

	June 5, 2006 js-4305 Prepared Remarks by Deputy Assistant Secretary Daniel Glaser Terrorist Financing and Financial Crimes -- Before the Financial Crimes Forum for Asia/Pacific -- HONG KONG – I am pleased to be here speaking today at the Financial Crime Forum on behalf of the Treasury Department of the United States. I want to commend the organizers of this event for assembling professionals from multiple sectors, as this parallels the strategy we take at Treasury to engage all stakeholders: financial sector regulators, policy makers, financial crimes investigators, financial sector specialists, bankers, compliance officers, and others. It is only through our collaborative efforts that we can create highly effective Anti-Money Laundering/Counter-Financing of Terrorism (AML/CFT) regimes, and all efforts that enhance our communication across these sectors help us achieve our collective goals. At the U.S. Treasury Department, we recognize the importance of healthy global financial systems. Our engagement in that system is founded on three main principles: the promotion of free trade, the free movement of capital, and flexible exchange rates. The free movement of capital is critical in that equation, and depends on our collective ability to foster open investment and liberal financial markets. None of this is possible without mechanisms to protect the international financial system from abuse. The international financial system is constantly evolving and becoming increasingly complex, and over time we have seen the creation of innovative financial products that better allow us to conduct international commerce. In that same time, we have seen that these same products and services provide an opportunity for criminals, terrorists and other bad actors to exploit the international financial system to facilitate their nefarious agendas. For example, online and remote banking, stored value cards, electronic payment systems, and other mechanisms can be of immense value to the public, but they also pose a regulatory and enforcement challenge for us. We have also seen another evolution taking place in the international financial system – one that has come more into focus since the tragic events of September 11, 2001, but underscored by terrorist attacks and other illicit activities taking place since then on all continents. That evolution is one that has brought financial policy makers into the discussion of our national and international security. The Treasury Department, like many Finance Ministries throughout the world, has at its disposal powerful tools that can accomplish the dual mission of fostering healthy and vibrant environments for international finance and commerce, as well as protecting that system from abuse. In fact, we are seeing a shift where Finance Ministries not only react to threats to the international financial system through defensive and protective measures, but also identify threats to the international financial system, and take proactive steps to combat those threats. Together, we have made significant progress since 9/11, creating and deploying financial tools to identify, disrupt and dismantle the financial networks that facilitate and support terrorism. We must continue this work to ensure that the international financial system is a hostile working environment for those who support terrorist networks. But the same lessons we have learned and the same tools we have applied in this area can and should be used to disrupt and dismantle the financial networks that support threats of all kinds, including the proliferation weapons of mass destruction, rogue and kleptocratic regimes, narcotics traffickers and organized criminals – by attacking the financial underpinnings of those threats. Finance ministries are well positioned to contribute to this effort – taking an active role in discussions regarding international security, and leveraging these tools, their relationships with the financial sector itself, and the power of the financial market to address these threats. Treasury has shown that these types of financial authorities can be quite effective, in part because they unleash market forces by highlighting risks and encouraging prudent and responsible financial institutions to exercise discretion to manage risk and make the right decisions about the business in which they are engaged. As we have seen in the terrorism context, they give us a concrete way in which to target directly those individuals and entities we know are bad actors and to strike at the heart of their operations. Within the U.S. government, Treasury plays a unique role – a role only finance ministries can play. We bring to national security policy-making discussions our insights into financial transactions, connections with the private sector, and tools to apply pressure on a great range of targets. The U.S. is not alone in looking at how financial tools can play a key role in combating international security threats. International organizations such as the Financial Action Task Force, the United Nations, and others have all recognized that financial measures have an important role to play in the maintenance of global security. Multiple UN Security Council resolutions make reference to financial measures in the context of a variety of specific threats: UNSCR 1267 on al Qaida, Usama bin Ladin and the Taliban; UNSCR 1373 on global terrorism; UNSCR 1540 on WMD Proliferation; UNSCR 1483 on the former Hussein regime in Iraq; and UNSCR 1636 on the assassination of former Lebanese Prime Minister Hariri; and UNSCR 1532 related to Liberia. Meeting this new responsibility will require finance ministries both to strengthen our existing tools and to creatively apply new tools. The United States continues to look to innovative ways to meet this goal. One such tool we have used to protect our financial sector is an authority given to us under Section 311 of the USA PATRIOT Act (Patriot Act). As many of you may know, Section 311 authorizes the Secretary of the Treasury to designate a foreign jurisdiction, financial institution, or type of transaction as a "primary money laundering concern." Once designated as such, the Treasury Department may take a range of regulatory actions to protect the U.S. financial system, up to and including requiring U.S. financial institutions to terminate correspondent relationships with a designated entity. Such a measure effectively cuts the designated entity off from the U.S. financial system. This defensive regulatory measure has a profound effect, not only in insulating the U.S. financial system from an identified illicit finance risk, but also in putting the global system on notice of such a threat as well. We have used Section 311 in a number of instances since its inception in late 2001. We have designated three jurisdictions of being of primary money laundering concern – all of which were in support of FATF calls to apply multilateral countermeasures against specific jurisdictions with significant deficiencies and systemic weaknesses in their AML/CFT regimes. We have also used Section 311 to designate a handful of financial institutions for their connection to a number of criminal activities including organized crime, terrorist financing, money laundering, narcotics trafficking, the corrupt use of the UN Oil for Food program, the laundering of counterfeit currency and other activities. These institutions are: Burma Mayflower Bank (Burma) – November 18, 2003 Asia Wealth Bank (Burma) – November 18, 2003 Commercial Bank of Syria (Syria) – May 11, 2004 Syrian Lebanese Commercial Bank (Syria) – May 11, 2004 Infobank (Belarus) – August 24, 2004 First Merchant Bank ("Turkish Republic of Northern Cyprus") – August 24, 2004 Multibanka (Latvia) – April 25, 2005 VEF Bank (Latvia) – April 25, 2005 Banco Delta Asia (Macau SAR) – September 15, 2005 You all are likely familiar with our most recent application of this authority – our September 2005 designation of Banco Delta Asia (BDA) in Macau, in which the United States identified the institution for facilitating variety of illicit financial activities, particularly on behalf of North Korea. Our designation of BDA has produced encouraging results. Macanese authorities themselves have expedited needed legislation in the areas of anti-money laundering and counter-financing of terrorism. They have also placed BDA under new management and have compelled the bank to institute an internal AML compliance program. Moreover, jurisdictions in the region have begun taking necessary steps to identify and cut off illicit North Korean business. Responsible financial institutions have taken, and continue to take a closer look at their own operations, declining to provide tolerant environments for illicit North Korean financial activities. These are welcome steps -- but our continued and constant vigilance will be needed to ensure these results do not wane, and North Korean entities engaged in illicit activities are denied financial services worldwide. We sometimes hear that this type of vigilance may be bad for business. The reality is that a healthy financial sector cannot exist without authorities to protect it from abuse. In fact, healthy financial sectors, effectively protected from such abuse, bring increased investment and business. Section 311 is not the only financial tool we have at our disposal. We have also refined our use of targeted financial sanctions to address emerging threats, particularly the proliferation of weapons of mass destruction. As we have seen with terrorists, weapons proliferators require a substantial support network. By attacking that system, we can isolate individual proliferators, paint a clearer picture of how, and with whom, they operate and erode the infrastructure that supports them. The international community has also recognized the need to combat this threat through financial measures, as reflected in UN Security Council Resolution 1540. This resolution calls on all states to develop and implement authorities to combat proliferation, including by denying proliferators and their supporters access to the financial system. The U.S. has taken a first step by applying targeted financial sanctions to proliferation networks just as we have to terrorist networks. Last June, President Bush issued Executive Order 13382, which authorizes the freezing of assets of WMD proliferators and their supporters, and forbids U.S. persons from engaging in commercial transactions with them. Under that Executive Order, we have designated a number of North Korean, Iranian and Syrian entities engaged in proliferation activity. We have used this tool to designate both entities and individuals that contribute to the global proliferation trade. No longer should these designated entities be able to claim legitimacy, and no longer should they be able to reap the benefits of access to the international financial system. The U.S. will continue to refine its authorities to combat such threats, particularly by looking at how the international financial system can be leveraged to isolate such activities. In so doing, we will continue to work with all our partners throughout the world on ways we can collectively strengthen our efforts to take action against criminals such as WMD proliferators. We urge financial authorities worldwide to streamline information sharing on designated entities, develop and implement authorities that allow financial institutions to close or freeze any accounts illicit actors hold at institutions in their jurisdictions, and take steps to ensure that the private sector ceases any dealings with these entities. I would like to close by saying that we are becoming increasingly sophisticated in how we apply financial measures to combat international security threats. This new era requires that finance ministries, financial regulators, and financial institutions themselves seek out threats to the international financial system, and ensure such threats are effectively isolated. Through our collaboration, we can continue to build strong financial markets and an international financial system that works transparently and is accountable to all its stakeholders. I look forward to our continued collaboration. -30-