[Joint House and Senate Hearing, 116 Congress]
[From the U.S. Government Publishing Office]

116th Congress }                            Printed for the use of the             
1st Session    }      Commission on Security and Cooperation in Europe                     


	         Shady Shipping: Understanding
	          Trade-Based Money Laundering


                         May 24, 2019

                        Briefing of the
          Commission on Security and Cooperation in Europe
                         Washington: 2020

               Commission on Security and Cooperation in Europe
                     234 Ford House Office Building
                     Washington, DC 20515
                        [email protected]

                    Legislative Branch Commissioners

       HOUSE				      SENATE
 ALCEE L.HASTINGS, Florida       	ROGER WICKER, Mississippi,
           Chairman			  Co-Chairman
 JOE WILSON, South Carolina		BENJAMIN L. CARDIN. Maryland
 STEVE COHEN, Tennessee			MARCO RUBIO, Florida
 RICHARD HUDSON, North Carolina		THOM TILLIS, North Carolina
 GWEN MOORE, Wisconsin		        TOM UDALL, New Mexico
 MARC VEASEY, Texas			SHELDON WHITEHOUSE, Rhode Island                   
                   Executive Branch Commissioners
                     DEPARTMENT OF STATE to be appointed
                    DEPARTMENT OF DEFENSE to be appointed
                   DEPARTMENT OF COMMERCE to be appointed

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                     Shady-Shipping: Understanding
                     Trade-Based Money Laundering

                              May 24, 2019


    Paul Massaro, Policy Advisor, Commission on Security and 
Cooperation in Europe                                                   1

    Danielle Camner Lindholm, Director of National Security Policy, 
U.S. House Committee on Financial Services                              2

    David Luna, President and CEO, Luna Global Networks                 2

    John Cassara, Special Agent, U.S. Department of the Treasury, 
retired                                                                 6

    Lakshmi Kumar, Policy Director, Global Financial Integrity;         9

                     Shady-Shipping: Understanding
                     Trade-Based Money Laundering

                              May 24, 2019

    The briefing was held at 9:30 a.m. in Room 2360, Rayburn House 
Office Building, Washington, DC, Paul Massaro, Policy Advisor, 
Commission on Security and Cooperation in Europe, presiding.
    Panelists present: Paul Massaro, Policy Advisor, Commission on 
Security and Cooperation in Europe; Danielle Camner Lindholm, Director 
of National Security Policy, U.S. House Committee on Financial 
Services; David Luna, President and CEO, Luna Global Networks; John 
Cassara, Special Agent, U.S. Department of the Treasury, retired; and 
Lakshmi Kumar, Policy Director, Global Financial Integrity.
    Mr. Massaro. All right, let's get this show on the road. Thank you 
all for coming this morning. On behalf of our bipartisan and bicameral 
leadership, I'd like to welcome you to this briefing of the Helsinki 
Commission. The commission is mandated to monitor compliance with 
international norms and standards in the European and Eurasian space. 
This includes norms in the military sphere, in the economic and 
environmental sphere, anti-corruption sphere--that's sort of the stuff 
I advise on--and the human rights sphere and democracy sphere.
    I'm thrilled to be hosting this particular event today with my 
colleague Danielle Lindholm, right there, of House Financial Services 
Committee. This is the first time that the Helsinki Commission and the 
House Financial Services Committee have partnered for an event, but it 
will not be the last because next week we also have an event. On May 
29th we'll be looking at the British approach to anti-corruption. So 
it's very exciting to have these two events in partnership.
     I guess to broadly frame the issues we're going to be talking 
about today, and Commission interest in these issues, I'd like to talk 
about the threat posed by globalized corruption and kleptocracy to the 
United States. I think that it comes as no surprise to many people in 
this room that authoritarian kleptocrats are exploiting the global 
financial system to hide their ill-gotten gains on our shores and those 
of our allies, providing protection for their stolen assets and a 
vector of influence into our political systems. Once established, these 
kleptocrats set about hollowing out the rule of law institutions that 
we hold so dear to better serve their preferences.
    Much remains to be done to close the loopholes that enable this 
malign influence, though Congress is taking action. And I'd like to 
point out one piece of action recently taken by House Financial 
Services with the passage of the Bank Secrecy Act amendment, that a 
study in strategy on Trade-Based Money Laundering [TMBL] has come out 
and will hopefully be passed by Congress to be completed by the 
executive branch.
    So generally at the Helsinki Commission we try to work on some of 
the issues that others aren't looking at, try to think about emerging 
issues and think around the corner. And that's how we came to working 
on TBML. Of course, with TBML, as John I'm sure will tell you, that the 
issue's already arrived in many ways. It's sort of the USG [U.S. 
Government] response that hasn't necessarily arrived in the way that it 
has to.
    I'll let the panelists get into sort of the nitty-gritty and talk 
about the details surrounding TBML, but broadly speaking TBML is a type 
of money laundering, one of sort of three major types of money 
laundering, where trade transactions are mis-invoiced to illicitly move 
ill-gotten gains. This type of money laundering, of course, next to the 
one we're talking about quite a lot in Congress, that is the shell 
company-type money laundering, is a growing concern as it's become a 
favorite method for transnational criminals, autocrats, and terrorists.
    So I'm very excited to welcome this distinguished panel today--very 
distinguished panel. David Luna is going to kick us off. David is the 
CEO and president of Luna Global Networks and Convergence Strategies, 
LLC, a former senior U.S. Government official in the Bureau of 
International Narcotics and Law Enforcement Affairs, INL, at State, and 
a personal friend of mine. He will set the stage for our discussion by 
sharing his insights on the dark side of globalization and how that all 
fits into the TBML paradigm.
    John Cassara will then discuss TBML in depth, which he is eminently 
qualified to do as a former Treasury special agent and the author of 
the book, ``Trade-Based Money Laundering: The Next Frontier in 
International Money Laundering Enforcement.'' He is also on the board 
of Global Financial Integrity, GFI, which is our last panelist, Lakshmi 
Kumar, who is GFI's policy director. Prior to joining GFI, Lakshmi 
worked for years as a lawyer and policy professional in India on anti-
money-laundering issues. GFI has been one of the most proactive 
organizations where fighting TBML is concerned. We look forward to 
hearing her thoughts and what she has to say about GFI's approach.
    So before we begin, before I hand the floor to David, I'd like to 
see if my colleague Danielle would just like to say a few words. 
Unfortunately, you'll see we have a mic issue today. So if I you could 
project and shout and use any theater experience you may have.
    Thank you. [Laughter.] And I guess I just did, because my mic 
wasn't on. [Laughter.]
    Ms. Lindholm. No, thank you. Very, very briefly, just thank you to 
the Helsinki Commission and its hardworking staff for its collaboration 
on this event. This allows us to share the expertise of this fabulous 
panel on this very important issue with our members, with our staff, 
and with the public. And so we look forward to hearing your remarks. 
Thank you.
    Mr. Massaro. Thank you very much, Danielle. And, David, please take 
it away.
    Mr. Luna. Thank you very much, Paul. Good morning, everyone. And 
thank you to Danielle as well for organizing and chairing this 
important meeting with Paul.
    I would like to thank the U.S. Helsinki Commission, House Financial 
Services Committee, for their invitation to participate this morning in 
this congressional joint hearing on trade-based money laundering. I 
would also like to applaud the leadership of both the commission and 
the committee for working in the bipartisan sphere to support important 
legislation in this 116th Congress to empower law enforcement and 
business communities to target organized crime, kleptocracy, and 
terrorism and those bad actors who exploit our laws and corrupt our 
institutions, markets, and communities, hide their criminally derived 
assets, manipulate international trade and use their dirty money to 
finance even more security threats.
    I will focus my statement on the urgent need to sharpen our 
understanding of the interconnections between illicit commerce and 
money laundering across licit and illicit communities through a prism 
of convergence crime. Money laundering and trade-based money laundering 
are threat multipliers that help to finance greater harms that impact 
all Americans. The reality is that dirty money derived from illicit 
commerce remains the lifeblood of today's kleptocrats, criminal 
organizations, and terrorist groups.
    Trade-based money laundering and other illicit financial vehicles 
and methods enable these bad actors to disguise and clean the dirty 
money. By purchasing trade goods licit and illicit, moving such 
merchandise across borders, falsifying its value, quality and quantity 
in mis-invoicing or misrepresenting trade-related financial 
transactions. A snapshot of the current global illegal economy brings 
into clearer focus the magnitude of illicit trade, and why following 
the money and following the value are critical if you're to 
successfully expose illicit activities, and to disrupt and dismantle 
the webs of corruption and criminality behind threat networks that are 
harming U.S. national security and our global interest.
    Make no mistake, the global illegal economy is booming. According 
to a 2015 report from the World Economic Forum, the global value of 
illicit trade and transnational criminal activities is estimated 
between 8 to 15 percent of gross domestic product. In 2017, the World 
Bank projected the world's [GDP] at U.S. 80 trillion [dollars]. Even if 
you take the conservative 8 percent estimate from the cited WEF report, 
it is fair to assume that today's global illicit markets generate 
several trillion dollars in every year for numerous threat networks.
    The types of criminal activities involved include the trafficking 
of narcotics, arms, human[s], counterfeit, and pirated goods; illegal 
tobacco and alcohol; illegally harvested timber, wildlife, and fish; 
pillaged oil, diamonds, gold, and other natural resources and precious 
minerals; and other commodities that have value and are sold on our 
Main Street, on social media, marketplaces, and the Dark Web.
    Let me break down some of these illicit trade numbers based on the 
data provided by various international organizations, including GFI. 
Every year at least $2.6 trillion gets laundered globally. 
Transnational crime generates between $1.6 trillion to $2.2 trillion. 
Bribery, up to a portion of $1 trillion. Narcotics trafficking 
generates between $750 billion to $1 trillion. And I will discuss 
counterfeit and pirated goods shortly, but other illicit activities 
generate tens of billions of dollars every year.
    These are simply staggering amounts and are of great concern to the 
U.S. Department of Treasury and U.S. law enforcement agencies, as we 
heard earlier this week at a U.S. Senate hearing on illicit financing. 
Given that hundreds of billions of dollars in illegally concealed 
proceeds are moving through the international system and our economy 
across U.S. industries, the enforcement challenge is monumental. A few 
weeks ago, in the new report that I authored for the FACT [Financial 
Accountability & Corporate Transparency] Coalition, we examined how the 
trafficking and smuggling of counterfeit and pirated goods is a very 
profitable illegal activity for many of today's criminals and illicit 
networks that rely on the secrecy provided by anonymous entities to 
launder their ill-gotten gains and escape detection.
    Evidence-based research recently conducted by the OECD 
[Organisation for Economic Cooperation and Development] and the 
European Union IPO [Intellectual Property Office] estimated the value 
of fakes worldwide at $509 billion in 2016, or up to 3.3 percent of 
world trade. Of this $509 billion in import fakes worldwide the top ten 
product categories in terms of values of fakes were electronics, 
jewelry, optical photographic and medical equipment, clothing and 
textiles, footwear, toys, foodstuff, handbags, perfumes, and cosmetics 
and watches. The joint analysis by the OECD and EU IPO showed that 
China is the top producer of counterfeit goods in 9 out of 10 of these 
categories. While Hong Kong, Singapore and the UAE are global transit 
hubs for trade in counterfeits.
    Brands suffering the most from counterfeiting were largely from the 
OECD and EU member States, although U.S. companies suffered the most at 
20 percent. More alarming is that this illicit trade in counterfeit and 
pirated goods will more than double in 5 years' time alone, reaching 
close to U.S. $3 trillion by 2022. In the United States, the threats 
posed by counterfeiting internet pirates directly harm critical 
national industries, regional and local economies, and the reputational 
value of American companies and brands. It also puts the safety and 
health of all Americans in jeopardy and in danger when criminals inject 
opioids, counterfeit medicines, food, automotive and airplane parts, 
apparel, footwear, and fast-moving consumer goods into our distribution 
networks and supply chains, including pharmacies, workplaces, 
hospitals, schools, grocery stores, restaurants, and online 
    In addition to illicit trade activities, legitimate commerce and an 
enormous volume of trade flows also enable criminals to obscure 
individual transactions to transport value across borders, and between 
exporting and importing jurisdictions, thereby hiding illicit cash 
within seemingly legitimate uses. For example, at the licit-illicit 
continuum, according to the FBI, criminals will often dump imported 
goods bought with dirty money into a market at a discount to accelerate 
the money laundering process, putting legitimate merchants at a 
competitive disadvantage.
    Let me just share a few cases where the convergence of illicit 
commerce and money laundering come together.
    Anonymous companies and money laundering, including trade-based 
money laundering, have helped criminals across the United States sell 
in recent years several billion dollars in fake and counterfeit luxury 
bags and apparel accessories, including those sportswear and gear from 
the NFL, NBA, and Major League Baseball, branded as Nike, Adidas, Under 
Armour, and many others.
    Criminals also imported and sold to American consumers through 
internet pharmacies counterfeit medicines from India and China worth 
hundreds of millions of dollars, including fake versions of medicines 
to fight breast cancer, cholesterol, high blood pressure, and other 
medications to cure other ailments and diseases. Criminals also sold 
knock-off parts to the Pentagon that have cost the U.S. military tens 
of millions of dollars and put our soldiers' lives in greater risk and 
    Some comments on free trade zones and online marketplaces. As 
consumer goods and fakes make their way from provenance jurisdictions 
to demand markets, overall trade can also get very complicated in 
transit, through the exploitation of free trade zones by criminals and 
corrupt actors. Free trade zones are used to launder illicit proceeds, 
especially in the areas that have inadequate oversights and customs, 
weak anti-money-laundering, weak anti-corruption and anti-illicit trade 
regulations and enforcement.
    For example, as reported by the U.S. Department of State in last 
year's Country Report on Terrorism, the free trade zones in Panama and 
the tri-border area of Argentina, Brazil, and Paraguay remain regional 
nodes for money laundering, including related to illegal tobacco and 
counterfeit trade, and are vulnerable to the exploitation by corrupt 
officials and sympathizers to terrorist groups.
    Regarding online marketplaces, as more shopping has moved to the 
internet criminals are profiting immensely from selling illicit 
commodities across global e-commerce platforms. As reported by 
cybersecurity ventures, estimates of the financial cost from cybercrime 
will double from 3 trillion [dollars] in 2016 to 6 trillion [dollars] 
by 2021, especially as the world population grows exponentially and as 
tens of billions of people gain new access to the internet every year.
    According to the Better Business Bureau in their report last week, 
a massive number of deceptive web sellers illegally use copyrighted 
pictures of brand-name goods to lure consumers to buy and then send 
fake items, low-quality substitutes, or dangerous and toxic products. 
Many unsuspecting consumers can also find themselves at risk from 
malware from accessing or using illicit devices to stream down pirated 
film and television content, defrauding the American industries of 
millions of dollars every year.
    In closing, trade-based money laundering and the use of trade 
transactions help criminals to disguise and legitimize the illicit 
origins of goods, value, and their filthy money. In many cases the 
profits generated through trade-based money laundering finance other 
converging criminal activities. Let me suggest some practical actions 
that I believe can be effective to combat trade-based money laundering 
and convergence crime.
    The U.S. Congress must pass legislation to end the abuse of 
anonymous companies by requiring the collection of beneficial ownership 
information at the point of corporate formation. The U.S. Government 
should continue to deny safe haven and entry to the United States to 
complicit and corrupt actors and their facilitators, including 
criminals engaged in the illicit commerce that harm Americans. Congress 
must strengthen U.S. anti-money-laundering laws by making all felonies 
predicate offenses for money laundering. We must implement and enforce 
more robustly the president's executive order on transnational 
organized crime, including forfeiture of the proceeds of the criminal 
    On the president's commitment for his administration to conduct a 
national assessment of the harms posed by counterfeits and pirated 
goods, including online markets, I hope that the interagency working 
group preparing the study consults with the OECD and also takes a 
convergence approach to include related matters such as corruption, 
trade-based money laundering, money laundering, anonymous companies, 
and the role of free trade zones, that they play, in contributing to 
the illicit commerce. We should continue to build a global network of 
trade transparency units. We should also impose sanctions on bad and 
risky free trade zones that enable and facilitate or sustain 
corruption, money laundering and illicit trade within the 
    Finally, more evidence-based research is important. I am proud to 
announce this morning that I will be working with Dr. Louise Shelley at 
the Terrorism, Transnational Crime and Corruption Center at the Schar 
School of Policy and Government at George Mason University to launch a 
new Anti-Illicit Trade Institute to examine the threats posed by trade-
based money laundering and other converging threats to national 
    Congress must do all in its power to create the types of 
authorities, tools, and capacities needed so that our law enforcement 
agencies can decisively prosecute the fight against today's bad actors 
and threat networks and confiscate their ill-gotten gains.
    On this Memorial Day weekend, when we celebrate our patriots who 
have made the ultimate sacrifice in defense of our country, that 
through such congressional leadership we can safeguard our national 
security, protect the American economy and our businesses, and secure 
the welfare and safety our citizens.
    Thank you.
    Mr. Massaro. Well, thank you very much, David, for sharing those 
really truly staggering numbers, as well as for taking an approach 
where you're really looking at what kind of solutions can be 
implemented, specifically with regard to a couple of things that stuck 
out to me--FTZ abuse and the use of utility of trade transparency 
    So with that, let's turn to John Cassara. John, take us away.
    Mr. Cassara. Good morning. First of all, I'd like to thank Paul and 
Danielle and all the organizers for putting this event together. And 
I'd like to thank everybody here and those that are listening in for 
giving us the gift of your time. I know there's a lot of places you 
could be right now and things you're doing, but to come here and to 
give us an hour or two particularly devoted to trade-based money 
laundering--a topic I feel very, very passionate about--I thank you all 
very much.
    I don't really have any prepared remarks, so we're just going to 
talk, okay? And I'm going to begin by sharing a story with you--a true 
story. It took place about 2002, 2003, not too long after 9/11. I was 
talking to a Pakistani businessman who I think you could charitably 
describe as being involved in the gray markets. And we were talking 
about many of the things we're going to be talking about this morning. 
We were talking about trade-based money laundering, and value transfer, 
and underground financial systems, and counter valuation.
    And then finally, at the end of our conversation, he turns to me 
and he says: Mr. John, don't you know that your enemies are 
transferring money and value right under your noses? The West doesn't 
see it. Your enemies are laughing at you. They're laughing at us. And I 
was talking to this guy primarily because I was concerned about threat 
finance, but you could just as easily describe our adversaries as 
corrupt capitalists or oligarchs or kleptocrats or transnational 
criminal organizations of all sorts.
    Now, Paul mentioned that the Financial Action Task Force labels 
trade-based money laundering as one of the primary money laundering 
methodologies around the world. The other two are through financial 
institutions, non-bank financial institutions, and in cold cash 
smuggling. Certainly there are countless other methodologies including 
cryptocurrencies and other things that are in the news. But I believe 
trade-based money laundering is the largest money laundering 
methodology. And I can also tell you, with utmost certainly because 
I've been looking at this for years, trade-based money laundering is 
the one that is the least understood, identified, and enforced.
    Now, why do I say it's the largest? Because if you add up all the 
elements of trade-based money laundering--meaning what it entails--
customs fraud, which is by far and away the largest part of trade-based 
money laundering. We'll talk about that in just a minute. But also tax 
evasion, export incentive fraud, VAT fraud, capital flight--forms of 
capital flight, evading capital controls, barter trade, underground 
financial systems such as the hawala or the Chinese flying money 
systems, commerce trade-based money laundering. Lakshmi's going to talk 
about that in great detail, I think--Global Financial Integrity's done 
some great work talking about abuse of trade and mis-invoicing, 
transfer pricing, and this type of stuff. If you add it all up, it's 
the largest money-laundering methodology in the world.
    So many of you really don't know what it is. I'm going to give you 
a couple quick examples--a hypothetical and a couple of real ones. So 
say, for example, that Lakshmi and I are in the business of buying and 
selling pens, okay? So she's in Dubai and I'm in the United States. And 
I want to import pens. I want to import pens from Lakshmi. I don't know 
her, but I find out about her business. So I send her an inquiry, and 
we negotiate a price, okay? True manufacturing cost, insurance rate. 
She charges a markup, and we consummate that transaction, okay? It's 
what we call arm's-length transaction. She doesn't know me, I don't 
know her. It's fair market value for this pen, okay?
    Now, let's contrast that to another type of transaction. This time 
we know each other, okay? Maybe we've worked together in the past. 
Maybe we were in the same organization. Maybe we're members of the same 
family--she's my cousin--or tribe, or clan. Or maybe we're fronts for 
some transnational criminal organization. This time we take that same 
pen that's, say, worth $50 true cost, and we over-invoice that pen to 
say it would be worth $100. Or, we under-invoice it to say it would be 
worth $1. You send enough pens one way or the other, you're 
transferring a lot of value in the form of pens, okay? You're settling 
debts or you're transferring value, say, overseas, right?
    I'll give you another quick example. It's true. I was in Rome for 6 
years, assigned to the U.S. embassy. I was combating Italian American 
organized crime, the Mafia. And we were looking a number of things. And 
one of the things that was very concerning at the time--and I don't 
think much has changed--you've got gold couriers coming in from, say, 
Milan's Malpensa Airport flying into JFK. They come in all the time. 
Gold is one of Italy's largest manufacturing industries. They do great 
things and they manufacture, say, 18-karat Italian gold rope.
    So they come in, they have, say, satchel bags, something like this. 
They have this gold rope. So they come into customs and they declare 
this, all right, and say the true value of this 18-karat gold rope is, 
say, I don't know, $500,000. But is it really? It is really 18-karat 
gold? Maybe it's 24-karat gold. Maybe it's 14-karat gold. Maybe it's 
12-karat Walmart special gold, okay? Is it worth 500,000 [dollars]? Is 
it worth 700,000 [dollars]? Is it worth 100,000 [dollars]? Maybe it's 
gold-plated lead. What is it, okay? Transferring value.
    Another quick example on gold. The United States--we're importing 
all kinds of gold into the United States, which is kind of strange, if 
you think about it, because we're a gold-producing country. But we are 
importing 4-9 gold from all over the world. Say, for example, Latin 
America, Central America--4-9 gold. When I say 4-9, 99.99 percent pure 
gold bullion.
    We are also importing gold scrap. Gold scrap, for customs purposes, 
is not clearly defined. It can be fillings from teeth, it can be the 
innards of a computer, it could be--I once had a customs inspector tell 
me you could have a 40-foot shipping container, you could fill it with 
metal shards and scrap and bumpers off of buses and bicycles and 
whatnot. You could take a salt shaker filled with gold dust, get on 
top, sprinkled it over the top of that thing. And for customs purposes, 
you would have gold scrap, okay?
    Now, imagine this. You got gold bullion and you got gold scrap. You 
could look at our import records. We are importing massive quantities 
of gold scrap over--well over the price of gold bullion. Massive 
quantities coming in from Latin America consistently. Why is that 
happening? Do you think it could be hiding the proceeds of narcotics? 
Just as a guess, maybe. Maybe. Do you think it's being investigated? 
No, it's not. Not really, okay? Now, TBML, as I said, primary 
techniques over and under invoices; multiple invoicing, because you 
want to invoice as many times as you can, because every time you 
invoice it justifies payment being sent out, okay; falsely described 
goods, kind of like that gold stuff I was talking about; or phantom 
shipping, where the shipment doesn't really go but nevertheless the 
paperwork is produced and, again, payment is sent abroad.
    What bothers me is because we've known about this for years, but 
the U.S. Government--our government, Treasury, Justice, DHS has never, 
ever systematically examined this problem until recently. I think 
there's a bill in the works that is going to look at this. We need to 
know how much is going on. We have guesses. David just came up with a 
few estimates. There is a great academic down in South Florida, Dr. 
John Zdanowicz, Dr. Z. His is the only study that I'm aware of that has 
actually taken a look at the history of U.S. imports and exports and 
put numbers to this. He estimates, I'm summarizing here, 6-9 percent of 
our imports and exports are suspicious regarding over-under invoicing. 
That's not to say they're fraudulent. That's not to say they're all 
bad. But it's still 6-9 percent.
    Now, that represents hundreds and hundreds and hundreds and 
hundreds of millions of dollars--billions of dollars. Billions of 
dollars. Hundreds and hundreds of billions of dollars. Think of the 
revenue we're losing, okay? Think of the proceeds of crime that are 
possibly being transferred via value transfer, okay? The other thing 
is, it's vitally important to understand. I have a background in U.S. 
intel. I have a background in U.S. law enforcement. We have the best in 
the world. We have the best in the world. We have the best customs 
service in the world. If 6-9 percent of our trade is suspect, what do 
you think's happening in the rest of the world?
    All right. That being said, I actually have two reasons for being 
optimistic, not the least of which is that everybody's here, like I 
said. We're getting more and more attention to this. The first one is, 
for the first time in my career, trade transparency is theoretically 
achievable--theoretically. It's never going to happen, but 
theoretically it's achievable. Why? Because we have the data. We don't 
have to invent this stuff. It's there. It exists. Every country in the 
world has a customs service. Every country in the world keeps track of 
what goes in and what goes out for revenue purposes, for security 
purposes, or whatever. We've had an explosion in commercially available 
data over the last 5 years tracking stuff. Now, politically, that's 
something else. But technically, trade transparency is achievable.
    The other thing--and I'll close on this--the reason I'm optimistic 
for this to combat trade-based money laundering is because trade-based 
money laundering is the only money laundering methodology that I am 
aware of that if you crack down on it, if the government cracks down on 
it, you're going to get money, because you're cracking down on trade 
fraud, okay? So it's in government's best interest to tackle this 
problem. Too often, particularly after 9/11--I was overseas and working 
with the USG, and at that time, it was like, you're either with us or 
against us. If you don't cooperate with us to combat money laundering 
and terror finance, the hammer was going to come down on your head. 
With trade-based money laundering, we've got an opportunity here 
because we can dangle that proverbial carrot in front of interested 
audiences and say: Cooperate with us and it's in your best interest. 
We'll show you how you can get money. Every country in the world needs 
increased revenues. This could help them out.
    Thank you.
    Mr. Massaro. Well, thanks so much, John, both for your stories and 
the clear explanation of TBML, but also for your two reasons for 
optimism. And especially that second reason, oh boy. [Laughter.]
    I mean, when you've got economic incentives, man, people should be 
lining up, you know? So I think the more we can hammer that point home 
is through congressional activity, executive, whatever. That's an 
incredibly important point.
    So, with that, I'll turn to Lakshmi. GFI, again, has been one of 
the organizations that's really kind of taken this on in a practical 
way, even as the USG has lagged behind. So, Lakshmi, please.
    Ms. Kumar. Thank you, Paul. That's going to be really hard to 
follow, after David and John. I don't know how much there's left for me 
to say, but I'm going to take a stab at it. To begin with, at GFI we're 
really lucky because we've had John on our board. We've done research 
and academic studies of these things, but it has enhanced, I believe, 
our work to have sort of a practitioner's viewpoint on all of this. So 
if you haven't read John's book, I highly recommend it. It's an 
excellent read and a very--it explains very simply sort of the problems 
and solutions around TBML. [Laughter.] We didn't tag team this. 
[Laughter.] This is just a spur of the moment. [Laughter.]
    Mr. Massaro. Yes, get the photo op, yes. [Laughter.]
    Ms. Kumar. So having stated that, now with TBML, very often when we 
are talking about TBML--and I want to make sure I don't repeat what 
David and John have gone over--very often sort of the notion of trade-
based money laundering isn't really a study a domestic trade. It is 
essentially, when we are looking at trade-based money laundering 
policy, most of the regulation and enforcement focuses on cross-border 
international trade. And that is partially because the focus on 
domestic trade, there are so many informal mechanisms that it becomes 
even harder to track.
    International trade is actually the easier thing to do than 
domestic trade, which sounds confusing, but it is true. And what makes 
sort of trade-based money laundering difficult, some of the factors 
that influence it are the fact that to begin with while it is easier to 
detect cross-border transactions, the fact that they are cross-border 
means that you have to have the cooperation of multiple countries. And, 
you know, depending on legal processes and legal systems, sharing of 
that information can be hard.
    Two, it is the share of volume, speed, and size of the transactions 
involved. We are talking about tons and tons of goods and parties that 
are--it's not even one-to-one transactions. Sometimes there can be 
eight people in a single transaction. So ensuring there are some due 
diligence mechanisms across supply chains that cover the manufacturer, 
trader, consignee, notifying party, financier, shipper, shipping agent, 
freight forward--I mean, a lot of these names might sound just like 
gibberish to everyone here, but it's in reality what makes up the trade 
chain. And the controls and oversight for them are not just with one 
organization. It's not with the banks. It's not with--necessarily with 
FinCEN [Financial Crimes Enforcement Network]. It's across multiple 
government entities.
    And when we're talking about sort of the regulation of TBML and 
what it has meant, outside of the U.S. focus has traditionally focused 
on looking at sort of the issues with international trade from the 
banking perspective. So the countries that actually have sort of 
official guidelines on how to handle this--Singapore, the U.K.--and 
then there are some smaller developing countries that also do it. But 
all of them look at trade through the banking lens. And what is 
important to understand is when you're talking about international 
commercial trade is that it occurs sort of in essentially three points.
    It can occur through sort of what's called documentary trade, which 
occurs when a bank provides financing documents for that trader and a 
trade transaction happens. You know, financing documents are, like, a 
letter of credit, a letter of guarantee. Alternatively, they can also 
have the bank again involved but through sort of non-financing means. 
Now, both these two methods only account for 20 percent of global 
international trade. Most of the international trade, which is what is 
called open account trading, is 80 percent of trade, which means that 
the banks aren't really involved. The banks don't get to prepare 
financing documents or don't do documentary checks to facilitate the 
trade. The only roles that banks play in open-account trading is they 
simply act to transfer money from one party to the other.
    So banks very often don't know if someone in the wire transfer 
says, Oh, we have a transaction, that's all the information they have. 
They don't get a series of backup documentation. So 80 percent of all 
international trade occurs through open account trading, where the 
banks aren't the first-line defenders or first oversight mechanism. So 
really, therefore, the impediment then becomes through customs 
officials, freight agents, ports, shipping agents, the actual shipping 
vessel. Those are your first line of defense. But most actual 
policymaking in the realm of TBML, sort of outside the U.S., has always 
traditionally focused on banks, because they have the most resources to 
sort of do oversight.
    When in actuality, as John and Paul and David have mentioned, the 
focus actually has to be to empowering customs agents and having a 
mechanism of oversight and supervision that covers freights, export 
agents, export controls, the various players that I've mentioned, 
consignees. All of them that form that trade team, that's where 
supervision has to lie. And as John and I think David mentioned, when 
we are talking about commercial trade, the most commonly used method--
and I say this because of 80 percent of international trade is open-
account trading--while there are other ways to do trade-based money 
laundering, the biggest occurs in sort of the actions of mis-invoices 
which, as John said already, is you can mis-invoice the value of goods. 
So you can have a commercial invoice that says, oh, the goods are 
valued at 100 million [dollars] when in actuality they could be 200 
million [dollars]. You can mis-invoice the number. You could be doing 
wine fraud, and have a container full of wine but then on the shipping 
label say, oh, it's just widgets. You can lose millions in doing this.
    And another big way of--something that doesn't get talked about is 
sort of the origin certificate in all of this, which is--you know, and 
more recently it's come up with--especially because Venezuela's become 
a big focus. And the Maduro regime in Venezuela has often used gold. 
They send it through Guyana and then ship it out. And if you look at 
Guyana's exports--the amount of gold that Guyana produces versus the 
amount of gold that Guyana exports is vastly different.
    The exports are so much more higher than the amount of gold that's 
actually produced in Guyana. Which means that, from what studies have 
shown, is that Venezuela is shipping its gold to Guyana. Guyana is 
setting up fake refineries. And those refiners are falsely labeling 
Venezuelan gold as Guyanan gold. And that is a way of sort of moving 
gold, but the money is actually moving from Guyana back into Venezuela. 
So, these are multiple ways in which sort of commercial invoicing is 
used to mask the movement of goods.
    Now, in terms of what are the--why do people use methodologies and 
what are sort of the larger macroeconomic implications of all of this? 
Let's say you are under-invoicing the export, which means that let's 
say exports are valued at 100 million [dollars], you export it at 50 
million [dollars]. And the reason people do this is so that you can 
keep--you can move your profits to a lower-tax jurisdiction. So to go 
back to John's example--if John was exporting something that's worth 
100 million [dollars] he'd say, Oh, Lakshmi, why don't you pay me 50 
million [dollars] to my U.S. account, and pay 50 million [dollars] to 
my Cayman Islands account so the U.S. Government doesn't know about the 
50 million that's gone to the Cayman Islands account. John becomes a 
lot more richer than he should be. [Laughter.]
    And now on the other side of it is, you know, import under-
invoicing and import over-invoicing. Now, again, to use the same 
example that John used, let's say I'm supposed to get that shipment of 
pens. And I say, on my end that, Oh, actually, I know it's 100 million 
[dollars]. I again say to my side, to my government that, Oh, it's only 
valued at 50 million [dollars]. And the reason you do it is to 
circumvent local taxes so that you don't pay taxes to the government on 
that freight.
    And on the flip side, if the same goods that are worth 100 million 
[dollars] and I actually report them on the invoice at 2[00] or 300 
million [dollars], now the reason sometimes that people do this is, 
let's say, there are price controls in a country that--pens are an 
example, but let's say we're talking about cellphones. If a cellphone 
can only be--or an important good like survival goods, like milk or 
rice can only be sold at, let's say $2 or $3. By over-invoicing you're, 
in a way, able to make the difference between what the government 
allows you to sell it for, saying that I had to import these at these 
exorbitant values so I can sell it at, you know, higher than the 
government is allowing me. So it's, in a way, sort of to keep capital 
out of the domestic countries and places.
    A lot of trade mis-invoicing, the focus of it is to move capital 
outside the home jurisdiction so that government don't benefit from 
revenue. That is, in a sense, a lot of what sometimes trade mid-
invoicing does. Now, by our--by GFI's own estimates, and the studies 
that we've done, the value can be 1 trillion [dollars]. And even if--
and it's an estimate, because here are gaps in the data. So even if we 
are--if you're wrong about this, and even if it is only 5 percent or 6 
percent of the value, the numbers are still huge. And where John and 
David mentioned that in the U.S. it's 6-8 percent, there have been 
countries that we've look at where it's as high as 13 percent.
    When it's in GFI it's that it's not just looking at the policy, but 
actually trying to find tools. And what a lot of countries have done is 
look at data bases which are called world market price data bases, 
which is essentially when you're a customs official and, let's say John 
is in the U.S. I'm, for example, let's say sitting over here in Ghana, 
and there's trade between us. It allows the U.S. customs agent to be 
able to look at sort of a world market price data base and say, Oh, for 
this good what has been the value at which it's been traded over, let's 
say, the last calendar year, over two calendar years? What price have 
exporters in the U.S. been selling those goods to Ghana?
    And if there's sort of a discrepancy, then as a customs official 
you are able to investigate. What we have often seen is that a lot of 
customs officials don't use tools like this. They very often are going 
on Amazon and saying, Oh, how much does a widget cost on Amazon? Those 
are retail values. Those aren't bulk commercial values. Or they go and 
look on Robb Report to see what's a used car value, but that's just for 
one car. It isn't a container full of used cars. And so a lot of those 
problems lie.
    You know, at GFI we've tried to sort of create our own tool called 
GF Trade to help countries, but there are other tools out there, and 
there are governments that use them. But it's important that it's not 
just customs agents that use it, but also you have the banks start 
using it. And in a survey that was done by, you know, the U.K.'s 
financial conduct authority, they found that most banks don't--in fact, 
a lot of international banks do the same thing that developing country 
customs officials do, which is go on Amazon and look for individual 
prices, which is deeply problematic.
    Oh, I'm really running out of time, but the one thing I did want to 
last speak about is that when we are talking about trade-based money 
laundering, yes, there are criminal threats. There are sort of 
transnational organized crime elements. But if it is purely just a 
money laundering mechanism, what you must understand is the person 
who's doing it just doesn't care. It's a way for him to launder his 
money, turn black money into white. So it's very often just flooding 
the market with goods that are possibly cheap and inexpensive, because 
they don't care. They just want to change their money to white money.
    But the consequence of all of that has been you're flooding a 
market with cheap goods. It means that legitimate businesses can't 
compete or function. So not only are you just money laundering, you're 
also slowly collapsing legitimate businesses and, more importantly, can 
collapse an economy around it. And it can lead to the death of 
industry. And that's what we have to take away. So national security 
threats don't directly come through terrorism or organized crime. They 
can come through this sort of methodology. And you know, I hopefully--
later, as we go on, we can--I'd like to talk more about sort of 
recommendations that GFI has.
    Mr. Massaro. Well, great. That's really wonderful, actually, both 
the work that GFI is doing with GF Trade, but also to better understand 
kind of what the solutions are and also just, like, what the problems 
are at the very operational level for these customs officials. Sort of 
unbelievable for me to hear that they're just looking up on Amazon what 
the retail price is. [Laughs.] And David whispered in my ear, ``Well, 
there's lots of counterfeits on Amazon, too.'' You know, there's a lot 
of problematic--so it's even if you're looking at a retail price, who's 
to say that's even a--you know, a legitimate retail price, right? So 
there's all sorts of issues that come with it.
    Okay, so we're going to move into the Q&A segment now. And I have a 
few questions, so I'll ask one or two before we kind of open up to the 
audience. Please go ahead and think about what kind of questions you'd 
like to ask. We're going to end at 11, unless we exhaust all questions 
in which case we'll end a little earlier. After I ask a question or 
two, I'd like to see if Danielle would like to ask a question, a 
priority question from the House Financial Services Committee. So go 
ahead and think about that question, Danielle. [Laughter.]
    Let me go ahead and, I guess, first things first--trade 
transparency units have come up. I've heard that this is kind of the 
primary aspect of the USG's response to this issue, despite the USG 
having kind of a lack of coordinator strategy. And I was wondering, 
John, if you could maybe speak a little bit to the status of trade 
transparency units.
    Mr. Cassara. Thank you, Paul. Thank you for that question.
    Trade transparency units are something I feel very strongly about, 
and I'll tell you the reason why. It really goes back to that 
conversation I had with that Pakistani businessman right at the 
outset--this, again, 2002, 2003. Very concerned about combating threat 
finance by looking at underground financial systems and counter-
valuation, or a system of balancing books between hawaladars, or that's 
another topic entirely. I think you guys know what hawala is, right, 
okay? Transferring--it's an underground financial system invented in 
India centuries ago that is used today for--primarily for the remitting 
of wages, which nobody has any objection to, but it is also used by 
criminal organizations and terrorist organizations to transfer money. 
And it's very opaque, and very hidden, and very much underground. Very 
difficult for us to peer inside those networks. Historically and 
culturally they used trade between brokers to settle accounts.
    So I was consumed by this problem right after 9/11. I spent a 
number of years at Treasury's FinCEN. And I was also working at the 
State Department's Bureau of International Narcotics and Law 
Enforcement Affairs with David at the time. So I came up with this 
idea. Every country--well, there are about 160 financial intelligence 
units around the world today. Like we have Treasury's FinCEN. Well, 
there are 159 other financial intelligence units out there around the 
world. So the thought was, make a somewhat analogous network of what I 
called trade transparency units, or TTUs.
    As I said, every country in the world has a customs service. It's a 
fairly easy process, a logical process to keep track of what goes in 
and what goes out and compare that record of imports with another 
country's record of exports. As we were talking about earlier, if I'm 
exporting 1,000 widgets to Mexico, and each widget is valued at $100, 
when they get into Mexico you should still have 1,000 widgets and the 
value should still be about $100. If it's not, you compare our data 
with the Mexican data. If it's not, you have an indication that perhaps 
there's some trade fraud or something else involved.
    So I proposed this--the creation of TTUs back about 2003, 2004. The 
U.S. Government was in the process of creating the Department of 
Homeland Security at the time. It delayed it a little bit. But finally 
it was adopted. We do have a TTU now. It's over at Immigration and 
Customs Enforcement. It was the world's first trade transparency unit. 
There are approximately, if I understand it correctly, about 16 TTUs 
now. Most of them are in the Western hemisphere, but we do have one in 
the Philippines. We have one in the U.K. There perhaps are some others 
in the works. We primarily put them in the Western hemisphere to combat 
black market peso exchange problems.
    It's part of our national anti-money-laundering strategy going back 
to 2007. I'm optimistic that eventually we will have a worldwide 
network of TTUs. However, it seems to be stalled. And I cannot talk for 
DHS, I cannot talk for ICE. I think there's some good reasons why it's 
stalled. I think lack of funding and personnel and line items and this 
kind of thing are part of the problem. But I cannot speak to the 
specifics. But it is still the USG kind of official countermeasure for 
all of this. There are other countermeasures that we can talk about, 
but this is the official U.S. Government countermeasure--trade 
transparency units.
    Mr. Massaro. Well, thanks very much, John. And I guess my second 
prerogative question would be for David. David, you'd brought up free 
trade zones as a potentially problematic aspect of--related to TBML, 
but even more broadly related to illicit trade globally. And I was just 
hoping maybe you could break that down, shortly, briefly. What is a 
free trade zone and why are they so easy to abuse?
    Mr. Luna. Thank you very much, Paul, for the question. Free trade 
zones actually do play a very positive role within the international 
global trading system, as a lot of the goods transit from one 
jurisdiction to another. So generally they play a very important and a 
very positive role. But where I think it gets problematic relates to 
the lack of oversight, you know, the secrecy in some regards on what's 
going on within the free trade zones. And I think it is important to 
also consider the issues of corruption, the issues of transparency, 
oversight, because, again, as I mentioned in my statement, when we're 
looking at convergence crime, not only are we looking at the licit side 
of trade and the role that free trade zones play globally, but really 
the illicit as well.
    And, again, in free trade zones you tend to have the issues of 
counterfeits, the issues of gray goods as well. But folks who are 
benefiting often will use that secrecy or lack of transparency within 
free trade zones to embark on various illicit trade activity, including 
money laundering and trade-based money laundering. As I mentioned, one 
of the cases related to luxury goods where some of the free trade zones 
were also involved as trades made their way from Asia to the United 
States. So, again, free trade zones are positive, but in places like 
the drug war, in places like Panama, unfortunately they have not been 
model free trade zones. And I do think this is why it is important to 
consider sanctioning those free trade zones that are risky, that are 
not really being as transparent, or enforcing, implementing, anti-
illicit trade, anti-corruption, anti-money-laundering regulations and 
laws to help combat the cross-border issues of illicit trafficking, as 
our colleagues pointed out.
    Mr. Massaro. All right. Thanks very much, David.
    And is our mic working? Okay, so for questions if you could stand 
up, sort of get your Friday exercise and walk to the mic.
    Danielle, if you have a question, please.
    Ms. Lindholm. Okay. The last two comments with David and Lakshmi, I 
just want to say I very much appreciate the concept that we need to 
have data to understand what's normal in order to then understand 
what's abnormal or anomalous. And this is one really good example of 
where that's essential. So appreciate that.
    The question is this: Is there only a role for interagency and 
intergovernmental collaboration to combat the problem, or is there also 
a role for public-private partnership? And if so, what is that and how 
does it look different in your minds, versus what it looks like now? So 
whether that's for import and exporters, or for financial institutions, 
or other?
    Thank you.
    Ms. Kumar. You know, I think at the end of the day, it will have 
to--there has to be sort of interagency-intergovernment collaboration 
because I think it is the financial system and it is the international 
trade system. So you do have to--government has an incredibly important 
role to play. But in terms of sort of private sector-public sector 
collaboration, I think 2015, 2014, there were geographic targeting 
orders that were issued exclusively for trade-based money laundering. 
And the focus with those orders focused on looking at cash transactions 
to find the beneficial owner or the person behind cash transactions.
    Now, while that was a great way to sort of approach TBML, it made 
the same mistake of looking at TBML through the lens of looking at how 
we normally look at AML [anti-money laundering], which is through the 
banking system. And you know, after 2015, GTOs [geographic targeting 
orders] weren't--GTOs for TBML weren't renewed. And I will be honest, I 
am not clear why that didn't happen. I've sort of asked around, but 
have yet to receive a decisive answer.
    What I do think would be great, and a way to involve both the 
public and private were if instead the GTO were focused on ports, like 
vulnerable ports for a change, then you could have the people that were 
in charge of sort of the ships, the shipping vessels, the export and 
import agencies, and start extending that network. Because when it's a 
Financial Action Task Force or any other international agency or 
government agency, there is very little that's been done in terms of 
actually doing an assessment on the players that make up the 
international trade chain, and how you can better equip them to engage 
on AML.
    The Financial Action Task Force's recommendations and mutual 
evaluations for countries don't focus on TBML. They focus on the 
banking sector and the formal financial sector. So I think when we talk 
about public-private collaboration into sort of moving those 
assessments for TBML to that space, and then having a framework in mind 
where you can involve those chain of participants who can engage with 
the government. The reason why sort of the AML space has sort of 
succeeded and there's so much money in it is because the first line of 
defenders are the private sector, they are the banking sector. And 
they're able to invest those millions because it's multiple private 
sector players who have the capacity, the staff potential, technical 
    Whereas a lot of the times with TBML we make it the entire burden 
of the customs agent, who are very often not as well staffed, don't 
have as many resources. So spreading that risk to more of the private 
sector would actually help bolster the enforcement for TBML.
    Mr. Cassara. I just want to pick up on one thing very quickly, and 
that is I think the best countermeasure out there, if it were to ever 
happen, would be for the FATF, the Financial Action Task Force, to make 
trade-based money laundering recommendation number 41. Because in the 
world of AML CFT [countering the financing of terrorism], the FATF 
makes things happen, period. They've been dragging their feet on this 
for years. They don't want to go in that direction. They're kind of 
like the UGS, our AML CFT policies have all been focused, as Lakshmi 
said, on financial intelligence, on money laundering through banks 
primarily, other things as well, even bulk cash smuggling. But they do 
not want to take up trade.
    And it's too bad. And it's also--I think it's a shame because I 
think the U.S. has the presidency of FATF right now. So this was a 
missed opportunity. I think China has the presidency next. Forget it. I 
think China is the largest trading power in the world. [Laughs.] Time 
does not allow us to go into all the reasons why China benefits from 
the status quo. I don't think the Chinese want trade transparency. I 
think legitimate traders would welcome it.
    Enough said.
    Mr. Luna. Yes. You know, I'm a big fan of public-private 
partnerships. I'm really a fan of collective action. I think across 
sectors, not only the business community but civil society as well. 
And, you know, they bring a lot of expertise, a lot of insight. If you 
look at the business community across sectors who are working in all 
markets around the world, oftentimes they have more boots on the ground 
than law enforcement, certainly U.S. law enforcement, obviously local 
enforcement as well. But they have a lot of data, a lot of insights as 
well on how to work across the international community with 
governments, international organizations, and all market stakeholders 
to improve some of the market conditions, the mis-governance, the 
issues of money laundering and corruption. A good example of a public-
private partnership, related to your earlier question of free trade 
zones, is the work that the OECD is doing on their guidelines to 
improve transparency of free trade zones for OECD member States that 
are working with the international intergovernmental organizations, and 
the international business community to bring greater transparency, to 
bring a code of conduct to better have better governance in a lot of 
free trade zones.
    Mr. Massaro. Great. Thanks so much. Could we get some questions? 
Yes, Clay. You can also just project if you don't want to walk to the 
mic. [Laughs.] It is a ways. [Laughs.]
    Questioner. I'll go ahead and do it. So most of you guys you don't 
know me. I'm Clay Fuller. I'm with the American Enterprise Institute. 
I'm the Jean Kirkpatrick fellow on foreign defense policy studies.
     I loved everything about this. I wanted to just explain how I come 
to this, and where--it explains my comments. My academic research, I 
study the survival of authoritarian regimes. And what I found in my 
work is that the best predictor of how long a dictator--a modern 
dictator will survive in office is how much money he embezzles while 
he's there. And then I found that the best predictor for how long a 
modern authoritarian regime will last is the extent to which they 
experiment with liberal economic policies. Specifically, special 
economic zones, which are what we call foreign trade zones or what 
Latin America calls free trade zones. So that's the sort of picture 
that I come into this.
    Now, with the foreign trade zones, special economic zones, I love 
it. I've been trying to tell people to pay attention to this for a long 
time, and I'm so glad people are. But getting with the transparency--so 
I study the transparency and the data on this as well. And most people 
find, most academics find, that transparency in the form of credible 
data about trade or about all this stuff is a function of the capacity 
and the willingness to be able to put it out there, right? So 
democracies, free countries, typically are more prosperous, have the 
capacity and the willingness to put this data out there in the form of 
trade transparency. And this is what makes their markets work better 
and everything.
    Authoritarian regimes sometimes have the capacity, but they don't 
always have the willingness, right? China, Russia, UAE, all these 
countries have the capacity to be able to report very credible data on 
the trade and the economic stuff coming in and out of their countries, 
but they do not have the willingness. So this gets to the sort of core 
of where it is, because it threatens their political model. It 
threatens the authoritarian model of government to be transparent about 
what you are doing economically. And so that's sort of where the bulk 
of that goes.
    And this gets to--I love John's comment about the laughing--them 
laughing at us, because that's what I've seen in 10 years of studying 
only nondemocratic countries around the world, is that this is why--you 
know, how does a dictator sleep well at night? Well, it's because 
they're just moving value all around the world and storing it at home. 
And they don't care if we sanction them. They don't care if give 
speeches about them. They don't care if we criticize them over their 
human rights record, or anything like that. They're sitting on a pile 
of cash that they're siphoning out of our markets.
    So this is extremely--very important. But so getting to the 
capacity thing I would like to ask the panel--get to my question and 
not to my speech. [Laughter.] Sorry. I'm not running for office. 
    Mr. Massaro. You can give a speech anytime you'd like, Clay. 
    Questioner. But with the zones I worry about--so there are terrible 
zones out there. You get to the tribal order area. You get to the 
golden triangle in Southeast Asia, or if you look through what's going 
on with the Chinese zones in around there. There's lots of lawlessness 
in these. But on a lot of these places, especially the tribal order 
area in our developing other democratic states, they don't have the 
capacity, right, to be transparent about it. So I worry about punishing 
bad zones in friendly countries versus reaching out them. Like I say, 
using the BUILD Act or something like that to go, you know, build them 
the capacity to be able to keep moving forward. And then the countries 
that don't want to--don't have the willingness to report, punish those. 
So I'm wondering if the panel had thoughts on that.
    Mr. Massaro. Anybody want to take that one?
    Ms. Kumar. I'll let it start from this end.
    Mr. Massaro. Maybe David?
    Mr. Luna. Well, thank you very much. And as always, thank you for 
your insights and really for your leadership in really advancing a lot 
of these important research areas.
    On capacity, well, before that, the comment that you made on 
political will. Absolutely very important. This goes back to Danielle's 
question on public-private partnerships and harnessing all capacities, 
all energies to put more pressure on some of the problematic 
jurisdictions or problematic trading partners as well. And because, 
again, the more that we can do together, it's important to put that 
political pressure. Look, we're here at Congress. Resources are very 
    We can talk across an array of transnational security threats, but 
at the end of the day Congress or the administration is not requesting 
the type of resources to help our law enforcement to fight 
transnational crime, to fight money laundering, to fight corruption. 
Then it is--it makes the battle more difficult, no doubt. And a lot of 
these good partners do need the capacity on so many fronts. And I hope 
as some of these bills move forward that--you know, again, I'm not 
lobbying, I've got to be careful--but I hope that the issue of 
resources become part of that discussion, because without those 
resources the FBI, DHS, HSI [Homeland Security Investigations], CBP 
[Customs and Border Patrol] cannot do the type of work that is 
important, including the TTUs that John was mentioning. So resource is 
very critical.
    Mr. Massaro. Would you like to say something?
    Mr. Cassara. Very briefly. And, once again, Clay, thank you for all 
the work you do in so many different related areas. And he does some 
phenomenal reports. I encourage anybody to look at his work.
    Two issues on capacity, very briefly. And I'm trying to summarize 
some things that I've been thinking about for a number of years here. 
The first one in the United States is one of our major problems in 
combating trade-based money laundering--there's a lot of them. But one 
of them that doesn't get the attention it deserves--and I got this 
directly from the TTU chief a couple years ago, and I talked to a lot 
of other people--and that's assistant U.S. attorneys around the country 
are reluctant to take these cases. They don't understand them, right, 
and they're not sexy, all right? And they have so many competing 
interests, all right? So it's a major problem.
    You can have the best data in the world and a wonderful 
investigation, but if an AUSA won't take these cases to prosecute, 
we're out of luck. And we need cases, all right? So we need to do more 
on educating our colleagues in the U.S. attorney offices around the 
country to take these cases, okay?
    The second one is a capacity issue overseas. And that is, in the 
United States U.S. customs, which doesn't exist anymore. We have ICE, 
okay? That's another issue. But they have enforcement authority. They 
have a badge. They have a gun. They interview. They have a power of 
arrest. They conduct investigations. They actually conduct more 
investigations than the FBI does, right? Overseas, most customs 
services don't have that. Most customs services are what we call 
inspection and control. They look at what stuff goes in. They look at 
stuff what goes out, and they may put a fine on it. But they don't 
conduct investigations. If they happen to be motivated, they may pass 
it off to the country's fiscal police, but they don't understand this 
stuff. So as a result, this stuff doesn't get investigated overseas. 
And you need to work with countries to change that.
    Mr. Massaro. Please go ahead. Yes, sure.
    Ms. Kumar. No, just to add to what John--just a small sort of 
example is, you know, when you're talking about capacity, we--in the 
U.S. we have TTUs with Australia. The Australian regulators website has 
long documentary reason on why they don't want to do TBML and they will 
not have a TBML policy. So if that's with a friendly ally that we have 
TTU with, it just gives you an insight into what it is for every other 
country, that there isn't and then doesn't have the capacity.
    Mr. Massaro. All right. Well, thanks so much.
    Yes, Leah, if you'd like to ask a question. Would you prefer to 
project or go to the mic?
    Questioner. I'm just going to project.
    Mr. Massaro. Okay, great. If you could say: Leah with the 
Subcommittee on Europe and Eurasia.
    Questioner. That's what I am. Okay.
    So I just had a quick question. What region of the world should we 
be the most focused on for this issue? And then since I'm from the 
Subcommittee on Europe and Eurasia, if you could talk a little bit 
about what's going on in that region and what we should be most focused 
    Mr. Luna. I'll take a first stab. I think all regions--when we 
think about globalization, when we think about the cross-border nature 
of these threats, I think all regions are very important, especially, 
again, from a convergence perspective. On the issue of counterfeits, no 
doubt, you know, working within the U.S. Government and our partners to 
engage China, engage some of the markets that are really proliferating 
the counterfeits, including--well, Hong Kong is part of China.
    But on counterfeit medicines, some of the other jurisdictions that 
are really putting these counterfeit medicines that are harming a lot 
of citizens in the U.S. and globally. But when it comes to 
strengthening international cooperation, again, I think given the 
cross-border nature of it I think we need to be working because as some 
of these goods go, from--for example, from China to UAE, you know, to 
or through Panama on the other side, in between all of these places 
U.S. law enforcement needs to be working with all these partners to 
really, again, disrupt and hopefully dismantle some of the illicit 
networks. So all jurisdictions I think are important.
    Mr. Massaro. Just real quick, we're going to finish this up. John, 
did you have any thoughts there, or Lakshmi, before we move on? We will 
move on----
    Mr. Cassara. Very, very quickly. TBML affects every country in the 
world, every single one, developed and developing. Every single one. 
And really quick answer to your question, I mean, we can talk in some 
detail, but it's--if you were to ask me what country is the most 
problematical right now, it's China because of all the reasons that 
David mentioned.
    But there's another issue that has never been, again, 
systematically examined, that's the capital flight leaving China. And 
the trade value transfer that takes the form of capital flight has 
never been looked at. You mentioned GTOs earlier. All this money coming 
in and buying up U.S. real estate--commercial real estate, residential 
real estate. What's behind that?
    And the other thing is the Chinese flying money system, okay, their 
equivalent of hawala which probably actually dwarfs hawala in the 
magnitude because of the Chinese diaspora around the world, all this 
counter valuation, settling accounts, do you think when China's 
overseas in Africa, or Europe, or the Americas, do you think they keep 
their money there? It goes back. It goes back to China. How does that 
happen? Via value transfer with trade. And nobody's looking at it, and 
nobody understands it, and nobody talks about it.
    Mr. Massaro. So I'd just like to really quick, Maria--my colleague 
Maria Sierra with Senator Cassidy's office. I know you're very focused 
on this. Do you have any--so if you could just target your question 
toward one--we've only got 15 minutes left. I'm going to try to get a 
bunch of questions. Maria, and then we'll grab you. Sorry. [Laughs.]
    Questioner. You know that I've been looking at this issue for quite 
a while. What agency do you recommend should be the agency that--I know 
that it's an interagency issue, but some agency has to take the lead. 
What agency do you think? What U.S. Government agency do you think 
should be the one to take the lead, or the most adequate?
    Mr. Massaro. I guess that'd be a best John question, maybe?
    Mr. Cassara. Almost by definition it's a customs issue. It has to 
be. And as I said, we don't have a customs service anymore. We have an 
ICE, all right? One of the reasons I don't think we've made the 
progress that we should have over the last 10-15 years since 9/11 is 
because customs, in effect, was disbanded. We now have a Department of 
Homeland Security, okay? Immigration and Customs Enforcement, the first 
word on that is immigration, right? The resources, the money has gone 
into immigration. And I don't want to speak out of turn here, because 
I'm not representing ICE, okay, but I believe customs has gotten 
short--traditional customs work, including combating trade fraud has 
gotten short----
    Questioner. Shrift.
    Mr. Cassara. Thank you. [Laughter.] Yes, they have, okay? And 
it's--because the data is basically customs and commerce and other, 
it's customs has to be the focal point on this.
    Questioner. And what role would FinCEN sort of play into this? I 
mean, it's just--I've been at this for years, trying to figure it out.
    Mr. Cassara. One thing that a lot of people I think don't quite 
grasp, we're talking about trade transparency units and investigating 
trade fraud in general, the more data you have the better it is. So 
what we'd like to do is overlap, say, financial intelligence with the 
trade data, and all other sources, okay? So FinCEN has a role in that. 
Back in the early days--and I was at FinCEN at the time--we gave FinCEN 
the opportunity to host the TTU, and they turned it down.
    Mr. Massaro. Interesting. Okay.
    Mr. Luna. Just briefly, but if you're going to address the issue 
holistically, comprehensively, you need the whole interagency. You 
know, you need State Department, also working on intelligence, 
economic, Commerce, Treasury and others. Obviously the Department of 
Justice as well.
    Mr. Massaro. Yes, so I'd like to recognize my colleague Danica 
Starks, our new detailee from the Department of Commerce at the 
Helsinki Commission.
    Questioner. So, question. Thank you to everybody.
    You mentioned that it's very hard to get the sort of anti-money-
laundering, financial crimes folks to talk about trade. Has there been 
success at getting the trade folks to talk about money laundering? You 
know, are there are any efforts to reach out to the WTO [World Trade 
Organization], that type of thing?
    The reason I ask is that Lakshmi brought up a good point. You know, 
one of the big problems that we've had at Commerce is countries using 
reference pricing and other things, or other nonsavory ways of doing 
evaluations. So there has been a concerted effort to do training on 
customs valuations and other issues. But that community, it seems to 
me, is very separate from the sort of money-laundering community.
    Has there been any effort to sort of attach some of the money-
laundering efforts to more traditional trade and customs evaluation 
    Ms. Kumar. So when you look at the World Customs Organization, 
which is what most customs entities in different countries participate, 
they have a very cursory reference to it. There is nothing in depth, 
even within a risk template, that talks about it. You know, the WTO 
doesn't really consider it as an issue. And it's mostly been the ambit 
of the Financial Action Task Force and all its regional bodies. And the 
issue is that the Financial Action Task Force needs to start roping in 
the World Customs Organization.
    And I think then it will actually give birth to dialog on this 
issue where it brings trade and AML. Because otherwise if you look at 
most AML conferences today, they're focused on TBML. Like I said 
earlier, most of them are led by the banking sector. And that is a 
false notion, because most of the trade that goes and that we are 
concerned about doesn't go through the banking sector. So I think the 
World Customs Organization, if that's what you're talking about, I 
think there should be sort of----
    Questioner. Or WTO, or any--yes.
    Ms. Kumar. Well, WTO, but especially the World Customs Organization 
because then you have direct face-to-face contact with the customs 
agencies. And then they can be roped into sort of advocate at other 
fora to talk about bringing TBML into the mix.
    Mr. Massaro. Thanks so much. So if you could please loudly shout 
your name and affiliation. [Laughs.]
    Questioner. Ken Duncan [sp], U.S. citizen. [Laughter.]
    Mr. Massaro. All right. [Laughs.]
    Mr. Cassara. I love that.
    Questioner. Former State lawmaker. First off, I appreciate this 
panel and this discussion.
    My question to American Enterprise as well as Helsinki as a 
commission--most laws get passed based off of appropriate noise--
advocates, incidents. What's happened in the Chicago region, at least 
reported-wise from good journalism, is that these pharmaceuticals are 
so toxic that they're impacting certain segments of the population--
typically low-income black or brown populations where there is no 
voice, there's no commission. What is your campaign? Outside of you 
doing these wonderful papers and having these incredible, informative 
panels, who is that outside voice to help prod policymakers and 
employees of the USG to really make this a public campaign, if you 
will? Almost like smoking. Not just for pharmaceuticals, but in general 
a lot of these bogus products are all in low-income areas across--not 
out--they're in middle class areas across this country.
    Mr. Massaro. I do want to turn it over to my colleague David, 
because David is doing a lot of work on counterfeit and toxic products. 
I think that that's huge. But I'll say that as far as noise-making 
goes, I think a lot of work's been done in this town to pass 
legislation, to work on legislation around this. It's going to the 
House Financial Services Committee right now. You know, looking at a 
beneficial ownership registry in the United States that would go after 
a lot of this stuff. But let me go ahead and kind of turn it over to 
David, because he's the man with a plan when it comes to counterfeits.
    Questioner. I like plans.
    Mr. Massaro. Yes.
    Mr. Luna. And, again, I'm not with the commission.
    Mr. Massaro. Not with the commission, yes.
    Questioner. All right.
    Mr. Luna. But as an American citizen as well. [Laughter.] You know, 
very good point, because oftentimes when we talk about counterfeits or 
other illicit threats, they are impacting those distressed communities 
that you're talking--significantly.
    On the issue of counterfeits, it's because of the price issue, but 
because the criminals smartly target them as well. Not only in physical 
retail markets, but online as well. So it is a big challenge.
    Certainly, I mentioned this U.S. interagency study that the 
president asked to be done in 180 days. DHS is taking the lead for 
that. And I hope that they do address not only the impacts and the 
harms to the American economy and business, but to American citizens, 
especially the community.
    So I would encourage you to--and we can talk offline about who's 
taking the lead for that. I also hope that the administration finds the 
OECD on this important issue, because they are doing some of the best 
research related to countering counterfeit and pirated goods. One last 
thing, as the chair of the Anti-Illicit Trade Committee of the U.S. 
Council for International Business, I can assure that certainly USCIB, 
the business communities, are taking this issue very seriously.
    Mr. Massaro. And maybe I'll just add one final thing from sort of 
the perspective of the Helsinki Commission staff. You know, we're a 
mandated commission of Congress, founded in 1976. And our job is to 
promote sort of the rule of law, human rights, and democracy around the 
world. And we do that from a values-based perspective, but we also do 
it because sort of if the bad guys win there's more of this coming, you 
    I mean, there's a definite--it may not seem that way, you know, 
from the high-browed foreign policy community, right, but there's a 
definite reason why we need to fight back against corruption, 
transnational organized crime and authoritarianism, because this is the 
kind of environment, the sort of deviant globalization, that leads to 
this free-for-all, corrupt, capitalist globalization that leads to 
drugs and counterfeit goods, and all sorts of nastiness that impacts 
the lives of our constituents in really meaningful ways. So I guess 
from a Helsinki Commission perspective that's what we do on a daily 
basis. [Laughs.]
    Questioner. You know, I just never heard of this component of the 
Helsinki Commission.
    Mr. Massaro. Certainly. Yes, definitely. So please, Jim, right 
there, and then we'll get you, thanks.
    Questioner. Sure. I'll make it quick. I just wanted to support this 
idea of the public-private partnerships, because whether it's the 
banking industry or the trade industry, they need to work together and 
do more, because a lot more can be done there. I'll give you an example 
about the complexity of trade-based money laundering. I'm asked from 
time to time by investigative reporters to help them out on cases. If 
it's a pure money laundering case, the first question is: Is this money 
laundering? And I say, I'll tell you later. With the trade-based money 
laundering cases it takes a tremendous amount of time, looking at a 
tremendous number of documents. So extremely complex. And that's why we 
need a lot of education. With respect to institutions, I think the bank 
regulators can do a better job. Right now, you have the compliance 
staffs looking at money laundering, and you have the trade people 
conducting the transactions, and there's not enough communication.
    Mr. Massaro. Please.
    Questioner. Hi. My name's Victoria Prieboh [ph]. I'm just an intern 
trying to learn.
    So I have a question simply about--you talked a lot about how money 
laundering can affect Americans in all sorts of different ways. I was 
wondering about the cost-benefit of sanctioning? Because a lot of you 
mentioned sanctions as a way to combat that. But sanctions also face 
the risk of backlash, for example, if we're, like, sanctioning Syria I 
can see it leading to possible oil shortages. So I was wondering if you 
could elaborate on the cost-benefit and how the benefits in the long 
run kind of outweigh those.
    Ms. Kumar. I can take the question.
    Mr. Massaro. Please, Lakshmi, yes.
    Ms. Kumar. So the thing is sanctions really haven't done this for 
TBML, but they've looked a lot at correspondent banking relationships, 
which then touch on trade because, you know, a lot of trade finance is 
routed through correspondent banking. So there is--you know, sanctions 
are complicated, but the one thing that we at GFI, that at least that 
I've been looking at, is the sort of cascading effect of that.
    So you know, you target corresponding banking relationships. And 
the Financial Stability Board at the end of, I think, November 2018 
released a report because when you are looking at this, it's not just 
that you are affecting those institutions or those sectors. There are 
cascading effects that come from now you have a short fall in 
remittances, and remittances are, like, a $500 billion market.
    For example, I think sanctions that targeted corresponding banking 
relationships in Somalia, there was a loss of 40 percent of the GDP 
because the remittances couldn't go there. And I think in the Caribbean 
it's become a huge issue because there are a lot of sanctions that 
target corresponding banking relationships there. And the U.N. has 
released a report that covers the Caribbean, which is it affects their 
ability to participate in the formal financial system. It affects the 
ability of existing business to participate in trade. But also, when 
you cut off relationships, it leads to the potential--and it's very 
difficult to measure some of these things, but at leads to the 
potential of how will new businesses then engage with the economy?
    And I think what is often lost in all of this, and it should be a 
conversation of how we target, is that not--money has to find a way. 
Money will always find a way. So if it's not going through the formal 
financial system, it means you are growing the shadow banking system. 
And the shadow banking system has--within the last 5 years--has grown 
by 6 trillion [dollars]. Which means it will just continue to grow. So 
when you're talking--I think talking about sanctions, you think of 
cascading effects around it. It doesn't necessarily touch TBML, except 
to the extent we're talking about corresponding banking relationships.
    Mr. Massaro. Okay, thanks so much. Yes, please, name and 
affiliation, though I know who you are. [Laughs.]
    Questioner. Tim Nelson, State Department.
    I just wondering if you could, from the bigger perspective, while 
we're looking at pinpointing law enforcement with, you know, thousands 
of documents to go through for single cases, are we structurally built 
to be the world's Number 1 money laundering destination because we 
allow this type of non-transparency, whether it's in LLCs, or not even 
looking in the biggest levels of money laundering coming into the 
country? Have we earned that position worldwide?
    Mr. Cassara. It's an interesting question, but I want to take issue 
with the premise that the United States is the biggest money laundering 
country in the world, biggest destination. I used to think it was 
simply because of our economy of scale and our insatiable appetite for 
narcotics. But we're no longer the Number 1. It's China. China is the 
Number 1 money laundering country in the world. My estimations are--and 
I've got some numbers I can back this up--I think they're responsible 
for about half of the money laundering going on in the world today.
    Ms. Kumar. Can I just answer that?
    Mr. Massaro. Please, please.
    Ms. Kumar. So, you know, the fact that the U.S. is such a stable 
financial system, it means that unstable economies want to park their 
money. And some of which--you know, at GFI we did a report which just 
sort of crystallizes, I call it a library card project. And we looked 
at 50 states in the U.S. and saw what the requirements were to get a 
library card and what the requirements were to form any kind of 
company. And in every state, it was harder to get a library card than 
it was to form a company. And I think one example that I find 
particularly fascinating is that in Kentucky you have to give biometric 
    Mr. Massaro. What? [Laughter.]
    Ms. Kumar. But you need nothing to form a company. [Laughter.] But 
having said that, even with all of this, even though there are sort of 
handicaps and not knowing beneficial ownership, not knowing all of 
these pieces of information, the U.S. still takes the lead more than 
any other advanced economy in pursuing money laundering.
    For example, in Mozambique right now, their economy has collapsed 
because a minister decided, Oh, I will take out a $2 billion personal 
loan, and then make my country now responsible for it. And I was 
through banks in the U.K. The U.K. has given up that fight. The U.S. is 
still pursing that investigation. When FIFA was being investigated, 
soccer isn't a big--Europe is obsessed with soccer. But it was the U.S. 
Government that went after it.
    So, yes, there are deficiencies within the legal framework, but I 
think on the enforcement side there is so much that is being done that 
the rest of the world still has to catch up to.
    Mr. Massaro. David, you wanted to say something?
    Mr. Luna. Just briefly. Even though if we're not, you know, still 
the biggest money laundering safe haven, right, I think we should 
continue to reduce our levels, including, again, by passing legislation 
to have anonymous companies requiring more beneficial ownership. I 
think denying safe haven to kleptocrats and criminals so that they 
don't enjoy their fruits by buying real property, not only for them but 
their families and their facilitators as well.
    Mr. Massaro. And I mean, I'm the moderator, but I do want to echo 
something that John said earlier, and that is U.S. law enforcement is 
world class. Nothing like it in the whole planet. I mean, and I think 
we need our legal framework to catch up, you know, for sure, and our 
financial framework to catch up. But once it does, the boys are going 
to go to town, you know? [Laughs.]
    Anyway, I guess with that, it's 11. Thank you all for sticking it 
out till the end. [Applause.] It was a lot of fun. Look forward to the 
next panel.
    Again, May 29th we have the next House Financial Services Committee 
and Helsinki Commission partnership. We'll be having the Brits in. John 
Penrose MP, the prime minister's anti-corruption champion's going to be 
there. We're going to talk about their public corporate transparency 
registry and their information sharing--private-public information 
sharing structure JMLIT, the Joint Money Laundering Intelligence 
Taskforce. Hope to see everybody there.
    Have a great day and a happy weekend--Memorial Day weekend.
    [Whereupon, at 11:01 a.m., the briefing ended.]


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