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STARVING TERRORISTS OF MONEY:

THE ROLE OF MIDDLE EASTERN

FINANCIAL INSTITUTIONS

JOINT HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

AND THE

COMMITTEE ON INTERNATIONAL RELATIONS

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

MAY 4, 2005

Printed for the use of the Committee on Financial Services 

and the Committee on International Relations

Committee on Financial Services

Serial No. 109–24

Committee on International Relations

Serial No. 109–120

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

SUE W. KELLY, New York, Chair

RON PAUL, Texas, Vice Chairman 

EDWARD R. ROYCE, California 

STEVEN C. LATOURETTE, Ohio 

MARK R. KENNEDY, Minnesota 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

MICHAEL G. OXLEY, Ohio 

LUIS V. GUTIERREZ, Illinois 

DENNIS MOORE, Kansas 

CAROLYN B. MALONEY, New York 

STEPHEN F. LYNCH, Massachusetts 

ARTUR DAVIS, Alabama 

EMANUEL CLEAVER, Missouri 

DAVID SCOTT, Georgia 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin 

BARNEY FRANK, Massachusetts 

(IV)

COMMITTEE ON INTERNATIONAL RELATIONS 

HENRY J. HYDE, Illinois, Chairman 

JAMES A. LEACH, Iowa 

CHRISTOPHER H. SMITH, New Jersey, 

Vice Chairman 

DAN BURTON, Indiana 

ELTON GALLEGLY, California 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

EDWARD R. ROYCE, California 

PETER T. KING, New York 

STEVE CHABOT, Ohio 

THOMAS G. TANCREDO, Colorado 

RON PAUL, Texas 

DARRELL ISSA, California 

JEFF FLAKE, Arizona 

JO ANN DAVIS, Virginia 

MARK GREEN, Wisconsin 

JERRY WELLER, Illinois 

MIKE PENCE, Indiana 

THADDEUS G. MCCOTTER, Michigan 

KATHERINE HARRIS, Florida 

JOE WILSON, South Carolina 

JOHN BOOZMAN, Arkansas 

J. GRESHAM BARRETT, South Carolina 

CONNIE MACK, Florida 

JEFF FORTENBERRY, Nebraska 

MICHAEL MCCAUL, Texas 

TED POE, Texas 

TOM LANTOS, California 

HOWARD L. BERMAN, California 

GARY L. ACKERMAN, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

DONALD M. PAYNE, New Jersey 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

BRAD SHERMAN, California 

ROBERT WEXLER, Florida 

ELIOT L. ENGEL, New York 

WILLIAM D. DELAHUNT, Massachusetts 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JOSEPH CROWLEY, New York 

EARL BLUMENAUER, Oregon 

SHELLEY BERKLEY, Nevada 

GRACE F. NAPOLITANO, California 

ADAM B. SCHIFF, California 

DIANE E. WATSON, California 

ADAM SMITH, Washington 

BETTY MCCOLLUM, Minnesota 

BEN CHANDLER, Kentucky 

DENNIS A. CARDOZA, California

THOMAS E. MOONEY, SR., Staff Director/General Counsel 

(V)

SUBCOMMITTEE ON INTERNATIONAL TERRORISM AND NONPROLIFERATION

EDWARD R. ROYCE, California, Chairman 

PETER T. KING, New York 

THOMAS G. TANCREDO, Colorado 

DARRELL ISSA, California, Vice Chairman 

MICHAEL MCCAUL, Texas 

TED POE, Texas 

JERRY WELLER, Illinois 

J. GRESHAM BARRETT, South Carolina 

BRAD SHERMAN, California 

ROBERT MENENDEZ, New Jersey 

ROBERT WEXLER, Florida 

JOSEPH CROWLEY, New York 

BETTY MCCOLLUM, Minnesota 

DENNIS A. CARDOZA, California 

DIANE E. WATSON, California 

(VII)

C O N T E N T S 

Page 

Hearing held on: 

May 4, 2005 ....................................................................................................... 1

Appendix: 

May 4, 2005 ....................................................................................................... 37

WITNESSES 

WEDNESDAY, MAY 4, 2005

Bukhari, Zahid H., Director, American Muslim Studies Program Fellow, Center for Muslim-Christian Understanding, School of Foreign Service, Georgetown University .................................................................................................... 29

Byrne, John, Director, Department of Compliance, American Banking Association .................................................................................................................... 26

Levey, Hon. Stuart, Under Secretary for Enforcement, Department of the 

Treasury ................................................................................................................ 12

Simons, Hon. Paul, Principal Deputy Assistant Secretary, Bureau for Economic and Business Affairs, Department of State ............................................ 14

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 38

Kelly, Hon. Sue W. ........................................................................................... 42

Royce, Hon. Edward R. .................................................................................... 51

Bukhari, Zahid H. ............................................................................................ 53

Byrne, John ....................................................................................................... 57

Levey, Hon. Stuart ........................................................................................... 70

Simons, Hon. Paul ............................................................................................ 77

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Kelly, Hon. Sue W.: 

Written letter to Prince Bandar bin Sultan bin Abdulaziz Al-Saud, Ambassador of the Kingdom of Saudia Arabia to the United States of 

America from members of Congress, February 14, 2005 ........................... 85

Written letter from the Royal Embassy of Saudi Arabia in response to questions from Hon. Sue W. Kelly and Hon. Edward R. Royce, February 25, 

2005 ....................................................................................................................... 88

(1)

STARVING TERRORISTS OF MONEY: 

THE ROLE OF MIDDLE EASTERN 

FINANCIAL INSTITUTIONS 

Wednesday, May 4, 2005

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

JOINT WITH THE

SUBCOMMITTEE ON INTERNATIONAL TERRORISM

AND NONPROLIFERATION, 

COMMITTEE ON INTERNATIONAL RELATIONS, 

Washington, D.C. 

The subcommittees met, pursuant to call, at 2:19 p.m., in Room 

2128, Rayburn House Office Building, Hon. Sue Kelly [chairman of 

the Subcommittee on Oversight and Investigations] presiding. 

Present from Subcommittee on Oversight and Investigations: 

Representatives Kelly, Royce, Kennedy, Garrett, Barrett, Davis of 

Kentucky, Gutierrez, Lynch, Scott, and Wasserman Schultz. 

Present from Subcommittee on International Terrorism and Nonproliferation: Representatives McCaul, Poe, Weller, Sherman, 

Schiff, and Berkley. 

Chairman KELLY. [Presiding.] I call this hearing of the Financial 

Services Committee on Oversight and Investigations and the International Relations Subcommittee on International Terrorism and 

Nonproliferation to order. 

This hearing was called to examine and assist efforts to reckon 

with the very difficult problem of charities being used to support 

terrorism and the spread of extremism. 

Since the vicious attacks on our country, we have placed special 

focus on this issue and despite the important progress we have 

made, this particular problem is not one that lends itself to simple 

solutions. 

As we continue our push for progress, our approach must continue to reflect an understanding of the complexities inherent in 

the task. We must consistently improve our understanding of the 

context which makes an honorable humanitarian impulse vulnerable to dangerous exploitation and misdirection. 

And while it is improper to think that the cure to this particular 

problem can be found through a stronger relationship with any one 

country, it is clear in this case that a key to greater success will 

involve improvements in our partnership with Saudi Arabia, which 

possesses a unique statue as a beacon in the Muslim world and has 

historically been a leader in Islamic charitable activities. 

2

There is good reason for us to be troubled with this aspect of 

U.S.-Saudi relationship in fighting terror finance. In that regard, 

I would like to enter for the record an exchange of letters that my 

colleague Congressman Royce and I had with Saudi Ambassador 

Bandar this year. 

So moved. 

Recently, attention has rightly focused on the Saudi Relief Committee for the Palestinians, one of the charitable committees run 

directly by the Saudi Government. Though it has provided legitimate relief aid, it also apparently provided a structured financial 

reward system for the families of Palestinian suicide bombers. 

This abominable practice was advertised openly on a government-run Web site that was only taken down about 2 weeks ago. 

Unfortunately, we have seen reports that Arab Bank and other institutions may have been involved in this payment scheme. 

Concerns related to this manner are emphasized by actions taken 

by the Treasury Department in response to inadequate money 

laundering controls at Arab Bank’s branch at New York City. 

The OCC said, ‘‘The inadequacy of the branch’s controls over its 

funds transfer business is especially serious in light of the highrisk characteristics of many of the transfers.’’

The Oversight and Investigations Subcommittee is committed to 

learning more about these deeply troubling circumstances. The 

public has a right to know what has happened and how our Government has responded. 

The committee’s attention to this issue in the coming months will 

remain focused on finding out what has happened. And I will be 

holding another hearing on this matter. 

The public will learn more about the Saudi charitable committee, 

the role of institutions used as conduits for supporting terrorism 

and the response of our Government to these circumstances. 

The public, and particularly the victims of these attacks and 

their families, deserve nothing less. This must be pursued, not only 

because of the critical importance of ensuring accountability for 

those who support terrorism, but also because of the disturbing 

precedent it ostensibly sets for other Saudi-run charitable committees which direct relief to other areas, such as Kosovo and Iraq. 

While on a fact-finding trip to Saudi Arabia last month, I learned 

about some of the positive effects from positive efforts undertaken 

by the Saudi Government in dealing with these charitable committees. There are significant efforts under way that we must acknowledge, but there is still more to learn about the controls for 

these government-run agencies. 

Recent reports about the Saudi Arabian chief justice encouraging 

the donation of funds to insurgents in Iraq should intensify our interest in assessing the effectiveness of Saudi charitable controls. 

In addition to these charitable committees, we must focus on 

international Islamic charities based in Saudi Arabia, such as the 

World Assembly of Muslim Youth, WAMY, and the International 

Islamic Relief Organization, IIRO, which are unaffected by the new 

Saudi Government regulations. 

These organizations are alleged to have supported Al Qaida and 

are known to proselytize a form of Islam which has shown itself 

3

prone to spawning extremist, militant movements, such as the 

Taliban. 

These Saudi-based charities still operate throughout the world 

with minimal transparency or controls. To date, Saudi officials 

have indicated that these charities operate largely outside of their 

sphere of influence. 

But it is difficult to accept this argument. There are deep interconnections. WAMY and IIRO were, in fact, created by the Saudi 

Government and are run currently by Saudi citizens. 

I note that even earlier this year, the Saudi Embassy put out a 

media release heralding a donation made by IIRO. This suggests 

a deep and continuing relationship. 

I very much agree with Undersecretary Levey’s statement in his 

written testimony which underscored the acceptance and importance of placing these charities under the review of the charitable 

commission of the Saudi Government and that the Saudi Government is in the process of establishing for monitoring charitable donations outside the kingdom. 

These charities, however, are not included in the commission’s 

portfolio. And I am talking about WAMY and IIRO. 

There must be open, continuing dialogue with the Saudis about 

this issue. 

Based on my meetings in Riyadh last month, I believe that Saudi 

officials would be willing participants in a more frequent discussion 

with Congress, as they, too, now bear the scars and burdens of 

being an Al Qaida target. 

Officials in Riyadh expressed to me repeatedly their interest in 

working with our Government and the Congress in fighting terrorism. 

We must engage that interest. 

In our discussions, we must also be prepared to refine our own 

approach to this issue. 

We have been mindful and we will be mindful that we are directly addressing one of the five pillars of the Islamic faith, that 

of Zakat, which guides Muslims to regularly donate a portion of 

their wealth to charitable causes. 

U.S. complaints regarding Muslim charities are often mistakenly 

perceived as lacking in respect for this fundamental obligation of 

the Islamic faith, thereby creating a serious complication for our 

hopes of resolving our national security concerns. 

It is critical that we continue discussions, not just with Saudi 

Arabia, but with all governments in the Middle East and North Africa, on steps they can take to strengthen their ability to detect and 

stop terrorist money flows without impeding important, honorable, 

humanitarian efforts. 

An important step forward in this effort has been the establishment of the Middle East-North Africa Financial Action Task Force. 

The MENA-FATF provides the ability for governments in the region to develop best practices and to share information on terrorists and their network within their different countries. 

I am pleased that the United States government and our U.S. 

Treasury is an official observer, has a delegation to MENA-FATF, 

and has provided technical assistance to the organization and its 

members. 

4

Most nations have laws on their books to fight money laundering 

and terror financing, yet there is no way to measure the effectiveness. Banks, charities and agencies of our own government are left 

to use their own resources to find out whether certain countries are 

trustworthy business partners. 

While organizations like MENA-FATF can help, the U.S. Government must take action to protect institutions that deal with nations that are not enforcing their anti-terror finance laws. 

I have introduced H.R. 1952, along with Ms. Berkley and my 

friend Mr. Royce and Mr. Feeney, to do just that. 

A terror finance certification regime can eliminate uncertainty in 

businesses and charities facing and working overseas while spurring other countries to enforce their laws. 

I look forward to working with the Treasury and my colleagues 

to move this bill forward in the near future. 

The U.S. and its allies continue to fight a ruthless enemy that 

will use any weapon whatever at its disposal to try to defeat us—

whether it is defaming its own religion, misleading banks and community leaders, or stealing aid meant for the poor and the starving. 

As we continue to take the necessary steps to defend ourselves, 

we must ensure that those who are victimized because of Al Qaida 

are not unduly hurt by those measures that we are trying to provide and are provided the means for making themselves as whole 

as possible. 

I turn now to Mr. Royce, my chairman. 

Mr. ROYCE. Thank you very much, Chairwoman Kelly. 

And by way of explanation, Chairwoman Kelly and I serve on the 

Anti-Terrorist Finance Task Force, the task force we put together 

over a year ago in order to kind of collaborate and work together 

to surface information. And her staff and my staff worked together. 

And so she has asked me, as the chairman of the Subcommittee 

on International Terrorism and Nonproliferation, if I could help her 

organize this joint hearing today. And I know this is unusual for 

us to come together across committees but, in fact, I think the 

paramount importance of this issue, the challenges we are facing, 

dictate that we work together. 

The 9/11 Commission, frankly, recommended for us a number of 

changes in Congress. And one of those key aspects that they focused on was tracking terrorist financing. They said that that must 

remain front and center in U.S. counterterrorism efforts. 

Now, terrorist organizations such as Al Qaida have allegedly 

used a variety of methods to finance their operations that stretch 

across the globe, including the misuse of some Islamic charities, including wealthy donors, including Hawalas and financial institutions—as Chairwoman Kelly is highlighting—drug trafficking and 

conflict diamonds. 

These are the major methodologies used by terrorist organizations. 

Tracking terrorist financing has proven an effective way not only 

to disrupt terrorist plots and organizations, but also to glean intelligence on terrorist operatives. As a matter of fact, it is one of the 

best ways. 

5

And on top of that, it is one of the best ways to get convictions, 

because once you have the paper trail, once you have the hard evidence financially, you have got the ability to indict and convict. 

However, because of its complexity and variety of methods, terrorist finance has been a hard target for the United States. 

As we will hear today, there has been progress in the fight 

against terrorist financing. For instance, the administration reports 

that funds that flow to Hamas have seen a substantial reduction. 

However, there is a long road ahead, and terrorists are constantly 

changing their financing tactics. 

The larger challenge is checking the ideology fueling terrorism. 

Charities continue to provide a variety of important functions in 

the Middle East and around the globe. 

A major goal of these charities, however, for some of them, is to 

spread a radical version of Wahhabist beliefs. And just as there is 

Christianity and the Christian identity movement, there is 

Wahhabism and there is radical Wahhabist ideology. 

And, thus, some Gulf state charities have funded several 

madrassas in Africa, in Southeast Asia, South Asia, Central Asia 

and Europe that teach jihad. 

And I have spoken with local leaders in a number of these countries—Uzbekistan, Kyrgyzstan—and I will give you one example, 

Chairwoman, in terms of Kyrgyzstan. There was a madrassa set 

up; 13 young men went to that madrassa in order to get an education. They found out they were learning jihad. When they tried 

to leave, they were all decapitated. 

And as the assembly member representing that district told me, 

in Kyrgyzstan, he said, ‘‘This is not a local Kyrgi custom. This is 

a radical custom that is being imported and taught here. And it is 

being done with petro dollars funding it from the United States 

and the rest of the world, and you need to cut off that flow of financing that is setting up and using these jihadi schools.’’

It came home a little bit to me when I was on the southern border, by the way, a couple of weeks ago talking to a border patrol 

agent who had intercepted someone from Kyrgyzstan who had 

trained in jihad in Afghanistan and was coming over our border. 

So eventually this does come back to haunt us in terms of national security. 

Algeria, Chad, same situation—West Africa, East Africa, most of 

the countries that I have visited there have raised this as a key 

problem in those societies. 

And it is these radical madrassas that are fueling the next generation of jihadists and perpetuating what some African leaders 

call a generational struggle between the vision of the elders in the 

community and the youngsters. 

So experts I have spoken with measure the amount of spending 

to support the building of madrassas worldwide in the hundreds of 

millions, if not billions annually, and a certain portion of this goes 

to the teaching of radical Wahhabist beliefs. 

Much of this, as I said, is our own petro dollars, and this has to 

be part of our dialogue with countries in the region at every level. 

And this is just as much an issue of public diplomacy as it is terror 

finance. 

6

Of course, those who are working to spread this ideology of terror 

are often depending on Muslims seeking to fulfill the Zakat requirements of their faith. 

We need to do everything we can to shine the light on those who 

seek to prey on fellow Muslims who are simply seeking to fulfill 

their religious obligations. Protecting the charitable community 

from terrorist abuse is of paramount importance and we need to 

work together with the Muslim community to do that. 

Significant international cooperation through bilateral relationships and multilateral institutions will be key to stem the flow of 

money to terrorist groups and extremist causes. 

Countries in the region have taken some first steps, yet many 

still do not have terrorist financing laws or have established financial intelligence units. And we have a lot of leverage to force the 

establishment of financial intelligence units and we should use it. 

Some have put laws on the books but enforcement remains in 

question. These issues will require our constant engagement. 

While progress has been made, I think there is little question 

that our enemies have a large lead. 

Thank you very much, Chairwoman Kelly. 

Chairman KELLY. Thank you, Chairman Royce. 

Mr. Guttierez? 

Mr. GUTIERREZ. Good afternoon. 

Thank you, Chairwoman Kelly, for this hearing. I have enjoyed 

working with you on many issues including those related to terrorist financing and I trust we will continue to do so in the future. 

I believe we need greater communication between the regulators 

and the industry regarding the filing of suspicious activity reports 

or SARs. 

While the quantity of SARs has grown exponentially to defensive 

filing, the Treasury’s Inspector-General recently found that the 

quality of SARs is severely lacking: 62 percent of the SARs examined revealed problems in data quality, including incomplete, inappropriate and/or inconsistent information. 

The Inspector-General’s report indicated that FinCEN needs to 

prioritize this issue. And I look forward to hearing from Undersecretary Levy about his ideas for improvement in this area. 

I also would like to hear from the witnesses whether it makes 

sense to put the families of suicide bombers on OFAC lists to prevent payments for martyrdom. Will this place too high a penalty 

on families that may have been unaware of their relatives’ activity? 

Or is this justifiable in the fight against terrorism? 

I am pleased that guidance was finally issued on April 26th for 

banks regarding money service businesses. While I would prefer 

that banks provide these services directly to consumers until 

enough banks and credit unions enter this market, and hopefully 

follow the fine example of Bank of America and offer no-cost remittances products, MSBs will be necessary to fill the gaps in service 

for many communities. 

This morning, the committee held a hearing about breaches in 

data security in private sector companies. 

While I am very concerned about that issue, I find it even more 

disturbing that Treasury has had ongoing problems with its own 

information security. 

7

It is rare that I agree completely with any of my colleagues, but 

specifically, Mr. Sensenbrenner. But on this issue, he stated on 

April 20th, he called Treasury’s failure to securer taxpayer and 

bank security data as completely unacceptable. 

Mr. Sensenbrenner went on to say, ‘‘It needs to be corrected immediately.’’ Mr. Sensenbrenner is absolutely right, and I would like 

to know what is being done in that area. 

I would be receptive to requests for more I.T. funding, but I am 

not convinced that it would be spent sufficiently. 

The Inspector-General recently found that getting Treasury’s HR 

Connect, high-tech personnel system up and running cost $173 million, substantially more than similar human resource computer 

systems at two other agencies. 

For example, at the U.S. Coast Guard, it spent $24 million, and 

the Agricultural Department, which spent $15 million, according to 

the audit report prepared by the Treasury inspector-general for tax 

administration. 

Furthermore, they are paying about $22 million annually to run 

HR Connect, far more than the $5 million to $6 million paid by the 

Coast Guard and the Agricultural Department to operate their system. 

The I.G. calculated that the $41 million may have been wasted 

in the development of the HR Connect. The contractor on that 

project was paid $109 million, and I would like to know who that 

contractor is, whether this contract was bid competitively, why the 

costs were so high and where the funds for the project came from. 

Finally, I am troubled that the assistant secretary for the Office 

of Intelligence and Analysis—and issue I have raised before—a position created more than 2 years ago continues to remain unfilled. 

I would hope that this office and its functions are a priority for 

Treasury and that this vacancy does not continue much longer. 

This chronic understaffing appears to be rampant throughout 

Treasury and may be the reason for some of the problems I mentioned earlier. 

I have been very supportive in the past for budgetary increases 

for Treasury, particularly in the area of terrorist financing. However, I would like to know how these funds are being spent to fill 

these vacancies, both in the area and overall. And I would like to 

know where and for what purpose these funds are being used. 

As of 2 months ago, press reports indicated that fully one-third 

of the senior policy positions at Treasury were vacant. While I am 

heartened that a few of these posts now have nominees, I would 

like to see more progress in this area. 

Thank you again, Ms. Kelly, for calling this hearing. And I look 

forward to the testimony of the witnesses. 

Chairman KELLY. Thank you, Mr. Gutierrez. 

Mr. Sherman? 

Mr. SHERMAN. Thank you, Chairwoman Kelly and Chairman 

Royce and Mr. Gutierrez, for holding these important hearings. 

I know that Chairwoman Kelly has been concerned with this 

issue generally and with the particular case of the Arab Bank, 

which she talked about. 

8

The Arab Bank has been ordered by the OCC to cease most of 

its banking activities and faces lawsuits by the relatives of Americans killed by Palestinian terrorists in the intifada. 

I commend her for holding these hearings, and look forward to 

future hearings specifically focused on the Arab Bank. 

It is an important case, that case of the Arab Bank, because it 

points out two of the most difficult problems facing us in the struggle against terrorism. 

One is the flood of Saudi money finding its way into the hands 

of terrorists and used to support certain madrassas and other organizations, which while not terrorist organizations themselves, teach 

a proterrorist line. 

The second is the willingness of some people—even people outside the Arab and Muslim world in some cases—to feel that the 

word terrorism does not apply to those who try to kill Israeli civilians. 

Now, let us look at the Saudis. Whatever positive developments 

the administration will tell us about today, Saudi cooperation preventing terrorism seems to apply only to those terrorists who have 

attacked Saudi Arabia’s ruling elite. 

It certainly does not apply—and in fact the opposite applies—

where you have Palestinian groups such as Hamas, Islamic jihad 

and others who are widely recognized as terrorist organizations by 

the civilized world, but who are supported by the Saudi royal family and those it has enriched. 

We should be very careful who we hold hands with. Saudi Arabia 

is not concerned about America. The Saudi Government is certainly 

not concerned about the Israeli civilians and the Indian civilians 

killed by Islamic terrorists. They are concerned solely with their 

own survival. 

That means that the Saudi Government will work against terrorism very narrowly, only against those groups that threaten the 

Saudis. Their support is not terribly deep. When it suits them, they 

will provide subsidies even to those groups that are at war with 

them. 

There is a tendency of the Saudi Government to buy off terrorists 

and to try to pacify those who support terrorists by showing those 

terrorist supporters that they are on their side, by aiding those terrorist groups who kill Israeli civilians, Indian civilians or just 

about anybody other than the Saudi elite. 

If you are in the business of fighting terrorism, first and foremost, you have to know who a terrorist is. We need definitions and 

lists. 

Hamas is not considered a terrorist organization by the Saudis. 

Thus, one of the most infamous terrorist organization can be funded and is funded by Saudi civilians, by the Saudi royal family. No 

amount of cooperation will be effective if we do not even agree on 

what problem we are trying to fight against. 

Second, the Saudis are not alone in supporting Palestinian terrorists. In fact, much of the world does not want to confront the 

truth. 

However you feel about the politics of their cause, the preferred 

weapon of Palestinian extremists is the suicide bomber who blows 

himself up in the midst of civilians. 

9

The United Nations is not able to come up with a definition of 

terrorism, because much of the world will not accept the definition 

of terrorism that does not exclude all Palestinian extremists from 

the definition, no matter what terrorist acts, no matter what barbarous acts that they engage in. 

Who expects any country to fight the funding of Palestinian or 

other terrorists if they do not believe that these groups are, in fact, 

terrorists? 

But as we focus on what others are doing abroad, we must also 

focus on what is going on in our own country. ‘‘Jihad in America’’ 

first broke the story as a PBS documentary last decade. It was produced by Steve Emerson, who now heads the investigative project. 

That show demonstrated what continues to be true today, and 

that is millions of dollars being raised from residents and citizens 

of the United States for the purpose of supporting terrorism in the 

Middle East. 

We have to be particularly vigilant of certain charitable groups, 

whose donors are getting tax deductions, when those groups operate substantially in the Middle East. 

New organizations can be formed by filing a few papers by the 

IRS. And the presumption is that they are entitled to tax deductions until such time as the IRS proves they are not. 

We may have to have a different rule for those groups who operate primarily in the Middle East, and that is that the IRS will have 

to investigate before tax exempt status and deductibility status can 

be presumed by contributors. 

Charities and NGOs operating in Palestinian territories ought to 

be subject to this greater scrutiny simply because so many of them, 

in the guise of providing charity, instead reward suicide bombers 

and their families. 

Helping widows and orphans sounds good. Earmarking funds for 

the widows and orphans of suicide bombers is nothing more than 

cash support for terrorism. And yet it is being done not only with 

U.S. dollars—private U.S. dollars—but private U.S. dollars subsidized through our tax system. 

I look forward to focusing on this problem further. I, myself, have 

to go to another hearing soon. And I will read that portion of the 

testimony I am not here to see live. 

I thank my colleagues again for holding this hearing. 

Chairman KELLY. Thank you very much, Mr. Sherman. 

Mr. Garrett, you have—Mr. Weller, do you have an opening 

statement? 

Who else do we have out there? 

Mr. Barrett, do you have an opening statement? 

Mr. BARRETT. No. 

Chairman KELLY. We are all clear over there? 

Does anybody have an opening statement? Let me put it that 

way. 

Mr. Lynch? 

Mr. LYNCH. Thank you, Madam Chair. 

Just briefly, I want to thank yourself and my friend Mr. Royce 

and the ranking members here, Mr. Gutierrez and Mr. Sherman, 

for holding this hearing. 

10

And I want to thank Mr. Levey and Mr. Simons for coming forward to help us with our work. 

Several weeks ago I was in Ramallah with Abu Allah, the new 

prime minister of the Palestinian Authority. And I see our problem 

now in two lights: One, we have to deny resources to terrorists and 

those organizations who would support terrorism; but secondly, we 

need to find a way to make sure that the resources that should be 

properly finding their way into the hands of legitimate charities in 

the Middle East get to their rightful destinations and are used for 

proper purposes. 

Some of the estimates I got when I was in the West Bank several 

weeks ago have the unemployment rate in Gaza and the West 

Bank among Palestinians between the ages of 17 and 35 at somewhere in the area of 40 percent. 

And that also is a source of terrorism—or a source of receptivity 

to extremism and possibly terrorism. 

So we have got to address both these problems. One is to deny 

those resources to known terrorist entities and people that would 

support that, but also to try to reduce the number of young Arab 

men that are unemployed—and young women who are unemployed—and so to sort of mitigate the circumstances that would 

give rise to extremism in that region. 

So we are hoping that the gentlemen here today will be able to 

help us with that problem. And I am looking forward to hearing 

the testimony of the witnesses. 

Thank you, Madam Chair. 

Chairman KELLY. Thank you, Mr. Lynch. 

Ms. Berkley? 

Ms. BERKLEY. Thank you, Madam Chairman, and I also want to 

thank Chairman Royce and Ranking Member Sherman and Ranking Member Gutierrez for allowing me to participate in this hearing. I am not a member of either of these subcommittees, but I am 

a member of the Subcommittee on the Middle East, where we have 

seen and investigated the dangers of terrorism and extremism. 

I want to give special thanks to Chairwoman Kelly, who has authored a bill that takes a very strong stance against State funding 

and State support for terrorism, and I am proud to be an original 

co-sponsor of that legislation. 

Tracking and ending terrorist financing must remain at the forefront of any American counterterrorism effort. 

We must make sure that terrorist organizations like Al Qaida, 

Hamas and Hezbollah, organizations that seek nothing but death 

and destruction for us and our allies, especially the State of Israel, 

do not have the financial means to carry out their missions of 

chaos and destruction. 

We must stop the flow of money that might fund another 9/11-

style attack. 

After a March 2003 terrorist attack in Netanya that wounded 35 

people, a local Islamic charity paid the bomber’s family over 

$14,000. The bomber’s father said that he believed the money was 

paid by Islamic Jihad. 

That money was funneled from terrorist fund-raisers into accounts in the Middle East through a Jordan Arab bank. That same 

bank is believed to be aiding and abetting terrorist groups and is 

11

implicated in the transfer of more than $20 million to over 45 suspected terrorist groups. 

It has also been accused of conspiring to commit terrorist acts 

with organizations such as Hamas, Islamic Jihad and the al-Aqsa 

Martyrs Brigade. 

How many suicide bombings are funded? We do not know. 

How many more of these terrorist funding streams exist but remain undetected by law enforcement? We do not know. 

I was pleased to learn of a recent action of the Office of Comptroller of the Currency when it downgraded the Arab bank’s status 

in the United States, but I remain very concerned that not enough 

is being done to stem the tide of terrorist money or Islamic money 

being channeled into terrorist organizations. 

When I think of the Saudis—and I blanch when they are called 

our so-called allies in our war against terrorism—the irony of this 

is that the Saudis, in my opinion, are the biggest exporters of terrorism and the biggest financiers of terrorists. 

They have the worst record on the planet when it comes to women’s rights and human rights and religious rights. They are the 

largest purveyors of anti-Semitism in the world. And this is what 

we call our ally in our war against terrorism—the very nation that 

is the perpetrator of our terrorist attacks, especially on 9/11. 

If one says that this is old and that there is a new relationship 

with the Saudis, and now after being attacked themselves they 

have, shall we say, found religion and are as concerned about the 

terrorists as the United States, I would like to draw your attention 

to something that happened just last week in Saudi Arabia when 

the Saudi chief justice publicly encouraged donations to the families of suicide bombers and donations in support of terrorism. Apparently, the Saudis have not yet gotten the word that they are our 

allies in our war against terrorism. 

One of the solutions to ending the financing of terrorism worldwide lies in the approach taken in a bill that will soon be before 

this committee, sponsored by Congresswoman Kelly. 

By requiring that nations comply with the requirements of the 

International Convention for the Suppression of the Financing of 

Terrorism, the United States can hold the rest of the world to a 

firm and identifiable standard. Nations must be required to adopt 

measures and pass laws that will prevent funds from being used 

in whole or in part in order to carry out terrorist attacks. 

It also makes clear that political, philosophical, ideological, racial, ethnic or religious considerations are not justifications for 

criminal acts. 

By withholding 50 percent of bilateral aid and refusing to support any multilateral aid, the United States will send a strong message that financing of those who support violence is not acceptable. 

Our focus here must not only be domestic, but international as 

well. Our European and Asian allies must take similar steps. 

Are they requiring tighter regulations and controls on banks and 

other financial institutions? Are they also willing to withhold multilateral assistance and place pressure on nations that do not cooperate in what has become another front in the global war on terror? 

These and other questions need to be answered. 

12

Legislation like the one introduced by Chairman Kelly offers a 

good solution. 

Stiffer financial controls and exerting our influence on other nations also is a solution. However, we must pressure our allies to 

match our actions. 

I want to thank you, Chairman Kelly, for calling this hearing. 

And I am anxious to hear from our witnesses. 

Chairman KELLY. Thank you, Ms. Berkley. 

Mr. Schiff, have you an opening statement? 

Mr. SCHIFF. Madam Chair, in the interest of time, again, the witnesses, I will be happy to waive my opening statement. 

Chairman KELLY. Thank you very much. 

Without objection, all members’ opening statements will be made 

part of the record. 

I would like to call our first panel: the Honorable Stuart Levey, 

undersecretary for enforcement in the Department of the Treasury, 

and the Honorable Paul Simons, the principal deputy assistant secretary, the Bureau for Economic and Business Affairs at the Department of State. 

Gentlemen, we welcome you. And we are very happy that you 

have been willing to share some time with us today. 

I would like to begin with you, Undersecretary Levey. I would 

like to hear your opening statement. 

STATEMENT OF HON. STUART LEVEY, UNDER SECRETARY 

FOR ENFORCEMENT, DEPARTMENT OF THE TREASURY 

Mr. LEVEY. Thank you very much, Chairwoman Kelly and Chairman Royce, distinguished members of the subcommittees. Thank 

you for inviting me to testify here today about the progress the 

U.S. Government has made in its fight against terrorist financing 

in the Middle East. 

Your personal leadership and that of these subcommittees has 

been vital to our shared work to keep our nation safe, and I am 

grateful for it. 

In the Office of Terrorism and Financial Intelligence, the office 

I head at the Treasury Department, we are working tirelessly to 

track and disrupt the flow of funds to terror in every area of the 

globe. 

Today, however, I would like to focus on the work we are doing 

in the Middle East and in particular with respect to charity. 

Terrorist groups have long exploited charities, using the sentimental appeal of widows and orphans to finance the murder and 

maiming of innocents. Charities are vulnerable for several reasons, 

as I have explained in the written testimony I submitted to the 

committee. 

As the Chairwoman stated in her opening statement, there are 

no simple solutions to this problem. That said, the U.S. Government has confronted the problem head on. 

Since 9/11, we have designated dozens of corrupt charities, including the Holy Land Foundation, the Al-Haramain Islamic Foundation, the Islamic African Relief Foundation, and many others. We 

have truly worked as a team, coordinating criminal actions with 

designations and diplomatic engagement to get the maximum impact. 

13

I am pleased to inform the committees of another significant action that we are taking just today. This afternoon, we designated 

the Elehssan Society, including all of its branches, as a charitable 

front for the brutal terrorist group, the Palestinian Islamic Jihad. 

Elehssan masquerades as a charity while actually helping to finance hideous acts of terror against the Israeli people and other innocents. 

As we have repeatedly demonstrated, we will not hesitate to act 

against those who enable murderers, regardless of how they disguise themselves. 

The impact of U.S. sanctions, such as these designations, carries 

tremendous weight in and of itself. In most cases, our actions prevent foreign designated entities from carrying out transactions in 

U.S. dollars, the international currency of choice. 

But recently we are also seeing that the ramifications of these 

actions extend much further than we had previously known. 

Some foreign private banks are now voluntarily using our list of 

designated parties as a screen to protect them from processing 

transactions from terrorists and criminals, even when not required 

by their domestic law. 

Such practices give a wide-ranging effect to our actions and represent a real success. 

Nor should the deterrent value of these actions be overlooked. In 

contrast to terrorist operatives, who may be willing to die for their 

hateful ideology, terrorist financiers typically have something to 

lose, whether it is property, occupation, family or social position. 

Being publicly identified as a financier of terror threatens an end 

to all of that. 

Our reporting confirms that once-willing donors are now thinking 

twice or balking altogether before sending money to terrorist 

groups. This, too, is a success. 

We recognize that the enforcement actions have sometimes also 

cut off sources of relief to communities in need. Our goal is not to 

deter charitable giving, but instead, as Chairman Royce suggests, 

to protect the charitable sector such that donors’ generosity is not 

abused. 

As you know, the assistant secretary has shown devoted leadership on this issue. 

This work has been especially important with the Arab and Muslim communities in the United States where the corruption of Islamic charities by terrorist groups has created a real problem. 

As Mr. Lynch suggested in his statement, this predicament is especially acute in the Palestinian territories where Hamas and other 

terrorist groups have intermingled ostensibly legitimate activities 

with terrorism. 

There is a particularly urgent need in this region to create safe 

channels of assistance that will not be subverted by terrorists. 

It is important for the prospect of peace in the region that a social safety net be provided in the territories by an entity or entities 

that are not subverted by terrorist organizations. 

I have explored this idea with President Abbas and the Palestinian territories and other Palestinian-Israeli officials. I was gratified to receive support and agreement from all involved. We are 

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14

tions through which such aid could be provided, and I am hopeful 

that we will be able to do so. 

A further promising development in the Middle East is the emergence, as the Chairwoman indicated, of the Middle East-North African Financial Action Task Force or the MENA-FATF. Launched 

in November 2004, this FATF-style regional body of 14 member 

countries has taken on the charge of developing regional solutions 

to terrorist financing and money laundering, based on the global 

guidelines set out by FATF. 

The expectation is that this will set standards and hold countries 

to those standards. This is a tremendous step in the right direction. 

But we are clearly only at the very beginning of the process. 

Many of these countries have not passed their own money laundering and terrorist financing laws; others have not established financial intelligence units; others have control over their informal 

hawala sectors; and others have failed to implement standards to 

stop the illicit flow of money through cash couriers. 

Our most important task in the Middle East to ensure that these 

standards are not only adopted, but they are implemented and enforced. We cannot measure our success by the number of laws put 

on the books but by changes made on the ground. 

Real progress will come in the form of border stops, cash seizures, account blockings, arrests and the like. 

It is my job in that process to be impatient for progress, and I 

can assure you that I am. 

We look forward to continuing our work with you on these issues, 

and I look forward to answering your questions. 

[The prepared statement of Hon. Stuart Levey can be found on 

page 70 in the appendix.] 

Chairman KELLY. Thank you very much, Mr. Levey. 

Mr. Simons? 

STATEMENT OF PAUL SIMONS, PRINCIPAL DEPUTY ASSISTANT SECRETARY, BUREAU FOR ECONOMIC AND BUSINESS 

AFFAIRS, DEPARTMENT OF STATE 

Mr. SIMONS. Thank you, Madam Chair. 

Chairman Kelly, Chairman Royce, distinguished members of the 

subcommittees, we very much appreciate the opportunity to be 

with you here this afternoon to talk about Middle Eastern terrorist 

financing issues. 

As Undersecretary Levey has noted, we have a very strong interagency process in place and, a rich toolbox of vehicles with which 

to encourage improved performance with our allies across the Middle East. 

Improving and strengthening the political will in key Middle 

East countries is a high priority for the State Department. 

My full statement contains details of what we are doing with individual countries. I thought I would just very briefly review a couple of the tools that we have available that we have been able to 

build up since 9/11. 

First, the international designation process: Mr. Levey indicated 

we have a new designation today. 

I think it is important to note that not only is the U.S. utilizing 

the designation process through the United Nations, through ResoVerDate 0ct 09 2002 14:29 Jun 21, 2006 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 G:\DOCS\28103.TXT RODNEY
15

lutions 1267 and 1373, but we have encouraged our partners in the 

Middle East themselves to propose and to join us in designations. 

Iraq, Syria Jordan, Saudi Arabia, Algeria and Kuwait, have all 

availed themselves of this technique, and we intend to encourage 

it further. 

Secondly, as you mentioned, Madam Chair and as Undersecretary Levey mentioned, we have the multilateral standard-setting 

process through the FATF—the Financial Action Task Force—and 

the new MENA-FATF efforts. 

And we are moving a long way to use this multilateral vehicle, 

as well as the mutual evaluation process within that vehicle, to get 

countries on board to upgrade their terrorist finance regimes. 

Third, we carry out bilateral capacity-building through technical 

assistance programs that are run through Treasury and the State 

Department. And we have come a long way there, too, over the last 

4 years. 

For example, we provided training to the Central Bank and the 

FIU in the United Arab Emirates in the areas of hawala and alternative remittance systems. And they in turn have become active in 

conducting their own follow-on training through a regional training 

center located in the UAE. 

Fourth, we have diplomatic engagements. Our ambassadors are 

very heavily engaged in promoting our terrorist financing agendas 

in the region. 

The Homeland Security Adviser Fran Townsend has repeatedly 

traveled to the region to indicate the high-level interest in the 

White House with both the Saudis and the UAE. 

And within every embassy we have designated a terrorist financing coordinating officer who basically runs an interagency process 

within our embassies to make sure there is good coordination. 

And finally we have law enforcement and intelligence cooperation with our partners in the Middle East that has been strengthened since 9/11. 

So I think we have come quite a long way in terms of building 

the toolbox. I believe that the effort that is advanced by this committee is pointing out that we still have a long way to go. And I 

think both Undersecretary Levey and I would agree to that. 

We have a lot of the tools available. We are moving in the right 

direction. Certainly our partners in the Middle East agree with us 

on objectives. And we are largely now in a debate over the pace of 

reform and how quickly we can move ahead. 

So in that regard we very much appreciate this hearing and look 

forward to your questions. 

[The prepared statement of Hon. Paul Simons can be found on 

page 77 in the appendix.] 

Chairman KELLY. Thank you very much, Mr. Simons. 

I would like to start questions with Undersecretary Levey. 

Sir, I am very concerned about the stories I have seen about terrorism transactions going through Arab Bank to the Middle East. 

I know you are unable to comment on the transactions leading 

up to the ongoing investigation of Arab Bank, and while we respect 

those constraints and appreciate Treasury’s focus on worldwide 

compliance with money laundering laws, I remain very interested 

in making sure the public learns more about this case and about 

16

what our Government is doing in response to these deeply disturbing reports. 

I would like to know what you are doing in response to the revelations to make sure that the international financial sector is secured against the supporters of terrorism. I would like to know if 

you are working with the Jordanian government on this, and what 

you are asking of the Jordanian government and what their response has been. 

That is a lot of questions. I am glad to repeat them. Would you 

like me to repeat them or you think that once is enough? 

Mr. LEVEY. Why don’t I give it a whirl, and if you think I have 

not answered them, I am sure, knowing you, that you will remind 

me. 

Let me say at the outset, Madam Chairwoman, I share the concerns that you have expressed. But as you also indicate, I am unable to comment on the particular transactions and the particulars 

of an ongoing review of Arab Bank’s New York branch. 

FinCEN and the OCC are working together in that case. And I 

have every confidence that they will take robust, fair and effective 

action at the appropriate time. 

For our part, as you indicate, the Treasury Department is focused on worldwide anti-money laundering controls as part of our 

responsibility to safeguard the international financial system. 

International financial institutions have a key role to play in 

that process by implementing appropriate controls within their operations. It appears that such controls were indeed sorely lacking 

at Arab Bank across all of their global operation. 

I traveled to the Middle East in February, in part to discuss the 

disturbing information we had received with respect to Arab Bank’s 

international operations, and also to stress to the Jordanians that 

they needed to put in place systemic controls—for example, passing 

an anti-money laundering law—to safeguard their own financial 

system. 

As it happened, on my way to Jordan, I stopped in Ramallah 

first. And there I met with a group of Palestinian bankers to hear 

their concerns about doing business in the West Bank, including 

the manager of the Arab Bank in the Palestinian territories. 

And what I heard from him was also disturbing. He told me that 

his banks had not filed a single suspicious activity report in the 

past 2 years across all the Arab Bank branches in the West Bank 

and in Gaza. 

When I got to Jordan, I met with the prime minister, the finance 

minister, other officials, the central bank governor and others. I 

underscored the concerns that I had when I left, as well as those 

that I discovered when I was in Ramallah, and stressed that, looking forward, effective controls must immediately be implemented to 

safeguard all Jordanian banks, including Arab Bank, against 

money launderers and terrorist financiers. 

Everyone I met with assured me they were committed to seeing 

those proper safeguards implemented in all of Arab Bank’s 

branches worldwide. 

As the primary regulator of Arab Bank in Amman, the Central 

Bank of Jordan is probably in the best positioned to oversee the 

bank’s procedures and reforms. And so, since I have returned, I 

17

have continued to engage with the Central Bank of Jordan as the 

regulator and have received on Arab Bank’s progress in instituting 

those reforms. 

Frankly, I have not been entirely satisfied with what I have 

heard. But I am encouraged by the responsiveness of the Central 

Bank of Jordan, and we will continue to work with them to ensure 

that effective safeguards are implemented across Arab Banks’ 

branches worldwide. 

The risks are simply too great to tolerate anything else. And I 

intend to keep the pressure on. 

Chairman KELLY. Thank you. I appreciate your comments, Mr. 

Levey. 

I intend to keep working with you, with both the Department of 

State and the Department of Treasury, because we need to learn 

all we can about this matter, because I believe that it will help us 

in moving forward, through strengthening our financial defenses 

against terrorism. 

To the extent that other members may be interested in talking 

about this particular issue, the Arab Bank issue, I want to let you 

know that I will be holding another hearing on this matter, where 

we can continue to examine the issue and the public will learn 

more about this issue as time goes on. 

Now, I have a question for both of you. In both of your submitted 

statements, the World Assembly for Muslim Youth, WAMY, and 

the International Islamic Relief Organization, the IIRO, are mentioned. I think it would be helpful if you could both elaborate as 

to why these particular organizations should be of great concern to 

us. 

Whichever one—Mr. Simons, you want to start with that? 

Mr. SIMONS. As you have mentioned, Madam Chair, and as several of the other members have mentioned, we have been working 

very closely with the Saudi Government over the last several years 

to persuade them to get a better handle on their charities situation. 

And as the Saudis have laid it out, they see two types of charities operating in Saudi Arabia: what they call domestic Saudi 

charities, some of which have international branches, and then 

what they look to as more multilateral organizations, such as 

WAMY and IIRO. 

We both publicly as well as privately, have indicated to the Saudi 

authorities that we believe that the same disciplines, in terms of 

oversight, ought to be applied to the domestic charities as well as 

to international charities such as WAMY and IIRO. 

So we believe that these are entities that need to have appropriate scrutiny by the Saudi authorities. 

And in that regard, we appreciate your trip and the efforts that 

you have made to interact with the Saudi Government on that particular issue. 

Chairman KELLY. Thank you. 

Mr. Levey? 

Mr. LEVEY. Well, as you indicate, Madam Chairwoman, on the 

IIRO and WAMY, these have been organizations that we have long 

been concerned about. 

And Mr. Simons is right that the Saudis have articulated this 

distinction that they say that certain organizations are domestic 

18

charities, others are multilateral ones. I do not think that we really 

believe that that is a valid distinction. 

The important point, though, is that when we consider the controls that they have put in the place or are in the process of putting in place with charities, on the one hand, they have said, ‘‘We 

are setting up a charities commission,’’ but it has not actually been 

made operational yet. 

When we raised that issue very vociferously, they said, ‘‘Okay, 

well, in the meantime, we are not going to let any charitable money 

leave Saudi Arabia.’’

And as I said in my statement that I submitted to the committee, 

if that is actually what happens, in the sense that no charitable 

money leaves Saudi Arabia, well, that is a satisfactory state of affairs for as long as it goes on. 

Frankly, I think we have significant concerns that because IIRO 

and WAMY and the Muslim World League are explicitly exempted 

from their definition of charities, we have significant concerns that 

that temporary fix is not being put in place with respect to these 

organizations and that is something which we intend to press on. 

Chairman KELLY. Thank you very much. I am out of time. I will 

turn now to Chairman Royce. 

Mr. ROYCE. Secretary Levey, good to see you again. 

And you mentioned that Saudi Arabia has worked with the 

United States to some extent to address Saudi charities, and you 

mentioned the concerns you have or measures which have not yet 

been taken—in your words, ‘‘measures that have not yet been 

taken by the Saudi Government.’’

And I appreciate your frank assessment. And that assessment 

contrasted a bit with Secretary Simon’s assessment that our terrorism finance cooperation with Saudi Arabia is real-time, ongoing 

and fully embedded into our day-to-day counterterrorism operations. 

Of course, what comes to mind is the question of why Saudi Arabia has not established an effective Saudi FIU, and you mentioned 

the failure to include three large multilateral charities under its 

Charity Oversight Commission, which the Saudis have failed to implement. 

So I guess my question is: What is the commitment of the Saudis 

moving forward on these points and what is the commitment of the 

United States on pushing these issues? 

We do have leverage. Saudi Arabia would like ascension into the 

WTO and other points of leverage. 

So how important is this issue to the United States in terms of 

utilizing what pressure we do have in order to get compliance on 

what I think a number of us feel is vital in terms of long-term national security interests? 

Mr. LEVEY. Let me respond to that, Chairman Royce. 

I think that the interagency group that works on terrorist financing, which Mr. Simons and I participate in actively, we do take it 

incredibly seriously. I think it is fair to say that there is no other 

country that has spent nearly as much time on engagement. 

And not only have we done it, the president’s Homeland Security 

Adviser, Frances Townsend, has engaged on the highest levels with 

them repeatedly. 

19

There has been undeniable progress, particularly since the spring 

of 2003. It is a much different state of affairs. And I think that is 

what Mr. Simons was referring to in his statement—a much different state of affairs since that time than before that time. 

They have taken real-time action to capture and kill Al Qaida 

facilitators and operatives in Saudi Arabia. That is real. 

They have, indeed, joined us in designating organizations and individuals that facilitate terrorism. 

In some respects, I think it is fair to say that Saudi Arabia has 

come further than other countries in the region. And we have to 

be careful that we do not become solely focused on Saudi Arabia. 

But that said, and I think, as you allude to, I think they have 

come the furthest and they had the furthest to go. They had significant problems in these areas and they still have a long way to go. 

Mr. ROYCE. The establishment of effective Saudi FIU would seem 

to be pretty basic. And that is of grave concern to us. 

Mr. LEVEY. And to me as well. And I know to Chairman Kelly 

as well. 

Mr. ROYCE. I was going to ask Assistant Secretary Simons: There 

was a column the other week by Jim Hoagland that a national security policy directive is being pulled together for what some have 

started to call the global war on extremism, and I wondered if you 

could shed any light on this. 

And an essential part of this, I guess, would be an effort to check 

the charities who are working to spread radical Wahabist beliefs 

and have crossed the line over into teaching jihad. 

Mr. SIMONS. Thank you, Mr. Chairman. 

We are, indeed, in an internal deliberative process, in taking a 

look at our tools with respect to the global war on terrorism. There 

is not too much I can say about it in an open hearing. We might 

be able to talk more about it in a closed session. 

But I can assure you that the two issues that you mentioned, terrorism finance as well as how to deal with what is taught in the 

madrassas and kind of the content issue that I think you have 

elaborated here—both of those are very important elements in this 

policy review that is under way. 

Mr. ROYCE. Undersecretary Levey, you mentioned the deterrent 

impact that the threat of being publicly identified as a financier of 

terrorism has had on those in the financial community. 

Would it not make sense to go a bit further and in essence name 

and shame also the states that are not cooperating in anti-terrorist 

financing efforts? 

Such a process would then require an annual written certification of Congress detailing the steps that foreign nations have 

taken to cooperate in U.S. and in international efforts to combat 

terrorist financing. 

And this process, then, would be similar for what we have in 

place for compliance of foreign nations on our anti-narcotics effort. 

I think everybody would agree that terror finance is just as important. 

And I just close by saying—well, also you might want to comment on what role Syria may be playing in financing of terrorism, 

on that subject. 

20

Thank you. And thank you very much for your good work, Undersecretary Levey. I appreciate that. 

Mr. LEVEY. Thank you. Thank you for that, Mr. Chairman. 

You raise a very complicated subject, actually, because in some 

ways we do call out countries that are not cooperative on terrorism—terrorism generally. 

Now, you have actually made it more particular on terrorist financing, and I appreciate that, because as we have discussed personally, or in your office, that is an issue that is obviously at the 

center of what I do, and we do go around the world trying to use 

whatever tools we can to persuade, cajole, coerce, whatever we 

have in order to get people to do more and better on this topic. 

On the other hand, one does not necessarily want to separate terrorist financing from terrorism. It is a part of the bigger picture, 

and so I think we have to be careful not to create a fault line that 

we do not really mean to create. 

But I do think that this is an issue that I would be very interested in exploring. And I know that there is a proposed bill that 

you and the Chairman have already introduced, which is something that is perhaps a topic of further dialogue between us, so 

that we can see if there is something that makes sense that we will 

be able to support. 

Mr. ROYCE. Thank you, Stuart. 

Chairman KELLY. Thank you. 

Mr. Gutierrez? 

Mr. GUTIERREZ. Undersecretary Levey, I am going to go back to 

my opening statement and the several questions that I raised as 

I read it. 

The quantity of SARs has grown. Many feel they are defensive 

filings. 

Treasury’s Inspector-General’s recently found that the quality of 

SARs is severely lacking. They stated that 62 percent of SARs examined reveal problems in data quality, including incomplete, inappropriate or inconsistent information. 

The Inspector-General’s report indicated that FinCEN needs to 

prioritize this issue. 

I would like to hear you comments for ideas and improvement in 

this area. 

Mr. LEVEY. Thank you for that question. 

I am familiar with the inspector-general report that you refer to, 

and obviously it has raised certain concerns. 

One of the things that I think is also worth pointing out is that 

the inspector-general, who has been very—the Office of the Inspector General in the Treasury—has been very helpful. They focused 

a lot of attention on the whole bank secrecy act system, and I think 

has made excellent suggestions over the years. 

And we have responded to those recommendations, I think, in a 

way that everyone involved thinks is very cooperative, including 

with respect to this report. 

We are committed to making the improvements that you refer to. 

I should maybe take a step back and say that, with respect to 

FinCEN’s ability to get high data quality in SAR filings and Bank 

Secrecy Act filings, I think that when we are fully on board with 

the BSA-direct project that Director Fox is working on, I would say, 

21

it is fair to say tirelessly, in order to get that up and running by 

October of 2005, frankly with the great support of this committee. 

That will be very helpful on that side as well. 

And also as we continue to increase electronic filing, one of the 

advantages—electronic filing has another advantage, which is that 

data quality is improved by the simple fact that you have electronic 

filing. 

Mr. GUTIERREZ. I guess maybe—because we are going to have 5 

minutes—you might, if you could respond more elaborately in 

terms of how you seen FinCEN prioritizing this issue and the exact 

responses that are going to be taken. 

I would like to go to another issue that I raised. 

The committee held a hearing this morning on breaches in data 

security in private sector companies. And, as I said, it is very rare 

when I agree completely with Mr. Sensenbrenner, but on this issue, 

he said, on April 20th, he called Treasury’s failure to secure taxpayer and the Bank Secrecy Act data, ‘‘completely unacceptable.’’

Mr. Sensenbrenner went on to say, ‘‘It needs to be corrected immediately.’’

What is your response to Mr. Sensenbrenner’s comments on 

Treasury and your information-gathering and the secrecy around 

it? 

Mr. LEVEY. Well, all I can say on that issue is that I very much 

agree that keeping the integrity of the Bank Secrecy Act data that, 

as you know, initially comes into the IRS, is extremely important. 

We take it very seriously. 

And again, it is something that the BSA-direct system would 

hopefully handle better from FinCEN’s perspective. To the extent 

this is a question that goes to——

Mr. GUTIERREZ. What measures are you taking to respond to 

what Mr. Sensenbrenner called as ‘‘completely unacceptable’’? 

Mr. LEVEY. I think it would be best to give you a completer answer in writing, because this is something that I think the IRS is 

the entity that should be responding. 

Mr. GUTIERREZ. I will look forward to that. 

I want to ask you about the inspector-general, again. 

He found that getting Treasury’s HR Connect, another high tech 

personnel system, up and running costs $173 million. He compared 

that to the $24 million that was spent at Agriculture, $15 million 

that was spent at the Coast Guard. 

He furthermore talked about $22 million annually to run HR 

Connect—far more than the $5 million to $6 million. So he made 

a comparison between what Treasury spent, both in terms of the 

system—$173 million—versus $24 million and $15 million—and in 

terms of $5 million to $6 million to run. This would be your $22 

million. 

And the I.G. calculated that $41 million may have been wasted 

in development of HR Connect. 

So could you give us the name of the contractor on the project 

that was paid $109 million? And I would like to know if the contractor is and whether the project was bid competitively and why 

the costs were so high, and just as importantly, where the funds 

for this project came from. 

22

Mr. LEVEY. I am sure that this will not be a satisfying answer 

to you, but I know I am not the right person to answer that question. And we will have to have the department respond. 

Mr. GUTIERREZ. And I raise this as an issue because I know that 

when there is not sufficient money and when large amounts of 

money are spent like this, I guess my concern is money being 

transferred from one area of Treasury to another area of Treasury. 

I did not bring it up, the I.G. looked at it and examined it. I am 

using their report and their data. 

And then I know I raised some issues—and my time is up—so 

if you could put in writing about the Office of Intelligence and 

Analysis and the assistant secretary, who is going to fill that job. 

I have raised this before. And other kinds of positions which have 

remained vacant, if you could give us a time line on how you see 

those positions being filled so that I am sure you will be better 

equipped to fight this war on terrorism. 

Thank you very much for your comments, Mr. Levey. 

Chairman KELLY. Thank you very much, Mr. Gutierrez. 

Mr. Garrett? 

Mr. GARRETT. Thank you. 

You had indicated earlier during your testimony with regard to 

another organization, ostensibly a charitable organization that has 

now been found to be in actuality a terrorist front, if you will—I 

guess besides looking at those organizations themselves, what action by either you or other agencies are taken for here and abroad 

the wealthy individuals who are contributing in supplying the 

funds to those organizations? If you can just briefly touch on that—

under the Patriot Act. 

Mr. LEVEY. Well, the Patriot Act does a lot of things, but this is 

something we had before the Patriot Act. 

If we designate an entity under this executive order, under 

IEEPA, which is a separate statute, it is a crime in United States 

domestic law for U.S. persons to contribute money to this organization. 

Mr. GARRETT. Is that a known standard? What is the mens rea 

requirement for the individual who donates to that organization? 

Mr. LEVEY. For a criminal prosecution there is a mens rea. You 

must have criminal intent. It is still an OFAC violation to have any 

transaction with a person who is on any of the OFAC designation 

lists, including this one. 

Mr. GARRETT. Is that any different under the Patriot Act, for an 

individual to be contributing to organizations? 

Mr. LEVEY. I do not believe that the Patriot Act affected that. 

Mr. GARRETT. So it is still, as far as you know, it is still——

Mr. LEVEY. There may be a change in penalties. I think it is possible. I am trying to think back to my time at the Justice Department where there were a number of penalty enhancements in the 

Patriot Act, but the basic crime of contributing money to a terrorist 

organization or designated terrorist existed prior to the Patriot Act. 

Mr. GARRETT. And I assume the answer to this question is no, 

but I will throw it to you. Is there any mechanism for a charitable 

organization—let us say it is a legitimate charitable organization—

to go to anyone, yourself or otherwise, to get themselves designated 

23

truly as a charitable organization and not one that anyone has to 

worry about them being a terrorist organization? 

Mr. LEVEY. Well, there is an answer to your question, which is 

not quite a one-word answer, which is, if we designate an organization and they want to be delisted, and they can come back. And we 

have had individuals, at least one individual I am thinking of in 

particular, that we have delisted after designating as a terrorist. 

We have resisted suggestions from many people that we create a 

white list of charitable organizations for a lot of reasons. 

We do not think that is the right way to go. We think that charities should be policing themselves instead of looking for us to come 

up with a white list. But the answer to that is, no, there is no list 

of charities that we endorse. 

Mr. GARRETT. You obviously understand the reason why people 

come with that question, because they feel that they are now the 

subject of being criminal prosecutions or otherwise by giving to the 

charities. And if they are trying to do their best to make sure that 

they are not, just because they are not on the list, if they had given 

to that charity 2 months ago before your designation, thinking that 

it was a charitable organization, they now may be suspects for 

what they are doing. 

The other question: You must have—and we have had a number 

of people come before us on this area, money laundering, what 

have you—and the amount of data that you must have to review 

and collect is just—is probably mindboggling. And is that the case? 

Mr. LEVEY. Well, luckily it is not just me. 

Mr. GARRETT. But it goes to a question that was raised by the 

other side of the aisle. Fortunately, we are moving in the right direction. In the banking industry, there is a more formalized customer I.D. program that is now in place. 

Despite some of their testimony elsewhere, we see that the SARs 

reports, that there is a more proactive and a more robust program 

as far as the SARs reports, that that is going in the right direction 

as well. 

And there is also the 314a response, back and forth, that are getting under those programs as well. 

So in light of moving in the right directions on all of those fronts, 

my question to you is, doesn’t it seem that where we are now with 

the CTRs, the cash transaction reports, that they are basically redundant and may be provided you with more data than is useful, 

that, A, it is redundant and more than you are going to be able to 

deal with anyway, and that we do not really need the CTRs at this 

point—more time on the SARs? 

Mr. LEVEY. I am sorry. I think that our position on that is that 

it is not an either/or situation. It is not either use 314a and cash 

transactions report—or use 314a and SARs or use the cash transaction reports. We think it should be a both/and, and we are best 

off by using both methods. 

I do agree that the—first of all, are moving in the right directions with respect to getting better SARs. There is, you know, 

bumps on the road, but I think we are generally headed in the 

right direction. 

And 314a is a fabulous tool which, frankly, we intend to and are 

trying to use more robustly than we have in the past. Just in the 

24

last few weeks, FinCEN set up a secure Web site that can be used 

to push information to the financial sector under 314a, and now we 

have to take the next step and actually do that. 

But the CTR reports that you refer to still do, from what we have 

been able to learn in the last few months, they still do provide very 

valuable information. I have not been privy to what all law enforcement agencies are doing with them, but I am familiar with the 

FBI’s experience and it still proves to be a very valuable source of 

leads for the FBI. 

Mr. GARRETT. Perhaps I would assess then, if not here but in the 

future, if you will be able to provide us in writing some example 

to substantiate that. 

Mr. LEVEY. I would be happy to. 

Mr. GARRETT. Thank you. 

Chairman KELLY. Thank you. 

We have just been called for a vote, but I would like to turn to 

you, Mr. Lynch, if we can keep it for 5 minutes, we can still, at 

least, get your questions in. 

Mr. LYNCH. All right. Thank you, Madam Chair. 

Gentlemen, I do not want you to take this criticism the wrong 

way. I appreciate all the work that you are doing, no question 

about it. And I know that you are doing everything possible and 

that we are still trying to devise tools to be more effective. 

But this September will be the fourth anniversary of the attacks 

on September 11th, and this process is taking too long. That we do 

not have a financial intelligence unit in Amman yet, we do not 

have one yet in Riyadh. I do not believe we have one in Beirut, 

Cairo. 

It is tough when we hear—and I appreciate your work at this. 

This is not criticism of you. It is of others who need to cooperate. 

But when we find out that we do not have one SAR from any 

bank in Ramallah—that is your testimony—that is troubling. And 

I just question, even with the establishment of this Middle East 

and North African Financial Task Force, are the tools in place for 

us to—even though we have got at least signals of willingness 

now—and I am not sure how genuine those are—do we have auditors in place who are actually going to be able to tell us whether 

or not we are getting compliance? 

You know, is this the real—in terms of what we are expecting 

from these other nations? I know it is a tough thing for you to 

judge. You are a couple of good guys, and you are trying to do the 

right thing. And I am not critical at all of your performance. I am 

just recognizing the difficulty at hand. 

And my question would be: What can we do here? What can 

Madam Chair do and Democrats and Republicans? 

This is, fortunately, one of the issues we actually are all together 

on. So it is not partisanship in this case that gets in the way. It 

is really how best to help you. Are there tools that we could give 

you or provide to you that would allow you to be more effective and 

remove some of the obstacles that you have? 

We have a strong relationship with Jordan. I was in Amman last 

month. And I know that we have given the blessing to a lot of 

NGOs to locate their Iraq-related activity in Amman. We have got 

25

the Iraqi policy academies in Amman, Jordan. We have got all this 

cooperation with them. 

And they have a lot to lose, quite frankly, by not cooperating—

similar to the Saudis. 

Are there things that we are not using that could be helpful to 

you in your task? 

Mr. LEVEY. I think maybe we should both answer this one, since 

it certainly applies to both of our departments. 

Let me say, I appreciate the spirit of the question. I always get 

a little nervous when someone starts, ‘‘Do not take this as personal 

criticism.’’

But I do appreciate—and both of these subcommittees have been 

very helpful to us and it has not been a partisan issue at all. I do 

think that, with respect to some of these countries—I should first 

say: I am as impatient as you are. 

I always say to the people I work with that I can only bring two 

things to this job: I am very impatient and I worry a lot. And those 

are the two things that I think are the most important characteristics that I need. 

Mr. LYNCH. And you are young. That might help as well at the 

rate we are going. 

Mr. LEVEY. Well, I do not know. 

But first of all, some of these countries are setting up FIUs. We 

have good FIUs in Lebanon and in Egypt that are doing good work. 

I believe we are going to get an FIU quite soon in Jordan. Certainly the atmosphere with Jordan is, as you say, very, very cooperative. 

So I think that there is a real—certainly a large number of people in these countries ‘‘get it.’’ And I am told that the discussion 

at the MENA-FATF, which one of my deputy assistant secretaries, 

Danny Glazer, went to, was very, very forward leaning and strong. 

But as I said in my testimony, it is not standard setting that we 

need. We need standard setting plus implementation and enforcement. Though I have to say, we are not going to get implementation and enforcement until we get the standards set and the laws 

passed, because it is hard to pressure a government to take action 

if they do not have the legal infrastructure in place to do it. 

In terms of tools that we need—and we had the exchange that 

I had with Mr. Royce—I certainly appreciate the attempt being 

made to try to fashion a tool that would give us more leverage. The 

tool given to us in the Patriot Act, Section 311 of the Patriot Act, 

has proved to be fantastic, really a powerful tool. 

As I put in my written testimony, the impact of a proposed rule 

on the Government of Syria, when we did a proposed rule designating the Commercial Bank of Syria as a primary money laundering concern, has been—I have to say, I, frankly, was surprised 

at how powerful the response was. But I am now coming to understand just how powerful that tool is. 

Whether there are additional ones, I think is the kind of dialogue 

that we should continue with respect to the attempt being made by 

Mrs. Kelly and Mr. Royce on their bill. 

Mr. LYNCH. Thank you. 

Chairman KELLY. Thank you, Mr. Lynch. 

26

We have been called for a vote. There are some members who 

have additional questions for this panel. They may wish to submit 

them in writing. 

I also have additional questions for this panel which I will submit for writing. 

So without objection, the hearing record for this panel will remain open for members to submit written questions to these witnesses and place their responses in the record. 

We thank you both very much for your appearance today. Since 

we have been called for a vote, we will be adjourning for—we will 

go into recess for approximately 20 minutes, and then we will resume for the second panel. 

Thank you both, gentlemen, for your patience and for appearing 

here today. 

Mr. LEVEY. Thank you very much. 

[Recess.] 

Chairman KELLY. Thank you very much for your forbearance in 

our taking the time to vote. I appreciate the fact that the two of 

you are here and welcome you. 

Just to let you know, the other members may have a little difficult time getting back. One of the elevators transporting members 

to and from the floor in the Capitol is broken and one of the trolleys seems to be down. So it is a little more difficult for us to get 

moving around right now. 

But we welcome you. 

We have panel two, the second panel, Mr. John Byrne, the director of the Department of Compliance from the American Banking 

Association, and Mr. Zahid Bukhari. He is the director of the 

American Muslim Studies program and a fellow at the Center for 

Muslim-Christian Understanding in the School of Foreign Service 

at Georgetown University. 

We welcome both of you and look forward to your testimony. 

Let us begin with you, Mr. Byrne. 

STATEMENT OF JOHN BYRNE, DIRECTOR, DEPARTMENT OF 

COMPLIANCE, AMERICAN BANKING ASSOCIATION 

Mr. BYRNE. Thank you, Madam Chairwoman. ABA appreciates 

this opportunity to discuss how the financial industry is addressing 

compliance with the USA Patriot Act and all the laws covering financial institutions’ anti-money-laundering obligations. 

To update members on the various industry AML challenges, we 

offer the following three observations and recommendations: Number one, the detection of terrorist financing by banks or other financial institutions, whether through charities or any other entity, 

will not be successful without effective government intelligence and 

continued private sector involvement in organizations such as the 

Financial Action Task Force. 

Two, whether in terms of BSA compliance or how banks work 

with MSBs, effective compliance with evolving AML requirements 

necessitates accompanying guidance. For example, it is counterproductive to label an entity or a country ‘‘high risk’’ without also 

issuing guidance on how to mitigate that risk. 

And three, until the financial sector receives improved guidance 

and a more balanced approach to examiner oversight, the volume 

27

of suspicious activity reports that banks submit to regulators will 

continue to skyrocket, frustrating government efforts to accurately 

detect genuine threatening activity. 

We have previously emphasized to Congress and this subcommittee that the banking agencies need to reach agreement on 

how the financial services industry will be examined for compliance 

under the Patriot Act. We are pleased to note that there is formal 

movement on coordination of exam procedures and these final procedures are now due out June 30th. 

ABA is also pleased that the agencies are exhibiting a commitment to greater consistency in 2005. For example, not only has 

FinCEN Director William Fox expressed public support for uniform 

assessments, but he has also directed the Bank Secrecy Act Advisory Group to form a subcommittee on exam issues. 

This subcommittee, co-chaired by ABA and the Federal Reserve 

Board, has met several times—as recently as April 29th—to discuss 

the pending interagency exam procedures. 

Uniform exam procedures will assist with industry concerns 

about exam inconsistency and the continued threat of zero tolerance by these same errant examiners. 

Terrorist financing: As Congress reviews how to best to detect 

terrorist financing conducted through charities, it must be restated 

that the financial profile for this crime gives no direction to the financial sector on what could be done to prevent this activity in the 

absence of additional government information. 

This crime is difficult, if not impossible, to discern, as it often appears as a normal transaction. We have learned from many government experts that the financing of terrorist activities often can 

occur in fairly low dollar amounts and with basic financial products. Guidance in this area is essential if there is to be effective 

and accurate industry reporting. 

The bottom line is that terrorist financing can only be deterred 

with government intelligence. A renewed commitment by law enforcement to real information sharing must become a priority, not 

a second thought. 

The financial industry continues to struggle over how to assess 

what types of risks are relevant to spotting terrorist financing. To 

date, the only public examples are the typologies listed by FATF 

for charities or non-government organizations, NGOs. The FATF 

warning indicators in this area do not, in our opinion, offer any 

real insight as to what types of activities are inherent to risky 

charities as opposed to risks in any other entity. 

We believe that government organizations, such as FATF, could 

benefit from developing typologies after active consultation with 

the private sector, a goal that the ABA is pursuing through an organization that we are part of, the International Banking Federation. 

There appears to be progress in this area, but we urge Congress 

to recommend to FATF that there be formal opportunity for the financial sector to be part of the FATF efforts in the areas of money 

laundering and terrorist financing. 

Finally, in deference to Undersecretary Levey, I must disagree 

with his answer to one of the questions regarding currency transaction reporting. 

28

As ABA has previously testified, again before this subcommittee, 

the 35-year-old law that relates to cash transaction reporting has 

become redundant and lost its usefulness. We believe that the time 

has come to dramatically address this reporting excess by eliminating CTR filings for transactions conducted by seasoned customers through their bank accounts. 

We would note that the purpose of Title 31 in establishing the 

Bank Secrecy Act regulatory regime is to require certain reports or 

records when they have ‘‘a high degree of usefulness for the prosecution and investigation of criminal activity, money laundering, 

counterintelligence and international terrorism.’’

ABA and its members strongly believe that the current CTR reporting standards have long departed from this goal of achieving 

a high degree of usefulness. We believe that CTR filing has been 

rendered virtually obsolete by several developments. We now have 

formalized customer I.D. programs under section 326 of the Patriot 

Act. We also have more robust suspicious activity reporting, and 

when we finally do address the problem of defensive filing, those 

forms will be more carefully crafted and certainly, the guidance 

will be improved. 

And the Government use of the 314a inquiry process, we think 

is a valuable addition from the Patriot Act that does help banks detect and look for terrorist activity through individual entities when 

those entities are named. 

We believe that combined improved monitoring conducted by institutions as part of their SAR processes with better minding of 

SAR data by law enforcement as well as judicious use of the 314a 

process yields a much more effective approach to law enforcement 

investigation of patterns of fraud, money laundering and terrorist 

funding. 

Consequently, we believe the time has come to recognize the redundancy of CTR filings for seasoned customers and to eliminate 

this inefficient use of resources by bankers and, more appropriately, by law enforcement. 

Changing the thinking about mandating the collection of routine 

cash data would have the following benefits: The vast majority of 

the over 13 million CTRs would stop; wasteful SARs would cease; 

bank systems and resources could be redirected; regulatory criticism for technical mistakes with CTR filings would end; and finally, law enforcement could redirect its resources to better evaluate SARs. 

In conclusion, we have been in the forefront of industry efforts 

to develop a strong public-private partnership in the areas of 

money laundering and now terrorist financing. 

This partnership has achieved much success, but we know that 

more can be accomplished. We commend the Treasury Department, 

the banking agencies, and FinCEN for their recent efforts to ensure 

a workable and efficient process. 

We obviously will continue our support for these efforts. 

Thank you, and I would be happy to answer any questions. 

[The prepared statement of John Byrne can be found on page 57 

in the appendix.] 

29

Chairman KELLY. I thank you, Mr. Byrne. I think what you have 

just said is very, very important. I would hope that someone from 

Treasury is sitting here taking notes. 

We turn now to you, Mr. Bukhari. 

STATEMENT OF ZAHID BUKHARI, DIRECTOR, AMERICAN MUSLIM STUDIES PROGRAM FELLOW, CENTER FOR MUSLIMCHRISTIAN UNDERSTANDING, SCHOOL OF FOREIGN SERVICE, GEORGETOWN UNIVERSITY 

Mr. BUKHARI. Thank you, Chairman Kelly. 

Thank you for giving me this opportunity to state the significance of Zakat in everyday Muslim life, and also to express the concerns of the American Muslim community on the efforts of starving 

terrorists of money. 

I was asked to address three specific questions, and I will do it 

one by one. But bear with me. I will sing a little different song, so 

please bear with me. 

The first question was raised said: What role does the Islamic 

charitable obligation, or Zakat, play in everyday Muslim life? 

Charity is an integral part of all religions. It is also a fundamental obligation of all Muslims to share their wealth with the 

poor and needy members of the society. 

Zakat, calculated at 2.5 percent of total savings, assets per year 

in the Sunni tradition, is one of the five pillars prescribed in Islam. 

The emphasis in Islam is not only on faith, but also on practice. 

Belief in God is not acceptable if one does not give charity to the 

poor or hungry people. 

It is strongly recommended that Muslims should give as charity 

more than the obligative Zakat. It is called Sadaqa. And there is 

a Jewish term almost sounding like that, meaning like that. 

Sadaqa is another act of charity. 

The difference between Zakat and Sadaqa is the nature of the 

giving. Zakat is compulsory and Sadaqa is voluntarily, and it can 

consist of anything from monetary gifts to acts of kindness, even 

a smile. 

The Islamic traditions discourage publicizing the acts of generosity. For that reason, Muslims give Zakat and other Sadaqa 

without any fanfare and only for their own salvation on the day of 

judgment. 

Another difference, I think, with Islam and the other religions 

about this issue of Zakat is, as a spiritual and philosophical matter, 

the ownership does not exist in Islam. All wealth and properties 

belong to God. A person is a trustee of his and her wealth and 

property and has the responsibility to spend and manage its 

wealth. 

In that sense, the poor have a right to part of it. On the day of 

judgment, each person will be asked about his or her acts of charity, including visits to the sick and responsibility to one’s neighbors. 

Among the Muslim communities all over the world, the Zakat 

has always been an effective tool for alleviating poverty, redistributing the wealth and resources among all sectors of the society, 

and establishing the system of social justice. 

30

But Islamic law has described a detailed set of rules and regulations for the collection and management of the Zakat money. According to the Koran, there is Chapter 9 and 60, there are eight 

specific categories where the Zakat money could be spent, and very 

briefly: for the poor, for the needy, for employees involved in the 

collection and administration of Zakat, for freeing captives, for relieving those in debt, for those who are traveling, for the sake of 

God, for Allah. 

This is where the public goods including education, health and 

infrastructure fall. 

And very interestingly, the last category is for winning the 

hearts and minds of others. That is also a part of Zakat, is another 

item. 

In America, the potential of the Zakat collection by the Muslim community is estimated by one economist around $1 billion per 

year. And every kind of the Zakat, Zakat-al-Fitr, that is the charity 

for the Ramadan feast at the end of Ramadan, the month and the 

festival of Eid al-Fitr is also estimated within $35 million to $40 

million each year. And that was distributed for the poor of the society and the community. 

The other Sadaqa, the other charity, is more than that, annual 

Zakat and annual Zakat-al-Fitr. 

At this point, let me also briefly talk about the American Muslim 

community. It is the most diverse and influential community in the 

world. Here we have, in America, Muslims from 80 different countries. And no other country on the planet has this type of diversity. 

Only compared in the parallel is the annual Hajj in Saudi Arabia, where we have 2 million Muslims coming from more than 100 

countries. But next to that, only we have in America this type of 

diverse Muslim community. 

A small replica of the Muslim world is living in the U.S. today. 

We have representation of all the religious schools of thought and 

intellectual trans-political ideologies. There are a large number of 

highly qualified professionals, fellows and experts in all fields in 

the American Muslim community. 

And I was also involved, before this American Muslim Studies 

Program, in a project map, Muslims in the American Public 

Square. It was funded by the Pew Charitable Trust. So we compiled a ‘‘who’s who’’ among American Muslims, and that will be 

published this year. We publish this volume, ‘‘Muslims’ Place in the 

American Public Square.’’ And we are publishing another volume 

about Muslims engaging the quality and the society here in America. 

Comparing with the national average, the community is much 

younger, more educated, and have higher income level. 

The American Muslim community is also becoming politically 

mature. In a national survey conducted in 2004 by the Project 

MAPS and Zogby International, 58 percent of the Muslim respondents said that they were profiled or discriminated after the September 11th, 2001. 

However, an overwhelming majority, more than 90 percent, also 

favored their participation in the American political process, interfaith activities and giving money to non-Muslim charitable organizations. 

31

So there is the first question about the Zakat. 

The second question was raised: How have terrorists used this 

obligation in American-based charities to fund illegal and dangerous activities aimed at the United States? 

Chairman KELLY. Mr. Bukhari, we will enter your entire written 

statement as a part of the record, but we would like you to sum 

up now please. Each of you were invited to testify for 5 minutes, 

and you have been talking for 5 minutes. If you could sum up, I 

would appreciate that. Thank you. 

Mr. BUKHARI. I gave the written statement, but very briefly I 

will say that right now, unfortunately, at this time Muslims are 

facing this dilemma. There is a shadow of suspicion on the Muslim 

charity that every act of Muslim charities is the act of terrorism. 

And that shadow of suspicion should be removed. The Muslim 

community and the Muslim charitable organizations, they are 

doing their best. They have established a national council of Muslim for nonprofit recently. They are doing their work in international arena, in the domestic. 

So I think the main concern is that that shadow of suspicion 

should be definitely removed. 

And we are ready; we can facilitate. Any agency of the Government should work with the Islamic organizations, charitable organizations and the needy people all over the world. 

For example, there are a lot of questions raised by Palestine 

today. But then one statement was made that millions of dollars 

by American Muslim community have been raised for terrorists. I 

simply very respectfully say that this is not true—absolutely not 

true. 

So we would like to facilitate—that any agency of the Government work with the American Muslim charitable organizations, 

work in the Palestinian or anywhere in the world to make that the 

money should be spent where the money should be spent, for the 

needy and the people—those who are very hopeless over there. 

So that is right now the crisis at this time, that this shadow of 

suspicion should be removed and the proper working mechanism 

should be developed for the partnership of the American Muslim 

community. 

[The prepared statement of Zahid H. Bukhari can be found on 

page 53 in the appendix.] 

Chairman KELLY. I thank you both very much for your testimony. 

Mr. Byrne, you mentioned you think CTRs are redundant and 

not useful. You also suggest that banks are having to file many too 

many SARs reports. 

If you were sitting in the position that Chairman Royce and I are 

sitting, what would you to do help clarify both of those things in 

terms of helping Treasury give banks more clarity and more certainty about both of those reports and the way that they file them? 

Mr. BYRNE. Madam Chairwoman, the issue of suspicious reporting is an interesting one because we actually are very active with 

the Treasury’s Bank Secretary Advisory group, and through the efforts of Bill Fox at FinCEN they have really made the system 

much more transparent. 

32

We are starting to get better example of trends through the SAR 

activity review, which, as you know from my testimony, I am part 

of that. But, more importantly, topologies and examples typically 

come back now through FinCEN and Treasury with some assistance from the private sector. 

So the SAR guidance is getting better. I think the real answer 

there is for you to perform oversight on how the examination of 

banks is going to occur, kind of post these new exam procedures 

through 2005 and 2006, and see if the banking industry has, in 

their view, felt that they have been treated fairly in terms of their 

SAR programs and procedures—more of an oversight on how our 

programs work. 

In the CTR area, this has been an issue for me for quite a while. 

In fact, I wrote a law review article back in 1990 that we thought 

then that CTRs really needed to change their focus. 

But now, in 2005, law enforcement will sit in front of you and 

say, ‘‘All data is valuable.’’ Well, it is just not the case. 

I think you need a very comprehensive review of where currency 

reports have been going—13 million a year—70 percent of them are 

on Wal-Marts and J.C. Penneys and retail stores that serve no 

value. 

The minimal amount that might be on something that they are 

investigating—law enforcement—really kind of supplements their 

ongoing investigation. 

So it is another area where I think you should demand a very 

careful review of where that process is. 

But do not look at CTRs in a vacuum. Look at what we are doing 

today with suspicious reporting, with wire transfer record keeping, 

with customer ID, and look at it in that context. Where does CTRs 

fit in with all the other information that banks are providing? 

If you do it that way, they are going to have to be frank about 

CTRs—where they fit in. 

And again, my educated guess is they will respond and say, ‘‘All 

information is valuable.’’ We just do not believe that is the case. 

Chairman KELLY. Mr. Byrne, I wonder if you would be willing to 

send this committee a copy of that article that you wrote? 

Mr. BYRNE. I will be happy to. It was before the days of electronic—so we will copy it and send it through. 

Chairman KELLY. Good. Okay. 

Chairman Royce and I both introduced H.R. 1952 that would create a terror finance certification regime to try to enable the private 

institutions to know which countries are the countries of concern. 

And I did not get the time to ask Secretary Simons about what 

they are doing on this front. But I would be very interested in 

whether you think that H.R. 1952 might be a useful tool for you. 

Mr. BYRNE. Having not read the bill, but I heard your description 

of it, it is basically setting up something similar to the noncooperative country designations of FATF, but only on terrorist financing. 

Obviously, in the abstract, designating a country as higher-risk 

is useful. The only caveat I would offer is that we have seen, specifically in the area of the MSBs—and, as you know, banks were 

told that MSBs were inherently risky and they gave us no real way 

to mitigate that risk—if you designate a country as noncooperative 

in the terrorist financing area, are you telling the banks to comVerDate 0ct 09 2002 14:29 Jun 21, 2006 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 G:\DOCS\28103.TXT RODNEY
33

pletely stay away from the relationship, are you telling us to just 

simply enhance our due diligence to work with Treasury or whomever to make better decisions? 

I would only suggest that we have seen some examples—for example, in the country of Latvia. Latvia is seen as a country that 

has a lot of problems. 

The problem with that designation is that many U.S. banks have 

simply distanced themselves from relationships there. And perhaps 

that was too broad a response on our part, because we really have 

no way to mitigate the risk. 

So I would just urge that, however you proceed with the legislation, understand that if you designate something risky, we will 

react, but we will react broadly and probably distance ourselves 

completely without some more direction. 

Chairman KELLY. I understand that one of the problems that the 

Treasury has and all the regulators in the financial area have is 

to maintain a certain oversight in such a way that they are not 

closing down channels that they need to be looking at. 

I am interested even with the MOU that just came out on SARs. 

Don’t you think maybe there could be a place for safe harbor for 

financial institutions that really made an honest mistake? I do not 

see in the way that the SAR reports are being used right now that 

we have got any place, any safe harbor, any placeholder for a bank 

that made an honest mistake, can come in and correct it and get 

on beyond it. What do you think about that? 

Mr. BYRNE. Well, there are a couple of issues here. 

First, we are filing today a comment letter to the FDIC and the 

other agencies on the overall regulatory burden relief project—the 

acronym is EGRPRA. And one of the many recommendations we 

are making besides the CTR recommendation that we are talking 

about today has to do with the multiple filing of suspicious activity 

reports. 

What happens today, what has added to the multiplicity of filings—if I file a suspicious report tomorrow on a particular entity, 

we have been directed every 90 days, if that account is still active, 

to continue to file on the same activity even if there has been no 

additional information. We do not think that is very useful. And we 

think that is adding to the problem. 

The safe harbor, in the early 1990s—again, unfortunately, I have 

been here way to long—but in the early 1990s, we supported a provision crafted by this committee that gives a safe harbor from litigation if an individual wanted to pursue an action against the institution. 

So this is not a safe harbor from the Government, this is, if we 

file on an entity and the entity decides to litigate, we are protected 

because we have made a decision, right or wrong, to file a suspicious report. So there is a safe harbor from that. 

But in terms of the Government, we do think they need to give 

us better deference on our SAR filings. And one area that it could 

help—and maybe it is not a safe harbor per se—but if a bank has 

made a decision not to file a suspicious activity report, I have 

heard too many times from our members that we get criticized for 

failure to file even though we looked up the activity, documented 

34

why we did not file and actually working hard to not file something 

defensively. Examiners have been critical of that. 

We need deference paid to the bank that had a program that 

looked at the activity and at the end of the day made a decision 

not to file. You can call it a safe harbor, you can call it due deference, in that area, I think it will be very helpful. 

Chairman KELLY. Thanks, Mr. Byrne. I am hearing that from my 

bankers that I represent as well. 

I am out of time. I would like to turn now to Chairman Royce. 

Mr. ROYCE. Thank you, Chairwoman Kelly. 

Let me just begin by asking the doctor: Do you have a view about 

Treasury’s outreach? 

You know, the Treasury Department is attempting to resolve 

some of the issues that you brought up in your testimony, trying 

to sit down with the community and work out a resolution of some 

of these sensitive areas. And I just wondered if you had a feeling 

of how that was going with the Treasury Department. 

Mr. BUKHARI. I think that outreach effort is commendable. And 

that their encouragement and also the leadership of, too, our national Muslim organizations, AMPAC and ISNA. 

Recently the Muslim community formed the National Council of 

American Muslims, nonprofit. It is a good development. 

But I would like to go beyond that. And that is an issue, for example, of when the other relief organizations, three or four relief 

organizations, they were banned. And the assets and the bank accounts are frozen—millions of dollars. Among those there was 

Zakat money. That is a very much religious obligation. 

We also got on some of these that want to make a pool of Muslim 

organizations and leave their Zakat money to be spent on their intended objectives. 

But that was not approved. And that Zakat money was dried up. 

And their Zakat money was paid for the expenses of litigation and 

lawyers and all sort of these. 

Other point is that here the American Muslim community, we 

are not only losing public diplomacy all over the world, but here, 

too. This Muslim community could become a partner. 

Mr. ROYCE. And that is why we hope that the Treasury Department succeeds in resolving some of these issues. 

At the same time, one of the questions I think is, as the United 

States government makes this assertion that some Islamic charities have been manipulated by individuals who have provided 

some form of support for organizations that are involved in jihadist 

activity. The question becomes a little more complicated. 

And I think we understand one of the reasons why is because not 

everyone has the view, not all scholars have the same view, with 

respect to the definition of the obligation. And that is one of the 

things that is debated. 

It is a minority view. But nevertheless, there are some scholars, 

and one in particular, Yusef Kardawi in Egypt, and he says that 

Zakat payments must be for the benefit of members of one of eight 

specific categories of recipients defined in the Koran. And you have 

defined that list. 

And that is admirable, that the goal is to assist people in need. 

35

But when he comes to the injunction to support those who are 

working in the cause of God, there is a little different interpretation, but it makes a big difference in terms of application by that 

standard. 

And that is one of the things we are wrestling with, because if 

that is extended to, say, financial or material support should be 

given to groups that claim to fight on behalf of Muslims in, let us 

say, Chechnya or Iraq or the Palestinian territories or other conflict zones, then we are into a different category, a whole different 

area. 

And you have a few of these Islamic scholars, such as the Egyptian cleric Yusef Kardawi that I mentioned, that have made these 

arguments. You have many scholars who have condemned the direct solicitation and the use of charitable funds for any violent purposes. 

But those Muslims seeking to fulfill these requirements make donations to Islamic charitable organizations and relief agencies, and 

they fund religious education programs and yet you do have the 

consequence, as Yusef Kardawi says, that some interpret this as 

fighting for such purposes in those occupied territories is in the 

way of Allah for which Zakat must be spent. 

And so I think that is what gives rise to the difficulty. And part 

of the dialogue is to figure out how the Treasury Department can 

work with the community in order to make this work, but with the 

reality that some, a minority, of scholars have reached a different 

conclusion. And that is what gives pause. That is what leads to 

concerns. 

How have those who have a commitment to the original interpretation, that charitable purposes means charitable purposes, how do 

they work to counter these radical beliefs? 

I know a number of people are countering those beliefs, and I 

thought I would give you an opportunity, Doctor, to expound on 

that. 

Mr. BUKHARI. Thank you, Chairman Royce. 

We can go a little bit back. For example, when—I am from Pakistan, also, originally from Pakistan, now American citizen. In the 

1980s, when the Muslims were fighting jihad against Soviet Union, 

at that time everything was encouraged—means the funding was 

encouraged. 

So probably that song is still singing. But I think, very respectfully I will say that a mechanism could be definitely defined and 

made here in America, because I think American Muslim community has a very unique position. As I said, this is a very highly professional, scholars and religious leaders are here, and we can work 

out. The unfortunate thing is that they are not the partner of the 

American policy-makers to convey the message. 

So if some mechanism with any government agency, even Congress or any other government agency, with the Islamic charitable 

organizations, things could be worked out very easily. On the recipient end, any recognized institution will receive that funding. 

Nobody else will receive that funding, and that funding will go only 

for charitable purpose. 

36

I think any mechanism in the Muslim community, the American 

Muslim community will welcome this type of intervention and we 

would like to facilitate this type of intervention. 

Nobody wants that his money—absolutely no Muslim will like to 

have that his money will be spent in any type of terrorist activity. 

So I think whatever the obligation other or whatever other leaders are saying, that the Muslim community is self-sufficient here, 

they can make a decision on that. 

To some extent we have done our homework. But right now we 

need help from the Congress and from the Government agency to 

work out any mechanism. 

Mr. ROYCE. As I said earlier—well, it is certainly the case that 

in the American Muslim community you have some of the highest 

percentages of advanced degrees of any communities, and there is 

an enormous gulf, as I said earlier, between Christianity and the 

Christian identity movement. To quote Mark Twain, ‘‘It is the difference between lightning and the lightning bug.’’ And likewise, 

there is an enormous gulf between those who are assisting charities—charitable giving, good works—and those few individuals 

who have an alternative vision with respect to jihad. 

I think it is important that the community work with Treasury 

to try to resolve and define these issues. 

And I think for those who are speaking out in order to counter 

the radical voices that have this view that is not the traditional 

view, that is important work as well. 

And so my hope is that Treasury can move forward with methodology and means that can help resolve this and find some solutions. 

And I thank you for appearing as a witness today. 

Chairman KELLY. I thank both of you. 

Dr. Bukhari, I am very pleased that you are here, that you have 

shared some time with us. And I share my colleagues’ concerns. 

Mr. Byrne, I look forward to working with you on some of the 

issues you have raised. We thank you very much for appearing 

here today. 

The Chair notes that some members who were not able to get 

back may have additional questions for this panel which they may 

wish to submit in writing. 

So without objection, the hearing record will remain open for 30 

days for members to submit written questions to these witnesses 

and to place their responses in the record. 

Thank you very much. 

This hearing is adjourned. 

[Whereupon, at 4:51 p.m., the subcommittee was adjourned.] 

(37)

A P P E N D I X

May 4, 2005

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