September 8, 2006
HP-86
Prepared Remarks by Stuart Levey
Under Secretary for Terrorism and Financial Intelligence
Before the American Enterprise Institute for Public Policy Research
Thank you for inviting me to speak today. It is an honor and a pleasure to be here. Policymakers have grown to trust AEI as a valuable source of insightful analysis, honest assessments, and fresh ideas. As we take a moment to assess how far we have come since that pivotal September day in our nation's history just five years ago, we continue to battle terrorism on every front, using every tool at our disposal. I want to thank you and the scholars at AEI for the contributions you have made to this vital effort.
While we can point to progress since 2001, there is no doubt that the world remains a dangerous place. Just since the beginning of the summer, the world has witnessed North Korea launch multiple ballistic missiles, seen a war in the Middle East sparked by Hizballah's aggression, learned of a foiled terrorist plot to blow up ten U.S.-bound aircraft using materials disguised as common household products, and seen the Iranian government's continued defiance of the international community.
If we step back and evaluate the threats we face, terrorism looms large. Not only must we defeat al Qaeda's and other terrorists' plans, we must also address the multifaceted problems and threats posed by state sponsors of terror Iran, Syria, and North Korea. North Korea, the world's foremost proliferator of ballistic missile technology, continues to aggressively pursue greater nuclear weapons capabilities and continues to develop ballistic missiles of increasing sophistication and range. Iran lies at the dangerous intersection of terrorism and weapons of mass destruction, defying the international community in its quest for nuclear weapons and providing financial and material support to terrorist groups, like Hizballah. Syria is a willing partner in Iran's scheme, allowing Iranian weapons to pass through its territory into Lebanon and permitting Hizballah's leaders to operate out of Damascus. And, as the UK terror plot demonstrates, al Qaeda and its sympathizers remain intent on killing innocent civilians, hoping to instill fear throughout our democracies and, in turn, undermine our will to promote democracy in the Middle East and protect our and our allies' vital interests in the region.
We all understand that there is not one approach to dealing with these challenges - North Korea is different from Iran, Iran is different from Syria, Syria is different from loose terrorist networks like al Qaeda - and that tackling them is not by any means an easy task. But addressing each of these challenges requires leadership, persistence, and ingenuity - applying old capabilities and authorities in new ways and, where needed, developing entirely new tools. Today, I want to discuss: 1) the Treasury Department's expanded role in fighting terrorism, weapons of mass destruction proliferation, and other pressing security threats; 2) the power of targeted financial measures, particularly when coupled with government partnership with the private sector, in combating these threats; and 3) how governments and financial institutions can work together to confront the challenge presented by the Iranian regime.
TREASURY'S NEW SECURITY ROLE
Counterterrorism and security policy has traditionally been the province of foreign affairs, defense, intelligence, and law enforcement officials - not Finance Ministers. But finance ministries worldwide are now working closely with the traditional security ministries to meet the government's first responsibility: ensuring the safety of its citizens. Promoting a safe, sound, and secure financial system will enable us to work toward that end.
As our government took stock of all of its tools to combat terrorism and the Executive Branch was reorganized after September 11, President Bush, members of his Cabinet, and the Congress recognized that the Treasury Department had unique authorities that could contribute to the fight. Although many of the Treasury's law enforcement functions were transferred to the Departments of Homeland Security and Justice in 2003, the Treasury quickly assumed a new role in U.S. national security policy as we began to apply these unique authorities in creative ways. This was the genesis of the office I oversee, the Office of Terrorism and Financial Intelligence.
Our mission is to marshal the Treasury Department's policy, enforcement, regulatory, and intelligence functions in order to sever the lines of financial support to international terrorists, WMD proliferators, narcotics traffickers, and other threats to our national security. There are financial networks that underlie all of these threats. Those networks are sources of valuable intelligence; they are also vulnerabilities we can exploit.
While combating terrorism finance is a top priority of my office, we have made progress on other fronts as well. Using a wide range of tools, we have helped shut down the networks of Colombian and other foreign drug kingpins; targeted Iranian, Syrian, and North Korean companies involved in WMD and missile proliferation; financially isolated key Syrian regime members; and struck a deep blow to the North Korean government's illicit financial network.
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 intelligence analysis office, the 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 an intelligence analysis office at the Treasury is a tremendous innovation. Money trails don't lie. Financial intelligence is uniquely reliable; it allows us to track threats, as well as to deter and disrupt them.
The authorities that the Treasury has at its disposal are among the rare tools short of military force that we can use to exert leverage when traditional diplomatic options are exhausted. They allow the U.S. government to bring concentrated pressure to bear on an otherwise unresponsive threat, demonstrating to the world that failure to abide by internationally-accepted norms of behavior bears real consequences. With the Treasury Department's recent actions, the Iranian regime is beginning to see that first-hand
PROGRESS
Our use of these authorities in the financial war on terror is having an impact. The indicators of success are often complex and not readily quantifiable, such as reporting about terrorist cells having difficulty raising money or paying salaries or benefits. Some of the best evidence, of course, is classified. In recent months, we have seen at least one instance of what we look for most - a terrorist organization indicating that it cannot pursue sophisticated attacks because it lacks adequate funding.
In some specific areas, we can however point to concrete indicators of success. For example, we have made dramatic progress in combating terrorist abuse of charities. Prior to 9/11 and even afterwards, terrorists used charities as safe and easy ways to raise and move large sums of money. Al Qaeda and Hamas, in particular, relied on charities to funnel money from wealthier areas to conflict zones with great success. Through a combination of law enforcement and regulatory actions against several corrupt charities, both at home and abroad, we have taken out key organizations and deterred or disrupted others. In tandem, active engagement with the legitimate charitable sector has succeeded in raising transparency and accountability across the board.
We have thus far designated more than 40 charities worldwide as supporters of terrorism, including several U.S. charities such as the Holy Land Foundation, the Global Relief Foundation, the Benevolence International Foundation, the Al Haramain Islamic Foundation, and the Islamic African/American Relief Agency (IARA). The impact of these actions is serious, and sometimes decisive. IARA once provided hundreds of thousands of dollars to Osama bin Laden. More recently, IARA country offices have experienced increased pressure and its leaders have expressed concern about the organization's future.
Just last week, we took action against the Islamic Resistance Support Organization (IRSO), a key Hizballah fundraising organization. Unlike some terrorist-supporting charities, IRSO makes no effort to obscure its support for violence. IRSO fundraising materials present donors with options of sending funds to equip Hizballah fighters or to purchase rockets that Hizballah uses to target civilian populations. Overall, enforcement actions against bad organizations like IRSO, combined with engagement with the charitable sector, have radically altered the dynamic, leaving dirty charities isolated and imperiled.
One of the most effective tools at our disposal was the recently revealed Terrorist Finance Tracking Program. While the details remain classified, I can attest that this program has been instrumental in identifying and capturing terrorists and their financiers, and in attacking terrorist-supporting charities. For example, using subpoenaed data provided by the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the Terrorist Finance Tracking Program played an important role in the investigation that eventually culminated in the capture of Hambali, Jemaah Islamiyya's Operations Chief. Broadly speaking, the Program has helped unravel complex connections and provide leads that were then disseminated to counterterrorism experts to help them track down terrorists. As the Washington Post editorial page aptly put it, "[This program] seems like exactly the sort of aggressive tactic the government should be taking in the war on terrorism."
The public disclosure of this program was regrettable and compromised one of the most valuable tools at our disposal. Tracking terrorist money trails is difficult enough without having our sources and methods reported on the front page of newspapers.
Overall, dedication and hard work across Departments and agencies has yielded critical successes in the financial war on terror. Indeed, the 9/11 Commission's Public Discourse Project awarded its highest grade, an A-, to the U.S. government's efforts to combat terrorist financing.
TARGETING FINANCIAL PRESSURE POINTS
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.
When people think of sanctions, what often comes to mind is a modern-day blockade: an attempt to stop trade or investment altogether in order to weaken the economy of an entire nation. This kind of program is sometimes required. Perhaps one of the best contemporary examples is South Africa under apartheid, a situation where broad, international sanctions made a decisive impact on the course of that nation's history.
But targeted financial measures, directed specifically at individuals, key regime members, front companies, financial institutions, and corrupt charities can be particularly effective. Some of these targeted measures require financial institutions to freeze funds and/or close the accounts of designated actors, denying them access to the traditional financial system. At times, the action includes bans on travel or arms transfers, which only further confine and isolate the target. To maximize the effect, we try to apply these measures in concert with others. Whenever possible, we act with a partner or a group of allied countries. In some cases, we can designate a target at the United Nations. We also have important new regulatory authorities in the United States, such as Section 311 of the USA PATRIOT Act. Section 311 allows us to designate a foreign financial institution or jurisdiction to be of "primary money laundering concern." The impact of that particular authority - as I will discuss in a moment in the context of North Korea - has been more powerful than many thought possible.
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. The deterrent and indirect effects of these types of measures are sometimes just as significant as their direct result. 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 public lives with all that entails: property, occupation, family, and social position. Being publicly identified as a financier of terror threatens an end to that "normal" life. Targeted financial measures also warn innocent people not to deal with the designated target. And those who might still be tempted to deal with targeted high risk actors get the message loud and clear: if they do so, they may be next.
A second powerful lesson we've learned is that -- particularly in the context of "targeted" sanctions -- we share common interests and objectives with the financial community. Financial institutions want to identify and avoid dangerous or risky customers who could harm their reputations and business. And we want to tell them where those risks lie.
Traditionally, the private sector viewed sanctions as obstacles to be worked around, where possible. The extensive abuse of the Oil for Food program in Iraq is just one example of classic "sanctions busting" behavior. As we eventually learned, the companies hurt by that sanctions program were the ones that played by the rules.
But by partnering with the private sector, including by sharing information and concerns with financial institutions, we are increasingly seeing less of a tendency to work around sanctions. As I have traveled and met with bank officials abroad, I have learned that even those institutions that are not formally bound to follow U.S. law pay close attention to these targeted actions and often adjust their business activities accordingly. Why? There are two reasons: First, 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. Second, avoiding government-identified risks is simply good business. Banks need to manage risk in order to preserve their corporate reputations. Keeping a few customers that we have 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.
the Power of Targeted Measures - Dealing with state sponsors
In the post-9/11 era, the world faces two unique, but overlapping, problems. We face the threat of the global jihadists, who survive in states but are not always directly supported by them. We also face the threat of regimes dedicated to acquiring weapons of mass destruction, and that, in one fashion or another, also support terrorism. With respect to states, it is a particular challenge to limit or, preferably, halt altogether their ability to use the international financial system to support their threatening behavior. They hide behind a veil of legitimacy, disguising their activities, such as weapons sales or procurement, through the use of front companies and intermediaries. In some cases, they intentionally obscure the nature of their financial activities to evade detection and avoid suspicion.
We have had some important success with North Korea. Confronted with North Korean conduct ranging from WMD proliferation-related activities to counterfeiting of U.S currency and other illicit behavior, the Treasury Department has taken two important steps.
First, we targeted a number of North Korean proliferation firms under a new Executive order, E.O. 13382. That order authorizes the Treasury and State Departments to target key nodes of WMD and missile proliferation networks, including their suppliers and financiers, in the same way we do with terrorists. A designation under this E.O. cuts the target off from access to the U.S. financial and commercial systems and puts the international community on notice about a particular threat.
Second, we took a regulatory action to protect our financial system against Banco Delta Asia (BDA), a Macau-based bank that was handling North Korea's dirty business without any pretense of due diligence or control. BDA was a willing partner, actively helping North Korean agents conduct surreptitious, multimillion dollar cash deposits and withdrawals without questioning the basis of these transactions. Indeed, BDA officials had negotiated a lower standard of due diligence with their North Korean clients. Using an authority provided in Section 311 of the USA PATRIOT Act, Treasury designated Banco Delta Asia as being of "primary money laundering concern." Section 311 enables us to cut off a bank's access to the U.S. financial system following a rule-making process. This tool has had a profound effect, not only in protecting the U.S. financial system from abuse, but also in notifying financial institutions and jurisdictions globally of an illicit finance risk.
As a result of these actions and public revelations about North Korea's criminal conduct, responsible foreign jurisdictions and institutions have taken steps to ensure that North Korean entities engaged in illicit conduct are not receiving financial services. Press reports indicate that some two dozen financial institutions across the globe have voluntarily cut back or terminated their business with North Korea, including institutions in China, Japan, Vietnam, Mongolia, and Singapore. The result of these voluntary actions is that it is becoming very difficult for the Kim Jong-Il regime to benefit from its criminal conduct. U.N. Security Council Resolution 1695 - passed in response to North Korea's launching of seven ballistic missiles in violation of North Korea's 1999 agreement to a moratorium on testing long-range missiles - has accelerated the trend. It requires all countries to prevent the transfer of financial resources in relation to North Korea's WMD and missile programs.
Indeed, the line between North Korea's licit and illicit money is nearly invisible, and the U.S. Government is urging financial institutions around the world to think carefully about the risks of doing any North Korea-related business. If recent press reports are any guide, many seem to be doing just that.
Dealing with Iran - a country that is much further integrated into the international financial system - presents a more complex challenge.
Hizballah's recent aggression in the Middle East has focused international attention to Iran's role in supporting international terrorism. Iran has long been a state sponsor of terrorism. Tehran arms, funds, and advises Hizballah, an organization that has killed more Americans than any terrorist network except al Qaeda. The world witnessed the impact of that Iranian support this summer when Hizballah targeted a civilian population in Israel with sophisticated weaponry. That costs money. Indeed, Iran provides Hizballah with hundreds of millions of dollars each year, which is why I have said that Iran is the central banker of terror. It is remarkable that Iran has a nine-digit line item in its budget to support Hizballah, Hamas, and other terrorist organizations at the expense of investing in the future of its young people.
As we continue to deal with the challenge presented by Iran's pursuit of a nuclear weapons program, we must also confront its support for terrorism. We have taken several steps to do so this week.
First, while Iranian financial institutions are prohibited from directly accessing the U.S. financial system, they are permitted to do so indirectly through a third country bank for payment to another third country bank. Today, we have cut off one of the largest Iranian state-owned banks, Bank Saderat, from the U.S. financial system. Here is why: This bank, which has approximately 3400 branch offices, is used by the Government of Iran to transfer money to terrorist organizations. Iran uses Saderat to transfer money to Hizballah. Iran also uses it to transfer money to E.U. designated terrorist groups Hamas, the PFLP-GC and the Palestinian Islamic Jihad. For example, since 2001, a Hizballah-controlled organization received $50 million directly from Iran through Saderat. Hizballah uses Saderat to send money to other terrorist organizations as well. Hizballah has used Bank Saderat to transfer funds, sometimes in the millions of dollars, to support the activities of other terrorist organizations such as Hamas in Gaza. We will no longer allow a bank like Saderat to do business in the American financial system, even indirectly.
Second - just yesterday - we took action under our terrorism Executive Order against two financial companies, Bayt al-Mal and the Yousser Company, which function as Hizballah's unofficial treasury, holding and investing its assets and serving as intermediaries between the terrorist group and mainstream banks. Institutions considering dealing with these two entities are now on notice as to their true character.
On the nuclear front, the UN deadline for Iran to suspend its enrichment and reprocessing activities has come and gone, while Iran continues its program without pause. President Bush has made clear that, though we continue to work toward a diplomatic solution, there must be consequences for Iran's continuing defiance. In Iranian President Ahmadinejad, the world faces the dangerous combination of a leader dedicated to developing nuclear weapons and to materially supporting terrorists; a leader that has denied the Holocaust and called for Israel to be "wiped off the map"; a leader that has said of America: "God willing, with the force of God behind it, we shall soon experience a world without the United States."
History's lessons have taught us not to ignore actions and words like these. It is clear why the world should not tolerate a nuclear-armed Iran. The danger is that Ahmadinejad not only has an ideologically extreme vision of the future but that he might develop the weapons that make him believe that vision can be obtained.
Our actions this week are a sign of the costs that Iran's leaders will impose on the Iranian people if the leadership chooses to remain on its current path of defiance. The regime will end up isolating Iran from the world community, with reputable financial institutions becoming increasingly unwilling to handle Iran's business. The Iranian people deserve better than a government willing to sacrifice their economic well-being to pursue weapons they don't need and policies that result in the deaths of innocent civilians. They deserve better than a regime that allows unemployment and poverty to rise, and their basic rights to be tossed aside. Iranians deserve freedom and all it has to offer.
The United Nations is one avenue for imposing pressure on the Iranian regime - an avenue we continue to aggressively pursue - but like-minded states and even the global private sector may well decide to take additional measures outside of that context. We are already seeing private institutions - particularly those in the financial community - responding to this provocative behavior and reassessing their relationships with Iran. Earlier this year, the Swiss bank UBS cut off all dealings with Iran. HSBC and Credit Suisse have also limited their exposure to Iranian business. According to the banks, these were business decisions, pure and simple - handling Iran's accounts was no longer good business. As further evidence of the change in tide, a number of foreign banks are refusing to issue new letters of credit to Iranian businesses. And earlier this year, the OECD raised the risk rating of Iran, reflecting this shift in perceptions and sending a message to those institutions that have not yet reconsidered their stance.
This Sunday, I am traveling to Europe - others will be going to the Middle East and to Asia - to consult with government and private sector leaders on measures we should all be taking to protect ourselves from Iran's use of the international financial system to advance its dangerous policies. The next steps may involve sacrifice, but I think that people are beginning to recognize that the costs we face now pale in comparison to those we might face in the future if Iran does not change course.
CONCLUSION
September 11, 2001 profoundly changed our country. While we in the United States did nothing to deserve that attack or the hatred that gave rise to it, it did awaken us to the very real dangers that were slowly building up around us. Terrorists seeking weapons of mass destruction along with state sponsors of terror that are pursuing them are too dangerous a combination for the civilized world to ignore.
It is critical that the government use every legitimate tool at its disposal. In the past, those tools have been largely located in our military and intelligence services; where they always have and always will continue to play critical and central roles. However, in a world defined by global networks of information and financial services, we at the Department of Treasury also play a vital part in this fight. I am proud of the work my department has done. I am proud to know that as we approach the fifth anniversary of 9/11 that we have shown those engaged in terrorism and weapons proliferation that they will not be able to conduct "business as usual" in the international financial system.