Chairman COLLINS. Senator Pryor. 

Senator PRYOR. I do not have any opening statement. Thank you. 

Chairman COLLINS. Thank you, Senator. Senator Akaka. 

OPENING STATEMENT OF SENATOR AKAKA 

Senator AKAKA. Thank you very much, Madam Chairman. 

I want to commend you for having this hearing and we hope that 

it will strengthen our capability to address the threats and challenges of terrorism financing. 

I have a statement that I would like to place in the record. I just 

want to thank you again for holding this hearing and I look forward to hearing our witnesses and working with my colleagues on 

this important problem. Thank you. 

[The prepared statement of Senator Akaka follows:]

PREPARED OPENING STATEMENT OF SENATOR AKAKA 

Madam Chairman, thank you for holding this hearing. I hope it will help to 

strengthen our capability to address the threats and challenges of terrorism financing. 

Last July, Mr. Pistole, from the Federal Bureau of Investigation reminded this 

Committee that identifying and dismantling the financial structures of terrorist 

groups is critical to preventing future attacks. We must heed Mr. Pistole’s words 

especially as terrorist attacks continue to rise. 

It is disheartening that almost three years after September 11, terrorist groups, 

including al Qaeda, continue to maintain sophisticated financial networks. What is 

more alarming is that sources attribute at least 60 percent of Hamas and al Qaeda 

funds to Saudi-based entities. Most of these funds are diverted from charities and 

businessmen to terrorist groups and are used to execute attacks or to entice new 

recruits. 

Earlier this month, Saudi Arabia pledged it would dissolve the Al-Haramain Islamic Foundation, which U.S. officials allege to be al Qaeda’s largest financial supporter, contributing $50 million on an annual basis. The National Commission for 

Relief and Charity Work Abroad will merge the assets of Al-Haramain and other 

Saudi-based charities into one account and ensure their legitimate use. But, Saudi 

officials have not yet specified whether the Commission will oversee charities with 

known terrorist connections. 

I am concerned that this may be another promise that the Saudis cannot fulfill. 

Last May, the Saudi government announced it would establish the High Commission for Charities to address Saudi-based groups financing terrorism. As of February 

of this year, no proposed budget or staff existed for this Commission. Furthermore, 

8

no action has been taken against Al-Haramain’s former leader, Al-Aqil, despite 

Saudi Arabia’s promises to conduct criminal proceedings. 

In addition, Saudi officials have not provided sufficient support to the Saudi Arabian Monetary Agency nor has the Saudi government created a financial intelligence 

unit. 

Today, many view the U.S. and Saudi Joint Task Force on Terrorism Financing 

as a test of Saudi Arabia’s responsiveness to terrorism. This collaboration will be 

an opportunity to gauge the Saudi’s willingness to block the flow of money from its 

general and elite populations to terrorist organizations. I hope this task force will 

mark the beginning of progress. 

I look forward to hearing from our witnesses and to working with my colleagues 

to address this critical issue. 

Thank you.

Chairman COLLINS. Thank you, Senator. Senator Levin. 

OPENING STATEMENT OF SENATOR LEVIN 

Senator LEVIN. Madam Chairman, thank you, and thank you for 

your continuing leadership in this effort. 

Since the September 11 attacks, this Committee has focused 

needed attention on the role of Saudi Arabia and the Saudia-based 

charitable organizations and terrorist financing. Today’s hearing is 

the third in a series focusing on this issue over the past year. And 

I commend you again, Madam Chairman, for sustaining this Committee’s strong oversight tradition for this critical issue. 

Today’s hearing focuses on a report authorized by the nonpartisan Council on Foreign Relations. It builds on a prior Council 

report issued nearly 2 years ago. It offers a number of important 

and practical suggestions including revitalizing the international 

effort led by the Financial Action Task Force to convince jurisdictions to strengthen their anti-money laundering efforts and improving the U.S. Government’s sharing of terrorist financing information with U.S. financial institutions so that they can do a better 

job. 

I want to focus just for a moment on one of the primary topics 

examined in the report and that is the role of Saudi Arabia. Right 

now, Saudi Arabia has two primary exports to the rest of the 

world: Oil and an extreme form of Islam that advocates hatred and 

violence to achieve its ends. Two exports, both having a huge impact on the world. 

The report before us today does not shy away from the reality 

of that second export. It describes the ‘‘fundamental centrality that 

persons and institutions based in Saudi Arabia have had in financing militant Islamic groups on a global basis.’’

And then it repeats a statement that was made in its earlier report which is worth repeating, and that is that ‘‘it is worth stating 

clearly and unambiguously what official U.S. Government spokespersons have not. For years individuals and charities based in 

Saudi Arabia have been the most important source of funds for alQaeda; and for years Saudi officials have turned a blind eye to that 

problem.’’

Madam Chairman, because of the number of witnesses that we 

have I would ask that the balance of my statement be placed in the 

record at this time. 

[The prepared statement of Senator Levin follows:]

9

PREPARED OPENING STATEMENT OF SENATOR LEVIN 

Terrorists need money to carry out acts of terrorism. They need money for explosives, for communications, for travel, and for all the other details involved in carrying out plans for mass murder and mayhem. Global terrorist organizations need 

global financing. They need to be able to transfer funds across international lines, 

move money quickly, and minimize inquiries into their finances, their activities, and 

their supporters. 

Since the September 11 attack, stopping terrorist financing has become a U.S. priority. This Committee has contributed in a significant way to that priority. First, 

prior to the attack, the Committee’s Permanent Subcommittee on Investigations 

conducted a 3-year anti-money laundering investigation which produced extensive 

hearings and reports, documented little known methods for transferring illegal 

funds into the United States, and identified ways to strengthen U.S. laws to stop 

money laundering and terrorist financing. In early 2001, I introduced a bipartisan 

bill, S. 1371, with specific legislative proposals for strengthening U.S. anti-money 

laundering laws. The Senate Banking Committee utilized them in Title III of the 

USA Patriot Act, which was enacted into law in October 2001, 6 weeks after the 

September 11 attack. 

Additionally, since the attack, this Committee has focused needed attention on the 

role of Saudi Arabia and Saudi-based charitable organizations in terrorist financing. 

Today’s hearing is the third in a series focusing on this issue over the past year, 

and I commend Chairman Collins for sustaining the Committee’s strong oversight 

of this critical issue. In the last Committee hearing on this topic, a key government 

official stated that ‘‘in many ways, [Saudi Arabia] is the epicenter’’ for financing of 

al Qaeda and other terrorist movements. Today’s hearing focuses on a report that 

carries much the same message. 

This report is authored by the nonpartisan Council on Foreign Relations. It builds 

on a prior Council report issued nearly 2 years ago, and addresses both the global 

campaign against terrorist financing and the additional steps that need to be taken 

by the United States and Saudi Arabia to combat terrorist financing. It offers a 

number of important and practical suggestions, including revitalizing the international effort led by the Financial Action Task Force to convince jurisdictions to 

strengthen their anti-money laundering efforts and improving the U.S. Government’s sharing of terrorist financing information with U.S. financial institutions so 

they can do a better job. 

I want to focus for a moment on one of the primary topics examined in the report 

and that is the role of Saudi Arabia. Right now, Saudi Arabia has two primary exports to the rest of the world: Oil and an extreme form of Islam that advocates hatred and violence to achieve its end. 

The report before us today does not shy away from this reality. It describes ‘‘the 

fundamental centrality persons and institutions based in Saudi Arabia have had in 

financing militant Islamist groups on a global basis.’’ It repeats a statement made 

in its earlier report:

‘‘It is worth stating clearly and unambiguously what official U.S. Government spokespersons have not: For years, individuals and charities based in 

Saudi Arabia have been the most important source of funds for al-Qaeda; 

and for years, Saudi officials have turned a blind eye to this problem.’’

The report cites with approval Saudi actions over the past 2 years to overhaul its 

anti-money laundering laws, increase its oversight of Saudi charities, and disrupt 

al Qaeda cells within the country. But it also faults Saudi Arabia for failing to prosecute a single individual involved with terrorist financing and for continuing to export radical extremism even while curbing it domestically. 

For too long, Saudi Arabia has made a Faustian deal with the extremists who 

preach hatred and violence to achieve their ends, hoping that the violence these extremists advocate would not bloody the sands of Saudi Arabia itself. But recent 

events indicate that Saudi Arabia is beginning to reap what it has helped to sow 

worldwide, and that no one is safe from those who advocate terrorism to achieve 

their aims. The list of tragic events in Saudi Arabia resembles those in other countries ravaged by terrorism, with repeated bombings, kidnappings, and senseless 

death and destruction. On May 12 and November 9 of last year, for example, al 

Qaeda operatives bombed housing complexes used by foreign workers living in Riyadh, leading to the deaths of more than 50 individuals. This year saw an attack 

on Riyadh’s General Security building followed by two attacks on Saudi oil facilities 

with the latter resulting in 22 fatalities. Now rumors allege a plot to kill Crown 

Prince Abdullah. 

10

The report before us today advocates building a new framework for U.S.-Saudi relations that will include a frank acknowledgment of terrorist financing issues and 

the need to end Saudi support for radical extremism that condones violence. The 

plain fact is that, to stop terrorism, Saudi Arabia needs to stop financing radical 

clerics and madrassas that preach violence and hatred. It needs to publicly prosecute those who foment and finance terror. Ultimately, the Saudi government needs 

to recognize that it is not sufficient to selectively oppose terrorist groups that pose 

an immediate threat. The presence of any terrorist organization, regardless of its 

immediate focus, is a threat to all nations. For that reason, Saudi Arabia as well 

as our European allies need to cease funding for all terrorist groups, including 

Hamas and the charities that support it. 

Of course, it is not just Saudi Arabia that needs to do more to fight terrorist financing. There is plenty that we in the United States need to do here at home. The 

report’s recommendation that the U.S. conduct an analysis of Federal agencies to 

determine ‘‘who is doing what, how well and with what resources,’’ is another way 

of saying that our current anti-money laundering and terrorist financing efforts are 

scattered, duplicative, and inefficient. There is no one top official in charge, little 

coordination, and less accountability. 

The unfolding scandal at Riggs National Bank is another measure of our own 

weak anti-money laundering enforcement. Bank regulators recently imposed a $25 

million fine on Riggs for its inadequate anti-money laundering efforts, but at the 

same time apologized for their own lax oversight in allowing Riggs to continue its 

failed policies and procedures for more than five years. Riggs has managed bank accounts not just for Saudi officials, but also for more than 100 other governments 

around the world. Recently, Riggs announced its intention to close many Embassyrelated accounts due to high money laundering risks and the bank’s inability to 

monitor them. These Embassies are now looking to open accounts at other banks. 

Federal regulators recently held a meeting with major U.S. banks to explain their 

expectations for managing these Embassy accounts. While the regulators insist this 

meeting was intended to spread the word about the need for due diligence, the 

media reported that others apparently interpreted the meeting as signaling regulatory support for taking on these accounts. 

These mixed signals are a huge mistake. One of the lessons of the Riggs scandal 

must be that Embassy bank accounts can no longer operate with minimal scrutiny. 

Our banks and bank regulators must establish new rules and expectations. Embassy officials need to realize they can no longer engage in substantial cash transactions with no questions asked. Multiple Embassy accounts can no longer be 

opened with little or no due diligence. Suspicious transactions must be explained 

and justified. It can’t be business as usual. Our security and the world’s security 

depends upon it. 

The 2002 report by the Council on Foreign Relations made a positive contribution 

to the fight against terrorist financing by saying a number of things that needed 

to be said openly and clearly and by making reasonable and practical suggestions. 

This second report has the potential to do the same. I thank today’s witnesses for 

their service to our nation in contributing to this report and look forward to hearing 

their testimony today.

Chairman COLLINS. Thank you, Senator Levin. 

I am delighted to welcome our witnesses this morning. We are 

extremely fortunate to have three such qualified experts to testify 

before us. 

Lee Wolosky previously worked as the Director of Transnational 

Threats at the National Security Council. He is currently Counsel 

at the law firm of Boies, Schiller and Flexner and is an Adjunct 

Professor of International Affairs at Columbia University. Mr. 

Wolosky is also the Co-Director of the Independent Task Force on 

Terrorist Financing sponsored by the Council on Foreign Relations. 

Mallory Factor is the President of Mallory Factor Inc., an independent merchant bank and financial relations firm that he founded in 1976. Mr. Factor has also worked as a Professor at the School 

of Continuing and Professional Studies at New York University 

and he serves as Vice-Chairman of the Task Force on Terrorist Financing. 

11

1The prepared statement of Mr. Wolosky appears in the Appendix on page 36. 

2The report entitled ‘‘An Update on the Global Campaign Against Terrorist Financing,’’ appears in the Appendix on page 54. 

We are also pleased to have with us for a second time David 

Aufhauser, who is now a member of the law firm of Williams and 

Connolly. He previously served as General Counsel of the Treasury 

Department from March 2001 to November 2003. At the Treasury 

Department, in addition to his responsibilities as General Counsel, 

Mr. Aufhauser served as the Chairman of the National Security 

Council’s Policy Coordinating Committee on Terrorist Financing. 

Thank you all for being with us today. We look forward to hearing your testimony. We will begin with you, Mr. Wolosky. 

TESTIMONY OF LEE S. WOLOSKY,1 CO-DIRECTOR, INDEPENDENT TASK FORCE ON TERRORISM FINANCING, COUNSEL, BOIES, SCHILLER AND FLEXNER, LLP 

Mr. WOLOSKY. Thank you very much. Madam Chairman, Senator 

Lieberman and distinguished Members of the Committee, thank 

you for your kind words about our report and for your continuing 

leadership on terrorist financing issues. 

This Committee’s sustained attention to these issues is critically 

important to our Nation. 

We are honored to report to you today on the Second Report of 

the Independent Task Force on Terrorist Financing sponsored by 

the Council on Foreign Relations. I have served as co-director of 

this bipartisan initiative since its founding in the Summer of 2002. 

Our report is the result of the hard work of a number of dedicated individuals of both political parties to seek to further vital 

national interests. I wish to thank our Chairman, Maurice Greenberg, for his unwavering support of the task force. I would also like 

to thank our Vice-Chairman, Mallory Factor, and our Co-director 

and Co-author, William F. Wechsler, for all they have done to make 

the task force a success. 

Finally, I am also grateful to Council President, Richard Haas, 

for his support and assistance to our work and it is an honor, let 

me add, to testify beside David Aufhauser, who served our country 

with dedication and distinction. Many of the positive developments 

in this area since September 11 are the direct fruits of his vision 

and leadership. 

I will discuss the background of our second report and its findings. Mallory Factor will then discuss the report’s recommendations. 

Since the report, along with its various appendices, is almost 200 

pages in length we will only be able to highlight core points and 

findings. We will ask that the full report and its appendices be entered into the record and we will look forward to a fuller discussion 

of various aspects of the report in response to your questions.2

In our first report, released in October 2002, we concluded ‘‘It is 

worth stating clearly and unambiguously what official U.S. Government spokespersons have not, for years individuals and organizations based in Saudi Arabia have been the most important source 

of funds for al-Qaeda and for years Saudi officials have turned a 

blind eye to this problem.’’

12

We recommended the encouragement of the Saudi regime to 

strengthen significantly its efforts to combat terrorist financing. In 

this regard, we noted a recent historical record of inattention, denial, and half measures. 

We urged the U.S. Government to confront directly the lack of 

political will in Saudi Arabia and elsewhere through the institution 

of a declaratory policy that would permit or compel U.S. officials 

to speak more frankly about the nature of the problem. 

The reaction to the release of the task force’s initial report was 

reflective of then-prevailing mindsets. The Saudi Arabian Foreign 

Minister, for example, told CNN that the report was ‘‘long on accusation and short on documented proof.’’

The U.S. Treasury Department spokesperson called the report 

‘‘seriously flawed.’’

The status quo changed on May 12, 2003 when al Qaeda bombed 

housing compounds in Riyadh used by Americans and other foreign 

residents, prompting more comprehensive Saudi action against terrorism. Public statements and actions by both the United States 

and Saudi Arabia since May 2003 have evidenced in many respects 

a more urgent approach to terrorist financing. 

For example, Saudi Arabia has announced a profusion of new 

laws, regulations and institutions regarding money-laundering, 

charitable oversight and the supervision of the formal and informal 

financial services sector. Critically, for the first time, the Saudi 

Arabian government decided to use force to hunt and kill members 

of domestic al Qaeda cells, including, in one case, a financier 

known by the name of Swift Sword. 

Saudi Arabia has markedly improved its tactical law enforcement 

and intelligence cooperation with the United States. The Bush Administration acted quickly to take advantage of the newfound political will in Saudi Arabia to renew and reinvigorate U.S. efforts to 

combat terrorist financing. 

The Bush Administration also moved toward a more declaratory 

policy. On June 26, 2003, for example, David Aufhauser testified 

before the Congress that in many respects Saudi Arabia was an 

‘‘epicenter’’ of terrorist financing. 

As a result of these and other activities, al Qaeda’s current and 

prospective ability to raise and move funds with impunity has been 

significantly diminished. These efforts have likely made a real impact on al Qaeda’s financial picture, and it is undoubtedly a weaker 

organization as a result. 

Indeed, in many respects, the views expressed in the task force’s 

first report are now widely held at home and abroad. But although 

much work has been done, much work remains. 

Although Saudi Arabia has made significant improvements in its 

legal and regulatory regime, it has not fully implemented its new 

laws and regulations. Because of that, opportunities for the witting 

or unwitting financing of terrorism persist. 

Indicia of implementation and enforcement are generally unavailable. We are concerned that the unavailability of such indicia 

may negatively impact the deterrent effect presumably intended by 

these measures. As our report was going to press, for example, we 

were unable to find evidence to suggest that the announced High 

Commission of Oversight of Charities was fully operational. MoreVerDate 0ct 09 2002 10:06 Dec 13, 2004 Jkt 095189 PO 00000 Frm 00016 Fmt 6633 Sfmt 6601 C:\DOCS\95189.TXT SAFFAIRS PsN: PHOGAN
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over, its composition, authority, mandate and charter remain unclear, as do important metrics of its likely effectiveness, such as 

staffing levels, budget, and the training of its personnel. 

The mandate and authority of the High Commission of Oversights of Charity is also unclear, relative to that of the Saudi National Entity for Charitable Work Abroad which was first announced in February of this year and which was the subject of a 

press conference in Washington a few days ago. 

At least one other key body, Saudi Arabia’s Financial Intelligence 

Unit, is also not yet fully operational. Reliable, accessible metrics 

are lacking with respect to many of the other newly announced 

legal, regulatory and institutional reforms. We find this troubling 

given the importance of these issues to the national security of the 

United States. 

Additionally, despite the flurry of laws and regulations, we believe that there have been no publicly announced arrests, trials or 

incarcerations in Saudi Arabia in response to the financing of terrorism. As a result Saudi Arabia has yet to demand personal accountability in its efforts to combat terrorist financing and, more 

broadly and fundamentally, to delegitimize these activities. 

Against its poor historical enforcement record any Saudi actions 

against financiers of terrorism are welcome. But action taken in 

the shadows may have little consistent or systemic impact on ingrained social or cultural practices that directly or indirectly 

threaten the security of the United States. 

Not only have there been no publicly announced arrests in Saudi 

Arabia related to terrorist financing, but key financiers remain free 

and go unpunished. In sum, we find it regrettable and unacceptable that since September 11, 2001 we know of not a single Saudi 

donor of funds to terrorist groups who has been publicly punished. 

Finally, as Senator Levin indicated, Saudi Arabia continues to 

export radical extremism. As a core tenet of its foreign-policy, 

Saudi Arabia funds the global propagation of Wahabism, a brand 

of Islam that, in some instances, supports militancy by encouraging 

divisiveness and violent acts against Muslims and non-Muslims 

alike. 

This massive spending is a key part of the terrorist financing 

problem. We are concerned that it is helping to create the next generation of terrorists and therefore constitutes a paramount strategic threat to the United States. 

Saudi Arabia has begun to crack down on domestic extremism, 

most dramatically through education reform and the banishment or 

reeducation of scores of radical Wahabi clerics. But our task force 

found there is little evidence of effective action to curb the ongoing 

export of extremism. 

We have made a number of findings that I hope we can discuss. 

In the interest of time, however, Mallory Factor will now address 

the report’s recommendations, after which I would be happy to entertain any questions. 

Chairman COLLINS. Thank you. Mr. Factor. 

14

1The prepared statement of Mr. Factor appears in the Appendix on page 41. 

TESTIMONY OF MALLORY FACTOR,1 VICE-CHAIRMAN, INDEPENDENT TASK FORCE ON TERRORISM FINANCING, PRESIDENT OF MALLORY FACTOR, INC 

Mr. FACTOR. Madam Chairman, Senator Lieberman, and distinguished Members of the Committee, I am honored to testify here 

today on the recommendations of the Independent Task Force of 

the Council on Foreign Relations on Terrorist Financing, of which 

I serve as Vice-Chair. 

This subject is of critical importance to the security of our Nation 

and the world. Madam Chairman, and Senator Lieberman, I would 

like to commend you for your interest in and leadership on these 

very important issues and thank you for inviting us to appear before you today. 

I would also like to thank and commend Lee Wolosky for his tireless work and dedication to this project. Achievements of our bipartisan task force are a direct result of Lee Wolosky’s dedication to 

this project and his superior judgment in matters involving this 

task force. 

The Bush Administration has made significant progress in its approach to terror financing since September 11. Our report, which 

is based on publicly available information as well as discussions 

with current and former Administration officials, finds that the Administration’s effort, combined with those of Saudis and other 

international partners, has significantly diminished al Qaeda’s current and prospective ability to raise and move funds. 

Our task force makes the point that there is still much work to 

be done. It also sets forth a framework of constructive, forwardlooking recommendations for improving U.S. efforts against terrorism financing. 

We note that Saudi Arabia has also made progress since May 

2003 by putting in place new anti-money laundering laws designed 

to impede the flow of funds from Saudi Arabia to terrorist groups. 

These laws have a number of exceptions and flaws which would 

weaken their effectiveness in curbing terror financing if fully implemented. 

The real problem is that we could not find evidence of significant 

enforcement and implementation by Saudi Arabia of several of 

these new laws. Quite simply, many key financiers of global terror 

continue to operate, remain free and go unpunished in Saudi Arabia. 

Our task force report generally reaffirms the recommendations 

made in the task force’s first report and makes nine new recommendations. Although my written testimony explains each of 

these recommendations, I will discuss only four recommendations 

now. However, I welcome the opportunity to discuss any of them 

in response to your questions. 

First, our task force urges U.S. policymakers to build a new 

framework for U.S.-Saudi relations. We recognize that historically 

the United States has maintained a policy of noninterference in the 

domestic affairs of Saudi Arabia. Recently, however, al Qaeda, a 

terrorist organization rooted in Saudi Arabian domestic affairs, has 

killed and threatened Americans both at home and abroad. Saudi 

15

Arabia is now involved in a kind of civil war with extremists. This 

civil war has global implications. 

We propose a new framework for U.S.-Saudi relations which 

would recognize certain Saudi domestic issues that impact U.S. security. These issues, such as terrorist financing and the global export of Islamic extremism, can no longer be off the table. 

We acknowledge that this transition is already underway but our 

recommendation is still out in front of the Administration’s public 

statements on this issue. We believe that the U.S. Government 

must engage the Saudis openly and unequivocally to confront the 

ideological, religious and cultural issues that fuel al Qaeda, its imitators and its financiers throughout the world. 

Second, and this was already brought up by Senator Lieberman, 

we believe that the Executive Branch should formalize its efforts 

to centralize the coordination of U.S. measures to combat terrorist 

financing. We commend the Executive Branch for centralizing the 

coordination of terrorist financing issues in the White House as we 

recommended in our original task force report. The sound allocation of responsibility to the White House needs to be formalized 

and, as Senator Lieberman said, institutionalized. And we believe 

this should be done through a national security presidential directive or some measure similar to that. 

Third, we recommend that Congress enact a Treasury-led certification regime specifically on terrorist financing. Many countries 

have taken steps to improve their anti-money laundering and 

counterterrorist fighting regimes but many have not. We understand that certification systems should be used sparingly. They can 

strain relations with foreign governments and require expenditures 

of resources. The fight against terrorist financing is sufficiently important, however, to warrant its own certification regime. This will 

ensure that stringent requirements are maintained specifically 

with respect to foreign nations’ policies and practices on terrorist 

financing. 

Such a certification system would require the Executive Branch 

to submit to Congress on an annual basis a written certification, 

classified if necessary, detailing the steps that foreign nations have 

taken to cooperate in United States and international efforts to 

combat terrorist financing. This would be similar in some ways to 

the Saudi Arabia Accountability Act of 2003, S. 1888, sponsored by 

Senator Arlen Specter and co-sponsored by Chairman Collins and 

others. The Act would provide a good starting point for a terrorist 

financing certification regime if it were narrowed to focus solely on 

the financing of terrorism and expanded to apply to other nations. 

Sanctions for non-certification could include smart sanctions such 

as denial of U.S. foreign assistance and limitations on access to the 

U.S. financial system. 

Fourth, we recommend that the National Security Council and 

the White House Office of Management and Budget conduct a 

cross-cutting analysis of the budgets of all U.S. Government agencies as they relate to terrorist financing. We believe it is crucial 

that the U.S. Government keep a central accounting of all financial 

and human resources expended by the government in combating 

terrorist financing. We understand this cross-cutting analysis could 

take a significant amount of work on the part of NSC and OMB. 

16

1The prepared statement of Mr. Aufhauser appears in the Appendix on page 46. 

However, it is crucial for government leaders to gain clarity about 

who is doing what, how well they are doing, and with what resources. 

We commend Jody Myers, a former NSC staffer, for suggesting 

a similar cross-cutting analysis in his Senate testimony given last 

month. 

I thank you for your time and I look forward to your questions. 

Chairman COLLINS. Thank you, Mr. Factor. Mr. Aufhauser. 

TESTIMONY OF HON. DAVID D. AUFHAUSER,1 COUNSEL, WILLIAMS AND CONNOLLY, LLP, FORMER GENERAL COUNSEL, 

U.S. DEPARTMENT OF THE TREASURY 

Mr. AUFHAUSER. Thank you, Madam Chairman. 

I just wish I could get back to Maine as often as I have gotten 

back to this room since I left the government. 

Chairman COLLINS. We would welcome you back anytime. 

Mr. AUFHAUSER. In early 1996, Osama bin Laden was living in 

exile in the Sudan. He was at war with the House of Saud policy 

that countenanced the presence of U.S. military troops on Saudi 

soil. And he was already plotting mayhem sufficient enough to warrant the establishment of a special issue station at the CIA devoted 

exclusively to divining his ambitions and his designs. Still, he was 

largely regarded as the son of a rich man and principally a financier of terror. In fact, the original name for the special-purpose 

unit at the agency was TFL, Terrorist Financial Links. 

It turned out actually that bin Laden was a hapless businessman. His ventures failed and were not the principal source of al 

Qaeda’s wealth. Rather, he tapped something far deeper and more 

dangerous, hate preached and taught in places of despair, married 

to rivers of unaccounted for funds that flowed across borders in the 

counterfeit name of charity and faith. In so doing, bin Laden managed to leverage the tactic of terror into a malevolent dogma embraced by an army of madmen. 

How we got here is instructive to where we ought to go next. 

In 1974, a disgraced president was driven from office for lies and 

deceits. In 1977, an international extralegal cartel literally dimmed 

the lights of the White House, demonstrating profound new powers 

abroad not tied to guns and bullets. And in 1979, the nadir of U.S. 

influence—the Shah transformed into a stateless person, hostages 

held captive for more than a year; a failed rescue mission and the 

Soviet invasion of Afghanistan. 

Tied to that significantly was the takeover of the Grand Mosque 

in Mecca, challenging the sole claim to legitimacy of the Saudi 

Royal family as the guardians of the faith. A United States seen 

as impotent to protect its allies and citizens abroad held little 

promise to the threatened Saudi monarchy. 

So it understandably responded with a vengeance of its own, retaking the mosque and directing an unfathomable wealth of petrodollars—by some estimates that I read while I was still in the Administration north of $75 billion—to demonstrate that it is the true 

and rightful champion of Islam. It did so by underwriting schools, 

mosques, call centers, and charities throughout the Islamic diasVerDate 0ct 09 2002 10:06 Dec 13, 2004 Jkt 095189 PO 00000 Frm 00020 Fmt 6633 Sfmt 6601 C:\DOCS\95189.TXT SAFFAIRS PsN: PHOGAN
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pora. Wherever there was need they came as teachers, as providers 

of social welfare and safety nets, and as holy men. But what they 

taught was unforgiving, intolerant, uncompromising and austere 

views of a faith that became kindling for Osama bin Laden’s 

match. 

At the same time I want to note that there was a parallel explosion in the growth of Gulf and Western State-sponsored NGOs, in 

Eastern Europe, Africa, the Middle East, and Southeast Asia. 

Much like the Saudi model of outreach, these organizations rushed 

in to fill a vacuum left by the abdication of responsibility by sovereign powers to solve issues not uncommon or unlike what we see 

going on in the Sudan today. 

Again through the delivery of default government civilian services of the most basic type—schools, welfare, medical aid—these 

NGOs, once proud of the principal of neutrality, have become the 

principal medium of thought and teaching in those areas. 

And an air and patina of legitimacy attached to these extralegal, 

non-sovereign entities and a cover frequently, unwittingly was established to disguise charitable money corrupted for terrorist purposes. 

All of these extralegal non-sovereign international entities need 

more policing, not just of the application of their proceeds, but 

what they teach and what they preach and the consequence of it. 

And nowhere is that more telling than when you focus on Saudi 

Arabia. 

It will take a generation, and to be frank a clearheaded program 

of public diplomacy that, for example, condemns legal sophistries 

that would justify torture, to recapture hearts and minds poisoned 

by false teachings of hate. What can be done and should be done 

to scale back the violence in the interim is to deplete the resources 

made available to kill innocent people. No tool is more useful in 

doing so than stopping the funding of terrorism. The Council on 

Foreign Relations and this Committee are to be commended for the 

profile given to the subject. 

As for al Qaeda, the organization is broken, its central bank severely challenged. Yet today it is more lethal than the day that it 

brought down the twin towers in Manhattan. It is more a movement than an organization today, less predictable with less explicit 

design. There are autonomous cells, catering to acts of near nihilism, increasingly funded through pedestrian local criminal activity. And they threaten sudden and senseless death without any 

purpose. And they do so everywhere today, in Bali, in Istanbul, the 

London subway system, Casablanca, Baghdad, New York, and 

Washington. 

We know we cannot bunker and guard every school, marketplace, 

shopping center, airport, train station, or place of worship. So new 

elements of national power are required to prevent more killing 

and another calamity. None are more central to the prevention of 

a calamity than intelligence and the disruption of the lines of 

logistical support for terror. Money informs and defines both. It informs and defines both with a degree of integrity, reliability, insight, and impact that is without peer. 

Many of you have heard me testify before that most of the intelligence and information we get in the war on terrorism is suspect, 

18

the product of treachery, deceit, custodial interrogation, and now 

we learn the product of torture. But the money records do not lie. 

They are diaries. They are confessions never intended to see the 

light of day and they lead to trails of plots not unlike the plot to 

use ricin in the London subway system which was stopped because 

of the exploitation of the money trail. 

By the way, for those of you who do not know ricin, if made well, 

is 10 times more lethal than VX gas. 

September 11 brought a group of us together in the Administration to tackle the subject of terrorist financing with demonstrable 

successes. Today there is a new vocabulary about it and it includes 

new laws, new standards of professional and fiduciary conduct, extraordinary commitments of multilateralism at the UN, World 

Bank, IMF, and within the G8, 10, and 20, as well as APEC, greater capacity building abroad which I think was alluded to by Senator Lieberman, more sophisticated intelligence and a greatly enhanced partnership with the private sector. 

But the effort remains at best a proxy, in my judgment, for the 

real thing. Terrorism permits murder to masquerade under religious sanction altering the whole DNA of war by placing a premium on the death of women and children. Until it is an act of 

shame to provide money for any such purpose the blood will flow. 

Accordingly, we must return to first principles: Terror must be defined, at the UN and elsewhere, in a manner to condemn money 

intended to kill civilians for political purpose. 

We must also disrupt not only the funding of terror but the funding of the teaching of hate because it is the crucible for terror. 

And we must address the deficit of hope that haunts much of the 

Islamic world with debt reduction and meaningful economic aid 

and development assistance, the very reasons I joined the Treasury 

Department. Paul O’Neill had a metaphor that I liked, even as 

quixotic as it sounded, our ambition was to build a well in every 

village. 

Of more immediate purpose within the jurisdiction of this Committee, the assets and cash flow that we seek to freeze and disrupt 

are located abroad. International cooperation is therefore critical 

and it requires a new mindset in intelligence that will inform both 

the nature and the manner of collection. 

Our new secrets must be collected with the intention of sharing 

them and strong enough to withstand a measure of judicial scrutiny abroad. That is a sea change and it is a sea change required 

by the developing jurisprudence of terrorism and its singular and 

unprecedented focus on prevention rather than punishment. 

In addition, if Madrid has any lessons terrorism funded through 

criminal activity—and that was the case in Madrid—local law enforcement must be integrated more directly with the national intelligence community to facilitate a two-way dialogue of increasingly 

equal value. 

Finally, we must vest an agency of the U.S. Government with the 

power to direct and execute the campaign against terrorist financing. The NSC is simply not the appropriate place to direct a theater of war. 

The man who straps a bomb to his chest as he enters a marketplace is implacable. He is beyond redemption and cannot be deVerDate 0ct 09 2002 10:06 Dec 13, 2004 Jkt 095189 PO 00000 Frm 00022 Fmt 6633 Sfmt 6601 C:\DOCS\95189.TXT SAFFAIRS PsN: PHOGAN
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terred. It would be the height of irony and a promise of future tragedy if we permit the orthodoxy of how we have organized ourselves 

in the past and how we have collected and acted upon intelligence 

in the past to deter us from responding in the future. 

Thank you. 

Chairman COLLINS. Thank you for your eloquent statement. 

Mr. Wolosky, Mr. Aufhauser mentioned the money trail. The 

money trail often leads from prominent Saudi individuals to Islamic charities to terrorist groups. That is why the Saudi crackdown and increased regulation of Islamic charities that have been 

too often used as a conduit to terrorist groups is so important. 

However, it appears that some of the Saudi regulations explicitly 

exempt three of the charities that I mentioned in my opening statement that are alleged to have strong ties to terrorist groups, and 

that is the International Islamic Relief Organization, the World Assembly of Muslim Youth, and the Muslim World League. 

Is there any reason for those three charities to be treated differently from some of the others where the Saudis have, in fact, 

cracked down? I am thinking, for example, the regulations generally restrict Saudi charities from sending monies overseas and 

yet those three charities are exempt from that regulation. Is there 

any reason that they should be treated differently? 

Mr. WOLOSKY. That is a very good question and thank you, Senator, for it. 

There are issues concerning not only the laws and regulations 

that have been passed by Saudi Arabia relating to these issues but 

also their scope and their implementation. The issue that you point 

out, I believe, relates to this body of law which is the body of law 

that governs bank accounts that are opened and operated within 

Saudi financial institutions. And specifically, there is a provision of 

law 300–1–6–5 which appears on its face to exempt from its purview the three specific organizations that you have identified, 

which collectively account for billions of dollars in international disbursements, from the body of law of which it is a part and which 

restricts or prohibits disbursements by Saudi-based charitable institutions abroad. 

It is an open question and it is one that I would encourage this 

Committee to pursue, and certainly our task force will pursue it. 

But it certainly appears to be a case where the exemption might 

swallow the rule. 

In addition, I would like to point out that there are questions regarding the scope of the purview of the new institutions that are 

being created to regulate Saudi charities. And in that regard, I 

note that in a press conference just a few days ago in Washington 

a new entity was announced into which all Saudi charities were 

going to be dissolved, at least that is what was indicated by the 

Saudi spokesperson. 

However, when pressed for specific charities he indicated not 

only Al Haramain, which was a primary focus of the press conference, but a bunch of what I would consider relatively minor organizations, namely the Committee to Support the Afghans, the 

Committee to Support the Bosnians, the Committee for Relief in 

Kosovo, the Crossover Relief Fund, and the Committee to Support 

the Palestinians. 

20

I certainly welcome the inclusion of these organizations within 

the new entity that has been established to regulate charitable giving abroad but really what was not mentioned were those three 

multibillion-dollar organizations which are a significant part, and 

should be in my judgment, a significant part of any overall Saudi 

efforts to regulate charitable giving abroad. 

Chairman COLLINS. Thank you. 

Mr. Aufhauser, the money trail often leads back to very high-profile wealthy individuals living freely in Saudi Arabia. In fact, the 

report notes three prominent men whom the Treasury Department 

has listed as specifically designated global terrorists, and I believe 

two of the three were added to that list while you were at the 

Treasury Department as General Counsel. 

In your judgment, why are not Saudi leaders cracking down and 

arresting and making an example of these prominent individuals 

who are the source of considerable funding for terrorist groups? 

Mr. AUFHAUSER. Let me answer it in a somewhat roundabout 

way because I think your opening statement alluded to the Joint 

Terrorism Task Force, about which I was vainly proud at the time 

I left the Treasury Department, as being a singular success. 

The ambition of that task force was to take our body of knowledge of their domestic citizens, including prominent merchants of 

Jetta or Riyadh and to ally it with, for the first time that I am 

aware in our history of cooperation with domestic law enforcement 

compulsory process powers of the Saudi government so that they 

could take what I will call our package of intelligence and remold 

it and morph it into a package of evidence sustainable in a court 

of law and that would permit a judicial action of a criminal nature. 

Mind you, they did take the action of freezing assets so they have 

done the regulatory administrative measures we asked of them 

with regard to those three miscreants. 

The disappointment about the Joint Terrorism Task Force is that 

it apparently has not been used to date to complement the intelligence that we have shared on those three gentlemen and on others, but rather its resources appear to have been redirected to the 

forensic demands of the bombings. So we have, with some irony, 

new zeal in the pursuit of terror in Saudi Arabia but at a substantial cost to less resources devoted to the export of terror. 

Chairman COLLINS. Thank you. Senator Lieberman. 

Senator LIEBERMAN. Thanks very much, Chairman Collins. 

Let me focus on one interesting aspect of your report which is 

about the failure to use a part of the Patriot Act, Section 311. It 

gives Treasury anti-money laundering special measures to prosecute terrorist financing in countries with inadequate banking regulations and, in fact, to restrict any bank charity business or country that engages in money laundering from using U.S. markets. 

Your report today states that these special prosecutorial powers 

have still not been used, or perhaps used recently, once against a 

Syrian bank. 

Why is that, and what can we do to get the folks in the Administration and in the Treasury Department, to use these powers more 

aggressively? Mr. Wolosky or Mr. Aufhauser, whichever one of you 

would like to answer. 

21

Mr. WOLOSKY. I do not know. I cannot speak to why they have 

not been used more broadly. As you point out, our first report in 

October 2002 urges the U.S. Government to use more aggressively 

the special measures contained in Section 311 of the Patriot Act to 

prohibit or restrict the access of certain foreign jurisdictions or specific foreign financial institutions from the U.S. financial system 

under the powers in that act. 

Certainly it has been the case that to the extent that you use 

classified material to support those designations you have to have 

concerns about challenges to your designations under the Administrative Procedures Act in court in such a way that you might have 

to reveal the classified information. 

Fortunately, there have been changes to the law since the enactment of Section 311 to protect classified information from disclosure. So any historical concerns in that regard that might have existed with respect to the use of this aspect of the Patriot Act, I believe, are mitigated. 

Senator LIEBERMAN. What can you tell us about the recent use 

of Section 311 of the Patriot Act against the Syrian bank? Just 

briefly. 

Mr. WOLOSKY. What I can tell you is that it is the first instance 

of the use of that provision of the Patriot Act in respect to terrorist 

financing. 

Senator LIEBERMAN. What were the circumstances? Is that publicly available? 

Mr. WOLOSKY. Is not publicly—the specific basis for the designation, I do not believe, is in the public record. 

Senator LIEBERMAN. Mr. Aufhauser, I want to get you into this 

discussion based on your previous experience, but I would also 

begin by raising this question. I presume that Section 311 of the 

Patriot Act could be used to leverage or compel cooperation from 

Saudi banks, for instance, by giving them a very strong economic 

incentive to cooperate or run the risk of losing U.S. business and 

being unable to do business in the United States. 

Mr. AUFHAUSER. Let me give you the benefit of my perspective. 

First, Lee is right, not laying any responsibility at the door of Congress. It took about 9 months for you all to grant an evidentiary 

privilege that protected classified information in any Section 311 

action. 

IEPA gave it to us automatically in freeze orders but not under 

the Patriot Act. It was one of the first things I asked for but it took 

a while to wind its way through the uncharted course of Congress. 

Second, it is not really fruitful to name and shame a bank as a 

mere act of political theater. If it does not have substantial correspondent banking relationships with the United States, it is 

merely political theater. But that informed a lot of judgments about 

what I will call bad banks, and the Treasury Department does have 

an informal bad banks initiative going on right now, focusing particularly on banks that are implicated in the export of nuclear materials, the improper export of nuclear materials. 

Senator LIEBERMAN. The financing of those exports? 

Mr. AUFHAUSER. Trade financing and the like of those exports. 

Third, where we thought we had problems with banks, and again 

this is an important distinction I made earlier with Senator ColVerDate 0ct 09 2002 10:06 Dec 13, 2004 Jkt 095189 PO 00000 Frm 00025 Fmt 6633 Sfmt 6601 C:\DOCS\95189.TXT SAFFAIRS PsN: PHOGAN
22

lins, intelligence is called intelligence because it is not fact. It is inference based on being a truffle hound and digging something up 

which is suggestive. 

We have gone abroad and sought the domestic assistance of 

countries and regulators to reform suspect banks. It is a better way 

then merely using the blunderbuss of a nuclear Section 311 action 

against a bank that does not otherwise maintain correspondent accounts. 

Senator LIEBERMAN. So, in other words, it is not worth using because it will not really hurt them because they do not have correspondent relationships with U.S. institutions? 

Mr. AUFHAUSER. In many instances, you are talking about rather 

minor banks that do not have correspondent relationships. 

Now the Syrian banks in question do have correspondent relationships with several New York banks. They are modest in scope 

but the gravimen of the Syrian banks was believed by the Administration to be so grave, particularly—they were the principal conduits for the UN Oil for Food Program frauds, for the smuggling 

of unsanctioned oil out of Iraq and for using some of those funds 

or placing them in the hands of Hezbollah. 

So it was a very strong case and not withstanding the modest 

ties with New York banks, it was decided that it should be pursued. 

Senator LIEBERMAN. How about the Saudi banks? Do they tend 

to have correspondent relations with U.S. banks that might bring 

them within Section 311? 

Mr. AUFHAUSER. Yes, and they also have, interestingly, substantial correspondent relationships, even more substantial correspondent relationships, with European banks. 

There is an open legal question—I think, frankly, it falls against 

us, I actually asked my staff to look at it at one juncture—whether 

the Patriot Act Section 311 permits what I call a secondary boycott. 

That is if we say a bank in Saudi Arabia, following your hypothetical, is to be barred from correspondent banking in the United 

States, can we say that any bank that does banking with it abroad 

is similarly barred? I think the way the act is written now, the answer to that is no. 

Senator LIEBERMAN. So, bottom line, you would say that in some 

cases it does not make sense to use Section 311 of the Patriot Act 

because the banks do not have correspondent relations here. But, 

generally, would you counsel that it be used more aggressively? 

Mr. AUFHAUSER. I will do more than counsel. I will tell you, in 

the next calendar year, because of the bad banks initiative that I 

mentioned, there will be substantial actions taken against miscreant banks under Section 311. 

Senator LIEBERMAN. Good. Thank you, my time is up. 

Chairman COLLINS. Senator Coleman. 

Senator COLEMAN. Thank you. Mr. Aufhauser, in your testimony 

you noted that if Madrid has any lessons, local law enforcement 

must be integrated more directly with the national intelligence 

community to facilitate a two-way dialogue of increasingly equal 

value. Do you have any specific recommendations as to how we accomplish that? 

23

Mr. AUFHAUSER. Perhaps, but let me build down. One of the 

questions that you all said you were going to pose here is what are 

the Treasury Department’s equities at the table if you were going 

to have terrorist financing, one general and one command post and 

an aggregation of resources. 

One of the problems I found at the Treasury Department in pursuing terrorist financing is it was not a fully integrated member 

the intelligence community. So is was not always made aware of 

the full panoply of counterterrorism activity and relationship that 

was going on with any country that I was visiting. 

So, as a consequence, you could find yourself across the table 

from folks who thought they were trading different poker chips and 

equities about cooperation when I was demanding cooperation for 

terrorist financing. 

As a consequence of that, I pushed, and Secretary Snow pushed, 

for the creation of an Assistant Secretary for Intelligence so that 

we could be more integrated into the intelligence community, subject to oversight by the Intelligence Committee here on the Hill. 

That was passed by Congress, I think wisely passed, and someone will soon be named to that post. 

Obviously something less formal was in the offing for the integration of local law enforcement but getting them to the table with 

the information that they are developing about the petty crimes 

that are perhaps tied to terror, and marrying that information with 

what the Federal Bureau of Investigation and what the CIA is developing, is absolute critical in my judgment. 

Madrid was financed with false passports, smuggled aliens, and 

the sale of hashish, all of it known to the local police and most of 

it not known to the national intelligence officials. National intelligence officials were aware of activity at the area. If the two had 

been married, maybe something could have been prevented. It is 

not unlike the quandary we find the 9/11 Commission facing. 

Senator COLEMAN. The challenge we have, though, is how to 

marry that. I come from a local prosecutor perspective, Attorney 

General’s Office in Minnesota. We have our Joint Task Force now 

and we seem to be making headway. But both structurally and 

practically there are barriers. I am looking for practical suggestions 

on how to overcome those. 

Mr. AUFHAUSER. Let me give you one possible vehicle. FinCEN 

is responsible for the compilation of currency transaction reports 

and suspicious activity reports. It is all put into a computer and 

it is all made available by access to local cops, cops in Toledo or 

cops in Minneapolis. If they have an inquiry about Aufhauser, they 

can ping the FinCEN database. 

That FinCEN database is in the process of also being married, 

in a more secure sense, with what the agency is developing from 

abroad. This is also being married, in a more secure sense, with 

what has been developed by the FBI with regard to intelligence 

issues, terrorism issues. 

If local law enforcement could somehow have classified online 

access to that kind of information it might materially advance our 

defense of the Nation. 

In addition, this is most important and I am talking to you like 

a local prosecutor, you guys have to share towards Washington, 

24

too. Because I am finding, from what I am reading and what happened in Madrid, is that the better information was known locally. 

Senator COLEMAN. That is very helpful. 

I am trying to somehow weigh Mr. Factor’s testimony with Mr. 

Wolosky’s. Mr. Factor, you noted what I would say structural 

changes in the relationship dealing with the Saudis, that if we had 

a certification regime that would be helpful, that you recommend 

the Saudi’s fully implement new laws and regulations. 

The concern I have in terms of dealing with terrorist financing, 

as does Mr. Wolosky, listening to your testimony, there seems to 

be a fundamental lack of commitment on the part of the Saudis to 

actually confront this evil. 

Are looking for structural changes enough? Or are we simply 

changing the shape of the box? 

Mr. WOLOSKY. It is a good question. It is a difficult question. Of 

course, we are reporting to you on the same report, so the fact that 

our testimonies are somewhat schizophrenic is a reflection of the 

fact that much has been done, as I said, but much work remains. 

As you point out, we do recommend a fundamental change in the 

nature of the bilateral relationship. As Mallory described, one 

which is more declaratory and one which focuses—or at least does 

not put off of the table—issues that historically have been considered purely domestic ones in Saudi Arabia. We have come to the 

conclusion, as have many Americans and Members of this Committee, that after the murder of 3,000 Americans with respect to 

issues that implicated domestic Saudi problems and concerns, that 

those issues can no longer be off of the table. 

But your question is a good one. Ultimately, in issues of political 

will, as we have pointed out in our report and in our testimonies, 

welcome the aggressive pursuit of al Qaeda cells. We condemn the 

fact that financiers have not been arrested. Those are different 

issues. They go to issues in my judgment, and in our report’s judgment, of political will. 

It is relatively easier to go after people who are socially 

marginalized, members of cells. It is much more difficult to go after 

financiers who are members of the economic and political establishment. 

Mr. FACTOR. I would add on to that that it may seem schizophrenic but it really is not, it is very consistent. We are calling for 

a new framework for U.S.-Saudi Arabian relations. 

For decades U.S.-Saudi Arabia relations have been built upon a 

consistent framework well understood by both sides. Saudi Arabia 

would be a constructive actor with regard to the world’s oil and 

markets and regional security issues. And the United States would 

help provide for the defense of Saudi Arabia, work to address the 

Israeli-Palestinian conflict, and not raise any significant questions 

about Saudi Arabian domestic issues, either publicly or privately. 

That has changed. We have to bring these things into the open 

light of day. We are an open society, they are an opaque society. 

If you want to change, you need political will to have those 

changes, as Madam Chairman pointed out. 

And we have to work with them to force that issue. 

Senator COLEMAN. Thank you, Madam Chairman 

Chairman COLLINS. Thank you. Senator Lautenberg. 

25

Senator LAUTENBERG. Thank you, Madam Chairman. 

Once again I want to express gratitude for the fact that you are 

holding this hearing. We have a very good panel of witnesses. Their 

statements are extremely interesting and I think you have 

furthered the cause and the fight against terrorism. I greatly respect and appreciate that. 

I want to get a couple of things out in public view. Mr. 

Aufhauser, I am sure you heard about the amendment that we 

passed, and as I mentioned in my opening remarks, that would 

shut down subsidiaries, either real or sham, that are then in turn 

used to do business with rogue states. 

Have you been aware in your previous government service or 

since then that these things exist? 

Mr. AUFHAUSER. Yes. 

Senator LAUTENBERG. Is it important——

Mr. AUFHAUSER. In a broader context, if I can say. Generally 

speaking, the economic sanctions laws and OFAC regulations for 

which I was responsible have enormous loopholes for subsidiary 

conduct abroad. 

Senator LAUTENBERG. So let me extend your comment a little bit 

and say I take an implication there that we ought to close it down 

wherever we can do it? 

Mr. AUFHAUSER. If you believe in the effectiveness of the economic sanctions programs which are part of our law, yes. 

Senator LAUTENBERG. It was disappointing that we lost that 

amendment by a single vote but that is what happened. 

Mr. Wolosky, are we doing enough—and Mr. Factor may have 

just mentioned—to put public pressure on the Saudis? Do you 

think that we can ratchet that up substantially for the benefit of 

the elimination of this financing route that encourages terrorism? 

Mr. WOLOSKY. Certainly we can, in some instances, yes. The report recognizes that some issues are best dealt with privately. But 

it also strongly urges a more declaratory policy when the U.S. Government finds significant and enduring shortcomings in the response of Saudi Arabia to terrorist financing issues. 

Benchmarks need to be set out publicly if they are not being met 

privately. Individuals, who the United States has designated as 

terrorist financiers and has indicated in no uncertain terms part of 

the al Qaeda financial network, and who have not been incarcerated in Saudi Arabia, those are the very issues that need to be 

brought to the fore of our public statements and respect of these 

matters. 

Senator LAUTENBERG. The private discussions do not have the 

same effect. And I think we ought to declare once and for all that 

if Saudi Arabia has to dial 911, as they did in 1990, do not call us. 

The phone is going to be out of order. And that we have to say that 

every dollar, let the word go out of this Committee and across the 

media. Let the word go out that if you contribute to anything that 

encourages terrorism that it is pointing a gun at the head of our 

people. And we are going to think of it that way and our punishment is going to be swift and full. 

It is bothersome as the devil to me that—and I was early on the 

ground in the Gulf War, and I have been to Iraq since then, and 

26

I know a lot of people associated with the Saudi government and 

had some semi-friendly relationships with them. 

But for them to pass off the blame, it is in print and the news, 

when the Crown Prince Abdullah statement after the May 24 attack at Yanbu says ‘‘Zionism is behind terrorist actions in the kingdom. . . . I am (95%) sure of that.’’ And the Foreign Minister then 

affirms these comments, says the affirmation of these comments is 

again absolutely correct, 95 percent. And then Adel Jubeir declined 

to repudiate these statements at a June 2, 2004 press conference. 

And the State Department has been silent on them. And they have 

to speak out. 

I think Mr. Aufhauser made a very important statement. He 

talked about the fact that we have to recognize that this is far beyond the normal activities that we see these oblique apologies, etc. 

Because it is inherent in the culture. When you teach little kids to 

hate other little kids, that is the beginning of the end. It is the end 

of their lives and the end of peaceful lives around the country. And 

we have to make sure that they understand that in public terms, 

and denounce that kind of educational thrust. It just is not going 

to work and it is not helpful. 

I would ask one last question here. I know that you have seen 

the report that was issued in the New York Times, on June 12. It 

talks about some internal dispute within the task force. And perhaps some redaction or reduction in terms of the comments that 

the task force report was going to carry. 

Mr. Factor, I would ask you, you are very much a part of the activities that go on in our government and I say that respectfully, 

and you are also a businessman that knows very much about how 

things operate in terms of financing and investor relationships and 

things of that nature. 

So when you see a report issued and it is suggested that you 

thought maybe this report was too critical, is that the context of 

the article that was printed in the New York Times that suggested 

there was dissension and some alteration made by you to get this 

report in acceptable fashion for the Administration, as well as for 

the mission? 

Mr. FACTOR. I can only answer that this report is a consensus 

report. We all had various beliefs and feelings and we talked those 

out very thoroughly. Our project directors’ position was to try to 

reach a consensus and try to put together the fairest, most accurate, bipartisan report possible. We believe we have achieved that. 

And I believe all of us unequivocally support the findings and recommendations in this report and we are very proud of it. 

There were many discussions on a host of topics. We solicited information from a host of people—the Administration, Saudi Arabia. 

We, at one point, planned a trip over there which never came 

about. It is very common for all task forces at the Council on Foreign Relations to solicit input from the subjects of those task forces. 

So this is a common thing. 

Senator LAUTENBERG. Even after the report is complete, a report 

is not complete? 

Mr. FACTOR. A report is not complete until everybody signs off 

on it. 

Senator LAUTENBERG. Thank you. 

27

Chairman COLLINS. Thank you, Senator. 

Mr. Wolosky, before I turn to Senator Specter, I want to give you 

an opportunity to discuss the issue that was just raised, as well, 

since you were one of the two principal authors of the report. 

Mr. WOLOSKY. Thank you. 

First, I would like to respond to another point that Senator Lautenberg made concerning the anti-Semitic statements made by the 

Crown Prince and consistently reaffirmed by other Saudi officials, 

including just a few days at a press conference in Washington. In 

my view, and in the view of our task force, they call into question 

the commitment of Saudi Arabia as a reliable partner in the war 

on terror. They cloud its efforts in moral uncertainty. And they 

must be immediately retracted. 

The U.S. Government, the President of the United States, in my 

view, should immediately condemn those statements and urge the 

Saudis to condemn those statements. 

I personally was very distressed to see a senior State Department official stand by on June 2 in Washington and not repudiate 

those comments in response to a question from a reporter. In my 

view, that is a disservice to many people and to the war on terror. 

Now as to the New York Times report, as I have discussed with 

your staff, I wish to clarify that the language that was in the first 

draft of the report I distributed to the full task force membership 

on May 2, 2004 was as follows: ‘‘There is insufficient evidence to 

conclude Saudi Arabia has fully implemented its new laws and regulations and important questions remain. As part of Saudi Arabia’s 

offer of assistance to the work of our task force, we sought to visit 

Riyadh to discuss, among other things, the state of the implementation of these new laws, regulations and oversight mechanisms.’’

Senator LAUTENBERG. Madam Chairman, I appreciate the clarification. Thank you. 

Chairman COLLINS. I thought it might be helpful to you, Senator. 

Senator LIEBERMAN. Madam Chairman, I join you. Tomorrow 

morning, when we open our New York Times, I expect the headlines to say ‘‘Times Snookered.’’

Chairman COLLINS. Senator Specter. 

OPENING STATEMENT OF SENATOR SPECTER 

Senator SPECTER. Thank you, Madam Chairman, and thank you 

for scheduling these hearings. 

I compliment the Council on Foreign Relations for undertaking 

this kind of study. I am very interested in all of your findings. 

I focus for just a moment on the one that Saudi Arabia, whose 

people and organizations contribute 60 percent of the annual budget of Hamas, does not recognize Hamas as a terrorist organization. 

Mr. Factor or Mr. Wolosky, do you know what their factual basis 

is for that kind of a statement, when Hamas admittedly target civilians? 

Mr. FACTOR. I do not know what their basis is for that. I can only 

speculate. 

Senator SPECTER. Mr. Wolosky. 

Mr. WOLOSKY. My own personal view is that one man’s terrorist 

is another man’s freedom fighter. 

28

Senator SPECTER. That is a fine generalization of another era, 

but not when civilians are targeted. 

Mr. WOLOSKY. It is not my view, Senator. It is my sense of what 

the Saudi position on Hamas is. I firmly believe that Hamas is a 

terrorist organization. 

I also think that there is a misconception. David Aufhauser has 

used the word sophistry in understanding what Hamas is. The 

sophistry lies in the fact that it is true that Hamas provides social 

services in Palestinian territories. However, it is also a terrorist organization that kills innocent people. A vast majority of its funds 

have come from Saudi Arabia in recent years. Only relatively recently has that begun to change at the official level, although private Saudi contributions to Hamas must continue to be strictly 

monitored. 

Our report recommends, in fact it goes very far on this issue, and 

it recommends that as a mandatory matter of international law, 

the United Nations Security Council pass a resolution that specifically designates Hamas as a terrorist organization and obligates all 

member states to close down Hamas organizations and fronts. 

Senator SPECTER. Mr. Aufhauser, let me ask you a different 

question, and that is what more could the Administration do in a 

very active way to motivate the Saudis or compel the Saudis or 

sanction the Saudis into doing a better job on fighting terrorism? 

Mr. AUFHAUSER. Well, they have come a long way, as you know 

from testimony I have given before committees that you have sat 

on, as outlined by Lee and Mallory and the Council. Some extraordinary systemic changes. But what is missing is a sense of personal 

accountability and follow-through. 

Also, on the broader scale, and I think far more important to us, 

far more important to us than personal accountability of one or two 

bad actors, is to stop the funding of the teaching of hate. And I 

think there should be a concerted Administration policy and campaign. 

Senator SPECTER. Mr. Factor, thank you for the statement in 

your opening statement about the Saudi Arabia Accountability Act, 

which was cosponsored by the Chairman, and I am the principal 

sponsor, to provide a good starting point for focusing on terrorist 

financing certification regime. 

Mr. Aufhauser, the Administration at first opposed the Syrian 

Accountability Act and then moved from opposed to neutral. And 

I think finally ended up perhaps inferentially supportive, although 

the formal neutral position was never changed. 

What do you think the prospects are for the Administration to 

move to neutral or to support the Saudi Arabia Accountability Act? 

Or somewhere in between. 

Mr. AUFHAUSER. I would just be guessing, Senator, but there is 

an institutional prejudice, understandable and I think to be lauded, 

at the Treasury Department to only have economic sanctions programs that are really quite enforceable and with real-world impact. 

And so they are studied about whether or not what has been proposed can be pursued and whether it can be effective. 

Can I just say one thing about Hamas? 

Senator SPECTER. Sure. 

29

Mr. AUFHAUSER. It is reprehensible that they are not treated as 

a terrorist organization by the Saudis, I agree, but some historical 

perspective helps. For 6 years we have urged our European counterparts to join us in naming Hamas as a terrorist organization. 

And it was only September of last year that they finally joined us 

as another school bus was blown up in Jerusalem. 

Even now, immediately after the designation of Hamas as a terrorist group by the Europeans, we then went to our European allies 

and said here are four organizations that are transmitting money 

directly to Hamas. And we were turned down in the freezing of 

those assets by all of them because they are still not use to the 

idea. They still cling to what I said before, the sophistry that the 

social welfare program of Hamas somehow excuses money that goes 

to killing. 

The recent raids by the Israelis on banks, four banks in the West 

Bank, and the actual seizure physically of money intended for 

rejectionist groups, was intended to send a signal to a new funding 

source of Hamas, and that is Iran and Syria, getting back to your 

Syrian issue. 

And informed intelligence sources tell me that for whatever reason, the money going to Hamas from Saudi Arabia has substantially dried up. Nobody can divine the reason. But it has been supplemented by money from Iran and Syria flowing through even 

more dangerous rejectionist groups in the West Bank. 

Senator SPECTER. Thank you very much. My time has expired. 

I thank you, Madam Chairwoman. 

Chairman COLLINS. Thank you Senator. Senator Pryor. 

OPENING STATEMENT OF SENATOR PRYOR 

Senator PRYOR. Thank you, Madam Chairman. 

I would like to join all my colleagues on the Committee in thanking you for your leadership on this issue. 

If I may follow-up with some of Senator Specter’s questions, Mr. 

Aufhauser, something you said a few moments ago. You said that 

they need to stop funding the teaching of hate. That is a foreign 

concept, I think, to us here in America. Could you elaborate on that 

a little bit and explain to the Committee exactly what you mean 

by that? 

Mr. AUFHAUSER. Sure. Wahabism, which is the strain of Islam 

that they endorse and champion, is very austere, very severe, very 

uncompromising and very intolerant of differences in views, and 

can easily be morphed into religious sanction for violence. 

And it is taught by clerics who are sent out globally with funding 

from the Ministry for Islamic Affairs, which in my judgment is a 

much more important audience to talk to about our future then the 

Ministry of Internal Security or Defense in Saudi Arabia. 

Indeed, on my last trip to Saudi Arabia, we met with the Minister for Islamic Affairs and he affirmed that they need to do some 

trimming of their clerical group to weed radical extremists out of 

it. Unfortunately, their first focus has been domestically and not 

those who have already been exported abroad. 

Senator, one last thing. I had a dinner with the prime minister 

of one of the Southeast Asian countries who said he will not let an 

30

Islamic cleric into his country anymore. The reason is they teach 

a hate which becomes a bullet. 

Senator PRYOR. Let me follow-up on something you said, that 

they have focused internally first, within Saudi Arabia. But apparently, there is not much evidence to show that they are trying to 

curb the export of terrorism and extremism. Is that fair to say, for 

Saudi Arabia? 

Mr. AUFHAUSER. I hope I am not sounding too legalistic—to me, 

this is a very important thing. I chaired a group in the situation 

room at the White House every Wednesday morning, and it was a 

group of terrific men and women from every agency of any relevancy, where we would review what we had learned in the preceding 7 days about terrorist financing. 

We had a mountain of evidence about the financing of the teaching of hate, who was funding it, where it was going, what they 

were teaching in the schools, who the converts were, what social 

welfare they were pursuing, what the threat was in pursuing something more militant. 

And we had a modest pile over here on my right hand which was 

evidence of the funding of an act of terror. 

So there is a distinction between fundamental and extremism 

and an act of terror that gives us the power to try to act abroad 

in policing things. 

The problem with the Saudi model today is it is a blizzard of this 

funding for folks who teach people that I am their enemy. There 

is even something more dramatic—it is not the Saudis, but the Iranians that fund a radio station out of Beirut called al-Manar, to the 

tune of about $110 million a year. That funding helps al-Manar 

publish and broadcast every day a screed that says Jews and 

Americans should be killed. 

Now should we not stop that funding of that broadcast? 

That is not an act of terror. But it is no different from lighting 

a match in a parched forest. 

Senator PRYOR. I know that you would never speak for any of 

these countries and you would never presume that, but I would like 

to get your impressions, if we can focus on Saudi Arabia, on why 

they have not cracked down internally? I am just assuming there 

are domestic reasons, domestic political reasons that they may fear 

a backlash within their own country for doing this. I would like to 

get your impressions on that. 

Mr. AUFHAUSER. The most immediate reason for no activity on 

terrorist financing is they are singularly focused on the guys who 

are trying to kill them within their confines. They are not looking 

for financiers. They are looking for terrorists. If he happens also to 

be a financier, he is a dead man. 

So they are devoting virtually every police and intelligence and 

military resource they have to ferreting out terrorists within their 

own cells. 

That has drawn away, as I said earlier, ironically the focus that 

we wanted them to have. I cannot blame them. I will tell you that. 

But for the moment it has drawn away literally every resource 

from looking at people who export—I think it was Senator Levin 

who said Saudi Arabia exports two things, a counterfeit religion 

and oil. He is only two-thirds right. They also export money. 

31

And that money is the purchase for terror. And we would like 

them to refocus on that. 

Senator PRYOR. Madam Chairman, since I have just a few seconds left, I would like to ask the other two witnesses to respond 

to that last question about Saudi Arabia. Why, in your impressions—not to speak for them, but your impressions about why they 

are reluctant to crack down internally or at least why they have 

not done so to date? 

Mr. FACTOR. I believe that they have a civil war on their hands 

which is their first and foremost interest. They also have not had 

enormous pressure put on them to open up their society. And they 

fear for their own regime being toppled. So putting all of those 

three things together, what is being exported is a secondary issue. 

I believe the conclusion they need to come to very rapidly is that 

that civil war will never be solved as long as they are exporting 

money that could be used for terrorism. 

And last, the political will of the country has to establish that no 

cause, however legitimate, justifies the use of terror. Indeed, the 

use of terror delegitimizes even the most worthy cause. They have 

to build political will on that, which they are not doing doing. 

Mr. WOLOSKY. I largely agree with these two comments. 

First, I do think they are trying to crack down internally. They 

are fighting a civil war because it threatens the leadership of their 

country. It threatens their lives. And they are dedicating resources 

to fight that civil war. 

They are also cracking down internally, at least there are suggestions that they are cracking down internally, on the extremism 

that is propagated within Saudi Arabia. Our report makes a distinction between the propagation of extremism within Saudi Arabia 

and its export outside of Saudi Arabia. 

Within Saudi Arabia we have seen the remarkable spectacle in 

the past year, for instance, of clerics, extremist clerics, going on television to renounce their old views. That is a rather remarkable 

occurrence within the cultural and social context in which it has 

occurred. 

Externally, we find very little evidence of action being taken in 

respect to this pile, the pile that evidences the flow of billions of 

dollars in support of the propagation of extremism internationally. 

And our report says that constitutes, that export of extremism constitutes a strategic threat to the United States. 

I think we are the first group to go that far in characterizing 

that financial flow in that manner. 

Senator PRYOR. Thank you, Madam Chairman. 

Chairman COLLINS. Thank you. 

We have had a vote just called. So I am going to do one final 

quick round of a question each, and then we will adjourn the hearing. I do thank you for your very valuable testimony. 

Mr. Factor, as you know from our discussions, I am particularly 

interested in the recommendation of the report that we pass legislation creating a certification whereby the President would certify 

the compliance of nations with an effort to halt terrorism financing. 

Some people have expressed concerns that would be too narrow 

a test for nations to have to pass. They say that the war against 

32

terrorism is a broad war being fought on many fronts and that it 

would be a mistake to just look at this one factor. 

Could you comment on whether you think the separate analysis 

of compliance with the effort to halt terrorism financing is appropriate? Or should the certification be a broader assessment? 

Mr. FACTOR. It is our belief on the task force that the certification should be for terrorist financing. I am not going to suggest 

that other certifications might not be needed or necessary, or for 

that matter might be unnecessary. But we believe that if you follow 

the money, if you check out the money, if you are sure where the 

money is going and how it is going, you will have the opportunity 

to cut down on the abilities of terrorists to operate throughout the 

world. We believe a certification regime specifically on terrorist financing is necessary and called for. 

We also believe that we would give waivers to the President obviously and the information can be classified. But we need to name 

and shame and bring the open light of our society and the discussion that our society allows forward. The only way we will do it is 

not by getting it confused in a broader regime. 

Chairman COLLINS. Thank you. Senator Lieberman.

Senator LIEBERMAN. Thanks very much, Chairman Collins. 

I am going to submit a few questions to the witnesses for answers in writing, but I did want to ask this summary question. 

In your report in October 2002, this language has already been 

quoted, you said, ‘‘it is worth stating clearly and unambiguously 

what official U.S. Government spokespersons have not for years, 

individuals and charities based in Saudi Arabia have been the most 

important source of funds for al Qaeda and for years Saudi officials 

have turned a blind eye to this problem.’’

So, your report and testimony today certainly suggest that maybe 

the Saudi officials, probably the Saudi officials, are no longer turning a blind eye. But there are problems, as you have documented 

on how fully they are following through. 

So, my baseline question for this report, now June 2004. Would 

the conclusion of October 2002 be essentially the same, which is 

that individuals and charities based in Saudi Arabia have been the 

most important source of funds for al Qaeda and also the other terrorist groups? Or, has that changed? 

Mr. WOLOSKY. Historically, of course, that has been true and it 

has been affirmed. 

Senator LIEBERMAN. Is it true today? 

Mr. WOLOSKY. It is a difficult analysis because of the more diffuse nature of al Qaeda. Al Qaeda is no longer an organization that 

has a highly centralized command and control mechanism, and 

that includes its financial components both input and output. It is 

a much more diffuse movement. 

And also that relates to the issue of propagation of extremism 

which we in this report—again, I think for the first time, although 

it certainly was implicit in the response of the U.S. Government 

that David described—are saying is a key part of the terrorist financing problem. 

Senator LIEBERMAN. I think that is a very important point today. 

It is not that we do not know about the export of extremism, but 

you are saying that while they may have curtailed the funding to 

33

some extent, or at least not turned a blind eye to it, as long as they 

continue to export extremism then there is trouble. 

Mr. Factor or Mr. Aufhauser, do you want to add anything to 

that? 

Mr. FACTOR. I would like to add that we know very well that, for 

example, the Muslim World League, IIRO, the International Islamic Relief Organization, and the World Assembly of Muslim 

Youth, known by the acronym WAMY, still operates. 

I believe funding to al Qaeda has been stopped to a significant 

extent. But there is funding to numerous other organizations and 

other organizations may be picking up what al Qaeda was doing, 

in terms of operations. 

Mr. AUFHAUSER. Can I add one thing? I want to put a spotlight 

on a reservation put at the front of the Committee’s report, which 

is that you can become Saudi-centric when you talk about terrorist 

financing and it is a grave danger. They have done remarkable 

things and they should be given credit for it. There remain substantial issues in Saudi Arabia. 

But all that I learned before I left and what I have learned since 

I left suggest that terrorist financing is alive and well from Iran 

and Syria and increasingly local criminal activity, and also substantial amounts flowing into the occupied territories from Western 

Europe still. 

I would suggest that the spotlight be shifted, if there is only one 

spotlight, on what is the more immediate threat right now to homeland security here and to security in the Middle East, which I 

think is money from other sources. 

Senator LIEBERMAN. Thank you, very much. You have done a 

great public service here and I thank you for it. 

Chairman COLLINS. Thank you, Senator Lieberman, for your 

leadership on this issue and your participation in the Committee’s 

ongoing work examining the sources of terrorism financing. 

I want to thank all three of our witnesses today. You have done 

remarkable work. We appreciate your expertise and your sharing 

your wisdom and knowledge with the Committee. 

The hearing record will remain open for 15 days for the submission of any additional questions. We would ask you to return those 

as quickly as you can. 

I also want to thank our staff for their work on this important 

hearing. The hearing is now adjourned. 

[Whereupon, at 12:29 p.m., the hearing was concluded.] 

(35)

A P P E N D I X

PREPARED STATEMENT OF SENATOR GEORGE V. VOINOVICH 

Good morning. I would like to thank the Chairman, Senator Collins, for convening 

this hearing today to examine an issue that is extremely important to our national 

security—our progress in efforts to deny terrorists the resources they seek to perform deadly attacks against Americans and our allies at home and abroad. 

The tragic events of September 11, 2001 brought home to all of us the urgent need 

to cut off funding for terrorist organizations such as al Qaeda. More than 21⁄2 years 

later, it is imperative that we continue to make this a top priority of the U.S. Government. Simply stated, we cannot afford to be complacent in our efforts. 

Last month, Attorney General John Ashcroft and Secretary of Homeland Security 

Tom Ridge reminded the American people of al Qaeda’s unrelenting desire to again 

attack Americans on U.S. soil. The potential impact is not limited to those living 

in our country’s largest cities. Just yesterday, Federal officials unsealed an indictment against a Somali man living in Columbus, Ohio. The charges against this man 

include conspiring with al Qaeda to blow up a shopping mall in Ohio’s capital city. 

This is a chilling reminder of what is possible, and again underscores the need to 

redouble our efforts to deny terrorists the financial resources that they desire. 

Today, an Independent Task Force on Terrorist Financing sponsored by the Council on Foreign Relations will release its second report on our progress in this effort. 

We are glad to have two individuals who serve on this task force, Lee Wolosky and 

Mallory Factor, with us this morning. I look forward to hearing their thoughts on 

how we can step up our efforts at home to disrupt and destroy the financial network 

of al Qaeda and other terrorist organizations. I also look forward to their views on 

how we can enhance cooperation with other countries to deny terrorists the funding 

that they seek—particularly Saudi Arabia. 

I would also like to welcome David Aufhauser, who served as former General 

Counsel at the U.S. Department of Treasury. I look forward to his candid views on 

how we are doing in this effort here at home, where the men and women at the 

Treasury Department and other Federal, State and local agencies serve on the front 

lines in the effort to disrupt and destroy terrorists’ financial networks. 

As my colleagues are aware, since 1999, I have worked to express the urgency 

of the Federal Government’s human capital challenges and their impact on critically 

important government functions, such as national security. With strong bi-partisan 

support from this Committee, I have championed a series of legislative reforms in 

Congress, which should have a significant impact on the way the Federal Government manages its people in the coming years. 

In March 2001, the Subcommittee on Oversight of Government Management held 

a hearing entitled, ‘‘National Security Implications of the Human Capital Crisis.’’ 

Our panel of distinguished witnesses included former Defense Secretary James 

Schlesinger, member of the U.S. Commission on National Security in the 21st Century. Secretary Schlesinger discussed a comprehensive evaluation on national security strategy and structure that was undertaken by the Commission. Regarding 

human capital, the Commission’s final report concluded: 

‘‘As it enters the 21st Century, the United States finds itself on the brink of an 

unprecedented crisis of competence in government. The maintenance of American 

power in the world depends on the quality of U.S. Government personnel, civil and 

military, at all levels. We must take immediate action in the personnel area to ensure that the United States can meet future challenges.’’

Secretary Schlesinger added further: ‘‘. . . it is the Commission’s view that fixing 

the personnel problem is a precondition for fixing virtually everything else that 

needs repair in the institutional edifice of U.S. national security policy.’’

This remains true as our government looks to deny terrorists, whose purpose is 

to inflict grave harm on the United States, the resources that they seek. I again 

thank Chairman Collins for convening this hearing, and I look forward to the testimony of our witnesses.

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