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[Senate Hearing 108-90]
[From the U.S. Government Publishing Office]

                                                         S. Hrg. 108-90

                   DIPLOMACY AND THE WAR ON TERRORISM

=======================================================================

                                HEARING

                               BEFORE THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 18, 2003

                               __________

       Printed for the use of the Committee on Foreign Relations

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate

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                     COMMITTEE ON FOREIGN RELATIONS

                  RICHARD G. LUGAR, Indiana, Chairman
CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
MICHAEL B. ENZI, Wyoming             RUSSELL D. FEINGOLD, Wisconsin
GEORGE V. VOINOVICH, Ohio            BARBARA BOXER, California
LAMAR ALEXANDER, Tennessee           BILL NELSON, Florida
NORM COLEMAN, Minnesota              JOHN D. ROCKEFELLER IV, West 
JOHN E. SUNUNU, New Hampshire            Virginia
                                     JON S. CORZINE, New Jersey

                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director

                                  (ii)

  

                            C O N T E N T S

                              ----------                              
                                                                   Page

Biden, Hon. Joseph R., Jr., U.S. Senator from Delaware, prepared 
  statement......................................................     3
Black, Hon. J. Cofer, Coordinator for Counterterrorism, 
  Department of State, Washington, DC............................    27
    Prepared statement...........................................    30
    Responses to additional questions for the record submitted by 
      Senator Feingold...........................................    69
Feingold, Hon. Russell D., U.S. Senator from Wisconsin, prepared 
  statement......................................................    23
Green, Hon. Grant S., Jr., Under Secretary of State for 
  Management, Department of State, Washington, DC................    10
    Prepared statement...........................................    12
    Responses to additional questions for the record submitted by 
      Senator Biden..............................................    66
Grossman, Hon. Marc, Under Secretary of State for Political 
  Affairs, Department of State, Washington, DC...................     4
    Prepared statement...........................................     8
    Responses to additional questions for the record submitted by 
      Senator Allen..............................................    65
    Responses to additional questions for the record submitted by 
      Senator Biden..............................................    66
Pistole, Mr. John S., Deputy Assistant Director of the 
  Counterterrorism Division, Federal Bureau of Investigation, 
  Washington, DC.................................................    35
    Prepared statement...........................................    38
Zarate, Mr. Juan C., Esq., Deputy Assistant Secretary, Executive 
  Office for Terrorist Financing and Financial Crimes, Department 
  of the Treasury, Washington, DC................................    42
    Prepared statement...........................................    45

                                 (iii)

  

 
                   DIPLOMACY AND THE WAR ON TERRORISM

                              ----------                              

                        TUESDAY, MARCH 18, 2003

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:15 a.m. in room 
SD-419, Dirksen Senate Office Building, Hon. Richard G. Lugar 
(chairman of the committee), presiding.
    Present: Senators Lugar, Hagel, Chafee, Feingold, and Bill 
Nelson.
    The Chairman. Good morning. This hearing of the Senate 
Foreign Relations Committee is called to order. Today, the 
committee meets to examine the critical role of diplomacy in 
the war on terrorism. We do so as diplomatic efforts at the 
United Nations related to disarming Iraq have come to a 
conclusion.
    During the last several months, the ability of our military 
to defeat Iraq has never been in question. What has been in 
doubt are factors related to our diplomatic strength and our 
standing in the world. Our diplomats have been at the forefront 
of efforts to gain support in the United Nations Security 
Council to secure necessary basing and overflight rights to 
limit anti-American reactions to war in the Arab world, and 
secure allied participation in the work of reconstructing Iraq 
after a war.
    The September 11 attacks jarred our country out of 
complacency toward foreign threats, but what is still missing 
from American political discourse is support for the 
painstaking work of foreign policy, an indispensable role that 
diplomacy plays in our strategic efforts to win the larger war 
on terrorism. American embassies and diplomatic personnel are 
on the front lines of the war on terrorism. On a daily basis, 
they are enlisting assistance in foreign countries from 
Presidents and Prime Ministers all the way down to the local 
police precincts.
    It is a massive undertaking that has brought a major influx 
of law enforcement, intelligence, and financial experts into 
embassies to work with their local counterparts. We have 
garnered the sympathy and cooperation of nations on every 
continent for our efforts to deny members of al-Qaeda refuge 
and financial support. The arrest of Khalid Shaikh Mohammed, 
who masterminded the September 11 attacks, is the most recent 
example of the success that this hard work is yielding.
    Despite the critical role of the State Department, we have 
not provided it with sufficient funding. We are spending only a 
little more than 7 cents on foreign affairs for every dollar we 
spend on defense, and as a percentage of discretionary spending 
the international affairs budget stands at 3.4 percent. This is 
the lowest percentage of discretionary funding devoted to 
international affairs in recent memory. The figure is 30 
percent below the 1985 peak, and 15 percent below the annual 
average since 1983.
    Under President Bush and Secretary of State Powell, foreign 
affairs spending has received important increases since the 
September 11, 2001 events, but we dug a very deep hole for 
ourselves during the mid- and late-1990's, when complacency 
about the role of our diplomats led foreign affairs spending to 
be greatly devalued. From 1994 to 1997, the international 
affairs budget sustained consecutive annual decreases of 3.6 
percent, 5.6 percent, 11.4 percent, and 1.5 percent.
    This slide occurred even as the State Department was 
incurring the heavy added costs of establishing new missions in 
the 15 states of the former Soviet Union. The State Department 
budget has been starved and has not yet fully recovered and, 
moreover, this week we are considering a budget resolution in 
the Senate that reduces the President's request for the 
international affairs portion of the budget by $1 billion.
    The importance of the State Department budget to the fight 
on terrorism can be seen in Pakistan. After September 11, some 
3,000 United States officials on temporary duty entered the 
country to help track down al-Qaeda terrorists. They included 
State's own diplomatic security personnel, FBI officers, 
special forces, and intelligence agents. The embassy staff 
stretched thin, with only four political officers and two 
economic officers to support the influx.
    This is not an isolated case. The GAO has documented 
staffing gaps in hardship posts, officers serving without 
adequate language training, and embassies that do not meet even 
the most minimal standards of safety.
    Secretary of State Powell, good soldier that he is, will 
always do his best with the money that the President and the 
Congress give him, but Members of Congress need to inform the 
American people that we are underfunding our foreign affairs 
capabilities at a time of great peril.
    Teddy Roosevelt prescribed that America should, ``speak 
softly and carry a big stick.'' In the present age, we are 
carrying an incredibly big stick, but we must be willing to 
spend more resources on the ability to speak softly. If a 
greater commitment to resources can prevent the bombing of one 
of our embassies, secure alliance participation in expensive 
peacekeeping efforts, or improve detection of terrorists 
seeking visas, the investment will have yielded dividends far 
beyond its cost.
    In the long term, it will be diplomatic skills, public 
diplomacy efforts, and foreign assistance that can help build 
strong and stable societies that fulfill the aspirations of 
their citizens and deny terrorists the uncontrolled territory 
and abject poverty in which they thrive.
    The purpose of this hearing is to examine whether the State 
Department has the resources, both here in Washington and in 
its embassies overseas, to pursue the kind of broad effort 
against terrorism that is needed both in the short term and in 
the long term.
    I am delighted to welcome again Marc Grossman, Under 
Secretary of State for Political Affairs, and Grant Green, the 
Under Secretary of State for Management, who will be testifying 
on the first panel. We will then turn to a second panel, who 
will focus specifically on the work that is taking place in our 
embassies. Ambassador-at-Large Cofer Black is State's 
Coordinator for Counterterrorism. Mr. John Pistole is the 
Deputy Assistant Director of the Counterintelligence Unit of 
the FBI, and last we will hear from Juan Zarate, who is the 
Deputy Assistant Secretary in charge of the Treasury 
Department's Executive Office for Terrorist Financing and 
Financial Crime.
    We appreciate the enormous expertise that each of our 
witnesses offers us today, and we look forward to their 
testimony. I would mention that we may be joined by the 
distinguished ranking member. I would say for the benefit of 
all who are following, as I am, the strong recovery of Senator 
Biden, he was at the White House for the meeting last evening. 
He is making a strong recovery, is deeply interested in all 
that we are doing, and we welcome him back at any moment that 
he comes to our committee hearing.
    And I would say parenthetically before I ask the witnesses, 
we understand the traffic engulfments of the Capitol that could 
have led to our witnesses failing to appear, and I thank you 
for your valiant and timely efforts to get ahead of the mob, 
but our colleagues may not have been so fortunate, and so they 
will be joining us in due course, except for the stalwart 
Senator Hagel, who is always prepared, and maybe even spent the 
night in the Capitol in order to be ready.
    [The prepared statement of Senator Biden follows:]

           Prepared Statement of Senator Joseph R. Biden, Jr.

    Mr. Chairman, thank you for convening this hearing. On the eve of 
likely military action in Iraq, we must keep focused on the vital task 
of combating the al-Qaeda network of terrorists and other terrorists 
which pose a clear and still present danger.
    The effort against terrorism has both a short-term and long-term 
dimension. The short-term dimension is the campaign against 
terrorists--to discover and dismantle the al-Qaeda network and their 
financial support.
    The long-term dimension is the campaign against terrorism--to 
counter the warped ideologies that give rise to terrorists and to 
prevent the emergence of failed states which could become a safe haven 
for terrorists.
    In these campaigns, we need allies. We may be the world's leading 
power, but we do not control the world. We cannot arrest aI-Qaeda cells 
in Hamburg or Madrid without cooperation from our German and Spanish 
allies. We cannot seize bank accounts in the Middle East from 
Washington.
    It goes without saying, therefore, that American officials assigned 
to our embassies and consulates around the world play an essential role 
in fighting terrorism.
    From sharing intelligence with foreign police agencies, to tracking 
down the financial infrastructure of terrorism, to securing dangerous 
weapons in Russia, thousands of American diplomats work every day to 
prevent another terrorist attack on our country.
    A key question for the committee is whether we are giving our 
diplomats the tools to do the job. In my view, we are not. The 
President's budget for international affairs provides a welcome 
increase to $28.5 billion, but spending for such programs remains well 
below the peak levels of the Cold War. The global effort against 
terrorism requires the same level of commitment, if not more, that we 
devoted to the global effort to contain communism.
    Unfortunately, the budget resolution now on the Senate floor 
reduces the President's international affairs budget by $1 billion. All 
of the cuts come from the President's important initiative to expand 
foreign assistance through the Millennium Challenge Account.
    At a time when many countries question the commitment of the United 
States to multilateral cooperation and to combating global poverty, the 
Congress should not shortchange the pledge made by the President at a 
UN summit in Mexico last year.
    Poverty is not the cause of terrorism; most of the 9/11 hijackers 
were from the middle class. But around the world, too many countries 
and people who would turn a blind eye to terrorism--and would give 
terrorists support and sanctuary--are poor and in despair. We must 
reach these people before the terrorists do.
    Just as we must devote sufficient resources to the war against 
terrorism, we must do everything possible to deprive the terrorists of 
the money which sustains their efforts.
    A monitoring group established by the UN Security Council reported 
in December that, while al-Qaeda's financing networks have been 
disrupted, it ``appears to still have access to substantial funding 
from its previously established investment, nongovernmental 
organization and charitable support network, and deep-pocketed 
supporters.''
    This same group reported last September that the roughly $112 
million of al-Qaeda assets frozen at that time represented only a 
``small fraction of the funds and resources [that] experts on terrorism 
believe to still be available to al-Qaeda and the Taliban.'' In other 
words, we have a long way to go.
    According to a bipartisan report of a Council on Foreign Relations, 
our own government's efforts in this area are falling short:

        ``after an initially robust attempt to curtail financing for 
        international terrorism, the Bush Administration's current 
        efforts are strategically inadequate to assure the sustained 
        results we need to protect U.S. security.''

    After that report was issued, I asked the White House for 
information on specific action in several areas. Nearly five months 
have passed, and I have yet to receive a response.
    Another important question is whether we have agreement with our 
allies on the objective. There appears to be unity among civilized 
nations about the threat posed by al-Qaeda. But there may not be full 
agreement with our allies in Europe and elsewhere about the threat 
posed by other terrorist groups, or even the reasons that such groups 
exist.
    Where we see things as black and white, our allies often see shades 
of gray. Do we need to close this perception gap? How can we best do 
so?
    Lastly, the committee should consider whether international 
institutions are adequate to the task of confronting international 
terrorism. After September 11 the world mobilized through the UN system 
and through regional bodies to crack down on terrorism.
    In the UN, for example, several special committees established by 
the Security Council are doing important and credible work in 
monitoring compliance with UN resolutions passed in the wake of 9/11.
    But perhaps we should look beyond these ad hoc arrangements and 
consider whether the world community should develop new institutions--
either within the UN system or elsewhere--to facilitate cooperation on 
counter-terrorism and help provide nations the means and methods to 
crack down on terrorist organizations. We are in this struggle for the 
long term, and must organize both our domestic and international 
institutions accordingly.

    The Chairman. Under Secretary Grossman, would you testify, 
and then Under Secretary Green.

 STATEMENT OF HON. MARC GROSSMAN, UNDER SECRETARY OF STATE FOR 
     POLITICAL AFFAIRS, DEPARTMENT OF STATE, WASHINGTON, DC

    Mr. Grossman. Yes, Senator Lugar, thank you very much.
    Mr. Chairman, Senator Hagel, we thank you very much, all of 
us, for the opportunity to testify today on diplomacy's role in 
the war against terrorism, and before I do anything else, Mr. 
Chairman, on behalf of the men and women of the Department of 
State, let me thank you and the entire committee for your 
strong support of American diplomacy through the years.
    Senator Lugar, I find myself from time to time in a 
position of saying I could get rid of my testimony because I 
agreed with yours, and this is one of those cases. We believe, 
as you do, in the importance, the strength, and the requirement 
for American diplomacy.
    In fact, Mr. Chairman, I read with interest the January 27 
piece you put into the Washington Post, which was called 
``Beating Terror,'' and in it you outlined five foreign policy 
campaigns necessary to win this war against terrorism, 
strengthening U.S. diplomacy, expanding and globalizing the 
Nunn-Lugar cooperative threat reduction program, promoting free 
trade, strengthening and building alliances, and reinvigorating 
the United States' commitment to democracy, the environment, 
energy, and development.
    Mr. Chairman, I would say your goals highlight our 
priorities as we fight this war from the State Department along 
with the rest of our colleagues in government against the war 
on terrorism. Secretary Powell said, when he was here 
testifying for the President's 2004 international affairs 
budget on February 6, that ``our number one priority is to 
fight and win the global war on terrorism.''
    Mr. Chairman, as you have said, this war on terror is a war 
unlike any other, because we are fighting a network of 
terrorists who are embedded and work in 60 different countries. 
The war on terrorism is also a war unlike any other because we 
need to break the nexus between weapons of mass destruction and 
terrorism.
    To fight the war on terrorism we are engaged in a campaign 
unlike any other, and here I think President Bush said it best. 
He said, ``We will direct every resource at our command--every 
means of diplomacy, every tool of intelligence, every 
instrument of law enforcement, every financial influence, and 
every necessary weapon of war--to the disruption and defeat of 
the global terror network.'' So our response to terrorism, Mr. 
Chairman, is global, and so, as you said, America's future and 
America's success depends on the quality and skill of the 
people at the Department of State.
    Secretary Powell has said that he has stopped thinking 
about the State Department as what he used to call the first 
line of defense for the United States, and now says that we are 
on the front line of the offense by pursuing active and 
purposeful diplomacy.
    What does it mean to be on the offense? As you said, Mr. 
Chairman, our colleagues, the Foreign Service, Civil Service, 
Foreign Service national employees gain the cooperation of 
leaders in other countries to support American goals. Our 
officers work to maximize the support for American initiatives. 
They coordinate policies. They resolve differences. They work 
with Finance Ministers and central bankers to cutoff terrorist 
financing. They are on the front line of the efforts to prevent 
terrorists from getting into the United States. Our office has 
worked to build public support for American values and 
policies. Our officers keep the Department functioning smoothly 
and, as you noted, Mr. Chairman, our officers are also at work 
every day keeping us safe.
    I took the liberty, Mr. Chairman, of passing out this book, 
called ``Inside a U.S. Embassy,'' which is a brand new 
publication of the American Foreign Service Association, and I 
would recommend it to you. It takes a number of chapters of 
what people do in an embassy every single day hour by hour, day 
by day, in promoting America's interests, and I just offer this 
to you, sir, and to your staff as something that might be of 
interest.
    Through this active and purposeful diplomacy, we built a 
coalition against terrorism unlike any other. Ambassador Black 
will talk more in detail, but we have 90 nations that have 
arrested or detained 2,700 terrorists and their supporters 
since September 11.
    Seventeen nations contributed nearly 6,000 troops to 
Operation Enduring Freedom and to the national security 
assistance force in Kabul. One hundred and sixty one countries 
have blocked terrorist assets totaling $116 million, and I am 
confident, Mr. Chairman and other members of this committee, 
that we will have a coalition to pursue military action if that 
is required in Iraq, and all of those efforts are made possible 
by the people at the State Department with the strong support 
from others in our diplomacy.
    Mr. Chairman, there are other examples as well. Our 
diplomacy in Southeast Asia prompted the exchanges of 
information that allowed intelligence and law enforcement 
agencies to break up active terrorist networks in Indonesia. In 
Operation Enduring Freedom, our diplomacy paved the way for 
U.S. forces to transit, stage in, and operate in numerous 
countries in Afghanistan, and in Central Asia effective 
engagement has secured also new base access agreements and 
overflight permissions.
    Mr. Chairman, as you said, September 11, 2001 changed 
America and it changed the way the State Department does 
business. Under the direction of the Secretary and the Deputy 
Secretary, Under Secretary Green and I and every bureau at the 
State Department and every one of our missions overseas have 
organized to contribute to the fight against terrorism. Our 
missions ensure that counterterrorism objectives are met 
consistently, and that our operations succeed.
    Mr. Chairman, I particularly appreciated the observation 
that you made in your letter of invitation to this hearing that 
foreign policy tools contained in the 150 account will make or 
break our antiterrorism efforts in the long term, and Congress' 
strong support enables the United States to present and to 
sustain an effective offensive against terrorism and its root 
causes, and that is why we support the President's 2004 
request.
    Mr. Chairman, if you would allow me, I would like to just 
share a few more examples of the returns on the investment that 
you make in the State Department, USAID, and other foreign 
affairs agencies on the counterterrorism front. As I briefly 
mentioned, hundreds of wanted terrorists have been apprehended 
by the United States since 11 September, and yourself, sir, you 
referred to Khalid Shaikh Mohammed.
    Under the antiterrorism assistance program, we are 
providing training and equipment to 56 countries to fight 
terrorists within and around their borders. The $10 million 
that Congress authorized in the fiscal year 2002 supplemental 
budget for enhancing Pakistan's counterterrorism capabilities 
has, as you said, Mr. Chairman, already helped facilitate 
success in that country.
    Last year, we provided training to over 4,700 foreign 
security and law enforcement officers from 45 different 
countries. Our antinarcotics and anticrime programs are also 
showing success, and very importantly, as you said in your 
letter of invitation, our public diplomacy efforts are designed 
to reach out and influence global public opinion, build trust 
in our policies, and build respect and understanding for 
American values and principles.
    I have also taken the opportunity, Mr. Chairman, to provide 
for you some examples of that public diplomacy work. In it, you 
will find some pictures of a program that we call Shared 
Values, and it was a series of mini-documentaries, pamphlets 
and other materials showing Muslims leading successful and good 
lives in the United States. That program we estimate reached 
288 million people in South Asia and East Asia.
    Mr. Chairman, before I stop, I wanted to highlight one 
other point we have been making since September 11, and I think 
it is an important one for this committee, that stopping 
terrorism, fighting terrorism and promoting human rights and 
democracy are not on opposite poles. Supporting the growth of 
democracy and the respect for human rights around the world is 
one of our greatest weapons against terrorism.
    National security strategy in the United States says that 
America must stand for the non-negotiable demand for human 
dignity, rule of law, limits on the absolute power of the 
State, freedom of speech, freedom of worship, equal justice, 
respect for women, religious and ethnic tolerance, and respect 
for private property, and all of those things I believe are 
part of this campaign to beat the global war on terrorism, and 
since September 11 we have increased our global engagement on 
building democracy and protecting human rights.
    Mr. Chairman, the President's budget for fiscal year 2004 
for the State Department for our foreign affairs agencies will 
provide the dollars we need to stay on the offense in the fight 
against terrorism. With adequate resources, foreign affairs 
agencies can devote more attention to addressing fundamental 
challenges that make countries vulnerable to terrorist networks 
and to their operations. We will have the money we need to 
focus greater attention and resources on weak States that can 
serve as a refuge or a staging ground for terrorist 
organizations.
    And I know, very importantly to this committee, we can do 
more in these countries and others to boost economic 
development, improve governance practices, and increase respect 
for human rights and the rule of law, and that is why the 
President's request includes the request for $1.3 billion to 
launch the Millennium Challenge Account [MCA], a new bilateral 
assistance program for developing countries that rule justly.
    The President has also asked for $2 billion in 2004 to 
support HIV/AIDS care and prevention programs in the hardest-
hit countries especially Africa and the Caribbean, with the 
goal to provide $15 billion in HIV/AIDS funding over the next 5 
years and, very importantly, the Middle East partnership 
initiative, launched in December, has democracy promotion as 
one of its priorities and links these reforms to economic and 
education reforms. These are all smart and necessary 
investments in the fight against terrorism.
    Mr. Chairman, we thank you, we thank all the members of the 
committee for helping the State Department, USAID, and other 
foreign affairs agencies get the resources we need to do our 
jobs, to do them well for the sake of the American people and, 
from your consistent support, we know that you understand the 
sacrifices, and I would say sometimes the ultimate sacrifice 
that the men and women of our diplomatic corps, as well as 
their families, make every day to protect the United States of 
America.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Grossman follows:]

  Prepared Statement of Ambassador Marc Grossman, Under Secretary of 
                      State for Political Affairs

    Mr. Chairman, thank you for the opportunity to testify today on 
diplomacy's role in the war against terrorism. I thank the committee--
and you and Senator Biden in particular--for your strong support of 
U.S. diplomacy.
    Mr. Chairman, I read with interest your January 27 Washington Post 
piece on ``Beating Terror.'' In it, you outlined five foreign policy 
campaigns necessary to win the war against terrorism: strengthening 
U.S. diplomacy; expanding and globalizing the Nunn-Lugar Cooperative 
Threat Reduction Program; promoting free trade; strengthening and 
building alliances; and reinvigorating the U.S. commitment to 
democracy, the environment, energy and development.
    Mr. Chairman, your goals highlight our priorities as we fight the 
global war on terrorism.
    Secretary Powell said on February 6 when he testified before this 
Committee in support of the President's FY04 International Affairs 
budget that, ``our number one priority is to fight and win the global 
war on terrorism.''
    Mr. Chairman, let me say at the outset that the war on terrorism is 
a war unlike any other. We are fighting a network of terrorists 
operating in more than 60 countries.
    The war on terrorism is also a war unlike any other because we must 
stop the proliferation or use of weapons of mass destruction, which are 
potential instruments of terror unlike any other. Nuclear weapons, 
biological weapons, radiological weapons and chemical weapons in the 
hands of terror groups or rogue states like Iraq are a challenge to 
American security.
    To fight this enemy, we are engaged in a campaign unlike any other. 
President Bush has said, ``We will direct every resource at our 
command--every means of diplomacy, every tool of intelligence, every 
instrument of law enforcement, every financial influence, and every 
necessary weapon of war--to the disruption and to the defeat of global 
terror network.''
    Our response to terrorism is global. And so America's future 
depends on the quality and skill of the people of the State Department.
    Secretary Powell says that he has stopped thinking about the 
Department as a first line of defense for our national interests and 
now says that we are the first line of offense by pursuing active, 
purposeful diplomacy.
    What does it mean to be on the offense?
    Our colleagues--Foreign Service, Civil Service, Foreign Service 
Nationals--gain cooperation of leaders in other countries to support 
American goals. Our officers work to maximize support for U.S. 
initiatives, coordinate policies and resolve differences. Our officers 
work with Finance Ministries and Central Banks to cut off financial 
support for terrorists. Our officers are on the front line of the 
effort to prevent terrorists from getting into the United States. Our 
officers work to build public support for American values and policies. 
Our officers keep our Department functioning smoothly, at home and 
abroad, and our officers keep us safe.
    Through this active, purposeful diplomacy, we have built a 
coalition against terrorism unlike any other. More than 90 nations have 
arrested or detained over 2,700 terrorists and their supporters since 
9/11. 17 nations have contributed nearly 6,000 troops to Operation 
Enduring Freedom and to the International Security Assistance Force in 
Kabul. NATO members and partners have played an especially key role. 
161 countries have blocked terrorist assets totaling $116 million--$34 
million in the U.S. and $82 million abroad.
    Here are several examples:
    Our diplomacy in Southeast Asia prompted the exchanges of 
information that allowed intelligence and law enforcement agencies to 
break up an active terrorist network led by the Indonesia-based Jemaah 
Islamiya. Arrests have occurred in Singapore, Malaysia, and Indonesia.
    In Operating Enduring Freedom, our diplomacy paved the way for U.S. 
forces to transit, stage in, and operate in numerous countries in 
Afghanistan and its region.
    In Central Asia, effective engagement secured new base-access 
agreements and overflight permission.
    September 11, 2001 changed America. September 11 also changed the 
way the State Department does business.
    Under the direction of the Secretary and Deputy Secretary, every 
bureau in the Department and all of our Missions overseas have 
organized to contribute to the fight against terrorism. Our Missions 
ensure that counterterrorism objectives are met consistently and that 
our operations succeed.
    Mr. Chairman, I appreciate the observation made in your letter of 
invitation that ``the foreign policy tools contained in the 150 account 
will make or break our anti-terrorism efforts in the long term.'' 
Congress's strong support enables the U.S. to present and sustain an 
effective offense against terrorism and its root causes. That is why we 
support the President's FY-04 budget of $18.8 billion for the State 
Department.
    Our number one priority is to fight and win the global war on 
terrorism. The President's budget furthers this goal by providing 
economic military and democracy assistance to key foreign partners and 
allies and pursing our program of ``Diplomatic Readiness.''
    Over the last two years, with support from Congress, the State 
Department has begun to address our human and capital resource needs. 
The President's FY04 budget requests resources that will allow us to 
continue to reinforce America's world-class diplomatic force--focusing 
even more attention on the people, places and tools needed to promote 
U.S. foreign policy goals.
    Mr. Chairman, let me share with you a few more examples of the 
returns on your investment State Department, USAID and other foreign 
affairs agencies on the counter terrorism front.

   As I briefly mentioned earlier, hundreds of wanted 
        terrorists have been apprehended by the United States since 
        September 11, and our partners have arrested thousands more. 
        These arrests include Khalid Shaikh Muhammad on March 1.

   Through our Antiterrorism Assistance (ATA) Program, we are 
        providing training and equipment to 56 countries to fight 
        terrorists within and around their borders.

   The $10 million Congress authorized in the FY 2002 
        supplemental budget for enhancing Pakistan's counterterrorism 
        capabilities has already helped to facilitate successes against 
        some of the most wanted terrorists in the world, including 
        Khalid Shaikh Muhammad.

   Last year, we provided training to over 4700 foreign 
        security and law enforcement officers from 45 different 
        countries.

   Our anti-narcotics and anti-crime programs have also shown 
        success. There is now stronger emphasis on counter-terrorism 
        training in our global network of International Law Enforcement 
        Academies' core and specialized courses. Our drug crop 
        eradication and interdiction programs in Asia, Latin America, 
        and elsewhere, have taken hundreds of tons of illicit drugs out 
        of circulation, helping to choke off an important source of 
        revenue to terrorist networks.

   Our public diplomacy programs reach out to influence global 
        public opinion, build trust in our national policy, and build 
        respect and understanding for American values and principals. 
        The Shared Values Initiative of mini-documentaries, pamphlets 
        and other materials showing Muslims leading successful, secure 
        lives in America reached 288 million people in the Middle East, 
        South Asia, and East Asia.

    Mr. Chairman, I want to highlight another point we have been making 
since September 11: fighting terror and promoting human rights are not 
opposite poles.
    I believe supporting the growth of democracy and the respect of 
human rights around the world is one of our greatest weapons against 
terrorism. As the National Security Strategy of the United States says: 
``America must stand for the nonnegotiable demands of human dignity: 
the rule of law; limits on the absolute power of the state; free 
speech; freedom of worship; equal justice; respect for women; religious 
and ethnic tolerance; and respect for private property.''
    Since September 11, we have increased our global engagement on 
building democracy and protecting human rights.
    Here is an example of how this all comes together: With your 
support, in Colombia the United States trained and equipped a 
counterdrug brigade. This unit is human rights vetted and received U.S. 
human rights training. There has not been a single credible human 
rights violation charged to this unit and it is considered the best 
unit in the Colombian military. In fact, when I visit Colombia, human 
rights advocates always tell me that what is needed is more such U.S. 
training, not less, because our training means Colombia's military 
becomes more professional, effective and respectful of human rights and 
democracy.
    The President's budget for FY 2004 will provide the dollars we need 
to stay on the offense in the fight against terrorism. With adequate 
resources, foreign affairs agencies can devote more attention to 
addressing fundamental challenges that make countries vulnerable to 
terrorist networks and their operations.

   We will have the dollars we need to focus greater attention 
        and resources on weak states that can serve as refuge and 
        staging grounds for terrorist organizations.

   We can do more in these countries and others to boost 
        economic development, improve governance practices, and 
        increase respect for human rights and the rule of law. The 
        President's budget includes a request for $1.3 billion to 
        launch the Millennium Challenge Account, a new bilateral 
        assistance program for developing countries that rule justly. 
        The President has also asked for $2 billion in FY04 to support 
        HIV/AIDS care and prevention programs in the hardest hit 
        countries, especially Africa and the Caribbean, with a goal to 
        provide $15 billion in HIV/AIDS funding over the next five 
        years. The Middle East Partnership Initiative (MEPI), which was 
        launched in December, has democracy promotion as one of its 
        priorities and links these efforts to economic and education 
        reforms. These are all smart and necessary investments.

    We thank you, Mr. Chairman, for helping the State Department, 
USAID, and other foreign affairs agencies get the resources we need to 
do our jobs, and do them well, for the sake of the American people. 
From your consistent support we know that you understand the 
sacrifices--and sometimes the ultimate sacrifice--that the men and 
women of our diplomatic corps, as well as their families, make every 
day to protect America.

    The Chairman. Thank you very much, Under Secretary 
Grossman.
    Under Secretary Green, would you proceed with your 
testimony?

STATEMENT OF HON. GRANT S. GREEN, JR., UNDER SECRETARY OF STATE 
      FOR MANAGEMENT, DEPARTMENT OF STATE, WASHINGTON, DC

    Mr. Green. Yes, sir. Mr. Chairman, members of the 
committee, like Under Secretary Grossman, I am very pleased to 
participate in this panel and have an opportunity to discuss 
how the Department of State's management agenda supports the 
war on terrorism.
    As you know, Mr. Chairman, the people of the Department of 
State have long been familiar with what affected all Americans 
first-hand on September 11, 2001. They have always worked and 
lived under what are often difficult and even dangerous 
circumstances, including the daily threat of terrorism. The 
August 7, 1998 bombings of the U.S. embassies in Nairobi and 
Dar es Salaam focused the Department's attention on the threat 
of terrorism and the need to respond to it as we never have 
before.
    September 11 did not change that focus nor State's 
management priorities as much as it affirmed their importance. 
Our agenda is more essential than ever, not just to play an 
active role in the war on terrorism, but to address the whole 
range of requirements that will give the United States and the 
diplomatic infrastructure, our people in the field from all the 
U.S. Government agencies, need to do their work.
    Secretary Powell's management priorities were laid out on 
day one. They have not changed, and they are pretty simple: 
people, security, technology, facilities, and the resources 
that support those four priorities.
    At the pinnacle of our efforts are people, recruiting them, 
training them, and doing the things that enable us to retain 
them. To repair the large gap created in our personnel 
structure by almost a decade of too few hires, we began the 
Diplomatic Readiness Initiative in 2001. The DRI's 3-year plan 
calls for bringing on board nearly 1,200 more foreign affairs 
personnel, and completing it in 2004 is one of Secretary 
Powell's highest priorities.
    At the same time, we are strengthening the training 
provided through the Foreign Service Institute, 
counterterrorism, consular training, particularly in the areas 
of improved visa interviewing skills and border protection, 
public diplomacy training, as Under Secretary Grossman 
mentioned, to bolster our ability to explain U.S. policy and 
improve America's image, and language training, especially the 
critical language programs such as Arabic, Persian, Farsi, Dari 
and Pashtu.
    One more point on people, Mr. Chairman. I noted with 
interest your comment to the Secretary at a previous testimony 
on filling hardship posts. We are currently examining a range 
of incentives and doing away with disincentives which would 
encourage people to serve at hardship posts, making sure that 
we have the staff to man some of our most difficult posts and 
assignments. We are enforcing the fair share assignment rules, 
which require all Foreign Service staff to serve a portion of 
their careers at these hardship posts.
    A second priority, Mr. Chairman, and that is security. Our 
security challenges are to sustain the security readiness as 
threat levels remain elevated, to strengthen existing programs, 
and have the flexibility to deal with the increasing threats 
worldwide. We have had a major worldwide security upgrade 
program underway since the 1998 embassy bombings, and I believe 
our efforts are paying off.
    As an example, we attribute the minimum damage from the 
June 2002 attack on the American consulate in Karachi to be the 
result of improved security awareness, training, and the 
significant investment in physical and technical security 
programs, but we have a lot more to do, and we will continue to 
need your great support.
    In the area of technology, we are well on the way to 
providing the hardware and the software needed to build, as the 
Secretary puts it, a state-of-the-art State Department. We will 
be replacing the Department's outmoded telegram system with 
SMART, a modern, centralized Internet-like system that 
integrates all of the means through which people exchange 
information, replacing today's cables, e-mails, Department 
notices, and memoranda with e-documents.
    Technology improvements do not just make work easier for 
our employees. They relate directly to the war on terrorism 
through such activities as visa and passport name checks, 
increased data-sharing with other agencies, border security 
controls, and services that support American citizens abroad.
    Our fourth management priority, facilities. As I briefly 
mentioned, we are aggressively addressing the longstanding 
issue of insecure, unsafe, and outdated facilities in which 
most U.S. Government employees overseas work. We just opened 
new embassies in Nairobi and Dar es Salaam, replacing those 
bombed in 1998. They are attractive, they are safe, they are 
secure, and they are the kind of facilities that we must build 
for our people everywhere.
    In this vein, working with the Office of Management and 
Budget, we have proposed a capital security cost-sharing 
program that will allocate the capital cost of new overseas 
facilities to all U.S. Government agencies. In addition to 
being a fair way to allocate costs, it will act as a direct 
incentive to right-sizing.
    On the domestic side, we have faced a broad range of 
challenges related to the war on terrorism. For example, we had 
to close our central mail facility after the anthrax attack. We 
stepped up emergency preparedness and enhanced the security of 
our domestic buildings in the aftermath of that. We have 
implemented a much more structured framework and a series of 
standard procedures to ensure a fully coordinated emergency 
preparedness effort for our Washington headquarters and for our 
other domestic State Department facilities.
    Let me touch briefly on consular affairs, because they play 
a major role in our war on terrorism. September 11 altered the 
context in which consular work is done both at home and abroad, 
and I will state categorically that our first priority remains 
the safety and the protection of U.S. citizens.
    In close cooperation and coordination with the Department 
of Homeland Security, we have done much. We have restructured 
the visa process, for example, requiring new clearance 
procedures for some applicants. We have improved document 
integrity and fraud prevention. We have enhanced data 
collection and expanded information-sharing, and we continue to 
develop and deploy numerous new technologies to give us more 
effective tools in this area.
    Mr. Chairman, the bottom line is that we will continue to 
do our best to give our people the infrastructure and the tools 
they need to do their job, and we very much appreciate the 
support you and the committee have shown for our management 
initiatives. Mr. Chairman, we thank you for your past support. 
We look forward to working with you and the committee as we 
address the many management challenges facing the Department of 
State, as we continue to conduct diplomacy around the world on 
behalf of the American people.
    Thank you.
    [The prepared statement of Mr. Green follows:]

Prepared Statement of Grant S. Green, Jr., Under Secretary of State for 
                               Management

                              INTRODUCTION

    Mr. Chairman and members of the committee, I am pleased to 
participate in this panel and to have the opportunity to discuss how 
the Department of State's management agenda supports the War on 
Terrorism.
    The people of the Department of State have long been familiar with 
what affected all Americans firsthand on September 11, 2001. They have 
always worked and lived under what are often very difficult and 
dangerous circumstances, including the daily threat of terrorism. The 
August 7, 1998 bombings of the U.S. embassies in Nairobi and Dar es 
Salaam focused the Department's attention on the threat of terrorism 
and the need to respond to it as never before.
    September 11th did not change State's management priorities as much 
as it reaffirmed their importance. Our agenda is more essential than 
ever--not simply to play an active role in the War on Terrorism, but to 
address the whole range of requirements that will give the United 
States the diplomatic infrastructure our people in the field from all 
U.S.G. agencies need to do their work.
    We have asked the Congress for $6.388 billion for the 
Administration of the Foreign Affairs portion of the FY 2004 State 
Department budget submission.
                       STATE'S MANAGEMENT AGENDA

    Secretary Powell's management priorities are:

   People,

   Security,

   Technology,

   Facilities, and

   The resources that support those priorities.

    I will discuss what we have accomplished in each of these areas, 
and what we plan to do over the next several years. I will also address 
domestic infrastructure and operations, and consular affairs. While not 
directly related to how we manage the Department of State and U.S. 
diplomatic posts, consular affairs are critical to the War on 
Terrorism.

                                 PEOPLE

    At the pinnacle of our efforts are our people--recruiting, 
training, and retaining them. We want to get to a point where our 
people can take training without seriously jeopardizing their missions 
or offices; where our men and women don't have to fill two or three 
positions at once; and where people have a chance to breathe 
occasionally. We began to do this in 2002 with the Diplomatic Readiness 
Initiative (DRI).
    The DRI's three year plan calls for bringing on board 1158 more 
foreign affairs personnel so that we can repair the large gap created 
in our personnel structure and, thus, the strain put on our people by 
almost a decade of too few hires, an inability to train properly, and 
hundreds of unmet positions. Completing the DRI in FY 2004 is one of 
Secretary Powell's highest priorities.
    We have just started to get the traction we need to have enough 
people to respond to priorities like the war on terrorism. Without 
continued support we will have only applied a band-aid because our 
responsibilities only continue to expand. For example, we have 40 
people in Kabul now that we had to take out of our existing resources.
    We made impressive gains in the first year of the hiring 
initiative. We met all our hiring goals, reformed the Foreign Service 
hiring process, and increased interest in careers at the Department. We 
not only hired the 360 new employees under DRI, but we also hired 
almost 600 additional employees in security, information technology, 
and consular affairs. This was a huge increase--double the number of 
junior officers over 2001--and, by increasing our outreach and 
targeting it effectively, we did it without lowering standards.
    At long last we are within striking distance of a Foreign Service 
that is not only talented and committed but as diverse as we need to be 
to represent America.
    In 2002, we:

   Increased interest in traditionally deficit areas including 
        management officers, information technology specialists, office 
        managers, financial management officers, and consular officers.

   Sent out the new people we hired to meet critical visa 
        requirements, respond to emerging priorities like the war on 
        terrorism, fill critical gaps overseas, and to receive 
        additional training.

   Increased training for new hires and began sending more 
        people to leadership and management training--a direct result 
        of higher staffing levels.

    We have to capitalize on that investment in recruitment and realize 
the full gains from these initial successes by continuing the hiring 
momentum.
    We recently approved for implementation a list of recommendations 
that will enhance the incentives for employees to bid on difficult to 
staff posts, covering quality of life issues, allowances and benefits, 
and promotion and assignments.
    We are also changing the organizational culture to instill better 
leadership and management. We cannot do that if we only have enough 
people to do the day-to-day work. We have to have the added strength to 
respond to crises without leaving gaping holes.
    We do currently maintain ``surge'' teams for security, consular, 
management, and terrorism response assistance. Typically, we provide 
additional capacity on a short-term basis by pulling experienced people 
from other places and applying them to that priority situation. Because 
the last Administration had ``underhired'' in the 1990s, compared to 
our expanding mission, those responding to a crisis usually leave 
important work unattended.
    Training and career development are important components in 
managing and retaining our people. Last year we implemented mandatory 
leadership training for mid-level officers. This year we are beginning 
a mandatory Senior Executive Threshold Seminar for officers newly 
promoted to the Senior Foreign Service and Senior Executive Service.
    The Army builds in a cushion to their manpower to allow for 
training and transit. The Diplomatic Readiness Initiative would begin 
to give us a small version of that system. We need the kind of 
mentality that plans for crises, training, and new requirements.
    Expanding counterterrorism training and response is an important 
goal. The Bureaus of Near Eastern Affairs, Consular Affairs, and 
Diplomatic Security, the Office of the Coordinator for 
Counterterrorism, and the Foreign Service Institute all contribute to 
this effort.
    We are strengthening consular training, particularly in the areas 
of improved visa interviewing skills and border protection. Public 
Diplomacy training is also being expanded to bolster our ability to 
explain U.S. policy to a foreign audience and to improve America's 
image abroad.
    Language ability is critical. While language skill is not a hiring 
requirement, we do have an active foreign language recruitment program 
to identify and recruit Americans with existing foreign language 
abilities. We rely on training employees in languages as they are 
needed in order to respond flexibly to changing needs. We are 
endeavoring to provide even better language training, especially in 
critical and burgeoning language programs such as Arabic, Persian/
Farsi, Dan, and Pashtu. We assess overseas positions yearly to 
determine which should require language facility. While we do grant 
some waivers, employees who are assigned to those positions must have--
or be able to acquire--the required language skill level before going 
to post. Language-qualified persons were assigned to 88 percent of the 
language-designated positions filled in FY 2002.

                                SECURITY

    Our security challenges are to:

   Sustain security readiness as threat levels remain elevated;

   Strengthen existing programs; and

   Have the flexibility to deal with the increasing threat 
        worldwide.

    The Worldwide Security Upgrade funding continues to support (a) the 
security enhancements implemented soon after the 1998 embassy bombings 
and (b) new initiatives to keep current with measures to counter 
threats. Both the worldwide demand for security personnel and the need 
to protect our embassies during demonstrations and hostile acts means 
contract guard costs will remain a necessary and expensive element of 
our security program. In Kabul, we have to hire American contract 
guards to replace the U.S. Marines currently protecting the U.S. 
embassy. This is because the infrastructure does not exist for hiring 
loyal guards locally.
    This multi-year effort was the most significant overall improvement 
to our perimeter security systems since the late 1980s. We will 
continue similar and equally important work on annexes and other 
buildings not included in the original program and maintain a life 
cycle maintenance and replacement program to protect the upgrade 
investments we have made over the past four years.
    Our efforts are paying off. We attribute the minimal damage from 
the June 2002 attack on the American Consulate in Karachi to be the 
result of improved security awareness, training, and significant 
investments in physical and technical security programs.
    The chemical/biological countermeasures program has begun 
deployment of 35,000 escape masks to personnel of all U.S.G. agencies 
who staff our overseas missions. We will also provide training in the 
use of these masks. Refresher training has been refocused specifically 
on posts in Near Eastern and South Asian areas to address the threat 
posed by Iraq; military-grade Chem/Bio suits are being deployed to 
selected posts in those regions.
    As an example of how September 11th has changed circumstances, our 
FY 2004 budget request includes almost $5 million to respond to a U.S. 
Olympic Committee request for federal agents to provide security 
support to the government of Greece for the protection of U.S. athletes 
at the Olympics. We have not previously offered this level of support 
for events abroad. We believe that today's threat environment, among 
other factors, makes this support a prudent and necessary decision.
    To improve our capabilities to connect to a variety of interagency 
databases supporting intelligence and antiterrorism activities and 
programs, we plan to upgrade the systems and networks that support 
Diplomatic Security law enforcement and investigative operations. 
Currently connectivity is often limited to outdated modem 
communications that are unacceptable for user access to existing 
databases.
    We have been unable to move forward on establishing a Center for 
Antiterrorism and Security Training (CAST) because funding has not yet 
been approved by Congress. Without suitable venues to train our agents 
and other foreign law enforcement personnel who are our allies in 
fighting terrorism, preparing those needing skills for combating 
terrorists becomes challenging.

                               TECHNOLOGY

    We are well on the way to providing the hardware and software 
needed to build, as the Secretary puts it, a state-of-the-art State 
Department. Our guiding principle, and the driving motivation behind 
the E-Government initiative in the President's Management Agenda and 
the E-Government Act of 2002, is that business practices should drive 
every information technology (IT) project we undertake. We have 
reinvigorated our information technology capital planning program by 
creating an E-Government Program Board, composed of a wide range of 
senior Department officials, and established an E-Government Program 
Management Office to support the Board. These moves illustrate our 
commitment to focus on business practices in managing IT projects.
    Technology improvements do not just make work easier for our 
employees. They relate directly to the War on Terrorism, through such 
activities as visa and passport name checks, increased data sharing 
with other agencies, border security controls, and services for 
American citizens abroad.
    We are completing modernization of the Department's global 
classified and unclassified IT infrastructure through the successful 
OpenNet Plus and Classified Connectivity Programs this year. We will 
systematically refresh those systems to preclude IT obsolescence and 
modernize our software tools to make the best use of this upgraded 
cyber highway.
    We will replace the Department's outmoded telegram system with 
SMART, the State Messaging and Archive Retrieval Toolset. SMART is a 
modern, centralized, Internet-like system that integrates all the means 
through which people exchange information: replacing today's cables, e-
mails, Department notices, and memoranda with e-documents. SMART will 
replace the fragmented processes, systems, and paper and automated 
documents in use today with a single web-based system.
    Protecting our ability to communicate worldwide rapidly and 
securely is paramount during this terrorism battle. Our Chief 
Information Officer has increased our efforts to improve our cyber 
security profile. We have an ambitious plan to complete certification 
and accreditation on all major applications and general support systems 
by the end of FY 2004.
    The Department is creating an alternate communications site to 
support continuous, worldwide connectivity during emergencies. 
Providing critical communications redundancy with rapid cutover 
capability during a loss of the primary site is important to our 
managers here in Washington and our employees around the globe.
    We have expanded the intelligence community's Secret Internet 
Protocol Routing Network (SIPRNET) worldwide through our classified 
network to allow easier interagency information exchange and 
collaboration.
    We are consolidating our sources of information for security and 
survivability. Because of this, bandwidth demands have doubled in the 
past year. These requirements will continue to escalate. Fortunately, 
in keeping with our focus on finding cost effective means to meet our 
business requirements, we are working with other USG partners to find 
innovative ways to meet our telecommunications requirements, building 
in redundancy while reducing the ``price per bit.''
    This degree of antiterrorism effort has required the Department to 
increase technology efforts on all fronts and thus slowed some of our 
routine IT business activities.

                               FACILITIES

    More than 30 U.S.G. agencies, including the Department of State, 
rely on the support platform our 260 diplomatic and consular posts 
provide.
    Secretary Powell has stated that he is proud of the job the Bureau 
of Overseas Buildings Operations (OBO) is doing in bringing the costs 
down of our embassy facilities around the world. State is carrying out 
its construction program in a way that makes maximum use of modern 
technology, state-of-art construction techniques, and standardization 
of products. We just opened the new embassies in Nairobi and Dar es 
Salaam, replacing those bombed in 1998. They are attractive, safe, and 
secure facilities, the kind that we must build for our people 
everywhere.
    We are aggressively addressing the long-standing issue of insecure, 
unsafe, and outdated facilities in which most U.S.G. employees overseas 
work. In FY 2002, OBO obligated nearly $1.8 billion. This performance 
represents the highest level of obligations in OBO history--84% over 
the previous high set in FY 2001. We obligated nearly $700 million for 
13 new embassy compound (NEC) projects alone, and another $152.6 
million in Perimeter/Compound Security Upgrades.
    It is critical that the United States sustain this level of effort 
for more than a decade even to replace the most inadequate facilities 
on our list.
    Our FY 2004 budget request includes $761.4 million for construction 
of secure embassy compounds in seven countries and $128.3 million for 
construction of a new embassy building in Germany.
    The budget proposes a Capital Security Cost-Sharing Program that 
would allocate the capital costs of new overseas facilities to all 
U.S.G. agencies. This program will serve two vital purposes:

   To accelerate the construction of new embassy compounds.

   To encourage U.S.G. agencies to evaluate their overseas 
        positions more carefully.

    In doing so, it will further the President's Management Agenda 
initiative to ensure that the official American presence abroad is 
rightsized. The surcharge to the cost of stationing an American 
employee overseas will not undermine vital overseas work, but it will 
encourage more efficient management of personnel and taxpayer funds.

                 DOMESTIC INFRASTRUCTURE AND OPERATIONS

    Our continuing objectives are to improve administrative services, 
enhance quality of work and life for employees, advance the use of 
technology, and leverage information resources. At the same time, we 
have faced a broad range of challenges related to the War on Terrorism, 
e.g., closure of our central mail facility because of an anthrax 
attack, stepping up emergency preparedness and enhancing the security 
of our domestic buildings, and procuring and moving equipment in short 
order to set up Embassy Kabul.
    We are moving actively to ensure the security of our buildings and 
people in the United States. We have established the Homeland Security 
Group (D/HS) in the Office of the Deputy Secretary. The Group serves as 
the Department's liaison on homeland security issues to other 
appropriate USG entities such as the Department of Homeland Security 
and the Homeland Security Council, and coordinates homeland security 
issues within the Department of State including overseas posts. We have 
implemented a more structured framework to ensure a coordinated 
emergency preparedness effort for our Washington headquarters and other 
domestic State offices. We have established a Domestic Emergency Action 
Committee to coordinate and consolidate our domestic emergency 
planning. And, we are working with District of Columbia officials on a 
design to enhance the perimeter security of the Harry S Truman 
building.
    Vital to improving the quality of work and life for employees is 
our program for the modern management and renovation of domestic 
facilities, including the consolidation of office space in Foggy Bottom 
and multi-year renovation of the Harry S Truman Building. Security 
elements are a major factor in our domestic infrastructure requirements 
and the security of our domestic facilities became significantly more 
visible after September 11th.

                            CONSULAR AFFAIRS

    September 11th altered the context in which consular work is done 
at home and abroad. Our first priority remains the protection of U.S. 
citizens. U.S. citizens traveling, studying and working abroad have 
always been on the front lines of America's struggles with terror, 
crime and threats to safety.
    Terror and political uncertainty abroad require intensified 
services to Americans overseas using the best available technology. Our 
improvements over the coming year include:

   On-line registration of U.S. citizens.

   Enhanced crisis management capability.

   Improved information management to allow us to track how 
        many U.S. citizens abroad are victims of terrorism and other 
        serious crimes such as kidnapping, homicide, rape, assault, and 
        child abuse.

   Innovative knowledge management, using modern tools to get 
        user-friendly information and guidance to our consular officers 
        quickly even when they are away from their offices assisting 
        Americans at remote locations.

    Our consular work also protects Americans at home in the United 
States. Continuous improvement of passport and visa programs makes it 
ever more difficult for terrorists or criminals to operate with forged 
or altered American passports or visas.
    All domestic passport facilities now issue the highly secure 
photodigitized passport, which incorporates printed digital photos and 
related security devices. The digitized photo makes photo substitution 
very difficult to do. Photo substitution was formerly the most 
prevalent form of passport fraud. However, we know that we cannot be 
complacent, and we continue to explore ways to enhance passport 
security. We are also now providing these more secure passports to 
Americans abroad: last year we transferred all but emergency passport 
production to the United States. Most overseas Americans appear to 
understand the security benefits of the new procedures, even though 
they increase the amount of time that applicants abroad must wait to 
receive a passport. We recently successfully completed pilot testing of 
electronic transfer of passport data between two posts and a domestic 
passport center. This electronic data transfer process will be 
available at all posts in 2003 and will significantly reduce the wait 
time for applicants overseas.
    We are continuing through FY 2004 a project to scan as quickly as 
possible into our digital passport application database (PRISM) 32 
million passport applications from 1994 to 1999. The scanning of these 
applications for older but still valid passports will make data and 
images of valid passport holders available via our intranet to consular 
offices worldwide. We also plan to transfer passport data and photos 
electronically to U.S. ports of entry where the information will be 
used to verify the authenticity of passports and the identity of the 
passport bearer.
    Last year, we completed development of the Consular Lost and Stolen 
Passport System (CLASP), an electronic database that serves as the 
central repository for information regarding lost or stolen U.S. 
passports. All overseas posts and domestic passport agencies have 
access to CLASP. We are sharing CLASP data with the U.S. Customs 
Service's Treasury Enforcement Communication System (TECS) for use at 
ports of entry and anticipate sharing it with the law enforcement 
community by next year.
    We have underway the worldwide deployment of the more secure 
Lincoln visa, a redesigned Automated Cash Register System, a new Back-
Up Namecheck system featuring real-time update of local lookout files 
from the central database, and a new Nonimmigrant Visa release 
expanding electronic capture of data elements. Within the next year, we 
plan to deploy a re-engineered and machine-readable immigrant visa with 
electronic photo and a totally re-engineered American Citizens Services 
system.
    To ensure that visas are not issued to persons who might pose a 
security risk, the Department has put in place special clearance 
requirements for all adult visa applicants who are nationals or 
permanent residents of countries that are designated as state sponsors 
of terrorism, or who were born in one of them.
    We are actively participating with the Department of Homeland 
Security and the exchange community in the design and development of 
the Student and Exchange Visitor Information System (SEVIS), the 
permanent system that will contribute to our national security as it 
adds integrity to the student and exchange visa issuing process.
    We have instructed all posts to retain visa applications for at 
least seven years. This replaces the old standard, under which 
applications were destroyed after a year or two. Interim measures have 
been taken to provide for paper storage of these applications. We have 
made changes to consular automated systems to allow consular sections 
to scan many applications for later retrieval and for easier 
collaboration with other concerned U.S.G. agencies on special clearance 
and other procedures. All visa applications dating from at least 
October 2000 will be retained for at least seven years in a form 
admissible in U.S. courts.

                               CONCLUSION

    The bottom line is that we will continue to do our very best to 
give our people the infrastructure and the tools they need to do their 
job. We very much appreciate the support you have shown for our 
management initiatives.
    Mr. Chairman, I look forward to working with you and the Committee 
as we address the challenges facing the Department of State and our 
role in the War on Terrorism. I would be happy to answer any questions 
you and the other members of the Committee have.

    The Chairman. Thank you very much, Secretary Green. We will 
try a 7-minute trial run today for our questioning. Let me 
begin by starting my 7 minutes. I just compliment both of you 
and the Department on this remarkable book, ``Inside a United 
States Embassy.''
    I have just briefly been acquainted with the book, but I am 
fascinated by the contents, and I think that not only members 
of the committee but all Americans will be deeply interested in 
this, because clearly the case we are trying to make--both you 
as officials of our State Department and American diplomacy and 
Senators who have a deep interest in the success of that 
diplomacy--are enhanced when a very broad number of Americans 
have some idea of what you do, what the Department does.
    For example, in this book, a consular officer--you have 
just addressed this situation, Under Secretary Green, in 
Manila--but likewise there is a picture of an American in Panay 
City jail in Manila, and a consular official is trying to help 
this individual get out of jail.
    This an example of the nitty gritty affairs that occur 
sometimes to innocent Americans, and sometimes to Americans who 
are not so innocent in various countries. We simply take for 
granted that there is a presence of our country there to try to 
make certain that the rights and privileges of Americans and 
their personal safety, those of their families, and those of 
their businesses and affairs, are taken care of.
    Now, the people who are taking care of it are often 
consular officials, people on the embassy staffs. The book goes 
on to point out all the services that are offered, the 
information-gleaning that you have mentioned today, as well as 
the information-sharing with other governments, the financial 
expertise, clearly the ceremonial work, which is high profile 
and which most of us recognize.
    But, in fact, as we take a look at Korea--and we have been 
talking about the Korean Peninsula a lot in this committee, 
some of you have pointed out that in addition to 37,000 
American Armed Forces in South Korea presently, on any one day 
there are probably well over 100,000 Americans in other 
capacities, many of them in the Seoul capital area under the 
same potential guns and fire that we describe with regard to 
the Armed Forces, and that is not a happenstance.
    Americans are active abroad as students, as business 
people, as tourists, as persons heavily involved in the 
cultures of other nations, and we take for granted that 
somebody--the State Department--looks after all of them, and 
they do, and this book is an excellent business in terms of the 
detailed work of individual Foreign Service officers.
    Now, second, I am pleased with the report you have made 
with regard to the hardship post issues that we have raised. 
You could argue, and you have not, that this did not happen on 
your watch, but nevertheless for several years, as we heard 
Secretary Powell testify, there were no Foreign Service exams 
taken by anybody. It is inconceivable in our Armed Forces that 
for several years there would be no second lieutenants 
commissioned, no continuity with regard to the service. How in 
the world we anticipated that things were going to work in our 
diplomatic corps with that kind of a gap, I do not know, but 
nevertheless we are here picking up the pieces.
    Now, having said that, it is important we pick them up 
quickly and you are taking steps to do that, and trying to make 
sure that not only is the training enhanced for those people, 
often young people who are there and may not have all the 
requirements right now, but some of the senior people likewise 
are pitching in, serving terms in unpleasant places.
    They were not chosen, particularly, but nevertheless they 
are a necessity. Under the security problems that our country 
has experienced, their presence there is required, and so I 
appreciate that, and this is something I hope you will offer us 
more detail on as you have an opportunity to complete our 
record of where things stand now, because as benchmarks we will 
continue to want to look at this.
    Now, I do not want in this short period of time to get into 
all of the argument as to budget, but essentially my general 
view is that the Department at some point, as I sort of totaled 
up the whole score, asked for about $3 billion more than it 
appears in the budget debate we are about to have that the 
Department is likely to get, without there being changes. The 
Budget Committee would appear to have taken, first of all, the 
official administration budget that came out of OMB, and that 
really upgraded things by about $1 billion, and the Budget 
Committee, it appears to me, has sheared the billion off.
    So to retrace the bidding as I see it, the State Department 
identified about $3 billion. A billion of that disappeared by 
the time it came out of the administration as a whole, or it 
went down from three to one. In the budget consideration at 
least in the Senate, the one has disappeared.
    Now, this is significant, and we are about to have hearings 
again on what to do in funding the Millennium Challenge 
Account, which you have mentioned in your testimony, as well as 
the HIV/AIDS account, which you have also mentioned in your 
testimony. These are accounts which, quite frankly, given the 
budget situation as I perceive it in the Budget Committee, are 
very likely to be given pretty short shrift. I do not know 
where the money comes, except for displacement of other vital 
things that are occurring out in the field or elsewhere in the 
State Department, and these are not the only accounts that I 
think are under some jeopardy.
    Now, I mention this because I personally, or this 
committee, really, may need to try to offer an amendment during 
this debate. It is not an easy thing to do, because you have a 
60-vote requirement as a rule, given the parliamentary 
procedure, to change this situation, but I would say that I 
need your help. We are going to need some testimony very 
rapidly, if this deletion on the Senate side is to be remedied.
    Now, I suspect--and this is really reaching ahead, but I am 
told, reliably, that there will be a supplemental 
appropriations bill coming along in the event hostilities occur 
in Iraq. I suppose in a parliamentary way it is possible for me 
or for other Senators to offer amendments during the 
supplemental appropriations which ostensibly are to support 
military action, the type of thing our Department of Defense 
may require. But the case that we are trying to make today is 
clearly that the money required for diplomacy throughout this 
period and for reconstruction of Iraq afterwards is extremely 
important in terms of our national security and our overall 
success.
    So in one form or another it appears to me that we are 
going to need to identify funds fairly rapidly, or various 
programs are rapidly going by the wayside in the fiscal year 
that commences October 1. This is no news, I am sure, to either 
one of you, and so I do not really have a question, precisely. 
I have a plea, and that is, help us. That is one purpose of 
having this timely hearing this morning. It comes really as we 
get into both the budget defense in a formal sense and 
conceivably a supplemental appropriation debate that may follow 
shortly.
    Do either of you have a quick comment? If not, I 
understand, but if you do, please testify.
    Mr. Grossman. Mr. Chairman, thank you very much. Just so we 
get the record straight, I appreciate what you say about the 
book. So that credit goes where credit belongs, this book was 
put out by the American Foreign Service Association, our 
professional association. We, just as you did, thought it was 
an excellent contribution, and we are trying to do as much as 
we can to publicize it, but I want you to know that it is their 
book. They got a lot of people to contribute to it, and I 
really congratulate them for the same reasons that you 
mentioned.
    The Chairman. I hope all listeners at this hearing have 
seen the book and will want to read it.
    Mr. Grossman. That is exactly right. As you say, it is 
excellent, and I appreciate you mentioning it.
    If I might just say also, on the question of changes in 
diplomacy, Mr. Chairman, you all have helped us over the last 
couple of years and before, kind of think about new ways of 
doing business, and Under Secretary Green talked about the 
people and the security and the technology, but there is also a 
philosophical change that has to take place at the State 
Department and that is, moving from an organization that 
thought its job was to go out and report things and send them 
back to other people, to the job that is listed in this book, 
where people are doing active diplomacy on behalf of Americans 
every single day, and so we are also making that transition 
from what I would call the more passive institution of the past 
to a more active institution as it is today.
    The two points that you raise on the budget. We are here to 
support the President's budget. That is our job. That is what 
we believe in. But I would say to the points that you raise 
specifically, sir, first, I think the Millennium Challenge 
Account--and the reason I raised it in my testimony--I think 
the Millennium Challenge Account is one of the most overlooked 
and yet most important initiatives to come over the last couple 
of years.
    The President's speech in Monterrey, Mexico, is worth 
rereading, because being able to increase the foreign affairs 
budget of the United States and tie it to performance in 
countries I think is a very big idea, and so that is why we 
came to the Congress with the President's request, and second, 
again to connect the issues of HIV/AIDS to the questions of 
terrorism, because if HIV/AIDS tears up countries and weakens 
them, and weakens their institutions, and makes it impossible 
for people to have economies, those people will be, or could be 
a haven for terrorism.
    So just as I said that human rights and terrorism are not 
two parts of a pole, that all of the things we are trying to do 
are part of an answer to the global war on terrorism, and I 
appreciate your comments, Mr. Chairman.
    The Chairman. Well, thank you very much. I think the 
committee knows that on Wednesday we are hopeful of having a 
markup of the HIV/AIDS legislation, and Senators on both sides 
of the aisle have worked very hard to fashion a bill that might 
have strong support in this committee and hopefully on the 
floor of the Senate. It is something that the President and 
Members of the Senate in both parties have been advocating. 
This is why the urgency with regard to the funding of it, which 
is sort of fundamental, and the other debate that we are having 
are rather a poignant experience for the moment.
    Senator Feingold.
    Senator Feingold. Thank you, Mr. Chairman, and I want to 
thank you and Senator Biden for holding this important hearing, 
and thank all the witnesses for being here today.
    As America stands on the cusp of war in Iraq, it is 
especially important to continue devoting our attention here to 
the fight against terrorism, a fight that should be our very 
first foreign policy priority. We cannot hope to win that fight 
without the commitment of others working in a broad coalition 
to deny terrorists safe havens and access to financing.
    The fact is that today, even as American military and 
economic might stand unchallenged around the world, we need the 
rest of the world more than ever before, and we desperately 
need what has been called by some our soft power, the 
compelling quality of our national values, the appeal of our 
ideals, our capacity for moral suasion. Our soft power was once 
unrivaled. If we watch it diminish without taking action, I 
think we have failed in our duty to the American people. To 
harness all of this power not only to defeat terrorists but 
also to move toward a vision of a better future and a more 
just, prosperous, and peaceful world, we will also need a 
strong and capable and innovative diplomatic service.
    Much of the hard work of the campaign against terrorism 
falls on the shoulders of the men and women of the State 
Department. They must build the partnerships, foster the trust, 
and coordinate the cooperation that is so crucial to the fight 
against terrorism. I have had the honor of personally 
witnessing this kind of incredible work, especially in Africa 
over the past 10 years, and I am so impressed with the people 
that serve us in these various posts. We are asking a great 
deal of them.
    This, Mr. Chairman, is an excellent opportunity to review 
the question of whether or not they have all of the tools that 
they need to succeed. I would like to ask the witnesses first a 
question concerning some of the work we did on the Africa 
subcommittee in the last Congress.
    Last year, the Subcommittee on African Affairs held a 
series of hearings examining weak States in the region, and 
trying to draw out the different ways that State weakness 
presents opportunities for international criminal activity, 
including terrorism. One of the primary conclusions I drew from 
the hearings was that long-term, sustained engagement is 
essential to make headway in places that have minimal control 
over their borders and also, of course, over transactions that 
may occur within those borders.
    Could you please describe for the committee the kinds of 
strategies that the Department is pursuing to increase the 
stability and capacity of weak States, and I mean this in 
general, not just Africa, but that is the place we study the 
most, obviously, under that committee.
    Secretary Grossman.
    Mr. Grossman. Yes, Senator, thanks very much, and first let 
me thank you very much for your comments that you made about 
the men and women who are serving abroad and serving at home, 
Foreign Service, Civil Service, and our very important Foreign 
Service national employees as well.
    I would also just wish to say that I believe, as you do, 
that we need, now, the most effective international coalition 
we can possibly get to pursue this war on terrorism, and I know 
that that is Secretary Powell's belief and the President's 
belief, and we will pursue those policies as well.
    In terms of what we are doing, as you say, not just in 
Africa but around the world, in terms of dealing with States 
that have these challenges, one is--again I go back to the 
answer I gave to Senator Lugar, is the Millennium Challenge 
Account. I think the Millennium Challenge Account would have a 
huge impact on countries in Africa, some countries in Latin 
America, and countries in Asia.
    The second thing I would say, Senator, is that we have 
worked very hard with the Congress to promote the kind of 
trade, and free trade that is necessary so that people in those 
countries can have jobs, so I am very supportive, for example, 
of the African Growth and Opportunities Act [AGOA], and if you 
take a look at the kinds of anecdotal evidence about how people 
have taken advantage of AGOA and created jobs, and created new 
communities and are exporting to the United States.
    I would say also the Andean Trade Preferences Act is 
exactly the same category. If we expect people to do things 
that are good for them and good for their communities, then we 
are going to need to import more from those countries.
    The other thing I would say, Senator, is that when you look 
at that what we are now carrying as the war on terrorism our 
assistance to frontline States, many of them, some of them in 
Africa, you can see--and I will be glad to give this to the 
committee--across a whole range of issues from child survival, 
development assistance, CSF, FMF, fighting terrorism, helping 
people in their peacekeeping operations, international 
development assistance, all across the board, I think we are 
trying to run a consolidated and serious policy to help 
countries meet the challenges that you say, particularly in 
Africa.
    We have got a level of resources in the 2004 request of 
about $1.6 billion and, as I say, it is an across-the-board 
effort to try to make these countries successful.
    Senator Feingold. Let me just follow on that for a minute, 
because I certainly respect what you say about trade and 
opportunities for trade with countries that are able to do 
that, and also the Millennium Challenge Account has great 
potential, but the countries we looked at at our hearings, the 
Somalias and Liberias, the Democratic Republic of Congo, 
frankly, these are countries that are not in great shape to 
benefit from these kinds of initiatives at this point because 
they have much greater preliminary problems, issues of border 
control, rule of law, financial control.
    What I am really getting at here is not the countries that 
are ready to do well under AGOA, or perhaps even to get the 
Millennium Account money, but countries that are in much more 
difficult straits, countries that we have referred to as 
``failed or weak States.'' I wonder if you could address what 
is being done in those countries, because I do think those are 
the ones that are open to greatest potential for terrorist 
activity and international criminal activity.
    Mr. Grossman. Yes, sir. First let me say that with the 
Millennium Challenge Account of course, there is a maximum 
gross national product income on Millennium Challenge Accounts. 
The Millennium Challenge Account is actually directed to the 
poorest countries, and maybe all countries will not be able to 
meet their requirements, but the idea that money from the MCA 
would somehow flow to countries that need to meet the kinds of 
requirements that you have laid out, border controls, better 
governance, more justice in their countries, I think actually 
there is a connection to be made there, and so I think the MCA 
for me is part of that effort.
    Senator Feingold. Let me ask you, are you saying that 
Somalia or Liberia in their current condition would have the 
possibility of being eligible under MCA?
    Mr. Grossman. No. It is a combination of their gross 
national products, their income levels, and also what they are 
doing to try to change their society, so I hope it would at 
least be an incentive.
    Senator Feingold. Well, I would suggest--and I know my time 
is up--I stand to be corrected. I would think these countries 
have other severe governance and other problems that would 
probably make them not very logical candidates for that help, 
so in future discussions I want to certainly get at the value 
of MCA and the value of AGOA and trade, but I think there are 
more fundamental problems of chaotic conditions in some of 
these countries. We need to have a real strategy, or we are 
going to end up with more and more venues for terrorist 
activity to be perpetrated not only in Africa but other places 
in the world, but I do appreciate your testimony today.
    Mr. Grossman. Thank you, sir.
    [The prepared statement of Senator Feingold follows:]

             Prepared Statement Senator Russell D. Feingold

    I want to thank Chairman Lugar and Senator Biden for holding this 
important hearing, and to thank all of the witnesses for being here 
today.
    As America stands on the threshold of a war in Iraq, it is 
especially important to continue devoting our attention here to the 
fight against terrorism--a fight that should be our very first foreign 
policy priority. We cannot hope to win that fight without the 
commitment of others, working in a broad coalition to deny terrorists 
safe havens and access to financing. The fact is that today, even as 
American military and economic might stand unchallenged around the 
globe, we need the rest of the world more than ever before. And we 
desperately need what has been called our ``soft power''--the 
compelling quality of our national values, the appeal of our ideals, 
our capacity for moral suasion. Our soft power was once unrivaled. If 
we watch it diminish without taking action, we will have failed in our 
duty to the American people.
    And to harness all of this power--not only to defeat terrorists, 
but also to move toward a vision of a better future and a more just, 
prosperous, and peaceful world--we also need a strong and capable and 
innovative diplomatic service. Much of the hard work of the campaign 
against terrorism falls on the shoulders of the men and women of the 
State Department. They must build the partnerships, foster the trust, 
and coordinate the cooperation that is so crucial to the fight against 
terrorism. We are asking a great deal of them, and this is an excellent 
opportunity to review the question of whether or not they have all of 
the tools that they need to succeed.

    The Chairman. Senator Hagel.
    Senator Hagel. Mr. Chairman, thank you.
    Gentlemen, welcome, and we are grateful for your efforts, 
your leadership, your good work, and please convey that to your 
colleagues as you return to the State Department. We appreciate 
especially your work at this complicated, dangerous time.
    Under Secretary Green, as you laid out in your testimony 
this morning, some of the advances and significant achievements 
that have been made over the last couple of years in our 
embassies as you laid them out in five different areas, 
beginning with people, with our war on terrorism, additional 
government representatives that have moved into our embassies 
around the world, FBI, CIA, Homeland Security, Commerce, other 
departments, what kind of pressure is that putting on our 
resources, physical pressure on our embassies, people 
pressures, logistics support pressures, if any?
    Mr. Green. Thank you, Senator Hagel. As you know, and as 
Under Secretary Grossman mentioned, our role overseas has 
changed dramatically. More than two-thirds, now, of U.S. direct 
hire personnel overseas are non-State people and we, as you 
know, go through a process of approving or disapproving 
additions to our overseas posts. We recognize that with the 
changes, the war on drugs, the health issues, economic issues, 
terrorism, that there will be demands on our overseas posts 
that are much different than what historically has happened. We 
attempt to accommodate those.
    There are occasions when an overseas post physically cannot 
accommodate those people, and the result is that we will not 
let them come. It also gets to the whole issue of right-sizing, 
not downsizing but right-sizing and, as the GAO has indicated 
in their recent report, we need to take a look at all of our 
overseas embassies to see what is right. There may be some 
shifts that need to be made among posts. There may need to be 
some that are downsized, and there may need to be some that 
need to be increased in size.
    Agencies who reside at our embassies and on our compounds 
do pay a certain administrative fee for being there, and that 
is done through a combined joint process at our posts called 
ICASs, and they have a council that agrees or disagrees with 
increasing the number of people and contributing toward their 
upkeep.
    The other thing that has just been proposed by us and at 
least accepted in concept by OMB was the cost-sharing I 
mentioned, and that is, as we build new embassies we are going 
to have to go to the tenants and ask them to contribute to the 
construction and the operations and subsequently to the 
operations and maintenance of those posts.
    It serves two purposes. One is that it is fair, but second, 
it makes other departments and agencies who may not consider 
the budget implications of having people overseas, it will 
focus their attention on that, so when you build a new embassy 
and a desk in an unclassified area is $22,000 and a classified 
area is about $34,000, hopefully it will make that Department 
or that agency think about the cost, not to mention the cost of 
maintaining a person overseas, which can be anywhere from 
$350,000 to $600,000 a year. It will make them think twice 
about how many people do I really need.
    Senator Hagel. Thank you. Obviously you have thought 
through this, and you have gotten to part of the core of my 
question as to why, because as you suggest, to develop ongoing 
relationships in these countries to fight terrorism, it is 
unfair to load the State Department budget up with all of this 
burden, and so any assistance you need from me--I cannot speak 
for any other members of this committee, but I certainly will 
help you and the Secretary in every way if you have a snag with 
that, because I can see more and more of your resources being 
drained away to other agencies, and we all are focused on the 
same objective, of course, but it is not fair to ask you to 
pick it all up. Thank you, Mr. Secretary.
    Secretary Grossman, as it appears we are going to war in 
Iraq in a matter of hours, if, in fact, we do go to war in Iraq 
with what appears to be a very limited coalition of other 
troops on the ground--right now I count the British and the 
Australians, and maybe there are others, or will be others, but 
what effect do you believe that a war without a United Nations 
resolution, without the legitimacy of the Security Council, 
might have on our efforts to continue to coordinate 
antiterrorism efforts within Muslim and Arab countries? Will it 
make any difference? Will they be less likely to cooperate, 
more likely to cooperate? I would be interested in your 
reflection on that.
    Mr. Grossman. Thank you, Senator Hagel.
    First, obviously, if the President decides--really it is 
now up to Saddam Hussein. If Saddam Hussein does not meet the 
requirement of getting out of Iraq in 48 hours, I actually 
believe, sir, that although we may have a limited number of 
people with us on the ground, there will, Senator Hagel, be 
quite a large number of people who will consider themselves 
part of this coalition, who will give overflight rights, or 
basing rights, or other support, so I do not think that we are 
going to be alone in this, and I hope that the committee and 
the American people will also recognize that a large number of 
people are going to stand up and be for this, and I think that 
is a plus, sir.
    Second, although obviously we worked hard and we would have 
liked to have had a second U.N. Security Council resolution 
because it would have been politically useful, I think the 
legality here and legitimacy of our action really is beyond 
question, and that is that after 11 or 12 years of having 
Saddam Hussein ignore these resolutions, I think the United 
States has a right to act and I believe that, as people look at 
our case, especially after Resolution 1441, they will agree 
with that as well.
    Sir, I believe that success is going to be the most 
important determining factor here, and I believe that the men 
and women in uniform, if they have to go into combat, will be 
successful, they will be successful quickly, and I believe that 
that success will actually bring us more cooperation rather 
than less cooperation over time.
    I do not see, and I do not fear--perhaps Ambassador Black 
will have a different view, but I do not fear a falling-off of 
cooperation either in the Arab States, other Muslim States, or 
around the world, because I believe we will be successful and 
we will show that we can operate successfully against 
terrorism, and people ought to be a part of that team.
    Senator Hagel. Thank you.
    The Chairman. Thank you very much. Senator Hagel.
    Senator Chafee.
    Senator Chafee. Thank you very much, Mr. Chairman. I am 
interested in the integration of the new homeland security law 
into the work that you do, and from what I understand, it is 
contemplated that the homeland security will encourage more 
coordination between the work the embassies do and domestic 
protection, and that the law authorizes Secretary Ridge to 
assign employees of Homeland Security to embassies and 
consulates, and directs Secretary Ridge and Secretary Powell to 
come up with some kind of a memorandum of understanding [MOU] 
in that direction. How is that proceeding?
    Mr. Green. Thank you, Senator Chafee. We have since the 
announcement of the Homeland Security Act been deeply involved 
as the Department began to stand itself up, deeply involved in 
the coordination of that effort. We established an office 
reporting directly to the Deputy Secretary that facilitated and 
ensured that kind of coordination.
    We are now beginning to transition to a more regularized 
process so that our Department coordinates and will continue to 
coordinate with the Department of Homeland Security the way we 
coordinate with the Department of Defense or any other 
Department.
    The bureaus within the State Department, counterterrorism, 
diplomatic security, and consular affairs, which are the three 
that have the most interface with the Department of Homeland 
Security are on a constant and regular basis contacting their 
counterparts in that Department.
    The MOU that you mentioned is in the process of being 
worked and coordinated between the two Departments. As you 
know, the Secretary of Homeland Security does have oversight 
responsibility over consular officers and visa adjudications 
through the Secretary of State, and that will be part of the 
MOU that is being worked as we speak.
    Senator Chafee. Thank you very much. That is all the 
questions I have.
    The Chairman. Senator Hagel, do you have any further 
questions of our witnesses?
    Senator Hagel. With the second panel, Mr. Chairman. I would 
wait and direct my questions to Ambassador Black.
    The Chairman. Very well. We thank both of you for your 
timely appearance today and for the great support you have 
given the Department, and likewise the efforts of our 
committee. We look forward to working closely with you.
    Mr. Green. Thank you for your support, sir.
    Mr. Grossman. Thank you, Mr. Chairman.
    The Chairman. The Chair now calls our second panel forward, 
and that panel will be composed of Hon. J. Cofer Black, 
Coordinator for Counterterrorism, Department of State, 
Washington, DC; Mr. John Pistole, Deputy Director of the 
Counterintelligence Unit, Federal Bureau of Investigation, 
Washington, DC; and Juan C. Zarate, Deputy Assistant Secretary, 
Executive Office for Terrorist Financing and Financial Crimes, 
Department of the Treasury in Washington, DC. Gentlemen, we 
welcome you.
    Let me just make a short announcement for Senators and for 
all who are witnessing the hearing. A rollcall vote of the 
Senate will occur at 12 noon. It would appear, however, we will 
have ample time for the full testimony of our witnesses and 
questioning by Senators of the witnesses, but I mention that 
timeframe because it will be on the minds of some as we 
approach the noon hour.
    I will ask you to testify in the order I introduced you, 
and that would be first of all, Mr. Black. All of your full 
statements will be included in the record, so you need not ask 
for permission to do that, and please proceed and summarize as 
you wish. Mr. Black.

       STATEMENT OF HON. J. COFER BLACK, COORDINATOR FOR 
     COUNTERTERRORISM, DEPARTMENT OF STATE, WASHINGTON, DC

    Ambassador Black. Mr. Chairman, Senator Biden, committee 
members, I appreciate your invitation to testify on the State 
Department's role in coordinating the non-military war against 
terrorism overseas. I also want to express my thanks to you and 
members of the committee for recognizing the very crucial role 
our embassies play in combating terrorism.
    Mr. Chairman, I am also honored to be here with Mr. John 
Pistole from the FBI and Mr. Juan Zarate from the Treasury 
Department. While I endeavor to avoid covering the same ground 
as Under Secretaries Grossman and Green in the previous panel, 
one cannot overemphasize the importance of our diplomatic 
efforts in the global war on terrorism. Terrorists and their 
organizations cannot be defeated through force of arms alone, 
as Secretary Powell has stated. Diplomacy constitutes this 
Nation's first line of defense, and also one of the most potent 
offensive weapons in the war on terrorism. Diplomacy is the 
instrument of power that builds the political will and 
strengthens international cooperation. Diplomacy helps us to 
take the war to the terrorists, to cutoff the resources they 
need and depend upon to survive.
    I want to make clear at the outset of my remarks that the 
State Department, our embassies and consulates abroad certainly 
are not alone in carrying out this important work. Many other 
Federal agencies, particularly the ones represented by those 
seated next to me, for example, have critical missions in this 
regard. However, as the lead foreign affairs agency, the 
Department of State through my office serves as a statutorily 
appointed coordinator and overall clearinghouse for the wide 
span of counterterrorism activities conducted overseas by the 
U.S. Government.
    As you might imagine, the job of coordinating such a large 
interagency and international effort is a great challenge. It 
is a challenge because of the growth of counterterrorism 
initiatives and programs since 9/11. It is a challenge because 
of the evolving terrorist threat and the shifting international 
environment that, for example, is being effected today by 
Iraq's continued intransigence to disarm, and its support of 
and potential future support for, enhanced support for 
international terrorism. Finally, there is the challenge of 
undertaking these expanded responsibilities in the face of 
limited resources.
    In all of these efforts, our embassies and consulates play 
a critical role. Let me briefly describe our ongoing efforts in 
this context. Since 9/11, we have methodically taken the battle 
against terrorism to the international front lines. Our 
embassies and consulates are serving us well.
    Over my career in international affairs, and at times being 
a part of that diplomatic front line, I have developed much 
admiration and respect for the men and women who serve at our 
missions overseas. In the face of especially grave threats 
today, they continue to serve with great professionalism and 
bravery. Indeed, they are the backbone to our overseas 
counterterrorism efforts. It is this diplomatic readiness, to 
use Secretary Powell's phrase, that is vital to our ability to 
fight terrorism.
    It is an important function of my office and staff to 
support this frontline effort. Since assuming the coordinator's 
job 3 months ago, I have traveled to Russia, China, Japan, 
Israel, Jordan, Saudi Arabia, the U.K. and the triborder region 
of South America. In doing so, I can say unequivocally that our 
chiefs of mission and the country teams are invaluable 
resources. They are both leading and supporting our efforts to 
promote and achieve our counterterrorism agenda in their 
respective host countries and regions.
    Our embassies also help to facilitate efforts to cutoff 
support to terrorists through supporting our counterterrorist 
programs. Just a few days ago, my staff joined an interagency 
team that went to Manila to successfully assist the Government 
of the Philippines in adopting the financial controls vital to 
denying terrorists access to funding and, in doing so, brought 
the Philippines into compliance with international standards.
    My staff in similar Washington-based interagency teams, 
joining our country teams overseas, are helping many other 
frontline States in this and in other ways. Our embassies and 
consulates also provide critical information on terrorist 
organizations. Such information serves as the foundation of our 
imposing legal and administrative sanctions against such 
organizations. The Secretary of State formally has designated 
36 foreign terrorist organizations. Among other consequences, 
U.S. persons are prohibited from knowingly providing any 
designated organization with financial and other forms of 
material support.
    We have also designated more than 250 terrorist individuals 
and entities under Executive Order 13324 on terrorist financing 
and other applicable U.N. Security Council resolutions. This 
has resulted in the worldwide seizure of more than $120 
million.
    Regarding training, U.S. embassies and consulates are also 
working with us to train and equip frontline States to fight 
terrorists within and around their borders. Our antiterrorism 
assistance, usually referred to as the ATA program, is 
providing training to 56 countries through 180 courses during 
fiscal year 2003, and plans to step up its training efforts in 
fiscal year 2004. We are working with 37 countries through our 
Terrorist Interdiction Program, called TIP, to evaluate, 
establish, and improve the border-monitoring capabilities. 
These and other programs are described in further detail in the 
written statement accompanying this testimony.
    To diminish the underlying conditions that terrorists 
exploit, we are coordinating our assistance programs to 
complement our counterterrorism interests. Our public affairs 
programs actively disseminate information that accurately 
portray our policies and promote our democratic values. Our 
embassies play a vital role in this respect as well, advising 
us on our international assistance programs and actively 
fostering greater understanding of the United States through a 
wide spectrum of public affairs and exchange programs. While 
these are successes, you have asked me to comment on the 
obstacles we face and ways in which they have been or can be 
overcome.
    Quite frankly, one of the largest challenges is connecting 
the resources in a timely and effective manner, to our 
operational and program needs. While we are deeply grateful for 
the support of the Congress that was provided to our 
counterterrorism programs, delays in the enactment of 
appropriations have repercussions on our operations. I would 
defer to the Department's financial specialists on proposing a 
solution. However, clearly, there are problems that arise from 
having only a half-year to utilize funds that were originally 
intended to be expended over a full year period.
    The administration is also reviewing the requirement in 
current law regarding the designations of terrorist 
organizations and individuals every 2 years. The designations 
of foreign terrorist organizations, or FTOs, expires after 2 
years unless renewed. This year, 29 groups are up for 
redesignation, taking valuable staff resources away from 
pressing counterterrorism work. We, therefore, are preparing 
draft legislation to amend the FTO statute and make it less 
administratively onerous.
    Overseas, we face a number of obstacles. We have scored 
some notable recent successes, including the March 1 arrest by 
Pakistani authorities and others of Khalid Shaikh Mohammed, a 
ranking al-Qaeda leader, through close cooperation and 
coordination with the Pakistani authorities. However, al-Qaeda 
and other terrorist groups continue to pose a grave threat to 
the United States and our allies. Your continued support for 
our capacity-building programs will help. While the dividends 
of such investment may not be completely apparent, we must 
think of our global war on terrorism as a long-term fight, as 
was the case in the cold war.
    Research and development: we must also continue our 
counterterrorism R&D efforts. I would like to especially 
mention the work of our interagency Technical Support Working 
Group, led by my office, that is developing new technologies to 
protect us against terrorist attacks.
    I have with me, as an example, a product of direct 
relevance to the Congress. This is the ``Quick 2000'' mask. 
This is one of the masks distributed to Members and staff. The 
Technical Support Working Group was instrumental in guiding its 
development.
    Another product of this R&D group is a specially designed 
card that will alert the wearer to the presence of radioactive 
materials. This unit essentially, Mr. Chairman, takes the needs 
of the frontline warriors in counterterrorism, is in contact 
with private sector companies, and is able to quickly, rapidly 
prototype and provide products into the hands of our frontline 
responders. As an example, this card replaces an item that was 
very heavy, very bulky, and it will be made available even to 
the private sector customers for $3 each.
    Let me conclude by saying that the key to fighting 
terrorism is a sustained effort that can be achieved only 
through sustained resources. It is not just al-Qaeda that 
threatens our citizens and interests, but other terrorist 
organizations and supporters, including the State sponsors of 
terrorism. To defeat this threat requires our full attention, 
both here in Washington and abroad, and your continued support 
to our embassies and interagency community involved in fighting 
terrorism is absolutely vital, Mr. Chairman.
    Thank you for allowing me to present my testimony. I look 
forward to your questions at any time.
    [The prepared statement of Ambassador Black follows:]

   Prepared Statement of Ambassador J. Cofer Black, Coordinator for 
                 Counterterrorism, Department of State

    Mr. Chairman, Senator Biden, Committee Members:
    I appreciate your invitation to testify on the State Department's 
role in coordinating the non-military war against terrorism overseas. I 
also want to express thanks to you and members of the committee for 
recognizing the crucial role our embassies play in combating terrorism.
    Mr. Chairman, while I will endeavor to avoid covering the same 
ground as Under Secretaries Grossman and Green in the previous panel, 
one cannot overemphasize the importance of our diplomatic efforts in 
the Global War on Terrorism. Terrorists and their organizations cannot 
be defeated through force of arms alone. As Secretary Powell has 
stated, diplomacy constitutes this nation's first line of defense and 
also one of our most potent offensive weapons in the war on terrorism.
    Diplomacy is the instrument of power that builds political will and 
strengthens international cooperation. Through diplomatic exchanges we 
promote counterterrorism cooperation with friendly nations that serves 
our mutual interests. We build capacity that bolsters the capabilities 
of our allies. Diplomacy helps us take the war to the terrorists, to 
cut off the resources they need and depend upon to survive.
    I want to make clear at the outset of my remarks that the State 
Department and our embassies and consulates abroad certainly are not 
alone in carrying out this important mission. The Departments of 
Justice, Treasury, Homeland Security, Defense, CIA and many other 
federal agencies have critical missions in this regard. However, as the 
lead foreign affairs agency, the Department of State--through my 
office--serves as the statutorily appointed coordinator and overall 
clearinghouse for the wide span of counterterrorism activities 
conducted overseas by the United States Government.
    As you might imagine, the job of coordinating such a large 
interagency--and international--effort is a great challenge. It is a 
challenge because of the growth of counterterrorism initiatives and 
programs since 9/11. It is a challenge because of the evolving 
terrorist threat and the shifting international environment that, for 
example, is being affected today by Iraq's continued intransigence to 
disarm and its support of and potential future support for 
international terrorism. Finally, there is the challenge of undertaking 
these expanded responsibilities in the face of limited resources.
    In all of these efforts, our embassies and consulates play a 
critical role. Let me briefly describe our ongoing efforts in this 
context.

                           EMBASSY ACTIVITIES

    Since 9/11, we have methodically taken the battle against terrorism 
to the international front lines. Our ambassadors and the staff members 
of our embassies and consulates, drawn not just from State but also 
from other federal agencies, are serving us well. Over my career in 
international affairs and now being a part of that diplomatic front 
line, I have much admiration and respect for the men and women who 
serve at our missions overseas. In the face of especially grave threats 
today, they continue to serve with great professionalism and bravery. 
Indeed, they are the backbone to our overseas counterterrorist efforts. 
It is this ``diplomatic readiness,'' to use Secretary Powell's phrase, 
that is vital to our ability to fight terrorism.
    Our embassies are our direct conduits to the governments of other 
nations. They facilitate our efforts to disrupt terrorist networks and 
to apprehend terrorist individuals. The ambassador, his or her deputy, 
and other members of the country team, including representatives from 
other agencies, are all instrumental in developing and maintaining good 
working relations with the host country and pursuing our 
counterterrorism objectives.
    It is an important function of my office and staff to support this 
front line effort. Since assuming the Coordinator's job three months 
ago, I have traveled to Russia, China, Japan, Israel, Jordan, Saudi 
Arabia, and the Tri-Border region of South America. In doing so, I can 
say unequivocally that our Chiefs of Mission and their country teams 
are invaluable resources. They are both leading and supporting our 
efforts to promote and achieve our counterterrorism agenda in their 
respective host countries and regions.
    Our embassies also help to facilitate efforts to cut off support to 
terrorists through supporting our CT programs. Just a few days ago, my 
staff joined an interagency team that went to Manila to successfully 
assist the Government of the Philippines in adopting financial controls 
vital to denying terrorists access to funding and in so doing brought 
the Philippines into compliance with international standards. My staff 
and similar Washington-based interagency teams, joining our country 
teams overseas, are helping many other front-line states to evaluate 
their financial systems, identify vulnerabilities, and develop 
counterterrorism finance training programs.
    Our embassies and consulates also provide critical information on 
terrorist organizations. Such information serves as the basis for our 
imposing legal and administrative sanctions against such organizations. 
The Secretary of State currently has designated 36 foreign terrorist 
organizations. Among other consequences of such designations, U.S. 
persons are prohibited from knowingly providing any designated 
organization with financial and other forms of material support. 
Working with the Departments of Treasury and Justice, and with other 
countries, the State Department has also designated more than 250 
individuals and entities linked to terrorism under Executive Order 
13324 and under applicable UN Security Council Resolutions, resulting 
in the worldwide seizure of more than $120 million.

                                TRAINING

    U.S. embassies and consulates also are working with us to train and 
equip frontline states to fight terrorists within and around their 
borders. Our Antiterrorism Assistance (ATA) program is providing 
training to 56 countries through 180 courses during FY 2003 and hopes 
to step up its training efforts in FY 2004. We are working with 37 
countries through our Terrorist Interdiction Program (TIP) to evaluate, 
establish and improve border-monitoring capabilities.
    These and other programs are described in further detail in an 
accompanying written statement to this testimony.
    To diminish the underlying conditions that terrorists exploit, we 
are coordinating our assistance programs to dovetail them with our 
counterterrorism interests. My staff recently met with AID officials to 
discuss ways to deepen this coordination. Our public affairs programs 
actively disseminate information overseas that accurately portrays our 
policies and promotes our democratic values. Our embassies play a vital 
role here as well, advising us on our international assistance programs 
and actively fostering greater understanding of the United States 
through a wide spectrum of public affairs and exchange programs.
    While these are successes, you have also asked me to comment on the 
obstacles we face and ways in which they have been or can be overcome.

                               OBSTACLES

    Quite frankly, one of the biggest challenges is connecting the 
resources to our operational and program needs in a timely and 
effective manner. While we are deeply grateful for the support that the 
Congress has provided to our counterterrorism programs, delays in the 
enactment of appropriations have repercussions on our operations. I 
would defer to the Department's budget specialists on proposing a 
solution. However, clearly, there are difficulties that arise from 
having only a half-year to utilize funds for programs that were 
originally intended to expend such funding over a full year period.
    The Administration is also reviewing the requirement in current law 
regarding designations of terrorist organizations and individuals every 
two years. Under a law first enacted in 1996, the designation of a 
Foreign Terrorist Organization (FTO) expires after two years unless 
renewed, even if there is little or no change in the activities of 
these designated groups. This year, 29 groups are up for redesignation. 
The task of drafting new administrative records every two years to 
support a determination to redesignate FTOs is labor intensive and 
unnecessary in most cases. Resources needed for redesignations could be 
better used for other important counterterrorism duties, including 
monitoring and designating new groups as appropriate. We are preparing 
draft legislation to amend the FTO statute and make it less 
administratively onerous.
    Overseas, we face a number of obstacles. We have scored some 
notable recent successes, including the March 1 arrest by Pakistani 
authorities of Khalid Shaikh Mohammed, a ranking al-Qaida leader, 
through close cooperation and coordination with Pakistani authorities. 
However, al-Qaida and other terrorist networks continue to pose a grave 
threat to the United States and our allies. There are no easy 
solutions. In addition to our ongoing real-time operations, we must 
continue to provide frontline countries the training and assistance 
needed to support their counterterrorism efforts. Your continued 
support for our capacity-building programs will help. While the 
dividends of such investment may not be immediately apparent, we must 
think of our global war on terrorism as a long-term fight that may take 
years or, indeed, decades, as was the case with the Cold War.

                         RESEARCH & DEVELOPMENT

    We must also continue our counterterrorism R&D efforts. On this, 
I'd like to especially mention the work of the interagency Technical 
Support Working Group (TSWG), led by my office, that is developing new 
technologies to protect us against terrorist attacks. I am holding up 
two TSWG products of direct relevance to this Congress. The ``Quick 
2000'' mask is the one distributed to Members and staff. The TSWG 
guided its development. Another product of this R&D group is a 
specially designed card that will alert the wearer to the presence of 
radioactive materials.
    Mr. Chairman, let me conclude by saying that the key to fighting 
terrorism is sustained effort. That can be achieved only through 
sustained resources. It is not just al-Qaida that threatens our 
citizens and interests but other terrorist organizations and their 
supporters, including state sponsors of terrorism. To defeat this 
threat requires our full attention both here in Washington and abroad. 
To win, your continued support to our embassies and the interagency 
community involved in fighting terrorism is vital.
    Thank you for the opportunity to testify and I would be glad to 
answer any questions.
                                 ______
                                 

               State Department Counterterrorism Programs

    Terrorist Finance Programs. This is a core function of S/CT. We 
seek to interrupt and deny the flow of funds going to terrorists and 
their operations and to strengthen the financial and regulatory sectors 
of vulnerable coalition partners against manipulation and penetration 
by the financiers of terror.
    The groundwork for our counterterrorism finance offensive was 
actually laid many years before 9/11, with provisions that the State 
Department proposed and the Congress enacted as part of the 
Antiterrorism and Effective Death Penalty Act of 1996. The Act 
authorizes the Secretary of State, in consultation with the Attorney 
General and the Secretary of Treasury, to designate Foreign Terrorist 
Organizations (FTOs). Among other provisions, the Act prohibits U.S. 
persons and persons subject to the jurisdiction of the United States 
from knowingly providing material support or resources to an FTO, or 
attempt or conspire to do so. Among other consequences of a 
designation, any financial institution that becomes aware that it has 
possession of or control over funds of a designated FTO must retain 
possession of or control over the funds and report the funds to the 
Treasury Department's Office of the Foreign Assets Control (OFAC). 
Currently 36 groups are designated.
    Following September 11, the President signed Executive Order 13224, 
which requires U.S. persons to freeze the assets of individuals and 
entities designated under this E.O. for their support of terrorism. 
There are currently over 250 individuals and entities designated under 
E.O. 13224. The White House also established an interagency mechanism 
to coordinate terrorist financing policy among USG agencies. Each 
embassy has identified a Terrorism Finance Coordination Officer to lead 
the effort to work with the host governments to detect, disrupt and 
deter terrorist financing. Internationally, the UN has also stepped up 
its own efforts in the area of fighting terrorist financing in a major 
way following September 11, requiring countries to freeze the assets of 
those included in its consolidated list of entities and individuals 
with ties to al-Qaida and the Taliban. This list continues to expand as 
countries join us in submitting new names of individuals and entities 
linked to al-Qaida to the UN. So far, USG and coalition freezing 
actions have netted over $120 million in assets of persons or entities 
with ties to terrorist networks, and in many cases to al-Qaida.
    We are working with the Financial Action Task Force (FATF)--a 31-
member organization that sets international standards to combat money 
laundering and more recently to combat terrorist financing. Last month 
the FATF elaborated on two of its earlier recommendations on terrorist 
financing to make the use of cross-border wire transfers and 
alternative remittance systems (such as hawalas) more transparent, and 
less subject to exploitation by terrorist groups. On the bilateral 
front, interagency teams led by the State Department are traveling to 
states critical to our counterterrorism efforts to evaluate their 
financial systems, identify vulnerabilities, and develop and implement 
comprehensive counterterrorism financing training and technical 
assistance programs.
    CT Finance Capacity Building programs are coordinated by S/CT and 
administered through State/INL (The Bureau for International Narcotics 
and Law Enforcement Affairs) and counterpart entities at the 
Departments of Justice, Treasury, and Homeland Security. These programs 
are aimed at providing front-line states with technical assistance in 
drafting anti-terrorist financing legislation, and training for bank 
regulators, investigators, and prosecutors to identify and combat 
financial crime, particularly terrorist financing. (For FY 2004, the 
budget request includes $3.5 million.)

    Antiterrorism Training Assistance (ATA). This program was among the 
first specific counterterrorism programs funded at State, first 
authorized in late 1983. It continues to serve as the primary provider 
of U.S. Government antiterrorism training and equipment to the law 
enforcement agencies of friendly countries needing assistance in the 
war against terrorism. S/CT provides policy guidance and funding to the 
Bureau of Diplomatic Security Office of Antiterrorism Assistance, which 
implements the program.
    The program provides a wide range of courses to strengthen the 
capacities of recipient countries. The training includes traditional 
courses such as hostage negotiations, bomb detection and airport 
security. In recent years, ATA has developed new courses for countering 
terrorism financing and defeating cyber-terrorism. It also has provided 
a series of seven seminars to help other countries strengthen their 
counterterrorism legislation. The Department works of course with the 
US embassy officers, especially the Regional Security Officers, in 
developing the training package to meet the recipient country's needs. 
In FY 2003, we are scheduling 180 courses for 56 countries.
    (For FY 2004, the Department is requesting $106.4 million to meet 
the program's growing requirements in the NADR account of the Foreign 
Appropriations Bill. Of this amount, $19.4 million is specifically 
requested for programs in Afghanistan, Pakistan and Indonesia.)

    CT R&D. The State Department, through S/CT, co-chairs the inter-
agency Technical Support Working Group (TSWG) that rapidly develops and 
prototypes counterterrorism technologies to provide protections against 
terrorist attacks. For example, the ``Quick 2000'' masks that have been 
distributed to members of Congress and staff were evaluated, modified 
and improved based on a testing protocol developed by the TSWG.
    This has been a very successful and important program. S/CT 
provides policy oversight, managerial direction and helps provide core 
funding. The Defense Department executes the program, and provides 
technical oversight for the program and contributes the larger share of 
the funding. Recently, the State Department reached agreement with the 
new Department of Homeland Security to facilitate DHS participation in 
the TSWG and to contribute funding.
    S/CT has been able to leverage the relatively small State 
Department contribution to develop matching contributions and joint 
research with international partners in Britain, Canada and Israel. (FY 
2004 request: $1.8 million.)

    Terrorist Interdiction Program (TIP). TIP aims at bolstering the 
border security of countries at a high risk of terrorist transit. 
Through this program, priority countries are provided a sophisticated 
database system and related support that identifies and tracks 
suspected terrorists as they enter and exit these countries. The 
program uses a sophisticated data base system with high-speed 
connections to airports or border crossing points. The program provides 
computer hardware, database software and training and is currently 
being deployed in five countries and is scheduled for deployment in 
twelve more countries this calendar year. Arrests and detentions have 
occurred in all five countries where the system has been deployed.
    (FY 2004 request: $11 million for installations in up to 12 new 
countries and continued work and maintenance on previous 
installations.)

    CT Senior Policy Workshops. These workshops aim at improving the 
capability of participating countries to effectively respond to Weapons 
of Mass Destruction and other forms of terrorist attack. The objective 
is to increase senior host nation officials' awareness of the 
complexities of preventing and effectively mitigating a major terrorist 
attack. Ten workshops are planned for FY 04, with three in Greece to 
help preparations for the 2004 Olympics.
    While the focus of these workshops is to effectively respond to WMD 
terrorist incidents overseas, some are customized to address host 
government needs based on their perceived threat. For example, 
workshops were used in the Caspian Sea as the first phase of the 
Training and Assistance offered to Azerbaijan, Georgia, and Turkey to 
further facilitate the success of the Baku-Tbilisi-Ceyhan Gas and Oil 
Pipeline in responding to energy threats. In partnership with the 
Department of Energy, we are currently conducting Workshops in Central 
Asia (Kazakhstan) in response to their energy security threats and to 
effectively respond to nuclear materials discovered following the 
break-up of the Soviet Union.
    (FY 2004 request: $2.5 million in NADR funds to conduct 10 
Workshops.)

    Foreign Emergency Support Team (FEST). As the lead Federal agency 
to respond to an international terrorist-related crisis, the Department 
of State heads the FEST. The FEST provides a specially trained and 
equipped interagency team to assist the U.S. ambassador and a host 
government in dealing with a terrorist incident. The team can provide 
advice, assistance and assessments for the embassy on a variety of 
terrorism-related issues. The composition of the FEST varies, depending 
on the nature of the incident (such as a hostage situation, an embassy 
bombing, or a chemical, biological, radiological, or nuclear (CBRN) 
incident). The team is led by a senior State Department officer and 
includes additional State Department personnel, such as operations 
officers, communications experts, and diplomatic security agents.
    A dedicated aircraft, which is specially configured and carries up 
to 55 persons, is operated by the Department of Defense and is on a 
four-hour standby. Smaller teams can be deployed by other means as 
required.
    (No program increases are requested in the FY 04 request.)

    Exercises, TOPOFF. The Department of State plans and coordinates 
the international dimension of the domestic (U.S.) Top Officials 
exercise (TOPOFF). This series of exercises was designed to test and 
improve the nation's domestic readiness for responding to terrorist 
incidents involving Chemical, Biological, Radiological, and Nuclear 
(CBRN) agents or devices. The current TOPOFF exercise, TOPOFF 2, is co-
sponsored by the Department of States and the Department of Homeland 
Security. It is a series of events that started in the spring of 2002 
and culminates with the full-scale exercise in May 2003. TOPOFF 2 
involves active participation by the Government of Canada in all 
aspects of the exercise.
    S/CT also takes part in two or three Theater Commander's 
Counterterrorism exercises each year. These full-scale exercises 
require a year of preparation and normally include representatives from 
the various agencies that participate in the FEST. The exercises ensure 
continued inter-operability and provide an opportunity to improve 
capabilities. S/CT leads the interagency effort and participates in all 
the planning activities. Most of the scenarios are complex and include 
such serious threats as chemical, biological, nuclear and cyber 
terrorism.
    (No program increases are requested in the FY 04 request.)

    Rewards for Justice Program. The State Department's Rewards for 
Justice program is an important tool for helping deter terrorist 
attacks and apprehend suspects. In general, this program offers rewards 
of up to $5 million for information leading to an arrest or conviction 
of any individual for conspiring, aiding, abetting or committing an act 
of international terrorism against U.S. persons or property or the 
prevention, frustration or favorable resolution thereof. With respect 
to Usama bin Laden and other key al-Qaida leaders, however, the 
Secretary has authorized a reward of up to $25 million.
    (The FY 04 budget does not include program increases but there is 
an $11 million carryover from a previous Supplemental that can be used 
for the rewards program for terrorism, war criminal and war criminal 
cases.

    The Chairman. Thank you very much, Mr. Black.
    Mr. Pistole.

STATEMENT OF JOHN S. PISTOLE, DEPUTY ASSISTANT DIRECTOR OF THE 
  COUNTERTERRORISM DIVISION, FEDERAL BUREAU OF INVESTIGATION, 
                         WASHINGTON, DC

    Mr. Pistole. Mr. Chairman, thank you for the opportunity to 
be here, Senator Hagel, and recognize Ambassador Black and Mr. 
Zarate here on this panel. I appreciate the opportunity to be 
here. I would also like to recognize Mr. Roderick Beverly, who 
is the Special Agent in Charge of our Office of International 
Operations, with me today. He has oversight for our 
International Legal Attache (Legat) program, which I will touch 
on just briefly.
    I would like to comment for a moment, if I may, Mr. 
Chairman, on the war on terrorism component of this diplomacy 
and war on terrorism focusing on the FBI's efforts in concert 
with the Department of State and other agencies. As you know, 
the FBI is a wholly different agency than it was prior to 9/11, 
refocused, and re-engineered to address our top priority, that 
of preventing the next terrorist act.
    Under the leadership of Attorney General Ashcroft and 
Director Mueller we have re-engineered the way we do business 
to ensure that our 56 field officers and nearly 29,000 
employees all have as their top focus and priority the 
prevention of the next terrorist attack against U.S. interests 
abroad, and more specifically, here in the United States.
    Thanks to the support of your committee and the entire 
Congress, for the passage of, for example, the Patriot Act and 
other tools, we now have the tools necessary for us to do the 
job that we need to do in protecting the American people and 
protecting the national security of the United States. 
Obviously, there are no guarantees in this business, in 
counterterrorism. We fully expect that al-Qaeda or other 
extremists will try to strike at the United States, especially 
with the onset of hostilities with Iraq, and we anticipate 
various means and methods of those possible attacks, but we in 
the FBI, with our associates at the Department of State, stand 
ready. We have, again, thousands of people working long hours, 
days, nights, weekends to ensure that everything humanly 
possible is being done to prevent future terrorist acts here.
    Senator Feingold mentioned the importance of keeping our 
focus on counterterrorism even in the advent of hostilities 
with Iraq. We agree with the assessment that al-Qaeda, and 
others, still represent the most significant threat to the 
United States in terms of possible attacks. To that end we have 
stood up a Iraqi Task Force command post within our Strategic 
Information and Operations Center (SIOC) at FBI headquarters, 
to address all issues attendant to the possible hostilities 
with Iraq. This task force is comprised of subject matter 
experts from our Iraqi side of the Counterterrorism Division, 
and is being enhanced and augmented by nearly 200 agents and 
analysts from our Criminal Investigative Division.
    If I could, Mr. Chairman, I would just like to touch very 
briefly on some of the top priorities right now. The first is 
to identify al-Qaeda or other sleeper cells here in the United 
States, similar to the 19 hijackers. We are doing everything we 
possibly can to achieve that goal within the confines of the 
Constitution.
    Our second priority is preventing State sponsors of 
terrorists from committing acts here, either through their own 
means or through surrogates or sympathizers, who may want to 
assist State sponsors.
    A third priority is identifying those lone offenders, those 
extremists who may act on their own or who are sympathetic in 
ways to either the Iraqi community, the Iraqi cause, or to the 
other extremists, such as some of the Sunni extremists, and al-
Qaeda.
    Our fourth priority is to identify those individuals here 
in the United States, who are providing support to terrorists 
either through fundraising or recruiting other individuals for 
possible terrorist acts against the United States.
    Those are the priorities that we are focused on, and it is 
primarily through our Legal Attache program--we have 45 Legat 
offices overseas--that we accomplish the collection, 
exploitation, and dissemination of information and intelligence 
to the law enforcement community and to the intelligence 
community from overseas back into the FBI.
    We currently have approximately 200 FBI employees assigned 
to 45 Legal Attache offices around the world. That is thanks to 
State Department support and your support. We are increasing 
that by an additional five offices this year and an additional 
five offices in fiscal year 2004, which will bring us up close 
to 240 FBI employees physically located in embassies around the 
world. It gives not only the presence of the FBI from the 
intelligence perspective, but also the law enforcement 
perspective, which we find so vital in working with foreign 
intelligence services and law enforcement agencies.
    We have undertaken a number of initiatives after 9/11 to 
ensure that we are providing the best possible preventive 
service to the U.S. people, to the people and to the community. 
A couple of things I would like to highlight. One is our 
Terrorist Financing Operations Section within the 
Counterterrorism Division, which is employed in cutting edge 
technology and tools, primarily with the CIA's Counterterrorism 
Center, in identifying and disrupting financing of terrorist 
activity around the world, and working with the Treasury 
Department. There are a number of successes that we would not 
necessarily go through in this open committee, but there have 
been significant successes achieved in that regard.
    In terms of FBI participation in State Department programs, 
some of those have been mentioned. Under Secretaries Green and 
Grossman have mentioned a couple of those, one being the 
Antiterrorism Training Assistance program, I believe in 56 
countries. The FBI participated in nearly two-thirds of those 
training sessions, with over 4,700 Foreign Service officers and 
law enforcement officers receiving training.
    Ambassador Black mentioned the Technical Support Working 
Group which the FBI is a strong proponent of, thanks to State 
Department leadership, and obviously the Foreign Emergency 
Support Team, the FEST, which deploys in the event of overseas 
terrorist activity, most notably with the East Africa bombings 
from 4\1/2\ years ago, and, of course, congressionally mandated 
field training exercises such as Top Off which we participated 
in just a couple of years ago.
    Currently we are pre4paring for Top Off 2, the next top 
official training exercise, which will be a key exercise to 
practice crisis management and emergency response capabilities. 
It is a challenge to find the necessary resources, when we are 
doing all we can to prevent the next terrorist attack, to 
participate in these training exercises, but that is something 
that we in the FBI, are fully committed to.
    And then, of course, the Rewards for Justice program, which 
pays, as you know, Mr. Chairman, up to $5 million for 
information leading to the apprehension of designated 
individuals, and up to $25 million for a select few, which we 
have been able to deploy just recently, as has been mentioned, 
with the apprehension of Khalid Shaikh Mohammed.
    We also participate, through State Department leadership, 
in the International Law Enforcement Academies, most notably in 
Budapest, Hungary. I had the privilege, in 1995, of teaching at 
the first two sessions of the ILEA there. It has been a 
tremendous success in terms of trying to teach the rule of law 
and policing, if you will, in former Soviet bloc countries, 
primarily. It has been a tremendous success in that we have 
seen the emphasis on traditional organized crime and white 
collar crime transfer to counterterrorism activity, so we 
appreciate the State Department's leadership and support in 
that regard.
    And of course we have created a number of Joint Terrorism 
Task Forces in the FBI. We had 35 prior to 9/11. Now, all 56 of 
our field offices have Joint Terrorism Task Forces augmented by 
10 additional task forces in our larger Resident Agencies 
around the country. We also have our National Joint Terrorist 
Task Force [NJTTF] at FBI headquarters, which the State 
Department is a key component of, assessing, evaluating and 
disseminating information as it relates to State Department 
issues.
    In terms of the broader perspective, we are partners with 
the State Department in assessing and evaluating the nearly 
4,000 threats that have been received against the United States 
post 9/11. The State Department plays a key role, as 
appropriate, in dealing with those threats to determine the 
credibility of each and every one. Almost all of these threats 
have little or no credibility, but, obviously there is no room 
for error in this business, so we have to assess and validate 
the credibility of each of those threats, which State has 
played a key role in.
    We have created an analysis branch within the FBI 
Counterterrorism Division, which provides the analysis that, 
frankly, the FBI has lacked previously. We have had great 
analysts, but we have not been good at disseminating the 
information. We have done a terrific job of collecting 
information over the years, but not a terrific job of 
disseminating that to the intelligence community and other law 
enforcement agencies who have a need to know that information, 
and in concert with the State Department, again through the 
NJTTF and other avenues, we have been able to enhance and 
augment our efforts in that regard.
    We have also established a new Office of Intelligence, 
headed by an Executive Assistant Director, still to be named, 
that will provide core training and enhancements to the FBI's 
analytic capability.
    We are also establishing reports officers in each of our 56 
field offices. We are also looking at placing reports officers 
in some of the Legal Attache offices. We have created the 
Terrorism Reports and Requirements section in the 
Counterterrorism Division, where the reports officers have now 
published over 550 intelligence reports to the community, of 
FBI source information and other sensitive information that 
previously was close-held in the FBI.
    We have done a number of other things which I will not go 
into, they are in my written statement, but which I would be 
glad to respond to. I will just touch on a couple of other 
things. We are strong proponents of the Terrorism Threat 
Integration Center which was recently announced and created, as 
being a focal point for the analysis of threat information. A 
fusion cell, if you will, of intelligence from the FBI, from 
the CIA, from the Department of Homeland Security and all those 
agencies attendant to that will allow one-stop shopping, for 
the fight on terrorism.
    We have a number of other initiatives ongoing, as everybody 
is aware. With the rise in the threat level last night we have 
undertaken a number of steps to be more visible in terms of the 
fight on terrorism, and to ensure that we are doing everything 
possible to protect the American people.
    In closing, while it might be outside my purview to comment 
on another Department's budget or their efforts, I would like 
to say that the FBI appreciates, Mr. Chairman, your support and 
the committee's support for State Department initiatives as a 
means of being on the cutting edge of fighting counterterrorism 
worldwide. It is because of the State Department's efforts and 
initiatives around the world that the FBI is able to make 
critical linkages of both foreign intelligence services and law 
enforcement agencies that frankly we would not have the means 
to do, and so I appreciate your support for that, and also as a 
fellow Hoosier I appreciate the opportunity to be before you 
today, sir.
    Thank you.
    [The prepared statement of Mr. Pistole follows:]

   Prepared Statement of John S. Pistole, Deputy Assistant Director, 
       Counterterrorism Division, Federal Bureau of Investigation

    Good morning Chairman Lugar, Senator Biden, and other distinguished 
Members of the Committee. I would like to express my gratitude to the 
Committee for your thoughtful consideration of this weighty topic, as 
well as for the opportunity to testify today. I am honored to be 
included in this distinguished panel of executives from the Department 
of State (DOS) and the Department of the Treasury. I am accompanied 
today by Roderick L. Beverly, the Special Agent in Charge of the FBI's 
Office of International Operations.
    The FBI's Office of International Operations oversees our Legal 
Attache (Legat) program, which represents a vital component in our 
counterterrorism efforts. It is primarily through the Legat program 
that we coordinate investigative efforts and share information with our 
international law enforcement and intelligence partners.
    With the assistance of Congress and the DOS, the FBI has 
established 45 Legat offices. A Legat presence throughout the world has 
enhanced the FBI's ability to bring investigative resources to bear 
quickly in the aftermath of terrorist acts. For instance, in response 
to the events of September 11, 2001, Legat offices facilitated the 
rapid deployment of approximately 700 FBI personnel overseas. Legats 
were also able to react immediately and lend assistance in the October 
2002 shooting of U.S. AID Officer Laurence Foley in Amman; the bombing 
earlier this year of a disco in Bali; and the recent bombing of the 
airport at Davo City in the Philippines where 21 people were killed, 
including one American.
    Through a Memorandum of Understanding (MOU) with the DOS, FBI 
Legats are part of the embassy community. The MOU acknowledges the 
Ambassador as Chief of Mission. In addition to investigative and host 
country liaison responsibilities, Legats work with the Administrative 
Officer of the embassy regarding their needs within the embassy itself. 
They respond to requests from other DOS employees, provide regular 
briefings to the Ambassador and/or Deputy Chief of Mission, and 
participate in all other in house activities, such as emergency action 
meetings and weekly country team meetings. As a result of the FBI's 
efforts to identify and dismantle terrorist networks, the Legats work 
in close coordination with Regional Security Officers and other embassy 
staff to prevent future terrorist incidents from occurring both 
overseas and in the U.S. From fiscal year (FY) 2001 to FY 2002, the 
number of leads (investigative requests) covered by Legats increased 
from 41,211 to 53,105 (a 29% increase).
    The FBI's 45 Legats are staffed by 126 Special Agents and 74 
support personnel. By the end of this fiscal year, it is proposed that 
the staffing level increase to 145 Special Agents and 83 support 
personnel as a result of new offices in: Abu Dhabi, United Arab 
Emirates (U.A.E.); Kuala Lumpur, Malaysia; Sanaa, Yemen; Tbilisi, 
Georgia; and Tunis, Tunisia. In addition, there will be three sub-
offices created in: Bonn (Berlin, Germany); Milan (Rome, Italy) and 
Toronto (Ottawa, Canada). Six existing Legat Offices will also receive 
additional personnel. Those offices are: Amman, Jordan; Cairo, Egypt; 
Islamabad, Pakistan; Manila, Philippines; Ottawa, Canada; and, Riyadh, 
Saudi Arabia. Of the additional $44.7 million that the FBI was allotted 
for its Counterterrorism mission overseas, approximately $23.7 million 
was earmarked for Legat expansion.
    I would like to share a few specific examples which demonstrate how 
FBI Legats are facilitating efforts to address international terrorism. 
The FBI's Criminal Justice Information Services Division (CJIS), 
located in Clarksburg, West Virginia, has responsibility for the 
oversight of the Integrated Automated Fingerprint Identification System 
(IAFIS). A recent priority CJIS effort was facilitated by the ability 
to leverage professional relationships developed by Legats with 
Pakistani law enforcement personnel. CJIS sent numerous teams to 
Pakistan for the purpose of providing equipment and training relating 
to the computerized capture of fingerprints. This method consists of 
using inkless portable fingerprinting stations that can be used onsite 
during an investigation. Subject fingerprints are loaded directly into 
the system where they are analyzed and classified for future reference 
and comparison with existing databases. CJIS personnel have trained 
Pakistani law enforcement personnel in the use of this equipment as 
well as providing them with equipment.
    The FBI Laboratory also has been engaged with Legats to ensure that 
numerous international law enforcement partners are aware of the 
availability of the FBI's Combined DNA Index System (CODIS), for 
assisting in the identification through DNA data of terrorists subjects 
and other criminal suspects.
    The FBI, through the assistance and coordination of the DOS, has 
made progress in disrupting the flow of funds being used to finance 
terrorists and their operations. The FBI Counterterrorism Division's 
Terrorist Financing Operations Section (TFOS), has worked hand in hand 
with the DOS, and other agencies, to identify countries that are 
critical to the FBI's counterterrorism efforts and to provide crucial 
terrorist financing training and investigative assistance. This 
includes providing assistance in drafting antiterrorism financing 
legislation and training for the banking industry, local prosecutors 
and criminal investigators. The DOS has facilitated access to foreign 
financial information for TFOS as the FBI tracks terrorist financing 
worldwide. The DOS has also rendered assistance by facilitating the 
assignment of terrorist finance investigators to international 
terrorist finance task forces and by coordinating the FBI's 
participation in major international conferences on terrorist 
financing.
    The FBI utilizes the DOS's Antiterrorism Training Assistance 
Program to provide specialized counterterrorism training courses on 
topics such as hostage negotiations, crime scene processing, major case 
investigations, cyber crime and terrorist financing, in countries 
involved in the war against terrorism. The FBI is also a participant in 
other DOS programs, including: the inter-agency Technical Support Work 
Group (TSWG), which develops and prototypes counterterrorism 
technologies to provide protections against terrorist attacks; the 
Foreign Emergency Support Team (FEST), which responds to international 
terrorist-related crisis incidents and supports the U.S. ambassador and 
host government in dealing with incidents; and, the Top Officials 
exercise (TOPOFF 2) which tests the nation's domestic readiness for 
responding to a terrorist incident involving chemical, biological, 
radiological and nuclear agents or devices. In addition, the FBI 
supports the DOS's Rewards for Justice Program, which offers rewards of 
up to $5 million for information leading to an arrest or conviction of 
any person for conspiring, aiding, abetting or committing an act of 
international terrorism against U.S. persons or property.
    Working in conjunction with DOS foreign assistance expertise and 
authorities in this way helps the FBI build relationships with other 
countries' law enforcement agencies to contain criminal threats. For 
example, the FBI is the lead agency for the International Law 
Enforcement Academy (ILEA) in Budapest, Hungary. The four ILEAs around 
the world have greatly strengthened instruction on law enforcement 
approaches to fighting terrorism since the attacks against our country 
on September 11, 2001.
    The FBI and the DOS are coordinating, better than ever, the 
information we both posses regarding known and suspected terrorists. 
The FBI is sharing information we maintain in our National Crime 
Information Center (NCIC) index, and the Violent Gang Terrorist 
Organization File (VGTOF), with the State Department's TIPOFF system. 
The DOS is also a full participant in the Counterterrorism Division's 
National Joint Terrorism Task Force (NJTTF) at FBIHQ.
    Last month, Director Mueller testified before the Senate Select 
Committee on Intelligence that the Al-Qaeda network will remain for the 
foreseeable future the most immediate and serious threat facing this 
country. While this remains true, the recent arrest of Khalid Shaikh 
Mohammed, or KSM, and the arrest just this past Saturday of Yassir al-
Jaziri, represent significant blows to the leadership of the Al-Qaeda 
network. Our Pakistani partners were instrumental in these successes 
and I would like to thank them and congratulate them. I assure you that 
any and all resources of the FBI are being brought to bear to exploit 
the intelligence information obtained as a result of these arrests.
    Despite the arrests of Khalid Shaikh Mohammed and Yassir al-Jaziri, 
Al-Qaeda and other terrorist networks are adept at defending their 
organizations from US and international law enforcement efforts. As 
these terrorist organizations evolve and change their tactics, we, too, 
must evolve. Accordingly, the past 18 months have brought momentous 
changes to the FBI, including the incorporation of an enhanced 
intelligence function that will better enable us to defend against the 
terrorist threat.
    I would now like to briefly discuss, from a broader perspective, 
efforts and initiatives to identify and dismantle terrorist networks 
over the past 18 months. The FBI Legat Program and our partnerships 
with agencies such as the DOS and the Department of the Treasury have 
played an integral role in these efforts. More than 200 suspected 
terrorists have been charged with crimes, half of whom have been 
convicted. The rest are awaiting trial. Moreover, our efforts have 
damaged terrorist networks and disrupted terrorist plots across the 
country. In the past month alone, the FBI has arrested 36 international 
and 14 domestic suspected terrorists.
    The FBI has reorganized to effectively meet the challenges of the 
nation's war on terrorism. For one, the FBI has augmented our 
counterterrorism resources and is making organizational enhancements to 
focus our counterterrorism priorities. I would like to review some of 
those changes with the Committee, beginning with the FBI's analytical 
program.
    Last year, we began the process of focusing on the analysis program 
by creating an Analysis Branch within the Counterterrorism Division 
(CTD). This new Analysis Branch was assigned the mission of producing 
strategic assessments of the terrorism threat to the United States. To 
date, the Analysis Branch has produced nearly 30 in-depth analytical 
assessments.
    Through FY 2004, the FBI's proposed increase in analysts will 
result in quadruple the number than we had prior to September 11, 2001. 
The FY 2004 proposal represents a 156% increase in funding for analysts 
in comparison to the FY 2002 budget. Recognizing that we could not get 
to where we needed to be overnight, the CIA detailed 25 of their 
analysts to the FBI to provide an immediate infusion of expertise into 
our program while our hiring initiative is underway.
    We have also implemented a number of initiatives aimed at enhancing 
training for our analytical workforce; which included creating the 
College of Analytical Studies. The FBI, in conjunction with the CIA, 
has begun training our new intelligence analysts at the College of 
Analytical Studies. By the end of this year, we expect more than 200 
analysts to have completed the six-week training course.
    These improvements to our analytic program had to be made quickly 
to address our immediate needs. The FBI has also taken steps to ensure 
the ability to collect and analyze intelligence for the long term. The 
centerpiece of this effort is the establishment of an Executive 
Assistant Director for Intelligence (EAD/I) who will have direct 
authority and responsibility for the FBI's national intelligence 
program. Specifically, the EAD/I will be responsible foremost for our 
counterterrorism mission. The EAD/I will oversee the intelligence 
programs for our counterintelligence, criminal, and cyber divisions.
    The EAD/I will also ensure that we are sharing information with our 
Federal, State, local and international partners. Furthermore, 
intelligence units staffed with Reports Officers will be established in 
every field office and will function under the authority of the EAD/I. 
The Reports Officers will be responsible for identifying, extracting, 
and collecting intelligence from FBI investigations and sharing that 
information throughout the FBI and to other national and international 
law enforcement and intelligence entities.
    The FBI has also reorganized its system for threat warnings by 
establishing a number of specialized counterterrorism units. I would 
like to outline for the Committee a number of these specialized units. 
CT Watch, a 24-hour Counterterrorism Watch Center, was created to serve 
as the FBI's focal point for all incoming terrorist threats. The 
Communications Analysis Section was established to analyze terrorist 
electronic and telephone communications and identify terrorist 
associations and networks. The Document Exploitation Unit was initiated 
to identify and disseminate intelligence gleaned from millions of pages 
of documents or computers seized overseas by intelligence agencies. The 
Special Technologies and Applications Section was formed to provide 
technical support for field office investigations requiring specialized 
computer technology expertise and support. And finally, the previously 
mentioned TFOS was established; TFOS is devoted entirely to the 
financial aspects of terrorism investigations and liaison with the 
financial services industry, both at home and abroad. All of these 
recently created, specialized counterterrorism units have streamlined 
the FBI's resources to more effectively target terrorism threats.
    If we are to defeat terrorists and their supporters, a wide range 
of organizations must work together. The FBI is committed to the 
closest possible cooperation with the Intelligence Community, other 
Federal government agencies, international partners, and our essential 
partners at the State and local level. Toward that end, the FBI has 
developed numerous information sharing and operational coordination 
initiatives. We have expanded the number of Joint Terrorism Task Forces 
(JTTFs) from 35, two years ago, to 66 today. The JTTFs partner FBI 
personnel with hundreds of investigators from various Federal, State, 
and local agencies in field offices across the country and are 
important force multipliers aiding our fight against terrorism. In 
addition, over a 90-day period beginning this month, we will provide 
500 JTTF agents and State, and local law enforcement personnel with 
specialized counterterrorism training. By the end of FY 2003, basic 
counterterrorism training will be provided to an estimated 14,000 
Federal, State, and local law enforcement officers. Beginning in FY 
2004, the FBI proposes to provide this training to 27,000 Federal, 
State and local law enforcement officers per year.
    In July 2002, we established the National JTTF (NJTTF) at FBI 
Headquarters, staffed by representatives from 30 federal, state, and 
local agencies. The NJTTF acts as a ``point of fusion'' for terrorism 
information by coordinating the flow of information between 
Headquarters and the other JTTFs located across the country and between 
the agencies represented on the NJTTF and other government agencies. 
The DOS is an integral partner in this endeavor and is a full 
participant in the National JTTF.
    The Office of Law Enforcement Coordination (OLEC) was created to 
enhance the ability of the FBI to forge cooperation and substantive 
relationships with all of our State and local law enforcement 
counterparts. The OLEC, which is run by a former Chief of Police, also 
has liaison responsibilities with the White House Homeland Security 
Council.
    The FBI Intelligence Bulletin (``The Bulletin'') is disseminated 
weekly to more than 17,000 law enforcement agencies and to 60 Federal 
agencies. The Bulletin provides information about terrorism issues and 
threats to patrol officers and other local law enforcement personnel. 
The recipients of The Bulletin have direct daily contacts with the 
general public. These contacts could result in the discovery of 
critical information regarding counterterrorism issues and threats.
    With regard to outreach, the FBI is making unprecedented efforts to 
communicate effectively with the intelligence, law enforcement, 
government, and public sector communities. To prevent terrorists from 
acquiring weapons of mass destruction (WMD), we are coordinating with 
suppliers and manufacturers of WMD materials in an effort to facilitate 
their voluntarily reporting of any suspicious purchases or inquiries. 
In addition to enhancing our relationships with agencies related to 
WMD, we have established working relationships with a host of non-
traditional agencies, including the Army Corps of Engineers and Bureau 
of Land Reclamation. We have also expanded our relationship with such 
groups as the Transportation Security Administration (TSA) and the U.S. 
Coast Guard (USCG).
    To augment local field office investigative capabilities, Flying 
Squads were established to provide for specialized personnel to respond 
to fast-breaking situations and provide a surge capacity in support of 
FBI Rapid Deployment Teams.
    Before closing, I would like to briefly discuss the fusion of 
intelligence information for analysis. The FBI strongly supports the 
President's initiative to establish a Terrorist Threat Information 
Center (TTIC) that will merge and analyze terrorist-related information 
collected domestically and abroad. The TTIC will provide all-source, 
integrated analysis to the FBI, CIA, Department of Homeland Security 
(DHS), and other Federal agencies (including the DOS), which, in turn, 
can quickly share the analysis with State and local law enforcement. 
The two-way flow of information between Federal and local law 
enforcement is necessary to sharpen both the collection and analysis of 
threat-related information. The FBI JTTFs will provide an effective 
channel to share the TTIC's analytical products with our partners in 
State and local law enforcement. The FBI is committed to working with 
the DHS to push information and analysis out of the TTIC to other 
Federal agencies, and to State and local officials.
    Let me conclude by saying that the nature of the threats facing the 
U.S. homeland continues to evolve and so does the FBI. We have made 
significant strides toward enhancing our operations, both domestically 
and overseas, through valuable partnerships such as the one we enjoy 
with the DOS. Let me again express my gratitude to you, Mr. Chairman, 
and the Committee for your invitation and I look forward to responding 
to any questions.

    The Chairman. Thank you. Well, I appreciate both of those 
last two things you said, without giving the order of 
preference, but thank you for the good interdepartmental 
cooperation. This is so critical, and I just interject this. As 
all of you recall in hearings in this committee and 
Intelligence and elsewhere after 9/11 the degree of firewall 
situations was really very, very sad to see, and it is 
difficult for cultures to intermingle, for people to find each 
other in our government, but I congratulate you on doing that, 
and likewise speaking cheerfully about it as something that 
ought to be done.
    Well, now another important Department of our government, 
Mr. Zarate.

   STATEMENT OF JUAN C. ZARATE, DEPUTY ASSISTANT SECRETARY, 
EXECUTIVE OFFICE FOR TERRORIST FINANCING AND FINANCIAL CRIMES, 
           DEPARTMENT OF THE TREASURY, WASHINGTON, DC

    Mr. Zarate. Mr. Chairman and Senator Hagel, thank you for 
having me today to testify along with Ambassador Black and Mr. 
Pistole about the international efforts the Treasury Department 
is taking in close coordination with the State Department and 
sister departments and agencies to combat terrorist financing.
    Since September 11, the U.S. Government has led a global 
campaign to identify, disrupt, and dismantle the sources and 
means of funding for al-Qaeda and the other terrorist groups 
that threaten the United States. As you know, Mr. Chairman, the 
money used to fuel terrorism flows not just in dollars but in 
yen, euros, and pounds. Thus, our campaign to starve terrorist 
groups of funding and to bankrupt their operations will 
continue to rely on our ability to work with our partners 
abroad to achieve collective success.
    I would like to emphasize, sir, at the outset the 
importance of vigorous interagency cooperation in attacking 
terrorist financing, as well as to thank my distinguished 
colleagues from the State Department and the FBI and other 
agencies and departments in our Federal Government for their 
work with us on this campaign. In particular, I have been very 
well served by our embassies abroad in approximately 20 
missions since September 11 to deal with the issue of terrorist 
financing, and the work abroad has been fine and consistent.
    Mr. Chairman, terrorism in the 21st century is a global 
enterprise. Al-Qaeda and other terrorist groups have learned to 
use the ease and freedom of the international financial system, 
both formal and informal, to support their international 
network and ambitions. To disrupt the various ways that 
terrorist groups raise and move funds, we have developed a 
multipronged U.S. Government strategy to attack terrorist 
networks that demands constant international and diplomatic 
engagement. Specific elements of our international engagement 
are worth highlighting.
    Our most public weapon in the financial war on terrorism 
has been the public designation of terrorist-related entities 
and the blocking of their assets. To date, we have blocked more 
than $120 million worldwide, based on our ability to 
internationalize these domestic efforts.
    Not only have we been able to cutoff channels that serve to 
move funds for terrorism, we have impelled an international 
process to confront the common threat of terrorism. By working 
with our allies, in close concert with the State Department, to 
implement an international mechanism for designation and 
freezing, we have made it much harder for terrorists to hide 
their money in the world's banks and to move it through the 
financial channels. We have also sent a common signal to the 
bankers of terror: there will be no refuge from the gaze of the 
international community.
    Our international strategy has achieved success beyond 
designations and blocking actions. We and our allies have 
vigorously engaged multilateral institutions such as the 
Financial Action Task Force on Money Laundering and the U.N. 
Counterterrorism Committee in an effort to examine the measures 
the international community is taking to regulate and monitor 
financial mechanisms abused by terrorist groups.
    In particular, we have achieved great success and focused 
the world's attention on the abuse of charities by terrorist 
groups as well as the terrorist use of informal systems of 
transferring money, often known as hawalah, to fund terrorism.
    Mr. Chairman, we have also committed ourselves to 
promulgating and establishing international standards that 
serve to protect the integrity of all aspects of the 
international financial system. One critical way we have 
accomplished this is through the Financial Action Task Force 
[FATF], which developed the eight special recommendations on 
terrorist financing due to the leadership of the United States, 
which require all member nations to adopt a counterterrorist 
financing regime. In addition, the Treasury Department will 
continue its close collaboration with the World Bank, the IMF, 
and the UNCTC to ensure that countries are assessed based on 
the standards set by the FATF.
    Mr. Chairman, we have had enormous success of late in 
moving countries to change their relevant laws and regulations 
in the area of anti-money laundering and counterterrorist 
financing. Thanks in large part to the authority granted to the 
Secretary of the Treasury by Congress in section 311 of the USA 
Patriot Act, countries have been fearful of the economic effect 
of designation as a primary money laundering concern.
    As a result, countries like Nigeria and the Philippines 
have taken action, thanks to our leadership and interagency 
cooperation, to avoid the stigma of designation from the United 
States. A country like Ukraine has moved quickly, in addition, 
to pass laws that would remove it from having this designation 
and having that stigma on their international financial system.
    This power under the Patriot Act, in combination with the 
threat of international rebuke, is an effective tool in molding 
international behavior to comply with international financial 
standards. One area in which we have worked extremely closely 
and well with the Department of State and the Department of 
Justice has been in providing our international partners with 
the tools necessary to combat terrorist financing. In the 
ILEAs, in specific bilateral missions, in multilateral 
settings, we have worked very closely to provide capacity-
building measures for our partners.
    Mr. Chairman, though the U.S. Government has led the world 
in focusing attention on the problem of terrorist financing, 
there is still much work to be done. My colleagues have 
mentioned certain elements. Allow me to do so.
    There are several specific challenges that lie ahead of us, 
in particular in the international regime. Foremost, as 
indicated by Senator Feingold, we must maintain political and 
diplomatic pressure on our partners abroad and the 
international institutions in which we engage to continue to 
focus on the problems associated with terrorist financing.
    The further the world's memory of September 11 recedes, the 
harder it is to maintain a sense of urgency internationally to 
act against terrorism. We must ensure that we are constantly 
communicating the importance of this issue to our partners, and 
that our own resolve, in particular abroad and in the 
embassies, is not seen as wavering.
    We must continue to broaden and deepen our efforts 
worldwide with respect to our overall strategy. From improving 
the way the international community blocks assets, to ensuring 
that charitable giving is not corrupted by terrorists, we need 
to be vigilant and ensure that all countries are taking the 
necessary steps to deter, detect, and disrupt terrorist 
financing.
    We will and must continue to address fundamental areas of 
concerns with our partners. In the long run, our success in 
combating terrorist financing will depend upon the ability of 
other countries to police their own financial and charitable 
sectors, and we must continue to assist them in developing 
these capabilities.
    Mr. Chairman, as you know, we are engaged in a long and 
unconventional struggle that requires us to work tirelessly 
abroad to choke off the channels of funding to terrorist groups 
and to raise the standards in the international financial 
system. I, too, appreciate this committee's support for the 
State Department and thank the State Department for their 
unyielding support in our overarching efforts. Ours is 
certainly a long-term mission to save lives by denying the 
terrorists the funds they need to train, to plan, to travel, to 
hide, and to attack. By denying these terrorists dollars and 
yen, we are depriving them of bullets and bombs.
    I thank you, Mr. Chairman, for your support, and I would be 
very happy to answer any questions you or Senator Hagel may 
have.
    [The prepared statement of Mr. Zarate follows:]

   Prepared Statement of Juan C. Zarate, Deputy Assistant Secretary, 
    Executive Office, Terrorist Financing and Financial Crime, U.S. 
                       Department of the Treasury

    Chairman Lugar, Senator Biden, and distinguished members of the 
Senate Committee on Foreign Relations, thank you for inviting me to 
testify today about the international efforts the Treasury Department 
has taken, in close coordination with the State Department and our 
other sister departments and agencies, to attack the financial networks 
and systems that support and facilitate international terrorism.
    Since September 11, we have led a global campaign to identify, 
disrupt, and dismantle the sources and means of funding for al-Qaida 
and other terrorist groups. As President Bush stated on September 24, 
2001, ``If you do business with terrorists, if you support or sponsor 
them, you will not do business with the United States of America.'' We 
therefore have attacked the financial infrastructure of terrorist 
groups and held accountable those who bankroll terror.
    The money used to fuel terrorism flows not just in dollars but in 
yen, euros, and pounds. The U.S. government has led an international 
effort to focus the world's attention on the threat of terrorist 
financing, and we have realized significant success. Certainly, the 
Treasury and the U.S. government have devoted extensive resources and 
expertise to fulfill this mandate, but this campaign has always been an 
international endeavor and has relied on the cooperation of our 
international partners to successfully achieve our goals.
    International cooperation is critical for our overall success, 
especially when addressing the short and long-term threats of terrorist 
financing throughout the world. We cannot bomb bank accounts, and we 
therefore rely on international cooperation in all our efforts. We have 
shown quite clearly that our counter-terrorism mission is best served 
when we work collectively with our partners. Thus, our campaign to 
starve terrorist groups of funding and to bankrupt their operations 
will continue to rely on our ability to work with our partners abroad 
to achieve collective success.
    I would like to emphasize at the outset the importance of vigorous 
interagency consultation and cooperation in attacking terrorist 
financing, as well as to thank the State Department, the Justice 
Department, and other agencies and departments in our federal 
government for their work with us on this campaign. From our experience 
before and after September 11th, we know that terrorist financing is a 
complicated and multi-dimensional problem that both domestically and 
internationally implicates a range of legal, regulatory, financial, 
intelligence and law enforcement interests. Consequently, no successful 
attack on the financial underpinnings of terrorism may be advanced 
without coordinated interagency strategies on the use of legal, 
regulatory, private sector, law enforcement, diplomatic and 
intelligence-gathering tools required to combat this problem.
    In this respect, the State Department has provided the Treasury 
Department with enormous support in our collective international 
efforts. In the multiple missions I and others from the Treasury 
Department have taken abroad and with a series of Treasury initiatives 
that have required international coordination, we have been well served 
by our Embassies abroad and by the State Department more generally.
    Before I address the specific diplomatic and international efforts 
we have undertaken to advance the fight against terrorist financing, 
allow me to share with you the overarching efforts and strategy of the 
U.S. government in attacking this problem.

               I. STRATEGY TO COMBAT TERRORIST FINANCING

    Terrorism in the 21st century is a global enterprise consisting of 
both simple and sophisticated financial mechanisms. Al Qaida and other 
terrorist groups have learned to use the ease and freedom of the 
international financial system--both formal and informal--to support 
their international network and ambitions. The war against terrorist 
financing, therefore, is an immense undertaking because it requires us 
to preserve the openness and efficiency of our modern financial system, 
with the free flow of capital and information, while ensuring that it 
is not abused by terrorists and their financiers.
    We know that terrorist groups tap into a wide range of sources for 
their financial support, including State sponsors, wealthy donors, 
charity and relief organizations, front companies, and common criminal 
activity, and that they use formal and informal ways of moving money 
such as informal value transfer systems and trade-based schemes. To 
address and disrupt the various ways that terrorist groups raise and 
move funds, we have developed a seven-part U.S. government strategy to 
attack terrorist networks and to prevent both the short and long-term 
effects of terrorist financing:

          1. Targeted intelligence gathering.

          2. Freezing of terrorist-related assets.

          3. Law enforcement actions.

          4. Diplomatic efforts and outreach.

          5. Smarter regulatory scrutiny and International Standard 
        Setting.

          6. Outreach to the private sectors.

          7. Capacity building for other governments and the financial 
        sector.

    The objective of our strategy is simple--to prevent acts of 
terrorism in the short and long term by identifying and disrupting 
terrorist operations and the financial networks that support those 
operations. Because of the international and multi-faceted nature of 
terrorist networks, this is an integrated, inter-agency strategy 
requiring international cooperation.

                II. INTERNATIONAL AND DIPLOMATIC EFFORTS

    Treasury is in a unique position to work with the international 
financial sector--both government and private. Treasury officials have 
traveled abroad extensively to engage our partners in various 
ministries and central banks, as well as financial professionals in 
private industry trade associations and institutions, on the issue of 
terrorist financing. We are in daily contact with foreign financial 
officials and are engaged in bilateral and multilateral discussions 
regarding international cooperation and action against terrorist 
activities and financing. We are promoting technical assistance and 
training abroad to ensure that our partners have the requisite capacity 
to regulate vulnerable industries, enforce laws and share financial 
information.
    The U.S. government has engaged in numerous international fora, 
including the G7, G8, G20, the Financial Action Task Force (FATF), the 
Egmont Group, and the international financial institutions to combat 
terrorist financing in a global, systematic way. We have worked with 
these international bodies and regional organizations such as APEC, the 
OSCE, and the Manila Framework Group to further coordinate 
international efforts to stop the financing of terrorism and to ensure 
that countries take concrete actions. In general, the United States has 
led the initiative to make the battle against terrorist financing a 
priority for the world, through bilateral and multilateral engagements 
as well as constant diplomatic pressure.

A. Blocking Assets and Cutting Off Worldwide Channels of Terrorist 
        Funding
    Our most public weapon in the financial war on terrorism has been 
the public designation of terrorist-related entities and the blocking 
of their assets pursuant to the President's September 23, 2001 
Executive Order and the authority to designate terrorist organizations 
as Foreign Terrorist Organizations. To date, we, through the good work 
of the Office of Foreign Assets Control (OFAC), the State Department, 
and the inter-agency community, have blocked more than $125 million 
worldwide based on our ability to internationalize these domestic 
efforts. Not only have we been able to cut off channels that served to 
move funds for terrorism, we have impelled an international process to 
confront the common threat of terrorism, regardless of the source of 
terrorist funds or the particular agenda of any terrorist group.
    The United States has worked diligently with the UN Security 
Council to adopt international resolutions reflecting the goals of our 
domestic executive orders and providing the mechanism for UN member 
states to freeze terrorist-related assets. These UN Security Council 
resolutions form the legal basis for freezing terrorist assets on a 
global basis. We have worked with our allies in the UN to pursue 
bilateral and multilateral designations of terrorist-related parties 
where possible and appropriate. We have achieved some notable successes 
in this area to date:
    U.S.-Saudi Joint Designations--On March 11, 2002, the United States 
participated in its first joint designation of a terrorist supporter. 
The United States and Saudi Arabia jointly designated the Somalia and 
Bosnia-Herzegovina offices of Al Haramain, a Saudi-based NGO. These two 
organizations are linked to al Qaida and their names were forwarded to 
the Sanctions Committee for inclusion under the UNSCR 1333/1390 list. 
On September 9, 2002, the United States and Saudi Arabia jointly 
referred to the Sanctions Committee Wa'el Hamza Julaidan, an associate 
of Usama bin Laden and a supporter of al Qaida.
    G7 Joint Designation--On April 19, 2002, the United States, along 
with the other G7 members, jointly designated nine individuals and one 
organization. Most of these groups were European-based al Qaida 
organizers and financiers of terrorism. Because of their al Qaida 
links, all ten of these names were forwarded to the UN Sanctions 
Committee for inclusion under the UNSCR 1333/1390 list.
    U.S.-Italy Joint Designation--On August 29, 2002, the United States 
and Italy jointly designated 11 individuals and 14 entities. All of the 
individuals were linked to the Salafist Group for Call and Combat 
designated in the original U.S. Annex to E.O. 13224. The 14 entities 
are part of the Nada/Nasreddin financial network, who are two terrorist 
financiers designated on earlier E.O. 13224 lists.
    U.S.-Central Asia Joint Designation--On September 6, 2002, the 
United States, Afghanistan, Kyrgyzstan, and China jointly referred to 
the Sanctions Committee the Eastern Turkistan Islamic Movement, an al 
Qaida-linked organization which operates in these and other countries 
in Central Asia.
    Designation of Jemaa Islamiyya--On October 23, 2002, the United 
States designated the Southeast Asian terrorist group, Jemaa Islamiyya, 
suspected by many in the media of perpetrating the deadly attacks on a 
nightclub in Bali on October 12th. In the subsequent request of the 
United Nations to also designate this group for its ties to the al 
Qaida organization, the U.S. joined Australia, Indonesia, Singapore, 
and 46 other countries, including all the members of ASEAN and the EU, 
in requesting Jemaa Islamiyya's designation. This represents the most 
widespread show of support of any terrorist designation to date.
    Three Chechen Groups--On February 28, 2003 the United States 
designated three Chechnya-based terrorists groups responsible for the 
Moscow theater siege. In the subsequent request of the United Nations 
to also designate these groups for their ties to the al Qaida 
organization, the U.S. was joined by UN Security Council members 
France, Russia, China, the UK, Spain, and Germany in requesting their 
designation.
    These global actions to designate and freeze the assets of 
terrorist-related groups have only been effective because we have been 
able to use the international mechanisms in place to effect a global 
shut down of terrorist financial infrastructures. For example, the 
international designation of the al Barakaat network in November 2001, 
which was a money remitting business used by Usama bin Laden to funnel 
money to associated terror groups, proved effective because the 
international community acted in unison. The recent designation of the 
worldwide network of Benevolence International Foundation, a Chicago-
based charity that was supporting al Qaida, is another example of the 
international community taking common action to cut off the flow of 
funds to al Qaida. By working with our allies to implement an 
international mechanism for designation and freezing, we have made it 
much harder for terrorists to hide their money in the world's banks or 
send it abroad through formal financial channels. We have also sent a 
common signal to the bankers of terror. There will be no refuge from 
the gaze of the international community.

B. Regulation of Charities and Alternative Remittance Systems
    Our international strategy has achieved success beyond designations 
and blocking actions. We and our allies have vigorously engaged 
multilateral institutions such as the IMF, the World Bank, the UN, and 
the Financial Action Task Force (FATF) in an effort to examine the 
measures the international community is taking to regulate and monitor 
those financial mechanisms being abused by terrorist groups.
    Prior to September 11, 2001, the international community lacked 
focus on the specific means that terrorist groups were using to raise 
and move money. One example of this is al Qaida's perverted use of 
charities and non-profit organizations to raise money, move persons and 
materiel, and provide logistical support for their international 
operations. Nothing could be more reprehensible than the terrorists' 
use of images of widows and orphans to raise money for the killing of 
innocent lives. The international community has responded by blocking 
the assets of suspect charities, closing down and taking law 
enforcement action against others, and setting standards to protect 
charitable institutions from being abused as vehicles for terrorist 
financing. Through the 31-member Financial Action Task Force (FATF), 
the international community set forth the first international best 
practices to protect charities against potential terrorist abuse. The 
establishment of those standards has been followed by actions by 
several jurisdictions, including Gulf States, to monitor how their 
charitable organizations operate, especially in conflict zones.
    The funding of suspect organizations can originate from both 
legitimate donations and illegal sources within our own borders. 
Because these organizations also support humanitarian and relief 
efforts, the commingling of legitimate and illegitimate funds makes it 
difficult to follow the money trail. The Internal Revenue Service-
Criminal Investigation (IRS-CI) has worked with the inter-agency 
community abroad and continues to coordinate these efforts with its Tax 
Exempt/Government Entities Division, whose primary responsibility is 
administering the tax laws associated with charitable organizations, to 
specifically address issues involving terrorism fund-raising by these 
suspect organizations.
    Our strategy has also begun to make progress in countering the 
prevalent use of informal systems of transferring money, often known as 
hawala, throughout the world, including South Asia, the Gulf, Europe, 
and North America, to fund terrorism. This previously largely 
unregulated financial practice has been abused by terrorist financiers 
and other criminals to move and launder large amounts of money quickly 
and surreptitiously. Along with the world community, we have worked to 
broaden regulatory structures for informal money service businesses, 
such as hawalas, and enforce regulations against those refusing to 
register. In May of 2002, I led an inter-agency delegation to the 
United Arab Emirates for the first international conference on this 
issue. As a result of this conference, nearly forty countries committed 
to regulate this sector through registration or licensing. Countries 
like the UAE, Pakistan, and others have responded by regulating this 
sector for the first time, which is proving important for information 
gathering and sharing and ensuring financial transparency within the 
informal financial sector. The FATF and other international bodies have 
further developed standards that are specific to this sector and will 
continue to work with countries to ensure that this sector is well 
regulated and overseen.
    Overall, the concentration on these issues in the international 
arena is due in large part to the consistent work of the U.S. 
government to place pressure on the international community, in all 
relevant fora. We will continue to do so.

C. International Standard Setting
    All of these efforts are part of a strategy to set global standards 
that will plug gaps in the formal and informal financial sectors to 
prevent, or at least minimize, the potential of abuse by terrorist 
groups and their supporters. As President Bush has stated on several 
occasions, the war against terrorism will be a long-term effort that 
will require us to think creatively and to ensure that our modern 
systems are not being used against us. With respect to terrorist 
financing, we have committed ourselves to promulgating and establishing 
international standards that serve to protect the integrity of all 
aspects of the international financial system.
    One critical way we have accomplished this is through the FATF, 
which has served since 1989 as the preeminent anti-money laundering 
multilateral organization in the world. The United States has played a 
leading role in the development of this organization as the primary 
forum for advancing international standards to combat terrorist 
financing. On October 31, 2001, at the United States' initiative, the 
FATF issued Eight Special Recommendations on Terrorist Financing, 
requiring all member nations to adopt a counter-terrorist financing 
regime. These Eight Special Recommendations have become the benchmark 
for counter-terrorist financing regimes and have led to several 
countries modifying and passing new laws to protect their financial 
systems from abuse by terrorists. The Eight Special Recommendations 
commit states to undertake the following measures against terrorist 
financing:

          1. Ratify the UN International Convention for the Suppression 
        of the Financing of Terrorism and implement relevant UN 
        Resolutions against terrorist financing;

          2. Criminalize the financing of terrorism, terrorist acts and 
        terrorist organizations;

          3. Freeze and confiscate terrorist assets;

          4. Require financial institutions to report suspicious 
        transactions linked to terrorism;

          5. Provide the widest possible assistance to other countries' 
        laws enforcement and regulatory authorities for terrorist 
        financing investigations;

          6. Impose anti-money laundering requirements on alternative 
        remittance systems;

          7. Require financial institutions to include accurate and 
        meaningful originator information in money transfers; and

          8. Ensure that non-profit organizations cannot be misused to 
        finance terrorism.

    The FATF has further elaborated on these Eight Special 
Recommendations, including devising a worldwide standard for the 
information required to travel in cross-border wire transfers and 
developing best practices for the regulation of charities. Together 
with the Departments of State and Justice, Treasury will continue to 
work with the FATF to build on its successful record in persuading 
jurisdictions to adopt anti-money laundering and anti-terrorist 
financing regimes to strengthen global protection against terrorist 
finance.
    In addition, the Treasury Department will continue its close 
collaboration with the World Bank, the IMF, and the UN CTC to ensure 
that (a) countries are assessed based on the standards set by the FATF 
and (b) countries can be identified to receive priority technical 
assistance in order for them to come into compliance with the Eight 
Special Recommendations on Terrorist Financing. We will also continue 
to work with all relevant regional bodies to promote the common 
international standards being developed on all relevant financial 
matters.
    We have had enormous success of late in moving countries to change 
their relevant laws and regulations in the area of anti-money 
laundering and counter-terrorist financing. Thanks in large part to the 
authority granted to the Secretary of the Treasury by Congress in 
Section 311 of the USA PATRIOT Act, countries have been fearful of the 
economic effects of designation as a ``primary money laundering 
concern.'' As a result, countries like Nigeria and the Philippines have 
taken action to avoid the stigma of this designation by the United 
States, and the Ukraine moved quickly to pass laws that would remove 
this designation from their country's financial system. This power 
under the PATRIOT Act, in combination with the threat of international 
rebuke, is an effective tool in molding international behavior to 
comply with international financial standards.

D. International Information Sharing and Law Enforcement Cooperation
    Information sharing is critical to fighting terrorism, and a 
critical element in our efforts to identify and dismantle terrorist 
financing is the ability to access quickly terrorist-related 
information received from our international partners. We have seen in 
recent days, with the capture of important al Qaida leaders and 
operatives, the enormous impact and success resulting from close 
international cooperation in the law enforcement and intelligence 
communities. The U.S. government has forged ties around the world that 
are important in continuing to ferret out global terrorist networks. 
For example, soon after September 11th, a Caribbean ally provided 
critical financial information through its Financial Intelligence Unit 
(FIU) to the Financial Crimes Enforcement Network (FinCEN) that allowed 
the revelation of a financial network that supported terrorist groups 
and stretched around the world.
    In order to improve the flow of information, in particular 
financial information related to terrorist financing, we have worked to 
establish and expand international information-sharing channels. 
Through FinCEN, we have directed the attention of the Egmont Group 
towards terrorist financing. The Egmont Group represents 69 FIUs from 
various countries around the world, and FinCEN is the FIU for the 
United States. The FIU in each nation receives financial information 
(such as SARs) from financial institutions pursuant to each 
government's particular anti-money laundering laws, analyzes and 
processes these disclosures, and disseminates the information 
domestically to appropriate government authorities and internationally 
to other FIUs in support of national and international law enforcement 
operations.
    Since September 11th, the Egmont Group has taken steps to leverage 
its information collection and sharing capabilities to support the 
United States in its global war on terrorism. On October 31, 2001, 
FinCEN hosted a special Egmont Group meeting that focused on the FIUs' 
role in the fight against terrorism. The FIUs agreed to: (i) work to 
eliminate impediments to information exchange; (ii) make terrorist 
financing a form of suspicious activity to be reported by all financial 
sectors to their respective FIUs; (iii) undertake joint studies of 
particular money laundering vulnerabilities, especially when they may 
have some bearing on counterterrorism, such as hawala; and (iv) create 
sanitized cases for training purposes.
    Approximately ten additional candidate FIUs currently are being 
considered for admission to the Egmont Group at its next annual plenary 
meeting. Egmont has conducted and will continue to host training 
sessions to improve the analytical capabilities of FIU staff around the 
world. FinCEN is heavily engaged in these efforts and recently 
participated in the international training session held Oaxaca, Mexico, 
co-hosted with the UN.
    IRS-CI contributes to international information sharing, law 
enforcement cooperation, and the overall strategy to combat terrorist 
financing through its Law Enforcement Attaches located in key 
international financial centers throughout the world. These attaches 
support ongoing terrorist financing investigations and aggressively 
develop liaisons with their foreign counterparts to facilitate the flow 
of information in this area.
    In addition, we have worked closely with the Departments of Justice 
and State to establish new means of investigating terrorist financing 
cases. For example, the United States and Switzerland entered into a 
memorandum of understanding on September 4, 2002, that allows federal 
agents from each country to work hand-in-hand with their counterparts 
on related terrorist financing investigations. This cooperative 
international working arrangement is a novel way of ensuring close 
coordination and information sharing. We will continue to work on 
establishing these types of open channels of communication 
internationally to uncover terrorist networks.
    In addition, we developed the Counter-Terrorist Financing Public 
Awareness and Rewards Campaign in coordination with the State 
Department, which we announced together on November 13, 2002. This 
partnership with the State Department's ``Rewards for Justice Program'' 
is a campaign to offer $5 million for information on funding networks 
that support terrorist activities, including underground financial 
systems, illicit charities, and corrupt financial service providers. In 
addition, this program is intended to raise public awareness and 
understanding of how terrorist financing occurs. The State Department 
has been a strong supporter and advocate of this Campaign, and the 
Embassies are serving as an important medium for this information.

E. Capacity Building
    Providing our international partners with the legal, regulatory, 
and enforcement capabilities to combat and prevent terrorist financing 
is an integral part of our overarching strategy. Along with the State 
and Justice Departments, we have engaged in several capacity-building 
initiatives with other governments and the private sector to defeat 
terrorist financing activity. For example, we have provided several 
countries in the Gulf with training related to trade-based money 
laundering, which is a scheme used by smugglers and perhaps terrorist 
financiers to move money intended for criminal purposes through 
commerce. Our international partners have welcomed this type of 
training, and we plan to provide it to other countries that are 
susceptible to this practice throughout the world. Treasury has in 
addition utilized IRS-CI's financial investigation expertise in 
conducting assessments of various foreign governments' law enforcement 
capabilities, developing courses, and furnishing instructors for 
training in financial investigative techniques. Moreover, Treasury has 
and will continue to contribute to the inter-agency law enforcement 
training programs at the various International Law Enforcement 
Academies (ILEA) around the world, including the recently established 
ILEA in Costa Rica.
    In addition, Treasury is co-chairing a FATF Working Group on 
Terrorist Financing, which, among other issues, is charged with 
identifying technical assistance needs of various governments around 
the world. This Working Group is collaborating with donor states, the 
International Monetary Fund, the World Bank, and the UN Counter-
Terrorism Committee in helping to identify jurisdictions in need of 
technical assistance. Bilaterally, members of my office, the Office of 
Foreign Assets Control (OFAC), and FinCEN, among other Treasury 
components in close cooperation with the Departments of State and 
Justice, have worked directly with foreign governments to increase 
their capabilities to freeze terrorist-related assets and to process 
and analyze financial information. We have also participated, along 
with the Treasury's Office of Technical Assistance, in several inter-
agency assessments of technical assistance needs with respect to 
combating terrorist financing in various countries of strategic 
interest to the United States.
    These efforts will gain strength as we enlist the further 
cooperation of other international donors. We have certainly seen 
recently a greater commitment from various countries to provide needed 
training and technical assistance to countries that have demonstrated a 
clear need and desire for assistance.

                         III. CHALLENGES AHEAD

    Though the U.S. government has led the world in focusing attention 
on the problem of terrorist financing, there is still much work to be 
done. There are several specific challenges that lie before us that we 
must continue to address in the international context.
    Foremost, we must maintain political and diplomatic pressure on our 
partners abroad and the international institutions in which we engage 
to continue to focus on the problems associated with terrorist 
financing. The further the world's memory of September 11th recedes, 
the harder it is to maintain a sense of urgency internationally to act 
against terrorism. We must ensure that we are constantly communicating 
the importance of this issue to our partners and that our own resolve, 
in particular abroad, is not seen as wavering.
    We must continue to broaden and deepen our efforts worldwide. From 
improving the way the international community blocks assets to ensuring 
that charitable giving is not corrupted by terrorists, we need to be 
vigilant and ensure that all countries are taking the necessary steps 
to deter, detect, and disrupt terrorist financing. This is particularly 
the case in areas of the financial system that are especially 
vulnerable to abuse by terrorist groups, such as alternative remittance 
systems and charities in crisis locations.
    In this endeavor, we will and must continue to address fundamental 
areas of concern with our partners. Since September 11th, the United 
States and the EU have campaigned jointly to designate terrorist 
entities and their financial backers in order to freeze their assets. 
For example, nearly every terrorist individual and entity designated by 
the United States also has been designated by the EU or some of its 
member states. Moreover, the United States and the EU have established 
a fluid, informal mechanism for sharing information on terrorists and 
their supporters.
    Recent terrorist finance developments at the EU member-state level 
also are positive. Last September, we co-chaired with Spain an 
important meeting of the FATF to discuss international standards and 
measures being taken in the war against terrorist financing. In August, 
Italy joined the United States in submitting to the UN 1267 Sanctions 
Committee the names of 25 individuals and entities linked to al Qaida. 
The Dutch Government recently froze the assets of the ``New Peoples 
Army'' and its leader Jose Sison, both known to be responsible for the 
killing of American citizens in the Philippines. France, Belgium, The 
Netherlands and Germany have all submitted names in recent months to 
the UN 1267 list.
    Nevertheless, differences remain that must be addressed. We have 
pressed the EU to join us in labeling Hamas and Hizballah as terrorist 
organizations. Thus far, most European countries have avoided this 
issue, on grounds of a supposed distinction between the ``charitable'' 
or ``political'' wing of Hamas and Hizballah and the militant/terrorist 
wing. The United States has rejected the notion that ``firewalls'' 
separate political or charitable activity from the terrorist activities 
of Hamas and Hizballah, and we urge our European counterparts to do the 
same. Not only is money fungible across all programs and activities of 
these terrorist organizations, but no evidence has been brought forward 
to establish the existence of any such ``firewalls.'' Nor is there any 
reason to suppose that terrorists within either organization respect 
such niceties.
    We are beginning to see some progress. Recently, for example, 
Denmark and Germany took concrete enforcement actions against the Al 
Aqsa Foundation--a fundraiser for Hamas. In addition, the EU recently 
designated the al-Aqsa Martyrs Brigade, a Hamas-related group that has 
taken responsibility for a number of suicide bombings in Israel. These 
are important developments and movements in the right direction, but we 
have a long way yet to go. We also need to continue to press the EU on 
improving and streamlining the methods in which they designate parties 
under the Clearinghouse process.
    Our EU counterparts know that the United States is pressing for 
resolution on these critical issues, which we believe will enhance the 
EU's ability to combat terrorist financing. We welcome the generally 
good cooperation of the EU in the financial war on terrorism to date, 
and we will continue to push for progress on these remaining issues.
    In other regions of the world, we face challenges of capacity 
building to develop more transparent and accountable financial sectors 
and to establish greater oversight of the charitable sector. In the 
long run, our success in combating terrorist financing will depend upon 
the ability of other countries to police their own financial and 
charitable sectors, and we must assist them in developing these 
capabilities. We will continue to work through the FATF, the IMF, the 
World Bank, the UN CTC, various regional organizations and with other 
donor countries to coordinate the delivery of technical assistance to 
those countries with the political will but lacking the necessary means 
to combat terrorist financing.

                             IV. CONCLUSION

    I was interested to note Senator Biden's recent speech in which he 
stated that ``[o]ur new war is not a Cold War but a Borderless War.'' 
Indeed, we are engaged in a long, unconventional struggle that requires 
us to use all of the U.S. government's assets. In this mission, we must 
work tirelessly abroad to choke off the channels of funding to 
terrorist groups and to raise the standards in the international 
financial system. As part of this war, the battle against terrorist 
financing is a long-term campaign for the Treasury Department and the 
entire U.S. government. As I have said before, ours is a long-term 
mission to save lives by denying the terrorists the funds they need to 
train, to plan, to travel, to hide, and to attack. By denying these 
terrorists dollars and yen, , we are depriving them of bullets and 
bombs. I thank you for your support. I will be happy to answer any 
questions you may have.

    The Chairman. Well, thank you very much, Mr. Zarate.
    Once again, we will have another round of questioning with 
7-minute limits, and Senator Hagel and I are the only two 
survivors on this side of the panel. We will try to do the best 
we can on behalf of all our colleagues.
    Let me just say again what a difference this is to have 
three agencies of our government all complementing each other 
not only in your rhetoric, but likewise in your deeds, in the 
work that is being done on the ground, recognizing that a part 
of our mission today is to think through the State Department's 
budget, its housing of all of the agencies, its ability, 
really, to function in the field, sometimes under very arduous 
circumstances, which all of you face with your colleagues 
wherever they are. So the same hardship post situations we are 
talking about with regard to the State Department are equally 
true for the FBI, for Treasury, for others, and we appreciate 
those Americans who are there.
    Now, let me just pick up on this by saying the $120 million 
that has been blocked, mentioned by both Mr. Black and Mr. 
Zarate, is an important figure, and I want to try to get a 
better dimension of both how that came about and what else we 
are seeking out there. I just take as a point of personal 
experience, picking up on this cooperation element, that I 
visited our American Embassy in Germany.
    My former colleague in the Senate, Dan Coats, is our 
Ambassador to Germany now. Ambassador Coats pulled together, 
there in the embassy, officials from our intelligence agencies, 
from the FBI, from the other agencies of government, all of 
whom were prepared really to tell me how they were working with 
German friends who were in similar responsibilities. It was a 
remarkable demonstration of cooperation, and went straight to 
the problems both of trying to find out about al-Qaeda cells or 
cell members who had been operating in Germany, some of them 
prior to 9/11, some of them after then, and the money problems.
    Here is an international situation. The German economy is 
very complex, and the banking system is likewise. We had 
hearings here both behind closed doors, and a few in front, 
with regard to stopping the money flow, and this is a delicate 
business. Very rapidly, Americans came into the hearings and 
would say, now, careful there, you are getting into bank 
accounts, you are getting in to privacy issues. The flow of 
money does not just happen, separating terrorist money from 
other money, from people's regular checking accounts or from 
commercial transactions.
    It is almost like the problem of the wiretapping issues 
that occurred back in the Carter administration before the 
Intelligence Committee. How does the FBI segregate these calls, 
or expunge all of the information which is irrelevant, or on 
the same lines, through a court order that is specifically 
drawn for the protection of civil liberties? This type of thing 
began.
    Now, the Germans have the same problem. So do the French, 
and so does everybody else who is working with us, and yet the 
cooperation of all of these countries is of the essence. If 
there are weak links along there, they are rapidly taken 
advantage of by those who want to transfer money, quite apart 
from this hawalah exercise that became a new term and a new 
source of education for all of us with respect to how money is 
actually transferred when it does not go through regular means.
    I am just curious, as you expressed I think very well, Mr. 
Zarate, as the 9/11 situation pales, so conceivably could the 
enthusiasm, not in our banking system, or with Treasury, but 
with others with whom we cooperate. As a matter of fact, in our 
current diplomacy vis-a-vis Iraq sometimes I have the 
impression, as I visit with diplomats from other countries, 
that they want a good relationship with the United States and 
therefore they are inclined to be cooperative, but they do not 
see the terrorist situation in quite the same way that we see 
it.
    Now, we have complained that after all, we were hit. The 
Brandenburg Gate and the Eiffel Tower were not taken out by an 
aircraft. Maybe their attitude would be different. But they 
would reply, I think rather weakly, that we do not anticipate 
that we are the target, you are the target, and I am trying to 
bring to the surface how we get cooperation, and how does it 
remain? And $120 million is a lot of money. Many estimates of 
the amount of money that is flowing, either through the bogus 
charities or through a liberal interpretation of what a charity 
may be, or just another old fashioned method, demonstrate that 
the size is greater than this by some multiple.
    So describe to me, what is the nature of the cooperation? 
What more do we need? In terms of diplomacy, what do we need to 
say to a country that may make them more amenable to having the 
common fight? Likewise, how do you overcome the civil liberties 
challenges, legitimate questions raised by Americans on privacy 
issues?
    Mr. Zarate. Thank you, Mr. Chairman. If I could first 
answer your question with respect to the amount of frozen 
assets, our most recent estimate of the worldwide assets frozen 
related to al-Qaeda and other terrorist groups is actually $125 
million, so it is actually a little bit over $120 million.
    Those funds--and it is important to remember this--are the 
funds that have been captured at the moment that the blocking 
orders were put in place by the domestic regime, either 
pursuant to the U.N. process or pursuant to a domestic process, 
so that number I think is a little deceiving, because its 
significance is that it signals a cutting-off of channels that 
had existed prior to the blocking.
    The Chairman. I see, an initial freeze en bloc.
    Mr. Zarate. Exactly, so there is a freezing that actually 
happens, and those are the amounts that were in the accounts or 
in process of being transferred at the time the orders were in 
place.
    With respect to cooperation, we are finding cooperation is 
unwavering on this, in part because we have kept it at the top 
of our agenda. One of the key issues, and I think it may be 
unique to the area of terrorist financing, is that not only do 
countries feel a sense of threat, perhaps not as directly as 
the United States, but they do feel a sense of threat with 
respect to terrorism. And they also feel, and they know that 
the corrupting effects on their financial system, their 
domestic financial system, is extremely threatening to the way 
their economy works. So with respect to measures taken to 
combat terrorist financing, increasing international standards, 
we are looking at a commitment worldwide to effectuate those 
efforts.
    With respect to the civil liberties issue, the issue of 
blocking of assets has been challenged in court. The United 
States has prevailed to date with respect to all of the 
challenges, in particular the domestic entities that have been 
blocked, in particular the Holy Land for Relief and 
Development, which was a Hamas fundraiser. Those challenges 
have been upheld in court, and we do not see a problem with 
that.
    The process domestically is extremely intensive with 
respect to the review of whose assets, or which entities' 
assets will be blocked. There is a very intricate interagency 
process controlled at the highest levels of the administration 
because of the sensitivity of the very issues you have pointed 
out.
    Internationally, there is a U.N. process in place to 
designate entities, and that as well is scrubbed by the 
international community through the U.N. Sanctions Committee.
    The Chairman. Let me just say, I understand the blockage. 
Now, what is likely to happen to the money? After the money is 
blocked, it sits there. What sort of legal disposition occurs?
    Mr. Zarate. Unlike in a situation where you have a seizure 
or a forfeiture, the blocking actually sits there and 
theoretically can sit there ad infinitum. But what you have in 
the case of the terrorist programs, and you see this in the 
case of the various country programs administered by the Office 
of Foreign Assets Control, is that you have a blocking regime 
in place in the hopes that the regime you are blocking, or the 
entity you are blocking can be reformed and the money can be 
returned.
    We saw this very clearly in the case of Afghanistan. Once 
the Afghan interim authority was put in place, all of the 
reserves which had been blocked, the central bank reserves from 
Afghanistan which had been blocked were unblocked and returned 
to the Afghan central authority for their use and for their 
credits, so that, in essence, is the model.
    With respect to individual terrorists and entities, those 
remain blocked.
    The Chairman. Yes. They would not be reforming, I suspect. 
I mean, you may get reform in a State situation.
    Mr. Zarate. In certain instances you could have individuals 
who disassociate themselves from the organization that formed 
part of the terrorist network, and we have seen delistings for 
those reasons, and unblocking of very minimal amounts for that 
reason, but otherwise I think you are right, Mr. Chairman.
    The Chairman. Senator Hagel.
    Senator Hagel. Mr. Chairman, thank you.
    Gentlemen, thank you for appearing today. I would add to 
the Treasury and the FBI our thanks, as has been mentioned by 
the chairman and others here, and we are all grateful for what 
you are doing for this country, and please give your colleagues 
our thanks as well.
    Mr. Pistole you have, in your testimony, noted, and I 
quote, ``last month Director Mueller testified before the 
Senate Select Committee on Intelligence that the al-Qaeda 
network will remain for the foreseeable future the most 
immediate and serious threat facing this country.'' I was at 
that hearing, and I happento agree with Director Mueller's 
assessment.
    For each of the three of you, I would appreciate your 
thoughts on this question, and it is this. As we have, over the 
last 18 months, defined more and more the threat, where the 
threat is coming from, identifying the more sophisticated 
terrorist networks in the world, who harbors those networks, 
who supports them, who finances them, do you see any 
intentional or unintentional grouping of these sophisticated 
networks in some new league, or multiterrorist network that 
would help support their overall efforts, each of their overall 
efforts as terrorism?
    We understand that each is driven by different dynamics 
toward different governments, peoples, groups, countries, but 
is one of the consequences of what we are doing--and by the 
way, I am not rendering an opinion one way or the other, 
whether it is good or bad, but one of the consequences of our 
intense focus on terrorism now, as the Director has stated, as 
you have noted in response to the chairman's questions about 
other nations working closely with us, certainly Ambassador 
Black has testified to this effect, is there evidence of that 
going on, may go on, and if there is, does that work to our 
benefit or not? So gentlemen, take any part of that, and I 
appreciate hearing from the three of you. Thank you.
    Mr. Pistole. Thank you, Senator Hagel. I will approach it 
from the domestic perspective. We have seen little indication 
in the United States of, for example, Sunni extremists such as 
al-Qaeda establishing relationships with other terrorist groups 
such as Hezbollah, Hamas, some of the international groups such 
as Jemaah Islamiyah or the Abu Sayyef group, Indonesia and the 
Philippines respectively. Ambassador Black can touch on some of 
those associations more specifically as it relates to overseas.
    We have also seen little indication of, for example, 
domestic terrorist groups such as some of the Aryan Nations, 
the white extremists, some of those groups, having any 
association with the foreign, if you will, groups such as the 
Sunni extremists, such as al-Qaeda, and in only one instance 
was there even a speculation of that, which we were able to 
discount through investigation, so we have, if you will, 
stovepipes of terrorist activity, groups that have their own 
goals, motives, and accomplishments which they strive for in 
large part independent of the other groups.
    The concern we have now is with the probable hostilities 
with Iraq, what Iraqi either intelligence officers or other 
individuals sympathetic to the Hussein regime may try to do in 
terms of enlisting these other groups either as sympathetic to 
the Muslim cause or to the cause of the underdog, if you will, 
against the superpower of the United States.
    We have some intelligence which I will not go into in this 
hearing, but about some of these sympathizers and some of these 
other individuals and groups who have indicated an interest in 
taking terrorist acts against the United States in the event of 
hostilities. We believe we have excellent coverage of those 
individuals and entities around the United States and are very 
well positioned, in fact best positioned in the history of the 
FBI to determine whether any such individuals are moving from 
the talking stage of, here is what we may do in the event of 
hostilities, to a national operations stage, and we believe 
that there is limited, our assessment is that there is limited 
activity in that regard, but there is still significant 
activity from a fundraising and recruitment perspective, so 
that is it in a nutshell from a domestic perspective.
    Senator Hagel. Thank you. Ambassador Black.
    Ambassador Black. Yes, Senator, I think it is important we 
should remind ourselves of programmatically the success that 
the U.S. Government and FBI, American intelligence, Treasury 
Department, working with their foreign colleagues and 
counterparts, have had in this global war on terrorism. I think 
we should be mindful of the fact that the President, the 
administration's strategy has put tremendous pressure on these 
primary terrorist groups, and this should not be 
underestimated.
    Al-Qaeda is not the organization now that it was before. It 
is under stress organizationally. Its leadership spends more 
time trying to figure out how to keep from getting caught than 
they do trying to launch operations, yet at the same time we 
have to be mindful that there is the certainty that terrorists 
will attempt to launch multiple attacks against their enemy, 
which is us and our allies.
    This international cooperation has resulted in a reduction 
in al-Qaeda's organizational capability from which to strike. 
Their resource base is lower than it was when we started, and I 
suspect history will say by this time it was greatly depleted, 
still dangerous, still vicious. But I think the 
administration's strategy in this case is working handsomely.
    Things are not going well for the terrorists, and things 
certainly are not going well for al-Qaeda, witness the 
successes that American intelligence and the FBI have had on 
their own with their foreign counterparts. These people are 
going into extreme maneuverability to try and remain viable and 
also to be in a position to conduct attacks.
    Their options are limited. They can reach out to other 
terrorist organizations over the long term to sustain them. 
They can hijack issues that they are not normally associated 
with, local issues around the globe, whether it has to do with 
Islanders' rights in the Pacific or other similar type things. 
They also will attempt to make themselves more attractive to 
local groups that are looking for resources.
    At the same time, Senator, it is very important to 
appreciate that the U.S. Government is doing everything it 
possibly can not only inside the United States but around the 
world to put extreme pressure on these people to capture them, 
to render them to law enforcement, to identify their 
connections, to cutoff the sources of their funding. I, for 
one, who have been in this game for quite a few years, must say 
that I can tell you in all honesty that we are making 
tremendous progress.
    The concern, of course, is that you do not know what you do 
not know, and people that do counterterrorism, like the 
gentlemen seated next to me, always have to be mindful of the 
fact that there could be a catastrophe, but I would say at the 
same time that the United States' counterterrorism effort is 
increasingly effective. It shows no sign of stopping. The 
pressure on al-Qaeda and our enemies is intense, and they will 
be extremely challenged to survive, much less remain in place 
or, to a lesser extent, even grow and increase their 
capabilities.
    Senator Hagel. Mr. Chairman, if I might, I would like to 
get Mr. Zarate's comment, but may I ask a quick question of 
Ambassador Black?
    Sir, you are saying you see no evidence from your vantage 
point of seeing these terrorist groups forging a new overall 
multilateral terrorist league or network?
    Ambassador Black. I do not see it in terms of the 
classically established terrorist groups. I do not see 
Hezbollah embracing al-Qaeda. In fact, I should sense it may be 
something of the opposite. They have competing agendas, but I 
do think that where agendas are sympathetic or compatible, such 
as perhaps with localized terrorist groups in Asia that have a 
commonality with an al-Qaeda. You certainly see actions on that 
part to keep those contacts alive.
    Senator Hagel. Thank you. Mr. Zarate.
    Mr. Zarate. Thank you, Senator Hagel. I would like to echo 
Ambassador Black's comments. I think first and foremost we need 
to assure the American public that our actions have certainly 
disrupted terrorist operations and, on the financial front, 
certainly deterred fundraising that had been occurring prior to 
9/11. The blocking of assets, the arrest of key financiers, 
other efforts by governments abroad has been extremely 
important to our efforts.
    I think the great danger with al-Qaeda, and Ambassador 
Black mentioned this, is their ability to reach into particular 
regions and to touch the allegiances of certain groups. We have 
certainly seen that in Somalia and Chechnya, in Southeast Asia, 
in Iraq, with Ansar al-Islam, so that is the real danger, and 
with respect to financing, the problem lies in the fact that 
funding mechanisms and fundraising and the channels by which 
money can move are fairly fungible, so they can be used not 
just by al-Qaeda but by other groups. But I cannot say before 
you today, sir, that we are seeing the types of links that you 
are talking about.
    Senator Hagel. Thank you.
    The Chairman. Thank you very much, Senator Hagel. I have 
three questions, and this will conclude my questioning. Senator 
Hagel may have additional questions.
    Let me say that a common complaint used to be, and I hope 
it is past, by consular officials that intelligence and 
enforcement agencies inside the embassies did not share 
information very readily with them, that the communication line 
between the State Department people and the others was 
deficient.
    Now, I have already cited an example from my own experience 
with Ambassador Coats in Germany, where clearly everybody was 
around the table, obviously all of us talking and visiting. I 
presume the Ambassador does this routinely every day. That was 
true of our embassy in Russia--I visited there not too long 
ago--and in Great Britain, and I suspect it is true elsewhere.
    But to what extent do you still get these complaints, those 
of you who are, say, in the FBI and the Treasury, that you are 
doing good work but on the other hand we are not altogether 
sure what you are doing, from the Ambassador, or from the 
Charge, or from others who have responsibility and who are 
housed in the same place, or have you successfully mitigated 
these complaints in such a way that there is a general feeling 
throughout all of our consular service of the kind of 
cooperation we have seen here today? Do you have a thought, Mr. 
Zarate?
    Mr. Zarate. Absolutely, Mr. Chairman. I, too, have been 
abroad and seen the country teams working extremely well 
together in Europe, in the gulf, and in other parts of the 
world. The country teams are working extremely well together in 
terms of sharing information. We identified this as an issue 
early on in the process, right after 9/11, and what we did in 
close coordination with the State Department was to create what 
are called terrorist financing coordinators in all of the 
embassies around the world.
    These are coordinators that bring together all of the 
elements within an embassy team that have any equities at all 
to do with terrorist financing, so you have the Legat, you have 
any former Treasury bureaus, customs attaches, you have the 
econ counselor and others who are involved in these issues, so 
there is constant sharing of information, and I think though 
there may be occasional mishaps with respect to the sharing of 
information, I think we have created a system by which 
information, at least from the terrorist financing perspective, 
is being shared quite well.
    The Chairman. Very well. Do you have further comment, Mr. 
Pistole?
    Mr. Pistole. Mr. Chairman, I think post-9/11 there has been 
a new synergy and a new emphasis, and realization of the 
absolute need to cooperate, share information that perhaps was 
not present prior to 9/11. The only indications of problems, 
and I like to look at it as, there are no problems, only 
opportunities to demonstrate character, but the only 
opportunities to demonstrate character that we have encouraged 
are primarily personality-driven between two strong 
personalities at different agencies.
    The Chairman. Let me ask, I am just curious at this point, 
given the blockage of funds, how do you estimate that al-Qaeda 
funds itself? We have had reports in the press of illegal 
diamonds mined in Sierra Leone and sold by Liberia, and somehow 
those assets converted to whatever al-Qaeda needed. That is 
simply one dramatic example that has bobbed up in the press 
which might leave all the account-blocking behind in some other 
type of trade, but what is your estimate of how the financing 
still goes on and how extensive it is?
    You, Mr. Zarate, have estimated it probably is down to a 
dull roar in comparison to the past, but can you quantify or 
give us any idea of what is going on?
    Mr. Zarate. Mr. Chairman, it is very difficult to find a 
universe of dollars or foreign currency that are being used for 
terrorist financing. That being said, I think that al-Qaeda and 
other groups are still using traditional means and formal 
financial means to move money and to raise money.
    Certainly donors are still active to a certain extent. 
Certainly charities throughout the world are susceptible to 
abuse and still continue to be a problem, as I mentioned in my 
oral testimony, and we do suspect that unconventional means of 
moving money, for example, trade-based money laundering may be 
a way that terrorist financiers are moving money in particular 
regions of the world, perhaps southwest Asia and the gulf. So 
those are things that we are still looking at very vigilantly, 
and as I mentioned in my testimony, it is important to deal 
with these issues not only in a short-term basis in terms of 
blocking and disrupting movements of funds, but also to deal 
with the long-term efforts of creating systems and mechanisms 
in countries so that they themselves, countries, can deal with 
this issue from a regulatory law enforcement and general 
enforcement perspective.
    The Chairman. Mr. Black, from your long-term experience in 
this situation, do you have anything additional to offer on the 
finances of al-Qaeda?
    Ambassador Black. Yes, Mr. Chairman. Probably al-Qaeda's 
greatest infusion of resources took place when he was in 
Khartoum and he ran a construction company, built roads, and 
purchased----
    The Chairman. This is Osama bin Laden?
    Ambassador Black. Osama bin Laden, the leader of the al-
Qaeda organization, whose ability to conduct legitimate 
commercial activity has ended. The United States and her allies 
have certainly interfered with that, and so you are essentially 
talking about the movement of funds that could be used as well 
as the collection of funds that are contributed by select 
charities or individuals. Financially, he is under stress, and 
the United States and the Department of the Treasury and the 
State Department, the FBI, and intelligence and our allies are 
looking at ways to stop all sources of resources, financial 
resources, including the hawalahs, including charities, and the 
whole like, so that is to the good.
    The bad, Mr. Chairman, is unfortunately many of these 
terrorist organizations are essentially inexpensive, so whereas 
we I think are meeting with some considerable success in 
interdicting the flow of funds, a little bit still with these 
people goes a long way, so we have a ways left to go on that.
    The Chairman. Just on that point, though, clearly it would 
appear that training camps such as the ones that al-Qaeda used 
to have in Afghanistan are fairly extensive operations. 
Likewise I have read reports from time to time of offers by al-
Qaeda to buy, if not fissile material, at least elements that 
might lead to weapons of mass destruction. This probably 
involves money as opposed to in-kind transactions. It is a very 
expensive business.
    If what you are testifying is that we are down, now, to 
sort of the bare essentials of inexpensive living off the land, 
or in-kind trades of cloth and food and so forth, that is a 
different situation, obviously, than that which we have 
observed before.
    Can any of you give any flavor of where the al-Qaeda 
situation is? In other words, is there enough money to conduct 
at least in some places sophisticated operations that can be 
threatening to us, or is the privation fairly persuasive for 
them?
    Ambassador Black. No, sir. They certainly are extremely 
dangerous, and they have the capability to strike. That is very 
important to appreciate. However, they are not the organization 
they were, and the trend is downward. Their ability to move 
funds has become more problematical for them. They are moving 
away from more classical means of transmitting funds, relying 
more upon personal relationships and hawalahs. The 
organizational entity that was al-Qaeda seems to be changing 
into something that is less formal, less precise, and much 
slower.
    The Chairman. Mr. Pistole, do you have something to add?
    Mr. Pistole. Yes, Mr. Chairman. If I could just add, from 
the domestic perspective we have identified a number of 
individuals engaged in traditional crime such as drug 
trafficking, counterfeiting, traditional white collar crimes, 
different frauds, to facilitate terrorist activity, we do not 
believe here in the United States but overseas.
    And without specifically identifying which groups they are 
associated with, there have been some recently publicized 
indictments and pleas and convictions about individuals engaged 
in those traditional crimes, the extent of which we are 
challenged in tracing those funds to actual terrorist activity 
overseas, but we know they go to terrorist organizations, and 
as Mr. Zarate mentioned earlier, $1 that we can take away from 
a terrorist organization is just that many fewer bombs and 
bullets they can buy.
    The Chairman. I am curious. We had open testimony when the 
joint intelligence committees met in a number of hearings in 
the last calendar year discussing the tragedy of 9/11. 
Testimony came from the Director of NSA about the overwhelming 
numbers of messages, the explosion of cell phones, cables, 
other devices all over the world in which people communicate 
with each other in volumes well beyond the capacity of NSA to 
encompass some days, quite apart from engaging in this term 
that arose from the hearings, ``data mining.'' You try to parse 
through all of this debris and find the nugget that you might 
put in front of a policymaker like yourselves.
    Now, I am curious--at least as operatives, as you are both 
in the field and here in Washington--are you getting better 
support, say from NSA or from others, in terms of information 
that is useful in a timely way? Because clearly that is the 
whole point of the exercise, that those who are collecting 
messages and tips and names and what-have-you, and hopefully 
have translators to get the language right and so forth, are 
getting to you. Are you getting support? Can you give any idea 
of how this has moved quantitatively or qualitatively in your 
Departments? Mr. Zarate.
    Mr. Zarate. Mr. Chairman, I think I can say for the entire 
Department of the Treasury that we have received enormous 
support from the intelligence community after September 11. 
Once the President declared war on terrorism and made one of 
the principal prongs of that war combating terrorist financing, 
there was a renewed commitment to using assets in the field to 
collect relevant intelligence, and we have worked very closely 
with the intelligence community to use that information.
    I would just like to note as well that we have been doing 
our best to sift through and to find the wheat in this chaff in 
terms of the financial information that we are responsible for, 
the Bank Secrecy Act information, the CTRs and SARs which banks 
file with the Financial Crimes Enforcement Network are 
extremely valuable to law enforcement, and we are doing our 
best to find ways to mine through that information and to 
provide the best service to our law enforcement partners.
    The Chairman. Mr. Black.
    Ambassador Black. Mr. Chairman, as a consumer of 
intelligence now, I must say that we are very pleased with the 
product that we are getting. It is timely, it is quick, the 
relationships among the principals I think are very close, very 
mutually supporting and as, I think, a symbol. Mr. Chairman, 
perhaps what you are looking for is representing the Department 
of State on the Senior Steering Group, which is a senior group 
that looks over the terrorist threat integration center. I 
represent the Department of State.
    So we are in on the ground floor with Mr. Pistole and 
others, Winston Wiley from the CIA and others, so that we are 
plugged into this new integration center in a very productive 
way. I think the trend has been very, very positive. We are 
very pleased, and we are humbled at how hard people in the FBI 
and the intelligence communities work around the clock on our 
behalf.
    The Chairman. Well, Mr. Black, let me just say, because for 
the sake of the hearing we ought to recognize you have been a 
major producer of intelligence and other responsibilities.
    Ambassador Black. That is why I am sort of glorying in this 
change of jobs here, Mr. Chairman. This is much better.
    The Chairman. Exactly, your humility as a consumer of all 
of this, but likewise your praise of those who are out in the 
field who are well-known to you and we appreciate that.
    Ambassador Black. Thank you.
    The Chairman. Mr. Pistole.
    Mr. Pistole. Yes, Mr. Chairman. Specifically concerning the 
NSA, post-9/11 we had an exchange of personnel, FBI 
representatives to Fort Meade and NSA representatives to FBI 
headquarters, where I receive a daily briefing from an NSA 
representative on pertinent traffic that they have intercepted 
that is germane to our war on terrorism as it pertains to the 
United States.
    Our major issue there is just getting additional people 
read in on certain classified projects that will give them the 
access and then be able to provide that information in a useful 
way, for example, to our Joint Terrorism Task Forces around the 
country, to take it from the top secret classification down to 
something usable at the JTTF level, then make that actionable. 
We are working with NSA on that and have made some significant 
inroads in that area, terrific cooperation.
    The Chairman. Thank you.
    My final question regards the support that your activities 
receive from the embassies. Now, this relates not just to human 
support in terms of good feeling and cooperation. Are our 
embassies equipped in a technical sense, communicationwise, for 
example, or electronically, or in a state-of-the-art that might 
be found in many international American businesses as they work 
in countries side by side?
    I ask this question because in the past the answer had been 
clearly no. The embassies were not so equipped. Now, you have, 
thank goodness, cooperation of a number of American business 
people who have sometimes availed our own governmental 
officials of their services. This has led, I think, each one of 
us who have visited a number of embassies to really grave 
questions as we face the terrorism problem of why are we not up 
to speed?
    Here is a nation that did not invent everything, but has a 
great number of entrepreneurs. As all of you know in the 
intelligence field, the informal advisory group that came to 
the fore, many entrepreneurs who have intellectual property 
issues have a real problem. How do you share this in the public 
good, given that this is your livelihood, which you have done 
so in patriotic service, remarkably.
    Now, having availed themselves of the information, getting 
it fixed out there with the hardware in these embassies is 
another task altogether. It is expensive, it is not well 
understood. Can you help our understanding a bit today as to 
what we ought to be doing, and how it would help the mission 
that you are talking about, quite apart from the cooperation of 
the support? It just seems to me that it is still of the 
essence, if we are serious in the war against terrorism, that 
those who are on the outposts, whatever department they are in, 
have at least the benefit of the expertise and the equipment 
that has been found here in the States.
    Mr. Black, would you lead off on that?
    Ambassador Black. Yes, thank you, Mr. Chairman. I think it 
is important to reflect upon the statements of the Secretary, 
as well as Under Secretary Grossman, who clearly have 
emphasized one key point which is very, very important, I 
think, in appreciating what the State Department is doing for 
us all today, and that is diplomatic action, and the emphasis 
is on action.
    It is not a diplomatic service that relies upon or exists 
exclusively, if not even primarily, on simply reporting back 
home, giving reports of what is going on. This is action 
facilitating the global war on terrorism. We can judge 
ourselves on how well we do in terms of how effectively we can 
enable and empower our law enforcement and Treasury, our 
financial experts and our intelligence question capability to 
develop that information that is so key in the global war on 
terrorism.
    We are the opposite of how the Department of State started 
when it was founded, where I recall someone told me a couple of 
years after the State Department was founded that there was a 
Foreign Service officer in a country in Africa, and the 
Department said, if we have not heard from him in 6 months, we 
are going to have to write him a letter.
    This is the other end of the spectrum. I mean, here things 
are happening so fast you do need technological support to keep 
up with it all, not only for your own purposes, but also to 
integrate effectively with American law enforcement, with 
intelligence. Some of our embassies are very, very good, and 
the ones that your committee and other committees have 
supported and funded are a blessing, are a safe haven, are a 
safe and effective place to work. Not all our embassies are 
like that. I think they can be upgraded. It is the old phrase, 
``speed costs, how fast do we want to go.''
    In this global war on terrorism, I know you appreciate 
this, Mr. Chairman, many other agencies of this Federal 
Government get a lot of attention on their frontline role in 
counterterrorism, but it all starts, and the first among equals 
is the Department of State, and if it does its job, the rest go 
ahead and may they get the glory, but if we do not do our job, 
if we do not do it as effectively as we can, they will 
struggle, and their labor will be inefficient.
    The Chairman. You have to at least provide the telephones 
and something else beyond that.
    Ambassador Black. As long as they share.
    The Chairman. Mr. Zarate.
    Mr. Zarate. Mr. Chairman, I do not feel that I am qualified 
to talk about the technological needs of the various embassies 
abroad. I will note, though, that as Ambassador Black has 
mentioned, the flow of information is incredibly critical to 
our efforts, and we have certainly increased our communications 
with posts abroad both in unclassified and classified ways and 
found it to be very effective and very useful in terms of our 
overall efforts. But with respect to your specific question, I 
am not qualified to answer that.
    The Chairman. Mr. Pistole, do you have any more 
information?
    Mr. Pistole. Well, Mr. Chairman, the FBI, as you may be 
aware, has always been IT-challenged in a lot of respects. The 
old adage since I came in 20 years ago was, ``the FBI, we get 
yesterday's technology at tomorrow's prices,'' and 
unfortunately we have not been in a position to be a real 
player in the intelligence community through the top secret 
linkages that we have needed up until Director Mueller come on 
with the Bureau.
    He brought in some key people in critical positions where, 
given the funding, with your support, we are in the process of 
installing and linking all of our Legats and all of our field 
officers with the intelligence community in a way that 
hopefully, by the end of the year, we will be where we should 
be, but we are not there yet.
    The Chairman. Mr. Black, the President obviously nominates 
ambassadors. Those ambassadors, after proper clearance and 
what-have-you, come to this committee. We have hearings for 
each one of these persons, and they are all able Americans. It 
just strikes me, however, as we are discussing this today, if I 
were one of these people that was appointed and was heading out 
there, I might want to have a degree of training and expertise 
and consultation with each of your departments, starting with 
the State Department.
    Obviously, there are many roles an ambassador must play 
that do not get into technical IT or sharing with regard to 
stopping money laundering, terrorism, what-have-you, but 
increasingly these are roles that ambassadors have to play, 
have to be prepared to do. It is a chief executive role in 
which, regardless of how broad our experience may have been in 
private business, or maybe even in some public endeavors, you 
need to be a quick study, but you have to have something to 
study, somebody who will be the tutor.
    I am wondering to what extent has the State Department been 
active in thinking through the curricula that an effective 
ambassador, who is to be chief executive of sorts of the 
embassy that is the umbrella for everybody--because we are 
talking about cooperation of the whole family here--what kind 
of training such persons now receive, and what improvements 
should we make on that?
    Ambassador Black. As the Secretary has enunciated, ours is 
an action diplomacy where results are expected. When new 
ambassadors come in, all of their qualifications are looked at, 
but essentially we have developed an intensive training program 
for ambassadors keyed to their personal experience. I have gone 
through this myself, where you can sort of have a menu and 
choose what you like. Most ambassadors have the luxury and 
interest to pursue this full-time and take all the courses 
involved.
    We also make personal appointments, and get briefed in 
depth and in detail by law enforcement, the intelligence 
community briefings on their countries----
    The Chairman. How much time does this take? I mean, if 
ambassadors are coming in from scratch, how many weeks and so 
forth would he or she spend in this?
    Ambassador Black. Well, it would take generally about 3 
weeks. It could be a little bit shorter, or it could be longer, 
depending what their needs are and the complexities involved, 
and obviously in the most sophisticated case, if you take a 
very complex country that has very complex technological 
issues, resources issues, places of great geographical 
position, it takes a longer time.
    I think our ambassadors are given a very solid grounding in 
their responsibilities and their leadership role in interacting 
with other members of the community, because the ambassador, as 
the chief of mission, as the President's personal 
representative and the leader of the country team, is basically 
the conductor of the U.S. Government's activities not only in 
counterterrorism but in every other facet. He is the 
knowledgeable and he is probably the most important person in 
terms of a country in terms of deconflicting the interests of 
the various agencies to make sure the overall U.S. Government's 
interests are pursued.
    The Chairman. I am just curious, Mr. Zarate, if an official 
of the United States Treasury was to go overseas and at least 
have an office in the embassy compound and so forth, does that 
official receive any special training with regard to the 
country to which he or she is going to serve? In other words, 
are people prepared for the cultural situation and the 
institutional differences from others? How do they go about 
getting ready for that?
    Mr. Zarate. Treasury has a number of attaches abroad and 
certainly with respect to the attaches in certain posts there 
is a regional expertise that the individual usually has 
attendant to their respective duty. I know that they work 
extremely closely with the State Department not only before but 
also on the ground once they arrive to ensure that they are up 
to speed with the full gamut of diplomatic and political issues 
they need to be aware of.
    One thing I would like to mention, Mr. Chairman, the State 
Department has done a very good job of recently is pulling in 
Treasury Department officials to lecture to new diplomats at 
the Foreign Service Institute. I have a number of my colleagues 
with me today who have actually lectured to the incoming 
classes, so to speak, of the State Department, and they are 
made aware of our ongoing efforts, ongoing efforts more 
specifically in certain countries and more generally about what 
the Treasury Department does, so that has been very effective.
    The Chairman. Mr. Pistole, I suppose with the FBI agents or 
personnel, they would need to know something about the legal 
systems of various countries, evidence requirements and other 
aspects. What kind of training could you describe that they 
receive?
    Mr. Pistole. Yes, Mr. Chairman. Each of our legal attaches 
and assistant legal attaches go through a mandatory training 
back here in Washington at FBI headquarters both to the 
sensibilities of the particular culture and the other agencies, 
and the interrelatedness of the agencies in that embassy.
    It ranges from, for example, if an individual has been an 
assistant legal attache in an office, and that is a more 
limited couple of weeks of training, retraining, up to several 
months of training, depending on the individual, coupled with 
if there is a language requirement to get up to speed, but it 
is primarily the office of Mr. Beverly here, the Office of 
International Operations that takes that lead and works with 
other agencies to provide that training prior to our legal 
attaches being assigned.
    The Chairman. Well, I thank each one of you for your 
testimony and for being so forthcoming in your responses to the 
committee, and we wish you every success.
    I have a statement from Senator Biden that I would like to 
submit for the record, so by unanimous consent that will go in 
right after my own. Thank you very much. The hearing is 
adjourned.
    [Whereupon, at 12 noon, the committee adjourned, to 
reconvene subject to the call of the Chair.]

                              ----------                              

       Responses to Additional Questions Submitted for the Record

                                ------                                

Responses of Hon. Marc Grossman, Under Secretary of State for Political 
 Affairs, to Additional Questions for the Record Submitted by Senator 
                              George Allen

    Question 1. As the world's largest democracy, it seems fitting that 
our relationship with India should be evolving in such positive 
directions--politically, militarily, and economically. I am encouraged 
by the high-level dialogue carried out by you and others in the Bush 
Administration with India on a range of issues. One area where we could 
do more is in the economic arena. India remains largely an untapped 
market for U.S. investors and products. How is the Administration 
working with India to further develop our important economic 
relationship?

    Answer. In November 2001, President Bush and Prime Minister 
Vajpayee formally established the ``U.S.-India Economic Dialogue'' 
which evolved from the ``Economic Coordination Group'' established 
during President Clinton's visit in March 2000. The Economic Dialogue 
has five ``pillars'': Energy, Environment, Trade, Finance and Commerce, 
each of which is led by the appropriate U.S. agency or Indian Ministry. 
The purpose of the Economic Dialogue is to facilitate senior-level 
discussions and cooperative activities between the two governments. The 
process also solicits the support and input of the private sector into 
government decisions and actions concerning the bilateral economic 
relationship. The Conveners of the Dialogue are the Assistant to the 
President for Economic Policy (currently Stephen Friedman) and the 
Indian National Security Adviser to the Prime Minister (Currently 
Brajesh Mishra). The U.S.-India Business Council, the Confederation of 
Indian Industries and the Federation of Indian Chambers of Commerce and 
Industry are the official private sector partners of the Economic 
Dialogue.
    In February 2003, NEC chair Steve Friedman wrote to Indian NSA 
Brajesh Mishra and told him of the President's commitment to a stronger 
and more vibrant U.S.-India relationship. Mr. Friedman noted progress 
on the dialogue in three particular areas--the November launch by State 
Department Under Secretary Al Larson and Indian Additional Secretary 
Ghosh of the private-sector-led biotechnology initiative, the Finance 
sub-cabinet meetings in Washington and Commerce Under Secretary Kenneth 
Juster's talks in New Delhi on high-tech trade.
    As a result of Mr. Juster's meetings, the High-Technology 
Cooperation Group (HTCG) was established in November 2002 in New Delhi, 
led by Under Secretary Juster and Foreign Secretary Kanwal Sibal. The 
role of the HTCG is to promote and facilitate bilateral high-technology 
commerce. The first official meeting of the HTCG was held on July 2 in 
Washington and the agenda covered trade facilitation, market access 
issues and confidence building measures for trade in dual-use items. 
The next meeting of the HTCG is tentatively scheduled for November 2003 
in New Delhi.
    Under the umbrella structure of the Economic Dialogue, numerous 
discussions and meetings were held during 2002, including Cabinet/
Minister-level meetings in the areas of Trade, Finance, Energy and the 
Environment. In 2003, Cabinet/Minister-level meetings have been held on 
Energy, the Environment and Commerce.
    Private sector endeavors have included the creation of an industry 
Biotech Alliance in November 2002, a Track II dialogue on trade, and 
participation in the June 2003 Commercial Dialogue. As part of the 
HTCG, over 100 business representatives from India and the U.S. 
attended the ``Financing Innovation'' Forum held on June 30. The Forum 
covered the investment climate for high-tech, the role of venture 
capital and the specific sectors of IT, life sciences, defense and 
nanotechnology. Another private sector forum is expected to occur in 
conjunction with the HTCG meeting in November.
    We fully agree that India remains largely an untapped market for 
U.S. investors and products and we will continue to look for avenues to 
broaden and deepen our economic relationship in close consultation with 
the private sector.

    Question 2. This Administration, to its credit, has recognized that 
India is a natural strategic ally for the United States. More than ever 
before, we have clearly placed greater focus on how to build 
constructive and broad-based relations with India, and rightly so. I 
understand we are working with India, for example, to expand our 
relations into such new areas as civilian nuclear safety and space 
cooperation. Could you comment on what progress is being made in these 
areas?

    Answer. The United States is committed to increasing cooperation in 
the civilian nuclear safety, space, and high technology trade areas--
the so-called ``trinity''--consistent with our own laws and 
international commitments. President Bush has taken a personal interest 
in achieving this objective. We have:

   waived sanctions imposed because of India's 1998 nuclear 
        tests that limited a wide range of military and economic 
        cooperation.
   resumed and expanded a dialogue between nuclear regulatory 
        agencies based on publicly available information that is aimed 
        at promoting civil nuclear safety. This had been suspended 
        after India's nuclear tests in 1998.
   hosted the chairman of India's Atomic Energy Board. The 
        Chairman of the U.S. Nuclear Regulatory Commission paid a 
        return visit to India in January 2003.
   reaffirmed our commitment to bilateral space cooperation, 
        first by renewing a Memorandum of Understanding with Indian 
        counterpart agencies, and second by laying plans for a 
        conference with India in which technical experts will map out a 
        detailed agenda for action.
   continued civilian space cooperation in such areas as earth 
        and atmospheric sciences and utilization of data from satellite 
        resources for agricultural, communication, telemedicine, 
        disaster management/mitigation, weather prediction/research, 
        and search and rescue.

                                 ______
                                 

Responses of Hon. Marc Grossman, Under Secretary of State for Political 
Affairs and Hon. Grant Green, Under Secretary of State for Management, 
 to Additional Questions for the Record Submitted by Senator Joseph R. 
                               Biden, Jr.

    Question 1. For the last six months the administration has been 
intensely focused on Iraq. The diplomatic campaign has caused 
considerable friction with many close allies in Europe. How has the 
argument over Iraq policy affected bilateral and multilateral 
cooperation with leading nations in Europe, such as France and Germany, 
in the campaign against al-Qaida?

    Answer. Despite the disagreements over Iraq policy, our bilateral 
cooperation with both France and Germany in the war against terrorism 
has remained strong. France continues to provide over 1000 troops in 
the Afghan theater in ISAF, training the Afghan National Army, and 
conducting land and sea-based counterterrorism operations. Germany has 
played a substantial role in Afghanistan, deploying 2,500 troops in 
support of its lead role (with the Dutch) within ISAF III. Germany is 
also overseeing the training and equipping of the Afghan police. In 
support of Operation Enduring Freedom, Germany has deployed over 200 
troops to Kuwait as part of a ``Fuchs'' Nuclear, Biological, and 
Chemical (NBC) detection unit.
    In addition, law enforcement cooperation and intelligence sharing 
are proceeding with both countries and are continuing to produce 
concrete results. Germany's cooperation in the investigation and 
prosecution of members of the al-Qaida ``Hamburg Cell'' has been 
excellent, resulting in the provision of important evidence in the U.S. 
Government's prosecution of Zacarias Moussaoui.

    Question 2. Have France and Germany denied any formal requests--or 
discouraged the submission of such requests by the United States--for 
extradition or requests under treaties on mutual legal assistance since 
September 1, 2001?

    Answer. No, neither France nor Germany denied or discouraged U.S. 
requests in terrorism-related cases under extradition or mutual 
assistance treaties since September 1, 2001.

    Question 3. What is the Department's view of the effectiveness of 
Security Council Resolution 1373? What is the record of compliance by 
member states?

    Answer. UNSCR 1373 provides a strong diplomatic and legal basis for 
international cooperation against terrorism. It has a broad mandate 
with provisions that are binding on all UN Member States. Almost all UN 
Member states support and are cooperating on UNSCR 1373. All but eight 
Member States have made their initial reports to the Counter Terrorism 
Committee on their efforts to improve their abilities to combat 
terrorism. Multinational organizations, including the OSCE, OAS, ASEAN 
and AU, representing well over 130 countries, have in some fashion 
endorsed implementation of UNSCR 1373. Primarily because of UNSCR 1373, 
the number of UN Member States that have become parties to all of the 
12 international conventions and protocols related to terrorism has 
increased significantly from 2 in September 2001 to 31. In addition, in 
an effort to close the legislative gaps identified by the CTC, many 
States have either adopted new or revised existing counter-terrorism 
legislation.

    Question 4. What is the Department's view of the work of the 
Counter-terrorism Committee which is monitoring implementation of 
Security Council Resolution 1373? What is the United States doing to 
support the work of the Counter-Terrorism Committee? At what level is 
the United States represented in the work of the Committee?

    Answer. During its first full year of operation, the Counter 
Terrorism Committee (CTC) made a good beginning in monitoring the 
efforts of UN Member States to implement UNSCR 1373. In reviewing more 
than 340 reports from 188 States, the CTC has been able to highlight 
the gaps in most States' counter terrorism capacity and is working to 
get them to improve. This will require assistance in the form of 
expertise and resources in many cases to ensure that these gaps can be 
filled. In addition, through its extensive outreach efforts, the CTC 
has helped place counter-terrorism on the agendas of many 
international, regional and sub-regional organizations. This has 
resulted in the beginnings of a global counter-terrorism network. The 
U.S. provides both expertise and diplomatic support to the CTC. U.S. 
direct, bilateral counter terrorism assistance to selected countries 
greatly assists in the implementation of UNSCR 1373 and the work of the 
Counter Terrorism Committee, because it helps fill some of the capacity 
gaps identified by the CTC. Also, the State Department leads an 
ambitious worldwide USG interagency program of capacity-building and 
technical assistance to coalition partners in all regions to build 
transparency and accountability in the financial and regulatory sectors 
and thus helps to strengthen their counter terrorism laws and 
regulations to help them implement financial aspects of UNSCR 1373. 
Representatives from the CTC made presentations and took part in the 
discussions. We are consulting with the Justice Department on proposals 
to send drafting teams to help some countries individually.
    We are working with international organizations to which we 
belong--G8, FATF, International Financial Institutions, OAS, OSCE, 
NATO, ICAO, IATA, IMO--to encourage and assist their members to 
implement UNSCR 1373 and to support the work of the CTC. The U.S. 
Senior Advisor for United Nations Counter Terrorism Matters, Ambassador 
Ted McNamara, meets regularly with the CTC Chairman. In weekly meetings 
of the CTC, the U.S. is represented by the General Counsel of the U.S. 
Mission to the United Nations.

    Question 5. What is the United States doing to press UN member 
states who are not in compliance with their obligations under Security 
Council Resolution 1373?

    Answer. The U.S. and other members of the CTC approach such states 
bilaterally. We also work within the global, regional and sub-regional 
organizations to encourage and assist all Member States to improve 
their counter terrorism capabilities as required by UNSCR 1373. The 
U.S. also provides counter-terrorism assistance to countries 
bilaterally.

    Question 6. After September 11, 2001, the Senate approved the UN 
convention for the Suppression of Terrorist Bombings and the UN 
Convention for the Suppression of the Financing of Terrorism. To date, 
88 states have ratified the Convention for the Suppression of Terrorist 
Bombings, and 76 have ratified the Convention for the Suppression of 
Terrorist Financing. What are we doing to press other countries to 
ratify these treaties? How are efforts proceeding?

    Answer. Global ratification and implementation of all 12 
international counterterrorism conventions is a key Administration 
goal. We actively engage with every partner that has not ratified all 
12 to urge them to do so, and provide bilateral assistance to aid 
implementation where appropriate. At international seminars and 
conferences we have held on strengthening counterterrorism legislation, 
we have urged attendees to ratify the conventions and provided pointers 
for drafting implementing legislation.
    Similarly, we work with the UN Counterterrorism Committee, UN 
Office of Drug Control's Terrorism Prevention Branch, the G-8, the 
European Union, the Financial Action Task Force, and other multilateral 
organizations to urge and assist adoption and implementation of the 
conventions. USG efforts are making progress: there are, for example, 
now 101 parties to the ``Bombing Convention'' and 91 parties to the 
``Terrorism Financing Convention.''

    Question 7. The obligations in the UN Convention for the 
Suppression of Terrorism Financing and Security Council Resolution 1373 
require member states to take a number of steps to crack down on money 
laundering and other illegal efforts to evade regulatory controls.

   What is the Department's judgment about the technical 
        ability of member states to comply with the requirements of the 
        UN Convention and Resolution 1373? What are we doing to provide 
        such technical assistance. Are nations willing to accept our 
        assistance.

    Answer. The technical abilities of UN Member States to implement 
UNSCR 1373 and of States Parties to implement the Terrorist Financing 
Convention vary widely. The U.S. provides bilateral counter terrorism 
assistance to 20 countries. We also encourage global/functional 
organizations and regional organizations to provide counter terrorism 
assistance. Nations are generally very happy to accept such assistance.

    Question 8. In October 2002, a Council on Foreign Relations task 
force highlighted that ``no international organization has emerged with 
the mandate and expertise to direct and coordinate global efforts to 
combat a problem that, by its very nature, requires global responses.'' 
A report by a working group at the United Nations also noted ``overlaps 
and duplications'' in the efforts of UN agencies, but also significant 
gaps in the institution in terms of both mandates and funding.

          a. Are the counterterrorism efforts of existing international 
        institutions sufficient?

    Answer. All relevant international institutions, such as the UN, 
North Atlantic Treaty Organization (NATO), Group of Eight (G-8), 
International Civil Aviation Organization (ICAO), Organization of 
American States (OAS), European Union (EU) International Atomic Energy 
Agency (IAEA) and Organization for Security and Cooperation in Europe 
(OSCE) are contributing to the fight against terrorism, each drawing on 
its own expertise. The challenge is to keep counterterrorism efforts at 
the top of the agendas of these organizations and entities. The UN 
Security Council's Counter-Terrorism Committee (CTC) has been engaged 
in an active out-reach effort to bring the regional and sub-regional 
groups into the fight against terrorism, thereby increasing 
substantially the resources to engage in the fight against terrorism. 
Some 65 such organizations recently met at the UN to coordinate their 
efforts.

          b. Is the administration considering proposing any changes 
        within the UN system or elsewhere to promote improved 
        international cooperation and coordination on counter-
        terrorism?

    Answer. We are working with the UN to augment, on a step-by-step 
basis, its capability to support international counter-terrorism 
efforts. The objective is to enhance the ongoing and evolving 
counterterrorism activities of the UN and its specialized agencies, 
such as the International Civil Aviation Organization (ICAO) and the 
International Maritime Organization (IMO). For example, the CTC, which 
has been in existence for little over one year, has reviewed the 
capacity of more than 180 States to fight terrorism and has worked to 
ensure that States that are willing to fight terrorism, but do not have 
the resources or expertise, are matched with States or other regional 
organizations or other entities that can--and will--provide the needed 
technical assistance and resources. This is an on-going and evolving 
process.

    Question 9. Following September 11, 2001, many posts, like Embassy 
Islamabad, were inundated by an influx of staff from law enforcement 
and intelligence agencies. Moreover, we had (and still have) a great 
need for both regional specialists, linguists, and public diplomacy 
specialists.

          a. What measures are we taking, or are we considering taking, 
        to provide a ``surge capacity'' for these kinds of situations?

          b. Should we have a formal ``reserve corps''--like the 
        military does--of regional and linguistic experts (and State 
        Department retirees) who can be called on in such emergencies?

    Answer. Our Diplomatic Readiness Initiative (DRI) was designed to 
provide us adequate personnel to respond to crises and emerging 
priorities.
    Typically, we provide additional capacity to the Embassy's 
political or other sections by pulling experienced people from other 
places and applying them to that priority situation. This is what we 
have been doing to respond to our growing anti-terrorism and border 
security missions. We are able to reposition existing resources to best 
meet changing needs or respond to a crisis through formal and informal 
processes within the Department. In addition, we do currently maintain 
``surge'' teams for security, consular, administrative/management, and 
terrorism response assistance.
    Because we had under hired compared with our expanding mission in 
the 1990s, those responding to a crisis usually left important work 
unattended. With full implementation of the Diplomatic Readiness 
initiative in FY2004, we will have built a ``personnel complement'' and 
a stronger capacity to respond to these events. We will be on our way 
to planning for crises rather than just responding to them.
    We are also able to call upon the resources of Foreign Service 
retirees. We frequently hire retirees to meet our needs when we lack a 
particular skill in the current population or need additional 
assistance. We have made additional use of this resource after 
September 11, 2001. This is a flexible response to changing needs that 
works well.

    Question 10. Since September 11, there has been a great deal of 
discussions about whether State Department consular officers are 
receiving the right information from the intelligence and law 
enforcement agencies--so they can deny visas to suspected terrorists. 
Because of legislation passed after 9/11, State now has access, through 
the CLASS system, to data from the National Criminal Information Center 
(NCIC). State also gets information from the intelligence agencies 
through the ``Tip-off'' program.

   Do you have adequate financial and personnel resources in 
        all aspects of visa processing? If not, where are there 
        shortfalls?

    Answer. The Department's visa processing activities as well as 
program support for the ``Tip-Off'' watchlist of known suspected 
foreign terrorists are funded from the revenues generated by the 
Machine Readable Visa (MRV) fee. This is a $100 fee paid by applicants 
seeking a non-immigrant visa.
    FY 2003 revenue projections are based on an MRV demand level of 6 
million cases. To date, Department estimates remain on target. However, 
because of uncertainties surrounding international travel, any decline 
below this target level would create program shortfalls that would have 
to be met with supplemental funding, such as additional appropriations.
    In addition to funding the CLASS system, one major area dependent 
on MRV revenue is consular staffing. MRV revenues pay for the salary 
and benefits of over 2,400 staff involved in border security programs, 
including visa processing.

                                 ______
                                 

    Responses of Ambassador J. Cofer Black, Coordinator for Counter-
terrorism, Department of State, to Additional Questions for the Record 
                Submitted by Senator Russell D. Feingold

    Question. I understand that a review of the Counterterrorism Office 
is now underway. Is this true? If so, can you elaborate on this review 
and inform the committee how foreign assistance programs funded under 
the NADR account will be impacted?

    Answer. A preliminary top-to-bottom review of S/CT operations was 
done soon after my appointment. I have asked my senior staff to make 
some adjustments to better facilitate S/CT's core mission, which is to 
coordinate counterterrorism policy. The mission of foreign assistance 
programs under the NADR account will continue as requested and as 
appropriated. What I am striving to accomplish is improved management 
control and oversight of these critical programs, in particular TIP, to 
insure that the programs are carried out in a manner that will better 
serve the task given me by the Secretary. In this regard, I am 
establishing a direct hire U.S. government employee, reporting to me 
via my Deputy Coordinator for Policy and Programs, to be the program 
director for the TIP program. This direct hire U.S. government position 
will provide policy, funding, diplomacy, coordination, program 
direction to all TIP program activities. We already have such an 
employee dedicated to the DS/ATA program.

    Question. As you know, funding for Antiterrorism Assistance (ATA) 
and the Terrorist Interdiction Program (TIP) has increased over the 
past two fiscal years to deal with the heightened threat of 
international terrorism. However, in some cases, it is difficult for 
relatively small programs to effectively absorb large increases in 
funding. As of March 18, 2003, what is the status of the fiscal year 
2002 and 2003 funding for ATA, TIP, and other foreign assistance 
programs managed by the Counterterrorism Office? Has all of this 
funding been obligated? If not, what are the problems associated with 
obligating this funding? Has funding for ATA or TIP been temporarily 
transferred or otherwise ``borrowed'' against to pay for other 
programs?

    Answer. The rapid and sizeable expansion of the State Department's 
counterterrorism capacity-building programs has raised challenges. 
Helping our partners to develop the skills needed to fight terrorism 
more effectively, however, is a key part of the war against terrorism 
and the Department has devoted the attention and resources necessary to 
overcome these challenges.
    The ATA program obligated all of its FY 2002 funding by the end of 
the fiscal year and has also obligated much of the FY 2002 supplemental 
budget. The remainder of the FY 2002 supplemental funds will be 
obligated based on ATA plans by the end of FY 2003 as required. For FY 
2003, approximately half of the funding allocated to the ATA program 
has been obligated thus far.
    To meet urgent needs for the Karzai Protection Operation (KPO) and 
related training activities, for which $25 million is requested in the 
FY 2003 supplemental budget, we have had to borrow (reprogram) about $7 
million against other FY 2003 programs. This will cover us for almost 
two months, after which time we hope Congress will have passed the 
supplemental appropriation. Supplemental funds will allow us to 
reimburse programs and fund remaining KPO costs for the fiscal year.

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