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88–332 PDF 2003

PROGRESS SINCE 9/11: THE EFFECTIVENESS

OF THE U.S. ANTI-TERRORIST FINANCING

EFFORTS

HEARING

BEFORE THE

SUBCOMMITTEE ON

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

MARCH 11, 2003

Printed for the use of the Committee on Financial Services

Serial No. 108–10

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa

DOUG BEREUTER, Nebraska

RICHARD H. BAKER, Louisiana

SPENCER BACHUS, Alabama

MICHAEL N. CASTLE, Delaware

PETER T. KING, New York

EDWARD R. ROYCE, California

FRANK D. LUCAS, Oklahoma

ROBERT W. NEY, Ohio

SUE W. KELLY, New York, Vice Chairman

RON PAUL, Texas

PAUL E. GILLMOR, Ohio

JIM RYUN, Kansas

STEVEN C. LATOURETTE, Ohio

DONALD A. MANZULLO, Illinois

WALTER B. JONES, JR., North Carolina

DOUG OSE, California

JUDY BIGGERT, Illinois

MARK GREEN, Wisconsin

PATRICK J. TOOMEY, Pennsylvania

CHRISTOPHER SHAYS, Connecticut

JOHN B. SHADEGG, Arizona

VITO FOSELLA, New York

GARY G. MILLER, California

MELISSA A. HART, Pennsylvania

SHELLEY MOORE CAPITO, West Virginia

PATRICK J. TIBERI, Ohio

MARK R. KENNEDY, Minnesota

TOM FEENEY, Florida

JEB HENSARLING, Texas

SCOTT GARRETT, New Jersey

TIM MURPHY, Pennsylvania

GINNY BROWN-WAITE, Florida

J. GRESHAM BARRETT, South Carolina

KATHERINE HARRIS, Florida

RICK RENZI, Arizona

BARNEY FRANK, Massachusetts

PAUL E. KANJORSKI, Pennsylvania

MAXINE WATERS, California

CAROLYN B. MALONEY, New York

LUIS V. GUTIERREZ, Illinois

NYDIA M. VELA ́ ZQUEZ, New York

MELVIN L. WATT, North Carolina

GARY L. ACKERMAN, New York

DARLENE HOOLEY, Oregon

JULIA CARSON, Indiana

BRAD SHERMAN, California

GREGORY W. MEEKS, New York

BARBARA LEE, California

JAY INSLEE, Washington

DENNIS MOORE, Kansas

CHARLES A. GONZALEZ, Texas

MICHAEL E. CAPUANO, Massachusetts

HAROLD E. FORD, JR., Tennessee

RUBE ́ N HINOJOSA, Texas

KEN LUCAS, Kentucky

JOSEPH CROWLEY, New York

WM. LACY CLAY, Missouri

STEVE ISRAEL, New York

MIKE ROSS, Arkansas

CAROLYN MCCARTHY, New York

JOE BACA, California

JIM MATHESON, Utah

STEPHEN F. LYNCH, Massachusetts

BRAD MILLER, North Carolina

RAHM EMANUEL, Illinois

DAVID SCOTT, Georgia

ARTUR DAVIS, Alabama

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director

(III)

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

SUE W. KELLY, New York, Chair

RON PAUL, Texas, Vice Chairman

STEVEN C. LATOURETTE, Ohio

MARK GREEN, Wisconsin

JOHN B. SHADEGG, Arizona

VITO FOSSELLA, New York

JEB HENSARLING, Texas

SCOTT GARRETT, New Jersey

TIM MURPHY, Pennsylvania

GINNY BROWN-WAITE, Florida

J. GRESHAM BARRETT, South Carolina

LUIS V. GUTIERREZ, Illinois

JAY INSLEE, Washington

DENNIS MOORE, Kansas

JOSEPH CROWLEY, New York

CAROLYN B. MALONEY, New York

CHARLES A. GONZALEZ, Texas

RUBEN HINOJOSA, Texas

JIM MATHESON, Utah

STEPHEN F. LYNCH, Massachusetts

(V)

C O N T E N T S

Page

Hearing held on:

March 11, 2003 ................................................................................................. 1

Appendix:

March 11, 2003 ................................................................................................. 53

WITNESSES

TUESDAY, MARCH 11, 2003

Byrne, John, Senior Counsel and Compliance Manager, American Bankers

Association ............................................................................................................ 36

Emerson, Steve, Director, The Investigative Project ............................................ 29

Epstein, Matthew, Assistant Director, The Investigative Project ....................... 31

Fisher, Alice, Deputy Assistant Attorney General Criminal Division, Department of Justice ..................................................................................................... 7

Hoglund, Richard, interim Director, Office of Customs Investigations, Bureau

of Immigration and Customs Enforcement, Department of Homeland Security, accompanied by Marcy Forman, Executive Director, Operation Green

Quest ..................................................................................................................... 9

Johnson, Larry, CEO, BERG Associates ............................................................... 32

Moynihan, John, Senior Investigator, BERG Associates ...................................... 34

Sloan, James, Director, Financial Crimes Enforcement Network, Department

of the Treasury ..................................................................................................... 11

APPENDIX

Prepared statements:

Kelly, Hon. Sue W. ........................................................................................... 54

Gutierrez, Hon. Luis V. .................................................................................... 60

Byrne, John ....................................................................................................... 62

Emerson, Steve ................................................................................................. 69

Epstein, Matthew (with attachments) ............................................................ 104

Fisher, Alice ...................................................................................................... 135

Hoglund, Richard .............................................................................................. 144

Johnson, Larry .................................................................................................. 149

Moynihan, John (with attachments) ............................................................... 152

Sloan, James (with attachments) .................................................................... 166

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Sloan, James:

List of Non-Cooperative Countries and Territories ....................................... 181

(1)

PROGRESS SINCE 9/11: THE EFFECTIVENESS

OF THE U.S. ANTI-TERRORIST FINANCING

EFFORTS

Tuesday, March 11, 2003

U.S. HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS,

COMMITTEE ON FINANCIAL SERVICES,

Washington, D.C.

The subcommittee met, pursuant to call, at 2:08 p.m., in Room

2128, Rayburn House Office Building, Hon. Sue W. Kelly [chairwoman of the subcommittee] presiding

Present: Representatives Kelly, Garrett, Murphy, Brown-Waite,

Gutierrez, Inslee, Crowley, Hinojosa, Lynch, and Oxley (ex-officio).

Chairwoman KELLY. Good afternoon. Thank you all for being

here.

In 1993, when terrorists set off a bomb in the garage of the

World Trade Center with the intention of killing thousands of innocent people and disrupting the international financial system,

Americans saw for the first time the planning and organizational

capabilities of the worldwide Islamic terrorist network.

Since then and throughout the 1990s, terrorist forces continued

their agenda of senseless killing by bombing the U.S. Marines

Khobar Tower barracks in Saudi Arabia, U.S. embassies in two African countries, and the USS Cole, resulting in hundreds of deaths.

Sadly, policymakers at that time underestimated the enemy’s

strength, skill, and fervor, and failed to treat these events as interconnected parts of a war for which the enemy had been preparing

since the mid- to late-1980s.

And then, on September 11, 2001, the enemy’s attacks had horrifying results with the loss of close to 3,000 Americans with the attacks on New York and Washington and the plane in Pennsylvania.

September 11th also exposed the vulnerabilities of our Nation’s financial system and how our free and open American way of life is

used by the terrorists to further their war against America.

None of these attacks would have been possible without money,

and we are now just learning the extent of how and where terrorists get the money they need to attack our country. The terrorists

have developed a powerful fund-raising machine right here in

America, cynically using charities and religious institutions to murderous effect. The terrorists’ effects have yielded a moral harvest

of blood money aimed not at helping the needy, but used instead

to fuel deadly violence against Americans.

2

Although we are making progress in the war against terrorist financing here and throughout the world, the enemy is smart, resourceful, numerous, and changes tactics frequently. When there is

a weakness in our system, terrorists will find it and exploit it. One

day they use phony charities, and the next, businesses as fronts for

smuggling bulk cash, and the next day, coupon fraud.

Efforts since September 11th including the passage and enforcement of the USA PATRIOT Act have resulted in numerous arrests

in this area. From New York to Michigan to Florida to Texas, Federal authorities have disrupted this network, slowing the flow of

money to America’s enemies.

I am sure I speak on behalf of all the members of the committee

when I congratulate the law enforcement team represented on our

first panel for their role in the March 1st capture of Khalid Shaikh

Mohammed, the financial mastermind of al-Qaeda and the planner

of the September 11th attacks. It is my hope that this significant

development will allow law enforcement to piece together a money

trail to help us tighten the noose on Osama bin Laden and break

up the al-Qaeda network.

Our principal focus today will be the activities of various groups

and charities in the U.S. which have been raising money on behalf

of terrorist groups such as al-Qaeda, the Palestinian Islamic Jihad,

Hamas, Hezbollah, and other members of the global terrorist network. The charities have warm, caring names like the Benevolence

Foundation, the Holy Land Foundation, and Global Relief Foundation, but their intentions are anything but benevolent.

Federal agents and prosecutors continue to ferret out illegal

transfers of funds from these groups allegedly aimed to support terrorist activities. Just last week, it was discovered that a Brooklyn

mosque may have helped funnel millions of dollars to al-Qaeda.

The leader of the effort, a Yemeni cleric, boasted that he had personally delivered $20 million to Osama bin Laden.

On February 28th, five men were sentenced for providing material support to Hezbollah through a cigarette smuggling scheme.

On February 26th, five men were indicted in New York and Idaho

for conspiring to illegally raise and send $2.7 million to Iraq

through the Help the Needy charity.

Also, on February 26th, 16 men were arrested for fraudulently

redeeming more than $4.5 million in coupons from five States. The

funds were laundered through a Yonkers, New York, check-cashing

business and sent to the West Bank.

On February 20th, four members of the Palestinian Islamic

Jihad terrorist group were indicted and four others arrested on a

total of 50 counts, including fraudulently raising money and illegal

material support and wire transfers. Among the four arrested was

Sami Al-Arian, a professor at the University of South Florida.

The indictment alleges that the defendants used U.S. locations as

the North American base for Islamic Jihad. On December 18th, a

senior member of Hamas, his wife, and five brothers working at a

Texas computer company, were indicted for money laundering. One

of the brothers, Ghassan Elashi, was also vice president of the Holy

Land Foundation, which the Treasury Department closed in December of 2001 for serving as a Hamas front.

3

It is clear terrorists have learned to use our wealth and goodwill

against us. My fear is, despite the fact that we have made these

important arrests, this is only the tip of the iceberg.

And then there is Saddam Hussein. There is plenty of evidence

linking terrorists such as Hamas, Hezbollah, al-Qaeda to Saddam

Hussein. Hamas opened an office in Baghdad in 1999, and Iraq has

hosted conferences attended by the Palestinian Islamic Jihad.

Published reports cite U.S. intelligence officials as sources for recent reports that Saddam Hussein might subcontract to Hezbollah

and Hamas a terrorist strike here in the United States or abroad.

And recently, before Congress, CIA Director George Tenet testified

that Hezbollah has been casing and surveilling American facilities.

According to Secretary of State Colin Powell, a senior al-Qaeda associate Abu Musab al-Zarqawi moved his poison and explosives operation from Afghanistan to northeastern Iraq after U.S. forces liberated Afghanistan.

This information is disturbing on its own. It is even more disturbing to know that millions of dollars may have been raised

through a mosque in Brooklyn, schemes in Detroit, or North Carolina or elsewhere in the United States, to advance the efforts to

help al-Qaeda, Hamas, and others who wage war against America.

At today’s hearing, we will review the charities and schemes that

have allegedly been used by groups to aid terrorists and the

counter measures that law enforcement has employed to smoke out

and prosecute the enemy’s allies. Our experts on our second panel

work with law enforcement and can further tie together for us the

domestic groups, the schemes, and the terrorists they help. Both

panels, I hope, will provide some important lessons from these

cases for the financial community and for this committee as we

consider potential amendments to the USA PATRIOT Act. If another attack on America occurs, it will have been funded at least

in part right here on American shores.

We need to know how the enemy funds its operations here and

now, and we need to know how to stop it, and that is the focus of

today’s hearing.

I thank you all for being here today. I turn now to the chairman

of the committee, Mr. Oxley.

Mr. OXLEY. I thank the chairlady, and I would like to take this

opportunity to offer my thanks and appreciation to you for holding

this particularly timely hearing.

The issue of terrorist financing has become one of critical importance to our Nation, dating from the 1993 bombing of the World

Trade Center. The hearing this afternoon will serve two distinct

purposes. The first is to share with the members of this subcommittee how our government has been able to successfully block

the efforts of terrorists whose goal is to destroy America, and secondly, to find ways to improve the USA PATRIOT Act.

As you know, much of the legislative language drafted by the Financial Services Committee was incorporated into the USA PATRIOT Act and signed into law by the President in November of

2001. Law enforcement’s efforts have, by necessity, not ended

there, however, for as we have seen, nearly every blocking and

freezing of suspected terrorist funds has been met with new and inVerDate 11-MAY-2000 12:44 Aug 28, 2003 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\88332.TXT HBANK1 PsN: HBANK1
4

sidious efforts to render such protocols both outdated and outmoded.

While I am justifiably proud of this committee’s efforts to date,

I am also not unmindful that improvements and refinements will

be necessary and needed. Our enemies are determined to pursue

their ruinous efforts to bring our great Nation to its knees. For

that reason, we are resolved to put into the hands of our law enforcement agencies all of the weapons that they will need to deal

successfully with the ongoing threat of these terrorist activities

within our borders.

To that end, I again thank the chairlady for her focus on this

critical effort and her good work today and in the future, and I

yield back.

Chairwoman KELLY. Thank you very much, Mr. Oxley.

Chairwoman KELLY. We next turn to you, Mr. Gutierrez.

Mr. GUTIERREZ. Good afternoon. Thank you for holding this hearing. I will be brief since the purpose of the hearing is to get an update from the agencies and experts that have been instrumental in

the fight against international money laundering and terrorist financing.

Our fight against terrorist financing is a broad-based effort, extending well beyond the al-Qaeda network. In today’s global marketplace, it means nothing to build a concerted effort between financial institutions and law enforcement agencies at home without

instituting similar actions abroad. Enhancing international cooperation between local agencies and countries around the world is

essential to eliminating terrorist networks and to winning the fight

against international money laundering practices.

The USA PATRIOT Act was a critical step in giving our enforcement personnel the necessary anti-money laundering provisions to

fight terrorists by blocking the schemes used to finance their horrific crimes. Attorney General Ashcroft recently said that 124 million in financial assets belonging to terrorist groups, including alQaeda, have been frozen since the September 11th attacks.

Although we have made progress, we have much work to do. We

do not know whether the frozen assets represent most or just a

small percentage of the pool of potential money that could be used

to finance terrorism around the globe.

In order to truly stop terrorism, we need to strengthen the cooperation and coordination. Encouraging information sharing collaboration among local, State, Federal, and international law enforcement also is critical to eliminating al-Qaeda. And we need to

ensure that our priorities concentrate equally on both prevention

and response. State and local governments need to have the capacity and the resources to respond to the threat of terrorists, and especially when they serve our Nation’s first responders, proper

training, technical assistance and support is critical.

Before I conclude, I would like to urge Treasury to expeditiously

complete the provisions that have yet to be promulgated, particularly those dealing with the verification of identity. A recent GAO

study requested by Chairwoman Kelly and myself regarding the

use of Treasury’s electronic transfers—excuse me—electronic funds

transfer and electronic transfer account programs found that about

11 million Federal benefit recipients, about half of those receive

5

checks from banks. More shockingly, the study found that approximately 55.8 million U.S. adults are currently unbanked; that is 20

percent of all U.S. adults.

GAO also found that the primary obstacle to using electronic

fund transfer was that many Federal check recipients didn’t have

bank accounts. We all know that without access to banking services, individuals are forced to turn to payday lenders and checkcashing vendors who very often charge exorbitant fees, sometimes

with interest reaching 500 percent.

The inability to enter the banking center results in higher costs

of borrowing and lack of access to home mortgages. The proposed

rule requires a financial institution to contain statutorily prescribed procedures. It describes them in detail, certain minimum

elements that each must contain. The procedures as proposed by

Treasury require important elements that would further safeguard

our banking system from terrorist financing and at the same time

will not hinder the ability of unbanked individuals to access our financial institutions.

I look forward to the testimonies that will be presented today.

Thank you, Madam Chair.

Chairwoman KELLY. Thank you, Mr. Gutierrez.

Mr. Inslee.

Mr. INSLEE. Thank you, Madam Chair, for holding this hearing,

a very important one given the times we are in. And I hope that

we will focus on three areas during this hearing:

First, I hope we will have a serious exploration of whether or not

we have really eased up on some of our enforcement with some of

other countries that have been associated with very knowing and

very obvious financing of terrorism. And there is a concern in my

district and, I think, across the land that as a result of some of our

national interests in other pursuits, particularly the war in Iraq,

that perhaps the Federal Government has not been sufficiently aggressive with some of the countries that have mollycoddled these

folks who have financed terrorism.

The most obvious suspect that my constituents are concerned

about comes from the apparent fact that much of the financing for

the September 11th attack came from financiers in the Mideast

and Saudi Arabia, perhaps the United Arab Emirates, and that the

United States Federal Government, to our knowledge, at least from

what we hear in my district, has not been acting with any particular sanction against those countries to enforce the known need

to cut off the funding for these snakes. And I hope that we will

hear a discussion about what our Federal Government has been

doing in this regard.

And let me tell you why there is concern in my district about

this. There is concern in my district that because of our Federal

Government’s current interest in pursuing the war in Iraq and its

interest in basing some of our military forces and our interest in

gaining support for the U.N. Resolution that we have not been sufficiently assertive, aggressive, and in a way to get a result from

these countries, because we have sort of taken a little pressure off

in order to get them to help us in other ways in the war in Iraq.

And I think that would be most unfortunate and shortsighted.

6

So we hope that we will hear discussion about that. We hope

that we are wrong, and we hope those concerns are unfounded, but

we need to address that issue.

Second, we are going to hear testimony from the American Bankers Association and, perhaps, that there has been a little bit of

misprioritization of what we have been looking for when we are

looking for a fight against terrorism, and we have got, perhaps, a

little something different; and we would like to know about that

issue.

And third, I hope that we will hear today about a way to make

this system workable for Americans of Muslim extraction, many

whom are great Americans—some of whom are biochemists in my

district, engineers at Boeing, computer scientists at Microsoft—to

make sure that they are not sort of swept into this when they have

acted legally. And we want to make sure that they have confidence

that their legal actions are not swept into an illegal misunderstanding.

So I hope that we can address those three issues. I look forward

to this hearing. Thank you.

Chairwoman KELLY. Thank you very much.

Mr. Murphy.

Mr. MURPHY. Thank you, Madam Chairman. I want to welcome

the distinguished folks who will be talking to us today, because I

know that these witnesses share your concern and all of our concern that your job is every bit as important as what has taken

place with our law enforcement throughout the Nation—the CIA,

the FBI, and the police—as well as our military overseas.

Perhaps because I come from a health care background as a psychologist, I look upon this as using a disease model, and that is,

you treat the symptoms, as one needs to do, but you also identify

the source of the disease. You wipe out the disease and you prevent

it from ever taking root again.

What I want to hear about today will be the aggressive, the thorough, and the relentless mechanisms you are using to track every

dollar, because I know it must weigh heavily upon your hearts that

every dollar that gets into the hands of terrorists is a dollar that

could be used to kill Americans or to harm us.

Plus, also, we know that they are using that—not only using our

economy to fund their terrorism, but in turn affecting our economy

negatively.

So I know you are going to give us some interesting news on the

things that are happening, but I also want to let you know how

grateful we are as Members of Congress for your relentless determination to continue to root out the sources of funding for terrorism, and I look forward to your testimony.

Thank you, Madam Chair.

Chairwoman KELLY. Thank you, Mr. Murphy.

If there are no further opening statements, I will introduce our

first panel:

Ms. Alice Fisher, Deputy Assistant Attorney General of the

Criminal Division at the Justice Department; Mr. Richard

Hoglund, Interim Director of the Office of Customs Investigations

in the Bureau of Immigration and Customs Enforcement, part of

the new Homeland Security, and he is accompanied by Ms. Marcy

7

Forman, Executive Director, Operation Green Quest; and Mr.

James Sloan, Director of the Financial Crimes Enforcement Network in the Department of the Treasury.

We thank all of you for taking the time to be here today and to

testify before us, and I welcome you on behalf of the committee.

Without objection, your written statements and any attachments

that you have will be made part of the record.

You will now be recognized for a five-minute summary of your

testimony. When the light changes color on the timer before you,

it will move to yellow, that is the time to begin to summarize your

testimony, and then it will start blinking red, and that is time to

stop.

Chairwoman KELLY. So let us begin now with you, Ms. Fisher.

STATEMENT OF ALICE FISHER, DEPUTY ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF

JUSTICE

Ms. FISHER. Thank you Chairwoman Kelly and distinguished

members of the panel. I am honored to be here to discuss the Department of Justice efforts in terrorist financing enforcement. As

Deputy Assistant Attorney General in the Criminal Division, I

oversee the Counterterrorism Section and a component of the

Counterterrorism Section which is the DOJ Terrorist Financing

Task Force.

The Department’s single and overarching goal since 9/11 has

been to prevent future terrorist acts on the United States and its

citizens. Curtailing the financing of terrorists is a critical component of that effort. We take this mission very seriously, targeting

the financiers of terrorism as aggressively as those terrorists who

commit violent acts.

Currently, the Department is pursuing over 70 criminal terrorist

financing or material support investigations in 22 States. Over the

past 18 months, we have charged 61 individuals in cases involving

terrorist support to such groups as al-Qaeda, Hamas, Hezbollah,

and Palestinian Islamic Jihad, or PIJ. We have charged 33 persons

in cases involving the terrorism-related sanctions program of the

International Emergency Economics Power Act, or IEEPA. And finally, we have charged over 20 individuals with illegally operating

an unlicensed money remitting service, or hawala. These charged

individuals face lengthy prison sentences, and our message is clear:

We will bring justice to the entire network of terror.

Congress has been a very valuable partner in this fight. By passing the USA PATRIOT Act, Congress provided us with powerful

new tools to combat terrorism financing. The PATRIOT Act enhanced the crime of providing material support or resources, 18

U.S.C., Section 2339B, which now carries a penalty of up to 15

years and, in some cases, life imprisonment.

We have enforced this law to disrupt terrorist Jihad cells in Buffalo, Portland, Seattle, and Detroit. We have also used it to charge

individuals engaged in drugs for weapons for terrorists, in drugsfor-weapons plots in Houston and San Diego. And just recently in

Charlotte, North Carolina, in the first such case to be decided by

a jury, Mohammed Hammoudeh, the leader of the Charlotte

Hezbollah cell, was convicted and sentenced to 155 years in prison.

8

Two recent material-support-for-terrorism cases demonstrate the

Department’s commitment to choke off support to terrorism and

punish the perpetrators. Just last week, the Attorney General announced material support to al-Qaeda and Hamas charges brought

in Brooklyn, New York, against two Yemeni nationals, Mohammed

Ali Hasan Al-Moayad and his assistant Mohshen Yaha Zayed, who

were arrested in Germany following an undercover sting operation

in cooperation with German law enforcement.

The complaint alleges that Al-Moayad claimed to have personally

given $20 million to Osama bin Laden. Using an undercover informant, the FBI caught Al-Moayad boasting about his involvement

in providing money, recruits, and supplies to al-Qaeda, Hamas, and

other terrorist groups in part from monies he collected from collections at the Al Farouq mosque in Brooklyn. He also claimed to be

Osama bin Laden’s spiritual advisor.

In Tampa, Florida, the Department charged Sami Al-Arian and

seven other defendants, all leaders and supporters of the terrorist

group, the Palestinian Islamic Jihad, or PIJ, with conspiracy to

provide material support and conspiracy to commit murder among

other charges. The indictment alleges that PIJ is responsible for

the murder of over 100 innocent people, including two Americans.

As detailed in the indictment, Al-Arian was the secretary of the

Shura Council, or the worldwide governing group of PIJ, and actively engaged in PIJ operations. The defendants managed the affairs of PIJ, including the acquisition and spending of funds and

administering the financial affairs of PIJ. For example, the indictment alleges that Al-Arian had a letter written from him which requested a financial donation to the PIJ and stated that the bombers in a recent terror operation had left families in debt, and urged

a financial contribution so that PIJ could continue its terror operations.

Al-Arian attempted to hide his support for PIJ after the group

was designated as a foreign terrorist organization in 1997, but

court-approved electronic surveillance of his office revealed his continued active support for PIJ long after the designation.

The Charlotte Hezbollah case is another key example of how the

Department has aggressively pursued terrorist financing. What

started out as the suspicion of a local off-duty sheriff ultimately uncovered a massive cigarette smuggling and tax evasion scheme

which involved several Lebanese men who were part of the

Hezbollah cell which had received instructions from and provided

financial support to well-known terrorists in Beirut. These defendants purchased night vision devices, stun guns, mine and metal detectors, advanced aircraft design software, drilling and blasting

equipment, laser range finders, and global positioning systems. As

I already mentioned, the lead defendant received a 155-year prison

sentence.

We have also stemmed the flow of terrorist financing by targeting organizations that purport to raise charitable funds, but in

fact serve as fund-raisers for terrorist organizations. For example,

we indicted the Chairman of Holy Land Foundation, the Executive

Director for Benevolence Foundation, who just last month pleaded

guilty in Chicago. And a few weeks ago Dr. Rafil Dhafir and others

9

were charged in Syracuse with using their charity, Help the Needy,

to illegally transfer money to Iraq.

To sum up quickly, the tools that we have been using and that

Congress provided to us have had an impact. And I would just like

to quote from a defendant in a conversation that he had with an

informant in the Portland cell up in Oregon. He said, quote:

‘‘Everybody is scared to give up any money to help us. You know

what I am saying? Because that law that Bush wrote about, you

know, supporting terrorism, whatever, the whole thing, everybody

is scared. He made a law that says, for instance, I left, out of the

country and I fought, right, but I wasn’t able to afford a ticket. But

you bought my plane ticket. You gave me the money to do it. By

me going and fighting and me fighting and doing that, they can—

by this new law, they can come and take you and put you in jail.’’.

The Department is therefore grateful for all the tools that Congress provided, and I am happy to answer any questions that you

have.

Chairwoman KELLY. Thank you so much, Ms. Fisher.

[The prepared statement of Alice Fisher can be found on page

135 in the appendix.]

Chairwoman KELLY. Mr. Hoglund.

STATEMENT OF RICHARD HOGLUND, INTERIM DIRECTOR, OFFICE OF CUSTOMS INVESTIGATIONS, BUREAU OF IMMIGRATION AND CUSTOMS ENFORCEMENT, U.S. DEPARTMENT OF

HOMELAND SECURITY, ACCOMPANIED BY MARCY FORMAN,

EXECUTIVE DIRECTOR, OPERATION GREEN QUEST

Mr. HOGLUND. Chairwoman Kelly and distinguished members of

the subcommittee, it is a privilege to appear before you today to

discuss the efforts undertaken by Operation Green Quest and its

role in terrorist finance. With me today is Marcy Forman, the Executive Director of Operation Green Quest.

The survival of terrorist organizations is directly related to their

ability to raise funds and transfer them internationally in a clandestine manner to support their operations. Terrorist entities often

move their money by exploiting weaknesses in domestic and international finance systems. I welcome this opportunity to discussion

Operation Green Quest’s mission, methodology, goals, and successes as they relate to terrorist financing.

Established in October 2001, Operation Green Quest has employed a broad, systematic strategy to detect, disrupt, and dismantle terrorist financial networks. Operation Green Quest has realized this goal by bringing the full scope of the government’s financial expertise to bear against systems, individuals, and organizations that serve as sources of terrorist funding.

From inception, Operation Green Quest has met its mission head

on. Operation Green Quest has proactively and covertly targeted

charities, nongovernmental organizations, illegal money service

businesses, and alternate remittance systems, and various entities

using bulk cash smuggling as a conduit to fund terrorist activity.

Green Quest actively identifies and develops sources of information

and routinely exploits Bank Secrecy Act data to include suspicious

activity reports, currency and monetary instrument reports, and

currency transaction reports.

10

Examples of Operation Green Quest’s successes include the Virginia-based charities case, which is a Bureau of Immigration and

Customs Enforcement, BICE, led multiagency task force investigation of suspected money laundering, tax fraud, and terrorist material support violations being committed by individuals and companies located in northern Virginia. These conglomerates of businesses, charities, and nongovernment organizations are suspected

of funneling funds to terrorist groups.

On March 20, 2002, 29 search warrants were executed by 130

Federal, State, and local law enforcement officers on businesses,

residences, and Internet servers identified by this investigation. In

November 2002, two multiagency search warrants led by BICE

agents were executed on a Boston-based computer software company, allegedly funded by a designated terrorist in violation of the

International Emergency Economic Powers Act.

In December 2002, a BICE agent-led investigation in Seattle of

a money remitting company with approximately 30 remitting

agents nationwide culminated in the execution of a total of 36

search warrants, six arrests, and 19 indictments for money laundering and violations of the International Emergency Economic

Powers Act. This investigation identified approximately $28 million

wired through the main violator’s account, $12 million of which

was traced to an embargoed country.

In December 2002, BICE-led investigation in Detroit identified

several individuals and businesses that operated as unlicensed

money remitters that sent funds to Yemen in violation of 18 U.S.C.

1960, operating as an unregistered money-remitting business. As a

result, 10 search warrants, five seizure warrants, and six arrest

warrants were executed. In addition, five bank accounts were

seized, totaling $234,000, along with a quantity of narcotics.

In December 2002, there was an investigation that effected a

bulk cash seizure of $280,000 in currency, concealed within clothing, destined for the Middle East. Subsequently, search warrants

on businesses related to the initial seizure resulted in additional

seizure of $2.2 million in currency and the arrest of the owner of

the business. The owner has been indicted for bulk currency smuggling.

Based in Washington and led by the new Bureau of Immigration

and Customs Enforcement, Operation Green Quest serves as a

command and coordination center and is essentially a place for onestop shopping in terrorist finance investigations. Operation Green

Quest collects, develops, manages, and disseminates leads to appropriate field offices for investigative action. As such, it is the repository and clearinghouse for terrorist financial investigations and is

able to prioritize, identify investigative overlaps, and redirect resources to meet operational objectives.

Operation Green Quest is a multiagency center, and in addition

to the Bureau of Immigration and Customs Enforcement, it is comprised of representatives from the Internal Revenue Service, Secret

Service, Office of Foreign Assets Control, Financial Crimes Enforcement Network, Federal Bureau of Investigation, Naval Criminal

Investigative Service, Postal Inspection Service, Bureau of Alcohol,

Tobacco & Firearms, and the Coast Guard.

11

Many of these successes of Operation Green Quest can be attributed to the aggressive outreach of the financial and trade communities. Operation Green Quest views the finance and trade communities as the frontline in identifying suspicious activity and potential financiers of terrorist activities.

In conclusion, I would like to thank the distinguished members

of this subcommittee for the opportunity to speak before you today,

and we invite your questions as we proceed. Thank you.

Chairwoman KELLY. Thank you very much, Mr. Hoglund.

[The prepared statement of Richard Hoglund can be found on

page 144 in the appendix.]

Chairwoman KELLY. Mr. Sloan.

STATEMENT OF JAMES SLOAN, DIRECTOR, FINANCIAL

CRIMES ENFORCEMENT NETWORK, U.S. DEPARTMENT OF

THE TREASURY

Mr. SLOAN. Madam Chairwoman, members of the subcommittee,

and Chairman Oxley, thank you for this opportunity to appear before you today to discuss the Financial Crimes Enforcement Network, or FinCEN, and its role in combating money laundering and

the fight against terrorist financing.

The recent formation of the Executive Office for Terrorist Financing and Financial Crimes within the Department of the Treasury,

I think, further underscores the FinCEN’s expertise in using the

Bank Secrecy Act to help identify and track the financial aspect of

terrorist and other criminal activity. This continued commitment to

financial crime and money laundering is a significant indication

that the Treasury Department expects to stay in the forefront of

these important issues following the relocation of several of its enforcement bureaus to the Department of Homeland Security.

My statement today will update the committee on FinCEN’s programs, as well as the significant progress we have made in meeting

our obligations under Title III of the USA PATRIOT Act. Thank

you for the opportunity to submit a longer written statement for

the record.

As administrator of the Bank Secrecy Act, FinCEN must ensure

that the data it collects under that authority is truly beneficial to

law enforcement and is collected in a manner that represents the

least burden to the financial community. We continually try to

strike a balance between law enforcement needs and the burden

placed upon the industry. Industry has been extremely responsive

in complying with Bank Secrecy Act regulations, I believe because

it recognizes that reasonable regulations are part of the shared

price we all have to pay for combating terrorism and financial

crime.

The Congress and, most importantly, this committee recognized

the need to expeditiously make additional tools available to law enforcement to fight money laundering and terrorist financing after

the attacks of September 11, 2001 by passing the USA PATRIOT

Act. This prompt action reinforced the importance of using data

such as suspicious activity reporting and other Bank Secrecy Act

information to help pinpoint the nexus between crime and its associated financial activity.

12

The Act’s intent that the long-term expansion of the BSA to

broad categories of financial service providers be placed on a very

fast track resulted in a dramatic increase in FinCEN’s responsibilities. I will briefly highlight the progress FinCEN has made to date

on implementing many of those provisions. I believe you have

charts in your briefing materials, as well, which might help illustrate FinCEN’s PATRIOT Act accomplishments.

One of the most comprehensive provisions of Title III was the requirement that all financial institutions, as defined by the Bank

Secrecy Act, be required to establish anti-money laundering programs. To cover this potentially large and diverse number of entities in a judicious manner, FinCEN chose a risk-based approach.

We focused first on traditional financial institutions, and then proceeded to cover entities that are most likely the places a money

launderer would go to launder the funds. As a result, regulations

in various stages of the rule-making process are in place for industries as varied as casinos, insurance companies, credit card owners,

and dealers in precious metals and jewels, just to name a few.

Because of the proven value of suspicious activity reporting, the

expansion of that reporting to financial sectors beyond depository

institutions had been a priority even before the PATRIOT Act. The

Act helped accelerate the process, and we now have suspicious activity reporting requirements in place for brokers and dealers, casinos, currency exchangers, and mutual funds.

FinCEN has worked very hard this year to provide additional

guidance to the industry. Today, in fact, we have issued an Advisory on Informal Value Transfer Systems describing indicators of

terrorist financing and providing information about filing suspicious activity reports related to that type of suspicious activity.

We have also issued two Suspicious Activity Reviews within the

past year that provide feedback to industry, as well as summaries

of cases in which suspicious activity has played an important role.

FinCEN just issued its fifth Suspicious Activity Review, a copy

of which I know has been provided to the subcommittee. The review is a semiannual report which discusses trends and patterns

found in a comprehensive review of SAR filing. The latest issue focuses on terrorist financing methods that use nonprofit organizations, as well as Informal Transfer Systems such as hawalas.

One of the most challenging tasks given to FinCEN has been to

develop, under Section 314 of the Act, new ways to share information rapidly between law enforcement and the financial institutions, and to enable these institutions to share information among

themselves.

As I said, we are acutely aware that all the regulations come

with a burden in varying degrees to diverse sectors of the financial

industry. We are constantly trying to find ways to ease this obligation, but there is always going to be some cost, which we will work

to ensure is justified by the law enforcement benefit.

The implementation of 314(a) is just an example. Section 314

gave FinCEN the opportunity to craft a tool that would fill a gap

in our law enforcement ability to quickly respond to pinpoint the

financial support for acts of terrorism or serious financial crime.

FinCEN quickly developed a system that could transmit names of

suspects to several thousand financial institutions and receive reVerDate 11-MAY-2000 12:44 Aug 28, 2003 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 C:\DOCS\88332.TXT HBANK1 PsN: HBANK1
13

ports back of matches, all within days. The system was not meant

to obtain documents or be a substitute for subpoenas, but rather

to serve as a locator that could be followed up by law enforcement

with a subpoena or other appropriate legal process.

We met the deadline and developed the system known as 314(a),

which is designed to serve all participants from large corporate

banks to small rural banks with limited technical systems; 314 has

proven to be extremely helpful to law enforcement.

In requesting the information, law enforcement has assured us

that the requests are related only to the most significant terrorist

and money laundering investigation. The FBI’s Terrorist Finance

Operations Center and the Customs Bureau’s Green Quest are

major users of the system. We will continue to work with them and

all the participants on a regular basis to improve efficiency as necessary.

Other key sections of Title III that FinCEN has been diligently

working on include: crafting rules to comply with Section 326,

which requires financial institutions to verify customer identification in connection with the opening of accounts; special due diligence measures for institutions that maintain correspondent accounts for foreign institutions; and Section 311, which authorizes

the Secretary of the Treasury to impose special measures against

foreign jurisdictions or institutions that are found to be serious

money laundering concerns and under which Treasury designated

two jurisdictions in December 2002, Ukraine and Nauru.

Madam Chairwoman, in closing, the threats we deal with today

have taken on new dimensions from those that existed when the

legal structure for anti-money laundering was first created. Traditional methods for laundering have mutated over time to take advantage of the new technologies, diverse institutions, and industries.

On behalf of FinCEN, I would like to thank you for the opportunity to discuss with you our accomplishments, as well as our

unique role in the fight against terrorist financing. I will be happy

to answer any questions.

Chairwoman KELLY. Thank you, Mr. Sloan.

[The prepared statement of James Sloan can be found on page

166 in the appendix.]

Chairwoman KELLY Ms. Fisher, Mr. Hoglund, Khalid Sheikh Mohammad was Osama bin Laden’s money man and the mastermind

of his most destructive operations, including the September 11th

attack that killed 3,000 people. He was the contact man for all alQaeda operatives, what one expert called the mission man. Working together with Mustafa Al-Hasawi, the al-Qaeda paymaster

caught with him, Mohammed set up and used checking accounts,

debit cards, credit cards from financial institutions in Dubai, the

UAE, and the United States. Hasawai is named in a false statements case against Al-Marri, a former Peoria, Illinois, man who is

being held without bail in New York and accused of credit card

fraud and lying to the FBI about calls the government says he

made to Hasawai’s phone number in the two months before the

September 11th attacks. Al-Marri illegally possessed more than 15

access devices or credit card numbers, and his computer files contained hundreds of apparent credit card numbers.

14

Now that we have the mastermind and the paymaster in custody, how much closer are we to finding Osama bin Laden and all

of his operatives here in the United States, the people who have

funded his reign of terror?

And a second follow-up to that is, have you be able to identify

a money trail that provides clues on possible future al-Qaeda operations? And I am specifically focusing on you, Ms. Fisher and Mr.

Hoglund.

Ms. Fisher, would you like to start?

Ms. FISHER. Certainly.

Without being able to get into any classified information or any

intelligence information, I would want to assure the committee that

the Intelligence Community—the FBI, the CIA, et cetera—are following up on all leads that we get in the terrorism investigation

in general. And so we follow the money trail wherever it goes. And

the case that I believe that you mentioned in New York with Mr.

Al-Marri, I believe he is right now serving jail time for his credit

card fraud. So, certainly the investigations continue.

Chairwoman KELLY. Mr. Hoglund?

Mr. HOGLUND. We are actively pursuing the leads as they are developed through the Intelligence Community, and in conjunction

with the FBI, to see, are there specific areas of interest that Green

Quest should approach vis-a-vis perhaps some other areas. And so,

I mean, we are chasing this down as the information becomes

available to us.

Chairwoman KELLY. Ms. Fisher, have you identified the money

trail that money—I am interested in whether or not you have been

able to identify—or maybe you just cannot say that in public—that

the ones that—the money trails that show that there is money funneled from the United States to the al-Qaeda operation?

Ms. FISHER. Well, certainly we have some charged cases that are

public that show money going from the U.S. to the al-Qaeda operation. For example, the case that I described in my opening statement and that you described in your opening statement is part of

a scheme where two individuals were funneling money, some of

which they obtained in a mosque in Brooklyn, by one of the defendant’s own words, to al-Qaeda, to Osama bin Laden personally.

And so, clearly, those are the types of money trails that we constantly are following up on. And where we can and where it is appropriate, we charge those individuals and prosecute them to the

fullest extent that we can.

Chairwoman KELLY. Thank you.

The recent indictments against the four Syracuse men for money

laundering and providing material support to individuals in Iraq

and the other public documents about the case allege the following:

That the four defendants used Help the Needy, a charity, to funnel at least $2.7 million through three banks in New York and the

Jordan Islamic Bank to the defendants’ families and unnamed individuals in Baghdad; that they used false papers and I.D.s to open

the accounts. They never obtained the license required by law to

legally provide aid to Iraq. They did not seek the required tax-exempt charitable status from the IRS until August of 2002, and

never filed the necessary annual disclosure forms for Help the

Needy. They lied to contributors without helping the needy and the

15

oppressed, and they had some financial relationship with two other

so-called charities which were shut down for helping terrorists, the

two charities being the Global Relief and the Benevolence Foundations.

Without disclosing any of the investigatory details, is it safe to

say that all Federal law enforcement is continuing to look for individuals living and working here in the United States who are providing legal—illegal material support?

I am sorry; let me rephrase that.

Of the people who are living and working here in the United

States of America providing illegal and material support to terrorists who work with Saddam Hussein’s regime in Baghdad? And

they may be supporting Saddam himself.

Can I just ask you three to answer that question? Is that too

long?

Ms. FISHER. I think I got it.

The case that you have described, the Help the Needy case in

Syracuse, we have charged four defendants. Two of the defendants,

specifically for their crimes, face up to 265 years in prison; and

they are charged with sending money to Iraq, as you noted, $2.7

million to Iraq without getting the appropriate license. And so they

are violating IEEPA in doing that and that is what they are

charged with.

I think it is safe to say, from the Department of Justice’s and the

FBI’s perspective—and I am sure that the other agencies will echo

this, because we are all in this together—we are following the trail

of terrorist money wherever it goes, all groups. And whether it is

illegally being funneled to Iraq or it is being illegally funneled to

Hamas, Hezbollah, al-Qaeda, we are aggressively pursuing it on all

tracks.

Chairwoman KELLY. Yes, Ms. Forman.

Ms. FORMAN. Madam Chairwoman, if I may. We are addressing

all those high-threat areas, specifically right now, Iraq and other

Middle Eastern countries; and we are using all the tools in our arsenal to accomplish that. Operation Green Quest’s mission is to disrupt and dismantle the funding mechanisms, and that is what we

are targeting, those funding mechanisms that can be exploited.

In addition, with our new counterparts, the Immigration Service,

we are using our new authorities to work with them to identify

those individuals who are still here in the United States so we can

gather more intelligence, more information, to identify further targets. Thank you.

Chairwoman KELLY. Mr. Sloan.

Mr. SLOAN. Madam Chairwoman, I would just add that, we are

not the silver bullet nor are we an investigator, but we like to

think, that both Justice and Homeland Security and the investigative resources of Treasury are using what we might consider to be

a rather large arrow in their quiver successfully and following the

money where it leads. We contribute to that success, but we don’t

obviously investigate it ourselves.

Chairwoman KELLY. Thank you very much. My time is up.

Mr. Gutierrez.

Mr. Inslee.

Mr. INSLEE. Thank you, Madam Chair.

16

I appreciate having the people who are really responsible for telling Americans where the money came from and is coming from for

these terrorist activities, so I appreciate your being here.

One of the questions I have asked a lot is, why hasn’t America

acted in regard to some of the countries that have not been responsible, as responsible as they should be in cutting off this flow of

money to these terrorist organizations? And when you look through

September 11th, the attack, what we know about, we know Afghanistan was associated with the attack. We know that Yemen

was to some degree. We know there was training done in Germany

and plotting in Germany, perhaps some in other countries.

We know that—according to a nonpartisan organization, the

Council on Foreign Relations, that published a report in October of

this year, they stated that ‘‘Saudi Arabian-based charities have

been the most important source of funds for al-Qaeda, and that for

years Saudi officials have been turning a blind eye to this problem,’’.

There seems to be a relative consensus of those who have evaluated this situation. We know that 15 of the 19 hijackers, their nationality was Saudi Arabian. We know that in an article published

March 10th, Al-Hasawi—and I apologize if I mispronounce the

name—a Saudi national, has been described as the paymaster of

the September 11th operation and its financial mastermind and

has provided documents to the German authorities suggesting that

he wasn’t working alone.

But to my knowledge, there have not been any sanctions against

any other governments for their failure to act in an aggressive, assertive, responsible way to cut off this funding since September

11th, including Saudi Arabia or any other country, other than our

action against Afghanistan, which was certainly a strong sanction,

but no others.

And it is troublesome to my constituents that, while we are

about to start a war in Iraq, to our knowledge—and now I am

going to ask you that question in a minute—there has not been a

paper trail of funds to September 11th; we haven’t acted with sanctions to some of these other countries that have not acted in a responsible fashion as international citizens to help us cut off these

funds.

So I have two questions:

First, have there been sanctions against any other nation, associated with their failure to help us in a responsible manner to cut

off these funds? And, if not, why not?

That is just a general question to any of you if you would like

to help us with an answer. I see there are no volunteers at the moment.

Maybe, Mr. Sloan, I can draft you.

Mr. SLOAN. Well, you can draft me, sir, but I probably won’t have

an answer for you.

From our perspective, clearly we like to think that we look at the

transactions that might lead us to suspect flows of money that

might be financing terrorism. We certainly would look at that from

a national basis; we would turn those clues over—I hate to point

in their direction, but we would be turning them over to the investigative agencies or even to OFAC for IEEPA sanctions.

17

We don’t have a role in applying sanctions to individual countries. However, we do pay attention and we try to encourage attention being paid to those jurisdictions that might be considered noncooperative countries and territories for the purpose of anti-money

laundering activity. And we work very closely with our partners

around the world in that regard to highlight certain jurisdictions

that might present such a problem for us.

Mr. INSLEE. And have any countries been identified as noncooperating countries under that definition?

Mr. SLOAN. There are several countries that are considered

under the Financial Action Task Force deliberations as noncooperative countries or territories in the anti-money laundering efforts.

Mr. INSLEE. And what are those countries?

Mr. SLOAN. We can provide you with a list of them. There are

perhaps a dozen or more.

[The following information can be found on page 181 in the appendix.]

Mr. INSLEE. Are any of them associated with funds financing the

September 11th attack?

Mr. SLOAN. I mean, I wouldn’t sit here today and say that they

specifically are involved in the September 11th attack. I mean, they

have been listed as such noncooperative territories for the purposes

of not having systems in place.

Mr. INSLEE. Thank you.

What countries were involved in financing the September 11th

attack? And when I say countries, I would like to define that broadly. Any country that had a person of their nationality associated

with it, whether as a transmission agent or as a contributor, any

bank that is located in a particular country.

Broadly speaking, what countries were involved in some way, or

people within those countries, with financing the September 11th

attack?

Who would be the best person to help me on that? I hope some

of you have some information about that. It is a relatively important question, so we will give you a moment.

Ms. FISHER. My understanding is that—what has been made

public was that there was at least some money coming through the

UAE and some through Germany. Not to say that it was from

those countries, but that the money—you asked about transmitting, and so some of the money came from those two; and that has

been made public.

I just want to be careful not to say anything further at this point

because I am not quite sure what has been made public and what

hasn’t. And so, if you would like, we can try to get with the people

over at FBI, the Terrorist Financing Operations Section, who are

wonderful, and try to get you that information.

Mr. INSLEE. I would appreciate that.

And obviously Saudi Arabia in some fashion, one of their nationals was involved apparently, Al-Hasawi.

Would you bear with me, just one more question?

Chairwoman KELLY. If we need to do another round, we can do

it then.

Mr. INSLEE. Thank you. I will be back.

18

Chairwoman KELLY. I will hold the record open, and you can

submit the question in writing if we don’t do the round.

Mr. Oxley.

Mr. OXLEY. Thank you.

Mr. Sloan, FinCEN recently announced its new system for requesting investigatory assistance from the banks as mandated by

Section 314 of the PATRIOT Act. As you know, if set up to be managed properly, it is going to go a long way in providing hot tips in

this very complicated field, and it gives us an opportunity for a

quick turnaround by investigators. What is the mechanism for ensuring that requests for assistance are prioritized in favor of the

most important money laundering and terrorist investigations?

Mr. SLOAN. Mr. Chairman, we have met with the law enforcement side of that equation, principally the FBI, Customs Service,

DEA, and asked quite frankly that they prioritize within their

agencies those cases that either have a terrorist connection or are

of extremely high and sensitive priority relative to money laundering investigations.

As I understand it—and I don’t want to speak for each of the

agencies because there are probably various mechanisms within

each agency—but none of the cases surface to the possibility of

transmission over the 314(a) process unless they have been cleared

in a field office by the agent in charge or in some instances at the

national headquarters. In fact, I was even confronted at church recently by an FBI agent, who knows I am director of FinCEN, who

remarked about the fact that he had received a notice that was

broadcast through the entire Bureau about how the criteria, at

least within the Bureau, for use of 314 needed to be strictly adhered to so that we are not giving the impression that we are abusing the system. So I am confident that the bureaus that are taking

advantage of this are, in fact, putting in place mechanisms that

will assure that these are the highest priority cases.

Mr. OXLEY. We want to make certain that every effort is made

to make certain that that works smoothly. I know there will be

some issues raised on our second panel regarding that implementation. I think it is a legitimate concern. On the other hand, the potential—upside potential is great, as you indicated. As you indicated in your testimony, Section 314 is a critical component of the

PATRIOT Act; and we would plan to work closely with Secretary

Snow towards making certain it works and works fairly and effectively throughout the system.

Let me ask each one of you, you have had now some experience

under the PATRIOT Act and specifically under the anti-moneylaundering provisions that our committee drafted. Give us some

sense about what tweaking perhaps may be needed, either administratively or from a legislative perspective, to make this work in

an effectual manner of identifying and going after assets of terrorist organizations and at the same time protecting individual

rights and also providing as much flexibility for the banking system as we possibly can.

Ms. Fisher, let me begin with you.

Ms. FISHER. I didn’t come prepared with any certain tweaks, although others on the panel might.

19

I will say that the PATRIOT Act tools that were provided by

Congress have been very useful, particularly in the hawala area.

We have used it over two dozen times to charge individuals who

were engaged in unlicensed money remitting, and we think that

that is a critical tool.

The other one that I think that is going to become very useful

in the future and we have used a few times now is Section 319(a)

which allows us to forfeit funds deposited in foreign banks if those

funds can be forfeited by the U.S. And the foreign bank has a U.S.

Corresponding bank. We have used that on four occasions, one of

which relates to a terrorist organization. So we think that that will,

hopefully, be very useful in the future.

Mr. OXLEY. Mr. Hoglund.

Ms. FORMAN. If I may, the PATRIOT Act has been useful in the

attack of terrorist financing, specifically in the use of the money

service businesses as well as the bulk cash statute. The bulk cash

statute has been used increasingly in our outbound currency operations. And in terms of the proposal for modification, 1960, the

money service business requirement to be registered, it would be

useful as a predicate offense for Title III electronic intercept. That

would be one suggestion.

Mr. OXLEY. Thank you.

Mr. Sloan.

Mr. SLOAN. In addition to following onto your first question, I

mean, clearly we need to be tweaking the systems that are in

place. I think that is going to be a constant effort to make sure that

the balance between the burden we are imposing upon the industry

and the benefit we are providing to law enforcement strikes the

right balance. So that tweaking will always continue.

But with regard to perhaps looking at the PATRIOT Act and

some of the requirements, the first one that comes to mind, the PATRIOT Act allowed us for the first time to provide in our arsenal,

if you will, information that comes from the 8300 Form, which is

the nonfinancial institution collection of cash in a business. For

years, it was reported only to the IRS; but the PATRIOT Act now

allows us to provide that information to law enforcement but only

starting with reports filed since January 1 of 2002. I think we

would like to see the possibility of looking into the archived information and providing access to a greater database for law enforcement efforts, and that is one that comes to mind.

Mr. OXLEY. How does that work? Does that have to be requested

by the FBI?

Mr. SLOAN. In a fashion not dissimilar to the currency transaction reports or the suspicious activity reports or, as Mr. Hoglund

mentioned, the currency monetary instrument reports, they are

part of a database, the BSA database. Right now, we can combine

all of that information and try to draw a picture of the money flow;

and they have become incredibly important. The problem is that we

don’t have access to that information, as good as it is, if it was collected prior to January 1, 2002.

Again, I am just adding this as something that I am fully aware

that the FBI and I have talked about.

I am handed information, and I don’t want to bore you with

it——

20

Mr. OXLEY. This just in.

Mr. SLOAN. We heard by both speakers about the issue of the socalled unregistered money services businesses, referred to as

hawalas. When we registered—we required the registration of the

money services businesses. We were essentially registering about

10,000 or 11,000 principals and potentially a quarter of a million

service providers, check cashiers, et cetera; and hawalas are part

of that operation.

State requirements for violating the registration requirement are

that ignorance of the law is no excuse. That doesn’t apply, I understand, in the Federal law for 18 U.S.C. 1960. It may be an additional, important tool for law enforcement, particularly in the area

of the informal value transfer systems that are trying to stay below

the radar screen and maintain their anonymity in the transfer of

funds.

Chairwoman KELLY. Mr. Crowley.

Mr. CROWLEY. Thank you, Madam Chair; and thank you for calling this important hearing.

Mr. Sloan—thank you to all the panelists for being here today.

Mr. Sloan, a number of previous reports indicated that the Treasury Department was unhappy with the level of support provided by

some of our allies, particularly in Europe, in the fight against terrorism through money laundering. Could you discuss—and I am

making reference to an article in last February’s 2002 Wall Street

Journal about particularly Germany and Russia and their participation and cooperation, I should say, with our country in this effort.

Additionally, I would be interested to hear from you about two

of the specific allies in south Asia, Bangladesh and India, and their

cooperation in this war against terrorism through money laundering.

Mr. SLOAN. I can comment on them generally. FinCEN is America’s FIU, financial intelligence unit, and as such, we are a member

of the organization known as the Egmont Group. The Egmont

Group is a group of nations that are joined together—rather a diverse group I might add—to share information about financial

criminal activity, money laundering and, since September 11, even

the potential for terrorist financing. Russia has come on board as

a member of that group, along with 69 other nations.

We—from that small corner of the world in dealing with our foreign counterparts, we are very comfortable that we, FinCEN, are

getting good cooperation. I can’t speak to the larger picture of cooperation relative to matters outside the so-called Egmont group of

FIUs, but I am comfortable, whether it is Russia or India. In fact,

FinCEN did a study in accordance with the requirements of the

PATRIOT Act, Section 359, that required us to develop a report on

the informal value transfer systems and report to Congress. That

report has been completed, and we actually worked with the Indian

government’s law enforcement community because of the prevalence of such IVTS activity in their nation.

So from my corner of the world, we are getting the cooperation

that I think is appropriate. I can’t speak for the larger picture that

I think you are moving towards, but I am comfortable with our exchange of information.

21

Mr. CROWLEY. I have some other questions of the second panel,

so what I would like to do is yield the balance of my time to my

colleague from Washington.

Mr. INSLEE. I thank you, Mr. Crowley.

I was asking you about what the sources of the funding for the

September 11 attack were, and Ms. Fisher was good enough to

identify the United Arab Emirates and Germany. I think that was

the end of the list. Then I added Saudi Arabia, because at least

there were some Saudi Arabian nationals, 15 of the 19. So, in some

sense, some Saudi Arabian nationals were involved. But there were

other countries that—I didn’t hear any involvement from Spain,

from Italy, from Yemen or, interestingly enough to many Americans I think if they knew this, from Iraq.

It is interesting to many Americans because 42 percent of Americans in a recent poll I saw had the belief that Saddam Hussein was

involved in the attack of September 11. This is one of the justifications that has been inserted for the propriety of the war that is

about to start; and I just want to make sure I understand and

Americans understand that the agencies represented here today,

the Department of Justice, the Department of Homeland Security,

the Department of Treasury and Operation Green Quest, do not

have information indicating that Saddam Hussein financed with

one dollar or one dinar the attack of September 11. Is that the situation?

Ms. FISHER. I just want to clarify what I had said before, which

is when I mentioned U.A. And Germany that it was the public information that I felt comfortable with testifying to, that there may

be other information within the Department that has not been

made public or as I sit here today I am not sure that it has been

made public that I can’t testify to. So I wanted to clarify the record

on that.

Mr. INSLEE. Can anyone add any other information?

Mr. HOGLUND. I can’t testify to your specific question, but, as we

have said, Operation Green Quest, the purpose was to exploit the

systems that can be used in terrorist financing, and we certainly

have cases and evidence of funds going to Iraq. However, what

those funds have been used for, I am in no position to say at this

point.

To your larger question as well, I think one example—we will follow the money wherever it is going. The Ptech case in Boston,

which I can’t go into any great detail, but that involves a specially

designated Saudi Arabian business man and that investigation pertains to that individual’s business dealings in the United States

and where that trail, that business may lead in relation to that individual.

Mr. INSLEE. Well, just so you will know, I have gone to a lot of

briefings here in the Capitol. I have been pretty attentive to what

the President has been saying, because I think that is very important. I have been listening very carefully to the agencies that you

represent—well, I think. And to my knowledge, at the moment, at

the moment, the United States Government has not suggested a

shred of evidence to indicate that there was financing for the September 11 attack from Iraq. That is a very important fact that I

think Americans ought to know if it is true.

22

If it is not true, if it is not true, if there is evidence of a financial

connection between Saddam Hussein and the September 11 attacks, Americans need to know that; and I would encourage you to

talk to the administration. Because if there is such evidence, we

ought to know about it; and today we don’t. Yet 42 percent of people have reached this conclusion, and I think that is very interesting.

I yield back the remaining part of my time.

Chairwoman KELLY. Mr. Inslee, there is more time left.

In my opening statement, I believe that I did make a connection,

and I will give you that passage, of the connection between Saddam

Hussein and the financing of the terrorism. I will give you a copy

of that so you can see that, and perhaps you would like to talk to

some of these people in private.

I go now to Mr. Murphy.

Mr. MURPHY. Thank you, Madam Chairman.

I want to clarify one of the questions you were just asked. You

are not saying there is no connection between Iraq or any terrorist

organizations that operate within Iraq? You are saying at this time

you have to be careful what you disclose, correct?

Ms. FISHER. I think the question, as I understood it, was, is there

any money that we have traced back to Iraq going to the September 11——

Mr. MURPHY. Not necessarily the government of Iraq but in the

organization.

Ms. FISHER. As I sit here, I am aware that some money flowed

through the countries that I mentioned, but as to the source of the

funds or otherwise, I am not clear in my mind what is public and

not public, and I don’t want to talk about things that I know are

classified. I make no comment. Don’t draw any conclusions from

what I have said one way or the other.

Mr. MURPHY. Let me ask about other sources.

Among some of the organizations that have been set up that the

money has flowed through, in some circumstances it has been wellintended citizens who have given money intended for charity to

help the poor or other needy within those countries? If so, what

sort of due diligence should citizens take when approached to give

money to charities? Is there anything else we need to do to require

more disclosure from charities to say where the money is going to?

Ms. FISHER. Clearly, I can mention that the defendants charged

in the cases are alleged to have defrauded the people that donated.

One is the case in Syracuse involving Help the Needy, where it is

alleged that the people that ran that charity defrauded the people

that actually gave money and that that money was filtered through

to Iraq without a license but that there were statements made in

their propaganda that either said they had a license or something

along those lines, so they were actually trying to defraud them.

Also, in the case of Enaam Arnaout, who was the executive director of Benevolence who recently pled guilty in Chicago, I believe

also there were allegations that some of the victims didn’t know

that their money was actually—may be targeted, as alleged, to go

to fund the Chechnian rebels.

I think it is possible that some of the victims don’t know.

23

Mr. MURPHY. They receive this through cash, checks, credit card

or all of the above?

Ms. FISHER. All of the above.

Mr. MURPHY. On another aspect—certainly I believe, as members

of the committee believe, that the vast majority of Muslims in this

country are law-abiding citizens who care a great deal for this Nation as well as for other Muslims throughout the world. Can you

state for the record the level of cooperation you have received from

other folks who are of the Muslim community and what they have

provided you with?

Ms. FISHER. We have gotten excellent cooperation from the Muslim community. The case in Buffalo, the Lackawanna cell that we

have charged of the individuals who went to Afghanistan to attempt to train, the Muslim community in Buffalo was excellent in

their cooperation. I think that, from a law enforcement perspective

and criminal enforcement perspective, we have great cooperation

from the Muslim community from across the country.

Mr. MURPHY. Going back to my questions then, in general, for

the American public, anybody who is approached by any organization purporting to be helping the needy in Mideast countries, they

need to check out those organizations themselves and ask for a license and not just be told that is the case. Perhaps should they follow up with law enforcement agencies to say that they have been

approached by them?

Ms. FISHER. Well, they certainly can. We have gotten a lot of inquiries from the public, and we try to help them. I think FinCEN

has some best practices on these issues that they might be able to

talk about.

I would also note that there are—people dedicated as terrorist

groups or terrorist organizations are listed, like foreign terrorist organizations are listed by the Department of State. Also, the people—individuals and organizations that are listed pursuant to

IEEPA are also available on the Web site so people can check those

organizations out before they donate.

Mr. MURPHY. Thank you very much.

Thank you, Madam Chairman.

Chairwoman KELLY. I want to call to people’s attention that we

have some slides with the interconnections of things showing on

the back wall. You may want to take a look at that as people are

talking. It does put some things in place.

Mr. Gutierrez.

Mr. GUTIERREZ. I get caught up in the slide up there.

Let me ask Ms. Fisher, since 9/11, the proceeds from drugs appear in some cases to be very lucrative channels for funding criminal activity such as terrorism. Could you explain what percentage

of your efforts are being dedicated in this area?

Ms. FISHER. I would hate to try to quantify it, but I can tell you

that we see this as a significant problem and a potential significant

source for funds for terrorism.

There is two particular cases that I have mentioned that we have

charged in this area. One is a case out of San Diego where the defendants are charged with attempting to exchange heroin for Stinger missiles, so it was a drugs-for-weapons case. Another case we

have charged in Houston relates to another kind of negotiation,

24

drugs for weapons, with the weapons going to AUC which is a terrorist group of Colombia.

So we are focusing on that. We think that drug proceeds as well

as other proceeds from illegal activity such as the cigarette smuggling, which was the case in North Carolina, are often used to fund

terrorist organizations and violent acts abroad.

Mr. GUTIERREZ. The importance of cooperation and coordination

among local, State, Federal and cooperation in the enforcement and

the prevention of terrorist financing, could you tell me a little bit

about what is going on at our level to help cities and States? Are

we providing any financial assistance to those cities and States?

Just what are we doing?

Whoever amongst the panel who feels most qualified to answer

the question.

Mr. SLOAN. FinCEN has quite a successful program known as

Gateway. Gateway links all 50 States, Puerto Rico and the District

of Columbia with FinCEN. FinCEN trains the individuals at each

of the State capitols. They may be in the Attorney General’s Office

or in a division of the State police of an individual State, and it

allows each of the States to sort of tap into the FinCEN network

and join with their counterparts at the Federal level in not only

sharing leads and information but deconflicting cases.

We think that this has been a very important tool. In fact, last

year alone, we had over 1,600 cases in which State and local law

enforcement were linked with either a Federal case or another

State and local case by virtue of coming through the FinCEN network.

We meet regularly with this group. Actually, in most instances,

having been both a local police officer and a Federal agent, I can

usually tell you it works the other way around, where the Federal

agency claims they are there to help you. In this case, the State

and local activity dealing with Gateway is something that the Federal agencies are starting to join, which is making it a more successful operation, from our perspective.

Mr. GUTIERREZ. Thank you.

I guess if we could—maybe Ms. Fisher or Mr. Sloan, Mr.

Hoglund can at some point after the hearing, because there has

been this issue raised about what we have been doing in this country and the actions of our Federal Government vis-a-vis Iraq specifically and the financing and because I don’t want to put an onus

on you about what you can and cannot say, if you could just respond in writing at a later point and say, members of the committee, here is what we think. That way you don’t have to say, God

I won’t say anything—because I don’t want you to say anything. I

don’t. And I understand that that could be a problem. So think

about that so we can have the information.

Because I haven’t seen it all come together. I see the chart up

there, but I hear the testimony. I know money went to Bosnia. I

know money went here. But I look at September 11, and I don’t

see the connection specifically in terms of the financing of that or

other issues, and I think that that is an important issue.

Lastly, let me just share with Mr. Hoglund that I think one of

the things you might want to consider, because I know that the

Justice Department and I know the Attorney General is taking

25

many, many steps in order to watch, monitor, surveil the going on

of people or peoples within the United States of America, and he

wants to know what is going on here because we need to know. But

we have got like 10 million people that he knows, which all of you

know and which I know are in the United States without documentation, most of whom are working in the United States.

I went to the Holiday Inn, and the young lady asked me when

there could be a program where she could get legalized. I went to

IKEA and as they were putting the furniture in my car, the guy

said, Gutierrez, do you think there is going to be a legalization program? When I went to go get my gardening equipment—you get my

drift—and the guy picking up my dishes in the restaurant—either

I am a magnet for people who are undocumented in this country

or they are everywhere and they are a part of our life. And I think

they are a part of our life, whether it is the lady cleaning up my

room, the guy at the gardening center or the one helping me put

equipment from the IKEA.

It doesn’t matter. Given that they are here working and in jobs

that are pretty low-paying jobs and that we have an issue of security, I mean, we want to know who is in the country.

A funny thing occurred to me that I think I could identify for

you, with you. Ten million people, I am sure they would give up

their fingerprints, give you pictures themselves and tell you their

life history if they could get a card. And I don’t say this jokingly.

There is 10 million of them. Issue a security card if they are working and obeying all of the laws and contributing. Maybe we should

bring them in. Those will be 10 million fewer people you will have

to watch or monitor because you will know. They will join our

banking system.

Mr. CROWLEY. Now you know why he is a magnet.

Mr. GUTIERREZ. Maybe we should bring them into our system,

and I mean that genuinely, because I keep watching your efforts

to know what is going on in the country. So just a suggestion.

Thank you, Madam Chair, for your courtesy.

Chairwoman KELLY. Thank you.

Ms. Brown-Waite.

Ms. BROWN-WAITE. Thank you very much, Madam Chair.

Coming from the Tampa Bay area, the arrest of Sami Al-Arian

was very interesting to many people. The question that I have is,

when the whole issue began, I contacted Judy Ginshaft at the university and I said to her I wanted her to interview every single student that he had contact with and see if there was any attempt on

his part to openly advocate violence against America, against any

American. Her comment at the time was something like, well, that

is not really my job; and I am not getting a lot of help from the

Department of Justice or the FBI. Tell me what changed from—

and this was before 9/11 that this call took place—tell me what

changed, other than 9/11.

Ms. FISHER. As far as the cooperation with the Department of

Justice or what changed about his activities?

Ms. BROWN-WAITE. First of all, he wasn’t in the classroom because he was on administrative leave all that time.

Ms. FISHER. I want to make sure I understand the question.

Ms. BROWN-WAITE. What changed his activities?

26

Ms. FISHER. I think that the Indictment explains. It is quite

lengthy, and it is about 120 pages. It explains years of activities

by Mr. Al-Arian and other defendants that are charged in the case

that make it very clear that they were very involved for some time

in the leadership of the PIJ here in the United States.

Ms. BROWN-WAITE. Ms. Fisher, with all due respect, I have read

it. It is old information that was there before 9/11. I am asking you

again, what changed? Because that information—the clear majority

of it was information of activities before 9/11. What happened that

all of a sudden he is now arrested? That information was known

and out there.

I think my basic question is—and I didn’t see it in the Indictment—that you were ever able to tie in any kind of advocating of

violence that he engaged in while a professor at the university.

And, believe me, I am not defending the man at all.

Ms. FISHER. I understand your question now. I am sorry. I may

have been a little dense as to it.

Something very significant happened over the past year with regard to this case, and I think it is a great example of information

sharing and some of the tools we were given by the PATRIOT Act

for information sharing on intelligence and some of the tools we

were given by the Court of Appeals for the FISA Court of Review

with regard to now allowing our intelligence operation share information with our prosecutors.

So for a long time, and as it is outlined in the Indictment, the

activities went on, and they were monitored for intelligence reasons, but they weren’t necessarily fully shared with prosecutors

that were looking at criminal charges in the case. With the PATRIOT Act in the recent—just last year—FISA Court of Review

opinion, it allowed us to share that information back and forth;

and, at that point, it was appropriate to bring the charges. So I

hope it gives a little bit better answer to you question.

Ms. BROWN-WAITE. It does. And I wasn’t here last year. I am a

new Member.

First of all, in response to a previous question, you said that the

charities that are questionable are now on-line. You have a list of

them on-line. Was this the case before 9/11?

Ms. FISHER. Yes, absolutely. The designation process for IEEPA

purposes has been in existence I think since 1995, and I believe

that some of the members of PIJ had been listed as early as 1995—

that is correct. As far as foreign terrorist organizations, the 36 organizations that are listed by the Secretary of State in conjunction

with the Department of Justice and the Treasury, that process

started in 1997. Those are 2 years, and they are renewed every 2

years.

Ms. BROWN-WAITE. One last question. Are universities still insisting upon a subpoena or court order before they will release information when you are trying to find out whether or not a student

is an alien in a particular college? Are some States still requiring

that? And, if so, can you supply us with a list of the States that

are?

Ms. FISHER. I am not aware of any problems in this regard, but

I would like to check and ask around a little bit because there may

27

be some that we are not aware of. So if we could supplement an

answer.

Ms. BROWN-WAITE. If you could get back to the committee Chair.

Chairwoman KELLY. Ms. Fisher, if you could supply that list,

please try to do that and bring it to the committee.

Mr. Garrett?

Mr. GARRETT. Good afternoon. Can any one of you provide us

with more detail on the degree, if any, of foreign cooperation or the

lack thereof—specifically, if you could address the countries that

have strengthened their anti-laundering laws in response to the

PATRIOT Act?

Ms. FORMAN. If I could address that. We are working very closely

with various foreign governments in Europe, specifically, England,

Italy—we have Italy—representatives from the Italian police in our

office today. We are working with Switzerland.

We have entered into the first memorandum of understanding to

work in international terrorist financial investigations where we

exchange law enforcement officers to work on the case and ensure

the timely exchange of information. We are working with Canada,

and we are working with countries in Asia.

We also follow the foreign leads, once again tracking and following the funds. We have created financial investigative teams

solely made up of Green Quest agents and analysts, and sometimes

in combination with the Federal Bureau of Investigation, and we

travel overseas and meet with these foreign governments to track

the money.

Mr. GARRETT. To follow up on that, you gave us some of the

countries that are stepping up to the plate, it sounds like, working

with you; and specifically on the money laundering side, are there

those that you have reached out or we have been seeking assistance from and they are not giving us the assistance that we would

prefer?

Ms. FORMAN. We are working with various governments—‘‘we’’

being the Bureau of Immigration and Customs Enforcement, 31

foreign attache officers. Some countries are more readily available

to provide information, and some are less. But we are working to

chip away at that resistance and getting some of the information

that we need.

Mr. GARRETT. So there is none specifically that come to mind

that we should be doing anything we can from this end as far as

encouraging them to step up to the plate more so than they have

done in the past?

Ms. FORMAN. Not at this time. We recently just provided training

in Qatar and Kuwait. We are working with other governments that

have requested and we have reached out to provide this additional

training so they know what to look for. In some instances, it is they

just don’t know what to look for, and they don’t know what those

signs are, and we are helping them with that.

Mr. GARRETT. Any European nations that we should be specifically asking more assistance from than they have been in the past?

Ms. FORMAN. Not that I am aware of at this time.

Mr. GARRETT. I don’t know if this is yours or the rest of the

panel. Recently, the Deputy Secretary of State was quoted as saying, maybe the Hezbollah is actually the A team of terrorists, inVerDate 11-MAY-2000 12:44 Aug 28, 2003 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 C:\DOCS\88332.TXT HBANK1 PsN: HBANK1
28

stead of al-Qaeda. There is news every day with regard to finding

Osama bin Laden. If we were to find him today, tomorrow or in the

near future and therefore perhaps cut off or decapitate the head of

al-Qaeda, wouldn’t Hezbollah still remain a significant force despite that?

Ms. FORMAN. I think I will refer this to my DOJ colleague.

Ms. FISHER. Well, I certainly think that Hezbollah and al-Qaeda

and the other terrorist organizations are a significant threat

against the U.S., so our efforts certainly don’t stop at al-Qaeda,

whether it is in terrorist financing or the war on terrorism. We

think it is global and that it is broad reaching to all the terrorist

organizations.

Mr. GARRETT. Does it change your focus of your efforts or your

energies if that capture were to come tomorrow? You would still be

looking at al-Qaeda but would be changing your focus from there

elsewhere or would you continue on the path that you are on right

now?

Ms. FISHER. I think we are continuing all paths right now. I

mean, I think we are focused on all of the organizations that we

think pose a threat to U.S.

Mr. GARRETT. I thank you very much for your answers.

I yield back.

Chairwoman KELLY. If there are no more questions, the Chair

notes that some members who were unable to be here or even the

ones who were here may have additional questions for the panel

and they may wish to submit those questions in writing. So without objection, the hearing record——

Mr. Crowley, I thought you went.

Mr. CROWLEY. You did recognize me. Could I have an opportunity for a second round or maybe a possibility for a second

round?

Mrs. KELLY. I don’t think so, because we have some planes that

need to be caught. So if you don’t mind——

Mr. CROWLEY. Could I make one statement very quick?

Chairwoman KELLY. By all means.

Mr. CROWLEY. We usually tend to want to help our colleagues’

attempts to make some questions, and I yielded some time. Had I

known where the direction of the questioning went, I may not have

been so quick to yield my time to my colleague.

Because I think you failed to make the one point and that is Saddam Hussein has supported terrorism in the Middle East, specifically in Israel, in which it is my understanding he has given

$25,000 to each family of a homicide bomber, a person who straps

explosives on themselves and walks into a crowded mall or into a

bus and blows themselves up. To me, there is no difference between

a person who does that and a person who gets into an airplane and

flies into the Twin Towers in New York City, killing themselves

and taking innocent lives; and that is a connection that I think the

American people can certainly understand.

Chairwoman KELLY. Thank you, Mr. Crowley.

Without objection, this hearing record is going to remain open for

30 days; and members will be able to submit their questions and

place their responses in the record.

29

This panel is excused, and we do thank you very much. We are

sensitive to the fact that you have limits on what you can say, and

we appreciate the fact that you attempted to answer our questions

to the best of your ability. We are very grateful for your time, and

this panel is excused with our appreciation. Thank you very much.

As the second panel takes their seats at the table, I am going to

begin the introductions. For our second panel we welcome Steve

Emerson, the Director of The Investigative Project; Mr. Matthew

Epstein, Assistant Director of The Investigative Project; Mr. Larry

Johnson, CEO of BERG Associates; Mr. John Moynihan, Senior Investigator for BERG Associates; and Mr. John Byrne, Senior Counsel and Compliance Manager for the American Bankers Association.

I want to thank each one of you for testifying before us today,

and I welcome you on behalf of the full committee.

Without objection, your written statements and any attachments

will be made for part of the record.

You will be recognized for a 5-minute summary of your testimony. When the light changes color on the timer before you, you

should move toward the finish.

Chairwoman KELLY. If you are all settled and ready, we begin

with you, Mr. Emerson.

STATEMENT OF STEVE EMERSON, DIRECTOR, THE

INVESTIGATIVE PROJECT

Mr. EMERSON. Thank you for the opportunity to testify, Madam

Chairman.

I want to let you know that you have a very excellent staff. Even

though there is a pay freeze right now, they should be compensated

with lots of praise. Andy has done a great job and also knows how

to use a Blackberry very well.

Chairwoman KELLY. You realize what that is going to cost this

committee?

Mr. EMERSON. You can put a supplemental in.

It has been 18 months to the day since the horrific events of 9/

11. The question is, where we do we stand?

Consider this one interesting fact. In the 8 years before 9/11,

there are a total of just two prosecutions in the United States of

terrorist financing. Since 9/11, there have been at least 70 criminal

investigations, $113 million in frozen assets; and, according to informed sources, there are at least another 100 investigations in different preliminary stages. Terrorists raising tens of millions of dollars have existed in the United States for more than a decade.

They include every single veritable member of militant Islamic organizations: Al-Qaeda, Hamas, Hezbollah, Palestine Islamic Jihad.

They exist not just in the major cities but in small towns as well

as major cities from Seattle, Washington; Boston, Massachusetts;

Moscow, Idaho; Syracuse, New York; Charlotte, North Carolina;

Tampa, Florida; Dallas, Texas; Portland, Washington; Plainfield,

Indiana; Buffalo, New York. I could go on listing numerous other

cities.

The question is, how did they operate here? They didn’t list their

names generically. They operated under false cover. They had innoVerDate 11-MAY-2000 12:44 Aug 28, 2003 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 C:\DOCS\88332.TXT HBANK1 PsN: HBANK1
30

cent-sounding names. They operated under humanitarian cover,

under religious cover, under human rights cover.

Example, the al-Qaeda organization operated from its very inception under an organization called the Benevolence International

Foundation. It was deliberately set up in the United States to provide a conduit for al-Qaeda in terms of its financing worldwide.

Same thing for al-Qaeda in terms of Global Relief. It was shut

down, as was Benevolence International, after 9/11. Iraq, as we

heard this afternoon, operated—it got moneys through Help the

Needy, a fake organization based in Syracuse, New York, and other

places in the United States. Moneys were going into illicit purposes.

Hezbollah operated a cigarette-smuggling scheme in Charlotte,

North Carolina.

Al-Qaeda just used recently, as the indictments in New York revealed last week, the Al Farouq mosque in Brooklyn.

The Palestine Islamic Jihad, one of the most notorious terrorist

groups in the world today, operated from at least 1984 through the

present under false cover in the United States under the monikers

of an academic group, The World Islamic Studies Enterprise, the

Islamic Committee for Palestine, as well as the Islamic Academy

of Florida through the operations of a professor at the University

of South Florida at Tampa.

Of course, Hamas, that would also belong, I believe, together

with Hezbollah, as the A team of terrorist groups, operated through

an organization that received nonprofit status called the Holy Land

Foundation for Relief and Development. Wiretaps by the FBI in

1993 and 1994, unfortunately and tragically only translated and

transcribed in 2001, show that Hamas officials knew exactly what

they were doing in setting up a fund-raising mechanism in the

United States, knowing exactly how far to press the limits of the

U.S. Law.

At the end of the day, I believe we will find tens of millions of

dollars, perhaps totaling even more than 100, that have been

raised by militant Islamic groups from the early 1990s through 9/

11.

What are the common denominators that are common to all

these schemes?

One, al-Qaeda, Hamas, Palestine Islamic Jihad deliberately set

up in the U.S. To exploit our freedoms, religious tolerance, pluralism and lax financial controls.

Number two, Saudi Arabia support for militant Islamic groups,

including charities today that operate in the United States, including the Muslim World League and the International Islamic Relief

Organization, organizations that have been directly tied to alQaeda and financing of terrorist groups and have not had their assets frozen, their influence is able to prevent acquisition and seizure of terrorist assets in the United States.

Number three, the disparate and compartmented number of

agencies collecting information made it very easy for terrorist

groups to find the crevices and the cracks to evade any detection.

And bottom line is that in the last 10, 15 years the terrorists had

a lot of time to create elaborate financial schemes.

31

The U.S. Government is doing a phenomenal job, I believe, in

terms of trying to play catch-up. We still have a long way to go.

In working with Federal agencies and working with those investigators on the ground, thousands of unsung heroes have emerged

since 9/11; and I believe this country owes a great deal of dedication to them.

Chairwoman KELLY. Thank you very much, Mr. Emerson.

[The prepared statement of Steve Emerson can be found on page

69 in the appendix.]

Chairwoman KELLY. Mr. Epstein.

STATEMENT OF MATTHEW EPSTEIN, ASSISTANT DIRECTOR,

THE INVESTIGATIVE PROJECT

Mr. EPSTEIN. Chairwoman Kelly, distinguished members of the

panel, thank you for the opportunity to testify.

In 1993, Osama bin Laden told senior al-Qaeda lieutenants that

three Muslim charities provide the primary sources of al-Qaeda financial support, including the Muslim World League and Benevolence International Foundation. Far from nebulous, back-room organizations in faraway lands, these charities set up major operations right here in the United States. Just as the security and

strength of our financial and corporate institutions attract unparalleled investment capital, they also attract financiers of al-Qaeda

terrorist organizations.

In 1989 and 1990, the Muslim World League based in Saudi Arabia established branch offices in Falls Church, Virginia, under the

operational arm, the International Islamic Relief Organization and

Sanabel Al-Kheer. In the United States, the board of trustees of

these organizations included two suspected al-Qaeda financiers.

From 1991 through 1999, IIRO laundered millions of dollars

through private U.S. Front companies, including a privately-held

Islamic investment bank financed by two specially-designated terrorists and a chemical company located in Chicago, Illinois, that

was raided by FBI agents in 1997 as part of a terrorism and money

laundering investigation.

An accountant at the Islamic bank told the FBI that he feared

that moneys transferred overseas may have been used to finance

the East African embassy bombings. IIRO’s tax forms revealed that

the vast majority of the money was channeled to operations in Bosnia, which we now know supported al-Qaeda infiltration into Western Europe.

In 1993, al-Qaeda operatives established the Benevolence International Foundation in Chicago, Illinois. From 1993 to 1999, BIF

collected over $12 million by way of personal checks, wire transfers

and stock donations. Moneys were then transferred overseas by

wire to al-Qaeda-controlled accounts and ultimately withdrawn in

cash to support al-Qaeda operations.

As seen in the recent Palestinian Islamic Jihad out of Tampa,

Florida, money is the lifeblood of terrorist organizations.

The PATRIOT Act has made major impact in slowing terrorist financing. However, continued vigilance is mandatory as terrorist organizations quickly adapt to U.S. Counterterrorism legislation.

Indeed, following the passage of the 1996 Antiterrorism and Effective Death Penalty Act, FBI wiretaps caught senior terrorist

32

leaders in the United States discussing exceptions in the material

support restrictions for medical aid. As a result, U.S.-based front

charities began using medical equipment as currency for terrorism

support.

As a new generation of al-Qaeda leaders mature, we need to remain flexible and nimble in identifying and quashing all forms of

financial support for international terrorism. Deserving particular

attention are, one, charities, businesses and individuals with operations in conflict areas, including Bosnia, Chechnya, Afghanistan

and the Sudan; two, financiers holding interests in dozens of shell

companies in the United States with substantial overseas financial

activity; three, unorthodox leasing activity and real estate transactions.

Our enforcement agencies and task forces, including Operation

Green Quest, the Criminal Division of the Department of Justice,

the Department of Treasury, the FBI, IRS, INS and Customs, as

well as the numerous U.S. Attorneys throughout the country have

made great strides in shutting down financial operations. Continued vigilance and interagency cooperation is necessary as al-Qaeda

regroups to press our Nation’s resolve.

Chairwoman KELLY. Thank you very much, Mr. Epstein.

[The prepared statement of Matthew Epstein can be found on

page 104 in the appendix.]

Chairwoman KELLY. Mr. Johnson.

STATEMENT OF LARRY JOHNSON, CEO, BERG ASSOCIATES

Mr. JOHNSON. Pleased to be here today with my partner and

friend, John Moynihan.

Oftentimes, you don’t get the chance to do this on the Hill, but

John, on October 21, was up here before this committee. He was

the one who suggested you need to do something about the unlicensed money remitting business. Congress did something, this

committee in particular; and, as we heard in the panel before, it

has been one of the most single important acts in going after the

terrorist network.

Terrorists need two things to thrive and prosper. They have to

have a safe haven, which means they either have a state that sponsors them or they are set up in a dysfunctional state and they need

money. You cut the money out from under them, you take their

heart away, because money requires—you have to train people, you

have to feed them, you have to transport them. In reality, the

money part of this and the work this committee has done has been

more important than anything that the Department of Defense has

done in killing them. I am in favor of killing the terrorist, but when

you take the money away, you go a long way towards helping protect us.

What we do in our company, we are fortunate to support the Department of Justice in some investigations, but we also work in the

private sector and get out in areas such as the Colon Free Zone of

Panama and some of the other free zones. We see these merchants

that operate within the international financial system, and that

international financial system is much like a superhighway that

provides those who want to engage in terrorism a road that they

can get things done.

33

The most significant change we have seen with terrorist activity

vis-a-vis financing is with the end of the Cold War and the real

dramatic decline in state sponsorship—while it is true Iran, Iraq,

Syria continue to provide sponsorship—what we have seen is those

groups that do remain have engaged in the whole spectrum of economic activity, ranging from criminality to setting up legitimate

businesses with charitable organizations in the middle.

I would like particularly to make reference to the case cited with

Hezbollah in North Carolina. Those individuals, when they finally

arrested them, they had two-page rap sheets. That means they had

committed felonies prior and misdemeanors and had not been prosecuted because the crimes were considered below the threshold.

The other part of that case, the point that needs to be made

which is so important, these folks that are engaged in these terrorist activities understand how to game our system; and if they

can get underneath the law, they can break it but not be prosecuted, they will do so. As John will be able to elaborate in more

detail, we are still seeing that.

I have a power point presentation that I would like to run

through to illustrate how the charitable organizations have done

this.

This was a case that was conducted out in Chicago—still active.

It was done as a civil forfeiture, civil seizure. The FBI agent on it

was a man named Bob Wright.

The Quranic Literacy Institute set itself up as a charitable organization, ostensibly to teach people how to read the Koran. The

names that are listed there was the president, the corporate secretary and trustee. The person to the side, Mohammed Salah, has

a question mark by his name, because when he went and presented

documents to a bank to get a loan he said he was an employee of

that organization and he had letters from the president that said

he was an employee of the organization and yet there was no corroborating information, no paycheck, no W-2, no contract. The man

was a pseudo employee using this charitable organization as a device by which to conduct operations which you will see led to terrorist financing of Hamas.

If we go to the next slide, here we see one of the individuals that

was alluded to by the previous panel by the name of Yassin Kadi,

a Saudi citizen. He is also involved with the Ptech case. This individual, Tamer Al-Rafai, had a corporation, Golden Marble. He was

asked to go purchase a piece of property. To purchase that piece

of property, what can only be described as a gift from Mr. Yassin

Kadi, who sent the money to him. No loan agreement, no requirement to pay it back, sent him the $820,000, gave him instructions.

They prepared three different checks of different amounts that

were then passed to the Quranic Literacy Institute for being cashed

later. They held onto those checks until they got the 501(c)(3) status as a charitable organization; and, ultimately, later on, they

used that property as an asset to draw money from it to then shift

into the hands of a terrorist group in the Middle East, Hamas.

If we go to the final slide, this shows the kind of money laundering activity that you would see with drug organizations. But it

is important to note, this is not typical money laundering. This

does not start with a predicate crime. It starts with legally raised

34

money, in some instances. But what they have done in this case,

money came from Faisal Financial Services of Geneva, that is King

Faisal of Saudi Arabia, who diverted some money directly into the

bank account of Mohammed Salah. Other funds were sent to Ubu

Marzook, the political director of Hamas. Two other individuals,

one known and one unknown, Gazi Abu Samah and someone in

Dubai, also sent money directly to Ubu Marzook. Marzook then

channeled this money to Mohammed Salah, who carried it to Middle East; and it was used both to pay for families of people engaged

in suicide terrorist attacks as well as to fund terrorist operations.

I would like to tell you that this is an exception, but what Steve

and Matt talked about and what John will talk about, it is typical

of how these groups can exploit charitable operations.

I think the work the committee has done on this front has been

important, and I commend you for it.

Chairwoman KELLY. Thank you very much, Mr. Johnson.

[The prepared statement of Larry Johnson can be found on page

149 in the appendix.]

Chairwoman KELLY. Mr. Moynihan.

STATEMENT OF JOHN MOYNIHAN, SENIOR INVESTIGATOR,

BERG ASSOCIATES

Mr. MOYNIHAN. Thank you, Madam Chairwoman.

On the occasion of my last appearance before the committee, I

testified about BERG experiences with the understanding of the

numerous and formal financial systems that operate around the

world. At that time, the committee had great interest in hearing

about my experiences with hawala, black market peso and other

parallel money markets and how money moves in these underground financial systems. We helped shed light on the ways to implement programs to stem the flow of illicit dollars within criminal

terrorist groups like al-Qaeda.

The committee may recall I specifically recommended a Federal

law criminalizing the act of engaging in money exchange without

a license needed to be adopted. Indeed, the PATRIOT Act, enacted

within a few months, modified the law, Section 1960 of Title 18,

U.S. Code, making it a more important, effective tool in the use of

prosecution of unlicensed money remitters. We would like to applaud the actions of the committee in moving that legislation

amendment forward and making the law a more effective tool to

combat international organized crime and terrorism.

Likewise, we would like to applaud the efforts of the various Federal law enforcement agencies which have aggressively investigated

and penetrated these hawalas, black market financial systems over

the past 18 months. You should know that our work as a government contractor brings us in close personal contact with Federal investigations. From a variety of Federal agencies we can personally

assume, the committee, that good use is being made of Title 3 of

the PATRIOT Act. Important investigations are being conducted,

and significant advances in the war against organized crime and

international terrorism are being made using the recommendations

within these Chambers of 1960, Title 18.

With that said, more needs to be done. Today we would like to

address another important area of international money movement

35

which in our experience has proven to be a very effective means of

laundering criminal proceeds internationally; that being the use or,

more correctly, abuse of cash letters, sometimes referred to as an

international pouch.

So what is a cash letter? In layman’s terms, a cash letter is an

interbank transmittal letter that accompanies checks or cash instruments that are sent from one bank to another internationally.

Large banks receive cash letters on a daily basis from correspondent banks. These cash letters can often contain hundreds or

thousands of checks that are bundled together and sent to a corresponding bank for collection.

Once received, the checks must be sorted and processed and ultimately forwarded to the payee banks for collection. Checks are

often routed through the Federal Reserve System and other bank

or regional check processing centers for collection.

In short, the cash letter agreement between banks is a depository

action that is in place to ensure that foreign banks get paid for

checks they accept for deposit from abroad.

In recent years we have personally noticed an increase in the use

of cash letters as a vehicle for international money laundering. As

wire transfers and other forms of traditional laundering have come

under increased scrutiny regulation, organized crime groups and

terrorists have turned to other methods of moving their money

internationally. Consequently, the international movement of bulk

quantities of personal checks now figures prominently in money

laundering or money movement schemes.

First some relevant background. Banks open bank accounts for

other banks. These are known as correspondent accounts. These

correspondent accounts are used for the movement of funds between banks. Many times the correspondent will send monetary instruments from the overseas locations to the United States to be

deposited into the correspondent bank account. Those checks,

money orders, cashier’s checks, et cetera, are accompanied by a deposit slip that details the value of the instruments with the date

and the accompanying checking account number that the funds are

to be deposited into. This in essence is a cash letter.

These cash letters are sent to designated areas of the bank for

processing. Some banks handle as many as 5- to 7 million checks

a day for processing. Therefore, when these cash letters are delivered to the banks by shipping companies in pouches and overnight

bags from abroad, it would be extremely difficult to ensure that

those instruments are not the subject of or facilitating money laundering.

How do these instruments end up in the hands of correspondent

banks abroad? There are many ways in which this could happen.

As an extension to the last time we were here regarding 18 USC

1960 involving unlicensed money remittances, many people seek to

send monies abroad.

In the interest of time, I am going to cut short this speech and

cut to the chase. Here is the deal. These checks come from abroad,

they land in our banks; they are accompanied by a deposit ticket.

Once these millions of checks arrive, they are deposited into accounts. These accounts then—correspondent accounts are credited

for the value of these checks. But what we miss in our investigaVerDate 11-MAY-2000 12:44 Aug 28, 2003 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 C:\DOCS\88332.TXT HBANK1 PsN: HBANK1
36

tions is the offsetting credit that goes along with the deposit of

these checks abroad. For instance, if a series of checks were sent

to a Middle Eastern bank, those checks are accepted. They are then

put in a pouch, U.S. Denominator checks, and they are sent here

to the United States and deposited into the corresponding account.

It is those credits on the other side of the ocean that we miss all

the time. It is those credits that are then funneled back to the folks

in those foreign countries. It is those credits that are used for

criminal activities.

Here in the United States we should be able to recognize that the

way these checks come in, the huge volumes of these checks come

in, and the way they are purchased, structured, and enumerated

are examples of money laundering. We need to capture this, and

18 USC 1960 could be better aided if we were able to establish that

people who do these types of crimes either through correspondent

accounts or personal accounts should be held to the standard of

having a presence here. The mere fact that an individual has an

account here should constitute presence in the law, and that is

something that should be addressed for further prosecution.

Thank you.

Mrs. KELLY. Thank you very much.

[The prepared statement of John Moynihan can be found on page

152 in the appendix.]

Mrs. KELLY. Mr. Byrne.

STATEMENT OF JOHN BYRNE, SENIOR COUNSEL AND

COMPLIANCE MANAGER, AMERICAN BANKERS ASSOCIATION

Mr. BYRNE. Thank you, Madam Chair, Chairman Oxley, members of the subcommittee. The ABA appreciates this opportunity to

discuss the myriad of challenges faced by the financial industry

and the government in addressing the scourge of terrorist financing. Our members have been diligently working to assist the government, and our comments today are offered to simply improve

the system.

Seventeen months after the enactment of the USA PATRIOT Act,

an act the ABA strongly supported, the effects of these new laws

and regulations on terrorist financing and money laundering are

still being assessed. ABA was particularly pleased to learn of the

Treasury Department’s commitment to continue to provide oversight in this area after the regulations have been finalized. The

creation of a Treasury task force on the PATRIOT Act as well as

the creation of the Office on Terrorist Financing and Financial

Crimes are welcomed developments.

Our association has offered the following as needed areas of improvement to USA PATRIOT Act oversight: The creation of an office for USA PATRIOT Act oversight; immediate development of a

staff commentary for PATRIOT Act and Bank Secrecy Act interpretation; a review of the 314(a) demands for record searches that

were discussed earlier today; formal commitment from all functional regulators for uniform and consistent PATRIOT Act exam

procedures; coordination between the Treasury’s Office of Foreign

Assets Control and the financial institution regulators to improve

advice to the regulated community; and improved guidance and

37

communication on all SAR-related issues, particularly in the area

of terrorist financing.

We provided detail on all of these recommendations in our written testimony, and some of these are being addressed by our government partners, but I would like to briefly cover several issues.

There is no clearer example of a positive public policy goal not

being met than the implementation of section 314 of the USA PATRIOT Act. While we recognize that government is faced with tremendous challenges to track terrorist funds, section 314 warrants

a thorough review to ensure consistency with both congressional intent and the need to establish a more workable system.

In November of 2002, FinCEN and the primary Federal regulators put into place a brief moratorium on section 314(a) information requests. This moratorium was a direct result of the confusion

faced by the recipients of the request to our industries. In several

instances the information requests went to employees no longer

with the bank, came in bunches several times a day, and had a

very quick 7-day response deadline. In addition, many of our members complained that there was no apparent connection to terrorism or money laundering in the requests. In fact, the requests

seemed to be a dumping ground for law enforcement cold cases

clearly not anticipated by Congress.

Since that time, I am happy to report, the regulators, FinCEN,

and Treasury have made adjustments and revised the process to

address a number of logistical issues and to develop additional

guidance. The announced changes include some of the following:

The 314(a) requests from FinCEN are to be batched and issued

ever 2 weeks rather than every single day unless otherwise indicated in the request. After receiving a 314(a) request, institutions

will have 2 weeks rather than 1 to complete their searches and respond with any matches.

While these changes appear helpful, the initial responses we are

getting from the industry are that there are still tremendous operational and communication problems with the new round of 314(a)

demands. We urge this subcommittee to seek a status report from

FinCEN and law enforcement on how the new system is working.

We should point out, however, that the Treasury Department and

the regulators just this morning met with several of us from the

industry to try to assess our concerns, and they are committed to

improving the system. We appreciate the efforts from Treasury, the

regulators, and FinCEN, but we must have law enforcement cooperation for that system to be improved.

Finally, similar to PATRIOT Act interpretive issues, there remains an ongoing need for regulatory agencies, law enforcement,

and FinCEN to assist Suspicious Activity Report filers with issues

as they arise. This need is particularly obvious in the area of terrorist financing. This crime is difficult to discern as it often appears as normal transactions. We have learned from many government experts and our experts today on this panel that the financing of terrorist activities often can occur in fairly low dollar

amounts with basic financial products. Guidance is extremely necessary. The only real guidance we have received to date comes from

FinCEN’s SAR activity review, but we need more.

38

Madam Chair, the ABA has been in the forefront of industry efforts to develop a strong public-private partnership in the areas of

anti-money laundering and now terrorist financing detection. We

continue to support the policy goals expressed by Congress, but

there needs to be a workable and efficient process. We encourage

Congress to stay involved in this important oversight effort. Thank

you.

Mrs. KELLY. Thank you very much, Mr. Byrne.

[The prepared statement of John Byrne can be found on page 62

in the appendix.]

Mrs. KELLY. I would like to start the questioning with just a couple of questions.

Mr. Emerson and Mr. Johnson, what can you tell us about the

recent arrests of Iraqis in the United States who are aiding terrorist groups financially? I am sorry. The recent arrest of the Iraqis

in the United States.

Mr. EMERSON. The arrests that were announced recently show

that Iraq and some of its front groups and front organizations were

raising money in very sophisticated ways, carefully utilizing the

loopholes in the financial reporting requirements for charities as

well as the lack of enforcement in the IRS nonprofit division, which

is unfortunate, not owing to their deficiency, but rather a lack of

resources in the past in terms of enforcing and investigating the

nonprofit component—the veracity of the nonprofit components

that are being declared by these groups.

So Iraq—I think this is, to be quite honest, the tip of the iceberg.

I think we have not seen large numbers of prosecutions because

the monies raised in the ways raised by Iraq have been much more

circuitous than some of the traditional, if I can use that word,

methods used by Hamas and let us say the Palestine Islamic Jihad.

I think Iraq has been much more adept at using private citizens

in the United States and using third-party conduits, and the monies as we see in the indictment announced out of Syracuse went to

bank accounts in Jordan, which were then filtered into Iraq to support the regime in ways that we still have yet to uncover.

Mrs. KELLY. Thank you.

Mr. Johnson.

Mr. JOHNSON. Just add to that—look, Iraq under the U.N. Security Council Resolution 587 back in 1991 was supposed to stop

sponsoring terrorism; not just give up weapons of mass destruction,

but end support for terrorism. And for the last 12 years they have

continued, we know—forget about al-Qaeda. They are directly involved with financing Arab Liberation Front, Palestinian Liberation Front, and carrying out terrorist attacks inside Israel.

Part of the problem we had for years with al-Qaeda is, because

al-Qaeda’s activities didn’t rise to the threshold, it was basically—

it was a problem, but not attacked. And the same thing is possible

with Iraq where, yeah, they are killing some Israelis, but they are

not killing us,so it is not a problem.

I think the issue is you have got to go after the financing. And

clearly they have been involved in the United States and raising

money that is going back to Iraq. Trying to be able to put all the

pieces together to show a direct link why the change to the actual

violence is difficult.

39

And one final point that goes back to a point raised in the other

panel. The intelligence information ofttimes is very right and has

a lot to offer, but is not shared with law enforcement. And we saw

that in the case of Sami al-Arian. I don’t know right now what the

Intelligence Community has within its hands that is not getting

into the hands of law enforcement where they can prosecute, but

my friends within both the Intelligence and Law Enforcement Communities say that is still a problem. That wall has to come down

further.

Mrs. KELLY. Thank you.

I want to go now to Mr. Byrne and ask you about a question. Mr.

Moynihan suggested something regarding the correspondent accounts. I am sure you heard what he said. I would be very interested in what your response is to what his suggestion was.

Mr. BYRNE. Madam Chair, there are a variety of ways in which

obviously money laundering can occur, and I have been working on

these issues for 20 years, and every time we stop a system, a new

system opens up. The PATRIOT Act does in general say that institutions have to have certain due diligence regarding correspondent

bank activity and private bank activity, but the bottom line still remains unless there is some protection at the entry of the system,

that no matter what we do on our side, we are only—it is only

going to be half the battle. So if we are getting checks or we are

getting other instruments from another institution, we can do our

due diligence with that institution; but John has already pointed

out, we are talking millions of transactions sometimes in the same

day. So we really need a lot of guidance in this situation from law

enforcement, from the government to say what to look for. Otherwise, I think to pull out pouches and cash letters and have us go

through all the checks based on the fact that they have come from

a certain country or certain institution may not be sufficient.

So while I am not discounting what he has raised, I think it is

fairly complicated. It just really shows the need for partnership

both with the government and the private sector and with our

international counterparts, which we don’t always get.

Mrs. KELLY. Do any of you know roughly the volume of cash letter agreements between the biggest banks in the United States?

And if you do or if you don’t, can you help us in starting some inquiries into this so we can find out?

Mr. MOYNIHAN. I don’t have the quantified total value, but when

the inquiries are made, it is clearly billions. It is billions of dollars.

And it is not just between correspondent accounts—and I tried to

get to that in my statement, but I ran out of time—it is also individuals open off-shore companies, they come to the United States

and they open accounts, and our banks will, in fact, do their due

diligence. A lot of times they do the best that they can on some of

these things. It is just then individuals use those accounts as a

mechanism for cash letter agreements.

So it is not just correspondent banks. I am in the middle of four

criminal cases right now doing this, and it is going on on a massive

level. It is really quite large. And why individuals would do this

would be to bypass—not all cash letter agreements are moneylaundering vehicles, but in the cases that I am involved with, individuals who don’t want to be identified in a wire transfer as a benVerDate 11-MAY-2000 12:44 Aug 28, 2003 Jkt 000000 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 C:\DOCS\88332.TXT HBANK1 PsN: HBANK1
40

eficiary or an originator might want to write a check, as Mr. Byrne

had pointed out, in small dollar amounts. The pooling of those

checks will be sent abroad. Someone might collect 2- or 300 of these

checks. Those checks are presented to a foreign bank. That foreign

bank, because they are U.S. denominator dollars, will send them

back here for credit. You can’t put a U.S. dollar check into a dinar

account, so those checks are sent back here. It is thousands and

thousands; it is millions of checks in billions of dollars. It is a big

business, and, as Mr. Byrne pointed out, it is very tough to police.

And as Mr. Inslee has asked a number of times about which countries should be involved, international cooperation is extremely important on this because it is a tremendous vulnerability in the

money-laundering area right now.

Mrs. KELLY. Thank you very much.

My time has run out. Mr. Inslee.

Mr. INSLEE. Thank you.

Thanks for joining us today. I am not sure if you were here when

we were talking earlier, but I and many of my constituents have

a concern that we have not been sufficiently assertive with other

countries in their obligations to assist in this international problem

of terrorism. And you may have heard me say this, but the Council

on Foreign Relations concluded, quote: Saudi Arabian-based charities have been the most important source of funds for al-Qaeda,

and that for years Saudi officials have been turning a blind eye to

this problem, close quote.

This morning some of our agency officials told us that some of

the money came for the September 11th attack through or by or

in some sense associated with the United Arab Emirates. I am sure

there are a number of countries that you could express concerns

about.

The question I have is—and to my knowledge, the United States

has not given any sanction to any of these countries, at least the

two that I mentioned, Saudi Arabia or United Arab Emirates, for

what appears to be a failure to come to terms with elements in

their society that have been consciously, willfully, and, unfortunately, successfully funding these terrorism networks.

Now, just starting with Saudi Arabia and the United Arab Emirates, I would like to know if any of you share that concern. And

I ask you generally the question: Have we been sufficiently assertive with these governments? Have we sort of taken a dive, so to

speak, because we have other interests that for some reason or another administrations have thought were paramount that would

not allow us to really use our economic force and otherwise to compel them to get down to brass tacks and cut off this money?

If you can tell me if any of you share that concern or you think

that is misplaced, I would appreciate any of your input.

Mr. EMERSON. Congressman Inslee, I think you raise a very valid

point. I think that because Saudi Arabia, frankly, and the other

Persian Gulf oil producers have amassed so much money in oil

wealth and now petrodollars investments, they have essentially

purchased clout. And while I—what I think is going on in the

United States Government today is essentially you have the Justice

Department and FBI willing to pursue wherever criminal investigations lead, including Saudi Arabia financiers. On the other

41

hand, the State Department has a role in what indictments are

issued and what STGs in terms of terrorist groups are designated.

And I think the State Department together with other members

of the government that are more sensitive to foreign policy issues

in terms of good diplomatic relations with the Saudis have basically been part of what I call the Saudi lobby, not because they are

doing the bidding of the Saudis, but this goes back 15 years. It goes

back through the Clinton administration; it goes back even prior to

the Clinton administration in terms of the amount of money and

influence garnered by the Saudis in terms of insulating themselves

from the very effects of an aggressive consistent counterterrorism

policy that treats all nations as equally. And Saudi Arabia has

been able to evade some of the sanctions, unfortunately, that would

have applied if they didn’t have the money.

There has been an—I say uneven application of counterterrorist

sanctions within the regime itself. There have been some Saudi

citizens that have been placed under house arrest officially, like

Yassin al-Qadi or Mohammad Jamil Halifal, only for us to find out

that they are free to go about and continue their financing. We

even find that members of the bin Laden family were not as compartmented out from bin Laden himself, and that there are intercommingling relationships between the Saudi royal family, between

the radical Islamic clergy and radical Islamic charities that had a

hand in financing, sustaining the al-Qaeda infrastructure.

I know one of the questions you asked before was what about the

9/11 and Iraq, 9/11 and Saudi Arabia. Now, let me just briefly state

that there is no evidence that Iraq was involved in 9/11, but there

is plenty of evidence that Iraq has been involved in terrorism, number one. Number two, there is no evidence that Saudi Arabia was

involved in 9/11 itself, because the transactions came from Dubai

or Germany, I think one from Spain. But in terms of sustaining the

al-Qaeda infrastructure, Saudi Arabia was absolutely critical, pivotal to the survival and sustenance of al-Qaeda. If it wasn’t for

Saudi Arabian protection—recently the wife of a major suspect in

the United States was secretly spirited back to Saudi Arabia unbeknownst to the FBI and the State Department by the Saudi Embassy in Washington, even though we wanted to investigate her

and her husband’s ties to 9/11.

Mr. INSLEE. Well, let me tell you at least one Member’s of Congress reaction to this. We are sending our men and women to defend some of these countries right now with their lives, and to me

it is scandalous that we have not exercised the authority of the

United States Government granted by Congress, and it is probably

multiple administrations, as you have indicated, to crack down on

these networks. And, to me, we have got to get serious about this.

And I am going to—I appreciate your answer.

One quick question if I can, Mr. Byrne, And this is switching

gears for a minute. I represent a lot of folks who are in the hightech industry, biochemists, engineers, computer scientists who are

of the Muslim faith and who are great Americans, pay their taxes,

raise great kids, pillars of the community. You would trust them

like anybody else. And they have been, many of them, very afraid

because they don’t want to get lumped into the terrorists. And they

are very afraid now, any time they have any transaction with any

42

of their family members back in the Mideast, that they are going

to end up swept up in this web. And it is a real concern. I have

met with quite a number of them that have, I think, sincere concerns about that.

Is there any advice you could give to them or to the government

how to have an effective system to cut off this terrorist financing

and yet give confidence to law-abiding citizens that do have international transactions that they don’t get swept up in this?

Mr. BYRNE. Congressman Inslee, there is a regulation that is due

to be final in the next month or so out of the PATRIOT Act, section

326, that is going to require all financial institutions to have account opening, what I call, due diligence. No matter who you are,

you will have to provide certain identification information, your

name, address, your date of birth, your Social Security number if

you have it. And the banks, investment companies, and others will

have to try to verify that information. So whether you are Muslim,

or whether you are Irish, it is not going to matter. So everybody

will be treated the same.

And so my advice would be to individuals that want to open up

accounts at financial institutions, recognize that no one is being

singled out. That will actually have a dual benefit, I think, of helping those that fear identity theft, because actually we will be making sure that everybody has to do some sort of verification. It will

have to be either by passport, by driver’s license, or some other document; or, we have to verify the information.

I think that alone at the entry point, provided it is done for everyone no matter who you are, as a new customer will raise the

comfort level of everyone to let them know that we are not singling

any particular group out. And obviously we rely on the government

to tell us what countries are problems, what types of transactions

are problems. And we get that information, we put them into our

systems.

But the bottom line is good solid citizens should have nothing to

fear to simply provide information about who they are when they

open up accounts. And I think that will have a dual benefit, both

to comply with the law, and also it is going to apply to everyone.

Mr. INSLEE. Thank you.

Mrs. KELLY. Thank you very much, Mr. Byrne.

Mr. Inslee, I just want to make one remark with regard to what

you said. I think what you meant was U.S. troops are amassing to

disarm Iraq, not they are not out there to try to defend a country.

They are defending our country by trying to disarm Iraq. I just

wanted to kind of——

Mr. INSLEE. Well, let me, if I may, respond just briefly to that.

Listening to the President, my understanding is that he has given

multiple reasons for this, which certainly includes the security of

the United States, but as I have heard him, he also believes that

he is protecting the neighboring countries, as we protected Kuwait

and reinstalled the monarchy after the first war. So that is the nature of my statement. I was trying to give credit to the President

for that motivation.

Mrs. KELLY. Thank you.

Mr. Oxley.

Mr. OXLEY. Thank you.

43

Let me first say what a most interesting hearing this has been,

I think mostly educational for the Members, and we appreciate all

the testimony from this panel as well as the previous one.

Let me address this to Mr. Johnson and to Mr. Emerson now. We

had an opportunity to hear you on a number of occasions both here

and on television, and we appreciate your expert opinions. And I

think it is particularly helpful for my constituents to get a better

understanding of this whole issue that on 9/11 was thrust in front

of them so fiercely that it was very difficult for people to come to

grips with the fact that we were victims of terrorism, and that this

feeling of invulnerability that we had was shattered in the aftermath. I think your lucid explanations on television have been very,

very helpful in that regard, and I want to thank you for your service.

As you know, the PATRIOT Act was multifaceted. Our committee’s participation involved the anti-money laundering section. But

just as effective were—in my estimation were the electronic surveillance capabilities, enhanced surveillance capabilities for the FBI

and other law enforcement agencies. It is also true that those sections were sunsetted for 4 years, and so the clock is essentially

ticking on those provisions as we speak. I have grave concerns that

it sends a signal that somehow we think that at the end of 4 years,

the war on terrorism will be over, and I wonder if you would—both

of you gentlemen would speak to that and perhaps give some advice as to what may very well transpire.

Mr. Emerson.

Mr. EMERSON. Mr. Chairman, I share your concerns. One of the

issues, of course, before the House and the Senate today is the

issue of adopting legislation that might amend the FISA law to basically prevent the situation that occurred in August of 2001 when

Zacarias Moussaoui was the subject of a Federal investigation, and

the FBI agents in Minnesota were not able to get FBI headquarter

permission to apply a FISA to him.

Now, of course, as you know from the PATRIOT Act, the biggest

gainer of the—there have been major generators of intelligence, but

what the PATRIOT Act did was to allow a lot of the electronic surveillance to be used in criminal investigations, and that was a

major boon and a major step forward in the prosecution of the Islamic Jihad in Florida, because there have been for years collected

pursuant to wiretaps that were FISA wiretaps, but could not be

used in criminal prosecutions.

If any of this enabling legislation that would allow the use of

FISA material to be denied to prosecutors in counterterrorist investigations, this would be a major step backwards in terms of shutting down terrorist groups.

In addition, I agree with you that to the extent that terrorist

groups or their supporters understand that the sunset legislation

has now got a clock ticking, and now we are 3 years away from certain provisions of the enhanced electronic surveillance from being

going into sunset, then they will have a great incentive; just wait

out the 3 years, and resume their activities the day after they

know that the law has gone out of existence.

Mr. JOHNSON. I would just second what Steve said. I think part

of the problem we run into, we keep trying to fragment this, that

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we are going—I hear the FBI—well, the FBI is going to focus on

terrorism, and DEA is going to deal with drugs. Well, you know,

it is a—you know, a news flash. The folks that engage with drug

trafficking also engage with terrorism, and to—part of the problem

we get is when we keep trying to slice the salami so thin to fit with

different law enforcement agencies, that the fragmentation we saw

before 9/11 where the picture really was pretty clear if you could

have integrated it.

So I think it is important, if nothing else, to try to prevent the

sunsetting of those provisions, because more often than not we are

not going to be talking about hundreds of thousands of cases. The

good news is it is a relatively small but active group of people, and

it is just—it is the same thing that police see in normal, everyday

crime. The people that commit most of the crimes are criminals

that have already been in the system. It is not, you know, Joe average American that wakes up someday that says, I am going to do

this. And if there is concern about civil liberties, which I think are

justified, there are ways, I think, that you can put together a committee of wise people that can go along with the FISA judge to

weigh up on a case by case to ensure that it is not abused.

But just as Steve pointed out, these folks are so agile when they

are engaged with this activity to make money, whether it is to

process drug proceeds or to engage in terrorism, and that they are

much faster than our bureaucracies in adapting to change. So I

think instead of giving them a green light saying, hey, wake up,

wait it out 3 years, and then you are back in business, I think we

ought to take that off the table.

Mr. EMERSON. Let me just point out one interesting fact, that I

think—I am not 100 percent sure—that there are only 113 extra

approved wiretaps pursuant to the PATRIOT Act since its passage

last year. That was it. Even though there are major cries that this

is going to invade thousands of Americans and there would be incredible spying on Americans, 113 or whatever the number, 120 is

relatively a small number that was approved pursuant to the provisions of the enhanced electronic surveillance of the PATRIOT Act.

Mr. OXLEY. And, in fact, the provisions of acquiring the capability is still in the law, still followed. You still have to jump

through all the hoops; you have to get the approval of the court,

you have to show probable cause, you have to show a reliable

source. All of that information has never changed, and I think

sometimes that is lost in the debate. And I appreciate you gentlemen bringing that to the attention of the committee.

Let me ask Mr. Byrne, and you may have already commented on

this, but you heard the testimony for Mr. Sloan from FinCEN earlier in the first panel particularly regarding section 314 of the act.

Are you uncomfortable with that, the provisions that he spoke

about and that I asked him about, in terms of the hot tip concept,

cooperating with banks? And if not, what suggestions would you

give to make that work better?

Mr. BYRNE. We think the section, Mr. Chairman, is a worthy section. I agree with you, it gives you an opportunity for a quick, you

know, hot tip, if you will, that these five individuals are being investigated. What we didn’t want to see and we saw prior to November was a flurry of requests over several days, hundreds of names.

45

I think FinCEN is in a tough position, because their role is not

really to be the gatekeeper for the information; they simply are a

conduit from the different agencies. So it is really up to the FBI

and Customs to have a gatekeeping function so that they will not

let everything go through the system.

I think that is starting to happen. This morning we met with the

regulators in Treasury and hope to meet with law enforcement

about that issue. We want it to work. But the first week that it was

rolled back out last week, we would see 108 names, 200 aliases.

Frequently the names would be simply just the last name or some

other variation, which is very difficult to search, especially for

small banks that have to rely on outside vendors.

So there is a lot of operational issues that I think we can fix.

The bigger picture on whether or not there will be a gatekeeping

function is really, I think, for you folks to make sure that it occurs.

That is not our venue, but we would feel more comfortable that it

wasn’t simply an agent trying to say, well, this is a case I haven’t

looked at for a while; let us see what we find here. If you use it

for priorities, our members are more than willing to search. But we

think the volume has gotten a little out of hand the first time. I

am confident they will fix this, and that is what we hope to see

happen.

Mr. OXLEY. Thank you.

Thank you, Madam Chairwoman.

Mrs. KELLY. Thank you, Mr. Oxley.

Mr. Hinojosa.

Mr. HINOJOSA. Thank you, Madam Chair.

My first question is addressed to Steve Emerson. Experts believe

that numerous other charitable organizations, both in the United

States and abroad, may be funneling at least a portion of their

funds to terrorist groups. In the broadest terms, have the United

States and the international community cut off the largest players

already, or have you just scratched the surface of more entrenched

networks of funds?

Mr. EMERSON. You raise an excellent question. We know what

we know, and unfortunately we don’t know what we don’t know.

We know that in the United States we have shut down at least

three or four major conduits in the last year and a half. We know

worldwide we have shut down probably three or four dozen major

conduits. There have been more than 100, 150 actual seizures or

freezing of assets or actual designation of terrorist groups or their

front organizations.

Now, I think that these constitute the first primary tier of support, but it is the only ones that were manifest to U.S. investigators or to other law enforcement agencies. I think there is a second

tier out there of third-party bankholders, of front companies, of actual commercial companies that are holding the assets, of very,

very thickly disguised veneers that make it almost impossible to

identify the terrorist component within the organizations that exist

under the veneer of being very normal, existing as a regular organization or charity, and that is the real problem.

The number of investigators required to make one single case in

the United States can number in the hundreds to disentangle the

incredible sophisticated labyrinth of financial transactions. And you

46

apply that number to how many cases could be made, you just

don’t have that number of investigators.

And so I think that we have seen a major dent, but I think that

the Islamic terrorist groups have been able—they have been very

pragmatic in readjusting. And I think that once they discover that

the air is squeezed in one side—money is fungible, and they find

other conduits.

So we are almost fighting the last war, and I think one of the

things that I see very aggressively done by the Treasury Department, which I think is very effective, is trying to get a handle on

what the future context of terrorist apparatus would be in terms

of their financial distributions in the United States and worldwide.

Mr. HINOJOSA. Thank you.

The next question I want to address to John Byrne with American Bankers Association. Earlier I believe that Congressman

Gutierrez from Illinois spoke about the undocumented workers in

the United States. I don’t know how many million we have, but

they certainly are here in the United States. And I understand that

we have several million who, of course, do not have a bank account.

So the Matricula Consular has been discussed in our committee by

a lot of the members of this Financial Services Committee, and we

think that there will be a response by the Treasury on this section

326 of the PATRIOT Act.

My question to you is what is the opinion of the members of ABA

about using them?

Mr. BYRNE. Congressman, the membership is split not necessarily 50/50, but there are banks that accept—gladly accept the

matricula card and have seen certainly that value in terms of

reaching out to that community, and they have seen extensive increase, obviously, in those that want to bank with our financial institutions. Others have taken a wait and see approach for a couple

of reasons. One is that the Treasury, as you know, has told us that

it is acceptable to use that card for identification under the soon

to be finalized 326 regulations, but it is not required. And then

there have been some groups that have been sending out basically

threatening letters and faxes to some of our banks in, I think, Nebraska and North Carolina, saying by accepting the matricula card,

the banks are violating, of all things, the U.S. Constitution, which

obviously isn’t correct at all.

We have reported that back to Treasury. We expect that the

Treasury will say ultimately that it is up to the institution; that

it is an acceptable form of identification for 326 purposes, but there

is a risk-based analysis that has to go into effect. So a bank that

decides that that card alone isn’t enough may ask that particular

customer for some evidence of residency, be it a utility bill or apartment lease. What we are going to say in terms of our association

is it is really up to the bank. We will tell them how many banks

are using it, talk to those banks, and try to understand the successes they have had, for example; but if you want to decide to take

a wait and see approach, you can talk to other institutions.

So we are kind of in the middle on this because we don’t have

clear guidance yet, but we certainly have a number of banks who

have found it very successful, and we certainly think that we would

put other banks in touch with those institutions, but we obviously

47

need some guidance from the Federal Government, because we

could say clearly one thing or the other. But at this point you will

find a number of banks that are willing to accept the card as a primary form of identification.

Mr. HINOJOSA. If the Treasury rules in the way that you anticipate, are the banks prepared with Spanish-language forms that

would be easy for those individuals to be able to use it for opening

bank accounts and encouraging them? And do you have individuals

in the banks who can speak Spanish so that it would make it easier to communicate?

Mr. BYRNE. That is a very valid question. It is a bank-by-bank

answer. I don’t know the answer to that. I know, for example,

Wells Fargo and Bank of America certainly have those capabilities

and have those individuals. I can’t tell you all the banks that accept the card have set up those systems, but certainly that makes

a lot of sense, obviously, and we would be happy to find out from

the banks that are accepting the card what their systems are. But

certainly that is a valid point, but we really would have no way of

knowing that without polling all of our members.

Mr. HINOJOSA. Thank you. Appreciate your answer.

And thank you, Madam Chair.

Mrs. KELLY. Thank you.

Mr. Garrett.

Mr. GARRETT. Thank you.

I want to follow up on the question that you were just—the line

that you were just raising, but before I do that, one quick question.

Can you speak for a moment on the differences that banks would

have with regard to reporting requirements for terrorist funding—

financing, which we have been hearing about, versus, I guess, oldfashioned traditional money laundering?

Mr. BYRNE. Congressman, we have a 20-year history of money

laundering examples, and certainly there are companies that provide software and systems to detect what is ostensibly monies derived from a criminal activity and in an attempt to disguise the

source of the funds by putting it into an institution. That is what

money laundering generally is.

Terrorist financing is taking monies and getting it to criminals.

Very difficult to determine. The FBI has briefed us that the 9/11

hijackers did what they did for less than $300,000 over 26 different

accounts and 2- or $3,000 checking accounts.

We need a lot of help in that area, And, as I said in my testimony, to date FinCEN’s SAR activity review that gives us examples of terrorist financing is really the only concrete examples we

have seen thus far. Operation Green Quest has offered some examples regarding charities, and certainly these gentlemen have given

us additional information, but it really is difficult without government help to set up a system to detect the financing of terrorism.

We really have to rely on our partners in the government, unlike

money laundering where we can set up systems and maybe find

that ourselves.

Mr. GARRETT. I see. Thank you.

What I have seen here today, and what we have known before

on the graphs that you have shown show the sophistication that

goes into the entire money-laundering process, or, I should say, terVerDate 11-MAY-2000 12:44 Aug 28, 2003 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 C:\DOCS\88332.TXT HBANK1 PsN: HBANK1
48

rorist-financing process, and that it is not just your common criminal that is engaged in these activities, so to speak. So could any

of you speak to the issue of how difficult is it now for them to obtain the needed documentation to either travel outside of this country into the foreign countries and back again? Or, more importantly, maybe going along this line, how difficult is it to get the

documentation that they need to do to get the jobs here to do either

legal or illegal activities?

Mr. JOHNSON. Well, let me give you one first-hand experience

with an individual. He is a Lebanese Muslim out of—living in Panama, runs one of the largest businesses there. He is not directly involved with terrorism, but people that he knows are. And I was

dealing with him because he was involved with making and selling

a counterfeit product that was knocking off a U.S. manufacturer’s

product. I threatened him in his office with the possibility that he

could lose his U.S. visa because he had a visa to travel. He laughed

at me, opened his drawer. He pulled out—he had a Canadian passport, he had a Dutch passport, he had an English passport. He was

fine. You know, he didn’t need a visa.

And the point is that the individuals that are going to get involved with these financing schemes, whether you are trying to

take dirty money and clean it up or take money that comes from

legal sources and move it into criminal channels for either, you

know, conventional criminality or terrorist activity, they are—they

come out, if you will, out of a merchant background. They are very

creative and very entrepreneurial, and they know how to game the

system.

Mr. GARRETT. If I may interrupt there. The comment before Mr.

Byrne was we need to have fairness as far as within the banking

community as far as requiring people coming in to ask everyone for

their identification. And we shouldn’t feel put upon that they are

going to be asking me or my wife now for some sort of identification, even though I have lived in the town for 20 years, and I have

been working with this banker in Rotary for the last 20 years, and

he knows who I am.

Mr. JOHNSON. Sure.

Mr. GARRETT. So isn’t there a sense, though, of a degree of let

us have a little common sense as far as who we should be asking

this documentation from if we know that these people can get it?

Mr. JOHNSON. In our experience—and we have been—made

money laundering cases that have led to seizures right now and

close to $180 million over the last 4 years. We say that the ideal

world would be a world in which you had the requirements that

Panama has to open a bank account in Panama with the enforcement that you have in the United States, because, very candidly,

the requirements for opening accounts in the United States are not

near what they are in Panama. And we see this—we have seen this

over and over again with checks.

You know, Colombian drug lords would offer people vacations to

come up to the United States. They had to open five different accounts. We had people that open up—you know, they would use different names, and they would take those starter checks back, and

that was funding the black market peso exchange, some of which

funds have been used for terrorism.

49

So I think there is an important role for making sure that the

people that go in and open an account, that you can verify that

they do live where they live and have a business where they live.

We are right now involved with a case where an individual submitted seven checks; it was worth $800,000, two different individuals. They are up in the New York City area. None—and they are

ostensibly business checks. None of the business names check out

with the addresses, and this is a major U.S. bank.

Mr. GARRETT. But if on the one hand you are telling me that

these individuals in this trade are able to open up a drawer and

pull out all the documentation they need, then it is the legitimate

citizen who is put upon to say that I have to go out and prove myself in a case. And now we are hearing that the Treasury may be

even considering using consular cards, which is basically documentation from—which we have absolutely no control whatsoever

as to who is getting those. And my understanding is that basically

you are talking about illegals who are using consular cards in the

primary sense.

Mr. JOHNSON. But still, the individual using those passports, it

is still—they are legitimate legal documents. And the point is do

the compliance to verify that the name on the document fits with

an address and a place, because a lot of times what we are seeing

are names and addresses that don’t fit with the place, and that

should be a tip to get someone alerted to say we need to look at

that.

Mrs. KELLY. Mr. Johnson, I just want to ask a follow-up to that.

Would biometrics help?

Mr. JOHNSON. Yeah. I mean, it is just going to confirm that the

person—at last when you make up the ID, that the person whose

fingerprints or iris is put on the card with the photograph is, in

fact, the person that you are looking at. So, yeah, that would help.

Mrs. KELLY. Thank you.

Mr. Matheson.

Mr. LYNCH. I am Mr. Lynch.

Mrs. KELLY. Mr. Lynch, I apologize.

Mr. LYNCH. It is okay, Madam Chair; I am new.

First of all, I want to thank the members of the panel for helping

the committee with its work and the Congress and its work, and

also helping our Nation deal with our antiterrorist financing efforts.

I have two questions. And I understand your efforts, and I am

actually reassured by your successes, but I am also very concerned

about the scope of the problem that you have described today. And

my question is in two parts.

One, is there a framework that exists now—and I have heard

Mr. Byrne mention section 226 of the PATRIOT Act, the amendment that is being suggested or offered. Is there a framework that

we can use in the first instance to detect some of the money laundering and terrorist activity that is going on in these financial institutions at the front end? And are there mechanisms where, as

Mr. Johnson described, there are some thickly veiled institutions or

businesses that might have some level of legitimate business there,

but they are actually funding money to terrorists? Is there a framework that we can use to adopt to address that situation as well?

50

And the second part of my question is we have been talking

about the operation of U.S. banks basically today. What has been

your experience? And you have all had extensive experiences with

these global investigations. What has been your experience in dealing with the EU, the European banks and Asian banks? Are they

coming forward with a legitimate and genuine effort to deal with

a lot of this illegal and terrorist-related financing?

Mr. JOHNSON. Let me start with your last question and then

work backwards.

I think the need for international cooperation is critical, and one

way in the door for that—because of the United States and the role

of the U.S. dollar in the international economy, we do have some

definite leverage there, and one leverage, I think, is through correspondent banking relationships, because ultimately when people

are wanting to move money, whether it is with the cash letters

that John described earlier or with wire transfers, you are ultimately trying to get dollars, and those dollars go through our system at some point.

I think it is important then to work with the banking industry,

but to raise the level of compliance requirements to ensure that

those banks or those countries which want to play out on the margins than pay a penalty. There was an article about the Iraqi bank,

the Rafidian, and you can see in that article as they describe that

there are different branches in Cairo and Amman. Depending on

who you call and what you say you want to do, you get a different

answer. And ultimately at the end of the day, if you want to send

money to Iraq or move funds which shouldn’t be moved, you can.

So I think the leverage should come from the correspondent

banking relationship.

Also within that, it is imperative that each bank do good compliance internally. We saw in the Bank of New York a Russian money

laundering case that we worked on as well, that the problem was

there, they didn’t follow their own internal policies; that the internal policies for monitoring and compliance were not complied with.

At the end of the day, we don’t want to interfere with normal

economic activity, but what we can find is you can usually tell

what is a normal economic activity and what is abnormal. If you

are a manufacturer of farming equipment in Illinois, as an example, and you are selling a tractor into Colombia—and this is a real

case—and you are getting paid out of a checking account in Wisconsin? That is no knock on Wisconsin. But if you are buying a

tractor in Colombia, it ought to be on a draft or a wire transfer out

of Colombia, not on a U.S. bank account in Wisconsin. That is

where the warning signs should go up.

Mr. LYNCH. Thank you.

What about the second part of the question, which is the Europeans, Asians?

Mr. JOHNSON. You know, that is where I get to, their—you know,

it is uneven. When you look at like HBSC banks——

Mr. LYNCH. Are you being generous when you say it is uneven?

Mr. JOHNSON. Yes.

Mr. LYNCH. Okay.

Thank you.

51

Mrs. KELLY. Thank you very much. There are some Members, I

am sure, who have additional questions for this panel, and they

may wish to submit those in writing. So, without objection, the

hearing record will remain open for 30 days for Members to submit

written questions to the witnesses and to put the responses in the

record.

Mrs. KELLY. The second panel is excused with the committee’s

great appreciation for your long time here.

I want to briefly thank all the Members, and especially our staff,

for their assistance in making this hearing possible. This hearing

is hereby adjourned.

[Whereupon, at 4:54 p.m., the subcommittee was adjourned.]

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