March 16, 2006
JS-4119

Prepared Remarks by Under Secretary Stuart Levey
Terrorism and Financial Intelligence
Before the Netherlands’ Terrorist Financing Conference

The Hague, NETHERLANDS – I am pleased to be here today representing the Treasury Department of the United States. At Treasury, we recognize the importance of a healthy global financial system and Secretary Snow has advocated for three main principles that form the foundation of such a financial system: the promotion of free trade, the free movement of capital, and flexible exchange rates. The free movement of capital is critical in that equation, and it depends on a global environment that fosters open investment and liberal financial markets.

None of this is possible without mechanisms to protect the financial sector from abuse.

While the complex nature of the global financial network allows our financial institutions to be innovative – creating financial products and systems that better enable us to conduct international commerce – so too does it provide gateways for those who abuse it. Online banking is just one example; stored value cards is another. These advances are of great utility and benefit to the public, but they present us with obvious challenges as well.

The Treasury Department, like your Finance Ministries, has at its disposal powerful tools that can accomplish the dual mission of protecting financial markets from abuse and combating threats to our national security. That Minister Zalm has hosted this conference, bringing together such distinguished participants from Finance Ministries from around the world, demonstrates clearly the importance of our ministries in fighting the War on Terror. He is absolutely right to say that "since financial markets are such a crucial partner in the fight against terrorist financing, ministers of finance can not but have the ultimate responsibility within government to make this fight a success."

We have come a long way since the terrorist attacks of September 11, 2001 in developing and implementing – nationally and internationally – financial authorities to disrupt and dismantle terrorist networks; we still have much work to do. But the same lessons we have learned and the same tools we have applied in this area can and should be used in combating threats of all kinds, including the proliferation of weapons of mass destruction. While we are keenly aware of the threat of terrorism, perhaps even more frightening is the potential that terrorists will acquire weapons of mass destruction. It is no secret that terrorist groups, like al Qaida, actively pursue such capabilities. Fortunately, we have tools that allow us to combat these threats in the most comprehensive manner – and Finance Ministries are well poised to contribute to this global effort.

Our use of these types of financial authorities has proven to have a demonstrable impact. These authorities bridge the divide between pure diplomacy on the one hand, and the use of military force on the other. As we have seen in the terrorism context, they give us a concrete way in which to target directly those individuals and entities we know are bad actors and to strike at the heart of their operations.

The creation of my position in the US Treasury embodies a new approach to deterring and defending against key national security threats, be it terrorism, the proliferation of weapons of mass destruction, narcotics trafficking or organized crime, by attacking the financial underpinnings of those threats. I am responsible for marshaling Treasury's resources in that battle and leveraging a full range of financial enforcement authorities to safeguard our financial system from these and other illicit activities. Our national security and long-term economic health are dependent upon success in this regard.

Within the U.S. government, Treasury plays a unique role in combating terrorism – a role only finance ministries can play. We bring to national security policy-making discussions our insights into financial transactions, connections with the private sector, and tools to apply pressure on a great range of targets. When it comes to disrupting and dismantling the support structures of terrorist networks, our government turns to us. Thanks to international cooperation and sustained pressure, those operations are evolving. Indeed we have information that terrorist cells are increasingly relying on alternative methods, such as petty crime and cash couriers, to move money and fund their operations. While I will address this new development shortly, I first want to stress that terrorist networks continue to depend on sustained access to the global financial system.

A few thousand euros raised through crime is not sufficient to support the communications, logistics, welfare, and travel expenses incurred by global terrorist networks working across borders to execute deadly operations. Terrorists and their supporters will always need to exchange cash for airline tickets, illegal rent payments, and weapons purchases. They also need money for training and recruiting other terrorists, bribing officials, and obtaining false travel documents. These activities necessitate an interface with the global financial system. Their entry into that system is not only a vulnerability that can be exploited by financial enforcement authorities, but also can serve as a highly valuable source of intelligence.

As I have discussed this issue with government officials around the world, I have met some who prefer to deal with terrorist financing quietly. They are concerned that taking strong action, such as designating the donor, will be perceived as discriminating or will "rally" the donor's community in support around him. Some also believe that their actions may diminish the reputation of the country in the eyes of the world if it is known that terrorists exist within their jurisdiction. I view this approach as dangerously short-sighted. It often results in allowing such donors to continue to foment and fund terrorism beyond the borders of the country they are living in. That, of course, puts all of us at risk. It also deprives us of a powerful tool against terrorist financing – the tool of deterrence. One key advantage of the designations we have pursued since 9/11 is that it can make a potential donor or facilitator think twice or refuse to support terrorism. This is especially true with respect to the significant donors who wish to maintain a place in society.

It is our responsibility as finance ministries to develop and implement effective targeted financial sanctions regimes. We must monitor the financial activities of designees and prohibit their future access to the financial system. We must also go beyond simply "designating" individuals and entities that have been listed by the United Nations by proactively identifying terrorist supporters that threaten our societies, holding them publicly accountable, and isolating them financially.

We must also aggressively and pragmatically implement the security obligations that we have agreed to under the auspices of the United Nations, the FATF, and other international and regional organizations. These bodies have universally recognized that finance ministries have an important role to play in the maintenance of global security.

This is increasingly seen in the resolutions our UN leaders have developed to address specific threats: UNSCR 1267 on al Qaida, Usama bin Ladin and the Taliban, UNSCR 1373 on global terrorism, UNSCR 1540 on WMD Proliferation, UNSCR 1483 on the former Hussein regime in Iraq, UNSCR 1636 on the assassination of former Lebanese Prime Minister Hariri. There are UN Security Council Resolutions for Liberia and Zimbabwe as well. All of these Resolutions call for jurisdictions to, among other things, utilize financial enforcement authorities to combat an identified international security threat. This means not only strengthening our existing tools, but also creatively applying new tools as well.

The United States continues to look to innovative ways to meet this goal. One such tool we have used to protect our financial sector is an authority given to us under Section 311 of the USA PATRIOT Act (Patriot Act). As many of you may know, Section 311 authorizes the Secretary of the Treasury to designate a foreign jurisdiction, financial institution, or type of transaction as a "primary money laundering concern." Once designated as such, the Treasury Department may take a range of regulatory actions to protect the U.S. financial system, up to and including requiring U.S. financial institutions to terminate correspondent relationships with a designated entity. Such a measure effectively cuts the designated entity off from the U.S. financial system. This defensive regulatory measure has a profound effect, not only in insulating the U.S. financial system from an identified illicit finance risk, but also in notifying the global system on notice of such a threat as well.

A recent case worth noting was the September 2005 designation of Banco Delta Asia (BDA) in Macau, in which the United States identified the institution for facilitating variety of illicit activities, including on behalf of North Korea. BDA financially facilitated North Korean front companies and government agencies engaged in narcotics trafficking, currency counterfeiting, production and distribution of counterfeit cigarettes and pharmaceuticals, and the laundering of proceeds therefrom.

Our designation of BDA has produced encouraging results. Jurisdictions in the region have begun conducting investigations and taking necessary steps to identify and cut off illicit North Korean business. Responsible financial institutions are also taking a closer look at their own operations, terminating or declining to take on such business. These are welcome steps - but our continued and constant vigilance will be needed to ensure these results do not wane.

This case and other 311 designations are protective measures to ensure our financial system does not fall prey to illicit funds and bad actors. I sometimes hear that this type of vigilance is bad for business. The reality is that a healthy financial sector cannot exist without authorities to protect it from abuse. In fact, healthy financial sectors, effectively protected from such abuse, bring increased investment and business.  We have recently refined our use of targeted financial sanctions to address emerging threats, particularly the proliferation of weapons of mass destruction that could find their way into the hands of terrorists.

As we have seen with terrorists, weapons proliferators require a substantial support network. By attacking that system, we can isolate individual proliferators, paint a clearer picture of how, and with whom, they operate and erode the infrastructure that supports them. 

The international community has recognized the need to combat this threat through financial enforcement tools. U.N. Security Council Resolution 1540 calls on all states to develop and implement authorities to combat proliferation, including by denying proliferators and their supporters access to the financial system. The U.S. has taken a first step by applying targeted financial sanctions to proliferators just as we have to terrorists.

Our Executive Order 13382, which authorizes the freezing of assets of WMD proliferators and their supporters, and forbids US persons from engaging in commercial transactions with them, was issued by President Bush last June. Under that Executive Order, we have designated 11 North Korean entities, six Iranian entities and one Syrian entity engaged in proliferation activity. No longer should these designated entities be able to claim legitimacy, and no longer should they be able to reap the benefits of access to the international financial system.

You may view our executive order or Section 311 authority as unrealistic within your system, but the threat from WMD proliferation - especially in the hands of terrorists - is too critical to ignore. In the short-term, your ministries can build upon the foundation laid by U.N. Security Council Resolution 1540 by sharing information on U.S. designated entities, urging financial institutions to close or freeze any accounts they hold at institutions in your jurisdictions, and taking steps to ensure that the private sector ceases any dealings with these entities. Over the long-term, you can bring significant weight to these actions by developing and implementing authorities that will similarly allow you to freeze the assets, accounts, or transactions of proliferators, denying them access to the financial system.

Let me close with the following observation: I worry every day about stopping the flow of money to individuals intent on committing violent, terrorist acts against the United States and its allies. I want to expose the infrastructure that facilitates such activity and cut it off from the international financial system. I want my finance ministry, the U.S. Department of the Treasury, to do everything in its power to counter not only terrorists, but also WMD proliferators, narcotics traffickers, organized criminals and their support networks. And I want to do this in partnership with all of you. It is our duty as government officials to do everything we can to counter these profound threats to international and financial security.