Friday, January 2, 2004

The top senators on the powerful Senate Finance Committee are openly questioning a key federal agency’s ability to block terrorist money, citing examples in which U.S. officials failed to freeze the money of people identified as terrorist financiers by American allies.

“Other nations rightly look to the United States for leadership and information in the war on terrorism. We should not be playing catch-up,” Sens. Charles E. Grassley, Iowa Republican, and Max Baucus, Montana Democrat, wrote the Treasury Department’s Office of Foreign Assets Control (OFAC) in a letter just before Christmas.

Mr. Grassley, the committee chairman, and Mr. Baucus, its senior Democrat, cited numerous concerns about OFAC’s performance, including evidence of sloppy record keeping, failure to provide required information to Congress and reliance on voluntary compliance by banks to impose sanctions against suspected terrorists.

Though an internal investigation in 2002 recommended OFAC make changes to ensure it has the legal authority to test banks’ compliance with sanctions, the agency hasn’t taken steps to do so, according to the letter obtained by the Associated Press.

“This leaves OFAC in a position of not knowing what it does not know,” the two senators wrote. “While many financial institutions report their own violations when they are detected, we do not have the luxury of assuming that all financial institutions do this.

“The dangers of terrorism financing operating unhindered are too great to take a passive approach,” the letter said.

Treasury Department spokeswoman Tara Bradshaw said Wednesday she was not familiar with the lawmakers’ complaint, and OFAC Director Richard Newcomb was out of town and unavailable for comment.

OFAC is an obscure office that plays a key role in the war on terrorism. It is charged with freezing the bank accounts and other financial assets of countries, companies and individuals who are deemed enemies of the United States — everyone from Saddam Hussein to Osama bin Laden.

Based on orders from Congress and the president or just raw intelligence, OFAC names people to a “specially designated nationals” list that requires all financial institutions to block their money. It is one of the most powerful tools for choking off terrorist finances.

Earlier this month, a U.N. monitoring committee complained that 108 nations have failed to file required reports on their actions in the war against terrorism, such as freezing assets and reporting the names of suspected terrorists.

Frustrated committee members said they are considering asking for a stronger Security Council resolution with “more teeth” to force compliance from member states.

The United States, which has met most of its reporting requirements, has questioned the need for a stronger counterterrorism resolution.

The reports are required under Security Council resolutions passed since 2001, which imposed sanctions first on the Taliban and later on al Qaeda and the 30 to 40 terrorist groups thought to be affiliated with them.

Among the countries that have not complied are several where al Qaeda is thought to be active, including Afghanistan, Egypt, Indonesia, Kenya and Sudan.

The OFAC has been run for years by Mr. Newcomb, a career official who has served both Republican and Democratic presidents. The agency, however, has had its share of controversy.

Mr. Newcomb was the focus of a Treasury inspector general’s investigation in the mid-1990s after a series of Associated Press stories. The internal probe confirmed several instances in which Mr. Newcomb met outside the office with representatives of companies under investigation by his agency and took uncoordinated enforcement actions that potentially compromised criminal investigations.

Investigators cited two possible violations of federal ethics regulations, but Treasury officials rejected those conclusions and instead sent Mr. Newcomb a letter scolding him for creating the appearance of impropriety.

In 2002, the Treasury inspector general issued a report questioning OFAC’s effectiveness in the war on terror.

Some concerns cited by Mr. Grassley and Mr. Baucus stem from that report, but the two lawmakers also questioned why OFAC had failed to block the assets of several people designated by allies as terrorist financiers and publicly reported by the media.

In one case, AP reported that the United Nations and European Union in 2001, before the September 11 suicide hijackings, had ordered their members to freeze the assets of several high-ranking al Qaeda leaders, including Osama bin Laden’s brother-in-law and a security coordinator. OFAC did not.

More recently, a money laundering newsletter divulged that three persons listed in a December 2002 U.N. report as terrorist financiers weren’t blacklisted by OFAC, even though some of the financiers’ groups were blocked — leaving a potential loophole for terror financing.

“While the U.N. report identified these persons as being involved in terrorist financing, OFAC apparently had not,” Mr. Grassley and Mr. Baucus complained to Mr. Newcomb.

“Moreover, OFAC had enough information to accuse the organizations of aiding terrorist financing but somehow failed to also identify these persons as aiding terrorist financing, despite their clear links to the groups,” they added.

The lawmakers also raised concerns about sloppy OFAC record keeping about people and financial transactions that have been blocked, and with special licenses for people who are given exemptions from certain financial sanctions.

“Inaccurate information is not only inefficient, but impairs OFAC’s ability to aid other agencies,” the lawmakers said.

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