U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

i 

57–032 2010

[H.A.S.C. No. 111–20] 

TRACKING AND DISRUPTING TERRORIST 

FINANCIAL NETWORKS: A POTENTIAL 

MODEL FOR INTERAGENCY SUCCESS? 

HEARING 

BEFORE THE

TERRORISM, UNCONVENTIONAL THREATS AND 

CAPABILITIES SUBCOMMITTEE 

OF THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

MARCH 11, 2009 
(II) 

TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES 

SUBCOMMITTEE 

ADAM SMITH, Washington, Chairman 

MIKE MCINTYRE, North Carolina 

ROBERT ANDREWS, New Jersey 

JAMES R. LANGEVIN, Rhode Island 

JIM COOPER, Tennessee 

JIM MARSHALL, Georgia 

BRAD ELLSWORTH, Indiana 

PATRICK J. MURPHY, Pennsylvania 

BOBBY BRIGHT, Alabama 

JEFF MILLER, Florida 

FRANK A. LOBIONDO, New Jersey 

JOHN KLINE, Minnesota 

BILL SHUSTER, Pennsylvania 

K. MICHAEL CONAWAY, Texas 

THOMAS J. ROONEY, Florida 

MAC THORNBERRY, Texas 

BILL NATTER, Professional Staff Member 

ALEX KUGAJEVSKY, Professional Staff Member 

ANDREW TABLER, Staff Assistant 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2009 

Page 

HEARING: 

Wednesday, March 11, 2009, Tracking and Disrupting Terrorist Financial 

Networks: A Potential Model for Interagency Success? .................................... 1 

APPENDIX: 

Wednesday, March 11, 2009 ................................................................................... 19 

WEDNESDAY, MARCH 11, 2009 

TRACKING AND DISRUPTING TERRORIST FINANCIAL NETWORKS: A 

POTENTIAL MODEL FOR INTERAGENCY SUCCESS? 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Miller, Hon. Jeff, a Representative from Florida, Ranking Member, Terrorism, 

Unconventional Threats and Capabilities Subcommittee ................................. 2 

Smith, Hon. Adam, a Representative from Washington, Chairman, Terrorism, 

Unconventional Threats and Capabilities Subcommittee ................................. 1 

WITNESSES 

Fridovich, Lt. Gen. David P., USA, Commander, Center for Special Operations, United States Special Operations Command ........................................ 13 

Frothingham, Edward, III, Principal Director for Transnational Threats, Office of the Deputy Assistant Secretary of Defense for Counternarcotics, 

Counterproliferation, and Global Threats .......................................................... 11 

Levitt, Dr. Matthew, Director, Stein Program on Counterterrorism and Intelligence, The Washington Institute for Near East Policy .................................. 2 

APPENDIX 

PREPARED STATEMENTS: 

Fridovich, Lt. Gen. David P. ............................................................................ 46 

Frothingham, Edward, III ............................................................................... 38 

Levitt, Dr. Matthew ......................................................................................... 27 

Miller, Hon. Jeff ................................................................................................ 24 

Smith, Hon. Adam ............................................................................................ 23 

DOCUMENTS SUBMITTED FOR THE RECORD: 

[There were no Documents submitted.] 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

[There were no Questions submitted during the hearing.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

[There were no Questions submitted post hearing.] 

(1) 

TRACKING AND DISRUPTING TERRORIST FINANCIAL 

NETWORKS: A POTENTIAL MODEL FOR INTERAGENCY 

SUCCESS? 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES

SUBCOMMITTEE, Washington, DC, Wednesday, March 11, 2009. 

The subcommittee met, pursuant to call, at 3:45 p.m., in room 

2118, Rayburn House Office Building, Hon. Adam Smith (chairman 

of the subcommittee) presiding. 

OPENING STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE FROM WASHINGTON, CHAIRMAN, TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES SUBCOMMITTEE 

Mr. SMITH. We will call the committee to order. Apologize for the 

late start; we had votes. We have a reasonably complicated agenda 

in that we have two panels in here, and then we are—— 

VOICE. We can’t hear you. 

Mr. SMITH. Okay. I think it would be better off skipping the 

microphone and shouting. There is no way to turn the volume up 

on these things? 

Dr. Levitt will go first, and then we will have another panel. And 

then for Members’ information, we have a hearing after this, it will 

be down in the Sensitive Compartmented Information Facility 

(SCIF), for any secret information that we cannot talk about in 

public, which will make for some interesting questioning to make 

sure we don’t step across the line in this, and we will trust the 

Members and the witnesses to understand where that line is. So 

Dr. Matthew Levitt will be first. 

The purpose of our hearing today is to look at how we can disrupt terrorist financing. The subcommittee is keenly focused on 

counterterrorism, primarily because of our jurisdiction over the 

Special Operations Command, which is the lead command in fighting terrorism. But also we have a number of different pieces of it, 

and we want to be as comprehensive as possible in putting together 

what the best plan is to combat terrorism. And certainly disrupting 

their financing is a key piece of it. 

One of the things I am most interested about as we go through 

this hearing is the various different agencies and entities that have 

a piece of this. This is a significant problem here. Nobody is directly in charge of it, because there are so many different pieces. 

Obviously Treasury, Justice, the Drug Enforcement Administration 

(DEA), a lot of different organizations will have some expertise, 

some authority and some resources to bring to bear to this fight, 
2 

the State Department as well, and obviously the DOD Special Operations Command (SOCOM). How do all those entities work together when they are not accustomed to doing that? 

Now, we have had some successes since 9/11, we have disrupted 

a lot of the financing, but we have not been as successful as we 

could be, at least according to the updated report from the 9/11 

Commission from a couple years ago. So the purpose of the hearing 

is to learn more of what we have done right and what more we 

need to do particularly to make sure all the different agencies who 

have resources that can be brought to bear to this problem do so 

in the most cooperative, effective and efficient manner possible, 

and how we might go about making that happen. 

With that, I will turn it over to the Ranking Member Mr. Miller 

for any opening statement he might have, and to request that—I 

have a written opening statement. Without objection, I would request that that be submitted for the record. 

[The prepared statement of Mr. Smith can be found in the Appendix on page 23.] 

STATEMENT OF HON. JEFF MILLER, A REPRESENTATIVE 

FROM FLORIDA, RANKING MEMBER, TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES SUBCOMMITTEE 

Mr. MILLER. Thank you very much. 

Mr. Chairman, likewise I have a written statement I would request be entered into the record. And in view of the fact that we 

are starting a little bit late, I will waive any opening statement, 

and let us proceed to the witness. 

Mr. SMITH. Thank you very much, Mr. Miller. 

[The prepared statement of Mr. Miller can be found in the Appendix on page 24.] 

Mr. SMITH. We will start with Dr. Matthew Levitt, who is the director of the Stein Program on Counterterrorism and Intelligence 

for the Washington Institute for Near East Policy. As you can 

imagine, he has a much longer biography than that, but to respect 

the time, I will simply turn it over to Dr. Levitt for his opening 

statement. 

STATEMENT OF DR. MATTHEW LEVITT, DIRECTOR, STEIN 

PROGRAM ON COUNTERTERRORISM AND INTELLIGENCE, 

THE WASHINGTON INSTITUTE FOR NEAR EAST POLICY 

Dr. LEVITT. Thank you very much, Chairman Smith, Ranking 

Member Miller, committee members. Thank you for the opportunity to appear before you today to discuss the imperative of interagency synergy to successfully track and disrupt terrorist financial 

networks. 

I am honored to testify today along with senior leadership from 

the Office of Secretary of Defense and U.S. Special Operations 

Command, whose offices play a critical role in combating the financing of transnational threats. 

My comments today are drawn from ‘‘The Money Trail: Finding, 

Following, and Freezing Terrorist Finances,’’ a Washington Institute study I recently coauthored with my colleague Mike Jacobson, 

who is here today. The full study is available on the Washington 

Institute’s Web site, and copies have been made available here. I 
3 

will offer just a summary of what I have written in my written testimony and ask that the full testimony be entered into the record. 

U.S. and international efforts to combat terrorist financing are a 

little understood, and often unappreciated, aspect of the global 

counterterrorism efforts. For example, while unilateral or U.N. terrorist designations are public actions, they constitute only one of a 

broad set of tools available to governments, international bodies 

and their private- and public-sector partners around the world. 

Pundits and the press alike show insufficient appreciation for the 

extent to which public designations are related to other equally 

productive ways of countering terrorist financing, such as diplomatic engagement, law enforcement and intelligence collection. 

It is not uncommon for a potential designation target to remain 

unnamed due to diplomatic or intelligence equities, policy considerations, or ongoing investigations. Designation may not be the most 

appropriate tool for every case of terror financing. Indeed, overt actions like designations and prosecutions are not the sum total of 

international efforts to combat terror financing, they are only the 

most visible. 

In a nutshell, that explains why an integrated, coordinated, 

interagency approach to countering the financing of transnational 

threats is so critical. The Treasury Department, where I served as 

Deputy Assistant Secretary for Intelligence and Analysis, brings to 

the table a powerful set of tools to protect the U.S. financial system 

from abuse, deny illicit actors easy access to the U.S. and international financial systems, and to follow the money as a means of 

identifying terrorist financiers and operators up and down the financial pipeline. But these are only some of the tools available in 

the counter financing of terrorism (CFT) tool kit and cannot be 

fully leveraged without the full participation of interagency partners. A successful strategy to combat the financing and 

transnational threats must leverage all elements of national power, 

including designations, prosecutions, intelligence and law enforcement operations, diplomacy, technical assistance, capacity building, 

military power and more. 

Terrorist groups need money. Although mounting an individual 

terrorist attack is relatively inexpensive, the cost of maintaining 

the infrastructure to support terrorist activities is high. Terrorist 

networks need cash to train, equip, pay operatives, secure materials, bribe officials and promote their cause. 

To eliminate or reduce a cell’s means of raising and transferring 

funds is to significantly degrade that cell’s capabilities. Additionally, by forcing them to abandon formal financial channels in favor 

of informal transfer in smaller denominations, the use of targeted 

measures has the cumulative effect of making the funds-transfer 

process slower, more cumbersome and less reliable. 

As the terrorist threat has evolved, the means by which terrorist 

groups raise, store and move funds has changed as well, often in 

ways that have hindered government efforts to combat illicit financial activity. Keeping pace with the evolutionary nature of the 

transnational threats we face today and the means of financing 

these threats in particular, demands close interagency cooperation 

and timely and actionable intelligence. Consider just a few examples. 
4 

Mirroring the broader shift toward the use of technology in global commerce, shifts have occurred in how funds are actually transferred using new technology. M-payments, where cell phones are 

utilized to transfer money electronically, are growing in importance. In 2006, a U.S. Government report assessed that ‘‘groups of 

all stripes will increasingly use the Internet to obtain logistical and 

financial support.’’ Technology and globalization have also enabled 

small groups of alienated people not only to connect, but to raise 

resources for attacks without need for an established terrorist organization. 

Terrorist groups are increasingly resorting to acts of crime to finance their activities. In some cases acts of petty crime, such as 

welfare fraud and credit card bust-out schemes, raise limited 

amounts of money for small operations. In others, aspiring terrorists raise significant sums through brazen crimes. One cell in 

France netted about a million euro when a member whose job it 

was to restock ATMs enacted robberies on several machines. 

According to the DEA, 19 of the 43 designated foreign terrorist 

organizations are linked definitively to the global drug trade, and 

up to 60 percent of terrorist organizations are connected in some 

fashion with the illegal narcotics trade. According to the Financial 

Action Task Force, the misuse of the nonprofit organizations for the 

financing of terrorism is coming to be recognized as a crucial weak 

point in the global struggle to stop such funding at its source. British officials concur, by the way, according to a British report, the 

risk of exploitation of charities is a significant aspect of the terrorist finance threat. 

Trade-based money laundering is a particularly effective method 

of hiding illicit transactions under the cover of legitimate business. 

Instead of actually transferring funds, one simply purchases and 

transfers commodities such as food or other goods. Such goods can 

be sent internationally even to sanctioned countries under the 

guise of humanitarian support. Once they have entered the country, the goods can either be sold directly for cash or transported to 

a third country for sale. 

Illicit actors have not only taken advantage of technology to finance activities, they have also reverted to older, less sophisticated 

methods to avoid official banking systems. This includes the growing use of cash couriers, bulk cash smuggling, hawala brokers, 

along with alternative commodities. 

Reacting to counterterrorism efforts, terrorists have begun transferring funds through their members’ personal accounts and those 

of their families, sometimes directly and sometimes through charities, in an effort to evade the scrutiny given to organizational accounts. 

It is important to recognize, however, that combating the financing of transnational threats will not in and of itself defeat these 

threats, nor is it intended to do so. But focusing on the financing 

of transnational threats has several concrete benefits. It has a deterrent effect. As difficult as it may be to deter a suicide bomber, 

terrorist designations can deter nondesignated parties who might 

otherwise be willing to finance terrorist activity. Major donors inclined to finance extremist causes who may be heavily involved in 
5 

business activity throughout the world may think twice before putting their personal fortunes and their reputations at risk. 

It is a useful tool for preventive intelligence. Unlike information 

derived from human spies or satellite intercepts, which require vetting to determine their authenticity, a financial transfer is a matter of fact. Raising, storing and transferring money leaves a financial trail investigators can follow. Definitively linking people with 

numbered accounts or specific money changers is a powerful preemptive tool, often leading authorities to conduits between terrorist 

organizations and individual cells, and it is a very useful disruptive 

tool. 

According to terrorists themselves, while following the money 

will not stop all plots, it will likely frustrate some of these activities. Back in 1995, captured World Trade Center bomber Ramzi 

Yousef was flown over the Twin Towers on his way to a New York 

jail. When the FBI agent flying with him pointed out that the towers were at that time still standing, Yousef replied, ‘‘They wouldn’t 

be if I had enough money and explosives.’’ 

At a minimum, tracking terrorists’ finances will make it harder 

for them to travel, procure materials, provide for their own families 

and radicalize others. Denying terrorists as well as insurgents and 

proliferators easy access to financial tools forces them to use more 

costly, less efficient, and often less reliable means of financing. 

Keeping them on the defensive and denying them the luxury of 

time and space puts them under stress, deters donors, restricts the 

flow of funds, and helps constrict their operating environment. 

Mr. SMITH. I am sorry, Dr. Levitt. We actually have a fairly full 

schedule in terms of having other people testify and questions and 

all that. If you could sum up in the next minute, that would be 

great. 

Dr. LEVITT. Sure. There are lots of reasons for the successes. One 

of them is interagency cooperation, and one example of that is the 

threat finance cells that have been useful in Iraq and now Afghanistan. The Iraq Threat Finance Cell (ITFC) in Baghdad is a good 

example of interagency efforts that make the success possible and 

is something that needs to be continued. 

As the Director of National Intelligence highlighted in testimony 

before this committee earlier this week, the international financial 

crisis is also having far-reaching consequences for a variety of key 

U.S. foreign policy and security concerns. While the financial crisis 

may dry up some resources of funds for terrorists, proliferators, 

and insurgents, it will also impact governments’ ability to finance 

efforts to counter illicit finance. It is my sincere hope that the successful efforts like the Iraq and Afghan Threat Finance Cells continue to receive the necessary funding to fulfill their critical missions in those respective theaters. 

Thank you. 

Mr. SMITH. Thank you very much. I appreciate your testimony. 

[The prepared statement of Dr. Levitt can be found in the Appendix on page 27.] 

Mr. SMITH. We will now have a few questions. We will now go 

through questions; five-minute rule for everybody. I will yield until 

the end, so we will start with Mr. Miller. 

Mr. MILLER. Mr. Chairman, allow me to yield as well. 
6 

Mr. SMITH. Mr. Marshall. 

Mr. MARSHALL. I am going to yield back to the Chairman so he 

can get the ball rolling. 

Mr. SMITH. Ah, they are never happy about anything. Normally 

they are sitting back there going, how come the Chairman and the 

Ranking Member are always talking? You try to be polite, it 

doesn’t work. 

I will be happy to ask the first question, therefore. I guess we 

talked a little bit about the interagency piece. The threat financial 

cell in Iraq and elsewhere in Afghanistan, I think they are working 

fairly well in terms of how that was pulled together. I guess the 

question is, stepping back to D.C. and looking at the entire terrorist financing network, because obviously it is in many, many 

places other than Iraq and Afghanistan, who should be taking the 

lead? How do you see the interagency piece working? How should 

they cooperate in a more comprehensive manner so that we can 

get—my read is we are fairly successful in Iraq and Afghanistan. 

When you get everybody into one place and you are working together, it is a very focused necessity being in a combat zone, but 

the broader problems can present greater bureaucratic challenge, 

and I am wondering what your take is on that. 

Dr. LEVITT. Thank you, sir. 

I think the first thing is there have been bureaucratic problems 

in the theater as well, especially when these MTs were first set up. 

But, of course, you are right; under pressure you make it work. I 

think that has had an impact back in Washington where the interagencies stepped up and I think became much better integrated in 

its efforts to support our fighters in Iraq and Afghanistan. 

Mr. SMITH. Can you walk us through the different pieces of that, 

who is taking the lead, how is it working, who is playing what role? 

Dr. LEVITT. There are a variety of roles, and I think it is probably better for the people who are actually running it to answer 

those questions since I have been out of government now for two 

years, and my answers would be two years old anyway. 

But to me this is something that has to be better coordinated. I 

don’t know that necessarily we are going to improve by giving one 

department or agency the lead. Perhaps the most important thing 

here is that there are lots of tools and lots of authorities. And like 

I said in my statement, as a former Treasury official, designations 

are a great tool. They are not always going to be the right authority, the best authority. 

What you need is to get people around the table in a 

subcounterterrorism security group, for example, and discuss, okay, 

we have a target, great. I don’t care if we use my authority or 

someone else’s authority, what are we going to do, as long as we 

do something. And my impression is that has gotten much better. 

There are always going to be turf wars, who has a lead on this, 

who has a lead on that. When I was back in government, we saw 

people were trying to figure out who took responsibility for this 

part of the National Intelligence Program (NIP) or that part of the 

NIP. But my impression is that this has gotten much better in part 

because it is an area where we have seen tremendous success. Unfortunately there is not a lot of open-source examples that we can 

give to show that success, and so the declassified examples are 
7 

what we are left with, and I give plenty in my written testimony. 

I think when you go into your closed session there will be plenty 

of things to talk about to highlight the successes that we have had. 

Mr. SMITH. Thank you very much. I have a little bit of time left. 

Does Mr. Marshall wish to have the rest of his time here? 

Mr. MARSHALL. I will take the rest of my time. You caught me 

by surprise. We are all interested in having your opinion. Admittedly, it may be a little stale, but I suspect not, because you have 

been writing about this, you study this, and you talk to people 

about this. The ways in which we need to improve, things that the 

United States internally should do in order to improve, and then 

more broadly the free world, all of our allies, those who are interested in cutting off funding for these terrorists generally, how do 

we all improve? 

Dr. LEVITT. There are lots of ways we can improve. Even though 

it is going well, we are never quite there. And in our study here, 

there is a whole section on policy recommendations. Some examples 

are: better empowering parts of the multilateral system to be as effective as they could be; the Counterterrorism Executive Director 

at the U.N. and 1267 Committee; increasing the power of the nonpolitical monitoring team at the U.N. to nominate entities and individuals for addition to the lists and removal from the lists; 

leveraging the Financial Action Task Force and even Wolfsberg 

Group and others in this effort. 

There is a lot that we can do in our bilateral and multilateral 

diplomacy to get more countries on board not only publicly, but, I 

would argue, even more importantly in terms of the intelligence 

angle of this to get them involved as well. 

Mr. MARSHALL. This is partially informational for all of us, but 

in addition we are in the process of drafting this year’s authorization bill for armed services. So do you have suggestions for us concerning things that need to be in our bill, or things that need to 

be changed in existing law, within our jurisdiction? 

Dr. LEVITT. I would have to get back to you to things specific to 

the military because that hasn’t been the focus of our study, although there are a few things in there. 

I would say that the military has played an important component 

of this, both here in Washington, the Office of the Secretary of Defense (OSD) and the combatant commands. When I was at Treasury, we saw firsthand the utility of sending some of our people 

Temporary Duty (TDY) to the combatant commands and taking 

people from the combatant commands TDY to us to create that synergy and interagency cooperation, and there was great success 

there. I would have to get back to you on specific recommendation 

for the military. 

Mr. MARSHALL. We, where drugs are concerned, often seize assets, and those assets wind up being used in order to fund police 

forces around the country. Is there anything similar to that that 

goes on with regard to these kinds of inquiries as we discover entities, individuals, who have been conduits or actually financing directly? Do we have any seizure process that we can go through to 

help us fund continued activities? 

Dr. LEVITT. Well, there is an interagency process, and I don’t 

know how that would work in terms of funding the military’s—in 
8 

terms of the military’s cooperation with DEA in particular. But it 

is an important point to note that we do see an increase in terrorist 

use of crime of all kinds, and in particular of the drug trade. In 

part that is because the drug trade is just so productive an industry. According to the U.N., the international drug trade generates 

$322 billion a year in revenue, which everything else pales by comparison in the criminal world. But both in terms of the groups like 

the Revolutionary Armed Forces of Colombia (FARC) in Colombia, 

Lebanese Hezbollah and others, there is a tremendous amount of 

activity involving drugs. And I happen to think that there is opportunities there, especially if you consider that the European Union, 

for example, doesn’t consider Hezbollah a terrorist group. They 

may not be as eager to work with us on Hezbollah issues as a terrorist target, but they are very concerned about the flow of drugs, 

and working with them on targets that are related to Hezbollah 

that are also involved with drugs is an opportunity. 

Mr. MARSHALL. Thank you. 

Mr. SMITH. Mr. Kline. 

Mr. KLINE. Thank you, Mr. Chairman, and I thank the witness 

for being here, for testifying, for the policy focus. And for his recommendation that it might be in our interest to move as quickly 

as we can to the classified portion, I will yield back. 

Mr. SMITH. Thank you. Mr. Murphy. 

Mr. MURPHY. Thank you, Mr. Chairman. Dr. Levitt, thanks for 

your service to our country and the Treasury and your continued 

service. We appreciate it. 

Your testimony about getting everyone to sit around the table, 

obviously there is concern after 9/11 of the failure of the Intelligence Community to really connect the dots. The Central Intelligence Agency (CIA) had pieces of information, the National Security Agency (NSA) had pieces of information, the FBI did, but they 

weren’t working together to share information for the big picture. 

Is there a concern that the same situation is happening again in 

our efforts to combat the terrorist financial networks? Have analysts across the agencies been able to format the data in a common 

manner that allows them to identify patterns of unusual activity, 

kind of like allowing them to sit around table and share within the 

same systems? If not, is there a need to potentially create an interagency financial intelligence unit to manage the data sourcing fusion analysis and information? 

Dr. LEVITT. Thank you. When I was Deputy Assistant Secretary 

at the Treasury, that was two hats; one was within the Department, and the second was as Deputy Chief of Treasury’s Office of 

Intelligence and Analysis that made me Deputy Chief of one of the 

16 U.S. intelligence agencies. 

It was my experience then, and, again, this is two years old already, so I imagine it is even better now, that a tremendous 

amount of progress had been made since the failures of 9/11. In 

particular I saw it on the terror finance front. I take great pride 

in the fact that Treasury Office of Intelligence and Analysis (OIA) 

plays a big role in that and was created by Congress to be the center of excellence on the analysis of illicit finance and has done a 

great job. I take even greater pride in the fact they have successfully become an integrated part of the Intelligence Community, and 
9 

that Treasury’s Terrorism and Financial Intelligence (TFI), more 

largely has become an integrated part of the interagency policy entity. 

I don’t want to go any more detailed than that because I am not 

Treasury anymore, and I don’t feel comfortable speaking for them, 

but I can say this: In other areas that are of critical importance 

for us today, for example counterradicalization, one area of extremely successful interagency cooperation has been not only large 

groups, but small groups that get together in a classified setting 

and go across the full spectrum of white, gray, black activity, completely open and completely classified. I would like to see—and I 

don’t know that it isn’t frankly, I am out—but it would be good if 

we had that type of small-group synergy in other critical areas, including terror finance. That may be happening, you guys can go 

into that in the closed session, but that, to me, is critical. 

Mr. MURPHY. I got that. I guess the focus of my question, though, 

is I want to make sure that the CIA isn’t basically generating data 

which are oranges, and, say, the FBI is getting information in the 

form of apples. 

Dr. LEVITT. No. 

Mr. MURPHY. So I want to make sure that they are speaking the 

same language in the format. Because you were there, say, two 

years ago, do you feel that that has been addressed or that still 

needs to be addressed? 

Dr. LEVITT. I do, I do. 

Mr. MURPHY. Thank you. I yield back to the Chairman. 

Mr. SMITH. Mr. Conaway. 

Mr. CONAWAY. Thank you, Mr. Chairman. In your testimony you 

talk about the reverting back to older technologies or techniques. 

Clearly if they are using wires in the normal banking system, we 

have got access in certain ways there. But talk to us a little bit 

about how well or not well we are doing in interdicting hawala and 

other nontraditional ways of moving money around. Is there a role 

to play or improvements to be made in trying to go at those systems, or are they so inefficient or ineffective that it is really just 

at the edge? 

Dr. LEVITT. Whenever we take an action, adversaries will take 

action to evade our actions. They will go more sophisticated and 

less sophisticated. When we rely on technology in particular, we 

have a handicap when our adversaries go to less sophisticated 

means of moving money. That doesn’t mean that there is nothing 

we can do. We can use traditional human sources; there are regulatory efforts we can do. 

There has been a lot of success in dealing with the hawala issue 

in theaters like Iraq, for example, which you can talk about later. 

There has been a lot of effort to leverage the United Nations, for 

example, to do training for governments like the emirates on regulation of hawaladars. And so I think there are a lot of good things 

happening. 

This is an area where we constantly have to assess and reassess 

what are our vulnerabilities, and I have argued that we cannot 

simply say, well, is there evidence that the terrorists or adversaries 

are using this means yet? We have to see where the vulnerability 

is and try and close that gap before they use it. For example, the 
10 

M-payments on cell phones are a great example of this at the higher end. 

Mr. CONAWAY. Thank you, Mr. Chairman. I yield back. 

Mr. SMITH. Thank you. Do any other Members have further 

questions? Mr. Murphy. 

Mr. MURPHY. I just want to follow up on a question that Representative Conaway kind of alluded to. In your earlier testimony 

you said EU doesn’t see Hezbollah as a terrorist group. Obviously 

that is not helpful with our efforts. But how about cooperation from 

Arab and Muslim countries, particularly Saudi Arabia? I understand we are not in a classified setting, so could you describe to the 

extent possible Saudi Arabia’s help? Granted you have been gone 

for two years from Treasury, but from your approach now, could 

you give us a feel for how cooperative Saudi Arabia has been? 

Dr. LEVITT. My understanding, and this is really from the field 

research that Mike Jacobson and I did for the study, there have 

been a lot of improvements throughout the gulf, including Saudi 

Arabia, and there is still a lot more that has to be done. The Saudi 

Arabian Monetary Agency, SAMA, was described to us by a variety 

of officials in the gulf, in the United States and elsewhere as the 

best agency of its kind in the region, which is significant. But there 

is still a lot of evidence that abuse of charity and other problems 

persist. 

Some of the rules that the Saudis have passed to deal with charities apply to some charities and not others, because apparently, as 

it was explained to us by a Saudi official, the Muslim World 

League and some of the other large entities based in Saudi Arabia 

are considered by the Saudi Government to be multinational organizations and are therefore not subject to law. 

But there has been a lot of improvement, we understand, in 

terms of anti-money-laundering efforts not only in Saudi, but elsewhere in the gulf. And it is important to note that our concern is 

not only with the one country, Saudi Arabia, which constantly is 

raised, but with others as well, and one country that we found is 

in need of a good look right now in this regard is Kuwait. 

Mr. MURPHY. Let me focus on the loophole of charities. With 

Saudi Arabia specifically, are there any other efforts beside closing 

up that loophole with charities in Saudi Arabia that you could 

share with us? 

Dr. LEVITT. That, to me, I think, is the biggest issue right now. 

Maybe the other one has been the long-standing and simmering 

issue of whether or not there is an oversight committee for charities. But I don’t want to harp on this, because it is my understanding that there has been a lot of improvement on intelligence 

sharing and cooperation. And some of the things that we can talk 

about in a negative light in an open session can’t be countered by 

things that maybe you guys can discuss later. I think it is in the 

Saudis’ interest, and I think they understand that, to deal with 

this problem. They are maybe not where we want them to be yet, 

but I think there is a lot of improvement. 

Mr. MURPHY. How about as far as with Kuwait, you talk about 

a need to focus our efforts on Kuwait. Can you elaborate that a little bit? 
11 

Dr. LEVITT. Several people that we interviewed for our study told 

us that Kuwait today is like Saudi Arabia pre-2003, meaning before the bombings, and that is a pretty significant statement. One 

diplomat who is in the region explained to us, you know, be aware 

of what you wish for. The Kuwaiti Parliament is perhaps the most 

robust democratic Parliament in the region, but it is dominated by 

people who see things differently than we do. And there is a 

counterterror finance piece of legislation pending that I understand 

the government is wary of putting forward to the Parliament for 

fear that it will not only be instantly rejected, but used by as a 

two-by-four with which to hit the Amiri Diwan over the head. 

If you follow the news in Kuwait, there is a lot of political upheaval there right now. I think there are some people in Kuwait 

who are trying to do the right thing. We met with them in the context of our research. They are frustrated with some of the problems 

they have right now, but this is something that needs a good look. 

Mr. SMITH. Thank you very much. I think we have two who are 

also going to testify here, and then we don’t have the SCIF until 

4:30, so we do have a little time here. So I will get General 

Fridovich and Mr. Frothingham up to the podium to testify. And 

we thank you very much, Dr. Levitt, and the committee will want 

to keep in touch with you as we move forward on this issue. We 

really appreciate your written statement. In particular it was very 

detailed and, I think, very helpful to us. I appreciate it. 

Dr. LEVITT. I appreciate the opportunity, thank you. 

Mr. SMITH. Thank you, gentlemen, for testifying for us today. We 

appreciate your help on this issue. 

We have General Fridovich, who is the Director of Center for 

Special Operations Command—sorry, Center for Special Operations, United States Special Operations Command; and Mr. Edward Frothingham, who is the Principal Director—your title is a 

mouthful, but I will say it all—Principal Director for Transnational 

Threats, Office of the Deputy Assistant Secretary of Defense for 

Counternarcotics, Counterproliferation, and Global Threats. 

General Fridovich, would you like to lead off or—it’s up to you 

guys, really. 

Mr. FROTHINGHAM. If you will. 

Mr. SMITH. Mr. Frothingham, you need to just pull it closer 

there. 

STATEMENT OF EDWARD FROTHINGHAM, III, PRINCIPAL DIRECTOR FOR TRANSNATIONAL THREATS, OFFICE OF THE 

DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR COUNTERNARCOTICS, COUNTERPROLIFERATION, AND GLOBAL 

THREATS 

Mr. FROTHINGHAM. Good afternoon, Chairman Smith, Ranking 

Member Miller and members of the committee. On behalf of General Fridovich and myself, I want to thank you for the invitation 

to appear and testify before you. We greatly appreciate the opportunity to discuss tracking and disrupting terrorist financial networks as a possible model for interagency cooperation. We think we 

have a pretty good story to tell. 

If you will, sir, I would like to offer my written testimony for the 

record and then perhaps make a few brief comments instead. 
12 

Mr. SMITH. Sure. 

Mr. FROTHINGHAM. Sir, it has taken an indirect route to get to 

where we are today. This process for the Department of Defense 

started in 1998 when the Congress passed the Drug King Pin Designation Act, which set up a scheme of having the interagency 

nominate king pins for designation, and the President then designating them, and then blocking property and interests in property 

subject to the jurisdiction in the United States. 

In the time that that law has been in effect, the President has 

designated 68 drug king pins and seven organizations. At the time 

it was considered to be a very important matter, and Congress 

acted appropriately, and we put together an interagency cooperative process which has served as a base for other things that we 

do in that field. 

As time goes on, we were attacked by terrorists in 2001, and the 

focus naturally turned to terrorism. In the process of that, it also 

naturally turned to terrorist financing as one of the things we 

needed to focus on. The government put together a strategy for 

combating terrorism, and then a subsequent strategy for dealing 

with terrorist finance, and also an action plan for dealing with 

that. 

And subsequently the Department of Defense, working through 

this process with the creation of our office, decided that we needed 

to add some coherence to the way we were doing threat finance, 

terrorist finance, drug finance, proliferation finance, and try and 

put it all into one hopper and deal with it as a policy. So in December of 2008, the Deputy Secretary of Defense created a policy that 

called for the Department to work with U.S. Government departments and agencies with partner nations to disrupt and degrade 

adversaries’ ability to negatively affect U.S. interest. 

To carry out that direction, the Department focused on three 

goals. The first was to validate that counterterrorist finance or 

counterthreat finance was a DOD mission; two, to educate both 

DOD and interagency on how DOD can support broad U.S. Government efforts to attack illicit financial systems that negatively affect 

U.S. interests; and three, to identify and propagate new counterthreat finance methodologies for the interagency. 

With regard to the first, I think we have demonstrated to ourselves and to many others that there is a causal relationship between attacking or focusing on threat finance and dealing with terrorist threats and other illicit activities. With regard to the second 

goal, we learned that when military commanders hear the term 

‘‘counterthreat finance,’’ many automatically assume a connection 

with Treasury and State Department administrative sanctions. 

While these are certainly the most public actions taken by the U.S. 

Government, they constitute only one broad set of tools. Publicly 

blocking bank accounts of individuals and organizations puts a 

spotlight on them and increases the risk to any company or government doing business with them, regardless of whether or not the 

assets were actually frozen. 

However, financial sanctions also legitimize additional actions 

which can include both financial, nonfinancial measures, and, in 

some limited cases, kinetic measures taken by DOD. This is where 

the financial warfare and military strategies converge. Most people 
13 

think of financial warfare as a substitute for military action, as a 

nonkinetic way to cure bad behaviors. The better view is that financial warfare can be a complement rather than a substitute for 

kinetic military operations. 

Sometimes the act of designation itself can motivate financial institutions to conduct a thorough search of accounts to determine if 

newly designated individual entities do not or do have an asset 

that can be frozen. This may add to our knowledge of specific accounts and provide insights and information to which the U.S. Government and its partners would not otherwise have access. 

With regard to our third goal, given all the disparate elements 

in the world of unconventional threats, narcotics networks, 

transnational criminal organizations, terrorist groups, et cetera, 

there should be a greater focus on putting these pieces together in 

a more comprehensive picture that would give the U.S. Government much-needed insights into their vulnerabilities. 

DOD has an opportunity to play a significant role in this new 

strategic environment to work closely with other departments or 

agencies to collaborate on identifying and, when appropriate, disrupting illicit networks. In order to be successful, however, DOD 

needs to fully embrace the ‘‘whole of government’’ approach. Other 

departments and agencies possess expertise and, more importantly, 

authorities to conduct counterthreat finance activities. We need to 

be able to leverage those authorities. These departments and agencies have collaborated in the years subsequent to 2001 and have 

developed a robust community for collaboration and coordination. 

DOD should look for ways to plug into ongoing efforts to accomplish these goals and help shape the new developing methodologies 

to combat these threats. 

Thank you for your interest, and, when you deem it appropriate, 

I look forward to answering your questions. 

Mr. SMITH. Thank you. 

[The prepared statement of Mr. Frothingham can be found in the 

Appendix on page 38.] 

Mr. SMITH. General Fridovich. 

STATEMENT OF LT. GEN. DAVID P. FRIDOVICH, USA, COMMANDER, CENTER FOR SPECIAL OPERATIONS, UNITED 

STATES SPECIAL OPERATIONS COMMAND 

General FRIDOVICH. Chairman Smith, Ranking Member Miller 

and distinguished members of the House Armed Services subcommittee, I have got a relatively lengthy document here I would 

like to submit for the record, and just highlight just a few things 

without using it, if that is all right with the Chair, so we can get 

on with what you all would really like to discuss. It is a very comprehensive piece. They worked hard on it. I know the guys behind 

me would love for me to read it to you all. 

Mr. SMITH. We have it in our books, and we all promise to read 

it. 

General FRIDOVICH. What I would like to highlight is USSOCOM 

clearly understands what authorities we have to do and what we 

are not to do. We lead this effort on behalf of DOD, and that authority is founded out of a plan called ‘‘7500, The War on Terror.’’ 

It clearly spells that the Secretary of Defense has asked SOCOM 
14 

to synchronize the behavior. We have got no compelling means and 

no empowerment to have the interagency do anything at all with 

us; however, semiannually, in April and in October, we hold global 

synchronization conferences that bring together communities of interest a lot like what Dr. Levitt referred to, and these are subject 

matter experts; they are invited. If they come, they come. 

We have had a very, very good, close relationship with Treasury, 

with Justice, DEA. We have partners that work and live with us 

all the time down in Tampa, and they reach back into their organizations here and bring the right people to really populate these 

groups. And we get after cross-functional and now for the first time 

cross-functional deradicalization, countering safe havens, countering terror finance, with the right amount of people with the 

right brain power coming and talking directly about problems that 

they can say, I have got pieces of that that I can fix, with the notion that at the end we outbrief to a senior executive committee at 

the three-, four-star and director level, and that they hear there is 

action and movement in the Concept Plan (CONPLAN) 7500 not 

just from DOD, but from the interagency. 

It is very compelling that people sign up for things without ever 

being asked, just because it is within their purview, the right thing 

to do, and we are actually making headway in this area. 

I think the thing that has changed from when the last testimony 

was, July 2005, about this and what has grown is that this group, 

this community of interest that has been led by this Lieutenant 

Colonel Jim Bischoff, this big mass of a man behind me here, has 

really taken the leadership for this group, has brought it around. 

Very, very personality driven. Interagencies shouldn’t be like that, 

but we all know it is. The more you hang around government, the 

more you understand that relationships and personalities have a 

lot to do with how successful you are. I would give a lot of the great 

credit to Colonel Bischoff and Ed Jelks behind me, who has also 

taken the counterdrug kind of narcoterrorism and brought those 

kind of assets into this and personalities into it as well. 

There are actually due-outs from the Department of Defense perspective as to what we owe DOD, and a lot of that has to do with 

being able to leverage technology, and being able to leverage and 

keep current tactics, techniques and procedures before what would 

be a global network to match a global network. That is what we 

are looking at. 

So as we expand, we are looking at a model and institutionalizing a model that I would say is relatively nascent. We have got 

people out. We are putting them out in geographic combatant commands. They are trained. They are specifically selected. We have 

great people populating our node of this down in Tampa. Again, the 

right people; we are selecting guys who got a very good law enforcement background, contracting with them for a while and seeing if it is a good fit, and looking for a longer-term bridging mechanism by which we have them in our institution, and then taking 

them and making sure we get them out to the field with, again, 

the right idea, the right concepts, cross-culture, and being able to 

go ahead and start leverage what their geographic combatant commander wants them to do, country by country, understanding that 

it is where we aren’t. The global terror finance network, obviously 
15 

path of least resistance, if you go after one place, as we say, it will 

morph, come up some other place. We have to have this network 

that can overmatch globally, and we are working towards that. 

I will stop right there and go ahead and look forward to your 

questions, gentlemen. 

Mr. SMITH. Thank you. 

[The prepared statement of General Fridovich can be found in 

the Appendix on page 46.] 

Mr. SMITH. Two broad areas. I will get as much as I can here. 

One, I am trying to get a greater grasp on the personnel brought 

to bear on this problem. There is the interagency piece as you understand it, and you also contract out some of the work that is 

done. So I guess, take an example, we have got a cell that we are 

worried about that we learned about somewhere in the world. I 

won’t get specific about where. You are tracking their financing. 

Who at SOCOM, who at DOD, and then what agencies do you coordinate with? Who sends up the flag and says, these are the people who need to get involved in making this work? And if you could 

also specifically talk to us about what contracting is done in that, 

if there is private contractors that you bring into the loop on some 

of this work as well. 

General FRIDOVICH. Do you want to start? Go ahead. 

Mr. FROTHINGHAM. The way we start setting these things up is 

we identify the requirement for a specific node to come together; 

for example, Afghanistan. We already deal with the people in the 

community, threat finance community, and we get a consensus 

from the interagency that this is where we want to go, and this is 

what we want to set up. 

Mr. SMITH. But who starts that conversation? Is that DOD or 

someone at Treasury saying, hey, we see this problem here? Is the 

Department of Justice—or who starts that conversation you just 

described? 

Mr. FROTHINGHAM. I think we will get into the specific bodies, 

interagency threat finance organization, in the classified section, 

but suffice it to say it comes from the interagency that they identified a requirement to go to a new area and develop another node. 

And then we come together and determine how we are going to 

man that, and then we try and figure out how we are going to resource that. We can get into specifics in particular countries, and 

concrete examples might help you a little bit more, but it is a community agreement. 

Mr. SMITH. General Fridovich. 

General FRIDOVICH. Thank you. 

We have the ability through two different mechanisms down at 

USSOCOM. We have got an interagency task force that is manned 

and led by a Director, one-star Brigadier General, Air Force, Bob 

Holmes, and they have a mission to look at the gaps and seams of 

the world, because you all know that every geographic combatant 

commander looks up into just about where his boundary is and 

then no further, when, in fact, you have to have a mechanism that 

looks global. 

The unique aspect of USSOCOM is we have global responsibilities, but no land that we own. We have got no battle space, yet 

we are held somehow responsible and accountable to making sure 
16 

that things on the gaps and seams—I think Pakistan and India is 

a great example, India in United States Pacific Command 

(PACOM), Pakistan in United States Central Command 

(CENTCOM). And where do things happen? There. And that is the 

opportunity that terrorist networks look for, and it is no different. 

We have been given this mission, kind of an implied task, to 

looks at the gaps and seams globally. So we do that. So it starts 

down from a tactical-operational-strategic perspective militarily. It 

starts down at USSOCOM through the interagency task force, and 

also in our J–3 Operational Division where this node, really a terror finance cell, works. And they work through their partners in 

Treasury and Justice and the FBI and DEA sharing information as 

best they can down there to see where we might leverage the critical—somebody else’s authorities and opportunity, and then work 

the intel community to start feeding that beast on a couple of levels, both down there tactically and operationally, and then back up 

to the National Capital region as well looking for the hybrid. 

Mr. SMITH. Thank you. I will yield back and go to Mr. Miller, 

and with the committee’s permission, after Mr. Miller we will go 

down to the classified setting. Mr. Miller. 

Mr. MILLER. Let us go ahead to the classified setting, Mr. Chairman. 

Mr. SMITH. We have about two minutes to kill before we run 

Abercrombie out of the room. 

Mr. MILLER. If I could follow up with the Chairman’s comments 

in regards to contractors and the makeup, if you can. What is the 

makeup of the personnel percentagewise, if you will, of contractor 

and Reserve personnel and Active Duty? Can you comment on that 

in open? 

General FRIDOVICH. I am going to defer to somebody who has a 

good right answer instead of—there are about 12 people that we 

have. It is a very, very good mix of intel. There are contractors. The 

contractors we look to get have a law enforcement—most case law 

enforcement skill set background so they will know what they are 

looking at. And they bring that culture to the military culture for 

us, which is very, very different. 

But I will stop right there and ask Colonel Bischoff to give a better answer. 

Mr. SMITH. Colonel Bischoff, and identify yourself for the record. 

Colonel BISCHOFF. I work for the general. I am his Threat Finance Chief. We do have about 12 folks right now, 10 contractors. 

One is retired DEA, one is retired CIA. We just hired a retired FBI 

agent. So the skill set we are looking for are the guys who have 

had a successful career in government, primarily in law enforcement, because that is where we are weak, in speaking back and 

forth and exchanging information with law enforcement. A spate of 

them are also career DOD intel types, but the guys we really look 

for, because that is our weak spot, is the former law enforcement. 

We have three full-time government employees we were able to 

bring on last year, GS–12, 13, 14—I guess those categorizations 

have changed to some pay band—and myself. And then we have 

had a couple other Reserve majors who have rotated through from 

time to time on six-month rotations. 
17 

Mr. SMITH. Are those multiyear contracts that you enter into 

with these retired folks? 

Colonel BISCHOFF. Sir, no. 

General FRIDOVICH. No, sir, not for the first year. Again, this is 

a nascent program we are looking at one year to see if it is a good 

fit for everybody. And then after that we have the option to go 

ahead and grow and write the contract multiyear. But no, sir, not 

to start with. It didn’t seem prudent to us whether the marriage 

was going to work. 

Mr. SMITH. Right. And of course one of the questions that occurred to me is that we have FBI agents, and we have Justice Department people, and we are hiring retired ones, sending them 

down to SOCOM instead of working with the ones who we have on 

the job who presumably know what they are doing. I understand 

there is probably a reason for that. I am sorry, Mr. Miller, go 

ahead. 

Mr. MILLER. I couldn’t have said it better, Mr. Chairman. I think 

I have used my two minutes. 

Mr. SMITH. We will go downstairs and reconvene in B–337— 

sorry, 2337. Go upstairs, my apologies, up to 2337. 

[Whereupon at 4:33 p.m., the subcommittee proceeded in Closed 

Session.] 

A P P E N D I X 

MARCH 11, 2009 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

MARCH 11, 2009 

(23) 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 

Æ