<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:72447.wais]
COMBATING MONEY LAUNDERING
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CRIMINAL JUSTICE,
DRUG POLICY, AND HUMAN RESOURCES
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
JUNE 23, 2000
__________
Serial No. 106-224
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
------------
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COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio
Carolina ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia DANNY K. DAVIS, Illinois
DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
LEE TERRY, Nebraska THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California ------
PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont
HELEN CHENOWETH-HAGE, Idaho (Independent)
DAVID VITTER, Louisiana
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
David A. Kass, Deputy Counsel and Parliamentarian
Lisa Smith Arafune, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on Criminal Justice, Drug Policy, and Human Resources
JOHN L. MICA, Florida, Chairman
BOB BARR, Georgia PATSY T. MINK, Hawaii
BENJAMIN A. GILMAN, New York EDOLPHUS TOWNS, New York
CHRISTOPHER SHAYS, Connecticut ELIJAH E. CUMMINGS, Maryland
ILEANA ROS-LEHTINEN, Florida DENNIS J. KUCINICH, Ohio
MARK E. SOUDER, Indiana ROD R. BLAGOJEVICH, Illinois
STEVEN C. LaTOURETTE, Ohio JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
DOUG OSE, California JANICE D. SCHAKOWSKY, Illinois
DAVID VITTER, Louisiana
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
Sharon Pinkerton, Staff Director and Chief Counsel
Andrew Richardson, Professional Staff Member
Ryan McKee, Clerk
Micheal Yeager, Minority Professional Staff Member
C O N T E N T S
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Page
Hearing held on June 23, 2000.................................... 1
Statement of:
Baker, Raymond W., Center for International Policy; and
Kenneth W. Rijock, aviation and financial crime consultant. 101
Warren, Mary Lee, Deputy Assistant Attorney General, Criminal
Division, Department of Justice; William F. Wechsler,
special advisor to the Secretary and Deputy Secretary for
Money Laundering, U.S. Department of the Treasury; John C.
Varrone, Acting Deputy Assistant Commissioner, Office of
Investigations, U.S. Customs Service, Department of
Treasury; Edward M. Guillen, Chief, Financial Operations
Section, Drug Enforcement Administration, Department of
Justice; and James F. Sloan, director, Financial Crimes
Enforcement Network........................................ 13
Letters, statements, etc., submitted for the record by:
Baker, Raymond W., Center for International Policy, prepared
statement of............................................... 104
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statement of............... 10
Guillen, Edward M., Chief, Financial Operations Section, Drug
Enforcement Administration, Department of Justice, prepared
statement of............................................... 77
Mica, Hon. John L., a Representative in Congress from the
State of Florida:
Report from the trenches................................. 5
Prepared statement of.................................... 7
Rijock, Kenneth W., aviation and financial crime consultant,
prepared statement of...................................... 115
Sloan, James F., director, Financial Crimes Enforcement
Network, prepared statement of............................. 83
Varrone, John C., Acting Deputy Assistant Commissioner,
Office of Investigations, U.S. Customs Service, Department
of Treasury, prepared statement of......................... 59
Warren, Mary Lee, Deputy Assistant Attorney General, Criminal
Division, Department of Justice, prepared statement of..... 17
Wechsler, William F., special advisor to the Secretary and
Deputy Secretary for Money Laundering, U.S. Department of
the Treasury, prepared statement of........................ 49
COMBATING MONEY LAUNDERING
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FRIDAY, JUNE 23, 2000
House of Representatives,
Subcommittee on Criminal Justice, Drug Policy, and
Human Resources,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:30 a.m., in
room 2247, Rayburn House Office Building, Hon. John L. Mica
(chairman of the subcommittee) presiding.
Present: Representatives Mica, Cummings, Mink, Kucinich,
and Schakowsky.
Staff present: Sharon Pinkerton, staff director and chief
counsel; Steve Dillingham, special counsel; Frank Edrington,
professional staff member; Ryan McKee, clerk; Sarah Despres,
minority counsel; and Earley Green, minority assistant clerk.
Mr. Mica. Good morning. I'd like to call the Subcommittee
on Criminal Justice, Drug Policy, and Human Resources to order.
This morning we have a subcommittee hearing entitled
Combating Money Laundering Worldwide. We are going to proceed,
and I'll be joined shortly by other Members.
But we have a full schedule. We're going to have some
votes, and we want to try to get as much business in as we can
and proceed with regular order. And the order of business will
be first, I will provide an opening statement and then will
yield to other Members as they arrive or submit their
statements in the record.
Today, the subcommittee will examine the subject of money
laundering and how it works internationally as the financing
engine that drives most of the world's illegal drug trade.
Money laundering is defined as the process by which money is
derived from illegal activities and is transformed or laundered
to make it appear legitimate. Once it's been laundered, this
money can be moved and used as capital for further investments
in illegal or in legal activities.
Of particular concern to this subcommittee is the fact that
money laundering is a critical element of the criminal
activities of drug traffickers. Through the money laundering
mechanism, criminals move illegal proceeds of their drug deals
and profits through the international financial system to wash
away the criminal taint of that money, and then reinvest the
illegal proceeds in new drug deals.
Other kinds of criminal organizations launder money as
well, like that, unfortunately of human smugglers and corrupt
officials. The IMF has estimated that the volume of cross
border money laundering is between 2 and 5 percent of the
world's gross domestic product, staggering figures. And at the
lower end of the range, the amount of money laundered
worldwide, even again the smallest projection, is $600 billion.
Because of the United States' dominant role in
international finance, a substantial amount of that $600
billion is being laundered through U.S. financial institutions.
If we can successfully reduce the ability of drug dealers to
launder the proceeds, the cartels and smaller dealers would be
forced to reduce the size and numbers of their transaction and
certainly make their business much more difficult. This
reduction will substantially reduce the amount of drugs
available to our citizens and most importantly, to our
children.
When criminals deal with legitimate commercial and
financial sectors during the laundering process, they enable
law enforcement officials to follow the money trail and to
develop methods officials can use to apprehend them. With a
trail to follow, law enforcement officers can often identify
the persons who bring about or finance criminal drug activity.
The trail can also lead back to drug dealers and other
criminals whose illegal activities generated the money in the
first place.
It is at the first of these three stages of money
laundering, the placement stage, that laundered money is most
easily detected. The placement stage is the point where
illegally derived money is inserted into the legitimate
financial system. So international regulatory and enforcement
efforts are focused on methods which will make it especially
difficult for criminals to place funds, illegal funds, without
being detected.
Our first national strategy to combat money laundering,
which was entitled the Money Laundering Strategy for 2000, has
established goals and objectives to be achieved during this
year, including the following. And let me read some of those,
if I may. First, the designation of the first four high risk
money laundering and financial crime areas, and the launch of a
financial crime free community support program, including a
State and local grant program.
Second, the proposed legislation giving the Secretary of
the Treasury new discretionary authority to crack down on
foreign jurisdictions, institutions and classes of transactions
which pose serious money laundering threats. Third, this
strategy also asks for legislation affording prosecutors and
investigators new tools to fight money laundering and the
designation of foreign corruption as money laundering predicate
offenses. And fourth, part of the strategy announces a final
rule for applying suspicious activity reporting, which are also
known as SRA requirements, to money service businesses, and
proposes rules for casinos and brokers and dealers in
securities.
Fifth, part of this is to develop a new method to identify
countries which pose serious threats. The sixth part is setting
out a plan to issue guidance to financial institutions to apply
scrutiny to certain high risk accounts. And the seventh and
last point calls for studies on the appropriate role of
gatekeepers in the international financial system, such as
lawyers and accountants. Those are seven points of the
strategy.
The problems various law enforcement organizations face in
fighting money laundering are in fact formidable. Drug
organizations have become much more sophisticated and use the
latest technology as well as more traditional methods to
launder money. The modern electronic transfer of funds means
that every business day, more than $2 trillion is wire
transferred around the world through more than a half a million
transactions. This tremendous number of transactions makes it
extremely difficult for law enforcement agencies to identify
those financial transactions that are in fact illegal.
Other methods of money laundering which have become popular
among drug dealers include the buying and selling of
commodities like cosmetics, electronics and heavy equipment.
Colombian drug cartels have also been reported as investing in
American-made goods, such as automobile parts, clothing,
computers, and even outsourcing the money laundering part of
their business to brokers whose business it is to buy and sell
drug profits like profits for some type of a commodity.
Electronic money, e-money, is making it much easier for
criminals to conceal the source of their illegal funds and to
move that money without detection. Internet transfers are also
another problem, and transfer of these funds combine the speed
of bank-generated wire transfers with the anonymity of currency
in multiple currencies and without intermediaries.
According to recent reports, the gold trade has also become
much more important as a money laundering mechanism and is
being used to clean. The reports we have are staggering, that's
the term, staggering amounts of dirty money. These funds are
used to buy gold in any form, including gold bars, jewelry, and
even gold scrap. The illegal profits are cleaned when the gold
is shipped across various borders and sold.
With nearly every United States money laundering case in
recent years involving gold, authorities have been unable to
trace the movement of tons of gold and billions of dollars to
drug deals by Latin American drug cartels. Gold gives money
launderers a level of certainty in their laundering efforts, as
they can exchange it in any country in the world.
Gold traders have complained that the pervasive influence
of drug traffickers is taking over the Latin American gold
trade and squeezing out legitimate dealers. An example of the
increase in gold trade is the jump in United States gold
imports from the Netherland Antilles in the Caribbean. Between
1993 and 1997, the gold exports to the United States soared
from $68,000 to $29 million. At the Miami International Airport
annual gold imports rose from $18 million in 1989 to $465
million in 1998, a 26 fold increase.
Recent legislation entitled the Money Laundering Act of
2000 not only addresses many of the problems and situations
I've described, but like the strategy for 2000, give law
enforcement authorities new tools to fight money laundering.
Among these are a provision which enables the U.S. District
Court to have jurisdiction over a foreign bank that violates
the money laundering statute, so long as that bank maintains an
account in the United States and receives appropriate service
of process.
However, other provisions in the law give the Treasury
Department discretion in pursuing activities relating to
foreign jurisdictions. So while Congress has acted to improve
our ability to detect money laundering and to pursue the drug
traffickers who use that money to destroy the lives of millions
of Americans, I wonder if we've still done enough.
While I'm pleased that the Financial Action Task Force
yesterday released a list of non-cooperating countries, and
some of you may have seen that in the news account, and I think
they cited the countries, some 15 countries according to Deputy
Treasury Secretary Stuart Eizenstat, and those countries are in
fact on the list, Bahamas, Cayman Islands, Cook Islands,
Dominica, Israel, Lebanon, Liechtenstein, Marshall Islands,
Nauru, Niue, Panama, Philippines, Russia, St. Kitts and Nevis,
St. Vincent and the Grenadines. And they were again cited.
While I'm pleased that they have named these countries, the
list begs some questions. What action did the Treasury
Department take to ensure that these countries will make
changes in their banking system? Naming and shaming exercise
will only be effective if we act decisively to bring about
positive change.
I also want to bring to the attention of the subcommittee
the Money Laundering Alert for June, one of the preeminent
resources for tracking what's going on in the area of money
laundering, and cite from its volume 2 No. 8 report a very
interesting and disturbing finding. It says, money laundering
cases plummet despite the flood of SRAs. And again, SRAs are
suspicious activity reports, SRAs.
But again, let me quote from this report. It says, the
number of money laundering cases produced by the principal U.S.
enforcement agencies has declined dramatically, despite
hundreds of thousands of SRA reports filed and millions of wire
transferred records kept by U.S. financial institutions since
1996. In the 5-years from 1994 to 1998, the number of persons
charged with money laundering as the prime offense who were
referred for prosecutions by the IRS, FBI, Customs Service and
DEA fell by more than 24 percent. That startling finding
emerged from an analysis by Money Laundering Alert of data in a
unique source called the Transactional Records Access
Clearinghouse, a research center at Syracuse University.
I'd like to submit for the record the balance of that
report, which is entitled, Report from the Trenches. It
outlines the decline in the number of cases that have been
prosecuted which is pretty dramatic from 1994 to 1998. Without
objection, that will be made part of the record.
[The information referred to follows:]
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Mr. Mica. Our witnesses this morning posses both knowledge
and experience to help us to understand the whole money
laundering process and problem and some of the steps we may
need to take to reduce problems we have incurred with money
laundering. Hopefully, they can shed some light on what each of
these agencies are doing to deal with that problem.
With their ability to finance drug deals, drug traffickers
have an incredible ability to continue their death and
destruction. It's important that we find some way to contain
that illegal money laundering.
[The prepared statement of Hon. John L. Mica follows:]
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Mr. Mica. With that, I look forward to hearing from our
witnesses, and at this time, I am pleased to yield to the
gentleman from Maryland, Mr. Cummings.
Mr. Cummings. Thank you very much, Mr. Chairman. I thank
you for holding this hearing on international money laundering.
Back in 1996, the amount of money laundered internationally
was $300 billion. Just 4 short years later, that amount has
doubled. At least $600 billion in laundered money is currently
filling the bank accounts of international organized crime and
drug trafficking organizations. This issue definitely hits home
for me. The ability to launder dirty money fuels an empire that
has debilitated my district and continues a cycle of drug abuse
and addiction.
Although this act is incredibly difficult to investigate,
we're making progress. This progress is demonstrated by one
investigation we've often discussed in this subcommittee,
Operation Casablanca. According to the Treasury Department, $35
million was recovered in the operation and officials from 12 of
Mexico's 19 largest banks were indicted. This was a major coup
for the United States Government, and a blow to major drug
traffickers in Mexico.
Unfortunately, this was only a drop in the bucket. I hope
this hearing will allow us an opportunity to discuss H.R. 3886,
an administration supported bill that was recently passed by
the House Banking Committee. The International Counter-Money
Laundering Act of 2000, a bipartisan bill, would increase the
authority of the Treasury Department to combat these crimes. I
look forward to hearing more about this bill in today's
testimony.
Additionally, globalization and electronic technology have
made it easier to transfer funds around the world and
increasingly more difficult to track. Yesterday, the Financial
Action Task Force, a group of 26 countries, including the
United States, working together to fight money laundering,
identified 15 countries as potential havens of money
laundering. I'm interested in hearing from the witnesses
regarding how this list will assist in the Government's
counter-money laundering efforts.
Will it be used in the same way as our annual drug
certification process? Mr. Chairman, I look forward to hearing
from our witnesses today, and again I want to thank you for
your vigilance with regard to drug trafficking in this country
and around the world. And I look forward to the hearing.
[The prepared statement of Hon. Elijah E. Cummings
follows:]
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Mr. Mica. I thank the gentleman from Maryland, and the
gentleman from Maryland moves that the record be left open for
a period of 2 weeks for additional statements or responses from
witnesses. Without objection, so ordered.
We'll now move to our first panel. Our first panel consists
of Ms. Mary Lee Warren, who's the Deputy Assistant Attorney
General, Criminal Division, of the Department of Justice. Next
witness is Mr. John C. Varrone, and he is the Acting Deputy
Assistant Commissioner of the Office of Investigations, U.S.
Customs Service, in the Department of Treasury. Mr. Edward Mr.
Guillen, and he is the Chief of the Financial Operations
Section of DEA, Department of Justice. And Mr. James F. Sloan,
Director of Financial Crimes Enforcement Network. Our final
witness on this first panel is William F. Wechsler, and he is
the Special Advisor to the Secretary and Deputy Secretary for
Money Laundering in the Department of Treasury.
Some of you have been before us before, you know this is an
investigations and oversight subcommittee of Congress. We swear
in our witnesses. We also ask that if you have a lengthy
statement or anything that exceeds 5 minutes that that be
submitted for the record. And upon request, will be done so.
At this time, if you'll please stand to be sworn. Raise
your right hands.
[Witnesses sworn.]
Mr. Mica. Witnesses answered in the affirmative, and we're
first pleased to recognize Mary Lee Warren, Deputy Assistant
Attorney General, of the Criminal Division of the Department of
Justice, for your statement. Thank you.
STATEMENTS OF MARY LEE WARREN, DEPUTY ASSISTANT ATTORNEY
GENERAL, CRIMINAL DIVISION, DEPARTMENT OF JUSTICE; WILLIAM F.
WECHSLER, SPECIAL ADVISOR TO THE SECRETARY AND DEPUTY SECRETARY
FOR MONEY LAUNDERING, U.S. DEPARTMENT OF THE TREASURY; JOHN C.
VARRONE, ACTING DEPUTY ASSISTANT COMMISSIONER, OFFICE OF
INVESTIGATIONS, U.S. CUSTOMS SERVICE, DEPARTMENT OF TREASURY;
EDWARD M. GUILLEN, CHIEF, FINANCIAL OPERATIONS SECTION, DRUG
ENFORCEMENT ADMINISTRATION, DEPARTMENT OF JUSTICE; AND JAMES F.
SLOAN, DIRECTOR, FINANCIAL CRIMES ENFORCEMENT NETWORK
Ms. Warren. Thank you, Mr. Chairman. I'm pleased to be
back, to take this opportunity to appear today regarding the
important issue of international money laundering.
In my testimony today, I wish to highlight some recent
trends in international money laundering and to explain why
recently introduced legislation noted by the chairman is
necessary to help U.S. law enforcement effectively work against
international money laundering.
Back in 1986, when the U.S. money laundering laws were
first enacted, money laundering was primarily a domestic
problem. Over time, and certainly today, it has become an
international scourge requiring collaborative efforts around
the globe. Our laws regrettably have not kept pace with this
change.
The money laundering problem is now global, but the basic
challenge for many money launderers, and especially for drug
proceeds money launderers, remains the same: concealing and
moving the enormous amounts of illicit cash generated by
narcotics sales. Once the cash is entered or placed into one
country's financial system, it can be wired instantaneously
around the world. The United States, through the banking sector
and reporting requirements of the Bank Secrecy Act, has
effectively closed the U.S. banking system to this initial
placement. No longer do we routinely see people without
legitimate means of support dragging duffle bags full of tens
and twenties into banks for deposit.
The traffickers and their money launderers are most
vulnerable to law enforcement detection when their cash hoards
have been collected from their drug selling stash houses, drug
selling spots and their stash houses. We've noted that our
estimate on calculations is that cash collected is about three
and a half times the drug weight from which those proceeds are
generated. So the sheer volume of the cash is a problem to the
traffickers.
And as the chairman noted, it is for this reason, even in
the international context, that law enforcement has focused on
the placement stage of money laundering. Money launderers must
look more than ever before to non-traditional U.S. financial
institutions, or they must find ways to move the money outside
of the United States.
The use of money services businesses, especially wire
remittance businesses, is not new for the money launderers.
This was set out in stark relief when the Treasury Department
entered its geographic targeting order in the New York
Metropolitan area a few years ago. The data collected showed
that the area's remitters were sending amounts of money from
one neighborhood, Jackson Heights in Queens, NY, to Colombia,
that would have shown that each household was very, very
wealthy, if not of millionaire status. In fact, demographics
show the opposite.
The original GTO was extended several times and a similar
effort was in place in Puerto Rico to crack down on the abuse
of these wire remittance houses.
The black market peso exchange system also introduced by
the chairman is a second major system for laundering drug
proceeds. It's a system that has existed for decades to avoid
tariffs and duties that were very high in Colombia. But now the
system has been co-opted by the drug traffickers, and billions
of dollars that are United States drug proceeds are in fact
converted into United States goods that are imported and
smuggled into Colombia.
The black market peso exchange system relies on three
principal parties: a trafficker who has drug dollars in the
United States and needs pesos in Colombia; a Colombian,
particularly an importer, who has pesos in Colombia and needs
dollars in the United States to buy import goods; and a peso
broker in Colombia who puts those parties together. The peso
broker has the same problem as the traffickers and other money
launderers, introducing the drug dollars into a legitimate
financial sector and tries this through various means, smurfing
structuring amounts, trying to get it into our system or wire
remittances and other money services businesses, or bulk
smuggling of the currency.
Recent undercover operations, Operations Skymaster and
Juno, detailed in my written statement, are real life
illustrations of how the black market peso systems works in
action. Those defendants, peso brokers, traffickers,
launderers, are now charged, some already convicted.
We dispute the Money Laundering Alert figures. Prosecutors
in the Federal courts have filed more than 2,000 money
laundering charges against more than 200 defendants each year
since 1996, 1996 through 1999. Each year it has gone up. So we
dispute those figures presented in the Money Laundering Alert.
Just in summary, the black market peso exchange in essence,
what starts out as drug proceeds on the streets of United
States cities ends up as smuggled United States trade products
in the markets and businesses in Colombia. And in essence what
it does is it fuels the drug trade.
The bulk movement of cash, we see it more and more. It does
carry the greatest risk to the traffickers. And that is the
reason for targeting this bulk cash shipment and concealment.
One of the HIDTHs mentioned by the chairman is at the Texas-
Arizona border with Mexico, and focuses on the movement, bulk
movement of cash across to Mexico and back.
Legislative solutions. The reality of international money
laundering in the year 2000 has prompted most countries to look
for ways to update their domestic laws and find ways to work
collaboratively against this problem. I would like to
underscore that the recently introduced Money Laundering Act of
2000, H.R. 4695, addresses two principal problems in the anti-
money laundering area, the concealing and laundering of
foreign-derived illicit proceeds that are sought to be brought
into the U.S. financial system and the transport or laundering
of U.S. criminal proceeds going into foreign financial systems.
As to the first, no one wants the United States to become
the haven for the world's criminal proceeds. It should be a
crime for a criminal to use our domestic financial institutions
to launder the proceeds of his foreign crime. Except in a few
instances, our current laws do not address this problem. H.R.
4695 would.
Section 6 expands the list of money laundering predicate
crimes to include many serious foreign offenses. Section 21
would allow us to assist other nations by commencing a formal
action to confiscate foreign criminal proceeds. For the flip
side, that is the U.S. criminally derived proceeds that are
going outside, Section 18 would make bulk cash smuggling a
crime in and of itself. It is not a crime to smuggle cash
today. It is a crime to smuggle most every other thing, but not
cash.
Section 19 would make it a crime to be a knowing courier of
dirty proceeds. You mentioned the long arm jurisdiction that
would allow us to reach those foreign banks that have used the
U.S. financial system.
In response to the globalization of money laundering, and
especially the trends concerning money laundering service
businesses, the black market peso exchange and bulk cash
smuggling, law enforcement needs some updating of the present
anti-money laundering laws. We have had important successes,
even with our current laws. But I would wish to say, and pledge
that the Department of Justice is ready to work with the
Congress on H.R. 4695, which we view as an important step in
enhancing our effectiveness against money laundering in the
21st century.
Thank you.
[The prepared statement of Ms. Warren follows:]
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Mr. Mica. Rather than interrupting the next witness, I
think what we're going to do is recess until 10:15,
approximately 10:15. I'll ask all the witnesses to stand by,
and we will proceed. Since there is a vote at the present time,
we'll stand in recess.
[Recess.]
Mr. Mica. If I could, I'd like to call the subcommittee
back to order.
I'll recognize our next witness, which is Mr. William F.
Wechsler. He is the Special Advisor to the Secretary and Deputy
Secretary for Money Laundering, in the Department of Treasury.
Welcome, sir, and you're recognized.
Mr. Wechsler. Thank you very much, Mr. Chairman, Ranking
Member Mink, members of this committee, thank you very much for
your focus on this very important issue.
On behalf of Secretary Summers and Deputy Secretary
Eizenstat, I appreciate your opening statements and agree with
virtually everything that you said.
I won't go through what you went through, which is the
national money laundering strategy for 2000, which I think you
summarized very well. The main point I want to make there is
that all four tenets of fighting money laundering have to be
done together. That means law enforcement on the Federal level,
law enforcement on the State and local level, banking
regulation and supervision, and international policy. And if
you leave out any one of those tenets of combating money
laundering, you're going to leave wide loopholes for money
launderers to run right through.
We have other people here before the committee that can
talk about the law enforcement side, so I'll let them do that.
But I will focus, it's also in my written remarks, but I will
focus today on the international side.
Let me begin with a little bit of context. The last decade
on the international money marketing front has seen two
different trends which need to be understood. First, the good
news. In the last decade, the United States and its partners
and developed major financial centers have come a long way to
establishing international standards to fight money laundering,
to create good anti-money laundering regimes, and have brought
a lot of countries in the developed major financial centers up
to these high levels.
We've mostly done that through the Financial Action Task
Force, which was created in 1989 under the Bush administration
project. And in 1990, created the first set of international
anti-money laundering standards. And when countries join the
FATF, they make a political commitment to bring their domestic
anti-money laundering regime up to those standards. Those
standards were again re-issued and updated in 1996.
This has been, the FATF in the Bush and Clinton
administrations has been a great success story. Now it has 26
nations that have joined, 3 more are on the way. All these
countries are making political commitments to improve their
regimes.
The end result of it is, you see things like in
Switzerland, where almost every month now we read a fascinating
story about a major money laundering case being made there,
involving Russian organized crime, involving Latin American
drug cartels. These are things that as early as 5 years ago,
you would have never seen out of Switzerland. This can be
ascribed to the FATF process and countries like Switzerland
joining the FATF process and raising their money laundering
standards.
That's the positive trend. But unfortunately, there's a
negative trend over the last decade, or actually even more
recently that has gone along the same side. And that trend is
the proliferation of money laundering havens around the world.
As a result of globalization and advances in banking and
communications technologies, money can move farther and faster
than ever before. Of course, this is a great boon to business,
but it can also provide new opportunities for money laundering.
As Secretary Summers said in a speech last March, in a
world where capital can silently traverse the globe at the push
of a button, proceeds of crime can move just as quickly and
just as quietly. Only a decade ago, many nations in the world
were too physically remote to be significantly involved in
international banking. So the quality of their anti-money
laundering regimes did not significantly affect the United
States or other countries.
But now they are only a click of a mouse away. And now just
as quickly, they can become money laundering havens. Becoming a
money laundering haven is easy to do. It costs no money. All
you have to do is pass a few laws that provide, for example,
excessive bank secrecy, anonymous company formulation, and non-
regulated offshore financial services, then you wait for the
money to flow in. Better yet, you can pass a law banning
information sharing with foreign law enforcement on financial
matters.
It's not taken long for other countries to choose this
path. Indeed, just in the last few years, we've seen a number
of countries do just that. Many openly declare they are passing
such laws as a formal part of their economic development
programs. Some even blatantly advertise on the Internet that by
putting money in their banks, you'll be protected by their laws
from investigations by U.S. law enforcement.
Of course, for these countries, it's extremely difficult
for them to know if the money that goes into their banks in
this fashion is dirty or clean.
To give one quick example, in the South Pacific there's a
small island called Nauru, which as the chairman noted was on
the list that the Financial Action Task Force put out
yesterday. Some time ago, it had one of the highest per capita
incomes in the world, because of phosphate mining. The
phosphate ran out, they became a money laundering haven.
The Russian Central Bank told the press that in 1998, $74
billion left Russia to go into offshore financial centers. Now,
we of course don't know if this is capital flight or money
laundering or what. We don't know how much of it went back to
Russia. But these are the Russian Central Bank's numbers. $74
billion is a huge amount.
Of that, $70 billion in 1998 went through banks chartered
in Nauru. It's an amazing statistic.
So let me tell you what we've done about this. Last year,
the United States, along with the United Kingdom, started to
take against this front when we issued an advisory against
Antigua and Barbados because of some significant weaknesses in
their regime. This public rebuke had a profound effect on
Antigua, which has since worked with the United States to
change its laws to move toward international standards.
But even as we were taking this action, we knew that a more
systematic approach, a more multilateral approach was needed.
So in February of this year, the Financial Action Task
Force's 26 member nations reached agreement on a list of 25
criteria which would be objective measures that we could use to
determine whether countries fell significantly short of
international anti-money laundering standards. FATF then agreed
on a list of countries that were deserving of priority
attention to be judged against these criteria, there were 29 of
them. Then experts of the 26 countries of FATF produced
comprehensive analyses of their laws and regulations and
practices. We then had processes between the FATF and these
countries to give a give and take where they could do written
comments on it, which they could do face to face meetings, that
we had all the information that we needed, and just this past
week in Paris, the 26 nations of FATF came up with their list
that you read at the start of this hearing.
This is a major accomplishment, the first ever multilateral
designation of countries that fall short of international
standards on any subject, something that we have not been able
to accomplish, other law enforcement, other foreign policy
subjects, but we've been able to do on money laundering.
This public naming and shaming should have a profound
effect, indeed, it already has. If you look at some of the wire
stories coming out today, from the Philippines, for instance,
where they publicly committed to improve their standards.
Liechtenstein, even through this process, has done more in the
last couple of months to fight money laundering than it has in
years preceding. It has hired an Austrian special investigator,
which has arrested a number of prominent members of people in
the country, including the brother of the deputy head of
government, the brother of the chief justice of the supreme
court and a sitting member of parliament for money laundering.
In large part, these actions have been taken because the
international community is now taking strong public measures.
Next step is two-fold. In the fall, FATF will start
examining another group of countries and see if they meet or
fail the FATF standards. Also, the member countries of FATF,
including the United States, are now actively considering what
next steps we have to take with these countries, what kind of
guidance we need to give to our domestic financial institutions
on what they need to do in dealings with these countries, and
what kind of actions, other actions we should be taking vis-a-
vis these countries, both positive and negative. Positive for
countries that want to cooperate and build their systems up to
international standards, including offers of technical
assistance and training. And if countries continue to be
outliers and continue to flaunt international standards, we
will have to look at harsher measures.
That is one of the reasons why, as you mentioned, Mr.
Chairman and Representative Cummings also mentioned in his
introductory remarks, that the administration strongly supports
the International Counter-Money Laundering Act of 2000 which
passed bipartisanly overwhelmingly in the House Banking
Committee, 31 to 1, which would give the Treasury Department
new tools, tools that we do not have right now, to be able to
crack down on these havens who willfully ignore international
standards.
Sadly, if this legislation is not passed, we could be in a
position in the worst of all situations where countries are
flaunting international standards, other countries are taking
action, but the United States, because it simply does not have
the tools, is unable to do so.
Thank you very much again, Mr. Chairman. The only other
comment I'd like to make is, you made reference to statistics
that were in Money Laundering Alert. Deputy Secretary Eizenstat
has sent a letter to the editor of the Miami Herald on this
subject, and I'd like it to be introduced into the record, if
that's OK.
Mr. Mica. Without objection, that will be made part of the
record.
Mr. Wechsler. And I'd also like to introduce to the record
a letter that was singed by six heads of law enforcement
agencies supporting the legislation, the International Counter-
Money Laundering Act.
Mr. Mica. Without objection, we will also include that
letter.
[The prepared statement of Mr. Wechsler follows:]
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Mr. Mica. Thank you for your testimony. We'll withhold
questions until we've heard from all the witnesses.
The next witness will be Mr. John C. Varrone, who's Acting
Deputy Assistant Commissioner, Office of Investigations, U.S.
Customs Service. You're recognized, sir.
Mr. Varrone. Thank you, Mr. Chairman.
Good morning to members of the subcommittee. Thank you for
inviting me today to discuss the global impact of money
laundering and the U.S. Customs Service approach in addressing
this increasing international threat.
Mr. Chairman, as you and your committee are aware, money
laundering is a threat to the economic and national security of
this Nation. It is estimated that the worldwide volume of money
laundering is between 2 and 5 percent of the world's gross
domestic product, or in excess of $600 billion.
In response to this threat, the Departments of Treasury and
Justice developed and implemented a money laundering strategy
for all of the law enforcement bureaus. Pursuant to this new
strategy, four high intensity financial crime areas have been
identified. These HIFCAs are intended to concentrate law
enforcement efforts at the Federal, State and local level to
combat money laundering in these designated high intensity
zones.
The cities of Los Angeles, San Juan, Puerto Rico and the
New York-New Jersey area have been designated as HIFCA areas.
HIFCAs can also be formed to address a specific money
laundering system. With that in mind, the fourth HIFCA along
the Arizona-Texas border will concentrate on the bulk cash
system that moves large volumes of smuggled currency between
the United States and Mexico.
Customs played a primary role in the working group,
determining the placement of the HIFCAs because of the primary
enforcement agency responsibilities that we have at our
Nation's borders. We have the jurisdictional responsibility for
enforcing lawful international trade involving commodities and
monetary instruments. The Congress has given the U.S. Customs
Service the requisite authority for the enforcement of
international financial crime and related money laundering
investigations. Our enforcement efforts are not related to drug
related money laundering investigations, but to the proceeds of
all crime.
Investigation or interdiction activity is often triggered
by the illegal movement of criminally derived funds, services
or merchandise across our national borders, and is applied
pursuant to the authority under the Bank Secrecy and the Money
Laundering Control Acts of 1986 and 1988.
This jurisdiction also enables us to address money
laundering outside the context of narcotics trafficking in such
areas as prime investment fraud, advanced fee schemes and
telemarketing fraud. For example, Project Cult, a joint
international telemarketing enforcement with the Canadian
authorities, has been credited with the prosecution of 19
violators and presently pending 30 additional suspects, pending
prosecution, and the seizure of the nexus of $10 million which
has been recovered and returned to the victims of this fraud.
The Customs Service has an aggressive strategy to combat
money laundering and dedicates a nexus of 400 agents worldwide
to pursue these investigations. Over the past 3 fiscal years,
the Service has conducted over 12,000 financial investigations,
resulting in the arrest of 3,150 violators and the seizure of
over $1 billion.
Customs combats money laundering through a systems based
approach. Enforcement programs that we use to attack these
systems include outbound interdiction, undercover
investigations, regulatory interventions, industry outreach,
multi-agency operations, and global partnerships.
One of our most effective programs has been our undercover
money laundering operations. During the past 12 years, the
Customs Service long term undercover operations have resulted
in the seizure of over $1 billion in cash, over 2,000 arrests
and the seizure of more than 37,000 kilograms of cocaine.
To assist with our large number of undercover financial
investigations, we've developed and implemented the money
laundering coordination center. This center, which has been
operational since 1997, is providing deconfliction support to
all U.S. Customs undercover operations. The MLCC also serves as
a safety mechanism, so that all Customs investigations are
tracked and coordinated in real time.
As outlined in the National Money Laundering Strategy, the
MLCC is also the repository for all U.S. Government information
relating to the black market peso exchange. This information is
analyzed by Customs in order to develop targets and systems for
investigation.
The black market peso exchange system is another method
violators employ to circumvent the currency reporting
requirements of the Bank Secrecy Act. It is one of the most
efficient and extensive money laundering systems in the western
hemisphere. It is estimated that the black market peso exchange
launders approximately $4 billion in drug moneys per year.
In addition to our investigative efforts, the Customs
Service, through the MLCC, has implemented an industry outreach
program to educate U.S. businesses as to how the black market
peso exchange operates and to solicit their cooperation on the
implementation of compliance programs.
A key instrument in our outreach is our brochure, which
describes in detail the black market peso exchange process and
highlights red flags which may be indicative of a black market
peso exchange transaction, and last, provides industry with a
point of contact if they identify such suspect transactions.
Criminal organizations are highly adaptable and employ a
variety of methods to repatriate their assets.
Some are quite sophisticated, like the black market peso
exchange, and others are more simplistic and riskier, such as
the smuggling of bulk cash. Through a variety of investigative
intelligence and interdiction programs, the Customs Service has
identified and seized numerous bulk cash shipments concealed in
aircraft, vessels, vehicles, appliances, stereo equipment,
machine parts and even violators who are willing to ingest
currency to avoid detection.
A recent example of a bulk cash seizure by Customs occurred
on May 1st, when six boxes of currency totaling $2.6 million
were discovered in a tractor trailer that had entered the
United States from Canada en route to Florida. Subsequent
investigation revealed that the money was going to be used to
purchase a large quantity of cocaine.
Bulk cash smuggling presents the trafficker with the
logistical problem of securing modes of transport capable of
handling the amounts of cash generated by drug sales. Consider
the following. If the proceeds of cocaine----
Mr. Mica. Mr. Varrone, it looks like you have a number of
pages. Can you begin to summarize? Because we can submit the
entire statement.
Mr. Varrone. Yes, sir.
In sum, Mr. Chairman, through the regulatory interventions
such as the GTO, which others have discussed on the record,
enforcement operations at the Customs Service has a variety of,
I just think that we're in a position where the balance of all
of these programs is good for law enforcement, and we support
the H.R. 3886, which the committee has put forth. The Customs
Service would like to go on the record to support that.
And then I'll just be available to answer any questions you
may have.
[The prepared statement of Mr. Varrone follows:]
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Mr. Mica. Yes, and we'd like to get to that. Without
objection, Mrs. Mink asks that your entire statement be made
part of the record, and it will be so ordered.
Let me recognize Mr. Guillen, and he is the Chief of
Financial Operations Section for DEA in the Department of
Justice. You're recognized, sir.
Mr. Guillen. Thank you, Mr. Chairman.
Mr. Chairman and members of the subcommittee, I appreciate
the opportunity to appear before the subcommittee today on the
subject of international money laundering. My comments will be
limited to an objective assessment of the law enforcement
issues involving drug trafficking and money laundering, with
specific attention devoted to the challenges that today's
organized crime syndicates from Colombia and Mexico present to
our law enforcement officers.
Whereas previous organized crime leaders were millionaires,
the Colombian drug traffickers and their counterparts from
Mexico are billionaires. They have learned to exploit a variety
of weaknesses in order to protect their drug profits, which are
the lifeblood of these organizations. Their ultimate purpose is
to amass large sums of money in order to maintain their obscene
and lavish lifestyle, free from the boundaries or confines of
the law.
As you are well aware, money laundering is a process used
by drug traffickers to convert bulk amounts of drug profits
into legitimate money. The need to launder conspicuously large
amounts of small denomination bills renders the traffickers
vulnerable to law enforcement interdiction. Tracking and
intercepting this illegal flow of drug money is an important
tool in identifying and dismantling international drug
trafficking organizations.
Laundering drug proceeds from Mexican crime syndicates is
commonly accomplished by relatively simple and direct means,
the bulk shipment of currency back to Mexico. Tractor trailers
and cars with hidden compartments are frequently used to
smuggle drugs out of Mexico into the United States. And then
these same vehicles are packed with the proceeds from the
street sale of the drugs and returned to Mexico.
Drug traffickers based in Colombia also move the proceeds
from their operations in the United States to Los Angeles, New
York and Miami for bulk shipment out of the United States. Both
the Colombians and Mexicans frequently use vehicles with hidden
compartments to carry large quantities of United States
currency. The bulk movement of United States cash to Mexico has
resulted in significant increases of financial seizures along
United States roadways.
During calendar year 1999, U.S. law enforcement seized over
$69.4 million on U.S. highways. From January 2000 to March 31st
of this year, law enforcement agencies have seized over $19.2
million. It is estimated that most of the currency seized was
destined for drug trafficking organizations operating out of
Mexico.
Another system commonly used by Mexican traffickers or
traffickers wishing to repatriate their moneys to Mexico is
through the use of the money service businesses, which have
been discussed by other witnesses before the committee today.
Due to geographical considerations, Colombian traffickers face
many difficulties during their initial phase of the money
laundering process that Mexican syndicates do not encounter.
Colombian drug organizations have in the past relied on a
multifaceted collection process. They have amassed currency in
strategic locations, used a variety of methods, including
smuggling and bribery to introduce the cash into the U.S.
banking system and subsequently transferring it to Colombia.
In an effort to avoid the high risks associated with direct
deposits in United States or European banks, many Colombian
drug traffickers have returned to the simplest of money
laundering methods, the bulk movement of cash. Currently, the
vast majority of United States currency bound for bank accounts
of the Colombian drug lords leaves the United States either
through air cargo or commercial cargo freighters.
Due to the enormous amount of commercial trade the United
States has with Colombia, this method makes the traffickers'
operations not only less complicated, but less vulnerable to
discovery by law enforcement. In addition, Colombian drug
trafficking will exploit any means possible to safely launder
their drug proceeds. One such form of money laundering is known
as the black market peso exchange. The black market peso
exchange is a complex system currently used by drug trafficking
organizations to launder billions of dollars of drug money each
year, utilizing the advantages of the Panama Canal Free Zone,
which serves as an integral link in the Colombian money
laundering chain.
In order to respond to the threat of money laundering, the
DEA is actively involved in a host of joint initiatives with
all of the organizations represented by panel members here
today. These initiatives are designed to target the money
laundering capabilities of major drug trafficking organizations
operating in the United States. DEA's current ongoing
undercover operations have thus far resulted in the arrests of
373 individuals, over $72.7 million in currency and asset
seizures, 9,399 kilos of cocaine, 30 kilos of heroin and 140
kilos of marijuana.
DEA additionally continues to support a number of
interdiction programs that target the bulk shipment of illicit
funds across our Nation's highways.
The U.S. national money laundering strategy issued by the
Department of Treasury and Justice in September 1999 and
further refined and expanded in February 2000 prescribes a wide
range of laundering control measures that affect public and
private entities in the United States and abroad. DEA actively
participates in several of the target specific work groups
responsible for developing new enforcement, regulatory
strategies and initiatives.
In conclusion, Mr. Chairman and committee, DEA remains
committed to our primary goal of targeting and arresting the
most significant drug traffickers in the world today. We will
continue to work with our law enforcement partners to improve
our cooperative efforts against international drug trafficking
organizations. The ultimate measure of success will come when
we dismantle the drug trafficking organizations that bring
misery to the nations in which they operate.
Mr. Chairman, thank you for inviting me to appear before
the subcommittee today. I will be happy to answer any questions
you may have.
[The prepared statement of Mr. Guillen follows:]
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Mr. Mica. Thank you, and we'll withhold questions until
we've heard from our final witness, which is James F. Sloan,
and he's director of the Financial Crimes Enforcement Network.
You're recognized, sir.
Mr. Sloan. Thank you, Mr. Chairman.
Mr. Chairman, members of the subcommittee, I want to thank
you for giving the Financial Crimes Enforcement Network
[FinCEN], an opportunity to speak before you today. I'm going
to be incredibly brief; and, I think this is the first time
that FinCEN has appeared before this committee, but given the
interest expressed by the chairman and from what I know of the
subcommittee, I think we may be returning in the future. So I
think that as FinCEN provides the subcommittee with further
information about its operations, I think the questions and
answers will certainly suffice.
But I would say that as far as FinCEN is concerned, the
success or failure of our operations is essentially the success
or failure of the operations of the agencies that you've heard
from today. Suffice it to say that FinCEN is the nexus that
provides information to the financial community through the
Bank Secrecy Act, adds value to that information, provides it
to law enforcement so they can follow the money. We also
provide, what I believe to be, the appropriate conduit as a
network between and among the law enforcement community, both
at the Federal, State and local levels.
And we also provide an important conduit to law enforcement
in the area of financial investigations overseas. I welcome the
opportunity to answer any questions. I have prepared a
statement that I would like to have submitted for the record.
Mr. Mica. Without objection, so ordered.
Mr. Sloan. And I apologize for cutting the comments brief,
but I think you want to get on to some questions.
[The prepared statement of Mr. Sloan follows:]
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Mr. Mica. Right. Well, thank you so much, and I thank all
the panelists for their opening comments.
Let me jump right to the first thing, which is the report
we received with a number of prime money laundering case
referrals having dropped for most of the agencies, DEA dropped
from 241 to 184, 1994 versus 1998; 469 for FBI, to 356; Customs
has a slight increase, I think they're the only ones that don't
show a decrease. But again, the major enforcement agencies.
Ms. Warren, you dispute some of these statistics. Now,
these are comparing apples and apples, not apples and oranges,
as I understand it. Are these figures correct?
Ms. Warren. I don't think it's comparing apples and apples.
What are case referrals? A single case may involve as many as
300 defendants.
Mr. Mica. Are you prepared to provide us with information,
specific information on prosecutions?
Ms. Warren. Yes. We have the statistics by the statutory
charge, 18 U.S.C. Section----
Mr. Mica. Is it chronological?
Ms. Warren. We have it for 3 years, 4 years now, and I can
produce that for the committee.
Mr. Mica. Does that show an increase or decrease in
prosecutions?
Ms. Warren. An increase each year.
Mr. Mica. Is that for each of the agencies under DOJ?
Ms. Warren. It is for Federal prosecution. I don't believe
I'll be able to show it as to individual agencies, because most
of those cases are multi-agency cases. But I can show you for
the defendants charged in Federal court by the statute, by the
money laundering statutes, during the years 1996 through 1999.
Mr. Mica. Well, we'll look at that and try to get some
comparison, again, trying to be fair in the comparison.
But again, one of the outside independent agencies seems to
differ with some of the emphasis and shows a 24 percent
decrease, at least, in the case referrals.
Ms. Warren. Could I offer one further explanation of that
data? I think limited to primary offense, if that is measured
by the sentence under the sentencing guidelines, the offense
with the greatest sentencing exposure will be the sentence for
conviction and sentencing. If there for example is a drug count
along with the money laundering count, just because of the
nature of our drug laws, it will eclipse the lesser sentence of
money laundering. And they may be counting from that. I'm
counting from numbers of prosecutions.
Mr. Mica. Mr. Guillen, was it you that cited that 26 have
joined in an international cooperative effort? OK, that was Mr.
Wechsler.
Mr. Wechsler. That was me, sir.
Mr. Mica. You were talking about the 26 countries that have
joined in this cooperative effort. Are they the same countries
that have now named these offenders?
Mr. Wechsler. Yes, exactly, sir.
Mr. Mica. It's nice to name them, but is there any
anticipated penalty? Is there any action, be it unilateral
action that's proposed by this administration to go after the
known offenders, or by this group?
Mr. Wechsler. It's an excellent question, sir. We're going
to do that in a number of fronts. First of all, in addition to
just naming them, the 26 member nations of FATF, included
what's referred to in FATF as recommendation 21, which is a
recommendation to all the banks in the FATF member countries to
take special measures to examine transactions with the
countries that are listed.
Mr. Mica. What kind of actions?
Mr. Wechsler. Well, we under our own law have to interpret
that. And right now we are working very hard, and it will only
be a matter of weeks, I expect, before you see the conclusion
of this, of exactly what guidance we are going to give to our
banks on each one of these countries on how and what kind of
additional actions, hopefully in accordance to the Bank Secrecy
Act, to give suspicious activity reporting to FinCEN, so it can
then get information to the law enforcement agencies.
Mr. Mica. Does your agency currently weigh in on the
decertification process?
Mr. Wechsler. Absolutely.
Mr. Mica. And certification?
Mr. Wechsler. Absolutely.
Mr. Mica. Do you think it will be the intent to recommend
that these offenders also be decertified under the drug
statutes?
Mr. Wechsler. I do think, sir, it's an excellent question,
that already money laundering is of course an annex to the
State Department report that provides the background
information for the drug certification process. Through this
FATF process, I think what we have just done is improved, in
many cases by leaps and bounds, the quality of information that
we have about the anti-money laundering regime in these 15
countries in particular and actually 29 countries if they were
done. So our hope is that that information should be much more
utility to the drug certification process.
Mr. Mica. Certainly the United States also has influence in
all the international banks and finance markets and really
supports some of these countries' financial stability and
ability to conduct transactions through again our large
influence and our potentially large ability to weigh in in
these international banking institutions and finance
institutions and agreements that we have. Is there intent to go
after these countries through some of those mechanisms and
agencies that we're a part of?
Mr. Wechsler. Absolutely, sir. In fact, this FATF exercise
was originally done by FATF at the request of the G7 finance
ministers. The G7 finance ministers will take up this report
when they meet in early July in the context of abuses of the
financial system writ large. And I think a lot of the issues
that you just mentioned, sir, will be high up on the agenda.
I would also like to add, sir, that again, on each one of
these countries on a bilateral basis the United States will
also be pushing them to improve their money laundering regime.
For the ones that want to cooperate, we will, as appropriate,
offer both technical assistance and drafting of laws and
creating institutions and training for law enforcement as
resources and appropriate demands.
But there are likely to be some countries that in spite of
all the naming and shaming and at the end of the day will still
perhaps want to refuse the pressure from the international
community, and will not want to improve their anti-money
laundering regimes. We need to be in a position to be able to
take hard, targeted, graduated measures against those
countries. And right now, the executive branch does not have
that authority to take those kind of targeted measures. And
that's why, as you said in your opening statement and as
Representative Cummings also said, the International Counter-
Money Laundering Act of 2000, the bipartisan initiative, is so
important to pass this year.
Mr. Mica. Well, we already have some current tools, but we
also have some new challenges, e-mails, and now the
transactions in gold which have been described today and other
commodities.
Mr. Sloan, is it possible for us to develop rat traps,
though, to catch the rats in this, either through a unilateral
U.S. effort or through some international cooperative effort?
Mr. Sloan. The quick answer is yes, and we're working on
that direction. As far as the rat traps, as you describe them,
we'd like to think that the protocols that are in place under
the auspices of the Bank Secrecy Act. For instance, the
expansion of the Bank Secrecy Act will cause the money
launderer, or the drug dealer in this case, trying to get money
into the financial system a great deal of difficulty, making
them try to move to alternate remittance systems which clearly
becomes riskier.
As you may know, and I know you commented on the Money
Laundering Strategy for 2000, we are in the process of
expanding BSA regulations, specifically for suspicious activity
reporting, to other elements of the financial services
industry. In fact, in March, we issued regulations regarding
suspicious activity reporting requirements in the money
services business. And this includes all the wire transmitters,
all the check cashers, money order providers, and travel check
providers throughout the United States.
We anticipate that we'll have a final rule of a similar
requirement for suspicious activity reports for casinos at the
end of the summer, and we're working with the SEC now in
drafting proposed regulations that would apply the same sort of
suspicious activity reporting in the securities industry,
brokers and dealers in securities. The point I'm getting at is
we are expanding the net, if you will, relative to the Bank
Secrecy Act. I think with regard to the alternate remittance
systems, which I think perhaps my colleague from Customs is
more appropriately prepared to discuss, the increase in the use
of some of these alternate remittance systems, whether it's
gold or the black market peso, may be to some degree a measure
of success in the Bank Secrecy Act. So we are building a
tighter net, if you will. It is going to provide, I believe,
law enforcement with greater tools to capture the money at the
placement stage, which is as you mentioned, really the key to
success.
Mr. Mica. Well, just in closing, you mentioned, Mr.
Wechsler, I think, the Russian Central Bank identified $70
billion run through Nauru. And I think you mentioned
specifically, Mr. Guillen, Mexico and the problems we've been
having there, even with the largest money laundering case I
think that Customs had internationally with Operation
Casablanca, where you have corrupt officials all the way up to
the top of the Mexican Government including the banking
industry. How do you deal with these situations that we know
exist, Mr. Guillen?
Mr. Guillen. We're continuing our efforts along those
lines. Specifically with money service business, what we are
able to do domestically is to monitor. Again, with the help of
FinCEN and the reporting requirements, our investigations are
being targeted toward those industries that help to support or
facilitate the money movements via the wire remittance
companies to Mexico. Also as was mentioned with the bulk
shipments across the United States border into Mexico, as Mr.
Varrone had mentioned from Customs, one of the specific HIFCAs
that has been established was for that express purpose, to
monitor and to be able to target the bulk shipments between the
United States and Mexican border.
So more efforts are being given along those lines. What
we're able to do with the Mexicans is on a case by case basis.
But all of our efforts are in fact being focused in order to be
able to do what we can here domestically in our investigations,
and then break into successful prosecutions here in the United
States.
Mr. Mica. Could we trace any of the $70 billion from the
Russian Central Bank?
Mr. Wechsler. Yes, that's where that number came from.
Mr. Mica. No, I know we have the number, but what happened?
Mr. Wechsler. What you do is you attack it again through
many different fronts. You attack the problem through law
enforcement, you attack it, as was just said, you attack it
from regulation to make sure that we have the kind of anti-
money laundering regimes that dirty money doesn't hide or is
difficult to get dirty money into the U.S. financial system.
But then also through the international policy, you try to
bring other countries into line with the United States.
Mr. Mica. Specifically on the $70 billion?
Mr. Wechsler. Specifically what you do is both of the
countries that were involved in this, Russia and Nauru, put
them on the FATF list and get them to improve their anti-money
laundering regime. But if they don't, then you figure out what
other kind of countermeasures could be appropriate.
Mr. Mica. I'm trying to find out specifically, what did we
do? We knew $70 billion went through there.
Mr. Wechsler. What we did expressly is the Treasury
Department has asked the Russians for more information on the
subject. We've asked Nauru to shut down banks that have
participated in it. Nauru has taken some actions in this
regard.
United States banks, domestically, especially what I've
read in the papers, Bank of New York, Public Bank, Bankers
Trust, have closed off correspondent relationships with Nauru.
Mr. Mica. So from those transactions, then the $70 billion
money coming from Nauru into the United States shouldn't be
that hard to trace.
Mr. Wechsler. It shouldn't be that hard.
Mr. Mica. We've gone after our domestic bankers, too, that
may be recipients or third parties to that illegal
transactions?
Mr. Wechsler. Well, yes, and we have been very pleased
that, like I said, Bank of New York or Public Bank, Bankers
Trust----
Mr. Mica. Has anybody been prosecuted in that case?
Mr. Wechsler. Well, the Bank of New York case, writ large,
which Nauru's name came up in that as well as ongoing, and I'll
defer to the Justice Department if there's anything we can say
on that.
Ms. Warren. It remains an ongoing investigation.
Mr. Mica. OK, let me yield to the ranking member, Mrs.
Mink. Thank you.
Mrs. Mink. Thank you all very much.
I think if an average citizen were listening in to this
hearing today, they would be as mystified as I am about this
whole issue. There is a general expectation, I think, in the
public at large, and certainly in my own mind, that in this
three-pronged issue regarding illicit drug sales in this
country and worldwide, that one of the things that we certainly
should have come to grips with and thoroughly implemented, was
the fight against money laundering. With all the sophistication
and the ability and talent in our intelligence operations, and
in the financial aspects of these dealings, I think we have a
right to expect that in this one instance, there would be
vigorous, aggressive, total non-stop efforts to prevent these
cartels from benefiting from the victimization of the citizens
of this country.
So it's rather disturbing to hear the general tone of the
hearing this morning that most of the efforts are conjectural,
prospective, anticipated, we're working on it, and so forth.
And maybe there are details of what you're doing that you're
not able to disclose. But I must say that I'm very disturbed by
what has been presented this morning.
So is there any of the five of you that disagrees that the
total worldwide amount of money laundering is estimated
correctly between $600 billion and $1.2 trillion worldwide?
There's general agreement?
No response. Mr. Chairman.
Mr. Sloan. If I may respond, FinCEN has been tasked with
developing a model to determine the magnitude of money
laundering.
Mrs. Mink. Well, just give me the figure that you deal with
on a daily basis, when it's running through your heads in terms
of the magnitude of the problem. Is $600 billion about right?
Mr. Sloan. I'd say that most experts would say $600
billion.
Mrs. Mink. Is about right? And what percentage, then, which
is my real question, of this money laundering occurs within the
United States? Is there a buzz number that goes through your
brain in similar thought processes in figuring out how much of
this is within the United States?
Mr. Sloan. One of the measures that FinCEN explored in
trying to determine a model for the magnitude of money
laundering project were the proceeds of crime, in this case
specifically the proceeds of narcotics crimes. And if I'm not
mistaken, I don't have the statistics in front of me, but ONDCP
figures for 1999 estimate that roughly $63 billion was spent on
illegal narcotics in the United States.
Mrs. Mink. $63 billion within the United States. Is that a
figure that all five of you----
Mr. Sloan. I believe that's the figure that ONDCP reported
in its 2000 strategy.
Mrs. Mink. That's the total traffic in illegal drugs within
the United States in 1 year?
Mr. Sloan. The cash spent on illegal drugs, yes.
Mrs. Mink. Now, how much of that is traceable in all of
your money laundering investigation? How much of that can you
actually trace? Where does it go and how does it get out of the
country?
Mr. Sloan. From our perspective, there's two issues that
are raised, from FinCEN's perspective. First of all, that's a
lot of cash.
Mrs. Mink. A lot of shoe boxes.
Mr. Sloan. Exactly right. It's a lot of shoe boxes in so-
called stash houses in Miami and in Los Angeles and New York.
And it's 5s, 10s, 20s, 50s and 100s. In fact, one statistic I
think was mentioned earlier, that a kilo of cocaine is the
equivalent of 2\1/2\ kilos of cash. So clearly the drug dealer
has to get his proceeds into the financial system somehow in
order to benefit from the street sales.
Mrs. Mink. Is this money invested in some way in American
businesses, construction, buildings, whatever?
Mr. Sloan. In some instances it works its way through the
black market peso exchange, which I can defer to my colleagues
to discuss in greater detail. But from FinCEN's perspective,
the key to our success is catching the placement of that $63
billion as closely as possible as it tries to enter the
financial system.
Mrs. Mink. How much of that do you have a handle on, of the
$63 billion?
Mr. Sloan. I don't have a figure on that that I'd be
prepared to discuss today.
Mrs. Mink. Just a general top of your head estimate?
Mr. Sloan. I wouldn't even venture a guess, frankly. I
don't know if anybody else would want to comment. But the point
I was going to make, as far as the money getting into the
system, was the reason that we have the protocols in place
within the Bank Secrecy Act to capture, for instance, $10,000
deposits in cash. Although $10,000 may not be a lot of money,
it's a lot of cash, and the fact that the drug dealer has to
get the money from the so-called stash houses into the
financial system, it's important for us to maintain those
requirements and to analyze that information and report back to
the law enforcement community.
Bottom line is it helps law enforcement follow the trail
which is ultimately getting to the drug dealer.
Mrs. Mink. With respect to these 15 countries that have
been named now by this special group, take Nauru that you
mentioned specifically. Why isn't is possible under U.S. laws
to simply cut them off in terms of the allowance of any of
their money coming into the United States?
Mr. Wechsler. The only authority that we have under United
States law right now is the International Emergency Economic
Power Act which would prohibit totally all business relations
between Americans and anyone, in this case in Nauru, or any
Nauru citizen anywhere in the world. This is the provision that
was used against Iraq and Syria.
Mrs. Mink. But if we utilize that law against Nauru----
Mr. Wechsler. We have not used that law against Nauru, nor
have we used it against money laundering. It is a one size fits
all rule. It does not distinguish between dirty money and
legitimate money. And the law that we have, the bill that
passed under the House Banking Committee, that 31 to 1,
completely bipartisan approach, would give us the authority to
be able to target that, to be able to cutoff correspondent
relationships which goes more to your question, between the
United States and Nauru, should that prove necessary.
Which right now, the Treasury Department does not have that
authority. Other countries, should we go in that direction and
should Nauru not improve its laws, might be able to take that
kind of action. But the United States cannot. And we see this
as being a hole in our comprehensive efforts, integrated
efforts to combat money laundering, one that we very much hope
that the Congress will fill this session.
Mrs. Mink. Thank you, Mr. Chairman.
Mr. Mica. Thank you. I recognize the gentleman from
Maryland, Mr. Cummings.
Mr. Cummings. Mr. Chairman, I wish this was on C-SPAN so
that my constituents, the guys who are on the corner selling
the drugs, could hear this. And I really do mean that. Let me
tell you why I say that. You know, in Baltimore, we have a real
big problem with drugs. And the thing that I hear over and over
again is, Mr. Cummings, there's no desire on this country's
part, and I don't agree with this, by the way, to shut down
drugs, because if you shut down drugs, you shut down the whole
country. I have heard that so many times.
And when I think about the kind of money that we're talking
about here, it's a lot of money. And I guess there is some
truth to that, that if you shut down drugs, you shut down a
whole lot of folks. Congresswoman Maxine Waters has spent a lot
of time addressing this whole issue of our domestic banks and
how they may be playing in this whole money laundering game.
She has over and over again on the floor of the House
questioned whether we're doing all that we can do to address
the domestic banks.
And I'm just wondering, would most of this be hard to do
without the cooperation, the things that you all have talked
about, would it be hard to do without the cooperation of
domestic banks? In other words, I know there are some pieces
that you would not need them for. But what would you need
domestic banks for as far as these kinds of efforts are
concerned?
Ms. Warren. We need the cooperation of the banks in terms
of their reporting, they provide us the information that lets
us proceed against the launderers and the traffickers, that
create the paper trail. And so we depend on the banks to do
that.
But we don't always treat them as friends. We've prosecuted
a great number of U.S. banks as well as worldwide financial
institutions. We have a chart of those prosecutions, and I'll
gladly submit it to the subcommittee so that you can see the
number of financial institutions that we have prosecuted in
Federal court over the years.
Mr. Cummings. And those prosecutions, I guess you can sort
of pinpoint a person or persons in the banks, or do you find,
there's a tendency that there's a group of people at the top
that are doing these things?
Ms. Warren. We have to be able to, just under traditional
principles of corporate liability that we have to show that
they've had some knowledge, and were taking actions for the
benefit of the bank. We do that as part of our proof and
proceed against those institutions.
Mr. Cummings. So you've seen, of the cases that you've
talked about, the number of cases that you just talked about, I
take it that you're saying that in many of those cases, there
are folk at the top who know what's going on?
Ms. Warren. Know at the top and want the extra commissions,
the extra interest of all that cash-flowing through. And for
that, we'll prosecute them as money launderers.
Mr. Cummings. This increase, the last 4 years, amount
increased from $300 billion to $600 billion, what would you say
aided that? What happened there?
Mr. Wechsler. Well, I can say, one of the, while numbers,
of course, on money laundering, like numbers of crime, are
difficult to pin down, one of the trends that we have seen just
in the last number of years is that because of advances in
technologies, because of the internet, because communication is
so easy around the world, that again, places that previously
were physically remote, that were not significant players in
the international financial system, now suddenly can be
connected all over the world. So one of the negative trends
that we've seen just in the last couple of years is some of
these places setting themselves up as money laundering havens.
And that's what the Financial Action Task Force just yesterday,
with United States strong participation and leadership, tried
to take some of the strong initial steps to crack down on.
Of course, the other trend that's good is that developed
centers have just in the last decade really started to improve
their anti-money laundering regimes. So again you have these
two trends, one going in a positive direction and one sadly
going in a very negative direction because of changes in
technology.
Mr. Cummings. What's going to happen with that list of 15
countries? What do we do with that?
Mr. Wechsler. We're going to do a couple of things. First,
we're going to expand it as the months go on. But there is
already seeing some market reaction. I saw a wire report that
Standard and Poors downgraded their rating for one of the major
banks in Liechtenstein, which was on the list. And this kind of
market reaction that you see gives teeth to naming and shaming.
But we can't just rely on markets to solve this problem for
us. We are going to work, the United States and with our allies
in FATF, with those countries to bring them up to international
standards, to U.S. standards, on how to do a comprehensive
anti-money laundering regime. And then once again, if there are
countries that refuse to do this, we will have to try to take
aggressive actions against them to penalize them for that
behavior. And once again, we really need more tools in order to
do that effectively.
Mr. Cummings. This subcommittee, and I do give the chairman
a lot of credit, and it has been a bipartisan effort, we've
done everything we know how to try to make sure that the tools
that law enforcement needs are there in order to do the job
that you all have to do. And we do have a tremendous amount of
respect for what you do, because it is a very important job,
and I'm sure you get your share of criticism.
But one of the things that I have learned since I've been
on this subcommittee now several years is that this problem, I
mean, not just money laundering, but the whole drug problem, is
much greater than I ever imagined. And I ask you this question
based upon that. Other than H.R. 3886, what tools, what if any
tools do you need from the Congress? And I'm talking about, do
you feel like you have sufficient resources to do the things
that you all need to do in your various departments? Do you
need legislation more than what we've talked about here today?
I mean, if you had a wish list that was a reasonable wish
list that falls within the confines of our collective belief,
that is we as Congress persons, that money should be spent, tax
dollars should be spent effectively and efficiently, what if
anything don't you have that you think you need from us?
Ms. Warren. Could I start just with the legislation, just
to remind the subcommittee that we need the international money
laundering new authorities that we're seeking.
But we also need the money laundering authorities for
prosecutors and investigators that are under the Money
Laundering Act of 2000, H.R. 4695. It creates new crimes, the
smuggling of cash across the border, gives us new jurisdiction
to reach those foreign banks that have done business in the
United States, allows us to go after currency couriers as
criminals. Those are the kinds of tools we need so these people
don't slip through the net. And we want to work with you in
perfecting that legislation.
Mr. Cummings. Anyone else?
Mr. Varrone. If I may add, Mr. Cummings, the
administration's budget for the Customs Service in 2001
includes a variety of initiatives. Some are personnel
resources, and some are technology. We don't have x-ray
machinery at all major ports in the country. It's equipment
like that that helps us in our outbound bulk cash enforcement
activity. So there are a variety of other elements to that
budget, but clearly support for that, sir.
Mr. Cummings. Is that it?
Mr. Wechsler. The one other thing I'd like to add is with
this budget cycle, the Treasury Department has asked for a new
centralized account to help us implement the key action items
in the new money laundering strategy. One of those, and we can
get for you the breakdown of what that money would be, to make
sure that this committee is fully abreast of that budgetary
initiative. That would be on top of the important requests for
money that Customs, FinCEN and the other bureaus are asking for
the Treasury Department.
One of the things that also would be in this account would
be seed grants for local law enforcement to get better trained
and equipped to fight money laundering, because money
laundering is a complicated issue that not all State and local
law enforcement have the capacity right now to fight as
effectively as they could. And we are just starting this
program, the CFIC program, as it's called, to give seed grants.
The applications just went out last week, I believe, from the
Treasury and the Justice Departments. We are asking for more
money for that program, because we think State and local could
also do a lot more.
Mr. Cummings. Just one last question--yes, Ms. Warren.
Ms. Warren. Could I just make sure that the Justice
Department appropriations are also looked favorably upon for
law enforcement and the prosecutors, so that we can try and
keep pace with the problem.
One other bill I didn't mention is Congresswoman Roukema's
anti-bulk smuggling bill that of course we support completely.
That's H.R. 240.
Mr. Wechsler. The Treasury Department seconds that, of
course.
Mr. Cummings. One last question to Mr. Guillen. You were
talking about the bulk money going into Mexico and you said
something to the effect that when that money goes over the
border, it's less vulnerable to discovery by law enforcement
officers because of our certain trade policies. I think that's
what you were saying, is that accurate?
Mr. Guillen. No, I don't think so.
Mr. Cummings. Let me ask you this. Just give me the
logistics of this. Somebody is coming, I don't know whether
this would be your question, Mr. Varrone, I'm talking about
Customs, more or less, somebody has $1 million in the truck
coming across the border. What happens? Coming across the
Mexican border. He's got $1 million. So what happens? In some
kind of way, you discover he's got $1 million. It's not like
you have dogs that sniff it out, but you somehow you discover
it. What happens than?
Mr. Varrone. Most of the time, sir, the bulk cash that
we're intercepting, as the exhibit here to my right indicates,
in south Texas alone, we made 228 seizures just this fiscal
year for about $6 million. But most of the bulk cash is
outbound. On the inbound side, we don't see that kind of
volume. But in an outbound, the percentage of resources that we
dedicate to outbound is approximately 10 percent. We are so
concentrated on the inbound activity that we don't have a large
inspectional force that does outbound inspection. So a lot of
it gets driven through the investigative activity.
Mr. Cummings. Thank you.
Mr. Mica. Thank you.
I had just a final question or two here. Mr. Varrone, could
you tell the subcommittee a little bit more about the use of
gold in money laundering, and what kinds of cases Customs is
now pursuing and what kinds of challenges that creates? This
seems to be a new conduit for money laundering.
Mr. Varrone. The gold phenomenon, while this news article
shows it as a new, emerging trend, it's been around for years,
the precious metals, the gold, diamonds. If you recall back in
the early 1990's, there was a significant national operation, a
multi-agency operation called Polar Cap, where all the agencies
at this table were heavily involved in it. It lasted 4 or 5
years and it was all precious metals based.
I think at the time that we did, collectively that we did
that investigation that we had a lot of success identifying
violators and putting gold, domestic people who were involved
in the industry, out of business. But I don't think that we
either understood at that time or focused on this black market
relationship to the black market peso exchange activity. So I
think that it's really just a recurring theme, not necessarily
a new and emerging theme.
And second to that would be that we have numerous cases
that do involve the precious metals industry that are ongoing.
Of course, I can't speak to them here. But the ones that we
have had and had success at clearly support the concept that
the black market peso exchange is the predominant method there.
We have a system in place now, a computer system called a
numerically integrated profile system, which helps us identify
disparities. And we've been at the forefront of identifying the
disparities in the gold import-export from Colombia to the
United States, and have pointed out, as you can see in that
article, many of those anomalies.
We're actively trying to investigate those, and where we
can, we're sharing with the Colombian Government certain
information that they may be able to do some proactive things.
But it's a rule based computer system that analyzes trade
disparities.
Mr. Mica. I guess to make money laundering and combating
money laundering a priority in agencies a directive would have
to come from either I guess the Attorney General, one of the
primary jurisdictional principles, or the Secretary of the
Treasury, I guess. Are there letters or edicts or
communications that set forth money laundering as a priority,
Ms. Warren?
Ms. Warren. Yes. There is a joint memorandum that went out
from the Secretary of Treasury and the Attorney General to the
Federal prosecutors as well as the Federal agency heads.
Mr. Mica. When was that, and could you provide this
subcommittee with a copy?
Ms. Warren. A copy can be provided, and it was in March, a
few months ago. It directed them to the importance of following
the money, the importance of looking at every possible
investigative technique, and training our personnel.
Mr. Mica. And for the record, just provide us a copy. And
then any of the items that were outlined, maybe a brief
progress report since it was issued.
The other thing that is necessary is resources to go after
combating money laundering in the budgets of the Department of
Justice and Treasury Department. Were there additional
resources requested in the budgets and what's the status of
those? Maybe you could start with Justice. Ms. Warren, are you
familiar?
Ms. Warren. I know that each of the components have
requested over the past few years additional money.
Mr. Mica. I'm talking about in fiscal year 2001.
Ms. Warren. I'm just not that familiar and I can only
answer generically.
Mr. Mica. Could you provide that for the committee, too?
Because I think it's important that we see what has been
requested and then where we are, particularly at this critical
time in the appropriations process. We have a problem if you
aren't requesting the resources, because God knows everybody
requests all kinds of things from us. But we have a problem if
you're not requesting them.
And then if the request is in jeopardy or if there is a
problem, this is the perfect time to look at that. Who's from
Treasury? I guess we are sort of stuck with Mr. Varrone. He's
down the pike.
Mr. Varrone. Well, I can say that the Treasury Department's
budget----
Mr. Mica. I'm sorry, I apologize, Mr. Wechsler. I had to
pick on Mr. Varrone because I know him better. But it looks
like you're up the pike. Can you provide us with the same
information?
Mr. Wechsler. Absolutely. And the requests have increased
this year. And we would love to work with you.
Mr. Mica. Specifically to go after money laundering?
Mr. Wechsler. Specifically for money laundering.
Mr. Mica. You don't know the status of that request?
Mr. Wechsler. We will get you all the numbers and status,
sir.
Mr. Mica. Can you? Because it's nice to have these
hearings, but if we aren't doing something to see that our
investigations and oversight are translated into some actions,
we're all wasting our time.
I have no further questions. Mr. Cummings.
Mr. Cummings. I just want to thank you.
Mr. Mica. Thank you. I thank the panelists. We appreciate
your participation and look forward to your working with us to
make this a more effective effort.
I'll call our second panel this morning. The second panel
this morning consists of two individuals. The first is Mr.
Raymond W. Baker, and he's with the Center for International
Policy. The second one is Mr. Kenneth Rijock, and he is an
aviation and financial crime consultant. Those are our two
witnesses on this panel.
Both of you are, I think, new witnesses to the
subcommittee. This is an investigations and oversight
subcommittee of the House of Representatives, part of the
Government Reform Committee. In that regard, we do swear in our
witnesses. Also, if you have any lengthy statement, more than 5
minutes, we'd like you to submit that for the record and
summarize verbally to the subcommittee your comments. Upon
request, your entire statement will be made part of the record,
and we'll also upon request include additional data,
information and background as part of the record.
You can remain standing. Please raise your rights hand to
be sworn.
[Witnesses sworn.]
Mr. Mica. The witnesses answered in the affirmative. I'm
pleased to welcome both of you this morning to provide your
insight and testimony to our subcommittee on the problem of
money laundering. Hopefully, we can hear also some of your
recommendations for doing a better job in that regard.
I'd like to recognize first Mr. Raymond W. Baker, and he is
with the Center for International Policy. Welcome, sir, and
you're recognized.
STATEMENTS OF RAYMOND W. BAKER, CENTER FOR INTERNATIONAL
POLICY; AND KENNETH W. RIJOCK, AVIATION AND FINANCIAL CRIME
CONSULTANT
Mr. Baker. Mr. Chairman, distinguished members of the
committee, thank you for the opportunity to appear before you.
I am Raymond Baker, a senior fellow at the Center for
International Policy, and recently a guest scholar at the
Brookings Institution studying money laundering and flight
capital.
I would like to put forward and elaborate briefly on three
points. One, there has been an absolute explosion in the volume
of dirty money during this, the first decade of the globalizing
world. Two, the U.S. Treasury Department estimates that 99.9
percent of the laundered criminal money that is presented for
deposit in the United States gets comfortably into secure
accounts. Three, at the core of our anti-money laundering
efforts for many years has resided a basic intellectual flaw.
The issue of dirty money can be most easily approached by
breaking it down into its three principal, though sometimes
intermixed, components: criminal, corrupt and commercial. The
criminal component arises from the proceeds of scheduled crimes
that violate anti-money laundering legislation. The corrupt
component refers to receipts generated through bribery and
theft by foreign government officials. The commercial component
is transactionally procured and derived from tax evasion out of
other countries, also called illegal flight capital.
The criminal component of dirty money is often estimated at
perhaps $500 billion to $600 billion a year. The corrupt
component I have estimated at $20 billion to $40 billion per
year. And while it is the smallest of the three, it has a
multiplier effect on the other two.
The commercial component I have also studied and would put
at roughly $500 billion a year, comparable to the criminal
component. The combination of the three, therefore, amasses to
more than $1 trillion a year, passing into western coffers.
Other estimates range from a half trillion to $3 trillion
annually. But regardless of where the most accurate figure
rests, dirty money clearly constitutes the biggest loophole in
the free market system.
Virtually all of this flow is facilitated by business
people and bankers in the United States and Europe, often
acting lawfully or taking advantage of gaps, ambiguities and
contradictions in laws, regulations and enforcement. In my
written statement, I have provided a number of examples of
this. Suffice it to say that it is the process of cooperation
in moving corrupt and tax evading money that undermines our
ability to curtail the flow of criminal money.
Dirty money from corruption and commercial tax evasion
brings the benefit of several hundred billion dollars a year
spread across the United States and Europe in bank deposits,
markets and properties. The cost of this inflow can be seen in
the impact on both our domestic and foreign interests.
Domestically, the proceeds of tax evasion and corruption
provide the cover that is necessary for laundering of criminal
money, making it possible for 99.9 percent of laundered money,
Treasury's own estimate, to pass into U.S. accounts.
Indeed, the easiest thing for criminals to do is to make
their criminal money look like it is merely corrupt or tax
evading money. And when they do, we usher it readily into our
economy. Our pursuit of corrupt wealth and illegal flight
capital effectively removes anti-money laundering as an
instrument in our fight against drugs, crime and terrorism.
Similarly, concerning our foreign interests, the pursuit of
dirty money erodes our strategic objectives in the transitional
economies of former communist countries and badly impairs
economic progress in developing countries, contributing to
political instability.
For many years, an implicit cost benefit analysis has
suggested that the inflow of corrupt and tax evading money into
the United States is beneficial. In fact, that case cannot be
made. Current U.S. laws, regulations and government practices
attempt to attack criminal money while preserving our
opportunity to solicit and welcome corrupt and tax evading
money. With this approach, the United States would never
effectively curtail the staggering inflow of criminal proceeds.
Therein lies the intellectual flaw. This contradictory
process simply cannot work.
Mr. Chairman, we have a decision to make as a society.
Which is more important to us, to fight drugs, crime and
terrorism with all legal and reasonable means at our disposal?
Or to pursue the billions in corrupt and tax evading dollars
that can be drawn out of other countries into our economy? This
decision will significantly influence the outcome of the issues
that have been so important to you.
Thank you.
[The prepared statement of Mr. Baker follows:]
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Mr. Mica. Thank you for your testimony.
I'm now pleased to recognize Mr. Kenneth Rijock, an
aviation and financial crime consultant. Welcome, sir. You're
recognized and we appreciate your coming forward to testify.
Mr. Rijock. Thank you, sir. I'd like to thank the
subcommittee and Chairman Mica for the invitation to testify
today on international money laundering and its relationship to
illegal drug trafficking.
My name is Kenneth Rijock, and I was for 10 years a career
money launderer for narcotics trafficking organizations who
smuggled drugs through Florida and thereafter distributed them
throughout the United States and Canada. It was my
responsibility to ensure that the proceeds of narcotics crime
made it safely through the world banking system and into the
tax havens, whose offshore jurisdictions attracted dirty money
by combining bank secrecy with a legal obscenity known as
corporation secrecy.
I was able to operate with virtual invincibility from law
enforcement attack due to these laws. The tax havens are the
most powerful ally drug traffickers have. Without a protected
venue to hold their wealth in transition, these vast funds
would be exposed to seizure and forfeiture. Only by targeting
their illegal activities and shutting down their operations can
we hope to seriously impact the money laundering activities of
narcotics traffickers.
After serving time in Federal prison for my crimes, I have
spent the last 8 years teaching money laundering techniques to
law enforcement, my former adversaries. I teach from my own
personal experience and from my study of the developing
dynamics of money laundering tactics and strategy, with the
goal of stopping the investment of the end results of drug
crime into our domestic economy.
I believe that the international money laundering situation
is out of control in the western hemisphere, and our efforts to
date have failed to seriously impact or damage its successful
operation. We simply have not efficiently mobilized our law
enforcement resources to either interdict or suppress the
crime. Remembering that the cash profits of narcotics activity
are the sole weak link in the never ending story of drug
commerce, our Government must recognize that current efforts
are not working, and make a quantum leap to a different type of
comprehensive program, one that gets results.
Present efforts are reactive, not proactive, and at best
expose only a small percentage of ongoing money laundering
operations. Let's talk about some of the fundamental weaknesses
of our current efforts. Perhaps by understanding the inherent
problems, we can strive for a positive solution.
First, our law enforcement efforts are largely conducted by
agents and officers without advanced degrees in finance and
law, and who have generally never worked in a commercial
business setting. How can we expect them to uncover money
laundering crime if they don't have a clear understanding of
the day to day business operations with all their complexities
of our economy?
We must establish long term educational requirements for
these law enforcement agencies entrusted with the
responsibility for money laundering interdiction. Post-graduate
degrees in relevant and important fields should be encouraged,
subsidized and required.
Second, the rotation system in general use by Federal law
enforcement, where an agent is routinely transferred to a new
location and assignment just when he is becoming proficient at
his current job, has got to change. One of the lessons of the
Vietnam conflict was that this practice takes the experienced
person away at the wrong time. Frankly, I don't subscribe to
the notion that variety for the purposes of career enhancement
is more important than getting the job done. I have seen far
too many instances of newly transferred unit commanders needing
several months to become familiar with and proficient in their
new assignments. This simply has to change.
Third, I can tell you from personal experience that
narcotics traffickers and their money laundering cohorts
exploit law enforcement's seniority system. When all of your
experienced senior agents are watching the Redskins game on
Sunday, leaving more junior, inexperienced hands on duty during
the infinite number of off days and legal holidays, the dope
comes in and the money goes out right past the people least
qualified to recognize what's happening.
Duty assignments can no longer reward those with the most
time in grade. We need those people in the field during high
risk periods.
Fourth, let's take a page from the business world. The
airlines of the United States routinely hire experienced
military aviators to be commercial pilots because they are
qualified. But instead of hiring qualified individuals from the
ranks of the business world, our Federal law enforcement draws
upon State and local enforcement where it is most unlikely they
will obtain agents with the skills necessary to identify and
interdict financial crime.
I realize that we'll have to pay these new hires from the
private sector more money than a young State or local police
officer. But we need business experience in the field of
business crime.
Fifth, we fail to field a sufficient number of law
enforcement staff in money laundering investigations. The
agents are vastly outnumbered by the number of major money
laundering operators. How can we hope to make serious inroads
affecting the multi-billion dollar multi-laundering engine when
we fail to detail sufficient staff to the task? Not to mention
that the actual dimensions of the scope of money laundering
activities are unknown and nobody seems overly concerned about
this critical gap in our knowledge.
Another applicable lesson from the Vietnam conflict was the
failure of our Government to realize how vastly outnumbered our
infantry was in the field. I fear that we are understaffed in
money laundering investigations in every major city where a
substantial amount of international trade occurs.
Last, we must adequately train our investigators. Send them
to the tax havens to learn the mechanics of offshore banking.
Take them into several financial institutions to understand the
problems and vulnerabilities. Instruct them in generally
accepted accounting procedures. Show them money laundering
scenarios from the perspective of how they can be detected
through adequate knowledge of business practices. Only then can
we expect to glean acceptable results.
After we have properly equipped our law enforcement to meet
the challenges of international money laundering, we must then
support them in their efforts by moving forward, by passing
pending legislation which will assist them. The prohibition of
commerce with tax haven banks and the Bulk Cash Smuggling Act
are but two notable examples of how this could be accomplished.
We must also begin to strictly enforce the laws we have. No
federally chartered commercial bank has ever lost its charter
for money laundering violations, no matter how serious the
crime. Senior bank officers themselves are rarely indicted for
money laundering. The institution simply pays a multi-million
dollar fine.
This has got to change. Only now are we going to name and
ostracize the most blatant offshore tax haven banks. We still
don't indict their presidents and directors for violation of
the Money Laundering Control Act. Make no mistake: money
laundering is financial terrorism. And unless we change the way
we attack its operations, it will not only flourish, but
continue to impact our lives in an adverse manner, whether
through the hotel in Georgetown purchased with laundered funds
or soft money funneled to achieve the goals of criminal
enterprise, or economic control of a friendly Third World
country.
If we don't vigorously attack its machinery, and disrupt
its operations, then the influence and power of narcotics
traffickers will continue to grow.
Thank you.
[The prepared statement of Mr. Rijock follows:]
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Mr. Mica. Thank you both for your testimony.
Reading back through your testimony, the testimony of our
first witness, Mr. Baker, you cite the problem, and I'm
concerned that I don't see harder recommendations for
solutions. We know what the problem is, everybody's testified
that there's a dramatic increase in money laundering. Some of
your recommendations here, consistency of regulatory
requirements and oversight of major sectors of community.
Again, maybe we could take a specific example. We received
information from the Russian Central Bank that this island
nation, this small island nation, is moving $70 billion. Now,
that seems fairly easy to track that in money flowing back into
the U.S. banks. Why can't we get a handle on going after these
folks or making it a matter of policy to search out money
laundering in a case like that?
Mr. Baker. Mr. Chairman, let me comment on the Russian
situation a bit more broadly, if I may. Out of Russia has come
something on the order of $200 billion to $500 billion over the
past decade, the greatest illicit diversion of resources that
has ever come out of any country in a short period of time.
Much of that money was criminal in origin, much of it was tax
evading in origin, much of it was theft by government
officials. It was a combination of all.
Let's take Bank of New York, for example. Bank of New York
went across the financial landscape of Russia with a vacuum
cleaner and sucked up every correspondent banking relationship
it could, perhaps not every one. But my understanding is
several hundred.
I would respectfully suggest that in the process of
establishing several hundred correspondent banking
relationships in Russia, you know going into that situation
that you're going to be handling a combination of criminal and
corrupt and commercially tax evading money, a combination of
stolen money. You know that. That was perfectly legal for them
to do, to establish such correspondent banking relationships.
Now, how can we necessarily expect to be able to control
what's going on in Nauru when we can't control what's going on
in New York City? We've received a great deal of money from
Russia through correspondent banks.
Mr. Mica. My question is, we know the money's coming in in
direct transfers and also through sham transfers, through
several other banking institutions, or covered corporations,
whatever, we have uncovered incredible sums of illegal money.
We have an instance here with an island nation where the
Russian banks give us information of $70 billion going through
a small island nation. And I don't know that we really pursued
that particular case actively. Is this a lack of will, a lack
of policy, a lack of law, a lack of being able to deal with
that kind of transfer activity?
Mr. Baker. Certainly we are hamstrung by a lack of law. The
solution to the problem is to have the power to cutoff
correspondent banking relationships.
Mr. Mica. You're saying that there is a lack of law that
does not allow us to go after, if we know where that $70
billion was transferred into the United States, we can't touch
it or go after it?
Mr. Baker. That's my understanding, Mr. Chairman. It
normally is transferred in in the form of overnight deposits
and frequently transferred back out again in the form of
overnight deposits. It's the ability to cutoff the overnight
deposits from tax havens and bank secrecy jurisdictions that
would give us the power of putting such island tax havens out
of business.
Mr. Mica. You testified, sir, that you didn't feel our
policy was proactive.
Mr. Rijock. No, sir, I do not. Going back to your example,
you wanted to know why the gentlemen that were sitting at this
table can't give you a straight answer to the question of where
is this money. The short answer is that the level of
sophistication of international money laundering is frankly
beyond the capabilities of the average law enforcement
individual.
Most law enforcement agencies neither have the budget, the
inclination or the staffing to send six people tonight to
Nauru, posing as tourists, to spend 3 months there, riding
around in taxicabs, acquiring intelligence, talking to
individuals, engaging in bogus transactions, to learn how it
works. Not to mention the fact that the moment they get off the
plane, they're made by somebody in the hire of one of these
institutions or one of the criminal cartels.
The transfers that you're referring to, sir, are intricate
and quite complex. They involve what's called layering. What
would happen is, let's take $5 million sitting in a bank
account in Nauru. The next day it goes to Taiwan; 2 days later,
it's in the account of a French mortgage company; 3 weeks later
it ends up in a Panamanian corporation with bearer shares.
It ends up being used to obtain a loan in a western
European country, totally kosher. Comes into the United States
and only if somebody wants to backtrack 17 steps and has the
time and is not under pressure from his own bureaucracy to come
up with fast results, can that individual actually criss-cross
the globe and come up with those answers.
And if money laundering institutions which are very well
organized by now know that, we're not talking about people from
Miami with gold around their neck, sir. We're talking about
people with Ivy League law and MBA degrees who sit in some of
the biggest cities in the United States and form overseas
companies without so much as picking up a telephone. We're
talking about organizations that are so sophisticated that they
almost defy description.
And they've been in place now for 20 years, they're getting
better and better. And that's why more money is moving.
Mr. Mica. Do you believe that there are enough laws on the
books or adequate laws to deal with this situation,
domestically? And then what are the problems internationally?
Mr. Rijock. Well, the international problem appears to be a
failure of purpose. We treat Iraq, Iran and any other terrorist
country to a level at which we can deal with the problem.
Financial terrorism is money laundering. And we have yet to
come to the conclusion that that's just as much a clear and
present danger to our country as gas warfare from Iraq.
In 1 week, we could shut down these tax havens. But nobody
in the present administration, quite candidly, wants to pick up
the ticket for that. All we would have to do, sir, is No. 1,
shut off air travel, just like we do to the terrorist nations.
No. 2, declare that for national security purposes there shall
be no more banking relations between American banks and banks
in those tax haven countries.
And three, let's take all these foreign branches that all
of our big banks in the United States have in the tax havens
and let's declare them defunct. Our Government has got the
ability to do these things. As to whether or not somebody's
going to get serious with it is another story.
The traffickers just keep making more and more money. Last
year, they literally took over the government in St. Kitts. And
they turned it into the world's first narco-dictatorship. Well,
that's the shape of things to come. We're going to find that
more and more of these tax havens are going to have so much
wealth and so much power they don't need our tax dollars, they
don't need our aid money, they don't need anything from us
except to be a conduit for dirty money, sir.
Mr. Mica. Well, the other problem we have is even if we
gave Treasury, say, the authority to cutoff correspondent bank
accounts, would the Treasury use that authority, the will to
even implement that type of action. What do you think, Mr.
Baker?
Mr. Baker. That's the key question, Mr. Chairman, would we
have the will to do so. And I'm not certain of that. These sums
bring a great deal of money into the United States. And they
are mixed, criminal inflows are mixed with commercial and
corrupt inflows. And we have not yet decided that we want to
cutoff the whole of the dirty money problem.
If I may, Mr. Chairman, comment a bit on Mr. Rijock's
statement. I agree with his analysis of how you move money from
one place to another. And he says this has been going on for 20
years.
I would like to make the point that the process of moving
corrupt and tax evading money out of developing countries and
now transitional economies has been going on for decades and
decades, a long time. It is precisely the same process. There's
no difference in the process.
We created the channels through which that kind of money
flows. Money launderers have not invented any new ways of doing
this. They have merely stepped into the same procedures that we
have cultivated and used to move corrupt and tax evading money.
For 35 years, I've been in the private sector before coming
to Brookings Institution, doing business all over the world,
including consulting and advisory work. I have never heard of a
scheme in the business of moving criminal money that I have not
observed first in the business of moving corrupt and tax
evading money. We attach the name money laundering to that part
of the process that we don't like. We attach the names good
business and good banking to the parts of the process that we
do like.
But the process is the same across all three forms of dirty
money.
Mr. Mica. So Mr. Rijock, you have cited both in your
testimony and in response to a question that the need to really
have a qualified force of professionals, because this is a very
complex trail that you have to pursue and it takes a certain
amount of skills. And you say that we don't have those forces
in place to deal with the modern transactional pattern that
these money launderers are developing.
Mr. Rijock. Well, our problem, sir, is that we generally
take our law enforcement from people who are already on duty
and transition people who are involved in interdicting other
crimes into financial crime. We don't take people who have come
from a business background. That's a rare exception in my
experience.
I've been teaching money laundering all across North
American for 8 years. And I'll stand up in front of the class
and I'll hold up a copy of Money Laundering Alert, which for
anybody in this business, it's the Time magazine of money
laundering. Two-thirds of the people in the room won't even
know what it is, which means that there's a basic lack of
information intake.
Mr. Mica. They also trashed it today.
Mr. Rijock. Yes, I understand that, sir, because of the
article on the 24 percent.
Mr. Mica. It appears that they've at least monitored the
same type of activity, which was prime money laundering case
referrals over that period. So that should be an accurate
reflection or at least a snapshot of that activity?
Mr. Rijock. Well, sir, the basic problem is priorities. If
you were to take somebody in Federal law enforcement and ask
them which do they want to go after first, the drugs or the
money, they will always tell you they want the drugs today and
the money tomorrow. Independent money laundering investigations
where that's the only thing they're going after is a money
laundering syndicate, are not anything compared to the number
of criminal narcotics investigations.
And that's where we go wrong. Because we're not putting up
a Chinese wall between our white collar crime people and our
drug people. Problem being that there's always going to be
pressure to show results that play very well on the 6 o'clock
news. And 500 kilos of cocaine looks a lot better than one
cashier's check for $100 million from a bank in the South
Pacific. That's the basic problem, it's a priority problem.
Mr. Mica. Well, we know who some of the enemies are. Now
they've identified them, I think they've identified the 15 top
offenders. What do you think should be done next? It doesn't
sound like they have a game plan in place to deal with these
top offenders. How would you proceed?
Mr. Rijock. Sir, when I teach my class, I hand out to them
a list produced by the Commissioner of Internal Revenue in
1981, which lists all of the major tax havens of the world.
With a few additions, it's basically the same. We have known
for two decades about these tax havens. Calling them outlaw
financial institutions, denominating them as such, doesn't do
anything. If you look at a few days before the FATF came out
with its list, all of a sudden you find that both Bermuda and
the Cayman Islands are now rushing to say that they are now
going to expose their records to us for tax evasion issues.
However, if you look at it closely, you'll see that they'll
do some of it in 2003 and the balance by 2005. Well, I can tell
you from my own experience that within 1 week, I would have
moved all of my clients' dirty money out of the Cayman Islands
and into a tax haven not on the list or too new to be
recognized, or created just for that purpose.
And it's just window dressing, sir. Calling them tax
havens, all it does is put it out in the public what everybody
has known for two decades. We need to do something a lot more
proactive. And that is, we need to make them financial pariahs.
If we don't do that, we'll never stop it.
Mr. Mica. Mr. Baker.
Mr. Baker. Mr. Chairman, going along with Mr. Rijock's
point, I have stated earlier, 4 or some months ago, that I
would give these tax havens and bank secrecy jurisdictions 18
months to pass U.S. anti-money laundering scrutiny. And if they
did not do so by implementing the necessary anti-money
laundering procedures that are required by FATF, the 40
recommended procedures, then they would lose their
correspondent banking relationships with the United States at
the end of that time.
That's a tough approach. I would give them no more than 18
months to satisfy us that their anti-money laundering
procedures are in place and working.
Mr. Mica. Possibly we need money laundering certification
law that would encompass that provision. That might be
interesting.
Mr. Rijock. The problem, sir, is time. And we don't have
time any more. Because narcotics traffickers have had so many
years to consolidate their gains, to double the production of
cocaine. If we're going to wait 18 months to finally clamp down
the hammer, 18 months from now the FARC may control Colombia.
Eighteen months from now, there may be more heroin on the
street in Orange Country than there is in China.
We can't really wait that long. Some group----
Mr. Mica. I think we're already there on both accounts.
Mr. Rijock. I know, but some agency has to pick up the
responsibility to prioritize this issue. It can no longer be
one where it's one of the six things that the agency does, and
it does it because it's got a mandate to do so. Frankly,
although I really am a foe of governmental bureaucracy, it
might be time to create a new agency, an agency whose sole
operation is to disrupt financial crime. Not to handle
kidnappings, not to handle narcotics. Just to go after the
proceeds of crime.
And we have to remember that that's what this is. These
funds are the proceeds of crime. We cannot stop narcotics from
coming into this country in a free and open society. But we can
sure as heck shut down these organizations by taking away their
profits.
Mr. Mica. Would you recommend that both on a domestic and
international or separate them out?
Mr. Rijock. Well, I think, frankly, the international
sphere is the one in which we have fallen down so far. That's
the one in which, when I have a group of students in the room
and I find that not one of them has ever even been to the tax
havens, how would they even understand and identify the problem
if they're not familiar with it?
Granted, it's a much more difficult task if you couple
domestic with international money laundering. Domestic money
laundering, thank God, it's here. We can seize assets here, we
can arrest bankers, we can arrest individuals. Overseas, people
may be totally immune from prosecution for political, economic
or monetary reasons. So the international one is the first
priority.
I would hope that our law enforcement agencies in the
United States could eventually get a handle on domestic money
laundering, as they have passed a number of the serious banking
regulation code.
Mr. Mica. Are either of you familiar with whether the EU or
the U.N. are doing anything in this regard?
Mr. Baker. The EU, Mr. Chairman, is only now in the process
of passing, EU countries are only now in the process of passing
regulations to outlaw bribery of foreign government officials.
Neither of us, the EU or the United States, have yet made
handling the proceeds of corruption an offense under anti-money
laundering legislation. That is included in Strategy 2000. And
that's in my judgment by far the most important provision in
Strategy 2000.
It is also in the House and the Senate bills. There are
other important provisions in those bills also.
Mr. Mica. Anything particularly lacking in the Strategy
2000 you might recommend to enhance the effectiveness of that
legislation? Both the legislation that's pending and also the
strategy.
Mr. Baker. The thrust of my testimony, Mr. Chairman, has
been that we have to include corruption and commercial tax
evasion within the scope of dirty money that we are trying to
address. Secretary Summers made a very interesting statement at
the beginning of the week. He said, ``In today's economy, it is
vital that we put an end to international tax practices that
encourage tax evasion and improper tax avoidance and that
disrupt capital flows.''
Mr. Chairman, when we take that sentiment and put it into
Strategy 2001, make it a part of U.S. policy, then in my
judgment we will for the first time have taken the steps
necessary to begin to curtail the dirty money problem,
including the money that is laundered by criminals. For the
first time, we will have encompassed a policy that can be
effective.
Mr. Mica. Mr. Rijock.
Mr. Rijock. Mr. Chairman, to answer your question about the
European Union, we're in this all by ourselves. You need to
understand a little bit about money laundering history. Money
laundering statutes are taken directly from the Swiss model.
The only impact that the European Union now has on the tax
haven countries in the Caribbean is that they are expressing
their intense displeasure with the fact that the money
laundering tax havens are now pulling money out of the European
tax havens, as for example, the Channel Islands.
We cannot expect to get any help from that quarter.
Unfortunately, they complicate our problem, because they
provide another venue on a very sophisticated level. I think
that money laundering is an American problem and we need to
apply an American solution.
When I used to launder cash in the Caribbean, and I would
sit out there on the porch in St. Martin and drink a cup of
coffee and watch the sun come up, I wondered, one of these
days, am I ever going to see an American aircraft carrier out
there, and are the Marines going to come ashore, arrest all the
bankers, close down the banks, take the records, take them to
Miami, and charge all those people in Federal court with money
laundering. Well, that's never happened. Because nobody's
decided that it's important enough.
And crossing the border, unfortunately, unless it's
Grenada, is not politically correct. The bottom line, sir, is
that it's a threat to our national security and nobody has yet
reached that point in their development.
When we find that there are rumors about narcotics
traffickers sending huge amounts of money to aid in political
campaigns in the United States, when we find that they out and
out aid political campaigns all over Central and South America,
we should get nervous about that. But somehow, I'm not seeing
that. It's out of hand, sir.
And as far as a result, it's time for drastic measures.
Because for the Government to come in here and say, well, we're
looking at this and maybe in 2 years we'll have a handle on it,
well, within 2 years, these organizations will make billions or
trillions of dollars, will become infinitely larger, more
powerful, will hold so much more in the way of assets that
before you know it, we may find ourselves unwelcome in a number
of countries in Latin America because we're not supplying the
bulk of the money. The traffickers are.
Mr. Mica. Well, I want to thank both of you for your
testimony today. We are an investigations and oversight
subcommittee of Congress, and we are trying to look at all of
the aspects of illegal drug activity. In addition to that, we
do oversee Department of Justice and some of the other agencies
as far as the criminal justice system is concerned. We are
looking for solutions, looking for problem areas and how we can
get a better handle on this and keep legislation up with
changing times and challenges.
And also, to pursue agencies, both their current activities
and future initiatives. And that's the purpose of today's
hearing, is to see how we can do a better job and prompt them
to action.
I want to thank both of you again for your testimony, for
your participation and contribution today. Hopefully it will
help us as we do our job.
And with that, the subcommittee stands adjourned.
[Whereupon, at 11:45 a.m., the subcommittee was adjourned.]
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