[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
__________
U.S. GOVERNMENT PRINTING OFFICE
96-211 WASHINGTON : 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.