[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
                          TERRORIST FINANCING:
                 IMPLEMENTATION OF THE USA PATRIOT ACT
=======================================================================






                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 19, 2002

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 107-83











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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice      BARNEY FRANK, Massachusetts
    Chair                            PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska              MAXINE WATERS, California
RICHARD H. BAKER, Louisiana          CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama              LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware          NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma             KEN BENTSEN, Texas
ROBERT W. NEY, Ohio                  JAMES H. MALONEY, Connecticut
BOB BARR, Georgia                    DARLENE HOOLEY, Oregon
SUE W. KELLY, New York               JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                MAX SANDLIN, Texas
CHRISTOPHER COX, California          GREGORY W. MEEKS, New York
DAVE WELDON, Florida                 BARBARA LEE, California
JIM RYUN, Kansas                     FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama                   JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio           JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina      CHARLES A. GONZALEZ, Texas
DOUG OSE, California                 STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois               MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin                HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania      RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona             RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York              JOSEPH CROWLEY, New York
GARY G. MILLER, California           WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia                STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York       MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania         
SHELLEY MOORE CAPITO, West Virginia  BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio

             Terry Haines, Chief Counsel and Staff Director
















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 19, 2002...........................................     1

Appendix:
    September 19, 2002...........................................    47

                               WITNESSES
                      Thursday, September 19, 2002

Dam, Hon. Kenneth, Deputy Secretary, Department of the Treasury..    32
Larson, Hon. Alan, Under Secretary for Economic, Business and 
  Agricultural affairs, Department of State......................    35
Mueller, Hon. Robert S., Director, Federal Bureau of 
  Investigation..................................................     4

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    48
    Clay, Hon. Wm. Lacy..........................................    50
    Grucci, Hon. Felix J. Jr.....................................    51
    Israel, Hon. Steve...........................................    52
    Jones, Hon. Stephanie T......................................    54
    Dam, Hon. Kenneth............................................    55
    Larson, Hon. Alan............................................    70
    Mueller, Hon. Robert S.......................................    77

              Additional Material Submitted for the Record

Dam, Hon. Kenneth:
    Written response to questions from Hon. Michael G. Oxley.....    85
Mueller, Hon. Robert S.:
    Contributions by the Department of the Treasury to the 
      Financial War on Terrorism, Fact Sheet.....................    88












                          TERRORIST FINANCING:
                 IMPLEMENTATION OF THE USA PATRIOT ACT

                              ----------                              


                      Thursday, September 19, 2002

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to call, at 10:08 a.m., in Room 
2128, Rayburn House Office Building, Hon. Michael Oxley 
[chairman of the committee] presiding.
    Present: Representatives Leach, Bachus, Royce, Ney, Kelly, 
Shays, Miller, Grucci, Hart, Capito, Rogers, Tiberi, LaFalce, 
Waters, Maloney of New York, Watt, Bentsen, Maloney of 
Connecticut, Sherman, Meeks, Inslee, Moore, Lucas, Clay, and 
Israel.
    The Chairman. [Presiding.] The committee will come to 
order. We would like to welcome the director--distinguished 
director of the Federal Bureau of Investigation, Bob Mueller, 
to the committee.
    Director Mueller, the committee welcomes you and later on 
we will welcome Treasury Deputy Secretary Dam and 
Undersecretary of State Larson.
    Disrupting terrorist financing is an issue of utmost 
importance and we appreciate your being here today. A year ago 
last Wednesday, our nation suffered its worst ever attack. The 
president and Congress immediately began work on a number of 
fronts including an effort to strangle the money supply that 
fuels international terrorists. The president expanded the 
government's ability to block and freeze assets and 
transactions of terrorists and terror organizations.
    One month after the attacks, this committee passed the most 
far-reaching anti-money-laundering legislation in more than two 
decades, aimed at giving the government even more tools to 
disrupt terror financing and to stop the laundering of money 
from other illegal activities. The USA PATRIOT Act was signed 
into law by President Bush October 26, and is a source of great 
pride for this committee.
    Director, as you well know, that effort was only the 
beginning of the job. Some of the first arrests with the new 
powers laid out in the Act came just three days after the 
signing, in Boston and in Minnesota and in my home state of 
Ohio. But the legislation laid out a strict timetable under 
which the Treasury Department was to promulgate regulations 
spelling out the way financial institutions, and a broad array 
of other businesses in this country, were to carry out their 
new duties. It was a Herculean task, and we have closely 
monitored the progress.
    Now with the issuance yesterday of three final sets of 
regulations and two proposed regulations, the regulatory work 
on these new tools to stop dirty money is largely done. And I 
think we can now all step back and applaud the hard work 
Treasury has performed in drafting the regulations, and the FBI 
and others have done to apply them.
    Looking forward we must ask if there are other holes we 
must plug. Did we ensure that the extra burdens we placed on 
businesses are rewarded with the sure knowledge that more dirty 
and terror money is being stopped? Have the terrorists and 
traffickers regrouped to move their assets into other channels? 
And can we devise new ways to stop it? I think the answer to 
all those questions is, yes.
    The administration has seized more than $34 million, and 
worldwide more than $112 million has been seized. However, a 
United Nations report that will be released today says, "The 
terrorists still have access to sizable chunks of money." And 
reports have indicated that they have transformed cash into 
commodities, from heroin to gold, and are moving and using it 
in a form to fund their efforts.
    Director, this is good news. It means the PATRIOT Act is 
working, squeezing bad money out of the system and into forms 
that are harder to move and easier to interdict.
    Director, we look forward to your report on the FBI's 
success at stopping or interrupting terrorist financing 
mechanisms. We are interested to know if you have identified 
any new tools you need or changes you believe are necessary in 
the Act to make it more effective.
    I also hope Deputy Secretary Dam will fill us in on the 
Secret Service's successes in stopping counterfeiting of U.S. 
currency using the new tools on that front, from the PATRIOT 
Act. And on whether passage of the bill by the gentleman from 
New York, Mr. King, that would authorize the Bureau of 
Engraving and Printing to print currency for other countries, 
would help strengthen their economies and help squeeze out 
terrorism. That language also was part of the House anti-money-
laundering legislation, but fell out in conference. Director 
Mueller, we thank you again for your time. And I now yield the 
chair--or yield the floor to the gentleman from New York, Mr. 
LaFalce.
    Mr. LaFalce. Thank you very much, Mr. Chairman
    One year ago this week our entire nation and the world 
struggled to recover from the shock and the trauma of the 
September 11 terrorist attacks. Shortly thereafter, all of us 
came together at a crucial time in our nation's history, and in 
the wake of the most egregious acts of terrorism ever on U.S. 
soil, to enact far-reaching and meaningful money laundering 
laws.
    Today we examine the progress made thus far in implementing 
those new powers. In the previous Congress, the 106th Congress, 
I authored and then Banking Committee Chairman Jim Leach joined 
with me in introducing legislation, bipartisan legislation, to 
enhance the federal government's ability to protect our nation 
against money laundering threats world wide. We worked very 
closely with the then Deputy Secretary of the Treasury Stu 
Eizenstat on that.
    And our banking committee took up the bill and we passed it 
on a nearly unanimous vote of 33 to one. I think it was 
Representative Paul who voted against it. But unfortunately, 
even after a 33 to one vote, the Republican leadership never 
scheduled a bill for House floor consideration.
    And early in the 107th Congress, I reintroduced the bill, 
which as it now turns out, became one of the most important 
provisions in title three of the PATRIOT Act. My bill proposed 
to do something that had never been done in the history of 
anti-money-laundering legislation. It created a flexible set of 
practical authorities for the treasury secretary that could be 
invoked against specific money-laundering threats.
    Prior to the enactment of the PATRIOT Act, successive 
treasury secretaries were limited in their ability to take 
proactive action on money laundering matters. After the tragic 
events of September 11, the need for stronger, more effective 
measures became quite clear.
    As a result of the PATRIOT Act, which again includes the 
legislation I authored, the Treasury Secretary will have more 
flexible anti-money-laundering powers to tackle the abuses of 
our financial system by terrorist and criminals with much more 
effectiveness. Under the PATRIOT Act, the secretary can 
identify a region, a particular institution and even a foreign 
jurisdiction, as an area of primary money laundering concern, 
and impose a series of special measures. The secretary can 
prohibit certain transactions with certain countries or 
regions, or require collection of certain information that 
could be enormously useful in tracking the financial dealings 
of terrorists or block the opening of accounts in the U.S. by 
banks and other financial institutions in such jurisdictions.
    Unfortunately, the administration has not used the new law, 
to my knowledge, to declare any part to the world, through 
which terrorists funnel their cash, as an area of primary money 
laundering concern. If that is incorrect, I can be so advised.
    It is clear that the more we learn about terrorist 
financial networks, and the various countries through which 
their money passed, the more compelling it becomes for the new 
measures to be invoked. By failing to impose, or even to 
threaten to impose, a special measure, I fear that the 
administration may be missing an opportunity to seek permanent 
changes in countries that need to be more cooperative in the 
fight against terrorism.
    It is my understanding the Treasury is working internally 
to develop the most effective way of taking advantage of the 
secretary's new authorities, and I certainly support those 
efforts. And I look forward to hearing from Treasury's witness, 
Deputy Secretary Dam, on that, and hope he will shed more light 
on it.
    I also want to note that yesterday the Treasury did 
finalize two regulations pursuant to the PATRIOT Act. One 
specifying the steps financial institutions must take to comply 
with the act's prohibitions on the opening of correspondent 
accounts with shell banks, and the other relating to 
information sharing among financial institutions, regulators 
and law enforcement. I am hopeful that soon we will see a 
proposed regulation to implement section 3-11 of the Act, which 
would facilitate the imposition of anti-money-laundering 
measures against rogue jurisdictions.
    Now, Mr. Mueller, you are the head of the FBI. And this 
past weekend the FBI arrested six individuals from the greater 
Buffalo, New York area. And I commend you on those efforts. 
Within a week after the September 11 attacks, I met with the 
leadership of the Muslim community at Buffalo State College. 
And as I looked at the list of the attendees, one of the 
attendees was one of the six, so I did have about a two hour 
meeting.
    This matter is beyond the concern of this committee, but it 
is of deep concern to me. It is an appropriate time whether it 
is in your questions and answers or now. I am not sure what you 
can say publicly. I will leave that up to your discretion, and 
I will abide by it, but I am a little curious about the 1996 
law under which these individuals have been charged. And I am 
curious as to whether the factual nexus, that might exist, is 
adequate to support the charges under the 1996 law. And I am 
sure you believe they are, and I would just like to have some 
brief explanation of that. This is a large issue.
    The Chairman. The gentleman's time has expired. Is there 
further--are there further opening statements. Noting none, we 
now turn to the distinguished director of the FBI.
    Mr. Mueller, thank you again for appearing.
    Could you turn your mike on, please?
    Mr. Mueller. On now?
    The Chairman. There we go.

 STATEMENT OF HON. ROBERT S. MUELLER, DIRECTOR, FEDERAL BUREAU 
                        OF INVESTIGATION

    Mr. Mueller. There we go.
    Good morning, Chairman Oxley, and thank you for having me. 
And good morning Congressman LaFalce, and other members of the 
Committee. I appreciate this opportunity to discuss the work of 
the Terrorism Financial Review Group and our use of the 
provisions contained in Title III of the USA PATRIOT Act, also 
known as the International Money Laundering and Anti-Terrorist 
Financing Act of 2001.
    I would like to thank the members of this committee, and 
this Congress, for your prompt and comprehensive response to 
the terrorist threat we face. I would also like to thank the 
Treasury Department and Secretary O'Neil for their crucial 
assistance in this endeavor. The USA PATRIOT Act provided law 
enforcement powerful tools to carry out our mission. And as we 
use these tools in an aggressive, but responsible manner, the 
act will significantly help us achieve our overarching goal, 
and that is to prevent future acts of terrorism.
    As you know, civilized countries face grave threats from 
terrorists. As the President stated, the war on terrorism is a 
long-term battle. It will not be won overnight nor without the 
extraordinary cooperation and coordination among law 
enforcement and intelligence agencies around the globe. 
Terrorism knows no borders, and the threat is not limited to 
any one region of the world. Creating an alliance between law 
enforcement and intelligence agencies is the key to dismantling 
terrorist organizations and eliminating the threat they pose.
    Terrorists do not play by the rules of a civilized society. 
Fighting the war on terrorism requires new and formidable tools 
and a multi-agency approach. After 9/11, more than one-half of 
our agents, almost 6,500 out of 11,500, were assigned to 
identify the hijackers and their international sponsors and, 
most importantly, with other agencies, prevent the next attack.
    Today, the number of FBI Agents assigned to combating 
terrorism is twice the number of our pre-9/11 commitment. And 
we will apply to prevention whatever level of resources is 
necessary to address this threat. In addition, 9/11 has 
triggered a wide range of organizational and operational 
changes within the FBI.
    One such is the setting up of what is now called the 
Terrorism Financial Review Group. And I want to spend a few 
moments today talking about the TFRG, but also talk about the 
anti-money-laundering provisions of the PATRIOT Act.
    In order to illustrate how these anti-money-laundering 
provisions aid our efforts, it is necessary for me to spend a 
few moments explaining how the FBI has been re-structured to 
address terrorist financing matters.
    Identifying and tracking the financial structure supporting 
terrorist groups is critical to dismantling the organization 
and preventing future attacks. As in ordinary criminal 
investigations, following the money identifies, links, and 
develops evidence against those involved in criminal activity.
    In the early stages of the investigation into the events of 
September 11, it was financial evidence that quickly 
established links between the hijackers and identified co-
conspirators, particularly those co-conspirators overseas. It 
was also in the early stages of the 9/11 investigation that the 
FBI and the Department of Justice identified a critical need 
for a more comprehensive, centralized approach to terrorist 
financial matters. And in response, we established an 
interagency Terrorism Financial Review Group operating out of 
FBI Headquarters. By bringing together vast databases and the 
expertise of numerous federal agencies, the TFRG focuses a 
powerful array of resources on the financial tentacles of 
terrorist organizations.
    As Chairman Oxley, you well know having been an FBI agent, 
the FBI in the past has principally been based on office of 
origin where investigations are conducted out of particular 
field office that has the responsibility of conducting such 
investigations. What we have done with the TFRG is set up a 
centralized--a centralized review group that will assist, not 
just one particular investigation, but any terrorist 
investigation whether it be within the United States or around 
the world.
    Now, after September 11th, the FBI and CIA quickly combined 
our resources to investigate terrorist funding mechanisms, 
including exchanging of personnel between the FBI and the CIA 
Counterterrorism Center. In addition, after decisions with 
George Tenant, the CIA has generously agreed to detail a number 
of its analysts to the FBI Counterterrorism Division to help 
develop more effective analytical processes.
    I believe that the relationship and information sharing 
with the CIA is at an unparalleled level and will continue to 
pay dividends in our common mission, particularly when it comes 
to addressing terrorist financing. Now, information sharing has 
also been facilitated by PATRIOT Act provisions that permit the 
FBI to disclose foreign intelligence information, including 
information obtained through FISA, to the intelligence 
agencies, and exchange of information, that prior to September 
11, prior to the PATRIOT Act, was precluded.
    Now, the TFRG was formed with a two-fold mission. First, it 
was designed to conduct a comprehensive financial analysis of 
the 19 hijackers to link them together and to identify their 
financial support structure within the United States and 
abroad. Second, it was designed as a template for preventive 
and predictive terrorist financial investigations. And the 
mission of the TFRG has since evolved into a broader effort to 
identify, to investigate, to prosecute, to disrupt, and to 
dismantle terrorist-related financial and fund-raising 
activities.
    The TFRG has taken a leadership role in coordinating the 
financial investigative effort, and it is a comprehensive one. 
To accomplish this mission, it has implemented initiatives to 
address all aspects of terrorist financing.
    For instance, it conducts full financial analyses of 
terrorist suspects and their global financial support 
structures; coordinates liaison and outreach efforts to exploit 
financial resources of private, government and foreign entities 
along with the Treasury Department; uses FBI and LEGAT 
expertise and relationships to develop financial information 
from foreign law enforcement and private agencies; works 
jointly with the law enforcement, regulatory, and intelligence 
communities; develops predictive models and mines data to 
proactively identify terrorist suspects. And it provides the 
financial component to classified counterterrorism 
investigations in support of the FBI's counterterrorism 
responsibilities.
    The TFRG has conducted an international outreach program, 
along with Treasury, to share information regarding terrorist 
financing methods with the financial community and with law 
enforcement, and we have built upon long-established 
relationships with the financial services community in the 
United States and abroad.
    The international outreach initiative is coordinated 
through the network of FBI Legal Attache Offices located in 44 
key cities worldwide, and providing coverage for more than 200 
countries and territories.
    Now, a significant focus of this review group is prediction 
and prevention. It has developed numerous data mining projects 
to provide further predictive abilities and to maximize the use 
of both public and private database information. These efforts 
are complemented by the centralized terrorist financial 
database which the TFRG has developed. This information is used 
to identify terrorist cells operating in the United States and 
abroad to prevent further terrorist acts.
    And indeed, the TFRG meets regularly with representatives 
from the banking community and the financial services industry 
to share information and to refine methods to detect and 
identify potential terrorists around the world.
    The TFRG created and updates a financial control list which 
contains names and identifying data for individuals under 
investigation for potential links to terrorist organizations. 
These lists are regularly shared with domestic and 
international law enforcement and intelligence agencies, and 
with the Federal Reserve Board, which disseminates the lists to 
financial institutions so they can flag suspicious financial 
activity.
    As a participant on the National Security Council's Policy 
Coordinating Committee on terrorist finance, the TFRG 
participates in the effort to target non-governmental 
organizations believed to provide financial support to known 
foreign terrorist organizations and affiliated terrorist cells. 
The PCC coordinates the development and implementation of 
policies to combat terrorist financing and provides analysis on 
these issues. Numerous FBI Field Offices have open 
investigations into organizations that may be funneling money 
to foreign terrorist organizations, and the TFRG has acted as a 
clearinghouse for these cases, gathering and summarizing data.
    The task force regularly shares information with the joint 
terrorist tracking task forces around the country, customs' 
operation green quest and FinCEN.
    Further, the TFRG is working with FinCEN to explore new 
ways to data mine the suspicious activity report, and the 
currency transaction report and the currency and monetary 
instrument report databases.
    Based on its international investigative abilities, and its 
close association with the intelligence community, the TFRG is 
in a position to coordinate anti-terrorism financial 
investigations and to ensure those investigations are 
coordinated with the goals and objectives of our counter-
terrorism program.
    Now let me turn for a moment to the use to which we have 
put the provisions of the PATRIOT Act. Terrorist financing 
methods range from the highly sophisticated to the most basic. 
Traditionally, their efforts have been aided considerably by 
the use of correspondent bank accounts, private banking 
accounts, offshore shell banks, bulk cash smuggling, identity 
theft, credit card fraud, and other criminal operations. 
Informal value transfer systems, such as hawalas, also present 
problems--substantial problems for law enforcement. They permit 
terrorists a means of transferring funds that is difficult to 
detect and to trace. These informal systems are particularly 
prevalent in societies in Pakistan, Afghanistan, and the 
Philippines.
    However, provisions of the PATRIOT Act will significantly 
erode the effectiveness of such methods. The act establishes 
stricter rules for correspondent bank accounts, requires 
securities brokers and dealers to file SARs, and certain cash 
businesses to register with FinCEN and file suspicious action 
reports for a wider range of financial transactions.
    The act contains many other provisions I believe will 
considerably aid our efforts to address terrorist financing. 
These include the authority to seize terrorist assets, and the 
addition of terrorism and other offenses to the list of 
racketeering offenses. The act also enables prosecutors to 
seize money subject to forfeiture in a foreign bank account by 
authorizing the seizure of a foreign bank's funds held in a 
U.S. correspondent account.
    Other important provisions expand the ability to prosecute 
unlicensed money transmitters, allow law enforcement faster 
access to reports of currency transactions in excess of $10,000 
and provide authority for the service of administrative 
subpoenas on foreign banks concerning records of foreign 
transactions.
    This latter provision allows law enforcement to obtain 
critical information in an investigation on a more timely basis 
than was possible before. In counter-terrorism investigations, 
of course, speed is the essence because prevention is the goal.
    Section 362 of the PATRIOT Act mandates that FinCEN 
establish a highly secure network to, number one, allow 
financial institutions to file SARs and CTRs on-line; and 
secondly, to provide financial institutions with alerts and 
other information regarding suspicious activities that warrant 
immediate and enhanced scrutiny.
    FinCEN has developed the PATRIOT Act Communication System, 
known as PACS, to meet this mandate and is implementing this 
system. This will be a valuable tool for law enforcement, but 
it will require the full cooperation--the full cooperation of 
private financial institutions. The TFRG has worked with these 
financial institutions and has provided to them information to 
help them to detect patterns of activity possibly associated 
with terrorists. I am confident that the PACS will help 
considerably in these efforts.
    While I am optimistic that the PATRIOT Act will help, it is 
too early to judge its full effect. We continue to digest its 
provisions; develop guidelines and protocols for its 
appropriate use; and educate investigators and prosecutors. And 
in addition, many of its provisions, as has already been 
mentioned here today, require the Department of the Treasury to 
issue regulations--regulations which it is working on 
expeditiously to promulgate. And as I understand, we mentioned 
before, several of these were promulgated as of yesterday.Now 
the committee has also indicated an interest in recommendations 
that the FBI might have regarding additional legislative 
measures to advance the financial war against terrorism.
    In September of 2001, the Department of Justice submitted 
the proposed "Money Laundering Act of 2001" to Congress. The 
FBI concurs with the recommendations made by the DOJ, which is 
in the best position to address these issues. And I would like 
to briefly summarize these recommendations and proposals for 
you. The foremost problem we face regarding the recovery of 
criminal proceeds in terrorism cases, as well as those 
involving corporate fraud, is the inability to freeze assets 
pending trial. In both criminal and civil cases, with a limited 
exception, pre-trial restraining orders are limited to property 
directly traceable to the offense. Post-conviction, the court 
can enter an order permitting the confiscation of an amount of 
money equal to what the defendant obtained by committing the 
offense. But by that time the money we hope to recover and 
return to the victims is often gone.Now, these strict tracing 
requirements serve little purpose. Many common law countries 
permit the pre-trial restraint of property that will be subject 
to forfeiture without requiring strict tracing of the funds to 
the underlying crime. It is important to the success of our 
efforts against the economic underpinnings of crime that we be 
able to do the same.
    Simply put, if the property can be confiscated after the 
conviction, it should be frozen prior to a conviction. Thus, 
the criminal forfeiture laws should be amended to allow the 
pre-trial restraint of all forfeiture assets without requiring 
strict tracing to the offense. And the civil forfeiture laws 
should be amended to treat all electronic funds, as well as 
diamonds, gold and other precious metals, as fungible property 
for the period of the applicable statute of limitations.And we 
also need to address the clandestine movement of cash that 
represents the proceeds of crime or that will be used to 
finance a future criminal or terrorist act.
    Section 371 of the PATRIOT Act created a new offense of 
bulk cash smuggling that makes it illegal to knowingly conceal 
more than $10,000 in currency and attempt to transport it into 
or out of the United States with the intent to evade currency 
reporting requirements. However, it is not an offense for a 
money courier to transport bulk currency in a vehicle inside 
the country, even if the funds represent criminal proceeds.
    Moreover, terrorists engage in what amounts to reverse 
money laundering, in which they transport large quantities of 
cash that is not derived from any illegal source, but which is 
intended to be used to finance a terrorist act or to commit 
another crime.
    The Department of Justice proposed to make it illegal to 
transport more than $10,000 in currency concealed in a vehicle 
traveling in interstate commerce, knowing that the currency was 
derived from some kind of criminal activity or knowing that the 
currency was intended to be used to promote such activity. And 
we support this provision.
    The Department of Justice noted gaps in our ability to 
seize proceeds resulting from foreign crimes, as well as our 
ability to restrain the funds, even temporarily, of criminals 
arrested in the United States. Under current law, only a 
limited number of foreign crimes are specified unlawful 
activities.
    This enables foreign criminals to launder the proceeds of 
many foreign crimes in the United States without providing us 
the ability to prosecute and seize those funds for forfeiture. 
We similarly lack authority to temporarily restrain funds in a 
U.S. bank account of an international terrorist arrested in the 
United States to determine whether such funds were connected to 
illegal activity.
    Let me conclude, if I might, Mr. Chairman, by saying that 
the PATRIOT Act is an important and certainly a necessary fix 
and its passage was a remarkable achievement. The act will 
make--and has made--a difference. It enhances the ability of 
law enforcement and intelligence agencies to achieve our common 
goal of preventing acts of terrorism, without compromising the 
civil liberties and constitutional protections enjoyed by our 
citizens
    The PATRIOT Act is a shining example of this committee's 
devotion to that endeavor and I thank you for your support.
    I am proud to be part of what I consider to be one of the 
premiere, if not "the" premiere law enforcement agency in the 
world. We take great pride in what we do, and the quality of 
the work performed by the men and women of the FBI is truly 
remarkable. There is always room for improvement and we, as 
always, welcome your guidance.
    I thank you for the opportunity to appear here today. I 
look forward to working with this committee in the war against 
terrorism.
    And I am happy to respond to whatever questions you have.
    Thank you, Mr. Chairman.
    [The prepared statement of Robert S. Mueller can be found 
on page 77 in the appendix.]
    The Chairman. Thank you, Director Mueller. And again, we 
appreciate your participation in this oversight hearing on the 
PATRIOT Act, specifically as it relates to any money laundering 
issues.
    One of the primary objectives, as you know, of the anti-
money laundering bill was to facilitate more effective and 
timely sharing of information within the government about 
possible terrorist financing. And you have cited several law 
enforcement successes in your testimony for which the 
administration should be commended.
    There have been some recent press accounts that suggest 
that turf consciousness after 9/11 is still with us, 
particularly as it relates to combating money laundering.
    What assurances can you offer our committee that 
information is being shared freely among the relevant federal 
agencies and that interagency tensions are not impeding the 
administration's war on terrorist financing?
    Mr. Mueller. There are a number of steps that have been 
taken not only within the FBI, but within the CIA and Treasury 
and other federal agencies since September 11 to greatly 
enhance the sharing of information.
    And just to mention a few, every morning I am briefed by 
the CIA on what has occurred overnight, both domestically, to 
the extent that they have information, but most particularly 
internationally when it relates to terrorism. By the same token 
our briefing papers are exchanged with the CIA. Both George 
Tenant and I meet with the president each day to discuss where 
we are in the war against terror--to discuss any developments 
there have been in the last 24 hours.
    Within our organizations, there has been a substantial 
exchange of not only types of information, but also of 
individuals. We have individuals, as I think you are well 
aware, over at the counter-terrorism center at CIA.
    I have, in the FBI, approximately 25 CIA analysts who have 
come from the CIA to participate in our revamped intelligence 
structure within the counter-terrorism division. And we are 
continuing to enhance our ability to analyze that information 
that we gather both here and overseas. And one of the benefits 
of having those analysts in the FBI is they can look at our 
information and put it together with what the CIA may have to 
be far more predictive than perhaps we were prior to September 
11 of last year.
    With regard to our sharing of information with Treasury, we 
have on our task force the TFRG--Treasury agents participating 
from a number of agencies, as well as agents from a number of 
other different agencies within the department or outside the 
Department of Treasury.
    We also have persons that are participating in Greenquest, 
as I think I have discussed in my testimony earlier. We had 
database information that we are pulling together. This is 
shared on a weekly basis not only with the Treasury Department, 
but also with the CIA and other entities.
    We have meetings--not only the exchange of personnel, but 
joint meetings with private industry and meetings of 
individuals on particular cases to share information.
    So up and down the organizational structure from the very 
top to myself and George Tenant down to those individuals that 
are working on particular cases who are sharing information in 
ways that we have not shared, I think, prior to it.
    Part of our ability to do that are the provisions of the 
PATRIOT Act that now allow us to share with the intelligence 
agencies information that previously we could not.
    Having been an FBI agent, you understand that much of the 
information that comes into the FBI in the course of its 
investigations may come in pursuant to grand jury subpoena and/
or maybe testimony before a grand jury. Prior to the PATRIOT 
Act, none of that could be shared with the intelligence 
community.
    With the PATRIOT Act, we now can share that information 
whether it be from the West Coast, the East Coast, north or 
south and investigations with the intelligence community so 
that information that we have pulled together by the efforts of 
our agents in the United States is now provided to the CIA, the 
DIA and other agencies so that it can be part of the larger 
picture.
    The Chairman. There have been several press reports, as you 
know, that the Al Qaeda network, feeling the pressure, I think, 
from the PATRIOT Act, has moved a lot of cash from traditional 
banking sources into precious metals and commodities. There was 
an article recently about moving large amounts of gold bullion 
or bars to Sudan.
    Would you care to comment on that? And, indeed, does the 
PATRIOT Act need to be looked at as a result of those changes 
in activities?
    Mr. Mueller. I think without a question of a doubt the 
efforts of the government, whether it be the FBI, the CIA, the 
Department of Defense and whether it be within the United 
States or in Afghanistan or Pakistan or elsewhere around the 
world, has substantially disrupted the Al Qaeda network--their 
communications--their capability of planning and plotting 
additional attacks and their financing.
    And because of the efforts of a number of different 
agencies, I do believe that the Al Qaeda network is seeking 
alternative ways of transporting--transmitting its funds.
    And as we fear, as you have heard and some of them have 
made it into the press, as we hear of new ways of exchanging 
items of value, whether it be cash or gold or diamonds, each of 
those pieces of information is followed up on not only by us, 
but certainly by the CIA overseas.
    And there have been instances where we have received 
reports of such things happening and we have followed them up. 
Most of those reports relay to the transmission of items of 
value overseas, as opposed to within the United States. And 
quite obviously, if it is overseas, it is much more difficult 
for us to get a clear handle on, principally because we have to 
rely on our counterparts--and whether it be intelligence 
agencies or law enforcement agencies in other countries, 
principally in the Middle East.
    The Chairman. Well, I guess the obvious question is that if 
this report appears in a major newspaper, even after the fact, 
the issue is where was the intelligence community? And is there 
any effort to try to interdict that? For example, moving large 
amounts of gold seems to me to be relatively--I would not say 
"easy" to detect, but it is probably easier to detect than some 
of the other money laundering aspects, and particularly if they 
have located the country in which it was supposed to be 
reposited.
    Mr. Mueller. Well, without being too specific, let me just 
say that there are reports that get into the press about 
movements of monies, movements of gold, movements of diamonds. 
To the extent that there are such reports, we have generally 
seen them beforehand. They may well have come to our attention 
through the efforts of the intelligence community. And 
certainly when there is any such report that has any degree of 
specificity, the intelligence community, as a whole, follows up 
on it.
    To the extent that there is not the degree of specificity, 
I can assure you that efforts are made, nonetheless, to follow 
up generally as to whether or not that mechanism is being used. 
And that all sources are queried as to whether or not such a 
report has credibility.
    So we look at--it may well have come to our attention as a 
result of the intelligence efforts. The efforts of the 
intelligence community as a whole are put to determining 
whether or not the report is true. And, as an adjunct to that, 
we also want to make certain as to the credibility of the 
individual or individuals who come forward with such reports.
    The Chairman. One last question, if I may, there have been 
some concerns that because of the concentration by the Bureau, 
understandably on antiterrorist activity that it may divert 
resources away from traditional FBI investigations, for example 
bank robberies. And there have been, as you know, some concerns 
expressed by local authorities that that could very well impede 
their investigations or perhaps even spark an increase in bank 
robberies.
    How would you respond to that?
    Mr. Mueller. Well, as I am sure the committee is aware, I 
recommended the shifting of approximately 500 agents last 
summer to the counter-terrorism effort. And that was done after 
looking at the needs in each of our field offices to address 
counter-terrorism adequately. And the vast majority of those 
agents will be coming from the narcotics side. There is some 
from white collar and some from violent crime.
    I have had extensive discussions with--and we have, as an 
institution, with DEA in terms of what we will be doing on the 
narcotics front in the future. And we will be focusing on 
larger investigations--not doing the stand-alone cases that, 
perhaps, we have in the past. And adjusting with DEA to 
continue in the war on terrorism, particularly in the task 
force arena, but not do as many stand-alone cases as we have 
done in the past. And to defer to the DEA on certain of the 
cartel cases, whether they be Colombian or Mexican.
    I have had discussions with the IACP, for instance, on how 
we would handle bank robberies. And over the last several 
years, we have generally not responded on one-note jobs where 
you have an individual and an isolated case. But we have, in 
the past, and we will, in the future, continue to participate 
with state and local where we have multi-county bank robberies, 
where we have violent bank robberies and where we bring 
something special to the table.
    Where there is a state or local law enforcement entity--and 
the caliber--the quality of our state and local law enforcement 
agencies today are terrific--where there is the capability, in 
my mind, we, the Bureau, should be refocusing our resources on 
that which state and local cannot do--on terrorism--on cyber 
intrusions--on the counter-intelligence responsibilities of the 
FBI.
    And so we have tried to do it in such a way that we have 
met our needs in counter-terrorism for the time being. I will 
have to evaluate it every three to six months. But also, are 
taking care of other areas of responsibility and focusing our 
resources on cases such as Enron, WorldCom and the corporate 
fraud cases that are critically important.
    The Chairman. Well, I thank you for the answer, 
particularly because the last part--because our committee was 
so involved in corporate accounting accountability and so 
forth. And that is a very good point that you make.
    The gentleman from New York?
    Mr. LaFalce. I thank the chairman. And I hope he will give 
me some latitude, permitting me to question because of the 
serious problem that has arisen within the past week in Western 
New York where six individuals have been arrested.
    And FBI Director Mueller--I asked some questions in my 
opening statement regarding the 1996 law. And the six 
individuals have been arrested under it, and I incorporate that 
by reference now and will ask your comment on that.
    But additionally, there are some other concerns that I 
have, too.
    I have received briefings over the years and on the basis 
of the briefings--it is my understanding that maybe the hottest 
spot in the world where terrorists gather to consult and talk 
is Vienna, Austria. But I understand that possibly Niagara 
Falls could be a close second. And I know that the FBI has a 
major office--a counter-terrorism office in Niagara Falls. It 
used to be directly across from my congressional office. It has 
been moved now because it is going to expand by about 15 
employees.
    I also want you to know something that you may or may not 
know--well, if you do know that sometimes money laundering can 
take place at casinos where gambling takes place.
    You may not know that within the past two weeks the Seneca 
Nation and Governor Pataki have filed an application with the 
Department of Interior for casino gambling in Niagara Falls, 
New York.
    Now, we do have casino gambling in Niagara Falls, Ontario, 
right now. And in this morning's "Buffalo News," one of the 
arrested six supposedly spent $89,000 at Casino Niagara in 
Niagara Falls, Ontario where the Canadian Royal Mounted Police 
are omnipresent.
    One of my concerns is that the Seneca Nation is proceeding, 
along with Governor Pataki, not under the Indian Gaming Act of 
1988, which requires careful review and requires consideration 
of the costs and benefits, et cetera. They are proceeding under 
the Seneca Nation's Settlement Act that was passed a decade 
ago, saying that they should get the decision within a 
relatively short period of time. And they can be up and 
operational by New Year's Eve.
    And they are seeking an affirmative response to that 
application. And they have gone to the very highest level 
seeking it from Secretary of the Interior Norton.
    One of my great concerns is that the police power of the 
United States federal government--your office--the police power 
of the state--the police power of local officials will have 
virtually nothing that they can do or little that they can do 
within the sovereign land that the Seneca Nation is seeking 
within this portion of the center of the city of Niagara 
Falls--approximately 50 acres.
    And if you are not aware of that, I just made you aware of 
it and I would like you to consult with Secretary Norton and 
make any comments now that you wish concerning it.
    But also, I am wondering--this is a separate issue now--
whether or not the FBI recommended the arrest of these six 
individuals--whether you thought that the quality of the 
evidence was sufficient and sufficient for what--for a 
violation of the 1996 law? Or was there some encouragement from 
the Justice Department to the FBI to find somebody someplace 
that could be arrested within the month of September?
    I make no allegations, I just pick up rumors on the street. 
And, in order to satisfy those, I would like you to respond to 
that question, too.
    Also--
    Mr. Mueller. Can I respond to that one--
    Mr. LaFalce. Sure.
    Mr. Mueller. --if I might interrupt?
    Mr. LaFalce. Yes.
    Mr. Mueller. Because that is--
    Mr. LaFalce. Yes.
    Mr. Mueller. --absolutely not true.
    Mr. LaFalce. Good.
    Mr. Mueller. The FBI does not respond to entreaties to find 
somebody to arrest.
    Mr. LaFalce. Yes.
    Mr. Mueller. Our agents look at the evidence and the 
information that is pulled in and present it to prosecutors to 
make a determination whether or not the elements of the offense 
have been made.
    Mr. LaFalce. Yes.
    Mr. Mueller. And at no point in time, during the time I 
have been director of the FBI or even previously, as a 
prosecutor, have I seen that occur. And I would not expect to 
see it in the future.
    Mr. LaFalce. Well, that is great. I am delighted to hear 
that, too.
    What is the policy, too--because I know that at the press 
conference on Saturday--I was not invited and I do not think I 
should have been invited--but I do know that other members of 
Congress who were of a different political persuasion were 
invited to the press conference and they did not represent any 
of the individuals or the territory that was in question where 
the individuals lived. What is the FBI policy on that?
    Mr. Mueller. I am not certain we have any particular policy 
on who is invited to press conferences.
    Mr. LaFalce. Well, I think the fewer politicians, the 
better. In fact, no politicians would be a good policy, I 
think. And I would encourage in the future.
    Why don't you proceed to respond to the other questions?
    Mr. Mueller. I think in large part I have responded, I 
hope, to the material support--the question about--
    Mr. LaFalce. Tell me about the 1996 law.
    Mr. Mueller. Yes. Well, I can brief--I do not have it in 
front of me, quite obviously, but it provides that any 
individual who provides material support to a terrorist entity, 
as defined by the Department of State, is guilty of an offense 
and can be sentenced up to--I believe it is 15 years.
    Mr. LaFalce. Okay, now--
    Mr. Mueller. And--
    Mr. LaFalce. --I guess "material support" is what I want to 
focus in on. Some individuals have claimed--the attorney for 
these individuals, in the papers, that, "Hey, attending a 
school that somebody may have thought was a religious school 
cannot be deemed material support."
    Now, I do not know what was in the minds of these 
individuals. I do not know what went on at those schools.
    I do know, for example, that I have had to defend, the 
entirety of my time in Congress, the School for the Americas. 
And my very best friends at my church have condemned me. And 
they call it the School for Assassins. And I have consistently 
voted to keep open the School for the Americas saying, "That is 
not a school for assassins." There are 50,000 individuals who 
have graduated from it. And a relatively small handful have 
been involved in terrible, terrible things. And maybe some 
teachers have said some things at certain times that at the 
School for the Americas that they should not have.
    Now, I do not mean to make a comparison, because it could 
be 1,000 times different. But at least there is a question in 
my mind.
    And also, I suspect that there are different degrees 
amongst the six individuals. Some may have been lured in and 
some may be guilty of the most serious type of offenses. I do 
not know. And I am not sure what you can say publicly, but you 
make that judgment.
    Mr. Mueller. Well, as I am sure that the congressman is 
aware, I cannot talk publicly about the--
    Mr. LaFalce. Okay.
    Mr. Mueller. --evidence in the case. I can just refer you 
to that which is already on public record. And I believe the 
affidavits in support of the arrest are a matter of public 
record. And it is possible to compare that--the allegations 
that are a matter of public record, whether it be in the 
complaint, in the affidavit supporting the complaint or in that 
which is disclosed in open court to your characterization of 
the culpability of the individuals.
    I think there is a public record that one can go to and 
look at the allegations and the facts that support the issuance 
of the arrest warrants.
    Mr. LaFalce. Okay.
    As you know, I authored the--
    Mr. Bachus. Actually, you have exceeded the time by about 
four minutes.
    Mr. LaFalce. I am sorry? What did you say?
    Mr. Bachus. I said according to the thing, you have 
exceeded the time.
    Mr. LaFalce. I thank the chair.
    Mr. Bachus. Thank you.
    Director Mueller, I want to thank you. I have been at a 
cancer awareness rally. And we have had about 10,000 volunteers 
on the Hill from all over the United States advocating for 
cancer research. And I have been there.
    Now it is my honor to chair this hearing.
    And I want to personally welcome you. And I do not know 
before I arrived whether you have been thanked for the 
difficult work that the men and women of your agency have been 
doing since September 11--the long hours and the sacrifices 
they have been making. But I want to commend you for that.
    Mr. Mueller. Thank you, sir--
    Mr. Bachus. I also--
    Mr. Mueller. --on behalf of the men and women of the FBI 
who do the real work--thank you.
    Mr. Bachus. Thank you.
    I also want to commend you for the tremendous progress that 
you have made in the war against terrorism. Just this last week 
you have arrested one of the logistical and financial 
masterminds behind the 9/11 attacks in Pakistan. You have 
broken up an Al Qaeda cell here in the United States.
    So you have accomplished a lot in just the past two weeks 
to ensure that those who mean to do us harm cannot do us harm. 
And you know and I know it is going to be a difficult battle.
    Mr. Mueller. Could I comment just briefly on that?
    Mr. Bachus. Absolutely.
    Mr. Mueller. And say that much of the credit goes to our 
counterparts--our sister agencies, as well as the Pakistani 
authorities, who were much involved in this.
    So I thank you for your expression of appreciation, but it 
would be wrong of me to sit here and accept it without 
indicating that much of the credit--a great deal of the credit 
goes to, you know, other agencies both here and overseas.
    Mr. Bachus. Thank you.
    And I think your efforts and those of other agencies 
demonstrate the absolute commitment that President Bush and 
this administration has to hunting down those who caused 
September the 11th and the aftermath and their absolute 
commitment--unwavering commitment to bringing them to justice. 
And I thank you for your--you and the men and women of the FBI 
for your efforts.
    At this time, I am going to yield to Congressman Leach the 
remainder of my time and then his five minutes.
    Mr. Leach. Thank you, Mr. Chairman. I will be very brief 
with respect for the time issue.
    I have just one principal question, Mr. Director. Last 
fall, the FBI testified that Internet gambling was a 
potentially grave source of difficulty for money laundering and 
also for other crimes, such as identity theft, a very 
significant issue.
    And I am wondering if you can update us because we may be 
bringing a bill before the floor in the near future on this 
subject--if this is still your position that Internet gambling 
poses criminal difficulties for the United States.
    Mr. Mueller. It is still our position. We have a number of 
investigations ongoing into Internet gambling. And I am sure 
the committee is aware of the difficulty that we have in 
addressing Internet gambling with its capability of operating 
almost wholly overseas, but having an impact and effect within 
the United States. It is still a substantial problem and we 
look forward to working with you on that bill.
    Mr. Leach. Good. Well, I appreciate that very much.
    And I yield back my time.
    Mr. Bachus. Thank you.
    The gentlelady from New York?
    Mrs. Maloney of New York. Thank you, Mr. Chairman.
    And I likewise welcome you and compliment you on the 
collective efforts that you have had with other agencies in 
cracking down on the Al Qaeda and cracking down on terrorism.
    I would like to offer my condolences for the FBI agent who 
lost his life while assisting others to safety on September 11.
    Mr. Mueller. Thank you.
    Mrs. Maloney of New York. And a number of my constituents 
mentioned to me that along with the police and fire, FBI agents 
led them out of the buildings to safety. So I thank you for all 
that you have done and what you are doing.
    And I am sure you will agree that you face a monumental 
task in cutting off the financing of terrorism in the scope of 
the world economy. The amount of money it takes to run a 
terrorist operation is minuscule. The attacks on my city, New 
York, the Pentagon and Flight 93--it is reported that the 
combined cost of these efforts were less than a half-a-million 
dollars.
    And we all know how difficult it is to distinguish from 
legitimate financial transactions and conventional strategies--
the difficulty we had with the hawala and other ways that they 
are moving the money.
    My question really is one of an international scope. It is 
difficult for us to do this unilaterally. We cannot just do it 
with our own financial institutions cracking down on shell 
banks and determining who the owners of these accounts are. How 
are the financial regulators in other countries participating? 
And how are the law enforcement on an international basis--are 
our allies coming forward and helping you? Are they undertaking 
the efforts to implement the PATRIOT Act to stop terrorists 
from using financial institutions? Or are European and other 
countries around the world resisting efforts to adopt and 
enforce PATRIOT Act like money laundry protections?
    So what is the cooperation we are getting internationally?
    Mr. Mueller. Well, let me--if you will grant me a moment, I 
want to thank you for mentioning the efforts of Lenny Hatton--
    Mrs. Maloney of New York. Yes.
    Mr. Mueller. --who is the FBI agent we lost in New York 
when the World Trade Center towers fell. As you are probably 
aware, Lenny was on his way to work--
    Mrs. Maloney of New York. Yes.
    Mr. Mueller. --that day. And decided to--that was part of 
his duties as an FBI agent to do what he could. And he went 
over to the scene and we have the report of one individual who 
was deposited on the sidewalk by another individual and he 
turns around and says, "Where are you going?" as that 
individual goes back into the building. And that individual who 
went back in is Lenny Hatton. And he was a family man--a 
volunteer fireman--a former Marine and long-time FBI agent who 
lost his life on that day. And thank you very much for 
mentioning his sacrifice. He is an example to all of us in the 
Bureau of the commitment to public service.
    Going to the issue of what kind of cooperation we are 
receiving internationally, I think I probably should--I know 
you have individuals from the Treasury Department coming this 
afternoon. I probably should defer to them in terms of the 
discussions that they have had with their counterparts 
overseas.
    From the law enforcement perspective, we are getting, I 
think, successful help--cooperation from a number of important 
companies--or countries, I should say.
    I know last fall I went to the Middle East and one of the 
countries that was of critical importance to us is the United 
Arab Emirates--UAE--because the financing of the terrorists 
came through the UAE. And I had discussions with the head of 
the National Bank and with our counterparts in law enforcement. 
And on the day before I was there, they had passed legislation 
to give them the powers that they had previously lacked to 
address financing of terrorists and to help choke off the funds 
that are coming through the UAE that might be used by 
terrorists.
    I think throughout the world there are examples where we do 
have legislative bodies, along with executives that have made 
steps to choke off terrorist financing. But there are also 
other areas where we think more could be done.
    I would probably leave the specifics to my brothers and 
sisters in the Treasury Department who are more familiar with 
the overall state of play internationally through their 
discussions with their counterparts.
    Mrs. Maloney of New York. Thank you.
    And before I ask my final question, I do want to express my 
deep sadness at the attack in Tel Aviv this morning where a 
suicide bomber killed five people and injured 53 others. And 
this follows the killing of a Israeli police officer by a 
suicide bomber yesterday. And it is a stark reminder of how 
innocent lives are being targeted and people are being murdered 
around the world and of the importance of the hearing that we 
are having today and the importance of the work that you are 
doing every day in the FBI.
    I would like to ask about money laundering for traditional 
crimes, such as drugs. And regrettably New York City was a 
center for money laundering prior to 9/11. And what effect has 
the PATRIOT Act had in the traditional or the usual crimes that 
have used money laundered money, such as drugs? Have you seen a 
difference in the crack down or your ability to move in this 
are because of this law?
    Mr. Mueller. Yes. We have in a number of areas. Just let me 
mention a couple of them.
    As you are undoubtedly aware, the PATRIOT Act expanded the 
number of money laundering predicates. And by expanding those 
predicates, it gives us the ability to bring money laundering 
charges where the underlying activity had previously not been a 
SUA but currently is. So that has been helpful in our 
development of cases.
    One of the areas which I think we are assisted in many 
different types of cases is the provision that allows subpoenas 
for overseas bank records. As a former prosecutor, in working 
with agents in the past one of the large difficulties we had 
was getting information from certain offshore banks who 
operated both offshore and bank secrecy countries. But sold 
their services within the United States. And so that provision 
is helpful across the board.
    The provision that provides immunity from civil liability 
for banks who provide and voluntarily disclose to us 
information they have of illegal activity is helpful in opening 
up the information from the banking employees who may see 
something, but in the past were concerned that other the bank 
or themselves would be prosecuted for privacy violations. And 
that provision of immunity from civil liability has been 
helpful.
    And lastly, as you crack down on one area of money 
laundering, other areas crop up and the expansion of 18 USC 
1960 to include money transmitting businesses has given us a 
capability that we, prior the PATRIOT Act did not have and has 
enabled us to conduct successful investigations in that arena.
    Mrs. Maloney of New York. Thank you very much for your fine 
work.
    Mr. Mueller. Thank you, ma'am.
    The Chairman. The gentlelady from New York?
    Mrs. Kelly. Thank you, Mr. Chairman.
    And, Mr. Mueller, I really appreciate you are being with us 
this morning.
    Mr. LaFalce, I want to thank you for pointing out that 
the--one of the people arrested in Buffalo had lost that money, 
$89,000 I believe you said, in the casino in Canada, because if 
that is actually proved to be an Al Qaeda cell, that takes us 
right into this situation of a question of money laundering. 
$89,000 is a lot of money for normal people to have. And, from 
what I understand, most of those people did not even have jobs. 
So, perhaps that was an issue there that could be looked at in 
terms of possible money laundering.
    I would like to focus, though, on another issue and that is 
the hawalas that you mentioned in your testimony. Can you 
describe what steps the FBI has taken to combat hawalas and 
what progress you have made? I have been concerned about this 
issue for a long time and I wonder if you can share us--with 
us, any information on what you are doing to combat hawalas?
    Mr. LaFalce. Would the gentlelady add to her question by 
asking if there are any hawalas in Western New York in 
particular?
    Mrs. Kelly. Well, I would be interested to add to the 
question asking is there any in all of the New York state since 
we heard two different directions.
    Mr. Mueller. Well, let me say that there are three areas in 
which we have--we are addressing hawalas. As you are aware in 
the wake of the PATRIOT Act, FinCEN, the treasury operation, is 
in the process of registering all of what we call money service 
businesses of which a hawala would be classified one. And we 
are supporting the FinCEN in trying to get a thorough and 
exhaustive listing of such businesses.
    Secondly--
    Mrs. Kelly. Excuse me, sir, but may I just ask you, Dennis 
Lormel came before my subcommittee and testified that you were 
going to also put together some sort of a centralized database, 
are you working in conjunction, then, with FinCEN on this?
    Mr. Mueller. We are working--
    Mrs. Kelly. Is that how it is working?
    Mr. Mueller. --We are working with FinCEN on this.
    Mrs. Kelly. Okay. Thank you. I am sorry. Please go on.
    Mr. Mueller. Yes, no, we are working with FinCEN on this. 
And, we are supportive of FinCEN's efforts. We also are 
sponsoring a conference in October with a number of federal 
agencies, but also with our counterparts from overseas, the 
Pakistanis, Indians, some other countries where hawalas are a 
predominant mechanism of exchanging cash.
    So, it is an effort on our part and Treasury's part to 
bring together those within the banking community and the 
United States, the regulators within the United States and law 
enforcement entities within the United States and the 
intelligence community within the United States, along with our 
counterparts overseas so that we can share our experiences and 
our expertise and also learn from others.
    Lastly, the task force, Dennis Lormel's task force, has 
been and maybe this is that to which you are averting, 
assisting our field offices in identifying hawala like or type 
businesses so that in addition to what FinCEN is doing we also 
have reached out to our various field offices with a 
description explanation of what we are looking for and our 
tasking our 56 field offices to provide the information that 
then would be fed into FinCEN to identify that type of money 
remitter or hawala type of money exchange operation.
    Mrs. Kelly. Thank you. I would hope that we can be 
successful with that. I have one more question and that regards 
identify theft. The people who use credit cards are protected 
because from most credit card agencies will pay fraudulent use. 
You will pay $50 yourself if it is your credit card and beyond 
that the credit card agencies pick it up. They lose money. What 
protections can the FBI provide for people, or are there 
protections there if a person gives a credit card number, 
unknowingly, to an international criminal site? Is the FBI 
looking at how the websites are used with the fraudulent use of 
possible acceptance of what would be--I am getting all inside 
out here? I think you know what I mean. If you have a credit 
card, you are giving the credit card because you, in good 
faith, think this is an actual website and in fact it is a 
fraudulent website and they are stealing your identity through 
that credit card. Are you--do you have things in place, are you 
moving in place--things in place, to protect our American 
consumers who are utilizing those credit cards so that they do 
not experience an increase in identity theft that is then used 
by terrorism?
    Mr. Mueller. Well, separating a second from terrorism, we 
are, in conjunction with Customs and with the Secret Service, 
investigating every incidence we have where we believe that 
type of activity relating to the provision of a credit card 
number to a website that is a false or specious website takes 
place.
    The tracing or the investigating of a credit numbers that 
are the result of hacking, for instance, where there may be 
batches of credit card numbers are also being addressed by the 
FBI. We have a new what is called cyber--a division where we 
pulled together a variety of pieces that have been spread 
throughout the FBI within the cyber division and part of the 
mandate of the cyber division is to look at not only the 
various scams that you have out there relating to the internet 
and that you address, but also where you have hackers who have 
hacked into a business and pulled, whether it be Social 
Security numbers or credit card numbers and then use those to 
product illegal profits. We are also looking at those, 
particularly in that new division.
    When it comes to any credit card number, Social Security 
number, anything associated with terrorism is given special 
attention. And, it is given special attention by Douglas--or 
the review group. It is given special attention by the CIA, and 
other components of the intelligence community. And, so that 
where we have an indication that a credit card number or a 
telephone number or a Social Security number, or a license 
number is associated in any way with a person who might be a 
terrorist it is given special attention in a variety of ways, 
different from, for better or for worse, different from that 
which is given to your ordinary consumer in the United States.
    Mrs. Kelly. Thank you very much.
    The Chairman. Thank you.
    The gentleman from Texas, Mr. Bentsen?
    Mr. Bentsen. Thank you, Mr. Chairman.
    And, Director Mueller, I apologize for being absent during 
your testimony, but I was speaking to the American Cancer 
Society out on the mall. And, so they have a large group of 
survivors that are out there.
    I did want to ask you about a couple of things that have 
been reported in the press over the last few months. One had to 
do with international cooperation. But, I think, based upon 
your comments earlier, I will reserve those for the later panel 
if your response is going to be similar that really that is 
something for Treasury.
    But, in particular I am concerned about what sort of 
cooperation we are getting from our friends in Saudi Arabia and 
other parts of that area. I would like to follow up, though, on 
Ms. Kelly's comments with respect to hawalas and how the agency 
is responding to that sort of money transferring. And, as I 
understand those types of organizations and I may have this 
wrong, it is not really--it is not a money processes or money 
wiring, it is sort of fronting cash for forward delivery of--or 
future delivery of goods that may or may not occur and so it is 
a pretty good set up for a laundering operation. And, my 
question is, associated with that, there have been a number of 
stories in the press about gold and diamonds and a non-currency 
assets that are now being used by Al Qaeda to move money 
around, which is another form of doing it.
    Have you all figured out a way to confront that in how they 
convert, how you can track the conversion of gold or diamonds 
into cash? Or is that looking for a needle in a haystack? And, 
the other question has to do with the enhanced SAR 
requirements, which I realize, again, is a Treasury 
responsibility, but, in my home state, as you know, we have had 
a lot of problems with money wiring and money laundering in the 
drug business, and the success of Attorneys General in Texas 
who have regulated it at the state level have had problems 
because it is, you know, you come it at $9,999 or $8,000 or 
$4,000 to get under the $10,000 cap. And, what they have tried 
to do at the state level is to really go and follow some of 
these small money-transferring shops.
    Are you now trying to do that with respect to potential 
transfer of funds for terrorist activities?
    Mr. Mueller. Let me talk briefly about the transfer of gold 
and the like. In fact, Chairman Oxley I think asked the 
question much along the same lines alluding to reports in the 
press about transferring the gold. And, what I explained was 
that whenever you see in the press a story that--about the use 
of gold or diamonds, we will have seen it, us or the CIA or one 
of our sister agencies. Indeed, it may have come to the 
attention of us from the sources and somehow found its way into 
the press. But, in each occasion where that has, to my 
knowledge, that has happened, we have focused on that report 
and followed up, both to determine the credibility of the 
person or persons from which it came, but also to determine 
whether or not the assertions, the allegations were true to the 
extent that we could do that with overseas assets. And, that 
would be more in the CIA's bailiwick than ours. But, the 
intelligence community as a whole has looked at those 
circumstances seriously and has followed up.
    Turning to the second issue with regard to the SAR 
requirement--
    Mr. Bentsen. Before you answer that, though, are you able 
to--to the extent that that is occurring, is there a way to 
track that, or is really needle in a haystack stuff? I mean it 
is--
    Mr. Mueller. If you transport gold from place A to place B, 
the extent of your investigation really is to find somebody who 
was participant or aware of that transaction. There are no 
records so to speak. You may have reports and there may be 
people you can go back to to get reports, or ultimately at one 
end of it you may be able to find where the gold has been 
transformed into some other financial mechanism. But, it is not 
the same type of investigation that you do when you have wires 
or pieces of paper and the like. And, so, it is a different 
type of investigation. But, it is done to the extent that we 
can do it.
    As I mentioned before, unfortunately most of, if not all, 
of this type of activity would occur overseas. And, so, we have 
to, in large part, rely on our counterparts to assist us in any 
investigation that is done overseas, intelligence gathering 
that is done overseas because, while we have legates in 44 
countries, we do not have the assets to do the type of 
investigation we would have to do in the United States when we 
get report.
    Mr. Bentsen. Okay.
    Mr. Mueller. With regard to the SAR requirements, and we 
are all familiar with, and have been for a number of years, 
with a number of entities or individuals who will utilize a 
mechanism to transmit money, always $9,500, $9,600, so it is 
under the $10,000 limit. And, what we have become increasingly 
successful at is denoting patterns. Often we need the help of 
private industry to do that. But, with the computer 
capabilities in this day and age you can run programs that will 
identify such patterns. And, in a number of occasions we have 
had success in identifying those patterns and prosecuting 
individuals for money laundering even though not one of the 
transmissions will have been over $10,000.
    Mr. Bentsen. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Mr. Rogers?
    Mr. Rogers. Thank you, Mr. Chairman.
    Director, I want to just take a minute and thank you and 
the men and women of the FBI.
    I have had the good occasion to meet with some of your 
agents overseas, as well as talking to agents around the 
country. They are working incredibly long hours, but they have 
very clear sense of purpose. And, it made me very proud to know 
that at least one point in my history, I carried that badge 
from the work that they are doing. And, I am glad you brought 
it up in your remarks because this is very important. It is 
very easy to find to fault with the bureau and highlight those 
isolated cases where bad things tend to happen. And, I am glad 
that the bureau is handling those and I think they are doing it 
in a judicious matter.
    But, part of the problem with information sharing was a 
culture--was not specifically a cultural event of the FBI. It 
was also the policies put into place by past congresses and 
past administrations on how the FBI was to operate and share 
information. I am glad you brought that to light. It is 
extremely important to understand that the bureau has stepped 
up to the plate and is changing what cultural problems they 
have, as well as with the issues in the PATRIOT Act, changing 
the way that we are allowed now, by law, to communicate with 
other branches of the intelligence folks and because the FBI is 
the most public of all the intelligence gathering agencies, you 
tend to take the black eye for lots of the problems. And, I 
just want to commend you and those folks.
    And, I just wanted to give you a couple figures that you 
did not mention in your details. I happened to go to the 
financial review group and saw the great work of multi-agencies 
coming together under the leadership of the FBI and in a very 
short period seized about $34 million of Al Qaeda assets, $112 
million belonging to about 200 different individuals and 
entities that were being blocked through really a global 
effort, but again, led by the FBI. And, if we have any marked 
success in disrupting and interfering terrorist operations in 
the United States and abroad, it was the fact that you shut 
down their financial operations in a hurry. And, I do not think 
the FBI gets enough credit for that.
    I want to applaud you and the agents who are doing great 
work out there. Thank you, please, from all of--from the 
policymakers to the folks who are out in the field doing great 
work. I hope you will take that message to them that we are 
very proud of the work they are doing all across the country, 
and thank you for it.
    I did have two quick questions; I am checking my time 
there. There are a couple of states who have--now offer the 
ability to incorporate businesses in a form that keeps the 
corporate structure totally away from IRS and U.S. law 
enforcement. One of those states is now advertising heavily to 
this service that keeps, certainly, the stiff arm away from law 
enforcement ability to look at those records. And I just hope 
you can talk a little bit about what that does and what kind of 
haven that represents to people who are specifically trying to 
hide cash for the purposes of any criminal enterprise, be it 
organized crime or terrorism?
    Mr. Mueller. Let me start by thanking you for acknowledging 
the work of the agents. I greatly appreciate that, and for 
mentioning those figures. I will be quick to say that yes we 
have put--and I think we make a substantial contribution to 
those figures, but I cannot leave without saying that it also 
is in conjunction with our counterparts at Treasury and the 
other agencies in which we all are participating.
    Turning to the corporate structures let me ask one question 
if I might. Well, I am trying to see what familiarity we have 
with those laws that apparently are in two states. This is the 
first I have heard about there being some provisions that will 
keep from law enforcement, corporate structures.
    I can tell you that if we do not have access to corporate 
structures then it is exceptionally difficult for us to trace 
funds without knowing the corporate structures, particularly if 
you have a subsidiary of a parent and money is shifted back and 
forth between a subsidiary and a parent without knowing and 
understanding that corporate structure, we would be blind. And, 
it is something that, now that I am alerted to it, that we 
would--I would look at those particular statutes in those 
states and see what can be done. Thank you for bringing it to 
my attention.
    Mr. Rogers. Thank you, director. I would like to follow up 
on that issue if I may in writing, as well as the other 
question I have. I see my time is short. Again, I just want to 
thank you and the bureau for stepping up to the plate. You have 
made the changes because of the PATRIOT Act. The way you 
changed the analytical capability of the FBI in such a short 
period. That is extremely impressive. I have been very 
impressed with it. And, America needs to know that not only are 
you tackling the very difficult issues of terrorism, you are 
still arresting child pornography rings. You are arresting 
public officials who are violating the public trust. You are 
bringing to justice organized criminals all across this great 
nation. And, if I have to fault anything for the FBI, the 
bureau has the worst PR operation I have ever seen of any 
organization. You are doing incredible things out there and 
America needs to hear about it, because people are quick to 
condemn without knowing the whole total story. And, again, 
thank you and thanks to the agents and men and women of the 
bureau.
    Mr. Mueller. Thank you, sir.
    Mr. Bachus. Thank you, Mr. Rogers.
    I would like to associate myself with those remarks as 
well.
    At this time I would recognize the gentlelady from 
California, Ms. Waters.
    Ms. Waters. Thank you. Good morning. Mr. Chairman, I would 
like to thank you for holding this hearing. While I was not a 
supporter of the USA PATRIOT Act for any number of reasons, I 
have spent a lot of time working on drug money laundering and 
money laundering since I have been here in this House. And, 
have, for the most part been disappointed with the lack of real 
movement as it relates to money laundering and drug money 
laundering in particular.
    Mr. Director, given all that you have described here today 
about the changes that you have made and the new emphasis that 
you are putting on money laundering and looking at terrorist 
funding, allow me to ask you whether or not you have paid any 
particular attention to the proceeds that come from the growth 
of the poppies in Afghanistan? I find it very interesting that 
we have little or no discussion about the drugs that are being 
produced in Afghanistan despite the fact we have a big presence 
there.
    We are there. We are protecting Mr. Karzi. We seem to know 
what the drug lords are doing. As a matter of fact, our 
servicemen appear to be at great risk as they continue to be 
fired on and there are attempts at bombing them even right in 
Kabul, let alone the work that they continue to do in Tora Bora 
and other places. But, we know that the drugs are being grown. 
We know that. We see the poppy fields.
    I maintain that one source of funding for terrorism could 
certainly be from the production of the poppy seed and who 
harvests it? Who has followed the money line as it relates to 
drugs? And, what do you know about it, because I would suspect 
that that may be a source of funding for terrorism. I 
understand that those fields are controlled by a combination of 
drug lords, Taliban, Al Qaeda, et cetera, that is number one.
    Number two, the Saudis, for example, if you do not have 
great exports from certain places like Afghanistan and maybe 
even Pakistan to some degree, and money is not being produced 
there because of obvious products and goods and services, then 
the question is where does the money come from? For example, 
the Saudis are our friends. We have a great relationship with 
them because of oil and other things, but they fund, obviously, 
the madras' of the schools in Pakistan that produce people who 
make up the Al Qaeda network eventually. We know that, and you 
know that. What else is funded by the Saudis, and how do we 
trace the money that the Saudis use to do other kinds of 
things? I do not know about their deposits in American banks. 
We talk a lot about foreign banks, but one of the things we 
discovered as we looked at money laundering is that it is not 
the hawalas and a lot of these places we would like to think 
about that are responsible for laundering money and providing 
maybe money for terrorists, I do not know. But, a lot of the 
money that we may be concerned about is sitting right here in 
our own banks. What do you know about private banking and 
concentration accounts?
    We did find, right in this committee and other places, that 
one of the largest financial institutions in America managed 
the drug money out of Mexico and provided a private banker for 
a convicted killer, who happened to be the brother of the 
president at one time in Mexico, and the private banker managed 
all of their assets, bought their houses and their boats and 
helped to wire transfer their money offshore. So, are we 
looking everywhere and missing what could be happening right 
under our own nose, right here in the United States? So, that 
is kind of three questions in one, the first being the drug 
money from the growth of the poppies in Afghanistan, where is 
that money going? Who is tracing and tracking and is that some 
of the money that has been used to sponsor terrorist 
activities, that is the first question.
    Mr. Mueller. I think without a question of a doubt that to 
the extent that there is money that is coming out of the growth 
of the poppies and the crop in Afghanistan, certainly in the 
past it had supported the Taliban and supported Al Qaeda when 
Al Qaeda was resident in Afghanistan. I think it is far more 
difficult, both because of the policies of the Karzi regime, 
the fact that there is an American presence there, the fact 
that we are looking, and by we--and, I do not want to speak for 
my counterparts, DEA and others, but I am aware that this has 
not gone unnoticed. There are other areas, or another agencies 
that are looking at that particular problem. I think it is far 
more difficult for that crop--the proceeds of any crop that is 
coming out of there to find its way into the terrorist network. 
But, that is not to say that it is not happening.
    I think it was substantial in the past, particularly with 
the Taliban running the country and Al Qaeda having such a 
large presence. We at the bureau at the FBI are alert to any 
sign in any of our investigations, whether we are doing it by 
ourselves or as a part of OCDETF or with the DEA in another 
capacity, or in investigations, international investigations, 
with our counterparts overseas that relate to narcotics, are 
sensitive to and are alert to any indications that monies are 
coming from drugs, whether it is coming from Afghanistan and 
the poppy fields there or the Columbian cartels or the Mexican 
transporters. And, the DEA has a substantial undertaking to 
determine whether or not any of the funding from narcotics 
trafficking groups across the world is going in to--to fund 
terrorism.
    There have been certain instances where that is the case, 
but I cannot say that they were related to the poppy growth in 
Afghanistan. It came from narcotics traffickers in other 
countries.
    As to your second question with regard to Saudi Arabia and 
funding by Saudi Arabia, there has been discussion and I would 
ask you to ask my counterparts at Treasury. I am sure you will 
ask the question of them, but there has been concern about 
NGO's, non-governmental organizations, and charities, whether 
they be supported by individuals from Saudi Arabia or elsewhere 
in the Middle East, being used as conduits for money to 
terrorists and it is often difficult to separate out those 
funds that are going to legitimate charitable causes and those 
funds who are ending up in the coffers of terrorists. But, the 
FBI, as well as the CIA and the Treasury Department have made, 
I think, strides, substantial strides in addressing that 
concern, but that is a concern, it continues to be a concern.
    And, I know there was a third question, but I cannot 
remember what it is at this point.
    Ms. Waters. Well, the third question is what do you know 
about private banking and concentration accounts in our major 
banks in the United States that tend to hide money of dictators 
and others from foreign countries that could be used also to 
fund terrorist activities?
    Mr. Mueller. I think the one thing I would say is that--
actually I will say two things. I believe that the provisions 
of the PATRIOT Act will be helpful in assisting us in 
uncovering those instances where our banks are being used by 
individuals from overseas or elsewhere to launder monies or 
hide monies. That aspect of the PATRIOT Act that provided 
immunity to financial institutions, both the institutions and 
the individuals from civil liability from voluntarily 
disclosing to the United States suspicious activity, I think 
will be helpful.
    The expanded SAR provisions I think will be helpful. And, 
consequently, I believe, while we have not solved all the 
problems, the publicity in the last few years of some of our 
major institutions being embarrassed by the fact that they were 
a recipient and conduit for individuals overseas who were 
parking their ill-gotten gains here, that is important. The 
provisions of the PATRIOT Act are important. And, I actually 
saw yesterday in the--it was in USA Today a poll of individuals 
who are in the financial business and it indicated it was in 
response to a question, which was as follows: Will the USA 
PATRIOT Act, signed into law by President Bush, prevent 
terrorists access to the U.S. financial system? And, 69 percent 
of these financial professionals said yes it would. So, this is 
a report from the financial professionals in the business 
themselves who say that that which you would pass in the 
PATRIOT Act will go a ways to preventing access by terrorists 
to the U.S. financial system.
    And, I see here it was a survey of over 2,000 financial 
professionals around the United States. So, I do think that the 
provisions of the PATRIOT Act will go a ways, a far ways to 
preventing the use of our financial systems by terrorists, as 
well as by others as those financial systems have been used in 
the past.
    Ms. Waters. Mr. Chairman, if I may--
    Mr. Bachus. Actually you have used--
    Ms. Waters. Is time up?
    Mr. Bachus. Twelve minutes and 10 seconds.
    Ms. Waters. All right. Thank you very much.
    Mr. Bachus. Thank you.
    Director Mueller, let me ask you two questions. First of 
all, what challenges will be posed or removed in the effort to 
combat dirty or terror money laundering by the formation of the 
Department of Homeland Security?
    Mr. Mueller. I certainly do not think our efforts will in 
any way be diminished. I believe that they actually will be 
enhanced by the Department of Homeland Security. And, let me 
explain why.
    I think it is important, as I have indicated in other 
forum, that we have an analytical capability that is closely 
tied to our investigations throughout the country, whether it 
be intelligence investigations or criminal investigations, to 
be able to take in the information we gather, analyze it and 
then disseminate it and disseminate to the CIA, and likewise 
for the CIA, analyzing that which comes in from overseas and 
then disseminating it. But, it is important that we have, and 
particularly in the FBI, build up our analytical capability, 
our intelligence capability in ways we had not before.
    Now, the Department of Homeland Security is also going to 
have an intelligence capability and they are going to look at 
that which is provided from our 11,500 agents within the United 
States or the CIA, how many agents they have overseas and look 
at it from the perspective of what does this information say 
about the vulnerabilities of our infrastructure, including the 
financial infrastructure. And, so the focus of their 
intelligence capability will be looking at the vulnerabilities 
of our infrastructure and matching it to that which we at the 
FBI or the CIA or NSA or other of the intelligence community 
have discerned in the analysis of their investigations. So, I 
think they bring, the Department of Homeland Security will 
bring a different facet to the effort that is a necessary facet 
that will augment that which we and the other entities, whether 
it be Treasury, CIA, NSA or the FBI are doing currently.
    Mr. Bachus. Thank you. In that regard, and I read an 
article in the Wall Street Journal, you were talking about the 
being able to communicate between the agencies and between your 
field offices. I read an article in the Wall Street Journal 
that described at the time that you took over as director what 
was considered an inadequate ability to communicate and 
technology, you did not have the system in place to adequately 
communicate between the field offices and headquarters. Has the 
bureau examined what the Treasury Department does, their 
Treasury Enforcement Communication System, which is considered 
sort of the gold standard for communicating back and force as a 
model for maybe rebuilding the bureau's system?
    Mr. Mueller. I would have to check on that. I know we have 
looked at many of the systems in the federal government, not 
just in law enforcement, but I would have to check and 
determine whether we have. I am confident that some persons 
within the bureau has, but I am not certain when or who.
    Mr. Bachus. Are you addressing that problem of your ability 
to link and transfer data?
    Mr. Mueller. Yes. We absolutely are. We have got a multi-
phased program into place. We put in the first phase, which was 
upgrading our desktop computers, putting in the LANs and the 
WANs that are necessary to provide the type of communication 
that we would like to see. But, we still got a long ways to go. 
And, we need additional software applications. We need greater 
bandwidth. We have a--still have problems in and including 
photo files and that kind of thing because of bandwidth. We are 
moving to address that as expeditiously as we can. Congress has 
certainly given us the money. And, we are moving to shore up 
our technology.
    Mr. Bachus. Thank you. One final question, when our 
committee marked up the terrorist financing portion of the 
PATRIOT Act I actually authored and included a provision giving 
Customs the right to search outbound mail. And, I know the 
bureau in the past was very supportive of those efforts. It was 
included in the House version. And, as you know, the Customs 
has the right to--unlimited right, basically, to search inbound 
mail. But, it has very restricted rights to search mail going 
out of the country. And, with all the revelations about 
actually bundling of cash and mailing it out of the country, 
you actually see websites that are used by people who sell 
drugs or, you know, marijuana in the United States, that they 
say ``use the postal service.'' It is safe and it is not 
searched.
    In the Conference Committee that provision was pulled from 
the PATRIOT Act. So, still there is a very limited right or 
ability for Customs to search outbound mail. I have been 
listening to, you know, my fellow members that have asked you 
all to really step up the effort on money laundering and do 
things you are not doing. The Congress' failure to give you 
that right to search outbound mail, is that an important tool 
in the fight against money laundering?
    Mr. Mueller. I will have to say at the outset it sounds 
like something that I as a prosecutor and investigator would 
believe is an important tool. But, again, I do not speak 
solely. I would have to look and see whether this particular 
piece of legislation is within the department.
    Mr. Bachus. All right. And, I know that is Customs' primary 
responsibility, but then, you know, you all work with Customs 
closely--
    Mr. Mueller. Yes.
    Mr. Bachus. --on, you know, seeing what is moving in the 
outbound mail. I would like you maybe to respond in writing 
once you have sort of--
    Mr. Mueller. Sure.
    Mr. Bachus. --run the traps on that.
    Mr. Mueller. Sure.
    Mr. Bachus. Because it is a concern to me that it has been 
something that has been asked for since at least 1996 and it 
was a priority of Customs and it still is not the law. The 
Customs still does not have the ability to search outbound 
mail.
    Mr. Mueller. I will follow up on that.
    Mr. Bachus. The gentleman from Washington?
    What we are doing is we are going for--there are votes on 
the floor.
    Mr. Mueller. I understand.
    Mr. Bachus. But, you have a 12:30 commitment and I have 
just told the members to get back and as soon as the gentleman 
from Washington questions you, I anticipate discharging you.
    Mr. Mueller. Thank you, sir.
    Mr. Inslee. Thank you, Mr. Mueller. Thank you for all your 
team. They are doing an exceptional job under very trying 
circumstances. And, I hope you will pass that on from all of us 
on the committee.
    I wanted to ask you about the harvest, if you will, of 
intelligence from the PATRIOT Act and other work that you have 
been doing pertaining to the attack on September 11. We have 
seen that very clearly there were various nations associated 
with the attack of September 11. We know, obviously, Saudi 
Arabians were, I think 17 out of 19 were Saudi nationals.
    Mr. Mueller. Fifteen were.
    Mr. Inslee. We know--I am sorry?
    Mr. Mueller. Fifteen were.
    Mr. Inslee. Thank you. I believe an Egyptian.
    Mr. Mueller. There was one Egyptian, two from the UAE and 
one from Lebanon.
    Mr. Inslee. We know that Afghanistan was clearly involved 
in their training, at least their beginning training process. 
We know that the terrorists--a cell developed in Germany. I am 
told that there is some evidence that there was some 
association with England. And, obviously, there was training in 
the United States.
    Do you have substantive credible evidence that has led you 
to believe that Iraq was involved in training or operationally 
in some fashion on the attack of September 11?
    Mr. Mueller. I hesitate to answer that because any answer 
probably would be--have to be given in closed session. But, by 
really declining to open it or answer it in open session, I do 
not want to give any substance to the belief that there may be 
such evidence out there. That particular question as to Iraq's 
relationship to the events of September 11 I think and believe 
have been spoken to by others in the intelligence community and 
the military and I would be hesitant to speak. Yes, as Director 
of the FBI, I have got some quantum of knowledge on the 
investigation, but there are others out there who have--I look 
at it from different perspective. And, so I am really reluctant 
to answer that question.
    Mr. Inslee. Well, we are now grappling with the issue of 
what type of threat Iraq poses and it looks like Al Qaeda has 
been at war with our country since the early 1990's, maybe we 
did not fully understand that, but it is clear that they were. 
And, they turn to Afghanistan for a place to train very 
clearly. They turn to Germany for a place to do their work on 
their cell. They turn to Saudi Arabia, Egypt and the United 
Arab Emirates for personnel to do this.
    And, from the information that I have available, it did not 
turn, at least in a way that we have knowledge about, 
significantly to Iraq. And, I guess what have you concluded 
from that, if anything, in regard to if Iraq does present a 
imminent danger to the security of the United States why did 
this international organization that has been at war with us 
since 1990 do everything all around the world that we have 
discovered and it is now public information, but not in Iraq? 
What conclusions or thoughts should we draw from that? I mean 
they went to Afghanistan, they went to Saudi Arabia, they went 
to Egypt, they hit the Germany but not Iraq and we are trying 
to grapple with this issue of how imminent this threat is. 
Could you give any--shed light in that regard?
    Mr. Mueller. Well, I can shed light to the extent that the 
results of our investigation and the investigation of our 
counterparts in Germany or Pakistan or like have disclosed 
exactly what you say, that the plot was put together in 
Germany, Afghanistan, Malaysia, other countries overseas and 
executed in the United States. I am reluctant to speculate as 
to--well, number one, let me put it this way. I guess I am 
reluctant to discuss in open session the specifics of your 
question for two reasons, one, I do not believe that such a 
discussion should be in open session, but secondly, the 
discussion should be held in the context of what intelligence 
is known by other agencies other than the FBI.
    Mr. Inslee. Well, I have sat in the closed sessions. And, I 
think it is a very important issue for us to consider when we 
decide what our Iraq strategy should be.
    Let me turn, if I can, to your resource issues. If we do 
start an invasion of Iraq in the near future, some have 
suggested that this would have Saddam decide to use it or lose 
it. Anything he had he would have no restraints to use. Right 
now he has a survival instinct and therefore has not used some 
of the weapons that he has. Some have suggested that once those 
restraints are removed he would be a more dangerous character, 
at least for a short period of time, as far as them having an 
incentive to give his chemical and biological weapons to 
terrorists, which to date does not appear to be the case. That 
would lead me to conclude you will have additional 
responsibilities to guard against that on a domestic basis.
    First off, do you believe you will have additional duties 
to guard against that? And, if so, what are your resources to 
do that and will they, to some degree, diminish your activities 
now trying to hunt down the Al Qaeda cells that may be in 
existence.
    Mr. Mueller. It is hard for me to speculate as to what will 
happen a week, two weeks down the road with regard to Iraq. I 
believe that whether it be the threat from Iraq or from any 
other country where we see an enhancement of that threat, we 
would enhance our capabilities of addressing that threat, which 
would mean being much more sensitive to operatives that might 
be in our country or coming into our country, would be 
utilizing our counter-intelligence tools to identify those who 
might seek to do us harm within the United States. And, we 
would be on an enhanced state of readiness and alert and would 
mobilize what resources we have to address that threat, 
regardless of which country--from which country it comes.
    I will also tell you though that our number one priority is 
counter-terrorism and to the extent that I do not have agents 
assigned on any given day to that priority, if there is a 
threat in a particular town or a particular city or a 
particular region of the country, I will have no hesitancy in 
transferring for a period of time agents from whatever else 
they are doing to address that threat. And, since September 11 
we have had occasion to do that on any number of places within 
the United States. And, in the future, to the extent that there 
is a threat presented anyplace in the United States and I have 
inadequate resources in that particular city, town or region, 
we will put the resources on it to address that and make 
certain that we do everything we possibly can to prevent 
another terrorist attack.
    Mr. Inslee. Well, I would like to help you in that regard 
because I think it is clear you are going to have some 
additional worries and you are going to need some additional 
resources and you will not be able to do this job against Al 
Qaeda unless you get some additional resources. And, there is a 
concern of some of us that in diluting your concentration on Al 
Qaeda and not giving you any more FBI agents, I have not heard 
anyone suggest we are going to give you more agents next month, 
to deal with this additional front, we have concerns and we 
would like to help you with that, if indeed that occurs.
    And, I want to thank you for your testimony.
    And, thanks for the chair. Thank you.
    Mr. Mueller. The only thing I would add--
    Mr. Bachus. Thank you.
    Mr. Mueller. --is we are looking forward to--we have put in 
a request for additional agents and we are looking forward to 
receiving the 2003 budget because that will augment our 
capability to address Al Qaeda.
    Mr. Inslee. Thank you.
    Mr. Mueller. Thank you.
    Mr. Bachus. Thank you, Director Mueller. You know, in that 
regard, I would also say, you know, there has been some concern 
expressed, particularly by some rural bankers because the FBI 
has had to deploy people away from investigating bank robberies 
except the most violent ones. And, there is concern expressed 
for that. So, if you will continue to make us aware of your 
funding needs in that regard.
    I want to again express to you our thanks for all the 
efforts that you and the men and women of the FBI are making to 
combat money laundering and disrupting the financial operations 
of the terrorists. We are going to discharge you. We thank you 
for your testimony.
    The committee will recess until 2:00, at which time we will 
hear from representatives of the Treasury and the State 
Department. The hearing is adjourned until that time. Thank 
you.
    Mr. Mueller. Thank you very much.
    [Recess.]
    The Chairman. The committee will reconvene and we are 
pleased to present the second panel of our discussion over the 
implementation of the USA PATRIOT Act. We are pleased to 
welcome the Honorable Kenneth Dam, Deputy Secretary, Department 
of the Treasury, and the Honorable Alan Larson, Undersecretary, 
Economic and Agricultural affairs at the State Department.
    Gentlemen, thank you for your solid work in this area and 
we are pleased to recognize Mr. Dam.
    Let's get that microphone on or get it a little closer to 
you. Should be a button there.
    Mr. Dam. Button? Oh yes, I see.
    The Chairman. You will be pleased--
    Mr. Dam. Technologically--
    The Chairman. The FBI director had the same problem, so you 
are in good company.

STATEMENT OF HON. KENNETH DAM, DEPUTY SECRETARY, DEPARTMENT OF 
                            TREASURY

    Mr. Dam. Chairman Oxley and members of the committee, 
thanks for inviting me to testify here today on the 
implementation of the USA PATRIOT Act. Rather than read my 
prepared, I would like to ask you to please enter it in the 
record and I will summarize that.
    But before turning to the latest rules and regulations that 
we have issued under that act, I wanted to report briefly on 
progress we are making in the financial war on terrorism in 
general. Since September 11, the United States and other 
countries have frozen more than $112 million in terrorist-
related assets. More importantly, the actual amount of money 
blocked understates the full effect of the blocking action in 
that our blocking actions have effectively cut the flow of 
terrorist money through funding pipelines. For example, we 
disrupted Al-Baraka's worldwide network, that by some estimates 
was channeling $15 million to $20 million a year through Al 
Qaeda. Another example, we froze the assets of the Holy Land 
Foundation for relief and development, which is a principal 
U.S. fund raiser for Hamas, raised over $13 million in 2000.
    Now, we have obtained strong international cooperation in 
this effort, I am pleased to say, and I will leave it to Under 
Secretary Larson to have the opportunity to explain these 
efforts in some detail. I do wish to say, however, that all but 
a small handful of countries have pledged support for our 
efforts, and over 160 countries have blocking orders in force. 
The hundred of accounts with more than $70 million have been 
blocked abroad, and the foreign law enforcement agencies have 
acted swiftly to shut down terrorist financing networks. The 
United States has often led these efforts, but there have been 
important independent and shared initiatives.
    Let me just site three examples. On March 11 of this year, 
the United States and Saudi Arabia jointly referred to the U.N. 
sanctions committee, two branches of a particular charity. On 
April 19, the G7 jointly designated nine individuals in one 
entity. And on just this past September 6, the United Nations 
and Saudi Arabia jointly referred to the U.N. sanctions 
committee a man named Javidon, who is an associate of Osama bin 
Laden and a supporter of Al Qaeda terror. These efforts have 
been bolstered by actions from the European Union, which has 
issued three lists of designated terrorist and terrorists 
groups for blocking.
    Now, as I say that is a very, very short summary and I am 
sure Under Secretary Larson will have more to say. So, I would 
like to turn to the implementation of the PATRIOT Act itself, 
excuse me. And, let me just summarize some of our major 
accomplishments over the last 12 months, actually 11 months 
since the passage of the statute.
    Together with the federal functional regulators, we have 
issued customer identification and verification regulations. We 
have developed a proposed rule which seeks to minimize risks 
presented by correspondent banking and private banking 
accounts. We have expanded our basic money laundering program 
requirement to the major financial services sectors including 
insurance and unregistered investment companies, such as Hedge 
Funds. And we have developed rules to permit and facilitate the 
sharing of information between law enforcement and financial 
institutions as well as among financial institutions 
themselves.
    Now, I want to underline that each of these accomplishments 
animated from the very legislation that this committee was 
instrumental in drafting. And I have addressed these 
implementation efforts and detail my written testimony, and I 
will be pleased to take any questions you have on them.
    So in summary, we have made substantial progress in 
implementing the USA PATRIOT Act. The Act is making a 
difference, and I think that people recognize it is making a 
difference.
    Just yesterday, the USA Today reported the results of a 
survey of over 2,000 financial professionals. Sixty-nine 
percent of those agreed that the PATRIOT Act will prevent 
terrorist access to the U.S. financial system, and I think they 
are right on that. We believe that the act is making it 
increasing difficult for terrorists to use the U.S. financial 
system. We are disrupting their ability to plan, operate and 
execute attacks, and we are forcing them to resort to 
substitute methods such as bulk cash smuggling to finance their 
operations.
    Let me say that bulk cash smuggling is costly. It takes 
time. It is uncertain. Smuggling exposes the cash. There are 
instruments for possible detection and seizure by the 
authorities, and indeed those who are trying to pass them as 
well. For example, since September 11, our Customs Service 
seized over $9 million cash being smuggled out of the United 
States to Middle Eastern destinations, or destinations with 
some other Middle Eastern connection.
    By making bulk cash smuggling a crime, the USA PATRIOT Act 
helped make these increased seizures possible. Smuggling 
exposes the careers, as I just said, to a possible capture. 
This summer, Customs, the United States Secret Service and FBI 
agents apprehended and subsequently indicted Jordanian-born 
Omar Shishani in Detroit for smuggling $12 million in forged 
cashier's checks into the United States.
    The detention and arrest of Shishani is highly significant, 
as they resulted from the Customs Services cross indexing of 
various databases, including information obtained by the U.S 
military in Afghanistan. That information was entered into 
customs watch list, and when cross checked against in bound 
flight manifests, they identified Shishani. This is a good 
example of how the type of information sharing that our 
security now depends on is being implemented and made 
effective.
    Of course we have a lot more work to do. I pledge to you 
that we will continue our efforts with the same intensity and 
professionalism that I believe have characterized this first 11 
months. That as we complete our tasks in the months ahead, are 
preparing final implementing rules, I believe firmly that our 
job will just have begun. Time and experience will allow recent 
reflection on the decisions we are making today, incumbent upon 
Treasury to make adjustments to these rules, when it is 
necessary, to ensure that they continue to achieve our goals.
    To that end, I am pleased to announce the creation of a new 
task force within the Treasury. The specific mandate of the 
task force would be to work with other financial regulators, 
the regulated community, law enforcement and customers and 
members of the financial community to improve the regulations 
that we have already implemented.
    As we learn more about what works in the war on terrorist 
financing, we can find ways to calibrate our existing 
regulations both to better disrupt terrorist financing--and 
this is important--and to do so in a way that imposes the least 
cost on the regulated community.
    Let me say, Mr. Chairman, that we look forward to working 
with you and with the other members of the committee and with 
the staffs on this task force project as well. Thank you very 
much.
    [The prepared statement of Kenneth Dam can be found on page 
55 in the appendix.]
    The Chairman. Excuse me.
    Thank you, Mr. Dam, we appreciate it.
    Mr. Larson?

 STATEMENT OF HON. ALAN LARSON, UNDER SECRETARY, ECONOMIC AND 
           AGRICULTURAL AFFAIRS, DEPARTMENT OF STATE

    Mr. Larson. Mr. Chairman and distinguished members of the 
committee, thank you for inviting me to be here. Like Secretary 
Dam, I would like to submit my written statement for the record 
and, with your permission, give a quick summary.
    The Chairman. Without objection both full statements will 
be part of the record.
    Mr. Larson. Mr. Chairman, we are engaged in a sustained 
campaign against terrorists and terrorist organizations that 
have global reach. We would like to thank the committee and the 
Congress and for its support in this effort, and in particular, 
for passing the USA PATRIOT Act, which provides important new 
tools for waging this campaign.
    Since our enemy does have global reach, and is supported by 
a global network, we need to have a global strategy and we need 
to have international partners who can help us carry it out. 
The State Department's particular responsibility in this inner-
agency effort has been to lead in the effort of developing the 
plans for eliciting that cooperation and that support from 
other countries
    The international dimension of our strategy includes the 
following principal elements: one, establishing the norms and 
obligations, primarily through the United Nations Security 
Council Resolutions and through international conventions; two, 
putting the issue of terrorism at the very top of our agenda 
with every country in the world; three, working with other 
countries, in cooperation with the Treasury, to block the 
assets of terrorists and terrorist organizations; four, placing 
the issue of terrorist finance at the heart of the work plans 
of various international organizations; five, strengthening law 
enforcement cooperation across borders; and six, extending 
training and technical assistance.
    The PATRIOT Act has been a useful tool, and I would like to 
give you four examples. First, under the PATRIOT Act, the 
secretary of state has put 39 organizations on their terrorism 
exclusion list. Since the enactment of the PATRIOT Act, which 
gave the State Department for the first time access to data 
from the National Crime Information Center, we have been able 
to incorporate approximately eight million NCIC records into 
the visa look-out database. Third, pursuant to authorities 
under the PATRIOT Act, the Secretary of State has established a 
money laundering watch list which identifies over 400 
individuals world-wide who are known or are suspected of money 
laundering. And this list is checked by consular officers and 
other federal officials before the issuance of visa for 
admission to the United States. And fourth, the State 
Department has consulted closely with the Justice Department in 
the first use of the correspondent bank account provision of 
the USA PATRIOT Act. And in this action, the government 
obtained assets of some $1.7 million.
    As Secretary Dam stressed, while much has been 
accomplished, there is a great deal that remains to be done. As 
formal financial systems are purged of terrorist finance, the 
terrorists naturally resort to other, more costly, but still 
serviceable, mechanisms for moving resources. We are working 
hard with other countries to develop the mechanisms that will 
help ensure that Hezbollah systems or other informal financial 
systems are not misused. And to try to ensure that funds 
donated for worthy charitable purposes, do not end up being 
diverted to terrorist ends.
    As we move forward, the importance of technical assistance 
in training is likely to grow. We are likely to need to develop 
improved training programs, establish clear bench marks, 
exchange information on best practices and ensure that 
countries that are committed to the fight against the financing 
of terrorism get the help they need to carry out their 
obligations.
    President Bush has reminded us that the war against 
terrorism will be long and difficult and will require patience 
and persistence. The financial dimension of this war is no 
different. We have made considerable progress, but we really 
need to stick with it. We appreciate very much the strong 
support of the Congress and of this committee, and we look 
forward to trying to answer your questions.
    [The prepared statement of Alan Larson can be found on page 
70 in the appendix.]
    The Chairman. Thank you, Mr. Larson.
    Let me begin with Mr. Dam. It was reported earlier this 
year that Treasury was working on a bilateral and multilateral 
basis with the Persian Gulf states to address some of the use 
of Islamic charitable organizations as a conduit for terrorist 
financing. Could you bring us up to date on the status of that 
effort and what kind of cooperation we have gotten from some of 
the leading Gulf States like the Saudis or UAE?
    Mr. Dam. We have been, Mr. Chairman, talking quite a lot to 
governments from that region. There was a conference that 
touched on that issue in the Middle East that was also dealing 
with hawala-type questions. I myself have had at least one 
conversation dealing directly with this question.
    Meanwhile, we have been doing a lot of homework ourselves 
because the whole question of charities is quite complicated. 
The fact of the matter is that charities do a lot of good work, 
do a lot of good work in Middle East-Persian Gulf area because 
they help support hospitals, orphanages, a lot of things that 
are quite important. They provide a social safety net, in fact.
    And in Islam, charity is just as important as in the United 
States. And as in the United States, there are a lot of 
sensitivity about interfering with charity, so terrorists have 
strategically, I believe personally, decided to use charities 
for that very reason, because they are complex to deal with.
    And so we are working hard and consulting on a regular 
basis with other countries about how to go about this. As you 
know, in the United States there are some constitutional 
problems about interfering with charities so it is a delicate 
question and we are pushing ahead on it.
    The Chairman. Thank you.
    As you know, the U.S. Customs Service is the lead agency on 
Operation Greenquest--
    Mr. Dam. Correct.
    The Chairman. --which the FBI director referred to us this 
morning, and, the multi-agency task force established after 
September 11 to dismantle the terrorist financing networks. How 
will the proposed transfer of Customs to the new Homeland 
Security Department affect that effort if at all?
    Mr. Dam. My understanding is that it will continue, Mr. 
Chairman. I have not information to the contrary, and I 
certainly hope it will because I think they have made a lot of 
progress and they bring to bear a lot of people with expertise 
who otherwise might now be working together.
    The Chairman. And how do you see the new Homeland Security 
Department assuming the lead--I assume they would take the lead 
in the war on terrorist financing, in particular. And indeed, 
are there any particular potential problems that relate to 
interconnection between the Treasury and the Financial Crimes 
Enforcement Network, Office of Foreign Asset Control? Could you 
give us some idea about how the overall plan would work?
    Mr. Dam. Well, as you know Homeland Security is not in 
existence this present time, but it is my understanding, and 
perhaps you have some information to the contrary, that it is 
contemplated the Treasury would continue to lead the effort.
    Obviously customs is a very important part of the whole 
enterprise. Secret Service also plays a role. And they will be 
in the Department of Homeland Security, but the Treasury is the 
department that has the relationship with the financial 
community. And ultimately, we are dependent on the financial 
community for their efforts and their cooperation in carrying 
out this financial war on our behalf.
    There are plenty of things we can do directly, but a lot of 
things have to be done with the cooperation of the private 
sector. And since then is in regular relations with all 
financial institutions, and will soon be on a regular basis 
with all financial institutions and will soon be on a regular 
basis in electronic contact with them. Similarly, OLFAC has a 
long history in this area working with the financial community, 
carrying out blocking orders and so forth.
    So however it may be organized, I don't think there will be 
any difference in the focus that is placed on this area, and I 
don't see any reasons for difficulties of cooperation, 
collaboration. We have learned a lot about how to cooperate in 
the last months since September 11.
    The Chairman. Well, as you commented, the need under the 
PATRIOT Act was to have this very active private-public 
partnership. In your view, how is that working with the 
financial institutions? What kind of feedback are they getting 
in terms of information that you have been able to acquire? And 
is it indeed a two-way street that we had envisioned in the 
PATRIOT Act?
    Mr. Dam. I believe so, Mr. Chairman. I had a meeting just 
this week with all of the different sectors of the financial 
community that might be impacted by the PATRIOT Act and by the 
regulations. They were uniformly quite complimentary about the 
work that had been done by the regulators and the lawyers and 
the other specialists within the Treasury Department.
    We have had a lot of contact. They have come in to tell us 
about their problems. We have issued regulations in draft form 
to get their comments. We have had a lot of comments. Sometime 
in addition to draft proposed regulations, we put out interim 
final regulations for one last chance.
    And as I indicated today in my testimony, we plan to be in 
steady contact with them to make changes as are necessary, 
either to relieve unnecessary burdens or to make them more 
effective.
    Moreover, the PATRIOT Act itself provides for the exchange 
of information with the financial community, so that they know 
who they should be on the look out for and provides for them to 
cooperate among themselves with a regulatory safe harbor, so 
that they can freely pass information among the various 
individual institutions.
    So I don't have any information at all to suggest that that 
is not working very well. Now, to be sure some firms are 
concerned about the burden. Some are concerned about whether 
they really should be covered.
    And for example, in the regulations we have just issued 
with regard to the insurance industry, we have made the 
determination that those portions of the insurance industry 
that should have to do certain things are primarily the life 
insurance industry. The casualty insurance industry, the title 
insurance industry, the health insurance industry, really do 
not, so far as we now say, present a problem with regard to 
terrorist finance and money laundering because of the nature of 
their policies. Should they, however, adopt new products which 
have the characteristics that you find, say, in life insurance 
where it can store value then transfer it somewhere else, we 
would change our mind on that.
    And we discussed that. We discussed that this week with the 
industry to be sure. And I think the life insurance industry, 
which is definitely impacted, understands that and accepts that 
responsibility. And I think the casualty and property sector of 
the insurance industry understands what we are saying and of 
course they are happy to know that they won't be faced with the 
same burden as the life insurance portion of the industry.
    So my point is we are trying to adopt a strong but nuanced 
approach, so we are doing what is necessary and appropriate, 
but no overreaching it. I don't think we are overreaching, but 
we will stay in contact to make sure that there is no 
unintended overreach or unintended burden here.
    The Chairman. Mr. Larson, one of the troubling loopholes in 
the international regime for cracking down on money laundering 
and on terrorist financing is the lack of meaningful regulation 
of money transfer businesses or hawala issues. And that is 
obviously something that is rather endemic, particularly in the 
Middle East. What is the administration doing to encourage 
these countries to adopt procedure for registering and 
monitoring these kinds of activities?
    Mr. Larson. Mr. Chairman, we are working very hard on what 
is admittedly a very tough problem. I think the starting point 
is in the Financial Action Task Force, which Treasury and State 
participate in. We are working with other countries to develop 
a best practices approach and to exchange information.
    We have conducted technical assistance programs with 
countries where hawalas are prominent; to help identify 
loopholes, identify problem areas. And we are sponsoring a 
conference in the region so that we can help countries, first 
of all, to identify where the difficulties are and what 
measures could be put into place to bring regulation to these 
types of informal systems.
    I think another angle on this is that these systems are a 
substitute for the formal system, and the fact that they are in 
existence is in part an indication of certain inadequacies in 
the formal system. And I think there is the opportunity to try 
to improve regular systems of remittances. One of the projects 
that Secretary Dam and I are working on in the Mexican contacts 
is to lower the context of remittances for people who are 
working in this country. And I think some of the things that 
have been learned in that exercise could be helpful in creating 
alternatives to the hawala for the law-abiding people and the 
lawful purposes that make up the bulk of the transactions in 
those systems.
    The Chairman. The committee went to Europe in April, and 
one of the issues that we were discussing at that time was the 
whole issue of money laundering. And we picked up some concerns 
among our European allies, specifically in Great Britain and in 
Germany that in some cases, the U.S. has often failed to 
provide intelligence and other investigative information on 
which they could support court orders authorizing the blocking 
of assets in those countries. I assume you have probably heard 
some of those same complaints.
    What are we doing to try to address some of those issues?
    Mr. Larson. Mr. Chairman, again, Treasury and State are 
working very hard on this. I think the starting point is that 
we do try to present the best possible evidentiary record when 
we are asking other countries to join us in an action to freeze 
assets. In many cases, that involves trying to declassify 
certain types of information, or to try to draw from classified 
sources of information, an unclassified summary that we can 
share with countries.
    I think our agencies have worked very, very hard on that 
effort. I would just quickly interject that one of the 
difficulties here is that there are difference evidentiary 
standards in some of these other countries, and that is one of 
the issues that we face.
    What is interesting to me is that, not withstanding these 
difficulties, the Europeans have joined us in designating 
virtually all of the individuals in organizations that we have 
brought forward. So I think while there have been discussions 
and there has been some public discussion of this issue, it has 
not stopped us from moving forward.
    Mr. Dam. If I could add a point on that, Mr. Chairman, the 
committee very wisely, and the Congress, very wisely put in the 
PATRIOT Act a provision which allows us to sustain blocking 
orders in any court challenge based on classified information 
presented in an ex parte way in the chambers of the judge, so 
that we don't have to, in order to carry out a blocking order, 
give away classified information. It is very valuable.
    I would encourage our European colleagues to consider such 
legislation themselves, because frankly, if one approaches 
terrorism as just a law enforcement matter where you are only 
going to act after the fact against terrorist and terrorist 
financiers, we are not going to be able to make the kind of 
progress we need.
    And the general council of the U.S. Treasury was just in 
the United Kingdom this last week discussing this kind of issue 
with the U.K. authority. He also met with the Wolfsberg Group, 
which is a group of banks that operate internationally. Many of 
them banks have located in other countries, not incorporated in 
the United States, to discuss these kinds of issues, because if 
we have high evidentiary standards, which after we met, before 
you can do anything, then I think we have a bit of a problem. 
So we are working to find common ground here.
    The Chairman. The gentleman from New York, Mr. Grucci?
    Mr. Grucci. Mr. Chairman, I have no questions at this time.
    The Chairman. The gentleman from North Carolina?
    Mr. Watt. Thank you Mr. Chairman. I don't have any 
questions either. I just want to express my thanks to the 
chairman for convening this hearing. And my apologies to the 
witnesses; I was trying to get here at 2 o'clock to hear your 
testimony, but unfortunately got waylaid just as I walking out 
the door, and so I wasn't able to get here in time, but I will 
certainly review the testimony.
    I think it is very important to do this follow up about the 
effectiveness of legislation that has been passed, and the 
follow up that the FBI and the Department of Treasury and the 
Department of State are doing to implement the new law. So it 
is an extremely important and timely issue. I had hoped to ask 
some questions to the director of the FBI about the way he sees 
the balance playing out between individual rights and privacy 
rights and this new PATRIOT Act, but unfortunately he ran out 
of time and we got called for vote, so I didn't get to ask him 
any questions either, but I think it has been an extremely 
helpful and informative hearing. And I appreciate the chairman 
convening it.
    I yield back.
    The Chairman. I want to thank my friend from North Carolina 
who was a participant in the European trip and many of these 
issues were surfaced there and obviously very important.
    Gentleman from Texas have any questions?
    Mr. Bentsen. Thank you, Mr. Chairman. I do have a couple of 
questions I would like to ask if I could.
    Secretary Dam, there was an article in the Washington Post, 
a front page article of June 18th that I asked my staff to get 
for me because I remember reading it. And it raised a number of 
concerns, one being that there were various turf battles going 
on between Treasury and Justice on the implementation of the 
PATRIOT Act. In fact, you were quoted in the article as saying 
that, "It isn't working like clock work." And I would like to 
get an update from if the concerns that you apparently had have 
been addressed.
    The other thing is raised were concerns that not all of the 
160 plus countries that we were trying to work with were being 
as cooperative as we might hope they would be. In particular, 
you noted at the time, problems in South-East Asia. There were 
issues with respect to Saudi Arabia. And I would be curious 
whether or not this article is old news at this point, and most 
of these issues have been addressed. Or are these still 
concerns that we have?
    And then I have another follow up area I would like to 
discuss with you.
    Mr. Dam. Well, thank you for that question. I am glad to 
address those issues, and perhaps Under Secretary Larson might 
want to say something about the international situation as 
well.
    In terms of problems within the administration, obviously 
there were growing things. We had not done this kind of thing 
until immediately after September 11, and so there were some 
learning steps, some learning pains that we had to face. Also, 
we got some important authority under the PATRIOT Act that we 
were able then to exchange information more freely between the 
classified parts of the government and the rest of the 
government, which had not been possible before for legislative 
reasons that had a history that was right at the time that 
doesn't fit the current circumstances.
    So we had to learn how to work together. And my impression 
is that the number of complaints about this have fallen very 
steadily. And in fact, I haven't heard a complaint along these 
lines in some weeks. Now that doesn't mean there are not still 
glitches, problems, and so forth, but I think that we are 
working out the kinks.
    With regard to other countries, I don't think there are 
very many countries, which out of conviction on policy, don't 
want to do what they need to do in the terrorist finance area, 
but the fact of the matter is that they have had no experience 
at all. We have had the Office of Foreign Asset Control, I 
believe, as my popular history tells me that we have had it 
ever since World War II when were dealing with the Nazis. That 
is not exactly right historically, but we have had lots and 
lots of experience.
    But there are other countries who have never done anything 
like this before. They didn't have statutes. They certainly 
didn't have regulations. And if they had statutes and if they 
had regulations, they didn't have trained personnel. So we have 
put a lot of emphasis on technical assistance to help them 
bring themselves up to date, and there is still a lot to be 
done in that arena.
    As for South-East Asia, I think since the time of that 
article, there has been a startling amount of news about the 
operations of Al Qaeda and of sister organizations, terrorist 
organizations, in South-East Asia. In fact, it is in the news 
virtually every day. It was an important set of articles just 
this week about further police actions in Singapore, I believe. 
I read the big article in The Post, perhaps this morning, about 
Indonesia. So I think there is a great new focus in South-East 
Asia and countries on this problem.
    Mr. Bentsen. And you don't feel that you are getting the 
department, or the State Department for that matter, is getting 
a pushback from any countries that are being non-cooperative?
    Mr. Dam. I wouldn't say we are getting any overly pushback 
or, perhaps, any pushback at all. But the fact of the matter is 
things, the wheels of justice, the wheels of prevention even, 
sometimes grind slowly when it goes against the cultural 
attitudes or the bureaucratic cabinets or, as I try to 
indicate, the plain capacity of the government to take the 
action that is needed.
    And that is not specific to any part of the world. That is 
a general problem, particularly in countries which do not have 
well developed banking regulatory authorities or just the plain 
experience to do what is required.
    Mr. Bentsen. With the chairman's indulgence, and Mr. Larson 
may want to comment, as well, in the past--and I can't remember 
which acronym it is; there are too many to keep up with. But I 
don't know if it is FATF or which one. But in the past, 
Treasury--or maybe through FinCEN--has maintained a list of 
nations which we consider, for a variety of reasons, either not 
having the sophisticated banking laws or perhaps intentionally 
not having sufficient banking laws for money laundering 
purposes. In the past, I guess semi-annually, that list is 
reviewed. Nations either graduate; some nations may well end up 
on the list who weren't there before.
    Has there been a change in that list? Have countries been 
added? Or are you proposing to add countries as a result of the 
PATRIOT Act and as a result of this new emphasis on money 
laundering related specifically to Al Qaeda?
    And second to that, has the Treasury entertained, to the 
extent you can tell us, using some of the tools provided for in 
the PATRIOT Act in order to pressure those nations?
    Mr. Dam. Well, let me answer it in a general way and then 
Mr. Secretary Larson may want to fill in any gaps.
    Under the FATF, as you suggested, there is a process for 
designating countries that are non-cooperating in the war 
against money laundering. And there have been a number of 
countries that have been so cited by this process of these 29 
countries in FATF acting collectively. And many countries have 
taken this seriously and gotten themselves out from under that 
problem.
    There are still some countries that have not yet come into 
cooperative compliance. But, in many cases, they very much want 
to and they are just trying to figure out how to do it. And in 
some cases they have legislative problems. Some cases they may 
have some capacity problems. And the list, I think, is 
shrinking, not growing.
    They have also, now--the FATF has--this is Financial Action 
Task Force, for those who are not familiar with the acronym. 
The FATF has also gotten eight new proposals--recommendations, 
they call them--for issues having to do with terrorism. So that 
is in addition to the 40 recommendations having to do with 
money laundering.
    And the time hasn't run out yet for countries to comply 
there. There is a meeting, I believe, in October of the FATF 
where things will begin to come to a head.
    And, by the way, Mr. Chairman, one of those recommendations 
has to do with charities. And Treasury is preparing a paper 
specifically on that issue for consideration at this 
international conference sponsored by the FATF.
    So that is where we stand there.
    Now, perhaps I haven't answered all of your question.
    Mr. Bentsen. Well, if I understand you correctly--again, 
with the chairman's indulgence--that there are eight new--are 
you saying there are eight new potential members of that list?
    Mr. Dam. Right.
    Mr. Bentsen. Or is it eight new issues that you are--
    Mr. Dam. Eight new recommendations.
    Mr. Bentsen. --recommendations that you are looking at?
    Have you found an occasion with the new tools provided for 
in the PATRIOT Act that have been discussed for a number of 
years--somewhat controversial--to utilize those tools, with 
respect to any of the nations who are on that list today?
    Mr. Dam. Well, one of the most important tools is Section 
311, which calls for designating jurisdictions or firms and so 
forth as a primary money laundering concern.
    We are looking at that very carefully. Frankly, it is a 
very powerful weapon, but it may be one of those weapons that 
is best kept in the closet or behind your back, flourishing it, 
because we are ultimately interested not in imposing what could 
be used as a sanction on a country, but getting them into 
compliance. And most of the countries certainly want to get 
into compliance. And all of them claim they want to get into 
compliance with the FATF recommendations to bring it home to 
that question.
    So we may well chose to invoke those powers in an 
appropriate case. But at this point, we have not yet used that 
tool, which even though not applied, remains a very, very 
useful and powerful tool.
    Mr. Bentsen. Could I ask this one brief final question 
because it sort of goes to a question the chairman asked?
    Yesterday or the day before there was a story that Treasury 
is now looking at unregulated hedge funds as a potential source 
of money laundering. Is that because it fits the profile? Or do 
you have some reason to believe that hedge funds are being used 
as a money laundering tool?
    Mr. Dam. Well, yes, we have just issued a regulation which 
would impose the regulatory scheme to a certain extent on hedge 
funds. Actually all they have to do specifically is to file and 
identify themselves. But they are still subject to the 
regulation.
    Now, there have been a few new stories about the 
possibility that hedge funds are being used for this purpose. 
And I have even been visited by several people from the banking 
communities suggesting this possibility. We have been trying to 
be very careful. This would apply only to hedge funds where 
they allow withdrawals within a two-year period. Most hedge 
funds you can't just go in and out when you want to.
    And so I am not sure what proportion the hedge fund 
industry would even be involved.
    But especially because they are unregulated, they don't 
have any particular regulator in the United States, although 
the SEC is now asking them some questions. They are a potential 
problem. And we are trying to address that problem in a 
deliberate way.
    But potentially, a particular hedge fund could be a source 
of problems.
    Mr. Bentsen. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. The gentleman's time has expired.
    The gentleman from Connecticut, Mr. Shays?
    Mr. Shays. Thank you, Mr. Chairman. And I appreciate the 
opportunity to ask three questions.
    I have a question relating to Section 326 of the PATRIOT 
Act which directs the, you know, the Treasury Department to 
submit a report to Congress containing recommendations about 
the most effective way to require foreign nationals to provide 
U.S. financial institutions with accurate identity information, 
compared to that required to be provided by U.S. nationals.
    Under the statute, the report should have been submitted 
last April and is, therefore, now five months overdue. Can you 
give us a sense of when this report is going to be coming in?
    Mr. Dam. Let me just have a moment. I could tell you about 
326 more generally. And perhaps somebody will be able to 
provide that information to you. I will tell you where we stand 
on the report.
    The fact of the matter is that we have issued proposed 
regulations in this area. And we have gotten a lot of comments; 
and getting a lot of comments on this area.
    Now, I do have here some information on the report, itself.
    I am told that the report is in draft form. But we are 
still trying to address some of the questions. And we will be 
happy to discuss the issues with you, but we have not yet 
completed the report.
    Mr. Shays. Have you begun the report?
    Mr. Dam. It is already in a draft form--
    Mr. Shays. Okay.
    Mr. Dam. --and could be submitted. But we would like to be 
able to take a position and provide more information on the--
    Mr. Shays. Why don't you give us a date as to when--
    Mr. Dam. --specific questions. For example, one of the 
kinds of questions is, "How do financial firms check Social 
Security numbers, which is the leading form of taxpayer ID?" 
And we have been working with the Social Security 
Administration to create a system, which we believe is close to 
being operational, in which banks would be able to check with 
Social Security to see if the number is a real number and 
corresponds to the name of the customer before them.
    Mr. Shays. Just because I know we have a vote and you don't 
want to wait until after we get back and you want to finish up, 
when can we expect the report?
    Mr. Dam. Let me say, obviously, as soon as we possibly can. 
Let me just, for a moment, consult to see--
    Mr. Shays. I think we need to have some kind of outer limit 
as to what is--
    Mr. Dam. Just one moment.
    Mr. Shays. And this is particularly relevant given that 
these false identifications, you know, some of the September 11 
terrorists used false identification documents to open accounts 
in the United States. And there is reason to want this done 
soon.
    Mr. Dam. Yes. I am informed that you shall have it in 30 
days.
    Let me just say we are well aware of the fact that we are 
not asking the banks because we really can't ask them to 
certify that this person is who he says he is or she is who she 
says she is. But they can take reasonable steps. And, in fact, 
most of them are already doing so.
    In fact, many banks in certain countries require more than 
anything we are contemplating. For example, in some countries, 
you must provide a photo to go into the bank's records. So if 
there is any question that arises later, you can go back to the 
photo.
    So all we are asking them to take is reasonable measures, 
which most of them are already taking, to identify the 
customer.
    Mr. Shays. We have two success stories, I think, that I 
would like you to make reference to. We have been helping the 
Colombians establish a database on shipments of commodities 
that is part of the financial intelligence unit, like the 
FinCEN. And now I understand Warner and Schumer have introduced 
legislation aimed at increasing our understanding of the 
contents of the containers that arrive in U.S. ports.
    And so I would like your reaction to the idea that an 
international end-to-end tracking system for container and 
similar shipments with information about bills of lading and 
letters of credit and about the shipping and receiving could 
help interrupt terrorist financing and a host of other crimes.
    Is this something that you all can speak to?
    Mr. Dam. I can't speak to it with great authority. This is 
a project of Customs, who has been working very hard on it. We 
have good collaboration on this very subject with Canada. We 
have been talking to some of the other major ports of the world 
and the countries in which they are located. And I can give you 
something on how--
    Mr. Shays. Is the sense, though, that--
    Mr. Dam. --far along we are. But I believe it can make a 
major contribution.
    Mr. Shays. Right, and that we could adapt it with other 
countries, as well?
    Mr. Dam. Absolutely. That is the whole point: that it works 
best when there is that kind of cooperation.
    It does lead to certain questions, for example, in the 
European Union, which would like to bring all of their 
countries in at the same time and all of their ports in at the 
same time. But I think it is important to push ahead as quickly 
as possible.
    And I think Secretary Larson would like to say something on 
the subject.
    Mr. Larson. If I could, just very briefly, add to this. 
Precisely because we think we need to get as many countries 
involved in this as possible, the United States made this an 
initiative in the G8. And we got endorsement by all the 
countries of the G8 in this transport security initiative that 
would do the things that you are suggesting.
    We have also placed it on the agenda of the U.S.-European 
Union dialogue, so as to assuage some of the concerns that 
Secretary Dam mentioned. And I think we are really making good 
traction on this. It is something that countries, once they 
learn about it, see could both improve security, but also 
efficiency.
    Mr. Shays. Yes.
    Could I deal with one other question? And that deals with 
some success with the Secret Service in counterfeiting, based 
on tools in the PATRIOT Act. Is that something that either of 
you could address?
    Mr. Dam. Yes, sir, I can address it in a general way, and 
then, perhaps, even more specifically.
    The PATRIOT Act recognized that we are in a new generation 
of technology in which a lot of the counterfeits use high-speed 
copiers or very high-resolution copiers. And there was a 
problem with the previous statute, which referred to "stones" 
and a lot of the practice required the use of the negative and 
so forth, as evidence, in order to prosecute counterfeiting.
    Today, the PATRIOT Act recognizes that the counterfeiting 
law extends to counterfeits made by analog, digital or 
electronic images. That is a major step forward, because that 
is how the really good counterfeiting stuff is done today. So 
it addresses it very squarely.
    It also deals with the question of what kind of evidence is 
required. And so I think it gives us the tools we need to keep 
up with the technology. The law had, frankly, fallen behind.
    The Chairman. The gentleman's time has expired.
    The chair would note we have votes on the floor. I think 
they will be the last votes of the day.
    So we want to thank both of you gentlemen for excellent 
testimony.
    The chair would also indicate that there may be some 
members, including myself, who would like to submit questions 
for the record and in writing. And we would appreciate your 
prompt response.
    With that, the committee stands adjourned.
    [Whereupon, at 2:58 p.m., the subcommittee was adjourned.]



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                           September 19, 2002




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