[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
U.S. AND FOREIGN EFFORTS TO
RECOVER IRAQ'S STOLEN MONEY
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
MARCH 18, 2004
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-72
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95-437 WASHINGTON : DC
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio GREGORY W. MEEKS, New York
JIM RYUN, Kansas BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois KEN LUCAS, Kentucky
MARK GREEN, Wisconsin JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona MIKE ROSS, Arkansas
VITO FOSSELLA, New York CAROLYN McCARTHY, New York
GARY G. MILLER, California JOE BACA, California
MELISSA A. HART, Pennsylvania JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
TOM FEENEY, Florida DAVID SCOTT, Georgia
JEB HENSARLING, Texas ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey CHRIS BELL, Texas
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
Subcommittee on Oversight and Investigations
SUE W. KELLY, New York, Chair
RON PAUL, Texas, Vice Chairman LUIS V. GUTIERREZ, Illinois
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
MARK GREEN, Wisconsin DENNIS MOORE, Kansas
JOHN B. SHADEGG, Arizona JOSEPH CROWLEY, New York
VITO FOSSELLA, New York CAROLYN B. MALONEY, New York
JEB HENSARLING, Texas JIM MATHESON, Utah
SCOTT GARRETT, New Jersey STEPHEN F. LYNCH, Massachusetts
TIM MURPHY, Pennsylvania ARTUR DAVIS, Alabama
GINNY BROWN-WAITE, Florida CHRIS BELL, Texas
J. GRESHAM BARRETT, South Carolina
C O N T E N T S
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Page
Hearing held on:
March 18, 2004............................................... 1
Appendix:
March 18, 2004............................................... 29
WITNESSES
Thursday, March 18, 2004
Christoff, Joseph A., Director of International Affairs and
Trade, United State General Accounting Office.................. 20
D'Agostino, Davi M., Director of Financial Markets and Community
Investment, United States General Accounting Office............ 22
Simons, Paul E., Deputy Assistant Secretary for Energy, Sanctions
and Commodities, Bureau of Economic and Business Affairs,
United States Department of State.............................. 9
Zarate, Juan, Deputy Assistant Secretary for the Executive Office
of Terrorist Financing and Financial Crimes, United States
Department of the Treasury..................................... 7
APPENDIX
Prepared statements:
Kelly, Hon. Sue W............................................ 30
Oxley, Hon. Michael G........................................ 33
Hensarling, Hon. Jeb......................................... 35
Christoff, Joseph A.......................................... 37
D'Agostino, Davi M........................................... 37
Simons, Paul E............................................... 53
Zarate, Juan................................................. 56
Additional Material Submitted for the Record
Christoff, Joseph A. and D'Agostino, Davi M.:
Written response to questions from Hon. Sue W. Kelly......... 70
Simons, Paul:
Written response to questions from Hon. Sue W. Kelly......... 82
Zarate, Juan:
Written response to questions from Hon. Sue W. Kelly......... 99
U.S. AND FOREIGN EFFORTS TO
RECOVER IRAQ'S STOLEN MONEY
----------
Thursday, March 18, 2004
U.S. House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:10 a.m., in
Room 2128, Rayburn House Office Building, Hon. Sue Kelly
[chairman of the subcommittee] presiding.
Present: Representatives Kelly, Oxley (ex officio),
Hensarling, Garrett, Gutierrez, Inslee, Lynch and Maloney. Also
present were Representatives Ose and Renzi.
Chairwoman Kelly. [Presiding.] This hearing of the
Subcommittee on Oversight and Investigations will come to
order.
This morning the subcommittee continues its examination of
the efforts by our nation and others to suppress the flow of
illicit money used to finance terrorist networks, and
specifically to track down the money Saddam Hussein stole from
the Iraqi people. Terrorists have no boundaries, nor do they
exhibit any regard for peace, liberty or human life. Terrorists
will never stop trying to find ways to secure the resources
needed to carry out their extremist agendas.
An unwavering commitment to shattering the underground
financing networks upon which they rely is critical and is a
critical part of our effort to prevent future acts of terrorism
here and abroad. The subcommittee will continue to examine
efforts to pursue illicit money and help eradicate the threat
of international terrorism.
The capture of Saddam Hussein was a great day for the Iraqi
people and for freedom and democracy throughout the world. The
Iraqi people are now free from this reign of terror, and it is
appropriate that the pilfered fortune once used to oppress them
now be directed toward initiatives that will help to build a
country and a government of the choosing of the Iraqi people.
There still remains difficult work ahead. It is imperative
that we work with our foreign counterparts and the Iraqi people
to rebuild the country's infrastructure, financial systems and
overall economy. Last week, the Iraqi governing council
completed the transitional administrative law for Iraq. This
new constitution is an important step toward a free Iraq with a
democratic election and this new constitution created for and
by the Iraqi people. As the law was approved, we are reminded
of the steadfast leadership of our president and this
administration, as well as our brave soldiers and sailors and
our brave coalition troops, who have provided throughout the
liberation of this oppressed nation.
Along this difficult journey, our armed services have
continued to earn the admiration and respect of the American
people and of many others throughout the world. Our thoughts
and our prayers are with the men and women who serve our
country, and we will continue to give them support and the
resources that they need to complete this important mission. As
we continue this work with our allies and the Iraqi people to
rebuild their country, it is going to take a great amount of
resources. We have to do everything we possibly can to retrieve
the money Saddam Hussein stole from the Iraqi people and to
assist them in reconstruction efforts.
This money belongs to the Iraqi people. It belongs to them.
It was never Saddam Hussein's money to begin with. He stole it
from them. The assets needs to be found and returned to the
people of Iraq to build schools, to reopen the businesses, to
help resupply the hospitals and repair the country's
infrastructure, all of it maliciously destroyed by the tyranny
of Saddam Hussein and his inner circle. Since the start of our
military intervention in Iraq one year ago, the United States
has led a worldwide hunt for the money Saddam Hussein
systematically looted from the Iraqi people over the last few
decades.
The focus of these efforts has been to retrieve and return
Saddam's money that has already been located and frozen.
Simultaneously, we are searching to uncover new money, accounts
and front companies that the former dictator and his associates
used to siphon money out of the country and use it for their
own nefarious purposes. Last May, this subcommittee held the
first congressional hearing on efforts to freeze, seize and
repatriate assets of the corrupt Saddam Hussein regime.
Witnesses from the Treasury, State and Defense Departments
who are leading the search for Saddam's assets inside Iraq and
around the world testified before the subcommittee. In that
hearing, the subcommittee learned of the complex schemes used
by Saddam Hussein's regime to steal from the Iraqi people,
including kickbacks, phony front companies, hidden trusts,
hidden accounts and other accounts in financial institutions
with front names throughout the world.
We also examined how our government works with other
relevant international agencies, counterparts in foreign
governments and the financial services industry to identify,
seize and repatriate the worldwide financial assets of this
dictator.
Given the significance of these issues, the committee
requested the General Accounting Office to assist Congress in
this important investigation. This subcommittee will receive an
update on the GAO efforts today, including how much money has
been found and transferred to the development fund for Iraq by
the United States and other foreign countries. We are also very
interested in U.S. efforts to locate new accounts and to
convince foreign countries to freeze and transfer the money
back to Iraq.
Our government has given the United Nations Sanctions
Committee the names of numerous entities and dozens of
individuals with ties to Saddam Hussein and the corrupt
dictator's regime. As we continue to provide evidence to the
United Nations, there have been questions about the ability and
willingness of countries to use and share intelligence
information. Foreign entities must proactively contribute to
these efforts and we need to know what can be done to encourage
their participation.
It is their safety. It is our safety. It is the
reconstruction of a new nation of Iraq that is run by and for
the Iraqi people. We expect nothing less than the highest level
of cooperation from all foreign governments and financial
institutions. Congress was very clear and unwavering in the
passage of the Patriot Act. The willingness to share cross-
border information is a license required to do business in
America. I am going to repeat that. That is something people do
not realize about the Patriot Act. We spelled it out in the
Patriot Act. The willingness to share cross-border information
is a license required to do business in the United States of
America.
Now, Congress and the American people need to know who is
cooperating and whether any action may be necessary by our
government or the United Nations. We know the money is out
there and we plan to find it and we plan to return it to Iraq.
We expect foreign entities to do the same.
The subcommittee thanks the witnesses for being here with
us today. We have key witnesses from Treasury, the State
Department and in addition, we have representatives from the
General Accounting Office to discuss the preliminary findings
of their investigation. Congress has an important role to play
in making clear to countries across the world that the United
States will be unrelenting in its pursuit of those who finance
terror. This subcommittee is going to continue to place a sharp
focus on fulfilling this important obligation.
With that, I turn to my ranking member, Mr. Gutierrez.
[The prepared statement of Hon. Sue W. Kelly can be found
on page 30 in the appendix.]
Mr. Gutierrez. Good morning and thank you for calling this
hearing today, Madam Chair.
Last May, we held the first congressional hearing on the
recovery of Saddam's stolen assets. Subsequently, we requested
the GAO investigate how the U.S. Government works with its
foreign counterparts and the banking industry to identify and
recover the assets of dictators. I am pleased that the GAO will
present their preliminary findings and update us on the
structures that have been put in place to accomplish our goals.
However, I was very troubled that a number of obstacles
were originally placed in the path of the GAO. At the end of
last year, it came to my attention that the Departments of the
Treasury and State had imposed significant limitations on the
GAO's work. Apparently, the departments have precluded the GAO
from traveling to key European countries to discuss their
practices for identifying, seizing and returning foreign regime
assets. They were also precluded from discussing these issues
with European embassy officials in Washington or United Nations
officials in New York. Treasury officials indicated that
approval for travel to foreign countries would not be granted
for 4 to 6 months, which would be after the report was
scheduled to have been completed.
Additionally, the departments were failing to provide the
GAO with important documentation that was requested in
September 2003. Specifically, this included, one, information
on other countries's laws and processes for recovering assets;
two, official diplomatic communications sent to foreign
governments related to asset recovery efforts; three, documents
related to U.S. efforts to recovery assets in Afghanistan and
the former Yugoslavia; four, minutes from the meetings of the
Iraqi assets working group; and five, updated financial data on
the amount of frozen Iraqi assets housed in foreign countries
and the amounts transferred to the development fund for Iraq.
Apparently, Treasury Department officials have expressed
their willingness to provide this information, but stated that
they were receiving direction from the State Department and the
White House. This is deeply disturbing, not only because the
administration is being less than forthcoming about such an
important issue, but also raises separation of powers concerns.
However, over the last several months, I have been informed
and told that the GAO's access to information has improved
dramatically. That is a good thing. I would hope that this
continues and that the reasons for these roadblocks have been
addressed, and that future efforts are not impeded by similar
actions.
I look forward to the testimony of the witnesses and thank
the Chair for calling the hearing.
Chairwoman Kelly. Thank you, Mr. Gutierrez.
Chairman Oxley, thank you for being here.
Mr. Oxley. Thank you, Madam Chairwoman. I commend you and
the subcommittee for undertaking this leadership and commitment
to repatriating assets for the people of Iraq. This is our
second hearing on the issue and our goals are to support the
U.S. Government effort and to ensure that it is working as
effectively as it can to return stolen Iraqi funds.
The United States has a long and proud history of
liberating nations from tyranny and supporting new democracies.
An important part of supporting the new democracy in Iraq is
returning Hussein's pilfered cash. In today's hearing, we look
forward to testimony from the U.S. Department of the Treasury,
the U.S. Department of State, and the General Accounting Office
regarding our progress in this area.
The behavior of the former Iraqi government officials with
respect to the Oil for Food Program displayed complete
disregard for basic human need and total contempt for the
United Nations. Iraqis starved while Saddam spirited billions
of United Nations funds out of Iraq for personal gain. We
cannot permit those funds to remain frozen in bank accounts
throughout the world.
Some of those funds may also have been invested in
companies in violation of the United Nations sanctions and
occasionally in companies created expressly for the purpose of
evading United Nations sanctions. Banks and other
intermediaries should not be permitted to hold assets
indefinitely on their balance sheets without returning them to
their rightful owners, the people of Iraq.
Those assets are needed urgently to help rebuild Iraq. Our
purpose today is to assess our progress toward that goal. I
understand that the coalition provisional authority in Iraq,
the Iraqi ministries and various U.S. Government entities are
working hard to ensure that funds illegally diverted from Iraq
are returned forthwith. Many of these people are civilians
placing their lives on the line each day in Iraq. I commend
their efforts and, together with Vice Chairman Kelly, I am
working with a CPA and today's witnesses to help ensure the
identification, isolation and repatriation of these assets. Our
commitment to due process creates a number of challenges in the
worldwide financial system. I believe these challenges can be
met, especially if the different parts of the U.S. government
can work together collaboratively.
Much progress has been made on the interagency issue
identified in last year's hearing, but I understand more
progress is needed. Just as we need interagency cooperation, we
need international cooperation. Our representative to the G-7,
Secretary Snow, is doing everything he can to foster that. Make
no mistake, though, without President Bush's commitment, this
project never would have been undertaken.
While much remains to be done in returning assets to Iraq,
let's not forget that much has been accomplished against great
odds. Madam Chairlady, if I could point out, when I was in Iraq
in November, and we met with various commanders there, they
talked about the Commanders Fund. That was money that had been
discovered within Iraq that had been stolen by Saddam and his
two sons. It amounted to some $300 million.
That money was used very effectively by the commanders in
the field for helping rebuild schools, rebuild roads,
infrastructure and the like. When we met with General Odierno
up in Kirkuk, he made the point, this was right before
Thanksgiving in November of last year, that they were rapidly
going through that $300 million and that is of course partly
because we needed to do the supplemental when we did, to
provide that gap.
At the same time, this effort that you are undertaking with
our friends at Treasury and State, can really repatriate that
money where it belongs. So your efforts in this against great
odds are quite commendable. I think that the progress will
start to pick up over the next several months as we focus
attention on this issue. Indeed, if anybody could go to Iraq
and see the results of this program, which was supposed to be
oil for food, and was really oil for Saddam and oil for
palaces, this is an opportunity to correct that wrong in a very
meaningful way.
So again, I commend you for this series of hearings and I
yield back.
[The prepared statement of Hon. Michael G. Oxley can be
found on page 33 in the appendix.]
Chairwoman Kelly. Thank you very much.
Mr. Lynch?
Mr. Lynch. Thank you, Madam Chair. Thank you, Ranking
Member Gutierrez, and thank you, Chairman Oxley, for organizing
this hearing and continuing your good work.
I want to thank the panel for attending as well, helping
the committee with its work.
I also traveled to Iraq, although last May shortly after
the invasion. I also visited Kirkuk and was with General
Odierno not that long after he and his forces had actually
apprehended friends of the family of Saddam Hussein and
recovered major amounts of melted-down gold and also American
currency that was being pilfered from the Iraqi people.
In those days and weeks and actually hours prior to the
invasion on March 19, we had reports of members of Saddam
Hussein's family taking trailer-loads of cash from Iraqi banks
and following those trucks up into Syria. There is a great need
here for us to lower as much as possible the cost to the
American people of the effort in Iraq. Every dollar that we can
recover will be one dollar less that we do not have to come up
with through supplementals and other measures in this Congress.
The particular area that I would like to hear from when we
get to questioning are surrounding the Oil for Food Program and
the mismanagement or the administration of that program, and
also the siphoning off of money for improper purposes. I think
there is a very focused reason why you are here today, but I do
not want to ignore the fact that there is a wider purpose here
as well.
For the past two centuries, wars on this earth have
basically been waged by nations, so it allowed diplomacy to
prevent wars. Now we have the privatization of war, which is
terrorism, and we need, if we are going to prevent the gravest
dangers to the American people and to freedom-loving people
everywhere, we need to choke off the funds for this
privatization of war against private citizens being conducted
by various terrorist organizations all over this earth. So it
is very, very important, the work that we are doing here, even
though we are just looking at Saddam Hussein and trying to
recover those monies.
There is a network of money that is being used to fund, as
I say, the privatization of war against innocent civilians. So
we hope that we can use some of the progress that is
accomplished here in that wider effort.
I yield back. Thank you, Madam Chair.
Chairwoman Kelly. Thank you.
Mr. Hensarling?
Mr. Hensarling. In the interests of time, Madam Chairman, I
would just ask unanimous consent that my opening statement be
entered into the record.
[The prepared statement of Hon. Jeb Hensarling can be found
on page 35 in the appendix.]
Chairwoman Kelly. So moved.
Without objection, all Members's opening statements will be
made part of the record. This is a very busy day on Capitol
Hill, and Members who do have questions and I am sure have
opening statements they want to put in the record, so we will
make them a part of the record.
Now, we will turn to our first panel. Testifying on the
first panel are two key witnesses leading the U.S. efforts to
recover and return Saddam Hussein's assets to the Iraqi people.
The subcommittee welcomes back Mr. Juan Zarate, the Deputy
Assistant Secretary for the Executive Office of Terrorist
Financing and Financial Crimes at the U.S. Department of the
Treasury. That is a very long title, sir.
Last week, the Bush administration announced the creation
of a new Office of Terrorism and Financial Intelligence at the
Treasury Department, which will include a new under secretary
and two assistant secretaries. Mr. Zarate, I would like to
congratulate you on your nomination for that position of
assistant secretary. The creation of this new office, coupled
with the President's proposal to increase the budget to help
fight terrorist financing and financial crime, signals this
administration's commitment to the war on terror. The committee
looks forward to having you back at a later time in your new
role to discuss this new endeavor.
Also here today is Mr. Paul E. Simons, Deputy Assistant
Secretary for Energy, Sanctions and Commodities at the Bureau
of Economic and Business Affairs at the U.S. State Department.
That is a good long title, too, there, but we know what you do.
Mr. Simons has launched U.S. police training efforts in post-
conflict Iraq and Afghanistan. He has also previously served as
Deputy Chief of Mission at the U.S. embassy in Israel, which
involved work on Arab-Israeli peace negotiations.
The subcommittee thanks both of you for your testimony
today. Without objection, your full written statements will be
made part of the record. You will be recognized for a 5-minute
summary of your testimony. The lights in the boxes on the table
will indicate when you have the time. Green, you have 5
minutes; yellow, you have 1 minute left; and red, we would ask
you to summarize quickly.
Thank you very much. We go now to you, Mr. Zarate.
STATEMENT OF JUAN ZARATE, DEPUTY ASSISTANT SECRETARY FOR THE
EXECUTIVE OFFICE OF TERRORIST FINANCING AND FINANCIAL CRIMES,
UNITED STATES DEPARTMENT OF THE TREASURY
Mr. Zarate. Madam Chair, thank you very much and thank you
for your kind words. I very much appreciate them.
Chairwoman Kelly, Congressman Gutierrez and distinguished
members of the Subcommittee on Oversight and Investigations,
thank you for inviting me to testify today about the U.S.
Government effort to identify, freeze and recover Iraqi assets
worldwide. I am pleased to be here this morning with Deputy
Assistant Secretary of State Paul Simons, with whom we work
closely on this and other efforts of global magnitude.
Madam Chair, this week marks the 1-year anniversary of our
campaign to free Iraq. In that year, we have liberated the
Iraqi people, ousted a ruthless tyrant, captured members of the
fallen regime, and helped the Iraqi people begin rebuilding
their country. This is also the anniversary of Secretary Snow's
bold call for the world to find, freeze and repatriate to the
Iraqi people the assets plundered by Saddam Hussein and his
regime. I am here today, Madam Chair, to report on our
significant and steady progress since then.
In this effort, we have found the Hussein regime was as
fiendish in its thievery as it was terrible in its tyranny.
Hussein and his cronies abused the good will of the
international community to fortify and enrich the regime with
kickbacks, skimming schemes and smuggling operations. While the
Iraqi people suffered, Hussein and his sons paid for pleasure
palaces and armaments.
We have been on the hunt for Iraqi assets around the world,
whether official Iraqi assets held in the name of Iraqi
entities or the assets looted and hidden by the Hussein regime
and their family members. Make no doubt, this is a daunting and
complicated mission, Madam Chair. Even so, on a daily basis
through interviews, diplomacy, and analysis, we are unmasking
the financial web used by the regime and returning money to the
Iraqi people.
Allow me to provide a brief snapshot of the success we have
seen to date. With the cooperation of our allies abroad, we
have frozen nearly $4.5 billion of Iraqi assets worldwide. This
past year, almost $2 billion of Iraqi assets has been newly
identified and frozen outside the U.S. and Iraq. Since last
year, the United States, foreign countries and the Bank for
International Settlements have transferred back to Iraq over
$2.5 billion in frozen Iraqi funds.
As this chart demonstrates, we have seen increasing
transfers into the Development Fund for Iraq. To date,
approximately $750 million have been transferred from foreign
sources to the DFI. Within Iraq, we have seized approximately
$1.3 billion in cash and valuables, including most of the money
stolen from the Central Bank of Iraq by Hussein immediately
before the war.
In Iraq and throughout the world, our financial
investigators have interviewed key detainees as well as
bankers, lawyers and accountants who acted as financial
facilitators for the regime. These efforts have yielded
countless leads. Madam Chair, an example of this occurred when
our agents determined that the former Iraqi ambassador to
Russia had stolen approximately $4 million in Iraqi assets. As
a result, that amount has been frozen and we are working to
repatriate it.
Working closely with the governments of Liechtenstein,
Switzerland and Jordan, we have secured one of Hussein's Falcon
50 corporate jets seen in the graphic here. As a result of this
collaboration, we are also uncovering a financial network that
had been used by the Iraqis to move money and people in the
heart of Europe. The Departments of the Treasury and State have
provided identifying information on over 570 identified Iraqi
bank accounts to 41 countries for review and follow-up. Madam
Chair, we continue to identify key individuals and entities
whose assets should be frozen.
All of these efforts are guided by the strong recognition
that this mission is critically important for both old and new
reasons. Iraqi assets must be recovered so that they can be
used to pay pensioners, construct schools, equip hospitals, and
rebuild Iraq. It is equally imperative to recover Iraqi assets
to prevent them from being used to fund the Iraqi insurgency
and to keep them out of the hands of terrorists. The United
States and the international community cannot permit that these
assets be used against our troops, coalition partners and
innocent civilians in Iraq.
Finally, our successful prosecution of this hunt serves as
a strong warning to other rogue regimes which might seek to
loot their countries and hide the stolen assets in the
international financial system. Our commitment, Madam Chair, to
the people of Iraq is unwavering. Our efforts to find and
return Iraq's money are critically important in the transition
to a free and prosperous Iraq.
Thank you, Madam Chair, for this opportunity to testify,
for your consistent support in these efforts, and for the
attention of this committee.
[The prepared statement of Juan Zarate can be found on page
56 in the appendix.]
Chairwoman Kelly. Thank you very much.
I am happy that you mentioned the fact that kleptocracy was
not the province of Saddam Hussein alone.
We go now to Mr. Simons.
STATEMENT OF PAUL SIMONS, DEPUTY ASSISTANT SECRETARY FOR
ENERGY, SANCTIONS AND COMMODITIES, BUREAU OF ECONOMIC AND
BUSINESS AFFAIRS, UNITED STATES DEPARTMENT OF STATE
Mr. Simons. Madam Chair, Congressman Gutierrez, and
distinguished members of the subcommittee, thank you very much
for the opportunity to testify this morning on our efforts to
recover Iraqi assets and to return them to the Development Fund
for Iraq. I would ask that my full statement be entered into
the record and I will just make a few very brief opening
remarks.
First, let me associate myself completely with Secretary
Zarate's opening statement. We very much have a seamless,
cooperative and productive interagency process on the Iraq
asset issue. I think the results speak for themselves: more
than $750 million transferred over the past year into the
Development Fund for Iraq from international sources, and in
our view, good prospects for additional transfers prior to the
June 30 target date for the transfer of authority to an Iraqi
interim government.
For our part, the State Department is very much committed
at the highest levels, both in Washington as well as overseas,
to the continued recovery of Iraqi assets. We engage on a
weekly basis in Washington at the assistant secretary and the
under secretary level on this issue. Our International
Organizations Bureau, our folks in New York, have been very
active in crafting the U.N. resolutions, including Resolution
1483, that has really been the linchpin of bringing the
international community behind this effort.
Overseas, I think it is very important to stress that our
ambassadors handle this issue as an item of highest priority.
Diplomacy really has changed after 9-11. We are very much more
involved in the State Department in working together with the
law enforcement community, the intelligence community, the
financial community, on issues such as terrorist financing,
recovering assets, and homeland security. This is all part of
the new diplomacy and the State Department is very much
committed to this.
Juan mentioned that already we have shared information on
more than 570 accounts with more than 41 countries worldwide in
the effort to secure the return of Iraqi assets. We have
exchanged within the past year more than 400 telegrams with our
embassies in the field. We are in daily E-mail contact with
them and it really is a tremendous effort.
Let me also say that there is a great degree of
collegiality in the interagency process on this issue--all of
the key players, Treasury, State, Justice, Defense, Homeland
Security, and the very brave individuals that are working out
in the CPA, the Coalition Provisional Authority. Our
intelligence and law enforcement agencies, all are working
together in a very collaborative fashion. You mentioned, Madam
Chair, that I did have the opportunity previously to work on
the law enforcement side in Iraq, where we also have a strong
interagency effort, but this effort I think is particularly
collegial and effective.
So we have made tremendous strides in the recovery and the
return of these assets. We still have a long way to go. There
are obstacles. I look forward to your questions and perhaps we
can have a more open dialogue here, as well as in our private
session later. The U.N. has broken new ground. The notion of
asset freezing as well as asset transfer is something that is
new to a lot of our colleagues in the international community;
it is a new concept. We are bringing them along, but this is a
post-9-11, cutting edge idea. But we are working with them, we
are making a strong effort inside the government, interagency,
as well as internationally, and we look forward to the
committee's support as we move ahead.
Thank you.
[The prepared statement of Paul Simons can be found on page
53 in the appendix.]
Chairwoman Kelly. I thank you very much.
I am going to ask a couple of questions. Let me just ask
Mr. Zarate, what challenges do you face in identifying Iraqi
accounts? It is reported that Iraqi money is frozen or held in
financial entities by a number of countries, including France,
Germany, Switzerland, Luxembourg, Panama, and Russia, among
others. Apparently, these countries give reasons for not
releasing the money by saying that they cannot be sure that it
belonged to Saddam Hussein's regime.
To the extent that it is possible in an open session, can
you discuss which countries have taken this approach, as well
as which countries have actually cooperated with us in doing
what they can to get that money released?
Mr. Zarate. Madam Chair, if I could, I would like to
address your first concerns, which are the obstacles that we
are seeing. Certainly, there are legal complications based on
the novelty of this effort, both the novelty in terms of
freezing and immediately repatriating assets to Iraq. There are
also complications with respect to competing claims and other
legal issues related to that.
One of the challenges and one of the efforts underway in
the interagency group is to compile information in a way and
analyze information in way that makes it useful for foreign
governments to help prod them to take the right decisions on
this, to freeze the assets and to repatriate them. As we have
said, we have seen very good progress to date, increasing
progress in terms of transfers to the DFI. We expect to see
even more progress in the coming weeks.
That being said, there are challenges. There are countries
that have to make legal reforms and have to reform the way that
they look at this issue. There are countries that perhaps have
not given the attention to this or the political will to this
that they should. But in general, this is something that we
have been pushing at the top of our agenda, as Paul indicated.
It is a major agenda item for our ambassadors around the world.
It is certainly top of the agenda for Secretary Snow and I know
for Secretary Powell as well.
So we are working on a daily basis with countries around
the world. Perhaps in the closed session, we can speak more
specifically about some of the challenges that we are facing
and some of the countries with whom we are having greater
difficulty.
Chairwoman Kelly. Thank you very much.
I would like to also ask you, the administration and the
Treasury Department have been very active in locating
individuals and entities that are not cooperating. I know that.
How are we moving forward in our efforts to surface and disable
those who support terrorism and seek to undermine the progress
in Iraq? How will this contribute to our efforts in the war
against terror? That is a double question. I hope you will
answer that, Mr. Zarate.
Mr. Zarate. Absolutely, Madam Chair. First, we have been
sharing information as freely and as quickly as possible. The
unprecedented efforts to get account information, as we
discussed, to foreign governments, frankly, is an unprecedented
effort by the intelligence community, the treasury department
and the state department to enlist our foreign counterparts, to
have them act against those accounts and to follow up with
investigations.
We are also engaged, Madam Chair, in a process of listing
and designating known supporters, known family members, known
entities who are part of the financial infrastructure of the
Hussein regime. Today in fact, Madam Chair, the Treasury
Department is announcing the designation of 16 family members
related to the Hussein regime, people who are critical to the
financial underpinnings and workings of the regime, such as
Barzan al-Tikriti and his family. Those names are being
notified to the U.N. to make that part of the mandatory freeze
list, if you will, to allow our counterparts around the world
to freeze those assets and to repatriate them.
In addition, we are notifying 191 parastatals. These are
quasi-government entities controlled by the Iraqi government
which may still have accounts worldwide. This announcement
today, Madam Chair, I think is the first step of the unveiling
of our good work over this past year, the good, brave work of
our investigators in the field; the great work of the
intelligence community; the good work of the military; and the
phenomenal diplomatic work of the state department.
Chairwoman Kelly. I thank you. I think that sends a clear
message to the world that the U.S. and our allies are going to
demand cooperation from foreign countries and their financial
institutions. I am very glad to hear you report that today.
I would like to ask you, Mr. Simons, I think I have a bit
more time here, I wondered if you would elaborate more on the
challenges faced and the need to coordinate U.S. laws,
regulations and capabilities with those of other countries. To
what extent has State compiled information on other countries's
laws and regulations about freezing. You mentioned this in your
testimony, freezing and seizing and releasing the assets, and
how that works with the applicable U.N. resolutions.
Mr. Simons. Thank you, Madam Chair. I think I would like to
cite three areas that we are working internationally to try to
address some of the limitations that other countries have in
terms of both seizing and freezing assets, as well as
transferring them. I think up front, it is also useful to keep
in mind that the U.S. does have as a matter of legislation and
regulation a very flexible legal structure in place.
We have the International Emergency Economic Powers Act,
IEEPA, which forms the basis for our ability in the case in
which the President declares a national emergency, to provide a
very flexible kind of a vehicle. This sort of a vehicle is
generally speaking not present in the cases of our major
allies, both in Europe as well as in the developing world. So
we are starting off with not exactly a level playing field
here. We have a lot more flexibility to move up front.
In terms of getting other countries to move, let me cite
three areas. First, as Juan mentioned, our aggressive effort to
list countries with the U.N. We discovered in the case of
terrorist financing where we have a series of U.N. resolutions,
that our ability to list entities was an extremely important
factor in getting other countries to move along and to get
their internal legislative and regulatory gears moving. So we
are hoping that the designation today that Secretary Zarate
mentioned will have a catalytic effect in terms of galvanizing
some movement on the part of countries that have not moved.
Secondly, we have the Financial Action Task Force, which is
a multilateral body that issues recommendations with respect to
money laundering and terrorist financing policy to its members
and to other countries around the world. The Financial Action
Task Force, or the FATF, has issued 40 recommendations
specifically on money laundering; and eight recommendations on
terrorist financing. Those specifically cover the issue of
asset seizing and asset freezing, and basically make it an
obligation for countries that are members to acquire legal and
regulatory regimes that will enable them to exercise these
functions. We have fairly aggressively used a name-and-shame
process in the FATF to get countries to come into compliance,
both with the 40 recommendations, as well as the eight
recommendations.
Finally, and this goes back to the time when I worked in
narcotics and law enforcement, we have a very active technical
assistance program on terrorist financing that was put into
place after 9-11 that also brings countries up to speed; that
sends our Department of Justice experts out to developing
countries to show people how to put into place money laundering
legislation that incorporates asset freezing. So we are doing
this on the technical assistance side as well.
So I think we have a number of areas where we are working
actively. Thank you.
Chairwoman Kelly. Thank you.
Mr. Gutierrez?
Mr. Gutierrez. Mr. Zarate, in your testimony you identified
$6 billion in recovered Iraqi assets. What do you think the
total amount might be?
Mr. Zarate. Congressman Gutierrez, one of the conundrums of
this effort has been trying to understand and get a hold on the
full universe of assets pilfered by the Hussein regime. Part of
the complication results from the Stalinist-like economy that
was run by Hussein in which the economy was used for his own
purposes, used for state purposes. In part, that is why we are
designating the parastatals today to get at those assets that
may exist abroad.
Part of the efforts today, in fact, Congressman, is to have
foreign governments help us identify precisely what the
universe of assets are that exist out there.
Mr. Gutierrez. Do you think you will find another $6
billion?
Mr. Zarate. Another $6 billion?
Mr. Gutierrez. Yes.
Mr. Zarate. I think it is very hard to say, Congressman. I
think what we saw in the May 2002 GAO report, which estimated
that it was $6.6 billion that was skimmed off of the Oil for
Food Program over about a 4-or 5-year period, I think that is a
very good estimate. It is helpful, but I do not think it tells
the whole story, in part because we do not know the total.
Mr. Gutierrez. Do you think you have found most of it?
Mr. Zarate. Well, we have found $4.5 billion total in the
U.S. and worldwide. That has been frozen. We have returned over
$2.5 billion of that to Iraq. As we mentioned, $750 million of
that has come from foreign sources into the DFI. We expect to
find more. Yes, Congressman, we think there is more out there.
As we indicated, there are front companies that have been used.
There are agents that were facilitators for the regime. Part of
the efforts today, frankly, in designating the 16 individuals
is to get at their assets as well, to make sure that the family
members of these high-level regime members do not have access
to funds and that they are not in the hands of terrorists.
Mr. Gutierrez. What have we spent so far in rebuilding
Iraq?
Mr. Zarate. Congressman, I would have to get back to you on
that. I do not have an exact figure. Certainly, expenditures
are made out of the DFI, the Development Fund for Iraq. All of
the frozen assets that are found around the world are funneled
into the DFI, as well as proceeds from oil sales. But
congressman, I do not have the figure in terms of what has been
spent.
Mr. Gutierrez. In relationship to the total costs, what we
recover will probably be a small relationship of the money in
terms of rebuilding Iraq.
Mr. Zarate. I think that is hard to estimate, Congressman,
in part because this is an ongoing effort.
Mr. Gutierrez. Maybe you could put what you think, what you
say we have recovered, what you project we might recover and
what the total cost is, so that we can gauge what we are doing
vis-a-vis the total we have been looking at.
Congresswoman Kelly I thought asked a great question about
who is cooperating and who is not. For some reason or another,
you were not specific about the countries that were and were
not. Let me just ask you, is Germany cooperating, and France? I
really have difficulty asking for the freedom toast every
morning here, so I was wondering if we could go back. Are they
cooperating?
Mr. Zarate. Congressman, part of the reason I answered
Madam Chair the way I did was because I think some of this is
fairly sensitive. That is why I suggested we get into greater
detail in the closed session. Part of the sensitivity,
Congressman, deals with the fact that this is an ongoing
effort. We are in constant discussions with these governments,
including Germany and France and others, Russia. I gave an
example of Russian cooperation in my oral statement.
They are cooperating. Now, there are varying levels of
cooperation. There are also varying levels of aptitude and
political willingness. I think that is something better left
for a closed session.
Mr. Gutierrez. In the beginning, it was stated by members
of the current administration, especially from Defense, that we
would be able to rebuild Iraq and that the costs of the war
would be minimal to us and to our treasury, both because of
recovery of assets and more specifically because of the oil
that would be there, and that would help. That has not turned
out to be true, so that is why I asked the question so that we
can in the end make a final evaluation about what the total
costs were. Because as both of you know, there are differences
in opinion and they are pretty wide and substantial as to
whether we need as a question of national security to engage
Iraq.
Afghanistan, not a question, what we needed to do there. I
think we would all agree that there might be questions of
difficulty. I think, Madam Chair, that they are doing a great
job, and it also bodes well since we keep talking about, I get
confused when we keep kind of the U.N. does not matter, but we
keep talking about the U.N. So maybe in closed session, we
could figure out, does the U.N. matter; does it have any
relevance anymore; how much does it matter. I read in the paper
it does not matter, but then every time I come to one of these
hearings, the name ``U.N.'' keeps popping up in terms of
getting cooperation from the world community.
Thank you very much, Madam Chair, for being so generous
with the time.
Chairwoman Kelly. Thank you.
Mr. Garrett?
Mr. Garrett. Thank you and good morning.
I appreciate your testimony. It sounds like a Byzantine
process and a matrix that you have to deal with as far as
tracking down these assets. One of the concerns I have had in
light of other testimony we have had as far as assets that are
right even here at home and the possibility for a terrorist or
would-be terrorist, those that you may not even have on any
list today, the ability of them to take these funds that are
here in this country and to send them elsewhere so they cannot
be traced anymore.
I understand that they basically are still able to use our
own financial institutions, U.S. financial institutions, banks
to do that. To that end, what measures should be put in place
to tighten our financial institutions, our banks, as far as who
may be using them and what identifications may be appropriate
as far as a screening process for people using our financial
institutions in this country.
Mr. Zarate. Congressman, you raise a very important issue,
and again I think this points to the importance of the Patriot
Act and the work of the Congress in putting in place a vigorous
Title III element of the Patriot Act, which gave us greater
powers with respect to sharing information, but also with
respect to tightening of the safeguards within the financial
system.
We have an open economy, an open financial system, so there
is always the danger that criminals, terrorists or others, will
misuse that system to raise money, to move money, et cetera.
What our challenge is, is to create efficient and effective
gateways, if you will, to the financial system that allows us
to capture at the outset or during transactions nefarious
activities.
Mr. Garrett. May I suggest, then that if we wanted to apply
an appropriate gateway, that gateway would be such that you
would require some sort of documentation for an individual to
open up an account, and that documentation would be an official
documentation issued from this country and not from some other
country.
It is my understanding that Treasury is in support of
allowing an individual, an illegal immigrant, an alien, a
would-be terrorist who is in this country illegally and has no
other documentation from this country or another country, but
would be allowed to use documentation such as a matricula card
from his country to open up a bank account. Why would be want
to allow illegal immigrants and would-be terrorists to use that
sort of documentation and not some sort of official U.S.
documentation?
Mr. Zarate. Congressman, under Section 326 of the Patriot
Act where we set out relevant regulations for the documents
that are required for account openings, we have applied a risk-
based approach that in large part relies on the financial
institutions to do proper due diligence and to engage in proper
identification of the accountholders, and to engage in know-
your-customer principles and practices that are expected of a
financial institution.
We work very closely with them to look at precisely what
types of identifications are appropriate. In the regulation, we
leave open to them the ability to balance, to see what
identification is appropriate.
Mr. Garrett. Is it true, then, if I was to go to my local
bank and my banker knows me for 40 years, that they would still
require some sort of identification from me to open that
account, but if someone else came into that bank for the very
first time and presented to them a matricula card from another
consulate, that they would be required to open up an account
with them.
The second question is, who would be in this country that
would not have some form of either American identification such
as American citizen, or a legal immigrant into this country.
Who other than those individuals would be needing to use a
foreign documentation such as that?
Mr. Zarate. To answer your first question, Congressman, it
would not be a requirement that the bank actually open an
account. It would be incumbent upon the bank to ensure
themselves that the identity presented by the individual hoping
to open an account is in fact the identity of the individual.
So in many instances, to use your example, I would imagine that
a bank would require a second form of identification or would
require references or would engage in other due diligence in
order to assuage themselves that the person is who they say
they are.
So the first is really a calculus for the financial
institutions. On that point, I would like to mention that the
administration is undertaking, along with the Departments of
Justice and Homeland Security, to look at what forms of
identification are more susceptible to fraud or fraudulent
reproduction. Driver's licenses, for example, are often
counterfeited, and there are problems there as well. So that is
an important issue.
On your second point, Congressman, I think it bears
mentioning, and this is a point that we have raised
internationally as we have tried to broaden and deepen the
regulatory expanse of government oversight and transparency, it
behooves us to have people in the financial system and using
the formal financial system. It actually becomes easier to
track financial flows. It becomes easier to track individuals
if they are actually engaging in financial transactions in the
formal system.
It is much more difficult when you are dealing with
underground banking systems, hawalla systems, et cetera, when
expatriate workers are trying to transfer money back home and
there are no records or very little records to speak of. So in
a sense, having a system that allows for the potential for
people who are living in the country, making money in the
country, to access the formal financial system is actually a
helpful enforcement tool.
Mr. Garrett. So is the answer to your second question, my
second point of who would be in this country other than illegal
immigrants using this indication might be would-be terrorists?
Mr. Zarate. I think you are asking me to speculate.
Chairwoman Kelly. Mr. Zarate, you may answer that question
briefly. Mr. Garrett is actually out of time and this
subcommittee is aware of the issues that Mr. Garrett raises and
will address them in a subcommittee oversight of agencies,
which actually we have these things on the schedule. So we can
talk about that, but please go ahead.
Mr. Zarate. I will not speculate as to who potentially is
using the matriculas. It would obviously be individuals from
that country who are living and making money in this country
and who would want to use that identification to conduct
legitimate transactions.
Chairwoman Kelly. Thank you.
Mr. Inslee?
Mr. Inslee. Thank you.
I assume that just about at the same time the war started
in Iraq that your agency swung into action right away to try to
chase down any of Saddam's assets. Is that a fair statement,
pretty close to contemporaneous with starting the war?
Mr. Zarate. That is right. The announcement from Secretary
Snow launching this campaign was immediately coincident with
the commencement of actions in Iraq.
Mr. Inslee. I certainly appreciate that. The question
arises, if we did that in Iraq, why after September 11, 2 days
after September 11, did this administration allow a privately
chartered 737 to fly around America picking up Saudi Arabian
citizens, including blood relatives of Osama bin Laden, and fly
the out of the United States back to Saudi Arabia, without
undergoing a close comprehensive scrutiny to determine whether
or not they had any relationship to the assets of al Qaeda, as
has been widely reported.
If you can shed light on whether in fact that is accurate
or not, that would be appreciated. If you can explain why the
U.S. Government did that, at the same time it was grounding all
the airplanes in America so my constituents could not get home
from their business trips, it allowed Saudi Arabians, the
country that had 15 out of 19 members on the planes that
crashed into the towers, were from Saudi Arabia, and flew them
out of the country without really scrutinizing the situation
for assets.
Mr. Simons. Congressman, I do not know that I can give you
a detailed answer to that question. I can say, and I think I
could speak on behalf of my Treasury associates as well, that
those of us that were involved with the issue of terrorist
financing in the wake of 9-11 moved very quickly. We had an
executive order that was in place within the first several
weeks after 9-11, and the first comprehensive effort to
identify and to freeze the assets of terrorist financiers was
put into place in very rapid fashion.
Subsequently, we sought and obtained U.N. blessing for this
and we went international. So on the issue of seizing and
freezing terrorist financing assets, I think the record of the
administration post-9-11 was a very strong one.
Mr. Inslee. I appreciate that. Could you shed light on
whether or not the facts I set forth are accurate or not? Did
that happen?
Mr. Simons. I do not have the information on that. I will
have to get back to you with an answer on that question.
Mr. Inslee. I would very much appreciate it because as far
as I can tell, we have not received information from the
administration. So if you can favor me with a letter
specifically stating whether those things happened or not, and
explaining why this administration would allow an airplane to
pick up Osama bin Laden's relatives to fly them out of the
United States of America 2 days after 9-11, at the same time
they are grounding every other civilian aircraft in America,
without finding out if they had some of al Qaeda's cash with
them, if you could explain to me a justification why this
administration let that happen, I would be very appreciative.
And I will provide you my address.
The second question I have, could you gentleman, in summary
form, this is an approximation, could you tell me the
approximate number of people that are involved in this tracing
of Iraqi assets now, just in your respective, and then these
are ballpark figures.
Mr. Zarate. Congressman, that is a hard number to give you,
in part because on a daily basis you have----
Mr. Inslee. Can you give me just ballpark, within a factor
of three?
Mr. Zarate. I would say, at least within Treasury, we have
certainly our investigators on the ground from the criminal
investigation division at IRS, five of whom will be on the
ground as of April; we have four on the ground now. They work
very closely with FBI counterparts and department of defense
officials. Those numbers are very difficult, at least for me to
provide. We also have officials in the Coalition Provisional
Authority who are advising the ministries and also working on
these issues. There is one particular individual from treasury
who is focused on this issue and the State Department has some
individuals as well.
Then back here at main Treasury, we have a fluctuation of
about I would say from five to ten experts at any time dealing
with this issue, as well as people at main headquarters at IRS,
as well as people at OFAC and FinCEN. So it is hard to give you
an exact number because on a daily basis, depending on the
issues, the issues revolving around this are so complicated and
varied it really depends.
Mr. Inslee. I am sorry. Mr. Simons?
Mr. Simons. Yes, from the perspective of the State
Department, we have at any time from about five to ten
officials in the building working the issue. At each of our
embassies, we have identified since 9-11 a terrorist finance
coordinating officer who has undergone training in Washington
and who is working not only terrorist financing issues, but
also these Iraqi assest issues. We have a point person at every
one of our embassies around the world that is following up on
the leads.
I would also like to note, if I could, Mr. Congressman,
that the leads that are being generated by the Treasury, IRS
folks in the field, working in Iraq, are truly unique. We have
never had this kind of effort before. Our ability to take that
information, to route it through Washington and to get it back
out to the field again is something that is very unique. When
we talk about lessons learned, I think it is something that we
might try to see if we can do again in the future.
Chairwoman Kelly. Thank you very much, Mr. Inslee.
I really want to thank this panel. There may be questions
that will be coming from other members. I want to first of all
explain----
Mr. Inslee. Madam Chair?
Chairwoman Kelly. I am sorry?
Mr. Inslee. Could I ask you your indulgence? I do not know
if we could have a possibility of----
Chairwoman Kelly. Mr. Inslee, I am really sorry, but there
will be a closed briefing after this meeting. If you have
further questions, perhaps you can ask them in that closed
session.
Mr. Inslee. Thank you.
Chairwoman Kelly. I want to thank this panel very much. Mr.
Zarate, I want to congratulate you on the designation of the 16
family names, as well as the 191 quasi-government entities that
you have designated to the United Nations to be added to the
list that requires the members's countries to block and
transfer any stolen Iraqi assets that are found outside of
Iraq. That is very significant and that is hard work. It
represents, I am sure, a great many hours in the back rooms
looking at very unattractive books.
So I really do congratulate you on that. And I congratulate
the panel and I note that some members may have additional
questions for this panel, which they may wish to submit in
writing. Mr. Inslee, you may wish to take that route as well.
Without objection, though, the hearing record will remain open
for 30 days for the members to submit written questions to
these witnesses and to place their responses in the record.
I thank you very much. Now, we will call the second panel.
Mr. Ose, I am sorry. I have just dismissed this panel.
Mr. Ose. I have a question for Mr. Zarate.
Chairwoman Kelly. All right. With unanimous consent, we
will bend the rules and allow you one question with one quick
answer, because I have dismissed this panel and actually we are
going to have a private session after this, and you may ask
your questions there. But with unanimous consent, I will do
that, for one question.
Mr. Ose. I thank the Chair.
Mr. Zarate, in the early 1990s, certain Iraqi assets were
frozen in banks, something on the tune of $1.2 billion. I am
curious as to the rates of return that were paid on those
assets subsequent to their freezing in terms of whether or not
they adhered to what is called a commercially reasonable basis.
I would be happy to take my answer in writing if it pleases the
chair in order to expedite matters.
Mr. Zarate. Congressman, we will provide a written response
which will provide a full accounting. But to give you a very
quick answer, you are correct that in the early 1990s, $1.261
billion was frozen in the U.S. with respect to Iraqi assets. As
of today, the figure of $2.112 billion dollars has been frozen.
As we have indicated, approximately $1.932 billion of that
amount has been vested and transferred back to Iraq.
So the differential between the $1.26 billion and the
$2.112 billion represents in part the interest accrued. Given
the varied nature of the accounts, given one of the loan
elements to the U.N., it presents a complication in the figure.
We feel that most banks applied a commercially reasonable rate.
If you actually worked out the numbers, assuming some of these
things, it works out to about 4 percent as to the rate that was
applied.
Mr. Ose. By institution, are you able to break it out in
terms of what was frozen and what the rate of returns were
being paid?
Mr. Zarate. Yes, we are. That is commercially sensitive
information and the rates varied depending on the type of
account, as well as the amounts. In the instance where we found
that banks either did not apply an interest rate that was
appropriate, we have gone back to those banks and ameliorated
that problem.
Mr. Ose. Madam Chair, I would be happy to submit my
question for further expansion by Mr. Zarate in writing.
Chairwoman Kelly. Thank you.
Mr. Ose. I thank the Chair.
Chairwoman Kelly. In the interests of fairness, since Mr.
Ose has had a turn, I am going to beg this panel's indulgence
and return to Mr. Inslee for his final question.
Mr. Inslee. Thank you, Madam Chair. That is an act of great
graciousness. Thank you very much. I appreciate it.
Some of us feel that the greater threat at the time the war
started in Iraq, to the lives of our constituents, was actually
al Qaeda, the group that killed thousands of Americans on
September 11. If the will of the policymakers at that time had
been to continue to focus on stopping al Qaeda from killing
Americans, rather than to shift and shift resources into the
war in Iraq, would the people that you just identified, each
you talked about a certain number of people who are now chasing
Iraqi assets instead of al Qaeda assets, would those resources
have been available to chase al Qaeda assets, the group that
struck us on September 11? The ones that are now chasing Iraqi
assets?
Mr. Zarate. Congressman, this administration, the Treasury
Department and I know the State Department, has never lost its
focus on the battle against al Qaeda and other terrorist
groups. Our campaign to freeze assets and to seize assets
related to al Qaeda is unabated. In fact, today we are
announcing the designation of 10 individuals that are part of
an Italian cell submitted to the U.N. by the Italians. This is
an ongoing effort. We now have designated 361 individuals and
entities, frozen or seized approximately $200 million in
terrorist-related assets, continue to work closely on a
bilateral basis and multilaterally with our partners abroad to
address the al Qaeda issue.
So my answer is that all the relevant resources are being
applied to the hunt for al Qaeda's finances, and on a daily
basis we are uncovering those leads as well and taking
appropriate actions to deal with them.
Chairwoman Kelly. Thank you very much.
Mr. Inslee. Thank you.
Chairwoman Kelly. I again will thank the panel very much
for their indulgence on this, and I look forward to our having
a closed session with both of you. With that, you are dismissed
with our great thanks.
On our second panel, the subcommittee will hear from two
witnesses from the General Accounting Office as a follow-up to
a request that the committee made to the agency last May. With
us from the General Accounting Office is Mr. Joseph Christoff,
the Director of International Affairs and Trade, and Ms.
D'Agostino, the Director of GAO's Financial Markets and
Community Investment.
Mr. Christoff spearheads the GAO's work related to the U.S.
agencies responsible for nonproliferation, export control and
international security issues, as well as issues related to the
United Nations and multilateral institutions. Ms. D'Agostino
directs the GAO's work on a number of issues including anti-
money laundering programs, the SEC's technology and security
oversight of the markets. Prior to this position, she led and
managed GAO reviews of counterterrorism and government-wide
terrorism initiatives and defense, trade and technology
transfer issues.
Without objection, your full written statements will be
made part of the record. You will each be recognized for a 5-
minute summary of your testimony. We will begin with you, Mr.
Christoff.
STATEMENT OF JOSEPH A. CHRISTOFF, DIRECTOR OF INTERNATIONAL
AFFAIRS AND TRADE, UNITED STATE GENERAL ACCOUNTING OFFICE
Mr. Christoff. Madam Chairwoman, members of the
subcommittee, thank you for inviting GAO to this important
hearing.
Last year, you asked GAO to examine how the United States
works with other nations to recover the assets of foreign
regimes. Today, I will present our preliminary observations on
U.S. efforts in Iraq. First, I will update GAO's previous
estimate of the illegal revenues the former regime acquired
through the Oil for Food Program. Next, I will describe the
efforts of U.S. agencies to recover Iraqi assets. Finally, I
will provide some observations on the challenges that the
United States faces in recovering these assets.
Let me first begin with the Oil for Food Program. Under
U.N. sanctions, the former Iraqi regime was allowed to sell oil
to purchase food and other humanitarian goods. From 1997 to
2002, the United Nations controlled over $67 billion in Iraqi
oil revenues. However, the sanctions did not prevent Iraq from
acquiring billions in illegal revenues from these proceeds. Oil
was smuggled through Syria, Jordan and the Persian Gulf. The
government levied surcharges of up to 50 cents a barrel against
oil purchasers. It extracted commissions of 5 to 10 percent
against commodity suppliers. Based on this information, we
estimate that the former regime acquired $10.1 billion in
illegal revenues.
I would now like to describe the efforts the U.S. has made
to recover the regime's assets. Led by the Departments of the
Treasury and State, more than 20 government entities are
working to locate, freeze and transfer the former regime's
assets to Iraq. The United States created a new interagency
coordinating body called the Iraqi Assets Working Group. This
group is responsible for exploiting financial documents in Iraq
and engaging the financial community in the hunt for illicit
assets.
In addition, the United States has used recently developed
domestic and international authorities to recover assets.
Provisions in IEEPA and the Patriot Act allowed the Treasury
Department to confiscate and vest Iraqi assets. U.N. Security
Council Resolution 1483 required all members to immediately
transfer the regime's assets to the Development Fund for Iraq.
Now, the results of those efforts. Let me caution that we
have yet to review the reliability of the data that has been
provided us by the Department of the Treasury and the Coalition
Provisional Authority. First, in March 2003, the U.S.
Government took control of or vested $1.9 billion in Iraqi
assets held in the United States. This process moved quickly
because the United States had in place the necessary legal
authorities to vest and transfer the Iraqi assets. The CPA has
spent the vested assets on salaries for former Iraqi military
personnel, civil servants and pensioners, and to pay for the
operations of Iraqi ministries.
Second, coalition forces and investigators quickly seized
over $900 million in Iraq between April and May 2003. These
assets included hard currency, gold and jewelry. The CPA has
used $752 million of these assets to fund reconstruction
projects and to purchase liquefied petroleum gas.
Third, other countries froze $3.7 billion of Iraqi assets
in compliance with U.N. Security Council resolutions. As of
March 2004, over 10 countries had transferred $751 million to
the DFI. Finally, little progress has been made in identifying
and recovering assets hidden worldwide. While the total amount
accumulated by the former Iraqi regime is unknown, estimates
range from $10 billion to $40 billion.
The United States faces several challenges in its efforts
to recover Iraq's assets. First, recovering the former regime's
assets initially was not a high priority in the overall U.S.
effort in Iraq. By September 2003, as the need for additional
resources to rebuild Iraq became apparent, the United States
placed a higher priority on recovering the former regime's
assets.
Second, U.S. expectations for the quick transfer of funds
may have been overly optimistic given the legal capabilities of
some countries. U.S. officials believed that the U.N.
resolutions would require other countries to quickly transfer
Iraqi assets. However, many countries needed to adopt
legislation to implement the U.N. requirements.
Furthermore, U.S. officials assumed that frozen assets were
immune from new claims. However, some countries have delayed
transferring assets until all claims are settled. Finally, the
transfer of sovereignty to an interim Iraqi government could
complicate U.S. efforts to recover the regime's assets. The
transitional government has yet to conclude agreements on the
activities of the multinational force, which may include rights
to continue to interview Iraqi officials and exploit financial
documents.
Madam Chairwoman, that completes my statement. Ms.
D'Agostino and I would be happy to answer your questions.
[The prepared statement of Joseph A. Christoff and Davi M.
D'Agostino can be found on page 37 in the appendix.]
Chairwoman Kelly. Thank you very much.
Ms. D'Agostino, I am sorry.
STATEMENT OF DAVI D'AGOSTINO, DIRECTOR OF FINANCIAL MARKETS AND
COMMUNITY INVESTMENT, UNITED STATES GENERAL ACCOUNTING OFFICE
Ms. D'Agostino. That was our joint statement.
Chairwoman Kelly. Yes, Mr. Christoff said that was your
statement as well. Is that correct?
Ms. D'Agostino. Yes. We worked on this together.
Chairwoman Kelly. All right.
The committee heard testimony last year that the most
effective way to recover nongovernment assets, that is to say
the plundered assets that are converted to personal use, but
held outside the plundered country, might be private lawyers
acting on behalf of a country pursuing civil remedies, and not
necessarily a government-led criminal effort. Do you have an
opinion on that effort? It was carried on a trial basis for the
U.N. to recover plundered Nigerian assets and I would be
interested in what your feelings are, whether or not you think
that might be more effective or as effective, or is it good to
have the two things running in conjunction with each other?
Mr. Christoff. Madam Chairwoman, we have not looked into
that particular option. Certainly, I would say that all options
are important in trying to recover assets, whether it is an
option working directly with the countries on an official
basis, or even working with financial institutions to try to
get the assets back.
Chairwoman Kelly. I think maybe we should explore that a
bit, if you are willing to do that. Would you mind looking into
that and getting back to us and talking with us about it? It
might be something that would point up places where we can
amplify private efforts that are going on out there.
Ms. D'Agostino, did you have something you wanted to say on
that?
Ms. D'Agostino. I am aware that we have interviewed a few
of the private sector entities that have been involved in
hunting assets for remuneration. We have information about
their views, but we have not formed any position of our own
with respect to that.
Mr. Christoff. Let's add it to our list. We are completing
our work for you by May, so we will do that.
Chairwoman Kelly. If you would add that to your list, I
would appreciate it.
It is an accepted fact now that the Saddam Hussein regime
was demanding kickbacks and deliberately mis-pricing oil sales
and really manipulated the Oil for Food Program by engaging in
a lot of illegal sales of oil. Can you tell me what efforts
were made, if any, by the United Nations to make sure that the
oil for food sales contracts were actually properly priced and
that there were no bribes and kickbacks? What did the U.N. do
about that?
Mr. Christoff. Let's perhaps put some perspective on what
the United Nations was required to do. The contracts that we
are talking about that involved commissions, that involved
kickbacks, were contracts that under the U.N. Oil for Food
Program, the Iraqi government was allowed to negotiate directly
with the purchasers and with the suppliers of the commodities.
So any types of kickbacks or commissions obviously would not
have been listed in the specific contracts.
We do know that those type of kickbacks occurred because
foolishly some of the contracts had line items that said
``after sale service charges,'' which were in effect kickbacks.
Any information that the Oil for Food Program might have had
about some of these problems was referred to the United Nations
Sanctions Committee. That Sanctions Committee is made up of the
same members as the Security Council. So according to the U.N.,
it was incumbent upon the Sanctions Committee to take any
action on allegations of kickbacks or commissions that they may
have uncovered.
Chairwoman Kelly. And they did not, is that correct?
Mr. Christoff. One interesting point is that some of the
smuggling that occurred, for example to Jordan, the sanctions
committee noted the occurrence of the smuggling, but nothing
was done beyond that.
Chairwoman Kelly. What about other countries in this
regard? What have any other countries done to report, to stop
the kickbacks that were going on, the bribes, the kickbacks,
the money manipulation? Have you uncovered any attempt by
countries to try to stop this or report it or do anything to
stop Saddam Hussein from that sort of evil behavior?
Mr. Christoff. It was a bit of a double-edged sword because
many of those countries obviously were the recipients of the
contracts; the key countries that received the majority of the
contracts were the United States, Russia and France. So I do
not think we have any specific information about which of the
countries on the Security Council did report information. We do
know that the United States and Great Britain were the
countries that placed the greatest number of holds on
contracts. The U.S. placed about $5 billion of holds on
contracts, mostly concerned about the possibility of dual-use
goods being part of those contracts.
Chairwoman Kelly. Were there any holds placed by Russia?
Mr. Christoff. No.
Chairwoman Kelly. No holds placed by France or Germany?
Mr. Christoff. None that I am aware of. Again, 90 percent
were U.S. The remainders I believe were British.
Chairwoman Kelly. Thank you.
I am going to turn now to Ms. Maloney.
Mrs. Maloney. Thank you, Chairwoman Kelly. Actually, one of
our bills is on the floor right now on regulatory relief, where
we worked on the business interest accounts. I am going to go
down there shortly on that.
But I want to thank you for holding this hearing. I am
deeply disturbed by the scandal in the papers involving bribes
to U.N. officials involved in the Oil for Food Program with
Saddam Hussein. But my question to GAO is, are you getting all
the access you need to information? Are the Departments of the
Treasury and State cooperating with you? Are they imposing
limits on your ability to complete this study? Do you have
access to everything you need to do a good study?
Ms. D'Agostino. Representative Maloney, we have been
working very closely with the Departments of the Treasury and
State to get all the information that we need. We have recently
over the past several weeks achieved accommodation with the
departments and are going to continue to try to obtain some
follow-on information after the hearing so that we can finalize
our report to you, hopefully by the end of May.
Mrs. Maloney. So you do have access to all the information
you need.
Ms. D'Agostino. So far, we believe that we are getting the
access that we need.
Mr. Christoff. I am really happy with the cooperation that
we got over the past two weeks, and I want that to continue
until our report is issued in May. That is an expectation that
I hope we all have.
Mrs. Maloney. There was an article yesterday in one of the
papers about Saddam Hussein accounts in Jordan, and that they
were not cooperating in telling our government or anyone who
was making withdrawals from those accounts. Are you familiar
with that allegation, with that story? Are you familiar with
trying to get information on these Jordanian accounts? Have
they cooperated? The paper said they are not cooperating. Can
you comment on this?
Mr. Christoff. I am familiar with it, but I think the
information that you will get will be in the closed-door
session.
Mrs. Maloney. Okay. Thank you.
Do you have any idea of the scope of the amount of money
involved in these bribes that were reported in the Oil for Food
Program?
Mr. Christoff. Sure. The estimate that we just updated, 2
years ago we said there was $6.6 billion; it is now $10.1
billion. It is broken down into two parts; about $4.4 billion
of that total amount is related to what is referred to as
surcharges, commissions, in effect, kickbacks, that were
imposed on purchasers or asked from suppliers. The remaining
amount, the $5.7 billion, was the smuggling that went through
the Persian Gulf, Jordan, Syria, and Turkey.
Mrs. Maloney. Do you believe that money from Saddam Hussein
that he took from the Oil for Food Program is going to
insurgents who target U.S. troops in Iraq today?
Mr. Christoff. No, I do not.
Mrs. Maloney. You do not. You do not.
I look forward to the closed-door session and the Jordanian
accounts.
Thank you.
Chairwoman Kelly. Thank you, Ms. Maloney.
Mr. Ose?
Mr. Ose. Thank you, Madam Chair.
I want to go back over a couple of things to make sure I
understand correctly. It is GAO's conclusions that about $10.1
billion in oil sale revenue was skimmed off the top.
Mr. Christoff. $10.1 billion that was either skimmed or it
was the result of illegal smuggling of oil.
Mr. Ose. Okay. More accurately, $4.4 billion of skimming
and $5.7 billion of smuggling.
Mr. Christoff. Correct.
Mr. Ose. And that is comprised based on surcharges of up to
50 cents per barrel or commissions ranging from 5 percent to 10
percent in the form of surcharges and the like.
Mr. Christoff. Right. In our analysis, actually, we used 25
cents per barrel, trying to be a bit more conservative.
Mr. Ose. Okay. You highlighted Syria, Jordan and
generically the Persian Gulf as the source or the end-countries
for this oil.
Mr. Christoff. Smuggling.
Mr. Ose. For the smuggling portion of that.
Mr. Christoff. Correct.
Mr. Ose. Were there countries beyond Syria, Jordan or the
Persian Gulf to which this oil was sent?
Mr. Christoff. The oil ultimately ended up in the
international market. The conduits for actually getting it out
of Iraq were through pipeline via Syria; truck over towards
Jordan and Turkey; and then through the Persian Gulf by ship.
Mr. Ose. Okay. GAO's position, then, is that the conduits
for the oil departing Iraq were Syria, Jordan and Persian Gulf.
Mr. Christoff. Correct.
Mr. Ose. And the end-users, do you have any evidence as to
who the end-users of this oil, other than just the generic
international markets?
Mr. Christoff. No, not the smuggled.
Mr. Ose. Okay. Do you have any evidence as to the payola on
the $4.4 billion worth of revenue that is estimated to be in
the form of surcharges or commissions?
Mr. Christoff. The United Nations has all of the contracts.
At the end of March, there were over 6,000 contracts that were
pending. All of this information has been turned over the
Coalition Provisional Authority, so that will list all of the
pending contracts in terms of the purchasers, as well as the
suppliers of commodities; who they were; which countries they
were coming from; and the total amounts.
Mr. Ose. Some of the press reports I have read indicate
that certain individuals who are actually associated or
affiliated directly with the United Nations in one form or
another were the beneficiaries, either directly or by virtue of
relationships with corporate entities of having received some
of these oil shipments. Does GAO have any such information?
Mr. Christoff. No.
Mr. Ose. You also talked a little bit about holds on
contracts. Ms. Kelly touched on this. I just want to make sure
I go back on this. There were any number of countries with whom
there were contracts for provision of service to the Hussein
regime in Iraq; the United States, Germany, France, Russia.
Were there others?
Mr. Christoff. Your question again?
Mr. Ose. You talked earlier about holds on contracts.
Mr. Christoff. Correct.
Mr. Ose. And that the United States had placed holds on up
to $5 billion worth of contracts.
Mr. Christoff. Correct.
Mr. Ose. Your earlier testimony was, in answer to Ms.
Kelly's question, was that no holds had been placed on any
contracts that you were aware of from Russia, France or
Germany.
Mr. Christoff. We will certainly go back and check on that.
Two years ago when we did this work, 90 percent of the holds
were U.S.; the remainder were British.
Mr. Ose. Okay. In terms of the accounts into which money
from the sale of oil under the Oil for Food Program occurred,
the funds were placed in custodial accounts in U.S. banks or
other banks?
Mr. Christoff. A U.N. escrow account held in Paris.
Mr. Ose. What bank in Paris controlled the funds?
Mr. Christoff. The Bank National de Paris.
Mr. Ose. Paribas?
Mr. Christoff. Yes.
Mr. Ose. Okay. Do you have any information as to what sort
of fees or assessments or rates of return were paid on the
monies deposited into that account?
Mr. Christoff. I do not know. As part of the Oil for Food
Program, however, the United Nations was given approximately 3
percent of the total oil proceeds that would be for their
administrative expenses to administer the Oil for Food Program.
Mr. Ose. My question is, in their custodial nature, the
U.N. was acting as an escrow or a fiduciary and they were
placing funds into BNP Paribas in Paris.
Mr. Christoff. Right.
Mr. Ose. Was that an interest-bearing account?
Mr. Christoff. I do not know. We can check on that.
Mr. Ose. I see my time has expired. Thank you.
Chairwoman Kelly. Thank you. That was an interesting line
of questioning and I hope we can get some answers.
It just kind of blew me away there when you said 3 percent
of the Oil for Food Program monies were siphoned off by the
United Nations?
Mr. Christoff. No, no, no. Not siphoned off.
[Laughter.]
Chairwoman Kelly. Let me understand this.
Mr. Christoff. Yes, please. That was part of the
arrangement in establishing the Oil for Food Program, to
administer the program as part of the agreement, 72 percent of
the oil sales went to Iraq to be used for purchases; 3 percent
was overhead to allow the United Nations to administer the
program; and 25 percent was returned to Kuwait as part of war
reparations.
Chairwoman Kelly. Thank you. I appreciate that clarity. I
also appreciate the very direct manner in which you have
answered our questions with facts. It is refreshing to have
someone here that does not dissemble; that just says what it
is. I appreciate that.
The Chair notes that some members may have additional
questions for this panel, which they may wish to submit in
writing. So without objection, the hearing record will remain
open for 30 days for the members to submit written questions to
these witnesses and to place their responses in the record.
Mr. Ose. Madam Chair, if I may? I want to follow up on the
line of questioning you just brought up for a moment.
Chairwoman Kelly. Could you do that please in the closed
session?
Mr. Ose. Certainly.
Chairwoman Kelly. Thank you.
This hearing is adjourned.
[Whereupon, at 11:39 p.m., the subcommittee was adjourned.]
A P P E N D I X
March 18, 2004
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