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House Financial Services Committee Hearing on Terrorism Financing

House Financial Services Subcommittee on National Security, International Development and Monetary Policy

“A Persistent and Evolving Threat: An Examination of the Financing of Domestic Terrorism and Extremism”

Wednesday, January 15, 2020

Key Topics & Takeaways

  • Suspicious Activity Reports and Beneficial Ownership: Miller said that the more transparency there is in the financial system at large, the easier it will be for law enforcement and intelligence agencies to track the financing of individuals and terrorist organizations. She noted that Congress has been exploring legislation to address beneficial ownership, the purpose of which would be to prevent illicit actors from using legal entities to move or hide money.
  • Cryptocurrency: McCord stated there is not yet reliable data on whether domestic groups are using cryptocurrencies and it should be studied. Maples said he has seen evidence of it, particularly in Charlottesville. He continued that domestic groups are realizing that foreign groups utilize bitcoin, though he noted that cryptocurrencies are a small subset of both the American and global financial systems.

Witnesses

  • The Honorable Jared Maples, Director, Office of Homeland Security and Preparedness,
    State of New Jersey
  • Rena Miller, Specialist in Financial Economics, Congressional Research Service
  • George Selim, Senior Vice President for Programs, Anti-Defamation League
  • Lecia Brooks, Chief Workplace Transformation Officer, Southern Poverty Law Center
  • Mary B. McCord, Legal Director, Institute for Constitutional Advocacy and Protection, Georgetown Law

Opening Statements

Chairman Emanuel Cleaver (D-Mo.)

In his opening statement, Cleaver said that domestic terrorism poses a persistent and evolving threat of violence and harm in the United States. He said the rate and pace of domestic terror attacks have grown more devastating, citing a number of recent attacks and noting that 2019 saw the highest number of mass killings recorded to date. He called the hearing an opportunity to look past the politics of the issue to explore how to confront and overcome this crisis, including following the money to disrupt the financing of these crimes. He noted a number of legislative proposals to address such issues, including H.R. 5132, the Gun Violence Prevention Through Financial Intelligence Act, the Freezing Assets of Suspected Terrorists and Enemy Recruits Act, and a bill to require the Comptroller General of the United States to carry out a study on the funding of domestic terrorism.

Ranking Member French Hill

In his opening statement, Hill said that violent extremism is a growing problem in the United States, saying that domestic terrorism is as great a threat as foreign terrorism. He said it is important for Congress to better assist law enforcement in their efforts to track the funding and monitor the internet usage of extremist groups in order to inhibit their growth. He emphasized the need for bipartisan solutions to ensure violence and extremism do not continue to grow. He encouraged his colleagues to consider ways the committee can further support the work that is already being done in this area.

Rep. Maxine Waters (D-Calif.)

In her opening statement, Waters said that while the United States has long focused on combatting international terrorism, the Federal Bureau of Investigation (FBI) and Department of Homeland Security (DHS) have confirmed that domestic extremists are an equally big threat. Waters said she looked forward to hearing what the committee can do to act forcefully to help identify bad actors and cut off their funding.

Testimony

The Honorable Jared Maples, Director, Office of Homeland Security and Preparedness,
State of New Jersey

In his testimony, Maples said that many domestic extremist attacks are carried out by individuals unaffiliated with a larger network and therefore do not need large amounts of funding to conduct their operations, making it difficult to detect and prevent attacks. He noted that common tactics in domestic extremist attacks include easily attainable weapons like knives, small arms and vehicles. Maples said many activities are funded through criminal enterprises, such as the illicit sale of counterfeit goods, drug and weapons trafficking, cigarette smuggling, pyramid schemes, real estate fraud and other methods, though “lone wolf” offenders are often self-funded. He noted that the future role of cryptocurrencies to fund acts of domestic terrorism cannot be discounted.

Rena Miller, Specialist in Financial Economics, Congressional Research Service

In her testimony, Miller explained that regulatory tools to counter terrorism financing face challenges in addressing domestic terrorism, as it was not designed with domestic terrorism in mind. She continued that the existing regime draws heavily on the Bank Secrecy Act (BSA) and the USA PATRIOT Act enacted after 9/11, noting that their key requirements include record-keeping and reporting requirements for financial institutions, due diligence regarding customers opening accounts, and terrorism designations. She said that while these can be powerful tools to track foreign terrorists, they are less relevant for flagging a potential domestic terrorist attack in advance, particularly small-scale attacks that may not require large sums of money. Miller also noted that another pillar of the counter-terrorism financing regime is the designation of foreign terrorism organizations and the freezing of assets, which only apply to foreign groups and may introduce First Amendment concerns domestically. She urged the committee to pursue an interdisciplinary, interagency study to examine the use of new technology in both the spread and financing of domestic terrorism.

George Selim, Senior Vice President for Programs, Anti-Defamation League

In his testimony, Selim called the threat of domestic terrorism in the U.S. today “extreme and urgent,” saying the U.S. must develop new approaches to keep communities safe. He said the financing of domestic terrorist organizations is much smaller than international terrorism, adding that domestic groups like white supremacists may use this funding for organizational operations and attacks or for more indirect threats like propaganda to motivate others to commit violent acts. He said such groups typically fund through a range of measures including self-funding, criminal activities, bartering, direct contributions, crowdfunding, ads, proceeds from merchandise, and anonymized transfers via cryptocurrencies. Selim noted that best practices for the financial industry to address these issues include crafting more effective terms of service, improving reporting mechanisms, improving transparency, ensuring appropriate training, and collaborating across the industry and with civil society. He said Congress should further examine options under current law, such as whether overseas white supremacist groups meet the criteria for designation as foreign terrorist organizations.

Lecia Brooks, Chief Workplace Transformation Officer, Southern Poverty Law Center

In her testimony, Brooks said there is currently a surging white nationalist movement in the U.S. that is part of a larger global movement rooted in a toxic, anti-democratic white supremacist ideology that is radicalizing and incubating new terrorists. She said that technology companies, especially social media, play an enormous role in the spread of hateful rhetoric and ideas, saying the online radicalization narrative is now a “terrifyingly common one.” She noted that hate groups are primarily funded by peer-to-peer interactions, not by large donors, and even a small amount of money can go a long way in spreading hate online through ads and events that cost relatively little. Brooks encouraged the committee to support further research and to encourage online platforms to remove these funding sources and disrupt such networks.

Mary B. McCord, Legal Director, Institute for Constitutional Advocacy and Protection, Georgetown Law

In her testimony, McCord explained that there are marked differences between the tools available to investigate the financing of domestic and international terrorism, noting that this is largely because the First Amendment protects freedom of speech and assembly of U.S. persons and organizations. She said that U.S. law provides for the designation of foreign terrorist organizations like ISIS even if those organizations might engage in activities that would be protected by the First Amendment if they were located in the U.S., the foreign terrorist organization designation allows the U.S. to enforce criminal statutes that prohibit providing material support or resources to those groups. She continued that the material support statute provides a basis for law enforcement and the intelligence community to open investigations based on suspicions that a person may be financing a foreign terrorist organization regardless of the intended purpose of that financing, which drives U.S. financial services providers to implement significant risk management protocols for detecting the misuse of their services for terrorist financing. She noted that because of the First Amendment, there is no comparable designation scheme for domestic extremist organizations. McCord explained that there is also no federal law prohibiting what is commonly thought of as domestic terrorism when that crime is not connected to a foreign terrorist organization or committed against a U.S. official or government property, which results in inaccurate and inadequate data about incidents of domestic terrorism that could be used to develop measures to counter the threat.

Question & Answer

Suspicious Activity Reports and Beneficial Ownership

Reps. Stephen Lynch (D-Mass.), Josh Gottheimer (D-N.J.), and Williams asked questions related to reporting and the use of suspicious activity reports (SARs). Miller said that the more transparency there is in the financial system at large, the easier it will be for law enforcement and intelligence agencies to track the financing of individuals and terrorist organizations. She noted that Congress has been exploring legislation to address beneficial ownership, the purpose of which would be to prevent illicit actors from using legal entities to move or hide money.

Maples discussed the “unique” system New Jersey has put in place, with reporting integrated into one central location, saying it is very effective and can be replicated more broadly to help ward off future threats.

Cryptocurrency

Reps. Denver Riggleman (R-Va.) and Brad Sherman (D-Calif.) asked whether there has been a rise in the use of cryptocurrency by domestic terrorists. McCord stated there is not yet reliable data on the issue and it should be studied. Maples said he has seen evidence of it, particularly in Charlottesville. He continued that domestic groups are realizing that foreign groups utilize bitcoin, though he noted that cryptocurrencies are a small subset of both the American and global financial systems.

Access to Financing

Rep. Jim Himes (D-Conn.) asked if domestic groups have access to vast resources, or if it is more fragmented and smaller. Miller said there is not much evidence of wealthy benefactors for such groups. Selim added that the majority of groups are funded though criminal activity, bartering, crowdfunding, or self-funding.

Domestic Terrorism Statute

Cleaver and Hill asked questions regarding a domestic terrorism statute and hate crimes statutes. McCord explained that the designation of domestic groups as terrorist organizations presents First Amendment issues, but criminalizing the commission of violent acts with the intent to intimidate or coerce a civilian population or influence a policy of government would drive more resources toward prevention and prosecution. Regarding the difference between domestic terrorism and hate crimes, McCord explained it as a Venn diagram, saying that some cases would qualify as both domestic terrorism and a hate crime, but others, like violence that does not target a specific protected class, would not.

Rep. Roger Williams (R-Texas) asked how to strike the right balance between free speech, privacy and security. McCord replied that the Supreme Court has been clear that violence and incitement to violence is not protected by the First Amendment, and said that Congress should study whether a terrorism offense should be created that applies to all terrorist activity that occurs in U.S. regardless of ideology.

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.