[Senate Hearing 108-]
[From the U.S. Government Publishing Office]



 
  DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND 
          RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005

                              ----------                              


                        TUESDAY, APRIL 20, 2004

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Richard C. Shelby (chairman) 
presiding.
    Present: Senators Shelby, Bennett, Stevens, Murray, and 
Dorgan.

                       DEPARTMENT OF THE TREASURY

                        Office of the Secretary

STATEMENT OF HON. JOHN SNOW, SECRETARY

             OPENING STATEMENT OF SENATOR RICHARD C. SHELBY

    Senator Shelby. The subcommittee will come to order.
    I would like to welcome Secretary John Snow to this 
morning's hearing. I look forward to hearing about your vision 
for the future of the Treasury Department, as well as the 
challenges you will face during the upcoming fiscal year.
    In your first year on the job, you presided, Mr. Secretary, 
over the divestiture of 30,000 Treasury employees pursuant to 
the Homeland Security Act of 2002. You also oversaw the 
establishment of the new Alcohol and Tobacco Tax and Trade 
Bureau (TTB). Such significant realignment of the Department is 
no small task, and you are to be commended, Mr. Secretary, for 
the fine job you have done in completing this transition.
    Now that the transition is complete, I would like to hear 
how the Department is refocusing its resources on its core 
missions of economic policymaker, financial manager, revenue 
collector and the leader in tracking terrorist finances. All of 
these missions are critical to the continued success of the 
economy.
    There is no economic stimulus that can equal the power of 
allowing taxpayers to retain more of their hard-earned 
paychecks and thereby spend their money as they best see fit 
for themselves and their families. I can think of no better way 
to stunt the present economic growth than a sudden increase in 
taxes. Such an action would dry up the additional capital that 
has flowed into our private markets and would set the Nation's 
economy back on the downward course of recession.
    Even if those who propose to raise taxes during the 
recovery are prevented from doing so, we will still face the 
specter of numerous expiring tax cuts over the coming years. 
Without a permanent extension of tax cuts, there is no way to 
provide the certainty and stability necessary to sustain our 
current economic recovery.
    Even as our economy recovers, the threat of terrorism still 
hangs over us. Given its long-standing relationships with 
financial institutions throughout the world and its existing 
intelligence gathering and law-enforcement infrastructure, the 
Department is ideally suited to lead the Federal Government in 
our Nation's fight against terrorist financing. I believe it is 
time for the Treasury to step up to the task.
    Along those lines, I am keenly interested in the proposal 
to create the Office of Terrorism and Financial Intelligence 
(TFI). All of us share the administration's goal to thwart 
financial support for terrorists. We will look forward to 
working with you to establish and to fund this office. I 
believe it is critical that we work together to ensure that we 
get the right structure and the necessary funding in place.
    The Banking Committee and the Select Committee on 
Intelligence combined their efforts to give Treasury a platform 
to reposition itself as the linchpin in the Nation's efforts to 
identify and track movements of funds and commodities which 
would support those who seek to destroy our way of life.
    The Intelligence Authorization Act of 2004 included a new 
Assistant Secretary for Intelligence and Analysis. Treasury 
committed to create an office that would ``enhance the 
Department's access to Intelligence Community information and 
permit a reorganization and upgrading of the scope and 
capacities of Treasury's intelligence functions in light of the 
Nation's counter-terrorist and economic sanctions programs.''
    In hearings last year in the Banking Committee, we heard 
from various experts who noted a need for the Treasury to 
recapture enforcement capabilities. Given the unique status of 
Treasury with the financial services industry, I believe only 
you have the full responsibility, Mr. Secretary, for ensuring 
the integrity of the financial services industry. I am, 
therefore, disappointed that your vision for the revitalized 
role of Treasury has not been as robust as I would have liked. 
I see no plans for reorganization or the growth that we 
anticipated, especially in the enforcement area.
    Your letter dated April 16 merely reiterates the agreements 
our staffs reached in November of 2003. You propose no real 
increase in staff and request no new funding in the budget 
submission. I expected more, but I trust that you will take 
this task as a priority. No task of this size can be 
accomplished without your direction, Mr. Secretary, and your 
vision.
    We on this committee and on the Banking Committee stand 
ready to assist. We have prioritized and will continue to 
prioritize our oversight function to ensure that the American 
people are safe and the integrity of our Financial Services 
Industry is secure.
    Mr. Secretary, I would be remiss if we did not discuss the 
Department of Treasury's $11.6 billion budget request for 2005, 
and particularly the $10.7 billion request for the Internal 
Revenue Service (IRS). The IRS faces enormous problems, and I 
am especially concerned about the continuing failures in 
computer modernization.
    Mr. Secretary, the IRS has spent $2.7 billion on the 
Business System Modernization (BSM) program and has yet to 
produce any real benefit to the taxpayer. In fact, the IRS is 
running late and is over-budget in all of seven core projects 
related to BSM. I am interested in hearing what oversight the 
Department of Treasury is performing to help the IRS put this 
program on track. Without modernization, the IRS will never be 
able to achieve meaningful improvements to taxpayer customer 
service or compliance.
    Mr. Secretary, I listened with interest to your statements 
in the news on April the 15th about simplifying the Federal tax 
code. I believe that the complexity of the tax code is a large 
part of the problem at the IRS. Our tax code and its 
regulations total a staggering 54,000 pages: they are too 
complex, too confusing, and too costly to comply with.
    Comprehensive reform of the tax code itself would go a long 
way to reducing tax fraud by making the process simpler and the 
system fairer for all taxpayers. A less complex tax code would 
provide fewer opportunities for cheaters and reduce the 
paperwork burden for all Americans. I look forward to working 
with you to reach this goal.
    Mr. Secretary, I look forward to hearing your thoughts on 
the economy and also on the Treasury's budget request. I look 
forward to working with you on other issues that are important 
for the Nation.
    Senator Murray.

                   STATEMENT OF SENATOR PATTY MURRAY

    Senator Murray. Thank you, Mr. Chairman.
    I want to welcome Secretary Snow to our subcommittee. And 
this morning I want to focus on three issues: terrorist 
financing, outsourcing, and IRS debt collection.
    Let me start with terrorist financing. Our government has 
certainly stepped up its efforts to stop the flow of money to 
terrorist organizations since September 11. Unfortunately, that 
is not saying much, given the attitudes of some in our 
government before September 11.
    Richard Clarke, the former counter-terrorism official, 
documented these attitudes in his recent book ``Against All 
Enemies.'' Clarke said, ``I wanted to raise the profile of our 
efforts to combat terrorist financing, but found little 
interest.'' Clarke said that the President's economic advisor, 
Larry Lindsay, ``had long argued for weakening U.S.'s anti-
money-laundering laws'' and Clarke said that former Treasury 
Secretary Paul O'Neill ``was lukewarm at best towards the 
multilateral efforts to `name and shame' foreign laundering 
havens.''
    Since then, we have taken some important steps, but I am 
concerned that we may still be ``behind the curve'' in areas 
such as enforcement, nontraditional banking, staff and 
resources, and communication.
    Our country and our international partners have put new 
laws on the books, but we must do a better job of enforcing 
them. We cannot allow companies like Riggs Bank to shelter 
their clients by ignoring critical Federal requirements to 
report large and suspicious cash transactions, especially 
transactions involving foreign nationals and unknown charities.
    Our money-laundering laws must be adhered to and enforced, 
and we must insist that Saudi Arabia and other nations follow 
through on their commitments to shut down suspect charities 
that are financing the recruiting of future terrorists and 
possibly terrorist attacks as well.
    We also need to stay a step ahead of those who would harm 
us by looking beyond traditional banking. We can expect 
terrorists to act like drug smugglers. As we successfully close 
down their access to cash in one area, they will move to 
another and we have got to stay a step ahead. That means we 
must close down their operations of smuggling gold, cash, and 
diamonds across borders. We also need to get our hands around 
the ``hawala'' money transfer system. We have got to be able to 
distinguish between the legitimate transactions of immigrants 
who are sending money to their families back home and dangerous 
transactions that move cash into the hands of terrorists.
    We also need to make sure that new government officials 
we've put in place have the resources, the staff, and 
communication to do their jobs effectively.
    Recently we have expanded the portfolios of several Federal 
agencies. We've appointed new Under Secretaries, Deputy Under 
Secretaries and Assistant Secretaries. That is a fine start but 
we need to make sure that these offices actually have the staff 
and resources to succeed and we must avoid the communication 
problems that have plagued the CIA and the FBI.
    Clearly, we have got a lot of work to do to stop the flow 
of money to terrorist organizations and that is one of the 
topics I will explore with the Secretary today.
    I also want to talk about outsourcing. Secretary Snow has 
been outspoken in his belief that moving American jobs offshore 
serves to benefit the American economy in the long run. Mr. 
Chairman, I represent the most trade dependent State in the 
Nation, and I have a strong record of supporting international 
trade.
    But I do not believe that expanding trade requires hundreds 
of thousands of American families to lose their jobs, their 
health care, and their dignity so that their employers can 
pursue cheaper labor elsewhere.
    One recent survey suggests that we may be on the leading 
edge of an outsourcing tidal wave, especially in areas like 
information technology (IT). According to a recent survey of 
182 companies conducted by DiamondCluster International, 86 
percent plan to increase the use of offshore IT outsourcing 
firms in the next 12 months. That compares to just 32 percent 
of the companies that responded the same way just 2 years ago.
    Those who defend outsourcing claim that the companies that 
are shipping jobs overseas today will increase their employment 
here in the United States down the road. That is little comfort 
to someone who has lost his job, particularly because his old 
job is not the one that will be coming back.
    There is a real mismatch between the skills needed for the 
jobs that are moving overseas and the skills needed for the 
jobs that may be open in the future. For example, an increasing 
number of U.S. engineering jobs have been moved to India. Right 
now the unemployment rate for engineers in the United States is 
twice the national average. That is really hurting a lot of 
families.
    There are fields where we have shortages like nursing, but 
I do not know how many engineers can go to school to become a 
nurse while they still have to feed their families. These 
mismatches are all around.
    The factory worker who is laid off from a manufacturing 
company cannot turn around tomorrow and take a job at a drug 
company that looks for pharmacological researchers.
    Simply put, the people who suffer from outsourcing today 
cannot move easily into available jobs. The skills they have 
today are not the ones that will be in demand tomorrow.
    Fortunately, we do know how to help people move from 
yesterday's jobs into the jobs that are open today and the jobs 
that will be open tomorrow. The answer is our Nation's job 
training system. This is the time to invest in that system so 
it can help all of the people who have lost their jobs through 
no fault of their own. Unfortunately, the administration is 
moving in the wrong direction.
    In addition to serving as the ranking member on this 
subcommittee, I also serve as the ranking member of the 
Employment Subcommittee in the Senate. I have analyzed in 
detail President Bush's proposal to increase job training, and 
here is the bottom line. His proposal does not add $1 to our 
Federal efforts to train our workforce. Not $1.
    In fact, the President's budget cuts $300 million from 
existing assistance for workforce training. Even worse, those 
new cuts for 2005 come on top of more than $500 million in job 
training and employment service reductions that have been 
recommended since President Bush took office. In my book, those 
who defend outsourcing should be the biggest advocates of a 
real increase in job training for American workers who end up 
on the losing end of the international trade, and I want to 
explore that later this morning with Secretary Snow as well.
    Finally, Mr. Chairman, I want to discuss my concerns over 
the Secretary's proposal to allow private contractors to 
collect unpaid tax debts owed to the IRS. This proposal is 
currently included in the FISC/ETI bill that will be debated 
again on the Senate floor in a few days. We all know that the 
IRS has done a very poor job of collecting unpaid tax debts. In 
fact, to my shock, it has become apparent that the IRS has not 
even collected unpaid taxes from several individuals who have 
been convicted in court of tax evasion. The Treasury Department 
should request sufficient funds so that IRS agents can collect 
those unpaid debts. But instead the Department has decided to 
invite the private sector to do the job. For anyone familiar 
with the Treasury Department's record on using contractors, it 
raises serious red flags about the privacy of individual 
taxpayers.
    The Department's abominable record on ensuring that 
contractors protect the privacy of our citizens is not 
speculation. It is fact. A little more than a year ago the 
Treasury Inspector General for Tax Administration (TIGTA) did 
an audit and observed that the IRS has no assurance that its 
contractors completed the required background investigations of 
their employees.
    Just last month, the Treasury Inspector General (IG) 
completed another audit that made it clear that the IRS 
continues to do a very poor job of monitoring the overall 
trustworthiness of its private contractors. According to the 
Inspector General, IRS contractors had ``committed numerous 
security violations that placed IRS equipment and taxpayer data 
at risk.''
    In some cases, contractors blatantly circumvented IRS 
policies and procedures, even when the IRS's security personnel 
identified inappropriate practices. One disgruntled contractor 
employee planted a computer time bomb on an IRS system that 
would have destroyed sensitive taxpayer data. Another 
contractor connected an unsecured computer to the IRS network 
and cost the agency $1.5 million in downtime and cleanup costs 
to eliminate a virus introduced by that contractor.
    The Treasury Department has given all sorts of verbal 
guarantees that taxpayers will not have their privacy 
compromised when private contractors start collecting tax debts 
from the public. But given the IRS's abysmal record in 
monitoring its own contractors, I am deeply concerned that 
these private collection agents will not respect the privacy of 
taxpayers.
    I hope this subcommittee will insist on nothing less than 
the strictest privacy guarantees and assurances before we allow 
the IRS to allow private contractors into the Federal debt 
collection business.
    Thank you very much, Mr. Chairman.
    Senator Shelby. Senator Bennett.

                 STATEMENT OF SENATOR ROBERT F. BENNETT

    Senator Bennett. Thank you, Mr. Chairman. This is the first 
time that I have served on the Treasury and General Government 
portion of this subcommittee. I have been involved in the 
Transportation portion. So I come to these issues, Secretary 
Snow, with less of a background than I do as the other issues 
that we have had.
    I listened to Senator Murray talk about the IRS and, of 
course, one of the great frustrations that I have had while I 
have been in the Senate is the inability of the IRS to get on 
top of the technological revolution and take advantage of the 
increase in productivity that IT makes available to everybody 
else.
    We all remember, and I cannot put a year on it out of my 
memory, but we remember the tremendous investment that the IRS 
made during the 1990s and came up totally empty-handed. I 
worked a little bit with that as Chairman of the Committee on 
the Year 2000 Problem and we were frustrated by the inability 
of the IRS to be as forward in their understanding of IT as 
some of the other departments.
    So, like Senator Murray, I would like to hear from the 
Secretary as to where the IRS is today in trying to get their 
computers up to speed and whether progress has been made from 
the unfortunate performance that existed in the 1990s.
    I have often thought if this were a business, given the 
amount of information that is provided to the IRS 
electronically, the IRS ought to be able to figure the tax 
return and on the 15th of April send the taxpayer either a bill 
or a check and the taxpayer would not have to be involved in 
figuring out his own taxes at all.
    But unfortunately, we are not at that point and I would 
hope that might be a goal that could be set for some point in 
the future, because with 1099s and W-2s and W-4s and K-1s and 
so on, all in the hands of the IRS to begin with, the computer 
system ought to be good enough that it could produce that sort 
of result.
    So recognizing that the bulk of, if I read your testimony 
correctly, Mr. Secretary, the bulk of your $11.7 billion 
request is for the IRS. I think that is an area we could 
profitably spend some time talking about.
    I thank the Secretary for his willingness to appear here 
and look forward to his testimony.
    Senator Shelby. Senator Dorgan.

                  STATEMENT OF SENATOR BYRON L. DORGAN

    Senator Dorgan. Mr. Chairman, thank you very much.
    I have another Appropriations Subcommittee hearing going on 
next-door, around the corner, so I will be going back and 
forth. I did read the Secretary's statement last evening and I 
do want to come back and ask some questions about a number of 
issues including, as he might expect, Cuban travel and the use 
of the Office of Foreign Assets Control (OFAC) to do what they 
have been doing recently.
    I hope the Chairman will give me an opportunity to pursue 
that at some length because I think that is a very important 
topic.
    Senator Shelby. We will have a number of rounds.
    Mr. Secretary, we welcome you again to the committee. Your 
testimony will be made part of the record in its entirety. You 
proceed as you wish.

                    STATEMENT OF SECRETARY JOHN SNOW

    Secretary Snow. Thank you very much, Mr. Chairman and 
Senator Murray, Senator Dorgan, Senator Bennett.
    It is a great privilege to appear before you and have an 
opportunity to talk about Treasury, its major thrust, how it is 
functioning in this new post-Homeland Security environment, 
where so many of the former enforcement functions are no longer 
a part of Treasury. Treasury continues to have major 
responsibilities in the financial war on terror, as the 
Chairman pointed out.
    As Senator Bennett pointed out, Treasury's budget is 
largely a function of the IRS. It is 90 percent of the total 
budget. The IRS is the biggest single management problem inside 
the Treasury Department. It is something that I try to spend a 
good deal of time on, now that we have a Deputy Secretary, Sam 
Bodman, who had been the Deputy Secretary at Commerce. In his 
role as chief operating officer of the Treasury Department, I 
have asked Sam to give particular attention to the IRS. There 
are a myriad of issues there that we can talk about, some of 
which have already been alluded to in your questions.
    A word on our budget, and I will be brief. It reflects 
increases in two areas basically. Everything else is either 
down or funded at the prior steady State levels.
    One is IRS enforcement. Here we feel that there is need for 
more attention on enforcement. And the budget proposes adding a 
number of additional positions in the IRS focusing on the 
enforcement activities. Of the $300 million we are asking for 
additional enforcement money, two-thirds of it will go to 
corporations to deal with auditing of corporations to get at 
abusive tax schemes and tax shelters and high income people, 
and the marketing of tax shelters and abusive tax schemes to 
them.
    The first area of increase is enforcement so that we get 
effective enforcement and better compliance. There seems to 
have been some erosion in that area over the last few years, 
and I think the IRS is doing a better job on respecting 
taxpayer rights, with taxpayer services, with treating 
taxpayers better, answering the phones better, giving better 
advice when calls come in. So the customer service side of the 
IRS has improved. Now we need to make equal improvements in the 
enforcement side.
    The second broad area of increase, and Mr. Chairman, this 
goes precisely to the issue you raised with me in your opening 
comments and otherwise in our correspondence, is Treasury's 
role in the war on terror.
    Our role, as we see it, is to lead the financial war on 
terror, to interdict the flows of funds, to be there as a 
guardian of the financial system of the United States so that 
the financial system is not used to move terrorist funds. And 
to enlist the finance ministers and central banks of the world 
at large to do the same thing, to create a broad coalition, a 
global coalition, in the financial war on terrorism.
    What we know about terrorism is that it knows no borders. 
So if we are going to effectively deal with it, we have to 
enlist all of the world. And I think we have made very good 
progress on that score.
    This weekend, the finance ministers of the world are in 
Washington for the International Monetary Fund (IMF) and World 
Bank and G-7 meetings. I have called a separate meeting of the 
finance ministers on the issue of global terrorism to make sure 
we are exchanging best practices and continuing to learn from 
each other and take appropriate actions.
    So the second area where we have asked for a budget 
increase is fighting the financial war on terrorism, and I 
greatly appreciate, Mr. Chairman, your support and the support 
of other members of the committee in setting up the new office 
in Treasury which will be the focal point for our anti-
terrorist funding activities.
    The new Under Secretary will be responsible for the 
functioning office and the principal person in the United 
States Government, responsible day to day to think about how 
our financial system could be penetrated by terrorists to move 
money, with broad authority over the Office of Foreign Assets 
Control (OFAC) and Financial Crimes Enforcement Network 
(FinCEN) and the Bank Secrecy Act and the USA PATRIOT Act, and 
all those tools that Congress has made available to wage this 
war on terrorism.
    The Office has a new Assistant Secretary, approved by the 
Congress last fiscal year, so that Treasury will now have 
access to its own intelligence gathering, an Assistant 
Secretary for Intelligence. I commend the Congress for 
recognizing that need in Treasury, to put a priority on 
financial intelligence so that this Assistant Secretary can 
continue to speak to the Federal Bureau of Investigation (FBI), 
speak to the National Security Advisor (NSA), speak to the 
Central Intelligence Agency (CIA), speak to the 
intergovernmental intelligence gatherers about the role of 
financial intelligence.
    Everything else in the budget is basically static. I hope 
we will be able to satisfy you, Mr. Chairman. I know that it 
will be a long dialogue that we will have on this issue of 
Treasury playing its appropriate role.
    Deputy Secretary Bodman will be up before the Banking 
Committee next week to elaborate on these points.
    Finally, a word on the economy. A year ago, when I 
testified here, there were great questions about what course 
the American economy was on. You will recall at that time there 
was concern about the possibility of a double dip recession. 
There was concern about deflation.
    I think it is safe to say we have turned the corner and 
have the economy on a very good path. And clearly the tax cuts 
that Congress approved last year lie at the very center of the 
changed circumstances of the American economy, with growth for 
this quarter forecasted to be between 4 percent and 5 percent, 
with growth in the last half of last year, after the tax cuts 
took effect, of over 6 percent, with jobs coming back, 308,000 
jobs in March and over 500,000 for the first quarter.

                           PREPARED STATEMENT

    Corporate spending is up. Exports are up. Retail sales are 
strong. Construction is strong. Housing is strong. The economy 
is on a good strong path and, again, I appreciate the role 
Congress played in making that possible with the Jobs and 
Growth Bill.
    With that, Mr. Chairman, I thank you again for the chance 
to appear before you and look forward to responding to your 
questions.
    [The statement follows:]

                    Prepared Statement of John Snow

    Chairman Shelby, Senator Murray, and Members of the committee, I 
appreciate the opportunity to appear before you today to discuss 
President Bush's fiscal year 2005 proposed budget for the Department of 
the Treasury.
    The President's request for fiscal year 2005 of $11.7 billion for 
Treasury provides funding we need to support the core missions as 
identified in our new strategic plan--in promoting national prosperity 
through economic growth and job creation; maintaining public trust and 
confidence in our economic and financial systems; and ensuring the 
Treasury organization has the workforce, technology, and business 
practices to meet the Nation's needs effectively and efficiently. Two 
key strategic objectives are to collect Federal tax revenue when due 
through a fair and uniform application of the law and to disrupt and 
dismantle the financial infrastructure of terrorists, drug traffickers, 
and other criminals and isolate their support networks.
    One historic change at Treasury in the past year has been the 
movement of most of the Department's law enforcement divisions--
affecting some 30,000 employees--to the Department of Homeland Security 
and the Department of Justice. This change has provided an opportunity 
for Treasury to refocus on its core missions as the Federal 
Government's economic policymaker, financial manager, and revenue 
collector. This puts us in a better position to fulfill our critical 
role in fighting the war on terrorist financing. In addition, the 
Department revised and completed a new strategic plan in September 
2003. To complement this strategic planning initiative, the Department 
and many of the bureaus underwent a restructuring of their budget 
activities and programs--discontinuing enforcement programs which no 
longer fit into the Treasury strategic vision and developing new 
performance goals and measures focused on getting value for taxpayers. 
As a result of these efforts, our fiscal year 2005 request reflects 
significant reengineering and reprogramming to ensure efficient and 
effective use of our resources.
    Mr. Chairman, we provided the Committee with a detailed breakdown 
and justification for President's fiscal year 2005 budget request for 
Treasury. I would like to take the opportunity today to point out some 
highlights of our request and then I'd be happy to take whatever 
questions you may have.

        PROMOTING PROSPEROUS AND STABLE U.S. AND WORLD ECONOMIES

    The aim of these strategic goals is to ensure that the United 
States and world economies perform at full economic potential. In order 
to perform at its full potential, the U.S. economy must increase its 
rate of growth and create new, high quality jobs for all Americans. 
Additionally, the legal and regulatory framework must support this 
growth by providing an environment where businesses and individuals can 
grow and prosper without being limited by unnecessary or obsolete rules 
and regulations. The Treasury Department and three of its bureaus, the 
Community Development Financial Institutions Fund, the Office of the 
Comptroller of Currency and the Office of Thrift Supervision play 
diverse roles in the domestic economy. From serving as the President's 
principal economic advisor to issuing tax refunds to millions of 
Americans, the Treasury has a significant influence on creating the 
conditions for economic prosperity in the United States. A prosperous 
world economy serves the United States in many ways. It creates markets 
for U.S. goods and services, and it promotes stability and cooperation 
among nations. For these reasons, the Department of the Treasury will 
work with other Federal agencies and offices to promote international 
economic growth and raise international standards of living through 
interaction with foreign governments and international financial 
institutions. Our budget requests $158.9 million to support these 
strategic goals.

 MAINTAINING PUBLIC TRUST AND CONFIDENCE IN OUR ECONOMIC AND FINANCIAL 
                                SYSTEMS

    Treasury's mission of managing the U.S. Government's finances 
effectively is the bulk of the President's fiscal year 2005 request for 
the Department. The budget request of $11 billion--the majority of 
which is for the Internal Revenue Service--will provide funds to ensure 
that the tax system is fair for all while maintaining high quality 
service to our taxpayers and ensuring compliance with the tax laws.
    In past years, IRS's focus has been on improving customer service. 
We believe that we have been successful in that effort and are 
committed to further enhancing customer service for the vast majority 
of American taxpayers who do their best to pay their fair share. For 
those who do not, fundamental fairness requires that our enforcement 
efforts in fiscal year 2005 continue moving us towards a tax system in 
which everyone is complying with the tax laws. Our fiscal year 2005 
request, which includes a net increase of $300 million, will focus our 
resources toward enforcement initiatives designed to curb abusive tax 
practices, end the proliferation of abusive tax shelters, improve 
methods of identifying tax fraud, identify and stop promoters of 
illegal tax schemes and scams, and increase the number and 
effectiveness of audits to ensure compliance with the tax laws. This 
request will allow the IRS to apply resources to areas where non-
compliance proliferates: promotions of tax schemes, misuse of offshore 
accounts and trusts to hide income, abusive tax shelters, 
underreporting of income, and failure to file and pay large amounts of 
employment taxes.
    The President's request also provides $285 million to continue our 
effort in modernizing the Nation's tax system through investments in 
technology. During the fall of 2003, the IRS performed comprehensive 
studies to review its modernization efforts. From these studies, the 
IRS has resized its modernization efforts to allow greater management 
focus and capacity on the most critical projects and initiatives. The 
IRS is also responding to these studies by increasing the business unit 
ownership of the projects and revising its relationships with the 
contractor and ensuring joint accountability. While the IRS has thus 
far failed to deliver several important projects with which taxpayers 
are not directly involved, it is important to note they have had some 
notable successes. The IRS has made progress on applications such as 
improved telephone service and a suite of e-services to tax 
practitioners. For the first time, large businesses and corporations 
can electronically file. In addition, taxpayers can access refund and 
Advance Child Tax Credit information from the irs.gov website. The 
IRS's business systems modernization expenditure plan provides more 
detail on this request.
    In addition, IRS will work to improve customer service by making 
filing easier; providing top quality service to taxpayers needing help 
with their return or account; and providing prompt, professional, 
improved taxpayer access and helpful treatment to taxpayers in cases 
where additional taxes may be due.
    The provisions of the Trade Act of 2002 (Public Law 107-210) 
chartered the Treasury Department (through the IRS) with establishing 
and implementing a new health coverage tax credit program in 2003. This 
program provides a refundable tax credit to eligible individuals for 
the cost of qualified health insurance for both the individual and 
qualifying family members. The request provides $35 million to continue 
implementation and operation of the Health Insurance Tax Credit 
Program.
    The Alcohol and Tobacco Tax and Trade Bureau (TTB) was created when 
the Homeland Security Act of 2002 divided the Bureau of Alcohol, 
Tobacco and Firearms into two agencies. Our fiscal year 2005 request 
includes $81.9 million for TTB: $58.3 million to support the Collect 
the Revenue function, and $23.5 million to Protect the Public, both of 
which will facilitate their efforts in collecting $14.6 billion in 
revenue from the alcohol and tobacco industries and monitor alcohol 
beverages in the marketplace to detect contamination and adulterated 
products. Their focus this coming fiscal year is to promote voluntary 
compliance of existing regulations and to protect the consumer through 
efficient and effective service.
    Key to the U.S. Government's management of financial systems is the 
Financial Management Service (FMS), whose mission is to provide central 
payment services to Federal program agencies, operate the Federal 
Government's collection and deposit systems, provide Government-wide 
accounting and reporting services, and manage the collection of 
delinquent debt. The fiscal year 2005 request of $231 million for FMS 
includes legislative proposals to improve and enhance opportunities to 
collect delinquent debt through FMS' debt collection program. The 
proposals would: eliminate the 10-year limitations period applicable to 
the offset of Federal non-tax payments to collect debt owed to Federal 
agencies; increase amounts levied from vendor payments (from 15 percent 
to 100 percent) to collect outstanding tax obligations; allow the 
Secretary of the Treasury to match information about persons owing 
delinquent debt to the Federal Government with information contained in 
the Department of Health and Human Service's National Directory of New 
Hires; and allow the offset of Federal tax refunds to collect 
delinquent State unemployment compensation overpayments.
    The Bureau of the Public Debt (BPD) continues its management and 
improvement of Federal borrowing and debt accounting processes. BPD 
will provide vital support to the processing of applications and the 
operation of systems used for re-enforcing its mission of providing 
quality debt management services to financial institutions, 
individuals, foreign governments, and over 200 government trust funds.
    The activities of the United States Mint and the Bureau of 
Engraving and Printing (BEP) are vital to the health of our Nation's 
economy. These agencies share the responsibility for ensuring that 
sufficient volumes of coin and currency are consistently available to 
carry out financial transactions in our economy. Treasury, Mint and BEP 
will deliver a study to Congress regarding options to merge and/or 
streamline operations by consolidating certain functions and sharing 
costs between the Mint and the BEP.

   FIGHTING THE WAR ON TERROR AND SAFEGUARDING OUR FINANCIAL SYSTEMS

    Our goals in preserving the integrity of U.S. financial systems 
include ensuring that the U.S. financial system and access to U.S. 
goods and services are closed to individuals, groups and nations that 
threaten U.S. vital interests, ensuring that these systems are kept 
free and open to legitimate users while excluding those who wish to use 
the system for illegal purposes, and ensuring that the financial 
systems will continue to operate without disruption from either natural 
disaster or manmade attacks. To support such efforts, the President has 
requested $250.9 million for fiscal year 2005.
    The administration announced the creation of the Office of 
Terrorism and Financial Intelligence (TFI) within the Department of the 
Treasury on March 8, 2004. TFI will lead Treasury's efforts to sever 
the lines of financial support to international terrorists and will 
serve as a critical component of the administration's overall effort to 
keep America safe from terrorist plots.
    The TFI, which will include Treasury's newly established Executive 
Office for Terrorist Financing and Financial Crime (EOTF/FC), will have 
policy oversight over the Financial Crimes Enforcement Network 
(FinCEN), the Office of Foreign Assets Control (OFAC), and the Treasury 
Executive Office for Asset Forfeiture (TEOAF). This will create a 
single lead office in Treasury for fighting the financial war on terror 
and combating financial crime, enforcing economic sanctions against 
rogue nations, and assisting in the ongoing hunt for Iraqi assets.
    The Office of Foreign Assets Control (OFAC) is central to our 
efforts to disrupt financing of terrorist activities. Only days after 
September 11, 2001, OFAC drafted and implemented Executive Order 13224, 
which invoked Presidential authority contained in the International 
Emergency Economic Powers Act and froze the assets of 29 entities and 
individuals linked to Osama bin Laden and his al Qaeda network. Since 
then, OFAC research and investigation helped identify between 200 and 
300 additional entities and individuals as Specially Designated Global 
Terrorists under the Order. Since September 2001, OFAC and our allies 
have frozen over $136 million in terrorist assets and vested $1.9 
billion of frozen Iraqi assets.
    The President's fiscal year 2005 request also includes $64.5 
million for the Financial Crimes Enforcement Network (FinCEN) to 
enhance its ability to fight the war on terror and combat financial 
crimes such as money laundering. Its mission to safeguard the U.S. 
financial systems from the abuses imposed by criminals and terrorists 
and to assist law enforcement in the detection, investigation, 
disruption and prosecution of such illicit activity is accomplished 
through its statutory role as the administrator of the Bank Secrecy Act 
(31 C.F.R.) FinCEN issues and enforces regulations that require a wide 
gamut of financial institutions to implement anti-money laundering 
programs and report transactions that are indicative of money 
laundering, terrorist financing and other financial crimes, thus 
providing a wealth of information to assist law enforcement, both 
domestic and international, in pursuing such crimes. FinCEN also 
ensures that the information collected under these regulations is made 
fully accessible to law enforcement and the regulatory community in a 
secure manner and provides both tactical and strategic analysis to a 
variety of customers. In addition, FinCEN is the Financial Intelligence 
Unit (FIU) for the United States and has been central in the 
development of a consortium of FIU's around the globe that permits fast 
and effective sharing of financial intelligence on an international 
scale.
    The IRS's Criminal Investigative Division (IRS-CI) also plays a key 
role in investigating financial crimes. The request supports the unique 
skills and expertise of IRS-CI agents in investigating tax fraud and 
financial crimes not only support tax compliance, but also benefit the 
war on terror and our efforts to root out financial crimes.
    In addition, the Office of Critical Infrastructure Protection and 
Compliance Policy leads our efforts to safeguard the financial 
infrastructure. This Office works closely with the Department of 
Homeland Security, other Federal agencies, and the private sector to 
safeguard our infrastructure. That is essential, given that the 
majority of the critical financial infrastructure of the United States 
is owned and operated by the private sector. The financial system is 
the lifeblood of our economy and this Office leads our efforts to keep 
it safe.

 ENSURING PROFESSIONALISM, EXCELLENCE, INTEGRITY AND ACCOUNTABILITY IN 
                         MANAGEMENT OF TREASURY

    The President has requested $229.6 million for ensuring proper 
stewardship of the Department. Included in this request is $14.2 
million for the Department's Office of Inspector General (OIG) and 
$129.1 million for the Inspector General for Tax Administration 
(TIGTA).
    The 1988 amendments to the Inspector General Act of 1978 created 
the OIG to conduct audits and investigations relating to Treasury 
programs and operations; to promote economy and efficiency, and detect 
and prevent fraud and abuse, in such programs and operations; and to 
notify the Secretary and Congress of problems and deficiencies in such 
programs and operations.
    The Internal Revenue Service Restructuring and Reform Act of 1998 
created the Inspector General for Tax Administration (TIGTA) to oversee 
operations at the Internal Revenue Service (IRS). TIGTA promotes the 
public's confidence in the tax system by assisting the IRS in achieving 
its strategic goals, identifying and addressing its material 
weaknesses, and implementing the President's Management Agenda. 
Further, TIGTA undertakes investigative initiatives to protect the IRS 
against threats to systems and/or employees.
    To maximize efficiencies and effectiveness, the administration has 
proposed to merge the Treasury Inspector General and the Treasury 
Inspector General for Tax Administration into a new Inspector General 
office, called the Inspector General for Treasury. The new organization 
will have all of the same powers and authorities as its predecessors 
have under current law. We will work with the Congress to move this 
legislation forward.
    Also included in this request is an increase of $10.8 million for a 
host of modernization activities of our systems including IT 
Governance, E-Government, operational security, and Treasury enterprise 
architecture.

       FOUNDATION FOR SUCCESS--THE PRESIDENT'S MANAGEMENT AGENDA

    As mentioned earlier, following the movement of the law enforcement 
bureaus to the Departments of Homeland Security and Justice, Treasury 
restructured and refocused its strategic goals and objectives based on 
the five initiatives of the President's Management Agenda (PMA). 
Treasury developed and issued its new Strategic Plan, which linked 
intricately with each of the five initiatives of the PMA. This new 
strategic vision, coupled with the efforts underway in the PMA, 
provides the mechanism and focus for continuous improvement throughout 
Treasury and its bureaus.
    In fiscal year 2003, Treasury achieved many significant milestones 
in implementing the President's Management Agenda. Specific 
accomplishments included:
  --In the past 18 months, Treasury has drafted the first-ever 
        Department-wide Human Capital Strategic Plan, which addresses 
        the Standards for Success as issued by the Office of Personnel 
        Management (OPM) and the Office of Management and Budget (OMB). 
        Treasury incorporated human capital into its strategic planning 
        and budget formulation and execution processes, and the plan 
        will guide future efforts in areas such as workforce and 
        succession planning, diversity, performance management, and 
        managerial accountability.
  --In competitive sourcing, Treasury completed 3 full competitions, 
        over 20 streamlined competitions, and currently has studies 
        involving approximately 4,500 positions in various phases of 
        completion.
  --In budget and performance integration, Treasury revised the 
        performance reporting requirement to facilitate review and 
        assessment of bureaus' key performance data. Treasury also 
        restructured some of the bureaus' budget activities to reflect 
        alignment with the new strategic plan and the full cost of 
        achieving results.
  --Treasury also maintained its government-wide lead in accelerated 
        financial reporting. The Department implemented a 3-day monthly 
        close and successfully issued its fiscal year 2003 Performance 
        and Accountability Report on November 14, 2003, 2\1/2\ months 
        ahead of the official deadline.
    Treasury will continue to work closely with OMB and other 
stakeholders to make improvements in implementing the initiatives set 
forth in the President's Management Agenda.

             THE PRESIDENT'S SIX-POINT ECONOMIC GROWTH PLAN

    At the beginning of my testimony I talked about what the Treasury 
Department does to support our strategic goal of encouraging a 
prosperous and stable U.S. economy. I would also like to talk about our 
efforts across the administration to promote economic growth as 
embodied by President's six-point plan for growth.
    That includes making health care more affordable with costs more 
predictable.
    We can do this by passing Association Health Plan legislation that 
would allow small businesses to pool together to purchase health 
coverage for workers at lower rates.
    We also need to promote and expand the advantages of using health 
savings accounts . . . how they can give workers more control over 
their health insurance and costs.
    And we've got to reduce frivolous and excessive lawsuits against 
doctors and hospitals. Baseless lawsuits, driven by lottery-minded 
attorneys, drive up health insurance costs for workers and businesses.
    The need to reduce the lawsuit burden on our economy stretches 
beyond the area of health care. That's why President Bush has proposed, 
and the House has approved, measures that would allow more class action 
and mass tort lawsuits to be moved into Federal court--so that trial 
lawyers will have a harder time shopping for a favorable court.
    These steps are the second key part of the President's pro-jobs, 
pro-growth plan.
    Ensuring an affordable, reliable energy supply is a third part.
    We must enact comprehensive national energy legislation to upgrade 
the Nation's electrical grid, promote energy efficiency, increase 
domestic energy production, and provide enhanced conservation efforts, 
all while protecting the environment.
    Again, we need Congressional action: we ask that Congress pass 
legislation based on the President's energy plan.
    Streamlining regulations and reporting requirements are another 
critical reform element that benefits small businesses, which represent 
the majority of new job creation: three out of every four net new jobs 
come from the small-business sector! Let's give them a break wherever 
we can so they're free to do what they do best: create those jobs.
    Opening new markets for American products is another necessary step 
toward job creation. That's why President Bush recently signed into law 
new free trade agreements with Chile and Singapore that will enable 
U.S. companies to compete on a level playing field in these markets for 
the first time--and he will continue to work to open new markets for 
American products and services.
    Finally, we've got to enable families and businesses to plan for 
the future with confidence.
    That means making the President's tax relief permanent.
    Rate reductions, the increase in the child tax credit and the new 
incentives for small-business investment--these will all expire in a 
few years. The accelerated rate reductions that took effect in 2003 
will expire at the end of this year. Expiration dates are not 
acceptable--we want permanent relief.
    The ability of American families and businesses to make financial 
decisions with confidence determines the future of our economy. And 
without permanent relief, incentives upon which they can count, we risk 
losing the momentum of the recovery and growth that we have experienced 
in recent months.
    The tax relief is the key stimulus for increased capital formation, 
entrepreneurship and investment that cause true economic growth.

                               CONCLUSION

    Mr. Chairman, I look forward to working with you, members of the 
Committee, and your staff to maximize Treasury's resources in the best 
interest of the American people and our country as we move into fiscal 
year 2005. I am hopeful that together we can work to make this 
Department a model for management and service to the American people.
    Thank you again for the opportunity to present the Department's 
budget today. I would be pleased to answer your questions.

                            ECONOMY AND JOBS

    Senator Shelby. Thank you, Secretary Snow. You referenced 
economic growth. Last month, you stated 308,000 jobs were 
created. That was robust.
    I have been told that up to 50 economists are predicting an 
average of about 180,000 new jobs a month for the next 6 or 7 
months. Some months might be smaller and some months larger 
than others. That is good news. Do you believe that is going to 
happen?
    Secretary Snow. Senator, I have seen those estimates. I 
think they are well supported and well reasoned estimates. And 
yes, very definitely, I think this economy will produce lots of 
jobs in the months ahead.
    Senator Shelby. If we could create 1 million new jobs or so 
in the next 6 or 7 months, it would be good for America and 
good for workers, would it not?
    Secretary Snow. It would be tremendous. It is what always 
occurs in a recovery, and the very fact that additional jobs 
come on stream helps the recovery to gain even further 
momentum.
    Senator Shelby. Later today, in the Banking Committee, 
among other people, we will have Chairman Greenspan testify, 
and we will talk about the economy and the state of the banking 
community.
    Are you concerned about inflation at all at this point?
    Secretary Snow. Mr. Chairman, not at this point I am not. I 
see the economy continuing to operate with lots of headroom to 
grow in a non-inflationary way. We still have considerable 
unused capacity in our factory and manufacturing systems. Real 
wage rates have only begun to move up a little bit. We still 
have unemployment higher than it should be.
    So we still have lots of unused resources in the economy 
that can be put to better use. And we live in this global 
economy where competition is ever present and affecting prices 
in the United States. And few executives who you talk to feel 
they have real pricing power.
    No, I think we have a lot of headroom to grow without 
inflation rearing its head.
    Senator Shelby. Mr. Secretary, how important, in your 
judgment, is making the tax cuts permanent?
    Secretary Snow. Mr. Chairman, I think it is absolutely 
critical. I think the evidence is clear that the tax reductions 
that Congress enacted last year have made this strong recovery 
possible.
    Senator Shelby. It has put money in people's pockets, their 
money, has it not?
    Secretary Snow. That's what it is about.
    Senator Shelby. Let them keep the money they have earned.
    Secretary Snow. And when they keep the money they earn, 
good things happen. They do good things with it. They spend it. 
And as they spend it, then businesses around the country find 
that they need to replenish their inventories. Their shelves 
are coming down. And that leads to demand for their suppliers, 
and so on and so forth. So good things happen when people have 
more money to spend.
    Senator Shelby. Mr. Secretary, a lot of people have 
characterized the tax cuts that we pushed through, and I 
certainly voted for every one of them, as tax cuts for the 
rich. But I do not buy that. I believe that it was a tax cut 
for everybody who works, in a sense, and it also eliminated 
taxes on a great portion of people where they pay hardly 
anything. Is that correct?
    Secretary Snow. You are absolutely correct, Mr. Chairman.

                          TERRORIST FINANCING

    Senator Shelby. I want to discuss terrorist financing. In 
fiscal year 2004, the Congress provided $3.5 million more than 
the budget request to fund and establish the Executive Office 
for Terrorist Financing and Financial Crimes (EOTF/FC) at 
Treasury. Would you update us on the creation of that office 
and explain how that office will mesh with the Office of 
Terrorism and Financial Intelligence (TFI) that you are 
proposing to create?
    Secretary Snow. Yes, Mr. Chairman, and thank you for the 
opportunity to do that.
    The Office of Terrorism and Financial Intelligence (TFI) is 
just now being set up. It will be headed by an Assistant 
Secretary who will be responsible for making sure that the 
Treasury Department has access to the intelligence being 
gathered across this government and across other governments, 
and has the intelligence it needs to carry out its role, its 
critical role.
    So more priority on financial intelligence. There is lots 
of intelligence being gathered. We want to see more priority on 
the financial side.
    Senator Shelby. Is Treasury not central to all of this?
    Secretary Snow. I think Treasury is right at the center of 
it. It has to be.
    Senator Shelby. It is your obligation.
    Secretary Snow. It is our obligation. We have the 
authorities from the Executive Orders of the President, 
implementing the statutes that you have passed. Treasury has 
the expertise, knowledge of the financial systems of the United 
States, knowledge of the people in the financial system of the 
United States, and knowledge of the international financial 
system.
    The office you mentioned will be headed by an Assistant 
Secretary for terrorist finance and will be responsible for 
giving broad policy direction to OFAC and FinCEN and overseeing 
the National Money Laundering Strategy (NMLS) and overseeing 
our relationship with the international institutions that are 
engaged in the global war on terrorist finance.
    Senator Shelby. Will Treasury share with the FBI and CIA 
and others, without impediment, the information that is central 
to terrorist financing?
    Secretary Snow. Absolutely.
    Senator Shelby. Because you notice with the 9/11 Commission 
and others, one of the problems is the lack of sharing 
information. If you do it begrudgingly, it is not timely and it 
does not work.
    Secretary Snow. Mr. Chairman, I will pledge that we will 
share the information that we gather. And by having a senior-
level Senate confirmed person sitting at the table with the 
other intelligence gathering agencies, we will see that 
Treasury's priorities are given appropriate attention.
    Senator Shelby. How will this office interface with the 
Executive Office for Terrorist Financing and Financial Crimes 
and with the Bureaus at Treasury? Are you going to integrate 
this where we have some type of sharing or analysis center?
    Secretary Snow. Mr. Chairman, the two offices will be 
headed by a new Under Secretary. It was contemplated in the 
legislation Congress passed last fiscal year, for which I am 
very grateful. The Under Secretary will be the senior official 
in the United States Government on financial terrorism, will 
coordinate all the activities in Treasury, and be our point 
person. We will now have one person I can turn to and hold 
accountable for all of these activities. We have identified a 
first-rate individual to be the Under Secretary whose name I 
think will be released, or has very recently been released, for 
confirmation.
    Senator Shelby. With the new office, how will the Treasury 
function better than before?
    Secretary Snow. Yes, exactly. We did not have either the 
Under Secretary or the Assistant Secretary for Intelligence.
    Senator Shelby. Mr. Secretary, we all support resources and 
methods to fight terror financing because it goes to the heart 
of it. I am concerned that the Treasury may have abdicated, in 
certain areas, its statutory responsibility and missions 
relating to terror financing to other Federal agencies.
    I am also concerned, Mr. Secretary, that in the void, other 
Federal agencies are establishing or enhancing capabilities 
that duplicate what Treasury should be doing, and could lead to 
further interagency communication problems in the future.

                  COORDINATION WITH HOMELAND SECURITY

    Besides establishing a new office, what is the Treasury 
Department doing that the Homeland Security Department does not 
in this regard?
    Secretary Snow. We coordinate very closely with Homeland 
Security. I can see why it might appear to be duplication. But 
in reality, we have different roles to play, different core 
functions.
    Treasury's function is to play the lead in all 
relationships with financial institutions.
    Senator Shelby. The primary responsibility is Treasury's.
    Secretary Snow. Primary responsibility is Treasury's to 
play the lead in the money laundering, in the enforcement of 
the Bank Secrecy Act, in the bank and financial institutions 
knowing their customers, and in reaching out to all segments of 
the financial community. Now it is including jewelers and 
credit card companies and insurance companies--wherever money 
could be laundered or moved.
    Senator Shelby. On the Homeland Security web page, 
Secretary Ridge is quoted as saying ``safeguarding the 
integrity of America's financial systems is a key part of 
Homeland Security.''
    It seems to me that that is Treasury's mission. Are we 
duplicating this? And if so, what we are what are we going to 
do about it?
    Secretary Snow. I think what Secretary Ridge has in mind, 
in saying what he said, is to underscore the role they have 
which is protection of a physical sort, physical protection. 
But Treasury's role is the financial war on terror.
    But if a building is going to be penetrated by a terrorist, 
a bomb is going to be dropped, an explosive device is going to 
be detonated in a banking center, that would be properly their 
responsibility.
    But if it is penetrating the financial system, if it is the 
flow of money through the system, if it is interdicting those 
flows, then Treasury clearly has the lead.
    Senator Shelby. Treasury is going to keep that lead, are 
you not?
    Secretary Snow. Absolutely.
    Senator Shelby. You are going to fight for your turf, I 
hope.
    Secretary Snow. We are going to play the role you have 
assigned us and the President has assigned us. Yes sir, Mr. 
Chairman.
    Senator Shelby. Senator Murray.

                              OUTSOURCING

    Senator Murray. Thank you, Mr. Chairman.
    Mr. Secretary, as I mentioned in my opening statement a 
recent private sector survey revealed that 86 percent of the 
companies questioned expect to expand the use of offshore IT 
outsourcing over the next 12 months. When that same question 
was asked of companies just 2 years ago the number was only 32 
percent.
    My home State of Washington has an extraordinary number of 
IT specialists who are now suffering as a result of this 
downturn in the industry. Is the Treasury Department monitoring 
this situation and the potentially explosive growth of 
outsourcing in certain select industries?
    Secretary Snow. Senator Murray, I have seen some studies on 
this and try and keep myself apprised to the extent I can in 
the area.
    Unfortunately the data is not all that we would like it to 
be on that score and we get different analyses and different 
estimates. I think the Commerce Department and the Labor 
Department are in a better position to talk technically to what 
the data shows.
    But what I have seen from the various surveys, Forrester 
Group I think is the one that is doing the study you are 
referring to, so far the effects have been relatively--that is 
relative to the total number of jobs that are being created in 
the United States economy. And the displacement rates are 
fairly small.
    Senator Murray. What other industries do you think, besides 
IT, might experience this outsourcing?
    Secretary Snow. Well, I guess we have seen radiology 
outsourcing. I think Massachusetts General Hospital is getting 
X-rays read overseas. Medical, health care, service industries, 
I am told, and telecommunications.
    Senator Murray. What is the Bush Administration doing to 
try and stem the fund of jobs that our country is losing?
    Secretary Snow. I think the best thing we can do, and of 
course we do not want to see any jobs lost anywhere, is to keep 
the American economy as vibrant and strong and creative as 
possible so that we are continuously creating as many new jobs, 
and good new jobs, jobs that point to careers, as we possibly 
can.
    Senator Murray. It is fine for economists and policymakers 
to argue back and forth over whether our country gains or 
benefits from outsourcing, but one thing that really is 
forgotten in this debate a lot is the people and the families 
that have lost their jobs.
    I recently read about a 40-year-old woman in Seattle whose 
name is Meara Bronstein. She worked at an IT job at a company 
called Watchmart Corporation. She worked there for 2 years. And 
one day she said that her entire department was informed that 
they would be laid off in a month. And worse, they were told 
they had to train their Indian replacements or lose their 
severance package.
    She is still without work after 10 months and her 
unemployment benefits just ran out. These are her words, let me 
read them to you. She says ``my life has changed drastically 
over my 10 months of unemployment. I have cashed in my 401(k), 
can no longer afford health insurance and can just barely pay 
the rest of the bills. I have even resorted to selling a number 
of my things on eBay to get money for essentials. I think that 
my biggest struggles throughout this experience are the 
constant feelings of powerlessness and paralysis. I did 
everything I could to succeed. I got a good education. I paid 
off big student loans. I worked hard at my job. But now I 
realize that it does not matter what I do to make myself a 
marketable employee if there are no policies in this country to 
protect our jobs from being sent overseas to someone who will 
work for 1/16 of the price. I cannot compete with that. You 
could say that I woke up from the American dream.''
    What you say, Mr. Secretary, to someone like that?
    Secretary Snow. Obviously, Senator, your heart goes out to 
anybody who finds themselves in those circumstances. Those are 
dreadful circumstances for anybody to find themselves in.
    Two things I think we can say. One is that we live in the 
most dynamic economy in the world. We live in an economy that 
is continuously changing, an economy in which there is 
continual regeneration going on, which means displacement is 
continuously occurring. There are about 40 million new jobs 
created every year in the United States. And there are roughly 
40 million people displaced from their old jobs. So we have 
this extraordinarily dynamic economy.
    What I think we need to do, and it is why those tax cuts 
were so important, is continuously focus on making sure 
aggregate demand is large enough to support employment for 
everyone.

                    OUTSOURCING AND JOB DISPLACEMENT

    Senator Murray. But if you are an IT person today, you 
cannot become a nurse tomorrow.
    Secretary Snow. I understand that, Senator. And the second 
part of the answer is we have to make sure, I think we have an 
obligation in an economy that is changing as fast as this one, 
because remember a lot of people are getting displaced not 
because of contracting out or foreign competition. They are 
getting displaced because of domestic competition.
    We have to make sure that opportunities for skills 
development and retraining and education are widely available.
    Senator Murray. So you would say investing in those are 
critical?
    Secretary Snow. Yes, I do. I think investing and making 
sure people have easy access to low-cost ways to acquire the 
skills to give them the jobs of the future is an obligation we 
must take on.
    Senator Murray. What about bridges like unemployment 
compensation for people like that?
    Secretary Snow. Yes, absolutely there is a role for that.
    Senator Murray. Mr. Secretary, one of the provisions that 
were included in last year's appropriations bill was a 
prohibition against using fiscal year 2004 funds to contract 
out any Federal job overseas. To my shock, the President's 
budget specifically requests that this provision be deleted 
from fiscal year 2005.
    Mr. Secretary, could you cite for me some instances at the 
Treasury Department where you might work that is currently 
being conducted by Federal employees and send that work 
overseas?
    Secretary Snow. Senator, I am not aware of any.
    Senator Murray. Then tell me why the President wants us to 
grant him authority to move Federal jobs overseas?
    Secretary Snow. Senator, I am not familiar with the 
background to that provision. I am sure somebody at OMB or DOD 
could talk about it better. I am just not knowledgeable enough 
to offer you a thoughtful opinion on that.
    Senator Murray. But you have no jobs in your department 
that you----
    Secretary Snow. Not that I am aware of and I will check----
    Senator Murray. So you would not object to us putting that 
provision in the bill?
    Secretary Snow. Well, there may be reasons beyond the 
Treasury Department. We are only a small part of this 
government. And there may be some compelling rationale in some 
other department for some access to that. But I am not aware of 
any at Treasury.
    Senator Murray. I know a lot of the comments have gone back 
and forth over this issue about whether outsourcing American 
jobs is beneficial to the economy but there is a different 
question that surrounds this issue that I want to take a second 
to discuss with you. And that is the question of whether it is 
ethical and patriotic to send these American jobs overseas.
    Many of the companies that are sending these jobs overseas, 
for the longest time benefited by being American companies. And 
they have benefited from being part of the most vibrant economy 
in the world. They have benefited from our substantial 
investments by us as taxpayers in our national defense, in our 
tax structure, in innovation and commitment of the American 
people.
    We can disagree on the issue of whether it is good 
economics to ship the jobs overseas, but I still do want to ask 
you this today. Do you think these companies that have 
benefited from the American experience for so long and are now 
shipping American jobs overseas are operating in an ethical 
manner? Is there anything we or they owe these American 
workers?
    Secretary Snow. Senator, the management of America's 
companies have a fiduciary duty to their shareholders. And that 
fiduciary duty, which they must under the law take seriously, 
and when they do not, we get into things like the Enron 
scandals. They have a fiduciary duty to pursue the best 
interests of their owners and that means staying competitive 
and producing good products and producing them at low-cost.
    So the first responsibility of management is in an ethical 
way to pursue the best interest of their shareholders.
    Senator Murray. Over the best interests of taxpayers that 
have invested in investments that make them profitable today?
    Secretary Snow. I am not sure there is a conflict there, 
Senator. If American companies do not stay competitive, then 
they are going to have a hard time creating good American jobs 
and competing effectively, and of course a lot of competition 
comes from firms that are located outside the shores of the 
United States. If they cannot stay competitive with those 
enterprises, they are going to cede market share to them, cede 
revenues to them, and ultimately America's ability to create 
good jobs here with high standard of living will be eroded.
    Senator Murray. Mr. Chairman, I am not sure I would agree 
but I know my time is up at this point. So I will move on and 
wait until my second round.
    Senator Shelby. Senator Bennett?

                       ACCESS TO OVERSEAS MARKETS

    Senator Bennett. Thank you, Mr. Chairman.
    I do not want to go too deeply into this but I am 
stimulated by Senator Murray's questions. And my thoughts go to 
Dell Computer, a company that has been attacked for making a 
number of their purchases overseas. And they make a huge amount 
of sales overseas.
    And at least the Dell management says if we were not able 
to buy at a world price the components that we put into Dell 
Computers, which are assembled in the United States and then 
shipped overseas, we would lose the American jobs that we now 
have. That is, we are indeed contributing to jobs overseas by 
purchasing overseas. But the people who assemble the Dell 
Computers, who run the company, who do the accounting, all of 
whom are American who work in America, would lose their jobs if 
we did not have access to the overseas markets, which access is 
controlled by our ability to purchase at lower prices.
    I do not like the word ``globalization'' because I think it 
carries connotations with it that have taken on emotional 
baggage. I think the correct description of the world in which 
we live is a borderless economy. And the biggest, meanest, 
toughest competitors in the borderless economy are the 
Americans. So I do not want to pursue policies that would hurt 
America's ability to compete in the borderless economy because 
the net effect of that ultimately will be the destruction of 
more American jobs than those that are currently gone overseas.

                        TREASURY BUDGET INCREASE

    But let us move on to the items that we are discussing 
here. You talk about your budget being essentially static, but 
the overall increase is 4.5 percent. The President is trying to 
hold discretionary spending at 4 percent. Homeland Security is 
going up substantially more than 4 percent. I am really asking 
questions that Chairman Stevens would be asking.
    But as we look at the overall attempt on the part of the 
President to deal with the deficit by holding discretionary 
spending at a relatively low level, at the same time funding 
Homeland Security, increase funding for education and some of 
the other areas where he has gone well above the 4 percent. We 
have got to find less than 4 percent some other places.
    I guess I am overly sensitive to this because as Chairman 
of the Agriculture Subcommittee, I find mine going negative. I 
would love to stay stable, but I am being pushed on the 
President's budget $500 million below last year, and last year 
was $1 billion below the year before.
    So as I come to this subcommittee and see you going up a 
little, you say basically static. I would like you to highlight 
the areas where there are increases that take you to that 4.5 
percent global number going up.
    Secretary Snow. The principal area where we are going up is 
IRS enforcement. That is over $300 million--it is about 10 
percent of their enforcement budget increase. And that is to 
make sure we are enforcing the code fairly and effectively in 
some areas where questions have arisen, questions about tax 
schemes, fraudulent tax schemes, abusive tax schemes used by 
wealthy people, promoted by tax promoters to corporations and 
wealthy people.
    There appears to be, according to statistics we have, a 
growing belief in the public that the code is not being 
effectively enforced and that people can get away with it. That 
is a serious issue of citizenship, and we cannot let that idea 
take hold.
    And I think we are leaving a lot of money on the table.

                          RETURN ON INVESTMENT

    Senator Bennett. That was going to be my next question. 
Have you done any studies to see what the return on that 
investment might be? Could we look forward to recovering, by 
virtue of increased enforcement, enough money--it does not show 
up in the way we do it here on the appropriations--but looking 
at your level, would the Treasury have any possibility of 
recovering more money than the enforcement money coming in? In 
other words, get a significant return on that investment?
    Secretary Snow. Senator, I cannot prove it, but I think it 
is the case and I think it is worth trying.
    Senator Bennett. Are there any studies?
    Secretary Snow. There are studies that suggest, and these 
you have got all to take with a grain of salt, that there is a 
so-called tax gap of a couple hundred, $250 billion I have 
seen. We are asking for $300 million more in enforcement.
    Senator Bennett. Three hundred million dollars, not $300 
billion?
    Secretary Snow. Yes, against a $250 billion tax gap.
    I am alarmed about some of the tax schemes I see out there, 
and unless we can catch them in the bud, are going to erode the 
revenue line of the Federal Government. There are some really 
abusive practices out there that we have to get at. The budget 
here provides resources to go after those really abusive tax 
schemes.
    I have asked the head of the IRS, a very able fellow named 
Mark Everson, to give me a report on what comes out of the $300 
million so that when we go to OMB next year, and come before 
you, we are going to have some idea of that, and not just 
something we pull out of thin air.
    I think right now while they do so--they call them ROI 
analyses, return on investment analyses. I think they are good 
efforts, but I would not bet the farm on them.

                 IRS INFORMATION TECHNOLOGY INVESTMENT

    Senator Bennett. Okay. And finally, I made reference to 
this in my opening statement.
    What is the status of the entire IT effort in the IRS? The 
complete collapse that we saw in the 1990s, the effort of the 
last IRS Commissioner under the Clinton Administration--I am 
trying to remember his name.
    Secretary Snow. Charles Rossotti.
    Senator Bennett. Rossotti. He was a very impressive fellow, 
as he tried to get his arms around that and deal with that. 
What progress have we made on that in the intervening years?
    Secretary Snow. I think Commissioner Rossotti brought a 
tremendous amount of good management to the IRS and helped put 
it on a good path. But it is no secret that the IRS technology 
modernization has not been a model of success. And it has come 
in consistently over budget and behind the timelines. It may 
have been because our reach exceeded our grasp. We tried to 
take on too much.
    This year's budget on the modernization side, the 
technology side, is pared back significantly. It is about $100 
million, but focused on more discreet and deliverable outcomes. 
And it is getting intense management from IRS Commissioner 
Everson, from Deputy Secretary Bodman and from me, because we 
cannot afford not to have these systems proceed the way they 
were supposed to proceed, because they are the foundation for 
all of our tax collections.
    I think of this, Senator, in terms of a first-rate credit 
card company. That first-rate credit card company knows how 
much you owe them. They know when you made your last payment. 
They know what the interest due is. They know how to get a hold 
of you. They have got all of your payment records. That is 
where we need to go. And the efforts that are underway are to 
put us in a position where in the future we will be a 
counterpart, the IRS, which is a scale that is way beyond any 
credit card company. But it would have that capability, closer 
to the capability you talked about in your opening statement.
    Now there has been some real progress made. This year some 
50 million Americans are going to do e-filing. That is made 
possible by these modernization systems. You can now go to 
IRS.gov, and hit ``Where is my refund?'', and get good 
information on how to go about getting the status of your 
refund. That is real progress from where we have been.
    These e-services, including online tax identification 
numbers, are becoming more readily available. Some significant 
number of small businesses are now able to go online and file 
their taxes.
    We are a long way from being where we need to be and I 
think the IRS is approaching this in a more realistic way, by 
taking smaller bites at the apple, and making sure that the 
bites are digestible.
    Senator Bennett. Thank you.
    Senator Shelby. Senator Dorgan.

                OFFICE OF FOREIGN ASSETS CONTROL (OFAC)

    Senator Dorgan. Mr. Chairman, thank you very much.
    First, Mr. Secretary, I said good things when the President 
selected you. I like you. I think that you are a good Secretary 
of the Treasury and I remain pleased that I supported your 
confirmation.
    Secretary Snow. Thank you, sir.
    Senator Dorgan. Having said that, we disagree on some 
policy issues, as you might well imagine. And I do want to ask 
you some questions about fiscal policy because I was really 
intrigued by a couple of your answers, both to my colleague 
from Utah.
    And incidentally, with respect to that subject, the 
question of a U.S. firm that moves overseas to sell back into 
the United States is a construct that is slightly different 
than the one the Senator from Utah posed. I would like to ask 
about that, as well.
    But having said that, I want to ask you a series of 
questions that I asked Secretary O'Neill before he left, and it 
deals with travel to Cuba.
    I am going to tell you something. I am embarrassed at the 
public policy of this country and furious with what is 
happening at OFAC. So I wanted to say nice things before I 
described to you my concern about this.
    Let me hold up a couple of these charts, if I might. Let me 
hold this one up, first.
    This woman is Joanie Scott. She traveled to Cuba 4\1/2\ 
years ago to distribute free Bibles and help organize a prayer 
group. Four years later she received a fine, just recently, 
from the U.S. Treasury Department for $10,000. She went to 
distribute free Bibles in Cuba.
    Let me show you another one. This is Joan Sloate. She is 
74, a grandmother. She is a senior Olympian bicyclist. She went 
to ride her bicycle in Cuba. And OFAC fined her and, in fact, 
has attempted to take her Social Security payments in 
satisfaction of the debt. So that is Joan Sloate. I have met 
Joan Sloate, but I do not know her well.
    Let me describe another one. This is a group of Olympians 
and they are disabled. And they are out $8,000 in their attempt 
to travel to Cuba to participate in the team sports--the World 
Team Sports for Disabled Americans was abruptly cancelled 
despite the fact that they had been allowed to do that 
previously. It was abruptly canceled. They are out $8,000. Many 
of these athletes have lost the money they paid on non-
refundable flights to Miami.
    This is what is going on in OFAC. And there are more.
    Doctors, incidentally, have just been told by OFAC that 
they cannot go to Cuba and lecture and train Cuban doctors 
because the physicians in this country who have been doing 
that, to lecture and train Cuban doctors, that is an export of 
services to Cuba and Treasury says they are prohibited from 
exporting a service such as teaching Cuban doctors such things 
as strokes and comas.
    You were just in Miami. Asa Hutchinson was in Miami 
December 10. He gave a big old speech about this. And then you 
followed him in Miami on February 9, gave a big old speech, and 
both put out press releases about how you were cracking down on 
all of this.
    And my understanding is that you are, at OFAC and also in 
Transportation Security and Homeland Security, you are working 
with Customs agents and OFAC on all direct flights from Cuba 
from Miami, JFK, Los Angeles, hundreds of aircraft, tens of 
thousands of passengers--I am now quoting you--and the agents 
are being extremely meticulous.
    So apparently the results of that so far, as reported by 
Homeland Security, 215 of 45,000 travelers were suspected of 
attempting to vacation--that is a pretty serious crime. Two 
hundred eighty alcohol and tobacco violations were uncovered. 
Actually this was almost exclusively a small amount of cigars. 
Forty-two narcotic seizures, and these all involved 
prescription drugs, not heroine for example. And one hazardous 
material violation, which appears to have been carbon dioxide 
for adding fizz to seltzer water.
    So we are trying to track terrorists in this country and 
you have an organization called OFAC. I used to chair this 
subcommittee and I asked hard questions of Secretary O'Neill. I 
do not see any excuse for one person at OFAC to be doing what 
they are now doing.
    I know you are required to do it because the President and 
the White House and others are sending you to Miami to give 
speeches and ramp up this enforcement.

                             OFAC RESOURCES

    But I am going to tell you something. I am going to offer 
again an amendment to strike the money for the people that you 
have got doing this. You know and I know that the issue of 
travel to Cuba, eliminating the travel restriction, would pass 
easily in both the House and the Senate. And trying to slap 
Fidel Castro around, which is probably a pretty good thing to 
do in my judgment, but doing so by injuring the right and the 
freedom of the American people to travel is an outrage. Fining 
somebody who is distributing free Bibles in Cuba is a shame.
    So Mr. Secretary, what I would like to do, I am sorry you 
had to listen to a lecture about that but it is the only 
opportunity I have.
    I am going to ask you to identify for me, in a submission 
to this subcommittee, the amount of resources that OFAC is now 
using, the number of people, the number of dollars, the amount 
of time to engage in this approach, to chase women who are 
distributing free Bibles in Cuba, to chase retired women who 
are bicycling in Cuba, to try to stop doctors who would teach 
Cuban doctors about stroke and comas and so on.
    And then I will tell you that I will be asking if we can 
have an amendment and have a vote on the amendment about 
whether that is an effective and an appropriate use of 
resources.
    It would be unfair for me not to allow you to respond, to 
give the standard response to this. But Mr. Secretary, go 
ahead.
    Secretary Snow. Thank you, Senator.
    I know how strongly you feel on this issue, from our 
correspondence.
    What I would say is that in those areas that you 
elaborated, humanitarian aid, education, travel, medicine, 
religious efforts, my understanding is that licenses are 
available and the problem is that people are going without 
getting the appropriate licenses. Maybe we need to do a better 
job of simply making clear that people can go if they have the 
appropriate licenses.
    I hope OFAC, and I am going to check on this when I get 
back to Treasury, is putting appropriate resources into making 
available knowledge of when such travel is appropriate pursuant 
to the appropriate license.
    [The information follows:]

                          Resource Information

    OFAC's Salaries and Expenses for fiscal year 2004 enacted budget is 
$21.726 million and 138 full time equivalent (FTE) level. Currently, 
the total amount of funds directly attributable to the Cuba sanctions 
regime is $3.3 million. OFAC has the equivalent of 21 FTEs who work on 
a wide variety of Cuban embargo matters, including travel-related 
matters. Supervisory personnel are also actively involved in the 
process.

                    LICENSING INFORMATION RESOURCES

    Treasury's Office of Foreign Assets Control (OFAC) has taken 
measures to make information available to the public concerning the 
U.S. policy with respect to travel to Cuba. They have published a 
brochure entitled ``Cuba: What You Need to Know About the Embargo,'' 
which is available through their fax-on-demand service and on their 
Internet website at www.treas.gov/ofac, that provide information in lay 
terms. This brochure summarizes the most salient features of the 
sanctions program, including the travel provisions. There is also a 
separate two-page brochure, in both English and Spanish, covering just 
the travel restrictions and licensing provisions. There are also 
approximately 200 travel and carrier service providers authorized to 
engage in transactions with Cuba to make travel arrangements for 
licensed travelers. OFAC's Miami office provides training and ongoing 
guidance to the service providers who pass on information about U.S. 
Government requirements for travel to Cuba.
    Last year, OFAC's Licensing Division issued ``Comprehensive 
Guidelines for License Applications to Engage in Travel-Related 
Transactions Involving Cuba'' which is available on OFAC's website. The 
Application Guidelines have an introduction discussing the policy 
surrounding travel to Cuba, including statutory restrictions limiting 
travel licensing to 12 categories of activities, information on what is 
covered under each licensable category of travel, and information to 
applicants of what information should be furnished in the application 
in order to receive a license. For each category of travel, the 
Application Guidelines provide examples of activities that are 
licensable and not licensable in order to give applicants an idea of 
what would be appropriately within the scope of current U.S. policy 
with respect to travel to Cuba. The Licensing Division also has 
information in the travel advisory on Cuba that the State Department 
makes available in its travel advisory system where information is 
provided to the public covering most countries of the world.

    Senator Dorgan. Mr. Secretary, in fact it is not the case 
that those activities are acceptable and approved by the 
Treasury Department. I mentioned to you the circumstance of the 
disabled athletes. They were specifically denied the 
opportunity to travel, despite the fact that they had been 
allowed to travel previously.
    I mentioned that the physicians, who have previously gone 
to Cuba to teach and to lecture, are now told that constitutes 
the delivery of a service to Cuba, which is not legal and 
therefore will not be allowed.
    So my point to you is, while I think most people believe 
this travel research is being administered reasonably, it is 
not the case that humanitarian activities, educational 
activities, medical activities and others is routinely 
excepted.
    There is in this administration, both at the State 
Department and in other areas and at OFAC, and it is trumpeted 
in press releases from your office as well as Asa Hutchinson 
and Homeland Security, that there is this crackdown.
    And the other point of it is that we have apparently people 
checking every passenger on every plane. And I am going to 
spend a little time trying to determine whether we are doing 
quite as much to try to keep terrorists out of the country as 
we are to try to keep a few cigars out of the country. I do not 
know quite how I will get to all of that.
    My only point to you this, I hope you will look into that 
because I think you have an understanding that is different 
than is actually occurring with respect to OFAC.
    But my point is I think this policy is bad policy and 
things have changed dramatically in the crackdown with respect 
to trying to injure the American people who in many cases--the 
young woman who took Bibles to Cuba did so 4\1/2\ years ago. 
She did not have the foggiest idea she needed a license. So she 
apparently made a mistake, the mistake of taking free Bibles to 
distribute in Cuba. Now she is being slapped with a $10,000 
fine.
    Mr. Chairman, I had indicated that I wanted to ask a couple 
of questions about fiscal policy. I will wait for another 
round, if that is appropriate.

                       PUBLIC POLICY ON TAX CODE

    Senator Shelby. Okay, thank you, Senator Dorgan.
    Secretary Snow, let me offer a comment to your exchange 
with Senator Murray a few minutes ago. I think there is a big 
difference, and I would hope that you would agree with me, 
about the fiduciary duty that an executive of a company owes to 
the stockholders. We know who owns the companies: the 
stockholders own the companies. Management does not own 
companies. And they did have a duty, I totally agree, to 
enhance profits to make money. That is why they are created, 
primarily.
    But making public policy is a totally different thing from 
that responsibility. I think you are dealing with apples and 
oranges.
    If we have a tax policy that encourages our companies to go 
overseas, I think that is bad public policy. I understand we 
have to trade. We have got to trade; it is a two-way street.
    I would like to see us make public policy in our tax code 
that would encourage people to invest here rather than 
overseas, as I think do most people. I do not know how you feel 
about that, but that is my own observation.
    Secretary Snow. Senator, we have incorporated in this 
year's proposals that we have sent to the Congress, some 
efforts to deal with tax havens, with the interest stripping 
provisions which create the juice in the transactions that take 
firms to these tax havens, and so on. So I agree broadly with 
what you say, that the tax code certainly should not encourage 
that sort of activity.

                  COORDINATION WITH HOMELAND SECURITY

    Senator Shelby. I want to touch again on Homeland Security. 
I am looking at a statement sent out by the Department of 
Homeland Security, by Secretary Ridge.
    Among other things, he said under the SHARE program, which 
is the Systematic Homeland Approach to Reducing Exploitation 
Program, officials from ICE will be joined by the Secret 
Service to jointly conduct semiannual meetings with the 
executive members of the financial and trade communities 
impacted by money-laundering, identity theft and other 
financial crimes to share data on specific investigative 
outcomes from investigations into money-laundering, identity 
theft, and other financial crimes.
    Now, you are not ceding any of your jurisdiction to 
Homeland Security by what they do? You are trying to coordinate 
with them--is there not a difference here?
    Secretary Snow. Absolutely, and we coordinate very closely 
through intergovernmental task forces. And I think the roles 
really are well understood.
    Our primacy comes with respect to the national money-
laundering strategy. It comes with respect to enforcing the 
various provisions of the Bank Secrecy Act and the executive 
order dealing with terrorist finance.
    Senator Shelby. Also, from your statutory authority over 
the financial institutions.
    Secretary Snow. And the statutory authority over financial 
institutions. And that Treasury chairs the President's Working 
Group on Financial Institutions which is the Federal Reserve 
and the Securities and Exchange Commission (SEC) Chair and the 
head of the Commodities Futures Trading Commission. And where 
necessary, we will share information with--and desirable--with 
the Department of Homeland Security (DHS). But their role is 
really different. Ours is more the broad policy, implementing 
those statutes and executive orders, interdicting the flow of 
money, and making sure that banks know their customers. Making 
sure that the information is being shared, and that we get 
through our databanks at FinCEN, with local, State and other 
Federal authorities.
    DHS has an important role to play, but it is a different 
role.

                    EARNED INCOME TAX CREDIT (EITC)

    Senator Shelby. Mr. Secretary, I want to discuss the Earned 
Income Tax Credit (EITC) for just a minute. We have been told 
by the IRS Commissioner last year that there are a lot of 
erroneous and fraudulent EITC claims that are estimated to cost 
the government between $8 billion and $10 billion annually.
    We all want people who would qualify for this benefit to 
get it. But where you are duplicating the benefits, it seems to 
me that the IRS and Treasury are in dire need of some kind of 
systems reform to be able to check who is doing what.
    You referenced some of the financial institutions. If it 
were American Express or any of these credit card companies, 
they certainly would cross-reference everything. I cannot 
imagine them letting happen what is happening with EITC claims.
    Are you interested in more money to go after cheats and 
fraudulent things? Heck yes, and we want to make sure you do 
it. But you are sitting on tons of money if you would do your 
job properly. Not just you, but others at the Department.
    And if we are losing $8 billion to $10 billion a year 
because of fraud or fraudulent and erroneous claims, something 
is wrong, big time. And we are talking about billions, not 
hundreds of millions.
    Secretary Snow. Senator, there is something wrong here.
    Senator Shelby. What are you going to do about it?
    Secretary Snow. We are engaged in some pilot projects right 
now to try to figure out what to do about it, to be honest with 
you, because we do not have all the answers readily at hand.
    Senator Shelby. Have you thought about outsourcing this? 
Private-sector banks that do this every day are getting 
consultants in there. We can not afford to wait 2 years from 
now for answers and have the same rate of fradulent and 
erroneous claims that you had 2 years ago.
    Secretary Snow. I think we can fix this, but this is an 
extraordinarily complex program where----
    Senator Shelby. But complexity does not mean you cannot run 
it with integrity.
    Secretary Snow. We can run it and we will. The key to it is 
getting eligibility criteria well-established so the people who 
are eligible get the payments.
    Senator Shelby. Absolutely.
    Secretary Snow. And those who are not do not. And 
unfortunately, these error rates are just extraordinary.
    Senator Shelby. Let us stop a minute.
    How are you going to come about with the eligibility 
criteria that you need?
    Secretary Snow. By getting databases that tell us when two 
people not living in the same household are claiming the same 
child. And that is happening.
    Senator Shelby. Looks like a computer or good software 
system could do this for you. That is what we have been told.
    Secretary Snow. We are doing pilot projects right now to 
try and get at that very problem. A lot of the cost of this 
program, and it is a shame for the eligible participants who 
were properly getting the checks, is we do an extraordinary 
amount of post-audits and burden people who are properly 
getting the monies with post-audits and are sending checks to a 
lot of people who do not deserve the checks.
    I do not know whether it is fraud as much--there is 
probably some in this.
    Senator Shelby. But it is wrong.
    Secretary Snow. It is just wrong. It is errors--mistakes 
and errors.
    Senator Shelby. Let us say it is not fraud, but it is 
erroneous and the people mean well. You need the criteria to 
separate what is the real from the apparent, do you not?
    Secretary Snow. Yes, we do.
    Senator Shelby. And how are you going to do this? I know I 
heard last year that you had a pilot program. I may have heard 
it the year before.
    But these erroneous payments and so on could have cost the 
Treasury $100 billion. That is not chicken feed.
    Secretary Snow. You mean over a 10-year period or 
something?
    Senator Shelby. Yes, sir. It is nothing to ignore.
    Secretary Snow. We owe you an answer. We owe the American 
taxpayers an answer on this.

                          TAX CODE DEFINITIONS

    Senator Shelby. I think you owe the American taxpayer an 
answer.
    Secretary Snow. For certain, we owe the American taxpayers 
an answer.
    One thing is getting a uniform definition of a child. 
Apparently in the code today, one of the complexities is we 
have six, I am told, different definitions of a child. If we 
could settle on one definition of a child.
    Filing status is an issue. What is the filing--is that 
person really the head of the household and the parent or not? 
When various people are claiming the child as their dependent. 
So getting the databases fixed.
    Senator Shelby. Looks to me like a good software program is 
needed to keep you from paying the EITC benefit here and from 
paying it there for the same child. It looks like you could 
find that the government is allowing someone in Alabama to 
claim EITC and someone else in Illinois or somewhere else for 
the identical benefit. And especially with the enormous amounts 
of money involved, I do not understand why you would not want 
to eliminate these erroneous and fraudulent payments.
    Secretary Snow. This program does involve tens of millions 
of Americans.
    Senator Shelby. We understand what it involves.
    Secretary Snow. Which adds to the complexity.
    Senator Shelby. But what is right and honest is right and 
honest, is it not?
    Secretary Snow. It is, and to make it right and honest, we 
need the systems in it at the front end of the EITC program 
rather than what happens today, which is an awful lot of 
checking and rechecking and checking and rechecking.

                         ADMINISTRATION OF EITC

    Senator Shelby. Mr. Secretary, who administers the EITC 
program?
    Secretary Snow. It is administered by the IRS.
    Senator Shelby. The Internal Revenue Service. The Internal 
Revenue Service is part of Treasury, is that correct?
    Secretary Snow. Yes, it is.
    Senator Shelby. So the buck stops here with the 
Commissioner of the Internal Revenue Service.
    Secretary Snow. That is right. And the Commissioner of the 
Internal Revenue has pledged to me that this issue is getting 
his full attention, that he is on top of these pilot projects. 
In fact, he made the decision last year to modify the pilot 
projects and not put into place the fixes on the EITC before we 
had the real results back.
    I think this is as complex as it is is a little baffling, 
but it involves the fact that there are just so many claimants 
in an environment that it is so hard to really manage, with 
definitions of child that are not uniform, with poor 
information about dependents and who can claim dependents, poor 
information about actual parentage. We have got a real data 
collection and management problem here.
    But there are three pilot projects going after the major 
components of the problem.
    Senator Shelby. I hope that we hear good news down the road 
to stop all people who are either fraudulent or erroneously 
filing things with the IRS.
    Senator Murray.
    Senator Murray. Thank you, Mr. Chairman.
    Let us just not forget that there is another side to the 
EITC issue which is many, many poor taxpayers who do not know 
they are eligible who we are not giving their payments to. And 
that is part of the error rate that we do not want to lose in 
this.
    Secretary Snow. Senator, I agree with you. That is a part 
of the whole problem.

                      PRIVATE COLLECTION AGENCIES

    Senator Shelby. We do not want to hurt anybody.
    Senator Murray. Mr. Secretary, as I talked about in my 
opening statement, IRS has proposed the use of private debt 
collectors to collect tax debts. And as I said, I am really 
uneasy about this proposal because of the abysmal record of the 
IRS in protecting the privacy of taxpayers.
    In fact, when the IRS tried the use of private collection 
agencies in a pilot a couple of years ago, it was just fraught 
with problems. Then, in February of 2003, the IG noted the 
extraordinarily lax record of IRS in administering background 
checks for IRS contractors, including contractors that have 
access to sensitive tax data.
    And then just last month the IG found that contractors 
committed numerous security violations that placed IRS 
equipment and taxpayer data at risk. In some, cases contractors 
blatantly circumvented IRS policies and procedures, even when 
security personnel identified inappropriate practices.
    For example, one disgruntled contractor employee planted a 
computer time bomb on a computer system that would have 
destroyed sensitive taxpayer data. And another contractor 
employee connected an unsecured computer to the IRS computer 
network, which permitted the introduction of a virus into the 
IRS computer system costing $1.5 million in downtime and 
cleanup costs.
    Mr. Secretary, given the fact that some of these findings 
were published just last month, why should we believe that the 
IRS is in a position to protect taxpayer information and 
privacy when they hand over the responsibility to collect tax 
debts to private contractors?
    Secretary Snow. Senator, I would agree with you that the 
prior experience with the private collection agencies did not 
go well. It was not a success. It was not as well-planned, as 
well thought out, as well structured as it should have been.
    I think we have learned a lot of lessons from that prior 
experience that will be applied here if Congress authorizes IRS 
to go forward with the private collection agencies.
    We are acutely aware of the protection of the taxpayer 
rights, the private collection agencies would have no 
enforcement power. They would go through intensive training 
about their role, which is not enforcement but just collection. 
They would go through intensive training on their legal 
responsibilities to taxpayers, including protection of 
confidentiality of taxpayer information.
    This is really an effort on the part of the IRS to free up 
highly trained IRS auditors and examiners to do more complex 
work and use the collection agencies for what you might call 
the low hanging fruit. That is, calling people up, notifying 
them, reminding them that they have got an overdue tax bill, 
but not bringing any enforcement action of any kind.
    The thought here is that a lot of people, if they are 
notified that they have an overdue tax bill and somebody calls 
them up and pays some attention to them, they are compliant and 
they would therefore be prepared to make their appropriate 
payments. These are paid immediately or with some installment 
plan.

                     PROTECTION OF TAXPAYER RIGHTS

    Senator Murray. Mr. Secretary, I want to see what specific 
steps have been taken and what specific steps will be taken to 
protect privacy and to protect individual taxpayer data before 
I think this committee should move forward in moving in some 
kind of direction like that. I think that is extremely 
critical.
    Secretary Snow. Senator, I agree with you. I think it is 
absolutely critical that taxpayer rights be protected here and 
our proposal would mandate that the IRS monitor the activities 
of these private collection agencies closely, monitor their 
performance and deal----
    Senator Murray. Monitoring is after-the-fact.
    Secretary Snow [continuing]. Appropriately with it. There 
is the prior training. There would be intensive training, and 
there would be continuous monitoring. And then there would be 
penalties for those who hopefully----
    Senator Murray. If somebody has already planted a computer 
time bomb, monitoring is not going to do anything but show you 
that it has happened.
    Secretary Snow. Senator, there is a big opportunity here to 
help collect some overdue monies using these resources that 
will not cost the Federal Government anything. And we are very 
sensitive to the issues you are talking about and we will go to 
great lengths to see that, as I say, the confidentiality and 
the information is protected and that taxpayer rights are fully 
protected.

                 TERRORIST USE OF CHARITY ORGANIZATIONS

    Senator Murray. I will be following this issue very closely 
because I am deeply concerned about that, but my time is 
limited and I do want to ask you about funneling cash to 
terrorist organizations, as I also mentioned in my opening 
statement.
    As you know, our government has linked some 23 charitable 
organizations with the al Qaeda network. And it has been a 
long-standing practice for terrorist organizations around the 
globe to use charitable giving as an avenue for their 
resources.
    There appear to be some continuing disagreements between 
our government and the governments of the European Union as to 
which charities should be designated as being associated with 
these terrorist organizations. A number of international 
charities that are listed by the United States have not been 
listed by the European nations.
    Do you believe the nations of Europe attach a significant 
amount of importance and commitment to combat terrorist 
funding?
    Secretary Snow. Senator, I think we have made a lot of 
progress, but not enough. I think there needs to be more focus 
on the issue you are talking about here. I do not buy the 
distinction that some countries make between funding for a 
charity that goes for charitable purposes and funding to a 
charity that ends up going for terrorist purposes.
    Our policy is that if a charity is getting funding that 
goes for terrorist purposes, we designate that charity, as we 
have done on a number of occasions where urging other countries 
who are part of this FATF, the Financial Action Task Force, on 
Terrorist Finance to do the same. We have made progress in some 
places, not total progress in others.

                        DESIGNATION OF CHARITIES

    Senator Murray. Which ones have we made progress with and 
which ones do we need to make progress with?
    Secretary Snow. We have made actually a lot of progress on 
the whole subject. In the last several months, with Saudi 
Arabia, we have named any number of Al-Haramain branch offices 
around the world. And I can give you a full listing of all the 
designations. But there are a number of designations of 
charities now that have occurred.
    In Europe, there is some reluctance to designate a charity 
in its totality. Money is money, and money that goes into a 
charitable organization is fungible with money that is used for 
good purposes and terrorist purposes.
    [The information follows:]

                        Designation Information

    Not all of the charities designated by the United States are linked 
to al Qaida. Those that are have been submitted to the United Nations 
1267 Sanctions Committee, where most have now been added to their 
consolidated list. Several others, however, were designated by the 
United States solely because of their ties to Hamas, e.g., the U.S.-
based Holy Land Foundation for Relief and Development, the Al Aqsa 
Foundation, and the five mostly-European based charities designated by 
the United States last August.
    To the extent a person or entity is designated by the United 
Nations because of its ties to al Qaida, the Taliban, or Usama bin 
Ladin, the mechanism within the European Union automatically triggers 
designation by the E.U. Clearinghouse (requiring all member countries 
to freeze the assets of the designated entity).
    The U.N./Clearinghouse-linked process does not capture the U.S. 
designations of charities that are tied to HAMAS or Hizballah. 
Designation by the E.U. Clearinghouse without a U.N. designation 
requires unanimous consent. Absent a Clearinghouse decision, many E.U. 
countries do not have independent national authority to freeze assets, 
others lack the political will to take unilateral action.
    The European Union's decision last September to designate Hamas as 
a terrorist group in its entirety represents an important first step 
towards our position. We continue to push them on implementing this 
decision by designating Hamas charities operating in Europe. As of this 
date, the European Union has not designated any of the Hamas-affiliated 
charities designated by the United States.
    As a government, we are approaching this issue from many levels. We 
have made clear our position on Hamas, and other such terrorist groups, 
to our partners around the world. We are beginning to see a ``sea 
change'' of the European attitude on this matter, based in large part 
on the U.S. efforts to change attitudes and policies.
    Part of these efforts include aggressive education on the 
requirements of UNSCR 1373, which requires all member countries to 
respond with actions to freeze assets when presented with credible 
information from another country that the individual/entity to be 
designated has been providing support to terrorists and terrorist 
organizations. This is also one of the requirements adopted by the 
Financial Action Task Force. Accomplishing this task will require a 
change in the E.U. Clearinghouse process and/or countries enacting 
separate authority to designate independent of the European Union and 
having the political will to use such authority.

    Senator Murray. But what about Indonesia and Pakistan?
    Secretary Snow. When I was in Indonesia, we designated JI. 
I will get you a complete list of all these designations, but 
more need to come.
    But it is interesting that Saudi Arabia has taken the steps 
that they have taken.
    Senator Murray. Are you satisfied that they are actually 
enforcing the new restrictions that they have put in place?
    Secretary Snow. I think they are. Yes, I do. I think they 
take this very seriously. And of course, Al-Haramain is to them 
what the United Way is to us. It is their major charity. So 
good important progress is being made, but I think the 
distinction that some countries make between the good functions 
of charities and the terrorist functions of charities is an 
artificial and false distinction.
    Senator Murray. Thank you, Mr. Secretary. And I know my 
time is limited. I need to go to another committee, as well.
    I would like to submit my other questions for the record.
    Senator Shelby. Without objection, it will be ordered.
    Also along those lines, Senator Dorgan has a number of 
questions, Mr. Secretary, that he would submit for the record.
    Secretary Snow. I would be happy to respond, Mr. Chairman.
    Senator Shelby. I also have a number of questions that I 
will submit for the record. You usually are very prompt in 
answering, and we appreciate that.
    Mr. Secretary, what are your thoughts on Chinese currency? 
We have talked about that privately. We have both been to 
Beijing to talk with them about floating their currency, or at 
least within a more realistic band as to its real worth. They 
are buying a lot of the commodities of the world. Commodities 
have gone up in price. Not just steel scrap, of which they are 
buying a lot, but ore, metals, you name it. So they are going 
to have a problem there.
    Do you have any observations on that?
    Secretary Snow. Well, I do, Mr. Chairman. I thank you for 
raising the question and giving me an opportunity to discuss it 
with you and compliment you on the good work you did on your 
mission last fall.
    Senator Shelby. We think they heard us, but they did not 
change anything, at least then, did they?
    Secretary Snow. I think the fact that they hear us is 
important and I think what we are saying is being listened to. 
They have committed again to move towards flexibility in the 
currency. They are taking a number of steps to prepare the way 
to do that, going after the bad loans in the banking system, 
taking steps to widen the amount of funds that can be brought 
in and out of the country, relaxing capital controls, putting 
in place a strong bank regulator, allowing non-Chinese firms to 
buy bad loans and take them off the government books which is 
important as we did back with the RTC, with the savings-and-
loan crisis, advice we gave them and suggested they might want 
to study our savings-and-loan experience.
    Senator Shelby. But will that reoccur, though, as long as 
they have state-owned industries and state-owned banks making 
loans to state-owned industries which are not making any money 
because of the political equation?
    Secretary Snow. Mr. Chairman, that is the root problem, 
that is the root issue. And they understand that and are 
working to see that the capital that goes into the banking 
system goes to support real liable private enterprises and 
withdrawing more and more from the state enterprises.
    I think that is the course they are on because they 
recognize that capital going to the state enterprises is not 
getting the return for the Chinese people that capital going 
into the private enterprises is. And it is perpetuating the 
problem.
    Now they have an awful lot of people working in those state 
enterprises, and their dilemma is to create the jobs.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Shelby. They have got a political problem there.
    Secretary Snow. They have got a political problem.
    We appointed last week Ambassador Speltz, who is our 
representative to the Asian Development Bank, to be the 
Treasury's Personal Representative to the Chinese government on 
these currency and financial market issues. And it was well 
received by the Chinese.
    Treasury has an ongoing, very productive, dialogue with 
China. A technical team is just back from China where we 
interacted with the Chinese on a whole range of financial 
market issues.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

            Questions Submitted by Senator Richard C. Shelby

                          DEPARTMENTAL OFFICES

    Question. Please update the committee on the status of hiring for 
initiatives that were funded in Fiscal Year 2004 Transportation-
Treasury Appropriations bill.
    Answer. The Executive Office for Terrorist Financing and Financial 
Crimes hired 11 of its 14 positions; International Affairs has hired 1 
of its 10 positions and made offers for the remaining 9 positions.
    Question. In fiscal year 2004, the Departmental Offices received 
$2.285 million to hire 19 positions for the Office of Terrorist 
Financing and Financial Crimes and $2.73 million to hire 10 positions 
for International Affairs. Please provide a financial plan for each of 
these initiatives and the hiring status of these positions, including 
the types of positions and responsibilities devoted to these new FTEs.
    Answer. The financial plans are shown below:

   FINANCIAL PLAN FOR FISCAL YEAR 2004 EXECUTIVE OFFICE FOR TERRORIST
                     FINANCING AND FINANCIAL CRIMES
                        [In thousands of dollars]
------------------------------------------------------------------------
        Budget Object Class             Amount             Status
------------------------------------------------------------------------
Salaries..........................           1,622  The Conference
                                                     Report limits the
                                                     office to 14 FTE of
                                                     which 11 have been
                                                     hired and the
                                                     remaining 3 will be
                                                     on board by the end
                                                     of the fiscal year.
Benefits..........................             260
Travel............................             100
Rent, Utilities...................              25
Other Services\1\.................             263
Supplies..........................               9
Equipment.........................               6
                                   -------------------------------------
      Total.......................           2,285
------------------------------------------------------------------------
\1\ Includes SEAT Management computer equipment and software as well as
  security reviews/clearances.

    Type of Positions:
  --Deputy Assistant Secretary (1)
  --Director, Money Laundering and Financial Crimes Policy (1)
  --Senior Policy Analyst (1)
  --Financial Crimes Specialist (3)
  --Senior Advisor (2)
  --Terrorist Financing Specialist (1)
  --Program Analyst (3)
  --Review Analyst and Schedule Coordinator (1)
  --Clerk (1)
    However, it should be noted that the fiscal year 2004 bill provided 
for 14 positions, not 19.

  FINANCIAL PLAN FOR FISCAL YEAR 2004 INTERNATIONAL AFFAIRS INITIATIVE
                        [In thousands of dollars]
------------------------------------------------------------------------
        Budget Object Class             Amount             Status
------------------------------------------------------------------------
Salaries..........................             961  The 10 positions are
                                                     International
                                                     Economists. Of the
                                                     10, 1 position has
                                                     been filled and
                                                     offers have been
                                                     made to qualified
                                                     individuals to fill
                                                     the other 9.
Benefits..........................             215
Travel............................             200
Rent, Utilities, Misc.............             100
Other Services\1\.................           1,233
Supplies..........................               7
Equipment.........................              14
                                   -------------------------------------
      Total.......................           2,730
------------------------------------------------------------------------
\1\ Includes SEAT Management computer equipment/software, training,
  translation services, security review/clearances, and other services.

    Question. How many FTE are currently working in the Office of 
Terrorist Financing?
    Answer. Currently, there are 11 FTEs in the Executive Office for 
Terrorist Financing and Financial Crimes.
    Question. Please provide the justifications and the methodology for 
determining the business strategy adjustments included in the fiscal 
year 2005 budgets of the Fiscal Bureaus.
    Answer. Treasury encourages its bureaus to review program 
performance for opportunities to redirect resources from obsolete and 
low performing programs to those which are mandatory or higher 
priority.
    The fiscal year 2005 budget request reflects these efforts for two 
of Treasury's bureaus which identified business strategy adjustments as 
follows:
  --The Financial Management Service request includes a reduction of 
        $5.163 million. It is proposed that these costs will be 
        reimbursed through the Debt Collection Program.
  --The Bureau of Public Debt request includes a $967,000 reduction as 
        a result of withdrawal of the Series HH bonds.
    Question. A large portion of the Law Enforcement function was 
transferred from Treasury to Homeland Security and Justice in fiscal 
year 2003. Please define the Department's current role in the area of 
Law Enforcement.
    Answer. Treasury still plays an important role in law enforcement--
our expertise, data, and resources are crucial for following the money 
and stopping financial crimes, including money laundering, terrorist 
financing, and tax-related fraud. Treasury is responsible for 
administering the Bank Secrecy Act, including many of the provisions in 
the USA PATRIOT Act. It also has the authority to employ Geographic 
Targeting Orders (31 USC 5326) to attack money laundering systems 
domestically, and to employ USA PATRIOT Act Section 311 ``special 
measures'' for foreign financial threats. A description of Treasury's 
Law Enforcement function by office follows:
  --Internal Revenue Service-Criminal Investigation Division (IRS-CI) 
        is a crucial player investigation of criminal tax-related 
        offenses and in the areas of money laundering and terrorist 
        financing. IRS-CI has demonstrated its expertise by 
        identifying, tracing and attacking the laundering of drug and 
        other criminal enterprise proceeds, and assisting in the 
        government's anti-terrorist financing investigations.
  --Treasury Inspector General for Tax Administration (TIGTA) is 
        responsible for oversight of IRS operations and investigation 
        of criminal assaults and threats against IRS facilities, 
        personnel, and infrastructure. TIGTA plays an integral role in 
        Treasury's liaison with the FBI Joint Terrorism Task Force and 
        other Federal entities that share intelligence relating to 
        threats.
  --Financial Crimes Enforcement Network (FinCEN) is the keeper of Bank 
        Secrecy Act data, and serves as an information hub for the law 
        enforcement community, working directly with law enforcement to 
        provide support in the field.
  --The Office of Foreign Assets Control (OFAC) works directly with the 
        law enforcement community--such as the former Customs bureau 
        and the FBI--to ensure the application of the criminal law to 
        those violating U.S. sanctions.
  --The Treasury Executive Office of Asset Forfeiture (TEOAF) manages 
        asset forfeiture funds for the Treasury Department and the 
        Department of Homeland Security. Treasury uses this 
        responsibility to provide resources to law enforcement for key 
        projects and initiatives that combat crime.
    Question. The fiscal year 2005 budget requests $20.3 million to 
complete the Treasury Building and Annex Repair and Restoration 
project. When is the scheduled completion date?
    Answer. The anticipated final completion date is December 2005. 
Phases 1 and 2 have been completed and Phase 3 is on schedule to be 
completed by August 2004. Phase 4 (final phase) has begun and all 
construction activities are planned for completion by December 2005. 
This completion date assumes the availability of the $7 million 
withheld from the fiscal year 2004 appropriation until further 
committee approval and full funding of the fiscal year 2005 budget 
request of $20.3 million.
    Question. Will this be the last year that an appropriation is 
necessary for this account?
    Answer. Yes, fiscal year 2005 will be the last year that we request 
funding for the TBARR account. However, some critical repairs to the 
Main Treasury building have been deferred or cancelled in order to meet 
the December 2005 deadline with no additional resources. It is 
anticipated that additional funding will be required in future years to 
complete these critical repairs and other deferred maintenance projects 
in the Main Treasury and Annex buildings. This funding will not be 
requested under the TBARR account but as on-going maintenance and 
replacement expenses through the Salaries and Expenses, no-year, 
Repairs and Improvements account.
    Question. The fiscal year 2005 budget request includes $1.9 million 
for the establishment of an Office of Emergency Preparedness. What will 
be the responsibilities of this new office? What office carried out 
this function in the past? Were there any appropriated expenses for 
this function/office in fiscal year 2004 and prior years?
    Answer. During this current fiscal year, the Department of Treasury 
recognized the importance of a more focused effort to establish and 
maintain viable and executable plans (in accordance with Presidential 
Decision Directive (PDD) 67, ``Enduring Constitutional Government'' and 
Executive Order (EO) 12656, ``Assignment of Emergency Preparedness 
Responsibilities''), to ensure the continuity of its essential 
functions during any conceivable emergency condition--especially 
conditions denigrating or eliminating Treasury's ability to operate 
from its downtown locations. More specifically, the Department of 
Treasury's Office of Emergency Preparedness (OEP) will be responsible 
for improving the operating capabilities in a number of critical areas 
listed below:
  --Treasury Emergency Management Center Operations;
  --Continuity of Operations (COOP) Planning, Operations, and Alternate 
        Operating Facility;
  --Continuity of Government (COG) Planning, Operations, and Alternate 
        Operating Facility;
  --Emergency Management Policy and Guidance;
  --Treasury Emergency Preparedness Test, Training & Exercise (TT&E) 
        Program;
  --Coordination and Oversight of Treasury Bureau Emergency Management 
        Programs;
  --Treasury Headquarters Evacuation and Shelter-in-Place Planning and 
        Operations.
    The function of National Security Emergency Preparedness was 
previously in the Office of Security and Continuity Planning, in the 
Office of the Chief Information Officer. There were no expenses for 
this office in fiscal year 2003 and prior; however, we expect to 
obligate $177,000 in fiscal year 2004.
    Question. A large part of the Treasury request for Departmental 
Offices is related to reimbursing the Secret Service $2.4 million for 
protective service. Is the USSS the only force available to provide 
this protection? What were the costs related to this activity in fiscal 
year 2004?
    Answer. The USSS provides protection to the Secretary of the 
Treasury. In fiscal year 2004, the United States Secret Service (USSS) 
and the Department of the Treasury signed a Memorandum of Understanding 
whereby the Department of the Treasury would reimburse USSS for only 
the travel costs incurred protecting the Secretary, which were 
estimated at $1.2 million. Starting in fiscal year 2005, the Department 
of the Treasury will reimburse the USSS for the full cost of protecting 
the Secretary of the Treasury (including personnel compensation and 
overtime pay), currently estimated at $2.5 million.
    Question. How was the amount of $2.4 million derived (please 
provide detail)? With the payment by the Treasury Department of such 
expense, what is the likelihood that the USSS will begin to charge the 
Department for other costs associated with protection of the White 
House Complex that Treasury is a part of?
    Answer. On March 4, 2003, the President of the United States issued 
a memorandum to the Secretary of Homeland Security directing the USSS 
to continue providing physical protection for the Secretary of the 
Treasury. The funding estimates for providing this security were 
prepared by the USSS and a copy is provided below. We do not anticipate 
other additional costs associated with the protection of the Secretary 
of the Treasury. In addition to the protection provided by the USSS for 
the Secretary of the Treasury, the USSS also protects the Treasury 
Headquarters Building located to the east of the White House. Since the 
USSS is mandated by statute to protect the buildings in the White House 
complex, it has no authority to request reimbursement from the 
Department of the Treasury for protection of that building. 



    Question. Has the analysis and proposal of this budget request 
included a cost analysis of other Government Building Security 
operations to determine that this is the best and most cost effective 
alternative for the Department?
    Answer. A cost analysis of other protective services was not 
performed because the Secret Service has traditionally protected the 
Secretary of the Treasury.
    Question. Does the budget proposal cover all costs that USSS can 
charge the department in fiscal year 2005?
    Answer. The Department anticipates the fiscal year 2005 cost will 
reflect increases for salaries, benefits and inflation. The USSS has 
not notified the Department of any other increases in fiscal year 2005.
    Question. Do other agencies pay the USSS for fulfilling their 
protective mission?
    Answer. Currently, the Secretaries of Homeland Security and 
Treasury are the only Federal agency heads who receive USSS protection. 
Since the USSS is part of the Department of Homeland Security, it 
provides physical protection to the Secretary of Homeland Security 
without reimbursement. Because the USSS is no longer a component of the 
Department of the Treasury, it is reimbursed for the cost of physical 
protection of the Secretary of the Treasury.
    Question. Please provide the total program costs for implementing 
and running HR Connect. With well over $200 million invested, is 
Treasury getting the value promised from this investment?
    Answer. Yes, Treasury is getting the value promised from its 
investment in HR Connect. The web-enabled system, now operational in 
all but one Treasury bureau, has the ability to replace the more than 
100 paper-intensive, bureau-unique systems that cost more than $23 
million annually to maintain. Of the 30 features envisioned for the 
system, 20 have been implemented, 6 are being developed now, and 4 have 
been subsumed by other efforts. In addition, the centralized system has 
provided Treasury with enterprise-wide reporting and sophisticated HR 
management tools. Unforeseen benefits have resulted, as well. The 
system has elevated Treasury's e-Government compliance level, and OPM 
has nominated HR Connect as one of four ``Best in Breed'' interoperable 
common HR solutions.
    Question. Is this system providing savings? If so, please provide 
the savings achieved since the program became operational.
    Answer. Significant savings have been realized with HR Connect. To 
date, quantitative benefits have been captured in three distinct 
categories: $7.8 million in productivity savings, $17.9 million in 
reduction of 222 staff from the HR organization, and $2 million annual 
operational savings through legacy systems retirement. (Productivity 
savings are attributable to time saved by line organizations, or non-HR 
staff. The HR Connect Program Office (HRCPO) anticipates that the saved 
time will not result in reduction of line staff, but rather in re-
direction of staff to other mission critical activities.) In subsequent 
years, additional savings are anticipated. In fiscal year 2005, HRCPO 
estimates $10.0 million in productivity savings, $33.9 million in staff 
reductions, and $12.4 million in legacy savings. Additional staff 
reductions are expected throughout the 15-year program lifecycle, for a 
total staff reduction and redirection savings of $633.1 million. Legacy 
savings attributable to HR Connect should total $116 million by fiscal 
year 2012.
    Question. What is the yearly cost to maintain this system?
    Answer. The system requires approximately $20 million annually for 
operations and maintenance, excluding staffing costs. Technology 
refreshes and system upgrades will be conducted every 3 years for an 
additional cost of approximately $3 to $5 million.
    Question. Are all Treasury bureaus connected to this system?
    Answer. Eleven of Treasury's 12 bureaus have deployed and are 
operating HR Connect, except the Office of Thrift Supervision (OTS), 
which must convert to HR Connect's required e-Payroll provider, the 
National Finance Center (NFC), before deploying HR Connect. OTS is 
contemplating a delay in NFC conversion until April 2005, and 
deployment of HR Connect will follow shortly thereafter. Additionally, 
two former Treasury bureaus continue to operate HR Connect, despite a 
divestiture that moved them to other agencies. Those bureaus are 
Alcohol, Tobacco, Firearms, and Explosives, now in the Department of 
Justice, and the United States Secret Service, now in the Department of 
Homeland Security.
    Question. What is the annual cost of each bureau to run this 
system?
    Answer. During HR Connect's development and deployment phase, the 
primary source of program funding has been Congressional contributions 
to the DSCIP fund. In fiscal year 2005, the HRCPO requested 
approximately $17.5 million from Congress to fund the program's 
transition year to full operations and maintenance mode. Based on 
current estimates and new program requirements, which include the 
implementation of an ePerformance module to support the SES Pay for 
Performance initiative, the HRCPO predicts an additional $3 million 
will be needed in fiscal year 2005. Funding for this gap will be 
requested from the bureaus based on their proportionate share as 
presented in the table below.
    HRCPO is also recommending that, as an enterprise-wide solution, 
Treasury continue to request Congressional funding for program 
operations in the out years. If the recommendation is approved, the 
bureaus will not incur operations and maintenance costs for HR Connect 
in fiscal year 2006. If the recommendation is not approved, then the 
bureaus will contribute their proportionate share of the annual costs 
as presented below:



    Question. The budget request includes $1 million for a Turkey 
Financing facility. What will this facility provide?
    Answer. The Emergency Wartime Supplemental Act signed by the 
President on April 16, 2003 includes $1 billion in appropriations and 
authorization for up to $8.5 billion in loans to Turkey to help protect 
its economy from shocks from the war in Iraq and to maintain economic 
stability in a key regional ally. Treasury estimates that it will cost 
the Office of International Affairs an additional $1 million to 
continue to administer the Turkey Financing Facility.
    Question. Is this a one-time item or will it require funding over a 
number of years?
    Answer. The Facility anticipates making disbursements during fiscal 
year 2005 and fiscal year 2006, but this depends on when the Turkish 
government ratifies the Financial Agreement. Since disbursements from 
the Facility could be imminent and the work demand is front-loaded, 
Treasury has already received $1 million from the $1 billion 
appropriated under the Economic Support Fund (ESF) in the fiscal year 
2003 Emergency Wartime Supplemental for Turkey to cover expenses for 
fiscal year 2004.
    Question. The Department's budget includes over $5 million in E-gov 
initiatives. Please describe Treasury's initiatives.
    Answer. Treasury believes in the importance of E-government 
initiatives and has developed partnerships with industry and other 
Federal agencies to improve its interactions with citizens, businesses, 
and other Federal, State, and local government entities through the use 
of the Internet. Treasury is the lead agency for two E-government 
initiatives: Internal Revenue Service Free File and Expanded Electronic 
Tax Products for Businesses. The budget request for fiscal year 2005 is 
for the following initiatives:
  --Business Gateway.--The Small Business Administration (SBA) is the 
        lead agency. This initiative will create a single business 
        gateway portal to reduce the burden on businesses by making it 
        easy to find, understand, and comply with Federal laws and 
        regulations. Treasury assists the SBA with consolidation and 
        synchronization of Federal paperwork requirements. Small 
        businesses will be able to submit all of their information 
        electronically to the Federal Government which then can be 
        shared securely across Federal agencies.
  --E-Authentication.--The General Services Administration (GSA) is the 
        lead agency. Treasury's Chief Information Officer (CIO) is the 
        Chairperson for the Executive Steering committee. This 
        initiative will minimize the burden on businesses, public, and 
        government when obtaining online services. It is designed to 
        provide the trusted and secure infrastructure--gateway, 
        confirming the identity of electronic transaction participants. 
        This initiative will enable Treasury to offer enterprise-wide 
        applications with different assurance levels.
  --E-Records Management.--The National Archives and Records 
        Administration (NARA) is the lead agency. This initiative will 
        enable Treasury to increase the percentage of eligible data 
        archived/preserved electronically. Unified guidance will 
        provide consistency in implementing E-records management 
        applications. It will also improve Treasury's ability to 
        access/retrieve records.
  --E-Rulemaking.--The Environmental Protection Agency (EPA) is the 
        lead agency. This initiative will enable citizens to search for 
        agency rules from any desktop computer, and to post remarks 
        online. E-Rulemaking will help Treasury and other agencies 
        integrate their applications into the government-wide system. 
        This will allow for a more citizen centric approach to the 
        regulatory process by providing more centralized online access 
        to regulatory material via Regulations.gov.
  --E-Training.--The Office of Personnel Management (OPM) is the lead 
        agency. This initiative creates a premier E-training 
        environment that supports development of the Federal workforce 
        through simplified, one-stop access to high quality E-training 
        products and services, advancing the accomplishment of agency 
        missions.
  --E-Travel.--The General Services Administration (GSA) is the lead 
        agency. This initiative will improve the internal efficiency, 
        administrative performance, and regulatory compliance relative 
        to travel. Redundant and stovepipe travel management systems 
        will be eliminated through a buy-once/use many shared services 
        approach. Therefore, capital investment, operations, and 
        maintenance costs for travel management services will be 
        minimized. Treasury will use this to bring world-class travel 
        management and superior customer service to the Federal travel 
        process.
  --Integrated Acquisition Environment (IAE).--The General Services 
        Administration (GSA) is the lead agency. This initiative will 
        reduce the burden for vendors doing business with the Federal 
        Government. Achieve cost savings through consolidated vendor 
        information, procurement data systems, use of common processes 
        and reduce the cycle time of the procurement process. Treasury 
        will benefit from the integration of IAE applications into 
        Intra-governmental Transactions Exchange and the accessibility 
        it will have to vendors.
    The following chart provides a summary of the Department's 
contributions for these E-government initiatives. Of the $7.5 million 
shown, $5.5 million will be paid from the Department-Wide Systems and 
Capital Investment Program (DSCIP) and the remainder from bureau 
appropriations. Departmental contributions to the Federal E-government 
initiatives listed above are in compliance with the President's 
Management Agenda to eliminate redundant systems, use improved 
Internet-based technology to make it easy for citizens and businesses 
to interact with the government, save taxpayer dollars, and streamline 
citizen-to-government communications.

                               TREASURY CONTRIBUTIONS FOR E-GOVERNMENT INITIATIVES
----------------------------------------------------------------------------------------------------------------
                                                                                                    Fiscal Year
                                                                    Fiscal Year     Fiscal Year        2005
                           Initiative                              2003 Treasury   2004 Treasury    President's
                                                                      Actuals         Actuals         Request
----------------------------------------------------------------------------------------------------------------
Business Gateway................................................              $0              $0      $2,500,000
E-Authentication................................................       3,178,572         377,000         393,000
EHRI............................................................               0               0               0
E-Rulemaking....................................................         100,000         775,000         885,000
E-Training......................................................               0       2,630,000       2,200,000
E-Travel........................................................               0               0         988,832
Expanding Electronic Tax Products...............................               0       3,200,000               0
Grants.gov......................................................               0               0               0
Integrated Acquisition Environment..............................         557,205         443,280         394,593
IRS Free File...................................................               0               0               0
E-Records Management............................................               0               0         100,000
                                                                 -----------------------------------------------
      Totals....................................................       3,835,777       7,425,280       7,461,425
----------------------------------------------------------------------------------------------------------------

    Question. What benefits are these initiatives providing to the 
Department?
    Answer. The President's Management Agenda (PMA) set the stage for 
Treasury to build upon its goal of simplifying and unifying IT efforts 
to optimize services. Treasury's involvement in these initiatives is 
based on benefits projected by the Managing Partners to each 
participating agency by providing an enterprise-wide application, 
elimination duplicative services, management of processes, and timely 
and responsive service to all citizens. The Managing Partners of each 
initiative can provide specific details on the costs savings to be 
realized overall by undertaking each initiative.
    Question. Does any of the funding relate to initiatives outside the 
Department of the Treasury?
    Answer. The funding request of over $5 million represents 
Treasury's contribution to these E-government initiatives. Treasury is 
partnering with these agencies to support of the President's Management 
Agenda (PMA). As one of the five pillars of the PMA, E-government is 
statutorily supported by the E-government Act, Clinger-Cohen Act, the 
Government Paper Elimination Act, and other legislation seeking to 
streamline electronic transactions and placing the Federal Government 
at citizens' fingertips through the use of digital technologies.
    Question. Please provide an update of the activities of the Office 
of Critical Infrastructure.
    Answer. The financial infrastructure of the United States is 
extremely resilient. It has been tested time and again by hurricanes, 
black outs, and terrorist attacks. Leaders within government and the 
private sector are continually enhancing the resilience of this 
financial infrastructure. Americans and, indeed, the world can have 
confidence that the financial infrastructure of the United States is 
better prepared than ever to handle man-made or natural disruptions.
    In the event of an increase in the threat level, the Department of 
the Treasury communicates regularly with the other Federal financial 
regulators regarding the situation and whether additional actions are 
necessary. In addition to these communications, Treasury and other 
Federal and State financial regulators, working in close cooperation 
with the Department of Homeland Security and the private sector, have:
  --Identified the payments, custodial, clearing, exchange, banking, 
        trading, and other financial institutions that are most 
        critical to our financial infrastructure.
  --Arranged for expert assessments of physical and cyber-
        vulnerabilities in critical financial institutions.
  --Arranged for critical financial institutions to have access to 
        priority telecommunications services--both land-based and 
        wireless--to help their voice and data communications get 
        through during times of crisis.
  --Assisted in coordinating the protective response of State and local 
        authorities with critical financial institutions.
  --Arranged for additional physical protection of critical financial 
        institutions, consistent with available protective resources 
        and the available threat information.
  --Established systems and procedures that enable the Federal 
        financial regulators to communicate among themselves and with 
        the private sector during times of crisis as well as in advance 
        to mitigate risks to the financial infrastructure.
  --Promoted industry measures that maintain crucial financial 
        communications among private sector participants.
  --Conducted numerous tests, drills, and exercises to ensure that back 
        up systems work and to ensure that financial professionals know 
        what to do in times of either a heightened alert or an actual 
        attack.
  --Worked with the Financial Services Information Sharing and Analysis 
        Center (FS-ISAC) to develop a more inclusive next-generation 
        FS-ISAC business model that embraces all elements of the 
        financial sector. The Treasury also acquired nearly $2 million 
        in services from the FS-ISAC, which had the added benefit of 
        making the next-generation FS-ISAC a reality. This next-
        generation FS-ISAC now delivers integrated physical and cyber 
        alert information to Treasury and to thousands of financial 
        institutions and provides a secure, confidential platform to 
        help financial institutions respond to potential or actual 
        disruptions.
  --Issued updated guidance on business continuity planning, including 
        benchmarks for systemically critical payments and clearing 
        organizations.
  --Enhanced the security of the government's critical financial 
        functions, including: borrowing money; making payments--
        including social security payments; and raising revenue through 
        the Internal Revenue Service.
  --Documented lessons learned by consumers, financial institutions, 
        and government agencies in fighting the recent, dramatic rise 
        in phishing attacks so that other consumers, financial 
        institutions, and agencies could benefit from their experience.
  --Established a plan for working with the telecommunications, energy, 
        information technology, and transportation sectors to address 
        vulnerabilities introduced into the financial sector by 
        interdependencies with these other sectors.
  --At the customer level, through the Office of Critical 
        Infrastructure Protection, the Treasury leads administration 
        efforts to improve policies and efforts to improve the security 
        of personal financial information, particularly through efforts 
        to fight identity theft. The Fair and Accurate Credit 
        Transactions Act of 2003, and its implementation this year, are 
        examples of how the Treasury has worked closely with Congress 
        in this effort.
    In addition to these government activities, the private sector, 
with encouragement from and in cooperation with the Treasury, has taken 
important actions to protect the critical financial infrastructure. For 
example, the private sector has:
  --Greatly reduced single points of failure in the telecommunications 
        infrastructure that supports the most critical financial 
        institutions by, for example, establishing private, self-
        healing fiber-optic telecommunications circuits over 
        alternative pathways.
  --Established improved business continuity plans.
  --Developed security guidelines for institutions of different sizes 
        and locations to follow in response to changing threat levels.
  --Created new backup facilities at greater distance from their 
        primary operations centers.
  --In many cases, geographically dispersed executive and operational 
        leadership.
    Question. Please provide an update to the committee on the 
Department's efforts to meet its staffing divestiture goals as they 
relate to the final FTE transfers to the Department of Homeland 
Security.
    Answer. For a complete response, please see the attached report (as 
required by House Report 108-243) that the Department submitted to the 
Congress on June 3, 2004.
    [Clerk's Note.--The documents referred to have been retained in 
Committee files.]
    Question. The committee viewed the additional funding of 60 
positions in fiscal year 2004 as stopgap funding during the transition 
of deployment of personnel from Treasury to the new Homeland Security 
Department. The Treasury Department's fiscal year 2005 budget proposes 
permanent funding in the Departmental Offices base for the foreseeable 
future. The committee had requested a report on the status of reducing 
the remaining FTE, which were not reduced by the beginning of fiscal 
year 2004 as planned. What is the status of this important report?
    Answer. The report was submitted to the House and Senate 
Appropriations committees on June 3, 2004.
    Question. Is the original goal of transferring 226 FTE to Homeland 
no longer valid?
    Answer. For a complete response, please see the attached report (as 
required by Senate Report 108-146) that the Department submitted to the 
Congress on June 3, 2004.
    [Clerk's Note.--The documents referred to have been retained in 
Committee files.]
    Question. Has DHS communicated that they can now operate at the 
lower level and will require no further transfers from Treasury?
    Answer. DHS has not communicated the need for additional resources.
    Question. Has Treasury sought any technical assistance in reviewing 
its secure IT systems from any private entity or government agency? 
What entity or agency? What is the status of the review? If the review 
is concluded, what corrective actions were taken? What has Treasury 
done to address the concerns raised by the IG related to Departmental 
Offices computer system vulnerabilities?
    Answer. The Department of the Treasury has sought and received 
technical and administrative assistance from private entities. Booz 
Allen Hamilton, Inc. (BAH) and SRA International, Inc. have performed 
FISMA/Critical Infrastructure Protection (CIP) reviews of the security 
practices at the Departmental Offices (DO). Based on initial reviews, 
Treasury has already completed, or is in the process of completing, the 
following:
  --Conducted appropriate IT security training and awareness sessions.
  --Implemented applicable security policies and compliance programs.
  --Established a DO Computer Security Incident Response Center 
        (CSIRC), reporting to Treasury's CSIRC.
  --Assessing and validating DO system applications inventory and 
        conducting associated risk assessments and Certification and 
        Accreditations (C&As), as necessary.
    Question. Does the Department have a fully operational COOP plan? 
Does the Department have what it needs to implement and operate their 
plan?
    Answer. The Department does have a fully operational COOP plan; 
however, there are still improvements required as identified in last 
year's GAO audit. In addition, as a result of lessons learned from the 
most recent FEMA exercise, Forward Challenge 2004, Treasury has 
identified other areas that require attention and improvement. For 
instance, Treasury still needs more robust communications for 
interoperability at the alternate sites to support its essential 
functions for COOP as stated in the GAO audit and the Federal 
Preparedness Circular (FPC) 65.
    Question. Please explain the policy, procedures and specific 
processes that Treasury applies to oversee and manage the Departmental 
Offices' resources (both FTE and dollars), including the salaries and 
expenses, DSCIP, and TBARR accounts.
    Answer. DO's Office of Financial Management prepares monthly 
reports for all appropriations that track both funding balances and FTE 
utilization. These reports are provided to the Assistant Secretary for 
Management, as well as office officials so that they can monitor their 
spending and make program decisions based on accounting reports. In 
addition, policies and procedures are in place for internal control 
purposes. At present, Management staff is reviewing, and updating as 
needed, all Departmental Office Orders and policies. We are also 
working with our policy offices to ensure that key department-wide 
directives are current. Our goal is to provide clear, transparent 
documentation and guidance to support optimal performance and 
decentralized oversight where possible--working together with all DO 
offices to maintain and observe proper financial and budgetary 
controls.

                                 DSCIP

    Question. How much does Treasury currently spend on Information 
Assurance? What IT security and functionality issues will the request 
in fiscal year 2005 provide that currently do not exist?
    Answer. Treasury supports internal cyber Critical Infrastructure 
Protection (CIP), bureau Federal Information Security Management Act 
(FISMA) program reviews, President's Management Agenda (PMA), and 
Public Key Infrastructure (PKI) policy management through the 
Department-wide Systems and Capital Investment programs (DSCIP) 
account. The $1 million requested for Information Assurance in fiscal 
year 2005 will build on the work being done in these areas to 
specifically address the assurance of secure internet communications 
with the Department, preventing cyber attacks and protecting against 
identity theft in key information systems.
    The fiscal year 2005 request provides for an automated Department-
wide Patch Management and Verification Process. Treasury currently 
utilizes manual intensive processes to address its computer 
vulnerabilities from a reactive mode. The fiscal year 2005 request will 
be used to support the planning and implementation of this network 
security functionality as well as asset identification, protection and 
interdependency analysis.
    Question. The fiscal year 2005 budget requests $1 million for 
Operational Security. How was this program funded in the past? What 
added functionality will $1 million provide? Please provide the 
committee a detailed breakout and a spending plan for this request.
    Answer. The fiscal year 2005 funding request of $1 million provides 
for the implementation of a cohesive and comprehensive Security program 
for Treasury's Headquarters offices, including the Office of the 
Secretary and Policy Offices. Treasury's Headquarters offices have been 
without a formal IT security program for a number of years. This has 
been described by the Treasury Inspector General as a continuing 
material weakness and must be addressed.
    Efforts to address security training and awareness are a priority. 
The request of $1 million will provide for the following:
  --Issuance of policy and procedures ($100,000)
  --Certification and Accreditation of applicable systems (19 Systems--
        $300,000)
  --Project management ($100,000)
  --Compliance monitoring ($150,000)
  --Security Engineering and Network Services support ($350,000)
    Question. The budget requests $1 million for Treasury Enterprise 
Architecture. Please provide a detailed justification for this request.
    Answer. The request for $1 million is required to develop, 
validate, and begin implementation of a Treasury Enterprise 
Architecture (EA) management system. This funding requirement covers 
three functional areas in moving the Treasury EA to the end state ``To 
Be'' structure:
  --Enterprise Solutions--$500,000.--Development of the business case 
        and management plans for the implementation of the ``To Be'' 
        consolidated infrastructure and Enterprise Architecture. It 
        also includes contractor support to work with Treasury Bureaus 
        in the identification of three to four enterprise solutions 
        where Treasury can gain efficiencies. Currently, Treasury has 
        identified office automation, telecommunications, and 
        infrastructure as focus areas for possible cost avoidance/
        savings. Funding provided in this area will allow Treasury to 
        ``drill down'' in each of these areas in the development of the 
        EA.
  --Reusable Components--$300,000.--Funding is required for contractor 
        support to identify and capitalize on opportunities to achieve 
        economies of scale and leverage the collective buying power of 
        the Department. Several Treasury Bureaus support the 
        President's Management Agenda e-Government initiatives; 
        however, managing IT activities from an enterprise level 
        requires refinement and streamlining with the Federal e-
        Government managing partner. Bureaus are funding investments 
        that overlap with one or more of the 24 Federal e-Government 
        Initiatives to which the Department is already contributing. 
        This requested funding supports the development of three to 
        four reusable service components business cases and plans for 
        implementation, transition plans, standard profiles, and 
        elimination of duplicated e-Government services.
  --Federal EA (FEA) Reference Models--$200,000.--Funding is required 
        for contractor support to develop the OMB FEA reference models. 
        The FEA is constructed through a collection of interrelated 
        ``reference models'' designed to facilitate agency analysis and 
        the identification of duplicative investments, gaps, and 
        opportunities for collaboration within and across the Federal 
        Government. The models are the Performance Reference Model 
        (PRM), the Business Reference Model (BRM), the Service 
        Reference Model (SRM) and the Data and Information Reference 
        Model (DRM). Completing these models facilitated the 
        improvement in the Treasury Capital Investment Program. The 
        data from these reference models will be incorporated into our 
        portfolio management system. Development of these model works 
        to ensure that the budget is allocated per Treasury priorities 
        and key initiatives during the IT portfolio management process.

             OFFICE OF TERRORISM AND FINANCIAL INTELLIGENCE

    Question. Please provide a detailed breakout of the total numbers 
of FTEs available to the organization, including all appropriated and 
non-appropriated funds from Departmental Offices, any other Treasury 
bureau funding, and any funding from another Federal agency that 
supports this office.
    Answer. Complete details of total FTE have not yet been finalized; 
however, Treasury anticipates that the Office of Terrorism and 
Financial Intelligence will oversee a staff of approximately 203 
employees. These FTEs are our current estimate; however, the numbers 
could change once the leadership is in place. With the exception of 
staff detailed from the Financial Crimes Enforcement Network (FinCEN), 
no bureau funding will be used to fund this office, nor will other 
Federal agencies fund this office. This organization will consist 
primarily of pre-existing offices that include the Executive Office for 
Terrorist Financing and Financial Crimes (EOTF/FC), the Treasury 
Executive Office of Asset Forfeiture (TEOAF), Office of Foreign Assets 
Control (OFAC), the Financial Crimes Enforcement Network (FinCEN) and 
the Office of Intelligence Support (OIS). The fiscal year 2005 FTE 
breakdown for those offices that will fall under the TFI umbrella is as 
follows:

------------------------------------------------------------------------
                         Office                                 FTE
------------------------------------------------------------------------
Under Secretary \1\.....................................               8
TFI (includes EOTF/FC and OIS) \1\......................              58
TEOAF...................................................              17
OFAC....................................................             120
                                                         ---------------
      Subtotal Departmental Offices.....................             203
FinCEN \2\..............................................             292
                                                         ---------------
      TOTAL.............................................             495
------------------------------------------------------------------------
\1\ Includes funding and FTE request from the Deputy Secretary that is
  currently under consideration by the Appropriations Committees.
\2\ FinCEN's 292 FTE include 1 reimbursable.

    Question. Will the redirection of scarce resources from OFAC and 
FinCEN affect those organizations' ability to accomplish actual work 
fighting the war on terrorism?
    Answer. The small number of detailees from OFAC and FinCEN should 
have a minimal effect on those agencies' ability to accomplish their 
missions. Indeed, the detailing of these officers should yield closer 
coordination among OIA and OFAC and FinCEN, ensuring that the 
Department focuses on its highest priorities and allows it to move 
scarce resources across priority targets.
    Question. Deputy Secretary Bodman indicated in his testimony before 
the Senate Banking Committee that the Department will provide up to $2 
million from other areas to fund this office in fiscal year 2004. 
Please provide a detailed breakout of where these resources will be 
derived from.
    Answer. Since October 2003, many offices have experienced attrition 
and the dollars saved during the process of filling those positions 
will be used to start up this new office. Offices with the employee 
turnover that generated the funds are:

------------------------------------------------------------------------
                                                          Salary Savings
                         Office                           Generated from
                                                             Turnover
------------------------------------------------------------------------
Executive Direction Offices.............................        $324,000
Tax Policy..............................................         270,000
Domestic Finance........................................         112,000
Economic Policy.........................................         182,000
International Affairs...................................         518,000
Treasury-Wide Management and Administration.............         575,000
                                                         ---------------
      Total.............................................       1,981,000
------------------------------------------------------------------------

    Question. In Treasury's press release of March 8, the Department 
announced the creation of the Office of Terrorism and Financial 
Intelligence. How will the Department fund this office? When?
    Answer. Start-up costs in fiscal year 2004 will be derived from 
salary savings in offices that have experienced employee turnover since 
the beginning of the fiscal year and a hiring freeze which has been in 
place since May. Once approved by the committee, funding will be 
programmed to the office on an as-needed basis, which will occur as the 
new office is staffed.
    Question. The fiscal year 2005 request does not provide funding for 
this new office. How much will it cost to staff and run this office in 
fiscal year 2005?
    Answer. The estimated additional cost for staffing and running this 
new office is approximately $4.6 million.
    Question. What is the vision for this office in 2 years? In 5 
years?
    Answer. The establishment of TFI will bring together Treasury's 
intelligence, regulatory, law enforcement, sanctions, and policy 
components, and enhance Treasury's efforts. As well, the new Office of 
Intelligence and Analysis (OIA) will address one of the longstanding 
issues identified in the Department of the Treasury, which is a lack of 
an integrated intelligence function that supports the Department and is 
linked directly into the Intelligence Community. Two primary functions 
are provided with the addition of OIA.
    The Department of the Treasury needs actionable intelligence that 
can be used to exercise its legal authorities under all or portions of 
such acts as the International Emergency Economic Powers Act (IEEPA), 
USA PATRIOT Act, the Bank Secrecy Act, the Drug Kingpin Act, and 
Trading with the Enemy Act. Analytical products from the intelligence 
community are largely intended to inform policymakers rather than 
taking action. They also tend to be highly classified, whereas Treasury 
often needs to use the lowest classification possible to use such 
material openly to press foreign governments or in evidentiary 
packages.
    OIA will also provide intelligence support to other senior Treasury 
officials on a wide range of other international economic and political 
issues of concern to the Department. Subsuming the functions of the 
current Office of Intelligence Support, OIA will continue to review 
incoming raw and finished intelligence from other agencies, and then 
select relevant items for senior officials. The intelligence advisors 
will also drive collection by drafting requirements for the 
intelligence agencies to ensure that Treasury's information needs are 
met. Moreover, they will continue to serve in a liaison capacity with 
the intelligence community and represent the Department in various 
intelligence-related activities.
    The Treasury Department is following a staged approach in the 
creation of TFI. This will ensure that the office will be able to work 
towards its short term goals while strengthening its capabilities and 
accomplishing its mission over the long term.
    Question. What specifically will this office do that is not already 
being done by the United States Government?
    Answer. The establishment of TFI will bring together Treasury's 
intelligence, regulatory, law enforcement, sanctions, and policy 
components, and enhance Treasury's efforts. As well, the new Office of 
Intelligence and Analysis (OIA) will address one of the longstanding 
issues identified in the Department of the Treasury, which is a lack of 
an integrated intelligence function that supports the Department and is 
linked directly into the Intelligence Community. Two primary functions 
are provided with the addition of OIA.
    The Department of the Treasury needs actionable intelligence that 
can be used to exercise its legal authorities under all or portions of 
such acts as the International Emergency Economic Powers Act (IEEPA), 
USA PATRIOT Act, Bank Secrecy Act, the Drug Kingpin Act, and Trading 
with the Enemy Act. Analytical products from the intelligence community 
are largely intended to inform policymakers rather than taking action. 
They also tend to be highly classified, whereas Treasury often needs to 
use the lowest classification possible to use such material openly to 
press foreign governments or in evidentiary packages.
    OIA will also provide intelligence support to other senior Treasury 
officials on a wide range of other international economic and political 
issues of concern to the Department. Subsuming the functions of the 
current Office of Intelligence Support, OIA will continue to review 
incoming raw and finished intelligence from other agencies, and then 
select relevant items for senior officials. The intelligence advisors 
will also drive collection by drafting requirements for the 
intelligence agencies to ensure that Treasury's information needs are 
met. Moreover, they will continue to serve in a liaison capacity with 
the intelligence community and represent the Department in various 
intelligence-related activities.
    The Treasury Department is following a staged approach in the 
creation of TFI. This will ensure that the office will be able to work 
towards its short term goals while strengthening its capabilities and 
accomplishing its mission over the long term.
    Question. What enhanced ability will this office give the 
Department?
    Answer. The creation of TFI will increase Treasury's efforts in 
several ways. The combined use of intelligence and financial data is 
the best way to detect how terrorists are exploiting the financial 
system and to design methods to stop them. By coordinating Treasury's 
intelligence functions and capabilities, TFI will benefit from enhanced 
analytical capabilities, as well as additional expertise and 
technology. Second, the USA PATRIOT Act gave the Department important 
new tools to detect and prevent the abuse of our financial system by 
terrorists and other criminals. TFI will coordinate Treasury's 
aggressive effort to enforce these regulations. Third, we have forged a 
strong international coalition to combat terrorist financing. The 
ongoing, cooperative efforts between the United States and our 
international partners are at unprecedented levels. The unified 
structure will promote a robust international engagement and allow us 
to intensify outreach to our counterparts in other countries. Finally, 
having a single office is the best way to ensure accountability and 
achieve results for this essential mission.
    Question. What functionality will this provide the U.S. Government 
that does not currently exist?
    Answer. The establishment of TFI will bring together Treasury's 
intelligence, regulatory, law enforcement, sanctions, and policy 
components, and enhance Treasury's efforts. As well, the new Office of 
Intelligence and Analysis (OIA) will address one of the longstanding 
issues identified in the Department of the Treasury, which is a lack of 
an integrated intelligence function that supports the Department and is 
linked directly into the Intelligence Community. Two primary functions 
are provided with the addition of OIA.
    The Department of the Treasury needs actionable intelligence that 
can be used to exercise its legal authorities under all or portions of 
such acts as the International Emergency Economic Powers Act (IEEPA), 
USA PATRIOT Act, the Bank Secrecy Act, the Drug Kingpin Act, and 
Trading with the Enemy Act. Analytical products from the intelligence 
community are largely intended to inform policymakers rather than 
taking action. They also tend to be highly classified, whereas Treasury 
often needs to use the lowest classification possible to use such 
material openly to press foreign governments or in evidentiary 
packages.
    OIA will also provide intelligence support to other senior Treasury 
officials on a wide range of other international economic and political 
issues of concern to the Department. Subsuming the functions of the 
current Office of Intelligence Support, OIA will continue to review 
incoming raw and finished intelligence from other agencies, and then 
select relevant items for senior officials. The intelligence advisors 
will also drive collection by drafting requirements for the 
intelligence agencies to ensure that Treasury's information needs are 
met. Moreover, they will continue to serve in a liaison capacity with 
the intelligence community and represent the Department in various 
intelligence-related activities.
    The Treasury Department is following a staged approach in the 
creation of TFI. This will ensure that the office will be able to work 
towards its short term goals while strengthening its capabilities and 
accomplishing its mission over the long term.
    The creation of TFI will increase Treasury's efforts in several 
ways. The combined use of intelligence and financial data is the best 
way to detect how terrorists are exploiting the financial system and to 
design methods to stop them. By coordinating Treasury's intelligence 
functions and capabilities, TFI will benefit from enhanced analytical 
capabilities, as well as additional expertise and technology. Second, 
the USA PATRIOT Act gave the Department important new tools to detect 
and prevent the abuse of our financial system by terrorists and other 
criminals. TFI will coordinate Treasury's aggressive effort to enforce 
these regulations. Third, we have forged a strong international 
coalition to combat terrorist financing. The ongoing, cooperative 
efforts between the United States and our international partners are at 
unprecedented levels. The unified structure will promote a robust 
international engagement and allow us to intensify outreach to our 
counterparts in other countries. Finally, having a single office is the 
best way to ensure accountability and achieve results for this 
essential mission.
    Question. Please provide an organizational chart for the proposed 
office.
    Answer. Please see the attached organizational chart.

    
    
    Question. Please provide the committee with the number of detailees 
from OFAC, FinCEN and other agencies that are expected to support the 
new office.
    Answer. To date, the Office of Intelligence Analysis has two 
employees detailed from OFAC, two detailed from FinCEN, and one 
detailed from CIA. Additional detailees have not yet been determined.
    Question. When will the detailees be returned to their parent 
agencies?
    Answer. They are currently on a 6-month detail. We will review the 
arrangement after the 6-month period is over. They can either renew 
their detail agreement or return to their home agencies.
    Question. Who will have day to day oversight of these employees?
    Answer. Those four officers are supervised by the Deputy Assistant 
Secretary for Intelligence and Analysis.
    Question. How many FTE and budget resources will be realigned from 
Departmental offices (excluding OFAC)?
    Answer. Approximately 27 FTEs will be realigned from DO in fiscal 
year 2005.
    Question. What other offices within the Department will be merged 
into this new structure?
    Answer. This structure will include the Executive Office for 
Terrorist Financing and Financial Crimes (EOTF/FC), the Treasury 
Executive Office of Asset Forfeiture (TEOAF), Office of Foreign Assets 
Control (OFAC), and the Office of Intelligence Support (OIS). There is 
always the possibility that other resources and synergies within 
Treasury can be found to amplify the efforts of TFI.
    Question. If this office is critical, will the Department send up a 
budget amendment to realign its internal resources to fund this new 
office?
    Answer. The administration does not intend to send up a budget 
amendment. In order to provide our perspective on the appropriate 
fiscal year 2005 funding levels, on June 25, 2004, the Treasury 
Department submitted a revised funding structure reflecting changes 
made to the DO account that can be viewed as an amendment to the Budget 
Justifications that we submitted to the committee in February 2004.
    Question. How many FTEs, funded or detailed, are proposed to work 
in this office by the end of fiscal year 2004? Please break out the 
numbers between the responsibilities of the two assistant secretaries.
    Answer. By the end of the fiscal year, the Department hopes to have 
191 employees in the new office. The estimated breakdown is as follows:

------------------------------------------------------------------------
                         Office                                 FTE
------------------------------------------------------------------------
Under Secretary.........................................               6
TFI (includes EOTFFC and OIS)...........................              48
OFAC....................................................             120
TEOAF...................................................              17
                                                         ---------------
      Subtotal Departmental Offices.....................             191
FinCEN..................................................             292
                                                         ---------------
      Total.............................................             483
------------------------------------------------------------------------

    Question. Please provide a detailed explanation of the roles and 
responsibilities of each of the new assistant secretaries.
    Answer. The Office of the Assistant Secretary for Intelligence and 
Analysis (OIA) will be responsible for developing a robust analytical 
capability on terrorist financing. The office will draft actionable 
intelligence to support Treasury's efforts to exercise its legal 
authorities, including the USA PATRIOT Act, the International Emergency 
Economic Powers Act (IEEPA), the Drug Kingpin Act, the Bank Secrecy 
Act, and Trading with the Enemy Act. It will provide intelligence 
support to other senior Treasury officials on a wide range of 
international economic and political issues of concern to the 
Department. The Assistant Secretary for Intelligence and Analysis will 
serve as the Senior Official of the Intelligence Community (SOIC) and 
represent the Department in intelligence community fora, such as the 
National Foreign Intelligence Board committees and the Community 
Management Staff. Moreover, the Assistant Secretary will be responsible 
for managing the Department's security functions, including information 
security, personnel security, industrial security, physical security, 
and counterintelligence.
    The overall purpose of OIA is to ensure that the Treasury 
Department properly exploits the vast pools of financial data already 
collected by the Department and combines that data with the relevant 
intelligence collected by the intelligence community to create 
strategic and actionable financial intelligence and analysis to support 
Treasury's mission and authorities. For example, this analysis will be 
used to designate individuals under Presidential Executive Orders, 
target corrupt foreign financial institutions under Section 311 of the 
USA PATRIOT Act, guide regulatory policies and compliance, and direct 
strategic international engagement to set appropriate standards to 
safeguard the international financial system. OIA's priorities include 
identifying and attacking the financial infrastructure of terrorist 
groups; identifying and addressing vulnerabilities that may be 
exploited by terrorists and criminals in domestic and international 
financial systems; and promoting stronger relationships with our 
partners in the United States and around the world. A key long-term 
goal will be to ensure Treasury's full integration into the 
intelligence community, and ensure that the Secretary's economic and 
financial responsibilities are supported fully by the intelligence 
community.
    OIA is already responding to Treasury's urgent short-term needs. A 
small team of analysts has already begun to closely monitor and review 
current intelligence threat reporting. These analysts sit together in 
secure space in the Main Treasury building and ensure that Treasury can 
track, analyze possible financial angles, and then refer their analysis 
to relevant Treasury and U.S. government components for appropriate 
action. In the near term, the Treasury Department plans to develop its 
analytical capability through OIA in untapped areas, such as strategic 
targeting of terrorist financial networks as well as analyzing trends 
and patterns and non-traditional targets such as hawalas and couriers.
    The Office of the Assistant Secretary for Terrorist Financing (OTF) 
builds on the functions that have been underway at Treasury over the 
past year by developing, organizing, and implementing U.S. government 
strategies to combat terrorist financing and financial crime, both 
internationally and domestically. This office is the policy and 
outreach apparatus for the Treasury Department on the issues of 
terrorist financing, money laundering, financial crime, and sanctions. 
The Assistant Secretary is responsible for coordinating with other 
elements of the U.S. government, including law enforcement, and for 
working with the Federal regulatory agencies, both those within the 
Treasury Department such as the OCC and OTS and those outside such as 
the Federal Reserve, SEC and CFTC to ensure effective supervision for 
BSA and USA PATRIOT Act compliance.
    OTF will be the primary office responsible for formulating Treasury 
Department counter-terrorist financing and anti-money laundering 
policies and implementing Treasury's related regulatory, sanctions, and 
enforcement programs and authorities. These functions include the 
administration, implementation, and enforcement of Presidential 
Executive Orders, in particular, those related to the freezing of 
terrorist assets, as well as the administration and safeguarding of the 
Bank Secrecy Act, as expanded by the USA PATRIOT Act.
    In addition, OTF is responsible for integrating FinCEN, OFAC and 
TEOAF into these efforts. FinCEN provides a government-wide, multi-
source intelligence and analytical network designed to support money 
laundering and other financial crime investigations, and it ensures the 
quality of the information it administers through outreach and 
regulatory action performed in the course of its administration of the 
BSA. OFAC has long administered and enforced economic and trade 
sanctions based on U.S. foreign policy and national security goals 
against targeted foreign countries, foreign terrorists, international 
narcotics traffickers, and those engaged in activities related to the 
proliferation of weapons of mass destruction. TEOAF provides oversight 
and management of Treasury's nationwide forfeiture program and the 
Treasury Forfeiture Fund. OTF also works in close partnership with IRS-
CI to enforce terrorist financing, money laundering, and BSA laws.
    OTF leads and coordinates the U.S. representation at international 
bodies dedicated to fighting terrorist financing and financial crime 
such as the Financial Action Task Force (FATF) and increases our 
multilateral and bilateral efforts in this field. This office creates 
global solutions to evolving international problems, attack financial 
crime and safeguard the financial system by advancing international 
standards, conduct assessments, provide technical assistance, and apply 
protective countermeasures against high-risk foreign jurisdictions and 
financial institutions. Bilaterally, OTF works with foreign finance 
ministries--such as the Russian Finance Ministry--to craft strategies 
to jointly attack terrorist financing both globally and within specific 
regions, and with foreign financial intelligence units to establish 
special channels of information exchange.
    Question. Has the Department detailed FTE or expended funds from 
the Office of Foreign Assets Control? If there is a legal opinion 
related to this action, please provide such to the committee.
    Answer. As noted above, the Department has detailed two officers 
from OFAC. Treasury asked its attorneys to review the draft 
documentation for establishing the non-reimbursable details of two OFAC 
employees to the Office of Intelligence and Analysis in the 
Departmental Offices for a period of up to 6 months. That documentation 
explained that the two employees would provide OFAC with relevant 
financial intelligence, targets and leads that would be the basis for 
further analytical work to be performed by OFAC, and that this work 
directly furthers OFAC's mission by permitting the analysts to assist 
in the coordination of financial intelligence research and analysis on 
a Department-wide basis. On the basis of this information, the 
attorneys expressed no legal objection to the details. No formal legal 
opinion was issued.
    Question. Will all intelligence related to terrorist financing 
resident in the CIA, FBI, and Homeland Security become a part of this 
office? If not, why not?
    Answer. The Office of Intelligence and Analysis will draw 
intelligence reporting from the CIA, FBI, and DHS to produce its own 
analytical products in support of Treasury's mission. It is also in 
daily contact with its interagency counterparts regarding threat 
reporting and other counterterrorism issues.
    Question. How will the functions of this office differ from the 
Foreign Terror Asset Tracking Group (FTAT-G)?
    Answer. We are in the process of evaluating how OIA and the FTAT-G 
will interact to ensure no overlap arises.
    Question. How will it differ from the Terror Threat Integration 
Center (T-TIC)?
    Answer. TTIC has the primary responsibility in the United States 
for terrorism threat analysis and is responsible for the day-to-day 
terrorism analysis provided to the President and senior policymakers. 
OIA differs from TTIC in that it will focus primarily on the financial 
angle of counterterrorism issues. It will also specifically support 
Treasury's authorities and its relations with foreign counterparts.
    Question. Who will be the lead agency in overseas technical 
assistance that assists countries in learning about how to stop 
terrorists from using financial systems?
    Answer. The Treasury Department will continue to provide technical 
assistance to countries around the world to help build anti-money 
laundering and counter-terrorist financing capacity. The State 
Department leads the coordination of terrorist financing-related 
training efforts with the interagency Terrorist Financing Working Group 
(TFWG). The Treasury Department participates actively in TFWG.
    Question. Regarding intelligence gathering efforts, if the 
Department is currently obtaining intelligence on these issues, how it 
is being used to accomplish its mission?
    Answer. The Treasury Department uses intelligence for several 
purposes. Most significantly, we use the information to develop the 
legal basis to impose economic sanctions, ranging from a designation to 
designate a primary money laundering concern under Section 311 of the 
USA PATRIOT Act to action under E.O. 13224. Intelligence information is 
used to develop strategic direction, e.g., determining countries that 
are vulnerable to exploitation by terrorists and, therefore, priorities 
for technical assistance or diplomatic outreach.
    Within the Treasury Department, it can be used to designate a 
terrorist or narco-trafficker and it may be used to support an action 
for failure to comply with a designation, e.g., information may be 
provided to the FBI to support an investigation for providing support 
to a designated party--a criminal violation. It can be used to 
determine a primary money laundering concern or shared with a State or 
local law enforcement agency investigating a drug crime. It may be used 
by the Office of Critical Infrastructure Protection and Compliance 
Policy to evaluate a threat to the Treasury. Moreover, it may be used 
by the Office of the Under Secretary for Domestic Finance to identify 
vulnerabilities within the financial services industry's critical 
infrastructure that could be exploited. And, as previously discussed, 
it may be used by my senior staff and me as background for bilaterals 
with our foreign government colleagues.
    Question. Is this information coming from the intelligence 
community and law enforcement?
    Answer. Treasury receives information from the intelligence 
community and law enforcement, but also from our own analysis of 
information provided directly to Treasury under the Bank Secrecy Act, 
e.g., Suspicious Activity Reports (SARs) filed with the Financial 
Crimes Enforcement Network.
    Question. What intelligence is Treasury providing that the 
Intelligence Community does not already have access to?
    Answer. Information from the Bank Secrecy Act, such as Suspicious 
Activity Reports, and OFAC-related information from the banking 
community is managed by Treasury and is available to the intelligence 
community. The discussion of specific information available to the 
intelligence community is best left for a classified forum.

                          TERRORIST FINANCING

    Question. Is Treasury considered the finance ministry of the U.S. 
Government?
    Answer. Yes.
    Question. Who has primary jurisdiction over financial intelligence?
    Answer. No one agency has primary jurisdiction over financial 
intelligence. Different agencies use financial intelligence to support 
their specific missions. For example, the intelligence and law 
enforcement agencies use their collection and analysis on terrorist 
financing to support their operations. While consolidating financial 
intelligence into one agency could enhance accountability for outcomes 
under the statutes that Treasury enforces, other agencies will need the 
function to support their own missions.
    Question. Should Treasury be the home of the financial intelligence 
units in the U.S. Government?
    Answer. The term ``financial intelligence unit'' is a term-of-art 
that refers to the entity within a government that is responsible for 
receiving, analyzing, and disseminating information derived from 
suspicious activity reports and other money laundering-related reports 
from the financial sector. The Financial Crimes Enforcement Network 
(FinCEN) serves as the financial intelligence unit for the United 
States. FinCEN is an integral part of the Department of the Treasury 
and substantially benefits from Treasury's unique relationship with the 
financial community, the law enforcement community and the regulatory 
community.
    Question. Who is the Federal Government's lead agency in the war on 
terrorist financing?
    Answer. There is no one agency that is the lead agency in the war 
on terrorist financing. Each participating agency has a unique mission. 
The Treasury Department has the lead in safeguarding the integrity of 
the United States and international financial systems--including from 
abuse by terrorists and those who support them.
    Treasury has expertise throughout the Department that stretches 
across the entire anti-money laundering/counter-terrorist financing 
(AML/CTF) spectrum and allows it to deal with complicated issues 
associated with the movement of money and assets in the United States 
and international financial system. All of these components give 
Treasury the necessary broad perspective to create and implement 
strategies to safeguard the financial system against abuse.
    In its role safeguarding the financial systems both home and 
abroad, the Treasury Department utilizes numerous capabilities:
    Sanctions and Administrative Powers.--Treasury wields a broad range 
of powerful economic sanctions and administrative powers to attack 
various forms of financial crime, including E.O. 13224 and Section 311 
of the USA PATRIOT Act.
    Law Enforcement and Law Enforcement Support.--Treasury combats 
various forms of financial crime through the direct law enforcement 
actions of IRS-CI and the law enforcement support provided by FinCEN 
and Treasury's regulatory authorities.
    Financial Regulation and Supervision.--FinCEN administers the Bank 
Secrecy Act and issues and enforces AML/CTF regulations. Treasury 
further maintains close contact with the Federal financial 
supervisors--including the Treasury Department's Office of the 
Comptroller of the Currency and Office of Thrift Supervision--with the 
goal of ensuring that these regulations are being implemented 
consistently throughout the financial sectors. In addition, OFAC 
administers and enforces the various economic sanctions and 
restrictions imposed by statute and under the Secretary's delegated 
IEEPA authority.
    International Initiatives.--The Treasury Department is part of and 
has access to an extensive international network of Finance Ministries 
and Finance Ministry-related bodies such as the Financial Action Task 
Force (FATF) and various FATF-Style Regional Bodies, the International 
Monetary Fund (IMF), the World Bank, the G-7, and various multilateral 
development banks. In addition, Treasury is the critical facilitator 
for the international relationship between financial intelligence units 
organized through the Egmont Group.
    Private Sector Outreach.--As a result of our traditional role in 
safeguarding the financial system, Treasury has developed a unique 
partnership with the private sector. Through outreach programs such as 
the Bank Secrecy Act Advisory Group (BSAAG) and other regulatory and 
educational seminars and programs, Treasury maintains a close 
relationship with U.S. financial institutions to ensure a smooth 
exchange of information related to money laundering and terrorist 
financing. Treasury also maintains a close dialogue with the charitable 
sector to help it address its vulnerabilities to terrorist financing.
    The Office of Terrorism and Financial Intelligence (TFI) brings 
together Treasury's intelligence, regulatory, law enforcement, 
sanctions, and policy components, and enhances Treasury's efforts in 
combating terrorist financing and financial crime. TFI will work in 
coordination with its partners in the interagency community to ensure 
that its efforts complement and augment the important initiatives 
already underway.
    Question. What other agencies or departments are engaged in 
Treasury-related functions in terrorist financing?
    Answer. Treasury works with many agencies on terrorist-financing 
matters. In fact, E.O. 13224 requires Treasury to consult with the 
Department of Justice, Department of State, and Department of Homeland 
Security in making designation decisions. Treasury also ensures that 
our activities are part of a coordinated government approach. To that 
end, we also work with the Central Intelligence Agency, Department of 
Defense, and National Security Agency.
    Question. What is the cost and how much duplication is created when 
other agencies and departments engage in Treasury's responsibilities?
    Answer. Each agency brings its own expertise, jurisdictions, and 
capabilities to the tasks at large. This expertise is used to the 
advantage of our overall efforts in the war against terrorist 
financing. As long as there is effective coordination and 
collaboration, we maximize efficiency and minimize cost and 
duplication.
    Question. If there were a consolidation into one unit, would that 
allow the different agencies to focus on their core responsibilities 
and save resources to do more against terrorism?
    Answer. Treasury has no reason to believe that other agencies are 
not currently focusing on their core responsibilities.
    Question. Why was Treasury removed as the lead of the President's 
Coordinating Committee on terrorist financing?
    Answer. Reflecting the high importance that the White House places 
on this issue, the National Security Council (NSC) currently chairs the 
Policy Coordinating Committee (PCC) on Terrorist Financing. Treasury 
continues to play an important role on the PCC. The purpose of the PCC 
has always been to coordinate the policy direction and actions of the 
U.S. Government related to terrorist financing. As chair, we may have 
had administrative responsibilities and shared a useful tool in this 
campaign. As chair, we often found ourselves driving the process by our 
readiness to take one action--forcing discussion on other options that, 
on many occasions, were more appropriate for the government to pursue. 
As a participant, we continue to bring a useful tool to the campaign 
and, as before, find ourselves fostering discussions through our 
readiness to act, but being responsive to other methods for 
accomplishing the ultimate goal--severing the link between a source of 
money and some willing and able to commit an act of terrorism.
    Question. Should Treasury be the lead on all matters related to 
terror financing?
    Answer. The Treasury Department has the lead in safeguarding the 
integrity of the United States and international financial systems--
including from abuse by terrorists and those who support them.
    Treasury has expertise throughout the Department that stretches 
across the entire anti-money laundering/counter-terrorist financing 
(AML/CTF) spectrum and allows it to deal with complicated issues 
associated with the movement of money and assets in the United States 
and international financial system. All of these components give 
Treasury the necessary broad perspective to create and implement 
strategies to safeguard the financial system against abuse.
    In its role safeguarding the financial systems both home and 
abroad, the Treasury Department utilizes numerous capabilities:
    Sanctions and Administrative Powers.--Treasury wields a broad range 
of powerful economic sanctions and administrative powers to attack 
various forms of financial crime, including E.O. 13224 and Section 311 
of the USA PATRIOT Act.
    Law Enforcement and Law Enforcement Support.--Treasury combats 
various forms of financial crime through the direct law enforcement 
actions of IRS-CI and the law enforcement support provided by FinCEN 
and Treasury's regulatory authorities.
    Financial Regulation and Supervision.--FinCEN administers the Bank 
Secrecy Act and issues and enforces AML/CTF regulations. Treasury 
further maintains close contact with the Federal financial 
supervisors--including the Treasury Department's Office of the 
Comptroller of the Currency and Office of Thrift Supervision--with the 
goal of ensuring that these regulations are being implemented 
consistently throughout the financial sectors. In addition, OFAC 
administers and enforces the various economic sanctions and 
restrictions imposed by statute and under the Secretary's delegated 
IEEPA authority.
    International Initiatives.--The Treasury Department is part of and 
has access to an extensive international network of Finance Ministries 
and Finance Ministry-related bodies such as the Financial Action Task 
Force (FATF) and various FATF-Style Regional Bodies, the International 
Monetary Fund (IMF), the World Bank, the G-7, and various multilateral 
development banks. In addition, Treasury is the critical facilitator 
for the international relationship between financial intelligence units 
organized through the Egmont Group.
    Private Sector Outreach.--As a result of our traditional role in 
safeguarding the financial system, Treasury has developed a unique 
partnership with the private sector. Through outreach programs such as 
the Bank Secrecy Act Advisory Group (BSAAG) and other regulatory and 
educational seminars and programs, Treasury maintains a close 
relationship with U.S. financial institutions to ensure a smooth 
exchange of information related to money laundering and terrorist 
financing. Treasury also maintains a close dialogue with the charitable 
sector to help it address its vulnerabilities to terrorist financing.
    The Office of Terrorism and Financial Intelligence (TFI) brings 
together Treasury's intelligence, regulatory, law enforcement, 
sanctions, and policy components, and enhances Treasury's efforts in 
combating terrorist financing and financial crime. TFI will work with 
its partners in the interagency community to ensure that its efforts 
complement and augment the important initiatives already underway.
    Treasury has a central role to play in the overall fight against 
terrorist financing due to our unique responsibilities and position 
within the government and with respect to the financial sector. Of 
course, many agencies have important roles to play and have the lead in 
their specific areas of expertise. The FBI, for example, has the lead 
in terrorist financing investigations. This does not diminish from 
Treasury's role or responsibilities.
    Question. Has Treasury's role on the PCC for Terrorist Financing 
changed since being replaced as the chair?
    Answer. Treasury continues to play an important role on the PCC. 
The purpose of the PCC has always been to coordinate the policy 
direction and actions of the U.S. government related to terrorist 
financing. As chair, we may have had administrative responsibilities 
and shared a useful tool in this campaign. As chair, we often found 
ourselves driving the process by our readiness to take one action--
forcing discussion on other options that, on many occasions, were more 
appropriate for the government to pursue. As a participant, we continue 
to bring a useful tool to the campaign and, as before, find ourselves 
fostering discussions through our readiness to act, but being 
responsive to other methods for accomplishing the ultimate goal--
severing the link between a source of money and some willing and able 
to commit an act of terrorism.
    Question. The Secretary indicated in his testimony before the 
subcommittee that there are clear lines of responsibility between 
Treasury and Homeland. Please provide a detailed description of the 
responsibilities of both Departments as they relate specifically to 
terrorist financing. Please include any Memorandum of Understanding or 
relevant documents for the record. Please also differentiate the role 
of Cornerstone from the Department's role.
    Answer. The most fundamental responsibility of the Treasury 
Department is the safeguarding of the soundness and integrity of the 
United States and international financial systems. Treasury meets this 
responsibility through a wide range of programs, ranging from domestic 
regulatory actions to far-reaching international initiatives through 
the International Monetary Fund, participation in multilateral groups 
such as the Financial Action Task Force and the World Bank. Each of 
these programs benefits from the historic, deep and ongoing 
relationship that Treasury maintains with the U.S. financial community 
and our support for law enforcement investigative initiatives through 
financial powers unique to the Department of the Treasury.
    Of course, a vital component of our overall efforts is the 
protection of the U.S. financial system from abuse by terrorist 
financiers, money launderers and other financial criminals. Central to 
these efforts are such Treasury components as the Executive Office for 
Terrorist Financing and Financial Crimes (EOTF/FC), Office of Foreign 
Assets Control (OFAC), Financial Crimes Enforcement Network (FinCEN), 
the Treasury Executive Office of Asset Forfeiture (TEOAF) and the 
Office of Critical Infrastructure Protection and Compliance Policy, and 
will soon include the newly-established Office of Terrorism and 
Financial Intelligence. Each of these offices works closely with the 
U.S. law enforcement community--including the FBI, DEA, IRS-CI, U.S. 
Secret Service, U.S. Postal Inspection Service, and the Bureau of 
Immigration and Customs Enforcement (ICE)--to ensure that criminals 
seeking to use and abuse the U.S. financial system are identified and 
brought to justice.
    FinCEN, as the administrator of the Bank Secrecy Act, ensures that 
information reported under that act is provided to law enforcement 
agencies such as the Bureau of Immigration and Customs Enforcement 
(ICE). In addition to making the fruits of this activity available to 
law enforcement, FinCEN also uses its analytical resources to mine the 
data to support existing law enforcement cases on request, as well as 
to proactively identify potential new cases for law enforcement. FinCEN 
provides guidance to industry to ensure that its regulatory efforts are 
directed at law enforcement concerns, and takes enforcement action as 
necessary to ensure that its regulations are being followed. In 
addition, FinCEN publishes a number of analytical products to help law 
enforcement understand the financial system and follow the money, and 
to help the financial industry improve its monitoring and reporting of 
suspicious activity. Finally, in the international context, FinCEN's 
relationship with its counterpart financial intelligence units provides 
tremendous information where funds are flowing into or out of the 
United States, and are available for appropriate use by ICE as well as 
all Federal law enforcement investigating financial crimes. A large 
portion of FinCEN's budget is devoted to developing and supporting its 
systems and analytical tools to assist and complement the financial 
investigatory effort of programs such as Cornerstone, which Treasury 
welcomes. We look forward to a continued close cooperation with ICE in 
our efforts to combat financial crimes.
    Question. The Bureau of Immigration and Customs Enforcement (BICE) 
administers the Systematic Homeland Approach to Reducing Exploitation 
program (SHARE) where BICE will be joined by U.S. Secret Service to 
jointly conduct semiannual meetings with members of the banking and 
trade communities impacted by money laundering, identity theft and 
other financial crime. There is no mention of Treasury in the DHS press 
announcement or on the web page.
    Does Treasury participate in these meetings? If so, please provide 
the materials presented in the last meeting to the private sector.
    Answer. We understand from DHS that there have been no meetings to 
date under the SHARE auspices.
    Question. Why is BICE taking the lead when it comes to dealing with 
financial institutions? Isn't this Treasury's role? What information is 
DHS providing that Treasury doesn't?
    Answer. The Treasury Department has the lead in protecting the 
integrity of the U.S. financial sector and in dealing with financial 
institutions. Treasury would welcome efforts by DHS to provide the 
financial community with information related to DHS enforcement issues. 
For example, the Secret Service plays an important role in the 
investigation of counterfeiting U.S. currency, credit card fraud and 
identity theft.
    Question. Does FinCEN deliver BSA data to BICE? Is it a gross data 
transfer? Does BICE have data mining software that is similar to what 
FinCEN was created to do? If so, what functionality for the financial 
industry is FinCEN providing?
    Answer. Under a legacy process in place when certain ICE agents 
were employees of the U.S. Customs Service and part of Treasury, FinCEN 
provided a direct download of BSA data into the Treasury Enforcement 
Communications System (TECS), which is now administered by the 
Department of Homeland Security. We are not familiar with ICE's current 
data mining tools.
    FinCEN, as administrator of the BSA and as mandated in Section 361 
of the USA PATRIOT Act, has the responsibility for communicating with 
the financial industry about BSA matters. In meeting this obligation, 
FinCEN:
  --Participates in numerous conferences and seminars being held 
        throughout the year across the country;
  --Participates in compliance training workshops;
  --Chairs and conducts regular meetings with the BSA Advisory Group 
        and its subcommittees;
  --Interacts on a daily basis with bank officials throughout the 
        country regarding various aspects of BSA compliance;
  --Conducts customer surveys;
  --Produces publications such as the The Suspicious Activity Review, a 
        semiannual publication providing feedback and guidance to 
        financial institutions on BSA reporting and anti-money 
        laundering requirements; and
  --Provides interaction with the financial institutions through its 
        Regulatory Help Line, which handles more than 5,000 calls a 
        year, and through website postings of regulations, guidance, 
        comment letters and other regulatory-related materials.
    Question. This sounds virtually identical to the mission of FinCEN 
and the Treasury Department. How are the two roles different?
    Answer. The missions are quite distinct. FinCEN is responsible for 
administering the Bank Secrecy Act. In that role, FinCEN is ultimately 
responsible for the collection, maintenance, analysis and dissemination 
of information collected under that Act. FinCEN has a statutory mandate 
to provide feedback to the industry. FinCEN provides guidance to the 
financial industry to ensure that its regulatory efforts are directed 
at law enforcement concerns, and takes enforcement action as necessary 
to ensure that its regulations are being followed. In addition, FinCEN 
publishes a number of analytical products to help law enforcement 
understand the financial system and follow the money, and to help the 
financial industry improve its monitoring and reporting of suspicious 
activity. Finally, in the international context, FinCEN is the United 
States financial intelligence unit and is responsible for the Egmont 
secure web, providing the Egmont Group, an international collection of 
financial intelligence entities charged with the collection and 
analysis of financial information to help prevent money laundering and 
other illicit finance, with the ability to communicate with one another 
via secure e-mail, posting and assessing information regarding trends, 
analytical tools, and technological developments. Currently, 76 of the 
94 countries are connected to the Egmont Secure Web. In this area, 
FinCEN is unique in that it supports all of U.S. law enforcement and 
assists all international Egmont partners.
    Question. What provisions of the National Money Laundering Strategy 
does Treasury enforce?
    Answer. The National Money Laundering Strategy is not an 
enforcement document, but rather a document setting forth the 
President's overarching goals in a variety of areas to identify and 
combat money laundering, terrorist financing and other financial 
crimes.
    Question. Is this strategy essential to coordinating the government 
goals to fight money laundering?
    Answer. The Department believes that the requirement of drafting a 
national Strategy has been beneficial in that it has required the 
principal U.S. government anti-money laundering and anti-terrorist 
financing regulators and law enforcement investigators and prosecutors, 
as well as the intelligence community to discuss overarching goals and 
directions, as well as to identify trends and emerging threats. The 
resulting Strategies reflect those interagency discussions.
    Question. Has the administration transmitted a reauthorization 
proposal to Congress regarding the National Money Laundering Strategy?
    Answer. I am not aware of a formal submission.
    Question. The Secretary also indicated in his testimony that the 
Treasury Department is the lead agency for interdicting the flows of 
terrorist financing in the financial system and that Homeland Security 
is only responsible for the protecting the physical structures, but not 
the financial system itself.
    Is there any written understanding between the Department of 
Homeland Security and the Department of the Treasury that clearly 
delineates the roles of the two agencies?
    Answer. There are no written procedures delineating respective 
roles.
    Question. Is there an MOU or other document between Justice and 
Treasury that defines the roles and missions of each Department in 
terrorist financing? Please provide a copy of any written 
understandings.
    Answer. I am not aware of an MOU.
    Question. The Memorandum of Understanding between the Justice 
Department and Homeland Security Department that establishes the 
Federal Bureau of Investigation as the lead in all terrorist financing 
investigations. What is the role of Treasury in investigating terrorist 
financing investigations? Why is the Department excluded from an MOU 
where Treasury has a major stake in the decisions being made?
    Answer. The MOU referenced was necessary to provide clarity of 
jurisdiction so as to ensure proper coordination of law enforcement 
investigations of terrorist financing. The Treasury Department's law 
enforcement and support entities (IRS-CID, FinCEN, and OFAC) support 
the FBI-led Joint Terrorism Task Forces (JTTFs) on terrorist financing 
investigations. We see no need for Treasury to have been a signatory to 
an MOU allocating responsibility for domestic operational 
investigations of terrorist financing between the FBI and ICE.
    Question. Who is the agency primarily responsible for safeguarding 
the integrity of America's financial systems?
    Answer. The most fundamental responsibility of the Treasury 
Department is the safeguarding of the soundness and integrity of the 
United States and international financial systems. Treasury meets this 
responsibility through a wide range of programs, ranging from domestic 
regulatory actions to far-reaching international initiatives through 
the International Monetary Fund, participation in multilateral groups 
such as the Financial Action Task Force and the World Bank. Each of 
these programs benefits from the historic, deep and ongoing 
relationship that Treasury maintains with the U.S. financial community 
and our support for law enforcement investigative initiatives through 
financial powers unique to the Department of the Treasury. Although 
other agencies have primacy in the regulation of specific sectors of 
the U.S. financial system, no other agency has this overarching 
responsibility.
    Of course, a vital component of our overall efforts is the 
protection of the U.S. financial system from abuse by terrorist 
financiers, money launderers and other financial criminals. Central to 
these efforts are such Treasury components as the Executive Office for 
Terrorist Financing and Financial Crimes (EOTF/FC), Office of Foreign 
Assets Control (OFAC), Financial Crimes Enforcement Network (FinCEN), 
the Treasury Executive Office of Asset Forfeiture (TEOAF) and the 
Office of Critical Infrastructure Protection and Compliance Policy, and 
will soon include the newly-established Office of Terrorism and 
Financial Intelligence. Each of these offices works closely with the 
U.S. law enforcement community--including the FBI, DEA, IRS-CI, U.S. 
Secret Service, U.S. Postal Inspection Service, and ICE--to ensure that 
criminals seeking to use and abuse the U.S. financial system are 
identified and brought to justice.
    FinCEN, as the administrator of the Bank Secrecy Act, ensures that 
information reported under that act is provided to law enforcement 
agencies such as the Bureau of Immigration and Customs Enforcement. In 
addition to making the fruits of this activity available to law 
enforcement, FinCEN also uses its analytical resources to mine the data 
to support existing law enforcement cases on request, as well as to 
proactively identify potential new cases for law enforcement. FinCEN 
provides guidance to industry to ensure that its regulatory efforts are 
directed at law enforcement concerns, and takes enforcement action as 
necessary to ensure that its regulations are being followed. In 
addition, FinCEN publishes a number of analytical products to help law 
enforcement understand the financial system and follow the money, and 
to help the financial industry improve its monitoring and reporting of 
suspicious activity. Finally, in the international context, FinCEN's 
relationship with its counterpart financial intelligence units provides 
tremendous information where funds are flowing into or out of the 
United States, and are available for appropriate use by ICE as well as 
all Federal law enforcement investigating financial crimes. A large 
portion of FinCEN's budget is devoted to developing and supporting its 
systems and analytical tools to assist and complement the financial 
investigatory effort of programs such as Cornerstone, which Treasury 
welcomes. We look forward to a continued close cooperation with ICE in 
our efforts to combat financial crimes.
    Question. What agency is ultimately responsible for fighting the 
financial war on terrorism?
    Answer. Several agencies work together in fighting the financial 
war on terrorism. The Treasury Department has the lead in safeguarding 
the integrity of the United States and international financial 
systems--including from abuse by terrorists and those who support them.
    Treasury has expertise throughout the Department that stretches 
across the entire anti-money laundering/counter-terrorist financing 
(AML/CTF) spectrum and allows it to deal with complicated issues 
associated with the movement of money and assets in the United States 
and international financial system. All of these components give 
Treasury the necessary broad perspective to create and implement 
strategies to safeguard the financial system against abuse.
    In its role safeguarding the financial systems both home and 
abroad, the Treasury Department utilizes numerous capabilities:
    Sanctions and Administrative Powers.--Treasury wields a broad range 
of powerful economic sanctions and administrative powers to attack 
various forms of financial crime, including E.O. 13224 and Section 311 
of the USA PATRIOT Act.
    Law Enforcement and Law Enforcement Support.--Treasury combats 
various forms of financial crime through the direct law enforcement 
actions of IRS-CI and the law enforcement support provided by FinCEN 
and Treasury's regulatory authorities.
    Financial Regulation and Supervision.--FinCEN administers the Bank 
Secrecy Act and issues and enforces AML/CTF regulations. Treasury 
further maintains close contact with the Federal financial 
supervisors--including the Treasury Department's Office of the 
Comptroller of the Currency and Office of Thrift Supervision--with the 
goal of ensuring that these regulations are being implemented 
consistently throughout the financial sectors. In addition, OFAC 
administers and enforces the various economic sanctions and 
restrictions imposed by statute and under the Secretary's delegated 
IEEPA authority.
    International Initiatives.--The Treasury Department is part of and 
has access to an extensive international network of Finance Ministries 
and Finance Ministry-related bodies such as the Financial Action Task 
Force (FATF) and various FATF-Style Regional Bodies, the International 
Monetary Fund (IMF), the World Bank, the G-7, and various multilateral 
development banks. In addition, Treasury is the critical facilitator 
for the international relationship between financial intelligence units 
organized through the Egmont Group.
    Private Sector Outreach.--As a result of our traditional role in 
safeguarding the financial system, Treasury has developed a unique 
partnership with the private sector. Through outreach programs such as 
the Bank Secrecy Act Advisory Group (BSAAG) and other regulatory and 
educational seminars and programs, Treasury maintains a close 
relationship with U.S. financial institutions to ensure a smooth 
exchange of information related to money laundering and terrorist 
financing. Treasury also maintains a close dialogue with the charitable 
sector to help it address its vulnerabilities to terrorist financing.
    The Office of Terrorism and Financial Intelligence (TFI) brings 
together Treasury's intelligence, regulatory, law enforcement, 
sanctions, and policy components, and enhances Treasury's efforts in 
combating terrorist financing and financial crime. TFI will work in 
coordination with its partners in the interagency community to ensure 
that its efforts complement and augment the important initiatives 
already underway.
    Treasury has a central role to play in the overall fight against 
terrorist financing due to our unique responsibilities and position 
within the government and with respect to the financial sector. Of 
course, many agencies have important roles to play and have the lead in 
their specific areas of expertise. The FBI, for example, has the lead 
in terrorist financing investigations. This does not diminish from 
Treasury's role or responsibilities.
    Question. Is all information shared with Treasury from the Foreign 
Terror Asset Tracking Group (FTAT-G)?
    Answer. With respect to FTAT-G, the purpose of that entity is to 
provide a forum where the various agencies with what can be described 
as proprietary information can work together, each bringing their 
separate ``databases'' of information to bear on tracking assets. This 
information is used to develop reports that are used by decision-
makers. Treasury has participated in the FTAT-G and, as a result, has 
had an opportunity to review and comment on working drafts and receives 
copies of all the final reports they prepare.
    Question. Does the Terror Threat Integration Center (T-TIC) clear 
all of its terrorist financing information with the Department?
    Answer. With respect to the TTIC, Treasury will become a party to 
the MOU authorizing the sharing of appropriate threat information. 
Treasury components will identify what, if any, information it may have 
covered by the MOU and will share.
    Question. With Treasury being the lead agency on terrorist 
financing, does all terror financing intelligence and investigations 
come through the Department? How? Does the Treasury Department 
coordinate these actions? How?
    Answer. All terrorist financing investigations do not come through 
the Department of the Treasury, nor should they. Just like OFAC 
designations, criminal investigation and prosecution are tools 
available to the United States in its war against the financing of 
terror. The Department, through its participation on the PCC, shares 
and receives information needed to make informed decisions concerning 
which anti-terrorist financing tools to apply in given circumstances.
    Question. Does the Department direct the actions or the resources 
that other agencies spend to fight terror financing?
    Answer. Treasury does not have the authority to direct the 
resources of other agencies.
    Question. Does the Department have any input on the resources that 
Homeland spends on Cornerstone, as an example?
    Answer. No.
    Question. According to the testimony of numerous witnesses, there 
seems to be a considerable amount of duplication in the Federal 
Government on the issue of terror financing. What agency is making the 
resource decisions in spending by Department on the amounts spent on 
terror financing? Does Treasury have any input in this process?
    Answer. The Office of Management and Budget (OMB) coordinates 
spending decisions. Treasury, like all agencies, works with OMB on 
those decisions.
    Question. Should there be an evaluation of the coordination and 
actions of these financial intelligence units? Is any agency doing 
this?
    Answer. There are existing fora for coordinating the actions of our 
financial intelligence functions. The National Security Council (NSC) 
oversees this coordination. We continuously work with the NSC and OMB 
to maximize our efforts developing financial intelligence and will 
continue to do so in the future. Treasury is always studying how we can 
best improve our efforts to meet our responsibilities, both within this 
agency and in cooperation with our sister agencies.
    The term ``financial intelligence unit'' is a term-of-art that 
refers to the entity within a government that is responsible for 
receiving, analyzing, and disseminating information derived from 
suspicious activity reports and other money laundering-related reports 
from the financial sector. The Financial Crimes Enforcement Network 
(FinCEN) serves as the financial intelligence unit for the United 
States. FinCEN is an integral part of the Department of the Treasury 
and substantially benefits from Treasury's unique relationship with the 
financial community, the law enforcement community and the regulatory 
community.
    Question. If the resources were provided, could Treasury enforce 
its responsibilities under the Patriot Act, allowing the other agencies 
to focus on their core missions?
    Answer. The Treasury Department believes that it is meeting its 
current USA PATRIOT Act responsibilities, but there is always more we 
can do. We have no reason to believe that other agencies are not 
focusing on their ``core missions.''
    Question. What resources would be necessary?
    Answer. The Treasury Department believes that it is meeting its 
current USA PATRIOT Act responsibilities, but there is always more we 
can do. We have no reason to believe that other agencies are not 
focusing on their ``core missions.''
    Question. How will Treasury enforce the provisions of the USA 
PATRIOT Act it is responsible for?
    Answer. Different components of the Department have differing 
``enforcement'' responsibilities under both the BSA and the USA PATRIOT 
Act. For example, by virtue of a delegation order from the Secretary of 
the Treasury and an organic statute passed as part of the USA PATRIOT 
Act, FinCEN is charged with the responsibility of administering the 
regulatory regime of the BSA. In this capacity, among other things, 
FinCEN issues regulations and accompanying interpretive guidance; 
collects, analyzes and maintains the reports and information filed by 
financial institutions pursuant to BSA regulations; makes those reports 
and information available to law enforcement and regulators; and 
ensures financial institution compliance with the regulations through 
enforcement actions. The USA PATRIOT Act both refined and extended 
FinCEN's focus in carrying out these responsibilities.
    Amendments to the BSA by the USA PATRIOT Act sharpened FinCEN's 
responsibilities relating to the management of BSA information. For 
example, FinCEN designed and implemented the Patriot Act Communications 
System to provide a platform for electronically capturing at least 90 
percent of all BSA reports, and built information sharing and 
dissemination systems required under Section 314. FinCEN is also 
undertaking the ``BSA Direct'' initiative to significantly upgrade 
mandated requirements to ensure that it secures this sensitive 
information and that it audits its use; that it ``networks'' disparate 
agencies accessing the information to ensure more robust investigation 
and to ensure that investigations do not overlap; and to collect and 
provide feedback and other information to the entities reporting the 
information--the financial industry--so that reporting can be better 
and more relevant for law enforcement.
    The USA PATRIOT Act also extended FinCEN's regulatory 
responsibilities by accelerating expansion of BSA coverage to a broad 
range of new industries. Generally FinCEN's role involves such things 
as providing prompt BSA interpretive guidance to examiners, policy 
makers and the financial service industries, and ensuring the 
consistent application of the BSA regulations across industry lines, 
most notably through the rule making process and subsequent guidance. 
While FinCEN is responsible for ensuring compliance with the BSA 
regulatory regime, FinCEN does not itself examine financial 
institutions for compliance. Instead, FinCEN taps the resources and 
expertise of other Federal agencies and self-regulatory organizations 
by delegating to these agencies the responsibility for conducting 
compliance exams.
    FinCEN does have an important role in supporting the examination 
regime created through these delegations. To enhance this role, FinCEN 
will create a new program office devoted solely to the BSA examination 
function. The new structure will consolidate all examination support 
functions and better enable FinCEN to provide the necessary support to 
regulatory agencies conducting BSA compliance exams. As an initial 
priority, FinCEN plans to focus on assisting the IRS in its examination 
function, particularly in light of the new regulations that FinCEN has 
and will issue to bring thousands of additional businesses under the 
BSA anti-money laundering program provision.
    Since coordination among the functional regulators is essential for 
improving the overall compliance process, FinCEN will be working 
through the Bank Secrecy Act Advisory Group to identify, in 
coordination with the regulatory agencies, ways in which we can 
identify common compliance deficiencies, provide feedback and guidance 
to examiners, collaborate on a continuing basis on examination 
procedures, and engage in joint examiner training.
    As part of our investigation of the current BSA regulatory system's 
ability to enforce industry compliance with provisions of the BSA, 
FinCEN is pursuing a number of initiatives to improve such compliance 
through enforcement and other actions, including: creating a new 
Examination Program Office; dedicating analytical resources to 
compliance support and examination targeting; allocating resources to 
provide interpretive guidance to examiners; reviewing enforcement 
referral guidelines and reporting requirements to FinCEN; and focusing 
on compliance by money service businesses.
    FinCEN is also exploring ideas for enhanced coordination among the 
Federal regulators. These ideas include: identifying common compliance 
deficiencies; enhancing collaboration on examination procedures; and 
encouraging more joint examiner training. Treasury will work closely 
with FinCEN and the Federal regulators to develop these ideas and 
others as our investigation into the effectiveness of the current BSA 
compliance and enforcement system progresses.
    Finally, FinCEN retains the authority to pursue civil enforcement 
actions against financial institutions for egregious non-compliance 
with the BSA and the implementing regulations. Under the BSA, FinCEN is 
empowered to assess civil monetary penalties against, or require 
corrective action by, a financial institution committing negligent or 
willful violations.
    The IRS also has large BSA and USA PATRIOT Act enforcement 
responsibilities, both civilly and criminally. In addition to its 
primary jurisdiction, which is set forth in Title 26 of the United 
States Code (Internal Revenue Code), IRS-CI also has investigative 
jurisdiction involving other financial-related statutes. Beginning in 
1970, Congress enacted a number of laws that led to greater 
participation by CI in the financial investigative environment. The 
Currency and Foreign Transactions Reporting Act of 1970 (Bank Secrecy 
Act); The Comprehensive Crime Control Act of 1984; The Anti-Drug Abuse 
Acts of 1986 and 1988; Crime Control Act of 1990; The Annunzio-Wylie 
Anti-Money Laundering Act of 1992; The Money Laundering Suppression Act 
of 1994; The Antiterrorism and Effective Death Penalty Act of 1996; The 
Health Insurance Portability and Accountability Act of 1996; and the 
USA PATRIOT Act of 2001 all developed and refined the existing anti-
money laundering and anti-terrorism laws under Titles 31 and 18 of the 
United States Code.
    Additionally, IRC, Section 6050 I, requires anyone involved in a 
trade or business, except financial institutions, to report currency 
received for goods or services in excess of $10,000 on a Form 8300.
    The combination of tax, money laundering and Bank Secrecy Act 
statutes enables IRS to identify and investigate tax evasion cases 
involving legal and illegal income sources. Ultimately, this 
versatility leverages IRS's ability to be a major contributor to many 
important national law enforcement priorities.
    Responsibility for ensuring compliance with the BSA and USA PATRIOT 
Act of all non-banking and financial institutions not otherwise subject 
to examination by another Federal functional regulator i.e., Money 
Service Businesses (MSBs), casinos and credit unions was delegated to 
the IRS by the Department of Treasury in December 1992. Under the 
delegation, IRS is responsible for three elements of compliance--the 
identification of MSBs, educational outreach to all three types of 
organizations, and the examination of these entities suspected of 
noncompliance. The IRS performs these compliance functions along with 
its criminal enforcement role.
    The processing and warehousing of BSA documents into the Currency 
Banking and Retrieval System (CBRS), including FBARs \1\, CTRs \2\, 
8300s \3\ and SARs \4\, are also the responsibility of the IRS. All 
documents entered into the CBRS (approximately 14 million annually) are 
made available to other law enforcement and regulatory agencies in 
addition to IRS. However, the IRS is the largest user of the CBRS.
---------------------------------------------------------------------------
    \1\ Foreign Bank & Financial Account Report (FBAR).
    \2\ Currency Transaction Report--(CTR) FinCEN Form 104 and FinCEN 
Form 103 (filed by casinos).
    \3\ Report of Cash Payments Over $10,000 Received in a Trade or 
Business (IRS and FinCEN form 8300).
    \4\ Suspicious Activity Reports (SARs)--filed by financial 
institutions when there is suspicious activity, as determined by the 
financial institution.
---------------------------------------------------------------------------
    To meet its obligations under 31 CFR 103.57(b) and Treasury 
Delegation Order 15-41 IRS ensures that certain financial institutions 
(FIs) are in compliance with their recordkeeping and reporting 
requirements under the Bank Secrecy Act.
    This is accomplished by a balanced civil and criminal program that 
includes:
  --identifying financial institutions (FIs) under IRS jurisdiction,
  --identifying those FIs that are actively involved in or facilitate 
        money laundering and seek ways to end this activity,
  --conducting BSA compliance examinations to identify or uncover 
        potential areas of noncompliance, money laundering trends, 
        patterns, schemes, and forwarding the information for use in 
        enhancing the National Anti-Money Laundering Strategy,
  --an aggressive effort to assist FIs for which IRS has jurisdiction 
        in understanding their role in combating money laundering and 
        to voluntarily meet their obligations under the BSA,
  --actively participating in coordinated multi-agency anti-money 
        laundering initiatives such as GTOs, HIDTAs, HIFCAs, and SAR 
        Review Teams designed to disrupt and dismantle money laundering 
        organizations,
  --securing information on currency transactions which should have 
        been reported or recorded and make available to law enforcement 
        and other interested parties,
  --utilizing and evaluating various currency transaction reports as 
        authorized for tax compliance activities.
    IRS's civil and criminal outreach efforts include State, and 
national associations affiliated with financial services industries. 
IRS provides keynote speakers, conducts seminars and provides 
educational programs relating to check cashers, bankers, tax 
practitioners, fraud examiners, corporate security personnel and bank 
security officers. This outreach and our efforts to contact money 
service businesses is a significant part of our program to identify and 
educate MSBs regarding their requirements to register their business 
with both the State and Federal Government.
    IRS has approximately 350 civil examiners assigned to the anti-
money laundering program. These examiners are currently conducting 
5,576 examinations. In addition to the examination of non-banking 
financial institutions (NBFI), civil examiners also conduct reviews for 
compliance with the currency reporting requirements of Section 6050I of 
the Internal Revenue Code. As of March 31, 2004, the IRS NBFI database 
reflected over 88,000 potential NBFIs. From September 30, 2000 through 
May 2004, IRS has closed 13,288 examinations and conducted 5,940 
registration examinations.
    On June 3, 2004, the Comptroller of the Currency testified before 
the Senate Committee on Banking, Housing and Urban Affairs, and 
detailed the actions OCC is taking under both the BSA and USA PATRIOT 
Act to ensure anti-money laundering compliance. That testimony is 
available on the Department of the Treasury's web site.
    Question. Would the consolidation of financial intelligence into 
one Federal agency make the government more accountable for outcomes 
under the statutes that Treasury enforces?
    Answer. Different agencies use financial intelligence to support 
their specific missions. For example, the intelligence and law 
enforcement agencies use their collection and analysis on terrorist 
financing to support their operations. While consolidating financial 
intelligence into one agency could enhance accountability for outcomes 
under the statutes that Treasury enforces, other agencies will need the 
function to support their own missions.
    Question. On the Bureau of Immigration and Customs Enforcement 
(BICE) webpage is the following description of their role in terrorist 
financing:

    ``Cornerstone is ICE's premier financial crime program that seeks 
to identify vulnerabilities in financial systems through which 
criminals launder their illicit proceeds, bring the criminals to 
justice, eliminate the vulnerabilities, and develop a working 
partnership with industry representatives to share information and 
close industry-wide security gaps that could be exploited by money 
launderers and other criminal organizations. `Safeguarding the 
integrity of America's financial systems is a key part of homeland 
security,' said Secretary Ridge. Criminal organizations are seeking new 
ways to finance their operations, and the Department of Homeland 
Security is moving aggressively to identify vulnerabilities within U.S. 
financial systems that could be exploited to those ends.''

    Describe in detail Treasury's role in the BICE program described 
above.
    Answer. ICE is a law enforcement bureau within the Department of 
Homeland Security. We regard Operation Cornerstone as primarily a law 
enforcement investigative initiative of that bureau, and therefore have 
little involvement. That said, Operation Cornerstone does have a 
private sector outreach component, and Treasury is taking steps to 
ensure that this aspect of Cornerstone is coordinated with overall 
financial community outreach, a responsibility with which Treasury 
clearly is charged. Treasury's primary mechanism for such outreach is 
the Bank Secrecy Act Advisory Group (BSAAG), which is chaired by 
FinCEN.
    Question. Was Cornerstone a coordinated effort with Treasury? What 
is Treasury's role?
    Answer. As noted above, we regard Operation Cornerstone as 
primarily a law enforcement investigative initiative of that bureau, 
and therefore have had little involvement. That said, Operation 
Cornerstone does have a private sector outreach component, and Treasury 
is taking steps to ensure that this aspect of Cornerstone is 
coordinated with overall financial community outreach, a responsibility 
with which Treasury clearly is charged. Treasury's primary mechanism 
for such outreach is the Bank Secrecy Act Advisory Group (BSAAG), which 
is chaired by FinCEN.
    Question. Does Cornerstone share all of their money laundering and 
terrorist financing information with the Treasury Department?
    Answer. Operational law enforcement matters properly are handled by 
law enforcement agency or agencies, or joint task forces that are 
investigating the specific activities involved. It would not be 
appropriate for all information relating to such investigative 
operations to be shared with the Treasury Department.
    That said, DHS, DOJ and Treasury do routinely share new and 
developing money laundering trends and methodologies information to 
ensure that their enforcement and prosecutorial efforts stay abreast of 
the activities of the criminals. As to terrorist financing information, 
ICE has merged all of its terrorist financing activities into the FBI's 
Terrorist Financing Operations Section (TFOS). Additionally, Treasury, 
through IRS-CI, is an active participant in DOJ's JTTF, along with ICE 
and other law enforcement agencies.
    Question. How is this different from FinCEN's mission and also the 
mission of the Office of Critical Infrastructure? Please be specific.
    Answer. FinCEN is responsible for administering the Bank Secrecy 
Act. In that role, FinCEN is ultimately responsible for the collection, 
maintenance, analysis and dissemination of information collected under 
that Act. FinCEN has a statutory mandate to provide feedback to the 
industry. FinCEN provides guidance to industry to ensure that its 
regulatory efforts are directed at law enforcement concerns, and takes 
enforcement action as necessary to ensure that its regulations are 
being followed. FinCEN's primary mechanism for private sector outreach 
is the Bank Secrecy Act Advisory Group. In addition, FinCEN publishes a 
number of analytical products to help law enforcement understand the 
financial system and follow the money, and to help the financial 
industry improve its monitoring and reporting of suspicious activity. 
Finally, in the international context, FinCEN is the U.S. financial 
intelligence unit and is responsible for the Egmont secure web, 
providing the Egmont Group, an international collection of financial 
intelligence entities charged with the collection and analysis of 
financial information to help prevent money laundering and other 
illicit finance, with the ability to communicate with one another via 
secure e-mail, posting and assessing information regarding trends, 
analytical tools, and technological developments. Currently, 76 of the 
94 countries are connected to the Egmont Secure Web.
    The Office of Critical Infrastructure Protection and Compliance 
Policy works with the financial services sector and regulators on 
behalf of the Department in the area of critical infrastructure 
protection for the financial services sector. The Department is the 
agency of the U.S. government responsible for coordinating the 
development of policies to reduce vulnerabilities and increase 
resilience for the Nation's financial services sector critical 
infrastructure. This office develops policy formulations intended to 
increase the resilience of private sector financial services firms. The 
office also supports the Assistant Secretary for Financial 
Institutions, who chairs the Financial and Banking Information 
Infrastructure Committee, a grouping of Federal and State financial 
regulators that focuses on the resilience and integrity of financial 
sector infrastructure. Moreover, this office supports Treasury 
policymakers concerning the development of policies regarding 
information sharing, the protection of personal financial information, 
and remittances.
    Question. This seems to be not only complimentary of the Treasury 
mission; it seems to be the Treasury mission. Why is the Federal 
Government funding two different agencies in two Executive Branch 
Departments to do the same job?
    Answer. We view the Cornerstone initiative as complimentary and not 
as duplicative. The most fundamental responsibility of the Treasury 
Department is the safeguarding of the soundness and integrity of the 
U.S. and international financial systems. Treasury meets this 
responsibility through a wide range of programs, ranging from domestic 
regulatory actions to far-reaching international initiatives through 
the International Monetary Fund, participation in multilateral groups 
such as the Financial Action Task Force and the World Bank. Each of 
these programs benefits from the historic, deep and ongoing 
relationship that Treasury maintains with the U.S. financial community 
and our support for law enforcement investigative initiatives through 
financial powers unique to the Department of the Treasury.\5\
---------------------------------------------------------------------------
    \5\ For example, the most important tool in the United States 
arsenal to attack systemic money laundering is the Geographic Targeting 
Order (31 U.S.C.  5326) by and through which financial industry 
reporting can be reduced and more finely honed. In the international 
realm, use of PATRIOT Act Section 311 (31 U.S.C.  5318A) to target 
``primary money laundering jurisdictions, accounts, financial 
institutions and others is a very potent weapon''.
---------------------------------------------------------------------------
    Of course, a vital component of our overall efforts is the 
protection of the U.S. financial system from abuse by terrorist 
financiers, money launderers and other financial criminals. Central to 
these efforts are such Treasury components as the Executive Office for 
Terrorist Financing and Financial Crimes (EOTF/FC), Office of Foreign 
Assets Control (OFAC), Financial Crimes Enforcement Network (FinCEN), 
the Treasury Executive Office of Asset Forfeiture (TEOAF) and the 
Office of Critical Infrastructure Protection and Compliance Policy, and 
will soon include the newly-established Office of Terrorism and 
Financial Intelligence. Each of these offices works closely with the 
U.S. law enforcement community--including the FBI, DEA, IRS-CID, U.S. 
Secret Service, U.S. Postal Inspection Service, and ICE--to ensure that 
criminals seeking to use and abuse the U.S. financial system are 
identified and brought to justice.
    FinCEN, as the administrator of the Bank Secrecy Act, ensures that 
information reported under that act is provided to law enforcement 
agencies such as the Bureau of Immigration and Customs Enforcement 
(ICE). In addition to making the fruits of this activity available to 
law enforcement, FinCEN also uses its analytical resources to mine the 
data to support existing law enforcement cases on request, as well as 
to proactively identify potential new cases for law enforcement. FinCEN 
provides guidance to industry to ensure that its regulatory efforts are 
directed at law enforcement concerns, and takes enforcement action as 
necessary to ensure that its regulations are being followed. In 
addition, FinCEN publishes a number of analytical products to help law 
enforcement understand the financial system and follow the money, and 
to help the financial industry improve its monitoring and reporting of 
suspicious activity. Finally, in the international context, FinCEN's 
relationship with its counterpart financial intelligence units provides 
tremendous information where funds are flowing in to or out of the 
United States, and are available for appropriate use by ICE as well as 
all Federal law enforcement investigating financial crimes. A large 
portion of FinCEN's budget is devoted to developing and supporting its 
systems and analytical tools to assist and complement the financial 
investigatory effort of programs such as Cornerstone, which Treasury 
welcomes. We look forward to a continued close cooperation with ICE in 
our efforts to combat financial crimes.
    Question. Considering that ICE and FBI have financial intelligence 
units with hundreds of staff devoted to financial intelligence, why 
should Treasury still be considered as the lead agency?
    Answer. The Treasury Department has the lead in safeguarding the 
integrity of the U.S. and international financial systems--including 
from abuse by terrorists and those who support them.
    Treasury has expertise throughout the Department that stretches 
across the entire anti-money laundering/counter-terrorist financing 
(AML/CTF) spectrum and allows it to deal with complicated issues 
associated with the movement of money and assets in the United States 
and international financial system. All of these components give 
Treasury the necessary broad perspective to create and implement 
strategies to safeguard the financial system against abuse.
    In its role safeguarding the financial systems both home and 
abroad, the Treasury Department utilizes numerous capabilities:
    Sanctions and Administrative Powers.--Treasury wields a broad range 
of powerful economic sanctions and administrative powers to attack 
various forms of financial crime, including E.O. 13224 and Section 311 
of the USA PATRIOT Act.
    Law Enforcement and Law Enforcement Support.--Treasury combats 
various forms of financial crime through the direct law enforcement 
actions of IRS-CI and the law enforcement support provided by FinCEN 
and Treasury's regulatory authorities.
    Financial Regulation and Supervision.--FinCEN administers the Bank 
Secrecy Act and issues and enforces AML/CTF regulations. Treasury 
further maintains close contact with the Federal financial 
supervisors--including the Treasury Department's Office of the 
Comptroller of the Currency and Office of Thrift Supervision--with the 
goal of ensuring that these regulations are being implemented 
consistently throughout the financial sectors. In addition, OFAC 
administers and enforces the various economic sanctions and 
restrictions imposed by statute and under the Secretary's delegated 
IEEPA authority.
    International Initiatives.--The Treasury Department is part of and 
has access to an extensive international network of Finance Ministries 
and Finance Ministry-related bodies such as the Financial Action Task 
Force (FATF) and various FATF-Style Regional Bodies, the International 
Monetary Fund (IMF), the World Bank, the G-7, and various multilateral 
banks. In addition, Treasury is the critical facilitator for the 
international relationship between financial intelligence units 
organized through the Egmont Group.
    Private Sector Outreach.--As a result of our traditional role in 
safeguarding the financial system, Treasury has developed a unique 
partnership with the private sector. Through outreach programs such as 
the Bank Secrecy Act Advisory Group (BSAAG) and other regulatory and 
educational seminars and programs, Treasury maintains a close 
relationship with U.S. financial institutions to ensure a smooth 
exchange of information related to money laundering and terrorist 
financing. Treasury also maintains a close dialogue with the charitable 
sector to help it address its vulnerabilities to terrorist financing.
    The Office of Terrorism and Financial Intelligence (TFI) brings 
together Treasury's intelligence, regulatory, law enforcement, 
sanctions, and policy components, and enhances Treasury's efforts in 
combating terrorist financing and financial crime. TFI will work in 
coordination with its partners in the interagency community to ensure 
that its efforts complement and augment the important initiatives 
already underway.
    Treasury has a central role to play in the overall fight against 
terrorist financing due to our unique responsibilities and position 
within the government and with respect to the financial sector. Of 
course, many agencies have important roles to play and have the lead in 
their specific areas of expertise. The FBI, for example, has the lead 
in terrorist financing investigations. This does not diminish from 
Treasury's role or responsibilities.

                                 FINCEN

    Question. Please provide a detailed description of what BSA Direct 
will provide in functionality to FinCEN.
    Answer. The BSA Direct initiative encompasses systems and processes 
that will significantly alter the way Bank Secrecy Act information is 
provided to law enforcement and the regulators that access the 
information. It will provide those entities, including FinCEN, with 
state of the art data search tools in a robust user-friendly 
environment. Users will be able to search Bank Secrecy Act information 
faster and better, and will be able to do more with the data than they 
currently can. Eventually, sophisticated data mining, geographic and 
other analytic tools will be added to the environment, which will add 
to the value of the Bank Secrecy Act information. Finally, the 
initiative will help free FinCEN analytic resources to focus on more 
complex and strategic analysis of the financing of terror, money 
laundering and other illicit finance. To better understand the specific 
functionality this initiative will provide to FinCEN, it is important 
to understand the way Bank Secrecy Act information is currently 
managed, analyzed and disseminated.
    FinCEN is the delegated administrator of the Bank Secrecy Act, a 
regulatory statute designed to deter, prevent and address money 
laundering and illicit finance, including the financing of terrorism. 
The keystone of the Bank Secrecy Act is a reporting regime under which 
financial institutions report to the Federal Government certain 
information--large cash transactions or suspicious activity. Over 13 
million Bank Secrecy Act reports are filed each year by more than 
200,000 U.S. financial institutions, providing invaluable information 
to detect and prevent financial crimes. FinCEN is responsible for 
ensuring that information is collected, securely housed, analyzed and 
shared with law enforcement. Amendments to the Bank Secrecy Act by the 
USA PATRIOT Act sharpened FinCEN's responsibilities relating to this 
information. Among other things, FinCEN is responsible for securing 
this sensitive information and auditing its use; networking with 
disparate agencies accessing the information to ensure more robust 
investigation and ensuring that investigations do not overlap; and 
collecting and providing feedback and other information to the entities 
reporting the information--the financial industry--so that reporting 
can be better and more relevant for law enforcement.
    Currently, under a legacy process that predates FinCEN, Bank 
Secrecy Act reports are collected by the Internal Revenue Service's 
Detroit Computing Center and are housed in an IBM IDMS mainframe 
environment incorporating 12 hierarchical databases. Most persons 
access the data through a ``gateway'' connection. While the IRS is 
currently converting the data to a ``DB2'' relational format, the data 
on the mainframe system in Detroit is not currently kept in a 
relational database, so search capabilities are limited for persons and 
entities that access Bank Secrecy Act information through that system. 
Because of the limitations of this system, FinCEN devotes a significant 
portion of its analytic resources to data retrieval for many of its law 
enforcement customers. As a result of this system, FinCEN downloads a 
duplicate copy of the Bank Secrecy Act database every night to other 
systems and into programs that provide relational data mining and 
analytical capabilities.
    FinCEN is not the only entity that downloads all or part of the 
Bank Secrecy Act data from the Detroit Computing Center. Under legacy 
arrangements that pre-date FinCEN's current leadership, Suspicious 
Activity Reports (SARs) filed by depository institutions are downloaded 
directly from the IRS's Detroit Computing Center to the Federal Bureau 
of Investigation and United States Secret Service. Bank Secrecy Act 
information is also downloaded to the Treasury Enforcement 
Communications System (TECS), which was maintained by the former U.S. 
Customs Service and is now maintained by the Department of Homeland 
Security (DHS). Agencies with access to TECS (e.g., DHS's Immigration 
and Customs Enforcement, DHS's Customs and Border Protection, DOJ's 
Bureau of Alcohol, Tobacco, Firearms and Explosives, etc.) generally 
access Bank Secrecy Act information through that system. FinCEN has a 
limited ability to network the use of the data by those who download it 
since it is entirely dependent on manual feedback on the use of the 
data, which is difficult to obtain. Moreover, auditing the use of the 
data is far more difficult since it depends on manual reviews combined 
with the tracking system in place at the independent system. Simply 
put, currently FinCEN cannot fully meet any of its statutory 
responsibilities relating to the data utilizing the current system and 
processes in place.
    The systems and processes contemplated in the BSA Direct initiative 
will allow FinCEN to not only meet these responsibilities, but will 
provide law enforcement, regulators and FinCEN a modern, user-friendly 
environment to mine and analyze BSA data. The heart of the BSA Direct 
initiative is a secure data warehouse to consolidate the Bank Secrecy 
Act information into a single, integrated data set. Users will have a 
flexible and robust query system accessible through an intuitive web-
based interface. This system will provide access, including secure web 
access, to Bank Secrecy Act information with capabilities that allow 
end users to perform ad hoc as well as pre-defined queries and 
reporting. Users will gain easier, faster data access and enhanced 
ability to query and analyze Bank Secrecy Act information, and FinCEN 
will have tools to control and audit the use of this sensitive 
information, network with agencies that are using the data, and provide 
better feedback to the financial industry about the use of the data, 
which will lead to more relevant reporting.
    The full scope and detail of the functionality will be more fully 
determined as a result of the user requirements analyses in the first 
months of the project. However, the following examples identify the 
types of capabilities that BSA Direct will afford FinCEN and its 
customers that they presently do not have:
  --The automated capability for FinCEN to control and audit the use of 
        all persons accessing Bank Secrecy Act information.
  --The capability, through an alert system, for FinCEN to ``network'' 
        all users of Bank Secrecy Act information that ``hit'' the same 
        data, or appear to be analyzing the same information.
  --The capability to analyze law enforcement's use of the data to 
        provide meaningful feedback to the financial industry, which 
        will result in better reporting.
  --The capability to develop sophisticated filer profiles for 
        financial industry members to help FinCEN and the regulators 
        target entities for compliance examinations as well as the 
        ability to be notified automatically by the system when there 
        is a significant filing anomaly.
  --An intuitive interface to enable users to query data with little or 
        no training, and with strong, context-sensitive on-line help.
  --Users will be able to keep and view a list of their prior queries.
  --Managers in organizations will be better able to audit and manage 
        the use of the data by their subordinate users.
  --Users will be able to schedule a particular query to re-run on a 
        schedule set by the user.
  --Users will be able to customize query output, i.e., define what 
        columns of information are displayed, rearrange the order of 
        the columns, and then save that order as a personal default 
        view.
  --Users will have the ability to sort, filter, and aggregate columns 
        of data.
  --Users will be able to run ``batch queries,'' e.g., social security 
        numbers from all bankruptcy filings 6 months ago against all 
        Bank Secrecy Act filings in the last year.
  --Users will be able to create customized queries and reports.
  --A geographic mapping tool will provide information to show the 
        geographic significance of Bank Secrecy Act data.
  --Users will have the capability to pre-schedule queries and receive 
        reports on a timetable scheduled by users.
  --Users will be able to download results into popular formats, e.g., 
        Word, Excel, Analysts Notebook, etc.
    Question. Please provide the cost and schedule, as well as an 
assessment of the technical risk of development, for BSA Direct for 
fiscal year 2005 and for future fiscal years.
    Answer. The Request for Proposals (RFP) for BSA Direct (full and 
open competition) was released in February 2004. FinCEN is currently in 
the final stages of evaluating the proposals received in response to 
the RFP. Because the BSA Direct RFP clearly specifies that the offerors 
must utilize standards based methodology (SEI-CMM level 2 or higher) 
and use open standards, COTS products, and because the underlying data 
warehousing technology is relatively mature, technical risk is 
minimized. Risk management is a key component of the project 
management.
    FinCEN has submitted a Cost and Schedule Milestones chart for BSA 
Direct (as submitted to the Office of Management and Budget in December 
2003) below. The costs in this chart were based upon estimates provided 
by the Mitre Corporation, which FinCEN engaged to help evaluate the 
project. It is important to note that these are only estimates based on 
Mitre's study. FinCEN will be pleased to provide the committee with a 
much more accurate cost picture for this project once a contract for 
the system is awarded.

          COST AND SCHEDULE GOALS: ORIGINAL BASELINE FOR A PHASE/SEGMENT/MODULE OF PROJECT (INVESTMENT)
----------------------------------------------------------------------------------------------------------------
                                                                    Planned
                              ----------------------------------------------------------------------------------
         Description                       Schedule                 Duration
                              --------------------------------------------------  Planned Cost    Funding Agency
                                  Start Date        End Date      Days    Hrs.       (BCWS)
----------------------------------------------------------------------------------------------------------------
1. Program Administration      09/01/2003.....  03/13/2004.....     194  ......        $225,000  FinCEN
 Costs, excludes FTE.
2. Project Management,         04/05/2004.....  09/30/2005.....     543  ......      $1,006,000  Department of
 excludes FTE.                                                                                    Treasury
3. BSA Direct Proof of         10/02/2003.....  03/12/2004.....     162  ......        $393,000  Treasury
 Concept (POC) Development.
4. BSA Direct System           04/05/2004.....  06/10/2005.....     431  ......      $4,278,000  Treasury
 Development and Construction.
    4.1 Requirements           04/05/2004.....  08/20/2004.....     137  ......        $531,000  Treasury
     Definition and Analysis.
    4.2 System Design........  06/14/2004.....  10/29/2004.....     137  ......        $398,000  Treasury
    4.3 System Design Review.  10/18/2004.....  11/05/2004.....      18  ......         $40,000  Treasury
    4.4 System Development     07/05/2004.....  08/13/2004.....      39  ......         $80,000  Treasury
     Environment Setup.
    4.5. System Development &  09/06/2004.....  03/18/2005.....     193  ......        $929,000  Treasury
     Construction.
    4.6 Data Conversion,       06/14/2004.....  09/30/2004.....     108  ......        $744,000  Treasury
     Transformation, &
     Migration.
    4.7. System/Integration/   09/27/2004.....  11/05/2004.....      30  ......         $80,000  Treasury
     Test Environment.
    4.8. Usability/Component   01/24/2005.....  04/15/2005.....      81  ......        $239,000  Treasury
     Functional Testing.
    4.9. System/Integration/   03/21/2005.....  06/10/2005.....      81  ......        $372,000  Treasury
     Testing.
    4.10. Integration with     03/21/2005.....  06/10/2005.....      81  ......        $465,000  Treasury
     other systems.
    4.11. Lease costs          04/05/2004.....  06/10/2005.....     431  ......        $400,000  Treasury
     hardware and software.
5. BSA Direct Deployment and   06/28/2004.....  09/16/2005.....     445  ......      $1,675,000  Treasury
 Rollout.
    5.1. Deployment and        06/28/2004.....  09/17/2004.....      81  ......        $239,000  Treasury
     Rollout Strategy
     Planning.
    5.2. Acceptance/           05/02/2005.....  07/08/2005.....      67  ......        $398,000  Treasury
     Production Ready Testing.
    5.3. Production System     05/02/2005.....  09/16/2005.....     137  ......        $531,000  Treasury
     Deployment & Rollout.
    5.4. User Training and     06/06/2005.....  08/26/2005.....      81  ......        $372,000  Treasury
     Transition.
    5.5. Lease costs hardware  06/02/2005.....  09/30/2005.....     120  ......        $135,000  Treasury
     and software.
6. BSA Direct Operations and   10/01/2005.....  09/30/2006.....     364  ......       $2,500,00  FinCEN
 Maintenance.
                              ----------------------------------------------------------------------------------
      PROJECT TOTAL..........  09/01/2003.....  09/30/2006.....   1,125  ......     $10,077,000  ...............
----------------------------------------------------------------------------------------------------------------

    Question. If full funding were provided, when will the system be 
complete?
    Answer. With full funding, the FinCEN basic system contemplated by 
BSA Direct system will be operational and available to users by October 
2005. It is anticipated that FinCEN will continue to enhance the basic 
functionality of the system in future years. The goal at this point is 
to get the basic foundation of the system up and running as quickly as 
possible.
    Question. If BSA Direct were fully funded, what functionality would 
that provide FinCEN that it currently does not have?
    Answer. The full scope and detail of the functionality will be more 
fully determined as a result of the user requirements analyses in the 
first months of the project. However, the following examples identify 
the types of capabilities that BSA Direct will afford FinCEN and its 
customers that they presently do not have:
  --The automated capability for FinCEN to control and audit the use of 
        all persons accessing Bank Secrecy Act information.
  --The capability, through an alert system, for FinCEN to ``network'' 
        all users of Bank Secrecy Act information that ``hit'' the same 
        data, or appear to be analyzing the same information.
  --The capability to analyze law enforcement's use of the data to 
        provide meaningful feedback to the financial industry, which 
        will result in better reporting.
  --The capability to develop sophisticated filer profiles for 
        financial industry members to help FinCEN and the regulators 
        target entities for compliance examinations as well as the 
        ability to be notified automatically by the system when there 
        is a significant filing anomaly.
  --An intuitive interface to enable users to query data with little or 
        no training, and with strong, context-sensitive on-line help.
  --Users will be able to keep and view a list of their prior queries.
  --Managers in organizations will be better able to audit and manage 
        the use of the data by their subordinate users.
  --Users will be able to schedule a particular query to re-run on a 
        schedule set by the user.
  --Users will be able to customize query output, i.e., define what 
        columns of information are displayed, rearrange the order of 
        the columns, and then save that order as a personal default 
        view.
  --Users will have the ability to sort, filter, and aggregate columns 
        of data.
  --Users will be able to run ``batch queries,'' e.g., social security 
        numbers from all bankruptcy filings 6 months ago against all 
        Bank Secrecy Act filings in the last year.
  --Users will be able to create customized queries and reports.
  --A geographic mapping tool will provide information to show the 
        geographic significance of Bank Secrecy Act data.
  --Users will have the capability to pre-schedule queries and receive 
        reports on a timetable scheduled by users.
  --Users will be able to download results into popular formats, e.g., 
        Word, Excel, Analysts Notebook, etc.
    Question. Is BSA Direct on schedule?
    Answer. Each of the offerors has committed to deliver BSA Direct by 
October 14, 2005, or sooner. This is a 2-week delay from our initial 
schedule.
    Question. What will it cost to complete the system?
    Answer. FinCEN has submitted a Cost and Schedule Milestones chart 
for BSA Direct (as submitted to the Office of Management and Budget in 
December 2003) below. The costs in this chart were based upon estimates 
provided by the Mitre Corporation, which FinCEN engaged to help 
evaluate the project. It is important to note that these are only 
estimates based on Mitre's study. FinCEN will be pleased to provide the 
committee with a much more accurate cost picture for this project once 
a contract for the system is awarded.

          COST AND SCHEDULE GOALS: ORIGINAL BASELINE FOR A PHASE/SEGMENT/MODULE OF PROJECT (INVESTMENT)
----------------------------------------------------------------------------------------------------------------
                                                                    Planned
                              ----------------------------------------------------------------------------------
         Description                       Schedule                 Duration
                              --------------------------------------------------  Planned Cost    Funding Agency
                                  Start Date        End Date      Days    Hrs.       (BCWS)
----------------------------------------------------------------------------------------------------------------
1. Program Administration      09/01/2003.....  03/13/2004.....     194  ......        $225,000  FinCEN
 Costs, excludes FTE.
2. Project Management,         04/05/2004.....  09/30/2005.....     543  ......      $1,006,000  Department of
 excludes FTE.                                                                                    Treasury
3. BSA Direct Proof of         10/02/2003.....  03/12/2004.....     162  ......        $393,000  Treasury
 Concept (POC) Development.
4. BSA Direct System           04/05/2004.....  06/10/2005.....     431  ......      $4,278,000  Treasury
 Development and Construction.
    4.1 Requirements           04/05/2004.....  08/20/2004.....     137  ......        $531,000  Treasury
     Definition and Analysis.
    4.2 System Design........  06/14/2004.....  10/29/2004.....     137  ......        $398,000  Treasury
    4.3 System Design Review.  10/18/2004.....  11/05/2004.....      18  ......         $40,000  Treasury
    4.4 System Development     07/05/2004.....  08/13/2004.....      39  ......         $80,000  Treasury
     Environment Setup.
    4.5. System Development &  09/06/2004.....  03/18/2005.....     193  ......        $929,000  Treasury
     Construction.
    4.6 Data Conversion,       06/14/2004.....  09/30/2004.....     108  ......        $744,000  Treasury
     Transformation, &
     Migration.
    4.7. System/Integration/   09/27/2004.....  11/05/2004.....      30  ......         $80,000  Treasury
     Test Environment.
    4.8. Usability/Component   01/24/2005.....  04/15/2005.....      81  ......        $239,000  Treasury
     Functional Testing.
    4.9. System/Integration/   03/21/2005.....  06/10/2005.....      81  ......        $372,000  Treasury
     Testing.
    4.10. Integration with     03/21/2005.....  06/10/2005.....      81  ......        $465,000  Treasury
     other systems.
    4.11. Lease costs          04/05/2004.....  06/10/2005.....     431  ......        $400,000  Treasury
     hardware and software.
5. BSA Direct Deployment and   06/28/2004.....  09/16/2005.....     445  ......      $1,675,000  Treasury
 Rollout.
    5.1. Deployment and        06/28/2004.....  09/17/2004.....      81  ......        $239,000  Treasury
     Rollout Strategy
     Planning.
    5.2. Acceptance/           05/02/2005.....  07/08/2005.....      67  ......        $398,000  Treasury
     Production Ready Testing.
    5.3. Production System     05/02/2005.....  09/16/2005.....     137  ......        $531,000  Treasury
     Deployment & Rollout.
    5.4. User Training and     06/06/2005.....  08/26/2005.....      81  ......        $372,000  Treasury
     Transition.
    5.5. Lease costs hardware  06/02/2005.....  09/30/2005.....     120  ......        $135,000  Treasury
     and software.
6. BSA Direct Operations and   10/01/2005.....  09/30/2006.....     364  ......       $2,500,00  FinCEN
 Maintenance.
                              ----------------------------------------------------------------------------------
      PROJECT TOTAL..........  09/01/2003.....  09/30/2006.....   1,125  ......     $10,077,000  ...............
----------------------------------------------------------------------------------------------------------------

    Question. How is FinCEN providing information to the law 
enforcement entities that it serves?
    Answer. FinCEN provides analytic products--both tactical and 
strategic--to appropriate law enforcement customers. FinCEN also 
administers a process under Section 314 of the USA PATRIOT Act that 
permits law enforcement to submit requests to financial institutions 
for transactional and account information in certain cases. A 
particular institution indicates whether it has such information and 
that information is provided to law enforcement. FinCEN also maintains 
some general information for law enforcement on its public web-site and 
will provide more and better information to law enforcement through BSA 
Direct.
    FinCEN also provides access to Bank Secrecy Act data. Legacy 
processes and inadequate data retrieval capabilities currently result 
in this data being provided to Federal, State and local law enforcement 
in several ways:
  --Through direct case support from a FinCEN analyst.
  --Through ``Platform'' support, whereby law enforcement agencies may 
        send personnel to FinCEN to use its technical and analytical 
        resources to work their agency's respective cases on an as 
        needed basis.
  --Through ``Gateway,'' which provides direct, dial-in access to Bank 
        Secrecy Data housed at the IRS's Detroit Computing Center.
  --To certain entities, through wholesale direct downloads of all or 
        part of the Bank Secrecy Act data from the Detroit Computing 
        Center. Direct downloads are currently provided to:
    --The Federal Bureau of Investigation and United States Secret 
            Service receive wholesale downloads of suspicious activity 
            reports filed by depository institutions.
    --A wholesale download of all Bank Secrecy Act information is made 
            into the Treasury Enforcement Communications System (TECS). 
            TECS, which was previously administered by the former U.S. 
            Customs Service, is now administered by the Department of 
            Homeland Security. Various law enforcement entities have 
            access to TECS.
    Question. Is FinCEN sending law enforcement wholesale data or does 
it screen requests through its system?
    Answer. FinCEN provides wholesale data to the following Federal law 
enforcement agencies: the Federal Bureau of Investigation and the 
United States Secret Service receive downloads of Suspicious Activity 
Reports (SARs) filed by depository institutions. In addition, a 
wholesale download of all Bank Secrecy Act information is made into the 
Treasury Enforcement Communication System (TECS) which is now 
administered by the Department of Homeland Security. All other requests 
are thoroughly screened.
    Question. Is FinCEN doing gross data information transfers to the 
Bureau of Immigration and Customs Enforcement and the Federal Bureau of 
Investigation without any directed analysis or query from them?
    Answer. Yes. The BSA Direct initiative encompasses systems and 
processes that will significantly alter the way Bank Secrecy Act 
information is provided to law enforcement and the regulators that 
access the information. It will provide those entities, including 
FinCEN, with state of the art data search tools in a robust user-
friendly environment. Users will be able to search Bank Secrecy Act 
information faster and better, and will be able to do more with the 
data than they currently can. Eventually, sophisticated data mining, 
geographic and other analytic tools will be added to the environment, 
which will add to the value of the Bank Secrecy Act information. 
Finally, the initiative will help free FinCEN analytic resources to 
focus on more complex and strategic analysis of the financing of 
terror, money laundering and other illicit finance. To better 
understand the specific functionality this initiative will provide to 
FinCEN, it is important to understand the way Bank Secrecy Act 
information is currently managed, analyzed and disseminated.
    FinCEN is the delegated administrator of the Bank Secrecy Act, a 
regulatory statute designed to deter, prevent and address money 
laundering and illicit finance, including the financing of terrorism. 
The keystone of the Bank Secrecy Act is a reporting regime under which 
financial institutions report to the Federal Government certain 
information--large cash transactions or suspicious activity. Over 13 
million Bank Secrecy Act reports are filed each year by more than 
200,000 U.S. financial institutions, providing invaluable information 
to detect and prevent financial crimes. FinCEN is responsible for 
ensuring that information is collected, securely housed, analyzed and 
shared with law enforcement. Amendments to the Bank Secrecy Act by the 
USA PATRIOT Act sharpened FinCEN's responsibilities relating to this 
information. Among other things, FinCEN is responsible for securing 
this sensitive information and auditing its use; networking with 
disparate agencies accessing the information to ensure more robust 
investigation and ensuring that investigations do not overlap; and 
collecting and providing feedback and other information to the entities 
reporting the information--the financial industry--so that reporting 
can be better and more relevant for law enforcement.
    Currently, under a legacy process that predates FinCEN, Bank 
Secrecy Act reports are collected by the Internal Revenue Service's 
Detroit Computing Center and are housed in an IBM IDMS mainframe 
environment incorporating 12 hierarchical databases. Most persons 
access the data through a ``gateway'' connection. While the IRS is 
currently converting the data to a ``DB2'' relational format, the data 
on the mainframe system in Detroit is not currently kept in a 
relational database, so search capabilities are limited for persons and 
entities that access Bank Secrecy Act information through that system. 
Because of the limitations of this system, FinCEN devotes a significant 
portion of its analytic resources to data retrieval for many of its law 
enforcement customers. As a result of this system, FinCEN downloads a 
duplicate copy of the Bank Secrecy Act database every night to other 
systems and into programs that provide relational data mining and 
analytical capabilities.
    FinCEN is not the only entity that downloads all or part of the 
Bank Secrecy Act data from the Detroit Computing Center. Under legacy 
arrangements that pre-date FinCEN's current leadership, Suspicious 
Activity Reports (SARs) filed by depository institutions are downloaded 
directly from the IRS's Detroit Computing Center to the Federal Bureau 
of Investigation and United States Secret Service. Bank Secrecy Act 
information is also downloaded to the Treasury Enforcement 
Communications System (TECS), which was maintained by the former U.S. 
Customs Service and is now maintained by the Department of Homeland 
Security (DHS). Agencies with access to TECS (e.g., DHS's Immigration 
and Customs Enforcement, DHS's Customs and Border Protection, DOJ's 
Bureau of Alcohol, Tobacco, Firearms and Explosives, etc.) generally 
access Bank Secrecy Act information through that system. FinCEN has a 
limited ability to network the use of the data by those who download it 
since it is entirely dependent on manual feedback on the use of the 
data, which is difficult to obtain. Moreover, auditing the use of the 
data is far more difficult since it depends on manual reviews combined 
with the tracking system in place at the independent system. Simply 
put, currently FinCEN cannot fully meet any of its statutory 
responsibilities relating to the data utilizing the current system and 
processes in place.
    The systems and processes contemplated in the BSA Direct initiative 
will allow FinCEN to not only meet these responsibilities, but will 
provide law enforcement, regulators and FinCEN a modern, user-friendly 
environment to mine and analyze BSA data. The heart of the BSA Direct 
initiative is a secure data warehouse to consolidate the Bank Secrecy 
Act information into a single, integrated data set. Users will have a 
flexible and robust query system accessible through an intuitive web-
based interface. This system will provide access, including secure web 
access, to Bank Secrecy Act information with capabilities that allow 
end users to perform ad hoc as well as pre-defined queries and 
reporting. Users will gain easier, faster data access and enhanced 
ability to query and analyze Bank Secrecy Act information, and FinCEN 
will have tools to control and audit the use of this sensitive 
information, network with agencies that are using the data, and provide 
better feedback to the financial industry about the use of the data, 
which will lead to more relevant reporting. FinCEN provides analytic 
products--both tactical and strategic--to appropriate law enforcement 
customers. FinCEN also administers a process under Section 314 of the 
USA PATRIOT Act that permits law enforcement to submit requests to 
financial institutions for transactional and account information in 
certain cases. A particular institution indicates whether it has such 
information and that information is provided to law enforcement. FinCEN 
also maintains some general information for law enforcement on its 
public web-site and will provide more and better information to law 
enforcement through BSA Direct.
    FinCEN also provides access to Bank Secrecy Act data. Legacy 
processes and inadequate data retrieval capabilities currently result 
in this data being provided to Federal, State and local law enforcement 
in several ways:
  --Through direct case support from a FinCEN analyst.
  --Through ``Platform'' support, whereby law enforcement agencies may 
        send personnel to FinCEN to use its technical and analytical 
        resources to work their agency's respective cases on an as 
        needed basis.
  --Through ``Gateway,'' which provides direct, dial-in access to Bank 
        Secrecy Data housed at the IRS's Detroit Computing Center.
  --To certain entities, through wholesale direct downloads of all or 
        part of the Bank Secrecy Act data from the Detroit Computing 
        Center. Direct downloads are currently provided to:
    --The Federal Bureau of Investigation and United States Secret 
            Service receive wholesale downloads of suspicious activity 
            reports filed by depository institutions.
    --A wholesale download of all Bank Secrecy Act information is made 
            into the Treasury Enforcement Communications System (TECS). 
            TECS, which was previously administered by the former U.S. 
            Customs Service, is now administered by the Department of 
            Homeland Security. Various law enforcement entities have 
            access to TECS.
    Question. Is this how the law requires the system to work?
    Answer. The Bank Secrecy Act, as amended by the USA PATRIOT Act, 
does not specify any particular method or limitation on the delivery of 
Bank Secrecy Act information. The Bank Secrecy Act requires that the 
purpose of any request for information must be for an authorized 
purpose--criminal, tax, regulatory or intelligence activities relating 
to terrorism. Section 361 of the USA PATRIOT Act requires FinCEN to 
maintain a government-wide data access network with access in 
accordance with applicable legal requirements, and further requires 
FinCEN to develop appropriate standards and guidelines governing who is 
to be given access, what limits are to be imposed on the use of the 
information, and how the exercise of constitutional rights is to be 
protected.
    In accordance with these statutory mandates, FinCEN grants access 
only for purposes authorized by the Bank Secrecy Act (criminal, tax, 
regulatory, intelligence activity directed at counter-terrorism) and 
strictly controls dissemination of the information contained in the 
reports. FinCEN has met this statutory mandate in the creation of the 
``Gateway'' system by entering into agreements for access and 
establishing the capability to monitor and audit each query. Currently, 
FinCEN does not have the capability to audit entities that receive 
wholesale downloads of data, which is one reason why FinCEN is placing 
such a high priority on the development of BSA Direct. The BSA Direct 
initiative encompasses systems and processes that will significantly 
alter the way Bank Secrecy Act information is provided to law 
enforcement and the regulators that access the information. It will 
provide those entities, including FinCEN, with state of the art data 
search tools in a robust user-friendly environment. Users will be able 
to search Bank Secrecy Act information faster and better, and will be 
able to do more with the data than they currently can. Eventually, 
sophisticated data mining, geographic and other analytic tools will be 
added to the environment, which will add to the value of the Bank 
Secrecy Act information. Finally, the initiative will help free FinCEN 
analytic resources to focus on more complex and strategic analysis of 
the financing of terror, money laundering and other illicit finance. To 
better understand the specific functionality this initiative will 
provide to FinCEN, it is important to understand the way Bank Secrecy 
Act information is currently managed, analyzed and disseminated.
    FinCEN is the delegated administrator of the Bank Secrecy Act, a 
regulatory statute designed to deter, prevent and address money 
laundering and illicit finance, including the financing of terrorism. 
The keystone of the Bank Secrecy Act is a reporting regime under which 
financial institutions report to the Federal Government certain 
information--large cash transactions or suspicious activity. Over 13 
million Bank Secrecy Act reports are filed each year by more than 
200,000 U.S. financial institutions, providing invaluable information 
to detect and prevent financial crimes. FinCEN is responsible for 
ensuring that information is collected, securely housed, analyzed and 
shared with law enforcement. Amendments to the Bank Secrecy Act by the 
USA PATRIOT Act sharpened FinCEN's responsibilities relating to this 
information. Among other things, FinCEN is responsible for securing 
this sensitive information and auditing its use; networking with 
disparate agencies accessing the information to ensure more robust 
investigation and ensuring that investigations do not overlap; and 
collecting and providing feedback and other information to the entities 
reporting the information--the financial industry--so that reporting 
can be better and more relevant for law enforcement.
    Currently, under a legacy process that predates FinCEN, Bank 
Secrecy Act reports are collected by the Internal Revenue Service's 
Detroit Computing Center and are housed in an IBM IDMS mainframe 
environment incorporating 12 hierarchical databases. Most persons 
access the data through a ``gateway'' connection. While the IRS is 
currently converting the data to a ``DB2'' relational format, the data 
on the mainframe system in Detroit is not currently kept in a 
relational database, so search capabilities are limited for persons and 
entities that access Bank Secrecy Act information through that system. 
Because of the limitations of this system, FinCEN devotes a significant 
portion of its analytic resources to data retrieval for many of its law 
enforcement customers. As a result of this system, FinCEN downloads a 
duplicate copy of the Bank Secrecy Act database every night to other 
systems and into programs that provide relational data mining and 
analytical capabilities.
    FinCEN is not the only entity that downloads all or part of the 
Bank Secrecy Act data from the Detroit Computing Center. Under legacy 
arrangements that pre-date FinCEN's current leadership, Suspicious 
Activity Reports (SARs) filed by depository institutions are downloaded 
directly from the IRS' Detroit Computing Center to the Federal Bureau 
of Investigation and United States Secret Service. Bank Secrecy Act 
information is also downloaded to the Treasury Enforcement 
Communications System (TECS), which was maintained by the former U.S. 
Customs Service and is now maintained by the Department of Homeland 
Security (DHS). Agencies with access to TECS (e.g., DHS's Immigration 
and Customs Enforcement, DHS's Customs and Border Protection, DOJ's 
Bureau of Alcohol, Tobacco, Firearms and Explosives, etc.) generally 
access Bank Secrecy Act information through that system. FinCEN has a 
limited ability to network the use of the data by those who download it 
since it is entirely dependent on manual feedback on the use of the 
data, which is difficult to obtain. Moreover, auditing the use of the 
data is far more difficult since it depends on manual reviews combined 
with the tracking system in place at the independent system. Simply 
put, currently FinCEN cannot fully meet any of its statutory 
responsibilities relating to the data utilizing the current system and 
processes in place.
    The systems and processes contemplated in the BSA Direct initiative 
will allow FinCEN to not only meet these responsibilities, but will 
provide law enforcement, regulators and FinCEN a modern, user-friendly 
environment to mine and analyze BSA data. The heart of the BSA Direct 
initiative is a secure data warehouse to consolidate the Bank Secrecy 
Act information into a single, integrated data set. Users will have a 
flexible and robust query system accessible through an intuitive web-
based interface. This system will provide access, including secure web 
access, to Bank Secrecy Act information with capabilities that allow 
end users to perform ad hoc as well as pre-defined queries and 
reporting. Users will gain easier, faster data access and enhanced 
ability to query and analyze Bank Secrecy Act information, and FinCEN 
will have tools to control and audit the use of this sensitive 
information, network with agencies that are using the data, and provide 
better feedback to the financial industry about the use of the data, 
which will lead to more relevant reporting.
    The full scope and detail of the functionality will be more fully 
determined as a result of the user requirements analyses in the first 
months of the project. However, the following examples identify the 
types of capabilities that BSA Direct will afford FinCEN and its 
customers that they presently do not have:
  --The automated capability for FinCEN to control and audit the use of 
        all persons accessing Bank Secrecy Act information.
  --The capability, through an alert system, for FinCEN to ``network'' 
        all users of Bank Secrecy Act information that ``hit'' the same 
        data, or appear to be analyzing the same information.
  --The capability to analyze law enforcement's use of the data to 
        provide meaningful feedback to the financial industry, which 
        will result in better reporting.
  --The capability to develop sophisticated filer profiles for 
        financial industry members to help FinCEN and the regulators 
        target entities for compliance examinations as well as the 
        ability to be notified automatically by the system when there 
        is a significant filing anomaly.
  --An intuitive interface to enable users to query data with little or 
        no training, and with strong, context-sensitive on-line help.
  --Users will be able to keep and view a list of their prior queries.
  --Managers in organizations will be better able to audit and manage 
        the use of the data by their subordinate users.
  --Users will be able to schedule a particular query to re-run on a 
        schedule set by the user.
  --Users will be able to customize query output, i.e., define what 
        columns of information are displayed, rearrange the order of 
        the columns, and then save that order as a personal default 
        view.
  --Users will have the ability to sort, filter, and aggregate columns 
        of data.
  --Users will be able to run ``batch queries,'' e.g., social security 
        numbers from all bankruptcy filings 6 months ago against all 
        Bank Secrecy Act filings in the last year.
  --Users will be able to create customized queries and reports.
  --A geographic mapping tool will provide information to show the 
        geographic significance of Bank Secrecy Act data.
  --Users will have the capability to pre-schedule queries and receive 
        reports on a timetable scheduled by users.
  --Users will be able to download results into popular formats, e.g., 
        Word, Excel, Analysts Notebook, etc.
    Question. How does FinCEN audit information requested if there is 
no formal request and delivery system?
    Answer. The Bank Secrecy Act, as amended by the USA PATRIOT Act, 
does not specify any particular method or limitation on the delivery of 
Bank Secrecy Act information. The Bank Secrecy Act requires that the 
purpose of any request for information must be for an authorized 
purpose--criminal, tax, regulatory or intelligence activities relating 
to terrorism. Section 361 of the USA PATRIOT Act requires FinCEN to 
maintain a government-wide data access network with access in 
accordance with applicable legal requirements, and further requires 
FinCEN to develop appropriate standards and guidelines governing who is 
to be given access, what limits are to be imposed on the use of the 
information, and how the exercise of constitutional rights is to be 
protected.
    In accordance with these statutory mandates, FinCEN grants access 
only for purposes authorized by the Bank Secrecy Act (criminal, tax, 
regulatory, intelligence activity directed at counter-terrorism) and 
strictly controls dissemination of the information contained in the 
reports. FinCEN has met this statutory mandate in the creation of the 
``Gateway'' system by entering into agreements for access and 
establishing the capability to monitor and audit each query. Currently, 
FinCEN does not have the capability to audit entities that receive 
wholesale downloads of data, which is one reason why FinCEN is placing 
such a high priority on the development of BSA Direct. The BSA Direct 
initiative encompasses systems and processes that will significantly 
alter the way Bank Secrecy Act information is provided to law 
enforcement and the regulators that access the information. It will 
provide those entities, including FinCEN, with state of the art data 
search tools in a robust user-friendly environment. Users will be able 
to search Bank Secrecy Act information faster and better, and will be 
able to do more with the data than they currently can. Eventually, 
sophisticated data mining, geographic and other analytic tools will be 
added to the environment, which will add to the value of the Bank 
Secrecy Act information. Finally, the initiative will help free FinCEN 
analytic resources to focus on more complex and strategic analysis of 
the financing of terror, money laundering and other illicit finance. To 
better understand the specific functionality this initiative will 
provide to FinCEN, it is important to understand the way Bank Secrecy 
Act information is currently managed, analyzed and disseminated.
    FinCEN is the delegated administrator of the Bank Secrecy Act, a 
regulatory statute designed to deter, prevent and address money 
laundering and illicit finance, including the financing of terrorism. 
The keystone of the Bank Secrecy Act is a reporting regime under which 
financial institutions report to the Federal Government certain 
information--large cash transactions or suspicious activity. Over 13 
million Bank Secrecy Act reports are filed each year by more than 
200,000 U.S. financial institutions, providing invaluable information 
to detect and prevent financial crimes. FinCEN is responsible for 
ensuring that information is collected, securely housed, analyzed and 
shared with law enforcement. Amendments to the Bank Secrecy Act by the 
USA PATRIOT Act sharpened FinCEN's responsibilities relating to this 
information. Among other things, FinCEN is responsible for securing 
this sensitive information and auditing its use; networking with 
disparate agencies accessing the information to ensure more robust 
investigation and ensuring that investigations do not overlap; and 
collecting and providing feedback and other information to the entities 
reporting the information--the financial industry--so that reporting 
can be better and more relevant for law enforcement.
    Currently, under a legacy process that predates FinCEN, Bank 
Secrecy Act reports are collected by the Internal Revenue Service's 
Detroit Computing Center and are housed in an IBM IDMS mainframe 
environment incorporating 12 hierarchical databases. Most persons 
access the data through a ``gateway'' connection. While the IRS is 
currently converting the data to a ``DB2'' relational format, the data 
on the mainframe system in Detroit is not currently kept in a 
relational database, so search capabilities are limited for persons and 
entities that access Bank Secrecy Act information through that system. 
Because of the limitations of this system, FinCEN devotes a significant 
portion of its analytic resources to data retrieval for many of its law 
enforcement customers. As a result of this system, FinCEN downloads a 
duplicate copy of the Bank Secrecy Act database every night to other 
systems and into programs that provide relational data mining and 
analytical capabilities.
    FinCEN is not the only entity that downloads all or part of the 
Bank Secrecy Act data from the Detroit Computing Center. Under legacy 
arrangements that pre-date FinCEN's current leadership, Suspicious 
Activity Reports (SARs) filed by depository institutions are downloaded 
directly from the IRS's Detroit Computing Center to the Federal Bureau 
of Investigation and United States Secret Service. Bank Secrecy Act 
information is also downloaded to the Treasury Enforcement 
Communications System (TECS), which was maintained by the former U.S. 
Customs Service and is now maintained by the Department of Homeland 
Security (DHS). Agencies with access to TECS (e.g., DHS's Immigration 
and Customs Enforcement, DHS's Customs and Border Protection, DOJ's 
Bureau of Alcohol, Tobacco, Firearms and Explosives, etc.) generally 
access Bank Secrecy Act information through that system. FinCEN has a 
limited ability to network the use of the data by those who download it 
since it is entirely dependent on manual feedback on the use of the 
data, which is difficult to obtain. Moreover, auditing the use of the 
data is far more difficult since it depends on manual reviews combined 
with the tracking system in place at the independent system. Simply 
put, currently FinCEN cannot fully meet any of its statutory 
responsibilities relating to the data utilizing the current system and 
processes in place.
    The systems and processes contemplated in the BSA Direct initiative 
will allow FinCEN to not only meet these responsibilities, but will 
provide law enforcement, regulators and FinCEN a modern, user-friendly 
environment to mine and analyze BSA data. The heart of the BSA Direct 
initiative is a secure data warehouse to consolidate the Bank Secrecy 
Act information into a single, integrated data set. Users will have a 
flexible and robust query system accessible through an intuitive web-
based interface. This system will provide access, including secure web 
access, to Bank Secrecy Act information with capabilities that allow 
end users to perform ad hoc as well as pre-defined queries and 
reporting. Users will gain easier, faster data access and enhanced 
ability to query and analyze Bank Secrecy Act information, and FinCEN 
will have tools to control and audit the use of this sensitive 
information, network with agencies that are using the data, and provide 
better feedback to the financial industry about the use of the data, 
which will lead to more relevant reporting.
    The full scope and detail of the functionality will be more fully 
determined as a result of the user requirements analyses in the first 
months of the project. However, the following examples identify the 
types of capabilities that BSA Direct will afford FinCEN and its 
customers that they presently do not have:
  --The automated capability for FinCEN to control and audit the use of 
        all persons accessing Bank Secrecy Act information.
  --The capability, through an alert system, for FinCEN to ``network'' 
        all users of Bank Secrecy Act information that ``hit'' the same 
        data, or appear to be analyzing the same information.
  --The capability to analyze law enforcement's use of the data to 
        provide meaningful feedback to the financial industry, which 
        will result in better reporting.
  --The capability to develop sophisticated filer profiles for 
        financial industry members to help FinCEN and the regulators 
        target entities for compliance examinations as well as the 
        ability to be notified automatically by the system when there 
        is a significant filing anomaly.
  --An intuitive interface to enable users to query data with little or 
        no training, and with strong, context-sensitive on-line help.
  --Users will be able to keep and view a list of their prior queries.
  --Managers in organizations will be better able to audit and manage 
        the use of the data by their subordinate users.
  --Users will be able to schedule a particular query to re-run on a 
        schedule set by the user.
  --Users will be able to customize query output, i.e., define what 
        columns of information are displayed, rearrange the order of 
        the columns, and then save that order as a personal default 
        view.
  --Users will have the ability to sort, filter, and aggregate columns 
        of data.
  --Users will be able to run ``batch queries,'' e.g., social security 
        numbers from all bankruptcy filings 6 months ago against all 
        Bank Secrecy Act filings in the last year.
  --Users will be able to create customized queries and reports.
  --A geographic mapping tool will provide information to show the 
        geographic significance of Bank Secrecy Act data.
  --Users will have the capability to pre-schedule queries and receive 
        reports on a timetable scheduled by users.
  --Users will be able to download results into popular formats, e.g., 
        Word, Excel, Analysts Notebook, etc.
    Question. Does this raise privacy concerns?
    Answer. While FinCEN is not providing these few law enforcement 
entities with information to which they are not entitled or couldn't 
otherwise receive, the fact remains that FinCEN is very limited in its 
ability to audit the use or guarantee the security of this information. 
Important privacy interests associated with Bank Secrecy Act 
information will be better protected once BSA Direct is built and 
implemented.
    Question. There are currently at least five other financial 
intelligence units in the Federal government outside of Treasury that 
download Bank Secrecy Act data wholesale from FinCEN. If FinCEN is just 
the delivery system for BSA data, what is its role other than to be a 
library? What analytics are occurring at FinCEN that are not occurring 
at the Bureau of Immigration and Customs Enforcement, the Federal 
Bureau of Investigation, the Central Intelligence Agency, or the United 
States Secret Service? If everyone has these databases with all the 
Bank Secrecy Act data, what is the value added by FinCEN?
    Answer. While the provision of Bank Secrecy Act information to law 
enforcement is a key aspect to FinCEN's mission, FinCEN is much more 
than a library. It has been and continues to be a source of unequaled 
analytic expertise on financial information, particularly information 
reported under the Bank Secrecy Act. It is recognized throughout the 
world for its expertise in studying and exploiting financial 
information.
    Other law enforcement agencies have come to recognize the 
importance of exploiting financial information--a fact that is at 
least, in part, attributable to FinCEN's work. From our point of view, 
the proliferation of financial analytical units in law enforcement 
agencies is a good thing. It means that exploitation of financial 
information, which is a key element to defining and dismantling 
criminal and terrorist organizations, will continue to grow. It also 
means that FinCEN will be freer to focus its analytic resources on 
niche areas as well as tactical and strategic analytical projects that 
are more sophisticated. As for the niche areas, FinCEN has unique 
responsibilities that differentiate it from any other entity working 
with financial data:
  --Helping Financial Institutions to understand, assess and address 
        the risk of money laundering, the financing of terror and other 
        illicit finance.--FinCEN is the administrator of the Bank 
        Secrecy Act. It is uniquely positioned, and required by 
        statute, to provide feedback to the financial industry about 
        the use of this data. FinCEN will focus on providing 
        information to the financial industry that will enable it to 
        better target those issues and organizations for reporting. 
        This will result in better and more relevant reporting for law 
        enforcement, and will fulfill an important mandate of the USA 
        PATRIOT Act to establish a communication channel between the 
        government and private industry.
  --Leveraging FinCEN's counterpart financial intelligence units around 
        the world.--FinCEN is in the forefront of international efforts 
        to develop new Financial Intelligence Units (FIUs) and enhance 
        the capabilities of existing FIUs. FinCEN is also a founding 
        member of the Egmont Group, an informal organization of 84 
        financial intelligence units around the world that share 
        tactical and strategic financial information for the benefit of 
        law enforcement and other competent authorities. Furthermore, 
        the Egmont Group's Secure Website offers member FIUs the 
        ability to rapidly share and broadly disseminate such 
        information. FinCEN will focus analytic effort on supporting 
        those relationships and making the financial intelligence units 
        more productive and relevant in addressing what is a global 
        problem.
  --Focusing FinCEN analytic effort on the Strategic.--FinCEN will also 
        focus much of its analytic resources on strategic projects. 
        Strategic studies of new financial industry products and 
        trends, methods of illicit finance, and ways to address 
        systemic weaknesses that lead to financial crime. FinCEN will 
        also engage more in predictive analysis--trying to predict 
        where the next problems will arise in the financial system.
    Addressing these three issues does not mean that FinCEN will not 
participate in traditional tactical analysis in support of law 
enforcement, but as law enforcement agencies add analytical units to 
support their missions, FinCEN will be able to better focus on these 
important niche areas.
    Question. FinCEN issues regulations under Title 31 related to the 
Bank Secrecy Act and the Patriot Act. Please provide a detailed 
description of the joint training that occurs between FinCEN and the 
Internal Revenue Service related to the intricacies of those 
regulations, especially when dealing with the financial community.
    Answer. FinCEN has worked extensively with the IRS SB/SE Taxpayer 
Education and Communication (TEC) organization to conduct joint 
training of IRS examiners. FinCEN has conducted joint training of IRS 
examiners on various Title 31 and Patriot Act requirements at the last 
two IRS Examiner training classes, held in Seattle and in Indianapolis. 
FinCEN will be conducting training at an upcoming meeting of IRS 
supervisory level personnel who have Bank Secrecy Act examination 
responsibility. In addition, FinCEN is working with IRS to revise the 
IRS IRM Manual that guides the conduct of Bank Secrecy Act 
examinations, and is used as a training template for its Bank Secrecy 
Act examiners as well.
    The cooperation between FinCEN and IRS on Bank Secrecy Act training 
extends to seminars conducted for the financial community as well. 
FinCEN works with the IRS SB/SE TEC to coordinate the content of 
presentations given by the IRS to provide education and outreach to the 
financial industries it is delegated to regulate. For example, FinCEN 
and IRS gave presentations to the Money Transmitter Regulators 
Association (MTRA) conference, an annual forum attended by money 
transmitters, their service providers, and State regulators in 
September 2003 on MSB registration and Suspicious Activity Report 
(SARs) requirements and issues.
    Going forward, FinCEN will continue to use tools such as the Anti 
Money Laundering monthly contact report provided by IRS TEC, which 
provides information on upcoming outreach opportunities, to coordinate 
and supervise the delivery of education on Title 31 and Patriot Act 
requirements to the financial community.
    Question. The costs of implementing Bank Secrecy Act are 
significant to the financial industry. Who is responsible for 
communicating with the financial industry to explain what their data is 
being used for?
    Answer. FinCEN, as administrator of the Bank Secrecy Act and as 
mandated in Section 361 of the USA PATRIOT Act, is responsible for 
communicating with the financial industry. While this is an important 
aspect of FinCEN's mission, it also leverages the assets of the Federal 
functional bank regulators, the Securities Exchange Commission, the 
Commodity Futures Trading Commission, and the Internal Revenue Service 
to help with this effort.
    Question. Does Treasury meet with the financial community to 
explain trends or the means of exploitation of the financial system?
    Answer. Treasury's FinCEN interacts extensively with the financial 
community through many different venues such as:
  --Participation in numerous conferences and seminars being held 
        throughout the year across the country;
  --Participation in compliance training workshops;
  --Regular meetings with the Bank Secrecy Act Advisory Group and its 
        subcommittees;
  --Daily interaction with bank officials throughout the country 
        regarding various aspects of Bank Secrecy Act compliance;
  --Customer Surveys;
  --Publications such as The Suspicious Activity Review intended to 
        provide feedback and guidance to financial institutions on Bank 
        Secrecy Act reporting and anti money laundering requirements; 
        and,
  --Website interaction through posting of regulations, guidance, 
        comment letters and other regulatory-related materials.
    Question. Does Treasury investigate recent money laundering arrests 
to determine how criminals are evolving to exploit the U.S. financial 
system? Does Treasury or FinCEN send people to every major money 
laundering sting to determine how the organization was set up and how 
it exploited the financial system? This information could then be given 
to the financial community to alert it to recent trends. Does this 
activity occur? If not, should it?
    Answer. FinCEN directly communicates with law enforcement on a 
daily basis to obtain current information on money laundering cases. 
Information received from this dialogue helps FinCEN better understand 
money laundering and terrorist financing. While FinCEN does not have a 
specific program directed at debriefing money laundering sting 
operations, as a practical matter, it captures much of this information 
through its on-going dialogue with law enforcement.
    Question. How many cases were analyzed in calendar year 2003 and 
how much of that information was passed to the financial community? Has 
the financial community been surveyed to see if the information was 
helpful?
    Answer. In fiscal year 2003 (FinCEN statistics are kept by fiscal 
year), FinCEN provided support for approximately 5,000 requests 
received from law enforcement. In the majority of these cases, FinCEN 
helped retrieve Bank Secrecy Act information. FinCEN's new leadership 
has recognized the need to keep better statistics to better capture the 
work that FinCEN is accomplishing.
    FinCEN, independent of providing analytical support to law 
enforcement, conducts analysis of the Bank Secrecy Act information to 
identify trends and patterns. Some of this information is published 
semiannually in the Suspicious Activity Review--Trends, Tips & Issues. 
As mentioned above, this Review is produced based on continuing 
dialogue and close collaboration among our Nation's financial 
institutions, law enforcement officials and regulatory agencies in 
order to provide meaningful information regarding the preparation, use 
and value of suspicious activity reports filed by financial 
institutions. Each issue of this publication contains a Feedback Form 
for the financial industry to complete and return to FinCEN and the 
feedback FinCEN has received has been constructive and generally quite 
positive. To date, FinCEN has not surveyed the financial industry to 
determine satisfaction with FinCEN feedback, although that is something 
FinCEN's new leadership is considering establishing as a benchmark.
    Question. FinCEN's budget declares a 12.7 percent increase for 
fighting terrorism. How is this number obtained? Looking at the 
administration's budget submission in detail, the real increase is 2.7 
percent, or $1.53 million, to fight the war on terror.
  --Mandatory cost increases equal $1.76 million.
  --Program cost annualization for fiscal year 2004 new initiatives 
        equals $1.52 million.
  --Transfer from the IRS for BSA work that is already done equals $2.5 
        million.
    Answer. The 12.7 percent increase was calculated by adding the cost 
of program increases ($1.533 million), program annualizations ($1.522 
million), cost increases ($1.716 million), and the transfer from the 
Internal Revenue Service for the BSA Direct System ($2.5 million)--
totaling an overall increase of $7.271 million over fiscal year 2004.
    Question. What types of outreach programs does FinCEN have with the 
financial community?
    Answer. FinCEN is in daily contact with the financial industries it 
helps regulate. First, and perhaps most importantly, through the 
process created pursuant to Section 314(a) of the USA PATRIOT Act, 
FinCEN now routinely contacts thousands of financial institutions to 
relay important information from law enforcement about individuals and 
entities that may be relevant to terrorism or significant money 
laundering investigations. FinCEN plans to expand this process and 
begin sharing information with the financial community that will enable 
industry reports to be more relevant. Also, FinCEN has encouraged the 
voluntary sharing of information between certain financial institutions 
related to possible terrorism or money laundering by implementing 
regulations under Section 314(b) of the USA PATRIOT Act.
    Since September 2001, FinCEN has maintained a hotline for financial 
institutions to voluntarily report suspected terrorist financing 
activity. FinCEN then expedites this information to appropriate law 
enforcement agencies. Since inception of this hotline, FinCEN has 
referred more than 850 tips to law enforcement.
    Treasury's FinCEN interacts extensively with the financial 
community through many different venues such as:
  --Participation in numerous conferences and seminars being held 
        throughout the year across the country;
  --Participation in compliance training workshops;
  --Regular meetings with the Bank Secrecy Act Advisory Group and its 
        subcommittees;
  --Daily interaction with bank officials throughout the country 
        regarding various aspects of Bank Secrecy Act compliance;
  --Customer Surveys;
  --Publications such as The Suspicious Activity Review intended to 
        provide feedback and guidance to financial institutions on Bank 
        Secrecy Act reporting and anti money laundering requirements; 
        and,
  --Website interaction through posting of regulations, guidance, 
        comment letters and other regulatory-related materials.
    Question. Has FinCEN done any surveys or interviews with the 
financial community to better understand what their needs and concerns 
are?
    Answer. Yes. For example, when FinCEN adopted its rule requiring 
money services businesses to register, FinCEN conducted an extensive 
industry outreach program, including conducting focus groups, sending 
surveys and holding meetings with individual companies, trade 
associations, State regulators, and law enforcement to discuss 
implementation of the rule and solicit input on guidance. FinCEN also 
developed reference and guidance products, including posters, ``take-
one'' cards, Quick Reference Guides on Bank Secrecy Act and suspicious 
activity reporting, an Anti-Money Laundering Prevention Guide, a 
suspicious activity reporting training video, and an interactive CD-ROM 
for MSBs. All of these materials are free and available to the public 
through FinCEN's website at www.msb.gov.
    In another example, FinCEN conducted a survey of financial 
institutions filing Currency Transaction Reports (CTRs) in order to 
produce a report to Congress in 2002 as required by the USA PATRIOT 
Act. That report sought to analyze financial institutions' use of 
exemptions from the CTR filing requirement.

                        MINT/BEP MERGER PROPOSAL

    Question. Please provide a detailed accounting of how the study to 
merge the Mint and BEP was funded.
    Answer. The cost, which was funded using Interagency Agreements, 
was evenly split between the Mint and the Bureau of Engraving and 
Printing.
    Question. How many phases are there to this contract to study a 
merger?
    Answer. Three phases were identified in the Request for Proposal:
  --1. Develop a business case;
  --2. Facilitate in developing a short and long-term approach; and
  --3. Advise on preparation of report roll-out.
    The first phase was to identify efficiencies and develop the 
business case to support those efficiencies identified in the study. 
Under the second phase, the government has exercised its option to have 
LMI's continued assistance in the analysis of the options. The 
government also has an option to have LMI assist in preparing the 
report to OMB.
    Question. What accounts were used at the BEP and the Mint to pay 
for the study?
    Answer. The study was funded through the BEP revolving fund and the 
Mint Public Enterprise Fund. The actual costs were charged to the line 
items--consulting services provided by a non-government entity. Both 
the Mint and the BEP allocate resources to assess changing market 
conditions and management improvements.
    Question. Does Treasury believe that this is a proper use of the 
funds in these accounts?
    Answer. The Treasury Department continues to look for taxpayer 
savings and efficiencies in all its bureaus. Due to changing market 
conditions, review of the Treasury Department's structure is necessary 
to best serve the public. By studying the structure of the U.S. Mint 
and Bureau of Engraving and Printing, the Treasury Department ensures 
effective use of taxpayer resources.
    Question. Please provide the parameters provided to the contractor 
to conduct the study.
    Answer. The Request for Proposal (RFP) outlined the parameters and 
was provided to IBM, Booz Allen Hamilton, and LMI. The RFP provided to 
these three bidders is attached.



    Question. What underlying data was used in the study to determine 
whether a merger was cost effective?
    Answer. Documents reviewed as part of the study included:
  --The Treasury 5-year Strategic Plan
  --Budget in Brief
  --BEP and Mint 2005 Budget Documents and Annual Reports
  --BEP Facilities Study--July 1998
  --Coin and Currency (Security) GAO Study, July 2003
  --1987 Consolidation Study
    These documents were supplemented with additional data such as BEP/
Mint historical costs, industry standards, OMB Circular A-94, OPM 
guidelines and the DOD Cost Factor Handbook.
    The study drew guidance from management theory, in both the public 
and private sectors, and from an empirical perspective using best 
practices in the manufacturing industry.
    Question. Has OMB or Treasury sought comments from the potentially 
impacted agencies?
    Answer. The BEP and the Mint have both been involved in the effort 
from the beginning. They helped draft the scope of work, select the 
winning contractor, assist in the data gathering, and commented freely 
on each report reiteration.
    OMB has monitored progress on the effort, but will not seek 
comments until it receives the report on July 1, 2004.
    Question. Has the Federal Reserve been asked to comment on the 
effects of a proposed merger? If not, should Treasury initiate a 
discussion?
    Answer. Treasury views the Federal Reserve as a key stakeholder. 
Senior officials at the Federal Reserve have been interviewed and their 
suggestions have been incorporated into the process. The Federal 
Reserve is also being updated on progress.
    Question. Prior to the merger of any systems or services, would the 
Department intend to seek Congressional approval? Does it require 
legislation?
    Answer. We will not pursue any of those options without a full 
consultation with Congress and, in fact, Treasury will not call for any 
merger of any system or function prior to the end of the 108th 
Congress.
    It is still too early in the process to predict if or when 
legislation might be necessary.
    Question. When will the first phase of the study be completed?
    Answer. The first phase concluded with LMI's May 2004 assessment of 
the financial implications of the options open to Treasury.
    Question. Will there be any merger of any system or functions prior 
to the end of the year?
    Answer. Treasury will not call for any merger of any system or 
function prior to the end of the 108th Congress.
    Question. The purpose of most mergers is to create efficiencies and 
save taxpayer dollars. Previous studies conducted by the GAO and the 
Treasury IG found that only 4-5 percent of the workforces of the two 
agencies ``overlapped''. Moreover, the study surmised that since the 
agencies' production plants are located in 5 different locations, there 
was little likelihood that production lines could be streamlined. What 
has changed recently to nullify the findings of the GAO and the IG 
reports?
    Answer. The Treasury Department continues to look for taxpayer 
savings and efficiencies in all its bureaus. Due to changing market 
conditions, a review of the Treasury Department's structure is 
necessary to best serve the public. By studying the structure of the 
U.S. Mint and Bureau of Engraving and Printing, the Treasury Department 
ensures effective use of taxpayer resources.
    Question. The committee understands that a rough draft of the 
merger report was supposed to be submitted on April 16 with the final 
report to be delivered on May 4. What is the status of this report? 
Will any actions be taken prior to Congress having adequate time to 
review the report and determine whether the correct measurements were 
used to justify any possible consolidation?
    Answer. The document produced by LMI was designed to assess the 
potential for taxpayer savings and efficiencies. The April 16 and May 4 
dates were the dates initially proposed by Treasury in the Request for 
Proposal (RFP). These dates were negotiable. LMI's report was delivered 
on time and is currently being assessed. The initial schedule to 
deliver this report to OMB on July 1 is still on track. We will not 
pursue any plan without a full consultation with Congress and, in fact, 
Treasury will not call for any merger of any system or function during 
the 108th Congress.
    Question. The cost of the initial stage of this study was estimated 
to exceed $400,000. Under what authority was this money spent? Was 
Congress consulted prior to spending money on a study that has already 
undergone two extensive reviews?
    Answer. The United States Mint Public Enterprise Fund (PEF) statute 
(31 U.S.C.  5136) provides the authority to spend the Mint's portion 
of the expenses.
    Public Law 81-656, which created the Bureau of Engraving and 
Printing Fund, provides for funding without fiscal year limitation for 
all expenses of operating and maintaining the Bureau. This would 
include studies such as the Mint-BEP study, which is focused on 
ensuring cost effective and efficient operations.
    The study was announced in the President's Budget, which was sent 
to the Congress in early February. However, Congress was not 
specifically consulted prior to expending the funds for the study. This 
study is simply an effort to ensure the American people that Treasury 
is keeping up with changing technologies and market conditions. We will 
not pursue any of those options without a full consultation with 
Congress and, in fact, Treasury will not call for any merger of any 
system or function during the 108th Congress.
    Question. Will the study consider putting the Mint and BEP under 
the Federal Reserve?
    Answer. The study has assessed that option.
    Question. What is the future of the penny? What will happen to the 
Mint's production once the cost of the penny is more than 1 cent to 
produce? With the decline in coin usage and the accelerating cost of 
the penny, what plans does the Mint have to cut its manufacturing 
costs?
    Answer. 31 U.S.C.  5112 requires the minting and issuance of a 
three-quarter-inch diameter 1 cent coin composed of copper and zinc. 
The United States Mint will continue to mint and issue 1 cent coins 
pursuant to this statutory mandate. The United States Mint is committed 
to keeping production costs as low as possible.
    The United States Mint will produce pennies to fulfill all Federal 
Reserve Bank orders. Current forecasts suggest there will be demand of 
about 7.3 billion pennies in fiscal year 2004 from the Federal Reserve 
Banks.
    The United States Mint has taken several cost reduction steps. 
First, the total number of employees at the United States Mint has 
fallen from approximately 2,900 in fiscal year 2000 to 2,132 today, 
saving significant personnel costs. The United States Mint currently 
has a rigorous review ongoing, consisting of more than 10 task forces 
that are examining opportunities to streamline and reduce costs in an 
effort to enhance overall taxpayer value. Also, the United States Mint 
is examining ways to lower its direct production cost by incorporating 
additional automation and lean manufacturing concepts on the production 
lines. Finally, the agency is engaged in ongoing research to determine 
the feasibility of less expensive materials that could be used for 
coins without having an effect on their quality and utility. 
Congressional action would be required before changes could be made to 
the composition of most denominations.
    Question. How many dollar coins remain in the Mint's vaults? What 
is the estimated cost of this storage?
    Answer. The United States Mint is currently storing 262.6 million 
Golden Dollars. The United States Mint's coin inventory is stored in 
United States Mint facilities in Denver and Philadelphia, as well as 
Federal Reserve Banks in Phoenix, AZ and Helena, MT. The Golden Dollar 
is stored as part of the overall coin inventory at these locations at 
no additional incremental cost to the government.
    Question. How many sites does the Mint occupy in the Washington 
Metropolitan area? Please identify the use, location, amount of square 
footage, and cost for each of these locations.
    Answer. The United States Mint currently occupies two buildings in 
Washington, DC, both of which are used for administrative purposes. The 
total United States Mint occupied square footage in the Washington 
Metropolitan area is 237,273 square feet at an annual net cost to the 
bureau of $8,682,427.
    The first building, 801 9th Street, has a total of 232,000 square 
feet, of which the United States Mint occupies 163,079 square feet and 
subleases the remaining 68,921 square feet to the Internal Revenue 
Service, the Treasury Executive Institute, and the United States 
Marshals Service. The total annual rent expense of this building is 
$7,790,560. The United States Mint receives $2,314,367 in rent payments 
from our sublet tenants, for a net total annual rent expense of 
$5,476,193.
    At the second building, 799 9th Street, the United States Mint 
rents a total of 149,647 square feet, occupies 74,194 square feet, and 
subleases the remaining 75,453 square feet to the Customs Service and 
the Bureau of Public Debt. The United States Mint does not lease the 
entire building; the General Services Administration, however, leases 
out other parts of this building to other Federal agencies. The United 
States Mint's total annual rent expense for its part of this building 
is $6,486,176. The United States Mint receives $3,279,942 in rent 
payments from our sublet tenants, for a net total annual rent expense 
of $3,206,234.
    Note.--The United States Mint also rents a small (about 100 square 
feet) sales kiosk within Washington DC's Union Station at an annual 
cost of $78,000, operated by one or two sales clerks during business 
hours.
    Question. In 1997, the GAO testified before the Congress on the 
issue of a BEP-Mint merger. At that time the GAO was unable to conclude 
that a merger would save as much money as the cost of consolidation. 
Does Treasury have any new information that would discredit or 
invalidate the GAO findings?
    Answer. Treasury's study is still ongoing. The study will 
incorporate the 1997 GAO findings and account for changed market 
conditions.
    Question. Prior estimates of implementation costs for merging the 
basic functions of the Mint-BEP were calculated to exceed $50,000,000 
and could plausibly reach $100,000,000. When will the merger study be 
complete? Will it provide detailed cost estimates on a basic merger? 
Would it provide the costs of any proposed merger of production lines? 
Because of the concerns involved in the costs and the futures for these 
two organizations will the Treasury Department fully consult with the 
Congress prior to consolidation of any functions?
    Answer. The study will provide detailed cost estimates of the 
options under consideration.
    We will not pursue any of those options without a full consultation 
with Congress and, in fact, Treasury will not call for any merger of 
any system or function during the 108th Congress.

                ALCOHOL AND TOBACCO TAX AND TRADE BUREAU

    Question. The Bureau of Alcohol, Tobacco, Firearms, and Explosives 
(ATF) was transferred to the Department of Justice, including IT 
services that support for the newly formed Alcohol and Tobacco Tax and 
Trade Bureau (TTB) at Treasury. Are the IT services for TTB provided by 
ATF? If so, why are these services still being provided by an agency of 
the Department of Justice?
    Answer. When ATF was split, all IT infrastructures (servers, 
storage systems, desktop computers, laptop computers, network 
equipment, etc.) remained with ATF. It was intended that pending 
funding costs for moving TTB to Treasury hardware and support, ATF 
would continue to provide IT support. TTB has taken some steps toward 
transition off of ATF support. TTB is currently moving all accounting, 
procurement, travel, property, and personnel applications to the 
Treasury Bureau of Public Debt (BPD).
    ATF currently provides the IT equipment and services for TTB that 
directly require an IT infrastructure. TTB has assumed the IT functions 
that can be performed without IT equipment (i.e. IT Security Policy, 
Capital Planning, and Enterprise Architecture). ATF provides all 
servers, network equipment and desktop/laptop equipment as well as all 
office productivity software. ATF provides services that include 
hosting and supporting all of TTB's custom business applications and 
office automation applications, TTB's computer security operations, 
TTB's network connectivity and client (desktop/laptop/peripheral) 
equipment support.
    On April 29, 2004, ATF provided formal notification that they will 
no longer support TTB after fiscal year 2005.
    Question. There is a Memorandum of Understanding (MOU) between TTB 
and ATF. Will the MOU between TTB and ATF be in effect for fiscal year 
2005?
    Answer. Yes, although not as many services will be included. For a 
number of non-IT areas, ATF has advised TTB that they intend to 
discontinue servicing TTB in fiscal year 2005 (see answer below). In 
the IT area, TTB has moved some services to BPD, as noted above.
    Question. What are the services provided under the MOU and what is 
the cost attached to the MOU?
    Answer. The current negotiated MOU with ATF for fiscal year 2004 is 
for $13.7 million and is comprised of two principal components, the IT 
services at $9.5 million and non-IT administrative support services at 
$4.2 million.
    The IT services covered under the MOU include the following:
  --Custom Business Application and Office Application hosting and 
        support
  --Network and Phones equipment and support
  --Customer Equipment and Support (desktops/laptops/peripherals)
  --Software Maintenance of Custom Business Applications
  --Configuration Management
    The current non-IT administrative support services covered under 
the (MOU) are as follows:
  --Legal services (assisting with one old EEO case and two Merit 
        Systems Protection Board cases from fiscal year 2003)
  --Peer support
  --Emergency management services*
  --Document services*
  --Space management*
  --Protective programs (finishing existing project)*
  --Science and technology (This will continue for years because of 
        shared laboratory facilities.)
    ATF has informed us they will not provide IT services or within 
most of the non-IT areas noted above with an asterisk (*).
    TTB has elected to move the following administrative support 
services to Bureau of Public Debt's Administrative Resource Center, a 
Treasury operation, to provide optimal efficiency and effectiveness in 
the delivery of those services to our program operations:
  --Acquisition and material management (BPD for supplemental services)
  --Financial management (BPD for 2005)
  --Personnel services and personnel security (BPD beginning June 2004)
  --Training and professional development (supplemented by BPD).
    Question. How long do you anticipate ATF charging TTB for services 
rendered and is it necessary for TTB to rely on ATF for these services?
    Answer. As indicated above, ATF will continue services in some 
areas as we continue to seek means to secure or provide these services 
independent of ATF; however, we organized our Bureau to provide 
services to our customers and as such the FTE distribution is very 
streamlined in the area of internal services. We will rely on the 
reimbursable agreement with BPD for several areas of service. In the 
meantime, we continue to research the most economical and efficient 
ways to secure these services. Our major issue at this time is the IT 
services that ATF currently provides; they have advised us in writing 
that they will no longer service us after fiscal year 2005 in that 
area.
    It is necessary for these services to continue until TTB can 
transition the functions serviced at ATF to an alternate provider, 
including time to implement the transition after funding is provided.
    Question. TTB has the Tax Audit Division that is responsible for 
auditing taxpayers for compliance with the Internal Revenue Code and 
other laws and regulations. What strides has TTB made with the Tax 
Audit Division?
    Answer. TTB Tax Audit was first established in late fiscal year 
2003 as part of TTB's strategic plan to collect the revenue that is 
rightfully due from the alcohol, tobacco, and firearms and ammunitions 
industries. The division was established to provide a systematic 
approach to safeguard over $14 billion in annual revenue collected by 
TTB.
    The mission of the Tax Audit Division (TAD) is to promote voluntary 
compliance in the payment of excise taxes that TTB administers and to 
verify that such payment was made. The TAD also ensures compliance with 
the laws and regulations relating to revenue collection. TTB Tax Audit 
uses a risk-based approach to target non-compliant industry members. 
TTB's goal in 2004 is to establish a baseline for measuring tax revenue 
audited in a 5 to 6 year period and the industry compliance rate 
(percentage of taxpayers audited with no material findings, thereby 
validating the amount of tax paid was accurate and rightfully due). 
Based upon these findings, TTB will determine its follow up audit 
strategy.
    TTB's accomplishments in fiscal year 2004 as they relate to Tax 
Audit include:
  --Established 10 field offices covering the U.S. territory.
  --Recruited and hired 70 auditors. The average auditor has 10 years 
        of previous audit experience and holds one audit certification 
        such as CPA license.
  --Established a formal industry-training program. Seventy-five 
        percent of the workforce has been trained in three or more 
        industries (tobacco, distilled spirits plants, beer, wine, 
        manufacture of non-beverage products, and firearms).
  --Implemented an automated audit documentation tool to facilitate a 
        standard audit approach and create efficiencies.
  --Developed an audit workplan scheduling 110 taxpayers for review in 
        2004.
  --As of May 24, 10 audits have been completed and 55 are underway.
    Initial audit findings have resulted in $872,000 in additional 
revenue due to TTB.
    Question. What is the status regarding flavored malt beverages and 
beers?
    Answer. TTB has reviewed and analyzed the approximately 16,000 
comments to Notice No. 4 concerning flavored malt beverages. At this 
time we are in the closing stages of evaluating the comments and we are 
discussing the comments with the Department of the Treasury.
    Question. Has the hiring process been streamlined or improved in 
the past year?
    Answer. Under the MOU, all human resource recruitment services were 
provided by ATF during fiscal year 2004; however, TTB just negotiated 
an agreement with the Bureau of Public Debt Administrative Resource 
Center (BPD ARC), to provide all TTB's human resource services for the 
bureau, including staff recruitment. This enhancement begins June 13, 
2004. We believe this change in service provider will improve the 
recruitment process and streamline the paperwork, while allowing the 
bureau to attract highly skilled and qualified applicants for our 
vacancies.
    Question. Will TTB reach its FTE ceiling of 559 this year?
    Answer. TTB will not reach its FTE utilization ceiling of 559 this 
year. The bureau FTE ceiling of 559 includes 15 positions for Puerto 
Rico, which is a Reimbursable program, and 544 direct FTE funded 
positions. As of the most recent pay period, TTB has 509 staff on 
board, including 13 in Puerto Rico, and TTB will make every effort to 
reach the 559 targeted staffing levels by the end of this fiscal year. 
TTB's recruitment strategy as outlined with BPD ARC is very aggressive, 
and TTB is hopeful that the targeted staffing level can be reached. 
Their goal is to have a full staffing complement to begin the fiscal 
year 2005 fiscal year, but FTE utilization may only reach 504.

            Question Submitted by Senator Robert F. Bennett

    Question. In 2002 Treasury officials advised the Open World 
Leadership Center on the legislation needed to clarify and obtain 
authority to invest the Center's Trust Funds (and similarly the Stennis 
Center and Madison Fellowships) in special par value obligations. Such 
investment is a necessary and desirable protection of appropriated 
funds provided to OWLC by the Congress as ``no year'' funding in annual 
appropriations. The OWLC has requested that they be allowed to invest a 
portion of their trust in a special Treasury par value obligation. This 
request is being reviewed by the Office of the Asst General Counsel for 
Banking & Finance in Treasury Headquarters. I understand that Treasury 
is concerned whether, under the rules of statutory construction, the 
new conditions for issuing special obligations to the Stennis Center 
also apply to the OWLC. Please provide an update on the status of this 
request.
    Answer. The Treasury Department has recently advised the Library of 
Congress (which manages the Open World trust fund) that amounts in the 
Open World trust fund may now be invested in par value Treasury 
specials.
                                 ______
                                 
              Questions Submitted by Senator Patty Murray

  NEWLY-CREATED JOBS WILL NOT GO TO THOSE WHO ARE BEING LAID-OFF/JOB 
                                TRAINING

    Question. As I mentioned in my opening statement, it is fine to 
point out that some of the same companies that are shipping American 
jobs overseas might also create jobs here in the United States in the 
future. But we also need to recognize that the people who are having 
their jobs sent overseas are not the ones that are likely to get the 
new jobs those companies are creating here at home.
    For many Americans who are trained in one partfield and have 
supported their families on that same job for decades, the decision to 
move that job overseas represents the beginning of a long period of 
heartbreak and financial ruin.
    Mr. Secretary, do you agree that the job descriptions and skill 
requirements of the new positions that are likely to be created in the 
United States in the future are not the same as those for the jobs that 
companies are currently shipping overseas?
    Answer. It's true that many new jobs in our economy require new 
skills and education. Those new skills and education are one of the 
sources of our rising standard of living. That is why the President has 
made improving our Federal job training programs a priority. New jobs 
demanding new skills are always appearing. A quarter of all Americans 
are working in jobs that weren't even in the Census Bureau's occupation 
list in 1967.
    The U.S. labor market is always changing, and is one of the most 
resilient and flexible labor markets in the world. One aspect of that 
flexibility is the high rate of job changes as employers and employees 
continually adjust to changing business needs and personnel 
requirements. Data from the Bureau of Labor Statistics (BLS) Job 
Opening and Labor Turnover Survey (JOLTS) suggests that there are more 
than 1 million new hires each week. In March 2004, there were 4.5 
million new hires and about 4.1 million separations, and JOLTS reports 
that on the last day of March, there were about 3.1 million job 
openings available. The President is committed to ensuring workers have 
the skills necessary to obtain those jobs.
    Question. I mentioned earlier that the President's new job training 
proposal does not add $1 to his budget request for job training. In 
fact under his proposal, the amount of money going to community 
colleges for all job training purposes will actually decline. For the 
last 3 years, the Bush Administration has requested half a billion 
dollars in cuts in job training.
    Mr. Secretary, what does the Bush Administration have to offer the 
manufacturing worker or the software engineer or the call center worker 
whose job is being sent overseas?
    Answer. The President's goal is to increase job growth in this 
country while making sure workers have the skills necessary to access 
those jobs. Over the past 9 months, 1.4 million new jobs have been 
created. The tax cuts, which were proposed by the President and passed 
by the Congress in 2001 and 2003, played a vital role in creating a 
strong growth environment. During the last 3 years, the 
administration's tax reductions have been successful--first, in keeping 
the recent economic slowdown from worsening substantially in the face 
of terrorist attacks, corporate malfeasance, and wars in Afghanistan 
and Iraq, and secondly, in promoting a solid economic recovery and 
enhancing job prospects.
    Our econometric work suggests that without the tax cuts, more than 
2 million fewer Americans would have been working by the end of last 
year and the unemployment rate would have been more than 1 percentage 
point higher.
    To ensure workers have the skills necessary to obtain these new 
jobs, the President's Fiscal Year 2005 Budget provides $23 billion for 
job training and employment assistance, including Pell Grants used by 
students at technical and 2-year post-secondary schools. This funding 
level is $500 million (2.3 percent) more than in 2004 and $2.5 billion 
(12.5 percent more than in 2001).
    Moreover, the President has proposed reforming the major Workforce 
Investment Act grant programs to double the number of workers who 
receive job training. These reforms will maximize the available Federal 
dollars going to train workers by eliminating unnecessary overhead 
costs, reducing expenditures on overhead by $300 million. His Jobs for 
the 21st Century initiative includes a $250 million proposal to help 
America's community colleges train 100,000 additional workers for 
industries that are creating the most new jobs.
    Finally, the President has proposed a $50 million Personal 
Reemployment Accounts pilot program to help unemployed workers who have 
the hardest time finding jobs get back to work. These flexible 
accounts, which would be in addition to unemployment compensation, 
would allow certain unemployed workers to purchase the training, child 
care, transportation, or other reemployment services they need to 
return to work. They would be allowed to keep unused amounts as a 
``reemployment bonus'' if they become employed quickly. The 
administration is pleased that the House passed H.R. 444, the Worker 
Reemployment Accounts Act, on June 3 to authorize this pilot program 
under the Workforce Investment Act and urges the Senate to act on this 
important legislation for America's workers.
    Question. What do you expect these people to do to try and maintain 
their level of income, their health insurance, and their ability to 
feed their families?
    Answer. Whatever the cause, loss of jobs is taken very seriously by 
this administration. First and foremost, the administration believes 
that the best way to help workers who are competing in the global 
marketplace is to keep economic growth strong at home, to help make 
American companies more competitive, and to make America the best place 
in the world to do business. Recent employment gains show that our 
program is working. Employment has increased more than 1.4 million in 
the past 9 months and initial claims for State unemployment insurance 
benefits have fallen 20 percent from a year earlier.
    As with any transition, an evolving economy can produce 
dislocations for individuals and communities in the short term. The 
administration is committed to helping these workers find good jobs at 
good wages as quickly as possible.
    Our primary responsibility is to keep the economy growing. 
Maintaining and increasing economic growth is the key to increasing the 
number of good jobs in the economy, making it easier for people who 
have lost their jobs to find new and better ones.
    The President has proposed several new measures to help prepare 
Americans for the rapidly changing and increasingly global workplace. 
His Jobs for the 21st Century initiative includes more than $500 
million to help prepare U.S. workers to take advantage of the better 
skilled, higher-paying jobs of the future, including $250 million in 
proposed funding targeted to community colleges to train workers for 
industries that are creating the most new jobs.

                          COMPETITIVE SOURCING

    Question. What is the status of all the competitive sourcing 
studies that have been undertaken at IRS? Please include year, area, 
and result.
    Answer. The following list summarizes the status of IRS Competitive 
Sourcing studies:
Architects and Engineers (10 FTE)
    Streamline competition resulted in in-house award. No savings were 
achieved. The in-house team was the most efficient.
Area Distribution Centers (500 FTE in Bloomington, IL; Rancho Cordova, 
        CA; Richmond, VA)
    The three Area Distribution Centers distribute tax forms, 
instructions and publications to taxpayers and internal use documents 
to IRS employees. A standard competition with award decision is 
scheduled for June 28, 2004.
    Expected Saving and Benefits.--Consolidation of activities and 
geographic locations resulting in the release of commercial space, 
revised operational processes and procedures to gain efficiencies, new 
information system, reduced staff and increased managerial span of 
control.
    Anticipated Return on Investment (fiscal year 2005-fiscal year 
2009).--$22 million.
Building Delegations or Operation and Maintenance (O&M) of Delegated 
        Buildings (100 FTE in Covington, Fresno, Austin, Ogden, 
        Philadelphia, and Headquarters)
    O&M are those functions identified in the Building Delegation 
Agreements between the General Services Administration (GSA) and the 
IRS. These services include responsibilities to operate and maintain 
building systems (electrical, HVAC, control systems, etc).
    A standard competition with solicitation release is scheduled for 
June 2004.
    Expected Saving and Benefits.--Revised operational processes and 
procedures to gain efficiencies; reduced staff; and increased 
managerial span of control.
    Anticipated Return on Investment (fiscal year 2006-fiscal year 
2010).--$3.9 million.
Mail Rooms (70 FTE)
    Mailroom services functions include all aspects of the delivery of 
mail from full service delivery to mail stop or desktop to self-service 
mailrooms where customers pick up their own mail. The IRS made a 
decision to divide the study among headquarters, nationwide ``stand 
alone sites'' and campuses. The IRS plans to use public-private 
competition to improve operations.
    A direct conversion is in progress.
    Fully Implemented.--Denver, CO; Detroit, MI; Plantation, FL; 
Detroit Computing Center, MI; Houston (Leland), TX; Laguna Niguel, CA; 
Oklahoma City, OK; and San Francisco, CA.
    Partially Implemented.--Washington, DC; New Carrollton, MD.
    Scheduled for Implementation.--Cincinnati, OH; Jacksonville, FL (5/
17); and Nashville, TN.
    Implementation Not Scheduled.--Atlanta, GA; Baltimore, MD; Boston, 
MA; Buffalo, NY; Dallas, TX; Greensboro, NC; Hartford, CT; Houston 
(Alliance), TX; Indianapolis, IN; Los Angeles, CA; Milwaukee, WI; New 
Orleans, LA; Oakland, CA; Philadelphia, PA; Phoenix, AZ; Richmond, VA; 
Chicago, IL; Springfield, NJ; St. Louis, MO; St. Paul, MN.
    Anticipated Return on Investment (fiscal year 2005-fiscal year 
2009).--$399,000.
Campus Operations (Information Technology) (350 FTE in Ogden, UT; 
        Atlanta, GA; Brookhaven, NY; Andover, MA; Cincinnati, OH; 
        Fresno, CA; Austin, TX; Memphis TN; Kansas City, MO; 
        Philadelphia, PA)
    This functional area provides the Information Systems (IS) computer 
operations at the ten IRS Campus facilities. The positions include 
computer operators, production controllers, tape librarians, computer 
specialists, and clerks. A standard competition with award decision is 
scheduled for July 2004.
    Expected Saving and Benefits.--Revised operational processes and 
procedures to gain efficiencies; reduced staff; and increased 
managerial span of control.
    Anticipated Return on Investment (fiscal year 2005-fiscal year 
2009).--$12.7 million.
Logistics Support (formerly Warehouse and Transportation) (160 FTE in 
        Andover, MA; Philadelphia, PA; Brookhaven, NY; Atlanta, GA; 
        Covington, KY; Austin, TX; Kansas City, MO; Ogden, UT; Fresno, 
        CA; Memphis, TN)
    This functional area provides warehousing and transportation, 
mainly at the 10 campus sites. This activity includes positions such as 
material handlers, warehouseman, motor vehicle operators, laborers, and 
clerks. A standard competition with Performance Work Statement 
development is underway.
    Expected Saving and Benefits.--Revised operational processes and 
procedures to gain efficiencies, release of leased space, reduced staff 
and increase of managerial span of control.
    Anticipated Return on Investment (fiscal year 2006-fiscal year 
2010).--$4.8 million.
Campus Files Activity (1,458 FTE in Austin, TX; Andover, MA; 
        Philadelphia, PA; Brookhaven, NY; Cincinnati, OH; Memphis, TN; 
        Atlanta, GA; Kansas City, MO; Ogden, UT; Fresno, CA)
    This functional area receives, controls, shelves and maintains all 
returns/documents for retention and retirement. They retrieve documents 
as requested by customer organizations. Liaison work is critical with 
the Federal Records Centers for final retention of documents. The work 
is routine and does not involve making complex determinations or 
present unique fact patterns. A standard competition with solicitation 
release is scheduled for the fourth quarter of 2004.
    Expected Saving and Benefits.--Revised operational processes and 
procedures to gain efficiencies; reduced staff; and increased 
managerial span of control.
    Anticipated Return on Investment (fiscal year 2006-fiscal year 
2010).--$22 million.
Learning and Education (617 FTE Service-wide)
    This functional area is responsible for determining service-wide 
and division-level professional training requirements, developing 
training plans and curriculum, evaluating the effectiveness of 
training, and performing a broad spectrum of program administration.
    A standard competition with Performance Work Statement development 
is underway.
    Expected Saving and Benefits.--Consolidation of activities, 
revision of operational processes and procedures to gain efficiencies, 
implementation of learning content management and learning management 
systems, reduction of staff and increased managerial span of control.
    Anticipated Return on Investment (fiscal year 2006-fiscal year 
2010).--$25 million.
    Note.--Return on investment includes cost of conducting competition 
and transition/separation costs. The IRS calculated savings through 
fiscal year 2009.
    The following highlights IRS Business Case Analysis/Feasibility 
Studies:
            Tax Law Telephone
    This is a preliminary feasibility assessment of having a vendor 
provide tax law telephone assistance. After the completion of the 
preliminary feasibility assessment, the IRS will make a decision as to 
whether to go forward with the competition.
            Fuel Compliance Activity (140 FTE Service-wide)
    This function area monitors 1,400 terminals, all fuel wholesalers, 
thousands of retail motor fuel outlets, and U.S. border crossings. 
Additionally, these personnel are charged with conducting periodic 
inspections of on-road vehicles on highways throughout the country.
            IT Support (Service-wide)
    This is identification and development of sourcing strategy to 
identify candidate public-private competition activities.
    Question. How much money has been spent on these competitions? 
Since the competitions are not budgeted for, where has the money come 
from?
    Answer. Competitive Sourcing Competition Costs (Travel, training, 
staffing, expert contractor support (PWS, Most Efficient Organization, 
Independent Review)--does not reflect transition/separation costs):
  --Fiscal year 2003--$5.0 million;
  --Fiscal year 2004--$6.3 million.
    It has been difficult to finance the Competitive Sourcing Program 
since the IRS does not know the outcomes in advance, the exact level of 
savings are yet to be determined, and it takes time to realize these 
savings. The IRS had to internally realign. However, the investments 
made today in public-private competitions show a return on investment 
usually within 2-3 years (includes payment of transition costs--
voluntary early retirement, voluntary separation incentive, etc.). At 
that time, the IRS plans to reinvest the savings to fund future 
competitions and cover transition costs. The IRS proposes to fund $9.1 
million in the fiscal year 2005 budget for the Competitive Sourcing 
program by reinvesting resources freed up through productivity savings.

 PROGRESS ON STEMMING THE USE OF CHARITIES TO FUNNEL CASH TO TERRORIST 
                             ORGANIZATIONS

    Question. Our government has linked some 23 charitable 
organizations with the Al Qaeda network. It has been a longstanding 
practice for terrorist organizations around the globe to use charitable 
giving as an avenue for illicit resources. There appear to be some 
continuing disagreements between our government and the governments of 
the European Union as to which charities should be designated as being 
associated with terrorist organizations. A number of international 
charities that are listed by the United States have not been listed by 
European nations.
    Why can't the United States and Europe agree over which charities 
are financing terrorism?
    Answer. One of the primary differences between the United States 
and the European Union (E.U.) on the issue of terrorism and terrorist 
financing is the fact that the European Union has not traditionally 
treated non-al Qaeda terrorist groups, such as Hamas and Hizballah, in 
the same way that the United States treats them. The European Union has 
an efficient process for designating al Qaeda-related entities that 
have been designated by the U.N. 1267 Sanctions Committee. Under their 
system, action on an organization or individual by the U.N. 1267 
Sanctions Committee is a sufficient legal basis for the European Union 
to designate that same organization or individual. The European Union's 
designation system for non-al Qaeda groups (i.e., for groups designated 
pursuant to U.N. Security Council Resolution (UNSCR) 1373), however, 
suffers from a lack of efficiency and effectiveness. This has resulted 
in delays and gaps in the European Union's designation on several non-
al Qaeda-related entities.
    One significant example of this problem is the European Union's 
failure to act swiftly and effectively with respect to Hamas. It is 
beyond question that funding to Hamas and other terrorist groups must 
be stopped, and the United States does not accept any artificial 
distinctions that some Europeans have in the past drawn between the so-
called ``military'' and the so-called ``socio-political'' wings of 
Hamas or other terrorist groups. Hamas leaders themselves have publicly 
acknowledged this distinction is one without a difference. The 
conclusion is supported by the fungibility of funds. Money allocated to 
the humanitarian works of Hamas charities makes available for terrorist 
activity the Hamas funds that otherwise would have gone to those 
humanitarian purposes. Moreover, the United States believes that the 
funds raised by Hamas-related charities are used to finance the 
organization and ultimately fuel terrorist activities. For example, it 
is clear that Hamas uses its humanitarian operations to recruit 
militants and secure support for their activities among local 
communities and populace.
    To that end, the United States has designated charities that have 
provided support to Hamas. We have made clear our position on Hamas, 
and other such terrorist groups, to our partners around the world. We 
are beginning to see a ``sea change'' of the European attitude on this 
matter, based in large part on the U.S. efforts to change attitudes and 
policies. The European Union's decision in September 2003 to designate 
Hamas in its entirety as a terrorist group represents an important 
first. Due to inefficiencies within the E.U. designation process, 
however, this overarching designation has not always resulted in the 
designation of individual European charities that are funding Hamas. We 
therefore must continue to encourage the European Union to implement 
their decision by designating Hamas charities operating in Europe. 
Recently there have been encouraging signs from certain E.U. members. 
Last year, the Dutch government froze the assets of the Al Aqsa 
Foundation, a European charity supporting Hamas. The German government 
shut down the offices of the Al Aqsa Foundation in their country, and 
the Danish government took actions against certain individuals 
operating Al Aqsa in Denmark.
    The United States will continue to work with our E.U. counterparts, 
both by urging action and by keeping channels of communication open to 
share evidence supporting a complete designation of these terrorist 
groups.
    Question. Have you seen a demonstrable increase in the level of the 
effort on the part of European nations in going after terrorist 
financing since the Madrid bombings?
    Answer. Yes. The European Union's attention to the threat of 
terrorist financing has increased since the Madrid bombings. This 
renewed dedication is articulated in the European Union's Declaration 
on Combating Terrorism, which was issued on March 24, 2004, just 2 
weeks after the Madrid bombings and by the accompanying appointment of 
Gijs de Vries to the newly created position of E.U. Counter-Terrorism 
Coordinator.
    Question. What concrete changes have you seen since the Madrid 
bombings?
    Answer. As noted above, immediately following the Madrid bombings, 
the European Union issued a Declaration on Combating Terrorism and 
appointed Mr. de Vries as the counter-terrorism coordinator. Mr. de 
Vries has articulated an aggressive agenda and has visited the United 
States to consult with key U.S. counter-terrorism officials. We are 
hopeful that the establishment of this position will enhance E.U. 
effectiveness in combating terrorist financing.
    Question. In your view, which European nations have done the most 
in combating terrorist financing and which have the longest way to go?
    Answer. The State Department's recently issued annual report on 
``Patterns of Global Terrorism 2003'' includes a country-by-country 
discussion of actions by European countries in fighting terrorist 
financing. Treasury concurs with that assessment and refers the 
committee to that document for more information about country-specific 
activity.
    Question. After some considerable pressure from Congress and the 
General Accounting Office, the IRS has finally published guidance to 
the States on how they can help regulate and monitor charitable 
organizations in this country that may be funneling money to 
terrorists.
    Do you believe that the States have done all they can monitor 
charitable organizations that may be funneling money to terrorists?
    Answer. States have an obligation to ensure the integrity of 
charities. They are the ground-level watchdog of charities and we rely 
on them to fulfill that function. They do not always, however, have the 
ability to effectively monitor global organizations. That is where the 
resources of not only the U.S. government, but the capabilities of 
umbrella organizations within the philanthropic community become 
critical.
    Question. Do you believe States have the kind of resources that are 
necessary to do this job adequately?
    Answer. I am not in a position to comment on the type or level of 
resources applied by each State to address the abuse of charities by 
terrorist financiers. I note, however, that we are engaged in a 
campaign to enhance their resources through cooperation. The first step 
was an outreach event recently held by the Treasury Department, with 
the focus being a discussion of the voluntary best practices against 
abuse of charities by terrorist financiers, previously published by 
Treasury. One of the significant results of this meeting was a decision 
to create an ``advisory group'' on charities. This group will serve as 
a resource and provide a forum that not only includes the States and 
the U.S. government, but also includes representatives from charities 
(large and small) and watchdog organizations.
 has progress in saudi arabia triggered progress in other arab nations?
    Question. Mr. Secretary, you traveled to Saudi Arabia back in 
September. Your agency has heaped praise on the Saudi government for 
enacting a significant number of new laws and regulations to prohibit 
the free flow of money to terrorist organizations in that country. But, 
as I noted in my opening statement, there is a difference between 
putting the laws on the books and actually enforcing them.
    Do you believe the Saudis have actually cut off the flow of money 
in a significant way between their suspect charitable organizations and 
terrorist groups?
    Answer. The Saudi Arabian government has taken decisive steps to 
curb the flow of terrorist money and we are hopeful that there will be 
further developments. Recognizing the significant role of charitable 
giving (zakat) in the Kingdom, this is a monumental task that not only 
requires legal and regulatory changes, but also a change in mindset 
among the population. The Saudis, who have now become victims of 
terrorism, appear to be committed to taking decisive action to address 
this problem. Even so, we continue to work with the Saudi government 
and other countries around the world to do more, faster and more 
aggressively.
    The most fundamental challenge facing the Kingdom is defusing the 
radical extremism that facilitates support and recruitment for radical 
Islamist terrorist organizations like al Qaeda. The Saudi efforts to 
deal with this issue are important to ensure that militant religious 
extremism does not provide a platform for terrorists from which they 
can justify and launch their terrible actions.
    The Saudi government must fully implement and enforce the 
comprehensive measures it has enacted to ensure charities, hawalas, and 
their formal financial systems are not abused for terrorist purposes. 
Recently, Saudi Arabia took concrete steps to do just that. On June 2, 
2004, the United States and Saudi Arabia jointly designated five 
branches of the Saudi-based charity, the Al Haramain Foundation (AHF), 
and at the same time Saudi Arabia announced its intention to dissolve 
AHF in its entirety and merge its remaining operations and assets into 
the newly-established Saudi National Commission for Charitable Work 
Abroad. Saudi Arabia announced that this new entity will be subject to 
strict financial transparency, will be subject to legal oversight and 
will operate according to clear policies, so as to ensure that 
charitable funds intended to help the needy are not misused.
    Question. Has the improved level of effort on the part of Saudi 
Arabia elicited similar responses by other Islamic nations?
    Answer. We have been working closely with many Islamic nations 
since the events of September 11 and have seen continued progress in 
their anti-terrorist financing efforts. There has been ongoing work and 
cooperation on fighting terrorist financing since September 11, given 
the real threat that al Qaeda poses to many countries, particularly 
those in the Middle East. Gulf Countries such as Kuwait and the United 
Arab Emirates (UAE) have been cooperative in responding to decisions by 
the U.N. 1267 Sanctions Committee and have taken important steps to 
address issues like regulation of charities and hawalas. Other 
countries have been victims of terrorism and have taken important steps 
to address that issue. For example, we have worked closely with 
Algeria, which has a secular government, to support their anti-
terrorist financing efforts.
    Significant steps that are still needed include further action on 
cross-border currency transactions, wire transfers, and effective 
oversight of alternative payment systems such as hawalas. We are 
encouraging regional discussions on these issues and continue to 
advance progress on these issues in the Middle East and around the 
world.
    Question. What about the United Arab Emirates (UAE)?
    Answer. The UAE Government has made many positive reforms to their 
anti-money laundering program. Further, it has cracked down on 
potential vulnerabilities in the financial markets and is cooperating 
in the international effort to prevent money laundering, particularly 
by terrorists and their supporters. In 2002, the UAE, in partnership 
with the United States, blocked the assets of more than 150 named 
terrorist entities, including significant assets in the UAE belonging 
to Al-Barakat. The Central Bank (CB) of the UAE has frozen a total of 
$3.13 million in 18 bank accounts in the UAE between September 11, 2001 
and March 2004.
    Additionally, the UAE has recognized the importance and threat of 
hawala, and other alternative remittance systems, and they have made 
efforts to address the particular vulnerabilities from a lack of 
oversight and regulation of this sector. New regulations to improve 
oversight of the hawala system were implemented in 2002, and the CB now 
supervises 61 hawala brokers, which--like other financial institutions 
in the UAE--are now required to submit the names and addresses of 
transferors and beneficiaries involved in transfers to the CB and to 
complete suspicious transaction reports. The new attention on hawala is 
encouraging more people to use regulated exchange houses in the UAE. 
Traders in Dubai's Central Souk (Market) have stated that hawala 
exchange rates are now only 3 percent cheaper than formal exchange 
houses, persuading many to use the formal banking network. In May 2002, 
the UAE hosted an International Conference on Hawala attended by over 
300 delegates from 58 countries. The conference concluded with the 
issuance of ``The Abu Dhabi Declaration on Hawala,'' which calls for 
the establishment of a sound mechanism to regulate hawala, including, 
but not limited to the recommendation that countries adopt the 40 
Recommendations on money laundering and 8 Special Recommendations on 
terrorist financing of the Financial Action Task Force (FATF). In April 
2004, they held a second international conference on hawala reaffirming 
their commitment to the regulation of alternative remittance systems.
    UAE has also just established the Anti-Money Laundering and 
Suspicious Case Unit (AMLSCU), located within the Central Bank, which 
functions as that nation's Financial Intelligence Unit (FIU). In June 
2004, they co-hosted the South Asia Conference on Money Laundering with 
FinCEN, the U.S. FIU, further showing their commitment to combating 
money laundering and terrorist financing--especially on a regional 
basis.
    Question. Have you seen any improved level of cooperation from the 
UAE?
    Answer. Yes. The UAE Government has made many positive reforms to 
their anti-money laundering program. Further, it has cracked down on 
potential vulnerabilities in the financial markets and is cooperating 
in the international effort to prevent money laundering, particularly 
by terrorists and their supporters. In 2002, the UAE worked in 
partnership with the United States to block terrorist financing, and 
froze the assets of more than 150 named terrorist entities, including 
significant assets in the UAE belonging to Al-Barakat. The Central Bank 
(CB) of the UAE has frozen a total of $3.13 million in 18 bank accounts 
in the UAE between September 11, 2001 and March 2004.
    Additionally, the UAE has recognized the importance and threat of 
hawala, and other alternative remittance systems, and they have made 
efforts to address the particular vulnerabilities from a lack of 
oversight and regulation of this sector. New regulations to improve 
oversight of the hawala system were implemented in 2002, and the CB now 
supervises 61 hawala brokers, which--like other financial institutions 
in the UAE--are now required to submit the names and addresses of 
transferors and beneficiaries involved in transfers to the CB and to 
complete suspicious transaction reports. The new attention on hawala is 
encouraging more people to use regulated exchange houses in the UAE. 
Traders in Dubai's Central Souk (Market) have stated that hawala 
exchange rates are now only 3 percent cheaper than formal exchange 
houses, persuading many to use the formal banking network. In May 2002, 
the UAE hosted an International Conference on Hawala attended by over 
300 delegates from 58 countries. The conference concluded with the 
issuance of ``The Abu Dhabi Declaration on Hawala,'' which calls for 
the establishment of a sound mechanism to regulate hawala, including, 
but not limited to the recommendation that countries adopt the 40 
Recommendations on money laundering and 8 Special Recommendations on 
terrorist financing of the Financial Action Task Force (FATF). In April 
2004, they held a second international conference on hawala reaffirming 
their commitment to the regulation of alternative remittance systems.
    UAE has also just established the Anti-Money Laundering and 
Suspicious Case Unit (AMLSCU), located within the Central Bank, which 
functions as that nation's Financial Intelligence Unit (FIU). In June 
2004, they co-hosted the South Asia Conference on Money Laundering with 
FinCEN, the U.S. FIU, further showing their commitment to combating 
money laundering and terrorist financing--especially on a regional 
basis.
   will treasury ban non-cooperating nations from the banking sector?
    Question. Mr. Secretary, the Patriot Act gave you a new power to 
designate certain individual foreign jurisdictions or financial 
institutions as being ``primary money laundering concerns'' of the 
United States. To date, you have done this in the case of Burma, 
briefly in the case of the Ukraine, and in the case of the small 
country of Nauru. You can use this power under the Patriot Act to go so 
far as to cut those countries off from the U.S. financial sector.
    Mr. Secretary are you considering expanding the use of this tool in 
terms of pushing foreign nations to improve their efforts in the area 
of combating terrorist financing?
    Answer. The Treasury Department is committed to employing the tools 
given to us in Section 311 of the Patriot Act effectively and 
aggressively. As you note in your question, Treasury has already used 
this authority to designate the jurisdictions of Ukraine, Nauru and 
Burma, and two individual Burmese banks, all based on money laundering 
concerns. Additionally, the Treasury Department has designated the 
Commercial Bank of Syria and its Lebanese subsidiary under Section 311 
based on a variety of issues, including terrorist financing concerns. 
In the cases of Ukraine, Nauru, and Burma, the designations have proved 
effect in pushing the foreign governments to improve their anti-money 
laundering efforts. It is our hope and expectation that the Syrian-
related designation will prove effective as well.
    Moving forward, Treasury will continue to safeguard the U.S. 
financial system by identifying and designating appropriate targets 
under Section 311, including those that pose risks related to terrorist 
financing.
    Question. Which nations would you identify as having the most work 
to do to bring their level of effort up to a level that you would 
consider acceptable?
    Answer. All countries should be constantly striving to improve 
their efforts in the fight against terrorist financing. Some countries 
have steps that they should take to improve the underlying structure of 
the counter-terrorist financing legal and regulatory systems. Others 
have these systems in place and need to focus on effective 
implementation. The State Department's recently issued annual report on 
``Patterns of Global Terrorism 2003'' includes a country-by-country 
discussion of actions in fighting terrorist financing. Treasury concurs 
with that assessment and refers the committee to that document for more 
information about country-specific activity.

  IS TREASURY REQUESTING ENOUGH FOOT SOLDIERS IN THE WAR ON TERRORIST 
                               FINANCING?

    Question. Many critics have observed that your agency's efforts to 
combat terrorist financing are spread over too many offices with little 
or no coordination between the Office of Foreign Asset Control, the 
IRS, the Financial Crimes Enforcement Network and other parts of the 
Treasury Department. As such, I commend your decision to create the new 
Office of Terrorism and Financial Intelligence within the Department to 
coordinate all of these efforts. The leaders of the Senate Finance 
Committee--both Chairman Grassley and Senator Baucus--have commented in 
a letter to the President that your new initiative seems to be ``heavy 
on generals and light on soldiers.'' Also, it was recently revealed 
that, in developing President Bush's budget request for 2005, a request 
by the IRS to increase the number of criminal financial investigators 
working on terrorist financing by 50 percent was rejected.
    Are you sure that the amount of money that you have requested will 
supply enough resources to boost the number of foot soldiers that can 
follow up on leads and disseminate information to have the maximum 
impact in combating terrorism?
    Answer. Over the last year, we have made substantial progress in 
coordinating the activities of the Office of Foreign Assets Control 
(OFAC), the IRS-Criminal Investigation Division (IRS-CI) and the 
Financial Crimes Enforcement Network (FinCEN) through the leadership of 
Deputy Assistant Secretary Juan Zarate and the Executive Office for 
Terrorist Financing and Financial Crimes (EOTF/FC). With the creation 
of the Office of Terrorism and Financial Intelligence (TFI), we are 
taking the final step of fully integrating the intelligence functions 
and resources of the Treasury Department into this effort. Initially, 
we are focusing on ensuring we are using what resources we have as 
effectively as possible. As part of this, we are exploring all options, 
e.g., exploiting the expertise and resources of existing Treasury 
bureaus and offices, not just for intelligence or law enforcement 
purposes, but also looking at regulatory actions. But before we turn to 
the solution of adding more people, we are ensuring we clearly know 
what is necessary--whether expertise, personnel, technology, or legal 
authorities.
    Question. How do you respond to the criticism that your new 
initiative is too top heavy and doesn't provide enough people to follow 
up on every potential lead?
    Answer. The key to this new structure is the combination of our 
resources as well as the elevation of the status of these efforts 
within the Treasury Department and the U.S. Government. Both elements 
are essential to making the Office of Terrorism and Financial 
Intelligence (TFI) function well. Thus, we will be creating necessary 
efficiencies both within Treasury and in the U.S. Government to ensure 
we are maximizing our efforts. This is a team effort, not just within 
Treasury, but within the government. As we create this new office, we 
need expertise and leadership that will not only maximize the resources 
we have within Treasury, but also the resources within the government 
that contribute to this effort.

    WILL THE BUDGET BOOST ACTUALLY IMPROVE FINANCIAL CRIMES NETWORK 
                 ENFORCEMENT'S (FINCEN'S) PERFORMANCE?

    Question. Your Financial Crimes Enforcement Network, or FinCEN, is 
charged with collecting and disseminating information on all 
questionable financial transactions that are reported by the banking 
sector. This agency has been subjected to a lot of criticism because of 
outdated technology and the long delays between the time questionable 
transactions are reported and the time they can be accessed by law 
enforcement agencies. Your budget seeks a 13 percent boost in funding 
for FinCEN this year.
    If we approve this request, will we see demonstrable improvement in 
the amount of time it takes from when your agency takes receipt of this 
information to when it is available to the Federal and State agencies 
that are actually investigating and prosecuting these crimes?
    Answer. Yes. Electronic filing from institutions is the best way to 
ensure faster provision of Bank Secrecy Act (BSA) information after it 
is received. An amount of $3.238 million of this budget request is for 
program costs associated with the various mandates of the USA PATRIOT 
Act, and one of these mandates is to build a system that would permit 
the electronic filing of Bank Secrecy Act reports. The system built by 
FinCEN--the Patriot Act Communications System--has been operational 
since June 2002. Some of this request will be used to enhance this 
system's reliability and to develop tools that FinCEN believes will 
result in greater usage by industry.
    FinCEN has also requested $1.354 million and two FTEs for program 
increases to expand law enforcement's access to Bank Secrecy Act 
information through the on-line access system known as Gateway. This 
will broaden electronic access to this information among law 
enforcement.
    Finally, FinCEN's BSA Direct initiative--a program critical to 
FinCEN's ability to provide law enforcement access to timely 
information--will improve law enforcement's access to the critical Bank 
Secrecy Act data by integrating the data into a consolidated, modern 
data warehouse. BSA Direct will include sophisticated query and 
reporting tools. Law enforcement and regulatory agencies will gain 
easier data access and enhanced ability to query and analyze the Bank 
Secrecy Act reports. These improvements are expected to lead to 
increased use of the Bank Secrecy Act data and will permit FinCEN to 
achieve its statutory obligations to control access and audit access to 
this sensitive information, provide FinCEN with the ability to network 
agencies with overlapping investigations, and will help FinCEN provide 
feedback and better communicate with the financial industry.
    Question. The so-called ``hawala'' network is considered one of the 
prime ways in which terrorist organizations have been able to move 
money across borders without a paper trail. These networks are used for 
legitimate money transfers from immigrant families to their families 
back home. A blue ribbon task force on terrorist financing recommended 
that your Financial Crimes Enforcement Network register these 
operations in this country and require them, like banks, to report 
suspicious financial transactions.
    Has any progress been made toward that goal by your Financial 
Crimes Enforcement Network?
    Answer. To date, approximately 18,000 money service businesses have 
registered with FinCEN. It is unclear, however, how many of these 
entities are informal value transfer systems such as hawalas, hundi, 
fei ch'ien and others. Although there is a clear requirement for 
informal value transfer systems to register with FinCEN as a money 
services business, the registration does not distinguish these systems 
from other money service businesses. Failure to register can result in 
a Federal felony conviction.
    FinCEN is working closely with the Internal Revenue Service (IRS), 
the agency with delegated responsibility to examine these businesses 
for Bank Secrecy Act compliance, to look for ways to identify these 
informal value transfer systems and bring them into compliance. FinCEN 
and the IRS are also focusing outreach and education efforts in 
communities where these informal systems are popular. Finally, FinCEN 
is working closely with law enforcement to identify those persons and 
entities that may be operating outside the bounds of the law.
    Question. Should we expect any progress this year?
    Answer. Yes. A central focus of FinCEN's new leadership is to 
improve registration and compliance by money service businesses. FinCEN 
is developing a comprehensive plan aimed at increasing registration and 
otherwise improving money service business compliance with Bank Secrecy 
Act regulations. Steps that FinCEN is already taking include:
  --Obtaining better information on the size and nature of components 
        of the money service business industry--including informal 
        value transfer systems--to better ascertain the scope of 
        education and outreach necessary and focus compliance resources 
        on those sectors of the industry that critically need to be 
        addressed;
  --Coordinating with State regulators and Trade Associations to 
        identify potential registrants and provide education and 
        outreach;
  --Conducting analysis of the Bank Secrecy Act reports for leads on 
        locating money service business identified by other financial 
        institutions as unregistered, non-compliant or engaged in 
        suspicious activity. FinCEN will then point the IRS or law 
        enforcement to those entities for action.
  --Improving the registration form and regulatory requirements to 
        simplify the registration and filing process, reduce filer 
        error and improve quality of the data provided by filers.

     TREASURY'S TERRORIST FINANCING INITIATIVE NEEDS DEADLINES AND 
                               MILESTONES

    Question. Mr. Secretary, a variety of oversight agencies, including 
the GAO and others have criticized your national money laundering 
strategy and other elements of the war on terrorist financing because 
they tend to lack milestones and deadlines. You are now standing up a 
new office of Terrorism and Financial Intelligence within the Treasury 
Department to improve coordination between all of the agencies within 
your department that work on this important effort.
    Do you think it is reasonable to have the new head of this office 
submit a comprehensive series of department-wide deadlines and 
milestones for each of the elements of your war on terrorist financing?
    Answer. Treasury and the Executive Office for Terrorist Financing 
and Financial Crimes already use measures or milestones to help mark 
and guide our efforts in the areas of terrorist financing and financial 
crime. These have been incorporated into Treasury's comprehensive 
strategic plan, which is attached. Elements of this plan specifically 
focus on terrorist financing and financial crimes.
    The ultimate goal of our efforts is to detect, deter and disrupt 
terrorist activity by cutting off access to sources of funds and 
systems. The most valuable way to measure our success in this effort is 
often intelligence information that suggests to us the impact we are 
having on the terrorist organization that we are targeting. This 
information is often anecdotal. Recognizing that we are dealing with a 
nefarious and clandestine network about which it is hard to obtain hard 
facts on cash flows, we have tried to identify other measures on how to 
evaluate success.
    Question. How soon do you think you would be in a position to 
submit this to the committee?
    Answer. A copy of Treasury's strategic plan is attached, and we 
will continue to develop adequate measures to help monitor our efforts.
    [Clerk's Note.--A copy of this document has been retained in 
Committee files.]

                 ARE THERE MORE RIGGS BANKS OUT THERE?

    Question. Mr. Secretary, one of the last acts of the Clinton 
Administration was to issue a new money laundering guidance that 
specifically addressed requirements of financial institutions to 
monitor the financial transactions of senior foreign political figures. 
A lot of attention has been paid in the press to the possibility that 
Riggs Bank, here in the District of Columbia, knowingly violated those 
procedures since they do so much business with the Foreign Diplomatic 
Corps.
    How widespread do you believe the problem is?
    Answer. We have no reason to believe that the industry as a whole 
is not complying with the Bank Secrecy Act (BSA) requirements, although 
we recognize that we may need to improve coordination and enhance 
regulatory oversight.
    Question. Are there other financial institutions besides Riggs 
Banks that are currently under investigation for failing to monitor the 
transactions of foreign government officials and foreign diplomats?
    Answer. It would be inappropriate to comment on current 
investigations. However, at any given time, banks are examined by their 
functional Federal regulator for compliance with the Bank Secrecy Act 
(BSA). In fact, Federal bank regulators have explicit BSA examination 
cycles for institutions under their supervision. If an institution is 
found not to be in compliance with its requirements under the BSA, 
appropriate measures are taken to ensure full investigation and 
appropriate resolution of the matter.
    Question. To what extent do you believe that the transactions that 
were not reported by Riggs Bank or others are in fact directly 
attributable to terrorist financing?
    Answer. FinCEN is not in a position to confirm or deny the 
possibility that Riggs Bank facilitated terrorist financing. The 
transactions identified as suspicious were referred to law enforcement, 
as is our standard procedure for all such reporting for any financial 
institution.
    Question. Have we established any direct links between actual 
terrorist groups and some of the transactions that have been discussed 
in the press?
    Answer. FinCEN has no factual basis for concluding that the 
transactions not reported by Riggs Bank involved the financing of 
terrorism, and the transactions identified as suspicious were referred 
to law enforcement for possible investigation.

         WHAT ACCOMPLISHMENTS ARE HOPED FOR IN NEXT G-8 SUMMIT?

    Question. Mr. Secretary, exactly 7 weeks from today, President Bush 
will host the Sea Island G-8 Summit in Georgia. The theme of the summit 
is ``Freedom, Prosperity and Security'', and the efforts of the 
international community in fighting terrorism are on the agenda.
    Can you specify for us what specific accomplishments in the area of 
combating terrorist financing are you hoping to bring about at the next 
G-8 summit?
    Answer. The G-8 heads of state have provided crucial leadership to 
the international coalition against terrorist finance, which met in 
June 2004 at the Sea Island Summit. They have charged the G-7 Finance 
Ministers with the lead operational role in these efforts, and the 
Finance Ministers have reported to Heads at the end of last year about 
their accomplishments and their plans for this year, which included 
work on cash couriers, alternative remittance systems, and making asset 
freezing regimes more effective. They have also continued to implement 
the heads' charge to undertake outreach efforts to countries outside 
the G-7 by hosting meetings with key finance ministers and central bank 
governors in September 2003 (Dubai) and April 2004 (Washington, DC).

                        IRS STAFFING REDUCTIONS

    Question. In January, IRS announced plans to reorganize.
    What is the status of the reorganization? Please list current and 
proposed reductions by number of employees, type of work performed, 
center location including State, and date of reduction or proposed 
reduction.
    Answer. In January, the Internal Revenue Service (IRS) announced 
changes designed to create operational efficiencies that will 
ultimately allow the IRS to re-direct the savings towards approximately 
2,200 new enforcement positions. These changes include: Income Tax 
Returns Processing, Consolidation of Back Office Operations, and 
Reduction of Agency Overhead. Below are the specific details of each 
initiative, in turn.
    Income Tax Returns Processing.--The IRS is gaining efficiency from 
the increase in e-filed returns and the drop in the more labor-
intensive paper filings. Since 1990, the number of returns filed 
electronically has grown from 4 million to 60 million in 2004, reducing 
the need for employees to enter the data manually. It is expected that 
in 2005 over half of the returns received by IRS will be electronically 
filed. Some time ago, after realizing ten centers would not be needed 
to process tax returns, IRS developed a plan that would, over time, 
reduce the number of centers processing paper returns. The IRS 
Brookhaven center stopped processing paper returns in September 2003. 
In January, the IRS announced the second step in this process. The IRS 
Memphis center will stop processing paper returns in October 2005. At 
the Memphis location, about 2,200 employees currently process tax 
returns. Almost 2,000 of these employees are either seasonal employees 
or employees hired under a limited-term appointment. The IRS 
Philadelphia center is scheduled to stop processing paper returns in 
2007, and the Andover center will be scheduled after Philadelphia, 
depending on experiences with the other locations. IRS has taken steps 
in Philadelphia to limit the impact on career employees.
    Consolidation of Back Office Operations.--For approximately 3 
years, the IRS studied the reengineering of two administrative case 
management operations: case processing and insolvency operations. Case 
processing employees are responsible for a variety of back-office 
administrative tasks in support of examination and collection casework, 
such as processing cases, computer research and inventory controls. The 
insolvency organization protects the government's interests by ensuring 
that the government's claim in bankruptcy proceedings receives the 
highest possible priority relative to other creditors.
    The case processing initiative involves more than 1,200 employees 
in over 80 locations. The insolvency initiative involves more than 300 
employees in more than 50 locations. IRS is currently examining the 
impacts on each State, but will work to minimize the impact on 
employees by providing the maximum opportunities possible in affected 
areas.
    The current structure of these two operations is a vestige of the 
old IRS structure prior to the reorganization mandated by the IRS 
Reform and Restructuring Act of 1998. Under this structure, many of the 
posts of duty have very few employees; indeed, some locations have only 
one employee performing case processing or insolvency work. As a 
result, we have minimal ability to respond to peak demand or manage 
workload; and employees have little opportunity to develop specialized 
skills or advance their careers. In addition, this widely dispersed 
geographic structure results in a variety of non-standard processes and 
makes quality review difficult.
    The new operational structure builds on existing processes 
currently being performed at IRS campuses; provides economies of scale 
and standardization; allows the creation of a quality review unit; 
offers staffing flexibility; and creates space savings due to shift 
work. Specifically, Case Processing operations will be centralized at 
four campuses (Cincinnati, Memphis, Ogden, and Philadelphia), and a new 
function will be created to support the redesigned organization through 
help-desk support, technical assistance and quality review. Insolvency 
operations will be realigned across clerical, paraprofessional and 
professional staff. The clerical and paraprofessional staff will be 
consolidated in Philadelphia. (Approximately 900 Insolvency Specialists 
and Advisors will remain in field offices.)
    Even after taking into account costs such as severance, hiring, 
training, salary cost differentials, and infrastructure, we expect 
these initiatives to yield savings in excess of $300 million over the 
next 10 years. These savings will allow us to redirect the equivalent 
of 350 to 425 full-time employees to front line tax law enforcement 
over the next 3 to 5 years.
    Reduction of Agency Overhead.--The IRS has studied human resources 
and other support functions to identify staff efficiencies and 
determine the proper size of these activities. Streamlining and 
centralization of these functions will generate annual savings of 
approximately 750 staff years, primarily two initiatives in the human 
resource area: Personnel Field Services and Transaction Processing 
Centers. The staff reductions are expected to occur in late 2005. IRS 
is in the process of finalizing these plans and will announce the 
details as they are able.
  --Personnel Field Services.--The Personnel Field Services provides 
        internal and external staffing support for the IRS business 
        units, and administers over 30 benefit and work life programs. 
        This initiative will take advantage of new technologies, such 
        as a new automated Personnel system, HR Connect, mandated for 
        use throughout Treasury and CareerConnector, as well as 
        improved business processes and consolidation to create 
        efficiency gains. Through this initiative, we will consolidate 
        the Employment operations organizationally and geographically, 
        producing economies of scale and improved operations, and 
        yielding substantial support resource savings. Employment 
        services will be consolidated in locations to support on-site 
        campus operations.
  --Transactional Processing Centers.--Transactional Processing Centers 
        (TPCs) process payroll and timekeeping for the IRS. Currently, 
        these operations are located at nine sites, each of which have 
        a timekeeping, payroll, and employee inquiry function. As we 
        implement HR Connect, we anticipate a 50 percent decrease in 
        workload at the TPCs. The TPC consolidation is also part of a 
        larger process of integrating the staff of the Employee 
        Resource Center (which handles all administrative inquiries 
        from Service employees) and the TPCs. Since about one-third of 
        the administrative inquiries concern payroll, integration of 
        these functions will permit us to answer more inquiries on 
        first contact.
    Question. What is the rationale for these reductions?
    Answer. As noted above, in January, the Internal Revenue Service 
(IRS) announced changes designed to create operational efficiencies 
that will ultimately allow the IRS to re-direct the savings towards 
approximately 2,200 new enforcement positions. These changes include: 
Income Tax Returns Processing, Consolidation of Back Office Operations, 
and Reduction of Agency Overhead. Below are the specific details of 
each initiative, in turn.
    Income Tax Returns Processing.--The IRS is gaining efficiency from 
the increase in e-filed returns and the drop in the more labor-
intensive paper filings. Since 1990, the number of returns filed 
electronically has grown from 4 million to 60 million in 2004, reducing 
the need for employees to enter the data manually. It is expected that 
in 2005 over half of the returns received by IRS will be electronically 
filed. Some time ago, after realizing ten centers would not be needed 
to process tax returns, IRS developed a plan that would, over time, 
reduce the number of centers processing paper returns. The IRS 
Brookhaven center stopped processing paper returns in September 2003. 
In January, the IRS announced the second step in this process. The IRS 
Memphis center will stop processing paper returns in October 2005. At 
the Memphis location, about 2,200 employees currently process tax 
returns. Almost 2,000 of these employees are either seasonal employees 
or employees hired under a limited-term appointment. The IRS 
Philadelphia center is scheduled to stop processing paper returns in 
2007, and the Andover center will be scheduled after Philadelphia, 
depending on experiences with the other locations. IRS has taken steps 
in Philadelphia to limit the impact on career employees.
    Consolidation of Back Office Operations.--For approximately 3 
years, the IRS studied the reengineering of two administrative case 
management operations: case processing and insolvency operations. Case 
processing employees are responsible for a variety of back-office 
administrative tasks in support of examination and collection casework, 
such as processing cases, computer research and inventory controls. The 
insolvency organization protects the government's interests by ensuring 
that the government's claim in bankruptcy proceedings receives the 
highest possible priority relative to other creditors.
    The case processing initiative involves more than 1,200 employees 
in over 80 locations. The insolvency initiative involves more than 300 
employees in more than 50 locations. IRS is currently examining the 
impacts on each State, but will work to minimize the impact on 
employees by providing the maximum opportunities possible in affected 
areas.
    The current structure of these two operations is a vestige of the 
old IRS structure prior to the reorganization mandated by the IRS 
Reform and Restructuring Act of 1998. Under this structure, many of the 
posts of duty have very few employees; indeed, some locations have only 
one employee performing case processing or insolvency work. As a 
result, we have minimal ability to respond to peak demand or manage 
workload; and employees have little opportunity to develop specialized 
skills or advance their careers. In addition, this widely dispersed 
geographic structure results in a variety of non-standard processes and 
makes quality review difficult.
    The new operational structure builds on existing processes 
currently being performed at IRS campuses; provides economies of scale 
and standardization; allows the creation of a quality review unit; 
offers staffing flexibility; and creates space savings due to shift 
work. Specifically, Case Processing operations will be centralized at 
four campuses (Cincinnati, Memphis, Ogden, and Philadelphia), and a new 
function will be created to support the redesigned organization through 
help-desk support, technical assistance and quality review. Insolvency 
operations will be realigned across clerical, paraprofessional and 
professional staff. The clerical and paraprofessional staff will be 
consolidated in Philadelphia. (Approximately, 900 Insolvency 
Specialists and Advisors will remain in field offices.)
    Even after taking into account costs such as severance, hiring, 
training, salary cost differentials, and infrastructure, we expect 
these initiatives to yield savings in excess of $300 million over the 
next 10 years. These savings will allow us to redirect the equivalent 
of 350 to 425 full-time employees to front line tax law enforcement 
over the next 3 to 5 years.
    Reduction of Agency Overhead.--The IRS has studied human resources 
and other support functions to identify staff efficiencies and 
determine the proper size of these activities. Streamlining and 
centralization of these functions will generate annual savings of 
approximately 750 staff years, primarily two initiatives in the human 
resource area: Personnel Field Services and Transaction Processing 
Centers. The staff reductions are expected to occur in late 2005. IRS 
is in the process of finalizing these plans and will announce the 
details as they are able.
  --Personnel Field Services.--The Personnel Field Services provides 
        internal and external staffing support for the IRS business 
        units, and administers over 30 benefit and work life programs. 
        This initiative will take advantage of new technologies, such 
        as a new automated Personnel system, HR Connect, mandated for 
        use throughout Treasury and CareerConnector, as well as 
        improved business processes and consolidation to create 
        efficiency gains. Through this initiative, we will consolidate 
        the Employment operations organizationally and geographically, 
        producing economies of scale and improved operations, and 
        yielding substantial support resource savings. Employment 
        services will be consolidated in locations to support on-site 
        campus operations.
  --Transactional Processing Centers.--Transactional Processing Centers 
        (TPCs) process payroll and timekeeping for the IRS. Currently, 
        these operations are located at nine sites, each of which have 
        a timekeeping, payroll, and employee inquiry function. As we 
        implement HR Connect, we anticipate a 50 percent decrease in 
        workload at the TPCs. The TPC consolidation is also part of a 
        larger process of integrating the staff of the Employee 
        Resource Center (which handles all administrative inquiries 
        from Service employees) and the TPCs. Since about one-third of 
        the administrative inquiries concern payroll, integration of 
        these functions will permit us to answer more inquiries on 
        first contact.
    Question. What kind of hires will occur as a result of the 
reorganization?
    Answer. The savings from the reorganization initiatives will 
ultimately be re-directed towards approximately 2,200 new enforcement 
positions. The case processing and insolvency initiative will result in 
the creation of positions in Cincinnati, Memphis, Ogden and 
Philadelphia. Case processing operations will be centralized at four 
campuses and a new function will be created to support the redesigned 
organization through help-desk support, technical assistance and 
quality review. Insolvency operations will be realigned across 
clerical, paraprofessional and professional staff. The clerical and 
paraprofessional staff will be consolidated in Philadelphia. 
(Approximately 900 Insolvency Specialists and Advisors will remain in 
field offices.)
    The reduction in agency overhead will fund expected efficiencies of 
$18 million directed by the administration in the IRS's fiscal year 
2005 budget.
    IRS returns processing savings anticipated in fiscal year 2005 are 
approximately $6 million and 147 FTE. These savings, along with $105 
million additional savings will be reapplied as follows:

------------------------------------------------------------------------
                                            Millions of
              Reinvestment                    Dollars           FTE
------------------------------------------------------------------------
Curb Egregious Noncompliance............            31.4             293
Select High Risk Cases for Examination..             6.0  ..............
Embedded Quality........................             1.6              26
Consolidation--Case Processing..........            13.7              80
Consolidation--Insolvency...............             2.1              15
Combat Corporate Abusive Tax Schemes....             5.0              34
Leverage/Enhance Special Agent                       2.5              28
 Productivity...........................
Standardize CLMC Training Rooms.........             0.5  ..............
IRS Reorganization Transition...........             5.0  ..............
Service-wide Competitive Sourcing.......             9.1  ..............
MITS Reorganization Transition..........            34.0             236
                                         -------------------------------
      Total.............................           110.9             712
------------------------------------------------------------------------

    Downstream rent savings will be used to reduce rent deficits, 
allowing IRS to protect enforcement initiatives.

                        IRS ENFORCEMENT INCREASE

    Question. Mr. Snow, at our recent hearing with IRS Commissioner 
Everson, we heard about the unbudgeted-for costs at IRS and how funding 
that was to be used for enforcement, instead went to help pay for these 
unbudgeted costs such as pay, postage and rent.
    Can you give us the same commitment that Commissioner Everson did, 
that every dollar that this subcommittee provides for enforcement for 
this year and next year actually be spent on enforcement activities?
    Answer. Yes, if the Congress provides the requested enforcement 
funds, the committee can count on those funds going toward enforcement.
    The only caveat is, as noted by Commissioner Everson when he 
testified before the committee, is a government-wide rescission or 
similar device is enacted, we will take them across the board and that 
may affect the total enforcement resource level as it will affect all 
of the other IRS accounts.
    Question. Also, Mr. Secretary, we have been told by IRS that for 
the past 3 years, enforcement has been declining at IRS. Now, IRS is 
changing its focus and making enforcement a top priority.
    Why has it taken 3 years for the IRS to stem the reduction in 
enforcement activities?
    Answer. The decline in enforcement activities was driven by 
concurrent declines in frontline enforcement personnel and 
implementation of significant process changes required to respond to 
the mandates of the Restructuring and Reform Act of 1998. From fiscal 
year 1996 to fiscal year 2003, the combined FTE for revenue agents, 
revenue officers and criminal investigators declined by 27 percent. 
During this period, IRS placed an increased emphasis on improving 
taxpayer service, often to the detriment of enforcement. Despite this, 
enforcement outputs increased in 2003 across all major programs. IRS 
expects these increases to continue in 2004 with additional hires and 
continued roll-out of reengineered processes. The fiscal year 2005 
budget seeks to further restore IRS to a balanced program emphasizing 
both service and enforcement.

                OFFICE OF FOREIGN ASSETS CONTROL (OFAC)

    Question. Recently, OFAC provided supplemental budgetary 
information to the Appropriations Committee outlining six areas of 
focus relating to Executive Orders, followed by two significant efforts 
on joint task force actions.
    Please provide for the record how many FTEs or employee hours--
whichever is more applicable--are allocated for the above-mentioned 
areas.
    Answer.

------------------------------------------------------------------------
                   Executive Order \1\                          FTE
------------------------------------------------------------------------
President's Financial War on Terrorism (E.O. 13224).....          30.443
Charities and Regulatory Strategy/Financial War on                 2.930
 Terrorism (E.O. 13224).................................
Blocking Saddam's Misappropriated Assets (E.O. 13315)...           5.820
Western Balkans Executive Order (E.O. 13219)............           1.070
Kingpin Act Program.....................................           9.095
SDNT--Colombian Cartels Program.........................       \2\ 7.045
                                                         ---------------
      Total.............................................          56.403
------------------------------------------------------------------------
\1\ These numbers are estimates based on current workload and allocation
  of resources to meet these needs. As workload demands change, the
  numbers will fluctuate as well. Numbers in these tables include
  allocation of resources for program implementation and support.
\2\ Includes Operation Dynasty and Operation Panama Express.

    Question. What are the remaining FTEs or employee hours allocated 
to?
    Answer.

------------------------------------------------------------------------
                      Programs \1\                              FTE
------------------------------------------------------------------------
Afghanistan/Taliban.....................................           0.69
Cuba....................................................          21.43
Iran....................................................          13.62
Iraq....................................................           5.43
Libya...................................................           5.06
North Korea.............................................           0.34
Sudan...................................................           4.1
Syria...................................................           0.75
Burma...................................................           0.021
Liberia.................................................           2.06
Zimbabwe................................................           0.58
Haiti...................................................           0.045
Other Programs..........................................           6.971
Program Support.........................................           9.61
                                                         ---------------
      Total.............................................          70.707 
------------------------------------------------------------------------
\1\ These numbers are estimates based on current workload and allocation
  of resources to meet these needs. As workload demands change, the
  numbers will fluctuate as well. Numbers in these tables include
  allocation of resources for program implementation and support.

    Question. Please list for the record, how many FTEs and employee 
hours are dedicated to administering and enforcing the restrictions on 
travel to Cuba.
    Answer. Cuba, because of its proximity and distinctive relationship 
with the United States, has a unique and critical sanction program 
which receives strict attention. OFAC has the equivalent of 21.43 FTEs 
who administer, oversee and enforce the Cuba program, including the 
travel embargo and remittance restrictions. These FTEs focus on a full 
range of OFAC services required for the administration of the program, 
including licensing, enforcement, supervision and other important 
aspects of the embargo. Of the 21.43 FTEs, approximately half are 
devoted to processing travel-related license requests, which include 
family, educational, humanitarian, religious, professional, 
journalistic, governmental, and other types of travel.
    Question. How has this differed from FTEs and hours spent during 
each of the past 5 years?
    Answer. Departmental Offices' financial management reporting system 
does not have the capability of allocating the number of employees 
dedicated to administering and enforcing the restrictions on travel to 
Cuba over the past 5 years. The financial reporting system reflects the 
total number of employees, authorized, on-board, and project FTE usage.
    Question. How does the fiscal year 2005 budget request allocate 
resources for this purpose?
    Answer. The fiscal year 2005 budget request allocates resources for 
this purpose based on the current FTE level (21.43 FTEs). It is 
anticipated that this FTE level will remain approximately the same.

   PROPOSED MERGER OF THE U.S. MINT AND THE BUREAU OF ENGRAVING AND 
                                PRINTING

    Question. Mr. Secretary, in March, the Treasury Department hired a 
consulting company to study ways to merge the U.S. Mint and the Bureau 
of Engraving and Printing (BEP). This is not a new idea and is one that 
has been studied by GAO in 1997, by the National Performance Review in 
1995, and by the Treasury Inspector General in 1987. In all cases, the 
idea of a merger was rejected as impractical and potentially costly. 
Despite these facts, the decision was made to pay for a new study at a 
cost that will exceed $400,000. I have been told that this study will 
not make a recommendation, that it is only a 60-day study that will 
simply provide options.
    Is this a wise use of taxpayer dollars when the idea has already 
been rejected on three separate occasions?
    Answer. The Treasury Department continues to look for taxpayer 
savings and efficiencies in all its bureaus. Due to changing market 
conditions, review of the Treasury Department's structure is necessary 
to best serve the public. By studying the structure of the U.S. Mint 
and Bureau of Engraving and Printing, the Treasury Department ensures 
effective use of taxpayer resources.
    Question. Is this expenditure reflected as a line-item in the 
Fiscal Year 2005 President's Budget? If not, why not?
    Answer. The expenditure is not a line item in the President's 
Fiscal Year 2005 Budget. The U.S. Mint and the Bureau of Engraving and 
Printing allocate resources for efficiency assessments they believe 
necessary. The specifics of these studies are not always known when the 
budget is formulated.
    Question. Who at the Treasury Department made the decision to hire 
the consultant?
    Answer. The Secretary directed senior officials at the Bureau of 
Engraving and Printing and the U.S. Mint to work with his staff. These 
efforts at the Department are run out of the Office of the Assistant 
Secretary for Management.
    Question. Why wasn't this an open competition? Only three firms 
were considered off the GSA schedule. Who were they and what factors 
led to the winner's selection over the other two?
    Answer. This was an open competition. The Department complied with 
the requirements for full and open competition by obtaining three 
experienced companies from the GSA Schedule. IBM, Logistic Management 
Institute (LMI), and Booz Allen Hamilton are prominent and respected 
firms in this field.
    LMI was selected because the contracting officer determined the 
firm submitted the best proposal based on their:
  --1. Management Approach.--This includes ``Understanding of the 
        Requirement'' and ``Demonstrated Ability to Meet Timeframes 
        with Quality Products''
  --2. Experience of Proposed Personnel in Cost Modeling, Government 
        Management Improvement Efforts, Redevelopment of Excess Plant 
        Capacity/Office Space, and OMB/Congressional Budget Issues
  --3. Past Performance.--Includes the proposed individuals and the 
        firm.
    Question. Why is this study being rushed in 60 days in order to 
provide information for the fiscal year 2006 budget cycle? This is not 
a new issue. Why is it imperative to cut corners and go to unnecessary 
expense for this proposal?
    Answer. The study was designed to be completed in approximately 60 
days in order for Treasury to consider an inclusive approach that 
assesses the possible impact of changing market conditions. This 
inclusive approach calls for augmenting the business case for BEP/Mint 
efficiencies within the context of current ``good government'' 
initiatives.
    While the issue is not new, the environment (impact of E-Commerce 
on demand and 9/11 impact on security) has changed since the prior 
studies.
    We believe this timeframe was reasonable for the assessment and is 
a necessary expense and integral to implementing our approach for the 
study.
    Question. Will you provide your assurance, Mr. Secretary, that from 
this point further, the Treasury Department will not expend any 
additional funding to implement a Mint-BEP merger until such a time 
that this committee and the Congress provide its approval?
    Answer. We will not pursue any of these options without a full 
consultation with Congress and, in fact, Treasury will not call for any 
merger of any system or function during the 108th Congress.

                                 ______
                                 
             Questions Submitted by Senator Robert C. Byrd

    Question. Congress included in the Fiscal Year 2004 Consolidated 
Appropriations bill, enacted as Public Law 108-199, on January 23, 
2004, language that directs the administration to negotiate a solution 
to the World Trade Organization's (WTO) ruling against the Continued 
Dumping and Subsidy Offset Act. When will the United States present its 
negotiating position on this matter to the WTO?
    Answer. In accordance with the Appropriations bill language, the 
United States filed and presented a formal paper in the World Trade 
Organization (WTO) Negotiating Group on Rules for its meeting the week 
of April 26, 2004, raising the issue of the right of WTO Members to 
distribute monies collected from antidumping and countervailing duties. 
That paper is publicly available on the WTO website (www.wto.org), 
under the document designation TN/RL/W/153.
    It should be noted that the November 2001 Doha Ministerial 
Declaration mandate for the WTO Rules Group calls for an initial phase 
of issue identification before any negotiations over specific changes. 
Given this Doha mandate, it has been U.S. practice with respect to all 
the issues we have raised thus far in the Rules negotiations to begin 
with a submission identifying the issue generally, and we followed this 
practice in our paper with respect to this issue as well.
    Question. In report language accompanying the Fiscal Year 2004 
Consolidated Appropriations bill, enacted as Public Law 108-199, 
Congress directed the administration to report to the Senate 
Appropriations Committee every 60 days on the progress of these 
negotiations.
    Can you explain why the first report was not provided to the 
Appropriations Committee 60 days from enactment of the Consolidated 
Appropriations bill, meaning on or about March 23, 2004? Can you 
confirm that the next report will be provided 60 days from March 23, 
2004?
    Answer. The United States Trade Representative (USTR) is working to 
schedule a briefing with Senate Appropriations Committee staff to 
report on this issue as soon as it can be arranged.
    Question. The Bush Administration currently does not pursue trade 
remedies under the U.S. countervailing duty law against non-market 
economies like China, even though: (1) the United States negotiated 
subsidy disciplines with China as part of its accession to the WTO; (2) 
the United States has worked to see that China participates in the 
ongoing OECD steel subsidy negotiations; and (3) USTR reports that 
various agricultural industries are experiencing ongoing export 
subsidies by China. Can you tell me whether the administration is 
reexamining this issue? If not, why not?
    Answer. The Department of Commerce has informed us that it does not 
currently apply the countervailing duty (CVD) law to non-market 
economies (NMEs), a practice upheld in 1984 by the Court of Appeals for 
the Federal Circuit in Georgetown Steel Corp. v. United States. In that 
case, the Court affirmed Commerce's view of NMEs as devoid of the kinds 
of market benchmarks necessary to identify a subsidy. The Court also 
relied on Congress's 1974 effort to address unfairly traded NME exports 
through the AD law by enacting the factors-of-production methodology. 
Commerce has re-affirmed Georgetown many times, most recently in the 
1997 preamble to the post-URAA CVD regulations. Congress enacted 
substantial amendments to the CVD law in 1988 and 1994 without 
disturbing Commerce's practice in this area.
    The Commerce Department recognizes that the reasoning underlying 
the Georgetown decision may not apply to China today to the extent that 
it did 20 years ago. However, applying the CVD law to NMEs would raise 
complex issues of policy and methodology, including implications for 
antidumping policy and practice. Any such shift away from 20 years of 
trade practice should therefore only be implemented after careful 
consideration and review.
    Question. The U.S. Bureau of Customs and Border Protection (CBP) 
issued a report in March, which revealed that at least $130 million in 
import duties were uncollected in fiscal year 2004, primarily in cases 
involving imports from the People's Republic of China. Several weeks 
ago CBP Commissioner Bonner suggested that an interagency task force 
had been launched specifically to ensure that antidumping duties, 
including those imposed on Chinese imports, are properly assessed and 
collected by the U.S. government.
    Please advise as to whether U.S. Treasury Department officials are 
involved in this task force and, if they are, provide specific 
information regarding what they plan do to solve this problem.
    Answer. Assessment and collection of duties, including antidumping 
duties, have been delegated to the Department of Homeland Security 
pursuant to the Homeland Security Act. Treasury Department and CBP 
officials have, nevertheless, discussed the issue of how to ensure that 
antidumping duties are properly assessed and collected. Treasury 
officials, however, are not involved in the particular work group to 
which you are referring, which involves CBP and Department of Commerce 
staff. CBP has informed us that it currently has in place trade 
strategies that focus specifically on antidumping/countervailing duty 
and revenue. Each of these plans has a multi-office working group 
responsible for the development, oversight and evaluation of the plans. 
These plans have already developed and implemented a number of actions 
that address dumping as a whole and by inclusion, China. These actions 
include identification and clean up of outstanding dumping entries, 
increased operational oversight of the dumping process, development of 
improved mechanisms to ensure and monitor adequate bonding of dumping 
entries, and improved communication with the Department of Commerce.

                                 ______
                                 
             Questions Submitted by Senator Byron L. Dorgan

    Question. I'm very concerned about the finding in a recently-
released U.S. General Accounting Office (GAO) report. The GAO report 
found that a majority of foreign-based and U.S.-based companies pay 
absolutely no Federal income taxes each year despite doing trillions of 
dollars of business here. There is compelling evidence that many 
multinational companies are using transfer pricing to shift their U.S.-
earned profits abroad to tax-haven countries. And the ``arm's length'' 
pricing enforcement methodology that has been advocated by the Treasury 
Department--and applied by the IRS--is simply not putting a stop to 
this blatant tax gimmickry. Repeated attempts by the United States to 
make the current ``arm's length'' system work over the past decade have 
failed.
    At what point will this administration decide that it's time to 
finally abandon its ``arm's length'' pricing approach and develop a 
more effective way to administer and enforce our tax laws with respect 
to firms that operate across national borders?
    Answer. The arm's length standard provides a clear, consistent 
principle for dividing the income of a multinational enterprise among 
the countries where it operates. The policy is neutral in its treatment 
of companies within a multinational group versus independent companies 
and thus does not favor one form of business organization over the 
other. These positive features have contributed to the broad acceptance 
of the arm's length standard as the international standard for 
determining the income of multinational enterprises.
    Another compelling reason to continue with the arm's length 
standard is because it represents the best way to deal with related 
party transactions under today's economic circumstances. The conditions 
that make formulary apportionment possible at the State level do not 
exist at the international level. Internationally there are neither 
common accounting standards nor common approaches for measuring income. 
Moreover, there is no umbrella framework or organization comparable to 
the Federal income tax or the Internal Revenue Service. Unless 
countries were to adopt a common accounting system and some sort of 
international body were to be established with authority to examine the 
worldwide financial statements of all multinational companies, it would 
not be feasible to abandon the internationally-accepted arm's length 
approach in favor of global formulary apportionment.
    The Treasury Department continues working to improve the 
administration of the arm's length standard and to build upon the 
advances made in the last 15 years. The Treasury Department is devoting 
significant resources to ensuring that the transfer pricing regulations 
are up-to-date and reach appropriate results consistent with the arm's 
length standard. This effort includes appropriate revisions of the 
applicable regulations as well as an administrative compliance 
initiative that is being directed by the Internal Revenue Service.
    Question. The administrative problems associated with the current 
``arm's length'' pricing methodology are well-documented. A number of 
prominent tax experts share my view that U.S. tax avoidance by 
sophisticated multinational firms has been perpetuated, in large part, 
by the Treasury Department's blind allegiance to this antiquated tax 
enforcement method.
    I think we should replace the ``arm's length'' pricing method with 
an objective, formula-based approach for apportioning the world-wide 
income of related companies. This approach would be similar to the 
system that States have used successfully for decades to allocate the 
overall income of corporations among the States in which they operate. 
A formulary method avoids many of the problems caused by the overly 
subjective and factually-sensitive nature of intercompany sale pricing 
under the ``arm's length'' standard.
    What do you believe are the major impediments, if any, to the 
United States moving to a formula method for apportioning the world-
wide income of related companies? If there are impediments, what steps 
do you think would be needed to overcome them?
    Answer. The United States could not implement a global formulary 
apportionment regime unilaterally. The implementation of a global 
formulary apportionment regime would require substantial international 
coordination and consensus on predetermined formulae. Thus, a 
significant number of steps would need to be taken if a global 
formulary apportionment regime were to be implemented.
    First, significant changes to our longstanding statutory and 
regulatory rules would be required.
    Second, reconsideration of the entire U.S. network of bilateral 
income tax treaties would be necessary. If global formulary 
apportionment were to be implemented, it would be necessary to ensure 
that U.S. income tax treaties require or permit the use of such 
apportionment to determine the taxable income of multinational 
enterprises. The U.S. network of bilateral income tax treaties is the 
means by which we reach agreement with our treaty partners on the rules 
and mechanisms for avoiding double taxation and preventing tax evasion. 
Each bilateral income tax treaty represents a negotiated balance of the 
two countries' interests and is necessarily tailored to the two 
countries' particular circumstances. Current U.S. income tax treaties 
contain articles pursuant to which each country applies the arm's 
length standard in transfer pricing matters.
    Third, and perhaps most significantly, a consensus regarding the 
implementation and administration of a global formulary apportionment 
regime would have to be reached among all of our major trading partners 
at a minimum. As a longer term matter, a consensus would need to be 
reached among all countries. Absent such an international consensus, 
there would be double or multiple taxation of the same income (and also 
the potential for income to escape taxation altogether). The likelihood 
that American companies would be subjected to double taxation would be 
very high if the United States were to attempt to implement a formulary 
apportionment system without such an international consensus.
    Formulary apportionment would require international consensus on 
the following basic items as a starting point: (1) how to measure the 
global tax base, including a common accounting system; (2) how to 
define the scope of the worldwide unitary business subject to the 
formulary apportionment; (3) the factors to be used to apportion the 
tax base; (4) how to measure and weight the apportionment factors; (5) 
how to address the potential for distorting the results under the 
formula by artificially shifting the factors; and (6) how to address 
the particularly complex questions relating to intangible property. In 
addition, proper implementation of a global formulary apportionment 
system would require establishment of some sort of international body 
that would have to be vested with the authority to examine the 
worldwide financial statements of all multinational companies and to 
which the United States (and other countries) would have to cede the 
ability to define taxable income.
    This summary description of steps that would be required for 
implementation of a global formulary apportionment regime provides some 
insight into why the arm's length standard has become the international 
standard for dividing the income of a multinational enterprise among 
the countries where it operates. The arm's length standard provides a 
clear and consistent principle which is grounded in economics and to 
which all countries can agree. The fact that the arm's length standard 
is grounded in the underlying economics of the transactions has made it 
possible to develop an international consensus in favor of the arm's 
length standard among countries with very different economic interests.

                          SUBCOMMITTEE RECESS

    Senator Shelby. Mr. Secretary, appreciate your leadership 
and look forward to continuing to work with you.
    Thanks for your appearance today.
    Secretary Snow. Thank you, Mr. Chairman.
    Senator Shelby. This concludes the subcommittee hearing.
    [Whereupon, at 11:40 a.m., Tuesday, April 10, the 
subcommit-
tee was recessed, to reconvene subject to the call of the 
Chair.]
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