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95–059 PDF 2015

A SURVEY OF GLOBAL TERRORISM 

AND TERRORIST FINANCING 

HEARING 

BEFORE THE

TASK FORCE TO INVESTIGATE 

TERRORISM FINANCING 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

APRIL 22, 2015 

Printed for the use of the Committee on Financial Services 

Serial No. 114–15 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

ROBERT DOLD, Illinois 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

TASK FORCE TO INVESTIGATE TERRORISM FINANCING

MICHAEL G. FITZPATRICK, Pennsylvania, Chairman 

ROBERT PITTENGER, North Carolina, Vice 

Chairman 

PETER T. KING, New York 

STEVE STIVERS, Ohio 

DENNIS A. ROSS, Florida 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

DAVID SCHWEIKERT, Arizona 

ROBERT DOLD, Illinois 

BRUCE POLIQUIN, Maine 

FRENCH HILL, Arkansas 

STEPHEN F. LYNCH, Massachusetts, 

Ranking Member 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

AL GREEN, Texas 

KEITH ELLISON, Minnesota 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

KYRSTEN SINEMA, Arizona 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

April 22, 2015 ................................................................................................... 1 

Appendix: 

April 22, 2015 ................................................................................................... 45 

WITNESSES 

WEDNESDAY, APRIL 22, 2015 

Jones, Seth G., Director, International Security and Defense Policy Center, 

RAND Corporation ............................................................................................... 12 

Schanzer, Jonathan, Vice President for Research, Foundation for Defense 

of Democracies ...................................................................................................... 10 

Zarate, Hon. Juan C., Senior Advisor, Center for Strategic and International 

Studies (CSIS), and Chairman and Senior Counselor, Center on Sanctions 

and Illicit Finance, Foundation for Defense of Democracies ............................ 8 

APPENDIX 

Prepared statements: 

Waters, Hon. Maxine ........................................................................................ 46 

Jones, Seth G. ................................................................................................... 47 

Schanzer, Jonathan .......................................................................................... 58 

Zarate, Hon. Juan C. ........................................................................................ 76 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Jones, Seth G.: 

Written responses to questions for the record submitted by Representatives Wagner and Ellison ............................................................................. 91 

(1) 

A SURVEY OF GLOBAL TERRORISM 

AND TERRORIST FINANCING 

Wednesday, April 22, 2015 

U.S. HOUSE OF REPRESENTATIVES, TASK FORCE TO INVESTIGATE

TERRORISM FINANCING, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The task force met, pursuant to notice, at 10:03 a.m., in room 

HVC–210, the Capitol Visitor Center, Hon. Michael Fitzpatrick 

[chairman of the task force) presiding. 

Members present: Representatives Fitzpatrick, Pittenger, King, 

Stivers, Ross, Wagner, Rothfus, Schweikert, Dold, Hill; Lynch, 

Sherman, Meeks, Green, Ellison, Foster, Kildee, and Sinema. 

Ex officio present: Representative Hensarling. 

Chairman FITZPATRICK. The Task Force to Investigate Terrorism 

Financing will come to order. The title of today’s task force hearing 

is, ‘‘A Survey of Global Terrorism and Terrorist Financing.’’ 

Without objection, the Chair is authorized to declare a recess of 

the task force at any time. 

The Chair now recognizes himself for 3 minutes for an opening 

statement. 

Thank you, everyone, for joining us today for the first hearing of 

the House Financial Services Committee’s Task Force to Investigate Terrorism Financing. I would like to begin by first thanking 

Chairman Hensarling and Ranking Member Waters for working to 

establish this important task force and reaffirming this committee’s 

commitment to using its role to address the threat of terrorism. 

It is estimated that the terrorist attacks of September 11, 2001, cost al Qaeda just $500,000 to plan and execute. Today, in 2015, 

the United States once again faces the specter of terrorism, this 

time from groups such as the Islamic State, which has a reported 

net worth of over $2 billion, the product of self-funding methods 

such as illicit oil sales, human trafficking, regional taxation, and 

antiquity dealing. 

Today’s terror organizations are more evolved, thanks in no 

small part to better methods of funding and financing their dangerous brands of hate, extremism, and violence. The threats to freedom and democracy posed by the Islamic State and groups like it 

circle the globe, and the United States can ill afford to combat 

these enemies on the battlefield alone. Any global strategy against 

terror groups worldwide must attack at their funding source. Organizations, no matter how ideologically fanatical, can’t effectively 

function without requisite resources. 

2 

To address this vital piece of our Nation’s anti-terrorism strategy, this bipartisan task force has been established and charged 

with ensuring the Federal Government is using every tool at its 

disposal to deprive groups like the Islamic State, Boko Haram, and 

other terrorist organizations of the funds they rely on to advance 

their warped ideology. 

Over the course of the next 6 months, the task force will investigate financing and will work to determine if the rules and regulations the United States Government has in place are effective. 

As legislators entrusted with protecting the American people, we 

cannot sit back and wait for terror to come to us. While our military engages with terrorists on the battlefield, and law enforcement 

works to protect our homeland, Congress needs to make sure that 

we understand the nature of the threat and how we can strike our 

enemy by every means. By working together, Congress will find 

substantive, bipartisan solutions to expand and strengthen Federal 

policies as well as set an example internationally, ensuring that 

America leads at every level of the global response to terror, from 

the Islamic State to drug cartels. 

So it is my hope that today’s dialogue between our diverse bipartisan group of Members and the expert panel of witnesses joining 

us leads us to a better understanding of the challenges facing us, 

and shapes our discussion of long-term solutions moving forward. 

At this time, I would like to recognize the task force’s ranking 

member and my colleague, Mr. Lynch from Massachusetts. He has 

been a valuable asset and trusted bipartisan partner as we begin 

this important investigation. Mr. Lynch? 

Mr. LYNCH. Thank you, Mr. Chairman. I appreciate your kind remarks. 

Mr. Chairman, this new iteration of the Task Force to Investigate Terrorism Financing is sort of a continuation of an effort 

that has been under way for some years. I want to just thank 

Chairman Hensarling and Ranking Member Waters really for the 

insight. We have been doing this work, but not under the auspices 

of this committee, sort of out as a separate task force, and I am 

just very thankful and delighted that Chairman Hensarling and 

Ranking Member Waters have seen the importance of this and 

have really resourced it and taken a very serious approach to the 

work that we were doing basically as volunteers, myself and Mr. 

King of New York and others who preceded us. 

But we all understand, I think, that detecting and disrupting the 

flow of funding to terrorist groups is a crucial part of our fight 

against terrorism. And while it has proven to be challenging work, 

it is also vital and worthwhile, and I am honored to serve as the 

ranking member. And I want to thank Ms. Waters especially for allowing me to head this up for the Democratic side, and I look forward to working with Chairman Fitzpatrick, Vice Chair Pittenger, 

and the rest of my colleagues on the task force to improve our efforts to halt terrorist financing. 

Now, we are all very much aware of the threats presented by terrorist organizations, including ISIL and al Qaeda in the Middle 

East, and Boko Haram and Al Shabaab in Africa. Without the financial resources, these organizations will not be able to effectively 

3 

carry out their attacks, pay their fighters, and otherwise support 

their operations. 

Thus, one way to disrupt and to stop these groups, we believe, 

is to cut off their funding. In particular, we must support the important work of the Financial Action Task Force, an intergovernmental body consisting of over 30 member jurisdictions, which is 

dedicated to strengthening our worldwide anti-terrorism financing 

and anti-money-laundering policies. And also financial intelligence 

units (FIUs), the national centers that receive, investigate, and 

share financial intelligence with law enforcement agencies and 

international financial intelligence counterparts across the globe. 

This, of course, includes our own Financial Crimes Enforcement 

Network (FinCEN) which is our FIU responsible for safeguarding 

our financial system from illicit use by collecting, analyzing, and 

sharing financial intelligence with U.S. law enforcement agencies 

and others around the world. And they have been terrific. I have 

worked with them in Jordan, in Afghanistan, and recently in Nigeria, Morocco, and Tunisia. They have been doing wonderful, wonderful work and they, as well as the Treasury Department, have 

been an outstanding presence on our behalf around the globe. 

According to the U.S. State Department’s 2014 International 

Narcotics Control Strategy Report, many of the terrorist hot spots 

around the world, including Kenya and Somalia, do not have adequate systems in place to track and stop the flow of funds to terrorist groups. This makes them increasingly vulnerable to money 

laundering and financial fraud. 

Last month, members of our committee had a chance to travel 

to Nigeria as part of a congressional delegation through the House 

Committee on Oversight and Government Reform, and while there, 

we had an opportunity to examine the progress of regional counterterrorism efforts to combat the terrorist group Boko Haram. We arrived in Nigeria amidst media reports that Boko Haram had officially pledged its allegiance to ISIL, and in the immediate aftermath of a series of terrorist bombings perpetrated on March 7, 

2015, in Maiduguri, the capital of Borno State in northeastern Nigeria, which killed over 50 people and left about 140 people wounded. 

While in Nigeria, I met with the Nigerian Financial Intelligence 

Unit’s acting director, Francis Usani. During our meeting, it became apparent that the effectiveness of the government of Nigeria’s 

counterterrorism efforts against Boko Haram will greatly depend 

on its ability to address regional terrorist financing and money 

laundering activities. 

So we in the United States can play a significant role by supporting the Nigerian FIU in further developing its anti-terrorist financing and anti-money-laundering capabilities through advanced 

legal and operational training and technological assistance. 

Witnessing the important work of Nigeria’s FIU during this recent congressional delegation demonstrated the need for the United 

States to continue to support international government efforts to 

develop robust legal, regulatory, and operational frameworks to 

combat terrorist financing and money laundering. This should be 

done in accordance with the landmark recommendations issued by 

the Financial Action Task Force on Money Laundering (FATF). 

4 

While the United States Government is highly committed to its 

counterterrorism efforts, we must ensure that our government is 

also doing all it can to curb the flow of funding to terrorist groups, 

and evolve as these organizations constantly shift their funding 

methods. 

So in closing, I look forward to hearing the testimony from our 

witnesses so we can examine the issues further. I yield back the 

balance of my time. Thank you, Mr. Chairman. 

Chairman FITZPATRICK. I now recognize for an opening statement 

the vice chairman of the task force, the gentleman from North 

Carolina, Mr. Pittenger, for 1 minute. 

Mr. PITTENGER. Thank you, Mr. Fitzpatrick. Thank you for your 

leadership as chairman here. And I want to pay particular thanks 

to Chairman Hensarling for the role that he has played and the 

leadership, as he understands the role of the Financial Services 

Committee and what we can do to help intercept the funding, the 

terrorist funding and, as a result, not enable our adversaries to 

bring about their objectives. I would like to thank Ranking Member 

Lynch for his continued dedication to these issues, and also thank 

all of the Members who have committed their time and their efforts 

to this important task force. 

As Members of Congress, our first constitutional duty is to provide for the safety and the defense of our country. It is a duty to 

which we all are wholly committed. The threats around the world 

are growing, whether it is ISIL, Iran-backed terrorists in the Middle East, China, North Korea and Asia, Russian aggression, or Al 

Shabaab and Boko Haram in Africa, not to mention the drug lords 

right here in the Americas. 

I believe one of the most effective tools we have to counter these 

groups is through undermining the funding for those who seek to 

harm America and our way of life. Now is the time for great vigilance on the part of our counterterrorist financing system, and our 

successes in intercepting these funds will save countless lives. 

Whether it is through international organizations such as the U.N., 

or FATF, NATO, or through bilateral partnerships, but through efforts of our own government and private sector, we need to look at 

these issues carefully. 

I look forward to working together with each of you on this task 

force, and as such, creating solutions to the many problems we are 

facing. Thank you, and I yield back. 

Chairman FITZPATRICK. I now recognize the ranking member of 

our Oversight and Investigations Subcommittee, the gentleman 

from Texas, Mr. Green, for 1 minute. 

Mr. GREEN. Thank you, Chairman Fitzpatrick. And I thank Mr. 

Lynch, the ranking member, as well. I also would like to become 

one of the many who will thank the honorable chairman and the 

ranking member of the full Financial Services Committee, Chairman Hensarling and Ranking Members Waters. I think this is a 

most appropriate opportunity for us to do a good many things that 

will reap good benefits. 

Let me ask, Mr. Chairman, unanimous consent to include in the 

record an opening statement from the Honorable Maxine Waters if 

there are no objections. 

Chairman FITZPATRICK. Without objection, it is so ordered. 

5 

Mr. GREEN. Thank you. 

Mr. Chairman, I think this gives us a unique opportunity to follow the money. And I think following the money can give us an opportunity to understand who our friends are, which is exceedingly 

important, who our frenemies are, and who our enemies are. We 

have a duty, as has been indicated, to protect the American people. 

This committee will work, my belief is, in a bipartisan fashion. And 

I think we have to do this, because, to be very candid, those who 

want to terrorize and take lives, they don’t do it in a partisan way. 

This is an opportunity for us to show the kind of unity that can 

benefit the American people. 

I thank you so much for the time, and I yield back. 

Chairman FITZPATRICK. I now recognize for an opening statement 

the gentleman from Illinois, Mr. Dold, for 1 minute. 

Mr. DOLD. Thank you, Mr. Chairman. And I want to echo my colleagues’ thanks to our chairman, Chairman Hensarling, for his 

leadership and vision to create this task force, and the ranking 

member as well. 

This is a really important topic. The United States and our allies 

are currently facing threats from a constantly evolving array of terrorist organizations operating around the world. Many of the terrorist organizations depend on a common source of funding, mainly 

from the Islamic Republic of Iran. Some may mistakenly be under 

the impression that a nuclear deal is the only thing standing in the 

way of Iran’s acceptance as a good, legitimate actor on the international stage. Such an interpretation would be horribly incorrect. 

The fact remains that the government of Iran continues to be the 

world’s leading state sponsor of terrorism, providing funding to 

Hezbollah in Lebanon, Hamas, al Qaeda in Somalia, Bashir Assad’s 

regime in Syria, the Houthi rebels in Yemen, Iran’s own Islamic 

Revolutionary Guard Corps and more, including funding for attacks 

in the western hemisphere. 

We must prevent Iran from having the resources to create instability and terror activity around the world. I am greatly concerned 

by the recent reports that Iran would receive what amounts to a 

signing bonus of up to $50 billion upon completion of a nuclear 

deal. 

I am interested in hearing today from our witnesses to underscore how Iran would use those billions to finance increased terror 

activity around the globe and more specifically in the western 

hemisphere. Thank you. 

Chairman FITZPATRICK. I now recognize the gentleman from New 

York, Mr. Meeks, for an opening statement of 1 minute. 

Mr. MEEKS. Thank you, Mr. Chairman, and Mr. Ranking Member. 

It has now been a little over a decade ago since we witnessed one 

of the most devastating attacks on our homeland, and it happened 

to be in the City that I love, New York City. Since then, we have 

enhanced our ability to choke off terrorist financing around the 

globe. However, global threats continue to emerge, and we need to 

continue to respond in an aggressive and vigorous way. These 

issues are very important to my City and to us as a Nation, especially having witnessed firsthand the atrocities of terrorism, while 

also being the financial capital of the world, New York, with a 

6 

large concentration of international financial institutions that are 

also facing enormous challenges dealing with this evolving and 

complicated risk. 

Terrorism financing is clearly an emerging threat, and as ranking member on the House Foreign Affairs Committee’s Subcommittee on Europe, Eurasia, and Emerging Threats, it is a topic 

on which I spend a lot of time. Therefore, Mr. Chairman, I look forward to working with you and all of my colleagues on the task 

force in seeking more effective approaches that do not overly restrict financial institutions, but ensures that we have the proper 

protection and safeguards in place for all of our citizens. I yield 

back. 

Chairman FITZPATRICK. I now recognize for an opening statement 

the gentleman from New York, Mr. King, for 1 minute. 

Mr. KING. Thank you, Mr. Chairman. And at the outset, let me 

also thank Chairman Hensarling for establishing this task force. 

And I thank the ranking member, Ms. Waters, and also Steve 

Lynch for the interest and effort that he has shown in this vital 

issue over the years. 

Like Mr. Meeks, coming from New York we saw firsthand the 

horrors of an al Qaeda attack. I lost over 150 friends, neighbors, 

and constituents. None of us ever wants to go through anything 

like that again. So this is absolutely essential, because financing is 

an integral part of the terrorist network. I think it is especially 

true now in ISIL, because while al Qaeda may have been able to 

carry out attacks with limited financing, the fact is that ISIL does 

require large amounts of funding because of the extent of its power 

right now, because of the land mass it controls, and because of the 

large numbers of personnel for whom it has to provide funding. 

So with that, I look forward to the work of this task force, I 

thank the chairman for establishing it, and I look forward, as I 

know we all do, to working in a very bipartisan way. I yield back 

the balance of my time. 

Chairman FITZPATRICK. I now recognize the gentlelady from Arizona, Ms. Sinema, for 1 minute. 

Ms. SINEMA. Thank you, Mr. Chairman, and Ranking Member 

Lynch for forming and leading this important task force. 

The Islamic State has become one of the world’s most violent, 

dangerous, and well-financed terrorist groups. In 2014, the Islamic 

State generated approximately $1 million per day. These funds 

were raised predominantly through the sale of smuggled oil, but 

other funding streams include taxation, extortion, and kidnapping 

for ransom. Over the past year, this group raked in $45 million in 

ransom payments, and the terrorist kidnapping operation only continues to grow. 

Kayla Mueller, from my home State of Arizona, was one of these 

captives. She was kidnapped while leaving a Doctors Without Borders hospital in Aleppo, Syria. The Islamic State demanded $6.6 

million and the release of U.S. prisoners in exchange for Kayla’s 

life. After spending 18 months in captivity, Kayla died in the custody of the Islamic State. 

I met Kayla when she was a student at Northern Arizona University, working to stop genocide in Darfur. She was mature, 

thoughtful, dedicated, humble, and above all, caring. Her work on 

7 

behalf of humanitarian causes will never be forgotten and her legacy of love and generosity, even in the face of terror, will be forever 

remembered. 

Terrorist groups such as the Islamic State constantly develop 

new ways to finance their deadly operations and threaten America. 

To keep our country safe, we must be one step ahead of them. I 

am committed to working with my colleagues to keep money out of 

the hands of terrorists and find solutions that protect America’s 

safety and security. I yield back. 

Chairman FITZPATRICK. And I now recognize for an opening 

statement the chairman of our full Financial Services Committee, 

the gentleman from Texas, Mr. Hensarling, for 1 minute. 

Chairman HENSARLING. Thank you, Mr. Chairman. First, I don’t 

recall a hearing where I have ever been thanked so often by so 

many Members on the other side of the aisle. I am very glad this 

is on the record. But on a serious note, I think what it shows is 

that when it comes to protecting our homeland, when it comes to 

protecting our citizens, we, again, are Americans first. I want to 

thank the ranking member for working to put together this bipartisan task force. 

I want to thank you, Mr. Chairman, for your commitment to the 

issue, and I want to thank you in advance for your leadership. I 

want to thank the ranking member, Mr. Lynch, as well, and the 

vice chairman, Mr. Pittenger of North Carolina, and all the Members. You are charged with an incredible responsibility here. We 

know that the terrorist threat is constantly evolving, morphing, 

metastasizing, and so are their finances, and so you are each 

charged to ensure this task force thoroughly examines and evaluates any need to upgrade and improve our Nation’s ability to starve 

the terrorists of the financial resources they need to carry out their 

evil attacks. I can think of no more somber responsibility than you 

have. I thank you for undertaking it, I look forward to the task 

force getting on with its work, and I look forward to hearing the 

witnesses in this hearing. Thank you, Mr. Chairman. 

Chairman FITZPATRICK. We now welcome our witnesses. Mr. 

Juan Zarate is currently senior advisor at the Center for Strategic 

and International Studies. He is also chairman and senior counselor for the Foundation for Defense of Democracies. Mr. Zarate 

served as the Deputy Assistant to the President, and the Deputy 

National Security Advisor for Combating Terrorism from 2005 until 

2009. Prior to joining the National Security Council, Mr. Zarate 

was the first Assistant Secretary of the Treasury for Terrorist Financing and Financial Crimes. He also served as a prosecutor in 

the Department of Justice’s terrorism and violent crimes section. 

Mr. Zarate received his undergraduate degree from Harvard College and his law degree from Harvard Law School. 

Dr. Jonathan Schanzer is vice president of research for the Foundation for Defense of Democracies. Prior to this assignment, Dr. 

Schanzer worked as a Terrorism Finance Analyst at the United 

States Department of the Treasury. He is also a former research 

fellow at the Washington Institute for Near East Policy. Dr. 

Schanzer has an undergraduate degree from Emory University, a 

master’s degree from the University of Jerusalem, and a Ph.D. 

8 

from King’s College, London. He also studied Arabic at the American University in Cairo. 

Mr. Seth Jones is director of the International Security and Defense Policy Center at the RAND Corporation. Mr. Jones served as 

the representative for the commander, U.S. Special Operations 

Command to the Assistant Secretary of Defense for Special Operations. Prior to that, he served as a plans officer and advisor to the 

commanding general, United States Special Operations Forces in 

Afghanistan. Mr. Jones holds a bachelor’s degree from Bowdoin 

College, and a Ph.D. and a master’s degree from the University of 

Chicago. 

The witnesses will now be recognized for 5 minutes to give an 

oral presentation of their testimony. Without objection, the witnesses’ written statements will be made a part of the record. Once 

the witnesses have finished presenting their testimony, each member of the task force will have 5 minutes within which to ask questions. 

On your table, there are three lights. Green means go, yellow 

means you are running out of time, and red means you are out of 

time. The microphone is very sensitive, so please make sure that 

you are speaking directly into it. 

And with that, Mr. Zarate, you are now recognized for 5 minutes. 

Thank you. 

STATEMENT OF THE HONORABLE JUAN C. ZARATE, SENIOR 

ADVISOR, CENTER FOR STRATEGIC AND INTERNATIONAL 

STUDIES (CSIS), AND CHAIRMAN AND SENIOR COUNSELOR, 

CENTER ON SANCTIONS AND ILLICIT FINANCE, FOUNDATION FOR DEFENSE OF DEMOCRACIES 

Mr. ZARATE. Chairman Fitzpatrick, thank you very much for the 

kind introduction and the invitation, and Ranking Member Lynch, 

Vice Chair Pittenger, and distinguished members of the Task Force 

to Investigate Terrorist Financing, I am honored to be testifying 

before you today and I thank you for the invitation. 

I am very pleased to be sharing the panel, and will certainly 

defer hard questions to my colleagues to my right, Jonathan 

Schanzer and Seth Jones. I count them both as friends, but these 

are two of the Nation’s best experts on the continued evolution and 

threat from terrorism, and I know they will be a great resource to 

you and to the Congress. 

I have been privileged to work on the fight against terrorism 

since before 9/11, first as a Federal prosecutor, then as a Treasury 

official, and later as the Deputy National Security Advisor for these 

issues. Now, I sit on the outside with others studying, analyzing, 

and writing problems of terrorism and the evolution of terrorist financing. 

I will tell you that the threat of terrorism is growing more diverse and dangerous, and the work of this new task force and of 

the committee in focusing on terrorist financing is more important 

now than ever before. The global threat of terrorism is adapting 

quickly, with the ideology spawned by al Qaeda taking hold in crisis regions and ungoverned spaces around the world. The so-called 

Islamic State has taken territory and erased borders in the heart 

of the Middle East, and runs a diversified war economy, earning 

9 

hundreds of millions of dollars as it attempts to govern and expand 

its reach. 

At the same time, terrorist organizations have adapted to the 

pressure placed on their global financial networks since 9/11 and 

have learned to raise and manage their own budgets by becoming 

for-profit organizations that take advantage of the economic resources and opportunities where they operate. 

Just as the problem of terrorism is more global and diversified 

today than ever before, the means and resources that networks and 

groups have to raise and move money have become more varied 

and localized. To contain the global reach of terrorist groups and 

to thwart the manifestation of their ambitions, we must disrupt 

their financing and force them to make operational and strategic 

choices. 

After 9/11, we all understood that defending the country and undermining terrorism required deterring, disrupting, and dismantling terrorist funding sources and networks. Whether it is al 

Qaeda, the Islamic State, or Hezbollah, the reality is terrorist 

groups need money to operate their networks, implement logistics, 

maintain territory or influence, and to plan strategically against 

the United States. 

Any terrorist group, illicit network, or even a rogue state seeking 

significant global reach and impact, needs access to the financial 

and commercial system. Financial flows and budgets become even 

more important as groups like the Islamic State, Boko Haram, and 

Al Shabaab attempt to govern and operate local economies, often 

baking bread and mending wounds while fighting. Money is their 

enabler, but it is also their Achilles heel. If you can cut off funding 

flows to rogue groups of states, you can restrict their ability to operate and govern, and force them to make choices, not only budget 

decisions, but also strategic choices. 

No doubt one terrorist operation can cost as little as a thousand 

dollars to execute, but if that organization cannot pay for all the 

sophisticated training it would like, cannot adequately maintain its 

international and local alliances, cannot maintain and develop all 

the programs and operations it imagines, then its ultimate impact 

will be limited. 

In maximalist terms, we can alter the enemy’s behavior and constrain its reach by affecting its bottom line. We have had much 

success in the past doing this, but the economy and ecosystem in 

which the enemy operates is constantly adapting, and our playbook 

must not remain static. We know that terrorist groups have devised new ways to run local economies and take advantage of the 

territory they control. The Islamic State runs a diversified war 

economy, from oil to the antiquities trade. al Qaeda and the Islamic 

Maghreb has mastered the kidnap-for-ransom business. The al 

Qaeda affiliate in Somalia, Al Shabaab, runs a very creative charcoal-trade-based money laundering scheme to raise millions of dollars. Dangerously, the conflict in Syria and the growing Sunni-Shia 

divide is resurrecting old, established networks and means by 

which terrorists have justified support for their cause. 

All the while, new technologies and innovations in the storage 

and movement of money and value are reshaping the international 

financial landscape. 

10 

There are also systemic concerns. The European system remains 

under stress, and inherent and dynamic tension has emerged between the isolation of suspect behavior and the need for financial 

inclusion. In addition, the U.S. economy and its power and its 

reach and the role of the dollar remains central to the ability to 

use these authorities. But there are real opportunities to continue 

to be effective in our campaign. The playbook designed over the 

past 13 years is still sharp and can be wielded with effect against 

targeted actors and networks of concerns. 

The blending of terror and criminality exposes networks and terrorist groups to law enforcement and other pressure. We can 

operationalize the type of financial and strategic suasion that has 

made the campaign against terrorist financing effective, finding 

new allies around the world. For example, to combat the looting of 

antiquities for profit by the Islamic State, the United States should 

help empower and enlist a whole set of actors and networks already committed to the preservation of people, texts and cultures. 

And finally, Mr. Chairman, a new coalition should be galvanized 

to stop the funding in terror and conflict from the illicit wildlife 

trade, especially the decimation of elephants and rhinos in Africa 

for their valuable ivory, which is going to fund groups like Al 

Shabaab and the Lord’s Resistance Army. 

The campaign against terrorist financing cannot be treated as a 

static venture, but it is an ongoing and critical part of the changing 

landscape and the fight against terrorism. We must constantly do 

everything possible to make it harder, costlier, and riskier for terrorist groups around the world to raise and move money. 

And with that, I thank you for your time and attention, and I 

look forward to your questions. 

[The prepared statement of Mr. Zarate can be found on page 76 

of the appendix.] 

Chairman FITZPATRICK. The gentleman’s time has expired. 

Dr. Schanzer, you are now recognized for 5 minutes. 

STATEMENT OF JONATHAN SCHANZER, VICE PRESIDENT FOR 

RESEARCH, FOUNDATION FOR DEFENSE OF DEMOCRACIES 

Mr. SCHANZER. Chairman Fitzpatrick, Ranking Member Lynch, 

Vice Chair Pittenger, and members of the task force, on behalf of 

the Foundation for Defense of Democracies (FDD) and its Center 

on Sanctions and Illicit Finance, thank you for the opportunity to 

testify today. I am honored to appear here alongside Juan and 

Seth. 

For the brief time that I have allotted today, I would like to talk 

about two areas of concern: Iran and Turkey. Mr. Chairman, as you 

know, Iran is the world’s leading state sponsor of terrorism. Following the nuclear framework announced on April 2nd and with 

the final deal expected by June 30th, the White House appears 

poised to provide Iran with billions of dollars in sanctions relief. 

This includes an estimated $100 billion that has been held in semirestricted accounts in China, India, Japan, South Korea, and Turkey. Plus, after sanctions are suspended, Iran will be able to sell 

an extra $18 billion in oil. In total, Iran is set to receive up to $120 

billion from this deal. 

11 

Mr. Chairman, a lot has been said about the nuclear deal, but 

one thing is worth noting for today’s hearing: The sanctions relief 

could amount to the largest infusion of cash to a state sponsor of 

terrorism in modern history. Iran will now have more cash to bankroll terrorist groups like Hezbollah, Palestinian Islamic Jihad, the 

Houthis in Yemen, Shiite militias in Iraq, and more. And, actually, 

in today’s Wall Street Journal there was a note about tens of millions of dollars from Iran flowing to the terrorist group Hamas. 

Mr. Chairman, congressional oversight on the Iran deal will 

therefore be crucial, and so will oversight over the remaining sanctions architecture if a deal is reached. The enforcement of existing 

Executive Orders, and the creation of new ones when appropriate, 

will be vital to curbing Iranian support to terrorism. 

Mr. Chairman, Congress must also do more to halt the flow of 

terrorism finance in Turkey. This NATO ally of ours has quietly become a real problem. Turkey’s southeastern frontier, the territory 

along its 565-mile border with Syria, is now akin to Peshawar, 

Pakistan, in the 1990s. It is the primary gateway for today’s 

jihadists, including the Islamic State and the Nusra Front. 

Turkish authorities have not only turned a blind eye to the border traffic, they have also been accused of actively assisting fighters to cross the border and shipping weapons as well. Multiple reports further suggest that extremist financiers, mainly from Persian Gulf countries, have been camped out in hotels along the 

southeastern Turkish frontier. 

The Islamic State also continues to profit from the sale of oil and antiquities through Turkish territory. At its peak, between $1 million and $2 million worth of oil was reportedly smuggled daily to 

Turkey’s border area to be sold through middlemen. It is difficult 

to calculate the exact amount the Islamic State receives from the 

antiquities trade, but The Guardian reports that the group made 

an estimated $36 million by selling artifacts from one area alone. 

Meanwhile, Turkey has become the top external headquarters for 

Hamas. Living there is Saleh Arouri, the founder of the Qassam 

Brigades from the West Bank. Arouri is suspected of raising funds 

for Hamas and of leading the group’s West Bank operations. There 

is also Imad al-Alami, about a dozen other Hamas figures, and two 

well-known Hamas financiers. 

There are further indications that Turkey has been assisting 

jihadists in Libya since 2013. Greek and Egyptian authorities have 

snared some weapons shipments, while Libyan authorities have 

stopped others. In February, Libya’s internationally recognized 

prime minister accused Turkey of arming the Fajr coalition, and a 

recent U.N. Report found that Turkish firms are violating the arms 

embargo and shipping weapons to anti-government factions. 

Turkey, it should also be noted, facilitated a massive Iran sanctions busing operation between 2012 and 2013. This ‘‘gas-for-gold’’ 

scheme was shut down by Congress, but not before Iran hauled in 

some $13 billion in gold. 

Based on a leaked prosecutor’s report last year, Iran may have 

also benefited from another roughly $100 billion in illicit Turkish 

transfers. This scheme included gold traders from Istanbul, UAE 

money traders, Iranian and Chinese banks, and an astounding list 

of senior Turkish government officials. 

12 

Looking ahead, Washington must challenge Turkey on its wideranging support for illicit actors. Economic pressure, a review of 

military cooperation, or even a review of its NATO status could be 

used to alter Turkey’s behavior. 

Mr. Chairman, my written testimony covers a range of other 

issues, including the intersection of crime and terrorism, challenges 

associated with Gulf Arab states, and Egypt’s successful attempts 

to combat Hamas finance. I am happy to discuss if these are of interest. On behalf of FDD, I thank you for inviting me to testify. 

[The prepared statement of Dr. Schanzer can be found on page 

58 of the appendix.] 

Chairman FITZPATRICK. Thank you, Dr. Schanzer. 

Mr. Jones, you are now recognized for 5 minutes. 

STATEMENT OF SETH G. JONES, DIRECTOR, INTERNATIONAL 

SECURITY AND DEFENSE POLICY CENTER, RAND CORPORATION 

Mr. JONES. Thank you, Mr. Chairman, Ranking Member Lynch, 

Vice Chair Pittenger, and other members of the task force. Thank 

you for arranging and organizing this task force, and thank you for 

its bipartisan nature. I think those outside of government right 

now support the way in which you are doing this and the subject 

as well. 

I am going to divide my comments into two sections: the first 

provides an overview of the evolving landscape, including the financial components; and the second offers some preliminary conclusions. Let me say before I begin, as I look around the world and 

see attacks over the past several months in Sydney, Australia, in 

Paris, in Ottawa, Canada, just north of us, and even the arrests 

within the last couple of days in Minnesota and San Diego of the 

ISIL-inspired individuals who were planning to go there to conduct 

jihad in the Levant, do demonstrate the important nature of the 

work that the task force is doing and the threats that continue 

against the United States. 

Let me begin by focusing first on the nature of the threat and 

the financing component, and I am going to focus on really three 

sets of groups which I consider most important: the first is al 

Qaeda and its affiliates; the second is ISIL and its affiliates, which 

are growing; and then the third is the Hezbollah component. 

What is interesting, as I look at these groups, these sets of 

groups, is how diverse the funding is, how challenging the anti-financing, the counter-financing efforts have to be, and the redundancy which these groups have had in trying to protect themselves 

from our and our allies’ efforts. 

On the al Qaeda front, there still is a threat. We tend to focus 

predominantly, including in the media, on the ISIL threat, but 

there is a threat that emanates from Somalia, from Yemen, from 

North Africa, from Syria, and now with al Qaeda’s newest affiliate, 

the one in the Indian subcontinent from this organization. It continues to receive financing and funding from a range of different 

sources. I think Juan mentioned earlier that kidnapping is one 

source from which they have brought in hundreds of millions of 

dollars over the last several years. 

13 

I will note interestingly on the al Qaeda in the Arabian Peninsula front, which I still consider the most dangerous threat to the 

United States, based on its consistent plotting against the homeland, again, diverse set of funding from zakat, from mosque collections, from a range of licit and illicit activities, including from territory that they control and increasingly control with the collapse of 

governance in the country that is running farms, that is kidnapping in the country, that is taxing locals. But it is also very important—they have raided a number of banks over the past several 

months, including in Al Mukalla along the Gulf of Aden that has 

brought in hundreds of millions of dollars, by one account, about 

$325 million over the last several months from bank raiding. 

Second would be Da’ish, or ISIL, and its affiliates. As one of my 

colleagues, Patrick Johnston, testified several months ago, they 

have really done an important different step from other al Qaeda 

groups in limiting their financing from Gulf donors and focusing 

mostly on financing from within the Levant itself, smuggling oil, as 

several people have noted here, selling stolen goods, kidnapping 

and extortion, seizing bank accounts, and then as Juan noted earlier, smuggling antiquities. There is considerable diversity among 

a number of affiliates, including Boko Haram. 

And then finally, the Hezbollah dimension should not be forgotten. Hezbollah continues to have a notable presence in Latin America and an important role in the drug financing as well. 

In terms of next steps, let me just conclude by highlighting three 

sets of issues which I would stress are worth considering. One is 

that there are more jihadist and terrorist groups than we have 

seen since I began focusing on this in 1988. That means being very 

careful on the groups that we are focusing on. And I would say I 

would put into this category of high-threat groups a small subset 

that is focusing on strikes in the U.S. homeland and strikes against 

the United States overseas. That is al Qaeda in the Arabian Peninsula; that is core al Qaeda, including Khorasan group in Syria; that 

is Da’ish, or the Islamic State; some of the inspired individuals; 

and Hezbollah, depending on how the Iran deal goes and Hezbollah 

continues to operate; the focusing on a subset of groups as being 

the most dangerous to U.S. security. 

Second, using a range of the tools, including sanctions of individuals, attacking money laundering and charitable organizations continue to be important. 

My final comment really is the third area, which I think we are 

the weakest at, which is targeting local sources of revenue, and 

that is identifying and targeting where they are keeping money. It 

is not just in banks anymore. We know in Yemen that they are targeting it in warehouses. So I would just focus, again, and in the 

question-and-answer period on the local sources of funding in addition to the formal banking and other apparatuses as a key element. 

Thank you very much for your time. 

[The prepared statement of Mr. Jones can be found on page 47 

of the appendix.] 

Chairman FITZPATRICK. The Chair thanks the witnesses for their 

opening statements, and now recognizes himself for 5 minutes. 

I want to say just sort of at the outset that I believe we all appreciate not just the time that you have spent here with us today, 

14 

but the significant amount of time with our committee and each of 

us leading up to today’s hearing as each of the witnesses has really 

dedicated yourselves to public service, service for our Nation in one 

of the most important and sensitive and significant areas that I 

can think of. So we want to start out by thanking you for everything you have done for our country. 

Mr. Zarate, in your opening statement, you talked about the complement of the different organizations, from al Qaeda to Al 

Shabaab, from 2001 to 2015, from operations that cost as little as 

$1,000 to multi-million-dollar operations. So a lot has changed over 

the last 15 years; some has not changed, some has stayed the 

same. 

I was wondering, if you could, just a sort of deeper discussion on 

this question of terror financing, how it has changed, has it increased, has it diminished as a global threat, say, during the last 

10 to 15 years? 

Mr. ZARATE. Mr. Chairman, thank you. And, again, it is an honor 

to be here, so any help we can provide, I am absolutely willing to 

do so. 

I would categorize this in three different ways. I would say that 

there remains the networks that have long been the historic 

sources of funding for violent jihadi groups around the world as 

well as state sponsors, and so those sources are there. What we did 

post-9/11 was to disrupt, dismantle them, deter them, suppress 

them, but with the rise of the Sunni-Shia fight, with the festering 

conflict in Syria, with, again, the need for humanitarian and charitable giving, some of those same networks, deep pocket donors, 

charities, again, are important and come to the fore. 

You saw just the other day the U.S. Treasury in concert with the 

Kingdom of Saudi Arabia jointly designated the Al Furqan Foundation, a renamed charity from the past that continued to operate 

and continues to raise funds in Pakistan for purposes of al Qaeda. 

And so that is a demonstration that these networks, including networks, by the way, al Qaeda networks in Iran, which the Treasury 

has exposed, continue to operate to raise and move money. So that 

is there. 

Secondly, to Seth’s point, and this is embedded in the testimony, 

these groups have grown more local in raising funds, and much of 

that revolves around their control of territory. 

The reality of terrorist financing in 2015 is that in order to disrupt terrorist financing of the type that we are describing, you 

have to dislodge these groups from territory. And so there is an 

even more important complement between our counterterrorism 

and our military campaigns and our counterterrorist financing 

campaigns than ever before, because to dislodge ISIL from its 

sources of resources, you have to dislodge them from Mosul; you 

have to take away the oil resources they have; you have to cut off 

the channels that they use to get money and antiquities to brokers 

in Turkey and Kurdistan. So there is a physical dimension to the 

problem that you didn’t necessarily see in the 2002–2005 period. 

Finally, I think you have a blending of these groups. There is a 

quickening of the terrorist threat and the adaptation, where not 

just terrorist groups are beginning to operate. General Carter Ham 

talked about the coordination between al Qaeda and the Islamic 

15 

Maghreb, Boko Haram, and Al Shabaab, for example, sharing 

money and weapons. But you also have groups like Hezbollah deeply embedded and working with organized crime and drug trafficking groups. And so what you have in this fluid global environment are groups and networks, terrorists and criminals, beginning 

to operate for profit with each other. And that, in addition, I think, 

creates not just challenges, but also opportunities. 

So that is a way I would frame this. I would say you have the 

old networks that are still of concern and are being resurrected, the 

local dimension, which revolves around control of territory, and 

then the blending of these networks and threats that raise and 

move money. 

Chairman FITZPATRICK. Dr. Schanzer, any follow-up? 

Mr. SCHANZER. Yes. I would agree with just about everything 

that Juan has just stated, but I think I would note two things. One 

thing that has not changed at all is the challenge of deep pocket 

donors in the Gulf states. We knew that this was a problem in the 

immediate aftermath of 9/11, and when you look at the statements 

that have come out of the Treasury Department, we continue to see 

challenges out of Saudi Arabia, Kuwait, Qatar, et cetera. This is an 

issue that we have not fully tackled yet. There has been better cooperation in some cases, but in some cases we continue to see these 

intransigent countries where they are not cracking down enough. 

I am thinking of Qatar in particular. It is an incredibly problematic 

jurisdiction. 

One other note, and that is that we have, to a certain extent, become victims of our own success. The Treasury has done an excellent job of driving all these actors out of the formal financial sector. 

It is a lot harder for them to move money in our banking system, 

so what they have done, as Juan has just noted, is they are now 

working more underground, with local sources of funding. It makes 

it that much harder. And we heard from Mr. Lynch earlier about 

the cooperation that is needed, for example in Africa and other 

areas of weak central authority. This becomes incredibly crucial 

once the formal financial sector has been shut down. 

Chairman FITZPATRICK. My time has expired. I now recognize the 

ranking member of the task force, Mr. Lynch, for 5 minutes. 

Mr. LYNCH. Thank you. And, again, thanks for your work on behalf of our country. I appreciate it. 

The way ISIL, or Da’ish, is configured is qualitatively different 

than what we have been dealing with in the past with al Qaeda 

and Hezbollah. They actually control a huge swath of territory in 

Iraq and Syria. They also control some of those oil fields up around 

Mosul. So we have had a really hard time with their cross-border 

transfers. And we have been out to Al Qaim on the Iraq-Syrian border, and it is a very porous area in terms of security. Those smuggling routes have been in operation for 1,200 years, and they are 

still going strong. 

Mr. Schanzer, your comments on Turkey are spot on. We went 

up—myself and Mr. Ellison went up to the Syrian border, a couple 

of the refugee camps there, and we were able to look at some of 

our aerial and satellite imagery where you have trucks going across 

from Da’ish-controlled areas going into Turkey selling that oil, and 

yet when we confronted the senior members of the Turkish governVerDate Nov 24 2008 14:03 Sep 11, 2015 Jkt 095059 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\95059.TXT TERRI
16 

ment, they were in complete denial even though we pointed out the 

evidence. 

So we have some real trust issues there, and I am glad you spoke 

to that issue. But it appears that, as you said in your recent remarks, we are a victim of our own success in a way by driving out 

through this regulatory deployment of disincentivizing banks because of the reputational damage and the risk for them to engage 

in terrorist financing. 

We have done very well on that part, but FinCEN and Treasury 

and the way we have deployed against this threat doesn’t seem to 

address this new iteration, which is cross-border transfer of resources, whether it is oil or cash or whatever it is, we don’t seem 

to be really configured in a way to address that. 

Do you have a sense of how we could better post up against what 

they are doing now? 

Mr. SCHANZER. Thank you for the question. And look, it is a challenge. Part of the structures right now entail FATF working with 

countries to establish norms to which they will be able to better, 

for example, handle cross-border trafficking in both cash smuggling 

and weapons transfers and the like, but at the end of the day, 

speaking to Turkey in particular, the issue is about cooperation. 

And as you note, if the Turks, for example, are not willing to work 

with us, are not willing to acknowledge the problem, we are going 

to have some challenges. 

And so my assessment is that we need to work with the Turks 

to perhaps address some of their concerns about Syria. We know 

that a lot of the reason why they have opened this border is because they seek the downfall of Bashar al Assad, and they are very 

frustrated with us because we have reneged on our promises with 

regard to the red line, et cetera, from a couple of years ago. 

Mr. LYNCH. Yes. 

Mr. SCHANZER. That said, as legitimate as those grievances may 

be, we are going to have to get tougher with the Turks about that 

border. It is 565 miles long. It is manageable, but we are going to 

need better cooperation; they are going to have to stop the flow of 

weapons, the flow of fighters. 

Mr. LYNCH. Thank you. I have one more minute. And Mr. Jones 

and Mr. Zarate, thank you as well. 

One of the other things that we have been having a hard time 

getting at is the resource flow through hawalas. Have there been 

any—and I know, Mr. Jones, you mentioned zakat in terms of revenue source as well, and I think there is straight-out taxation going 

on in parts of the territory that Da’ish controls right now, but have 

we been able to get at this informal value transfer system, the 

hawalas and hawaladars that operate in these areas, because a lot 

of it is based on trust, I know it is tied closely to the mosque, and 

I know there is some reluctance of even our friends in that region 

to get involved or disrupt that. Have we had any measurable success in that regard? 

Mr. JONES. Mr. Lynch, that is a great question. The hawalas 

have been clearly identified by multiple U.S. agencies as being a 

source of serious concern, and they have been for some time. There 

has been some success in interdicting some of the money that has 

flown through hawalas if they are putting it in the financial sysVerDate Nov 24 2008 14:03 Sep 11, 2015 Jkt 095059 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\95059.TXT TERRI
17 

tem, so if they are putting it in bank accounts that have been disrupted. The challenge, though, is almost an intelligence one if they 

are using second, third, and fourth parties to hide that money in 

whether it is bank accounts or, in some cases, we have seen it in 

Yemen in warehouses, storing it in warehouses, is identifying the 

location of it. 

So that is one issue. And, frankly, it is more of an intelligence 

challenge than it is necessarily of at least immediately disrupting. 

Mr. LYNCH. Yes, Mr. Zarate? 

Mr. ZARATE. Mr. Lynch, it is a great question. The U.S. Government has been focused on this for quite some time. I was in Abu 

Dhabi for the issuance of the first declaration on the need to regulate hawalas. And since then, the FATF, the U.S. Government, and 

others have focused on this in a regulatory perspective, and so 

countries like the UAE have tried to register hawalas as money 

service businesses, tried to impose anti-money-laundering regulations to try to bring transparency and accountability. 

But Seth is right, much of this is getting into the networks. And 

the United States has done that relatively well, I think. If you look 

at the Afghan Threat Finance Cell, which was established by the 

DEA and the military, they have actually raided and gotten into 

some suspect hawaladars. Treasury has designated some of them. 

And at the end of the day, hawaladars, which basically rely on 

trusted brokers to transfer value across borders, really do provide 

an ability to follow the money. They keep meticulous records, they 

often know their customers better than bank tellers know their 

customers, and it is a matter of ensuring that those hawalas and 

hawaladars are not doing anything illegal and not dealing with terrorists. And I think that is a regulatory challenge, it is an enforcement challenge, and it is also an intelligence challenge. 

Chairman FITZPATRICK. The gentleman’s time has expired. 

Mr. LYNCH. Thank you. 

Chairman FITZPATRICK. I now recognize the vice chairman of the 

task force, Mr. Pittenger, for 5 minutes. 

Mr. PITTENGER. Thank you, Mr. Chairman. And thanks to each 

of you again for the extraordinary availability and access that we 

have had to you for briefings on these issues. 

Dr. Schanzer, with the influx of likely hundreds of billion dollars, $50 billion at the signing of an agreement, as described, what capabilities do we have in terms of intelligence and manpower to intercept the transfer of these funds and the use of these funds that 

would clearly be diverted to Hamas or Hezbollah, the Houthis, or 

even a growing interest in Latin America? Can you address that? 

Mr. SCHANZER. Thank you, Congressman, it is a good question. 

And the way that I would answer it is this: that we already have 

a number of Executive Orders that could help us enforce counterterror finance. I am talking about Executive Order 13224, for example, which is our primary counterterrorism Executive Order. 

And so, we have those things in place. 

The question is, can Treasury, in relatively short order, begin to 

identify the people who will be responsible for moving that money 

and to block them from the formal financial sector, to name and 

shame them? And we are talking about—we already have a lot of 

these people identified, but there are many, many more, and so if 

18 

we are going to start to remove some of this sanction’s architecture 

that has kept Iran out of our formal financial sector, I believe we 

are going to need to backfill right now and really place a lot of effort on trying to identify the ways that they may try to swarm the 

system with terror finance. 

It is a question, I think, of Treasury’s priorities, Treasury’s staffing, and the overall will of the international community. My concern is that we are going to try to placate the Iranians right now 

and to give them as much leeway as possible under this new framework, with the idea that it is very delicate diplomacy and that we 

don’t want to disrupt it, but if we are going to be going about our 

counterterrorism finance taskings, we really should be looking at 

ways to designate more and more right now with those few months 

we have remaining. 

Mr. PITTENGER. Just very quickly, if you could as a follow-up, 

how realistic are we on these snap-back sanctions on Iran? 

Mr. SCHANZER. Snap-back sanctions, I think, are a fallacy, from 

my perspective. The idea that we are going to start to allow a number of multi-national corporations to go in and start to invest hundreds of millions of dollars into Iranian infrastructure, and then 3 

months later tell them that they are no longer able to be there because of a violation, you are going to see a lag time, you are going 

to see negotiations and bartering, you are going to see—the countries involved who are going to stand to lose a lot of money, they 

are going to try to negotiate an extension, they are going to probably try to define down the definition of what cheating looks like. 

And to be clear, we expect Iran to be engaged in incremental 

cheating, smaller cheating, not large-scale, because they know that 

if they go too large-scale, it could trigger something like this. So 

there is going to be a very delicate dance here with the reimposition of sanctions. I do not have a lot of confidence that we will be 

able to snap them back as the Administration says we might. 

Mr. PITTENGER. Thank you. 

Mr. Zarate, give me some idea in terms of information-sharing 

among agencies within our own government, and also with the financial private sector. Can we do a better job of improving that to 

track the data? 

Mr. ZARATE. Congressman, there is no doubt you can always improve how the system is operating, but I think in the context of 

counterterrorism and then in particular, counterterrorist financing, 

information-sharing is about as good as you get in government. 

That is not just the Treasury agencies, but the other agencies in 

government that have a role to play, the FBI, DHS, the intelligence 

community. So it works incredibly well. 

And I think one thing that I saw develop over time was not just 

the pipes and transoms that allow information to be shared between organizations, but also communities of interest who actually 

know and like working with each other around the issue of terrorist financing. And so you have a counterpart, I think, within the 

executive, within the interagency that knows how to work these 

issues. 

Now with the private sector, that is a bit more delicate, of course. 

They are obligated to share information under the Bank Secrecy 

Act, suspicious activity reports, currency transaction reports, that 

19 

happens by obligation, more pressure on banks to do that properly, 

of course. And banks now have gotten the picture that they are on 

the front lines, they are the gatekeepers to the financial system 

and have a role to play. Like it or not, that is their role. And they 

are now devising internally better systems to understand their own 

exposure and to share that information with government. 

The problem I see, Congressman, is that is done in stovepipes 

still, that is done institution to government agency, as opposed to 

thinking about where is the exposure in the banking sector writ 

large, or in other non-bank financial sectors in the United States, 

and that is where you see the seams in the system that terrorists 

exploit, Russian organized crime exploits, and others that are trying to use and access the U.S. financial system for illicit purposes. 

So I see that as really the main challenge moving forward. 

Mr. PITTENGER. Thank you. I yield back. 

Chairman FITZPATRICK. The Chair now recognizes the gentleman 

from New York, Mr. Meeks, for 5 minutes. 

Mr. MEEKS. Thank you, Mr. Chairman. 

Let me just pick up, because that is where some of my concern, 

Mr. Zarate, is also where we are not looking. I listened, and most 

of you have said that we have done a pretty good job dealing with 

our financial institutions, are doing all that we can in that area, 

but it seems as though that—and I think, Mr. Zarate, you talked 

about it a little bit in your testimony about social media and this 

new technology, and then the dark web to raise funds and cover 

tracks. Can you talk to me a little bit, how is that—do you see a 

lot of this terrorism funding now, are people trying to hide their 

money through these—the webs, different webs, dark web and social media and things of that nature? 

Mr. ZARATE. That is a great question, Congressman. I think you 

have two dimensions to this. One is the reality that you have sophisticated actors using the formal financial system in creative 

ways, layering their activities more and more over time, and using 

those seams in the system that I described to their advantage. For 

example, you have seen FinCEN put out recently a Section 311 

designation of an Andorran bank. As part of that designation, they 

laid out three individuals and schemes where individuals were providing money laundering advice and schemes for the customers of 

that bank and others involved in that network, in Venezuela, in 

China, and elsewhere. And so there are formal mechanisms and sophisticated actors that take advantage of the blind spots we have 

in our system. 

In one respect, Congressman, we have not done well in understanding where there is beneficial ownership held by criminal actors or illicit actors in our system. We still don’t have a regulation 

out that lays out what the requirements are consistently acrossthe-board for the financial community as to what beneficial ownership and control actually means and what the requirements are for 

those institutions. Believe it or not, in 2015 we are still not there. 

So that is an example in that first dimension. 

Mr. MEEKS. Is that something that this committee should be targeting? 

Mr. ZARATE. I think you should be asking hard questions of the 

Treasury and the Administration, my former friends and colVerDate Nov 24 2008 14:03 Sep 11, 2015 Jkt 095059 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\95059.TXT TERRI
20 

leagues. This is something they have been working on for a long 

time, but you need to ask that question, and things like, where are 

investments going in the United States, how are bank accounts 

being used, who is opening corporations in the United States, and 

using those corporations as fronts? These are critical questions. 

Secondly, the dark web dimension of what you described, the digital currency space, I see sort of two elements emerging. One, those 

in the digital currency space that actually want digital currency to 

be part of the formal financial system, or at least a helpful part of 

financial payment systems, and they are trying to finds ways of 

complying, they are trying to create their technological design in 

ways that allows that to happen. 

The other side of it are sort of the more anarchist types, the folks 

who started things like Darkwallet, that are actually intended to 

not only hide movement of money, but to actually break the system. The designer of that program, somebody I have debated on the 

radio, who has literally said, ‘‘I want to create this as a money 

laundering vehicle.’’ 

And so, yes, there are those out there who are trying to use new 

technologies to actually evade scrutiny and counter the very notion 

of an open and transparent financial system. 

Mr. MEEKS. And listening to your testimony—and anyone could 

answer this—because I am really concerned, and I have heard and 

know and understand the threat with Iran and what they are 

doing to help finance. And then on the other side with al Qaeda, 

you mentioned Saudi Arabia and Qatar, et cetera, and we need cooperation some kind of way between the countries in the region 

and others, Turkey, in order to be successful to try to wipe this 

thing out. 

What are we missing? What can this committee look at and dig 

deep and ask other questions in that regard so that we could make 

sure that this crossing of financing is not taking place and more 

cooperation with the various countries in the region? 

Mr. SCHANZER. I will take just a quick shot at this. 

In short, we need to learn how to walk and chew gum at the 

same time. We need to figure out how to go after the Sunni networks. We need to figure out how to go after the Iranian networks. 

And in some cases it has gotten very complicated because, of 

course, the Iranians are working with us on some level to combat 

ISIL, and then we are working with the Sunnis to combat the Iranian proxies in Yemen, for example, against the Houthis. And so 

it has gotten incredibly complicated. 

The long and short of it is that we need to hold the same standards for both sides. We need to continue to go after the Sunni actors and the Shiite actors and to try to just keep our eye on the 

ball. 

I don’t think we have done a good job at that. I think we continue to make deals with one side or the other. We are afraid to 

go after some of these Turkish actors because the Turks are training up a force right now that is supposed to fight Da’ish. It is a 

Gordian knot that we are going to need to untangle at some point. 

Chairman FITZPATRICK. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from New York, Mr. 

King, for 5 minutes. 

21 

Mr. KING. Thank you, Mr. Chairman. 

Let me thank all the witnesses for their testimony today and also 

for the service they have rendered. I know Mr. Jones has testified 

before the Homeland Security Committee a number of times. Mr. 

Zarate and I have been on panels. And, Dr. Schanzer, I have certainly admired your work over the years. So thank you for what 

you are doing. 

And I am going to try not to repeat the same questions that have 

been asked. Certainly follow up on Mr. Lynch or Mr. Meeks. It 

seems that because of the work done by people like Mr. Zarate and 

others, the financial institutions—let me just go back. 

I would like to focus on ISIL. And it would appear that much of 

the work that you did and Treasury did in the early 2000s would 

prevent ISIL from using financial institutions to obtain funding. So 

let me ask you, how can this committee and how can the Treasury 

Department, just focusing on ISIL, what powers do we have to prevent ISIL from raising funding since so much of it seems to come 

from within the areas that they occupy? 

Mr. Jones, you can go first. 

Mr. JONES. Yes, Mr. King, that is a very good question. 

One area that I would strongly suggest, and having been involved in some of this myself, is encouraging our—I think, as Juan 

noted earlier, there has been pretty good cooperation, especially on 

the terrorism financing realm. And I would say that is probably 

most true back in Washington. But where I think there is room for 

improvement is on the ground. 

I will take the special operations community, which does a pretty 

good job of putting target packages together and going after individuals or networks. I think the financial side has been a secondary or a tertiary concern, including in places like Iraq, so the 

focus ends up being people who are building bombs and IEDs. 

And so I would strongly suggest that we elevate the importance 

of targeting the financial nodes in places like Iraq. That means our 

military forces on the ground, including our SOF, our intel community folks on the ground, working with the Treasury and the intel 

community to identify the key financial nodes, including the ones 

that Jonathan mentioned earlier, the ones that are going across the 

border into Turkey. And this will be using and working with our 

Iraqi, our local partners, including in northern parts, our Sunni allies along the border, and targeting those financial nodes. 

The air strikes and other aspects of operations are focusing on 

the security components, in my view, not the financial components. 

I think that should be a very, very important part of this at the 

tactical and operational level. I think that is probably our biggest 

weakness. 

Mr. KING. Dr. Schanzer? 

Mr. SCHANZER. Look, for me, it is somewhat simple. In actually 

trying to implement it, it is not simple, but you can break it down 

into its components parts. You have to stop the oil smuggling. And 

for that, you have to work to shut down the border areas where it 

is being done. It is primarily Turkey, although Kurdistan and to a 

certain extent Iran. And we need to work on those borders. We 

need to make sure that the oil can’t get across. 

22 

That is going to represent some, let’s say, 30 percent of the—obviously, we don’t know the exact numbers, but let’s just say it is 

30 percent right now of the income for the Islamic State. 

Then you have to shut down the donor networks. That means 

you need to start working with these Gulf countries that continue 

to supply money to the Islamic State. It means doing it in their 

own jurisdictions. 

It also means doing it in these border towns that we have seen 

across southern Turkey where they are camped out in hotel rooms, 

and they are literally doling out cash to the jihadists when they 

come back. And they will show them, they will hold up their phone 

and they will show them the videos of the attacks that they carried 

out in exchange for more payment from these donor financiers. 

That has to stop, and we have to start to work with these Gulf 

countries. 

You have to shut down the antiquity sales. We have to figure out 

who these people are who are paying for the antiquities after these 

cities are being looted by the Islamic State. 

Mr. KING. I am running out of time. If I could go to Mr. Zarate 

on that, as a follow-up on that. 

If you were in Treasury today, what could you do to address the 

issues Mr. Jones and Dr. Schanzer mentioned? 

Mr. ZARATE. The first thing I would do, sir, is reinstate the Iraq 

Threat Finance Cell, which we had created in 2006, to look at how 

al Qaeda in Iraq and the insurgents were funding themselves. They 

are engaged in bank robbery, oil smuggling, kidnap for ransom. All 

the things we are talking about now, they were doing on a 

microscale then. And you need the intelligence and analysis to map 

it, Congressman. 

Second, they do touch the formal financial system. Keep in mind, 

there are approximately 90 banks in Iraq that fall under ISIL’ territory. They control some banks, we think, in Syria. And so at some 

dimension, they are still touching the formal financial system. 

And then to Jonathan’s point, these markets are very important. 

I think I would have a mapping project around the particular markets, oil, antiquities, look at the brokers, the money service businesses, all that at some point begin to touch the formal financial 

system. 

And then I would bring in the law enforcement community more 

aggressively to say, look, we have trade transparency units at customs. We have agents at DEA who know how to get into these networks. We have to get to the customs and port authorities to cut 

this off. 

And so I would have an all-out effort that isn’t just about Treasury authorities, but it is about the complement of authorities on 

the ground with the intelligence community, the military, and law 

enforcement. 

Mr. KING. Thank you. 

Let me apologize to Dr. Schanzer. The clock was running out, 

that is why I had to go to Mr. Zarate. 

Thank you very much for your testimony. 

And thank you, Mr. Chairman. 

Chairman FITZPATRICK. Thank you. 

23 

The Chair recognizes the gentleman from Texas, Mr. Green, for 

5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

Permit me to ask about the U.N. We have talked about the necessity for cooperation. And I would like to know to what extent is 

that achievable through the U.N., and are there obstacles to 

achieving success in the U.N.? And just be brief, because I have a 

couple of other areas that I would like to explore, so I will trust 

that you will move forward quickly. 

Mr. ZARATE. Congressman Green, good question. 

The U.N. is incredibly important in this regard. The sanctions regimes that are established under the Chapter 7 obligation, making 

it mandatory for all countries to put in place the provisions, has 

been a very important parallel and complement to all of the targeted sanctions programs that the United States has put in place. 

And so Executive Order 13224, which is our terrorist financing 

Executive Order that has been implemented, is complemented by 

U.N. Security Council Resolution 1267, and more broadly, 1373. 

There is, from February of this year, a new U.N. sanctions resolution on ISIL funding. 

And that is important because it obligates countries then to do 

what the U.N. demands. And in some countries there isn’t really 

independent authority other than what is demanded by the U.N. 

And so that in many ways enables the global community to try to 

shut down financing in other markets for these terrorist groups. 

Mr. GREEN. I am going to accept that answer, and I will come 

back to you if there are others who would like to give an additional 

answer, because I want to talk for a moment about Hezbollah in 

Latin America. I understand that they are there for a reason. They 

seem to be in the drug business, according to what I have been 

told. 

Can you give me some indication as to whether or not they are 

spending some of this capital in Latin America to produce a certain 

outcome, and if so, what do you think that outcome is? 

Mr. JONES. That is a very good question. I think there is a lot 

on Hezbollah’s activities that we are not entirely clear about, but 

I think that what we are clear about is that they are raising substantial funds, and they do have relationships with a number of 

drug cartels in Latin America. 

As for their broader goals, one goal, in addition to financing, does 

appear to be their interest in spreading what I would call this 

broader Shia network operating not just in South America, but also 

in Central America. That means developing a relationship with 

IRGC Quds Force, Iran’s paramilitary arm, and then spreading 

that relationship into places like Venezuela, Ecuador, and Peru. 

There are informal Shia community centers across Latin America 

where we know Hezbollah individuals have gone in and established 

relationships. 

I think there is also a potential concern down the road that if 

they were to need to strike at some point, as they have in the past, 

including in Argentina, they have cells in place that they could use 

to conduct terrorist strikes. 

Mr. GREEN. Anyone else care to add anything more? 

24 

Mr. SCHANZER. I would just add one thing to what Seth said. We 

have been watching Argentina very closely lately after the apparent murder of Alberto Nisman. This is the investigator who was 

looking into an alleged, very deep relationship between the current 

government in Argentina and the Iranians. We are still trying to 

get a sense of what was happening, but he was prepared to provide 

very significant testimony about this relationship and ended up 

being shot in the head and killed. 

And so, we are watching this very closely. There is a lot of concern that Iran may be looking at Argentina as an area of influence 

that they would like to expand upon. And that could include nuclear cooperation, include financial cooperation, looking to set some 

kind of a perch in Latin America. 

I would also just maybe add one more thing about the U.N.: It 

has been crucial in terms of international cooperation against al 

Qaeda and the Taliban. One thing that I would note is that it is 

lacking in that it will not designate Hezbollah, it will not designate 

Hamas. There is really a constrained group of actors that the U.N. 

is willing to designate, and so it allows for countries to say, well, 

we don’t need to go after Hezbollah or Hamas because they are not 

part of the U.N. system. 

Mr. GREEN. Thank you. 

With the time left, I am very concerned about young people in 

this country who travel to these distant places at some amount of 

expense. To travel from the United States to Turkey for a teenager 

requires some amount of money, and I am curious as to whether 

or not these organizations are sending money to them or finding 

some way to fund this travel, or are they doing it with their own 

resources? 

Mr. JONES. I think, Mr. Green, the answer depends on which 

cases we are looking at. I think with the recent case of the six individuals from Minnesota, two of whom were arrested in San Diego, 

they used that money themselves. They were going to be paid once 

they landed in either Turkey or Syria. And so, the networks would 

have picked up their funding once they got into territory controlled 

by ISIL. 

But my understanding is they used their own money to buy the 

plane tickets, and they cleared out their accounts before they left. 

It doesn’t cost a lot to fly over there, but it does cost a lot for them 

to stay once they are there. 

Mr. GREEN. Thank you. 

And thank you for being generous with the time, Mr. Chairman. 

Chairman FITZPATRICK. The Chair recognizes the gentleman 

from Florida, Mr. Ross, for 5 minutes. 

Mr. ROSS. Thank you, Mr. Chairman. 

Mr. Zarate, to follow up on what one of my colleagues, Mr. 

Pittenger, was talking about, prior to 9/11 there was this almost 

independent activity amongst the investigative agencies of the 

United States. Since 9/11, have you seen greater cooperation, including in information technology, so that there is a greater sharing of resources and intelligence? 

Mr. ZARATE. I think the answer is yes, absolutely. Part of that 

is the necessity of the threat. Of course, part of it is the institutions 

that have been created to do that precisely as their mission, the 

25 

National Counterterrorism Center, for example, some of the intelligence offices. Keep in mind that in 2004 the Treasury created the 

first-ever Office of Intelligence and Analysis that Jonathan was a 

key part of, the only finance ministry in the world, by the way, that 

has an Office of Intelligence embedded in it. 

Mr. ROSS. And is there still room to grow, or do we have the safety net in place? 

Mr. ZARATE. No, there is room to grow, in two respects. One, 

there is need in the government, despite the post-Snowden criticism, for better technology to consolidate information. I think the 

reality is we do not correlate data as well as most citizens think 

we do, the government. 

Mr. ROSS. Right. 

Mr. ZARATE. And I think that technology needs to improve. 

I think there also needs to be, as I alluded to before, a better sort 

of dynamic of sharing information with the private sector to understand where the real vulnerabilities lie in the system. Not the oneoff cases, not the one-off suspicions, but where are the real systemic weaknesses in key sectors? That is still to be done. 

Mr. ROSS. And those vulnerabilities are even significantly domestic, are they not? In other words, is there not a significant threat 

of terrorist dollars being invested domestically here and that we 

are having problems following? 

Mr. ZARATE. Terrorist, criminal, illicit, and they often blend, and 

I think that is a real danger. You saw, for example, with the 

Hezbollah case tied to the Lebanese Canadian bank, the use of 20 

used car lots in the United States, and financial mechanisms in 

North America to funnel money from South America into West Africa, back into Lebanon, into the coffers of Hezbollah to the tune 

of hundreds of millions of dollars. 

And so there is no question that in a global financial commercial 

system, the United States remains central, and we have 

vulnerabilities just like other parts of the system. 

Mr. ROSS. Any particular regulations or anything that you would 

recommend at this point domestically that we would use that aren’t 

already in place to try to track the investment of these terrorist 

funds? 

Mr. ZARATE. I would go back to Treasury and the U.S. Government and ask, where are we on the beneficial ownership rules that 

are required of the system? This is part of the customer due diligence that is required of financial institutions by regulation. And 

the reality is we don’t have a common set of expectations put out 

by regulation as to what that really means and what that means 

in terms of State cooperation formation and in terms of how we 

monitor beneficial ownership in our banking system. 

Mr. ROSS. One other question. With regard to, Dr. Schanzer, 

when you talked about the $50 billion that may be a signing bonus 

for Iran in the nuclear deal, is there any way to follow that? Do 

we have anything in place that would allow us to follow that? 

Mr. SCHANZER. Technically, if they move this money through the 

formal financial sector and you could watch electronic transfers— 

Mr. ROSS. But that is unlikely, isn’t it? 

Mr. SCHANZER. That is exactly right. You are looking at a country that has gotten very good at working through cutouts and 

26 

through front companies. In some cases, we have been hearing 

about pallets of cash arriving in Hezbollah-controlled territory in 

Lebanon or in Yemen. And so that is, of course, incredibly difficult 

to follow. You just have to have great intelligence of the fact that 

it is on its way. 

Mr. ROSS. Right. And, in fact, would you say that there is a great 

deal of cooperation between the various terrorist groups, between 

Hezbollah, Hamas, Al Shabaab? Would one ever draw the conclusion that there is a terrorist central bank? 

Mr. SCHANZER. I would say that Iran is probably the terrorist 

central bank in terms of the connections that it has across all these 

various terrorist groups. And there is this notion out there that 

Sunnis and Shiites don’t work together, but as Juan mentioned 

earlier, there is a significant cell of al Qaeda operatives and financiers who are based in Iran. 

Mr. ROSS. And I will give you my last minute here to follow up 

on what Mr. Zarate talked about with regard to, what would you 

do if you were in charge? I know we want to work with Turkey, 

but if they are not going to work with us, how do we enforce? We 

have the U.N. that does resolutions but won’t enforce resolutions 

in non-U.N. countries. What would you do? What would you suggest, what action should we take in order to make sure that there 

is an enforcement provision to stop the flow of these dollars? 

Mr. SCHANZER. I think there are a couple of options available, 

and all of them will make people a little bit uncomfortable because 

we have this very deep relationship with the Turks, a longstanding 

friendship, a NATO alliance. But I think that we could, for example, start to designate individuals that we understand are part of 

this trade. 

You could look at financial institutions as well that are part of 

these networks. Now, this could induce a certain amount of shock 

to the Turkish system, and, of course, President Erdogan has 

been— 

Mr. ROSS. But it might get their attention. 

Mr. SCHANZER. Yes, it will get their attention. I am not saying 

to do it all at once and sort of drop napalm. 

Mr. ROSS. Right, an incremental way to do it. 

Mr. SCHANZER. But really targeted financial sanctions that could 

start to spook them a little bit. 

Mr. ROSS. Thank you. I yield back. 

Chairman FITZPATRICK. The gentleman from Minnesota, Mr. Ellison, is recognized for 5 minutes. 

Mr. ELLISON. I would like to thank the chairman and the ranking member. 

Gentlemen, thanks for all the good work you are doing to protect 

our country. It is really important. And I just want to echo the sentiments of my colleagues who have asked good questions and 

praised you for the hard work you do. 

But I want to get your views on the other side of the problem, 

which is doing such a good job that good people earning money in, 

say, my district in Minnesota, have a tough time getting it to their 

good family members in Somalia. It is not just a problem that my 

constituents come to me about, there is also a national security 

angle here too, because it is not good for Somalia, which relies on 

27 

40 percent of its gross domestic product for foreign remittances, to 

lose that and then be subject to the truly bad people. 

I think it is important for me to point out that the people who 

recruit my constituents, or try to, or send money to Al Shabaab 

with money that they try to raise, are the true enemies of the Somali people and my constituents. And I thank you for trying to stop 

them. 

But how do we thread the needle such that we stop the bad 

money, which you guys are really good at doing, but allow the people who are legitimately just trying to make sure school fees and 

meals and all that, that money is getting through, which I think 

you would agree is the overwhelming majority. Could you all speak 

to this? 

Mr. ZARATE. Congressman, this is a critical point. It is something 

I mentioned in my testimony, and I mentioned in my book, that the 

strategies of financial exclusion, which is really what we have been 

perfecting over the last 13 years, could reach a tipping point where 

you begin to harm the very important policies of financial inclusion. 

And to your point, that begins to do several things. One, it is denying access to the financial system to those who need it and who 

we want to have access to it. That is everything from charities to 

money remitters to those in the financial system trying to get 

money abroad. 

And that has been an effect of the de-risking that the financial 

community has been engaged in. Banks are saying: Look, it is not 

worth our time or the risk to engage in Somali remittances, for example. We don’t know if Al Shabaab, pirates, or some other criminals are going to be on the back end of that receiving money. 

And so I think there is a range of things that need to be done, 

first and foremost, I think with the industries involved, both the 

banks and the money remitters, organizations like Dahab-shil, 

which is the big Somali remitter, which is dealing with this issue 

not just in the United States, as you know, Congressman, but also 

in the U.K. acutely with the Somali British community. 

They need to come up with ways of understanding who their customers are on the back end, because without that last mile of assurance, there aren’t going to be many legitimate financial institutions that are willing to stick their neck out to say: We want to do 

business with these folks without knowing who we are doing business with. And so I think that is first and foremost. 

Second, we need to be creative with what governments can do in 

terms of safe harbors or safe corridors. 

Mr. ELLISON. I agree. 

Mr. ZARATE. The U.K. government is experimenting. I know you 

have been working with the Treasury and the White House on this. 

And I think that is important. I think we need to be creative. 

Third, we need to be better with our intelligence. To Seth’s point, 

we actually need to understand where these money flows are going 

because, as you say, much of it is going for good causes, to feed 

families. 

Some of these charities are doing good things, and we don’t want 

to shut that out of the system, in part because that provides information and intelligence, in part because it is good for the global 

28 

economy, and in part because you do want compliance and legitimate actors in these spaces. You don’t want these spaces absented 

and filled by nefarious actors or those who aren’t really going to 

care about what the U.S. Congress or what the U.S. Treasury says. 

And so we are really at an interesting moment because it is not 

just what your constituents are dealing with, sir, but it is really 

what the financial community is dealing with in terms of derisking, 

because the banks feel at risk and other sectors need to do their— 

Mr. ELLISON. Let me dive back in with my minute here. I just 

want to point out that as I talk to OCC, Treasury, FinCEN, the 

whole gang, I think that we had one Member of Congress who 

asked them all—we had a meeting with all of them and the question was asked, ‘‘Who is in charge?’’ And they all said, ‘‘We all have 

a piece of it.’’ 

I think that for the financial services sector it would help a lot 

if we could say, ‘‘You can do this, you cannot do this,’’ and try to 

get on the same page with that too. 

Look, the United States spends a lot of money on AMISOM, 

which is the international security force in Somalia. What if we 

spent some money to help stand up a Somali central bank that met 

international AML standards? 

I don’t have any time left, but I wonder if you could try to respond to that. It seems like a dollar well-spent to me. 

Mr. ZARATE. I think a central bank in Somalia would still have 

to deal with some of those last-mile risks that we are talking 

about. And I agree with you, there needs to be creativity, there 

needs to be more clarity. I think the real challenge when you talk 

about terrorist financing writ large and conflict zones is there is always going to be ambiguity, and the question then is how do you 

manage the risk around money flows in that ambiguous space. 

And I think you see it in spades in Somalia, you see it obviously 

in Syria, you see it around the world, where you actually do want 

funds to go in for proper and good purposes, but you have to figure 

out a way that those dollars or pounds aren’t getting into the 

wrong hands. 

Mr. ELLISON. Thank you. 

Chairman FITZPATRICK. The gentleman from Pennsylvania, Mr. 

Rothfus, is recognized for 5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

And thank you, gentlemen, for being here today, and for your 

long service to the country and the work you have been doing. 

Dr. Schanzer, I wanted to ask you a question. In your testimony 

you detailed the actions of Iran, Turkey, Saudi Arabia, Kuwait, 

Qatar, and Egypt to fund terrorism around the world. And you all 

mentioned, the entire panel mentioned that apart from Iran, all 

these countries are widely regarded as allies of the United States. 

Dr. Schanzer, out of these allies that you mentioned, which country is the worst offender in terms of terrorism financing, and what 

are we doing to address it? 

Mr. SCHANZER. Thank you, Congressman. I should just note as 

a caveat that I wanted to note that Egypt is doing a particularly 

good job right now. I don’t want to include them in the hit list that 

I provided you. 

29 

But look, when we look around right now, the Treasury Under 

Secretary, David Cohen, who is now at the CIA, noted last year 

that Kuwait was the worst. Although I think we have less insight 

into all of the different actors, and we have identified one minister, 

for example, who was ultimately forced out of his job because he 

himself was involved in fundraising for ISIL and other extremist 

groups. 

But, again, we don’t have a lot of insight there. The Qataris are 

another major problem. We know that Hamas is based there. We 

know that a number of individuals who have been designated by 

the U.S. Government, in fact designated by the U.N., have returned home to Qatar and they are there with impunity. They are 

not in jail. They are able to travel. So the Qataris have done a 

rather horrible job of enforcing our designations, and they don’t 

seem terribly concerned. 

Mr. ROTHFUS. I want to follow up on that point, because you 

mentioned ‘‘deep-pocket donors’’ in Gulf states. Do we know the 

identities of these donors? 

Mr. SCHANZER. In many cases, we do. 

Mr. ROTHFUS. And where are their deep pockets? Where are they 

keeping assets that they can then draw on to fund terror? 

Mr. SCHANZER. This is the ultimate question that we are trying 

to answer. And this is where cooperation with the United States 

Government, I think both carrot and stick, is going to be incredibly 

important. The fact that we know these people are there, we know 

the fact that they are involved in this illicit financial activity— 

Mr. ROTHFUS. Are they holding assets in Kuwaiti banks or 

Qatari banks? 

Mr. SCHANZER. We believe so. 

Mr. ROTHFUS. Mr. Jones and Mr. Zarate, same question with respect to identifying donors. And we had some discussion here about 

individuals who set up at hotels in Turkey and fund terror. Do we 

know the identities of some of these people? 

Mr. JONES. Yes, in many cases we do. 

If I can just add one caveat: The challenge that we have with 

groups like ISIL, though, is that they are increasingly not relying 

on state donors for their assistance. That is what makes this group 

different from some of the other ones we have identified. They are 

specifically trying to get away from this vulnerability and not rely 

on Gulf donors. 

Virtually every piece of declassified intelligence documents that 

have come out from the Counterterrorism Center have strongly 

suggested they are getting away—something like 1 or 2 percent 

comes from outside donors. So some groups—and this is why I 

think it becomes important to differentiate—are really trying to get 

away from that. 

Mr. ZARATE. Seth is right, but that may be increasing over time 

as their control of oil resources, for example, is diminished and 

their brand continues to expand. And so what you have seen I 

think in recent months has been more not only momentum internationally with more groups flying the banner of ISIL, but more 

micropayments in. 

So you have seen cases, for example, from Australia, from North 

America, from around the world where it is not so much that ISIL 

30 

is sending funds out, but they are demanding micropayments in. 

And so you have the problem of deep-pocket donors potentially, but 

also micro-investors in the Islamic States venture, and so that is 

a real challenge. 

In terms of deep-pocket donors, this has always been the golden 

fleece of the counterterrorist financing mission. Who are these individuals? And I am a little less optimistic that we know exactly who 

they are. 

Mr. ROTHFUS. But we know some of them. 

Mr. ZARATE. We know some of them. And we also aren’t always 

sure we know what their motivations are. In the context of Syria, 

this is what makes it so complicated. Are these individuals raising 

funds for humanitarian needs for refugees or are they intending 

their funds to go to Jabhat al-Nusra and the Islamic State to buy 

bombs and bullets? 

It is very hard to figure that out. And so, who is a deep-pocket 

donor or not becomes a very difficult question and an intelligence 

challenge. 

Mr. ROTHFUS. I wanted to just talk to, really quickly, Dr. 

Schanzer, about Iran. I agree with you that Iran continues to be 

the worst actor and presents the greatest threat to the United 

States and our allies in the Middle East. So assuming there is a 

deal agreed to by June 30th, how much of a sanctions architecture 

will remain at all, and will it be effective in preventing Iran from 

sponsoring terrorism, whether Hezbollah, Hamas, the Houthi 

rebels, militants in Afghanistan, or the Islamic Revolutionary 

Guard? 

Mr. SCHANZER. As we understand it, we are going to see the erosion of the U.N. sanctions architecture, the erosion of the European 

sanctions architecture. It is likely that they will be put back on— 

Mr. ROTHFUS. But just really quick, given their sponsoring of terror, wouldn’t sanctions be justified independent of a nuclear program? 

Mr. SCHANZER. This is where I think congressional oversight 

should be crucial. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Chairman FITZPATRICK. The gentleman’s time has expired. 

The gentleman from California, Mr. Sherman, is recognized for 

5 minutes. 

Mr. SHERMAN. Thank you. 

One of the things we ought to be worried about is the financing 

of ISIL intentionally by our friends. You have the Iraqi government 

making payments to civil servants in Mosul. That money is taken, 

in part or in full, by ISIL. I have asked numerous Administration 

witnesses, and they haven’t answered it one way or the other, but 

it is my understanding that the Iraqi government provides electricity to Mosul and ISIL collects the electric bill. 

So the government of Iraq does not seem to be all that serious. 

Yes, the people of Mosul are citizens of Iraq, but General de 

Gaulle, during World War II, never sent free coal, oil, or food to 

the people of occupied France, for a very good reason. He was serious about dislodging the Nazi occupiers. 

One question I have for whichever witness feels best or most interested in answering is, what can we set up so that Americans 

31 

with families in Somalia can send money to their family members 

knowing that it is getting to the right person and not going to Al 

Shabaab? 

Mr. ZARATE. Congressman, good question. We addressed this a 

bit with Congressman Ellison earlier. 

I think the challenge here is there is no easy solution because 

the question, regardless of the mechanism, whether it is something 

from a U.S. Government facility, a safe harbor through the private 

sector, some new central bank function in Somalia, all ideas have 

been out there. 

The question is, how do we assure ourselves and those sending 

money and the regulators and enforcers that the last mile of transaction is understood? That is to say, we understand where the 

money is actually going and who is receiving it. 

Mr. SHERMAN. Yes. Even if it gets to the right person, that person could be robbed by Al Shabaab the next day. 

Mr. ZARATE. Right. 

Mr. SHERMAN. But could we certify certain financial operators 

that this is a company that will get the money to your relative and 

is not associated with terrorists? 

Mr. ZARATE. I think there is a way of thinking about that, sort 

of a consumer best practice that is part of it. But there is not going 

to be, I think, from the U.S. Government, at least based on what 

I know—I am not in government anymore—a white list provided 

or a safe harbor that will give a get-out-of-jail-free card. 

Mr. SHERMAN. The easiest thing for our government to do is to 

do nothing and then decry the problem and say there is nothing 

that can be done, because if they were issued such a white list they 

would solve maybe 90 percent of the problem, but there would be 

at least one mistake on that list and then we would skewer them 

for it. 

Mr. ZARATE. Right. 

Mr. SHERMAN. Let me go on to the next question. 

Southeast Turkey has become a jurisdiction for terrorist financing, weapons smuggling, illegal oil sales, a flow of fighters into 

Syria. This, of course, serves Jabhat al-Nusra, as well as the Islamic State. Have any of our witnesses seen evidence that Ankara 

is deliberately turning a blind eye to those using its territory to aid 

Jabhat al-Nusra or the Islamic State? 

Mr. SCHANZER. Congressman Sherman, I recently wrote an article with a colleague of mine at FDD where we tried to address this 

problem. We have seen several indications, unfortunately. One indication was, in fact, a conversation that took place with a senior 

government official who confronted the Turks about this issue specifically and was told that this was something that the Turks needed to do for now in order to bring down the regime of Bashar alAssad, and that after Assad falls, then they would be able to take 

care of the problem in a way that only the Turks knew how. 

Now, color me a little skeptical that this is something that you 

can roll back. I think that actually over time the fact that they 

have allowed extremists of various stripes to go in has actually created a security problem on the other side of the Turkish border. We 

now understand that there is infrastructure there representing the 

Nusrah Front, ISIL, other Salafi and jihadi groups. And so if the 

32 

Turks begin to crack down now, you could see blowback inside Turkey. And I think that has a lot to do with why the Turks have allowed this problem to get worse over time. 

Mr. SHERMAN. I should point out, however, that the Iranian-led 

alliance of Assad, Iran, the Houthi, Hezbollah, has killed far more 

Americans and is far more dangerous in the future than even those 

who have made these gruesome videos or who attacked us on 9/11. 

I believe my time has expired. 

Chairman FITZPATRICK. The Chair recognizes the gentleman 

from Illinois, Mr. Dold, for 5 minutes. 

Mr. DOLD. Thank you, Mr. Chairman. 

And I want to thank our witnesses for your service to our country, and thank you for testifying today. 

I wanted to start with Mr. Jones, if I could. Mr. Jones, your testimony highlights the expansion of Hezbollah and Iran into the 

Western Hemisphere, specifically in Latin America. I was wondering if you could walk us through the growth of Hezbollah and 

Iran’s terror activities in Latin America. 

Mr. JONES. Sure. The growth of Hezbollah in part is a function 

of Iran’s growth over the past decade or two. Particularly the key 

node for a while, while Chavez was alive, was through Venezuela. 

And so Venezuela, Ecuador, and Bolivia became key nodes for 

Hezbollah activity in the country, the tri-border area in particular, 

but also Margarita Island, ended up being key nodes for Hezbollah 

activity. They have increasingly gained revenue, access to drugs 

that are flowing from places like Latin America into West Africa 

and then back into Lebanon. 

I think there is also an interest in building, and we have seen 

some of that, including in Central America, an infrastructure that 

can conduct what we call in the military realm kinetic strikes, if 

that is viewed as important, generally against either Israel or 

Israeli Embassies or potentially U.S. ones in the future, if there 

was a decision to do that. 

I can go into a lot more detail here or later, but I think that is 

a 30,000-foot— 

Mr. DOLD. No, I appreciate that, and we certainly want you to 

go into more detail, at least I would, and we can do that offline but 

not here during questioning. 

One of, obviously, the concerns we have is this growing footprint, 

not just as we are focusing right now in the Middle East, but this 

is growing and expanding as this role of terror throughout the 

world. 

Dr. Schanzer, I wanted to talk for a second just on sanctions 

with Iran. You talked a little bit about it with Mr. Rothfus. And 

as we look at this Iran deal and the potential $50 billion coming 

in, Iran is notorious in terms of just being the greatest state sponsor of terror. Can you give us an idea in terms of the sanctions infrastructure that was in place, did that have an impact of stopping 

some of the terror financing? 

Mr. SCHANZER. In short, the answer is yes. And I believe that 

sanctions infrastructure was ultimately what prompted the Iranians to come to the table to negotiate. 

Let’s just say I am disappointed at the way that we have already 

released a significant amount of those funds over time. There has 

33 

been $900 million at a time just to keep Iran at the table, and that 

has added up to almost $15 billion by the time we reach the deadline. 

Then, on top of that, we are going to see perhaps that $50 billion 

signing bonus. And then there is going to be another $50 billion 

from the semi-accessible accounts that Iran has in places like 

China and Japan and Turkey and others. And so, that is all going 

to be released as well. 

Mr. DOLD. So that is over $100 billion: $117 billion. 

Mr. SCHANZER. We are talking about roughly $120 billion all in 

when this deal is made, that is what Iran stands to gain, not to 

mention the ongoing sale of oil, which they will continue to do. 

But the most crucial aspect of the sanctions architecture is actually the SWIFT system, the banking software that Iran was kicked 

off of, save about a dozen banks. That is ultimately, I think, the 

thing that the Iranians are most eager to see reinstated. 

And one of the things that I am curious about, and it could be 

something that this task force could look into, is what SWIFT 

plans to do in the event of a final deal with Iran. Will they allow 

all of these banks to get back on to the system? If they do, then 

you are really going to see a massive flood of Iranian cash going 

back and forth on the formal financial network. 

Mr. DOLD. Your hearing today—talk to the American public, they 

don’t think Congress works in a bipartisan fashion. Let me just emphasize to you all that this is an issue that is wildly bipartisan in 

terms of trying to protect the United States. We looked at each of 

you and others to try to help us. This isn’t just us deciding to call 

you up before Congress and spend some time. We want to figure 

out what we can be doing to have a legitimate impact on trying to 

stem the tide of terror financing around the globe. 

And so with my 16 seconds, Mr. Zarate, can you give us some 

more concrete examples of what we should be doing, either through 

Treasury or through oversight, and it obviously is not going to necessarily be legislation? 

Mr. ZARATE. You are absolutely right, Congressman. I think this 

issue has always been bipartisan and it always should be. 

Mr. DOLD. Absolutely. 

Mr. ZARATE. And I commend you all for treating it as such. 

Three key areas: First, I would say, what more can we do to 

sharpen the tools and the power that we have to reach beyond our 

borders to use the tools of financial exclusion? 

Second, we need to look at what our defensive posture is, because 

we have taught the world how to use these tools. The Russians and 

the Chinese have begun to understand how to use resources and 

the economy as weapons in hybrid warfare and otherwise. So, what 

does that look like? 

And third, to the discussion we were having earlier, what does 

a strategy of financial inclusion look like as a complement to the 

strategies of financial exclusion? 

Those are three thematic areas I would look at, and I think you 

have lots of work to do within those categories. 

Mr. DOLD. I look forward to working with you all. 

Thank you, Mr. Chairman. 

34 

Chairman FITZPATRICK. The gentleman from Arkansas, Mr. Hill, 

is recognized for 5 minutes. 

Mr. HILL. Thank you, Mr. Chairman. 

And I thank all of you for your testimony today and for your 

work to protect the homeland. 

Of course, American banks are heavily regulated in the bank secrecy arena—CTRs and SARs have been referred to. Talk to me a 

little bit about the Middle East, North African arrangements and 

the international banks that are not Western European, Far East, 

or American, on what they do in the money laundering regime in 

that regard, the equivalent of a Bank Secrecy Act and reporting regime. 

Mr. ZARATE. Part of the strength of this effort, and it is important to note, is that it is international in scope. And so it is not 

just what Congressman Green was talking about in terms of the 

U.N. system, but you do have these international norms and principles that are adopted by the Financial Action Task Force, and leveraged by the IMF, the World Bank, Interpol, and the U.N. 

And so you do have these standards of anti-money-laundering, 

anti-terrorist-financing, anti-proliferation-financing, which are the 

heart of the international system. So everyone is supposed to be 

playing by those rules. 

The challenge is, of course, you have different levels of capacity, 

but interestingly, the private sector, which has been at the forefront of this, has been pressured to put in place the kinds of antimoney-laundering systems and sanctions screening processes that 

adhere to law, are very sensitive not just to their own jurisdictions, 

but to what the U.S. Treasury and what Western banking capitals 

demand. 

Why? Because they need the connectivity for correspondent banking purposes. They have to plug back into that system. And so not 

just their own governments, but these Western banks are now demanding to know and to be assured that their systems actually 

work, that they know their customers, that they can screen transactions, that they can implement the OFAC sanctions from Treasury, even in the heart of Africa. 

That is really a good news story and it is part of the structure. 

The difficulty is not all jurisdictions and not all banks are in the 

same place, and we have to lift all boats to the same level of compliance. That is a hard thing to do. 

Mr. HILL. Mr. Jones talked about targeting financial targets as 

a part of our espionage operation, and I would like to hear a little 

bit more about that. When you referenced that a trade was made 

with $13 billion of gold, by my quick calculations that is about 338 

tons of gold. So I am curious how that was transported, assuming 

it is not just done through a customs receipt. 

Mr. JONES. I think that comment came from Mr. Schanzer. 

Mr. HILL. If you both maybe address it, talking about, do we set 

an expectation in special ops, for example, that they are given a 

mission of looking for opportunity on the financial side as opposed 

to a security threat? So maybe Dr. Schanzer, go first on the gold 

question, then I will go to Mr. Jones on that. 

Mr. SCHANZER. Sure. Congressman Hill, the $13 billion that I 

mentioned was actually over 2 years there were transactions that 

35 

were taking place between Turkey and Iran where the Iranians 

were selling oil and the Turks were sending back gold. They have 

found a loophole in the sanction system that enabled them to do 

this as long as the gold was not destined to the government of Iran, 

but rather to individuals. 

And so what they were doing is literally taking gold that was 

coming out of the bazaar in Istanbul, melting it down into bricks, 

and sending them back one shipment at a time, and doing that 

over the course of 2 years. Now, as it happens, Congress caught 

wind of that and shut down what we are now calling the ‘‘golden 

loophole.’’ 

What was remarkable to me about that was that we actually 

gave it a 6-month burn before it was actually put in place. So for 

an additional 6 months—and this is still inexplicable to me—this 

trade was allowed to continue and the Iranians and the Turks were 

allowed to continue to settle up. 

And so in total, it ended up being $13 billion. But those, whatever it was, 338 tons that you mentioned, that took place over 

many airplane shipments over the course of 2 years. 

Mr. JONES. On the targeting, here is my general sense, and I was 

in the Yemen region recently. My strong sense, the focus of our efforts, just to use the Yemen example as one case in point, the focus 

of our efforts in Yemen right now are primarily targeting al Qaeda 

in the Arabian Peninsula operatives, that includes our strikes, that 

includes some of the limited training that we have done, not on the 

financial sides. 

So if we take the Al Mukalla bank that was raided, about 

$325,000, $350,000, but we have seen hundreds of thousands of 

dollars raided by other bank accounts. Some of that was kept in 

warehouses. My sense is the focus of our efforts is not going to target finding these locations and raiding them. They are targeting individuals from the ideological committees, from the military committees of al Qaeda, and not the financial committees. And I would 

say that needs to be a major priority. 

Let me just say on the other banking question that Juan answered, we have had very good cases of organizations and banks, 

like Kabul Bank, which have been used for terrorism financing, for 

money laundering. And I saw President Ghani when he was here 

recently. He has been willing to look a lot more carefully at banking efforts and the use of Kabul Bank for that. 

So I think getting allies in place and leveraging their interest 

and willingness to do that is helpful. And I would highlight the 

Kabul Bank case as a positive news story. 

Mr. HILL. Thank you for your generosity, Mr. Chairman. 

Chairman FITZPATRICK. The gentlelady from Missouri, Mrs. Wagner, is recognized for 5 minutes. 

Mrs. WAGNER. I thank you very much, Chairman Fitzpatrick and 

Ranking Member Lynch. Thank you for your support and your 

dedication. 

I am grateful to Chairman Hensarling for establishing this task 

force, and to all of you, our panelists, for your service and for joining us today to go over the current landscape of terrorist financing, 

which is quickly changing and growing. 

36 

I had the privilege and the honor of serving for 4 years as a 

United States Ambassador in one of the financial hubs of Western 

Europe, which was Luxembourg. And, Mr. Zarate, we worked on a 

few things together. And I must tell you, stopping terrorist financing as a United States Ambassador during that time period was 

probably some of the most rewarding work that I have ever done, 

and I am thrilled to be a member of this task force. 

Since arriving in Congress, I have taken on another top priority 

in addition to the work I do on Financial Services and on other 

committees, and that is to combat human trafficking both domestically here in the United States and abroad. 

I am very glad to hear that the Senate has reached an agreement 

to move forward on important legislation addressing human trafficking here in the United States. However, it is an even greater 

problem abroad, and I saw this firsthand as a United States Ambassador. Reports indicate that terrorist groups are engaging in it, 

both to produce revenue for their organizations and to decimate 

communities that they occupy. 

Groups such as ISIL and Boko Haram have been known to kidnap women and children and either sell them, as we have talked 

about a little bit here in terms of the kidnapping, or keep them as 

slaves. 

To what extent, and I will open this up to all of our panelists, 

is human trafficking occurring among terrorist groups, and how is 

this being used as a source of terrorist financing? 

Mr. JONES. One perspective is that, certainly I think it is occurring with every major organization we are talking about, so it is 

a problem. It is not their only source of revenue. My sense is where 

the most significant components of revenue come from are in extortion and ransom paid as part of human trafficking efforts. And we 

have seen groups like Boko Haram do this, al Qaeda in the Islamic 

Maghreb do this—seize individuals as part of human trafficking 

networks and then sell them. 

So I think this is one issue. I am not entirely convinced this has 

been a major effort of our intelligence community and our military 

in targeting them, certainly not as much as they could. 

Mrs. WAGNER. I would agree, and that is why I would ask, are 

there any that you are aware of, any current policies or activities, 

both in the United States or internationally, that are being utilized 

to crack down on human trafficking by terrorist organizations in 

order to receive that revenue and that terrorist financing money? 

Mr. ZARATE. Madam Ambassador, it is great seeing you again. 

Mrs. WAGNER. It is good to see you. 

Mr. ZARATE. And thank you for your work in Luxembourg. The 

key work done in banking centers around the world after 9/11 was 

critical. So thank you. 

I think what you have seen with human trafficking is that it has 

been handled in three categories. The first is as sort of its known 

niche issue, and so it hasn’t been seen as a broader dimension of 

the problem of terrorist financing or illicit financing writ large. Second, it is seen in the context of particular conflicts or crises, and 

so you get a lot of focus when it comes to Syria, for example, or 

particular crises. And then third, where it does touch terrorism and 

illicit conduct, it is largely in the ransom context, as Seth said. 

37 

And so you don’t have an overarching sense of, okay, let’s look 

at human trafficking from the perspective of a major source of illicit finance for not just terrorist groups, but transnational organized crime groups that are often aligned with or operating in parallel with these terrorist groups. 

And when I talk in my testimony about needing to look for new 

allies in the international system, this is precisely what I am talking about. It may not be that we need an overarching sanctions regime around this issue, but we do need to coalesce around the 

issues that are providing sources of funding for terrorist groups: 

wildlife trafficking; human trafficking; and antiquities. These are 

issues where you do have communities of interest who have information, and have the ability to shut it down. And we need to empower them as part of a broader strategy. 

Mrs. WAGNER. I appreciate that, and I would ask the chairman 

if this is something that we can certainly as a group and as a task 

force look into in terms of more that can be done to restrict specifically human trafficking and the money that is being realized by 

these groups. 

Briefly, and I know it has been touched on, I just want to say, 

and you brought it up, about the sale of artifacts and antiquities, 

this is a growing, growing, area. And I would say it is the Islamic 

State’s second source of terrorist financing. 

I have been working with some key outside groups and stakeholders. They are going to be meeting with the committee and 

doing some briefings. And I look forward to following up on this. 

This is an untouched area. But in the art world, antiquities and 

artifacts are the second-leading source in terms of terrorist financing, and this is, again, something that I look forward to the committee being briefed on and delving into. 

So I appreciate all of your time and service. 

Thank you, Mr. Chairman. I yield back. 

Chairman FITZPATRICK. I appreciate the gentlelady’s work in this 

area. 

The gentleman from Arizona, Mr. Schweikert, is recognized for 

5 minutes. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

I have a couple of, sort of, scenario questions. The first one I 

would love to get my head around is, it is always follow the money, 

tainted money from around the world, whether it be drug trade or 

other rather evil or dodgy activities, how does it flow right now? 

How is it washed, how is it laundered, how is it moved so in many 

ways it is spendable? And are those mechanics now being used to 

move terrorist money? 

So the scenario I am going to ask you to walk me through is, is 

there a nexus now of the cocaine trade washing money? Are those 

infrastructures now being used to move terrorist money? 

Mr. ZARATE. I think it is a great question, Congressman, because 

there is in some ways different ways of raising money and moving 

money depending on the category of groups that you are talking 

about. But at the end of the day, there is a melding of methodologies among the types of networks that we are concerned about. 

Mr. SCHWEIKERT. But methodologies are service providers, as we 

might call them. 

38 

Mr. ZARATE. Both. 

Mr. SCHWEIKERT. Are there mercenaries out there saying, ‘‘Look, 

my job is I wash cash and move it.’’ 

Mr. ZARATE. Yes. And, again, the Section 311 action under the 

PATRIOT Act put out by FinCEN just recently that designated as 

a primary money-laundering concern this Andorran bank made 

very clear that they were doing this in part because that bank was 

being used to facilitate the funneling of tainted money from around 

the world through very particular money-laundering service providers. And so, that is exactly right. 

You also have cases, and I alluded to this earlier, of Hezbollah, 

for example, engaging in drug trafficking, working with drug-trafficking organizations, and then figuring out ways to launder the 

money. And so you had a bank like the Lebanese Canadian Bank 

operating in Canada with a presence in Beirut, serving as the financial vehicle through which the funds for that drug trade and 

the sale in used cars was actually then funneled back to Beirut for 

purposes of Hezbollah. So that is an example of where you get the 

blending of the methodologies. 

Mr. SCHWEIKERT. And for everyone, because I can work on a scenario in my head, and hopefully it is not too fanciful, of where you 

end up with a worldwide sort of consortium washing money, and 

in some ways it is almost like the mechanics of, okay, we have so 

much value here, credit our account there. And you start being able 

to move value around without actually even picking up the pallets 

of cash. Am I wrong? 

Mr. SCHANZER. You are not wrong. And a great example of that 

was there was a corruption report that was leaked out of Istanbul 

last year and we saw this massive network of gold traders that 

were based in Istanbul, money traders that were based in the UAE, 

Chinese banks, Iranian banks. And there was an incredibly complex scheme where—I will give you a great example of a tactic 

known as over-invoicing, where a UAE company sold sugar to Turkey at $438 a pound. That is some good sugar. And it was ultimately then sent back into the coffers of the Iranians. 

Mr. SCHWEIKERT. That is almost the perfect example of the scenarios, and yet they could use legitimate trade channels through 

that overpricing. 

In the last 90 seconds we have, could you walk a scenario 

through with me. Just randomly, I am in Great Britain, I want to 

provide a large block of cash to terrorists or warfighters in Syria. 

How does that money make its way? Walk me through the path. 

Mr. ZARATE. You could do it several ways. You could do it 

through aid organizations. You could establish a charity or use existing charities and use the licenses and exemptions and the sanctions regime to actually move money into charities that you know 

are being used or that are controlled by a terrorist organization. So 

that is a simple example through the terrorism context. 

You could, if you wanted to grow more complicated, you could establish a front company, base it in any sort of offshore banking center, establish a bank account in a certain name, make sure you understand who the intermediary is in a particular bank, for example, 

in Turkey, and you establish the account. You have complicit bankers perhaps helping you do that. And the money gets shipped to 

39 

Turkey, the cash exported through ATM or otherwise, and then 

moved across the border into Syria. 

Mr. SCHWEIKERT. All right. Thank you. 

Mr. Chairman, at some point, I think it would be fascinating to 

build a handful of little charts so there is sort of the graphic representation of, here is how illicit money flows, and even start to 

take a look at it moving around the world, and then maybe also 

the weapons and products of human destruction that sort of move 

the other direction with the money. 

And with that, I yield back. 

Chairman FITZPATRICK. Comments are noted. 

The gentleman from Maine, Mr. Poliquin, is recognized for 5 

minutes. 

Mr. POLIQUIN. Thank you, Mr. Chairman. 

Gentlemen, all of us who are in public office take an oath to support and defend the Constitution, which, of course, extends to making sure that our families are protected here in the homeland and 

beyond. I want to thank all of you gentlemen for the great work 

that you are doing helping keep our Americans safe. This is a nonpartisan issue, which I am thrilled about. All of us in this room 

and all of our American families, I think, have been increasingly 

alarmed at the growth of terrorism and the level of savagery that 

has been displayed. So it is really critical that we stay as a country 

on offense; we must prevent this risk from coming to our homeland 

beyond the way it has already happened. 

Now, we probably also remember 9/11 beyond the horrific loss of 

life; it put us into a recession. And so the threat of terrorism 

around the world is also to disrupt our quality of life, our way of 

life, our prosperity, and our freedoms, because when you have an 

economy that goes into a recession as a result of a terrorist attack, 

of course, you don’t have the tax revenues to educate your kids, to 

build your roads, or to defend yourself. So you are doing great work 

and I am thrilled to be a part of this. 

Now, a couple of things I have heard today already as my colleague from Minnesota and my colleague from California, all mentioning the same issue that we have up in our Second District of 

Maine and throughout our State is how do we continue to make 

sure that our immigrant populations are able to help their families 

back home without that money falling in the hands of terrorists? 

We have about 5,000 Somali immigrants in the State of Maine, and 

a good portion of them live in Lewiston in my district. Many of 

them are shop owners, hardworking, and they send $100 or $200 

a month back home to their relatives such that they can be clothed 

and fed and be educated. 

And we all have a vested interest in this, because if those folks 

back home in Somalia have better lives, then they are less tempted 

to engage in terrorist activities, which keeps us safe here at home. 

So we clearly have to fix this problem. You talked about the last 

mile from the point at which the funds are received in Somalia and 

to make sure they get in the right hands. Have you folks engaged 

with any of our regulators, the Federal Reserve, the FDIC, you 

have certainly done a lot of work in this regard, to make sure there 

are processes, there can be processes? How do we solve this problem to make sure that our Somali families in Lewiston who are 

40 

now unable, through the normal banking channels, to get this 

money back home to their relatives, don’t start using other conduits that may, in fact, be shady and/or illegal and be an increasing threat to our homeland? Sir? 

Mr. ZARATE. I certainly talk to my former colleagues at Treasury 

about this, and they are seized with the problem. I think the challenge for the U.S. Government is, as we talked about before, government is very wary of providing full-blown assurances or guarantees of any sort that would allow the private sector sort of the assurance to be able to do this kind of business. 

That said, I do think there is a need for creativity here. This is 

a new kind of problem and one where we need to balance the need 

of financial exclusion, make sure Al Shabaab, for example, isn’t 

getting remittances, but realizing exactly what you described, 

which is these remittances are essential for the economy in Somalia and important for our Diaspora communities, and so what does 

that look like. I think there have been some creative ideas, but I 

haven’t seen movement around what those ideas actually would become. 

Mr. POLIQUIN. Would that jurisdiction, in your opinion, sir, be 

relative to this committee? What would be the process you would 

suggest that we go through to make sure we solve this problem for 

our families throughout this country? 

Mr. ZARATE. From my experience as the Assistant Secretary of 

the Treasury for these issues, any time Congress sent a letter to 

the Secretary of the Treasury, it got the Treasury Department’s attention. 

Mr. POLIQUIN. Got it. Thank you very much. I would like to move 

on to another question, if I may. I think I have time, Mr. Chairman, for one more. 

There has been a little bit of discussion today about if the sanctions are lifted on Iran, it would result in a cash infusion to their 

economy of $120 billion to $170 billion, depending on some of the 

numbers with which we all are comfortable. Could you give me an 

idea, Mr. Schanzer, of what that represents to the Iranian GDP on 

an annual basis, and also, what would that money buy them and 

how would that possibly affect a risk to our U.S. security? 

Mr. SCHANZER. Thank you for the question. I don’t have all the 

economic numbers handy, but I am happy to send you those. We 

can have our office send them over to you later today if you would 

like. 

The thing that I think is worth noting, though, is that what we have is roughly $100 billion that has been held in these offshore 

accounts. That $100 billion has only been able to be tapped by the 

Iranians for approved goods. So in other words, it has only allowed 

them to buy medicine, food, all the things that would make sure 

that there is no dual-use items and those sorts of things. So now 

what you are going to have is the opening up of these floodgates 

where there will be no restrictions whatsoever. 

So it is not really—from my perspective, it is not about the GDP 

or what percentage is—what kind of increase we are getting, it is 

the fact that you are going to have the restrictions lifted entirely 

on where they can send their money and how they can do it. Of 

course, there will be regulations that remain in place, the ExecuVerDate Nov 24 2008 14:03 Sep 11, 2015 Jkt 095059 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 K:\DOCS\95059.TXT TERRI
41 

tive Orders that we discussed and the like, but the Iranians are 

going to have a much freer hand with that cash. 

Mr. POLIQUIN. Thank you very much, gentlemen. Keep up the 

good work. 

Chairman FITZPATRICK. The gentleman from Kentucky, Mr. Barr, 

is recognized for 5 minutes. 

Mr. BARR. Thank you, Mr. Chairman, and thank you for your 

leadership on this task force. As we are approaching the end of this 

hearing, I want to just express my appreciation for being included 

on the task force. This is perhaps the most important responsibility 

that we have as Members of Congress, to make sure that the 

American people are safe, that our allies are not threatened by terrorism, and in our capacity as members of the Financial Services 

Committee, obviously stemming the tide of funding for these terrorist organizations is a critical part of that objective. Thank you 

to our panelists for your expertise and your contributions in this 

area. 

And if I could just follow up on my colleague from Maine and his 

very good line of questioning with respect to Iran, Dr. Schanzer, if 

you could just elaborate a little bit not just about what it would 

mean to have an additional $120 billion-plus in sanctions relief for 

the GDP of Iran, but specifically, if you could elaborate on your testimony, your written testimony about how—what can we predict or 

what might we foresee in the way of scenarios of channeling of 

these additional dollars that Iran would accumulate as a result of 

additional oil sales and banking activities, international banking 

activities in the way of prior conduct, specifically Hamas, 

Hezbollah, and the rebels in Yemen. 

Mr. SCHANZER. Thank you, Congressman. So what we have is a 

pretty prolific country here in terms of terrorism finance. Hundreds 

of millions of dollars have flowed from Iran to Hamas. We have 

seen missiles being sent from Bandar Abbas over to Sudan, from 

Sudan smuggled up into Egypt, and then from there across the 

Sinai Peninsula into the Gaza Strip, and we are talking about 

thousands and thousands of those rockets. Of those 3,500 rockets 

that were fired into Israel last year, many, many of them came 

from Iran. Iran has also been taking people out of the Gaza Strip, 

and training them on how to manufacture these rockets themselves. So a lot of this is investing in human capital as well. We 

can expect this to continue. 

We believe also that some of the tunnel-digging equipment that 

has been used by Hamas has been provided by Iran. So there is 

a broad range of activity here; the direct financing; and the rocketmaking and the training. 

Hezbollah, also hundreds of millions of dollars. They right now 

are currently believed to be in possession of 90,000 rockets, many 

of them Iran-supplied, facing south at Israel right now, and they, 

of course, maintain a vast infrastructure across the globe. 

Mr. BARR. So to the direct question is—if I could just interject— 

if this proposed agreement is finalized, can we anticipate, given the 

sanctions relief that would be made available to the government in 

Tehran, a rapid acceleration of this type of financing of these terrorist organizations? 

42 

Mr. SCHANZER. Absolutely, across-the-board. Houthis, the Assad 

regime, Hezbollah, Palestinian Islamic Jihad, Hamas, every one of 

these groups stands to benefit. They are all salivating right now at 

this idea of a cash infusion. 

Mr. BARR. And I know the other witnesses would like to weigh 

in. As you weigh in, could you just comment on the earlier testimony that Congress would need to work to backfill the sanctions? 

What do you mean by that, and how is that even possible, given 

the level of sanctions relief that is contemplated under this agreement? 

Mr. ZARATE. Congressman, I think one core question for the U.S. 

Government is how do we treat the Revolutionary Guard of Iran? 

They are designated under the U.N. Sanctions for nuclear purposes. They are not designated for purposes of terrorism. The Quds 

Force is, which is a part of the Revolutionary Guard. And so one 

dimension that you could consider is, what does the U.S. Government and Congress consider in terms of the Revolutionary Guard. 

Why is that important? Because in addition to what Jonathan has 

laid out with such great articulation, you have the Revolutionary 

Guard engaged in infrastructure projects. 

Cyber activities against U.S. banks: Keep in mind that the distributed denial of service attacks that affected U.S. banks, some of 

them have come from Iran. 

And you have major corruption in the context of the mullahs and 

the ayatollahs running bone yards around the world. And so it is 

not just all of the very nefarious things that Jonathan has laid out, 

it is these other systemic things that the Revolutionary Guard and 

the regime itself can now finance and fund and continue to do. And 

I think Congress has a responsibility to ensure that those kinds of 

activities aren’t allowed to continue in the wake of a nuclear deal 

where we may be hamstringing ourselves to use the sanctions regimes that apply to those other activities. 

Mr. BARR. One final question for Mr. Jones: Da’ish and ISIL, how 

effective have American efforts been so far at stopping the flow of 

financing to ISIL? 

Mr. JONES. I think the evidence is pretty straightforward. They 

are well-funded. There have been some successful efforts to limit 

their money from oil smuggling and the money that is coming from 

refineries, but they are well-funded. They are getting that money 

centrally and pushing it out to a range of places, including in 

Anbar province. But I would say across-the-board, they have sufficient amounts of funding to continue to operate not just in Iraq and 

Syria, but to continue to make and establish networks in Afghanistan and in Pakistan, where we have seen them, in Libya, in Somalia, and in Yemen and a range of other locations. So it has not 

dented their ability to try to expand. 

Mr. BARR. Thank you. My time has expired, and I thank you for 

your testimony. And it just goes to show we have a lot of work 

ahead of us. Thank you. I yield back. 

Chairman FITZPATRICK. The gentleman yields back. 

On behalf of the task force, I want to, again, thank the witnesses 

for your testimony and your time here today. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

43 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

Without objection, this hearing is adjourned. 

[Whereupon, at 12:14 p.m., the hearing was adjourned.] 

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A P P E N D I X 

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