STATEMENT OF LEE S.

WOLOSKY1
NATIONAL COMMISSION ON TERRORIST ATTACKS UPON THE
UNITED STATES

APRIL 1,2003

Thank you for inviting me to testify before you today on the subject of terrorist financing.
This Commission has been invested with profound responsibilities. It is my honor and
privilege to be able to assist you in discharging your responsibilities on behalf of the
American people.

BACKGROUND2

Unlike state-sponsored terrorist groups, al-Qaeda is financially robust. Having developed

multiple sources of support, it is free from the control of any government. As such, it
historically has been able to operate from failed or dysfunctional states. Indeed, when it
was headquartered in both Sudan and Afghanistan, the al-Qaeda terrorist organization
provided important financial support to its host state—instead of the other way around.

The construction of al-Qaeda's financial support network constituted a primary source of

Osama Bin Laden's personal influence. Unlike other terrorist leaders, Bui Laden was not
a military hero, nor a religious authority, nor an obvious representative of the
downtrodden and disillusioned. He was a rich financier, both a scion of one of Saudi
Arabia's most influential families and a challenger to Saudi Arabia's existing system of
governance, distinguished by his ability to organize an effective network.

He built al-Qaeda's financial network from the foundation of a system originally

designed to channel resources to the mujahideen fighting the Soviets. It was that network
that sustained the organization when bin Laden was forced to move from Saudi Arabia to
Sudan, and then again when al-Qaeda was forced to uproot its infrastructure and relocate
to Afghanistan.

Al-Qaeda's financial network continues to support the organization today, even after
being driven from its Afghan base, and allows it to maintain its capacity to attack
Americans at home and abroad.

1 Head of the International Corporate Practice Group, Boies, Schiller & Flexner LLP, Adjunct Professor in
International Affairs at Columbia University and Adjunct Fellow at the Center for Strategic and
International Studies (CSIS). Former Director for Transnational Threats on the National Security Council
staff under Presidents Clinton and George W. Bush.
2 Portions of this statement are drawn from the work of the Council on Foreign Relations' Task Force on
Terrorist Financing, the final report of which I co-authored with William F. Wechsler.
Wealthy Saudis Raising Millions for al-Qaeda, Says Report http://www.intelmessages.org/Messages/National_Security/wwwboard/messages/2066.hl

Wealthy Saudis Raising Millions for al-Qaeda, Says Report

f Follow Ups 1 r Post Followup 1T Return to National Security Message Board of Dr. Robert Koontz]

Posted by (65.149.232.17) on Thursday, October 17th, 2002 at 05:36:06 GMT

From the Washington Post article linked to below:

Report Decries Saudi Laxity

U.S. Must Act to Dry Up Al Qaeda Funds, Policy Group Says

By Douglas Farah
Washington Post Staff Writer
Thursday, October 17, 2002; Page A18

The Bush administration's efforts to cut off funds for international terrorism
are destined to fail until it confronts Saudi Arabia, whose leaders have
tolerated some of its wealthy citizens raising millions of dollars a year for al
Qaeda, according to a new report from an influential foreign policy
organization.

The report from the New York-based Council on Foreign Relations,

scheduled for release today, contends that the administration must
pressure the Saudis—as well as other governments—to crack down on
terror financing, even at the risk of sparking a public backlash that could
jeopardize the Saudi government.

"It is worth stating clearly and unambiguously what official U.S. government
spokespersons have not," the report notes. "For years, individuals and
charities based in Saudi Arabia have been the most important source of
funds for al Qaeda, and for years the Saudi officials have turned a blind eye
to this problem."

Administration criticism of Saudi Arabia, among the top crude oil suppliers
to the United States and a crucial ally if the Bush administration takes
military action against Iraq, has been largely muted since the Sept. 11
attacks, despite the belief of many law enforcement and intelligence officials
here and abroad that al Qaeda relies on wealthy Saudis for most of its
funding.

Earlier this year, however, relations became strained when a defense

consultant told a Pentagon advisory committee that Saudis were active at
all levels of the terror chain.

The Saudi government had no immediate response to the report. Its

embassy here issued a statement praising U.S.-Saudi cooperation in
freezing terrorist assets and cracking down on charities, saying the support
and financing of terrorism "cannot be tolerated."

But the report drew a sharp rebuttal from the Bush administration. Robert
Nichols, the Treasury Department's deputy assistant secretary for public
affairs, said the report was "seriously flawed" and that his department
considered it a "Clinton-era snapshot of what al Qaeda looked like in 1999
or 2000" without taking into account the new resources and strategies to
combat terror financing.

"We are not claiming victory, we are not spiking the football, but we are off
to a good start," Nichols said.

Iof3 3/21/03 9:09 AM

ParaPundit.com: CFR Report on Terrorist Funding wysiwyg://129/http://www.parapundit.com/archives/000364.htn

ParaPundit.com
Stepping out of the box to look at events.

« Non-Shocker: Saudi Arabia Won't Help Against Iraq I Go Read More Posts On ParaPundit.com I Francis Fukuyam
on American, European views »

October 17, 2002

CFR Report on Terrorist Funding
The Council on Foreign Relations has released an important report on efforts needed to reduce terrorist funding:

October 17, 2002 - After an initially robust attempt to curtail financing for international terrorism,
the Bush administration's current efforts are strategically inadequate to assure the sustained
results needed to protect U.S. security. This is the core finding of a bipartisan commission chaired
by Maurice R. Greenberg, Chairman and CEO of AIG, and directed by two former National
Security Council (NSC) officials who are experts in the field.

To regain momentum and give this issue the priority it requires, the Task Force urges the
administration to take two key structural steps:

• Designate a Special Assistant to the President with the specific mandate and prestige to
compel the various diplomatic, law enforcement, intelligence, regulatory and policy
agencies to work together to assure a sustained and effective U.S. response.
• Drive other countries-whose efforts are woefully inadequate-to greater effectiveness and
/""> cooperation. To accomplish this, the U.S. should lead an initiative to create a new
international organization dedicated solely to curbing terrorist financing.

In the aftermath of 9/11, President Bush said, "We will starve the terrorists of funding." The
purpose of the report is to evaluate how the United States is doing in carrying out that mission.
The Task Force, directed by former NSC officials William Wechsler and Lee Wolosky, commends
the progress that the Bush administration and Congress have made in disrupting AI-Qaeda's
financial network, both at home and abroad. It warns, however, that "as long as AI-Qaeda retains
access to a viable financial network, it remains a lethal threat to the United States."

The Task Force describes the complex nature of the financial network sustaining AI-Qaeda and
the obstacles to dismantling it, and it acknowledges that the only realistic goal is to curb rather
than completely cut off terrorist funding. It finds that U.S. efforts to curtail terrorist financing are
impeded not only by a lack of institutional capacity abroad, but, critically, by a lack of political will
among U.S. allies. The Task Force notes, for example: "For years, individuals and charities based
in Saudi Arabia have been the most important source of funds for AI-Qaeda. And for years, Saudi
officials have turned a blind eye to this problem."

Confronted with this lack of political will, the Task Force finds that the Bush administration
appears to have made a policy decision not to use the full power of U.S. influence and laws now
on the books to pressure other governments to more effectively combat terrorist financing. It
urges the Bush administration to reconsider the recently announced "second phase" of its policy
to curb terrorist financing, which will rely more on foreign leadership and less on blocking
orders-which the Task Force calls "among the most powerful tools the U.S. possesses in the war
on terrorist finances."

The Council thinks the Bush Administration should be more frank about the lack of cooperation and effort other
__^ countries are providing:

Put issues regarding terrorist financing front and center in every bilateral diplomatic discussion
with every "front-line" state in the fight against terrorism-at every level of the bilateral relationship,
including the highest. Where sufficient progress is not forthcoming, speak out bluntly, forcefully,

Iof3 3/21/03 9:08 AM

Russia Eurasia Program - Center For Strategic & International Studies http://www.csis.org/ruseura/pubs_0207wolosky.htr

Search thi:
Russia Eurasia
Overview
Moscow Should Hand Over Fugitive Weapons Trafficker
PONARS
U.S. is derelict in not demanding action from its
Caucasus Initiative war-on-terror ally
William F. Wechsler and Lee S. Wolosky Latest f1
Central Asia Initiative and Ev
Most Americans would be shocked to leam that one of the Taliban's
favorite arms smugglers is now living freely and openly in a country Ambassadoi
Georgia Forum Pifer on U.S.
that is supposed to be an ally in the U.S. war against terrorism--and
that the Bush administration has done nothing about it. Relatic
Projects/ Full Trans
Program Initiatives February 11
Another story of double-dealing by Saudi Arabia or divided loyalties
• Russian Military in Pakistan? No, this problem is in Russia. It offers a glimpse into
the global infrastructure of terrorism and international crime, and Considering
Issues
why Russia's role in international affairs is still unclear. Upcoming E
• Russia - Japan - US Putin's Cha
• Central Asian When Vladimir V. Putin became president, it appeared that Russia and Opport
Water and would take control of its future from the oligarchs and criminals. And Andrei Poir
Environmental it still might. Putin has taken a number of impressive steps to begin February 1
Security Issues to reform Russian society. Yet the story of Victor Bout raises some
• HIV/AIDS of the old questions. According to at least four separate United Sources and
Nations reports, Bout, a former Soviet military officer fluent in five Russian Pow
• Human Trafficking languages, built an international arms trafficking network that Options fc
• Congressional delivers arms to all of Africa's major conflict zones. Bout has also Russian Milit
Outreach reportedly worked on behalf of the Al Qaeda-linked Abu Sayyaf Next Dec
• Political Islam in the group in the Philippines and Libyan leader Moammar Kadafi, whom Led by Dmiti
Russian Federation Washington still considers a sponsor of terrorism. And for years Carnegie to
Bout also secretly helped the Taliban obtain tons of heavy artillery, Centc
• Working Group On
Ukraine's assault rifles and other weaponry.
U.S. Abas
Parliamentary
Despite the overwhelming evidence against him, and his connection to Ukrai
Elections
to a regime that gave sanctuary to Osama bin Laden and his Carlos Pasc
terrorist network, Bout is not running for his life. On the contrary, he U.S.-Ukraine
Publications is living quite comfortably in Russia. To date, Putin has not touched Full Transc
him. And why should he? Neither President Bush nor any senior Summi
• Russia Briefs administration official has asked him to. January 09
Net Assessment of
• the Russian That is a far different approach than the one taken by President Net Assessm
Clinton. After identifying Bout as a threat to U.S. interests in 2000, Russian EC
Economy
the U.S. began to work with Britain, South Africa and Belgium to December
disrupt Bout's activities and take down his organization.
Seminars/Briefings Dinner Discus
Earlier this year, those efforts came into the open when the Mikhail Ma
On the Hill Belgians issued an international arrest warrant for Bout. The Russian Fe<
Interpol warrant dislodged him from his base in the United Arab Council Men
Relevant Links Emirates and made him an international fugitive. But Bout fled to Chairman, C<
Russia, where he appears to be enjoying official protection. for Foreign
Staff
On Feb. 28, the same day that Bout walked into a Moscow radio Death in to
Contact station to maintain his innocence, a spokesman for Interpol's CSIS Set
Di i«*«*i**n \n irt Di i^*rM»-» Polocto Wa

Iof3 3/24/03 8:44 AM

73256Textpages-R2 11/25/02 2 : 5 0 PM

Terrorist Financing
Report of an Independent Task Force
Sponsored by the
Council on Foreign Relations

Maurice R. Greenberg,
Chair
William F. Wechsler and Lee S. Wolosky,
Project Co-Directors
More about FATF . . . http://www.fatf-gafi.org/AboutFATF_en.htr

,T7 A TTTT

FATF+GAFI
Financial Action Task Force on Money Laundering
Croupe d'action financiere sur !e blanchiment de capitaux

• Home More About the FATF and Its Work

• What is money
laundering?
About FATF
Members & Observers
The 40 Recommendations
Review of the 40
Recommendations
Terrorist Financing What is the FATF?
NCCT Initiative
History of the FATF
FATF Documents
The Forty Recommendations: A Global Framework for Combating
Other Initiatives
Money Laundering
Legislation Monitoring the Implementation of the Forty Recommendations
Events The FATF Mission and Objectives
Programme of Work for FATF-XIV (2002 - 2003)
Contact FATF
Other Regional and International Anti-Money Laundering Initiatives
Sitemap
Decision-Making Process and Meetings of the FATF
Members and Observers
Ce site en franp a/s Presidency and Secretariat of the FATF
FATF Publications

What is the FATF?

The Financial Action Task Force on Money Laundering (FATF) is an

inter-governmental body whose purpose is the development and promotion of
policies, both at national and international levels, to combat money laundering.
The Task Force is therefore a "policy-making body" which works to generate the
necessary political will to bring about national legislative and regulatory reforms to
combat money laundering.

The FATF monitors members' progress in implementing anti-money laundering

measures, reviews money laundering techniques and counter-measures, and
promotes the adoption and implementation of anti-money laundering measures
globally. In performing these activities, the FATF collaborates with other
international bodies involved in combating money laundering.

The FATF does not have a tightly defined constitution or an unlimited life span.
The Task Force conducts regular reviews of its mission every five years. The
FATF has been in existence since 1989, and it has been agreed that it should
continue its work until 2004. It will only continue to exist and to perform its function
after this date provided the member governments agree that this is necessary.

lof? 3/27/03 2:21 PM

Money laundering - The hawala alternative remittance system wysiwyg://154/http://www.interpol.int/Pu...Crime/MoneyLaundering/hawala/default.a

Home I Search I Contact I Help

Interpol-t t3

The hawala alternative remittance

system and its role in money
27 March 2003
laundering
Interpol information Interpol General Secretariat, Lyon, January 2000

Terrorism Patrick M.Jost Harjit Singh Sandhu

Fusion Task Force United States Department of the Interpol/FOPAC ,,J'
Treasury
Wanted Financial Crimes Enforcement
Children and Human Network (FkCEN)
Trafficking
Works of Art Executive summary Appendix A: Origins of hawala, hundi and
Drugs What is hawala? other related word
-*'"
Fjnai How does hawala work? Appendix B: The history of hawala
'*'S « •*" :«« &i f - •' W'K
: Why would anyone bother with hawala Appendix C: Another hawala pricing scheme
Payment "cards;iy%
s' "s ;%*?^'!WSs:! ,;*::"&? Appendix D: Hawala bookkeeping
Why does hawala work?
^on^ jaunderii Is hawala legal? Appendix E: Hawala case
"Mtellectu' How is hawala used to launder money? Appendix F: Glossary
g ctfrnej What are some indicators of hawala? Appendix G: Bibliography
Corruption End note
International crime
statistics
Forensic
Executive summary
Football hooliganism
Vehicle crime
This paper presents a description of the hawala (also referred to as hundi) alternative remittance
Regional activities system. Hawala is an ancient system originating in South Asia; today it is used around the world
Information Technology to conduct legitimate remittances. Like any other remittance system, hawala can, and does, play a
Crime * role in money laundering. In addition to serving as a 'tutorial' on hawala transaction, this paper
will also discuss the way in which hawala is used to facilitate money laundering.
Weapons/Explosives
Criminal Intelligence
Analysis
What is hawala?

Hawala (1) is an alternative or parallel remittance system. It exists and operates outside of, or
parallel to 'traditional' banking or financial channels. It was developed in India, before the
introduction of western banking practices, and is currently a major remittance system used around
the world. It is but one of several such systems; another well known example is the 'chop', 'chit' or
'flying money' system indigenous to China, and also, used around the world. These systems are
often referred to as 'underground banking'; this term is not always correct, as they often operate in
the open with complete legitimacy, and these services are often heavily and effectively
advertised.

The components of hawala that distinguish it from other remittance systems are trust and the
extensive use of connections such as family relationships or regional affiliations. Unlike

loflS 3/27/03 2:24 PM

CBS News I Feds Launch 'Operation Green Quest' I October 25,2001 18:34:57 wysiwyg://149/http://www.cbsnews.com/stories/2001/10/25/attack/main315901.shti

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, 2001 The Early Show I CBS Evening News I 48 Hours I 60 Minutes I 60 Minutes II I Ail Broac

WAR ON TERROR " •• section pron»

£3 E-mail This Story JH*, Printable Version

Feds Launch 'Operation Green Quest'

WASHINGTON, Oct. 25, 2001
(AP) The government is assembling a team
of financial sleuths to cut off terrorists from
their lifeblood - money.

Under Operation Green Quest, law (naps of Ground 2sm In Martfiatteft, 7*

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enforcement people with financial expertise f. -.-, - ••-',„•>::•••*.•<. h- .---;-«-

/ / * will investigate how terrorists move their

mcMONEY / f/i money and where, the Bush administration
TRAIL announced Thursday. IP Story
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(AP)
The government would use the findings to
freeze financial assets, seize money, ^ Story
impose fines and launch legal proceedings, fto Hunt For
/%^ ^ $»•* &'&&}'+,
including criminal prosecutions. 1> Story
"The lifeblood of terrorism is
Using undercover operations, electronic Bin Udeo Said Jp^^rrr^i
money, and if we cut the
money we cut the blood surveillance and other techniques, the Link
supply." special investigative team will closely UA Treasury
Assistant Attorney General examine underground financial systems,
Michael Chertoff illicit charities and corrupt financial
institutions. It also will target other funding
mechanisms for terrorists, including
counterfeiting, credit card fraud, cash smuggling and drug trafficking.

"The lifeblood of terrorism is money, and if we cut the money we cut the blood
supply," said assistant attorney general Michael Chertoff, the head of the
Justice Department's criminal division.

The U.S. government considers Osama bin Laden the prime suspect in the
Sept. 1 1 terror attacks on the World Trade Center and Pentagon.

His al-Qaida network has built a fund-raising operation using Islamic charities
and relief organizations that attract money from wealthy donors. Al-Qaida
moves its money through front companies and in suitcases stuffed with cash,
and by using the ancient, informal banking network known as "hawala" that is
popular in the Middle East and south Asia.

"It's a tough nut to crack," acknowledged Deputy Treasury Secretary Ken

Dam. Federal officials said hawala brokers operate in the United States, but
wouldn't say how many or where.

President Bush has ordered assets blocked of 66 individuals and

organizations suspected of conducting or financing terror, including bin Laden
and his senior aides. Since the attacks, 152 countries have now joined the
effort to disrupt terrorist funding, with 81 issuing blocking orders.

Roughly 30 people from various federal law enforcement agencies will be

reassigned to the project, to be run out of a Customs Service command
center. A senior Customs official will serve as director, a senior IRS official
will be the deputy, and a senior FBI official will be on staff, as will two Justice
Department prosecutors.

Iof2 3/27/03 2:23 PM

U.S. Treasury - Office of Foreign Assets Control wysiwyg://138/http://www.ustreas.gov/offices/enforcement/ofa

HOME CONTACT TREASURY SITE INDEX TOIA ESPANOL ACCESSIBILITY PRIVACY

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Office of Foreign Assets Control

ORGANIZATION

The Office of Foreign Assets Control ("OFAC") of the U.S.

Department of the Treasury administers and enforces economic
and trade sanctions based on US foreign policy and national
security goals against targeted foreign countries, terrorists,
international narcotics traffickers, and those engaged in activities
related to the proliferation of weapons of mass destruction. OFAC RESOURCES
acts under Presidential wartime and national emergency powers,
as well as authority granted by specific legislation, to impose
controls on transactions and freeze foreign assets under US Using QFAC's
jurisdiction. Many of the sanctions are based on United Nations
and other international mandates, are multilateral in scope, and External Links
involve close cooperation with allied governments. Sanctions Wor
Automating OF
Compliance
Frequently. Ash
Questions

Financial Operations Bulletin (March 27, 2003)

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lofl 3/27/03 2:21 PM