Staff Report to the Commission

subsequently authorized the unfreezing of those accounts.

National Commission on Terrorist Attacks Upon the United States

38

The Taliban was designated by the president under the IEEPA in July 1999 for harboring

Usama Bin Ladin and al Qaeda. Here, OFAC experienced better success against a more

stationary target: it blocked more than $34 million in Taliban assets held in U.S. banks,

mostly consisting of assets of Afghanistan’s central bank and national airline. The

Federal Reserve Bank of New York’s holdings of more than $215 million in gold and $2

million in demand deposits from the Afghan central bank were also blocked.

With the exception of some limited attempts by Treasury’s Financial Crimes

Enforcement Network (FinCEN) to match classified information with reports filed by

banks, U.S. financial institutions and Treasury regulators focused on finding and

deterring or disrupting the vast flows of U.S. currency generated by drug trafficking and

by high-level international fraud. Large-scale scandals, such the use of the Bank of New

York by Russian money launderers to move millions of dollars out of Russia, captured

the attention of the Department of the Treasury and Congress. As a result, little attention

was paid to terrorist financing.28

A number of significant anti-money-laundering initiatives failed to gain traction during

this time. One, the Money Laundering Control Act of 2000, championed by Treasury at

the close of the Clinton administration, proposed controls on foreign banks with accounts

in the United States. These accounts had been shown to be significant unregulated

gateways into the U.S. financial system. The legislation had broad bipartisan support in

the House of Representatives but foundered in the Senate Banking Committee, whose

chair opposed further regulation of banks.

Additionally, the Treasury Department and the financial regulators had proposed draft

regulations in 1999, under the rubric of “know your customer” requirements. Broadly,

these regulations required a bank to know the beneficial owner of the money and the

sources of the money flowing through the owner’s accounts, and to take reasonable steps

to determine this information. This proposal caused such a storm of controversy—

Treasury received more than 200,000 negative comments and fierce resistance from the

financial services industry—that it was abandoned. Congress even considered rolling

back the money-laundering controls then in place. As a result, Treasury regulators

hesitated to move forward with future directives.

Another foundering financial regulation involved “money services businesses” (MSBs)

loosely defined as check cashers, businesses involved in wiring money, and those selling

money orders and traveler’s checks. It would also have covered informal movers of

money, such as hawaladars and other neighborhood shops that could wire money to a

foreign country for a fee. These businesses were unregulated for money laundering and

posed a huge vulnerability: criminals shut out of the banking system by regulatory

controls could easily turn to these industries to move and launder criminal proceeds.

Investigators had seen a significant increase in the use of these casual money remitters.

Drug traffickers in particular took advantage of this relatively inexpensive and risk-free

method of moving money. A study commissioned by FinCEN in 1997 recognized the

28 The 2001 National Money Laundering Strategy, for example, issued by Treasury in September 2001,

does not discuss terrorist financing in any of its 50 pages.

Terrorist Financing Staff Monograph

39

vulnerability of MSBs to money laundering. In 1994 Congress directed Treasury to

regulate these businesses to discourage money laundering, but Treasury failed until after

9/11 to implement regulations that would have required the businesses to register with the

government and report activity judged to be suspicious.29

On the diplomatic front, the State Department formally designated al Qaeda in October

1999 as a “foreign terrorist organization.”  This designation allowed the criminal

prosecution of any U.S. person proven to be materially supporting the organization,

required U.S. banks to block its funds, and denied U.S. visas to aliens associated with it.

Additionally, the United Nations Security Council passed UNSCR 1267 on October 15,

1999, calling for the Taliban to surrender Bin Ladin or face a U.S.-style international

freeze of assets and transactions. The resolution provided a 30-day period before

sanctions would take effect, however, allowing al Qaeda operatives to repatriate funds

from banks in the United Kingdom and Germany to Afghanistan. The United Nations

adopted a second resolution, UNSCR 1333, against the Taliban and Usama Bin Ladin on

December 19, 2000. These sanctions brought official international censure, but were

easily circumvented. Other than this UN action, there was no multilateral mechanism to

encourage countries to outlaw terrorist financing or ensure that their financial systems

were not being used as conduits for terrorists.30 The effect, according to a State

Department assessment, was to leave the Middle East vulnerable to the exploitation of its

financial systems because of generally weak or nonexistent financial controls.

Before the September 11 attacks, the Saudi government resisted cooperating with the

United States on the al Qaeda financing problem, although the U.S. government did not

make this issue a priority or provide the Saudis with actionable intelligence about al

Qaeda fund-raising in the Kingdom. Despite high-level intervention by the U.S.

government in early 1997, the Saudis universally refused to allow U.S. personnel access

to al Qaeda’s senior financial figure, al-Ghazi Madani al Tayyib, who had turned himself

in to Saudi authorities. Two NSC-led trips to Saudi Arabia, while producing useful

intelligence about Bin Ladin’s personal finances, failed to gain any traction on the larger

question of al Qaeda’s fund-raising or any commitment to cooperate on terrorist

financing. However, the United States did little to prod the Saudis into action; the

generalized and nonactionable nature of the existing intelligence made a confrontation

29 Draft regulations did not come out until 1997; a final rule was not issued until 1999, setting the

implementation date for December 31, 2001. In the summer of 2001, Treasury announced that it would

push back the requirement for registration an additional six months and the requirement for reporting nine

months. After the September 11 attacks, Treasury decided to maintain the earlier implementation date.

30 The Financial Action Task Force (FATF), a multilateral government organization dedicated to setting

standards, focused on money laundering, particularly as it related to crimes involving vast amounts of

illegally gotten money, such as drug trafficking and large-scale fraud. As part of the setting of standards,

FATF engaged in a concentrated effort to assess the world’s anti-money-laundering efforts and “named and

shamed” jurisdictions that failed to establish minimum safeguards by publicly listing them and instituting

economic sanctions against them. Although in December 1999 the United Nations General Assembly

adopted the International Convention for the Suppression of Financing Terrorism, which had been

proposed by the French and drafted by the G-8 members, the convention did not enter into force until April

2002.

National Commission on Terrorist Attacks Upon the United States

40

difficult.31 Moreover, other issues, such as supporting the Middle East peace process,

ensuring the steady flow of oil, cutting off support to the Taliban, and assisting in the

containment of Iraq, took primacy on the U.S.-Saudi bilateral agenda.

Saudi Arabia had not enforced its professed money-laundering regulations and, like most

of the countries in the Middle East, it had enacted no other controls on the movement of

money. Moreover, it had delegated the regulation of charities to the government’s

religious establishment and did little to address the problem of al Qaeda fund-raising in

the Kingdom.

The United Arab Emirates, the financial center for the Gulf area, also had a reputation for

being “wide open,” with few regulations on the control of money and a woefully

inadequate anti-money-laundering program.32 The UAE system had been a concern of

U.S. policymakers long before the 9/11 attacks, and they directly raised their concerns

with UAE officials. The UAE had no money-laundering law, although at U.S. urging in

1999 it started drafting one, which was not finalized until after 9/11. Although the UAE

was aware that terrorists and other international criminals had laundered money through

the UAE, and that it was the center for hawala and courier operations, it did little to

address the problem. Additionally, the United States expressed its concern about UAE

support for Ariana Airlines and the movement of Bin Ladin funds through Dubai. Shortly

before the September 11 attacks, the departing U.S. ambassador to the UAE warned

senior officials in the Emirates that they needed to move forward on money-laundering

legislation, so as not to be placed on the Financial Action Task Force (FATF) “blacklist”

of countries not fully complying with international standards in this area. These warnings

had no discernible effect.

Intergovernmental coordination and policy development

NSC Senior Director Richard Clarke considered terrorist financing important, and he

established an NSC-led interagency group on terrorist financing after the East Africa

embassy bombings. This group consisted of representatives from the NSC, Treasury, the

CIA, the FBI, and State and was initially focused on determining and locating Bin

Ladin’s purported wealth. After interagency visits to Saudi Arabia in 1999 and 2000, the

group succeeded in dispelling the myth that Bin Ladin was funding al Qaeda from his

personal fortune. The group also focused on trying to figure out how to stop the flow of

funds to Bin Ladin and was concerned about Bin Ladin’s apparent ability to raise funds

from charities. While the CIA paid more attention to terrorist financing during the

interagency group’s life span, Clarke was unable to get the FBI to participate

31 State Department memorandum, Nov. 24, 1998 (“We are still far, however, from possessing detailed

information that would enable us to approach key Middle Eastern and European government with specific

action requests concerning Bin Ladin’s financial network”).

32 The vast majority of the money funding the September 11 attacks flowed through the UAE. The fact that

Ali Abdul Aziz Ali was able to use an alias or partial name, and show no identification, for five of the six

wire transfers from the UAE should come as a surprise to no one.

Terrorist Financing Staff Monograph

41

meaningfully in the interagency process. Responsibility for the problem was dispersed

among a myriad of agencies, each working independently and cooperating, if at all, on an

ad hoc and episodic basis.

Where Are We Now?

Since September 11 the world has indeed changed, and nowhere more than in the area of

countering terrorist financing. The attacks galvanized the world community and an

international sanctions regime against terrorists and their supporters was established, with

the United States leading the way with a vigorous effort to freeze their assets. With an

understanding of the nature of the threat, both the intelligence and law enforcement

communities established significant entities to focus on and bring expertise to this area.

These new entities are led by experienced individuals committed to the issue who know

how to use money flows to identify and locate unknown associates of known terrorists.

They are supported by the leadership within their respective agencies, who have provided

them significant resources and authority to do the job. A broad and active interagency

mechanism was established and new legal provisions against terrorist financing were

enacted, while many of the legal obstacles hampering terrorist-financing investigations

were stripped away.

Domestic intelligence and law enforcement

In the days after the September 11 attacks, the FBI set up the Financial Review Group

(FRG) to bring order to a chaotic financial analysis of the attacks, in which every FBI

field office conducted its own investigation as though it were the originating office. The

initial goals of the FRG were to investigate the September 11 plot and look for an al

Qaeda support mechanism that could sustain a second attack. All relevant federal

agencies, including Customs, the Internal Revenue Service, the banking regulators,

FinCEN, and OFAC, agreed to staff the FRG and work together. The FRG brought in

agents with financial investigative expertise from around the country. The local field

offices continued their investigations, but provided everything they learned to the FRG

for coordination.

The FRG, ultimately renamed the Terrorist Financing Operations Section (TFOS) and

located in the FBI’s counterterrorism division, is the FBI’s national program office for

terrorist financing. The FBI believes that TFOS allows for (1) consistency of financial

investigations and the assurance that every major terrorism case will have a financial

investigative component; (2) the establishment of effective working relationships with

international banking, law enforcement, and intelligence communities;33 (3) the

development of a real-time financial tracking capability, resting in large part on the FBI’s

extensive relationships with the financial community, which has transformed financial

investigations from the traditional, methodical, slow-paced analysis to a tool that can

33 In this regard, one experienced criminal prosecutor said TFOS does a very good job at outreach to the

financial community because its agents “speak the language” of accountants and auditors.

National Commission on Terrorist Attacks Upon the United States

42

provide near real-time information in urgent situations;34 and (4) the formation of teams

that can be sent to field offices to bolster document-intensive financial investigations and

provide guidance and leadership on conducting financial investigations. Significantly, it

is the first time a single office has been given responsibility for coordinating the FBI’s

terrorist-financing efforts.

TFOS and the FBI still need to improve their abilities to systematically gather and

analyze the information developed in their investigations and create high-quality analytic

products and finished intelligence. As of spring 2004, the FBI has generated very little

quality finished intelligence in the area of al Qaeda financing. The FBI’s welldocumented

efforts to create an analytical career track and enhance its analytical

capabilities are sorely needed in this area.35 TFOS must also establish its own formal

system for tracking and evaluating the extent of terrorist fund-raising by various groups

in the United States. TFOS has created a program management unit responsible for,

among other things, evaluating the extent and scope of the terrorist-financing problem in

the United States. Such an effort is plainly needed to help guide the allocation of law

enforcement resources and to help inform policymakers.

The individual FBI field offices retain primary responsibility for conducting terroristfinancing

investigations, but TFOS provides field agents with resources not previously

available as well as coherent programmatic leadership. To help integrate the field offices’

efforts with TFOS, each field office has a terrorist-financing coordinator who serves as a

liaison with headquarters and a resource to fellow field agents. As of spring 2004, this

program is in its early stages, but it is a positive step toward a truly national effort.

The Department of Justice also has dramatically increased its focused efforts to

investigate and disrupt terrorist financing in the United States. The Terrorism and Violent

Crimes Section, using resources from various parts of the DOJ (including prosecutors

from U.S. Attorney’s offices, the Criminal Tax Section, and other sections of the

Criminal Division), formed a unit to implement an aggressive program of prosecuting

terrorist-financing cases. That unit ultimately evolved into a distinct Terrorist Financing

Unit within the DOJ’s Counterterrorism Section (CTS). The Terrorist Financing Unit

coordinates and pursues terrorist-financing criminal investigations around the country

and provides support and guidance to U.S. Attorney’s offices on terrorist-financing

issues.

34 TFOS has made extraordinary strides in this area, including a great leap forward in the use of

sophisticated software to help locate terrorist suspects in urgent situations.

35 Some of the FBI’s post-9/11 efforts in this area have been disappointing, in part because of a disconnect

between the FBI’s new analytical operation and TFOS. For example, a December 2002 analytical

document titled “Al-Qaida’s US Financial Network Broad and Adaptable” was distributed to FBI field

offices and Legats worldwide. The then-head of TFOS told Commission staff that this piece was prepared

by FBI analysts entirely without any involvement of TFOS and that its conclusion, as reflected in the title,

was dramatically overstated and did not reflect a law enforcement judgment about what the evidence

actually showed concerning any Al Qaeda financing network in the United States. Since December 2002,

the FBI has taken steps to ensure analytical product about terrorist financing not be distributed without

TFOS involvement.

Terrorist Financing Staff Monograph

43

In stark contrast to the dysfunctional relationship between the FBI and DOJ that plagued

them before 9/11, the two entities now seem to be working cooperatively. The leadership

of TFOS praises the CTS Terrorist Financing Unit for its unwavering support. TFOS

leadership also believes that the U.S. Attorney’s offices have been supportive and that the

CTS Terrorist Financing Unit has been helpful in resolving any issues that have arisen

between FBI field offices and U.S. Attorney’s offices. The head of the CTS Terrorist

Financing Unit identifies TFOS, as well as the FBI’s post-9/11 International Terrorism

Operating Section, as valuable allies, and describes the enthusiasm of these sections for

criminal prosecutions as a “sea change”  from the FBI’s recalcitrance before 9/11.

Fundamentally, the FBI now understands that its terrorist fund-raising investigations

must have an endgame. TFOS, in particular, with its financial investigative skills and

prosecutorial mind-set, is a strong ally of the DOJ’s terrorist-financing prosecutors.

Generally, the demise of “the wall” has facilitated the flow of terrorist-financing

information between the FBI and the DOJ’s criminal prosecutors. This sharing of

information has addressed the problems that stymied the DOJ before 9/11. Still,

information-sharing problems arise in the field, and the DOJ must at times encourage its

prosecutors to fight for access to classified FBI information.

Despite these improvements, prosecuting terrorist-financing cases continues to present

vexing problems for prosecutors and agents. Although some within the DOJ argue that

the average terrorist fund-raising case is no harder to investigate and prosecute than any

complex white-collar criminal case,36 sophisticated jihadist fund-raising operations,

especially those involving international NGOs that support both humanitarian and

militant causes, are generally very difficult to penetrate and prosecute. Investigating a

material support case usually requires obtaining records from another country to show the

destination of the money, which itself is often very difficult, as discussed above. Even

with access to the relevant records, tying the funds to a specific criminal act or a

designated terrorist group is extraordinarily difficult. Funds are often dispersed overseas

in cash, making them virtually impossible to trace.

Unraveling terrorist-financing schemes can be even more complicated because the same

groups that finance terror and jihad often provide real humanitarian relief as well. The

people running these groups believe in charity, practice it, and keep voluminous records

of it, thereby serving to conceal their illicit fund-raising activities more effectively.

Prosecutors who fail to acknowledge that the corrupt NGOs do provide charity will likely

be confronted with the beneficiaries of the charity lining up in the courtroom to testify for

the defendant.

Even if money can be traced to an illicit activity or a designated group, proving the U.S.

donors or NGOs knew where the money was going can also be extraordinarily difficult.

36 It may well be that cases involving Hamas or certain other terrorist groups are easier to prosecute because

the fund-raisers are more open about supporting causes that have legitimacy in certain circles and,

therefore, are more likely to make incriminating comments on wiretaps or to informants. Anyone raising

money in the United States for al Qaeda or groups affiliated with al Qaeda is likely to be extremely

secretive and do everything possible to ensure the funds cannot be traced back to him or her.

National Commission on Terrorist Attacks Upon the United States

44

Although there may be substantial grounds for suspicion, proving the level of knowledge

required in a criminal case poses significant problems. Notwithstanding this difficulty,

the DOJ appears to be committed to aggressive prosecution of terrorist fund-raisers in the

United States, believing that such prosecutions can deter more fund-raising and disrupt

ongoing fund-raising operations. The best cases may well require luck, fruitful electronic

surveillance or a well-placed informant, or even the prosecution of the suspect

organization for a non-terrorism-related charge such as fraud or tax evasion. This strategy

can be effective in disrupting suspected terrorist fund-raisers, but can also lead to

accusations of selective prosecution and oppression of Muslim charities.37

In addition to the FBI, other agencies, including the Department of Homeland Security’s

Immigration and Customs Enforcement (ICE) and the IRS’s Criminal Investigative

Division, play a role in investigating terrorist financing through their participation in the

Joint Terrorism Task Force (JTTF). The FBI is the lead agency on terrorist-financing

investigations through the FBI-led JTTF structure.38 Commission staff believes this is

appropriate. Terrorist-financing investigations are inextricably intertwined with overall

terrorism enforcement; a fund-raising investigation may give rise to evidence of a group

poised to commit a terrorist act, or the investigation of a terrorist group will necessarily

use financial leads to further its investigation. One agency needs to be in charge of the