A Persistent and Evolving Threat: An Examination of the Financing of Domestic Terrorism and Extremism

A Persistent and Evolving Threat: An Examination of the Financing of Domestic Terrorism and Extremism

Statement of
Rena S. Miller
Specialist in Financial Economics
Before
Committee on Financial Services
Subcommittee on National Security, International Development, and
Monetary Policy
U.S. House of Representatives
Hearing on
“A Persistent and Evolving Threat: An
Examination of the Financing of Domestic
Terrorism and Extremism”
January 15, 2020
Congressional Research Service
https://crsreports.congress.gov
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Chairman Cleaver, Ranking Member Hill, Members of the Subcommittee, thank you for the opportunity
to testify today. My name is Rena Miller, and I have been a Specialist in Financial Economics at the
Congressional Research Service (CRS) since 2009, focusing on financial regulation including anti-money
laundering and terrorism financing issues. My testimony will first discuss the current regulatory tools
upon which the nation’s counter terrorism financing system relies.1 It will then examine the ways in
which those existing tools may face challenges because of the evolving methods for financing domestic
terrorism and home-grown violent extremism (HVE). For brevity, I will use the term “domestic terrorism”
to include HVEs and other domestic actors, but I will also examine U.S. actors providing support to
foreign terrorist organizations as relevant. Lastly, I will touch upon changing technologies and legislative
proposals such as beneficial ownership legislation (H.R. 2513) and financial intelligence legislation (H.R.
5132). I would note that CRS is nonpartisan and does not advocate for any policies or proposals.
Basis of U.S. Regime to Counter Terrorism Financing
The existing U.S. regulatory regime to combat terrorism financing was not set up specifically with the
challenges of small-scale domestic terrorism in mind. The existing regime draws heavily upon both the
Bank Secrecy Act of 1970,2 known as the BSA, and the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,3 known as the USA
PATRIOT Act, passed in the wake of the Sept. 11, 2001 terrorist attacks.
The United States enacted anti-money laundering (AML) legislation partly in response to money
laundering from the illicit drug trade, to make it harder for large amounts of cash or unexplained money
deposited to be made to look “clean.” The BSA required financial institutions to file certain reports to the
Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and maintain records for their
account holders.4 Prominent among these reports are “suspicious activity reports,” known as SARs, and
“currency transaction reports,” or CTRs. CTRs must be filed automatically by banks when a customer
withdraws or deposits $10,000 or more in cash.
This filing requirement was later expanded to retailers receiving $10,000 or more in cash. But these
requirements are specific to cash transactions—so the form of the payment matters. The IRS considers
cash to include traveler’s checks, cashier checks, bank drafts and money orders, but electronic payments
such as credit cards and cryptocurrencies are not included.5 CTRs have historically been most useful for
identifying money laundering by criminals involved in cash-intensive illicit activities. In an increasingly
cashless society, they may be less relevant in flagging potential domestic terror attacks—particularly for
small-scale attacks that may not require large sums, such as those involving retail firearms or a rented car.
SARs may prove useful in flagging suspicious money transfers, for example between U.S. account
holders and “high risk” terrorism jurisdictions. But if such overseas payments are not used frequently in

1 For further information, see CRS Report R44776, Anti-Money Laundering: An Overview for Congress, by Rena S. Miller and
Liana W. Rosen; CRS In Focus IF11061, Targeting Illicit Finance: The Financial Crimes Enforcement Network’s “Financial
Institution Advisory Program”, by Liana W. Rosen and Rena S. Miller; CRS In Focus IF10873, Overview of Correspondent
Banking and “De-Risking” Issues, by Rena S. Miller.
2 The Bank Secrecy Act of 1970, 12 U.S.C. §§1829b and 1951-1959, and 31 U.S.C. 5311-5322, and its major component, the
Currency and Foreign Transactions Reporting Act, 31 U.S.C. §§5311-5322.
3 The International Money Laundering Abatement and Anti-Terrorist Financing Act, Title III of the USA-PATRIOT Act, P.L.
107-56.
4 Tracey Durner and Danielle Cotter, “Untangling a Marriage of Convenience: Anti-Money Laundering and Countering the
Financing of Terrorism,” Global Center on Cooperative Security, January 2019.
5 See https://www.irs.gov/businesses/small-businesses-self-employed/irs-form-8300-reference-guide and
https://www.californiacannabiscpa.com/blog/irs-audits-and-form-8300-what-is-it-and-why-is-it-important.
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small-scale domestic attacks, the usefulness of SARs in this realm to prevent attacks may be more
attenuated. CTRs, SARs and other BSA reports can often provide valuable information to law
enforcement following such attacks,6 even if their usefulness to flag potential attacks may be more
circumspect. Following an actual attack, publicized event, or in response to other “derogatory
information” available to them, financial institutions may proactively file SARs or provide other
information to FinCEN which can then prove useful to law enforcement in their investigation. A 2018
assessment by the Treasury Department of SAR filings associated with U.S.-based individuals charged
with supporting terrorist activity found that most were filed based on derogatory information regarding
the sender or recipient, rather than based on suspicious activity associated with the transaction itself.7
When there is more information in the public realm about domestic terrorist actors and their financing,
financial institutions may be more likely to proactively provide such information.
The USA PATRIOT Act also introduced additional customer due diligence (CDD) procedures for
financial institutions opening accounts.8 This CDD rule was amended by FinCEN, effective in 2018, to
include some due diligence associated with the identities of beneficial owners, who may control or benefit
from an entity but not be its registered owner.9 While these measures assist law enforcement in cracking
down on money laundering and other illicit use of the financial system, they rely on customers’ use of
accounts at banks and brokerage firms. If domestic terrorists don’t rely on such accounts, or on
international wire transfers and overseas remittances into or out of such accounts, then a reporting regime
and customer due diligence requirements may prove less effective for flagging would-be domestic
terrorists. Even for terrorism with an international nexus, the 2018 Treasury assessment found that, “An
additional challenge for financial institutions is that many transactions associated with terrorism financing
are often hard to distinguish from legitimate day-to-day transactional activity.”10
Another pillar of the nation’s post-9/11 Countering Financing of Terrorism (CFT) regime has been the
designation of foreign terrorist organizations (FTOs) and the freezing of their assets, as well as
“secondary sanctions” wherein correspondent banks “freeze out” designated groups or individuals from
dollar-denominated transfers into or out of the U.S. financial system.11 Broadly, these authorities stem
from Executive Order 13224, first signed by President George W. Bush after 9/11 in 2001, and issued
under the International Emergency Economic Powers Act (IEEPA).12 These measures can have potent
effects on state actors or large, established entities—especially if those actors rely on transactions with the
United States and can’t easily continue operations under an assumed identity. Yet domestic terrorism may
involve previously unknown individuals.

6 See, e.g., “We are already able to confirm just how extensive and crucial the value of BSA reporting is to an array of
stakeholders and activities—activities that go well beyond just whether or not a particular SAR, CTR, or FBAR (or any other
BSA report) facilitates a particular law enforcement investigation.” Kenneth A. Blanco, Director, Prepared Remarks of FinCEN
Director Blanco at the NYU Law Program on Corporate Compliance and Enforcement, Financial Crime Enforcement Network,
June 12, 2019, https://www.fincen.gov/news/speeches/prepared-remarks-fincen-director-blanco-nyu-law-program-corporate-
compliance-and.
7 Department of Treasury, National Terrorism Financing Risk Assessment, 2018, p. 20.
8 31 U.S.C. §5318(l). See Joint Final Rule—Customer Identification Programs for Banks, Savings Associations, Credit Unions
and Certain Non-Federally Regulated Banks.
9 Financial Crimes Enforcement Network (FinCEN), Treasury, "Customer Due Diligence Requirements for Financial
Institutions," 81 Federal Register 29398, May 11, 2016.
10 Department of Treasury, National Terrorism Financing Risk Assessment, 2018, Executive Summary.
11 For more information, see CRS Report R41333, Terrorist Material Support: An Overview of 18 U.S.C. §2339A and §2339B,
by Charles Doyle.
12 Peter R. Neumann, “Don't Follow the Money: The Problem with the War on Terrorist Financing,” 96 Foreign Aff. 93 (2017).
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Also, such public designations—of particular relevance for the financial sector in screening customers—
only apply to foreign terrorist organizations, not domestic groups.13 This may reflect First Amendment
concerns.14 The current designations have at times resulted in significant sums of money frozen for
foreign state sponsors of terrorism and FTOs. By contrast, domestic extremists appear to be less well-
funded, may rely on newer online methods of fund-raising, and may require relatively limited funds for
their attacks. They may be harder for banks to screen—assuming they use banks at all—particularly if
they have no prior convictions or other red flags. Though the United States may have potent regulatory
tools to combat financing terrorism of larger FTOs and state sponsors, these tools may be harder to
leverage in the realm of domestic terrorism.
The New Challenges of Domestic Terrorism Financing
I will briefly discuss domestic terrorism itself; then what we know about its financing; and finally, the
new challenges this poses for the existing AML/CFT regime.
Threat of Domestic Terrorism
In the United States, domestic terrorism is defined by statute as a life-endangering federal or state crime,
committed within the United States, with the apparent intent to coerce or intimidate a civilian population
or influence government policy or conduct.15 Federal Bureau of Investigation (FBI) Director Christopher
Wray, in November 2019, called home-grown violent extremists (HVEs) “the greatest, most immediate
terrorism threat to the homeland.”16 He noted that these individuals are inspired by foreign terrorist
organizations, but have been radicalized primarily in the United States, and are not receiving
individualized direction from overseas groups.17 Previous testimony by a senior FBI official noted:
domestic terrorists pose a present and persistent threat of violence and economic harm to the United
States; in fact, there have been more arrests and deaths caused by domestic terrorists than
international terrorists in recent years. We are most concerned about lone offenders, primarily using
firearms, as these lone offenders represent the dominant trend for lethal domestic terrorists.
Frequently, these individuals act without a clear group affiliation or guidance, making them
challenging to identify, investigate, and disrupt.18
According to the FBI, the possible underlying drivers for domestic terrorism include perceptions of
government or law enforcement overreach, socio-political conditions, racism, anti-Semitism,

13 The government does not provide an official and public list of domestic terrorist organizations, but includes known and
suspected domestic terrorists (along with international terrorists) in its Terrorist Screening Database, commonly known as the
“Terrorist Watchlist.” This contrasts to the world of international counterterrorism, where the United States maintains a well-
established regimen regarding the identification of foreign terrorist organizations. See CRS Report R44921, Domestic Terrorism:
An Overview, by Jerome P. Bjelopera, Specialist in Organized Crime and Terrorism, August 21, 2017, p. 57.
14 See CRS Report R44921, Domestic Terrorism: An Overview, by Lisa N. Sacco; and CRS Legal Sidebar LSB10340 Domestic
Terrorism: Some Considerations, by Charles Doyle, August 12, 2019.
15 18 U.S.C. §2331. For further detail, please see CRS Legal Sidebar LSB10340 Domestic Terrorism: Some Considerations, by
Charles Doyle, August 12, 2019.
16 Christopher Wray, Director, Federal Bureau of Investigation, Worldwide Threats, Statement Before the Senate Homeland
Security and Governmental Affairs Committee, Washington, D.C., November 5, 2019,
https://www.fbi.gov/news/testimony/worldwide-threats-110519.
17 Ibid.
18 Michael C. McGarrity, Assistant Director, Counterterrorism Division, Federal Bureau of Investigation, Confronting White
Supremacy, Statement Before the House Oversight and Reform Committee, Subcommittee on Civil Rights and Civil Liberties,
Washington D.C., June 4, 2019, https://www.fbi.gov/news/testimony/confronting-white-supremacy.
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Islamophobia, and reactions to legislative actions.19 One development that appears to have impacted both
the spread of violent extremism domestically and foreign terrorist organizations’ ability to recruit at less
expense within the United States, is the increasing use of social media. FBI Director Wray noted that,
“Due to online recruitment, indoctrination, and instruction, [foreign terrorist organizations] are no longer
dependent on finding ways to get terrorist operatives into the United States to recruit and carry out acts of
terrorism.”20 He called this trend “a significant transformation from the terrorist threat our nation faced a
decade ago.”21
Some criminologists have referenced a contagion and reinforcement theory wherein past terrorism
incidents in a country may have a positive effect on the number of terrorist incidents in the future.22 The
FBI noted that the attack at the Chabad of Poway Synagogue in Poway, California, demonstrated the
danger presented by the propagation of violent acts on the Internet, adding that the attacker in Poway
referenced the mosque attacks in Christchurch, New Zealand, which the latter attacker livestreamed.23 The
FBI noted that they “remain concerned that online sharing of livestreamed attack footage could amplify
viewer reaction to attacks and provide ideological and tactical inspiration to other domestic terrorists in
the homeland.”24 Though the psychological, recruiting, and motivational effects of social media are not
per se a financial issue, one could argue that a governmental study of ways to reduce domestic terrorism
might benefit from an interdisciplinary—and possibly interagency—approach examining various aspects
of technology and social media as they impact domestic terrorism, including financing methods.
Financing of Domestic Terrorism
There is little in the way of public, systematic studies of the financing of domestic terrorism. The Anti-
Defamation League (ADL), which examined white supremacy groups in the United States, provides one
of the few public sources.25 A 2017 ADL study found that such groups tended to be poorly funded and
decentralized rather than highly organized; that they tend to be early adopters of new technologies; they
have begun to rely on crowd-funding; and that crowd-funding and use of Bitcoin have become necessary
alternatives to credit cards or electronic funds transfer sites, particularly as such groups sporadically are
cut off from these payment processors.26 The study flagged the importance of social media, crowd-
funding, online lending platforms, and crypto-currencies for these domestic extremists.27 The FBI has
also noted that “lone wolf” actors without a clear group affiliation, primarily using firearms, are the

19 Wray, Op Cit.
20 Ibid.
21 Ibid.
22 See, e.g., Midlarsky, M. I., M.Crenshaw, and F. Yoshida, “Why violence spreads—The Contagion of International Terrorism,”
International Studies Quarterly, vol. 24, no. 2, June 1980, pp. 262-298 and Gao, Peng, et al, “Early Detection of Terrorism
Outbreaks Using Prospective Space–Time Scan Statistics,” The Professional Geographer, vol. 65, no. 4, November 2013,
https://www.researchgate.net/profile/Peng_Gao27/publication/263183811_Early_Detection_of_Terrorism_Outbreaks_Using_Pro
spective_Space-Time_Scan_Statistics/links/560fd5cd08ae4833751808c5/Early-Detection-of-Terrorism-Outbreaks-Using-
Prospective-Space-Time-Scan-Statistics.pdf.
23 Michael C. McGarrity, Assistant Director, Counterterrorism Division, Federal Bureau of Investigation, Confronting White
Supremacy, Statement Before the House Oversight and Reform Committee, Subcommittee on Civil Rights and Civil Liberties,
Washington D.C., June 4, 2019, https://www.fbi.gov/news/testimony/confronting-white-
supremacy.https://www.fbi.gov/news/testimony/confronting-white-supremacy.
24 Ibid.
25 Anti-Defamation League, “Funding Hate: How White Supremacists Raise Their Money,” December 5, 2017,
https://www.adl.org/resources/reports/funding-hate-how-white-supremacists-raise-their-money.
26 See https://www.adl.org/news/press-releases/hate-groups-increasingly-raising-money-online.
27 Anti-Defamation League, “Funding Hate: How White Supremacists Raise Their Money,” December 5, 2017,
https://www.adl.org/resources/reports/funding-hate-how-white-supremacists-raise-their-money.
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dominant actors in lethal domestic terrorism, and are difficult to identify, investigate, and disrupt.28 This
can pose additional challenges in trying to use financing red flags, as such lone perpetrators seem to lack
group affiliations, or formally organized resources, and often experience financial strain or have limited
means.29 Such self-funded lone-actors can render it challenging to identify patterns of suspicious financial
activity related to domestic terrorism, particularly prior to attacks.
Proposals
While the traditional AML/CFT regime in the United States may be effective for combating foreign
terrorist organization financing, and sanctioning state sponsors and larger entities,30 it appears that
combating the financing of domestic extremists poses novel challenges. One tool the United States has to
combat terrorist financing is the collection and analysis of financial data. Evolving technology and use of
new data sets (e.g., social media information and electronic payments) may potentially be employed to
address those novel challenges. As such, cross-cutting issues that span different areas of congressional
oversight may become more important; for example, access to data provided on social media sites and
payment platforms. Some argue that expanding data sources examined, including through automated text
analysis of social media, and increasing the interoperability of systems that examine the data (such as,
between government agencies) can help in identifying domestic terrorists.31 Others, however, oppose an
expansion of monitoring or surveillance for domestic groups, citing constitutional issues.32
An approach Congress may choose to pursue is an interdisciplinary, interagency study to examine the use
of new technologies in both the spread and financing of domestic terrorism. Such a study may also be
used to survey what data sets exist, who has access to that data, and the potential uses of such data. It
could also examine other factors in the spread of domestic terrorism, and how to combat it, including but
not limited to financing. Legislation introduced in the 116th Congress (H.R. 5132) would require FinCEN
to request information from financial institutions for the purpose of developing an advisory about the
identification and reporting of suspicious activity related to how “lone wolf” domestic terrorists procure
weapons for the purpose of carrying out domestic terror attacks.
Finally, legislation passed by the House in the 116th Congress (H.R. 2513), aimed at increasing
transparency of beneficial ownership for entities such as corporations and limited liability corporations
(LLCs) may also have value in combating domestic terrorism as well as, more broadly, international
terrorism and money laundering. Multiple agencies, including the FBI, have stated that legal entities can
be used by hidden owners to raise money, buy assets, or move money anonymously under the current
U.S. regime of multiple state laws, which lack a minimum federal identification standard. Opponents of
the legislation have asserted that it would burden small businesses and pose privacy concerns for
entrepreneurs.33 On the other hand, multiple agencies have testified it would enable law enforcement to

28 Michael C. McGarrity, Assistant Director, Counterterrorism Division, Federal Bureau of Investigation, Confronting the Rise of
Domestic Terrorism in the Homeland, Statement Before the House Homeland Security Committee, Washington D.C., May 8,
2019, https://www.fbi.gov/news/testimony/confronting-the-rise-of-domestic-terrorism-in-the-homeland.
29 Department of Justice and Federal Bureau of Investigation, A Study of Lone Offender Terrorism in the United States,
November 2019.
30 This assessment, however, is also debated by scholars; see, e.g., Peter R. Neumann, “Don't Follow the Money: The Problem
with the War on Terrorist Financing,” Foreign Affairs, July/August 2017, https://www.foreignaffairs.com/articles/2017-06-
13/dont-follow-money..
31 See, e.g., https://www.nextgov.com/ideas/2018/06/3-ways-use-data-fight-terrorism-and-money-laundering/149043/.
32 See, e.g., ACLU Letter to The Senate on the Domestic Terrorism Prevention Act, S. 894, https://www.aclu.org/letter/aclu-letter-
senate-domestic-terrorism-prevention-act-s-894.
33 See https://www.americanbar.org/content/dam/aba/uncategorized/GAO/2019may6-
lettertohfscopposinghr2513substitutebill.pdf.
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more easily trace and monitor assets, including those of domestic terrorists.34 An easier ability to discern
underlying owners of corporate entities might offer positive externalities for small business owners as
well. For instance, a business owner might more quickly carry out due diligence on prospective borrowers
or joint venture partners if he or she had access to information on beneficial owners of legal entities. In
short, actions affecting the broader landscape of financial transparency might also help in tracking the
financing of domestic terror groups.

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
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as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.

34 See, e.g., Kenneth A. Blanco, Director, Prepared Remarks of FinCEN Director Blanco at the NYU Law Program on Corporate
Compliance and Enforcement, Financial Crime Enforcement Network, June 12, 2019,
https://www.fincen.gov/news/speeches/prepared-remarks-fincen-director-blanco-nyu-law-program-corporate-compliance-and.
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