However, it is crucial for government leaders to gain clarity about who is doing what, how well they are doing, and with what re

sources.

We commend Jody Myers, a former NSC staffer, for suggesting a similar cross-cutting analysis in his Senate testimony given last month.

I thank you for your time and I look forward to your questions. Chairman COLLINS. Thank you, Mr. Factor. Mr. Aufhauser.

TESTIMONY OF HON. DAVID D. AUFHAUSER,1 COUNSEL, WILLIAMS AND CONNOLLY, LLP, FORMER GENERAL COUNSEL, U.S. DEPARTMENT OF THE TREASURY

Mr. AUFHAUSER. Thank you, Madam Chairman.

I just wish I could get back to Maine as often as I have gotten back to this room since I left the government.

Chairman COLLINS. We would welcome you back anytime.

Mr. AUFHAUSER. In early 1996, Osama bin Laden was living in exile in the Sudan. He was at war with the House of Saud policy that countenanced the presence of U.S. military troops on Saudi soil. And he was already plotting mayhem sufficient enough to warrant the establishment of a special issue station at the CIA devoted exclusively to divining his ambitions and his designs. Still, he was largely regarded as the son of a rich man and principally a financier of terror. In fact, the original name for the special-purpose unit at the agency was TFL, Terrorist Financial Links.

It turned out actually that bin Laden was a hapless businessman. His ventures failed and were not the principal source of al Qaeda's wealth. Rather, he tapped something far deeper and more dangerous, hate preached and taught in places of despair, married to rivers of unaccounted for funds that flowed across borders in the counterfeit name of charity and faith. In so doing, bin Laden managed to leverage the tactic of terror into a malevolent dogma embraced by an army of madmen.

How we got here is instructive to where we ought to go next.

In 1974, a disgraced president was driven from office for lies and deceits. In 1977, an international extralegal cartel literally dimmed the lights of the White House, demonstrating profound new powers abroad not tied to guns and bullets. And in 1979, the nadir of U.S. influence the Shah transformed into a stateless person, hostages held captive for more than a year; a failed rescue mission and the Soviet invasion of Afghanistan.

Tied to that significantly was the takeover of the Grand Mosque in Mecca, challenging the sole claim to legitimacy of the Saudi Royal family as the guardians of the faith. A United States seen as impotent to protect its allies and citizens abroad held little promise to the threatened Saudi monarchy.

So it understandably responded with a vengeance of its own, retaking the mosque and directing an unfathomable wealth of petrodollars-by some estimates that I read while I was still in the Administration north of $75 billion-to demonstrate that it is the true and rightful champion of Islam. It did so by underwriting schools, mosques, call centers, and charities throughout the Islamic dias

1 The prepared statement of Mr. Aufhauser appears in the Appendix on page 46.

pora. Wherever there was need they came as teachers, as providers of social welfare and safety nets, and as holy men. But what they taught was unforgiving, intolerant, uncompromising and austere views of a faith that became kindling for Osama bin Laden's match.

At the same time I want to note that there was a parallel explosion in the growth of Gulf and Western State-sponsored NGOs, in Eastern Europe, Africa, the Middle East, and Southeast Asia. Much like the Saudi model of outreach, these organizations rushed in to fill a vacuum left by the abdication of responsibility by sovereign powers to solve issues not uncommon or unlike what we see going on in the Sudan today.

Again through the delivery of default government civilian services of the most basic type-schools, welfare, medical aid these NGOs, once proud of the principal of neutrality, have become the principal medium of thought and teaching in those areas.

And an air and patina of legitimacy attached to these extralegal, non-sovereign entities and a cover frequently, unwittingly was established to disguise charitable money corrupted for terrorist purposes.

All of these extralegal non-sovereign international entities need more policing, not just of the application of their proceeds, but what they teach and what they preach and the consequence of it. And nowhere is that more telling than when you focus on Saudi Arabia.

It will take a generation, and to be frank a clearheaded program of public diplomacy that, for example, condemns legal sophistries that would justify torture, to recapture hearts and minds poisoned by false teachings of hate. What can be done and should be done to scale back the violence in the interim is to deplete the resources made available to kill innocent people. No tool is more useful in doing so than stopping the funding of terrorism. The Council on Foreign Relations and this Committee are to be commended for the profile given to the subject.

As for al Qaeda, the organization is broken, its central bank severely challenged. Yet today it is more lethal than the day that it brought down the twin towers in Manhattan. It is more a movement than an organization today, less predictable with less explicit design. There are autonomous cells, catering to acts of near nihilism, increasingly funded through pedestrian local criminal activity. And they threaten sudden and senseless death without any purpose. And they do so everywhere today, in Bali, in Istanbul, the London subway system, Casablanca, Baghdad, New York, and Washington.

We know we cannot bunker and guard every school, marketplace, shopping center, airport, train station, or place of worship. So new elements of national power are required to prevent more killing and another calamity. None are more central to the prevention of a calamity than intelligence and the disruption of the lines of logistical support for terror. Money informs and defines both. It informs and defines both with a degree of integrity, reliability, insight, and impact that is without peer.

Many of you have heard me testify before that most of the intelligence and information we get in the war on terrorism is suspect,

the product of treachery, deceit, custodial interrogation, and now we learn the product of torture. But the money records do not lie. They are diaries. They are confessions never intended to see the light of day and they lead to trails of plots not unlike the plot to use ricin in the London subway system which was stopped because of the exploitation of the money trail.

By the way, for those of you who do not know ricin, if made well, is 10 times more lethal than VX gas.

September 11 brought a group of us together in the Administration to tackle the subject of terrorist financing with demonstrable successes. Today there is a new vocabulary about it and it includes new laws, new standards of professional and fiduciary conduct, extraordinary commitments of multilateralism at the UN, World Bank, IMF, and within the G8, 10, and 20, as well as APEC, greater capacity building abroad which I think was alluded to by Senator Lieberman, more sophisticated intelligence and a greatly enhanced partnership with the private sector.

But the effort remains at best a proxy, in my judgment, for the real thing. Terrorism permits murder to masquerade under religious sanction altering the whole DNA of war by placing a premium on the death of women and children. Until it is an act of shame to provide money for any such purpose the blood will flow. Accordingly, we must return to first principles: Terror must be defined, at the UN and elsewhere, in a manner to condemn money intended to kill civilians for political purpose.

We must also disrupt not only the funding of terror but the funding of the teaching of hate because it is the crucible for terror.

And we must address the deficit of hope that haunts much of the Islamic world with debt reduction and meaningful economic aid and development assistance, the very reasons I joined the Treasury Department. Paul O'Neill had a metaphor that I liked, even as quixotic as it sounded, our ambition was to build a well in every village.

Of more immediate purpose within the jurisdiction of this Committee, the assets and cash flow that we seek to freeze and disrupt are located abroad. International cooperation is therefore critical and it requires a new mindset in intelligence that will inform both the nature and the manner of collection.

Our new secrets must be collected with the intention of sharing them and strong enough to withstand a measure of judicial scrutiny abroad. That is a sea change and it is a sea change required by the developing jurisprudence of terrorism and its singular and unprecedented focus on prevention rather than punishment.

In addition, if Madrid has any lessons terrorism funded through criminal activity—and that was the case in Madrid local law enforcement must be integrated more directly with the national intelligence community to facilitate a two-way dialogue of increasingly equal value.

Finally, we must vest an agency of the U.S. Government with the power to direct and execute the campaign against terrorist financing. The NSC is simply not the appropriate place to direct a theater of war.

The man who straps a bomb to his chest as he enters a marketplace is implacable. He is beyond redemption and cannot be de

terred. It would be the height of irony and a promise of future tragedy if we permit the orthodoxy of how we have organized ourselves in the past and how we have collected and acted upon intelligence in the past to deter us from responding in the future.

Thank you.

Chairman COLLINS. Thank you for your eloquent statement.

Mr. Wolosky, Mr. Aufhauser mentioned the money trail. The money trail often leads from prominent Saudi individuals to Islamic charities to terrorist groups. That is why the Saudi crackdown and increased regulation of Islamic charities that have been too often used as a conduit to terrorist groups is so important.

However, it appears that some of the Saudi regulations explicitly exempt three of the charities that I mentioned in my opening statement that are alleged to have strong ties to terrorist groups, and that is the International Islamic Relief Organization, the World Assembly of Muslim Youth, and the Muslim World League.

Is there any reason for those three charities to be treated differently from some of the others where the Saudis have, in fact, cracked down? I am thinking, for example, the regulations generally restrict Saudi charities from sending monies overseas and yet those three charities are exempt from that regulation. Is there any reason that they should be treated differently?

Mr. WOLOSKY. That is a very good question and thank you, Senator, for it.

There are issues concerning not only the laws and regulations that have been passed by Saudi Arabia relating to these issues but also their scope and their implementation. The issue that you point out, I believe, relates to this body of law which is the body of law that governs bank accounts that are opened and operated within Saudi financial institutions. And specifically, there is a provision of law 300-1-6-5 which appears on its face to exempt from its purview the three specific organizations that you have identified, which collectively account for billions of dollars in international disbursements, from the body of law of which it is a part and which restricts or prohibits disbursements by Saudi-based charitable institutions abroad.

It is an open question and it is one that I would encourage this Committee to pursue, and certainly our task force will pursue it. But it certainly appears to be a case where the exemption might swallow the rule.

In addition, I would like to point out that there are questions regarding the scope of the purview of the new institutions that are being created to regulate Saudi charities. And in that regard, I note that in a press conference just a few days ago in Washington a new entity was announced into which all Saudi charities were going to be dissolved, at least that is what was indicated by the Saudi spokesperson.

However, when pressed for specific charities he indicated not only Al Haramain, which was a primary focus of the press conference, but a bunch of what I would consider relatively minor organizations, namely the Committee to Support the Afghans, the Committee to Support the Bosnians, the Committee for Relief in Kosovo, the Crossover Relief Fund, and the Committee to Support the Palestinians.

I certainly welcome the inclusion of these organizations within the new entity that has been established to regulate charitable giving abroad but really what was not mentioned were those three multibillion-dollar organizations which are a significant part, and should be in my judgment, a significant part of any overall Saudi efforts to regulate charitable giving abroad.

Chairman COLLINS. Thank you.

Mr. Aufhauser, the money trail often leads back to very high-profile wealthy individuals living freely in Saudi Arabia. In fact, the report notes three prominent men whom the Treasury Department has listed as specifically designated global terrorists, and I believe two of the three were added to that list while you were at the Treasury Department as General Counsel.

In your judgment, why are not Saudi leaders cracking down and arresting and making an example of these prominent individuals who are the source of considerable funding for terrorist groups?

Mr. AUFHAUSER. Let me answer it in a somewhat roundabout way because I think your opening statement alluded to the Joint Terrorism Task Force, about which I was vainly proud at the time I left the Treasury Department, as being a singular success.

The ambition of that task force was to take our body of knowledge of their domestic citizens, including prominent merchants of Jetta or Riyadh and to ally it with, for the first time that I am aware in our history of cooperation with domestic law enforcement compulsory process powers of the Saudi government so that they could take what I will call our package of intelligence and remold it and morph it into a package of evidence sustainable in a court of law and that would permit a judicial action of a criminal nature. Mind you, they did take the action of freezing assets so they have done the regulatory administrative measures we asked of them with regard to those three miscreants.

The disappointment about the Joint Terrorism Task Force is that it apparently has not been used to date to complement the intelligence that we have shared on those three gentlemen and on others, but rather its resources appear to have been redirected to the forensic demands of the bombings. So we have, with some irony, new zeal in the pursuit of terror in Saudi Arabia but at a substantial cost to less resources devoted to the export of terror.

Chairman COLLINS. Thank you. Senator Lieberman.

Senator LIEBERMAN. Thanks very much, Chairman Collins. Let me focus on one interesting aspect of your report which is about the failure to use a part of the Patriot Act, Section 311. It gives Treasury anti-money laundering special measures to prosecute terrorist financing in countries with inadequate banking regulations and, in fact, to restrict any bank charity business or country that engages in money laundering from using U.S. markets.

Your report today states that these special prosecutorial powers have still not been used, or perhaps used recently, once against a Syrian bank.

Why is that, and what can we do to get the folks in the Administration and in the Treasury Department, to use these powers more aggressively? Mr. Wolosky or Mr. Aufhauser, whichever one of you would like to answer.