U.S. SENATOR RICHARD C. SHELBY (R-AL) HOLDS HEARING ON TERROR FINANCE PROGRAM.

Original Source: Political Transcript Wire

U.S. SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS HOLDS A HEARING ON COUNTERTERROR INITIATIVES AND CONCERNS IN THE TERROR FINANCE PROGRAM

APRIL 29, 2004

SPEAKERS: U.S. SENATOR RICHARD C. SHELBY (R-AL)

CHAIRMAN U.S. SENATOR ROBERT F. BENNETT (R-UT) U.S. SENATOR WAYNE ALLARD (R-CO)

U.S. SENATOR MICHAEL B. ENZI (R-WY) U.S. SENATOR CHARLES HAGEL (R-NE) U.S. SENATOR RICK SANTORUM (R-PA) U.S. SENATOR JIM BUNNING (R-KY)

U.S. SENATOR MICHAEL CRAPO (R-ID) U.S. SENATOR JOHN E. SUNUNU (R-NH) U.S. SENATOR ELIZABETH DOLE (R-NC)

U.S. SENATOR LINCOLN D. CHAFEE (R-RI)

U.S. SENATOR PAUL S. SARBANES (D-MD) RANKING MEMBER U.S. SENATOR CHRISTOPHER J. DODD (D-CT)

U.S. SENATOR TIM JOHNSON (D-SD) U.S. SENATOR JACK REED (D-RI) U.S. SENATOR CHARLES E. SCHUMER (D-NY)

U.S. SENATOR EVAN BAYH (D-IN) U.S. SENATOR ZELL MILLER (D-GA) U.S. SENATOR THOMAS R. CARPER (D-DE)

U.S. SENATOR DEBBIE STABENOW (D-MI) U.S. SENATOR JON S. CORZINE (D-NJ)

WITNESSES: NANCY J. JARDINI, CHIEF OF CRIMINAL INVESTIGATION, INTERNAL REVENUE SERVICE

R. RICHARD NEWCOMB, DIRECTOR, OFFICE OF FOREIGN ASSETS CONTROL, DEPARTMENT OF THE TREASURY

WILLIAM J. FOX, DIRECTOR, FINANCIAL CRIMES ENFORCEMENT NETWORK

SAMUEL W. BODMAN, DEPUTY SECRETARY, DEPARTMENT OF THE TREASURY

[*] SHELBY: Good morning. This meeting will come to order. And thank you for coming today.

This is the third in our continuing comprehensive review of the nation's ability to identify and track financial transactions and other support which fuel terror organizations and their operations.

Over the course of this review, the Banking Committee has heard from present and former officials of the Treasury, the National Security Council, the Department of State, and the Federal Bureau of Investigation. We've also heard from experts who have studied terror groups and their funding.

This testimony serves as a foundation for the more difficult work ahead. Today's hearing, I believe, will exemplify what could be the best of what our government offers the people of this country -- the dedication and hard work of those charged with the responsibility to identify, track, disrupt, and dismantle terrorist organizations that threaten our way of life. Make no mistake, the men and women represented by their leaders -- our panelists today -- are executing their duties with the skill and ingenuity we have come to expect. I am proud of the accomplishments of the men and women of the Financial Crimes Enforcement Network, FinCEN, the Office of Foreign Assets Control, OFAC, and the Internal Revenue Service Criminal Investigation Division, IRS-CID, as well as those in the Department of the Treasury.

These dedicated civil servants remain focused on the important and complex task of finding, following, and fracturing financial flows of money and support that support terror.

Today's hearing is not about their work. Today's hearing is about leadership. It's about harnessing the considerable power of these dedicated men and women I've spoken of. It is about Treasury's leadership, focusing the efforts of these men and women so that our citizens can trust that our financial systems will not be violated by illicit funds.

It's about charting the way ahead and organizing the Treasury's vast but not limitless resources to win that trust from the American people.

The choices the Treasury leaders make -- guided by a comprehensive vision and supporting goals -- will make all the difference, I believe, in this effort.

The swift implementation of the USA PATRIOT Act demonstrated committed action fueled by the passions aroused when this nation seeks to protect the very foundation of its principles -- life, liberty, and the pursuit of happiness.

In this post-9/11 world, when we might suffer the vulnerability of complacency, this Congress and this committee, I believe, acted swiftly. Aware of shortcomings in the area of Treasury's ability to fully use its unique expertise by analyzing all -- all -- relevant information, regardless of its classification, we provided Treasury with a new office and leader, an assistant secretary for intelligence and analysis, in November 2003.

That same month, Senator Sarbanes and I provided a framework for the exercise of leadership in an agreement with Secretary Snow, formalized in an exchange of letters.

We have with us today Deputy Secretary Bodman, at his Treasury post since January 2004. Today, we want to hear about the future. We want to hear, in concrete terms, Mr. Secretary, how you will lead Treasury's dedicated human resources in the difficult task of adapting to an ever-changing threat.

You've been a leader who has led the rise of large companies; you've studied the rise and fall of many more, big and small. I am sure you agree with the wisdom of a past CEO of AT&T when he said, "When the pace of change outside an organization becomes greater than the pace of change inside the organization, the end is near." Please tell us, if you could, with as much specificity as you can, how you will make Treasury's pace of change meet and exceed the deadly pace of terror organizations that have already demonstrated a resilience and adaptability that exceeds any threat to our national security faced in the past.

If you would, Senator Sarbanes.

1:08:05 SARBANES: Thank you very much, Mr. Chairman.

I want to commend you for moving ahead with this series of hearings. I strongly share your commitment to monitoring the government's efforts to deal with the financing of terrorism. I also want to join you in welcoming the deputy secretary, who comes before the committee for the first time.

This committee bears a significant oversight responsibility for the subject matter of today's hearings. We're responsible for both the Bank Secrecy Act and the nation's economic sanctions legislation, as well as for the nation's financial services laws more generally.

This committee reported a money-laundering and anti-terrorist financing bill -- which then became a large part of Title III of the PATRIOT Act -- less than a month after the September 11 tragedy.

The threat of terrorism obviously remains very real. If anything, they are probably becoming more difficult to intercept. "The New York Times" reported not too long ago that, quote, "The landscape of the terrorist threat has shifted, many intelligence officials around the world say, with more than a dozen regional groups showing signs of growing strength and broader ambitions, even as the operational power of Al Qaida appears diminished."

This makes the use of financial information potentially more difficult to put together, but potentially much more valuable if, in fact, we are successful in putting it together.

Today we begin the work of determining where various responsible agencies are in efforts to analyze, share, and use relevant information to the greatest effect. And it's appropriate that we would begin with the Department of the Treasury.

Treasury was designated as the lead agency to deal with terrorist financing after September 11. At that time, Treasury possessed more than 30,000 enforcement personnel, which are no longer at the Treasury. Part have gone off to the Department of Homeland Security, part to the Department of Justice.

So while Treasury continues to have responsibility for the economic sanctions programs and the Bank Secrecy Act, many are raising questions about whether it possesses, or is seeking, the resources necessary to manage and effectively carry out those programs.

So we need today a realistic assessment of Treasury's capabilities, its problems, and its future plans in this area. Mr. Chairman, as you will recall, during the course of last week's hearings on the condition of the banking system, I expressed concern that the nation's bank regulators were not giving sufficient priority to enforcement of the rules designed to prevent money laundering and terror financing.

I am concerned why it's taken so long to expose some of the problems which have appeared now in the daily press, and we are quite concerned what other money-laundering problems may be lurking in the system that our regulators have failed to detect.

But I close now with coming back to the issue of the importance of Treasury meeting it's lead responsibilities in this area and my concern that there's a mismatch now with the movement of this investigative and enforcement personnel out of Treasury and into the other departments with respect to Treasury's capacity to carry out its responsibilities.

Thank you very much.

SHELBY: Senator Bennett?

01:12:33 BENNETT: Excuse me.

Thank you, Mr. Chairman.

The war on terror is primarily an intelligence war, and we traditionally think of the CIA and NSA and other intelligence agencies as they look for the bad guys trying to figure out where they are hiding and where we can apply military power or law enforcement in the form of arrests and so on.

But the intelligence challenge to follow the money is equally as daunting and equally as important. So I commend you for this series of hearings on this issue, and look forward what Secretary Bodman might be able to tell us with respect to how we're doing in disrupting the money flow, and what kind of intelligence network we have in place that can work on that.

Thank you very much.

SHELBY: Senator Dole?

DOLE: Mr. Chairman, in the interests of time, I'll submit my statement for the record.

SHELBY: Well, it'll be made part of the record...

DOLE: (inaudible) Secretary Bodman.

SHELBY: ... without objection.

DOLE: Thank you.

SHELBY: Senator Allard? 01:13:39 ALLARD: Well, thank you, Mr. Chairman, for holding the hearing, and look forward to hearing from the witnesses. You know, we've had a couple hearings already on this, we had them last fall. Looking forward to hearing what the comments are today and carefully reviewing, you know, how we're doing (inaudible) get the secretary, I think, that was created for that position, or seeing how things are going with that position.

And so, Mr. Chairman, I just look forward to the hearing. Thank you for holding it.

SHELBY: Secretary Bodman, welcome to the committee.

BODMAN: Thank you, sir.

SHELBY: Your written testimony, which we have reviewed, will be made part of the record in its entirety. You proceed as you wish.

BODMAN: Thank you very much, Chairman Shelby, Senator Sarbanes, distinguished senators. I'm very pleased to be here to testify on behalf of Treasury, and with particular note as to its role in the international war against terrorist financing and financial crimes.

Ever since September 11, 2001, all of us have been made acutely aware that dirty money, tainted financial flows, can corrupt our financial system, as the chairman has already alluded to. They can also threaten lives, incite economic and political stability around the world.

President Bush has said that we are engaged in a global war against terrorism that must be fought simultaneously on a number of fronts and with unwavering determination.

Now, I have been at the Treasury for about two months, having arrived in mid-February, and it is already, in that short period of time, clear to me that the people of this department, the department itself, are well positioned to continue to make a significant and an important contribution to this challenge.

We have got authorities, we have expertise in the financial area, and as importantly as these things, we have a cadre, as the chairman has already mentioned, of very dedicated and diligent individuals, some of whom are here with me and will be on the subsequent panel. And I want you to know that I'm very proud to be here representing them and their people for the fine work that they have done.

They, along with countless others in the U.S. government, are fighting the financial war on terror and are looking to protect the integrity of our financial system.

Now, I have submitted written testimony, as has been mentioned, and that written testimony focuses much attention on the very significant efforts of the Treasury Department and the work that these people have done over the last year.

As I understand it coming here today, however, the members of this committee are particularly interested in not so much the past but the future and in hearing about the establishment of the new Office of Terrorism Information and Intelligence. And so I will focus my oral comments on that subject. We've had a very real and concrete set of successes in fighting this war, but, as the recent bombings in Madrid and Riyadh demonstrate, our work must continue at full force. Our enemies are resourceful and dedicated, and they continually adapt to a changing environment.

We must do the same. We must change even more rapidly, as the chairman has suggested. And we must use every tool at our disposal.

We also recognize that, unfortunately, we're in this fight for the long term. And so the department must be organized to reflect that reality. This is precisely why the administration has cooperated with Congress to develop a new Treasury structure, for us, anyway, a very high-profile office led by an under secretary, one of only three in the department, assuming that this gentleman is confirmed by the Senate. And he will be joined by two assistant secretaries.

This office will bring together Treasury's intelligence, regulatory, law enforcement, sanctions, and policy components all in one place.

I want to note at the outset the important contributions made by the chairman and ranking member of this committee, which resulted in an exchange of letters with Secretary Snow that was alluded to at the end of last year. And I also want to thank Congress for establishing this new assistant secretary for intelligence position. As you will hear momentarily, I believe this will be a very important part of this program.

On March 8, 2004, Treasury formally announced the creation of the Office of Terrorism and Financial Intelligence, so-called TFI. On March 10, the president announced that he would nominate Stuart Levey, who is currently the principal associate deputy assistant attorney general. And Stuart has been nominated for the under secretary, for the leadership position in this department.

President also nominated Juan Zarate, currently a deputy assistant secretary of Treasury for one of the two assistant secretary positions. Their nominations have been transmitted to the Senate. I can tell you, on a personal level, both Secretary Snow and I can express to you the utmost confidence in these individuals, in their ability, their dedication, and integrity. We believe that they will be the kind of people you will be proud to work with.

We're working diligently to identify the most qualified individual to serve as the assistant secretary for intelligence. We have not yet found the right person. At least in an informal way, we're still conducting interviews at a regular level. In the meantime, however, we have appointed a very capable deputy assistant secretary in order to get this office up and running.

The creation of TFI will augment Treasury's efforts in several ways. First, it will allow us to better develop and target our intelligence analysis and financial data to detect how terrorists are exploiting the financial system and to design methods to stop them. Second, it will allow us to better coordinate an aggressive enforcement program, including the use of important new tools that the US PATRIOT Act gave to Treasury.

Third, it will help strengthen our international coalition and intensify outreach to our counterparts in other countries.

Fourth, it will ensure accountability and help achieve results for this essential mission.

TFI will have two major components. One assistant secretary will lead the Office of Terrorist Financing. This office will build on the functions that have been underway over the past year. In essence, this will be the policy and outreach apparatus for the Treasury Department on the issues of terrorist financing, money laundering, financial crime, and sanctions issues.

This office will help lead and integrate the important functions which have been carried out very ably by both OFAC and FinCEN. If you will, this will be the operating part of this office.

The office will continue to assist in developing, organizing, and implementing U.S. government strategies to combat these issues of concern, both internationally and domestically. It will require increased coordination with other elements of the U.S. government, including law enforcement and regulatory agencies.

The office will continue to represent the United States at international bodies dedicated to fighting terrorist financing and financial crime such as the Financial Action Task Force, and will increase our multilateral and bilateral efforts in this field.

We will use this office to …