[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                        LEGISLATIVE PROPOSALS TO
                     IMPLEMENT THE RECOMMENDATIONS
                         OF THE 9/11 COMMISSION

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 22, 2004

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 108-112


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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
SPENCER BACHUS, Alabama              MAXINE WATERS, California
MICHAEL N. CASTLE, Delaware          CAROLYN B. MALONEY, New York
PETER T. KING, New York              LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
RON PAUL, Texas                      JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
DONALD A. MANZULLO, Illinois         JAY INSLEE, Washington
WALTER B. JONES, Jr., North          DENNIS MOORE, Kansas
    Carolina                         MICHAEL E. CAPUANO, Massachusetts
DOUG OSE, California                 HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
MARK GREEN, Wisconsin                KEN LUCAS, Kentucky
PATRICK J. TOOMEY, Pennsylvania      JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut       WM. LACY CLAY, Missouri
JOHN B. SHADEGG, Arizona             STEVE ISRAEL, New York
VITO FOSSELLA, New York              MIKE ROSS, Arkansas
GARY G. MILLER, California           CAROLYN McCARTHY, New York
MELISSA A. HART, Pennsylvania        JOE BACA, California
SHELLEY MOORE CAPITO, West Virginia  JIM MATHESON, Utah
PATRICK J. TIBERI, Ohio              STEPHEN F. LYNCH, Massachusetts
MARK R. KENNEDY, Minnesota           BRAD MILLER, North Carolina
TOM FEENEY, Florida                  RAHM EMANUEL, Illinois
JEB HENSARLING, Texas                DAVID SCOTT, Georgia
SCOTT GARRETT, New Jersey            ARTUR DAVIS, Alabama
TIM MURPHY, Pennsylvania             CHRIS BELL, Texas
GINNY BROWN-WAITE, Florida            
J. GRESHAM BARRETT, South Carolina   BERNARD SANDERS, Vermont
KATHERINE HARRIS, Florida
RICK RENZI, Arizona

                 Robert U. Foster, III, Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 22, 2004...........................................     1
Appendix:
    September 22, 2004...........................................    27

                               WITNESSES
                     Wednesday, September 22, 2004

Levey, Hon. Stuart A., Under Secretary for the Office of 
  Terrorism and Financial Intelligence, Department of the 
  Treasury.......................................................    11
Roseboro, Hon. Brian C., Under Secretary for Domestic Finance, 
  Department of the Treasury.....................................    13

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    28
    Biggert, Hon. Judy...........................................    30
    Kelly, Hon. Sue W............................................    31
    King, Hon. Peter T...........................................    33
    Levey, Hon. Stuart A.........................................    35
    Roseboro, Hon. Brian C.......................................    41

              Additional Material Submitted for the Record

Gutierrez, Hon. Luis V.:
    John D. Hawke Jr., Comptroller of the Currency, letter, 
      August 26, 2004............................................    44
Levey, Hon. Stuart A.:
    Written response to questions from Hon. Barbara Lee..........    48

 
                        LEGISLATIVE PROPOSALS TO
                     IMPLEMENT THE RECOMMENDATIONS
                         OF THE 9/11 COMMISSION

                              ----------                              


                     Wednesday, September 22, 2004

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to call, at 11:03 a.m., in Room 
2128, Rayburn House Office Building, Hon. Michael Oxley 
[chairman of the committee] presiding.
    Present: Representatives Oxley, Leach, Baker, Bachus, 
Royce, Kelly, Biggert, Tiberi, Kennedy, Garrett, Brown-Waite, 
Barrett, Frank, Maloney, Gutierrez, Watt, Carson, Sherman, Lee, 
Moore, Lucas of Kentucky, Clay, Israel, McCarthy, Matheson, 
Miller of North Carolina, Emanuel, and Scott.
    The Chairman. [Presiding.] The committee will come to 
order.
    We meet today to continue some of the most important work 
this committee ever has considered, work that began in the 
tense hours and days after the tragic attacks on September 11, 
2001.
    During that unsettled time, this committee pulled together 
to produce comprehensive bipartisan legislation that aimed to 
disrupt the financing of terrorism and to strengthen the 
country's anti-money-laundering laws.
    That bill, H.R. 3004, later became Title III, the anti-
terror finance title of the USA PATRIOT Act, signed into law 
less than seven weeks after the attacks.
    It is a testament to that legislation that the so-called 9/
11 Commission report issued a month ago cited it with approval 
and said that, ``On anti-terror finance and anti-money-
laundering issues, the various elements of the government 
generally are doing a good job.''
    ``Nevertheless,'' the report went on to say, ``terrorists 
are motivated and highly adaptive, and efforts to block their 
finances will need to continue to evolve and improve.''
    With that in mind, the committee has assembled a package of 
legislative proposals to improve the tools with which the 
government fights terrorist financing. Most of these are 
common-sense items on which everyone in this committee can 
agree. In fact, a few are items we feel strongly about and have 
agreed upon often unanimously in the past, only to have them 
fall victim to jurisdictional objections in this body or to 
inaction by the other body.
    Frankly, when this sort of thing happens, it is more than a 
little disappointing. And so in this package we have assembled 
the sorts of pieces we believe are important and on which we 
think there should be broad, bicameral agreement.
    Today, we have two strong witnesses to discuss the proposal 
with us: Treasury's Stuart A. Levey, Under Secretary of the 
Office of Terrorism and Financial Intelligence; and Brian C. 
Roseboro, Under Secretary for Domestic Finance.
    There are four main themes to the legislation: new funding 
for the fight against terror financing; new tools to fight the 
financing of terrorism; preparedness tools to help make the 
financial system more resilient in case of another attack; and 
tools to improve international cooperation in the fight against 
terror.
    Included are additional authorizations for the Treasury 
Department's Financial Crimes Enforcement Network, FinCEN, 
which generally mirror last week's resounding vote on the House 
floor during consideration of the Transportation-Treasury 
appropriations bill.
    That amendment was sponsored by our own Ms. Kelly. It 
favored a one-time investment in technology to radically 
improve the usefulness of FinCEN's data and the ease of use by 
law enforcement while reducing compliance burdens on banks. It 
also included reauthorization of a national anti-money-
laundering strategy report, along with some modest grants to 
local law enforcement to fight financial crimes.
    The proposed legislation makes a series of purely technical 
corrections to the anti-terror finance title to the PATRIOT Act 
that correct inadvertent drafting errors that occurred because 
of the speed with which it was assembled, along with some 
language to address the counterfeiting of currency and 
legislation that would allow the Treasury Department to help 
countries strengthen their currencies against counterfeiting, 
which in turn would make their economies stronger.
    The draft also includes language identical to the Internet 
gambling legislation that passed the House last year. The 
Justice Department has testified that illegal Internet gambling 
provides a dangerous loophole in our anti-terror finance and 
anti-money-laundering regimes that can easily be exploited.
    Under the preparedness rubric, the proposal includes the 
so-called netting bill that revises the banking and bankruptcy 
laws to provide for the orderly unwinding of certain financial 
contracts where one party to the transaction becomes insolvent, 
thereby minimizing the risk of market disruption.
    Members will recall that Fed Chairman Alan Greenspan 
believes this is vital and has testified to that effect on a 
number of occasions. And continued threats against the nation's 
financial centers render passage a necessity that is long 
overdue.
    And finally, a critically important component of this 
country's ability to fight terrorist financing requires the 
cooperation of our allies.
    In this area, the Treasury Department has been extremely 
successful in enlisting a broad range of countries within the 
Group of Eight, the Financial Action Task Force at the OECD, 
the IMF, the World Bank and the regional development banks. 
These initiatives create a common language and framework for 
interdicting terrorist financing.
    Treasury has also done an exemplary job of working 
collaboratively with other agencies, particularly the State 
Department, in the process of crafting international standards 
and fostering implementation at the bilateral level. This 
legislative proposal looks to codify and make permanent a 
number of those efforts.
    I believe this package, like the bill that became Title III 
of the PATRIOT Act, will enjoy broad, if not unanimous, 
bipartisan support in the committee and on the House floor. I 
imagine there will be useful suggestions made today in 
committee and during markup next week.
    I look forward to working with the members to craft the 
very best piece of legislation we can under another 
extraordinarily short timeline. I recognize it means a lot of 
work, but I am certain we will believe the outcome is important 
and worth the effort.
    With that, I yield to the gentleman from Massachusetts.
    [The prepared statement of Hon. Michael G. Oxley can be 
found on page 28 in the appendix.]
    Mr. Frank. Thank you, Mr. Chairman.
    This is one of the areas where this committee has been able 
to work without regard to partisanship or ideology. There is a 
specific task to be accomplished here. We made a good start on 
it with the work we have already done, and I appreciate your 
committing us to continuing it.
    I do want to comment on one specific item which you 
mentioned, because I was told that there was some question 
raised, frankly, by members of the House leadership, about the 
netting provision, and specifically some people asked us if it 
was true that the Democrats have been objecting to including 
the netting provision in the bill.
    The answer is no, we support that. So for people who have 
raised that question, we agree with you that the netting 
provision ought to be part of the bill. If there is opposition, 
it comes from elsewhere and not from here.
    The only other point I would make is this: In this area, as 
in other areas, it is important for us to protect the public as 
a whole while minimizing the likelihood that individuals will 
be treated unfairly. Human beings do not achieve perfection, so 
there will always be error.
    I think that requires us to do two things: first of all, 
try to be careful to prevent error, but we should be explicit.
    In a period of danger, perceived and real, to our security 
from murderous thugs, there is going to be a greater chance of 
error. When you are under pressure, when you are dealing with 
the kind of hateful enemies that we are dealing with, you will 
act in ways that you would not act if you had a greater margin 
of safety and more leisure.
    That makes it all the more important that in our proposals 
and our legislation and our rules and our administration, we 
have means of correcting our errors. That is that it is not 
enough just to try to avoid error; I want to do that. But there 
is, at some point, a tradeoff between avoiding error and 
restricting yourself too much. And in the current climate, it 
is going to be hard to draw that balance--maybe we should not 
even try--to totally minimize error.
    What we can do though is to make sure, recognizing that 
errors will happen--and we have seen them. We have seen them 
with Captain Yee, with Mr. Mayfield. We have seen them with a 
number of other people. And it is inevitable. This is not a 
criticism of the individuals who made the errors; it is a 
recognition of what happens when people are under stress, as we 
are through no choice or fault of our own.
    So the one issue that I have is, I do not think we have 
paid full attention to corrective measures. For example, and we 
have talked about this, with regard to asset seizures, the 
Treasury Department, I believe it was who has jurisdiction, 
reassured us that when someone's assets are seized and he or 
she wishes to contest that and all of the assets that he or she 
had are seized so that that individual cannot afford to pay a 
lawyer, people can almost always or always get a waiver to pay 
for the lawyer.
    Well, it ought not to be a matter of waiver. It ought to be 
a matter of statutory right.
    After all, we are talking, in the case of asset seizure, of 
cases that have not yet been proved. And this is an example of 
what I mean. We now have asset seizure in an administrative way 
before the case is proven, and then the individual has the 
right to disprove that. Question of where the burden of proof 
is; he does not have the same benefit of a burden of proof as 
he would have in a criminal case.
    We have situations where all of the assets of an individual 
are seized, and we were told reasonably, ``Yes, they will get a 
waiver so they can pay for a lawyer.'' The government does not 
pay for lawyers in this case; it is a civil situation. Well, we 
ought to put that into the law. It just ought to be automatic.
    Now, obviously, we need to have a monitoring capacity 
there, so that the right to get a lawyer does not become a way 
to bootleg out a lot of extra money. But I think we are capable 
of doing that. If there is one thing we in government know a 
lot about, it is how to pay lawyers. Some of us used to be 
lawyers and get paid. Some of us pay lawyers. So I think we can 
handle that one. That is an example of what I mean.
    I also was glad to see the 9/11 Commission's call for a 
board to monitor privacy and protection. I do have some 
concerns about the board that the President established because 
it is all members of the administration. And again, decent, 
honorable people will make mistakes when they are doing what we 
are doing. I think there needs to be some independence built 
into that board.
    And I do not say this in criticism. I think we have done a 
reasonably good job of trying to accomplish this, but I say we 
should always--we have a dual task. We want to empower the 
administration and law enforcement officials to be able to take 
tough, quick action. But precisely because we are empowering 
them to take action that may be tougher and quicker than in 
normal circumstances, it is all the more important that we have 
a self-corrective capacity equal to what we have done.
    And remember, this self-corrective capacity, it comes in 
after the fact. The protections, the action of self-defense is 
taken, and then we ought to make sure that without any threat 
or danger to security we have adequate procedures for 
protecting it.
    Thank you, Mr. Chairman.
    The Chairman. The gentleman yields back.
    Are there members seeking to make an opening statement?
    The gentleman from California, Mr. Royce?
    Mr. Royce. Thank you, Mr. Chairman. I want to thank you 
first for holding this hearing.
    I also want to thank you for your leadership on the effort 
to destroy the financial network of radical Islamist 
terrorists. You and Subcommittee Chairwoman Kelly have held 
numerous oversight hearings on this topic, and I think it sends 
a very strong signal to our enemies that the Congress of the 
United States is very serious about terror financing.
    Mr. Chairman, I was also proud last week to join you and to 
join some colleagues across the aisle in being the lead 
cosponsors for Chairwoman Kelly's amendment to the Treasury/
Transportation bill, which increased funding for the Financial 
Crimes Enforcement Network by an additional $25.5 million. And 
I think this will undoubtedly make it easier for the Treasury 
Department to enforce provisions of Title III of the USA 
PATRIOT Act, which originated in this very committee.
    The legislation that we are discussing today has some very 
important components that will go a long way to fight against 
terror dollars. And I am very supportive of the Chairman's 
effort to grant new authority to FinCEN, to reauthorize the 
national money laundering strategy and to increase Treasury's 
profile at home and abroad as a key player in the fight against 
terror financing.
    But I would like to suggest that this committee take two 
additional steps to fight terror financing.
    And, one, I think we should include language in this bill 
that would create a Treasury-led certification regime on 
terrorist financing. This certification law would require the 
executive branch to submit to Congress, on an annual basis, a 
written certification detailing steps that foreign nations have 
taken to cooperate in the U.S. and in the international efforts 
to combat terrorist financing. This would be along the lines of 
what Richard Clarke has suggested.
    I think failure to comply in such a plan would result in 
automatic sanctions unless the President issued a waiver for 
national security purposes.
    Representative Kelly and I have just introduced legislation 
which does just this. And we hope to gain the support of our 
colleagues here on both sides of the aisle so that it is 
included in the bill the committee sends to the full House.
    Additionally, I believe that our financial system cannot be 
secure unless we know who is accessing it. And to that end, I 
believe we need to strengthen Section 326 of the PATRIOT Act, 
otherwise known as the ``know your customer'' provision.
    The phrase ``trust, but verify'' should be the operative 
words here. We can and should be willing to trust the 
identification cards, certificates and passports of our friends 
and allies, but only if their IDs can be verified with 
biometric technology as called for by the 9/11 Commission, as 
called for by our friends like former chairman Lee Hamilton of 
the International Relations Committee.
    The security of our financial system should be our top 
priority.
    Mr. Chairman, I yield back my time.
    The Chairman. The gentleman yields back.
    Any other opening statements?
    The gentleman from North Carolina?
    Mr. Watt. Mr. Chairman, I will not take 5 minutes. I am 
just a little perplexed, I guess, and do not mean to be the 
skunk at the party here.
    I thought we had a hearing at which the 9/11 Commission 
people testified that there really were not any recommendations 
in the 9/11 Commission's report that really fell under our 
jurisdiction.
    And I am fine with moving forward with doing substantive 
things that are going to make us secure. But I do want to 
caution folks that if we position ourselves with a lot of 
flurry as being somehow, doing something that is at the heart 
of the 9/11 Commission's report, I think we are doing more 
politics than we are doing substantive work here.
    Some of the stuff that is here we have already passed even 
before the 9/11 Commission report. There really was nothing in 
the 9/11 Commission report that substantively was at the heart 
of the Financial Services Committee's jurisdiction.
    And if we are going to do something substantive, then I 
hope we are going to package it with things that may not be 
under our jurisdiction, such as the creation of this privacy 
board that the 9/11 Commission did recommend strongly to 
balance additional security protections against the need for 
individual privacy and individual rights.
    So I am not trying to be negative about this; I am just 
trying to be realistic about it. And sometimes we have a 
tendency to rush into doing something just to make it appear to 
the public that we are doing something new and substantive and 
in response to the 9/11 Commission's report, when I really do 
not see much here that is in response to the 9/11 Commission's 
report.
    So I am delighted that we are having the hearing so that we 
can, kind of, flesh that part of this out. And I appreciate the 
Chairman giving me the opportunity to express those 
reservations about what we are doing here.
    The Chairman. The gentleman's time has expired.
    The gentlelady from New York?
    Mrs. Kelly. Thank you, Mr. Chairman. I want to thank you 
for your efforts on this critically important matter.
    And I also want to thank Mr. Levey and Mr. Roseboro for 
being here with us today.
    We are here because of our shared commitment to 
strengthening our ability to track and take out the financial 
support systems of the terrorists.
    Through our work, and as chairman of the Oversight and 
Investigations Subcommittee, it has become evident that, in 
spite of remarkable progress over the last three years, there 
remains a pressing need for continued improvement.
    I very much look forward to the hearing today and to the 
additional committee activity prior to adjournment, which 
should enable us to make progress in achieving the needed 
reforms.
    As Mr. Royce has stated, the House, led by Chairman Oxley 
and a bipartisan group of Financial Services Committee members, 
including Mr. Royce, Mr. Gutierrez, Ms. Maloney, took an 
important step last week--and Mr. Frank was with us also--in 
the overwhelming passage of the amendment giving FinCEN a $25.5 
million increase. And this kind of progress really has to be 
continued.
    In the coming weeks, it is imperative that the committee 
substantively address the vulnerabilities of our disjointed 
anti-money-laundering system. The current patchwork structure, 
whereby FinCEN is given large responsibilities for 
administering our anti-money-laundering law but limited tools 
for meeting them, needs to be reshaped to reflect the new 
realities of our national security.
    This committee needs to take the first steps forward in 
creation of a single BSA compliance office by providing FinCEN 
with a well-equipped force of audit and compliance officers. 
This would allow FinCEN to more effectively ride herd over the 
front-line regulators, who literally look over their shoulder 
when necessary, and would give the Treasury new and better 
capabilities in monitoring financial sectors which are largely 
unfamiliar with the BSA requirements.
    Vigilant oversight is the only way we are going to able to 
determine when additional steps need to be taken toward having 
a single compliance officer. And I think that may be in the 
direction that we are going to have to move. But additional 
improvements within Treasury and with the regulators also have 
to be considered.
    I am concerned, for example, that the IRS is the only 
agency with criminal enforcement powers regarding the Bank 
Secrecy Act. And I believe that proposals to address this 
matter with a small, stand-alone criminal enforcement program 
warrant the committee's attention.
    Given the unacceptable regulatory failures that we have 
seen over the last year, I encourage this committee to adopt 
the cooling-off legislation that I have cosponsored with Mr. 
Gutierrez, which will reinforce the need for independent 
financial regulators.
    The concept of the regulation was suggested by the 
Comptroller of the OCC after the agency was sluggish to take 
action against the Riggs Bank and several high-profile 
employment conflicts of interest that have been discovered 
between the agency and the bank.
    In the coming days, this committee should also focus on our 
ability to collect and analyze information regarding cross-
border fund transfers. As members of this committee recall, the 
9/11 Commission clearly articulated the direct relevance of 
international wire transfers to terror finance. We need to do 
more to ensure that our wire transfer systems are not being 
used for illicit purposes. And I hope to work with the 
committee on this matter in coming days.
    I further hope that this committee is able to address other 
international aspects of combating terror finance. The 
participation of other nations is critically important to 
success in so many different facets of this undertaking, and it 
is clearly an area where we have to continue to push for 
progress.
    Thank you, and I yield back the balance of my time.
    [The prepared statement of Hon. Sue W. Kelly can be found 
on page 31 in the appendix.]
    The Chairman. The gentlelady yields back.
    Are there further opening statements?
    The gentleman from California?
    Mr. Sherman. Mr. Chairman, one issue that we probably will 
not deal with this year, but is related to terrorism, is to 
have circuit breakers and other responses available if there is 
a market panic, because a terrorist act could cause such a 
panic.
    I believe that such a panic may also be caused by a 
meltdown of the dollar, given the fact that we are running a 
$500 billion budget deficit, a $500 billion trade deficit, and 
that we are increasing our status as the world's largest debtor 
nation in history by $500 billion every year as that debt to 
the world adds up.
    And so I would hope, Mr. Chairman and Mr. Ranking Member, 
that next year we have separate hearings dealing with the 
possibility of a market panic, and particularly one that is 
international and that focuses on currency markets.
    You may not join me in having as great a fear as I do that 
we are headed toward a crisis sometime in the next decade, but 
you may agree with me that it would be wise to prepare for such 
a crisis.
    I yield back.
    The Chairman. The gentleman yields back.
    Are there other opening statements?
    The gentleman from Louisiana?
    Mr. Baker. Thank you, Mr. Chairman. I will be very brief.
    I just wanted to thank you for your leadership on this 
matter and the inclusion of two particular provisions in the 
package, one that clarifies and expands the authority of the 
SEC to act in the necessity of a market trading suspension, 
clarifying their authorities and to the extent and duration of 
any suspension that might subsequently be ordered.
    And secondly, with regard to the contract netting 
provision, as has been previously noted, the committee has 
acted in this area before, but prior to a 9/11 event contract 
netting provision was advisable, post-9/11 event contract 
netting is absolutely essential.
    As derivatives contracts are extremely complex and 
intertwined, the failure of any single counterparty to meet its 
obligation could bring about unexpected and negative economic 
consequences for innocent third parties. So this provision is 
extremely important in the management of and control of the 
consequences of some terrorist action, whether intended to be 
financial or not.
    Specifically, for those two reasons, Mr. Chairman, I want 
to express my appreciation to you and my strong support for the 
legislation.
    I yield back.
    The Chairman. I thank the gentlemen.
    The gentleman from Illinois, Mr. Gutierrez?
    Mr. Gutierrez. Thank you, Mr. Chairman, and thank you for 
calling this important hearing.
    At this point I would like to make the committee aware of a 
provision that I seek to include in this legislation based on a 
bill that Ms. Kelly and I jointly introduced, H.R. 5097, Close 
the Bank Examiner Revolving Door Act. It would impose a one-
year cooling-off period for senior bank examiners in 
supervising a bank at a regulatory agency and working for that 
bank as an employee.
    This issue has been prominent lately due to the former OCC 
examiner in charge who was subsequently hired by Riggs Bank, 
Mr. R. Ashley Lee, who is currently under criminal 
investigation.
    This common-sense prohibition, which is very similar to the 
prohibition that certain Department of Defense employees have 
against working for defense contractors, was originally 
suggested by Comptroller Hawke, in a letter August 26, 2004, 
which I would like to add to the record, if there could be 
unanimous consent, Mr. Chairman.
    The Chairman. Without objection.
    [The following information can be found on page 44 in the 
appendix.]
    Mr. Gutierrez. In this letter, Comptroller Hawke indicates 
that, ``When an examiner in charge retires and immediately goes 
to work for the bank he or she has been supervising, questions 
are likely to be raised about the agency supervision of that 
institution.''
    He further stated that, ``The potential for substantial 
injury is great for the agency, the individual, the bank and 
the national banking system.''
    He concluded, ``For this reason, I would strongly support 
legislation that imposed a one-year moratorium on the EIC, or 
an examiner with some comparable responsibility, accepting 
employment with the bank he or she had been in charge of.''
    You know, I had disagreements with the OCC, but this I 
think is an excellent idea. And if you take the Riggs case and 
you take money-laundering cases and how they are examined and 
the coziness which may or may not exist between examiners and 
banks, I think it would be a great idea that we include it. And 
I look forward to having that debate and that discussion.
    I ask that the rest of my opening statement be included in 
the record, Mr. Chairman.
    The Chairman. Without objection, all of the opening 
statements will be made part of the record.
    Are there other opening statements?
    The gentlelady from Illinois?
    Mrs. Biggert. Thank you, Mr. Chairman, and thank you for 
holding this hearing, which is yet another testament to our 
committee's active and bipartisan approach to combating 
terrorist financing.
    The 9/11 Commission also recognized the successful efforts 
of this committee and that of our friends at the Department of 
Treasury.
    I would like to welcome and commend our witnesses today for 
appearing before us, for their diligent efforts to track and 
disrupt terrorists' finances, and for collaborating with other 
government agencies and private-sector coalitions like 
ChicagoFIRST.
    And with that, I would ask to submit the remainder of my 
testimony for the record. I yield back.
    [The prepared statement of Hon. Judy Biggert can be found 
on page 30 in the appendix.]
    The Chairman. Without objection.
    Who else needs recognition?
    The gentleman from Georgia?
    Mr. Scott. Thank you very much, Mr. Chairman. I will be 
brief.
    I, too, want to thank you for this hearing. It is very 
important as a follow-up to the hearing we had earlier in 
regarding recommendations from the 9/11 Commission.
    Specifically, my hope is to try to see if we cannot come up 
with a more clear understanding of the operations of hawalas. I 
brought that up at our previous meeting.
    I think that unless and until we can find a way to really 
get our arms around that--for I think it is a primary means of 
financing, this ancient method of network of fund-raising that 
works to support such groups as Al Qaida.
    The other area of financing, of course, comes from 
charities within the Muslim communities.
    I would like to know what we are doing to strengthen those 
areas, as well as taking a look at the PATRIOT Act to find out 
if Section 14 is sufficient, if we need to do more there, and 
Section 313 and 319, which, of course, deals with money 
laundering and these shell companies, as we move going forward.
    I am again hopeful that we can get our investigators the 
right tools to identify the customers, trace these financial 
transactions in the fast-moving counterterrorism investigations 
in our efforts to shut down once and for all these terrorist 
networks.
    But we have to look at these outside means, grassroots 
means, of financing, in addition to the regular ones of shell 
companies working through the legitimate banking process. And I 
would be interested to know what we can do, if there is 
legislation we need to offer in that regard.
    I look forward to the hearing, and certainly welcome you 
both, undersecretaries Mr. Levey and Mr. Roseboro.
    Thank you, Mr. Chairman.
    The Chairman. The gentleman yields back.
    The gentleman from Alabama?
    Mr. Bachus. Mr. Chairman, first of all, I want to commend 
you as the primary author of the anti-terrorist financing 
legislation that, as Ms. Biggert said, the 9/11 Commission 
singled this legislation out for specific praise.
    It did recommend, and the members did recommend to us in a 
hearing, ways to strengthen that act. And I think that the 
legislation that you are introducing and we are considering 
here today does that.
    The gentleman from Georgia mentioned some of the more 
nontraditional financial institutions that were not included 
under the Bank Secrecy Act, and actually former Congressman Lee 
Hamilton actually said that that is one thing that would 
strengthen the Act. And I would recommend that we take a close 
look at what Mr. Scott recommended, consistent with what 
Congressman Hamilton and the 9/11 Commission has said in their 
testimony.
    Secondly, and I will close with this, Governor Olson 
testified before our committee two weeks ago about the serious 
need for the netting provisions. That was originally H.R. 2120. 
It was in the Bankruptcy Reform Act that left the House. We 
have still not adopted that as a Congress, although the House 
has passed it.
    Just the credit default swaps alone are over $2 trillion. 
And if we had a terrorist attack and we had to use those 
netting provisions, it could really threaten our financial 
markets. Chairman Greenspan, in some speeches the last week or 
two, has again urged the Congress to adopt those.
    And I would point out to the members that in Chairman 
Oxley's legislation proposed today, unlike some of the others 
proposed in this Congress, he does include the netting 
provisions in his legislative proposal.
    It would greatly--particularly if you will recall what we 
have just found out, and that is that some of the Al Qaida has 
actually targeted our financial institutions and our financial 
markets for disruption, in some of the intelligence that has 
been revealed in the last two or three months, I think it makes 
it even more urgent that we adopt these provisions which will 
allow the orderly unwinding of certain financial contracts. 
Particularly with a lot of our businesses, particularly our 
airlines, lately filing bankruptcy, it even makes it more 
urgent.
    So I commend the Chairman for including the netting 
provisions and would ask the committee to strongly consider 
taking immediate action on this legislation and moving it out.
    And with that, I yield back the balance of my time.
    The Chairman. The gentlemen yields back.
    Are there further opening statements?
    Noting none, we now turn to our distinguished panel, the 
Honorable Stuart A. Levey, Under Secretary for the Office of 
Terrorism and Financial Intelligence at the Department of the 
Treasury; and the Honorable Brian C. Roseboro, Under Secretary 
for Domestic Finance at the Department of the Treasury.
    Mr. Levey, we will begin with you. And, again, thank you 
for returning to the committee.

 STATEMENT OF HON. STUART A. LEVEY, UNDER SECRETARY, OFFICE OF 
    TERRORISM AND FINANCIAL INTELLIGENCE, DEPARTMENT OF THE 
                            TREASURY

    Mr. Levey. Thank you, Mr. Chairman and distinguished 
members of the committee. Thank you for inviting me here today 
to continue our discussion with respect to terrorist financing 
and financial crime.
    This past August I had the privilege of speaking with you 
about the work we have been doing in combating these scourges 
and the recommendations of the 9/11 Commission. Today, I am 
pleased to return to address several legislative proposals 
aimed at bolstering our abilities to detect and impede 
terrorist financers, money launderers and other criminals.
    I greatly appreciate the attention and insight that you 
have brought to these important issues. And I look forward to 
working with you in the months ahead.
    In my first six weeks in this job, a few things have 
already become clear. First, that the people I have joined at 
Treasury are as talented and dedicated as they come and are 
working very hard on every aspect of this multifaceted issue.
    But our efforts depend on a host of agencies, as others 
have alluded to. These include the State Department, the 
Defense Department, the CIA and my former home, the Justice 
Department. Our greatest accomplishments to date have been 
collaborative efforts, and our success in the future will 
depend on the strength of our interagency cooperation as well 
as our cooperation with the Congress.
    I have also been even more convinced that, while terrorist 
financing and money laundering are not the same, our ability to 
prevent terrorist financing depends on a continued effort to 
ensure compliance with the Bank Secrecy Act and the related 
provisions of the PATRIOT Act.
    As this committee is well aware, the Riggs case and other 
incidents have highlighted an imperative for the Treasury 
Department. We must ensure that we are getting appropriate 
information from the banking regulators so that we can know 
whether Riggs is just the tip of the iceberg or, as we hope, 
more of an outlier.
    This information will also enable us to identify other 
needed improvements in our overall BSA compliance regime.
    In that respect, we have been working together intensively 
with the Federal Reserve, the FDIC, the OTS, the NCUA and the 
OCC to create just this sort of needed relationship. I commend 
the leadership of those organizations for their excellent 
cooperation with us to date on this issue.
    Another point that has become even more clear to me is the 
critical importance of international coordination. The 
terrorist threats we face and the capital provided to fuel 
terrorist activity emanate principally from abroad.
    We continue to work with international organizations in 
this respect, including the FATF, to develop aggressive but 
workable standards for combating terrorist financing. And we 
anticipate the announcement of a new special recommendation 
this fall to address the movement of cash across borders.
    The FATF standards will gain additional impetus in the 
coming months with the creation of two new FATF-style regional 
bodies, one in Eurasia and another spanning the Middle East and 
North Africa, both of which will be extremely important to our 
efforts.
    Just late last night, I returned from a trip to England, 
where I spoke at Cambridge University about the immense value 
of the PATRIOT Act and particularly Title III of the Act. I 
also had excellent discussions with my British counterparts 
about additional ways we can work with our allies to improve 
transparency in the financial industry overall.
    I am pleased to be able to tell you we are making a real 
difference. We have seen that it has become costlier, riskier 
and more difficult for Al Qaida and like-minded terrorist 
groups to raise and move money around the world.
    Indeed, intelligence reports suggest that many terrorist 
financial networks are hurting for cash, while financiers and 
facilitators are killed, caught or cut off from the financial 
system, and as conduits of the international financial system 
become more transparent and less hospitable to those who seek 
to stay hidden.
    Also playing a major role is the deterrent effect of public 
actions like prosecutions and designations, and prospective 
donors are increasingly thinking twice about contributing to 
disreputable or shady organizations.
    Our successes breed new challenges as the terrorists 
continue to adapt to our efforts and devise new and more 
sophisticated ways to move money. We must not become reliant on 
familiar methods or comfortable ways of thinking.
    This committee has been vigilant in making sure we are 
asking the right questions and that we have the tools we need 
to combat terrorist financiers and other financial criminals. 
Your attention and input is deeply appreciated, and I look 
forward to continuing to work with you to safeguard our 
financial sector and our country.
    Thank you very much.
    [The prepared statement of Hon. Stuart A. Levey can be 
found on page 35 in the appendix.]
    The Chairman. Thank you, Mr. Levey, and thank you for your 
great service. I know you just got back from London and have a 
little bit of jet lag, but hang in there.
    Mr. Levey. Thank you, sir.
    The Chairman. Mr. Roseboro?

   STATEMENT OF HON. BRIAN C. ROSEBORO, UNDER SECRETARY FOR 
          DOMESTIC FINANCE, DEPARTMENT OF THE TREASURY

    Mr. Roseboro. Thank you very much, Mr. Chairman, and thank 
the members of the committee.
    I greatly appreciate this opportunity to provide the 
Treasury Department's views on legislation impacting financial 
institutions and financial markets that the committee is 
considering, including the broad September 11 legislation.
    In particular, you asked for our views on five specific 
issues. Let me note that while these legislative items merit 
consideration, they should not interfere with specific 9/11-
related reforms that have been called for by the President.
    The war on terror continues to be fought at home and 
abroad, using tools existing under current law. As the 9/11 
legislative proposal makes clear, there are still other weapons 
which are needed to continue this fight. It is imperative that 
the President's 9/11 legislative recommendations be enacted 
without delay.
    With regard to Internet gambling, or H.R. 2143, the bill 
designates financial regulators and the FTC as the appropriate 
rulemakers for payment systems, transactions affecting 
financial institutions, financial instruments and financial 
products and services. It also designates the federal financial 
regulators as the appropriate enforcers.
    The administration opposes illegal Internet gambling and 
looks forward to continuing to work with the Congress on this 
very important issue.
    With regard to the Securities and Exchange Commission 
emergency authority, or H.R. 657: The provisions incorporated 
in H.R. 657 were first proposed in the wake of 9/11 to provide 
the SEC with enhanced authority to respond to extraordinary 
market disturbances. Coordination continues to play an 
important role for financial service regulators to consider in 
light of the interconnected nature of today's markets.
    The President's Working Group on Financial Markets 
continues to meet regularly to discuss issues common to the 
financial service regulators regarding contingency planning in 
the event of large-scale market disruption.
    With regard to the netting legislation, or H.R. 2120, the 
Treasury strongly supports enactment of financial contract 
netting legislation such as H.R. 2120. The President's Working 
Group on Financial Markets originally proposed such legislation 
in March of 1998 and has supported financial contract netting 
legislative proposals ever since.
    In addition, in October of 2001, the Treasury Department 
and financial institution regulators urged Congress to pass 
netting legislation separately from bankruptcy legislation.
    H.R. 2120 eliminates uncertainties that exist under current 
law due to changes in the market over the past several years. 
This important legislation is necessary to help ensure that 
markets continue to operate without disruption in the event of 
a failure of a bank or a large market participant.
    With regard to the Bureau of Engraving and Printing 
Security Printing Act of 2004, or H.R. 3786: H.R. 3786 would 
authorize the Bureau of Engraving and Printing to print 
securities and other documents for foreign governments. Current 
statutory limitations preclude BEP from providing actual 
production support.
    The Treasury strongly supports H.R. 3786, as it is similar 
to a bill that we submitted to Congress in 2001. That bill, 
introduced as H.R. 2509, received overwhelming bipartisan 
support and passed the House by a vote of 403-11 on March 19, 
2002. More recently, H.R. 3786 passed the House of 
Representatives on March 25, 2004, by a vote of 422-2.
    Finally, with regard to clarifying the delegation authority 
of the Treasury's fiscal assistant secretary: The Office of the 
Fiscal Assistant Secretary performs critical functions related 
to the financial operations of the government and Treasury, 
including the delivery of payments, the collection of the 
government's revenues and the management of the Treasury's cash 
balances. All of these functions occur under the direction of 
the fiscal assistant secretary.
    In the event of a natural or other catastrophic disaster, 
it may be necessary for the Treasury to take unusual or 
extraordinary measures to ensure these critical functions 
continue. The proposed fix would conform to the secretary's 
delegation of authority relating to the fiscal assistant 
secretary to the secretary's authority relating to other 
Treasury officials who are not appointed by the President.
    Thank you for allowing me to testify today, and I look 
forward to answering your questions.
    [The prepared statement of Hon. Brian C. Roseboro can be 
found on page 41 in the appendix.]
    The Chairman. Thank you, Mr. Roseboro.
    And let me begin with Mr. Levey.
    As you know, the House adopted an amendment to strike the 
Transportation/Treasury appropriations bill language that would 
have prevented the Treasury Department from spending any funds 
to enforce its regulations implementing Section 326 of the 
PATRIOT Act regarding verification of customer identification.
    The Treasury Department, Justice and the White House have 
all supported the amendment. It now appears an attempt may be 
made to amend Section 326 to prohibit financial institutions 
from accepting the matricula consular form of identification 
issued by Mexican consular officers of the United States.
    What would the Treasury Department's position be on such an 
amendment?
    Mr. Levey. Mr. Chairman, first let me thank you for your 
leadership on defeating the first amendment. I know that you 
worked with us closely on that issue, and it is very much 
appreciated.
    The Treasury Department would oppose the provision that you 
describe in your question.
    As you know, sir, under Section 326, the secretary was 
directed to work jointly with other federal regulators to issue 
regulations to financial institutions to make sure that they 
took reasonable steps to verify the identity of account 
holders.
    And in developing that regulation, we had to make a 
difficult set of choices. On the one hand, if you have very, 
very strict identity requirements, then you drive many people 
into the unregulated sector where we have very little control. 
And on the other hand, we have to make sure that we have enough 
identity requirements to preserve the integrity of our system.
    We believe that we have struck that balance appropriately 
under Section 326, and believe it would be inappropriate to 
single out the matricula card in particular for special 
treatment in that respect given the overall balance that needs 
to be struck. It is not the only card that has issues 
associated with it.
    The Chairman. Thank you.
    Mr. Roseboro, this committee, in the past, has approved 
netting legislation, which has been supported by Treasury as 
well as Chairman Greenspan.
    Can you explain why the committee needs to continue to 
pursue netting provisions and, particularly in light of what 
the gentleman from Alabama said, in terms of the obvious 
attempt by the terrorists to attack our financial system, what 
that would mean in the event of a major catastrophe with our 
financial institutions?
    Mr. Roseboro. Yes, Mr. Chairman.
    Financial markets, as a general principle, do not like 
uncertainty. As financial innovation has continued to occur and 
will continue to occur into market, it becomes increasingly 
necessary to alleviate, wherever practical and possible, that 
uncertainty related to particularly settlement and operations.
    Whether an institution is faced with a financial failure 
through natural consequences or we are faced with a 
catastrophic situation such as September 11th, which causes 
undue stress on the operations of a financial institution, 
having the netting provision passed will go a great way to 
minimizing the risk base and continuing to have effective 
markets.
    The Chairman. Mr. Levey, the Bank Secrecy Act placed an 
enormous burden on financial institutions to provide law 
enforcement the sort of information that can stop financial 
crimes, including terrorist-related financing. And these 
institutions tell us that it is essential that we improve two-
way communication with law enforcement.
    That was the goal of Section 314 of the PATRIOT Act, which 
Vice Chairman Hamilton singled out for special praise in the 
testimony to our committee last month.
    What is Treasury doing to promote a better flow of 
information to those financial institutions that are our first 
line of defense against terrorist financiers?
    Mr. Levey. Mr. Chairman, I would agree that Section 314 and 
the information sharing that is provided for there is an 
excellent tool. And I would also agree that giving feedback to 
the financial sector is critical in making our BSA compliance 
work and SAR reporting work.
    FinCEN places a very high priority on giving feedback to 
the financial sector in this respect. And I think they have 
done an excellent job.
    Among other things, they have the SAR Activity Review, 
which they publish, I think, quarterly, which summarizes some 
of the trends that they are seeing, so that they can help the 
financial sector look for those same trends in their 
businesses.
    We also have the Bank Secrecy Act Advisory Group that is 
chaired by FinCEN, which has an exemption from the Federal 
Advisory Committee Act to provide for just that sort of frank 
and full exchange of views that is particularly helpful to the 
financial sector.
    And in that group, we were able to pull together FinCEN, 
law enforcement and all at the same place to have just this 
kind of exchange.
    That is not to say we do not have more work to do; we 
certainly do. But we are committed. This is one of the highest 
priorities, is to figure out better ways to share information 
from law enforcement to the financial sector.
    The Chairman. Thank you.
    My time has expired. The gentleman from Massachusetts?
    Mr. Frank. Thank you, Mr. Chairman.
    Mr. Roseboro, are the terrorists we are dealing with, the 
Islamist fundamentalists, are they big gamblers? Have I missed 
something? I mean, what do they play? What is their game?
    Mr. Roseboro. I have no knowledge of their professional or 
amusement activities, sir.
    Mr. Frank. Thank you.
    Then why is there a big thing on Internet gambling in this 
anti-terrorism bill? I mean, there is a lot of language in here 
about Internet gambling that is in this bill. I mean, why is 
that in the terrorist bill?
    I differ with many of my colleagues on whether or not 
people should be allowed to gamble. Many of my very 
conservative friends think the government should stay out of 
people's business, except if they decide to make a bet with 
their own money.
    But I do not understand, why is it in the terrorism realm?
    Mr. Roseboro. I would not speculate on the writing of the 
bill and the----
    Mr. Frank. But it is in your testimony, Mr. Roseboro.
    Mr. Roseboro.--legislation.
    Mr. Frank. I would not ask you to speculate, because that 
is too close to gambling and I do not want to get you in 
trouble.
    [Laughter.]
    But it is in your testimony here that we are going to do 
Internet gambling.
    Mr. Roseboro. Again, the administration's position--we are 
against Internet gambling. As to whether or not the appropriate 
place to addressing that issue is in this legislation or 
another, we leave that to the Congress.
    Mr. Frank. I thank you.
    I will say, I am struck by the selectivity with which the 
administration leaves things to the Congress. I guess this 
would be in the category of the assault weapon ban, where the 
administration will decide that it will defer, as opposed to a 
highway bill which it is going to veto if it has enough money.
    But I stress that because I do want to guard against what 
has been an unfortunate tendency here to, kind of, I think, 
misuse the legislative process. I do not mean to accuse you of 
this. You are just the backboard.
    There was a tendency on the part of the leadership of the 
House to take things that are overwhelmingly popular and 
package them with things that are much less popular, much more 
controversial, not directly relevant, and put them all in one 
bill, figuring that they would be able to, kind of, intimidate 
people into voting for things they would not otherwise vote 
for, because they will otherwise be criticized for not voting 
for the strongly supported pieces. And that has become such a 
tendency.
    And then often they come up and raise it when they come to 
the floor unamendable, a little late in the session. We will 
have a chance to vote on amendments here in the committee, but 
when this bill comes to the floor it is probably not going to 
be easily amendable. And I can understand that this late in the 
session. But I do hope we will keep out of this bill things 
that are so controversial of this sort.
    On the Internet gambling, I just use that as an example, we 
have had some debate on that. And I do not mean to say I do not 
like that part. But I worry about that precedent being 
followed.
    Mr. Levey, just two questions. One, when you use your 
authority--obviously a lot of it has to do with international 
activity--how much consultation do you do with the State 
Department? Do you find yourselves sometimes having to overrule 
them?
    I mean, you know, it is, again, not anybody's fault, but 
there is a tension there between the foreign policy concerns 
they have and the security concerns you have, at least 
potentially.
    How do you work that out?
    Mr. Levey. Generally, sir, these things are worked out in 
collaboration. I have not, in fact, experienced many even 
disagreements, let alone situations where one would, as you put 
it, overrule the other, which, of course, is not possible.
    Mr. Frank. Well, you do have the final say with regard to 
this, I assume.
    Mr. Levey. Well, it depends on what exactly we are talking 
about. I do not know the ``this'' is.
    But, for example, under Section 311, which is an authority 
we use, there is a statutory requirement for consultation. What 
in fact happens is a very detailed consultation with the State 
Department----
    Mr. Frank. Right. But you would have the last word if there 
was a disagreement?
    Mr. Levey. Yes.
    Mr. Frank. But it is encouraging to know that there has not 
been those kinds of disagreements.
    And I say that, again, because there is a general issue 
here, I find. More and more of foreign policy has become 
economic policy, particularly with the end of the Cold War, 
although now we have the terrorism issue--trade, relationships 
with the international financial institutions.
    And I have felt--I first began to think this under the 
Clinton administration--that in economic foreign policy there 
is insufficient coordination between Treasury and State. And so 
I am glad to see we have it here.
    Just the last point, quickly. You say, and I am glad to see 
this, ``We need to be acutely sensitive to the privacy and 
reputational interests of our citizens. We will be studying 
this issue and considering ways,'' et cetera.
    I would hope that it would not lag. I mean, I understand 
security is very important; I do not want to stop it. And that 
is why I said what I said before.
    Rather than think that we are going to find a way to do 
tough security measures that will be error-free, I think we 
should accept the fact that they will include errors and 
include a simultaneous corrective mechanism. And I just think 
that then ought to be contemporaneous, not one after another.
    So, I mean, can you reassure me or not that efforts to 
protect privacy--the self-correcting mechanisms are going to be 
equal to the enforcement mechanisms, both in terms of their 
power and in terms of timing?
    Mr. Levey. Well, I can assure you that this is not an issue 
that we are allowing to lag. This is an issue we take very 
seriously and which we are working on at the same time as we 
are trying to protect----
    Mr. Frank. All right. I would just ask if you could address 
some of that in writing to me afterwards, because it is, I 
think, a very important issue.
    And I would just say, it is not just a privacy issue, it 
becomes a law enforcement issue. Because if a significant 
number of citizens are afraid of arbitrary action that cannot 
be corrected, then they are going to start objecting to the 
powers.
    And I really think it is in our interest, to get good law 
enforcement, that we show people that we are going to go ahead 
with the good, tough law enforcement, along with the full self-
corrective mechanisms, otherwise people will begin to resist 
the enforcement mechanisms.
    The Chairman. The gentleman's time has expired.
    The gentleman from California, Mr. Royce?
    Mr. Royce. Thank you, Mr. Chairman.
    In my opening statement, I suggested that we should 
strengthen language of Section 326 of the PATRIOT Act. Some 
people have taken this to mean that I want to ban matricula 
consular cards.
    And to them I say, this issue is so much bigger than 
matricula cards. This is about the national security of our 
country. And I do not want terrorists using false I.D. from any 
country, especially given that the 9/11 Commission report 
specifically says that we should be moving in the opposite 
direction, we should be moving toward a biometric entry-exit 
screening system.
    Now, as an example of concern here, let us look at the L.A. 
Times and their story last Wednesday, in which the article 
highlighted the threat of Islamist terrorism coming from our 
southern border.
    The story quoted Magnus Ranstorp, the director of the 
Centre for the Study of Terrorism and Political Violence at the 
University of St. Andrews, as saying, ``We are seeing a pattern 
of terrorist suspects exploring opportunities to get hold of 
Mexican passports and documents and infiltrating into the 
United States through Mexico.''
    The L.A. Times story also reports that, ``According to 
staff members of the commission investigating the September 
11th attacks on the United States, accused mastermind Khalid 
Shaikh Mohammed had a keen interest in smuggling Al Qaida 
operatives across the Mexican border.''
    There are plenty of other stories to quote from, but the 
point is that it is highly likely Islamist terrorists are 
trying to access our country through Mexico and that they are 
using Mexican identification documents to do so. And if these 
terrorists have Mexican documents, they can easily get 
matricula consular cards.
    So Mexico is certainly not the only country where the 
problem exists, but rather one where intelligence experts have 
raised a number of red flags.
    Now, my question is, shouldn't we have tough standards for 
those wanting to access our financial system?
    And I am going to quote from some in the administration--I 
can understand, politically, why you might want to endorse the 
use of matricula consular cards. But I am going to quote Asa 
Hutchinson, Department of Homeland Security Under Secretary, on 
the PBS ``NewsHour,'' when the question was put to him. He 
said, ``We have very little confidence in the security of the 
matricula consular cards.''
    I understand politically why we would want to endorse this. 
But I want to quote from the FBI officials we have heard before 
this committee under the questions of how this operates.
    ``It is not a reliable form of identification due to the 
nonexistence of any means of verifying the true identity of the 
card holder. In addition to being vulnerable to fraud, it is 
also vulnerable to forgery. It is used for the purpose of 
obtaining a driver's license, typically, in 13 States. False 
identities are particularly useful to facilitate the crime of 
money laundering.''
    I will go on to quote from the Office of Intelligence, 
Federal Bureau of Investigation, Mr. Steve McGraw, before the 
Congress:
    ``The ability of foreign nationals to use the matricula 
consular to create a well-documented but fictitious identity in 
the United States provides an opportunity for terrorists to 
move freely within the United States without triggering name-
based watch lists that are disseminated to local police 
offices. It also allows them to board planes without revealing 
their true identity.''
    So, again, I come back to my question: Shouldn't we have 
tough standards for those wanting to access our financial 
system?
    Mr. Levey. Well, sir, I have to say at first that I agree 
with the premise of your question. This is a difficult problem. 
And I am glad you put it this way: It is bigger than the 
matricula card. And that is essential to the answer, as well.
    We need to try to keep substandard identification cards 
from being used, whether they are from Mexico or they are from 
our own country, our own drivers' licenses, for example.
    Mr. Royce. Right, you do not want to legalize a method that 
would make it easy for terrorists to gain access to our 
financial system and enable the next group of terrorists to 
freely move money around the United States to finance their 
operation. I agree.
    Mr. Levey. The point is we need to work across the 
government to improve standards for identity cards not just for 
accessing our financial system, but for all sorts of purposes.
    But meanwhile we had to make a judgment. We have a 
responsibility to regulate our financial system right now, and 
we have to decide what we are going to allow.
    And given the situation on the ground right now with the 
question of what sorts of identification cards are out there, 
whether they be matricula cards or other cards including 
drivers' licenses from certain States, while those standards 
are being developed and while we are hoping to improve the 
standards across the board, we have to make the balance between 
allowing people into our financial system, where we at least 
have some transparency into what is happening, as opposed to 
driving them into an underground sector where we will not have 
any knowledge of how they are moving their money.
    And we have made the judgment that we have made to date.
    The Chairman. The gentleman's time has expired.
    The gentleman from North Carolina, Mr. Watt?
    Mr. Watt. Thank you, Mr. Chairman.
    Mr. Chairman, I want to try to distinguish between 
terrorist legislation and just financial services legislation 
because I am not sure that this is about terrorism anymore.
    Mr. Roseboro's statement specifically says, ``Let me note 
that while these legislative items merit consideration, they 
should not interfere with the specific 9/11-related reforms 
which have been called for by the President.''
    He then says, ``It is imperative that the President's 9/11 
legislative recommendations be enacted without delay.''
    Mr. Roseboro, is there anything in these bills that you 
have been asked to comment on that is included in the 
President's 9/11 legislative recommendations?
    Mr. Roseboro. I do not believe so, sir.
    Mr. Watt. Okay, so this is not about enacting something 
that either the 9/11 Commission recommended or that the 
President has recommended in response to the 9/11 Commission's 
report?
    Mr. Roseboro. Correct. This is----
    Mr. Watt. Okay. That is not to say it is bad. I just want 
to make sure that we are not parading this in some way as a 
response to the 9/11 Commission's report and trying to convince 
the public that somehow we in this committee are doing 
something in response to the 9/11 Commission report.
    We may be doing something, and it may be good. I am not 
arguing with that. But it is not in response to either the 
President's 9/11 Commission recommendations or the commission's 
9/11 recommendations.
    Now, with that having been said, let me be clear on what 
you all are saying on behalf of the administration. There are 
four or five things you were asked to comment on. One is 
Internet gambling, which Mr. Frank has already questioned how 
that is related to terrorism in any way.
    Your last sentence says the administration opposes illegal 
Internet gambling and looks forward to continuing to work with 
Congress on this important issue. I take that to be less than a 
resounding endorsement of any particular legislation, this or 
any other.
    You do not seem to be endorsing this particular 
legislation, or are you?
    Mr. Roseboro. Again, from the administration's perspective, 
illegal Internet gambling is a problem, and anything that the 
Congress can do to about that, we support.
    Mr. Watt. Okay. But you are not endorsing this particular 
legislation, or are you?
    Mr. Roseboro. We do not have an objection to the 
legislation.
    Mr. Watt. Okay. All right.
    And then in the next part, the Securities and Exchange 
Commission emergency authority, you go to some lengths to point 
out that the bill leaves unchanged an existing statutory 
provision enabling the President to terminate any SEC emergency 
action.
    And then you say the President's Working Group on Financial 
Markets continues to meet regularly to discuss issues common to 
the financial services regulators regarding contingency 
planning in the event of a large-scale market disruption.
    I take that to be less than a resounding endorsement of the 
specifics of what is being proposed here, because you all are 
still working on that. Am I missing something here?
    Mr. Roseboro. No, I would characterize it a little 
differently.
    Mr. Watt. Okay. Well, I did not mean to characterize it. 
Characterize it in the way you would like to characterize it.
    Mr. Roseboro. Basically, what that says is that there is a 
mechanism in place now, and will need to be ongoing under any 
circumstances, where possible, of good communication between 
all the major regulators to try to anticipate as well as 
respond to any major market disruptions.
    This legislation, however, also provides a further 
backstop, should, for whatever reasons, those deliberations or 
consultations are disrupted significantly in any way.
    Mr. Watt. Okay. That is a fair characterization. I am not 
trying to mischaracterize it. I am just trying to make sure we 
understand what it is we are doing.
    The netting provision is already in another piece of 
legislation, and you are suggesting pulling it out from the 
bankruptcy legislation, which a number of us have been 
suggesting for a long time, get the noncontroversial away from 
the controversial.
    You support that?
    Mr. Roseboro. That is correct, sir.
    Mr. Watt. Okay. And then the other bill we have already 
passed in the House 403 to 11, so it is not as if this is much 
controversy there. So you support us passing that 403 to 11 
again, I suppose.
    Mr. Roseboro. Absolutely.
    Mr. Watt. Okay, all right, just want to be clear that if we 
are doing terrorism legislation, let us do it. But if we are 
just trying to fool the public into thinking that we did 
something, I do not have much sympathy for that.
    I yield back.
    Mrs. Kelly. [Presiding.] Thank you.
    I believe I am next in the line of questioning here.
    The 9/11 Commission staff report on terror financing noted 
that the 9/11 hijackers received wires totally approximately 
$130,000 in amounts from $5,000 to $70,000 from institutions 
overseas. The report reads, ``No financial institution filed a 
suspicious activity report, and even with the benefit of 
hindsight none of them should have.''
    As you know, the United States lags behind other countries 
in our ability to deter and detect the misuse of these 
international funds transfer systems for illicit purposes.
    For example, Australia and Canada have determined that a 
reporting requirement to a financial intelligence unit is 
extremely effective and minimally burdensome.
    In fact, some U.S. authorities have suggested that a well-
structured reporting requirement for international wire 
transfers would do more to address terrorist financing than any 
other change to the Bank Secrecy Act.
    Since money laundering and terror finance are inherently 
international, and law enforcement's ability to trace funds is 
curtailed from where the funds originate or transit to other 
countries, my question is: What impact would having this 
authority have on our government's ability to fight terrorist 
financing?
    And I am going to go to you, Mr. Levey.
    Mr. Levey. I would like to say two things in response that.
    One is that it may well be that that authority is one that 
would be beneficial to us with respect to combating terrorist 
financing, money laundering, in particular to helping us with 
ongoing investigations that would provide us with additional 
information that we can follow up on.
    But I want to be careful not to say that that would have--
and I think the 9/11 Commission was trying to get at the same 
point. Even if that had existed at the time, what they are 
trying to say is that no one would have looked at any of these 
transactions and thought them suspicious because they were 
clean-on-their-face transactions. And I do not think that would 
have changed even with this authority.
    But the authority may well be useful, and the reason I 
cannot be stronger is I just need to make sure that what we do 
is something that we are capable of taking in. In other words, 
I do not want to require the reporting of a lot of information 
that we do not have the capacity to use and analyze at this 
point.
    So that is something where, while I agree with you in 
principle, we would need to work with you to make sure we are 
not imposing something we cannot deal with.
    Mrs. Kelly. Mr. Levey, we stand ready and willing to work 
with you to see if there is not something more we can do to 
identify these cross-border transmittals and get them into some 
kind of a position where they are going to work as flags to 
help us regarding terrorists.
    I want to talk a minute about the BSA compliance. What is 
the status of the MOUs between Treasury and the banking 
regulators?
    We have discussed this for sometime now. We need to get it 
done, and it needs to really be done yesterday. Can you talk to 
me, talk to us about that?
    Mr. Levey. Well, we are making excellent progress in that 
respect. If I had not been out of town the last few days, I 
might be able to give you a better and perhaps more satisfying 
answer.
    But as you know, when the deputy secretary announced this 
program he said we have to do this before October 1st and I 
have every reason to believe we will do it before October 1st. 
We are on the verge, I believe.
    Mrs. Kelly. I think this really needs to be done very 
quickly. It is an important step toward a single compliance 
office.
    And the regulators have to be cooperating with Treasury. 
And if they are not, this committee needs to help the 
regulators understand if it is an appropriate position for this 
committee to mention that to the regulators.
    And if there is any help that we can give you to making 
sure that these MOUs get worked out, the directions--one of the 
problems I know that we have had is the communication between 
the various regulators and the Treasury. And we need to help 
get that done.
    So I would urge you, if you think it can be done the month 
of October, I would urge you to get back to us and keep us 
informed about where that actually stands.
    Mr. Levey. Can I just say, because I do not want to 
alienate, you know, any of the regulators out there, I do know, 
even though I cannot give you more information at the moment, 
that they have been very cooperative. And we will get this done 
in September, not October. We will get done in September.
    Mrs. Kelly. That would be very good. It would help us a 
lot.
    I yield back the balance of my time. And I call on Mr. 
Scott.
    Mr. Scott. Thank you very much, Chairman.
    I would like for us to get at this issue of the hawalas. It 
seems to me that the issues before us and the proposals--
Internet gambling, netting, the PATRIOT Act--it is almost like 
we are putting traps for elephants when we ought to be putting 
traps for squirrels.
    Agile, jumping from pole to pole, getting in corners, 
getting into little spots, this is how the terrorists are 
getting their funding. And it is clear that we need to get a 
handle on these hawalas--the other source being charities 
coming from the community--if we are really going to make a 
dent.
    And I would like to find out from you all at Treasury, what 
do you know about these hawalas? Are we monitoring them? Do we 
have a system and a strategy in place?
    What help do you need from us in terms of resources or 
legislation or whatever to really get at really putting out 
there some traps that catch squirrels as opposed to elephants?
    Mr. Levey. I think this is more in my area than Mr. 
Roseboro's.
    I think we need to, on the hawala question, separate that 
into two separate subsections. One is that most of the way 
terrorist organizations are moving their money, of course, is 
worldwide.
    And one of the most, I think, successful efforts we have 
made is to get the international community, through the FATF, 
or Financial Action Task Force, to adopt a special 
recommendation that obligates countries who are FATF members to 
regulate and license hawalas. And that has been a significant 
step forward, and it is a first step. Obviously you first have 
to register and license them.
    On the domestic side, we also have under the PATRIOT Act is 
the requirement--actually it predated the PATRIOT Act--the 
requirement to register with FinCEN, but the PATRIOT Act made 
the operating of a money service business without being 
licensed a crime.
    And this is something where it is more of a coming up with 
an effective way to enforce it rather than an additional 
authority that is needed. On the one hand, if we enforce as a 
criminal matter, it has great deterrent effect but it also has 
the effect of driving people further underground.
    And so we are trying to, at the same time as we reach out 
to the community to register with FinCEN, also use the 
enforcement authority that we have under the criminal statute 
under the PATRIOT Act to sort of be the stick, you know, have a 
carrot and stick approach.
    And this is something which the Immigration and Customs 
Enforcement at the Department of Homeland Security has done a 
lot of good enforcement on unlicensed money service businesses.
    Mr. Scott. And you mentioned the countries. Which countries 
are most at need of this licensing? Which countries are 
presenting the greatest area of threat through which these 
hawalas operate? Do we have that knowledge?
    Mr. Levey. I am not sure that I am in a position to lay 
out--first of all, that I would be able to give you a 
comprehensive list or and, even if I could, whether it would be 
appropriate to.
    Mr. Scott. That is fine. I understand that and I appreciate 
that. We do not want to get out any information on that.
    Is there anything that we can do here in Congress to aid 
you in more effectively getting your hands around this? Because 
it is clear from our information that Al Qaida is getting a 
tremendous amount of their financing through these hawalas.
    It would be very helpful to us. Is there anything that you 
feel we can do to further assist in tackling this issue? 
Legislatively, resources?
    Mr. Levey. I certainly appreciate the offer and would be 
happy to take you up on it, if we do identify such things.
    This committee and the Congress generally have been very 
supportive of the type of efforts we have been making thus far, 
and it is greatly appreciated.
    Tough problem, though.
    Mrs. Kelly. Thank you very much, Mr. Scott.
    Mr. Garrett, I am going to try--there are two more 
questioners, Mr. Garrett, Ms. Maloney. I am going to try to fit 
them in. I would hope that our questions and responses are very 
rapid. We have four votes, and it will be hard for us to come 
back.
    Mr. Garrett?
    Mr. Garrett. I will try to be rapid on this. Just following 
Mr. Royce's comments with regard to Mexican matricula consular 
cards, am I able to, as a American citizen, able to get one of 
these Mexican matricula consular cards and use it at a local 
bank?
    Mr. Levey. My understanding is that you should not be able 
to.
    Mr. Garrett. Right. So, in other words, if I have been 
living in my community for my entire life and I go to a local 
bank and I wanted to open up a bank account there, I would have 
to use the document that was made in America, right, like a 
driver's license, a birth certificate, or some other document 
that was made here in the United States. Isn't that correct?
    Mr. Levey. Assuming that the bank knew you were an 
American, that would be something that I would expect them to 
require.
    Mr. Garrett. Right. But if someone crossed the border last 
night, whether they are legal or illegal, they would be able to 
come into that same bank and be able to use a card that was 
made by some foreign government, such as Mexico. Is that 
correct?
    Mr. Levey. I believe so, yes.
    Mr. Garrett. Okay. And the purpose that you said--I 
listened to your testimony earlier--the reason you do not want 
to prohibit them is because you do not want to make it more 
difficult and therefore drive the illegal immigrants in this 
country into the underground market. Is that correct?
    Mr. Levey. Anyone who wanted to use the matricula card, 
yes, or any other substandard card.
    Mr. Garrett. Well, how far does that go? What you are 
basically saying, or what your basic testimony is, is that we 
are trying to make is easier for someone who is in this country 
to use the financial systems in this country, as opposed to 
making it harder.
    Mr. Levey. As a general matter, yes, we want to make it 
easier for people to go into the parts of the financial sector 
that we have some transparency into, rather than those parts of 
the sector that we do not. And that is generally what we are 
trying to do. We are trying to bring people into the system 
where they are making transactions that we have some ability to 
track.
    Mr. Garrett. And that, of course, is regardless of whether 
they are in this country legally or whether they are in this 
country illegally.
    Mr. Levey. That is correct.
    Mr. Garrett. Right. So part of your testimony is that we 
are trying to make it easier for people who are in this country 
illegally to use our financial system?
    Mr. Levey. What we are trying to do is strike the right 
balance with respect to financial transparency, to bring as 
many people as possible--without regard to their immigration 
status--to bring as many people as possible who are using our 
financial system, bring them into that part of the financial 
system that is transparent and that we have some ability to 
track their transactions, rather than driving more of them into 
that part which we do not.
    Mr. Garrett. And also your testimony was, part of the 
problem right now is that we do not have a uniform system out 
there, as far as the 50 States, with regard to drivers' 
licenses and the like, and that maybe somewhere down the road, 
when we have a more uniform system, we will be able to address 
this problem in a more comprehensive way. I forget your exact 
words.
    Mr. Levey. Right. The point is, it is not matricula cards 
that is our only problem. The standards for identity cards--
people talk about biometric standards. A lot of our drivers' 
licenses, for example, do not have the kind of biometric 
standards that we would want.
    And it is not just bringing people into the financial 
institutes. There are all sorts of places where people use 
their identification cards. I think, referring to Asa 
Hutchinson, obviously people boarding airplanes is more of a 
risk than going into a bank to open an account.
    Mrs. Kelly. Thank you very much, Mr. Garrett.
    Ms. Maloney?
    Mrs. Maloney. Very briefly, and I would just ask you to get 
back to me in writing, last week I joined Chairwoman Kelly and 
other members of the committee to get an additional $25 million 
for FinCEN. And the proposal we are considering today has no-
year additional funding for that purpose.
    And it would be helpful for us to have Treasury's official 
comment on what FinCEN plans to do with this funding exactly 
and exactly how much money you feel that you need for this 
operation. There have been various estimates out there.
    And I would like to, very quickly, because we have to run 
to vote, go to counterfeiting. The $100 bill is the most 
counterfeited bill in the world. There are estimates that 70 
percent of them are counterfeited. And yet we are not using the 
most advanced technology on our bills--the Kinegrams that are 
here on the London bills, the euros and so forth.
    And just last week the FBI reported that $3 million in $100 
bills were taken from a group of Dutch criminals. And as a 
result, merchants abroad are beginning to see the euro, not the 
dollar, as the safe currency, which I do not think is good for 
our country, yet our RFP that is out on the dollar bill asks 
for the strip technology, which is good for banks but not for 
commerce on the street.
    And my question is, why are we not at the forefront of 
counterfeit deterrence by using the most advanced technology?
    And if you could get back to me in writing, because we have 
to run to vote, and I do not want to miss the vote.
    And I thank the lady for letting me get this in, those two 
questions in.
    Thank you very much.
    Mrs. Kelly. Thank you, Ms. Maloney.
    The Chair notes that some members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for members to submit written questions to these 
witnesses and place their responses in the record.
    We thank the witnesses for their testimony today.
    This hearing is adjourned.
    [Whereupon, at 12:23 p.m., the committee was adjourned.]


                            A P P E N D I X



                           September 22, 2004


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