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01 February 2005

Terrorist Financing an "Evolving" Threat, Says Treasury Official

Zarate cites need for public-private cooperation, flexibility

Terrorist financiers are constantly adapting to international anti-crime efforts and finding new ways to bankroll their activities, U.S. Assistant Treasury Secretary Juan Zarate says.

In a February 1 address to an anti-counterfeiting conference in New York City, Zarate said the U.S. government is working to provide better information to the global financial community in the campaign to eliminate terrorist organizations' money supply.

"Now more than ever, it is clear that terrorist financing is not a monolithic force -- but part and parcel of a nexus comprised of crafty financial criminals, corrupt banks, and complex ideological and financial networks," Zarate said in the speech.

He cited numerous successes in closing money flows to al-Qaida and other terrorist groups but warned that funding networks emerge on a regular basis.

"To a certain extent, we have become a victim of our own success," Zarate said.  "U.S. and multinational victories against al-Qaida have had a scattering effect, meaning that some of our terrorist enemies have dispersed into new and incongruous clusters."

Continued success against terrorist financing will require "strong and flexible plans" and better ways of collecting and sharing financial data without overburdening the financial sector, he said.

"Effective mechanisms depend on greater collaboration and information sharing within the government and with the private sector," Zarate said.

Following is the text of his address as prepared for delivery:

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U.S. Department of the Treasury
Office of Public Affairs
February 1, 2005


NEW YORK, NY -- Thank you for the invitation to be here today.  It's a pleasure to be in the company of the New York City Police Foundation, Harper's Bazaar magazine, and the International AntiCounterfeiting Coalition.  I feel especially privileged to be here with [New York Police] Commissioner Ray Kelly, who has contributed so much of his life to public service and much of it has been at the U.S. Treasury Department.  Commissioner Kelly certainly knows about the need to focus our attention on financial criminal activity -- having once served as both Commissioner of the U.S. Customs Service and Under Secretary of Enforcement at the Treasury.

Today's discussion is an important one because the issue of counterfeiting of products not only affects business and intellectual property rights, but it is also an issue of concern for law enforcement and our national security.  In the post-9/11 [September 11, 2001] world, we can no longer afford to ignore the vast networks of illicit financial activity that could support transnational organized threats.  From fraud and smuggling to counterfeiting and money laundering, we know that the age of terror has met the business of illicit finance.

In the world of counter-terrorism and law enforcement, we are constantly facing new challenges and evolving threats.  Since 9/11, we have invested an enormous amount of energy and time to combating the financing that fuels terrorism, as well as the activities that facilitate money laundering and other financial crimes.

In this realm, we know that terrorist groups of all stripes use a variety of mechanisms to raise and move money.  Al-Qaida has used charities and deep-pocket donors to raise and move money.  Hamas and MEK [Iranian terrorist group Mujahideen-e-Khalq]hold fundraising events, where like-minded individuals are invited to contribute funds ultimately meant for terrorist activities.  The terrorist cell that launched the devastating attacks on Madrid's train system raised money through drug dealing.  In Pakistan and perhaps now in the United Kingdom, terrorists engage in bank robberies to acquire ready cash.  Colombia's notorious FARC [Revolutionary Armed Forces of Colombia] and AUC [United Self-Defense Forces of Colombia] narco-terrorists maintain drug cartels in order to support their terrorist operations.  Still others, like Hezbollah [Lebanese militants], ETA [Basque separatists], and Jemaah Islamiyah [Islamic militants], create front companies and phony businesses to funnel cash meant to subsidize the murder of innocents.

These issues, though, are not simply confined to the shifting face of non-state actors.  Through our hunt for Saddam Hussein's assets -- pilfered over years from the Iraqi people -- we know that financial subterfuge was at the heart of how Saddam and his cronies skirted international financial restrictions and the United Nations Oil for Food Program (OFF).  In many instances, the Hussein regime relied on front companies that it secretly owned or controlled, to engage in illegal commerce and to move funds outside of the gaze of the international community.

We know that Saddam used a company called Al Wasel and Babel General Trading Company, LLC, to procure a sophisticated surface-to-air missile system for Iraq.  This company also played a key role in the former Iraqi regime's schemes to obtain illicit kickbacks on goods purchased through the Oil-for-Food (OFF) Program.

The Hussein regime also used companies like Al-Bashair Trading Company, which was the largest of Iraq's arms procurement front companies, to engage in a range of sanctions busting and corruption schemes.  Documents removed from Al-Bashair's headquarters describe a variety of deals involving sham contracts, kickbacks, falsified export documentation and money laundering designed to deceive U.N. inspectors and deliver, among other things, missile components, surveillance equipment and tank barrels to the former Iraqi regime.  The company also allegedly helped seniors officials of the former regime launder and hide Iraqi government funds.

This abuse of the international financial system and of the OFF program allowed the arming and entrenchment of the Hussein regime.  It may also now be part of the financial backing that now fuels the Iraqi insurgency and terrorism inside Iraq.

These are just some examples that point to the real challenges that the international community -- both public and private sector -- face.  The battle against financial crimes and the movement of tainted capital in the international financial system, therefore, is central to dealing with emerging threats -- including terrorism.  Now more than ever, it is clear that terrorist financing is not a monolithic force -- but part and parcel of a nexus comprised of crafty financial criminals, corrupt banks, and complex ideological and financial networks.

The terrorist financing threat is evolving.  Terrorist financiers are constantly adjusting to international efforts to obstruct them, and consistently depend on new and innovative ways to bankroll their murderous acts.  To a certain extent, we have become a victim of our own success.  Through an unprecedented global effort to shut down flows of money to terrorists since 9/11, it is now harder, costlier and riskier for terrorists to raise funds for their attacks.  Terrorist assets and conduits of funding have been frozen, shut down or otherwise neutralized.  Key facilitators have been captured or killed, and otherwise sympathetic donors have been deterred or isolated.

U.S. and multinational victories against Al-Qaida have had a scattering effect, meaning that some of our terrorist enemies have dispersed into new and incongruous clusters.  As Al-Qaida balkanizes, the organizations and those localized cells that are aligned with it are relying on additional and differentiated sources of financing to survive and proliferate.  These sources, we have found, include various forms of financial crime.

In order to beat back this evolving threat, we must continue to stand firmly against anyone determined to raise illicit capital and move it clandestinely through the international financial system.

In order to triumph over a wide array of terrorist financing and financial crime threats, we need strong and flexible plans.  Our strategy is therefore to both follow the money and attack its illicit sources.  A key element of this strategy is recognizing that the government cannot simply arrest assets and individuals involved in terrorist financing.  We must build systems that filter out tainted capital.  This means creating mechanisms for both gathering valuable financial data without overburdening the financial sector, and punishing perpetrators of terrorist financing and financial crimes.

Effective mechanisms depend on greater collaboration and information sharing within the government and with the private sector.  There is a need to innovate and adapt our anti-money laundering and counter-terrorist financing systems, which requires a heightened level of commitment from the government and the financial sector.  The use of Section 314 of the Patriot Act is a good example of how this group effort works.

Section 314 of the Patriot Act mandates the sharing of information with and within the financial community -- that is, both vertically (between the government and the industry) and horizontally (providing a safe harbor that allows industry members to share information with each other).  Within this paradigm, the financial sector is held accountable for its due diligence.  In addition, the government must provide more and better information to the financial community, deliver substantive feedback, and use its authorities and advisories to help the world's financial community adapt to areas of growing concern or risk.

Treasury also utilizes its unique enforcement powers and regulations through the Patriot Act Section 311 designations process.  It is important to remember that the movement of money in the 21st century knows no borders.  Terrorism -- particularly the type of terrorism we are dealing with since 9/11 -- has global reach.  The United States is leading the global effort to increase financial transparency, and rules guaranteeing a certain level of transparency are absolutely required if we are to be effective in tracking terrorist financing.  Section 311 of the Patriot Act allows us to protect our financial systems from illicit funds emanating from jurisdictions that do not have such rules.  This provision provides the authority to prevent jurisdictions and foreign financial institutions found to be of "primary money laundering concern" from doing business with the United States.

In May 2004, the Treasury Department designated the Commercial Bank of Syria (CBS) based on concerns relating to financial transparency and problems we observed with that institution, including terrorist financing.  Pursuant to this designation, we have issued a proposed rule that, when issued in final form, will oblige U.S. financial institutions to sever all correspondent relations with CBS.  The Commercial Bank of Syria will either take effective steps to address our concerns, or we will cut it off from our financial system.  Actions of this type will help cause jurisdictions and institutions to adopt real reforms that impose an acceptable degree of financial transparency, and will help protect the integrity of our financial system in the meantime.  Treasury's office of Terrorism and Financial Intelligence (TFI) will continue to aggressively apply Section 311 when we have reason to believe that our financial system is being threatened by terrorist financing or other criminal networks.

The Treasury Department also retains the authority, through the President, to designate and freeze the assets of Specially Designated Global Terrorists (SDGT's), under Executive Order 13224, which President Bush signed on September 23, 2001.  Some examples deserve mention, in order to shed light on the nefarious individuals and groups we battle every day in the war on terrorist financing and financial crimes.

In December 2001, Treasury blocked the assets of UTN, a non-governmental organization (NGO) that was financing and providing dangerous nuclear, chemical, and biological information to Usama bin Laden.  In October 2003, Treasury designated Dawood Ibrahim as an SDGT.  Ibrahim, an Indian crime lord, found common cause with Al-Qaida, and shared his smuggling routes with the terrorist syndicate and funded attacks by Islamic extremists aimed at destabilizing the Indian government.

A perfect example of the connection between counterfeiting and terrorism is the case of Assad Ahmad Barakat.  Treasury designated Barakat in June 2004 for being one of the most influential and prominent members of the Hezbollah terrorist organization.  Barakat worked with Hezbollah and several other terrorist organizations in South America's tri-border area to finance terrorism.  The revenue from two of Barakat's companies, strong arm tactics against innocent civilians, and counterfeiting operations were all used to finance terrorist acts.

Designations are potent mechanisms of diplomacy, as governments join together to identify named individuals and groups as terrorists.  Designations are effective in powerful ways.  They shut down pipelines through which designated parties raise and move money; inform third parties who may be unwittingly financing terrorist activity; deter non-designated parties that might otherwise be willing to finance terrorism; and force terrorists to use potentially more costly, less efficient and/or less reliable means of financing.

As you can see, the U.S. government has developed a robust arsenal to employ against those that would use financial crimes as a vehicle to fund terrorist attacks.

In order to address emerging terrorist financing threats, Treasury's role as guardian of the financial sector is manifest.  Treasury regulates, oversees, and interacts with the banking and finance sectors on a daily basis.  Internationally, as the United States' finance ministry, Treasury has cultivated close relationships with finance ministries, central banks, financial intelligence units, and international financial institutions, as well as with the international private sector.

To safeguard financial systems both at home and abroad, TFI [Office of Terrorism and Financial Intelligence] draws upon a range of capabilities that cut across various categories, including financial sanctions, financial regulation and supervision, international initiatives, private sector outreach, and law enforcement support.  TFI consolidates the policy, enforcement, regulatory, international, and analytical functions of the Treasury and adds to them critical intelligence components.

This allows us to better develop and target our intelligence analysis and financial data so that we can detect how terrorists are exploiting financial systems and design methods to stop them.  This also allows us to implement our sanctions and regulatory enforcement programs more effectively and to work closely with embassies and the worldwide financial community to strengthen the international coalition against terrorist financing, money laundering, and other financial crimes.

The President [Bush] and [U.S. Treasury] Secretary [John] Snow realize that we must deal with these threats holistically and for the long term.  That is why within the Treasury Department, we have created the new Office of Terrorism and Financial Intelligence, or TFI.

Through TFI and its subsidiary bureaus, the Treasury Department will continue to take a vibrant role in the war on terrorist financing, in terms of regulations, administration, international engagement and law enforcement, through the preventive use of power.  New authorities have allowed the Treasury Department to act much more proactively, and further utilize law enforcement and asset blocking capabilities to attack terrorist financing wherever it lurks.

As we enter the fifth calendar year of the War on Terrorism, we must continue to match the adaptations of terrorist financiers, money launderers, and other financial criminals with our own enhanced powers and steadfast resolve.  Every day it becomes more apparent that following dirty money and attacking its illicit sources is an essential part of winning the financial war on terrorism.  If we scatter the terrorists, deny them cash, and smother their attempts to funnel their ill-gotten gains through the international financial system, we can make their lives all the more miserable, and their despicable efforts all the more powerless.

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