CHAPTER 4

International Cooperation in Combating the Financing of Terrorists

A key part of the global war on terror has been disrupting the financing of terrorist activity. Soon after the 9/11 terrorist attacks, the Bush Administration began ordering U.S. financial institutions to freeze the accounts of terrorists or those financing terrorists. In particular, on September 24, 2001 President Bush issued an executive order naming 27 terrorist organizations and individuals, and that list was expanded in the weeks and months since then.

To be effective, this effort required international cooperation, in which other countries would also move quickly to freeze assets along with the United States. Otherwise terrorists could thwart the effectiveness of a freeze in the United States by simply using the financial institutions in other countries. In fact, there was an extraordinary degree of international cooperation in this area following 9/11, perhaps the best example of international cooperation in the field of finance since the establishment of the Breton Woods institutions at the end of World War II. In Treasury International Affairs I set up a special task force on terrorist finance -- aka “war room” -- to monitor each country’s progress in freezing assets and to report directly to me. I recall making more than 100 calls to finance ministers and central bankers asking them to freeze assets or set up asset freezing regimes. With very few exceptions we got enthusiastic pledges of cooperation and support.

The first three items in this selection document the early efforts at this cooperation and the financial diplomacy that brought it about. The first refers to the exceptional meeting of the G7 held in Washington on October 11, and the specific action plan issued. The second and third items show the increased cooperation—from 7 to 110 and then to 184 countries—in the ensuing weeks.

One of the early discoveries in our diplomatic efforts—especially in the Middle East—was the importance of emphasizing that Islamic financial institutions had no more necessary connection with terrorist financing than traditional financial institutions. However, because little was known about Islamic finance in the United States, such misunderstandings were a problem we had to deal with. Therefore, after visiting an Islamic bank branch of Citibank in Bahrain, we decided that an “academic course” in Islamic finance in the United States would be useful. Item 4 is my introduction to this course—Islamic Finance 101 held at the U.S. Treasury, and Item 5 is a speech I gave at Harvard outlining some of the key differences between Islamic and traditional finance, and reviewing progress in combating terrorist finance.

Another aspect of our efforts to combat terrorist finance was the discovery that the flows of legitimate funds from immigrants in developed countries to developing countries was growing very rapidly and, at nearly $150 billion per year, was already dwarfing in size the official flow of development assistance from rich to poor countries. These remittances were frequently sent through the informal financial networks known as “hawalas,” in which funds could be sent to other counties without any detectible movement of funds taking place. Encouraging immigrants to use the formal banking system rather than wire transfers or informal networks served two purposes. It lowered the costs of remittances and it made it harder for terrorists to avoid detection. The Bush Administration’s early work on remittances eventually grew into a Global Remittance Initiative which President Bush presented at the G8 Summit in Sea Island in July 2004. The sixth item in this selection describes the remittance initiative and relates it to our overall development agenda.

Finally, item 7 is a summary of the remarks I gave at the London meeting of G7 finance ministers and central bank governors; it reviews progress since that first G7 meeting in October 2001, and lists new or growing areas of concern, including the use of cash transfers.

1. Statement on Joint G-7 Action to Freeze Terrorist Assets, October 12, 2001

2. Combating the Financing of Terrorists, November 7, 2001

3. Financial Fight Against Terror, December 4, 2001

4. Islamic Finance 101 Seminar: Introductory Remarks, United States Treasury, Washington, D.C., April 26, 2002

5. Understanding and Supporting Islamic Finance, Harvard University, May 8, 2004

6. Remittance Corridors and Economic Development: A Progress Report on a Bush Administration Initiative, Payments in the Americas Conference, Federal Reserve Bank of Atlanta, October 8, 2004

7. Combating Terrorist Financing G-7 Meeting of Finance Ministers and Central Bank Governors, London, February 4, 2005