FROM THE OFFICE OF PUBLIC AFFAIRS

February 9, 2005
JS-2241

Juan Zarate, Assistant Secretary for Terrorist Financing & Financial Crimes
Prepared Remarks to the Florida Bankers Association

Thank you for inviting me to speak today and for the opportunity to follow Secretary Snow.  The Florida Bankers Association is an important partner with us on a series of critical issues – especially on the matters related to money laundering and terrorist financing.

We are living in a time of serious paradigmatic shifts and find ourselves now in the middle of the convulsions from the evolution of our increased responsibilities.  After the 9/11 attacks, we collectively realized that we needed to rethink how we protected ourselves – by moving to proactive, preventative policies.  This shift included the need for greater domestic and international accountability – including financial accountability.

In this period, then, you, as the private sector are seen and expected to be on the front lines.  As Secretary Snow remarked, application and enforcement of the Bank Secrecy Act is a critical part of that responsibility.  Though the transition to a higher level of due diligence and practices may sometimes prove turbulent, its purpose – to better protect us and our financial system from the taint of terrorist financing, money laundering, and financial crime – is an essential one.

At the Treasury, we certainly understand our role in ensuring that we are avoiding unnecessary burdens on the financial community, and this is a key element in our decision-making.  We consistently strive to find a balance between government oversight and the efficient and effective operations of financial institutions.  This is precisely why the Secretary has directed us to ensure that the Bank Secrecy Act is not only being enforced aggressively, but also that we are doing so fairly and judiciously.

The enforcement of the Bank Secrecy Act is an important component of ensuring that our financial system is not corrupted by the movement of tainted capital.  Certainly, we know that the private sector is doing its best to adapt to the adjustments of expansion and deepening of the Bank Secrecy Act and the anti-money laundering laws and expectations.

The enforcement actions that we have seen over the past few months, however, have not simply been lapses resulting from this new environment.  Instead, we have seen basic failures to apply the basic standards of anti-money laundering systems.  This was certainly the case in Riggs, where the lax or non-existent anti-money laundering systems and practices led to a record fine of $25 million.  With UBS, we saw a straightforward decision to ignore its obligations to honor Office of Foreign Asset Control (OFAC) related regulations and restrictions – resulting in a $100 million fine and action by Swiss authorities.

We are in a time now, where non-existent programs and lack of basic diligence or willful blindness are no longer acceptable.  That is why we have worked very hard, through FinCEN, to ensure that the regulatory community and the Treasury are working together on ensuring consistent examinations and enforcement.  This is also why the Secretary has called upon us to work with the Department of Justice on these matters as well.  Diligence in FinCEN and OFAC compliance matters must be taken seriously.  This relates not just to good practices, but also to issues of national security. 

In this new environment, we, as the government, have responsibilities as well.  Specific PATRIOT Act provisions have given us new tools to help fulfill our obligations to the private sector.  Whereas some mandate increased information sharing between the Treasury Department, the law enforcement and intelligence communities, and financial institutions, others give us authorities to help protect the financial system from rogue financial institutions and jurisdictions of concern. 

Let me say from the outset that the information provided to us by the financial community – pursuant to the Bank Secrecy Act – is extremely valuable.  We use it every day around the country.  It helps those of us in the government to find leads, develop cases, understand trends, inform our regulations and educate the regulators and the public.  That's why proper filing of SARs – without defensive filing – is an important issue for us and one which we frequently address.  FinCEN's SAR Activity Reviews – which are now published periodically – give a clear sense of the valuable information we see in what your institutions and others produce. 

And we now have more tools to share information.  With Section 314 of the PATRIOT Act, we are mandated to share information with and within the financial sector; that is, both vertically – between the government and the industry – and horizontally – providing a safe harbor that allows industry members to share with each other.  Treasury has implemented this section by creating a "pointer" system for law enforcement.  The system gives the appropriate authorities, in the right circumstances, the ability to work with FinCEN to transmit the names of persons of interest to the financial sector to determine whether those institutions possess any relevant transaction or account information.  The system has been successful, and law enforcement has advised that it has been a valuable tool.   You have seen the statistics we publish about the number of cases that have been helped using this new tool.

Given the importance of this tool, FinCEN has just recently announced the establishment of a secure web-based 314a communications system.  This is an important tool that will allow us to share more information – more quickly and freely – to allow you to make better risk-based decisions.

We are also now in a position to use new authorities under the authorities of Section 311 of the PATRIOT Act – not simply to protect the U.S. financial system, but to notify the financial community of the concerns we have regarding money laundering risks.  It is important to remember that the movement of money in the 21st century knows no borders, and that terrorist financing and money laundering has global reach.  Financial transparency worldwide is required if we are to be effective in combating these scourges. 

Section 311, which we have now used on eight occasions, allows us to protect our financial system from illicit funds emanating from jurisdictions that do not retain such standards.  Section 311 provides the authority to prevent jurisdictions and foreign financial institutions found to be of "primary money laundering concern" from doing business with the United States.  Importantly, it also sounds an alarm with banks and governments worldwide, alerting them to designated parties and their illicit activities.              

In May 2004, the Treasury Department designated the Commercial Bank of Syria (CBS) under Section 311.  Information available to the United States showed that terrorists and their sympathizers had funneled money through CBS.  The bank also acted as a conduit for the laundering of proceeds generated from the illicit sale of Iraqi oil.  Specifically more than $1 billion was illegally diverted by Saddam Hussein's regime from the U.N.'s Oil for Food (OFF) program, and some of these proceeds flowed through accounts at CBS.

CBS will either take effective steps to address our concerns, or we will cut it off from our financial system.  Actions of this type, used judiciously, will help cause jurisdictions and institutions to adopt real reforms that impose an acceptable degree of financial transparency, and will help protect the integrity of our financial system in the meantime. 

It is essential that we establish an embedded ethos of information sharing between financial institutions and government authorities, and directly between individual financial institutions.  With this in mind, Treasury relies heavily on the Bank Secrecy Act Advisory Group (BSAAG) as a forum in which to discuss controversial issues and emerging threats.  BSAAG is comprised of high-level representatives from financial institutions, federal law enforcement agencies, regulatory authorities, and others from the private and public sectors.  Through the BSAAG and other regulatory and educational seminars and programs, Treasury maintains a close relationship with U.S. financial institutions to ensure a smooth exchange of information related to money laundering and terrorist financing.  We will continue to use this forum and opportunities such as this to talk about concerns the financial community has and steps we can take together to address emerging threats to all of us.

We are also improving our information sharing and collaboration internationally in the establishment of the "Buddy Bank" initiative.  This program's goal is to create a culture of anti-money laundering compliance internationally in the private sector – through private sector mentoring.  We are in the process of developing such projects in Latin American and Africa, so as to ensure that the private sector around the world is fully capable to deal with and engage in the anti-money laundering campaign.  We have strong partners within the private sector who are exploring the role they can play internationally. 

All of this represents the evolution of the post-9/11 environment – where the public and private sectors have to work together more closely and share responsibility for the issues of money laundering and terrorist financing.  In this new environment, you and your colleagues in the financial community are the guardians of the financial system.  Your role of witnessing and monitoring the entry and movement of capital around the world comes with great responsibility.  Your role and ours has evolved, and we must work together to fulfill our new roles. 

I thank you for your help in meeting the important challenges we face and for the opportunity to speak with you.