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9/11 Commission Report Recommendations

9/11 Commission Report Recommendations

E. Anthony Wayne, Assistant Secretary for Economic and Business Affairs Testimony before the House International Relations Committee Washington, DC August 19, 2004

Mr. Chairman and distinguished Members of the Committee:

Thank you for the opportunity to testify on behalf of the Bureau of Economic and Business Affairs. We applaud the work of the 9/11 Commission and were pleased to cooperate in interviews and to share hundreds of documents for review by the Commission. We believe the recommendations contained in the report provide a solid foundation for the critical discussion currently underway on strengthening our counter-terrorism capabilities.

The 9/11 Commission report lays out two recommendations in particular that I would like to address as Assistant Secretary for Economic and Business Affairs. One suggests that the tracking of terrorist financing is an essential tool to disrupting terrorist operations. The second focuses on the need to include in our comprehensive counter-terrorism strategy policies to encourage development and open societies to improve the lives of those who might otherwise turn to terrorism. The State Department supports both of these recommendations.

Tracking Terrorist Finances

The 9/11 Commission report presents a fair assessment of the Administration's efforts to step up involvement in terrorist financing in the wake of 9/11. The report specifically highlights two of the major policy tools utilized by the Administration the freezing of assets of terrorist financiers, and the use of information regarding financial facilitators of terrorism to disrupt actual terrorist networks. We concur with the Committee recommendation that "vigorous efforts to track terrorist financing must remain front and center in U.S. counterterrorism efforts." We also agree that operational law enforcement and intelligence cooperation on terrorist financing must be a priority, and can help disrupt the operations of terrorist organizations.

Since terrorists largely operate internationally, a key component of the fight is to build international cooperation. To achieve this goal our approach has been to draw as appropriate on a wide range of flexible policy tools, including:

1. Bilateral and multilateral diplomacy; 2. Law enforcement and intelligence cooperation; 3. Public designations of terrorists and their supporters for asset freeze actions; 4. Technical assistance; and 5. Concerted international action through the multilateral organizations and groups, notably the Financial Action Task Force on Money Laundering (FATF).

Diplomacy is key in winning the political commitment from which cooperation in other areas flows. Our diplomats are the overseas eyes, ears and voice of the U.S. government in dealing with foreign governments and financial institutions on terrorism finance. In this sense, diplomats serve an even more crucial role in countries where we have no resident legal or Treasury attaché. With cooperation, intelligence and law enforcement officers can follow the money. With international cooperation on asset freeze designations (as well as travel bans under UN resolutions), we force terrorists into less reliable and more costly means of moving money. Designations also chill support for terrorism it is one thing to write a check for terrorists when no one is looking; it is another to realize that such actions can bring unwanted official attention. Since 9/11 we have ramped up our efforts significantly and made substantial progress. We also acknowledge that much remains to be done. Since September 11, 2001, we have:

Ordered the freezing in the United States of the assets of 382 individuals and entities linked to terrorism;

Submitted and supported the submission by other countries including Saudi Arabia and several of our European partners of 285 al-Qaida-linked names on the United Nations asset-freeze list, thereby requiring all countries to act against these names (50 countries banded together in one such submission to the UN);

Frozen approximately $142 million and seized approximately $65 million in countries around the globe, including the United States;

Instructed our embassies formally to approach every government around the world to freeze each name we designate;

Developed a broad international coalition against terrorist finance;

Acted against supporters of Jemaah Islamiyah, the Asian terrorist group linked to the Bali disco bombing; designated for asset freeze charities funding HAMAS; taken firm action against Saudi terrorism financiers; and worked with the European Union to strengthen their counter-terrorism finance regime;

Supported changing national laws, regulations and regulatory institutions around the world to better combat terrorist finance and money laundering; and

Made it harder for terrorists and their supporters to use both formal and informal financial systems.

Effective U.S. Government Coordination

Key to our success in tackling terrorism finance is effective U.S. interagency coordination. A Policy Coordination Committee (PCC), established under the auspices of the National Security Council, ensures that these activities are well coordinated. This strong interagency teamwork involves the intelligence and law enforcement communities, led by the FBI, as well as State, Treasury, Homeland Security, Justice, Defense and the financial regulatory agencies collectively pursuing an understanding of the system of financial backers, facilitators and intermediaries that play a role in this shadowy financial world. The Treasury Department develops and coordinates financial packages that support public designations of terrorists and terrorism supporters for asset freeze action. The Department of Justice leads the investigation and prosecution in a seamless, coordinated campaign against terrorist sources of financing. And, the State Department initiates asset freeze designations and shepherds the interagency process through which we develop and sustain the international relationships, strategies and activities to win vital international support for and cooperation with our efforts. These efforts include the provision of training and technical assistance in coordination with Justice, Treasury, Homeland Security and the financial regulatory agencies. Our task has been to identify, track and pursue terrorist financing targets and to work with the international community to take measures to thwart the ability of terrorists to raise and channel the funds they need to survive and carry out their heinous acts.

Our diplomatic posts around the world have been essential partners in implementing this global strategy. They have each designated a senior official, often the Ambassador or Deputy Chief of Mission, as the post Terrorism Finance Coordination Officer (TFCO). These officers chair interagency meetings at posts on a regular basis not only to evaluate the activities of individual countries, but also to develop and propose individual strategies on most effectively getting at specific targets in certain regions. The increased level of interagency cooperation we are seeing on this front in Washington is generating new embassy initiatives focused sharply on terrorist finance. The ability of posts to develop high-level and immediate contacts with host officials in these efforts has ensured broad responsiveness around the world to various targeting actions.

Domestic (E.O. 13224) Actions

A key weapon in the effort to disrupt terrorist financing has been the President s Executive Order (E.O.) 13224, which was signed on September 23, 2001, just 12 days after the terrorist attacks of September 11. That order provided the basic structure and authorities for an unprecedented effort to identify and freeze the assets of individuals and entities associated with terrorism across the board. Under that order, the Administration has frozen the assets of 382 individuals and entities on 60 separate occasions. The agencies cooperating in this effort are in daily contact, examining and evaluating new names and targets for possible asset freeze. However, our scope is not just limited to freezing assets. We consider other actions as well, including developing diplomatic initiatives with other governments to conduct audits, exchange information on records, law enforcement and intelligence efforts, or shaping new regulatory initiatives. While designating names is the action that is most publicly visible, it is, in no way, the only action.

United Nations Actions

Even before September 11, the United Nations Security Council (UNSC) had taken action to address the threat of terrorism. It had adopted resolutions 1267 and 1333, which collectively imposed sanctions against the Taliban, al-Qaida, Usama bin Laden and those associated with them. Following September 11, the UNSC stepped up its counter-terrorism efforts by adopting Resolutions 1373 and 1390. Resolution 1373 requires all States to prevent and suppress the financing of terrorist acts and to freeze the assets of terrorists and their supporters. It also imposes bans on travel and arms sales to these individuals. Resolution 1390 (recently strengthened by Resolutions 1455 and later by 1526) continued sanctions, including asset freezes, against Usama bin Laden, the Taliban, al-Qaida and those associated with them. The UN 1267 Sanctions Committee maintains and updates a list of individuals and entities subject to these sanctions, which all States are obligated to apply.

Through these actions, the UNSC has sent a clear and strong message underscoring the global commitment against terrorists and their supporters and giving international force and legitimacy to asset freezes and other sanctions. This is extremely important, because: (1) most of the assets making their way to terrorists are not under U.S. control; and (2) when the 1267 Sanctions Committee designates individuals or entities associated with al-Qaida, all 191 UN Member States are obligated to implement against those persons the applicable sanctions, which include asset freezes. The 1267 Sanctions Committee has added a total of 285 al-Qaida-linked names to its consolidated list since 9 /11.

Improving National Laws, Regulations and Standards

In addition to advances on the UN front, we have witnessed considerable progress on the part of countries around the world to equip themselves with the instruments they need domestically to clamp down on terrorist financing. Since 9/11, at least 87 countries in every region of the world have either adopted new laws and regulations to fight terrorist financing or are in the process of doing so.

To ensure that the standards of these new laws and regulations are high enough to have an impact and be effective, the United States has worked very closely with the Financial Action Task Force on Money Laundering (FATF), a G-7 multilateral organization of 33 members individually and collectively devoted to combating money laundering. In 2003, FATF revised its 40 Recommendations to combat money laundering to include terrorist financing provisions. These Recommendations along with the complementary Eight Special Recommendations on Terrorist Financing, adopted in 2001, provide a framework for countries to establish a comprehensive regime to fight money laundering and terrorist financing. FATF is monitoring compliance with its recommendations in coordination with the IMF, World Bank, and the FATF-Style Regional Bodies (FSRBs). In addition, FATF is working cooperatively with the UN Counter-Terrorism Committee (CTC) and the G-8-initiated Counter-terrorism Action Group (CTAG) to complete assessments of designated countries needs for technical assistance to improve local ability to combat terrorist financing.

We have seen substantial progress recently in securing countries efforts to strengthen their relevant laws and regulations in the area of anti-money laundering which is inextricably linked to counter-terrorist finance. In large part due to FATF's focus and efforts on terrorist financing, for instance, the Indonesian Parliament passed important amendments to its anti-money laundering law on September 16, 2003 amendments that will improve the country s ability to take actions against terrorist financing. Similarly, it was FATF s efforts that led the Philippines to pass legislation in March 2003 that will significantly increase that country s ability to carry out meaningful anti-terrorist financing measures. FATF advises on whether such regulations and legislation meet international standards as effective instruments to combat money-laundering and terrorist financing.

In addition to providing countries with the guidance they need to develop effective regimes, FATF also places pressure on countries via its Non-Cooperating Countries and Territories (NCCT) program, in the form of its ability to blacklist countries that are non-compliant with respect to anti-money laundering practices. FATF s NCCT program creates an incentive for states to vigorously address their regulatory environment when it comes to being able to take appropriate actions against money laundering. Nigeria and the Philippines, for instance, in December 2002 and February 2003 respectively, took meaningful legislative steps to strengthen their respective anti-money laundering laws to avoid imposition of FATF countermeasures. Ukraine likewise passed legislation in January 2003 that removed the threat of immediate FATF sanctions and ultimately led to its removal from the NCCT list.

As we, together with others in the international community, began to look into how terrorist groups raised and moved their funds, the fact that much of this took place outside regular banking systems became quickly apparent. As a result, international efforts to set standards for tackling terrorist financing also have had to address the issue of ensuring that charities are not abused by those with malicious intentions, and that cash couriers and alternative remittance systems, such as "hawala," are not used to finance terrorism. FATF, which has already addressed some of these issues through its Eight Special Recommendations on Terrorist Financing, is continuing to focus its efforts in this area.

Capacity Building

On the technical assistance front, the Terrorist Finance Working Group (TFWG), chaired by the State Department, has obligated over $11.5 million to provide technical assistance and training to develop and reinforce counter-terrorist financing/anti-money laundering regimes of frontline states. To date, assistance offered by the 20 U.S. Government offices and agencies participating in the TFWG, which include the Departments of Justice, Treasury and Homeland Security, spans 25 priority countries on five different continents. These comprehensive training and technical assistance programs include legislative drafting, financial regulatory training, financial intelligence unit development, law enforcement training, and prosecutorial/judicial development.

We have provided several countries in the Gulf and South Asia with different types of training related to sound counter-terrorist finance practices, including the detection of trade-based money laundering (moving money for criminal purposes by manipulation of trade documents), customs training, anti-terrorist finance techniques and case studies for bank examiners, and general financial investigative skills for law enforcement/counter-terrorist officials. Our international partners have welcomed this type of training, and we plan to provide it to other vulnerable jurisdictions in other regions.

U.S. efforts to assist Indonesia with the 2002 Bali bombings and 2003 J.W. Marriott attack demonstrate the seriousness of our counter-terrorism strategy, including our terrorist finance efforts. As the result of their hard work and U.S. and Australian assistance, Indonesian authorities have arrested over 80 Jemaah Islamiyah (JI) members associated with the Bali bombings and convicted 33 of them. Close law enforcement cooperation among the United States, Indonesia, Australia, and other Southeast Asian states has also led to an aggressive campaign against JI on all fronts including its financing. In the wake of the Bali bombings, the international community moved to "name and shame" JI with a record 48 countries supporting Australia and the U.S. in the UN terrorist designation of JI. Indonesia has made significant progress in reinforcing its counter-terrorism measures through stringent legislation, robust law enforcement investigations and prosecutions, and a more transparent financial system to combat money laundering and terrorist financing.

Burden sharing with our key coalition partners is an emerging success story. For instance, the governments of Australia, New Zealand and the UK, as well as the EU, FATF-Style Regional Bodies and the Asian Development Bank, have significant technical assistance initiatives underway in countries such as the Philippines, Indonesia, Pakistan, Malaysia and Egypt.

Areas of Focused Cooperation

The Administration is actively involved in combating terrorist financing through partnerships we have established across the globe. However, I would like to specifically highlight for you our recent cooperative efforts with Saudi Arabia and the EU.

Saudi Arabia has been one important focus of our efforts. An interagency team of experts travels regularly to Saudi Arabia to work with their counterparts to identify and block suspect accounts and assess technical assistance needs. Our terrorism finance cooperation with Saudi Arabia is real-time, ongoing, and fully embedded into our day-to-day counter-terrorism operations. We have jointly designated, with the Saudis, over a dozen Saudi-related entities and multiple individuals under E.O. 13224.

Demonstrating its commitment to address systemic factors contributing to the flow of funds to terrorists, Saudi Arabia has recently promulgated a number of laws that hold charities accountable for their actions and the funding of projects outside the Kingdom. Saudi Arabia has made some changes to its banking and charity systems to help strangle the funds that keep al-Qaida in business. As part of a State-led interagency assistance program, Federal banking regulators have provided specialized anti-money laundering and counter terrorist financing training to their Saudi counterparts. Saudi Arabia s new banking regulations place strict controls on accounts held by charities. Saudi Arabia has also banned the collection of donations at mosques and instructed retail establishments to remove charity collection boxes from their premises, steps that are undoubtedly extremely challenging for Saudi Arabia, but that the Saudi Government hasundertaken because it understands that terrorists are more likely to use such funds than those channeled through regular banking channels.

Saudi Arabia is working with us closely in the context of the new task force on terrorist financing, led on the U.S. side by the FBI. As part of the State-led interagency terrorist financing assistance program, experts from the FBI and IRS have completed the first part of a training model designed to strengthen the financial investigative capabilities of the Saudi security forces, with more advanced courses to follow. That being said, this is a work in progress. We have reason to believe that the new task force on terrorist financing will be effective but we will need to see results. We believe the Saudi Government is implementing its new charity regulations, but there too, we will need to see results. The recent FATF mutual assessment of Saudi Arabia found that the Kingdom has taken essential steps closer bank supervision, tighter banking laws, enhanced oversight critical to curbing terrorist financing and money-laundering. We find this to be encouraging news. There is more to do, and we will continue to press ahead with our efforts with the Saudi government.

We also have a "good news" story to tell regarding our cooperation with the European Union on combating terrorist financing. The EU has designated for asset-freezing almost all the names designated by the United States under E.O. 13224 because of their links to terrorism, in addition, of course, to all the al-Qaida-related names listed on the UN's consolidated list. We have also reinvigorated our productive dialogue with the EU, based on the June 26, 2004, U.S.-EU Summit Declaration which outlines a realistic roadmap on moving ahead toward implementing effective measures to crack down on terrorist financing across Europe and beyond. This declaration addresses our joint commitments to strengthen the European regime against terrorist financing by taking strong actions and to strengthen our cooperation in working with third countries. This includes: bringing EU and national legal frameworks into compliance with the FATF's recommendations; ensuring effective laws to freeze assets and block transactions; strengthening measures to regulate alternative remittance systems such as hawala and bulk cash couriers; ensuring effective implementation of legislation criminalizing the financial support of designated names; and seeing how to better coordinate assistance to third countries.

The Dutch, who hold the EU Presidency for rest of 2004, are committed to pushing ahead with reforms that will enable all EU member states to improve their ability to combat terrorism. We are encouraged that the Dutch are taking a proactive approach on this issue, and we will continue to work with them and our other European partners.

Designations and Asset Freezes: Only Part of the Picture

The 9/11 Commission report provides a critique of the public designation of terrorist financiers and organizations for asset freeze, noting that while it is "part of the fight," it is not the "primary weapon." The report goes on to criticize multilateral freezing mechanisms because they require waiting periods that eliminate the element of surprise. It also notes that worldwide asset freezes have been easily circumvented.

We recognize there are shortcomings in the international designations and asset freeze process, however this cooperative process has helped us develop and deepen a long-term set of invaluable relationships with our interagency and international partners in the three years since 9/11. Through this collaborative international effort, we have built cooperation and the political will necessary to fight terrorism, both through designations and asset freezes, as well as through operational law enforcement actions. As described above, the network of U.S. Government agencies meets regularly to identify, track and pursue terrorist financing targets and to determine, on a case-by-case basis, which type of action is most appropriate. Designation for asset freezing does not have to come at the expense of taking appropriate law enforcement action. On the contrary, sometimes the two approaches complement each other. There are cases where operational law enforcement action can be initiated quickly to trace, prosecute and shut down terrorists. In other cases, for instance where long-term investigations are under way, the better option is to designate for asset freezing in order to stop the flow of money that might be used to carry out terrorist activity until law enforcement actions can be taken.

As noted above, we have used multilateral asset freezes, together with technical assistance and the FATF multilateral process, as valuable devices to isolate terrorist financiers, drive them out of the formal financial system, and unite the international community through collective action. We continue to work together with our international partners to strengthen the multilateral designation process. By quietly pre-notifying our allies before submitting names for designation to the UN 1267 Sanctions Committee, we seek to build international consensus early, thereby preventing unwanted delays in the process. At the same time, we approach foreign governments to urge them to fulfill their UN obligations to freeze assets without delay. In cases where an individual or entity assumes a new name, we initiate action to designate the alias, thwarting their efforts to simply continue "business as usual" under a new name. As noted by the 9/11 Commission, these actions prevent open fundraising, diminish support to illicit charities, and act as an element of diplomacy to demonstrate international resolve.

In the fight against global terrorism, the Administration must continue to vigorously use all of the tools at its disposal including designations/asset freezing, law enforcement/intelligence cooperation, and the establishment and enforcement of international norms and standards. Given that the money that gets into the hands of terrorists flows around the world, the only way we will be successful in drying up their financial resources is through continued, active U.S. engagement with countries around the globe. We must continue to broaden and deepen our efforts worldwide. These efforts have paid off, and they will continue to do so.

Conflict Diamonds

The 9/11 Commission concluded that there is no connection between conflict diamonds and funding to al-Qaida. Nonetheless, we are committed to ending the use of conflict diamonds for the financing of wars through regulation of the international rough diamond trade. Towards this end, we and approximately 43 other participants, including the European Community, have domestically implemented the standards established under the Kimberley Process Certification Scheme and are in the process of establishing a more transparent industry through the provision of import and export statistics. The Kimberley Process is designed to avoid injury to the legitimate diamond trade, while also combating trade in conflict diamonds, and may indirectly increase the revenues of a producer state from an expanding licit diamond trade.

The Kimberley Process was the product of over two years of negotiations among diamond producing, trading, and consuming states and received the strong support of the United States, the diamond industry, and concerned NGOs from the inception of discussions. Since the Kimberley Process became effective in 2003, the participants have worked together closely to develop a largely voluntary monitoring system that includes annual implementation reports and peer review visits. The Administration will continue to play a leading role in halting the trade in conflict diamonds, and we look forward to continuing the important work of the Kimberley Process.

Promoting Economic Development

In the post-9/11 world, it is now clear as never before that the national security of the United States and the economic development of the world s poorest countries are inextricably linked. In September 2002, President Bush unveiled his National Security Strategy to address the unprecedented challenges that are facing the nation. Among the tools that would be engaged in this effort was "development." Indeed, it was elevated as a "third pillar" of our foreign policy, along with defense and diplomacy. The global war on terror is one of the arenas in which foreign assistance must operate.

It is the Administration's position that poverty, weak institutions, and corruption can make states vulnerable to terrorist networks. In many nations, poverty remains chronic and desperate. Half the world's people still live on less than the equivalent of $2 a day. This divide between wealth and poverty, between opportunity and misery, is far more than a challenge to our compassion. Persistent poverty and oppression can spread despair across an entire nation, and they can turn nations of great potential into recruiting grounds for terrorists.

Aid to Key Partners: The Case of Pakistan

Aid is a potent leveraging instrument that can keep countries allied with U.S. policy. It also helps them in their own battles against terrorism. For example, it is vital that we help retain a nuclear-armed Pakistan as an ally in the war on terrorism. In the first post-9/11 supplemental appropriations, we provided $600 million to enable Pakistan to invest in education, health, water and other social sector programs. Through USAID we have invested substantial development assistance to increase knowledge, training and infrastructure to develop high quality education programs for girls and boys throughout Pakistan. We also provide development assistance to make Pakistan s democracy more participatory, representative and accountable. Our continued support is critical in helping Pakistanis move toward a more stable, prosperous, and democratic society. In FY 2004, we granted $460 million in debt relief to Pakistan. This action on our part enables the government of Pakistan to increase its spending on important domestic social goals like health and education. Our request of $300 million for FY 2005 will allow us to continue and deepen this valuable work.

Millennium Challenge Corporation

We remain firmly committed to partnership with developing countries. We fully recognize that our development goals cannot be reached unless developing countries take steps to effectively and accountably tap all available development resources. To this end, on May 6, 2004, the Millennium Challenge Corporation (MCC) selected 16 countries that are eligible to apply for Millennium Challenge Account (MCA) assistance based on countries' performance against its three policy criteria: ruling justly; investing in people; and encouraging economic freedom. The MCC has selected countries that have a sound policy framework that will support economic growth. We now seek to conclude contracts with these developing countries so we can move forward with investing the American people's resources in effectively implemented programs with clear objectives and built-in performance benchmarks. The FY 2005 budget request of $2.5 billion represents our commitment to focusing on what matters, and doing what works.

Our FY 2005 budget request is directed toward meeting complex challenges in a post-9/11 environment. Our priorities move the President's economic growth and governance agenda forward in ways that promote aid effectiveness and real transformation. It also helps states not yet committed to transformation move toward stability, reform and recovery. This assistance addresses global and transnational ills, supports individual foreign policy objectives in geo-strategically important states, and continues our premier capacity to offer humanitarian and disaster relief to those in need.

We also are working closely with international financial institutions to reach these goals. President Bush has set out a new economic growth agenda for the multilateral development banks that focuses these institutions on productivity and measurable results, by channeling more funds to good performers, with an emphasis on governance and public expenditure management, and structuring our contributions to create incentives for specific outcomes. He has called on the development banks to provide more grants than loans to the most vulnerable countries, to avoid crippling their growth with a burden of debt they can never repay and the banks are responding to this call. Full funding of the Administration's budget request will help enable the banks to address critical development issues in key regions of importance to the United States, including: support for key countries in the war on terrorism; combating money-laundering and terrorist financing; responding to natural disasters; and providing assistance to countries emerging from conflict.

Middle East Partnership Initiative

On December 12, 2002, in a speech at the Heritage Foundation, Secretary Powell outlined the Middle East Partnership Initiative (MEPI), a far-reaching and comprehensive plan to support reform that would provide greater economic opportunities, improve education and promote freedom and justice throughout the Middle East and North Africa. This initiative was endorsed by the President in May 2003 and remains the main policy and programmatic tool to carry out his forward strategy to support freedom for the region. MEPI s partnership programs are gaining acceptance in the Arab World and its support for reformers is beginning to demonstrate success.

In the area of political reform, the focus is on strengthening freedoms, the democratic process and good governance. For example, we funded a regional women s campaign school in Qatar; co-sponsored with the Kingdom of Bahrain a regional judicial forum and will administer parliamentary development programs throughout the region.

Along with strengthening political freedoms, MEPI seeks to assist regional partners by creating new economic opportunities. In line with the President s goal to create a Middle East Free Trade Area within a decade, MEPI has provided technical assistance to promote reform in the economic sector and begin to build intra-regional trade related to negotiating Free Trade Agreements and Trade and Investment Framework Agreements between the United States and the countries of the Middle East and Northern Africa. In March, Morocco joined Jordan as the second Arab country to complete free trade negotiations with the Untied States, and in May, Bahrain became the third. Qatar has announced new labor legislation: a good beginning to eventually ensuring rights for all workers in that country.

Economic prosperity and strong democratic institutions are not possible without a well-educated workforce. To address the knowledge and skills gap, MEPI programming focuses on critical issues, such as curriculum reform, teacher training, and community and private sector involvement in education. Based on new, innovative local examples, such as the Jordan Education Initiative, we are developing and implementing a "Partnership Schools" model that emphasizes innovative solutions and technical expertise to enhance the quality of primary and secondary education.

The Role of Free Trade

The fastest and surest way to move from poverty to prosperity is through a strong and dynamic international economic system based on free trade and investment. In 2003, trade flows for developing economies totaled $5.8 trillion, by far the largest source of development finance. We are pursuing this through an aggressive multilateral and bilateral trade agenda. In the World Trade Organization (WTO), we have stepped forward with bold and sweeping market-opening proposals in both agricultural and non-agricultural goods. We continue to press forward on liberalization of financial services, aviation, telecommunications, agricultural biotechnology and government procurement. In July 2004, 147 members of the WTO reached consensus on an agreed framework in the Doha negotiations. Much work remains to be done in these negotiations, but this was an important milestone, that would have not happened without consistent U.S. leadership in promoting the importance of the multilateral trading system. The Department of State helped negotiate free trade agreements with Central America, Bahrain, Australia and Morocco. These trade agreements set new high standards for protection of intellectual property rights, open markets for services, ensure government transparency and provide effective labor and environmental regulation enforcement. Negotiations with the Southern African Customs Union, Colombia, Peru, Ecuador and Panama are underway. The President has also stated his vision for a Middle East Free Trade Area by 2013, to ignite economic growth and expand opportunity in this critical region.

Private Sector Development and Debt Relief

Multilaterally, we continue to promote private sector development, which is central to fostering economic growth and sustainable development. While Official Development Assistance (ODA) can be a catalyst for development, ODA resources are dwarfed by domestic and foreign trade and investment. Last year, ODA accounted for $15.5 billion, only a fraction of more than $700 billion in total U.S. financial flows to the developing world, which also included imports, personal remittances, private grants and private investment flows. The path from poverty to prosperity is not paved by development assistance, but rather by efforts at the national level to increase trade, attract foreign direct investment and other private flows, and implement sound economic policies to develop the private sector.

The United States is working to build momentum behind the recent G-8 Action Plan on "Applying the Power of Entrepreneurship to the Eradication of Poverty" and the report of the UN Commission on Private Sector Development entitled "Unleashing Entrepreneurship." Drafted by former Canadian Prime Minister Martin and Mexico's former President Zedillo, "Unleashing Entrepreneurship" clearly showed that reducing barriers to doing business in developing countries strongly advances sustainable economic growth in these countries. As we complete our G-8 presidency, the United States is working to ensure high-level attention to these matters, and facilitating continued efforts to foster private sector development.

Debt relief complements the growth of the private sector. When accompanied by good economic policies, debt relief promotes economic growth by helping countries overcome balance of payments difficulties or unsustainable chronic debt burdens. More importantly in the fight against terrorism, debt relief can free resources for governments to reduce poverty, better meet the health and education goals of their people, and improve infrastructure bottlenecks that limit economic growth. This is the thinking behind the Administration's strong support for deep debt relief through the Paris Club for the Interim Government of Iraq (IIG), for example, and also underlies our long-standing support for the Heavily Indebted Poor Countries (HIPC) initiative.

Under HIPC, the United States has been a clear leader among creditor countries by granting 100 percent bilateral debt reduction (on debt contracted before the June 1999 Cologne Summit) for qualifying HIPC countries. In addition, we have pledged over $600 million to the HIPC Trust Fund, which has permitted multilateral institutions to provide HIPC debt reduction. That debt reduction in turn permits the HIPC countries to undertake necessary economic reforms, helping their economies create the jobs necessary to defeat poverty. Finally, to avoid the accumulation of more debt by countries that have recently received debt reduction, or that suffer from heavy debt burdens, the United States has taken the lead in encouraging lending countries and international financing institutions to shift development assistance from concessional loans to grants.

All of these policy tools lead toward the same goal: fostering economic policies that lead to sustainable growth, more open societies and greater opportunities for citizens of developing countries.

Mr. Chairman and Members of the Committee, thank you for the opportunity to address these important issues. With the continued support of Congress, the efforts that I have discussed today including our interagency work to track and shut down terrorist financiers; our cooperation with multilateral institutions to strengthen other countries' counter-terrorism capabilities; and our support for economic policies which complement our counter-terrorism strategy will continue to bolster our efforts to fight terrorism at home and around the world.


Released on August 19, 2004

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