24 September 2003
Blocking Terrorist Funds Depends on World Action, U.S. Says
Called particularly important in interdicting
flows to HAMAS
Blocking the flow of money to terrorists may be one of the best
ways to stop terror altogether, a Treasury department official
However, making progress in the fight against terrorist financing
is difficult without international cooperation because the "overwhelming" bulk
of terrorist assets reside and flow beyond U.S. borders, David
Aufhauser, the department's general counsel, said in September
24 testimony before a House of Representatives Financial Services
And in the "deliberately" open and increasingly integrated world
economy the "ways to game restrictions on the flow of capital are
nearly infinite," he added.
Aufhauser said that while the Bush administration has been successful
in securing international cooperation to restrict the flow of funds
to al-Qa'ida and other Islamic terrorist organizations, it has
been less so in its attempts to interdict the funds flowing to
a Palestinian terrorist organization, HAMAS.
"Many of our actions ... have dramatic impact only when we can
convince the rest of the world to act with us," he said.
Aufhauser cited the distinction made by some countries, including
European and Persian Gulf nations, between the political/social
and military wings of HAMAS as a major obstacle in financial actions
against the organization.
He said that as much as half of HAMAS' income is obtained from
the Persian Gulf countries, including Saudi Arabia -- according
to sources he did not identify -- despite a May 2002 decree ending
official Saudi support for the group.
Aufhauser said he believes that the recent decision by the European
Union (EU) to designate the entire organization as terrorist will
help to change the "dynamic" of actions against HAMAS because a
large portion of the organization's funds has come from Europe.
However, he cautioned that the "political questions surrounding
the Palestinian people coupled with the political and charitable
work HAMAS undertakes make it hard to convince other countries
around the world -- especially in the Persian Gulf -- to cease
Following is the text of Aufhauser's testimony as prepared for
United States Department of Treasury
Written Testimony of David D. Aufhauser, General Counsel
Before the House Financial Services Committee
Subcommittee on Oversight and Investigations
September 24, 2003
The United States House of Representatives
Chairman Kelly, Congressman Gutierrez and distinguished members
of this Committee, thank you for inviting me to testify today about
the United States Government's efforts to address the financing
of terror. Let me tell you why we believe it is so important.
For more than a decade --- after its misadventure into Kuwait
in August of 1990 --- Iraq has been an international pariah. More
particularly, it has been the subject of the most comprehensive
and far-reaching economic sanctions program ever imposed by the
United Nations. The Oil for Food Program [OFF], later added to
the sanctions program, permitted barter trading of Iraqi oil in
exchange for humanitarian goods and services, all subject to UN
monitoring and control.
The good news is that tens of billions of dollars flowed through
the program between 1996 and today, providing food, medicine, shelter
and necessities of life for the Iraqi people. It was one of the
rare programs that well served both a moral imperative and the
most fundamental physical needs of people for whom freedom is a
The bad news is that the program was viewed by the Iraqi regime
as an invitation for graft, corruption and sanctions busting. And
they made it their holiday. Within the OFF program, they skimmed,
they demanded kickbacks, they bought brokers, they created false
front companies and they banked the money abroad in cash, or in
accounts for product credit. They also began to deal in oil ---
in an open and notorious fashion --- outside of the UN sanctioned
program. The smuggled oil produced rivers of money and credit ---
a conservative GAO [General Accounting Office] estimate is $6.0
billion in a four-year period alone --- that were banked abroad.
That money --- and those credits --- purchased the goods and services
that kept Iraq a threat against all reason and international law.
That is the cost of turning a blind eye to laundered funds. We
all witnessed a second cost when the World Trade Center vanished
before our eyes two years ago this month.
I was in Cambridge, England, on September 11th attending an international
conference on money laundering. The conference was populated by
Attorneys General, Chief Justices, Ministers of Police, and even
General Counsels. It had the trappings of a sober and serious affair,
but in truth, there was a lot of self-congratulation. The law enforcement
community had been on the trail of money laundering for more than
a decade, and it had much to crow about. Elaborate computer screens,
predictive models, profiles of conduct, capture and indictment
of persons moving or hiding dirty money, evidenced that we were
gaining a lead on a tough issue.
The assaults on New York and Washington silenced the gathering.
It was not just the awfulness of the video replaying its unspeakable
carnage. It was the realization that we --- the professionals charged
with the responsibility of policing the international financial
system --- had been looking at the world through the wrong end
of the telescope. Money had been spirited around the globe, by
means and measures and in denominations that mocked detection.
The more serious threat to our well being was now clean money intended
to kill, not dirty money looking for a place of hiding.
Shortly after the September 11th attacks, President Bush gave
those of us who deal with these issues clear orders. He told us
to starve the terrorists of funding. Since that mandate over two
years ago, the United States has waged a "war" against global terrorism.
But this "war" is profoundly uncommon. There is no known sovereign;
no uniformed army; no hill to take; no target that is seemingly
out of bounds. Indeed, terrorists obscenely place a premium upon
the death of innocents. It is shadow warfare, and the primary source
of the stealth and mobility necessary to wage the war is money.
Much of the intelligence of war is, in fact, suspect --- the product
of treachery, deceit, custodial interrogation, bribery and encrypted
talk. But financial audit trails do not lie. They are literally
the diaries of terror and they reveal the secrets necessary to
stem tithes intended to underwrite acts of terror.
Money leaves a signature, an audit trail, which once discovered
might well prove invaluable in the identification and capture of
terrorists. Stopping the flow of money to terrorists may also be
one of the very best ways we have to stopping terror altogether.
That is a dramatic statement, but it is not possible to overstate
the importance of the campaign against terrorist financing. We
believe that if you stop the money, you go a long way to stop the
That being said, it is unwise to understate the difficulty of
this endeavor. Our economies are deliberately open and porous.
The ways to game restrictions on the flow of capital are nearly
infinite. Moreover, the challenge is worldwide in scope. The overwhelming
bulk of the assets we seek to freeze; the cash flow that we hope
to strangle; and the records we aspire to exploit are beyond the
oceans that surround us here in North America. To act alone in
this endeavor would justly invite critique, and be ultimately ineffective.
In the United States, our program to wage this war includes the
i. An Executive Order (Executive Order 13224) using the powers
in the International Emergency Economic Powers Act that raises
the standards of conduct and due diligence of financial intermediaries,
and explicitly targets underwriters of terror for the freezing
of their assets;
ii. UN Security Council resolutions that internationalize certain
asset freezes and mandate the criminalization of terrorist financing;
iii. More scrutiny at the gateway to U.S. financial markets as
provided by the USA PATRIOT Act;
iv. Law enforcement criminal investigations and other actions
aimed at terrorists and their financiers;
v. Extensive diplomatic efforts, including the engagement of central
bankers and finance ministries, to champion the need and wisdom
for international vigilance against terrorist financing;
vi. Outreach to the private sector for assistance in the identification,
location and apprehension of terrorists and their bankers; and,
vii. Bilateral and multilateral efforts to build laws and systems
that will help prevent terrorists from gaming the system in developing
countries around the globe, and then developing programs to train
those countries in how to administer those laws.
Perhaps the most visible tactic of our comprehensive strategy
has been the public designation of terrorists and their support
network coupled with the freezing of their assets. Public designation
of terrorists, terrorist supporters and facilitators, and blocking
their abilities to receive and move funds through the world's financial
system has been and is a crucial component in the fight against
terrorism. The Executive Order imposing economic sanctions under
the International Emergency Economic Powers Act permits the public
designation of not only terrorists and terrorist organizations,
but also supporters, facilitators and underwriters of terror as
well. Once designated, this order freezes the assets within U.S.
jurisdiction of the designee. Action under this order is not "criminal" and
does not require proof beyond a reasonable doubt. Currently, 321
individuals and entities are publicly designated as terrorists
or terrorist supporters by the United States, and since September
11th, over $136.8 million dollars have been frozen around the world.
However, only a small measure of success in the campaign is counted
in the dollars of frozen accounts. The larger balance is found
in the wariness, caution, and apprehension of donors; in the renunciation
of any immunity for fiduciaries and financial intermediaries who
seek refuge in notions of benign neglect and discretion, rather
than vigilance; in pipelines that have gone dry; in the flight
to old ways of value transfer such as the use of cash couriers
and the ability to focus our resources on those avenues of last
resort; and, in the gnawing awareness on the part of those who
bank terror that the symmetry of borderless war means that there
is no place to hide the capital that underwrites terror.
Notwithstanding the power of this tool, it is important to remember
that it is only powerful to the extent we can pull the rest of
the world with us in identifying and freezing the assets of identified
terrorists and their supporters. Most of the capital we are attempting
to freeze is beyond the reach of the United States. Acting unilaterally
is often an empty gesture; an action without an effect. Therefore,
we need our allies to join with us in a coordinated manner. This
is no easy task. This is the task that occupies much of our time
on the financial front of the war against terrorism. The most critical
aspect of this task is the ability to provide sufficient actionable
information --- information that is often thin and encumbered by
sensitivity. The predicate for everything we do is actionable intelligence.
Without actionable intelligence, it is impossible to fight this
Organization of the Effort
Shortly after the attacks of September 11th, the National Security
Council established a Policy Coordinating Committee on Terrorist
Financing. The purpose of the committee is to (i) recommend strategic
policy direction to the National Security Council on issues relating
to terrorist financing; (ii) vet and approve proposed public action
against targeted terrorists and terrorist financiers; and, (iii)
coordinate the United States efforts on issues relating to terrorist
financing. I have chaired the committee since October 2001. We
have purposefully kept the process flexible, informal, collaborative
and iterative. It is a process that has worked well to vet and
coordinate proposed action on the financial front of the war.
The focus of this hearing is the terrorist organization HAMAS,
and whether our actions to interdict the funds flowing to HAMAS
have had any real world effect. The answer is yes, but it is a
qualified yes. As stated earlier, many of our actions --- particularly
actions involving public designation and freezing of assets ---
have dramatic impact only when we can convince the rest of the
world to act with us. It has been an uphill road with HAMAS.
HAMAS was formed in 1987 with a goal of establishing an Islamic
Palestinian state in place of Israel. HAMAS' strength is in Gaza
and the West Bank. HAMAS relies on broad popular appeal and it
is an integral part of the Palestinian political and social landscape.
HAMAS has established networks of mosques, schools, and relief
organizations that are highly visible and widely seen by many Palestinians
as more effective than services provided by the Palestinian Authority.
HAMAS is loosely structured, with some elements working clandestinely
and others working openly through mosques and social service institutions
to recruit members, raise money, organize activities, and distribute
propaganda. It is this dichotomy that has created one of the principal
challenges with this organization.
Unlike action against al-Qa'ida, action against HAMAS does not
enjoy the same support around the globe. For example, an al-Qa'ida
related UN economic sanctions program, which mandates action by
all members, has been an extremely valuable tool in getting the
world to act in concert against al-Qa'ida. No economic sanctions
program exists at the UN for HAMAS. Countries in Europe and the
Persian Gulf --- two principal areas that supply funds to HAMAS
--- have been slow to support action against the entire organization,
if at all. In fact, some sources estimate that as much as half
of HAMAS' income is derived from money raised in the Persian Gulf,
including the Kingdom of Saudi Arabia --- notwithstanding a May
2002 decree by Crown Prince Abdullah that ceased official Saudi
support for the group.
The United States designated the entire HAMAS organization as
a foreign terrorist organization in 1995 and we have acted or are
acting against HAMAS fundraisers identified and located here in
the United States. A principal example of our action is our designation
of the Holy Land Foundation for Relief and Development, a Texas
based NGO, in December 2001. This designation was challenged in
Federal court and has been upheld. The Holy Land Foundation no
longer operates. Additionally, our colleagues from the FBI [Federal
Bureau of Investigation] have a number of on-going investigations
of other individuals and organizations linked to HAMAS. We are
working side-by-side with the FBI to ensure that those individuals
and organizations will be addressed and the funding that is occurring
will be stopped.
We have also taken action against HAMAS outside of the United
States. On August 22nd, we announced the freezing of four European-based
HAMAS fundraisers and one HAMAS fundraiser based in Lebanon: the
Comite de Bienfaisance et de Secours aux Palestinians (CBSP), the
Association de Secours Palestinian (ASP), Interpal, the Palestinian
Association in Austria (PVOE) and the Sanabil Association for Relief
and Development. We announced the public designation of six top
HAMAS leaders, and earlier this year we designated the Al-Aqsa
Foundation --- another European-based HAMAS fundraiser. Of the
321 persons and entities designated to date, 16 are HAMAS related
entities. These designations have resulted in the freezing of $24.7
million around the world.
The rest of the world, particularly Europe (until recently) and
countries in the Persian Gulf, view the political/charitable wing
of HAMAS differently from its so-called military wing. In our view
this is pure sophistry. We have advocated forcefully throughout
the world that this distorted view of HAMAS should end. On this
front, we have some good news. After nearly constant diplomatic
pressure from the United States, on September 12th the European
Union, having previously only designated the military wing of HAMAS,
designated the entire organization. The European Union's recent
action is welcome, if late in coming. A large portion of HAMAS'
fundraising has come from Europe and we think the EU's designation
of the entire organization will help change that dynamic. Despite
the EU's welcome action, the political questions surrounding the
Palestinian people coupled with the political and charitable work
HAMAS undertakes make it hard to convince other countries around
the world --- especially in the Persian Gulf -- to cease supporting
We think it is critical that governments move now to stop the
flow of funds to HAMAS, a terrorist organization that has the conceit
and audacity to proclaim with pride that it is sends suicide bombers
onto buses and into public plazas to kill innocents with the aim
of destroying any chance for progress toward peace between the
Israelis and Palestinians. Funds flowing to HAMAS fuel this terror.
Again, we think if you stop the money, you go a long way toward
stopping the terror. No matter how terrible the plight of the Palestinian
people, there can be no justification for the killing of innocents.
In our view, toleration of such terror by anyone is nothing short