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March 6, 2008
HP-863

Prepared Remarks by Stuart A. Levey, Under Secretary for Terrorism and
Financial Intelligence, Before the American Bar Association’s
22nd Annual National Institute on White Collar Crime

Miami − It is truly an honor for me to be asked to address this audience which includes so many current and former colleagues and personal friends. Throughout my legal career, the ABA White Collar Crime Institute has been the key annual forum for prosecutors, defense lawyers and judges to share views about cutting edge issues in the field of white collar crime.

This audience is well-acquainted with how, within the Justice Department, there is a new focus on, and preventative approach to, terrorism and other national security matters. We simply cannot afford to wait for these threats to fully materialize before acting against them. Since 2000, Justice has dramatically increased its number of terrorism- and national security-related prosecutions.

What you may be less familiar with is how Treasury also has a preventative role in combating key threats by targeting the financial networks of terrorists and other illicit actors. After 9/11, and particularly after a majority of Treasury's law enforcement functions were moved to the Departments of Justice and Homeland Security in 2003, it was not obvious that Treasury would have any significant national security role. But, over time, it has become clear that Treasury's continued role in protecting the safety and soundness of the international financial system is intrinsically linked to the protection of our national security.

My office – which was created in 2004 – marshals the Treasury Department's policy, enforcement, regulatory, and intelligence functions to combat international terrorists, weapons of mass destruction (WMD) proliferators, rogue regimes, narcotics traffickers, money launderers, and other threats to our security.

The guiding principle of the Treasury Department's approach is that these threats all have one thing in common: they rely on financial support networks. These networks are a key source of intelligence. Money trails don't lie; financial intelligence is uniquely reliable. That is why we have established at the Treasury Department a fully functioning intelligence and analysis office headed by an Assistant Secretary– the first office of its kind in any finance ministry worldwide. Our intelligence office maps illicit financial networks and helps us identify opportunities to pressure, disrupt and weaken them. As I will explain, we have learned that isolation from the global financial system can have a devastating impact on the ability of illicit actors to function. 

For much of the first 15 years of my legal career, I grappled with many of the issues that are the subject of this conference, first as a defense lawyer in private practice and then while working for former Deputy Attorneys General Larry Thompson and Jim Comey. Four years ago, I was given the challenge of doing something completely different – to set up this new office at the Treasury Department. Four years after its creation, I think it is fair to say that Treasury is more a part of our national security strategy than it has ever been in the past. I have learned a number of lessons doing this job and also had some new experiences that I never anticipated. I would like to share a few of those with you today.

Let me start with a vivid example. In June 2005, I found myself at the airport in Tripoli, Libya, a place I never thought I would be. I was winding up a two-day visit to try to encourage the Libyans to cooperate with us on various counterterrorism issues. At the time, I was the highest level U.S. official to visit Libya since it had renounced its nuclear weapons program and sought to normalize its relations with the U.S. When I arrived at the airport, instead of boarding my flight to Turkey, I was ushered onto Colonel Gaddafi's personal jet. It was decked out with shag carpets, white leather armchairs and couches, and golden seat belt buckles. I was flown about an hour away and then driven through the desert to an oasis where Colonel Gaddafi was waiting to meet with me. The scene was surreal. He was sitting under an umbrella on a dock jutting out into a pond. He was dressed in a white track suit, a white sailor's cap and orange sunglasses. We spent an hour or so discussing terrorism in the Middle East and ways in which he said Libya would cooperate in fighting it. After the meeting, as I was being driven back to his plane, I realized that I had long missed my flight to Turkey. When I mentioned this to one of Gaddafi's ministers who was in the car with me, he just laughed and told me not to worry. It turns out that the Libyans had the plane held. We arrived back at the Tripoli airport three or four hours after we left, and it was still sitting waiting on the very hot tarmac, full of some very irritated passengers. 

That stop in Libya is one of approximately 75 foreign visits I have made in the past four years to more than 30 different countries – from China to Latvia and from Russia to Vietnam. A large part of my job consists of building an international coalition of both governments and private sector financial institutions to fight various types of illicit activity in the global financial system. That coalition at first may seem like it consists of strange bedfellows – it has been joined by many governments that are not necessarily allied with the United States politically. But whatever their political views, they typically want their financial sectors to prosper, and they therefore share a common interest with us in keeping them clean and untainted by illicit conduct.

Targeted Measures – A Different Kind of Sanction

In the course of trying to build that government and private sector coalition, we have adopted a new strategy. More and more, we are using targeted, conduct-based financial measures aimed at particular bad actors. I intentionally refer to these targeted actions as "financial measures" rather than "sanctions" because the word "sanctions" often evokes such a negative reaction. Sanctions are typically associated with traditional country sanctions, which attempt to stop trade or investment altogether in order to weaken the economy of an entire state. It is hard to persuade other governments to join such broad sanctions, and the international private sector often views them as merely political statements that are not in their interests to comply with and thus, at best, they will do only what is minimally required of them. 

The dynamic is very different when we employ targeted financial measures aimed at specific actors engaged in illicit conduct. Because they single out those responsible for supporting terrorism, proliferation, and other criminal activities, rather than affecting an entire country, they are more likely to be accepted by other governments that we want to join us in taking action. But the key difference is the reaction by the private sector. Rather than grudgingly complying with, or even trying to evade these measures, we have seen many members of the banking industry in particular voluntarily go above and beyond their legal requirements because they do not want to handle illicit business. This is a product of good corporate citizenship and a desire to protect their institutions' reputations. The end result is that private sector voluntary actions amplify the effectiveness of government-imposed measures.

Once some in the private sector decide to cut off companies or individuals we have targeted, it becomes an even greater reputational risk for others not to follow, and so they often do. Such voluntary implementation in turn makes it even more palatable for governments to impose similar measures, thus creating a mutually-reinforcing cycle of public and private action. In the end, if we do our jobs well, especially by sharing critical information with the key governmental and private sector parties around the world, there is the potential for us to create a multilateral coalition to apply significant pressure on those who threaten our security.

The tools we have developed and implemented have turned out to be some of the most useful and flexible means that we have to exert leverage against intransigent regimes and to help increase the effectiveness of our traditional diplomacy. I will talk about this more in the context of our North Korea and Iran strategies.

Targeted Measures Put to Use

But first let me say a few words about how this works in the context of terrorism. Our efforts to track, deter, and disrupt terrorist financing are a key component of the government's overall counterterrorism strategy. After the September 11 attacks, the President signed an Executive Order that authorized the designation of terrorists and their facilitators worldwide. When it comes to al Qaida and the Taliban, there is a corresponding UN Security Council Resolution that makes similar designations global in their application. There are other UN resolutions dealing with terrorist financing more generally, but for HAMAS, Hizballah and other terrorist organizations, there is no comparable UN list. We nevertheless have found that our unilateral designations are followed voluntarily by many banks around the world who have decided that they simply do not want to do business with these actors.

The significance of these efforts is that terrorist networks and organizations require real financing to survive. The support they require goes far beyond funding attacks. They need money to pay operatives, support their families, train, travel, and bribe officials. When we restrict the flow of funds to terrorist groups or disrupt a link in their financing chain, they are forced to shift their focus from planning attacks to worrying about their financial viability. These designations can also deter other would-be financiers who want to remain part of the legitimate business world while supporting terrorism on the side.

One very challenging issue is how we apply these rules to the problem of charities that are being used to support terrorist organizations. Historically, al Qaida and other terrorist groups have exploited charities, often preying on unwitting donors trying to fulfill their religious obligation of charitable giving. Indeed, most terrorist-supporting charities go to great lengths in attempting to obscure their support for violence to fool these donors who believe their contributions are being devoted to laudable causes. But, occasionally, we find one that makes no such effort. The Islamic Resistance Support Organization, or IRSO, offers one of the starkest examples of a charity openly supporting terrorism and soliciting donations from individuals intending to support terror. As you can see [donor receipts (Arabic), donor receipts (translation)], IRSO's materials present donors with options of sending funds to equip Hizballah fighters or to purchase rockets that Hizballah uses to target civilian populations. The group's leaflet is equally reprehensible.

Treasury designated IRSO in August of 2006 for its role as a key Hizballah fundraising organization. While this was a unilateral US designation – other countries do not recognize Hizballah as a terrorist organization – it nevertheless exposes the true nature of IRSO to the world, isolates it from reputable banks around the world, and warns any well-intentioned donors to direct their money elsewhere.

Terrorists, of course, are not the only illicit actors abusing the financial system to support their dangerous activities; the targeted authorities that we employ against them have proven useful in other contexts as well.

We have, for example, targeted these measures at kleptocrats and others engaging in high-level political corruption. In August 2006, the President announced a comprehensive U.S. government strategy to combat high-level corruption as an ongoing threat to international security. This strategy relies on Treasury's ability to take targeted financial action against specific regimes and actors of concern. The most recent example is our designation of Rami Makhluf – the cousin of Syrian President Bashar al-Asad and a powerful Syrian businessman and regime insider – who has used intimidation and his close ties to the regime to obtain improper business advantages at the expense of ordinary Syrians. We have also targeted the corrupt behavior of senior figures from the regimes in Burma and Belarus.

Targeted financial measures have also given us more options in dealing with proliferators of weapons of mass destruction and intransigent regimes, such as those in North Korea and Iran.

North Korea offers an example of how powerful targeted financial measures can be. Confronted with a range of North Korean-related illicit conduct from WMD and missile proliferation activities to the counterfeiting of US currency, we took two important public actions. First, we targeted a number of North Korean firms under our proliferation Executive order, E.O. 13382. That authority – which the President signed in June 2005 and is modeled after our terrorism Executive order – allows us to designate proliferators and their supporters, freezing any assets they have under U.S. jurisdiction and preventing U.S. persons from doing business with them. Second, we took a regulatory action under Section 311 of the USA PATRIOT Act to protect our financial system from abuse by Banco Delta Asia (BDA), a Macau-based bank that is a serious money-laundering concern and that also knowingly allowed its North Korean clients to use the bank to facilitate a range of illicit conduct and engage in deceptive financial practices.

The real impact has come from the information made public in conjunction with these actions. Many private financial institutions worldwide responded by terminating their business relationships not only with designated entities, but with North Korean clients altogether. They determined that the risks associated with this business far outweighed any benefit. The result has been North Korea's virtual isolation from the global financial system. That, in turn, put enormous pressure on the regime – even the most reclusive government depends on access to the international financial system. This pressure provided the State Department a great deal of leverage in its diplomacy over the nuclear issue with North Korea.

We are currently in the midst of an effort to apply these same lessons to the very real threat posed by Iran. Iran presents a more complex challenge than North Korea because of its greater integration into the international financial community. Iran exploits its global financial ties to pursue nuclear capabilities and to develop ballistic missiles in violation of UN Security Council resolutions, as well as to funnel hundreds of millions of dollars each year to fund and arm terrorists. And it uses its state-owned banks to do so. The Security Council has designated Iran's Bank Sepah for its involvement in Iran's ballistic missile programs. The United States has designated Iranian banks Melli and Mellat for their involvement in Iran's nuclear and missile activities, including their support of UN-sanctioned Iranian proliferation entities. And we designated another Iranian bank, Bank Saderat, for its role in funneling money to Hizballah, HAMAS and the Palestinian Islamic Jihad. Not only do these banks facilitate illicit transactions, they engage in a wide variety of deceptive financial conduct to cover their tracks.  For example, they often request that other financial institutions take their names off of transactions when processing them in the international financial system. This practice is specifically designed to deceive those who might refuse to handle the transaction if they knew who, or what, was really involved.

The world is taking note of Iran's financial misconduct. On Monday, the UN Security Council adopted a third sanctions resolution on Iran. A key section of that resolution calls upon all States to exercise vigilance over the activities of financial institutions in their territories with all banks domiciled in Iran, particularly with Banks Melli and Saderat. And the world's premier standard-setting body on countering the financing of terrorism and money laundering – the Financial Action Task Force, or FATF – has now twice confirmed the extraordinary risks to the financial system that accompany doing business with Iran. Just last week, FATF called on all governments to issue advisories to their financial institutions warning them of these risks.

Voluntary action by the private sector to cut off risky clients is reinforcing this multilateral governmental pressure. In the fall of 2006, Treasury Secretary Paulson launched an effort to inform the public, government partners, and private sector leaders about the danger that Iran's financial deception poses to the international financial system. Over the past 18 months, I have met with scores of banks and with government officials all over the world on this topic.

Let me give youan example I sometimes share to illustrate how the Iranian government will deceive and abuse banks that do business with them. An affiliate of the Atomic Energy Organization of Iran – an entity that was designated by the UN Security Council in Resolution 1737 – placed an ad in the International Herald Tribune requesting bids to build two nuclear power plants in Iran. It is hard to imagine a transaction with bigger and brighter red flags for a financial institution. Bidders were asked to deposit a non-refundable fee in an account at a particular bank. I have spared that bank, which is a well-established, high-quality bank, the embarrassment of identification here. When I saw the ad, I called them, and they told me that this account had been opened at the request of the Iranian Foreign Ministry to support Iranian diplomats accredited to the International Atomic Energy Agency in Vienna. They said they were dismayed when they saw the ad and learned that the Iranians were attempting to use their bank for this purpose. This kind of example is very powerful because all banks want to avoid being involved in illicit transactions. More and more, banks are coming to realize that it is difficult to do that if one is dealing with Iran, especially the Iranian government.

The result of our global outreach and the formal actions of the UN and the FATF is that Iran has found itself increasingly isolated from the international financial system as banks around the world decide that maintaining their Iranian clientele is not worth the risk of unwittingly facilitating proliferation or terrorism. The world's leading financial institutions have essentially stopped dealing with Iran, and especially Iranian banks, in any currency, a situation that many in Iran's elite are finding very painful. That self-imposed isolation combined with the Iranian regime's mismanagement of their country's economy is beginning to generate a debate about the wisdom of the current regime's policies.

Our use of targeted measures is certainly not limited to what I've described here today. We have demonstrated the agility and adaptability of these measures to address other threats to international peace and security – from narcotics trafficking to abusive regimes in Zimbabwe and Sudan. In all of these contexts, we can help put pressure on specific bad actors and try to rally the private sector to isolate them from the international financial system. I do not claim that these financial measures will alone solve these intractable problems. I do believe, however, that they can play a far more important and useful role than was previously thought possible to pressure illicit actors and to create leverage for our diplomats. Washington Post columnist David Ignatius summed it up like this in a recent column: "Everybody knows that economic sanctions don't work. . . . But guess what? In the recent cases of North Korea and Iran, a new variety of U.S. Treasury sanctions is having a potent effect, suggesting that the conventional wisdom may be wrong. These new, targeted financial measures are to traditional sanctions what Super Glue is to Elmer's Glue-All. That is, they really stick."

Partnership With DOJ

It is also worth noting that these targeted measures and the work of the Justice Department and law enforcement often go hand in hand. Perhaps the best recent example is the Justice Department's September 2006 announcement that Miguel and Gilberto Rodriguez-Orejuela, the brothers who ran the infamous Cali Cartel in Colombia, had pleaded guilty to a charge of conspiracy to import cocaine into the United States and had agreed to plead guilty to conspiracy to commit money laundering by hiding the proceeds of narcotics trafficking. Treasury's Office of Foreign Assets Control and law enforcement officials had for years worked to uncover and immobilize the hidden assets of the Cali Cartel, with OFAC designating hundreds of front companies and individuals in Colombia and ten other countries. In the end, the Rodriguez-Orejuela brothers were willing to plead guilty and spend the rest of their lives in jail just to make their family members eligible to be removed from OFAC's designation list.

It is clear that our national security increasingly depends on the success of these financial measures, which, in turn, depend on the vigilance of the private sector. As I have described, much of the global private sector's conduct in this regard is voluntary, with financial institutions acting even when they are not legally obliged to do so. But strong enforcement of our laws relating to money laundering and our sanctions programs also plays an important role. 

The Departments of the Treasury and Justice, along with our other law enforcement colleagues, work together as a team to administer and enforce these laws. Most enforcement in this area is civil, involving the banking regulators, OFAC or the Financial Crimes Enforcement Network (FinCEN). In cases of serious violations, however, criminal enforcement may be warranted.

In the summer of 2005, the Department of Justice amended the United States Attorneys' Manual to require that all money laundering prosecutions of financial institutions be coordinated with, and approved by, the Criminal Division in Washington. The United States Attorneys' Manual contains a similar consultation and approval requirement with respect to the prosecution of cases affecting or involving national security, including prosecutions under the International Emergency Economics Power Act – or IEEPA, as it is commonly referred to – which is the primary statute pursuant to which economic sanctions are imposed. These provisions promote consistency and uniformity in the use of these statutes and help ensure that unintended consequences from relevant cases are minimized. In that regard, they were specifically designed to enable Justice to consult with other agencies, including the Treasury Department. As evidenced by recent enforcement actions involving violations of the Bank Secrecy Act, the recent trend has been for Justice and Treasury to proceed concurrently against financial institutions. While both agencies must operate under their respective authorities and due process procedures, whenever possible, we will proceed concurrently on enforcement matters to promote consistency and avoid multiple actions against the same financial institution at different times for similar and related conduct. 

The continued consultation between Justice and Treasury is vitally important given the complexities surrounding potential criminal charges against banks and other financial institutions, including the potential impact of such cases on the U.S. financial system. The good news is that, under Assistant Attorney General Alice Fisher's leadership, the right atmosphere has been created for that consultation.  In the end, we need to strike a delicate balance. We need to ensure the proper respect for the laws that safeguard the integrity of our financial system, but do so in a way that allows our regulatory system to function effectively and maintains our position of leadership in the global financial system. This requires the exercise of well-informed and wise prosecutorial discretion. It is hard to overstate the importance of real collaboration between Justice and Treasury in making that happen.

Conclusion

When I was at the Justice Department in 2004 and the idea was floated to create this new office at Treasury, there were many skeptics who questioned whether Treasury still had an important national security function after the creation of the Department of Homeland Security. I know this for a fact because I was one of them. I now know I was wrong – Treasury has a critical national security role to play. I am confident it will continue to do so not only in this Administration but in future ones as well.

REPORTS

• Islamic Resistance Support Organization donor receipt (Arabic):
• Islamic Resistance Support Organization donor receipt (English translation):