Terrorist Financing: U.S. Agency Efforts and Inter-Agency Coordination
CRS Report for Congress
Terrorist Financing: U.S. Agency Efforts
and Inter-Agency Coordination
Updated August 4, 2005
Martin A. Weiss, Coordinator
Analyst in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress
U.S. Agency Efforts and Inter-Agency Coordination
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
In troduction ......................................................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
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
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 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
Terrorist Financing: Current Efforts and
Policy Issues for Congress
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 of3
Libya, which were blocked on September, 20, 2004, made up all but $425 million.
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 Narcotics5
Control Strategy Report, the United States has a three-tiered anti-money laundering-
counter-narcotics/counterterrorist financing strategy that employs:
1 This section was prepared by Martin A. Weiss/Foreign Affairs Defense and Trade Division
2 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.
3 Terrorist Assets Report, Department of the Treasury, available at
[ ht t p: / / www.t r eas.gov/ of f i ces/ e nf or cement / of a c/ r e por t s / t a r 2004.pdf ] .
4 Executive Summary, Final Report of the National Commission on Terrorist Attacks Upon
the United States, July 2004,pgs. 18-19, available at
[http://www.9-11commi ssion.gov/r eport/911ReportExec.pdf].
5 2005 International Narcotics Control Strategy Report, Department of State, available at
[ h t t p : / / www.st at e.go v/ g/ i n l / r l s / n r c r p t / 2005/ ] .
!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.
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 anti-
money 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
6 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 Richard F. Grimmett. For a discussion of terrorist financing in general, see CRS Report
RS21902, Terrorist Financing: The 9/11 Commission Recommendation, by Martin A.
Weiss; 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 Christopher M. Blanchard.
7 This section was prepared by Nathan Brooks/American Law Division (ALD).
8 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.).
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 the17
International Emergency Economic Powers Act (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 United18
States.” These powers include the ability to seize foreign assets under U.S.
jurisdiction, to prohibit any transactions in foreign exchange, to prohibit payments
9 “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).
10 Id. at § 5321.
11 Id. at § 5322.
12 31 U.S.C. § 5313(a).
13 31 C.F.R. § 103.22(b)(1).
14 31 C.F.R. § 103.18.
15 31 U.S.C. § 5314.
16 31 U.S.C. § 5316.
17 Title II of P.L. 95-223 (codified at 50 U.S.C. § 1701 et seq.).
18 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.
between financial institutions involving foreign currency, and to prohibit the
import/export of foreign currency.19
The Money Laundering Control Act. Congress criminalized money20
laundering in 1986 with the passage of the Money Laundering Control Act.
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 illegal22
act, only that the defendant knew the property was procured via illegal activity.
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
19 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
20 P.L. 99-570, § 1352 (codified, as amended, at 18 U.S.C. §§ 1956-1957).
21 18 U.S.C. § 1956.
22 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.
23 Title XV of P.L. 102-550 (codified at various sections of Titles 12 and 31 of the U.S.
24 12 U.S.C. § 1821(c)(5)(M); 12 U.S.C. § 1786(h)(1)(C).
25 12 U.S.C. § 93(c).
26 12 U.S.C. § 1818(w).
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 Secretary31
to designate a single agency to receive suspicious activity report filings. 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 of36
September 11, 2001, Congress passed the USA PATRIOT Act. Congress devoted
Title III of this act to combating terrorist financing.37 Given that funds used to
27 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
28 18 U.S.C. § 1960.
29 Title IV of P.L. 103-325 (codified at various sections of Title 31 of the U.S. Code).
30 31 U.S.C. § 5313 note.
31 Id. at § 5318 note.
32 12 U.S.C. § 5312(a)(2)(X).
33 P.L. 105-310 (codified at 31 U.S.C. § 5340 et seq.).
34 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:
[ ht t p: / / www.i r s.gov/ compl i a nce/ enf or cement / a r t i c l e / 0,,i d=107510,00.ht ml ] .
35 31 U.S.C. § 5354.
36 P.L. 107-56. The acronym USA PATRIOT stands for “Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorists.”
37 This Title is called the International Money Laundering Abatement and Anti-Terrorist
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 terrorist-
related 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
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 M. Maureen Murphy.
38 18 U.S.C. § 2339B.
39 31 U.S.C. § 5318A(a).
40 “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
41 “Correspondent accounts” are bank accounts established with a U.S. financial institution
to receive deposits or otherwise handle financial transactions of a foreign financial
42 31 U.S.C. § 5318A(b).
43 31 U.S.C. § 5318(i).
44 31 U.S.C. § 5318(j).
45 31 U.S.C. § 5321(a)(7); 31 U.S.C. § 5322(d).
46 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).
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
Title III extends the Suspicious Activity Reports filing requirement to broker-
dealers,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
47 P.L. 107-56, § 316 (codified at 18 U.S.C. § 983 note)
48 P.L. 107-56, § 317.
49 18 U.S.C. § 981(a)(1)(B).
50 18 U.S.C. § 981(k).
51 31 U.S.C. § 5317(c).
52 31 U.S.C. § 5318(h).
53 31 U.S.C. § 5318(k)(2).
54 12 U.S.C. § 1842(c)(6); 12 U.S.C. § 1828(c)(11).
55 12 U.S.C. § 1828(w).
56 P.L. 107-56, § 356 (codified at 31 U.S.C. § 5318 note).
57 P.L. 107-56, § 358 (codified at 31 U.S.C. § 5319; 15 U.S.C. § 1681v).
58 31 U.S.C. § 5331. This is a separate requirement from the one codified at 31 U.S.C. §
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
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 government-
provided 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
el ect roni cal l y. 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
59 Id. at § 5332.
60 31 U.S.C. § 5318(l).
61 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.
62 31 U.S.C. § 310.
63 P.L. 107-56, § 362 (codified at 31 U.S.C. § 310 note).
64 Title II of P.L. 107-197 (codified at 18 U.S.C. § 2339C).
65 P.L. 108-458, § 6101(2).
other things — telecommunications and analytical technologies,66 and makes
permanent the amendments to the BSA contained in Title III of the USA PATRIOT
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
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
67 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.
68 Id. at § 6302.
69 Id. at § 6303(a).
70 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.
71 This section was prepared by Alfred Cumming/FDT.
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
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
72 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.
73 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.
74 See Douglas Farah, “Blood From Stones: The Secret Financial Network of Terrorism,”
Broadway Books, New York, New York, May 2004, p. 193.
75 See Myron Levin and Josh Meyer, “Officials Fault Past Efforts on Terrorist Assets,” Los
Angeles Times, Oct. 16, 2001.
76 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.”
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
77 Ibid, p. 186.
78 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
79 Ibid, p. 186.
80 Ibid, p. 505, FN No. 88.
84 See Myron Levin and Josh Meyer, “Officials Fault Past Efforts on Terrorist Assets,” Los
Angeles Times, Oct. 16, 2001.
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
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
86 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.
87 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,
88 See S.Rept. 107-63, Sept. 14, 2001, pp. 10-11, which accompanied S. 1428, the SSCI-
approved Fiscal Year 2002 Intelligence Authorization Bill.
89 Ibid, pp. 10-11.
90 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
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
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.
91 This section was prepared by Richard Best/FDT.
92 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.
93 Council on Foreign Relations, Report of an Independent Task Force, Terrorist Financing,
New York, 2002, pp. 32-33.
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 inter-
departmental 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 these96
sections (H.R. 3199 and S. 1389). 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
94 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.
95 This section was prepared by Walter Eubanks and William D. Jackson/Government and
Finance Division (G&F).
96 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 Charles Doyle.
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
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
97 Senate Committee on Banking, Housing, and Urban Affairs. Press Release, Jan. 19, 2005,
[http://b a n ki n g. s e n a t e . go v/ i n d e x . c f m? F u s e Action=Pr essReleases.Detail&Pr essRelease_i
98 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://banki ng.senate.gov/ _files/dagostino.pdf]
99 FinCEN, The SAR Activity Review Trends, Trip & Issues, April 2005, 50 p. [http://www.
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
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-05-
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 Schindel, p. 4.
104 “President Bush Requests More Funds for Bank Secrecy Act Oversight in Budget,” Daily
Report for Executives, Feb. 8, 2005, p. B-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 non-
depository 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
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 since106
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
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.
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
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 examination108
process identified violations that were severe enough to require action. Recent
public action involved a $100 million fine against UBS for transmitting U.S.109
currency to trade-sanctioned nations through the Fed of New York’s own systems.
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
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
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.
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
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.
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
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://banki ng.senate.gov/ _files/j ohnson.pdf]
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 non-
banking 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 Gary Guenther/G&F.
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
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.
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
118 Based on information obtained from Floyd Williams of the IRS in an e-mail message
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
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 non-
banking 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
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,
121 The BSA requires banks and non-bank financial institutions such as casinos and check-
cashing 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.
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
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
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 Anti-
Terrorism 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
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.
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.
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 cross-
border 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.
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).
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.
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
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 ‘non-
drug’ 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-04-
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
operations. FID received $283 million in FY2004. 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
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
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 Homeland133
Security, where it is to be “maintained as a distinct entity” — had been housed,
since its inception as a small anti-counterfeiting force in 1865, in the Department of134
the Treasury. As a result of its missions and responsibilities, the Service’s roles
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
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
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
Frederick M. Kaiser, “Origins of Secret Service Protection of the President,” Presidential
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
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
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
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 onthnd
Financial Services, Terrorist Financing, hearings, 108 Cong., 2 sess., May 4, 2004;
Senate Committee on Banking, Housing, and Urban Affairs, Counterterror Initiatives andthnd
Concerns in the Terror Finance Program, hearings, 108 Cong., 2 sess., May 29 and June
to Combat Terrorism Financing, hearings, 108 Cong., 2 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-04-
501T (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.
theft, computer fraud; and computer-based attacks on our nation’s financial,137
banking, and telecommunications infrastructure.
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 criminal139
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, available at
[ h t t p : / / www.s e c r e t s e r vi c e . go v/ f i na nc i a l _ c r i me s .s ht ml ] .
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
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
141 This section was prepared by Todd Masse/DSP.
142 See Testimony of Gary M. Bald, Acting Assistant Director for Counterterrorism Division,
FBI, Before the Senate Caucus on International Narcotics Control, March 4, 2004.
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
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 the150
first “material support” legislation. 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
[ h t t p : / / www.f b i . go v/ hq/ ci d/ f c / ml / m._about .ht m] .
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
tools are also used in the investigation and prosecution of terrorist financing
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 terrorist154
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
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.
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
!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 Service157
Providers, and the Telecommunications Industry.” 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.
157 See Testimony of John Pistole, September 25, 2003.
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
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
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
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 Alfred Cumming and Todd Masse.
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 Todd Masse, appendices I (field offices) and
III (Legal Attache Offices).
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 See Testimony of John Pistole, March 4, 2004.
163 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.
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
Bureau of Alcohol, Tobacco, Firearms and Explosives
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 Cindy Hill/DSP.
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
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 terrorism-
related 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 ends168
through money laundering activities and other financial schemes.
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 This section was prepared by Mark Eddy/DSP.
168 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.
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
!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
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
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
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 to172
block the flow of terrorist financing.
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 Counter-
terrorism 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.
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
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,
Bureau for International Narcotics and Law Enforcement
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 anti-
money laundering capacity-building programs around the world.
State Department Funding Levels for Terrorist Financing
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.
Table 1. State Department Counterterrorism Funding Within
Non-proliferation, Anti-terrorism, De-mining, and Related
ProgramFY2004FY2005 est.FY2006 req.
Counterterrorism $0.00 $1.98 $2.00
Anti-terrorism $141.43 $134.40 $133.50
Terrorist $4.97 $4.96 $7.50
Counterterrorism $0.00 $7.19 $7.50
Source: Office of the Coordinator for Counterterrorism, Department of State.
Table 2. State Department Counterterrorism Funding Within the
Diplomatic and Consular Programs (D&CP)
ProgramFY2004FY2005 est.FY2006 req.
Source: Office of the Coordinator for Counterterrorism, Department of State.
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 non-
compliance 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
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 Martin A. Weiss/FDT and Christopher Blanchard/FDT.
174 Final Report of the National Commission on Terrorist Attacks Upon the United States,
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.
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
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 terrorist177
financing (Eight Special Recommendations on Terrorist Financing). It is housed
at the Organization for Economic Cooperation and Development (OECD) in Paris.178
As of July 2005, FATF has 33 members. 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 James
178 See FATF website for a list of member countries and observer organizations
laundering, including through cash couriers, alternative remittance systems, and179
the abuse of non-profit organizations.
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:
1. Take immediate steps to ratify and implement the relevant United Nations
2. Criminalize the financing of terrorism, terrorist acts and terrorist
5. Provide the widest possible range of assistance to other countries’ law
enforcement and regulatory authorities for terrorist financing
6. Impose anti-money laundering requirements on alternative remittance
7. Strengthen customer identification measures in international and domestic
8. 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
180 Financial Action Task Force Terrorist Financing, available at
[http://www1.oecd.org/ fatf/T erFinance_en.htm] .
181 The MENAFATF participants are Syria, Bahrain, Saudi Arabia, the United Arab
Emirates, Lebanon, Qatar, Algeria, Oman, Morocco, Jordan, Egypt, Kuwait, Tunisia, and
Bahrain, and its President, Vice President, and Executive Secretary are from
Lebanon, Egypt, and Saudi Arabia, respectively.182 At the MENAFATF’s first
plenary meeting in April 2005, representatives assessed and evaluated progress in
combating terrorist financing in the region and discussed the organization’s budget,
action plan, and working groups. Its next meeting is scheduled for late-September
The International Monetary Fund (IMF) and the World Bank have also
incorporated counter-terrorist financing activities into their work. During 2003-2004,
the IMF and the World Bank undertook a twelve-month pilot program that evaluated
In March 2004, the IMF and World Bank agreed to make the pilot program
permanent. Experience under the pilot program with both assessments and with
technical assistance considerably deepened collaboration between the IMF and World
Bank and FATF and the FATF Style Regional Bodies (FSRBs). Recommendations
for the IMF and World Bank on how to improve monitoring include the need for
close coordination with FATF and FATF-Style Regional Bodies on the timing of
assessments, more equitable sharing of the assessment burden among agencies, and
broadening the responsibilities of IMF and World Bank staff for the supervision and
integration of assessment missions to insure comprehensive and high quality
In addition to the pilot program, numerous IMF products, including annual
economic reports (Article IV Assessments) and the Reports on Standards and Codes,
and Financial Sector Assessment Program reports consider issues relevant to
terrorist financing.184 None of these reports constitutes a binding agreement. The
legal basis for the IMF and World Banks’ work on these issues is through its
technical assistance function. The IMF and World Bank may offer advice and
guidance, but it is the responsibility of the national governments to implement and
enforce any new laws suggested by FATF’s, IMF’s, or the World Bank’s
Conclusion: Policy Issues for Congress185
While the current campaign against terrorist finance reportedly has diminished
terrorists’ abilities to gather and transmit finances, significant funds still appear to be
available. Efforts to further regulate and introduce transparency into the global
financial system are welcome steps; yet they will not completely reduce terrorists’
182 For more information, see [http://www.mofne.gov.bh/menafatf/Home.asp].
183 International Monetary Fund and World Bank, “Twelve Month Pilot Program of Anti-
Money Laundering and Combating Terrorist Financing of Terrorism (AML/CFT)
Assessments, Joint Report on the Review of the Pilot Program.” March 10, 2004.
184 See William E. Holder, “The International Monetary Fund’s Involvement in Combating
Money Laundering and the Financing of Terrorism,” Journal of Money Laundering Control,
spring 2003, pp. 383-387.
185 This section was prepared by Martin A. Weiss/FDT.
striking capacity because most of the proposed measures cannot with certainty
separate out terrorists from other types of lawbreakers. Terrorists’ ability to exploit
non-bank mechanisms of moving and storing value, as well as their decentralized
self-supporting network of cells represent additional challenges to law enforcement.
These challenges and concerns lead to numerous policy questions that may be
relevant for Congress as it debates both a U.S. strategy to counter terrorist financing
and to reorganize the U.S. government in order to best implement this strategy.
Among those questions are:
!Should the U.S. strategy emphasize freezing assets or following
financial trails? In the wake of the 9/11 report, this does not appear
to be answered. More importantly, who should author the U.S.
Government terrorist financing strategy? Although the current
terrorist financing strategy is drawn up by the State Department,
many would argue that Treasury maintains more expertise on the
issue and, having prepared the previous Anti-Money Laundering
Strategies, would be better suited to draft a national counterterrorist
!Does the current architecture of the U.S. Government display clear
jurisdiction among the various federal departments and agencies
involved in the fight against terrorist financing? The preceding
analysis points to many possible overlaps among the various
investigatory agencies (FBI/DOJ and DHS) as well as between
Treasury and State in policy setting and providing technical
assistance to foreign allies. To what extent has the Administration
analyzed each federal agency budget allocation for combating
terrorist financing to reconcile duplication of efforts?
!What future efforts can be put in place to further inter-departmental
and inter-agency coordination on both policy-setting and
enforcement? How well are the functions of the panoply of new and
legacy departments and agencies being coordinated? Who is best
suited to coordinate these functions?
!How well is the congressional oversight mechanism designed to
assess federal performance on countering terrorist financing? The
Senate Banking and Finance Committees agreed to joint jurisdiction
over the Treasury’s Office of Terrorism and Financial Intelligence.
Several other Committees have potential relevance in the overall
fight against terrorist financing. Reform of congressional
jurisdiction is an historically tricky issue, yet some argue that
reevaluating how Congress oversees the fight against terrorism and
terrorist financing may lead to more effective Executive Branch
!Considering terrorists’ increased use of alternative remittance
systems, is there any way to regulate these practices? What would
the costs be to register all informal money-transmitters and bring
them in line with USA PATRIOT Act requirements? Many small
remittance services cater to immigrant communities without reliable
access to the formal banking sector. Making alternative remittance
systems illegal is likely impractical and could create a swell of
resentment among the immigrant population in the United States.
If the U.S. Government wants to license and regulate alternative
remittance systems, some say it may be necessary to offer funds and
technical assistance to small remittance providers to help insure their
!How effectively is the United States cooperating with other countries
and insuring their cooperation in implementing and enforcing
national regulations to restrict terrorist financing? If a U.S. bank,
charity, or remittance system is based in the U.S., or has U.S.
operations, it is subject to U.S. jurisdiction. When such entities lie
outside U.S. jurisdiction, the United States is often at the mercy of
other governments to first enact legislation making terrorist
financing illegal and, more importantly, rigorously enforce this
legislation. Creating a legal and regulatory system is likely
meaningless if it is not enforced.
AML - Anti-Money Laundering
APHIS - Animal and Plant Health Inspection Service
ATF - Bureau of Alcohol, Tobacco, Firearms, and Explosives
BSA - Bank Secrecy Act
CBP - Bureau of Customs and Border Protection
CBRS - Currency Banking Retrieval System
CFTC - Commodity Futures Trading Commission
CFTRA - Currency and Foreign Transaction Reporting Act
CI - Criminal Investigation
CIDAD - The Organization of American State’s Inter-American Drug Abuse Control
CTR - Currency Transaction Report
DCI - Director of Central Intelligence
DEA - Drug Enforcement Agency
DHS - Department of Homeland Security
DNI - Director of National Intelligence
DSRO - Designated Self-Regulatory Organizations
EB - Bureau for Economic and Business Affairs
FATF - Financial Action Task Force
FBAR - Report of Foreign Bank and Financial Accounts
FBI - Federal Bureau of Investigation
FCS - Financial Crimes Section
FDIC - Federal Deposit Insurance Corporation
Fed - Federal Reserve System
FFIEC - Federal Financial Institutions Examination Council
FID - Financial Investigations Division
FinCEN - Financial Crimes Enforcement Network
FIP - Financial Investigative Program
FSRBs - FATF Style Regional Bodies
FTATC - Foreign Terrorist Asset Tracking Center
FTATG - Foreign Terrorist Asset Targeting Group
HIFCA - High-risk money laundering and related financial crimes areas
IC - Intelligence Community
ICE - Bureau of Immigration and Customs Enforcement
IG - Inspector General
IMF - International Monetary Fund
INS - Immigration and Naturalization Service
IEEPA - International Emergency Economic Powers Act
IRS - Internal Revenue Service
IRTPA - Intelligence Reform and Terrorism Prevention Act of 2004
ITFWG - International Terrorism Financing Working Group
JTTF - Joint Terrorism Task Forces
LDC - Garden City (Garden City, NY) Counterterrorism Lead Development Center
MENAFATF - Middle East and North Africa Financial Action Task Force
MLCC - Money Laundering Coordination Center
MOA - Memorandum of Understanding
MSB - Money Service Business
NAMLG - National Anti-Money Laundering Group
NCTC - National Counterterrorism Center
NFA - National Futures Association
NSC - National Security Council
OCC - Office of the Comptroller of the Currency
OECD - Organization for Economic Cooperation and Development
OFAC - Office of Foreign Assets Control
OTS - Office of Thrift Supervision
PCC - Policy Coordinating Committee
SARs - suspicious activity reports
SB/SE - Small Business and Self-Employed Taxpayers Division
S/CT - Office of the Coordinator for Counterterrorism
SEC - Securities and Exchange Commission
SSCI - Senate Select Committee on Intelligence
TE/GE - Tax-Exempt and Government Entities Division
TFI - Office of Terrorism and Financial Intelligence
TFOS - Terrorist Financing Operation Section
TFWG - Terrorist Finance Working Group
TSA - Transportation Security Administration
UNSCR - United Nations Security Council Resolution