[Senate Hearing 108-706]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-706
 
                  MONEY LAUNDERING: CURRENT STATUS OF 
                  OUR EFFORTS TO COORDINATE AND COMBAT 
                MONEY LAUNDERING AND TERRORIST FINANCING 

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

                                HEARING

                               before the

            SENATE CAUCUS ON INTERNATIONAL NARCOTICS CONTROL

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 4, 2004

                               __________















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            SENATE CAUCUS ON INTERNATIONAL NARCOTICS CONTROL

                      ONE HUNDRED EIGHTH CONGRESS

                  Charles E. Grassley, Iowa, Chairman
              Joseph R. Biden, Jr., Delaware, Co-Chairman
Jeff Sessions, Alabama               Bob Graham, Florida
Mike DeWine, Ohio                    Dianne Feinstein, California
Norm Coleman, Minnesota
                       Eric Akers, Staff Director
                  Marcia Lee, Minority Staff Director














                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENT

                                                                   Page


The Honorable Norm Coleman, U.S. Senator from Minnesota..........     1
    Prepared statement...........................................     3
The Honorable Joseph R. Biden, U.S. Senator from Delaware, 
  prepared 
  statement......................................................     6
The Honorable Charles E. Grassley, U.S. Senator from Iowa, 
  prepared 
  statement......................................................     5

                                PANEL I

Loren Yager, Director of International Affairs and Trade, General 
  Accounting Office, Washington, DC; with Richard M. Stana, 
  Director of Homeland Security and Justice, General Accounting 
  Office, Washington, DC.........................................     7
    Prepared statement...........................................    10
Raymond W. Baker, Senior Fellow, Center for International Policy, 

  Washington, DC.................................................    27
    Prepared statement...........................................    28

                                PANEL II

The Honorable Juan C. Zarate, Deputy Assistant Secretary for 
  Terrorist Financing and Financial Crimes, Department of the 
  Treasury, Washington, DC.......................................    39
    Prepared statement...........................................    40
The Honorable Karen P. Tandy, Administrator, Drug Enforcement 
  Administration, Washington, DC.................................    49
    Prepared statement...........................................    50
Michael T. Dougherty, Director of U.S. Operations, Immigration 
  and Customs Enforcement, Department of Homeland Security, 
  Washington, DC.................................................    54
    Prepared statement...........................................    56
Gary M. Bald, Assistant Director, Counterterrorism Division, 
  Federal 
  Bureau of Investigation, Washington, DC........................    59
    Prepared statement...........................................    60

                          SUBMITTED QUESTIONS

The Honorable Juan C. Zarate, Deputy Assistant Secretary for 
  Terrorist Financing and Financial Crimes, Department of the 
  Treasury, Washington, DC.......................................    77
The Honorable Karen P. Tandy, Administrator, Drug Enforcement 
  Administration, Washington, DC.................................    85
Michael T. Dougherty, Director of U.S. Operations, Immigration 
  and Customs Enforcement, Department of Homeland Security, 
  Washington, DC.................................................    87
Gary M. Bald, Assistant Director, Counterterrorism Division, 
  Federal 
  Bureau of Investigation, Washington, DC........................    93
















                           MONEY LAUNDERING:
                    CURRENT STATUS OF OUR EFFORTS TO
                      COORDINATE AND COMBAT MONEY
                   LAUNDERING AND TERRORIST FINANCING

                              ----------                              


                        THURSDAY, MARCH 4, 2004

                              United States Senate,
          Senate Caucus on International Narcotics Control,
                                                    Washington, DC.
    The Caucus met, pursuant to notice, at 2:00 p.m., in Room 
215, Dirksen Senate Office Building, Hon. Norm Coleman, 
presiding.
    Present: Senator Coleman.

            OPENING STATEMENT OF HON. NORM COLEMAN, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Coleman. This hearing of the Senate Caucus on 
International Narcotics Control is called to order.
    Welcome.
    We are holding this hearing to address the Nation's 
continuing efforts to combat money laundering and terrorist 
financing. Much has been said about the relationship between 
drug traffickers and terrorists. In Colombia, three groups of 
narco-guerrillas use funds earned through drug trafficking to 
intimidate civilian populations. In Afghanistan opium 
production is on the rise and there are indications that the 
proceeds of the drug trades are financing al Qaeda as we speak.
    Of course, drug trafficking is not the only source of 
revenue for terrorist organizations. Many Islamic charities 
raise money in ostensibly legal ways and divert it to fund 
terror. More creative fund-raising approaches include cigarette 
smuggling and trade in counterfeit goods.
    Both terrorists and drug lords have in common the need to 
launder their money to disguise its source and destination. 
That is why the United States needs an aggressive strategy to 
fight money laundering and why this hearing to examine the 
status of our efforts is so important.
    In the past six months the General Accounting Office 
released three reports that identify shortcomings in our 
efforts to combat money laundering and terrorist financing. The 
first report addressed problems with the National Money 
Laundering Strategy, including overlapping and duplicate 
investigative efforts by the Departments of Justice, Treasury 
and Federal regulatory officials, the strategy's lack of 
clearly defined leadership, a failure to use risk or threat 
assessments to set priorities and the lack of evaluative 
mechanisms needed to judge performance.
    The second report addresses the lack of available 
information on the potential use of informal value transfer 
systems, such as hawalas, to transfer terrorist or criminal 
funds out of the country, the misuse of charitable 
organizations to raise and transfer funds, and the potential 
use of commodities, such as diamonds, to transfer and store 
terrorist or criminal funds.
    The third report addresses a memorandum of agreement 
between the Departments of Justice and Homeland Security, 
signed in May 2003, that gives lead responsibility to the 
Federal Bureau of Investigation for terrorist financing 
investigations. While the report recognizes progress in 
implementing the provisions of the agreement, it also cautions 
that challenges remain in maintaining interagency relationships 
and in operational and organizational changes.
    The Money Laundering and Financial Crimes Strategy Act of 
1998 required the Departments of Justice and Treasury to 
develop a national money laundering strategy. The provision of 
the National Strategy Act that required the development of a 
National Money Laundering Strategy expired in December 2003.
    The Chairman, Senator Grassley, has introduced legislation 
that would extend the requirement for the National Money 
Laundering Strategy for another three years. In part, today's 
hearing will address the need for continuing the implementation 
of a national strategy.
    By going after money laundering we are able to put away 
criminals, both domestic and global. In my own State of 
Minnesota, methamphetamine is a worrisome and growing problem. 
I applaud the work being done on the meth crisis by Minnesota 
State Senator Julie Rosen and others. Our headlines in 
Minnesota in the past year have included stories of major meth 
dealers convicted not just of drug offenses, but of money 
laundering. The two crimes are intimately connected and affect 
communities across the country.
    I am also concerned about the growing reach of 
international drug trafficking organizations not only in our 
national parks and forests, but also in our neighborhoods. As 
Chairman of the Senate Foreign Relations Subcommittee on 
Western Hemisphere, Peace Corps, and Narcotics Affairs, I hope 
to hold a joint hearing with the Senate Caucus on International 
Narcotics Control on this troubling trend.
    The Bank Secrecy Act, the USA PATRIOT Act, the Money 
Laundering and Financial Crimes Strategy Act are all designed 
to identify, trace and provide for the confiscation or blocking 
of terrorist money and assets. Strategies were developed in 
1999, 2000, 2001, 2002. The 2003 strategy was just released. 
According to the GAO, the strategies developed between 1999 and 
2002 had mixed results in achieving their goals. The strategy 
was useful in the first two years, but dissension between 
Justice and Treasury during the last two years compromised the 
strategy's purpose of promoting coordination and marshaling 
resources.
    The Money Laundering and Financial Crimes Strategy Act also 
created High Intensity Money Laundering and Related Financial 
Area task forces, HIFCAs, to concentrate Federal, State and 
local law enforcement efforts in high intensity money 
laundering zones. However, by May 2003, two of the seven HIFCA 
task forces had not begun operations.
    Even without a National Money Laundering Strategy, the 
Government has made progress on our war on terrorism. Al Qaeda 
no longer enjoys the protection of a sovereign nation. Saddam 
Hussein no longer dispenses terror in Iraq. We have frozen or 
blocked about $200 million in terrorist funds worldwide. We 
have publicly designated 351 individuals or organizations as 
terrorist related. We have shut down charities and smuggling 
operations that were funneling money to terrorists. We are 
implementing regulations to require more thorough financial 
reporting about organizations and individuals who are 
conducting financial transactions that might be used as 
conduits for terrorists or drug money.
    In spite of our successes, we must continue to address any 
problems that could compromise our efforts. The GAO report 
highlights problems with Federal agencies' efforts to address 
terrorist financing and money laundering, including 
investigative overlap and duplication. The memorandum of 
agreement signed by the Attorney General and the Secretary of 
the Department of Homeland Security in May 2003 appears to be 
having the intended effect of reducing investigative overlap 
and duplication, and of increasing coordination among and 
between Federal agencies.
    However, the memorandum of agreement is but one aspect of a 
National Money Laundering Strategy. For example, efforts to 
strengthen international cooperation require the involvement of 
Departments of State, Treasury and a host of international 
organizations such as the Financial Advisory Task Force and the 
Egmont Group.
    The Federal Bureau of Investigation should not be expected 
to take the lead on fostering international cooperation on 
matters that are not directly related to the FBI's 
investigative mission. A plan, such as the National Money 
Laundering Strategy, may be necessary to effectively identify 
priorities and direct limited resources.
    I do not need to convince our distinguished witnesses on 
the merits of a sound and viable strategy. Intuitively, a plan 
is a necessity if we are to effectively identify priorities and 
coordinate and direct our limited resources. If not an annual 
National Money Laundering Strategy, as envisioned in the 1998 
act, then what do you propose?
    I look forward to your answers because this is not a war 
that we can afford to lose. Whether they be terrorists or drug 
dealers, they undermine our nation and our values and we must 
and will stop them.
    [The prepared statement of Senator Coleman follows:]
  Opening Statement of Hon. Norm Coleman, U.S. Senator from Minnesota
    Good afternoon and welcome to today's hearing.
    We are holding this hearing to address the nation's continuing 
efforts to combat money laundering and terrorist financing. Much has 
been said about the relationship between drug traffickers and 
terrorists. In Colombia, three groups of narco-guerrillas use funds 
earned through drug trafficking to intimidate civilian populations. In 
Afghanistan, opium production is on the rise, and there are indications 
that proceeds of the drug trade are financing Al Qaeda as we speak.
    Of course, drug trafficking is not the only source of revenue for 
terrorist organizations--many Islamic charities have raised money in 
ostensibly legal ways and diverted it to fund terror. More creative 
fundraising approaches include cigarette smuggling and trade in 
counterfeit goods.
    Both terrorists and drug lords have in common the need to launder 
their money, to disguise its source and destination. That's why the 
U.S. needs an aggressive strategy to fight money laundering, and why 
this hearing, to examine the status of our efforts, is so important.
    In the past six months, the General Accounting Office released 
three reports that identify shortcomings in our efforts to combat money 
laundering and terrorist financing. The first report addressed problems 
with the National Money Laundering Strategy including, overlapping and 
duplicative investigative efforts by the Departments of Justice, 
Treasury and Federal regulatory officials; the strategy's lack of 
clearly defined leadership; a failure to use risk or threat assessments 
to set priorities; and the lack of evaluative mechanisms needed to 
judge performance.
    The second report addresses the lack of available information on 
the potential use of informal value transfer systems, such as hawalas 
to transfer terrorist or criminal funds out of the country; the misuse 
of charitable organizations to raise and transfer funds; and the 
potential use of commodities, such as diamonds, to transfer and store 
terrorist or criminal funds.
    The third report addresses a Memorandum of Agreement between the 
Departments of Justice and Homeland Security signed in May 2003 that 
gives lead responsibility to the Federal Bureau of Investigation for 
terrorist financing investigations. While the report recognizes 
progress in implementing the provisions of the Agreement, it also 
cautions that challenges remain in maintaining interagency 
relationships, and in operational and organizational changes.
    The Money Laundering and Financial Crimes Strategy Act of 1998 
required the Departments of Justice and Treasury to develop a National 
Money Laundering Strategy. The provision of the National Strategy Act 
that required the development of a national money laundering strategy 
expired in December 2003. The Chairman, Senator Grassley, has 
introduced legislation that would extend the requirement for a National 
Money Laundering Strategy for another 3 years. In part, today's hearing 
will address the need for continuing the implementation of a national 
strategy.
    By going after money laundering, we are able to put away criminals, 
both domestic and global. In my own state of Minnesota, methamphetamine 
is a worrisome and growing problem. I applaud the work being done on 
the meth crisis by Minnesota State Senator Julie Rosen, and others. Our 
headlines in Minnesota in the past year have included stories of major 
meth dealers convicted not just of drug offenses, but also of money 
laundering. The two crimes are intimately connected and affect 
communities across the country.
    I am also concerned about the growing reach of international drug 
trafficking organizations--not only in our national parks and forests, 
but also in our neighborhoods. As Chairman of the Senate Foreign 
Relations Subcommitl:ee on Western Hemisphere, Peace Corps, and 
Narcotics Affairs, I hope to hold a joint hearing with the Senate 
Caucus on International Narcotics Control on this troubling trend.
    The Bank Secrecy Act, the USA PATRIOT Act and the Money Laundering 
and Financial Crimes Strategy Act are all designed to identify, trace 
and provide for the confiscation or blocking of terrorists' money and 
assets. Strategies were developed in 1999, 2000, 2001, and 2002. The 
2003 strategy was just released. According to GAO, the strategies 
developed between 1999 and 2002 had mixed results in achieving their 
desired goal. The strategy was useful in the first two years, but 
dissention between Justice and Treasury during the last two years 
compromised the strategy's purpose of promoting coordination and 
marshaling resources.
    The Money Laundering and Financial Crimes Strategy Act also created 
High Intensity Money Laundering and Related Financial Crime Area task 
forces (HICFAs) to concentrate Federal, State and local law enforcement 
efforts in high intensity money laundering zones. However, by May 2003, 
two of seven HICFA task forces had not begun operations.
    Even without a National Money Laundering Strategy, the government 
has made progress in our war on terrorism. Al Qaeda no longer enjoys 
the protection of a sovereign nation. Saddam Hussein no longer 
dispenses terror in Iraq. We have frozen or blocked about $200 million 
in terrorist funds world-wide. We have publicly designated 351 
individuals or organizations as terrorist-related. We have shut down 
charities and smuggling operations that were funneling money to 
terrorists. We are implementing regulations to require more thorough 
financial reporting by organizations and individuals who are conducting 
financial transactions that might be used as conduits for terrorists' 
or drug lords' money.
    In spite of our successes, we must continue to address any problems 
that could compromise our efforts. The GAO reports highlight problems 
with Federal agencies' efforts to address terrorist financing and money 
laundering, including investigative overlap and duplication.
    The Memorandum of Agreement signed by the Attorney General and the 
Secretary of the Department of Homeland Security in May 2003 appears to 
be having the intended effect of reducing investigative overlap and 
duplication and of increasing coordination among and between Federal 
agencies. However, the Memorandum of Agreement is but one aspect of a 
national money laundering strategy. For example, efforts to strengthen 
international cooperation require the involvement of the Departments of 
State, Treasury and a host of international organizations such as the 
Financial Advisory Task Force and the Egmont Group.
    The Federal Bureau of Investigation should not be expected to take 
the lead on fostering international cooperation on matters that are not 
directly related to the FBI's investigative mission. A plan, such as 
the National Money Laundering Strategy, may be necessary to effectively 
identify priorities and direct limited resources.
    I do not need to convince our distinguished witnesses on the merits 
of a sound and viable strategy. Intuitively, a plan is a necessity if 
we are to effectively identify priorities and coordinate and direct our 
limited resources. If not an annual National Money Laundering Strategy 
as envisioned in the 1998 Act, then what do you propose? I look forward 
to your answers because this is not a war that we can afford to lose. 
Whether they be terrorists or drug dealers, they undermine our nation 
and our values and we must stop them.

    Senator Coleman. I will introduce for the record the 
statement of Chairman Grassley and the statement of the Ranking 
Member of the Caucus, Senator Biden. Without objection, they 
will become part of the official record.
    [The prepared statement of Senator Grassley follows:]
   Opening Statement Hon. Charles E. Grassley, U.S. Senator from Iowa
    Good afternoon ladies and gentlemen. Thank you for joining us today 
as we try to get a clearer picture of what is being done to coordinate 
our efforts in the fight against money laundering and terrorist 
financing.
    Money laundering and terrorist financing threaten to undermine both 
our national security and our financial stability. I have said many 
times before and will say it again here today: Money laundering is the 
functional equivalent of a war industry for terrorist groups and we 
must put a stop to this industry. We are here today to review the 
usefulness of having a written strategy that would provide some 
guidance for our approach to this problem.
    Terrorist groups do not function in a bubble. They will use 
whatever means available to obtain funding for their cause. Over the 
past two-and-one-half years, our attention and rhetoric have been 
focused on financing mechanisms used specifically by terrorist 
organizations to support their activities. However, we would be naive 
if we did not recognize that the tools used to launder and disguise 
funds for terrorist organizations are similar, and quite often 
identical to, those used by many drug traffickers and criminal 
organizations to clean their own dirty money.
    In 1998, in an effort to facilitate cooperation between the 17-plus 
government agencies with some responsibility for halting money 
laundering, I offered legislation to create a national money laundering 
strategy. With so many different agencies having some responsibility 
over one particular aspect of money laundering, there needed to be some 
mechanism available to encourage everyone to work together toward a 
common objective. This need has not gone away. Only when we have a 
systematic approach to money laundering will we be able to avoid the 
duplication and inconsistencies that can easily plague an initiative 
where no one is in charge.
    Last fall, the Government Accounting Office released two reports 
that examined the effectiveness of this legislation in facilitating our 
ability to effectively address money laundering and terrorist 
financing. As with most reports, there was both good and bad news. 
Encouragingly, the GAO noted that the existence of a strategy 
requirement had resulted in increased communication between the 
agencies dealing with the problem. But one of the basic concerns 
expressed in both of these reports is the significant room for 
improvement, particularly in the execution of a strategic approach to 
all forms of money laundering.
    The first GAO report reiterates what I have been saying for some 
time: there is a lack of coordination between the agencies in charge of 
investigating money laundering and financial crimes. The report notes 
that the following are needed for an effective strategy--effective 
leadership, clear priorities, and accountability mechanisms--all of 
which need to be strengthened if the Strategy is going to be an 
effective document.
    It notes that many of the recommendations that were put forth in 
past strategies were ignored or not completed. For example, each money 
laundering strategy called for the Departments of Treasury, Justice, 
Homeland Security to implement a centralized system to coordinate 
investigations, and develop uniform guidelines for undercover 
investigations. Neither of these steps has been taken. Now, work-
arounds to these problems have been developed. But criminal and 
terrorist organizations are always going to be more flexible than law 
enforcement, and if we are going to get a handle on money laundering 
then some of these steps must be taken.
    The second report from the GAO specifically focused on mechanisms 
available to terrorist organizations to generate, move and store their 
assets. This strikes me as a very useful matrix to analyze all of the 
opportunities that are available to terrorists--or any other criminal 
organizations looking to hide or move funds.
    Thinking that terrorists just use charities, or only move funds via 
hawalas, is too narrow a perspective to encompass all of the options 
available to a criminal financier. We cannot afford to under-estimate 
the ability of our enemies to hide and move funds. To address these 
threats we need to communicate better, coordinate better, and share 
more--or we will continue to be outmaneuvered.
    Law enforcement has numerous tools, such as the Bank Secrecy Act 
and Title III of the USA PATRIOT Act, available to investigate criminal 
financial activity. Typically, the approach is to identify a bad guy or 
criminal organization, build a case, apprehend and prosecute, then move 
to the next crook. This works, and is effective at getting bad guys off 
our streets. But it doesn't stop other crooks from doing the same 
thing.
    And that is where, I would hope, a comprehensive money laundering 
strategy would step in. If we are going to have the flexibility to 
address new threats, then the thinking at the strategic and resource 
level needs to go beyond the prosecution of a particular case. The 
ideal strategy would focus on the weak points in our economic system, 
and direct resources to address these vulnerabilities. It will also 
have to make hard choices, choosing one agency to target a particular 
threat, even though others may also want to investigate. Everyone 
cannot be in charge of everything. There are not enough dollars to fund 
everything everyone wants to do adequately.
    I encourage today's witnesses to think of a strategy in these 
terms. I look forward to their comments, not only on how the strategy 
has effected them in the past, but on what steps they believe are 
needed in the future. I hope that today's testimony from both panels of 
witnesses will shed additional light on what steps will be necessary to 
reach our goals.
    Unfortunately, I am not going to be able to be here in person to 
listen to the testimony, but please be assured I am very interested in 
what everyone has to say. I want to thank Senator Coleman for agreeing 
to pinch-hit for me here today, and in advance, thank all of the 
witnesses for agreeing to be here. I look forward to reviewing the 
record of this hearing.

    [The prepared statement of Senator Biden follows:]
                Statement of Hon. Joseph R. Biden, Jr., 
                       U.S. Senator from Delaware
    Mr. Chairman, thank you for convening this important hearing to 
examine our efforts to combat money laundering and terrorist financing. 
I am sorry my schedule does not permit me to attend today's session, 
but this is a critical issue and I look forward to reviewing the 
hearing record.
    The Administration has touted successes in clamping down on the 
finances of terrorist organizations. Last year, the Administration 
noted that since September 11, $104.8 million of terrorist financing 
had been blocked, $34.2 million of which was blocked in the U.S. and 
$70.5 million overseas. The International Monetary Fund reports that 
somewhere between $600 billion and $1.8 trillion is laundered every 
year. Clearly our challenges are great.
    I am particularly concerned by the nexus between international drug 
traffickers and terrorism. According to the Drug Enforcement 
Administration, the potential exists for drug money to fund terrorist 
groups. DEA Administrator Tandy recently testified that ``[i]n October 
2001, a joint DEA/FBI investigation targeting two heroin traffickers in 
Peshawar, Pakistan led to the seizure of 1.4 kilograms of heroin in 
Maryland and identification of two suspected money launderers, one with 
suspected ties to al Qaida. Similarly, Operation Marble Palace in 2001 
determined that several members of a targeted heroin trafficking 
organization had possible ties to the Taliban and that a connected bank 
account had been used to launder proceeds to alleged Taliban supporters 
in Pakistan.'' This nexus between terrorism and narcotics trafficking 
is unfortunately not confined to Afghanistan: reports indicate similar 
activities are underway in Colombia, Russia, and parts of Southeast 
Asia.
    It is not clear to me that our government has a sufficient handle 
on the money laundering problem. I have reviewed GAO's recent work on 
this subject, and I hope that today's witnesses answer several 
important questions: Should the FBI be collecting and analyzing data on 
terrorists' use of alternative funding mechanisms? What is the status 
of the joint Justice/Treasury report on how money is moved via trade in 
precious stones and commodities, a report called for in the 2002 
National Money Laundering Strategy? How useful has the National Money 
Laundering Strategy been in coordinating our efforts to combat money 
laundering amongst the 17 federal agencies charged with portions of our 
money laundering and terrorist financing efforts? How is the May 2003 
Memorandum of Understanding entered into between Attorney General 
Aschroft and Secretary Ridge affecting terrorist financing 
investigations? Do the witnesses need any additional tools to wage this 
fight, or is the current law and level of resources sufficient?

    Senator Coleman. And with that, I would now welcome our 
first panel to today's hearings.
    Loren Yager, Director with the International Affairs and 
Trade team at the General Accounting Office; Richard Stana, 
Director with the Homeland Security and Justice team at the 
General Accounting Office; and Raymond Baker, the Senior Fellow 
at the Center for International Policy at the Brookings 
Institute. Welcome, gentlemen.
    Representatives from the GAO are here to discuss three GAO 
reports released during the last six months. The first report 
discusses the problems related to implementing the National 
Money Laundering Strategy. The second report discusses the 
potential use of alternative financing mechanisms by terrorist 
organizations. The third report discusses a memorandum of 
agreement signed by the Attorney General and the Secretary of 
Homeland Security to address jurisdictional issues related to 
terrorist financing investigations.
    Mr. Baker is here to discuss the tactical and strategic 
considerations related to money laundering and terrorist 
financing.
    I want to thank each of you for coming this afternoon. We 
will be using a timing system. Please be aware that 
approximately one minute before the red light comes on you will 
see lights change from green to yellow, giving you an 
opportunity to conclude your remarks.
    If you desire, your entire prepared testimony will be 
entered as part of the official record.
    I would like the General Accounting Office representatives 
to give their testimony first, followed by Mr. Baker. I 
understand that Mr. Yager will be presenting GAO's testimony. 
Please proceed.

STATEMENT OF LOREN YAGER, DIRECTOR OF INTERNATIONAL AFFAIRS AND 
        TRADE, GENERAL ACCOUNTING OFFICE, WASHINGTON, DC

    Mr. Yager. Thank you, Mr. Chairman.
    Mr. Chairman, we are pleased to be here today to discuss 
some of the challenges the U.S. Government faces in addressing 
the problems of terrorist financing and money laundering.
    Mr. Chairman, as you know, the costs of successful 
terrorist attacks are enormous, as was made clear by the events 
of 9/11. In addition, the challenges associated with collecting 
useful information on terrorist activities are also enormous.
    As a result of these two factors it is especially important 
that information on potential terrorist activity is effectively 
collected and analyzed and that Government agencies work 
strategically and cooperatively to address this threat.
    As you requested, the GAO written testimony addresses three 
issues related to Government efforts to address terrorist 
activities and I will cover a few highlights in my oral 
statement.
    First, what challenges does the U.S. Government face in 
deterring terrorist use of key alternative financing mechanisms 
to earn, move and store assets?
    Second, what steps have the FBI and Homeland Security's 
Immigration and Customs Enforcement, or ICE, taken to implement 
their 2003 agreement to resolve jurisdictional issues and 
enhance interagency coordination of terrorist financing 
investigations?
    And finally, I will address whether the National Money 
Laundering Strategy served as a useful mechanism for guiding 
the coordination of Federal efforts to combat money laundering 
and terrorist financing.
    The GAO testimony is based on two studies we conducted on 
behalf of this Caucus, and an additional report we provided to 
the Congress as a result of a Congressional mandate. These 
three studies are footnoted in our written statement.
    In terms of the first topic of alternative financing 
methods, the U.S. Government faces various challenges in 
determining and monitoring the nature and extent of terrorist 
use of these methods. These methods, outside the mainstream 
financial system, may include the use of commodities such a 
cigarettes, counterfeit goods, illicit drugs, as well as bulk 
cash, charities and informal banking systems to earn, move and 
store assets.
    In our report, GAO recommended that Justice and the FBI 
perform more systematic collection, analysis and sharing of 
information to deter the use of these methods by terrorists. In 
response to our recommendation, Justice acknowledged that they 
did not use the information collected on a case by case basis 
to perform more systematic analysis such as on an industry-wide 
basis. The IRS and ICE agreed with the recommendation for 
improved analysis.
    I am pleased to report that the IRS has acted on our 
recommendation that they develop and implement procedures for 
sharing information on charities with the States.
    In terms of the second topic, the FBI and ICE have taken 
steps to implement most of the key provisions of the May 2003 
agreement to resolve jurisdictional issues and enhance 
interagency coordination of terrorist financing investigations. 
According to the report we released last month, the agencies 
have developed collaborative procedures to determine whether 
applicable ICE investigations may be related to terrorism or 
terrorist financing and if so, determine whether the FBI should 
thereafter take the lead in pursuing them.
    GAO's report noted that continued progress will depend 
largely on the ability of the agencies to establish and 
maintain effective interagency relationships.
    Finally, from the broader strategic perspective, we found 
that the annual NMLS generally has not served as a useful 
mechanism for guiding coordination of Federal efforts to combat 
money laundering and terrorist financing. While Treasury and 
Justice have made some progress, most initiatives have not 
achieved the expectations called for in the annual strategies. 
Our report recommended three elements for the strategy, 
effective leadership, clear priorities and accountability 
mechanisms.
    The annual NMLS requirement ended with the issuance of the 
2003 strategy. If the Congress reauthorizes the requirement for 
an annual strategy, we believe that incorporating these 
critical components into the strategy would help resolve or 
mitigate the deficiencies we identified.
    In response to our report, Treasury said that our 
recommendations were important if Congress reauthorizes the 
legislation requiring future strategies. Homeland Security said 
that it agreed with our recommendations.
    Mr. Chairman, as you said in your opening statement, there 
are many overlaps between money laundering and terrorist 
activities so it is especially valuable to have the hearing 
here in this panel.
    Mr. Chairman, this concludes the prepared statement. Mr. 
Stana and I would be happy to answer any questions that you 
have about these reports.
    [The prepared statement of Mr. Yager follows:]



    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    
    Senator Coleman. Thank you, Mr. Yager.
    Mr. Baker.

   STATEMENT OF RAYMOND W. BAKER, SENIOR FELLOW, CENTER FOR 
              INTERNATIONAL POLICY, WASHINGTON, DC

    Mr. Baker. Thank you, Mr. Chairman.
    I am Raymond Baker, a Senior Fellow at the Center for 
International Policy and earlier a guest scholar at the 
Brookings Institution studying the global problem of illegal 
financial flows.
    I would like to make two points under tactical 
consideration and two points under strategic consideration. 
First, if I understand correctly the procedure for 
investigating the terrorist financing leads, the process 
normally goes through some six steps: identification of a 
possible terrorist financing lead and then reference to the 
Joint Vetting Unit, then to the Terrorist Financing Operations 
Section chiefs, then to the Terrorist Financing Operation 
Section staff, then to the National Joint Terrorism Task 
Forces, and then to the Joint Terrorism Task Forces in the 
field.
    Two questions arise. How long does this process take from 
identification to field assignment? And are investigations 
ongoing or on hold during this review and assignment process?
    Second, the role of the FBI in domestic intelligence 
gathering is not clearly spelled out in the March 2003 
memorandum, or at least not publicly so. I ask, are there 
intelligence monitoring or oversight concerns that need to be 
addressed? My own impression is no, but the importance of 
intelligence oversight perhaps cannot be overstressed.
    Let me turn now to two strategic considerations. First, 
dirty money is money that is illegally earned, illegally 
transferred or illegally utilized. There are three forms of 
dirty money: criminal, corrupt and commercial. Within these, 
the United States identifies some 200 classes of domestic 
specified unlawful activities which establish the basis for a 
money laundering charge. However, only 11 specified unlawful 
activities are applicable if the crime is committed outside the 
United States. These 11 have to do, primarily, with drugs, 
crimes of violence including terrorism, bank fraud, corruption 
and certain treaty violations. Mail fraud and wire fraud can be 
added to the list if transactions pass through the United 
States.
    Not included among specified unlawful activities are 
proceeds coming from abroad arising from racketeering, 
securities fraud, credit fraud, forgery, embezzlement of 
private funds, non-violent burglary, trafficking in 
counterfeit, contraband or stolen goods, alien smuggling, slave 
trading, sexual exploitation, prostitution, virtually all forms 
of tax evasion and more.
    This is at the core of America's money laundering problem, 
this difference between what we criminalize if it occurs within 
our borders and what we criminalize if it occurs beyond our 
borders. The idea at the heart of our efforts is flawed. The 
idea that we can successfully curtail a few classes of dirty 
money that we do not want, while at the same time cultivating 
and facilitating a much broader range of dirty money that we 
are willing to accept, this idea is ultimately unworkable.
    Eventually, the United States must consider the kinds--I am 
sorry, Mr. Chairman.
    Senator Coleman. Your voice projected so well without the 
microphone.
    Mr. Baker. Eventually, the United States must consider the 
kind of anti-money laundering coverage that prevails in Canada 
and has been adopted by the European Union to be enacted by its 
member countries.
    The Canadian anti-money laundering law, for example, 
eliminates any distinction between what occurs in-country and 
out of country and refers instead to ``an act or omission 
anywhere that, if it had occurred in Canada, would have 
constituted a designated offense.'' For anti-money laundering 
to be effective it must cover the whole of the dirty money 
problem.
    The second strategic point, all three forms of dirty money, 
criminal, corrupt and commercial, use the same mechanisms to 
move through the international financial system: False 
documentation, dummy corporations, tax havens, off-shore 
secrecy jurisdictions, shell banks, trade mispricing, numbered 
accounts, concentration accounts, high-value portable 
commodities, informal transfer systems and more.
    The USA PATRIOT Act contains many provisions helpful in the 
fight against dirty money. It does not, however, materially 
change the structure that is available to and utilized by drug 
dealers, other criminals, tax evaders, and terrorists. 
Essentially, with the exception of shell banks, the other 
mechanisms that have been used for years are still used.
    Can the case be made that dirty money or any part of it is 
good for America? If the case cannot be made, then I assume all 
Americans are in agreement. We do not want it.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Baker follows:]
        Prepared Statement of Raymond W. Baker, Senior Fellow, 
            Center for International Policy, Washington, DC
    Mr. Chairman, Senators: Thank you for the opportunity to appear 
before the U.S. Senate Caucus on International Narcotics Control. I am 
Raymond Baker, a Senior Fellow at the Center for International Policy 
and earlier a Guest Scholar at the Brookings Institution, studying the 
issues of money laundering and illegal financial flows.
    The following material is divided into two parts--Tactical 
Considerations and Strategic Considerations. Under Tactical 
Considerations, reference is made to three GAO reports focusing on the 
current fight against money laundering and terrorist financing, as 
follows:
    February 2004; GAO-04-464R, Financial Crimes Investigations
    November 2003; GAO-04-163, Terrorist Financing: U.S. Agencies 
Should Systematically Assess Terrorists' Use of Alternative Financing 
Mechanisms
    September 2003; GAO-03-813, Combating Money Laundering: 
Opportunities Exist to Improve the National Strategy
    Under Strategic Considerations, a more analytical and longer-term 
view of these issues is offered.
                        tactical considerations
    The following sections select particular aspects of the current 
fight against money laundering and terrorist financing for comments and 
questions.
Reference Procedure for Terrorist Leads
    A Joint Vetting Unit (JVU) has been set up within the Department of 
Homeland Security (DHS) by Immigration and Customs Enforcement (ICE) 
for the following purpose:
    ``. . . to identify financial leads or investigations with a nexus 
to terrorism or terrorism financing . . .'' \1\
---------------------------------------------------------------------------
    \1\ General Accounting Office, Financial Crimes Investigations 
(GAO-04-46R), February 20, 2004, 17.
---------------------------------------------------------------------------
    After a lead has been identified by DHS/ICE, then:
    ``. . . all appropriate DHS leads relating to money laundering and 
financial crimes will be checked with the FBI. . . to enable the 
Section Chief of TFOS and the Deputy Section Chief of TFOS. . . to 
determine which leads should be provided to TFOS. . . '' \2\
---------------------------------------------------------------------------
    \2\ Ibid., 15.
---------------------------------------------------------------------------
    It appears that the procedure which operates from leads to field 
investigations is as follows:
    Identification of possible terrorist financing lead.
    Reference to Joint Vetting Unit (JVU).
    Reference to Terrorist Financing Operations Section (TFOS) Chiefs.
    Reference to TFOS operations.
    Reference to National Joint Terrorism Task Forces (NJTTF).
    Reference to Joint Terrorism Task Forces (JTTF) in the field.
    Leads which arise within the FBI itself may skip the first two 
steps.
    Three questions arise:
     Is this the correct procedure?
     From a sampling of the cases that have thus far gone 
through this or a similar procedure, what is the time taken from 
identification of a terrorist financing lead to reference to a JTTF 
field team?
     Are investigations ongoing through this or a similar 
reference process or are they effectively retarded or placed on hold, 
pending case disposition?
    In essence, is this process, or whatever process is operative, a 
matter of hours, days, weeks or months?
Federal Bureau of Investigation
    In the May 2003 ``Memorandum of Agreement'' between the Department 
of Justice and the Department of Homeland Security regarding 
collaborative procedures concerning terrorist financing investigations, 
the Federal Bureau of Investigation (FBI) is designated to:
    ``. . . lead terrorist financing investigations and operations.'' 
\3\
---------------------------------------------------------------------------
    \3\ Ibid., 14.
---------------------------------------------------------------------------
    In the March 2003 ``Memorandum of Understanding Between the 
Intelligence Community, Federal Law Enforcement Agencies, and the 
Department of Homeland Security Concerning Information Sharing,'' 
provision is made to:
    ``. . . ensure that all appropriate information and intelligence 
relating to terrorist financing is shared. . . '' \4\
---------------------------------------------------------------------------
    \4\ Ibid., 15.
---------------------------------------------------------------------------
    The FBI's responsibility is designated to begin at the point of 
``investigation'' rather than in the development of ``intelligence.''
    Jules Kroll, Chairman of Kroll Associates, the private 
investigation firm in New York, recently made the following 
observations:
    I do think it is inappropriate and relatively ineffective for law 
enforcement agencies to be in the intelligence gathering business. I 
believe that most big city police departments do a good job 
investigating and making cases. I would say the same thing about the 
FBI. That is different than intelligence gathering work. The 
intelligence process takes a different mindset, a different set of 
behavior, a different set of analytical tools. I think we have to look 
at this really, really hard. On a national basis, I don't think that 
intelligence gathering domestically should be conducted by the FBI.\5\
---------------------------------------------------------------------------
    \5\ Jules Kroll, remarks given at the Dirty Money and National 
Security conference, Brookings Institution, September 10, 2003, http://
ciponline.org/financialflows/krollremarks.htm.
---------------------------------------------------------------------------
    Are there any sensitivities that need to be addressed on these 
issues? Are there intelligence monitoring or oversight concerns that 
need to be addressed?
Two-and-a-Half Year Performance Review
    From nearly nothing in place in September 2001, the United States, 
with the cooperation of allies and a largely sympathetic world 
community, has managed to push much of the financial resources of al 
Qaeda and selected other terrorist organizations out of the legitimate 
financial system. David Aufhauser, until recently General Counsel at 
the U.S. Treasury Department, put it as follows:
    ``In broad strokes, al Qaeda is two-thirds less rich than they were 
when we started. Their budget is one-third of what it was when we 
started.'' \6\
---------------------------------------------------------------------------
    \6\ David Aufhauser, remarks given at the Dirty Money and National 
Security conference, Brookings Institution, September 10, 2003, http: /
/ ciponline.org / fmancialflows / aufliauserremarks.htm.
---------------------------------------------------------------------------
    By any measure, this is a major accomplishment, with much of the 
credit belonging to the agents and personnel of Operation Green Quest. 
The enormous concentration of attention on this aspect of the global 
dirty money problem--terrorist financing--accounts for the good measure 
of success.
    With similar efforts, the United States could also deplete the 
resources and disrupt the networks of drug dealers and other criminal 
syndicates who between them probably move more than $5,000 of dirty 
money for every $1 of terrorist money that moves. Should it ever be 
found that resources which are applied to investigating and dismantling 
terrorist financing become available for other deployment, then 
attacking these criminal organizations with equal resolve would well 
serve U.S. interests. Terrorists groups and criminal groups have been 
closely allied in recent years and indeed have incorporated each 
other's tactics into their own operations. Every group that is put out 
of business--drug, other criminal syndicates and terrorists--reduces 
the universe of those who would harm the United States.
Alternative Financing Mechanisms
    GAO's November 2003 report on Terrorist Financing states the 
following:
    U.S. Government officials both within and among agencies remain 
divided over whether there is sufficient evidence to establish a 
current link between al Qaeda and the diamond trade.\7\
---------------------------------------------------------------------------
    \7\ General Accounting Office, Terrorist Financing: U.S. Agencies 
Should Systematically Assess Terrorists' Use of Alternative Financing 
Mechanisms (GAO-04-163), November 14, 2003, 21.
---------------------------------------------------------------------------
    Douglas Farah, former Washington Post journalist and author of a 
forthcoming book, Blood from Stones: The Secret Financing Network of 
Terror, is the most knowledgeable American on the subject of diamonds 
and al Qaeda. He recently commented as follows:
    ``The reason I came across this story was that I was on the ground 
in West Africa, something that the intelligence agencies were not at 
that time. They couldn't possibly know what was going on in the bush of 
West Africa. They had nobody on the ground there. Without people on the 
ground, you're not going to find out what's going on, and nobody cared 
at that point, because it didn't seem relevant.
    ``Their essential reaction has been that we didn't know this 
happened, so it didn't happen. It's been very difficult to get people 
to think outside of the box on this or try and reframe their thinking 
into how terrorism would actually operate. We still love to look at 
bank records. We still love to look at wire transfers. We still love to 
do all these things that we understand and that we know and that make 
sense to us.'' \8\
---------------------------------------------------------------------------
    \8\ Douglas Farah, remarks given at the Dirty Money and National 
Security conference, Brookings Institution, September 10, 2003, http://
ciponline.org/fmancialflows/farahremarks.htm.
---------------------------------------------------------------------------
    Farah's thesis is either entirely convincing or sufficiently 
convincing to serve as the basis for a working hypothesis spurring 
further consideration. AI Qaeda's turn to diamonds, gold, drugs, the 
hawala system and more requires that the United States be as creative 
and quick witted as its adversaries. Are we thinking like terrorists, 
doing a good enough job anticipating their logical reactions to our 
actions?
                        strategic considerations
Scope of Anti-Money Laundering
    Dirty money is money that is illegally earned, illegally 
transferred or illegally utilized. If it breaks laws in its origin, 
movement or use, then it merits the label.
    There are three forms of dirty money--criminal, corrupt and 
commercial.
    The criminal component, which includes terrorists' money, is 
identified by a very broad range of ``specified unlawful activities,'' 
meaning that if a person knowingly handles the proceeds of such 
activities, then a money-laundering offense has been committed.
    The corrupt component stems from bribery and theft by foreign 
government officials.
    The commercial component is money that intentionally breaks laws 
and evades taxes.
    The United States identifies some 200 classes of domestic crimes, 
these specified unlawful activities which establish the basis for a 
money-laundering charge. However, only 11 specified unlawful activities 
are applicable if the crime is committed outside the United States. 
These 11 have to do primarily with:

    Drugs
    Crimes of violence, including terrorism
    Bank fraud
    Corruption
    And certain treaty violations

    Two other types of crimes can be added to the list--mail fraud and 
wire fraud--if a mailed communication goes through the United States or 
if a wire transfer is handled within the U.S. clearinghouse system.
    Not included among specified unlawful activities are the proceeds 
coming from abroad arising from:

    Racketeering;
    Securities fraud;
    Credit fraud;
    Forgery;
    Embezzlement of private funds;
    Non-violent burglary;
    Trafficking in counterfeit, contraband or stolen goods;
    Alien smuggling;
    Slave trading;
    Sexual exploitation;
    Prostitution;
    Virtually all forms of tax evasion; and more.

    This is at the heart of America's money-laundering issue, this 
difference between what we criminalize if it occurs within our borders 
and what we criminalize if it occurs beyond our borders. This is where 
the core of the problem rests.
    An example can serve to clarify the point. Suppose an American 
banker or financial executive or businessperson goes to a foreign 
country to call on potential customers. Take Singapore for purposes of 
illustration. The American calls on a wealthy gentleman in Singapore 
who says to him the following:
    I'm a businessman. I make my money by smuggling aliens, both female 
and male, out of western China and southern Russia and putting them 
into the sex trade and into sweat shops in Thailand, Korea, Japan and 
elsewhere. I have a great deal of money on deposit here in Singapore, 
but I would prefer to have it in the United States under the management 
of an organization such as yours. Can you take my money?
    The question is, is there a violation of U.S. anti-money laundering 
laws in taking this kind of money? The answer is no. Handling such 
proceeds does not violate U.S. anti-money laundering legislation.
    This example is especially edifying when it is taken a step 
further. Suppose the Singapore-based businessman uses these aliens he's 
bringing out of China and Russia to smuggle drugs into Southeast Asia. 
And suppose these drugs are supplied by al Qaeda. There is no clear-cut 
requirement for the American to ask more detailed questions that might 
lead to knowledge of this businessman's ancillary activities.
    In other words, this individual is an admitted alien smuggler and 
an unadmitted drug smuggler and terrorist facilitator, and he's about 
to do business with the United States.
    Note that this individual does not have to clean his money. All he 
has to do is make it look like his money does not fall into one of the 
very few prohibited categories under U.S. law.
    With U.S. anti-money laundering definitions as porous as they are, 
it's little wonder that U.S. Treasury Department officials estimated on 
background that 99.9 percent of the foreign criminal and terrorist 
money that is presented for deposit in the United States gets into safe 
and secure accounts. In other words, our anti-money laundering efforts 
at the point of deposit are unsuccessful 99.9 percent of the time.
    The idea that is at the heart of our anti-money laundering efforts 
is flawed. The idea that we can successfully curtail a few classes of 
dirty money that we don't want, while at the same time cultivating and 
facilitating a much broader range of dirty money that we are willing to 
accept, is ultimately unworkable.
    Many bankers and executives say that they would not accept such 
funds as I have described, regardless of whether or not the funds are 
proscribed under U.S. law. Then it would be appropriate for these 
bankers and executives to join with the administration in supporting a 
broadening of the list of offshore specified unlawful activities 
presently not included in U.S. law.
    Eventually, the United States must consider the kind of anti-money 
laundering coverage that prevails in Canada and has been adopted by the 
European Union to be enacted by its member countries. The Canadian 
anti-money laundering law, for example, eliminates any distinction 
between what occurs in-country or out-of-country and refers instead to: 
``an act or omission anywhere that, if it had occurred in Canada, would 
have constituted a designated offence.'' \9\
---------------------------------------------------------------------------
    \9\ Proceeds of Crime, Statutes of Canada 2001, c. 32, s. 462.31 
(b).
---------------------------------------------------------------------------
    For anti-money laundering to be effective, it must cover the whole 
of the dirty-money issue.
Facilitating Structures
    All three forms of dirty money--criminal, corrupt and commercial--
use the same mechanisms to move through the international financial 
system:

    False documentation;
    Dummy corporations;
    Tax havens;
    Offshore secrecy jurisdictions;
    Shell banks;
    Trade mispricing;
    Numbered accounts;
    Concentration accounts;
    High-value portable commodities;
    Informal transfer systems; and more.

    The U.S. Patriot Act contains many provisions helpful in the fight 
against dirty money. It adds handling the proceeds of foreign 
corruption to the list of specified unlawful activities. It bars 
transfers from shell banks into the United States or through other 
banks into the United States. And it strengthens methods by which the 
United States can seek out and seize terrorist money.
    The Patriot Act does not, however, materially change the structure 
that is available to and utilized by drug dealers, other criminals, 
terrorists and tax evaders. Essentially, the mechanisms that have been 
used for years, with the exception of transfers originating in shell 
banks, are still used.
    As stated earlier, the United States has done a creditable job of 
pushing the resources of certain identified terrorist organizations 
largely out of the legitimate financial system. We have not, however, 
made it any more difficult to recreate the type of entities and 
mechanisms that have contributed to the handling of terrorists' 
proceeds in the past. Still available to be used by terrorists, and 
every other type of criminal and tax evader, are the dummy 
corporations, nominee directors, veiled shareholders, tax havens, 
financial secrecy jurisdictions, trade mispricing arrangements, 
foundations, flee clauses, and much more.
    These same types of arrangements are, of course, also used by tax 
evaders in the United States to send proceeds offshore.
    After September 11, 2001, the United States traced accounts 
utilized by al Qaeda and shut many of these accounts down. This was an 
after-the-fact process. Yet, little prevents al Qaeda or another 
terrorist organization from forming a new set of dummy corporations and 
banks and repeating the processes used to finance past attacks. The 
available structural options remain intact.
    Eventually, the United States must consider carefully the implicit 
cost-benefit equation. Do the supposed benefits arising from offshore 
mechanisms utilized to hide money, evade taxes and facilitate inflows 
to the United States offset the costs of use of these same systems by 
drug dealers, criminal syndicates, corrupt officials, foreign tax 
evaders and, worst of all, terrorists?
    Can the case be made that dirty money or any part of it is good for 
America? If the case cannot be made, then I assume all Americans are in 
agreement. We don't want it.
    David Aufhauser, referred to earlier, recently said the following: 
``I actually believe it's impossible--impossible--to overstate the 
importance of the war on terrorist financing when you speak about the 
war on terror.'' \10\
---------------------------------------------------------------------------
    \10\ David Aufhauser, remarks given at the Dirty Money and National 
Security conference, Brookings Institution, September 10, 2003, http: /
/ ciponline.org / fmancialflows / aufhauserremarks.htm.
---------------------------------------------------------------------------
    If this view is shared by all, then everything--everything--that 
contributes to terrorists financing should be on the table.

    Senator Coleman. Thank you, Mr. Baker.
    Mr. Baker, let me raise some questions with you first, in 
reverse order.
    Can you help me understand a little bit of the historical 
perspective? What is the basis for this distinction in what we 
criminalize in terms of money laundering domestically versus 
abroad? What are the existing differences? What does that stem 
from?
    Mr. Baker. The anti-money laundering legislation laws, 
prior to the PATRIOT Act, covered seven specified unlawful 
activities off-shore: drugs, money arising from crimes of 
violence, and so forth. The PATRIOT Act added corruption to 
that list and certain treaty violations. Those are the only 
ones clearly specified in the law as being contrary to U.S. 
anti-money laundering legislation.
    Senator Coleman. You make a very strong case that dirty 
money is dirty money is dirty money.
    Mr. Baker. Correct, Mr. Chairman. I, in all of my work, 
draw a definitional distinction between money that is laundered 
and money that is dirty. In the way that I use the terminology, 
laundered money is only money that breaks laws of the United 
States, breaks the anti-money laundering laws of the United 
States. Dirty money is a much broader category, covering all 
forms of dirty money.
    Senator Coleman. Certainly this institution, the Senate, 
has been deeply concerned. Sexual exploitation, slave trading, 
some of those issues have come up before this body. And again, 
I must say that I am very responsive to the concerns you raise 
about the narrow scope of the existing system.
    You raise a question about the FBI. You note in your 
testimony are there any sensitivities that need to be addressed 
in these issues. Let me back it up.
    In your testimony you refer to a recent statement by Jules 
Kroll, in your written testimony, ``it is relatively 
ineffective for law enforcement agencies to be in the 
intelligence gathering business.''
    Let me just ask you about that. Is that your view, as well? 
And if so, would you please provide us with your views as to 
who should be involved in gathering financial intelligence?
    Mr. Baker. Domestically, I am not sure that there is any 
choice, Mr. Chairman, except for the FBI to be involved in 
initiating terrorism investigations. I do not see an option. I 
raised the question. I said that, in my own impression, no, 
there is not a problem. But as you would know better than I, 
Mr. Chairman, the need for intelligence oversight never ceases.
    Senator Coleman. You then, though, raise the question, 
saying the FBI is not clearly spelled out, and you say are 
there oversight concerns to be addressed? Who would address 
those concerns?
    Mr. Baker. The Congress.
    Senator Coleman. Regarding the vetting system, whereby all 
cases that may involve terrorist financing must be checked 
first by the FBI. Do you believe that this system is impeding 
the quality and speed of terrorist or terrorism financing 
investigations? Is it working at maximum efficiency?
    Mr. Baker. My understanding, Mr. Chairman, is that 
frequently a terrorist investigative lead is referred to the 
field even before it has gone through these types of processes. 
That is what I have understood. I think it would be worthwhile 
to verify that there is no material delay as a reference is 
working through its various channels.
    Senator Coleman. Do you have any specific recommendations 
for improving the system?
    Mr. Baker. Except to repeat that instant reference to the 
field while the other processes take place is probably 
advisable.
    Senator Coleman. One final question, Mr. Baker, given your 
assumption that dirty money is dirty money, does it not make 
more sense to focus on money laundering systems that are 
currently exploited rather than attempting to maintain an ever-
growing list of predicate crimes? Can we get beyond just the 
listing? Is there a more inclusive, more global way to focus on 
this?
    Mr. Baker. Mr. Chairman, I do not see how we can 
successfully attack the problem of dirty money and therefore 
the problems of drug and terrorist money until all parts of 
this problem are on the table to be dealt with.
    The thing that concerns the financial community is the tax 
evading money. I have had many bankers tell me that, oh, they 
would not take money from abroad that they knew to be derived 
from sexual exploitation, slave trading, alien smuggling and 
that sort of thing.
    All right, good. Then those bankers and financial 
executives should work with the administration and with the 
Congress to broaden the list of specified unlawful activities 
that we do not want to receive, money coming from abroad. Only 
with a broader list do I think we can adequately define what we 
are talking about here.
    The thing that the financial community fears is that this 
will get into the question of the inflow of tax evading money 
from other countries. I would roughly estimate that at perhaps 
$200 billion to $300 billion a year.
    I have had Swiss bankers tell me that until Western 
countries are prepared to deal with the tax evading money in 
the same way that they want to deal with the drug and terrorist 
money, this effort cannot be successful.
    Senator Coleman. Thank you, Mr. Baker.
    Mr. Yager, I noted in your report that the National 
Security Council did not comment. You have comments from a 
number of other bodies. During the engagement did you ask for 
and obtain interviews with any representatives of the National 
Security Council? If not, do you believe that their failure to 
meet with you may have deprived you of any critical information 
you needed to effectively evaluate the National Money 
Laundering Strategy?
    Mr. Yager. Mr. Chairman, we did offer to meet with the 
National Security Council. We requested discussions with them. 
We do know that they are responsible for setting the framework 
for policy in this area and coordinating the policy in this 
area, as they are in a number of other areas.
    Mr. Chairman, we really do not know the extent to which our 
inability to meet with them might have limited the information 
we were able to gather through the course of our assignment.
    Senator Coleman. I guess I find it a little perplexing to 
understand, how do you examine a strategy when you are not 
getting information from folks who set the framework for 
strategy?
    Mr. Yager. We certainly would have preferred to have that 
meeting and I think we were able to speak with a number of the 
different agencies responsible for key parts of that strategy. 
So we believe we were able to cover sufficient numbers of 
agencies and understand the roles that they play without having 
met with the National Security Council.
    Although again, we certainly would have preferred to have 
that overview and meet with them specifically to talk about the 
overall framework.
    Senator Coleman. Mr. Stana, do you want to comment on that?
    Mr. Stana. Yes. If you are referring specifically to our 
work on the National Money Laundering Strategy, it is true that 
the NSC has a role, mostly advisory, mostly dealing with policy 
considerations with international organizations and 
international entities. We attempted to speak with them.
    But the fact that we did speak with many Treasury 
components and many Justice components was most important and 
we do not think that our limitations over at the NSC hampered 
our assessment.
    Senator Coleman. The reporting touched upon in your 
testimony on alternative financing mechanisms provided a matrix 
of how terrorist groups earn, move and store funds. It would be 
helpful to me, if you could elaborate on how money from drug 
traffickers to fund terrorist operations can be moved through 
alternative financing mechanisms. How does that work?
    Mr. Yager. There are a number of different commodities that 
might be used, for example. Take for example, if you look at 
something like diamonds. Diamonds are obviously very high 
value, easy to conceal, and easy to take across borders. So, 
assets that might have been earned through any method, whether 
it is through the sale of diamonds, conflict diamonds for 
example, or others could then be converted into a commodity 
like diamonds which could be carried around the world. It is 
relatively difficult to intercept and to find these things when 
people are moving across borders because of their small size 
and high value. And then they can be converted back into cash 
or into other assets in their destination country.
    So that is just one example. There are a lot of ways that 
this could happen and certainly many of those have been 
discussed and reported on both in the press and in other ways.
    Senator Coleman. You note in your report and also in your 
testimony, and I will quote here from the report, ``from a 
broader or strategic perspective the annual NMLS generally has 
not served as a useful mechanism for guiding coordination of 
Federal efforts to combat money laundering and terrorist 
financing.''
    Do you have any specific recommendations for legislative 
actions that would correct that, that would respond to that 
statement?
    Mr. Stana. Yes, as a general proposition--and of course, it 
is the Congress' prerogative whether it wants to renew the 
strategy or not--having a strategy like NMLS certainly serves a 
useful purpose. It is better to have a strategy than not have a 
strategy. And particularly in its early years, it was very 
useful in bringing the different agencies to the table to talk 
and coordinate with one another, to focus on the main issues, 
and frankly to perform or help perform some element of 
Congressional oversight through reporting and having a central 
focus.
    Having said that, no strategy that we have seen is perfect 
and this one is no exception. The three main problems we saw 
with this one was; there really was not a leadership role or 
body that could direct the channeling of resources; they did 
not do a risk threat and vulnerability assessment with which to 
prioritize its initiatives; and they did not establish 
accountability mechanisms so that non-performance would have 
consequences.
    So, if I were going to redo this plan, this strategy, I 
would make sure it would have those elements.
    Senator Coleman. Who would you recommend to take the 
leadership role or which leadership body to direct resources?
    Mr. Stana. A couple of models come to mind. When the money 
laundering strategy was first formulated, they had a steering 
committee made up mainly of Treasury and Justice, Deputy 
Secretary of Treasury, Deputy AG, and representatives of other 
associated agencies to meet and discuss priorities, assign 
tasks and establish accountability. Having a steering committee 
like that, to resurrect that, would be a useful thing. It did 
go away over time. Resurrecting that would be a good thing.
    Another model that comes to mind is the National Drug Czar 
model. I do not know if that would be the most appropriate 
here, and I think it is fair to say there are some issues with 
that model, as well.
    Senator Coleman. I note that the implementation of the 
memorandum of agreement between Justice and Homeland Security 
appears to have addressed some of the concerns about 
investigative overlap and duplication. Is it positive?
    Mr. Stana. That is right. I think the early signs are 
promising. It did establish a vetting process to help assure 
that investigations are at least deconflicted or that the 
overlap is minimized.
    We would watch for three things though, as time goes on. 
This is an evolving process. First, there are long-standing 
jurisdictional issues between the FBI and ICE that have to be 
addressed, and mainly at the local level. It was apparent to us 
at the highest levels that there is buy-in to the MOA and it is 
being directed, drilled down, into the working level. But when 
you go to several locations you would find that it is not 
universal at that level. There exist jealousies and 
interpersonal conflicts at the local level.
    I also want to be sure that ICE does not feel that they are 
being elbowed out of the terrorist financing business. They 
have a tremendous amount of expertise to bring to bear on this 
problem and simply because the MOA gave primary jurisdiction to 
FBI does not mean that ICE is without a role. I would think you 
want to enhance that role and make sure it is not 
disincentivized.
    And finally, to blend the cultures of the two agencies I 
think is very important. They do have different operational 
ways of doing business. ICE tends to want to make cases quickly 
and move on. The FBI wants to make its cases, but they want to 
take a longer term look at the case and all of its subjects to 
make sure they are not prosecuting a lower level individual at 
the expense of perhaps waiting and getting a higher level 
official.
    So I think those things bear watching.
    Senator Coleman. Mr. Baker.
    Mr. Baker. Mr. Chairman, concerning the National Money 
Laundering Strategy, I would suggest that consideration be 
given to making it a bi-annual strategy rather than an annual 
strategy. It is my impression that the people who are preparing 
the report are also, in most cases, the people who are 
implementing the report. They are spending a great deal of time 
preparing the strategy. It gets done late. By that time, it is 
time to start working on the next strategy.
    A two year strategy might, in fact, enhance its usefulness 
rather than detract from it.
    Senator Coleman. Can memorandums of agreement serve as a 
substitute for a strategy? Or are they really separate entities 
here?
    Mr. Stana. They are separate entities. The memorandum of 
understanding is very narrowly scoped, and it is scoped only to 
investigations. I think it serves as a useful model for 
coordination and cooperation, but it is so narrow that it has 
limited relevance to the overall strategy.
    Senator Coleman. I take it then the issues you raised about 
leadership role would still be inherent even with memorandums 
of understanding? That somebody would have to be in a role to 
sort out some of these voids, problematic areas, things of that 
nature?
    Mr. Stana. One of the pluses with the MOA is that it very 
clearly defined who is in charge, and it clearly defined what 
was expected and who was accountable.
    Senator Coleman. I have a question that Senator Grassley 
wanted me to ask. Based on your evaluation of the current 
structure of how money laundering investigations are begun, and 
resources are allocated as part of a strategy, do you believe 
the investigative work is driven by individual cases, or are 
investigations looking at shutting down a particular systemic 
vulnerability?
    Mr. Yager.
    Mr. Yager. Mr. Chairman, we looked at that. That was one of 
the specific findings in our report. And I think it is one of 
the reasons we had a recommendation to the Justice Department 
that they look more systematically instead of looking on a 
case- by-case basis.
    Obviously, there is a role. It is very important to try to 
develop those cases. But at the same time, in order to be able 
to see this bigger picture and look at it from an industry 
standpoint, to see the larger picture of this jigsaw puzzle 
that we are trying to put together, there needs to be different 
attempts and more sharing of information so that some of those 
patterns or changes in activity can be observed.
    We note in our report, and others have also made the point, 
that terrorists are very flexible and they take advantage of 
whatever system is available and where there is no attention.
    So I think that on the other side, the law enforcement 
entities have to be flexible. They have to be looking for 
patterns, for movement of activity from one mechanism to 
another. I think the best way to do this is to take advantage 
of the case information that is developed, but also look at it 
in other ways, whether it is on an industry basis, geographic 
basis or other ways. We think that is an important point. That 
is one of the reasons we had that recommendation in our report.
    Senator Coleman. Mr. Stana.
    Mr. Stana. Senator Coleman, one thing I would add to that 
is, as a successor to Operation Green Quest, which I think 
individuals in this room understand to be legacy Customs' 
effort to fight terrorist financing, Operation Cornerstone does 
have a component that is specifically designed to take a more 
strategic look at terrorist financing operations. So I just 
wanted to bring that to your attention.
    Senator Coleman. Gentlemen, thank you. This has been a very 
informative panel, certainly for me personally. You have taken 
a very complex area of the law and, with tremendous need and 
certainly provided some clarity and some helpful suggestions. 
So I am very appreciative.
    I would now like to welcome our second panel to today's 
hearing. The Honorable Juan Carlos Zarate, Deputy Assistant 
Secretary for Terrorist Financing and Financial Crime, 
Department of the Treasury. Mr. Zarate is responsible for 
formulating and coordinating the Treasury Department's 
counterterrorist financing and anti-money laundering efforts.
    The Honorable Karen Tandy is the Administrator of the Drug 
Enforcement Administration. Administrator Tandy has lead 
responsibility for implementing our national drug enforcement 
policies and investigations, including the identification, 
seizure and forfeiture of assets that are created and used by 
drug traffickers.
    Michael T. Dougherty. Mr. Dougherty is the Director of 
Operations for the Bureau of Immigration and Customs 
Enforcement. Mr. Dougherty is responsible for the overall 
management and coordination of the Bureau's operations and 
serves as the Assistant Secretary's principal representative to 
the Department of Homeland Security and the law enforcement 
intelligence communities.
    Gary Bald is the Assistant Director of the Counterterrorism 
Division of the Federal Bureau of Investigation, which is 
responsible for conducting financial analysis and 
investigations of terrorist suspects and terrorist financing 
structures in the United States and abroad.
    As representatives of our Nation's efforts to combat 
terrorism, illegal drugs and money laundering, I want to thank 
each of you for coming this afternoon. Our successes to date 
are due in large measure to your efforts and we are very 
appreciative and very grateful for that.
    I look forward to your testimony as we are joined in our 
mutual desire to ensure that those successes are not short-
lived.
    As you heard for the first panel, there will be a timing 
system. Watch the lights. When the lights change from green to 
yellow you will have a minute to conclude your remarks.
    I will enter your written testimony as part of the official 
record. That will be done without objection.
    I would like Deputy Assistant Secretary Zarate to give his 
testimony first, followed by Administrator Tandy, and then Mr. 
Dougherty and Mr. Bald. After we have heard all your testimony, 
we will turn to questions. Secretary Zarate, you may proceed.

 STATEMENT OF HON. JUAN C. ZARATE, DEPUTY ASSISTANT SECRETARY 
     FOR TERRORIST FINANCING, DEPARTMENT OF THE TREASURY, 
                         WASHINGTON, DC

    Mr. Zarate. Thank you, Chairman Coleman.
    Thank you for inviting me here today to testify, and thank 
you as well for your interest in the combined efforts to combat 
money laundering and terrorist financing.
    I also want to take this opportunity to reiterate our 
gratitude to Congress for expanding our capabilities under the 
USA PATRIOT Act.
    I am pleased to be on this panel with my colleagues from 
the FBI, DEA, and ICE. Defeating terrorist financing, money 
laundering, and drug trafficking requires the use of all 
relevant U.S. Government authorities. Our efforts against these 
threats have been most successful when we have a coordinated 
approach and attack.
    Mr. Chairman, since September 11th, the U.S. Government has 
launched an aggressive offensive to disrupt and dismantle 
terrorist groups and their operations. We are making it harder, 
costlier, and riskier for al Qaeda to raise and move money 
around the world. It has become clear that tracking, attacking 
and deterring the sources of money are essential components of 
the overarching war against al Qaeda and like-minded terrorist 
groups.
    That same lesson, sir, is one that has now become ingrained 
in the efforts to attack money laundering, financial crimes and 
drug trafficking.
    For the Treasury Department, these endeavors require the 
use of all of our relevant authorities, expertise and influence 
to prevent the flow of dirty money through the international 
financial system.
    The 2003 National Money Laundering Strategy sets forth a 
systemic approach to our mission. Our success can be measured 
against the overarching goals of the strategy. To succeed, we 
need both a long and short-term approach. Over the long-term we 
are enhancing the transparency and accountability of financial 
systems around the world to protect these systems from criminal 
abuse. In the short-term, we are exploiting these 
transparencies to identify and capture terrorist and criminal 
funds and financial information.
    Mr. Chairman, let me provide you with just a few examples 
of where the U.S. Government has succeeded in identifying and 
neutralizing threats. This past month agents from the Criminal 
Investigation Division of the IRS, the FBI and ICE executed a 
search warrant for potential tax and money laundering related 
violations of the Al Haramain branch in Oregon. At the same 
time, Treasury's Office of Foreign Assets Control blocked the 
assets in aid of investigation.
    In February, the Treasury Department, in coordination with 
U.S. and Colombian law enforcement officials, designated 40 key 
leaders of the FARC and AUC, as well as AUC front companies.
    In December, the Treasury Department used Section 311 of 
the USA PATRIOT Act against two Burmese banks, because of their 
drug trafficking ties, to block them from access to the U.S. 
financial system. This work was done in coordination with the 
DEA, U.S. Secret Service and other U.S. Government agencies.
    Just yesterday, Mr. Chairman, the U.S. Attorney in the 
Southern District of New York announced the indictment of two 
of Colombia's most important drug kingpins based on Treasury-
related prohibitions. The indictment was part of a joint effort 
among the DEA, Department of Justice and Treasury's OFAC.
    Mr. Chairman, we are also dealing with identified 
weaknesses in the international financial system and improving 
financial information sharing around the world. We have worked 
internationally through the Financial Action Task Force and 
other groups to strengthen comprehensive customer 
identification, recordkeeping and information sharing 
standards. These efforts have provided for and produced 
meaningful change in countries like the Cayman Islands, Egypt, 
Guatemala, Indonesia, Israel, Lebanon and the Philippines. We 
have strengthened international standards and capabilities to 
attack terrorist financing, including freezing terrorist-
related assets, regulating and monitoring alternative 
remittance systems such as hawala, ensuring accurate and 
meaningful information on cross-border wire transfers, and 
protecting non-profit organizations from terrorist abuse.
    Along with ICE and other agencies, we are now addressing 
the problem of the use of couriers by terrorist and criminal 
organizations on a comprehensive and international basis. Under 
the USA PATRIOT Act, Treasury's Financial Crimes Enforcement 
Network has published 50 proposed and final rules to broaden 
and deepen our own anti-money laundering regime to now include 
oversight of money service businesses and broker dealers.
    Under Section 314(a) of the USA PATRIOT Act, FinCEN has 
gained critical leads from over 30,000 financial institutions 
on identified money launderers and suspected terrorist 
supporters. This has resulted in over 10,000 matches that were 
passed on to law enforcement.
    Mr. Chairman, these long-term and short-term initiatives 
are complimentary and address our priority challenges. 
Moreover, these initiatives capitalize on the progress we have 
achieved to date and apply the powers and expertise of the 
entire U.S. Government.
    The Treasury will continue to use its powers and influence 
judiciously, but aggressively to change behavior by blocking 
tainted assets, naming, shaming and shutting out rogue 
institutions and regimes, and ensuring the integrity of the 
financial system.
    Mr. Chairman, we appreciate the Caucus' focus on these 
issues and we look forward to continuing to work with the 
Congress to ensure the effective implementation of our national 
anti-money laundering and counterterrorist financing 
strategies.
    Thank you.
    [The prepared statement of Mr. Zarate follows:]
Prepared Statement of Hon. Juan C. Zarate, Deputy Assistant Secretary, 
  Executive Office for Terrorist Financing and Financial Crimes, U.S. 
                       Department of the Treasury
    Chairman Grassley, Co-Chairman Biden, and distinguished Members of 
the Caucus, thank you for inviting me to testify today, and thank you 
for your interest in the coordination of our Government's efforts to 
combat money laundering and terrorist financing.
    Let me begin by expressing my gratitude to the Congress for the 
additional resources, authorities, and support given to the Executive 
Branch to assist us in our efforts to attack terrorist financing 
networks and money launderers. Of particular importance to these 
efforts, the USA PATRIOT Act expands the law enforcement and 
intelligence community's ability to access and share critical financial 
information regarding terrorist investigations, and Title III enhances 
our joint abilities to obtain and exploit financial information 
collectively to attack the financing of criminal activities. We at the 
Treasury will continue to apply aggressively, but judiciously, the 
enhanced powers that you have provided us to ensure that relevant 
financial information is used to initiate and support actions against 
terrorist and criminal organizations. We will also continue to develop 
and strengthen the relationships we have established with our private 
financial sector partners in these efforts.
    As you will hear from this panel--and as we and the Department of 
Justice re-affirmed in our publication of the National Money Laundering 
Strategy of 2003 (2003 Strategy) last fall--the campaign against 
terrorist financing and money laundering forms an essential component 
of our national security strategy. Since September 11, we have 
leveraged the relationships, resources, authorities, and expertise that 
we have acquired over the past several years in combating money 
laundering to attack terrorist financing. Our efforts in both arenas 
are complementary and are effecting the changes required to protect the 
integrity of our financial systems by identifying, disrupting and 
dismantling sources, flows, and uses of tainted capital within those 
systems.
i. creation of the executive office for terrorist financing & financial 
                                 crimes
    Almost one year ago, the Secretary of the Treasury established the 
Executive Office for Terrorist Financing and Financial Crimes (EOTF/
FC). This Office is responsible for developing policies relating to the 
Department's anti-money laundering, terrorist financing and financial 
crimes mission. It also oversees the offices and Bureaus responsible 
for implementing and administering these policies, i.e., the Office of 
Foreign Assets Control (OFAC), the Financial Crimes Enforcement Network 
(FinCEN), and the Treasury Executive Office for Asset Forfeiture 
(TEOAF).
    We have achieved important results, but not without the coordinated 
efforts of all Treasury and other agency components engaged in anti-
terrorist financing, money laundering and financial crimes efforts, 
including the law enforcement, intelligence and military communities, 
foreign government counterparts, and the private sector. Together, we 
are effecting long-term change and strengthening domestic and 
international financial systems against terrorist and criminal abuse by 
developing and enhancing effective and comprehensive standards of 
financial transparency and accountability. In the shorter term, we are 
capitalizing on existing transparencies in financial systems and 
aggressively applying new authorities to identify, disrupt and 
dismantle terrorist and criminal organizations.
 ii. attacking the financial infrastructure of terrorist and criminal 
                             organizations
    No matter whether the driving force is religious extremism, 
political power, financial greed, or any combination thereof, the 
infrastructure supporting crime necessarily includes a financial 
component. Money is required to fuel these enterprises of terror, 
narco-trafficking and organized crime, and as such, it represents a 
significant vulnerability that Treasury and its Federal, State and 
local allies must and do exploit.
    Targeting money flows is among the best means of tracking, exposing 
and capturing terrorists and their facilitators, narco-trafficking 
cartels and their supporting infrastructure, and organized crime 
networks worldwide. Money flows leave a signature, an audit trail, and 
provide a road map of terrorist and other criminal activity. As we and 
our international partners work together to follow and stop terrorist 
or illicit funds, we strengthen the integrity of our financial systems 
and erode the infrastructure that supports terrorists and criminals.
    This is why we are committed to ``targeting the money'' from a 
systemic approach. We believe that resources devoted to fighting money 
laundering and financial crimes through a systemic approach reap 
benefits far beyond merely addressing the underlying financial crimes 
they directly target. When applied on a systemic basis, targeting the 
money can identify and attack all kinds of activity, including the 
financing of terrorism, narcotics trafficking, securities frauds, alien 
smuggling, organized crime, and public corruption. Financial 
investigations lead upstream to those who are generating the underlying 
financial crimes, as well as downstream to provide a roadmap to those 
financial professionals who facilitate the criminal activity.
A. Terrorist Financing
    The terrorism we are fighting generally operates through complex 
networks. In this context, a terrorist act, no matter how basic and 
inexpensive, cannot be accomplished without a sophisticated financial 
and operational infrastructure. Terrorist organizations such as al 
Qaida and Hamas require a financial and operational infrastructures. 
They must pay for the security of ``safe havens,'' financial support 
for the families of ``martyrs,'' recruitment, indoctrination, 
logistical support, and personnel training. This doesn't even get into 
the costs of ostensibly humanitarian efforts--charitable organizations, 
medical clinics and schools--that are either created as fronts for 
terrorism or to win support and recruits. Finally, there is the cost of 
weapons. In short, the horrific results of terrorism require the 
raising, movement and use of considerable funds. The terrorist leaves 
identifiable and traceable footprints in the global financial systems, 
and these footprints must be pursued forward to identify future 
perpetrators and facilitators, and backwards to identify funding 
sources and to dismantle supporting entities and individuals.
    The President has made it clear that we must use every available 
tool in waging a comprehensive campaign against terrorism, and we at 
Treasury are working with other relevant USG agencies in taking 
meaningful and effective action on a variety of fronts. We are 
developing effective international standards of financial transparency 
and accountability; sanctioning non-compliant behavior by non-
cooperative states; coordinating effective technical assistance to weak 
but willing states; freezing terrorist-related and other criminal 
assets; investigating and prosecuting crimes; directing intelligence 
operations either at a financier, a financial node, or a facilitator; 
and using diplomatic suasion to convince other governments to take 
significant steps.
    Depriving the terrorists of funding remains both an ongoing 
priority and an effective tool in the war on terrorism. Ever since the 
President took initial action in freezing terrorist finances through 
the issuance of Executive Order 13224, the U.S. Government (USG) has 
led an international coalition to disrupt, dismantle, and destroy the 
sources and pipelines from and through which terrorists receive money.
     Under Executive Order 13224, the USG has designated a 
total of 351 individuals and entities, resulting in the freezing or 
seizure of approximately $200 million of terrorist-related funds 
worldwide. The impact of these actions goes beyond the amount of money 
frozen. Public designation and asset blocking choke off terrorist cash 
flows by cutting off access to the U.S. and other financial systems and 
also provide access to further intelligence. Recent designations under 
E.O. 13224 include the following:
     The Al-Aqsa International Foundation (Hamas-related) on 
May 29, 2003
     Shamil Basayev (al-Qaida-related) on August 8, 2003
     The National Council of Resistance of Iran (including its 
U.S. representative office and all other offices worldwide) and the 
People's Mujahedin Organization of Iran (including its U.S. press 
office and all other offices worldwide) on August 15, 2003
     Commite de Beianfaisance et de Secours aux Palestiniens 
(France), Association de Secours Palestinien (Switzerland), Interpal 
(UK), Palestinian Association in Austria, and the Sanibil Association 
for Relief and Development (Lebanon) (all Hamas-related charities) on 
August 22, 2003
     Sheik Ahmed Yassin (Gaza), Imad Khalil Al-Alami (Syria), 
Usama Hamdan (Lebanon), Khalid Mishaal (Syria), Musa Abu Marzouk 
(Syna), and Abdel Aziz Rantisi (Gaza) (Hamas political leaders) on 
August 22, 2003
     Yassin Sywal, Mukhlis Yunos, Imam Samudra, Huda bin Abdul 
Haq, Parlindungan Siregar, Julkipli Salamuddin,, Aris Munandar, Fathur 
Rohman Al-Ghozi, Agus Dwikarna, and Abdul Hakim Murad (members of 
Jemaah Islamiyah) on September 5, 2003
     Abu Musa'ab Al-Zargawi (al-Qaida-related) on September 24, 
2003
     Al Akhtar Trust International (al-Qaida-related) on 
October 14, 2003
     Dawood Ibrahim (al-Qaida-related) on October 17, 2003
     Abu Ghaith (al-Qaida-related) on January 16, 2004
     Four branches of the Al Haramain Islamic Foundation (al-
Qaida-related) on January 22, 2004)
     Shaykh Abd Al-Zindani (al-Qaida-related) on February 24, 
2004
     We have made it harder for al Qaida to raise and move 
money around the world by cutting off channels of funding and freezing 
assets. In the last year, over fifty individuals and entities were 
designated by the USG pursuant to the obligations of UN-member states 
to freeze the assets of individuals and entities related to Usama bin 
Laden, al-Qaida, and/or the Taliban.
     Important financial networks--such as those of al Barakaat 
and parts of the Al Haramain Islamic Foundation--have been identified 
and shut down. The UAE and Somalia-based al Barakaat network was once 
used to funnel potentially millions of dollars annually to al Qaida and 
its affiliates.
     Key terrorist financiers and facilitators, such as Saudi-
millionaires Yasin al-Qadi and Wa'el Hamza Julaidan, Swift Sword, and 
Bin Laden's Yemeni spiritual advisor, Shaykh Abd-Al-Zindani, have had 
their assets frozen and/or have been arrested or otherwise addressed 
through the international community's concerted law enforcement 
efforts.
     The U.S. has also taken significant actions against non-al 
Qaida linked terrorist organizations such as Hamas and the Basque 
terrorist group, ETA. On December 4, 2001, President Bush issued an 
order to freeze the assets of a U.S.-based foundation--The Holy Land 
Foundation for Relief and Development--along with two other HAMAS 
financiers, Beit al Mal and the Al Aqsa Islamic Bank. Six leaders of 
Hamas and six charities in Europe and the Middle East that support 
Hamas were subsequently designated in May and August 2003. In 
partnership with our EU allies, the U.S. designated 31 ETA operatives 
and one organization that supports ETA.
     Working together with the international community, we have 
taken steps to ensure global compliance with international standards 
against terrorist financing and money laundering. Treasury and other 
elements of the USG have launched a three-prong strategy that includes: 
(i) objectively assessing countries against international standards; 
(ii) providing capacity-building assistance for key countries in need, 
and (iii) isolating and punishing those countries and institutions that 
facilitate terrorist financing.
     The USG has identified 26 countries as priorities for 
receiving counter-terrorist financing technical assistance and 
training, and we are working bilaterally to deliver such assistance to 
these priority countries. The USG is also working together with its 
allies in the CounterTerrorism Action Group (CTAG) and the Financial 
Action Task Force (FATF) to coordinate bilateral and international 
technical assistance efforts to additional priority countries in the 
campaign against terrorist financing.
     We have forged an international coalition against 
terrorist financing, gaining the support and action of countries around 
the world to search for and interdict terrorist funds. Most terrorist-
related assets are located outside the jurisdictional reach of the U.S. 
We, therefore, have worked closely with our international partners and 
focused other countries' attention on these issues. We have convinced 
them to improve their legal and regulatory systems so they can more 
effectively identify and block terrorist funds, retrieve and share 
incriminating financial information, and investigate and prosecute 
criminal and terrorist organizations.
     Through FinCEN, we have directed the attention of the 
Egmont Group towards terrorist financing and expanded its global reach. 
The Egmont Group is now comprised of 84 Financial Intelligence Units 
(FIUs) from various countries around the world which are responsible 
for receiving, analyzing and disseminating financial information 
reported pursuant to their respective anti-money laundering and anti-
terrorist financing regimes. FinCEN is the FIU for the United States. 
Through the Egmont Group, these FIUs have agreed to: (i) work to 
eliminate impediments to information exchange; (ii) make terrorist 
financing a predicate for suspicious activity required to be reported 
by all financial sectors to their respective FIUs; (iii) undertake 
joint studies of particular money laundering vulnerabilities, 
especially when they may have some bearing on counterterrorism, such as 
hawala; and (iv) create sanitized cases for training purposes.
     We have enlisted the active support of international 
bodies, such as the G-7, G-10, G-20, APEC, and others--to make efforts 
against terrorist financing a priority for their members. The G7, G20, 
Asia-Pacific Economic Cooperation Forum (APEC), Western Hemisphere 
Finance Ministers (WHFM), ASEAN Regional Forum (ARF), and OSCE have all 
issued action plans calling on their members to take a series of 
concrete measures to enhance the effectiveness of their counter-
terrorist financing regimes.
     Our systemic efforts and targeted designations, together 
with USG law enforcement, diplomatic, intelligence and military 
actions, have deterred potential terrorist supporters and sympathizers 
by increasing the cost and the risk of doing business with terrorists.
     Several countries, including members of the Gulf 
Cooperative Council, have taken steps to begin regulation and oversight 
of charities and donations abroad. Islamic States have also moved 
forward on regulating and harmonizing accounting, transparency, and 
oversight principles for Islamic banking. In addition, several 
countries, such as the United Arab Emirates and Pakistan, have begun 
the process of regulating alternative remittance systems like hawalas, 
a system of money exchange previously unregulated throughout the world.
B. Drug Trafficking
    Our focus and commitment to targeting the financing of illicit 
activities includes an aggressive use of authorities against narcotics 
traffickers. A particularly potent financial weapon in our war against 
drug money laundering systems is that wielded by Treasury's ability to 
apply and enforce narcotics trafficking sanctions.
    Treasury, in conjunction with the Departments of Justice, State and 
Homeland Security, enforces the IEEPA narcotics sanctions against 
Colombian drug cartels under Executive Order 12978. The objectives of 
the Specially Designated Narcotics Traffickers (SDNT) program are to 
identify, expose, isolate and incapacitate the businesses and agents of 
the Colombian drug cartels and to deny them access to the U.S. 
financial system and to the benefits of trade and transactions 
involving U.S. businesses and individuals. Targets are identified in 
consultation with the Drug Enforcement Administration and the Narcotics 
and Dangerous Drug Section of the Department of Justice. Since the 
inception of the SDNT program in October 1995, 956 parties have been 
identified as SDNTs, consisting of 14 Colombian drug cartel leaders, 
381 businesses and 561 other individuals.
    Recent designations under E.O. 12978 include:
     A financial network of 134 front companies and individuals 
in Colombia, Costa Rica, Ecuador, Panama, Peru, Spain, Venezuela, the 
Bahamas, the British Virgin Islands, and the United States that were 
acting on behalf of the Cali cartel leaders, Gilberto and Miguel 
Rodriguez Orejuela, on October 17, 2003.
    Treasury also implements the President's sanctions under the 
Foreign Narcotics Kingpin Designation Act (``Kingpin Act''). The 
Kingpin Act, enacted in December 1999, operates on a global scale and 
authorizes the President to deny significant foreign narcotics 
traffickers, and their related businesses and operatives, access to the 
U.S. financial system and all trade and transactions involving U.S. 
companies and individuals. During 2003, the President named seven new 
kingpins, including two USG designated foreign terrorist 
organizations--Revolutionary Armed Forces of Colombia and United Self-
Defense Forces of Columbia--and a Burmese narco-trafficking ethnic 
guerilla army, bringing the total number designated to 38.
    Since the inception of the Kingpin Act and after multi-agency 
consultations, Treasury has named 14 foreign businesses and 37 foreign 
individuals in Mexico, Colombia, and the Caribbean as derivative 
(``Tier II'') designations. These derivative designations are flexible, 
and permit Treasury to attack the financial infrastructure of these 
kingpins as their infrastructure changes. A total of 104 organizations, 
individuals and businesses in 12 countries are now designated under the 
Kingpin Act. On February 19, 2004, Treasury designated 40 key 
individuals and companies associated with the Colombian narco-terrorist 
organizations, the FARC and the AUC. These two organizations were 
previously named by the President on May 29, 2003 as drug kingpins.
    Another weapon that the USG uses aggressively against narco-
traffickers and money launderers is that of seizure and confiscation. 
In fiscal year 2003, Treasury's Executive Office for Asset Forfeiture 
(TEOAF) received over 234 million dollars in annual forfeiture revenue 
from the combined efforts of the former Bureau of Alcohol, Tobacco, 
Firearms and Explosives, the U.S. Secret Service (USSS), the Internal 
Revenue Service (IRS), and the former U.S. Customs Service (USCS). This 
represents a significant increase over fiscal year 2002, in which TEOAF 
received over $152. million dollars of forfeiture revenue. Such an 
improvement is particularly impressive when considering the transition 
undertaken by three of these law enforcement bureaus in the government 
reorganization last year.
C. Terrorist Financing and Drug Trafficking
    Although terrorist financing and drug money laundering differ in 
some respects, they utilize many of the same financial systems and 
methods. To that end, we seek solutions and tools that provide us the 
greatest systemic change and flexibility. As part of our long term 
strategy, we have focused our efforts on enhancing the transparency and 
accountability of formal and informal financial systems, particularly 
those that have been abused by terrorist and criminal organizations. In 
the shorter term, we are exploiting existing transparencies and 
developing a variety of weapons to identify, disrupt and dismantle 
these organizations.
D. Enhancing the Transparency and Accountability of Financial Systems
    Attacking the financial infrastructure of terrorist and other 
criminal activity requires transparent and accountable financial 
systems that allow us to identify and take effective action against 
sources, movement and use of terrorist funds and criminal proceeds 
moving through such systems. As part of our long-term strategy, 
therefore, we have focused on developing or enhancing the transparency 
and accountability of financial systems, particularly those that have 
been abused by terrorists and money launderers in the past. We have 
achieved considerable success thus far, both internationally and 
domestically, and in both formal and informal financial systems. For 
example:
     Internationally, we have worked with our counterparts in 
the FATF to revise the 40 Recommendations, thereby enhancing 
international standards of transparency and accountability required to 
effectively combat money laundering and other financial crimes. In June 
2003, the FATF issued the revised 40 Recommendations to add shell 
banks, politically-exposed persons, correspondent banking, wire 
transfers, bearer shares, the regulation of trusts, the regulation of 
trust and company service providers, and the regulation of lawyers and 
accountants. These newly revised Recommendations were endorsed by the 
G-7 Finance Ministers in a public statement issued the same day that 
the revised Recommendations were adopted by FATF.
     In the larger context of the need for a strong anti-money 
laundering regime as a necessity for combating terrorist financing, we 
have seen many countries take important steps to improve their legal 
regimes and strengthen the oversight of their financial sectors. 
Countries like Egypt, Guatemala, Indonesia, Israel, Lebanon, and the 
Philippines have taken important strides to develop and implement 
effective and comprehensive anti-money laundering regimes, improving 
their institutions and their enforcement of anti-money laundering laws.
     We have engaged the IMF and World Bank to gain their 
recognition of the FATF 40 Recommendations as one of the 12 Key 
International Standards and Codes. Pursuant to these efforts, the IMF 
and World Bank have completed a worldwide pilot program to assess 
countries against these standards. We look forward to the IMF and the 
World Bank agreeing this month to make this assessment program 
permanent and comprehensive.
     We have capitalized on the FATF's expertise on money 
laundering to attack terrorist financing, largely through the Eight 
Special Recommendations on Terrorist Financing developed and adopted by 
the FATF in October 2001. Since that time, we have worked within the 
FATF's Working Group on Terrorist Financing, which Treasury co-chairs, 
to issue interpretive guidance on the Eight Special Recommendations, 
particularly with respect to: freezing terrorist-related assets; 
regulating and monitoring alternative remittance systems such as 
hawala; ensuring accurate and meaningful originator information on 
cross-border wire transfers, and protecting non-profit organizations 
from terrorist abuse.
     To facilitate the global development and implementation of 
effective counter-terrorist financing regimes, the USG is driving a 
coordinated and comprehensive process to deliver technical assistance 
to combat terrorist financing around the world. In coordination with 
our international allies in the CTAG, the international community has 
identified nine priority countries to receive immediate assistance. The 
FATF's Working Group on Terrorist Financing is completing terrorist 
financing needs assessments in these priority countries and will 
forward these assessments to the CTAG for coordinated assistance by 
donor states.
     We have built relationships with the private sector to 
enlist their support as the gatekeepers to the financial system. We 
have broadened and deepened the regulatory structure and reporting 
requirements in the domestic financial system. We have created a level-
playing field and attacked money laundering and terrorist financing 
through non-banking financial systems under the USA PATRIOT Act, 
subjecting new sectors of the economy (such as money service businesses 
and broker-dealers) to anti-money laundering controls like 
recordkeeping and reporting requirements previously imposed on banks 
alone.
E. Identifying, Disrupting and Dismantling Terrorist and Criminal 
        Organizations
    We are capitalizing on our long-term efforts to improve the 
transparency and accountability of formal and informal financial 
systems by developing and applying various weapons to identify, disrupt 
and dismantle terrorist and criminal organizations that operate within 
these systems. Our efforts to date have produced considerable results:
     We are aggressively using the force of Section 311 of the 
PATRIOT Act to address primary money laundering concerns on a 
jurisdictional and institutional basis. Working in cooperation with the 
law enforcement and intelligence communities, we have designated three 
foreign jurisdictions and two financial institutions under Section 311. 
In addition to designating the jurisdiction of Burma, consistent with 
the FATF's demand for countries to impose additional counter-measures 
on Burma, Treasury also designated the Myanmar Mayflower Bank and Asia 
Wealth Bank, two Burmese banks that are heavily implicated in 
facilitating money laundering for the notorious drug trafficking 
organizations in Southeast Asia. We have also designated the 
jurisdictions of the Ukraine and Nauru. Most importantly, the mere 
possibility of a Section 311 designation has caused nations to make 
changes to their legal and regulatory regimes that enhance the global 
anti-money laundering and anti-terrorist financing infrastructure. We 
are continuing to seek out appropriate opportunities to utilize these 
new powers aggressively, but judiciously, to protect the U.S financial 
system, punish jurisdictions and institutions complicit in money 
laundering, and encourage compliance with international standards of 
transparency and accountability.
     We have enhanced law enforcement efforts that attack those 
who support terrorism through other means of organized crime:
     On December 4, 2002, Federal prosecutors in Houston 
indicted several individuals, including two high ranking members of 
Autodefensas Unidas de Colombia (AUC/United Self Defense Forces of 
Colombia), the Colombian right wing designated terrorist organization, 
with drug conspiracy and conspiracy to provide material support or 
resources to AUC. To date, two of the defendants have pled guilty to 
the material support charge under 18 USC Sec. 2339B and the drug 
conspiracy charges. The AUC principals are in Costa Rican custody 
awaiting extradition.
     On March 7, 2002, a grand jury in the District of Columbia 
returned an indictment charging the leader of the 16th front of the 
Fuerzas Armadas Revolucionarias de Colombia (FARC), and six others, 
with participating in a drug trafficking conspiracy. Two superseding 
indictments have added Jorge Briceno-Suarez, the second in command of 
the FARC, and two Peruvian drug traffickers, the Aybar brothers. The 
Aybar brothers also were indicted in the Southern District of Florida 
for providing material support to a terrorist organization by supplying 
10,000 AK-47s to the FARO in exchange for cocaine and money.
     Most recently, on February 19, 2004, the Treasury 
Department took action against leaders and key figures of the FARC and 
AUC. Treasury added the names of FARC leaders, including Pedro Antonio 
Marin and Jorge Briceno Suarez, key AUC figures, including Carlos 
Castaio Gil and Salvatore Mancuso Gomez, and AUC front companies to the 
list of ``Tier II'' persons designated under the Foreign Narcotics 
Kingpin Designation Act (Kingpin Act). The 40 Colombian names added to 
the Kingpin Act list include 19 FARC individuals, 18 individuals 
associated with the AUC and three front companies connected to the AUC. 
These 40 persons are subject to the economic sanctions imposed against 
foreign drug cartels under the Kingpin Act.
    We have used Section 314(a) of the PATRIOT Act to enable law 
enforcement, through FinCEN ``Blastfaxes'' to more than 30,000 
financial institutions, to locate quickly the accounts and transactions 
of those suspected of money laundering or the financing of terrorism. 
Since Section 314a's creation, the system has been used to send the 
names of 11,547 persons suspected of terrorism financing or money 
laundering to financial institutions. This has resulted in 10,560 
matches that were passed on to law enforcement.
     Since September 11th, FinCEN has supported 3,248 terrorism 
investigations and has made 342 proactive case referrals to law 
enforcement potentially involving terrorism based upon an analysis of 
information in the Bank Secrecy Act database. The Terror Hotline 
established by FinCEN has resulted in 833 tips passed on to law 
enforcement. FinCEN also is implementing an Electronic Reports program 
that will be able to issue these reports in an electronic format, thus 
enhancing law enforcement's ability to utilize the information. With 
the expansion of the Suspicious Activity Report (SAR) regime since 
September 11th, financial institutions nationwide have filed 2,818 SARs 
reporting possible terrorist financing, including 607 SARs in which 
terrorist financing represented a primary suspicion.
     We have developed the use of technology to identify 
possible sources of terrorist financing, particularly through the pilot 
counterterrorism project undertaken by IRS-CI in Garden City, New York. 
The Garden City Counterterrorism Lead Development Center is dedicated 
to providing research and nationwide project support to IRS-CI and the 
Joint Terrorism Task Force (JTTF) counterterrorism financing 
investigations. Relying on modern technology, the Center is comprised 
of a staff of IRS Special Agents, Intelligence Analysts, and civil 
components from the Service's Tax Exempt/Govemment Entities Operating 
Division, who will research leads and field office inquiries concerning 
terrorism investigations. Center personnel specializing in terrorism 
issues will develop case knowledge, identify trends, and provide 
comprehensive data reports to IRS field agents assigned to JTTFs or to 
those conducting CI counterterrorism financing investigations. The 
Center may also serve to deconflict related investigations among 
multiple field offices, and will have distinctive analytical 
capabilities to include link analysis, data matching, and pro-active 
data modeling. Using data from tax-exempt organizations and other tax-
related information that is protected by strict disclosure laws, the 
Center will analyze information not available to or captured by other 
law enforcement agencies. Thus, a complete analysis of all financial 
data will be performed by the Center and disseminated for further 
investigation. This research, technology, and intuitive modeling, 
coupled with CI's financial expertise, are maximizing IRS-CI's impact 
against sophisticated terrorist organizations.
                iii. enhancing interagency coordination
    What these actions show is the strength of Treasury's resources and 
expertise and the value and critical need of interagency cooperation in 
order to tighten the trap around terrorist financiers, drug traffickers 
and other criminal enterprises. A core principle of the 2003 Strategy 
is enhancing our ongoing efforts to combat money laundering by ensuring 
that law enforcement agencies and task forces, including the High 
Intensity Financial Crime Area (HIFCA) Task Forces, Organized Crime and 
Drug Enforcement Task Forces (OCDETF), the Suspicious Activity Report 
(SAR) Review Teams, and the High Intensity Drug Trafficking Area 
(HIDTA) Task Forces use and share all available financial databases and 
analytical tools and focus their personnel and other resources on high-
impact targets and financial systems.
    To help achieve this goal and in accordance with the 2003 Strategy, 
the interagency law enforcement community is taking aggressive steps to 
develop an interagency anti-drug-money laundering financial 
intelligence center, to serve as a drug-money laundering intelligence 
and operations center. As stated in the just-released 2004 National 
Drug Control Strategy, some $6.3 million has been approved to support 
and expand the OCDETF Drug Fusion Center. We at Treasury are working 
with the Departments of Justice and Homeland Security to ensure that 
there is a robust financial component at the OCDETF Drug Fusion Center 
to develop the highest value financial targets, identify and 
disseminate information about developing trends and patterns, and help 
coordinate financial attacks on the systems, geographic locations, and 
individuals by and through which drug proceeds are moved and laundered.
    HIFCAs have been created specifically to identify and address money 
laundering in designated geographical areas (currently in New York/New 
Jersey; San Juan, Puerto Rico; Los Angeles; San Francisco; Chicago; 
Miami; and a Bulk Cash HIFCA along the Southwest Border). HIFCA Task 
Forces bring together Federal money laundering and other financial 
crime investigation expertise, utilizing all FinCEN, Drug Enforcement 
Agency (DEA) Special Operations Division, and DHS/ICE Money Laundering 
Coordination Center financial databases. For example, the New York/New 
Jersey HIFCA Task Force reports that, during FY 2001/2002, it opened 
747 investigations leading to 344 arrests, 155 indictments, 160 
convictions, and 805 seizures totaling more than $75 million.
                             iv. next steps
    Despite the considerable progress that we have achieved, largely 
through enhanced inter-agency and international communication, 
cooperation and collaboration, several ongoing and important challenges 
remain in the campaign against terrorist financing and money 
laundering. We have identified a number of priorities to advance our 
long-term and short-term goals as described above and in the 2003 
Strategy.
    We are continuing to develop international standards where 
necessary to advance our long term strategy of enhancing the 
transparency and accountability of financial systems and mechanisms 
prone to terrorist and criminal abuse. We are currently engaging the 
FATF and the Asia-Pacific Group (APG), a FATF-style regional body, to 
complete a study of mandatory, cross-border, cash reporting 
requirements as an effective tool in identifying and interdicting cash 
couriers carrying illicit funds. We anticipate that the results of this 
study will facilitate countries' adoption of reporting requirements and 
the sharing of information obtained through such reports.
    In addition to these standard-setting priorities, we are 
facilitating compliance with existing international standards through 
terrorist financing technical assistance to priority countries, both 
bilaterally and through a coordinated international effort. 
Internationally, we anticipate completing technical needs assessments 
of priority countries through the FATF within the next few months. 
Thereafter, we will work with the State Department in coordinating the 
delivery of appropriate assistance to these countries through the CTAG. 
Bilaterally, we will continue to work with the State Department and the 
interagency community to ensure that those countries targeted for 
bilateral assistance receive such assistance as planned.
    We are also launching a number of initiatives to reduce the threat 
of terrorist financing through non-profit organizations (NPOs). For 
example, the Treasury Department is planning an initial outreach event 
with the NPO sector to discuss issues raised by Treasury's Anti-
Terrorist Financing Guidelines for charities. Through the FATF 
Terrorist Financing Working Group, we are encouraging jurisdictions to 
review the adequacy of existing authorities and oversight mechanisms in 
protecting the NPO sector from terrorist abuse. We have formed a 
Treasury Working Group on Charities and Terrorist Financing to ensure 
effective communication, cooperation and collaboration among Treasury's 
various components assisting in this effort. We are presently engaging 
the inter-agency community to enlist the support of other agencies 
where necessary and to provide support where appropriate to attack and 
reduce the threat of terrorist financing through charities operating in 
the U.S.
    We are also engaging the Middle East, as a priority, in promoting 
greater transparency and understanding of regional financial systems 
and regional money laundering and terrorist financing threats. We are 
working with the World Bank, other supporting organizations and states, 
and the countries in the region to facilitate the development of a 
FATF-style regional body (FSRB) for the Middle East and North Africa. 
We have already participated in a number of progressive meetings with 
these parties and anticipate the launch of this organization by the end 
of 2004. In addition, we are participating in a number of ongoing 
training and outreach seminars with government officials in the region 
on anti-money laundering and counter-terrorist financing issues, 
including in the United Arab Emirates and in Lebanon. We are also 
exploring the continued study of terrorist financing and drug 
trafficking connections with countries in the region, following up on a 
joint presentation on these issues by the USG and the Kingdom of Saudi 
Arabia in a terrorist financing seminar hosted by the FATF last week.
    Finally, we are enhancing the transparency of financial systems by 
working directly with the private sector whenever possible. In addition 
to our direct engagement with the charities sector as described above, 
we are working with the international banking sector to facilitate 
bank-to-bank training and assistance in understanding and complying 
with enhanced anti-money laundering and counter-terrorist financing 
obligations.
    To exploit these existing and developing transparencies, we must 
also advance our short-term strategy by enhancing our ability to 
identify, disrupt and dismantle terrorist and criminal organizations. 
We are pursuing a number of priorities to advance these interests, 
domestically and internationally.
    In addition to supporting the targeting strategies against narco-
traffickers through the OCDETF Drug Fusion Center, Treasury will 
continue to develop terrorist financing targeting strategies for 
priority regions and terrorist organizations. We will continue applying 
and executing these strategies through our designation authorities 
under Executive Order 13224 and Section 311, acting together with the 
international community whenever possible, but acting unilaterally 
whenever necessary and appropriate to protect our financial system from 
identifiable high risk targets. We are particularly focused on 
identifying opportunities to apply Section 311 against those foreign 
banks that either facilitate money laundering or ignore their 
responsibilities as gatekeepers to the international financial system. 
Such banks will learn to comply with international standards or they 
will be cut off from the U.S. financial system.
    Internationally, we are focusing our efforts on achieving greater 
European cooperation and support for our terrorist financing 
designations. We are capitalizing on our progress in improving and 
clarifying international standards for freezing terrorist-related 
assets under FATF Special Recommendation III by: (i) pursuing bilateral 
and multilateral efforts to reform the EU Clearinghouse process, and 
(ii) encouraging national implementation of UN member state obligations 
under United Nations' Security Council Resolution 1373.
    These long-term and short-term initiatives are complementary and 
address the priority challenges that we face in the campaign against 
terrorist financing and money laundering. Moreover, these initiatives 
capitalize on the progress we have achieved to date, and on the 
relationships that we have forged in the inter-agency and international 
communities, as well as in the private sector, over the course of our 
sustained campaign.
    The 2003 Strategy, published last fall, provides a framework for 
the USG's ongoing commitment to attack money laundering and terrorist 
financing on all fronts. As this Caucus is aware, the 2003 Strategy was 
the last of the five Congressionally-mandated strategies. We have and 
will continue our efforts with this Caucus and the Congress to evaluate 
the need for future Congressionally-mandated strategies and the 
contours of such a mandate.
    I will be happy to answer any questions you may have.

    Senator Coleman. Thank you, Secretary Zarate.
    Administrator Tandy.

     STATEMENT OF HON. KAREN P. TANDY, ADMINISTRATOR, DRUG 
           ENFORCEMENT ADMINISTRATION, WASHINGTON, DC

    Ms. Tandy. Thank you, Mr. Chairman.
    I am especially grateful for the Caucus' invitation to DEA 
to testify about our criminal efforts to combat money 
laundering and terrorist financing.
    I wanted to appear personally on this issue because it is 
so important to me and so central to our battle against illegal 
drugs. The motivation for every criminal involved in illegal 
drug trafficking, from the kingpin to the enforcer to the mule 
to the street dealer, of course, is money. To make a 
significant impact on the drug trade there is no strategy more 
effective than following the money to the source and 
eliminating the profits that fuel the operations of these drug 
networks, eliminating their financial infrastructure and 
eliminating the illicit systems through which this kind of drug 
money is laundered.
    Every year $65 billion changes hands in America for illegal 
drugs. Yet seizures of drug proceeds by all law enforcement, 
Federal, State and local combined, are considerably less than 
$1 billion per year, less than 1 percent of the illicit drug 
market and less than the 10 percent fee that is paid by 
traffickers to launder their illicit profits.
    Clearly, law enforcement has not done enough to attack the 
drug money and that has now changed at DEA. This is a 
responsibility made even more important in the post-September 
11th world. It is imperative that we end drugs as a funding 
source for terrorists. The American drug consumer is the single 
largest funder of terrorism in the Western Hemisphere. In fact, 
almost half of the foreign terrorist organizations identified 
by the State Department are on record with the Drug Enforcement 
Administration as having possible ties to the drug trade.
    DEA can play a critical role in protecting our national 
security by strangling the financial lifeline of criminal 
organizations. In the last fiscal year, DEA disrupted one and 
dismantled four priority target organizations with terrorism 
links. Money laundering investigations are an important tool in 
fighting both drugs and terrorism. By crushing drug traffickers 
and eliminating their illicit stockpiles of cash, we are also 
closing the bank teller window to terrorists.
    Since coming to DEA, I have put financial investigations at 
the forefront of our operating plan. I am making changes in our 
structure, our operations and most important in the mindset of 
our agents and the rank-and-file in the field.
    We need to be an agency steadfastly focused on 
investigating the money trail. We all remember that it was an 
accountant that brought Al Capone to justice. At DEA, we are 
putting a renewed focus on accounting techniques to divest the 
drug trade of its profits.
    At DEA, our new standard operating premise is this, since 
every drug transaction has a profit motive every drug 
investigation will have a financial component. Shortly after I 
came to DEA, I began to rebuild our expertise and reemphasize 
the financial side of the drug business using our drug 
intelligence, technology and, of course, the resourceful agents 
and analysts.
    Briefly, we have already created an Office of Financial 
Operations at the headquarters level to spearhead all of DEA's 
domestic and foreign financial investigations. We have 
established at least one financial investigative team in each 
of our 21 field divisions to handle the more complex drug money 
laundering investigations and initiatives.
    We are not relying solely on these teams to carry the 
workload, however. I have mandated that each DEA agent chase 
the money as diligently as they are chasing the drugs. I have 
retooled our inspections process to ensure that that is exactly 
what gets done.
    We have made a financial background a priority in hiring 
all of our new special agents. We are also increasing 
interagency cooperation and information sharing and enhancing 
training for DEA personnel and our Federal, State and local 
partners.
    While money is a drug trafficker's number one objective, it 
is also his number one vulnerability. We are focusing our 
attack where money movement is most visible and therefore at 
the greatest risk. We are specifically concentrating in three 
areas addressing the movement of bulk currency. The smuggling 
of large sums of cash across our borders is the primary method 
used to expatriate drug proceeds.
    A second area of concentration is the black market peso 
exchange. It is the largest known money laundering system in 
the Western Hemisphere that is responsible for moving an 
estimated $4 billion worth of drug proceeds every year from the 
United States to Colombia.
    And third, we have made it a priority to focus on the 
southwest border, to identify and target money laundering 
networks responsible for moving bulk cash.
    I look forward to the next opportunity down the road to 
discuss with the Caucus the results of DEA's new emphasis on 
money laundering in its drug investigations.
    Thank you.
    [The prepared statement of Ms. Tandy follows:]
  Prepared Statement of Hon. Karen P. Tandy, Administrator, U.S. Drug 
               Enforcement Administration, Washington, DC
    Chairman Grassley, Senator Biden, and distinguished Members of the 
Caucus, I particularly appreciate your invitation to testify today on 
the importance of combating money laundering and terrorist financing as 
it is one of the cornerstones of my vision for the Drug Enforcement 
Administration.
                                overview
    The motivation for virtually everyone involved in illegal drug 
trafficking, from kingpin to street dealer, is the money. To make a 
significant impact on the drug trade in America and around the world, 
there is no strategy more effective than following the money back to 
the sources of drug supply and taking away the dirty proceeds of that 
trade. But our efforts to date clearly have not successfully done the 
job. While the Office of National Drug Control Policy (ONDCP) has 
estimated that Americans spend approximately $65 billion per year on 
illegal drugs, current seizures are well short of $1 billion per year. 
Drug traffickers pay more than that each year in fees to launder their 
ill-gotten gains.
    Without question, law enforcement can and must better address drug 
proceeds and profits. One of my top priorities since becoming 
Administrator has been to systematically transform not only the 
organization and operation of the DEA regarding financial 
investigations, but also our fundamental mindset. Since every drug 
transaction has a profit motive, every investigation has a financial 
component. Therefore, I have established a new Office of Financial 
Operations at DEA headquarters as well as financial teams in each field 
division. We are also making financial background a priority in hiring 
new Special Agents and undertaking other initiatives to increase 
interagency cooperation and enhance training in drug financial 
investigations. The DEA is already bringing this focus to bear on such 
problems as bulk currency movement and the black market peso exchange.
          restoring dea's emphasis on financial investigations
    Let me begin by explaining my vision to restore the DEA's emphasis 
on financial investigations. I firmly believe that it is not possible 
to truly dismantle a drug organization when any meaningful part of its 
assets and infrastructure are left in place. Accordingly, I have made 
the financial attack on drug money laundering and money laundering 
organizations one of my top priorities for the DEA.
    Although the DEA has had the drug intelligence, technology and 
agents to address drug revenue, we needed a vision of how to best 
expand the agency's mission toward the financial side of the drug 
business. We began to rebuild expertise on money laundering means and 
methods shortly after my Senate confirmation, focusing on how to 
identify, document and prosecute drug-money laundering organizations in 
the U.S. and abroad.
    We quickly determined that we would need specialized training, 
identification and gathering of financial intelligence, and redirection 
of enforcement priorities. We needed special projects targeting money-
laundering systems and techniques, enhanced working relationships with 
the financial services industry, and collaboration with our Federal, 
State, local and international law enforcement counterparts.
    To spearhead this effort, I reorganized and enhanced the structure 
of the headquarters section responsible for financial investigations by 
elevating and reestablishing it as the Office of Financial Operations 
(FO), a separate office under the Chief of Operations. FO will augment 
all of the DEA's domestic and foreign financial investigations in the 
field by providing the necessary assistance to enhance and build the 
expertise to identify, document, disrupt, dismantle, and prosecute drug 
and drug-money laundering organizations, and identify, seize and 
forfeit their illicit revenues. The formation of FO was necessary to 
revitalize DEA's attack on the illicit proceeds of drug trafficking 
organizations.
    To implement my vision, I asked the Special Agents in Charge of 
each of the DEA's 21 field divisions to establish at least one 
Financial Investigative Team (FIT) in each division, and they have done 
so. Many of our FIT Teams are staffed not only with DEA special agents 
and analysts, but also with special agents from the Internal Revenue 
Service-Criminal Investigations (IRS-CI), U.S. Immigration and Customs 
Enforcement (ICE), the Federal Bureau of Investigation (FBI), the 
Postal Inspection Service, and State and local law enforcement 
officers. These FIT Teams are vital to our success and will be 
responsible for handling the more complex drug-money laundering 
investigations and projects, serving as field division resident experts 
and supporting DEA's national money laundering initiatives. However, 
DEA will not rely entirely on its FIT Teams to carry the financial 
investigative workload. I have mandated that every DEA investigation 
have a financial investigative component, and we are currently 
implementing new inspections accountability standards to insure that 
this directive is carried out. We are placing an increased emphasis on 
our collection of intelligence relative to the way drug networks make, 
transport, and store money and assets. I have told our agents that they 
are not truly gathering drug intelligence unless they are asking about 
the money. Our Special Agents in Charge and Country Attaches agency-
wide are reemphasizing the importance of debriefing human sources of 
information about the drug trade and the money that fuels it. We our 
also implementing ``post mortem'' reviews in our investigations to 
ensure that the money side is attacked completely and thoroughly. This 
renewed emphasis has been integrated into our inspection and internal 
compliance policies to ensure consistent and uniform application of 
this strategy.
    DEA Country Offices in Colombia and Mexico are increasing their 
special agent commitments to money laundering investigations. Other DEA 
Country Offices also are refocusing their investigative efforts to 
increase concentration on the financial aspects of their 
investigations.
Training
    We also have expanded and reemphasized financial investigations in 
our hiring and training. With respect to hiring, we are aggressively 
recruiting new personnel with financial degrees and work experience.
    With respect to training, FO currently conducts and coordinates all 
training for DEA relating to money laundering and financial 
investigations. Training is also provided to Federal, State, local, and 
international law enforcement counterparts in addition to individuals 
in the banking and financial sectors. DEA Training at Quantico is in 
the process of increasing its financial investigative instructor cadre 
and will be assuming most of the responsibility for DEA's financial 
investigative training.
    DEA conducts a three-day conference annually on Attorney General 
Exempted Operations (AGEO). A DEA supervisor, case agent, and an 
Assistant United States Attorney (AUSA) from each of DEA's 21 field 
divisions attend. Representatives from other various Department of 
Justice (DOJ) components are also in attendance. A representative from 
each AGED provides an overview on their operation. Presentations are 
also made from such agencies as the World Bank, Office of the 
Controller of the Currency and the Commerce and Treasury Departments on 
matters relating to currency flow and trade. Representatives are also 
sought from the private banking arena to discuss normal banking 
practices.
             specific priorities and financial initiatives
    Understandably, DEA cannot address the entire $65 billion generated 
by the illegal drug industry at once. We must prioritize our efforts 
against the financial infrastructure of the drug networks and their 
drug proceeds that will best allow us to accomplish our mission, which 
is to eliminate the supply of illegal drugs in the United States. 
Knowing that the illicit drug proceeds that flow back to international 
sources of drug supply fuel the machines that send poison to our 
country, we have targeted our anti-money laundering efforts on 
investigations and interdiction on that portion of illegal drug 
proceeds that facilitate future production of drugs, support the 
financial infrastructure of drug trafficking organizations, and finance 
terrorism. As we progress in this arena, we will also be focusing on 
the personal wealth of major drug traffickers, especially where this 
wealth causes economic and social harm, such as an unfair competitive 
advantage that a business financed with drug dollars would have over 
legitimately financed enterprises. More specifically, DEA is currently 
concentrating on bulk currency, the black market peso exchange, and the 
Southwest border.
Bulk Currency
    The smuggling of large sums of cash across our borders continues to 
be the primary method used to expatriate drug proceeds from the United 
States. This has been increasingly prevalent after the USA PATRIOT Act 
tightened the controls and reporting requirements on financial and non-
financial institutions.
    To address this increasing threat, the DEA, IRS-CI and ICE are 
working together to initiate a bulk currency program to coordinate all 
U.S. highway interdiction money seizures in order to develop the 
evidence necessary for identifying, disrupting and dismantling large-
scale narcotic trafficking organizations. Upon notification of a cash 
seizure by a state or local municipality, agents will respond to the 
scene, assist with debriefing of the defendants, and coordinate 
potential controlled deliveries of currency. Agents will also assist in 
follow-up investigations, seizure and forfeiture of currency, and 
provide guidance on Federal prosecution. The resources of the DEA's El 
Paso Intelligence Center (EPIC) will be used to conduct research and 
analyze evidence and intelligence relating to priority organization 
targets and other types of investigations.
Black Market Peso Exchange (BMPE)
    The Black Market Peso Exchange (BMPE) is currently the largest 
known money laundering system in the Western Hemisphere, responsible 
for moving an estimated $5 billion worth of drug proceeds per year from 
the United States back to Colombia. The BMPE is a ``parallel exchange'' 
system where drug traffickers sell U.S. drug proceeds to brokers for 
pesos. Brokers then sell the drug proceeds to Colombian importers who 
purchase goods in the United States and elsewhere. These goods often 
appear in Colombia as smuggled contraband. By purchasing the U.S. 
dollars on the BMPE and not through Colombia's regulated exchange 
system, the importers avoid Colombian taxes and tariffs, gaining 
significant profit, and a competitive advantage over those who import 
legally. Prosecution of individual peso brokers, their agents in the 
U.S. who are often referred to as ``smurfs'', and businesses that buy 
or receive BMPE dollars have been successful individually, but have had 
little effect on the system and no effect on the Colombian drug 
trafficking organizations who sell their dollars to the peso brokers. 
Consequently, DEA is changing its investigative tactics to assure that 
our BMPE money laundering investigations are focused to inflict the 
most damage against the Colombian sources of drug supply. DEA is also a 
participant in a multi-agency initiative to attack the BMPE as a system 
rather than on an individual case-by-case basis.
Bilateral Southwest Border Collective Targeting Initiative
    The Bilateral Southwest Border Collective Targeting Initiative 
focuses on identifying and targeting Southwest Border money laundering 
schemes. The DEA Southwest Border Offices are investigating a wide 
range of narcotics related money laundering and bulk smuggling 
practices. We presently have active investigations targeting laundered 
U.S. dollars from Mexico and Colombia into the United States and the 
smuggling and transportation of bulk cash shipments from the United 
States into Mexico.
                          information sharing
    We are also working to share information on drug financial 
investigations with other agencies, both to assist in the fight against 
terrorism and to improve overall coordination and cooperation for 
financial investigations.
Terrorism
    Drug enforcement can play a critical role in protecting our 
national security by starving the financial base of criminal 
organizations. Traditional criminal organizations continue to dominate 
the international drug trade at all levels, but some terrorist 
organizations are involved in drug-related activities. Drug income is 
among the sources of revenue for some international terrorist groups. 
Department of Justice investigations have highlighted the links between 
groups and individuals under investigation for drug violations and 
terrorist organizations. In fact, 47 percent of the 36 Foreign 
Terrorist Organizations identified and updated by the Department of 
State in October 2003 are on record with DEA as having possible ties to 
the drug trade.
    Although the DEA does not specifically target terrorists or 
terrorist organizations, we do target those associated with major drug 
trafficking organizations like the Revolutionary Armed Forces of 
Colombia (FARC) and the United Self-Defense Forces of Colombia (AUC). 
For example, in 2002, several high ranking members of the FARC and the 
AUC were indicted in the United States for drug trafficking. This 
represents one of the first times that drug-trafficking charges were 
brought in the United States against members of foreign terrorist 
organizations. In fiscal year 2003, DEA disrupted one Consolidated 
Priority Organization Target and dismantled four Priority Target 
Organizations with terrorism links.
Interagency Cooperation
    The DEA terrorism Information Sharing Program institutionalizes 
within DEA the Attorney General's directive to coordinate information 
and activities to prevent and disrupt terrorist activities. Under this 
program, all DEA entities must identify investigations that have a 
nexus or potential nexus to extremist and terrorist organizations, and 
agencies. For financial investigations, FO also coordinates with the 
National Money Laundering Committee, the Treasury Department's 
Financial Crimes Enforcement Network and Interagency Coordinating Group 
and the FBI's Terrorist Financial Review Group.
    In addition, DEA's Special Operations Division (SOD) presently 
coordinates and mutually shares investigative and intelligence 
resources with the FBI, the ICE, and the IRS-CI in a concentrated and 
centralized environment.
    To further expand the exchange of information the Departments of 
Justice, Homeland Security, and Treasury are planning to join together 
and establish a multiagency Drug Intelligence Fusion Center. The 
mission of the Drug Intelligence Fusion Center will be to gather, 
store, and analyze all-source drug and related financial investigative 
information to support coordinated, multi jurisdictional investigations 
focused on the disruption and dismantlement of the most significant 
drug trafficking and money laundering enterprises. To achieve this 
mission the Drug Intelligence Fusion Center will create a powerful 
information and analytical capability not available today by completing 
a cross-agency integration and analysis of law enforcement and 
intelligence data that has historically been segregated by 
organizational and technical boundaries.
                               conclusion
    Drug trafficking organizations attack the soul and fabric of 
America in pursuit of one thing, money. As America's defenders against 
these vile organizations, it is incumbent upon us in the Drug 
Enforcement Administration to attack these groups on all fronts. There 
is no more important battle in this effort than the attack against the 
proceeds that fuel this illicit industry and provides the motive to 
those who prey upon our society. DEA is embracing this responsibility 
through its investigative efforts, to lead the fight against drug money 
laundering.
    Mr. Chairman, thank you for the opportunity to testify here today 
and I will be happy to answer any questions you may have.

    Senator Coleman. Thank you, very much Administrator Tandy.
    Mr. Dougherty.

        STATEMENT OF MICHAEL T. DOUGHERTY, DIRECTOR OF 
     U.S. OPERATIONS, IMMIGRATION AND CUSTOMS ENFORCEMENT, 
        DEPARTMENT OF HOMELAND SECURITY, WASHINGTON, DC

    Mr. Dougherty. Good afternoon, Mr. Chairman.
    I am honored to appear before you to today to discuss ICE's 
financial enforcement and economic security efforts and 
accomplishments.
    Immigration and Custom Enforcement was established in March 
2003 as part of the Department of Homeland Security and today 
ICE is the Federal Government's newest and largest Federal 
investigative agency. Today ICE has the broadest investigative 
mandate in Federal law enforcement.
    Through its legacy components, ICE brings to bear 
significant financial, commercial and trade enforcement 
expertise and innovative investigative techniques. ICE 
components have a proven history. Over 30 years of 
investigating financial crimes has resulted in the seizure of 
nearly a billion dollars in illicit proceeds.
    In just the first year of its operations, ICE financial 
investigations have resulted in more than 1,300 arrests, 720 
indictments, 560 convictions and the seizure of approximately 
$150 million.
    Through a new systematic approach to financial and economic 
crime, as well as terrorist financing, ICE no longer only 
investigates crimes after they occur. It is now focused on the 
financial, commercial and trade systems which are vulnerable to 
exploitation by criminal and terrorist organizations.
    The primary goal of ICE is to detect and close down 
systemic vulnerabilities before a terrorist or criminal 
organization can earn, move or store illicit funds. ICE's 
systemic approach goes far beyond earlier methodologies and has 
greatly enhanced our ability to close gaps in our financial and 
economic systems.
    Also ICE's approach is coordinated and complimented by the 
financial program of the Secret Service. Together our two 
agencies are at the core of protecting the critical 
infrastructure and commercial infrastructure of this Nation's 
economy.
    It is well known that actual terrorist financing cases are 
relatively rare and very difficult to prove. The overwhelming 
majority of financial and economic crime occurs outside the 
scope of specific terrorist cases. And yet we know that illicit 
funds continue to flow into the hands of terrorists. So while 
it is imperative that we aggressively investigate with our 
partners in the FBI terrorist financing, it is imperative that 
we take a systemic rather than a case by case approach to 
financial and economic crime as a way to dismantle the funding 
mechanisms for criminal and terrorist organizations.
    The primary goal of ICE is to ensure the integrity of the 
financial and commercial systems which are the cornerstone of 
United States' economic security. To that end, in July 2003 ICE 
developed Operation Cornerstone. Today Cornerstone has evolved 
to coordinate ICE's various economic investigations--whether it 
is money laundering, the illegal export of controlled 
technology and arms, commercial fraud, smuggling operations or 
intellectual property and trade violations--into an integrated 
program that combats systemic vulnerabilities that threaten the 
U.S. economy and ultimately the safety of our homeland.
    There are three key aspects to the Cornerstone approach. 
First, mapping and coordinating the investigation and analysis 
of various financial, commercial and trade crimes that, as a 
whole, threaten the U.S. economy. Second, intensive outreach, 
networking and information sharing with the private sector in 
order to work together to detect and close down systemic 
vulnerabilities in the affected industries. And third, 
gathering, assessing and distributing intelligence indicating 
red flags in the economy to the private sector, Congress, 
domestic and foreign law enforcement and the intelligence 
community.
    This approach has proven very successful for ICE in 
attacking the financial lifeblood in terrorist criminal 
organizations and is consistent with the General Accounting 
Office study as requested by Chairman Grassley. That report 
concluded that terrorists may use alternative financing 
mechanisms such as counterfeit merchandise operations, 
intellectual property rights violations, and other commercial 
fraud, trade-based money laundering, earning and moving dollars 
via precious stones and metals, Internet schemes, online 
gambling.
    Historically ICE has been at the forefront of investigating 
these types of crimes and through Cornerstone and our National 
Money Laundering Coordination Center will identify and mitigate 
the systemic vulnerabilities before they can be exploited and 
new crimes occur.
    I would like to take just a moment to highlight a few 
examples of what ICE is doing today to combat money laundering 
and terrorist financing. First, we are working with our 
partners in the FBI to investigate numerous instances of 
terrorist financing. Through the National Money Laundering 
Coordination Center, ICE maintains a repository of trade-based 
money laundering data which is utilized to identify and target 
money laundering schemes and potential terrorist financing. ICE 
now leads the Miami's Foreign Political Corruption Task Force 
to address foreign public corruption and related money 
laundering. This task force works in connection with the State 
Department, other domestic ICE field offices, foreign attaches 
and representatives of the foreign governments where public 
funds have been embezzled.
    Of course, the El Dorado Task Force is one of the most 
successful financial investigations in the history of Federal 
law enforcement. In the last year the El Dorado Task Force has 
made 65 arrests, 59 indictments and has obtained 44 
convictions.
    Finally, ICE has demonstrated the benefits of the USA 
PATRIOT Act, specifically the statutory changes related to 
bribing public officials and bulk cash smuggling.
    In conclusion, Mr. Chairman, ICE is uniquely situated to 
combat money laundering and terrorist financing. It is also 
taking the leading role to ensure the economic security of this 
Nation.
    I would like to thank you and Chairman Grassley for the 
opportunity to testify today and I am happy to answer your 
questions.
    [The prepared statement of Mr. Dougherty follows:]
     Prepared Statement of Michael T. Dougherty, Director of U.S. 
Operations, Immigration and Customs Enforcement, Department of Homeland 
                        Security, Washington, DC
    Good morning, Chairman Grassley and Members of the Caucus. I am 
honored to appear before you to discuss the financial enforcement and 
economic security efforts and accomplishments of the Department of 
Homeland Security's (DHS) Immigration and Customs Enforcement (ICE). 
Established in March 2003, ICE is the Federal Government's newest--and 
second largest--investigative agency. Through its legacy components, 
ICE brings to bear significant financial, commercial and trade 
enforcement expertise, broad statutory authorities, and innovative 
investigative techniques. ICE combines once-fragmented resources and 
develops a focused and integrated strategy to combat systemic 
vulnerabilities that threaten U.S. economic security.
    By initiating a systemic approach to financial and economic crime--
and terrorist financing--in a post-9/11 environment, Federal law 
enforcement must move beyond investigating crimes on a case-by-case 
basis and focus on the financial, commercial and trade systems 
themselves, which are vulnerable to exploitation by criminal and 
terrorist organizations. While ICE will continue to investigate crimes 
that have already been committed, our ultimate goal is to detect and 
close down system-wide vulnerabilities before a terrorist organization 
can earn, move, or store illicit funds via those systems. In this way, 
ICE's systemic approach goes far beyond earlier methodologies and 
greatly enhances our ability to close the gaps in our financial and 
economic systems--gaps that terrorists and other criminal organizations 
exploit.
    In the realm of terrorist financing, it has proven difficult to 
link the profits from the sale of narcotics, counterfeit merchandise or 
contraband cigarettes directly to a terrorist organization, or that an 
unlicensed money broker was sending millions of dollars directly to a 
terrorist organization. In certain instances, the investigation and 
prosecution of these underlying criminal activities as separate, stand-
alone violations is the most effective method to disrupt these 
organizations and cut off terrorists' access to funds. By taking this 
line of attack, and working closely with the private sector to help 
detect typologies that are clearly being exploited or are potential 
targets, our goal is to shut down these avenues of both terrorist and 
criminal financing.
    This systemic approach not only defines ICE's strategic line of 
attack against terrorist financing, it also outlines ICE's approach to 
coordination with other Federal agencies. ICE maintains a close working 
relationship with agencies within the Department. For example, the 
financial investigative work of the U.S. Secret Service perfectly 
complements the work of ICE, and vice-versa. Together, our two agencies 
are at the core of protecting the critical financial and commercial 
infrastructure of this Nation's economy. ICE similarly coordinates with 
U.S. Customs and Border Protection on international trade issues. The 
full spectrum available to the Department of Homeland Security to 
protect all aspects of the U.S. economy is truly remarkable.
    It is important, however, that DHS coordinates equally effectively 
outside of the Department. We must develop a strong financial 
information-sharing process with the Department of Treasury. We must 
coordinate closely with the Drug Enforcement Administration on 
counternarcotics, sharing our narcotics intelligence with them and 
helping them to track down leads through our National Money Laundering 
Coordination Center. And together, all of us must coordinate with the 
FBI when we come across clear and specific evidence of terrorist 
conspiracy or financing.
    The goal of ICE is not, generally, to prove individual terrorist 
connections. Actual terrorist financing cases are relatively rare and 
very difficult to prove. In those rare cases where we are positively 
able to identify specific links to terrorist organizations, we have 
protocols in place through our Memorandum of Agreement with the Federal 
Bureau of Investigation to coordinate the investigation between our 
Departments.
    However, the overwhelming majority of financial and economic crime 
occurs outside the scope of such specific cases, and yet we know that 
illicit funds continue to flow into the hands of terrorists. So while 
it is imperative that we aggressively prosecute specific terrorist 
cases, it is equally imperative that we take a systemic--rather than 
case-by-case--approach to financial and economic crime as a way to 
dismantle the funding mechanisms for criminal and terrorist 
organizations.
    The Department of Homeland Security is that. Working with Under 
Secretary Hutchinson and Secretary Ridge, ICE developed a program 
called Cornerstone. The mission of Cornerstone is to coordinate ICE's 
various economic investigations--whether it's money laundering, the 
illegal export of controlled technology and arms, commercial fraud, 
smuggling operations, or intellectual property rights and trade 
violations--into an integrated program to combat systemic 
vulnerabilities that threaten U.S. economic security and ultimately the 
safety of our Homeland.
    There are three key aspects to the Cornerstone approach:
    1. Mapping and coordinating the investigation and analysis of 
various financial, commercial, and trade crimes that, as a whole, 
threaten U.S. economic security;
    2. Intensive outreach, networking, and information-sharing with the 
private sector in order to work together to detect and close down 
systemic vulnerabilities in the affected industries;
    3. Gathering, assessing, and distributing intelligence indicating 
red flags in the economy to the private sector, Congress, domestic and 
foreign law enforcement and intelligence communities.
    This approach has proven very successful for DHS in attacking the 
financial lifeblood of terrorist and criminal organizations. Examples 
of the complex and high-impact investigations pursued by ICE include 
initiatives such as the Bank of Commerce and Credit International 
(BCCI) in Tampa, Operation Greenback in South Florida, Operation 
Casablanca in Los Angeles, and Operation Green Mile in Phoenix. In 
addition, ICE now leads New York's El Dorado Task Force, a High 
Intensity Drug Trafficking Area Program initiative, and Miami's Foreign 
Political Corruption Task Force. These operations and task forces, some 
of which have existed for decades, have resulted in the seizure of more 
than $900 million.
    Since ICE's inception on March 1, 2003, ICE financial 
investigations have resulted in more than 1300 arrests, 720 
indictments, 560 convictions, and seizures of approximately $150 
million. But more important than case statistics is Cornerstone's 
guiding principle of adaptability. Until recently, the Cornerstone 
program focused primarily on money laundering and financial 
investigations. And yet, as a recent General Accounting Office (GAO) 
study reported, terrorists have available to them alternative financing 
mechanisms, such as counterfeit merchandise operations, intellectual 
property rights violations, and other commercial fraud; earning and 
moving dollars via precious stones and metals; trade-based money 
laundering; Internet schemes; and online gambling.
    Because of the broad spectrum of economic investigative authorities 
and resources available to ICE, we can--and have--gone after each of 
these realms of potential criminal and terrorist financing.
    Just last month, ICE affected the largest takedown ever of 
cigarette smuggling operations into the United States. ICE had an 
equally significant case taking down a money-laundering operation using 
gold to move and store revenues in Massachusetts. Am I suggesting that 
either of these cases has a direct link to terrorism? No, I am not. I 
am suggesting that each of these cases represents a system open to 
exploitation--whether by criminal or terrorist organizations. And while 
we must work with the FBI and our other colleagues in law enforcement 
to develop leads to prove such terrorist links, we must also continue 
to dismantle the systems that we know undermine the security of the 
American economy--whether they be a terrorist organization or strictly 
a criminal one.
    The unique concentration of financial and economic enforcement 
assets at ICE allows for the Department of Homeland Security to 
continuously evolve to address the ever-changing threats to the 
integrity of the U.S. economy. Recently, this was demonstrated by a new 
initiative from ICE's Miami and foreign attache offices, in conjunction 
with the U.S. Attorney's Office. ICE identified that foreign government 
officials, identified as Politically Exposed Persons (PEPs), were 
purchasing assets in the U.S. with criminally derived proceeds from the 
Caribbean, Central, and South American countries. In response to this 
threat, ICE developed the Foreign Political Corruption Task Force to 
address foreign public corruption and related money laundering. This 
task force works in coordination with the State Department, other 
domestic ICE field offices, foreign attaches, and representatives of 
the foreign governments where public funds have been embezzled.
    Similarly, ICE has achieved great success in identifying other 
systems that have been used by narcotics traffickers, arms traffickers, 
and terrorist networks to finance their activities. These systems 
include trade-based money laundering, such as the Black Market Peso 
Exchange (BMPE), as well as hawalas, bulk cash smuggling, the misuse of 
money service businesses, and the exploitation of charities and non-
government organizations.
    Indeed, each violation within the spectrum of DHS/ICE's 
investigative purview--Financial Investigations, Export and Arms 
Control, International Trade, Commercial Fraud, Intellectual Property 
Rights, Cyber Crimes, Smuggling (contraband, narcotics, weapons, bulk 
cash, etc.), and even Immigration Violations (such as human smuggling 
and benefits fraud)--has a financial component that impacts the 
economic security of the United States. The new phase of Cornerstone 
will map and coordinate all of the economic aspects of these 
investigations to develop an integrated systems-based approach to 
safeguarding our national economic security.
                      private sector partnerships
    As I said earlier, the key to Cornerstone's success is not simply 
law enforcement. If we are going to detect weaknesses in our economic 
systems, then it is critical that we develop a strong working 
partnership with the private sector. We must not only look to the 
industries for information about potential vulnerabilities, we must 
initiate a pro-active information-sharing program to help the 
industries protect them from exposure.
    Through these partnerships, ICE shares real-time information on 
specific system vulnerabilities. Via Cornerstone, ICE holds training 
and information sharing seminars with the private sector and publishes 
red flag alerts to vulnerable industries in products such as Tripwire, 
a new quarterly report that we publish and post on the Internet that 
identifies and details examples of economic vulnerabilities. You have a 
copy of Tripwire on your desk. Since its inception, Cornerstone has 
conducted 38 presentations to approximately 1,700 participants from the 
private sector and both U.S. and foreign government agencies.
                        investigative successes
    I noted earlier a number of ICE investigative successes and would 
like to provide a brief outline of a few of our significant ongoing 
investigations:
     In Northern Virginia, ICE, FBI and the Internal Revenue 
Service are conducting a joint investigation of charities and non-
governmental organizations suspected of money laundering, tax fraud, 
and terrorist material support violations. As a result, Suleiman 
Biheiri has been convicted of immigration violations and Abdulrahman 
Alamoudi has been indicted for violations of immigration law, money 
laundering (including structuring), and the International Emergency 
Economic Powers Act (IEEPA).
     In the New York/Newark Metropolitan area, the ICE-led El 
Dorado Task Force conducted joint investigations targeting money 
service businesses operating without a license. In the last year, these 
investigations resulted in 65 arrests, 59 indictments, and 44 
convictions.
     In Miami, the ICE-led Foreign Political Corruption Task 
Force is conducting investigations of former high-ranking officials in 
the Nicaraguan government. Two officials have already been convicted in 
Nicaragua for embezzlement. ICE agents have identified millions of 
dollars in cash and property that represent the proceeds of illegal 
activity by these officials and have seized approximately $5.5 million 
in assets in the United States.
    Through these investigations, ICE has demonstrated the benefits 
derived from the USA PATRIOT Act, specifically the statutory changes 
related to bribing public officials, unlicensed money service 
businesses, bulk cash smuggling, and the expanded authority to identify 
accounts belonging to suspects. These successes would not have been 
possible without Congress's decisive and immediate enactment of the USA 
PATRIOT Act, enabling law enforcement to more effectively investigate 
money laundering and terrorist financing.
                               conclusion
    ICE continues to evolve to match its investigative priorities with 
the critical concerns of this Nation. The integration of the statutory 
authorities and investigative tools from the former Customs Service and 
the former Immigration and Naturalization Service has enabled ICE to 
more effectively target vulnerabilities that facilitate illegal 
activities.
    In conclusion, I would like to thank Chairman Grassley and the 
Members of the Caucus for the opportunity to testify before you today 
and highlight the investigative efforts and successes of such a premier 
law enforcement agency. It would now be my pleasure to answer any 
questions you may have.

    Senator Coleman. Thank you, very much, Mr. Dougherty.
    Mr. Bald.

       STATEMENT OF GARY M. BALD, ASSISTANT DIRECTOR FOR 
  COUNTERTERRORISM DIVISION, FEDERAL BUREAU OF INVESTIGATION, 
                         WASHINGTON, DC

    Mr. Bald. Good afternoon, Mr. Chairman. Thank you for the 
opportunity to address you on terrorist financing and to 
highlight some of the successes that we have collectively 
realized in this important area.
    The fight against terrorist financing is a major front in 
our war on terror. Terrorists, their networks and support 
structures, require funding in some form to exist or to 
operate. Our ability to efficiently identify and track 
terrorism-related financial activity directly impacts on the 
degree to which we are successful in our counterterrorism 
efforts. This is necessary not only in the post-attack 
investigations that we conduct, as in the aftermath of 9/11, 
but more importantly in our extensive efforts to predict and 
prevent terrorist acts
    The counterterrorism division's emphasis on proactively 
identifying terrorist financing activities began in the first 
few days after 9/11. This effort, which has become the focus of 
our Terrorist Financing Operations Section, combines the FBI's 
expertise in criminal financial investigations with advanced 
technologies and the critical legislative tools provided 
through the PATRIOT Act.
    TFOS, which is our Terrorist Financial Operations Section, 
has applied these tools by developing cooperation and 
coordination among intelligence and law enforcement agencies, 
both domestically and in foreign countries.
    It is important to mention our progress in several broad 
areas. Outreach to and cooperation from the private sector has 
been outstanding and continues to develop. Our ability to 
efficiently assess and obtain timely information has 
significantly enhanced the FBI's efforts to identify, 
investigate and resolve immediate terrorist threat situations.
    International awareness and cooperation on terrorist 
financing initiatives has reached unparalleled levels. On May 
the 13th, 2003, as you have heard, Attorney General Ashcroft 
and Homeland Security Secretary Ridge signed a memorandum of 
agreement which has aided in the coordination of our terrorism 
financing investigations.
    To this end, the Department of Homeland Security, through 
ICE, has implemented Operation Cornerstone, led by Mike 
Dougherty's team, to identify vulnerabilities in financial 
systems through which criminals launder their illicit proceeds, 
bring them to justice and work to eliminate financial 
infrastructure vulnerabilities.
    We have exchanged personnel with DHS to facilitate 
coordination. ICE representative Brock Nicholson has been 
detailed to the FBI and serves as the Deputy Chief of our TFOS. 
We have reciprocated by assigning Tony Guerrera, an FBI agent, 
to ICE offices in Washington, D.C. This exchange, and others to 
soon follow, have greatly benefitted our information sharing 
and coordination needs.
    I would like to give you several examples of 
investigations, non-specific since this is not a closed 
situation. In addition to the investigative examples that are 
contained in my prepared remarks, TFOS investigators are 
currently deployed as part of the coalition forces in Iraq to 
identify, disrupt and dismantle the financial infrastructure of 
terrorist groups that have or are planning to attack coalition 
forces. TFOS has conducted financial tracking of terrorist 
cells internationally and has provided specific and 
identifiable information to foreign intelligence services which 
have been acted upon to prevent six potentially deadly 
terrorist acts.
    There are also many classified terrorist financing 
successes that have directly contributed to the prevention or 
disruption of terrorist activities that are not appropriate to 
discuss in this setting.
    With respect to the GAO audit which was assessing alternate 
financing mechanisms by terrorists, I would like to express my 
appreciation for the comprehensive effort that went into that 
review. The GAO's audit team spent considerable time with the 
FBI and other agencies learning about our joint efforts to 
produce a report which came out most recently several weeks ago 
that accurately depicts the progress being made in this 
important area. This report also sets forth the suggestion that 
the director of the FBI systematically collect and analyze data 
concerning terrorist use of alternative financing mechanisms. 
The FBI either already has implemented, or plans to implement 
by April 30th, 2004, measures to address this recommendation.
    On a continuing basis, we assess terrorist financing 
mechanisms and target these processes through investigative and 
analytical initiatives, both case-specific and general in 
nature. However, a more formalized process, as commented on by 
GAO, would absolutely be a benefit. The measures that I have 
set forth in my prepared remarks to collect and analyze data 
concerning terrorist's use of alternative financing mechanisms 
will enhance our ability to recognize, respond to and 
ultimately disrupt or dismantle terrorist organizations.
    The number one priority of the FBI is to identify terrorism 
planning activities in sufficient time to disrupt their 
operations. To do this, all investigative and analytical tools 
of the U.S. Government must be strategically applied in a 
cohesive manner. Competing U.S. counterterrorism investigative 
activity is counterproductive and benefits only the terrorists. 
This belief lies at the heart of our reliance and commitment to 
the partnerships that we have forged on the Joint Terrorism 
Task Forces.
    Again, I want to express my appreciation to you, Mr. 
Chairman, as well as the Members of the Caucus, for addressing 
this issue and for including me. And I would be happy to 
respond to any questions that you may have.
    [The prepared statement of Mr. Bald follows:]
        Prepared Statement of Gary M. Bald, Assistant Director, 
Counterterrorism Division, Federal Bureau of Investigation, Washington, 
                                   DC
    Good morning Mr. Chairman and Members of the United States Senate 
Caucus on International Narcotics Control. On behalf of the Federal 
Bureau of Investigation (FBI), I would like to express my gratitude to 
you for affording us the opportunity to participate in this forum and 
to provide comments on the FBI's achievements, together with our 
partners in the war on terror, in the effort to identify, dismantle and 
disrupt sources of terrorist financing and money laundering. I also 
appreciate the opportunity to highlight our efforts with regard to 
interagency cooperation in the battle against terrorist financing.
    The fight against terrorist financing is a major front in our war 
on terror. We recognize that terrorists, their networks and support 
structures require funding in some form to exist and operate. Whether 
the funding and financial support is minimal or substantial, it often 
leaves a financial trail that can be traced, tracked, and exploited for 
proactive and reactive purposes. Being able to identify and track 
financial transactions and links after a terrorist act has occurred or 
a terrorist activity has been identified is important, but the key lies 
in exploiting financial information to identify previously unknown 
terrorist cells, recognizing potential terrorist activity or planning, 
predicting and preventing potential terrorist acts. To this end, the 
FBI has bolstered its ability to effectively combat terrorism through 
the formation of the Terrorist Financing Operations Section (TFOS).
    TFOS was created in April, 2002 to combine the FBI's traditional 
expertise in conducting complex criminal financial investigations with 
advanced technologies and the critical legislative tools provided 
through the USA PATRIOT Act. TFOS has built upon these established 
mechanisms by developing cooperation and coordination among law 
enforcement and intelligence agencies, both domestic and foreign, to 
form the preeminent terrorist financing investigative operation. In the 
past several months, TFOS has demonstrated its capabilities by 
conducting near real-time financial tracking of a terrorist cell and 
providing specific and identifiable information to a foreign 
intelligence agency, which resulted in the prevention of six potential 
deadly terrorist attacks.
    The TFOS mission includes: conducting full financial analysis of 
terrorist suspects and their financial support structures in the U.S. 
and abroad; coordinating joint participation, liaison, and outreach 
efforts to exploit financial resources of private, government, and 
foreign entities; utilizing FBI and Legal Attache expertise and 
relationships to fully develop financial information from foreign law 
enforcement and private agencies, including the deployment of TFOS 
personnel abroad to locations such as Iraq; working jointly with the 
intelligence community to fully exploit intelligence information to 
further terrorist investigations; working jointly with prosecutors and 
with the law enforcement and regulatory communities; developing 
predictive models and conducting data analysis to facilitate the 
identification of previously unknown or ``sleeper'' terrorist suspects; 
and providing the financial component to classified counterterrorism 
investigations in support of the FBI's counterterrorism 
responsibilities.
 achievements towards the identification, dismantlement and disruption 
                   of sources of terrorist financing
    Before addressing some specific, investigative accomplishments in 
the fight against terrorist financing since 9/11/01, it is important to 
mention our progress in broad areas. For instance, international 
awareness and cooperation on the problem of terrorist financing has 
reached unparalleled levels. Outreach with, and cooperation from, the 
private sector has been outstanding and continues to develop--
particularly the level of two-way interaction between law enforcement 
and the private sector. The resulting ability of FBI to access and 
obtain information in a timely fashion has significantly enhanced the 
FBI's ability to identify, investigate, and resolve immediate threat 
situations involving potential terrorist activity. Moreover, the 
ability to conduct near real-time monitoring of specifically identified 
financial activity has been invaluable not only to investigations 
ongoing in the U.S., but to foreign law enforcement and intelligence 
agencies in related investigations.
    As an example of our successful liaison and outreach efforts, 
extensive training and support of international investigations by TFOS 
has resulted in Agent visits, exchanges and training programs involving 
countries in Europe, Southeast Asia, the Middle East, Africa and South 
America. In support of specific high profile joint terrorist financial 
investigative matters, a number of countries and agencies, including 
the United Kingdom, Switzerland, Canada and Europol, have detailed 
investigators to TFOS on a temporary duty basis. TFOS has engaged in 
extensive coordination with authorities of numerous foreign governments 
in terrorist financing matters, leading to joint investigative efforts 
throughout the world. These joint investigations have successfully 
targeted the financing of several overseas Al-Qa'ida cells. 
Furthermore, through the assistance of relationships established with 
the central banks of several strategic countries, successful 
disruptions of Al-Qa'ida financing have been accomplished in countries 
such as the UAE, Pakistan, Afghanistan, the Philippines and Indonesia.
    As part of this effort, TFOS has developed a specific terrorist 
financing and money laundering crimes curriculum for international 
training that includes topics such as: acquiring and handling evidence 
in document intensive financial investigations, major case management 
techniques, forensic examination tools, and methods of terrorist 
financing. At the request of the U.S. Department of State, TFOS and the 
Internal Revenue Service have provided this curriculum to ten countries 
in just the past year, and are scheduled to provide it to approximately 
38 countries overall, identified by the National Security Council as 
needing law enforcement training on conducting terrorist financing 
investigations.
    Needless to say, access to foreign banking records is often 
critical to effectively following terrorist money. Through these 
training and outreach initiatives, TFOS has been able to obtain direct 
access to records provided by foreign central banks in numerous 
countries. In return, TFOS has also been able to assist these and other 
countries with the reciprocal sharing of terrorism related financial 
information.
    TFOS has cultivated and maintains a contact database of private 
industry and government sources and persons who can provide financial 
data, including near real-time monitoring of financial transactions. 
Many of these contacts can be reached or accessed on a 24 hour/7 days a 
week basis, allowing TFOS to respond rapidly to critical incidents.
    Through these contacts, with appropriate legal process, and 
pursuant to FBI investigative guidelines, TFOS has access to data and 
information from a variety of entities including: Banking Institutions, 
the Credit/Debit Card Sector, Money Services Businesses, the 
Securities/Brokerages Sector, Insurance Companies, Travel Agencies, 
Internet Service Providers, the Telecommunications Industry, Law 
Enforcement, State/Federal Regulatory Agencies, Public and Open Source 
Data Providers, the Intelligence Community, and International Law 
Enforcement and Intelligence Contacts. Access to this type of 
information is governed by the Right to Financial Privacy Act, Fair 
Credit Reporting Act, and other applicable statutes. The timeliness and 
accessibility of the data from these sources is contingent on a variety 
of factors, including whether the acquisition of the information 
requires legal process, the search capabilities of the data provider, 
and the size and depth of the data request. Nevertheless, as I've 
noted, the ability to access and obtain this type of information in a 
time sensitive and urgent manner has significantly enhanced the FBI's 
ability to identify, investigate and resolve immediate threat 
situations involving potential terrorist activity.
                        interagency cooperation
    Organizational changes have taken place within the Executive Branch 
with respect to the investigation of terrorism financing, including the 
execution of a Memorandum of Agreement (MOA) between the Department of 
Justice (DOJ) and the Department of Homeland Security (DHS) concerning 
terrorist financing investigations. The MOA addressed the importance of 
waging a seamless, coordinated law enforcement campaign against 
terrorist sources of financing. Signed by Attorney General Ashcroft and 
Homeland Security Secretary Ridge on May 13, 2003, it designates the 
FBI as the lead terrorist financing investigations and operations 
agency, and enables DHS to focus its law enforcement activities on 
protecting the integrity of U.S. financial systems. To this end, DHS 
implemented ``Operation Cornerstone'', led by Immigration and Customs 
Enforcement (ICE), to identify vulnerabilities in financial systems 
through which criminals launder their illicit proceeds, bring them to 
justice and work to eliminate financial infrastructure vulnerabilities. 
Former U.S. Customs Service ``Operation Green Quest'' criminal cases 
having no nexus to terrorism were converted to ``Operation 
Cornerstone'', while those cases having a nexus to terrorism were 
transitioned to the appropriate FBI Joint Terrorism Task Force (JTTF) 
where participating ICE Task Force members continue to play significant 
roles. Ongoing and future ``Operation Cornerstone'' investigations that 
develop links to terrorism will be referred to the FBI through TFOS. 
ICE and TFOS are coordinating investigative initiatives that will 
enable ICE to identify financial systemic vulnerabilities, and which 
will enable TFOS to identify ties to terrorism and terrorist financing. 
In addition, there is a liaison from ICE assigned to TFOS, and 
investigators from ICE are assigned to the JTTFs. The FBI has 
reciprocated by assigning an FBI Agent Unit Chief to the ICE offices in 
Washington, D.C.
    In the various 84 JTTFs throughout the United States, ICE and FBI 
Agents are working side by side on numerous joint investigations. The 
exact number of ICE and FBI Agents varies from city to city and depends 
largely upon the workload at each JTTF. The JTTF does not only include 
ICE and FBI Agents, but representatives from State and Local law 
enforcement agencies, and other Federal agencies such as the Internal 
Revenue Service, Department of Defense, Department of the Treasury, 
Central Intelligence Agency, Postal Inspection and the Environmental 
Protection Agency. Every Agency has an open-ended invitation to 
participate in the JTTF, and FBI Special Agents In Charge are 
particularly encouraged to promote interagency cooperation through the 
JTTFs.
    Information sharing is critical to all of our efforts. The 
intelligence community, including the FBI, produces and obtains 
tremendous amounts of classified intelligence information. While much 
of the information can be of significant value in terrorist finance 
investigations, the value will not be realized or maximized absent the 
ability to filter the information, analyze it, and disseminate it in an 
appropriate manner to those who can make the best use of the 
information. Toward this end, TFOS participates in joint endeavors with 
the Treasury Department, the Department of Justice, and the Department 
of Homeland Security involving potential terrorist related financial 
transactions. TFOS also has personnel detailed to the CIA's Counter 
Terrorism Center, and personnel from there work directly with TFOS on 
financial intelligence matters.
    In addition, the National Security Council (NSC) formalized the 
Policy Coordinating Committee (PCC) on Terrorist Financing at the end 
of 2001. The NSC chairs the PCC, which generally meets at least once a 
month to coordinate the United States Government's campaign against 
terrorist financing. The meeting generally focuses on ensuring that all 
relevant components of the Federal Government are acting in a 
coordinated and effective manner to combat terrorist financing.
    The Departments of State, the Treasury, Homeland Security and 
Justice also participate in an interagency Terrorist Financing Working 
Group, chaired by the State Department, to coordinate government 
efforts to identify, prioritize, assess, and assist those countries 
whose financial systems are vulnerable to terrorist exploitation. 
Groups of experts, including DOJ money laundering prosecutors, 
interagency law enforcement and regulatory members, have provided 
extensive on-the-ground assessments of such countries' vulnerabilities 
in an effort to develop and provide targeted training and technical 
assistance to those countries identified as most vulnerable.
                       examples of investigations
    In addition to these developments, the FBI, working in coordination 
with other entities of the U.S. Government, has participated in the 
following successes pertaining to terrorist financing:
     The FBI conducted a detailed financial investigation/
analysis of the19 hijackers and their support network, following the 
September 11th attacks. This investigation initially identified the Al 
Qa'ida funding sources of the 19 hijackers in the UAE and Germany. The 
financial investigation also provided the first links between Ramzi 
Binalshibh and the 9/11/01 terrorist attacks. A continuing 
investigation, in coordination with the PENTTBOMB Team, has traced the 
origin of the funding of September 11th back to financial accounts in 
Pakistan, where high-ranking and well-known Al Qa'ida operatives played 
a major role in moving the money forward, eventually into the hands of 
the hijackers located in the U.S. As part of the 9/11/01 financial 
investigation, thousands of individuals and organizations were 
investigated in the U.S. and abroad to determine whether they played 
any part in supporting the hijackers or the operation. Although the 
vast majority of these individuals and organizations were cleared of 
culpability, this process of elimination resulted in numerous other 
quality terrorism investigations being initiated, as well as criminal 
charges against hundreds of individuals for fraud and other criminal 
activity.
     In 2001, an FBI Joint Terrorism Task Force in Charlotte, 
North Carolina, utilized racketeering statutes to obtain criminal 
convictions and, thus, disrupt and dismantle a Hizballah procurement 
and fundraising cell. Twenty-four individuals were arrested for crimes 
including immigration fraud, visa fraud, cigarette smuggling, 
interstate transportation of stolen property, fraud, bank fraud, 
bribery, money laundering, racketeering, and providing material support 
to a designated terrorist organization, with the final conviction 
delivered in 2003. Sentences imposed range up to more than 150 years.
     In 2002, the FBI coordinated with the Treasury 
Department's Office of Foreign Asset Control (OFAC) to justify the 
blocking of Holy Land Foundation for Relief and Development (HLF) 
assets and the closing of its U.S. offices, shutting down Hamas' 
largest fund-raising entity in the U.S. The HLF had been linked to the 
funding of Hamas terrorist activities, and in 2000, raised $13 million.
     In October 2002, the FBI and other U.S. Government 
agencies assisted German authorities in identifying and taking legal 
action against Hamas in Germany. Through the efforts of the FBI, 
including TFOS, exchanges with Germany led to the closure of the Al 
Aqsa Foundation in Germany, a suspected Hamas fundraising organization.
     In December 2002, a Federal grand jury in Dallas returned 
an indictment against a senior leader of Hamas, Mousa Abu Marzouk, for 
conspiring to violate U.S. laws that prohibit dealing in terrorist 
funds. Also charged and arrested by the FBI were Ghassan Elashi, the 
chairman of the Holy Land Foundation for Relief and Development, a 
charitable organization designated as a terrorist organization by the 
U.S. Treasury Department's Office of Foreign Asset Control because of 
its fundraising activities on behalf of Hamas. Elashi and four of his 
brothers, all of whom are employees of the Richardson, Texas-based 
InfoCom Corporation, were charged with selling computers and computer 
parts to Libya and Syria, both designated state sponsors of terrorism. 
The indictment alleged that the Elashi brothers disguised capital 
investment from Marzouk, a specially designated terrorist for his 
admitted leadership role with Hamas, for their telecommunications 
company, InfoCom. The indictment and subsequent arrests have disrupted 
a U.S. based business, which was conducting its activities with a known 
Hamas leader and state sponsors of terrorism.
     In January 2003, the FBI, working in conjunction with 
German law enforcement, arrested Mohammed Al Hasan Al-Moayad, a Yemeni 
national, on charges of conspiring to provide material support to Al 
Qa'ida and Hamas. Al-Moayad was a significant financial contributor to 
Al Qa'ida and Hamas, and boasted he had provided over $20 million 
dollars to Usama Bin Laden. Al-Moayad participated in several fund 
raising events at the Al Farouq Mosque in Brooklyn, NY. Al-Moayad was 
arrested during an undercover operation where he believed that he was 
to receive a large financial contribution, which he advised an FBI 
source would be used to support mujahideen fighters of Al Qa'ida and 
Hamas. Along with Al-Moayad, several of his associates in New York were 
arrested for violating banking reporting requirements by structuring 
over $300,000 in several bank accounts in the United States.
     Offices of the Benevolence International Foundation (BIF), 
a U.S. based charity, were shut down and its assets and records blocked 
following an OFAC and FBI investigation which determined the charity 
was being used to funnel money to Al Qa'ida. In February 2003, Enaam 
Arnaout, the head of BIF, pleaded guilty to racketeering conspiracy, 
admitting he fraudulently obtained charitable donations in order to 
provide financial assistance to persons engaged in violent activities 
overseas.
     A criminal case against Sami Al Arian, the alleged U.S. 
leader of the Palestinian Islamic Jihad (PIJ), and the World Islamic 
Studies Enterprise forced the closure of several front companies 
suspected of funneling money to support PIJ operations against Israel. 
In August 2002, the investigation led to the deportation of Mazen Al-
Najjar, the brother-in-law of Sami Al Arian and a known PIJ member. In 
February of 2003, following a 50-count indictment for RICO and Material 
Support of Terrorism violations, the FBI arrested Al-Arian and three 
other U.S.-based members of the PIJ, including Sameeh Hammoudeh, Hatim 
Naji Fariz, and Ghassan Ballout. The FBI also executed seven search 
warrants associated with this action.
     In February of 2004, the FBI executed search warrants on 
the Ashland, Oregon office of Al Haramain Islamic Foundation, Inc. 
(AHIF). AHIF is one of Saudi Arabia's largest non-governmental 
organizations (NGO) with offices located throughout the world. AHIF's 
stated mission is to provide charitable services and Islamic education 
around the world. Based upon AHIF's claim to be a public benefit 
corporation organized exclusively for religious, humanitarian, 
educational and charitable purposes, the IRS granted AHIF tax-exempt 
status. The warrants were executed to further the investigation of 
criminal violations of Currency and Monetary Instrument reporting 
requirements by AHIF principals and subscribing to a false 
informational tax form. The investigation specifically focuses on a 
series of transactions involving traveler's checks cashed out of 
country and the mischaracterization of funds received by AHIF.
     TFOS is assisting coalition forces in Iraq in efforts to 
identify, disrupt, and dismantle the financial infrastructure of 
terrorist groups that are, or are planning to, attack coalition forces.
     TFOS has provided operational support to FBI Field 
Divisions and JTTFs across the United States to enhance their 
intelligence/criminal investigations of individuals and groups 
associated with, or providing material support to, terrorist 
organizations and activities. This assistance is provided in the form 
of conducting intelligence/criminal financial investigations, financial 
analytical support, major case management, financial link analysis, and 
the deployment of teams of experts to develop investigative plans to 
analyze large volumes of documents and data. TFOS has provided this 
type of operational support in Al Qa'ida cases in Buffalo and Portland, 
as well as in the Richard Reid, John Walker Lindh, Al Haramain, PIJ, 
and Mohamed Al-Moayad cases, among many others. This type of 
operational support has also been provided to Divisions investigating 
non-governmental organizations (NGOs), such as the Holy Land Foundation 
for Relief and Development, Benevolence International Foundation and 
the Global Relief Foundation.
     Since 9/11, the U.S. Government has blocked $36.3 million 
in terrorist assets located domestically, while the international 
community has blocked over $136 million, for a total of over $172 
million. The FBI has provided assistance to both its U.S. Government 
partners and the international community by showing the definitive 
links to known terrorist organizations.
     The Treasury and State Departments have issued blocking 
orders on the assets of more than 340 terrorists, terrorist 
organizations, and terrorist supporters, many of them identified by the 
FBI, effectively denying them access to the U.S. financial system.
     Federal law enforcement officials, working with the FBI in 
the JTTFs, have arrested over 61 individuals, indicted 47 and convicted 
14 in connection with terrorist financing investigations.
     U.S. Government agencies, including the FBI's TFOS, have 
deployed trainers and advisers on missions to countries around the 
world to assist with the drafting of legislation to combat terrorist 
financing, strengthen bank supervision in identifying suspicious 
transactions, and address other financial crimes and corruption. Since 
9/11/01, over 80 countries have introduced new terrorist-related 
legislation and approximately 84 countries have established Financial 
Investigation Units.
    As previously noted, TFOS has conducted near real-time financial 
tracking of a terrorist cell and provided specific and identifiable 
information to a foreign intelligence agency, which resulted in the 
prevention of six, potential deadly terrorist attacks.
    It should be noted that the above examples do not include the many 
classified intelligence successes that have directly contributed to the 
prevention or disruption of terrorist activities.
   the use of information technology to better identify and isolate 
         suspicious transactions related to terrorist financing
    The FBI has a responsibility to be not only reactive, but 
proactive, and to think strategically about potential threats and 
future case development. Accordingly, TFOS, together with the Counter-
Terrorism Section, Criminal Division of the Department of Justice, has 
begun a number of proactive initiatives to identify potential 
terrorists and terrorist related financing activities.
    The overriding goal of these projects is to proactively identify 
potential terrorists and terrorist related individuals, entities, 
mechanisms or schemes through the digital exploitation of data. To 
accomplish this, TFOS seeks to: 1), identify potential electronic data 
sources within domestic and foreign government and private industry 
providers; 2), create pathways and protocols to legally acquire and 
analyze the data; and 3), provide both reactive and proactive 
operational, predictive and educational support to investigators and 
prosecutors.
    Utilizing the latest computer technology available, the 
Counterterrorism Division serves as a proactive, financial intelligence 
investigative management and support team. TFOS generates leads for 
other FBI components and proposes and conducts proactive financial 
intelligence initiatives and projects. TFOS works closely with other 
operational units and document exploitation initiatives to ensure 
financial intelligence is being fully exploited and disseminated.
    TFOS has conducted an extensive review of data mining software and 
link analysis tools currently utilized by other governmental and 
private industries for consideration of use by the FBI. TFOS also 
participates in the FBI's SCOPE Intelligence Data Warehouse (IDW) User 
Management Group and has been involved in the development and planning 
for future enhancements to the IDW. TFOS's Proactive Exploitation Group 
(PEG) has created an interactive, computer playbook generator that can 
assist investigators in determining data sources to be queried, based 
upon the quantity and quality of their investigative data.
    TFOS has initiated several projects to integrate data from its 
internal financial database, open/public source data and FBI and other 
government data sources onto a central query platform. Through this 
process, and in concert with contract vendors working for the SCOPE IDW 
Project, TFOS has developed a process whereby it can batch query 
multiple databases. This has the potential to save the FBI hundreds, if 
not thousands, of hours of data input and query time on each occasion 
it is utilized. Furthermore, it facilitates rapid acquisition and 
sharing of information with other agencies. Through the sophisticated 
tools being utilized, and the matching protocols developed, TFOS can 
ensure each query is properly conducted and done to a best practices 
query standard.
    Recently, TFOS utilized the batch process it developed to exploit 
over three thousand identifiers. The batch process accomplished in 
hours what would have taken TFOS personnel and FBI Field Offices over 
4,300 man-hours to conduct. Furthermore, because TFOS conducted the 
queries in batch form, and has global access to all of the search 
results, previously unidentified links, patterns and associates among 
the data can now be extracted. Absent the batch process, this would 
have been extremely difficult, if not impossible, to accomplish.
    TFOS has initiated a variety of proactive data mining projects to 
identify potential terrorists and terrorist financing. The projects 
were conceived in 2002 and now, with the advent of certain software 
tools and data access, are either being implemented or will begin 
shortly.
    An example of this is the Terrorist Risk Assessment Model (TRAM), 
which seeks, to identify potential terrorist and terrorism financing 
activity through the use of targeted, predictive pattern recognition 
algorithms. The project entails the compilation of past and current 
known data regarding individual and group terrorist activity, 
methodologies, demographics, financial patterns, etc., to form a 
predictive pattern recognition program.
    It is important to understand that these projects and similar 
initiatives by TFOS seek only to more fully exploit information already 
obtained by the FBI in the course of its investigations or through the 
appropriate legal process, and where there is an articulated law 
enforcement need. TFOS does not seek access to personal or financial 
information outside these constraints.
                   national money laundering strategy
    With respect to the 2003 National Money Laundering Strategy, the 
FBI concurs with the strategy's goals and objectives. The blocking of 
terrorist assets worldwide, establishing and promoting of international 
standards for adoption by other countries to safeguard their financial 
infrastructures from abuse and facilitating international information 
are several key objectives which must be achieved if law enforcement 
and regulatory agencies are to have any success in stemming the flow of 
illegal funds throughout the world. Within the FBI, the investigation 
of illicit money flows crosses all investigative program lines.
    The number one priority of the FBI is prevention of terrorism. To 
prevent terrorist acts, all investigative and analytical tools of the 
U.S. Government must be strategically applied, in a cohesive manner, 
through the JTTFs.
    Our efforts to combat terrorism have been greatly aided by the 
provisions of the PATRIOT Act and, pursuant to the 2003 National Money 
Laundering Strategy, the FBI is ensuring its vigorous and appropriate 
application. It has already proven extraordinarily beneficial in the 
war on terrorism. Most importantly, the PATRIOT Act has produced 
greater collection and sharing of information within the law 
enforcement and intelligence communities.
    Title III of the Act, also known as the International Money 
Laundering Anti-Terrorist Financing Act of 2001, has armed us with a 
number of new weapons in our efforts to identify and track the 
financial structures supporting terrorist groups. Past terrorist 
financing methods have included the use of informal systems for 
transferring value in a manner that is difficult to detect and trace. 
The effectiveness of such methods should be significantly eroded by the 
Act, which establishes stricter rules for correspondent bank accounts, 
requires securities brokers and dealers to file Suspicious Activity 
Reports or SARS, and money transmitting businesses, which include any 
person who engages as a business in the transmission of money, to 
register with the Financial Crimes Enforcement Network (FinCEN) and 
file SARS.
    There are other provisions of the Act that have considerably aided 
our efforts to address the terrorist threat including: strengthening 
the existing ban on providing material support to terrorists and 
terrorist organizations; the authority to seize terrorist assets; and 
the power to seize money subject to forfeiture in a foreign bank 
account by authorizing the seizure of funds held in a U.S. 
correspondent account.
    The FBI has utilized the legislative tools provided in the USA 
PATRIOT Act to further its terrorist financing investigations. It is 
important for the Committee and the American people to know that we are 
using the PATRIOT Act authorities in a responsible manner. We are 
effectively balancing our obligation to protect Americans from 
terrorism with our obligation to protect their civil liberties.
    Terrorism represents a global problem. The FBI is committed to its 
U.S. and international partnerships and to effectively sharing 
information to protect our nation from terrorism. To meet this goal, 
the FBI has formed the International Terrorism Financing Working Group 
(ITFWG), which includes law enforcement and intelligence agency 
representatives from the United Kingdom, Canada, Australia and New 
Zealand, and addresses the international aspect of terrorist financing 
investigations.
                     alternate financing mechanisms
    In its latest report assessing the use of alternate financing 
mechanisms by terrorists, GAO recommended that, ``The Director of the 
FBI should systematically collect and analyze data concerning 
terrorists' use of alternative financing mechanisms''. The FBI has 
already implemented some measures to address the GAO's recommendation, 
and plans to implement additional measures by April 30, 2004 which 
address concerns identified in the GAO report.
    The FBI has established specifically defined intelligence 
requirements used to guide the Bureau's collection efforts within its 
Office of Intelligence. As a result, we developed specific intelligence 
requirements, which are tied to various known indicators of terrorist 
financing activity.
    TFOS has developed statistical queries in the FBI's CT Annual Field 
Office Report (AFOR) pertaining to terrorist financing. Included in 
this reporting are responses to the tracking, locating, and monitoring 
of subjects of terrorism investigations through the identification of 
emerging trends pertaining to terrorist financing techniques, including 
alternative financing mechanisms discovered through other criminal 
investigations.
    TFOS has established the Program Management and Coordination Unit 
(PMCU), which will be responsible for, among other things, tracking 
various funding mechanisms used by many different subjects in ongoing 
investigations--to include alternative financing mechanisms. The PMCU 
will be well positioned to identify emerging trends across the spectrum 
of terrorist financing.
    Measures to collect and analyze data concerning terrorists' use of 
alternative financing mechanisms will greatly enhance our ability to 
recognize, respond to, and ultimately disrupt or dismantle terrorist 
organizations reliant upon them. Through the international partnerships 
that we have established, additional sources from which to obtain 
similar information regarding alternative financing mechanisms are of 
great mutual benefit. The FBI intends to maintain and encourage liaison 
and relationships with our law enforcement colleagues both in the 
United States and all over the world to ensure that new methods of 
terrorism financing, as well as current ones, are accurately tracked 
and monitored.
    Again, I offer my gratitude and appreciation to you, Chairman 
Grassley, as well as the distinguished Members of this Caucus, for 
dedicating your time and effort to this issue, and I would be happy to 
respond to any questions you may have.

    Senator Coleman. Thank you very much, Mr. Bald.
    It is very clear from all your testimony, and I think you 
said it very specifically, Mr. Bald, that the fight against 
terrorist financing is now a major front in the war on terror. 
And I again want to thank all of you and the many, many folks 
that you represent for the work that you are doing.
    The challenge for us here is we continually have to reflect 
on whether we are doing it as effectively as possible? Do we 
have the right kind of leadership and direction? And that is 
part of the purpose of this hearing.
    There was one comment, Administrator Tandy, you made that I 
think is worth repeating. And I want to get your exact words 
about the American drug user is the single largest funder--can 
you repeat that sentence? I want to make sure I have it right 
on the record. I may repeat that somewhere along the way.
    Ms. Tandy. The American drug consumer is the single largest 
funder of terrorism in the Western Hemisphere.
    Senator Coleman. I think that statement bears repeating 
again and again and again in many different quarters.
    We are in a war. We have to win it. We do not want to waste 
our time with unhelpful pursuits. The question here has been, 
one of the basic questions and the basis of this hearing is--do 
we need a National money laundering drug strategy?
    As I listened to the testimony, I did not get a sense that 
anyone strongly endorsed the strategy or requested its 
continuation. I did not see anyone strongly endorsing the High 
Intensity Money Laundering and Related Financial Crime Area 
task force (HIFCA) approach to money laundering. Clearly, the 
PATRIOT Act has been an invaluable tool to help win the war on 
terrorism and terrorist financing.
    I think, Deputy Secretary Zarate, the most I heard in 
regard to the strategy were some comments in your prepared 
testimony I looked at that talked about achieving goals in 
accordance with the strategy, certain interagency law 
enforcement community was taking aggressive steps, et cetera, 
et cetera. But beyond that, I guess my question is--can we be 
assured that we are waging a seamless war, and setting goals, 
objectives, priorities without a strategy? Do we need a 
strategy? I would like a little more feedback from each of you 
on that very specific issue.
    Mr. Zarate. Mr. Chairman, thank you.
    The Treasury thinks the strategy is helpful. It is also 
always helpful when you have a document that forces the U.S. 
Government as a whole to iterate what its primary challenges 
and goals are with respect to an overarching threat like money 
laundering. And over the past two years, we have included the 
issue of terrorist financing largely because, as my colleagues 
have indicated, terrorists' use of the financial system often 
parallels or mimics the use of the financial system by 
criminals and money launderers. So a systemic approach requires 
an ability on the part of the Government to address systemic 
weaknesses.
    That being said, Mr. Chairman, I think there are certainly 
some improvements or clarity that could be done with respect to 
the reauthorization if that is what the Congress seeks to do. 
Certainly perhaps having it every two years, as opposed to 
every year, would be very helpful. As your previous panelist 
indicated, often the people who are drafting and devising the 
strategy are the very persons who are implementing it. So that 
is certainly part of it.
    I think the idea of resurrecting the steering committee is 
important, as well. And there are also some other issues, I 
think, that could be addressed with respect to measures of 
success and accountability.
    Senator Coleman. I would ask you, Mr. Zarate, and others, I 
will keep the record open on this, but if there are other 
measures, I would like you to submit that to the committee in 
writing. That would be most helpful, Administrator Tandy.
    Ms. Tandy. I agree with my colleague, Mr. Zarate, that a 
strategy every two years would be vastly more helpful. There 
was a sense that you would finish one strategy and turn right 
around and start the next.
    The improvements, the value of having a strategy is 
extremely valuable if it is based on intelligence regarding 
current trends and threats and the strategy is built upon that 
kind of intelligence. So I think those are areas that would be 
an improvement to the past strategy, if it was built on 
essentially a threat assessment.
    Senator Coleman. Mr. Dougherty.
    Mr. Dougherty. Mr. Chairman, ICE and the Department 
strongly support the concept of a National Money Laundering 
Strategy. We think, and we concur with the GAO opinion in this, 
that it needs, however, strict oversight and accountability 
rules. I think it would be very useful to lay out the relative 
roles and responsibilities of all of the components engaged in 
the war on illicit financing and money laundering.
    Also importantly now, there is a new player. There is the 
Department of Homeland Security, and the roles and 
responsibility of the Secretary and ICE and other components 
with respect to money laundering, and I think that is an 
important component that would need to be included in any 
future strategy.
    With respect to the content of the strategy, I think it is 
absolutely vital that it takes a systematic approach, focusing 
on the systems that are being exploited by terrorist and 
criminal organizations rather than waiting for crimes to occur.
    This is the approach we have taken in Cornerstone. We have 
found it to be very effective. Rather than waiting for specific 
crimes, investigating those crimes, and following the trail 
from there, we seek to get in front of the problem using red 
flags, typologies of money laundering, working very closely 
with the financial community to target specific systems, the 
traditional financial system, the alternative remittance 
system, bulk cash smuggling, et cetera, and identify, penetrate 
and dismantle the organizations that are exploiting specific 
vulnerabilities. And then working with Congress, regulators and 
the private sector to close down those vulnerabilities. We 
think that would be an important part of the strategy.
    Senator Coleman. Thank you.
    Mr. Bald.
    Mr. Bald. Thank you, Mr. Chairman.
    I would echo the comments of the other members of the 
panel. We would agree completely that the unified strategy is a 
very beneficial step.
    We are participating, at my last count, in six financial 
focused groups. And although we meet and we discuss regularly, 
I am not sure that we have as cohesive of an overall game plan 
as we could have. So I would certainly be willing to 
participate in the preparation of any such general strategy.
    Senator Coleman. Thank you very much.
    We talked about who would be responsible for pulling this 
together, the kind of leadership component. I believe that was 
one of the GAO recommendations, establishment of a clearly 
defined leadership structure.
    Who should be responsible for writing and executing a 
National Money Laundering Strategy, perhaps one that is every 
two years, as recommended here, if it were to continue? Whose 
responsibility should that be? And again, I welcome your 
response.
    Mr. Zarate.
    Mr. Zarate. Mr. Chairman, to date the responsibility has 
sat with the Secretary of Treasury as well as with the Attorney 
General. And we think that construct is fine.
    One point I would like to indicate, which is an important 
point here, is that when looking at the problem of money 
laundering and financial crimes and terrorist financing, it is 
important to look beyond the case specific examples and the law 
enforcement approach. It is certainly a critical element, but 
it is also one part of many.
    We see the sanctions regime as being an important part of 
an anti-money laundering strategy. We see civil penalties with 
respect to the regulatory responsibilities of not only 
Treasury, but other functional regulators; the expansion of the 
regulatory scene within the U.S. and outside of the U.S.; the 
establishment of international standards worldwide with respect 
to dealing with identified risk like hawalas, the abuse of 
charities, et cetera; capacity building, helping other 
countries to help themselves to deal with these issues.
    So when looking at a strategy, it is at least the 
Treasury's perspective that the U.S. Government has to, and has 
in the past, look at the whole panoply of issues and tools 
available. And certainly the Secretary of the Treasury is in a 
position to do that, but we have always done it in cooperation 
with our interagency partners.
    Senator Coleman. Any other responses?
    Administrator Tandy.
    Ms. Tandy. I concur. It has been a shared responsibility 
between the Secretary of the Treasury and the Attorney General. 
And I think it should remain that way with some of the other 
improvements that have been suggested here, all of which among 
my colleagues I happen to agree with.
    Senator Coleman. Mr. Dougherty.
    Mr. Dougherty. Mr. Chairman, I believe it is a shared 
responsibility, and it should include the Secretary of the 
Department of Homeland Security as well as the Secretary of 
Treasury and the Attorney General in recognition of the vast 
investigative intelligence resources brought to bear on money 
laundering within the Department.
    Senator Coleman. Mr. Bald.
    Mr. Bald. Mr. Chairman, I think that it is best left, at 
the current time, with the Department of Treasury and 
Department of Justice. I think that one of the first issues 
that could be addressed in the unified strategy is whether the 
leadership should be broadened and extended to the Secretary of 
the Department of Homeland Security.
    Senator Coleman. Thank you, that is very helpful.
    Senator Grassley wanted me to ask about the 2003 National 
Drug Control Strategy that was released this past Monday, and 
stated: ``The Departments of Justice, Homeland Security and 
Treasury are working jointly to plan the creation of a 
financial attack center. The center will bring together our 
most experienced investigators and analysts to prioritize 
targets and develop plans to attack the `financial 
infrastructure of drug trafficking organizations.' ''
    Do you have any additional information you can share 
regarding this new financial attack center? Please describe the 
financial attack center in greater detail including what steps 
are needed to get this center up and running. How will this 
center be different from other existing coordination 
mechanisms? What additional costs are associated with the 
center? And when is it expected to be in operation?
    Ms. Tandy. I can start with that. The financial attack 
center is something that grew out of the Policy Coordinating 
Committee that is chaired by ONDCP and actually developed in 
concept at the same time that the OCDETF fusion center, drug 
fusion center, was coming into being.
    Essentially, if I could just take a second to step back as 
to that fusion center, that is the Organized Crime Drug 
Enforcement Task Force's program which is comprised of all of 
the interagency communities represented at this table and 
broader. This fusion center has been funded out of the 2004 
Omnibus and will be standing up within the next month.
    For the first time, this fusion center will be a location 
where all counternarcotics intelligence and case information is 
warehoused together. We have never had this before and there 
will be sophisticated software and technology that will enable 
cross-analysis of all of the counternarcotics information of 
these agencies. It is actually even broader than the OCDETF 
agencies.
    Within that fusion center the discussions, at least so far, 
have been that this financial attack center, will contain 
essentially the same agencies that are represented here today, 
and in the financial attack center it will be a separate group 
contained within the confines of the fusion center.
    Obviously, one of the main specified unlawful activities is 
drugs, and that fusion center will have all of that SUA 
information to go with the financial attack center. There will 
be a triumvirate, if you will, of DHS, Treasury and Justice 
within the financial attack center that will analyze what is 
coming out of the money side of the fusion center and determine 
strategically whether the leads from that should go, for 
example, to OFAC for appropriate regulatory or OFAC action, 
whether it is an enforcement lead that should go out to the 
field regarding money laundering enforcement action 
investigations.
    Those leads, whether they are pure drug leads part of the 
fusion center or the related financial attack center, at this 
point the discussion is that they would all go through the 
Special Operations Division, through the Money Laundering 
Section at the Special Operations Division that actually DHS 
ICE is the ASAC in charge of. That is an interagency group in 
Special Operations Division which is a division of DEA. The 
entire Special Operations Division contains all of the agencies 
here today and more broadly than here today. Those leads would 
then be disseminated to the field and coordinated within the 
field, especially to the extent that they overlap among various 
districts.
    Senator Coleman. I would follow up the question, and I am 
not sure whether it goes to Administrator Tandy or Mr. 
Dougherty. How would the DEA's financial attack centers differ 
from ICE's Money Laundering Coordination Center, of which the 
DEA is a member?
    Mr. Dougherty. We are working closely with our partners in 
DEA and OCDETF to come up with a workable model for the 
interchange between the financial investigations and 
intelligence housed in the Money Laundering Coordination Center 
and the proposed financial attack center.
    Just by way of background, the MLCC, the Money Laundering 
Coordination Center, was established in 1996 as the repository 
of information obtained through financial investigations, all 
of our financial investigations including undercover 
operations, associated intelligence, and investigative 
activities around the world. Its purpose is to identify 
crossovers and connections between money laundering 
investigations that we have here and abroad.
    It also coordinates and facilitates the exchange of money 
laundering information between agencies, member agencies within 
the MLCC and other agencies. And most importantly, it is 
designed to identify trends and typologies specifically in the 
black market peso exchange scheme and share that information 
back with our financial investigators, the financial community, 
and the rest of Government. So we look forward to building a 
mechanism that most appropriately and efficiently shares the 
information and operations that occur in the MLCC with the 
proposed center.
    Senator Coleman. Are others, perhaps within the FBI or 
Treasury, currently responsible for coordinating information 
resources about money laundering and terrorist financing? I am 
trying to get a sense of the scope of what we are doing. One of 
the questions is; are we pulling it together? Are we 
duplicating? Are we operating as efficiently as possible? Are 
there other different coordination centers, task forces? I 
would love, if there are, to get a list of the various 
coordinating task forces that address money laundering within 
the various agencies.
    Does anybody want to just respond generally to that? I 
would like, for the record, and I would request the agencies. 
We will get a specific request for that information.
    Mr. Dougherty. Mr. Chairman, I would point out there is one 
specific mechanism set up with the Joint Vetting Unit, which 
was set up pursuant to the MOA between ICE and the FBI. It is a 
subset of our financial investigative program. It is fully 
coordinated with the MLCC, specifically to address where there 
is a known demonstrable nexus between a terrorist investigation 
and a financial investigation being conducted by ICE. So that 
is yet another coordination mechanism that exists.
    Mr. Bald. Mr. Chairman, we have a classified project that I 
would prefer not to discuss here that does a similar 
coordination process on the terrorism side of the shop, in 
addition to what you have heard previously stated.
    Senator Coleman. Thank you.
    Ms. Tandy. Mr. Chairman, if I could add also, the OCDETF 
fusion center does bring into that warehouse of intelligence a 
feed--excuse me, at the National Drug Intelligence Center, a 
feed out of FinCEN. The purpose of the fusion center is truly 
to fuse all of these various centers so that, at least as to 
the drug side, you do not have that kind of duplication out 
there.
    Senator Coleman. Mr. Zarate.
    Mr. Zarate. Mr. Chairman, very quickly.
    Within Treasury, all of the enforcement related entities 
are coordinated through my office, the Office of Foreign Assets 
Control, which administers the U.S. sanctions programs 
including the drug trafficking programs.
    The Financial Crimes Enforcement Network, which administers 
the Bank Secrecy Act and serves as a repository as well as an 
analytical body for that information, and is a wonderful tool 
for the rest of the law enforcement community in the U.S. as 
well as abroad.
    As well as our Criminal Investigation Division at IRS, 
which has, I would dare say, some of the best financial 
investigators in the country, which serve with my compatriots 
here in a variety of task forces like the Joint Terrorist Task 
Force, the OCDETF task force, as well as HIDTAs and HIFCAs.
    Senator Coleman. I want to, if I can, just switch in the 
time we have and focus on the local level. I worked for 17 
years in the Minnesota Attorney General's Office. I was the 
chief prosecutor for the state. I remember when we began to use 
some of these tools focusing on the money as an invaluable tool 
in drug trafficking and other areas of crime.
    What kind of mechanisms do we have in place, procedures to 
educate and train law enforcement officials about the methods 
being used by criminal and terrorist organizations? Is this 
getting down to folks at the local level? Or is all of this 
being done at the Federal level?
    Mr. Bald. Mr. Chairman, from the Joint Terrorism Task Force 
perspective, as you know we have a very robust representation 
from State and local departments, as well as our other Federal 
partners, including the intelligence community. To bridge the 
gap within the FBI between our traditional white-collar crime 
programs and the terrorism side of the shop, we have a 
designated white-collar crime individual responsible for the 
global perspective that combines the Joint Terrorism Task 
Force's financial investigations and their strategies with the 
white-collar crime strategies to make sure that if there are 
resources that can be leveraged on the white-collar side of the 
shop that they are brought to bear to assist the Joint 
Terrorism Task Forces. There is also a significant emphasis 
that we have within the JTTF to follow the money, and shut down 
the funding for terrorist activities.
    Senator Coleman. I would be interested in any other 
responses.
    Mr. Dougherty.
    Mr. Dougherty. I would just like to point out, ICE also 
participates very significantly in the Joint Terrorist Task 
Force environment. We will have nearly 400 agents assigned 
there by the end of fiscal year 2004. But we also have a 
variety of other task forces where we conduct financial and 
counternarcotic investigations, and that is the primary 
mechanism where our information and our training to local law 
enforcement occurs. Probably the best example is the El Dorado 
Task Force which has a very significant population of State and 
local law enforcement.
    Senator Coleman. Administrator Tandy.
    Ms. Tandy. Thank you.
    We have, as I mentioned in my testimony, these financial 
investigative task forces that are being formed or have now 
been formed in the divisions. Many of those include State and 
local law enforcement.
    We train State and local law enforcement regularly, to the 
tune of hundreds if not thousands of them. And they will also 
receive training specifically on the money flows and trends and 
investigative focus as part of those task forces.
    Senator Coleman. Mr. Zarate.
    Mr. Zarate. Mr. Chairman, through our Financial Crimes 
Enforcement Network we have direct links to State and local 
authorities. In fact, we have trained quite a few State and 
locals to access the Bank Secrecy Act information which FinCEN 
has available.
    In addition, there have been some tools traditionally used 
to help State and local authorities deal with money laundering 
issues. The C-FIC grant program has been a fairly effective 
tool in providing at least minimal seed capital to local 
authorities to deal with identified risks.
    Finally, Mr. Chairman, I would just like to mention that 
our outreach to the private sector is a critical component to 
what we do, in particular at the local level where we are 
dealing with compliance officials, dealing with regulators in 
the regulatory community. And that is an important part of this 
as well. So we see a coherent approach.
    Senator Coleman. I would note that Chairman Grassley, who 
really took the lead, and it was his leadership that pulled 
this hearing together, was required to be on the floor of the 
Senate. Otherwise he would have been here, so he asked me to 
sit in.
    I have a series of other questions. I am going to keep the 
record open for 10 days and will follow up with questions to 
the witnesses.
    Administrator Tandy, while I have you, I have two issues 
that are not specifically related to this, but you are here and 
I want to raise them.
    One, I am the Chairman on the Permanent Subcommittee on 
Investigations which has been investigating the importation of 
controlled substance over the Internet, and I have great 
concern over both domestic and foreign web sites. I think there 
are 1,009 Internet sites that offer prescription drugs ``from 
Canada.'' And I put that in quotes because we do not know 
whether they are coming from Canada or Pakistan or anywhere 
else. It is obvious to me that a bioterror risk may exist. Is 
there anything that precludes terrorists from utilizing the 
Internet and the ease of importing controlled substances into 
the U.S. to finance their activities? Do we have any filters or 
any ways that we can deal with that?
    Ms. Tandy. With regard to terrorists using the Internet, I 
frankly would feel more comfortable deferring to the FBI. But 
with regard to your concerns about the use of the Internet for 
people to obtain illegal drugs or prescription drugs illegally, 
it is the number two abuse issue among our children. It is 
obtaining Vicodin over the Internet in many instances.
    The Internet issues are profound and invade our homes, 
especially with our children. This month DEA, or actually 
probably next month, DEA will be starting a new addition 
through some of the funding that we have just received that 
will employ a sophisticated Web crawler to aid us in 
identifying rogue pharmacies on the Internet that are 
responsible for delivering drugs with basically nonexistent 
doctors, no prescription, just a flow of dispensing illegal 
drugs or legitimate drugs illegally through the Internet.
    Senator Coleman. I am not sure whether this hearing will 
have a full opportunity to discuss that, but it is an issue of 
great concern. The fact is that so many Americans today use the 
Internet. It is easy. I do eBay. There is a lot of good stuff. 
But on the other hand, you can think those with nefarious 
purposes, understanding the behavior patterns of millions of 
Americans and the ease of accessing material without screening 
by Customs, DEA, or FBI. I would hope that all of us are taking 
a close look at that and trying to figure out if we are as safe 
as we can be.
    Mr. Zarate.
    Mr. Zarate. Mr. Chairman, I just wanted to point out that 
in the 2003 National Money Laundering Strategy there is a 
comprehensive report on the vulnerabilities of the use of the 
Internet for terrorist financing purposes. It is the first such 
report and was the product of very good interagency work and 
collaboration and is leading to continued work and research on 
the vulnerabilities that exist.
    Senator Coleman. Thank you. I was not aware of that, but I 
will make sure that I personally go back and take a look at 
that.
    I just wanted to comment again, Administrator Tandy, while 
you are here, and it ties back to my past experience in working 
with some folks at the local level with a rise of 
methamphetamine in our rural communities. I just want to raise 
that issue. I presume you are well aware of it.
    Are there ways that we can help you, in this body, address 
that, in terms of resources and other things? So often we think 
of drug usage and methamphetamine as urban problems, but we are 
seeing a lot within rural areas that do not necessarily have 
the resources and capacity to deal with it. So I raise the 
issue here and provide an offer of working with you to better 
address it.
    Ms. Tandy. I appreciate that immensely. This is a huge 
national problem in our country. I would like you to know that 
DEA has not only focused on these thousands of small toxic 
labs, specifically training State and locals to safely 
dismantle those labs and assisting them, but we are trying to 
make an impact where we can have the greatest impact, and that 
is on the flow of precursor chemicals. And as a result of that, 
we have actually seen a decline in what we refer to as the 
super-meth labs, the ones that supply 90 percent of the meth in 
this country, which is a huge shift for us to see a decline in 
those labs.
    Notably for the purposes of this hearing, what we have also 
seen are those precursor chemical trafficking groups using our 
financial systems, the hawala, and some of that money is going 
to the Middle East. And we have seen it go to people who are 
connected to some of the foreign terrorist organizations on the 
State Department list. So methamphetamine is not only a tragic 
environmental and personal tragedy in the rural areas, but it 
also fits in to what this Caucus is focused on today.
    Senator Coleman. Thank you.
    Again, I have more questions that Members of the Caucus 
wanted to submit.
    I said this hearing would be an hour-and-a-half, and in 19 
seconds, it will be an hour-and-a-half.
    With that, I will thank the witnesses, all the witnesses on 
both outstanding panels, extraordinary helpful in a very 
important area, and I do appreciate the outstanding work that 
is being done.
    Thank you. With that, this Caucus is adjourned.
    [Whereupon, at 3:30 p.m., the Caucus was adjourned.]
                            A P P E N D I X

    Questions for Hon. Juan C. Zarate, Deputy Assistant Secretary, 
                       Department of the Treasury
    Question 1. I strongly support reauthorization of the National 
Money Laundering Strategy legislation with language that will have 
stronger provisions for leadership and funding for HIFCAs. Many of 
these provisions are recommendations contained in the GAO report.
    Question 1a. In addition to requiring only a biannual strategy, 
what specific changes would the Treasury Department like to see 
included in legislation to reauthorize the Strategy to ensure that we 
get a useful document?
    Answer. We at the Treasury Department believe that working with the 
interagency community to produce the National Money Laundering 
Strategies has proven valuable to the anti-money laundering and anti-
financial crimes communities. As you noted in your question, we do not 
believe, however, that producing such a Strategy annually is necessary 
or productive. Of necessity, the generation of past National Strategies 
has required the relevant players in the Executive Branch that are 
essential to identify, attack and disrupt, prosecute and forfeit the 
assets and facilitating property of money launderers, financiers of 
terrorism and other financial criminals, to come together to discuss 
ongoing efforts, identify successes and strengths, discuss failures and 
weaknesses, and chart future actions. Most importantly, the Strategy 
requires agencies that have differing viewpoints and assignments to 
concentrate their attention and expertise on the financial crimes 
aspects of their ongoing efforts. This concentration of attention on 
the financing of crime is an essential component of our war on drugs, 
our war against terrorism, and our efforts against all those who abuse 
legitimate financial mechanisms and systems for criminal purposes. As I 
stated in my March 4, 2004, testimony before the Senate Drug Caucus:
    ``No matter whether the driving force is religious extremism, 
political power, financial greed, or any combination thereof, the 
infrastructure supporting crime necessarily includes a financial 
component. Money is required to fuel these enterprises of terror, 
narco-trafficking and organized crime, and as such, it represents a 
significant vulnerability that Treasury and its Federal, State and 
local allies must and do exploit.''
    Targeting money flows is among the best means of tracking, exposing 
and capturing terrorists and their facilitators, narco-trafficking 
cartels and their supporting infrastructure, and organized crime 
networks worldwide. Money flows leave a signature, an audit trail, and 
provide a road map of terrorist and other criminal activity. As we and 
our international partners work together to follow and stop terrorist 
or illicit funds, we strengthen the integrity of our financial systems 
and erode the infrastructure that supports terrorists and criminals.
    This is why we are committed to ``targeting the money'' from a 
systemic approach. We believe that resources devoted to fighting money 
laundering and financial crimes through a systemic approach reap 
benefits far beyond merely addressing the underlying financial crimes 
they directly target. When applied on a systemic basis, targeting the 
money can identify and attack all kinds of activity, including the 
financing of terrorism, narcotics trafficking, securities frauds, alien 
smuggling, organized crime, and public corruption.''
    We believe that any future National Money Laundering Strategy that 
Congress devises must have, as a central component of that Strategy, 
this ``systemic'' approach to identifying, attacking, disrupting and 
removing the ability of financial criminals to abuse legitimate 
financial mechanisms, such as money remission, sales of money orders, 
legitimate banking services, and other such systems for the purpose of 
moving or facilitating the movement of criminal proceeds or of proceeds 
destined to be used for criminal purposes. Working from this systemic 
approach, we will be able to identify those who are abusing these 
legitimate systems, and target them for sanctions, whether civil, 
criminal, regulatory or a combination of the three, as well as asset 
seizure and forfeiture.
    Any future Strategy, moreover, must concentrate on identification 
of money laundering and financial crimes trends and developments. It 
simply is not good enough to meet the demands of the past, but we must 
anticipate the future and work proactively to address systemic 
weaknesses as they develop. Of necessity, any future Strategy must 
address our efforts to identify and pursue technological developments 
that either enhance the ability of criminals to engage in or further 
financial crimes, or enhance our ability to detect and attack such 
crimes. We will work closely with the Congress on legislation that will 
provide a consolidated, but sufficiently-flexible approach to ensure 
interagency coordination of efforts in any future Strategies.
    Question 1b. What should be the role of the Department of Homeland 
Security (DHS) in developing and implementing future Strategies?
    Answer. The anti-money laundering and anti-terrorist financing law 
enforcement components of DHS are crucial players for any future 
Strategies. As former components of the Department of the Treasury, DHS 
law enforcement agencies bring the same ``financial systems'' based 
approach and methodology to identifying and attacking financial crimes. 
Whether in the area of drug money laundering, strategic investigations, 
or other cross-border financial crimes, DHS's investigative expertise 
is important, and has resulted in cutting edge anti-money laundering 
cases such as ``Operation Casablanca,'' as well as the development of 
technology, such as the Numerically Integrated Intelligence System to 
identify possible international trade-based money laundering. 
Importantly, as guardians of our nation's borders, DHS has developed 
important outreach capabilities with respect to those industries that 
also have been abused by criminals to move and launder funds. This 
expertise is especially valuable in our joint attack on the movement of 
billions of dollars of drug proceeds via the Colombian Black Market 
Peso Exchange system. We look forward to continuing our close and 
valuable association with DHS in this important area, and harnessing 
these important investigative techniques, trade-based technologies and 
outside relationships they have brought to this overarching effort.
    Question 1c. What type of leadership structure would you implement 
for the HIFCA program, how would you structure the HIFCAs for greater 
effectiveness, and how much funding would you need to ensure their 
continued viability?
    Answer. The Department of the Treasury has circulated an 
interagency HIFCA Report to the Departments of Justice and Homeland 
Security for interagency clearance, and submission to the Congress. 
That process is ongoing. That Report will include an historical 
overview and current assessment of the HIFCA program, as well as offer 
recommendations concerning the future of the HIFCA Program and possible 
management structure. We hope to have the Report approved soon.
    Question 2. During the hearing, we heard testimony from the GAO 
about the government's current capabilities and challenges in 
addressing alternative financing mechanisms. I am very concerned that 
the use of these money laundering methods is not currently being 
addressed systematically.
    Question 2a. Please tell me what the Treasury Department is doing 
to address all methods of money laundering in a systematic and 
strategic manner.
    Answer. As discussed above, the basic thrust of the Department's 
efforts are to identify and address financial crimes and money 
laundering from a systemic basis. As this Office recently testified on 
April 21, 2004, before the House Subcommittee on National Security, 
Emerging Threats, and International Relations:
    ``The Treasury Department, regardless of the disparate financial 
crimes being addressed--narcotics and other money laundering, the 
financing of weapons of mass destruction, organized crime, terrorist 
financing, state corruption, the financing of the insurgency in Iraq, 
or the intentional corruption and abuse of a trade-based financial 
system such as the OFF Program--applies unified financial investigative 
methodologies and techniques. In the financial crimes identification 
and enforcement arenas, we at the Treasury Department employ an 
integrated approach to uncovering such systems and schemes.
    Whether working with the DEA on the financing of drug money 
trafficking, the FBI on terrorist financing, the Department of Homeland 
Security on International Emergency Economic Powers Act (IEEPA)-related 
and sanctions busting schemes, or in the case of Iraq, with the 
military in the case of insurgency financing, we (the Executive Office 
for Terrorist Financing and Financial Crimes) the IRS-CI, the Office of 
Foreign Assets Control, and the Financial Crimes Enforcement Network) 
bring the same financial crimes disciplines and expertise, as well as 
our unique international financial contacts, to the table.
    This unified approach to financial crimes and sanctions enforcement 
is being taken a step further. Last month, the Administration announced 
the creation of the Office of Terrorism and Financial Intelligence at 
Treasury. This new Office further will enhance the Treasury 
Department's ability to identify and address the financial 
underpinnings of financial crimes at home and abroad by streamlining 
the analysis and use of both financial and intelligence data available 
to the Department.
    As we continually find, and as our financial enforcement efforts in 
Iraq again have confirmed, attacking the use of a financial system, for 
example, hawalas or cash couriering, by one criminal group for one 
purpose, can lead to the identification of other financial criminals 
utilizing the same systems and financial professionals. A hawaladar may 
move narcotics proceeds one day, terrorist-related proceeds the next, 
and funds destined for Iraqi insurgents the day after. Removing the 
hawaladar, or mandating a transparent hawala system, disrupts each of 
these criminal groups simultaneously.''
    In short, our emphasis is to leverage Treasury's unique law 
enforcement powers and authorities such as GTO's and Section 311, as 
well as our regulatory powers and economic sanctions (IEEPA) powers, 
our law enforcement investigative resources and our well-developed 
outreach efforts to the U.S. and the international financial 
communities, and to the Finance Ministries to converge efforts to 
identify and attack the systematic abuse of financial systems by 
criminals. We work to apply our efforts from a strategic perspective. 
In the law enforcement arena, we establish or join Task Forces where 
scarce resources are leveraged against a common target, whether drug 
trafficker, terrorist or organized criminal. Internationally, we work 
through international Task Forces such as the FATF and its regional 
bodies to achieve uniformity and consistency in the application of 
anti-money laundering and anti-terrorist financing laws and regulations 
worldwide.
    In Iraq, for example, we have joined with the Department of Defense 
components to assist on the financial side of the anti-insurgency 
efforts. As alluded to above, it makes no difference to our efforts 
what are the nature of the criminal acts generating criminal proceeds, 
or even the legitimate proceeds to be moved for illicit purposes. Those 
proceeds must be moved through discrete financial systems, and our job, 
in tandem with those charged with the predicate offenses, is to ensure 
that those systems are transparent, sufficiently regulated and that 
anti-money laundering and anti-terrorist financing requirements and due 
diligence are being met.
    Alternative remittance systems are a case in point. These systems 
do leave financial footprints that we can identify and trace. The 
receipt of cash in the United States, and the need for the underground 
remitter to move these funds leads to CTRs, CMIRs and SARs being filed 
reflecting cash deposits and repetitive transfers offshore or to 
consolidation accounts. These financial pointers can be compared 
against FinCEN registrations to identify possible illegal remitters. We 
work through Task Forces and with our law enforcement agencies to 
identify and target these systems, thus depriving criminals of all 
stripes from their use.
    One such Task Force effort are nationwide IRS-CID led SAR Review 
Teams. These SARs are filed by financial institutions, money service 
businesses, brokerage houses, and casinos. SARs are reviewed on a 
continual basis by IRS-CID SAR Review Teams and at HIFCA sites. 
Financial institutions, in particular, regularly report suspect 
transactions, and in the process routinely verify state and Federal 
Money Service Business registrations on their customers. IRS-CID is 
currently involved in approximately 22 hawala investigations.
    IRS-CID also is involved with approximately 15 regional wire 
transmitter projects. The success of these projects has prompted CID 
and the DEA to begin development of a nationwide wire transmitter 
project. The nationwide accumulation of wire transmittals will allow 
CID nationally to target specific regions/countries for terrorist 
financing activity.
    FinCEN, likewise, is studying the use of discrete financial systems 
by launderers, terrorists and other financial criminals by studying and 
making available products relative to both ``traditional'' and ``non-
traditional'' methods of money laundering and terrorist financing. To 
this end, FinCEN is currently concentrating strategically in four 
areas: a focused examination of the business metrics and corresponding 
financing requirements and methodologies used by Foreign Terrorist 
Organizations; an examination of how high valued commodities such as 
gold and diamonds can be used to facilitate money laundering and 
terrorist financing; an examination of the vulnerabilities created by 
the private ownership and operation of ATMs, and an examination of 
stored value products and services as they relate to money laundering 
and terrorist financing. These products are made available to all of 
law enforcement for use regardless of the nature of the predicate crime 
being investigated.
    Question 2b. What specific procedures are in place to educate banks 
and other financial institutions about the various financing methods 
being used by criminal and terrorist organizations?
    Answer. Notification to the financial community occurs on a daily 
basis, from the most informal contact by phone to the most formal 
through public/private Groups such as the Bank Secrecy Act Advisory 
Group (BSAAG). The BSAAG met this month here in Washington. In the 
terrorist financing arena, this office has chaired a Charities 
initiative to work directly with charities to alert them to just these 
issues, and to enhance transparency to ensure that donations for the 
needy do not end up in the hands of terrorists.
    FinCEN also pioneered, with the private sector, a unique 
publication, the SAR Activity Review and its statistical addendum ``By 
the Numbers.'' FinCEN likewise publishes stand alone bulletins such as 
the one FinCEN recently issued regarding Hawala; additional guidance 
pieces regarding how to improve the content of SARs filed, and various 
outreach opportunities. In addition, FinCEN does extensive outreach 
with the financial services industry in order to provide guidance and 
feedback on compliance with Bank Secrecy Act regulations in an attempt 
to improve compliance and enhance the value of the information received 
through the Bank Secrecy Act. FinCEN routinely participates in American 
Banker Association meetings, as well as other banking industry 
conferences.
    Likewise, IRS-CID is active in providing information to banks and 
money service businesses through the efforts of its nationwide network 
of SAR Coordinators. All CID field offices have a SAR Coordinator, 
whose responsibilities include outreach to financial institutions 
utilizing several methods of presentation. On an individual bank basis, 
SAR Coordinators make presentations to compliance officers and relevant 
bank personnel such as tellers and customer service representatives. On 
a group basis, some larger field offices hold yearly SAR/Bank Secrecy 
Act Conferences designed for their local institutions. Both methods in 
the past two years have elements of terrorism financing, and 
consequently, it has taken a lead role in the information provided and 
its subsequent discussion. CID SAR Coordinators also make group and 
individual presentations to alternative industries such as money 
service businesses (MSBs) and casinos. The presentations to these 
industries follow the type of outreach described above for banks. In 
particular, SAR Coordinators educate MSBs about registration with 
FinCEN and the link of select few hawalas with terrorist financing.
    Treasury's Office of Foreign Assets Control has an extensive public 
outreach program, participating in more than a hundred sanctions 
training and working group sessions a year. Many of those specifically 
target the financial services industry and its regulators. Recent 
examples include:
    06-09-04--Federal Financial Institutions Examination Council, Anti-
Money Laundering School, L. William Seidman Training Center, Arlington, 
Virginia (for Federal and state bank examiners)
    06-03-04--``An OFAC Update,'' IFSA Regulatory and Risk Committees 
Annual Seminar, International Financial Services Association 
Foundation, New York, New York (for bank operations & compliance 
officers)
    05-19-04--``Automating Compliance in the 21st Century--A Dialogue 
with OFAC,'' Payment Systems North America 2004, International 
Financial Services Association Foundation, Warwick Hotel, New York, New 
York (for funds transfer professionals)
    05-12-04--Federal Financial Institutions Examination Council, Anti-
Money Laundering School, L. William Seidman Training Center, Arlington, 
Virginia (for Federal and state bank examiners)
    04-20-04--``OFAC Challenges,'' Working Committee on Anti-Money 
Laundering and OFAC Issues, Securities Industry Association (SIA), New 
York, New York (securities industry working group)
    04-14-04--Federal Financial Institutions Examination Council, Anti-
Money Laundering School, L. William Seidman Training Center, Arlington, 
Virginia (for Federal and state bank examiners)
    03-31-04--Federal Financial Institutions Examination Council, Anti-
Money Laundering School, L. William Seidman Training Center, Arlington, 
Virginia (for Federal and state bank examiners)
    03-24-04--``An OFAC Update,'' sponsored by the International Bank 
Operations Association (IBOA), the Florida International Bankers 
Association (FIBA), the South Florida Compliance Association, and the 
South Florida Banking Institute (SFBI), Sheraton Biscayne Bay, Miami, 
Florida (for bank operations & compliance officers)
    02-27-04--``An OFAC Update,'' Regulatory and Compliance Committee, 
International Financial Services Association (IFSA), New York, New York 
(bank operations & compliance officers)
    02-14-04--Committee on Business Services & Licensing, National 
Association of Secretaries of State (NASS) 2004 Winter Conference, 
Washington, DC (state officials involved in registering & licensing 
businesses)
    02-03-04--International Banking Conference, Conference of State 
Bank Supervisors, Wyndham Miami Hotel, Miami, Florida (regulators of 
and operations officers from foreign banks doing business in the U.S.)
    01-29-04--``First Puerto Rican Symposium on Anti-Money 
Laundering,'' Puerto Rican Bankers Association, Wyndham Condado Plaza 
Hotel, San Juan, Puerto Rico (for bank operations and compliance 
officers)
    01-12-04--``International Banking and Money Laundering Training 
Program,'' Federal Law Enforcement Training Center, Brunswick, Georgia 
(for law enforcement professionals)
    OFAC also provides extensive training and outreach via its website 
with more than 1,000 documents currently posted there, including 
explanatory brochures for the Financial Community, for the Securities 
Industry, for the Insurance Industry, and for the Credit Reporting 
Industry. Website usage statistics indicate in excess of 1.3 million 
hits on OFAC's site per month and its Listserv subscribers now number 
over 15,000. Its ``Interdiction'' guidelines and listing of 
``Frequently Asked Questions'' have received praise from sources as 
diverse as the FDIC (which distributed print copies of the information 
to all of the banks that it regulates) to Money Laundering Alert 
magazine (which said that the FAQs were in a ``surprisingly user-
friendly format.'')
    Finally, we have found that the organizations that have the most 
frequent and lasting relationship with many financial institutions are 
the Federal financial examination agencies. Whether they are the 
Federal banking agencies, the SEC or the CFTC, and their self-
regulatory organizations, these agencies each provide a wealth of 
educational assistance and resources to the financial institutions that 
they each examine, including the areas of money laundering and 
terrorist financing. Moreover, these agencies possess a deep 
understanding of the operational processes at these financial 
institutions that may engender specific needs for education and 
information. The Treasury's Financial Crimes Enforcement Network works 
very closely with each of these examination agencies to ensure that 
their examination staff is in a sound position to provide meaningful 
education regarding money laundering and terrorist financing methods.
    Question 2c. What procedures are in place to share this information 
with the other departments and agencies that may encounter alternative 
financing mechanisms in their investigations? If specific procedures 
have not been written, are they being developed? In the meantime, how 
is the Treasury Department ensuring that this knowledge is shared among 
the agencies?
    Answer. Again, information is shared in a variety of ways, 
depending on the circumstances. The most obvious example of information 
availability and exchange is through FinCEN. In the terrorist finance 
area, not only does FinCEN perform the 314a BLASTFAX function, but it 
also passes along Terror Finance Hotline tips as soon as they are 
received.
    FinCEN also participates in a variety of multi-agency working 
groups focused on specific topics, such as alternative finance 
mechanisms, the Colombian Black Market Peso Exchange and both collects 
and shares knowledge effectively through those fora. In addition, 
FinCEN performs networking through its Gateway system and through its 
own database to ensure that multiple agencies that are accessing the 
same or similar data are made aware of this for purposes of 
coordinating their activities and avoiding duplication of effort or 
interference with ongoing investigations. FinCEN also is home to 
liaison representatives from each of the principal Federal law 
enforcement agencies. Through these ``on location'' liaisons immediate 
information may be shared in both directions. Finally, FinCEN refers 
proactive cases and Bank Secrecy Act reports of interest to the 
appropriate law enforcement agencies.
    From an IRS perspective, IRS-CID SAR Coordinators are required to 
remain in regular contact with the IRS Anti-Money Laundering (AML) 
Compliance Groups within their districts. Often, SAR Coordinators make 
presentations to the AML Groups in an effort to educate them about how 
to detect hawalas and look for signs of other financial criminal 
activity. The AML group agents often discuss the results of suspect 
compliance reviews with CID.
    SAR Coordinators take the lead in running SAR Review Teams in their 
field offices. The Review Teams, as well as HIFCA sites, hold regular 
meetings with larger agencies such as the FBI, DEA and DHS/ICE in 
attendance. These meetings create a forum not only for SAR 
dissemination, but also for discussion about alternative financing 
mechanisms. Several CID field offices have separate but coordinated MSB 
projects in place, particularly since the USA PATRIOT Act sentencing 
enhancement of U.S.C. Title 18 Section 1960--Operation of An Unlicensed 
Money Service Business.
    Again, IRS' JTTF liaisons are responsible for making their 
respective JTTFs aware of alternative financing methods. This is 
achieved by the liaisons keeping in close contact with the FBI Field 
Office TFOS representative (the FBI special agent responsible for 
keeping FBI HQ aware of all cases with financial elements). Often, CID 
works alternative financing investigations in partnership with FBI and 
ICE. IRS-CID likewise has an agent assigned to the TFOS at FBI HQ. 
information flows in both directions.
    Question 3. I am very concerned about terrorist organizations' use 
of charities for laundering money and financing their terrorist 
activities around the world. According to the GAO report on the use of 
alternative financing mechanisms, the IRS is required to establish 
procedures to share data on the use of charitable organizations by 
terrorist organizations. Have the procedures been written yet? Can I 
obtain a copy of them?
    Answer. IRS expedited the completion of the recommendation to 
establish procedures and guidelines to regularly share data on 
charities as allowed by Federal law by one year to December 31, 2003. 
The procedures have been published in IRM 7.28.2. I am attaching a 
copy.
    Question 4. The President recently announced the creation of the 
Office of Terrorism and Financial Intelligence within the Treasury 
Department.
     Please explain in greater detail the role and scope of 
this new office.
     How do the new efforts of this office differ from those at 
the Departments of Justice and Homeland Security that also have 
analytical and investigative functions to combat money laundering and 
terrorist financing?
     How will these functions be coordinated with the 
Departments of Justice and Homeland Security to ensure that the 
Treasury Department's efforts are not redundant?
     How does this new office fit into the Treasury 
Department's organizational chart and how does it change the focus of 
Treasury's efforts to combat financial crimes?
    Answer. Subsequent to my appearing before the Drug Caucus, on April 
29, Treasury Deputy Secretary Samuel Bodman testified before the Senate 
Committee on Banking, Housing and Urban Affairs. I am attaching a copy 
of that testimony, as well as an exchange of letters with the Congress 
that preceded the establishment of the new Office. Below follows an 
extract of Deputy Secretary Bodman's testimony discussing the new 
Office.
    ``On March 8th, 2004, Treasury formally announced the creation of 
this office, entitled the Office of Terrorism and Financial 
Intelligence (TFI) in the Department of the Treasury. On March 10th, 
the President announced that he would nominate Stuart Levey, currently 
the Principal Associate Deputy Assistant Attorney General, for the 
Under Secretary position, and Juan Zarate, currently the Deputy 
Assistant Secretary in charge of terrorist financing at Treasury, for 
one of the two Assistant Secretary positions. Both of those nominations 
have since been transmitted to the Senate. We are working diligently to 
identify the most qualified individual to serve as the Assistant 
Secretary for Intelligence. In the meantime, we have appointed a very 
capable Deputy Assistant Secretary to get this office up and running.
    The creation of TFI will redouble Treasury's efforts in at least 
four specific ways. First, it will allow us to better develop and 
target our intelligence analysis and financial data to detect how 
terrorists are exploiting the financial system and to design methods to 
stop them. TFI will be responsible for producing tailored products to 
support the Treasury Department's contributions to the war against 
terrorist financing. Second, it will allow us to better coordinate an 
aggressive enforcement program, including the use of important new 
tools that the PATRIOT Act gave to Treasury. Third, it will help us 
continue to develop the strong international coalition to combat 
terrorist financing. A unified structure will promote a robust 
international engagement and allow us to intensify outreach to our 
counterparts in other countries. Fourth, it will ensure accountability 
and help achieve results for this essential mission.
    TFI will have two major components. An Assistant Secretary will 
lead the Office of Terrorist Financing. The Office of Terrorist 
Financing will build on the functions that have been underway at 
Treasury over the past year. In essence, this will be the policy and 
outreach apparatus for the Treasury Department on the issues of 
terrorist financing, money laundering, financial crime, and sanctions 
issues. The office will help to lead and integrate the important 
functions of OFAC and FinCEN.
    This office will continue to assist in developing, organizing, and 
implementing U.S. Government strategies to combat these issues of 
concern, both internationally and domestically. This will mean 
increased coordination with other elements of the U.S. Government, 
including law enforcement and regulatory agencies. This office will 
continue to represent the United States at international bodies 
dedicated to fighting terrorist financing and financial crime such as 
the Financial Action Task Force and will increase our multilateral and 
bilateral efforts in this field. We will use this office to create 
global solutions to these evolving international problems. In this 
regard, we will also have a more vigorous role in the implementation of 
measures that can affect the behavior of rogue actors abroad.
    Domestically, this office will be charged with continuing to 
develop and implement the money laundering strategies as well as other 
policies and programs to fight financial crimes. It will continue to 
develop and help implement our policies and regulations in support of 
the Bank Secrecy Act and the PATRIOT Act. We will further increase our 
interaction with Federal law enforcement and continue to work closely 
with the Criminal Investigators at the IRS--including integration of 
their Lead Development Centers, such as the one in Garden City, New 
York--to deal with emerging domestic and international financial crimes 
of concern. Finally, this office will serve as a primary outreach 
body--to the private sector and other stakeholders--to ensure that we 
are maximizing the effectiveness of our efforts.
    A second Assistant Secretary will lead the Office of Intelligence 
and Analysis. In determining the structure of OIA, we have first 
focused on meeting our urgent short-term needs. We have assembled a 
team of analysts to closely monitor and review current intelligence 
threat reporting. These analysts, who are sitting together in secure 
space in the Main Treasury building, are ensuring that Treasury can 
track, analyze any financial angles, and then take any appropriate 
action to counter these threats. Treasury will make sure to coordinate 
with all relevant agencies, including the Terrorist Threat Integration 
Center (TTIC).
    In the near term, the Department plans to further develop our 
analytical capability in untapped areas, such as strategic targeting of 
terrorist financial networks and their key nodes. We also plan to 
analyze trends and patterns and non-traditional targets such as hawalas 
and couriers. In order to accomplish these goals, we plan to hire 
several new analysts as well as to draw on additional resources from 
OFAC and FinCEN. The precise number of analysts has yet to be 
determined--as we are still ensuring that we have the proper leadership 
in place and that we do not disrupt our important ongoing efforts. 
Certain specifics, such as the physical location of the analysts, will 
be determined by a number of factors, including expertise, skills mix, 
and lessons learned as we go.
    This Assistant Secretary will focus on enhancing the Department's 
relations with the intelligence community--making sure that we are not 
duplicating the efforts of other agencies, but instead, are filling any 
gaps in intelligence targets. Ultimately, we envision that all of 
Treasury's intelligence analysis will be coordinated through the Office 
of Intelligence and Analysis. This will include intelligence support 
for Treasury's senior leadership on the full range of political and 
economic issues
    As can be seen from the description above, TFI will enhance the 
Treasury Department's ability to meet our own mission and to work 
cooperatively with our partners in the law enforcement and intelligence 
communities. We are confident that TFI will compliment and not 
duplicate the important work being done by the Department of Justice 
and Department of Homeland Security, and by the various intelligence 
agencies, and will be fully integrated into already established task 
forces and processes.''
    To answer your more specific intelligence-related questions, and as 
Deputy Secretary Bodman made clear, the new Office of Intelligence and 
Analysis component of TFI will address Treasury's lack of an integrated 
intelligence function that supports the Department, and is linked 
directly into the Intelligence Community. The office will have two 
primary functions:
    1. Build a robust analytical capability on terrorist finance
    OIA will build a robust analytical capability on terrorist finance. 
The Department of the Treasury needs actionable intelligence that can 
be used to fulfill its missions. Analytical products from the 
intelligence community are largely intended to inform policymakers 
rather than taking action. They also tend to be highly classified, 
whereas Treasury often needs to use the lowest classification possible 
to be used openly to press foreign governments or in evidentiary 
packages.
    2. Provide intelligence support to other senior Treasury officials
    OIA will also provide intelligence support to other senior Treasury 
officials on a wide range of other international economic and political 
issues of concern to the Department. Subsuming the functions of the 
current Office of Intelligence Support, OIA will continue to review 
incoming raw and finished intelligence from other agencies, then select 
relevant items for senior officials. The intelligence advisors will 
also drive collection by drafting requirements for the intelligence 
agencies to ensure that Treasury's information needs are met. Moreover, 
they will continue to serve in a liaison capacity with the intelligence 
community and represent the Department in various intelligence-related 
activities. OIA will disseminate its work product to all relevant 
Treasury components, and to others as appropriate.
    Finally, we believe the Office will not only improve coordination 
among the various intelligence analytical units within the Department, 
but also across the intelligence community. The office will focus on 
enhancing the Department's relations with the intelligence community. 
By elevating the intelligence function within Treasury to an Assistant 
Secretary level, it will allow Treasury's enforcement functions to be 
better integrated into the national intelligence community. We also 
will do all possible to ensure that we are not duplicating the efforts 
of other agencies, but will work to plug financial intelligence gaps. 
The Office will serve as the centralized point of contact for 
intelligence issues, and already is beginning to play this role in the 
interagency process. For example, we are establishing a relationship 
with DHS' counterpart, the Office of Information Analysis, to ensure 
close coordination, and mutual support.
    Question 5. During the hearing, Senator Coleman requested that each 
agency provides a list of the various money laundering and terrorist 
financing coordinating task forces in which it participates. Please 
provide that list for the record.
    Answer. IRS-CID task force participation:
     Joint Terrorism Task Force (JTTF)--On a national level CID 
is embedded with FBI on both the JTTFs and Attorney General's Anti-
Terrorism Advisory Council, concentrating on the financial 
infrastructure and fundraising activities of domestic and international 
terrorist groups.
     Anti-Terrorism Advisory Council (ATTF)--DOJ
     Strategic Information Operations Center (SIOC)--FBI
     Representation in FBI's Terrorist Financing Operations 
Section (TFOS).
     Suspicious Activity Report-Review Team (SAR-RT)--designed 
to analyze and evaluate all suspicious activity reports filed through 
CBRS.
     Treasury Working Group on Terrorist Financing and 
Charities
     Organized Crime Drug Enforcement Task Forces (OCDETFs)
     Interpol--The CI Liaison to the U.S. national Central 
Bureau of INTERPOL assists CI field offices and other Federal, State 
and local law enforcement officers in obtaining leads, information and 
evidence from foreign countries.
     Defense Intelligence Agency Center (DIAC) (known as the 
Fusion Center)--Coordinates law enforcement and other financial 
information relating to Iraq.
     High Intensity Drug Trafficking Area (HIDTA).
     The High Intensity Money Laundering and Related Financial 
Crime Area (HIFCA) Task Forces--HIFCAs analyze Bank Secrecy Act and 
other financial data and analyze potential criminal activity, including 
terrorist financing. IRS CID notes that twenty-six percent of its 150 
open terrorism-financing JTTF investigations are the result of, or 
involve, Bank Secrecy Act data.
    In addition, Treasury participates on the Terrorist Financing PCC, 
as well as its subgroups that identify, target and work to build 
international consensus for U.S. efforts.
    Question 6. The purpose of the Financial Crimes Enforcement Network 
(FinCEN) is to provide valuable investigative tools and analytical data 
to Federal, State and local law enforcement agencies to pursue money 
laundering leads, as well as the ability for those agencies to link 
with other participating agencies to increase coordination and reduce 
the redundancy of investigative efforts.
    Question 6a.  The President's budget provided for a significant 
increase in funding for FinCEN during FY 2004. Please explain how this 
funding will be used specifically to strengthen the coordination and 
sharing of information between law enforcement and the financial 
communities.
    Answer. As described in the President's FY 2005 Budget, FinCEN has 
requested $1.533 million and four FTEs for program increases to: expand 
access to Bank Secrecy Act information through the Gateway System by 
increasing the current 1,000 law enforcement users to over 3,000 users 
by FY 2008; enhance regulatory support to newly covered industries 
(i.e., mutual funds, operators of credit card systems, life insurance 
companies, unregistered investment companies, and the precious metals, 
stones, and jewelry industries) required under the USA PATRIOT Act; and 
to procure financial and administrative services. FinCEN is also 
requesting a $2.5 million transfer of funds from the Internal Revenue 
Service for the deployment and maintenance of the Bank Secrecy Act 
(BSA) Direct System. Through BSA Direct, FinCEN will improve law 
enforcements' access to the critical BSA data by integrating the data 
into a consolidated, modern web-based data warehouse. BSA Direct will 
include sophisticated web query and reporting tools and a web portal. 
Law enforcement and regulatory agencies will gain easier, faster data 
access and enhanced ability to query and analyze the BSA data, 
improvements that are expected to lead to increased use of the BSA 
data. BSA Direct will also aid FinCEN's ability to network agencies 
with overlapping interests, and augment our ability to audit and assess 
the usage of the BSA data. The remaining funds of $5.738 million are 
required for program costs due to mandates of the USA PATRIOT Act and 
mandatory cost increases.
    Question 6b.  What analytical data and/or reports has FinCEN 
produced specifically regarding alternative financing mechanisms to 
assist law enforcement in understanding and pursuing these methods? 
Please provide me with copies of these reports.
    Answer. FinCEN has produced several reports on alternative 
financing mechanisms over the past few years. These reports (copies 
attached) include the following: Report to the Congress on Informal 
Value Transfer Systems as required under Section 359 of the USA PATRIOT 
Act, dated November 2002; FinCEN Advisory on Informal Transfer Systems, 
Issue 33, dated March 1, 2003; and the Suspicious Activity Review, 
Trends, Tips and Issues, Issue 6, dated November 2003.
    Question 6c.  What mechanisms exist for the Department of the 
Treasury or FinCEN to received feedback from law enforcement agencies 
on the usefulness of the information FinCEN has provided to them? If 
so, please provide documentation on that feedback and whether the 
results have been used to modify data and services to strengthen the 
process.
    Answer. Immediately following its creation, FinCEN recognized the 
importance of receiving feedback from its law enforcement and 
regulatory users of the various products it produced and circulated. 
FinCEN includes Feedback Forms with the material it sends out in its 
proactive and reactive casework, both domestic and international, 
concerning the utility of the information and analysis provided by 
FinCEN. Once the Feedback Form is returned, it is examined and recorded 
in FinCEN's internal systems. If any negative information is provided, 
the respondent is contacted to determine why the information was not 
helpful.
    It is also important to note that requesters of assistance from 
FinCEN normally interface with a FinCEN analyst or liaison during some 
phase of the processing and preparation of the research request. 
Suggestions or comments received during that process are routinely 
brought to the attention of the appropriate personnel at FinCEN. 
Furthermore, in February 2004, in an effort to enhance support of 
reactive cases, FinCEN's Gateway program began to actively solicit 
feedback on the information provided by FinCEN through Gateway, 
including such areas as whether the information was useful during the 
investigation of the case, post-arrest, post-indictment, and/or in 
preparation for and during trial or sentencing. In addition, as 
mentioned earlier, many Federal law enforcement agencies have 
representatives assigned as liaisons to FinCEN, and they are able to 
give regular feedback and recommendations. All this feedback is 
continually reviewed as part of an ongoing assessment of how best to 
support FinCEN's clients.
                               __________
           Questions for Hon. Karen P. Tandy, Administrator, 
                  U.S. Drug Enforcement Administration
    Question 1. During the hearing, we heard testimony from the GAO 
about the government's current capabilities and challenges in 
addressing alternative financing mechanisms. I am very concerned that 
the use of these money laundering methods is not currently being 
addressed systematically.
    Please tell me what the DEA is doing to address all methods of 
money laundering in a systematic and strategic manner. Does the DEA 
have specific procedures in place to educate and train law enforcement 
officials about the various methods being used by criminal and 
terrorist organizations?
    Answer. A number of initiatives have been launched in support of 
the Administrator's vision to transform not only the organization and 
operation of the Drug Enforcement Administration (DEA) regarding 
financial investigations, but also the fundamental mindset. The Office 
of Financial Operations at DEA Headquarters was established to build 
and oversee all of DEA's financial investigative programs. The 
implementation of Financial Investigative Teams (FIT) in each DEA 
domestic field division, Colombia, Mexico and Thailand was done in 
support of the recent mandate that each DEA investigation have a 
financial component.
    Sharing information on drug financial investigations with other 
agencies is essential, both to assist in the fight against terrorism 
and to improve overall coordination and cooperation for financial 
investigations. The DEA participates in multi-agency initiatives with 
Internal Revenue Service-Criminal Investigations (IRS-CI) and U.S. 
Immigration and Customs Enforcement (ICE) to coordinate bulk cash 
programs and initiatives attacking the Black Market Peso Exchange 
(BMPE) through combined regulatory and enforcement actions. For 
example, the DEA recently seized over $10 million under Operation 
CHOQUE pursuant to this program. We have also initiated an 
International Liaison Officer Exchange Program with the National Crime 
Squad in the United Kingdom. Our national wire remitter database with 
IRS-CI collates and analyzes wire transmissions from several of the 
largest wire remitting companies to detect facilitating drug payments. 
The DEA's Special Operations Division (SOD) established a financial 
database to track and deconflict bank accounts receiving drug proceeds. 
SOD shares this information with multiple Federal agencies.
    With the DEA's renewed emphasis on financial investigations, the 
Office of Training has updated and expanded its financial 
investigations training program to ensure that the DEA offers the most 
up-to-date information. In addition to the initial basic asset 
forfeiture, financial investigation, and money laundering training for 
newly hired investigators, the DEA has developed one basic and two 
comprehensive financial programs to increase DEA personnel and Task 
Force Officers investigative and prosecutorial effectiveness. The 
Office of Financial Operations also provides specialized training for 
upper and middle management and senior special agents assigned to field 
Financial Investigative Teams (FIT) with an emphasis on Attorney 
General Exempted Operations. DEA's Office of Training provides 
oversight and guidance to each Field Division's Training Coordinator, 
Asset Removal Group Supervisor, and Financial Investigative Group 
Supervisor in coordinating and conducting financial training in the 
field to DEA personnel, State and local officers, and contract 
officers. DEA's SOD provides personnel with training on the 
exploitation of telecommunications to further financial investigative 
development. A one-week asset forfeiture program and specialized money 
laundering training programs for international law enforcement 
personnel and prosecutors from various foreign countries are also 
offered. DEA also helped to develop and is sending a large number of 
its agents to attend the new Financial Investigations Training Course 
developed by the Organized Crime Drug Enforcement Task Force (OCDETF) 
and the Department of Justice's Asset Forfeiture and Money Laundering 
Section. This course is being offered every month in 2004 and 2005 in 
locations around the country.
    Question 1a. How many active investigations is the DEA currently 
conducting that involve alternative financing mechanisms such as those 
addressed in the GAO report?
    Answer. The DEA is presently conducting the following: eight active 
drug money laundering Attorney General Exempted Operations involving 
the Black Market Peso Exchange; seven investigations involving the 
Hawala Informal Value Transfer System; and an operation addressing the 
transmission of drug proceeds through the money remitting industry.
    Question 2. I am very concerned that the various departments and 
agencies with jurisdiction over certain aspects of money laundering, 
which includes terrorist financing, tell me that they are coordinating 
their efforts, but I continue to see redundant programs and activities 
that tells me otherwise.
    According to the 1999 and 2000 National Money Laundering 
Strategies, the FBI, DEA, and IRS were to become active participants in 
the in the Money Laundering Coordination Center (MLCC). In what 
capacity have you participated in the MLCC? How has participation 
enhanced DEA's money laundering investigations and activities?
    Answer. DEA queries made to the Money Laundering Coordination 
Center (MLCC) are on a case-by-case basis and have often resulted in 
obtaining additional money laundering evidence as recently illustrated 
by the prosecution of the Panamanian Free Trade Zone gold dealer, Speed 
Joyeros. This case was investigated by DEA's Panama Office, with the 
assistance of the Government of Panama, and prosecuted in the Eastern 
District of New York by the Justice Department's Asset Forfeiture and 
Money Laundering Section and Narcotic and Dangerous Drug Section. The 
DEA believes that the SOD financial database, coupled with its 
telephone database and case coordinating capabilities, provides a more 
comprehensive support mechanism that is better suited for DEA money 
laundering investigations. The presence and control of the SOD 
financial investigative group by an ICE Assistant Special Agent in 
Charge allows for an immediate exchange of information between DEA and 
ICE.
    Question 2a. What intelligence has the DEA provided to the MLCC 
regarding the Black Market Peso Exchange and trade-based money 
laundering systems?
    Answer. Deconfliction coordination and telephone and financial 
account information on all the DEA BMPE and trade-based undercover 
operations have been made available through SOD.
    Question 2b. The 2002 National Money Laundering Strategy provided 
that ICE have investigative jurisdiction over bulk cash smuggling. How 
is the DEA coordinating its bulk cash smuggling efforts with ICE?
    Answer. Jurisdiction for criminal enforcement is governed by 
statute, regulation, and interagency agreement. Currently, jurisdiction 
for money laundering investigations where the ``designed purpose'' of 
the targeted transaction is to avoid the filing of a Currency and 
Monetary Instrument Report (CMIR) lies with ICE and any agency with 
historical jurisdiction over the illegal activity that generated the 
funds.
    DEA has proposed a national bulk cash ``pipeline'' initiative, and 
has invited ICE and IRS-CI to participate. The goal of this initiative 
is to create a central intelligence repository for all bulk cash 
seizures. Representatives of DEA, ICE, and IRS-CI have met and are 
discussing procedures that will ensure effective communication, 
sharing, and coordination between the agencies. DEA has also proposed 
and spearheaded a multi-agency working group to identify the flow of 
drug proceeds to and from Mexico in order to assess vulnerabilities of 
the money laundering systems for investigation and exploitation. In 
addition, DEA coordinates some bulk cash investigations with ICE 
through OCDETF.
    Question 2c. According to Administrator Tandy's testimony, DEA will 
be concentrating its money laundering investigations on bulk cash 
smuggling and the BMPE. Why has this jurisdiction been taken away from 
ICE and the MLCC?
    Answer. Jurisdiction has not been taken away from ICE and the MLCC. 
As stated above, jurisdiction for money laundering investigations where 
the ``designed purpose'' of the targeted transaction is to avoid the 
filing of a CMIR lies with ICE and any agency with historical 
jurisdiction over the illegal activity that generated the funds. In 
order for DEA to address the financial side of the illegal drug 
industry more effectively, it must address bulk cash smuggling and the 
BMPE, which are two of the major money laundering techniques employed 
by drug organizations.
    Question 3. During the hearing, Senator Coleman requested that each 
agency provides a list of the various money laundering and terrorist 
financing coordinating task forces in which the DEA participates. 
Please provide that list for the record.
    Answer. At the headquarters level, DEA participates in all 
interagency working groups related to money laundering. DEA 
participates in the New York, Miami, Los Angeles, San Francisco, and 
Texas High Intensity Financial Crime Area (HIFCA) Task Forces. DEA also 
participates in the South Florida IMPACT Money Laundering Task Force 
and numerous Suspicious Activity Report Review Teams throughout the 
country. While DEA does not actively participate in task forces 
coordinating investigations of terrorist financing, a special unit at 
SOD is responsible for sharing all SOD gathered information relating to 
terrorism with appropriate agencies in addition to the assignment of a 
special agent on a full-time basis to the FBI Joint Terrorism Task 
Force Command Center.
    Question 4. During hearing testimony, Administrator Tandy announced 
a new DEA initiative to address drug distribution via the internet.
    Please describe the initiative in greater detail, including how the 
initiative will address the money laundering aspect of this process.
    Answer. DEA has developed and implemented an information management 
system to systematically identify rogue pharmacies using the Internet 
to divert controlled substances. This technological breakthrough allows 
DEA to detect pharmaceutical diversion and coordinate similar 
enforcement efforts with other Federal agencies without interrupting 
the supply of controlled substances to meet legitimate needs. With 
respect to money laundering, any transactions where individuals attempt 
to conceal the true nature, source ownership, or control of the illegal 
proceeds can constitute a money laundering violation. The financial 
trail from those transactions could be used to document such 
violations.
    Question 4a. How will this initiative be coordinated with other 
departments and agencies that may have jurisdiction over specific 
aspects of money laundering investigations?
    Answer. DEA's Special Operations Division (SOD) presently 
coordinates and mutually shares investigative and intelligence 
resources with the FBI, ICE, and IRS-CI, as well as with the Criminal 
Division of the Department of Justice and the United States Attorneys' 
Offices, in a concentrated and centralized environment.
                               __________
 Questions for Michael T. Dougherty, Director of Operations, Bureau of 
                  Immigration and Customs Enforcement
    Question 1. The MOU between the Departments of Justice and Homeland 
Security provided that the FBI will have responsibility for reviewing 
all money laundering leads to determine if there is a tie to terrorist 
financing. In other words, any money laundering leads and 
investigations initiated by the Department of Homeland Security can 
only proceed after the FBI determines that there is no terrorist 
financing nexus.
    Answer. Your question does not accurately characterize the MOA 
between DHS and DOJ. ICE continues to investigate all money laundering 
activities within its jurisdiction, including those with a potential 
nexus to terrorist financing. The overwhelming majority of these cases 
are not related to terrorism and are not subject to the MOA.
    Pursuant to the MOA, ICE vets leads and investigations that could 
have a demonstrative nexus to terrorism or terrorist financing through 
the FBI. That vetting process is described in the next response.
    Question 1a. Have the final departmental procedures for reviewing 
leads and investigations been fully implemented and can I get a copy of 
them?
    Answer. Pursuant to the May 13, 2003 MOA between DHS and DOJ, ICE 
and the FBI designed and adopted appropriate protocols for reviewing 
leads and investigations with a possible nexus to terrorism on June 30, 
2003. These protocols delineate the collaborative process to determine 
if an investigation falls into the terrorist-financing category.
    ICE established a Joint Vetting Unit (JVU) to identify financial 
leads or investigations with a potential nexus to terrorism or 
terrorist financing. The JVU is staffed by ICE and FBI personnel who 
have full access to ICE and FBI databases in order to conduct reviews 
to determine whether a demonstrative terrorism or terrorist financing 
nexus exists in a given financial lead.
    Throughout this collaborative vetting process, the determination of 
whether an ICE investigative referral or investigation is related to 
terrorist or terrorist-financing is governed by the factors delineated 
in the MOA. The FBI has assigned a senior manager who is collocated 
within ICE's JVU. ICE has a senior level manager assigned to the FBI's 
Terrorist Financing Operations Center (TFOS) as the Deputy Section 
Chief. As Deputy Section Chief of TFOS, ICE is fully integrated in the 
role of evaluating whether an ICE referral or investigation has a nexus 
to terrorism or terrorist financing.
    ``If a matter is determined to have a sufficient terrorism nexus 
and is transitioned to the relevant JTTF, both the FBI-TFOS and ICE are 
mindful that ICE agents devoted substantial efforts in initiating and 
developing their case prior to the transition. Recognizing this, ICE 
and the FBI have agreed that ICE agents assigned to those JTTF 
investigations will be given significant roles to include leading 
avenues of the investigation and serving as lead case agents, or 
affiants, on investigations and prosecutions developed by ICE prior to 
the transition or in the course of the JTTF assignment.''
    Question 1b. How has this MOU affected the Department's ability to 
follow money laundering leads and conduct subsequent investigations?
    Answer. The MOA has had no discernible impact on ICE's ability to 
pursue all money laundering leads within its jurisdiction.
    Question 1c. How many leads and/or investigations has DHS sent to 
the FBI thus far, and how many have been determined to have links to 
terrorist financing?
    Answer. Prior to the creation of ICE, Operation Green Quest, the 
Customs-led terrorist finance task force, referred more than 7,000 
subject records to the FBI for vetting. Following implementation of the 
MOA, ICE submitted the same subject records to the FBI. In February 
2004, the FBI completed its review of these names. None of the leads 
were found to have a discernable nexus to terrorist financing with the 
exception of investigations the FBI was already aware ICE was 
conducting. Specifically, these investigations related to an 
approximate 32 investigations the FBI knew ICE was conducting prior to 
implementation of the MOA, which the FBI believed had a nexus to 
terrorism. This joint determination was made in October 2003, four 
months prior to the FBI's completion of vetting the original 7,000 
subjects referred by ICE.
    Question 1d. What problems have you encountered with the current 
FBI turn-around time for reviewing these leads? Have any delays 
adversely affected the viability of any leads or investigations?
    Answer. The cooperative vetting process is working and functioning 
smoothly. In January 2004, the FBI assigned a senior level manager to 
be co-located with ICE at the JVU. Since that time, the FBI turn-around 
time for reviewing most leads is 24-hours or less. Between June 2003 
and January 2004 the vetting time ranged between one to six months.
    Question 2. I am very concerned about ensuring that our 
governmental agencies have procedures in place to address money 
laundering in a comprehensive and coordinated manner. Many of my 
concerns were reiterated in the GAO report on alternative financing 
mechanisms which stated that we do not have a system in place for 
addressing the use of these methods. Within ICE, Operation Cornerstone 
could be used to address alternative financing mechanisms.
    Question 2a. How many current investigations is Cornerstone 
conducting that involve alternative financing mechanisms? Why types of 
mechanisms do they involve?
    Answer. ICE is a leading expert in investigating alternative 
financing mechanisms and, together with its predecessor, the U.S. 
Customs Service, has long-recognized that these non-traditional 
mechanisms present a vulnerability that money launderers can exploit.
    A founding pillar of Cornerstone is to investigate those systems, 
such as alternative financing mechanisms, that are used by money 
launderers to undermine the economic security of the U.S.
    Through Cornerstone, ICE has investigated money laundering that 
takes place through the following alternative financing schemes: 
unlicensed money remitters, hawala, Black Market Peso Exchange, 
precious metals and stones, the purchase and export of vehicles and 
other luxury assets, stored value, customs fraud involving trademark 
and intellectual property rights, fraudulent loans related to real 
estate, and imported goods. This is by no means a comprehensive list.
    In FY 2003, ICE conducted approximately 6,800 financial 
investigations. The ICE case management system does not differentiate 
between money laundering cases involving alternative financing 
mechanisms and those exploiting the traditional financial system. ICE 
would have to conduct a manual review of each of these investigations 
to determine how many used alternative financing mechanisms.
    Question 2b. How many arrests and convictions have been made that 
involve alternative financing systems?
    Answer. As noted in the above answer, ICE's case management system 
does not readily distinguish cases involving alternative financing 
systems. However, it is possible to identify and quantify 
investigations relating to violations of 18 U.S.C. 1960, the Operation 
of an Unlicensed Money Remitter. In FY 2003, ICE investigations 
resulted in 46 arrests and 19 convictions for violation of this 
provision.
    The USA PATRIOT Act amended this law, making it a violation to 
operate a remitter that does not have an appropriate state license and/
or is not registered with the Financial Crimes Enforcement Network. 
Many ICE investigations of hawalas are subsequently prosecuted under 
this law, although some have been prosecuted for other violations, such 
as money laundering and violations of the International Emergency 
Economic Powers Act.
    Question 2c. How does this fit in with the provisions of the MOU 
between DHS and Justice regarding terrorist financing investigations?
    Answer. ICE continues to investigate all money laundering 
activities within its jurisdiction. As explained above, the 
overwhelming majority of these cases--including cases where the 
launderer uses alternative financial systems--are not related to 
terrorism and are not subject to the MOA.
    Cornerstone is the unit within the ICE Financial Investigations 
Division charged with identifying vulnerabilities in financial and 
trade systems that criminal organizations exploit to earn, move and 
store illicit proceeds. Cornerstone seeks to address these 
vulnerabilities in a variety of ways, including conducting appropriate 
investigations and by providing information to the private sector 
through outreach that will enable businesses to detect criminal 
activity.
    Question 2d. Please describe how Cornerstone affects the current 
focus of ICE's money laundering investigations, and it's participation 
in the Money Laundering Coordinating Center.
    Answer. Cornerstone and the MLCC are both within the same Financial 
Division, however they are in separate units. Therefore if a financial 
lead were identified through the Cornerstone initiative, the 
information would then be vetted through the MLCC.
    The Cornerstone initiative, initiated by ICE in July 2003, is an 
approach which compliments ICE's money laundering investigations by 
identifying the systemic vulnerabilities utilized by criminal 
organizations to further their illicit activities. The initiative was 
designed to identify systemic vulnerabilities in U.S. business sectors 
involved in cross border commerce that could be exploited by criminal 
organizations. This includes financial, commercial, trade, 
manufacturing, and transportation sectors operating throughout the 
United States and around the world. Each of these sectors encompasses a 
variety of components that significantly impact cross-border movements 
of merchandise, people and currency.
    As systemic vulnerabilities are identified, the Cornerstone 
initiative seeks to mitigate the threat posed by these vulnerabilities, 
and when possible, eliminate the vulnerability entirely. To accomplish 
this, the Cornerstone program seeks to aggressively foster partnerships 
with the private sector and other state, local and Federal agencies. 
The Cornerstone program provides the private sector with information on 
trends, patterns and ``Red Flag'' indicators observed from criminal 
investigations through an aggressive liaison program, training 
sessions, and a quarterly publication called The Cornerstone Report. 
Through this aggressive outreach program, ICE provides vital 
information to the front line managers and operators of the very 
systems criminal organizations seek to exploit. Through the exchange of 
information and education process, the private sector will have a 
better understanding of the vulnerabilities that exist within their 
industry and can take measures to eliminate or mitigate these 
vulnerabilities.
    In addition to our private sector outreach program, ICE agents are 
also actively working with the FBI, FinCEN, Department of Treasury, and 
other State, local, and Federal law enforcement and regulatory 
agencies. These agencies also play a major role in securing our 
homeland and have a vital interest in many of the same sectors as ICE.
    Question 3. During the hearing, Senator Coleman requested that each 
agency provides a list of the various money laundering and terrorist 
financing coordinating task forces in which it participates. Please 
provide that list for the record.
    Answer. ICE serves in numerous formal and informal task forces in 
each of its principal field offices. These task forces range from 
informal, where they are convened upon specific circumstances, to 
formal task forces such as the ICE-led El Dorado Task Force in New 
York, the New York OCDETF Strike Force and the numerous HIDTA and HIFCA 
task forces throughout the country. At the headquarters level, ICE 
participates in two formal financial initiatives: the ICE/FBI Joint 
Vetting Unit and the DEA Special Operations Division.
    The ICE/FBI Joint Vetting Unit (JVU) is comprised of ICE Financial 
Investigations personnel and FBI Terrorist Financial Operations Section 
(TFOS) personnel. The ICE/FBI JVU ensures a collaborative effort in the 
sharing of information and in the conduct of criminal investigations 
related to terrorist financing.
    The DEA Special Operations Division (SOD) has an ICE-led financial 
section staffed by ICE and other agency personnel. The SOD serves as a 
coordination center for telephone and other electronic information 
identified during narcotic investigations.
    Question 4. Because the Department of Homeland Security was not in 
existence in 1998, you were not designated to assist in the development 
of the National Money Laundering Strategy. I strongly support 
reauthorization of the Strategy, one that will have stronger provisions 
for leadership and funding for HIFCAs, to ensure that it implemented on 
time and put into use by our pertinent agencies.
    Question 4a. What role should DHS have in the development of a 
future Strategy?
    Answer. DHS should have a co-equal role with the Departments of 
Justice and Treasury in the development, drafting, and implementation 
of the National Money Laundering Strategy (NMLS). The legacy U.S. 
Customs Office of Investigations, which was part of the Treasury 
Department, always played an extremely significant role in developing 
and executing the NMLS. Through its merger with the legacy 
investigative division of INS, this role has become even more 
significant.
    Historically, ICE has been at the forefront of conducting complex 
and high-impact financial investigations for over 30 years. To cite a 
few examples: the Bank of Commerce and Credit International (BCCI) in 
Tampa; Operation Greenback in South Florida; Operation Casablanca in 
Los Angeles; and Operation Green Mile in Phoenix. ICE leads New York's 
El Dorado Task Force and Miami's Foreign Political Corruption Task 
Force. These operations and task forces alone have resulted in the 
seizure of almost one billion dollars in criminal proceeds. DHS's 
involvement in the development, drafting, and implementation of the 
NMLS is essential to the United States Government's efforts to 
identify, disrupt and dismantle organizations and systems used to 
launder proceeds of criminal activities. DHS has vast investigative 
authority and plays a major role in protecting the economic security of 
the nation.
    Question 4b. Please tell me what specific changes ICE would like to 
see for any legislation that would reauthorize the Strategy to ensure 
that we get a useful document.
    Answer. ICE does not believe that it would be appropriate to 
comment on any proposed legislation that would impact many executive 
branch departments.
    Question 4c. If you were in charge of the HIFCA program, what type 
of leadership structure would you implement, how would you structure 
the HIFCAs, and how much funding would you need to ensure their 
effectiveness?
    Answer. ICE would be willing to explore a range of options that 
would adequately finance the HIFCAs and make them more effective. ICE 
continues to believe that the HIFCA concept is a good one and can 
enable the U.S. Government to identify, disrupt and dismantle 
organizations and systems used to launder proceeds of criminal 
activities. Like the successful High Intensity Drug Trafficking Areas 
(HIDTA's), High Intensity Money Laundering and Related Financial Crimes 
Areas (HIFCA's) were created to concentrate law enforcement efforts at 
the Federal, State and local levels to identify, target, and prosecute 
money laundering activity within the defined boundaries of the HIFCA. 
Providing funding and oversight to HIFCAs through HIDTA would be one 
possible method to increase their effectiveness. In order to be 
effective HIFCAs would need to be established as a financial 
investigative arm of HIDTA with a distinct HIFCA leadership and chain 
of command.
    Question 5. I am very concerned that the various departments and 
agencies with jurisdiction over certain aspects of money laundering, 
which includes terrorist financing, tell me that they are coordinating 
their efforts, but I continue to see redundant programs and activities 
that tells me otherwise.
    Question 5a. According to the 1999 and 2000 National Money 
Laundering Strategies, the FBI, DEA, and IRS were to become active 
participants in the Money Laundering Coordination Center (MLCC). To 
what extent have these agencies participated? How has participation 
enhanced the ICE's money laundering investigations and activities?
    Answer. The MLCC does not receive personnel support from any 
Federal agency. The MLCC, on a case-by-case basis, will process 
investigative requests from the DEA, FBI and IRS to coordinate these 
agencies investigative efforts. Checks are conducted for de-confliction 
purposes to ensure officer safety and investigative integrity. 
Extensive analysis is done to identify overlaps between agencies and 
undercover operations that are not detectable at the field level. These 
checks may include a review of undercover or suspect currency 
transactions related to an investigation; pre-enforcement checks on 
targeted accounts; and post seizure analysis of seized accounts. 
Positive results or crossovers occur when more than one operation or 
agency is sending or receiving funds from the same originator, account 
number, beneficiary or any other identifier that is contained within a 
financial transaction (wire transfer). MLCC research has identified 
crossovers in the majority of the requests submitted. As a result of 
these identified crossovers, the MLCC provided all affected agencies 
with points of contact to coordinate with their respective 
counterparts.
    The MLCC also provides support to the attorneys assigned to the 
Asset Forfeiture and Money Laundering section at the Department of 
Justice in their efforts to forfeit illicit proceeds in support of 
Federal investigations. ICE continues to encourage and welcome 
participation in the MLCC from the FBI, IRS and DEA, as well as other 
agencies that may have an interest in its services, as full 
participation by these agencies would enhance the MLCC's ability to 
coordinate and de-conflict financial investigations for all 
participating agencies.
    Question 5b. According to Administrator Tandy's testimony, the DEA 
will be concentrating its money laundering investigations on bulk cash 
smuggling and the Black Market Peso Exchange. How does this affect the 
focus and jurisdiction of the MLCC?
    Answer. The BMPE and bulk cash smuggling (BCS) are major program 
areas for ICE, and ICE expends a significant amount of agent hours and 
resources to targeting and investigating these systems. ICE believes it 
has exclusive primary investigative authority over the BCS Statute, 31 
U.S.C. 5322.
    The BCS is part of the Bank Secrecy Act (BSA) and an element of the 
offense is smuggling. To establish a violation of the BCS statute, it 
must be shown that a person knowingly concealed cash or other monetary 
instruments in excess of $10,000 with the intent to evade 31 U.S.C. 
5316, Currency and Monetary Instruments Reporting (CMIR) and 
transported or transferred the monetary instruments across the border, 
or attempted to do the same. Legacy Customs had exclusive jurisdiction 
for investigating CMIR violations and ICE's exclusive investigative 
jurisdiction over the Bulk Cash Smuggling statute derives from its CMIR 
jurisdiction, see 31 CFR 103.56. Pursuant to the Savings Provisions of 
the Homeland Security Act these authorities transferred to DHS.
    Additionally, ICE's jurisdiction is noted in the 2002 National 
Money Laundering Strategy (NMLS)--signed by the Attorney General and 
the Secretary of Treasury--on Page 23, footnote 29, and states the 
following:
    ``As of May 3, 2002, Operation Oasis has seized over $13 million in 
bulk cash. The Customs Service (DHS/ICE) has primary jurisdiction for 
enforcing those regulations requiring the reporting of the 
international transportation of currency and monetary instruments in 
excess of $10,000 (31 U.S.C. Sec. 5316 et al.). The USA PATRIOT Act has 
enhanced the Customs Service ability to investigate these activities by 
making inbound and outbound smuggling of bulk cash a criminal offense 
for which Customs has exclusive investigative jurisdiction (31 U.S C. 
Sec. 5332(a)). By criminalizing this activity, Congress has recognized 
that bulk cash smuggling is an inherently more serious offense than 
simply failing to file a Customs report.''
    This assertion, however, does not preclude other Federal agencies, 
including the DEA, from pursuing prosecutions related to BCS. ICE 
recognizes that money laundering is an important component of drug 
investigations and that other agencies will pursue prosecutions in this 
arena. If other agencies propose to use BCS as a tool in pursuing their 
investigations they should be closely coordinated with respective ICE 
Investigative field offices. ICE also recognizes that there is an 
important need for coordination of these investigations among Federal 
agencies. ICE is very open to working with other agencies on BCS and 
BMPE initiatives and is currently in the process of developing 
coordinated investigations related to these violations.
    Finally, DEA's intention to concentrate its money laundering 
investigations in bulk cash and the BMPE will not change the focus of 
the MLCC. The MLCC will continue to promote and support BMPE 
investigations. Additionally, ICE is currently expanding the tools 
utilized to further enhance BMPE investigations through the use of NIPS 
and the MLCC, and is prepared to coordinate with other agencies and 
offer assistance during joint investigations.
    Question 6. During hearing testimony, Administrator Tandy announced 
a new DEA initiative to address drug distribution via the Internet.
    Question 6a. What initiatives does ICE currently have in place 
regarding electronic crimes?
    Answer. The DHS-ICE Cyber Crimes Center (C3) was established in 
1998 to investigate Internet-related crimes and to provide computer 
forensics services in support of the ICE mission. Since its inception 
C3 has conducted significant investigations, which include proactive 
undercover operations, across the entire scope of ICE investigative 
program areas. These program areas include: Child Pornography and Child 
Exploitation, Intellectual Property Rights and Fraud, Drug Trafficking 
and Smuggling, Counter-Terrorism and National Security, Money 
Laundering, Identification and Immigration Document Fraud, and 
Pharmaceutical Drug importation.
    To specifically address the problem of drug distribution 
facilitated by the Internet, C3, in co-operation with the IPR Center in 
Washington, D.C. and the ICE Fraud division, has initiated Operation 
APOTHECARY. This proactive undercover initiative targets the illegal 
sale of prescription drugs (controlled substances) online. The ICE 
Cyber Crimes Center is concentrating on foreign and domestic Internet 
pharmacies, with a focus on those pharmacies involved with the 
smuggling and distribution of counterfeit prescription drugs and 
controlled substances. The operation communicates with, make purchases 
from, and attempts to identify the operators of these Internet 
pharmacies. The objective is to provide ICE field offices with the 
necessary information and evidence that will result in arrests, 
seizures, and convictions. In executing this operation, C3 is 
coordinating with foreign law enforcement via the designated ICE 
Attache office, and with security components from the pharmaceutical 
industry.
    Question 6b. Please describe how the DEA's initiative differs from 
the current ICE investigations being conducted by the electronic crimes 
task forces.
    Answer. Based on information provided by DEA to ICE C-3, the DEA 
Online Investigative Project (OIP) differs from ICE's Operation 
APOTHECARY in that OIP appears to be a long term investigative, 
assessment, and analytical tool, while the ICE's Operation APOTHECARY 
is a direct investigative/enforcement operation of an undetermined but 
shorter duration. Operation APOTHECARY also proactively identifies and 
collects evidence leading to the apprehension and arrest of violators 
engaged in illegal on-line Internet drug sales and the seizure of 
property and proceeds. The impact of these arrests and seizures will be 
the removal of illegal pharmacy web sites from the Internet, and 
provides a deterrent to others already involved in this activity, or 
are contemplating involvement.
    Question 6c. Have you been approached by the DEA to ensure that 
their Internet initiative does not conflict with the current programs 
and investigations being conducted by ICE?
    Answer. Based on the description of the DEA program, there appears 
to be no conflict between the DEA and ICE initiatives, in fact, 
information developed by both should prove mutually beneficial. ICE C3 
currently maintains liaison with the DEA through a variety of channels 
and avenues described below, and deconflicts investigative information 
to prevent any possible crossovers or duplication of effort.
    ICE C3 and the DEA are joint participants, along with CBP, the FDA, 
and the DOJ Computer Crimes Intellectual Property Section, in the 
Interagency Pharmaceutical Task Force. This task force was established 
to address the issue of importations of pharmaceuticals and controlled 
drugs. The task force has also developed an enforcement operation, 
known as ``Operation Safety Cap'', which was designed to look at 
passenger imports of pharmaceuticals from Mexico. The task force 
consists of five working groups that collaborate in the areas of 
improving information sharing, data systems, public outreach, working 
cooperatively with industry, and mail express consignment facilities. 
All of which assist the task force in identifying targets for 
enforcement action.
    Another enforcement group that ICE C3 and the DEA, as well as the 
FDA, are members of is the Permanent Forum on International 
Pharmaceutical Crime. It is an international enforcement forum aimed at 
protecting public health and safety through the exchange of information 
and ideas to foster mutual co-operation in combating pharmaceutical 
crime. This forum is a combination of scientists, investigators, 
inspectors, and various regulatory officials. The countries represented 
are mostly European countries and the United States.
    ICE C3, the DEA, and the FDA are also active participants in the 
Department of Justice Interagency Working Group. The purpose of this 
working group is to promote interagency communication on Internet 
pharmacy law and policy, as well as to establish consistency with the 
interpretation of criminal and civil statues with the U.S. Attorneys' 
offices, Main Justice, and other Federal entities. In addition, the 
working group shares intelligence, resources, case successes, and 
strategies regarding potential pitfalls in investigations and trial 
preparation.
                               __________
Questions for Gary M. Bald, Acting Assistant Director, Counterterrorism 
               Division, Federal Bureau of Investigation
    Question 1. During the hearing, both the FBI and the Treasury 
Department stated that they would like to continue to have any National 
Money Laundering Strategy coordinated between the two departments. 
However, DHS has ongoing money laundering investigations and a vested 
interest in the development of a strategy.
    Question 1a. What should be DHS's role in the development of any 
new money laundering strategy?
    Answer. The former United States Customs Service is a component of 
the Department of Homeland Security (DHS) and DHS is, appropriately, 
highly involved in the investigation and prosecution of money 
laundering matters. We would welcome DHS involvement in the development 
of a money laundering response strategy.
    Question 1b. In addition to requiring only a biannual strategy, 
what specific changes would you like to see included in legislation to 
reauthorize the Strategy to ensure that we get a useful document?
    Answer. We are not requesting any legislative changes at this time.
    Question 1c. If you were in charge of the HIFCA program, what type 
of leadership structure would you implement, how would you structure 
the HIFCAs, and how much funding would you need to ensure their 
effectiveness?
    Answer. Currently, the Department of Justice is working with other 
agencies (e.g., the Department of the Treasury) to address this issue. 
We anticipate that the report will be completed in the relatively near 
future.
    Question 1d. According to the 1999 and 2000 National Money 
Laundering Strategies, the FBI, DEA, and IRS were to become active 
participants in the Money Laundering Coordination Center (MLCC). In 
what capacity have you participated in the MLCC? How has participation 
enhanced the FBI's money laundering investigations and activities?
    Answer. While the FBI maintains contact with the Money Laundering 
Coordination Center (MLCC), it does not participate on a day-to-day 
basis because of questions regarding the security of sensitive FBI 
information if passed to and housed at the MLCC. FBIHQ is working with 
the MLCC to address these concerns.
    Question 2. The MOU between the Departments of Justice and Homeland 
Security provided that the FBI will have responsibility for reviewing 
all money laundering investigative leads to determine if there is a tie 
to terrorist financing. In other words, any money laundering leads and 
investigations through the Department of Homeland Security can only 
proceed after the FBI determines that there is no terrorist financing 
relationship.
    Question 2a. Have the final departmental procedures for reviewing 
these leads and investigations been fully implemented and can I get a 
copy of them?
    Question 2b. Based on these procedures, how are terrorist financing 
links determined and what is the current turn-around time for reviewing 
these leads?
    Question 2c. How many leads and/or investigations have been sent 
from ICE to the FBI thus far and how many of these leads have been 
determined to have links to terrorist financing?
    Question 2d. In addition, what is current status of the leads with 
links to terrorist financing? What happens to the leads that are 
determined to have no links to terrorism?
    Answer. ``Collaborative Procedures Pertaining to the Memorandum of 
Agreement (MOA) Between the Department of Justice (DOJ) and Department 
of Homeland Security (DHS)'' were developed shortly after the 
implementation of the MOA. These ``Collaborative Procedures'' remain in 
effect. The FBI defers to DOJ with respect to the provision of this DOJ 
document.
    All Immigration and Customs Enforcement (ICE) investigations that 
contain terrorist or terrorist-financing links are forwarded to the 
FBI's Terrorist Financing Operations Section (TFOS), which will 
determine whether the investigation should be coordinated, jointly 
investigated, or transferred to the respective field office Joint 
Terrorism Task Force (JTTF). Among other reviews, TFOS will query FBI 
databases to determine whether an investigation is related to an 
ongoing JTTF terrorism investigation and, if so, TFOS will so advise 
Operation Cornerstone personnel at ICE Headquarters. In all instances 
where a terrorism nexus is identified, TFOS, ICE, and the JTTF work 
jointly, share all information, and cooperatively make investigative 
decisions. All factors, as delineated in the MOA, are taken into 
consideration before TFOS determines a course of investigative action. 
Turn-around time ranges from hours to days depending on the complexity 
of the investigation and/or associated nexus to an on-going JTTF 
terrorism case.
    As of 02/20/2004, ICE had provided 30 cases to the FBI for review 
(some of these cases were already being worked by the JTTFs). Out of 
the 30, the FBI and ICE identified 10 cases that had definite 
connections to terrorism or terrorist financing, and these were duly 
transitioned to appropriate JTTFs. The remaining 20 cases either had no 
clear terrorism nexus or were transferred to the JTTF for further 
investigation. Additionally, in September 2003 ICE provided to the FBI 
electronic records of over 7,000 subjects. These records have been 
compared to FBI databases and the results are currently being analyzed 
by the FBI's detailee to Operation Cornerstone. Initial analysis 
indicates that approximately 86 subject records have a potential nexus 
to ongoing terrorism or terrorist financing investigative matters. The 
data continues to be manipulated by TFOS' Proactive Data Exploitation 
Group to identify other possible connections to ongoing terrorist 
investigations. As new cases and investigations are generated by ICE 
and Operation Cornerstone, the FBI detailee to ICE reviews the 
information and forwards any relevant information to the appropriate 
FBI Headquarters division or field office.
    In instances where an ICE investigation has a tie to terrorism, 
appropriate field offices and corresponding JTTFs are notified by FBI 
and ICE headquarters to facilitate investigative coordination. 
Investigations that contain no link to terrorism are so documented.
    Question 3. During the hearing, Senator Coleman requested that each 
agency provides a list of the various money laundering and terrorist 
financing coordinating task forces in which it participates. Please 
provide that list for the record.
    Answer. Currently, all 56 FBI field offices have JTTFs, and each 
JTTF is assigned an FBI agent to serve as its Terrorism Financing 
Coordinator (TFC). Also in every FBI field office, agents are assigned 
to a financial crimes task force that works closely with the respective 
JTTF on all money laundering matters that might affect a 
counterterrorism (CT) case. These task forces are part of the FBI's 
Criminal Investigative Division, and they work with their local and 
Federal counterparts on financial crimes investigations. Several of the 
JTTF and financial crimes task forces are staffed with Internal Revenue 
Service personnel to assist in the coordination of financial 
investigations. Additionally, ICE investigative personnel have been 
assigned to both groups in an overall effort to combat money laundering 
and terrorism financing schemes. The TFC for each office is also tasked 
to work with the various financial crimes task forces in their 
communities in order to establish coordination between traditional 
white collar crime investigations and investigations involving 
terrorism financing.
    In addition, the FBI participates in the National Security 
Council's Policy Coordinating Committee on Terrorism Financing, which 
is chaired by the Department of the Treasury. The FBI also participates 
in the Terrorism Financing Working Group (TFWG), which is chaired by 
the Department of State. The TFWG provides training and assistance to 
designated countries on terrorist financing issues.
    Question 4. I am very concerned about ensuring that our 
governmental agencies have procedures in place to address money 
laundering in a comprehensive and coordinated manner. However, the GAO 
report on alternative financing mechanisms noted that the FBI currently 
does not have a system in place for collecting and analyzing data on 
the use of these mechanisms.
    Question 4a. Since the release of the GAO report, has the FBI 
established a system to collect and analyze data on alternative 
financing mechanisms?
    Question 4b. If not, does the FBI have a plan to address 
alternative financing mechanisms in the future?
    Question 4c. If so, please describe the plan and the time line for 
implementation.
    Answer. The FBI's TFOS is responsible for providing a centralized 
and coordinated financial investigative component which includes both 
predictive capability and a terrorist identification mechanism. TFOS' 
primary goals are the identification, disruption, and dismantlement of 
terrorist networks and their funding mechanisms. To this end, TFOS 
coordinates information sharing with myriad law enforcement entities in 
the United States and in countries around the world. TFOS is 
responsible for ensuring that appropriate law enforcement entities and 
intelligence agencies are apprised of current trends in terrorism 
financing. TFOS also works to provide the training, support, and 
cutting-edge technology to assist these entities in combating 
terrorism.
    The FBI has initiated or completed various measures to address 
GAO's recommendation that the FBI systematically collect and analyze 
data concerning the use of alternative financing mechanisms. These 
measures include the following:
    a. The establishment of specifically defined intelligence 
requirements to guide the Bureau's intelligence collection efforts.
    The FBI has recently implemented an independent ``intelligence 
requirements and collection'' management function within its Office of 
Intelligence. As a result, and based on recognized intelligence gaps 
regarding terrorist financing activities, the FBI has developed 
specific intelligence requirements, which are tied to various known 
indicators of terrorist financing activity. These indicators are being 
distributed throughout the FBI as part of its bureau-wide intelligence 
requirements and collection management process so that all FBI Field 
Divisions and Headquarters operational and intelligence components will 
be aware of these well-defined requirements.
    b. The inclusion of questions in the FBI's CT Annual Field Office 
Report (AFOR) pertaining to terrorist financing.
    The CT AFOR is an essential component of national program 
management within the FBI Counterterrorism Division (CTD), and asks 
each FBI field office to report to FBI Headquarters information 
pertaining to its major counterterrorism investigations, intelligence 
base, and investigative operations and techniques. Required in the AFOR 
are responses pertaining to: the tracking, locating, and monitoring of 
terrorism investigation subjects through the use of financial 
information; the use of financial information to obtain evidence or 
otherwise further investigations against these subjects; the 
identification of Non-Governmental Organizations (NGOs) with links to 
terrorism; the identification of criminal activity associated with 
terrorist funding; the identification of terrorist funding mechanisms 
(i.e., hawalas, cash couriers, and business fronts); the identification 
of emerging trends pertaining to terrorist financing techniques; and 
the development of strategies to inform and educate the financial 
community on terrorist financing matters.
    c. The establishment of the Program Management and Coordination 
Unit (PMCU) within TFOS.
    The PMCU, created in January 2004, is responsible for oversight of 
the terrorist financing program and implementation of protocols and 
procedures to track and assess results achieved by investigative and 
analytical resources within the FBI. The PMCU, once fully staffed, will 
be well-positioned to identify emerging trends across the spectrum of 
terrorist financing. Among the factors tracked by the PMCU will be the 
various funding mechanisms used by different subjects of FBI 
counterterrorism investigations--to include alternative financing 
mechanisms. TFOS and PMCU are currently in the process of designing a 
method of collecting information related to terrorist financing and 
organizing it to permit easy identification of terrorist financing 
methods, perpetrators of these crimes, and the organizations they are 
supporting. The PMCU also works closely with the Financial Crimes 
Section of the FBI's Criminal Investigative Division in order to ensure 
that all money laundering and financial crimes investigations are 
reviewed for a possible nexus to terrorist financing.
    The PMCU will also serve as the coordinating entity for the 
International Terrorism Financing Working Group (ITFWG), which includes 
law enforcement and intelligence agency representatives from the United 
Kingdom, Canada, Australia, and New Zealand, and addresses 
international aspects of terrorist financing investigations. These 
invaluable partnerships will provide additional sources of information 
regarding alternative financing mechanisms and emerging terrorist 
financing trends.
    The measures undertaken by the FBI to more systematically collect 
and analyze data concerning the use of alternative financing mechanisms 
will greatly enhance the FBI's ability to recognize, respond to, and 
ultimately disrupt or dismantle the terrorist organizations that rely 
on them.
    Question 5. The FBI has dedicated significant investigative 
resources to address the issue of terrorist financing. The President's 
budget provides approximately $4.5 billion in funding in FY 2004 for 
the FBI alone. Additionally, the President's budget provides $5.1 
million in FY 2005 to increase the number of Agents dedicated to 
investigations.
    Question 5a. How has the FBI restructured its squads and 
headquarters support in the reassignment of resources that specifically 
target the money laundering activities of terrorist organizations?
    Question 5b. What additional resources does the FBI need to better 
address the issues that deal with the illegal money laundering and 
terrorist activities?
    Answer. TFOS implemented a program in 2003 to ensure that each of 
the 56 FBI Field Offices has a TFC to address all terrorist financing 
issues (some of the FBI's larger resident agencies also have TFCs. The 
TFCs regularly report to TFOS' PMCU, which serves as the point of 
contact for TFCs regarding operational and training matters. In 
addition, each field office has established a Field Intelligence Group 
(FIG). Among the FIG's responsibilities is the coordination of 
financial intelligence at the field level, including intelligence 
related to terrorist financing. The PMCU and the FIGs communicate 
regularly regarding field financial intelligence related to terrorism.
    TFOS includes five operational units which assist the two CTD 
International Terrorism Operations Sections to investigate and exploit 
terrorist financing intelligence. These five TFOS units work in 
coordination with the FBI's field offices in an effort to further the 
terrorism cases that may benefit from this level of coordination 
because of their complexity, geographical scope, or other factors. On-
site intelligence collection and analysis is performed domestically and 
overseas by TFOS agents, financial analysts, and intelligence 
specialists. TFOS teams are routinely deployed to ensure adequate 
exploitation of financial information and to assist on priority 
terrorism cases.
    The FBI works with DOJ to develop funding requests in light of the 
many competing requirements for limited resources, and will continue to 
strive to ensure that the FBI's top priority--protection of the United 
States from terrorist attack--receives adequate resources.
    Question 6. In passing Title III of the USA PATRIOT Act in the wake 
of the September 11 attacks, Congress and the Bush Administration have 
comprehensively revamped U.S. anti-money laundering laws to increase 
their effectiveness as a tool to trace and eliminate funding for 
foreign terrorists and terrorist organizations and to pressure 
cooperation by other nations and their financial institutions in this 
effort.
    Question 6a. How has the USA PATRIOT Act impacted the detection, 
investigation, prosecutions and disruption of terrorist financing?
    Question 6b. What is the difference in the number of prosecutions 
for money laundering that were related to terrorist groups prior to the 
enactment of the USA PATRIOT Act compared to the number of convictions 
that occurred after its enactment?
    Answer. The USA PATRIOT Act has broken down barriers to the sharing 
of information within the U.S. Government. This statute facilitates 
cooperation between United States Government agencies and other 
entities to ensure that terrorists are identified, thoroughly 
investigated, and prosecuted to the fullest extent. Additionally, the 
USA PATRIOT Act provides tools that assist the FBI and others to 
identify, freeze, and effect forfeiture of terrorist assets.
    Based on anecdotal evidence, the FBI believes the number of 
convictions for material support of terrorism has increased since 
passage of the USA PATRIOT Act. The FBI is in the process of compiling 
statistics that reflect the number of arrests, indictments, and 
convictions in these areas of which the FBI is aware.
  

                                  
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