[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

                        TRADING WITH THE ENEMY:
                           TRADE-BASED MONEY
                           LAUNDERING IS THE
                           GROWTH INDUSTRY IN
                             TERROR FINANCE



                               BEFORE THE

                       TASK FORCE TO INVESTIGATE

                          TERRORISM FINANCING

                                 OF THE


                     U.S. HOUSE OF REPRESENTATIVES


                             SECOND SESSION


                            FEBRUARY 3, 2016


       Printed for the use of the Committee on Financial Services

                           Serial No. 114-70


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                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
SCOTT GARRETT, New Jersey            GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas              MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            RUBEN HINOJOSA, Texas
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
    Pennsylvania                     DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        AL GREEN, Texas
BILL HUIZENGA, Michigan              GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin             KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida              PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri                 KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DENNY HECK, Washington
LUKE MESSER, Indiana                 JUAN VARGAS, California
FRANK GUINTA, New Hampshire
TOM EMMER, Minnesota

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
             Task Force to Investigate Terrorism Financing

             MICHAEL G. FITZPATRICK, Pennsylvania, Chairman

ROBERT PITTENGER, North Carolina,    STEPHEN F. LYNCH, Massachusetts, 
    Vice Chairman                        Ranking Member
PETER T. KING, New York              BRAD SHERMAN, California
STEVE STIVERS, Ohio                  GREGORY W. MEEKS, New York
DENNIS A. ROSS, Florida              AL GREEN, Texas
ANN WAGNER, Missouri                 KEITH ELLISON, Minnesota
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
DAVID SCHWEIKERT, Arizona            DANIEL T. KILDEE, Michigan
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona

                            C O N T E N T S

Hearing held on:
    February 3, 2016.............................................     1
    February 3, 2016.............................................    41

                      Wednesday, February 3, 2016

Bock, Lou, former Senior Special Agent, U.S. Customs and Border 
  Protection.....................................................     8
Cassara, John A., former Intelligence Officer, and Treasury 
  Special Agent..................................................     6
Mesko, Farley M., Co-Founder and Chief Executive Officer, Sayari 
  Analytics......................................................     9
Passas, Nikos, Professor of Criminology and Criminal Justice, 
  Northeastern University........................................    11


Prepared statements:
    Bock, Lou....................................................    42
    Cassara, John A..............................................    67
    Mesko, Farley M..............................................    78
    Passas, Nikos................................................    81

              Additional Material Submitted for the Record

Fitzpatrick, Hon. Michael:
    DEA press release entitled, ``DEA and European Authorities 
      Uncover Massive Hizballah Drug and Money Laundering 
      Scheme,'' dated February 1, 2016...........................    98

                        TRADING WITH THE ENEMY:
                           TRADE-BASED MONEY
                           LAUNDERING IS THE
                           GROWTH INDUSTRY IN
                             TERROR FINANCE


                      Wednesday, February 3, 2016

             U.S. House of Representatives,
                          Task Force to Investigate
                               Terrorism Financing,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The task force met, pursuant to notice, at 10:01 a.m., in 
room 2128, Rayburn House Office Building, Hon. Michael G. 
Fitzpatrick [chairman of the task force] presiding.
    Members present: Representatives Fitzpatrick, Pittenger, 
Ross, Barr, Rothfus, Schweikert, Williams, Poliquin, Hill; 
Lynch, Sherman, Meeks, Green, Himes, and Sinema.
    Ex officio present: Representative Waters.
    Also present: Representative Royce.
    Chairman Fitzpatrick. The Task Force to Investigate 
Terrorism Financing will come to order. The title of today's 
hearing is, ``Trading with the Enemy: Trade-Based Money 
Laundering is the Growth Industry in Terror Finance.''
    Without objection, the Chair is authorized to declare a 
recess of the task force at any time.
    The Chair now recognizes himself for 3 minutes for an 
opening statement.
    On March 25, 2015, under the leadership of Chairman Jeb 
Hensarling, the House Committee on Financial Services adopted a 
resolution creating the Task Force to Investigate Terrorism 
Financing. The aim of this task force has been to assess the 
effectiveness of our current money-laundering and counter-
terror finance efforts and tools when faced with a world 
containing new and evolving threats.
    With Ranking Member Stephen Lynch, Vice Chair Robert 
Pittenger, and a bipartisan group of 21 Members, the Task Force 
has been able to conduct five hearings, and several briefings 
and information sessions, as well as a CODEL to meet with 
regional partners and discuss their efforts to counter 
terrorism financing.
    The initial 6 months of operation shed significant light on 
multiple issues with regards to counter-threats finance and 
anti-money laundering initiatives. First was the discovery of 
the various revenue streams ISIS utilizes to fund its terror 
operation, and the ways in which the United States may 
effectively counter them, such as continuing to target ISIS oil 
infrastructure, working with regional allies to close porous 
borders, and a better police to travel with foreign fighters.
    Second, the task force brought about a consensus that there 
is a need for greater information-sharing throughout the 
financial system and between government agencies, as well as an 
increased integration of government databases. Finally, it 
became evident through witness testimony and numerous 
briefings, that Congress needs to act on beneficial ownership 
and to provide the appropriate agencies sufficient resources to 
address current challenges.
    Building on what we know and have learned, this session 
will take a much closer look at several lesser-known 
methodologies that have been mentioned in previous briefings 
and hearings, including trade-based money laundering, terror-
funding streams from Latin America, developing our regional 
partners' capabilities to combat terror financing, and the 
funding of foreign-based terrorists.
    Today, we aim to take a closer look at trade-based money 
laundering, the process of disguising the proceeds of crime and 
moving value through the use of trade transactions in an 
attempt to legitimize their illicit origins. This practice 
allows hundreds of billions of dollars to be laundered annually 
and cannot be allowed to continue.
    It is our hope that with the help of our expert witnesses, 
this body will walk away with a better understanding of the 
problem as well as an effective measure to curb and combat this 
practice. On Monday, DEA and European authorities were able to 
uncover a massive Hezbollah drug and money-laundering scheme 
that was intent on providing financial assets to militants in 
Syria. This development depicts the scale of this problem and 
the urgent need to devote more focus towards it.
    Unless there is any objection, I will ask for unanimous 
consent to put this DEA release into the record.
    Without objection, it is so ordered. This hearing marks the 
beginning of another 6 months of investigation, and an 
additional step towards snuffing out the resources necessary 
for these nefarious groups to grow and to thrive.
    I now recognize for an opening statement the ranking member 
of the task force, the gentleman from Massachusetts, Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman, and I thank Chairman 
Hensarling, Ranking Members Water, and Vice Chair Pittenger for 
holding today's hearing. I also want to thank our witnesses for 
helping this task force with its important work. This hearing 
will give us a much-needed opportunity to examine the trade-
based money laundering nexus to terrorism financing.
    Trade-based money laundering involves using trade and 
products or commodities for value in order to divert and 
obscure the true nature of illicit wealth. Currently, there is 
ample opportunity for terrorist groups to exploit the 
international trade system, with low risk of being caught. 
According to the Financial Action Task Force (FATF), key 
characteristics of the international trade system, including 
the enormous volume of trade flows and the complexity therein, 
can arise from the practice of co-mingling illicit funds with 
the cash flows of legitimate businesses, and the limited 
recourse to verification procedures or programs to exchange 
customs data between countries, have made it both attractive 
and vulnerable to illicit exploitation.
    A few years ago my colleagues at FinCEN briefed me on an 
elaborate trade-based money laundering scheme that was linked 
to the terrorist organization Hezbollah. Under the scheme, the 
Lebanese-Canadian Bank and multiple foreign-exchange houses 
facilitated the laundering of South American drug proceeds 
through the Lebanese financial system and through trade-based 
money laundering schemes involving cars and consumer goods. 
Cars would be purchased in the United States and shipped to 
Senegal and other areas of West Africa. The proceeds from the 
car sales would be funneled back to Lebanon through bulk cash 
deposits among conspiring exchange houses.
    Now as the Chair has noted, we are back at it again with 
the Lebanese-Canadian bank, and the same stream of illicit 
funding has been encountered again. I note that our witnesses, 
Lou Bock and John Cassara, suggested that a network of global 
trade transparency units (TTUs) would help us bring the opaque 
system used by Hezbollah and many others into the light of day, 
and I am inclined to agree.
    The United States is already at the forefront of trade 
transparency. In 2004, the United States created the first 
transparency unit within the Department of Homeland Security to 
analyze data in order to identify global trade-based money 
laundering trends. A further expansion of TTUs would allow the 
United States to trade paperwork and set international 
standards for trade.
    And as Lou Bock and John Cassara propose, we need a system 
of TTUs that is analogous to the Egmont Group's financial 
intelligence units. I am happy to see that Dr. Nikos Passas of 
Northeastern is with us today, and he recommends highly that we 
need to collect this data in one place so it can be easily 
    So in closing, I just appreciate the work of the Chair and 
the Vice Chair, and the work of our witnesses as well. This is 
important work that needs to be addressed.
    I would like to yield 1 minute to the ranking member of the 
full Financial Services Committee, Ms. Maxine Waters.
    Ms. Waters. First, I would like to say that I am pleased 
that our committee voted to extend the mandate of our Task 
Force to Investigate Terrorism Financing for an additional 6 
months, and I commend the good work of the task force, work 
that they have done during the past year under the leadership 
of Ranking Member Lynch, Chairman Fitzpatrick, and Vice 
Chairman Pittenger.
    By providing the opportunity to hear from a wide range of 
experts, we have been better able to understand the threats we 
currently face, as well as the challenges we must meet in order 
to overcome the identities, intentions, and resources of 
fanatics who are plotting violence against innocent people both 
here and abroad. I very much welcome the topic of today's 
hearing and I look forward to this examination into the scope 
and dimension of trade-based money laundering and the threat it 
poses to our security.
    The written testimony of our witnesses makes an 
overwhelmingly persuasive case that trade-based money 
laundering is one of the most widespread, pernicious, and least 
understood forms of money laundering. Although the enormity of 
the problem may be daunting, I hope as we learn more about the 
issue, we will be able to hone in and act on some discrete 
policy responses within our committee's jurisdiction, in 
particular those that address the role financial institutions 
play in detecting and disrupting trade-based money laundering 
    I look forward to the witnesses' statements, and I yield 
back the balance of my time.
    Mr. Lynch. At this point, Mr. Chairman, I would like to 
yield 1 minute to Ms. Sinema of Arizona.
    Ms. Sinema. Thank you, Chairman Fitzpatrick, and Ranking 
Member Lynch. Arizona's top export market is Mexico, and cross-
border trade is essential to our economy. Despite its 
importance to Arizona's economy, cross-border trade is often 
used to facilitate international money laundering. For the past 
20 years, official figures put Mexican exports to America well 
above American imports from Mexico. According to Global 
Financial Integrity, the discrepancy can be attributed to 
Mexican groups using trade-based money laundering to bring 
dollars into Mexico.
    We need to find ways to stop trade-based money laundering, 
while promoting the efficient and cost-effective movement of 
goods and services across borders. Given the volume and 
complexity of trade-based money laundering, how can we do more 
to counter the misuse of international commerce and the threat 
it poses to our national security? How can we address this 
national security threat without limiting access to banking 
services for legitimate enterprises in border States like mine? 
I look forward to hearing more from our witnesses today about 
how we can better combat international money laundering without 
creating costly red tape and inhibit commercial trade flows.
    Thank you, Mr. Chairman. I yield back.
    Chairman Fitzpatrick. The Chair now recognizes the vice 
chairman of the task force, Mr. Pittenger, for 1 minute.
    Mr. Pittenger. Thank you, Chairman Fitzpatrick, and thank 
you to Chairman Hensarling and Ranking Member Waters, and I 
particularly want to thank Ranking Member Lynch of this task 
force for its continued dedication to these issues and all the 
Members who have committed their time and efforts in this 
important work. And thank you to the witnesses who have come 
and brought their experience to this task force.
    Criminal enterprises have relied on this method of illicit 
financing for years. However, many believe that this is an 
emerging technique now being used by terrorist groups to 
finance their violent and oppressive operations.
    With over $100 billion flowing in Iran, the world's largest 
state sponsor of terror, the risk of terror financing has never 
been greater. Similarly, the Administration has done nothing to 
diminish the number of ISIS soldiers on the battlefield in Iraq 
and Syria. ISIS members have remained consistently 20,000 to 
30,000 soldiers for the past several years despite over 10,000 
Saudi air strikes.
    Since we have not removed ISIS from the battlefield, they 
will continue to require resources to fund their oppression. As 
we enter into the new year, Congress should prioritize efforts 
to stop the flow of money and resources to terrorist 
organizations. We must ensure that organizations like the 
Financial Crimes Enforcement Network (FinCEN) receive the 
resources and intelligence necessary to combat trade-based 
money laundering and other methods of illicit financing.
    With that, I thank the Chair and the ranking member once 
again, and I yield back.
    Chairman Fitzpatrick. And I recognize the gentleman from 
Texas, Mr. Williams, for 1 minute.
    Mr. Williams. Thank you, Chairman Fitzpatrick, and thanks 
to all of the witnesses today for being here. As previous task 
force hearings have explored, the use of trade to launder money 
is nothing new and is most definitely on the rise. Although 
trade-based money laundering is widely recognized as one of the 
most common ways terrorist organizations seek funding, it is my 
hope that this task force continues to explore solutions to an 
ever-growing problem that often hits too close to home.
    When I talk about that, I am talking about my home. As a 
second generation auto dealer, my industry has not been immune 
to trade-based money laundering. Through the sale of used cars 
as well as other legitimate products, terrorist organization 
have funneled billions of dollars through U.S. markets.
    While many high-profile cases have been discussed in prior 
hearings, criminal organizations will continue to exploit new 
methods when it comes to laundering money unless strict 
government oversight enforcement is improved.
    It is my belief that this task force has an important role 
to play in the combating of terrorist financing, and I look 
forward to hearing from our witnesses on how best to do it, and 
especially on how my industry can do what they need to do to 
stop it. So thank you, Mr. Chairman. I yield back.
    Chairman Fitzpatrick. The gentleman yields back. We now 
welcome our witnesses. First, Mr. John Cassara is a former 
United States Intelligence Officer and Treasury Special Agent. 
Mr. Cassara has over 26 years of experience in the Federal 
Government intelligence and law enforcement communities. He is 
an expert in anti-money-laundering and terrorist financing. Mr. 
Cassara invented the concept of trade transparency units and 
recently released a book on that topic this past fall entitled, 
``Trade-Based Money Laundering: The Next Frontier in 
International Money Laundering Enforcement.''
    Mr. Cassara has lectured around the world on a variety of 
trans-national crime issues. He is currently an industry 
adviser to the analytics company SAS. He holds a master's 
degree in international management from the American Graduate 
School of International Management in Phoenix, Arizona. He also 
graduated magma cum laude from the University of California, 
San Diego.
    Second, Mr. Louis Bock is a former Senior Special Agent at 
U.S. Customs and Border Protection. Mr. Bock has had a 
successful career as a U.S. Government criminal investigator 
with experience targeting trade fraud and money laundering with 
the United States Immigration and Customs Enforcement, U.S. 
Customs and Border Protection, the Department of Agriculture, 
and the Drug Enforcement Agency.
    Mr. Bock was named the godfather of trade-based money 
laundering by Mr. Cassara in his recent book due to his 
pioneering efforts to systematize the analysis of trade data. 
Mr. Bock holds a bachelor's degree in behavioral and 
statistical measurement from Brooklyn College, and a master's 
degree in education and behavioral and statistical measurement 
from King College.
    Third, Mr. Farley Mesko is co-founder and chief executive 
officer of Sayari Analytics. Mr. Mesko started after spending 5 
years building the C4ADS, a non-profit organization focused on 
data-driven technology enabled analysis of conflict and 
security issues. Sayari Analytics conducts open source resource 
of public records to uncover financial and other networks of 
illicit actors.
    Prior to his time at C4ADS, Mr. Mesko was a special 
correspondent for the East African Magazine. Mr. Mesko holds a 
bachelor's degree in environmental studies and government from 
Bowdoin College. At this time, I will ask Mr. Lynch to 
recognize and introduce his constituent from Northeastern 
    Mr. Lynch. Thank you for that courtesy, Mr. Chairman. Dr. 
Nikos Passas is a professor of criminology and criminal justice 
at Northeastern University, one of our fine institutions in 
Boston. And he is co-director of the Institute of Security and 
Public Policy. He has served as corruption program director at 
the Ethics and Compliance Officer Association, and as an 
adjunct law professor at Case Western Reserve University.
    His law degree is from the University of Athens, his 
master's degree is from the University of Paris, and his Ph.D. 
is from the University of Edinburgh Faculty of Law. He 
specializes in the study of corruption, illicit financial trade 
flows, sanctions, informal fund transfers, remittances, 
terrorism, white collar crime, financial regulation, organized 
crime, and international crimes.
    He has published more than 200 articles, books, chapters, 
and reports in 13 languages. His next book is entitled, 
``Trade-Based Financial Crime and Illicit Flows,'' and another 
is entitled, ``Corruption and Crisis in Greece.'' So welcome, 
Dr. Passas.
    Chairman Fitzpatrick. The witnesses will now be recognized 
for 5 minutes each to give an oral presentation of your 
testimony. And without objection, the witnesses' written 
statements will be made a part of the record. Once the 
witnesses have finished presenting their testimony, each member 
of the task force will have 5 minutes within which to ask 
    For the witnesses, on your table there are three lights: 
green; yellow; and red. Yellow means you have 1 minute 
remaining, and red obviously means your time is up. Be advised 
that the microphone is very sensitive so please make sure you 
are speaking directly into it. With that, Mr. Cassara you are 
recognized for 5 minutes.


    Mr. Cassara. Good morning. Chairman Fitzpatrick, Ranking 
Member Lynch, and members of the task force, thank you for the 
opportunity to testify today. It is an honor for me to be here. 
Not long after the September 11th attacks, I had a conversation 
with a Pakistani entrepreneur. This businessman could 
charitably be described as being involved in international gray 
markets and illicit finance.
    We discussed many of the subjects addressed in this hearing 
including trade-based money laundering, terror finance, value 
transfer, hawala, fictitious invoicing, counter-valuation, and 
others. At the end of the discussion he looked at me and he 
said, ``Mr. John, don't you know that your adversaries are 
transferring money and value right under your noses? But the 
West doesn't see it. Your enemies are laughing at you.''
    That businessman knew that the United States and the 
international community had devoted attention, countermeasures, 
and resources to counter a variety of money laundering and 
terror finance methodologies. However, trade-based money 
laundering (TBML) for the most part has been ignored. TBML is 
defined as the process of disguising the proceeds of crime and 
moving value through the use of trade transactions in an 
attempt to legitimize their illicit origins.
    The key word in that definition is ``value.'' The magnitude 
of TBML has never been systematically examined. Nevertheless, 
one academic study examining the 2013 U.S. trade data found 
that almost $220 billion of the illicit value was moved out of 
the United States in the form of value transfer. That figure 
represents almost 6 percent of U.S. trade.
    Approximately $340 billion was moved into the country via 
suspect trade transactions representing about 9 percent of U.S. 
trade. TBML is also involved with tax evasion, export incentive 
fraud, VAT fraud, capital flight or the transfer of wealth 
offshore, evading capital controls, barter trade, underground 
financial systems such as fei-chien, the Chinese flying money 
system, the black market peso exchange and commercial trade-
based money laundering such as trade diversion, transfer 
pricing, and abusive trade misincoming.
    In discussing terror finance, TBML is also intertwined with 
hawala, the misuse of the Afghan transit trade, Iran and Dubai 
commercial connections, the tri-border region in South America, 
suspect international Lebanese-Hezbollah trading syndicates, 
non-bank lawless regimes such as those in Somalia and Libya, 
the ISIS regime in Syria and Iraq, and many more.
    So considering all of its varied forms, I can make the 
argument that trade-based money laundering is perhaps the 
largest and most pervasive money laundering methodology in the 
world. Unfortunately, it is also the least understood, 
recognized, and enforced. In its primary form, TBML revolves 
around invoice fraud and the associated manipulation of 
supporting documents. The primary techniques are over- and 
under-invoicing of goods, multiple invoicing of goods, and 
falsely described goods.
    For example, did you know that we are importing plastic 
buckets from the Czech Republic and each bucket costs $972? Do 
you know that we are importing toilet tissue from China at the 
price of over $4,000 a kilogram? And that we are exporting live 
cattle to Mexico at $20 a head? Because of the magnitude of 
U.S. and global merchandise trade, these transactions and 
millions of others like them are not recognized, and simply get 
    Successful enforcement efforts are practically nil. 
Nevertheless, I am hopeful. First of all, theoretically, 
international trade transparency can be achieved because of the 
exponential growth in data and the incredible advances in 
analytics. I am also optimistic because trade transparency is 
also a revenue enhancer. I have found that the carrot of 
empowering our partners to strive for trade transparency and 
increased revenue can be much more effective than the stick of 
heavy-handed measures that have proven to be unsuccessful.
    I have a number of recommendations in my written statement, 
and in my new book, ``Trade-Based Money Laundering: The Next 
Frontier in International Money Laundering Enforcement.'' These 
include reaching a consensus on the magnitude of the problem, a 
Financial Action Task Force recommendation on TBML, and 
supporting the trade transparency unit initiative.
    Thank you, and I would be very happy to answer any 
questions you may have.
    [The prepared statement of Mr. Cassara can be found on page 
67 of the appendix.]
    Chairman Fitzpatrick. Thank you, Mr. Cassara.
    Mr. Bock, you are recognized for 5 minutes.


    Mr. Bock. Good morning. I would also like to thank the 
chairman and the members of the task force for this 
opportunity. I appreciate your interest in the program that I 
have helped to develop for the past 25 years.
    My name is Lou Bock, and I am a retired Senior Special 
Agent who worked as an investigator with DEA and USDA, later at 
Customs, which later became ISDHA. I worked on and supervised 
financial fraud and intelligence programs. For much of my 
career, I generated and worked large, complicated criminal 
cases involving trade fraud and money laundering schemes 
totaling billions of dollars.
    I did so with the help of a team of import and tax 
specialists, agents, and analysts. We identified patterns of 
criminal behavior that stretched across large volumes of trade 
and financial data. The software methodology that my team and I 
pioneered was successfully deployed in over two dozen 
    This led, with the insight and vision of John Cassara, to 
the development of trade transparency units (TTUs). I believe 
that TTUs have veered from their initial financial and Customs 
focus in part because of the changing culture within the 
Department of Homeland Security. Cassara writes in his book, 
``Trade Based Money Laundering,'' that the forced merger with 
the former INS, and expansion of Customs missions into 
immigration enforcement, has not been successful.
    Its expertise, skill sets, budgets, and staffing were 
deluded. The resulting dysfunction within the DHS has been less 
well-documented. DHS has neither the Customs nor financial 
expertise to make the TTU a success. The loser here is our 
ability to tackle trade-based money laundering and trade and 
tax revenue loss on a grand scale.
    It is a missed opportunity to target funds belonging to 
terrorist groups such as ISIS, which necessarily do participate 
in their local trade. What is needed in support of a TTU? 
Detailed transactional import and export data, as well as 
records of the movement of money for the United States and 
partner nations.
    Movement of trade goods should include bills of lading and 
manifest records for both imports and exports of the United 
States. Intermediate container movements, which are readily 
available, are also useful. ESA data which includes suspicious 
activity reports will greatly enhance the targeting veracity of 
the items mentioned above.
    At present, the existing DHS TTU's attention is focused 90 
percent on South America. That perhaps makes some sense given 
that DHS' focus is on immigration and drugs. However, I believe 
this view does little to attack current evolving terrorist 
threats. The real money flowing to ISIS involves trade from the 
Middle East, Europe and including Turkey.
    With the proper focus on terrorist financing and trade-
based money laundering, housed in a financial organization such 
as FinCEN, which has existing agreements with revenue agencies, 
we can make a serious dent in the core funding sources of 
entities such as ISIS.
    I recommend the creation of a reinvigorated TTU with an 
associated budget line from Customs. I also think that a TTU 
should be housed at FinCEN under Treasury. Treasury is an 
agency capable of addressing the nexus of trade-based money 
laundering and tax revenue loss within the existing 
international agreements.
    I believe DHS ICE is not a revenue agency and the Treasury 
Department is. Giving FinCEN this focus immediately, and full 
access to the necessary trade data, is the obvious next step, 
whatever the eventual status of the TTU initiative is within 
    Let's return to our earlier vision: focus and 
effectiveness, built on a rapidly increasing number of TTUs 
analogous to the Egmont Group's financial intelligence units.
    I would like to get back on track with this. Thank you for 
    [The prepared statement of Mr. Bock can be found on page 42 
of the appendix.]
    Chairman Fitzpatrick. Mr. Mesko, you are now recognized for 
5 minutes.

                   OFFICER, SAYARI ANALYTICS

    Mr. Mesko. Chairman Fitzpatrick, Ranking Member Lynch, and 
members of the task force, I want to thank you for the 
opportunity to be here today. I want to dive deeper into the 
real-world example of Hezbollah terror financing through TBML. 
It was referenced in the opening statements by the Members.
    I want to do so in order to illustrate some of the 
challenges and opportunities in targeting these schemes. 2011 
is part of a larger sanctions package. U.S. regulators and law 
enforcement identified a Cotonou Benin-based group of import-
export companies known as the Alissa Group that dealt primarily 
in used-car imports into West Africa from the United States, 
Canada, and Europe.
    Treasury data from the original 2011 action indicates that 
at least 6 of the sanctioned companies shared an address in 
Cotonou. Several also shared the same phone number and key 
    We went to the public records in the Chamber of Commerce in 
Cotonou and Benin, and found that another company co-located 
with the Alissa Group at the time of the original 2011 
designation was Ramadi SRL. And further, that a new company, 
Abou Merhi Lines began to use the same shared address and phone 
number shortly after the 2011 sanctions designation.
    It took 2 more years to identify the Ramadi SRL as a 
participant in the original scheme. And 2013 FinCEN 311 
designation. It took another 2 years on top of that to identify 
and sanction Abou Merhi Lines in 2015. These entities were 
operating for years out of the same location in Benin, with the 
same address, and the same phone number, by the same key 
    What I haven't mentioned so far is that in addition to the 
Ramadi SRL and Abou Merhi Lines, public data shows that at 
least five other companies and two individuals were and 
possibly continue to be active at the shared Alissa Group 
address in Benin, in some cases listed in care of Alissa Group 
on their public documents and operating in the used vehicle 
    I share this example because it illustrates several key 
points about detecting and deterring trade-based money 
    First, that sanctions, 311 actions, and indictments are a 
starting point and not an endpoint in the government's efforts 
to target money launderers and terror financiers. Networks 
change over time but they rarely go away, and TBML networks in 
particular often leave a large footprint companies and 
individuals as a result of their efforts to seem legitimate.
    Working in our favor, more often than not there is a trail 
leading back from these seemingly legitimate entities to 
already known and already identified illicit actors. The data 
to help us draw these connections is often publicly available. 
It may not be easy to find, but it is out there.
    Working against us, however, is the fact that the types of 
relationships that we should be concerned about within a 
network don't always comport with the types of relationships 
that regulators have told banks, insurance companies, and the 
transportation sector that they need to be concerned about.
    This is an area where I think the task force could have 
real impact, and the clearest example in my mind is that of the 
singular focus on majority ownership by Treasury's Office of 
Foreign Assets Control (OFAC) when they guide financial 
institutions in their dealings with related parties, especially 
designated nationals such as those identified as part of the 
Alissa Group sanctions package.
    OFAC has stated that banks need only block transactions 
related to parties on 50 percent or more by an SDN, but only 
``urges caution when dealing with parties where an SDN has a 
significant minority interest or may exercise control by means 
other than majority ownership.''
    Never mind the lack of clarity on what regulators mean in 
practical terms when they urge caution. But what about an 
entity in a terror financing network that is 49 percent owned 
by a narco-trafficker working with Hezbollah? What about 
entities that share key personnel, identifiers, and selectors 
with a group of SDNs and operate in the same industry segment, 
in the same place as those SDNs?
    Do we really want to allow financial institutions, 
transportation companies, insurance brokers--whomever it is, to 
service these clients? It strikes me that especially in the 
terror financing context, and doubly true in the case of the 
complex webs of relationships that characterize TBML, 
clarifying and expanding the scope of what the private sector 
needs to be concerned about is long overdue.
    I thank you for the opportunity to be here today, and I 
look forward to your questions.
    [The prepared statement of Mr. Mesko can be found on page 
78 of the appendix.]
    Chairman Fitzpatrick. Thank you, Mr. Mesko.
    And Dr. Passas, you are recognized for 5 minutes.


    Mr. Passas. Good morning, Chairman Fitzpatrick, and Ranking 
Member Lynch. Thank you for the kind introduction. Vice 
Chairman Pittenger, distinguished members of the task force, it 
is an honor to testify before you.
    The threat of trade-based money laundering is serious, but 
effective responses are feasible and within reach. The switch 
to turn the lights on to what is now shadowy economic 
activities is in your hands. I will list the challenges and 
outline some solutions.
    Despite substantial efforts against money laundering, too 
little attention is paid to trade, which constitutes the 
biggest security and crime liability, a black hole undermining 
the entire control framework. Even if all current rules were to 
be perfectly enforced throughout the world, billions of dirty 
funds could still be moved undetected.
    Trade can hide both illegal shipments and illicit finance. 
Countering the finance of terrorism is about financial 
vigilance: to understand the operations of terror groups, 
respond effectively and strategically. For this, financial 
information and commercial flows must be monitored. Most of our 
attention focuses on the first two, while trade is neglected 
and is wide open to abuse.
    Many terror groups have used commodities for finance, 
including ISIS. Some work was done in 2003 at FinCEN on trade-
connected hawala and other informal value transfer systems, a 
term I coined back in the 1990s, but no proper assessment of 
trade vulnerabilities or updated hawala review has taken place.
    When it comes to trillions of dollars in annual trade, our 
vision is blurred. Relevant information is scattered. Some of 
it is collected by Customs, FinCEN, the Department of Commerce, 
and port authorities and counterparts overseas.
    Other data are in the hands of banks, insurance companies, 
logistics companies, importers, and exporters. No one has the 
full picture because no one aggregates the data in one place. 
Banks are expected to focus on transactions and check-the-box 
monitoring that yields massive false positives, rather than 
centering on the highest risks, identifying offenders and 
working more closely with controllers.
    Finally, the value of open source information helpful for 
investigations and due diligence relative to criminal networks, 
beneficial ownership, adverse news, and corruption is 
underestimated. Yet, it can point to knowledge gaps, 
misunderstandings, and new insights. The answer is to stop 
missing opportunities.
    The necessary data are not in one place but do exist, 
hawala is a challenge but also an intelligence resource because 
intermediaries can help. Agencies should share information. 
Businesses and academia can assist with new data collection and 
policy useful analysis.
    Our view is blurred unnecessarily. It is like having a 4K 
TV that we use for analog programs. The means are there to 
create a feed for a high-definition picture of illicit trade 
and finance. Several data types can be assembled. Inbound and 
outbound manifests on what goods are received, where, when and 
who is involved. Import and export declarations when goods 
enter or leave the economy.
    Some of it is published online, and some is provided by 
companies for a fee. Business documents, BSA, trade finance, 
insurance, storage, crime, medical, satellite imaging, and cash 
movement data can be added too.
    Concrete steps the U.S. Government should consider include 
the following: ensure that government data are gathered and 
analyzed in one place--FinCEN would be ideal. Assemble private 
and open source data through a trusted third party such as a 
university that securely stores and analyzes them in a 
consolidated way, collaborates with FinCEN to identify 
irregularities, generate typologies and red flags, map criminal 
networks, issue guidance, and produce evidence-based 
investigative clues. Update information on hawala in the United 
States and regions of concern. Methods keep changing and 
adapting, and we need to know what changed
    None of this is new. At Northeastern, we collaborated with 
FinCEN, DHS, and NIJ to do exactly this kind of work on hawala, 
gold, diamonds, and tobacco trade. Working with the Arizona 
attorney general, we combined MSB and trade data to analyze a 
TBML case involving textiles in the United States, Mexico, and 
    Partners in Europe and the Middle East stand ready to be 
enlisted in a collective action targeting, for example, ISIS, a 
group with enemies in and around the territory controls. 
Instead of shooting in the dark, we can shed light on black 
markets and go after well-defined targets.
    Official networks and records, networks to produce new 
data, technology, analytical capacity, experience, and 
willingness to collaborate are all there. I urge you to turn 
the switch. Thank you.
    [The prepared statement of Dr. Passas can be found on page 
81 of the appendix.]
    Chairman Fitzpatrick. We thank the witnesses for their 
testimony. We will now go to members of the task force for 5 
minutes of questions each. I will first recognize myself.
    Mr. Bock, given your longstanding experience in seeking to 
uncover trade-based money laundering schemes, are you satisfied 
with the U.S. Government's efforts since the 1990s to uncover 
and ultimately dismantle this type of illicit activity? And 
obviously, we know that there have been some great successes, 
but we are most interested in where you think the U.S. 
Government can do better.
    Mr. Bock. When the effort is made to collect the data and 
organize it and analyze it, lots of material is created. The 
biggest problem I have seen in my experience with both the 
Customs Service and with DHS was that once you found something, 
you had difficulty bringing it to people who were interested in 
making the cases.
    The priorities out in the field--it was easier for the 
agents in charge to have arrests made for small quantities of 
dope or for illegal aliens. In the cases that we came across, 
such as gold, it is mind-staggering how much money moves there 
and the amount of things that look good but confuse people. As 
a result, it needs lots of resources to make the cases, and 
that is something that the field is not very often interested 
in doing. And that is our biggest problem.
    This case you had in the papers today with DEA is a large 
case. There wasn't a lot of energy in the field to makes cases 
like this. That is my biggest complaint. And we had a difficult 
time getting it out to the field.
    Chairman Fitzpatrick. On the issue of information-sharing 
between agencies, we can think back to the 9/11 Commission. One 
of the big criticisms of our intelligence agencies was that 
they were doing a pretty good job individually in a stovepipe 
setting, but they weren't sharing information with each other.
    Mr. Bock, how would you grade the cooperation between law 
enforcement and the other Federal agencies--Customs, Border 
Protection, ICE, the Financial Crimes Enforcement Network? Are 
they sharing information with each other, and is there 
opportunity for improvement there?
    Mr. Bock. Yes, they are sharing the information. The 
financial networks are part of the system that we were using in 
the trade transparency units within DHS. However, it is 
difficult to get things--I have to be careful with this.
    The things that come from the atmosphere that are captured, 
it is difficult to get that information put into a report to 
identify and say, here is some further evidence. It is one 
thing to say, we see a massive trade flow problem, there are 
unbelievable amounts of gold coming from a country that doesn't 
have it. It is another thing to have somebody tell you, we know 
where the bank accounts are and we know of people making these 
transactions, and then not being able to tell anybody about it.
    So that, in my experience, has been the biggest problem. I 
think that would have convinced many people to take the cases.
    Chairman Fitzpatrick. Mr. Cassara, while you say it is 
logical that the early trade transparency units were sort of 
originating in and around Latin America, what was a little 
surprising is there was not a movement of those TTUs beyond 
that region. Why do you think that was the case?
    Mr. Cassara. I think originally, when the TTUs were first 
stood up back about 2004, 2005, it made sense to kind of focus 
on Latin America in general. They were specifically concerned 
about the black market peso exchange methodology. and this was 
considered one of the primary countermeasures that we had.
    The concept, in fact, has proven successful. We have about 
a dozen TTUs right now and there been about a billion dollars 
of seizures. But at the same time, it is like operating with 
one hand tied behind your back because the system has never 
really had, has never really accelerated, has never reached 
that next level, and there are a lot of reasons behind that we 
could get into, but a lot of it had to do with lack of 
resources, lack of personnel, raiding of personnel and 
resources, et cetera.
    There have been countries around the world that have wanted 
to create TTUs. In fact, that was the original concept behind 
the TTUs: to have an Egmont-like financial intelligence 
umbrella for trade transparency units. I still think that is 
feasible. I think that is the next frontier in international 
money-laundering enforcement. I think we will be moving in that 
direction, but we can't continue the status quo. We are just 
treading water and I think we need to get to the next level.
    It is certainly attainable. We just have to have the will 
to do it. And as I keep harking back in my testimony, this 
should be a no-brainer. We can do that. The data exists and it 
is a revenue enhancer. Why wouldn't we want do it?
    Chairman Fitzpatrick. I now recognize the ranking member of 
the task force, Mr. Lynch, for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman. Several of the 
witnesses today have mentioned the fact that we have deployed a 
lot of anti-terrorist financing assets. We have them in ICE, we 
have them at the Treasury in FinCEN, but they are somewhat 
scattered. And I know Mr. Bock and Dr. Passas, you both 
mentioned that more properly the resources should be deployed 
at FinCEN because it is a revenue agency, part of Treasury. 
They are doing a great job on the FIUs.
    Members of this task force and committee were involved very 
early on when we were standing up FIUs in Afghanistan and 
Jordan and Morocco, so is it the general feeling of the panel 
that that should take place? Mr. Cassara?
    Mr. Cassara. I spent 6 years of my life at FinCEN. I was 
the Customs Liaison to FinCEN. This was in the late 1990s, in 
the era around 9/11.
    Mr. Lynch. Yes. I don't have a lot of time. I am just 
trying to get an assessment of whether you think that is a good 
idea or a bad idea?
    Mr. Cassara. My personal opinion is no, it is not a good 
idea. TTU belongs in what is Customs, and a lot of this has to 
do with Customs, the Custom-Customs agreements we reach with 
other countries. The other thing is, we can debate FinCEN, but 
in my opinion, FinCEN has never achieved its full potential, 
and there is a host of issues over there right now. I don't 
think they are ready for the TTU.
    Mr. Lynch. Okay. Mr. Bock?
    Mr. Bock. I think you can look at Colombia. OEF is there, 
FIU, and they are spectacularly successful with what they are 
doing. They have taken some of the information all the way back 
for 14 years ago when we gave them to it, and they working on 
the gold cases now. Even as we speak, they are making the 
cases. So--
    Mr. Lynch. All right.
    Mr. Mesko, do you have an opinion on this?
    Mr. Mesko. I will defer to my colleagues on where this 
thing should be housed, but I think what I would say is that I 
would encourage whatever form it takes to properly include open 
source data and better integration with the private sector.
    Mr. Lynch. Okay, fair enough.
    Dr. Passas?
    Mr. Passas. I agree that it has to be in the same place. 
With Customs, it hasn't worked as well as it could. The 
advantage of FinCEN is that you have the A1 group in the 
network for collaborations with sister agencies overseas, so 
this kind of consolidation is easier.
    Mr. Lynch. Okay. My next question: When we stood up these 
FIUs, we initially had resistance from some of the banks 
because we were asking for cash transaction reports, we were 
asking for suspicious transaction reports (STRs), a lot of 
paperwork for the banks. And in the early days, we weren't 
really set up to process all that, so some of it was a waste.
    Are we getting pushback? Look, I represent the Port of 
Boston, and we get a lot of bulk cargo coming in there. We are 
not Long Beach, we are not Manhattan, and we are not New 
Jersey, but we have a lot of cargo coming in. Should I expect 
pushback, should the committee expect pushback from the 
shipping community in terms of trying to put this overlay of 
analysis on everything that they are doing? Have we experienced 
    We have some of these set up. Have we experienced pushback 
from our shipping consortiums here and overseas?
    Mr. Bock. If I can answer that, I believe that they would 
very much want to give us the data. It was my experience after 
9/11 that Commissioner Bonner demanded the information and they 
gave it to us willingly.
    Mr. Lynch. Yes.
    Mr. Bock. Now, it is a problem that is very large and it 
needs resources to process the data. But they are not against 
giving it. It is something that they transmit constantly.
    Mr. Lynch. Certainly, it would shield them from some 
liability if they were cooperating with us.
    Mr. Bock. I believe that is true, but they would need a 
little bit of protection on their own because you can find lots 
of little things they do wrong and they would--that is their 
main concern, a lot of ``gotchas.''
    Mr. Lynch. I see, yes.
    Dr. Passas?
    Mr. Passas. The private sector does not want to deal with 
terrorists or financiers, so the general will is there. The 
data are collected with no new cost for them to add, and 
consolidating the risk management is a cost-saver.
    Mr. Lynch. Okay. My time has just about expired.
    Thank you. I yield back.
    Chairman Fitzpatrick. I now recognize the gentleman from 
North Carolina, Mr. Pittenger, for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman. Is there any reason 
why the data could not be shared with Customs and with FinCEN 
in a joint effort in collaboration? Mr. Bock?
    Mr. Bock. No. The data belongs to FinCEN and to Treasury. 
These are collection documents that are used to collect taxes 
and duties. They actually belong to Treasury. To hold them from 
FinCEN is kind of silly.
    Mr. Pittenger. Mr. Cassara, any more comment on that?
    Mr. Cassara. Approximately 2004-ish, 2005, right when the 
TTU was being stood up, there was a delegation that went over 
to FinCEN. And what we tried to do at the time was to co-locate 
the TTU with the FIU, because that, as Lou has made perfectly 
clear, is the ideal. But FinCEN, at the time, turned it down. 
They did not want any part of it.
    Mr. Pittenger. Thank you.
    There has been some criticism regarding the lack of robust 
intelligence support on the ground in the Middle East. What 
would you do to enhance that, to effectively address trade-
based money laundering?
    Mr. Bock. The difficulty isn't that they will share it. 
They make it available, but you have to have such high 
clearance to get to it. And then once you find the material, it 
is an arduous process to get it downgraded to the point where 
you can use it in the field. I don't know--I am not an expert 
in that field, but I can tell you that I found really good 
stuff there. I just couldn't give it to anybody.
    Mr. Pittenger. Yes, sir?
    Mr. Cassara. I have done a lot of training, technical 
assistance mentoring in the Middle East. And what I found is 
that in most countries of the world, customs services do not 
follow the U.S. model. They are not enforcement-oriented. They 
are involved with, say, inspection and control.
    So when they find something that perhaps is suspicious, 
they are content to, say, maybe collect a duty and all these 
other things, but they don't hand it off to an investigative 
body. There is a lack of capacity, a lack of training as well. 
There are corruption issues involved. It is not a simple 
    But if you can make the right connections, there are things 
that can be done. And the other thing I get back to, again, is 
that it is a revenue-enhancer. So this should be the carrot to 
drive their cooperation.
    Mr. Pittenger. Thank you.
    Dr. Passas?
    Mr. Passas. Yes, this is one of the additional reasons why 
open source data is a good thing to look at. Sometimes the news 
and the information is in the local newspaper. It may be in 
another language, but there is easily accessible technology to 
get that so that everybody can read the local newspaper and put 
it together.
    Mr. Pittenger. Very good.
    As we have discussed, the Egmont Group and its working 
through the trade transparency units, enhancing that, what 
obstacles to you see going forward to overcome with this 
information-sharing prototype? If we were to try to advance 
that further, what should we be looking out for?
    Mr. Bock. Using again the example in Colombia, in order to 
get around this, we actually set up two units. We had a unit 
with DIAN, with is their treasury, and as a Customs officer, I 
was able to communicate directly with DIAN. DIAN wasn't the law 
enforcement agency. The ULIEF was their FIU. And ULIEF is the 
one that is prosecuting these cases, to my understanding, at 
this point.
    So, it was a small thing to have two operations set up. But 
the two operations in Colombia don't talk to each other. It was 
okay because we were talking to both of them.
    Mr. Pittenger. Very good. Thank you.
    I yield back.
    Chairman Fitzpatrick. The Chair now recognizes the ranking 
member of the full Financial Services Committee, Ms. Waters, 
for 5 minutes.
    Ms. Waters. Thank you very much. I have a number of 
questions I would like to get some clarification on.
    And I suppose the big question for, I guess Mr. Bock and 
Mr. Cassara is: Do you believe action should be taken to 
require the disclosure of beneficial ownership information upon 
incorporation? And to require financial institutions to check 
that information against lists of known terrorists and those 
who are known to finance terrorism before new accounts can be 
opened on their behalf?
    Mr. Cassara. As a criminal investigator, yes, we should 
require beneficial ownership information, not only because it 
is the right thing to do--obviously, if we are trying to follow 
the money and value trails, there is a labyrinth of hidden 
financial networks. And without beneficial ownership 
information, it makes it very, very difficult to follow those 
    The other thing I would like to bring to the task force's 
attention, is because again I have done work overseas, and time 
and time again, I have been asked by our counterparts overseas: 
``But Mr. John, I am following the dirty money trail from my 
country, and it leads to your country. Have you ever heard of 
this place called Delaware or Nevada or Wyoming? Can you please 
help us get information?''
    And there is nothing we can do. It is embarrassing. Thank 
    Ms. Waters. Mr. Bock?
    Mr. Bock. That is not my area of expertise. I handle 
documents and things, and computer operations. I can't answer 
    Ms. Waters. Would anyone else like to share information or 
thoughts on that? If not, let me just ask a very basic 
    I thought that ``know-your-customer'' in banking really 
meant to know your customer, which would mean that you would 
know who the people are. You would have disclosure of 
beneficial ownership, on and on and on. Am I incorrect in 
thinking that ``know-your-customer'' should mean all of that?
    Mr. Passas. It is good to remember that due diligence and 
the idea of ``know-your-customer'' came from the private sector 
at the beginning. It was the Wolfsberg Group that identified 
that as a problem for their own business. You don't want to 
give money to someone you do not know. You do not want to do 
business with someone you do not know.
    So, that is something for self-protection. And for their 
bottom line, private entities will, and do. The question is: 
How much detail? And are you going to do that with the partners 
of the partners? And how are you going to handle correspondent 
relations and things overseas?
    And that is where the details need to be worked out on what 
gets outsourced to the private sector, and what is the duty for 
guidance on the part of the authorities. When the authorities 
give good guidance, fantastic results can come when you have 
targeted action on the part of the banks. But when the general 
culture is to go out and check for everything, then we get a 
sea of data and we have a hard time analyzing from the 
government side.
    Ms. Waters. Let me just say that without even dealing with 
the issue of terrorism and just money laundering, for example, 
we have been in this discussion for many, many years. I can 
recall the discussions we had about Mexico and about the fact 
that banks were basically serving as private bankers for drug 
dealers coming out of Mexico some years ago. I don't know what 
is going on now.
    And we talked a lot about making the financial institutions 
a lot more responsible. And it was not just Mexico. It was 
Africa and it was a lot of other places. All of that discussion 
seems to have been lost and it is not a part of the discussion 
as we deal with terrorism. And so, I hear some of the 
recommendations, and I wonder about them.
    But I am going to continue to listen and I'll leave you 
with this thought. For Mr. Bock or for those of you who are 
talking about expanding the role of FinCEN, I have often 
wondered if FinCEN wasn't always overloaded, always with too 
much responsibility for looking at everything from $10,000--
over $10,000 transactions, which just comes in by the boatloads 
and other kinds of things. And would they really be able to 
deal with what we are trying to focus on, terrorism and money 
laundering through trade?
    Mr. Passas. Right after 9/11, I worked with FinCEN for 3, 4 
years. We worked on hawala as well as diamonds, gold, tobacco, 
and a number of other items. The problem was that there weren't 
enough resources to focus on everything. It is a question of 
resources. It is a question of how many analysts you are going 
to have; how many people will do meetings; how many people will 
do analysis; how many people will do the liaising with other 
agencies that need to investigate.
    So once you get down to that and you give the guidance, 
then you can get better results.
    Ms. Waters. Thank you very much.
    And I yield back.
    Chairman Fitzpatrick. The gentleman from Florida, Mr. Ross, 
is recognized for 5 minutes.
    Mr. Ross. I thank the chairman.
    And I thank the panelists for being here.
    Over the several months that we have had this task force 
and we have had our hearings, we have learned of various 
sources of funding for terrorism financing. There have been the 
black markets, prostitution, human trafficking, and just theft. 
And now we are looking at trade-based money laundering.
    This is a general question to the panel. What is the most 
common form of trade-based money laundering that is out there 
today that is benefiting the terrorist organizations? Whomever?
    Mr. Passas. Mis-invoicing. You mis-declare the destination, 
the value or the quantity of a product: cargo theft, 
counterfeiting and trade diversion.
    Mr. Ross. Anybody else? Mr. Cassara?
    Mr. Cassara. As a follow-up to that, I would like to add 
that in my opinion, the commodity of choice for trade-based 
money laundering is now, and has been for a long time, gold--
the misuse of the international gold trade.
    Just to give you a very, very quick visual--
    Mr. Ross. It was exempt, wasn't it, as a form of currency, 
from some of the sanctions?
    Mr. Cassara. Gold has unique properties. It is both a 
commodity and a negotiable instrument, if you will. There are 
couriers every day, for example, that travel from Milan's 
Malpensa Airport to, say, Karachi, Dubai. And they declare 
    And they declare this gold as $500,000 worth of gold. And 
they have all the documentation. But is that 18-carat Italian 
gold chain? Is that 24-carat Saudi gold or Indian gold? Is it 
12-carat Walmart specials at $500,000, $50,000, or $750,000?
    That is the way trade-based money laundering works.
    Mr. Ross. And how do we track that? Through the TTUs? Or 
can you do it through the TTUs?
    Mr. Cassara. A TTU can spot anomalies in the data.
    Mr. Ross. Right.
    Mr. Cassara. Then what is required is you have to write a 
report, and the report has to be given to an agent, a Customs 
agent or--
    Mr. Ross. Right. And I guess my concern is this, first of 
all, we just released over $100 billion in assets to the 
central bank of terrorism, which is Tehran. We know that they 
give money to terrorist organizations such as Hezbollah and 
Hamas, and then down to the Houthis. We feel confident they are 
going to continue to do this even at a greater level.
    How do we prevent, or at least be able to follow through 
TTUs, if necessary? Is that what we are going to need, are we 
ever going to get them with Iran? How do we go about now making 
sure that trade-based money laundering isn't becoming a 
predominant factor and a source of funds with Iran?
    Mr. Mesko. One thing that I think I can offer here is--as 
we just heard from Mr. Cassara, the typologies of trade-based 
money laundering are notoriously difficult to detect, which for 
someone from my perspective means that we should be focused not 
just on typologies but on the actual networks. The data to help 
map these networks and relationships is far more easy to 
    Mr. Ross. And that is done with the TTUs, as I understand 
it, correct?
    Mr. Mesko. Whether it is the TTUs or whether it is the 
financial sector or whether it is the transportation sector, 
they all have pieces of the puzzle to bring to the table.
    Mr. Ross. Dr. Passas?
    Mr. Passas. With Lou Bock actually, in an afternoon we sat 
down, and we found hundreds of millions of dollars of 
irregularities that we passed on and nobody acted on. You could 
see diamonds, rough diamonds coming from countries that don't 
have mines. You could see brokers declaring themselves as 
importers of record. You could see the value disparities huge, 
so mis-invoicing was massive.
    When you have these things, these are obvious. You put it 
together with the networks and the open source information, and 
no matter what you call it, the entity that has all the 
information together can turn the lights on.
    Mr. Ross. And that is the point that I think I want to get 
at here, is regardless of how well we can do in tracking, 
including the relationships that we have with our trading 
partners through TTUs, and Mr. Cassara you hit upon this in 
your opening statement, it is all about enforcement.
    Prosecutorial discretion--whomever it may be. Mr. Bock, as 
you explained when dealing with Colombia, one side doesn't 
speak to the other side but at least they are speaking to us. 
But when it comes time to find where the source is, what do we 
do? Is not enforcement probably the biggest hurdle that we have 
to overcome, and how do we go about enforcing? Mr. Cassara?
    Mr. Cassara. It is a real challenge but I want to emphasize 
what you just said. It all comes down to enforcement. We can 
pass all the rules, regulations, and laws in the world but it 
comes down to enforcement.
    And the other thing I would like to drive home for those of 
you who are concerned about areas of the world where 
adversaries operate, in the United States we have the best, 
most robust customs enforcement in the world. We have the best 
data in the world. We have the best analytics in the world. We 
have the most motivated--
    Mr. Ross. I agree.
    Mr. Cassara. --staff in the world, and we are doing a 
horrible job at--
    Mr. Ross. It is the rules of engagement. We are not able to 
engage. So if we have somebody from Treasury in Qatar, we are 
still not able to do anything about it.
    Mr. Cassara. Exactly, so look at where our adversaries are 
in the Middle East, South Asia, in other places in Latin 
America and whatnot, and they--it is not happening.
    Mr. Ross. I agree. And I appreciate all of your testimony. 
My time has expired.
    Thank you. I yield back.
    Chairman Fitzpatrick. The gentleman from California, Mr. 
Sherman, is recognized for 5 minutes.
    Mr. Sherman. Thank you, Mr. Chairman.
    There was some mention of stovepiping, and I want to say a 
few words in defense of stovepiping, because back in the old 
days it used to be called a ``need-to-know basis.'' After 9/11, 
we decided we needed to connect the dots and so everybody in 
the intel community got to see all the dots. Bradley Manning 
got to see all the dots and he told the world about all the 
dots. So we need a balance of letting people in the intel 
committees see the dots and protecting our dots of information.
    I think that there are people at Treasury who have done an 
outstanding job on terrorist financing, but there are aspects 
where we are just not serious. The witnesses have brought some 
of that to our attention. Outside the realm of this task force, 
I would point out that--and perhaps this has changed recently--
our policy used to be that we didn't bomb oil tankers hauling 
ISIS oil because the drivers might be civilian.
    Had we refused to bomb Nazi trains during World War II 
because the conductor was a civilian, we might live in a very 
different world today. And also, I don't see why they are using 
trade when our IRS allows you to get a tax deduction for giving 
money to terrorist organizations.
    I brought to the IRS's attention 5 years ago a group that 
was funding ViVa Palestina and Hamas, gave them the videotape, 
and as of now, the only indication that anything has happened 
is that the organization itself puts on its website, ``The IRS 
may eventually take away our tax-exempt status,'' and implies 
you ought to give money to them now so that you can get your 
money to Hamas and get your tax deduction. So there is a 
certain lack of seriousness in some parts of Treasury, the IRS.
    Mr. Cassara, you talked about not showing beneficial 
ownership, that Wyoming and Delaware--how big a problem is this 
and should we simply have a Federal statute that says, ``If you 
form an entity anywhere in America that makes use of interstate 
commerce, that is engaged with our interstate banking system, 
you have to disclose beneficial ownership in publicly available 
State or Federal records.'' How are we going to criticize the 
Cayman Islands if we have Delaware? Mr. Cassara?
    And how helpful would it be to know the beneficial 
ownership of the entities involved in business and trade?
    Mr. Cassara. It would be extremely beneficial for law 
enforcement to have beneficial ownership information. I am 
certainly not an attorney, I am not a legislator--I couldn't 
attempt to even craft the appropriate language, but all that I 
can say is that the system as it operates now is not working 
and yes, it is hypocritical, because we are quick to criticize 
others, and we have to look at ourselves in the mirror when it 
comes to beneficial ownership information.
    Mr. Sherman. How big a problem are the tax havens? They are 
not just tax havens, they are transparency havens. We could 
prohibit U.S. banks from doing business with those countries 
that act as tax havens and shield beneficial ownership 
information. How useful would it be if every one of these tax 
havens in fact was cooperating with us at least as much as, say 
Britain as an example? Mr. Bock?
    Mr. Bock. One of the problems that in my opinion spawned 
the black market peso exchange was Colombia's effort to control 
their currency. Early on in the 1990s, they wanted all 
transactions to be funded through banks. The banks then 
reported who was doing the imports and the exports. That is 
what spawned the black market peso exchange.
    It is called counter-trade. People have legitimate money in 
the United States, selling coffee and things that they send to 
the United States, had a surplus of money in the United States. 
It was natural for some people who needed tractors in the 
United States to say, give me that money and I will pay for the 
tractors. Perfectly legitimate. We drove people with the 
legislation away from the banks. And that black market peso, 
you can't follow anywhere, except to one thing. When it is 
black-market-peso-funded, they usually smuggle it into the 
country. That is an easy way to find black market peso.
    Mr. Sherman. You say they smuggle the currency or they 
smuggle the goods?
    Mr. Bock. The goods.
    Mr. Sherman. Gotcha.
    Mr. Bock. Because the goods enjoy a benefit. They don't 
have--they are not reported to DIAN. The banks report to DIAN 
what goods are coming in.
    Mr. Sherman. So if you want to avoid Customs, you take 
money that has been moved to the United States to avoid 
Colombian taxes, or scrutiny, or currency controls--
    Mr. Bock. That is correct.
    Mr. Sherman. --you also get to avoid the Customs as well if 
you can smuggle the goods--
    Mr. Bock. And on top--
    Mr. Sherman. Dr. Cassara, I know, wants to say something 
that we--
    Mr. Cassara. I just want to follow up on what Lou Bock 
said. This concept of counter-valuation is extremely important 
to understand because it is a common denominator for most 
underground financial systems, alternative remittance systems 
in the world, whether it again be hawala misused by terrorists 
or Chinese flying money systems. It is this concept of counter-
valuation, or balancing the books through value transfer, 
through value in one country being shifted via over- or under-
invoicing and other methods to another country.
    So if you want to get at these underground financial 
systems abused by our adversaries, we need to promote trade 
    Chairman Fitzpatrick. The gentleman's time has expired. The 
gentleman from Texas, Mr. Williams, is recognized.
    Mr. Williams. Thank you, Mr. Chairman. Mr. Cassara, I think 
you said that every TPP signatory country should establish a 
trade transparency unit so that countries can share data and 
help combat trade fraud. So one of my questions is, how do 
think other countries involved in TPP would respond to a 
request like this?
    Mr. Cassara. Again, in my statement I said I don't have a 
position on the pros and cons of the TPP, but I am quite 
certain that if the TPP and other international trade 
initiatives of that type, they will promote trade, and what 
happens is the misuse of trade gets lost in the noise.
    So I think what would be beneficial to all countries is to 
have true trade transparency. And I think they will actually be 
willing participants because--I go back again--it is a revenue-
enhancer and it cracks down on trade fraud.
    Mr. Williams. You don't think it would be a deal-breaker?
    Mr. Cassara. I do not.
    Mr. Williams. Okay. Good.
    Mr. Mesko, in your testimony you talked about an example of 
trade-based money laundering that I stated earlier, which is 
personal to me. In fact, I have had the pleasure of discussing 
this case in great detail with your colleague, David Asher, who 
has also testified before this task force. I guess what struck 
me most from the conversation I had with Mr. Asher was that--
and some of the comments you have made today, is how obvious 
the entire scheme was, or seemed to be.
    For example, Dr. Asher showed me aerial shots of what they 
were bringing the used cars in, and how over a short period of 
time, they grew larger and larger. As you stated in October of 
last year, another company was sanctioned by the U.S. Treasury 
for alleged participation in the same trade-based money 
laundering scheme identified in 2011, involving used cars. That 
is almost 4 years after the original scheme was discovered. The 
scheme seemed to go on for years and years without any action 
being taken. So one of my questions is, is that normal? Is it 
routine for the names to change and businesses to go on 
    Mr. Mesko. I think it is absolutely normal and it just 
shows that all it takes is incremental adjustments to the 
networks for these schemes to continue to operate. Now what I 
do want to say though, is that I don't want to fault law 
enforcement and regulators necessarily for the time it takes to 
build cases.
    What I think is potentially more important here is that in 
order to get law enforcement and regulators the best 
intelligence, and particularly the best financial intelligence 
available, from the financial sector, from the transportation 
sector, from insurance, wherever it may come from, there needs 
to be a better focus on intelligence, true intelligence, within 
those institutions and knowing how to use data to better target 
the people that we really care about, that we know we care 
about, rather than the mom-and-pop money laundering, the 
$10,000 in structured cash deposits here and there, which sort 
of dominates the money laundering space within financial 
    Mr. Williams. Is the U.S. Government not providing adequate 
resources? What would you--
    Mr. Mesko. I can only really speak from the position of the 
financial sector at this point.
    Mr. Williams. Is it all about resources, or does Congress 
need to give more authority in this space?
    Mr. Mesko. I think one thing that could be potentially very 
useful, and I think that it has been discussed several times 
here today, is we talked a lot about the question of stove-
piping on the government side. But within financial 
institutions, and between financial institutions, there is a 
tremendous amount of this stove-piping as well.
    A local regional branch, say, of a money-center bank that 
operates in Mexico has a tremendous difficulty sharing adverse 
information on clients or customers with global headquarters, 
whether that is in New York or London or wherever. That is to 
say nothing of banks sharing information in between different 
    So I think that one way that this task force could have a 
tremendous impact is clarifying the guidance on what--at the 
very least in the United States--information banks can share 
with each other on the compliance side. They do it every second 
of every day on the commercial side. That is how the global 
economy works. But there is very, very little information-
sharing on the compliance side.
    Mr. Passas. One thing that you may want to think a little 
bit about is realigning the thinking between regulators and law 
enforcement on our side. Because the regulators want the banks 
to do what they are doing now, which is the massive transaction 
monitoring, whereas law enforcement wants to concentrate on 
    When we concentrate on targets, we get better results, much 
more focus. We did that with child pornography, we did that 
with human trafficking. Much better results there. Much better 
use of the private sector in that respect.
    Mr. Williams. Just quickly, we have heard lots of numbers. 
What is the number on used-car sales that we are sending back 
and forth? What would that number be? A million dollars?
    Mr. Mesko. At the high end, hundreds of millions.
    Mr. Williams. Okay. Thank you, Mr. Chairman. I yield back.
    Chairman Fitzpatrick. The gentleman from Texas, Mr. Green, 
is now recognized.
    Mr. Green. Thank you, Mr. Chairman. Let me thank you and 
the ranking member for the service that you are rendering in 
hosting these hearings. I would also like to thank the 
witnesses for appearing today, and make one observation. 
Looking at and judging your body language, you are all very 
resolute. You really have come to conclusions that you 
absolutely believe in. So I want to just compliment you on 
being so strong-willed, if you will, with reference to what you 
    Now, I will tell you, when I heard $972 for a plastic 
bucket, that got my attention. My question to you, sir, is, is 
this commonplace or a rarity? Because I understand what you 
mean about the value of transfer. How frequent do we have these 
occurrences of buckets, or a cattle for $20. You did say cattle 
for $20.
    I am from Texas. From time to time, I wear a big hat. But I 
have no cattle. In Texas, that means you are really not very 
much of a cowboy or rancher. But when you tell me that you are 
selling cattle for $20, even I understand that there is a 
    How is it that you are able to acquire this intelligence? 
And I am not sure whether you are implying in some way that 
others know about it, but they are not acting on it.
    Mr. Cassara. I would like to briefly answer that question, 
and then turn it over to the true expert, Lou Bock.
    Mr. Green. If you can do it really briefly, I probably 
spoke too long myself. But I had to get that point out. I want 
to hear some others.
    Mr. Cassara. Some of these things could simply be outliers, 
so what it is going to require is field investigation. And that 
is not happening. But to answer your question, yes, it happens 
all the time. And I know Lou can add to that.
    Mr. Bock. Let me give you a better example that happens all 
the time. It has happened for a long time. We were looking 
years ago at the movement of gold, all different types of gold. 
You are all familiar--you have wives or girlfriends, people you 
buy jewelry for. Twenty-four carat gold, best quality you can 
get. You can look to a market indicator and know what that is 
trading for. Anybody can do this.
    In a $13-per-unit market, we had stuff coming in from 
countries where gold never existed. It was being called scrap 
and was being brought into the United States for $30 a unit. 
There is nobody going to pay that. It is common sense.
    I can't tell you about the cattle, because as John said, 
they are outliers. But we can see consistent patterns of over-
invoicing of goods of different quality, diamonds consistently. 
Now, why are they doing it? Some of it is because of money 
laundering. They are illegally transferring profits from drugs. 
Some of it is tax avoidance. There are any number of good 
reasons why they may be doing it.
    The problem is it is consistent, it is going on all the 
time, and it is difficult to get somebody to--we had a guy 
actually go into a place and ask, ``How are you getting goods 
from this country, gold in particular, and it doesn't exist?''
    And the guy said to him right to his face, a criminal 
investigator, ``It is not coming from there. We are smuggling 
it from someplace else.''
    To me, that would--
    Mr. Green. Let me ask, as we go to another area quickly, 
would legalizing drugs have a positive or a negative impact on 
this illicit trade? Yes, sir?
    Mr. Passas. Money launderers, traffickers of all kinds of 
things, and terrorism financiers, take whatever opportunity is 
available to them. If you legalize one, they will turn to 
something else because that is where the profits are going to 
be. When you ask how often these $900 buckets are identified, 
you can see them everywhere.
    Licorice, we import from everywhere below a dollar a unit. 
And when it comes to Syria it goes to $26, $29. You go to 
Taiwan, it goes to $200. We show exports of chicken to 
Colombia. You look at Colombia, no imports of chicken from the 
United States. Where did the chicken go? We lost the chicken, 
    Now, any commodity you look at, you have no idea. If you 
sit down with Lou Bock in an afternoon, you are going to see 
that with any commodity you look at, legal commodity, you will 
find that problem.
    Mr. Green. Let me get one more question in, please. If we 
do some of the things that I contemplate doing, my suspicion is 
that we will have some legitimate business persons who will 
give a little bit of pushback. I am being a bit euphemistic 
with my terminology. What would you say to the legitimate 
business people who will voice their concerns in a legitimate 
    Mr. Bock. One of the problems we experienced when we first 
brought this out was we did not want to tell the foreign 
governments exactly who the U.S. exporters were, because there 
are so many things that are going on where pricing is over and 
under, they are moving money from one place to another.
    I am making this up, so please don't--Lou Bock Enterprises, 
I sell tons of electronic goods. The minute you find somebody 
who has deep pockets and is doing some various small 
infraction, that is who they go after. We want them to go after 
the people who are truly laundering money. We don't want them 
looking at General Motors. We don't want them looking at IBM. 
They are doing something. It may be tax fraud, but it is not 
what we are looking for.
    Mr. Green. Can Mr. Cassara respond? I see that he wants to, 
Mr. Chairman.
    Chairman Fitzpatrick. Can you do so quickly, Mr. Cassara?
    Mr. Cassara. Just to my opinion on your last question, I 
think legitimate businesses will welcome trade transparency 
because it is a level playing field--particularly American 
businesses should welcome this.
    Chairman Fitzpatrick. The gentleman from Kentucky, Mr. 
Barr, is recognized.
    Mr. Barr. Thank you, Mr. Chairman. And thanks to our 
    To Mr. Cassara, thank you for your career in addressing 
trade-based money laundering. I know you have--in your 
testimony, you stated that trade-based money laundering and 
value transfer, including all its varied forms, is perhaps the 
largest and most pervasive money laundering methodology in the 
    My question to you is a pretty simple one. Compared to 
other forms of terror finance, how problematic is trade-based 
money laundering as a method for terrorists?
    Mr. Cassara. I believe trade-based money laundering is a 
major problem. But it depends on the part of the world you are 
talking about. Certainly, if you are talking about South Asia, 
you are talking about Afghanistan, Pakistan, the Afghan transit 
trade, it is absolutely huge. Areas in Libya and Somalia, it is 
huge. In other areas, perhaps not as important.
    But what is overlooked is the fact of trade-based value 
transfer, particularly the counter-valuation we were talking 
about earlier and its relationships to all kinds of indigenous, 
underground financial systems employed by our adversaries. We 
have not focused on that. We should.
    Mr. Barr. A common theme has kind of come up in all the 
testimony, at least that I can discern. When Mr. Mesko's 
testimony--I think he puts it probably most succinctly where he 
says that nobody has the whole picture. In other words, nobody 
is making full use of the range of data available to them in 
the public domain.
    The key to detecting and preventing increasingly complex 
TBML schemes is data integration within the government, within 
the private sector, between the two, and for all stakeholders. 
Everybody needs to aggregate the information to connect the 
dots, so to speak.
    And others have said something similar to that. So to that 
end, is the solution Mr. Cassara's invention, which is these 
TTUs? And what is the key to standing up more of them in other 
places around the world?
    Mr. Mesko. I will let them speak to the TTU question. But I 
think one sort of illustrative way of thinking about this is, 
let's say that all of our different banks are stove-piped. They 
are not sharing their compliance data with one another. We have 
five top banks in Mexico, and we go in and we say, ``Look, one 
of them says I used this open-source data. I found that there 
were some relationships of concern with this party. He has been 
transacting with a known Hezbollah operative,'' whatever the 
case may be.
    That account gets closed down. Without information-sharing 
between those banks, he just goes around the corner to a peer 
institution and opens another account. I think that is the 
problem I am trying to--that I am trying to address in that 
    Mr. Barr. Dr. Passas?
    Mr. Passas. And that is the problem with the cost and the 
duplication of the effort, because if one bank finds me as a 
terrorist financier and chases me away, they do not tell anyone 
else about this. And I go all around until I find a bank that 
will welcome me and I will change my name in the process. So if 
you have one place that does the consolidated risk management 
and red flags that then you get that saving.
    Mr. Barr. Is part of the problem that we don't have TTUs 
involving trade transactions outside of the United States where 
the United States is not a party? How do we encourage countries 
where there is a trade transaction--a fraudulent trade 
transaction and the United States is not a party? I would think 
that would be because we have a more sophisticated and 
aggressive approach to this problem that a lot of these illicit 
transactions are occurring between parties where the United 
States is not in the middle.
    Mr. Passas. In my experience, in many different countries 
you have different government structures. So you have the 
customs on one hand and you have the entity that does the FIU 
function. They are located in different parts. Some times it is 
police, sometimes it is the central bank, sometimes it is a 
    Having one definition where everything has to fit may not 
be the way to go forward. Define the function and the kind of 
information that needs to come together and then find what are 
the entities in different countries that need to contribute. So 
it is the concept of what needs to be done. The data 
integration and analysis and the sharing and then move with a 
    Mr. Barr. Mr. Cassara, is there any way we can encourage 
more TTUs in other parts of the world?
    Mr. Cassara. I would like to see regional TTUs. For 
example, we are talking about threat finance. One of the 
reasons we established TTUs originally was to get at terror 
finance. So if you had a regional TTU--for example Afghanistan, 
Pakistan, Dubai, that whole area there--would be great. You 
could set up another one around Iraq and the surrounding 
areas--Turkey and other logical trading partners.
    I would like to see TTUs in theory under the HSI-ICEu 
umbrella but they don't have to be. Any country can stand up 
their own TTU using trade data, financial intelligence, and 
other data they have.
    Mr. Barr. Thank you.
    I yield back.
    Chairman Fitzpatrick. The gentleman from Maine, Mr. 
Poliquin, is recognized.
    Mr. Poliquin. Thank you very much, Mr. Chairman.
    And I thank everyone for being here.
    I think we can all agree that one of the primary or the 
primary responsibility of government is to keep American 
families safe. And I think we can also probably agree that for 
all kinds of reasons, we are losing the war on terror. Now, we 
can turn this around. We all know we can do that and one of the 
key things to do that is in fact make sure we choke off the 
funding that goes to terrorist organizations, which is in part 
what this is all about.
    Now, we also all know that a stable government--whatever 
type of system it is--promotes a stable economy and when you 
have both that are stable you have more opportunity, better 
lives, better jobs, better futures. And that in itself promotes 
more stability and less likelihood to embrace terrorist 
    Now, Mr. Cassala, I would like you to talk a little bit if 
you can, please, about what spots around the world you have 
seen where in particular the activity of stealing goods, 
selling them cheaply in order to provide funding for terrorist 
organizations, is starting to or has destabilized local 
economies and therefore local governments, and therefore 
breeding grounds for terrorist activities that can keep our 
families in jeopardy?
    Mr. Cassara. Global Financial Integrity, a non-profit--in 
fact there are a few representatives of it sitting behind me--
has done some incredibly useful studies about illicit financial 
flows from the developing world. And literally, trillions of 
dollars--about $1.3 trillion if I am not mistaken--over the 
last 10 years has gone out of the developing world, mostly 
through abusive trade mis-invoicing.
    This type of thing directly affects the developing world, 
it affects the standard of living, it enables kleptocrats, it 
is all different kinds of wealth transfers and this is a type 
of thing on almost a social level that breeds corruption. It 
also brings unstability.
    Mr. Poliquin. Sure. So Mr. Cassara, let's drill down a 
little bit more on that if we can. Is there a way that we can 
use the data that is available to us through all the good work 
that is done in the non-profit sector, the private sector, and 
various governments around the world, to identify or give a 
head's up to countries who may in fact be susceptible to this 
sort of activity that would destabilize their economies and 
therefore their governments, and therefore invite terrorist 
    Is there a way we can identify the types of products or 
goods and services that they should be on the lookout for 
because of the inherent nature of the country itself or the 
existing economies? Is there a way we can mine the data to give 
them a head's-up so we can work with them?
    Mr. Cassara. There are some real experts here that have a 
very, very good understanding of the data that is available. 
But the kind of thing that you just talked about--yes, it is 
possible to do that. It is possible to do that. And the other 
thing, because we just briefly touched on corruption, for 
example--the great enabler, the great facilitator for a lot of 
this stuff that goes on in this areas--in theory, that analysis 
could be done outside of the countries. It could be done here. 
It could be done in our intelligence communities.
    Mr. Poliquin. Dr. Passas, you were about to try and--
    Mr. Passas. I can give you one example, and that is the 
pharmaceutical industry.
    Mr. Poliquin. Say that again?
    Mr. Passas. The pharmaceutical industry. There you have not 
only mis-invoicing but you also have counterfeiting, which is a 
public health as well as a cost issue. And you also have cargo 
theft, and we do not know who is stealing, who is selling and 
who is making use of the funding. We haven't looked.
    What we know in the private sector is that these are 
problems that affect the bottom line and the public health of 
the sick populations. But no one is looking. We need to look.
    Mr. Poliquin. Who would be the entity that in fact would 
perform that function, to the best of your knowledge?
    Mr. Passas. We have started an initiative with a number of 
pharmaceutical companies to do exactly that. We are in the 
initial stages but in Boston, at Northeastern, we are beginning 
    Mr. Poliquin. Okay. Thank you very much, gentlemen. I 
really appreciate this. We need to learn as much as we can to 
stop this and keep our families safe.
    Thank you, Mr. Chairman. I yield back my time.
    Chairman Fitzpatrick. The gentleman from Arkansas, Mr. 
Hill, is now recognized.
    Mr. Hill. Thank you, Mr. Chairman.
    I thank this distinguished panel for being with us. And I 
appreciate your leadership. Clearly, in this war on terrorism, 
diplomatic, military, and financial means are all equally 
important to winning this global war. And so I commend the 
chairman and the ranking member for renewing our task force.
    On standing up TTUs in select regions so setting a priority 
to do that, what is the enabling organization to do that? How 
do we diplomatically through the Treasury, on a multi-lateral 
basis, carry out that mission and then aid that being 
accomplished in a region, Mr. Cassara?
    Mr. Cassara. Part of that, as you said, is kind of a multi-
pronged approach. Some of this does get done via the State 
Department. Some of it gets done via funding by the Bureau of 
International Narcotics and Law Enforcement Affairs--INL. Of 
course we have Customs attaches assigned overseas and they also 
participate in the facilitation of that. There are a lot of 
delegations that go back and forth. So it is a multi-pronged 
effort. There is not one particular model.
    Mr. Hill. During the Bush Administration, when Treasury was 
standing up with--and as you talked about, Mr. Bock, 
unfortunately moving bureaus into the new Homeland Security 
Department, I agree with the comments made that some of that 
has not been done in the right way. There was a lot of high-
level engagement on terror finance, trade-based terror finance, 
money terror finance.
    My question is, to your knowledge does the NSC staff treat 
this as a top priority and therefore do a coordinative effort 
on the White House staff to keep a focus on this international 
security apparatus? Because to your point, these interagency 
things just don't get done. You have Commerce people, you have 
Customs people, you have DEA attaches out in our embassies, and 
everybody works up their chain of command.
    And so, while I think Treasury is in charge of this in a 
general way, had they exhibited that in a regular sort of NSC 
briefing process? Who wants to tackle that one? And I know you 
don't work in the government now. You are giving your opinion 
about how it should be done.
    Mr. Cassara. In my opinion, this whole issue of trade-based 
money laundering there continues to be a lack of awareness. And 
you mentioned for example DEA, IRS, even FinCEN, whatever. As 
far as trade-based money laundering and associated issues, at 
the Federal, State, and local levels, there still is a lack of 
awareness and understanding of this. There just is.
    Mr. Hill. Anybody else want to add anything? Dr. Passas?
    Mr. Passas. Yes. This relates also to the need-to-know 
question that was raised earlier. You don't need to know 
necessarily the details of the information. All you need is the 
target. When you know what the target is, then you can give a 
head's up to institutions that collect that information, 
reverse engineer that into indicators of abuse and red flags 
and then you can have a guidance that everybody looks out for. 
That is a much better way to do it and you do not have to 
reveal methods or sources--anything. Because then it becomes a 
law enforcement case that is usable in court.
    Mr. Hill. Right. I have been a banker for 30 years, and I 
am certainly familiar with the money laundering aspect of it, 
and I have been a Treasury official in my past. So I respect 
both sides, but you talked about massive false positives and 
that is a theme that we have heard about consistently over the 
past months of this task force. We collect a lot of data but 
nobody does anything with it. And the very people who could 
help us on a targeting basis are not privy to how to help in a 
    So to me, setting priorities, how that is done, sharing 
information and having liability protection and sharing that 
information like we have in SARS now for civil liability in a 
loan-type situation. Integrating that data and then focusing on 
it is the only way we are going to tackle this. And our vice 
chairman, Mr. Pittenger, had an excellent roundtable on Bank 
Secrecy Act issues where 80 percent of the cash transaction 
people in the world were sitting at that table.
    And they said, ``We could be so much more effective if you 
just would tell us what you are looking for.''
    We do that in criminal investigations. In my old bank 
branches, an FBI agent or a U.S. attorney would walk in and 
say, ``Hey, we need to know all about Joe,'' and that was just 
to a branch manager. There was no legal person involved in it.
    And I don't think we need to have this information-sharing. 
Instead of collecting the hay, we just need to be told where 
the pen is, and let us go get them.
    Mr. Passas. I think it is exactly right. And the banks 
right now, all they care about is avoiding heavy sanction and 
reputational damage. They are not looking for bad guys. They 
are not looking for offenders, and terrorist financiers
    Mr. Hill. And they are spending millions on it. Thousands 
of people working on that box-checking piece. But they are all 
willing to do, I think, they are all very--
    And when you are targeted to do a better job on behalf of 
the American people by being--letting in, is you say, not 
without the sources and methods now, but just, ``Here is the 
target list. You need to help us.''
    Mr. Passas. And the targets can be formed with this work. 
If you look at the diagrams in my written statement, it just 
jumps out like a fly in the milk. And that is not the sort of 
thing that you need any clearance for. It is out there. It is 
    Mr. Hill. Thank you for your forbearance, Mr. Chairman, on 
the time. I yield back.
    Chairman Fitzpatrick. The gentleman from Arizona, Mr. 
Schweikert, is recognized.
    Mr. Schweikert. Thank you, Mr. Chairman.
    In many ways, Mr. Hill was actually sort of grabbing some 
of the direction I wanted to go.
    My understanding is, as of yesterday, we now have nine 
running banks that have access to the SWIFT system. How does 
that work in a world where an institution anywhere in the world 
now has the traditional backbone moving money through? SWIFT 
and its charter is supposed to eliminate dodgy actors. But in 
this case, we know a couple of those nine actually have some 
really interesting things in their history.
    So if you are collecting data, but it is coming through the 
legitimate backbone--and this may be more for Mr. Mesko with 
your data analytics background--comes in in a very legitimate 
platform, but parts of that transaction may be also moving bad 
actors' money. How do you segment it?
    Mr. Mesko. Excellent question. Unfortunately, I don't think 
there is necessarily an easy answer to it. Our financial sector 
and the financial sectors in our partner nations, friendly 
nations, are always going to be at the mercy of the controls 
that their downstream--that their correspondent partners have, 
their banking partners in emerging markets and frontier markets 
have in place.
    Mr. Schweikert. If you use the term ``frontier markets,'' 
can I beg of you to go a couple of steps further? Let's use a 
Hezbollah example where they had some very legitimate-looking 
front ends that had, what was it, Lebanese banking interests or 
relationships. In some ways, you just put them back into the 
mainstream system. How do you identify the bad actors here when 
the conduit is what the international system uses?
    Mr. Mesko. Right. And I think--I have obviously spoken a 
lot on open source today, and the use of open-source data, and 
how you can map these networks and identify bad actors. I don't 
want to leave you with the impression that you are going to 
necessarily find to some degree--some evidentiary standard that 
some transaction coming out of Lebanon is linked to Iran, or 
    I think the point is that, as Dr. Passas said as well, we 
need to refine our understanding of what the actual typologies 
are of these new threats, so that banks, whether or not they 
can put the full picture together, can get better information 
to law enforcement, and to regulators, to be able to pursue--
    Mr. Schweikert. Dr. Passas, I see you. A little bit of 
refining. I have a personal fixation that we are allowing our 
own networks to be used against us.
    Mr. Passas. Right. Well, the crooks like to hide in the 
crowd. That is the way it happens. In the economic crime, in 
organized crime, in terrorism finance, it is the same thing. So 
the whole point is to find in the big crowds the bad elements, 
the irregularities. That is what these analytics do. This is 
the process that has been in use.
    In fact, we have been doing this with Lou Bock to find 
precisely what is wrong. We were in the Dominican Republic for 
3 days. It was a gold case that was more than $100 million, as 
it turned out. It was just there.
    Mr. Schweikert. Okay. In the last 60 seconds I have, we had 
some testimony in one of our earlier hearings that the 
confluence of terrorism, people who were producing fake 
products, copyright-type infringements, cartels, and in many 
ways they were using some of the very same brokers to wash 
money. It was actually a profession.
    My question: Professional money laundering, what is the fee 
structure these days? Are they guns for hire? Do they care 
whether they are washing and moving money for terrorism or a 
drug cartel? And how formal are those networks out there now 
for moving money around for these bad actors?
    Mr. Passas. It depends on the terrorist group that you look 
at. It depends on the commodity and the part of the world you 
are looking at. If you are looking at the Islamic State, you 
want to see who is buying oil, who is buying antiquities, who 
is providing the finance, who is driving it around, who is 
providing insurance. Maybe there can be barter deals. So you 
want to see who are the supporters, who are the facilitators--
    Mr. Schweikert. And I know I am out of time, but if you 
look over the last couple of decades, we had a number of 
terrorism groups that financed their bad activities through 
opium, through cocaine, whether it be FARC, whether it be in 
Afghanistan. And so it was almost a bilateral trade mechanic 
where they were selling an illicit commodity, gaining cash, and 
then buying their weapons of destruction. So I have a great 
interest in the movement of both the commodity and the cash.
    With that, I yield back, Mr. Chairman.
    Chairman Fitzpatrick. The gentleman from Pennsylvania, Mr. 
Rothfus, is recognized.
    Mr. Rothfus. Thank you, Mr. Chairman.
    Mr. Cassara, I just want to follow up a little bit--
Congressman Williams had brought in the subject of TPP, which 
you mentioned in your testimony.
    You suggest that every TPP signatory country should 
establish a trade transparency unit, and share appropriate 
targeted trade data to spot anomalies that could be indicative 
of trade fraud and money laundering. Do you know whether this 
was ever proposed by the Administration during the TPP 
    Mr. Cassara. I do not know.
    Mr. Rothfus. Should it have been?
    Mr. Cassara. Short answer, yes.
    Mr. Rothfus. You mentioned in your written testimony that 
there is a network of operational trade transparency units 
which includes the following 11 countries: Argentina; 
Australia; Colombia; the Dominican Republic; Ecuador; 
Guatemala; Mexico; Panama; Paraguay; Peru; and the Philippines.
    Of these, the United States currently has free trade 
agreements with seven: Australia; Colombia; the Dominican 
Republic; Guatemala; Mexico; Panama; and Peru. To your 
knowledge, do any of these trade agreements include provisions 
that directly relate to trade transparency, or otherwise 
advance the goal of establishing TTUs?
    Mr. Cassara. I do not know. I'm sorry.
    Mr. Rothfus. Mr. Bock, according to a December 2015 report 
by the non-profit group Global Financial Integrity, the largest 
exporter of illicit money over the last decade has been China. 
Moreover, last September U.S. authorities charged a group of 
Colombians with participating in a China-based criminal 
operation that laundered more than $5 billion from the United 
States, parts of Africa, Europe, and countries in Latin 
    According to the indictment, the Guangzhou organization 
used Chinese casinos, currency exchange houses, and export 
companies and factories to receive billions of dollars in 
illicit drug proceeds. With that said, how big of a problem is 
China with respect to trade-based money laundering?
    Mr. Bock. As I remember it, the relationship between 
Colombia and the United States was that Colombia gave us data 
that was only U.S.-centric. And John had mentioned before about 
regional trade transparency units. It depends on the agreement 
we have. If the country only gives us the information between 
their country and our country, that is all we can focus on.
    This material you are talking about in China would have 
been nice to see, but I don't know whether or not they are 
supplying it to us. It would have been found if we had been 
looking at the entire Colombia database. These countries want 
to share each other's data.
    And if we can act as a broker--for instance, Colombia very 
much wanted to see what Panama was doing. The arrangement was 
between Colombia and the United States; and Panama and the 
United States. I don't know if they ever got together and 
created the regional TTU. But all these countries want to share 
the data, especially if they can have our data in exchange.
    Mr. Rothfus. Can any of the panelists address what we could 
be doing to better address trade-based money laundering with 
    Mr. Passas. I think one way--in my view, you always provide 
incentives for people to do the right thing. And I think the 
incentive is the revenue raising and the fighting of illicit 
financial flows. That is a top concern in China as well. And I 
think that can be the focus of attention.
    Mr. Rothfus. Mr. Cassara, the 2007 national money 
laundering strategy identified attack trade-based money 
laundering at home and abroad as one of its key goals. An 
action item in the strategy was the stablishment of TTUs in the 
Philippines and Malaysia. To date, however, there are no TTUs 
formally established outside of the Western Hemisphere. What 
has the President and his Administration done, if anything, to 
carry out this goal?
    Mr. Cassara. It is a very difficult question to answer. I 
am not privy to internal conversations, obviously, within the 
Administration. But the reason we are here is that not enough 
has been done to combat trade-based money laundering in 
general, establish trade transparency units in particular, 
which is part of the U.S. national anti-money laundering 
    Mr. Rothfus. General question for the panel: Do we know of 
any countries where government officials are actively and 
affirmatively facilitating trade-based money laundering as 
opposed to some kind of neglect? Do we have any information on 
that? Anybody?
    Mr. Bock. There have been times when we pointed out to 
different governments that there were big issues with very 
large industries, and for some reason, unbeknownst to me--
    Mr. Rothfus. What would some of those countries be?
    Mr. Bock. Most of the countries in South America.
    Mr. Rothfus. Okay.
    Mr. Bock. When you have something that is a linking to the 
largest industries in the countries, they are protective of 
their industries. Whether it is corruption, I am not sure.
    Mr. Rothfus. I yield back.
    Chairman Fitzpatrick. Without objection, we are going to 
recognize the gentleman from California, Mr. Royce, for 5 
minutes for questions.
    Mr. Royce. Thank you, Mr. Chairman. I appreciate that.
    I guess the real surprise here is just how much money we 
are talking about in terms of revenues to these governments in 
the Western hemisphere, and across the developing world. You 
are talking about hundreds and hundreds of billions of dollars 
in terms of helping us balance our books and helping those 
governments as well.
    So I think civil society, if it was really focused on just 
how much money you are talking about here, would bolt upright 
in terms of trying to figure out a structure in which to 
capture this information in order to try to capture the revenue 
flows back to the governments related to this.
    The World Customs Organization, is that the entity that we 
should consider may be the platform for enforcement if we were 
to work internationally or is it the OECD? Is it their 
financial action task force that has that 40 plus 9 
    Is there a way to maybe incorporate this into that entity 
with the understanding there of how much we are talking about 
in terms of potential revenue? And therefore, that certainly 
could compensate for taking on that added burden on the part of 
that institution.
    Where would you begin, and first, what would be the 
practical problems with establishing such a platform? And 
second, what would be the political problems maybe in doing it?
    Mr. Passas. If I could, I will be doing this in the near 
future at the International Anti-Corruption Academy, to engage 
in concrete collective actions against lack of integrity, 
including in trade. So the answer to your question is all of 
the above. GFI and other NGOs are engaged in this. The OECD is 
focused on that.
    There are U.N. conventions against transnational organized 
crime, against terrorism finance and against corruption, that 
have the relevant provisions that all countries on the planet 
are bound by. So you have the handles to do all this, and what 
you can do then with the incentive for revenue raising and 
better governance and therefore development for investment in 
all the things that--the good stuff that comes after this, you 
provide the incentives for integrity.
    You bring all of the actors together. They contribute their 
brains and the data. You do the analysis, you feed it back, you 
turn the lights on. That is why I was saying that the answer is 
within reach.
    Mr. Royce. Would anyone else care to comment?
    Mr. Bock. Since 9/11, either myself with people who work 
for me and the group that I managed, visited 40 countries on 
behalf of Commissioner Bonner, who was in charge of customs at 
the time. And we were trying to extend our borders out with the 
container security initiative. Of the countries that we 
visited, and some of these were former Soviet countries, every 
single person we demonstrated the program to asked, ``Where do 
we get a copy of this?''
    I had permission to give this to the law enforcement 
people. And we often made it available. They got the program. 
We handed it--we own the program, so we were able to give it to 
    We had countries that don't give us anything. The 
Netherlands wanted to hand us a disc and actually did hand us a 
disc and said, here is our data. We couldn't go back to our 
organization. The programmers wanted the Netherlands to pay for 
the processing of their data.
    When we had funding, we were able to take this data and do 
it. The biggest problem is going to be that when you have a 
country--the United States has a different bookkeeping system 
than everywhere else in the customs world. That is a blanket 
    Most other countries use a system called ASYCUDA. We don't 
use that. Their data is in one format, and we don't accept it, 
according to our IT people, unless they present it in our 
format. It costs a lot of money to do this. We could just as 
easily have it done ourselves. And we did while we were funded. 
Now, when you go out to somebody, they want money to convert 
the data.
    These people just want to give it to us, as long as we 
share with them. And I would be willing to bet that we could 
extend this thing to 40 countries, probably within very short 
order, if we had money to do it.
    Mr. Cassara. In the international community, the Financial 
Action Task Force (FATF) makes things happen regarding anti-
money-laundering and counterterrorism finance. One of the 
recommendations I have in my book and in my prepared statement 
is that I believe we should go to our U.S. Department of the 
Treasury, which heads up our U.S. Government Financial Action 
Task Force delegation, and ask them to study the possibility of 
having trade-based money laundering be the next FATF 
    Mr. Royce. I thank you, Mr. Chairman. And I thank the panel 
and I thank you for your continued focus on this. And I think 
later we can have some conversations between the Members here 
who--some like Mr. French Hill, who got a little bit of 
understanding from being over in Treasury as to some of the 
bureaucratic impediments.
    Maybe we can keep a dialogue going, Mr. Chairman, with the 
panel, as we try to work with some of the government agencies 
here on the next step. But thank you again for the hearing.
    Chairman Fitzpatrick. Great. The gentleman from New York, 
Mr. Meeks, is recognized.
    Mr. Meeks. Thank you, Mr. Chairman. And thank you to the 
panelists. I have been listening to some of the questions and 
some of your testimony. And this is complicated.
    I guess I will direct my first question to Mr. Bock 
because--and just thinking about it, what makes this hard, I 
think, to fight against TBML, among other things, and I--
another reason why I wanted to make sure I come down, I am a 
big guy who believes in trade.
    And the world is much smaller and interconnected when we 
are trading back and forth. We enter into trade agreements and 
you look at the enormous volume of trade flows which obscures 
individual transactions and provides abundant opportunity for 
criminal organizations to transfer value across borders.
    The complexity of it, as I think that you were just talking 
about, associated with foreign exchange transactions and then 
the additional complexity that can arise from the practice of 
co-mingling illicit funds with the cash flows of legitimate 
businesses and then the limited recourse to verification 
procedures or exchange customs data between countries.
    So, when I look at how complicated all these challenges 
are, it becomes clear. And then, what you were just talking 
about on our side, looking on our side of what we can do in our 
government, but wouldn't it seem that there should be--we are 
doing some kind of international harmonization with cross-
border systems of verification and data exchange?
    Do you see any harmonization of international cooperation 
to combat TBML?
    Mr. Bock. I think that we are on the right path to it. The 
government already--all the governments follow a harmonized 
system of tariffs. That is a description of the goods. And when 
we look at the rest of the world, they are all in harmony with 
the way they do their business.
    We are the ones who are out of harmony, but we are the 
biggest economy. And we set the rules. We did it long before 
anybody else did, so we are set in our ways. We can easily 
adjust our data to match the rest of the worlds. It is not 
difficult. The problem is, we need the wherewithal to do it, 
and of course, I am not with the government anymore so I am not 
asking you for any money.
    But the agencies need the money to normalize our data with 
the foreign countries.
    Mr. Meeks. So it would be a matter of money. It wouldn't be 
like--one time, we were the ones still using inches and 
everybody else is using centimeters. And so, we just couldn't 
get used to change to a different dialogue.
    So that complicated it, as far as differences are 
concerned. Is it just a matter of trying to--some financing and 
some money to put it all on pause so we can do some 
    Mr. Bock. That is what I would say, yes. We have already--
the government has already paid to take our data and make it 
match everybody else.
    Mr. Meeks. Yes, sir.
    Mr. Passas. In addition to that, what you have is pretty 
standardized private sector records and data. People, beyond 
what the governments require, need to communicate. So the 
equivalent of the SWIFT messaging that you have for financial 
transactions exists with respect to trade transactions.
    It is massive, however, and you need infrastructure to 
receive it and analyze it. But that is part of the data set 
that you can put together.
    Mr. Meeks. And the other thing that comes into mind, 
because when we do these trade agreements, I have been a big 
proponent of it, but I will also want to bring in some of the 
less-developed countries because I want them to get involved in 
the global economy.
    But of course, less-developed countries by nature have huge 
informal economies where it is hard to sometimes trace and 
verify even a legitimate commercial transaction. So, what would 
you say? Do they--how do we bring them in? Do they have even 
the capacity to work with us also to meet some of these 
    Mr. Bock. Look, even if the countries don't even have 
computers in them, all the countries that supply goods to these 
foreign countries, to this country, have records. They get 
there on a ship. That ship is making records of how it got 
there. It is telling everybody this thing one from our place to 
your place.
    Whether the person who got it tells us anything, we can 
still know what is going on. And that is the part we are trying 
to push here. When I read to you about the manifest data, these 
cut--the shipping companies actually gave us the data of all 
the worldwide movements of cargo. We put it in a database.
    Mr. Bock. You could watch all the zigs in the zags of the 
container. We built a system around that. They are willing to 
do that. It costs them nothing to give us that. All we have to 
do is put a computer in place to make it work. That gives you a 
chance to look into the country that does not have the data. 
And that is where the value comes from building this thing and 
it may sound crazy, but it actually works and we had it 
working. It was funded. I don't want to get into that part of 
it all, but when the funding went away all the advancement of 
moving this forward kind of came to a halt. And I think in fact 
so did the acquisition of new TTUs because you need some money 
to go back and forth and whatever. I don't want to lecture you. 
Does that help you?
    Mr. Meeks. It's very informative--
    Mr. Passas. Could I add something to that? When the 
American Embassies were bombed in Africa, in the court--in the 
trial that we had in New York we had part of the evidence--the 
$1,000 that went from Kuwait and Yemen to Nairobi to help 
finance it. So that was way before 9/11 and the new rules 
requiring records for informal remitters. They had those 
records that were produced in evidence. There are records. It 
is a myth that there is no paperwork trail to follow in 
informal economies and in informal hawala business.
    We have used in the United States and in Britain indicators 
of abuse so that you can identify which transactions are okay--
honest money from migrants to their families--and what is not. 
This is the kind of red-flagging exercise that we can do even 
in places where you only have paper records and no computers. 
And you combine all of that together with the other data that 
we have.
    And the World Bank and it is like USAID and so on. They do 
governance and capacity building everywhere in the world. It 
can be part of that program.
    Chairman Fitzpatrick. Without objection, with the 
permission of the panel, we are going to have an expediated 
second round of questions. We will begin with Ranking Member 
    Mr. Lynch. Thank you, Mr. Chairman.
    Dr. Passas, in your testimony--or I might have read it in 
one of your previous articles--you took the position that the 
work we are doing with hawalas is perhaps overdone, that the 
amount of attention that hawalas have received is probably too 
much. Is that because you feel that we have bigger fish to fry 
with trade-based money laundering, or do you feel that hawalas 
are so small or the risk is so small that we shouldn't be 
focusing on them as much?
    Mr. Passas. There are risks with hawala and we do have 
cases both of terrorism finance and trade-based money 
laundering or other money laundering that goes through them. 
They can be of use just like any financial instrument or 
institution. Not as much perhaps because what we have not done 
well is to actually leverage the information nodes in the 
hawala networks. When you go to ask the right questions, you 
get the right answers.
    In Mumbai, the attacks of Mumbai and the Indian parliament, 
those cases were solved because of hawala collaboration. In 
Dubai, the Dubai police and the DEA made a big money laundering 
case with trade because of hawala information.
    Mr. Lynch. Right.
    Mr. Passas. They are a resource. We are not using it. 
Instead, we are regulating as if it were a formal institution 
and we are requiring things they cannot provide, and as a 
result we do not have the kind of collective action with the 
Somalis. We had a meeting, and in fact we lost a dear 
colleague. He was assassinated in Somalia last year. He was 
trying to separate the good from the bad money in Somalia.
    You can do this. There are ways of achieving this, but what 
we have done is just regulate them in a way that requires 
things that cannot be accomplished. They are ready to 
collaborate. They are ready to provide the evidence. They are 
ready to put the data in a clearinghouse that can be analyzed. 
That is what we need.
    Mr. Lynch. Yes. The problem for us is--you are right and we 
were very early on. When we were setting up FIUs, we saw that 
there was a gap on hawalas. So we asked the host governments to 
begin to register hawalas and hawaladars. So that much--at 
least we have them on the grid in many cases. And many of them 
keep meticulous records of each and every transaction because 
the success of any hawaladar is really on their reputation.
    And so, there is a huge risk of reputational damage if they 
are seen as facilitating funds for a terrorist organization and 
they are--it is over for them. But still, the informal nature 
of that value transfer system, in my mind, means we need to do 
more with them and not less.
    Mr. Passas. The Federal regulatory regime is fine. The 
problem that we have is the state regulatory regime that 
requires all kinds of resources that are not available. And I 
can share that with you in detail. With respect to the risks, 
they know their customer much better than banks sometimes, 
especially in parts of the world where banks aren't there. This 
is an intelligence asset. This is an ally against terrorism.
    The Islamic State and Shabaab are going after these guys. 
They are enemies. That is what I meant by saying they have 
enemies everywhere. Let's use the enemies and go after the 
easy--the low-hanging fruit like ISIS and like al-Shabaab that 
everybody is against and we can bring all that together. So 
that information can be leveraged--that information can be 
provided and once we have the communities together they can 
smell the rat, they do not want terrorists, they will work with 
us. That is the best community policing against terrorism.
    Mr. Lynch. One last quick question, we are having a very, 
very difficult time in Somalia. All of the traditional banks 
and money processes are out of there now, so the only 
opportunity I think we have in the short term is really to deal 
with the hawalas in that area. Is that something that you think 
is possible or should we try to stay away from that?
    Mr. Passas. It is possible, and what we had was we were 
with the 18 companies from Somalia. We were in Vienna, the 
United Nations, and we were trying to do exactly this. That is 
how our French colleague was killed.
    Mr. Lynch. Right.
    Mr. Passas. And a British former Scotland Yard colleague. 
It can be done and it must be done. And there is an 
initiative--the Safe Corridors--that is under way. There has 
been work also by NGOs on looking at what the impact of current 
regimes is. There are questions about risk and how we define it 
and how we do the de-risking in a way that we do not grow the 
systemic risk. There are handles, there are ways of doing this 
and I can send you separately if you wish the recommendations 
that we worked out.
    Mr. Lynch. Okay. We are having problems--even Somali 
families in the United States are having difficulty getting 
remittances back to that country because there is no 
institution that we can go through right now. But I thank you 
and I will take any recommendations you have off-line. Thank 
    Chairman Fitzpatrick. Vice Chairman Pittenger is now 
    Mr. Pittenger. Thank you, Mr. Chairman.
    Mr. Mesko, I would like you just to clarify what you mean 
by non-indexed data.
    Mr. Mesko. Certainly. A better term for that might be ``un-
Googleable,'' not available on search engines.
    Mr. Pittenger. Okay. That is helpful. I would like to 
summarize some of what you all have presented today, which has 
been extraordinarily helpful. As I see it from Mr. Bock, you 
said that this data is accessible. The countries have it, they 
want to present it, we need to consolidate it, we need to 
analyze it, and then through that we need to be able to have an 
enforcement capacity, all of which requires funding. And is it 
your assessment that those resources are available through the 
revenue from this expanded transparency?
    Mr. Bock. Yes, absolutely. Over the years we have had cases 
that countries--Argentina, Peru--had $100 million recoveries. 
We have a United States case where they recovered $100 million 
of tax on freon back in the days of the ozone-depleting 
chemicals, the hole in the sky. They recovered $100 million. 
This whole project didn't cost $30 million.
    Mr. Pittenger. Very good--
    Mr. Bock. Twenty years.
    Mr. Pittenger. My last observation is that water finds its 
way downhill, and if it hits a block here, it goes another way. 
Another way the speaker has put it quite well is in ice hockey, 
you look where the puck is headed and not where it is today.
    And as you assess the funding requirements for these 
terrorist organizations, and certainly we have a continual need 
to track and intercept the transfer of money through these 
financial institutions. I am particularly concerned about Iran 
with these banks now that are open to SWIFT access.
    But given if we will utilize the data and share the data, I 
know FinCEN has extraordinary data capacities if it can be 
shared with the private sector as well as with their own 
    Yet while we are somewhat effective in that, it seems to me 
that our adversaries recognize that we haven't been effective 
in TBML. Do you believe that this will as such be a growing 
factor that we should be looking at, that should be more the 
focus? They are pretty smart people. They know what we are good 
at and what we are not good at.
    Mr. Bock. When you have all this data amassed, the beauty 
of it all is it is like fishing in a barrel, okay? They can do 
what they want to hide. You catch them here. We have stopped 
things. There have been big cases that Customs made, D.A. made, 
poll a cop and this and that. And you could see when you 
squeeze it here, it popped up somewhere else. If you have the 
database in place, and you are looking at trade, you can see 
    When we squeeze one place--Mexico went up. All of a sudden, 
Mexico was shipping gold. It is exactly--the analogy of water 
is perfect. It will find another level, but if you have the 
data in a place where you are looking back, you can see the 
bulges elsewhere. And that is probably the most interesting 
part of this whole exercise for me. You can do some predictive 
    Mr. Pittenger. Thank you. This has been extraordinarily 
helpful. I very much appreciate you being with us. I yield 
    Chairman Fitzpatrick. I would like to again thank our 
witnesses for their testimony here today and it is our hope 
that if you have continuing thoughts or suggestions for us that 
you will provide it either to individual Members or to the 
panel as a whole.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    Without objection, this hearing is adjourned.
    [Whereupon, at 12:11 p.m., the hearing was adjourned.]

                            A P P E N D I X

                            February 3, 2016