December 11, 2006
HP-192

Prepared Remarks of Stuart Levey
Under Secretary for Terrorism and Financial Intelligence
Before the US-MENA Private Sector Dialogue on
Combating
Money Laundering and Terrorist Financing

New York, NEW YORK– Thank you for inviting me to speak today.  It is a true honor to be here with the financial leaders of the Middle East, North Africa, and United States, both public and private sector alike, and I want to thank everyone for making the trip to attend this important conference.  I also want to thank the Union of Arab Banks and the other sponsors of the US-Middle East & North Africa (MENA) Private Sector Dialogue for their vision in creating this critical and unique opportunity, as well as the Federal Reserve Bank of New York for its leadership in hosting and helping to organize this important event.  

As I stand here today, the world remains a dangerous place, and while terrorism continues to present an ongoing and very real and deadly threat, we are also faced with other threats to our collective international security – including those from state sponsors of terrorism such as Iran and Syria, as well as the threats posed by proliferators of weapons of mass destruction, kleptocrats, narcotics traffickers, and other illicit actors.  While we have made important progress since September 2001, we still have a long way to go to ensure that we utilize all the elements of our national and institutional power against them.

That is why this conference and others like it are so important.  The threats we face share two characteristics that make them vulnerable to the collective efforts of the people in this room:  (1) each of them depends on an underlying financial network that we can exploit, (2) each of them operates without regard to international political boundaries in part by using a financial system that itself is truly global and knows no boundaries.  While these criminal and terrorist networks are susceptible to our collective efforts, we will not defeat them unless we truly do act collectively:  both by deepening the partnerships among our governments and by strengthening partnerships between governments and private sector leaders like those assembled here.  As we kick off this critical conference, I would like to touch on some of the advances we have made and also explain how I believe we can improve our collective efforts.

Within governments around the world, one of the most important advances we have made is the new role being played by officials with responsibility for the global financial system.  Counterterrorism and security policy has traditionally been the responsibility of foreign ministries, defense officials, law enforcement bureaus and intelligence agencies, rather than finance ministers and central bankers.  Yet today, we are seeing finance officials working side-by-side with officials in security ministries to meet the government's first responsibility: ensuring the safety of its citizens.  More and more, officials in finance ministries and central banks around the world recognize that it is not enough to stimulate investment, promote open markets, and so forth.  For our economic efforts to succeed, for us all to reap the benefits of the global financial system, we must keep it secure from those who threaten its integrity. 

This trend is certainly apparent here in the United States.  As our government took stock of its tools to combat terrorism after 9/11, it became clear that the Treasury Department had distinctive authorities and capabilities to apply against these international security threats.  The Treasury quickly assumed a new role in U.S. national security policy as we began to apply these unique authorities in creative ways.  One result was the creation of the office I oversee, the Office of Terrorism and Financial Intelligence. 

The intelligence component of our efforts is particularly important.  For the first time in U.S. history – and likely the first time worldwide – we set up an Office of Intelligence and Analysis within the Treasury Department to bring the knowledge of the intelligence community to bear on the evolving threat of illicit finance.  Having such a capability within the Treasury is a tremendous innovation because we are able to focus our attention on the financial networks that underlie terrorist and other threatening organizations.  These money trails don't lie, making financial intelligence uniquely reliable as it allows us to map out these networks, uncover previously unknown connections, and, ultimately, apply pressure to these networks.   

Our use of financial enforcement authorities together with other governments around the world has had a demonstrable impact – with respect to both systemic vulnerabilities and against specific targets of key concern.  As we have seen in the terrorism context, they give us a concrete way in which to target directly those individuals and entities we know are bad actors.  We have established international standards and controls through the Financial Action Task Force, developed FATF-Style Regional Bodies, and partnered with the International Financial Institutions.  On several occasions, the United Nations has called upon us in Security Council Resolutions to apply financial measures against threats such as al Qaida, the former regime of Saddam Hussein in Iraq, other rogue regimes like that of Charles Taylor, and proliferators of weapons of mass destruction such as North Korea. 

But we can do better.  For example, finance ministries and central banks must develop and implement effective programs to combat these threats, including targeted financial sanctions regimes. We must monitor the financial activities of known terrorists and proliferators and prohibit their access – and that of their support networks – to the financial system.  We must also go beyond simply designating individuals and entities that have been named by UN and proactively identify terrorist supporters that threaten our societies, hold them publicly accountable, isolate them financially and commercially, and ensure that all of their activities, whether seemingly legitimate or illicit, are shut down. 

Over the past two years, we have learned a number of lessons about how best to use financial tools to apply financial pressure and isolate terrorists, proliferators, and others whose goal it is to undermine our security.  As a result, we are relying more and more on what we call "targeted" measures, aimed at specific actors engaged in illicit conduct.  And, as I will describe, we are working in greater partnership with the private sector. Rather than fighting against their interests and tendencies, we have found a way to form somewhat of a natural alliance.

These kinds of measures have several advantages over broad-based sanctions programs.  First, because they single out those responsible for supporting terrorism, proliferation, and other criminal activities, rather than an entire country, they are more apt to be accepted by a wider number of international actors and governments.  We do not face political hurdles when we try to persuade others to act against particular individuals and entities based on their conduct as we do when we seek action against a whole nation or regime.   

Second, the deterrent and indirect effects of these types of measures are sometimes just as significant as their direct result.  Take terrorist financing as an example.  The terrorist operative who is willing to strap on a suicide belt is not susceptible to deterrence, but the individual donor who wants to support violent jihad may well be.  Terrorist financiers typically live in polite society with all that entails: property, occupation, family, and social position.  Being publicly identified as a financier of terror and being cut off from the world's financial system threatens an end to that "normal" life.  I firmly believe that one of the positive, if immeasurable, effects of our terrorist financing efforts is that many would-be donors have been dissuaded from funding terrorism. 

The most important lesson we have learned is that we have a natural alliance with those of you in the private sector – an alliance that we need to strengthen through conferences like this one.  Indeed, when it comes to targeted measures aimed at specific actors and entities that seek to exploit the financial system, we share common interests and objectives with the private financial community:  You want to identify and avoid dangerous or risky customers who could harm your reputations and business, and we want to inform of you of those risks with a view to ensuring that they are effectively addressed.  As governments, we have a responsibility to promote these partnerships with the private sector and provide you with the information you need to help protect the financial system from abuse.  Such a partnership allows banks to make informed decisions about the business they choose to do and the business they choose to avoid. 

We are working hard to develop and enhance ways to share this type of information with the private sector so that financial institutions and others are able to apply their resources and controls effectively.  We are also working to better assist the sector in reporting the critical information required to advance our international security interests.  As I have traveled and met with banking officials around the world, I have seen more and more financial institutions wanting to play a central role in fighting illicit finance, from partnering with their respective governments to share information, or complying with OFAC's various sanctions programs though under no legal obligation to do so, or making conscious decisions to cut off business with known terrorists and rogue regimes. 

Why do they do that?  There are two reasons:  The primary reason is that, regardless of the underlying law in any particular country, most bankers truly want to avoid facilitating proliferation, terrorism, or crime.  These are responsible corporate citizens and they frankly just don't want to be part of any bad conduct.  Second, avoiding these risks is simply good business.  Banks need to manage risk in order to preserve their corporate reputations.  Keeping a few customers that have been identified as terrorists or proliferators is not worth the risk of facing public scrutiny or a regulatory action that may impact on their ability to do business with the United States or the responsible international financial community.  More and more, I believe that private financial institutions are realizing that these efforts – while they do impose some costs – are ultimately good for business.  Banks that meet and exceed international standards for anti-money laundering practices, are known to reject illicit business, and firmly root these issues of integrity in their corporate cultures are increasingly attractive partners for international investors and for clients exposed to multiple legal jurisdictions.   

All of these considerations are especially strong for those operating in the Middle East and North Africa.  You are at a cross-roads, and the business and policy decisions made by government regulators and financial institutions in the region will play a critical role in protecting the world's financial system from abuse.  There has already been significant progress in the region, as several countries have made strides in developing and implementing anti-money laundering and terrorist financing regimes.  The creation of the MENA-FATF and the commitment of its members to work towards compliance with the comprehensive set of international standards is another important achievement.  The work of that organization will translate into stronger controls, greater transparency in the financial system, and, in turn, a more attractive venue for business.

We need to build on these successes by ensuring that all MENA countries adopt comprehensive money laundering and terrorist financing legislation and regulation, as well as the infrastructure and expertise to maintain and grow such systems.  And we need your leadership to increase the vigilance of the private sector on all of these issues. 

Sadly, we still face grave threats from all corners of the globe, and each day I worry about those who are intent on committing violent terrorist acts or otherwise threatening our way of life.  Both governments and the private sector alike must do everything in our power to combat these threats to our national and economic security.  Bankers and governments are natural allies in this effort.  We all live and work in an environment that knows no borders.  It is truly a global financial system and we all have a responsibility to protect it.  I look forward to working with you in that partnership, both at this conference and in the future.

Thank you