FROM THE OFFICE OF PUBLIC AFFAIRS

Good morning and welcome to the Pacific Rim Money Laundering and Financial Crimes Conference. I am honored to have this opportunity to speak with you and I am grateful to all who have worked so tirelessly to bring us together. My thanks go especially to Kim Clark, President of the Society for the Study of Criminal Enterprise in the Pacific Rim, for hosting us. I also extend a thank you to the Royal Canadian Mounted Police, to the Solicitor General of Canada, to the United States Department of State, to the U.S. Customs Service and to our private sector partners who have brought us to this beautiful city for what I know will be fruitful and resonant discussions.

I submit to you that our gathering here is part and parcel of a much larger enterprise. Last July, when our Treasury Secretary, Lawrence Summers, traveled to New York to address the United Nations Economic and Social Council, he phrased it this way, "...in the fire of argument we can ... glean the beginnings of a new global consensus: growing areas of agreement on how to build a truly global economy, and how to make it work for all its members." In this post-Cold War era, at this first light of the new millennium, that is exactly what we are about - building a worldwide economy that works for all - not simply integrating the wealthiest industrialized states but successfully encompassing the poorer and less advantaged as well.

And we, who principally represent law enforcement, banking regulators and private sector members of the financial services industry, all have a vital role to play in this work. We have been charged with nothing less than ensuring the security and integrity of the financial systems that support this new global economy. It is, indeed, a segment of this greater work but its importance cannot be underestimated. Getting it right will make all the difference. If we succeed, we can have a global economy that offers all our children better prospects for development in an increasingly integrated world market. If we fail, the result can be a much less

promising alternative, a global economy that turns an undifferentiating eye to the sources of capital, the products of honest versus criminal labors.

Some may argue that money is nothing more than a medium of exchange, colorless and odorless like some component of the atmosphere conducive to life but morally neutral. In the last twenty years, we have begun to disavow that notion. We have seen criminal proceeds color parts of our societies, painting desolate landscapes of addiction, terror and violence. Those monies carry with them a very rank odor, repugnant to law-abiding citizens everywhere, to their commerce and to their institutions.

While criminals have long tried to work the proceeds of their illegal acts into the legitimate economy, money laundering as a crime in and of itself, is fairly new. Just as we are developing in our understanding of this crime and its pernicious effects - from the financing of criminal enterprises to undermining the integrity of our financial institutions - so too are we developing nationally and within the community of nations, what I believe, is a more effective and comprehensive response. Permit me to detail some key points of that response.

Just over one year ago, the United States produced its first ever National Money Laundering Strategy. For the first time we had conceived an integrated approach to combating money laundering, at home and around the world, through both law enforcement and banking supervision, with government policies as well as public-private partnerships.

This year, we have updated that first strategy with a new edition that contains over sixty separate action items involving initiatives along a broad range of fronts. It addresses U.S. attempts to strengthen our domestic enforcement, to enhance measures taken by banks and other financial institutions, to build stronger partnerships with our state and local governments, to bolster international cooperation and to work with the Congress of the United States to give our Treasury and Justice Departments critical new tools to combat international money launderers and those foreign jurisdictions that are willing to offer them no-questions-asked banking services.

Lest anyone be skeptical, let me assure you that this Strategy of ours is not simply another government report - announced with fanfare, then shelved and soon forgotten. Each of its action items identifies the government office, including my own, that is accountable for implementation and for meeting the specified goals and milestones laid out for the year. Our Deputy Secretary of the Treasury, Stuart Eizenstat, and our Deputy Attorney General, Eric Holder, comprise the Strategy's steering committee that monitors and assesses progress. We are very cognizant of the threat that money laundering poses both to the United States and to the rest of the world and we are very serious about our responsibility to address it.

American law enforcement has been engaging this threat for about fifteen years now and we have had some notable successes. You may recall a few years ago, we issued invitations to a very select group to attend an exclusive party as part of the culmination of our Operation Casablanca. The invitees were mostly narcotics traffickers and their money launderers, and, our party that wasn't, concluded the largest, most comprehensive narcotics money laundering investigation in the history of U.S. law enforcement. It linked twelve of the nineteen largest Mexican banks and their officials to the laundering of the drug profits generated by the Cali and Juarez cartels. Coordinated by our Customs and Internal Revenue services, Operation Casablanca identified and disrupted essential financial functions of two notorious international criminal enterprises.

In the latter half of 1999, we achieved a breakthrough in our battle against the Black Market Peso Exchange, probably the largest known money laundering system for drug proceeds in the Western Hemisphere, with the seizure of over $4 million and the arrests and indictments of dozens in the United States and Colombia. In this Internal Revenue Service investigation, known as Operation Cash Back, U.S. computer equipment and other goods were being sold to Colombian businesses who used discounted, drug tainted dollars to pay for these imports. Operation Cash Back sent the distinct message that law enforcement will not tolerate businesses giving drug traffickers and money launderers a free hand to sanitize their illicit profits.

More recently this year you have likely heard a former executive at the Bank of New York admit her guilt in a conspiracy in which she and her husband ran an operation that helped launder millions of dollars in Russian criminal proceeds. But along with each of these successes, formidable challenges remain.

Over the years, we who work in the law enforcement community have come to the realization that an effective response to money laundering must involve more than simply law enforcement. As a threat to the security and integrity of our financial institutions, money laundering deserves a system-wide response. Law enforcement, in and of itself, can only do so much - investigating crimes and assisting prosecutors. When it comes to money laundering, the other principal stakeholders in the financial system need to recognize and accept their responsibilities, to see that this is not just a compartmentalized problem for law enforcement, but a common and mutually assisted effort to make our system less vulnerable to the abuses and depredations of criminals.

Fortunately, this wider perspective in addressing the money laundering threat is taking hold. From banking regulators to the financial services industry to the international community there is a growing understanding of and concern with money laundering.

In the United States, banking regulatory agencies agree that their approach to anti-money laundering supervision needs to be risk-focused, with resources concentrated upon those institutions that are most susceptible to money laundering. These agencies either have or are developing procedures to address high-risk areas such as private banking, payable through accounts and wire transfer activity. They also either have or are developing procedures to deal with newer trends such as electronic banking and foreign correspondent accounts. A second generation of bank examination procedures is being set forth and field-tested. Anti-money laundering training modules, using information derived from recent cases, offer examiners new and timely information derived from the actual experiences of regulatory as well as law enforcement agencies.

By broadening awareness of money laundering as a threat that requires system-wide attention and counteractions, it is not our intent to punish or impose greater burdens on our financial services industry. Instead, we want to elicit their participation and support in this common effort. We recognize the need for guidance on how to identify and scrutinize activity occurring through high-risk accounts. The U.S. Department of the Treasury is convinced that a first step in this process is one of education so that we may develop informed guidance for our financial institutions.

To draft such guidance, we are working directly with the financial services community. We want to achieve a consensus as to what kinds of accounts and financial activities are most susceptible to criminal abuse and how we might better guard against their illicit use. In the end, we want to be able to say that we have helped our financial service providers more efficiently deploy their own resources to look for potential money laundering. We see our partnership with industry as a very critical component of our success here, relying on their help to make sure that our own house is in order as we go about trying to advise and assist others around the world.

We recognize that only a small portion of the funds that move through our payment systems each day is linked to crimes. The challenge is to concentrate on those accounts that are most vulnerable.

We have learned that if we cast too wide a net, we risk imposing costly and unnecessary burdens upon the financial services community. Worse, we risk infringing upon legitimate expectations of customer privacy, a concern that must never be forgotten in our zeal to counter criminality. We are pledged to work with our private sector partners to develop effective mechanisms, to institute early warnings, if you will, that can avoid these risks while still providing a secure defense against money laundering abuse.

We are confident of success in pledging to work with industry representatives because we are certain that the vast majority of corporations desire to fulfill their duties as good corporate citizens. From regulatory violations, to bribery, to fraud, we all know that corporate crime exists and that it should be uncovered and punished. But we also know intuitively that it is better to prevent a crime than to punish one. It is in the long-term self-interest of corporations to obey the law and conduct business as responsible corporate citizens. Complying with the law often entails costs but it is the right thing to do. And it will save the corporation substantial pain, suffering and expense in the long term.

I mentioned earlier how we are growing in our understanding of money laundering as a criminal threat and we are currently looking at some new areas where we feel it must be countered. We are intensifying and expanding our efforts to increase the business community's awareness of the Black Market Peso Exchange System so that it will be better able to discern patterns of payments that may indicate that a company is being used to facilitate this type of money laundering. Payments coming from strange sources or unusually large bulk cash payments can be a cause for concern and may represent the laundering of criminally derived funds. Employees need to be alert to telling signs and we are helping businesses recognize these warnings. The United States Customs Service is identifying exporters manipulated by this system in order to focus outreach and education efforts. Again, we see a business-government partnership as a critical piece in disrupting this system and in insulating companies from unwitting complicity.

Another area vulnerable to money laundering is the securities industry. Some of the very products and services the industry offers - the efficient transfer of funds between accounts, the ability to conduct international transactions, the liquidity of securities - also provide opportunities to hide and move criminal proceeds. Our Financial Crimes Enforcement Network (FinCEN) is consulting with securities regulators, law enforcement, self-regulatory organizations and industry representatives to come up with an effective and practical system to detect and report suspicious transactions conducted by brokers and dealers.

Finally, and by no means least importantly, this growing understanding of and concern with the problem of money laundering is taking hold within the international community. Over a century ago, within the United States, we learned the importance of common rules and institutions as commerce between our states took off and America's national economy began to come together. Throughout the ensuing years, politicians in both of our major parties came to recognize that greater interconnectedness between our states also called for common institutions and understandings at the national level to offset the downward pressure on local rules and standards that competition could create.

Increasingly, that same historical imperative now needs to be recognized at a global level. As President Clinton has noted, "A legal framework of mutual responsibility and social safety is not destructive to the market; it is essential to its success." In this vein, the action taken by the Financial Action Task Force (FATF) to publicly identify jurisdictions with serious deficiencies in their anti-money laundering regimes is a necessary step forward.

When FATF listed fifteen jurisdictions as non-cooperative in the fight against money laundering last June, it marked a milestone in this international effort. That FATF listing has focused attention on the issue and for many of those named countries, it has turned their attention into productive actions to address the deficiencies that the FATF identified.

The United States welcomes these positive steps. Since the June FATF report, seven of the fifteen countries and territories identified - the Bahamas, the Cayman Islands, the Cook Islands, Israel, Liechtenstein, Panama and St. Vincent and the Grenadines - have taken the concrete steps of actually enacting one or more pieces of legislation to bolster their anti-money laundering programs. We are encouraged by these events and are pleased to see momentum for improvement beginning to build.

In five of the remaining jurisdictions - Dominica, the Marshall Islands, the Philippines, Russia and St. Kitts and Nevis - we note high level political commitments to undertake necessary changes. In these cases, we anxiously await the transformation of these commitments into effective legislation, regulation and practice.

The FATF has not entered into this exercise lightly and the removal of any jurisdiction from this list will require a careful assessment of corrective measures taken and how effectively they are being implemented. The recent FATF decision to proceed with a second round of reviews as part of this non-cooperative countries and territories exercise is also appropriate. The United States fully supports the ongoing commitment to this effort to bring countries into compliance with international anti-money laundering standards.

Another step forward involves the international community's consideration of the role to be played by its international financial institutions. Because money laundering activities have the potential to cause serious macroeconomic distortions, to misallocate resources and capital around the world, and to increase prudential risks to a country's financial sector, with the potential for negative externalities for the international financial system, these institutions are well placed to encourage and support countries as they strive to counter this threat. This does not mean that the World Bank and the International Monetary Fund should now engage in law enforcement efforts. It does imply, however, that within the scope of their respective mandates, the international financial institutions can play a strong role in fighting abuse and preserving the integrity of the international financial system.

We are gathered here in Vancouver for no small purpose. Global development and integration is likely the greatest challenge that confronts the community of nations. It is an immensely difficult and complex question and none of us yet has all of the answers. What is clear, however, is that we have a vital role to play in structuring the truly global economy that will best serve development and integration. Our tasking is ensuring the security and integrity of its financial systems.

As we listen and contribute to the discussions that follow, I urge each of you not to be dismissive of the importance of what we are about. Money laundering and financial crime underwrite the often dehumanizing and bloody criminal activity that truncates development and segregates populations. As we build a rule based global economic system, we must meet head-on and overcome these darker sides of capital mobility. Doing what needs to be done requires going beyond those narrow confines that, at times in the past, have segmented our responses and diminished their effect.

Remember what is at stake here. I encourage you to bring your thoughts and good will to bear on this effort. I am confident in our prospects for success. Thank you.