Tackling Terrorist Financing

Thursday, January 28, 2010

CELINA REALUYO: Good morning. I'm Celina Realuyo, and I'd like to welcome you to this morning's session of the Council on Foreign Relations on "Tackling Terrorist Financing."

Given the threat of terrorism to the U.S. at home and abroad, as manifested recently in the Fort Hood shootings, the attempted attack on the airliner over Detroit, and the unfortunate attack on the CIA outpost in Khost, Afghanistan, I can't think of a more timely event to have -- more importantly, with such an important member of the team in the U.S. government who combats terrorism -- in the likes of my colleague, David Cohen.

David's no stranger to Treasury. As you'll see from his bio, he's a returnee to the Treasury Department, and actually heads up all the terrorist financing efforts. So we look forward to his remarks and, more importantly, engaging the audience afterwards.

Just as a reminder, if you can all turn off your cell phones and your Blackberries, so as not to interfere with the sound system. And this meeting will be this morning on the record.

DAVID S. COHEN: Great. Thank you. And good morning to everybody.

It is a -- really, a great privilege to speak before the Council on Foreign Relations. This organization has long been at the forefront of serious and informed discussion of our nation's most significant foreign-policy and national-security issues. And so let me begin by thanking you for the invitation to speak here today.

A little over a week ago in Kabul, the Taliban, reportedly working with al Qaeda, staged one of the most brazen attacks in recent memory. At about 9:30 in the morning, a suicide bomber attempted to break through the gates of a key ministry building. Security guards shot the attacker, who then detonated his suicide belt on the street, steps from the president's palace and the Ministry of Justice. A six-hour gun battle ensued. In the end, at least seven Taliban militants were killed, along with three members of the Afghan security force and two civilians.

Now, you may assume that the target that day was the president's palace or the Ministry of Justice. It wasn't. The target was the Afghan Central Bank -- the country's key financial regulator. Now, why would the Taliban and al Qaeda target the central bank? What about a financial regulator so threatens them that they would dispatch a suicide squad to attack it?

My belief is that the Taliban and al Qaeda understand the critical role that a strong, sound and transparent financial system plays in safeguarding a nation's security. A strong Afghan Central Bank promotes economic growth and enables the Afghan government, rather than the Taliban, to provide services to the Afghan people.

Crucially, it also promotes the financial transparency and regulatory structure necessary to prevent illicit finance -- the very kind of financial activity the Taliban relies upon to support its violent and destabilizing campaign in Afghanistan.

We deplore this cowardly attack on a civilian target, and extend our condolences to the Afghan police officers and innocent civilians who were killed. Nonetheless, I think we can see in the attack on the central bank some evidence of success in our efforts, and the Afghan government's efforts, to tackle terrorist financing in Afghanistan.

What I'd like to do this morning is to -- first, to take a step back and provide a brief overview of the Treasury Department's Office of Terrorism and Financial Intelligence: how we are organized and what we do to advance national security by combatting financial-support networks for violent extremist groups. Next, I will describe some of what we are doing to attack the finances of the Taliban, al Qaeda and other terrorist groups operating in Afghanistan and Pakistan. And finally, I will touch on some of the counter-threat finance challenges and priorities in that region in the months and years ahead.

First, a little background. For many years, the Treasury Department had an Office of Enforcement, headed by an undersecretary and assistant secretary for enforcement. Its principal mission was to oversee the law-enforcement agencies that were then part of the Treasury Department. When the Department of Homeland Security was created in 2002, most of Treasury's law-enforcement agencies were redistributed to DHS and the Justice Department. What was left behind was a much smaller Office of Enforcement.

At the same time, there was a growing recognition that the Treasury Department could leverage its position as gatekeeper to the world's most important financial sector, its responsibility to help safeguard the worldwide financial system and its unique legal authorities to advance our nation's most critical national-security objectives.

Against this backdrop, the Treasury Department's Office of Terrorism and Financial Intelligence, TFI, was created in 2004. TFI is headed by an undersecretary, and supported by two assistant secretaries. One assistant secretary is responsible for developing the anti-money laundering and counterterrorist financing policy for the Treasury Department. That's my job. The other assistant secretary oversees the production and analysis of financial intelligence for use by policymakers in combatting illicit financial activities.

TFI's undersecretary also oversees the efforts of the Office of Foreign Assets Control, OFAC, which administers our sanctions programs, and the Financial Crimes Enforcement Network, FinCEN, which administers the Bank Secrecy Act and serves as the financial-intelligence unit for the United States Government.

It is now well understood that many of our most persistent and pernicious national-security threats -- including terrorists who threaten to strike our country and insurgents fighting our friends and allies abroad -- rely heavily on financial-support networks. Money is an essential ingredient in their operations, every bit as important as fighters, weaponry and extremist ideology. The financial support these groups require goes far beyond the sums spent on specific attacks. These groups need sustained and substantial funding to pay operatives, support their families, indoctrinate and recruit new members, train, travel, and bribe officials.

The key idea underlying TFI's work is this: If we can deter those who would donate money to violent extremist groups, disrupt the means and mechanisms through which they transmit money and degrade their financial support networks, we can make an extraordinarily valuable contribution to our national security.

TFI employs a variety of tools to do this work. And the foundation, of course, is solid financial intelligence, so we know where the money comes from, how it moves and where it winds up. Treasury's Office of Intelligence and Analysis -- which is the only dedicated intelligence office in any finance ministry -- works with its sister agencies in the U.S. intelligence community to map out terrorists' financial networks. FinCEN, which receives and analyzes financial reports from a wide variety of domestic financial institutions, also contributes to our understanding of terrorists' financial networks.

With this financial intelligence in hand, we can take a variety of actions to combat the terrorist financing activity. We can use Executive Order 13224 to block the assets of terrorists and their supporters, and forbid Americans -- including U.S. financial institutions operating here and through branches abroad -- from engaging in transactions with a designated person. We can also seek complementary action by the United Nations, under U.N. Security Council Resolution 1267, by the European Union, under its Common Positions and Community Regulations addressing terrorist financing, and by individual nations exercising autonomous authorities.

Domestically, we can issue rules, under Section 311 of the USA PATRIOT Act, as well as other provisions of the Bank Secrecy Act, to protect our domestic financial institutions from illicit transactions tied to the financing of terrorism.

We have several non-prescriptive tools to combat terrorist financing, as well. We issue FinCEN advisories about foreign financial institutions or methods of moving money that we believe may be facilitating the transmission of funds for illicit purposes. We pass downgraded intelligence and other information to foreign governments' finance ministries, central banks and interior ministries, urging them to take action against those in their jurisdictions involved in terrorist financing. And we share information with both domestic and foreign financial institutions, to alert them to specific risks they may be incurring.

Whichever tools we deploy, we know that our actions, and those of our international partners, are much more effective when there are strong systemic safeguards built into the international financial system. This means having in place the laws and policies to foster financial transparency and to enable swift and sure action against terrorist financing.

We promote this goal by working closely with the Financial Action Task Force, FATF, an intergovernmental body that articulates standards to combat both money laundering and terrorist financing. In part through the dogged efforts of the Treasury Department, these standards have been recognized by more than 175 jurisdictions around the world, as well as by key international institutions such as the United Nations, the World Bank and the IMF.

In response to public assessments against the FATF's standards, many nations have summoned the political will to enhance their systemic safeguards against money laundering and terrorist financing. And because the implementation of strong safeguards is often hampered by a lack of capacity, we also work closely with Treasury's Office of Technical Assistance to provide support to foreign governments interested in developing robust counter-illicit finance capabilities.

Today, Treasury's multipronged and innovative approach to counterterrorist financing is perhaps most clearly evident in our work in Afghanistan and Pakistan. Let me take a few minutes to give you some specifics on the tools that we are using there.

As is the case elsewhere, targeted financial measures are the foundation of our efforts to disrupt and dismantle our enemies' financial networks in Afghanistan. To combat illicit financial activity in Afghanistan and Pakistan, we actively use both E.O. 13224, which allows us to designate terrorists, and the Foreign Narcotics Kingpin Designation Act, which allows us to designate narcotics traffickers.

For example, in July 1, 2009, Treasury designated Mohammed Yahya Mujahid and Nasir Javaid, members of Lashkar-e-Taiba, LT, the Pakistan-based group behind the December 2008 terrorist attack in Mumbai, India. We also designated Arif Qasmani, an LT facilitator.

On the narcotics front, we have recently taken action against two of the world's most notorious drug kingpins, the Haji Juma Khan Organization in Afghanistan and Imam Bheel in Pakistan.

These actions freeze the assets of those designated and cut them off from the US financial system. They also often result in the voluntary severing of financial ties with designees by much of the world's formal financial system. Moreover, the public nature of these designations serves as a strong deterrent to would-be funders, facilitators and enablers of extremist groups.

We have also been hard at work sharing financial intelligence with our partners in the Gulf, a major source of terrorist -- of support to terrorist organizations in Afghanistan and Pakistan. Doing so has helped some Gulf countries build cases and take action to prosecute financial facilitators operating within their borders. This public manifestation of political will and, importantly, official condemnation of terrorist financing, also acts as a powerful deterrent.

Within Afghanistan, Treasury helped establish the Afghan Threat Finance Cell, the ATFC, in 2009. The ATFC is a fusion center headed by the DEA, with the Treasury and Defense Departments as the co-deputies. Building on a similar, highly successful effort in Iraq, and working in close coordination with Afghan counterparts, the ATFC uses the full spectrum of U.S. tools and authorities, including diplomacy, law-enforcement actions, military operations and targeted financial measures, to go after threat finance in Afghanistan.

Over the past two years, we have also worked to enhance our engagement on illicit finance with the Afghan and Pakistani governments and private sector. At the working level, we have bolstered our presence in the region and established Treasury attache offices in both Kabul and Islamabad. Our Treasury attaches help facilitate the adoption and implementation of sound financial oversight and regulatory laws and practices, and build strong technical relationships with key in-country interlocutors.

We have also enhanced interaction between more senior Treasury officials and the Afghan and Pakistani governments. I, along with Deputy Secretary Neal Wolin, will travel in the near future to Afghanistan and Pakistan, meeting with senior officials and leaders of the private financial institutions to discuss, among other things, strategies to combat illicit finance and increase financial transparency.

Treasury is also actively engaged in helping to build Afghan and Pakistani capacity to combat illicit finance. The department has a resident adviser in the Afghan Central Bank's financial intelligence unit, FinTRACA, who helps them develop the systems and expertise to receive, analyze and disseminate reports of suspicious financial activity.

This advisor has also assisted the central bank's initiative to license hawalas, the informal financial networks that are prevalent throughout Afghanistan. Next week, an additional advisor will deploy to help the central bank to improve its ability to regulate the Afghan financial sector.

In addition, we have plans to deploy advisers to Pakistan to help build the capacity of the State Bank of Pakistan's financial intelligence unit and to help improve Pakistani law enforcement's ability to conduct financial investigations.

And we are working closely with FATF, the World Bank and the IMF to encourage Afghanistan and Pakistan to implement the appropriate legal framework to prevent terrorist financing and money laundering. Staff from my office participated in a recent mutual evaluation of Pakistan's AML/CFT regime, and will soon participate in a mutual evaluation of Afghanistan's. We are committed to working with these countries to help them bring their systems up to the FATF's standards.

To take one example, we have been directly engaged at the highest levels with Pakistan's government to encourage the passage by the Pakistan National Assembly of a new anti-money laundering law to replace and improve upon an interim ordinance that was in place until, I think, this morning. Just got word before I acme this morning that the Pakistan National Assembly has passed this law, which is a -- I -- again, another piece of evidence of success, I think.

Back here in Washington, Treasury is leading a whole-of-government process to develop new initiatives aimed at disrupting the financing for violent extremist groups operating in Afghanistan and Pakistan. At the request of Ambassador Richard Holbrooke, the special representative for Afghanistan and Pakistan, last summer I established the Illicit Finance Task Force, the IFTF. This group pulls together expertise from civilian and law-enforcement agencies, the intelligence community and the military to devise more-effective ways to disrupt extremist financial networks and support the development of well-regulated and transparent financial sectors in Afghanistan and Pakistan.

Some IFTF working groups are focused on spurring the growth of banking services in rural areas of Afghanistan and Pakistan. Others are working on a joint U.S.-Russia initiative to target narcotics-related financial networks in Afghanistan, and customs and border oversight in South Asia and the Gulf. Others are sharpening our targeting tools, including through expanded law-enforcement collaboration with our foreign partners, and enhancing our diplomatic engagement with our allies in the region.

And through the IFTF, Treasury and USAID are working with regulatory authorities, banks and mobile communications service providers in Afghanistan and Pakistan to bring mobile banking and payment card services to the Afghan and Pakistani people.

Expanding the reach of the formal financial sector in this way has significant development benefits. It can facilitate the distribution of microfinance loans in the Afghan agricultural sector, which is a top development focus of the U.S. government. At the same time, it can help displace cash transactions, a move that will make Afghanistan less hospitable to illicit finance.

Let me now turn to the way forward and how I see Treasury's national security role evolving in the future, especially in Afghanistan and Pakistan.

In his December 1st, 2009, speech at West Point, President Obama reiterated that: Our overarching goal remains to disrupt, dismantle and defeat al Qaeda in Afghanistan and Pakistan, and to prevent its capacity to threaten America and our allies in the future. To meet that goal, we must deny al Qaeda a safe haven. We must reverse the Taliban's momentum and deny it the ability to overthrow the government.

For the Treasury Department, the message is clear: We need to redouble our efforts to combat the financial support networks of al Qaeda and the Taliban. A financially weakened al Qaeda is less capable of sending fighters into Afghanistan, training operatives to strike American and allied interests overseas, and organizing to attack us here at home. Likewise, a financially weakened Taliban will be a less capable fighting force, more vulnerable to ISAF military maneuvers, and less able to threaten the stability of the Afghan government.

The challenge, of course, is to continue to tighten our grip on the Taliban's and al Qaeda's financial networks. To some extent, this means sticking to our knitting: mapping the networks, particularly gulf-based donors and facilitators, sharing information about risk, taking targeted action singularly or in concert with others, sharing intelligence, so other can take action through their legal systems, and building partner will and capacity.

And as their financial networks react and adapt to the actions we have taken, it also means focusing even more intensively on interdicting cash smuggled out of the gulf into Pakistan and Afghanistan. It also means more actively combatting the use of hawalas for illicit purposes.

Neither of these are new challenges. We have been focused on bulk cash smuggling and informal financial networks for years. But as we have become more successful, in preventing the abuse of the formal financial system, illicit finance has increasingly migrated to these other transmission techniques.

We are also focused on the significant problem of official corruption in Afghanistan. Pervasive corruption in Afghanistan -- in 2009, Transparency International rated Afghanistan the second most corrupt nation -- hinders the development of legitimate government, at all levels, and directly threatens our goal of ensuring that Afghanistan never again provides safe haven for al Qaeda.

The Treasury Department is currently examining ways that we can apply our authorities to combat corruption. Going forward, we will be increasingly focused on helping to build Afghan regulatory and law enforcement capacity.

This will aid in the fight against illicit finance. But equally important, by helping to build capable and responsive governmental institutions, we will assist the Afghan government in countering extremist ideology.

A well-functioning government -- that supervises a transparent, well-regulated financial sector, delivers justice and security and meets the needs of its citizens -- can more effectively compete with the extremists' shadow government.

Before I conclude, I'd like to emphasize one final point. Our efforts to tackle terrorist financing are designed to stop every last penny from going to those who mean to do us harm. But we have no illusions that we can entirely prevent the flow of funds to terrorist groups.

Some funds will find a way to flow. But that does not mean the effort is futile -- far from it. What we have learned is that by deterring would-be funders and disrupting the financial facilitation networks, we significantly impede terrorists' ability to operate.

We may not be able to bankrupt al Qaeda, the Taliban, or even some of the lesser-known groups operating in the border region between Afghanistan and Pakistan. But through the coordinated, creative and relentless effort to attack their financial networks, we appreciably enhance our national security.

I want to close with a final note about your role, as thought leaders, in the effort to combat illicit financing. When intellectuals, academics and journalists focused on national security have the chance to explore our strategies in detail and have the chance to discuss these strategies with Treasury officials, such as in this forum today, the community of people who understand how we use financial authorities to combat illicit finance expands. And this expansion generates greater effectiveness, for several reasons.

Most directly, greater understanding of our authorities facilitates better compliance with laws and guidelines by U.S. persons. It also leads to the adoption of laws by foreign governments, and best practices by foreign financial institutions, which learn how to protect themselves from the risk of doing business with illicit actors.

And it sparks innovative thinking in the policy community about how to use all tools of national power, not merely traditional diplomatic and military tools, to address national security concerns.

So having the opportunity to speak with you as individuals actively involved, in the conversation about national security, is tremendously important as we hone our thinking, about how to combat some of the most insidious and persistent threats we face.

Thank you for being here, and I look forward to your questions. (Applause.)

REALUYO: Thank you very much, David, for a really comprehensive overview of the financial front of our efforts to combat terrorism, particularly in the Afghanistan-Pakistan region.

As you know, we've been working on this issue. I think the last time we saw each other was on a plane. And you were on your way from the gulf. And I was on my way from training the NATO troops who were going to be taking a look at the financial front. A quick question though -- in terms of -- before we turn to the audience.

There's been a lot of focus on the nexus between terrorism and crime, particularly drug trafficking, not just in Afghanistan-Pakistan but also in this hemisphere. And I was wondering -- in terms of -- it's such a difficult task to begin with, to grapple with so many different actors.

As you have indicated, in the success cases, there are a lot challenges in that. I'm just wondering how your team approaches now a lot of this emphasis, on this nexus, and what you think going forward are the best ways to approach it.

COHEN: Well, it's good to see you again. A quick funny story, just before I answer your question.

Celina and I met once before on the flight back from London, because we were sitting next to each other. And I was being nosy and looking at what she was working on. And I looked at it and I thought, wow, that looks like my stuff. (Laughs.) And so that was where we met.

To answer the question about the crime-terror nexus, this is an issue that, as you say, has attracted a great deal of attention recently. But it is something that we have been focused on, at the Treasury Department, actually for quite a long time, because it is not a new phenomenon.

It is not a new problem. And you know, I don't even know for sure that it is an expanding problem. But it is nonetheless a significant problem, because there are certainly some terrorist organizations that receive a substantial portion of their financing from criminal activities.

So for instance, the FARC is sort of the classic case of a terrorist organization that funds itself through criminal activity. We have been, I'm sure, as many of you know, very actively involved in combatting the FARC in Colombia for -- since the early-'90s, using initially a traditional sanctions program and then more recently the Drug Kingpin Act designations, and have made some significant progress in reducing the FARC's ability to operate.

But it's not obviously contained just to the FARC. There are other organizations that obtain some of their financing from criminal activity. That being said, I think, it's also important to recognize that criminal sources of financing, criminal proceeds, are not the principal means by which al Qaeda funds itself, by which Hamas funds itself.

You know, in the case of the Taliban, it is a way in which the Taliban funds itself. It's certainly involved in the drug trade in Afghanistan. But it also -- the Taliban also receives, you know, very substantial funding through traditional donor networks.

And so you know, our work is -- you know, is focused both on dealing with the proceeds coming from crime, as well as the donor networks. And I don't -- you know, I think, as we look at the future, you know, I don't see any lessening of our focus on sort of the traditional means of financing for terrorist organization from the donor networks while we, you know, continue to deal with this, the drug-crime nexus.


Now let's turn to our audience members to engage in conversation. We ask that you wait for the microphone and speak directly into it. And state your name and the affiliation and ask an actual question.


QUESTIONER: Arnaud de Borchgrave, CSIS.

I wonder if you could talk a little bit about the hawala system and how you've managed to overcome it, if indeed you have.

COHEN: Well, I -- we have not managed to overcome it, in the sense of preventing the use of the hawala systems for transmitting value to terrorist organizations. It is a challenge. It is an informal means of moving money that is largely outside of the grasp of financial regulators.

What we are doing in Afghanistan is working with the Afghan central bank to license hawalas that are operating in Afghanistan. The central bank had for some time been able to license hawalas in Kabul. They are now able to license hawalas that are operating outside of Kabul. They're expanding the reach throughout Afghanistan.

The idea, quite simply, is to bring the hawala networks into the regulated financial system. I think as a -- you know, as a sort of philosophical matter, there's no reason that a hawala needs to be outside of a regulated structure. It can be -- it can be regulated just as the way we regulate money services businesses here in the United States. They're not in any sense, you know, so different that they can't be part of a regulated financial network.

And so that's the idea. You know, it's going to be a long and laborious process, but it's one that I think is essential in Afghanistan and elsewhere in order to ensure that these networks, which are hugely important as ways to move money in Afghanistan and elsewhere, are not abused for illicit purposes.

REALUYO: Ambassador Wiyarda, in the very back.

QUESTIONER: Howard Wiyarda from CSIS. We have no monopoly on this discussion.

You presented at the beginning what was a nice kind of wire diagram of the reorganization of your office. And I'd like to follow that up by asking you about the internal structure and political culture within the office, because my experience ha been that when you have a new agency, or relatively new, like Homeland Security or you, to foreign affairs, that it takes a generation or two or three to catch up with the rest of the world.

So could you tell us, for example, the internal situation; how many are lawyers and finance and economics Ph.D.s versus international relations and foreign policy specialists? And how many speak foreign languages, for example? And do we know about their experience abroad? And if you look at Celina's CV, for example, that would be just the kind of person that you ought to hire. (Laughter.)

But give us a little background about --

COHEN: (Laughs.) I didn't know she was looking for a job.

REALUYO: I only did it in the last administration, as you well know.

QUESTIONER: She's a friend, and so I tease her. (Laughter.)

REALUYO: That's right.

QUESTIONER: But give us a little sense of what we call the internal political culture of your office, please.

COHEN: Sure. Our office, I think somewhat like -- unlike DHS, is actually relatively small. And let me just tick off the components again. We have -- the undersecretary oversees an Office of Intelligence and Analysis. This is an intelligence shop. It is one of the members of the intelligence community. The head of that office actually has a dual report to the undersecretary of Treasury as well as to the DNI.

And in that office we have, you know, a number of folks who are trained intelligence analysts, many of whom who speak foreign languages, many of whom who have advanced degrees in various countries and regions that they're focused on, have access to the full range of raw intelligence that is produced by those who are out there collecting in the field.

And they produce the intelligence reports, finished product that we use and, frankly, that others in the government use to understand terrorist networks, as well as intelligence products for our other programs, our WMD program, for instance. The folks in the Office of Intelligence Analysis produce, you know, extraordinarily valuable intelligence products to help us understand what's going on in North Korea and Iran and elsewhere.

FinCEN and OFAC were organizations that predated the creation of TFI, remained intact during that period when there was a reorganization and before 2004 when TFI was created. And so FinCEN and OFAC, which are both headed by directors who report to the undersecretary, have, you know, remained in place and continuing on.

There's obviously been an evolution in the work that they're doing. And, you know, in particular one of the transitions over time in OFAC has been away from broad-based country programs into these targeted financial measures. But that is a trend that had begun before the creation of TFI and has really accelerated, I think, in the last several years.

And then there's my office, which is the policy office in Treasury. We have 'around about 45 people or so divided into two broad categories, some people who are looking at systemic threats, other people who are looking at threats on a regional or country basis. Many of them do have advanced degrees in the areas where they're focused.

In terms of lawyers versus policy versus, you know, people who have, you know, other training, we have a lot of lawyers who aren't practicing lawyers, myself included, and, you know, for better or for worse. We can debate that. Maybe not here. (Laughs.)

REALUYO: Right in front of Ambassador Wiyarda.

QUESTIONER: Steven Donahue (sp) from McLarty Associates. I'd like to go back to Celina's question about things in the region.

There was a recent report that Doug Farah produced on the link between the FARC and the Osaeisa (ph) brothers and members of the Ecuadoran government. There have been, under the kingpin act, a couple of Venezuelan officials and former officials a couple of years ago that were listed.

Would you talk a little more about what the relationship is and whether or not combatting that kind of terrorism and the link with that narcotrafficking is for the -- what kind of priority that is for y'all.

COHEN: Yeah. There are a number of areas where we're focused. You know, for obvious reasons, Afghanistan and Pakistan is a huge focus of our work. We still have, though, an active kingpin program and a lot of interest in what's going on in Latin America, and particularly as it affects the moves up into Mexico.

I guess what I can say is we are -- you know, we remain keenly interested in the drug trade in Latin America, the effect that it has in Mexico and its connections, you know, out of South America and into Africa and Europe. I think, you know, all of that is something that we're focused on.

You know, as I tried to say in my remarks, you know, this is a process, it's not, you know -- we don't have sort of any illusion that we're ever going to be able to, you know, sort of declare victory. I think the notion that we can, like, declare victory against the FARC and say, you know, we've got that completely licked -- you know, maybe someday, but, you know, I know we're not there yet. We know we're not there yet. And, you know, it's something that we will continue to focus on.

REALUYO: Right here in the front.

QUESTIONER: Thank you. Chris Wall, Pillsbury law firm. You spoke, of course, in the context of Pakistan and Afghanistan primarily and the use of these authorities. I wonder if you could address also the use of these authorities with respect to some other parts of the world. In particular I'm thinking of Iran. Obviously, certain Iranian entities have been designated under terrorist, WMD programs and so forth (in/and ?) the banking -- certain major banks.

How do you see these authorities being used in the developing thinking about the application of new Iran sanctions?

COHEN: Well, I think what I can say is that I -- without presupposing exactly what is going to transpire with respect to Iran, I am confident that our authorities will be part of the increased pressure that is currently being contemplated with respect to Iran.

We do have -- I think there are -- the most pertinent program is our WMD program, which allows us to designate persons or entities who are involved in the proliferation of weapons of mass destruction. We've used that to designate a number of Iranian banks in the past as well as other entities in Iran, the IRGC, for instance. There's obviously a lot of talk recently about what, you know, particular targets might be of additional pressure. You know, I think that is a conversation that's ongoing both within our government and with our allies. I think there's no question, though, that part of what is likely to be, I think, as I said, sort of part of the solution will be designations under our programs.

REALUYO: Way in the back. Right there. Mm-hmm.

QUESTIONER: Thank you. My name is Yensok Sung (sp) from KBS, Korean Broadcasting System. Just before the gentleman said that last night President Obama strongly warned North Korea with Iran, if you have -- if you are going to try to pursue the nuclear weapon, you'll confront more isolation and stronger sanctions. And nowadays your government and the U.N. Security Council implements it, the North Korean sanctions, very intensively.

So I want to ask you a question about this. Could you explain your role and effort and your plan about this, and if you have any successful story, could you share it with us? Thank you.

COHEN: On -- you know, on North Korea, I mean, obviously last spring there was another nuclear test that North Korea engaged in, which then led to the most recent U.N. Security Council resolution, which allowed us to do really two things. One was, under the pre-existing resolution, 1718, to do additional designations of banks that are involved in North Korea's proliferation activity. And so we have designated Kwangson and Amroggang recently as involved in North Korea proliferation.

And that has had a very positive effect, from our standpoint, in terms of cutting off some of the proliferation activity that North Korea is involved in. We see in some of the information we have that the identification of those banks results in -- you know, in some action taken by U.S. financial institutions because they are required to do so, but even more so, we see other financial institutions around the world, who see who we designate, cutting off transactions with designated institutions. And so that's been a positive -- you know, the positive result of that designation.

The more recent resolution also has a paragraph in it that talks about how member states should ensure that their financial institutions, both in their home jurisdiction and elsewhere, are not engaging in transactions that could have the effect of promoting North Korea's nuclear missile program. It's not (prescriptive/proscriptive ?), but it is a hortatory language in the resolution.

We have -- you know, we have urged countries around the world to pay attention to that and to provide information to their financial institutions and to keep an eye on their financial institutions so that North Korean proliferation transactions are not running through their banks. And you know, I think we have seen a increased tightening of the financial sanctions on North Korea in the last, you know, nine months, which is -- you know, as the president said last night, exactly what we need to do in order to make clear to the -- to the North Koreans that their nuclear program is not -- you know, is not acceptable and that we're looking for a denuclearized Korean Peninsula.

REALUYO: Right there.

QUESTIONER: Thank you. Peter Trooboff at Covington & Burling. My question goes back to your prior question on the actions of our allies. Within the last couple of days, the new Supreme Court in the United Kingdom has held that the due process of rights of those who are designated requires putting aside their orders.

More generally, the extensive network and programs you've described are not replicated in most of our allied countries. They are taking certain steps, but they don't have (drug kingpin ?) programs and many other things. Could you talk a bit about what the impact is of that and for example where you're going with gaining more allied cooperation? And for example, in Iran, if we push all the Iranian banks into euros, it's a little unclear to some of us why that has accomplished very much.

COHEN: Right.

QUESTIONER: So perhaps you could help us on --

COHEN: Sure.

QUESTIONER: -- what we're doing with our allies and how their cooperation is fitting into what you're doing. Thank you.

COHEN: Absolutely. The greater cooperation that we have around the world in this area, obviously, the more effective we are. So in the terrorism context -- and we do have Security Council Resolution 1267, which requires member states to essentially do the same things that we require under -- for domestic institutions under EO 13224, which is to cut off financial transactions. Twelve sixty-seven also has the additional lever of preventing travel by designees.

One of the things that we are actively engaged in and have been for a long time is trying to get, you know other countries, member states of the United Nations to fully implement the 1267 requirements. I think we have good implementation in Europe, you know, less so elsewhere. But it remains something that we're -- you know, that we have as sort of a high-priority item whenever we're -- when we're out there visiting with other countries and talking to them about terrorist financing in particular.

You know, on the Iran question and whether, you know, our squeezing of the banks in Iran is just going to force them into euros, again, you know, we recognize that. We are -- and I think you'll see this -- working very, very closely with our European colleagues as we develop the -- sort of the package of tools that I think we will use to increase pressure on Iran. And you know, clearly part of that is not to create a gaping loophole for the Iranian financial institutions to just be able to do all their transactions in euros, rather than dollars. So I -- "Stay tuned" is my message on that.

REALUYO: Right here. Right here. Yeah.

QUESTIONER: Hi. My name's Jim Sosnicky. I work with Small Enterprise Assistance Funds here in Washington. I have a question specifically as it -- as what you do ties in to another foreign policy goal, which is the idea of a two-state solution with the Palestinians and the Israelis. For that to happen would require a significant amount of investment, remittances, donations. Is your office -- does your office keep that in mind, so as not to over-designate everything in the West Bank and Gaza so as to discourage that type of economic development? Can you just talk about that? Thank you very much.

COHEN: Yeah. That is something that we're focused on. You know, we recognize that, you know, designations need to be targeted. And as I say, you know, as we've -- over the years have increasingly turned towards the target of financial measures because they're conduct-based, you know, they tend to go after the people who deserve to be targeted, and they have less of a collateral effect on people who are -- you know, who don't merit the sanction.

x x x sanction.

That being said in Gaza where Hamas is so pervasively intertwined in what's going on, I think we are keenly interested in ensuring that financial support from the United States and elsewhere not go to Hamas. That creates difficulties. No questions about it. But you know, I think, we are as a government quite committed to not financially supporting Hamas in Gaza and, you know, I think we need to sort of work through the desire to support economic development in Gaza and while also ensuring that we're not using U.S. dollars to support a terrorist organization.

REALUYO: The very back row.

QUESTIONER: Hi, Colby Adams, moneylaundering.com.

Earlier, you briefly touched upon the Pakistani parliament passing new AML legislation and you also touched upon, I guess --

COHEN: Breaking news. You should put that in.

QUESTIONER: Absolutely. Sure will. And you also touched upon the expansion of mobile banking in that country.

There's been a similar drive in Kenya and other parts of East Africa for this expansion of mobile banking, which is important. It brings banking services to places where there's not a whole lot of ATMs.

I'm wondering, though, it does seem to increase the threat of illicit finance. Do you think that the AML legislation that the Pakistani parliament has just recently passed will account for this in some way?

COHEN: The promise of mobile banking is exactly what you touched on. It is a great way to bring formal financial services to people who, you know, are not within the vicinity of a bank branch and have not, you know, are not part of the formal financial network. If you can expand mobile banking, whether it's through, you know, through your cell phone or the -- (inaudible) -- cards, what have you, there is a real opportunity there to include people in the formal financial system and that brings on a number of benefits and related to that, improves the ability of the financial regulatory system to combat illicit finance. The less -- quite simply, the less transactions are done in the cash and the more that flow through financial institutions, the better the regulators have the opportunity to understand what's going on.

Now, with respect to Pakistan and their new anti-money laundering law, I think it holds a promise of allowing the Pakistan financial regulators to keep an eye on the transactions in the developing mobile banking networks in Pakistan. Those networks are still very much in their infancy and I think the real action is going to be as that develops, ensuring that it develops in a way that the financial regulators are able to apply their oversight in the same fashion as they would a traditional banking relationship.

REALUYO: We have time for -- let's just try about two or three questions. I'll do this side; Dan first and then --

QUESTIONER: Dan Markey at the Council on Foreign Relations.

I'm curious if you could give a sense for the scale of this problem of illicit finance in Afghanistan and Pakistan, in particular, the scale relative to the need or demand of these groups for resources? In other words, you talked at the end of your remarks about -- that we could never address all to this problem, but I'm curious, sir, what piece of that do you optimistically think you can address? And then the opportunities for these groups to seek resources elsewhere? Is this a trickle or a flood? Can you put any numbers on this in terms of what their need and opportunities are?

COHEN: Yeah. I think it's important to think about different groups differently in answering that question. If you look at the Taliban, I think we recognize that the Taliban is funded really from two principal sources, in part, from donations that come from outside of Afghanistan, largely from the Gulf but not exclusively from the Gulf. And then there's another significant portion of the Taliban's funding that comes from sort of working off of the drug trade, whether extorting the -- moving the drugs or the farmers.

So, you know, we -- and I think we're working on both of those problems, right, so within Afghanistan on the drug, it's not so much the Treasury Department's, although we do the kingpin designations which has some affect. But there's also through the ATFC, in particular, a lot of focus on attacking the drug trade within Afghanistan and in that way trying to reduce the funding that the Taliban gets and then from external sources as we tighten our grip on these funding sources from the Gulf, it has a positive effect, both on the funding that the Taliban gets, as well as the funding for groups in the border region, whether it's al Qaeda there or the Haqqani Network or the other groups that are operating there.

So we are, I think, as others have said and I think as I mentioned in a talk that I gave at the ABA in October, I think if you look at al Qaeda, al Qaeda corps, al Qaeda senior leadership in the FATA region, they are as we sit here today in a weaker financial posture than they've been in years. It's not to say, of course, that they are completely out of business. They're not. But they're weaker and they're weaker, in part, because of the work that has been undertaken over the past several years to attack the funding networks coming out of the Gulf.

So that works, you know, we see the effects of that. We see al Qaeda senior leaders making pleas for money, you know, and sort of bemoaning their lack of resources and how they're not able to train fighters. That's, you know, I think a sign of success and, you know, I think what we're aiming towards in Afghanistan is to apply the same techniques with respect to the funding networks coming out of the Gulf, apply law enforcement techniques in particular within Afghanistan, working in conjunction with the Afghan authorities to go after the drug trade there, and, you know, with any luck we will see in the not-too-distant future the Taliban in a weaker financial condition, you know, which really every dollar weaker they are is an added benefit for us on a number of different fronts.

REALUYO: Here at the council, we try to adhere to the strict time rules. Please join me in thanking Assistant Secretary Cohen for sharing his morning with us.

COHEN: Thank you. Thank you all.








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