FROM THE OFFICE OF PUBLIC AFFAIRS

I am sure that many of you here today experienced emotions similar to mine yesterday as the nation took time to reflect on the six month anniversary of the September 11^th tragedy. I felt a profound sadness and also anger. I still have a lingering disbelief that what happened that clear day in September actually occurred here on American soil. As I have taken time to reflect on what happened, my resolve has been strengthened to ensure that the Treasury Department is doing everything we can to prevent another large scale attack from occurring on our soil. At the Treasury Department this preventative mindset has translated into taking steps to shut down the flow of funds into the coffers of the terrorists - to make it difficult for them to underwrite their training camps, purchase firearms and explosives, and to send money abroad to fund future attacks. The new PATRIOT Act regulations, when fully implemented, will play a critical part ofrole in this anti -terrorist financing strategy.

Let me speak for a moment about the background and purpose of the PATRIOT Act. When President Bush delivered his memorable speech to a joint session of Congress and the nation last September 20^th there was no mistaking the President's words: the United States would combat terrorism with every tool, every tactic at our disposal. Just over a month later the United States Congress backed up the President's words with action when they overwhelmingly passed, and the President signed, what is known today as the USA PATRIOT Act of 2001. Although the Act is an omnibus piece of legislation containing many important provisions, consists of hundreds of pages of text, the true purpose of the legislation is clear - to unite and strengthen America by providing the tools needed to defeat terrorism. The PATRIOT Act is a bipartisan manifestation of the President's promise at the conclusion of that same speech in which he eloquently stated: "...we will meet violence with patient justice, assured of the rightness of our cause and confident of the victories to come."

Today I will address just a portion of the PATRIOT Act, specifically Title III of the overall package which is also known as the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 (MLAA for short). Many of the sections of this MLAA will directly affect your industry and it is important that all of us - law enforcement, regulators, as well as the providers of financial services - all understand what this law requires of us.

The concepts in the law were derived from accepted international standards, the deliberations of various congressional committees, and in the archives of legislative reports and proposals that surfaced well before the events of September 11^th. The final product, as passed by Congress in October, is one of the most significant anti-money laundering statutes since the original Bank Secrecy Act first became law in 1970.

Let me also add at the outonset of my remarks that I know there is considerable interest from the private sector in the regulations slated to roll out from the Department in the coming months. I appreciate your interest in understanding how the PATRIOT Act will affect your businesses and what you and your companies can do to help. Although I will be discussing some of these new provisions today in general terms, it would be inappropriate to comment extensively on these regulations before the Department completes them. I can assure you, however, that we will continue consulting closely with the private sector and other government agencies will be closely consulted with during the drafting process.

Among the many provisions of the MLAA, I would like to highlight some of its key elements.

• Section 311 - Special Measures - This is a hallmark provision of the MLAA affording the Secretary of the Treasury a graduated set of five special measures that can be used to combat money laundering. Under this provision, domestic financial institutions, including the U.S. based operations of foreign financial institutions, must comply with the specific measure or measures if the Secretary determines that a foreign jurisdiction, a foreign financial institution, a certain international transaction or a type of account constitutes what is called a "primary money laundering concern." Prior to enactment of this provision, it was not clear that the Secretary had the full authority necessary to protect re were some holes in the law protecting the U.S. financial system from being abused by money launderers operating from or through international financial crime havens. Previously, we had only two options available. First, we could issue advisories to U.S. banks about specific jurisdictions or transactions. Our second option was a more extreme measure - to issue sanctions authorized by the International Emergency Economic Powers Act (IEEPA). Now, we have a graduated set of interim measures that range from added reporting requirements to requiring the termination of certain the abandonment of accounts. All of these measures can apply to a very broad definition of financial institutions which provides the Secretary of the Treasury with sweeping discretionary power which we intend to use carefully and yet forcefully for its intended objective.
• Section 312 - Special Due Diligence - This key section calls for special due diligence on the part of all financial institutions for correspondent accounts and private banking accounts involving foreign persons, entities, and banks. It requires all financial institutions to either establish or enhance those due diligence procedures that will be able to detect and report money laundering through these accounts for all foreign private banking customers and international correspondent accounts. It also necessitates enhanced due diligence by financial institutions with respect to correspondent accounts maintained for offshore banks or for foreign banks that are located in certain designated foreign countries, such as those on the Financial Action Task Force's list of non-cooperative jurisdictions in the global fight against money laundering. Enhanced due diligence is likewise required for private banking accounts maintained for foreign political figures, including their families and close associates. We anticipate that we will meet our statutory deadline of issuing a proposed rule [rule or notice of proposed rulemaking?] by April 24.
• Section 314 - Cooperative Efforts - Communication and cooperation are critical to success in the fight against money laundering and terrorist financing. and this section of the MLAA is designed to further cooperation in two ways. Section 314 of the Act bolsters the information exchange regime by enhancing two key channels for sharing information: (1) information exchange between the government and financial institutions; and (2) information exchange among financial institutions. First, in a proposed rule, we seek to create a communication network to link federal law enforcement with financial institutions so that vital information relating to suspected terrorists and money launderers can be exchanged quickly and without compromising pending investigations. Under the proposal, federal law enforcement will have the ability to locate accounts of, and transactions conduct by, suspected terrorist or money launderers by providing their names and identifying information to FinCEN, which will then blast that information, both electronically and by fax, to financial institutions so that a check of accounts and transactions can made. If matches are found, law enforcement can then follow up with the financial institution directly. Second, in a rule effective immediately, financial institutions may share information amongst themselves related to suspected terrorists or money launderers. Financial institutions wishing to share such information must provide FinCEN with a yearly, blanket certification that they will protect information shared. Both information sharing provisions represent bold, new steps in our efforts to utilize existing resources to eliminate terrorism and money laundering. it allows Treasury's Financial Crimes Enforcement Network (FinCEN) to process information regarding money launderers and terrorists from law enforcement agencies and then share portions of that information with financial institutions. Second, it allows financial institutions to share information among themselves as long as they have provided notice to the Department of the Treasury of their intent to do this and that they notify the Treasury Department when they do actually share information. For years, the government has grappled with how to make analysis of reported information more useful not only to law enforcement but to the financial industry itself. The codification and protection of specific cooperative efforts in section 314 of the MLAA shows a promising way forward in this regard.
• Section 326 - Verification and Identification - A pivotal point in any counter money laundering strategy occurs with the initial opening of an account. This section of the MLAA confers upon the Secretary of the Treasury, in conjunction with the bank regulators and the SEC, the authority to issue a regulations that settingsting a minimum standards for customer identification at the time of account-opening phase. Once adopted, this regulation will encompass all accounts, including both foreign persons and U.S. citizens. In addition the statute mandates that it will apply to all financial institutions as defined by the Bank Secrecy Act unless they are specifically exempted. It will call for reasonable procedures to verify the identity of the customer opening the account, the maintenance of records used to identify the customer, and consultation of a government provided list of known or suspected terrorists.
• I know for many of you this type of explanation raises more questions than it answers. Understandably you are interested in knowing what exactly "reasonable procedures" means in the real world. As I mentioned earlier in my remarks, the Department of Treasury will continue to consult with private industry as the regulation drafting process continues. The input and expertise of the private sector cannot be underestimated as we continue to harness allassemble available information to make the regulations as effective as possible.
• Section 352 - Anti-Money Laundering Programs - While many financial institutions have already instituted their own anti-money laundering programs, section 352 of the MLAA mandates that each financial institution establish a comprehensivebasic anti-money laundering program. Such programs must include: internal policies, procedures and controls; a designated compliance officer; training programs for employees; and, independent audits to test the implementation of the anti-money laundering program. Furthermore, the Secretary of the Treasury is authorized to prescribe, in consultation with the appropriate functional supervisor, additional minimum standards for an anti-money laundering program. The significance of section 352 lies in its broad application to all financial institutions described in the Bank Secrecy Act, many of which have not previously been subject to anti-money laundering regulation.

I have highlighted what I consider to be some of the more salient provisions, soon to come into force, of the MLAA or Title III of the PATRIOT Act. Certain other provisions of the Act are already effective. As of last December 26^th, financial institutions operating in the United States were required to sever correspondent banking relationships with foreign shell banks - those foreign banks that have no known physical presence. As I am certain you all are aware, we are now reviewing public comments received on the proposed rule. We hope to issue a final rule shortly. Similarly, the record-keeping requirements for correspondent accounts maintained by foreign banks also took effect last December. We are also considering the many comments raised in connection with that proposed rule. Also as of last December 26^th, financial institutions must be able to respond, within 120 hours, to a request by a banking regulator for records relating to anti-money laundering compliance or to a particular customer's transactions. On the near term horizonFurthermore, final regulations requiring broker-dealers to file suspicious activity reports, or SARS, with Treasury's FinCEN are to be published by July 1^st.

Let me also take a moment to comment on the status of the implementation of the Act. Treasury has a hardworking and loyal team committed to this process and I am pleased to inform you that we have received the full support of the Administration in our efforts. In fact, I am joined here today by one of Treasury's key players with respect to the implementation process -- Deputy Assistant Secretary for Money Laundering Julie Myers. We currently have about twenty working groups for the different regulatory projects required by the PATRIOT Act, with the Federal Reserve Board involved in about fifteen of these groups.

As you are probably well aware, the implementation of the PATRIOT Act involves close inter- agency and intra- agency coordination. The Department of the Treasury has reached out both government wide and to the private sector during the drafting process. We have been pleased with the interagency response to getting this job done and in getting it done right.

We are also greatly encouraged by the response of the private sector and industry groups. Regarding several key provisions of the law we not only received positive comments about the legislation, but also helpful insights into implementation issues. I cannot underestimate the important value added to the implementation process when others take time to educate us on their particular industry and its practices and procedures. Any attempt to craft regulations in a vacuum is a foolhardy endeavor and we are particularly thankful for the creative and constructive suggestions from those of you who will be affected by the regulations. These contributions allow us to identify issues early and discover solutions expeditiously.

Before I conclude, let me briefly summarize the key principals that are guiding the Treasury Department's implementation of the Act. First, we want to prevent regulatory arbitrage in that people should not be able to shift from one type of financial institution to another in order to avoid a regulatory scheme or anti-money laundering control. Second, we will prioritize the principles of enhanced coordination and information flow. Third, we will respect important privacy interests. Fourth, we will require only the degree of reporting that results in action by the government - information that is not intended to be used will not be requested. Fifth and finally, we will protect our financial system by using this Act's authority to systematically eliminate known risks as well as to act in response to any specific threat that may arise.

Thank you again for your interest in the work of the Treasury Department. I look forward to continued dialogue and cooperation in the weeks and months ahead.