mism. But it is going to take resolve, it is going to take commitment. This report and these series of hearings go a long way to bolstering that optimism and making it a reality.

So again, I look forward to hearing the witnesses' testimony. Thank you for your leadership.

Chairman COLLINS. Senator Lautenberg.

OPENING STATEMENT OF SENATOR LAUTENBERG

Senator LAUTENBERG. Thank you, Madam Chairman, for holding this important hearing.

President Bush has said it, that money is the lifeblood of terrorism. And if we want to win the global war on terrorism, it is critical that we find out who is financing terrorism, how they are doing it, what we can do to stop it. And I am disappointed that we do not have any Administration official available to us today but these are good witnesses, Madam Chairman, and I am sure we will learn a lot.

Cooperation between Congress and the Administration is imperative. And we face a daunting challenge when it comes to attacking the financial infrastructure that makes terrorism function. That is why I am puzzled that we did not take an obvious step a few weeks ago when I offered an amendment to the Department of Defense Authorization Bill to close the loophole that allows American companies to do business through foreign subsidiaries with nations that sponsor terrorism.

I salute Chairman Collins for her vote. The amendment was defeated 49 to 50 and I am grateful that the Chairman was one of three Republicans to support the amendment. And I hope that she has the capacity to convince the rest of the caucus of the amendment's merits because I will keep offering it until the Senate adopts it.

For the life of me, I do not know how we can condone U.S. companies doing business with rogue states like Iran. 60 Minutes had a segment just a few months ago detailing an interest that, for instance, Halliburton had with a sham foreign subsidiary in the Grand Caymans so that it could sell oil field equipment to Iran. Nothing more, by the way, than an address, a drop station. There was nothing else there. But it enabled Halliburton to do business with Iran and other rogue states.

I have had members of my staff look into this and sure enough they found evidence of the business activity that existed between this subsidiary and a London-based subsidiary of the National Iranian Oil Company called Kala Limited. The State Department has verified that Iran supports Hamas and Hezbollah and Islamic Jihad.

I was in Israel some years ago when a terrorist attack by Islamic Jihad killed eight people. And I was there just a few weeks ago when a terrorist killed 10 people in the port city of Ashtarak. And we cannot forget when Hezbollah attacked the Marine barracks in Beirut, killing 241 of our soldiers.

Does it make sense for an American company to help Iranians produce oil more efficiently when they use those extra profits to finance terrorist groups that have killed Americans? I went to four viewings and funerals last week in the State of New Jersey, people

who died in the service of their country. And to think that an American company could be helping to finance indirectly those terrorist organizations is a national disgrace. We had a chance to close that loophole and we failed.

I am also concerned, as was suggested by Chairman Collins and by the Ranking Member, Senator Lieberman, about the complicity that seems to be in existence in Saudi Arabia and without criticism coming sufficiently from the Administration. Saudi Arabia still has not designated groups like Hamas as terrorist organizations. And as much as 60 percent of Hamas' annual budget is donated from Saudi sources. And although the Saudis have passed some antimoney-laundering laws, they do not seem to be enforcing them.

So I appreciate that we have a delicate relationship with countries like Saudi Arabia. But if we are going to protect Americans, which is the primary concern, here and abroad from the scourge of terrorism, we have got to find out who is financing it even if we disturb some of our buddies in the process.

I thank you, Madam Chairman, for holding this hearing.
Chairman COLLINS. Senator Pryor.

Senator PRYOR. I do not have any opening statement. Thank you.
Chairman COLLINS. Thank you, Senator. Senator Akaka.

OPENING STATEMENT OF SENATOR AKAKA

Senator AKAKA. Thank you very much, Madam Chairman.

I want to commend you for having this hearing and we hope that it will strengthen our capability to address the threats and challenges of terrorism financing.

I have a statement that I would like to place in the record. I just want to thank you again for holding this hearing and I look forward to hearing our witnesses and working with my colleagues on this important problem. Thank you.

[The prepared statement of Senator Akaka follows:]

PREPARED OPENING STATEMENT OF SENATOR AKAKA

Madam Chairman, thank you for holding this hearing. I hope it will help to strengthen our capability to address the threats and challenges of terrorism financing.

Last July, Mr. Pistole, from the Federal Bureau of Investigation reminded this Committee that identifying and dismantling the financial structures of terrorist groups is critical to preventing future attacks. We must heed Mr. Pistole's words especially as terrorist attacks continue to rise.

It is disheartening that almost three years after September 11, terrorist groups, including al Qaeda, continue to maintain sophisticated financial networks. What is more alarming is that sources attribute at least 60 percent of Hamas and al Qaeda funds to Saudi-based entities. Most of these funds are diverted from charities and businessmen to terrorist groups and are used to execute attacks or to entice new recruits.

Earlier this month, Saudi Arabia pledged it would dissolve the Al-Haramain Islamic Foundation, which U.S. officials allege to be al Qaeda's largest financial supporter, contributing $50 million on an annual basis. The National Commission for Relief and Charity Work Abroad will merge the assets of Al-Haramain and other Saudi-based charities into one account and ensure their legitimate use. But, Saudi officials have not yet specified whether the Commission will oversee charities with known terrorist connections.

I am concerned that this may be another promise that the Saudis cannot fulfill. Last May, the Saudi government announced it would establish the High Commission for Charities to address Saudi-based groups financing terrorism. As of February of this year, no proposed budget or staff existed for this Commission. Furthermore,

no action has been taken against Al-Haramain's former leader, Al-Aqil, despite Saudi Arabia's promises to conduct criminal proceedings.

In addition, Saudi officials have not provided sufficient support to the Saudi Arabian Monetary Agency nor has the Saudi government created a financial intelligence unit.

Today, many view the U.S. and Saudi Joint Task Force on Terrorism Financing as a test of Saudi Arabia's responsiveness to terrorism. This collaboration will be an opportunity to gauge the Saudi's willingness to block the flow of money from its general and elite populations to terrorist organizations. I hope this task force will mark the beginning of progress.

I look forward to hearing from our witnesses and to working with my colleagues to address this critical issue.

Thank you.

Chairman COLLINS. Thank you, Senator. Senator Levin.

OPENING STATEMENT OF SENATOR LEVIN

Senator LEVIN. Madam Chairman, thank you, and thank you for your continuing leadership in this effort.

Since the September 11 attacks, this Committee has focused needed attention on the role of Saudi Arabia and the Saudia-based charitable organizations and terrorist financing. Today's hearing is the third in a series focusing on this issue over the past year. And I commend you again, Madam Chairman, for sustaining this Committee's strong oversight tradition for this critical issue.

Today's hearing focuses on a report authorized by the nonpartisan Council on Foreign Relations. It builds on a prior Council report issued nearly 2 years ago. It offers a number of important and practical suggestions including revitalizing the international effort led by the Financial Action Task Force to convince jurisdictions to strengthen their anti-money laundering efforts and improving the U.S. Government's sharing of terrorist financing information with U.S. financial institutions so that they can do a better job.

I want to focus just for a moment on one of the primary topics examined in the report and that is the role of Saudi Arabia. Right now, Saudi Arabia has two primary exports to the rest of the world: Oil and an extreme form of Islam that advocates hatred and violence to achieve its ends. Two exports, both having a huge impact on the world.

The report before us today does not shy away from the reality of that second export. It describes the "fundamental centrality that persons and institutions based in Saudi Arabia have had in financing militant Islamic groups on a global basis."

And then it repeats a statement that was made in its earlier report which is worth repeating, and that is that "it is worth stating clearly and unambiguously what official U.S. Government spokespersons have not. For years individuals and charities based in Saudi Arabia have been the most important source of funds for alQaeda; and for years Saudi officials have turned a blind eye to that problem."

Madam Chairman, because of the number of witnesses that we have I would ask that the balance of my statement be placed in the record at this time.

[The prepared statement of Senator Levin follows:]

PREPARED OPENING STATEMENT OF SENATOR LEVIN

Terrorists need money to carry out acts of terrorism. They need money for explosives, for communications, for travel, and for all the other details involved in carrying out plans for mass murder and mayhem. Global terrorist organizations need global financing. They need to be able to transfer funds across international lines, move money quickly, and minimize inquiries into their finances, their activities, and their supporters.

Since the September 11 attack, stopping terrorist financing has become a U.S. priority. This Committee has contributed in a significant way to that priority. First, prior to the attack, the Committee's Permanent Subcommittee on Investigations conducted a 3-year anti-money laundering investigation which produced extensive hearings and reports, documented little known methods for transferring illegal funds into the United States, and identified ways to strengthen U.S. laws to stop money laundering and terrorist financing. In early 2001, I introduced a bipartisan bill, S. 1371, with specific legislative proposals for strengthening U.S. anti-money laundering laws. The Senate Banking Committee utilized them in Title III of the USA Patriot Act, which was enacted into law in October 2001, 6 weeks after the September 11 attack.

Additionally, since the attack, this Committee has focused needed attention on the role of Saudi Arabia and Saudi-based charitable organizations in terrorist financing. Today's hearing is the third in a series focusing on this issue over the past year, and I commend Chairman Collins for sustaining the Committee's strong oversight of this critical issue. In the last Committee hearing on this topic, a key government official stated that "in many ways, [Saudi Arabia] is the epicenter" for financing of al Qaeda and other terrorist movements. Today's hearing focuses on a report that carries much the same message.

This report is authored by the nonpartisan Council on Foreign Relations. It builds on a prior Council report issued nearly 2 years ago, and addresses both the global campaign against terrorist financing and the additional steps that need to be taken by the United States and Saudi Arabia to combat terrorist financing. It offers a number of important and practical suggestions, including revitalizing the international effort led by the Financial Action Task Force to convince jurisdictions to strengthen their anti-money laundering efforts and improving the U.S. Government's sharing of terrorist financing information with U.S. financial institutions so they can do a better job.

I want to focus for a moment on one of the primary topics examined in the report and that is the role of Saudi Arabia. Right now, Saudi Arabia has two primary exports to the rest of the world: Oil and an extreme form of Islam that advocates hatred and violence to achieve its end.

The report before us today does not shy away from this reality. It describes "the fundamental centrality persons and institutions based in Saudi Arabia have had in financing militant Islamist groups on a global basis." It repeats a statement made in its earlier report:

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

The report cites with approval Saudi actions over the past 2 years to overhaul its anti-money laundering laws, increase its oversight of Saudi charities, and disrupt al Qaeda cells within the country. But it also faults Saudi Arabia for failing to prosecute a single individual involved with terrorist financing and for continuing to export radical extremism even while curbing it domestically.

For too long, Saudi Arabia has made a Faustian deal with the extremists who preach hatred and violence to achieve their ends, hoping that the violence these extremists advocate would not bloody the sands of Saudi Arabia itself. But recent events indicate that Saudi Arabia is beginning to reap what it has helped to sow worldwide, and that no one is safe from those who advocate terrorism to achieve their aims. The list of tragic events in Saudi Arabia resembles those in other countries ravaged by terrorism, with repeated bombings, kidnappings, and senseless death and destruction. On May 12 and November 9 of last year, for example, al Qaeda operatives bombed housing complexes used by foreign workers living in Riyadh, leading to the deaths of more than 50 individuals. This year saw an attack on Riyadh's General Security building followed by two attacks on Saudi oil facilities with the latter resulting in 22 fatalities. Now rumors allege a plot to kill Crown Prince Abdullah.

The report before us today advocates building a new framework for U.S.-Saudi relations that will include a frank acknowledgment of terrorist financing issues and the need to end Saudi support for radical extremism that condones violence. The plain fact is that, to stop terrorism, Saudi Arabia needs to stop financing radical clerics and madrassas that preach violence and hatred. It needs to publicly prosecute those who foment and finance terror. Ultimately, the Saudi government needs to recognize that it is not sufficient to selectively oppose terrorist groups that pose an immediate threat. The presence of any terrorist organization, regardless of its immediate focus, is a threat to all nations. For that reason, Saudi Arabia as well as our European allies need to cease funding for all terrorist groups, including Hamas and the charities that support it.

Of course, it is not just Saudi Arabia that needs to do more to fight terrorist financing. There is plenty that we in the United States need to do here at home. The report's recommendation that the U.S. conduct an analysis of Federal agencies to determine "who is doing what, how well and with what resources," is another way of saying that our current anti-money laundering and terrorist financing efforts are scattered, duplicative, and inefficient. There is no one top official in charge, little coordination, and less accountability.

The unfolding scandal at Riggs National Bank is another measure of our own weak anti-money laundering enforcement. Bank regulators recently imposed a $25 million fine on Riggs for its inadequate anti-money laundering efforts, but at the same time apologized for their own lax oversight in allowing Riggs to continue its failed policies and procedures for more than five years. Riggs has managed bank accounts not just for Saudi officials, but also for more than 100 other governments around the world. Recently, Riggs announced its intention to close many Embassyrelated accounts due to high money laundering risks and the bank's inability to monitor them. These Embassies are now looking to open accounts at other banks. Federal regulators recently held a meeting with major U.S. banks to explain their expectations for managing these Embassy accounts. While the regulators insist this meeting was intended to spread the word about the need for due diligence, the media reported that others apparently interpreted the meeting as signaling regulatory support for taking on these accounts.

These mixed signals are a huge mistake. One of the lessons of the Riggs scandal must be that Embassy bank accounts can no longer operate with minimal scrutiny. Our banks and bank regulators must establish new rules and expectations. Embassy officials need to realize they can no longer engage in substantial cash transactions with no questions asked. Multiple Embassy accounts can no longer be opened with little or no due diligence. Suspicious transactions must be explained and justified. It can't be business as usual. Our security and the world's security depends upon it.

The 2002 report by the Council on Foreign Relations made a positive contribution to the fight against terrorist financing by saying a number of things that needed to be said openly and clearly and by making reasonable and practical suggestions. This second report has the potential to do the same. I thank today's witnesses for their service to our nation in contributing to this report and look forward to hearing their testimony today.

Chairman COLLINS. Thank you, Senator Levin.

I am delighted to welcome our witnesses this morning. We are extremely fortunate to have three such qualified experts to testify before us.

Lee Wolosky previously worked as the Director of Transnational Threats at the National Security Council. He is currently Counsel at the law firm of Boies, Schiller and Flexner and is an Adjunct Professor of International Affairs at Columbia University. Mr. Wolosky is also the Co-Director of the Independent Task Force on Terrorist Financing sponsored by the Council on Foreign Relations. Mallory Factor is the President of Mallory Factor Inc., an independent merchant bank and financial relations firm that he founded in 1976. Mr. Factor has also worked as a Professor at the School of Continuing and Professional Studies at New York University and he serves as Vice-Chairman of the Task Force on Terrorist Financing.