Press Room
 

September 23, 2005
JS-2941

Prepared Remarks of Daniel L. Glaser
Acting Assistant Secretary for Terrorist Financing and
Financial Crimes
Before the Annual Meetings Program of Seminars:
The Importance of Expanding Targeted Financial Sanctions
Programs around the Globe: Challenges and Opportunities

Good morning. It is an honor to be here today to address the IMF, World Bank and international delegations on about the importance of expanding targeted financial sanctions programs around the world and the most effective ways to work together to fight the financial war against terrorism.  I would like to thank our moderator Agustín Carstens, and the organizers Barry Johnston, Jean-François Thony, and Latifah Osman Merican, for organizing this seminar on this crucially important topic. I would also like to recognize my co-panelists Cesare Calari, Martín Redrado, and Sally Scutt. 

It is vital to recognize that the financial mechanisms we use to facilitate international economic growth, deliver aid to those in need, and carry out day-to-day financial transactions, are the same mechanisms that terrorist financiers have sought to abuse in pursuit of their illicit activities.  We must protect our financial systems from such abuse, and exploit the financial vulnerability of terrorist organizations and their support networks, by adopting and implementing effective anti-money laundering and counter-financing of terrorism (AML/CFT) controls.

As members of the financial community, not only are we charged with the responsibility to ensure the movement of capital around the world in pursuit of investment and development, but also to protect that capital from use and abuse by criminals and terrorists.

Fortunately, the choice between implementing strong AML/CFT measures and fostering healthy, vibrant financial centers is a false one.  These are not mutually exclusive, but rather mutually reinforcing; in fact, you cannot have one without the other.  In the end, AML systems are about transparency, and transparency creates the proper conditions for a healthy financial system, reinforcing foundations for sustainable economic growth and development.  As countries work to implement strong AML/CFT measures, they create the basis for a healthy financial center that will enjoy a strong international reputation.

But even as we remember the important links between strong AML/CFT regimes and economic development, we must not lose sight of what lies at the heart of our efforts to combat terrorist financing. The horrendous attacks on the London subway system serve as a chilling reminder of the importance of identifying and disrupting terrorist networks.

Terrorist financing is a problem that the entire world faces. The nature of today's financial system is international, and the terrorist threat we face is global. As we have witnessed in London, Sharm el-Sheikh, Bali, Madrid, Beslan, and four years ago in New York and Washington, DC, terrorists do not discriminate between race, religion or creed. The international financial system is only as strong as its weakest link.  Financial centers that are susceptible to abuse provide terrorists and criminals access to the international financial system as a whole.  Therefore efforts to combat terrorist financing must be uniform and global.  Laxity in just a few jurisdictions undermines the efforts made by the rest.  No jurisdiction can absolve itself of responsibility.

The global nature of both the financial system and the terrorist threat requires a global effort to effectively combat terrorist financing.  This global effort must focus on adoption and implementation of anti-money laundering and terrorist financing controls in compliance with international standards.  While there are a large number of important tools the international community is using to fight these groups, I want to focus my remarks today on the importance of targeted financial sanctions.

The international community's response to the tragic attacks of 9/11 was United Nations Security Counsel Resolution (UNSCR) 1373, which, among other measures, calls for freezing the assets of all terrorists groups without delay. The strength of this resolution is that it expands the pre-9/11 commitment to attack the financing of al Qaida to attacking the financing all terrorist organizations.

It is ironic that this component of the international AML/CFT regime, the one that has the most explicit UN endorsement and mandate – including multiple UNSCRs – is probably the least understood and most poorly implemented component worldwide.  These failures range not only from countries that do not have the capacity to block terrorist assets, but also to entire regions of the world that do not even attempt to implement this UN requirement. 

Understanding the importance of this UN requirement must begin with a recognition that terrorist organizations require significant funding. Although individual terrorist attacks may be inexpensive, terrorist organizations require far more than explosives to sustain themselves.  They need money to train, recruit, pay operatives and their families, travel, bribe officials, procure cover and false documents, as well as purchase arms. If implemented effectively, targeted financial sanctions can put terrorist organizations in a financial box, effectively depriving them of the resources they need to conduct this range of activities.

Yet the value of our terrorist financing designations cannot be measured by the amount of assets we collectively freeze. In addition to freezing terrorist related funds, targeted financial sanctions shut down the pipeline through which terrorists raise and move money.

If implemented effectively, these sanctions can also have a severe disruptive effect. Constricting the flow of cash to terrorist groups can increase dissension within their ranks, triggering hasty communications and cumbersome movements that expose operatives, donors, facilitators and organizers to the sharp eyes of intelligence and law enforcement. 

In this respect, targeted financial sanctions represent an important means of gaining financial intelligence. Often more important than the money found in frozen accounts or blocked in illicit transactions is the information associated with them. Financial investigators can exploit this information downstream to identify terrorist cells and operatives and upstream to identify donors and supporters.

Perhaps most importantly, targeted financial sanctions are preventive. It is impossible to overestimate the value of designation actions when viewed from this perspective.

The effectiveness of targeted financial sanctions, as with all economic sanctions, multiplies exponentially as more countries adopt and implement them. We must now focus our efforts here.   

The United States has responded to these and similar mandates by designating 408 individuals and entities as terrorists or terrorist supporters.  These designees were tied to a wide range of terrorist organizations throughout the world, including al Qaida, Hamas, Hizballah, Palestinian Islamic Jihad, ETA and the FARC. 

Countries should not implement targeted financial sanctions because the U.S. is asking. Countries should implement targeted financial sanctions because it is their obligation to do so as UN members and as responsible members of the international community. Each country needs to ask itself the following questions:

  • What action has your government taken in response to UNSCR 1373?
  • What mechanisms do you have in place to identify and target terrorists and their networks within your country?
  • How many targets have you designated?
  • What mechanisms do you have in place to communicate these designations to your financial community?
  • How many designations have you communicated?
  • What mechanisms do you have in place to ensure that your financial institutions are complying with these obligations?
  • How many terrorist related transactions and accounts have you identified?
  • How many targets have you referred to international allies or the UN for coordinated multilateral action?

Although most countries do have some mechanism in place to block the assets of al Qaida-related entities pursuant to UNSCR 1617, too many countries have taken little or no action to block the assets of other terrorist groups as specifically required by UNSCR 1373.  It is urgent for countries throughout the world to begin to develop effective administrative mechanisms to provide these UN Resolutions with the bold effect they were meant to have on terrorist support networks. 

So what is the role of the international financial institutions in all of this? In March 2004, the IMF and World Bank Boards agreed to assess countries' compliance with international AML/CFT standards as articulated by the Financial Action Task Force (FATF) as a regular part of their assessments of financial sectors and offshore financial centers.  Their long-term commitment to this effort is vitally important, as is the expertise that the IMF and World Bank can provide to countries as they develop effective AML/CFT systems. We encourage them to continue to deliver coordinated, prioritized and efficient technical assistance.

Indeed, the efforts of the international community to implement targeted financial sanctions should not be limited to the fight against terrorism.  A concerted international effort should be undertaken to identify, disrupt and dismantle the financial networks that support the proliferation of weapons of mass destruction (WMD), and to financially isolate those who engage in such activities. 

The United States has recently designated several entities associated with WMD proliferation activity under the newly established Presidential authority, Executive Order 13382.  As with our terrorist financing designations, the Order freezes any assets the designee may have in the U.S. financial system and forbids U.S. persons from transacting any type of business with them.  We hope that this lays the foundation for expanded international cooperation against WMD networks.  In the case of WMD proliferation, just as it is with terrorist financing, the international community must join forces in order to protect our society. 

It is our collective obligation to do all we can to identify, disrupt and dismantle the financial networks that support terrorism and WMD proliferation.  By working together, we have the ability to make it harder, costlier and riskier for the ill-intentioned to move their funds through the international financial system.  In the end, our efforts can save lives and constitute a vital contribution to the international effort to combat terrorists and other groups that prey on our society.  The time for aggressive action is now.  Only together will we succeed in meeting the challenges before us. I look forward to working with you to meet these challenges and others that may lie ahead. 

Thank you.