before we start discussing this, are there any non-indian source that reported this?
Remarks of Acting Under Secretary Adam Szubin on Countering the Financing of Terrorism at The Paul H. Nitze School of Advanced International Studies
10/20/2016
As Prepared for Delivery
WASHINGTON – Thank you so much, Dean Nasr and Professor Cohen. And thank you to SAIS for hosting me today. Although this is my first time speaking formally at SAIS, I feel like I have a longstanding relationship with this institution. Many of our best and brightest TFI staff have come from SAIS, including policy staff, intel analysts, sanctions investigators, and enforcement agents. And I don’t think that’s an accident or simply a fluke of geography. There may be no other school that is instilling its graduates with such economic rigor and strategic judgment.
Last month, we marked the fifteenth anniversary of the September 11 attacks. In those fifteen years that have passed, the United States has made great strides in our fight against terrorism. Our military, intelligence community, law enforcement, and national security professionals have come together to protect our country, as well as our interests and allies abroad. And it is thanks to their tireless efforts that we have not seen a second attack in the United States on the scale of 9/11.
And yet, challenges remain. From Orlando to San Bernardino, from al-Qaida to ISIL to Hizballah, terrorist threats persist at home and abroad. We have a lot more work to do.
At the Treasury Department, our work centers on money flows – both tracing money flows to help uncover hidden plotters and facilitators and disrupting money flows to weaken and undermine terrorist groups around the world.
I’m here today to talk about those efforts – to discuss the progress we’ve made, and to highlight some of the major challenges ahead.
Our Efforts to Combat Terrorist Financing
Treasury brings unique capabilities to that effort – combining sanctions, enforcement, regulatory, policy, and in-house intelligence resources to identify and disrupt terrorist financial activity.
Our efforts alone are not a silver bullet in the fight against terrorism. We recognize that the financial cost to plan and carry out a single terrorist attack can be low, which is particularly true with the threat of lone wolf attacks we face today.
But like any organization, terrorist groups need money to survive. It takes money to recruit, train, travel, pay salaries and bribes, and procure weapons. Often, this requires the groups to move funds through both the formal and informal financial system, which presents vulnerabilities that we seek to exploit.
Success is not measured by the false goal of “turning off a spigot.” Active terror groups will always be able to get their hands on some level of funds. A more accurate way to look at success is: can we constrain a group’s ability to earn and move money to an extent that its activities are impeded? If a group is used to operating on a certain budget, and it faces a 20 percent shortfall in its funding, that presents immediate challenges. Do the group’s leaders cut their fighters’ salaries? Do they pull back on media or recruitment? Do they stop supporting social welfare programs that are used to shore up their popularity and support? Any of these trade-offs will impede a group and will also often generate useful information about a group’s vulnerabilities.
We target terrorist financing in two primary ways.
First, we work to improve the security and transparency of the international financial system to increase the probability of detection when terrorists and other criminal actors try to use the financial system to raise, move, and use funds. You could consider this the “defensive” part of our work.
Second, we utilize intelligence and other financial information to take action – to impose targeted sanctions or interdict payments, to share targeted information with allies in support of coordinated action abroad, or, in the case of our DOJ colleagues, to indict and prosecute financiers and facilitators. This could be described as the “offensive” part of our efforts.
Let me speak briefly about the most notable aspects of these two lines of action.
Increasing Transparency
On the defensive side, transparency in the financial system is our foundation.
Financial transparency means that financial institutions know who they are doing business with, including the individuals ultimately behind accounts and transactions. Without it, financial institutions cannot protect themselves from abuse. Without it, law enforcement is constrained in its ability to pursue investigative leads.
Internationally, this work is driven by the Financial Action Task Force, or FATF, the global standard-setting body for combatting money laundering and terrorist financing. Working through the FATF, we have pushed for the global adoption and implementation of standards that promote an open and transparent financial system across the 190 jurisdictions that have committed to the FATF standards. And a part of this is providing countries with assistance to help modernize their capabilities and resources. When we talk about combating terrorist financing, people typically think of the CIA tracking money trails and Treasury freezing assets. It may not sound as sexy, but when Treasury experts help a central bank in the Gulf update its anti-money laundering rules and ensure that it can enforce those rules effectively, it can yield benefits that far exceed any one disruption.
Targeted Measures
On the offensive side, we draw on an array of powerful authorities to target terrorist financing, including sanctions, other prosecutions, and forfeitures.
Targeted financial sanctions have helped freeze illicit assets; forced terrorists to defer plots; and deterred would be donors from providing funds.
In addition to sanctions, Treasury also employs other financial authorities. For example, Section 311 of the USA PATRIOT Act gives us the authority to identify a foreign jurisdiction or financial institution as a primary money laundering concern, which requires all U.S. financial institutions to take countermeasures against the subject of the 311 action.
Treasury also works closely with law enforcement, often by providing valuable financial data contributing to investigations of terrorists or terrorist facilitators.
But given the global nature of terrorism and the intricate links connecting the international financial system, targeted action by the United States alone cannot sufficiently disrupt terrorist financing. We regularly work with foreign counterparts to share information about particular threats, and encourage such countries to shut down illicit networks.
Two Case Studies
Now that I’ve explained our approach and our toolkit, I’d like to elaborate on two case studies that demonstrate how we as a government are combating terrorism financing today. ISIL and Hizballah.
ISIL
As you can imagine, our top counterterrorism priority is currently ISIL, and Treasury is marshaling every resource against this problem set – to target ISIL facilitators and financial leaders, analyze intelligence, mobilize allies, impose sanctions, and bolster safeguards within the international financial system.
But we’ve had to adapt our approach to the particular terrorist finance threat that ISIL poses. Unlike al Qaida, ISIL does not rely on foreign states or donors for its funding. Rather, it generates the bulk of its revenue from the territory and population it controls. While other terrorist groups, like al-Shabaab or Hamas, have employed a similar model, the sheer scale of ISIL’s territorial control and associated wealth makes this group a qualitatively different problem than what we have confronted in the past.
We estimate that in 2015, ISIL likely generated about $1 billion in revenue – mostly through oil sales and extortion. Oil sales alone accounted for approximately $500 million in ISIL revenue in 2015 – though as I’ll cover in a moment, ISIL’s oil revenues have dropped substantially over the past year. Last year, ISIL also earned as much as $30 million per month, or $360 million annually, from its “taxation” of the population it controlled.
These are massive numbers but ISIL also has prominent vulnerabilities. It is waging a multi-front war while simultaneously trying to govern as a quasi-state. This calls for huge and renewable funding to pay fighters and procure weapons, to maintain infrastructure, and to provide basic services to civilians under its control. It also requires access to the formal or informal financial systems to purchase needed supplies and weapons.
We are targeting all of these points of vulnerability, and we are seeing results.
Disrupting ISIL Revenue: The Coalition Campaign
Because the majority of ISIL’s revenue is internally derived, our traditional model of targeting foreign donors and the international movement of funds moving money was not going to work. The greatest effect on ISIL’s revenue has in fact come as the result of the Counter-ISIL Coalition’s military action, which has targeted ISIL’s territory in an operation called Tidal Wave II.
The name has significance. During World War II, the U.S. Air Force conducted Operation Tidal Wave, a strategic bombing campaign targeting oil refineries in Romania, to deny fuel and oil revenue to the Axis.
Airstrikes conducted under Operation Tidal Wave II have targeted ISIL’s entire oil and gas supply chain. These strikes have disrupted the supply lines between Syria and Iraq, destroyed critical infrastructure at oilfields and oil production and refinery sites under ISIL control, and destroyed hundreds upon hundreds of tanker trucks. Just since last year, the strikes have deeply impacted ISIL’s ability to produce, sell, and profit from oil.
In addition, the coalition has conducted airstrikes against bulk cash storage facilities. These strikes have incinerated at least tens of millions, and possibly more than a hundred million dollars, reducing ISIL cash liquidity.
Coalition strikes target ISIL’s financial leadership as well, including Haji Iman, ISIL’s previous finance minister. His death removed institutional knowledge that ISIL will find hard to replace.
Treasury’s Efforts against ISIL
While these military actions receive the most public attention, Treasury has been working to ensure that ISIL cannot spend the money it has.
First, working closely with the Government of Iraq, we have focused on decreasing liquidity in ISIL-controlled territory, thereby reducing the amount of cash available for ISIL to tax. One of the most important steps to separate ISIL from this source of revenue was the Government of Iraq’s decision in the summer of 2015 to suspend the distribution of government salaries into ISIL-held areas, thereby impeding ISIL’s ability to tax these funds. We estimate that Iraqi authorities had paid at least $170 million per month in 2015 – or the equivalent of more than $2 billion a year – to employees residing in ISIL-controlled territory before the ban was put in effect.
Second, again with the Government of Iraq we are working to prevent ISIL from accessing the international financial system. Shortly after the fall of Mosul, Iraqi authorities cut off the approximately 90 bank branches within ISIL-controlled territory from the international financial system.
We have also worked with Iraqi authorities to protect its large exchange house sector from abuse by ISIL. The Central Bank of Iraq developed a dynamic “blacklist” of over 100 exchange houses that are prohibited from obtaining U.S. dollars due to their location in ISIL-controlled territory or affiliation with ISIL. As a result, the Central Bank has blocked the issuance of nearly $17 million in U.S. dollar bank notes to blacklisted exchange houses.
All of these efforts have positioned the Government of Iraq to effectively challenge ISIL’s financial activity and thwart its attempt to funnel money through Iraq’s financial system.
Of course, the responsibility for preventing ISIL’s access to the international financial system does not stop with Iraq. It also requires a regional approach, and we routinely coordinate with partners like Jordan, Turkey, Lebanon and the UAE to make the international financial system a hostile environment for ISIL.
Seeing Results: A Weakened ISIL
As a result of all of these efforts, we have disrupted ISIL’s revenue streams and its capacity to move money.
In late 2015, ISIL leaders in Raqqa cut fighter salaries by 50 percent.
We have seen a number of ISIL fighters leaving the battlefield as their pay and benefits have been cut and delayed, in what ISIL members in Mosul are calling a “recession.”
As just one example of the cut in benefits, ISIL no longer pays death benefits to the families of ISIL personnel who died from combat injuries. That’s a core benefit ISIL uses to recruit fighters that is no longer available as ISIL senior leadership makes hard resource decisions as a result of financial pressure.
Further, we are seeing reported incidents of corruption within ISIL’s ranks. As of July, two ISIL financial officials had fled Iraq with $750,000 and $1 million, respectively, of ISIL’s funds. There are also indications that ISIL is imposing arbitrary new taxes on even its poorest civilians, who had previously been exempt from taxation.
With all of this, ISIL is losing many of the key incentives it has used to attract recruits – not just the promise of money but the reputation for strength and uprightness.
We know that the desertion rate for ISIL fighters has increased and that ISIL is seeing a rise in civil disobedience in places like Mosul. It is harder to find fighters when you can’t pay them. It is harder to control a large population when you need to impose unpayable taxes and can’t keep the lights or water on. And it is more difficult to claim battlefield success when you’ve lost half the territory you once controlled.
An Evolving Battle
As ISIL loses territory and loses control of critical aspects of its funding model, like control of oil fields, it will be important for us to look more closely at ISIL’s external reach and adjust our financial strategy accordingly. As such, effectively countering ISIL’s finances ultimately requires a global approach.
In that vein, we have been marshaling the international community to disrupt ISIL’s financing, through the United Nations, the FATF and the Counter-ISIL Finance Group, or CIFG – a group led by the United States, Italy, and Saudi Arabia.
And next week, the CIFG, made up of over 35 countries and 4 international bodies, will convene for its next meeting in Kuwait to share information and continue developing and coordinating countermeasures against ISIL’s financial activity worldwide.
Hizballah
ISIL may be the most pressing current terrorist threat, but long-established groups are still active and highly dangerous. Such a group, and the second case study I’d like to discuss today, is Hizballah.
Before 9/11, Hizballah had killed more Americans than any other terrorist group in history. Funded primarily by Iran, Hizballah continues to plot and execute brutal terrorist attacks against civilians worldwide and provides operational and tactical support to the Assad regime in Syria.
In response, we have worked tirelessly to restrict Hizballah’s finances and disrupt its operational activity. We have designated more than 100 Hizballah-related individuals and entities in over 20 countries across the group’s organizational infrastructure, financial networks, and procurement nodes.
Hizballah receives the bulk of its funding from Iran, but also millions in donations from supporters in Latin and South America, West Africa, the Middle East, and even the United States. Hizballah also procures sophisticated electronics and other technology from the Gulf, China, and the U.S. to support its operations. We work closely with our foreign partners to disrupt this activity and combat terrorist financing. I travelled to the UAE and Saudi Arabia just last month and can attest to the productive and cooperative relationship Treasury has built with our Gulf partners on this topic.
Gulf countries have pursued a wide range of targeted financial measures to combat the financing of Hizballah. Notably, the Government of Saudi Arabia has repeatedly joined Treasury in public designations targeting Hizballah fundraising and support networks. In fact, just this morning, we announced with Saudi Arabia a joint designation targeting Hizballah, which targeted several Hizballah operatives and financial supporters. To give a sense of Hizballah’s continued global efforts, we designated one individual who was apprehended in plotting terrorist attacks in Thailand and another, a world away, in Peru.
In the last year alone, Saudi Arabia has designated over 20 Hizballah members and companies and has encouraged its Gulf partners to do the same. Also worth noting, the Gulf Cooperation Council, led by Saudi Arabia, issued a GCC-wide designation of Hizballah as a terrorist organization and the United Arab Emirates recently established alongside Treasury a Task Force intended to facilitate information sharing and joint cooperation in targeting Hizballah.
Last December, the President signed the Hizballah International Financing Prevention Act of 2015 (HIFPA) into law. HIFPA is a continuation of our ongoing efforts to target Hizballah’s finances and gives us additional sanctions authorities to go after the group and its support apparatus around the world by imposing secondary sanctions on any foreign financial institution that is knowingly engaged in significant financial activity with Hizballah.
The Central Bank of Lebanon and private Lebanese bankers are working hard to protect the Lebanese financial sector from abuse by Hizballah and have put measures consistent with HIFPA, and we are seeing the effects.
Alongside our international partners, we will continue to expose and disrupt Hizballah’s activities around the world.
Room to Improve
These are just a few of the many international success stories. It’s important to highlight them and to recognize that there are many more taking place behind the scenes.
But there is also room for improvement.
Kuwait and Qatar have long been a key destination for officials in my office. Treasury has actively engaged with both countries to share best practices and strengthen their technical skills. Notably, Qatar and Kuwait have recently shown a willingness to take enforcement action. However, both countries have a way to go. Each country still lacks the necessary political will and capacity to effectively enforce their CFT laws against all terrorist financing threats regardless of organization or affiliation. And in both Kuwait and Qatar, we have seen progress building institutional capacity, but would like to see them take further enforcement actions against terrorist financing.
Turkey is another country where the track record has been uneven. Turkey is a valuable partner in the Global Coalition to Counter ISIL, and Turkish efforts to tighten security along the border with Syria have been particularly important. However, Treasury remains concerns that Turkey serves as a financial and logistical hub for ISIL. As I mentioned earlier, we designated two-Turkey based ISIL financial and logistical facilitators just last month. Over the past year, we have encouraged authorities in Turkey to immediately address vulnerabilities within the Turkish financial system that ISIL may be able to exploit. We continue to engage with our Turkish counterparts on exploring ways to expand the civil, regulatory, and supervisory tools available to the Government of Turkey to combat terrorist financing.
Another example is Pakistan.
On the one hand, Pakistan has been – and remains – a critical counterterrorism partner in many respects. Of course, Pakistanis are themselves often the victims of brutal terrorist attacks on schools, markets, and mosques, and the list unfortunately goes on. And in the face of such violence, Pakistan has in some ways pushed back.
Pakistan has achieved success in its ongoing operations against traditional terrorist safe havens in northwest Pakistan. It has officially designated ISIL as a terrorist organization. And it has gone after the funding and operational capabilities of Tehrik-e-Taliban Pakistan, or TTP.
The problem is that there are forces within the Pakistani government – specifically in Pakistan’s Inter-Services Intelligence, or ISI – that refuse to take similar steps against all the terrorist groups active in Pakistan, tolerating some groups – or even worse.
This is a distinction we cannot stand for.
We continue to urge our partners in Pakistan to go after all terrorist networks operating in their country. We stand ready to help them. But there should be no doubt that while we remain committed to working with Pakistan to confront ongoing terrorist financing and operations, the U.S. will not hesitate to act alone, when necessary, to disrupt and destroy these networks.
Conclusion
Overall, when I look back at where our CFT framework was at TFI’s founding, the story of counter-terrorist financing over the last fifteen years is one of great progress.
Still, we know we still have more to do. We know that terrorist financiers are adaptable, dynamic actors. And we know that if past is precedent, they will continue to adapt and evolve, grasping at any new opportunity or technology that allows them to raise and move money for their purposes.
Our job at Treasury is to ensure that we continue to evolve as well. I can assure you that we are focused on doing just that. We continue to deploy our CFT tools aggressively and wisely, to help keep our country safe. As President Obama said at the Pentagon memorial last month: “We resolve to continue doing everything in our power to protect this country that we love.”
That is what we’ve done since the founding of TFI in the wake of 9/11. And that is what we will continue to do.
Thank you again for inviting me today.
