FROM THE OFFICE OF PUBLIC AFFAIRS

Mr. Chairman, Senator Dorgan, and Members of the Subcommittee, I am pleased to be here today on behalf of Secretary Summers to introduce the fiscal year 2001 budget request for the Treasury Department's law enforcement bureaus and offices. Testifying with me today are the heads of each Treasury law enforcement bureau: Raymond W. Kelly, Commissioner of the United States Customs Service (USCS); Brian L. Stafford, Director of the United States Secret Service (USSS); Bradley A. Buckles, Director of the Bureau of Alcohol, Tobacco and Firearms (ATF); W. Ralph Basham, Director of the Federal Law Enforcement Training Center (FLETC); and William F. Baity, Deputy Director of the Financial Crimes Enforcement Network (FinCEN). FinCEN Director James Sloan suffered a loss in his family and will not be able to join us today.

At the outset of my testimony, I want to thank the Members of this Subcommittee for their strong and continuing support for Treasury law enforcement. I welcome this opportunity to discuss with you the Treasury Department's accomplishments and plans in the important law enforcement mission areas for which we are responsible. I would like to focus on what we regard as the most significant challenges we are facing and how Treasury law enforcement is responding to them, covering our activities over the last year, our plans for the remainder of the current fiscal year, and our budget proposals for fiscal year 2001.

While we continue to face fiscal challenges, the fiscal year 2000 appropriation provides our Treasury bureaus with strong support for carrying forward increasingly complex and challenging missions. We appreciate the support you showed for Treasury's enforcement programs in the appropriations for FY 2000. I am pleased to report that the President's fiscal year 2001 budget proposes a $4.2 billion program level for Treasury enforcement. If enacted, this budget will provide the ATF with an overall increase of more than 500 full-time equivalent agents, inspectors and other staff, and will substantially enhance our firearms enforcement efforts. This budget will provide the U.S. Secret Service with 193 additional full-time equivalent agents over the fiscal year 2000 appropriated level to enable the United States Secret Service to carry out its dual mission of protection and investigation. The President's budget also provides the U.S. Customs Service with 273 additional full-time equivalent positions, including 120 for agents to conduct drug smuggling and money laundering investigations. Overall, the President's budget proposal would add roughly 1,200 full-time equivalent positions to Treasury enforcement above the fiscal year 2000 total enacted level. It represents the largest increase in Treasury law enforcement staffing in over a decade.

Funding is not the only element of strong law enforcement. It is also important that law enforcement agencies have clear policies and a means for setting priorities. We at the Treasury Department seek to provide support, oversight, and policy guidance to enhance the performance of our enforcement bureaus and to provide strong leadership in the enforcement community.

Over the past year, we have continued to focus on accomplishing the Department's enforcement goals and our bureaus' individual goals. We have relied on the expertise of our professional staff and also on the talent and experience of bureau personnel to work on challenging issues.

Hiring: Our need to recruit the best qualified and diverse workforce will gain even greater salience if the proposed budget is enacted. We have undertaken two key initiatives in this area.

(1) Schedule B - Late last year, in response to our appeal, the Office of Personnel Management (OPM) granted the ATF and the Customs Service Schedule B excepted hiring authority. This authority is somewhat similar to that currently used by the Secret Service, the Federal Bureau of Investigation, and the Drug Enforcement Administration for criminal investigator recruitment and selection. Some of the benefits of this authority are greater flexibility in targeting recruitment to meet skill requirements and diversity goals, the capability to focus on the large number of intangible skill sets and personal characteristics required, and the ability to find and hire quickly the best candidates for their jobs.

(2) Diversity conference - Last fall, the Office of Enforcement, joined by Management, discussed with each of the bureaus their recruiting and hiring practices, focusing on diversity. We learned that each of the bureaus' recruitment programs had many commendable aspects, but concluded that all could benefit from hearing about the experiences of the other bureaus. Since that time, we have brought together the Equal Employment Opportunity managers from across the bureaus for a series of meetings which will culminate in a diversity conference, to be held next month, which will focus on best practices to recruit and hire a diverse workforce. The conference will also have a training module focusing on best practices for ensuring that, once recruited, minority employees have fair opportunities to advance through the organization over the course of their careers.

Retention: Retention of employees who have years of experience and in whom we have invested long hours of training is critical. In that regard, the Department has made progress toward meeting the challenges of improving our capacity to develop and retain high-caliber employees. Specifically, we have worked to address workforce retention and workload balancing issues within the Secret Service. My office established an Interagency Working Group on U.S. Secret Service Workforce Retention and Workload Balancing, which included representatives from Enforcement, Treasury's Office of Management, OMB, and the Secret Service. The analysis revealed that Secret Service agents have experienced an extreme increase in the amount of travel and working hours in the last few years due to the increase in the number of protectees and the enhanced level of protection necessary. In fiscal year 2001, the Secret Service will experience a further workload increase when the change of administrations occurs. To begin to alleviate these problems, Treasury's fiscal year 2001 budget proposal includes a significant increase in staffing for the Secret Service.

Senior Executive Service (SES) allocations: As the Subcommittee is aware, Treasury bureaus have had a critical need for SES positions. Last month, as a result of decisions within the OPM, we allocated 20 additional SES positions to our enforcement bureaus. The lion's share of those positions went to the Customs Service, which, as you know, still faces significant challenges in this area. This is an issue that the Department will continue to work with our bureaus to address.

Demonstration pay project: In January, ATF implemented its pay demonstration pilot for scientific and technical positions. The demonstration project -- developed by a team comprised of personnel from the Office of Enforcement, the Office of Management and the ATF -- emphasizes flexibility in approaches to recruitment, and establishes a pay-for-performance system designed to provide incentives to compete with state and local government and the private sector. To date, 223 out of a possible 260 ATF employees have chosen to participate in the program, and the period for choosing to participate has not yet closed. We thank the Subcommittee for this authority as we look forward to making this capacity permanent.

Retirement: Schedule B authority, increasing SES allocations, and the pay demonstration project are particularly critical in light of the Department's report on retirement and the proposed budget. In response to Congressional direction, the Department, through a contract with the Office of Personnel Management, analyzed the large numbers of criminal investigator retirements that have occurred and will likely continue to occur in the next several fiscal years. Submitted to Congress last fall, the report included the findings and the implications for workforce planning, as well as related information about the recruiting market and selection problems that will affect Treasury's ability to hire criminal investigators and maintain staffing levels. Specifically, the report included an analysis of retirement and attrition patterns from the last five years, and the age and years of service of Treasury's criminal investigators. Based on this analysis, it was estimated that the Department would need approximately 2,662 new hires for its criminal investigator workforce between fiscal years 1998 and 2003 in order to maintain Treasury's 1998 fiscal year-end strength of 10,261 criminal investigators. This means that, before we can take advantage of the increases contemplated in the President's budget, we must hire an average of approximately 600 additional investigators each year for fiscal years 1999 through 2003.

Training: Another aspect of our goal to recruit and retain a high quality workforce is assuring that Treasury law enforcement officers receive the highest quality of training available. The Federal Law Enforcement Training Center (FLETC) is key to this goal. The expansion in recent years in the number of employees hired by the 73 law enforcement agencies that participate in FLETC has stressed FLETC's ability to meet all the requests for training. Although FLETC continues to be able to provide all the basic training needed, currently by using a temporary facility in Charleston, South Carolina, increases in bureau hiring require coordinated increases in funding for FLETC.

To address some of the strain from increased demand for training, we have also been exploring ways to use the latest technology to provide alternative means of delivering training courses. Recognizing that the FLETC facilities cannot accommodate all of the requests for training that are likely to arise in the future, we are searching for ways to use the Internet and video conferencing to provide needed training.

Likewise, the need for advanced training to keep law enforcement officers abreast of the latest trends in fighting crime is critical. We have been working closely with FLETC to explore ways to enhance training to address high-tech crime. One example of this approach is Computer Investigative Specialist (CIS) 2000 training. This course, which includes agents from the Secret Service, Customs, the Internal Revenue Service Criminal Investigations Division, and ATF, uses state-of-the-art training and equipment to teach agents how to deal with the latest computer and encryption technology that they may encounter in conducting an investigation. The CIS 2000 agents have achieved many notable successes in their investigations of counterfeiting, money laundering and various types of fraud as a result of this course.

Through our Implementation Working Group, the Office of Enforcement also continues to monitor FLETC's progress in implementing organizational assessments of FLETC that my predecessor had done. Great strides have been made in addressing some of the problems that had developed at FLETC, and we hope to be able to conclude the Implementation Working Group's work later this year. The next meeting of the Committee will be held in Artesia, New Mexico this spring.

Our budget request for fiscal year 2001 contains important initiatives for the Federal Law Enforcement Training Center (FLETC). We are seeking $6,969,000 for FLETC's mandatory workload. This funding will be used to address entry level training for additional agents and inspectors for ATF and additional agents for the Secret Service. This is the first major hiring initiative for Treasury law enforcement bureaus in many years. FLETC is a key component of Treasury's effort to meet this build-up. Funding also is included for new construction and renovation of older existing structures at FLETC to continue the planned upgrade of facilities crucial to the training of the vast majority of the federal government's law enforcement personnel.

Office of Professional Responsibility: One of the key functions of the Office of the Under Secretary (Enforcement), is to provide oversight to the Treasury law enforcement bureaus. Over the past few years, our efforts have been enhanced owing to the establishment of the Office of Professional Responsibility (OPR), which Congress directed. OPR completed a number of significant projects in 1999 and 2000, including the reviews of Customs' Office of Internal Affairs, ICDE funding needs, operations at ATF's Tracing Center, and the aforementioned Secret Service workforce review. A number of significant reviews are also underway, such as a prioritization of international training conducted by the bureaus, overseeing a year-long gathering of statistics on encounters with law enforcement to ensure ethnic and minority groups are not being unfairly targeted, and a review of ATF's role in the National Instant Check System (NICS).

Preventing abuse of our financial institutions to conceal tax evasion and the movement of money generated by criminal activities is a high priority. It is a problem that cuts across a broad spectrum of criminal activities, from violent crimes such as narcotics trafficking to white-collar crimes such as credit card fraud. This is a matter of great concern for the Treasury Department in our role as guardian of the integrity of the U.S. financial system and its financial institutions.  

Treasury's law enforcement bureaus and offices play a key role in our fight against financial crime. The Customs Service, the Secret Service, IRS-CID, and ATF all investigate money laundering stemming from the specified unlawful activities within their jurisdictions. Additionally, the Financial Crimes Enforcement Network (FinCEN) is charged with administering the Bank Secrecy Act, which prescribes transaction reporting and record-keeping requirements for financial institutions designed to insulate those institutions from money laundering, and to provide a paper trail for investigators. Just last August, FinCEN issued a final rule requiring all money services businesses to register with Treasury. FinCEN recently issued the final rule requiring a subset of these businesses -- money remitters and money order and traveler's check issuers, sellers and redeemers -- to file suspicious activity reports. FinCEN serves as the central point for collection and analysis of Bank Secrecy Act data and provides case support to law enforcement investigations.

Over the last year we have undertaken or strengthened several initiatives aimed at addressing systemic vulnerabilities in our financial system.

National Money Laundering Strategy: In September 1999, in consultation with the Department of Justice, the Department of State, the federal financial supervisory agencies, and state and local law enforcement, Treasury published the first National Money Laundering Strategy. The Strategy for the first time articulates a coherent, broad-based attack against the pernicious effects of criminals hiding the proceeds of their crimes.

Since the 1999 Strategy was released, a tremendous amount of progress has been made toward implementing it. Over a dozen interagency groups were formed to ensure progress on priority action items. Less than six months after the release of the 1999 Strategy, Treasury and Justice in early March released the 2000 Strategy. The 2000 Strategy announced a number of high intensity financial crime areas (HIFCAs), and described the results of a number of policy reviews. Substantial progress occurred in a number of areas, including a review of whether formal guidance should be given to financial institutions about how to meet their obligations to report suspicious transactions, the aforementioned issuance of suspicious activity reporting rules for so-called money services businesses, a review of rules and practices currently in place to protect the privacy of U.S. persons by limiting access and controlling the use of information collected pursuant to the Bank Secrecy Act, developing a formal process to administer a grant program to support state and local efforts to combat money laundering, and encouraging countries around the world to join in the global fight against this problem.

Particular progress was made this year in the multi-faceted attack on the Black Market Peso Exchange (BMPE) system of money laundering. The Treasury-led BMPE working group helped to produce improvements in investigative techniques used by law enforcement, awareness among the business community, and a multilateral working group of experts from affected governments throughout the hemisphere. In addition, Treasury continued its prominent role in the Financial Action Task Force (FATF), which is defining "non-cooperative jurisdictions" in order to identify and ultimately orchestrate counter-measures against them. The Department also issued a formal advisory encouraging the Government of Antigua and Barbuda to take constructive steps to address serious vulnerabilities in its system of anti-money laundering control. In the future, we expect to be in a position to meet the statutory deadline of February 1 for the annual strategy.

Identity Theft Summit: Each year American businesses and citizens lose more that $3 billion to credit card fraud. One of the key means by which this fraud occurs is identity theft. On May 4, 1999, President Clinton announced that the Treasury Department would convene a national summit on the subject of identity theft and work with the private sector to help prevent the occurrence of this crime. This summit is part of a larger identity theft initiative that includes case referral, a public education partnership, and sentencing enhancements, which will implement the new legislation that provides the U.S. Secret Service with authority to investigate identity theft violations. The summit, which took place on March 15 and 16, 2000, engaged 250 senior executives from the public and private sectors in a substantive dialogue that we expect will lead to better communication and cooperation on identity theft crimes.

Financial Fraud: During 1999 the U.S. Secret Service made almost 4,500 arrests for financial crime offenses. The Secret Service also coordinated 28 task forces involving 54 law enforcement agencies throughout the United States. These task forces focused primarily on fraud schemes intended to victimize individuals, banks, credit card issuers, and other financial institutions.

In fiscal year 2001, preventing abuse of our financial system to facilitate criminal activities remains a high priority for Treasury enforcement agencies. Our budget request for fiscal year 2001 supports Treasury's role in implementing that strategy. We are emphasizing (i) technical assistance to financial institutions as well as law enforcement agencies; (ii) enhanced collection and analysis of data that can help us to identify and pinpoint financial crimes; (iii) interdiction of outbound currency; (iv) giving our bureaus the resources to allow them to undertake lengthy investigations of complex illegal transactions; (v) specialized training for our agents; and (vi) partnership grants to state and local governments to leverage the resources they can bring to bear on this problem.

Over the last two years, few events have so caught the attention of the American public, and indeed the worldwide audience, as the spate of senseless shootings in public places. In our schools, in our places of work, and on our streets, criminal violence and the easy availability of firearms to criminals have wrought havoc and caused Americans in all walks of life to feel unsafe. Over the last year, both the President and the Congress have responded to these concerns. Treasury, specifically the ATF, with the support of this Committee, has been at the center of this comprehensive response.

The most important development of the past year has been our work with the Department of Justice to provide support for burgeoning collaborative federal, state, and local intensive firearms crime investigation and prosecution plans throughout the country. Between 1993 and 1998, violent crime with firearms fell 37 percent and gun-related homicides declined 36 percent. Firearms prosecutions are increasing. Department of Justice information shows that in 1999 federal prosecutors brought 5,500 firearms cases in the federal courts, 700 more cases than in 1992. Looking ahead, our primary focus continues to be on building firearms enforcement capacity, and providing the tools that enable federal, state, and local law enforcement to use their resources in a strategic manner that will have the most impact on armed crime reduction.

Integrated Violence Reduction Strategy: Last fiscal year, the Treasury Department and the Justice Department were directed by the President to provide an integrated violence reduction strategy to further reduce gun violence. The joint Treasury-Justice strategy will be released soon. It will call for more enforcement resources to combat armed violence as requested of Congress in the Administration's fiscal year 2001 budget request and ATF's fiscal year 2001 appropriations request, in order to maximize the impact of current laws on the reduction of gun violence. The strategy will also highlight legislative proposals discussed by the President to further reduce youth violence and improve public safety. Enforcement resources requested will be used to support and enforce current statutory authorities.

The strategy proposes funding for 300 new agent positions, 200 inspector positions and 100 other personnel for ATF to support local intensive prosecution projects like Project Ceasefire in Boston and Project Exile in Richmond, as well as for the Youth Crime Gun Interdiction Initiative, regulatory, and gun show enforcement activities (discussed below). These local strategic projects encompass investigations of armed criminals and illegal traffickers, and inspections of firearms dealers that are the sources of firearms to criminals, as well as those illegally attempting to acquire or illegally possessing firearms.

Consistent with our budget request, the strategy will also call for an expanded effort to support state and local law enforcement agency capability to trace recovered firearms to determine their illegal sources and to speed up trace responses to state and local law enforcement agencies ($9.9 million), and to establish ballistics imaging capability to identify shooters and traffickers where the firearm itself is not recovered ($23.4 million). Our view is that all state and local enforcement agencies with a gun crime problem should have these capabilities, and be able to draw on ATF's information and analysis, expertise, and investigative experience. Expanded and shared information about the illegal gun market will enable more strategic use of federal, state, and local investigative and criminal justice resources.

Commerce in Firearms in the United States: Treasury strongly supports ATF's efforts to base its firearms inspection program on indicators of criminal access to firearms. In February, ATF released the first annual report on Commerce in Firearms in the United States, providing an array of information concerning the firearms industry and ATF's regulatory inspection program. The 2000 report informs Congress, law enforcement officials, and the public on the activities of ATF inspectors, and how ATF regulatory resources are focused in order to maximize their effectiveness in reducing firearms trafficking and abuse. The report shows the types of activities and inspection strategy for which we are requesting new inspectors and other personnel for ATF. A fair and focused inspection program will reduce the need for more costly criminal investigations and benefits public safety.

Youth Crime Gun Interdiction Initiative (YCGII): There is a continuing need to focus attention and resources specifically on reducing youth violence and preventing the illegal supply of firearms to juveniles and youth. A fundamental need is for investigators to find out how guns are illegally acquired by young people. In the past year, ATF and local police committed to establishing comprehensive crime gun tracing and youth gun violence reduction efforts with law enforcement agencies in eleven new cities, bringing the total number of cities participating in YCGII to 38 in its third year. In February 1999, Treasury and ATF issued the second year Youth Crime Gun Interdiction Initiative Trace Analysis report, analyzing over 76,000 crime gun traces from 27 cities. The report provides local law enforcement agencies with information about the number of firearms recovered in their jurisdictions, top crime guns in each city, and their geographic sources, in order to assist local law enforcement agencies with development of effective law enforcement strategies against youth violence. ATF also released the YCGII Performance Report, a survey of over 640 trafficking investigations nationwide involving juveniles and youth engaged in gun crime, demonstrating ATF's enforcement efforts to stop youth and juvenile access to guns through straw purchasers and other illegal channels. We endorse ATF's plan to expand YCGII to 75 cities, and propose to add 12 new cities in fiscal year 2001 to work toward this goal by bringing the fiscal year 2001 participating cities to 50.

Gun Show Report: In February 1999, Treasury in coordination with the Department of Justice, released a report on gun shows, Gun Shows: Brady Checks and Crime Gun Traces. The report was prepared in response to a directive from the President that the Secretary of the Treasury and the Attorney General provide him with recommendations to address the gun show loophole, that is, the sale or exchange of firearms at gun shows without background checks or tracing records for those acquiring the firearm. The report led to legislation proposing that all transactions at gun shows include background checks and tracing records to prevent access to guns by prohibited persons and to allow law enforcement officials to trace firearms when they are recovered by law enforcement officials. Both licensed and unlicensed gun sellers at gun shows are sources of guns to criminals and other prohibited persons; where there is evidence of criminal activity, enforcement attention is required.

Reducing the supply of dangerous drugs entering the United States continues to be another of our high priorities. It is also our most difficult challenge. We are confronted by well-financed criminal organizations that adapt quickly to every advance we make in the detection of illegal drugs. Moreover, interdiction is only one piece of a comprehensive drug control strategy that includes eradication of drug production abroad, sanctions against drug kingpins, investigation and disruption of trafficking activities within the United States, treatment of drug users, and, as mentioned above, combating money launderers.

Border Coordination Initiative - We continue to work to strengthen our coordination with other border enforcement agencies to assure that taxpayers get the most effective use of federal resources available for drug interdiction. In September 1998, Treasury and Justice initiated the Border Coordination Initiative (BCI), an innovative system for controlling the Southwest Border. BCI is a strategic plan for Customs and the INS to maintain a seamless, comprehensive, integrated border management system that increases interdiction of illegal drugs, illegal aliens, and other contraband while simultaneously facilitating legal migration and trade. Customs and the INS have set new standards for innovation, interagency cooperation, and operational effectiveness, with locally developed innovations leading to improved coordination and more efficient border operations. As a result of BCI, more than 120 tons of cocaine, marijuana, and heroin were seized by Customs and the INS along the southwest border in 1999 - an increase of more than 20% over the previous year.

For fiscal year 2001, the budget proposes several important initiatives to strengthen the enforcement and interdiction capabilities of the U.S. Customs Service, our main player in the counter-narcotics fight. Commissioner Kelly can address these programs in greater detail, but summarized briefly they include:

• a $25 million request and 107 FTEs to aid Customs' investigations into the criminal organizations that smuggle narcotics into our country and distribute them in our communities;
• a $10 million request to enhance Customs' ability to detect illegal outbound currency movements; and
• a request of approximately $20 million in enforcement infrastructure improvements, including a P-3 FLIR upgrade, aircraft flight safety enhancements, surveillance equipment of helicopters, and an upgrade of the air interdiction center radar.

Together, these initiatives would help Customs improve on record-setting seizure statistics, while allowing it to better respond to the various smuggling routes and methods employed by narcotics traffickers.

Intelligence Architecture Review: Enforcement represented the Department in the inter-agency intelligence architecture review. The review, which also involved ONDCP, the Justice Department, CIA, and other agencies, led to a report, released last month, that contained a series of important action items to improve intelligence collection, dissemination, and use.

Narcotics Kingpin Act -- On December 3, the President signed the Intelligence Authorization Act for fiscal year 2000, which contains the Foreign Narcotics Kingpin Designation Act (the Act). The Act establishes a global sanctions program targeting significant foreign narcotics traffickers and their organizations modeled along the lines of the President=s IEEPA-based program targeting Colombian narcotics cartels. The Act requires the Office of Foreign Assets Control (OFAC) to identify significant foreign narcotics traffickers and closely associated entities and individuals throughout the world and impose financial and trade prohibitions, as well as asset blocking, against them.

As a result of the significant workload increase driven by OFAC's responsibilities under the Act, the Department has included a request for $2.1 million and 20 FTE in the fiscal year 2000 supplemental request submitted to Congress in February. This would provide resources for OFAC to implement a global sanctions program targeting significant foreign narcotics traffickers and their organizations, as mandated by the Act. In addition, the fiscal year 2001 budget includes a request for $2.9 million and 11 FTE for OFAC to improve information gathering capabilities with respect to terrorist funding and narcotics trafficking and raise the quality of service to the public in the performance of OFAC's licensing function. OFAC currently has on-site staff gathering specialized information in Bogota, Colombia, on drug traffickers. Similar information gathering capability is needed in Dubai, United Arab Emirates to investigate terrorist funding, and in Panama and Bangkok to investigate drug traffickers. Sanctions programs are administered largely by licensing and the licensing function is OFAC's primary contact point with the public.

The United States is the world's largest exporting and importing country, and the volume of both exports and imports is growing rapidly. Over the five year period 1994 to 1999, the dollar value of exports increased by over a third (about 36 percent). During the same period the dollar value of imports increased by more than half (about 51 percent). These increases translate rather directly into increased workload for the Customs Service

Our trade with other nations is vital to our economic strength and our standard of living, and we want to do everything we can to assure that the movement of trade across our borders is as frictionless as possible. At the same time, however, we recognize our responsibility to assure Congress and the American public that laws enacted to protect public health and safety, as well as other interests, are being effectively enforced at the border.

Improved Performance Measurement and Targeting of Violations: The Customs Service has continued to improve the accuracy and specificity of its compliance measurement system. In 1999 Customs submitted its fourth annual report to Congress on the results of compliance measurement. Compliance measurement is not only a tool for targeting Customs' enforcement activities. It also enables us to account to the Congress and the American people on how effectively Customs' trade enforcement resources are being used.

By illuminating where the problems are, compliance measurement also improves Customs' ability to implement a national risk management program that allows more efficient use of resources and more effective detection of violations.

Automation -- Customs' struggle to modernize its automated commercial system is well known to this Subcommittee, and is a problem of a kind that is not unique to Customs. We believe that we have made substantial progress in the last year in responding to problems identified by the General Accounting Office in the development of Customs' new Automated Commercial Environment (ACE).

As we work to develop a new automated commercial system, we are paying close attention to the reliability of the current system, the Automated Commercial System (ACS). The ACS is Customs' current mechanism for allowing importers, carriers, and others to transmit required information electronically, and enabling Customs to process and store the information electronically. ACS greatly accelerates transactions between the trade community and Customs, allows quicker release of goods, reduces the number of instances in which shipments of goods must be held by Customs owing to the absence of required paper documents, reduces filing errors, and improves law enforcement at the border by making possible electronic analysis of information for risk assessment purposes.

However, the ACS was created in the early 1980s, and was developed with programming language that is now obsolete. The program is proprietary to Customs and not supported by any software vendor. Moreover, at the time ACS was created, the urgency of moving as rapidly as possible from a paper environment to an automated environment resulted in inadequate documentation of ACS programming. Customs is effectively prevented from modernizing its business practices - including changes authorized by the Customs Modernization Act of 1993 - because of the difficulty and cost of modifying the obsolete and poorly-documented programming language on which ACS runs. Among the obsolescent features of ACS: (i) it is transaction based, that is, it treats the release of each shipment as a separate, taxable transaction, requiring the filing of an individual entry (tax return); and (ii) it is service-port oriented, requiring that entries be filed at the port at which goods are released from Customs custody.

A little over a year ago, the ACS began to experience periodic failures, or "brownouts". Although these did not last long, they were sufficient to remind us of the absolute necessity of maintaining a reliable automated commercial system for Customs. Consequently, we have given very high priority to upgrading the capacity and reliability of the ACS. We expect to spend up to $79 million in the current fiscal year, and we are requesting $123 million in fiscal year 2001, to assure that the American public can rely on its government for effective and efficient enforcement of our trade laws.

But we recognize that the trade community would like us to do more than simply assure the reliability of the current automated system. Each year the Customs Service must deal with the challenge of assuring that millions of freight containers and carriers entering the U.S. are in compliance with several hundred laws. In order for Customs to be effective at this job without becoming a serious impediment to commerce, it must become a more efficient collector and intelligent user of information.

This is difficult to do with the ACS because, as I noted, it effectively locks Customs into obsolete business practices. Because it is difficult to modify ACS's software, Customs cannot even implement procedural reforms that were authorized in the 1993 Customs Modernization Act, let alone new procedures that have become possible since then.

The Automated Commercial Environment, or ACE, is the proposed new Customs automated commercial system. It would operate on modern software and the programming would be fully documented to facilitate subsequent programming changes. ACE would allow periodic filing of consolidated entries to cover multiple transactions, and it would allow filing from any location, and not only the port at which the goods are entered. ACE also includes equipment enhancements to increase reliability and upgrade connectivity among Customs offices around the country and between Customs and the trade community. For example, ACE would be accessible to the trade through the Internet, while ACS is accessible only over dedicated lines.

In our budget for fiscal year 2001, we are requesting $210 million for ACE development. We estimate the cost of ACE development over the next four years to be around $1.25 billion. This is a relatively costly initiative. The recently completed cost-benefit analysis for conversion from ACS to ACE shows that modernizing Customs' trade data processing system will provide significant benefits to both the federal government and the trade community. We continue to believe that the proposed fee appropriately captures some of the benefits private businesses will receive from Customs modernization, and therefore, we have proposed to offset the costs of ACE over the next several years by creating a user fee to be collected from all parties that use Customs' automated systems. The amount collected from each user would be based on its volume of use.

We acknowledge that a similar user fee proposal last year was not well received. We have made some changes to our proposal this year that we believe go at least part of the way to meeting the objections of last year. For example, we are not asking, as we did last year, for the user fee to be collected a year in advance of appropriations for ACE.

The Administration is prepared, indeed eager, to work with Congress and the trade community to enact this proposal and begin work on ACE as soon as possible.

International Trade Data System: An interagency group working under Treasury leadership has finished the system design of a new international trade data system (ITDS), called for by the Vice President National Program Re-invention project. The ITDS will offer a single electronic window for collecting all data required in connection with importing and exporting. When implemented, the new system will substantially improve the effectiveness and efficiency of government administration of laws that must be applied at the border, and will greatly reduce red tape imposed on importers, exporters, and carriers. Our budget proposal for fiscal year 2001 continues this program at the current level of $5.4 million.

G7 Data Harmonization: Completing harmonization of G7 customs data requirements, as outlined by the Lyon, Denver, and Birmingham G7 summit communiqués, will continue to be a priority in 2000. Current disparity in reporting requirements among G7 customs administrations imposes heavy reporting and record-keeping burdens on traders, and inhibits cooperation on law enforcement among governments.

Child Labor Enforcement: Treasury established a private sector advisory committee on child labor to help focus Customs' efforts to enforce laws prohibiting the importation of goods produced by forced labor. Customs resources for enforcement efforts in the area of forced child labor have been increased. Customs had baseline resources of $3 million and 4 full-time equivalent positions (FTE) in fiscal year 1999, $5 million and 6 FTE in fiscal year 2000.

In fiscal year 2000, we are continuing to work aggressively to assure that goods produced by forced child labor are not allowed to enter the American market. Through the Child Labor Advisory Committee, Treasury and Customs are developing a program of business outreach aimed at fostering voluntary compliance with U.S. import restrictions on products of forced or indentured child labor through adoption of industry codes, best practices, and other methods. Customs will use additional budget resources provided by this Subcommittee to open a field office in South Asia dedicated to child labor enforcement, and will deploy additional investigative staff overseas as needed.

Additionally, Customs investigators have conducted a number of fact-finding missions to countries in Asia and Latin America where child labor is believed to be prevalent in a number of industries. Several visits have been made to South Asia, including India, Pakistan, Nepal, Bangladesh, and Thailand. With the fiscal year 1999 appropriation, additional agents were assigned to Bangkok, Hong Kong, and Montevideo. Additional agents will be assigned to the new South Asia field office that is being established in fiscal year 2000.

The fiscal year 2001 President's Budget requests an additional $5 million and 9 FTE, for a program total of $10 million and 15 FTE, to combat importation of goods made by forced child labor. The requested increase in fiscal year 2001 will enable us to attain even broader investigative coverage of overseas regions where child labor is believed to be endemic. These carefully placed investigative resources will enable Customs to acquire the detailed evidence that is required under U.S. law for Customs to detain merchandise manufactured with forced or indentured child labor.

The use of forced child labor to produce goods imported into the United States is not merely a matter of unfair commercial competition. Use of forced child labor perpetuates poverty and contributes to instability abroad by denying children the opportunity to pursue educational opportunities that could enable them to improve their standards of living. In fiscal year 2001, we shall remain committed to working with other governments, other U.S. government agencies, and with knowledgeable private sector groups, to assure that the U.S. market does not inadvertently become a means for supporting forced child labor.

As events have demonstrated over the last few years, the United States continues to be targeted by those who seek to acquire our most advanced weapons and technology, often for purposes that directly or indirectly threaten the security of the American people. For years, the Customs Service has been an integral part of our response to that threat, by monitoring exports of goods from the U.S. to identify goods that embody sensitive technology.

Current Activities and Priorities for Fiscal Year 2001

Customs' ability to enforce effectively laws enacted by Congress to prevent the export of munitions and sensitive technology has been hampered by the difficulty of getting timely information about shipments leaving the country. Too often information is inadequate, inaccurate, or late. Two years ago the Treasury Department sponsored negotiations among the Customs Service, the Commerce Department, and representatives of exporters and carriers to work out the terms for use of a modern, electronic export reporting system. As a result of the agreement reached, use of the Automated Export System (AES) to file export declarations electronically increased from about two percent of export declarations filed in January of last year to around 25-30 percent in January of this year. Because the AES, unlike its predecessor system, is accessible over the Internet, we expect use of electronic export filing to continue to grow. Electronic filing is, of course, convenient for exporters and carriers, but the government also benefits. Having timely export information in an electronic format greatly increases Customs' ability to monitor for export violations. In fiscal year 2001 we shall continue to promote use of the AES, and to look for other ways to improve the quality and timeliness of export data.

On May 22, 1998, the President signed Presidential Decision Directive 62. This Directive created a new and more systematic approach to fighting the terrorist threat and created criteria for identifying events of national significance that may be vulnerable to terrorist threats. At several events this year, including the World Energy Conference in Houston, Texas and the highly successful NATO Summit here in Washington, D.C., Treasury bureaus, including the Secret Service and ATF were involved in providing security, and the Customs Service provided air support. We estimate that approximately three or four events of this nature will occur each year.

Additionally, Treasury leads an interagency working group in conjunction with the Customs Service to address issues of weapons of mass destruction (WMD). The focus of the group during 1999 and 2000 has been to find ways to enhance our security and prevent WMD from entering the United States. Recent incidents, such as the arrest of several suspects at the end of 1999 in Washington and Vermont relating to the attempt to smuggle explosives into the United States, highlight the importance of heightened vigilance in this area.

National Church Arson Task Force -- Treasury and Justice, along with others, continue to coordinate a nationwide federal, state and local law enforcement effort to identify and prosecute those who burn or damage our houses of worship, to help rebuild those institutions, to prevent additional fires, and to help heal community tensions resulting from attacks on our houses of worship. Due in part to increased vigilance, well-publicized arrests, and ongoing prevention efforts under the President's three-pronged strategy, church arsons continued on a downward trend during the past year.

In this statement I have been able to touch on only some of the important programs of Treasury's enforcement bureaus. Each bureau head will address our programs in greater detail. And, of course, I shall be pleased to respond in writing to any questions you want to direct to me about any of our programs.

In conclusion, Mr. Chairman, I would like to thank you, Senator Dorgan, and the Members of this Subcommittee for your outstanding support of Treasury's law enforcement programs over many years. Our law enforcement bureaus have grown, they are better equipped, and they have become more professional as a result of your oversight and support. The benefits of this for the American public cannot be calculated. I would like also to thank the staff of this Subcommittee for its professionalism and patience over the last several years, as we wrestled with the problems that inevitably accompany growth and a rapidly-changing set of challenges. I do not want to miss this opportunity to express my appreciation and gratitude.