[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
U.S. GOVERNMENT PRINTING OFFICE
83-586 WASHINGTON : 2002
___________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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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
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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.]
A P P E N D I X
September 19, 2002
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