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Testimony By Mallory Factor Concerning the Second Report of an Independent Task Force on Terrorist Financing Sponsored by the Council on Foreign Relations

Author: Mallory Factor
June 15, 2004

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Mallory Factor, Vice-Chair
Chairman, MALLORY FACTOR INC
U.S. Senate Committee on Governmental Affairs
June 15, 2004


Madame Chairman, Senator Lieberman and Distinguished Members of the Committee:

I am honored to testify here today to report to you on the recommendations of the Independent Task Force of the Council on Foreign Relations on Terrorist Financing, of which I have served as Vice-Chair.

Madame Chairman and Senator Lieberman, I would like to commend you for your unwavering commitment to these issues. The work this Committee is undertaking is of critical importance to the United States and the world. Thank you for your important leadership.

Until relatively recently, too little was done to curb the flow of funds to terrorists and extremists. That is why the Council on Foreign Relations sponsored this Task Force in 2002 and renewed its mandate more recently. I would like to thank Council President Richard Haass for all that he has done to make this Task Force a success.

Our distinguished bi-partisan Task Force is chaired by Maurice R. Greenberg and directed by William F. Wechsler and Lee S. Wolosky. They led this Task Force in the interest of serving our nation. I believe they have succeeded.

I would particularly like to commend Lee Wolosky, without whose leadership, judgment, diplomacy, draftsmanship and dedicated efforts this task force would not have been a success. Lee worked tirelessly to reach consensus among task force members on the report and its recommendations.

The Bush administration has accomplished a great deal since 9/11. Some of the Administration’s achievements in this area have been integrating terrorist financing into the U.S. government’s overall counterterrorism effort, securing unprecedented international support for UN sanctions against al-Qaeda, strengthening international standards for financial supervision through FATF, issuing significant and meaningful regulations under the Patriot Act and implementing a wide-ranging strategy to engage Saudi Arabia on the subject of financial and ideological support of extremists. Still, there is much work to be done and I believe that the Task Force report sets forth a framework of constructive, forward looking recommendations for improving U.S. efforts against terrorism financing.

Our report focuses on terror financing from within the Kingdom of Saudi Arabia because of the enormous resources emanating from that state that fund terrorist activities. Clearly, there are numerous other states that finance terror and that should be examined also.

The Kingdom of Saudi Arabia has accomplished a great deal since May 2003. Most notably, Saudi Arabia has enacted extensive laws and regulations which, if fully implemented, would significantly reduce the flow of funds from within Saudi Arabia to terrorists. However, we have not found Saudi Arabia to be effectively enforcing these laws and regulations as Lee Wolosky has discussed. Many issues still need to be addressed before Saudi Arabia will have an acceptable regime in place to combat terror financing.

Our task force report generally reaffirms the recommendations made in the Task Force’s first report and makes nine new recommendations. I will discuss them in varying levels of detail and would welcome the opportunity to discuss any of them in greater length in response to your questions.

First, we urge U.S. policymakers to build a new framework for U.S.-Saudi relations. We recognize the broader context of the complex and important bilateral relationship in which the terrorist financing issue is situated. For decades, U.S.-Saudi Arabia relations have been built upon a consistent framework understood by both sides: Saudi Arabia would be a constructive actor with regard to the world’s oil markets and regional security issues, and the United States would help provide for the defense of Saudi Arabia, work to address the Israeli-Palestinian conflict, and not raise any significant questions about Saudi Arabian domestic issues, either publicly or privately.

More recently however, this framework has come under strain because al-Qaeda, a terrorist organization rooted in issues central to Saudi Arabian domestic affairs, has murdered thousands of Americans. Al-Qaeda and similar organizations continue to conspire to kill even more Americans and to threaten our way of life.

Changed circumstances require a new policy framework for U.S.-Saudi relations. When domestic Saudi problems threaten Americans at home and abroad, the U.S. must pay attention to those Saudi “domestic” issues that impact U.S. security such as terrorist financing and the global export of Islamic extremism. These issues can no longer be “off the table”; they must be front and center in our bilateral relationship.

We acknowledge that this transition is already well underway, as evidenced by the turbulence in the bilateral relationship since 9/11. We note that some Bush administration officials have privately characterized the current state of affairs in Saudi Arabia as a “civil war” and suggested that the appropriate objective for U.S. policy in this context is to help the current regime prevail. We agree, but we believe the domestic Saudi problem will not be solved by dispersing al-Qaeda cells and members in Saudi Arabia alone. Rather, the “civil war” will be won only when the regime confronts directly and unequivocally addresses the ideological, religious, social, and cultural realities that fuel al-Qaeda, its imitators, and its financiers all over the world.

Second, we recommend that Saudi Arabia fully implement its new laws and regulations and take additional steps to further improve its efforts to combat terrorist financing. In addition to implementing its recently enacted laws and regulations in this area, Saudi Arabia should also deter the financing of terrorism by publicly punishing those Saudi individuals and organizations that have funded terrorist organizations. It should increase the financial transparency and programmatic verification of its global charities and publicly release audit reports of those charities. Saudi Arabia should also ratify and implement treaties that create binding international legal obligations relating to combating money laundering and terrorist financing.

Third, we suggest that multilateral initiatives be better coordinated, appropriately funded, and invested with clear punitive authorities. The need for a new international organization specializing in terrorist financing issues, as recommended by our initial report, has diminished as a result of significant efforts being undertaken by a variety of international actors. The need for proper coordination and clearer mandates has increased for the same reason. It is now time to minimize duplicative efforts and reallocate resources to the most effective and appropriate lead organization.

Fourth, we believe that the executive branch should formalize its efforts to centralize the coordination of U.S. measures to combat terrorist financing. Our understanding is that, in practice, responsibilities for the coordination of terrorist financing issues have shifted from the Treasury Department to the White House, as we recommended in our original Task Force report. I commend the Bush Administration for this action. However, we believe that this allocation of responsibility to the White House needs to be formalized through a National Security Presidential Directive (NSPD) or otherwise.

Fifth, we recommend that Congress enact a Treasury-led certification regime specifically on terrorist financing. The financial support for terrorism is the life-blood of global terrorism and requires its own certification regime. A separate certification process will ensure that stringent requirements are maintained specifically with respect to a nation’s policies and practices on terrorist financing without consideration of other issues.

I believe that the Saudi Arabia Accountability Act of 2003, S. 1888, sponsored by Senator Arlen Specter and co-sponsored by Chairman Collins and others would provide a good starting point for a terrorist financing certification regime if it were narrowed to focus solely on the financing of terrorism and expanded to apply to other nations.

We understand that certification regimes are generally disfavored by the executive branch (which must implement them) and favored by the legislative branch (which they empower). Although controversial, they also have the ability to galvanize quickly action consistent with U.S. interests. Moreover, they require official findings of fact that have the effect of promoting transparency and compelling sustained U.S. attention to important topics that, on occasion, U.S. officials find it more expedient to avoid.

For these reasons, we believe that Congress should pass and the President should sign legislation requiring the executive branch to submit to Congress on an annual basis a written certification (classified if necessary) detailing the steps that foreign nations have taken to cooperate in U.S. and international efforts to combat terrorist financing. We suggest that in the absence of a presidential national security waiver, states that do not receive this certification would be subject to sanctions— including denial of U.S. foreign assistance monies and limitations on access to the U.S. financial system.

Sixth, we urge the U.N. Security Council to broaden the scope of the U.N.’s al-Qaeda and Taliban Sanctions Committee. The UN Security Council should specifically impose international sanctions on other groups and individuals that have been designated as terrorists, as Hamas has been by the United States and E.U. Furthermore, it should require, as a matter of international law, that member states take enforcement action against groups, persons and entities designated by the Sanctions Committee. The enabling resolution for these expanded authorities should explicitly reject the notion that acts of terror may be legitimized by the charitable activities or political motivations of the perpetrator. No cause, however legitimate, justifies the use of terror; indeed, the use of terror delegitimizes even the most worthy causes.

Seventh, we suggest that the U.S. government increase sharing of information with the financial services sector as permitted by Section 314 of the USA PATRIOT ACT so that this sector can cooperate more effectively with the U.S. government in identifying incidences of terror financing. International financial institutions subject to U.S. jurisdiction are among our best sources of raw financial intelligence to identify terror financing, but these institutions need to be given appropriate information from the U.S. government on what to look for. Currently, the procedures required by Section 314 of the Patriot Act which are designed to promote cooperation with financial institutions in identifying terror financing are not working as effectively as they might. We suggest greater information sharing between the U.S. government and the financial institutions within the framework of the Patriot Act in order to allow these institutions to cooperate more effectively with the U.S. government in identifying incidences of terror financing.

Eighth, we recommend that the National Security Council (NSC) and the White House Office of Management and Budget (OMB) conduct a cross-cutting analysis of the budgets of all U.S. government agencies as they relate to terrorist financing. We understand this recommendation is difficult to implement; however, we think that monitoring the financial and human resources that are actually devoted to the various tasks involved in combating terrorist financing will facilitate fully informed, strategic decisions about whether resource allocations are optimal or functions are duplicative. For this reason, the NSC and OMB should conduct a cross-cutting analysis of all agencies’ budgets in this area, to gain clarity about who is doing what, how well, and with what resources. Only with such a cross-cut in hand can we can begin to make assessments regarding the efficiency of our existing efforts and the adequacy of appropriations relative to the threat. We commend Jody Myers, the former NSC staffer, for suggesting a similar cross-cutting analysis in his Senate testimony given last month.

Ninth, we urge the U.S. government and private foundations, universities, and think tanks to increase efforts to understand the strategic threat posed to the United States by radical Islamic militancy, including specifically the methods and modalities of its financing and global propagation. At the dawn of the Cold War, the U.S. government and U.S. nongovernmental organizations committed substantial public and philanthropic resources to endow Soviet studies programs across the United States. The purpose of these efforts was to increase the level of understanding in this country of the profound strategic threat posed to the United States by Soviet Communism. A similar undertaking is now needed to understand adequately the threat posed to the United States by radical Islamic militancy, along with its causes, which we believe constitutes the greatest strategic threat to the United States at the dawn of this new century. To be commensurate with the threat, much more will need to be done, not only in Washington, but also by private U.S. foundations, universities, and think tanks, in a more sustained, deliberate, and well-financed manner than that afforded through ad hoc initiatives such as our Task Force.

I look forward to your questions.

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