[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
EXAMINING THE EFFECTIVENESS OF THE KINGPIN DESIGNATION ACT IN THE
WESTERN HEMISPHERE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
THE WESTERN HEMISPHERE
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 8, 2017
__________
Serial No. 115-86
__________
Printed for the use of the Committee on Foreign Affairs
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COMMITTEE ON FOREIGN AFFAIRS
EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida BRAD SHERMAN, California
DANA ROHRABACHER, California GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio ALBIO SIRES, New Jersey
JOE WILSON, South Carolina GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas THEODORE E. DEUTCH, Florida
TED POE, Texas KAREN BASS, California
DARRELL E. ISSA, California WILLIAM R. KEATING, Massachusetts
TOM MARINO, Pennsylvania DAVID N. CICILLINE, Rhode Island
MO BROOKS, Alabama AMI BERA, California
PAUL COOK, California LOIS FRANKEL, Florida
SCOTT PERRY, Pennsylvania TULSI GABBARD, Hawaii
RON DeSANTIS, Florida JOAQUIN CASTRO, Texas
MARK MEADOWS, North Carolina ROBIN L. KELLY, Illinois
TED S. YOHO, Florida BRENDAN F. BOYLE, Pennsylvania
ADAM KINZINGER, Illinois DINA TITUS, Nevada
LEE M. ZELDIN, New York NORMA J. TORRES, California
DANIEL M. DONOVAN, Jr., New York BRADLEY SCOTT SCHNEIDER, Illinois
F. JAMES SENSENBRENNER, Jr., THOMAS R. SUOZZI, New York
Wisconsin ADRIANO ESPAILLAT, New York
ANN WAGNER, Missouri TED LIEU, California
BRIAN J. MAST, Florida
FRANCIS ROONEY, Florida
BRIAN K. FITZPATRICK, Pennsylvania
THOMAS A. GARRETT, Jr., Virginia
VACANTAs of 10/24/17 deg.
Amy Porter, Chief of Staff Thomas Sheehy, Staff Director
Jason Steinbaum, Democratic Staff Director
------
Subcommittee on the Western Hemisphere
PAUL COOK, CaliforniaAs of 10/26/17 deg., Chairman
CHRISTOPHER H. SMITH, New Jersey ALBIO SIRES, New Jersey
ILEANA ROS-LEHTINEN, Florida JOAQUIN CASTRO, Texas
MICHAEL T. McCAUL, Texas ROBIN L. KELLY, Illinois
MO BROOKS, Alabama NORMA J. TORRES, California
RON DeSANTIS, Florida ADRIANO ESPAILLAT, New York
TED S. YOHO, Florida GREGORY W. MEEKS, New York
FRANCIS ROONEY, Florida
C O N T E N T S
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Page
WITNESSES
Mr. Donald C. Semesky Jr. (former Chief, Office of Financial
Operations, U.S. Drug Enforcement Administration).............. 4
Mr. David Hall, partner, Wiggin and Dana LLP (former prosecutor,
U.S. Department of Justice).................................... 13
Emanuele Ottolenghi, Ph.D., senior fellow, Center on Sanctions
and Illicit Finance, Foundation for Defense of Democracies..... 19
Mr. Eric L. Olson, deputy director, Latin American Program,
Woodrow Wilson Center.......................................... 45
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Mr. Donald C. Semesky Jr.: Prepared statement.................... 7
Mr. David Hall: Prepared statement............................... 15
Emanuele Ottolenghi, Ph.D.: Prepared statement................... 21
Mr. Eric L. Olson: Prepared statement............................ 47
APPENDIX
Hearing notice................................................... 68
Hearing minutes.................................................. 69
Questions submitted for the record by the Honorable Paul Cook, a
Representative in Congress from the State of California, and
chairman, Subcommittee on the Western Hemisphere, and written
responses from:
Mr. Donald C. Semesky Jr....................................... 70
Mr. David Hall................................................. 74
Emanuele Ottolenghi, Ph.D...................................... 78
Mr. Eric L. Olson.............................................. 81
EXAMINING THE EFFECTIVENESS OF THE
KINGPIN DESIGNATION ACT IN
THE WESTERN HEMISPHERE
----------
WEDNESDAY, NOVEMBER 8, 2017
House of Representatives,
Subcommittee on the Western Hemisphere,
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:00 p.m., in
room 2172, Rayburn House Office Building, Hon. Paul Cook
(chairman of the subcommittee) presiding.
Mr. Cook. A quorum being present, the subcommittee will
come to order. Without objection, all members will have 5 days
to submit statements, questions, and extraneous materials for
the record, subject to the length limitations for the rules.
I would like to recognize myself for 5 minutes for my
opening statement.
Today's hearing marks the beginning of my time as chair of
the Western Hemisphere Subcommittee leadership. I am honored to
assume the chairmanship and continue the good works of the
subcommittee and the full committee chairman, Ed Royce, in
promoting American interests in the Western Hemisphere.
This subcommittee has a long history of bipartisanship, and
I look forward to continuing that tradition with my ranking
member and other subcommittee members.
The United States has significant security, economic, and
political interests in the Arctic, Canada, Central America, and
the Caribbean and South America. And I am deeply supportive of
greater U.S. engagement with our partners and friends in these
places.
As U.S. Southern Command Admiral Tidd testified to Congress
in April, Latin American and the Caribbean is the region most
connected to our own society, prosperity, and security, and we
are linked by our shared values, cultures, and the rapid flow
of goods, services, people and information throughout our
hemisphere. To that end, today's subcommittee hearing is
significant with an increasing number of transnational criminal
networks exploiting those links for the purposes of drug
trafficking and other illicit activities.
In fact, according to the U.N. Office on Drugs and Crime,
revenue from illegal drugs may account for 50 percent of all
transnational organized crime proceeds. These developments have
a direct impact on the United States where we are struggling
with an opioid crisis that claimed more than 59,000 American
lives last year and results in 91 Americans lost every day
according to the Center for Disease Control.
Last year's White House national drug control strategy
noted significant increases in the number of Americans using
cocaine, heroin, marijuana, and methamphetamine. Many of these
illicit drugs are produced in foreign countries in the Western
Hemisphere and are sent here to feed American demand. Illicit
drugs have caused American deaths and contributed to horrible
violence in our neighbors as criminal groups vie for power and
control of trafficking routes.
Moreover, 6 of the 10 top countries with the highest murder
rates in the world this year are in the Western Hemisphere. It
is imperative that we work proactively with our regional
partners to fight back against the crime and violence plaguing
our nations. It is against this backdrop that we meet today to
conduct oversight of a key tool the United States has used
since 1999 to target drug traffickers and their supporters--the
Foreign Narcotics Kingpin Designation Act, or Kingpin Act. The
Kingpin Act builds on Executive Order 12978, issued in 1995,
which was focused solely on Colombia and was the first ever
U.S. economic sanctions program administered by the Treasury
Department's Office of Foreign Assets Control to address drug
trafficking.
In brief, the Kingpin Act blocks all property and assets of
designated entities and those who support them. It prohibits
U.S. transactions with designated entities. It establishes an
annual process for sanctioning the most significant foreign
narcotics traffickers. It increases civil and criminal
penalties, and it prevents drug traffickers' spouses and
children from getting visas to the United States.
In 2011 President Obama issued Executive Order 13581
establishing another sanctions program targeting transnational
criminal networks that threaten U.S. national security, foreign
policy, or economic interests. In February, President Trump
signed executive order 13773 prioritizing Federal law
enforcement responses to transnational organized crime. The
State Department's Bureau of International Narcotics and Law
Enforcement Affairs also publishes an annual report to Congress
providing the factual basis for designations on major drug
transit and major illicit drug-producing countries. The State
Department designates countries that are vulnerable to money
laundering by drug traffickers and one-third of the countries
of the primary concern are in the Western Hemisphere.
These rules appear useful to U.S. objectives to counter
drug flows and transnational criminal networks. However,
Congress has an interest in ensuring these tools are
coordinating with lasting results.
The Kingpin Act has been around for a long time and has led
to hundreds of individuals and entities being sanctioned. As of
October, of the 110 top-tier kingpin designations, 65
individuals and 16 organizations are connected to countries in
the Western Hemisphere. Over the years, the Kingpin Act has
expanded, and it is now utilized globally.
A lot of changing dynamics in terms of the drug cartels and
different things in the global use of the Kingpin Act
necessitate a review to consider lessons learned in the Western
Hemisphere. It is important to note that while the FARC and
Urabenos in Colombia are both designated as kingpins, the
National Liberation Front, the ELN, is not. Similarly, although
MS-13 is designated under the transnational crimes sections
program, it is not sanctioned as a kingpin.
Hezbollah, although listed as a foreign terrorist
organization, is not sanctioned as a kingpin in any country in
the Western Hemisphere. What are we losing by not including
these groups in further sanctions, especially given the
dangerous nexus between multinational drug operations and
terror operations?
The Kingpin Act was recently used against the Venezuelan
Government officials and Mexican drug cartel operatives. How
are we measuring these objectives since its inception? Has the
act lead to fewer arrests coming into the United States?
I look forward to hearing from our experts, and I will now
yield to the ranking member on the subcommittee for his opening
statement.
Mr. Sires. Well, good afternoon, and thank you for being
here.
I would like to start by welcoming our new chairman, Mr.
Cook. I look forward to working with you. We are happy to have
you here leading the subcommittee, and I look forward to a good
relationship.
Today's hearing focuses on the Kingpin Designation Act, a
powerful tool the U.S. has used against drug traffickers and
money launderers around the world since President Clinton's
administration. The Kingpin Act allows the U.S. Government to
target narcotic traffickers and senior members of their
organizations. Dismantling these powerful organizations by
going after their financial network instead of arresting low-
level criminals in the streets can help take apart an
organization permanently instead of trying to put a Band-Aid on
an open wound.
These designations have been used all over the world to
target powerful drug traffickers and have helped bring down
criminals who were previously thought to be untouchable. Going
after groups like the Cali cartel in Colombia showed the world
that no amount of money could protect the criminal network.
Today, the Kingpin Act has targeted criminals all over the
world, reaching from Mexico, Honduras, Colombia, to India,
Afghanistan, and Lebanon. However, the process to designate an
individual or an entity under the Kingpin Act can be long and
murky. There are questions about how decisions are made and how
the interagency process is used to coordinate these
designations that frequently relate to politically sensitive
foreign policies. We also need to look closely at whether these
agencies have the resources they need to thoroughly investigate
the targets in a timely manner.
Most importantly, we must remember the kingpin designation
act and all the sanctions are a tool, not an end goal. Without
a clear focus of policy toward a country or criminal
organization, these designations will do nothing more than stir
up a few press releases and create uncertainty in already
unstable countries.
I am eager to listen to our witnesses today to learn how
the designation process may be strengthened so that we can
effectively combat criminal organizations around the world and
especially here in the Western Hemisphere.
Thank you, and I yield back the balance of my time.
Mr. Cook. Thank you, Mr. Sires.
Before I recognize our witnesses, I was going to--normally,
I would like to have opening statements. But if they will
indulge me, because we have got four witnesses here, and I have
a lot of questions. And I would rather err on the side of
questions so that we can get right to the point.
And before I provide you your testimony, I am going to
explain the lighting system in front of you. Very complicated.
You are going to have 5 minutes. Try to stick to that. I will
try to be polite, and then, you know, you go on, and on, and on
like some Members of Congress, I will break the gavel. But when
you begin, the light will turn green. When you have a minute
left, it will turn yellow. When your time has expired, the
light will turn red. And then, as I said, I don't mean for you
to just to stop in mid-sentence. But you get the cue. It
depends. If it is good stuff, yes.
After our witnesses testify, members will have 5 minutes to
ask questions. I urge my colleagues to stick to the 5-minute
rule. We don't have many here today, but I hope others will be
watching us on TV. What an important hearing this is, and they
are all going to descend here and all the seats are going to be
filled.
Today we are going to be hearing from four witnesses. First
let me introduce Mr. Donald C. Semesky, Jr. Mr. Semesky spent
44 years in the U.S. Federal law enforcement, 30 years with the
U.S. Internal Review Service, criminal investigation, and 14
with the United States Drug Enforcement Agency, 5 years as the
Chief of the Office of Financial Operations, and 9 years as a
money laundering subject matter expert consultant. I think that
adds up to about 156 years. God, whatever you are taking, I
want some of it. Mr. Semesky, thank you for joining us today.
And I am going to introduce each panel member as we go
along. So right now, unless you have any objections, you will
be recognized for 5 minutes.
STATEMENT OF MR. DONALD C. SEMESKY JR. (FORMER CHIEF, OFFICE OF
FINANCIAL OPERATIONS, U.S. DRUG ENFORCEMENT ADMINISTRATION)
Mr. Semesky. Thank you, Mr. Chairman.
Chairman Cook, Ranking Member Sires, and distinguished
members of the House of Representatives Subcommittee on the
Western Hemisphere, first, thank you, very much, for allowing
me to appear before you today to discuss the effectiveness of
the Kingpin Act.
I believe that my written statement and my testimony, as
well as my answers today, will help you understand more of the
tremendously effective impact that this has had on protecting
the United States from the scourge of illegal drugs and the
flow of money back to these organizations.
One of the things I want my testimony to really hone in on
is the use of the Kingpin Act as an effective law enforcement
tool, not just a sanctions tool. You know, where we have been
able to work very closely with the Office of Foreign Assets
Control, Department of Treasury, as part of our investigative
process, to target and take down, simultaneously with the
sanctions, major foreign drug operations and money laundering
operations.
I will preface my remarks by saying that I am not here as a
representative of the Drug Enforcement Administration today. I
am here as a private citizen, although I did spend, as
Congressman Cook highlighted, 5 years as the Chief of Financial
Operations. During that tenure, I worked very closely with the
Office of Foreign Assets Control and helped bring them into DEA
headquarters, open up DEA data to them, and then stand up a
memorandum of understanding and the standard operating
procedure by which that office, which is commonly referred to
as OFAC, uses drug enforcement administration information in
their targeting and designation process.
My written statement outlines the designation process, so I
will not go through that except to say that OFAC works very
closely with the interagency law enforcement partners, with the
Department of Defense, and with the intelligence community in
targeting and vetting their designees prior to the actual
designation.
As I mentioned, OFAC and DEA operate under a memorandum of
understanding and standard operating procedure in accessing
DEA's information and then vetting it through our agency before
they can use it in their investigative reports. OFAC has a
permanently assigned investigator to DEA headquarters and also
another one permanently assigned to our special operations
division in Virginia.
As you know, I am sure, the agency also has permanently
assigned investigators in both the Embassy in Bogota, Colombia,
and the U.S. Embassy in Mexico city, Mexico. This allows for
on-the-ground investigation by those members of OFAC into
foreign drug kingpins, foreign drug money laundering
organizations, and it also allows the Ambassadors in those
countries to get in-depth briefings on pending actions so they
can make the decisions they have to on the political and
financial ramifications that it is going to have on their area
of operation.
I have personally witnessed at many different levels in
these countries the business community and the financial
community's interest in the Kingpin Act and their interest in
dealing with, on a day-to-day basis, the representatives of
OFAC in those Embassies. They are always the most sought after
people in the Embassy for those sectors, and they are at every
conference, financial conference, business conference,
throughout Latin America. So that alone speaks to the impact of
the agency.
My statement talks about two examples of the effectiveness.
One is, as you mentioned, Cali, Colombia the Rodriguez Orejuela
brothers waived extradition and turned themselves over to U.S.
authorities for the sole purpose of removing their families
from the OFAC designation list. The other investigation is the
recently concluded Rosenthal family enterprise in Honduras
which laundered drug money throughout Latin America, and that
enterprise has been completely dismantled because of a joint
law enforcement and sanctions activity.
I will conclude with one final recommendation. And that
would be that the Kingpin Act has never been included as a
specified unlawful activity in the Federal money laundering
statute. And it would be very helpful if that violation could
be included so when drug kingpins that cannot be touched for
any other reason conduct financial transactions, we can bring
charges using that as the violation.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Semesky follows:]
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----------
Mr. Cook. Thank you, Mr. Semesky.
Next let me introduce Mr. David Hall. Mr. Hall is a partner
at Wiggin and Dana LLP in the litigation department where he
advises clients in a variety of areas but most relevant is his
expertise with corporate compliance with the Foreign Corrupt
Practices Act. In 2013, Mr. Hall retired from the United States
Department of Justice after 23 years as an assistant U.S.
attorney.
Mr. Hall, thank you for joining us today, and you are
recognized for 5 minutes.
STATEMENT OF MR. DAVID HALL, PARTNER, WIGGIN AND DANA LLP
(FORMER PROSECUTOR, U.S. DEPARTMENT OF JUSTICE)
Mr. Hall. Thank you, Mr. Chairman.
Chairman Cook, Ranking Member Sires, and members of the
committee, I am very pleased to be here. Thank you very much
for giving me the opportunity to testify. I will be summarizing
my written statement.
My testimony today will focus on practical sanctions issues
from the ground level. In other words, from the point of view
of U.S. companies who are required to comply with U.S.
sanctions regimes. As you are aware, the Office of Foreign
Assets Control administers a number of different sanctions
programs. And all of those sanctions programs have in common
that they are designed to deal with persons or entities who
pose a threat to U.S. national security or U.S. foreign policy
objectives.
The Kingpin Act is one point of origin of many for the
totality of sanctions programs administered by OFAC. And, taken
together, the sanctioned individuals and entities make up the
Specially Designated Nationals and Blocked Persons List which
is known as the SDN. It is a 1,000 page document that lists
more than 5,000 individuals and entities. U.S. persons are
generally prohibited from engaging in transactions with any of
the individuals or entities on the SDN list.
Today I will address two practical compliance challenges
that face U.S. businesses in their role as gatekeepers in
complying with the sanctions regimes, including those that
originate with the Kingpin Act. One is OFAC's 50 percent rule,
which I will describe, and the other is the strict liability
standard that applies to all sanctions offenses.
First, the 50 percent rule. OFAC has taken the position
that any entity that is owned 50 percent or more in the
aggregate, directly or indirectly, by one or more blocked
persons, is itself considered to be a blocked entity even if
that entity is not itself named on the SDN list. The question
is: How does a widget maker in Wisconsin deal with that? As you
are aware, many sanctioned individuals, including kingpins
exert enormous effort to remain invisible, and, in part, to
avoid U.S. sanctions. How does a widget maker crack that code?
Through the 50 percent rule, the government has outsourced
the fundamental national security function to the private
sector. And this is effective, in my opinion, in reducing
government accountability but is not effective in terms of
achieving the goals of U.S. sanctions programs. This is because
U.S. businesses ordinarily do not have the resources and the
ability to gain the kind of granular information that is
necessary to understand the ownership structure of every
business partner or customer.
In contrast, the U.S. Government does have access to that
kind of information through the intel community and through law
enforcement agencies. Since the government has the most
reliable and efficient means of making those determinations, in
my opinion, the government should do that and should list all
sanctioned entities instead of leaving it up to the private
sector to identify 50 percent partners.
The second issue I wanted to address briefly is the strict
liability standard. The sanctions regime seems simple. The
government publishes a list of sanctioned individuals. U.S.
companies have to read that list and can't do business with
those entities. Sometimes it is exactly that simple but not
always. Companies employ search protocols in order to determine
whether or not they are dealing with sanctioned individuals and
entities. But these search protocols often yield false
positives or near positives. There are a lot of sources for
these errors, including common names, names with multiple
spellings, of course misspellings, the fact that foreign
language names need to be translated and are sometimes
mistranslated, not to mention cultural differences in naming
conventions. As a result, U.S. businesses are left with a
question: How close is too close?
Now, why is this such a big problem? Because the OFAC
sanctions are administered according to a strict liability
standard, which means that good faith is not a defense. So a
company could be doing everything in its power to comply with
OFAC sanctions, but if it accidentally violates those
sanctions, then it is still liable and the only question is:
What will the penalty be? The government does take good-faith
compliance into account when determining penalties, but, in the
end, it is up to the government. In my opinion, this is not
fair. But, in addition, it is not an effective means of
enforcing sanctions.
So I have two recommendations. One is abolish the 50
percent rule. And the other is I think that a good-faith
exception to the strict liability standard should be
established. This will enable the government to focus its
attention on companies that are not acting in good faith which
is really the focus of any law enforcement enterprise.
Thank you. I look forward to your questions.
[The prepared statement of Mr. Hall follows:]
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----------
Mr. Cook. Thank you, Mr. Hall.
Next let me introduce Dr. Emanuele Ottolenghi. Close?
Mr. Ottolenghi. Very close. Perfect.
Mr. Cook. This gentleman is a senior fellow at the
Foundation for the Defense of Democracies and an expert at its
Center on Sanctions and Illicit Finance focusing on Iran.
Sir, I want to thank you for joining us today. You are now
recognized for 5 minutes.
STATEMENT OF EMANUELE OTTOLENGHI, PH.D., SENIOR FELLOW, CENTER
ON SANCTIONS AND ILLICIT FINANCE, FOUNDATION FOR DEFENSE OF
DEMOCRACIES
Mr. Ottolenghi. Chairman Cook, allow me first to
congratulate you on your recent appointment as the new chairman
of this subcommittee.
Mr. Cook. Thank you.
Mr. Ottolenghi. Mr. Chairman, Ranking Member Sires, members
of the subcommittee, I thank you for the opportunity to
testify.
Hezbollah's growing involvement in transnational organized
crime is a multibillion dollar global enterprise endorsed and
coordinated by the group's top leaders not a side business
operated by greedy operatives gone rogue. Increasing quantities
of cocaine invade the U.S. and Europe from Latin America.
Cocaine consumption is as much a national epidemic as opioids
and Hezbollah helps make it available to U.S. consumers. Take
the recent extradition from Paraguay to Miami of suspected
Hezbollah drug trafficker Ali Chamas. Court documents show that
he was part of a larger network likely based in Colombia. At
the time of his arrest, he was conspiring to export as many as
100 kilograms of cocaine a month to the U.S. by air cargo.
The U.S. has remarkably sharp and effective tools to
counteract Hezbollah's terrifying threat, though it is not
always using them as vigorously as it should. To illustrate the
problem, let me offer two examples which I discuss at length in
my written statement.
In 2011, the DEA indicted Ayman Joumaa, a Lebanese-
Colombian dual national who operated a global network of
companies laundering drug money from Mexican and Colombian
cartels to the tune of $200 million a month. Joumaa worked with
Hezbollah as the kingpin in one of its many global networks. A
DEA official discussing the case said that Hezbollah operated
like ``the Gambinos on steroids.'' As the combination of
numerous coordinated actions which included kingpin
designations, the Joumaa case illustrates the effect of the
Kingpin Act.
Hezbollah's use of the tri-border area of Argentina,
Brazil, and Paraguay, or TBA, both to launder money from
illicit traffics, and as a staging ground for its drug runners
shows you a sanctions policy current shortcomings. In my
written statement I offer evidence of the TBA's importance too
Hezbollah's global illicit trade. Lack of U.S.-sanction
enforcement against Hezbollah TBA operatives since their terror
finance designation in 2004 and 2006, coupled with light or no
penalties for sanctioned violators, have allowed Hezbollah to
strengthen its presence and increase revenues from illicit
traffics including cocaine.
Unless U.S. sanctions are constantly updated and vigorously
enforced, targeted individuals and entities can soon elude them
and shrug off their effects, especially if they can count on
local corrupt authorities to collude with them as it is the
case with Hezbollah and the TBA.
Both successful cases I mention in my written statement
involved a sanctions and a law enforcement component. They also
relied on unprecedented intelligence sharing and interagency
coordination, cooperation with foreign law enforcement and
intel agencies from allied countries, and the reliance on a
panoply of tools drawn from the sanctions arsenal and in the
Joumma case, the PATRIOT Act as well.
The Kingpin Act shares the same strengths and limitations
of other sanctions programs. When combined with other tools and
leverage as a basis for prosecution is very effective. That is
why I strongly recommend that the U.S. administration designate
Hezbollah and its senior leadership as both a transnational
criminal organization and a global kingpin. U.S. sanctions
occasionally stumble upon the reluctance or refusal by regional
governments to cooperate. No Latin American country has so far
designated Hezbollah as a terrorist organization. Its terror
financiers are not being prosecuted as such. U.S. requests to
arrest, prosecute, and extradite them might be easier if they
are under kingpin designations as well. Kingpin designations
can also punish Hezbollah's enablers. Were the U.S. to target
the Latin American financial institution involved in
facilitating Hezbollah's drug transactions, the impact would be
devastating.
Global Magnitsky Act designations should also be considered
for those whom Hezbollah bribes and corrupts for access,
influence, favors, and collusion in its criminal activities.
Requests that the President investigate cases of corruption
by foreign officials can come from chairpersons and ranking
members of relevant committees in Congress. Such requests would
put the spotlight on narcoterrorism's worst enablers. Kingpin
designations have had salutary effects. They have named and
shamed individuals, companies, and organizations, led to asset
seizures, cut off their entities from the U.S. financial
systems, nudged U.S. allies and the global corporate and
financial sectors into compliance. Nevertheless, there are
enough countries that disagree with, or disregard, U.S. policy.
Hezbollah operatives find a haven where U.S. sanctions alone
have limited reach.
And, finally, Mr. Chairman, to run an effective policy, we
need people and resources in place. First and foremost, the
U.S. urgently needs a new DEA administrator with the vision and
experience to go after transnational criminal organizations
such as Hezbollah and with the skills to coordinate government
agencies, navigate bureaucracy, and build friendships and
international alliances.
OFAC also cannot work cases through the sytem without
access to more resources that can enable the bureaucracy to
work faster and cast its net wider.
Now, these are just some of my recommendations, Mr.
Chairman, and I very much look forward to your questions. Thank
you.
[The prepared statement of Mr. Ottolenghi follows:]
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----------
Mr. Cook. Thank you, very much, Doctor.
Finally, let me introduce Mr. Eric Olson. Mr. Olson is
deputy director of the Latin American Program and senior
adviser to the Mexican Institute at the Woodrow Wilson
International Center for Scholars in Washington, DC. Thank you
for joining us today. You are recognized for 5 minutes.
STATEMENT OF MR. ERIC L. OLSON, DEPUTY DIRECTOR, LATIN AMERICAN
PROGRAM, WOODROW WILSON CENTER
Mr. Olson. Thank you, Chairman Cook, and congratulations on
your appointment. And thank you to Ranking Member Sires and the
other members of the committee for this opportunity to appear
before you today on behalf of the Wilson Center.
Given the limited time I have, I would like to focus my
remarks on the policy ideas and suggestions I set forward in my
written testimony which I have submitted for the record.
To begin, I want to make clear that I believe the Foreign
Narcotics Kingpin Designation Act of 1991 is one of the most
important and powerful instruments the United States has in its
quiver to fight organized crime and illicit financing in the
region. It has been used to good effect against powerful
criminal organizations and persons in countries such as
Colombia Venezuela, Mexico, and throughout Central America.
Since implementation began in 2000, there have been
approximately 1800 persons and entities designated and
sanctioned under the act. The vast majority, as you pointed
out, are in the Western Hemisphere.
While the use has been far-reaching, a full review of the
effectiveness of this program and policy has not been conducted
yet. As far as I know, neither the Treasury Department's Office
of Inspector General, nor the Government Accountability Office,
has conducted a full analysis nor has there been a full policy
review within Treasury. As far as I know, this hearing is the
first attempt to look broadly at this policy and whether it is
effective or not.
The time is right to request a full, objective, and data-
driven evaluation of the act's effectiveness. It has been
nearly 17 years since it has been first implemented. So it is
time to do a cost-benefit analysis and to find out if the act
is as effective as anecdotes might suggest it is. And we all
have good and positive anecdotes about its effectiveness, but
it is time for a broad analysis and evaluation.
Questions that must be answered include whether the Kingpin
Act is effectively dismantling criminal organizations or simply
splitting them up and fragmenting them. Is it having any
measurable impact on accountability for criminal networks and
their bosses in the region? We can point to prosecutions and
convictions in the United States. But, as the Honduras example
that has been referred to here, and I talk about it in my
written testimony, suggest, involving the Rosenthal family and
Continental Bank, there really has not been much accountability
for them in Honduras.
Secondly, we need to use this powerful tool in a focused
and careful way, seeking to avoid damage to legitimate elements
of financial systems and economies in our drive to root out
criminals. This is particularly the case, again, in small, weak
countries such as Honduras where sudden designations can put at
risk entire financial systems and economies.
The designation of the Rosenthal family in Honduras and the
Continental Bank is a case in point. There is overwhelming
evidence that the bank and Rosenthal family were involved in
money laundering on behalf of the Cachiros criminal group. But
since this was the first time a bank itself was designated
under the act, it caused near panic within the country's
financial system, with many people refusing to conduct even
permitted transactions with other banks for fear of somehow
crossing the line and putting themselves and their business in
jeopardy. And I think this refers a little bit to what Mr. Hall
was talking about, this strict liability provision, good faith
not being good enough. People panic and worry not about Banco
Continental, which deserved to be dismantled, but broader
financial issues and questions in that country.
Third, we need to use the leverage provided by the Kingpin
Act to ensure that countries undertake broader reforms of their
financial and judicial systems. Sanctioning individuals and
entities are powerful tools. But if we can use the leverage
that comes with the sanctions to push for broader reforms,
greater transparency, and accountability, the benefits can be
immense.
Fourth, we should continue investing in efforts to
strengthen the capacity of financial oversight and regulatory
institutions in the region. It was an open secret in Honduras
that the Rosenthal family and Continental Bank were allegedly
involved in money laundering activities. Everybody talked about
it. It was even published in the newspaper. But nothing
happened. And the Honduran National Commission for Banks and
Insurance claimed to be completely surprised by this
designation. So we need to do more to improve their capacity to
do oversight and not just depend on our action.
I know I am out of time, but I have two really quick more
recommendations. One, top down, high-value target strategies
can be valuable when confronting organized crime but they often
lead to fragmentation of criminal networks that metastasize,
often forming new criminal groups or joining others in the
process. And we need to view this as one amongst many
instruments to attack organized crime.
And, finally, as this tool has become the centerpiece of
the administration's strategy for countering transnational
organized crime, Congress needs to make sure there are adequate
resources and trained personnel to conduct the investigations
and enforce the sanctions that form the backbone of these
designations under the act.
Thank you very much.
[The prepared statement of Mr. Olson follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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Mr. Cook. Thank you, very much, sir.
I want to thank the panel for being very good on time. It
goes fast, doesn't it? And I don't have this clock up here
where I speed it up. I don't cheat, really. So, anyway, I do
want to compliment you, and I didn't want to start off my first
meeting being the bad guy.
Anyway, I yield myself 5 minutes to ask some questions.
And, full disclosure, you know, today we had a birthday
ceremony for the Marine Corps birthday. It is 242 years old.
And I am old, but I am not that old. But, anyway, when I was
listening to the testimony, I always remember the terrorist
incident in Lebanon where my own battalion, First Battalion
Eighth Marines, had over 200 Marines, soldiers and sailors,
that were killed, many more wounded, and the question of
international terrorism.
And a couple of the gentlemen referred to Hezbollah and its
activities. I think when you talk to the average American on
the street, they don't think of that organization being in the
Western Hemisphere. They think of it as being in the Middle
East, maybe North Africa or what have you. And this opens up a
whole new area.
And if you mention that, but I wanted to see if anyone was
going to mention on how we can do more and suggestions on how
we can implement that in terms of that organization obviously
being international and to be under the Kingpin Act. Anyone?
Yes, sir?
Mr. Ottolenghi. If I may. Thank you for your question.
I mean, the amount of actions that could be taken is very
significant. Their presence all over the Western Hemisphere is
very important and growing. Hezbollah's assessed estimated
annual operating budget is in the ballpark of at least $1
billion and at least 30 percent of that comes from global
illicit activities, chiefly drug trading. It is one of the
principal sources of cocaine both in Europe and increasingly in
the United States as a middleman for the cartels. That is why
it is so important and directly impacting, I think, to U.S.
national interests.
And just one point of the many things that I would note is
that Hezbollah is active in Latin America. I mentioned the tri-
border area of Argentina, Brazil, Paraguay. There is also
significant activity in Venezuela, in the Caribbean islands, in
Panama, and elsewhere. In many of these places, Hezbollah
operatives manage to acquire, through corruption or because of
lax immigration schemes, dual nationalities from those
countries which allow them to operate a lot more freely in the
financial systems and in the jurisdictions in which they find
themselves. So working with regional allies to look into the
way that these criminals are easily acquiring citizenship in
those countries would be one step forward.
Thank you.
Mr. Cook. Thank you.
Anyone else want to comment on that? Sir?
Mr. Semesky. Yes. Mr. Chairman, I would add, first of all,
I would agree with everything that Dr. Ottolenghi just stated
and also point out that when Hezbollah started to become a
global organization, it already had somewhat of an
infrastructure in place in the Lebanese diaspora around the
world, and especially in the free trade zones in Latin America.
If you look at the Panama free trade zone, the trade zones in
Chile and Peru, all throughout Latin America, and the tri-
border, as the doctor mentioned, many businessmen and many that
have been connected as financiers or contributors,
sympathizers.
So the fact of free trade zones are especially alarming in
that trade goods, illicit goods, weapons of mass destruction,
can move through those trade zones almost unnoticed in those
countries with very weak infrastructure. So I think to the
extent that the U.S. can stay on top of the trade movement
throughout Latin America, that would be a recommendation.
Mr. Cook. I just want to make a comment before I recognize
the ranking member. You know, 2 years ago, 1 year ago, we were
talking about ISIS, Daesh, or ISIL, whatever you want to call
them, but the fact that the corruption and the illegal
smuggling of, or selling oil on the black market, all those
things, I think that variable was highlighted in different
organizations, task force went after that, and I am just
thinking hopefully we can capitalize on some of those lessons
learned and use in this war against some of these
organizations.
So my time has expired. And, Mr. Sires, you are recognized.
Mr. Sires. Thank you, Mr. Chairman.
When we designate a senior member of a criminal
organization, does that shed any light on the connection
between the organization and the corrupt government officials
that they work with? Mr. Semesky? Looks like nobody else wants
to----
Mr. Semesky. It sheds light, sir, in that it helps as the
information and the data is gathered, embedded through the
interagency, and different agencies start taking other
agencies' information and running it through their systems, the
knowledge of the organization actually expands. And a lot of
times those designations cause investigations or are the result
of investigations, which then could bring to light government
corruption connected to those drug cartels or money laundering
organizations.
Mr. Ottolenghi. If I may add one point which applies to
Hezbollah, but I guess in general to other criminal
organizations. Generally speaking, a lot of these transnational
organized crime activities, chiefly the moving of illicit
substances, require the complicity and the collusions of a
significant number of public officials at all levels, whether
it is customs, or, you know, airport security officials, border
police, prosecutors, judges. And organized crime across the
world has the habit of buying access and influence at the
highest levels of power in order to facilitate these
activities.
Now, corruption is rampant in Latin America. So I think
that the use of these instruments does not only facilitate the
exposure of the connection between crime and power, but it also
opens up the possibility that the United States can use
instruments such as the Kingpin Act, such as the Global
Magnitsky, to go after corrupt officials who are the enablers
of crime when we cannot go after the criminals themselves.
Mr. Sires. Thank you.
I am dying to ask this question. Because we had a meeting
with the President of Colombia, and they were working on a deal
with the FARC, and I asked him have they found any money hidden
of the FARC. And he told us no, there is no money. Does
anybody--all four of you, do you believe that or am I just
being a little skeptical I guess?
Mr. Semesky. Congressman Sires, your skepticism is well
placed. There is money. And we are continually working with the
Colombian Government and the interagency to identify it.
Because the FARC is a guerrilla organization, because they do
operate in the jungles, and do operate with cash, it is very
difficult until it hits the financial system. And then you have
to find it. Their biggest expense, obviously, is their
infrastructure and payment for their soldiers. And they do
spend a lot of their revenue through that requirement.
But we do believe there are hundreds of millions, or
billions, of dollars in their hands which we are constantly
trying to identify.
Mr. Sires. Well, the reason I ask that question is because
now these people are allowed to participate in the process of
the election in the future. And, quite frankly, if you have
that money hidden, you can actually buy the election in the
future with all of the money. So we win the battle and lose the
war. So I was quite disappointed, you know, with that response.
And the question is, if you get on the list, how do you get
off it?
Mr. Olson. I will defer to them, because I think they know
exactly much more how to do that.
Mr. Semesky. Congressman, there is a process in place to be
removed from the list. And OFAC had taken quite a few people
off the list over the years. Typically, a tier one designee is
the actual kingpin. Under that kingpin are associated entities
which could be individuals or businesses. And, typically, it is
almost impossible for a tier 1 entity to be removed from the
list. However, if an individual or a business can prove to
OFAC, that they have severed ties, they are no longer
associating, and have divested themselves of their assets in
joint financial endeavors, OFAC will remove them from the list.
And they do advertise that.
Mr. Sires. Thank you, Mr. Chairman. My time is up.
Mr. Cook. Thank you, very much.
I am now going to recognize Congressman Donovan from New
York.
Mr. Donovan. Thank you, Mr. Chairman.
And thank you for your enlightened testimony. I was a drug
prosecutor in New York City for 8 years, and then I was the
elected district attorney, chief prosecutor, one of the five in
New York City, before I came to Congress. Much of our success
was the seizing of assets of the people who we were pursuing. I
guess it was part of their trade when they knew they were going
to lose product. But it was when we took their assets that we
really harmed them.
How successful do you think we are being in identifying
assets and in cases seizing them with the people who are on the
list that you have provided for us?
Mr. Semesky. As far as the people on the list, I would say
overall not very successful. I will say that when a country
follows the list--in Colombia it is known as the Clinton list
because President Clinton signed the initial legislation. And
it is also known as civil death. If you are on the list, you do
not have access to the financial system. And as I pointed out,
the Rodriguez Orejuelas turned themselves in specifically to
get their families removed from the list.
At DEA, what we have done is when we investigate financial
cases, we have a money flow strategy where we use money more as
a weapon against the cartels than as a tool for asset
forfeiture, although we do take as much money as we can
identify, and that is the money flows back toward sources of
supply. The drugs flow toward the abusers. Our investigations
prioritize the flow of money back to the sources of supply so
we can identify command and control of those organizations.
And it also helps us infiltrate the organizations. The
panel members mentioned the case with Ayman Joumaa. That
started with a DEA money laundering investigation where we
provided services. We infiltrated the organization, and we
ended up taking down quite a few drug traffickers, money
launderers, and a bank in Lebanon.
Mr. Olson. I would just add to that--I don't know if I am
on here. I would just add to that that one of the reasons I
think it is important--and I include it in my recommendations--
that we work with our partners in the region to strengthen
their own capacity is that a lot of times we are dealing with
Attorney Generals offices that are weak. We are dealing with
other bank oversight commissions that are weak in the region.
And it limits what we can do from a law enforcement point of
view and from an effectiveness point of view.
The Kingpin Act is strong, and it is good. There are ways
to make it better. But it is one tool amongst many. And if our
partner in our other countries aren't strong, and capable, and
honest, and transparent, it really weakens and undermines our
own ability to go after the assets of, say, the FARC or other
criminal organizations. Now, I would say Colombia has a pretty
strong and improved financial system compared to other
countries in the region. But, nevertheless, I think this is one
of the things we can't lose sight of. We have a strong tool but
sometimes the countries don't themselves.
Some of the countries in Central America are just now
adopting asset forfeiture laws and just beginning the process
of implementing those laws. It is new to them. And so I think
we can't lose sight of that important aspect of this whole
equation.
Mr. Donovan. You hit on my second question. I only have a
minute, so I offer it to the rest of the members of the panel.
How can we improve the kingpin statute? What can we do to
achieve our goals of the statute in a better way after it has
been implemented and enacted nearly 20 years now?
Mr. Semesky. Congressman, to me, it is a very effective
statute and sanctions program. The most significant way you can
improve it is to add more resources to the office that
administers it. They are woefully understaffed. They do not
have the people to do the investigations, to work with the
agencies. They do to the extent they can, and I think the
resources--if you looked--and I can't tell you what they are.
But I know that they are very, very much understaffed right
now. So I think that would go a long way. When they have the
people to do the work, it is a very effective program.
Mr. Donovan. I thank you all. Mr. Chairman, my time has
expired. Thank you.
Mr. Cook. Thank you very much.
Now I am going to recognize the gentlelady from Illinois.
Ms. Kelly. Thank you, Mr. Chair. And I thank my colleague
for letting me go ahead of her.
Mr. Olson, you said something very interesting. You talked
about we need to evaluate what we have been doing, and you
talked about it really doing what it has said it is doing or is
it just serving to dismantle and fragment the bad guys, I
guess. And it made me think about--I represent the Chicagoland
area, and that is the same thing that has been said about the
gangs, that they put the head of the gangs in jail and now the
gangs are fragmented and they are fighting for 2-block
territories. And you see the chaos that has been in Chicago.
But, Mr. Hall, you said that the 50 percent rule almost
guarantees that the U.S. Government will fail in achieving its
own goal. What would you change in order to balance the rule
with the government's goal?
Mr. Hall. I would eliminate the rule in its entirety. I
think what needs to happen--this blends into what we have just
been talking about in terms of effectiveness. Because if you
think about how, in reality, on the ground, sanctions rules get
enforced in the United States, it is at the business level. It
is at the individual business level. And the companies that are
trying to comply don't have the resources that the Federal
Government has. And, actually, they rarely understand why a
particular entity is even sanctioned. All they know is that it
is and they are not supposed to deal with them. They are trying
to figure out whether the person they are dealing with, who
might have a similar name or similar business name is the same
entity.
So all that ambiguity leads to ineffectiveness in
enforcement. And it leads companies to a position where they
are just guessing. So, you know, the more granularity the
government offers business in terms of identifying sanctioned
individuals and entities, the more effective the program is
going to be. By just sort of issuing a blanket edict that says,
you know, any entity that is 50 percent owned by other--in the
aggregate--other sanctioned entities that aren't named, that is
guaranteed to lead to failure. So that is what I meant by that.
Ms. Kelly. Do you know how many businesses in the United
States have been affected by the Rule?
Mr. Hall. I am only aware of one enforcement action under
the rule. And that was about 1 year ago. That was in 2016. Now,
I don't know why there has only been one. I guess it is not
that old of a rule, for one thing. But, for another, you know,
it makes me wonder if the government knows--if the government
has spent enough time and resources figuring out the ownership
structures of these 50 percent owned entities and whether they
know which entities are 50 percent or more owned by an
aggregation of other sanctioned entities. It is a hard problem
to solve. But it is a problem that intelligence agencies and
law enforcement agencies have the resources to address.
Ms. Kelly. And is there anything you would put in its place
or just forget about it?
Mr. Hall. No. I would not replace it. I think the 50
percent rule is--it is just fundamentally the wrong approach to
tell individual businesses, you have to figure this out. We are
the Government, you know, we haven't figured it out, we are
going to put it on you, and then, if you make a mistake, we are
going to enforce the sanctions against you on a strict
liability basis with penalties, you know, on the--you know, of
over $\1/4\ million per transaction, which adds up.
Ms. Kelly. Okay. Well, I think the idea of a full and
objective data-driven evaluation would be an excellent idea
since you said nothing has been done in 17 years. And maybe
that will get to your point.
Mr. Hall. No, I think that is a really good recommendation.
I was actually shocked to hear that.
Ms. Kelly. Did you have--oh, I didn't know if you were----
Mr. Semesky. I am sorry, Congresswoman. I was just going to
add that I don't completely agree with Mr. Hall on that point.
And if I--the 50 percent rule is--I understand where he is
coming from, and it is not fair to business. But also if OFAC
discovers a business that is owned 50 percent and it isn't on
the list, if they didn't have that rule, they wouldn't be able
to freeze its assets.
Ms. Kelly. Okay.
Mr. Semesky. Now, I do agree with the strict liability, the
problem that creates for businesses. And it isn't fair. Okay?
There should be some type of mitigation guidelines in place
that if you truly do not know, you cooperate once you discover
it, you self-disclose, there shouldn't be penalties.
So, I mean, I would add that I don't agree with the one but
I do agree with the other.
Ms. Kelly. Thank you. My time is out.
Thank you.
Mr. Cook. Thank you very much.
I am now going to recognize the gentleman from Florida, Mr.
Rooney.
Mr. Rooney. Thank you, Mr. Chairman.
Mr. Cook. Thank you, sir.
Mr. Rooney. I might comment right quick about that, being a
business guy. You know, there are self-disclosure procedures in
the EPA and the DOJ for companies when they discover something
like a blowout preventer failure on an oil well, or something,
to immediately call them and say we have got this problem and
that gets them out of the strict liability kind of thing. So it
might be something to think about.
I would like to ask Dr. Ottolenghi. If the EON and the AUC
are both designated foreign terrorist organizations, how come
we are not designating the ELN as well?
Mr. Ottolenghi. First of all, thank you for your question.
I wouldn't be opposed, of course. I think that is a question
for the administration, though, to be asked whether that
organization should also fall under the sanctions program.
If I may add a point about what you just said regarding
ownership, which goes back to the activities of these
organizations. By design, a lot of these companies will be
opaque. There will be an intentional deliberate obfuscation of
what these organizations are about. And that usually starts
with ownership. And so effective control, which requires a lot
of investigation on the parts of the Government to determine
who really is behind these entities, I think would be the
defining factor for listing and/or delisting entities.
Mr. Rooney. So is there anything to do with the FARC
agreement and the Government of Colombia's desires to make sure
that thing proceeds forward and are not designating ELN, maybe
for anybody that has an opinion.
Mr. Olson. I mean, I think the designation is up to the
Treasury Department, so it doesn't--it is not a matter of
whether the Colombian Government wants it or not.
Mr. Rooney. Other than subtle----
Mr. Olson. Well, yeah. I mean, I think there is obviously a
desire to, on the part of the Colombian Government to bring
this, you know, process to an end as quickly as possible. But I
think it is up to the Treasury Department whether they would
designate the ELN. And my understanding is, in the past, the
assumption was that ELN, while a communist guerrilla group and
all that sort of stuff, they were a little bit different than
the FARC. And I am not taking sides here, but--in that they
were less involved with drug trafficking. And that was what the
Kingpin Act was designed to deal with.
Now, that could very well have changed. There may be reason
to reevaluate that. All those sorts of things could be true.
But that would really be, you know, a Treasury and ultimately
State Department involvement in that assessment, and DEA I am
sure.
Mr. Rooney. Yeah. I don't know.
The other question I would like to ask Dr. Ottolenghi is
about--you have a lot in your report--very great report, by the
way. Thank you.
Mr. Ottolenghi. Thank you.
Mr. Rooney. I am going to say that--about the role of
Hezbollah all throughout Latin America. And I just would figure
that Iran is there everywhere Hezbollah is. I wonder if you
would like to elaborate a little bit from your experience about
the role of Iran backed Hezbollah in Latin America and some of
the things Iran is doing independently of Hezbollah, like in
Venezuela and Nicaragua.
Mr. Ottolenghi. I have to entirely second what you just
said. Wherever Hezbollah goes, there is Iran, and usually vice
versa. And my understanding is that, in many of the illicit
traffic networks that Hezbollah is running in Latin America,
there is usually either a liaison person or some sort of a
political commissar from Iran, and it doesn't necessarily have
to be an Iranian person. It could be a Lebanese member of
Hezbollah that acts as an integrated member of the Quds force
running that. So oftentimes we have to see these activities as
integral to what Iran is doing in Latin America.
Now, in addition to that, as you pointed out, Iran does
things also independently of these traffics. And I think that,
you know, Iran, in the case of Venezuela, as you mentioned, is
very important, but in other countries as well. Iran has been
trying, for 3, almost 4 decades, to gain influence across the
entire region. It does so by establishing alliances with like-
minded political movements, and it is very pragmatic in the way
it chooses interlocutors. They can be on pretty much the whole
political spectrum.
It provides them with financing, with assistance, with
training in order eventually to gain access to political power
if they eventually become parts of the government.
It is spreading its influence through soft power tools,
such as cultural centers, mosques. It is recruiting and
indoctrinating locals through very aggressive conversion
programs. It is working with all sorts of extreme NGOs. It has
used Venezuela as a platform to connect with ALBA countries NGO
across the continent. So in short, it is trying to use
Venezuela and, more broadly, the continent as a forward
operating base to expand its influence, push back against the
United States influence, and potentially also create
operational basis to act against the United States.
Mr. Rooney. Thank you, sir.
Thank you, chairman.
Mr. Cook. Thank you, sir.
I now recognize Congresswoman Torres from California.
Mrs. Torres. Thank you, Mr. Chairman. And I believe
congratulations are in order. This is your first meeting
serving as the chairman of our subcommittee. Let me remind you
that you have very big shoes to fill with our former chairman.
We went on a trip to South America that I don't think I really
understood what we were getting into, and I am so happy that we
were able to manage.
Drug trafficking is obviously a very serious problem
throughout our hemisphere. And our response to this epidemic
has to start not just at home, but we have to look beyond that
at cracking down on the illegal flow of narcotics and drugs.
And we seem to be losing that battle, at least from the
perspective of the Pacific Ocean and how--I don't think that we
have worked as closely as we could with our partners in both
Central and South America to help them help us intercept the
drugs that are coming north.
We also need to work in the region to build up their
criminal justice systems and fight corruption. Working to
support groups like CICIG innovative approaches which has done
so much work in Guatemala, very good work. We also need to work
with our partners who seize the drug shipments and utilize
tools that we have, sanctioning tools, including the Kingpin
Act and the Magnitsky Act are very important tools that we
could use.
In Guatemala, we have supported the efforts of CICIG. And
the Attorney General, to combat organized crime and corruption,
they have made a lot of progress and have put dangerous
criminals behind bars, corrupt politicians included.
Now, it appears that CICIG and the Attorney General have
become victims of their own success. They have faced threats,
smeared campaigns, threw troll banks that have began a campaign
effort to discredit their work in attempts to undermine the
work that they do.
Mr. Olson, is it true that drug cartels and other criminal
organizations commonly finance political campaigns in Central
America? And are you aware of any instances where these illicit
actors have attempted to directly interfere in elections by
supporting disinformation campaigns or troll banks, as I
started to call them.
Mr. Olson. Thank you, Mrs. Torres, Representative Torres. I
appreciate your interest and your work on Guatemala and Central
America, which is often overlooked as an important part of our
region. And in answer to your question, absolutely. You
mentioned CICIG. CICIG did a major report on money laundering
and attempts of the past President who is currently in prison
to use his political party as a money laundering vehicle to run
his campaign.
And there has been evidence of other cases in Central
America, in Mexico, often at a local level, where criminal
organizations, not for ideological reasons, supporting a
political party, but simply to gain access and guarantee their
own impunity, use the weak campaign finance laws to manipulate
and control the process.
So for me, this is a little bit of the original sin for a
lot of the people--governments in Latin America where people
use weak campaign finance laws to begin the process of
corruption that later allows for the burgeoning of criminal
organizations and drug trafficking. And there is no question
that they use modern communication techniques to influence that
process.
Mrs. Torres. Mr. Semesky, I recently was made aware of a
contract, a lobbying contract, that Guatemala officials signed
to lobby against CICIG and the Attorney General, to lobby
Members of Congress here. Since that contract, I guess, was
discovered, it has been terminated.
My office has inquired within our Attorney General's office
to investigate the third-party payer, which I believe to be
tied to illicit activities.
What are our options there? And I believe I ran out of
time. I hope that maybe you can write back and answer to what
are some of the options that we can do to approach that.
Mr. Semesky. I will do that.
Mrs. Torres. Thank you.
I yield back, Mr. Chairman.
Mr. Cook. Thank you very much.
I recognize the Congressman from Florida, Chairman Yoho.
Mr. Yoho. Congratulations there, Colonel Cook, on your
chairmanship. Good job. I appreciate you all being here. This
is such an important hearing. I don't know where to start.
You know, we have seen the war on drugs since the 1990s, if
not before, and we have spent trillions of dollars through
foreign aid on the war on drugs. But as was mentioned here, the
increased growth in Colombia, the increased growth of the poppy
fields in Afghanistan, and then I am reading, in Mexico,
cultivation of the opium poppy, a primary source of heroin in
the United States is also increased to satisfy the increasing
demand of the Americans and the rest of the world.
And according to U.S. estimates, Mexico has experienced an
increase of more than double of its opium poppy cultivation
from 12,000 hectares in 2011 to 28,000 in 2015. 28,000
hectares, if I do my math, it is probably close to 56,000,
60,000 acres in our southern neighbor.
And, you know, I would like to have some of your input. You
know, the war on drugs and with the initiatives that we have
done have gone after the kingpins, but we have seen the
kingpins kind of morph, change the organizations. And one of
the questions I want to ask, just get your opinion, if we have
a trading partner like Mexico in NAFTA, should we bring that
into a trade negotiation and just say, You need to stop it? And
I know that is not in the realm of this committee. And if you
don't want to weigh in on it, that is okay. If you want to
write me a written response, that would be okay.
But I would like to ask you just your opinion, because to
do business with countries that are supplying a drug that has
virtually no medicinal use and it creates the mayhem we see,
what are your thoughts? If you want to start there, Mr.
Semesky?
Mr. Semesky. Congressman, first of all, let me reiterate
that I am not here as a representative of the DEA. I am here as
a private citizen. I am retired.
Mr. Yoho. Okay. As a private citizen and probably a parent,
maybe?
Mr. Semesky. And a parent. And I agree with you completely.
It should be part of any negotiations. But just as our demand
reduction should be taken into account.
Mr. Yoho. Well, that is something we have to deal with. I
mean, we need to deal with that----
Mr. Semesky. I first got involved in narcotics
investigations with the Organized Crime Drug Enforcement Task
Force, or OCDETF, in 1983. And at that point, we were all told,
Just put your thumb in the dike. We are going to take care of
this on the demand side.
Mr. Yoho. Right. Well, the dike is overflowing.
Mr. Semesky. Exactly.
Mr. Yoho. Let me move on to something else, because this is
something that--you know, I have been in Congress 5 years now,
and I have watched the development of the Iran nuclear deal,
and I saw the billions of dollars being taken over there.
Have you seen an increase in Hezbollah and/or Iran in the
South American or Central American areas? Anybody want to weigh
in on that.
Mr. Ottolenghi. I do, sir.
Mr. Yoho. That could be attributed to the increased cash
flow.
Mr. Ottolenghi. I think that the increased cash flow is
helping.
Mr. Yoho. Sure.
Mr. Ottolenghi. But it is not the main driver. I think that
the reason why you see an increased presence and activity in
Latin America in conjunction with organized crime by Hezbollah
is driven primarily by the fact that Hezbollah, since 2006,
when--you know, it took a severe beating from Israel in the
summer war the two sides had with each other, Hezbollah made a
decision to shift a significant amount of its revenue sources
from organized crime.
And in this past decade, it has expanded dramatically to
build a global empire which, according to some sources, at
least that I have spoken to, may actually outweigh the
contributions that come from Iran. So you have, certainly, an
ascendant Iran with a lot more resources supporting Hezbollah,
Hezbollah involved in significantly larger activities than it
ever was, its involvement in the war in Syria cost an enormous
amount of money, and the necessity to build alternative sources
to fund that----
Mr. Yoho. All right. Let me move on to something else, and
I appreciate your input on that. We talked about how the drug
cartels have morphed. What way has the transnational criminal
organization adapted to avoid sanctions or minimized the
kingpin designation effectiveness?
And has the U.S. sanctions regime related to the king
regimen related to kingpin's designation kept pace with the
changes in drug trafficking?
And, Mr. Hall, I want to specifically ask you. You
mentioned the 50 percent rule. What would you recommend? If you
want to start off with those two questions.
Mr. Hall. Thank you.
In terms of the 50 percent rule, I don't--and, again, this
is just to clarify when we were talking about this before. I
don't have any problem with--and I don't want to limit OFAC's
ability to identify sanctioned entities. What I am talking
about is putting the burden under strict liability on
individual businesses to do that for OFAC. That is what I think
is ineffective.
So to answer your question, the 50 percent rule, as it
applies to businesses, shouldn't exist. And I also think it
also illustrates why there should be a safe harbor that is an
escape for strict liability.
Mr. Yoho. Thank you. I am over my time.
Thank you, Mr. Chairman.
Mr. Cook. Thank you, sir.
Our last member is the next manager of the New York
Yankees, Representative Espaillat.
Mr. Espaillat. Thank you.
I asked for Girardi to go.
Mr. Cook. I kind of figured that.
No, no. We can't lose you here.
Congressman from New York.
Mr. Espaillat. Chairman, congratulations on your new
appointment. And I hope you keep Mr. Sires in check.
Mr. Cook. He is bigger than me. I will do the best I can.
Mr. Espaillat. I look forward to working with both of you
as well.
Mr. Cook. Thank you.
Mr. Espaillat. I did enjoy our codel to Europe. I had a
good time.
Like so many communities across the country, the district
that I represent has seen increases in prescription pain
killers, heroin. Particularly East Harlem continues to have a
major problem with drug trafficking. And the impact of the
Kingpin Act is critical. It touches on my district and my
neighborhood as well.
Just recently, the Trump administration declared the opioid
crisis a national public health emergency. But there was one
tiny major issue with that announcement. It had no funding and
no backing aside from the acknowledgement of the epidemic
itself. As this relates to Latin America of the tier one
kingpin designation, which means they represent the most
significant threats and concern with drug trafficking, 65 out
of the 110 tier one designations are in the Western Hemisphere.
So this committee must and will deal with that particular
issue.
To make matters worse, gangs in El Salvador, Honduras,
Guatemala, and Nicaragua are profiting from these illicit
drugs, and they are taking advantage of poor countries. Yet we
saw that, 2 days ago, the Trump administration pulled the TPS
for Nicaragua and only briefly extended it for Honduras. I feel
that the lack of funding and pulling TPS and this misguided
foreign policy direction by the Trump administration confer the
cost, instability in the region.
I am also concerned with human trafficking and drug
trafficking in the Caribbean. That is why I commissioned a GAO
study to analyze the impact of the Caribbean Basin Security
Initiative, CBSI, which has been one of the U.S. main vehicles
for countering drug trafficking in that region. I think we need
to be investing more funding. I look forward to sharing that
study with my colleagues and this committee once it comes out.
Mr. Semesky, do you think that the Treasury Department's
office of foreign assets control should expand its designation
program to target gangs such as MS-13 which operate in El
Salvador, Honduras, Nicaragua, Mexico, and the United States?
What is the role of the MS-13-type gangs with regards to
kingpins and drug dealers in that region? Are they playing a
more active role? We know they are very violent. And are they
competing for territory? Or what is the status?
Mr. Semesky. I am not an expert on the gangs. To the extent
of my knowledge, and, again, I am not here representing the
DEA, the gangs form alliances. If you take the Sinaloa Cartel
as an example, their business model is not to try to overwhelm
but it is to partner. So when they partner with gangs in cities
like Chicago, cities like New York, it leverages manpower for
them. It expands their distribution network, and they are able
to control the drugs in an area by using a gang. The gangs can
be--to the extent that they can be connected with an already
designated cartel, they could be brought under that designation
very quickly to the extent that they are designated themselves
as kingpins as long as they meet the criteria for the Kingpin
Act, yes, they should be designated.
Mr. Espaillat. Anybody else want to weigh in on the role of
the gangs in the regions of Central America and----
Mr. Olson. Well, the work we have done has looked at
exactly what you are saying, the role in the region. And
primarily, the gangs are focused on territorial control.
Controlling neighborhoods, controlling streets and barrios. I
was in a community in Honduras in May, a well-known community
where six different groups--and people could go by and tell you
which street was controlled by which group. Their business
model, if you will, in those neighborhoods is primarily
extortion, sale and resale of small amounts of marijuana or
other kinds of drugs. But their reach and involvement in grand
international trafficking of drugs is--I am not saying it is
not existent, but it is not the same as when we think of big
transnational organized crime groups like, at one point, the
Zeta's or Chapo Guzman's group out of Sinaloa. So I think it is
important, it behooves of us, I am not saying one is good and
the other is bad. It just behooves us to understand fully and
carefully what phenomenon we are dealing with and then how to
address it, because they each require a response. They just may
require different sorts of responses.
Mr. Espaillat. Thank you so much.
Thank you, Mr. Chairman.
Mr. Cook. Thank you, sir.
I believe that is the last of our members here. I just want
to thank everybody. I want to thank the speakers here. I think
you have given us a lot. I know the staffs are--I think they
are going to talk about some of these things where we can--this
is not the first hearing. We are going to go down on kingpins,
because--particularly with international terrorism and some of
these other organizations, it is just too important, too
dangerous. And we are probably going to have more on this.
And thank you for taking the time and sharing your
expertise with us. It is greatly appreciated.
With that in mind, this meeting is now adjourned.
[Whereupon, at 3:24 p.m., the subcommittee was adjourned.]
A P P E N D I X
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