

	April 6, 2006 JS-4163 Testimony of Stuart Levey, Under Secretary Terrorism and Financial Intelligence U.S. Department of the Treasury Senate Appropriations Subcommittee on Transportation, Treasury, the Judiciary Housing and Urban Development, and Related Agencies Chairman Bond, Ranking Member Murray, and other distinguished Members of the Subcommittee, thank you for the opportunity to speak before you today about the President's Fiscal Year 2007 request for the Office of Terrorism and Financial Intelligence (TFI) at the Department of the Treasury. This funding will provide us with the resources needed to support the Department's essential and growing terrorist financing, money laundering, WMD proliferation, narco-trafficking, and economic sanctions programs, as well as the intelligence capabilities that are critical to the success of these programs. As you know, TFI is a relatively new office. It was created in 2004 to oversee the Treasury Department's enforcement and intelligence functions aimed at severing the lines of financial support to international terrorists, WMD proliferators, narcotics traffickers, and other criminals. The office consolidates the policy, enforcement, regulatory, and analytical functions of the Treasury and adds to them critical intelligence components by bringing under a single umbrella the Office of Intelligence and Analysis (OIA), the Office of Terrorist Financing and Financial Crimes (TFFC), the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), and the Executive Office for Asset Forfeiture. TFI also works closely with the IRS-Criminal Investigative Division in its anti-money laundering, terrorist financing, and financial crimes cases. Together, we leverage a wide range of tools to pressure obstructionist regimes. Using various authorities, we also have the ability to freeze the assets of terrorists, proliferators, and other wrongdoers. We use regulatory authorities to help banks and other institutions implement systems to detect and halt corrupt money flows. And, diplomatically, we work with other governments and international institutions, urging them to act with us against threats and to take critical steps to stem the flow of illicit finances. Key Achievements As Treasury has continued - with your support - to build much-needed resources for this new office, we have achieved some important successes. Over the past year alone, TFI has designated and financially isolated front companies, non-governmental organizations, and facilitators supporting terrorist organizations, such as al Qaida, Jemaah Islamiyah, and Egyptian Islamic Jihad; implemented targeted financial sanctions under a new Executive order against North Korean, Iranian, and Syrian facilitators of WMD proliferation; and struck a deep blow to North Korea's illicit conduct and ability to abuse the international financial system to facilitate that conduct. These efforts have required a contribution from all of TFI's components, as well as the hard work of other Departments and agencies. These accomplishments are only the tip of the iceberg, but they demonstrate without question not only that our resources are being put to good use, but that the Treasury Department is fulfilling its vitally important role to play in deterring and defending against our country's greatest national security challenges. Our financial authorities complement other national security instruments, providing policymakers with a range of options for isolating and pressuring hostile regimes, terrorists, and proliferators of weapons of mass destruction. When we are confronted with a foreign threat that is not susceptible to diplomatic pressure, financial authorities are among the rare tools short of military force that we can use to exert leverage. I would like to highlight some of TFI's key achievements in greater detail. Terrorist Finance 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. This praise truly belongs to the dozens of intelligence analysts, sanctions officers, regional specialists, and regulatory experts in the Treasury's Office of Terrorism and Financial Intelligence (TFI) who focus on terrorist financing, along with their talented colleagues in other agencies - law enforcement agents who investigate terrorism cases, Justice Department prosecutors who bring terrorist financiers to justice, foreign service officers in embassies around the world who seek cooperation from other governments and many others from the intelligence community. You will not find a more talented and dedicated group of people, with a complete focus on the mission. Teamwork across agencies has translated into effectiveness. We have continued to improve our ability to track key targets and to take the most appropriate action against the terrorist target. Sometimes that means that the Treasury will take public action, sometimes it involves persuading another country to take action, and sometimes we decide to continue to quietly collect intelligence to better map out the terrorist network. From the formation of TFI, we have been committed to that philosophy, resisting the application of metrics to our activities that would distort our incentives, for example, by emphasizing the number of terrorism designations. The meaningful indicators of our success are typically complex and not readily quantifiable, such as anecdotal reporting about terrorist cells having difficulty raising money or paying salaries or benefits. 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. Typically, though, the information we receive is not as clear. As an example, one interesting trend that we have witnessed is a decrease in the average amount of transactions that we learn about. Obviously, we are only privy to a subset of the total transactions, but this observation carries across various financial conduits and terrorist organizations and we have no reason to believe that it is unrepresentative. Interpreting this indicator is more difficult. It could reflect an overall decrease in the amount of money moving to and from terrorists. Just as easily, it could indicate that terrorists are breaking their transactions out into smaller sums, fearing interception. Alternatively, the trend could be an outgrowth of a movement by terrorist organizations away from banks towards less formal mechanisms, like cash couriers. These couriers may offer concealment, but some get caught and some get greedy, and so it is very risky to entrust them with large sums of money. Any of these alternatives would indicate that our efforts are having an impact and this trend may bear out our assessment that terrorists who fear using the banking system do not have a ready and reliable alternative for moving large sums of money. We will continue to monitor developments, but I hope this provides a sense of how complex a task it is to assess the overall impact of our efforts to combat terrorist financing. In specific areas, we can point to more concrete indicators of success. 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 Qaida 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. Our most recent action targeted KindHearts, a purported charity in Ohio that was supporting Hamas. In that instance, we took coordinated action with DOJ prosecutors and the FBI, which executed a search warrant at the moment that we froze the group's assets. Although we generally do not disclose specific blocked asset information, KindHearts has stated that over one million dollars of its assets were blocked. Overall, engagement with the charitable sector combined with enforcement actions against bad organizations have radically altered the dynamic, leaving dirty charities isolated and imperiled. Another important measure of our progress is an increase in the number of countries approaching the U.N. Security Council to seek the designation of terrorist supporters. This global designation program, overseen by the U.N.'s 1267 Committee, is a powerful tool for global action against supporters of al Qaida. It envisages 191 UN Member States acting as one to isolate al Qaida's supporters, both physically and financially. Increasingly, countries have begun to look to this committee, and administrative measures in general, as an effective complement to law enforcement action. In 2005, 18 Member States submitted names for the Committee's consideration, many for the first time, and we will continue to support this process and encourage others to do so as well. In other arenas of this fight, however, we are not where we need to be. State sponsors of terrorism, like Iran and Syria, present a vexing problem, providing not only money and safe haven to terrorists, but also a financial infrastructure through which terrorists can move, store, and launder their funds. While this is a daunting challenge, I believe that the Treasury Department's tools, combined with cooperation from responsible financial institutions, can make a difference. In the past year, for example, we have designated top Syrian officials, including the then-interior minister Ghazi Kanaan and the head of Syrian Military Intelligence, Assaf Shawkat, in part for their support to terrorist organizations. Also, on March 9, we issued a final rule under Section 311 of the PATRIOT Act confirming that the Commercial Bank of Syria (CBS) is a "primary money laundering concern" and forbidding U.S. financial institutions from holding correspondent accounts for CBS. Among our reasons for that action was the risk of terrorist financing posed by a significant bank owned and controlled by an active and defiant state sponsor of terror like Syria. We have ample reason to believe that responsible financial institutions around the world pay close attention to such actions and other similar indicators and adjust their business activities accordingly, even if they are not required to do so. A recent example of interest was the announcement by the international bank UBS that it intended to cut off all business with Iran and Syria. Other financial institutions are similarly reviewing their business arrangements and taking special precautions to ensure that they do not permit terrorist financiers or WMD proliferators - which we are increasingly able to identify and combat using a new authority - access to the global financial system. WMD Proliferation The exposure of the WMD proliferation network headed by A. Q. Khan - father of Pakistan's nuclear bomb and, more recently, nuclear technology dealer to Libya, Iran, and North Korea - provided the world with a window into one of the most frightening scenarios that we face. The U.S. government is doing everything in its power deter, disrupt, and prevent the spread of weapons of mass destruction and ensure that they do not fall into the hands of terrorists. Treasury plays a key role in this effort. Proliferators, like terrorists, require a substantial support network. By cutting off the support lines of that network, we can isolate individual proliferators, paint a clearer picture of how, and with whom, they operate, and erode the infrastructure that supports them. In June of 2005, the President issued Executive Order 13382, which allows us to do just that. This Executive Order authorizes the Treasury and State Departments to target key nodes of WMD proliferation networks, including their suppliers and financiers. A designation under this Executive Order cuts the target off from access to the U.S. financial and commercial systems and puts the international community on notice about the threat it poses. Based on evidentiary packages prepared primarily by OFAC, the President initially designated a total of eight entities in North Korea, Iran, and Syria. Continuing investigations by OFAC resulted in the subsequent designation of eight additional North Korean, and two additional Iranian, entities. And, just last week, Treasury designated two more proliferators, Kohas AG and its president, Jakob Steiger. Kohas AG, a Swiss company, acts as a technology broker in Europe for the North Korean military and has procured goods with weapons-related applications. Nearly half of the company's shares are owned by a subsidiary of Korea Ryonbong General Corporation, a previously-designated North Korean entity that has been a focus of U.S. and allied efforts to stop the spread of controlled materials and weapons-related goods, particularly ballistic missiles. OFAC's efforts to prepare additional designation packages - with the support of the Office of Intelligence and Analysis - are ongoing and will continue throughout Fiscal Years 2006 and 2007. In fact, one major OFAC initiative for 2007, which I will discuss shortly, relates directly to the WMD program. This new authority provides a powerful tool to combat the financial underpinnings of WMD proliferation and also underscores the President's commitment to work with our international partners to combat this threat. We hope our program can provide a model for other governments to draw upon as they develop their own laws to stem the flow of financial and other support for proliferation activities, as called for in U.N. Security Council Resolution 1540 and by the G-8 at Gleneagles. The Treasury and State Departments have been engaged in aggressive international outreach in order to promote this important concept. Assistant Secretary Pat O'Brien, Deputy Assistant Secretary Daniel Glaser, and I have met with our counterparts in a number of countries in Europe, Asia, and the Middle East to urge them to ensure that U.S. designated proliferators are not able to do business in their countries and to develop their own 13382-like authorities. Although our WMD program is in its early stages, and while I am limited in what I can say in this public forum, I am pleased to be able to assure you that, through cooperation with both governments and the private sector, we are already seeing an impact on our targets. Indeed, this program has significantly enhanced the U.S. Government's overall counterproliferation efforts. Section 311 Designation of Banco Delta Asia SARL In September 2005, not long after the President signed this new WMD Executive Order, the Treasury Department used a separate authority - Section 311 of the USA PATRIOT Act (Patriot Act) - to list Banco Delta Asia SARL (BDA) as a "primary money laundering concern." This regulatory action against a bank facilitating a range of North Korean illicit activities has dealt a blow to Pyongyang's ability to engage in illicit conduct and obtain financial services to facilitate that conduct. Along with our offensive targeting of several entities under E.O. 13382 for supporting North Korea's WMD and missile proliferation-related activities, it has frustrated North Korea's efforts to conduct proliferation-related transactions. Section 311 authorizes the Secretary of the Treasury - in consultation with the Departments of Justice and State and appropriate Federal financial regulators - to find that reasonable grounds exist for concluding that a foreign jurisdiction, institution, class of transactions, or type of account is of "primary money laundering concern" and to require U.S. financial institutions to take certain "special measures" against those jurisdictions, institutions, accounts, or transactions. Potential measures include requiring U.S. financial institutions to terminate correspondent relationships with the designated entity. Such a defensive measure effectively cuts that entity off from the U.S. financial system. It has a profound effect, not only in insulating the U.S. financial system from abuse, but also in notifying financial institutions and jurisdictions globally of an illicit finance risk. The success of the BDA action offers an instructive case study of the impact of this authority. BDA provided financial services for over 20 years to North Korean government agencies and front companies, some of which were engaged in illicit activities, including currency counterfeiting, narcotics trafficking, production and distribution of counterfeit cigarettes and pharmaceuticals, and the laundering of the associated proceeds. We also know that North Korean entities engaged in WMD proliferation, including Tanchon Bank - the primary financial facilitator of North Korea's ballistic missile program - held accounts at BDA. BDA tailored its services to the needs and demands of North Korean entities with little oversight or control. In fact, bank officials intentionally negotiated a lower standard of due diligence with regard to the financial activities of these clients. BDA helped North Korean agents conduct surreptitious, multimillion dollar cash deposits and withdrawals without question for the basis of those transactions. BDA knowingly accepted counterfeit currency from North Korean companies. In that regard, it is worth noting that the U.S. Secret Service has been investigating North Korean counterfeiting since 1989, and, over the past 16 years, has seized more than $48 million in high quality U.S. currency, or "supernotes." A well-known North Korean front company that has been a client of BDA for over a decade has conducted numerous illegal activities, including distributing counterfeit currency and smuggling counterfeit tobacco products. In addition, the front company has also long been suspected of being involved in international drug trafficking. Treasury's ongoing investigation of BDA has not only confirmed our original concerns about BDA's complicity in facilitating this type of conduct, but has shed additional light on the wide spectrum of North Korea's corrupt and dangerous activities, as well as its vast illicit financial network. As a result of the 311 action against BDA and TFI's subsequent and continuing international outreach efforts, a number of responsible jurisdictions and institutions have taken proactive 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 cut back or terminated their financial dealings with North Korea, constricting the flow of dirty cash into Kim Jong Il's regime. Treasury's efforts with respect to Banco Delta Asia, specifically, and combating North Korea's illicit activities, more generally, are ongoing. The Internal Revenue Service - Criminal Investigation Division is leading an investigation to exploit underlying North Korean account information at Banco Delta Asia provided by the Macau authorities. This investigation will allow the U.S. to gain an even greater understanding of the illicit activities highlighted in our Section 311 designation, and to uncover additional leads regarding DPRK entities of concern. Additionally, TFI officials continue international outreach efforts to raise awareness of North Korea's illicit conduct, explain the actions that Treasury has taken, and encourage governments and institutions to not to do business with individuals and entities engaged in illicit conduct. By all accounts, that outreach is working. Overview of the Fiscal Year 2007 TFI Request The 2007 request of $135.2 million for TFI, including $89.8 million for the Financial Crimes Enforcement Network, provides critical funding to expand TFI's ability to combat terrorist financing and other key national security challenges. It will allow us to continue and build upon these past achievements and current efforts. I know the Members of the Subcommittee are aware of this request in detail, so I will just touch on a few important highlights of new initiatives. Office of Intelligence and Analysis TFI's Office of Intelligence and Analysis (OIA) was created to focus expert analytical resources on the financial and other support networks of terrorists, WMD proliferators, and other key national security threats. Over the past year, OIA has assumed an increasingly important role in the Treasury's efforts to combat key national security threats in Iran, Syria, and North Korea. OIA's top strategic priority is to provide policymakers with relevant intelligence and expert analysis to support policy formulation and carry out the Treasury's role in the war on terror. Other OIA strategic priorities include providing intelligence support to senior Treasury officials on the full range of economic and political issues and communicating with other members of the Intelligence Community. As Assistant Secretary Janice Gardner will describe shortly, the 2007 request provides funding for OIA to continue its efforts to build Treasury's intelligence capabilities by improving its key infrastructure and adding to its analytic breadth and expertise. Office of Foreign Assets Control The Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction. Since receiving expanded designation authority in 2001, the United States has designated 428 terrorist-related individuals and entities; 320 of those designations have been carried out in coordination with our allies and designated at the United Nations. The FY 2007 budget provides additional resources for OFAC to monitor and update existing designations and track the development of new support structures and funding sources. It includes: Ten additional positions to continue to implement and administer the new Executive Order 13382, combating the proliferation of weapons of mass destruction. Fifteen additional positions to monitor and update existing terrorist designations. This is critical given that Specially Designated Global Terrorists and their support networks continuously seek new ways of evading U.S. and international sanctions by changing the names and locations of front companies and altering their financing methods. Office of Terrorist Financing and Financial Crime As the policy development and outreach office for TFI, the Office of Terrorist Financing and Financial Crime (TFFC) collaborates with the other elements of TFI to develop policy and initiatives for combating money laundering, terrorist financing, WMD proliferation, and other criminal activities both at home and abroad. TFFC works across the law enforcement, regulatory and intelligence communities and with the private sector and its counterparts abroad to identify and address the threats presented by all forms of illicit finance to the international financial system. TFFC advances this mission by promoting the transparency of the financial system and by developing and facilitating the global implementation of targeted financial authorities to identify and intercept those illicit actors that operate within the financial system. TFFC's efforts focus on: developing and facilitating the implementation of global anti-money laundering and counter-terrorist financing standards, primarily by working with and through the Financial Action Task Force the various regional bodies, including the IMF and World Bank and each of the regional development banks; promoting the development of effective targeted financial sanction regimes and the use of other targeted financial authorities through the G7, G20, FATF, United Nations, European Union, and bilaterally with countries of strategic importance; addressing financing mechanisms of particular concern by developing AML/CFT protective measures, initiatives, and best practices in vulnerable sectors such as charities, alternative value transfer systems and emerging payment systems; and conducting direct outreach to the domestic and international private sector to facilitate and improve development and implementation of sound AML/CFT controls. In all of these areas, TFFC relies on and works closely with other elements of TFI, the Treasury Department, the interagency and international communities to effectively combat the threats that illicit finance presents to the international financial system. Recently, for example, TFFC worked closely with sixteen federal bureaus and offices from across the law enforcement, regulatory, and policy communities to produce the U.S. Government's first-ever Money Laundering Threat Assessment. This working group pulled together arrest and forfeiture statistics, case studies, regulatory filings, private and government reports, and field observations. The report analyzes more than a dozen money laundering methods and serves as a first step in a government-wide process to craft strategic ways to counteract the vulnerabilities identified. The FY 2007 request continues the Administration's support of TFFC's important efforts. Treasury Overseas Presence Treasury attachés serve as the U.S. Treasury's representatives in key economies overseas. Because of their technical expertise, Treasury attachés enjoy unique access to foreign Ministries of Finance and Central Banks. This access provides the U.S. Government with a direct channel to key decisionmakers on economic policy issues, including foreign exchange policy and financial service regulatory policies. Working in tandem with TFI and Treasury's Office of International Affairs, Treasury attachés will be working to prevent the abuse of the international financial system for terrorist finance, money laundering, or other illicit purposes. Treasury proposes to increase its overseas presence from 5 attachés to 18 attachés in FY 2007. Financial Crimes Enforcement Network TFI's Financial Crimes Enforcement Network (FinCEN) helps to safeguard the U.S. financial system from the abuses of financial crime, including terrorist financing, money laundering, and other illicit activity. This is accomplished primarily through the Bank Secrecy Act, which requires financial institutions to report financial transactions, such as suspicious activities that may be indicative of financial crimes. FinCEN also supports law enforcement, intelligence, and regulatory agencies through sharing and analysis of financial intelligence, and building global cooperation with financial intelligence units (FIUs) in other countries. The FY 2007 request provides additional resources to FinCEN to streamline data processing and enhance its e-filing capabilities to increase the ease of compliance with regulations and improve its abilities to track users' needs. It includes: Enhancing components of the BSA Direct Umbrella System, including electronic filing and secure access components. Although FinCEN has entered a stop work order with respect to development of the data storage and retrieval component of the BSA Direct system in order to permit it to assess delays in deploying this component, both the electronic filing component and secure access components are presently operational and need to be upgraded to allow direct input of the BSA filings into the collection system and meet expanded user base. Development funding for FinCEN's Cross-Border Wire Transfer System Initiative. The authorizing language (Section 6302 of the Intelligence Reform Act of 2004 (S.2845 P.L. 108-458)) presents the Bureau with two tasks (1) a feasibility study to be completed as soon as practicable; and (2) the implementation of enabling regulations and a technological system for receiving, storing, analyzing, and disseminating the reports, to be completed by December 2007. The feasibility study will address whether it is possible to complete the development and implementation of the system by the statutory deadline of December 2007. We anticipate delivery of the study to the Secretary of the Treasury by late spring 2006. Conclusion Mr. Chairman, the Treasury Department - working closely with other Departments and agencies across the U.S. Government - is playing a key role in deterring and defending against the greatest threats to our security. Indeed, we have achieved some important successes in our two-year history. I look forward to working closely with you, other Members of the Committee, and your staff to ensure that TFI has the resources it needs in Fiscal Year 2007 to build upon that success. Together we can work to maximize the Treasury Department's ability to protect the American people. Thank you again for the opportunity to testify today.