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The Next Terrorist Financiers: Stopping Them Before They Start

Testimony for House Financial Services Committee
23rd June 2016

Download the full testimony here

Chairman Fitzpatrick, Ranking Member Lynch, Vice Chairman Pittenger, and distinguished members of the Task Force to Investigate Terrorism Financing. I am honored to testify before you to discuss the evolving challenges and threats from terrorist and illicit financing. I am especially pleased to be testifying with former colleagues and distinguished experts in this field.

Let me begin by commending this Task Force and the Committee for its diligent work and focus on terrorist financing over the past year. This Task Force has resurrected important policy conversations and oversight to ensure the effective application of U.S. tools, information, authorities, and strategies to tackle the challenges of terrorist financing and illicit financing. These are issues that affect our national security and the integrity and strength of the global financial system.

I was privileged to testify at the first hearing on April 22, 2015, and noted at the time that the work of the Committee would prove even more relevant as the terrorist threat evolved and America’s enemies adapted to find ways to raise and move money for their causes. I also testified that there would be a need to tackle core issues of transparency and accountability in the global financial system to ensure that we could protect the U.S. financial system from abuse. Much of my testimony today builds on those prior reflections and recommendations.

Since the Task Force began its work, much has happened to underscore the need to focus on terrorist financing and illicit finance – and the importance of the strength, resilience, and integrity of the U.S. and international financial and commercial systems.

  • Terrorist organizations and criminal networks have continued to leverage local and regional economies and the global commercial system to both profit and evade scrutiny, with the U.S. and other governments attempting to expose and disrupt significant illicit financial and trade networks and nodes from Panama to Afghanistan.
  • Growing regional and proxy battles in the Middle East, South Asia, and Africa have increased the risk that terrorist and militant groups are taking advantage of crises, lack of governance, and fund flows to rejuvenate longstanding financial support from donors, charities, and state sponsors.
  • Terrorist infiltration and control of urban environments, populations, and resources – in cities like Mosul, Sirte, and Raqqa – have complicated how the U.S. government and our allies attempt to disrupt terrorist financing, putting a premium on dislodging terrorist organizations physically from key sites and sources of revenue.
  • The application of U.S. law to exclude Hezbollah from the Lebanese financial system has created enormous pressure in Lebanon, with Hezbollah leadership speaking out against the closing of Hezbollah-related bank accounts and a bomb exploding in front of Blom Bank in Beirut on June 12, 2016.
  • The Panama Papers and tax-related leaks have raised important questions about the limits of financial transparency, accountability, and traceability and whether the current anti-money laundering/countering the financing of terrorism (AML/CFT) system is effective.
  • Complications and burdens on the legitimate financial community in the application of sanctions and financial crime risk management have continued to abut against the public policy needs for financial inclusion.
  • New technologies enabling the digital economy are providing enormous opportunities for financial access and innovation, but illicit actors are finding ways to leverage tools like digital currency to create illicit bazaars via the Internet and access capital without scrutiny, as seen in the Silk Road and Liberty Reserve cases.
  • Continued, significant cyberattacks by state and non-state actors on financial institutions and networks, to include the recent heist affecting the Bangladeshi Central Bank and others via the SWIFT bank-messaging network, have tested the trust in the international financial system and continued to demonstrate that the financial sector remains at the heart of the cyber storm.

These are just some examples and recent developments that continue to illuminate and complicate the terrorist and illicit financing landscape. Billions of dollars in illicit trade and money laundering continue to reach the hands of criminal and illicit actors. There is much work to be done to ensure the United States and our partners around the world are making it harder, costlier, and riskier for terrorist groups and illicit actors to raise and move money across and within borders.

Indeed, the terrorist threat and its underlying ideology have continued to metastasize, and the global threat of terrorism has adapted quickly. Terrorist organizations continue to adapt to the pressure placed on their global financial networks since 9/11 and have learned to raise and manage their own budgets by becoming for-profit organizations taking advantage of the economic resources and opportunities where they operate. Just as the problem of terrorism is more global and diversified today than ever before, the means and resources that networks and groups have to raise and move money have become more varied and localized.

Though under increasing pressure, the so-called Islamic State of Iraq and al-Sham (ISIS) has maintained its hold on key territory – even beyond the Syrian and Iraqi theaters – and has erased or reshaped borders in the heart of the Middle East. Its finances in Iraq and Syria have been disrupted thanks to targeted air strikes on oil infrastructure and cash centers, but the group continues to raise millions of dollars in revenue and manages a diversified war economy as it attempts to govern and expand its reach.

To contain the global reach of terrorist groups and to thwart the manifestation of their ambitions, we must disrupt their financing and force them to make operational and strategic choices. After 9/11, the U.S. government understood that defending the country and undermining terrorism required deterring, disrupting, and dismantling terrorist funding sources and networks, as these are all essential to the broader counterterrorism mission. Whether it is al-Qaeda, ISIS, or Hezbollah, the reality is that terrorist groups need money to operate their networks, logistics, maintain territory or influence, and to plan strategically against the United States and our allies.

Any terrorist group, illicit network, or rogue state seeking significant global reach and impact needs access to the financial and commercial system. Financial flows and budgets become even more important as groups like ISIS, Boko Haram, and al-Shabaab attempt to govern and operate local economies.

Money is their enabler, but it’s also their Achilles’ heel. If you can cut off funding flows to rogue groups or states, you can restrict their ability to operate and govern, and force them to make choices – not only budget decisions, but also strategic choices.

Financial strategies are powerful tools that can constrict our enemies’ current activities and their strategic reach. Yes, one suicide bombing may cost a terrorist organization less than $1,000, but if that organization cannot pay for all the sophisticated training it would like, cannot adequately maintain its international alliances, and cannot develop all the programs and operations it imagines, then its ultimate impact will be limited. In maximalist terms, we can alter the enemy’s behavior by affecting its bottom line.