FROM THE OFFICE OF PUBLIC AFFAIRS

American Bankers Association

Washington, D.C.

The organizers of this annual gathering ask the nation’s public and private anti-money laundering professionals to step back and take the measure of their progress during the last year.

Of course it’s not always easy to see where you’ve been and where you’re going.

The daily "trees" of small victories and defeats that we encounter, make it hard to see the forest.

But I think it’s crucial that we take that measure accurately now, by looking at the way we police the financial community and the international trading system it supports. We have, I believe, cut down a few big trees this year.

The guilty pleas in the R.A.O. case and recent indictments against money transmitters in Boston are just the latest step against abuses in portions of that industry. The creative use of the geographic targeting order authority which began a few months before last year’s seminar is something of which we’re proud.

Not just because of increased seizures, guilty pleas, and convictions, but for the real impact it had on the lives of real people.

When Representative Nydia Velasquez publicly thanked the Treasury on behalf of the people of her District in Brooklyn and Queens for making the streets safer, she made an important point -- that money launderers have a direct link to narcotics sellers and to the violence in her district. A trafficker’s money is as threatening and corrosive as his weapons.

These street level realities are nothing new, but our efforts are new. They are more than a successful prosecution here, increased arrests for the smuggling of currency there. They are more than what some may regard as overly burdensome and non-productive rules designed tohinder money laundering. If that is not understood, then we haven’t done a sufficient job getting our story out.

Because our approach to money laundering is changing, money laundering has become a primary topic on the agenda of Finance Ministers along with currency stabilization, international trade, lending regimes, and the like. To combat it requires recognition, understanding and cooperation.

First, recognition of the problem. Money laundering is not of interest simply because it facilitates other crimes. As you and your clients know, probably far better than we do, illegal money corrodes the institutions and trading systems through which it moves. Undermining their economic base and, ultimately, public confidence. That’s why the finance ministers are now so interested.

Recognition of the problem is critical to prevention. And prevention is just as critical as swift and determined enforcement. Yes -- our goal is first and foremost to bring wrongdoers to justice. But, it’s also to put a dent in money laundering.

Murder, kidnaping, and robbery are all acts that are so obviously bad that we could never think of them in a positive light.

But savings, use of the banking system, prudent financial management -- are the heights of virtue. It’s the funds and motive employed that criminalize the activity of the launderers.

That’s why we need your help in minimizing the chances of successful criminal manipulation of the financial system.

A final element of understanding is that money laundering is not simply a question of random acts of covering the money trail. It is the source, and the product, of a global, continuing, and burgeoning parallel trading system that serves the emergent criminal holding companies of the last decades of this century. It is a systemic problem, and it requires a systemic strategy.

Part of the strategy at Treasury is to distinguish real threats from imagined ones and to weigh the costs and benefits of particular approaches to protection. That’s what Treasury has tried to do during the past three years in re-engineering the Bank Secrecy Act. That’s why we have emphasized the reporting of truly suspicious activity, not simply mechanical reporting of defined transactions.

I know that one of the frustrations for the banks has been the lack of follow up information on suspicious activity reports. You provide the information, and they never hear anything. That’s something were are in the process of changing.

I trust that you will begin to see the results of that change, with better communication in the months ahead.

We’ve also tried to reduce the costs of CTR compliance by greatly broadening and simplifying the system by which banks exempt their customers.

I know there is still some debate about our most recent proposals, and I’m pleased that FinCEN is hosting an open meeting on that subject with bank officials on Friday.

But I don’t think anyone doubts that we’re trying to get the costs down and get the unnecessary data out of the system once and for all. We’ve tried to take the same approach in moving from the "recognition" generated by the results of the GTOs to the necessary regulatory action that has followed. We’ve met around the nation, in a series of open meetings, with industry representatives.

I attended the New York meeting, in late July, and I was struck by the quality of the discussion of very difficult issues. A different sort of understanding, equally important, involves the way the criminals work.

Recent hearings in which Treasury officials described the "black market peso exchange" process illustrate this very well. That system, which predates the rise of the cartels simply trades a buyer’s pesos for the dollars he needs to buy goods from United States companies.

The buyers needs dollars, and in this case there is a large willing seller of dollars, at a cut rate. The seller is the narcotics baron holding the proceeds of street sales in a stash house in Washington Heights. A money broker matches buyer and seller, taking the drug funds, funneling them into the system, and supplying them to the Columbian farmer, whose pesos never leave Columbia but end up in the cartel’s bank accounts.

When a hooded witness recently told Congressman Bachus that she "laundered money" through some of the largest corporations in America, that’s what she meant -- that the proceeds of a street drug sale ended up buying a tractor from a -- hopefully -- unsuspecting tractor distributor. This is where cooperation takes over.

In the end, in the financial community, as in Jackson Heights, South Central L.A., or Liberty City, there is no substitute for cooperation on the ground. I think this is also where the most striking progress is taking place. The systems we have put in place over the past few years are starting to help us turn our new understanding into positive steps to clean up the "financial streets."

Recently, several meetings have taken place among law enforcement officials, financial regulators, and bankers, including some that are probably well represented in this room. One was held to discuss the ways drug dollars, bought by money brokers, are "smurfed" into the black market peso exchange system.

Checks drawn on particular banks had moved through that system, and government officials came armed with specific account numbers (some of which the banks had already identified independently in their suspicious activity report filings).

Bankers were asked whether it was possible to reach back into their systems and tell us how smurfing of that sort might be detected, and whether it would be possible to draw a profile of this sort of activity that bankers could use to detect it.

The same sorts of discussions must take place with the trading community. We must devote resources to the analysis of trading data and undertake discussions with the companies that may unsuspectingly sell goods with financing that happens to come from cartels. Of course, if the funds are used with the trading company’s knowledge, a different question arises, and we will deal with it swiftly.

That is why suspicious activity reporting is important on the regulatory side not just to initiate individual prosecutions, but to provide us a window into the parallel financial system. The window that we can use to pass information back to the private sector to build an effective prevention strategy. But a window that only looks at one view -- the view from within the United States -- won’t give us a complete picture.

Most of these transactions originate or end up outside our borders. That is why another of our most interesting and hopeful initiatives is the movement to create an international network of financial intelligence units -- or FIUs -- like Fincen.

Banks, broker-dealers, and trading companies have one real advantage over us when it comes to compliance and loss prevention. They can employ compliance officers, who watch the company operations -- everywhere in the world for fraud, theft, money laundering, and so on. Their writ as investigators and compliance officials, runs wherever there is. say. a "Chase Bank", or "General Electric" sign. Ours, with a few very limited exceptions, stops at the water’s edge.

The most difficult challenge for counter-money laundering efforts is to bridge the walls of national sovereignities with transgovernmental cooperation.

Australia, Belgium, France, the Netherlands, and the Untied States -- independently and simultaneously -- were the first to create specialized agencies to receive, analyze, and disseminate, information to appropriate investigative or prosecutorial authorities.

FIU’s now also exist, for example, in the Czech Republic, Denmark, Hungary, Ireland, Italy, Slovenia, Spain, and Norway. It is significant that at least some of the traditional "off-shore" centers are also creating FIUs, an effort that will hopefully lead to dents in their bank secrecy regimes.

The goal of this "transnational" cooperation is to enable all of us to do a better job in enforcing our national laws. With this network what we have learned about parallel currency exchange systems, for example, may also help the U.K. authorities in dealing with their own money laundering problems.

We are hopeful that we will be able to learn much from Dutch officials, who last week raided the offices of four brokers and the stock exchange as part of a major investigation into suspected money laundering.

From time to time, there is -- understandably -- some tension between the banking community and Treasury enforcement.

These tensions arise -- naturally enough -- when we use regulatory authority that, in a perfect world, would be unnecessary.

I want to work with you on addressing these conflicts as they arise. But at the same time, we do not live in a perfect world. In other countries, we have witnessed the complete undoing of entire societies by the cartels. They have corrupted police and judges. Those they could not buy, they murdered.

They have corrupted the electoral systems of entire countries, and have undermined and distorted their economies. So when they reach into America -- which unfortunately is their biggest market place - and when they reach into our financial systems, Treasury enforcement will do all in its power to cut them to the quick.

We will take their money and their drugs, and bring to justice those who would manipulate America’s financial systems to hide their profits. And we will bring to Justice those who knowingly help them. We will do it in sting operations. We will do it in undercover operations that put our agents at considerable risk. And we will do it through regulatory efforts like the GTOs.

But, for certain, we will do it. It is a good and noble effort. One in which we have enjoyed the help and cooperation of the banking community in the past. One in which I trust we can count on your help and cooperation in the future. Thank you.