[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
TERRORIST FINANCING AND MONEY LAUNDERING INVESTIGATIONS: WHO
INVESTIGATES AND HOW EFFECTIVE ARE THEY?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CRIMINAL JUSTICE,
DRUG POLICY AND HUMAN RESOURCES
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
MAY 11, 2004
__________
Serial No. 108-243
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
U.S. GOVERNMENT PRINTING OFFICE
97-396 WASHINGTON : 2004
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri
CHRIS CANNON, Utah DIANE E. WATSON, California
ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California
NATHAN DEAL, Georgia C.A. ``DUTCH'' RUPPERSBERGER,
CANDICE S. MILLER, Michigan Maryland
TIM MURPHY, Pennsylvania ELEANOR HOLMES NORTON, District of
MICHAEL R. TURNER, Ohio Columbia
JOHN R. CARTER, Texas JIM COOPER, Tennessee
MARSHA BLACKBURN, Tennessee ------ ------
PATRICK J. TIBERI, Ohio ------
KATHERINE HARRIS, Florida BERNARD SANDERS, Vermont
(Independent)
Melissa Wojciak, Staff Director
David Marin, Deputy Staff Director/Communications Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
Subcommittee on Criminal Justice, Drug Policy and Human Resources
MARK E. SOUDER, Indiana, Chairman
NATHAN DEAL, Georgia ELIJAH E. CUMMINGS, Maryland
JOHN M. McHUGH, New York DANNY K. DAVIS, Illinois
JOHN L. MICA, Florida WM. LACY CLAY, Missouri
DOUG OSE, California LINDA T. SANCHEZ, California
JO ANN DAVIS, Virginia C.A. ``DUTCH'' RUPPERSBERGER,
JOHN R. CARTER, Texas Maryland
MARSHA BLACKBURN, Tennessee ELEANOR HOLMES NORTON, District of
PATRICK J. TIBERI, Ohio Columbia
------ ------
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
J. Marc Wheat, Staff Director
Nicholas Coleman, Professional Staff Member and Counsel
Malia Holst, Clerk
Tony Haywood, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on May 11, 2004..................................... 1
Statement of:
Roth, John, Chief of Criminal Division's Asset Forfeiture and
Money Laundering Section, Department of Justice; Daniel
Glaser, Director, Executive Office for Terrorist Financing
and Financial Crimes, Department of Treasury; Marcy Forman,
Deputy Assistant Director, Financial Investigations, U.S.
Immigration and Customs Enforcement, Department of Homeland
Security; Donald Semesky, Chief, Office of Financial
Operations, Drug Enforcement Administration, Department of
Justice; Michael Morehart, Section Chief, Terrorist
Financing Operation Section, Federal Bureau of
Investigation, Department of Justice; Dwight Sparlin,
Director, Operations Policy and Support for the Criminal
Investigations Branch, Internal Revenue Service, Department
of Treasury; and Bob Werner, Chief of Staff, FinCen,
Department of Treasury..................................... 9
Tischler, Bonni, vice president, Pinkerton Global
Transportation Supply Chain Security Department; and
Richard Stana, Director of Homeland Security and Justice of
the General Accounting Office [GAO]........................ 111
Letters, statements, etc., submitted for the record by:
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statement of............... 144
Forman, Marcy, Deputy Assistant Director, Financial
Investigations, U.S. Immigration and Customs Enforcement,
Department of Homeland Security, prepared statement of..... 39
Glaser, Daniel, Director, Executive Office for Terrorist
Financing and Financial Crimes, Department of Treasury,
prepared statement of...................................... 24
Morehart, Michael, Section Chief, Terrorist Financing
Operation Section, Federal Bureau of Investigation,
Department of Justice, prepared statement of............... 55
Roth, John, Chief of Criminal Division's Asset Forfeiture and
Money Laundering Section, Department of Justice, prepared
statement of............................................... 12
Semesky, Donald, Chief, Office of Financial Operations, Drug
Enforcement Administration, Department of Justice, prepared
statement of............................................... 48
Souder, Hon. Mark E., a Representative in Congress from the
State of Indiana, prepared statement of.................... 5
Sparlin, Dwight, Director, Operations Policy and Support for
the Criminal Investigations Branch, Internal Revenue
Service, Department of Treasury, prepared statement of..... 69
Stana, Richard, Director of Homeland Security and Justice of
the General Accounting Office [GAO], prepared statement of. 119
Tischler, Bonni, vice president, Pinkerton Global
Transportation Supply Chain Security Department, prepared
statement of............................................... 114
Werner, Bob, Chief of Staff, FinCen, Department of Treasury,
prepared statement of...................................... 86
TERRORIST FINANCING AND MONEY LAUNDERING INVESTIGATIONS: WHO
INVESTIGATES AND HOW EFFECTIVE ARE THEY?
----------
TUESDAY, MAY 11, 2004
House of Representatives,
Subcommittee on Criminal Justice, Drug Policy and
Human Resources,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2154, Rayburn House Office Building, Hon. Mark E. Souder
(chairman of the subcommittee) presiding.
Present: Representatives Souder and Blackburn.
Staff present: J. Marc Wheat, staff director and chief
counsel; David Thomasson, congressional fellow; Nicholas
Coleman, professional staff member and counsel; Malia Holst,
clerk; Tony Haywood, minority counsel; and Jean Gosa, minority
assistant clerk.
Mr. Souder. Good morning, ladies and gentlemen. Thank you
all for coming. Today's hearing represents the fifth in a
series of hearings this year by the subcommittee concerning the
effects of narcotics growth and distribution in Afghanistan and
the Andean Ridge areas. Today this subcommittee will focus on
monetary gains from the same drug trade financing terrorism at
home and abroad. Second, we will focus on the aspects of the
money laundering, the proceeds of narcotics trafficking
perpetuating the operations of individuals and organizations
involved in this criminal undertaking.
The laundering of money gained by illegal activities that
support terrorist groups, narcotraffickers, arms dealers and
the like, threaten to undermine both our national security and
our financial stability. Equally affected by these criminal
endeavors are our Canadian and Mexican neighbors. Terrorist
groups will use whatever means available to obtain funding for
their cause. Since the tragedy of September 11, our attention
and rhetoric have been focused on financing mechanisms used
specifically by terrorist organizations to support their
activities. However, we would be naive if we did not recognize
that the tools used to launder and disguise funds for terrorist
organizations are similar, and quite often identical, to those
used by many drug traffickers and criminal organizations to
wash their own dirty money.
According to the International Monetary Fund the amount of
money laundered globally is somewhere between $600 billion and
$1.8 trillion each year. To put this into perspective, the
total amount of money currently being moved by illegal means
throughout the world financial system is greater than the gross
domestic product figures for most nations. The low end of the
estimate compares with the GDP of Canada at $700 billion, while
the high end is larger than the $1.6 trillion GDP of the United
Kingdom.
For the United States, approximately half of all laundered
money passes through financial institutions and commercial
operations within our borders or jurisdiction. This makes the
United States the keystone in any attempt to bridge financial
transactions and law enforcement activities. As markets
continue to open up and as new methods of transferring value
between individuals, businesses, and nations are created, the
options available to the smuggler greatly increases. The
countless methods to obtain, transfer and store profits by
criminal organizations has tremendously complicated the efforts
of agencies charged with enforcing money laundering statutes.
The complex nature of financial crimes currently engages
over 20 Federal law enforcement and regulatory agencies. The
roles and responsibilities of these Federal agencies as they
pertain to money laundering investigations significantly
changed when Congress created the Department of Homeland
Security through the Homeland Security Act in 2002. The act
removed the U.S. Customs Service from the Department of
Treasury and sent them to the newly formed Department of
Homeland Security. The investigative functions of Legacy
Customs, now known as Immigration Customs Enforcement [ICE],
have been altered at the direction of its new parent
organization. The creation of the Department of Homeland
Security also brought about organizational changes within the
executive branch with respect to the investigation of terrorism
financing.
On May 13, 2003 Homeland Security Secretary Ridge and
Attorney General Ashcroft signed a memorandum of agreement
giving the FBI the lead role in investigating terrorism and
terrorist financing. Immigration Customs Enforcement [ICE], was
to pursue terrorist financing solely through participation in
FBI-led task forces except as expressly approved by the FBI.
Specific provisions of the agreement directed the FBI and ICE
to, among other things, develop collaborative procedures for
handling applicable ICE investigations or financial crimes
leads that have a nexus to terrorism. Change in the enforcement
of financial crimes is also evident within the Department of
Justice's Drug Enforcement Agency.
The Honorable Karen Tandy, administrator of the DEA,
testified earlier this year in the other body that ``we are
making financial background a priority in hiring new special
agents and undertaking other initiatives to increase
interagency cooperation and enhance training and drug financial
investigations.'' The DEA is already bringing this focus to
bear on such problems as bulk currency movement in the black
market peso exchange. The question bears asking, have the
changes in the investigation of financial crimes within the
Federal law enforcement agencies led to greater efficiencies to
apprehend individuals and groups involved in the laundering of
dirty money?
Our first panel of witnesses from the FBI, ICE, IRS and DEA
each have unique roles in engaging this large criminal
enterprise. However, these roles may also conflict, and at
times be duplicative in nature. Case in point, last fall the
General Accounting Office released two reports on the
effectiveness of legislation facilitating our ability to
effectively address money laundering and terrorist financing.
In it, the GAO reports that there is a lack of coordination
between the agencies in charge of investigating money
laundering and financial crimes. The report notes that the
following are needed for an effective national money laundering
strategy; effective leadership, clear priorities and
accountability mechanisms.
Additionally, change in the Department of Treasury and its
subordinate agencies, the Internal Revenue Service and the
Financial Crimes Enforcement Network, FinCEN, have also altered
their financial crime capabilities. They have announced that
they will place FinCEN under the control of the new Under
Secretary for the Office of Terrorism and Financial
Intelligence. Congress mandated the creation of the new office
in the 2004 Intelligence Appropriations Law, Public Law 108-177
to streamline the ``uneven and disjointed'' coordination on
terrorist financing between Treasury and the other intelligence
agencies. All of this change represents a marked departure from
the money laundering culture of the 1980's when the U.S.
Customs developed Operation Greenback designed to identify and
penetrate the reasons for the unusually high level of cash-flow
through the Federal Reserve in the south Florida area.
U.S. Customs worked with the IRS, DEA and the prosecutorial
support from the Department of Justice to prosecute money
launderers, ultimately leading to the Money Laundering Control
Act of 1986, making the act of money laundering a Federal
crime. During that timeframe, the Department of Treasury had
direct oversight over the investigations of financial crimes
through the organizational authority over IRS and Customs.
Today that relationship no longer exists. Rather, the
Department of Treasury characterizes itself as a developer and
implementer of U.S. Government strategies to combat terrorist
financing and financial crimes. Change does not necessarily
denote a decrease of law enforcement capabilities. However we
need to investigate if change warrants a course direction as it
pertains to financial investigations and their oversight.
The subcommittee has chosen to call the first panel of
witnesses from the agencies within Departments of Treasury,
Justice and Homeland Security. All of the representative
agencies have very important roles in the investigation and
prosecution of those involved in the laundering of moneys
gained from criminal operations.
The subcommittee has also called a second panel made up of
experts in financial investigations from the Government
Accounting Office and a former Assistant Commissioner of ICE,
formerly U.S. Customs. The testimony of both panels will
provide a basis of evaluation of the U.S. Government's efforts
to combat terrorist financing and money laundering. There is no
lack of important issues for discussion, and I expect today's
hearing to cover a wide range of pressing questions, mostly
dependent upon my ability and voice to ask them.
On our first panel we have representatives from four
government agencies responsible for the investigation of
individuals and organizations suspected of financial crimes, as
well as three governmental agencies charged with the oversight
and implementation of Federal financial policies and statutes.
From Immigration and Customs Enforcement, we are pleased to
have testify Ms. Forman, Deputy Assistant Director of Financial
Investigations. From the Drug Enforcement Agency, we are
pleased to have testify Mr. Donald Semesky, Chief Officer of
Financial Operations. From the Federal Bureau of
Investigations, we are pleased to have testify Mr. Michael
Morehart, Section Chief of the Terrorist Financing Operation
Section.
From the Internal Revenue Service, we are pleased to have
testify Mr. Dwight Sparlin, Director, Operations Policy and
Support for the Criminal Investigations Branch. From the
Financial Crimes Enforcement Network [FinCEN], we are pleased
to have testify Mr. Bob Werner, Chief of Staff. From the
Department of Treasury, we are pleased to have testify Mr.
Daniel Glaser, Director, Executive Office for Terrorist
Financing and Financial Crimes.
From the Department of Justice we are pleased to have
testify Mr. John Roth, Chief of the Criminal Division's Asset
Forfeiture and Money Laundering Section. On our second panel we
are pleased to have miss Bonni Tischler, vice president of the
Pinkerton Global Transportation and Supply Security Department.
Ms. Tischler formerly held positions as assistant commissioner
for the Office of Investigations and the Office of Field
Operations for the U.S. Customs Service. Bonni also served as
one of the lead agents of Operation Greenback in the early
1980's.
Joining Bonni will be Mr. Richard Stana from the General
Accounting Office. Mr. Stana is Director of Homeland Security
and Justice Office at GAO. He is an expert in the field of
financial crimes, having authored recent reports on terrorism
financing and money laundering. I ask unanimous consent that
all Members have 5 legislative days to submit written
statements and questions for the hearing records and that any
answers to written questions provided by the witnesses also be
included in the record. Without objection it is so ordered.
Also ask unanimous consent that all exhibits, documents and
other materials referred to by Members and the witnesses may be
included in the hearing record, and that all Members be
permitted to revise and extend their remarks. And without
objection, it is so ordered. As all of you know, it's our
standard practice to ask witnesses to testify under oath.
[The prepared statement of Hon. Mark E. Souder follows:]
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Mr. Souder. So would you please rise so I can administer
the oath to you.
[Witnesses sworn.]
Mr. Souder. Let the record show that each of the witnesses
responded in the affirmative. I thank you all for coming. I'm
still a little groggy too. We had terrible weather in the
Midwest getting in, and so it was after midnight last night
when I got in to D.C. But this is an important hearing and so I
was glad--I was prepared to drive if I had to because I
appreciate the time it takes each of your agencies to put this
together, and your long time commitment to working with us, and
this is probably the single most effective weapon we have in
the United States at fighting narcotics and terrorism.
So we really appreciate all of your leadership in this, and
we need to work together to make it even stronger. We'll start
with Mr. John Roth on behalf of the Department of Justice.
You're recognized for 5 minutes.
STATEMENTS OF JOHN ROTH, CHIEF OF CRIMINAL DIVISION'S ASSET
FORFEITURE AND MONEY LAUNDERING SECTION, DEPARTMENT OF JUSTICE;
DANIEL GLASER, DIRECTOR, EXECUTIVE OFFICE FOR TERRORIST
FINANCING AND FINANCIAL CRIMES, DEPARTMENT OF TREASURY; MARCY
FORMAN, DEPUTY ASSISTANT DIRECTOR, FINANCIAL INVESTIGATIONS,
U.S. IMMIGRATION AND CUSTOMS ENFORCEMENT, DEPARTMENT OF
HOMELAND SECURITY; DONALD SEMESKY, CHIEF, OFFICE OF FINANCIAL
OPERATIONS, DRUG ENFORCEMENT ADMINISTRATION, DEPARTMENT OF
JUSTICE; MICHAEL MOREHART, SECTION CHIEF, TERRORIST FINANCING
OPERATION SECTION, FEDERAL BUREAU OF INVESTIGATION, DEPARTMENT
OF JUSTICE; DWIGHT SPARLIN, DIRECTOR, OPERATIONS POLICY AND
SUPPORT FOR THE CRIMINAL INVESTIGATIONS BRANCH, INTERNAL
REVENUE SERVICE, DEPARTMENT OF TREASURY; AND BOB WERNER, CHIEF
OF STAFF, FINCEN, DEPARTMENT OF TREASURY
Mr. Roth. Thank you. I want to thank you for the invitation
to testify today. I come to you as a career justice--Department
of Justice prosecutor, having served in the Department for over
17 years as a prosecutor in two different judicial districts
before coming up here to main Justice to head the Asset
Forfeiture and Money Laundering Section. We have a lot of
challenges in money laundering enforcement, not the least of
which is the coordination of all the different Federal agencies
that are involved. We deal with DEA, with FBI, with ICE, with
the Internal Revenue Service as well as people that support
them like, Treasury, FinCEN and the 94 U.S. attorneys offices.
It also requires coordination of high level policy agencies
such as Justice, Homeland Security, Treasury and State. Let me
talk for a minute about Operation Double Trouble, which I think
is typical of the kind of enforcement that we are doing these
days. It successfully targeted and disrupted key Colombian drug
and money laundering brokers, money brokers who operated
between the United States and Colombia, United States and
Colombian enforcement personnel in a coordinated enforcement
effort arrested over 50 individuals, seized a total of 36 bank
accounts from 11 Colombian banks.
This operation was also responsible for the seizure of over
$12 million, 353 kilos of cocaine and 21 kilograms of heroin.
In some ways this case typifies money laundering enforcement in
the 21st century. It took 4 years to make this case. It
required the resources of 9 U.S. attorneys offices, 2 sections
of main justice, 12 State or local police departments, 3
Federal investigative agencies as well as the cooperation of
the Colombian police and Colombian prosecutors. How do we do
this kind of coordination and why do we do it? Our coordination
is designed to insure that information is shared so that the
agents in the field know what other agencies know; that
specific cases or operations are conducted in a way to take
advantage of the resources and expertise of each individual
agency, and to avoid dangerous crossovers between agencies,
particularly in undercover investigations.
How do we do it? We have a number of different operational
coordination components. First we have the special operations
division, a multi agency entity set up to attack command
control and communications networks of high level narcotics
traffickers. We have the Organized Crime Drug Enforcement Task
Forces [OCDEF], also a multi agency group that is designed to
attack the high level narcotics and money laundering
traffickers across the United States and, in fact,
internationally. Each of these OCDEF investigations has to have
a financial component to it. In other words, if you attack the
drug organization, you also have to attack the financial
component.
We sit on undercover review committees, each of the
investigative agencies have review committees to look at
sensitive or undercover activities. The Department of Justice
sits on each of these committees and is able to assist in
coordination in that way. We have the high intensity drug
trafficking areas, the HIDTAs in the 28 different regions which
we assist in the coordination among agencies. We have the
HIFCAs, the high intensity money laundering and related
financial crime areas that do the same thing, but focus on
money laundering. We have suspicious activity review teams in
40 different judicial districts, over 40 judicial districts.
And these are the folks that review the suspicious activity
reports that banks file.
And it is one of the core ways that we gain intelligence
about money laundering through financial institutions. Finally,
we have FinCEN, which is as you know, the Treasury entity that
is involved in collecting and analyzing Bank Secrecy Act data.
Where are we in the future? Where do we need to go? In looking
into the future, one of the things that we need to do is
continue to attack major money laundering organizations. It's
the core of our mission. It's what we do well. There are a
number of cases in the last 5 years that I could talk about
that illustrated those kinds of successes. Second, we have to
look at the gateways to money laundering. We have to attack the
people who control the access points to the U.S. financial
institutions, the bankers, the accountants, the lawyers, the
financial analysts, the peso brokers who allow dirty money to
get into the financial system.
Third, we have to take the fight overseas. It is far easier
to try to launder U.S. currency overseas in places like Mexico,
Panama, off shore in specific Caribbean nations than it is to
try to launder it in the United States and we have to take the
fight overseas and go to those banks and go to those
jurisdictions with some vigorous enforcement efforts. We have
our challenges and coordination.
There is no question about it, but I think we do a good job
through the mechanisms that I mentioned, both in my oral
remarks as well as my written testimony, to help us do that
job. Thank you.
Mr. Souder. Thank you very much.
[The prepared statement of Mr. Roth follows:]
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Mr. Souder. Mr. Glaser.
Mr. Glaser. Chairman Souder, thank you for inviting me to
testify today, and thank you for you an interest in the
combined efforts to combat money laundering and terrorist
financing. This is a subject that has been of great interest to
Congress, and I'm happy to be here today to continue this
important dialog. I'm also pleased to be on this panel with my
interagency colleagues. Defeating terrorist financing money
laundering and drug traffic requires all of us to work in
concert while employing all of our respective authorities. Our
efforts against these threats have been most successful when we
have worked in a coordinated approach and attack.
Since September 11, the U.S. Government has launched an
aggressive offensive to disrupt, dismantle terrorist groups and
their operations. We are making it harder, costlier and riskier
for al Qaeda to raise money and move money around the world.
The need to track and cutoff sources of tainted funds has now
become integrated into the efforts to attack money laundering,
financial crimes and drug trafficking as well.
To succeed, we need both a long-term and a short-term
approach. Over the long term, we are enhancing the transparency
and accountability of financial systems around the world to
protect these systems from criminal abuse. In the short term,
we are exploiting these transparencies to identify and capture
terrorists and criminal funds and financial information. Let me
provide three examples of where agencies sitting right here at
this table work together to neutralize immediate threats.
First, on February 19, 2004, the Treasury Department, in
coordination with United States and Colombian law enforcement,
used the Drug Kingpin Act to designate 40 key leaders of two
narcoterrorist organizations in Colombia, the FARC and the AUC,
as well as AUC front companies. In March of this year, the U.S.
attorneys office in New York City announced an indictment of
two of Colombia's most important drug kingpins based on
Treasury-related prohibitions. The indictment was part of the
joint effort among the DEA, Department of Justice, and the
Treasury Department's Office of Foreign Assets Control. This is
the first time that IEEPA violations have been used as a
predicate offense in the drug area.
I would like to draw particular attention to one action
taken last December which demonstrates how Treasury-unique
authorities can be put to use effectively in support of law
enforcement. The Treasury Department used section 311 of the
USA Patriot Act to designate Burma as a primary money
laundering concern, because of Burma's inadequate money
laundering laws, and its failure to cooperate with U.S.
enforcement. Treasury also designated two Burmese banks because
of their drug trafficking ties. Last month, FinCEN issued final
rules to block these banks from access to the U.S. financial
system. These actions were taken in very close coordination
with the DEA and the U.S. Secret Service, and they have already
borne fruit.
Burma has now enacted anti money laundering laws. Burma has
announced investigations of the two banks in question. And just
this week, a team of Treasury and law enforcement officials are
in Burma to discuss money laundering issues and law enforcement
cooperation. This example also shows that we can also have a
practical impact on the ground by focusing on broad systemic
and structural issues. There are other examples of our efforts
to deal with identified vulnerabilities in the United States
and in the international financial system.
First we have worked internationally through the financial
action task force to strengthen customer identification,
reporting, recordkeeping and information sharing standards.
These efforts have produced meaningful change in countries like
the Cayman Islands, Egypt, Guatemala, Indonesia, Israel,
Lebanon and the Philippines, just to name a few. We have
strengthened international standards and capabilities to attack
terrorist financing, including freezing terrorist-related
assets, regulating and monitoring alternate remittance systems,
such as Hawala, insuring accurate and meaningful information on
cross-border wire transfers, and protecting nonprofit
organizations from abuse by terrorists.
And under the USA Patriot Act, Treasury's FinCEN has
published three proposed and final rules to broaden and deepen
our own anti money laundering regime to now include for example
oversight of money service businesses and broker dealers and
securities. Treasury will continue to use its powers to
influence judiciously, but aggressively to change behavior by
blocking tainted assets, naming, shaming and shutting out rogue
regimes and institutions and ensuring the integrity of the
United States and international financial system.
In addition to these current capabilities, I have just
mentioned, the Treasury Department, in collaboration with
Congress, is taking steps to enhance our organization and
abilities. On March 8 2004, Treasury formally announced the
creation of the Office of Terrorism and Financial Intelligence
within the Department of the Treasury. This office would bring
together Treasury's intelligence, regulatory, law enforcement
sanctions and policy components. This new structure led by an
Under Secretary and two assistant secretaries will allow United
States to better develop and target our intelligence analysis
and financial data to detect how terrorists are exploiting the
financial system and to design methods to stop them.
It will also allow United States to better coordinate an
aggressive regulatory enforcement program, international
engagements while managing Treasury resources wisely. We
appreciate the subcommittee's focus on these issues and we look
forward to continuing to work with Congress to ensure the
effective implementation of our national anti money laundering
and counterterrorist financing strategies.
Thank you, chairman.
Mr. Souder. Thank you.
[The prepared statement of Mr. Glaser follows:]
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Mr. Souder. Ms. Forman.
Ms. Forman. Good morning, Chairman Souder, it is a
privilege to appear before you to discuss the accomplishments
of ICE and our ongoing efforts to combat terrorist financing
and money laundering. ICE developed investigative expertise in
all forms of financial crime, especially trade and commodity-
based crime and operational and analytical insight into non
traditional methods of transferring value. ICE continues its
proud history as the recognized leader in investigating and
uncovering the types of financial crime and money laundering
that undermines America's security. ICE works in close
coordination with the Federal law enforcement community and
private sector partners to protect the economic security of
this Nation.
Cornerstone is a comprehensive economic initiative that is
based upon collaboration between ICE and the private sector.
Cornerstone promotes a systematic approach of identifying
vulnerabilities in the financial and trade sectors,
vulnerabilities that criminal and terrorist organizations might
exploit to raise or launder their funds. In November 2003, the
General Accounting Office report noted that terrorist
organizations, like criminal organizations, use a variety of
alternate funding mechanisms to earn, move and store the
illicit funds that finance their operations. Cornerstone
coordinatesICE's diverse array of commercial, trade and
financial investigations toward the common goal of targeting
the methods through which terrorist and criminal organizations
earn, move and store their illicit proceeds.
With our broad jurisdictional authorities, ICE is uniquely
positioned to target the methods through which terrorists and
criminal organizations earn their illicit funds. These methods
includes narcotics smuggling, intellectual property rights,
counterfeit pharmaceuticals, human smuggling and trafficking,
commercial fraud, export violations and cyber crime. ICE brings
a wealth of experience and authority in tracking the illegal
movement of funds derived from criminal activity into and out
of the United States. ICE has applied a methodology to identify
financial trade systems that are vulnerable to exploitation by
criminal organizations and terrorist financiers. These systems
include both currency smuggling, trade-based money laundering,
courier hubs, banks, money service business, alternate
remittance systems, charities and cyber crimes. ICE, along with
our partners at Customs and Border Protection, are well
equipped to identify commodities that are imported and exported
from the United States and that could be used to store the
proceeds of illegal activity. Criminal organizations have used
commodities, such as gold and precious metals, to disguise
their ill-gotten gains.
For example, Operation Meltdown, an investigation conducted
by the ICE El Dorado Task Force and the IRS in New York,
resulted in the arrest of 23 individuals, the seizure of more
than $1.5 million in currency, $1.3 million in gold, and 118
kilograms of cocaine. ICE has taken a step beyond traditional
law enforcement. Cornerstone provides the comprehensive
investigative and intelligence resources necessary to track
trends in criminal and terrorist financing schemes. Rather than
attempting to target and investigate specific terrorist
organizations and how they raise their money, Cornerstone
targets the criminal methods themselves, identification and
shutting down the vulnerabilities in commercial, trade and
financial systems exploited by both criminal and terrorist
organizations.
Money laundering and terrorist financing are complex crimes
that are beyond the scope of any one agency or sector. ICE
recognizes the importance of sharing information and partnering
with the law enforcement community, the regulatory community
and the private sector to combat money laundering and terrorist
financing. Through Cornerstone, ICE has embarked on an
aggressive outreach program with the private sector. Special
agents serve as liaisons with the private sector in
facilitating the exchange of vital information. ICE shares this
information through a quarterly report, Tripwire. Tripwire
provides up-to-date information on criminal methods used to
exploit vulnerabilities within trade and financial systems. ICE
is home to the Money Laundering Coordination Center.
The MLCC serves as the central clearinghouse for ICE's
undercover drug money laundering operations, many of which
target the BMPE. The MLCC serves as a repository for
identifying information that is derived as a result of these
operations. Information that is collected by the MLCC is
analyzed to identify a target, recipients of BMP dollars,
methodologies, and trends and patterns. The MLCC serves as a
deconfliction mechanism for the 27 ICE field offices conducting
drug money laundering operations. ICE has developed an
important analytical tool called numerically integrated
profiling system. NIPS is an advanced software program that
analyzes foreign and domestic trade data, passenger travel
information, Bank Secrecy Act data, immigration data seeking to
identify anomalies in the collective information.
The MLCC and NIPS fully complement ICE's Plan Colombia
Initiative for providing the infrastructure to analyze the
information that is developed on the BMPE. ICE has worked
closely with our Colombian counterparts providing training and
computers to exchange data. ICE continues to work with our
partners at CDP to enforce currency and monetary instrument
reports and bulk currency laws. Thus far in fiscal year 2004,
ICE has seized approximately $54 million in currency. Since the
enactment of the bulk currency statute, ICE special agents have
133 arrests that have resulted in 103 indictments and 53
convictions.
Last ICE has established the first politically exposed
persons currency task force in Miami. The task force's goal is
to identify locate and seize assets of corrupt politically
exposed persons involved in the theft of embezzled government
funds. With the expansion of enforcement capabilities and
innovative investigative techniques that ICE has brought
together and Cornerstone, the agency is well positioned to
combat money laundering and terrorist financing.
I would like to thank the chairman for allowing me to
testify before this committee.
[The prepared statement of Ms. Forman follows:]
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Mr. Souder. I thank each of you as you are going through
this testimony, because it is, like, summarize in 5 minutes
everything that you and hundreds of people do a very detailed
type of thing. So I appreciate your ability to summarize this,
and we will try to develop it further in questions.
Mr. Semesky.
Mr. Semesky. Chairman Souder, I would like to thank you for
the opportunity to testify before your subcommittee today on
the importance of cooperation and coordination between those
agencies entrusted with the investigation and enforcement of
money laundering and terrorist financing laws of the United
States. As the Nation's single mission Drug Enforcement Agency,
the Drug Enforcement Administrations anti money laundering
mission is directed solely at funds derived from the
trafficking of illegal narcotics. Under administrator Karen P.
Tandy's leadership, significant strides have been made in DEA's
financial enforcement program. Structurally, the Office of
Financial Operations has been formally established at DEA
headquarters. Each DEA domestic field division has formed one
or more financial investigative teams, or FIT teams. FIT teams
are also being established in DEA country offices in Colombia,
Mexico and Thailand.
The cultural mind set is also changing as evidenced by
DEA's enthusiastic pursuit of specialized money laundering
training, eager participation in multi agency financial
initiatives, and most importantly, a renewed focus on the money
and all of its domestic and international drug investigations.
DEA recognizes that the estimated $65 billion per year illegal
drug industry in the United States is a national tragedy that
requires the dedicated resources of many Federal, State and
local agencies to combat. DEA believes that the best way to
combat this scourge is through interagency cooperation, the
sharing of intelligence and coordination of enforcement
activities.
I would like to share with the subcommittee some of the
ways the DEA has put this into action on the drug money
laundering front. On the national level, DEA is participating
in the multi agency OCDEF Drug Fusion Center. The Fusion
Center, which will have a financial intelligence component
known as the Narcotics Financing Strategy Center, will
integrate drug-related financial intelligence with critical
drug intelligence, allowing connections between the money and
the underlying criminal activity that heretofore has not been
possible. In 1999, DEA created a financial group of the special
operations division or SOD to coordinate high level money
laundering wiretap investigations.
To encourage participation, ICE was given the lead and
placed an assistant special agent in charge at SOD to supervise
this section, which includes agents from DEA, ICE, IRS, CI and
the FBI. Financial operations is working toward implementation
of several national money laundering initiatives that involve
joint partnership with one or more of our Federal law
enforcement counterparts. Two of these initiatives involve the
combining of separate ongoing bulk cash and wire remitter
initiatives into joint agency initiatives aimed at the
integration and analysis of financial intelligence information.
Financial operations is also established in an interagency
working group made up of both Federal law enforcement and
regulatory agencies to identify major drug money laundering
threats and form a consensus of what criminal and regulatory
measures would form the best combination for addressing these
threats. Financial operations has also taken over liaison
responsibility with Treasury Office of Foreign Assets Control
and will be assisting OFAC in compiling and vetting
intelligence information on individuals and related entities
nominated for inclusion on OFAC's Drug Kingpin and specially
designated narcotics traffickers programs.
Under DEA's terrorism information sharing program, all DEA
entities must identify and report investigations that have a
nexus or potential nexus to extremist or terrorist
organizations to an established SOD mechanism to ensure that
all terrorist-related information is immediately shared with
the appropriate agencies. 17 of DEA's 21 domestic field
divisions FIT teams have participation of one or more Federal
law enforcement agencies that also have money laundering
jurisdiction. The FIT teams have also been tasked to
participate in all high intensity financial crime area task
forces and suspicious activity report review teams in their
areas of responsibility. DEA currently has 80 offices in 56
countries around the world. These offices work closely with
their host nation counterparts.
DEA is already working closely with its foreign law
enforcement counterparts on many significant drug money
laundering investigations, most in support of DEA domestic
field division cases and at times, other U.S. agencies
investigations as well. Drug trafficking organizations attack
the soul and fabric of America in pursuit of one thing, the
money. As American defenders against these vile organizations,
it is incumbent upon the U.S. Drug Enforcement Administration
to attack these groups on all fronts.
There is no more important battle in this effort than the
attack against the proceeds that fuel this illicit industry and
provides a motive to those who prey upon our society. DEA is
committed to working with its law enforcement counterparts to
fight against drug money laundering.
Mr. Chairman, thank you for the opportunity to testify here
today, and I will be happy to answer any questions you may
have.
Mr. Souder. Thank you.
[The prepared statement of Mr. Semesky follows:]
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Mr. Souder. Mr. Morehart.
Mr. Morehart. Good morning, Chairman Souder and
distinguished members of the committee. On behalf of the FBI,
I'd like to thank you for this opportunity to testify before
you today. I'll discuss the combined efforts of the FBI in
combination with its partners in law enforcement toward
enhancing both cooperation and the efficiency with which we
interact to address the investigation of money laundering and
terrorist financing matters. The FBI's counterterrorism program
has made comprehensive changes in order to meet its primary
mission of detecting, disrupting and defeating, or more simply
put, preventing terrorist operations before they occur. We have
spent the last 2\1/2\ years transforming operations and
realigning resources to meet the threats of the post-September
11 environment.
Terrorists, their networks and their support structures
require funding in some form to exist and operate. The
financial support usually leaves a trail that can be exploited
by law enforcement for investigative purses. Being able to
identify and track those financial trails after a terrorist act
has occurred is important. But the key to achieving the mission
of prevention lies in exploiting financial information to
identify previously unknown or undetected terrorists and/or
terrorist cells. To this end, the FBI has bolstered its ability
to effectively combat terrorism through the formation of the
terrorist financing operation section, or as it is more
commonly known, TFOS.
The mission of TFOS is broad. It ranges from conducting
full financial analysis of terror suspects and their financial
support structures in both the United States and abroad to
developing predictive models and conducting data analysis to
facilitate the identification of previously unknown terrorist
suspects. In addition, the FBI has undertaken a number of other
investigative initiatives to improve information sharing and
coordination with our national and international partners. For
instance, we have significantly increased the number of joint
terrorism task forces, or JTTFs across the country. Prior to
September 11 there were 34 JTTFs. There are now 84.
The JTTFs, as you may know, effectively partner FBI
personnel with literally hundreds of investigators from various
Federal, State and local agencies. The members include
representatives from a variety of Federal agencies, including
most, if not all, of those represented here today as well as
others. Subsequent to the events of September 11, 2001, the
U.S. Customs Service was mandated to investigate terrorism
financing. This was achieved via the initiation of Operation
Green Quest that attained a number of successes, but
represented in some measure a duplicative effort and reinforced
the need for a centralized coordinating entity.
Consequently, a memorandum of agreement pertaining to the
investigation of terrorism financing was entered into between
the Department of Justice and the Department of Homeland
Security. The MOA addressed the importance of waging a seamless
coordinated law enforcement campaign against terrorist
financing. The MOA, signed by Attorney General Ashcroft and DHS
Secretary Ridge on May 13, 2003, designated FBI as the lead
agency in terrorism financing investigations and operations
there by enabling DHS to focus its law enforcement activities
on protecting the security and integrity of the U.S. financial
systems through Operation Cornerstone, which was previously
described by Ms. Forman.
Former U.S. Customs Service Operation Green Quest criminal
cases, having no nexus to terrorism, are still being worked by
ICE, while those having a nexus to terrorism were transferred
or transitioned to the appropriate JTTF, where ICE task force
members continue to play significant roles. In accordance with
the MLA, ongoing and future ICE financial investigations have
developed links to terrorism will be referred to the FBI
through TFOS. I will also note that the FBI, pursuant to the
MOA along with ICE has developed collaborative procedures to
insure that will happen in the future.
In addition to the aforementioned efforts on a national
level, the National Security Council formalized a policy
coordinating committee on terrorist finance at the end of 2001.
The NSC chairs the PCC, which regularly meets to coordinate the
U.S. Governments campaign against terrorist financing. The
Departments of State, Treasury, Homeland Security and Justice
also participate in an interagency terrorist financing working
group chaired by the State Department. The working group has
identified 42 countries whose cooperation is crucial to the war
on terrorism. All of the participating agencies work closely to
provide training or technical assistance to each of those
countries.
With respect to the 2003 money laundering, national money
laundering strategy, the FBI concurs with the strategies, goals
and objectives as set forth by the Treasury Department, the
blocking of terrorist assets worldwide, establishing and
promoting international legal standards for adoption by other
countries to safeguard their financial infrastructures from
abuse and facilitating an exchange of international information
are several key objectives which must be achieved if we are to
stem the flow of illegal funds throughout the world.
Also I would like to add the FBI's efforts to combat
terrorism have been greatly aided by the provisions of the USA
Patriot Act, and pursuant to the 2003 national money laundering
strategy, the FBI is insuring its vigorous and appropriate
application that has already an extraordinary beneficial in the
war on terrorism. Most importantly, the Patriot Act has
facilitated the sharing of information within the law
enforcement and intelligence community.
In summary, the FBI understands that combating terrorist
financing is a mission that cannot be accomplished
independently. The need for information sharing and close
cooperation cannot be overstated.
I'd like to thank you for the opportunity to testify before
you today and to highlight the FBIs investigative efforts and
the role of the FBI in combating terrorist financing. It would
be my pleasure to answer any questions that you might have.
Mr. Souder. Thank you.
[The prepared statement of Mr. Morehart follows:]
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Mr. Souder. Mr. Sparlin.
Mr. Sparlin. Good morning, Mr. Chairman, Congresswoman
Blackburn. Thank you for the opportunity to be here today to
highlight the specialized skills of the Internal Revenue
Service Criminal Investigation Division and the contributions
we make along with our counterpart law enforcement agencies to
our national effort to combat money laundering and terrorist
financing. I wish to thank the subcommittee for the work you
have done and are doing on these important issues. And I would
especially like to thank your staff for the assistance in the
preparation for these important discussions today.
The fundamental mission of the Criminal Investigation
Division is to investigate complex tax and money laundering
cases. To accomplish this, we recruit individuals with
accounting and business backgrounds. Through a process of
rigorous training and years of experience, we shape them into
law enforcement professionals adept at investigating the most
sophisticated financial crimes, whether they involve tax
evaders, corporate fraudsters, narcotics traffickers or
terrorist financiers. The unique sophistication of our 2750
criminal investigators is in demand throughout the law
enforcement community because we add value to any financial
investigation.
Money laundering activities and sophisticated tax evasion
schemes are frequently interconnected. For example, an ongoing
investigation combines both money laundering activity and an
ambitious offshore evasion scheme in Costa Rica. The schemes
promoter has assisted 1500 clients in obtaining over $30
million in fraudulent refunds. To date, 39 defendants have been
recommended for prosecution and those already convicted have
received significant sentences.
In addition to bringing significant technical expertise to
tax and money laundering investigations, there is often a nexus
between these crimes and terror. For example, one significant
investigation of an international charitable foundation
revealed ties to international terrorist organizations. In that
case, the crimes that formed the basis for the search warrant
related to the filing of the foundations tax return and bank
secrecy data.
In another investigation the executive director of the
benevolence international foundation, a purported charitable
was sentenced to over 11 years in Federal prison for
fraudulently obtaining charitable donations that were
ultimately used to support violent activities overseas.
Terrorists employ a variety of means to move money, and we are
using a variety of means to detect it. One way is to capitalize
on Bank Secrecy Act data. Criminal investigation leads 41
suspicious activity report review teams nationwide. These teams
are comprised of Federal, State and local law enforcement
officials who evaluate over 12,000 SARs each month.
An example of the usefulness of an SAR review team is
illustrated in a case involving a fast food restaurant employee
who was convicted of operating an unlicensed money service
business. This case was initiated after an SAR review team
evaluated numerous suspicious activity reports filed by several
banks because the subject was making cash deposits inconsistent
with his occupation. It was ultimately proven that the subject
made numerous cash and check deposits to several accounts and
wired over $3 million overseas to locations in Europe, South
America the Middle East and Asia.
IRS also makes a unique contribution to the war on terror
through our counterterrorism project we are piloting in Garden
City, New York, which when fully operational, will use advanced
analytical technology and data modeling of tax and other
information to identify patterns and perpetrators.
The Center analyzes information not available to any other
law enforcement agency. Already the Center has identified
individuals, entities and the relationships between them
previously unknown to law enforcement. As an example, the
Center began compiling and analyzing financial data that
culminated in the linking of several individuals and
businesses, some of whom are or were under investigation and
one with ties to al Qaeda.
In conclusion, I would like to thank and pay tribute to not
only the men and women of IRS CI, but the law enforcement
professionals. It is our honor to work with them on task forces
combating money laundering and terrorism. Cooperation is the
backbone of law enforcement, and the task force approach has
served our Nation well in confronting many critical national
law enforcement challenges.
I thank you for this opportunity to appear before you this
distinguished committee and would be happy to answer any
questions you and the committee members may have.
Mr. Souder. Thank you very much.
[The prepared statement of Mr. Sparlin follows:]
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Mr. Souder. Mr. Werner.
Mr. Werner. Good morning, Mr. Chairman, Congresswoman
Blackburn. It is a privilege to appear before you to discuss
FinCEN's role in the terrorist financing and money laundering
investigations. Since its establishment in 1990, FinCEN has
been a service-oriented information-sharing agency dedicated to
collecting, analyzing and disseminating financial data to help
identify and trace the financial intersection of potential
criminal and terrorist activity. Although FinCEN examines its
data in support of a wide range of criminal investigations, its
top operational priority is unquestionably counterterror
support to the law enforcement intelligence communities. We
make our information products and services available to all
agencies that have a role in investigating or analyzing
terrorist related activity and information.
We also strive to adapt quickly to changing needs. One of
the first actions FinCEN undertook following September 11 was
the establishment of a financial institution hot line to
provide financial institutions with an expedited means of
vetting suspicious financial activity possibly linked to
terrorism. Although the financial institution will continue to
file a suspicious activity report through the formal BSA filing
process, the hotline now makes it possible to quickly assess
the value of the information and get it into the hands of law
enforcement well in advance of the normal time constraints
associated with the formal process.
Since its inception in September 2001, the hotline has
fielded over 1,300 calls, and over 850 of those have resulted
in immediate referrals of the information to law enforcement.
Strategically FinCEN is working expeditiously to enhance the
quality of its analysis. We have adjusted our analytic
methodology from a reactive approach to a more proactive think
tank environment that will focus on the ways in which terrorist
groups move money. To that end, a pilot is underway to look at
some of the top known foreign terrorist organizations through a
financial lens. Three analysts are presently conducting
extensive research to study the business models of these
organizations.
The objective of each analyst is to become familiar with
the mechanisms each group uses to--in order so that we can
identify inherent vulnerabilities in the organizations business
structure. We are also initiating a bilateral study with our
Italian counterpart to track illicit currency flows between our
two countries. This will be the first collaborative effort with
a foreign financial intelligence unit on a strategic project.
It is anticipated that this project will be the foundation for
additional collaborative efforts amongst the members of this
dynamic international network which is known as the Egmont
Group.
Most significantly, FinCEN's information products and
services are available to all agencies, whether Federal, State
or local that have a role in investigating illicit finance.
Networking is an integral part of this service. It extends the
value of our data in multiple ways. Our technologies, for
example tells United States when different agencies are
searching the same data, enabling United States to put those
agencies together and there by avoid investigative overlap, and
more importantly, permit the agency to leverage resources and
information.
But perhaps the most prominent example of FinCEN's role as
a centralized network recently has been its implementation of
section 314 of the USA Patriot Act. In recognition of its
unique position as a central focal point for financial
information, FinCEN was mandated under that section to
facilitate and enhance the flow of information potentially
related to terrorist financing and major money laundering.
In general, section 314(a) allows law enforcement to query
U.S. financial institutions about suspects, businesses and
accounts in major money laundering and terrorism
investigations. FinCEN facilitates this interaction by sending
law enforcement information requests to thousands of financial
institutions across the country. These financial institutions,
in turn, search their records and transactions and report
positive matches back to FinCEN. FinCEN then consolidates the
data and provides this pointer information to the law
enforcement requester for followup through appropriate legal
process. Another key dimension of the FinCEN network is its
global reach. Transnational crime cannot be successfully
confronted without building alliances within the global
community. Finance today knows no borders. Law enforcement
officials are now able to come to FinCEN to request assistance
from our international counterparts, the financial intelligence
units of 84 countries throughout the world.
In fact, we are implementing a program where FinCEN will
automatically request information from relevant financial
intelligence unit counterparts as part of any terrorism related
analysis project. FinCEN, its network and its missions are
dedicated to fostering a dynamic information sharing
environment among its law enforcement, regulatory and financial
partners. FinCEN will continue to buildupon its expertise and
add the benefit of its successes and lessons learned to our
Nation's antiterrorism and money laundering efforts.
Thank you again for this opportunity to testify today on
FinCEN's role in terrorist financing and money laundering
investigations. I'd be happy to answer any questions the
subcommittee may have.
[The prepared statement of Mr. Werner follows:]
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Mr. Souder. Before I start on my questions, I want to just
ask you, Mr. Werner, about something that you said. You are
able to tell when different agencies are accessing the same
information. Is that automatic notification?
Mr. Werner. It's done in two ways. We have the gateway
system, whereby State, Federal and local law enforcement access
BSA data. That has an automatic alert system when data has been
touched by more than one agency. In addition, when we get
direct requests for assistance from agencies, we network that
through our data base and feed it back into the gateway system
so that we can collect any double touchings of that.
Mr. Souder. Thank you. I want to start with the Andean
region. It is the largest area producing narcotics into the
United States. And I believe it was Mr. Semesky said that the
black market peso exchange was the largest laundering mechanism
for Colombia. Does everybody agree with that, about the black
market peso exchange? There's no disagreement. Could you
describe that more completely, the extent of that, and how are
you tackling that if that's the largest place where the money
is moving.
Mr. Semesky. Mr. Chairman, the black market peso exchange
is a mechanism that actually began in the 1960's when Colombia
imposed foreign exchange restrictions on its citizens. Due to
the inability of Colombian businesses to get foreign exchange
for international trade, a black market grew up and involved
Colombia. In the late 1970's when the U.S. Government started
cracking down using Bank Secrecy Act violations on Colombian
drug organizations, those drug organizations became the supply
end of the dollars that fed that system. And it just mushroomed
from there.
Quite simply, how it works is that you have a drug
trafficking organization that operates, that produces drugs in
Colombia, sells them in the United States. As they collect
their drug proceeds, they have a need to either smuggle them
out of the United States or get rid of them, launder them in
some fashion. What the black market peso exchange does is it
brings a peso broker into the loop. That peso broker will buy
the dollars from the narcotics trafficking organization,
usually at a very substantial discount. This negotiation takes
place in Colombia. Messages through various means are given to
workers, both for the drug organization and the money, the peso
brokers organization here in the States. They exchange the
funds.
At that point the drug traffic organization is paid in
Colombia in pesos, less the discount. The peso broker now owns
the dollars that are resident here in the United States. And
his or her particular problem is getting that money in the
banking system, which generates a lot of the work that the
agencies here at the table conduct. That money is then put in a
lot of times to the trade system, commodities are purchased and
smuggled into, or undervalued and taken into Colombia, where
they are sold through the San Androsidos, or the black markets
in Colombia.
That is kind of the cycle how it runs. What the U.S.
agencies are doing, they mainly attack this system through the
identification of the peso brokers and the delivery of the
funds here in the United States, and then tracking the funds
through the system into the commodities and then both the
United States and the free trade zones around the world to
Colombia. And then go after the accounts that the moneys go
through and in the system. One of the things that we are
pushing at DEA and our office is more to focus primarily back
on the drug organizations that are delivering the funds in the
United States, rather than on where the funds are going. ICE is
the expert in trade and they conduct more of the trade
investigations than DEA does. DEA investigations we want to
focus on the drug organizations that are generating the money
and take that back to Colombia and to the drug traffickers that
are supplying those organizations here in the States. So its
kind of a twofold approach. There are plenty of targets, both
on the supply side of the dollars, the facilitating peso
broker, and the demands side, which are the businesses that are
buying the dollars for all of the agencies to concentrate on.
Mr. Souder. Does anybody else want to comment on this as
well? I want to make sure I understand. In the black market
peso, in this market are they dealing solely with Colombia? Or
do they have legitimate peso exchanges too, or are these just
basically rogue operations from the word go? Are they
intermingled with Mexican peso or other currencies as well.
Mr. Semesky. Primarily, Mr. Chairman, it deals with
Colombia. This is a system that is, in effect, in Colombia.
There are other black markets throughout the world that do buy
illegal dollars. Colombia relaxed its foreign exchange
restrictions in 1991 and it is now perfectly legal to buy and
sell pesos for foreign exchange in Colombia, in most
situations. However, there are still regulated situations that
do require registration with the central bank, and one of those
is international trade. Because of that, there is still a
demand for dollars for international trade. And so the drug
industry is still supplying literally hundreds of millions of
dollars, if not billions,--well, the estimate is up to $5
billion a year for the black market peso exchange. But to
answer your question, it primarily deals with Colombia,
although we do see a good bit of the money go through Mexico
first. But it is still being handled by Colombian peso brokers.
Mr. Souder. Panama to.
Mr. Semesky. A lot of the money ends up in Panama to buy
commodities from the cologne free trade zone which are then
taken to Colombia either is smuggled out right or undervalued
with the Colombian Customs service, which is called the Dion.
Mr. Souder. Do any of you have any specific suggestions of
anything where we would need more cooperation and legal changes
in Colombia, Peru, any of the Andean countries that would help
go after this?
Mr. Semesky. Mr. Chairman, as the Colombians have relaxed
the laws on foreign exchange, it has decreased it, I believe,
somewhat. However, the agencies here at the table are
addressing the black market peso exchange with the regulatory
agencies to go after it as a system, and we are working toward
that and working with our counterparts in Colombia. They are
well aware of our efforts and they want, they have expressed a
desire to work with United States on that. We have also,
through FinCEN, talked to the governments of Panama, Aruba,
Venezuela as well, because a lot of the drug dollars that flow
through their system go into those free trade zones as well.
And we know that if we address one free trade zone and not the
others, that the money will just shift.
Mr. Souder. Anybody else?
Mr. Roth. I would just like to highlight that, that the
cooperation that we get from these other countries is crucial
in trying to knock down these black market peso exchanges and
some of the investigations that we have had literally could not
have been done without, for example, the cooperation of the
Colombian government who's been very responsive.
Ms. Forman. Mr. Chairman, if I may, some of the tools that
we're utilizing to attack the BMPE, the black market peso
include a number of undercover operations that target the drug
dollars in the streets of the United States and that
information is collected, at least by ICE, in the money
laundering coordination sector, but we are able to take the
identifying information, identify patterns and trends and
recipients of the black market dollars. We're also working
under Plan Colombia very closely with the Colombian government.
We're exchanging trade data. The NIPS program that I spoke
about identifies anomalies on trade leaving the United States
and trade going into Colombia to identify these anomalies
because, for example, if a million dollars worth of batteries
are leaving the United States and Colombia says that they're
only receiving 100,000, that's an indicator that maybe the
batteries may be smuggled in.
So we have that relationship. We have also assigned agents
to Colombia to work with the Colombian authorities and help
identify leads and targets, joint targets to work together.
Very successful case that we worked together with DEA and the
ICE El Dorado Task Force was a case called Wire Cutter, where
we worked with the Colombian authorities and we were able to
take down eight major brokers in Colombia as well as violators
here in the United States. Thank you.
Mr. Souder. Any comments on Mexico or where we are there?
It's been a checkered history.
Mr. Semesky. Mr. Chairman, the DEA country office in Mexico
is, on the money laundering side, is being expanded to a full
financial investigative team. We work, we do work closely with
the OFFI, which is their equivalent of the FBI, on money
laundering investigations. That being said, Mexico is probably
the largest repository of drug dollars leaving the United
States. And most of that leaves the United States in bulk cash.
Many of the investigations the DEA conducts and the other
agencies here conduct address the bulk cash that is leaving the
United States across the southwest border into Mexico. We are
currently as a interagency trying to address that problem and
look at different means of addressing it either on the criminal
enforcement or the regulatory side.
Mr. Souder. I know on the north border we do some back-
checking of people going back into Canada. We have had a couple
of experimental places. Are we doing that at any of the south
border where we are catching any bulk cash.
Ms. Forman. ICE has conducted a number of operations with
our Mexican counterparts in conjunctions with ICE foreign
attache officers, and are in the process of establishing
another outbound operation, but we actually assign agents as
well as Customs border protection officers in Mexico, and we
exchanged information as the operation is ongoing. And we also
provide x-ray vans and the expertise to share that information.
So this is an ongoing process.
Mr. Souder. So do we do any checking on the U.S. side of
the Texas-Arizona-California borders?
Ms. Forman. I'm sorry?
Mr. Souder. In other words, what you described is mostly
working with the Mexicans on their side of the border. Do we do
any back checking at our side of the border looking for money
before they leave U.S. soil?
Ms. Forman. Yes. It's a two-way exchange of information.
It's not just a one-way. They also feed information back to us
during these operations.
Mr. Souder. OK. Ms. Blackburn.
Mrs. Blackburn. Thank you, Mr. Chairman. I want to say
thank you to each of you for taking your time to come over here
this morning and talk with us and give us an update on where
you are with this. I think when you have a district like mine,
where Fort Campbell is located in Montgomery County, Tennessee,
where you have many families that have military men and women
who are deployed, we have Guardsmen and Reservists who are
deployed and are aggressively working in Afghanistan and Iraq
and fighting in this war on terror. And I appreciate the
information that you all bring to us this morning.
Mr. Chairman has talked with you about Colombia and Mexico.
We know that and we've been watching what DOD has done over in
Afghanistan with the stockpiles or removing the stockpiles of
opium and heroin. What I'd like to know, we know that the cell
of these finances a lot of terrorist activity. And do we
currently have any significant reports of success trafficking--
tracking the financing mechanisms or apprehending individuals
that are engaged in terrorist financing in this region? And
whomever from the panel would like to answer that?
Mr. Sparlin. I'll speak for the Internal Revenue Service.
As we have responsibility for many of the Bank Secrecy Act
violations, we review the significant amount of data that is
supplied by FinCEN with the--through the banking community. We
are working in partnership with the banking community to
identify suspicious activity. They file those reports with us.
In addition to that, we are looking at a number of
charitable organizations who have been identified as having
relationships with terrorist organizations. And I mentioned in
my opening statement a couple of those we have shown to be
raising money in this country through their charitable
organizations through donors to that program, and then shipping
the money overseas.
We've had a couple of significant successes in that, as I--
the Benevolent Foundation that I spoke about earlier, the
individual there raised millions of dollars, sent it overseas
and now is facing over 11 years in prison.
So we are looking at both the organization charitable
organizations that may be involved in that sort of thing, the
banking community, the financial community is working with us
in partnership to identify those who are potentially conducting
suspicious activities.
Mrs. Blackburn. And that is specific to Afghanistan and to
that region, am I correct?
Mr. Sparlin. Well, it's to the Middle East. I mean, they--
it's kind of a know-your-customer type of a situation.
Mrs. Blackburn. Exactly. OK. Thank you.
I also want to ask you just a little bit about looking at
some of the other avenues of financing, the alternative means,
if you will, diamonds, gold, contraband, counterfeit goods, and
intellectual property theft. It's particularly important to us
in Tennessee because of what happens with entertainment product
and with music. And my songwriters in Tennessee talk about this
regularly.
And the FBI leads some investigations and maintains case
data, according to the GAO, and does not systematically collect
and analyze data on terrorist use of alternative funding
mechanisms. And if I'm wrong in that, I want you to correct me.
Does the FBI anticipate collecting this type data in the future
and could it provide useful information about the utilization
of these types of alternative funding schemes?
Mr. Morehart. Yes, ma'am, to answer that question, let me
give you a little detail on that. It is, as you might expect,
difficult to accumulate that kind of information because there
are so many different types of alternate financing methods.
It's limited only by your imagination, if I might describe it
that way.
What the FBI is undertaking now is a number of different
initiatives, if you will, or projects to try to accommodate
that information if I can describe it as a data base so that we
can accumulate it and send it out not only to FBI agents out in
the field and the managers there, but also the other agencies
we interact with through the JTTF so they are aware of those
type of financing mechanisms.
One of the things we are doing is we are--we have what we
call an annual field office report. For the first time last
year that annual field office report included questions
regarding terrorism financing methods, mechanisms, if you will,
that we are accumulating and analyzing as we speak.
In addition, we intend to go back out to the field with a
detailed survey that will be answered by those supervisors, if
you will, that oversee the joint terrorism task forces that
handle the terrorism financing matters. And we're going to ask
for specific detailed information on the various types of
financing mechanisms that they have observed so that we can
also accumulate that information and disseminate it for
educational purposes, if you will.
Also we are in the process--this is a growing process--of
suggesting manual changes. One of the things that FBI agents
have to do and their counterparts on the JTTFs is to report
back to our headquarters as to preliminary investigations and
full investigations of terrorist matters. One of the aspects
that we are requesting is that they specifically must include
any information they have on terrorist financing that relates
to any specific investigation. We're in the process now of
collecting that information and within, I would say, the very
near future, we will have a product that describes the types of
financing mechanisms that we're seeing.
Mrs. Blackburn. Thank you, sir. Let me ask--Mr. Chairman,
may I continue for just a moment? Thank you, sir.
Do you all--is there a way for you to construct for us, and
there may not be, just a chart that would show what you
estimate to be the amount of money that leaves this country
with drug sales, what is there with the alternative means, that
terrorists or organizations are pulling out this country? I
think sometimes people have a tough time visualizing good
people with good money sometimes end up spending it on
counterfeit goods or contraband or different things. I don't
know if you have an estimate of the amount of money that gets
tied back to terrorist activity.
Mr. Morehart. You know, that would be extremely difficult
to even guess on that amount. The bottom line, when you're
talking about terrorist financing in terms or equating it to
money laundering, the bottom line with those funds is
concealing the funds and their ultimate use as opposed to pure
laundering of the funds to make illicit funds look as if
they're, you know, good money, if you will, or clean money. So
that, in and of itself, poses a problem.
The concealment issue, it is extremely difficult, as you
describe Congresswoman, a lot of people, for example, may
contribute funds to an NGO thinking that it's a legitimate
donation when, in fact, that money is taken down through
several transactions and used to fund insurgency, for example,
in Iraq. It's very difficult to determine when it becomes from
legitimate money, if you will, to illicit funds. So it's almost
impossible to give you a dollar amount.
Mrs. Blackburn. Well, and I know that's one of the things
that makes your job very difficult and we appreciate the
efforts you all continue to place on it.
I do have one other question, methamphetamines, and the
situation that we have in Canada with smuggling of the
precursor chemicals that are coming in. And we know that grew
through the 1990's. And without revealing any sensitive or
classified information, can you tell us what your agencies are
doing to target the financial side of the precursor chemical
smuggling?
Mr. Semesky. Congresswoman Blackburn, the Drug Enforcement
Administration has targeted and, quite successfully, the
precursor chemicals coming from Canada into the United States
and has seen a dramatic drop in the amount brought into the
United States as well as a very steep increase in the price for
the pseudoephedrine. I don't have specific figures to give you
on that.
As far as the financing side of that, they have, in those
investigations, addressed the financing or the money that is
earned from the sale of pseudoephedrine and ephedrine. As Mr.
Morehart pointed out, as we tracked those funds and they've
gotten into the banking system, once they get to the Middle
East they literally disappear because they go over many times
in the form of money orders or checks and they hit the first
bank and are turned into cash again and the trail is gone.
Mrs. Blackburn. Thank you. We appreciate your efforts and
thank you for your time for being here today.
Mr. Souder. I want to followup briefly and first on that
subject of the precursor chemicals. At our Detroit hearing, we
heard the good news that the different agencies feel that we've
had both in Homeland Security, DEA, and others, progress.
Particularly there where we had at least signs from a few big
busts that a large percentage of the precursor chemicals are
coming across at Detroit, and we had a couple of big busts, of
course the ecstasy bust. But I want to confirm these and then
ask a question.
We also understood, when I asked a followup question, that
there has not been a dramatic reduction on the ground in the
United States in meth, either in precursor chemicals or in the
use of methamphetamine. That we've not seen a decline or we
don't--assume there's a decline in Rotterdam and Antwerp as the
shipping points, so therefore if it's not coming from Canada,
where is it?
Mr. Semesky. Mr. Chairman, that is not something my
division addresses, but my understanding is that there are new
routes and one of them is Mexico. And that is something that is
being addressed.
Mr. Souder. Because one of the questions is it's
presumably, since the precursor chemicals are predominantly
made for these kind of drugs in the area of the Netherlands and
in Belgium, and we know where the bulk of it is coming from, it
seems like one of the best ways to trace this would be the
money. Somebody is shipping it.
Mr. Semesky. Again, that is something that our diversion
and foreign operations divisions are addressing. There are
several operations that are gathering financial intelligence on
the wire transfers that are going to--they have to--and my
division is working with them on that and tracing back the
precursors as they're seized to the manufacturer and then
looking at the manufacturers who they are receiving payments
from. And it's, obviously, a long process and it involves
getting information from foreign banks, but that is something
that is being addressed.
Mr. Souder. So you've kind of hinted, and I want any other
comments from anybody who are tracking the finances of this. If
this stuff moves from Europe and hits Mexico, which we're only
at the preliminary stage, in other words, we don't have lots of
big cases here with which to sort this through, but if there's
been a reduction in Canada and it's moving in Mexico, are there
things that we need to do? Are we able to track that when it
hits Mexico? Presumably they're shipping to the northern parts
of Mexico rather than to the southern parts of Mexico.
Let me ask Mr. Werner, in FinCEN you said you have a
conceptual group that is starting to look at patterns of how
terrorists think. Will that be for narcotics too or just
weapons of mass destruction terrorism?
Mr. Werner. Mr. Chairman, it's targeted to the designated
terrorist groups, the known terrorist groups. But to the extent
that some of those groups derive revenue from narcotics
trafficking, it will include their business model.
Mr. Souder. They both have been involved. In the Middle
Eastern groups it's easy for us to say in Congress, say
``Middle Eastern'' and imply that it's terrorists. Middle
Eastern groups are often just profiteering groups and they may
not even be necessarily from terrorist countries or they may be
rogue or cooperating with the government. It's a wide range.
But given the fact that in meth precursors, much of this is
coming from the Middle East, is FinCEN looking at the potential
and how it hits Mexico?
Mr. Werner. We haven't been targeting the specific example
you're giving, but I think as we get to understand these
terrorist organizations' business models better, again to the
extent those business models include drug trafficking we'll be
looking very carefully at that.
Mr. Souder. Let me ask you, and I would like kind of a
general comment because I had this as a later question because
I want to come back to Canada again. How much do you think--
we've been operating under the assumption that lots of the
narcotics, child trafficking and the traditional underground
economy will only get to be a larger percentage of terrorist
funding because we will go after the above-board, above-ground
type of operations, that how much of the terrorist funding do
you think will be in those categories versus things like the
Holy Land Foundation or groups that may, in fact, be doing lots
of good work or some good work and hide inside that, versus
hybrids like the black market pesos, where you would have a
currency exchange and they would try to work through semi-
legitimate businesses to then convert it into gold so it looks
like another product?
Mr. Werner. Based on what we know now about terrorist
financing models, I think I would lean toward Mr. Morehart's
statement which is that primarily based on what we know now the
revenue derived by terrorist organizations is a lot of good
money turned into bad. That's not to say that within certain
regions and certain terrorist groups they're not relying more
primarily on illicit activity. But, again, I think the studies
we're doing now on these strategic business models will help us
understand that a lot better.
Mr. Souder. Are you looking at your models presumably as
they develop and if they want to take the battle to our soil,
they're going to disperse and not be as easy to identify. And
use mules and other organizations--mules with quotes around it,
human smugglers, for example, and we clearly don't have control
of our south border. And if terrorist organizations move things
through, quite frankly, on the south border it's easier to spot
a middle easterner coming in the south border than it is the
north border.
We have huge vulnerabilities on our south border, not to
mention Asian groups like you say. The Taliban was clearly
funded by narcotics, the FARC is funded by narcotics, other
groups less so depending on whether they get in the precursor
business or not. And the precursor business, obviously
Indonesia and the Philippines are two areas that everybody is
watching very closely.
Are you trying to do predictive models as well to see how
well we're doing? What I would like to think as a Member of
Congress, in a public forum, not a classified forum, that you
have people who are emulating the terrorists trying to think
how you would penetrate our own models.
Mr. Werner. Mr. Chairman, that's exactly what we're going
to be trying to do. These models are intended to be predictive
in nature. And we really are going to be doing war-gaming in
the sense of trying to get inside the mentality of the
organization that we look at and understand not only how it's
functioning now, but how it might evolve in reaction to law
enforcement.
Mr. Morehart. Mr. Chairman, if I might add to that, the
terrorist financing operation section is also involved in that
type of activity. We have one of our units, the financial
investigative analysis unit has an element in it that deals
with proactive investigation, if you will, or doing exactly as
you suggest, the gaming, trying to identify proactively sources
of funding for terrorist activity.
To go back to your earlier question in terms of trying to
quantify how much money would come from one particular
activity, either legitimate or illicit activity, that's
difficult to estimate. Also, your question as to whether doing
away with the legitimate activity, for example, contributions
to NGO's, whether that would increase or enhance illicit
activity, that's also hard to say.
The bottom line is, I think, it's probably well known that
it doesn't take a whole lot of money to finance these folks. As
I mentioned before, it's essentially limited to their
imagination whether they're smuggling cigarettes to avoid taxes
and then making money in that fashion or any other way they can
derive income, whether it's a contribution to a charitable
organization and it's funnelled to some entity for their
activities, it's very difficult to answer that. But the bottom
line is the proactive entity we have within TFOS is doing
exactly what have you described and having some success at
that.
Mr. Souder. We had a hearing.
Mr. Glaser. If I could also add to that because I think
it's a very important point you raise. As we, here in the
United States, take efforts to close off our financial sector
to terrorists and to narcotics traffickers and other organized
criminals through the--largely through the law enforcement
action through the regulations that are issued on money
laundering and terrorist financing by FinCEN, and as we work
with our partners abroad in the Middle East, in Europe, in Asia
and in Mexico where they have just recently enacted and we hope
are putting into effect some new anti money laundering
regulations, it's becoming more and more difficult for
organized criminals, for narcotic traffickers, and for
terrorist financiers to use the formal financial sector. As a
result, we do expect them to be moving more and more toward
alternate means of financing their activities, be it through
cash couriers, be if through systems like Hawala, through the
black market peso exchange, which, frankly, has many
similarities to the way Hawala systems work. And that's why we
are turning our focus to these activities.
To go and to give a specific example, and this gets to
another question that you just asked, with respect to the links
between these types of networks between drug traffickers and
between terrorist financiers, a good example would be a man
named Dawood Ibrahim, who is an Indian organized criminal, a
narcotics trafficker, who was designated by the Treasury
Department as a financier in October of last year, this
individual makes available the same systems he uses to finance
his activities he makes available to terrorist organizations.
So we can see those systems already linking up with each other.
So, again, it is something that we are all collectively
focusing on, making sure that these alternate systems of
supporting any type of illicit activity, be it terrorism,
organized crime, narcotics trafficking, are being looking at.
If I could just, since Ms. Blackburn is back, I didn't have
a chance to just let you know one recent success that we have
had in the Afghanistan region with respect to terrorist
financing is earlier this year the Treasury Department
designated on the Al Haramain Foundation in Pakistan and froze
and blocked the assets of that organization. That was a Saudi-
based charity in Pakistan that was connected with al Qaeda and
connected particularly with moving people in and out of
Afghanistan, al Qaeda operatives in and out of Afghanistan.
Earlier this year, we closed down that particular financial
mechanism of supplying terrorists, terrorist money into
Afghanistan.
Mr. Souder. I want to touch on Canada again for a minute on
BC bud and this hydroponic marijuana that's not marijuana as we
traditionally know it, but has a much higher THC content and
has an action much like other drugs and is sweeping much more
like meth in many areas of our country and their country. We
have seen the first corruption cases in British Columbia, or at
least allegations, that it is my understanding from a hearing
we conducted, that marijuana is now in Canada, and it's as big
as any other product they're selling us, including wheat and
timber. And that is a sign that Canada may be headed down the
way of Mexico and Colombia if they don't get control of this in
the sense of you start dealing as your biggest trade product,
all of a sudden you have tremendous potential for corruption.
In fact, that data may have come from their attorneys
general in their provinces who have been very critical of some
of the Federal Government's stances in enforcement in Canada.
What I would like to know is, do you have any suggestions
as we have good government-to-government relations and as we
work with the new government there are some things that need
help. I know it's not an RCMP question or even attorney general
question, it's a question of what laws do they need on the
books and what do their courts need to do.
Ms. Forman. Chairman, if I may, we actually have an
international rep in Canada as we speak, meeting with Canadian
officials and authorities to discuss politically exposed
problems in Canada to include narcotics trafficking,
embezzlement and bribery and the proceeds which enter the
United States. The program we have in Miami is--we hope to
duplicate throughout the country and to work with our
counterparts. ICE has approximately 40 overseas offices and
we're hoping to duplicate the success of the program in Miami
with the South American countries, with Canada, and Mexico and
other countries as well.
Mr. Souder. Anyone else have any comments? Mr. Werner, my
staff recently looked at their FinCEN system and their tracking
of money and it seemed their computer search engine and related
programming may be superior to ours. Have you looked at their
system?
Mr. Werner. We've had a lot of discussions with them. In
fact, we assisted them with designing their system. They had
the benefit of learning from what we did well and what we
wished we did better. They're a much smaller system which has
given them some advantages. But what they can do is pretty
amazing at this point. I think it's approximately 99 percent of
their data is electronically transmitted. And they get all wire
transfers. So they're collecting a terrific amount of data and
their system seems to be very robust.
Again, the difference is that it's a very modern system
that--they were having lots of problems a number of years ago.
They have gotten their financial intelligence unit really up to
the proper criteria, and with it came new technology applied to
a much smaller financial system which allows them to do more
than really would be possible here. But, yes, we are actually
going to make a visit to look at it. We've heard about it. We
met with them and the director is going to go up to Canada to
take a look at it.
Mr. Souder. One last thing related to Canada that I asked a
question earlier on the Mexico border, because what I heard was
heavy amounts of cash going south. My experience with our
hearings on the north border is that cash going north has not
been the primary problem. In fact, we're the biggest drug
exporter into Canada, and often the BC bud and the marijuana is
coming and being swapped for cocaine and heroin and other
things that are going back across the border.
Mr. Semesky, is that your impression too, or do you think
there's a lot of cash moving as well?
Mr. Semesky. Mr. Chairman, I believe there is a lot of cash
moving as well. I've met recently with the director of the
organized crime unit with RCMP, and will be meeting next week
with the director of the proceeds of crime unit with RCMP who
have expressed an interest in working with DEA. But in the
information exchange with them, there is a tremendous amount of
cash, and some of our officers have seen it, that are going--is
going back to Canada as well as the drugs. And I must confess I
don't have a lot of information about that.
But the cash is going back to Canada. We've seen it in
several cases, one in particular, Operation Candy Box, which
was taken down recently which involves millions of dollars
going back to Canada. And a lot of times it exits the United
States--in that particular case much of the money went to
Vietnam first and then back to Canada.
Mr. Souder. That was the ecstasy case.
Mr. Semesky. Yes, sir.
Mr. Souder. As part of the U.S. Canada parliamentary group
meeting on an annual basis, I'm always, no matter what else
everybody else is talking about, I always raise narcotics to
them, and some of the border issues to try to keep the pressure
on how we deal with our border. And we're about to have these
meetings again. My understanding is both that Niagara Falls,
Buffalo, and I can't remember, I think it may have been Montana
where we were back-checking. By back-checking, I mean people
who were headed into Canada. In other words, we check both
directions. Not having the Canadian side of the border
checking, but before they leave American soil, we were actually
finding almost as much going out as going in.
Now, a lot of that was customs violations people trying to
avoid tariffs. A lot of it was guns. They were converting
Canadian drugs into American guns for sale because of their gun
restrictions.
But I wondered and that's why I was asking related
questions, now I'm going to continue to pursue that. But trying
to sort out how much is the money problem in the north border
versus the south border. Ecstasy is a little bit different
product because it's coming more from Europe and Canada is a
pass-through. The Vietnamese trade is more complicated coming
through British Colombia because that may be a pass-through
organization too, and shipping.
When it's grown in Canada, the question if it's not a pass-
through, is it a swap in the networks or not? Probably there
isn't as big a market either. In other words, they're selling
more drugs in the United States than they can consume on their
end. Any other comments on that?
Ms. Forman. Currently, ICE is working an undercover
operation with the Canadians on addressing the proceeds of BC
Bud. That operation is still ongoing. And we have seized and
identified currency here in the United States destined to go
back to Canada.
In addition, based on an assessment we've done on the
currency and monetary instrument reports, there is minimal
reporting of currency going north. And as we speak, we're in
the process of working with the Canadians to help establish
their money laundering regulations in their reporting
requirements. We had three ICE agents detailed to Canada to
help them with the reporting program.
Mr. Souder. You're saying they don't have a law that allows
them to do it, they have a law that prohibits them from doing
it, or they're just not doing it?
Ms. Forman. They're doing it. We're working in conjunction.
But we're hoping for consistency in the reporting requirements
going across and coming into the United States. I'm not really
sure what the amounts and their threshold are going into Canada
for reporting purposes. I know they have laws that prohibit the
exact changing, exchange of information on a timely basis. So
that's one of the issues we're working to try to overcome.
Mr. Souder. With us?
Ms. Forman. With us.
Mr. Souder. One of the whole things that is determinate as
to whether or not this whole financial reporting system works
is whether the banks are cooperating and Riggs Bank is
currently under investigation facing sanctions because they may
not have filed basic reports on unusual transactions
particularly related to Saudi diplomats. How confident are you
about the banking system as a whole? This whole thing falls
apart if the banks aren't, in fact, reporting, and if the only
ones they are not reporting on are critical to the ones you are
doing, it becomes even more problematic.
Mr. Werner. Mr. Chairman, we feel very confident that the
SAR reporting system is working well at this point. That's not
to say there isn't an opportunity for improvement. And, in
fact, the Deputy Secretary has recently said that would like to
initiate a study to look at the system and see how we might
enhance improvements to it. But I can tell you now that we're
receiving over 20,000 SAR activity reports a year and they
contain extremely valuable data. We will continue to work with
the industry to educate them as to the value--as to what data
is valuable to law enforcement and give them as much feedback
as possible.
And, in addition, as the reporting system ages,
particularly post-September 11, and we're bringing on
additional institutions now who we haven't filed SARS before,
we have to engage in an outreach which we're working with the
IRS extensively on to do. And it's going to take work and it's
going to take time. But in the meantime, very valuable data is
continuing to come into FinCEN and we're working with law
enforcement to continually generate feedback to the industry so
that they can keep improving what they're doing.
In addition, working with the functional regulators, we're
able to improve and look at the compliance of financial
institutions. The IRS is our partner in doing the actual
compliance on the MSBs. And it's a massive undertaking, but our
view now is that it's a system that is working.
Mr. Glaser. If I could add to that from the Treasury
Department's perspective. We certainly agree with Bob that we
do believe that the financial sector is largely complying with
their obligations under the Bank Secrecy Act. Any time you see
an incident where a bank seems not to have been, it does raise
concerns and you do start to wonder, you know, what are the
implications of that.
As Bob mentioned, Deputy Secretary Bodman did commit to do
a study, to launch a study to look at the overall level of
compliance with respect to these requirements. Tomorrow, the
Bank Secrecy Act advisory group will be meeting. That is a
group of the Treasury Department, FinCEN, law enforcement and
the private sector, the financial institutions. We do plan on
using that group to conduct the study to work with the private
sector and law enforcement and the regulators to make sure that
there is an overall review done to ensure that the level of
compliance is where we want it to be.
Mr. Sparlin. I would like to add that we are partnering
very well with the banking community. Just last week in
northern California, we had a joint co-sponsored with us and
the banking community anti money laundering seminar, where we
had over 100 bankers there to talk about how we could better
serve the community. And the successes we've had with the
information that they've provided, when they hear about how we
use their information, how we use the SARs and CTRs to go out
and find people and prosecute them, it encourages them to
continue doing what they're doing. There is obviously room for
improvement but we are working throughout the country with
groups just like that to improve.
Mr. Semesky. Mr. Chairman, if I could add one other thing.
I think you can look at the dramatic increase in bulk cash
smuggling as somewhat of the banks compliance with the Bank
Secrecy Act reporting requirements. I think that's gone up as
the bank's compliance has gone up. I've worked with banks since
the early 1980's on this issue, and they are doing a very good
job at compliance.
One of the problems they face right now is that whereas in
the 1980's, initial placement was made in the form of cash,
these days a lot of the initial placement into the U.S. system
is kind of a secondary phase, where it's either in the form of
money orders or wire transfers coming in from somewhere else.
So the banks are trying to adjust and where they look across
their product lines. Instead of just cash, they now have to
address all of their product lines which is money orders,
cashiers checks, wire transfers, cash letters coming in from
overseas. And that is very difficult and it's a training
process for them. It's a very expensive process for them to put
the safeguards in place to do that. But it's something that I
think all of the agencies here are working with them on. And
that as they get better, we're going to detect more
sophisticated means of laundering, rather than just the cash
placement. The cash is going outside the borders and a lot of
times it comes back in.
Mr. Morehart. If I may add to Mr. Semesky's comment. In
terms of bank compliance, I think Hawalas are further evidence
of that. The banks, obviously, if they weren't complying, those
who are interested in moving money to the terrorist entities
wouldn't be using Hawalas which are informal money movement
entities, if you will. And obviously, being informal they're
not going to comply with the SARS issues and that's obviously a
concern. But I think it's indicative of the fact that those
individuals who want to move money are concerned that the banks
will comply with that.
Mr. Roth. Just to add to what's been said, I think Mr.
Morehart had it exactly right, that there is this entire
industry out there, the money service business industry, that
was just newly regulated for Bank Secrecy Act compliance under
the USA Patriot Act. To my view, that is the greatest challenge
we face, because it does not have a financial regulator like
banks has, and it is new for them. And to get compliance, I
think, is extremely difficult.
With regard to banks, we've had some success in prosecuting
those outliers, which, I think, has a significant deterrent
effect. We've had two prosecutions of banks for failing to
comply with the Bank Secrecy Act requirements which, I think,
sends a terrific message to the community that the failure to
do so could have significant consequences.
Mr. Souder. I sit on the Homeland Security Committee, too.
And the challenge is when we're dealing with narcotics, which
actually is causing 20,000 deaths a year in the United States,
but because it's so repetitive, you can kind of watch a
pattern. One mess-up in homeland security and all of a sudden
people are dead and everybody is gone. It's not that weapons of
mass destruction, which may not occur are more important. It's
not that necessarily next year we're going to have any deaths
from terrorists, and we know we're going to have 20,000 here.
But because it's more of a steady thing just, getting through
on the one side, your job of sorting through and the
cooperation is substantially different and to the degree they
mesh.
I wanted to ask one other question, and I'm struggling to
make sure I have the right letters, and I don't have it in
front of me, but when we were talking about the HIDTAs, the
drug trafficking centers, and the finance centers, and I
believe it was Mr. Roth and Mr. Glaser both were probably most
likely to be involved in this, in the overlap between these
two. In your testimony, was it Mr. Roth who testified to this?
Mr. Roth. Probably.
Mr. Souder. That you said that some weren't funded, it was
unclear where this program was going to head. Could you
describe a little bit more to me are there any cities that
currently--of the seven, how many of those currently have a
HIDTA off the top of your head? Do you know the seven?
Mr. Roth. Yes. I think each one of them has a HIDTA. Each
city that has a HIFCA also has a HIDTA. It's a little different
with the southwest border which is a systems HIFCA, that
doesn't exactly match up. But the big ones certainly do.
Mr. Souder. We're supposed to have a systems HIDTA too but
that's another matter.
Mr. Roth. OK. But yeah, the HIFCAs match up with the HIDTAs
generally. The difficulty obviously with the HIFCAs was that
they were not funded. What they essentially were forced to do
is find a rich uncle, if you were, which many cases was the
HIDTA. New York is a terrific example of that where they have a
very well developed, very aggressive anti money laundering
program that was the HIFCA but it was married up with the
HIDTA.
Mr. Souder. That's the question I was going to ask because
when I was up in New York I thought it was inside.
Mr. Roth. Correct. It is. It is.
Mr. Souder. So why wouldn't that be a subunit of a HIDTA
where you have a potential meshing of narcotics and terrorism?
That might be different in some areas of the country. Any
comments?
Mr. Glaser. I think that's a good point. The whole notion
of the HIFCA program when it was developed was to pick
particular areas where there was a high risk of financial crime
or concern about a high degree of financial crime and focus law
enforcement and generally Federal regulatory law enforcement
and policy attention on that area.
To the extent that there was overlap with an OCDETF task
force or with HIDTA or anything else, it was expected that
would be coordinated. I think that we see that it has been. I
do think that you raise an important point, however, with
respect to the future of the HIFCA program and that is the fact
that there is no money attached to the HIFCA program. So that
is going to, by definition, affect the way that HIFCAs are
structured.
I'm not suggesting that there should be a change in that,
I'm just suggesting that the way that the HIFCA program is set
upright now on a statutory basis informs the way the HIFCAs
actually operate with respect to the HIDTAs and the OCDETF
teams.
Mr. Souder. Because I wouldn't think this is tremendously
hard to figure out where the highest priorities are. I mean, we
know the history of Miami being the banking region for the
Caribbean in the south, New York clearly has the most terrorism
potential drug nexus, but there we're pretty well meshed.
Presumably somebody on the West Coast between Los Angeles, San
Francisco, and Seattle is going to emerge as the dominant
center. Right now they would each argue about that, maybe, on
the Asian pacific rim corridor. Conceivably you could have a
jump up to Atlanta. I mean, I don't even know what they are but
just from looking at the different areas you can kind of zero
in on logical overlaps.
Now, one final question on this, but the southwest border
is really messed up. And I don't think any of us believe that
we're going to be able to control terrorism in this country
long-term unless we stop a million people getting across a year
illegally in spite of what we're doing. And if we all grant
that's where most of the narcotics are going--and I heard today
that's where most of the cash back is going--unless we can get
control of the southwest border, we don't have functional
control of our borders.
And what I heard you to say on the financial incentive is
it's been difficult to look at it as a border. I mean, partly
in the HIDTAs, we're having this problem. Theoretically there's
a southwest border HIDTA, then you have the bigger cities
behind it as the second tier. The problem here comes as you
have this feeling that the narcotics guys don't say, hmm, I
wonder where the line is between New Mexico and Arizona. We
better not go that way because we're the Arizona guys. It
doesn't work that way. They're going to push wherever we have
an opening. In the financial tracking, do you see some of that
difficulty? Is that why it was difficult to put together the
network on the southwest border or is it less of a problem on
the financial side than it is on the drug trafficking side?
Mr. Roth. I think it's enormously difficult. Part of the
problem, as you acknowledge, is the fact that the method itself
is difficult to detect and difficult to track. So I would say
it's less of an organizational issue than it is just trying to
crack the problem. That's where I think the big problem lies.
We still don't have as good a handle on how to meet that threat
as we probably should.
Mr. Souder. Any other comments on the southwest border? I
mean, when you look at the narcotics in Indiana, we have
multiple patterns. A lot of big busts coming up through Laredo
had big groups that came through Douglas, Arizona, and we've
since learned our major meth source from the outside. About 30
percent of the local cookers, and that's what you see in the
news taking down the labs that are messed up, but 70 percent,
even in Indiana which is fifth in the Nation in meth, are these
super-labs coming out of California and Mexico. They're going
all the way up, our major busts go all the way up to Washington
State to Yakima all the way across the top.
We have this one family and when they saw them down in
Georgia and in Indiana and Yakima they said oh, there's a
family working inside, a migrant group that's doing the drug
trafficking, that the money would be an indication too. Because
if they're moving the drugs that direction, you would think
there would be an equivalent of a cash pulse moving back
through the system and the two sides would be working together
to establish that.
Are you telling me that is happening or not happening?
Because the border is where it's going to leave the United
States and it's gone. I mean, we're working with other
countries, but our greatest control is going to be getting it
before it hits that border.
Mr. Sparlin. One of the things that we are looking at right
now is the wire transfer project that we've got going on with
the money service business where that money is being
transferred via Western Union, whatever money service from
Indiana to California to the mega drug centers in California.
We have just started this project kind of on a localized basis.
Now we're partnering with DEA to do it on a national basis so
we can see both sides. Initially we're looking at one side.
California, I happened to be the special agent in charge in San
Francisco. When we started the project, we got all the outgoing
wires--we weren't getting the incoming wires--to see the money
going out. Now we're working this project to get both sides.
And I think that project is going to be very successful in
identifying that flow, internal flow of money within the
country.
Mr. Souder. Do people use the postal service, UPS, and Fed
Ex for cash as well?
Mr. Sparlin. Yes.
Mr. Souder. Have you got a project on that as well?
Mr. Sparlin. We're partnering with all of them, yes.
Mr. Souder. Anybody want to add anything else?
Ms. Forman. Mr. Chairman, we have an operation going in
Arizona called Ice Storm. Ice Storm is looking at the methods,
the gangs, the narcotics money, the aliens, the alien
organizations that are going into and out of Mexico and into
Arizona doing tremendous damage. As a component of Ice Storm
there's a operation called Green Mile where we're looking at
the system, the money service wire systems, the Western Unions.
We conducted a census on the money service businesses to
determine a threshold for narcotics smuggling and for alien
smuggling. And we're working with the State of Arizona and
utilizing something called damming warrants where we're working
with Western Union to determine the senders of the funds and
seeing if we can penetrate these organizations that are coming
into a Arizona and slowly moving into California and some of
the other west coast cities.
Mr. Morehart. Mr. Chairman, if I could add to what Mr.
Sparlin said, I think from the cases that we've seen, you can
almost track the money going through the wire remitter industry
with the spread of methamphetamine across the country and the
problems that we've seen. So you are absolutely correct. There
is a method that we are trying to address to look at the
financing side of this. And I think all the agencies here, you
know, are seeing that, we're trying to bring this all together
so we can make those connections instead of having small cases
make big cases. You can only do that when you bring your
intelligence together.
Mr. Souder. It's got to be a system similar to a trucking
system or any other transportation system, and you're going to
have large companies, and you're going to have mid-size
companies, you're going to have independent little truckers.
I'm not saying little truckers aren't good, I'm just saying
you're not going to spend as much time on a little trucker,
you're going to figure out which ones are the big ones. It's
real interesting to watch when you start to see certain
patterns come back through as to which size.
Sometimes you'll catch them for different reasons but then
that hopefully then gets transferred over to the financial end
where you try to figure out whether a bank was disguising it,
or were they using Western Union. You all have to be talking on
every case, particularly in the terrorism area because zero
tolerance is impossible. It is a great goal, but it's just very
discouraging when you start to get into it because this balance
between the individual's rights to privacy in the United States
as we refight the Patriot Act. And it was very important to
hear the importance of the Patriot Act in looking at the
terrorism question, but this is going to get tougher before it
gets easier because they're going to get smarter over time as
well. We just have to stay a step ahead rather than a step
behind.
Would anybody else want to make any comments? I appreciate
all your time this morning. We may have some additional written
questions. Appreciate you coming. Appreciate your testimony. If
you'll communicate to each your agencies we also appreciate the
work of the men and women in each of your agencies.
Second panel is Ms. Bonni Tischler, vice president,
Pinkerton Global Transporation Supply Chain Security Department
and Mr. Richard Stana, Director of Homeland Security and
Justice of the General Accounting Office [GAO].
If each of you could stand I'll administer the oath.
[Witnesses sworn.]
Mr. Souder. Let the record show that both witnesses
responded in the affirmative. Appreciate you being with us this
morning and testifying in front of our committee, nothing like
going on and on and then doing a quick halt and catching you by
surprise there. But looking forward to your testimony.
Ms. Tischler, we'll have you go first.
STATEMENTS OF BONNI TISCHLER, VICE PRESIDENT, PINKERTON GLOBAL
TRANSPORTATION SUPPLY CHAIN SECURITY DEPARTMENT; AND RICHARD
STANA, DIRECTOR OF HOMELAND SECURITY AND JUSTICE OF THE GENERAL
ACCOUNTING OFFICE [GAO]
Ms. Tischler. Morning, Mr. Chairman. I'll leave out my
career highlights since you were kind enough to mention them.
As a career special agent specializing in money laundering
investigations, I was privileged to have been at the forefront
of anti money laundering efforts in an era of virtually no
applicable legislation with the exception of the Bank Secrecy
Act.
At that time there was no substantive law that could be
used against organizations laundering money until the Money
Laundering Act was passed in 1986.
Money laundering is probably the third oldest crime with
prostitution and smuggling tying at the No. 1 position. The
concept of money laundering is not complex, although the
methods means and opportunities as my FBI ex-peer pointed out,
are only exceeded by one's imagination. Money laundering
involves simply disguising or concealing the source and origin
of illicit funds. Detection is, therefore, paramount to
effectively disrupting a criminal organization.
Additionally, an organization's financial underpinning is
usually its soft under belly and therefore much more vulnerable
to attack. These funds including operational capital which is
used to fund the mechanics of a criminal scheme and the
potentially obscene profit which is, of course, why most
financially driven crime is committed in the first place.
Efficient and devastating acts of terrorism require steady
source of high level efficiently concealed funding mechanisms.
While terrorist organizations may be funded by contributions
and gifts, criminal schemes may also contribute to a steady
influx of operational capital. The crime base could be the drug
trade which is certainly among the most lucrative structures,
or it could include so-called white collar crime, such as fraud
or counterfeit intellectual property schemes, which are
perceived as not as heinous, and therefore not deserving of
Draconian penalties.
In 1980, the Treasury Department under the auspices of
Customs and the IRS, initiated a prototype project known as
Operation Greenback. Greenback was designed to identify and
penetrate the reasons for the unusually high level of cash-flow
through the Federal Reserve in the south Florida area. The flow
was found to be the direct result of the burgeoning drug trade
in that region. At the onset, we thought we were only looking
at narcotics smuggling organizations, but as we progressed, it
became apparent that what we were dealing with was a series of
service organizations that were laundering money for one or
more drug smuggling groups. As Operation Greenback evolved, we
found it necessary to add the Drug Enforcement Administration
to the project since at that time the sole jurisdiction for
Title 21, narcotics trafficking, rested with that agency. And
since the crime was drug smuggling and trafficking, the DEA
became a partner.
The task force concepts was successful and spawned other
Greenback-styled investigations over the next several years. We
found that putting together customs IRS and DEA expertise along
with prosecutorial support from the U.S. attorneys offices was
successful in disrupting and prosecuting criminal organizations
involved with money laundering activities.
We were so successful that a number of congressional
committees became interested in creating legislation
specifically designed to target money laundering as a felony.
In 1986, the vulnerability involved with not having anti money
laundering legislation was resolved when laws--the law was
initiated and passed by both Houses. The Money Laundering Act
of 1986 included a number of predicate offenses. And as more
offenses were added over the years a number of Federal agencies
acquired the jurisdiction to investigate money laundering
offenses. Unfortunately, this did not always mean that the
agencies having substantive jurisdiction developed their
ability to investigate money laundering activities.
One of the most interesting tools developed to impact
criminal organizations both from a substantive and subsequent
money laundering perspective was the asset forfeiture
addictions to existing and newly planned legislation. Taking
away the assets of an organization immediately impacts their
present and future operational capabilities as well as their
profit and loss statements. For instance, one can always
replace smuggled drugs as a commodity, but it's hard to make up
the seizure of cash or hard assets. Some of the most successful
financial cases such as Operation Sea Chase in 1988, also known
as the BCCI or Bank of Credit and Commerce case, and Operation
Casablanca in 1998, were also examples of U.S. Customs-
initiated investigations that added elements of other local,
State, and Federal agencies to bring about successful outcomes.
While combining jurisdictions of Federal agencies is a
force multiplier, duplication of similar projects is not, nor
is it cost effective. An example of this is the proliferation
of operational or intelligence-driven money laundering centers
designed to do a similar job in identifying and analyzing
intelligence and indicators of money laundering activities.
Usually there is little or no passage of information to
concerned agencies, and therefore no feedback. Part of the
problem is that in strictly based intelligence and analysis
centers, there is no real operational insight and often a
window of insight cut into an organization is not fully
exploited because the operational day-to-day knowledge of an
investigator is missing.
To summarize, my personal belief based on a number of years
experience in both the investigation and oversight of money
laundering related cases is that a task force develops and
brings to the table a synergistic and dynamic way of
eliminating elicit organizations who are involved in drug
smuggling or terrorist related activities. However, the
potential for a powerful response to money laundering
activities and the substantive involved criminal activities can
only be maximized in a completely transparent environment free
from redundancy and agency duplication. Thank you for the
opportunity to testify today before you and your attention this
very important matter.
[The prepared statement of Ms. Tischler follows:]
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Mr. Souder. Thank you.
Mr. Stana.
Mr. Stana. Chairman Souder, I am pleased to be here today
to discuss efforts by Federal law enforcement agencies to
cooperatively investigate money laundering and terrorist
financing. As you know, money laundering provides the fuel for
drug dealers, arms traffickers, terrorists and other criminals
to operate and expand their activities. Terrorist financing is
generally characterized by different motives than money
laundering and the funds often originate from legitimate
sources.
However, investigations of money laundering and
investigations of terrorist financing observe involve similar
approaches or techniques because the methods used for hiding
the movement of funds also involve similarities. My prepared
statement is based on two reports we recently provided to
Congress on Federal efforts to improve interagency coordination
fortunately these are our September 2003 report on the
development and implementation of the annual national money
laundering strategy, and our February 2004 report on the
implementation status of a memorandum of agreement on terrorist
financing investigations.
Our September 2003 report found that the national money
laundering strategy generally has not served as a useful
mechanism for guiding the coordination of money laundering and
terrorist financing investigations. For example, the HIFCAs
were expected to have a central role in coordinating money
laundering investigations. However, we found that they
generally had not been structured and operating as intended and
had not met expectations for leveraging investigative resources
or creating investigative synergies. As a second example, while
Treasury and Justice have made progress on some strategy
initiatives designed to enhance interaction coordination, we
found that most had not achieved what was expected, including
plans to centrally coordinate investigations.
And although the 2002 strategy elevated the importance of
combat being terrorist financing, it does not address agency
and task force roles and interagency coordination procedures.
This contributed to duplication of efforts and disagreements
over which agency should lead investigations.
To help resolve coordination and jurisdictional issues in
May 2003, the Attorney General and the Secretary of Homeland
Security signed a memorandum of agreement regarding roles and
responsibilities of the FBI and ICE in investigating terrorist
financing.
Turning to our February 2004 report, we found that the FBI
and ICE had implemented or taken concrete steps to implement
most of the key provisions in the memorandum of agreement. For
example, the agencies had developed collaborative procedures to
determine whether ICE investigations or leads may be related to
terrorism or terrorist financing and, if so, whether these
investigations or leads should be turned over to the FBI for
further action. However, the FBI and ICE had not yet issued a
joint report on the status of implementation of the agreement
which was to be produced last fall.
Moreover, we found that the FBI and ICE have faced and will
continue to face a number of operational and organizational
challenges such as building effective interaction relationships
and insuring that the financial crimes expertise and other
investigative competencies of both agencies are appropriately
and effectively used.
In closing, let me say that our work in reviewing various
national strategies has identified several critical components
that are needed for any strategy to be successfully developed
and implemented. However, to date these components have not
been well reflected in the national money laundering strategy.
While Federal law enforcement officer agencies recognize that
they must continue to develop and use interagency coordination
mechanisms to leverage existing resources to investigate money
laundering and terrorist financing, the annual strategy
continues to fall short of expectations.
Our September 2003 report recommended that if the
requirement for a national strategy is reauthorized, the
Secretaries of the Treasury and Homeland Security and the
Attorney General take three actions to help assure
investigative success. These are: First, to strengthen the
leadership structure for strategy development and
implementation; second, establish priorities based on threat,
risk and vulnerability assessments; and third, establish
performance measures and accountability mechanisms.
As for the agreement on terrorist financing investigations,
the FBI and ICE have made progress in waging a coordinated
campaign against sources of terrorist financing. Continued
progress will depend largely on the ability of the agencies to
build effective interagency relationships and meet various
other operational and organizational challenges.
This concludes my oral statement and I'd be happy to
address any questions you may have.
[The prepared statement of Mr. Stana follows:]
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Mr. Souder. Thank you for your testimony.
Ms. Tischler, did you hear the whole first panel?
Ms. Tischler. Yes, sir.
Mr. Souder. From your work in the field and then listening
today, could you first make any kind of suggestions you might
have on how to make it more efficient and what you think were
some fundamental flaws that you may have heard?
Ms. Tischler. Actually, as I was listening to the
testimony, I was thinking, I retired 2 years ago. And I don't
think much has changed since then. But I really don't think a
whole lot has changed since the mid-1980's in terms of how they
were talking about strategy issues.
The Black Market Peso Exchange, before we knew it was a
Black Market Peso Exchange, we knew there were lateral
transfers in the late 1970's and early 1980's. And as I pointed
out, we didn't have a method really to get at them, which thank
you to Congress, we then were supplied in the mid-1980's.
But a lot of the issues that the folks who were testifying
were talking about are the same issues we were talking about in
the mid-1980's and early 1990's and mid-1990's. So, are there
flaws? I don't know that there are flaws. What there seems to
be is sort of a lack of historical retrospective. A lot of the
agencies who are involved in anti-money-laundering activities
and the analysts from the mid-1980's and 1990's have retired,
and it sounds as if they're almost reinventing the wheel to
some extent.
I think that the Department of Homeland Security, when it
was established and the concept was to take agencies that had
border interests and put them within the DHS and they split
customs up in the process, I think that was a flaw. If I were
in the position to do so and you granted me a wish, I'd
certainly wish that never happened. There was a lot of
synergistic activity between the operational and investigative
sides of the Customs house--and I had the privilege to head up
both, so I know of which I speak--that I think are probably
lacking now, and I think that probably as GAO calls it a
material weakness.
The financial crime issue, I think when they took Customs
out of Treasury, and I'm not saying that was good or bad, and
sort of separated it from IRS at the top level. That caused a
disconnect, too, because, quite frankly, IRS and Customs sort
of functioned as a rock in a hard place with a lot of financial
investigations that were underway. And even though I know that
they are coordinating through the task forces, it didn't sound
like it was that same type of relationship to me.
So, I don't know. I don't know that the current system is
inefficient. I think there are an awful lot of agencies
performing activities that have to do with anti-money-
laundering. And probably, some of them don't have the expertise
in the financial investigative arena to really complete that
forward pass, so to speak.
So my emphasis really is on a task force atmosphere where
you're bringing elements of all the agencies in one place at
one time, where there is a transparent environment, and they
can all function together and hopefully learn enough to pass on
the information to the next generation of investigators.
Mr. Souder. Well, Mr. Stana, I want to ask you the same
question, but let me predicate it slightly differently. One of
the things, as we try to pound and reshape the Department of
Homeland Security, which it's not clear it's ever going to be
smooth because it has, by definition, multiple functions. I've
been very focused on making sure narcotics doesn't get lost in
the Department of Homeland Security, where we're hunting for a
potential needle in a hay stack and we've got a whole bunch of
things happening all the time, namely illegal drugs that are
killing people and you devote your whole time looking for the
one terrorist crossing at any border and forget that you have a
narcotics mission.
And the Coast Guard, they have a fisheries mission. They
have a search-and-rescue mission. And I, like every other
Member of Congress, think that it's absolutely most important
to get anybody with weapons of mass destruction, unless, of
course, my area has a bunch of deaths next week due to
narcotics or unless there is a company put out of business that
employed 2,000 people because the trademark was stolen and
Customs wasn't paying attention to the trademark getting
stolen. Or that the Border Patrol, if you're in areas where you
don't have controlled immigration or you have been run over,
all of a sudden immigration is the huge issue.
To some degree, these groups have multiple missions. And
even in listening in the financial end here today, the question
is that, how can we get cooperation? The idea of putting
everybody together, which is what we try to do in Homeland
Security, is difficult. If we try to get everybody to talk to
each other, my feeling is they have 6 hours a day where they
meet and then 2 hours where they work on a project because they
have so many different working groups they have to work with.
That's an exaggeration, obviously, for the record. That was
sarcasm. Sometimes people take that literally. But it does seem
like they have a lot of meetings they're going to be having.
But the IRS function is only partly to do with financial
crimes of the type we are talking, with terrorism or narcotics.
The Customs group has a different focus. The narcotics groups
have a different focus. If we put them all in one place, they
wouldn't necessarily have the same mission. So where do you see
we could do some tightening, understanding and respecting that
there are multiple missions they have, without making them go
to 6 hours of meetings a day where they're interactive?
I like, by the way, the idea that when two groups hit the
same piece of data, they are going to be notified that two
people are in there. That's a step.
Mr. Stana. Yes. Before I get into the meat of the answer,
let me just say that we are also concerned about the formation
of the Department of Homeland Security. In fact, we put it on
our high-risk list, not that there is a Department, but just
putting it together and making all the component pieces work as
one.
It took a long time for the Defense Department to come
together and work in the same direction. So on one level, it's
to be expected that there are going to be some bumps in the
road in making Homeland Security. On the other hand, it has a
very important mission. And we just can't afford too many bumps
in the road and too long a time to pull it all together.
Now, with respect to what could we do to find, sort of get
our traction on certain issues, I think coming or focusing on
certain strategies is a step in the right direction. For
example, I thought that the money laundering strategy held a
lot of promise, particularly in its early years where the
deputy assistant secretaries or the deputy secretaries were
involved with setting the direction and assigning task roles
and responsibilities. At that time, you had high level buy in.
And it was just a matter of drilling down the commitment to the
lower levels on an issue. And this is important when you have
an agency that has many issues, many missions.
What we found with the strategy and its implementation is
people like those that were sitting on the first panel can
agree and generally, you know, think in terms of the problem
the same way and are agreeable to coordinating, cooperating and
sharing jurisdictions. It's when you get to the working level
where the problems seem to arise. All too often, and it's not
in every jurisdiction, but all too often, you have agents and
agencies who just despise each other. And if you can overcome
that, I think you'll go a long way to helping out here.
Now, where should this go in the future? There are lots of
agencies that need to be involved here. And my fear is that
each agency, instead of calling on another, like for DEA,
instead of calling ICE or instead of calling the IRS when they
need a financial crime investigative capability, the knee-jerk
reaction is to develop its own capability. And that's a
tremendous waste of resources. When most in Government agree
that those two agencies are the primary financial crime
analysts, why build your own?
And so I think one of the challenges is that you recognize
that we are working in a team environment. We have a strategy
that we all buy into. And it's a matter of implementing it in a
way that is both efficient and effective.
Mr. Souder. What did you think about the comments on FinCEN
today, their testimony. How do you think that's going to evolve
and?
Mr. Stana. Well, again, there's lots of promise. It depends
on how it's implemented.
I think, as Ms. Tischler pointed out, this isn't the first
time we have heard things like what we've heard from the first
panel today. I think these are steps in the right direction. I
certainly wouldn't, you know, cast aspersions on anything
anybody said. But I think we have to wait to see what happens.
Mr. Souder. How do you see its role defined differently
from what the FBI is supposed to be doing and trying to figure
out on terrorism?
Mr. Stana. Well, the FBI, you know, through the Memorandum
of Agreement and I think through its jurisdiction, is the
leading agency here on terrorist financing investigations. I
don't think there's any question.
The question is, how does FinCEN help in the overall effort
and what coordination mechanisms exist to facilitate that? The
Memorandum of Agreement that my statement details has been
successful in getting ICE and the FBI to at least cooperate and
coordinate investigations. I think a mechanism like that for
FinCEN would be helpful.
Mr. Souder. My understanding, what I heard from the FBI
representative as opposed to the ICE representative, was that
FBI takes the case if it's terrorism related.
Mr. Stana. That's right. What is supposed to--let me back
up. The Memorandum of Agreement called for a joint vetting unit
to be created, composed of both ICE and FBI agents.
When the unit was first created, the FBI identified 30
cases that it said ICE was working on that had a definite nexus
to terrorism. As of, I believe, last month, 10 of those cases
were turned over to the FBI, and the other 20 cases, they are
still talking about how far along the case is and how strong is
the nexus to terrorism. In addition, ICE has turned over 7,000
leads to the FBI for its use in its investigations and 11 other
cases, if it chose to take them, and the FBI did not.
So the mechanism is there. The question is, does the
mechanism have staying power? And as the months and years go
on, will the enthusiasm for this sort of a coordinated approach
sustain itself?
Mr. Souder. Now, Ms. Tischler said, and you repeated that,
she said, specifically, that the Black Market Peso issue is
hardly new. That, to some degree, the other things that we
talked about today are not new. I have now been in Congress 10
years and been involved in the narcotics issues all those 10
years. And if they weren't the predominant, they certainly were
the emerging threats 10 years ago, just watching it, such as
UPS and FedEx and the Postal Service being able to do that,
wire transfers through Western Union.
Is part of the problem here not that these are emerging
threats, but we just simply don't know how to deal with them?
Or our laws such that there would be such a civil liberties
threat with it that we can't get a law that's tightened down on
these questions? Because if that's where most of the money is
and they're moving this, those areas that are hard to track,
let alone the Internet----
Mr. Stana. I think you pointed out in your comments on the
first panel's statements that there is a constant leap frog.
You know, we get ahead, you get ahead. You get ahead, we get
ahead. And we have just got to make sure that we stay one step
ahead. And I guess that would be the Congress' job to make sure
that the legal framework is there to enable that.
But beyond that, I think we just have to be sure that the
agencies are clear about what their mission is and how they can
help one another to most effectively fight these instances. Add
one thing, we had a discussion while we were doing our work
with one of the U.S. attorneys in the country and asked him
well how did we get to this point with terrorist financing
where it seems that everybody's in terrorist financing and you
just have to deconflict and make rational sense out of the
whole thing. And he said, ``Well, what happened is, and this
happens with new areas often, is that people will take whatever
jurisdiction they have and run to address the problem.''
With September 11, you had agencies that seemingly had
overlapping jurisdiction, and they all ran in the same
direction, trying to, you know, do their best with a pure
heart, to defeat the problem. However, over time, you get to
the point where you have to deconflict, you have to coordinate.
You want to make sure, when you're doing something, you're not
messing up somebody's investigation or worse, you know, causing
harm to an agent who is undercover.
And so it comes to a point where you just have to stop and
reassign roles and responsibilities and clarify lines of
control and provide the leadership to make sure that things
don't get messed up.
Mr. Souder. I always refer to it as, like when my little
kids are playing soccer, the difference between an adult team
and a little kids team is, as everybody runs for the ball, you
can always tell where the ball is when little kids are playing
because everybody is there. You're supposed to stay in your
positions, and then when the ball comes there. That's how you
get the goals, because you're positioned right.
This is part of the problem, and it's also true inside
Congress. I mean, our committees are the same way. Everybody
runs to the jurisdiction. Funding flows the same way. Anybody
who's even around Federal Government for 5 years figures out
what's the hot subject this year to get funding. If it is
missing children, and then all of a sudden everything's missing
children. If it's child abuse, it's that. If it's terrorism,
it's that. If it's drugs, it's that. If it's literacy, then
every agency and their brother is coming up with something
explaining how their problem relates to literacy.
And it's one of our challenges, driven by the fact that the
public attention expects us as elected officials to respond.
And the bureaucracy responds some to that in the monetary flow
that comes out of Congress. And I don't know, I mean, we have a
responsibility to try to keep that separated.
Do you have specific suggestions of what we should be
looking at? The financial issue is clearly the way in American
history that we've nailed almost every criminal. And if you
can't get them on the money, if you can't follow the money,
we're not going to be able to stop most of these crimes. It's
underneath it, because we're going to be pressing on the
narcotics issues and the terrorism issue, but the money's the
best place to move with that.
Ms. Tischler, in the comments of specifically, do you have
any comments--and I meant to ask you both this question--on the
HIDTAs and the financial centers?
Ms. Tischler. Yes.
I was around when they created the HIFCAs. We were the
institution--most of the agencies opposed to creating those
HIFCAs. The reason was because the OCDETF and the HIDTA
structures that were already in place, the HIDTAs themselves,
had financial components to them, where the agencies were
coming together to, in fact, investigate not only money
laundering issues but other, you know, narcotics crimes that
had other financial components to them as well, for instance
the IRS tax stuff.
So we didn't see the need to have the HIFCAs, and they were
coming in not funded anyway. And they were pretty much in the
same place as the HIDTAs were. And so we weren't--I can say
this now, if you'd asked me that X years ago, I would have gone
with the party line. But it was a political thing. And we were
forced to go along with it.
And yet, the structure was already in place, doing exactly
the types of things Mr. Stana was talking about and that I was
talking about in terms of coordination issues.
Now, you know, I was on the ground for some of these things
he was talking about. And no matter what I think about or don't
think about GAO, I think that they get along better at the
local level than they do in Washington. So it's the complete
opposite of what he says. And I think the agents do a heck of a
lot more talking in Miami than they do in the committee
meetings up here.
Mr. Souder. Can you check your microphone to make sure it's
on?
Ms. Tischler. Oh, you're right. I forgot. I was bleeding
over into him.
Did you hear me because I don't want to have to go back and
trash GAO?
No, I mean, I just saw it up close and personal.
Mr. Souder. Well, let me ask you a question about that. I
see that there has been a pretty intense conflict between the
legacy Customs and legacy Border Patrol at the southwest
border, at the local level. Would you agree with that.
Ms. Tischler. Is that question--you know, when they--it's
back to sort of that DHS question. I mean, I really was a
believer in making sure there was a marriage and that was a
marriage of opportunity when they put everything together.
But Border Patrol's pretty much separate. And they have
their own uniforms and their own way of doing things. So over
at Customs and Border Protection, I don't think they're seen as
sort of an integral dance partner. That's just my opinion.
The whole issue with ICE and CBP, I mean, they are not at
each others' throats from an institutional Customs perspective,
except for coordination.
You know, your question on outbound cash, nobody really
answered that question. Yes, we did a number of operations
dedicated to, in fact, interdicting outbound cash. Now, I can't
speak to that now, because I don't know what's going on. But
when I was at Customs, we decided we'd run an operation, we
would sit down with operations or we'd sit down with
investigations, depending on where I was at the time, and
they'd design an operation to get at outbound cash. So I think
that's missing more than this issue with Border Patrol.
I think that it's a cultural thing, and this is really
going to take some time. But they knew that going in, as Mr.
Stana has pointed out. And that's one of the bumps.
Another big bump is having, for instance, Coast Guard
report to Ridge instead of Asa Hutchinson, where the rest of
the law enforcement agencies seem to be reporting. So it's just
a personal opinion. But the Border Patrol thing, I think that,
from an enforcement perspective, it's going better now than
when the marriage first happened.
Will it take some more time? I think you're going to see
that it's going to take more time.
Mr. Souder. The reason I made that comment is, it seems to
me that, to some degree, as the people are in Washington, you
have some commonality. And those two agencies seem to have the
most tension in training, pay grades, even racial differences,
that nobody would talk about it in that direction, but you can
kind of tell who wants to report to whom. That is real
explosive to say, but boy, its there. And I don't know,
basically, how to do it.
I also think there are some substantive problems, like you
say, because some of it is cultural. When you say cultural,
cultural also means they have different missions, of how they
viewed the border. I mean, I talked to a Customs person who, at
one part of the north border, was working undercover. And one
of his things was not to get caught by the Border Patrol. He
was working inside the drug groups and knew how to break
through because he viewed the Border Patrol mentality was to
police the border and intimidate. And he knew how to run it
right through when they were doing it.
On the other hand, the Border Patrol says, ``Look, we don't
have enough people to catch everybody; we do intimidation by
moving through.'' There's a philosophical difference on even
how you patrol that border, which is now to the forefront when
they're merged.
And one of the questions I have, I want to followup on
something you just said on the cash. Did checking cash back
work? I mean, are you saying that was a good effort or a bad
effort?
Ms. Tischler. You know, when we had some type of
intelligence to back up what was happening because we knew, for
instance, the trucks were coming down from Houston and crossing
at Laredo with outbound cash, it worked the best, obviously.
If we're out there 24 hours, it's just like, 7 by 24,
trying to catch something inbound with Customs. There are too
many vehicles coming through. But we did produce, because we
sort of do these things in a small window.
I mean, obviously, after a day or so, the bad guys knew we
were out there. So we learned to just do these sort of quick
hits and back off. And that's when they produced cash coming
through.
But a lot of it, back to what I said, I mean it had to do
with dealing with the State and locals and finding out that
they suspected this stuff was on its way. Customs did interdict
outbound cash, what we called cold hits, just because they were
there. But you couldn't have an operation that lasted more than
3 days, actually, more than 2. You were in trouble already
because the word got back after you caught the first thing
coming through.
So I thought--and I don't know what they're doing now. I'm
assuming they're doing something like that. But the
coordination between the investigative component, OI and OFO,
were very close then. Now I assume that they pick up the phone
and call and have a meeting and decide that they're going to
stand up an operation.
Now, you know you're talking about the Border Patrol, but
there's the Border Patrol and there's the INS inspectors and
there's Customs inspection and then there were the agents and
then the Air and Marine Division with Customs. And Air and
Marine went with the agents over to ICE, which is clearly an
interdictive function, and you know, they're patrolling the
border, too. And Border Patrol has their airplanes up.
So I think one of your staffers can probably help you out,
Dave Thomasson is with--I have to remember--ICE, Air and Marine
Division, and he can probably speak to that. But it's all a
coordination issue. And that's why, when they split the agency
up, I really didn't see how they were going to actually
effectively continue the border mission plus everything else
they were doing.
Mr. Souder. Mr. Stana, I wanted to ask you this question
yet, Ms. Tischler just gave a very depressing statement. In
other words, is the southwest border so out of control that if
you stop at one point and do it for more than 2 days, they just
move and go across to another point. How in the world do we
stop terrorist money from using the south border?
Mr. Stana. It's interesting that the line of questioning
has turned to this, because most of my portfolio has to do with
border control issues, so this is something I'm sort of
familiar with.
A lot of this stems from the Border Patrol strategy that
was formulated in the mid-1990's, where they attempted to gain
control of the border at two points, El Paso and San Diego, and
move out from there with more agents, more technology, more
sensors, more aircraft and so on.
We've come to the point where these actions, as they are
implemented in phases, move the flow of traffic to areas that
they think the DHS thinks it has the tactical advantage or
that's too desolate that aliens wouldn't even try to cross. But
we found that neither was true. The tactical advantage, not
true because they just didn't have the number of agents and
equipment to cover the Arizona border, eastern California. And
it certainly didn't deter--whether it was the jobs magnet that
keeps drawing people in or whether it's criminal enterprises
that want to position people in the United States, very
difficult to control the southern border.
Having said that, I think the northern border also prevents
significant vulnerabilities. Where there are about 10,000
border patrol agents along the 1,900, 2,000-mile stretch of the
southern border, there are almost, not quite, but almost 1,000
agents across the 4,500 mile expanse and if you're familiar,
from Indiana, I know you go up to Gary or that little area up
there.
Mr. Souder. You have to go from Glacier National Park to
the lake of the woods.
Mr. Stana. Yes, I mean, if you would go up the St. Lawrence
seaway and you could see boat traffic going, how do you stop
that? Or you know, go into the logging areas of Montana and the
old logging trails that cross the border when Immigration or
Customs just wasn't a concern.
Mr. Souder. Is this supposed to be encouraging to me that
the north border is as bad as the south border?
Mr. Stana. Well, I guess what I'm trying to say is, whereas
most folks would focus on the southwest border as being a
problem, and it is, don't turn your attention away from the
northern border, because if you recall, the LAX bomber came
through ports in Washington State.
Ms. Tischler. We caught him.
Mr. Stana. Yes. And there were others that came across the
northern border, not the southwest border. So I guess, we don't
take comfort in that.
I'd like to return to one point you made earlier, about the
HIDTAs and HIFCAs and how many tasks forces is too many task
forces. And I think we've got to the point where maybe it's
time to reexamine all the roles and responsibilities of all
these task forces. Why do you need a JTTF and a HIDTA and an
OCDETF and a HIFCA and, you know, these task forces when maybe
a fewer would do?
One of the reasons why the HIFCAs didn't take off, and I
don't doubt the view that Ms. Tischler had about another task
force that seemed to be redundant, was that there weren't any
dollars attached to it. And so who wants to participate if it
doesn't mean anything to me to get more agents? And this,
particularly, with the State and locals.
So I think it's time to re-examine what all these task
forces are doing and how many we need, and how most effectively
and efficiently to operate them.
Ms. Tischler. Can I just add something, since I just
happened to be there when they did most of these things?
The OCDETF was set up to do investigations. When HIDTA came
along, it was there to do investigations that OCDETF was not
doing because OCDETF was focusing on really a kingpin strategy,
which included money laundering investigations. BCCI was, in
fact, an OCDETF case. So the big cases, as we were talking
about, they were being taken care of.
When they stood up HIDTA, it was to get at a lot of the
smuggling and trafficking groups that weren't being covered by
OCDETF. And they were right to do that because there were an
enormous amount of cases out there that we wouldn't get into
OCDETF nor could the OCDETF attorneys really handle them.
OK, so then we had two task forces, and they really didn't
overlap. I was in Miami then, and there was a lot of
coordination with the U.S. attorneys office. It was just that
HIDTA did go in the way of financial investigations. So that's
why we really didn't care if they stood up the HIFCA or not
because they were already doing it.
And the money that was there actually was coming through
the HIDTAs and through OCDETF, to some extent, and whether they
took off or not was really irrelevant. The case work was being
done. So don't worry about that part. That wasn't depressing.
That was the good news.
The bad news was I think of it as a project that may not
have taken off. And you know, I'm a big believer at going back
and looking at task forces because they outlive their
existence. Greenback was stood up in 1980. The thing went like
to 1988, and they went through various generations of agents,
which wasn't bad, but it sort of lost the initial focus and
oomph it had. And you know, sometimes it's good to undo a Task
Force and, perhaps, crank up one in another direction. And the
most successful ones have been like that. They haven't been
these things that have been perpetuated forever. So I sort of
have that kind of view.
Mr. Souder. Well, I thank you. We need to clear out of the
room because they have another hearing.
If you have additional comments you want to give, we may
have some additional written questions. With that, the
subcommittee stands adjourned.
[Whereupon, at 12:35 p.m., the subcommittee was adjourned.]
[The prepared statement of Hon. Elijah E. Cummings and
additional information submitted for the hearing record
follow:]
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