[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

                              ----------                              
                                                                   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:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
                              ----------                              

    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:]
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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.]

                                    

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