FROM THE OFFICE OF PUBLIC AFFAIRS

Chairman McCollum,Mr. Schumer, members of the Committee, I appreciate yourproviding me with the opportunity to be here today to speak abouta subject of central concern to Secretary Rubin, the US TreasuryDepartment, the US Department of Justice and Congress -- the USGovernment’s effort to combat drug money laundering.

As Under Secretaryof Treasury for Enforcement, my office has oversight authorityover the U.S. Secret Service, the Customs Service, the Bureau ofAlcohol, Tobacco and Firearms, the Financial Crimes EnforcementNetwork or "FinCEN," and the Office of Foreign AssetsControl, or "OFAC."

These entities, inturn, are responsible for significant elements of the U.S.Government’s anti-money laundering effort. IRS-CI, Customs,the Secret Service and ATF are charged with investigating moneylaundering in cases where the underlying criminal act lies withintheir core jurisdiction. FinCEN is charged with administering theBank Secrecy Act, which prescribes transaction reporting andrecord keeping requirements for financial institutions designedto insulate those institutions from money laundering, and toprovide a paper trail for investigators. FinCEN also serves asthe central point for collection and analysis of Bank Secrecy Actdata, providing case support to law enforcement investigations.OFAC is responsible for implementing sanctions against nationsdetermined to be a threat to the national security, economy orforeign policy of the United States, pursuant to theInternational Emergency Economic Powers Act -- or IEEPA.

Money LaunderingGenerally

I will begin myremarks with a few comments about the challenges we areconfronting.

Then I will turn to the approach which theTreasury Department, in conjunction with the

Departments ofJustice, State, ONDCP and other agencies, and the financialservices sector, is taking to address these challenges.Specifically, I will discuss Treasury’s domestic efforts,and the initiatives we are pursuing in the international sphere.

As you all know,much of what we consider the crime problem affecting our nationand our neighborhoods -- particularly as it relates to narcoticstrafficking and the myriad of associated crimes -- is the work ofsophisticated, international criminal enterprises. Moneylaundering is the life support system of these enterprises. Theability to sanitize ill gotten gains permits drug trafficking andother criminal organizations to perpetuate, and live lavishlyfrom, their illegal activity.

But while moneylaundering is the "life blood" of organized crime, italso is its "Achilles Heel." The steps which criminalgroups must take to give their illegal profits the appearance oflegitimacy provide us with an invaluable opportunity to attackthe groups themselves. The better we are at tracking dirty money,the better our chances at reaching the leadership of the drugtrafficking groups. For while the drug kingpins can separatethemselves from street-level sales, they cannot separatethemselves from the profits those sales generate.

The money launderingproblem we are facing today is increasingly international incharacter. The greater integration of the world economy, and theremoval of barriers to the free movement of capital, havecombined to create new commercial opportunities. Unfortunately,the same efficiency and convenience that the global economyaffords to legitimate commerce, also make easier the job ofdisposing of criminal proceeds.

Now, more than ever,drug trafficking and other criminal groups can manipulate anexpanding array of tools to shield their profits, without regardto international borders. A well organized and abundantlyfinanced criminal world can exploit weaknesses in nations’legal and regulatory systems by shifting business to and throughcountries with less stringent anti-money laundering controls.

Let me give you anexample which illustrates the scope and complexity of moneylaundering today: In Miami, Colombian drug traffickers exchangetheir U.S. drug dollars for Colombian pesos through a Colombiancurrency exchanger. The currency exchanger then buyscashier’s checks at U.S. banks in amounts under $10,000,avoiding currency reporting requirements. The currency exchangerthen sells these dollar-denominated cashier’s checks toColombian businessmen. The Colombian businessmen use the checksto purchase goods and services in Panama, Europe and Asia. Thedrug trafficker has converted the drug proceeds -- dirty money --into Colombian pesos -- clean money -- which can be spent aslegitimate funds.

Treasury’sResponse: Regulatory and Investigative Efforts

So what do we do toaddress the money laundering threat? First, we develop a domesticcounter-money laundering strategy that focuses on both preventionand enforcement. Second, we promote an aggressive internationalcampaign to ensure that all nations are pursuing the moneylaundering problem with the same degree of vigilance.

Domestically, ourgoal is to combine effective prevention of money laundering withaggressive enforcement after the fact. Leveraging Treasury’sunique regulatory authority in concert with its enforcementcapabilities (and those of other agencies), we seek acomprehensive approach to the money laundering problem -- onethat both insulates financial institutions from criminalproceeds, and enhances the prospects for identifying launderersand disrupting their schemes.

We are accomplishingthis objective in several ways. To enhance our ability to preventmoney laundering, for example, we are developing moreintelligent, targeted regulations for banks and other financialinstitutions. In the last several years, FinCEN has been engagedin an effort to strip away unnecessary and burdensome regulationswhile actually increasing the utility of the information providedto law enforcement. We have reduced the amount of informationrequired by eliminating duplicative or unnecessary fields oncurrency transaction reports -- thus reducing the time bankersdevote to generating the reports and law enforcement’s timeto analyze them. And we are working to reduce CTR filings by onethird -- or about 3 million reports. This reduction will beaccomplished by streamlining the process by which banks exemptlegitimate, cash-intensive business from filing reports.

In place of thesecostly requirements, we have introduced an invigorated system ofsuspicious transaction reporting. Our objective is to permit thefinancial sector to redirect its resources from mechanicalcompliance to more proactive detection methods. We seek to forman alliance with the financial services community, utilizingtheir expertise to identify potential criminal conduct withintheir midst. After all, the institutions are in the best positionto understand their customers’ businesses and to recognizeand report suspicious activity.

We are also workingto extend the Bank Secrecy Act’s anti-money launderingcontrols to institutions which traditionally have not beencovered, or which have not been covered in appropriate andeffective ways. As a consequence, these institutions have provento be at-risk for exploitation by money launderers. The evidencehas demonstrated that as we have become more successful inpreventing illicit funds from entering banks, the criminals havemoved their money to other providers of financial services. Todefine the universe of these non-bank financial institutions, wehave proposed rules requiring the registration of issuers andsellers of travelers checks and money orders, money transmittersand other "money services" businesses. To providebetter protection against money laundering, we have issuedproposed rules requiring certain of these institutions to reportsuspicious activity, and imposing a special currency reportingrule on certain outbound currency transfers.

Let me emphasizethat the overwhelming majority of the businesses affected bythese new rules are engaged in legitimate and valuable commercialactivity. Indeed, the industry has been generally supportive ofour work. The rules are intended only to make life difficult forthe money launderers and their accomplices, and to prevent themanipulation of honest businesses by criminal enterprises.

In addition to ourregulatory efforts, which are geared toward preventing theplacement of illicit proceeds in our nation’s financialinstitutions, we are working through our investigative bureaus toenhance the detection of money laundering. Customs and IRS-CI inparticular are aggressively pursuing investigations in which thedisruption of a money laundering operation, and the arrest andprosecution of the launderers, are the primary objectives.Together, the agencies have approximately 1,100 expert financialinvestigators and staff dedicated to these "pure" moneylaundering investigations. Last year, they conducted thousands ofinvestigations, arresting and convicting approximately 2,000money launderers and seizing approximately $ 314 million dollars.

Last year, IRS-CIconducted 1,850 money laundering investigations, obtaining 1,265indictments and 1,031 convictions. IRS-CI seized $ 78 million inconnection with money laundering cases. The Customs Service lastyear arrested 1,066 individuals on money laundering charges,resulting in 686 convictions. Only two days ago, Customs seized $1.2 million and arrested three suspects in connection with asignificant money laundering investigation.

The paradigm exampleof the holistic, combined prevention/enforcement approach tomoney laundering which Treasury is seeking to cultivate can beseen in the recent New York Geographic Targeting Orders, or GTOs.Through the work of a Treasury-led task force, Operation ElDorado, it became apparent that Colombian drug traffickers wereusing certain money remitters in the New York City area tolaunder drug cash. The evidence demonstrated that 12 remittersalone had funneled approximately $800 million to Colombia lastyear. To account for this money legitimately, each Colombianhousehold in the area would have had to wire $ 30,000 to Colombiaeach year -- an amount which exceeds the $ 27,000 average annualincome for this community.

To address thisproblem, to address this problem, Treasury invoked a little-usedstatutory provision which grants the Secretary of the Treasuryauthority to require special reporting and record keeping byfinancial institutions in specific geographic areas wherenecessary to fulfill the purposes of the Bank Secrecy Act. Thefirst New York GTO was adopted in August 1996. It required 12 NewYork area money remitters and their approximately 1600 agents toobtain and report identifying information on all cash remittancesof $750 or more to Colombia. A second GTO was signed in October1996, extending the heightened reporting requirements to 10additional remitters and their agents. The GTOs have beenextended by Treasury five more times.

The New York GTOshave had a significant impact on the flow of drug proceedsthrough the targeted remitters. Several of the remitters targetedunder the GTOs have stopped sending funds to Colombia altogether,while many others are sending significantly lower amounts. Sixremitters have been indicted or pled guilty to structuringtransactions to avoid the GTOs, including an indictment handeddown two days ago. Several others are under investigation.

The GTOs also forcedthe traffickers to resort to other, more difficult tactics tomove their profits back to Colombia, thereby improving ourchances of seizing more money and effecting more arrests. In thefirst six months since the GTOs went into effect, Customs seizedapproximately $50 million in currency at East Coast ports ofentry -- a four hundred percent increase over a comparable periodlast year -- as traffickers had to move money in bulk.

The New York GTOsrepresent the model for intelligent money laundering control.Beyond using traditional law enforcement techniques to addressdiscrete instances of criminal activity, the GTOs marshaledTreasury’s regulatory authority to identify and correct aweakness that had penetrated a small but important part of themoney transmitter industry. This preventative effort, in turn,triggered a wave of enforcement activity, as money laundererswere forced to resort to riskier means of moving their funds oncethe vulnerabilities in the transmitter industry had beenremedied. Finally, the evidence gleaned through the New York GTOexperience prompted Treasury to propose a more permanent solutionto the problems it sought to address. In May, FinCEN issued aproposed regulation applying the GTO’s $ 750 reportingrequirement to all cash-purchased, overseas remittances by moneytransmitters nationwide.

InternationalEfforts

Through innovationin regulation and enforcement, then, we are working to make U.S.financial channels less user friendly to criminal enterprises.But this is just half the battle. As we have said, organizedcrime is increasingly a transnational phenomenon. Nocountry’s individual efforts -- whether in the legal,regulatory, or law enforcement arena -- will be sufficient giventhe relative ease with which money flows across borders. A trulyeffective attack on the Colombian cartels, on the Russian mafia,and on the myriad groups operating in this country, requires thateffective controls over the movement of their funds beimplemented by all nations.

Important strideshave been made in this area, particularly through multi-lateralinitiatives. Chief among these has been the Financial Action TaskForce, or "FATF." The FATF is an independent,international group formed in 1989 by the G-7 nations tocultivate the development of effective anti-money launderingcontrols and enhanced cooperation in investigations among itsmembership and around the globe. The FATF 40 Recommendations,issued originally in 1990 and updated in 1996, serve as abenchmark for governments addressing the legal, financial andregulatory aspects of money laundering. Further, the FATF hasensured that its members have taken action to comply with thesemeasures, and has persuaded an increasing number of non-membersto do so as well. The U.S. delegation to the FATF primarilyconsists of representatives from the Departments of Treasury,State and Justice.

In the eight yearssince its inception, the FATF has made significant progress. Theorganization's membership has expanded to include 26 nations andtwo regional organizations, representing the world’s majorfinancial centers. Virtually all of its members, including mostnotably traditional bank secrecy proponents such as Switzerlandand Luxembourg, have undertaken important regulatory andlegislative reforms to comply with the 40 FATF recommendations.Whereas prior to the establishment of the FATF, money launderingwas a criminal offense only in the U.S. and a couple of othernations, now all FATF members have such laws in place.

In addition, whilethe FATF cannot directly be linked to any money laundering cases,the organization has been instrumental in bringing aboutlegislation which in turn has made major transnationalinvestigations possible. For example, Operation Dinero was a 1994IRS/DEA investigation conducted jointly with authorities inSpain, Canada and Italy which targeted an internationallaundering ring connected to the Cali Cartel. Dinero culminatedin the arrest of 116 suspects in the participating countries, aswell as the seizure of more than $90 million in cash and ninetons of cocaine. The Italian suspects arrested in connection withthe investigation were arrested under an anti-money launderinglaw passed in the wake of, and to comply with, the FATF 40Recommendations.

The FATF has forgedan international consensus on the need for stronger counter-moneylaundering programs. Experience has instructed, however, thatturning consensus into effective, practical measures requiresspecific steps appropriate to local and regional conditions,cultures and financial systems. Two regions of the world -- theWestern Hemisphere and Asia -- already have begun to establishtheir own FATF analogues. The U.S. is actively supporting thedevelopment of these organizations.

A similar initiativedesigned to build upon the FATF’s success in the WesternHemisphere is the Summit of the Americas. As a follow up to the1994 Summit in Miami, Secretary Rubin convened a conference ofFinance and Justice Ministers representing the 29 of the 34democracies of the region in Buenos Aires in December 1995. Thepurpose of the Buenos Aires conference was to develop acoordinated, hemispheric strategy to combat money laundering. Theconference produced an agreement on the basic elements of such astrategy, including the need to: criminalize the laundering ofthe proceeds of drug trafficking and other serious crimes; adoptreporting and record keeping regulations to protect financialinstitutions; take steps to enhance international cooperation inmoney laundering investigations; and create financialintelligence units that specialize in the collection and analysisof pertinent financial records in order to help track criminals'financial activities.

Although it isearly, the Summit process has yielded promising results. Over onethird of the Summit nations have passed legislation criminalizingmoney laundering, or have issued anti-money launderingregulations. Many others are considering doing so. Three haveestablished financial intelligence units. Cooperation acrossnational lines appears to be increasing, as evidenced by thearrest of major money launderers such as Mexico’s JuanGarcia Abrego and Panama’s Israel Murdoch, the product ofjoint investigations between U.S. law enforcement agencies andtheir counterparts in those countries.

While multilateralinitiatives are a necessary component of Treasury’sinternational anti-money laundering strategy, bilateralinitiatives are equally important. Working with our partners atthe Departments of State, Justice, and the Office of NationalDrug Control Policy, we focus a significant amount of time andattention on individual relationships. Our goal is to generatethe necessary political will to bring about needed reforms inlegislation and regulation. We also seek to provide the technicalexpertise and training to permit new laws and rules to beimplemented effectively. Finally, we work to promote aggressiveenforcement of these measures both domestically and acrossnational lines.

A primary example ofthe benefits of such a dialogue is the situation in Mexico. Withthe support and encouragement of the U.S. Government, Mexicoadopted legislation criminalizing money laundering in 1996. Sincethen, we have been working closely with Mexican authorities tobuild upon the new legislation. In March of this year, theGovernment of Mexico undertook a significant step to insulate itsfinancial institutions from money laundering by issuingregulations mandating currency transaction reporting, suspiciousactivity reporting, and customer identification by banks andfinancial institutions.

Treasury, inconjunction with our colleagues from Justice and State, has beenworking closely with the Mexican Finance Ministry to assist inthe development of these new rules. This includes the design byFinCEN of a computerized database to make the best use of suchreports. The first phase of the Mexican initiative -- thedevelopment of a suspicious transaction reporting system -- isunder way. We look forward to continuing our work with Mexicanauthorities on the implementation of the suspicious transactionreporting and further implementing a currency transactionreporting system, due in the beginning of 1998.

The final componentof Treasury’s international strategy embraces situationswhere cooperative efforts are simply insufficient, and wherewell-targeted enforcement measures will. In October, 1995,President Clinton issued an executive order invoking his powersunder the International Emergency Economic Powers Act to blockassets and prohibit transactions with the people and businessesassociated with the Colombian Cartel. The President’s ordergranted OFAC, working in conjunction with the Departments ofState and Justice, the authority to block the assets of thetraffickers and their front companies in the U.S. and to bar U.S.citizens and companies from doing business with them.

The initial list ofthe so-called "Specially Designated NarcoticsTraffickers" subject to the President’s directiveincluded the four kingpins of the Cali Cartel and 94 companiesdoing business with them. OFAC has added over 300 persons andcompanies to the list. Additional names subject to the order werereleased earlier this year.

In pursuing thistype of initiative, which is unprecedented under the IEEPAstatutes, President Clinton has sent a clear message: if youparticipate in drug trafficking and other serious crimes,we’re coming after you; if you help hide the assets of thosecommitting such crimes, we’re going to hit you just as hard.

Moving Forward

Of course, we hopethat there will be less need for tougher measures as we proceedin our fight against money laundering and financial crimes.Constant reassessment will help us in making the necessary policydeterminations. It also will help us develop threat assessmentsin the face of constantly changing technologies that presenteconomic opportunity not only to the mainstream, but to thecriminal element.

The emergence of newpayment technologies, such as smart cards and Internet banking,may present new challenges to law enforcement authorities seekingto stem international financial crime. We must continue tomonitor such developments, realizing their potential benefits forlegitimate commerce. But we also must be in a position to adaptto the new systems as they mature.

Law enforcementauthorities like to compare money laundering to a balloon. Justas putting pressure on one end of the balloon will force air tothe other, so too will effective enforcement measures force moneylaunderers to seek new paths of least resistance. As aconsequence, we cannot rest on our recent successes. Working in acooperative spirit with the Departments of Justice, State, andthe Office of National Drug Control Policy, and with ourcounterparts overseas, we must be prepared to shape our responseto meet an ever-evolving threat.