FROM THE OFFICE OF PUBLIC AFFAIRS

Mr. Chairman and members of the Caucus, thank you for the opportunity to discuss what law enforcement believes to be one of the most insidious forms of drug money laundering, the Colombian Black Market Peso Exchange (BMPE). This system of laundering drug proceeds has been used by Colombia's drug syndicates for a number of years.

Mr. Chairman, I would again like to thank you, this Caucus, and other concerned officials for your leadership and efforts on this vital matter. Your vigilance has helped the federal government maintain the BMPE as a major target of its anti-money laundering efforts. In addition, I would like to thank you personally for your unflagging support of our overall counter-drug efforts, particularly those of the U.S. Customs Service.

As this Caucus is well aware, international crime constitutes a national security threat. It also is a threat brought home to us directly B on our streets, in our schools, and within our communities. Such crime, particularly as it relates to drugs, is the work of international criminal enterprises.

Money laundering is critical to the survival and growth of these organizations. As President Clinton remarked to the United Nations on the fiftieth anniversary of its creation: We must not allow criminals to wash the blood off profits from the sale of drugs, from terror or organized crime. Together we must say Y to organized criminals, terrorists, drug traffickers and smugglers, you have nowhere to run and nowhere to hide.

At the same time, following the money trail is an effective means of attacking the organizations. Indeed, if money laundering is the "life blood" of crime, it is also, as Secretary Rubin has observed, Athe Achilles heel, as it gives us a way to attack the leaders of criminal organizations." So it is with the BMPE and its link to the Colombian drug traffickers. An attack on the BMPE -- one of the systems sustaining Colombian drug cartels -- constitutes an attack on the cartels themselves. Our gains against this money laundering system ultimately mean fewer drugs on our streets, less drug-related violence, and more lives saved.

We have taken several steps designed to enhance our efforts in this fight. We have worked to design and implement smart and tough law enforcement initiatives focused specifically on the BMPE system. Our efforts have resulted in successful cases and significant seizures. We look to further build upon these efforts through close cooperation with our international partners, including the Government of Colombia, as well as outreach to and a partnership with the private sector. I will provide you with a detailed accounting regarding these efforts below, but briefly summarized, they include:

Continuing to make solid cases against BMPE participants at every Achoke point@ of the system;

Improving, through an inter-agency working group, coordination of and consultation on law enforcement operations directed at the BMPE;

Improving international cooperation, by enlisting the collaboration of foreign governments, particularly Colombia; and

Establishing partnerships with the private sector by reaching out to the U.S. and international business communities.

In order to place the foregoing initiatives in their proper context, I would like to take a few moments to briefly summarize the operations of the system itself. Colombian Black Market Peso Exchange System

To the best of our knowledge, the BMPE is the largest continuing money laundering system in the Western Hemisphere. Anecdotal U.S. law enforcement evidence and estimates from Colombian customs authorities indicate that the system may be responsible for laundering as much as $5 billion annually.

The BMPE first was created in the 1950s when importers, attempting to avoid the requirements of Colombian law, including taxes and duties, began buying U.S. dollars on the black market. Then, as now, Colombian importers needed large amounts of U.S. dollars to purchase foreign goods for domestic sale. Access to U.S. dollars that Colombian importers need, however, is regulated by Colombian law and administered by the country's central bank. Before the Colombian central bank converts pesos to dollars it requires that the importer certify that necessary import permits have been obtained and that duties and taxes have been paid.

As Colombian drug trafficking became prevalent, the traffickers soon recognized the value of this system. Indeed, there are now three principal groups making use of the BMPE and on whom we continue to focus: drug traffickers who makes millions of U.S. dollars off sales of his poison, peso brokers who converts the illicit dollars into usable Colombian pesos, and Colombian importers who provide the Colombian pesos to the peso broker in exchange for the U.S. dollars.

Alvin James of the Financial Crimes Enforcement Network (FinCEN) will provide much greater detail on the process, but the following briefly summarizes the BMPE in the drug context: Colombian drug traffickers' proceeds from the sale of drugs are in U.S. dollars and are located in the U.S. The traffickers sell these dollars to black market Colombian peso brokers, who have operatives in the U.S. Once the peso broker takes possession of the currency in the U.S., the trafficker receives the agreed upon amount as pesos, discounted by as much as 25 percent. The size of the commission reflects the risks incurred by the peso broker, who must place the cash in the U.S. financial system despite the reporting and record-keeping requirements of the Bank Secrecy Act (BSA). At this point, having received the pesos and transferred the money laundering burden to the broker, the drug trafficker steps out of the laundering process.

Once the peso broker owns the U.S. currency, his goal is to quickly resell the dollars at a profit. The peso broker's customer is often a Colombian importer who wants U.S. dollars to engage in international trade. The importers who use the peso brokers intend to smuggle their goods into Colombia.

The Colombian importer usually wants the dollars in a more manageable and less conspicuous form than currency. To accommodate the importer, the peso broker's first task is to place most of the U.S. currency in the U.S. financial system. As noted above, such placement must be accomplished in ways that minimize the chances of detection in light of the BSA reporting and record-keeping requirements: structuring below the currency reporting threshold, commingling drug money with legitimate currency deposits of a business, or outbound smuggling of the currency which is then placed in a foreign financial institution and then returned to the United States.

The Colombian importer pays for the dollars by providing pesos to the broker in Colombia. The peso broker then transfers the dollars at the instruction of the importer to the merchant providing goods to the smuggler. The merchant is often in the United States, but also may be in other places that commonly do business with Colombia. Once the dollars are placed in a merchant's account, proof of their nexus to a narcotics transaction becomes much more difficult. Unless there is proof that the merchant had knowledge of the laundering scheme, he may claim to be an innocent owner, and the drug dollars become an indistinguishable element of general commerce.

It is important to note that just as money laundering generally is a global problem, so too is the BMPE. Indeed, the businesses that are being paid by or at the direction of the dollar/peso broker are not limited to one particular country. Through our undercover and other enforcement operations, we have learned of money laundering activities involving the BMPE in countries in Asia and Europe, as well as the United States. Our Response

As noted, our response to the BMPE has three main components: tough and smart law enforcement; international cooperation; and outreach to the private sector. This overall program has been developed and is being overseen by the recently formed Black Market Peso Exchange Working Group. The BMPE Working Group

Building on the work of other coordinating mechanisms, including the Interagency Coordination Group, the BMPE Working Group brings together the tools of Treasury's and Justice's enforcement bureaus and the regulatory agencies. This effort ensures that we use all available resources to mount a comprehensive attack against the BMPE system as a whole.

The BMPE Working Group integrates law enforcement and regulatory efforts with intelligence data support. In addition to Treasury's law enforcement bureaus and agencies (Customs, IRS-CID, the Bureau of Alcohol, Tobacco and Firearms, the Office of the Comptroller of the Currency, FinCEN, and the Office of Foreign Assets Control), the BMPE Working Group includes: the Department of Justice; the Drug Enforcement Administration (DEA), the Federal Bureau of Investigation (FBI), the National Drug Intelligence Center (NDIC), the Federal Reserve Board, and the United States Postal Inspection Service.

The BMPE Working Group integrates law enforcement and regulatory efforts with intelligence data support. In addition to Treasury's law enforcement bureaus and agencies (Customs, IRS-CID, the Bureau of Alcohol, Tobacco and Firearms, the Office of the Comptroller of the Currency, FinCEN, and the Office of Foreign Assets Control), the BMPE Working Group includes: the Department of Justice; the Drug Enforcement Administration (DEA), the Federal Bureau of Investigation (FBI), the National Drug Intellige

With such wide participation, the BMPE Working Group helps ensure that all available legal and regulatory tools are used in a comprehensive attack against the BMPE. The participation of the Department of Justice ensures that all strategic initiatives designed and implemented by the BMPE Working Group are legally sound. Participation of FinCEN and NDIC ensures that Bank Secrecy Act information, including suspicious activity reports, and other data are thoroughly analyzed. The federal bank regulatory agencies ensure that information developed by the Working Group that helps identify suspicious activity related to the BMPE is communicated to financial institutions, which then will be better able to identify and report such suspicious activity to law enforcement. Finally, the participation of Customs, IRS, DEA, and FBI ensure that their investigative resources and talents are used effectively and in a coordinated manner.

The BMPE Working Group helps provide each of the participating agencies information available through others, as well as means of accessing such information. Additionally, and in coordination with Fanny Kertzman, the Director of Colombia's Revenue and Customs Service (DIAN), it has created an analytical subgroup devoted to the analysis of shared information, including that received from Colombian authorities. This subgroup, composed of representatives from FinCEN, Customs, Justice, the IRS, OFAC, and NDIC, will join their counterparts in a bilateral task force initiative in Colombia to review, analyze, and discuss specific data that may further the investigation and prosecution of cases against the BMPE. For this and other reasons, I am particularly pleased that DIAN Director Kertzman is here with us today and look forward to hearing her confirmation that this task force will meet in Bogot in the very near future.

Our interagency work at home and abroad complements other resources. Customs, for example, in coordination with FinCEN, has recently established a national Money Laundering Coordination Center (MLCC) which will help coordinate the intelligence generated from undercover operations targeting the BMPE conducted by Customs and other participating agencies. Customs expects the Center to be fully operational by December of this year. Customs also has employed the ANumerically Integrated Profiling System@ (NIPS), that has historically been used to identify trade fraud and related anomalies, in an effort to identify export commodities and businesses that are a part of the Colombian Black Market Peso Exchange system. Smart and Tough Enforcement of Laws

A system this complex requires a comprehensive response that combines all resources available to law enforcement and regulators. Since the early 1980's, we have successfully investigated and prosecuted individuals laundering drug proceeds through the BMPE. The U.S. Customs Service reports that over the past eight years alone, its undercover operations have led to the seizure of $800 million in cash and monetary instruments, 2,100 arrests, and the seizure of over 100,000 pounds of cocaine. These figures include two of the largest single seizures of cash in the history of federal law enforcement, $22 million in Operation CASACAM in Miami and $15 million in Operation Omega in Los Angeles.

In addition, the Internal Revenue Service's Criminal Investigation Division has investigated approximately 250 cases directly involving the BMPE. The investigations revealed the wide range of businesses that, through import and export activities (in those cases, of auto, truck, and airplane parts) can be exploited by the BMPE. International Cooperation

Notwithstanding certain investigative successes, the BMPE continues its operations. Further gains depend greatly on extending this fight to the international arena. This is fitting, since the BMPE is a serious international threat. The business community in Colombia has suffered serious market loss because of the BMPE system that essentially fuels the Colombian contraband market. This contraband market, largely financed by drug money, offers goods at subsidized prices, courtesy of the narcotics traffickers._

There is growing recognition among governments that they must deal firmly and effectively with elusive, sophisticated and well-financed criminals. Integral to our anti-BMPE efforts is working more closely with such governments in developing an effective response to the threat of money laundering. We must strive to improve bilateral and multilateral cooperation and information exchange.

To further this goal, Treasury has had several high-level discussions with Colombian officials over the past nine months. In September 1998, Secretary Rubin, Deputy Secretary Summers, and I met with President Pastrana, who committed to work with U.S. authorities on the issue. Deputy Secretary Summers and I followed up on this discussion by meeting in October with the Colombian ambassador, with whom I have had several additional conversations since. In addition, Ms. Kertzman has met with me and several U.S. officials on more than one occasion over the past year.

In addition, the Departments of Treasury and Justice co-chaired two days of talks with senior officials from Colombia's Customs, Foreign Trade, and Banking Superintendence offices on BMPE and what steps each could take separately and collectively to combat the problem. These informal discussions represented an important breakthrough, ushering in a number of cooperative initiatives and programs important to law enforcement efforts in both countries. The United States has begun similar work with governments and officials from the free trade zones of Aruba and Panama. Bringing together all of these key players in order to bring the collective weight of our resources, experiences, and efforts to bear on this money laundering system is integral to our BMPE strategy.

The United States also is promoting several multilateral initiatives through organizations such as the Financial Action Task Force (FATF). FATF brings legal, financial and law enforcement experts into the policy making process. The BMPE action plan intends to build on such anti-money laundering programs by proposing expansion of the process to incorporate trade and business representatives and focus upcoming meetings on trade related money laundering. In addition, the United States is working with regional organizations, such as the Caribbean Financial Action Task Force, to focus attention on free trade zones and the extent to which businesses are being used for, or are facilitating money laundering. Partnerships with the Private Sector

Finally, we will enlist the private sector in this fight. All of the Treasury law enforcement bureaus have traditionally furthered their missions through outreach and partnerships to relevant private sector interests. Our fight against the BMPE is no different. The first step in forming this partnership with the private sector must be to engage the public and business community on the essential aspects of the BMPE. FinCEN took an important first step in July 1997, by initiating a series of meetings with local and national banks in the Miami area. In these meetings, FinCEN shared information that could help banks identify suspicious activity related to BMPE. We also received invaluable information from the banking community regarding its view of this problem. These meetings culminated in a FinCEN advisory describing the BMPE to the law enforcement and financial communities.

We are seeing results from these outreach efforts to the private sector. For example, suspicious activity reports (SARs) being filed by financial institutions specifically addressing the BMPE have increased from 27 in 1997 to 118 in 1998. As of mid-June 1999, 98 SARs have been filed citing the BMPE.

Moving forward, this collaboration with the private sector will be vital. It reduces the risks that business and financial institutions are inadvertently facilitating the BMPE. It also provides policy makers with the benefit of private sector experience and expertise while assuring that policies reflect and meet the private sector's needs and concerns.

Indeed, this is a two-way process. Companies and industries need to know that their otherwise standard business activities are being used by some to further the BMPE, that their goods may be financed by narco-dollars, and that their goods are illegally smuggled into Colombia and sold at substantially lower prices driving out legitimate businesses. We in turn would like to hear from the business community as to what procedures they have or can put in place to make sure that they are not used in this way.

As a part of our effort to work with the business community, U.S. Customs is launching a national campaign today, alerting businesses to the BMPE system and its indicators. FinCEN is issuing a follow-up to its 1997 Advisory that updates the financial community on what we have learned as a result of recent regulatory measures. I will have an opportunity to discuss these advisories further next week, when I speak the 1999 annual meeting of the Association of Home Appliance Manufacturers.

Our efforts are not and cannot -- be limited to the U.S. business community. The BMPE involves businesses not only in the U.S. and Colombia, but also in Asia, Europe and other parts of the America. We intend to engage the international business community, bilaterally as we have done in Colombia, and multilaterally. We are pursuing the expansion of FATF participation to the international business community just as it was expanded to the banking community. We are supporting a CFATF meeting that will specifically address free trade zone issues and money laundering. We also intend to pursue a broader alliance against BMPE with other regional international organizations such as the Asia Pacific Group on Money Laundering. CONCLUSION

In conclusion, Mr. Chairman, I would like to reiterate the Caucus' contribution toward our country's understanding of one of its most serious national security threats -- drug money laundering.

I believe that our strategy will help make significant inroads against the BMPE system. We have much work ahead of us and will continue to consult with other agencies and Congress as we pursue this mission. I would be happy to answer any questions you and or the other Members may have. Thank you. -30-