FROM THE OFFICE OF PUBLIC AFFAIRS

May 14, 2003
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Remarks by
Michael A. Dawson
Deputy Assistant Secretary for
Critical Infrastructure Protection and Compliance Policy
To
The Bank Secrecy Act Advisory Group
Washington, D.C.
“The USA PATRIOT Act Task Force:
A Progress Report”

It is a great pleasure for me to speak to you today and to report on the progress of the USA PATRIOT Act Task Force. 

It is a pleasure because so many of you are good friends.  So many of you have been generous with your time and helped me to understand the nuances of your agency, your industry, your priorities, your concerns.  I have learned much from many of you.  I know that we will continue to work together in the future.

It is also a pleasure to speak to you because of what I have to report:  hard work, a close public private partnership, a common commitment to maximizing the effectiveness of the rules implementing the USA PATRIOT Act, and a shared understanding of how difficult are the challenges we face together.

In a moment, I will review the origin and work of the Task Force.  I will not be able to report on the findings of the Task Force – they haven't been made yet.  But I will be able to discuss with you some common themes that have emerged during the course of the Task Force's work.  When I finish, I hope that you will share with me my belief that the Task Force will make a difference, that it will help improve the effectiveness of the regulations implementing the USA PATRIOT Act.

Before doing all that, however, I want to emphasize three important points.

First, the U.S. financial sector has in general done a remarkable job of complying with the obligations of the USA PATRIOT Act and its implementing regulations.  Never before have so many new anti-money laundering regulations been imposed on so broad an array of financial institutions in so short a time.  Financial institutions have spent a lot of time and money implementing the Act.  Many of you in this room know this to be true.  Indeed, many in this room are partly responsible for ensuring that your institutions meet the letter and the spirit of their new obligations.  I am proud of the record of compliance by the U.S. financial services industry.  While there are, of course, exceptions – rotten apples – they have not spoiled the whole bunch.  The record of compliance by the U.S. financial services industry is commendable.  And I thank you for it.

Second, you have shouldered your new obligations without complaint.  Over the past several months, the Task Force has met with scores of representatives of financial institutions and their trade associations.  Not once did a financial institution complain to me about the burdens they have shouldered to help us wage the financial front of the war on terror.  Not once.  No financial institution has complained to me – or to my knowledge any other participant in the Task Force – about the time and money they are spending on this important area.  This is particularly remarkable in these times, when many financial services firms have faced significant pressure to cut costs and some financial services firms have even had to let employees go.  I appreciate what you have done.  Again, thank you.

No one should be surprised by the quiet commitment of the financial services industry to fighting terror.  We, like you, remember September 11.  We remember your friends and colleagues whom Al Qaeda murdered.  We remember the employees of U.S. financial institutions who died trying to save others.  We remember our own employees – from the IRS and from the United States Secret Service – who lost their lives   We are constantly mindful that Al Qaeda targeted the financial sector on September 11.  We are constantly mindful that terrorists continue to look for ways to harm the U.S. economy in general and the financial sector in particular.   

The third point I wish to emphasize really gets to the heart of the challenge that lies before us.  While no one I met over the past several months complained about the burden they are shouldering, virtually every person I met wanted to know whether their hard work is making a difference.  They pleaded with us for more information – as specific as possible – that would indicate that their commitment of time and resources is helping us win the war on terror.

Why?  It's not because they are curious.  It's because they want to make sure that the time and resources they are devoting to this effort are well spent.  There is a limit to the amount of resources that financial services firms can devote to the financial front of the war on terrorism – just as there are limits on the resources that we can devote to the physical war.  All financial services firms, therefore, want to use their resources for maximum impact.  They want to be able to report to their boards on the return on investment that the resources have generated – how the time and money they've spent have helped us fight the war. 

It is in the government's interest to provide financial institutions with this information.  The government, like you, wants to ensure that your resources are put to their most productive use in the financial front of the war on terrorism.  We, quite literally, want to maximize the bang we get out of your bucks.  We want to sustain your institutions' commitment to the financial front of the war on terror, by showing you how valuable your efforts are.  Of course, there are limits to what information we can share.  We can't compromise open investigations.  We can't compromise sources and methods of collecting intelligence.  There are also limits to the information we have.  It is difficult to quantify the deterrent impact of the regulations.  It is also difficult to trace some of the specific successes in the financial front of the war on terror to the efforts of specific institutions to comply with specific provisions of the USA PATRIOT Act.  Our principal challenge is to work together within these constraints to develop and share information that helps maximize the effectiveness of the regulations and sustains the strong private sector commitment to fighting terror.

I hope you will keep those three observations – your commendable record of compliance, your patriotic commitment, and your legitimate need for information – in mind as I review the origins and initial work of the Task Force.

Treasury created the Task Force in September of 2002 – one year after the attacks and shortly before the one year anniversary of enactment in October of 2002 by Congress and President Bush of the USA PATRIOT Act.

As you know, after Congress and the President enacted the USA PATRIOT Act, Treasury promulgated many new regulations and revised existing regulations in a hurry.  Our haste was appropriate.  Given the ongoing terrorist threat, we wanted to have these anti-terrorist finance measures into place as quickly as possible.  In addition to acting quickly, we issued regulations governing types of financial services firms that we had not regulated before. 

We believe that we did a good job.  We had a lot of help from you, of course.  We also had a lot of help from the Congress and our sister regulatory agencies. 

But we acted with imperfect information.  We had only imperfect information about what the precise impact of the new regulations would be on financial institutions.  We had only imperfect information about the terrorist financing behavior that we are trying to stop.

Treasury's idea, therefore, was to establish the USA PATRIOT Act Task Force to take a second look at the regulations that we had promulgated.  Our idea was to reach out to you, to the regulated community, to the regulators, to the law enforcement agencies, and to consumer advocates for ideas on how to make the regulations better.  Better.  Not necessarily tougher or looser, but better.  Better at getting the most bang out of your buck.  More effective at using your resources to stop terrorist financing.

I wish to note that we limited the scope of the Task Force to a retrospective look back at final regulations that we had already promulgated.  Pending or future regulations were developed pursuant to the prescribed procedures under the Administrative Procedures Act.

Subject to that limitation, Treasury created the Task Force with the purpose of maximizing the effectiveness of the regulations implementing the USA PATRIOT Act.   The Task Force's members are the senior leaders of the Department:  the Under Secretaries for both Domestic Finance and International Affairs and the General Counsel.  Each policy arm of the Department has assigned a lead staff person to do the leg work.  I was that person for the Deputy Secretary when the Task Force was first created.  I am that person now for the office of Domestic Finance.  As such, I am personally familiar with the work of the Task Force.

Our research plan was relatively simple and straightforward.  We have reached out to representatives from numerous financial services companies and their trade associations.  The trade associations we met with included the following:  the American Bankers Association, America's Community Bankers, the Independent Community Bankers Association, the American Council of Life Insurers, the Credit Union National Association, the American Financial Services Association, the American Gaming Association, the Securities Industry Association, the Futures Industry Association, the Non-Bank Money Transmitters Group, the Money Order Sellers Group, and the Financial Services Roundtable. 

We also met with many financial regulators including the following: the Federal Reserve Board, the National Credit Union Administration, the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, and the Commodity Futures Trading Commission.

In addition, we reached out to the several law enforcement agencies.  And, because many of the provisions have a direct impact on the privacy interests of legitimate consumers of financial services, we met with consumer advocacy groups. 

We refused no request for a meeting by any interested party.

Where possible, we held our meetings outside of Washington, in financial centers like New York and Charlotte.  We met in Atlantic City with representatives of the gaming industry. 

This outreach led to many candid and open discussions.  In addition, we have received ten written submissions from industry groups.

Through this outreach and the written submissions, we received many constructive suggestions for improving the USA PATRIOT Act, its implementing regulations, and government practice in administering programs under the USA PATRIOT Act.
 We have taken the best of these suggestions and are in the process of presenting them to our senior leadership for their review.  We expect the project to generate several specific improvements to the Act and its implementing regulations and practices.  But it is too soon to tell you what they will be.

While it is too soon to tell you what those specific improvements will be, I can report on some examples of themes that emerged during the course of the Task Force's work. 

• Better guidance.  One recurring themes was a call for better guidance about how the regulations would be applied in practice.  We received several suggestions for how to improve guidance.  For example, many suggested that Treasury and other regulators issue staff commentary along with their regulations.  As another example, several suggested that we find a way to provide coordinated guidance in response to specific questions when they arise as financial institutions apply the regulations to specific, real-world circumstances.  As still another example, too many people brought to our attention instances in which examiners applied the regulations in the field in a way that was not consistent with the risk-based approach we have taken in writing the regulations.  These people suggested that we find a way to improve the consistency of such in-the-field applications of our regulations.

• Reliance on third parties.  Several of the entities that we talked to asked for guidance on when they could rely on the anti-money laundering programs of qualified third parties.  Many of the people we talked to explained that numerous financial transactions typically involve several different financial institutions.  These people asked us to consider the effectiveness of imposing requirements on every institution in a transaction and whether certain institutions could rely on the compliance efforts of others.

• Better feedback.  Virtually all of the private sector representatives we talked to called for better information about what works in the financial front of the war on terror.  They want to do more of what works, perhaps by shifting resources allocated to programs that do not produce results.  They also want to be able to report to their senior leadership and their boards of directors how their investments in anti-money laundering and anti-terrorist finance programs are contributing to the war on terror.

These are some of the themes that have emerged as the Task Force has conducted its research.  There are other themes.  In addition, there are many specific suggestions.  We are considering all of them.  While it is too soon for me to tell you what specific improvement will result from the work of the Task Force, I believe that we have much constructive material to work with and that well-grounded, specific improvements should come out of this process.

I wish to close by emphasizing that we are in this together.  The financial services industry and the financial regulators have worked together to implement the USA PATRIOT Act.  We have worked together to find ways to improve the effectiveness of the Act and its implementing rules. The recent bombings in Saudi Arabia demonstrate that the terrorist threat remains real.  We must remain vigilant.  And we must also continuously strive to improve the effectiveness of the statute and rules that are important to the financial front of the war on terror.