Combating the Financing of Terrorism

One year and one week ago today, terrorists struck the United States in an unprecedented attack on innocent civilians here in New York at the World Trade Center, the Pentagon, and over the skies of Pennsylvania. September 11 is a date that changed the world and that changed all our lives -- personally it gave me a new mission to return to government service from Wall Street to join the ranks of those waging this war on terrorism. I am here today to address the serious subject of terrorist financing.

Before addressing the financial front of this campaign, as a member of Secretary Powell´s counterterrorism team, let me update you on our broader achievements in the war on terrorism. In Afghanistan, the Taliban who controlled that country with a repressive regime and provided safe-haven for Osama bin Laden and his Al Qaida terrorist network have been removed from power. The Loya Jirga has installed Mohammed Karzai as president and Afghanistan has begun to rebuild its nation. More than 1.5 million refugees have returned to Afghanistan since the first of this year. Reconstruction of this country will require patience, cooperation and determination on behalf of the Afghan people and the international community. Last week’s failed assassination attempt on President Karzai’s life reminds us of how fragile a democracy Afghanistan remains.

On the law enforcement front, 7,500 suspected terrorist detainees in Afghanistan have been screened. Over 90 nations have arrested or detained 2400 Al Qaida terrorist prisoners. We now have over 60,000 U.S. troops deployed worldwide fighting terrorism. The recent arrests of suspected Al Qaida members in Pakistan and in upstate New York demonstrate that the hunt for terrorists around the world continues.

Here in the United States, we have been forced to institute several measures to ensure the safety of our citizens. As you traveled here to New York today, you most certainly noticed the heightened security here in the U.S. These new security measures have been viewed as costly to our government and businesses and a nuisance to the general public -- yet these are the types of sacrifices we must make to protect our citizens from terrorism.

The U.S. is undertaking the most radical government transformation in decades with the plans to create a Department of Homeland Security. As we meet here in NY, Administration and Congressional leaders are debating the enabling legislation for that new government agency in Washington.

These are just some of the successes we have achieved since last year in our military campaign against terrorism. Now let me turn my attention to the war we are waging against terrorist financing.

In the wake of the attacks, it was clear that this war on terrorism would have to be waged on various fronts -- military, diplomatic, intelligence, law enforcement, and most certainly financial. Although some experts estimate that the September 11 attacks cost between $300,000-500,000 to conduct, sophisticated terrorist networks like Al Qaida require millions of dollars to develop and maintain. To root out terrorism, we not only need to capture terrorists and their supporters and bring them to justice but we must stem the flow of funds that keep them in business.

On September 24, 2001 President Bush announced the start of an offensive against the financial foundation of the global terror network using every means of diplomacy, intelligence, law enforcement and financial influence to identify, disrupt, and dismantle terrorist financing networks. Let me take this opportunity to review the measures the U.S. has taken -- domestically and in concert with the international community -- and describe what we have achieved in the past year in the war against terrorist financing.

1. On September 24, 2001 President Bush implemented Executive Order 13224 that expands the U.S. government’s power and authority to target terrorist organizations, freeze and block their assets in the U.S., and subject their financiers and supporters to economic sanctions for aiding and abetting terrorism.
2. Last fall, the United Nations adopted UNSC resolutions 1373 and 1390 directing member states to criminalize terrorist financing and adopt regulatory regimes to detect, deter, and freeze terrorist assets. The resolutions oblige all states to deny financing, support and safe harbor for terrorists.
3. We have actively engaged in multilateral institutions such as the Financial Action Task Force and international financial institutions to combat money laundering and terrorist financing. Last October, FATF adopted Special Eight Recommendations on Terrorist Finance. I have actually just returned from the FATF Working Group meeting in Madrid where we assessed progress made by FATF members on the Special Eight Recommendations on Terrorist Financing. We began elaborating on best practices papers on the subjects of wire transfers, oversight of non-profit organizations such as charities, and counterterrorism finance technical assistance. Regarding wire transfers, we look forward to working with private sector entities such as Western Union in developing best practices in this area.
4. On October 26, 2001, the USA PATRIOT Act was enacted which expanded the government’s tool kit in anti-money laundering and counterterrorism financing. The USA PATRIOT Act :

• enhances transparency in financial transactions;
• protects international gateways to the U.S. financial system,
• increases the vigilance of all our financial institutions (including money services businesses) subjecting them to more rigorous anti-money laundering and terrorist financing compliance programs
• facilitates critical information sharing among U.S. law enforcement agencies such as the Treasury Department’s FinCEN (Financial Crimes Enforcement Network) that investigates financial crimes
• amends existing legislation to enhance our ability to freeze terrorist assets
• amends the Immigration and Naturalization Act with the creation of the Terrorist Exclusion List that denies or revokes visas for terrorists and their supporters.

The first phase of the financial front of the war on terrorist financing was dominated by public designations of terrorists and their supporters and attempts to freeze their assets. Bilaterally with our international allies, and multilaterally through the UN, G7, EU, and other regional organizations, we have worked hard to designate or "name and shame" individuals and organizations identified as supporters of terrorism. These designations are aimed not only at freezing these people’s assets but to deter others who may continue to support terrorism.

So, you might ask how have we fared to date?

We know that our counterterrorism finance measures are having an impact. We have frozen over $112 million worldwide in over 500 accounts -- $34 million in the U.S. alone.

In the "name and shame game" of public designations, 236 individuals, entities and organizations are currently designated in the U.S. under the Executive Order as supporters of terrorism and 34 are designated as Foreign Terrorist Organizations. The U.S. is working with the UN and its allies to ensure the designation of these groups on international lists and the freezing of their assets. We understand that some potential donors to Al Qaida and other terrorist groups are reluctant to donate funds for fear of the consequences.

We are seeing encouraging signs that the international community is erecting regulatory barriers to terrorist financing. 166 countries and jurisdictions have issued blocking orders against the assets of terrorists. Almost daily, we receive word of a new money laundering law, a new arrest, a new regulation that will make life more difficult for terrorist groups to finance their activities.

We are now entering a new phase in the war on terrorist financing. This phase will entail more long-term strategies that are aimed at safeguarding our financial systems from abuse by terrorists and their supporters.

Since our enemy has a global reach and a global network, we must have a global strategy. The State Department, working with our Embassies around the world, has been a central player in the Administration's formulation and implementation of policies to combat the financing of global terrorism. We work hand in hand with our colleagues in the Departments of Treasury and Justice and in the intelligence and law enforcement communities and our international counterparts to address terrorist financing.

Our international strategy has included the following central elements:

1. Establishing a clear set of international norms, starting with key United Nations Security Council Resolutions and international conventions to combat terrorist financing.
2. Making the fight against terrorist financing a central element of every relationship the U.S. has with other countries or institutions.
3. Pushing other countries to identify individuals and institutions involved in financing terrorism and to take appropriate action to shut down their activities, including through the freezing of their financial assets.
4. Strengthening law enforcement cooperation on issues related to terrorist finance.
5. Providing training to increase the capacity of other countries to close down terrorist financing activities on their own soil.

While our short term strategy focused on confronting terrorist actors and freezing their assets, our longer term strategy concentrates on reinforcing our financial systems to combat money laundering and terrorist financing through capacity building.

Our team is responsible for developing the strategy for counterterrorism finance capacity building, and I would like to share with you our activities to date. Post-September 11, the U.S. and its allies identified countries that might be particularly vulnerable to terrorist financing. We have examined areas susceptible to terrorist abuse in the U.S. and abroad including: the formal financial systems, wire transfers-money services businesses, informal value transfer systems including hawala, gold and diamonds, and the non-governmental organizations, namely charities. We hope to assist countries identify vulnerabilities in those areas and provide training and technical assistance to address them.

How have we gone about our mission? I serve as one of the leaders of interagency financial assessment teams that are comprised of U.S. government experts from the State Department´s International Narcotics and Law Enforcement Bureau, Treasury Enforcement, FinCEN, U.S. Customs, the IRS, financial regulators such as the Federal Reserve, FDIC, Office of the Currency Comptroller, the Justice Department´s Asset Forfeiture and Money Laundering Section, and law enforcement agencies such as the FBI. These interagency teams are sent worldwide to work with host governments to examine the following functional areas:

Legal framework: Determine whether there is a rigorous anti-money laundering regime in place. Confirm that terrorist financing is a predicate offense. Ensure that local prosecutors can put together a strong financial crime case against perpetrators. We work closely with the host country´s judicial branch of government -- usually the Attorney General or Interior Ministry on these issues. We also see that international conventions and UNSCRs are in force.

Law enforcement: Verify that law enforcement agencies are prepared to "follow the money" to investigate financial crimes with proper legal authorities and can provide state prosecutors with sufficient evidence to press charges that lead to convictions. Determine whether law enforcement agents have necessary training and resources to pursue financial crimes.

Financial regulatory regime: Working with the host government´s Central Bank and Finance Ministry, we examine the local culture of compliance. Confirm that rigorous compliance regulations are in force over all financial institutions. Inspect reporting procedures for suspicious activity reports and if applicable currency transaction reporting.

Financial Intelligence Units: Examine the effectiveness of local FIUs and determine needs for training and resources. Observe how FIU’s handle SARs and how they cooperate with law enforcement authorities and prosecutors to identify financial crimes.

Informal value transfer systems: Determine if IVTS pose a threat in host country and see what measures government has taken to regulate them.

GOLD: Recent articles in the press have raised the issue of al Qaeda's transferring its money into gold in order to circumvent the actions I have described above being undertaken by the international community. While there is currently little specific evidence regarding such activity, we are clearly aware of the threat posed by informal value transfer systems such as gold. Money laundering is often "trade-based," involving diverse commodities such as electronics, foodstuffs, gold, and precious gems. Brokers and traders are following historically established patterns of trade and trust that rely on minimal record keeping and a desire to avoid taxes, tariffs, customs duties, and government scrutiny. Smuggling, corruption, narcotics trafficking, foreign exchange transactions, wage remittances and hawala are intertwined with legitimate commerce. And many traditional trading systems ignore, in whole or part, western style financial institutions.

While there are no easy counter measures to this problem, we are taking steps to address and heighten awareness of the threat posed by "trade-based" money laundering. The Department of State is working with the U.S. Customs Service to provide specifically tailored training and technical assistance in specific regions of the world on trade and money laundering.

Charities: We determine whether charities are regulated by host governments and whether they are vulnerable to terrorist groups.

I mentioned earlier the issue of charities, and of the need to ensure that charities are not used as vehicles to finance terrorism. The American people are probably the most philanthropic people in the world. We give to countless religious and secular organizations devoted to helping those in need. We recognize the crucial importance charities and charitable giving plays in our lives, in our communities, and in our nation. We recognize, in this regard, that Muslim charities also play an important role in improving the plight of countless underprivileged people throughout the world. At the same time, it is imperative that we make every effort to ensure that charities are not being misused for the benefit of the terrorists. Under no circumstances should funds donated to help the needy be used instead to support the activities of those intent on killing innocent civilians. We are actively working, therefore, to block the assets of such organizations, and of groups posing as charitable organizations that in reality fund terrorists. And again, given that this is a global phenomenon, our engagement with other countries on this matter is crucial. One key to this effort will be ensuring that adequate oversight is in place both with respect to charities and to financial transfers more broadly. This is important, but more work needs to be done, and we clearly view this as a top priority in our war against terrorist financing. We are determined to work hand in hand with host governments and the non-profit community in ensuring that charities are not abused by terrorist groups.

Private Sector -- Public Diplomacy: We meet with private sector such as local banks, bureau de change, and money remitters such as Western Union to determine how local compliance regulations are adhered to. Educate and heighten awareness of the general public and the private sector on how their businesses or services may be used to aid and abet terrorism.

International governments cannot win this war on terrorism alone. We need to rely on members of the business community and the general public such as yourselves to assist us in this campaign against terrorist financing. I look to you as the front line of troops in this campaign. Your ability to know your customers, know your markets, ask probing questions, and report suspicious activities serve as the basis for subsequent law enforcement investigations that will disrupt, dismantle and deter terrorist financing networks. As leaders in the business world you know about risk management. Various types of risk such as currency exposure, political risk, and credit risk, exist and can be managed or insured against. As we have seen the recent scandals on Wall Street unfold, reputational risk, however, is virtually impossible to manage. By allowing terrorist financiers to use and abuse your business, you run the risk of being implicated in their activities and destroying your business´ reputation and your own.

I know that I am preaching to the choir here at a compliance officer´s conference. I commend Western Union for placing such high importance on educating its agents on compliance in a climate where it more important than ever before. I thank you for the opportunity to participate in this conference and update you on our counterterrorism finance activities this past year.

In conclusion, let me leave you with one last thought: If you know your customer, know your business, and know your market, you will know that you are doing your part in this war against terrorist finance.

I wish you all a safe and pleasant stay in my hometown, New York, NY and look forward to seeing you in your field offices as we travel around the world to learn about and share "best practices" when it comes to compliance.