Terrorist Financing: U.S. Agency Efforts and Inter-Agency Coordination
Released: 2005-08-04T00:00:00

Introduction(1)

Since the September 11, 2001 attacks, there has been significant interest in terroristfinancing. Following the attacks, the Administration's strategy to combat terrorist financing wasfocused foremost on freezing terrorist assets. According to the U.S. Department of the Treasury, theaim of U.S. policy was "starving the terrorists of funding and shutting down the institutions thatsupport or facilitate terrorism." (2) In the months immediately following the attacks, substantial fundswere frozen internationally. After this initial sweep, however, the freezing of terrorist assets sloweddown considerably.

According to the Department of the Treasury's Terrorist Assets Report , as of December 2004,programs targeting assets of international terrorist organizations have resulted in the blocking in theUnited States of almost $10 million. Of the $1.6 billion in state sponsors of terrorism's assets locatedin the United States, $1.5 billion have been frozen by U.S. economic sanctions. Of that $1.5 billion,the assets of Libya, which were blocked on September, 20, 2004, made up all but $425 million. (3)

According to many analysts, these numbers are very small and seem to support the 9/11Commission's conclusion that the United States must "[e]xpect less from trying to dry up terroristmoney and more from following the money for intelligence, as a tool to hunt terrorists, understandtheir networks, and disrupt their operations." (4)

As detailed in the March 2005 U.S. Department of State International Narcotics ControlStrategy Report , (5) theUnited States has a three-tiered anti-money laundering-counter-narcotics/counterterrorist financingstrategy that employs:

Traditional and non-traditional law enforcement techniques and intelligenceoperations to disrupt and dismantle terrorist financiers networks. (These efforts may includeinvestigations, diplomatic actions, criminal prosecutions, designations, among otheractions);

Capacity building programs to improve the domestic financial, legal, andregulatory institutions of U.S. allies; and

Global efforts to deter terrorist financing.

Implementing this strategy requires coordination of many different elements of nationalpower including intelligence gathering, financial regulation, law enforcement, and buildinginternational coalitions. Following a review of legislation on terrorist financing, this report providesan agency-by-agency survey of these U.S. efforts. (6)

Legislation on Terrorist Financing(7)

"Money laundering" has traditionally been understood to mean the process by which "dirty"money derived from illegal activity is disguised as legitimate -- or "clean" -- by virtue of how it isdistributed among financial institutions. The federal government stepped up its efforts to targetmoney laundering in 1970 with the passage of the Bank Secrecy Act (BSA) and subsequentamendments. In the years following the enactment of the BSA, Congress added criminal and civilsanctions for money launderers. The threat posed by terrorists, however, forced Congress in 2001to bring terrorist financing -- which often is accomplished with legally-derived funds -- within therange of activities punishable under the federal money laundering laws. What follows is an overviewof these laws.

The Bank Secrecy Act. Congress laid thefoundations of the federal anti-money laundering (AML) framework in 1970 when it passed theBSA, (8) the major moneylaundering provisions of which make up the Currency and Foreign Transaction Reporting Act(CFTRA). The BSA framework focuses on financial institutions' record- keeping, so that federalagencies are able to apprehend criminals by tracing their money trails. (9) Under this statute andsubsequent amendments to it, primary responsibility rests with the financial institutions themselvesin gathering information and passing it on to federal officials. CFTRA also contains civil (10) and criminal (11) penalties forviolations ofits reporting requirements.

Under CFTRA, financial institutions must file reports for cash transactions exceeding theamount set by the Secretary of the Treasury in regulations. (12) The Secretary has set theamount for filing these currency transaction reports (CTRs) at $10,000. (13) The Secretary alsorequires financial institutions to file suspicious activity reports (SARs) for transactions of at least$5,000 in which the bank suspects or has reason to suspect the transaction involves illegally-obtainedfunds or is intended to evade reporting requirements. (14)

CFTRA contains significant requirements related to foreign-based monetary transactions. Citizens are required to keep records and file reports regarding transactions with foreign financialagencies, and the Treasury Secretary must promulgate regulations in this area. (15) The statute also requiresthe filing of reports by anyone who exports from the United States or imports into the United Statesa monetary instrument of more than $10,000. (16)

The Internal Revenue Service has certain authorities and responsibilities under the BSA (seep. 21).

The International Emergency Economic PowersAct. Under the International Emergency Economic Powers Act (17) (IEEPA), enacted in 1977,the President has broad powers pursuant to a declaration of a national emergency with respect to athreat "which has its source in whole or substantial part outside the United States, to the nationalsecurity, foreign policy, or economy of the United States." (18) These powers include theability to seize foreign assets under U.S. jurisdiction, to prohibit any transactions in foreignexchange, to prohibit payments between financial institutions involving foreign currency, and toprohibit the import/export of foreign currency. (19)

The Money Laundering Control Act. Congresscriminalized money laundering in 1986 with the passage of the Money Laundering Control Act. (20) Defining moneylaundering as conducting financial transactions with property known to be derived from unlawfulactivity in order to further or conceal such activity, the act made three specific types of moneylaundering illegal: 1) domestic money laundering; 2) international money laundering; and 3)attempted money laundering uncovered as part of an undercover sting operation. (21) If the transaction is foran amount in excess of $10,000, the government does not have to show that the defendant knew thetransaction in question was meant to further or conceal an illegal act, only that the defendant knewthe property was procured via illegal activity. (22)

The Annunzio-Wylie Anti-Money LaunderingAct. With the passage of the Annunzio-Wylie Anti-Money Laundering Act (23) in 1992, Congressincreased the penalties for depository institutions that violate the federal anti-money laundering laws. In addition to authorizing the Secretary of the Treasury to require filings of the aforementionedSARs, the act made it possible for banking regulators to place into conservatorship banks and creditunions that violate these laws. (24) In addition, the act gave the Office of the Comptroller of theCurrency (OCC) the power to revoke the charters of national banks found to be guilty of moneylaundering or cash reporting offenses, (25) and gave the Federal Deposit Insurance Corporation (FDIC) theauthority to terminate federal insurance for guilty state banks and savings associations. (26) The Annunzio-Wylie Actalso introduced federal penalties for operating money transmitting businesses (27) operating without licensesunder state law. (28)

The Money Laundering Suppression Act. In theearly 1990s it became apparent that the number of currency transaction reports being filed greatlysurpassed the ability of regulators to analyze them. So, in 1994, Congress passed legislation (29) mandating certainexemptions from reporting requirements in an effort to reduce the number of CTR filings by30%. (30) In addition,the act directed the Treasury Secretary to designate a single agency to receive suspicious activityreport filings. (31) Underthis statute, money transmitting businesses are required to register with the Treasury Secretary. Inaddition, the act clarified the BSA's applicability to state-chartered and tribal gamingestablishments. (32)

The Money Laundering and Financial Crimes StrategyAct. Congress in 1998 directed the Treasury Secretary to develop a nationalstrategy for combating money laundering. (33) As part of this strategy, the Treasury Secretary -- in consultationwith the U.S. Attorney General -- must attempt to prioritize money laundering enforcement effortsby identifying areas of the U.S. as "high-risk money laundering and related financial crimes areas"(HIFCAs). (34) Inaddition, the Treasury Secretary may issue grants to state and local law enforcement agencies forfighting money laundering in HIFCAs. (35)

Title III of the USA PATRIOT Act. In the wakeof the terrorist attacks of September 11, 2001, Congress passed the USA PATRIOT Act. (36) Congress devoted TitleIII of this act to combating terrorist financing. (37) Given that funds used to finance terrorist activities are often notderived from illegal activities, prosecution for funding terrorist activities under the pre-USAPATRIOT Act money laundering laws was difficult. Title III, however, made providing materialsupport to a foreign terrorist organization a predicate offense for money laundering prosecutionunder section 1956 of Title 18 of the U.S. Code. (38)

Under Title III, the Treasury Secretary may require domestic financial institutions toundertake certain "special measures" if the Secretary concludes that specific regions, financialinstitutions, or transactions outside of the United States are of primary money launderingconcern. (39) In additionto retaining more specific records on financial institutions, these special measures include obtaininginformation on beneficial ownership of accounts and information relating to certainpayable-through (40) andcorrespondent accounts. (41) The Treasury Secretary is also empowered to prohibit or restrictthe opening of these payable-through and correspondent accounts, (42) and U.S. financialinstitutions are required to establish internal procedures to detect money laundered through theseaccounts. (43) In addition,financial institutions and broker-dealers are prohibited from maintaining correspondent accounts forforeign "shell banks," i.e., banks that have no physical presence in their supposed homecountries. (44) Institutionsare subject to fines of up to $1 million for violations of these provisions. (45)

Title III allows for judicial review of assets seized due to suspicion of terrorist-relatedactivities and the applicability of the "innocent owner" defense, (46) although the governmentis permitted in such cases to submit evidence that would not otherwise be admissible under theFederal Rules of Evidence, if following those rules would jeopardize national security. (47) Title III also allows forjurisdiction over foreign persons and financial institutions for prosecutions under sections 1956 and1957 of Title 18 of the U.S. Code. (48)

The USA PATRIOT Act permits forfeiture of property traceable to proceeds from variousoffenses against foreign nations. (49) The act also permits forfeiture of accounts held in a foreign bankif that bank has an interbank account in a U.S. financial institution; in essence, law enforcementofficials are authorized to substitute funds in the interbank account for those in the targeted foreignaccount. (50) Forfeitureis also authorized for currency reporting violations and violations of BSA prohibitions againstevasive structuring of transactions. (51)

Title III requires each financial institution to establish an anti-money laundering program,which at a minimum must include the development of internal procedures, the designation of acompliance officer, an employee training program, and an independent audit program to test theinstitution's anti-money laundering program. (52) In order to allow for meaningful inspection of financialinstitutions' AML efforts, Title III requires financial institutions to provide information on their AMLcompliance within 120 hours of a request for such information by the Treasury Secretary. (53) Also, financial institutionsapplying to merge under the Bank Holding Act or the Federal Deposit Insurance Act mustdemonstrate some effectiveness in combating money laundering. (54) Financial institutions areallowed to include suspicions of illegal activity in written employment references regarding currentor former employees. (55)

Title III extends the Suspicious Activity Reports filing requirement to broker-dealers, (56) and gives the TreasurySecretary the authority to pass along SARs to U.S. intelligence agencies in order to combatinternational terrorism. (57) Anyone engaged in a trade or business who receives $10,000cash in one transaction must file a report with the Treasury Department's Financial CrimesEnforcement Network (FinCEN) identifying the customer and specifying the amount and date of thetransaction. (58) Inaddition, the USA PATRIOT Act makes it a crime to knowingly conceal more than $10,000 in cashor other monetary instruments and attempt to transport it into or outside of the United States. Thisoffense carries with it imprisonment of up to five years, forfeiture of any property involved, andseizure of any property traceable to the violation. (59)

Significantly, the USA PATRIOT Act requires financial institutions to establish proceduresso that these institutions can verify the identities and addresses of customers seeking to openaccounts, and check this information against government-provided lists of known terrorists. (60) Title III also allows theTreasury Secretary to promulgate regulations that prohibit the use of concentration accounts todisguise the owners of and fund movements in bank accounts. (61)

Under Title III, FinCEN has statutorily-based authority to conduct its duties within theTreasury Department. (62) Significantly, the act requires FinCEN to maintain a highly secure network so that financialinstitutions can file their BSA reports electronically. (63)

The Suppression of the Financing of Terrorism ConventionImplementation Act. In order to implement the International Convention for theSuppression of the Financing of Terrorism, Congress in 2002 made it a crime to collect or providefunds to support terrorist activities (or to conceal such fund-raising efforts), regardless of whetherthe offense was committed in the United States or the accused was a United States citizen. (64)

The Intelligence Reform and Terrorism Prevention Act of2004. Section 362 of the USA PATRIOT Act required the Secretary of theTreasury to establish within FinCEN a "highly secure network" to process BSA reports and toprovide information to financial institutions regarding patterns of suspicious activity gleaned fromthese reports. With the passage of the Intelligence Reform and Terrorism Prevention Act of 2004(IRTPA), Congress authorized the appropriation of $16.5 million for the development of FinCEN's"BSA Direct" program, which is designed to improve the aforementioned network by making iteasier for law enforcement to access BSA filings and improving overall data management. (65) The act also authorizesan additional $19 million for improvements related to -- among other things -- telecommunicationsand analytical technologies, (66) and makes permanent the amendments to the BSA contained inTitle III of the USA PATRIOT Act. (67)

The Intelligence Reform and Terrorism Prevention Act of 2004 requires the TreasurySecretary to issue regulations mandating the reporting of cross-border transmittals by certainfinancial institutions, (68) and to submit a report to Congress on the Treasury Department's efforts to combat money launderingand terrorist financing. (69) In addition, under IRTPA, a federal financial institutionexaminer who leaves the federal government is required to wait one year before accepting a job withan institution that the examiner was responsible for examining. (70)

The Intelligence Community (71)

In approving the Intelligence Reform and Terrorism Prevention Act of 2004, Congressestablished the position of the Director of National Intelligence (DNI) and created the new NationalCounterterrorism Center (NCTC), where a panoply of the U.S. Government's counterterrorismorganizations are now co-located under the DNI's control. Among them is the Foreign TerroristAsset Targeting Group (FTATG), the Executive Branch's principal inter-agency analytic group,which is charged with assessing intelligence on terrorist financing, and providing the NationalSecurity Council's (NSC) Terrorist Finance Policy Coordinating Committee (PCC) "intelligenceassessments" of individuals and groups suspected of financially supporting terrorists.

FTATG engages in joint discussions with member agencies of the Targeting Action Groupunder the Terrorist Financing PCC, developing suggested actions -- ranging from the freezing ofassets to diplomatic options -- that policymakers can consider taking against suspected terroristfinanciers.

Although FTATG's first two directors were Immigration and Custom Enforcement detailees,the NSC in November 2004 restructured FTATG and named a Federal Bureau of Investigationspecial agent as director and an Immigration and Customs Enforcement (ICE) special agent as deputydirector. Until then, both positions had been vacant for eight months, a period during which FTATGfoundered, according to some observers. As part of the restructuring, the NSC narrowed FTATG'sfocus to providing intelligence assessments of terrorist financing targets designated by the NSC'sTerrorist Financing PCC. Prior to the restructuring, FTATG in some instances would identifytargets, but now serves strictly as the NSC's research arm. In January 2005, FTATG's memberagencies (72) eachcommitted to providing staff to serve at FTATG. The Group currently has slightly over half its staffcomplement in place.

In May 2000 President Bill Clinton announced the establishment of the Foreign TerroristAsset Tracking Center (FTATC), FTATG's predecessor, (73) as part of a $300 million counterterrorism initiative, $100 millionof which was to be used to establish FTATC and target terrorist financing. (74) Congress authorizedfunding in October 2000. (75)

The Clinton initiative followed the prevention the previous year of a planned series of OsamaBin Laden terrorist attacks to mark the Millennium. Although the Intelligence Community (IC)successfully disrupted those attacks before they could occur, Administration officials remainedtroubled by the IC's continuing inability to identify, track and disrupt al Qaeda's financial supportnetwork. (76)

Vowing to gain a better understanding of the terrorists' financial network -- particularly itsfund-raising component -- White House officials conceived of and pushed for the establishment ofFTATC as a way to improve the government's understanding of how terrorists fund theiroperations. (77) Officialsenvisioned FTATC as an inter-agency all-source terrorist-financing intelligence analysis center, andsuccessfully pushed to have it located at the Department of the Treasury. (78) But, at the time, some ofthe key agencies expected to participate and contribute resources, including the Treasury Departmentitself, did not attach a priority to collecting and analyzing terrorist financing intelligence. Indeed,Treasury officials made no mention of terrorist financing in their national security money launderingstrategy. (79) The CIA,in turn, saw little utility in tracking terrorist financing. (80) Despite this skepticism, President Bush's National SecurityAdviser Condoleezza Rice determined by spring of 2001 that terrorist financing proposals wereworth pursuing. By this time, a year had passed since the Clinton White House initially establishedterrorist finance analysis as a priority, and, yet, the Treasury Department still had not stood up acenter. Instead, Treasury officials continued their planning, intending at some future point toestablish a 24-analyst strong office. (81)

On the eve of the September 11, 2001 attacks, Treasury still had taken no concrete steps toestablish a center. By then, sixteen months had passed since the Clinton Administration announcedits intention to establish the Center. More than seven months had elapsed since the incoming BushAdministration had adopted the concept. And despite numerous post-9/11 declarations to thecontrary (82) -- FTATC,prior to 9/11, remained a plan rather than a reality. Even before the 9/11 attacks, signs of frustrationwere becoming evident. Treasury officials had begun blaming CIA for adopting a posture of "benignneglect" toward FTATC. (83)

Three days after the terrorist attacks of September 11, Treasury officials finally took action,establishing the Center (84) and placing it under the control of the Department's Office ofForeign Asset Control. At the time, a Treasury spokeswoman denied that there had been any unusualdelay in launching the Center, citing the logistical difficulties involved in bringing togetherrepresentatives of a number of investigative agencies. Senator Charles E. Grassley, however,expressed concern as to whether the delay "is indicative of larger problems." (85)

Initially, the Center was comprised of the same member agencies as Operation Green Quest,a multi-agency, financial enforcement initiative set up to identify, disrupt, dismantle and ultimately"bankrupt" terrorist networks and their sources of funding. (86) FTATC's mission was toprovide intelligence assessments of individual and group terrorist financing targets identified byGreen Quest, which was responsible for conducting investigative operations. (87)

In September 2001, the Senate Select Committee on Intelligence (SSCI), in a reportaccompanying its approved fiscal year (FY) 2002 intelligence authorization bill, endorsed IC effortsto exploit financial intelligence, and noted that the Treasury Department's FTATC concept showedpromise in providing terrorist financial analysis. But the Committee cautioned that FTATC, "...tothe extent it will function as an element of the Intelligence Community, has not been coordinatedadequately with the Director of Central Intelligence nor reviewed by this Committee." (88) The Committee directedthe DCI and the Treasury Secretary to jointly prepare a report "assessing the feasibility andadvisability of establishing an element of the federal government to provide for effective andefficient analysis and dissemination of foreign intelligence related to the financial capabilities andresources of international terrorist organizations." The Committee instructed that the report containan evaluation of FTATC's suitability for the task and, if appropriate, a plan for FTATC'sdevelopment. (89)

By May 2002, the Executive Branch had yet to complete the requested report, despite asubsequent statutory requirement contained in the USA PATRIOT Act requiring that it do so. TheSSCI noted its dissatisfaction and included a provision in the FY2003 intelligence authorization,subsequently approved by the House, establishing the FTATC at CIA, and placing it under DCIcontrol. (90)

Despite the statutory requirement that the FTATC be under the DCI's control, the ExecutiveBranch placed FTATC under the supervision of the NSC's Office of Combating Terrorism. As notedearlier, the Executive Branch also renamed FTATC. Following the enactment of the 2004Intelligence Reform Act, the DNI assumed control of FTATG.

The Interagency Process(91)

The National Security Council is responsible for the overall coordination of the interagencyframework for combating terrorism including the financing of terrorist operations. Given divergentconcerns among various departments and agencies only the NSC may be in a position to chooseamong alternative approaches and make tactical decisions when disagreements emerge. The NSCstaff inevitably has a significant influence on the decisionmaking process although great reliance isplaced on interagency Policy Coordination Committees some of which are headed by departmentalofficials and some by the National Security Adviser.

A PCC specifically on terrorist financing was not included in the list of PCCs published bythe White House in February 2001, but media accounts indicate that a PCC for this issue wasestablished in the aftermath of the events of September 11. (92) Since the introduction ofthe PCC, it has been argued that a new position on the NSC staff should be established -- a specialassistant to the President for combating terrorist financing. The individual, who would not havedepartmental responsibilities, would chair meetings of the PCC on terrorist financing and would beassisted by a team of directors on the NSC staff in coordinating and directing all Federal efforts onthe issue. This team would "focus its attention on evaluating the all-source intelligence available onterrorist organizations, conducting link analysis on the organizations with information and technicalintelligence available from other departments and agencies, and developing tactics and strategies todisrupt and dismantle terrorist financial networks." (93)

There are, however, arguments that can be made against establishing new positions on theNSC staff. Size of the White House staff and expanding the span of control of the National SecurityAdviser are one set of issues. Another question is the desirability of having tactics and strategiesdeveloped by the NSC staff rather than operating departments. For instance, the Tower Boardestablished in the wake of the Iran-Contra affair in the Reagan Administration, recommended that"As a general matter, the NSC Staff should not engage in the implementation of policy or theconduct of operations. This compromises their oversight role and usurps the responsibilities of thedepartments and agencies." (94) Arguably, the best approach would have the PCC developstrategies against terrorist financing, resolve inter-departmental disagreements on tactics, and bringdifferences to the attention of the NSC for resolution. It may be, however, that the perspectives ofagencies and departments are so different that there need to be arrangements more permanent thanregular PCC meetings to maintain requisite coordination. Others would argue that while a separatestaff within the larger NSC staff may not be necessary, it would be better to have the PCC headedby the National Security Adviser or her/his designee rather than an official with other importantresponsibilities and loyalties.

Financial Regulators and Institutions(95)

The nation's financial institutions, their regulators, and certain offices within the U.S.Department of the Treasury share primary responsibility for providing information on financialtransactions that could be helpful in detecting, disrupting, and preventing the use of the nation'sfinancial system by terrorists and terrorist organizations. Congress has statutorily required newreporting to improve the timeliness of terrorist financing detection, suppression, and control.Historically, such information has aided law enforcement authorities in dealing with moneylaundering to hide the gain from crimes, and is now being used to track possible terrorist financing.Figures for this kind of activity have been available only with a long time lag. Even longer lags characterize Inspector General and reported internal assessments of the effectiveness of antiterroristfinancing efforts.

Parts of the USA PATRIOT Act are scheduled to expire on December 31, 2005. Differentlegislation has been passed by both houses that would reauthorize these sections ( H.R. 3199 and S. 1389 ). (96) While the expiring provisions of the act are nonfinancial (TitleII), congressional reauthorization initiatives might well expand to amend the financial Title III. Andaccording to Senate Banking Committee Chairman Richard Shelby: "The Committee will continueits thorough series of hearings on terror finance. As part of our country's anti-terror efforts, theCommittee will continue to conduct hearings and a review of our national money launderingstrategy." (97) TheGovernment Accountability Office (GAO) has a study under way for this Committee on suchpolicies and practices. (98)

The Offices Within the Department of theTreasury. Offices within the Treasury include the Office of Terrorism and FinancialIntelligence (TFI, formerly the Executive Office for Terrorist Financing and Financial Crimes),established in April 2004. TFI is charged with developing and implementing strategies to counterterrorist financing and money laundering both domestically and internationally. It participates indeveloping regulations in support of both the Bank Secrecy Act and USA PATRIOT Acts. It alsorepresents the United States at international bodies that focus on curtailing terrorist financing andfinancial crime, including the Financial Action Task Force (FATF) whose "Forty Recommendations"and "Eight Special Recommendations" are the basic frameworks for anti-money laundering andterrorist financing efforts internationally. Two offices with antiterrorist financing responsibilitieswithin TFI are the Office of Foreign Assets Control and the Financial Crimes Enforcement Network.

FinCEN originated in the Treasury in 1990 as the data-collection and analysis bureau for theBSA. It provides a government-wide, multi-source intelligence network under which it collects Suspicious Activity Reports and Currency Transaction Reports from reporting financial institutions(with assistance from the Internal Revenue Service), tabulates the data in a large database that hasbeen maintained since 1996, and examines them to detect trends and patterns that might suggestillegal activity. FinCEN then reports what it finds back to the financial community as a whole to aidfurther detection of suspicious activities. There have been eight SAR Activity Review s issued sinceOctober 2000, the most recent dated April 2005 and covering data through June 2004. BetweenApril 1, 2003, and June 30, 2004, 2175 suspicious activity reports were submitted to FinCEN ofwhich 51% came from money services businesses and 47% came from depository institutions. Therest came from casinos and securities and futures institutions. (99) SARs from depositoryinstitutions are responsible for most of the reporting accuracy problems. Nevertheless, such reportsare a part of FinCEN's outreach and education efforts on behalf of financial regulators and lawenforcement agencies. While FinCEN has no criminal investigative or arrest authority, it uses itsdata analysis to support investigations and prosecutions of financial crimes, and refers possible casesto law enforcement authorities when warranted. It also submits requests for information to financialinstitutions from law enforcement agencies conducting of criminal investigations.

According to Treasury testimony, a terror hotline established by FinCEN after 9/11 resultedin 853 tips passed on to law enforcement through April 2004. In the same time period, financialinstitutions filed 4,294 SARs involving possible terrorist financing, of which 1,866 had possibleterrorist financing as their primary impetus. (100)

The Inspector General (IG) of the Department of the Treasury has conducted a series of auditsof the FinCEN SAR database and raised some potentially troubling issues. The IG found that thedatabase lacks critical information and is filled with inaccuracies. An analysis of a sample of 2,400SARs, for example, determined that most of the reports did not detail the specific actions that ledto suspicion, did not give a location for possible illegal transactions, or omitted the narrativedescription required in the reports entirely. In June 2004, the IG testified that subsequent auditsrevealed little or no improvement. (101) More recent IG reports on FinCEN and the use of FinCEN'sBSA e-filing of SAR reports continues to give FinCEN low grades in eliminating ongoing problemsconcerning enforcement of the Bank Secrecy Act and USA PATRIOT Act. (102)

Following the IG audit, FinCEN announced it would collect information from the agenciesresponsible for Bank Secrecy Act compliance on their examination procedures, cycles and resources;on any significant deficiencies in reporting by financial institutions; and other data including formaland informal actions taken by regulators to correct reporting failures by financial institutions. FinCEN has created an internal Office of Compliance to support the work of financial regulators.

The Office of Foreign Assets Control is designed primarily to administer and enforceeconomic sanctions against targeted foreign countries, groups, and individuals, including suspectedterrorists, terrorist organizations, and narcotics traffickers. OFAC acts under general presidentialwartime and national emergency powers as well as legislation, to prohibit financial transactions andfreeze assets subject to U.S. jurisdiction. OFAC lists those persons, groups, or countries whosetransactions it has been instructed to block or assets to be frozen by financial institutions. OFAC hasclose working relations with the financial regulatory community and maintains telephone "hotlines"through which it receives information about in-progress questionable transactions. OFAC alsoworks closely with the Federal Bureau of Investigation and with the Department of Commerce'sOffice of Export Enforcement, and cooperates with the United Nations in imposing sanctions onforeign governments.

The most recent IG audit was completed in April 2002 and concluded that OFAC ishampered because of its reliance on regulators' examinations of the financial institutions that supplydata under the BSA. The IG recommended that Treasury inform Congress that OFAC lackedsufficient authority to ensure that financial institutions comply with foreign sanctions, after findinginstances in which institutions either did not have databases on foreign sanctions, or did not updatethem. Further, some institutions did not routinely follow guidance in processing rejected financialtransactions and did not report blocked assets. (103)

The Intelligence Reform and Terrorism Prevention Act of 2004 addressed financial sectorcounterterrorism. Section 6303 required the Treasury Secretary to report on governmental ways tocurtail terrorist financing, including organizational changes as well as procedural ones. Section 7802stated that: "It is the sense of Congress that the Secretary of the Treasury, in consultation with theSecretary of Homeland Security, other Federal agency partners, and private-sector financialorganization partners, should -- (1) furnish sufficient personnel and technological and financialresources to educate consumers and employees of the financial services industry about domesticcounter terrorist financing activities, particularly about -- (A) how the public and private sectororganizations involved in such activities can combat terrorism while protecting and preserving thelives and civil liberties of consumers and employees of the financial services industry; and (B) howthe consumers and employees of the financial services industry can assist the public and privatesector organizations involved in such activities; and (2) submit annual reports to Congress on effortsto accomplish subparagraphs (A) and (B)...."

President Bush's FY2006 budget request for the Treasury Department includes more fundingfor combating terrorist and other illegal financing. FinCEN would receive $73.6 million in directlyappropriated funds, an increase of about 2%. In addition, $1.5 million would flow into FinCEN asoffsets and reimbursements from other agency accounts. TFI's new internal Office of IntelligenceAnalysis would essentially double in size, receiving $1.8 million in funding. OFAC would receive$23.8 million, up almost 8%. Additional funding of $0.6 million would increase TFI's other effortsto detect illegal activities. (104)

The Financial Institution Regulators. TheTreasury delegates responsibility for examining financial institutions for compliance with the BSAto the financial regulators of those institutions. These regulators are already responsible for thesafety and soundness examinations of the institutions they supervise, and generally conduct theirBSA examinations concurrently with those routine inspections. When there is cause do so, however,any of the regulators may carry out a special BSA examination.

The primary regulators for depository financial institutions are all participants in the FederalFinancial Institutions Examination Council (FFIEC). FFIEC prescribes uniform principles,standards, and reporting forms for all banking and other depository institution examinations. It alsoworks to promote uniformity in all depository supervision. As a result, all the depository financialinstitutions follow similar procedures in enforcing the BSA. FFIEC has formed an additionalWorking Group to enhance coordination of regulatory agencies, law enforcement, and privatefinancial institutions to strengthen current arrangements. All, including the non-depositoryregulators, are also part of the National Anti-Money Laundering Group (NAMLG), first formed in1997 by the Office of the Comptroller of the Currency to set up guidelines for depositories to followwith respect to training of employees to detect illegal transactions, a system of internal controls toassure compliance, independent testing of compliance, and daily coordination and monitoring ofcompliance. The continuing purpose of the group, which also includes the Department of Justiceand banking industry trade groups, is to identify institutions at high risk of being used for moneylaundering or terrorist financing. (105)

For federal budgetary purposes, the financial regulatory agencies are essentially self-funding.Thus, most of their increasing spending on antiterrorist and money laundering efforts comes fromgeneral operating funds, including assessments and fees on their regulated institutions and portfoliointerest earnings, rather than federal appropriations.

The Office of the Comptroller of the Currency (OCC) is the regulator for just over 2,000nationally chartered banks and the U.S. branches and offices of foreign banks. The OCC conductson-site examinations of each national bank at least three times within every two-year period. Alongwith loan and investment portfolios, it reviews internal controls, internal and external audits, andBSA compliance. According to the OCC, it conducted about 1,340 BSA examinations of 1,100institutions in 2003, and nearly 5,000 BSA examinations of 5,300 institutions since 1998. (106)

When the OCC finds violations or deficiencies in filing SARs and CTRs, it may take eitherformal or informal action. Not generally made public, informal actions result when examinersidentify problems that are of limited scope and size, and when they consider managements ascommitted to and capable of correcting the problems. Informal actions include commitment letterssigned by institution management, or memoranda of understanding, and matters requiring boardattention in the examination reports. Formal enforcement actions are made public because they aremore severe. Such actions include cease and desist orders and formal agreements requiring theinstitution to take certain actions to correct deficiencies. Formal actions may also be taken againstofficers, directors and other individuals, including removal and prohibition from participation in thebanking industry, and civil fines. From 1998 through 2003, the OCC issued a total of 78 formalenforcement actions based, at least in part, on BSA problems. The number of informal enforcementactions has been characterized as "countless." (107) The most recent case of severe BSA problems involved RiggsBank. In this case, according to the OCC, deficiencies had been noted for many years before a $25million penalty was imposed in May 2004. Riggs has ended operations and has been sold to PNCFinancial Services Group.

The Federal Reserve System (Fed) supervises about 950 state-chartered commercial banksthat are members of the system and more than 5,000 bank and financial holding companies. Alongwith the OCC, it also supervises some international activities of national banks. The Fed uses bothon-site examination and off-site surveillance and monitoring in its supervision process. Eachinstitution is to be examined on-site every 12 to 18 months. Regulators' in-house examiners are toexamine larger institutions continuously. The Board of Governors of the Fed coordinates theexamination and compliance activities of the 12 regional banks. In early 2004, the Fed created a newsection within the Board's Division of Banking Supervision and Regulation -- the Anti-MoneyLaundering Policy and Compliance Section -- to improve control.

According to the Fed, from 2001 through 2003, it took 25 formal enforcement actions againstfinancial institutions under the BSA. In every case, the examination process identified violationsthat were severe enough to require action. (108) Recent public action involved a $100 million fine againstUBS for transmitting U.S. currency to trade-sanctioned nations through the Fed of New York's ownsystems. (109) It alsosanctioned the holding company for Riggs Bank. (110)

The Federal Deposit Insurance Corporation (FDIC) regulates about 4,800 state-charteredcommercial banks and 500 state-chartered savings associations that are not members of the Fed. Italso insures deposits of the remaining 4,000 depository institutions without regulating them. TheFDIC examines its supervised institutions about once every 18 months. The FDIC also serves as thepoint of contact for FinCEN to communicate identities of suspected terrorists to banking regulatorsand institutions.

Since 2000, the FDIC has conducted almost 1,100 BSA examinations and from 2001, hasissued formal enforcement actions (cease and desist orders) against 25 institutions and bans or civilfines against three individuals for violations. The FDIC also has taken 53 informal actions since2001.

The Inspector General of the FDIC has audited the FDIC twice, covering the period 1997through September 2003 to assess the FDIC's BSA examinations and its implementation of the USAPATRIOT Act. The IG generally concluded that FDIC examiners have insufficient guidance for BSAexaminations, which were judged to be inadequate. During the audit period, 2,672 institutions werecited for BSA failures to report, and 458 had repeat violations. Further many citations were forserious violations such as a failure to comply with record-keeping and reporting requirements forCTRs. (111) Whilesome transactions of over $10,000 are exempt -- such as regular and routine business, includingmeeting payroll or depositing receipts, by known customers -- the citations involved unambiguousrequirements to report. In 30% of the cases, the FDIC was found to have waited until the nextexamination to follow up on BSA violations and taken more than a year in 71% of the cases to act,with many violations taking five years before the FDIC acted.

The Office of Thrift Supervision (OTS) supervises about 950 federally chartered savingsassociations, savings banks, and their holding companies (thrifts). Like the OCC, the OTS is locatedwithin, but is independent of the Treasury. The OTS is to conduct on-site examinations of eachinstitution at least three times every two years. Data on actions taken are from the Treasury IG'saudit of OTS actions covering a period from January 2000 through October 2002. During that time,examiners found substantive problems at 180 thrifts, and took written actions against eleven. According to the IG, in five cases the action was not timely, was ineffective, and did not evenaddress all violations found. The IG also took exception to the extent to which the OTS relied onmoral suasion instead of money penalties to gain compliance: in a sample of 68 violations, forexample, the OTS took such actions in 47 cases but failed to make any positive difference incompliance in 21 cases.

The National Credit Union Administration (NCUA) currently regulates 8,945 federallychartered credit unions and another 3,442 federally insured, state-chartered credit unions. Mostcredit unions are small and considered to have limited exposure to money laundering activities. Inat least one case, however, penalties were assessed against a credit union for CTR deficiencies. In2000, the Polish and Slavic Federal Credit Union in New York City was assessed $185,000 forwillful failure to file CTRs and improperly granting exemptions from filings for somecustomers. (112)

In 2003, the NCUA examined 4,400 credit unions and participated with state regulators in another 600 examinations of state-chartered institutions. They found 334 BSA violations in 261credit unions. Most deficiencies were inadequate written policies, inadequate customeridentification, or inadequate currency reporting procedures. NCUA reported that 99% of violationswere corrected during or soon following the on-site examinations. NCUA actions are generallyinformal but may involve memoranda of understanding. (113)

The Securities and Exchange Commission (SEC) regulates to protect investors againstfraud and deceptive practices in securities markets. It also has authority to examine institutions itsupervises for BSA compliance. This covers securities markets and exchanges, securities issuers,investment advisers, investment companies, and industry professionals such as broker-dealers. TheSEC supervises more than 8,000 registered broker-dealers with approximately 92,000 branch officesand 67,500 registered representatives. The depth and breadth of the securities markets are such thatthey could arguably prove to be efficient mechanisms for money laundering.

The SEC's approach to BSA monitoring and enforcement is a joint product of the NAMLGand modified from that used by depository institution regulators. Much of the securities industry isoverseen by self-regulating organizations (SROs), such as the New York Stock Exchange. Thus,most examinations are carried out jointly by the SEC's Office of Compliance Inspections andExaminations (OCIE) and the relevant SRO. The SEC does not make public its findings of BSAviolations. Agency efforts are focused on educating the securities industry on its complianceresponsibilities. This may be in part because compliance rules for the industry are relatively recent. For example, FinCEN and the SEC released specific regulations for customer identificationprograms for mutual funds in June 2003.

The Commodity Futures Trading Commission (CFTC) protects market users and thepublic from fraud and abusive practices in markets for commodity and financial futures and options. The CFTC delegates BSA examinations to its designated self-regulatory organizations (DSROs), ofwhich the most prominent are the National Futures Association (NFA), the Chicago Board of Trade,and New York Mercantile Exchange. NFA membership covers more than 4,000 firms and 50,000individuals. The regulatory process generally starts at registration, when the SRO screens firms andindividuals seeking to conduct futures business. The DSROs monitor business practices and, whenappropriate, take formal disciplinary actions that could prohibit firms from conducting any furtherbusiness. Covered businesses include all registered futures commission merchants, "introducingbrokers," commodity pool operators, and commodity tracing advisers, who are required to reportsuspicious activity and verify the identity of customers, as well as monitor certain types of accountsinvolving foreigners.

According to the CFTC, in 2003, the NFA conducted 365 examinations of the 180 futurescommission merchants and 605 introducing brokers. These examinations resulted in 238 auditreports of which 54 reflected anti-money laundering deficiencies at nine merchants and 45 brokers. Primary deficiencies cited were failures to comply with annual audit and training requirements. (114)

Internal Revenue Service(115)

To help finance its operations and its many spending programs, the federal government leviesincome taxes, social insurance taxes, excise taxes, estate and gift taxes, customs duties, andmiscellaneous taxes and fees. The federal agency responsible for administering all these taxes andfees -- except customs duties -- is the Internal Revenue Service (IRS). In managing that hugeresponsibility, the IRS receives and processes tax returns and related documents, payments, andrefunds, enforces compliance with tax laws and regulations, collects overdue taxes, and provides avariety of services to taxpayers intended to answer questions, help them understand their rights andresponsibilities under the tax code, and resolve disputes in ways that seek to avoid protracted andcostly litigation.

Role in Government's Campaign Against Terrorist Financing

The IRS also contributes to current efforts by the federal government to uncover, disrupt, andstaunch the flow of funds to terrorist groups, especially those expressing implacable hostility towardthe United States. These efforts involve the use of a variety of weapons, including the collection andanalysis of financial intelligence, diplomatic pressure, regulatory actions, administrative sanctions,and criminal investigations and prosecutions. The IRS's role rests on the agency's wealth ofexperience and expertise in tax law enforcement. For the most part, it consists of providinganalytical and resource support for investigations (many done in concert with other federal agencies)of possible links between terrorist groups and actual or alleged violations of the financial reportingrequirements of the Bank Secrecy Act of 1970, money laundering schemes, and the diversion offunds from tax-exempt charities. The IRS is responsible for enforcing compliance with the BSA forall non-banking financial institutions not regulated by another federal agency, including moneyservice businesses (MSBs), casinos, and credit unions.

Capabilities and Resources

The current allocation of funds among major IRS operations suggests to some that exposingand disrupting the flow of funds to terrorist organizations hostile to the United States is not anespecially high priority for the IRS. In FY2005, the IRS is receiving $10.236 billion in appropriatedfunds. Of this total, $4.363 billion (or nearly 43%) is designated for tax law enforcement, theappropriations account from which the IRS funds its contributions to the federal government'scampaign against terrorist financing. While there is no specific line item in the IRS budget foractivities related to terrorist financing, the agency estimates that its spending for this purpose inFY2005 may total $31.2 million, up from between $20 and $25 million in FY2004. (116) This amounts to 0.7%of its budget for tax law enforcement and slightly more than 0.3% of its total budget. It is not clearfrom available information how much the IRS is likely to spend on activities related to terroristfinancing in FY2006.

IRS's contribution to the government's campaign against terrorist financing draws mostly onthe resources of three of its operating divisions: Criminal Investigation (CI), the Small Business andSelf-Employed Taxpayers Division (SB/SE), and the Tax-Exempt and Government Entities Division(TE/GE).

The principal division, as measured by resources devoted to investigating and opposingterrorist financing, seems to be CI, whose main function is to investigate instances of alleged taxevasion and other financial crimes related to tax administration. In recent decades, CI has becomeincreasingly involved in investigations of possible violations of anti-money laundering and financialreporting statutes. CI uses BSA and money-laundering statutes to investigate and prosecute criminalconduct related to the tax code, such as abusive tax shelters, offshore tax evasion, and corporatefraud. CI also investigates failures to file Form 8300 (Report of Cash Payments Over $10,000Received in a Trade or Business) and criminal violations of the BSA, including the structuring ofdeposits to avoid the reporting requirements for currency transactions. As a result, the division hasbecome adept at exposing the attempts of individuals and organizations (including charities) to evadetaxes on legal income or to launder money obtained through illicit activities with the use ofnominees, cash, multiple bank accounts, layered financial transactions involving multiple entities,and the movement of funds offshore. In the aftermath of the terrorist attacks of September 11, 2001,CI has been adapting this capability to the special requirements of exposing, tracking, anddismantling the sources of terrorist financing. This is no easy task, partly because terrorist groupsand their financiers are constantly adjusting to efforts by major countries like the United States tostop the flow of funds to these groups. These groups are beginning to rely on methods of movingfunds outside formal financial systems such as the use of cash couriers and alternative remittancesystems. In FY2005, CI's spending on investigating terrorist financing is likely to amount to $30.5million, or nearly 98% of the total IRS budget for this purpose. (117) Of the 186 IRSemployees expected to work on a full-time basis on activities related to terrorist financing inFY2005, 182 come from CI.

The SB/SE Division performs a number of important tasks. One is to enforce compliancewith certain sections of the tax code. Another is to monitor and enforce compliance by certainnon-banking financial institutions with the reporting requirements of the BSA. In discharging thisresponsibility, SB/SE agents conduct examinations of MSBs, casinos, and credit unions to ensurethey comply with reporting requirements under the BSA. They refer possible violations to CI andTreasury's Financial Crimes Enforcement Network for investigation. Some of the cases couldinvolve suspected attempts to launder money to terrorist groups. In October 2004, a new office wasestablished within the SB/SE Division -- the Office of Fraud/BSA -- to coordinate IRS's efforts toenforce compliance with the BSA. The director of the office reports directly to the Commissionerof SB/SE and is responsible for BSA policy formation and data management. It is not clear fromavailable information how much the Division is likely to spend on activities tied to investigationsof terrorist financing in FY2005.

A primary responsibility of the TE/GE Division is oversight of the financial affairs ofcharities. TE/GE civil examiners evaluate applications submitted by organizations seekingtax-exempt status and monitor the continuing eligibility of organizations already granted that statusthrough information obtained from tax returns and other sources. The Division recently revised itsapplication form for charities seeking tax-exempt status (Form 1023) to include more relevantinformation for criminal investigators in cases involving allegations of financial crimes or terroristfinancing. Additionally, agents from the Exempt Organizations branch of the TE/GE Division lendassistance to CI and other federal agencies in their investigations of charities suspected of havingdiverted funds to support terrorist activities. In FY2004, the EO began an intensive educationalprogram to persuade charities to implement effective internal controls to prevent the unintendeddiversion of assets to terrorist groups. And in FY2005, the Exempt Organizations branch plans toestablish an office known as the Exempt Organization Fraud and Financial Transactions Unit, whosemain tasks will include exposing and disrupting the diversion of charitable assets to fund terroristactivities and expanding the database on the flow of funds from donors to charitable organizationsavailable to CI and other law enforcement agencies. Once again, it is not clear how much theDivision will spend on activities related to investigations of terrorist financing in FY2005.

Underpinning the IRS's contribution to the federal government's fight against terroristfinancing are the knowledge, skills and technology possessed by CI special agents and certainfinancial information the agency collects under a variety of tax and anti-money laundering statutes,including the BSA.

Criminal Investigations special agents must have academic degrees in accounting andbusiness finance. In addition, they undergo rigorous training in criminal investigative techniques,forensic accounting, and the fundamentals of financial investigations. Some also receive specializedtraining in methods of tracking and thwarting terrorist financing from prosecutors with theDepartment of Justice's Counterterrorism Section. Experienced special agents tend to excel atunraveling complex financial transactions by acquiring and analyzing key pieces of detailed financialinformation and re-assembling them in the manner of a jigsaw puzzle to form what is intended tobe a coherent picture of expenditures, life-style changes, and acquisition of assets. As of March 19,2005, the IRS employs 2,733 special agents, 111 of whom serve as computer investigative specialiststrained to use special equipment and techniques to preserve digital evidence and to recover financialdata. (118)

Around 182 special agents and CI support personnel are working on counterterrorisminvestigations in FY2005. (119) Some of these agents, along with a number of agents from theTE/GE Division, are involved in a pilot anti-terrorism initiative being conducted at the Garden CityCounterterrorism Lead Development Center (LDC) in Garden City, NY. The initiative, which isdirected by the CI, offers research and project support to anti-terrorist financing investigations beingconducted by the Joint Terrorism Task Forces led by the FBI or by CI special agents. (120) By combiningconfidential data from tax forms with public sources of information and data gathered from othercriminal investigations, the LDC can undertake thorough analyses of financial data relevant tospecific investigations and disseminate the results in accordance with the limits imposed by taxdisclosure laws and the rules governing the secrecy of grand jury proceedings. CI special agentsassigned to the LDC have focused their investigations on the members of known terrorist groupswho might have violated tax, money-laundering, and currency laws and individuals linked totax-exempt organizations who might be raising funds to support terrorist groups.

Owing to its responsibility for enforcing tax laws and various money laundering statutes, theIRS has direct access to financial information that might be useful in detecting and tracking taxevasion and various financial crimes, including the movement of money earned through illegalactivities through domestic financial institutions to foreign terrorist groups. Under Section 6050Iof the Internal Revenue Code, firms not covered by the BSA must report to the IRS customerpurchases of more than $10,000 paid in cash. (121) Under Section 5314 of the BSA, U.S. residents and citizensand any firms with domestic business operations having transactions with foreign financialinstitutions must file a form known as the Report of Foreign Bank and Financial Accounts with theIRS; the form provides important details about those transactions. And since December 1992, theIRS has had the authority to monitor and enforce compliance with the BSA reporting requirementsby non-banking financial institutions not regulated by other federal agencies; these institutionsinclude MSBs, casinos, and non-federally insured credit unions. The IRS is also responsible forprocessing and storing electronically all BSA documents collected by all federal agencies (includingFBARs, currency transactions reports, and suspicious activity reports) in a computer data baseknown as the Currency Banking Retrieval System. Currently, the CBRS contains close to 144million BSA documents. Sometime in 2006 or 2007, FinCEN is to assume primary responsibilityfor processing and storing all BSA documents through a project known as BSA Direct. (122) Although all thesedocuments are made available to other law enforcement and regulatory agencies, the IRS appearsto be the largest user. According to congressional testimony by Nancy Jardini, Chief of the CriminalInvestigations Division, data culled from BSA documents played important roles in 26% of the 150investigations into terrorist financing conducted by special agents through June 2004. (123)

Coordination and Cooperation with Other Treasury Bureaus and Federal Agencies

The IRS shares its investigative resources with a variety of other Treasury bureaus andfederal agencies. It is forging close working relationships with the Treasury Department's Office ofTerrorism and Financial Intelligence as well as Treasury's Office of Foreign Assets Control, FinCEN,and the Working Group on Terrorist Financing and Charities. A key function of TFI is to assembleand analyze intelligence on the methods used by terrorist groups to finance their activities. FinCENand the IRS work closely on enforcing compliance with the BSA, and FinCEN refers possible casesof terrorist financing to IRS's LDC for further investigation.

In addition, the IRS is contributing to numerous inter-agency initiatives aimed in whole orin part at tracking and disrupting the flow of funds to terrorist groups. Among the noteworthyinitiatives are the National Counterterrorism Center; the Informal Value Transfer System WorkingGroup; the Organized Crime Drug Enforcement Task Force Program; the Defense IntelligenceAgency Center; the Anti-Terrorism Advisory Council created by the Attorney General; the FBI'sJTTF, Terrorist Financing Operations Section, and National Joint Terrorism Task Force; HighIntensity Money Laundering and Related Financial Crime Area Task Forces; and the TerroristFinance Working Group led by the State Department. Besides the FBI, the federal law enforcementagencies involved in these initiatives are the Bureau of Alcohol, Tobacco, Firearms and Explosives;the Drug Enforcement Administration; and Immigration and Customs Enforcement.

Measures of Success in Campaign Against Terrorist Financing

There is no evidence that the IRS has developed a formal and publicly accessible method forevaluating the cost-effectiveness of its contributions to the campaign against terrorist financing. Theapparent lack of such a method makes it difficult to address some key policy issues raised by thosecontributions. Specifically, it is not clear to what extent the agency's involvement complements orduplicates work done by other agencies, yields financial information that results in the eliminationor disruption of specific sources of terrorist financing, and can be regarded as a desirable investmentof public resources. Nonetheless, the IRS does keep track of the number of anti-terrorist financinginvestigations its agents are involved in and their outcomes. According to 2004 congressionaltestimony by Dwight Sparlin, the Director of Operations, Policy, and Support for CI, betweenOctober 1, 2000, and early May 2004, the CI conducted 372 such investigations "in partnership withother law enforcement agencies." (124) Of these, over 100 led to criminal indictments; another 120were referred to the Justice Department for prosecution; and the remaining 150 or so wereincomplete and still being worked on by CI special agents.

Impact of the Recommendations of the 9/11 Commission

By all available accounts, the IRS has made limited changes in its contributions to the federalgovernment's campaign to combat terrorist financing in response to the 9/11 Commission'srecommendation to improve the collection of intelligence regarding terrorist financing. On thewhole, it appears that IRS's role in the government's campaign against terrorist financing is not onlyconsistent with this recommended change in strategy but arguably critical to its prospects for success.

In September 2004, the IRS established a new senior executive position to coordinate itsactivities related to terrorist financing. The current Counterterrorism Coordinator is RebeccaSparkman. Her duties include evaluating the efficacy of the agency's contributions to the fightagainst terrorist financing; monitoring criminal cases involving allegations of terrorist financing;overseeing the interactions between IRS and other Treasury bureaus and federal agencies involvedin the fight against terrorism to make sure they are not hampered by a lack of coordination; andfostering open communication among the divisions in IRS contributing to the fight against terroristfinancing. In addition, the IRS shifted its representative on the National Joint Terrorism Task Forceto the National Counterterrorism Center established in August 2004 through an executive ordersigned by President Bush.

Departments of Homeland Security and Justice

Bureau of Customs and Border Protection (CBP)(125)

The Bureau of Customs and Border Protection is the principal agency responsible for thesecurity of the nation's borders. CBP was established March 1, 2003 with the creation of Departmentof Homeland Security (DHS). CBP is primarily composed of the inspection staffs of the legacy U.S.Customs Service, Immigration and Naturalization Service (INS), and the Animal and Plant HealthInspection Service (APHIS). CBP's primary mission is interdicting illicit cross-border traffic whileefficiently processing the flow of legitimate or low-risk traffic across the border. CBP enforces morethan 400 laws and regulations on behalf of many federal agencies, including those that relate toterrorist financing.

Role in Fighting Terrorist Financing. CBP's rolein the national effort to combat terrorist financing is confined to its inspection and interdictionactivities along the border and at or between ports of entry. In this role CBP intercepts illicit materialand contraband illegally entering or exiting the country. CBP interdicts inbound illicit currencyduring the course of its inspection operations at and between ports of entry. To prevent illicitfinancial proceeds from reaching terrorist or criminal groups outside the U.S., CBP has developedtwo outbound programs that specifically relate to terrorists and terrorist financing: the CurrencyProgram and the EXODUS program, run by CBP's Outbound Interdiction Security staff.

The mission of CBP's Outbound Interdiction and Security activities is to enforce U.S. exportlaws and regulations. This mission includes (among other things): interdicting illegal exports ofmilitary and dual-use commodities; enforcing sanctions and embargoes against specially designatedterrorist groups, rogue nations, organizations and individuals; and interdicting the illicit proceedsfrom narcotics and other criminal activities in the form of unreported and smuggled currency. Interdiction and Security Outbound is also responsible for enforcing the International Traffic in ArmsRegulations (ITAR) for the Department of State, the Export Administration Regulations (EAR) forthe Department of Commerce, and sanctions and embargoes for the Department of the Treasury'sOffice of Foreign Assets Control. As a part of the Currency Program, dedicated outbound currencyteams work to interdict the illicit flow of money to terrorist, criminal, and narcotics traffickingorganizations. Under the EXODUS program, CBP enforces the ITAR, EAR, and OFAC regulations.

Capabilities and Resources. CBP enforces morethan 400 laws at the border. Those associated with criminal violations include violations of 18U.S.C. 1956 and 1957 (money laundering); 18 U.S.C. 541 (entry of goods falsely classified); 18U.S.C. 542 (entry of goods by means of false statements); and 18 U.S.C. 545 (smuggling goods intothe United States).

Data regarding budget and resources devoted to terrorist financing specifically are not readilyavailable. However, general data regarding CBP operations are available. CBP has more than40,000 employees. Of these, nearly 18,000 are front line inspectors. CBP's budget for FY2005 is$6.5 billion and $6.7 billion has been requested for FY2006.

CBP has developed an Outbound Currency Interdiction Training (OCIT) program to supportits currency interdiction mission. This training includes instruction and practical exercises to providespecialized knowledge in currency interdiction, and has an anti-terrorism component. In addition,CBP has the largest Canine Enforcement Program in the country with more than 1,200 teamsassigned to 79 ports of entry, and 69 Border Patrol Stations. Some of these canines have beentrained to detect currency.

Measures of Success and Accomplishments. InFY2004 CBP Interdiction and Security (Outbound) operations made 1,320 seizures of unreportedand bulk smuggling of currency valued at $45.9 million. This same unit, in FY2003, also made atotal of 1,337 seizures valued at $51.7 million for violations of: the ITAR for the Department ofState, the EAR for the Department of Commerce, and sanctions and embargoes for the Departmentof the Treasury's OFAC. CBP's Canine Enforcement Program was responsible for seizures of U.S.currency worth $28.2 million in FY2004. According to recently reported statistics, CBP makes fivecurrency seizures valued at more than $226 thousand on an average day. In terms of relevantperformance measures, CBP sets targets based on the value of outbound currency seizures, and onthe effective percentage of outbound enforcement targeting.

Relationships and Coordination with OtherAgencies. CBP maintains relationships and coordinates with many agencies in theperformance of its border security missions. These include other DHS agencies includingImmigration and Customs Enforcement, Coast Guard, and the Transportation SecurityAdministration (TSA). They also include those agencies whose statutes and regulations CBPenforces at the border, for example the Departments of the Treasury and State. CBP's NationalTargeting Center, houses staff from a number of agencies including the Bureau of Immigration andCustoms Enforcement, Coast Guard; the U.S. Department of Agriculture; the Transportation SecurityAdministration; and the FBI. In addition, CBP's Office of Intelligence (OINT) supports CBP frontline operations in detecting and interdicting terrorists and instruments of terror. OINT maintains avariety of important relationships with other intelligence agencies including ICE; InformationAnalysis and Infrastructure Protection (IAIP); the FBI; the Central Intelligence Agency (CIA); thejoint venture Terrorist Threat Integration Center (TTIC); and the FBI-led Terrorist Screening Center(TSC).

Bureau of Immigration and Customs Enforcement (ICE)(126)

The Bureau of Immigration and Customs Enforcement is the main investigative branch ofthe Department of Homeland Security. Established in March 2003 during the reorganization thatfollowed the creation of DHS, ICE is composed of the investigative components of the legacy U.S.Customs Service (Customs), the legacy U.S. Immigration and Naturalization Service; the FederalProtective Service, and the Federal Air Marshals. ICE's work on financial investigations isconducted by the Financial Investigations Division (FID). FID's mission is to investigate financialcrimes and to work closely with the financial community to identify and address vulnerabilities inthe country's financial infrastructure. FID is organized into two primary sections: the FinancialInvestigative Program (FIP) and Cornerstone.

Role in Fighting Terrorist Financing. In theaftermath of the September 11, 2001 terrorist attacks, legacy Customs launched a multi-agency taskforce called "Operation Green Quest." Green Quest was the focus of Customs efforts to counterterrorist financing operations. With the creation of DHS, and the subsequent creation of ICE andCBP, legacy Customs investigative resources were combined with investigative assets of the legacyINS. While Operation Green Quest continued past the date of the creation of DHS, as investigationscontinued it was discovered that there was (the potential if not actual) overlap between cases beingpursued by ICE under Green Quest and cases being pursued by the Federal Bureau of Investigation under its Terrorist Financing Operation Section (TFOS). In an attempt to avoid overlap, and todelineate investigative priorities and responsibilities, the Secretary of Homeland Security and theAttorney General signed a Memorandum of Agreement (MOA) in May 2003. This MOA designatedthe FBI as the lead investigative agency with respect to terrorist financing investigations.

Concerned about the potential loss of expertise held by ICE agents, the MOA also containedprovisions to ensure that ICE, while not the lead agency on terrorist financing investigations, is ableto play a significant role. The MOA provided that ICE and the FBI detail appropriate personnel tothe other agency. GAO reports and testimony indicate, for example, that an ICE manager serves asthe Deputy Section Chief of TFOS, and that an FBI manager is detailed to ICE's FinancialInvestigations Division . (127) The MOA further specified that the two agencies developcollaborative procedures to determine whether ICE investigations or leads are related to terrorismor terrorist financing. To this end, ICE created a vetting unit, staffed by both ICE and FBI personnel,to conduct reviews and determine any links to terrorism in ICE investigations or financial leads. Ifa link is found, the case or lead is to be referred to the FBI's TFOS, where the FBI and FBI-led JointTerrorism Task Forces are to assume a leadership role in the investigation with significant supportfrom DHS investigators.

As mentioned above, ICE has combined the authorities and jurisdictions of the legacyCustoms Service, and legacy INS. ICE created the Financial Investigations Division and reorganizedit into two primary programs: the Financial Investigations Program and Cornerstone, to harness itsfull investigative potential. FIP's mission is to oversee efforts in accordance with and in support ofthe National Money Laundering Strategy. These efforts include investigations targeting drug and'non-drug' money laundering (human smuggling, telemarketing fraud, child pornography, andcounterfeit goods trafficking); and other financial crimes. FIP also runs the Money LaunderingCoordination Center (MLCC), which serves as the central clearinghouse for domestic andinternational money laundering operations within ICE. Cornerstone's mission is to coordinate andintegrate ICE's financial investigations to systematically target the "methods by which terrorist andcriminal organizations earn, move, and store their illicit funding." Cornerstone applies athree-pronged approach involving: mapping and coordinating the investigation and analysis offinancial, commercial, and trade crimes; close collaboration with the private sector to identify andeliminate vulnerabilities; and gathering, assessing and distributing intelligence regarding thesevulnerabilities to relevant stakeholders. The ICE Office of Intelligence supports all of ICE'sinvestigations, and supports the financial investigations through its Illicit Finance Unit in theIntelligence Operations Branch at ICE headquarters.

ICE has investigatory jurisdiction over violations of 18 U.S.C. 1956 and 1957 that derivefrom the jurisdiction formerly vested in the legacy Customs Service, which was a part of theTreasury Department. ICE has jurisdiction over criminal violations including internationaltransportation of financial instruments including those involving unlicenced money transmitters,smuggling bulk currency, and transactions to evade currency reporting requirements; launderingproceeds derived from drug smuggling, trade fraud, export of weapons systems and technology, aliensmuggling, human trafficking, and immigration document fraud.

In addition, ICE has attache offices in foreign countries, all of which are involved in financialinvestigations. ICE also leads a Foreign Political Corruption Unit (which conducts jointinvestigations with representatives of the victimized foreign government), focused on combating thelaundering of proceeds deriving from foreign political corruption, and bribery or embezzlement. ICEalso provides training and assistance to foreign governments through the International LawEnforcement Academy (ILEA) and programs sponsored by the Department of State's Bureau ofInternational Narcotics Law Enforcement (INL). ICE has provided money laundering-relatedtraining through ILEA schools located in Bangkok, Thailand; Gaborrone, Botswana; and Budapest,Hungary. ICE provides INL sponsored training on financial investigations to countries identifiedby State's Terrorist Finance Working Group, including United Arab Emirates, Qatar, and Brazil. TheOrganization of American State's Inter-American Drug Abuse Control Commission (CIDAD)Program, specifically requested ICE to conduct the money laundering/financial investigationsmodule at the Andean Community Counterdrug Intelligence School. This program provides trainingfor law enforcement officers from five South American countries.

Capabilities and Resources. According to theFY2005 DHS Congressional Budget Justifications, ICE's Financial Investigations Division had 2,150FTE in FY2003 and was appropriated more than $287 million for its operations. FID received $283million in FY2004. (128) According to the GAO, as of February 2004, a total of 277ICE personnel were assigned full-time to JTTFs. This total breaks out to 161 former INS agents, 59Federal Air Marshals, 32 former Customs Service agents, and 25 Federal Protective Serviceagents. (129) ICE'sOffice of Investigations (of which FID is a component) received a budget of $1.1 billion in FY2005and has requested $1.3 billion for FY2006. (130)

Measures of Success and Accomplishments. While data are not readily available specifically concerning ICE investigations related to terroristfinancing, data are available regarding financial investigations in general. Recent informationpublished by ICE indicates that through Cornerstone, ICE has seized nearly $300 million in currencyand monetary instruments, and made 1,800 arrests for financial crimes. (131)

Relationships and Coordination with Other RelevantAgencies. The breadth of ICE's financial investigative responsibilities require ICEto maintain strong relationships with other U.S. agencies involved in financial investigationsincluding the FBI, Internal Revenue Service, Secret Service, the Drug Enforcement Administration,State Department, and others. As noted above, ICE also maintains significant relationships withforeign governments and international organizations.

U.S. Secret Service(132)

The United States Secret Service -- now a part of the Department of Homeland Security,where it is to be "maintained as a distinct entity" (133) -- had been housed, since its inception as a smallanti-counterfeiting force in 1865, in the Department of the Treasury. (134) As a result of itsmissions and responsibilities, the Service's roles in combating terrorism and financial crimes aremanifold, extending to anti-terrorist financing. (135) These can be direct, through participation in relevantinteragency task forces and its own investigations of financial crimes, or indirect, through itsactivities and operations in seemingly unrelated areas. (Protective and security duties, for instance,might uncover terrorist financing arrangements behind potential assaults; or examination of identitytheft might disclose the use of credit cards by terrorist cells.)

Even though the Secret Service no longer resides in the Treasury Department, the agency isstill connected to its previous departmental home and certain responsibilities. This occurs becausethe Secret Service's authority, mandates, functions, and jurisdiction were continued when it wasmoved intact to its new residence.

Secret Service Involvement. Secret Serviceinvolvement in combating terrorist financing is an outgrowth of its two principal missions --protection and, especially, criminal investigations -- and it is connected with several Serviceresponsibilities, functions, and activities. (136) The agency's mission statement on criminal investigationssummarizes these:

The Secret Service also investigates violations of lawsrelating to counterfeiting of obligations and securities of the United States; financial crimes thatinclude, but are not limited to, access device fraud, financial institution fraud, identify theft,computer fraud; and computer-based attacks on our nation's financial, banking, andtelecommunications infrastructure. (137)

Flowing into this main stream are several tributaries from within the Service, including aCounterfeit Division. But the most relevant for combating terrorist financing is the Financial CrimesDivision, which, among other matters, covers financial institution fraud, money laundering, forgery,and access device fraud. (138) The division has also been involved in numerous task forcesconsisting of other federal agencies as well as subnational government entities:

Several of these task forces specifically targetinternational organized crime groups and the proceeds of their criminal enterprises ... These groupsare not only involved in financial crimes, but investigations indicate that the proceeds obtained fromfinancial fraud are being diverted toward other criminal enterprise. (139)

The task forces can also extend to international components or connections. Task forces involvingthe Financial Crimes Division include CABINET (Combined Agency Interdiction Network),INTERPOL (International Criminal Police Organization), the Financial Crimes Task Force, theAsian Organized Crime Task Force, and the West African Task Force. (140)

Caveats and Their Meaning. Several importantcaveats to any examination of Secret Service activities as well as efforts to combat terrorist financingare in order. One is that authoritative, detailed, and comprehensive information about the SecretService and its operations in the public record is lacking. This results from the high degree ofsecrecy and sensitivity surrounding them and agency operations. In addition, public submissionsfrom the Service itself or from its adoptive parent, the Department of Homeland Security, are usuallygeneral in scope, limited in detail, and short on specifics. (The Secret Service, however, doesprovide more information directly to Members and committees of Congress in executive session orotherwise in confidence, through reports, hearings, meetings, and briefings.)

A second qualification is that the federal involvement in combating terrorist financing hasbeen and probably still is evolving, involving a number of different entities and connections amongthem. (As noted above, for example, Treasury's Office of Terrorism and Financial Intelligenceemerged only recently.) Changes over time have occurred, affecting organizational structure, agencyduties and operations, interagency coordinative arrangements, networks consisting of federal alongwith subnational and private organizations, and informal relationships. Similar changes might occuragain with the same impact.

A third caveat is that actual practice might not conform to expected practice and that formalinstitutional arrangements and procedures might differ from informal undertakings. Consequently,some of the accounts in the public record might not adequately describe on-going interrelationships,activities, and operations; their scope and range; their effectiveness and results; or their comparativeimportance.

Collectively, these qualifications have meaning for the Secret Service's role andresponsibilities in combating terrorist financing. These are not specified in detail in the publicrecord, a gap that leads to uncertainty and even some confusion about them. In addition, the rolesmay have been transformed since the Service's move into Homeland Security and out of Treasury,where the lead agency (and several related bureaus) are headquartered. The roles or practices maycontinue to change under certain circumstances: for instance, if Treasury's bureaus and officesincrease their responsibility and operations; if the reverse occurs, whereby TFI calls upon the SecretService for additional involvement; or if the Secret Service's own priorities are altered, to elevate,as an illustration, the protective mission while reducing criminal investigations.

The Federal Bureau of Investigation (FBI)(141)

The Federal Bureau of Investigation is the lead agency in the Department of Justice (DOJ)for the dual mission of protecting U.S. national security and combating criminal activities. As astatutory member of the U.S. Intelligence Community, it is charged with maintaining domesticsecurity by investigating foreign intelligence agents/officers and terrorists who pose a threat to U.S.national security. The FBI's criminal investigative priorities include organized crime and drugtrafficking, public corruption, white collar crime, and civil rights violations. In addition, the FBIinvestigates significant federal crimes including, but not limited to, kidnaping, extortion, bankrobberies, child exploitation and pornography, and international child abduction. The FBI alsoprovides training and operational assistance to state, local, and international law enforcementagencies. Its two top priorities are counterterrorism and counterintelligence, respectively.

Due to its dual law enforcement and national security missions, the FBI has the responsibilityand jurisdiction to counter both criminal money laundering and terrorist-related financing. According to the FBI, "...Within the FBI, the investigation of illicit money flows crosses allinvestigative program lines." (142) As mentioned above, while there are some similaritiesbetween money laundering and terrorist financing at the tactical or operational level -- that is themethodologies by which fungible resources are stored and transferred -- there are also differencesbetween these two areas, not the least of which is the end use of the financial resources. Whatfollows is a description of the FBI's organization, capabilities, and relationships to and coordinationwith other agencies with respect to money laundering and terrorist financing.

The FBI has primary jurisdiction over the bulk of specified criminal offenses associated withmoney laundering in statute. (143) In general, investigations involving money laundering fallunder the purview of its Criminal Investigative Division. The Division's Financial Crimes Section(FCS) and Money Laundering Unit (MLU) specialize in tracing illicit proceeds -- "following themoney" -- that criminals seek to hide in multiple transactions in legitimate commerce and finance. Indeed, the investigative techniques developed by the FCS were used to trace the movements andcommercial transactions of the 9/11 hijackers. (144)

The MLU works with federal, state, and local agencies -- often through federal task forces-- to identify and document emerging money laundering trends and methods. The MLU analyzessuspicious activity reports and other criminal intelligence to generate new investigations andcontribute to ongoing investigations. (145)

In 2001, the FBI accounted for over one-quarter of criminal cases (423) referred to the U.S.Attorneys for prosecution in which money laundering was the primary charge, (146) but such cases onlyaccounted for a small percentage (1.4%) of the 30,708 cases referred by the FBI for prosecution inthat year. (147) TheFBI was also the lead agency for Title 18 U.S.C. money laundering referrals (376), (148) but such cases do notinclude those involving material support to foreign terrorists and international financial transactionoffenses. (149)

The FBI Mission to Counter Terrorist Financing. The Department of Justice/FBI jurisdiction and authority to investigate cases of terrorist financingas crime distinct from money laundering date back to 1994 with the enactment of the first "materialsupport" legislation. (150) The material support laws were subsequently enhanced withthe enactment of the USA PATRIOT Act. (151) A variety of other legal tools are also used in the investigationand prosecution of terrorist financing activity. (152)

Pursuant to its national security mandate, the FBI has long had responsibility for trackingterrorist financing either in response to a terrorist attack, or in a manner that would prevent such anattack. However, according to the FBI, "...Prior to the events of 9/11/2001, [the FBI] had nomechanism to provide a comprehensive, centralized, focused and pro-active approach to terroristfinancial matters." (153) It was not until April 2002, that the various elements of the FBI tracking terrorist financing wereintegrated under the Terrorist Financing Operations Section of the FBI's Counterterrorism Division. According to the FBI, the mission of TFOS is to:

conduct full financial analysis of terrorist suspects andtheir financial support structures in the United States and abroad; coordinating joint participation,liaison and outreach efforts to appropriately utilize financial information resources of private,government and foreign entities; utilizing FBI and Legal Attache expertise to fully exploit financialinformation from foreign law enforcement, including the overseas deployment of TFOS personnel;working jointly with the intelligence community to fully exploit intelligence to further terroristinvestigations; working jointly with prosecutors, law enforcement, and regulatory communities; anddeveloping predictive models and conducting data analysis to facilitate the identification ofpreviously unknown terrorist suspects. (154)

TFOS Resources and Capabilities. Due to thesensitive, if not classified, role of some of the activities of the TFOS, there is little publicly availableinformation about the resources dedicated to this function at the FBI. In terms of the types ofprofessionals working within TFOS, FBI testimony indicates that there is a mixture of financialintelligence analysts and law enforcement officers. According to the FBI, in order to analyzeexisting financial and other information for counterterrorism purposes, TFOS, working with theCounterterrorism Section of the Department of Justice's Criminal Division, works to identifypotential electronic data sources controlled by domestic and foreign governments, as well as theprivate sector that may be valuable in its efforts. Once these are identified, TFOS attempts to createthe legally appropriate protocols to access and analyze this information in order to provide reactiveand proactive operational, predictive and educational support to investigators and prosecutors.According to the FBI, some of the projects and initiatives associated with information technologyexploitation include:

The Proactive Exploits Group (PEG) . This TFOS group serves as a proactiveunit by working closely with document exploitation personnel to generate investigative leads forTFOS and other FBI investigative divisions. The PEG has conducted a survey of available datamining and link analysis software for use in TFOS activities.

The Suspicious Activity Report Project . The SAR Project attempts to identifypotential terrorists through the mining of existing databases for "...key words, patterns, individuals,entities, accounts and specific numeric indicators (i.e. Social Security...passport, telephoneetc.)." (155) Thisresearch and analysis is conducted independent of whether the reported SAR has a nexus toterrorism.

The Terrorist Risk Assessment Model . Under this project, the FBI is attemptingto identify potential terrorists and terrorist financing activities through the use of "predictive patternrecognition algorithms," or profiles of historical financial transactions that are associated withterrorist activities. (156)

Information Access. According to the FBI, theTFOS has developed substantial contacts domestically and internationally that have enhanced itsaccess to near real-time information to advance the TFOS mission. Domestically, through outreachto the private sector, and with appropriate legal process, the FBI has access to, among otherinformation: "...Banking, Credit/Debit Card Sector, Money Services Businesses,Securities/Brokerages Sector, Insurance, Travel, Internet Service Providers, and theTelecommunications Industry." (157) Internationally, TFOS investigators have supported numerousinvestigations which have led to the exchange of investigative personnel between the FBI andnumerous foreign countries or agencies. For example, according to the FBI, the United Kingdom,Switzerland, Canada, Germany, and Europol have all detailed investigators to the TFOS ontemporary duty. (158) Moreover, the State Department has requested that the FBI-TFOS lead an interagency team toprovide a TFOS-developed training curriculum to other countries requesting assistance in furtherdeveloping their existing investigative programs, legislative and legal regimes, and financialoversight controls to counter terrorist financing.

FBI Measures of Success and RelatedAccomplishments. A review of publicly available FBI documents and officialtestimony suggests that the FBI measures its success in countering terrorist financing throughnumerous measures, to include the deterrence, disruption, or prevention of terrorist attacks; theidentification of previously unknown ("sleeper") terrorist suspects, terrorist organizations, andterrorist supporters; enhancing the understanding of a terrorist attack after it has occurred byanalyzing existing financial information gathered through the case and liaison; the development andgeneration of additional terrorism leads and investigations; the number of arrests, indictments andconvictions for activities in violation of the aforementioned and related statutes; the closure ofdomestic and international non-governmental organizations and charities with linkages to designatedterrorist organizations; and the seizure and/or blockage of terrorist assets. Given theseself-determined criteria for assessing performance, in public remarks, the FBI has articulated itsvarious successes in working with foreign and domestic law enforcement and intelligence agenciesto achieve its goals. Some of the often cited FBI successes in terrorist financing include (1) thedisruption and dismantlement of a Hezbollah procurement and fund-raising network relying oninterstate cigarette smuggling; (2) FBI support to a U.S. Treasury, Office of Foreign Asset Controlinvestigation that led to the blocking of assets of the Holy Land Foundation for Relief andDevelopment (HLF), which, according to the FBI, had been linked to the funding of Hamas terroristactivities, and (3) the shutting down of the U.S.-based Office of the Benevolence InternationalFoundation (BIF) after it was determined through FBI-OFAC cooperation that the charity wasfunneling money to Al Qaeda. (159)

According to the FBI, in order to address some of the concerns raised by the GAO withrespect to alternative financing mechanisms, it has developed intelligence requirements related toknown indicators of terrorist financing activity. (160) Theoretically, such requirements should cause the FBI's fieldcollectors (largely its special agents located at the 56 FBI field offices (161) ) to pro-actively collectintelligence on alternative mechanisms of financing terrorism. Secondly, according to the FBI, theTFOS Program Management and Coordination Unit (PCMU) has been tasked with "tracking variousfunding mechanisms used by different subjects on ongoing investigations -- to include alternativefinancing mechanisms." (162)

Relationships to and Coordination with OtherAgencies. The FBI participates in, and leads some, domestic and internationalgroups to coordinate activities related primarily to terrorist financing. The interagency FBI-led JointTerrorism Task Forces, of which there are currently 100, play the lead role in investigating terroristfinancing activities. In addition to representatives from other federal law enforcement agencies, theJTTFs also include participation of many state and local law enforcement officers. Domestically, theFBI is a participant in the National Security Council's Policy Coordination Committee on TerroristFinancing (established in late 2001) which meets at least once a month to coordinate the UnitedStates Government's activities to counter terrorism financing. It is also a participant in the StateDepartment-chaired Terrorist Financing Working Group which identifies, prioritizes and assiststhose countries whose financial systems may be vulnerable to manipulation for terrorist purposes;other agencies participating in this group include the Departments of the Treasury and HomelandSecurity.

In May of 2003, a Memorandum of Agreement was signed by the Attorney General andSecretary of Homeland Security to de-conflict and clarify the terrorist financing activities of the FBIand DHS, particularly the Bureau of Immigration and Customs Enforcement. Under the MOA,generally, the FBI was designated the lead agency for the investigation of terrorist financing, andDHS was enabled to focus its law enforcement activities on protecting the integrity of the financialsystem. A process was established whereby existing DHS terrorist financing investigations (largelypart of legacy U.S. Customs' "Operation Green Quest") would be reviewed jointly to determine ifthere was a nexus to terrorism. If a joint determination was made by the FBI and DHS that there wasa nexus to terrorism, the case would be transferred to the FBI-led JTTF. Because DHS - ICE lawenforcement officers are on the JTTF, they would continue to play an important role in theinvestigation. If a joint determination was made that there was no nexus to terrorism, the case wouldremain with DHS- ICE, and likely become a part of "Operation Cornerstone," ICE's effort to identifyand work to resolve vulnerabilities in the U.S. financial system that may be exploited by terrorists.

Internationally, in addition to its 51 Legal Attache Offices which conduct law enforcementand intelligence liaison, (163) the FBI formed the International Terrorism Financing WorkingGroup (ITFWG). Composed of law enforcement and intelligence agency representatives from theUnited Kingdom, Canada, Australia, and New Zealand, the ITFWG works to coordinate informationand intelligence sharing with respect to national efforts to counter terrorist financing. (164) Moreover, the FBI isa participant in the Joint Terrorist Financing Task Force, based in Riyadh, Saudi Arabia to gatherinformation about financing activities having a potential nexus to the Kingdom of Saudi Arabia andother countries or non-state terrorist groups operating in the Near East region. The informationgathered is provided to TFOS, and subsequently to the FBI-led JTTFs in the United States forinvestigation, as appropriate. (165)

Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF)(166)

ATF's Mission and Roles Related to TerroristFinancing. On January 24, 2003, the Bureau of Alcohol, Tobacco and Firearms'law enforcement functions were transferred from the Treasury Department to the Department ofJustice, and became the Bureau of Alcohol, Tobacco, Firearms and Explosives. ATF enforces thefederal laws and regulations relating to alcohol, tobacco, firearms, explosives and arson by workingdirectly and in cooperation with others to: 1) suppress and prevent crime and violence throughenforcement, regulation, and community outreach; 2) ensure fair and proper revenue collection andprovide fair and effective industry regulation; 3) support and assist federal, state, local, andinternational law enforcement; and 4) provide innovative training programs in support of criminaland regulatory enforcement functions.

In supporting the Department of Justice's primary strategic goal of preventing terrorism andpromoting national security, the ATF participates in joint terrorism task force initiatives, as well asother interagency counterterrorism mission partnerships. Operations and intelligence data infirearms trafficking and explosives accountability have shown that terrorist organizations may beshifting to tobacco and alcohol commodities to fund their criminal activities. As it relates to terroristfinancing, the ATF seeks to reduce and divest criminal and terrorist organizations of monies derivedfrom illicit alcohol diversion and contraband cigarette trafficking activity.

Specifically, the mission of the ATF's Alcohol and Tobacco Diversion Program is to: 1)disrupt and eliminate criminal and terrorist organizations by identifying, investigating and arrestingoffenders who traffic in contraband cigarettes and illegal liquor; 2) conduct financial investigationsin conjunction with alcohol and tobacco diversion investigations in order to seize and deny furtheraccess to assets and funds utilized by criminal enterprises and terrorist organizations; 3) preventcriminal encroachment on the legitimate alcohol and tobacco industries by organizations traffickingin counterfeit/contraband cigarettes and illegal liquor and; 4) assist local, state, and other federal lawenforcement and tax agencies in order to thoroughly investigate the interstate trafficking ofcontraband cigarettes and liquor.

Teams of ATF auditors, special agents and inspectors are all involved with performingcomplex investigations of multi-state criminal violations of federal law. Several ATF investigationshave found terrorism links. For example, in 2003, ATF investigated an organization in NorthCarolina that was trafficking cigarettes to Michigan and utilizing some of the profits to fund theHezbollah in the Middle East. ATF efforts contributed to the indictment of 18 defendants associatedwith this operation.

ATF Coordination with Other Federal Agencies. In preventing unlawful trafficking in firearms and explosives and the diversion of alcohol andtobacco as financial means in support of terrorist activities, ATF continues to work in conjunctionwith all responsible law enforcement agencies to support terrorism-related investigations. ATF isrepresented at the National Drug Intelligence Center, El Paso Intelligence Center (EPIC), FinancialCrimes Enforcement Network, INTERPOL, the FBI Counterterrorism Center, Central IntelligenceAgency, Department of Homeland Security, Defense Intelligence Agency, and the National JointTerrorism Task Force. ATF is also represented at the executive level in the FBI StrategicIntelligence Operations Center and is involved in the Law Enforcement Information Sharing (LEIS)group. ATF maintains a Memorandum of Understanding with six Regional Information SharingSystems (RISS) agencies, which represent thousands of state and local law enforcement agencies.

Drug Enforcement Administration (DEA)(167)

DEA's Responsibilities with Regard to TerroristFinancing. DEA's mission is to enforce the treaties, laws, and regulations that seekto eliminate the manufacture, distribution, sale, and use of illegal drugs. The size of the worldwidemarket in illicit drugs -- estimates range from $300-$500 billion per year -- provides ampleopportunities for drug proceeds to be diverted to terrorist ends through money laundering activitiesand other financial schemes. (168)

Statutorily, DEA has authority to investigate monetary transactions resulting from unlawfuldrug activities under the primary U.S. money laundering statutes (18 U.S.C.1956 and 1957) and theapplicable civil and criminal forfeiture statute (18 U.S.C. 981 and 982). Jurisdiction under thesestatutes was granted to the Attorney General (as well as the Secretary of the Treasury and thePostmaster General) and delegated to DEA (and the FBI). DEA's enforcement jurisdiction iscontingent upon the funds involved being derived from the trafficking of illegal narcotics. DEA alsoexercises authority under 18 U.S.C. 1960, the illegal money remitter statute, and 31 U.S.C. 5332,dealing with bulk cash smuggling when the funds involved in the violations are derived fromtrafficking of illegal narcotics. Both of these criminal statutes also have applicable forfeiturestatutory provisions.

Operationally, DEA Administrator Karen Tandy has mandated that every DEA investigationwill have a financial investigative component. Thus, any DEA investigation could potentiallydiscover monetary links to terrorist entities. Within DEA's infrastructure, the following componentsare specifically designated with anti-money laundering responsibilities:

The Office of Financial Operations at DEA headquarters has overall programresponsibility for all DEA financial investigative efforts;

The Financial Intelligence/Investigations Unit at DEA headquarters providesanalytical support to the Office of Investigative Intelligence;

The Financial Section at the Special Operations Division (SOD) is amulti-agency section that coordinates multi-district, complex money-laundering wiretapinvestigations; and

Each of DEA's 21 Field Divisions as well as the Bangkok, BogotÃ¡, and MexicoCity Country Offices have Financial Investigative Teams.

DEA Resources Devoted to Combating TerroristFinancing. There are 45 positions in DEA authorized to support counter-terrorismefforts. Since FY2002, DEA has received funding from the FBI to reimburse DEA forcounter-terrorism related investigative and analytical support provided through the SpecialOperations Division-Special Coordination Unit (SOD-SCU). DEA received, via reimbursableagreement from the FBI, $7.7 million in FY2002, $11.4 million in FY2003, and $6.3 million inFY2004. For FY2005, DEA again anticipates reimbursement from the FBI for the counterterrorismsupport provided by DEA. The anticipated reimbursement would equal $6.3 million, which includesfunding to support 45 positions (including 11 Special Agents and 13 Intelligence Analysts).

Measures of Success and Accomplishments. DEA does not maintain specific statistics related to terrorist financing. DEA's investigations,however, are routinely directed at activities involving narcotics and precursor materials that have thepotential to fund terrorist organizations. Examples are Operation Mountain Express and OperationNorthern Star, investigations that uncovered possible links between the trafficking ofpseudoephedrine (a methamphetamine precursor) in the United States and Middle Eastern groupswith terrorist connections. (169)

DEA Coordination with Other Federal Agencies. The SOD-SCU is responsible for coordinating all responses to terrorism-related requests for SODassistance and is responsible for sharing tactical and/or investigative information with otherappropriate federal agencies. For the purpose of information exchange at the headquarters level, SCUpersonnel have been assigned to the National Joint Terrorism Task Force and the Department ofHomeland Security. Domestic field investigations that identify extremist/terrorist information aredocumented in a teletype and/or DEA-6 Report of Investigation (ROI) and are immediately passedto the local FBI office and, if applicable, to JTTFs in the field. This information, as appropriate, isalso passed to state and local enforcement counterparts. Foreign Country Office investigations thatidentify extremist/terrorist information are documented in a teletype and/or ROI and immediatelypassed to the respective U.S. government agencies that are part of the local country team (e.g., StateDepartment, Regional Security Officer, Military AttachÃ©, FBI Legal AttachÃ©, etc.). Documentationon domestic and foreign office investigations that identify extremist/terrorist information is alsoprovided to the SOD-SCU along with the names of all individuals to whom the information waspassed and their contact information.

All "cooperating sources" utilized in DEA investigations are debriefed quarterly regardingtheir knowledge of any terrorist-related information, including money laundering. This informationis documented on a DEA Form 6 Report of Investigation using the protocols outlined above.

The Department of State(170)

As the lead foreign policy agency, the Department of State is tasked with formulating andconducting the foreign policy of the United States. Within that broad mission, the Department ofState has responsibilities for fighting terrorism in five categories: military, intelligence, lawenforcement, diplomatic, and financial. The bureaus within State that are concerned withcounterterrorism finance programs include the Office of the Coordinator for Counterterrorism(S/CT), the Bureau of Economic and Business Affairs (EB), and the Bureau for InternationalNarcotics and Law Enforcement (INL). (171)

Following is a description of the State Department's primary responsibilities to block the flowof terrorist financing. (172)

Office of the Coordinator for Counterterrorism (S/CT)

The Office of the Coordinator for Counterterrorism (S/CT) within the Department of Stateimplements some key activities to help identify and stop terrorist financing and acts as the lead incoordinating U.S. government agencies in these efforts. S/CT receives funding for these activitiesfrom two accounts: the Nonproliferation, Anti-terrorism, De-mining and Related (NADR) programsaccount within the Foreign Operations appropriation and the Diplomatic and Consular Programs(D&CP) account within the Science, State, Justice, Commerce, and Related Agencies appropriation(formerly the Commerce, Justice, State and Related Agencies appropriation). S/CT administersseveral counterterrorism programs. One such program, Counterterrorism Engagement andInternational Cooperation, supports international counterterrorism conferences (some on terroristfinancing issues) and training. S/CT makes policy guidance and funding available to State's Bureauof Diplomatic Security's Office of Anti-terrorism Assistance which gives anti-terrorism training andequipment to law enforcement agencies. S/CT provides policy, planning, and programmingguidance to the Terrorist Interdiction Program which works with immigration authorities to disruptterrorists' travel. S/CT offers training and assistance to the State Department program ofCounterterrorism Finance (CTF) to block terrorist finances; S/CT works with countries in whichfinancial systems are deemed most vulnerable to terrorist financing and money laundering. Counterterrorism finance assistance programs are aimed at reinforcing legal, judicial, financialregulatory, financial intelligence, and law enforcement capabilities to detect, dismantle, and deterthe abuse of charities, cash couriers and alternative remittance systems by terrorist financiers.

The Office of the Coordinator for Counterterrorism also co-chairs the interagency TerroristFinancing Working Group. The Office of the Coordinator leads the State Department in designatingForeign Terrorist Organizations in order to freeze assets, stigmatize and isolate designated terroristorganizations internationally by restricting their ability to travel, and deter donations to and economictransactions with named organizations. S/CT has lead responsibility at State for preparingdesignations which block assets and prohibit contributions of terrorists and terrorist organizations.

Bureau of Economic and Business Affairs Office of Terrorism Finance and Economic Sanctions Policy (EB/ESC/TFS)

The Office of Terrorism Finance and Economic Sanctions Policy (EB/ES/TFS) is the keyoffice within the State Department's Economic Bureau focused on disrupting terrorism financing. The Assistant Secretary of the Economic Bureau chairs meetings of an interagency CoalitionBuilding Group which meets weekly and coordinates international outreach on terrorism finance forthe United States government. EB/ESC/TFS maintains a network of Embassy officials designatedas Terrorism Finance Coordinating officers (TFCOs) in each U.S. overseas mission. The Office ofTerrorism Finance also develops and conducts, in coordination with other U.S. government agencies,effective economic sanctions programs against state sponsors of terrorism, such as Syria, Iran, Libya,North Korea, Sudan, Zimbabwe, and Burma.

Bureau for International Narcotics and Law Enforcement (INL)

The Bureau for International Narcotics and Law Enforcement (INL) has responsibilities formonitoring, reporting, and coordinating activities dealing with money laundering and financialcrimes, generally. In addition, INL and the Office of the Coordinator for Counterterrorism co-chairthe interagency Terrorist Finance Working Group. INL coordinates multilateral and bilateralanti-money laundering efforts, as well.

Other State Department Terrorist Financing Activities

In addition to the State Department counterterrorism financing activities within thepreviously discussed offices/bureaus, the Department plays an important role in both multilateralinstitutions and interagency counterterrorism financing activities.

State Department personnel frequently take lead roles in multi-agency diplomatic missionsrelating to money laundering and terrorist financing. The State Department chairs the interagencyCoalition Building Group, which implements the Policy Coordinating Committee on TerroristFinancing's decisions on actions to combat terrorist financing and manages international outreachon terrorism finance for the United States. State also leads the interagency Terrorist FinancingWorking Group (TFWG) which coordinates all U.S. counterterrorism financing and anti-moneylaundering capacity-building programs around the world.

State Department Funding Levels for Terrorist Financing Activities

The Department of State receives funding for its various counterterrorism activities withinboth the Foreign Operations and the Science, State, Justice, Commerce, and Related Agencies(SSJC) appropriations. The following tables provide the FY2004 actual appropriation, the FY2005estimate, and the FY2006 request for State Department counterterrorism program funding.

Table 1. State Department Counterterrorism Funding WithinNon-proliferation, Anti-terrorism, De-mining, and Related Programs (NADR)

($ millions)

Source: Office of the Coordinator for Counterterrorism, Department of State.

Table 2. State Department Counterterrorism Funding Within theDiplomatic and Consular Programs (D&CP)

($ millions)

Source: Office of the Coordinator for Counterterrorism, Department of State.

International Cooperation(173)

In response to concerns expressed by the 9/11 Commission that the U.S. government "hasbeen less successful in persuading other countries to adopt financial regulations that would permitthe tracing of financial transactions," (174) some observers have recommended the establishment of acounter-terrorist financing certification regime as a means of securing greater cooperation andcompliance with international counter-terrorist financing standards. In Congress, legislativeproposals to enact such a regime are currently under consideration. H.R. 1952 wouldestablish a certification regime modeled on the existing illicit drug certification process that wouldrequire the Department of the Treasury to identify countries of concern based on non-compliancewith the requirements of the International Convention for the Suppression of the Financing ofTerrorism. The bill would require the withholding of 50% of Foreign Assistance Act assistance anddirect opposition voting by U.S. representatives to multilateral financial institutions with regard tocountries of concern. The bill provides for a Presidential national security interest waiver subjectto Congressional review. H.R. 1952 has been read and referred to the House Committeeon International Relations and the House Committee on Financial Services.

International Agreements and Bodies

Given the significant overlap between international money laundering and terrorist financing,the international community has addressed these crimes with a similar set of measures and policies. In 1988, the United Nations (UN) General Assembly passed the Vienna Convention Against IllicitTraffic in Narcotic Drugs and Psychotropic Substances (the Vienna Convention), the firstinternational agreement to criminalize money laundering. An important component of theagreement, some argue, is that it includes a mutual assistance clause mandating that governmentscollaborate with each other in money laundering investigations. (175) In order to facilitatecooperation on anti-money laundering issues among various nations and to help countries implementthe Vienna Convention, the Group of Seven nations created the Financial Action Task Force (FATF)in 1989.

Several recent conventions on terrorist financing have been negotiated. Most prominentamong these is the UN's International Convention for the Suppression of the Financing of Terrorism,which entered into force on April 10, 2002. As of June 2005, 132 countries had signed theconvention and 117 were full parties to the agreement. (176) The convention requires each country to criminalize thefunding of terrorist activities under its domestic law and to seize or freeze funds used or allocatedfor terrorist purposes. Countries must ensure that their domestic laws require financial institutionsto implement measures that identify, impede, and prevent the flow of terrorist funds. Finally,countries are required to prosecute or extradite individuals suspected of involvement in thefinancing of terrorism and to cooperate with other countries in the investigation and/or prosecutionof those suspected of engaging in these acts.

United Nations Security Council Resolution (UNSCR) 1373, was adopted on September 28,2001. It established numerous measures to combat terrorism, in addition to calling on membercountries to become parties to the International Convention for the Suppression of the Financing ofTerrorism. It focused on areas of financing, intelligence sharing, and limiting terrorists' ability totravel. The resolution also required states to criminalize Al Qaeda financial activities and to freezethe group's monetary assets; it mandated exchanges of intelligence, among other arrangements.UNSCR 1373 was passed under Chapter VII of the UN Charter, making compliance mandatory forall member-states and giving the Security Council enforcement powers.

UNSCR 1267, passed in October 1999, set up the "1267 Committee," to monitor thesanctions imposed on then Taliban-controlled Afghanistan for its support of Osama Bin Laden andAl Qaeda. These sanctions require U.N. member states, among other things, to freeze assets ofpersons and entities listed by the 1267 committee. The Council has revised and strengthened thesesanctions since 1999. On January 30, 2004, the Council, in Resolution 1526 (2004), furtherstrengthened and expanded the Committee's mandate by requiring that states freeze economicresources derived from properties owned or controlled by Al Qaeda and the Taliban and also thatstates cut the flow of funds derived from non-profit organizations and alternative/informal remittancesystems to terrorist groups.

Financial Action Task Force (FATF). TheFinancial Action Task Force is an inter-governmental body that develops and promotes policies andstandards to combat money laundering (the so-called Forty Recommendations ) and terroristfinancing ( Eight Special Recommendations on Terrorist Financing ). (177) It is housed at theOrganization for Economic Cooperation and Development (OECD) in Paris. As of July 2005, FATFhas 33 members. (178) According to its most recent mandate (May 2004, renewed until 2012):

FATF will continue to set anti-money laundering andcounter-terrorist financing standards in the context of an increasingly sophisticated financial system,and work to ensure global compliance with those standards. FATF will enhance its focus oninformal and non-traditional methods of financing terrorism and money laundering, includingthrough cash couriers, alternative remittance systems, and the abuse of non-profit organizations. (179)

FATF sets minimum standards and makes recommendations for its member countries. Eachcountry must implement the recommendation according to its particular laws and constitutionalframeworks. In 2001, FATF released Eight Special Recommendations on Terrorist Financing . These are very focused, and reflect a more nuanced understanding of how terrorist groups raise andtransmit funds. The eight recommendations are:

1. Take immediate steps to ratify and implement the relevant United Nationsinstruments.

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

3. Freeze and confiscate terrorist assets.

4. Report suspicious transactions linked to terrorism.

5. Provide the widest possible range of assistance to other countries' law enforcementand regulatory authorities for terrorist financing investigations.

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

7. Strengthen customer identification measures in international and domestic wiretransfers.

8. Ensure that entities, in particular non-profit organizations, cannot be misused tofinance terrorism. (180)

In October 2004, FATF added a ninth recommendation calling on countries to stopcross-border movements of currency and monetary instruments related to terrorist financing andmoney laundering and confiscate such funds. It also called for enhanced information-sharingbetween countries on the movement of illicit cash related to terrorist financing or money laundering.

Middle East and North Africa Financial Action TaskForce. The Middle East and North Africa Financial Action Task Force(MENAFATF) was inaugurated in November 2004 and works to promote the adoption andimplementation of internationally recognized anti-money laundering and counter-terrorism financingstandards among its 14 Middle Eastern member states. (181) The new body is designed to provide a regional forum forsharing knowledge and expertise on terrorist financing issues and to serve as a mutual assessmentand assistance mechanism for countries working to develop legal and enforcement infrastructure tocombat terrorist financing. The regional body is headquartered in Bahrain, and its President, VicePresident, and Executive Secretary are from Lebanon, Egypt, and Saudi Arabia, respectively. (182) At the MENAFATF'sfirst plenary meeting in April 2005, representatives assessed and evaluated progress in combatingterrorist financing in the region and discussed the organization's budget, action plan, and workinggroups. Its next meeting is scheduled for late-September 2005 in Beirut.

The International Monetary Fund (IMF) and the World Bank have also incorporatedcounter-terrorist financing activities into their work. During 2003-2004, the IMF and the WorldBank undertook a twelve-month pilot program that evaluated 33 countries and assessed theircompliance with the FATF 40 + 8 recommendations. In March 2004, the IMF and World Bankagreed to make the pilot program permanent. Experience under the pilot program with bothassessments and with technical assistance considerably deepened collaboration between the IMF andWorld Bank and FATF and the FATF Style Regional Bodies (FSRBs). Recommendations for theIMF and World Bank on how to improve monitoring include the need for close coordination withFATF and FATF-Style Regional Bodies on the timing of assessments, more equitable sharing of theassessment burden among agencies, and broadening the responsibilities of IMF and World Bank stafffor the supervision and integration of assessment missions to insure comprehensive and high qualityassessments. (183)

In addition to the pilot program, numerous IMF products, including annual economic reports(Article IV Assessments) and the Reports on Standards and Codes, and Financial Sector AssessmentProgram reports consider issues relevant to terrorist financing. (184) None of these reportsconstitutes a binding agreement. The legal basis for the IMF and World Banks' work on these issuesis through its technical assistance function. The IMF and World Bank may offer advice andguidance, but it is the responsibility of the national governments to implement and enforce any newlaws suggested by FATF's, IMF's, or the World Bank's recommendations.

Conclusion: Policy Issues for Congress(185)

While the current campaign against terrorist finance reportedly has diminished terrorists'abilities to gather and transmit finances, significant funds still appear to be available. Efforts tofurther regulate and introduce transparency into the global financial system are welcome steps; yetthey will not completely reduce terrorists' striking capacity because most of the proposed measurescannot with certainty separate out terrorists from other types of lawbreakers. Terrorists' ability toexploit non-bank mechanisms of moving and storing value, as well as their decentralizedself-supporting network of cells represent additional challenges to law enforcement.

These challenges and concerns lead to numerous policy questions that may be relevant forCongress as it debates both a U.S. strategy to counter terrorist financing and to reorganize the U.S.government in order to best implement this strategy. Among those questions are:

Should the U.S. strategy emphasize freezing assets or following financialtrails? In the wake of the 9/11 report, this does not appear to be answered. More importantly, whoshould author the U.S. Government terrorist financing strategy? Although the current terroristfinancing strategy is drawn up by the State Department, many would argue that Treasury maintainsmore expertise on the issue and, having prepared the previous Anti-Money Laundering Strategies,would be better suited to draft a national counterterrorist financing strategy.

Does the current architecture of the U.S. Government display clear jurisdictionamong the various federal departments and agencies involved in the fight against terrorist financing? The preceding analysis points to many possible overlaps among the various investigatory agencies(FBI/DOJ and DHS) as well as between Treasury and State in policy setting and providing technicalassistance to foreign allies. To what extent has the Administration analyzed each federal agencybudget allocation for combating terrorist financing to reconcile duplication of efforts?

What future efforts can be put in place to further inter-departmental andinter-agency coordination on both policy-setting and enforcement? How well are the functions of thepanoply of new and legacy departments and agencies being coordinated? Who is best suited tocoordinate these functions?

How well is the congressional oversight mechanism designed to assess federalperformance on countering terrorist financing? The Senate Banking and Finance Committees agreedto joint jurisdiction over the Treasury's Office of Terrorism and Financial Intelligence. Several otherCommittees have potential relevance in the overall fight against terrorist financing. Reform ofcongressional jurisdiction is an historically tricky issue, yet some argue that reevaluating howCongress oversees the fight against terrorism and terrorist financing may lead to more effectiveExecutive Branch action.

Considering terrorists' increased use of alternative remittance systems, is thereany way to regulate these practices? What would the costs be to register all informalmoney-transmitters and bring them in line with USA PATRIOT Act requirements? Many smallremittance services cater to immigrant communities without reliable access to the formal bankingsector. Making alternative remittance systems illegal is likely impractical and could create a swellof resentment among the immigrant population in the United States. If the U.S. Government wantsto license and regulate alternative remittance systems, some say it may be necessary to offer fundsand technical assistance to small remittance providers to help insure theircompliance.

How effectively is the United States cooperating with other countries andinsuring their cooperation in implementing and enforcing national regulations to restrict terroristfinancing? If a U.S. bank, charity, or remittance system is based in the U.S., or has U.S. operations,it is subject to U.S. jurisdiction. When such entities lie outside U.S. jurisdiction, the United Statesis often at the mercy of other governments to first enact legislation making terrorist financing illegaland, more importantly, rigorously enforce this legislation. Creating a legal and regulatory system islikely meaningless if it is not enforced.

Key Acronyms

AML - Anti-Money Laundering

APHIS - Animal and Plant Health Inspection Service

ATF - Bureau of Alcohol, Tobacco, Firearms, and Explosives

BSA - Bank Secrecy Act

CBP - Bureau of Customs and Border Protection

CBRS - Currency Banking Retrieval System

CFTC - Commodity Futures Trading Commission

CFTRA - Currency and Foreign Transaction Reporting Act

CI - Criminal Investigation

CIDAD - The Organization of American State's Inter-American Drug Abuse Control Commission

CTR - Currency Transaction Report

DCI - Director of Central Intelligence

DEA - Drug Enforcement Agency

DHS - Department of Homeland Security

DNI - Director of National Intelligence

DSRO - Designated Self-Regulatory Organizations

EB - Bureau for Economic and Business Affairs

FATF - Financial Action Task Force

FBAR - Report of Foreign Bank and Financial Accounts

FBI - Federal Bureau of Investigation

FCS - Financial Crimes Section

FDIC - Federal Deposit Insurance Corporation

Fed - Federal Reserve System

FFIEC - Federal Financial Institutions Examination Council

FID - Financial Investigations Division

FinCEN - Financial Crimes Enforcement Network

FIP - Financial Investigative Program

FSRBs - FATF Style Regional Bodies

FTATC - Foreign Terrorist Asset Tracking Center

FTATG - Foreign Terrorist Asset Targeting Group

HIFCA - High-risk money laundering and related financial crimes areas

IC - Intelligence Community

ICE - Bureau of Immigration and Customs Enforcement

IG - Inspector General

IMF - International Monetary Fund

INS - Immigration and Naturalization Service

IEEPA - International Emergency Economic Powers Act

IRS - Internal Revenue Service

IRTPA - Intelligence Reform and Terrorism Prevention Act of 2004

ITFWG - International Terrorism Financing Working Group

JTTF - Joint Terrorism Task Forces

LDC - Garden City (Garden City, NY) Counterterrorism Lead Development Center

MENAFATF - Middle East and North Africa Financial Action Task Force

MLCC - Money Laundering Coordination Center

MOA - Memorandum of Understanding

MSB - Money Service Business

NAMLG - National Anti-Money Laundering Group

NCTC - National Counterterrorism Center

NFA - National Futures Association

NSC - National Security Council

OCC - Office of the Comptroller of the Currency

OECD - Organization for Economic Cooperation and Development

OFAC - Office of Foreign Assets Control

OTS - Office of Thrift Supervision

PCC - Policy Coordinating Committee

SARs - suspicious activity reports

SB/SE - Small Business and Self-Employed Taxpayers Division

S/CT - Office of the Coordinator for Counterterrorism

SEC - Securities and Exchange Commission

SSCI - Senate Select Committee on Intelligence

TE/GE - Tax-Exempt and Government Entities Division

TFI - Office of Terrorism and Financial Intelligence

TFOS - Terrorist Financing Operation Section

TFWG - Terrorist Finance Working Group

TSA - Transportation Security Administration

UNSCR - United Nations Security Council Resolution