[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]






COMBATING TRANSNATIONAL ORGANIZED CRIME: INTERNATIONAL MONEY LAUNDERING 
                  AS A THREAT TO OUR FINANCIAL SYSTEMS

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

                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON CRIME, TERRORISM,
                         AND HOMELAND SECURITY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 8, 2012

                               __________

                           Serial No. 112-86

                               __________

         Printed for the use of the Committee on the Judiciary









      Available via the World Wide Web: http://judiciary.house.gov

                                _____

                  U.S. GOVERNMENT PRINTING OFFICE
72-786 PDF                WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001















                       COMMITTEE ON THE JUDICIARY

                      LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina         JERROLD NADLER, New York
ELTON GALLEGLY, California           ROBERT C. ``BOBBY'' SCOTT, 
BOB GOODLATTE, Virginia                  Virginia
DANIEL E. LUNGREN, California        MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio                   ZOE LOFGREN, California
DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana                  MAXINE WATERS, California
J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona                  Georgia
LOUIE GOHMERT, Texas                 PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio                     MIKE QUIGLEY, Illinois
TED POE, Texas                       JUDY CHU, California
JASON CHAFFETZ, Utah                 TED DEUTCH, Florida
TIM GRIFFIN, Arkansas                LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania             JARED POLIS, Colorado
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
MARK AMODEI, Nevada

      Sean McLaughlin, Majority Chief of Staff and General Counsel
       Perry Apelbaum, Minority Staff Director and Chief Counsel
                                 ------                                

        Subcommittee on Crime, Terrorism, and Homeland Security

            F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman

                  LOUIE GOHMERT, Texas, Vice-Chairman

BOB GOODLATTE, Virginia              ROBERT C. ``BOBBY'' SCOTT, 
DANIEL E. LUNGREN, California        Virginia
J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
TED POE, Texas                       HENRY C. ``HANK'' JOHNSON, Jr.,
JASON CHAFFETZ, Utah                   Georgia
TIM GRIFFIN, Arkansas                PEDRO R. PIERLUISI, Puerto Rico
TOM MARINO, Pennsylvania             JUDY CHU, California
TREY GOWDY, South Carolina           TED DEUTCH, Florida
SANDY ADAMS, Florida                 SHEILA JACKSON LEE, Texas
MARK AMODEI, Nevada                  MIKE QUIGLEY, Illinois
                                     JARED POLIS, Colorado

                     Caroline Lynch, Chief Counsel

                     Bobby Vassar, Minority Counsel

















                            C O N T E N T S

                              ----------                              

                            FEBRUARY 8, 2012

                                                                   Page

                           OPENING STATEMENTS

The Honorable F. James Sensenbrenner, Jr., a Representative in 
  Congress from the State of Wisconsin, and Chairman, 
  Subcommittee on Crime, Terrorism, and Homeland Security........     1
The Honorable Robert C. ``Bobby'' Scott, a Representative in 
  Congress from the State of Virginia, and Ranking Member, 
  Subcommittee on Crime, Terrorism, and Homeland Security........     2

                               WITNESSES

Jennifer Shasky Calvery, Chief, Asset Forfeiture and Money 
  Laundering Section, Criminal Division, Department of Justice
  Oral Testimony.................................................     5
  Prepared Statement.............................................     7
Luke A. Bronin, Deputy Assistant Secretary for Terrorist 
  Financing and Financial Crimes, U.S. Department of the Treasury
  Oral Testimony.................................................    23
  Prepared Statement.............................................    25
David B. Smith, Chair, Forfeiture Committee, National Association 
  of Criminal Defense Lawyers
  Oral Testimony.................................................    33
  Prepared Statement.............................................    35

 
COMBATING TRANSNATIONAL ORGANIZED CRIME: INTERNATIONAL MONEY LAUNDERING 
                  AS A THREAT TO OUR FINANCIAL SYSTEMS

                              ----------                              


                      WEDNESDAY, FEBRUARY 8, 2012

              House of Representatives,    
              Subcommittee on Crime, Terrorism,    
                             and Homeland Security,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 10 a.m., in room 
2141, Rayburn Office Building, the Honorable F. James 
Sensenbrenner, Jr., (Chairman of the Subcommittee) presiding.
    Present: Representatives Sensenbrenner, Goodlatte, 
Chaffetz, Marino, Scott, Pierluisi, Chu, Jackson Lee, Quigley, 
Polis
    Staff present: (Majority) Caroline Lynch, Subcommittee 
Chief Counsel; Tony Angeli, Counsel; Arthur Radford Baker, 
Counsel; Lindsay Hamilton, Clerk; (Minority) Bobby Vassar, 
Subcommittee Chief Counsel; Joe Graupensberger, Counsel; and 
Veronica Eligan, Professional Staff Member.
    Mr. Sensenbrenner. The Subcommittee will come to order.
    Today's hearing examines the subject of transnational 
organized crime, specifically how international money 
laundering is a threat to our financial and banking systems. As 
a part of its overall national security strategy, the 
Administration has proposed a strategy to combat transnational 
organized crime.
    TOC is organized crime coordinated across national borders 
for the purpose of attaining power, influence, or financial 
gain, wholly or in part by illegal means. These criminal 
networks protect their activities through a pattern of 
corruption and violence, while exploiting transnational 
commerce. The networks can take many forms, such as cells, 
clans, or cartels, and may involve into other criminal 
structures.
    Although the crimes they commit vary, these criminal 
organizations share the similar primary goal of financial gain, 
and they use similar methods to achieve their profits. The use 
of violence to intimidate or threaten, the exploitation of 
differences between countries, and the influence of government, 
politics, and commerce through corrupt and legitimate means.
    Part of the Administration's transnational organized crime, 
or TOC, strategy focuses on ensuring that our anti-money 
laundering and anti-organized crime statutes reach criminal 
enterprises that target the United States, but operate 
globally, often outside of the U.S. Transnational criminals are 
more sophisticated than ever, and their growing infiltration of 
lawful commerce fundamentally threatens free markets and 
financial systems that are critical to the stability of the 
global economy. TOC syndicates acquire an unfair competitive 
advantage by disregarding the laws and norms that legitimate 
businesses respect.
    This proposal purports to expose and close emerging 
vulnerabilities that could be exploited by terrorist 
organizations and other elicit financial networks manipulated 
by transnational criminals. Now, more than ever, money 
laundering is a global phenomenon.
    Transnational criminal organizations maintain the same goal 
as most legitimate transnational corporations: increased 
revenue and profit. The return of these profits to the 
legitimate corporation or illicit organization is one point at 
which the common goal deviates. The illicit organization 
undertakes the launderant's profits and avoid detection by law 
enforcement, including the payment of taxes.
    The increase of global commerce has brought an increase in 
cross-border movement of financial instruments, both physical 
and electronic. The presumptive goal of the TOC strategy is 
distinguished between the legal and illegal transactions, and 
to stop the illegal transactions which threaten our financial 
security, as well as the integrity of our Nation's banking 
systems.
    This hearing will focus on the current trends in money 
laundering by transnational criminal organizations and the 
mechanisms they use to launder illegal profits of any kind, and 
the legal enterprises that they use to hide and/or launder 
income.
    We will also learn how international money laundering 
threatens the financial and banking systems of the United 
States. We then will ascertain whether there may be loopholes 
in current Federal law which may need to be closed to better 
protect our national security.
    I look forward to hearing more about the proposals advanced 
by the Department of Justice for implementing the TOC strategy 
and how these matters are important to our national security.
    I would like to thank our witnesses for participating in 
today's hearing.
    It is now my pleasure to recognize for his opening 
statement, the Ranking Member of the Subcommittee, gentleman 
from Virginia, Mr. Scott?
    Mr. Scott. Thank you, Mr. Chairman. And I thank you for 
convening the hearing. I look forward to discussing money 
laundering and its role in transnational organized crime.
    It is important for this Subcommittee to learn about crime 
that is taking place internationally that yields or relies upon 
funds that are laundered to avoid detection by law enforcement. 
True money laundering takes the proceeds from crime and 
converts them into funds which may be used by criminals in ways 
that appear legitimate, as they try to enjoy the fruits of 
their schemes.
    Of course, one of the great harms is that funds taken from 
crime victims become obscured and difficult for law enforcement 
to find and make the victims whole.
    The title of the hearing refers to the potential threat 
money laundering poses to our financial systems. Challenges to 
find ways to combat real money laundering and protect the 
integrity of our financial system, while protecting the 
principles which are no less important, due process, individual 
liberty, privacy of law-abiding citizens, and the fairness of 
our criminal justice system.
    For example, it is often difficult to separate the money 
laundering from the actions which constitute the underlying 
crime, and prosecutors have sometimes brought charges for both, 
when the conduct was virtually indistinguishable, such as 
instances of mail and wire fraud, and conspiracy to commit 
those offenses.
    And we were concerned about these issues when we enacted 
the Fraud Enforcement Recovery Act of 2009, and included a 
sense of Congress that Federal prosecutors need to obtain high-
level approval for certain types of money laundering 
prosecutions.
    While we want to do what we can to ensure the criminals 
don't hide and keep the proceeds of illegal activity, we need 
to make sure that the anti-money laundering regulation and 
criminal prosecution initiatives don't fall into the same traps 
that we have stepped into in some of our other efforts to 
enforce our criminal laws.
    The statutory maximum penalty for violations of principle 
and money launderings, the principle money laundering statute, 
section 1956 of the Federal criminal code, is 20 years. This is 
a case whether someone is a corrupted banker, who hides money 
for international drug kingpins or someone who is a low-level 
courier with small amounts of money, with no knowledge of the 
overall money laundering scheme or underlying crimes.
    And there is cause for concern where it is possible for 
someone to receive a greater prison sentence for laundering 
money than for committing the underlying crime. This scheme 
sends the wrong message for--to our prosecutors, and has a 
negative impact on the allocation of resources within our 
system.
    It is the case of other crime problems, over-incarceration 
is not the answer. In fact, when we find that overcharging and 
over-incarceration is taking place, it is usually a sign that 
we are frustrated, because we have not done a better job at 
preventing or prosecuting the underlying crimes for occurring 
in the first place.
    We need to increase our focus on the crimes that produce 
the proceeds which are laundered, such as financial crimes, 
identity theft, organized retail theft, and cybercrime. For 
example, few instances of individual identity theft are even 
being investigated. When the crimes being committed are so 
lucrative that the volume of cash accumulated presents enough 
of a logistical problem for a criminal operation that they seek 
to launder it, we are already behind the curve.
    With those thoughts in mind, I look forward to our 
witnesses telling us more about the nature of the threats, 
particularly the dimensions of the transnational organized 
crime. And I hope we will discuss the ways in which we can 
better focus our resources on solving the crimes that yield the 
proceeds that are laundered, as well as how we can focus on the 
key players in international money laundering schemes, without 
enacting additional measures that scoop in unwary law-abiding 
citizens.
    Thank you, Mr. Chairman. I yield back.
    Mr. Sensenbrenner. Yes. I thank the Ranking Member. Without 
objection, other Member's opening statements will be made part 
of the record at this point.
    And without objection, the Chair will be authorized to 
declare recesses during votes on the House floor.
    It is now my pleasure to introduce today's witnesses. 
Jennifer Shasky was appointed Chief of the Asset Forfeiture and 
Money Laundering Section of the U.S. Department of Justice in 
July 2010. Ms. Shasky first joined the Department through the 
Attorney General's honors program in 1997.
    For most of her first decade with the Department, she 
served as a trial attorney in the organized crime and 
racketeering section. Prior to her current job, she served as 
the criminal division's office of the Attorney General, and 
then in the office of the Assistant Attorney General, and then 
in the office of the Deputy Attorney General.
    She received her undergraduate degree in international 
affairs from George Washington University in 1993, and her law 
degree from the University of Arizona College of Law, 1997.
    Luke Bronin is the Deputy Assistant Secretary for Terrorist 
Financing and Financial Crimes at the U.S. Department of the 
Treasury. Before joining the Treasury Department, he was an 
international affairs fellow with the Counsel on Foreign 
Relations, hosted by the Institute for Financial Management and 
Research, in Shani, India.
    Prior to his time with the Counsel on Foreign Relations, 
Mr. Bronin worked at the Hartford Financial Services Group as 
chief of staff to the president and chief operating officer of 
the property and casualty operations, and he also served as 
associate counsel and special assistant to the general counsel.
    He received his bachelor of arts in philosophy from Yale 
College and masters of science and economic and social history, 
and his jurist doctor, from Yale Law School.
    He is an officer in the U.S. Navy Reserve, and recently 
returned to the Treasury following a deployment to Kabul, 
Afghanistan, in support of Operation Enduring Freedom.
    David Smith served 8 years as a prosecutor for the criminal 
division of the U.S. Department of Justice, and at the U.S. 
attorney's office in Alexandria, Virginia. At Justice, he 
served in the appellate and narcotics sections of the criminal 
division, and as the first deputy chief to the asset forfeiture 
office.
    From 1995 through 1996, he served as a part-time associate 
independent counsel in the investigation of Michael Espy, the 
former secretary of agriculture. Mr. Smith's practice includes 
Federal criminal defense and criminal appeals.
    He received his bachelor of arts from the University of 
Pennsylvania in 1970, and is jurist doctor from Yale Law School 
in 1976.
    Without objection, all of the witnesses' written testimony 
will be entered into the record in its entirety. I ask that 
each of you summarize his or her testimony in 5 minutes or 
less.
    And we have the lights all in front of you. The yellow 
light tells you to wrap it up. The red light tells you to 
finish. And the Chair is known for his strict enforcement of 
time limitations, as the Members of the Committee know. Ms. 
Shasky, why don't you start?

 TESTIMONY OF JENNIFER SHASKY CALVERY, CHIEF, ASSET FORFEITURE 
AND MONEY LAUNDERING SECTION, CRIMINAL DIVISION, DEPARTMENT OF 
                            JUSTICE

    Ms. Shasky. Mr. Chairman, Ranking Member Scott, 
distinguished Members of the Committee, thank you for the 
opportunity to testify about the threats posed by transnational 
organized crime and the use of our money laundering laws to 
stop these groups.
    This is a topic that is very personal to me. I spent 8 
years as a prosecutor fighting and bringing cases against the 
very transnational organized crime groups about which this 
hearing is focused.
    I then moved to the Office of the Deputy Attorney General. 
The Office of the Deputy Attorney General leads the 
Department's effort to craft a comprehensive strategy to 
confront these same groups. During that time, I initiated and 
then became the first head of the International Organized Crime 
Intelligence and Operations Center, which gives law enforcement 
the capacity to share information and coordinate multidistrict 
cases.
    I can tell you from experience, the threat posed by 
transnational organized crime to our people, our businesses, 
and our institutions is real, and it is sobering. We are 
talking about groups, some of which have billions of dollars at 
their disposal. They have the money to engage in corruption on 
a global scale and at the highest levels of government. They 
have the money to pay the brightest business and technical 
experts to develop their criminal schemes.
    They move into legitimate business, they corrupt markets, 
and they undermine competition. They perpetrate a broad array 
of crimes significantly impacting the average U.S. citizen. 
These include crimes ranging from cybercrime, drug trafficking, 
and the associated violence, identity theft, intellectual 
property theft, and sophisticated frauds, which include schemes 
targeting government programs, like Medicare or tax fraud. 
Perhaps, most alarmingly, they develop alliances with foreign 
intelligence services and terrorist organizations operating 
against U.S. interests.
    In some, they pose a uniquely modern threat to our economy 
and our national security. Yet, through my experiences 
combating transnational organized crime, one thing has become 
increasingly and unmistakably clear: Money is what motivates, 
and it is what empowers these groups. But it is also their 
Achilles heel.
    Transnational organized crime is a business, and like any 
business, profit is their primary motivation. Because money is 
the foundation on which these criminal organizations operate, 
our money laundering laws are our primary means to stop them. 
It is their core vulnerability. By taking their operating 
capital through money laundering prosecutions and forfeiture, 
we undermine their ability to harm our people, our businesses, 
and our institutions.
    So, it is with this conviction and a desire to get back on 
the frontlines in a meaningful way that just over a year ago I 
left the Deputy Attorney General's office to become Chief of 
the Criminal Division's Asset Forfeiture and Money Laundering 
Section.
    Since that time, I have seen firsthand the sophisticated 
means used by transnational criminal organizations to move and 
launder money. I have seen international drug trafficking 
organizations use trade-based money laundering schemes to move 
illegal proceeds. First, in bulk cash, and then through the 
formal banking system, disguised as legitimate trade 
transactions.
    Consistently, we see them exploit shell companies, front 
companies, offshore financial centers, and free trade zones. I 
have seen Eurasian organized crime groups transmit the proceeds 
of healthcare fraud, identity theft, and cybercrime, by 
exploiting alternate channels outside the mainstream banking 
system, such as check cashers, money remitters, and prepaid 
access devices. I explain all of these methods in more depth in 
my testimony.
    The Department of Justice is part of a multifaceted effort 
to disrupt the ability of these criminal organizations to 
commit crimes and access their funds, and together, we have 
achieved some successes. But in far too many instances, 
investigations have revealed deficiencies in our current legal 
regime, exposing our failure to stay current with the realities 
of globalization and technology.
    Accordingly, the Administration has put forward a number of 
legislative proposals that would modernize our legal regime and 
enhance our ability to combat transnational organized crime. 
These include making all foreign crimes money laundering 
predicates, if the criminal proceeds are moved through the 
U.S.; extending our money laundering law to cover a wider range 
of money transmitting businesses operating outside the main 
street banking system; preventing criminals from evading money 
laundering laws, by comingling clean and dirty money; 
clarifying the extraterritorial application of RICO, and 
holding drug traffickers, who had reason to believe their drugs 
would be sent to the United States accountable, an issue upon 
which I understand Mr. Marino, of this Subcommittee, has 
recently introduced legislation.
    Another important legislative fix, which we have been 
developing with the Department of Treasury, would negate the 
utility of shell companies as money laundering instruments, by 
requiring the disclosure of beneficial ownership information.
    Finally, while money laundering is the focus of today's 
hearing, I think it is important to also acknowledge the 
importance of permanently depriving these organizations of 
their money and criminal tools, and thus, their capacity to 
operate.
    I would be happy to answer any questions that the Committee 
may have.
    [The prepared statement of Ms. Calvery follows:]
    
    
    
                               __________

    Mr. Sensenbrenner. Thank you, Ms. Shasky.
    Mr. Bronin?

  TESTIMONY OF LUKE A. BRONIN, DEPUTY ASSISTANT SECRETARY FOR 
 TERRORIST FINANCING AND FINANCIAL CRIMES, U.S. DEPARTMENT OF 
                          THE TREASURY

    Mr. Bronin. Mr. Chairman, Ranking Member Scott, 
distinguished Members of this Subcommittee, thank you for the 
opportunity to testify today.
    Transnational organized crime networks, TOC networks, have 
become increasingly globalized, sophisticated, and powerful. 
Today, they represent not just large-scale criminal 
enterprises, but a real and increasing threat to national 
security.
    Last summer, President Obama announced a national strategy 
to combat this growing threat. The strategy is comprehensive 
and aggressive. And most important for today's hearing and for 
the Department of Treasury, the strategy emphasizes the 
importance of disrupting the financial networks on which 
transnational criminal organizations, TCOs, depend.
    Access to the international financial system gives TCOs the 
ability to hide, move, and make use of ill-gotten games on a 
massive scale. To combat the threat of international money 
laundering by TCOs, the Department of Treasury takes both a 
systemic and a targeted approach.
    On the systemic front, we work to promote transparency and 
to strengthen the anti-money laundering architecture 
domestically and globally. The U.S. has one of the strongest 
and most effective anti-money laundering regimes in the world. 
Suspicious activity reporting and currency transaction 
reporting play a vital role, shining a light on elicit activity 
and supporting financial investigations by law enforcement.
    But we do believe that there are places where even our own 
framework can be strengthened. The most basic AML precept for 
financial institutions is know your customer. The criminal 
actors can easily disguise their activities by operating in the 
name of shell companies and front companies. We believe that 
the absence of a general obligation to collect beneficial 
ownership information, along with the lack of a clear customer 
due diligence framework, has created some confusion and 
inconsistency across financial sectors. Accordingly, we intend 
to clarify, consolidate, and strengthen customer due diligence 
requirements.
    One of the greatest challenges that both financial 
institutions and law enforcement face when trying to identify 
and disrupt elicit activity is the lack of transparency and the 
beneficial ownership of legal entities. That is why we strongly 
support the passage of beneficial ownership legislation, which 
has been introduced both in the House and in the Senate.
    Beneficial ownership legislation would make it easier for 
financial institutions to conduct appropriate customer due 
diligence, easier for law enforcement to follow leads, and more 
difficult for criminals to hide behind front companies and 
shell companies.
    We believe these potential changes in law and in regulation 
will significantly strengthen our system's AML defenses. But I 
do want to note that the effectiveness of the U.S. anti-money 
laundering regime ultimately depends on vigorous 
implementation. And when banks let down their guard, the 
financial system can be compromised.
    In one recent case that highlights that risk, a large 
finance institution failed to monitor effectively more than 
$420 billion in cross-border financial transactions, with high-
risk Mexican currency exchange houses, including millions of 
dollars subsequently used to purchase airplanes for narcotics 
traffickers. Because of the size, efficiency, and legitimacy of 
the U.S. banking system, criminal organizations will always 
probe at its weak points, and we need to stay vigilant.
    As we work to promote transparency and to strengthen the 
AML architecture domestically and around the world, we will 
continue to use our targeted authorities to disrupt the 
financial networks of TCOs.
    Since June of 2000, over 1,000 individuals and entities 
have been designated under the Foreign Narcotics Kingpin 
Designation Act. Last summer, President Obama signed Executive 
Order 13581, identifying and imposing sanctions on four 
significant TCOs, the Brother's Circle, also known as the 
Moscow Center, the Camorra, the Yakuza, and Los Zetas. We are 
working to designate entities and individuals related to those 
TCOs.
    Finally, we will continue to use section 311 of the Patriot 
Act, a powerful tool that, in practical terms, enables us to 
cut off from the U.S. financial system foreign financial 
institutions that pose a significant money laundering risk. You 
may be familiar with and I will be happy to talk about 
Treasury's February 2011 identification of the Beirut-based 
Lebanese-Canadian bank, under section 311, a perfect 
illustration both of the threat we face, and of the tools we 
can use.
    To break the economic power of transnational criminal 
organizations, and to protect the U.S. financial system from 
penetration and abuse, we must continue to attack the financial 
underpinnings of TOC networks, strip them of their elicit 
wealth, sever their access to the financial system, expose 
their criminal activities hidden behind legitimate fronts, and 
protect the integrity of the U.S. financial system.
    Thank you.
    [The prepared statement of Mr. Bronin follows:]
    
    
    
                               __________

    Mr. Sensenbrenner. Thank you, Mr. Bronin.
    Mr. Smith?

   TESTIMONY OF DAVID B. SMITH, CHAIR, FORFEITURE COMMITTEE, 
        NATIONAL ASSOCIATION OF CRIMINAL DEFENSE LAWYERS

    Mr. Smith. Thank you, Mr. Chairman.
    Although the money laundering laws were enacted with a 
narrow purpose in mind, to take the profit out of drug 
trafficking and organized crime, the laws were written so 
broadly in 1986 that they were made to cover many transactions 
that don't fit the common understanding of money laundering, 
since they don't conceal any transactions, and in some cases, 
even apply to clean money.
    Many of these transactions that are criminalized by the 
money laundering statutes are routine and innocent in nature, 
such as depositing a check in your own bank account, and do not 
add anything to the social harm flowing from the underlying 
predicate crimes. Thus, no purpose is served by criminalizing 
those innocent transactions.
    The last two decades have witnessed an alarming further 
expansion of the money laundering statutes by the Department of 
Justice and the Congress. Once a tool primarily intended for 
drug or racketeering cases, these laws are now applied to 
almost every Federal felony offense, and the current 
legislation on the table today would apply the money laundering 
laws to every single Federal felony, as well as a few 
misdemeanors.
    I would like to quote something Attorney General Edwin 
Meese said in 2003. He was Attorney General when the Money 
Laundering Control Act became law. And in 2003, he said the 
money laundering laws have been used in circumstances that are 
considerably different from the original intent of the law. 
``When money laundering statutes are used simply to pile on 
charges where major financial manipulation was not the intent, 
nor was it related to syndicated crime, then I think the 
statutes would be misused.''
    We also quoted Deputy Attorney General Larry Thompson 
saying more or less the same thing in a Law Review article. And 
this statute has really become almost a Frankenstein monster in 
the criminal code. It is the most overused and abused statute 
in the code, and compounding the statute's over-breadth is the 
prosecutorial practice of piling on money laundering charges 
that are simply incidental to and indistinguishable from the 
underlying offense, the so-called merger cases, which gave the 
Supreme Court so much concern in the recent Santos decision, 
which, by the way, was written by Justice Scalia.
    And prosecutors have also routinely charged money 
laundering where the defendant has done no more than deposit 
the proceeds of some unlawful activity into his bank account, 
even though the bank account is clearly identifiable as 
belonging to him. This is usually done under the promotion 
prong of section 1956, which serves no purpose, except to 
increase the penalties for the underlying predicate felony. 
Promotion offenses are not really money laundering at all, and 
do not increase the social harm from the underlying felony 
offense.
    The courts have interpreted the promotion prong very 
broadly, so that all you have to do is deposit the proceeds of 
crime in your own bank account, and the money from the bank 
account is used in any way, such as in one actual case, to buy 
pencils for your secretarial staff. That constitutes money 
laundering, because you have somehow promoted the criminal 
activity by supplying these pencils to your secretaries.
    Given this unfortunate legal landscape, our primary message 
to the Committee today is that the Committee should exercise 
great caution when considering proposals to further expand the 
already vastly overbroad money laundering laws. And we do agree 
that the problems of combating transnational crime are serious, 
and that Congress should help the government do something about 
it, but we don't really see the connection between these 
proposals in this bill and helping the government combat 
transnational organized crime. Maybe it is explained in Ms. 
Shasky's written statement, which I haven't had a chance to 
read yet, but I don't see the connection.
    But I go back quite a ways, and I have seen a lot of these 
bills, and time after time, we see the government trying to 
justify expansions of the criminal law by telling Congress, we 
need this to combat terrorism, or we need this to combat 
organized crime, and then the statute that is enacted is used 
99.99 percent of the time to combat something else, that is 
ordinary individual criminals who are already covered by other 
laws.
    Mr. Sensenbrenner. The gentleman's time has expired.
    Mr. Smith. Thank you. Thank you.
    [The prepared statement of Mr. Smith follows:]
    
    
    
                               __________

    Mr. Sensenbrenner. Thanks to all of the witnesses. I will 
not recognize Members of the Committee under the 5-minute rule, 
beginning with myself.
    Ms. Shasky and Mr. Bronin, when I was Chairman of the 
Committee, and we were more into terrorist funding and figuring 
out how to curtail or stop that, increasingly, the method of 
hawala funding was a matter of concern. And for those who don't 
know what hawala funding is, that has been a very informal type 
of arrangement, where money can be transferred across national 
boundaries on a strictly honor code basis, meaning somebody 
whose son in another country had run out of money at college 
could get a few hundred dollars or a few hundred pounds from 
mom and dad to be able to keep them in business until the next 
raid on the parental ex-checker.
    However, instead of being relative minor transactions, a 
couple hundred dollars or a couple hundred pounds, because this 
was strictly outside the banking system, was a cash-only 
transaction, and was done entirely on the honor system, there 
were increasing amounts of money that were transferred this 
way, which are very, very difficult to track down. But if you 
have a corrupt or a terrorist-infiltrated money system, that 
way, the terrorists that had been put underground in another 
country would have been able to be kept in business and, you 
know, kept the refrigerator full.
    What are the Justice Department and the Treasury Department 
doing to increase scrutiny on this type of funding, and how 
effective has it been?
    Ms. Shasky. Mr. Chairman, the use of hawalas in laundering 
money outside of the formal banking system is something that 
the Department of Justice takes very seriously. And 
unfortunately, we see quite a bit of it.
    These techniques that, as you mentioned, are used by 
transnational, or--I am sorry, by terrorist organizations have 
also bled over and are being used by transnational criminal 
organizations. We see transnational organized crime that one 
day is profit motivated, and the next day, starts to become 
ideological, and looks more like a terrorist organization.
    We see terrorist organizations that were one day 
ideological start enjoying the profits that they are making 
from their crime, and become a little more like a criminal 
organization. So, sometimes it is hard to tell these apart, and 
their techniques bleed from one to the other.
    As you mentioned, hawala, or an illegal money transmitting 
business, is very difficult to investigate, and to detect in 
the first place, because it is done outside of the formal 
banking system, for the most part. Oftentimes, the only 
evidence that the transaction is occurring would be the 
communication, the communication between the individual in one 
country and the other individual in the United States, who are 
talking and agreeing that they will make this exchange of 
value. That is why we believe it is so important to extend our 
wiretap authorities to include violations of section 1960, 
which would get right at this type of conduct.
    Mr. Sensenbrenner. Mr. Bronin?
    Mr. Bronin. Thanks, Mr. Chairman. It is an important 
question. And for the reasons you identify and Ms. Shasky 
identifies, it is a challenging issue as well.
    You know, this issue received a lot of attention around the 
attempted bombing in Times Square, when the terrorists involved 
in that attempt received two payments through two separate 
hawaladars. You know, I think it is important to emphasize that 
we do have the tools to go after that kind of activity. In that 
case, both of those hawaladars ultimately pled guilty to 
operating as unregistered money service businesses. And, you 
know, I think that is an important part of the effort, both 
here and globally, is to try and bring those informal value 
transfer systems into the regulated sector by requiring them to 
register and subjecting them to appropriate regulation. That is 
something we spend a lot time promoting internationally as 
well.
    There are other tools, you know. One hawala that had the 
characteristics that Ms. Shasky identified was the New Ansari 
money exchange in Afghanistan. This was a hawala that was 
involved in moving billions of dollars of narcotics money in 
and out of Afghanistan. And we used our targeted tools, the 
Kingpin Designation Act, to designate New Ansari network, and 
effectively shut it down. So, we also--you know, whenever we 
can, we take the opportunity to disrupt that kind of activity.
    If I could just make one last quick point. Although hawalas 
operate on trust, as you say, they often do have to touch the 
banking sector. A lot of times they try to settle, you know, 
hawaladars settle their accounts through banks. And as a 
result, there are opportunities for banks to identify activity 
that looks suspicious and called to the attention of 
appropriate authorities.
    Thank you.
    Mr. Sensenbrenner. Thank you very much. Gentleman from 
Virginia, Mr. Scott?
    Mr. Scott. Thank you, Mr. Chairman. Ms. Shasky, you 
mentioned several of the kinds of crimes that you are trying 
solve. Cybercrime. I.D. theft. Intellectual property. Medicare 
fraud. Tax fraud. Organized retail theft is another one that I 
assume would be involved. It seems to me that waiting on an 
I.D. theft to try to solve I.D. theft, waiting for the illegal 
operation to make enough money so that the cash--so they have 
got so much cash that it creates a logistical problem, seems a 
little late in the process to try to solve I.D. theft.
    Isn't it true that very few individual I.D. theft cases are 
even investigated?
    Ms. Shasky. We certainly, in any area of crime fighting, do 
not seek not to wait to allow criminal activity to continue 
before using our enforcement tools to stop it. So certainly, if 
we are in a position to prevent identity theft in the first 
place, we would do so,
    or----
    Mr. Scott. Do you have the resources to effectively deal 
with individual I.D. theft?
    Ms. Shasky. I am sorry. I didn't----
    Mr. Scott. Do you have sufficient resources to effectively 
deal with I.D. theft?
    Ms. Shasky. We have many resources that are dedicated to 
dealing with identity theft.
    Mr. Scott. I mean isn't it true that when people get 
somebody uses their credit card that nothing happens?
    Ms. Shasky. I am sorry?
    Mr. Scott. That nothing happens, from the criminal law 
standard, when somebody steals someone's credit card 
information.
    Ms. Shasky. I don't think that is correct. I believe we 
have many cases and examples, and we would be happy to--I would 
be happy to take it back and follow-up, where we have convicted 
individuals for engaging in identity theft, on a massive scale. 
So not just someone who is stealing one identity, but 
individuals that are stealing hundreds and thousands of 
identities, selling those, letting them be putting onto stored 
value cards, and then going to ATMs and taking those money out 
of ATMs.
    In those cases, what we find to be one of the most 
effective tools is to use our money laundering and forfeiture 
tools to take that money away from the criminal organization 
and get it back to the victims. Last year, using these tools, 
we returned over $320 million to victims of crime in the United 
States.
    Mr. Scott. Approximately how many cases of I.D. theft are 
there in the consumer-level I.D. theft are there in the United 
States every year?
    Ms. Shasky. I don't know the answer to that, but I would be 
happy to follow-up.
    Mr. Scott. How much does it cost to launder money?
    Ms. Shasky. It can--it depends on who is laundering the 
money for you, and what type of laundering technique you need. 
But I hear numbers anecdotally, and through our cases, anywhere 
from 2 percent to 25 percent of the transaction.
    Mr. Scott. And know your customer, how much due diligence 
should a banker do before they can do business with someone? 
And are they expected to turn into law enforcement anyone who 
comes in with suspicious transactions?
    Ms. Shasky. I would defer that question to my colleague 
from the Department of Treasury.
    Mr. Scott. Mr. Bronin.
    Mr. Bronin. Thanks, Ranking Member Scott.
    You know, just to start, you know, as highlighted in my 
testimony, we have the strongest AML regime in the world, and 
banks, you know, as a general matter, are extremely diligent 
and effective in carrying out their AML obligations. You know, 
there are a lot of different elements of an effective customer 
due diligence plan.
    As I highlighted in the testimony, one of the things that 
we would like to do is sort of bring those various elements 
together in a clear way, put them in one place, so that there 
is, you know, less opportunity for confusion about what 
precisely those customer due diligence obligations are.
    You know, you raised the question of their bank's 
obligation to notify law enforcement regulators of suspicious 
activity. You know, in general, financial institutions do have 
to identify all suspicious activity reports when they know or 
have reason to suspect that particular financial transaction 
is, you know, in some way related to a crime, to money 
laundering, to terrorist activity, to the broad range of 
threats that we are concerned about.
    Mr. Scott. Okay. And Ms. Shasky, Mr. Smith indicated that 
depositing money in your own checking account can constitute 
money laundering. Is that true?
    Ms. Shasky. It depends on the facts and circumstances. If 
you deposit over $10,000 of criminal proceeds into your 
checking account, yes, that can be a money laundering offense. 
If you do that after you have allowed it to circulate the 
globe, going through free trade zones, shell companies, and 
offshore centers, yes, that can be money laundering.
    If you do it to promote a terrorist crime, yes, that can be 
a form of terrorism finance, which is a subset of money 
laundering.
    Mr. Sensenbrenner. The gentleman's time has expired. The 
gentleman from Utah, Mr. Chaffetz.
    Mr. Chaffetz. Thank you. Thank you all for being here. Mr. 
Bronin, Ms. Shasky, I appreciate your efforts and the great 
work that you do.
    Help me understand the cooperating countries and maybe the 
three countries that you are having the biggest challenges and 
problems with.
    Ms. Shasky. We have a number--we are actually quite 
fortunate. We have a number of very cooperative foreign 
partners throughout the world that help us on organized crime. 
Our biggest challenges, and that is from Western Europe, to 
Asia, to the continent of Africa, to Latin America. On every 
continent, we can rest assured that we have got good partners 
with whom we are working.
    Unfortunately, that is not across the board. And the areas 
where we find the biggest challenges are the countries where 
corruption remains the systemic problem. And while cooperative 
many times, we still find challenges with countries that are 
offshore tax or financial havens, and countries that have free 
trade zones.
    Mr. Chaffetz. Can you give me a few names?
    Ms. Shasky. Let's see. I would defer to my colleague from 
Treasury to talk about some of the countries that are on the 
Financial Actions Task Force list of non-cooperative countries. 
And several of them are in Asia. So I will let him answer. Put 
him on the hot seat.
    Mr. Chaffetz. Good pass. Go ahead. [Laughter.]
    Mr. Bronin. Thank you, Ms. Shasky. And thank you, 
Congressman.
    To the last point about the--I think the list that Ms. 
Shasky just mentioned is a good place to look. It is the list--
--
    Mr. Chaffetz. When I say countries that aren't cooperating, 
what comes to mind? Name three.
    Mr. Bronin. If I could, what I would like to do is give 
you--I will get back to you with the full list.
    Mr. Chaffetz. All right. I will look up the list.
    Mr. Bronin. There are a number of countries on that list. 
We are particularly concerned about the--let me--we are 
particularly concerned about the framework that they have in 
place, meaning that they are vulnerable to exploitation. You 
know, there are--you can put countries in a bunch of different 
categories. There are countries that don't have an adequate 
legal framework. There are countries where, you know, just 
don't think they are doing enough. They don't have quite enough 
political will.
    And then, you know, there may be countries where we are, 
you know, concerned about their actual complicity in promoting 
crimes. I mean the most obvious one that falls into that 
category is Iran.
    Mr. Chaffetz. Okay. And I guess that is my concern, Mr. 
Chairman, is understanding these countries and then what is it 
that we are doing to promote this. How we understand the cyber 
component of it. Because I know these transactions can happen 
in fractions of seconds.
    I worry about our ability to track that, to follow-up on 
that, how cybers--can you quantify the problem and the 
challenge that we are facing in this regard?
    Ms. Shasky. I can tell you that it is increasingly becoming 
a problem, and that we are seeing stored value cards, where 
individuals can move, or prepaid access devices where people 
can move money globally in seconds, where law enforcement does 
come on the scene, and does steal or sees the stored value 
card, the criminal can then transfer the value off that card 
with just a computer key stroke.
    Mr. Chaffetz. And what is the range of value of these 
cards?
    Ms. Shasky. Some of them are unlimited. There--you know, 
when we are talking about prepaid access devices, we are 
talking about everything from the Starbucks card, that you can 
get and have 20--load $25 onto it, to the cards that look more 
like a Visa or a MasterCard, and have unlimited amounts that 
can be put on them. So they are a challenge for law 
enforcement.
    We are looking at mobile payments, and the use of 
transferring money using a cell phone as the next wave with 
which to deal. But when you combine the advances in technology 
with globalization, money can move across the globe in just 
seconds.
    Mr. Chaffetz. Where is online gambling on your radar, and 
how that affects the movement of money?
    Ms. Shasky. Well, online gambling, of course, is one of 
many crimes that is profit- driven, and involves both cyber and 
globalization. And we are seeing the value related to online 
gambling moving in the same ways that we see any of the 
cybercrime monies moving.
    It is instantaneous. It is often through the stored value 
cards. It is often through the online payment methods. And so 
it is one more challenge for law enforcement.
    Mr. Chaffetz. My time is about to expire, but particularly, 
Mr. Bronin, I would love to follow-up on this hawala, if there 
are insufficient laws to follow through on this.
    The quick question for you, as I conclude, is: Are we 
seeing that those hawala-type transactions permeate into the 
United States, do you see them within the United States? I know 
it has been a lot in the Middle East, and other places, but are 
you seeing that with--you know, pop up or expand within the 
United States? And then very quickly, how many convictions are 
we getting in the course of a year? I am just not familiar with 
those numbers.
    Thank you, Mr. Chair.
    Mr. Bronin. Sure. Thanks, Congressman.
    You know, hawala is a very broad term, and it could cover a 
whole lot of activity that you might think of just informal 
value transfer. And, you know, it is no doubt happening quite a 
bit around the world.
    Sometimes, you know, as already been mentioned, it is hard 
to identify. But we have seen it. And where we have seen it, 
you know, we have taken action, using--you know, taking 
advantage of the requirement that hawala is another money 
transmitter's register, with financial crimes enforcement 
network.
    On a prosecutions convictions front, I defer to Justice.
    Ms. Shasky. We can get back to you with that information.
    Mr. Sensenbrenner. The gentleman's time has expired. The 
gentleman from Colorado, Mr. Polis.
    Mr. Polis. Thank you, Mr. Chairman.
    The first question is: Are there still a set of countries 
that are problematic, in terms of transparency and sharing 
information? And is there a formal identification somewhere of 
which countries, in fact, are difficult to penetrate with 
regard to transparency into flows? I will go to Ms. Shasky?
    Ms. Shasky. There is. It is through the Financial Action 
Task Force.
    Mr. Polis. Good.
    Ms. Shasky. There is a list of such countries. There are 
international standards, by which all countries are meant to be 
judged. When it comes to money laundering, there are 
protections against money laundering. There are protections 
against terrorist finance. There are a number of 
recommendations.
    If countries do not meet those recommendations, they can be 
put on this list and action can be taken.
    Mr. Polis. Are there any actions that are automatically 
associated with the list, or is it just merely for 
identification purposes?
    Mr. Bronin. Yes. So, one of the actions is that if a 
country is identified as being, you know, non-compliant with 
the FATAF standards. And I am sorry. The FATAF, it is a 
multilateral body. It is an international body. It is a 
standard setting and sort of peer, and peer implementation body 
that has been tremendously effective in promoting these 
standards internationally.
    When a country is identified as being non-compliant, non-
cooperative, you know, there are certain implications from the 
U.S. standpoint. Most important is that financial crimes 
enforcement network will notify U.S. financial institutions 
that they need to subject transactions with institutions in 
that jurisdiction to enhance due diligence. They need to be 
extra careful.
    Mr. Polis. Next set of questions are about drug 
trafficking. And I am wondering if one of you can give me just 
an estimate of about what percentage of money laundering 
activity is related to drug and narcotic trafficking-related 
activities. Is it the majority? Is it a third? Is it two-
thirds? Kind of what ballpark would you say that is related to 
drug trafficking?
    Ms. Shasky. This is a very difficult question to answer. 
And there are all kinds of projections out there as to what 
these numbers look like.
    I think the numbers that I focus on in approaching my job 
every day are the estimates that I see of what are the amounts 
of drug trafficking monies that are laundered in the United 
States. And I have seen estimates ranging from $85 billion a 
year, and upward.
    Mr. Polis. And so I just defer to that. And so as a 
percentage of overall laundering, is that a majority of overall 
money being laundered that derives from these sources, or 
approximately, you know, at that level, what would it be, 
relative to other sources?
    Ms. Shasky. Again, just looking at the various estimates 
out there, and not quite ever knowing their reliability, my 
sense is that it is a very significant amount. Anywhere from a 
third, on upwards.
    Mr. Polis. Okay. So the $85 billion figure would be 
somewhere, a third, to half, or so of money that is being 
laundered. Obviously, the fact that money is begin laundered, 
we--is difficult to come up with objective data. But that is 
that my understanding as well.
    Good. Thank you for your time, and appreciate your answers.
    Yield back.
    Mr. Sensenbrenner. The gentleman from Pennsylvania, Mr. 
Marino.
    Mr. Marino. Thank you, Chairman. Good morning, ladies and 
gentleman. I apologize for being late. But I am going to get 
very specific here, if you don't mind. And Ms. Shasky, and 
anyone else who wants to follow-up. I am going to refer to your 
complete testimony, and particularly, the narcotics section.
    In your testimony, you mentioned H.R. 3909, the ``Targeting 
Transnational Drug Trafficking Act.'' It is legislation which I 
recently introduced here on the House side, and as an important 
tool for prosecutors to combat the foreign drug trade industry.
    Can you describe to me a little more in detail, 
particularly for the Committee and my colleagues, why this 
legislation is important to the Department, and why we should 
pass the bill?
    Ms. Shasky. Thank you, Mr. Marino, for that important 
question. H.R. 3909 is very important to the Department. It 
relates to proposals we have made in the area of international 
drug trafficking. And particularly, it captures today's 
realities of the drug trade.
    At one time, we were fighting Columbian cartels, who not 
only produce the drugs, but also traffic the drugs, and 
laundered the money. Today, we see much more networking between 
our international drug trafficking trade. You know, we have one 
group, such as the Columbian cartels, who might be involved in 
production. Maybe it is the Mexican drug cartels, who are then 
involved in the trafficking, and yet another group who is 
involved in the money laundering. And so what your legislation 
seeks to do is to deal with that reality, that specialization.
    What we have been seeing is that because of this kind of 
bifurcated and specialization in the drug trafficking trade, is 
that we have individuals who are specifically trying to thwart 
U.S. laws, by trying to pretend that they don't know the final 
destination of the drugs. That is, that those drugs are going 
to the United States.
    We actually hear them saying, ``Don't tell me. I don't want 
to hear where the drugs are going.''
    Mr. Marino. Exactly.
    Ms. Shasky. Because they know that is a loophole in U.S. 
law that they can exploit.
    So what we are asking, and what is the legislation is that 
the standard be changed so that drug traffickers, or folks 
involved in the drug trade, had to know, intend, or have reason 
to believe that those illegal narcotics would be trafficked to 
the United States.
    This is a question of evidence and something that is very 
important.
    Mr. Marino. Thank you. Anyone else? I am going to pose a 
scenario that is much less eloquent than you stated, but would 
you describe this as being standard procedure now, because of 
the drug cartels, the business, the money they are making, they 
can afford people, attorneys from their countries, who are 
working for this organized crime, to figure out the loophole. 
And a loophole would be example of we know that we have to take 
that the drug dealers take the cocoa leaf, they have to break 
it down. But we have an individual who says, I am going to take 
a solvent. I am going to sell a solvent, such as acid, or a 
hydrochloride, or precursor chemicals, and I am going to sell 
it to someone in Mexico or Peru.
    Now, I know that this chemical is used in the process of 
manufacturing cocaine. However, when I make this sale, trying 
to legitimize it, to whomever I'm selling it, I don't know what 
you are going to do with it. Don't talk to me about anything. 
Just place your order, pay me, and I will give you this 
chemical that he or she knows very well is used in, if not all 
the time, most the time, the production of cocaine.
    Is that a good example of what takes place?
    Ms. Shasky. I think that is a very good example. And it 
raises a very important point. And that is, with international 
drug trafficking organizations, and non-drug organized crime, 
they have billions of dollars at their disposal. They have the 
ability to hire the best legal minds, the best business minds, 
the best cyber minds to help them craft their schemes, to 
exploit loopholes in the United States, and our laws, and to 
exploit loopholes and the laws of other countries. And the 
challenge for us is to try to make sure that we are keeping up 
with the times.
    Mr. Marino. Thank you. Mr. Chairman, do I have any more 
time?
    Mr. Sensenbrenner. 29 seconds.
    Mr. Marino. So, Mr. Smith, do you see a downside to this 
legislation? Are you opposed to it?
    Mr. Smith. Absolutely. As I said in my brief oral 
statement, I don't see the connection between this legislation 
and combating transnational organized crime. What this 
legislation would do, for example, in expanding section 1960, 
the money--businesses that are engaged in money transmitting, 
it would enormously expand that--that statute to cover every 
check cashing business in the United States, every money 
exchange, or cambio business in the United States, and--which 
employ thousands and thousands.
    Mr. Marino. Well, let me interrupt here for a moment.
    Mr. Smith. And basically shut them down.
    Mr. Marino. Let me interrupt.
    Mr. Sensenbrenner. Well, the gentleman's time is now 
expired.
    Mr. Marino. May I have 30 seconds.
    Mr. Sensenbrenner. Without objection.
    Mr. Marino. Thank you. You know darn well when you use the 
term ``every,'' every scenario is not going to be utilized. It 
is scenarios where we are talking about we know, coming from 
Columbia and Peru, we know the large chemical transactions and 
the large cash transactions are taking place.
    I, as a prosecutor for 18 years, and you as a defense 
lawyer, I cannot believe that you would not want to, if not 
completely eliminate this, curtail this, because it is the main 
focus of operation in the drug trafficking, and now it has 
become more sophisticated.
    I yield my time.
    Mr. Sensenbrenner. Okay.
    Mr. Marino. You may respond.
    Mr. Smith. I don't disagree with what you have just said, 
but that is not in the bill. There is nothing to deal with 
precursor chemical scenarios.
    Mr. Sensenbrenner. Okay. The gentlewoman from California, 
Ms. Chu, has been very patient.
    Ms. Chu. Thank you, Mr. Chair.
    The issue of transnational organized crime, in particular, 
money laundering, is important to me, since I am from Southern 
California, and we are affected by activities of the Mexican 
drug cartels. Last year, my colleague, Mr. Poe, and I worked on 
legislation that would allow U.S. law enforcement to more 
easily freeze the illicit proceeds of international criminal 
organizations and U.S. financial institutions, in the hopes of 
preserving those assets for future seizures. And fortunately, 
this legislation was signed into law in 2010, and ensures that 
U.S. courts can freeze assets once they determine that there is 
evidence of criminal activity, instead of having to wait to 
freeze assets after final decision has been made.
    Can you give any indication as to what role this newly 
enacted law has played in stopping foreign criminal money 
laundering operations?
    Ms. Shasky. Absolutely. First of all, I would like to thank 
you, because we much appreciated the efforts that you made, Ms. 
Chu, and then Mr. Poe made to get this legislation passed on an 
emergency basis, to clarify what we believe was already this 
body's intent in enacting the initial legislation. That is, 
when a foreign country comes to the United States and asks us 
to freeze money on their behalf, because of one of their 
criminal cases, that we be able to do that at the outset, and 
not wait until a final conviction and a final order of 
forfeiture. By the time we all know that the money is going to 
be long gone.
    Ms. Chu. Right.
    Ms. Shasky. And putting that legislation in place was 
crucial.
    Since the time it has been there, we have already frozen 
more than $50 million for foreign countries under that 
legislation. We are engaged in conversations daily with 
countries around the world, talking about what we can do on 
their behalf, and how we might use this provision to help them. 
It is absolutely essential, as we work with our partners around 
the world, to confront transnational organized crime, that we 
are able to work together hand in hand to do so.
    Thank you.
    Ms. Chu. Thank you.
    I would like to also ask about problems pertaining to 
cracking down on comingled funds, that include both clean and 
dirty money. And there is section 1957, which applies to the 
withdrawal of money from an account in which there is comingled 
money. But there is disagreement about how section 1957 
applies, as you stated in your testimony.
    And notably, both the Fifth and Ninth Circuit courts have 
held that when a defendant transfers over $10,000 from a 
comingled account, with both clean and dirty money, the 
defendant is entitled to a presumption that the first money 
moved out of the account is legitimate. However, this 
presumption seems to be contrary to all other accepted rules of 
tracing.
    So, can you explain how troubling this presumption is, 
especially in the Fifth and Ninth circuits, which rules over 
the Southwest border States that are the greatest targets for 
money laundering?
    Ms. Shasky. Absolutely. It is a good question. And I guess 
once I address the specifics, I would turn to my colleague from 
the Department of Treasury to give a very real example of 
trade-based money laundering scheme in the Lebanese-Canadian 
bank matter, that maybe can highlight this a bit more.
    But essentially, the problem, or the loophole that we 
believe is out there, based on some of these court decisions, 
is that we see transnational organized crime every day. It is a 
common technique to comingle the clean money with the dirty 
money. It makes it harder for law enforcement to trace. It 
makes it harder for law enforcement to prosecute.
    The law recognizes that in almost all instances that when 
such money is comingled, there is a transaction out of a bank 
account containing comingled money, that the government can 
take the presumption that that first money out, that 
transaction was with dirty money. Because money is fungible. 
You can't always tell. You don't know, you know, whether it is 
dirty money or clean money, but we get that presumption.
    The one exception to that is with the statutes 1957, 18 
United States Code, 1957. In the Fifth and the Ninth circuits, 
as you mentioned, there have been some cases that say that we 
don't get that presumption, and that instead it is the exact 
opposite. We have to assume that it is clean money coming out, 
which completely undermines our ability to go after these 
transnational organized crime groups.
    So, we are asking and proposing that we fix that loophole, 
by making it clear that it--the presumption should be that it 
is clean money that comes out first. Or I am sorry. Dirty money 
that comes out first.
    Ms. Chu. All right. And Mr. Bonin, could you respond to 
this?
    Mr. Bonin. Sure. Well, I mean, first, as a general matter, 
this you know, the comingling of dirty money and clean money is 
sort of, you know, at the heart of money laundering. And it is 
one of the primary ways you conceal the origin of funds, the 
nature of funds.
    Before I get to the example that Ms. Shasky just 
referenced, there was a recent example involving a Texas 
retailer that was depositing millions of dollars in cash in a 
bank account, mingled, you know, cash that was generated from 
the sale of drugs with cash that was generated from legitimate 
sales of, you know, the product they were selling. And, you 
know, fortunately, this activity was identified as suspicious, 
and, you know, able to take action. But it is a very common way 
of laundering money.
    The specific example Ms. Shasky references, the example of 
the Lebanese-Canadian bank that I mentioned earlier, and, you 
know, there were sort of two elements of that, that you had 
drug money going in via West Africa, ultimately being deposited 
into a Lebanese-Canadian bank in Beirut.
    Then you had money going back to purchase used cars in the 
U.S., which were then transferred to West Africa, and sold. And 
then, you know, that money was, in a sense, that was part of 
the cleaning process. The revenue generated from the sale of 
cars was then cleaner. Then you had other money that was used 
to purchase consumer goods in Asia, that were sent back to the 
Western Hemisphere, where they were sold to, you know, go back 
to the place where the drugs originated.
    So, it is a perfect example of trade-based money 
laundering, a perfect example of sort of the intersection of, 
you know, what are apparently legitimate businesses, with 
illegitimate activity, and the use of those, you know, 
apparently legitimate businesses to cover the illicit activity.
    Ms. Sensenbrenner. The gentlewoman's time has expired. The 
gentleman from Virginia, Mr. Goodlatte.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Let me ask each of you just to tell me, in general terms, 
how does money laundering affect business and job growth in the 
United States. Ms. Shasky, we will start with you
    Ms. Shasky. Sure. To the extent that criminals and 
transnational organized crime are able to continue and 
flourish, it is going to affect our average U.S. citizens, and 
our businesses, and job growth in the United States. So, let me 
try a more tangible example of that.
    We have transnational organized crime groups that are 
targeting our U.S. businesses to steal their information, 
whether that be their customer lists, so that they can then 
steal their identities, whether that be their intellectual 
property, so that they can sell it abroad and have copyright 
goods made. They are targeting our businesses. We have 
insurance fraud, targeting our insurance companies, by filing 
fraudulent claims.
    Any place they can get money, they are targeting. So to the 
extent we let them continue, we are going to have problems with 
our businesses. Our money laundering laws are a key way to stop 
these groups. They are motivated by money. If we can take away 
their motivation and their operating capital, we can help to 
dismantle them. And to the extent we are talking about crimes 
that have victims, like the ones just mentioned, we can take 
that money and get it back to its rightful owner.
    Mr. Goodlatte. Mr. Bonin, can you add anything to that?
    Mr. Bonin. Thanks, Congressman. I mean I just echo what Ms. 
Shasky said. It is obviously difficult to quantify the impact, 
the economic impact. In fact----
    Mr. Goodlatte. To what extent do these organized criminals 
use the internet to perpetrate all of these crimes on U.S. 
businesses?
    Mr. Bronin. I will defer to Ms. Shasky on that one.
    Ms. Shasky. They use the internet just like a normal 
legitimate business uses the internet. It is a tool of the 
trade. And, you know, now it is Facebook and Twitter. So, we 
see them using every tool that a legitimate business uses to 
perpetrate their schemes.
    Mr. Goodlatte. Thank you.
    Mr. Smith?
    Mr. Smith. Yes, Mr. Goodlatte. I like your question, 
because I think one--one aspect of--of this whole debate that 
tends to get overlooked is how much the money laundering laws 
cost American business every year.
    If you ask the American Bankers Association or other 
business organizations what do these anti-money laundering 
requirements cost them, they will tell you it costs them many 
billions of dollars every year to enforce these very strict 
money laundering laws. And it is very burdensome. And it also 
creates a competitive disadvantage for American banks and other 
financial institutions. And they complain about it, although, I 
don't think this Committee probably has heard them much.
    But there is one provision in this bill that I think that I 
have emphasized. The vast expansion of section 1960, to cover 
all sorts of businesses, not just money transmitting 
businesses, which would create a huge burden on thousands and 
thousands of small businesses around the country that cash 
checks, provide currency exchange. Armored truck businesses.
    Mr. Goodlatte. Let me----
    Mr. Smith. And----
    Mr. Goodlatte. Let me interrupt you here, because I have 
got limited amount of time. And let me ask Ms. Shasky if she 
wants to respond to that, and, in particular, tell us what 
havens, financial or otherwise, is the United States providing 
for transnational organized crime.
    Ms. Shasky. Sure. Thank you.
    I guess first, in answer to the Administration's proposal 
on making amendments to 1960, at the outset, I think it is 
important to note that the U.S. financial system is considered 
world class. And part of the reason for that is because of our 
efficiency and our integrity. We don't want the financial 
system to become the safe haven for the world's criminal 
proceeds, which will inevitably also give transnational 
organized crime groups not presently operating in the United 
States a toehold to do so.
    Because of the vulnerabilities of the ability to move money 
through the financial system, it is regulated. It is regulated. 
Money transmitting businesses are regulated. Check cashers are 
regulated. Stored access devices are regulated. Or prepaid 
access devices, rather, are regulated. All we are asking is 
that the definition of those money transmitting businesses used 
by Treasury in its regulation be harmonized with the definition 
in section 1960, so that if folks are failing to get a license, 
that we can prosecute them for doing that. We are looking for 
harmonization of the definitions here. Nothing more. Not a 
significant expansion.
    Mr. Goodlatte. Mr. Bronin?
    Mr. Bronin. We agree entirely. That is why we are very 
supportive of the Proceeds of Crime Act.
    If I could just respond briefly, again, echoing Ms. Shasky, 
I couldn't disagree more with the point made that our anti-
money laundering laws put us at a competitive disadvantage. Our 
anti-money laundering laws are what help make us the most 
transparent system in the world. They are the foundation of the 
integrity of our financial system. They are why it is so 
attractive to criminals to try to get access to our financial 
system. Our financial system, if you can get into it, confers 
they are legitimacy, because it is so legitimate, so 
transparent, and has such integrity. So, I couldn't disagree 
more.
    And to highlight what is at stake, you know, I referenced 
in my oral testimony and the written testimony this case where 
a bank that failed to implement effectively its obligations, 
conducted $420 billion in transactions with entities that it 
should have recognized were obviously suspicious. If you didn't 
have those anti-money laundering laws, that problem that you 
know, minor problem, with a lack of implementation, would be a 
huge problem of a lack of framework.
    Mr. Sensenbrenner. The gentleman's time has expired. The 
gentleman from Puerto Rico, Mr. Pierluisi.
    Mr. Pierluisi. Good morning. I am sorry I was late. 
According to the 2011 drug market analysis report, published by 
DOJ's National Drug Intelligence Center, the Caribbean region 
is a major center for drug traffickers to move bulk cash. That 
report states that bulk cash smuggling surged in 2009, and 
remained high through 2010. For example, bulk cash seizures in 
Puerto Rico more than doubled, from $3.5 million, in 2008, to 
almost $7.4 million in 2009. And the amount is similar in 2010.
    The report further states that the amount of bulk cash 
seized in Puerto Rico is much higher than the amount that can 
be generated through local drug sales, indicating that bulk 
cash is smuggled from the mainland U.S. to the island, which, 
as you know, is an American territory, and banking laws, 
Federal banking laws, apply pretty much the same as in any 
State.
    These findings are consistent with increasing drug 
trafficking we have seen through Puerto Rico and the U.S. 
Virgin Islands over the past several years. It also makes sense 
that Puerto Rico and the Virgin Islands are attractive targets 
for laundering money. As I was kind of implying or saying, a 
shipment of cash on a commercial airline from the States to 
Puerto Rico does not have to clear Customs, unlike a shipment 
from the States to a foreign Caribbean nation.
    Once in Puerto Rico or the VI, the cash can easily be 
transported via boats or aircraft, to neighboring Caribbean 
Islands. Not to talk about other types of transactions.
    In light of these findings, I would like to ask Chief 
Shasky and Mr. Bronin what steps each of your offices is taking 
to address money laundering through Puerto Rico. We have seen 
these bulk cash seizures. So, I want to see--I want to know if 
you have increased both personnel and assets in your own 
agencies, but also if you have noticed that related agencies, 
such as DEA and ICE are doing the same.
    There is a crisis in Puerto Rico. There is a violence 
crisis, but fueled by the drug trafficking issue, and the money 
laundering that goes along with it. So I would like to see some 
attention given to Puerto Rico and the VI.
    Ms. Shasky. Thank you. We bring cases in Puerto Rico like 
any judicial district throughout the United States. And where 
we have seen transnational organized crime operate, including 
the very drug trafficking organizations that you speak of, we 
will investigate and prosecute those crimes, and do so.
    The Department of Justice is committed to enforcing our 
laws in the District of Puerto Rico. I understand that both the 
Attorney General and Director Mueller of the FBI recently made 
visits to show our commitment.
    What we see in terms of the money laundering down there, my 
section has a proud history of dealing with that. One of the 
first big bank cases that was brought against a financial 
institution that did not have appropriate anti-money laundering 
controls in place was allowing drug trafficking money to be 
sent through the bank was a case that our section was involved 
in. And it was against Banco Popular back in 2003. And they 
entered into a deferred prosecution agreement, and made several 
changes as a result of that prosecution.
    Since that time, we have seen bulk cash continue to go 
through Puerto Rico. And more recently, we have seen trade-
based money laundering schemes as a problem there. I know that 
there have been some recent cases brought, focusing on that 
problem as well, in conjunction, as you mentioned, with our 
colleagues from ICE and the Department of Homeland Security.
    Mr. Pierluisi. Mr. Bronin?
    Mr. Bronin. Thanks, Congressman.
    I don't have a lot to add to what Ms. Shasky just said, 
other than to say, you know, with respect to the Caribbean 
region, in general, we are very active working in partnership 
with the Caribbean Financial Action Task Force. It is the FATAF 
style regional body for that region. And we work closely with 
them in promoting, you know, the framework that can help 
address this problem, and, you know, I think we have found that 
we have very good partners in that group.
    Mr. Pierluisi. By the way, I am calling for a Caribbean 
border initiative set forth by ONDCP, the drug czar's office. 
Because I believe there should be an overall strategy in the 
Caribbean, particularly given that there are two American 
territories over there, similar to the one we have in the 
Southwest border. I hope to count on your offices', respective 
offices' support.
    Thank you.
    Mr. Sensenbrenner. The gentleman's time has expired. The 
gentlewoman from Texas, Ms. Jackson Lee.
    Ms. Jackson Lee. I thank the Chairman and the Ranking 
Member for this hearing, and I think I will be somewhat global 
in my questions, just recognizing some of the challenges that 
we are facing with recent news announcement that Iran was 
opening or establishing a Spanish-speaking television show, 
that Hezbollah is in South America, and engaged in drug 
activity. And I imagine that because there might be a network, 
those dollars would find themselves in devastating locations, 
harming innocent persons. I balance that with making sure that 
we can work through the laws, through the respect of the 
judicial system that we have.
    I just want to ask a general question to Jen Shasky. The 
effort that the Administration has put forward, has that been 
helpful? Has that allowed your efforts to be focused on the 
scourge of money laundering and using it for ill-conceived 
activities?
    Ms. Shasky. Thank you, Congresswoman.
    The Administration's efforts in this area have been 
helpful. I think the big change that I see having occurred over 
the last several years is that we are now taking an all-of-
government approach to fighting transnational organized crime. 
That means it is not just law enforcement that is focused on a 
crime problem. It is the entire U.S. Government that is focused 
on a national and economic security problem.
    Our partners at Treasury are using their targeted 
authorities to help in this regard. Our friends at the State 
Department are helping us on the diplomatic front, and so on 
and so forth around the government. We are now working 
together.
    Ms. Jackson Lee. Before I ask my other question, I do want 
to publically say to Mr. Pierluisi that I want to be helpful. I 
think he mentioned his effort to me. And I want to join with 
him. I think that is initially important for his area and the 
whole previous work we have done on CBI, the Caribbean Basin 
Initiative.
    Let me ask a question----
    Mr. Pierluisi. Thank you.
    Mr. Jackson Lee. Of the treasurer, and then I would like 
Mr. Smith to comment on it. I said I wanted a balanced 
approach. I want to know how Americans may be entrapped in 
this.
    As you may recall, the issue in the Cuellar case was the 
money laundering provision that prohibits international 
transportation of money designed to conceal the nature, 
location, or ownership of criminal proceeds under 18 USC 1956. 
In Cuellar, the defendant was caught hiding drug proceeds in 
his vehicle while en route to Mexico. The court held that 
secretive transportation is insufficient for conviction. The 
court, the government must prove that the purpose of the 
transportation was to conceal the nation, the nature, location, 
or ownership of criminal proceeds.
    Is the Justice Department's attempt to abrogate the Supreme 
Court's decision in Cuellar versus United States overreached? 
The question goes to Mr. Bronin and Mr. Smith.
    Mr. Bronin. Thanks very much, Congresswoman. I am afraid I 
have to defer to Justice on that question. I am not 
sufficiently familiar.
    Ms. Shasky. The Administration's proposal would merely seek 
to make a change to the law, as recommended in the Cuellar 
decision, and that where we are finding problems with the 
Cuellar decision, most interestingly, is not in the drug 
trafficking arena, but more in the fraud arena. And our ability 
to bring cases targeting transnational organized crime, when 
they commit significant frauds against individuals in the 
United States, has been thwarted by the Cuellar decision, 
because we need to show each individual member's specific 
knowledge that the design, the way they move the money was 
designed to conceal it. Not that they knew they were concealing 
it, not that they knew they were concealing criminal proceeds, 
which they do know, but they had to know that this was one part 
of an overall design that was meant for concealment.
    We think that is too much, and is more than should be 
required by the law. We believe that we should be able to show 
that they knew they were moving criminal's proceeds and knew 
they were concealing them, and that is sufficient. It is very 
important for our ability to get monies and return them to 
victims in the United States.
    Ms. Jackson Lee. Mr. Smith?
    Mr. Smith. Yes, Congresswoman.
    I think the government overlooks the fact that they can 
usually prosecute folks like Ms. Shasky is mentioning by using 
conspiracy and aiding and abetting charges. If the person knows 
that they are transporting dirty money, and that that is 
helping the fraudulent organization, that is enough to make 
them a conspirator.
    They don't need to be prosecuted under the money laundering 
statutes to put them in jail or to forfeit their property. This 
is just another example of, you know, when the government loses 
a case in the Supreme Court, the first thing they do is ask 
Congress to overrule the decision. They don't start thinking 
about, well, gee, maybe the Supreme Court is right, and the law 
is--has been interpreted too broadly, and we don't really need 
this.
    This sort of a knee-jerk reaction, in my experience, of 
wanting to overrule the decision, and I think that they ought 
to think about it a little bit more, and make a bit more 
compelling case.
    Mr. Sensenbrenner. The gentlewoman's time has expired.
    Ms. Jackson Lee. Thank you.
    Mr. Sensenbrenner. That concludes our hearing today. I 
would like to thank the witnesses for their very pertinent 
testimony and answers to the questions.
    Without objection, the Subcommittee stands adjourned.
    [Whereupon, at 11:18 a.m., the Subcommittee was adjourned.]

                                 
