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.

We are also pleased to have with us for a second time David Aufhauser, who is now a member of the law firm of Williams and Connolly. He previously served as General Counsel of the Treasury Department from March 2001 to November 2003. At the Treasury Department, in addition to his responsibilities as General Counsel, Mr. Aufhauser served as the Chairman of the National Security Council's Policy Coordinating Committee on Terrorist Financing. Thank you all for being with us today. We look forward to hearing your testimony. We will begin with you, Mr. Wolosky.

TESTIMONY OF LEE S. WOLOSKY,1

CO-DIRECTOR, INDEPENDENT TASK FORCE ON TERRORISM FINANCING, COUNSEL, BOIES, SCHILLER AND FLEXNER, LLP

Mr. WOLOSKY. Thank you very much. Madam Chairman, Senator Lieberman and distinguished Members of the Committee, thank you for your kind words about our report and for your continuing leadership on terrorist financing issues.

This Committee's sustained attention to these issues is critically important to our Nation.

We are honored to report to you today on the Second Report of the Independent Task Force on Terrorist Financing sponsored by the Council on Foreign Relations. I have served as co-director of this bipartisan initiative since its founding in the Summer of 2002. Our report is the result of the hard work of a number of dedicated individuals of both political parties to seek to further vital national interests. I wish to thank our Chairman, Maurice Greenberg, for his unwavering support of the task force. I would also like to thank our Vice-Chairman, Mallory Factor, and our Co-director and Co-author, William F. Wechsler, for all they have done to make the task force a success.

Finally, I am also grateful to Council President, Richard Haas, for his support and assistance to our work and it is an honor, let me add, to testify beside David Aufhauser, who served our country with dedication and distinction. Many of the positive developments in this area since September 11 are the direct fruits of his vision and leadership.

I will discuss the background of our second report and its findings. Mallory Factor will then discuss the report's recommendations.

Since the report, along with its various appendices, is almost 200 pages in length we will only be able to highlight core points and findings. We will ask that the full report and its appendices be entered into the record and we will look forward to a fuller discussion of various aspects of the report in response to your questions.2

In our first report, released in October 2002, we concluded "It is worth stating clearly and unambiguously what official U.S. Government spokespersons have not, for years individuals and organizations 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."

1 The prepared statement of Mr. Wolosky appears in the Appendix on page 36.

2 The report entitled "An Update on the Global Campaign Against Terrorist Financing," appears in the Appendix on page 54.

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Saudi Arabia has markedly improved its tactical law enforcement and intelligence cooperation with the United States. The Bush Administration acted quickly to take advantage of the newfound politital will in Saudi Arabia to renew and reinvigorate U.S. efforts to combat terrorist financing

The Bush Administration also moved toward a more declaratory policy. On June 26, 2008, for example, David Authauser testified before the Congress that in many respects Saudi Arabia was an "epicenter" of terrorist financing.

As a result of these and other activities, al Qaeda's current and prospective ability to raise and move funds with impunity has been significantly diminished. These efforts have likely made a real impact on al Qaeda's financial picture, and it is undoubtedly a weaker organization as a result.

Índeed, in many respects, the views expressed in the task force's first report are now widely held at home and abroad. But although much work has been done, much work remains.

Although Saudi Arabia has made significant improvements in its legal and regulatory regime, it has not fully implemented its new laws and regulations. Because of that, opportunities for the witting or unwitting financing of terrorism persist.

Indicia of implementation and enforcement are generally unavailable. We are concerned that the unavailability of such indicia may negatively impact the deterrent effect presumably intended by these measures. As our report was going to press, for example, we were unable to find evidence to suggest that the announced High Commission of Oversight of Charities was fully operational. More