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over, its composition, authority, mandate and charter remain unclear, as do important metrics of its likely effectiveness, such as staffing levels, budget, and the training of its personnel.

The mandate and authority of the High Commission of Oversights of Charity is also unclear, relative to that of the Saudi National Entity for Charitable Work Abroad which was first announced in February of this year and which was the subject of a press conference in Washington a few days ago.

At least one other key body, Saudi Arabia's Financial Intelligence Unit, is also not yet fully operational. Reliable, accessible metrics are lacking with respect to many of the other newly announced legal, regulatory and institutional reforms. We find this troubling given the importance of these issues to the national security of the United States.

Additionally, despite the flurry of laws and regulations, we believe that there have been no publicly announced arrests, trials or incarcerations in Saudi Arabia in response to the financing of terrorism. As a result Saudi Arabia has yet to demand personal accountability in its efforts to combat terrorist financing and, more broadly and fundamentally, to delegitimize these activities.

Against its poor historical enforcement record any Saudi actions against financiers of terrorism are welcome. But action taken in the shadows may have little consistent or systemic impact on ingrained social or cultural practices that directly or indirectly threaten the security of the United States.

Not only have there been no publicly announced arrests in Saudi Arabia related to terrorist financing, but key financiers remain free and go unpunished. In sum, we find it regrettable and unacceptable that since September 11, 2001 we know of not a single Saudi donor of funds to terrorist groups who has been publicly punished. Finally, as Senator Levin indicated, Saudi Arabia continues to export radical extremism. As a core tenet of its foreign-policy, Saudi Arabia funds the global propagation of Wahabism, a brand of Islam that, in some instances, supports militancy by encouraging divisiveness and violent acts against Muslims and non-Muslims alike.

This massive spending is a key part of the terrorist financing problem. We are concerned that it is helping to create the next generation of terrorists and therefore constitutes a paramount strategic threat to the United States.

Saudi Arabia has begun to crack down on domestic extremism, most dramatically through education reform and the banishment or reeducation of scores of radical Wahabi clerics. But our task force found there is little evidence of effective action to curb the ongoing export of extremism.

We have made a number of findings that I hope we can discuss. In the interest of time, however, Mallory Factor will now address the report's recommendations, after which I would be happy to entertain any questions.

Chairman COLLINS. Thank you. Mr. Factor.

TESTIMONY OF MALLORY FACTOR,1 VICE-CHAIRMAN, INDEPENDENT TASK FORCE ON TERRORISM FINANCING, PRESIDENT OF MALLORY FACTOR, INC

Mr. FACTOR. Madam Chairman, Senator Lieberman, and distinguished Members of the Committee, I am honored to testify here today on the recommendations of the Independent Task Force of the Council on Foreign Relations on Terrorist Financing, of which I serve as Vice-Chair.

This subject is of critical importance to the security of our Nation and the world. Madam Chairman, and Senator Lieberman, I would like to commend you for your interest in and leadership on these very important issues and thank you for inviting us to appear before you today.

I would also like to thank and commend Lee Wolosky for his tireless work and dedication to this project. Achievements of our bipartisan task force are a direct result of Lee Wolosky's dedication to this project and his superior judgment in matters involving this task force.

The Bush Administration has made significant progress in its approach to terror financing since September 11. Our report, which is based on publicly available information as well as discussions with current and former Administration officials, finds that the Administration's effort, combined with those of Saudis and other international partners, has significantly diminished al Qaeda's current and prospective ability to raise and move funds.

Our task force makes the point that there is still much work to be done. It also sets forth a framework of constructive, forwardlooking recommendations for improving U.S. efforts against terrorism financing.

We note that Saudi Arabia has also made progress since May 2003 by putting in place new anti-money laundering laws designed to impede the flow of funds from Saudi Arabia to terrorist groups. These laws have a number of exceptions and flaws which would weaken their effectiveness in curbing terror financing if fully implemented.

The real problem is that we could not find evidence of significant enforcement and implementation by Saudi Arabia of several of these new laws. Quite simply, many key financiers of global terror continue to operate, remain free and go unpunished in Saudi Arabia.

Our task force_report_generally reaffirms the recommendations made in the task force's first report and makes nine new recommendations. Although my written testimony explains each of these recommendations, I will discuss only four recommendations now. However, I welcome the opportunity to discuss any of them in response to your questions.

First, our task force urges U.S. policymakers to build a new framework for U.S.-Saudi relations. We recognize that historically the United States has maintained a policy of noninterference in the domestic affairs of Saudi Arabia. Recently, however, al Qaeda, a terrorist organization rooted in Saudi Arabian domestic affairs, has killed and threatened Americans both at home and abroad. Saudi

1 The prepared statement of Mr. Factor appears in the Appendix on page 41.

Arabia is now involved in a kind of civil war with extremists. This civil war has global implications.

We propose a new framework for U.S.-Saudi relations which would recognize certain Saudi domestic issues that impact U.S. security. These issues, such as terrorist financing and the global export of Islamic extremism, can no longer be off the table.

We acknowledge that this transition is already underway but our recommendation is still out in front of the Administration's public statements on this issue. We believe that the U.S. Government must engage the Saudis openly and unequivocally to confront the ideological, religious and cultural issues that fuel al Qaeda, its imitators and its financiers throughout the world.

Second, and this was already brought up by Senator Lieberman, we believe that the Executive Branch should formalize its efforts to centralize the coordination of U.S. measures to combat terrorist financing. We commend the Executive Branch for centralizing the coordination of terrorist financing issues in the White House as we recommended in our original task force report. The sound allocation of responsibility to the White House needs to be formalized and, as Senator Lieberman said, institutionalized. And we believe this should be done through a national security presidential directive or some measure similar to that.

Third, we recommend that Congress enact a Treasury-led certification regime specifically on terrorist financing. Many countries have taken steps to improve their anti-money laundering and counterterrorist fighting regimes but many have not. We understand that certification systems should be used sparingly. They can strain relations with foreign governments and require expenditures of resources. The fight against terrorist financing is sufficiently important, however, to warrant its own certification regime. This will ensure that stringent requirements are maintained specifically with respect to foreign nations' policies and practices on terrorist financing.

Such a certification system would require the Executive Branch to submit to Congress on an annual basis a written certification, classified if necessary, detailing the steps that foreign nations have taken to cooperate in United States and international efforts to combat terrorist financing. This would be similar in some ways to the Saudi Arabia Accountability Act of 2003, S. 1888, sponsored by Senator Arlen Specter and co-sponsored by Chairman Collins and others. The Act would provide a good starting point for a terrorist financing certification regime if it were narrowed to focus solely on the financing of terrorism and expanded to apply to other nations. Sanctions for non-certification could include smart sanctions such as denial of U.S. foreign assistance and limitations on access to the U.S. financial system.

Fourth, we recommend that the National Security Council and the White House Office of Management and Budget conduct a cross-cutting analysis of the budgets of all U.S. Government agencies as they relate to terrorist financing. We believe it is crucial that the U.S. Government keep a central accounting of all financial and human resources expended by the government in combating terrorist financing. We understand this cross-cutting analysis could take a significant amount of work on the part of NSC and OMB.

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 pur

poses.

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,

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