Order Code RL32539
CRS Report for Congress
Received through the CRS Web
Terrorist Financing: Current Efforts
and Policy Issues for Congress
August 20, 2004
Martin A. Weiss, Coordinator
Analyst in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress
Current Efforts and Policy Issues for Congress
On July 22, the 9/11 Commission Report was released. One of its
recommendations is that the priority of the U.S. strategy to combat terrorist financing
should shift from freezing assets to following terrorists’ money trails in order to gain
intelligence leads. This recommendation has led to widespread discussion of the
overall U.S. effort to combat terrorist financing. This report provides an agency by
agency survey of U.S. efforts and presents numerous policy issues. This report will
not be updated.
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Legislation on Terrorist Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Bank Secrecy Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The International Emergency Economic Powers Act . . . . . . . . . . . . . . 3
The Money Laundering Control Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Annunzio-Wylie Anti-Money Laundering Act . . . . . . . . . . . . . . . . 4
The Money Laundering Suppression Act . . . . . . . . . . . . . . . . . . . . . . . 5
The Money Laundering and Financial Crimes Strategy Act . . . . . . . . . 5
Title III of the USA PATRIOT Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Intelligence Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Interagency Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Financial Regulators and Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
The Offices within the Department of the Treasury . . . . . . . . . . . . . . 14
The Financial Institution Regulators . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Internal Revenue Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Departments of Homeland Security and Justice . . . . . . . . . . . . . . . . . . . . . . . . . 24
Bureau of Customs and Border Protection (CBP) . . . . . . . . . . . . . . . . . . . . 24
Role in Terrorist Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Capabilities and Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Measures of Success and Accomplishments . . . . . . . . . . . . . . . . . . . . 25
Relationships and Coordination with other Agencies . . . . . . . . . . . . . 26
Bureau of Immigration and Customs Enforcement (ICE) . . . . . . . . . . . . . . 26
Role in Terrorist Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Capabilities and Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Measures of Success and Accomplishments . . . . . . . . . . . . . . . . . . . . 28
Relationships and Coordination with other Relevant Agencies . . . . . 28
U.S. Secret Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Secret Service Involvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Caveats and Their Meaning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
The Federal Bureau of Investigation (FBI) . . . . . . . . . . . . . . . . . . . . . . . . . 31
The FBI Mission to Counter Money Laundering . . . . . . . . . . . . . . . . . 32
The FBI Mission to Counter Terrorist Financing . . . . . . . . . . . . . . . . 33
TFOS Resources and Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Information Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
FBI Measures of Success and Related Accomplishments . . . . . . . . . . 35
Relationships to and Coordination with Other Agencies . . . . . . . . . . . 36
Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) . . . . . . . . . . 38
ATF’s mission and roles related to terrorist financing . . . . . . . . . . . . 38
Capabilities and resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Measures of success and accomplishments . . . . . . . . . . . . . . . . . . . . . 38
ATF coordination with other federal agencies . . . . . . . . . . . . . . . . . . . 39
Drug Enforcement Administration (DEA) . . . . . . . . . . . . . . . . . . . . . . . . . . 39
DEA’s responsibilities with regard to terrorist financing . . . . . . . . . . 39
DEA resources devoted to combating terrorist financing . . . . . . . . . . 40
Measures of Success and Accomplishments . . . . . . . . . . . . . . . . . . . . 40
DEA Coordination with Other Federal Agencies . . . . . . . . . . . . . . . . 40
The Department of State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Regulating the International System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Financial Action Task Force (FATF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Assessing Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Conclusion: Policy Issues for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
List of Tables
Table 1. Middle Eastern Compliance with Counter-Terrorist Finance
Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Terrorist Financing: Current Efforts and
Policy Issues for Congress
Since the September 11, 2001 attacks, there has been significant interest in
terrorist financing. Following the attacks, the administration stated its goal of
“starving the terrorists of funding and shutting down the institutions that support or
facilitate terrorism.”2 In the months immediately following the attacks, substantial
funds were frozen internationally. After this initial sweep, the freezing of terrorist
assets slowed down considerably. As of November 2002, analysts noted that of the
roughly $121 million in terrorist assets frozen worldwide, more than 80% of that had
been blocked in the first three months following the attacks.3 Over the next year and
a half, an additional $80 million was frozen, bringing the current total to roughly
According to the 9/11 Commission: the United States must “[e]xpect less from
trying to dry up terrorist money and more from following the money for intelligence,
as a tool to hunt terrorists, understand their networks, and disrupt their operations.”5
According to Commission Chairman Thomas Kean, “[r]ight now we have been
spending a lot of energy in the government trying to dry up sources of funding.”
Kean further noted that, “[o]bviously if you can dry up money, you dry it up, but we
believe one thing we didn’t do effectively is follow the money. That’s what we have
While the goals of freezing terrorist funds and tracking them for intelligence are
not mutually exclusive, they tend to emphasize different strategies and approaches.
For example, the FBI and other intelligence agencies have a history of gathering
intelligence by monitoring financial transactions and relationships over extended
This section was prepared by Martin A. Weiss/FDT.
Statement of Secretary Paul O’Neill on Signing of Executive Order Authorizing the
Treasury Department to Block Funds of Terrorists and their Associates, September 24, 2001.
CRS Report RL31658, Terrorist Financing: The U.S. and International Response, pg. 1.
Testimony of Samuel W. Bodman, Deputy Secretary U.S. Department of the Treasury
Before the Senate Committee on Banking, Housing and Urban Affairs, April 29, 2004.
Executive Summary, Final Report of the National Commission on Terrorist Attacks Upon
the United States, July 2004,pgs. 18-19, available at
See Laura Sullivan, “U.S. Split on Tracing, Freezing Terror Funds,” Baltimore Sun, Aug.
periods of time, for example in its investigations of the Mafia, and then using laws
against financial crimes to eventually arrest the perpetrators. The Department of the
Treasury, by contrast, has traditionally favored freezing terrorist assets as soon as
possible. This tension is echoed by Jonathan Winer, a former Deputy Assistant
Secretary of State for International Law Enforcement under President Bill Clinton,
“[t]here is a big ideological divide right now between the asset freezers and the
people who want to follow the money as it changes hands. There’s no easy answer
one way or another.”7 Effectively combating terrorist financing requires effective
coordination of many different elements of national power including intelligence
gathering, financial regulation, law enforcement, and building international
coalitions. “There are a number of areas where jurisdiction is blurred,” according to
one senior official.8
Congress has taken an active interest in this debate on terrorist financing,
holding numerous hearings over the past few years, both in the House, and in the
Senate. This report responds to this increased interest in terrorist financing by
analyzing the roles of relevant U.S. agencies and departments involved in tracking
and seizing terrorist financing.
This report focuses on U.S. efforts to combat financing for terrorist acts against
the United States. For a discussion of the U.S. overall terrorism strategy, see CRS
Report RL32522: U.S. Anti-Terror Strategy and the 9/11 Commission Report. For
a discussion of the full 9/11 Commission recommendations, see CRS Report
RL32519: Terrorism: Key Recommendations of the 9/11 Commission and Recent
Major Commissions and Inquiries and CRS Report RL32501: 9/11 Commission
Recommendations: New Structures and Organization. For a discussion of terrorist
financing in general, see CRS Report RS21902: Terrorist Financing: The 9/11
Commission Recommendation and CRS Report RL31658: Terrorist Financing: The
U.S. and International Response, and CRS Report RL32499: Saudi Arabia: Terrorist
Legislation on Terrorist Financing9
“Money laundering” has traditionally been understood to mean the process by
which “dirty” money derived from illegal activity is disguised as legitimate — or
“clean” — by virtue of how it is distributed among financial institutions. The federal
government began to target money laundering in 1970, with the passage of the Bank
Secrecy Act (BSA) and subsequent amendments. In the years following the
enactment of the BSA, Congress added criminal and civil sanctions for money
launderers. The threat posed by terrorists, however, forced Congress in 2001 to bring
terrorist financing — which often is accomplished with legally-derived funds —
within the range of activities punishable under the federal money laundering laws.
What follows is an overview of these laws.
Lauren Shepherd, “Nominees stalled by turf battle,” The Hill, June 9, 2004.
This section was prepared by Nathan Brooks/ALD
The Bank Secrecy Act. Congress laid the foundations for the federal antimoney laundering (AML) framework in 1970 when it passed the BSA,10 the major
money laundering provisions of which make up the Currency and Foreign
Transaction Reporting Act (CFTRA). The BSA framework focuses on financial
institutions’11 record- keeping, so that federal agencies are able to apprehend
criminals by tracing their money trails. Under this statute and subsequent
amendments to it, primary responsibility rests with the financial institutions
themselves in gathering information and passing it on to federal officials. CFTRA
also contains civil12 and criminal13 penalties for violations of its reporting
Under CFTRA, financial institutions must file reports for cash transactions
exceeding the amount set by the Secretary of the Treasury in regulations.14 The
Secretary has set the amount for filing these currency transaction reports (CTRs) at
$10,000.15 The Secretary also requires financial institutions to file suspicious activity
reports (SARs) for transactions of at least $5,000 in which the bank suspects or has
reason to suspect the transaction involves illegally-obtained funds or is intended to
evade reporting requirements.16
CFTRA contains significant requirements related to foreign-based monetary
transactions. Citizens are required to keep records and file reports regarding
transactions with foreign financial agencies, and the Treasury Secretary must
promulgate regulations in this area.17 The statute also requires the filing of reports
by anyone who exports from the United States or imports into the United States a
monetary instrument of more than $10,000.18
The Internal Revenue Service has certain authorities and responsibilities under
the BSA (see p.20).
The International Emergency Economic Powers Act. Under the
International Emergency Economic Powers Act19 (IEEPA), enacted in 1977, the
President has broad powers pursuant to a declaration of a national emergency with
P.L. 91-508 (codified, as amended, at 12 U.S.C. § 1829b; 12 U.S.C. §§ 1951-1959; 31
U.S.C. § 5311 et seq.).
“Financial institution” is defined very broadly to include, inter alia, banks, thrifts, credit
unions, pawn brokers, broker-dealers, insurance companies, auto dealers, travel agencies,
casinos, the United States Postal Service, etc. 31 U.S.C. § 5312(a)(2).
Id. at § 5321.
Id. at § 5322.
31 U.S.C. § 5313(a).
31 C.F.R. § 103.22(b)(1).
31 C.F.R. § 103.18.
31 U.S.C. § 5314.
31 U.S.C. § 5316.
Title II of P.L. 95-223 (codified at 50 U.S.C. § 1701 et seq.).
respect to a threat “which has its source in whole or substantial part outside the
United States, to the national security, foreign policy, or economy of the United
States.”20 These powers include the ability to seize foreign assets under U.S.
jurisdiction, to prohibit any transactions in foreign exchange, to prohibit payments
between financial institutions involving foreign currency, and to prohibit the
import/export of foreign currency.21
The Money Laundering Control Act. Congress criminalized money
laundering in 1986 with the passage of the Money Laundering Control Act.22
Defining money laundering as conducting financial transactions with property known
to be derived from unlawful activity in order to further or conceal such activity, the
act made three specific types of money laundering illegal: 1) domestic money
laundering; 2) international money laundering; and 3) attempted money laundering
uncovered as part of an undercover sting operation.23 If the transaction is for an
amount in excess of $10,000, the government does not have to show that the
defendant knew the transaction in question was meant to further or conceal an illegal
act, only that the defendant knew the property was procured via illegal activity.24
The Annunzio-Wylie Anti-Money Laundering Act. With the passage of
the Annunzio-Wylie Anti-Money Laundering Act25 in 1992, Congress increased the
penalties for depository institutions that violate the federal AML laws. In addition
to authorizing the Secretary of the Treasury to require filings of the aforementioned
SARs, the act made it possible for banking regulators to place into conservatorship
banks and credit unions that violate these laws.26 In addition, the act gave the Office
of the Comptroller of the Currency (OCC) the power to revoke the charters of
national banks found to be guilty of money laundering or cash reporting offenses,27
and gave the Federal Deposit Insurance Corporation (FDIC) the authority to
50 U.S.C. § 1701(a). Under the Trading With the Enemy Act of 1917 (40 Stat. 411;
codified, as amended, at 50 U.S.C. app. § 1 et seq.), the President has broad economic
sanctioning authority during wartime. IEEPA extended these powers to situations in which
the President declares a national emergency.
50 U.S.C. § 1702. Relying on the powers granted in IEEPA, President Bush on September
23, 2001, issued Executive Order 13224, authorizing the Department of the Treasury to
designate individuals and entities as terrorist financiers, who are then denied access to the
U.S. financial system. The Treasury Department’s Office of Foreign Assets Control
(OFAC) maintains this specially designated nationals (SDN) list, which can be found at
[http://www.ustreas.gov/offices/eotffc/ofac/sdn/] (last visited July 2, 2004).
P.L. 99-570, § 1352 (codified, as amended, at 18 U.S.C. §§ 1956-1957).
18 U.S.C. § 1956.
18 U.S.C. § 1957. For these section 1957 crimes involving transactions over $10,000, a
much larger group of transactions are included than are illegal under section 1956.
Title XV of P.L. 102-550 (codified at various sections of Titles 12 and 31 of the U.S.
12 U.S.C. § 1821(c)(5)(M); 12 U.S.C. § 1786(h)(1)(C).
12 U.S.C. § 93(c).
terminate federal insurance for guilty state banks and savings associations.28 The
Annunzio-Wylie Act also introduced federal penalties for operating money
transmitting businesses29 operating without licenses under state law.30
The Money Laundering Suppression Act. In the early 1990’s it became
apparent that the number of CTRs being filed greatly surpassed the ability of
regulators to analyze them. So, in 1994, Congress passed legislation31 mandating
certain exemptions from reporting requirements in an effort to reduce the number of
CTR filings by 30%.32 In addition, the act directed the Treasury Secretary to
designate a single agency to receive SARs filings.33 Under this statute, money
transmitting businesses are required to register with the Treasury Secretary. In
addition, the act clarified the BSA’s applicability to state-chartered and tribal gaming
The Money Laundering and Financial Crimes Strategy Act. Congress
in 1998 directed the Treasury Secretary to develop a national strategy for combating
money laundering.35 As part of this strategy, the Treasury Secretary — in
consultation with the U.S. Attorney General — must attempt to prioritize money
laundering enforcement efforts by identifying areas of the U.S. as “high-risk money
laundering and related financial crimes areas” (HIFCAs).36 In addition, the Treasury
Secretary may issue grants to state and local law enforcement agencies for fighting
money laundering in HIFCAs.37
Title III of the USA PATRIOT Act. In the wake of the terrorist attacks of
September 11, 2001, Congress passed the USA PATRIOT Act.38 Congress devoted
12 U.S.C. § 1818(w).
These are those businesses engaged in check cashing, currency exchange, money
transmission or remittance, money order/traveler’s check redemption, etc. See id. at § 5330
18 U.S.C. § 1960.
Title IV of P.L. 103-325 (codified at various sections of Title 31 of the U.S. Code).
31 U.S.C. § 5313 note.
Id. at § 5318 note.
12 U.S.C. § 5312(a)(2)(X).
P.L. 105-310 (codified at 31 U.S.C. § 5340 et seq.).
31 U.S.C. § 5342. As of July, 2003, six such areas had been designated: New York/New
Jersey; San Juan/Puerto Rico; Los Angeles; the southwestern border, including Arizona and
Texas; the Northern District of Illinois (Chicago); and the Northern District of California
(San Francisco). See Bureau of Justice Statistics Special Report: Money Laundering
O f f e n d e r s , 1 9 9 4 -2 0 0 1 , N C J 1 9 9 5 7 4 ( J u l y 2 0 0 3 ) , a v a i l a b l e a t
[http://www.ojp.usdoj.gov/bjs/pub/pdf/mlo01.pdf] (Last visited July 2, 2004).
31 U.S.C. § 5354.
P.L. 107-56. The acronym stands for “United and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorists.”
Title III of this act to combating terrorist financing.39 Given that funds used to
finance terrorist activities are often not derived from illegal activities, prosecution for
funding terrorist activities under the pre-USA PATRIOT Act money laundering laws
was difficult. Title III, however, made providing material support to a foreign
terrorist organization a predicate offense for money laundering prosecution under
section 1956 of Title 18 of the U.S. Code.40
Under Title III, the Treasury Secretary may require domestic financial
institutions to undertake certain “special measures” if the Secretary concludes that
specific regions, financial institutions, or transactions outside of the U.S. are of
primary money laundering concern.41 In addition to retaining more specific records
on financial institutions, these special measures include obtaining information on
beneficial ownership of accounts and information relating to certain payablethrough42 and correspondent accounts.43 The Treasury Secretary is also empowered
to prohibit or restrict the opening of these payable-through and correspondent
accounts,44 and U.S. financial institutions are required to establish internal procedures
to detect money laundered through these accounts.45 In addition, financial
institutions and broker-dealers are prohibited from maintaining correspondent
accounts for foreign “shell banks,” i.e., banks that have no physical presence in their
supposed home countries.46 Institutions are subject to fines of up to $1 million for
violations of these provisions.47
Title III allows for judicial review of assets seized due to suspicion of terroristrelated activities and the applicability of the “innocent owner” defense,48 although the
government is permitted in such cases to submit evidence that would not otherwise
be admissible under the Federal Rules of Evidence, if following those rules would
This Title is called the International Money Laundering Abatement and Anti-Terrorist
Financing Act. For a more detailed discussion of Title III of the USA PATRIOT Act, see
CRS Report No. RL31208, International Money Laundering Abatement and Anti-Terrorist
Financing Act of 2001, Title III of P.L. 107-56, by M. Maureen Murphy.
18 U.S.C. § 2339B.
31 U.S.C. § 5318A(a).
“Payable through accounts” are generally checking accounts marketed to foreign banks
who would not otherwise have the ability to offer their customers access to the U.S. banking
“Correspondent accounts” are bank accounts established with a U.S. financial institution
to receive deposits or otherwise handle financial transactions of a foreign financial
31 U.S.C. § 5318A(b).
31 U.S.C. § 5318(i).
31 U.S.C. § 5318(j).
31 U.S.C. § 5321(a)(7); 31 U.S.C. § 5322(d).
An “innocent owner” under federal law is one who either did not know of the illegal
activity or, upon learning of the illegal activity, did all that was reasonable to terminate use
of the property in question. 18 U.S.C. § 983(d).
jeopardize national security.49 Title III also allows for jurisdiction over foreign
persons and financial institutions for prosecutions under sections 1956 and 1957 of
Title 18 of the U.S. Code.50
The USA PATRIOT Act permits forfeiture of property traceable to proceeds
from various offenses against foreign nations.51 The act also permits forfeiture of
accounts held in a foreign bank if that bank has an interbank account in a U.S.
financial institution; in essence, law enforcement officials are authorized to substitute
funds in the interbank account for those in the targeted foreign account.52 Forfeiture
is also authorized for currency reporting violations and violations of BSA
prohibitions against evasive structuring of transactions.53
Title III requires each financial institution to establish an AML program, which
at a minimum must include the development of internal procedures, the designation
of a compliance officer, an employee training program, and an independent audit
program to test the institution’s AML program.54 In order to allow for meaningful
inspection of financial institutions’ AML efforts, Title III requires financial
institutions to provide information on their AML compliance within 120 hours of a
request for such information by the Treasury Secretary.55 Also, financial institutions
applying to merge under the Bank Holding Act or the Federal Deposit Insurance Act
must demonstrate some effectiveness in combating money laundering.56 Financial
institutions are allowed to include suspicions of illegal activity in written
employment references regarding current or former employees.57
Title III extends the SARs filing requirement to broker-dealers,58 and gives the
Treasury Secretary the authority to pass along SARs to U.S. intelligence agencies in
order to combat international terrorism.59 Anyone engaged in a trade or business who
receives $10,000 cash in one transaction must file a report with the Financial Crimes
Enforcement Network (FINCEN) identifying the customer and specifying the amount
and date of the transaction.60 In addition, the USA PATRIOT Act makes it a crime
to knowingly conceal more than $10,000 in cash or other monetary instruments and
P.L. 107-56, § 316 (codified at 18 U.S.C. § 983 note)
P.L. 107-56, § 317.
18 U.S.C. § 981(a)(1)(B).
18 U.S.C. § 981(k).
31 U.S.C. § 5317(c).
31 U.S.C. § 5318(h).
31 U.S.C. § 5318(k)(2).
12 U.S.C. § 1842(c)(6); 12 U.S.C. § 1828(c)(11).
12 U.S.C. § 1828(w).
P.L. 107-56, § 356 (codified at 31 U.S.C. § 5318 note).
P.L. 107-56, § 358 (codified at 31 U.S.C. § 5319; 15 U.S.C. § 1681v).
31 U.S.C. § 5331. This is a separate requirement than the one codified at 31 U.S.C. §
attempt to transport it into or outside of the U.S. This offense carries with it
imprisonment of up to five years, forfeiture of any property involved, and seizure of
any property traceable to the violation.61
Significantly, the USA PATRIOT Act requires financial institutions to establish
procedures so that these institutions can verify the identities and addresses of
customers seeking to open accounts, and check this information against governmentprovided lists of known terrorists.62 Title III also allows the Treasury Secretary to
promulgate regulations that prohibit the use of concentration accounts to disguise the
owners of and fund movements in bank accounts.63
While FINCEN was created by the Treasury Department in 1990,64 under Title
III, FINCEN has statutorily-based authority to conduct its duties within the Treasury
Department.65 Significantly, the act requires FINCEN to maintain a highly secure
network so that financial institutions can file their BSA reports electronically.66
The Intelligence Community67
The Foreign Terrorist Asset Tracking Group (FTATG) is an autonomous
interagency analytic group whose mission is to assess intelligence, and provide the
National Security Council’s Policy Coordinating Committee (PCC) “targeting
reports” on individuals and groups suspected of financially supporting terrorists.
Policy makers evaluate the reports, which contain background information on the
target, and recommendations on possible action, including freezing assets belonging
to the implicated party.
The FTATG staff currently consists of five temporarily detailed analysts from
five agencies: the Federal Bureau of Investigation (FBI), Immigration and Customs
Enforcement (ICE), the National Security Agency (NSA), and the Central
Intelligence Agency (CIA), and the Department of State (State). The Group is
headed by a Director and a Deputy Director, although both positions are vacant.
Although housed at the Central Intelligence Director’s (DCI) Counterterrorism
Center (CTC) at CIA, FTATG is independent of the Center. Its analysts, however,
rely principally on information furnished by the intelligence community and law
enforcement agencies in making their assessments.
Id. at § 5332.
31 U.S.C. § 5318(l).
31 U.S.C. § 5318(h)(3). “Concentration accounts” commingle the bank’s funds with those
in individual accounts, making it difficult to determine who owns specific funds and why
funds are being moved.
Treasury Order 105-08 (April 25,1990).
31 U.S.C. § 310.
P.L. 107-56, § 362 (codified at 31 U.S.C. § 310 note).
This section was prepared by Al Cummings, FDT.
President Bill Clinton announced in May 2000 the creation of the Foreign
Terrorist Asset Tracking Center (FTATC) as part of a $300 million counterterrorism
initiative, $100 million of which was to be used to target terrorist financing.68
Congress authorized funding in October 2000.69
The initiative followed the disruption of various Osama Bin Laden-sponsored
terrorist plots at the end of 1999 — a series of terrorist attacks planned for the
Millennium against the U.S. and its interests. Although the plots were disrupted,
Clinton Administration officials concluded that the CIA had been unable to find or
disrupt al Qaeda’s money flows,70 and vowed in March 2000 to crack down on
terrorist organizations and curtail their fund-raising.71
The NSC staff decided that one possible solution to targeting terrorism
financing was to establish an all-source terrorist-financing intelligence analysis
center, and NSC counterterrorism official Richard A. Clarke in March 2000
advocated that the center be established at the Department of the Treasury.72 Neither
the Treasury Department nor the CIA, however, was willing to commit resources.73
Before 9/11, the Treasury Department did not view terrorist financing as important
enough to mention in its national strategy for money laundering.74 Nevertheless, the
Treasury Department was assigned the task of standing up the new center. National
Security Advisor Condoleezza Rice said that she had determined by spring of 2001
that terrorist financing proposals were a good option, so Treasury continued to plan
See Douglas Farah, “Blood From Stones: The Secret Financial Network of Terrorism,”
Broadway Books, New York, New York, May 2004, p. 193.
See Myron Levin and Josh Meyer, “Officials Fault Past Efforts on Terrorist Assets,” Los
Angeles Times, Oct. 16, 2001.
Farah, p. 186. According to the 9/11 Commission, although the CIA’s Bin Laden unit had
originally been inspired by the idea of studying terrorist financial links, “few personnel
assigned to it had any experience in financial investigations. Any terrorist-financing
intelligence appeared to have been collected collaterally, as a consequence of gathering
other intelligence. This attitude may have stemmed in large part from the chief of this unit,
who did not believe that simply following the money from point A to point B revealed much
about the terrorists’ plans and inventions. As a result, the CIA placed little emphasis on
terrorist financing.” See P. 184 of the Commission’s report.
See The 9/11 Commission Report, National Commission on Terrorist Attacks Upon the
United States, July 22, 2004, p. 185.
Shortly after Clarke and the NSC decided to advocate the create of FTATC, The National
Commission on Terrorism (the National Commission is often referred to as the “Bremer
Commission,” after its chairman, L. Paul Bremer) recommended in June 2000 that the
Secretary of the Treasury should create a unit within the Treasury Department’s Office of
Asset Control that blended the expertise of Treasury agencies and the CIA, FBI and NSA
and was dedicated to the issue of terrorist financing. The Commission further recommended
the Center should support more aggressive efforts by OFAC to freeze the assets of those
individual or groups funding terrorists.
Farah, p. 186.
to establish an office for 24 financing analysts.75 But the Treasury Department failed
to follow through on the establishment of the FTATG.76 On the eve of September
11, 2001, 16 months after its announced creation, nine months after President Bush
took office, and despite post-9/11 declarations to the contrary, FTATC had funds
appropriated, but no people hired, no security clearances, and no space to work.77
Treasury officials, meanwhile, complained that CIA had adopted a posture of “benign
neglect” toward the FTATC and characterized the CIA as believing that financial
tracking had limited utility.78
Three days after the September 11th terrorist attacks against the U.S., Treasury
officials hastily stood up the FTATC,79 under the Department of the Treasury’s
Office of Foreign Asset Control (OFAC). A Treasury spokeswoman reportedly
denied there was any undue delay in launching the Center, citing the logistical
difficulties of bringing together representatives of a number of investigative agencies.
Senator Charles E. Grassley, however, reportedly expressed concern as to whether
the delay “is indicative of larger problems.”80
The Center originally was comprised of the same member agencies as
Operation Green Quest, a multi-agency, financial enforcement initiative that the
Department of the Treasury announced on October 25, 2001, to identify, disrupt,
dismantle and ultimately “bankrupt” terrorist networks and their sources of funding.81
Operation Green Quest was intended to serve as the operation and investigative arm
for OFAC, FTATC and FINCEN.82 FTATC’s mission was to analyze individual and
group targets identified through the Green Quest initiative.83
In December 2002, the Senate Select Committee On Intelligence endorsed
efforts to develop elements within the Intelligence Community designed to exploit
financial intelligence and noted that the Treasury Department’s FTATC showed
promise as a vehicle to address this need. But the Committee expressed concern
about the Center regarding, “[the] extent it will function as an element of the
9/11 Commission Report, footnote 88, p. 505.
See Myron Levin and Josh Meyer, “Officials Fault Past Efforts on Terrorist Assets,” Los
Angeles Times, Oct. 16, 2001.
Green Quest was led by the following Treasury Department agencies: U.S. Customs
Service Department of the Treasury agencies) the Internal Revenue Service, the Financial
Crimes Enforcement Network (FINCEN), the Office of Foreign Assets Control, and the
Secret Service. (Since then, the newly created Department of Homeland Security has
absorbed some of those agencies). FBI and Department of Justice representatives also
participated in Green Quest.
See U.S. Customs press release October 25, 2001, announcing Operation Green Quest.
See prepared comments of Treasury Undersecretary James Garule, October 25, 2001,
announcing the Green Quest initiative.
Intelligence Community, has been coordinated adequately with the Director of
Central Intelligence nor reviewed by this Committee.”84 The Committee directed the
DCI and the Treasury Secretary to prepare jointly a report “assessing the feasibility
and advisability of establishing an element of the federal government to provide for
effective and efficient analysis and dissemination of foreign intelligence related to
the financial capabilities and resources of international terrorist organizations. The
report should include an assessment of the FTATC as a vehicle for addressing such
a need and, if appropriate, a plan for its continued development.”85
The following year, the Senate intelligence committee complained that the
Executive Branch had failed to provide the report to the Committee,86 noting that
Congress had by statute as part of the USA PATRIOT Act again requested that the
DCI and Treasury Secretary provide a report on FTATC.87
The congressional intelligence committees in the FY2003 intelligence bill
established the FTATC under the direction of the DCI, and placed the Center within
By the time the FY2003 intelligence authorization bill had been signed into law
in November 2002, the Bush Administration already had moved FTATC from the
Treasury Department’s OFAC to CIA, housing it in the DCI’s counterterrorism
center (CTC), but keeping it independent of CTC. FTATC also was renamed the
Foreign Terrorist Asset Tracking Group (FTATG) by the PCC. Its first two directors
were ICE detailees, with the position now vacant. Since the Center was moved from
under the control of the Treasury Department’s OFAC, Treasury has not detailed
analysts to FTATG. FINCEN also does not currently detail analysts to FTATG.
Although FTATG historically developed its own targets, its five analysts now serve
as targeting research arm of the PCC, assessing targets provided by the PCC.
There is a growing debate within law enforcement circles over how best to
curtail terrorist financing. On one side are those who advocate that U.S. agencies
freeze more assets. On the other are those who assert that it is more important to
follow the money trail. Among those in the latter camp are the members of the 9/11
Commission, who argue that the information about terrorist money helps authorities
See Senate Report 107-63, p. 10.
Ibid, pp. 10-11.
See Senate Report 107-49, p. 18.
See P.L. 107-56, Section 906.
See P.L. 107-306, Section 341. The act also requires that the Treasury Secretary submit
a semiannual report describing operations against terrorist financial networks, noting the
total number of asset seizures and designations against individuals and organizations found
to have financially supported terrorism; the total number of applications for asset seizure
and designations of individuals and groups suspected of financially supporting terrorist
activities, that were granted, modified or denied; the total number of physical searches of
those involved in terrorist financing; and whether financial intelligence information seized
in these cases has been shared within the Executive Branch.
to understand the terrorist networks, search them out, and disrupt their operations.89
“...[T]rying to starve the terrorists of money is like trying to catch one kind of fish by
draining the ocean,” the Commission asserted in its recent report.90
But some U.S. officials, while not disagreeing with the Commission, contend
that the U.S. has to adopt both approaches, and that with regard to freezing assets,
has to become even more aggressive since attacking financial sources affects the
long-term ability of Al Qaeda to mount terrorist attacks.91
In the meantime, the PCC is reviewing the FTATG’s mission and is expected
to issue new guidelines governing the Group’s operations.
Whether its mission is to help freeze assets of those individuals or organizations
funding terrorism, or to “follow the money” in hopes of learning more about terrorist
activities, with five analysts FTATG appears to have limited resources to do either.
One could question the commitment to FTATG and its mission given that FTATG
has operated without a director for five months, and no longer has OFAC or FINCEN
analysts within its ranks.
A further question is whether the FTATG is focusing enough attention on the
contention that there is trade in diamonds in West Africa by Al Qaeda and other
terrorist groups (i.e., that they are using diamonds to fund terrorist activities).92 Some
argue that the Intelligence Community (IC) has dismissed the reporting on terrorist
ties to diamond trading in that area. They assert that the IC is failing to recognize the
national security threat posed by armed groups, operating beyond state control, that
are now the de facto rulers of growing swaths of sub-Saharan Africa, Asia and Latin
America. The IC, they assert, also is failing to focus adequate resources on the nowidentifiable presence of al Qaeda and other terrorist groups such as Hezbollah in
places such as West Africa, where they finance their activities. The terrorist groups
See the 9/11 Commission Report, National Commission on Terrorist Attacks Upon the
United States, July 22, 2004, p. 382.
Sullivan, Aug. 2, 2004.
See Douglas Farah, “Al Qaeda’s Growing Sanctuary,” Washington Post, July 14, 2004,
p. A19. With regard to the West Africa diamond trade, the 9/11 Commission took the
opposite view, suggesting that it had seen no persuasive evident that al Qaeda funded itself
by trading in African conflict diamonds. See p. 171 of the Commission’s report. See also
Overview of the Enemy: Staff Statement No. 15, of the National Commission on Terrorist
Attacks Upon the United States (Keane Commission), pp. 9-10. This statement suggests that
although “...al Qaeda frequently moved its money by hawala, an informal and ancient trustbased system for moving funds...no persuasive evidence exists that al Qaeda relied on the
drug trade as important source or revenue, or funded itself through trafficking in diamonds
from African states engaged in civil wars.” Douglas Farah questions the Commission’s
conclusion, citing what he characterizes as an extensive record reflecting the contrary. See
Douglas Farah website at [http://www.DouglasFarah.com/blog/].
are betting that Western intelligence services do not have the capacity, resources or
interest to track their activities there.93
The Interagency Process94
The National Security Council (NSC) is responsible for the overall coordination
of the interagency framework for combating terrorism including the financing of
terrorist operations. Given divergent concerns among various departments and
agencies only the NSC may be in a position to choose among alternative approaches
and make tactical decisions when disagreements emerge. The NSC staff inevitably
has a significant influence on the decisionmaking process although great reliance is
placed on interagency Policy Coordination Committees (PCCs) some of which are
headed by departmental officials and some by the National Security Adviser.
A PCC specifically on terrorist financing was not included in the list of PCCs
published by the White House in February 2001, but media accounts indicate that a
PCC for this issue was established in the aftermath of the events of September 11.95
The General Counsel of the Treasury Department has been designated the leader of
the interdepartmental group. Treasury undoubtedly has a central role in halting
terrorist financing, but some observers question whether a Treasury General Counsel
is the best choice for the coordinating diplomatic and intelligence efforts in this area.
Accordingly, it has been argued that a new position on the NSC staff should be
established — a special assistant to the President for combating terrorist financing.
The individual, who would not have departmental responsibilities, would chair
meetings of the PCC on terrorist financing and would be assisted by a team of
directors on the NSC staff in coordinating and directing all Federal efforts on the
issue. This team would “focus its attention on evaluating the all-source intelligence
available on terrorist organizations, conducting link analysis on the organizations
with information and technical intelligence available from other departments and
agencies, and developing tactics and strategies to disrupt and dismantle terrorist
There are, however, arguments that can be made against establishing new
positions on the NSC staff. Size of the White House staff and expanding the span
of control of the National Security Adviser are one set of issues. Another question
is the desirability of having tactics and strategies developed by the NSC staff rather
than operating departments. For instance, the Tower Board established in the wake
of the Iran-Contra affair in the Reagan Administration, recommended that “As a
general matter, the NSC Staff should not engage in the implementation of policy or
This section was prepared by Richard Best/FDT.
Lee S. Wolosky, “Breakdown: the Challenge to Eliminating Al Qaeda’s Financial
Networks,” in Beyond the Campaign: the Future of Countering Terrorism, ed. by Bryan Lee
Cummings, (New York: Council for Emerging National Security Affairs, 2004), p. 150.
Council on Foreign Relations, Report of an Independent Task Force, Terrorist Financing,
New York, 2002, pp. 32-33.
the conduct of operations. This compromises their oversight role and usurps the
responsibilities of the departments and agencies.”97 Arguably, the best approach
would have the PCC develop strategies against terrorist financing, resolve interdepartmental disagreements on tactics, and bring differences to the attention of the
NSC for resolution. It may be, however, that the perspectives of agencies and
departments are so different that there need to be arrangements more permanent than
regular PCC meetings to maintain requisite coordination. Others would argue that
while a separate staff within the larger NSC staff may not be necessary, it would be
better to have the PCC headed by the National Security Adviser or her/his designee
rather than an official with other important responsibilities and loyalties.
Financial Regulators and Institutions98
The nation’s financial institutions, their regulators, and certain offices within the
U.S. Department of the Treasury share primary responsibility for providing
information on financial transactions for the purpose of detecting, disrupting, and
preventing the use of the nation’s financial system by terrorists and terrorist
organizations. Historically, such information has aided law enforcement authorities
in dealing with money laundering to hide the gain from crimes, and is now being
used to track possible terrorist financing.
The Offices within the Department of the Treasury. Offices within
Treasury include the Office of Terrorism and Financial Intelligence (TFI, formerly
the Executive Office for Terrorist Financing and Financial Crimes), established in
April 2004. TFI is charged with developing and implementing strategies to counter
terrorist financing and money laundering both domestically and internationally. It
participates in developing regulations in support of both the BSA and USA
PATRIOT Acts. It also represents the United States at international bodies that focus
on curtailing terrorist financing and financial crime, including the Financial Action
Task Force (FATF) whose “Forty Recommendations” and “Eight Special
Recommendations” are the basic framework for anti-money laundering and terrorist
financing efforts internationally. Two offices with anti-terrorist financing
responsibilities within TFI are the Office of Foreign Assets Control (OFAC) and the
Financial Crimes Enforcement Network (FINCEN).
FINCEN originated in the Treasury in 1990 as the data-collection and analysis
bureau for the BSA. It provides a government-wide, multi-source intelligence
network under which it collects SARs and CTRs from reporting financial institutions
(with assistance from the IRS), tabulates the data in a large database that has been
maintained since 1996, and examines them to detect trends and patterns that might
suggest illegal activity. FINCEN then reports what it finds back to the financial
community as a whole to aid further detection of suspicious activities. There have
U.S., President’s Special Review Board, Report, February 26, 1987, p. V-4. The Board
consisted of former Senators John Tower and Edmund Muskie, and Brent Scowcroft, a
previous (and future) National Security Adviser.
This section was prepared by Walter Eubanks and William D. Jackson/G&F.
been seven SAR Activity Reviews issued since October 2000, the most recent dated
August 2004. Such reports are a part of FINCEN’s outreach and education efforts
on behalf of financial regulators and law enforcement agencies. While FINCEN has
no criminal investigative or arrest authority, it uses its data analysis to support
investigations and prosecutions of financial crimes, and refers possible cases to law
enforcement authorities when warranted. It also submits requests for information to
financial institutions from law enforcement agencies in the conduct of criminal
investigations. FINCEN reports 285 such requests to more than 33,000 institutions
between mid-February 2003 and July 2004.
According to Treasury testimony, a terror hotline established by FINCEN after
9/11 resulted in 853 tips passed on to law enforcement through April 2004. In the
same time period, financial institutions filed 4,294 SARs involving possible terrorist
financing, of which 1,866 had possible terrorist financing as their primary impetus.99
The Inspector General (IG) of the Department of the Treasury has conducted a
series of audits of the FINCEN SAR database and raised some potentially troubling
issues. The IG found that the database lacks critical information and is filled with
inaccuracies. An analysis of a sample of 2,400 SARs, for example, determined that
most of the reports did not detail the specific actions that led to suspicion, did not
give a location for possible illegal transactions, or omitted the narrative description
required in the reports entirely. As recently as June 2004, the IG testified that
subsequent audits revealed little or no improvement.100
Subsequently, FINCEN announced it would collect information from the
financial regulators and others responsible for BSA compliance on their examination
procedures, cycles and resources; on any significant deficiencies in reporting by
financial institutions; and other data including both formal and informal actions taken
by regulators to correct reporting failures by financial institutions. FINCEN has also
created an internal Office of Compliance to support the work of the financial
The Office of Foreign Assets Control is designed primarily to administer and
enforce economic sanctions against targeted foreign countries, groups, and
individuals, including suspected terrorists, terrorist organizations, and narcotics
traffickers. OFAC acts under general presidential wartime and national emergency
powers as well as legislation, to prohibit financial transactions and freeze assets
subject to U.S. jurisdiction. OFAC also has responsibility for listing those persons,
groups, or countries whose transactions are to be blocked or assets frozen by financial
institutions. OFAC has close working relations with the financial regulatory
Testimony of Daniel L. Glaser, Director, Executive Office for Terrorist Financing and
Financial Crimes, U.S. Department of the Treasury, before the House Government Reform
Committee, Subcommittee on Criminal Justice, Drug Policy and Human Resources, May
11, 2004. [http://www.treas.gov/press/releases/js1539.htm]
Testimony of Dennis S. Schindel, Acting Inspector General, U.S. Department of the
Treasury, before the House Committee on Financial Services, Subcommittee on Oversight
and Investigations, June 16, 2004.
community and maintains telephone “hotlines” through which it receives real-time
guidance on in-progress financial transactions. OFAC also works closely with the
Federal Bureau of Investigation, and with the Department of Commerce’s Office of
Export Enforcement, and cooperates with the United Nations in imposing UN
sanctions on foreign governments.
According to Treasury Secretary John Snow, OFAC has frozen assets of 29
entities linked to the Al Qaeda network since 9/11, and has helped identify between
two and three hundred additional entities and individuals as possible terrorists. The
work of OFAC is credited with freezing $139 million in terrorist assets worldwide
since 9/11. The most recent IG audit was completed in April 2002 and concluded
that OFAC is limited because of its reliance on regulators’ examinations of the
financial institutions that supply data under the BSA. The IG recommended that
Treasury inform Congress that OFAC lacked sufficient authority to ensure financial
institutions comply with foreign sanctions after finding instances in which
institutions either did not have databases on foreign sanctions, or did not update
them. Further, some institutions did not routinely follow guidance in processing
rejected financial institutions and did not report blocked assets.101
The Financial Institution Regulators.
The Treasury delegates
responsibility for examining financial institutions for compliance with the BSA to the
financial regulators of those institutions. These regulators are already responsible for
the safety and soundness examinations of the institutions they supervise, and
generally conduct their BSA examinations concurrently with those routine
inspections. When there is cause do so, however, any of the regulators may carry out
a special BSA examination.
The primary regulators for depository financial institutions are all participants
in the Federal Financial Institutions Examination Council (FFIEC). FFIEC
prescribes uniform principles, standards, and reporting forms for all banking and
other depository institution examinations. It also works to promote uniformity in all
depository supervision. As a result, all the depository financial institutions follow
similar procedures in enforcing the BSA. FFIEC is currently forming an additional
Working Group to enhance coordination of regulatory agencies, law enforcement,
and private financial institutions to strengthen current arrangements. All, including
the non-depository regulators, are also part of the National Anti-Money Laundering
Group (NAMLG), first formed in 1997 by the Office of the Comptroller of the
Currency to set up guidelines for depositories to follow with respect to training of
employees to detect illegal transactions, a system of internal controls to assure
compliance, independent testing of compliance, and daily coordination and
monitoring of compliance. The continuing purpose of the group, which also includes
the Department of Justice and banking industry trade groups, is to identify
institutions at high risk of being used for money laundering or terrorist financing.102
Schindel, page 4.
Financial institutions that are not federally regulated, such as check cashers, money
transmitters, issuers of travelers’ checks, casinos, and other gaming institutions, are
overseen by the Small Business and Self-Employed Taxpayers Division of the Internal
The Office of the Comptroller of the Currency is the regulator for just over
2,000 nationally chartered banks and the U.S. branches and offices of foreign banks.
The OCC conducts on-site examinations of each national bank at least three times
within every two-year period. Along with loan and investment portfolios, they
review internal controls, internal and external audits, and BSA compliance.
According to the OCC, they conducted about 1,340 BSA examinations of 1,100
institutions in 2003, and nearly 5,000 BSA examinations of 5,300 institutions since
When the OCC finds violations or deficiencies in filing SARs and CTRs, it may
take either formal or informal action. Not generally made public, informal actions
result when examiners identify problems that are of limited scope and size, and when
they consider managements as committed to and capable of correcting the problems.
Informal actions include commitment letters signed by institution management, or
memoranda of understanding, and matters requiring board attention in the
examination reports. Formal enforcement actions are made public because they are
more severe. Such actions include cease and desist orders and formal agreements
requiring the institution to take certain actions to correct deficiencies. Formal actions
may also be taken against officers, directors and other individuals, including removal
and prohibition from participation in the banking industry, and civil fines. From
1998 through 2003, the OCC issued a total of 78 formal enforcement actions based,
at least in part, on BSA problems. The number of informal enforcement actions has
been characterized as “countless.”104 The most recent case of severe BSA problems
involved Riggs Bank. In this case, according to the OCC, deficiencies had been
noted for many years before a $25 million penalty was imposed in May 2004.
The Federal Reserve System (Fed) supervises about 950 state-chartered
commercial banks that are members of the system and more than 5,000 bank holding
companies and financial holding companies. Along with the OCC, it also supervises
some international activities of national banks. The Fed uses both on-site
examination and off-site surveillance and monitoring in its supervision process.
Each institution is to be examined on-site every 12 to 18 months. In-house
examiners are to examine larger institutions continuously. The Board of Governors
of the Fed coordinates the examination and compliance activities of the 12 regional
banks. In early 2004, the Fed created a new section within the Board’s Division of
Banking Supervision and Regulation — the Anti-Money Laundering Policy and
Compliance Section — to improve control.
According to the Fed, from 2001 through 2003, they took 25 formal
enforcement actions against financial institutions under the BSA. In every case, the
examination process identified violations that were severe enough to require
Testimony of Deputy Chief Counsel Daniel P. Stipano, Office of the Comptroller of the
Currency, Subcommittee on Oversight and Investigations, Committee on Financial Services
of the U.S. House of Representatives, June 2, 2004.
Stipano, page 9.
action.105 Recent public action involved a $100 million fine against UBS for
transmitting U.S. currency to trade-sanctioned nations through the Fed of New
York’s own systems.106 It also sanctioned the holding company for Riggs Bank by
mandating greater compliance; another financial holding company subsequently
bought the operations of Riggs and is retiring the bank’s name.107
The Federal Deposit Insurance Corporation (FDIC) regulates about 4,800
state-chartered commercial banks and 500 state-chartered savings associations that
are not members of the Fed. They also insure deposits of the remaining 4,000
depository institutions without regulating them. The FDIC examines its supervised
institutions about once every 18 months. The FDIC also serves as the point of
contact for FINCEN to communicate identities of suspected terrorists to banking
regulators and institutions.
Since 2000, the FDIC has conducted almost 1,100 BSA examinations and from
2001, has issued formal enforcement actions (cease and desist orders) against 25
institutions and bans or civil fines against three individuals for violations. The FDIC
also has taken 53 informal actions since 2001. The IG of the FDIC has audited the
FDIC twice, covering the period 1997 through September 2003. to assess the FDIC’s
BSA examinations, and its implementation of the USA PATRIOT Act. The IG
generally concluded that FDIC examiners have insufficient guidance for BSA
examinations, which were inadequate. During the audit period, 2,672 institutions
were cited for BSA failures to report, and 458 had repeat violations. Further many
citations were for serious violations such as a failure to comply with record-keeping
and reporting requirements for CTRs.108 While some transactions of over $10,000
are exempt — such as regular and routine business, including meeting payroll or
depositing receipts, by known customers — the citations involved unambiguous
requirements to report. In 30% of the cases, the FDIC was found to have waited until
the next examination to follow up on BSA violations and taken more than a year in
71% of the cases to act, with many violations taking five years before the FDIC
The Office of Thrift Supervision (OTS) supervises about 950 federally
chartered savings associations, savings banks, and their holding companies (thrifts).
Like the OCC, the OTS is located within, but is independent of the Treasury. The
OTS is to conduct on-site examinations of each institution at least three times every
Testimony of Susan S. Bies, Member, Board of Governors of the Federal Reserve
System, Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, June
3, 2004. [http://banking.senate.gov/_files/bies.pdf]
R. Christian Bruce, “Fed Fines Switzerland’s UBS for Illegal Dollar Transactions,”
BNA’s Banking Report, May 17, 2004.
Karen L. Warner, “Riggs Bank Disregarded AML Obligations; Regulators Lax on
Deficiencies, Report Says,” BNA’s Banking Report, July 19, 2004.
Testimony of Davi M. D’Agostino, Director of Financial Markets and Community
Investment of the United States General Accounting Office, before the Committee on
Banking, Housing, and Urban Affairs, U.S. Senate, June 3, 2004.
two years. Data on actions taken are from the Treasury IG’s audit of OTS actions
covering a period from January 2000 through October 2002. During that time,
examiners found substantive problems at 180 thrifts, and took written actions against
11. According to the IG, in five cases the action was not timely, was ineffective, and
did not even address all violations found. The IG also took exception to the extent
to which the OTS relied on moral suasion instead of money penalties to gain
compliance: in a sample of 68 violations, for example, the OTS took such actions in
47 cases but failed to make any positive difference in compliance in 21 of those
The National Credit Union Administration (NCUA) currently regulates 9,369
federally chartered credit unions and another 3,593 federally insured, state-chartered
credit unions. Most credit unions are small and considered to have limited exposure
to money laundering activities. In at least one case, however, penalties were assessed
against a credit union for CTR deficiencies. In 2000, the Polish and Slavic Federal
Credit Union in New York City was assessed $185,000 for willful failure to file
CTRs and improperly granting exemptions from such filings for some customers.109
In 2003, the NCUA examined 4,400 credit unions and participated with state
regulators in another 600 examinations of state-chartered institutions. They found
334 BSA violations in 261 credit unions. Most deficiencies were inadequate written
policies, inadequate customer identification, or inadequate currency reporting
procedures. NCUA reported that 99% of violations were corrected during or soon
following the on-site examinations. NCUA actions are generally informal but may
involve memoranda of understanding.110
The Securities and Exchange Commission (SEC) regulates to protect
investors against fraud and deceptive practices in securities markets. It also has
authority to examine institutions it supervises for BSA compliance. This covers
securities markets and exchanges, securities issuers, investment advisers, investment
companies, and industry professionals such as broker-dealers. The SEC supervises
more than 8,000 registered broker-dealers with approximately 92,000 branch offices
and 67,500 registered representatives. The depth and breadth of the securities
markets are such that they could arguably prove to be an efficient mechanism for
The SEC’s approach to BSA monitoring and enforcement is a joint product of
the NAMLG and modified from that used by depository institution regulators. Much
of the securities industry is overseen by self-regulating organizations (SROs), such
as the New York Stock Exchange. Thus, most examinations are carried out jointly
by the SEC’s Office of Compliance Inspections and Examinations (OCIE) and the
relevant SRO. The SEC does not make public its findings of BSA violations.
Agency efforts are focused on educating the securities industry on its compliance
responsibilities. This may be in part because compliance rules for the industry are
Testimony of JoAnn M. Johnson, Chairman of the National Credit Union Administration,
before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, June 3, 2004.
relatively recent. For example, FINCEN and the SEC released specific regulations
for customer identification programs for mutual funds in June 2003.
The Commodity Futures Trading Commission (CFTC) protects market users
and the public from fraud and abusive practices in markets for commodity and
financial futures and options. The CFTC delegates BSA examinations to its
designated self-regulatory organizations (DSROs), of which the most prominent are
the National Futures Association (NFA), the Chicago Board of Trade, and New York
Mercantile Exchange. NFA membership covers more than 4,000 firms and 50,000
individuals. The regulatory process generally starts at registration, when the SRO
screens firms and individuals seeking to conduct futures business. The DSROs
monitor business practices and, when appropriate, take formal disciplinary actions
that could prohibit firms from conducting any further business. Covered businesses
include all registered futures commission merchants, “introducing brokers,”
commodity pool operators, and commodity tracing advisers, who are required to
report suspicious activity and verify the identity of customers, as well as monitor
certain types of accounts involving foreigners.
According to the CFTC, in 2003, the NFA conducted 365 examinations of the
180 futures commission merchants and 605 introducing brokers. Those examinations
resulted in 238 audit reports of which 54 reflected anti-money laundering deficiencies
at nine merchants and 45 brokers. Primary deficiencies cited were failures to comply
with annual audit and training requirements.111
Internal Revenue Service112
In order to help finance its operations and a multitude of defense and nondefense programs, the federal government levies income taxes, social insurance
taxes, excise taxes, estate and gift taxes, customs duties, and miscellaneous taxes and
fees. The federal agency responsible for administering all these taxes and most of
these fees, except customs duties, is the Internal Revenue Service (IRS). In
discharging that responsibility, the IRS receives and processes tax returns and related
documents, processes payments and refunds, enforces compliance with tax laws and
regulations, collects delinquent taxes, and provides a variety of services to taxpayers
mainly intended to answer questions, help them understand their rights and
responsibilities under the tax code, and resolve problems in ways that seek to avoid
protracted and costly litigation.
In light of this mission, some may find it surprising that the IRS also is involved
in current efforts by the federal government to detect, disrupt, and prevent the flow
of funds to international terrorist groups, especially those expressing antipathy
toward the United States. This involvement is rooted in the agency’s responsibility
for tax law enforcement and might best be described as providing critical analytical
and resource support in investigations (many of which involve other federal agencies)
CFTC communication with CRS August 2004.
This section was prepared by Gary Guenther/G&F
focused on money laundering and the diversion of funds from tax-exempt charities.
Such a role takes advantage of the deep reservoir of expertise and experience the
agency has amassed as the primary enforcer of federal tax laws and the primary
investigator of criminal violations of those laws and laws dealing with the detection
and prevention of money laundering. For the IRS, money laundering has long
represented a possible avenue for tax evasion.
IRS’s contribution to the government’s campaign to detect and eliminate the
sources of international terrorist financing draws mostly on resources tied to tax law
enforcement. By all available accounts, three operating divisions are involved to
varying degrees in this campaign: Criminal Investigation (CI), the Small Business
and Self-Employed Taxpayers Division (SBSE), and the Tax-Exempt and
Government Entities Division (TEGE).
The lead division in resource commitment seems to be CI, whose main function
is to investigate possible criminal violations of the tax code. In recent decades,
Congress and the Treasury Department have taken steps to expand the CI’s scope of
authority to include investigations of possible violations of anti-money laundering
and financial reporting statutes. As a result, the division has acquired the capability
to counter the attempts of individuals and organizations (including charities) to evade
taxes on legal income or to launder money obtained through illicit activities with the
use of nominees, cash, multiple bank accounts, layered financial transactions
involving multiple entities, and the movement of funds offshore. Recent
developments suggest that efforts are underway to adapt this capability to the special
requirements of tracing and dismantling the sources of terrorist financing.
Among other responsibilities, the SBSE and TEGE Divisions enforce
compliance with certain sections of the tax code; the SBSE also enforces compliance
by certain non-banking financial institutions with the reporting requirements of the
Bank Secrecy Act of 1970 (BSA). Some employees from both divisions are involved
in various ways with terrorist financing investigations. SBSE agents conduct
examinations of money service businesses to ensure that they comply with reporting
requirements under the Bank Secrecy Act of 1970, and they refer possible violations
to CI and Treasury’s Financial Crimes Enforcement Network (FINCEN) for
investigation. Some of the cases they refer may be related to terrorist financing.
Additionally, agents from the Exempt Organizations branch (EO) of the TEGE
Division assist other government agencies in their investigations of charities that may
have diverted funds to support international terrorist groups. In FY2004, the EO is
undertaking an educational program to help charities put in place effective internal
controls to prevent the unintended diversion of assets to terrorist groups. And in
FY2005, the EO hopes to receive funding to establish the Exempt Organization
Fraud and Financial Transactions Unit, whose main tasks would include combating
the diversion of charitable assets to fund terrorist activities and increasing the data
on the flow of funds from donors to charitable organizations available to the CI and
other law enforcement agencies.113
See IRS Strategic Plan 2005 [http://www.irs.gov/pub/irs-utl/strategic_plan_05-09.pdf]
Undergirding the IRS’s contribution are the skills, education, and technology
possessed by CI special agents and certain financial information the agency collects
under a variety of tax and anti-money laundering statutes.
CI special agents must have academic backgrounds in accounting and business
finance before they undergo rigorous training in criminal investigation techniques,
forensic accounting, and financial investigations. Some also receive specialized
training in methods of combating terrorist financing from prosecutors with the
Department of Justice’s Counterterrorism Section. In FY2004, the IRS employs
2,750 special agents, of whom about 100 serve as computer investigative specialists
trained to use special equipment and techniques to preserve digital evidence and to
recover financial data. Recent congressional testimony indicates that a total of 140
special agents and 20 support personnel currently are assigned to work on counterterrorism investigations.114 Twelve of these agents (along with one agent from the
TEGE Division) are involved in a pilot anti-terrorism initiative taking place at the
Garden City Counterterrorism Lead Development Center in Garden City, NY. The
initiative, which is directed by the CI, seeks to supply research and project support
to anti-terrorist financing investigations being conducted by the Joint Terrorism Task
Forces (JTTF) led by the FBI or by CI special agents. Special agents have focused
their investigations on the members of known terrorist groups who might have
violated tax, money-laundering, and currency laws and individuals connected to taxexempt organizations who might be raising funds to support terrorist groups.
Available information suggests that they excel at unraveling complex financial
transactions by analyzing key pieces of detailed financial information and assembling
them in the manner of a jigsaw puzzle to form a coherent picture emphasizing
expenditures, life-style changes, and acquisition of assets.
Owing to its enforcement authority, the IRS has direct access to financial
information that can be especially useful in detecting and tracking tax evasion and
various financial crimes, including the movement of illegally obtained money
through domestic financial institutions to international terrorist groups. Under
Section 6050I of the Internal Revenue Code, firms not covered by the BSA must
report to the IRS customer purchases of more than $10,000 paid in cash.115 Under
Section 5314 of the BSA, U.S. residents and citizens and any firms with domestic
business operations having transactions with foreign financial institutions must file
a form known as the Report of Foreign Bank and Financial Accounts (FBAR) with
the IRS giving important details about those transactions. And since December 1992,
the IRS has had the authority to monitor and enforce compliance with the BSA
reporting requirements by non-banking and financial institutions not overseen by
other federal agencies; these institutions include money service businesses, casinos,
See written statement of Nancy Jardini, Chief of the CID, submitted to the Subcommittee
on Oversight and Investigations of the House Committee on Financial Services for a hearing
h e l d
J u n e
1 6 ,
2 0 0 4 .
A v a i l a b l e
[http://www.financialservices.house.gov/medial/pdf/061404nj.pdf], visited on July 22, 2004.
The BSA requires banks and non-bank financial institutions such as casinos and checkcashing operations to file reports on currency transactions exceeding $10,000. Such
information is intended to help the IRS enforce compliance with the tax code and make it
possible to detect and prevent attempts to launder money obtained through illegal activities.
and non-federally insured credit unions. The IRS is also responsible for processing
and storing electronically BSA documents collected by all federal agencies (including
FBARs, currency transactions reports, and suspicious activity reports) in a computer
data base known as the Currency Banking Retrieval System. Although all these
documents are made available to other law enforcement and regulatory agencies, the
IRS appears to be the largest user. According to recent congressional testimony by
Nancy Jardini, Chief of the CID, data culled from BSA documents have played
important roles in 26% of the 150 investigations into terrorist financing being
conducted by special agents as of June 2004.116
The IRS shares its investigative resources with a variety of federal agencies as
part of the effort to detect and thwart the flow of funds to international terrorist
groups. It is in the early stages of forging a working relationship with the recently
formed Office of Terrorism and Financial Intelligence in the Treasury Department,
and it has established a cooperative relationship with Treasury’s Office of Foreign
Assets Control, FINCEN, and Working Group on Terrorist Financing and Charities.
In addition, the IRS is taking part in numerous inter-agency initiatives whose aims
include tracking and disrupting the flow of funds to international terrorist groups.
Among the noteworthy initiatives are the Organized Crime Drug Enforcement Task
Force Program, the Defense Intelligence Agency Center, the Anti-Terrorism
Advisory Council created by the Attorney General, the FBI’s JTTF and Terrorist
Financing Operations Section, the High Intensity Money Laundering and Related
Financial Crime Area Task Forces, and the Terrorist Finance Working Group led by
the State Department. Besides the FBI, the federal law enforcement agencies
involved in these initiatives include the Bureau of Alcohol, Tobacco, Firearms and
Explosives; the Drug Enforcement Agency; and Immigration and Customs
There is no evidence that the IRS has developed a formal, systematic, publicly
accessible method for evaluating the cost-effectiveness of its contributions to the
campaign against terrorist financing. The lack of such a method makes it difficult to
address some important policy issues. It is not clear, for example, to what extent the
agency’s input complements or duplicates work done by other agencies, yields
financial information that results in the elimination of specific sources of terrorist
financing, or can be regarded as a worthwhile investment of public resources.
Nonetheless, the IRS does make an effort to keep track of the number of anti-terrorist
financing investigations its agents are involved in and their outcomes. According to
recent congressional testimony by Dwight Sparlin, the Director of Operations, Policy,
and Support for CI, between October 1, 2000, and early May 2004, the CI conducted
372 such investigations “in partnership with other law enforcement agencies.”117 Of
these, over 100 led to criminal indictments; another 120 were referred to the Justice
See written statement of Nancy Jardini submitted to the Senate Banking, Housing, and
Urban Affairs Committee for a hearing held on April 29, 2004. Available at
[http://www.banking.senate.gov/_files/jardini.pdf], visited on July 22, 2004.
See written statement of Dwight Sparlin submitted to the Subcommittee on Criminal
Justice, Drug Policy, and Human Resources of the House Government Reform Committee
for a hearing held on May 11, 2004. Available at [http://www.reform.house.gov/CJDPHR],
visited on July 22, 2004.
Department for prosecution; and the remaining 150 or so were still being worked on
by CI special agents.
In recent congressional testimony, some senior IRS officials have stated that
combating terrorist financing is one of the agency’s highest priorities. Yet the current
allocation of funds among major IRS operations does not appear to reflect such a
commitment. In FY2004, the IRS is receiving $10.184 billion in appropriated funds.
Of this total, $4.171 billion (or 41%) is set aside for tax law enforcement, the budget
account from which the IRS funds most of its contribution to the federal
government’s campaign to seek out and destroy terrorist financing networks. While
there is no specific item in the IRS budget for resources dedicated to countering
terrorist financing, the agency estimates that its spending for this purpose in FY2004
falls somewhere between $20 and $25 million.118 The upper end of the range
amounts to 0.6% of its budget for tax law enforcement and slightly more than 0.2%
of its total budget.
Departments of Homeland Security and Justice
Bureau of Customs and Border Protection (CBP)119
The Bureau of Customs and Border Protection (CBP) is the principal agency
responsible for the security of the nation’s borders. CBP was established March 1,
2003 with the creation of Department of Homeland Security (DHS). CBP is
primarily composed of the inspection staffs of the legacy U.S. Customs Service,
Immigration and Naturalization Service (INS), and the Animal and Plant Health
Inspection Service (APHIS). CBP’s primary mission is interdicting illicit or illegal
cross-border traffic while efficiently processing the flow of legitimate or low-risk
traffic across the border. CBP enforces more than 400 laws and regulations on behalf
of many federal agencies, including those that relate to terrorist financing.
Role in Terrorist Financing. CBP’s role in the national effort to combat
terrorist financing is confined to its inspection and interdiction activities along the
border at or between ports of entry. In this role CBP intercepts illicit material and
contraband illegally entering or exiting the country. CBP interdicts inbound illicit
currency during the course of its inspection operations at and between ports of entry.
To prevent illicit financial proceeds from reaching terrorist or criminal groups outside
the U.S., CBP has developed two outbound programs that specifically relate to
terrorists and terrorist financing: the Currency Program, and the EXODUS program,
run by CBP’s Outbound Interdiction Security staff.
The mission of CBP’s Outbound Interdiction and Security activities is to enforce
U.S. export laws and regulations. This mission includes (among other things):
interdicting illegal exports of military and dual-use commodities; enforcing sanctions
The estimates were obtained through an e-mail exchange with Floyd Williams of the IRS
Congressional Liaison Office on July 22, 2004.
This section was prepared by Jennifer Lake/DSP
and embargoes against specially designated terrorist groups, rogue nations,
organizations and individuals; and interdicting the illicit proceeds from narcotics and
other criminal activities in the form of unreported and smuggled currency. Outbound
Interdiction and Security is also responsible for enforcing the International Traffic in
Arms Regulations (ITAR) for the Department of State, the Export Administration
Regulations (EAR) for the Department of Commerce, and sanctions and embargoes
for the Department of the Treasury’s Office of Foreign Assets Control. As a part
of the Currency Program, dedicated outbound currency teams work to interdict the
illicit flow of money to terrorist, criminal, and narcotics trafficking organizations.
Under the EXODUS program, CBP enforces the ITAR, EAR, and OFAC regulations.
Capabilities and Resources. CBP enforces more than 400 laws at the
border. Those associated with criminal violations include violations of 18 U.S.C.
1956 and 1957 (money laundering); 18 U.S.C. 541 (entry of goods falsely classified);
18 U.S.C. 542 (entry of goods by means of false statements); and 18 U.S.C. 545
(smuggling goods into the U.S.).
Data regarding budget and resources devoted to terrorist financing specifically
are not readily available. However, general data regarding CBP operations are
available. CBP has more than 38,000 employees. Of these, nearly 17,800 are front
line inspectors. CBP’s budget for FY2004 is $5.9 billion and $6.2 billion has been
requested for FY2005.
CBP has developed an Outbound Currency Interdiction Training (OCIT)
program to support its currency interdiction mission. This training includes
instruction and practical exercises to provide specialized knowledge in currency
interdiction, and has an anti-terrorism component. In FY2003, OCIT trained 56
inspectors. In FY2003, CBP also conducted land-border outbound training, which
also included currency interdiction training. In addition, CBP has the largest Canine
Enforcement Program in the country with more than 1,200 teams assigned to 79 ports
of entry, and 69 Border Patrol Stations. Some of these canines have been trained to
detect currency, according to CBP.
Measures of Success and Accomplishments. In FY2003 CBP
Interdiction and Security (Outbound) operations made 1,337 seizures of unreported
and bulk smuggling of currency valued at $51.7 million, representing a 3.8%
decrease in the number of seizures, but an increase of 14.4% in the value of seizure
over FY2002. This same unit also made a total of 993 seizures valued at $110.2
million for violations of: the ITAR for the Department of State, the EAR for the
Department of Commerce, and sanctions and embargoes for the Department of the
Treasury’s OFAC. These seizures represent a 12.5% increase in the number of
seizures, and a 62.9% increase in the value of seizures compared to FY2002. CBP’s
Canine Enforcement Program was responsible for seizures of U.S. currency worth
$27.9 million in FY2003. According to recently reported statistics, CBP makes 5
currency seizures valued at more than $226 thousand on an average day.
In terms of relevant performance measures, CBP sets targets based on the value
of outbound currency seizures, and on the effective percentage of outbound
enforcement targeting. In FY2003 CBP’s seizure target was $49 million, and the
actual seizure amount was $51.7 million. Also, in FY2003, CBP’s Outbound
targeting enforcement effectiveness (measured by percent effective) target was 9%,
while actual targeting effectiveness was 5.74%.120
Relationships and Coordination with other Agencies. CBP maintains
relationships and coordinates with many agencies in the performance of its border
security missions. These include other DHS agencies including ICE, Coast Guard,
and the Transportation Security Administration (TSA); as well as those agencies
whose statutes and regulations CBP enforces at the border, for example the
Departments of the Treasury and State. CBP’s National Targeting Center houses
staff from a number of agencies including ICE, Coast Guard; the U.S. Department
of Agriculture; TSA; and the FBI. In addition, CBP’s Office of Intelligence (OINT)
supports CBP front line operations in detecting and interdicting terrorists and
instruments of terror. OINT maintains a variety of important relationships with other
intelligence agencies including ICE; Information Analysis and Infrastructure
Protection (IAIP); the FBI; the Central Intelligence Agency; the joint venture
Terrorist Threat Integration Center (TTIC); and the FBI-led Terrorist Screening
Bureau of Immigration and Customs Enforcement (ICE)121
The Bureau of Immigration and Customs Enforcement is the main investigative
branch of the Department of Homeland Security. Established in March, 2003 during
the reorganization that followed the creation of DHS, ICE is composed of the
investigative components of the legacy U.S. Customs Service (Customs), the legacy
U.S. Immigration and Naturalization Service (INS); the Federal Protective Service,
the Federal Air Marshals, and the Air and Marine Interdiction Operations of legacy
Customs. ICE’s work on financial investigations is conducted by the Financial
Investigations Division (FID). FID’s mission is to investigate financial crimes, and
to work closely with the financial community to identify and address vulnerabilities
in the country’s financial infrastructure. FID is organized into two primary sections:
the Financial Investigative Program (FIP); and Cornerstone.
Role in Terrorist Financing. In the aftermath of the September 11, 2001
terrorist attacks, legacy Customs launched a multi-agency task force called
“Operation Green Quest.” Green Quest was the focus of Customs efforts to counter
terrorist financing operations. With the creation of DHS, and the subsequent creation
of ICE and CBP, legacy Customs investigative resources were combined with
investigative assets of the legacy INS. While Operation Green Quest continued past
the date of the creation of DHS, as investigations continued it was discovered that
there was (the potential if not actual) overlap between cases being pursued by ICE
under Green Quest, and cases being pursued by the Federal Bureau of Investigation
under its Terrorist Financing Operation Section (TFOS). In an attempt to avoid
overlap, and to delineate the lines of investigative priority and responsibilities, the
Secretary of Homeland Security and the Attorney General signed a Memorandum of
Outbound enforcement targeting effectiveness is the total number of positive
examinations divided by the total number of targeted examinations conducted. For more
information see, DHS, Performance and Accountability Report FY2003, p. 157.
This section was prepared by Jennifer Lake/DSP
Agreement in May, 2003. This MOA designated the FBI as the lead investigative
agency with respect to terrorist financing investigations.
Concerned about the potential loss of expertise held by ICE agents, the MOA
also contained provisions to ensure that ICE, while not the lead agency on terrorist
financing investigations, nonetheless was able to play a significant role. The MOA
provided that ICE and the FBI detail appropriate personnel to the other agency.
Recent GAO reports and testimony indicate for example, that an ICE manager serves
as the Deputy Section Chief of TFOS, and that an FBI manager is detailed to ICE’s
FID.122 The MOA further specified that the two agencies develop collaborative
procedures to determine whether ICE investigations or leads are related to terrorism
or terrorist financing. To this end, ICE created a vetting unit, staffed by both ICE and
FBI personnel, to conduct reviews and determine any links to terrorism in ICE
investigations or financial leads. If a link is found, the case or lead is referred to the
FBI’s TFOS, where the FBI and FBI-led JTTFs assume a leadership role in the
investigation with significant support from DHS investigators.
As mentioned above, ICE has combined the authorities and jurisdictions of the
legacy Customs Service, and legacy INS. ICE created the Financial Investigations
Division (FID), and reorganized it into two primary programs, FIP and Cornerstone,
to harness its full investigative potential. FIP’s mission is to oversee efforts in
accordance with and in support of the National Money Laundering Strategy. These
efforts include investigations targeting drug and ‘non-drug’ money laundering
(human smuggling, telemarketing fraud, child pornography, and counterfeit goods
trafficking); and other financial crimes. FIP also runs the Money Laundering
Coordination Center (MLCC), which serves as the central clearinghouse for domestic
and international money laundering operations within ICE. Cornerstone’s mission
is to coordinate and integrate ICE’s financial investigations to systematically target
the “methods by which terrorist and criminal organizations earn, move, and store
their illicit funding.” Cornerstone applies a three-pronged approach involving:
mapping and coordinating the investigation and analysis of financial, commercial,
and trade crimes; close collaboration with the private sector to identify and eliminate
vulnerabilities; and gathering, assessing and distributing intelligence regarding these
vulnerabilities to relevant stakeholders. The ICE Office of Intelligence supports all
of ICE’s investigations, and supports the financial investigations through its Illicit
Finance Unit, in the Intelligence Operations Branch at ICE headquarters.
ICE has investigatory jurisdiction over violations of 18 U.S.C. 1956 and 1957
that derive from the jurisdiction formerly vested in the legacy Customs Service,
which was a part of the Treasury Department. ICE has jurisdiction over criminal
violations including international transportation of financial instruments including
those involving unlicenced money transmitters, smuggling bulk currency, and
transactions to evade currency reporting requirements; laundering proceeds derived
from drug smuggling, trade fraud, export of weapons systems and technology, alien
smuggling, human trafficking, and immigration document fraud.
See, General Accounting Office, Combating Terrorism: Federal Agencies Face
Continuing Challenges in Addressing Terrorist Financing and Money Laundering, GAO-04501T, (Washington: Mar. 4, 2004);
In addition, ICE has 37 attache offices in foreign countries, all of which are
involved in financial investigations. ICE also leads a Foreign Political Corruption
Unit (which conducts joint investigations with representatives of the victimized
foreign government), focused on combating the laundering of proceeds deriving from
foreign political corruption, and bribery or embezzlement. ICE also provides training
and assistance to foreign governments through the International Law Enforcement
Academy (ILEA) and programs sponsored by the Department of State’s Bureau of
International Narcotics Law Enforcement (INL). ICE has provided money
laundering-related training through ILEA schools located in Bangkok, Thailand;
Gaborone, Botswana; and Romania. ICE provides INL sponsored training on
financial investigations to countries identified by State’s Terrorist Finance Working
Group, including United Arab Emirates, Qatar, and Brazil. The Organization of
American State (OAS), Inter-American Drug Abuse Control Commission (CIDAD)
Program, specifically requested ICE to conduct the money laundering/financial
investigations module at the Andean Community Counterdrug Intelligence School,
that will provide training for law enforcement officers from five South American
Capabilities and Resources. According to the most recent FY2005 DHS
Congressional Budget Justifications, ICE’s Financial Investigations Division had
2,150 FTE in FY2003 and was appropriated more than $287 million for its
operations. For FY2004 ICE estimates it will have 2,311 FTE, and has requested
2,442 FTE for FY2005. FID received $283 million in FY2004, and has requested
$314 million for FY2005.123 According to a recent GAO report, as of February 2004,
a total of 277 ICE personnel were assigned full-time to JTTFs. This total breaks out
to 161 former INS agents, 59 Federal Air Marshals, 32 former Customs Service
agents, and 25 Federal Protective Service agents.124
Measures of Success and Accomplishments. While data are not readily
available specifically concerning ICE investigations related to terrorist financing,
data are available regarding financial investigations in general. According to recent
testimony, since ICE’s inception on March 1, 2003, ICE financing investigations
have resulted in “more than 1,300 arrests, 720 indictments, 560 convictions, and
seized approximately $150 million.”125 More current data posted by ICE on its web
page indicate that during the period between March 1, 2003 and April 30, 2004, ICE
seized more than $324 million in currency and made more than 1,705 arrests under
Relationships and Coordination with other Relevant Agencies. The
breadth of ICE’s financial investigative responsibilities require ICE to maintain
strong relationships with other U.S. agencies involved in financial investigations
Department of Homeland Security. FY2005 Congressional Budget Justification,
“Immigration and Customs Enforcement” ICE-37.
GAO-04-710T. This report also noted that this total does not include agents assigned to
JTTFs on a part-time basis, nor does it include agents who will be assigned to JTTFs in
connection with vetted cases moving to the JTTFs from ICE.
Testimony of ICE Director of Operations Michael T. Dougherty, before the Senate
Caucus on International Narcotics Control, Mar. 4, 2004.
including the FBI; Internal Revenue Service, Secret Service, the Drug Enforcement
Administration, State Department, and others. As noted above, ICE also maintains
significant relationships with foreign governments and international organizations.
U.S. Secret Service126
The United States Secret Service — now a part of the Department of Homeland
Security (DHS), where it is to be “maintained as a distinct entity”127 — had been
housed, since its inception as a small anti-counterfeiting force in 1865, in the
Department of the Treasury.128 As a result of its missions and responsibilities, the
Service’s roles in combating terrorism and financial crimes are manifold, extending
to anti-terrorist financing.129 These can be direct, through participation in relevant
interagency task forces and its own investigations of financial crimes, or indirect,
through its activities and operations in seemingly unrelated areas. (Protective and
security duties, for instance, might uncover terrorist financing arrangements behind
potential assaults; or examination of identity theft might disclose the use of credit
cards by terrorist cells.)
This section was prepared by Fred Kaiser/G&F
This autonomy was granted in the legislation establishing DHS (P.L. 107-296, Sec. 821
The variety and prominence of Secret Service activities in the broad field of domestic
security date to its birth during the Civil War, when the Secret Service was created as a
small special investigative force to combat massive counterfeiting operations. Later, its
assumption of presidential protection (since expanded to numerous other security
assignments) occurred in the mid-1890s, because of credible threats against President
Grover Cleveland and his family. For background and citations on this history, see
Frederick M. Kaiser, “Origins of Secret Service Protection of the President,” Presidential
Studies Quarterly, vol. 18, winter 1988.
Descriptions and overviews are in: U.S. Secret Service, Strategic Plan, 2003-2008,
Budget Request, FY2005 (2004), and Mission Statement (2003), available at
[http://www.secretservice.gov]. Recent congressional hearings have also provided
information, available at each panel’s website: U.S. Congress, House Committee on
Financial Services, Terrorist Financing, hearings, 108th Cong., 2nd sess., May 4, 2004;
Senate Committee on Banking, Housing, and Urban Affairs, Counterterror Initiatives and
Concerns in the Terror Finance Program, hearings, 108th Cong., 2nd sess., May 29 and June
3, 2004; and Senate Committee on Governmental Affairs, An Assessment of Current Efforts
to Combat Terrorism Financing, hearings, 108th Cong., 2nd sess., June 15, 2004. Other
sources are: U.S. Department of Homeland Security, Interim Strategic Plan, 2003-2008
(2003), available at [http://www.dhs.gov/dhspublic]; U.S. Department of the Treasury,
Executive Office for Terrorist Financing and Financial Crime, Mission Statement, 2004,
available at [http://www.treasury.gov/offices/eotffc/]; and recent reports and testimony from
the U.S. General Accounting Office, Anti-Money Laundering: Issues Concerning
Depository Institution Regulatory Oversight, GAO04-833 (2004); Investigating Money
Laundering and Terrorism Financing, GAO-04-710T (2004); Combating Terrorism:
Federal Agencies Face Continuing Challenges in Addressing Terrorist Financing and
Money Laundering, GAO-04-501T (2004); and Terrorist Financing: U.S. Agencies Should
Systematically Assess Terrorists’ Use of Alternative Financing Mechanisms, GAO-04-163
Even though the Secret Service no longer resides in the Treasury Department,
the agency is still connected to its previous departmental home and certain
responsibilities. This occurs because the Secret Service’s authority, mandates,
functions, and jurisdiction were continued when it was moved intact to its new
Secret Service Involvement. Secret Service involvement in combating
terrorist financing is an outgrowth of its two principal missions — protection and,
especially, criminal investigations — and it is connected with several Service
responsibilities, functions, and activities.130 The agency’s mission statement on
criminal investigations summarizes these:
The Secret Service also investigates violations of laws relating to counterfeiting
of obligations and securities of the United States; financial crimes that include,
but are not limited to, access device fraud, financial institution fraud, identify
theft, computer fraud; and computer-based attacks on our nation’s financial,
banking, and telecommunications infrastructure.131
Flowing into this main stream are several tributaries from within the Service,
including a Counterfeit Division. But the most relevant for combating terrorist
financing is the Financial Crimes Division, which, among other matters, covers
financial institution fraud, money laundering, forgery, and access device fraud.132
The division has also been involved in numerous task forces consisting of other
federal agencies as well as subnational government entities:
Several of these task forces specifically target international organized crime
groups and the proceeds of their criminal enterprises ... These groups are not only
involved in financial crimes, but investigations indicate that the proceeds
obtained from financial fraud are being diverted toward other criminal
The task forces can also extend to international components or connections. Task
forces involving the Financial Crimes Division include CABINET (Combined
Agency Interdiction Network), INTERPOL (International Criminal Police
Organization), the Financial Crimes Task Force, the Asian Organized Crime Task
Force, and the West African Task Force.134
Caveats and Their Meaning. Several important caveats to any examination
of Secret Service activities as well as efforts to combat terrorist financing are in
order. One is that authoritative, detailed, and comprehensive information about the
Secret Service and its operations in the public record is lacking. This results, of
Secret Service, Strategic Plan, 2002-2005.
Secret Service, Mission Statement.
Ibid., Financial Crimes Division statement,
course, from the high degree of secrecy and sensitivity surrounding them. The public
submissions from the Service itself or from its adoptive parent, the Department of
Homeland Security, are usually general in scope, limited in detail, and short on
specifics. (The Secret Service, however, does provide more information directly to
Members and committees of Congress in executive session or otherwise in
confidence, through reports, hearings, meetings, and briefings.)
A second qualification is that the federal involvement in combating terrorist
financing has been and probably still is evolving, involving a number of different
entities and connections among them. (As noted above, for example, Treasury’s
Office of Terrorism and Financial Intelligence emerged only recently.) Changes over
time have occurred, affecting organizational structure, agency duties and operations,
interagency coordinative arrangements, networks consisting of federal along with
subnational and private organizations, and informal relationships. Similar changes
might occur again with the same impact.
A third caveat is that actual practice might not conform to expected practice and
that formal institutional arrangements might differ from informal undertakings.
Consequently, some of the accounts in the public record might not adequately
describe on-going interrelationships, activities, and operations; their scope and range;
their effectiveness and results; or their comparative importance.
Collectively, these qualifications have meaning for the Secret Service’s role and
responsibilities in combating terrorist financing. These are not specified in detail in
the public record, a gap that leads to uncertainty and even some confusion about
them. In addition, the roles may have been transformed since the Service’s move into
Homeland Security and out of Treasury, where the lead agency (and several related
bureaus) are headquartered. The roles or practices may continue to change under
certain circumstances: for instance, if Treasury’s bureaus and offices increase their
responsibility and operations; if the reverse occurs, whereby TFI calls upon the Secret
Service for additional involvement; or if the Secret Service’s own priorities are
altered, to elevate, as an illustration, the protective mission while reducing criminal
The Federal Bureau of Investigation (FBI)135
The Federal Bureau of Investigation is the lead agency in the Department of
Justice which has the dual mission of protecting U.S. national security and combating
criminal activities. As a statutory member of the U.S. Intelligence Community, it is
charged with maintaining domestic security by investigating foreign intelligence
agents/officers and terrorists who pose a threat to U.S. national security. The FBI’s
criminal investigative priorities include organized crime and drug trafficking, public
corruption, white collar crime, and civil rights violations. In addition, the FBI
investigates significant federal crimes including, but not limited to, kidnaping,
extortion, bank robberies, child exploitation and pornography, and international child
abduction. The FBI also provides training and operational assistance to state, local,
This section was prepared by Todd Masse/DSP
and international law enforcement agencies.
Its two top priorities are
counterterrorism and counterintelligence, respectively.
Due to its dual law enforcement and national security missions, the FBI has the
responsibility and jurisdiction to counter both criminal money laundering and
terrorist-related financing. According to the FBI, “...Within the FBI, the investigation
of illicit money flows crosses all investigative program lines.”136 As mentioned
above, while there are some similarities between money laundering and terrorist
financing at the tactical or operational level — that is the methodologies by which
fungible resources are stored and transferred — there are also differences between
these two areas, not the least of which is the end use of the financial resources. What
follows is a description of the FBI’s organization, capabilities, and relationships to
and coordination with other agencies with respect to money laundering and terrorist
The FBI Mission to Counter Money Laundering. The FBI has primary
jurisdiction over the bulk of specified criminal offenses associated with money
laundering in statute.137 In general, investigations involving money laundering fall
under the purview of its Criminal Investigative Division. The Division’s Financial
Crimes Section (FCS) and Money Laundering Unit (MLU) specialize in tracing illicit
proceeds — “following the money” — that criminals seek to hide in multiple
transactions in legitimate commerce and finance. Indeed, the investigative
techniques developed by the FCS were used to trace the movements and commercial
transactions of the 9/11 hijackers.138
The MLU works with federal, state, and local agencies — often through federal
task forces — to identify and document emerging money laundering trends and
methods. The MLU analyzes suspicious activity reports (SARs) and other criminal
intelligence to generate new investigations and contribute to ongoing
In 2001, the FBI accounted for over one-quarter of criminal cases (423) referred
to the U.S. Attorneys for prosecution in which money laundering was the primary
charge,140 but such cases only accounted for a small percentage (1.4%) of the 30,708
cases referred by the FBI for prosecution in that year.141 The FBI was also the lead
See Testimony of Gary M. Bald, Acting Assistant Director for Counterterrorism Division,
FBI, Before the Senate Caucus on International Narcotics Control, March 4, 2004.
18. U.S.C. § 1956(c)(7).
U.S. Department of Justice, Executive Office for United States Attorneys, “Terrorism
Financing,” in United States Attorneys’ Bulletin, July 2003, Volume 51, Number 4, p. 8.
Federal Bureau of Investigation, “About the Money Laundering Unite” web page, go to
Such cases involved charges under 18 U.S.C. §§ 1956, 1957, and 1960; and 31 U.S.C.
§§ 5313, 5316, and 5324.
U.S. Department of Justice, Office of Justice Programs, Bureau of Justice Statistics,
Money Laundering Offenders, 1994-2201, by Mark Motivans, Ph.D., July 2003, p. 5.
agency for Title 18 U.S.C. money laundering referrals (376),142 but such cases do not
include those involving providing material support to foreign terrorists and
international financial transaction offenses.143
The FBI Mission to Counter Terrorist Financing. The Department of
Justice/FBI jurisdiction and authority to investigate cases of terrorist financing as
crime distinct from money laundering date to 1994 with the enactment of the first
“material support” legislation.144 The material support laws were subsequently
enhanced with the enactment of the USA PATRIOT Act. A variety of other legal
tools are also used in the investigation and prosecution of terrorist financing
Pursuant to its national security mandate, the FBI has long had responsibility for
tracking terrorist financing either in response to a terrorist attack, or in a manner that
would prevent such an attack. However, according to the FBI, “...Prior to the events
of 9/11/2001, [the FBI] had no mechanism to provide a comprehensive, centralized,
focused and pro-active approach to terrorist financial matters.”146 It was not until
April 2002, that the various elements of the FBI tracking terrorist financing were
integrated under the Terrorist Financing Operations Section (TFOS) of the FBI’s
Counterterrorism Division. According to the FBI, the mission of TFOS is to:
conduct full financial analysis of terrorist suspects and their financial support
structures in the United States and abroad; coordinating joint participation,
liaison and outreach efforts to appropriately utilize financial information
resources of private, government and foreign entities; utilizing FBI and Legal
Attache expertise to fully exploit financial information from foreign law
enforcement, including the overseas deployment of TFOS personnel; working
jointly with the intelligence community to fully exploit intelligence to further
terrorist investigations; working jointly with prosecutors, law enforcement, and
regulatory communities; and developing predictive models and conducting data
Such cases involved charges under 18 U.S.C. §§ 1956, 1957, and 1960.
18 U.S.C. §§ 2339A and 2339B, 50 U.S.C. 1701 and 1702.
See 18 U.S.C. Section 2339A, which defines “material support or resources” for terrorist
activities as “currency or monetary instruments or financial securities, financial services,
lodging, training, expert advice or assistance, safehouses, false documentation or
identification, communications equipment, facilities, weapons, lethal substances, explosives,
personnel, transportation, and other physical assets, except medicine or religious materials.”
Some of these laws include 18 U.S.C., Section 956 concerning conspiracies within the
United States to kill/maim persons and destroy specific property abroad; 18 U.S.C., Section
2339B concerning the provision of material support to designated foreign terrorist
organizations; and 50 U.S.C., Sections 1701 and 1702 concerning transactions undertaken
in violation of United States economic sanctions (generally known as violations of the
International Emergency Economic Powers Act). See U.S. Department of Justice, Executive
Office for United States Attorneys “Terrorist Financing,” in United States Attorneys’
Bulletin, July 2003, Volume 51, Number 4, p. 31.
See Testimony of John S. Pistole, Executive Assistant Director for Counterterrorism and
Counterintelligence, Before the Senate Committee Banking, Housing and Urban Affairs,
September 25, 2003.
analysis to facilitate the identification of previously unknown terrorist
TFOS Resources and Capabilities. Due to the sensitive, if not classified,
role of some of the activities of the TFOS, there is little publicly available
information about the resources dedicated to this function at the FBI. In terms of the
types of professionals working within TFOS, FBI testimony indicates that there is a
mixture of financial intelligence analysts and law enforcement officers. According
to the FBI, in order to analyze existing financial and other information for
counterterrorism purposes, TFOS, working with the Counterterrorism Section of the
Department of Justice’s Criminal Division, works to identify potential electronic data
sources controlled by domestic and foreign governments, as well as the private sector
that may be valuable in its efforts. Once identified TFOS attempts to create the
legally appropriate protocols to access and analyze this information in order to
provide reactive and proactive operational, predictive and educational support to
investigators and prosecutors. According to the FBI, some of the projects and
initiatives associated with information technology exploitation include:
The Proactive Exploits Group (PEG). This TFOS group serves as
a proactive unit by working closely with document exploitation
personnel to generate investigative leads for TFOS and other FBI
investigative divisions. The PEG has conducted a survey of
available data mining and link analysis software for use in TFOS
The Suspicious Activity Report Project. The SAR Project
attempts to identify potential terrorists through the mining of
existing databases for “...key words, patterns, individuals, entities,
accounts and specific numeric indicators (i.e. Social
Security...passport, telephone etc.).148 This research and analysis is
conducted independent of whether the reported SAR has a nexus to
The Terrorist Risk Assessment Model. Under this project, the FBI
is attempting to identify potential terrorists and terrorist financing
activities through the use of “predictive pattern recognition
algorithms,” or profiles of historical financial transactions that are
associated with terrorist activities.149
See Testimony of Michael F. Morehart, Section Chief, Terrorist Financing Operations
Section, Counterterrorism Division, FBI, Before the Congressional Committee on
Government Reform, Subcommittee on Criminal Justice, Drug Policy, and Human
Resources, May 11, 2004.
See Testimony of Carl Whitehead, Special Agent in Charge, Tampa Division, FBI,
Before the House Committee of Government Reform, Subcommittee on Government
Efficiency and Financial Management and Subcommittee on Technology and Information
Policy and the Census, December 15, 2003.
Information Access. According to the FBI, the TFOS has developed
substantial contacts domestically and internationally that have enhanced its access to
near real-time information to advance the TFOS mission. Domestically, through
outreach to the private sector, and with appropriate legal process, the FBI has access
to, among other information: “...Banking, Credit/Debt Card Sector, Money Services
Businesses, Securities/Brokerages Sector, Insurance, Travel, Internet Service
Providers, and the Telecommunications Industry.”150 Internationally, TFOS
investigators have supported numerous investigations which have led to the
exchange of investigative personnel between the FBI and numerous foreign countries
or agencies. For example, according to the FBI, the United Kingdom, Switzerland,
Canada, Germany, and Europol have all detailed investigators to the TFOS on
temporary duty.151 Moreover, the State Department has requested that the FBI-TFOS
lead an interagency team to provide a TFOS-developed training curriculum to other
countries requesting assistance in further developing their existing investigative
programs, legislative and legal regimes, and financial oversight controls to counter
FBI Measures of Success and Related Accomplishments. A review
of publicly available FBI documents and official testimony suggests that the FBI
measures its success in countering terrorist financing through numerous measures,
to include the deterrence, disruption, or prevention of terrorist attacks; the
identification of previously unknown (“sleeper”) terrorist suspects, terrorist
organizations, and terrorist supporters; enhancing the understanding of a terrorist
attack after it has occurred by analyzing existing financial information gathered
through the case and liaison; the development and generation of additional terrorism
leads and investigations; the number of arrests, indictments and convictions for
activities in violation of the aforementioned and related statutes; the closure of
domestic and international non-governmental organizations and charities with
linkages to designated terrorist organizations; and the seizure and/or blockage of
terrorist assets. Given these self-determined criteria for assessing performance, in
public remarks, the FBI has articulated its various successes in working with foreign
and domestic law enforcement and intelligence agencies to achieve its goals. Some
of the often cited FBI successes in terrorist financing include (1) the disruption and
dismantlement of a Hezbollah procurement and fund-raising network relying on
interstate cigarette smuggling; (2) FBI support to a U.S. Treasury, Office of Foreign
Asset Control investigation that led to the blocking of assets of the Holy Land
Foundation for Relief and Development (HLF), which, according to the FBI, had
been linked to the funding of Hamas terrorist activities, and (3) the shutting down of
the U.S.-based Office of the Benevolence International Foundation (BIF) after it was
determined through FBI - OFAC cooperation that the charity was funneling money
to Al Qaeda.152
Notwithstanding these FBI successes, some would argue that measuring the
progress and performance of any one agency with respect to stanching terrorist
See Testimony of John Pistole, September 25, 2003.
See Testimony of Gary M. Bald, March 4, 2004.
financing may be analogous to measuring U.S. performance in the broader war
against terrorism. Quantitatively speaking, and with substantial assistance from the
FBI and its domestic and international partners, approximately $200 million has been
blocked and seized,153 although here are no known and reliable measures for the
aggregate size of the international funding pools which may support terrorism.
Qualitatively speaking, and with support from the FBI and other federal agencies,
while bank transactions are now being more closely monitored domestically than any
time prior to 9/11, such activities may only have driven flows of financial resources
into non-bank-related or alternate financing channels, such as hawalas.154
According to the FBI, in order to address some of the concerns raised by the
Government Accountability Office with respect to alternative financing mechanisms,
it has developed intelligence requirements related to known indicators of terrorist
financing activity.155 Theoretically, such requirements should cause the FBI’s field
collectors (largely its special agents located at the 56 FBI field offices156) to proactively collect intelligence on alternative mechanisms of financing terrorism.
Secondly, according to the FBI, the TFOS Program Management and Coordination
Unit (PCMU) has been tasked with “tracking various funding mechanisms used by
different subjects on ongoing investigations - to include alternative financing
Relationships to and Coordination with Other Agencies. The FBI
participates in, and leads some, domestic and international groups the primary
See Testimony of Juan C. Zarate, Deputy Assistant Secretary, Executive Office for
Terrorist Financing and Terrorist Crimes, U.S. Department of the Treasury, Before the
House International Relations Committee, Subcommittee on Middle East and Central Asia,
March 24, 2004.
See General Accounting Office, Terrorist Financing: U.S. Agencies Should
Systematically Assess Terrorists’ Use of Alternate Financing Mechanisms, November 2003,
(GAO-04-163). See also Overview of the Enemy: Staff Statement No. 15, of the National
Commission on Terrorist Attacks Upon the United States (Keane Commission), pp. 9-10.
This statement suggests that although “...al Qaeda frequently moved its money by hawala,
an informal and ancient trust-based system for moving funds...no persuasive evidence exists
that al Qaeda relied on the drug trade as important source or revenue, or funded itself
through trafficking in diamonds from African states engaged in civil wars.” For more
information on hawalas, see The Hawala Alternative Remittance System and Its Role in
Money Laundering, a report produced by the U.S. Treasury, Financial Crimes Enforcement
Network, in cooperation with Europol.
This report may be found at
For an assessment of the FBI’s intelligence reform since 9/11/2001, see CRS Report
RL32336, FBI Intelligence Reform Since September 11, 2001: Issues and Options for
Congress, by Alfred Cumming and Todd Masse, April 6, 2004.
For a listing of the locations of the 56 field offices, and overseas Legal Attache Offices,
respectively, see [http://www.fbi.gov/contact/fo/fo.htm] and
[http://www.fbi.gov/contact/legat/legat.htm] or CRS Report RL32095, The Federal Bureau
of Investigation: Past, Present and Future, by William Krouse and Todd Masse, October
2, 2003, appendices I (field offices) and III (Legal Attache Offices).
See Testimony of John Pistole, March 4, 2004.
function of which is to coordinate the activities related to terrorist financing.
Domestically, it is a participant in the National Security Council’s Policy
Coordination Committee on Terrorist Financing (established in late 2001) which
meets at least once a month to coordinate the United States Government’s activities
to counter terrorism financing. It is also a participant in the State Department-chaired
Terrorist Financing Working Group (TFWG) which identifies, prioritizes and assists
those countries whose financial systems may be vulnerable to manipulation for
terrorist purposes; other agencies participating in this group include the Departments
of the Treasury and Homeland Security. The interagency FBI-led Joint Terrorism
Task Forces, of which there are currently 84, play the lead role in investigating
terrorist financing activities. In addition to representatives from federal law
enforcement agencies, the JTTFs also include participation of many state and local
law enforcement officers.
As mentioned earlier, a Memorandum of Agreement was signed in May 2003
by the Attorney General and Secretary of Homeland Security to de-conflict and
clarify the terrorist financing activities of the FBI and DHS, particularly the Bureau
of Immigration and Customs Enforcement. Under the MOA, generally, the FBI was
designated the lead agency for the investigation of terrorist financing, and DHS was
enabled to focus its law enforcement activities on protecting the integrity of the
financial system. A process was established whereby existing DHS terrorist financing
investigations (largely part of legacy U.S. Customs’ “Operation Green Quest”) would
be reviewed jointly to determine if there was a nexus to terrorism. If a joint
determination was made by the FBI and DHS that there was a nexus to terrorism, the
case would be transferred to the FBI-led JTTF. Because DHS - ICE law enforcement
officers are on the JTTF, they would continue to play an important role in the
investigation. If a joint determination was made that there was no nexus to terrorism,
the case would remain with DHS- ICE, and likely become a part of “Operation
Cornerstone,” ICE’s effort to identify and work to resolve vulnerabilities in the U.S.
financial system that may be exploited by terrorists.
Internationally, in addition to its 45 Legal Attache Offices which conduct law
enforcement and intelligence liaison, the FBI formed the International Terrorism
Financing Working Group (ITFWG). Composed of law enforcement and intelligence
agency representatives from the United Kingdom, Canada, Australia, and New
Zealand, the ITFWG works to coordinate information and intelligence sharing with
respect to national efforts to counter terrorist financing.158 Moreover, the FBI is a
participant in the Joint Terrorist Financing Task Force, based in Riyadh, Saudi
Arabia to gather information about financing activities having a potential nexus to
the Kingdom of Saudi Arabia and other countries or non-state terrorist groups
operating in the Near East region. The information gathered is provided to the FBI’
TFOS, and subsequently to the FBI-led JTTFs in the United States for investigation,
See Testimony of Gary M. Bald, March 4, 2004.
See Testimony of Juan C. Zarate, March 24, 2004.
Bureau of Alcohol, Tobacco, Firearms and Explosives
ATF’s mission and roles related to terrorist financing. On January 24,
2003, the Bureau of Alcohol, Tobacco and Firearms’ law enforcement functions were
transferred from the Treasury Department to the Department of Justice, and became
the Bureau of Alcohol, Tobacco, Firearms and Explosives. ATF enforces the federal
laws and regulations relating to alcohol, tobacco, firearms, explosives and arson by
working directly and in cooperation with others to: 1) Suppress and prevent crime
and violence through enforcement, regulation, and community outreach; 2) Ensure
fair and proper revenue collection and provide fair and effective industry regulation;
3) Support and assist federal, state, local, and international law enforcement; and 4)
Provide innovative training programs in support of criminal and regulatory
In supporting the DOJ’s primary strategic goal of preventing terrorism and
promoting national security, the ATF participates in joint terrorism task force
initiatives, as well as other interagency counterterrorism mission partnerships.
Operations and intelligence data in firearms trafficking and explosives accountability
have shown that terrorist organizations may be shifting to tobacco and alcohol
commodities to fund their criminal activities. As it relates to terrorist financing, the
ATF seeks to reduce and divest criminal and terrorist organizations of monies
derived from illicit alcohol diversion and contraband cigarette trafficking activity.
Specifically, the mission of the ATF’s Alcohol and Tobacco Diversion Program
is to: 1) Disrupt and eliminate criminal and terrorist organizations by identifying,
investigating and arresting offenders who traffic in contraband cigarettes and illegal
liquor; 2) Conduct financial investigations in conjunction with alcohol and tobacco
diversion investigations in order to seize and deny further access to assets and funds
utilized by criminal enterprises and terrorist organizations; 3) Prevent criminal
encroachment on the legitimate alcohol and tobacco industries by organizations
trafficking in counterfeit/contraband cigarettes and illegal liquor and; 4) Assist local,
state, and other federal law enforcement and tax agencies in order to thoroughly
investigate the interstate trafficking of contraband cigarettes and liquor.
Capabilities and resources. Teams of ATF auditors, special agents and
inspectors are all involved with performing complex investigations of multi-state
criminal violations of federal law. According to the ATF 2003 Performance and
Accountability Report, if a broad definition of counterterrorism activities is used to
include providing homeland security, in FY2003 ATF spent $359.3 million, or 61
percent, of its net costs on the counterterrorism/homeland security effort.
Measures of success and accomplishments. In 2003, ATF conducted
295 investigations involving the trafficking of illicit or counterfeit tobacco
This section was prepared by Cindy Hill/DSP
products.161 In four of these investigations, the ATF was able to confirm ties to
terrorist organizations. For example, ATF investigated an organization in North
Carolina that was trafficking cigarettes to Michigan and utilizing some of the profits
to fund the Hezbollah in the Middle East. ATF efforts contributed to the indictment
of 18 defendants associated with this operation.
ATF coordination with other federal agencies. In preventing unlawful
trafficking in firearms and explosives and the diversion of alcohol and tobacco as
financial means in support of terrorist activities, ATF continues to work in
conjunction with all responsible law enforcement agencies to support terrorismrelated investigations. ATF is represented at the National Drug Intelligence Center,
El Paso Intelligence Center (EPIC), Federal Crime Enforcement Network (FINCEN),
INTERPOL, the FBI Counterterrorism Center, Central Intelligence Agency,
Department of Homeland Security, Defense Intelligence Agency, and the National
Joint Terrorism Task Force. ATF is also represented at the executive level in the FBI
Strategic Intelligence Operations Center and is involved in the Law Enforcement
Information Sharing (LEIS) group. ATF maintains a Memorandum of Understanding
with six Regional Information Sharing Systems (RISS) agencies, which represents
thousands of state and local law enforcement agencies.
Drug Enforcement Administration (DEA)162
DEA’s responsibilities with regard to terrorist financing. DEA’s
mission is to enforce the treaties, laws, and regulations that seek to eliminate the
manufacture, distribution, sale, and use of illegal drugs. The size of the worldwide
market in illicit drugs — estimates range from $300-$500 billion per year —
provides ample opportunities for drug proceeds to be diverted to terrorist ends
through money laundering activities and other financial schemes.163
Statutorily, DEA has authority to investigate monetary transactions resulting
from unlawful drug activities under the primary U.S. money laundering statutes (18
U.S.C.1956 and 1957) and the applicable civil and criminal forfeiture statute (18
U.S.C. 981 and 982). Jurisdiction under these statutes was granted to the Attorney
General (as well as the Secretary of the Treasury and the Postmaster General) and
delegated to DEA (and the FBI). DEA’s enforcement jurisdiction is contingent upon
the funds involved being derived from the trafficking of illegal narcotics. DEA also
exercises authority under 18 U.S.C. 1960, the illegal money remitter statute, and 31
U.S.C. 5332, dealing with bulk cash smuggling when the funds involved in the
violations are derived from trafficking of illegal narcotics. Both of these criminal
statutes also have applicable forfeiture statutory provisions.
Department of Justice Alcohol, Tobacco, Firearms and Explosives. ATF Performance
and Accountability Report — 2003, p. 1.
This section was prepared by Mark Eddy/DSP
For an analysis of the links between drug trafficking and terrorism, see CRS Report
RL32334, Illicit Drugs and the Terrorist Threat: Causal Links and Implications for
Domestic Drug Control Policy, by Mark A.R. Kleiman.
Operationally, DEA Administrator Karen Tandy has mandated that every DEA
investigation will have a financial investigative component. Thus, any DEA
investigation could potentially discover monetary links to terrorist entities. Within
DEA’s infrastructure, the following components are specifically designated with
anti-money laundering responsibilities:
The Office of Financial Operations at DEA headquarters has overall
program responsibility for all DEA financial investigative efforts;
The Financial Intelligence Unit at DEA headquarters provides
analytical support to the Office of Financial Intelligence;
The Financial Section at the Special Operations Division (SOD) is
a multi-agency section that coordinates multi-district, complex
money-laundering wiretap investigations; and
Each of DEA’s 21 Field Divisions as well as the Bangkok, Bogotá,
and Mexico City Country Offices have Financial Investigative
DEA resources devoted to combating terrorist financing. There are
45 positions in DEA authorized to support counter-terrorism efforts. Since FY2002,
DEA has received funding from the FBI to reimburse DEA for counter-terrorism
related investigative and analytical support provided through the Special Operations
Division-Special Coordination Unit (SOD-SCU). DEA received, via reimbursable
agreement from the FBI, $7.7 million in FY2002, $11.4 million in FY2003, and $6.3
million in FY2004.
Measures of Success and Accomplishments. DEA does not maintain
specific statistics related to terrorist financing. DEA’s investigations, however, are
routinely directed at activities involving narcotics and precursor materials that have
the potential to fund terrorist organizations. Examples are Operation Mountain
Express and Operation Northern Star, investigations that uncovered possible links
between the trafficking of pseudoephedrine (a methamphetamine precursor) in the
United States and Middle Eastern groups with terrorist connections.164
DEA Coordination with Other Federal Agencies. The SOD-SCU is
responsible for coordinating all responses to terrorism-related requests for SOD
assistance and is responsible for sharing tactical and/or investigative information with
other appropriate federal agencies. For the purpose of information exchange at the
headquarters level, SCU personnel have been assigned to the National Joint
Terrorism Task Force and the Department of Homeland Security. Domestic field
investigations that identify extremist/terrorist information are documented in a
teletype and/or DEA-6 Report of Investigation (ROI) and are immediately passed to
the local FBI office and, if applicable, to JTTFs in the field. This information, as
appropriate, is also passed to state and local enforcement counterparts. Foreign
Information on both investigations can be found on the DEA Website
Country Office investigations that identify extremist/terrorist information are
documented in a teletype and/or ROI and immediately passed to the respective U.S.
government agencies that are part of the local country team (e.g., State Department,
Regional Security Officer, Military Attaché, FBI Legal Attaché, etc.).
Documentation on domestic and foreign office investigations that identify
extremist/terrorist information is also provided to the SOD-SCU along with the
names of all individuals to whom the information was passed and their contact
All “cooperating sources” utilized in DEA investigations are debriefed quarterly
regarding their knowledge of any terrorist-related information, including money
laundering. This information is documented on a DEA Form 6 Report of
Investigation using the protocols outlined above.
The Department of State165
The Office of the Coordinator for Counterterrorism (S/CT) within the
Department of State implements some key activities to help identify and stop terrorist
financing and acts as the lead in coordinating U.S. government agencies in these
efforts. Within S/CT is the Counterterrorism Finance and Designation Unit. State’s
Bureau for Economic and Business Affairs (EB) also works closely with the
Coordinator for Counterterrorism to freeze assets of terrorists and terrorist
The “finance” part of the Unit coordinates the delivery of technical assistance
and training to foreign governments to help them improve their ability to investigate,
identify and interdict the flow of funds to terrorists.
The “designation” part of the Unit leads and coordinates with the Departments
of the Treasury and Justice to designate foreign terrorist organizations, as well as
The Department of State’s S/CT and Bureau for International Narcotics and Law
Enforcement Affairs (INL) co-chair the Terrorist Finance Working Group (TFWG)
which is made up of numerous agencies throughout the U.S. government.166
Funding for counterterrorism activities within State is designated for the Office
of the Ambassador-at-large for Counterterrorism ($1.788 million for FY2003,
estimated $1.703 million for FY2004 and a request of $1.720 million for FY2005).
In addition, there is funding for worldwide security upgrades for the Office of the
Ambassador-at-large for Counterterrorism in State (FY2003 — none, FY2004 —
This section was prepared by Susan Epstein/FDT.
The interagency working group includes other offices and bureaus in the Departments of
State, the Treasury, Justice, and Homeland Security, as well as the National Security
Council, Central Intelligence Agency, and the Federal Reserve Board.
$2.968 million, and for 2005 request — $2.968 million). The budget does not break
down funding levels to specific activities such as the freezing of assets.
Regulating the International System167
The U.S. government has taken various domestic actions in order to increase its
ability to counter the threat of terrorist financing. In addition to these domestic
efforts, the U.S. government has worked with other countries, on a multilateral and
bilateral basis, to create international rules, standards, and best practices to prevent
Given the significant overlap between international money laundering and
terrorist financing, the international community has addressed these crimes with a
similar set of measures and policies. In 1988, the United Nations (UN) General
Assembly passed the Vienna Convention Against Illicit Traffic in Narcotic Drugs and
Psychotropic Substances (the Vienna Convention), the first international agreement
to criminalize money laundering. A more important component of the agreement,
some argue, is that it includes a mutual assistance clause mandating that governments
collaborate with each other in money laundering investigations.168 In order to
facilitate cooperation on anti-money laundering issues among various nations, the
Group of Seven (G-7) created the Financial Action Task Force (FATF) in 1989 in
order to help countries implement the Vienna Convention.
Several recent conventions on terrorist financing have been negotiated. Most
prominent among these was the UN’s International Convention for the Suppression
of the Financing of Terrorism (ICSFT), which entered into force on April 10, 2002.
As of March 2004, 132 countries had signed the convention and 112 were full parties
to the agreement.169 The convention requires each country to criminalize the funding
of terrorist activities under its domestic law and to seize or freeze funds used or
allocated for terrorist purposes. Countries must ensure that their domestic laws
require financial institutions to implement measures that identify, impede, and
prevent the flow of terrorist funds. Finally, countries are required to prosecute or
extradite individuals suspected of involvement in the financing of terrorism and to
cooperate with other countries in the investigation and/or prosecution of those
suspected of engaging in these acts.
United Nations Security Council Resolution (UNSCR) 1373, was adopted on
September 28, 2001. It established numerous measures to combat terrorism, in
addition to calling on member countries to become parties to the International
Convention for the Suppression of the Financing of Terrorism. It focused on areas
This section was prepared by Martin A. Weiss/FDT.
Ian Roberge, “The Internationalization of Public Policy and the Fight Against Terrorist
Financing,” Paper presented at the International Studies Association Conference, Montreal,
Canada, 2004, pg.12.
of financing, intelligence sharing, and limiting terrorists’ ability to travel. The
resolution also required states to criminalize Al Qaeda financial activities and to
freeze the group’s monetary assets; it mandated exchanges of intelligence, among
other arrangements. UNSCR 1373 was passed under Chapter VII of the UN Charter,
making compliance mandatory for all member-states and giving the Security Council
UNSCR 1267, passed in October 1999, set up the “1267 Committee,” to
monitor the sanctions imposed on then Taliban-controlled Afghanistan for its support
of Osama Bin Laden and Al Qaeda. These sanctions require U.N. member states,
among other things, to freeze assets of persons and entities listed by the 1267
committee. The Council has revised and strengthened these sanctions since 1999. On
January 30, 2004, the Council, in Resolution 1526 (2004), further strengthened and
expanded the Committee’s mandate by requiring that states freeze economic
resources derived from properties owned or controlled by Al Qaeda and the Taliban
and also that states cut the flow of funds derived from non-profit organizations and
alternative/informal remittance systems to terrorist groups.
Financial Action Task Force (FATF)
The Financial Action Task Force is an inter-governmental body that develops
and promotes policies and standards to combat money laundering (the so-called Forty
Recommendations) and terrorist financing (Eight Special Recommendations on
Terrorist Financing).170 It is housed at the Organization for Economic Cooperation
and Development(OECD) in Paris. FATF currently has 33 members.171 According
to its most recent mandate (May 2004, renewed until 2012):
FATF will continue to set anti-money laundering and counter-terrorist financing
standards in the context of an increasingly sophisticated financial system, and
work to ensure global compliance with those standards. FATF will enhance its
focus on informal and non-traditional methods of financing terrorism and money
laundering, including through cash couriers, alternative remittance systems, and
the abuse of non-profit organizations.172
FATF sets minimum standards and makes recommendations for its member
countries. Each country must implement the recommendation according to its
particular laws and constitutional frameworks. In 2001, FATF released Eight Special
Recommendations on Terrorist Financing. These are very focused, and reflect a
more nuanced understanding of how terrorist groups raise and transmit funds. The
eight recommendations are:
Take immediate steps to ratify and implement the relevant United Nations
See CRS Report RS21904: The Financial Action Task Force: An Overview.
See FATF website for a list of member countries and observer organizations
FATF Mandate Renewed for Eight Years, May 14, 2004,
available at [http://www1.oecd.org/fatf/pdf/PR-20040514_en.pdf]
Criminalize the financing of terrorism, terrorist acts and terrorist
Freeze and confiscate terrorist assets.
Report suspicious transactions linked to terrorism.
Provide the widest possible range of assistance to other countries’ law
enforcement and regulatory authorities for terrorist financing
Impose anti-money laundering requirements on alternative remittance
Strengthen customer identification measures in international and domestic
Ensure that entities, in particular non-profit organizations, cannot be
misused to finance terrorism.173
Early in its existence, FATF sought compliance with its guidelines in the
international system (not just among FATF members) through a self-assessment
program and a peer-evaluation process. This peer evaluation process has been
successful in getting some FATF members to improve their anti-money laundering
and counter-terrorist finance laws.
Through the evaluation process for the Forty Recommendations, FATF
identifies non-cooperative countries and territories (NCCTs) in the fight against
money laundering. The current list of NCCTs includes Cook Islands, Indonesia,
Myanmar, Nauru, Nigeria, and the Philippines.174 Some question whether “naming
and shaming” is a good approach, and note that it may even prove counter productive by signaling that a country is a good provider of black market money
laundering services, and making it harder for the target country to change course.175
Others argue that it is a necessary first step, but to be effective, countries must be
offered technical assistance packages from the IMF or World Bank, or other
international agencies to improve their legal and regulatory mechanisms.
Recently, FATF decided that it will no longer conduct self-assessment exercises
based on previous exercises, but will initiate follow-up reports to mutual evaluations.
The third round of mutual evaluations based on the new methodology is expected to
begin in late 2004. There are no current plans for FATF to complete a similar list for
countries that do not meet the Eight Special Recommendations.
Financial Action Task Force Terrorist
Non-Cooperative Countries and Territories (NCCTs) Organization for Economic
Cooperation and Development website, available at
Donato Masciandaro, Combating Black Money: Money Laundering and Terrorism
Finance, International Cooperation and the G8 Role, Universite de Lecce Economics
W o r k i n g
P a p e r
N o .
5 6 / 2 6 ,
a v a i l a b l e
During 2003-2004, the IMF and the World Bank undertook a twelve-month
pilot program that evaluated 33 countries and assessed their compliance with the
FATF 40 + 8 recommendations.176 In addition, eight countries were assessed either
by FATF or one of the FATF Style Regional Bodies.177 At the G-7 meeting in Boca
Raton during February 2004, finance ministers requested the IMF to make the
AML/CFT178 assessments a normal component of its economic surveillance reports.
In March 2004, the IMF and World Bank agreed to make permanent the pilot
program, after a review. The three main findings of the IMF and World Bank pilot
Many countries show a high level of compliance with the original FATF
Forty Recommendations but compliance with the newer Eight Special
Recommendations on Terrorist Financing is weaker. The necessary
legislation to implement many of the new recommendations has not yet
been adopted in the countries assessed.
Wealthier countries generally have well developed financial institutional
regimes but require additional work on terrorism finance issues.
Middle-income jurisdictions generally have well developed legal and
institutional frameworks but frequently have gaps in implementation of the
regime. Many lower-income countries have put in place the essential legal
elements of an AML/CFT regime but implementation remains a challenge
due to insufficient resources and training.
Implementation weaknesses identified include poor coordination among
government agencies, ineffective law enforcement, weak supervision,
inadequate systems and controls among financial firms, and shortcomings
in international cooperation.179
The IMF and World Bank also offered conclusions regarding seven of the Eight
Ratification and Implementation of UN Instruments. Almost one-third
of the assessed countries failed to comply with this recommendation.
Seven jurisdictions were found in material non-compliance (lack of
International Monetary Fund and the World Bank, “Twelve-Month Pilot Program of
Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)
Assessments,” available at [http://www.imf.org/external/np/aml/eng/2004/031004.pdf]
The 41 countries assessed were Bangladesh, Honduras, Malta, Mauritius, Hong Kong
SAR, United Kingdom, FYR Macedonia, Mozambique, Romania, Tanzania, Anguilla,
British Virgin Islands, Guernsey, Isle of Man, Jersey, Liechtenstein, Montserrat, Czech
Republic, Israel, Jordan, Oman, Austria, Japan, Kuwait, Singapore, Algeria, Kenya,
Bahamas, Belize, Bermuda, Cayman Islands, Labuan (Malaysia), Turks & Caicos, South
Africa, Russia, Germany, Swaziland, Bolivia, Ecuador, Chile, and Azerbaijan.
Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT)
International Monetary Fund, “IMF Executive Board Reviews and Enhances Efforts for
Anti-Money Laundering and Combating the Financing of Terrorism” Public Information
Notice No. 04/33, available at [http://www.imf.org/external/np/sec/pn/2004/pn0433.htm]
ratification of the ICSFT), and six were found non-compliant (failing to
ratify the ICSFT and to implement UNSCR 1373).
Criminalizing the Financing of Terrorism and Associated Money
Laundering. Serious weaknesses were found in more than a third of the
countries. This special recommendation was one of the least observed
FATF recommendations. Among the countries assessed, fourteen were
found non-compliant and four materially non-compliant. In countries rated
non-compliant, terrorist financing was not criminalized at all, nor was its
prosecution possible under any other offense.
Freezing and Confiscating Terrorist Assets. Deficiencies were found
in around a third of the countries assessed. There were six countries rated
materially non-compliant and eight rated non-compliant. The Bank and
Fund concluded that non-compliance resulted either from a lack of explicit
legal authority to freeze funds or assets, or the lack or inadequacy of
powers that would enable the authorities to seize assets, even if the legal
provisions were in place.
Reporting Suspicious Transactions Related to Terrorism. Forty
percent of countries exhibited weaknesses in this area. Countries showed
a lack of legal and institutional measures that would require making a
report to competent authorities when there is a suspicion that financial
transactions are linked to terrorist financing.
International Cooperation. The mutual assistance and extradition in
financing of terrorism-related cases is one of the least observed
recommendations, almost half of the jurisdictions exhibited serious
deficiencies. The World Bank and International Monetary Fund found, not
surprisingly, that countries that had deficiencies with Recommendation 1
(criminalization of terrorist financing) and Recommendation 3 (freezing,
seizure, and confiscation of terrorist funds) also had problems with
international cooperation. This provides evidence for the assertion that
lack of domestic law is a major cause of ineffective international
Alternative Remittance. In most of the countries assessed, alternative
remittance systems were not considered macro-economically relevant. Of
the countries assessed, half were found deficient because money or value
transfer systems were not required to be licensed or registered; or because
preventive measures requirements were not extended to them; or because
there was no effective regime for monitoring and enforcing compliance
with AML/CFT requirements.
Wire Transfers. Due to ambiguity about whether the standard was or was
not fully in force, this recommendation was not evaluated consistently
across the sample countries. Of the rated countries, 12 were considered to
be compliant, while 21 were materially non-compliant or non-compliant.
Weaknesses were largely due to lack of formal requirements that complete
originator information be included on all wire transfers.180
Experience under the pilot program with both assessments and with technical
assistance considerably deepened collaboration between the IMF and World Bank,
on one side, and the FATF and the FATF Style Regional Bodies (FSRBs) one the
other. Recommendations for the IMF and World Bank on how to improve
monitoring include the need for close coordination with FATF and FSRBs on the
timing of assessments, more equitable sharing of the assessment burden among
agencies, and broadening the responsibilities of IMF and World Bank staff for the
supervision and integration of assessment missions to insure comprehensive and high
In addition to the pilot program, AML/CFT work has permeated IMF and World
Bank activity. Numerous IMF products, including annual economic reports (Article
IV Assessments) and the Reports on Standards and Codes, and Financial Sector
Assessment Program reports consider issues relevant to terrorist financing.181 None
of these reports constitutes a binding agreement. The legal basis for the IMF and
World Banks’ work on these issues is through its technical assistance function. The
IMF and World Bank may offer advice and guidance, but it is the responsibility of
the national governments to implement and enforce any new laws suggested by
FATF’s, IMF’s, or the World Bank’s recommendations.
Some analysts assert that the Middle East and North Africa are not properly
represented in the IMF sample. Of the 41 countries assessed in the pilot program,
three are in the Middle East or North Africa — Jordan, Oman, and Algeria. An
assessment of numerous Islamic countries’ compliance with international counter
terrorist finance standards was undertaken by the Watson Institute for International
Studies at Brown University under the auspices of the Council on Foreign Relations
(CFR) Independent Task Force on Terrorist Financing. This report created four
criteria to assess relative performance on counter terrorist finance work: (1) the
establishment of a legal framework, (2) the administrative infrastructure, (3) the
range of regulatory mechanisms, and (4) the evidence of enforcement.182 Table 1
shows the report’s findings:
International Monetary Fund and World Bank, Twelve Month Pilot Program of AntiMoney Laundering and Combating Terrorist Financing of Terrorism (AML/CFT)
Assessments, Joint Report on the Review of the Pilot Program. March 10, 2004.
See William E. Holder, “The International Monetary Fund’s Involvement in Combating
Money Laundering and the Financing of Terrorism,” Journal of Money Laundering Control,
Spring 2003, pg. 383-387.
See Council on Foreign Relations Independent Task Force on Terrorist Financing ,
“Update on the Global Campaign Against Terrorist Financing” Appendix C, “A
Comparative Assessment of Saudi Arabia with Other Countries of the Islamic World.”
Table 1. Middle Eastern Compliance with Counter-Terrorist
Relative Degrees of Compliance and Implementation
Source: Council on Foreign Relations Independent Task Force on Terrorist Financing, "Update on
the Global Campaign Against Terrorist Financing" Appendix C, "A Comparative Assessment of Saudi
Arabia with Other Countries of the Islamic World."
According to the Watson Institute’s report, Saudi Arabia’s compliance with the
guidelines established by FATF is “among the most robust in the sample.”183 A
similar assessment of Saudi Arabia was reached by FATF in 2004.184 The FATF
2004 annual report states that Saudi Arabia’s legal and regulatory system is
“compliant or largely compliant with most of the FATF 40+8 Recommendations”
According to the report, Saudi Arabia has established a Permanent Committee on
Combating the Financing of Terrorism to coordinate its policy response and the
Saudi Anti-Financial Crime Unit (SAFCU). This is to serve as a clearinghouse for
investigative information and international cooperation. At the time of the FATF
review, the SAFCU was not operational.185
Ibid, pg. 8.
See “Kingdom of Saudi Arabia: Executive Summary - FATF Recommendations for
Anti-Money Laundering and Combating the Financing of Terrorism” in Annex C of the
report Available at [http://www1.oecd.org/fatf/pdf/AR2004-Annexes_en.PDF].
See CRS Report RL32499, Saudi Arabia: Terrorist Financing Issues.
Conclusion: Policy Issues for Congress186
While the current campaign against terrorist finance reportedly has diminished
terrorists’ abilities to gather and transmit finances, significant funds still appear to be
available. Efforts to further regulate and introduce transparency into the global
financial system are welcome steps; yet they will not completely reduce terrorists’
striking capacity because most of the proposed measures cannot with certainty
separate out terrorists from other types of lawbreakers. Terrorists’ ability to exploit
non-bank mechanisms of moving and storing value, as well as their decentralized
self-supporting network of cells represent additional constraints on law enforcement.
These constraints and concerns lead to numerous policy questions that may be
relevant for Congress as it debates both a U.S. strategy to counter terrorist financing
and on how to reorganize the U.S. government in order to best implement this
strategy. Among those questions are:
Should the U.S. strategy emphasize freezing assets or following
financial trails? More importantly, should the U.S. government
release a strategy document similar to the National Money
Laundering Strategy devoted specifically to countering terrorist
financing? Although freezing assets has been successful to date in
blocking around $200 million dollars, over the past two years,
officials have noticed a major change in how terrorists move money
around. Increasingly, they are relying on informal methods such as
alternative remittance systems, smuggling commodities or precious
metals, or simply transporting large amounts of cash. In this case,
immediately freezing assets may prove counterproductive, if
valuable intelligence could be gained if and when terrorist financing
is spotted in the formal financial sector.
Has the legislation that Congress passed regarding terrorist financing
(primarily Title III of the USA PATRIOT Act) been implemented in
a timely way? According to some, many financial institutions
including insurance companies, loan and finance companies, and
hedge funds, among others, have yet to receive formal guidance
from the Treasury Department on how to implement anti-money
laundering and terrorist financing guidelines.187
Are the resources currently devoted to combating terrorist financing
adequate? There is no clear presentation of each federal agency’s
budget allocation for combating terrorist financing. House Report
108-599, the 2005 Foreign Operations Bill, referred to the Senate
Committee on Appropriations on July 19th, 2004, states, among other
This section was prepared by Martin A. Weiss/FDT.
See Jonathan M. Winer, Testimony before the U.S. Senate Committee on Finance on
“U.S. Government Efforts Against Terrorist Finance And Nominations of Stuart Levey and
things, that the National Security Council and the Office of
Management and Budget should conduct a cross-cutting analysis of
the budgets and activities of all United States government agencies
as they relate to terrorist financing, and submit a report, not less than
90 days after the enactment of the 2005 Appropriations Act,
summarizing this information, with a classified annex if necessary.
Does the current architecture of the U.S. government display clear
jurisdiction among the various federal departments and agencies
involved in the fight against terrorist financing? What future efforts
can be put in place to further inter-departmental and inter-agency
coordination on both policy-setting and enforcement? How well are
the functions of the panoply of new and legacy departments and
agencies being coordinated? Who is best suited to coordinate these
How well is the congressional oversight mechanism designed to
assess federal performance on countering terrorist financing? The
Senate Banking and Finance Committees agreed to joint jurisdiction
over the Treasury’s Office of Terrorism and Financial Intelligence.
Many other Committees have potential relevance in the overall fight
against terrorist financing. According to Former Representative Lee
Hamilton, Vice Chairman of the 9/11 Commission, over 88 separate
committees and subcommittees have oversight of the Homeland
Security Department alone.188 Reform of congressional jurisdiction
is an historically tricky issue, yet some argue that reevaluating how
Congress oversees the fight against terrorism and terrorist financing
may lead to more effective Executive Branch action.
Considering terrorists’ increased use of alternative remittance
systems, is there any way to regulate these practices? What would
the costs be to register all informal money-transmitters and bring
them in line with USA PATRIOT Act requirements? Many small
remittance services cater to immigrant communities without reliable
access to the formal banking sector. Making alternative remittance
systems illegal is likely impractical, and could create a swell of
resentment among the immigrant population in the U.S. If the U.S.
government wants to license and regulate alternative remittance
systems, some say it may be necessary to offer funds and technical
assistance to small remittance providers to help insure their
If someone at a charity is found to have transferred funds to a
terrorist organization without the knowledge of either the
See Lee Hamilton, Testimony before The Senate Governmental Affairs Committee, on
“Reorganizing America’s Intelligence Community: A View from the Inside” April, 16,
contributors or the charity management, should the U.S. government
close down the charity completely, or try to isolate the “bad”
money? Closing down the charity completely could create strong
negative community feelings against the U.S. government, yet many
agree that something must be done to regulate charitable donations.
Currently, the Treasury Department has released voluntary
guidelines for charitable organizations.189 Should charities or nonprofit organizations be held to a different standard than other
Regarding cultural sensitivities, how should the United States
government address a perceived bias against certain ethnic or
religious groups? Among immigrant communities, there is often a
fear of being unknowingly involved in terrorist financing. Treasury
has already developed an outreach program to ease fears among
immigrant communities. Are there additional actions that Treasury
and/or the FBI can do to help improve community relations and
make it easier for immigrant communities to fulfill their cultural and
How effectively is the United States cooperating with other
countries, and insuring their cooperation in implementing and
enforcing national regulations to restrict terrorist financing? If a
U.S. bank, or charity, or remittance system is based in the U.S., or
has U.S. operations, it is subject to U.S. jurisdiction. When such
entities lie outside U.S. jurisdiction, the United States is often at the
mercy of other governments to first enact legislation making terrorist
financing illegal, and more importantly rigorously enforce this
legislation. Creating a legal and regulatory system is likely
meaningless if it is not enforced. As Table 1 shows, in many
countries, especially in the Middle East and North Africa, the legal,
administrative, and regulatory infrastructure are being put in place,
yet enforcement is still lacking.
The voluntary guidelines for charities