FROM THE OFFICE OF PUBLIC AFFAIRS
January 10, 2005
JS-2189
Statement by Assistant Secretary Juan Zarate Before the United
Nations Security Council 1267 Sanctions Committee
Chairman Mayoral and distinguished members of the 1267 al Qaida and Taliban Sanctions Committee, thank you for inviting us to discuss the United States' ongoing campaign to combat terrorist financing. It is truly an honor to be here. This Committee has distinguished itself as one of the most potent bodies in the world in combating terrorist financing. Faced with a deadly enemy that recognizes no borders, any nation's unilateral efforts to combat terrorism are bound to fail. Our greatest hope lies in bodies like this, which are uniquely empowered to take swift and global action directing countries around the world to freeze terrorist accounts, prevent facilitators from traveling, and stop the flow of arms to terrorist groups.
I will focus my remarks on the development and implementation of financial sanctions against those parties designated by the U.S. Government and this Committee.
Specifically I would like to address the following four themes:
1) the importance of this Committee and the UN process in developing a worldwide, targeted, terrorist financing sanctions regime.
2) the importance of targeted financial sanctions in the global campaign against terrorist financing and the war on terrorism more generally;
3) the development and implementation of targeted terrorist financing sanctions in
4) measures to protect the civil liberties and rights of designees and other effected parties.
The importance of the 1267 Committee and the UN process in developing a worldwide, targeted, terrorist financing sanctions regime
The importance of this Committee's work and the UN generally in our global campaign against terrorist financing stems from the international nature of the financial system and fact that terrorism knows no borders. The great majority of terrorist financiers and facilitators operate and store their money outside the
This is not a simple task. In some cases there is a failure of will, and in others there are insufficient means to take effective action. In either case, we must continue to apply political pressure or provide needed technical assistance to make sure that our designations are more than just words on paper.
Over the past three years, we have all labored tirelessly in this cause, and its persistent work has yielded promising initial results: dozens of countries have joined us in submitting 296 al Qaida-linked targets for designation by this Committee; scores of countries in every region of the world have either adopted new laws and regulations to fight terrorist financing or are in the process of doing so; and several countries have joined the U.S. to provide technical assistance and training to help front-line states develop counter-terrorist financing and anti-money laundering regimes.
However, this must be the beginning, and not the end, of our efforts. The U.S and all countries can and must improve our individual and collective efforts to develop and implement effective terrorist financing sanctions regimes.
The importance of targeted financial sanctions in the global CFT campaign
Targeted financial sanctions are the cornerstone of our campaign against terrorist financing. In addition to its primary function of swiftly freezing funds and keeping them out of the hands of terrorists, if used properly and implemented comprehensively, designations can be invaluable by:
(1) shutting down the pipeline through which designated parties raise and move money;
(2) informing third parties, who may be unwittingly financing terrorist activity, of their association with supporters of terrorism;
(3) deterring non-designated parties, who might otherwise be willing to finance terrorist activity; and
(4) forcing terrorists to use potentially more costly, less efficient and/or less reliable means of financing.
These benefits of designation cannot be measured by simply totaling the amount of terrorist-related assets frozen. Terrorist-related accounts are not pools of water awaiting discovery as much as they are rivers, with funds constantly flowing in and out. By freezing accounts, we dam that river, thus not only capturing whatever water happens to be in the river at that moment but, more importantly, also ensuring that the targeted individual or organization can never in the future act as a conduit of funds to terrorists. Indeed, if fully implemented, a designation isolates supporters of terrorism from the formal financial system, incapacitating them or driving them to more expensive, more cumbersome, and riskier channels.
The effective implementation of designations can also uncover invaluable information about terrorist financing networks. Investigation of accounts and transactions frozen or blocked in accordance with UN member state obligations can lead to terrorist financiers, intermediaries and operatives for further action. In the U.S., authorities can quietly gather this information through the application of a new tool under Section 314(a) of the USA PATRIOT Act. Section 314 allows the Treasury Department, through our Financial Intelligence Unit (FIU), the Financial Crimes Enforcement Network (FinCEN), to circulate requests for information about specific targets throughout our banking system. Banks having any such information report back to FinCEN, which then passes this along to appropriate law enforcement authorities for follow up action. This invaluable tool allows us to identify and unravel terrorist networks without alerting them to ongoing investigations. However, for states that lack this capability, designations may be the best way to discover and immediately interdict terrorist financial activity occurring within their financial systems.
Developing and implementing terrorist financing designations in U.S.
The effectiveness of designations largely depends upon broader systemic reforms by UN member states to combat terrorist financing and financial crimes more generally. These broader systemic reforms are evident in the development and implementation of global anti-money laundering and counter-terrorist financing standards, promulgated by the UN and other international bodies such as the Financial Action Task Force (FATF). These standards promote the financial transparency and accountability that provide a necessary foundation for the development of effective terrorist financing sanctions regimes.
Fully utilizing targeted financial sanctions to identify, disrupt and dismantle terrorist financing networks also requires a comprehensive terrorist financing sanctions regime. In the U.S., we have developed a legal framework and devoted significant attention and resources to create such a regime.
The legal authority for our terrorist financing sanctions regime is described comprehensively in the reports that we have submitted to this Committee and the UN 1373 Counter-Terrorism Committee. This legal framework gives us the ability to impose terrorist financing sanctions on those parties whom we have reason to believe are providing support to terrorists.
Employing our terrorist financing sanctions regime begins with the full dedication of analysts from several agencies to develop potential designation targets. Targets are selected based on threat assessments and the vulnerability of these threats to the effects of designation. We identify high value targets that serve critical functions in terrorist financing networks. Designating such targets cripples and disables terrorist groups and their support networks not only by cutting off financial flows, but also by impeding key capabilities such as recruitment, training, logistical, technological or organizational support, and leadership. This targeting approach focuses our designation investigative resources where we can be most effective in identifying, preventing, disrupting and dismantling terrorists and their support networks.
In addition to a robust targeting process, our terrorist financing sanctions regime relies upon the development of evidentiary records to fully support a legal basis for designation. Importantly, these evidentiaries can include critically important information from law enforcement and classified sources. A team of interagency lawyers rigorously reviews these evidentiaries in order to ensure legal sufficiency.
Actual decisions to designate a party under our terrorist financing sanctions regime are made pursuant to an Executive Order in which the President directs the Secretary of the Treasury, or the Secretary of State, in consultation with the Attorney General and the Secretary of the Department of Homeland Security, to designate those parties that meet the specific criteria set forth in the Order. These decisions are taken in close consultation with the interagency community, led by a Terrorist Financing Policy Coordination Committee as described by Assistant Secretary Wayne. This Committee meets on a regular basis to review prospective targets for designation and the evidentiaries that support such action. The Committee consists of representatives from multiple U.S. governmental agencies engaged in the global war on terrorism, and considers and coordinates any decision to designate with other actions that are or can be taken against the prospective target. This interagency deliberative process is essential to ensure that designations advance the larger counter-terrorism mission.
Upon a determination that a designation action against a proposed target is appropriate, the Treasury Department and the State Department work with the interagency community to draft an unclassified Statement of the Case. This Statement of the Case represents the factual bases for the public announcement of a designation and serves several purposes, including:
1) allowing the U.S. government to consult in advance with those countries that are directly impacted by a proposed designation;
2) enabling the U.S government to pre-notify the UN and other countries before formal submitting a proposed designation before this Committee; and
3) providing identifier information about the designated party to enable effective implementation by financial sectors and the general public.
The process of developing adequate identifiers is particularly important and is a common challenge. We welcome and rely on other countries to help us uncover identifier information about proposed designees in order to ensure effective implementation. Without adequate identifiers, designations simply cannot work. We strongly encourage more assistance and international cooperation in developing this information, not only in our ongoing designation efforts, but also with respect to those parties that have already been designated.
Over the past three years, we have made great strides to improve the quality and quantity of this identifier information. The overwhelming majority of designations issued over this period have included essential identifier information. And we are constantly improving our efforts in this regard. The question of sufficiency is difficult to measure, because it will depend on the target, and additional identifier information is always beneficial. But we cannot allow identifiers to serve as an excuse for jurisdictions to avoid implementation when essential identifier information is available.
Only after exhausting this intensive pre-designation process do we actually issue and implement a terrorist financing designation. We then initiate the post-designation implementation processes of our terrorist financing sanctions regime.
Because all U.S. persons are obligated to observe our terrorist financing sanctions, our post-designation implementation process begins with active notification and dissemination to our financial sectors, high risk industries, and general public. Such notification occurs through a number of specific processes, and ensures that vulnerable industries and organizations -- such as banks, charities, money service businesses – are alerted when designations are issued. These notification processes include:
1) updating the list of Specially Designated Nationals (the SDN List) on the website of Treasury's Office of Foreign Assets Control (OFAC);
2) incorporating designations into several downloadable versions of OFAC's targeting list posted on the OFAC website so that they can be immediately incorporated into software screening programs at banks and other businesses;
3) updating sanctions program and industry brochures distributed by OFAC;
4) delivering priority electronic notification to all federal banking regulatory agencies, which then distribute this information to their examiners and institutions under their supervision;
5) delivering a systems bulletin to the member banks of the Clearing House Interbank Payment System (CHIPS);
6) emailing over 15,000 individual subscribers to on OFAC's Internet listserv;
7) faxing through a broadcast system and e-Alert system more than 300 financial and securities associations, which in turn, transmit this notice to their members;
8) emailing new designation information to various points of contact among several law enforcement agencies; and
9) publishing official notice in the U.S. Government's Federal Register.
This comprehensive notification system ensures that the private sector and general public, in addition to the regulatory and law enforcement communities, are actively made aware of our terrorist financing designations.
Such notification is essential in promoting compliance by all U.S. persons, and particularly the financial sectors and other high risk industries. U.S. banks and other businesses have developed sanction compliance programs to immediately run checks and block accounts upon the designation of a new name. In the banking industry, federal regulators work with OFAC to provide guidance for the development of effective compliance programs. In addition, OFAC maintains a Compliance Division of personnel dedicated to educating the private sector and promoting compliance through a number of avenues, including industry outreach, a comprehensive website with answers to frequently asked questions, and telephone and email hotlines.
All U.S. persons freezing property and blocking transactions are required to report those actions in writing to OFAC within ten business days. This allows OFAC to record and administer all blocked accounts and transactions under our terrorist financing sanctions regime.
A critical component to our success in implementing terrorist financing sanctions is compliance enforcement. OFAC includes Enforcement and Civil Penalties Divisions that work closely with the Compliance Division to investigate, audit and penalize as appropriate U.S. persons that fail to comply with terrorist financing sanctions. In response to such violations, OFAC may take any one of several actions, including issuing a cease and desist order, a warning letter or cautionary letter, or assessing a civil penalty. For willful violations, OFAC makes referrals to the Department of Justice for criminal charges. OFAC also works with the regulatory community concerning potential violations by supervised institutions to promote adequate oversight of sanctions compliance.
Finally, OFAC works with law enforcement agencies to facilitate investigative follow-up whenever funds or transactions implicating a terrorist financing designation are identified or blocked. This advances ongoing investigations and can initiate new investigations into potential terrorist financing activity.
Clearly, all of this activity requires a substantial commitment of resources and sustained political will. It also requires accountability for administering, implementing and enforcing terrorist financing sanctions. And, it requires constant and close communication and collaboration across the U.S. government, and with the private sector. We believe that such an investment of time, attention and resources is imperative to making targeted terrorist financing sanctions effective. And, for all of the reasons that I stated earlier, we know that this investment is worthwhile.
The delisting process, licensing and the protection of civil liberties
In order to be effective, our terrorist financing sanctions regime must also be fair. We expend additional considerable resources to ensure that our terrorist financing sanctions program respects the civil liberties and rights of designated parties and others affected by our terrorist financing sanctions. Federal regulation affords all designated parties with a right to seek delisting. On two occasions in 2002, Treasury's former Under Secretary Gurule appeared before this Committee to discuss and explain the U.S. delisting process, which assisted in the development of a delisting process eventually adopted by this Committee. Both our U.S delisting process and that of this Committee have been successfully utilized by petitioners who have demonstrated that circumstances underlying their designations no longer applied. It is important to recognize that these delisting actions not only demonstrated an appropriate consideration of the rights of designated parties, but they also validated the effectiveness of designations as a tool in our overall efforts to combat terrorist financing. In those instances, our designations, and those of this Committee, eliminated a terrorist financing threat by changing behavior of parties previously presenting such a threat.
Licensing represents another important element of our terrorist financing sanctions regime that addresses the rights of designees and other effected parties. OFAC maintains a Licensing Division that reviews licensing requests and issues and administers licenses authorizing activities otherwise prohibited by our sanctions programs. Parties designated under our terrorist financing sanctions program have successfully petitioned for licenses to access funds for a number of purposes, including contesting their designations by OFAC in U.S. federal courts.
In addition to the administrative delisting process, a designated party may challenge its designation in federal court. Several organizations have sought judicial relief and, to date, none of their designations has been overturned.
These elements of our terrorist financing sanctions regime that protect the rights of designated and other effected parties also require a significant investment of resources. This investment is essential to preserving the integrity and credibility of our sanctions regime.
As we move forward in our global campaign to combat terrorist financing, it is encouraging to realize the progress that we have made together. This progress is evident not only from the accomplishments that I have described, but also in effects that our collective efforts are having on the terrorist organizations we are at war against. In this respect, intelligence often reflects the ease or difficulty with which terrorists are able to raise, move, and store money. If reporting suggests that fewer and fewer donors are willing to risk sending money to terrorist groups – that is a sign of success. If we see that a terrorist group is resorting to riskier and more cumbersome ways of moving money – that is also a sign of success. And if we receive intelligence that a terrorist group like al Qaida is desperate for money, that is the best indicator we have that we are making a real difference.
The information available to us indicates that there are some encouraging answers to these questions. Not surprisingly, the information also suggests that we still have a lot of work to do. I think it is fair to say that, while we must prepare for a long term campaign against terrorist financing, our policies are beginning to achieve results, and we are headed in the right direction.
Assistant Secretary Tony Wayne, my colleague and friend from the State Department, will share just a few of the many ways in which we can build from this promising beginning. I look forward to continuing our work together and welcome our discussion here today. Thank you again for the opportunity to meet with you all on these vitally important issues of international security.