[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
FOLLOW THE MONEY: THE CCP'S
BUSINESS MODEL FUELING
THE FENTANYL CRISIS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON NATIONAL SECURITY,
ILLICIT FINANCE, AND
INTERNATIONAL FINANCIAL INSTITUTIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
MARCH 23, 2023
__________
Printed for the use of the Committee on Financial Services
Serial No. 118-11
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
52-389 WASHINGTON : 2023
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HOUSE COMMITTEE ON FINANCIAL SERVICES
PATRICK McHENRY, North Carolina, Chairman
FRANK D. LUCAS, Oklahoma MAXINE WATERS, California, Ranking
PETE SESSIONS, Texas Member
BILL POSEY, Florida NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri BRAD SHERMAN, California
BILL HUIZENGA, Michigan GREGORY W. MEEKS, New York
ANN WAGNER, Missouri DAVID SCOTT, Georgia
ANDY BARR, Kentucky STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas AL GREEN, Texas
FRENCH HILL, Arkansas EMANUEL CLEAVER, Missouri
TOM EMMER, Minnesota JIM A. HIMES, Connecticut
BARRY LOUDERMILK, Georgia BILL FOSTER, Illinois
ALEXANDER X. MOONEY, West Virginia JOYCE BEATTY, Ohio
WARREN DAVIDSON, Ohio JUAN VARGAS, California
JOHN ROSE, Tennessee JOSH GOTTHEIMER, New Jersey
BRYAN STEIL, Wisconsin VICENTE GONZALEZ, Texas
WILLIAM TIMMONS, South Carolina SEAN CASTEN, Illinois
RALPH NORMAN, South Carolina AYANNA PRESSLEY, Massachusetts
DAN MEUSER, Pennsylvania STEVEN HORSFORD, Nevada
SCOTT FITZGERALD, Wisconsin RASHIDA TLAIB, Michigan
ANDREW GARBARINO, New York RITCHIE TORRES, New York
YOUNG KIM, California SYLVIA GARCIA, Texas
BYRON DONALDS, Florida NIKEMA WILLIAMS, Georgia
MIKE FLOOD, Nebraska WILEY NICKEL, North Carolina
MIKE LAWLER, New York BRITTANY PETTERSEN, Colorado
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee
Matt Hoffmann, Staff Director
Subcommittee on National Security, Illicit Finance,
and International Financial Institutions
BLAINE LUETKEMEYER, Missouri, Chairman
ANDY BARR, Kentucky JOYCE BEATTY, Ohio, Ranking Member
ROGER WILLIAMS, Texas VICENTE GONZALEZ, Texas
BARRY LOUDERMILK, Georgia WILEY NICKEL, North Carolina
DAN MEUSER, Pennsylvania BRITTANY PETTERSEN, Colorado
YOUNG KIM, California, Vice BILL FOSTER, Illinois
Chairwoman JUAN VARGAS, California
ZACH NUNN, Iowa JOSH GOTTHEIMER, New Jersey
MONICA DE LA CRUZ, Texas
ANDY OGLES, Tennessee
C O N T E N T S
----------
Page
Hearing held on:
March 23, 2023............................................... 1
Appendix:
March 23, 2023............................................... 43
WITNESSES
Thursday, March 23, 2023
Cassara, John A., Special Agent, U.S. Treasury (Retired)......... 4
Grellner, Jason, Vice President, Healthcare, Evolv Technology.... 9
Im, Donald H., Assistant Special Agent in Charge, DEA (Retired).. 6
Peters, Gretchen, Executive Director, Alliance to Counter Crime
Online (ACCO).................................................. 11
Realuyo, Celina B., Adjunct Professor, The George Washington
University Elliott School of International Affairs............. 8
APPENDIX
Prepared statements:
Cassara, John A.............................................. 44
Grellner, Jason.............................................. 79
Im, Donald H................................................. 82
Peters, Gretchen............................................. 85
Realuyo, Celina B............................................ 91
Additional Material Submitted for the Record
McHenry, Hon. Patrick:
Letter from Sheriff Darren Campbell of Iredell County, North
Carolina................................................... 109
Barr, Hon. Andy:
Written statement of the Versailles, Kentucky, Police
Department................................................. 111
Kim, Hon. Young:
Written statement of the Orange County Sheriff's Department.. 112
Loudermilk, Hon. Barry:
Written statement of the National Sheriff's Association...... 113
Ogles, Hon. Andy:
America First Policy Institute (AFPI), ``Fentanyl: The Deadly
Consequences,'' by Robert Law, Heidi Overton, Kristen
Ziccarelli & Abigail Chance................................ 114
America First Policy Institute (AFPI), Fact Sheet, ``How
Fentanyl Enters American Communities,'' by Kristen
Ziccarelli, dated March 2023............................... 134
Written statement of the Williamson County Sheriff's Office.. 135
America First Policy Institute (AFPI), Written testimony of
Chad Wolf, Former Acting Secretary of the Department of
Homeland Security, and Executive Director, Chief Strategy
Officer, and Chair of the Center for Homeland Security &
Immigration at the America First Policy Institute.......... 142
Waters, Hon. Maxine:
Written statement of the Brookings Institution............... 148
Center for International Policy Fact Sheet................... 174
Written statement of the Center for International Policy..... 183
Report from Global Financial Integrity entitled, ``Made in
China: China's Role in Transnational Crime & Illicit
Financial Flows,'' by Channing Mavrellis and John Cassara,
dated October 2022......................................... 199
July 14, 2021, Testimony before the U.S. Senate Committee on
Finance by David M. Luna, Executive Director, International
Coalition Against Illicit Economics (ICAIE)................ 314
Email from Dr. Louise Shelley describing inserts for the
record..................................................... 334
``Fentanyl, COVID-19, and Public Health,'' by Dr. Louise
Shelley.................................................... 336
Written statement of Dr. John P. Sullivan and Dr. Robert J.
Bunker..................................................... 344
Written responses to questions for the record submitted to
John A. Cassara............................................ 350
Written responses to questions for the record submitted to
Donald H. Im............................................... 357
Written responses to questions for the record submitted to
Gretchen Peters............................................ 365
Written responses to questions for the record submitted to
Celina B. Realuyo.......................................... 370
Peters, Gretchen:
``The Alliance to Counter Crime Online (ACCO) Section 230
Written Submission''....................................... 375
``Social Media's Deadly Drug Problem,'' by The Alliance to
Counter Crime Online (ACCO)................................ 379
ACCO photos of National Fentanyl Day Victims................. 389
ACCO slides presented at hearing............................. 437
FOLLOW THE MONEY: THE CCP'S
BUSINESS MODEL FUELING
THE FENTANYL CRISIS
----------
Thursday, March 23, 2023
U.S. House of Representatives,
Subcommittee on National Security,
Illicit Finance, and
International Financial Institutions,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2128, Rayburn House Office Building, Hon. Blaine
Luetkemeyer [chairman of the subcommittee] presiding.
Members present: Representatives Luetkemeyer, Barr,
Williams of Texas, Loudermilk, Meuser, Kim, Nunn, De La Cruz,
Ogles; Beatty, Gonzalez, Nickel, Pettersen, and Foster.
Ex officio present: Representatives McHenry and Waters.
Also present: Representative Fitzgerald.
Chairman Luetkemeyer. The Subcommittee on National
Security, Illicit Finance, and International Financial
Institutions will come to order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time.
Today's hearing is entitled, ``Follow the Money: The CCP's
Business Model Fueling the Fentanyl Crisis.''
I now yield myself 5 minutes for an opening statement.
As this committee is painfully aware, fentanyl is a poison
that is afflicting every community in this country. This poison
is synthetic opioid, 50 times more potent than heroin and 100
times more potent than morphine. Just 2 milligrams equal to 10
to 15 grains of salt is enough to be lethal. As our current DEA
Administrator, Anne Milgram, has said, ``Fentanyl is the single
deadliest drug threat our nation has ever encountered.'' And I
share her assessment, which is why I chose to address it in our
subcommittee's first hearing this Congress.
In preparation for today's hearing, I consulted local law
enforcement officials in Missouri, who painted a grave picture.
In 2021, synthetic opioids, such as fentanyl, took the lives of
1,374 Missourians. Despite all the facts, surprisingly,
fentanyl remains a Schedule II narcotic, which is why I
recently reintroduced the Stopping Illicit Fentanyl
Trafficking, (SIFT) Act, to combat the skyrocketing amount of
fentanyl-related deaths. Fentanyl trafficking has become
synonymous with the Mexican cartels who exploited the Biden's
Administration's lax enforcement in border security and
immigration controls to pour this poison into our country.
However, it is also vital that Americans understand the
essential role that China plays in the fentanyl crisis. China
is the primary source of the know-how and illicit materials
that Mexican cartels use to manufacture lethal synthetic
opioids. Moreover, despite the Chinese Communist Party's
(CCP's) publicly-professed policy against the export of
dangerous drugs for illicit use, the CCP supports the Chinese
companies that export fentanyl precursors by offering them
government benefits and preferential tax policies as generous
as 10 to 13 percent rebates.
Precursor chemicals from China are converted into powdered
fentanyl in Mexico, which is then smuggled across the U.S.
border to be pressed into brightly-colored pills designed to
look like legitimate prescription drugs to appeal to kids,
referred to by the DEA as, ``rainbow fentanyl.'' And no, this
is not hyperbole. In August of 2022, the DEA released a
statement entitled, ``DEA Warns of Brightly-Colored Fentanyl
Used to Target Young Americans.'' When a pill that costs $0.13
to make can be sold for $10, the cartels are making huge
profits which, like illicit gains, must be laundered.
Chinese professional money launderers have become adept at
using underground banking schemes and networks of human assets
to move illicit profits through the financial systems,
commingling drug proceeds with remittances to China, and
transferring funds to China using Chinese mobile banking apps.
Given the gravity and scale of the situation, it is unclear why
the Justice Department's top priority is not to stop this
reverse opium war that China is perpetrating against us. While
there are a lot of pieces to this enormous challenge, including
our unsecured border, the flow of money is the lifeblood of
fentanyl trafficking, and is where our committee can bring our
experience and our expertise to bear.
Our witnesses today will help us understand the fentanyl
flows, and what we can do to ensure that our government has the
authorities, capabilities, and, most importantly, the will to
stop them.
The Chair now recognizes the ranking member of the
subcommittee, the gentlelady from Ohio, Mrs. Beatty, for 5
minutes.
Mrs. Beatty. Thank you so much, Mr. Chairman, and thank you
to the witnesses.
Today, as you know, we are here to discuss the financial
infrastructure that underlies the production and proceeds of
illicit fentanyl, a drug that is devastating our communities
and taking far too many American lives. Not only just the scale
of this epidemic nationwide concerns me, but this is a matter
concerning to me because of the huge impact in my home State of
Ohio. CDC data shows that Ohio ranks in the top 4 highest drug
overdose mortality rates in the country, and fentanyl-related
substances make up nearly 80 percent of overdose deaths. Also,
as you mentioned, Mr. Chairman, and I am sure we will hear from
our witnesses, there is a growing number of children who have
lost their lives to this.
Over the last decade, fentanyl overdose deaths have rapidly
grown as traffickers began mixing illicit fentanyl with other
drugs like heroin, cocaine, and controlled prescription drugs.
In too many instances, those taking the substance had no idea
that fentanyl had been added, resulting in countless deaths.
Studies show that fentanyl is now the number-one cause of
deaths for Americans between the ages of 18 and 45, taking the
lives of more than 70,000 Americans each year. Furthermore,
synthetic drug overdoses disproportionately affect communities
of color, with deaths rates rising significantly for Blacks,
Latinos, and indigenous people, compared to their White
counterparts.
So, let's follow the money and the stem the flow of this
illicit, deadly drug in our country. Following the money takes
us to the origins of the supply chain in the People's Republic
of China, the primary source of synthetic drugs and their
precursors. Over the last decade, while claiming to cooperate
with the United States, China has been overly-permissive in
allowing its drug traffickers and chemical producers to thrive.
So, I believe if we are going to save American lives, we need a
global strategy to bolster anti-money laundering efforts to
detect and disrupt finance streams wherever we can. We also
need to shore up our efforts right here at home, so we are
hoping to hear from our experts and members on this committee
that we can do just that.
But let me just say I am very concerned that we have
proposed budget cuts to certain areas at Treasury, so, Mr.
Chairman, I am asking all members on both sides to take a look
at that. For example, we have proposed budget cuts to certain
areas in Treasury, including the Financial Crimes Enforcement
Network (FinCEN) and the Office of Foreign Assets Control
(OFAC), the very offices charged with protecting our financial
systems. And as ranking member on this subcommittee, in keeping
this germane to the financial systems, I think it is quite
appropriate for us to ask that we look at that because while
they are protecting our financial systems from drug trafficking
and other bad actors, why would we then defund the offices that
we so badly need to assist us? And if we are really serious
about cutting off illicit fentanyl and hitting back at the
cartels, then it is critical that President Biden's budget be
fully funded.
I have read the testimonies from our witnesses here, and
many of them have specifically said to us, what is it that you
are doing? Why aren't you doing this? Where is the oversight?
Why aren't you looking at, whether it is social media, whether
it is government? But they are putting the onus back on us, and
we are ready to respond to that. And this is one of the things,
Mr. Chairman, that I think we should take a look at, because a
problem of this scale requires a multipronged, bipartisan,
coordinated solution, and I really look forward to starting
that process here today.
I thank our witnesses for lending us all of your knowledge
and expertise. And let me just say, I want to thank you, Mr.
Cassara, for giving all of us a copy of your book, ``China-
Specified Unlawful Activities: CCP Inc., Transnational Crime
and Money Laundering.''
Mr. Chairman, I yield back.
Chairman Luetkemeyer. Thank you for those remarks, Mrs.
Beatty.
We now welcome our panelists for their testimony today.
What we will do is, I will introduce each of you, and then we
will open it up for your opening testimony.
First, Mr. John Cassara. Mr. Cassara is an expert in the
field of anti-money laundering and countering the financing of
terrorism. He is a former U.S. Intelligence Officer, Treasury
Special Agent, and an accomplished author with several
publications on financial crime and illicit finance. And I,
too, want to thank you for presenting your book to each one of
us. It is going to be very instrumental, I think, in
understanding and continuing to learn about these issues. We
certainly appreciate that and your expertise, sir.
Second, Mr. Donald Im. Mr. Im is a retired Drug Enforcement
Administration (DEA) Agent who has dedicated his career to
combating drug trafficking and drug-related crimes. With over
25 years' experience, Mr. Im has led and participated in
numerous high-profile investigations, including those involving
international drug trafficking organizations. He has also
worked in various roles within the DEA Special Operations
Division, including as a Special Agent, an Assistant Special
Agent in Charge, and a Country Attache.
Third, Professor Celina Realuyo. Professor Realuyo is an
accomplished scholar and practitioner in the field of
international security and development. She has held senior
positions in both the public and private sectors, including
serving as a career diplomat at the U.S. Department of State,
and as a senior executive for global financial institutions.
Fourth, Mr. Jason Grellner. Mr. Grellner actually was a
former constituent of mine, and I worked with him for many,
many years. He has been on the ground fighting this war in the
trenches for years. Mr. Grellner is a highly-experienced law
enforcement official with over 30 years of service in the field
of criminal justice. He is a former narcotics detective and
sheriff's deputy. Mr. Grellner has served in various roles
within the Missouri State Narcotics Officers Association and is
a nationally-recognized expert on drug policy.
And finally, Ms. Gretchen Peters. Ms. Peters is a
distinguished investigative journalist and author who has
devoted her career to covering global security issues,
including terrorism, organized crime, and corruption. Ms.
Peters is currently the founder and executive director of the
Alliance to Counter Crime Online, a nonprofit organization
dedicated to combating online crime.
Welcome to each of you. Thank you for taking the time to be
with us today. We look forward to your testimony.
Each of you will be recognized for 5 minutes to present
your oral testimony, and without objection, each of your
written statements will be made a part of the record.
Again, thank you for your willingness to be here, and with
that, Mr. Cassara, I recognize you for 5 minutes.
STATEMENT OF JOHN A. CASSARA, SPECIAL AGENT, U.S. TREASURY
(RETIRED)
Mr. Cassara. Thank you, and good morning, Chairman
Luetkemeyer, Ranking Member Beatty, Chairman McHenry, Ranking
Member Waters, and distinguished members of the subcommittee.
It is an honor for me to testify in today's hearing. I would
like to give you a general overview of the CCP's business model
that is fueling the fentanyl crisis.
Communist China is an ideological, military, economic,
commercial, high-tech, intelligence and diplomatic rival of the
U.S. in the West. The People's Republic of China has a growing
exploitative presence in the developing world. While these
threats are known, the Chinese Communist Party's involvement
with transnational crime and money laundering is not. We have
been ignoring the massive totality of what I call, ``CCP
Inc.'s,'' involvement in transnational crime, as well as
Chinese-centric money laundering methodologies and enablers
that facilitate the criminality.
The title of my most recent book is, ``China-Specified
Unlawful Activities: CCP Inc., Transnational Crime and Money
Laundering.'' I found that criminal activity has seemingly
become part of the CCP's overall strategy to grow its powers.
We cannot look at the fentanyl issue in a vacuum or as an
isolated concern. The CCP's business model that fuels the
fentanyl crisis is also active in many other sectors of crime.
In my book, I examine 12 significant categories of
transnational crime. Each are also specified unlawful
activities, also known as SUAs, or predicate offenses to charge
money laundering.
CCP's involvement in these crimes is approximately $2
trillion a year. To put things in perspective, $2 trillion is
approximately half of the roughly $4 trillion that is laundered
annually around the world. Regarding fentanyl, Chinese
companies make chemical compounds sold globally for legitimate
purposes in medicine and industrial processes. Opioid vendors
shield themselves behind these companies and layers of
interlinked companies, sometimes in related fields such as
biotechnology. Illicit production and distribution are assisted
by layer upon layer of traders and brokers and freight
forwarders. Chinese trafficking organizations deliberately
misuse this labyrinth to transport drugs, precursors, and
contraband through shipping containers that are often
mislabeled.
Because of a few crackdowns by the authorities, the Chinese
vendors created new distribution strategies. They sell
precursor chemicals to foreign clients. Boutique suppliers also
tweaked their formulas, taking advantage of regulatory and
enforcement loopholes. New transport and mail routes were
developed, sending the banned substances into Mexico and
sometimes to other countries. The U.S. is the final destination
for most of the finished product. Also troubling is that
Chinese actors aggressively use the internet and social media
to advertise and market their illicit products, often in
English. They blatantly target Western consumers.
It is important to remember that the People's Republic of
China (PRC) is a command state. The Chinese Communist Party
(CCP) could easily block websites advertising fentanyl and
other dangerous and illegal drugs. They choose not to. In my
book, I discuss a number of money laundering methodologies and
enablers used by the CCP, including underground banking,
capital flight, gambling, real estate, and the use of offshores
and secrecy jurisdictions. Corruption is the great enabler for
money laundering. CCP Inc., has taken their domestic corruption
and exported it overseas. CCP Inc., also excels at elite
capture and influence operations.
Other enablers I discuss in my book include Chinese
organized crime, espionage, social monitoring, the promotion of
Chinese control of international free trade zones, lack of
Chinese cooperation with international law enforcement, and
poor Chinese money laundering compliance. Three money
laundering techniques that directly impact the trafficking of
fentanyl are trade-based money laundering, black market
exchanges, and Fei-Chien, or flying money. I provide
explanations for each in my written testimony.
Once again, these SUAs, methodologies, and enablers cannot
be viewed in isolation. Rather, they are intertwined and must
be addressed collectively. CCP Inc,'s, international law
breaking makes them exposed. They are vulnerable. I conclude
with recommendations that emphasize law enforcement. Thank you
very much.
[The prepared statement of Mr. Cassara can be found on page
44 of the appendix.]
Chairman Luetkemeyer. Thank you, Mr. Cassara. Well done.
Mr. Im, you are now recognized for 5 minutes.
STATEMENT OF DONALD H. IM, DEA ASSISTANT SPECIAL AGENT IN
CHARGE (RETIRED)
Mr. Im. Good morning, Chairman Luetkemeyer, Ranking Member
Beatty, Chairman McHenry, Ranking Member Waters, and
distinguished members of the subcommittee. I want to thank you
for the opportunity to speak with you here today, along with my
fellow panelists.
Over the past 6 years, over 1.5 million Americans have died
due to drug overdoses and poisonings, perpetuated predominantly
by the Sinaloa and CJNG cartels, using synthetically-produced
chemicals designed and manufactured by Chinese chemists and
laboratories located in Wuhan, Hubei Province, and other
provinces throughout China.
As a recently-retired DEA Special Agent, I spent over 31
years, helping to dismantle drug, weapons, and wildlife
trafficking, and terrorist organizations, by following their
money, then finding ways to cut off their wealth and their
financial support mechanisms.
In the early 1990s, with the FBI, Customs, the IRS, the
intelligence community, and the Departments of Defense, State
and Treasury, the DEA was the tip of the spear that led to the
successful dismantling of the Medellin Cartel (Pablo Escobar)
and the Cali Cartel. Not long after Escobar's accountants and
lawyers were identified and removed, he met his fate in late
1993. In 1995, then-President Clinton signed the first-ever
narcotic sanctioning against the Cali Cartel under the
International Emergency Economic Powers Act that helped
dismantle the once-powerful cartel. The DEA had identified the
cartel's entire front companies based on a series of financial
raids conducted by the Colombian National Police years prior.
By identifying and attacking the financial underpinnings of
these criminal organizations, the DEA and its interagency
partners were able to move upstream, to the command and
control, and subsequently, to the kingpins and bring them to
justice.
Throughout the 1990s and 2000s, the DEA seized billions of
dollars of drug cash off the streets, thereby disrupting the
drug cartels' funding streams necessary to produce more drugs,
acquire more weapons, and to corrupt the rule of law.
I ask you, Congress, the President of United States, the
national security leaders, and the Secretaries of the Treasury,
State, and Defense Departments, to fully support the DEA with a
more-robust budget, resources, and the authority to lead the
whole U.S. Government and let DEA be that tip of the spear
again. Unleash the DEA, let the men and women of the DEA do its
job, go after the cartels, the global Chinese money launderers,
the cartel facilitators, and their accountants, lawyers,
businessmen and businesswomen propping up and protecting their
wealth that allows them to corrupt the rule of law with their
profits.
If you want to mitigate this deadly epidemic and curtail
the poisonings and overdoses, give the DEA additional manpower
by deputizing thousands of State, local, and Federal law
enforcement officers and agents op-conned to the DEA field
offices. Increase HIDTA budgets throughout the United States in
order to identify online drug traffickers and coordinate
efforts to conduct nationwide takedowns of digital drug dealers
marketing and selling counterfeit fentanyl-laced pills and
other drugs, and charge them with attempted murder. Let the
prosecutors use the full force of the law so that law
enforcement can capture and dismantle those higher-level
sources of supply across the supply chain and throughout the
United States and abroad.
After the September 11, 2001, terrorist attacks, the
National Counter Terrorism Center was created to coordinate
intelligence, military, and law enforcement agencies in one
facility to help track and destroy terrorist organizations, and
prevent further attacks, with billions of dollars appropriated
to fund and operate this center.
Since 1992, the DEA has operated a similar entity called
the Special Operations Division (SOD), an interagency center
with over 35 law enforcement, intelligence, and military
agencies, designed to identify the command and control of the
most-powerful and violent drug trafficking and transnational
criminal organizations. The SOD successfully coordinated the
arrests of drug cartel leaders like Chap Guzman, helped arrest
and remove key Taliban leaders off the battlefield, and
arrested key Hezbollah operators and financiers, and even a
Russian arms dealer.
Fuel the SOD with a larger budget and fully staff it with
key interagency executives, agents, and analysts, to allow the
Center to fully maximize its capabilities. Streamline a multi-
pronged strategy in the SOD by integrating a team of criminal
investigators, intelligence, cyber, and data analysts from the
FBI, the DEA, the HSI, the IRS, Treasury, and the U.S. Postal
Inspections Service, to establish a Financial Investigation
Center that will identify the key financiers, the nodes of the
entire illicit narcotics supply chain.
We don't need to reinvent the wheel; we just need to re-
align and tune up our capabilities and provide the necessary
resources and leadership to unleash the DEA and its interagency
partners to dramatically reduce and eliminate this crisis once
and for all. Thank you.
[The prepared statement of Mr. Im can be found on page 82
of the appendix.]
Chairman Luetkemeyer. Thank you, Mr. Im.
Professor Realuyo, you are now recognized for 5 minutes.
Thank you.
STATEMENT OF CELINA B. REALUYO, ADJUNCT PROFESSOR, THE GEORGE
WASHINGTON UNIVERSITY ELLIOTT SCHOOL OF INTERNATIONAL AFFAIRS
Ms. Realuyo. Good morning. Thank you, Chairman Luetkemeyer,
Ranking Member Beatty, and members of the subcommittee for this
opportunity to speak today on China and the Mexican cartels'
asymmetrical war through the illicit fentanyl tree. Exactly 3
years ago, I had the privilege of appearing before this
committee to discuss countering the threat from the Mexican
cartels and the opioid epidemic. Unfortunately, this epidemic
has only worsened since then.
During the pandemic, fentanyl use and trafficking exploded,
and fentanyl has become the leading cause of death of Americans
ages 18 to 49. The fentanyl crisis is not only a problem for
the U.S., Canada, and Mexico, but has increasingly been
discovered in Brazil, Colombia, Costa Rica, Guatemala, and
Panama.
Mexico, Sinaloa and Jalisco cartels, and their Chinese
suppliers and money runners have capitalized on the fentanyl
crisis to empower and enrich themselves. They are waging an
asymmetrical war against the U.S. through this drug trade that
is poisoning witting and unwitting Americans and exhausting
vast public and private sector resources in prevention,
treatment, and supply interdiction efforts. In classical
asymmetrical warfare, the resources of adversaries are uneven,
and those adversaries will attempt to exploit each other's
relative weaknesses to gain advantage. In this case, the
Mexican cartels and China are exploiting America's insatiable
appetite for illicit drugs and our porous borders. China is the
principal source of illicit fentanyl and fentanyl-related
compounds that are manufactured and then shipped in bulk to the
U.S. and Mexico.
When drug consumption here in the U.S. shifted from cocaine
and heroin to synthetics, and the U.S. Postal Service clamped
down on direct mail fentanyl shipments from China to the U.S.,
the Mexican cartels filled that vacuum and became primary
traffickers of fentanyl, and fentanyl-related drugs that are
easier to produce. They are more lucrative, and they are much
more addictive. This China-Mexico connection grew when Chinese
traffickers increased fentanyl precursor sales to the Mexican
cartels.
And in Mexico, we see that Chinese nationals, like the
Zheng cartel, have become more involved in fentanyl operations,
leveraging their extensive relationships with suppliers to
support Mexican drug production. In 2018, President Trump urged
President Xi of China to stop fueling the opioid crisis, and
managed to get the Chinese to designate all variants of
fentanyl as controlled substances. Unfortunately, they have not
been enforcing these controls, and are actually encouraging--as
the chairman noted--and incentivizing this industry. Nothing
happens in China without the precise knowledge, permission, and
sanction of the Communist Chinese Party.
Last year, we actually saw the PRC punish the United States
by suspending counter-narcotics operations when former Speaker
Pelosi went to Taiwan unexpectedly. Mexican cartels are
increasingly turning to Chinese money launderers because they
are much more efficient. They are more inexpensive, and they
are reliable, and we also know that the Chinese are desperately
in need of hard U.S. dollars. The Chinese serve as key enablers
of the Mexican drug trafficking organizations. They profit at
the front end of the business cycle, purveying fentanyl and
precursor chemicals, and at the back end by laundering the
millions of dollars generated by the Mexican cartels in the
United States.
Unfortunately, the U.S. is currently facing formidable
challenges in combating the fentanyl crisis, as counter-
narcotics cooperation with the PRC and Mexico is at a low
point. This is a consequence of broader deteriorating
relationships between our President, Chinese President Xi, and
Mexican President Andres Manuel Lopez Obrador, who do not
consider the fentanyl crisis to be their problem.
But let's consider some measures to counter the illicit
fentanyl crisis as an asymmetrical war that is being waged by
the Chinese and Mexican cartels. First, decrease drug demand in
the United States by educating Americans about the opioid
epidemic and the deadly dangers from fentanyl-laced counterfeit
drugs.
Second, reinforce U.S. border security to detect,
interdict, and prevent the flow of drugs, including fentanyl,
into the United States.
Third, designate the Sinaloa and Jalisco cartels as foreign
terrorist organizations. This would allow U.S. Government
agencies to more-aggressively pursue the cartels, their assets,
and their collaborators under the Material Support to
Terrorists statute. We did this 20 years ago with the Colombian
FARC rebels, and it was quite effective.
Fourth, hold China accountable for the export of fentanyl
and precursor chemicals through punitive measures, including
sanctions, tariffs, and perhaps threatening to withdraw Most
Favored Nation status.
Fifth, revitalize U.S.-Mexican security cooperation through
the U.S.-Mexico Bicentennial Framework for Security, Public
Health, and Safe Communities, to protect our people, pursue
criminal networks, and disrupt those illicit financiers.
And lastly, and of particular interest to this committee,
detect, dismantle and prosecute Mexican and Chinese money
laundering networks associated with the fentanyl crisis in the
U.S. and abroad.
Thank you for your time and attention. I look forward to
your questions.
[The prepared statement of Professor Realuyo can be found
on page 91 of the appendix.]
Chairman Luetkemeyer. Thank you, Professor Realuyo.
Mr. Grellner, you are up next for 5 minutes.
STATEMENT OF JASON GRELLNER, VICE PRESIDENT, HEALTHCARE, EVOLV
TECHNOLOGY
Mr. Grellner. Thank you. Chairman Luetkemeyer, Ranking
Member Beatty, and esteemed members of the subcommittee. Thank
you all for allowing me to testify today regarding the
poisoning of nearly 1 million Americans.
Opioids and now synthetic opioid poisoning is the leading
cause of accidental death in the United States, overtaking car
accidents nearly a decade ago, but this is no accident. Drug
trafficking organizations know exactly what the impact on
individuals and communities will be. And the overall trend has
the hallmarks of a planned attack on the United States by
terrorist organizations, narco-states, and world powers bent on
destabilizing and weakening the United States.
Drug abuse in the United States has always had an element
of one person's greed, preying on another person's illness,
with yet another person getting rich off of the ill-gotten
gains. This attack will not be stopped by merely attempting to
treat the sick in our own country or by fighting this threat
from inside our own borders. This overwhelming international
push of deadly poison into our communities is an immediate
threat to our national security and deserves an immediate
commensurate response.
It is anticipated that statistics may show another 140,000
Americans died from fentanyl or one of its many synthetic
derivatives in 2022. That will be on top of the 107,000
Americans who were killed in 2021. Synthetic fentanyl, as you
have heard, is largely manufactured in Mexico from ingredients
sourced in China. Chinese companies have been supplying the
United States with cheap synthetic drugs across the internet
for the past 20 years. Illicit manufacturers circumvent DEA and
FDA regulations by changing the chemical makeup just enough to
offer a slightly different experience to the user while getting
around Federal law.
It should come as no surprise that when China cracked down
on synthetic fentanyl distribution, it made no difference in
worldwide synthetic opioid sales. Chinese organized crime,
under the watchful eye of the CCP, began selling the components
instead of the final product. Both the Sinaloa and Jalisco new
generation cartels immediately began manufacturing the poison
in multi-kilo batches within days.
Cartels easily buy kilos of precursor chemicals from China-
linked middlemen and now operate with impunity at western
Mexican ports to ensure quick delivery. A kilo of Chinese
precursors may cost as little as $200 but can be sold in New
York for $3 to $5 for only 2 milligrams. The profit on that
kilo can reach $1 million. That money is used to pay dealers,
mules, stash houses, security, bribes, money laundering, and to
buy power and influence. The recent conviction of Genaro Garcia
Luna, Mexico's former public safety secretary, shows the height
of influence that cartels wield in Mexico.
The question that always comes to my mind when a Mexican
official is indicted in the U.S. is, why? If there was enough
evidence to charge and convict in the U.S., why is the Mexican
government not engaged in seeking justice on their own? Mexico
is a narco-state open for business with any foreign power or
terrorist organization willing to pay for their political
influence and the cost of dealing with U.S. border controls.
With an estimated $60-billion-a year illicit drug industry
thriving on our southern border, no single solution will end
this problem, which has been brewing since the 1800s.
In February of this year, 128,777 individuals were caught
crossing the U.S.-Mexican border. Of those, 16 were on the FBI
terrorist watchlist: 16 watch-listed individuals in 1 month,
and those were just the people who were caught. Mexico and
China do not have the best interests of the United States or
its citizens in mind. Let's put this in perspective: If a
foreign country had infiltrated the United States with
terrorist agents, released ricin or anthrax that killed over
100,000 Americans in a single year, what would our response be?
There is no single silver-bullet solution to this problem.
Just as in any confrontation, the winner is the entity that
attacks from as many angles as possible. The Federal policy has
trended towards addressing the demand side of the equation over
the past decade as the epidemic has skyrocketed. The data and
empirical evidence clearly show that this approach is not
working, and we will never rehabilitate our way out of this,
just as with COVID. We didn't just wait for people to get sick
and treat the ill; we pushed for a vaccine to prevent the virus
from taking hold.
We need strong prevention efforts in our schools and
community organizations. We need renewed commitment to funding
State, local, and Federal task forces which are the most-potent
tools we have in addressing drug trafficking networks. State
and Federal funding for task forces has declined in the recent
years, just as drug trafficking overdoses have skyrocketed.
In closing, I want to thank the committee for examining
this important topic. It is killing hundreds of individuals
daily across the nation. We must not accept another child dying
in a school bathroom or a loved one on the street or in the
home from drug poisoning. We must do more, and the time to act
was yesterday. Thank you.
[The prepared statement of Mr. Grellner can be found on
page 79 of the appendix.]
Chairman Luetkemeyer. Thank you, Mr. Grellner.
And Ms. Peters, you are now recognized for 5 minutes.
STATEMENT OF GRETCHEN PETERS, EXECUTIVE DIRECTOR, ALLIANCE TO
COUNTER CRIME ONLINE (ACCO)
Ms. Peters. Thank you, Chairman Luetkemeyer, Ranking Member
Beatty, and distinguished members of the subcommittee. This is
my 4th time since 2019 testifying in Congress about the deadly
fentanyl crisis, and how social media drives it, and I have to
say I am angry about and tired of coming here to discuss this.
Why are we still sitting here talking while so many Americans,
and especially so many young Americans, are dying?
Since my first testimony in 2019, our country has lost
hundreds of thousands of people to fentanyl. Among them,
pictured here, we have lost Alexander Neville, Jessica Filson,
Daniel Puerta,--whose father is sitting here today with us--
Giovanni Perkins, Private Tyler Duncan, Devin Norring, and so
many more that I submitted a memorial gallery along with my
testimony. It is almost 50 pages long, and it represents a
fraction of the number of people who have died.
I am the co-founder and executive director of the Alliance
to Counter Crime Online. We are a team of researchers, NGOs,
and citizen investigators who have come together to fight the
deadly surge and serious crime activity that is taking place on
surface web platforms. Our alliance has supported our members,
tech whistleblowers, and victims of online crime to file civil
complaints against tech platforms, and we do a lot of research
on what is happening in various types of organized crime. Jaime
Puerta, for example, is part of a group of families that are
suing Snapchat, where his son and other children connected with
dealers to purchase the pills that killed him.
I applaud you for the fact that you are aiming to target
Chinese companies that are facilitating the spread of deadly
fentanyl analogues in this country. But I am here to ask you
today, why aren't you also targeting the American social media
companies whose algorithms spread these deadly pills that are
killing so many of our children? Brick-and-mortar businesses
operate under a duty of care to keep illegal activity off their
premises. If a nightclub becomes a haven for drug dealing, it
can face fines and even closures. Yet, social media platforms,
like Instagram and Snapchat, which are used by a vast majority
of American teens, are riddled with drug content.
Slide 2, which I have submitted for the record, contains
typical screenshots that show drug dealers operating on
Snapchat and Instagram. The ones pictured here have account
names like buy--oxycontinchicago, plac.eyourorder, pictures of
pills and powder, and emojis that are widely used to represent
drug sales. In other words, these accounts are out in the open,
easy to find, and unambiguous about their purpose, but because
of Section 230 of the Communications Act, this content is
considered protected free speech.
Distinguished committee members, this content does not
represent somebody expressing their protected right to free
speech. It represents people committing felonies. And I want to
know how many more young Americans have to be sacrificed on the
altar of free speech before you, our elected members, can
figure out a way to define the difference between protected
speech and criminal conduct, which is what we are seeing here.
I am submitting for the record a briefing where the
Department of Justice asked our Alliance to Counter Crime
Online to explain how we think our laws can be adjusted to
govern cyberspace better and to address organized crime
activity on the surface web. I am also submitting a briefing
paper explaining the toxic mix of circumstances driving the
unprecedented number of drug-related deaths in our country. You
asked us to follow the money, and this is another area where we
believe that social media platforms ought to be regulated
differently from brick-and-mortar financial institutions.
[Slide]
A number of big platforms where fentanyl and other
counterfeit medicines are moving have built-in payment
processing systems that function much like PayPal or Western
Union. These payment systems are usually separately-registered
money service businesses that are wholly owned by the parent
company. Three types of criminal activity are happening through
these payment platforms. They include the retail sales, like
what you see here--next slide, please--the wholesale sale of
drugs from producers and chemical companies like pictured here,
mainly in China, selling precursors to wholesalers here in the
United States.
From the research we have done at ACCO, it is apparent that
most platforms are technically compliant with Know Your
Customer (KYC) regulations. Yet, the regulations don't
anticipate where the parent company is the owner of a money
services provider and a massive data aggregator, or individuals
that aggregate data on individuals, for example, Meta, owning
both Meta Pay and Facebook Marketplace, or Tencent owning the
payment platform that is connected to WeChat. In other words,
the moderators tracking payments can't see if drug content and
moderators watching the content have no way to alert the
payment moderators that there is a drug transaction happening.
What this means is that the tech companies are actually making
millions of dollars off of the drug trade in this country.
We are asking you today to commission a congressional
investigation and to subpoena tech companies, including Meta
and Tencent, to investigate how they moderate payments and how
much they earn off of illegal drug sales.
My final point, I also ask you to investigate whether the
scale of drug activity on social media platforms, specifically
Snapchat, Facebook, Instagram, and WeChat, rises to the level
of RICO violations. Thank you very much.
[The prepared statement of Ms. Peters can be found on page
85 of the appendix.]
Chairman Luetkemeyer. Thank you, Ms. Peters.
We have been joined by the chairman and the ranking member
of the Full Committee. The chairman has waived his opening
statement, so he will be asking questions later. But the
ranking member, Ms. Waters from California, has requested a
minute, so she is recognized at this point for 1 minute.
Ms. Waters. Thank you very much, Mr. Luetkemeyer. I do have
a question that I would like to raise at this point. Let me
first state--okay. Then, we will do the opening statement.
The trafficking of fentanyl and other drugs poses a
significant public problem, and concern all across the United
States. In Los Angeles County alone, the number of deaths tied
to fentanyl overdoses has skyrocketed, with more than 13 times
as many deaths in 2021 as there were 5 years prior.
Unfortunately, Black and Brown communities are all too familiar
with the effects of drug epidemics on their communities. And I
hope that the same attention being paid to communities harmed
by fentanyl will be paid to the communities hit by other drug
epidemics, including crack cocaine.
I also hope that this committee rejects efforts by extreme
Republicans in Congress bent on slashing the budgets of the
Treasury Department agencies, like FinCEN and OFAC, which are
tasked with countering the trafficking of illicit drugs like
fentanyl. Thank you, and I yield back the balance of my time.
Chairman Luetkemeyer. Thank you. With that, I want to thank
the witnesses this morning for your compelling testimony, and
we will now enter into the questioning period. And I will first
recognize myself for 5 minutes.
The purpose of this subcommittee is to look at illicit
financing and money laundering going on around the world, and
obviously, this morning's hearing is regarding the fentanyl
scourge that is affecting our country and our people and our
citizens. The question is, how can we minimize that? How can we
stop the financial flow to damage this industry?
Mr. Grellner, I would like to start with you, because you
start at the ground level with the local folks. What do you see
as the way that the money is trafficked from the local dealer
on the corner through to the cartels?
Mr. Grellner. Most often, it is trafficked in large
bundles, headed south towards the southwest border, so each of
the cartels owns and operates at our southwest border
crossings. And the major amount of violence coming out of
Mexico is fights by the cartels over the control of those ports
of entry into the United States, the flow of drugs and illegal
immigration going north, and the flow of guns and money going
south.
With the advent of Chinese money launderers, however, they
are able to orchestrate the movement of money into the hands of
Chinese oligarchs, who can then use those U.S. greenbacks to
purchase land in the United States, real estate. They can place
individuals into our higher-learning centers and pay cash for
that in U.S. greenbacks that they cannot get in China. They can
do that at a cost savings to the Mexican drug cartels, who were
at one time paying anywhere from 15 to 20 percent on the dollar
to Colombian money launderers, and can now pay 1 to 2 percent
to the Chinese.
Chairman Luetkemeyer. Thank you, Mr. Grellner. One of the
things that we have seen yesterday or the day before in the
Washington Times--I believe it is here--was an article about
how border security is national security. And there is a
comment made in there that, unfortunately, Mr. Lopez Obrador,
who is the president of Mexico, has ceded an estimated 35 to 45
percent of Mexican territory to cartel sovereignty. And rather
than trying to work with us here in the United States, he is
claiming that fentanyl is not produced in Mexico.
My question is, we see that the border is porous, and the
drugs are coming across, so how do we stop this flow of money
going around to pay for all of this?
I want to ask Professor Realuyo first, how do you affect
the flow of this? You had a couple of comments about this, and
then comment on ways to deter this, for instance, like seizing
assets, or sanctions. Are these some tools in our toolbox as a
Congress that we need to be using? How would you see that
working out?
Ms. Realuyo. That is a great question. I was just in Mexico
last week. I head to Guatemala on Monday, where, by the way,
they have just done the first big illicit fentanyl bust,
including the Mexican cartels, thanks to our colleagues at the
DEA, so it's a little bit of a triumph there. In Mexico, we
were doing very well in the past couple of years following the
money. I, personally, have trained several hundred analysts as
well as in law enforcement and in the military, trying to
follow and use what we call actionable financial intelligence.
And more importantly, the real problem, and I hate to say
it, is the lack of political will by our counterparts at the
highest levels of government in Mexico. I have been working in
Mexico for 10 years and, more importantly, going fairly
regularly when we can demonstrate that the problem is theirs as
well as ours, but, unfortunately, we have not convinced
President Lopez Obrador that this is the case. Two weeks ago,
he blamed us for the fentanyl crisis, and just a few days ago,
he blamed our parenting as the cause of the consumption. We
recognize that we have to reduce demand, but the supply is
definitely coming from them.
What is interesting is that we are seeing now, in terms of
new methods, the start of the use of cryptocurrencies,
particularly by the Jalisco cartel. They are paying young
Mexicans to open virtual wallets that are then used to upload
the dollars on the U.S. site and then download in pesos, which
totally avoids U.S.-dollar controls.
Chairman Luetkemeyer. Thank you for that. Mr. Cassara, I
would like your comments on that. You specialize in financial
crime, illicit finance. Tell us what we can do. Is the seizure
of asset a way to deter folks? Or is that just going to shift
things around the world? How do we disrupt this financial flow?
Mr. Cassara. It is an excellent question, and something
that many of us have been struggling with for years. If you
look at what I call the metrics that matter when it comes to
money laundering enforcement, as far as arrests, successful
prosecutions, convictions, and monies, assets that are actually
forfeited to the government, as a colleague of mine, Raymond
Baker, head of global financial security said, we are a decimal
point away from total failure. If you compare what we are
actually enforcing against the magnitude of the problem, it is
very sad. There are--
Chairman Luetkemeyer. My time is up, and I am going to set
a good example here, but thank you for that. I think that our
challenge as a committee is to see where we can most
effectively stop this flow of funds.
With that, I will yield to the ranking member of the
subcommittee, Mrs. Beatty, for 5 minutes.
Mrs. Beatty. Thank you, Mr. Chairman, and thank you to the
witnesses. I am going to try to get through three or four
questions quickly, so I may ask you for abbreviated responses.
First, starting with you, Ms. Peters, can you clarify for us
the primary methods by which drugs, particularly illicit
fentanyl, are trafficked into this country, especially more
surprising methods that don't get enough attention? You kind of
highlighted it a little bit with your presentation. Is there
any one thing you would ask us to take a look at?
Ms. Peters. I would ask you to take a look at--as I said in
my testimony--working with the House Energy and Commerce
Committee and your partners in the Senate, at reforming Section
230 of the Communications Act, to remove the liability shield
that the tech platforms currently enjoy for posting illicit
content, even if they know it is there, and even if they know
it is causing harm. This is basically a huge subsidy to the
tech industry and a disincentive for them to remove this
dangerous content because they can't be prosecuted. That would
be the number-one thing I would say to protect people who are
seeing this content everywhere online.
Mrs. Beatty. Thank you. Mr. Grellner, you also mentioned
that it was by no accident, and I like that reference to when
you did car accidents. We also know if you look at the same age
group of 18 to 49 and it was 100,000 deaths, it is only 58,000
with COVID-19. If we go back to the Vietnam War, same age
group, 53,000. Can you explain this phenomenon and what lessons
we can learn to identify emerging drug use in the future to
protect our communities? Give us one thing we can do with these
alarming numbers that aren't, in your words, by accident?
Mr. Grellner. Thank you. I think I was asked a question the
other day that even caught me off guard. The question was, why
are they selling drugs to us to kill us? Because they want to
kill us. DEA Laboratories just came out this week with
information that 48 States have now seen fentanyl laced with a
non-reactive agent, a tranquilizer used in veterinary sciences
that will not react to naloxone, which means that if you
overdose from this byproduct, we can't bring you back with a
nasal naloxone. It won't work, because we are also suppressing
your breathing by using this veterinary tranquilizer. There is
only one reason that they are selling this poison: It is to
destabilize the United States and to kill Americans.
I worked back in the 1980s with Project Colombia, and
Project Nicaragua, when cocaine was coming into the United
States as a party drug. I worked on 1,265 meth labs, when meth
lab components were all over the United States. It was about
getting high, having a good time, and partying. This is about
killing people, and the sooner we understand that and realize
that, and fund the DEA and local and State task forces to go
after it, the better off we will be.
Mrs. Beatty. Thank you. Mr. Cassara, I have just had a
chance to read one of the chapters of your book that deals with
fentanyl and trafficking. A lot of people are putting a lot of
emphasis on the southern border as the primary point of
fentanyl trafficking. We hear that a lot. Some of my reading
suggests that is inaccurate, and it ignores the fact that 90
percent of fentanyl seizures occur at legal crossings. We have
also heard about how it goes through the mail and PayPal. Just
in my airport, and we are landlocked in Ohio, there was enough
to kill 171,000 people in my district, when I flew to the
district this week.
What would be the number-one thing, Mr. Cassara and Mr. Im,
that this committee should do? As experts in this field, give
us one thing?
Mr. Cassara. I don't have access to tactical intelligence
like I once did, so I am not as current on the numbers as, for
example, my colleague, Don, can probably give you a much better
feel for that. If I could suggest one thing that our government
should do?
Mrs. Beatty. Yes.
Mr. Cassara. Control the border.
Mrs. Beatty. Mr. Im?
Mr. Im. Thank you for the question, Ranking Member Beatty.
The best way to effectively tackle this issue, since we are
here in the Financial Services Committee on the topic of,
``follow the money,'' is to use money as leverage, use it as a
weapon and a tool. That is what the DEA has done since the DEA
was founded. And the way to do that is to strangle their
ability to generate those funds. At the same time, in order to
convince those governments, use trade as--
Mrs. Beatty. I'm sorry. My time is up, but thank you for
making it germane to the committee that it is about the money
and not necessarily other things we are hearing. Thank you, Mr.
Chairman.
Chairman Luetkemeyer. Thank you. With that, we recognize
the Chair of the Full Committee, Mr. McHenry from North
Carolina, for 5 minutes.
Chairman McHenry. Thank you, Chairman Luetkemeyer, and
thank you for holding today's hearing. I think this is very
important. I think we just can't lose sight of the fact that
there are too many families who have lost loved ones as a
result of fentanyl poisoning, and this is very, very helpful.
I reached out to sheriffs in my district to get a sense of
what is happening in western North Carolina on this very issue
of fentanyl and what their deputies are seeing as they are out
in the communities. And I got a response from one of my
sheriffs in Iredell County, Darren Campbell. He said that since
the beginning of this year, his deputies have saved the lives
of 18 people using Narcan to counter the effects of fentanyl-
laced narcotics. Fentanyl-laced narcotics--they didn't think
that is what they were getting, and you shook your head yes, I
see. So along those lines, I have a letter for the record, Mr.
Chairman. Without objection, I would like to--
Chairman Luetkemeyer. Without objection, it is so ordered.
Chairman McHenry. But this is a troubling and unfortunate
trend. And this hearing today is about following the money and
the impact we can have on cutting off the flow of money because
that is the key ingredient that is necessary for the drug trade
to actually flourish.
Mr. Cassara, the criminals are pushing fentanyl. We focus
on what we see in the immediate, not who is providing it, what
is on the back side of this thing, and the international drug
trade. In your book--I am not here to show your book, but
apparently I am--you note that Federal law enforcement tends to
focus on participants and the product rather than the money.
So, how do we incentivize following the flow of money?
Mr. Cassara. Once again, an excellent question. The
criminals are motivated by profits, by proceeds of crime, not
the criminal activity themselves, not the narcotics, not the
product, but the proceeds of crime. We have talked about
following the money for years, but we have never really
actually done it. I have talked before about having to change
the incentives for law enforcement to get them to refocus a
little bit.
I think there are two ways we need to do this. The first
way is to look at this kind of at the macro level, because
government agencies and departments need to kind of make this a
priority in their strategic plans. They all have strategic
plans, 5-year plans. Metrics need to be established, and
perhaps the budgets could be contingent on making or meeting
those metrics.
At the micro level, if you will, Don knows better than I do
today that law enforcement is statistics-driven. Statistics
drive everything from budgets to promotions. That is also why
some of these bureaucracies kind of play games with the numbers
and statistics. They go after the people and the products
instead of the money because, quite frankly, it generates
better statistics.
Mr. Im. Yes, it is easy.
Chairman McHenry. So, it is easier to go nab a person
rather than to go and get into the system of how this works? To
that system question, Professor Realuyo, how do we hold China
accountable for the flow of fentanyl?
Ms. Realuyo. We know in terms of taking a look at trade
movements, they have to get paid, and we haven't really
sanctioned them. And more importantly, on a broader piece,
naming, shaming, and the asset forfeiture piece have been the
most instrumental tools that we have had to go after the
Chinese, but, more importantly, we have to increase that
activity. We have been doing it very well against the
traditional Mexican cartels and the Colombian mafias that have
been pushing cocaine for years.
This is an area where we need to also--answering your
question from before--make the financial crime bear the same
weight and penalties as if you were trafficking a person or
they were looked upon as white collar, right? Financial crime
has always been looked at as there is no victim. All of us are
victims, and it is the oxygen that allows these armed groups to
flourish, and they are killing our people.
Chairman McHenry. In our sanctions regime, we are the
power. This committee is the power behind our sanctions regime
here in the United States, and we have a traditional role in
sanctions. We name names here in the United States, we have due
process for those who get on those lists, and we hold them
accountable, and that is really the key part and parcel of our
regime, to actually be explicit about whom we are holding
accountable. But thank you for that encouragement. That tells
us that we have work that we need to do as a Congress.
Thank you, Mr. Chairman. I yield back.
Chairman Luetkemeyer. Thank you. The ranking member of the
Full Committee, the gentlelady from California, Ms. Waters, is
now recognized for 5 minutes.
Ms. Waters. Thank you very much, Mr. Chairman. Ms. Peters,
I would like to thank you for your work at the Center for
Illicit Networks and Organized Crime (CINTOC). I do believe
that when citizens take up issues to work on, the very
important issues that are undermining our democracy,
undermining our efforts to be safe, that we really should
support them, and you can't do this work without money. Do you
need funds?
Ms. Peters. I can tell you that our organization functions
on less money annually than a company like Facebook spends
lobbying Congress every single week. So, our organizations have
almost no money. My friend, Jaime Puerta--who is here--and his
organization, Victims of Illicit Drugs (V.O.I.D.) which is run
by parents who have lost kids to the fentanyl crisis, have
reached out to more than 40,000 American kids on their own
dime. There is no government funding for this right now.
We would like to see more funding for education for kids
and also for parents, so they understand this toxic mix of
misinformation that is out there. A lot of kids were buying
pills online. They are not regular drug users. They actually
know that street drugs are dangerous. They think they are
buying a prescription Vicodin or Xanax, as happened with Daniel
Puerta. He thought he was buying a pill to kind of relax him at
the beginning of the pandemic, when he was trapped in his room
and feeling sad. We hear that story over and over and over from
families. They didn't ever hear the word, ``fentanyl,'' until
the EMTs arrived to try to revive their dead child.
There is a toxic mix of disinformation going on. Kids think
they are getting safe pills. Social media platforms are teeming
with drug content, and they are not required to remove it or
restrict it or put up warnings about it. And parents think that
the poisoning or overdose crisis won't happen to them because
their kids aren't drug users. We really need to work on this
information. But also, where this committee can help, is to
really investigate the payments that are coming through the
tech platforms that the kids are using to buy these drugs. We
have seen a great reduction in street drug markets, the drug
commerce at the retail level, and also at the wholesale level
has really moved online, just like a lot of regular commerce.
Thank you.
Ms. Waters. Thank you very much. When you talk about the
kind of work that you are doing with young people, the kind of
work that families are doing who have lost kids, I am
interested. And also, in addition to what you are advising us
right now that should be taken seriously, what else could we be
doing? I am interested in what you may think about, or maybe
you have already thought about it, in terms of ads and other
kinds of ways that you could try and educate young people and
try and influence them, and tell them the pitfalls of getting
involved with drugs and that it kills, all of that. What
worries me, and even though you may be approaching this in a
little bit different way, is we see that $8 billion was
diverted, including $2.5 billion from the Department of Defense
(DoD) for the Counterdrug Program, and $600 million from the
Treasury Department for counter-trafficking, which includes
sanctions support for law enforcement.
So we have money that we are spending, but you keep coming
back, like you said, and I don't blame you. You are tired. You
want to see some results, and I want to see some of this money
spent to help out in ways that maybe you have thought about,
but certainly, you have not solicited money. You have not said
that government, we can't do this without you. You are doing
it. But wouldn't some of this money help you and these parents
to do some of the education that these children need to have
outside of what they may hear about?
Ms. Peters. Ranking Member Waters, yes. Not only do
organizations like ours need money, but all of the panelists
have described different agencies of government that--we need
to be throwing the kitchen sink at this problem.
When I first testified about this, we were losing 60,000
Americans a year. This last year, the official numbers are over
108,000. It has nearly doubled in just 4 years. These are
staggering numbers of people who are dying every single year,
and there is not one single solution or silver bullet. There
needs to be public education, extensive public education and
prevention programs, both for kids and for street youth, and
for people who already have addiction issues. There need to be
healthcare interventions to try to reach those people who
already are struggling with substance abuse disorder. We need a
lot more money as, Don Im and John Cassara said, for the DEA. I
believe that our DoD also--
Chairman Luetkemeyer. Ms. Peters, your time has expired.
Ms. Waters. Thank you very much. The chairman has been very
generous, and thank you, sir. I yield back.
Chairman Luetkemeyer. Thank you, Ranking Member Waters.
With that, we will go to the gentleman from Texas, Mr.
Williams, who is also the Chair of the House Small Business
Committee.
Mr. Williams of Texas. Thank you, Mr. Chairman, and I thank
all of you for being here today. I am from Texas, and I can
tell you firsthand that there is a crisis, as all of you know,
happening at our southern border. I have been down there quite
a bit. In February alone, Border Patrol encountered 154,000
illegal aliens. And so far, we have not even seen the
leadership that is needed from the Biden Administration to get
this situation under control, and a lot of you talked about
that today.
I am extremely concerned that as our border agents continue
to be overwhelmed by this rush of migrants, it is making it
easier for drug traffickers to slip through the cracks and
bring dangerous fentanyl into our country. I recently asked the
Tarrant County Sheriff's Department at Fort Worth, in my
district, how they had been impacted by fentanyl pouring across
the border. They told me that in 2022, their office seized $35
million worth of drugs, which was 1,000 percent more than the
$3 million worth that was seized in 2020, further proving that
with weakened border policies and a lack of resources for
patrol agents, more lethal counterfeit pills laced with
fentanyl will flood our community.
Mr. Grellner, with your 30 years of narcotic enforcement
experience, can you elaborate on how the crisis at the southern
border is impacting law enforcement efforts to prevent fentanyl
trafficking, and what types of policies are the most-burdensome
for State and local law enforcement agencies?
Mr. Grellner. Thank you, sir. Yes, the southwest border--
when the Full Committee Chair was speaking earlier, he talked
about fentanyl and everything it is: fentanyl and
methamphetamine; fentanyl and cocaine; fentanyl and 2C
combinations. Fentanyl is in everything that is being brought
across the southwest border. It is not just opioids with
fentanyl in them or synthetic fentanyl. Fentanyl is being laced
into every drug brought across the southwest border and then
trafficked up through Texas, and through your State to
Oklahoma, Kansas City, and then across the United States to
Chicago, Atlanta, et cetera, infecting the entire United
States.
The biggest thing inhibiting the State officers and local
officers from going after the money is State laws and Federal
laws not being in lockstep, so that the State officers can't
impact bulk cash currency being trafficked across their own
States because they are not allowed to stop it, they are not
allowed to seize it, and they are not allowed to work with
their Federal partners from the DEA, the FBI, and other Federal
task forces in making sure that money gets seized before it
gets to where it needs to be.
Mr. Williams of Texas. Okay.
Mr. Grellner. So, working with our State partners, the
Federal Government, and seizure laws to make sure that we are
impacting bulk currency moving across United States. Thank you,
sir.
Mr. Williams of Texas. The opioid epidemic in the United
States has devastated individual families and communities
across the country. We see that today. Our prayers go out to
all of you. The majority of fentanyl is mass-produced in Mexico
by cartels using chemicals primarily imported from China. These
pills are being mixed with other counterfeit drugs and then
brought to the United States illegally, we have talked about
that, and sold to unaware buyers, leading to deadly overdoses.
To put this into context, from 1995 to 2019, drug-related
overdose deaths have killed more U.S. citizens than terrorist
attacks. There is direct evidence that the Chinese Communist
Party is aiding cartels in the production of drugs that
continue to take American lives. Yet, there has been little
action from the Biden Administration to combat this lethal
partnership between two hostile actors.
Mr. Im, could you explain the benefits of designating
cartels as terrorist organizations, and how should we hold the
Chinese accountable for aiding the synthetic opioid crisis?
Mr. Im. Thank you for the question. Yes, sanctions are an
effective tool. It is a primary tool that we have used for the
past 30-some years since we designated the Cali cartel.
Reaching down into their pockets, preventing their ability to
operate in the financial realm is the most-effective way to go
after these entities. However, in order to leverage these
countries to support law enforcement efforts, you have to use
the ability of the Treasury Department, the Commerce
Department, and the State Department on trade tools. Use trade
as a weapon, as an influencer to convince these countries to
start cracking down on what they are doing, what they are
exporting to the United States, and what they are pushing from
the southern border. We have to use all of our tools, the whole
of government is necessary; DEA can't do this alone. We are
here about following the money. Let's use money, and trade
tools are one of the most-effective tools to influence these
governments to follow that money.
Mr. Williams of Texas. Thank you. I have a little time
left. Let me just ask Mr. Cassara a question. Can you expand on
the scale of Chinese money laundering quickly, and how can the
U.S. better combat this illicit financial network?
Mr. Cassara. Thank you. In my statement, I said that if you
total up all of these specified unlawful activities, the
largest categories of transnational crime, if you look at the
numbers, it is about $2 trillion a year. If you look at the
magnitude of international money laundering yearly, around the
world, it is about $4 trillion. It is imprecise, but in my
estimation, China is responsible for about half of the money
laundered in the world. If you look at individual--
Mr. Williams of Texas. Thank you. My time is up. Thank you
very much.
Chairman Luetkemeyer. Thank you. The gentleman from North
Carolina, Mr. Nickel, is now recognized for 5 minutes.
Mr. Nickel. Thank you so much, Mr. Chairman. I am
encouraged by this hearing, and I think it is worth pointing
out that one of the areas I am very optimistic about in this
Congress is getting bipartisan legislation done for immigration
reform, and also include border security in that. So, I am
hopeful that this is something we can accomplish in a
bipartisan way.
For our witnesses, thank you so much for being here. The
focus on the southern border as the primary point of fentanyl
trafficking, I think, is a little off the mark because it
ignores that over 90 percent of fentanyl seizures occur at
legal crossing points or interior vehicle checkpoints, not on
migration routes or between checkpoints. While by no means
should we minimize the issue of immigration, misstating the
facts about what is being trafficked, where, and by whom,
undermines our ability to address the cartels' criminal
activities that have caused over 100,000 Americans to die in
the last year that we have that data. It also draws attention
away from the myriad of other methods that fentanyl, meth, and
other drugs are trafficked into the United States.
The place I have tried to start on this is just the size of
fentanyl, just the small amount of it, and that, for me, is an
important thing for the public to understand. Mr. Im, maybe you
have some help with just the sheer size and the nature of it? I
have this packet of sugar here that is 3.53 grams, and
according to the DEA, just 2 milligrams of fentanyl is enough
to cause an overdose. So, just this pack of sugar alone could
be enough for close to 1,700 overdose deaths, is my math. Is
that correct?
Mr. Im. That is correct.
Mr. Nickel. Do you have some way to quantify the size of
fentanyl as it comes in across the border? I think you hear the
debate. You hear about this, and my constituents certainly do.
And you think this is like traditional drugs, large amounts of
the material, but how do you talk about just the size of it?
Mr. Im. That is the challenge that we are facing right now.
That is why we can't get a better grip on this, and, again, it
is not really about the drugs itself. It is about the network
and the organizations that is actually producing it. It is
about the chemicals that are being supplied out of China and
India to the cartels. So, it does not matter how much, because
as you stated, just that small amount can kill that many
people. Then again, once it gets into the United States, they
can take that small amount, adulterate it with other chemicals,
and make more. And then, all of a sudden, you have an addicted
population who want more of these drugs, and they will keep
using it, and then they will ultimately end up perishing.
Mr. Nickel. Sure. Thank you. You mentioned India, and that
was sort of one of my follow-up questions. Certainly, China is
an area we need to be really concerned about, but are there
other source countries that we need to be concerned about now,
where perhaps we can take action to prevent their future or
deeper involvement in this deadly drug production?
Mr. Im. Yes, we do see now, or we have or DEA has in the
past, recently seen Chinese chemists moving into India to start
or contine expanding precursor chemical production.
Mr. Nickel. Thank you, and I yield back.
Chairman Luetkemeyer. The gentleman yields back. The
gentleman from Pennsylvania, Mr. Meuser, is recognized for for
5 minutes.
Mr. Meuser. Thank you very much, Mr. Chairman. Fentanyl is
illegally entering our country and killing over 100,000 of our
citizens, particularly our young citizens. The amount of
fentanyl seized since 2019 coming through Mexico has increased
by 500 percent just in the last few years. Customs and Border
Patrol estimates that it is the same level of increase that
fentanyl getting through is equivalent. So, Mexico has become a
narco-state, as sad as that is. Mexican cartels make as much as
$50 billion to $60 billion a year from drug trafficking. We
know the Mexican president does not take this crisis seriously.
The question is, do we? Does the Biden Administration and the
Department of Homeland Security?
I have a coroner in Schuylkill County, Pennsylvania, Doc
Moylan, who gave a quote: ``Our small county of 140,000 people
has been battered by fentanyl deaths. We are consistently
having close to or exceeding 100 deaths per year, and fentanyl
is the leader on the list, and if it is not the leading cause,
it is typically somewhere in the system, and it is devastating
our whole community. One thing that is overlooked is that the
parents are dying of these drug poisonings and grandparents are
being left to raise their grandchildren. Something must be
done. We are all border States.''
I am going to change my questioning around a little bit,
and, Mr. Cassara, I would like to start with you. If you were
the Secretary of Homeland Security, what would you do first?
Mr. Cassara. Two priorities. Number one, we talked about
controlling the border. The second priority is to emphasize
following the money. Take away assets; that will hurt the
criminal organizations more than anything else you could do.
Mr. Meuser. On a scale of 1 to 10, Mr. Im, how effectively
are we doing at securing the border, in your view, and
investigating the assets?
Mr. Im. On a scale of 1 to 10, it would be a 5 or a 4.
Mr. Meuser. Okay. Thank you. If you were the Secretary of
Homeland Security, what would you do to stop this situation or
slow it, mitigate it?
Mr. Im. Muster up the entire whole of government, find one
central authority, create an action plan, and start going after
all of these cartels, influencing these governments with trade,
because that is what is going to hold them to enforcing their
own laws, because it is all about money. Whether it is in
legitimate commerce, or illicit activities such as drug
trafficking, money laundering, or human trafficking, it is all
about the money.
Mr. Meuser. Okay. Professor Realuyo, same question to you,
if you were the Secretary of Homeland Security?
Ms. Realuyo. Most importantly, it is our human and
technological resources. We actually have the wherewithal, we
just don't have enough people, and this is a problem. And I
know that the U.S. has actually forward-deployed Homeland
Security agents. I was just in the Darien Forest, in the
jungle, and it's amazing work that our people are doing, but
there are just not enough HSI agents down there, and that is
actually where we are seeing what we call extra-continental.
This is where they are intercepting. They caught Iranians
recently, and Somalis. This is what is of concern to us. This
terror-crime nexus that I have written about for the last 15
years is a true national security threat.
So, we have to beef up resources, and then, more
importantly, we have to go after the money going down range. We
are looking at Homeland Security things, so look at what is
coming in, but we are still the number-one exporter. As John
and I have worked on, bulk cash smuggling continues because our
consumers continue to buy drugs with hard dollars. There are
all of these innovative new ways of moving money through
cyberspace, but hard cash is still--
Mr. Meuser. Do you think we can get the Mexican government
to cooperate with us, to work with us?
Ms. Realuyo. We have seen ways in the previous
Administration, how the threat of sanctions, or, more
importantly, tariffs--at that time, it was a little different,
because we were negotiating the renewal of NAFTA--were actually
ways that we tied aid, and carrots and sticks. And I think
using sanctions also against China could be a very innovative
way to hold both the Mexicans and the Chinese accountable
because their governments are acquiescing and allowing this to
take place.
Mr. Meuser. Thank you. Mr. Grellner, same question?
Mr. Grellner. Certainly. I think one of the big things is
getting the U.S. involved. It was striking to me this morning
when I walked in, the number of people who are here from the
media, not about a million dead Americans, but about whether or
not we are going to do something with TikTok.
Mr. Meuser. I noticed that, too.
Mr. Grellner. That is one of the biggest problems that we
have. People believe that those who are dying are just drug-
addled addicts lying on our streets, and they are not. They are
U.S. citizens.
Mr. Meuser. Ms. Peters, I only left you 9 seconds, but if
you wouldn't mind?
Ms. Peters. It is okay. I actually would agree with what
John Cassara said. I would also like to refer to a comment that
Chair McHenry made: We need to change the incentive structure,
and that is something over which this committee has some
control. I want to see agencies get more money if they can put
drug trafficking networks out of business, and they can take
their money away instead of giving promotions and increased
budgets for arrests and seizures.
Mr. Meuser. Thank you. I am out of time. I yield back, Mr.
Chairman.
Chairman Luetkemeyer. Thank you. Now, we recognize the
gentlewoman from Colorado, Ms. Pettersen.
Ms. Pettersen. Thank you, Mr. Chairman. I want to thank you
for leading this very important discussion, as well as the
ranking member. This is a topic that is very important to my
district in Colorado and also to me personally. Since I am new
and you all don't know my story, I have seen firsthand the
failed policies at the Federal level every step of the way,
from the beginning of the opioid crisis, where doctors were
provided incentives for overprescribing, to ultimately cutting
people off of their prescription drugs without access to the
treatment that they need, and then fentanyl starting to come
into our supply chain starting in 2014, hitting the coasts, and
then coming in to Colorado in 2016.
When I was just 6-years-old, my mom hurt her back. She went
to the doctor and was sent home with bottles upon bottles of
opioids, and that is where my childhood took a very different
turn. She became wildly addicted to these prescription drugs,
and later was cut off from her access to those prescription
drugs. And like so many people struggling with addiction, my
mom always said that the thing that she feared most was
withdrawal, not death. And she went to using, trying to fill
her need with the disease that she was struggling with, with
using heroin and, ultimately, fentanyl sort of coming into the
supply chain in 2016, where my mom thought she was getting
heroin and, unfortunately, that was laced with fentanyl, like
so many people have experienced today.
She started overdosing at a very high rate. That year, it
was 20 times the cost, every level of government trying to keep
my mom alive while being turned in and out of the ER without
anywhere to send her for treatment, begging for help. The State
of Colorado and the Federal Government spent over a million
dollars just keeping her alive in the ER while she was begging
for a place, with nowhere to go. As a State legislator, I took
that experience fighting to save my mom's life to change the
system in Colorado and increase access to the critical services
that these people need.
So when I think about how vulnerable we are as a country,
because you all have talked about the stigma that exists, the
barriers that we face, that they are just addicts and we don't
have to actually care about their deaths. The fact that the
media is here covering TikTok, instead of the thing that has
killed more people in the United States than all of the world
wars combined, I feel like I am screaming in an empty hall all
the time, trying to bring attention to this issue. So, I just
want to thank you for your work in focusing on this and I'm so
excited to be a part of this committee.
This time is going by way too quickly. But one of the
things that we have seen in Colorado is just a lack of access
to the dedicated treatment and support so that people actually
get the health care that they need. But also when we look at
the distribution--you mentioned the social media companies.
This is why kids are dying, not knowing that they are actually
taking fentanyl and dying from poisoning. We took the first
step in Colorado for recommendations from the attorney general,
but we need a national effort here. They should be held
accountable for knowingly distributing drugs across our
communities.
I also just want to recognize the parents in this room who
have lost their children to fentanyl overdoses. I can't imagine
your pain. I have a 3-year-old son, and when I think about him
growing up in the United States where he could make a bad
decision one day and be at risk of dying, it is terrifying as a
parent.
I guess one of the big barriers that we have in Colorado
that we identified is also that our State and local law
enforcement are not working together. In fact, our law
enforcement agencies at the local level don't even communicate
with each other. And a question that I have is, what do we need
to do to help support that interaction, get our State involved,
get our local law enforcement working in tandem so that we are
actually addressing the cartels and distribution at the State
level? And then, I think that we have talked in depth about
what we need to do at the Federal level around the DEA.
Mr. Grellner, can you talk about what we can do? Oh, no, I
am already out of time.
Mr. Grellner. I will just say quickly, thank you for your
thoughts, and say that I want you all to understand one thing:
fentanyl is not just one drug. There are over 2 dozen fentanyl
concoctions that the DEA has already listed as List I
chemicals. And, Mr. Chairman, you talked about it being 50 to
100 times stronger than morphine equivalents. Carfentanil is
1,000 times stronger, so when you talk about milligrams, we are
talking about micrograms.
Chairman Luetkemeyer. Thank you. And thank you for your
compelling story, Ms. Pettersen. I appreciate that.
The gentleman from Iowa, Mr. Nunn, is recognized for 5
minutes.
Mr. Nunn. Thank you, Mr. Chairman, and thank you to the
Members for being here today. And I particularly want to pay
tribute to those who are family members of the fallen in this
epidemic that has become the fentanyl crisis, not just in the
United States, but around the world. The trafficking of
fentanyl has had major consequences in my home State of Iowa,
particularly in the 3rd District. Even the august New York
Times has written about how bad fentanyl has gotten in the
small town of Osceola, just 30 minutes south of Des Moines, a
community of 5,000 people. This drug does not discriminate, and
it is harming people in all walks of life.
I have been to the southern border. I have worked to combat
human trafficking that transits Chinese-manufactured fentanyl
around the world through our ports of entry through the country
of Mexico and ends up in our communities. Like you, I have
spent time on ride-alongs with my law enforcement and, as a
former military member, flying operations along the southern
border. Every community, every county, every city in my State
is now a border community as a result of this.
The Iowa Department of Public Health reports that over the
last few years, they have seen a 34-percent increase in fatal
overdoses, with fentanyl implicated in 83 percent of those
Statewide. Among young Iowans, those 25 and under, drug
overdose deaths have increased by 120 percent in the last 24
months alone. We only expect these numbers to increase once new
data is available, and the longer that we allow China to be the
primary source of both fentanyl and the funding that operates
this machine, the more danger we are all put in, and while this
is a major problem, Congress needs to respond. So, I am
thankful that this committee is helping us to follow the money
on where this can best be directed.
Mr. Im, I would like to begin with you, as a special agent.
The USA Patriot Act, which was enacted after 9/11, included
Title III, The International Money Laundering Abatement and
Anti-Terrorist Financing Act of 2001. This title includes
requirements to improve the government's ability to detect,
prevent, and investigate money laundering. The Secretary, with
a range of options, can use this to target specific money
laundering operations, including what we are seeing here with
the distribution of fentanyl. These tools help take proper
action for the U.S. financial system to address these specific
threats.
I would like to ask you, sir, in your experience, is there
sufficient evidence that Mexican banks are allowing cartels to
set up accounts to hide and move the proceeds of fentanyl
trafficking? And do you believe the Secretary of the Treasury
should use the special measures provided in Section 311 to
impose information gathering, reporting, and recordkeeping
requirements on those financial institutions?
Mr. Im. Yes, absolutely. Not only Mexican cartels own bank
accounts, but also those businesses that are facilitating these
cartels, and the Chinese businessmen who are actually in Mexico
and throughout South-Central America, who are using these
accounts to leverage these parallel funds transfers. That is
continuing to fuel this entire crisis right now. Without the
money, they can't continue producing these drugs. We need to
cut the money off in the streets of the United States. And we
are not doing as good of a job as we used to do, using the
Patriot Act, using all the resources of the Treasury, to cut
off the ability for these financial institutions in Mexico,
China, and elsewhere. Whether a three-level sanction or an OFAC
sanction, that is going to be one of the most-effective ways of
strangling their ability to continue this crisis.
Mr. Nunn. Mr. Im, I could not agree more, and the fact that
we can have all the counter-drug programs here in the United
States, until we cut off the funding supply, where this is
coming from, we will continue to see the challenges. As one of
my favorite figures from history, Winston Churchill,
highlights, ``Those who fail to learn from their history are
doomed to repeat it.''
While fentanyl is new, there are clearly some lessons
learned from the past that we can bring forward. Would you be
able to share with us, just from your perspective, how the DEA
went after Pablo Escobar,and some of the other success stories?
There are things that we can use here in going after the
financing behind fentanyl, both in Mexico and coming from
China.
Mr. Im. Thank you for the question. That is a great
question. The DEA in South America, and specifically Colombia,
at the time had the full support of the ambassador, the State
Department, the intelligence community, and the military. They
let the DEA do their job. The Department of Justice allowed the
DEA to do their job and to go after these cartels one person at
a time. Every single person we were able to arrest, we were
able to use their information to convince them to cooperate to
get to the next level, and use that evidence to get to the
highest tentacles, and identify the accountants and the lawyers
who were propping them up, the entire organization.
The Cali cartel as well, we cut them off after we
identified their money flow streams from the United States to
Colombia. Once we identified their money facilitators, we cut
them off from the cartel members, and sanctioned the Cali
cartel front businesses, the entire businesses. They own the
so-called, ``CVS of Colombia.'' We cut that off after OFAC and
DEA helped sanction those companies. Now, they have no funds.
Chairman Luetkemeyer. The gentleman's time has expired.
Mr. Nunn. I yield back. Thank you, Mr. Chairman.
Chairman Luetkemeyer. The gentleman's time has expired.
With that, I recognize the gentleman from Illinois, Mr. Foster,
for 5 minutes.
Mr. Foster. Thank you, and I would like to yield the first
minute of my time to Representative Pettersen, who has a story
and a mission we should never forget.
Chairman Luetkemeyer. The gentlelady from Colorado is
recognized.
Ms. Pettersen. Thank you. Thank you, Representative Foster.
Just a last point about some of the frustration that I feel
every day being here in Washington is we have not had any
changes in our immigration laws. We have had increased asylum
seekers from the instability in Central America and people who
are coming to the border to flee violence. We know that most of
these drugs are coming through the ports. When we think about
what we are going to do to address this, it is actually looking
at the data. We know that it is being distributed from Mexico.
We have heard a lot about controlling the border. I guess, I
get frustrated with the rhetoric as if somehow this is
happening to the United States because of a change of
immigration policy when, in fact, this is happening across the
globe, and in 2014, it started seeping into our system, and
then in 2016, into Colorado.
So, can we work together to address where this is actually
coming in, around the ports, around making sure that we are
increasing, are bringing new technology to the border, because
as Representative Nickel held up that little piece of sugar,
the little packet of sugar, that is enough to kill, I think he
said, 17,000 people. We need new technologies at the border. We
need new technology investment at the ports. We also need
additional screening in our mail system so we can address the
supply side. And we also need to make sure that the United
States is not so vulnerable by actually making sure that we are
increasing access to treatment and recovery services, and going
after the social media companies, not just going after, but
holding them accountable.
I just want to open it up to Mr. Cassara. I know you have
talked a lot about controlling the border. Is this only
happening in the United States? Were there changes in
immigration policy you can point to, or is this just the new
trend in drug trafficking because this is a lot more potent and
easy to distribute?
Mr. Cassara. Thank you. It is not just happening in the
United States. There is an international scourge of what I call
a trade fraud, for lack of a better definition. And I have been
advocating for years now what I call trade transparency, both
at the exporter and the importer, to combat things like trade-
based money laundering and trade fraud in general. As part of
your question, you are also talking about technology. For the
first time today, we have the technology to make this happen.
We have the technology to make trade transparency viable, but
what we do not have is the political will to do so.
Ms. Pettersen. Thank you, and, Mr. Chairman, I yield back
to Mr. Foster.
Chairman Luetkemeyer. The gentleman from Illinois is
recognized.
Mr. Foster. Thank you. I would like to get some quick
number estimates on this. Mr. Grellner, you indicated that the
mark-up was about a factor of 5,000, that is, a $200 set of
drug precursors coming from China eventually sells for a
million dollars, so a factor of 5,000. Is it correct to infer
that approximately only 1 part in 5,000 of the profits from
street drug sales in the U.S. are going to China?
Mr. Grellner. No, because you also have to factor in the
money laundering.
Mr. Foster. Right, which is really a separate independent
industry, but when we think of it, if we just shut down the
precursor factories, the problem will go away. That is where I
am trying to get it. Back 15 years ago, we spent a lot of money
trying to shut down poppy production in Afghanistan. We have
spent billions of dollars, and at one point in a committee
hearing, I asked the question, well, didn't the Taliban kind of
do this experiment? They shut down poppy production. It had
negligible effect on the street value.
And what we will see, my suspicion is that because the
precursors are such a small fraction of the eventual purchase
price, will just go from China to India, which I take it has
already started, or other countries, with a negligible impact.
Is that a correct inference, that there is a limited amount
that we can expect from even shutting down China's production
and precursors?
Mr. Grellner. No. I think what we are looking at is what we
have always done is shuffled the money around here in the
United States. So we say, oh, we are going to focus on
rehabilitation, oh, we are going to focus on prevention, oh, we
are going to focus on enforcement. We have to have a three-
legged stool. If you want the water glass to stand up on the
stool, you have to fund all three legs--prevention,
enforcement, and rehabilitation--at the same levels, and quit
taking the money back when we make strides forward.
Chairman Luetkemeyer. The gentleman's time has expired. The
gentleman from Georgia, Mr. Loudermilk, is recognized for 5
minutes.
Mr. Loudermilk. Thank you, Mr. Chairman, and thank you, to
all of you for being here today. This is such an extremely
important subject that has not been given the attention that it
deserves and the American people are requiring that we give to
it.
Law enforcement agencies in towns and counties across the
country, including in my own Georgia's 11th Congressional
District, are on the front lines of the war against the cartels
and those that are financially supporting them. These agencies
have repeatedly urged Congress to take action to help them
better coordinate with their Federal counterparts and stem the
flow of money that fuels the fentanyl epidemic in our country.
I would like to submit for the record, Mr. Chairman, the
testimony of the National Sheriff's Association, which calls on
Congress to use every means available to combat the atrocities
committed against the United States and its people by the
cartels and their financiers.
Chairman Luetkemeyer. Without objection, it is so ordered.
Mr. Loudermilk. Thank you, Mr. Chairman. Mr. Grellner, I
have heard about some of the challenges law enforcement
agencies in my home district face when dealing with complex
drug trafficking cases and their local impact. Several of them
that we have talked to have said that while regional Federal
law enforcement agents are helpful, the more involved
Washington gets in the case, the more difficult it is to get
the information they need. Basically, the higher up the chain
they go, the more difficult it is to work with the agencies. Is
this consistent with your experience working with Federal law
enforcement in the narcotics unit?
Mr. Grellner. Not really. I will say this, that we fully
funded the Regional Information Sharing Systems (RISS) network
just after 9/11. And when we were fully funding the RISS
network in the fusion centers, the interoperability between
State, local and Federal law enforcement was at its peak in the
United States, and we knew that was germane to the intelligence
community in the United States. We need to go back to funding
the RISS network so that we have the ability to move
information from State and locals to our Federal partners, and
our Federal partners back to State and local agencies.
And we need, as Mr. Im said, to deputize more of our State
and local officers to assist our Federal counterparts. DEA is
the smallest enforcement branch of the Federal Government at
the current time, and they need help from the State and local
narcotics officers who work on this every day.
Mr. Loudermilk. Are we still utilizing or operating the
fusion centers?
Mr. Grellner. We are, but not to the extent, again, that we
were just after 9/11, after we stood up the RISS network. It is
harder and harder because of the funding sources that have been
brought back and drawn back in the RISS network to continue to
work at the levels that we had worked at before.
Mr. Loudermilk. My first term in Congress, I was on the
Homeland Security Committee, so I did a lot of work with the
fusion centers and with our local law enforcement on issues
such as this. One of the issues they had when it came to
communication and working with agencies was the lack of local
officials having the proper security clearance to actually be
engaged. Is that still an issue?
Mr. Grellner. Normally, if the local officials are willing
to work with the RISS network, it is usually very easy to gain
access, as long as you have the proper credentials and work
locally, again, with the Federal Government on that.
Mr. Loudermilk. Okay, because part of the problem was that
in the time it took to actually get a security clearance, the
issue or the emergency was over with by that point.
Mr. Grellner. Yes. My daughter works as an intelligence
analyst for the DEA through our local St. Louis County Police
Department, and she was able to get all of her clearances out
of the way in just under 6 months.
Mr. Loudermilk. So if I was to ask you what particular
policy would be the most important for Congress to implement,
would that be your answer, or do you have something else?
Mr. Grellner. The answer is this. We have sat here this
entire hearing and talked about how we know exactly what is
going on. We can name the players. We can name the locations.
We have satellites 2\1/2\ miles up in the air that can read our
license plate numbers. We need the political will to put in
place trade embargoes and agreements. We need to go after the
financial institutions, and we know exactly where the poison is
being made. This is not drug trafficking. This is an attack on
the United States, and the minute that we understand that, we
go at it as an attack on the United States. They are killing
the people who are of fighting age in the United States if we
are forced to go to war any time in the future, and we need to
understand that and go after them as if that is occurring right
now. The time to act was yesterday.
Mr. Loudermilk. I don't want to put words in your mouth,
but I want to make sure I understand what you are saying is
that the front line of this battle is really within the
jurisdiction of this committee for sanctions and going after
the financiers?
Mr. Grellner. Yes, sir, it is.
Mr. Loudermilk. Thank you. I yield back, Mr. Chairman.
Chairman Luetkemeyer. The gentleman yields back. With that,
we go to the gentleman from Texas, Mr. Gonzalez, for 5 minutes.
Mr. Gonzalez. Thank you, Chairman Luetkemeyer and Ranking
Member Beatty. And I would like to thank the panel for being
here today. Clearly, from listening to you this morning, there
seems to be no lack of knowledge and information, and there is
a lot of certainty on what the problem is and how to address
it. There clearly is just a lack of political will here in the
United States and in Mexico, and that is our fault. More needs
to be done in Congress and through every Administration,
regardless of what party is in power. This has been going on
for way too long, and all I can address is issues that we can
try to push here in this committee.
And one of them that I would like to talk about is the Cash
Apps, and the PayPals, and so much money. We catch bulk cash in
my district on the border regularly, but I think a lot more
could be done. I think we could use better technology on our
ports of entry going down, and something that we should talk
about is that over 90 percent of the fentanyl that comes into
this country comes in through ports of entry. I know there is a
fallacy out there that migrants are carrying it in backpacks,
but that is just not true. It is coming in through ports of
entry. It needs to be addressed aggressively at the ports, but
what more can be done?
I know these apps need to register at FinCEN, but some do,
and some don't. Are we gathering data through DEA when we bring
in defendants? When they are being debriefed, are we getting
information of how they are moving their money, so we can
address it further up and in Mexico and through our
counterparts at FinCEN and in Mexico? This might be a question
for the professor. What are we doing in Mexico to pressure
their version of FinCEN and our counterparts to actively
cooperate with us and follow the money and stop those money
supplies?
And I can't agree more with Mr. Im that we should be doing
more through regular business, and I think sanctioning China
and Mexico is certainly in order. But as I like to say,
business is so darn good that we can't stop ourselves, and we
keep looking the other way. But I think hopefully now, we are
getting the attention that this issue deserves, and we will
start addressing it with real policy on the Hill that can have
a certain impact.
Ms. Realuyo. We have done a lot of work in the last 20
years, and it is great to be reunited with my teammates from
post-9/11, John, and Gretchen, and Don. We are seeing the same
problem: We are not following the money effectively. What we
have been doing through technical assistance and foreign
assistance is helping our partners help themselves. So, when
AMLO, the president of Mexico, came to power, we anticipated
that we were going to have problems with cooperation, because
he has a very anti-American and very nationalistic posture,
What we ended up focusing on, and you can see in the
national security strategy, inside for the first time, we have
a chapter specifically on transnational organized crime. And
within that chapter, there is specific reference to fentanyl
and financial intelligence, which is Bravo in terms of trying
to understand the problem. And we were working with the AMLO
team because they ran and won on an anti-corruption platform.
You use the same tools to follow the money for corruption as
for all types of crime.
So we were working pretty well with, at that time, the head
of the FIU to train his staff to understand what to take a look
at, and we added a lot of the crypto and more of what was
happening in the virtual world. Unfortunately, that person
himself has been removed due to, let's say, questions of
corruption, quite ironic, yet not surprising in Mexico, and
sadly, we have seen that type of training reduced.
Mr. Gonzalez. Excuse me for interrupting. Has cooperation
diminished under this Administration with AMLO?
Ms. Realuyo. Significantly, and it is sad. I have been
working on this for 10 years. They won't even meet us, which is
terrible. I was in Mexico last week, and we couldn't get access
to a lot of what I would call kind of diplomatic meetings that
are just kind of one of those ones where you check the box. We
know where the laboratories are, we know where the routes are,
and we have been sharing that intel and information with our
counterparts for decades, actually with the Mexicans.
Unfortunately, there is no political will to go after figures
such as we did with El Chapo, and the DEA has tremendous
challenges--
Mr. Gonzalez. I agree with you completely.
Ms. Realuyo. --to actually work there.
Mr. Gonzalez. Before my time runs out, I want to ask Mr.
Cassara, are we doing enough when we are debriefing these
defendants, DOJ is debriefing and getting information of how
they are moving money around and getting it to other agencies
that can use that information to stop the flow of resources?
Mr. Cassara. I don't believe we are. Once again, it all
comes down to the money, and sometimes we forget to ask about
the money. We get so caught up in the product and the people
that we forget to ask about the money. And truly one thing I
would like to emphasize is it all comes down to enforcement.
All of these issues come down to enforcement. I think Don would
agree with me, and others as well, that we really do have the
tools finally, after 30 years of anti-money laundering programs
and processes, but what we are lacking is people on the streets
conducting investigations.
Mr. Gonzalez. Thank you. I yield back.
Mrs. Kim. [presiding]. The Chair now recognizes the
gentlewoman from Texas, Ms. De La Cruz, for 5 minutes.
Ms. De La Cruz. Thank you, Chairman Luetkemeyer and Ranking
Member Beatty, for holding this hearing today, and thank you to
the witnesses who are joining us. To the parents here, I want
to give my condolences. No parent should ever have to bury a
child, and so my heart is truly with you. I am a mother of two
teenagers myself, and this is a fear. I am passionate about
stopping the unprecedented amount of fentanyl that has been
crossing our borders, I am passionate about stopping the
unprecedented amount of illegal immigrants who have crossed our
borders, and to you I say that I am with you.
This stopping only truly comes when we stop the Biden
Administration's open border policy. You see, you can't sell
the drug if it is not coming across here, and you know what,
Ms. Peters? I am angry too. I am angry that you have to come
here time after time. I am frustrated by my colleagues across
the aisle, some who lived just right next door to me. I am
frustrated that they are acting like policy doesn't affect what
we are seeing here with the unprecedented amount of fentanyl
that is coming across. Policy is emboldening our cartels to use
tools like social media to come across the ports of entry,
between the ports of entry, and you want to know why? Because
there is no consequence. There is no consequence.
I am going to say that I agree with my colleague here, Ms.
Pettersen. I agree that technology is one of the things that we
can agree on that needs to happen on the border, but we can't
ignore that policy, and bad policy is what is causing these
damages. And let me give you some of the statistics, and this
comes from this Administration. Just in Nueces County, in South
Texas, the sheriff's department and CBP seized 3 gallons of
fentanyl. They caught a coyote, a cartel member, bringing in
over 3 gallons of fentanyl. That would kill 5 million people.
That is 2\1/2\ times the size of Houston.
Let me give you another statistic from the bad policy. The
bad policy is, right now, we have a 1,221-percent increase in
Chinese nationals crossing in the Rio Grande Valley sector in
South Texas. That is just one of the nine sectors, and I am
going to repeat that number: a 1,221-percent increase. The
cartels charge $30,000 to $50,000 per Chinese person that they
cross over. The regular national? It is $3,000 to $5,000.
Again, why is this? Due to bad policy. This drains our Border
Patrol resources. It takes us 4 hours to process each Chinese
national, draining our resources again. So yes, technology is
one of the things that we need, but we need good policy that
allows us to have legal immigration, not encourage illegal
immigration.
Mr. Cassara, you are right. Criminals are motivated by
money, and right here, I just gave you all the money, $30,000
to $50,000 per Chinese national, when regular nationals are
only $3,000 to $5,000.
Mr. Grellner, I would like to ask you to explain how
Congress could better coordinate with between Federal policy
and local and State law enforcement.
Mr. Grellner. Incentivize State and local law enforcement
to help go after the money, incentivize sheriffs to lock up
those crossing the border, and get back to paying those
sheriffs a living wage to put those individuals in jails, so
that they can be deported back to their home countries. And
look, this has been going on since the 1800s. Personally, I
don't care if you are Republican, Democrat, Green Party--I
don't care. Just fix the problem. It has been going on for too
long. Fix the problem, and policy is where it is at.
Ms. De La Cruz. I yield back.
Mrs. Kim. Thank you. I now recognize the gentleman from
Tennessee, Mr. Ogles, for 5 minutes.
Mr. Ogles. Thank you, Madam Chairwoman. Before I begin, I
would like to request unanimous consent to insert four
documents into the record. The first is a fact sheet from the
American Foreign Policy Institute Center for Homeland Security
and Immigration. The second is also from the FBI, highlighting
the deadly consequences of fentanyl--
Mrs. Kim. Without objection, it is so ordered.
Mr. Ogles. All four? Thank you, ma'am.
Ms. Pettersen, thank you for sharing your testimony, your
story. Our hearts go out to you and your family for what you
have been through, and we thank you.
Overdose deaths in Tennessee have increased 200 percent in
the last 5 years, most of those involving fentanyl. I am
referring to the statement from the Wilson County Sheriff's
Department and Narcotics Officer Fan. On March 6th of this
year, a student at a local high school crushed up and took what
they thought was oxycodone, also known as an M30 or a blue. As
it turns out, it was a counterfeit fentanyl tablet. From
February 7th of this year to March 2nd, there were 26 different
narcotics operations, and in all 26 cases, the drugs tested
positive for fentanyl substances.
So as we go forward, the Chinese Communist Party is
destroying American communities. Every small town in America is
now a border town. They are inviting societal breakdown and
tearing apart families. They are doing this intentionally and
with the help of the Biden Administration, who can't bring
themselves to realize that our border is not secure.
Anecdotally, this past month, roughly 300,000 illegals crossed
into our country.
Let us look at the numbers from this fiscal year: 2,300
pounds of fentanyl were seized by U.S. Customs and Border
Patrol (CPB) last month at the southwest border, which
represents a 238-percent increase from February of 2022. If
fentanyl seizures continue at their current rate, in this
fiscal year we will see the seizure of 26,400 pounds of
fentanyl at the border, a figure that almost doubles the amount
of fentanyl seized last fiscal year.
The high demand for opioids in this country is being fueled
by cartel access to our ports and our porous and open border.
Our failure to secure our own sovereignty is creating a
financial incentive for the Chinese Communist Party to kill
Americans. Currently, 50 percent of Americans, according to
Gallup, view China as our nation's greatest enemy, and it is
about time that this Administration acknowledges it.
Professor Realuyo, has weaker border security improved the
ability of Chinese suppliers and money runners to profit from
illicit fentanyl trafficking?
Ms. Realuyo. The Chinese purveyors are actually critical to
any type of drug, and it is not just fentanyl, by the way. In
order to produce, as you know, heroin and cocaine, which is
also now laced with fentanyl--you have actually seen them as a
critical enabler--without the Chinese purveyors, and without
the actual chemical base, the compounds don't exist. And this
is actually why I have advocated to take a look at how do we
sanction the Chinese, whether they be companies or financiers
who are aiding and abetting and using things like the drug
kingpin list? We have used them in the past. And I think you
all know that in China, if you are caught for drug trafficking,
the penalty is death, but we haven't really seen the execution
of drug traffickers. And as we also know, nothing happens in
China without the explicit knowledge and acquiescence of the
PRC and the Chinese Communist Party, sadly.
Mr. Ogles. Mr. Im, you mentioned the Cali cartel and how
they were targeted and designated as a threat to our country.
Mr. Cassara, when you look at the CCP, how they literally
are profiting from the fentanyl precursors and the marketing
thereof, just like the Cali cartel, if the CCP wasn't a state
actor, would they be designated as a threat to our country?
Mr. Cassara. They could very well be designated as an
ongoing criminal enterprise, in my opinion.
Mr. Ogles. Mr. Im?
Mr. Im. Yes, we have identified literally hundreds of these
chemical companies in China and throughout the provinces, in
many ways subsidized by the provincial governors of those
chemical companies. And we can help identify who those
governors are, those bureaucrats are who help subsidize these
companies that are actually conducting research and exporting
these chemicals to the United States. And, yes, if we can
provide that evidence, we can sanction them and we should
sanction them.
Mr. Ogles. Madam Chairwoman, I yield back.
Mrs. Kim. Thank you. I now recognize myself for 5 minutes.
As a mother and a grandmother, it pains me to see that our
youth, the future leaders of this country, are being damaged
the most by the fentanyl crisis. And according to HHS, the
rates of illicit prescription pill use are now the highest
among people ages 18 to 25. And to make matters worse, the DEA
says that about 4 out of 10 illicit pills contain lethal doses
of fentanyl, and I know you all know that.
Before I go on, I want to ask for unanimous consent to
insert a statement for the record from local law enforcement,
the Orange County Sheriff's Department, as well as an article
from the Orange County Register.
Without objection, it is so ordered.
Orange County Sheriff Don Barnes' statement states that
from 2021 to 2022, seizures of fentanyl had more than
quadrupled to 450 pounds, and his department also seized more
than 405,000 pills that are suspected of containing fentanyl in
2022, and that is 25 times the amount seized in 2021.
Mr. Cassara, back in 2020, OFAC sanctioned Wan Kuok-koi, a
member of the CCP, and a leader of the 14K Triad, which is one
of the largest Chinese organized criminal organizations around
the world. In your statement, you mentioned that criminal
activity has become part of the CCP's overall strategy to grow
its power. So, can you explain how trade-based money laundering
works in practice, and from your experience, how does the CCP
encourage this type of money laundering?
Mr. Cassara. Thank you for the question. Trade-based money
laundering, I believe, is the largest, most-prevalent money
laundering methodology around the world. It is also the least
known understood, and enforced. I talk about it in more detail
in my written statement on pages 13 and 17. There are a variety
of ways trade-based money laundering works, and there are a lot
of different methodologies that are part of trade-based money
laundering, for example, the black-market peso exchange,
underground financial systems, export incentive fraud, and VAT
fraud. All of this combined, as I said, makes it probably the
largest money laundering methodology in the world. There is
much we can do to combat trade-based money laundering, but we
have not yet taken this seriously by our government and other
governments as well.
I would also like to call out the Financial Action Task
Force (FATF). In the world of anti-money laundering and
counterterrorism finance, it is the FATF that makes things
happen or not happen. I strongly urge the FATF to enact
Recommendation Number 41, which specifically targets trade-
based money laundering, and I urge our U.S. delegation to make
sure that happens, and I would also urge our U.S. delegation to
call out China for being a money-laundering center.
Mrs. Kim. So, trade-based money laundering changed the
advancements in technology and allowed Chinese and Mexican drug
cartels to forge their businesses. Can you explain how that is
possible?
Mr. Cassara. Trade-based money laundering, think of it as
value transfer, and we have had value transfer going back
literally thousands of years, long before the advent of modern
Western banking. This is wrapped up in, say, underground
financial systems as well, for example, the Chinese Fei-chien
flying money system that works very, very well. A lot of it has
to do with, for example, hardworking immigrants wanting to send
money back to their loved ones in China. We have no objection
to any of that. Law enforcement certainly encourages
hardworking immigrants to send their money back home, but what
they have done is they are using a system developed back in the
Tang Dynasty, if you will, back about 800, to transfer value in
the form of trade goods.
Mrs. Kim. I know I am running out of time, but I do want to
ask you to please walk through how Chinese professional money
launderers are carrying out the mirror scams, and the role
Chinese banking apps play in facilitating money laundering from
the sale of illicit drugs, if you can quickly respond to that?
Mr. Cassara. We are talking about mirror accounts. What
happens is you have bulk cash proceeds here in the United
States, the proceeds of drugs. They only need to get that back
to China. You have a Chinese broker working with a Chinese-
American businessman who is willing to cooperate. The
businessman takes the proceeds of crime from the broker, and
using their cash-intensive business, places the proceeds of
crime into the financial system. They do this for a commission,
and the businessman transfers the equivalent amount of drug
money through Chinese phone apps.
Mrs. Kim. Mr. Cassara, I apologize. I asked the question,
and you are giving a great answer, but I am going to ask you to
submit your response in writing, because I want to be
respectful of other Members who are here, and I already went
over my time.
At this time, I would like to recognize the gentleman from
Kentucky, Mr. Barr, who is also the Chair of our Subcommittee
on Financial Institutions and Monetary Policy, for 5 minutes.
Mr. Barr. Thank you, Madam Chairwoman. Thank you for your
leadership, and thank you to Chairman Luetkemeyer for holding
this hearing. And I want to thank all of the witnesses for
testifying today on such an important and timely issue.
I have seen firsthand the devastating impact of the
fentanyl crisis in my district and across the Commonwealth of
Kentucky. The most-recent drug overdose report from the
Kentucky Office of Drug Control Policy reported that there was
a 14.5 percent increase in overdose deaths in my home State,
and according to cases autopsied by the Kentucky Office of the
State Medical Examiner, and toxicology reports submitted by
Kentucky coroners, the rise in the death toll was driven
largely by an increased use in fentanyl, which accounts for
approximately 70 percent of overdose deaths in my State.
In Woodford County, Kentucky, in my district, a County with
only 27,000 people, 9 individuals have been charged with
trafficking fentanyl since 2016, and 6 of these individuals are
charged with the death of another individual. We need to not
only arrest individuals such as those in Woodford County who
traffic this potent deadly drug, but also find and eliminate
the source of production and financing. And when I talk to the
narcotics officers in Kentucky, they are very unambiguous that
this fentanyl is coming from our porous southern border, and
the original source is China, and the Chinese are collaborating
with the cartels, getting it through the trafficking channels
up to Kentucky and killing our people.
Let me just start with a question for Mr. Cassara and Mr.
Grellner. In my district, officers who serve in the High
Intensity Drug Trafficking Areas (HIDTA) are on the front lines
fighting against the cartels and their fentanyl-trafficking
activities. FinCEN, and Treasury, should be following the money
in these areas to expose the relationships between the cartels
and the illicit financing, which in turn, should lead to
cutting off the funding of illegal fentanyl trafficking. Can
you all elaborate a little bit about how FinCEN, in fact, does
partner with HIDTA officers to catch money launderers and
expose illicit financing activities, and how could FinCEN, and
Treasury generally, do a better job working with HIDTA and
other narcotics officers to expose these illicit finance
channels?
Mr. Cassara. Approximately 22 million pieces of financial
intelligence are filed every year with Treasury's FinCEN. About
4 to 5 million of those pieces of financial intelligence are
suspicious activity reports (SARs). HIDTAs have access to this
financial intelligence directly or indirectly through their
members. To answer somebody else's question earlier, State and
local law enforcement does have access to financial
intelligence as well. I am no longer within FinCEN; I used to
serve there, but no longer. FinCEN occasionally embedded a
representative in the HIDTA task forces. I am not quite sure if
they do now, but by and large, we have intelligence. What we
are lacking, again, in my opinion, is people to use the
financial intelligence to go out in the streets and make cases.
Mr. Barr. Okay. So, you concur with that, Mr. Grellner,
based on your--
Mr. Grellner. I do, sir.
Mr. Barr. Oh, you do, and pardon me, because of lack of
time, I am going to move to Mr. Im on another question, because
I think you have answered that. I see from your biography, Mr.
Im, that you co-developed the first-ever OFAC SDN list
sanctioning the Cali drug cartel in 1995. I have legislation,
the Chinese Military and Surveillance Company Sanctions Act,
that uses the OFAC SDN list to target the financing of military
and surveillance companies that act counter to the national
security of the United States. I am interested to hear your
experience and views on using OFAC sanctions, and why the OFAC
SDN list was the proper channel to sanction the cartel in 1995,
and how this OFAC list could be used to target some of the
producers of fentanyl production in China?
Mr. Im. Yes, thank you for the question. It is most-
effective when they are most-vulnerable. If they have
legitimate institutions and businesses that they rely upon, the
legitimate banking systems and so forth, and for trade
purposes, we are able to identify the evidence and information
that they are committing illicit activities and crimes.
Sanction is the most effective way to disable their ability to
use the legitimate funding institutions and the Cali cartel
businesses were most effective.
Mr. Barr. Is OFAC sanctioning Chinese companies that
produce the component parts of fentanyl now?
Mr. Im. Onesies, twosies--they should be doing a much more
robust job. We have given them enough information and evidence
on 100 of these companies.
Mr. Barr. That is a critical piece of testimony and a
takeaway for this committee, and also for the Select Committee
on China. I appreciate your testimony. And I yield back.
Mrs. Kim. Thank you. The gentleman from Wisconsin, Mr.
Fitzgerald, is now recognized for 5 minutes.
Mr. Fitzgerald. Thank you, Madam Chairwoman. The first bill
I introduced as a Member of Congress was to permanently
designate fentanyl analogues as a Schedule I drug. At the
beginning of this Congress, I again introduced the Stopping
Overdoses of Fentanyl Analogues Act, which shares the same
acronym, (SOFA), as the organization, Saving Others for Archie.
The Badura family from Oconomowoc, Wisconsin, in the 5th
District, lost their son, Archie, from a fentanyl overdose on
May 15, 2014. Since then, his mother, Lauri, has dedicated
herself to raising awareness of the dangers of drug addiction,
really, not only in my part of the State, but throughout
Wisconsin. And it is my hope that we can pass a permanent
designation of fentanyl analogues to Schedule I this Congress,
not only not to honor Archie, obviously, and the countless
other victims of fentanyl overdose throughout the years, but to
further underscore the entire mechanism in which fentanyl is
being trafficked throughout the State.
And I know that many of you have deep, deep expertise in
this area. But we in Congress, I think, once again are seeing
that the cartels--Sinaloa, Jalisco--are just deeply involved in
their relationships with China, and it is not only in fentanyl
production, but also, as we sit here today, the money
laundering issue.
I have a question for Mr. Im, and I know there will be a
little bit of redundancy here, because I know this question was
asked before, but one of the problems when you talk to law
enforcement is just the tracking. And if you can get the
tracking down, then you can follow the money laundering, and
you can follow kind of, in particular, the increase in the
encrypted communication apps, and the one that obviously most
Members of Congress are focused on is WeChat right now. I just
want you to comment, kind of in general, about other avenues or
other ways that this money laundering might be happening
outside of high tech as it exists right now.
Mr. Im. Thank you for the question. They use both high-tech
and traditional bulk currency movements. They rely on that. It
is not just in the United States itself alone or in North
America. It is also in Europe. Anywhere you have large bulk
currencies of drugs or illicit proceeds, they are going to rely
upon these pools of funds. Why? Because there is a transfer of
wealth that is taking place outside of China in the billions,
and they need technology such as these mobile platforms, such
as communication platforms, such as WeChat, and Gmail, and
Twitter, and all of these other type of communication apps and
mobile payment apps, and the companies that own these
technologies are aware of what is taking place.
The question is, how much of an effort are they really
making, how much investment and cost measures are they putting
in there to increase their content moderation, to understand
what the threats are? Most of the information is out there in
the open. They can do much more. I am not sure how much money
they are really investing in moderating this content and the
threat. We have given them thousands of pages of documents.
Most of it, or just about all of it is on social media or on
the internet on open-source information, and they are still out
there on their platforms.
So, compel them to police their own activities. Law
enforcement has a tough job of its own right now, okay? We need
the Justice Department. We need prosecutors to prosecute to the
fullest. Why? Because if they are not prosecuting even a low-
level distributor or a dealer, and that person is not going to
cooperate because he is not getting the full sentence, there is
no incentive for that person to cooperate for law enforcement
to get to that next level and to the next level higher. It is a
tool and an effective way for us to identify the top leaders of
not only the traffickers, but also the money brokers. Every
time DEA or other law enforcement seizes a Chinese courier with
half a million or a million dollars in cash, they will just let
them go, and then there is no incentive for that person who
gave him that cash to cooperate.
Mr. Fitzgerald. And that is why I think the foundation or
certainly the simplest thing that Congress can do right now is
to once again move towards making fentanyl a Schedule I. If we
can get to that place, I think it would give prosecutors one
more tool that they need right now to fulfill kind of the goal
of getting fentanyl off the streets.
I yield back. Thank you.
Mrs. Kim. Thank you, and I would like to now recognize Mrs.
Beatty.
Mrs. Beatty. Thank you, Madam Chairwoman. It gives me great
pleasure to announce that today, we have joining us Ms. Jones,
who is the president of the National Coalition of 100 Black
Women, and they have a special interest in education,
healthcare, and drug trafficking. Thank you.
Also, I would like to ask permission to put on the record a
statement that I did not get to make, and I did have time left,
but 10 seconds, in light of what Mr. Im and others have said
about strangling the funding supply and what we should be
doing. So, I would like the record to reflect that President
Biden's Administration issued an Executive Order on imposing
sanctions on foreign persons involved in global illicit drug
trade, and also the Bipartisan Infrastructure Plan that
included billions of dollars in funding for Border Patrol
operations, the hiring of additional agents, and the technology
to better defend space between the ports of entry. And lastly,
the Anti-Money Laundering Act of 2020 and the Corporate
Transparency Act. So we hear you, and the Biden Administration
also hears you. Thank you, and I yield back.
Mrs. Kim. Thank you, Mrs. Beatty.
And I would like to also say a few words. Right across the
hall, the CEO of TikTok is now testifying about the mental
well-being of America's youth, and it has been reported that
our sons and daughters purchase pills that are laced with
Chinese-produced fentanyl from their own homes. Question to
you, Ms. Peters. The pills purchased online are often cut with
fentanyl to make them stronger, leading to poisoning of our
youth, and oftentimes death. And I know personally a few youths
from my own district, my high school, have died because of
this, and drug dealers are purchasing the precursor chemicals
from the CCP to make these pills, these fake pills. So from
your point of view, are social media companies using all the
tools at their disposal to prevent the sale of fentanyl pills
to our children, and do you think AI could be implemented to
take down drug sales more efficiently?
Ms. Peters. Ma'am, thank you for the excellent questions.
They are absolutely not doing everything they could be doing.
Many platforms say that they are building AI to look for drug-
related content and remove it. In a lot of cases, they could
use a simple code. The images I showed earlier had drug
hashtags. You don't need special AI to look for that.
Basically, if it says, ``buy or sell oxycodone pills,'' delete
it and report it to law enforcement. That is not complicated
AI, and I am not a tech person.
There is a lot more these platforms could be doing. We have
whistleblowers inside several Big Tech companies who have told
us they have lost control of their platforms. They can't
control it anymore because of the open way that they have been
set up. The days for the tech industry to be allowed to self-
regulate and to police their own systems are over. I don't know
how many more Americans have to die before Congress realizes
that and starts to change the laws governing cyberspace.
I have known everyone on this panel, except for Mr.
Grellner, for years now. We have all studied money laundering,
transnational crime, and criminal supply chains for years. I
have switched my focus exclusively to social media because
there is just so much of it going on, on our social media
platforms, so this is really an urgent issue. And it is not
just impacting drugs; it is involved in the spread of child
pornography, human trafficking, child sex trafficking, the
wildlife trade, antiquities, and all sorts of fraud and scams.
This is causing all sorts of devastation.
And we, for some crazy reason, allow our tech platforms to
regulate themselves and consider everything that gets uploaded
to be protected free speech when there is a way, I believe,
that is relatively simple to define the difference between
criminal conduct online and protected free speech. We are not
trying to change the First Amendment. We are trying to define
the difference between speech and conduct, and that is very
possible. We ask you to get start doing it, please. Thank you.
Mrs. Kim. Well said. That was a beautiful final comment in
this very important hearing that we have had today. I would
like to thank all of our witnesses for their testimony today,
and all of the Members who asked great questions, and thank you
for indulging us with your great responses.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
With that, this hearing is now adjourned.
[Whereupon, at 12:20 p.m., the hearing was adjourned.]
A P P E N D I X
March 23, 2023
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