[Senate Hearing 108-403]
[From the U.S. Government Printing Office]

                                                        S. Hrg. 108-403




                               BEFORE THE


                                 OF THE

                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION


                            OCTOBER 30, 2003


       Printed for the use of the Committee on Foreign Relations

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                  RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
MICHAEL B. ENZI, Wyoming             RUSSELL D. FEINGOLD, Wisconsin
GEORGE V. VOINOVICH, Ohio            BARBARA BOXER, California
LAMAR ALEXANDER, Tennessee           BILL NELSON, Florida
NORM COLEMAN, Minnesota              JOHN D. ROCKEFELLER IV, West 
JOHN E. SUNUNU, New Hampshire            Virginia
                                     JON S. CORZINE, New Jersey

                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director



                    GEORGE ALLEN, Virginia, Chairman

GEORGE V. VOINOVICH, Ohio            JOSEPH R. BIDEN, Jr., Delaware
CHUCK HAGEL, Nebraska                PAUL S. SARBANES, Maryland
JOHN E. SUNUNU, New Hampshire        CHRISTOPHER J. DODD, Connecticut
LINCOLN CHAFEE, Rhode Island         JOHN F. KERRY, Massachusetts



                            C O N T E N T S


Ashley, Mr. Grant D., Assistant Director, Criminal Investigative 
  Division, Federal Bureau of Investigation, Washington, DC......    27
    Prepared statement...........................................    28
Lee, Dr. Rensselaer W., III, president, Global Advisory Services, 
  McLean, VA.....................................................    50
Noble Ventures, ``The Experience of One American Company in 
  Romania,'' statement submitted for the record by Charles N. 
  Franges, president.............................................    59
Pifer, Hon. Steven, Deputy Assistant Secretary of State, Bureau 
  of European and Eurasian Affairs, U.S. Department of State, 
  Washington, DC.................................................     6
    Prepared statement...........................................     8
    Responses to additional questions for the record from Senator 
      Lugar......................................................    63
Schrage, Mr. Steve, Deputy Assistant Secretary of State, Bureau 
  of International Narcotics and Law Enforcement Affairs, U.S. 
  Department of State, Washington, DC............................    14
    Prepared statement...........................................    17
Shelley, Dr. Louise I., professor and director, Transnational 
  Crime and Corruption Center, American University, Washington, 
  DC.............................................................    42
    Prepared statement...........................................    45
Swartz, Mr. Bruce C., Deputy Assistant Attorney General, Criminal 
  Division, U.S. Department of Justice, Washington, DC...........    22
    Prepared statement...........................................    24
Voinovich, Hon. George V., U.S. Senator from Ohio, opening 
  statement......................................................     4





                       THURSDAY, OCTOBER 30, 2003

                               U.S. Senate,
                  Subcommittee on European Affairs,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:41 p.m., in 
room D-419, Dirksen Senate Office Building, Hon. George Allen 
(chairman of the subcommittee), presiding.
    Present: Senators Allen and Voinovich.
    Senator Allen. Good afternoon. I thank all who are 
interested in this hearing of the European Affairs 
Subcommittee. We will be examining the issue of combating 
transnational crime and corruption in Europe I want to thank 
all the witnesses in the first panel and the second panel for 
being with us today. I'm glad to be joined by my colleague who 
is a leader and knowledgeable and experienced insofar as this 
issue is concerned. He was a key leader in bringing this issue 
to the attention of the subcommittee and I am happy to open 
this hearing.
    Transnational crime is a term that unfortunately is quite 
familiar to Europeans and Americans today. It's crystal clear 
to us all here how the criminal elements in Europe and also in 
other parts of the world affect our daily lives. We need to 
work together to fight crime such as narcotics trafficking, 
terrorism and corruption.
    Today more than ever, crime and corruption cannot be 
classified as just something here in the United States or in a 
European nation. It is a phenomenon that crosses geographical 
borders just as easily as e-mail messages over the Internet. 
And I would like to say here at the outset that the United 
States considers Europe as our closest allies in the struggle 
against organized crime and corruption on all levels and in all 
areas of law. Law enforcement officials in the United States 
stress the close cooperation that exists between law 
enforcement agencies in Europe.
    The purpose of this hearing is to examine these bilateral 
efforts and to hear suggestions from experts in the field on 
how we can make them even more effective in combating this 
criminal activity. But I would also like to say that we in the 
United States recognize the homegrown problems we face with 
organized crime and corruption. We have never been shy here in 
the United States about admitting our own problems. But the 
difference between American and European societies compared 
with other societies that are not as free is that European and 
American societies are built upon the foundation of law and 
order and the rule of law. Our citizens insist that law 
enforcement officials expose crime and corruption to the light 
of day and punish the criminals.
    Hopefully we can use our institutions and expertise to help 
the newly independent countries avoid the mistakes and the harm 
caused by criminal activity and corruption in those countries. 
The prevalence of any sort of criminal activity or corruption 
in the country clearly would inhibit its ability to get 
investment in that country, thereby inhibiting its ability to 
attract jobs, as well as obviously affect the quality of life 
of its own citizens. And so while we're looking at emerging 
nations whether in Central Europe, Southeastern Europe, Eastern 
Europe, or wherever it may be in the world, if you don't have a 
safe place in which to do business where the rule of law and a 
concept of property rights and basic security is assured, 
you're simply not going to get investment.
    It's no different here in the United States. If you have a 
high crime area, no one is going to want to put a business in 
that community. No one will want to shop or work in a place 
where they are worried about criminal activity.
    And so, this crime is beyond random robberies. We're going 
to be examining more than random robberies and those sorts of 
things that happen from time to time.
    The criminal elements that we're talking about, whether in 
the United States or Europe, are dynamic, they are large, they 
are ever changing their patterns and their methods of 
operation. And for this reason, we must be fluid in possibly 
looking at ways to improve our capabilities. To meet this 
challenge we have created a multitude of bilateral and 
multilateral initiatives, each focusing on its own particular 
specialized area of crime.
    We are honored today to have before the European Affairs 
Subcommittee representatives from the top United States 
agencies directing these initiatives, as well as 
representatives from academia and the private sector. We 
welcome two representatives from the Department of State, 
Ambassador Steven Pifer, Deputy Assistant Secretary of the 
European and Eurasian Affairs Bureau. We also have Deputy 
Assistant Secretary Steve Schrage, from the Bureau of 
International Narcotics and Law Enforcement.
    We have two representatives from the Department of Justice, 
Grant Ashley from the Criminal Investigative Division of the 
FBI, and Bruce Swartz, Deputy Assistant Attorney General of the 
Criminal Division.
    From American University, we welcome Dr. Louise Shelley, 
who is the director of the Transnational Crime and Corruption 
Center. And an especially warm welcome to the president of 
Global Advisory Services from McLean, Virginia, Dr. Rensselaer 
Lee III.
    I thank all our witnesses for appearing today. I know we 
look forward to reading and hearing and learning from your 
expertise and your insight on these issues and these problems 
facing us in the area of transnational crime and corruption. 
Your ideas certainly will be helpful to us in how we might 
address and combat these challenges.
    With that I want to thank my colleague again, the respected 
and knowledgeable Senator Voinovich for his leadership, 
foresight and vision in recognizing the importance of this 
issue and preparing for this hearing. I will ask Senator 
Voinovich to take over as chair of this subcommittee hearing 
because unfortunately something came up, and I can't be in two 
places at the same time.
    So I thank our witnesses, and I turn the gavel over to you, 
Senator Voinovich, Mr. Chairman, for this subcommittee hearing.
    Senator Voinovich [presiding]. Thank you very much, 
Senator. I just want to thank you and thank Senator Lugar and 
Senator Biden for allowing us to convene this hearing on what 
are certainly many challenges in the world today. I believe 
it's crucial that we raise awareness of these serious problems 
and discuss U.S. efforts to combat them. And I am hoping, Mr. 
Chairman, that perhaps as a result of this hearing and the 
testimony that we receive today that we might be able to 
elevate the problem to a higher priority in our government than 
it is today, because I really feel that crime and corruption 
pose even greater dangers today in the countries that are out 
there than terrorism, and much of this organized crime provides 
the money for terrorist activity, and unless we do something 
about it, we are, I think, going to be in deep trouble and I 
would hate to see some of these efforts being undermined by 
organized crime. I think that the assassination of Prime 
Minister Djindjic is an indication of what's going on, so I 
appreciate the fact that you called this hearing today and I 
will try to do a good job of running it.
    Senator Allen. I know you will. Please excuse me.
    Senator Voinovich. I would like to continue. As the United 
States continues to engage in the global campaign against 
terrorism, the danger of organized crime and corruption in many 
parts of the world have become even more pronounced. While many 
of these problems are not new, such as the illicit trade of 
diamonds, drug smuggling, trafficking of weapons and human 
beings, the urgent need to confront them is heightened in the 
aftermath of the terrorist attacks against our country on 
September 11.
    The problems of organized crime and corruption serve not 
only to undermine efforts to promote democratic reforms and the 
rule of law in many developing countries, but they provide a 
stream of revenue, as I mentioned to Senator Allen, for illicit 
activity with the potential to do grave harm to the people of 
the United States and the world at large. These activities have 
the potential to bankroll terrorist organizations such as al-
Qaeda, and it's crucial that we do all that we can to put an 
end to crime that provides financial resources to terrorists.
    As the United States encourages democratic reforms in parts 
of Europe, including the Balkans, and as Europe's new 
democracies look to join transatlantic institutions, including 
NATO, it's crucial that the U.S. Government have a coordinated 
approach for combating organized crime and corruption in 
Europe, and to interface with our allies so that we have a 
multinational network that can combat a formidable organized 
crime syndicate in Europe and countries that were part of the 
former Soviet Union.
    As our witnesses will testify, the problems of organized 
crime and corruption are pervasive and have the potential to 
seriously impact U.S. national interests. They significantly 
impeded our efforts to promote stability, security and the rule 
of law in Europe and elsewhere, and they are very dangerous if 
left unchecked.
    Just as we are a leader in the global war against 
terrorism, I believe we must also be a leader in the effort to 
combat transnational crime. We should identify those members of 
the international community who are engaged in the fight 
against organized crime and corruption, and coordinate and 
collaborate with them to maximize time, effort and resources. 
This is a shared responsibility, and we should look to work 
together to improve our progress in this area.
    We should also look to strengthen our efforts to promote 
democratic reform and the rule of law in Europe's new 
democracies. These efforts go hand in glove with the fight 
against organized crime and corruption, for without the 
presence of the rule of law and a judicial system with 
necessary infrastructure, including a criminal code, well-
trained prosecutors and judges who are paid a decent wage so 
that they are not subject to being corrupted, our efforts are 
going to be less than fruitful.
    This was evident to me when I was in Bulgaria in May of 
2002. I remember talking, I spent an hour and a half with an 
FBI agent who working with the police officers in Bulgaria had 
arrested nearly 90 people for human trafficking, and I recall 
how frustrated he was that they were never prosecuted.
    I believe this hearing is an important step toward 
highlighting the issue of transnational crime and its impact on 
our national interests. While we often spend time on specific 
issues that are tied to organized crime, such as human 
trafficking or the illicit drug trade, I believe it is 
imperative that we look at the big picture and identify the 
common themes tied to many of these problems. We should also 
discuss what the U.S. Government is doing to combat 
transnational crime and corruption, and how we might improve 
upon our efforts in this regard.
    [The opening statement of Senator Voinovich follows:]

            Opening Statement of Senator George V. Voinovich

    This afternoon, we are gathered to discuss the dangers of 
transnational crime and corruption in Europe. I would like to thank the 
Chairman, Senator Lugar, the Subcommittee Chairman, Senator Allen, and 
Senator Biden for allowing us to convene this hearing. While there are 
certainly many challenges in the world today, I believe it is crucial 
that we raise awareness of these serious problems and discuss U.S. 
efforts to combat them.
    In my opinion, transnational crime and corruption pose an even 
greater danger to many developing countries in Europe than terrorism, 
with the potential to seriously undermine efforts to promote long-term 
stability, security and prosperity for many citizens of Europe. Unless 
these problems are addressed at the highest levels, they will continue 
to threaten future progress and modernization. The tragic assassination 
of Serbian Prime Minister Zoran Djindjic last March illustrates the 
dangerous nexus between organized crime, corruption and political 
    As the United States continues to engage in the global campaign 
against terrorism, the dangers of organized crime and corruption in 
many parts of the world have become even more pronounced. While many of 
these problems are not new--such as the illicit trade of diamonds, drug 
smuggling, and the trafficking of weapons and human beings--the urgent 
need to confront them is heightened in the aftermath of the terrorist 
attacks against our country on September 11, 2001.
    The problems of organized crime and corruption serve not only to 
undermine efforts to promote democratic reforms and the rule of law in 
many developing countries, but they provide a stream of revenue for 
illicit activity with the potential to do grave harm to the people of 
the United States and the world at large. These activities have the 
potential to bankroll terrorist organizations such as al-Qaeda, and it 
is crucial that we do all that we can to put an end to crimes that 
provide financial resources for terrorists.
    As the United States encourages democratic reforms in parts of 
Europe, including the Balkans, and as Europe's new democracies look to 
join trans-Atlantic institutions, including the NATO Alliance, it is 
crucial that the U.S. Government have a coordinated approach for 
combating organized crime and corruption in Europe, and to interface 
with our allies so that we have a multinational network that can combat 
a formidable organized crime syndicate in Europe and countries that 
were part of the former Soviet Union.
    As our witnesses will testify, the problems of organized crime and 
corruption are pervasive and have the potential to seriously impact 
U.S. national interests. They significantly impede our efforts to 
promote stability, security and the rule of law in Europe and 
elsewhere, and they are very dangerous if left unchecked.
    Just as we are a leader in the global war against terrorism, I 
believe we must also be a leader in the effort to combat transnational 
crime. We should identify those members of the international community 
who are engaged in the fight against organized crime and corruption, 
and coordinate and collaborate with them to maximize time, effort and 
resources. This is a shared responsibility, and we should work together 
to improve upon our progress in this area.
    We should also work to strengthen our efforts to promote democratic 
reform and the rule of law in Europe's new democracies. These efforts 
go hand in glove with the fight against organized crime and corruption, 
for without the presence of the rule of law and a judicial system with 
necessary infrastructure--including a criminal code, well-trained 
prosecutors and judges--our efforts will be less than fruitful.
    This was evident to me when I was in Bulgaria in May 2002. I 
remember talking to an FBI agent who, working with police officers in 
Bulgaria, had arrested nearly 90 people, and how frustrated he was that 
they never were prosecuted.
    I believe this hearing is an important step toward highlighting the 
issue of transnational crime, and its impact on our national interests. 
While we often spend time on specific issues that are tied to organized 
crime, such as human trafficking or the illicit drug trade, I believe 
it is imperative that we look at the big picture and identify the 
common themes tied to many of these problems. We should also discuss 
what the United States Government is doing to combat transnational 
crime and corruption, and how we might improve upon our efforts in this 
    As we continue this discussion, I would like to welcome two 
distinguished panels of witnesses here this afternoon. We will first 
hear from witnesses from the Departments of State and Justice, and the 
Federal Bureau of Investigation, including:

   Ambassador Steven Pifer, who serves as Deputy Assistant 
        Secretary at the Bureau of European and Eurasian Affairs at the 
        State Department;

   Mr. Steve Schrage, who serves as Deputy Assistant Secretary 
        in the Bureau of International Narcotics and Law Enforcement 
        Affairs (INL) at the State Department;

   Mr. Bruce Swartz, who serves as Deputy Assistant Attorney 
        General in the Criminal Division at the Department of Justice; 

   Mr. Grant Ashley, who is Assistant Director in the Criminal 
        Investigative Division at the Federal Bureau of Investigation.

    I look forward to their testimony regarding the U.S. Government's 
efforts to combat transnational crime and corruption. As we move 
forward in the fight against organized crime and corruption abroad, I 
believe it is important that we have a coordinated approach, and that 
we develop a strategic plan, and I am glad that they have agreed to be 
here this afternoon.
    I would also like to welcome:

   Dr. Louise I. Shelley, who is the Director of the 
        Transnational Crime and Corruption Center at the American 
        University in Washington; and

   Dr. Rens Lee, who is President, Global Advisory Services in 
        McLean, Virginia.

    Both Dr. Shelley and Dr. Lee have extensive experience in the 
issues of organized crime and corruption, and I look forward to hearing 
their thoughts on the scope of the problem and efforts underway to 
combat these destabilizing trends.

    Senator Voinovich. As we continue this discussion, I 
welcome our witnesses here today and think the chairman has 
done a good job of introducing you, and I think we should get 
started. And I will start with Mr. Pifer. Ambassador Pifer, we 
are delighted to have you here.

                    OF STATE, WASHINGTON, DC

    Ambassador Pifer. Mr. Chairman, thank you very much for the 
opportunity to appear here today to talk about the problem of 
transnational crime in Europe, and I will speak to you from the 
perspective of Russia and Ukraine. Mr. Chairman, I believe that 
both you and Senator Allen captured a very good description of 
the problems that we face with crime and corruption in the 
former Soviet Union. With your permission, I will submit a 
written statement for the record and just summarize that 
statement in some brief oral remarks.
    Senator Voinovich. I would like to point out that I would 
like all of you to summarize your statements in 5 to 7 minutes 
and then we will open it up for questions, and of course your 
written testimony will be part of the record.
    Ambassador Pifer. Thank you, sir. I would divide the crime 
and corruption threat into two parts. First of all, it's in the 
United States' interest that the countries of the former Soviet 
Union develop stable economies, because that's going to 
contribute to the sort of more stable and more secure Europe 
that we seek. Organized crime and corruption frustrate the 
development of a stable and secure Europe that we hope to see 
in the future.
    The second threat is more of a direct threat, and that is 
as organized crime increasingly engages in transnational 
activities, it comes to the shores of the United States, so we 
have over the last years increasingly made work on fighting 
corruption and on combating crime a part of our engagement 
strategies with the countries of the former Soviet Union. The 
strategy that we apply has many pieces, and it's very much a 
multiagency strategy. I'm very glad today here that we have 
three of the agencies but not certainly all of the agencies of 
the U.S. Government that engage in dealing with the problem of 
transnational crime and corruption overseas.
    I would note five prongs of our strategy to deal with this 
problem. First of all, we seek to expand the rule of law and 
law enforcement programs with a particular focus on criminal 
justice reform and on enhancing capabilities of the law 
enforcement agencies overseas to cope with modern crime.
    Second, we provide judicial and law enforcement training, 
and in the process we want to introduce modern crime fighting 
techniques, but also introduce a respect for human rights and a 
sense of professional integrity.
    Third, we want to promote strong and positive working 
relationships between U.S. law enforcement agencies and their 
counterparts overseas.
    Fourth, we wish to institutionalize cooperation through law 
enforcement agreements.
    And fifth, we want to promote eventual integration of the 
countries of the Balkans and the former Soviet Union into 
multilateral and regional institutions.
    In pursuit of this strategy, we have a variety of policy 
tools. First of all, we use law enforcement working groups. 
Earlier this month Mr. Swartz and I chaired via digital video 
teleconference, a meeting of the U.S.-Ukraine Law Enforcement 
Working Group. We brought together on the American side the 
Department of State, the Department of Justice, FBI, the Drug 
Enforcement Agency, with our Ukrainian counterparts, to talk 
about the sorts of issues on which we could cooperate to combat 
    A second tool is mutual legal assistance treaties. These 
provide institutional ways for us to cooperate, dealing with 
things such as collecting evidence and such.
    A third set of tools are multilateral efforts and there are 
a variety here. I mentioned the Financial Action Task Force. 
These groups work to create better tools to deal with the money 
laundering problem.
    The United Nations Office on Drugs and Crime has been 
increasingly involved in the former Soviet Union and recently 
has been working very closely with us to cope with the problem 
of narcotics coming out of Afghanistan.
    The Organization for Security and Cooperation in Europe 
[OSCE] is very engaged in promoting the reform of legal systems 
and also training of judges and prosecutors. We have in the 
Balkans, in Bucharest, an anti-crime center which coordinates 
regional efforts against transnational crime. We think that has 
been a very successful effort, and we hope to replicate that in 
the countries of Georgia, Ukraine, Uzbekistan, Azerbaijan and 
Moldova. We are hoping to establish a virtual law enforcement 
center in Baku that will promote among those five countries 
cooperation and coordination among law enforcement entities.
    And finally we have bilateral assistance. Since 1995 with 
the Freedom Support Act, we have provided over $160 million to 
promote legal reform and also efforts against crime, and this 
includes $21 million in fiscal year 2003 alone.
    The problem is as you said, it's a pervasive problem, a 
very serious problem, but we can point to some examples of 
success. I would just cite, given the shortness of time, two 
examples here.
    On the question of trafficking in persons, when I served in 
Kiev 5 years ago in 1998, we were struggling to promote basic 
awareness of the problem. In the last 5 years, we have worked 
very closely with the Ukrainians and gave them more of an 
awareness of the problem. We've helped them shape new laws 
against trafficking. We have helped promote institutional 
lionks between police organizations and nongovernmental 
organizations, and we have begun to see results. In the last 
year Ukrainian prosecutors opened 169 cases involving 
trafficking, more than twice as many as in 2001, and those 
cases have resulted in 41 prosecutions and 28 convictions to 
    A second area of success is money laundering, and I will 
cite case with the success of Russia. We worked with Russia and 
the Financial Action Task Force to promote a financial 
committee that investigates and ensures that suspicious money 
transfers in Russia are investigated. And the Russians have 
improved their legislation and their practice to a point where 
this year they were accepted as a full member in the Financial 
Action Task Force.
    Mr. Chairman, transnational crime remains a real threat to 
the former Soviet Union and the Balkans, but it is also a 
threat to American interests there. Progress is being made, but 
we must continue to work counter-crime issues as a very 
important part of our agenda with those countries. Thank you 
again for the opportunity to be here, and I will be happy to 
take your questions.
    [The prepared statement of Ambassador Pifer follows:]

Prepared Statement of Hon. Steven Pifer, Deputy Assistant Secretary of 
  State, Bureau of European and Eurasian Affairs, U.S. Department of 
                         State, Washington, DC

    Mr. Chairman, members of the Subcommittee, thank you for the 
opportunity to address the impact of transnational crime on U.S. 
priorities in Europe. I will focus my remarks today on Russia and 
Ukraine--two countries that are key to our efforts to combat 
transnational crime.
    I would like to discuss briefly the historical context that has 
given rise to crime and corruption in the former Soviet Union following 
the collapse of the USSR and focus on some of the steps that the 
Russian and Ukrainian governments are taking to cope with these 
problems. I would also like to describe the strategy and some of the 
policy tools that the U.S. Government brings to bear to address these 

                           HISTORICAL CONTEXT

    Along with the positive and historic possibilities created by the 
collapse of the Soviet Union, the early 1990's were marked by an 
increase in criminal activities in the region, in large part because of 
a vacuum in institutions resulting from the breakup. The process of 
privatization of vast state resources often took place in the absence 
of any effective legal or regulatory structure, and many valuable state 
assets were privatized in ``insider transactions.'' As a result, 
property rights were unclear, and disputes over property rights often 
could not be resolved in courts of law. Insiders and organized crime 
took advantage of this situation to take control of major assets, often 
having to pay no more than a small fraction of their true value.
    Privatization took place roughly simultaneously with the 
development of small-scale private businesses. Again, because of the 
absence of an effective legal and regulatory system governing the 
activity of private enterprises, these businesses were ripe for 
extortion by street gangs. In order to protect themselves, small 
businesses often had to turn to other gangsters to provide a ``krysha'' 
(roof) of protection. Consequently, gangsters gained control of many 
small businesses and accumulated capital, which they frequently used to 
acquire larger businesses during the privatization process. They often 
then used these businesses to make more money and to acquire public 
status, which they then used to obtain political office.
    Organized crime figures and groups have in some cases been linked 
with key government and business figures. Unfortunately, organized 
crime increasingly exercises both political and economic power, and 
there are numerous reports of corruption among government officials and 
members of legislative bodies. Corruption weakens the ability of a 
government to conduct normal business; it undermines political 
processes, allows the trafficking of illegal drugs and terrorist 
activities, impedes trade and investment, and hampers participation in 
the global economy. It is difficult to get an accurate picture of how 
widespread this problem is. The situation is very opaque, and we often 
have little more than anecdotal glimpses. The proliferation of 
organized crime groups has had reverberations in the United States, 
where many of the same organized crime groups that plague Russia and 
Ukraine now have a foothold.
    We wish to see Russia and Ukraine develop as modern states, with 
democratic institutions and prosperous market economies, and we have 
since the end of the Soviet Union urged political and democratic 
reforms in these directions. We recognize the reform path will be, in 
both countries, a difficult and lengthy process. In order to succeed on 
this reform path, political leaders and law enforcement agencies will 
have to come to grips with and seriously tackle the problems of 
organized crime and corruption.


    To address organized crime, corruption and other threats to 
continued democratic and economic development, the Russian government 
has passed impressive legislation in the past several years.
    In June 2002, the Russian Duma (parliament) passed a new Code of 
Criminal Procedure of the Russian Federation. The new Code 
substantially changes the previous Soviet-era criminal justice system. 
It establishes a more adversarial system of justice, extending jury 
trials for significant crimes nationwide and giving defense counsel a 
greater role in the proceedings.
    The Code also strengthens the powers and independence of the 
judiciary by requiring the approval of judges for search and arrest 
warrants and for the pretrial detention of defendants. Additionally, it 
broadens the rights of criminal defendants by requiring, among other 
things, the review of pretrial detention within 48 hours after arrest. 
After the introduction of the new Code the number of criminal cases 
opened by the Procuracy declined by 25 percent; the number of suspects 
placed in pretrial detention declined by 30 percent; and the courts 
rejected 15 percent of requests for arrest warrants. Judges released 
some suspects held in excess of allotted time when the government 
failed properly to justify its request for extension, and the Supreme 
Court overturned some lower court decisions to grant pretrial detention 
considered inadequately justified.
    Human rights advocates reported that the strict new limits on time 
held in police custody without access to family or lawyers, and the 
stricter standards for opening cases, have discouraged abuse of 
suspects by police as well. As a result of the passage of the new Code, 
83 of 89 regions in Russia have introduced jury trials, 713 jury trials 
have taken place during the first nine months of this year, resulting 
in 614 convictions and 99 acquittals. This system should reduce the 
potential for corruption.


    Ukraine has also taken significant steps in recent years to address 
deficiencies in its judicial system. Its ability to attract investment, 
and thus to sustain its recent economic growth, will depend on 
continued progress towards development of a legal infrastructure that 
protects investors' legal and contractual rights.
    In 1999, the State Executive Service was established as a special 
department in the Ministry of Justice to execute court decisions. Its 
powers include enforcement of judgments in civil cases; decisions in 
criminal and administrative courts involving monetary compensation; and 
judgments of foreign courts, the Constitutional Court, and other 
    Legislation enacted in the past three years to regulate the court 
system and improve the administration of justice has brought Ukraine's 
legal framework more into line with the Constitutional requirements for 
an independent judiciary. Enactment in 2002 of the Law on the Judicial 
System of Ukraine and the Law on Enforcement of Foreign Court Decisions 
are hopeful signs, although these still need to be fully implemented. 
The Law on the Judicial System created an independent State Judicial 
Administration as well as a new appellate body, the Court of Cassation. 
Ukraine also enacted a new Criminal Code in 2001. The law also 
established a Judicial Academy to train new judges and continue the 
education of sitting judges.
    Other legislative changes enacted in 2001 curtailed prosecutors' 
authority. The Procuracy no longer may initiate new criminal cases; its 
powers are limited to the observance of laws by law enforcement 
agencies only. In May 2001, the Constitutional Court ruled that 
citizens may challenge court actions by the prosecutors and 
investigative agencies, as well as government actions regarding 
national security, foreign policy, and state secrets.
    While there has been significant progress in criminal justice 
reform in Russia and Ukraine, both governments must continue to make 
strides towards fully utilizing their justice systems to fight 
transnational crime.

                              POLICY TOOLS

    The U.S. Government would, of course, like Russia, Ukraine and all 
of the states of Europe and Eurasia to have the capacity to enforce 
their laws in accordance with international standards while employing 
up-to-date practices. While recognizing that the responsibility for 
fighting organized crime and corruption lies first and foremost with 
the countries themselves, the U.S. Government has increasingly made 
efforts to fight money laundering, narcotics and trafficking in persons 
a central element of our engagement with Russia, Ukraine and the other 
states of the former Soviet Union.
    The U.S. strategy for combating transnational crime in the former 
Soviet Union has five prongs: 1) expand rule of law and law enforcement 
programs with an emphasis on criminal justice reform and enhancing the 
capabilities of law enforcement agencies at all levels, 2) provide 
judicial and law enforcement training that introduces modern crime-
fighting techniques while also promoting concepts of respect for human 
rights and professional integrity, 3) promote the development of 
working relationships among U.S. and regional law enforcement 
counterparts, 4) institutionalize cooperation through law enforcement 
agreements (MLATs), and 5) promote the eventual integration of these 
countries into multilateral and regional institutions.
    To implement this strategy, we have several policy tools:
    Law Enforcement Working Groups with both Russia and Ukraine were 
established to provide high-level policy oversight and to serve as 
ongoing fora for the coordination of bilateral anti-crime efforts. 
Earlier this month I co-chaired a meeting of the U.S.-Ukraine Law 
Enforcement Working Group via digital video conference. We addressed 
four transnational crime threats: 1) intellectual property rights 
enforcement, 2) counternarcotics efforts, 3) money laundering and 4) 
trafficking in persons. Representatives of many Ukrainian government 
agencies took part, which gave us the ability to engage the full 
spectrum of Ukrainian entities dealing with these crime issues. We 
engaged at a substantive level, noting the progress that has been made 
on these issues and the areas where continued progress is necessary.
    Mutual Legal Assistance Treaties (MLATs) are not a traditional 
policy tool; the purpose of an MLAT is to improve U.S. law enforcement 
abilities, by enabling U.S. authorities to obtain evidence and other 
types of law enforcement assistance from other countries. Conversely, 
foreign governments can use the MLAT to request assistance from the 
United States. Rule of law therefore is generally a consideration for 
the State Department and the Senate before a treaty is concluded; we do 
not want to create international legal obligations to provide 
assistance to criminal prosecutions in countries that do not respect 
the rule of law.
    That said, an MLAT, by creating formal and regular bases for law 
enforcement cooperation, can help support other efforts towards 
promotion of rule of law. The dialogue and cooperation that is 
resulting from the MLATs with Russia and Ukraine advance the 
regularization and improvement of our joint law enforcement efforts. In 
the long term, these MLATs further the rule of law and help Russia and 
Ukraine regularize their law enforcement efforts overall. Having this 
kind of regularized process for seeking and obtaining evidence will 
help strengthen Russian and Ukrainian institutions and encourage the 
rule of law in these countries.
    Our experience with the Ukraine MLAT has been particularly 
positive. Under the MLAT, the U.S. Government has sent the Ukrainian 
government requests in cases involving fraud, money laundering, 
homicide, computer crime, interstate transportation of stolen property, 
racketeering, corruption, and embezzlement. Each request has been 
executed promptly and thoroughly. In one high profile example--the 
prosecution of former Ukrainian Prime Minister Pavel Lazarenko--Ukraine 
has handled numerous requests with exemplary professionalism. According 
to Justice Department records, we have conducted more formal 
depositions in Ukraine in connection with that case than in any other 
country in connection with any other case.
    The U.S.-Russia Counterterrorism Working Group serves as a forum 
for cooperation on transnational crime issues linked to the Global War 
on Terror. For example, through the working group our two countries 
promote counternarcotics activities that will reduce the trafficking of 
illicit drugs through Central Asia to major markets. These activities 
are aimed at identified needs on the ground, including our recent 
agreement to work together to develop a narcotics-detecting canine 
program in Central Asia.
    Multilateral efforts to address transnational crime have also been 
successful. For example:
    The international Financial Action Task Force (FATF), with the U.S. 
Government as an active participant, has begun to tackle the problem of 
money laundering in Ukraine and Russia. As a result of improvements in 
its legislation and overall practices against money laundering, Russia 
was admitted to FATF. Under the threat of sanction from FATF, Ukraine 
finally passed new legislation earlier this year to deal better with 
the money laundering problem. I will come back to these cases in more 
    The United States, along with many member states of the European 
Union, is a major contributor to projects managed in Central Asia by 
the United Nations Office on Drugs and Crime (UNODC). UNODC, for 
example, established a senior level Drug Control Agency (DCA) in 
Tajikistan several years ago, and is now in the process, thanks to a 
U.S. contribution, of replicating that success in the Kyrgyz Republic. 
We have also contributed to a number of other diverse UNODC-managed 
projects, from assisting border control between Turkmenistan and 
Afghanistan, to providing video surveillance equipment for a major 
bridge crossing on the Uzbek-Afghan border, to helping the Uzbek 
prosecutor's office in archiving on a web site legal materials for the 
prosecution of narcotics cases across the country.
    The Organization for Security and Cooperation in Europe is 
expanding its work in law enforcement and prison reform in Eurasia. In 
Ukraine, for example, the OSCE is supporting rule of law development 
through a project to train the staff of the Office of the General 
Prosecutor. We are also encouraging efforts to cooperate regionally, 
based on the successful Bucharest Anti-Crime Center for Southeast 
Europe. A similar effort is underway with the GUUAM states (Georgia, 
Ukraine, Uzbekistan, Azerbaijan and Moldova), which aims at the 
creation of a virtual law enforcement center to strengthen regional 
cooperation among those states' law enforcement agencies. We are 
supporting this effort and are exploring the possibility of a second 
center in Central Asia.
    Bilateral assistance is vital to our anti-crime strategy. Our 
assistance program targeting Russia, Ukraine and the other states of 
the former Soviet Union is the FREEDOM Support Act (FSA). FSA 
assistance and exchanges have played and are playing a key role in 
helping the governments of states such as Russia and Ukraine make 
progress to deal with crime and corruption issues. We greatly 
appreciate the strong support that Congress has provided since the 
breakup of the Soviet Union for the transition to democracy and market 
economies of the states that emerged from Communism.
    Since the start of the Anti-Crime Training and Technical Assistance 
program with FSA funding in 1995, we have allocated roughly $166 
million to the states of the former Soviet Union for reforms, training 
and capacity-building in the areas of law enforcement and 
counternarcotics. Close to one-half of that total has been allocated to 
our efforts in Russia and Ukraine, given their size and importance in 
the region, and the potential role that Russia can play as a model of 
reform for all of the former Soviet states. An increasing proportion of 
our assistance will now go to the states of Central Asia, given the 
role they play as ``front-line'' states in the fight against terrorism 
and heroin smuggling out of Afghanistan. Congress, in fact, 
specifically appropriated $22 million in Fiscal Year 2002 for law 
enforcement and counternarcotics efforts in Central Asia.
    With regard to Russia, an important step forward was made in 
September 2002, when the United States and Russia signed our first 
bilateral agreement on law enforcement assistance. Under that 
agreement, over $4 million in funds have been allocated to start a 
series of new projects. These will provide training and equipment to 
Russian units fighting drug trafficking along Russia's southern border 
with Kazakhstan and training and equipment to improve narcotics 
searches and seizures at key ports in the south of Russia and in areas 
that drugs transit in the northwest region of the country. Projects on 
fighting Internet child pornography and trafficking in persons will be 
started. Support to the new financial unit set up to combat money 
laundering will be provided, as will assistance to help implement the 
new criminal procedure code and the U.S.-Russia Mutual Legal Assistance 
Treaty. A further $4.7 million in Fiscal Year 2003 funds will be 
allocated to such projects in Russia to maintain the momentum we have 
    We have made a major transition in our assistance programs in the 
last few years. In the past, most of our assistance went to training, 
much of it provided at the U.S.-led International Law Enforcement 
Academy in Budapest. Today, our FSA assistance has evolved and is 
focused on comprehensive, multidisciplinary institution-building, 
including major legal reforms, creating new forensics laboratories, 
setting up financial intelligence units to fight money laundering, 
helping introduce investigative methods that would eliminate the use of 
torture, creating ``vetted'' counternarcotics units, and more.
    We are, of course, limited in what we can do by two things: the 
limits on the assistance we can provide and the political circumstances 
in the recipient countries. We cannot do it all. We continue to engage 
the European Union and its member states to increase their support for 
anti-crime and legal reform efforts.


    There are three areas of major progress in the battle against 
transnational crime I would like to highlight today. All three of these 
areas, trafficking in persons, money laundering and counternarcotics, 
are linked with organized crime.
Trafficking in Persons:
    We have seen a concerted and welcome effort to combat trafficking 
in persons from our European partners this year. Russia and Ukraine 
have both shown some improvement, but at different paces and to varying 
    Our efforts to counter the Trafficking in Persons problem focus on 
three areas: prevention of trafficking; protection of the victims (and 
potential victims); and prosecution of those who perpetrate this crime. 
Progress on trafficking can be accomplished in a number of ways: 
legislation and amendments to criminal codes can be passed; public 
awareness of the trafficking in persons problem can be increased; and, 
most importantly, prosecution numbers can rise. In the State 
Department's Trafficking in Persons report from last year, the Bureau 
of European and Eurasian Affairs had eight countries in Tier 3, the 
lowest tier. Today, there are none.

    Russia has begun to turn the corner on combating human trafficking. 
There is increasing recognition at the top of the problem. On October 
27 President Putin said ``trafficking in people is part of organized 
crime, it is one of the most serious and vital world problems.''
    The UN has cited Russia as the largest source country for 
trafficked women throughout Europe. Making use of substantial U.S. 
technical assistance, the Duma Committee on Legislation drafted 
aggressive anti-trafficking legislation that would criminalize human 
trafficking and all related crimes. The legislation would also provide 
protection for victims and witnesses in human trafficking cases and 
mandate government-funded public awareness campaigns designed to raise 
awareness of the dangers of human trafficking.
    An omnibus criminal code amendment bill is pending before the Duma 
that includes the anti-TIP criminal articles that were originally put 
in the anti-TIP law. It appears that the criminal code amendments are 
also going through some unwelcome changes, according to our Embassy in 
Moscow, which closely follows this issue. Passage of the anti-TIP 
articles included in the President's Omnibus Criminal Code Reform Bill 
will require a concerted effort by key Duma members to gain the support 
of government agencies and regional governments. Currently, the 
Russians are using older and weaker laws to go after traffickers; last 
year Russia prosecuted some traffickers under lesser laws. We hope--and 
it will be important--to see convictions rise with the new legislation.

    Ukraine is another large source country for trafficking victims to 
all parts of Europe and around the globe. The Ukrainian government has 
a comprehensive action plan for each government ministry to support 
public awareness, education, and prosecutions. The police opened 169 
trafficking cases last year alone, double the number opened in 2001, 
and followed up with 41 prosecutions and 28 convictions. The Ministry 
of Internal Affairs has established 27 special anti-trafficking units 
at the national and oblast levels.
    The Ukrainian anti-trafficking NGO community and police across the 
country have developed vital linkages that have resulted in 
prosecutions. We have seen political will on the part of the Ukrainians 
to engage on the trafficking issue but must continue to work with them 
to ensure further progress, and to ensure that such progress is not 
impeded by corruption.
Money Laundering:

    In the last two years, Russia has made substantial strides in 
combating money laundering. On February 1, 2002, Russia's new financial 
investigation unit, the Financial Monitoring Committee (``FMC''), began 
operation. The FMC is responsible for collecting suspicious activity 
reports from banks and coordinating all of Russia's anti-money 
laundering and counterterrorist financing efforts.
    In 1997, Russia passed amendments to the Criminal Code 
criminalizing money laundering. In 2002, additional amendments were 
passed, strengthening the 1997 legislation and criminalizing all 
financial transactions designed to conceal the source of any illegal 
    Largely as a result of the passage of broad anti-money laundering 
legislation and the FMC's successful monitoring work, in 2002, Russia 
was removed from the international Financial Action Task Force (FATF) 
Non-Cooperative Countries and Territories list. In 2003, following 
further progress, Russia was admitted to FATF. This was a major 
achievement. Since beginning operation, the FMC has received over a 
half million suspicious transactions reports. However, according to 
FATF, few criminal money laundering cases have been successfully 
prosecuted, and more needs to be done in this area.

    The U.S. Government also engages with Ukraine on money laundering 
issues through FATF. In September 2001, FATF placed Ukraine on its Non-
Cooperative Countries and Territories list, citing inadequacies in 
Ukraine's anti-money laundering regime. In November 2002, Ukraine 
passed a comprehensive anti-money laundering law, but FATF's Europe 
Review Group found it deficient in a number of areas and not in 
compliance with international standards.
    In December 2002, FATF called on its members to impose counter-
measures against Ukraine. The U.S. Government, in response, designated 
Ukraine a jurisdiction of money laundering concern under Section 311 on 
the USA PATRIOT Act. Following consultations between FATF and the 
Ukrainian government, and with assistance from our Embassy in Kiev, the 
Ukrainian Rada passed amendments to the anti-money laundering law, the 
criminal code, and the banking law that brought Ukraine's anti-money 
laundering law into compliance with international standards. At its 
mid-February plenary, FATF rescinded its call for counter-measures. 
Early this month, Ukraine submitted to FATF an implementation plan; 
that plan must now be vetted by FATF's Europe Review Group. Until full 
and satisfactory answers are provided to the FATF review group, no 
decision will be taken by the FATF to undertake an on-site visit--the 
penultimate step prior to recommendation for removal from the FATF Non-
Cooperative list. Ukraine's work with FATF nonetheless is an example of 
success--fundamental reforms, combined with close international 
scrutiny, resulting in real progress.

    The flow of Afghan heroin into and across Russia has increased 
tremendously. While overall seizures have yet to increase noticeably, 
we are now seeing instances of seizures of roughly 50 to 60 kilograms 
of heroin at a time.
    Russia is a party to the 1988 UN Drug Convention and other UN 
agreements on combating drug trafficking. In 1998, the Russian 
government enacted the Law on Narcotics and Psychotropic Substances, 
which criminalized the purchase and possession of drugs and stiffened 
penalties for large-scale trafficking. More recently, the Russian 
government has taken additional steps that show promise for future 
progress in this area with the support of U.S. assistance programs.
    In March 2003, President Putin took primary responsibility for the 
investigation of narcotics trafficking away from the Ministry of 
Internal Affairs and reassigned it to the newly formed ``State 
Committee for the Control of Narcotics and Psychotropic Substances,'' 
known by its Russian acronym, GKN. GKN is still in the start-up 
process, so it is too early to evaluate its effectiveness. However, 
most observers view its creation, and the appointment of a close 
political ally of President Putin, Viktor Cherkessov, as its director, 
as signs that President Putin intends to take the war on drugs very 
    At the same time, Russian law enforcement authorities have come to 
support the use of drug demand reduction programs as a complement to 
their efforts to reduce the supply of drugs.
    The U.S. Drug Enforcement Agency is also seeing hopeful signs of 
growing cooperation between Russian law enforcement and a new counter-
narcotics Special Investigative Unit created and vetted by the DEA in 
Uzbekistan. Such bilateral cooperation will be an important component 
of any successful effort to halt the flow of drugs out of Afghanistan.

    The Ukrainian Government takes effective steps to limit illegal 
cultivation of poppy and hemp. Ukraine is a party to the 1988 UN Drug 
Convention, and it follows the provisions of the Convention in its 
counternarcotics legislation. Combating narcotics trafficking continues 
to be a national priority for law enforcement bodies, although a lack 
of financial resources seriously hinders Ukrainian efforts. Corruption 
is also a problem, although it has rarely been linked to drug 
enforcement. Coordination between law enforcement agencies responsible 
for counternarcotics work has improved, but still remains a problem 
because of a lack of resources, some tendencies to resist interagency 
cooperation and sharing of information, and regulatory and 
jurisdictional constraints.
    The National Counter-narcotics Coordinating Council, established in 
1994 within the Cabinet of Ministers to coordinate the efforts of 
government and public organizations to combat drugs, is responsible for 
a counternarcotics program for the period through 2008. The main 
objective of the program is to make qualitative changes in the national 
strategy for combating narcotics. Although many of the measures in 
previous national counternarcotics plans (1994-1997, 1998-2000) were 
constrained by lack of funding, the Ministry of Internal Affairs is 
giving a high priority to counternarcotics actions and is providing 
overall support to the maximum extent available.


    Transnational crime is a real threat to stability in the countries 
of the former Soviet Union as those countries move to develop more 
modern political and economic structures. However, in the last decade, 
with U.S. assistance, progress has been made in institutionalizing the 
rule of law, and developing criminal justice systems, especially in 
    While challenges remain, my colleagues will attest to the 
strengthened capacity of their law enforcement counterparts, and the 
strong law enforcement networks that have developed. Strengthening the 
capacity of countries such as Russia and Ukraine to deal with today's 
transnational crime problems, as well as improving bilateral and 
multilateral cooperation to counter these threats, will remain major 
parts of the U.S. agenda with these countries. We have made progress, 
but the challenges remain serious and will require our continued 
attention. Thank you.

    Senator Voinovich. Thank you very much.
    Mr. Schrage.


    Mr. Schrage. Thank you, Mr. Chairman, good afternoon. I am 
extremely pleased to be back today appearing before a 
subcommittee of the Foreign Relations Committee after having 
served as counsel for the late Senator Paul Coverdell on 
Foreign Relations Committee issues during the 1990s. I have 
never known someone who was as committed to confronting the 
devastating impact of international terrorists and criminal 
organizations, including the drug cartels that Senator 
Coverdell regarded as posing a greater threat than the Mafias 
that plagued our own nation decades ago.
    He also held a special place in his heart for this region, 
having led the Peace Corps into many of the countries we are 
discussing here today almost before the dust from the fall of 
the Berlin Wall had settled. He did this because he believed 
that our outreach to the people emerging from the bankruptcy of 
communism would be critical, not only given the special 
relationship we have with Europe but also as an example for the 
world of how trading totalitarian controls for freedom, liberty 
and democracy could lead to a new and better day. As a former 
Senate staffer working closely with this committee on these 
issues, I'm honored to be back here today, and I hope to build 
on and deepen the partnership with the Senate, which has also 
played a leading role.
    I know that Senator Coverdell would be proud of the focus 
this subcommittee is showing, and our successes in these areas. 
As you have expressed, it is important that these successes and 
the new U.S. challenges in Iraq and Afghanistan do not obscure 
the great challenge which remains in areas that are critical to 
U.S. interests today. For example, the wide range of criminal 
activity engaged in by Russian organized crime groups likely 
exceeds in scale and economic impact that of the Cali Cartel at 
the height of its power. The threat of destabilizing 
Afghanistan is linked to this area. Interpol estimates that 
over 70 percent of the heroin trafficked in the U.S. arrives 
via the Balkans route or one of its many tributaries. 
Conservative estimates put the number of trafficked women in 
and through Europe in the tens of thousands. It's against this 
daunting background that I offer my testimony today.
    The Bureau of International Narcotics and Law Enforcement 
Affairs or INL is just one part of the team that is working on 
these threats. It's a testament to the administration's 
interest in these issues that we also have my colleagues here 
to address questions related to the politics and specific 
situations in the region, and from the Department of Justice 
and FBI to address operational and DOJ matters. For this 
reason, I will focus on three areas of relevance to my bureau, 
its roles and responsibilities, the programs and initiatives it 
helps manage in the region, and some of the key lessons 
    I think it would be useful to begin by describing the role 
of INL, an acronym that may be less familiar to the 
subcommittee than EUR or the FBI, and we view this mission as 
both critical to your efforts to fight transnational threats 
and essential to help nations such as those emerging from 
Communist rules to build secure and prosperous democracies.
    INL is responsible for developing policies and managing 
over $1 billion in programs to combat transnational criminal 
threats and to strengthen the rule of law in emerging 
democracies. The bureau has special authorities that allow it 
to fund a full range of programs and activities necessary to 
address these issues, ranging from training a new police force 
in Iraq, to negotiating U.N. conventions against corruption and 
transnational crime, to funding so-called soft-side education 
and alternative development for coca farms.
    INL works closely in a partnership with EUR and state and 
regional bureaus. It is different from these bureaus in that it 
has a large group of civil service employees, many with 
extensive law enforcement and military backgrounds, and law 
enforcement detailers who provide expertise and enable us to 
deepen our relationships to both U.S. and foreign law 
enforcement agencies. These law enforcement agencies, 
especially the Department of Justice and FBI, who are here 
today, are also critical efforts in all that we do.
    Overall, much of our focus is in helping to coordinate U.S. 
international law enforcement cooperation and assistance to the 
many parts of the U.S. Government working with foreign law 
enforcement in these areas so we act as a team. Our work in 
Europe and the former Soviet Union has been in close 
partnership with the State Department's EUR bureau, which was 
granted special authorities and coordination responsibilities 
under the Freedom Support Act and the SEED Act, as well as with 
DOJ, the FBI and other law enforcement agencies. In these 
areas, INL manages over $90 million in programs, and leads or 
co-chairs several important policy initiatives and mechanisms. 
It is often useful to divide these up as bilateral, by helping 
nations to develop and strengthen their own institutions, and 
those that focus multilaterally on building groups of nations 
and bringing them together to a more unified front.
    Bilaterally we manage over $86 million in law enforcement 
assistance in the region. Through this, we seek to encourage 
strategic thinking, long-term planning, build on previously 
funded efforts, and complement assistance provided by other 
entities. These initiatives address the broad cross-cutting 
section of areas including money laundering and terrorist 
finance, trafficking in persons, border controls, anti-
corruption, police development, and assistance in judiciaries 
and prosecutors.
    While it would take a great deal of time to detail all of 
its programs in the vast area covered by this hearing, some of 
the examples would include police assistance projects in places 
such as Albania and Hungary, broader efforts to build new and 
effective civilian police forces in areas emerging from 
conflict such as Kosovo and Bosnia, and finally resident legal 
advisors or RLAs from the Justice Department, to work in 
countries such as Romania and Russia to give them constant on-
the-ground advice. These bilateral initiatives help support our 
other global and multilateral efforts, as well as those such as 
the SECI Center funded directly by the EUR.
    I would like to begin this discussion by highlighting an 
institution that started in this region and has been seen as a 
model here and abroad. The International Law Enforcement 
Academies, ILEAs focus on bringing together mid to senior law 
enforcement officials and other judicial officials from 
countries around the region for both basic and specialized law 
enforcement training. This process raises the professionalism 
of these officers and just as importantly builds critical 
networks between countries in the region with U.S. law 
    ILEA Budapest opened in 1995 and since then over 2,500 law 
enforcement officers from over 25 countries in Europe and from 
countries comprising the former Soviet Union have successfully 
completed the core 8-week program. Also, since 1996, more than 
4,000 criminal justice officials have participated in 
specialized training programs.
    While the Department of State funds the ILEA, I want to 
note that it's truly a cooperative effort, with over 16 U.S. 
law enforcement agencies participating as well, involving 
concluded settlements from the participating nations and from 
Western European agencies as trainers.
    In the interest of time, I will skip over some of these 
areas, since I know I'm going over that time right now, and 
just highlight quickly a couple of the other areas that we work 
    Some of the other areas, as Ambassador Pifer noted, are 
based on specific threats such as money laundering, terrorist 
finance and financial transactions, Council of Europe's 
MoneyVal, and other areas where we offer indirect assistance. 
And anticorruption in this region where we work with the 
Council of Europe's Group of States Against Corruption, GRECO, 
the Stability Pact SPAI initiative has set high standards as 
well as doing individual programs targeted at the recruiting 
country's capacity.
    And finally, we work very closely with our European 
partners to partner with them as you mentioned to confront 
these together. Prime Minister Blair called a London conference 
in November of 2002, which I attended with DAG Swartz as well 
representing the U.S., with a representative from the EUR 
bureau. And also in addition, we work very closely with our G-8 
partners to fight international crime and terrorism and other 
    I will skip over some of the lessons learned that are 
discussed more in depth in my statement that's submitted for 
the record in the interest of time.
    But in closing I would like to thank Senator Voinovich and 
others for inviting us to speak with you today. Based on my 
background and prior experience, I strongly believe we must 
work closely with Congress in addressing the issues you raise 
today. I also believe that our fundamental mission of building 
solid law enforcement structures in these nations and enhancing 
their capacity to be a vital part of an international net of 
law enforcement is as critical as ever. It is the essential 
foundation both for achieving security for our own people and 
for cementing the great progress that has been achieved in the 
region in the wake of the cold war. Thank you.
    [The prepared statement of Mr. Schrage follows:]

  Prepared Statement of Steven Schrage, Deputy Assistant Secretary of 
 State, Bureau of International Narcotics and Law Enforcement Affairs, 
                U.S. Department of State, Washington, DC

    Thank you Mr. Chairman. Good afternoon. I'm extremely pleased to be 
here today appearing before a Subcommittee of the Foreign Relations 
Committee, after having served as counsel for the late Senator Paul 
Coverdell on Foreign Relations Committee issues during the 1990s. I 
have never known someone who was as committed to confronting the 
devastating impact of international terrorist and criminal 
organizations, including drug cartels that Senator Coverdell regarded 
as posing a greater threat than the Mafia presence our own nation 
struggled with decades earlier.
    He also held a special place in his heart for Europe, having led 
the Peace Corps into many of the countries we are discussing here today 
almost before the dust had settled from the fallen Berlin Wall. He did 
this because he believed that our outreach to the people emerging from 
the evils of Communism would be critical, a reflection of the special 
relationship we have with Europe and an example to the world of how 
trading totalitarian controls for freedom, liberty and democracy could 
lead to a new and better day. As a former Senate staffer working 
closely with the Committee on these issues, I am honored to be back 
here today and hope to build on and deepen the Administration's 
partnership with the Senate, which has always played a leading role to 
help advance these issues.
    I know that Senator Coverdell would be proud of this Subcommittee 
for holding this hearing and of our country's successes in these areas. 
Yet neither these successes nor new U.S. commitments in Iraq and 
Afghanistan should obscure the remaining great challenges to U.S. 
interests in Europe. For example, the wide range of criminal activity 
engaged in by Russian organized crime groups likely exceeds in scale 
and economic impact that of the Cali Cartel at the height of its power. 
Interpol estimates that the same drug producers that are destabilizing 
Afghanistan are responsible for nearly 80% of the heroin trafficked 
from Afghanistan into Europe, arriving via the Balkans route or one of 
the many new ``tributaries'' of this old smuggling route. Conservative 
estimates put the number of women trafficked globally between 800,000 
and 900,000. The numbers on this are very elusive, particularly in 
Europe. We look forward to the CIA estimates on regional breakdowns 
that are due in January.
    It is against this daunting backdrop that I offer my testimony 
today. As I mentioned and as is reflected in the line-up of today's 
panel, the Bureau of International Narcotics and Law Enforcement 
Affairs, or INL, is just one part of the team working on these threats. 
In this light, I will focus on three areas: INL's roles and 
responsibilities, programs and initiatives in the region, and some key 
lessons learned. I will defer to my European Bureau colleague for 
questions on political implications and other regional issues and to 
the Department of Justice and FBI representatives on operational 


    I think it would be useful to begin by describing the role of INL 
and outlining why I believe INL's mission is critical to your efforts 
both to fight transnational threats such as crime and terrorism in 
Europe and around the globe, and to help nations such as those emerging 
from communist rule build secure and prosperous democracies.
    INL is the Bureau in the State Department that is responsible for 
the development of policies and the management of over one billion 
dollars in programs globally to combat transnational criminal threats, 
including drugs, and strengthen the rule of law and relevant 
institutions in emerging democracies. INL has special authorities that 
allow it to fund a full range of programs necessary to address these 
problems, ranging from training the new police force in Iraq and 
Afghanistan, to negotiating global UN conventions against corruption, 
drug trafficking, and transnational crime, to leading the G8's Lyon 
Group in coordinating policies in our fight against international 
crime, to funding so called ``softside'' education and alternative 
development projects targeted at those involved in the production of 
    INL works in close partnership with EUR, other bureaus of the State 
Department, and with the U.S. interagency. INL is different than 
traditional State Department Regional Bureaus in maintaining a large 
group of civil service employees, including many with extensive law 
enforcement and military backgrounds, and officials detailed from key 
law enforcement agencies who can provide expertise and deepen our ties 
to foreign agencies to help advance U.S. goals. Overall, much of INL's 
work focuses on helping coordinate U.S. international law enforcement 
policy, cooperation and assistance so that the many parts of the U.S. 
Government working with foreign law enforcement and justice systems can 
act as a team.

                       INL INITIATIVES IN EUROPE

    INL's work in Europe and Eurasia is done in close partnership with 
the State Department's EUR Bureau, the Department of Justice, the FBI 
and other law enforcement agencies. In particular, EUR was granted 
special authorities and coordination mandates by the Congress under the 
Freedom Support Act and the Support for East European Democracy or SEED 
Act. In these areas INL funds or manages over $90 million (FY 03 SEED/
FSA and FY 2002 FSA Supplemental) in programs and leads or co-chairs 
several important policy initiatives or mechanisms that are critical in 
this fight. In describing these programs and initiatives, it is often 
useful to divide them into two categories, those that focus bilaterally 
in helping nations develop and strengthen their own institutions and 
rule of law and those that are focused on bringing groups of nations 
together to address these threats as a more united front.


    Through its over $86 million in law enforcement bilateral 
assistance in the region, INL encourages strategic thinking and long-
term planning and attempts to build on previously funded efforts, 
complement the assistance provided by other USG agencies/departments 
and other donors (particularly the European Union and the United 
Nations), and promote input from host governments, NGOs and the private 
sector. INL bilateral initiatives address a broad cross-section of law 
enforcement and criminal justice sector thematic areas including: 
counternarcotics; demand reduction; money laundering; financial crime; 
terrorist financing; smuggling of goods; illegal migration; trafficking 
in persons; domestic violence; border controls; document security; 
corruption; cyber-crime; intellectual property rights; law enforcement; 
police academy development; and assistance to judiciaries and 
    While it would take a great deal of time to detail all of INL's 
programs in the vast area covered by this hearing, some of our key 
programs in this region relate to our work in the following areas.


    A key part of INL's mission is to work with the Department of 
Justice in developing foreign law enforcement institutions to build the 
rule of law where most of the citizens of these nations will see it 
operating in their day-to-day lives. Key initiatives in this area are 
under way in the following countries.
    Albania. INL funded a Department of Justice project to train 
Albanian police and prosecutors in modern investigative and 
prosecutorial techniques focused on disrupting and dismantling 
organized criminal enterprises. This project is linked to other, broad 
DOJ OPDAT/ICITAP assistance projects in Albania focused on 
modernization of the National Police, enhancing the capabilities of the 
prosecution service, and establishing international standards of border 
security at three major ports-of-entry.
    Hungary. The Organized Crime Task Force (OCTF) was created as a key 
element of a six-point assistance plan in 1998. INL start up funding 
allowed the FBI to provide significant levels of training and technical 
assistance to the Hungarian OCTF. FBI agents have been assigned to 
Hungary to work side-by-side with their Hungarian National Police 
counterparts. In fact, DOJ/OPDAT and the FBI are jointly bringing 
members from the Hungarian OCTF and prosecution service to the United 
States in December to receive intensive training and insight into 
organized crime task forces and how they operate in this country.
    International Civilian Policing (CIVPOL). Some areas of the Balkans 
are emerging from post-conflict situations that left basic institutions 
essentially destroyed. Establishing, restructuring and rebuilding basic 
policing functions in these areas has required efforts that go far 
beyond the police assistance described above. In areas such as Kosovo 
and Bosnia, the United States has worked with the United Nations and 
the Organization for Security and Cooperation in Europe (OSCE) to 
rebuild a stable police force that can serve as a backbone for 
establishing the rule of law in these areas. The Kosovo police program 
involves our assistance in both training a new police force and in 
providing U.S. police officers that, as part of a multi-national UN 
CIVPOL force, provide interim public security and serve as mentors 
alongside the new Kosovo Police Service as it assumes its law 
enforcement responsibilities. This important program has been 
recognized as a model for establishing civilian security in post-
conflict situations and much of the knowledge has been applied to other 
areas of the world, to include our efforts in Iraq.


    Another key part of INL's mission is working with our Department of 
Justice colleagues to provide Resident Legal Advisors or RLAs to 
countries to give them continuous, on the ground advice in how to 
establish appropriate legal institutions necessary for their own 
security and to confront transnational threats. INL RLA programs are 
active in Albania, Azerbaijan, Bulgaria, Bosnia Herzegovina, Georgia, 
Macedonia, Moldova, Romania, Russia, Serbia Montenegro/Kosovo, and 
Uzbekistan. Two brief examples of their work include:
    Romania. The RLA program in Romania recently donated specialized 
investigative equipment (listening and communications devices) and 
provided training to the National Anti-Corruption Prosecutor's Office 
(PNA) in order for the PNA to more effectively investigate and 
prosecute corruption cases, particularly public corruption cases 
involving organized criminal activity.
    Russia. The RLA in Moscow helped to introduce significant legal 
reforms and positive changes to the criminal procedure code, and we are 
now engaged in an effort to expand that process to include the states 
of Central Asia.

                       MULTILATERAL INITIATIVES:

    While a key focus of our bilateral programs is to strengthen the 
internal ability of nations to confront criminal threats, other key 
initiatives and programs bring nations together in the realization that 
we will never effectively counter transnational criminal organizations 
unless we are able to effectively work across boarders and 
jurisdictions to address common threats. I should note that INL also 
works closely with initiatives such as the Southeast European 
Cooperative Initiative's (SECI's) Anti-Crime Center in Bucharest, 
Romania. INL strives to make sure that our bilateral and multilateral 
initiatives are complementary to the important role of SECI in 
combating transnational crime.
    ILEA Budapest
    I would like to begin this discussion by highlighting an 
institution that was born in this region and that has made great 
strides in the global fight against crime--the International Law 
Enforcement Academies or ILEAs. ILEAs are being looked to at the 
highest levels in the United States and around the world as a model for 
advancing our common fight against international crime and promoting 
the rule of law that is essential for development and prosperity.
    ILEAs--which focus training primarily on mid-to-senior-level law 
enforcement and other judicial officials--serve our interests in 
several critical ways. They establish and expand the long-term liaison 
relationships among law enforcement officials that are critical to 
combating international crime; they support democracy and stress the 
rule of law in international and domestic police operations; and they 
raise the professionalism of officers involved in the fight against 
    Several fundamental precepts--such as respect for human rights and 
the rule of law, adoption of high ethical standards, and the promotion 
of international law enforcement cooperation--are emphasized throughout 
the ILEA program. The focus of instruction is not solely on the 
acquisition of technical skills, it also includes the development of 
leadership and management skills to deal with challenges facing law 
enforcement throughout the world.
    ILEA Budapest opened in 1995 and since then over 2,500 law 
enforcement officers from 25 countries in Central Europe and the 
countries comprising the former Soviet Union have successfully 
completed the core eight-week program during more than 42 iterations. 
ILEA Budapest offers an entire week of instruction on organized crime 
during each 8-week core program. The FBI is the lead for this block of 
instruction and presents the enterprise theory of investigation, 
whereby police are taught to view the structure and behavior of 
organized crime as somewhat akin to that of a corporation, as an 
effective methodology to combat organized crime. The FBI helped 
spearhead the creation of the ILEA program and under the leadership of 
Director Dale Wegkamp of the FBI, ILEA Budapest has earned admiration 
and spawned similar programs around the globe.
    The ILEAs also play host to focused regional seminars and 
specialized training programs. Over 4,000 criminal justice officials 
have participated in specialized training programs since 1996. One such 
specialized program, presented by the Justice Department's Office of 
Overseas Prosecutorial Development, Assistance and Training (OPDAT), 
focuses on organized crime and is designed to familiarize prosecutors 
and investigators with the special problems involved in pursuing 
organized crime cases and to provide practical exposure to specialized 
investigative tools.
    Another offering from OPDAT is the money laundering seminar that is 
designed to familiarize law enforcement personnel, policymakers, and 
legislators with Financial Action Task Force (FATF) standards governing 
money laundering; and developing and using legislation, investigative 
techniques and prosecutorial tools in fighting money laundering, bank 
fraud, terrorist financing, and other complex financial crimes.
    ILEA Budapest has also seen the successful introduction earlier 
this year of a pilot course taught, in coordination with the State 
Department's Office of the Coordinator for Counterterrorism (S/CT), by 
the Department's Bureau of Diplomatic Security, Office of Anti-
Terrorism Training and Assistance (DS/ATA) entitled ``Police Role in 
Combating Terrorism.'' This course focuses on the role of police as the 
first responders to terrorist incidents. Additionally, the ILEA hosts a 
``Weapons of Mass Destruction'' course conducted by trainers from the 
Department of Defense's Defense Threat Reduction Agency (DTRA). This 
course targets senior-level officials involved with border security, 
customs, emergency response and frontier police operations in a WMD 
    While the Department of State funds the ILEA, I want to note that 
16 U.S. law enforcement agencies participate in the ILEA program. It is 
a cooperative and interagency program in every sense of the word. In 
addition to the strong partnership with Hungary, other participating 
nations are key in making this program a success. Nations and 
organizations such as the Ireland, Germany, Italy, Great Britain, 
Canada, Russia, INTERPOL, and the Council of Europe have also provided 
instructors to ILEA Budapest. Overall, this program is an example of 
what can be achieved by working together.
    As I mentioned earlier, the success of ILEA Budapest, has spawned 
new ILEAs in Southeast Asia, Africa, and a graduate academy in the 
United States. Plans are underway to expand their reach even further 
geographically, and by using new technologies such as the Internet to 
link ILEA graduates around the globe, to explore using this ILEA 
network to more effectively confront cross-border crime. INL is also 
looking at adding courses focused on combating the threats posed by 
international networks that traffic persons for purposes of commercial 
or sexual exploitation.


    Many of our other multilateral efforts are focused on special areas 
of emphasis, such as money laundering, where experts in a specific 
field work to establish standards and specialized institutions. Through 
participation in the Financial Action Task Force (FATF), INL plays an 
important role in formulating global anti-money laundering policies, 
and since 9-11, standards designed to thwart the financing of 
terrorism. For more than a decade, INL has designed, funded and 
coordinated the USG's interagency bilateral training and technical 
assistance programs that have assisted countries in former communist 
states in Europe in constructing viable anti-money laundering and 
terrorist financing regimes.
    Globally, INL co-leads with the counter-terrorism (S/CT) bureau of 
the State Department a group that oversees the provision and 
implementation of our critical money laundering and terrorist financing 
assistance to key states. INL also funds and participates in the 
Council of Europe's anti-money laundering organization, MoneyVal. 
MoneyVal is comprised of 24 member states, conducts semi-annual plenary 
meetings to discuss international standards and their implementation 
and undertakes multilateral mutual evaluations of anti-money laundering 


    Another key area where INL plays a major role is working to combat 
corruption and coordinate U.S. law enforcement assistance efforts. INL 
is working on both a diplomatic and programmatic level to encourage and 
help European governments take effective action to address corruption 
problems. The most notable European multilateral effort involves the 
Council of Europe's Group of States Against Corruption (GRECO), whose 
members now include 34 European countries and the United States. 
Through GRECO, experts from the U.S. and other member countries have 
over the past three years made on-site visits to evaluate anti-
corruption efforts of member states and provide constructive advice on 
how such efforts can be improved.
    The U.S. also participates actively in and funds the Anti-
Corruption Network for Transition Economies, which includes the nations 
of Eastern Europe, Russia, and the Trans-Caucasus. The Stability Pact 
has an anti-corruption arm--the Stability Pact Anti-Corruption 
Initiative (SPAI). SPAI provides a forum for Balkan member states to 
meet and develop anti-corruption strategies. INL has worked closely 
with SPAI to develop sustainable project plans.

                           LONDON CONFERENCE

    In November of 2002, Prime Minister Blair called a conference to 
rally the nations of Europe and their partners to address the issue of 
organized crime in the Balkans. I, along with representatives from the 
EUR bureau and the Department of Justice, represented the United 
States. The U.S. and the EU continue to work to implement the resulting 
action plans from this UK-hosted, international conference focused on 
developing national and regional capacity in the Balkans to combat 
organized crime, including through witness protection. We are also 
working closely with the EU and other European institutions to develop 
a Balkan regional witness protection strategy.

                             G8--LYON GROUP

    As seen in the London Conference, our efforts in Europe also go 
beyond helping nations build the capacity to confront transnational 
threats. They extend to teaming with other committed nations to 
coordinate policies to more effectively protect our citizens and attack 
criminal conduct. In 1995, the nations of the G8 formed the Lyon Group 
to coordinate their efforts against international crimea INL has 
chaired the delegation, which includes strong representation from the 
Department of Justice as well as experts from law enforcement agencies 
outside of Justice. In the years since, the group has done important 
work in the areas of combating cyber crime and other high-tech crimes, 
setting international standards and identifying best practices in a 
variety of areas, including transportation security; and enhancing law 
enforcement cooperation against transnational crime and terrorism, 
including identifying and removing obstacles to cooperation and 
facilitating information sharing.
    In the wake of September 11th, the Lyon Group has worked closely 
with the G8's Roma Group on counter-terrorism to ensure coordination in 
critical law enforcement efforts that are vital to our fight against 
terrorism. INL and S/CT co-chair the delegation to these meetings.

                            LESSONS LEARNED:

Importance of Regional and International Cooperation
    Advancing our shared fight against crime by promoting the rule of 
law and fostering international law enforcement cooperation is a pre-
eminent objective of U.S. foreign policy and of the international 
community of nations. To achieve proper coordination, we work closely 
with other program implementers--European bilateral implementers, the 
EU, the UN and its agencies, and more specialized groups such as the 
International Organization for Migration (IOM) and the OSCE--to share 
information about our programs and make sure our efforts are 
complementary. The rule of law and effective law enforcement form a 
foundation on which commerce and investment, economic development, and 
respect for human rights can be built.
    Today, advances in technology have broken down barriers between 
nations and unprecedented opportunities exist for organized crime and 
other transnational threats. In confronting international crime, it is 
important that we extend internationally a web of effective law 
enforcement to eliminate safe havens and gaps in jurisdictions that 
allow criminal threats to fester and grow. While targeted intelligence 
and operations may remove specific terrorist, drug trafficking, or 
organized crime groups, unless we address the environments that allow 
them to thrive, we will have at best created a void that can be filled 
by others.

Importance of Interagency Coordination
    In meeting its mission of coordinating law enforcement assistance 
efforts, INL has built bridges between different agency efforts as well 
as between the law enforcement community and the overall diplomatic 
mission of the State Department. It is our experience that the most 
progress is seen in countries when the various strengths of different 
agencies can be brought to bear as part of a unified strategy, with a 
strong recognition and respect for the great expertise brought to bear 
by U.S. law enforcement officials.

Project Based Programs--Focused on Integrated Country Strategies
    INL moved aggressively, following a GAO report on assistance to 
Russia, to institute a project based approach to programs. INL no 
longer considers stand-alone training courses in our bilateral programs 
unless they form part of broader, sustainable projects that strive for 
lasting impact. INL now signs Letters of Agreement (LOA) with host 
governments that detail not only the various projects and funding 
levels in our assistance programs but the obligations of the host 
government. For example, our LOA standard provisions exempt assistance 
projects from host government taxation, establish agreed upon methods 
of monitoring and evaluation, make contingent our assistance on host 
government adherence to human rights standards, and vet participants 
for past involvement in human rights abuses and narcotics trafficking.

Country Strategies Linked to Crosscutting International Strategies
    In confronting threats that cross many borders and jurisdictions 
around the world, it is often critical that our efforts in different 
bilateral programs be coordinated so that we focus on areas that will 
have the greatest impact in promoting U.S. objectives. In this sense, 
country or regional strategies must also be coordinated with our 
overarching goals and objectives.
    In closing, I want to thank the Chairman for inviting me to speak 
with you. Based on my background and prior experiences, I strongly and 
deeply believe that we must work closely with the Congress in 
addressing the issue of transnational crime in Europe. I also believe 
that the fundamental mission of building solid law enforcement and rule 
of law structures in these nations and enhancing their capacity to be a 
vital part of a net of law enforcement across the globe, is an 
essential foundation for achieving security for our people and 
cementing the great progress that has been achieved in this region in 
the wake of the Cold War.
    Thank you.

    Senator Voinovich. Thank you.
    Welcome back. Mr. Swartz.

                         WASHINGTON, DC

    Mr. Swartz. Thank you, Mr. Chairman, and thank you for the 
invitation to the Department of Justice to testify today on the 
topic of transnational organized crime. As you noted, Mr. 
Chairman, at the outset, this is a problem that the United 
States cannot afford to ignore. It cannot afford to ignore it 
both in its own right the effects that are already beginning to 
be felt in the U.S., but also with regard to its more extended 
    As my colleagues have noted, the destabilization that 
results from organized crime can lead to consequences not only 
with regard to commerce, the effects on business, the effects 
on citizens of other countries, but can create conditions that 
will foster terrorism in the future. We simply cannot afford to 
let organized crime succeed in these states. It's also a 
problem, as my colleagues have noted, that must be dealt with 
in cooperation, in cooperation inter-agency in the United 
States, cooperation bilaterally with our law enforcement 
partners in Europe, and multilaterally, particularly with the 
European Union.
    As Ambassador Pifer noted, and as my colleague Deputy 
Assistant Secretary Schrage just noted, the State Department 
and the Department of Justice work extremely closely together 
with regard to rule of law and technical assistance programs in 
European countries and in the former Soviet Union. In 
particular, we have sent approximately at the current time 15 
Federal prosecutors to serve as resident legal advisors in 
Central Europe or Eurasia. Those resident legal advisors serve 
to help create new laws, to help advise nations with regard to 
rule of law issues, and help create conditions that have made 
possible expanded law enforcement relationships in many of 
these countries.
    In particular, I note the work that was done in Russia with 
regard to the Russian criminal code, which in turn led the 
Senate to recognize that it was appropriate to move forward on 
advice and consent with regard to the Russian Mutual Assistance 
    In addition, as you noted, Mr. Chairman, it is critical in 
these countries, and we recognize that it is not enough to 
simply work on prosecution or police, they must go hand in 
hand. And the Department of Justice, again, through working 
with the Department of State through the ICT program, the 
International Criminal Training program, seeks to ensure that 
criminal training of police takes place as well so we can 
cooperate and create a rule of law system that will effectively 
lead not only to arrests but to prosecutions.
    Bilaterally, our job is to ensure that we are working 
closely with our European partners on dealing with these 
organized crime issues, for while it is true that organized 
crime, particularly Balkan organized crime, was primarily felt 
in Europe, now we are beginning to see effects in the United 
States as well, direct effects in terms of our citizens being 
victims of that type of criminal activity. In that regard, the 
Department of Justice Criminal Division works extremely closely 
with our colleagues in the FBI, and my colleague Grant Ashley 
will discuss that as well. But we have with us today two of the 
leaders in that, the head of our organized crime racketeering 
section prosecutorial group, Bruce Orr, and W.K. Williams from 
the FBI.
    I must say that Mr. Orr and Mr. Williams really have 
recognized at an early stage the critical nature of the 
organized crime problem in its international dimension and 
together have launched an initiative to travel to other 
countries, to make it clear to them that we stand ready to work 
with them bilaterally on particular cases and to try and work 
across state lines to deal with these issues.
    We also have a number of other elements within the Criminal 
Division of the Department of Justice that are deeply engaged 
in this issue on a bilateral basis. Our Office of International 
Affairs every day deals with mutual assistance in extradition 
matters that directly involve organized crime issues. We also 
have a number of Federal prosecutors that have been closely 
involved in the Office of International Affairs in Rome, 
Brussels, London, and in Paris, with one expected to be in 
Moscow as well. Those individuals, unlike our resident legal 
advisors, can work on operational matters and particular cases, 
not simply the broader issues. They also serve to coordinate 
with the critical FBI program which has done so much to aid the 
United States in fighting organized crime.
    Finally, a number of other sections in the Criminal 
Division, the computer crimes section, the fraud section in 
particular, are involved in organized crime work.
    Multilaterally as well, particularly as the European Union 
increasingly moves to what they refer to as third pillar 
justice and human affairs issues, we find that organized crime 
is a central topic. As I'm sure the chairman is aware, in June 
of this year, Attorney General Ashcroft signed the first treaty 
between the United States and the European Union on law 
enforcement issues, addressing this topic of mutual legal 
assistance and extradition treaty. That treaty involved both 
extradition and mutual legal assistance as important provisions 
that let us deal with organized crime. In particular, the 
extradition treaty modernizes many of our older extradition 
treaties, and the mutual legal assistance treaty provides for 
joint investigative teams and greater access to bank accounts. 
We expect both of these to be important tools.
    Europol, the European police organization set up under EU 
auspices, we've worked closely with Europol to try and develop 
organized crime strategies. Members of Mr. Orr's organized 
crime group met with Europol representatives only last month in 
fact to discuss this very issue.
    We are involved as well, as my colleagues have noted, with 
the OSCE with regard to the SECI center and more generally with 
regard to the Transnational Organized Crime Convention, which 
is now pending before many countries and has been signed by the 
United States.
    We thank you again for the opportunity to discuss this 
important issue, and I would welcome any questions you might 
have. Thank you.
    [The prepared statement of Mr. Swartz follows:]

   Prepared Statement of Bruce C. Swartz, Deputy Assistant Attorney 
 General, Criminal Division, U.S. Department of Justice, Washington, DC

    Good morning, Mr. Chairman and Members of the Subcommittee. I am 
grateful to have the opportunity to address you today, and to explain 
the critical role played by the Department of Justice--in partnership 
with the Department of State--in the fight against transnational 
organized crime.
    During the past several years, the world has witnessed an 
unprecedented global expansion of organized crime groups. These 
organizations range from those focused predominantly on particular 
areas of crime, such as Colombian drug cartels, to those engaged in a 
broad range of criminal enterprises, such as Eurasian and Balkan crime 
groups. Technological advances allowing for easier communications and 
travel have resulted in multi-national cooperation among crime groups 
that had historically remained isolated and independent.
    Europe has been particularly hard-struck by the expansion of 
criminal organizations. The freedoms that resulted from the fall of 
totalitarian regimes in the east and the opening of borders within the 
European union have been exploited not only by legitimate businesses, 
but also by well organized and ruthless organized crime syndicates that 
have spread their tentacles across Europe. Most of these groups have 
shown an uncanny ability to adapt to their new environments by creating 
niches in new, or previously unexploited, areas of crime, and by 
successfully integrating with home-grown criminal organizations. 
Transnational crime syndicates also have mastered the manipulation of 
the social, economic and legal systems of the west. They hide behind 
political freedoms and privacy rights and frequently move their members 
and criminal proceeds from country to country in an effort to outstrip 
the sharing of information among national police forces. It has been a 
difficult task for law enforcement authorities in Europe and the United 
States to keep pace with these groups in light of the freedom of 
movement that they enjoy.
    In many former communist countries in the Balkans, Eastern Europe 
and the former Soviet Union, organized crime and its associated public 
corruption has reached epidemic proportions. A World Bank sponsored 
study by the Indem Foundation concluded that a $38 billion is spent 
annually in Russia on bribes. The Russian interior ministry recently 
estimated that criminal groups have used Russian banks to illegally 
transfer $9 billion out of Russia so far this year. European police 
organizations have estimated that Balkan organized crime groups control 
upwards of 70% of the heroin market in major European nations, and are 
rapidly taking over human trafficking, prostitution and car theft 
    Nor is the United States immune from the rise of European organized 
crime groups. The United States, with its open society and free 
markets, has become an increasingly attractive target for foreign-based 
organized crime. Criminal gangs from the Balkans, Eastern Europe and 
the former Soviet Union are involved in all types of criminal activity 
in the United States, from drug trafficking to organized burglary and 
home invasion robbery rings, from money laundering and securities fraud 
to traditional organized crime gambling and extortion rackets.
    The Department of Justice has taken on the multi-faceted challenge 
of coordinating much of our response to transnational organized crime 
groups, from working on specific investigations and prosecutions 
against the most significant and dangerous transnational crime figures 
to helping to formulate policy in cooperation with the Department of 
State. The day-to-day activities of Criminal Division prosecutors and 
Assistant United States Attorneys in this area are extensive. I will 
attempt to broadly outline some of the most significant roles played by 
the Division.
    Criminal Division attorneys play a leading operational role by 
handling or directly assisting in the majority of complex international 
investigations and prosecutions brought in the United States. Our 
prosecutors work closely with U.S. investigators, including special 
agents from the FBI, DEA, and the Department of Homeland Security, to 
navigate the complexities of international and domestic criminal law. 
This is particularly true where agents are investigating international 
criminal organizations with an eye towards prosecution in the United 
    Criminal Division attorneys have developed particular expertise in 
this area. They regularly work with agents on complex international 
cases that require extensive cooperation with foreign law enforcement 
authorities, and coordination among many U.S. law enforcement agencies 
and United States Attorney's Offices. Department attorneys work closely 
with Federal agents from the initial stages of these investigations to 
formulate and implement investigative and prosecutive strategies. As is 
common in the U.S. system, Department attorneys become deeply involved 
in these investigations, developing an expertise that parallels and 
complements the knowledge of the lead investigative agents.
    Prosecutors from the Department of Justice handling international 
cases also interact frequently with their foreign counterparts in 
justice ministries. In many European countries, prosecutors or 
investigating magistrates play a supervisory role, directing and 
controlling the actions of their national police forces in particular 
investigations. European prosecutors and investigating magistrates 
frequently view U.S. prosecutors as their peers in the U.S. system. 
This enables Department attorneys to further the interests of the 
agents with whom they work by negotiating and coordinating 
investigative decisions and evidence sharing issues with their foreign 
    Criminal Division attorneys handle a broad range of evidence 
sharing issues, from the issuance of mutual legal assistance treaty 
requests and letters rogatory, to the facilitation of informal 
evidence-sharing and cooperation. They also regularly coordinate 
different phases of multi-national investigations and prosecutions with 
their foreign counterparts. By understanding the complex rules 
governing discovery in various nations, Department attorneys play a 
critical role in counseling U.S. agents on timing and strategy issues 
in such cases. Criminal Division attorneys also handle international 
arrest issues by working with U.S. law enforcement agents to draft and 
submit provisional arrest warrant requests, INTERPOL red notices and 
extradition requests.
    Criminal Division attorneys also play a crucial role in 
facilitating the necessary flow of information and evidence among both 
domestic and foreign law enforcement agencies. The Department of 
Justice has access to information from many different sources, both 
domestic and international. This includes information frequently 
obtained by Department attorneys serving or traveling abroad, such as 
Office of International Affairs trial attorneys and trial attorneys 
from the Division's litigating sections. Combining the Division's 
expertise in transnational crime with this wide access to information, 
Division attorneys are able to identify critical evidentiary links and 
facilitate the broader sharing of information among U.S. and foreign 
law enforcement agencies. Moreover, due to their reputation among 
domestic law enforcement agencies as central and neutral advocates of 
the interests of the United States, Department attorneys frequently are 
able to facilitate the sharing of information and cooperation among 
various federal agencies that might otherwise not even know of their 
common interest in particular targets.
    Litigators from various sections of the Criminal Division are 
uniquely situated to handle international investigations. As they are 
authorized by law to appear and conduct investigations in any Federal 
District Court, they are not limited by the geographical boundaries of 
United States Attorney's Offices. Thus, Department attorneys frequently 
pursue leads and coordinate investigations that affect several 
different Federal districts--a task which would be much more difficult 
for an Assistant United States Attorney.
    In the organized crime area, this ability to coordinate is greatly 
enhanced by the fact that, by special Justice Department regulation, 
all organized crime prosecutions in the 21 organized crime strike 
forces across the country are directly supervised by the Organized 
Crime and Racketeering Section (OCRS) in the Criminal Division in 
Washington, D.C. OCRS is therefore in the unique position of being able 
to coordinate the nationwide prosecutive attack on domestic and 
international organized crime groups and present a single point of 
contact for organized crime cases to our prosecution counterparts in 
other parts of the world.
    Criminal Division attorneys benefit from other built-in advantages 
when working international cases. For example, being based in 
Washington, D.C., Department attorneys have the benefit of easy access 
to the headquarters of various Federal law enforcement agencies. They 
also are able to quickly and easily exchange information with law 
enforcement attaches to various embassies, and with the Europol 
liaisons stationed in Washington, D.C.. Finally, through general venue 
provisions such as those contained in title 21, Criminal Division 
prosecutors are frequently able to centralize the prosecution of 
multinational and multi-district investigations in Washington, D.C.
    The Criminal Division also coordinates with the Department of State 
and with other components in the Department of Justice and various 
Federal law enforcement agencies to help formulate U.S. foreign policy 
on law enforcement issues in Europe. This requires coordination not 
only with respect to law enforcement policies in Western Europe, but 
also regarding the development and implementation of programs to 
encourage the Eastern European and Eurasian countries, including EU 
accession states, to develop workable legal frameworks that will enable 
them to respond to the threat of organized crime while respecting the 
rule of law. Working with the Department of State, experienced Criminal 
Division attorneys regularly coordinate with EU and Council of Europe 
entities to implement and improve mechanisms to combat organized crime.
    Along with the Department of State, the Department of Justice also 
plays a direct role in coordinating with the EU and other international 
organizations to provide technical training and assistance to 
developing European and Eurasian nations. Through its OPDAT resident 
legal advisors and ICITAP program managers, the Department provides 
essential aid and educational guidance on myriad criminal justice 
issues throughout the Balkans, Eastern Europe and the former Soviet 
Union. From the development of organized crime task forces to the 
assistance in legislative drafting, the Criminal Division plays a 
crucial role in promoting stability and establishing the rule of law 
throughout the region. Division employees often provide assistance and 
training in conjunction with law enforcement officials from Western 
Europe. While they work to improve the legal systems in these 
countries, these Criminal Division representatives develop valuable 
expertise in understanding the legal and cultural systems throughout 
Europe and Eurasia, enabling them to provide expert guidance and advice 
to prosecutors and agents in the United States.
    The Balkans provide a particularly good example of the Criminal 
Division's training and assistance strategy. Working through the Office 
of Overseas Prosecutorial Development, Assistance and Training 
(``OPDAT'') and International Criminal Investigative Training 
Assistance Program (``ICITAP''), the Criminal Division has emphasized 
the development of national task forces which can work both 
independently as well as with foreign counterparts, including the 
United States, and international organizations in the fight against 
transnational organized crime. OPDAT and ICITAP assist host countries 
in fostering team-building approaches to detect, investigate and 
prosecute organized crime, including multi-functional and multi-
jurisdictional task forces. Additionally, the Criminal Division has 
provided assistance to the Southeastern Europe Coordinating Initiative 
(SECI) based in Bucharest, Romania, which provides regional 
coordination on transborder investigations and encourages the 
development of special task forces in the member countries. OPDAT and 
U.S. Federal law enforcement agencies, such as the FBI, DEA and Secret 
Service, have assisted in the development and establishment of these 
SECI-based task forces. Following the SECI example, certain Eurasian 
countries are developing a transborder law enforcement organization 
under the auspices of Guam, a regional entity composed of Georgia, 
Ukraine, Uzbekistan, Azerbaijan and Moldova. The Criminal Division, 
through ICITAP, currently is providing assistance to Guam as it 
develops this mission.
    The Criminal Division also works closely with Europol to develop 
stronger international cooperation on criminal matters. Again, due to 
their unique position within the U.S. law enforcement community and 
their broad access to information, Division attorneys are able to 
identify and focus upon particular areas where cooperation with Europol 
will be fruitful. By leveraging the benefits of Europol, such as their 
access to information throughout the EU and their strong analytical 
assets, the Criminal Division is attempting to foster greater 
information exchange with agents in the United States. At the same 
time, the Criminal Division is hoping to use the information it obtains 
from Europol to identify priority international targets for 
investigation, understanding that the best way to encourage 
international cooperation is by developing concrete cases that will 
lead to joint investigations and prosecutions.
    While mentioning Europol I should also mention the work of the 
USNCB, the American part of INTERPOL. A Criminal Division attorney 
serves as counsel for the USNCB and plays an important role in 
INTERPOL's mission of international law enforcement cooperation and 
sharing police information among INTERPOL's 181 member countries. The 
attorney also serves on several INTERPOL committees developing policy 
for INTERPOL and plays a primary role in the USNCB's job as a point of 
contact for Europol.
    In summary, the Criminal Division focuses on the issue of 
transnational crime in several ways, giving the Division the unique 
ability to meld the various functions it serves to achieve the final 
goal of successfully attacking organized crime. The Department 
understands that forging strong investigative and diplomatic relations 
is crucial. Whenever possible, we must coordinate our investigations, 
so that investigative and prosecutive steps taken in the us in pursuit 
of domestic strands of an international criminal network will not 
conflict with, and will instead enhance, similar steps taken in Europe. 
This can be achieved only through building close working relationships 
with our investigative and prosecutive colleagues in other countries. 
It also requires a thorough understanding of each others' laws and 
procedures so that we can make the cases come together and actually 
work. This job can only be tackled by U.S. agents, diplomats and other 
experts working closely together with Department prosecutors, from the 
Office of International Affairs, the Office of Prosecutorial 
Development, Assistance and Training, the United States Attorneys' 
Offices and litigating sections like the Organized Crime and 
Racketeering Section.


    The Department appreciates the interest of the Committee in this 
matter. I am prepared to answer any questions the Committee may have.

    Senator Voinovich. Thank you very much.
    Mr. Ashley.

                         WASHINGTON, DC

    Mr. Ashley. Thank you, Mr. Chairman, good afternoon. I 
appreciate the opportunity for the FBI to present comments 
regarding Eurasian organized crimes, a topic that is of great 
interest to committee and high in priority to the FBI.
    We are developing a variety of anticrime efforts both here 
in the United States and abroad to combat these dangerous 
threats. One of the more effective ways to fight international 
crime is by building cooperative partnerships between the U.S. 
law enforcement and our overseas counterparts. Without these 
relationships there cannot be a commonality of purpose, or an 
open communication which is required for success. More and more 
of these bridges are being built and the successes are already 
    A number of Russian and Eurasian organized crime groups and 
criminal enterprises are operating in the United States, the 
most significant being the Solntsevskaya criminal enterprise. 
These enterprises may be broadly categorized as structured 
criminal organizations like the powerful Solntsevskaya and 
Ismailovskaya enterprises. Both these groups are present in the 
United States and are attempting to gain a foothold in our 
country. They are engaged in extortion, kidnaping, drug 
trafficking, murder, prostitution, and a number of frauds.
    The FBI currently has 245 ongoing cases dealing with 
Eurasian organized crime. In addition to the criminal activity 
we have cited above, the Eurasian organized crime enterprises 
have been identified in cases involving white slave 
trafficking, prostitution, hostage taking, transportation of 
stolen property for export, insurance fraud which is generally 
staged auto accidents, and medical fraud involving false 
medical claims, engagement in counterfeiting, credit card 
forgery and murder.
    During 1998, Russian organized crime suspects were arrested 
in Chicago for violation of visa fraud. The investigation 
determined that young females from Latvia were being recruited 
to the United States and held against their will. These women 
were forced to work at topless adult entertainment 
establishments which were owned and operated by Russian 
organized crime figures.
    I would like to discuss one of our efforts, which I believe 
to be one of the most innovative approaches to cooperative law 
enforcement that you will find anywhere in the world. I'm 
speaking of the joint FBI-Hungarian National Police Organized 
Crime Task Force that's operating out of Budapest, Hungary. 
During 1999 it became imperative that the United States adopt a 
new approach to bring about broader cooperation in the 
international law enforcement community, as well as have a 
strategy for implementing approaches that would benefit both 
the United States and its international partners. Given the 
threat situation, Budapest, Hungary seemed to be the logical 
place to initiate this strategy.
    Currently four FBI agents and 7 elite officers from the 
Hungarian National police are assigned to this task force and 
are collocated in Hungarian National Police space. These agents 
can acquire direct real time information and intelligence, 
which provides support for ongoing investigations of criminal 
activity throughout the country. As a result of the cooperation 
of the Hungarian National Police, the FBI has been able to 
develop intelligence involving Eurasian organized crime 
activities throughout Europe impacting the United States. This 
allows agents to thwart these organized criminal enterprises 
before they reach or become firmly established in the U.S. as a 
result of this cooperation, criminal activities impacting the 
U.S. have been identified.
    The success of the Budapest task force has encouraged other 
foreign law enforcement counterparts to seek expansion of this 
concept to address the threat of transnational criminal 
enterprises at the source country before a nexus to the United 
States exists.
    The Balkan Organized Crime Initiative consists of 
addressing organized criminal activity emanating from the 
following nations: Slovenia, Croatia, Serbia-Montenegro, 
Bosnia-Herzegovina, Albania, Kosovo, the former Yugoslav 
Republic of Macedonia, and Greece. It is a relatively new 
program but a very high profile endeavor on the part of the FBI 
and is a major focus. Balkan organized crime, specifically 
Albanian organized crime, is an emerging organized crime 
problem with international ramifications and has been 
identified and is being addressed in 12 FBI field offices 
throughout the United States.
    I appreciate the interest of this committee and with your 
permission I would like to place a more detailed statement in 
the record and answer any questions you may have.
    [The prepared statement of Mr. Ashley follows:]

  Prepared Statement of Grant D. Ashley, Assistant Director, Criminal 
Investigation Division, Federal Bureau of Investigation, Washington, DC

    Good morning Mr. Chairman and members of the Subcommittee on 
European Affairs. On behalf of the Federal Bureau of Investigation 
(FBI), I would like to express my gratitude to the subcommittee for 
affording us the opportunity to participate in this forum and to 
provide comment to the subcommittee on issues related to Eurasian 
organized criminal enterprises, a topic that is of great concern to the 
FBI as well as to this committee. It is our belief that the 
international growth of these very dangerous, criminally diverse and 
organized groups and their emergence in the United States has caused a 
significant expansion of our crime problem. The FBI and DOJ are taking 
an aggressive stance in addressing these organized criminal 
enterprises, domestically and internationally, to help other nations 
battle these groups and to prevent them from becoming entrenched in the 
United States.
    Organized criminal enterprises are no longer bound by the 
constraints of borders. Such offenses as terrorism, organized crime, 
computer crime, and drug trafficking have spilled from other countries 
into the United States. Regardless of origin, these and other overseas 
crimes directly impact U.S. national security and the interests of our 
citizens. Eurasian organized crime, because of its size, wealth and 
international reach, poses some of the greatest threats in this regard.
    We have developed a variety of anti-crime efforts both here and 
abroad to combat these dangerous threats. One of the most effective 
ways to fight international crime is by building investigator-to-
investigator and prosecutor-to-prosecutor bridges between American law 
enforcement and our overseas counterparts. Without these relationships, 
there cannot be the commonality of purpose and open communication 
required for success. More and more of these bridges are being built, 
and successes are flowing from them.
    We are using a number of approaches to develop cooperative law 
enforcement programs with other countries. For example, our Legal 
Attache program works closely with a large number of foreign police 
forces, forming a sort of distant early warning system to alert us to 
new and emerging crime threats. Interpol's United States National 
Central Bureau, to which the FBI has detailed four special agents and 
the criminal division one trial attorney, also plays an important role 
in coordinating with our European counterparts on a wide array of 
organized crime issues. Similar programs at other U.S. law enforcement 
agencies also render invaluable service in forging close bonds with our 
foreign counterparts and allowing us early identification of foreign 
criminal enterprises attempting to expand to the United States. 
Training is another powerful tool. The FBI, DOJ's Criminal Division, 
and other department components, in coordination with the Department of 
State, assist our foreign law enforcement counterparts through training 
here and abroad. Finally, the FBI's cutting edge technique for 
addressing transnational European organized crime is the joint FBI/
Hungarian National Police Organized Crime Task Force. I will provide 
additional details on the task force and our broader efforts at 
cooperation and coordination later in my testimony.

                       DESCRIPTION OF THE THREAT

    The subject of the committee's hearing today covers crime groups 
categorized by the FBI under three distinct labels--Eurasian organized 
crime, Italian organized crime and Balkan organized crime. I will 
discuss the problem primarily in terms of Eurasian organized crime 

                        EURASIAN ORGANIZED CRIME

    ``Eurasian organized crime'' is the term applied by the FBI, to the 
phenomenon of organized crime associated with persons originating from 
Russia, Eastern and Central European countries, as well as the other 
independent states created following the collapse of the Soviet Union. 
Most members of Eurasian organized crime groups in the United States 
originated in the territories of the former Soviet Union, particularly 
in Russia, the Ukraine, and to a lesser degree from the Baltic States, 
principally Lithuania and Latvia.
    The fall of communism was one of freedoms greatest triumphs over 
oppression. However, the breakup of the old Communist states and the 
economic and social upheaval that followed in the 1990s also created 
fertile ground for the rapid rise of sophisticated, ruthless organized 
crime groups in many former Communist countries.
    In many of those countries organized crime and its attendant public 
corruption have reached epidemic proportions. To cite but one example, 
the Russian Interior Ministry recently estimated that over half of the 
Russian economy, including significant portions of its vast energy and 
metallurgical sectors, is controlled by organized crime. The Russian 
Interior Ministry recently estimated that, in a country where by some 
accounts over half the population earns less than $70 a month, in this 
year alone criminal groups in Russia have used Russian banks to 
illegally transfer $9 billion out of the country. Similar sobering 
statistics can be cited for many other countries in the region. In 
these countries the reality is that organized crime and corruption have 
become an accepted fact affecting almost every aspect of daily life.
    The end of the cold war also provided significant, unintended 
opportunities for organized crime groups and criminal enterprises in 
former Communist countries to expand internationally to Western Europe 
and beyond. Evidence that organized crime activity from these areas is 
expanding and will continue to expand to the United States is well-
documented. Criminal groups from the Balkans, Eastern and Central 
Europe and the former Soviet Union are involved in all types of 
criminal activity in the United States, from drug trafficking and human 
trafficking to burglary and home invasion robbery rings, from money 
laundering and securities fraud to traditional organized crime gambling 
and extortion rackets.
    The FBI and DOJ prosecutors have many years of successful 
investigative and prosecutorial experience in the battle with la Cosa 
Nostra and other organized criminal enterprises here in the United 
States. We view organized crime as a continuing criminal conspiracy 
having a firm organizational structure, a conspiracy fed by fear and 
corruption. This definition also applies to the Eurasian organized 
crime threat facing Europe and Russia and now the United States.
    A number of Russian/Eurasian organized crime groups and criminal 
enterprises operate in the United States. They may be broadly 
categorized as falling into two types. The first type may be more aptly 
called ``fraud and other types of crimes, all designed to obtain money, 
perpetrated by Russian-speaking individuals.'' In this fraud/financial 
crime area, we often see what appear to be crimes of opportunity, 
sometimes perpetrated by a few individuals or by loosely-structured 
groups. The second type, structured organized crime groups, like the 
powerful Russian Solntsevskaya and Ismailovskaya criminal enterprises, 
have members here in the United States and are attempting to get a 
foothold in the U.U. These groups, when they resort to extortion, 
kidnaping, drugs, murder, prostitution and fraud for their main sources 
of revenue, are sometimes easier to identify, collect evidence against 
and ultimately convict and incarcerate. On the other hand, when well-
organized groups deploy their full resources in money laundering or 
other complex white collar schemes such as stock market manipulation, 
health care fraud, and insurance fraud, they can be very difficult to 
detect and prosecute.
    The genesis of Eurasian organized crime in the United States dates 
to the 1970's when significant numbers of Soviet emigres first arrived. 
Most of the estimated 100,000 emigres who entered the United States 
during the 1970's and 1980's were Soviet Jews fleeing religious 
persecution and political dissidents. A very small cadre of criminals 
within this otherwise law-abiding emigre population constituted the 
base of domestic Eurasian organized crime enterprises operating in the 
United States. The dissolution of the Soviet Union in 1991 fostered 
another wave of emigration to the United States, with thousands of 
emigres taking advantage of the lifting of travel restrictions to flee 
dismal economic conditions in the former Soviet Union. While the vast 
majority of these individuals in this wave were also hard-working and 
law-abiding, this exodus resulted in an increased presence in the 
United States of both domestic and foreign-based Eurasian organized 
crime enterprises. This emergence of foreign-based Eurasian organized 
crime enterprises following the advent of capitalism and privatization 
in the former Soviet Union after 1991 has changed the scope of the 
threat posed by Eurasian organized crime enterprises from a localized 
problem to one of international proportions. In the 1990's, Eurasian 
organized crime enterprises emerged as national and global threats.
    The FBI currently has 245 ongoing cases dealing with Eurasian 
organized crime. Fraud, transnational money laundering, extortion, drug 
trafficking and auto theft are the most frequent violations cited in 
FBI Eurasian organized crime cases. Most significantly, nearly 60 
percent of all FBI cases targeting Eurasian organized crime involve 
some type of fraud. In addition to the violations cited above, Eurasian 
organized crime enterprises have been identified in cases involving 
white slave trafficking/prostitution, hostage taking, extortion of 
immigrant celebrities and sport figures, transportation of stolen 
property for export, insurance (staged auto accidents) and medical 
fraud (false medical claims), counterfeiting, credit card forgery, and 
    Examples of significant Eurasian organized crime cases abound. In 
1991, the U.S. Attorney's office in Los Angeles charged 13 defendants 
in a $1 billion false medical billing scheme that was headed by two 
Russian emigre brothers. On September 20, 1994, the alleged ringleader 
was sentenced to 21 years in prison for fraud, conspiracy, 
racketeering, and money laundering. He was also ordered to forfeit $50 
million in assets, pay more than $41 million in restitution to 
government agencies and insurance companies victimized by the scheme.
    The first significant Eurasian organized crime investigation 
involving a major underworld figure in the United States concerned 
Vyacheslav Ivankov, one of the most powerful international Eurasian 
organized crime bosses. Ivankov led an international criminal 
organization that operated in numerous cities in Europe, Canada, and 
the United States, chiefly New York, London, Toronto, Vienna, Budapest, 
and Moscow. The investigation was initiated in 1993 after the FBI was 
alerted to Ivankov's presence in the United States by the Russian 
Ministry of the Interior (MVD).
    In June 1995, Ivankov and five others were arrested by the FBI. In 
July 1996, Ivankov was found guilty on numerous counts of extortion and 
conspiracy and in January 1997, the Eastern District of New York 
sentenced Ivankov to 115 months of incarceration and 5 years of 

                        ITALIAN ORGANIZED CRIME

    The second organized crime threat afflicting Europe and poised to 
attack the United States is composed of Italian organized crime (IOC) 
groups. The best known of these groups is the Sicilian Mafia, but other 
significant Italian organized crime groups include the Neapolitan 
Camorra, the Calabrian 'ndrangheta and the Puglian Sacra Corona Unita. 
Long dominant in some of the lesser-developed regions of Italy, there 
are increasing signs that elements of these criminal organizations are 
attempting to expand their reach beyond Italy's borders.
    For example, pending investigations reflect that there continues to 
be a nexus between the United States' domestic la Cosa Nostra (LCN) 
families and the Sicilian Mafia. Travel by senior United States LCN 
members to Sicily has been noted on several occasions. Elements of 
Italian organized crime continue to traffick drugs to and from the 
United States and launder their money from criminal activity in the 
United States, and members/associates of the Neapolitan Camorra are 
engaged in the sale of counterfeit consumer goods in the New York/
Newark metropolitan area, Chicago, Los Angeles, and San Diego.
    In cooperation with our Italian law enforcement counterparts, we 
continue to attempt to identify and target members of traditional IOC 
groups engaged in criminal activity in both countries, as well as to 
identify and locate fugitives from our respective criminal justice 
    The Direzione Investigativa Antimafia (DIA) has advised that with 
respect to traditional organized crime activity in Italy, the Calabrian 
'ndrangheta has evolved from kidnapings for ransom to drug trafficking 
and the systemic corruption of public officials to gain lucrative 
municipal contracts. The Neapolitan Camorra is reportedly developing a 
more ``entrepreneurial mentality'' and is expanding its criminal 
activity beyond its traditional extortion rackets to the smuggling of 
counterfeit and non-taxed cigarettes. It is further reported that the 
Camorra is attempting to interject itself into the legitimate economies 
of Eastern Europe. The Puglian Sacra Corona Unita is allegedly taking 
advantage of its geographic proximity to the Balkans to align itself 
with Balkan organized criminal groups engaged in arms and cigarette 
smuggling, trafficking in humans, and alien smuggling.
    Through the auspices of and in coordination with the FBI's office 
of the Legal Attache in Rome, operational relationships continue to be 
developed between FBI special agents and U.S. Federal prosecutors and 
their counterparts in Italy, to include investigative magistrates, the 
Italian national police, the Drezione Investigativa Antimafia, 
Carabinieri and Guardia d'finanza.
    In conjunction with the cross border initiative with Canada, the 
Royal Canadian Mounted Police and the FBI have identified IOC 
enterprises criminally active in both countries, and are working 
jointly to address these criminal enterprises as I speak.

                         BALKAN ORGANIZED CRIME

    The Balkan Organized Crime (BOC) Initiative, which consists of 
addressing organized criminal activity emanating from Slovenia, 
Croatia, Serbia-Montenegro, Bosnia-Herzegovina, Albania, Kosovo, the 
Former Yugoslav Republic of Macedonia (FYROM), and Greece, is a 
relatively new program, and a very high profile endeavor on the part of 
the FBI's Organized Crime Section (OSC) and DOJ's Organized Crime and 
Racketeering Section (OCRS). Balkan organized crime is an emerging 
organized crime problem with transnational ramifications that has been 
identified and is being addressed in 12 FBI divisions throughout the 
United States.
    Balkan organized crime groups, particularly those composed of 
ethnic Albanians, have expanded rapidly over the last decade to Italy, 
Germany, Switzerland, Great Britain, and the Scandinavian countries, 
and are beginning to gain a foothold in the United States. In the last 
year or two, European nations have recognized that Balkan organized 
crime is one of the greatest criminal threats that they face. European 
police organizations now estimate that Balkan organized crime groups 
control upwards of 70% of the heroin market in some of the larger 
European nations, and are rapidly taking over human smuggling, 
prostitution and car theft rings across Europe.
    Domestically, Albanian organized crime groups have been involved in 
murders, bank and ATM burglaries, passport and visa fraud, illegal 
gambling, weapons and narcotics trafficking, and extortion. In New York 
City, the Albanians have actually challenged the LCN for control of 
some traditional criminal activities which have historically been the 
mainstay of LCN family operations. Albanian OC groups have also formed 
partnerships with the Gambino, Genovese, and Luchese LCM families to 
facilitate specific crimes.
    While the Albanian organized crime groups have a well-deserved 
reputation in underworld circles for extreme violence, they are also 
knowledgeable about United States sentencing guidelines. For example, 
rather than rob a bank at gun-point with employees and customers 
present, and potentially receive a long sentence, we have seen them 
burglarize the bank after hours by smashing into unguarded ATMs through 
brute force.

                       ORGANIZED CRIME TASK FORCE

    The Department and the FBI are working hard at many different 
levels to improve law enforcement cooperation between countries and 
engineer multi-national cases that attack the most dangerous 
transnational criminal enterprises operating between Europe and the 
United States. I would like to begin my discussion of our efforts by 
talking about one of the most innovative approaches to cooperative law 
enforcement to be found anywhere in the world--the joint FBI/Hungarian 
National Police Organized Crime Task Force in Budapest, Hungary.
    The events that triggered the need for this task force arose from 
the collapse and fragmentation of the Soviet Union. As I previously 
noted, following the collapse, organized crime exploded throughout 
Russia, the new republics, and Eastern Europe. By the mid-1990s, the 
Moscow-based Solntsevskaya criminal enterprise emerged as the largest 
and most powerful Russian organized crime group. In 1995, one of the 
strongest Solntsevskaya factions, led by Semion Mogilevich, established 
its headquarters in Budapest, Hungary. Budapest was attractive to such 
groups because, among other things, it maintained a stable, 
sophisticated banking system, as well as contact with Western 
countries. Mogilevich employed the safe haven in Hungary to direct his 
criminal operations against the United States.
    During 1999 it became imperative for the United States to adopt a 
new approach to bring about broader cooperation in the international 
law enforcement community, as well as a strategy for implementing an 
approach that would benefit the United States and its international 
partners. Given the situation, Budapest, Hungary seemed to be the 
logical place to initiate this new strategy.
    The U.S. and Hungarian Governments accordingly agreed to set up a 
joint task force where FBI and Hungarian National Police officers would 
work side-by-side to investigate organized crime cases. Currently, four 
FBI agents and seven elite officers from the Hungarian National Police 
are assigned to the task force.
    The impact of the task force was immediately apparent. The 
Ukrainian-born Mogilevich fled Budapest for Moscow. The enhanced 
assistance provided by the task force enabled United States prosecutors 
from the Philadelphia Organized Crime Strike Force to obtain 
indictments charging four subjects, including Mogilevich, with money 
laundering, securities fraud, and rico conspiracy.
    With Eastern Europe as the center of the intelligence base, FBI 
agents can acquire evidence in direct, ``real time.'' With the 
cooperation of the Hungarian National Police, FBI agents have been able 
to develop intelligence involving Eurasian organized crime networks 
throughout Europe. This allows agents to thwart Eurasian organized 
criminal enterprises before they reach the United States.
    The task force has established itself as the most elite 
investigative unit in Hungary. Members employ sophisticated 
investigative techniques regularly used by the FBI and other U.S. 
investigative agencies but previously unknown in Hungary. As a result, 
organized crime investigations have been initiated throughout the 
world, as well as in a number of FBI field offices throughout the 
United States. The success of the Budapest task force has encouraged 
other foreign law enforcement counterparts to seek expansion of this 
concept to address the threat of transnational criminal enterprises at 
the source countries where links to the United States exist.


    We appreciate the interest of the committee in this matter. I am 
prepared to answer any questions the committee may have.

    Senator Voinovich. Thank you, Mr. Ashley. I have just been 
informed that I have to excuse myself and go vote, so we will 
take a little break and then continue with the questioning.
    Senator Voinovich. The hearing will come to order. The 
first thing I would like to discuss, Mr. Ashley, you were 
talking about some of these foreign operations here in this 
country, the Russians in Chicago, and I have heard about them 
in New York and New Jersey. Have we seen a marked increase in 
the involvement of foreign organized crime operations entities 
in the United States in the last several years?
    Mr. Ashley. Yes, Senator. Not only have we seen an increase 
in the amount of the activity but the complexity of their 
crimes and the true transnational nature of the crimes is 
becoming more apparent.
    Senator Voinovich. In other words, they are operating, it 
sounds to me like the old-time Cleveland Mafia, you know, shake 
downs, all the rest of that stuff that they do. And now they 
are, I was just thinking on the way over here, we are exporting 
a lot of our jobs overseas and they are importing all of their 
crime organizations here.
    Mr. Ashley. We see basically two types of criminal activity 
that these groups are engaged in. Some of the localized, the 
extortion, the shake downs that they historically use, and the 
extreme violence which they are well known for. And then the 
more enterprise-related crimes that bleed over into western 
Europe, the United States, Baltic, and all these areas, and 
that's where the human trafficking, the drug trafficking, money 
laundering, weapons trafficking, all these types of very 
sophisticated crimes come in.
    Senator Voinovich. So the Ukraine, from what I understand, 
is a big source of human trafficking, which they start there 
and they just line up these folks and then they figure ways to 
get them into the United States.
    The question I would like to ask all of you is, do you have 
the resources here in the United States to deal with this? If 
it's escalating, it appears that more effort needs to be put 
out to make sure that it doesn't continue to spread, and I 
would like your comment on that.
    Mr. Ashley. Senator, I'm a little uncomfortable to put 
myself in the position of estimating the Director's need for 
the resources of the FBI, but I can say that the problem is 
getting greater, the challenges to all law enforcement in the 
U.S. as well as overseas is going to stretch our available 
resources even more so.
    Senator Voinovich. Is part of the problem the fact that 
more and more resources are going to deal with terrorism and as 
a result of that, there is some moving away from resources that 
would ordinarily be engaged in dealing with criminal 
organizations from overseas?
    Mr. Ashley. We had a program approved by the House and 
Senate that did move some criminal resources. It's also 
important to note that these cases are very resource intensive. 
If we're going after the right transnational organizations and 
using the right techniques, there will be extensive wire taps, 
undercover activity, financial transaction investigation, a lot 
of overseas work, and they take a lot of time and money.
    Senator Voinovich. This is a side line, another area I have 
been working on for quite a few years, and that is the issue of 
human capital and resources, and you might be interested in 
knowing that we're looking at all law enforcement outside of 
homeland security in terms of the pay scale and the rest of it. 
We're hearing from some of your agents around the country who 
complain that their locational pay is so inadequate they have 
to live 60 miles out of town. A lot of what we're talking about 
here has got to do with people and with homeland security, you 
know, they are part of a new personnel system. But they're 
looking at that and I think it's important that we look at 
what's happening in the other law enforcement areas so we don't 
have this inconsistency there in terms of pay and so on, so 
that we can attract the people that you can and keep them on 
    In terms of the United States, I'm really interested in the 
organizational structure here, because I will be candid with 
you, and I have been briefed a couple of times confidentially 
about what's going on, and the fact of the matter, is it 
frightens me how organized these people are. And I think to 
myself, if we're going to do anything about this, it's really 
going to take some good organization, and the issue is, are you 
all organized here?
    Is there coordination here among whatever resources you 
have, do you think going on, and I know it's a difficult 
question to answer, but in the United States, do you think that 
there is enough communication going on between the various 
agencies that are responsible for dealing with the people that 
have come here?
    Mr. Ashley. Senator, I do believe that the coordination 
between the Federal agencies as well as the other partners in 
this in the United States is nothing short of exceptional. 
Yesterday, I had Department of Justice, other Federal agencies 
and other investigators involved with the Budapest project in a 
coordination meeting to ensure that everything we do is toward 
the stated objectives, fully coordinated on a national and 
international basis. It is the future threat for the United 
States and that's the only way we can operate effectively.
    Senator Voinovich. So would you all agree with me?
    Mr. Swartz. Mr. Chairman, if I may add, and I fully concur 
in Mr. Ashley's statement. I think from a law enforcement point 
of view, the coordination is outstanding. The Criminal 
Division, as I noted, has an organized crime and racketeering 
section, which in turn supervises 21 organized crime strike 
forces in the U.S. attorney's offices. And again, thanks to the 
work of Mr. Orr and Mr. Williams, I think it's fair to say that 
there is no matter on which we are not working directly 
together in this contest.
    Similarly with regard to the international aspect, as my 
colleagues at the State Department have said, they are people 
we work with regularly on these cases.
    Senator Voinovich. So in the United States, it seems that 
the coordination, you have these task forces now locally where 
there is a lot more coordination going on between you and local 
enforcement, so, that's good.
    Ambassador Pifer.
    Ambassador Pifer. Mr. Chairman, I also view this from 
another perspective from my experience in Ukraine, so I think 
there is really a need for coordination in the field. Under the 
auspices of our country team in Ukraine, we brought in a range 
of State Department sections but also other agencies to address 
the crime and corruption problems. For example, we had legal 
attaches working with their counterparts on specific legal 
cases. We also had a regional legal advisor who was doing 
various programs with Ukrainia law enforcement agencies in 
terms of providing equipment and training. We have various 
international development programs that were designed to attack 
crime from another area, programs to basically improve the 
judiciary and more broadly, civil society.
    We also looked at crime and criminal issues with our public 
affairs section, ensuring that who do we want to send to the 
United States on exchange programs that would expose them to 
anti-corruption techniques and then bring those folks back. But 
we have very good coordination within the embassy and we want 
to make sure that the kind of coordination is replicated in the 
field, and I think that's the case in most of our areas.
    Senator Voinovich. Mr. Schrage.
    Mr. Schrage. One of the reasons INL was created was to 
serve as a central point for much of the international law 
enforcement and we work very closely to help coordinate efforts 
to help obtain the unified front in this battle. We work 
extremely close and think we do, as everyone here said, see a 
lot of each other, we coordinate priorities and how we move 
forward in these areas.
    Senator Voinovich. The coordinator in the United States is 
who, who coordinates it? Is that the Attorney General?
    Mr. Swartz. Mr. Chairman, the Attorney General coordinates 
certainly the prosecution for organized crime matters within 
the United States, obviously Director Mueller and our other law 
enforcement agencies within the Department of Justice.
    Senator Voinovich. And is the State Department also 
involved because of their relationship with some of these 
countries and so on?
    Mr. Swartz. It is certainly closely coordinated with State 
when it has international implications. I have met with 
Ambassador Pifer on many occasions on these matters, so 
consistent with our obligations, yes, we do try and coordinate 
case matters when necessary. And then multilaterally, I think 
it's fair to say internationally, we work directly with State 
Department and we share responsibility there on policy issues.
    Senator Voinovich. Ambassador Pifer, you said that you're 
impressed with what they are saying. Take the Ukraine for 
example. Is our Ambassador to the Ukraine in that office 
responsible for coordinating among those agencies? In other 
words, for example, I know many FBI agents may be on board and 
maybe even some CIA agents and so on and so forth, but that's 
being run by the Ambassador, is that how that works?
    Ambassador Pifer. Sir, I cannot speak for my successor, but 
when I was in Kiev I had a practice of meeting once every 2 
weeks with my legal attache, whether we had a fire or not. The 
idea was to make me think about for at least 20 minutes the 
sorts of issues he had to worry about. And when I was there, 
the Ambassador had the authority and responsibility as the head 
of the country team for the coordination. What I normally did 
was ask my deputy chief of mission to hold regular meetings to 
ensure all the pieces were moving in the same direction.
    And I very much suspect that my successor is doing 
something similar, Ambassador Herbst, who as part of his 
briefing process was very much made aware of some of the crime 
and corruption problems in Ukraine.
    Senator Voinovich. Does the State Department have either 
public or confidential lists of the countries and the problems 
that are there, and where the infrastructure in the area of the 
criminal justice areas is important at that particular time, 
and a priority list so that there is a master plan of where we 
are vulnerable and where we need to do work and how we're doing 
and so on?
    Mr. Schrage. We do have prioritization processes or lists 
for country specific threats. For example, I briefed the 
Congress quite a bit about terrorist financing and money 
laundering, and I believe as you pointed out, in terms of 
personnel resources, some of the critical limits we face aren't 
always just dollars, it's the personnel to address some of 
these matters. I look at the threats related to terrorist 
financing and my office alone, I co-chair a process where we 
look around the world to look at the priorities, where we need 
to go to bolster our activities.
    Senator Voinovich. That's the threat assessment, saying 
we're vulnerable, and worked through your embassy, I suppose?
    Mr. Schrage. We work through the embassy but we also work 
through the interagency group and representatives from the 
Justice Department, Treasury, NSC, from all the agencies 
involved, to come up with a unified strategy and plan.
    Senator Voinovich. I was a big promoter of expansion of 
NATO to include Bulgaria and Romania, and we made it very clear 
to those folks that they needed to take action to combat 
corruption and promote the rule of law. Is there any document 
which shows whether or not they have made any progress in those 
areas? Who keeps track of that? Is that the State Department?
    Ambassador Pifer. That's our tracking that we would have at 
the country desk based on the reports it gets from the embassy, 
but also with close coordination with INL, to make sure the 
problem was being managed better, or whether we need to feed 
new resources. As part of our assistance effort, we have an 
assistance coordinator who is in charge of the Freedom Support 
Act and also the SEED programs, but they also look for programs 
that INL works. We try to solve problems in a coordinated way, 
and we try to respond to what's going on. For example, there 
may be more resources devoted to the counter-narcotics problem 
in Central Asia because we see increasing flows of narcotics 
coming out of Afghanistan, but we have a multitasked effort.
    Senator Voinovich. Has there been an increase, not to get 
away from this subject, but has there been an increase in this 
activity in Afghanistan?
    Ambassador Pifer. My sense is, and please don't quote me, 
the problem on our part has certainly gotten increased 
attention. Over the last 2 years we've had an Afghanistan 
focus, and there's a specific group that looks at counter-
narcotics, and we get cooperation there.
    Senator Voinovich. It's a little hard to understand because 
we have troops over in Afghanistan, and if the problem is 
greater today than it was before, what's the reason?
    Ambassador Pifer. I am not able to compare numbers with, 
say, 3 years ago, but it is certainly very important.
    Senator Voinovich. Well, it gets back to the coordination 
now. So you are working with this individual desk, so you have 
some idea of where you need to build infrastructure, you have 
an idea where you need to put some resources--you have some 
problems with organized crime going on there with threat 
assessments coordination is important.
    The next issue is on a bilateral basis, how much 
coordination do you do with other countries? For example, 
you've got the OSCE, somebody mentioned that they are in the 
business of building infrastructure, particularly 
infrastructure to promote the rule of law. Is there any 
interface with the OSCE? Does anybody coordinate with their 
efforts or perhaps another one of our allies that may have an 
interest there? How does that work?
    Ambassador Pifer. Well, speaking from my experience in 
Ukraine, and I have no reason to believe that they have done 
away with this practice, our Agency for International 
Development mission in Kiev regularly had a donors meeting 
where we would bring together not just our contributing 
organizations, but also the European Union, and we would engage 
with countries that also had bilateral programs. We would bring 
in the World Bank, the IMF, those types of groups. And the idea 
there was let's look at the range of the assistance programs 
we're doing in Ukraine, and are there areas where we're 
duplicating efforts, and are there areas where we have left 
critical problems uncovered. So there was some coordination, it 
was certainly not as effective as within the U.S. Government, 
but there was some effort to make sure we were working in a 
very coordinated way.
    Senator Voinovich. But that's bilateral U.S.-Ukraine 
interaction, and then you look around for other organizations 
that are there to see if you can work with them.
    Ambassador Pifer. Right. And there are other examples. For 
example, looking at the narcotics problem and the issue of 
Central Asia, because we worked very closely with the United 
Nations Office on Drug and Crimes, and provided some assistance 
to them to help strengthen their presence for their work in 
Central Asia. Tajikistan established a fairly good drug 
enforcement agency, and we have been working with the United 
Nations Office on Drugs and Crime to take that model and 
replicate it in Kyrgyzstan, because we think there is a good 
model, it seems to work, and the focus here is aiding the host 
nation to gain the capacity to deal with this narcotics issue.
    Senator Voinovich. So you have the U.N. involved in that?
    Ambassador Pifer. Yes, sir.
    Senator Voinovich. I know that Erhard Busek now has control 
of the Stability Pact, and you also put SECI underneath his 
jurisdiction. What kind of coordination is going on between 
SECI and the Stability Pact in terms of what you're doing over 
    Ambassador Pifer. Mr. Chairman, could I get back to you? I 
think there is close coordination, but in specifics, I think it 
would be better if I got back to you.
    Mr. Swartz. I can comment briefly on our experience over 
there. We have met with Stability Pact representatives in 
regard to what steps can be taken to strengthen SECI. We also 
have our representative in Brussels from the Department of 
Justice Criminal Division and he has been involved in some of 
the SECI entities such as the anticorruption issue. In 
addition, our organized crimes representatives have attended 
meetings, most recently the ministerial.
    Senator Voinovich. One of the things that seems to bother 
me is that they have lots of meetings over there, groups, 
everybody is going to meetings. The issue is, who really looks 
at, sits down and looks at the local operation over there? You 
have the United Nations, you have OSCE, you have SECI, the 
Stability Pact, the United States. You know, if the people that 
we're dealing with are organized and do franchising in places 
and have this thing really organized, what are we doing to 
develop the same kind of an organization that can counteract 
it? Understanding that we can't do it all by ourselves in the 
United States, who should be the person in your opinion that's 
sitting down in a room looking at what everyone is doing, an 
orchestra leader? We've got all these people out there in 
sections of the orchestra, and how do we orchestrate this 
    For example, Richard Monk was in from the OSCE, and I 
happen to know a lot about what they're doing with building 
police capacity, because I have a former state trooper that I 
get e-mails from often. He used to work with the OSCE in 
Kosovo, and I knew more about what was going on sometimes than 
I think the State Department knew what was going on. Now they 
picked him up, and he works with Richard Monk and the OSCE in 
Vienna. But they have five people in that operation and they're 
going into countries and trying to build a police force, and I 
think to myself, are you the only ones that are doing that? Is 
the United States involved in your efforts here? Does the left 
hand know what the right hand is doing here?
    Mr. Swartz. Mr. Chairman, I think that's a very valid 
inquiry, one that we certainly try to work at both from the 
Department of Justice and Department of State perspective. We 
were recently involved in a conference call from London, which 
was an attempt really to bring together the various groups. The 
position we've taken at the Department of Justice on this is 
that as you say, meetings are good, but we need to try where we 
can to develop some cases, investigations and prosecutions, and 
some practical programs such as witness protection programs. We 
will continue to work closely with State to push that issue 
forward, particularly in the EU context. I can't say that we've 
reached the stage of having a division of responsibilities but 
it is certainly one of the items that we are concerned with, 
and State may be able to add to that.
    Mr. Schrage. I just wanted to add that there are a number 
of different groups and there are a number of many different 
players, and we work very closely with those. For example, we 
worked very closely through the London conference to come up 
with action plans to help coordinate assistance. Again, where 
the rubber meets the road is going to be trying some of these 
people and seeing that it has moved forward and actually 
results in real results. In addition, we are now quoting the 
efforts of the G-8 in something called the CTAG, the Counter-
Terrorism Assistance Group that was set up during the last 
presidency of the G-8. It's led by the SIG group at the State 
Department, but many of the efforts that have been brought are 
involved with the law enforcement efforts, and we're looking 
with the major donors to look and see that we're not 
duplicating efforts. So I think there are numerous efforts 
underway in different organizations bringing different 
strengths, and we're trying to look across all those different 
area and make sure that these assets are managed in an 
effective manner. The EUR has special authorities and interests 
in terms of mutual assistance but also in terms of having more 
operational authority in terms of developing assistance 
programs, so we work very closely with the special region. INL 
looks both at the EUR and globally to see which pieces of this 
fit together well and how we can work with different partners.
    Senator Voinovich. But you don't know whether the State 
Department has someone who was looking across the field to see 
what was going on? For example, somebody mentioned the SECI 
operation in Bucharest. From what I understand, you know, that 
doesn't have staff to undertake a lot. Does anyone do an 
analysis of whether or not they're doing the job they're 
supposed to be doing and whether or not they have the resources 
to do it? If we really wanted to do something about this 
problem and get organized against organized crime, then what 
entity in the Federal Government should be the one that brings 
these people to the table and says look, we need to get serious 
about this, and we have everybody doing these separate things, 
and we have to somehow bring this together so we can do a 
better job.
    Ambassador Pifer. Mr. Chairman, the answer may be a little 
more ad hoc than I think your question suggests you would like. 
In terms of would you like to see a master mind concerning the 
U.S. Government effort, I think we would have a difficult time 
identifying that person. But what I can assure you is that when 
we get to specific issues, be it SECI or the organized crime 
problem in Russia, we do try to work in an organized way and 
ensure that we don't duplicate efforts. We're talking and we're 
working with our colleagues in INL, our counter-terrorism 
officers are reaching out to the Department of Justice and 
other agencies, because we are mindful that our ability to 
tackle this problem is going to be strengthened if it is done 
in a coordinated way. So it tends to be more ad hoc and geared 
toward the specific issue and specific problem, as opposed to 
having a one size fits all structure.
    Senator Voinovich. Do you think it would be a good idea if 
someone sat down and looked at what everyone is doing and look 
at the resources that they have and how they are coordinating 
with each other, and trying to really figure out how you could 
put together a very vibrant operational effort that would 
maximize resources and improve the job?
    Ambassador Pifer. I think we're trying to do that now, but 
I'm not sure it would lead to a single structure.
    Senator Voinovich. That probably would come out of the 
State Department and get the Justice Department involved, get 
John Ashcroft involved and get Colin Powell involved. Who else 
would be involved sitting at a table and looking at this, what 
other Federal agencies?
    Mr. Swartz. I think those would be the two leading 
agencies, particularly because we're dealing with the 
international foreign relations aspect and the law enforcement 
    Senator Voinovich. Do you know if there is ever a meeting, 
given all of the things in the Justice Department and the State 
Department, do they ever have big meetings and look at what's 
going on?
    Mr. Swartz. Certainly in the context of the EU, which 
involves a meeting with our EU counterparts every 6 months. We 
regularly have meetings with Deputies and Assistant Secretaries 
to discuss these issues. We have meetings with Principal Deputy 
Assistant Secretary Charlie Ries from EUR to discuss ongoing 
issues, and which has actually provided some useful concrete 
results such as the extradition and mutual assistance treaties. 
We have tried back in the last month, as I mentioned, sent one 
of our prosecutors to Europol to see whether we might use 
Europol as a point of entry for an EU-wide approach, at least 
with regard to intelligence sharing. But we really--it's an 
ongoing problem.
    Senator Voinovich. What's the jurisdiction of Europol?
    Mr. Swartz. Europol is not a law enforcement agency per se 
in terms of operational efforts and it's a fledgling 
organization, but it does have jurisdiction for gathering 
information insofar as EU member states are concerned with 
respect to organized crime, narcotics and terrorism. It would 
be in our interest to allow shared data, personal data in 
regard to law enforcement investigations.
    Senator Voinovich. In terms of organized crime and 
terrorism, how much of an impact does organized crime have on 
our ability to deal with terrorists? I mean, this country is 
very concerned about terrorism now, and so the issue then 
becomes, how does that interface with organized crime? Is it 
worse? Does organized crime enhance terrorists, and can you 
show linkages between terrorism and organized crime?
    Mr. Ashley. Senator, I don't know that there has been a 
linkage between organized crime and terrorism established, but 
something that does concern all of us is the terrorism threat. 
The transnational threat is that the organized crime looks to 
break down the government through corruption and essentially 
negate the rule of law, and I think it's a pretty safe 
assumption beyond that, that in that environment that is going 
to certainly increase the terrorist threat to the United 
States. But with respect to actually drawing a straight line 
between organized crime and terrorism, I have not seen it at 
this point.
    Mr. Swartz. Mr. Chairman, if I may add, certainly in some 
of our prosecutions involved in Colombia, for example, it does 
appear that in some instances you may find situations in which 
terrorist groups engaged in organized crime either because they 
are changing into organized crime entities or there is an 
interaction, but I fully agree with Mr. Ashley that the risk is 
both that organized crime helps foster failed states, which in 
turn promote a breeding ground for terrorists, but also provide 
transit rooms for the terrorist threat, so even if the 
organized crime members are not terrorists. So on both of those 
grounds we see that as a risk in its own right and possibly 
leading on to terrorist actions as well.
    Mr. Schrage. If I could just add to the comments from the 
FBI, the programs that we make are focused on the idea that all 
these type of threats swim in the same type of swamp, which is, 
we try to build fundamental rule of law and international nets 
of law enforcement that catch a lot of threats which are 
terrorists or criminals. Whether these are per se terrorist 
groups, I would defer again to the intel community and the law 
enforcement community, but in terms of links, we have a lot of 
concerns and recognize that these terrorist groups are willing 
to use whatever means necessary to raise money for their 
illicit purposes. So the things that we put in place, whether 
it's for money laundering, whether it's anticorruption, whether 
it's things related to border security, have a broader impact 
and I think are a fundamental bedrock of all these areas.
    Senator Voinovich. Ambassador Pifer, do you want to add 
    Ambassador Pifer. I would just say, for example, that we 
address money laundering as a crime problem and put in stronger 
institutions for investigating and stopping money transfers. 
That also works against terrorism and we tried to promote that 
idea. I made reference in my opening comments to this virtual 
law enforcement center that the five GUUAM countries are 
setting up, and we have talked to them about it. There is a 
vehicle to promote law enforcement cooperation, counter-
narcotics, counter-terrorism, but we see this as all parts of a 
problem that stronger law enforcement cooperation can attack in 
the same way.
    Senator Voinovich. Well, from my perspective looking at the 
big picture, it seems to me if you're looking at the United 
States of America, first of all, we need to pump up the 
resources that we have dealing with these international crime 
operations that are operating in the United States, because if 
they're growing, it means we're not doing something that we 
should be doing, so I think that's No. 1. And then we should 
identify the linkages out there to wherever they are and focus 
our attention on those areas that are feeding that operation, 
and some of those are very very sophisticated and well 
    Second of all, I observe that you feel that in respect to 
individual countries, you're doing a pretty good job on a 
bilateral basis, but it seems to me that the communication in 
various regions, are those various embassies coordinated with 
each other and talking with each other in terms of what's going 
on here and there?
    And the last thing, of course, is the relationship with all 
the other agencies and organizations that are out there, and 
would you all agree that it might be in the interest of 
everybody for someone to really look at all the resources that 
we have and prioritize in an effort to figure out how we can 
better utilize those resources? That will help us identify 
areas where we need to put more resources, whether it's us or 
the United Nations or the EU, because the EU's biggest effort 
is what, through the OSCE, is in terms of crime and organized 
    Mr. Swartz. They also act directly in picking some of the 
accession countries through advisors that have been paired up 
with member countries. They do operate with the OSCE and for 
the last several years have focused on the accession countries, 
but also had some security problems from the Balkan states as 
    Senator Voinovich. Well, I hope they're doing better with 
some of those tables and initiatives than the one that's 
supposed to be providing money to those people for 
infrastructure projects, because you remember after the war 
with Serbia, there were all kinds of promises made about money 
being made available and if somebody went back and revisited 
the issue, they would find out that a lot of that money wasn't 
forthcoming. I hope the resources are on the table that Mr. 
Busek is referring to.
    Anybody want to make any last comments?
    Mr. Schrage. I just want to make one comment and that would 
be there is a distinction between operational efforts and 
assistance efforts. In terms of assistance efforts, INL looks 
across the world in terms of where we need specific types of 
law enforcement assistance, and attempts to craft a regional 
strategy in that area, but also pieces like the SET piece, we 
supplement that and work with all the agencies and with the 
regional bureaus as well as with our partners internationally.
    In terms of operational effort, that's more toward the law 
enforcement entities and they will be coordinate with the 
Ambassadors but not coordinate directly when there is an issue 
of broad policy matters.
    Senator Voinovich. Well, I would like to thank you very 
much for coming. I'm comforted that there seems to be a little 
more coordination than I anticipated, and that's good. And like 
I say, I'm hoping that somehow through my involvement with the 
OSCE and even with the NATO parliamentary assembly we can try 
to boost this thing up to the point where it gets a lot more 
attention. I think we really need to do this. Thank you very 
    And the next panel, I'm going to run out and come back, and 
I apologize for making you wait.
    Senator Voinovich. I want to thank you very much for coming 
today and I'm pleased that you were here so that you had an 
opportunity to hear the testimony of the first panel, because I 
was watching the expressions on your faces and it was 
interesting. So, Dr. Shelley, we'll start with you.

                         WASHINGTON, DC

    Dr. Shelley. In our discussions in the previous panel there 
was focus primarily on parts of the former Soviet Union and 
Eastern Europe on the problem of organized crime. I think we 
need to pay much more attention to organized crime because it's 
just front line and center in Western European thinking. You 
can't turn on the news, you can't conduct research analysis, 
without people thinking about what a major foreign policy issue 
this is.
    Senator Voinovich. Is that in Western Europe?
    Dr. Shelley. Western Europe, yes. Even in the interviews by 
the European press with some Foreign Ministers they discuss 
organized crime as a major part of their foreign policy agenda, 
including talk about immigration. It's part of the European 
Union presidency. And when you were asking earlier about 
European Union financing for it, there is a lot going on 
through Pillar III of the European Union and a lot more 
intellectual attention.
    As an academic, and I can comment on some of the other 
issues because of some of the research I've done----
    Senator Voinovich. Let me ask you something, the Pillar III 
is out of the EU?
    Dr. Shelley. Yes.
    Senator Voinovich. Who heads that up right now?
    Dr. Shelley. You mean the European presidency or the 
European Parliament? It's the European presidency. Crime 
issues, immigration issues, human smuggling, it's a priority of 
the Italian presidency. I talk often to the Italian Embassy 
here in this period of the presidency on some of these issues.
    And there are things that I felt in the discussion that was 
just held where the focus was on the operations side. We have, 
I think, a significant problem in addressing the transnational 
crime issue that is very different from the way the Europeans 
are addressing this issue. In Europe, the EU and individual 
countries, are investing very significant resources at the top 
universities in trying to analyze what the organized crime 
problem is in all its dimensions. The Europeans are addressing 
everything you mentioned when you introduced the hearing and 
many, many other crime areas including financial crime, 
ordinary crime, involvement of diaspora communities, human 
smuggling, human trafficking, drugs, the linkage between 
organized crime and terrorism.
    There is a large analytical effort going on by some of the 
best minds in Europe. When I go visit and attend conferences 
with my European colleagues, some are interacting with members 
of the law enforcement community and intelligence communities 
in their countries. This research is being made available for 
the kind of strategic analysis that countries are doing to find 
out what's going on. And we're not----
    Senator Voinovich. So the point is from your perspective, 
this analysis that I talked about our country doing in terms of 
the whole smorgasbord out there, you think that's happening in 
    Dr. Shelley. It's definitely happening. In fact, if you 
think about intellectual academic studies, there are very few 
areas in which I would say Europe is ahead of us. In the area 
of transnational crime Europe, I would say is close to a decade 
ahead of us in producing scholarship. It was a decade ago that 
I had a sabbatical at one of the preeminent centers in Europe 
and then research was just beginning. And that intellectual 
trend is just magnifying itself, and it is creating a very 
different type of approach to this problem than is going on 
here. And some of the research addresses some of the questions 
that you're asking; where is organized crime going? What are 
its dimensions? What is its impact? And I sometimes have joked 
that I have my monthly commute to Europe because there are so 
few Americans working on the organized crime issue, and so few 
to participate in this transatlantic dialog. I can't even go to 
all the meetings. In Europe it is analysis that is driving 
policy. Maybe thee is not enough in the Balkans as I wrote in 
my testimony. There is a weakness in how western Europeans are 
engaging with scholars from Eastern Europe.
    In examining linkages between organized crime and 
terrorism, European analysts have found those links in Western 
Europe. They found parts of al-Qaeda funding themselves through 
counterfeiting, credit card fraud, illegal document production, 
so these terrorism-organized crime links exist there. In 
research we're doing with scholars in the Black Sea region, 
we're finding trafficking of nuclear materials. You know, this 
is a very, very serious problems. And if you're doing the 
analysis that we're doing, you will find that you need to think 
about the transnational crime problem differently than we're 
thinking about it.
    For example, I heard today discussions about Eastern 
Europe, I heard discussions about the Balkans, but we're not 
focusing enough on the Black Sea. And this insight reflects 
back to the Ambassadors who are working with our research 
center, because they have had briefings in the transnational 
crime area. These retired ambassadors feel a compelling need to 
address transnational crime and corruption in their retirement. 
We don't know enough about the Black Sea region as I wrote in 
my testimony--Bulgaria, Romania, and the problems that link the 
regions of the former Soviet Union with Eastern Europe, with 
its proximity to Iraq. There is a lot more to look at in the 
areas of transnational crime and corruption that comes out of 
analysis and looking at trends, and seeing where you need to 
    If we talk about coordination of law enforcement in that 
region, some of the people the United States is working with 
are very corrupt law enforcement. If our efforts at 
coordination amount to promoting coordination among some of the 
criminals, then this is not something the United States should 
be fostering. We need to be thinking much much more 
strategically about how we're assisting--how we are promoting 
assistance, who we are assisting and how we're doing it.
    Furthermore, on this issue of terrorism and the balance 
between terrorism and organized crime, one of the things that I 
think is causing a gap between the United States and Europe is 
the over-emphasis that we're placing on the issue of terrorism. 
We are ignoring the issue of organized crime, which is 
affecting European security in all the different ways that I 
outlined in my testimony. And it's one of the things that they 
are finding particularly difficult in engaging with us on. 
Europeans wonder why there is this over pre-occupation with 
terrorism. Why not focus more on organized crime? And organized 
crime, as I outlined in my testimony touches every aspect of 
European society, economics, politics. We know that corruption 
in Western European systems has led to problems of political 
and economic development.
    When we talk about the problems of the links between 
organized crime and terrorism, the only people that I know who 
said that they've broken these links are some of the Italian 
prosecutors who went to the Cosa Nostra in Sicily and appealed 
to their nationalism. They told them the criminals they were 
dealing with in Albania were not just criminals but terrorists. 
And that's the only case I have ever heard of in which these 
organized crime-terrorism links have been broken. That is 
because the Cosa Nostra is a traditional crime group which 
responds to appeals to nationalism and not one of the more 
flexible crime groups one sees in the Balkans or coming out of 
the former Soviet Union, that provide transport services, 
communications, money laundering services to terrorists. In 
Europe, with its highly developed communications and transport 
networks, is providing a meeting place of lots of organized 
crime and some of that is involved in money laundering to our 
country, and manipulation of our stock market. There are very 
serious implications of this transnational crime that are 
affecting our allies that we need to pay much much more 
attention to.
    In August I visited NATO and had some very high level 
meetings. At NATO we discussed the attention that NATO is 
recently paying to the crime issue and how it needs to pay 
more. It's becoming much more of a strategic issue for our 
    Organized crime is segmenting itself in its activities to 
capitalize on Western European markets. These activities are 
helping to fund and encourage organized crime in Latin America, 
and also providing funding for activity from Afghanistan. 
Europe is providing a market for the organized crime groups 
emanating from areas where we have strategic interests and 
providing financial support for those groups.
    I'll be glad to answer any questions you might have.
    [The prepared statement of Dr. Shelley follows:]

 Prepared Statement of Dr. Louise I. Shelley, Professor and Director, 
    Transnational Crime and Corruption Center, American University, 
                             Washington, DC


    The European Organized Crime and corruption problem has the 
following strategic implications for the United States. These 
implications can be classified as military-strategic, political, 
economic, and social.

           1) There are important links between terrorism and organized 
        crime--i.e. members of Al Qaeda network funded their activities 
        in Spain through organized crime activity.

           2) Undermines U.S. peacekeeping in the Balkans and stability 
        in the Balkan region.

           3) Undermines NATO alliances as corruption and organized 
        crime in accession countries threaten military security and can 
        block or undermine NATO action.

           4) The expansion of the European Union to include countries 
        which have serious organized crime problems means that the 
        criminals will be able to move more freely within Europe and 
        possibly have greater access to the United States.

           5) Threatens the integrity of U.S. security markets--Italian 
        prosecutors in Palermo have documented the investment of the 
        Italian mafia in American stock markets.

           6) European drug markets also threaten the United States. 
        The enormous increase in Colombian drug sales in Europe 
        enhances their revenues, thereby undermining U.S. efforts to 
        combat Colombian drug trafficking. The European market of drugs 
        from Afghanistan is undermining efforts to stabilize the 
        situation in Afghanistan and to develop an economic and 
        political system not based on a drug economy.

           7) Human trafficking and smuggling are major social, 
        political problems for Europe that have numerous implications 
        for the United States. Among these is the rise of neo-fascist 
        groups as a backlash against illegal immigration. Slavery has 
        reemerged as a contemporary problem because of the rise of 
        human trafficking.

           8) Organized crime contributes to the spread of HIV, AIDS, 
        tuberculosis and drug-related infections.

           9) Money laundering in Europe has spillover effects to the 
        United States because the money shifts both ways. This leads to 
        the expansion of the resources of the criminals and also to 
        helps fund terrorism.

          10) Organized crime undermines investment in accession 
        countries and affects Americans who invest in the region.

          11) Foreign assistance in the countries of the Stability Pact 
        is undermined by the very pervasive problem of organized crime.

          12) Organized crime is a major foreign policy concern of our 
        allies in Europe and therefore needs to be of concern to us.

        The organized crime problem is a serious concern to the 
        Europeans and outweighs their concern about terrorism. Many 
        European countries have faced serious problems of terrorism for 
        the past several decades. The problems of organized crime, 
        which touch so many aspects of their lives, seem of equal if 
        not greater significance.


    Different sectors of the European community have invested 
significant financial and human resources to understand the breadth and 
depth of their organized crime and corruption problem. At the present 
time, major intellectual centers in many of the larger European 
countries have on-going groups or research centers devoted to this 
topic. In addition, there are many EU funded activities that complement 
those at the national level. The following assessment of the crime 
situation in Europe is based on the reading of reports done by the 
European Union, the Council of Europe and Europol. Furthermore, 
valuable reports have been provided at the regional and national level. 
These include state reports in Germany, a three volume document of the 
National Assembly in France on human slavery addressing trafficking, 
Italian Parliament's Anti-Mafia Commission and the Dutch organized 
crime report. The European Union helps support research centers and 
projects in Spain and Italy, and national funding and private 
foundation funding is provided to leading researchers to address this 
problem. The author recently participated in a significant multi-
national research team, hosted at the Max Planck Institute in Freiburg 
Germany, to provide national case studies of organized crime in over a 
dozen countries in Europe. Major research centers and universities in 
many European countries now have scholars working on organized crime.
    The investment of European national and European Union funds in 
research and analysis in this area is in the range of several millions 
of dollars annually. Research is being conducted by top researchers and 
distinguished young people are working in the field. This contrasts 
sharply with the situation in the United States where there are few 
research and analytical centers either in academia, think tanks or 
government to address these issues. We are approximately five to ten 
years behind our European colleagues in this field today. To put this 
gap in perspective, at the American Society of Criminology meetings in 
which 2000 people attend, there is only one panel at which American 
researchers present on organized crime. At the three year old European 
Society of Criminology, established in part so that Europeans could 
address problems not addressed by their American colleagues, 20 percent 
of the panels deal with organized crime and corruption, even though the 
meeting is one-quarter the size of the American one. Organized crime 
issues are central to the European crime research agenda.
    Analysis on organized crime in Europe is not done in isolation. 
Researchers work closely with law enforcement and intelligence. Many of 
them are provided access to the law enforcement data needed to conduct 
their analysis. They have created an analytical community in some 
European countries such as the Netherlands, Italy and more recently in 
France where there is interaction between research and practice.
    The weakness of the European research on organized crime is that it 
is mostly domestically based. There is insufficient understanding of 
the problems of organized crime in the former socialist countries and 
the accession countries to the European Union and NATO. Insufficient 
bridges have been established with scholars from these countries and 
insufficient efforts have been made to foster research in this area. 
Therefore, the Europeans are aware of many of the aspects of the crime 
problem in Western Europe but do not understand enough and have not 
developed sufficient strategies to deal with this problem in an 
expanded Europe.


    At the present time, there is organized crime within every European 
country. Apart from Italy, there is little that is indigenous organized 
crime that has developed in Europe. Most of the organized crime has 
accompanied immigration either within Europe or from other parts of the 
world. The break-up of the former Soviet Union, the collapse of the 
Berlin Wall and the decline of border controls has led to an enormous 
increase in organized crime within the last fifteen years.
    The organized crime and corruption problems are most severe in the 
European countries with large economies, those that are closest to the 
Balkans, Eastern Europe and the Mediterranean and those with 
significant ports. Some countries in Europe have the full range of 
organized crime activities whereas others are the focus primarily of 
money laundering activities, receiving the profits from crimes 
committed in other regions. The Netherlands, which has been at the 
forefront in the past decade of identifying the variety of organized 
crime within its borders, has found over one hundred different ethnic 
groups operating on Dutch territory involved in a very wide range of 
offenses. The reasons that this country has attracted so many crime 
groups are its vibrant economy, excellent transport links, borders that 
are easy to cross and a law enforcement community that was not focused 
on these issues until the mid-1990s. The perpetration of organized 
crime is facilitated by the presence of large diaspora communities 
within the Netherlands. Members of the local business and professional 
communities help facilitate this organized crime by providing legal 
services and assisting in transport. The pattern of the involvement of 
diaspora communities and the provision of facilitating services by 
members of the national community is a pattern common throughout Europe 
but has been better documented in the Dutch case. Italy has four major 
organized crime groups of its own and outside of Sicily, where the 
mafia controls the territory completely, there are many diverse crime 
groups operating on Italian territory and in conjunction with the local 
crime groups.

The Groups and their Links
    The crime groups in Europe originate from all parts of the world 
including Africa--in particular, North, South and West Africa--China 
and Southeast Asia, the Indian subcontinent, Middle East, Eastern 
Europe and the former Soviet Union, and Latin America (particularly in 
cases connected with the drug trade). These groups intersect in 
numerous ways. Groups from the former Yugoslavia provide women to 
brothel keepers in Western Europe. A triangle trade developed between 
the Balkans and Italy in the 1990s involving drugs, arms and people. 
The Colombians bring drugs through Spain into Europe and some of these 
are distributed by Italian organized crime groups. Russians launder 
money for the Colombian cartels in France. Tamil tigers from Sri Lanka 
move drugs in Western Europe through diaspora communities. Nigerian 
drug traffickers use Russian women as drug couriers within Western 
Europe. There are numerous permutations and complex crime operations 
that involve many different crime groups in different phases of the 

                      THE CRIME GROUPS' ACTIVITIES

    The major problems of organized crime which have been identified in 
Europe include the following:
1) Drug Trade
    There are several important trends contributing to a rise in drug 
trade. First is the rise in the synthetic drug trade which has grown 
because of significant production capacity and trade from Eastern 
Europe. Heroin sales have increased from Afghanistan and Pakistan and 
the increased drug flows from this region flow to Western Europe often 
through the Balkans. Cocaine flows into Europe through its entry point 
in Spain, from where it is distributed throughout Europe.
2) Illegal Immigration
    The rise in illegal immigration both for labor and for sexual 
trafficking is a great concern in Europe. There is extensive reportage 
in the mass media on these problems, including on the high fatality 
rate for individuals who attempt to be smuggled and die in transit. The 
illegal immigrants come from Asia, Africa, Latin America and the former 
socialist countries. Their illegal entry into Europe is aided their 
fellow countrymen often working in cooperation with domestic crime 
groups and facilitators. For example, in the case of the 58 smuggled 
Chinese who died en route between continental Europe and England, the 
truck driver was Belgian.
    Many legislative hearings have been held, and bilateral and 
multilateral initiatives started to attempt to stem the flow of illegal 
immigration. For example, Italian authorities have worked with the 
Albanian government to stop the speed boats that transported smugglers 
and traffickers across the Adriatic. The Italian government is working 
with the Nigerian government to stem trafficking of Nigerian women into 
3) Rise in Human Trafficking and Child Exploitation
    A major shift has occurred in the countries of origin of the women 
who are trafficked into Europe for sexual exploitation. Before the 
1990s, many of the women originated in Asia. In the last decade, these 
women have been largely replaced by African, Eastern European women and 
women from the countries from the former Soviet Union. Into Spain, flow 
women particularly from the Caribbean and South America. African and 
Balkan crime groups are particularly active in this trade and have 
replaced many other crime groups in this area. Women from Moldova, 
Romania and Ukraine are particularly victimized and many have found 
themselves in brothels in the Balkans frequented by peacekeepers.
    There has been much attention paid to this problem by civil society 
and/or the government in the Netherlands, Italy, Belgium, Germany, 
France and Great Britain, which are among the countries where the 
problem is most pronounced. There has not been enough done in most 
countries in Europe on victims' assistance, prosecution of crime groups 
or reduction of demand.
    Child exploitation continues through the dissemination of child 
pornography and child trafficking rings. A child trafficking ring 
involving Chinese children transiting through Italy was broken by law 
enforcement and there have been major scandals in Belgium connected 
with rings exploiting children that have implicated government 
officials and law enforcement
4) Arms Trade and Trade in Weapons of Mass Destruction (WMD)
    The problem of weapons trafficking was most acute at the height of 
the Balkan conflict but the problem is far from over. A diverse range 
of crime groups, including those from Italy, the Balkans and the former 
Soviet Union, are particularly active in this trade. The Black Sea 
region figures strongly in this conflict and weapons from there are 
shipped to conflicts in Africa. The German authorities in the mid-1990s 
reported some cases of trafficking in nuclear materials. Those concerns 
exist but are much stronger in the Black Sea region, where law 
enforcement personnel have arrested shipments of trafficking in 
radioactive materials.
5) Organized Crime Groups' Contribution to a Wide Range of More 
        Conventional Crimes
     Organized crime groups from Europe and Eastern Europe are very 
involved in the theft of expensive automobiles and their shipment to 
the former socialist countries. This has been a particular problem in 
Germany, Italy and Poland, where many Eastern European crime groups 
operate. In many countries there has been a rise of burglaries, pick 
pocketing and lower level crimes tied to organized crime. These crime 
groups also engage in extortion, usury and racketeering. Those 
especially vulnerable to these crimes are the immigrant communities in 
Europe. This phenomenon has been particularly well documented by Dutch 
researchers but this problem exists in many other countries in Europe 
as well.
6) Environmental Crime
    The trafficking in waste and hazardous waste has been a significant 
activity of Italian organized crime. There have been efforts to dispose 
of this waste in African countries and there has been dumping of this 
material in the Mediterranean Sea and on Italian farmland. This crime 
has aroused significant concern among Italian civil society. There is 
also a problem in trafficking in endangered species.
7) Computer and IT Crime
    Computer and information technology (IT) related crime is a major 
problem for Europe with its extensive use of the Internet, computer 
systems and all forms of technology. Several years ago a Russian 
criminal entered the computer system of a British bank to steal ten 
million dollars. Attempts by Nigerian citizens to commit economic fraud 
against European citizens by means of the computer also present a 
8) Counterfeiting, Credit Card and Document Fraud
    The counterfeiting of documents, airplane tickets and documents for 
a variety of functions is an increasingly frequent activity of 
organized crime in Europe. Credit card numbers are stolen particularly 
by Middle Eastern and post-socialist crime groups. This form of 
organized crime has been documented as financing terrorism and helping 
terrorist operatives. Stolen and forged passports aid travel by 
criminals and terrorists. Al Qaeda operatives in Spain financed their 
activities by forging tickets and cheating on credit cards.
9) Financial Crime and Money Laundering
    A broad range of organized crime activity falls under this 
category, from significant financial frauds, the development of front 
companies and a wide range of money laundering activities. The 
possibility of depositing large sums of money obtained through 
corruption, tax evasion, and organized crime activity provides for a 
large unregulated economy that facilitates the movement of money for 
terrorist activity. A wide range of instruments are used to launder 
money including real estate, import-export firms, banks and stock 
markets. Italian prosecutors tracing the assets of Italian organized 
crime groups have found their investment in both domestic and U.S. 
stock markets. The privatizations that occurred in East Germany and the 
accession countries of Eastern Europe have led to the transfer of state 
assets to organized crime groups which have become major investors in 
their economy.


    The rise of organized crime in Europe affects many aspects of daily 
life, security, economic life and the overall development of Europe. 
Many aspects of the organized crime problem are central elements of the 
foreign policy agenda of Europe, pillar III of the European Union 
devoted to justice and legal issues and the foreign and domestic 
policies of countries within Europe.

Daily Life and Human Rights
    There is a rise in the sense of personal insecurity because of the 
growth of organized crime. There are large losses to property through 
increased thefts of personal property, automobiles and cybercrime. The 
rise in drug use, particularly among unemployed youth, is a concern to 
European authorities. It has enormous health costs for society, a 
deleterious impact on youth and its profits fuel and sustain organized 
crime. The presence of illegal immigrants results in significant labor 
violations and the presence of ateliers and sweatshops. The rise in 
human trafficking is contributing to the spread of venereal disease, 
HIV and related medical problems. Environmental crime is resulting in 
serious health risks to citizens particularly in the Mediterranean.
    Illegal immigration is seen as a serious problem for a variety of 

          1) There are serious violations of human rights of trafficked 
        women and those who are smuggled and are presently working in 
        conditions of slavery.

          2) The arrival of these immigrants is a serious threat to the 
        social welfare systems of individual countries. In Europe, 
        unlike in the United States, there are not strong advocates of 
        immigration suggesting that legal and illegal immigrants 
        contribute to the economy. Rather, this illegal immigration is 
        largely viewed as an economic drain on Western European 

          3) European prisons are increasingly occupied by a very high 
        percentage of foreigners and some of these are illegal 
        immigrants. Therefore, they are seen as contributing to 
        problems of crime and social order.

          4) There are certain sectors of European society who see the 
        rise of illegal immigration as a threat to national identity. 
        This has fueled xenophobia in certain countries and contributed 
        to a backlash against all immigrants.

Security Issues
    There are many areas in which the rise of organized crime affects 
security. This includes such conventional problems as the trafficking 
of arms to rogue states, insurgents and terrorist groups. But it also 
includes many other ways in which organized crime undermines European 
security and the NATO alliance.
    The intimidation of law enforcement in both Western and Eastern 
Europe undermines state capacity to move against organized crime. The 
corruption of different branches of the legal system by organized crime 
undermines the integrity of state and regional security.
    Peacekeeping efforts in the Balkans are undermined by the failure 
to understand that organized crime is embedded in the communities where 
our peacekeepers are stationed. Peacekeepers who frequent brothels are 
placing additional resources in the hands of organized crime groups, 
making it more difficult to control their rise and influence in the 
    The expansion of the European Union and NATO bring the problems of 
organized much closer to the security agenda of these organizations. It 
is in this area that there needs to be more attention to the linkage 
between transnational crime and terrorism. In the past year, organized 
crime involvement in WMD and other non-proliferation issues has become 
of much greater concern to NATO.

    Organized crime and corruption are major impediments to 
democratization in Eastern Europe because they are so deeply embedded 
in the societies and the political systems of the country. The recent 
murder of the prime minister of Serbia by organized crime groups 
brought home the enormous impact that these groups have on the 
political processes in their countries and their ability to undermine 
the possibilities for reform. The presence of organized crime groups 
within the government at all levels in the Balkans, their infiltration 
into the legal system and their ability to influence the adoption of 
laws undermines democratization. The enormous resources of organized 
crime groups have a corrupting influence on governments in all 
countries in Eastern Europe and to a lesser extent in some of the 
western European countries.

Economic Development
    Organized crime and corruption are enormous deterrents to economic 
investment. This was first seen in Sicily, where foreign investors 
withdrew because they and their investments were threatened. This 
problem continues in many of the accession countries and also in the 
other socialist countries. Those countries in need of investment 
capital cannot receive legitimate investment because they cannot 
compete in a criminalized economy. In many countries in Eastern Europe, 
organized criminals are major investors in banks, real estate, and 
stock and commodities markets. The presence of significant investment 
by organized crime groups from the former USSR in the accession 
countries, in anticipation of these countries' new role in Europe, 
brings these problems even closer to Western Europe.
    The Italian experience of using seized mafia assets for economic 
development provides a model for economic development for Eastern 
Europe. TraCCC, the research center that I direct, has supported 
delegations from Russia, Ukraine and Georgia to visit Sicily to look at 
this strategy and also to provide ideas for the Sicilians on how to 
make their practices more applicable to the accession countries.


1) Develop more initiatives in the Black Sea region
    This region will be of critical importance in the coming decade to 
Europe and to the strategic interests of the United States. It deserves 
more research, analysis and assistance in addressing the problems of 
organized crime and weapons smuggling, in particular.
2) Develop more research and analysis
    The United States is behind Europe in the area of organized crime 
research. It is unusual for our country not to be at the critical edge 
of research in an area of strategic importance. We must work to do the 

          a) Develop research through grants, fellowships and through 
        cooperation with our European colleagues who are leading in 
        this area;

          b) Develop law enforcement programs and strategies based on 
        this applied research;

          c) Provide support in this area through the U.S. military, 
        Department of Justice, the intelligence community and NATO 
        efforts in this area; and d) Develop Fulbright Scholars program 
        and other research programs in the area of organized crime with 
        European partners.
3) Work in partnership with our European colleagues to develop analysis 
        and human capacity in addressing organized crime in accession 

    Senator Voinovich. Thank you.
    Dr. Lee.

                 ADVISORY SERVICES, McLEAN, VA

    Dr. Lee. Thank you very much, Senator, for inviting me to 
this hearing.
    Picking up on one of Louise's main points, since the events 
of 9/11, fighting international terrorism has taken on a very 
high place on the U.S. national security agenda, clearly 
surpassing the fight against international organized crime. But 
organized crime, like terrorism, poses continuing threats to 
democratic institutions and global stability, although 
sometimes in ways that are insidious and not immediately 
    I would like to discuss today three reasons why our 
international counter-crime efforts should receive a higher 
priority than they do now, even while we continue to emphasize 
the terrorism and its manifestations abroad, and I will use 
examples from both Europe and other areas.
    It's clear that organized crime corrupts, subverts the 
nation building process from transitional states in which the 
United States has a strategic interest. In the former 
Yugoslavia where you have national resistance movements, they 
rely heavily on smuggling various commodities, heroin, 
cigarettes and the like to break international embargoes and to 
gain weapons for self defense. But now the continuing presence 
of these criminal organizations in these emergent nations 
prevents the consolidation of political authority and in some 
cases the achievement of full statehood.
    Elsewhere in the world, in Iraq you have the epidemic of 
free flowing violence, car jackings, kidnapings, 
assassinations, sponsored by criminal organizations that are 
demonstrably resistant to any kind of government authority, 
further delegitimizes the U.S. occupation forces and provokes 
nostalgia for the Saddam Hussein regime.
    In Afghanistan, where U.S. forces are also deployed, the 
massive opium/heroin trade which is that country's top export 
fuels the separatist pretensions of regional warlords enabling 
them to buy advanced weaponry and to support their own 
territorial fiefdoms.
    Second, the global expansion of organized crime is 
causally, I think, related to the growth in international 
terrorism. This does not mean the terrorists and criminals are 
necessarily in cahoots, that they plan together or they have 
alliances with each other. Sometimes they hate each other. For 
example, in Colombia, you have military forces fueled largely 
by or funded largely by cocaine exporting organizations compete 
with Marxist guerrillas for territory control and assets.
    Terrorists are able to tap into established criminal 
networks in various ways. They buy goods or services from the 
criminals, sometimes for resale. They make use of criminals' 
transportation and money laundering services. Criminals are 
prime movers in building large illicit empires, but some of 
their wealth and know how inevitably gravitate to politically 
motivated groups such as freedom fighters, revolutionaries, and 
of course terrorists.
    A third point that I would strongly emphasize here is that 
organized crime in its transnational guises greatly increases 
the risk of proliferation of weapons of mass destruction. This 
is especially the case because some states which had WMD 
programs have experienced political or economic upheavals or 
authority crises of some sort. For example, the collapse of the 
Soviet Union and the associated birth of criminality and 
corruption in the Soviet successor states precipitated a new 
and disturbing form of transnational crime, the illegal export 
of radioactive materials. Since the early 1990s a flood of 
radioactive contraband has flowed westward and more than 400 
cases of trafficking such material were recorded by the 
International Atomic Energy Commission, and 20 seizures of 
highly enriched uranium of mostly Russian origin. Most of these 
involved minuscule amounts, nowhere near enough to build an 
atomic bomb, but I think what is seized may be only a small 
fraction of what has been pushed into international smuggling 
channels, and most of the smugglers caught appeared to be 
carrying samples of merchandise to be shown to a potential 
buyer. Overall, the prevailing impression that I have is a lot 
of this stuff could have escaped from the control of government 
and be circling around the globe looking for a potential buyer, 
or already may have fallen into the hands of our adversaries.
    There is no hard evidence of this, but an unverified Arab 
news report from 1998 claims that bin Laden's emissary 
negotiated with representatives of Russia's Chechnyan Mafia to 
obtain 20 Russian tactical nukes in exchange for $30 million 
and two tons of Afghan opium. Well, I don't believe this story 
and one of the reasons I don't is had he had those weapons, he 
would have used them by now. But a couple of aspects of this 
story, I think merit our attention.
    We know that al-Qaeda has connections with the Chechnyan 
separatists, so a liaison is not out of the question. It also 
is not unlikely that al-Qaeda, lacking direct access to Russian 
facilities, would employ the Chechnyan criminal diaspora or 
some other sympathetic Islamic criminals in its weapons 
procurement efforts.
    Speaking of Islamic criminals, criminals would like to turn 
our attention away from Europe to address the dangers of the 
organized crime situation developing in Iraq, which I think has 
been underemphasized, and received insufficient attention. 
Under Saddam Hussein, Iraq had what amounted to state sponsored 
organized crime, a sophisticated smuggling apparatus designed 
to circumvent U.N. sanctions, import needed supplies, and 
generally to keep the regime afloat economically. Well, now the 
regime is gone but the networks are alive and well and 
operating on a broad front, trafficking in oil, small arms, 
cultural artifacts, narcotics and women, but this may not be 
all. It's not inconceivable that Iraqi organized criminals 
could have obtained access to Iraq's stockpiles of chemical and 
biological weapons or for that matter, to products of its 
prewar nuclear weapons program. These weapons, as we know, have 
proved elusive. Isn't it possible that in the chaos surrounding 
the U.S. invasion and the collapse of the Saddam regime, that 
some of them were looted and sold to the highest bidder, 
whether it's a neighboring state or some malevolent subnational 
entity. Iraqi criminals could work through well established 
channels and contacts to smuggle lethal weapons to the other 
mideastern states, to the Balkans, to Central Europe or to 
anywhere in the world. Thank you.
    Senator Voinovich. Well, what would your observations be in 
regard to the questions I asked about the capacity here to deal 
with the growing threat of international crime syndicates in 
the United States? Do you have any insight into that in terms 
of, the answer was yes, it's growing.
    Dr. Lee. The answer is yes, they're growing. I think this 
is largely a function of immigration, of wholesale immigration 
of people from some parts of the world where you have extensive 
criminal organizations, and in the case of the former Soviet 
Union these criminal organizations have been exported wholesale 
to the United States, you know, taken up root in major American 
cities. I think this is really coming on the back of this mass 
immigration, and the criminals also maintain links with parent 
organizations or counterpart organizations in their home 
countries, so it's not just we who has the problem. Again, as 
you emphasized over and over again in the hearing, that 
requires some coordinator who is looking at all these different 
aspects of the problem and can see their international 
    Senator Voinovich. How about resources? I know you had a 
comment, the resources seem to be not as significant as they 
should be?
    Dr. Lee. I share this feeling. There are many parts in the 
world where I think the struggle against organized crime has 
taken a back seat to the war against terrorism, sometimes I 
think with very painful and long-term consequences for the 
countries involved. One example is Afghanistan. We have had to 
make compromises with certain people that are not of the 
highest social standing in that country as part of our 
consensus building efforts to remove the Taliban and al-Qaeda 
in that country, but I don't think that we can--I can't 
conceive of a successful nation building in that country until 
this huge opium/heroin traffic is brought under some kind of 
    And I see the same thing over and over again, putting lots 
of resources into seizing terrorist funds, $136 billion in 
terrorist funds have been seized since 9/11, but are we seizing 
funds of Colombian cocaine exporters, the Russian Mafia, the 
Mexican Mafia, what are we doing on some of these other fronts? 
This I think is a question of resources.
    Dr. Shelley. I wanted to add something. The National 
Institute of Justice has just done a major survey of American 
law enforcement and how many law enforcers are dealing with 
problems of organized crime and international organized crime 
within their jurisdictions. And the vast majority of them are 
now saying that they are encountering this in their work.
    Senator Voinovich. Is there a report on that?
    Dr. Shelley. Yes, there is a report on that and you could 
obtain it from them. But if you want to see what the dimensions 
are, what the trends are, there's almost nothing you can read 
on this. We're just not intellectually or logistically prepared 
for what the new challenges are, because if something arrives 
on our doorstep then we react to it. We don't have a long-term 
strategy. There is much more going on. I was just discussing 
with somebody from the IT area, that organized crime has been 
growing in terms of information technology because the 
criminals don't even need to be based on American territory to 
be affecting our critical infrastructure or economic 
infrastructure through the Internet. And so as the crime is 
globalized, there are just many, many more ways we have to 
react to it. And the resources of the criminals are growing 
because so much of it is in off-shore accounts and they are 
able to hire extremely good specialists. And we have a great 
problem also of people facilitating this crime, of organized 
crime retaining top specialists.
    I've read investigations that revealed this trend. For 
example, a Chinese trafficking ring that brought hundreds and 
hundreds of people into the Washington area, was being helped 
by a Harvard educated man who provided them with false asylum 
claims. So there are people within our country with great 
educations that are helping to facilitate transnational crime.
    Senator Voinovich. So, your conclusion is that it's a 
growing problem and we are not allocating resources that we 
should to deal with it, and so it's a threat to our country 
from that point of view.
    Dr. Shelley. And the kind of resources that we're 
allocating. I couldn't agree with you more on the types of 
questions you were asking. They are not coordinated, there are 
not enough analyses of strategy, how we're going to interact 
with our allies on these issues. There needs to be a lot more 
strategic thinking.
    And we're not training enough young people. Neither are we 
providing the sort of education or training for diplomats who 
are on the front lines dealing with these issues in lots of 
countries. We're not doing enough work with the military on 
these issues. I mean, there wasn't enough thinking before the 
invasion in Iraq on what we were dealing with in organized 
crime. We did not think of how 100,000 former security 
apparatus members were going to do as criminals in the future. 
I mean, we need to be thinking about transnational crime in 
every area of our domestic and international policy and it's 
not receiving that kind of attention.
    Senator Voinovich. Well, just to emphasize what you said, 
for example, the sanctions we had against Serbia, what that did 
is put Milosevich into business. He controlled the whole black 
market and the network is there. And then I have read Ken 
Pollack's book on the case for invading Iraq. If you read that 
book, you can see how Saddam Hussein over the years had been 
co-opting and compromising, sold in sanctions, he was 
developing ways to get out, in and back and forth, and it had 
to be an enormous amount of pay-offs. Now he's gone, but the 
same people that were doing it are still there. Is that what 
you're saying? So what do you do, how do you deal with that 
    In Afghanistan we are seeing more heroin flowing out of the 
country. So the emphasis of the military over there, they 
should be cracking down on this illegal stuff that these people 
are doing, but you're saying we probably are being compromised 
because we don't want them to get mad at us, and we have these 
warlords who are doing fine, and as soon as they are able to 
make a lot of money, the chance of them coming up with some 
kind of national army and dealing with that problem is going to 
continue, and we are going to see a continuation of a situation 
that has been there forever. Is that it?
    Dr. Lee. That's an excellent statement, and that's my 
position also. Eventually we're going to have to make a painful 
choice of perhaps even sending the U.S. military after the drug 
trade, possibly after major heroin traffickers. The other side 
of this is we have to give Afghan farmers some other means of 
making a livelihood. Again, I would say that I can't see nation 
building in Afghanistan having the remotest chance of success 
until we get this heroin and opium monster under control.
    Senator Voinovich. I just think about the nation building 
from Bosnia, how well we're doing and how long have we been 
there, since----
    Dr. Lee. Actually, the Taliban did a fairly decent job of 
this; this was one of their few redeeming features, that they 
controlled opium trafficking.
    Senator Voinovich. I would like to move to the coordinated 
effort between the various organizations. As I mentioned, SECI 
and the Stability Pact, and the United Nations, and you say 
that Pillar III of the EU is involved. You mentioned that there 
was a lot of strategic stuff going on, but beyond the strategic 
analysis, how much is happening, how many resources are being 
put into doing something about the analysis? Is it happening?
    Dr. Shelley. In the last year I have been to OSCE meetings, 
met with members of the Stability Pact, met with EU people, and 
all of these seem to be parts of an orchestra that are not 
being coordinated, there is no central conductor. There's a lot 
of duplication and a lot of competition for resources among 
these organizations, and so that's one of the greatest 
problems. I find that a lot of what is going on in Western 
Europe is thinking about how transnational crime issues are 
affecting them, not how they have to engage with people in the 
Balkans, or in Eastern Europe in a cooperative way. It's more 
an impassioned concern with what are the crime issues and how 
we can combat them. But they have to work with the source 
countries on a lot of these problems and work together in some 
kind of fashion.
    Senator Voinovich. So what you're seeing is that they're 
analyzing how this is impacting them, but that the emphasis 
would be, correct me if I'm wrong, just like right now, we're 
saying how do we deal with the threat, the immediate threat to 
our country is the big issue there, and the effort of going 
beyond that to the bigger picture of how do we coordinate with 
other people to deal with this because these networks are not 
just country wide, there's Italian, Russian, Albanian, and so 
they are very well coordinated country wide and they are 
multinational organizations. And you're saying that this is 
mostly their own national concerns without looking at the big 
picture of how do we work to deal with this big network.
    Dr. Shelley. Absolutely, that's a good diagnosis of it.
    Senator Voinovich. And they don't understand that they need 
to go beyond that. I guess maybe as evidence of that is the 
pittance that is being provided to the group that's trying to 
deal with organized crime in terms of the European Union, is it 
the job of the Stability Pact and SECI? For instance in the 
Balkans, is there anybody else doing anything? I know that OSCE 
have people there now doing work in human trafficking, but what 
are the instruments that the Europeans are using to deal with 
this problem?
    Dr. Shelley. They are also using part of the Council of 
Europe. But their problem, as I was saying, is partially in 
their development of experts and they're not doing enough long-
term coordination and human capacity building in the regions. 
They are doing even less than we are in that area. There are 
some European assistance programs that are working with civil 
society and some of these groups are trying to work against 
trafficking, working against drug problems, providing shelters. 
But there is just not enough long-term engagement with 
colleagues from former socialist countries and a very, very 
long reaction time. It's a very top heavy procedure and it 
takes years to move on some of these issues in the European 
    Senator Voinovich. So, I was impressed with, for example in 
the Ukraine, the coordination that goes on by the State 
Department through their embassy. They get information that we 
have a problem and they come, they get involved to try to do 
something about it. Is any other country doing as much as we 
are in that regard in terms of providing assistance to help 
build rule of law? You talk about U.S. Embassies in other 
countries than in the Ukraine, all these people there that are 
doing their thing. But is anybody else doing anything?
    Dr. Shelley. Let me give you an example of what they're not 
doing. I work with researchers in Ukraine, building human 
capacity in the computer crime area and in the Black Sea 
region. This year at the European Society Criminology meetings, 
there would not have been much presence from Ukraine, Russia, 
Georgia, if we had not supported some of our researchers to 
travel there. At these meetings I talked to some of the 
European Union officials there and the president of the 
society, and said this is a disgrace. Americans are funding 
people from Eastern Europe to come to Helsinki for a European 
meeting. He said ``why are we not doing it?'' You know, we have 
specialists working on transnational crime in European 
countries, and they are not doing this outreach. So there isn't 
that much.
    Senator Voinovich. So in a way, if we got involved with the 
Europeans, they are doing so much, you say, in terms of 
analyzing the data, doing an analysis of how this is permeating 
our society, but in terms of creating infrastructure rule of 
law in countries they are not doing very much.
    Dr. Shelley. That's correct.
    Senator Voinovich. And they don't have much in terms of 
resources for multinational efforts to deal across the various 
    Dr. Shelley. They are doing more with the Stability Pact 
than in other areas, but other than that, there is----
    Senator Voinovich. Do you have a feel for what SECI is 
    Dr. Shelley. Well, I don't think SECI is doing very much. 
In terms of the Stability Pact, I've met some of those people 
that you talked about doing the law enforcement training and 
the Europeans are more involved in that than some other areas, 
but it's still not very much. The Europeans are working much 
more through the United Nations and funding some of the 
programs through the United Nations structure.
    Senator Voinovich. Is the United Nations program any good?
    Dr. Shelley. They're having a terrible crisis. You know, 
the past director was recently removed for corruption.
    Senator Voinovich. The person charged to work on organized 
crime was removed for corruption?
    Dr. Shelley. Yes.
    Senator Voinovich. If I was going to go to an OSCE meeting 
and start talking to some of my colleagues, the effort that 
we're making in some of those countries through our embassies 
would probably be a benchmark. In other words, if we're doing 
this with our resources, what are you doing in terms of dealing 
with the infrastructure in x country that's exporting crime 
into Europe. So they're just not doing that?
    Dr. Shelley. That's correct.
    Senator Voinovich. So somebody has to be the orchestra 
leader or someone must call attention to this. One of the 
things I'm very involved with is antisemitism, and a couple 
years ago we got the OSCE, we got a resolution, we insisted 
that we have a separate meeting on antisemitism, we did our 
best to put pressure on the State Department to call for a 
special meeting on antisemitism by the OSCE. They had a meeting 
this year and we're trying to follow up on that to make sure it 
becomes institutionalized with the OSCE, and that the resources 
are there and so on and so forth. But someone needs to shove 
this problem of organized crime along and get it up on a 
priority list, get people talking about it and try to get 
things to happen. And from your perspective, that's not 
happening right now in terms of the United States, we're 
spending our time on terrorism. But in your opinion, we are 
ignoring the, or not ignoring but not putting as many resources 
into dealing with the organized crime issue, which you think 
contributes to the problem of terrorism. If not brought under 
control, this could even escalate the issue of terrorism 
because the criminals know how to make money, in terms of 
funding the terrorism organizations, in terms of moving 
weaponry, they can use those highways that are already all over 
Europe today. Any comment on that?
    Dr. Shelley. I agree.
    Dr. Lee. I would certainly agree with that. I think we have 
to understand that the terrorism and organized crime are 
essentially different animals, they come from different places, 
they have different motivations, and very often the 
relationship between terrorism and organized crime is not 
symbiotic, it's actually hostile. And we have seen this in 
Colombia and other parts of the world.
    Senator Voinovich. Well, it's hostile because the 
terrorists want to take over the government in a kind of 
political way and the organized crime guys want to take it over 
so they can make as much money as they can.
    Dr. Lee. Right. And some terrorists would like to 
redistribute power and wealth to someone else, so there are 
different motivations and very often, I think that the bigger 
the organized crime group or organization, the more likely it 
is that its members are going to feel that they have a stake in 
the society and you know, look disparagingly upon Marxist 
terrorist groups. But on the other hand, organized crime, you 
know, they have these networks, these transportation networks 
as you mentioned, financial money laundering networks, other 
types of services that these terrorists can also find and use 
for their own purposes. So, the growth of organized crime is 
certainly going to contribute to the growth of international 
terrorist activity.
    Senator Voinovich. Just for the record, we have all agreed 
that international crime organizations are increasing their 
business here in the United States, it's becoming more 
pervasive. Would you say that compared to 5 years ago that 
organized crime is more organized today in Europe and the 
former Soviet Union than they were 5 years ago?
    Dr. Shelley. I say we are in a growth industry, those of us 
who study this problem. The links are better, the organizations 
are more sophisticated, types of specialists they have working 
for them are very very good.
    Senator Voinovich. Do people like Putin understand that 
these organizations present a threat--the question is, does he 
have a relationship with them or does he look at them as 
undermining his leadership and what he wants to achieve in the 
Russian Federation?
    Dr. Lee. I think he's certainly trying, you know, by 
installing a lot of his KGB colleagues in key administrative 
posts and by giving them a very high profile. The arrest of 
Mikhail Khodorkovskiy, I think was meant partly as a slap in 
the face of organized crime. Certainly Khodorkovskiy has a 
background of questionable activities in that area. I see 
organized crime as less free-wheeling today than it was in the 
Yeltsin era.
    Senator Voinovich. So basically, he realizes that organized 
crime is not good?
    Dr. Lee. I think he does, but he's moving very slowly and 
cautiously, but I think he's moving in the right direction on 
that front.
    Dr. Shelley. Well, I must say, I woke up this morning and 
the head of the Kremlin administration was resigning and some 
commentator was saying this was something that was against 
business. But in some of my organized crime work and analysis 
and speaking with law enforcement people, I know that that 
person has very strong links to organized crime tentacles in 
all parts of the world. there was no mentioning of what we have 
been analyzing today. It was described namely as a conflict in 
the Kremlin as opposed to mentioning that some people in the 
Kremlin administration are corrupt.
    Senator Voinovich. That is good, because the point is we 
get back to the priorities, you know, where you can deal with--
I asked them about threat analysis and we're doing what we 
possibly can, but the fact of the matter is we need to have 
good leaders in those countries who are not corrupted. Take for 
example in Italy today, there are some real genuine efforts to 
deal with the Mafia. For years they just let it go, let it go, 
let it go, and now you have people saying no, we have to do 
something about this, and that's really important.
    Serbia with Prime Minister Zoran Djindjic there before his 
assassination, and he was a fine man, but there were 
allegations that he wasn't so clean, so you have a new group in 
there to purge that and to get the judges, get the prosecutors 
and develop that infrastructure. That is also very important. 
You can talk about international organizations and everything 
else, but like for instance, Bulgaria and Romania, the Prime 
Minister of Bulgaria was talking about corruption and he said 
corruption is just part of the way things go here. I mean it 
was like, you know, aren't you upset about it, what are you 
going to do about it? Well, that's just the way things are. And 
I don't think he's corrupt, but the fact is that there has to 
be a higher priority given to our efforts to try to get good 
people in leadership positions in those countries, wouldn't you 
    Dr. Shelley. Absolutely.
    Senator Voinovich. Well, I have kept you here long enough. 
Do either one of you want to make a final comment?
    Dr. Shelley. The Russians have an expression that the fish 
rots from the head, so you have to really be careful about who 
is at the head. I think that's really important. Ignoring crime 
and corruption issues in the interest of what we think as 
temporary stability just never guarantees stability. To put up 
with high level corruption, fixing elections, saying that's 
promoting stability, it is not in our long-term interests.
    Senator Voinovich. Well, I thank you very much. The United 
States of America has an enormous amount on its plate, and I 
think we need to get our European friends involved in this too 
because they are as vulnerable or more vulnerable than we. And 
I thank you very much. I really enjoyed your testimony and am 
honored you were here to spend some time with us. Thank you.
    The hearing is adjourned.
    [Whereupon, the subcommittee adjourned, to reconvene 
subject to the call of the Chair.]

             Additional Statement Submitted for the Record

Prepared Statement of Charles N. Franges, President of Noble Ventures, 


    Mr. Chairman, Members of the Committee, thank you for the 
opportunity to provide this Committee with testimony about the 
important issues you are raising in this hearing.
    My name is Charles N. Franges and I am President of Noble Ventures, 
Inc. I am pleased to present this testimony to the Senate Foreign 
Relations Committee. I applaud the Subcommittee's efforts to 
investigate the issue of corruption in Europe and Eastern Europe.
    In June 2000, I was part of a group that purchased the CSR Resita 
steelworks in Romania. The following testimony was prepared by my staff 
and I and is meant to serve as a description of our firm's experience 
in Romania, how corruption impacted our ability to operate and an 
analysis of the impact that corruption has on economic activity in a 
country such as Romania.
Personal Background Information
    I was born and raised in Bethlehem, Pennsylvania, the home of 
Bethlehem Steel Corporation. Shortly after high school in 1966, I 
entered the U.S. Army. I served for four years and upon discharge held 
the rank of Infantry Captain.
    I served in the Republic of Vietnam in 1967 and 1968, first as a 
platoon leader in the 4th Infantry and secondly as commander of the 1st 
Brigade Long Range Recon Patrol (LRRPs) unit in the tri-border area of 
the central highlands. I received numerous awards for my service 
including three awards of the Bronze Star, three awards of the Cross of 
Gallantry, one Purple Heart and the Combat Infantry Badge.
    After my discharge and utilizing G.I. Bill benefits, I attended and 
graduated from Rider University with a degree in Accounting and 
    After graduation, I accepted a position in the Bethlehem Steel 
Management Training Program. I was employed by Bethlehem Steel for 
eleven years serving in positions in accounting, strategic business 
planning, operational management and business development at six (5) 
different plants and at the home office. While at Bethlehem I also 
attended and completed the Executive Management Course provided to 
Bethlehem by the Harvard University Business School.
    I later became a principal in a consulting firm specializing in 
strategic planning and adaptive reuse of underperforming assets. My 
clients included large firms such as Copperweld Steel Corporation and 
numerous municipalities such as the cities of Aliquippa and Midland, 
    During this period, I also became involved as a principal of Noble 
Ventures, Inc. along with Mr. John G. Roberts. Mr. Roberts, with whom I 
worked at Bethlehem Steel, is one of the most highly respected steel 
executives in the world.
    During my tenure to date with Noble Ventures, we have worked in 
Poland at the massive Huta Katowice steel works and on acquisition 
projects at Bethlehem Steel and finally in Romania. Most of my time 
since 1997 has been devoted towards the Romania project.
    The following represents my experiences, observations and analysis 
of the current state of affairs concerning Romanian privatization 
efforts and Romanian government operating practices.
    Under communism there were two broad classes of citizen, those in 
regime positions and those who were not. The current situation is 
broadly the same.
    Those in power are able to enhance their personal position in 
several ways and also are obligated to support the party requirements. 
This is a complicated subject to deal with, but I will try to simplify 
the matter by using examples.
    At the higher levels, when a party wins political control they get 
to place people in key positions like the head of privatization. Mr. 
Ovidiu Musetescu won this position in the current government. Mr. 
Musetescu also holds a high level position in the party and part of his 
responsibilities is to raise support funds.
    As head of the privatization agency, he exercises almost total 
control over virtually all state owned businesses. He picks people to 
serve on the board of directors of all these firms. He picks the top 
management of these companies. Most importantly, he has the power to 
replace you if you don't tow the line.
    The Romanian economy has operated and continues to operate on a 
very sophisticated domestic barter system. The system reeks of 
manipulation and camouflaged skimming.
    The tricks of barter manipulation developed over time in Romania 
and have expanded to foreign trade transactions as well. All it takes 
is a willing off-shore party and it is very simple to implement because 
that is the way business has been conducted for years inside Romania.
    For example, I personally discovered a highly questionable 
situation at CSR on a domestic transaction that was later discovered to 
have occurred as well on an export transaction. CSR shipped product to 
a domestic customer. The customer said 30% of the shipment was 
defective. CSR modified their invoice to reflect the adjusted tonnage. 
The defective material was never inspected nor was it ever returned to 
CSR. It disappeared forever in the accounting records, but not 
physically. We found that this now unrecorded product was processed by 
the customer and sold as prime product.
    The same circumstances were discovered on a subsequent export 
transaction. The potential benefits are huge. Knowing that large 
portions of shipments will be erroneously rejected allows for proceeds 
from the sale of these rejected products to be easily sheltered from 
any transaction reporting in Romania. It allows for artificially 
raising reported prices, allowing for the avoidance of possible dumping 
complaints as well.
    Thousands of tricks have been reportedly used to skim funds from 
economic activity in Romania. However, logic suggests the impact of 
this purported corruption must surface somewhere. I knew where to look 
to test the potential impact of corrupt practices these circumstances 
    I knew that if one is draining revenue from a company, sooner or 
later the company ends up technically insolvent. That is in normal 
    In Romania, State-owned companies report losses or manipulate 
figures to show marginal profits/solvency. In order to achieve solvency 
for these enterprises, the government, in an effort to support the poor 
workers, allows the company to not pay social taxes for example. As 
time passes, the company owes so much to government agencies that in 
any normal business climate the company would be shut down. But, the 
power brokers don't want that to happen and convince the government to 
continue subsidizing operations in order to help the poor workers 
survive. In return, the employees should not expect any increase in 
wages despite double-digit national inflation. And by the way, the 
workers should be beholden to the barons and union leaders who saved 
their workplaces.
    In any event, state companies end up with balance sheets loaded 
with state debt. There is no funding to allow for capital investments 
or increases in wages. The companies operate in an atmosphere of 
constant desperation agreeing to almost anything for just another days 
worth of material and energy so the employees get another day at their 
    Being at a workplace is absolutely critical to the average citizen/
employee. It has been bred in them. A designated workplace allows a 
citizen/employee to build credits in the pension, social security and 
medical benefits systems. You are in deep trouble if you don't have a 
workplace. If you don't have a workplace you could end up on the street 
a beggar. It happens often, so it is a real fear to be reckoned with. 
As a result of the excess labor in most complexes, the union leaders 
and local party bosses use this threat of no working place to stifle 
and silence opposition. Loyalty to the union (and party in most 
communities) is your safest way to ensure a working place when the 
downsizing begins. In our facility, black lists were posted on the 
front gates, management supporters were beaten and intimidated and 
refused their share of the government aid distributed by the union.
    I believe the evidence clearly supports my analysis. Summarizing a 
few of the facts:
    Virtually all state owned companies are technically insolvent. All 
owe the state huge amounts of money associated with taxes and social 
benefit tariffs. The sad aspect to this situation is that once you 
adjust the companies balance sheets for these questionable state debts 
most of these firms are not only viable, they are highly competitive 
given all the key attributes these firms typically possess.
    Romania's relative performance has been dismal. None of the 
governments that have been in power have made progress. Coalition 
governments with short-term prospects for political survival have 
allowed continued manipulation and control by the vested interests that 
feed the party coffers. Paradoxically, the current government has more 
control of the legislative and executive branches than any other 
government since 1990 yet remains one of the most allegedly corrupt 
governments in all of Eastern Europe.
    Despite all of the allegations in Romania, no significant 
corruption figure has been investigated, yet alone prosecuted. It is no 
wonder that this is the case since there is no practical independence 
between the judiciary and the executive branches in Romania. The 
Ministry of Justice controls the General Prosecutor and what prosecutor 
in their right mind is going to bring charges against one of his/her 
fellow party members who happen to be a Minister? A recent 
constitutional amendment vote included a clause to create an 
independent prosecutor in recognition of this problem.
    Lawsuits in the thousands stack up at the Ministry of 
Privatization. Most relate to failures in honoring contractual 
    The bottom line is Romania started on the road to democracy with a 
substantial manufacturing and agriculture based economy with a huge 
positive trade balance. Since then the balances have disappeared and 
all economic sectors have retreated substantially.
    The privileged have thrived. It doesn't take a rocket scientist to 
see it. Mansions are popping-up all over the suburbs of Bucharest and 
the resort areas in the mountains and on the Black Sea.
    I also feel that Romania should be leading all others in economic 
growth and national prosperity given the comparable vastness of the 
country's assets. For example, Romania has huge agriculture properties, 
oil and Black Sea frontage. The people are highly educated and capable.
    Romania is in the shape it is because the corrupt underworld that 
developed long before the Revolution is alive, well and still doing 
business at unprecedented levels. The theme most commonly expressed in 
the press, on the street and in the factories is the crooks continue 
being crooks, Ministers remains in their positions, referendum votes 
are still a farce and the masses continue to live hungry, fearful, 
suspicious and in utter despair.
Noble Ventures Experience
    One could write a book concerning the experiences of Noble Ventures 
in Romania. We were the victims of the failure of the Romanian 
Government to honor their contractual obligations, intimidation, 
physical assault, and government-organized expropriation. These 
conditions are the basis of our ICSID lawsuit against Romania that is 
currently proceeding to final resolution.
    The most effective way and maybe the only way that the current 
corrupt system can be challenged and exposed for what it really means 
to the Romanian public is by a demonstration of the benefits of a 
legitimate operation.
    Noble Ventures plan and likelihood of success represented the 
alternative to the status quo. If we were allowed to perform, the 
company would have succeeded, the workforce would have appreciated the 
rewards from honest work and Resita could have become an example for 
others to follow. One article in a leading daily newspaper titled 'An 
American in Resita' basically outlines that our biggest problem was our 
refusal to pay bribes.
Significance of CSR mill:
    The CSR Resita mill was founded in 1771 and has a storied history 
in the annals of steel making in Europe. CSR was leased by the Austro-
Hungarian Empire from a prominent Jewish family, the Aushnit family, 
for almost 80 years and provided the majority of the rail for the vast 
network spanning the empire. During WWII, Hermann Goering owned 35% of 
the shares and CSR provided military munitions for the Nazi war 
machine. The town of Resita with almost 120,000 persons is heavily 
dependent upon the operation of this mill. CSR itself employed almost 
15,000 persons at one time. In addition, CSR was the primary tax 
contributor to the city and district budgets. CSR is the only Black Sea 
producer, outside of Ukraine and Russia, of large diameter round 
billets. These billets are the primary material for large diameter 
seamless pipes/tubes used for high-pressure oil/chemical pipelines and 
    CSR directly facilitated the well-being of the Caras-Severin 
district community, a number of large industrial complexes dependent 
upon CSR production and indirectly those local communities and provided 
military material for the Romanian military services and export 
clients. Under Communism, CSR generated 'value' through its production 
for which management was never accountable resulting in direct and 
indirect organized siphoning of value for the privileged few.
    For the purposes of this discussion we have divided the theft and 
corruption discovered at CSR into three primary areas:

1. Internal manipulation
          a. Management of CSR & union collaboration:

                  i. In the first several months of our assuming 
                control of management, we identified a complex network 
                of theft of finished product and raw materials that 
                occurred in the mill. Theft of product included 
                manipulation of steel output to produce separate 
                stockpiles of material, which was sold for cash 
                directly to clients. This business required collusion 
                between the executive management, union section leaders 
                and mill managers, transport sector and local railway 

                  ii. Product was typically and deliberately 
                misclassified as lower grade steel resulting in lower 
                sales values for CSR.

                  iii. Scales were rigged allowing for manipulation of 
                weights for received material and for shipped finished 

          After Noble Ventures discovered the extent of these problems 
        we took aggressive action to eliminate the possibility of 

2. Local/district manipulation
    Local agents helped facilitate the theft of materials from the 
plant, which were then resold back to the plant for profit. 
Essentially, raw materials would go out in the morning and the next day 
a local agent would appear with the same material that the Procurement 
office would buy for the mill at high ``spot prices.''
    In addition, CSR owned a large variety of commercial real estate, 
which was rented at below market prices to local ``friends''. These 
leases included properties for the local Ministry of Labor, the City 
water company, the union, etc. Most significantly, assets were 
subjected to 'green mail' or outright black mail by the unionists. In 
one case we asked authorities to intervene to remove unionist 
trespassers, they refused and permitted the trespassers from allowing 
us from the site, a site to which we had clear title and rights.
    Our management was repeatedly beaten and intimidated by the union. 
One such case was the sequestration of our senior management in the 
Company ``cantina'' with 600 workers for more then ten hours. A 
videotape shows union members pulling a U.S. manager off a table and 
beating him. This clip aired on the national news, penal charges were 
filed and not one person was arrested. On a number of other occasions, 
management was surrounded in its offices by, in some cases, as many as 
3,000 workers who were breaking into the offices. Despite repeated 
requests for protection, the police did nothing to intervene.
    The government failed to respect the rule of law by allowing the 
union to run rough shod over the entire City by blocking European Union 
highways, staging unauthorized demonstrations, etc. The punishment for 
this activity: no arrests, no fines.
    As a private company you would expect management had the right to 
negotiate with the union. Not so in Resita! The union would threaten a 
social protest and run into the waiting arms of the local 
administration who would then bring in the national Ministers. The 
government would attempt to ``intervene for the sake of social calm,'' 
but would then sit on the side of the unionists. When the union is 
aware that the government will not enforce the labor code, collective 
bargaining agreement or the penal code of the country, it makes it 
impossible for any investor to manage effectively.

3. National manipulation
    Romania's economy historically has been highly dependent upon heavy 
industry for which the steel complexes were designed to provide the 
material to keep the industrial engine running. These industrial 
complexes generated high value products used both domestically and for 
export to generate hard currency. This hard currency and control of 
these complexes is controlled by the government since most large 
enterprises have remained majority owned by the State. Therefore the 
State appoints the Board of Directors and management of these 
    Romania is not a land of PACs or lobbyists. It is a land where the 
ruling party manages the levers of power by controlling the primary 
drivers of the economy: banking, steel, oil and gas and electricity.
    In addition, most of these complexes were labor intensive and 
therefore social pressures were controlled at a local level through 
strong collaboration between the unions and the political 
establishment. Following Ceausescu's fall in late 1989, the political 
establishment continued its reliance on unions to control the social 
situation during the last ten years of democratic change and painful 
economic transition.
    In conclusion it is my opinion that corruption is very broad based 
in Romania. It goes without saying. It is accepted and in fact is 
sometimes presented as an all-together reasonable practice since wages 
are so low and access to cash so highly limited, that people have to 
steal to survive.
    I also believe that in Romania the impact has been most severe when 
compared to the experiences of other countries in the region (i.e. 
Poland and Hungary). I believe this is the case because the population 
of Romania has been so much more controlled and indoctrinated under 
Ceausescu than others in the region and therefore will not protest 
their miserable conditions as they might in the other countries. The 
powers-to-be can get away with it so they do.
    Until the Romanian national leadership attacks corruption, exposing 
and prosecuting major perpetrators, the citizenship will not believe, 
honest investors will remain hesitant to invest and bribes and pay-offs 
will remain the order of the day in the Romanian economy.
    If the controlling political entities remain reluctant to take 
action because of their implication in the corruption network 
themselves, then maybe the only way to affect change will be from 
external influences. From the international community in the form of 
the European Union, IMF, World Bank and democratic institutions such as 
this honorable committee of the United States Senate.
    In any event, I believe, given a level playing field, the Romanian 
economy could easily become the strongest in the region. I also 
believe, given its strategic location, it is in our best interest to do 
all we can to ensure a stable social/economic condition prevails in 
    During my time in Romania, I came to respect enormously the 
Romanian people, their history and culture and their basic decency. 
They deserve a better system than what is currently in place and I hope 
with the help of the international community and new and courageous 
leadership, Romania can become a better place to live, work, raise a 
family and enjoy the blessings of freedom and real democracy.


            Responses to Additional Questions for the Record

 Responses of Hon. Steven Piper, Deputy Assistant Secretary of State, 
 Bureau of European and Eurasian Affairs, U.S. Department of State, to 
   Additional Questions for the Record from Senator Richard G. Lugar

    Question 1. How are U.S. State Department programs that address 
crimes and trafficking across borders, such as those involving drugs, 
weapons or terrorists, being coordinated and integrated into each 
country's assistance program plan? Are the embassies involved?

    Answer. Our assistance funds for these purposes in the European and 
Eurasian region are coordinated in various ways, depending on the 
account under which funds are appropriated by the Congress, the nature 
of the criminal activity involved and those USG law enforcement and 
security agencies charged with combating it. In each case, however, the 
EUR Bureau's Office of the Coordinator for Assistance (EUR/ACE) and our 
U.S. Embassies in the region ensure that these processes are integrated 
into country assistance plans.
Narcotics Trafficking
    EUR/ACE reviews these counter-narcotics and law enforcement 
assistance programs to ensure that they are consistent with the 
strategies developed by our embassies and the State Department's Bureau 
for International Narcotics and Law Enforcement Affairs (INL) and that 
they propose an effective use of funds with clear objectives and sound 
budgets. EUR/ACE also reviews program implementation as a basis for 
further funding. EUR/ACE works with INL, other offices and bureaus of 
the State Department, and with the Departments of Justice, Defense and 
Homeland Security to ensure that the country assistance plans also 
serve overall policy objectives for the region.
    At this time, one of the key objectives of these programs in the 
EUR region is to build, through our assistance for training, equipment 
and reforms, basic counter-narcotics and law enforcement capabilities 
that are still lacking or are inadequate in most of the states in 
transition from communist rule. While taking advantage of opportunities 
to encourage and assist law enforcement cooperation on a regional 
basis, we are mindful of the need for a strong foundation of such 
capabilities in each individual country if criminal activities that 
cross borders are to be successfully attacked. Much of our assistance 
for counternarcotics and law enforcement efforts is therefore allocated 
to bilateral programs at this time as we seek to build up those 
    Before determining the allocation of law enforcement assistance for 
both bilateral and regional efforts, we assess the state of each 
country's law enforcement and counter-narcotics intelligence, 
enforcement and drug interdiction capabilities; the need for 
appropriate legislation to authorize new, modern methods of 
investigation and prosecution and adoption of those new procedures in 
each country; and the degree to which each country's government is 
willing and able to support U.S. law enforcement operations in the EUR 
region and/or engage in regional cooperation with its neighboring 
    Helped by the appropriation of $22 million for drug interdiction 
and law enforcement reform in Central Asia, a part of the Operation 
Enduring Freedom supplemental for Fiscal Year 2002, EUR/ACE has 
undertaken to allocate resources through INL to each country across the 
former Soviet region in a manner that will best support existing or new 
operations across the region by U.S. law enforcement agencies, 
particularly those operations of our U.S. Drug Enforcement 
Administration. Examples include: a new, DEAvetted-and-overseen, 
counter-narcotics unit that has been established in Uzbekistan with our 
assistance; new Drug Control Agencies that are being created and 
maintained under programs administered by the United Nations Office on 
Drugs and Crime (UNODC) with U.S. funding support in Tajikistan and the 
Kyrgyz Republic and that are intended to create a foundation for those 
countries' expanded cooperation with DEA; a counter-narcotics border 
program that has been initiated on Kazakhstan's southern border that 
stretches from China to the Caspian Sea; and, using assistance funds, 
the DEA is to oversee equipment and training that will soon be provided 
for selected counter-narcotics units on Russia's border with 
Kazakhstan. While all of the funds allocated in the above examples are 
provided to individual countries to build up their counter-narcotics 
and law enforcement capacities, the projects involved will easily lend 
themselves to greater cooperation across the region.

    Counter-terrorism assistance funds are provided by the Congress 
under the Nonproliferation, Anti-Terrorism, De-mining and Related 
Programs (NADR) account, and support the Antiterrorism Assistance (ATA) 
program, the Terrorist Interdiction program and regional workshops for 
senior level police. They are coordinated by the State Department 
Coordinator for Counterterrorism (S/CT). S/CT provides policy guidance 
on such programs, and, to ensure coordination of those programs in the 
EUR region, works closely with the Bureau for Diplomatic Security (DS), 
which implements the programs, the EUR Bureau and our embassies in the 
region to ensure that counter-terrorism programs and assistance are 
integrated into program plans for each country.
    EUR/ACE and INL also work to support our counter-terrorism efforts 
through the allocation of counter-narcotics and law enforcement 
assistance funds appropriated for the EUR region under the SEED Act and 
FREEDOM Support Act. An example of that is a program that is now being 
funded for the Kyrgyz Republic to help create a new passport and 
document control system in that country. Kyrgyz passports are 
susceptible to counterfeiting by those who may engage in criminal 
activities in the Central Asian region and beyond. The document control 
project, while technically a law enforcement effort, will certainly 
have a positive impact on our efforts to support the Kyrgyz Republic in 
fighting terrorist organizations while it works to apprehend those 
using falsified documents to engage in drug trafficking or other 
criminal activities that cross borders.

WMD Proliferation
    EUR's Assistance Coordinator, together with EUR's Office for Policy 
and Regional Affairs (EUR/PRA), ensures interagency consultation on our 
various assistance programs targeted at preventing the proliferation of 
items and technology related to weapons of mass destruction in the EUR 
region. The Office of the Coordinator convenes regular, country-
specific, interagency meetings, the goal of which is to ensure that USG 
objectives and strategies with respect to such WMD nonproliferation 
programs are coordinated amongst the several interagency implementers. 
Those meetings also rely on and take into consideration information and 
guidance received from our embassies.

    Question 2. Who is responsible in the State Department for 
coordinating these programs and plans? Are Regional Bureaus in charge 
of assistance priorities in their countries or are functional Bureaus, 
such as the Bureau for Nonproliferation (NP) and the Bureau for 
International Narcotics and Law Enforcement Affairs (INL), in charge of 
those priorities?

    Answer. The Bureau for European and Eurasian Affairs follows the 
guidance of the Secretary and Deputy Secretary and utilizes a specific 
Policy Coordinating Committee (PCC) process for broad policy issues 
having to do with the EUR region. The Assistant Secretary of the EUR 
Bureau chairs the PCC on Europe, which is structured to respond 
flexibly to important policy issues in the region, and, as necessary, 
can take up issues of law enforcement and counter-narcotics assistance 
in key sub-regions in Europe and Eurasia, including Southeast Europe 
and Central Asia.
    The EUR Bureau utilizes an additional assistance coordination 
mechanism, embodied in the form of the Office of the Coordinator of 
Assistance to Europe and Eurasia (EUR/ACE). The Coordinator's office 
has the statutory authority to coordinate all USG assistance to the 
states of Eastern Europe and the former Soviet Union. On behalf of the 
EUR Bureau, EUR/ACE coordinates closely with INL, NP, and other bureaus 
with global responsibility for policy and programs to combat narcotics, 
crime, proliferation and other forms of criminal activity, to ensure 
that funds appropriated under different accounts and managed by 
different agencies are complementary and not duplicative.
    Such coordination takes several practical formats:

   Coordination meetings are held several times each month that 
        bring all relevant agencies and offices together. Each such 
        meeting usually focuses on a specific country;
   Semi-annual program and budget reviews are held with U.S. 
        Government entities that manage FREEDOM Support Act (FSA) and 
        SEED Act funds for law enforcement programs; and
   Approximately four to five country reviews are held yearly 
        that assess the effectiveness of all U.S. Government assistance 
        in a given country, including our law enforcement and security 

    In addition, EUR/ACE compiles an annual report to Congress on the 
use of U.S. Government assistance in SEED and FSA-assisted countries. 
That report contains a country-by-country assessment on security and 
law enforcement activities, as well as detailed budget information. 
Compilation of this report is used as a management tool to identify 
performance issues and improve coordination.
    EUR/ACE also participates in the PCC process and consults with 
other EUR offices and with our embassies in the region, ensuring that 
the objectives and allocation of our law enforcement and security-
related assistance take into consideration embassy views and 
priorities. The following example is illustrative: NP and INL are 
responsible for managing their respective programs and each relies on 
program advisors and contractors stationed at EUR embassies to help 
implement and coordinate NP and INL programs in each country. EUR/ACE 
ensures, however, that the NP and INL program and performance plans are 
considered within the larger context of the range of U.S. Government 
assistance to those countries and across the region, including 
assistance for counter-narcotics and law enforcement training and 
reform programs, nonproliferation, defense and border security 
programs, and other programs. EUR/ACE also maintains regular contact 
with Ambassadors in those countries to obtain their views on the 
program performance of NP and INL. This mechanism ensures program 
effectiveness and reduces the possibility of duplication of assistance. 
Finally, our embassies use their Country Teams to ensure coordination 
of U.S. assistance efforts with the host country.

    Question 3. Who has the authority to allocate law enforcement 
assistance resources by country to ensure priorities are consistent 
with U.S. policy?

    Answer. The State Department's Bureau for International Narcotics 
and Law Enforcement Affairs (INL) holds the authority to allocate such 
assistance to countries around the world. In accordance with the SEED 
and FREEDOM Support Acts, however, the European and Eurasian Bureau's 
Office of the Coordinator for Assistance (EUR/ACE) holds the authority 
over the allocation of funds that are administered by INL for law 
enforcement assistance in the European and Eurasian region.
    In the allocation of funds for law enforcement assistance in the 
EUR region, EUR/ACE acts on the basis of proposals from EUR embassies 
that take into account competing needs and objectives for assistance 
programs. These proposals are reviewed in Washington with INL. INL's 
input in this process reflects its expertise and responsibilities in 
overseeing and managing the many implementers of our law enforcement 
assistance, including agencies of the Departments of Justice and 
Homeland Security, international organizations such as the United 
Nations Office on Drugs and Crime, and, on occasion, non-governmental 
    Consultations with INL continue throughout the year to review 
programs in depth and gain INL's perspective on funding allocations, 
not only for each of the countries but for regional projects as well 
(such as the International Law Enforcement Academy in Budapest). INL's 
input on its regular interaction with other donors of law enforcement 
assistance in the region, such as the Organization on Security and 
Cooperation in Europe (OSCE) and the European Union (EU), also provides 
valuable insight on those ways in which U.S. law enforcement assistance 
can be allocated in order to leverage other donors' assistance or to 
address challenges overlooked by such donors.
    Within each Embassy there is also a Law Enforcement Working Group 
that assesses key law enforcement challenges and the degree of 
receptivity on the part of the host government to our possible 
assistance initiatives. (The Law Enforcement Working Group is composed 
of U.S. personnel working on law enforcement assistance, including law 
enforcement representatives at the post--especially those from the 
Departments of Justice and Homeland Security--and other U.S. personnel 
working on related issues.) We have found the input of those on the 
ground in our Embassies--our Ambassadors and their Law Enforcement 
Working Groups--invaluable in our decision-making on allocations of law 
enforcement assistance.
    As an example: A program now being started by INL in Uzbekistan 
with FREEDOM Support Act funding will address the alleged use of 
torture and abuse by police in that country during investigations. A 
coordinated process led by EUR/ACE brought together personnel from INL 
and the State Department's Bureau on Democracy, Human Rights and Labor 
(DRL) to design programs that would address this issue, an issue of 
importance to the Congress as well as to the Department of State. The 
resulting suggestions were then forwarded to our Embassy in Tashkent 
for review by our Ambassador and his Law Enforcement Working Group, 
which advised EUR/ACE and INL on the program it felt most appropriate.