FROM THE OFFICE OF PUBLIC AFFAIRS

Good afternoon. It is my pleasure to be here today to speak about money laundering and how the Clinton Administration is attacking the problem. Allow me to begin by first thanking Wilmer, Cutler & Pickering for hosting this conference and bringing together leading members of the financial and legal communities as well as the legislative branch and law enforcement to discuss this issue. Also, I'd like to thank our panelists for their valuable contributions. Exchanges such as these are enormously beneficial and we at the Treasury Department look forward to hearing your views.

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

That response was fundamentally changed for the better last fall when Secretary Summers and Attorney General Reno introduced the first ever National Money Laundering Strategy. For the first time, we had an integrated approach to combating money laundering, at home and around the world, through both law enforcement and banking supervision, with government policies as well as public-private partnerships. Building upon that strong start, the latest edition of our Strategy was unveiled last month and gives a detailed plan of action for this year.

The National Money Laundering Strategy for 2000 contains over sixty separate action items that involve efforts along a broad range of fronts. It addresses our attempts to strengthen domestic enforcement, to enhance the measures taken by banks and other financial institutions, to build stronger partnerships with state and local governments, to bolster international cooperation, and, to work with the Congress to give the Treasury and Justice Departments critical new tools to combat international money launderers and those foreign jurisdictions that are willing to offer them no-questions-asked banking services.

Lest anyone be skeptical, let me assure you that our Strategy is not simply another white paper - to be announced with fanfare, then shelved and soon forgotten. Everyone of its action items identifies the government office, including my own, that is accountable for implementation and for meeting the specified goals and milestones laid out for the balance of this year. We are very cognizant of the threat that money laundering poses both to the United States and to the rest of the world and we are very serious about our responsibility to address it.

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

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

Secretary Summers has long pointed out that an effective response to money laundering must involve more than just law enforcement. He is absolutely right. And we in the federal law enforcement community have understood this for some time. As a threat to the credibility and integrity of our financial institutions, money laundering deserves a systemwide response. Law enforcement, in and of itself, can only do so much - investigating crimes and assisting prosecutors. When it comes to money laundering, the other principal stakeholders in our financial system need to recognize and accept their responsibilities, to see that this is not just a compartmentalized problem for law enforcement, but a common and mutually assisted effort to make our system less vulnerable to the abuses and depredations of money launderers.

Fortunately, this wider perspective in addressing the money laundering threat is taking hold. From state and local governments, to the financial services industry, from banking regulators to the community of international organizations, there is a growing understanding of and concern with money laundering. How banking regulatory agencies in the United States are acting on this is a key element in our national Strategy.

In this regard, a first step in the Strategy was to require the federal banking agencies, in cooperation with the Treasury Department, to review existing bank examination procedures related to the prevention and detection of money laundering at financial organizations. Ever since first being mandated by the Money Laundering Suppression Act of 1994, these procedures have represented a significant step forward by the regulatory agencies in their supervision of the implementation of the Bank Secrecy Act and other anti-money laundering measures. While these original procedures have generally worked well, the recent review called for by the Strategy looked to identify areas where they might be improved.

In general, the bank regulatory agencies agree that their approach to anti-money laundering supervision needs to be risk-focused, with their resources concentrated upon those institutions that are most susceptible to money laundering. Additionally, these agencies either have or are developing procedures to address high-risk areas such as private banking, payable through accounts and wire transfer activity. Finally, these agencies again either have or are developing procedures to deal with newer trends such as electronic banking and foreign correspondent accounts.

The second step for the banking regulators, contained in this year's Strategy, calls for completing the revised procedures, field testing them, making necessary changes based upon that field testing, and, ultimately, finalizing these second generation procedures.

Beyond revising their examination procedures, the banking agencies are working with other regulatory agencies and law enforcement to develop Bank Secrecy Act and anti-money laundering training modules. These will include information pertaining to recent cases, several of which were detected during examinations of financial institutions. In this way, they will be offering new, unique, and particularly timely training, derived from the experiences of many agencies and directly benefiting examiners.

By broadening awareness of money laundering as a threat that requires an array of counteractions, it is not our intention to punish or impose greater burdens on the U.S. financial services community but rather to elicit their participation and support in the common effort. We recognize the need for guidance on how to identify and scrutinize activity occurring through high-risk accounts. Treasury is convinced that the first step in this process is one of education so that we may develop informed guidance for American financial institutions. Do not look for new regulations in this area. By the end of the year, we want to have out guidance for enhanced scrutiny by financial institutions on certain high risk accounts.

In drafting this guidance, we will work directly with the U.S. financial community. We aim to attain a consensus as to what kinds of accounts and financial activities are most susceptible to criminal abuse and how we might better guard against their illicit use. At the end of this process, we want to be able to say that we have helped the financial services community more efficiently deploy its own resources to look for potential money laundering. Keep in mind that we view our partnership with you as a very critical component of our success here. We will be relying on you to help us make sure that our own houses are in order as we go on to try to advise and assist others around the world.

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

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

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

As I mentioned earlier, we are growing in our understanding of money laundering as a criminal threat and our Strategy addresses several newer areas where we feel it must be countered. The first of these involves the Black Market Peso Exchange System, a money laundering system primarily used by Colombian narcotics traffickers to repatriate perhaps as much as $5 billion annually to their homeland. We are intensifying and expanding our efforts to increase the business community's awareness of this system so that it will be better able to discern patterns of payments that may indicate a corporation is being used to facilitate a black market peso exchange. Payments coming from strange sources, or unusually large bulk cash payments can be cause for concern and may represent funds that are being laundered. Employees need to be alert to telling signs and we will be helping businesses recognize those signs. The Customs Service will be identifying exporters manipulated by this system to focus our outreach and education. We will then implement a Business-Government Partnership that will be a critical piece in disrupting the system and insulating companies from this scheme.

Another area with a vulnerability to money laundering is the securities industry. For the last several years, our Financial Crimes Enforcement Network (FinCEN) has worked with federal and state securities regulators, law enforcement, self-regulatory organizations and representatives from the securities industry to come up with an effective and practical system to detect and report suspicious transactions conducted by brokers and dealers. The products and services of the industry, - the efficient transfer of funds between accounts, the ability to conduct international transactions, the liquidity of securities, - provide opportunities to hide and move criminal proceeds. By the end of this year, we hope to have a proposed rule for the reporting of suspicious activities by brokers and dealers along with a draft reporting form and guidance for industry compliance.

Highlighted during hearings last year by Senator Levin's Permanent Subcommittee on Investigations, was the threat of money laundering in private banking services. We know that, for the most part, private banking is entirely legitimate, but it is a service that can be abused by money launderers. Our development of guidance to bankers on enhanced scrutiny of high risk accounts will help here as will the revised bank examination procedures that regulators are finalizing. Additionally, since Senator Levin's hearings centered upon foreign corrupt officials, we feel that the Administration's legislative proposal to make foreign corruption a money laundering predicate will go a long way toward preventing these abuses.

Finally, we suspect that money laundering vulnerabilities exist in the operations of other financial service providers such as the insurance industry. We are initiating a review of those providers defined under the Bank Secrecy Act to see if it is now appropriate to expand suspicious activity reporting to some or all of them. Our study group will report its findings, including its recommendations on extending reporting requirements by year's end.

Money laundering is a pervasive threat, undermining the integrity of our financial institutions while supplying the capital that underwrites the often dehumanizing and bloody criminal activity so repugnant to lawful societies. We are pledged to meet it head-on, as effectively and comprehensively as humanly possible.

Thank you for this opportunity to speak to you today. I would be pleased to answer any questions.