Terrorist Financing: U.S. Agency Efforts and Inter-Agency Coordination

Congressional research reportAug 4, 2005

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Terrorist Financing: U.S. Agency Efforts

and Inter-Agency Coordination

Updated August 4, 2005

-na-e redacted-, Coordinator

Analyst in International Trade and Finance

Foreign Affairs, Defense, and Trade Division

Congressional Research Service ˜ The Library of Congress

Terrorist Financing:

U.S. Agency Efforts and Inter-Agency Coordination

Summary

Stopping the ability of terrorists to finance their operations is a key component

of the U.S. counterterrorism strategy. To accomplish this, the Administration has

implemented a three-tiered approach based on (1) intelligence and domestic legal and

regulatory efforts; (2) technical assistance to provide capacity-building programs for

U.S. allies; and (3) global efforts to create international norms and guidelines.

Effective implementation of this strategy requires the participation of, and

coordination among, several elements of the U.S. Government. This report provides

an agency-by-agency survey of U.S. efforts. This report will be updated as events

warrant.

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Legislation on Terrorist Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

The Bank Secrecy Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

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 Suppression of the Financing of Terrorism

Convention Implementation Act . . . . . . . . . . . . . . . . . . . . . . . . . . 8

The Intelligence Reform and Terrorism Prevention Act of 2004 . . . . . 8

The Intelligence Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

The Interagency Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Financial Regulators and Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

The Offices Within the Department of the Treasury . . . . . . . . . . . . . . 15

The Financial Institution Regulators . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Internal Revenue Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Role in Government’s Campaign Against Terrorist Financing . . . . . . . . . . 22

Capabilities and Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Coordination and Cooperation with Other Treasury Bureaus and

Federal Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Measures of Success in Campaign Against Terrorist Financing . . . . . . . . . 26

Impact of the Recommendations of the 9/11 Commission . . . . . . . . . . . . . 27

Departments of Homeland Security and Justice . . . . . . . . . . . . . . . . . . . . . . . . . 28

Bureau of Customs and Border Protection (CBP) . . . . . . . . . . . . . . . . . . . . 28

Role in Fighting Terrorist Financing . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Capabilities and Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Measures of Success and Accomplishments . . . . . . . . . . . . . . . . . . . . 29

Relationships and Coordination with Other Agencies . . . . . . . . . . . . . 29

Bureau of Immigration and Customs Enforcement (ICE) . . . . . . . . . . . . . . 29

Role in Fighting Terrorist Financing . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Capabilities and Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Measures of Success and Accomplishments . . . . . . . . . . . . . . . . . . . . 32

Relationships and Coordination with Other Relevant Agencies . . . . . 32

U.S. Secret Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Secret Service Involvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Caveats and Their Meaning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

The Federal Bureau of Investigation (FBI) . . . . . . . . . . . . . . . . . . . . . . . . . 35

The FBI Mission to Counter Terrorist Financing . . . . . . . . . . . . . . . . 36

TFOS Resources and Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Information Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

FBI Measures of Success and Related Accomplishments . . . . . . . . . . 39

Relationships to and Coordination with Other Agencies . . . . . . . . . . . 40

Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) . . . . . . . . . . 41

ATF’s Mission and Roles Related to Terrorist Financing . . . . . . . . . . 41

ATF Coordination with Other Federal Agencies . . . . . . . . . . . . . . . . . 42

Drug Enforcement Administration (DEA) . . . . . . . . . . . . . . . . . . . . . . . . . . 42

DEA’s Responsibilities with Regard to Terrorist Financing . . . . . . . . 42

DEA Resources Devoted to Combating Terrorist Financing . . . . . . . . 43

Measures of Success and Accomplishments . . . . . . . . . . . . . . . . . . . . 43

DEA Coordination with Other Federal Agencies . . . . . . . . . . . . . . . . 43

The Department of State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Office of the Coordinator for Counterterrorism (S/CT) . . . . . . . . . . . . . . . . 45

Bureau of Economic and Business Affairs Office of Terrorism Finance

and Economic Sanctions Policy (EB/ESC/TFS) . . . . . . . . . . . . . . . . . 45

Bureau for International Narcotics and Law Enforcement (INL) . . . . . . . . 46

Other State Department Terrorist Financing Activities . . . . . . . . . . . . . . . . 46

State Department Funding Levels for Terrorist Financing Activities . . . . . 46

International Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

International Agreements and Bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Financial Action Task Force (FATF) . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Middle East and North Africa Financial Action Task Force . . . . . . . . 50

Conclusion: Policy Issues for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Key Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Terrorist Financing: Current Efforts and

Policy Issues for Congress

Introduction1

Since the September 11, 2001 attacks, there has been significant interest in

terrorist financing. Following the attacks, the Administration’s strategy to combat

terrorist financing was focused foremost on freezing terrorist assets. According to

the U.S. Department of the Treasury, the aim of U.S. policy was “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, however, the freezing of terrorist

assets slowed down considerably.

According to the Department of the Treasury’s Terrorist Assets Report, as of

December 2004, programs targeting assets of international terrorist organizations

have resulted in the blocking in the United States of almost $10 million. Of the $1.6

billion in state sponsors of terrorism’s assets located in the United States, $1.5 billion

have been frozen by U.S. economic sanctions. Of that $1.5 billion, the assets of

Libya, which were blocked on September, 20, 2004, made up all but $425 million.3

According to many analysts, these numbers are very small and seem to support

the 9/11 Commission’s conclusion that 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.”4

As detailed in the March 2005 U.S. Department of State International Narcotics

Control Strategy Report,5 the United States has a three-tiered anti-money launderingcounter-narcotics/counterterrorist financing strategy that employs:

This section was prepared by (name redacted)/Foreign Affairs Defense and Trade Division

(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.

Terrorist Assets Report, Department of the Treasury, available at

[http://www.treas.gov/offices/enforcement/ofac/reports/tar2004.pdf].

Executive Summary, Final Report of the National Commission on Terrorist Attacks Upon

the United States, July 2004,pgs. 18-19, available at

[http://www.9-11commission.gov/report/911ReportExec.pdf].

2005 International Narcotics Control Strategy Report, Department of State, available at

[http://www.state.gov/g/inl/rls/nrcrpt/2005/].

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Traditional and non-traditional law enforcement techniques and

intelligence operations to disrupt and dismantle terrorist financiers

networks. (These efforts may include investigations, diplomatic

actions, criminal prosecutions, designations, among other actions);

Capacity building programs to improve the domestic financial, legal,

and regulatory institutions of U.S. allies; and

Global efforts to deter terrorist financing.

Implementing this strategy requires coordination of many different elements of

national power including intelligence gathering, financial regulation, law

enforcement, and building international coalitions. Following a review of legislation

on terrorist financing, this report provides an agency-by-agency survey of these U.S.

efforts.6

Legislation on Terrorist Financing7

“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 stepped up its efforts 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.

The Bank Secrecy Act. Congress laid the foundations of the federal antimoney laundering (AML) framework in 1970 when it passed the BSA,8 the major

money laundering provisions of which make up the Currency and Foreign

Transaction Reporting Act (CFTRA). The BSA framework focuses on financial

institutions’ record- keeping, so that federal agencies are able to apprehend criminals

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, by Raphael Perl. 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,

by (name redacted). For

a discussion of terrorist financing in general, see CRS Report

RS21902, Terrorist Financing: The 9/11 Commission Recommendation, by (name red

acted); CRS Report RL31658, Terrorist Financing: The U.S. and International Response,

by Rensselaer Lee; and CRS Report RL32499, Saudi Arabia: Terrorist Financing Issues,

by Alfred B. Prado and (name redacted).

This section was prepared by (name redacted)/AmericanLaw Division (ALD).

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.).

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by tracing their money trails.9 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 civil10 and

criminal11 penalties for violations of its reporting requirements.

Under CFTRA, financial institutions must file reports for cash transactions

exceeding the amount set by the Secretary of the Treasury in regulations.12 The

Secretary has set the amount for filing these currency transaction reports (CTRs) at

$10,000.13 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.14

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.15 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 $10,000.16

The Internal Revenue Service has certain authorities and responsibilities under

the BSA (see p. 21).

The International Emergency Economic Powers Act. Under the

International Emergency Economic Powers Act17 (IEEPA), enacted in 1977, the

President has broad powers pursuant to a declaration of a national emergency with

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.”18 These powers include the ability to seize foreign assets under U.S.

jurisdiction, to prohibit any transactions in foreign exchange, to prohibit payments

“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.).

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.

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between financial institutions involving foreign currency, and to prohibit the

import/export of foreign currency.19

The Money Laundering Control Act. Congress criminalized money

laundering in 1986 with the passage of the Money Laundering Control Act.20

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.21 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.22

The Annunzio-Wylie Anti-Money Laundering Act. With the passage of

the Annunzio-Wylie Anti-Money Laundering Act23 in 1992, Congress increased the

penalties for depository institutions that violate the federal anti-money laundering

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.24 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,25 and gave the Federal Deposit Insurance Corporation (FDIC) the authority

to terminate federal insurance for guilty state banks and savings associations.26 The

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

maintains this specially designated nationals (SDN) list, which can be found at

[http://www.ustreas.gov/offices/eotffc/ofac/sdn/].

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.

Code).

12 U.S.C. § 1821(c)(5)(M); 12 U.S.C. § 1786(h)(1)(C).

12 U.S.C. § 93(c).

12 U.S.C. § 1818(w).

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Annunzio-Wylie Act also introduced federal penalties for operating money

transmitting businesses27 operating without licenses under state law.28

The Money Laundering Suppression Act. In the early 1990s it became

apparent that the number of currency transaction reports being filed greatly surpassed

the ability of regulators to analyze them. So, in 1994, Congress passed legislation29

mandating certain exemptions from reporting requirements in an effort to reduce the

number of CTR filings by 30%.30 In addition, the act directed the Treasury Secretary

to designate a single agency to receive suspicious activity report filings.31 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 establishments.32

The Money Laundering and Financial Crimes Strategy Act. Congress

in 1998 directed the Treasury Secretary to develop a national strategy for combating

money laundering.33 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).34 In addition, the Treasury

Secretary may issue grants to state and local law enforcement agencies for fighting

money laundering in HIFCAs.35

Title III of the USA PATRIOT Act. In the wake of the terrorist attacks of

September 11, 2001, Congress passed the USA PATRIOT Act.36 Congress devoted

Title III of this act to combating terrorist financing.37 Given that funds used to

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

note.

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 June 2005, seven such areas have been designated as HIFCAs:

New York/New Jersey; San Juan/Puerto Rico; Los Angeles; the southwestern border,

including Arizona and Texas; the Northern District of Illinois (Chicago); the Northern

District of California (San Francisco); and South Florida (Miami). See IRS, Criminal

Investigation’s (CI) Role on Terrorism Task Forces, available at:

[http://www.irs.gov/compliance/enforcement/article/0,,id=107510,00.html].

31 U.S.C. § 5354.

P.L. 107-56. The acronym USA PATRIOT stands for “Uniting and Strengthening

America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorists.”

This Title is called the International Money Laundering Abatement and Anti-Terrorist

(continued...)

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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.38

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 United States are

of primary money laundering concern.39 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

payable-through40 and correspondent accounts.41 The Treasury Secretary is also

empowered to prohibit or restrict the opening of these payable-through and

correspondent accounts,42 and U.S. financial institutions are required to establish

internal procedures to detect money laundered through these accounts.43 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.44 Institutions are subject to fines of up

to $1 million for violations of these provisions.45

Title III allows for judicial review of assets seized due to suspicion of terroristrelated activities and the applicability of the “innocent owner” defense,46 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

(...continued)

Financing Act. For a more detailed discussion of Title III of the USA PATRIOT Act, see

CRS Report RL31208, International Money Laundering Abatement and Anti-Terrorist

Financing Act of 2001, Title III of P.L. 107-56, by (name redacted).

18 U.S.C. § 2339B.

31 U.S.C. § 5318A(a).

“Payable through accounts” are generally checking accounts marketed to foreign banks

that would not otherwise have the ability to offer their customers access to the U.S. banking

system.

“Correspondent accounts” are bank accounts established with a U.S. financial institution

to receive deposits or otherwise handle financial transactions of a foreign financial

institution.

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).

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jeopardize national security.47 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.48

The USA PATRIOT Act permits forfeiture of property traceable to proceeds

from various offenses against foreign nations.49 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.50 Forfeiture

is also authorized for currency reporting violations and violations of BSA

prohibitions against evasive structuring of transactions.51

Title III requires each financial institution to establish an anti-money laundering

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 anti-money laundering program.52

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.53 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.54 Financial institutions are allowed to include

suspicions of illegal activity in written employment references regarding current or

former employees.55

Title III extends the Suspicious Activity Reports filing requirement to brokerdealers,56 and gives the Treasury Secretary the authority to pass along SARs to U.S.

intelligence agencies in order to combat international terrorism.57 Anyone engaged

in a trade or business who receives $10,000 cash in one transaction must file a report

with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN)

identifying the customer and specifying the amount and date of the transaction.58 In

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 from the one codified at 31 U.S.C. §

(continued...)

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addition, the USA PATRIOT Act makes it a crime to knowingly conceal more than

$10,000 in cash or other monetary instruments and attempt to transport it into or

outside of the United States. 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.59

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.60 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.61

Under Title III, FinCEN has statutorily-based authority to conduct its duties

within the Treasury Department.62 Significantly, the act requires FinCEN to maintain

a highly secure network so that financial institutions can file their BSA reports

electronically.63

The Suppression of the Financing of Terrorism Convention

Implementation Act. In order to implement the International Convention for the

Suppression of the Financing of Terrorism, Congress in 2002 made it a crime to

collect or provide funds to support terrorist activities (or to conceal such fund-raising

efforts), regardless of whether the offense was committed in the United States or the

accused was a United States citizen.64

The Intelligence Reform and Terrorism Prevention Act of 2004.

Section 362 of the USA PATRIOT Act required the Secretary of the Treasury to

establish within FinCEN a “highly secure network” to process BSA reports and to

provide information to financial institutions regarding patterns of suspicious activity

gleaned from these reports. With the passage of the Intelligence Reform and

Terrorism Prevention Act of 2004 (IRTPA), Congress authorized the appropriation

of $16.5 million for the development of FinCEN’s “BSA Direct” program, which is

designed to improve the aforementioned network by making it easier for law

enforcement to access BSA filings and improving overall data management.65 The

act also authorizes an additional $19 million for improvements related to — among

(...continued)

5313.

Id. at § 5332.

31 U.S.C. § 5318(l).

31 U.S.C. § 5318(h)(3). “Concentration accounts” comingle the bank’s funds with those

in individual accounts, making it difficult to determine who owns specific funds and why

funds are being moved.

31 U.S.C. § 310.

P.L. 107-56, § 362 (codified at 31 U.S.C. § 310 note).

Title II of P.L. 107-197 (codified at 18 U.S.C. § 2339C).

P.L. 108-458, § 6101(2).

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other things — telecommunications and analytical technologies,66 and makes

permanent the amendments to the BSA contained in Title III of the USA PATRIOT

Act.67

The Intelligence Reform and Terrorism Prevention Act of 2004 requires the

Treasury Secretary to issue regulations mandating the reporting of cross-border

transmittals by certain financial institutions,68 and to submit a report to Congress on

the Treasury Department’s efforts to combat money laundering and terrorist

financing.69 In addition, under IRTPA, a federal financial institution examiner who

leaves the federal government is required to wait one year before accepting a job with

an institution that the examiner was responsible for examining.70

The Intelligence Community 71

In approving the Intelligence Reform and Terrorism Prevention Act of 2004,

Congress established the position of the Director of National Intelligence (DNI) and

created the new National Counterterrorism Center (NCTC), where a panoply of the

U.S. Government’s counterterrorism organizations are now co-located under the

DNI’s control. Among them is the Foreign Terrorist Asset Targeting Group

(FTATG), the Executive Branch’s principal inter-agency analytic group, which is

charged with assessing intelligence on terrorist financing, and providing the National

Security Council’s (NSC) Terrorist Finance Policy Coordinating Committee (PCC)

“intelligence assessments” of individuals and groups suspected of financially

supporting terrorists.

FTATG engages in joint discussions with member agencies of the Targeting

Action Group under the Terrorist Financing PCC, developing suggested actions —

ranging from the freezing of assets to diplomatic options — that policymakers can

consider taking against suspected terrorist financiers.

Although FTATG’s first two directors were Immigration and Custom

Enforcement detailees, the NSC in November 2004 restructured FTATG and named

a Federal Bureau of Investigation special agent as director and an Immigration and

Customs Enforcement (ICE) special agent as deputy director. Until then, both

positions had been vacant for eight months, a period during which FTATG

Id.

Section 303 of the USA PATRIOT Act had given Congress the power to terminate Title

III by passing a joint resolution. IRTPA struck section 303 from the USA PATRIOT Act.

P.L. 108-458, § 6204.

Id. at § 6302.

Id. at § 6303(a).

Id. at § 6303(b). In passing IRTPA, Congress also expressed its general sense that the

Treasury Secretary should work to strengthen international money laundering efforts, and

required the Secretary to report to Congress on these efforts. Id. at § 7701 - 7704.

This section was prepared by (name redacted)/FDT.

CRS-10

foundered, according to some observers. As part of the restructuring, the NSC

narrowed FTATG’s focus to providing intelligence assessments of terrorist financing

targets designated by the NSC’s Terrorist Financing PCC. Prior to the restructuring,

FTATG in some instances would identify targets, but now serves strictly as the

NSC’s research arm. In January 2005, FTATG’s member agencies 72 each committed

to providing staff to serve at FTATG. The Group currently has slightly over half its

staff complement in place.

In May 2000 President Bill Clinton announced the establishment of the Foreign

Terrorist Asset Tracking Center (FTATC), FTATG’s predecessor,73 as part of a $300

million counterterrorism initiative, $100 million of which was to be used to establish

FTATC and target terrorist financing.74 Congress authorized funding in October

2000.75

The Clinton initiative followed the prevention the previous year of a planned

series of Osama Bin Laden terrorist attacks to mark the Millennium. Although the

Intelligence Community (IC) successfully disrupted those attacks before they could

occur, Administration officials remained troubled by the IC’s continuing inability

to identify, track and disrupt al Qaeda’s financial support network.76

Vowing to gain a better understanding of the terrorists’ financial network —

particularly its fund-raising component — White House officials conceived of and

pushed for the establishment of FTATC as a way to improve the government’s

Department of Homeland Security-ICE; the National Security Agency (NSA), Central

Intelligence Agency (CIA), Department of State (State); Treasury, to include the Office of

Foreign Asset Control (OFAC) and FinCEN (Financial Center); the Defense Intelligence

Agency at Department of Defense; and the Department of Homeland Security.

The name of the organization has changed, and so, over time, has its mission. Initially,

FTATC was housed at the Treasury Department’s OFAC, where it provided OFAC terrorist

financing intelligence analysis. Its successor, FTATG, is co-located with NCTC and other

federal counterterrorist entities at the Liberty Crossing facility, located at Tysons Corner,

Virginia, FTATG provides the NSC intelligence assessments of individuals and groups

financing terrorism, and in conjunction with its member agencies, suggests actions

policymakers could take to combat specific terrorist financing targets.

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.

The 9/11 Commission Report, National Commission on Terrorist Attacks Upon the

United States, July 22, 2004, p. 186. According to the Commission (p. 185) , 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 intentions. As a result, the CIA

placed little emphasis on terrorist financing.”

CRS-11

understanding of how terrorists fund their operations.77 Officials envisioned FTATC

as an inter-agency all-source terrorist-financing intelligence analysis center, and

successfully pushed to have it located at the Department of the Treasury.78 But, at the

time, some of the key agencies expected to participate and contribute resources,

including the Treasury Department itself, did not attach a priority to collecting and

analyzing terrorist financing intelligence. Indeed, Treasury officials made no

mention of terrorist financing in their national security money laundering strategy.79

The CIA, in turn, saw little utility in tracking terrorist financing.80 Despite this

skepticism, President Bush’s National Security Adviser Condoleezza Rice

determined by spring of 2001 that terrorist financing proposals were worth pursuing.

By this time, a year had passed since the Clinton White House initially established

terrorist finance analysis as a priority, and, yet, the Treasury Department still had not

stood up a center. Instead, Treasury officials continued their planning, intending at

some future point to establish a 24-analyst strong office.81

On the eve of the September 11, 2001 attacks, Treasury still had taken no

concrete steps to establish a center. By then, sixteen months had passed since the

Clinton Administration announced its intention to establish the Center. More than

seven months had elapsed since the incoming Bush Administration had adopted the

concept. And despite numerous post-9/11 declarations to the contrary 82 — FTATC,

prior to 9/11, remained a plan rather than a reality. Even before the 9/11 attacks,

signs of frustration were becoming evident. Treasury officials had begun blaming

CIA for adopting a posture of “benign neglect” toward FTATC.83

Three days after the terrorist attacks of September 11, Treasury officials finally

took action, establishing the Center84 and placing it under the control of the

Department’s Office of Foreign Asset Control. At the time, a Treasury spokeswoman

denied that there had been any unusual delay in launching the Center, citing the

logistical difficulties involved in bringing together representatives of a number of

Ibid, p. 186.

Ibid, p. 186. Shortly after former Special Advisor to the President Richard Clarke and the

NSC decided to advocate the creation 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

create a unit within the Treasury Department’s OFAC that blended the expertise of Treasury

agencies with that of the CIA, FBI and NSA, and was dedicated to targeting terrorist

financing. The Commission further recommended that such a center should support more

aggressive efforts by OFAC to freeze the assets of those individual or groups funding

terrorists.

Ibid, p. 186.

Ibid, p. 505, FN No. 88.

Ibid.

See Myron Levin and Josh Meyer, “Officials Fault Past Efforts on Terrorist Assets,” Los

Angeles Times, Oct. 16, 2001.

CRS-12

investigative agencies. Senator Charles E. Grassley, however, expressed concern as

to whether the delay “is indicative of larger problems.”85

Initially, the Center was comprised of the same member agencies as Operation

Green Quest, a multi-agency, financial enforcement initiative set up to identify,

disrupt, dismantle and ultimately “bankrupt” terrorist networks and their sources of

funding.86 FTATC’s mission was to provide intelligence assessments of individual

and group terrorist financing targets identified by Green Quest, which was

responsible for conducting investigative operations.87

In September 2001, the Senate Select Committee on Intelligence (SSCI), in a

report accompanying its approved fiscal year (FY) 2002 intelligence authorization

bill, endorsed IC efforts to exploit financial intelligence, and noted that the Treasury

Department’s FTATC concept showed promise in providing terrorist financial

analysis. But the Committee cautioned that FTATC, “...to the extent it will function

as an element of the Intelligence Community, has not been coordinated adequately

with the Director of Central Intelligence nor reviewed by this Committee.”88 The

Committee directed the DCI and the Treasury Secretary to jointly prepare 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 Committee instructed that the report contain an

evaluation of FTATC’s suitability for the task and, if appropriate, a plan for

FTATC’s development.89

By May 2002, the Executive Branch had yet to complete the requested report,

despite a subsequent statutory requirement contained in the USA PATRIOT Act

requiring that it do so. The SSCI noted its dissatisfaction and included a provision

in the FY2003 intelligence authorization, subsequently approved by the House,

establishing the FTATC at CIA, and placing it under DCI control.90

Ibid.

The following Treasury Department agencies participated in Green Quest: U.S. Customs

Service, the Internal Revenue Service, the Financial Crimes Enforcement Network

(FinCEN), the Office of Foreign Assets Control, and the Secret Service. (The Department

of Homeland Security has since absorbed some of these agencies). The FBI and the

Department of Justice also participated in Green Quest.

See prepared comments of Treasury Undersecretary James Garule, October 25, 2001,

announcing the Green Quest initiative. See also U.S. Customs press release October 25,

2001, announcing Operation Green Quest.

See S.Rept. 107-63, Sept. 14, 2001, pp. 10-11, which accompanied S. 1428, the SSCIapproved Fiscal Year 2002 Intelligence Authorization Bill.

Ibid, pp. 10-11.

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

(continued...)

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Despite the statutory requirement that the FTATC be under the DCI’s control,

the Executive Branch placed FTATC under the supervision of the NSC’s Office of

Combating Terrorism. As noted earlier, the Executive Branch also renamed FTATC.

Following the enactment of the 2004 Intelligence Reform Act, the DNI assumed

control of FTATG.

The Interagency Process91

The National Security Council 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 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 11.92

Since the introduction of the PCC, 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 financial networks.”93

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

(...continued)

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.

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.

CRS-14

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

the conduct of operations. This compromises their oversight role and usurps the

responsibilities of the departments and agencies.”94 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 Institutions95

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 that could be helpful in detecting, disrupting,

and preventing the use of the nation’s financial system by terrorists and terrorist

organizations. Congress has statutorily required new reporting to improve the

timeliness of terrorist financing detection, suppression, and control. 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. Figures for this kind of activity have been available only with a

long time lag. Even longer lags characterize Inspector General and reported internal

assessments of the effectiveness of antiterrorist financing efforts.

Parts of the USA PATRIOT Act are scheduled to expire on December 31, 2005.

Different legislation has been passed by both houses that would reauthorize these

sections (H.R. 3199 and S. 1389).96 While the expiring provisions of the act are

nonfinancial (Title II), congressional reauthorization initiatives might well expand

to amend the financial Title III. And according to Senate Banking Committee

Chairman Richard Shelby: “The Committee will continue its thorough series of

hearings on terror finance. As part of our country’s anti-terror efforts, the Committee

will continue to conduct hearings and a review of our national money laundering

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 (name redacted)/Government and

Finance Division (G&F).

For information on legislative proposals reauthorizing sections of the USA PATRIOT Act,

see CRS Report RS22196, USA PATRIOT Act Reauthorization Proposals and Related

Matters in Brief, by (name redacted).

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strategy.”97 The Government Accountability Office (GAO) has a study under way

for this Committee on such policies and practices.98

The Offices Within the Department of the Treasury. Offices within the

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 Bank Secrecy Act 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 frameworks for anti-money laundering and terrorist

financing efforts internationally. Two offices with antiterrorist financing

responsibilities within TFI are the Office of Foreign Assets Control and the Financial

Crimes Enforcement Network.

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 Suspicious Activity Reports and Currency

Transaction Reports from reporting financial institutions (with assistance from the

Internal Revenue Service), 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

been eight SAR Activity Reviews issued since October 2000, the most recent dated

April 2005 and covering data through June 2004. Between April 1, 2003, and June

30, 2004, 2175 suspicious activity reports were submitted to FinCEN of which 51%

came from money services businesses and 47% came from depository institutions.

The rest came from casinos and securities and futures institutions.99 SARs from

depository institutions are responsible for most of the reporting accuracy problems.

Nevertheless, 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 conducting of criminal

investigations.

Senate Committee on Banking, Housing, and Urban Affairs. Press Release, Jan. 19, 2005,

[http://banking.senate.gov/index.cfm?FuseAction=PressReleases.Detail&PressRelease_i

d=177&Month=1&Year=2005].

Testimony of Davi M. D’Agostino, Director of Financial Markets and Community

Investment of the United States Government Accountability Office, before the Committee

on Banking, Housing, and Urban Affairs, U.S. Senate, June 3, 2004.

[http://banking.senate.gov/_files/dagostino.pdf]

FinCEN, The SAR Activity Review Trends, Trip & Issues, April 2005, 50 p. [http://www.

FinCEN.gov].

CRS-16

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.100

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. In June 2004, the IG testified that subsequent audits

revealed little or no improvement.101 More recent IG reports on FinCEN and the use

of FinCEN’s BSA e-filing of SAR reports continues to give FinCEN low grades in

eliminating ongoing problems concerning enforcement of the Bank Secrecy Act and

USA PATRIOT Act.102

Following the IG audit, FinCEN announced it would collect information from

the agencies responsible for Bank Secrecy Act compliance on their examination

procedures, cycles and resources; on any significant deficiencies in reporting by

financial institutions; and other data including formal and informal actions taken by

regulators to correct reporting failures by financial institutions. FinCEN has created

an internal Office of Compliance to support the work of financial regulators.

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 lists those persons, groups, or countries whose

transactions it has been instructed to block or assets to be frozen by financial

institutions. OFAC has close working relations with the financial regulatory

community and maintains telephone “hotlines” through which it receives information

about in-progress questionable transactions. OFAC also works closely with the

Federal Bureau of Investigation and with the Department of Commerce’s Office of

100

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].

101

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.

102

The Department of the Treasury, Office of the Inspector General, Audit Report: FinCEN:

Heightened Management Attention Needed Over Longstanding SAR Data Quality Problems,

OIG 05-033, Mar. 23, 2005. and The Department of the Treasury, Office of the Inspector

General, Terrorist Financing /Money Laundering: Additional Outreach and System

Enhancements are Needed to Encourage Greater Use of FinCEN’s BSA E-Filing, OIG-05034, Mar. 31, 2005.

CRS-17

Export Enforcement, and cooperates with the United Nations in imposing sanctions

on foreign governments.

The most recent IG audit was completed in April 2002 and concluded that

OFAC is hampered 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 that

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 transactions and did not report blocked assets.103

The Intelligence Reform and Terrorism Prevention Act of 2004 addressed

financial sector counterterrorism. Section 6303 required the Treasury Secretary to

report on governmental ways to curtail terrorist financing, including organizational

changes as well as procedural ones. Section 7802 stated that: “It is the sense of

Congress that the Secretary of the Treasury, in consultation with the Secretary of

Homeland Security, other Federal agency partners, and private-sector financial

organization partners, should — (1) furnish sufficient personnel and technological

and financial resources to educate consumers and employees of the financial services

industry about domestic counter terrorist financing activities, particularly about —

(A) how the public and private sector organizations involved in such activities can

combat terrorism while protecting and preserving the lives and civil liberties of

consumers and employees of the financial services industry; and (B) how the

consumers and employees of the financial services industry can assist the public and

private sector organizations involved in such activities; and (2) submit annual reports

to Congress on efforts to accomplish subparagraphs (A) and (B)....”

President Bush’s FY2006 budget request for the Treasury Department includes

more funding for combating terrorist and other illegal financing. FinCEN would

receive $73.6 million in directly appropriated funds, an increase of about 2%. In

addition, $1.5 million would flow into FinCEN as offsets and reimbursements from

other agency accounts. TFI’s new internal Office of Intelligence Analysis would

essentially double in size, receiving $1.8 million in funding. OFAC would receive

$23.8 million, up almost 8%. Additional funding of $0.6 million would increase

TFI’s other efforts to detect illegal activities.104

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.

103

104

Schindel, p. 4.

“President Bush Requests More Funds for Bank Secrecy Act Oversight in Budget,” Daily

Report for Executives, Feb. 8, 2005, p. B-18.

CRS-18

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 has formed an additional Working

Group to enhance coordination of regulatory agencies, law enforcement, and private

financial institutions to strengthen current arrangements. All, including the nondepository 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.105

For federal budgetary purposes, the financial regulatory agencies are essentially

self-funding. Thus, most of their increasing spending on antiterrorist and money

laundering efforts comes from general operating funds, including assessments and

fees on their regulated institutions and portfolio interest earnings, rather than federal

appropriations.

The Office of the Comptroller of the Currency (OCC) 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, it

reviews internal controls, internal and external audits, and BSA compliance.

According to the OCC, it conducted about 1,340 BSA examinations of 1,100

institutions in 2003, and nearly 5,000 BSA examinations of 5,300 institutions since

1998.106

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

105

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

Revenue Service.

106

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.

[http://financialservices.house.gov/media/pdf/060204ds.pdf]

CRS-19

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.”107 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. Riggs

has ended operations and has been sold to PNC Financial Services Group.

The Federal Reserve System (Fed) supervises about 950 state-chartered

commercial banks that are members of the system and more than 5,000 bank 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. Regulators’ 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, it 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 action.108 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.109

It also sanctioned the holding company for Riggs Bank.110

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. It also insures 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

107

Stipano, p. 9.

108

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]

109

R. Christian Bruce, “Fed Fines Switzerland’s UBS for Illegal Dollar Transactions,” Daily

Report for Executives, May 11, 2004, p. A-10.

110

“PNC, Riggs Merger Salvaged After Riggs Agrees to Reduced Takeover Price,” Daily

Report for Executives, Feb. 11, 2005, p. A-37.

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institutions and bans or civil fines against three individuals for violations. The FDIC

also has taken 53 informal actions since 2001.

The Inspector General 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 judged to

be 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.111 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 acted.

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

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

eleven. 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 cases.

The National Credit Union Administration (NCUA) currently regulates 8,945

federally chartered credit unions and another 3,442 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 filings for some customers.112

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

111

D’Agostino Testimony.

112

Ibid.

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following the on-site examinations. NCUA actions are generally informal but may

involve memoranda of understanding.113

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 efficient mechanisms for

money laundering.

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

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. These examinations

resulted in 238 audit reports of which 54 reflected anti-money laundering deficiencies

113

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.

[http://banking.senate.gov/_files/johnson.pdf]

CRS-22

at nine merchants and 45 brokers. Primary deficiencies cited were failures to comply

with annual audit and training requirements.114

Internal Revenue Service115

To help finance its operations and its many spending 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 fees — except customs duties — is

the Internal Revenue Service (IRS). In managing that huge responsibility, the IRS

receives and processes tax returns and related documents, payments, and refunds,

enforces compliance with tax laws and regulations, collects overdue taxes, and

provides a variety of services to taxpayers intended to answer questions, help them

understand their rights and responsibilities under the tax code, and resolve disputes

in ways that seek to avoid protracted and costly litigation.

Role in Government’s Campaign Against Terrorist Financing

The IRS also contributes to current efforts by the federal government to

uncover, disrupt, and staunch the flow of funds to terrorist groups, especially those

expressing implacable hostility toward the United States. These efforts involve the

use of a variety of weapons, including the collection and analysis of financial

intelligence, diplomatic pressure, regulatory actions, administrative sanctions, and

criminal investigations and prosecutions. The IRS’s role rests on the agency’s wealth

of experience and expertise in tax law enforcement. For the most part, it consists of

providing analytical and resource support for investigations (many done in concert

with other federal agencies) of possible links between terrorist groups and actual or

alleged violations of the financial reporting requirements of the Bank Secrecy Act of

1970, money laundering schemes, and the diversion of funds from tax-exempt

charities. The IRS is responsible for enforcing compliance with the BSA for all nonbanking financial institutions not regulated by another federal agency, including

money service businesses (MSBs), casinos, and credit unions.

Capabilities and Resources

The current allocation of funds among major IRS operations suggests to some

that exposing and disrupting the flow of funds to terrorist organizations hostile to the

United States is not an especially high priority for the IRS. In FY2005, the IRS is

receiving $10.236 billion in appropriated funds. Of this total, $4.363 billion (or

nearly 43%) is designated for tax law enforcement, the appropriations account from

which the IRS funds its contributions to the federal government’s campaign against

terrorist financing. While there is no specific line item in the IRS budget for

activities related to terrorist financing, the agency estimates that its spending for this

purpose in FY2005 may total $31.2 million, up from between $20 and $25 million

114

CFTC communication with CRS, August 2004.

115

This section was prepared by (name redacted)/G&F.

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in FY2004.116 This amounts to 0.7% of its budget for tax law enforcement and

slightly more than 0.3% of its total budget. It is not clear from available information

how much the IRS is likely to spend on activities related to terrorist financing in

FY2006.

IRS’s contribution to the government’s campaign against terrorist financing

draws mostly on the resources of three of its operating divisions: Criminal

Investigation (CI), the Small Business and Self-Employed Taxpayers Division

(SB/SE), and the Tax-Exempt and Government Entities Division (TE/GE).

The principal division, as measured by resources devoted to investigating and

opposing terrorist financing, seems to be CI, whose main function is to investigate

instances of alleged tax evasion and other financial crimes related to tax

administration. In recent decades, CI has become increasingly involved in

investigations of possible violations of anti-money laundering and financial reporting

statutes. CI uses BSA and money-laundering statutes to investigate and prosecute

criminal conduct related to the tax code, such as abusive tax shelters, offshore tax

evasion, and corporate fraud. CI also investigates failures to file Form 8300 (Report

of Cash Payments Over $10,000 Received in a Trade or Business) and criminal

violations of the BSA, including the structuring of deposits to avoid the reporting

requirements for currency transactions. As a result, the division has become adept

at exposing 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. In the aftermath of

the terrorist attacks of September 11, 2001, CI has been adapting this capability to

the special requirements of exposing, tracking, and dismantling the sources of

terrorist financing. This is no easy task, partly because terrorist groups and their

financiers are constantly adjusting to efforts by major countries like the United States

to stop the flow of funds to these groups. These groups are beginning to rely on

methods of moving funds outside formal financial systems such as the use of cash

couriers and alternative remittance systems. In FY2005, CI’s spending on

investigating terrorist financing is likely to amount to $30.5 million, or nearly 98%

of the total IRS budget for this purpose.117 Of the 186 IRS employees expected to

work on a full-time basis on activities related to terrorist financing in FY2005, 182

come from CI.

The SB/SE Division performs a number of important tasks. One is to enforce

compliance with certain sections of the tax code. Another is to monitor and enforce

compliance by certain non-banking financial institutions with the reporting

requirements of the BSA. In discharging this responsibility, SB/SE agents conduct

examinations of MSBs, casinos, and credit unions to ensure they comply with

reporting requirements under the BSA. They refer possible violations to CI and

Treasury’s Financial Crimes Enforcement Network for investigation. Some of the

116

The estimates were obtained through an e-mail exchange with Floyd Williams of the IRS

Congressional Liaison Office on July 22, 2004.

117

Based on information contained in an e-mail message received from Floyd Williams of

the IRS on April 8, 2005.

CRS-24

cases could involve suspected attempts to launder money to terrorist groups. In

October 2004, a new office was established within the SB/SE Division — the Office

of Fraud/BSA — to coordinate IRS’s efforts to enforce compliance with the BSA.

The director of the office reports directly to the Commissioner of SB/SE and is

responsible for BSA policy formation and data management. It is not clear from

available information how much the Division is likely to spend on activities tied to

investigations of terrorist financing in FY2005.

A primary responsibility of the TE/GE Division is oversight of the financial

affairs of charities. TE/GE civil examiners evaluate applications submitted by

organizations seeking tax-exempt status and monitor the continuing eligibility of

organizations already granted that status through information obtained from tax

returns and other sources. The Division recently revised its application form for

charities seeking tax-exempt status (Form 1023) to include more relevant information

for criminal investigators in cases involving allegations of financial crimes or

terrorist financing. Additionally, agents from the Exempt Organizations branch of

the TE/GE Division lend assistance to CI and other federal agencies in their

investigations of charities suspected of having diverted funds to support terrorist

activities. In FY2004, the EO began an intensive educational program to persuade

charities to implement effective internal controls to prevent the unintended diversion

of assets to terrorist groups. And in FY2005, the Exempt Organizations branch plans

to establish an office known as the Exempt Organization Fraud and Financial

Transactions Unit, whose main tasks will include exposing and disrupting the

diversion of charitable assets to fund terrorist activities and expanding the database

on the flow of funds from donors to charitable organizations available to CI and other

law enforcement agencies. Once again, it is not clear how much the Division will

spend on activities related to investigations of terrorist financing in FY2005.

Underpinning the IRS’s contribution to the federal government’s fight against

terrorist financing are the knowledge, skills and technology possessed by CI special

agents and certain financial information the agency collects under a variety of tax and

anti-money laundering statutes, including the BSA.

Criminal Investigations special agents must have academic degrees in

accounting and business finance. In addition, they undergo rigorous training in

criminal investigative techniques, forensic accounting, and the fundamentals of

financial investigations. Some also receive specialized training in methods of

tracking and thwarting terrorist financing from prosecutors with the Department of

Justice’s Counterterrorism Section. Experienced special agents tend to excel at

unraveling complex financial transactions by acquiring and analyzing key pieces of

detailed financial information and re-assembling them in the manner of a jigsaw

puzzle to form what is intended to be a coherent picture of expenditures, life-style

changes, and acquisition of assets. As of March 19, 2005, the IRS employs 2,733

special agents, 111 of whom serve as computer investigative specialists trained to use

special equipment and techniques to preserve digital evidence and to recover

financial data.118

118

Based on information obtained from Floyd Williams of the IRS in an e-mail message

(continued...)

CRS-25

Around 182 special agents and CI support personnel are working on

counterterrorism investigations in FY2005.119 Some of these agents, along with a

number of agents from the TE/GE Division, are involved in a pilot anti-terrorism

initiative being conducted at the Garden City Counterterrorism Lead Development

Center (LDC) in Garden City, NY. The initiative, which is directed by the CI, offers

research and project support to anti-terrorist financing investigations being conducted

by the Joint Terrorism Task Forces led by the FBI or by CI special agents.120 By

combining confidential data from tax forms with public sources of information and

data gathered from other criminal investigations, the LDC can undertake thorough

analyses of financial data relevant to specific investigations and disseminate the

results in accordance with the limits imposed by tax disclosure laws and the rules

governing the secrecy of grand jury proceedings. CI special agents assigned to the

LDC have focused their investigations on the members of known terrorist groups

who might have violated tax, money-laundering, and currency laws and individuals

linked to tax-exempt organizations who might be raising funds to support terrorist

groups.

Owing to its responsibility for enforcing tax laws and various money laundering

statutes, the IRS has direct access to financial information that might be useful in

detecting and tracking tax evasion and various financial crimes, including the

movement of money earned through illegal activities through domestic financial

institutions to foreign 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.121 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 with the IRS; the form provides 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 nonbanking financial institutions not regulated by other federal agencies; these

institutions include MSBs, casinos, and non-federally insured credit unions. The IRS

is also responsible for processing and storing electronically all BSA documents

collected by all federal agencies (including FBARs, currency transactions reports, and

118

(...continued)

received on April 21, 2005.

119

See written testimony 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

held on June 16, 2004. Available at [http://www.financialservices.house.gov/hearings],

visited on May 9, 2005.

120

See written testimony of Juan Carlos Zarate, Assistant Treasury Secretary for Terrorist

Financing and Financial Crimes, submitted to the Subcommittee on Oversight and

Investigations of the House Committee on Financial Services for a hearing held on Feb. 16,

2005. Available at [http://www.financialservices.house.gov/hearings], visited on April 1,

2005.

121

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.

CRS-26

suspicious activity reports) in a computer data base known as the Currency Banking

Retrieval System. Currently, the CBRS contains close to 144 million BSA

documents. Sometime in 2006 or 2007, FinCEN is to assume primary responsibility

for processing and storing all BSA documents through a project known as BSA

Direct.122 Although all these documents are made available to other law enforcement

and regulatory agencies, the IRS appears to be the largest user. According to

congressional testimony by Nancy Jardini, Chief of the Criminal Investigations

Division, data culled from BSA documents played important roles in 26% of the 150

investigations into terrorist financing conducted by special agents through June

2004.123

Coordination and Cooperation with Other Treasury Bureaus

and Federal Agencies

The IRS shares its investigative resources with a variety of other Treasury

bureaus and federal agencies. It is forging close working relationships with the

Treasury Department’s Office of Terrorism and Financial Intelligence as well as

Treasury’s Office of Foreign Assets Control, FinCEN, and the Working Group on

Terrorist Financing and Charities. A key function of TFI is to assemble and analyze

intelligence on the methods used by terrorist groups to finance their activities.

FinCEN and the IRS work closely on enforcing compliance with the BSA, and

FinCEN refers possible cases of terrorist financing to IRS’s LDC for further

investigation.

In addition, the IRS is contributing to numerous inter-agency initiatives aimed

in whole or in part at tracking and disrupting the flow of funds to terrorist groups.

Among the noteworthy initiatives are the National Counterterrorism Center; the

Informal Value Transfer System Working Group; the Organized Crime Drug

Enforcement Task Force Program; the Defense Intelligence Agency Center; the AntiTerrorism Advisory Council created by the Attorney General; the FBI’s JTTF,

Terrorist Financing Operations Section, and National Joint Terrorism Task Force;

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 are the Bureau

of Alcohol, Tobacco, Firearms and Explosives; the Drug Enforcement

Administration; and Immigration and Customs Enforcement.

Measures of Success in Campaign Against Terrorist

Financing

There is no evidence that the IRS has developed a formal and publicly

accessible method for evaluating the cost-effectiveness of its contributions to the

122

“FinCEN’s BSA Direct Could Counteract Shady Transactions; U.S. Treasury’s Financial

Crimes Enforcement Network,” Electronic Payments Weekly, vol. 2, no. 2, Jan. 11, 2005.

123

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.

CRS-27

campaign against terrorist financing. The apparent lack of such a method makes it

difficult to address some key policy issues raised by those contributions.

Specifically, it is not clear to what extent the agency’s involvement complements or

duplicates work done by other agencies, yields financial information that results in

the elimination or disruption of specific sources of terrorist financing, and can be

regarded as a desirable investment of public resources. Nonetheless, the IRS does

keep track of the number of anti-terrorist financing investigations its agents are

involved in and their outcomes. According to 2004 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.”124 Of these, over 100 led to

criminal indictments; another 120 were referred to the Justice Department for

prosecution; and the remaining 150 or so were incomplete and still being worked on

by CI special agents.

Impact of the Recommendations of the 9/11 Commission

By all available accounts, the IRS has made limited changes in its contributions

to the federal government’s campaign to combat terrorist financing in response to the

9/11 Commission’s recommendation to improve the collection of intelligence

regarding terrorist financing. On the whole, it appears that IRS’s role in the

government’s campaign against terrorist financing is not only consistent with this

recommended change in strategy but arguably critical to its prospects for success.

In September 2004, the IRS established a new senior executive position to

coordinate its activities related to terrorist financing. The current Counterterrorism

Coordinator is Rebecca Sparkman. Her duties include evaluating the efficacy of the

agency’s contributions to the fight against terrorist financing; monitoring criminal

cases involving allegations of terrorist financing; overseeing the interactions between

IRS and other Treasury bureaus and federal agencies involved in the fight against

terrorism to make sure they are not hampered by a lack of coordination; and fostering

open communication among the divisions in IRS contributing to the fight against

terrorist financing. In addition, the IRS shifted its representative on the National

Joint Terrorism Task Force to the National Counterterrorism Center established in

August 2004 through an executive order signed by President Bush.

124

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.

CRS-28

Departments of Homeland Security and Justice

Bureau of Customs and Border Protection (CBP)125

The Bureau of Customs and Border Protection 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 crossborder 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 Fighting Terrorist Financing. CBP’s role in the national effort to

combat terrorist financing is confined to its inspection and interdiction activities

along the border and 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

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.

Interdiction and Security Outbound 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 United States).

125

This section was prepared by Jennifer Lake/Domestic Social Policy Division (DSP).

CRS-29

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 40,000 employees. Of these, nearly 18,000 are front

line inspectors. CBP’s budget for FY2005 is $6.5 billion and $6.7 billion has been

requested for FY2006.

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 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.

Measures of Success and Accomplishments. In FY2004 CBP

Interdiction and Security (Outbound) operations made 1,320 seizures of unreported

and bulk smuggling of currency valued at $45.9 million. This same unit, in FY2003,

also made a total of 1,337 seizures valued at $51.7 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. CBP’s Canine

Enforcement Program was responsible for seizures of U.S. currency worth $28.2

million in FY2004. According to recently reported statistics, CBP makes five

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.

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 Immigration and

Customs Enforcement, Coast Guard, and the Transportation Security Administration

(TSA). They also include 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

the Bureau of Immigration and Customs Enforcement, Coast Guard; the U.S.

Department of Agriculture; the Transportation Security Administration; 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 (CIA); the joint venture Terrorist Threat Integration Center

(TTIC); and the FBI-led Terrorist Screening Center (TSC).

Bureau of Immigration and Customs Enforcement (ICE)126

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

126

This section was prepared by Jennifer Lake/DSP.

CRS-30

investigative components of the legacy U.S. Customs Service (Customs), the legacy

U.S. Immigration and Naturalization Service; the Federal Protective Service, and the

Federal Air Marshals. 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 Fighting 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 investigative priorities and responsibilities, the Secretary of

Homeland Security and the Attorney General signed a Memorandum of Agreement

(MOA) 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, is able to play a significant role. The MOA provided that

ICE and the FBI detail appropriate personnel to the other agency. 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 Financial Investigations

Division .127 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 to be referred

to the FBI’s TFOS, where the FBI and FBI-led Joint Terrorism Task Forces are to

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 and reorganized it into two primary programs: the Financial Investigations

Program 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 ‘nondrug’ money laundering (human smuggling, telemarketing fraud, child pornography,

127

See Government Accountability Office, Combating Terrorism: Federal Agencies Face

Continuing Challenges in Addressing Terrorist Financing and Money Laundering, GAO-04501T (Washington: Mar. 4, 2004).

CRS-31

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.

In addition, ICE has 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;

Gaborrone, Botswana; and Budapest, Hungary. 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’s 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. This program provides training for law enforcement officers

from five South American countries.

Capabilities and Resources.

According to the 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. FID received $283 million in FY2004.128 According to the GAO, as of

128

Department of Homeland Security. FY2005 Congressional Budget Justification,

“Immigration and Customs Enforcement” ICE-37. FY2005 enacted and FY2006 request

(continued...)

CRS-32

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.129 ICE’s Office

of Investigations (of which FID is a component) received a budget of $1.1 billion in

FY2005 and has requested $1.3 billion for FY2006.130

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. Recent information

published by ICE indicates that through Cornerstone, ICE has seized nearly $300

million in currency and monetary instruments, and made 1,800 arrests for financial

crimes.131

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

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 Service132

The United States Secret Service — now a part of the Department of Homeland

Security, where it is to be “maintained as a distinct entity”133 — had been housed,

since its inception as a small anti-counterfeiting force in 1865, in the Department of

the Treasury.134 As a result of its missions and responsibilities, the Service’s roles

128

(...continued)

data for FID were not available for inclusion in this update.

129

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.

130

Department of Homeland Security. FY2006 Congressional Budget Justification,

“Immigration and Customs Enforcement” ICE-S&E-15.

131

Testimony of Assistant Secretary Michael J. Garcia, U.S. Immigration and Customs

Enforcement, before the Senate Banking, Housing and Urban Affairs Committee, September

29, 2004.

132

This section was prepared by Fred Kaiser/G&F.

133

This autonomy was granted in the legislation establishing DHS (P.L. 107-296, Section

821 (2002)).

134

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

(name redacted), “Origins of Secret

Service Protection of the President,” Presidential

(continued...)

CRS-33

in combating terrorism and financial crimes are manifold, extending to anti-terrorist

financing.135 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.)

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

residence.

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.136 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

134

(...continued)

Studies Quarterly, vol. 18, winter 1988.

135

Descriptions and overviews are in: U.S. Secret Service, Strategic Plan, 2003-2008

(2005), Budget Request, FY2006 (2005), and Mission Statement (2003), available at

[http://www.secretservice.gov]. Congressional committee 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

(2005), 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 a multiplicity of reports and

testimony from the U.S. Government Accountability Office, formerly the 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-04501T (2004); and Terrorist Financing: U.S. Agencies Should Systematically Assess

Terrorists’ Use of Alternative Financing Mechanisms, GAO-04-163 (2003).

136

Secret Service, Strategic Plan, 2003-2008.

CRS-34

theft, computer fraud; and computer-based attacks on our nation’s financial,

banking, and telecommunications infrastructure.137

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.138

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

enterprise.139

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.140

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 from the

high degree of secrecy and sensitivity surrounding them and agency operations. In

addition, 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.

137

Secret Service, Mission Statement.

138

Ibid., Financial Crimes Division statement,

[http://www.secretservice.gov/financial_crimes.shtml].

139

Ibid.

140

Ibid.

available

CRS-35

A third caveat is that actual practice might not conform to expected practice and

that formal institutional arrangements and procedures 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

investigations.

The Federal Bureau of Investigation (FBI)141

The Federal Bureau of Investigation is the lead agency in the Department of

Justice (DOJ) for 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,

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.”142 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

financing.

141

142

This section was prepared by (name redacted)/DSP.

See Testimony of Gary M. Bald, Acting Assistant Director for Counterterrorism Division,

FBI, Before the Senate Caucus on International Narcotics Control, March 4, 2004.

CRS-36

The FBI has primary jurisdiction over the bulk of specified criminal offenses

associated with money laundering in statute.143 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.144

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 and other criminal

intelligence to generate new investigations and contribute to ongoing

investigations.145

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,146 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.147 The FBI was also the lead

agency for Title 18 U.S.C. money laundering referrals (376),148 but such cases do not

include those involving material support to foreign terrorists and international

financial transaction offenses.149

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 back to 1994 with the enactment of the

first “material support” legislation.150 The material support laws were subsequently

enhanced with the enactment of the USA PATRIOT Act.151 A variety of other legal

143

18. U.S.C. § 1956(c)(7).

144

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.

145

Federal Bureau of Investigation, “About the Money Laundering Unite” web page, go to

[http://www.fbi.gov/hq/cid/fc/ml/m._about.htm].

146

Such cases involved charges under 18 U.S.C. §§ 1956, 1957, and 1960; and 31 U.S.C.

§§ 5313, 5316, and 5324.

147

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.

148

Such cases involved charges under 18 U.S.C. §§ 1956, 1957, and 1960.

149

18 U.S.C. §§ 2339A and 2339B, 50 U.S.C. 1701 and 1702.

150

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.”

151

See P.L. 107-56, particularly Title III, “International Money Laundering Abatement and

(continued...)

CRS-37

tools are also used in the investigation and prosecution of terrorist financing

activity.152

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.”153 It was not until

April 2002, that the various elements of the FBI tracking terrorist financing were

integrated under the Terrorist Financing Operations Section 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

analysis to facilitate the identification of previously unknown terrorist

suspects.154

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

151

(...continued)

Anti-Terrorism Financing Act of 2001.” Among other initiatives, the act provides for stricter

rules on correspondent bank accounts, requires securities brokers and dealers to file

suspicious activity reports, and certain money services groups to register with the U.S.

Department of the Treasury’s Financial Crimes Enforcement Network and file SARs.

152

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.

153

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.

154

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.

CRS-38

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 these are 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

activities.

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.).”155 This research and analysis is conducted

independent of whether the reported SAR has a nexus to terrorism.

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.156

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/Debit Card Sector, Money Services

Businesses, Securities/Brokerages Sector, Insurance, Travel, Internet Service

Providers, and the Telecommunications Industry.”157 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

155

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.

156

Ibid.

157

See Testimony of John Pistole, September 25, 2003.

CRS-39

temporary duty.158 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

terrorist financing.

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.159

According to the FBI, in order to address some of the concerns raised by the

GAO with respect to alternative financing mechanisms, it has developed intelligence

requirements related to known indicators of terrorist financing activity.160

Theoretically, such requirements should cause the FBI’s field collectors (largely its

special agents located at the 56 FBI field offices161) to pro-actively collect

intelligence on alternative mechanisms of financing terrorism. Secondly, according

158

Ibid.

159

See Testimony of Gary M. Bald, March 4, 2004.

160

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 (name redacted) and (name redacted).

161

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 (name redacted), appendices I (field offices) and

III (Legal Attache Offices).

CRS-40

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 mechanisms.”162

Relationships to and Coordination with Other Agencies. The FBI

participates in, and leads some, domestic and international groups to coordinate

activities related primarily to terrorist financing. The interagency FBI-led Joint

Terrorism Task Forces, of which there are currently 100, play the lead role in

investigating terrorist financing activities. In addition to representatives from other

federal law enforcement agencies, the JTTFs also include participation of many state

and local law enforcement officers. Domestically, the FBI 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 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.

In May of 2003, a Memorandum of Agreement was signed 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 51 Legal Attache Offices which conduct law

enforcement and intelligence liaison,163 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

162

163

See Testimony of John Pistole, March 4, 2004.

These 51 Legal Attache offices cover over 200 countries. For FY2006, the President’s

budget requests an additional 60 positions and $11M to expand the Legal Attache program.

According to FBI Director Robert S. Mueller, III, by the end of 2005, the FBI hopes to have

Legal Attaches in Kabul, Afghanistan; Sofia, Bulgaria; and Sarajevo, Bosnia. See

Statement of Robert S. Mueller, III, Director Federal Bureau of Investigation, Before the

Committee on Appropriations, Subcommittee on Science, State, Justice, and Commerce, and

Related Agencies, March 8, 2005.

CRS-41

Zealand, the ITFWG works to coordinate information and intelligence sharing with

respect to national efforts to counter terrorist financing.164 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 TFOS,

and subsequently to the FBI-led JTTFs in the United States for investigation, as

appropriate.165

Bureau of Alcohol, Tobacco, Firearms and Explosives

(ATF)166

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 enforcement functions.

In supporting the Department of Justice’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.

164

See Testimony of Gary M. Bald, March 4, 2004.

165

See Testimony of Juan C. Zarate, March 24, 2004.

166

This section was prepared by (name redacted)/DSP.

CRS-42

Teams of ATF auditors, special agents and inspectors are all involved with

performing complex investigations of multi-state criminal violations of federal law.

Several ATF investigations have found terrorism links. For example, in 2003, 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), Financial Crimes Enforcement Network,

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 represent

thousands of state and local law enforcement agencies.

Drug Enforcement Administration (DEA)167

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.168

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.

167

168

This section was prepared by (name redacted)/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.

CRS-43

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/Investigations Unit at DEA headquarters

provides analytical support to the Office of Investigative

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

Teams.

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. For FY2005, DEA again anticipates

reimbursement from the FBI for the counterterrorism support provided by DEA. The

anticipated reimbursement would equal $6.3 million, which includes funding to

support 45 positions (including 11 Special Agents and 13 Intelligence Analysts).

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.169

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

169

Information on both investigations can be found on the DEA Website

[http://www.usdoj.gov/dea/].

CRS-44

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

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

information.

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 State170

As the lead foreign policy agency, the Department of State is tasked with

formulating and conducting the foreign policy of the United States. Within that

broad mission, the Department of State has responsibilities for fighting terrorism in

five categories: military, intelligence, law enforcement, diplomatic, and financial.

The bureaus within State that are concerned with counterterrorism finance programs

include the Office of the Coordinator for Counterterrorism (S/CT), the Bureau of

Economic and Business Affairs (EB), and the Bureau for International Narcotics and

Law Enforcement (INL).171

Following is a description of the State Department’s primary responsibilities to

block the flow of terrorist financing.172

170

This section was prepared by Susan Epstein/FDT.

171

An October 2005 Government Accountability Office (GAO) report cites some concerns

about the role, interaction, and coordination among the government agencies responsible for

fighting terrorist financing. Some of the concerns involving the Department of State include

a lack of agreement between the Department’s of State and Treasury that State leads all U.S.

counterterrorism financing training and technical assistance efforts to vulnerable countries.

Furthermore, according to GAO, Justice Department officials say that, in practice, there is

not general recognition that the State-led Terrorist Financing Working Group (TFWG) leads

the coordination of training and technical assistance overseas. And, Treasury expressed

disagreement with TFWG’s procedures for coordination. For more detail, see Terrorist

Financing: Better Strategic Planning Needed to Coordinate U.S. Efforts to Deliver Counterterrorism Financing Training and Technical Assistance Abroad, U.S. Government

Accountability Office, October 2005, p. 3.

172

Much of the following information was provided by the Department of State’s Office

of the Coordinator for Counterterrorism.

CRS-45

Office of the Coordinator for Counterterrorism (S/CT)

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. S/CT receives funding for these activities from two accounts: the

Nonproliferation, Anti-terrorism, De-mining and Related (NADR) programs account

within the Foreign Operations appropriation and the Diplomatic and Consular

Programs (D&CP) account within the Science, State, Justice, Commerce, and Related

Agencies appropriation (formerly the Commerce, Justice, State and Related Agencies

appropriation). S/CT administers several counterterrorism programs. One such

program, Counterterrorism Engagement and International Cooperation, supports

international counterterrorism conferences (some on terrorist financing issues) and

training. S/CT makes policy guidance and funding available to State’s Bureau of

Diplomatic Security’s Office of Anti-terrorism Assistance which gives anti-terrorism

training and equipment to law enforcement agencies. S/CT provides policy,

planning, and programming guidance to the Terrorist Interdiction Program which

works with immigration authorities to disrupt terrorists’ travel. S/CT offers training

and assistance to the State Department program of Counterterrorism Finance (CTF)

to block terrorist finances; S/CT works with countries in which financial systems are

deemed most vulnerable to terrorist financing and money laundering.

Counterterrorism finance assistance programs are aimed at reinforcing legal, judicial,

financial regulatory, financial intelligence, and law enforcement capabilities to detect,

dismantle, and deter the abuse of charities, cash couriers and alternative remittance

systems by terrorist financiers.

The Office of the Coordinator for Counterterrorism also co-chairs the

interagency Terrorist Financing Working Group. The Office of the Coordinator leads

the State Department in designating Foreign Terrorist Organizations in order to

freeze assets, stigmatize and isolate designated terrorist organizations internationally

by restricting their ability to travel, and deter donations to and economic transactions

with named organizations. S/CT has lead responsibility at State for preparing

designations which block assets and prohibit contributions of terrorists and terrorist

organizations.

Bureau of Economic and Business Affairs Office of Terrorism

Finance and Economic Sanctions Policy (EB/ESC/TFS)

The Office of Terrorism Finance and Economic Sanctions Policy (EB/ES/TFS)

is the key office within the State Department’s Economic Bureau focused on

disrupting terrorism financing. The Assistant Secretary of the Economic Bureau

chairs meetings of an interagency Coalition Building Group which meets weekly and

coordinates international outreach on terrorism finance for the United States

government. EB/ESC/TFS maintains a network of Embassy officials designated as

Terrorism Finance Coordinating officers (TFCOs) in each U.S. overseas mission.

The Office of Terrorism Finance also develops and conducts, in coordination with

other U.S. government agencies, effective economic sanctions programs against state

sponsors of terrorism, such as Syria, Iran, Libya, North Korea, Sudan, Zimbabwe,

and Burma.

CRS-46

Bureau for International Narcotics and Law Enforcement

(INL)

The Bureau for International Narcotics and Law Enforcement (INL) has

responsibilities for monitoring, reporting, and coordinating activities dealing with

money laundering and financial crimes, generally. In addition, INL and the Office

of the Coordinator for Counterterrorism co-chair the interagency Terrorist Finance

Working Group. INL coordinates multilateral and bilateral anti-money laundering

efforts, as well.

Other State Department Terrorist Financing Activities

In addition to the State Department counterterrorism financing activities within

the previously discussed offices/bureaus, the Department plays an important role in

both multilateral institutions and interagency counterterrorism financing activities.

State Department personnel frequently take lead roles in multi-agency

diplomatic missions relating to money laundering and terrorist financing. The State

Department chairs the interagency Coalition Building Group, which implements the

Policy Coordinating Committee on Terrorist Financing’s decisions on actions to

combat terrorist financing and manages international outreach on terrorism finance

for the United States. State also leads the interagency Terrorist Financing Working

Group (TFWG) which coordinates all U.S. counterterrorism financing and antimoney laundering capacity-building programs around the world.

State Department Funding Levels for Terrorist Financing

Activities

The Department of State receives funding for its various counterterrorism

activities within both the Foreign Operations and the Science, State, Justice,

Commerce, and Related Agencies (SSJC) appropriations. The following tables

provide the FY2004 actual appropriation, the FY2005 estimate, and the FY2006

request for State Department counterterrorism program funding.

CRS-47

Table 1. State Department Counterterrorism Funding Within

Non-proliferation, Anti-terrorism, De-mining, and Related

Programs (NADR)

($ millions)

Program

FY2004

FY2005 est.

FY2006 req.

Counterterrorism

engagement

$0.00

$1.98

$2.00

Anti-terrorism

Assistance

$141.43

$134.40

$133.50

Terrorist

Interdiction

Program

$4.97

$4.96

$7.50

Counterterrorism

Finance

$0.00

$7.19

$7.50

$146.40

$148.53

$150.50

Total NADR

Source: Office of the Coordinator for Counterterrorism, Department of State.

Table 2. State Department Counterterrorism Funding Within the

Diplomatic and Consular Programs (D&CP)

($ millions)

Program

FY2004

FY2005 est.

FY2006 req.

Foreign Emergency

Support Team

$0.00

Top Officials

Exercise

(TOPOFF)

$2.97

$1.80

$0.00

Technical Support

Working Group

$1.73

$1.59

$1.61

Salaries &

Expenses

$5.32

$5.57

$5.72

Total D&CP

$10.02

$8.96

$7.33

Source: Office of the Coordinator for Counterterrorism, Department of State.

CRS-48

International Cooperation173

In response to concerns expressed by the 9/11 Commission that the U.S.

government “has been less successful in persuading other countries to adopt financial

regulations that would permit the tracing of financial transactions,”174 some observers

have recommended the establishment of a counter-terrorist financing certification

regime as a means of securing greater cooperation and compliance with international

counter-terrorist financing standards. In Congress, legislative proposals to enact such

a regime are currently under consideration. H.R. 1952 would establish a certification

regime modeled on the existing illicit drug certification process that would require

the Department of the Treasury to identify countries of concern based on noncompliance with the requirements of the International Convention for the

Suppression of the Financing of Terrorism. The bill would require the withholding

of 50% of Foreign Assistance Act assistance and direct opposition voting by U.S.

representatives to multilateral financial institutions with regard to countries of

concern. The bill provides for a Presidential national security interest waiver subject

to Congressional review. H.R. 1952 has been read and referred to the House

Committee on International Relations and the House Committee on Financial

Services.

International Agreements and Bodies

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. An 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.175 In order to

facilitate cooperation on anti-money laundering issues among various nations and to

help countries implement the Vienna Convention, the Group of Seven nations created

the Financial Action Task Force (FATF) in 1989.

Several recent conventions on terrorist financing have been negotiated. Most

prominent among these is the UN’s International Convention for the Suppression of

the Financing of Terrorism, which entered into force on April 10, 2002. As of June

2005, 132 countries had signed the convention and 117 were full parties to the

agreement.176 The convention requires each country to criminalize the funding of

terrorist activities under its domestic law and to seize or freeze funds used or

173

This section was prepared by (name redacted)/FDT and Chri stopher Blanchard/FDT.

174

Final Report of the National Commission on Terrorist Attacks Upon the United States,

p. 382.

175

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.

176

[http://untreaty.un.org/ENGLISH/Status/Chapter_xviii/treaty11.asp].

CRS-49

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

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

enforcement powers.

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).177 It is housed

at the Organization for Economic Cooperation and Development (OECD) in Paris.

As of July 2005, FATF has 33 members.178 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

177

See CRS Report RS21904, The Financial Action Task Force: An Overview, by (name

redacted).

178

See FATF website for a list of member countries and observer organizations

[http://www1.oecd.org/fatf/].

CRS-50

laundering, including through cash couriers, alternative remittance systems, and

the abuse of non-profit organizations.179

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

instruments.

Criminalize the financing of terrorism, terrorist acts and terrorist

organizations.

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

investigations.

Impose anti-money laundering requirements on alternative remittance

systems.

Strengthen customer identification measures in international and domestic

wire transfers.

Ensure that entities, in particular non-profit organizations, cannot be

misused to finance terrorism.180

In October 2004, FATF added a ninth recommendation calling on countries to

stop cross-border movements of currency and monetary instruments related to

terrorist financing and money laundering and confiscate such funds. It also called for

enhanced information-sharing between countries on the movement of illicit cash

related to terrorist financing or money laundering.

Middle East and North Africa Financial Action Task Force. The

Middle East and North Africa Financial Action Task Force (MENAFATF) was

inaugurated in November 2004 and works to promote the adoption and

implementation of internationally recognized anti-money laundering and

counter-terrorism financing standards among its 14 Middle Eastern member states.181

The new body is designed to provide a regional forum for sharing knowledge and

expertise on terrorist financing issues and to serve as a mutual assessment and

assistance mechanism for countries working to develop legal and enforcement

infrastructure to combat terrorist financing. The regional body is headquartered in

179

FATF Mandate Renewed for Eight Years, May 14, 2004, available at

[http://www1.oecd.org/fatf/pdf/PR-20040514_en.pdf].

180

Financial Action Task Force Terrorist

[http://www1.oecd.org/fatf/TerFinance_en.htm].

181

Financing,

available

The MENAFATF participants are Syria, Bahrain, Saudi Arabia, the United Arab

Emirates, Lebanon, Qatar, Algeria, Oman, Moroc

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