FROM THE OFFICE OF PUBLIC AFFAIRS

Good afternoon. I am Julie Myers, Deputy Assistant Secretary for Money Laundering and Financial Crimes in the Office of Enforcement of the Department of the Treasury. It is my pleasure to be able to speak with you today about cooperation on money laundering with special regard to the securities industry and I thank those who extended this kind invitation.

There was a time, perhaps not so long ago, when some may have argued that money is nothing more than a medium of exchange, colorless and odorless, like some component of the atmosphere, conducive to life but morally neutral. In the last two decades we have begun to disavow that notion. We have seen criminal proceeds color parts of our own society, painting desolate landscapes of addiction and violence. And, in the early workday hours of September 11^th, we saw an unforgettable image of terror - a terror that also required money for its perpetration. These types of monies do, indeed, carry with them a very rank odor, repugnant to law-abiding citizens everywhere, to their commerce, and to their institutions.

Over these same twenty years, we who work in the law enforcement community have come to the realization that an effective response to money laundering must involve more than simply law enforcement. As a threat to the security and integrity of our financial institutions, money laundering deserves a system-wide response and broad cooperation. Law enforcement, in and of itself, can only do so much - chiefly investigating crimes and assisting prosecutions. When it comes to money laundering, the other principal stakeholders in the financial system need to be a part of the solution, to see this not just as a compartmentalized problem for law enforcement, but as a common and mutually assisted effort to make our national and international financial system less vulnerable to the abuses and depredations of criminals.

Fortunately, this wider perspective has been taking hold. From regulators to the financial services industry to the international community, there is a growing understanding of, and concern with, money laundering and financial crime. In the United States, banking regulatory agencies have agreed that their approach to anti-money laundering supervision needs to be risk-focused, with resources concentrated upon those institutions that are most susceptible to money laundering. These agencies have been developing procedures to address high-risk areas such as private banking, payable through accounts, and wire transfer activity. A second generation of bank examination procedures has been set forth and field-tested. Anti-money laundering training modules, using information derived from recent cases, now offer examiners new and timely information derived from the actual experiences of regulatory as well as law enforcement agencies. Banks have been required to implement anti-money laundering control programs for years and now the reach of that requirement is expanding to cover other providers of financial services.

Extending the scope of anti-money laundering programs to the securities industry involves a premise recognized by securities regulators as early as 1998 when the International Organization of Securities Commissions issued its Objectives and Principles of Securities Regulation. In those principles there is a specific reference to anti-money laundering controls as an important element of sound securities and futures regulation. We agree, and, to that end, we are now extending our anti-money laundering programs to include the securities and futures industry. We are doing this in close consultation and coordination with U.S. securities and futures regulators. We have also sought the counsel and advice of representatives from the securities and futures industry. We are doing all of this to ensure that the new requirements being imposed will provide the best possible result for law enforcement while at the same time minimizing any unnecessary disruption to the operations of securities and futures industry members.

To say that September 11^th re-focused our attention on the problem of money laundering and the related threat of terrorist financing hardly seems to capture the import of that day, but that was certainly one of its many effects. Less than two months after that infamous attack, the Congress of the United States overwhelmingly passed and the President signed what is known as the USA Patriot Act of 2001. Title III of that law, known as the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 (MLAA for short) has a broad array of implications for the financial services industry. It is important that we - law enforcement, regulators as well as the providers of financial services - all understand what these implications are and I would like to highlight some of the more prominent ones this afternoon.

To begin with, the Patriot Act brings a mandatory money laundering control program to the securities industry. One could reasonably ask why, since the securities and futures business is not, usually, a cash business. To answer this question, we need to look at the big picture. Each year, trillions of dollars flow through the securities industry and its firms encompass major global financial institutions. Use of the U.S. financial system to facilitate fraud can taint our vibrant capital markets - the same markets that fuel our economy and hold the savings of our nation's investors. Even before enactment of the Patriot Act, firms faced potential civil and criminal exposure when they were used to launder profits derived from illegal activities.

The large monetary fines and forfeiture provisions that have been part and parcel of pre-existing money laundering laws could seriously impact the financial stability of a securities firm, affecting all those who do business with that firm.

As a matter of best practice, many firms had already concluded that they should protect themselves from being inadvertently drawn into charges of facilitating money laundering. From the perspective of a firm's bottom line this has meant protection against significant monetary penalties as well as avoiding the reputational risk to a firm associated with a criminal element. It has been, and still remains, in the long-term interest of securities and futures firms to preserve the integrity of our securities markets.

Now, section 352 of the Patriot Act requires that all financial institutions, including securities firms, establish anti-money laundering programs by April 24^th of this year. Some of the minimum standards for such a program involve: (1) the development of internal policies, procedures and controls; (2) the designation of a compliance officer; (3) an ongoing employee training program; and, (4) an independent audit function to test the program.

Implementation of Section 352 is already underway. For example, the operators of our largest exchanges, the New York Stock Exchange and the National Association of Securities Dealers, have already set out rules requiring brokers to have an anti-money laundering program. The Preliminary Guidance for Deterring Money Laundering Activity, that was issued by the Securities Industry Association's Anti-Money Laundering Committee last month, offers sound, fundamental advice on the nature of such a program as the government works to finalize more detailed regulations for this part of the law.

A closely related section of the Patriot Act (section 356), specifically affecting the securities industry, mandates that the Secretary of the Treasury issue a rule to include broker-dealers in our suspicious activity reporting (SAR) system. We are implementing this requirement. In late December, after consultation with the Securities and Exchange Commission and the Federal Reserve, we published proposed regulations requiring broker-dealers to file SARs. The final form of this rule should be ready by July. This same section 356 of the Act also authorizes the Secretary, after consultation with the Commodity Futures Trading Commission (CFTC), to prescribe regulations requiring CFTC-regulated firms to file SARs. Our Deputy Secretary of the Treasury, Ken Dam, has testified to the Congress that we intend to promulgate similar requirements for future commission merchants and we are working with the CFTC on that initiative.

While investment companies have not, to date, been directly covered by Bank Secrecy Act regulations, the broker-dealers that sell the funds are covered. Later this year, we expect a broad inter-agency working group, under section 356, to submit a report concerning regulations that would apply the Bank Secrecy Act to registered investment companies. I understand that the Investment Company Institute, the Managed Funds Association and others have offered their cooperation in extending these provisions to their members and we welcome these offers.

The very products and services of the securities industry - the efficient transfer of funds between accounts, the ability to conduct international transactions, the liquidity of securities - provide opportunities to hide and move criminal proceeds. We are confident of success in implementing anti-money laundering measures with the industry because we are certain that the vast majority of firms desire to fulfill their duties as good corporate citizens. We all know intuitively that it is better to prevent a crime than to punish one. It is in the long-term self-interest of firms to obey the law and conduct business as responsible corporate citizens. Complying with the law often entails costs but it is the right thing to do. Moreover, we are working in a way that is intended to minimize any unnecessary regulatory burden while remaining consistent with our objective of countering money laundering within the securities industry. We believe that implementing these new measures will save firms substantial hardship, suffering and expense in the long term.

Another prominent implication of the Patriot Act is the effect its requirements will have on the international financial community. The growing understanding of and concern with the problem of money laundering, that I referred to earlier, has also been taking hold around the world. Over a century ago, within the United States, we learned the importance of common rules and institutions as commerce between our states took off and America's national economy began to come together. Greater interconnectedness between our states called for common institutions and understandings at the national level to offset the downward pressure on local rules and standards that competition could create. That same historical imperative is now being recognized at a global level. In this vein, the actions taken by the Financial Action Task Force (FATF) to publicly identify jurisdictions with serious deficiencies in their anti-money laundering regimes is a necessary step forward. At the same time, international financial institutions such as the World Bank and the International Monetary Fund are encompassing anti-money laundering concerns within the scope of their respective mandates so that they may play a strong role in fighting abuse and preserving the integrity of the international financial system. The Patriot Act substantially increases the means available to the United States to advance this worldwide effort.

The special measures contained in section 311 of the Patriot Act represent a hallmark provision that offers added tools that can be employed to protect the U.S. financial system from being abused by money launderers operating from or through international financial crime havens. In the past, we had limited choices when it came to defending ourselves. We had only, on the one hand, informational advisories that we could issue to U.S. banks about specific jurisdictions, and, on the other hand, sanctions authorized by the International Emergency Powers Act (IEEPA) which blocked transactions with designated entities in a jurisdiction.

Now, under section 311, the Secretary of the Treasury has available a graduated set of five special measures that can be used to combat money laundering threats from abroad. Domestic financial institutions, including the U.S. operations of foreign financial institutions, comprising also their securities and futures operations, need to comply with the specific measure or measures, if the Secretary determines that a foreign jurisdiction, a foreign financial institution or even a type of international transaction or account constitutes, what is called, a primary money laundering concern.

These measures may extend from simply added reporting to the actual abandonment of accounts and can be required of domestic financial institutions broadly defined.

A final section of the Patriot Act that is already having international reverberations is the provision regarding special due diligence that is contained in section 312. This key section deserves highlighting because it calls for special due diligence on the part of all financial institutions for correspondent accounts and private banking accounts involving foreign persons. Essentially, it requires all financial institutions (again, a term that is broadly defined in the Act) to either establish or enhance due diligence procedures that are able to detect and report money laundering through these accounts for all foreign private banking customers and international correspondent accounts. Additionally, section 312 requires enhanced due diligence by financial institutions for 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 fight against money laundering. Some of you may recall that slightly over a year ago - in January of 2001 - the departments of Treasury and State and the federal banking regulators jointly issued Guidance on Enhanced Scrutiny for Transactions that May Involve the Proceeds of Foreign Official Corruption. Among other things, section 312 of the Patriot Act basically reaffirms and codifies what was contained in that guidance.

Such an example of reaffirmation in the Patriot Act leads me to an important and concluding point. To anyone who had even casually followed the evolution of the concept of financial crime and ways to combat it over the last twenty years, what the Patriot Act requires of us - regulators, law enforcement and financial services providers - will be less than surprising.

Antecedents for most of the concepts that are in this law can be found in the development of generally accepted international standards, in the deliberations of various Congressional committees, in the archives of legislative reports and proposals and in many of the initiatives undertaken by law enforcement, regulators and industry. In short, what is in the Patriot Act, is, in many respects, the logical continuation of that spreading awareness of money laundering as a threat that demands a response by all who have a stake in our financial system.

Over the last twenty years, it has not been law enforcement's intent to punish or impose greater burdens on America's financial services community but rather to gradually elicit their participation and support in the common effort to ensure the integrity of our financial system. Key to that effort has been our work with the regulators of the various providers of financial services and that same key will unlock a successful implementation of the Patriot Act's many provisions. This Administration's policy on regulation has as its focus, quality regulation, with an emphasis on sound analysis to determine the best solution for all. That general policy applies here as well. Regulators play a critical role in ensuring that any new requirements are thoughtfully crafted and compatible with existing law.

I am encouraged by what we have been able to do together in the past and early and vigorous cooperation between law enforcement and regulators leaves me very optimistic for the future. So far, implementation of this new law is progressing well. Together, we are using existing resources and expertise in the government to develop creative solutions to complex issues. We have about twenty working groups for the different regulatory projects required by the Patriot Act and all concerned regulatory agencies, both inside of Treasury and outside as well, have been generous with their contributions to ensure that we meet the ambitious timeline contained in the Act. We are greatly 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, industry groups and others. On several key provisions of the law, we have 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. Such contributions allow us to identify issues early and discover solutions much more easily.

Most of the work on the various regulations needed to implement the Patriot Act should be completed by year's end and, because all parties are cooperating in this important task, we are confident of meeting our interim milestones.

Although criminals have always tried to work the proceeds of their illegal acts into the legitimate economy, money laundering as a crime in and of itself, is fairly new. Just as we are rapidly developing in our understanding of this crime and its pernicious effects - from financing criminal enterprises, enabling acts of terror and undermining the integrity of our financial system - so too are we developing a more comprehensive and effective response.

Before September 11^th, I believed that we - law enforcement, regulators and the providers of financial services - were part of a much larger enterprise, namely, building a worldwide economy that works for all - not simply integrating the wealthiest industrialized states but successfully encompassing the poorer and less advantaged as well. As we go about our task of ensuring the security and integrity of the financial systems that support a new global economy, don't underestimate what we are about here. With success, we can have a world that offers all our children better prospects for development in an increasingly integrated world market. With failure, the alternative is much less promising - a global economy that turns an undifferentiating eye to the sources of capital, to the products of honest versus criminal labor.

Since September 11^th, I am even more convinced of the importance of our work. The Patriot Act has accelerated many of the initiatives with which we have already been engaged. It is a concrete and bipartisan manifestation of a political will so memorably stated by President Bush in his speech before a joint session of Congress and the nation last September 20^th: "...we will meet violence with patient justice, assured of the rightness of our cause and confident of the victories to come." Thank you very much.