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26 September 2001

Text: Sen. Levin Testifies on Money Laundering and Terrorism

(Lawmaker seeks to close loopholes in current U.S. banking laws)
(3540)
"Tightening our money laundering laws will strike a blow against
terrorism, because a consensus has emerged that any effective
anti-terrorism campaign must include tracking the money supply that
funds terrorism and shutting it down," says Senator Carl Levin
(Democrat of Michigan).
Appearing September 26 before the Senate Committee on Banking, Housing
and Urban Affairs, Levin warned that existing laws provide loopholes
that allow terrorist organizations to gain access to the U.S. banking
system. "The evidence is clear that terrorists are using our own
financial institutions against us, and we need to understand our
vulnerabilities and take new measures to protect ourselves from
similar abuses down the road," he said.
Of particular concern are so-called "correspondent" accounts arranged
by foreign banks of dubious origin, Levin noted. "For example, if a
bank in London has a client who wants U.S. dollars available to him or
her in the United States, the London bank needs a correspondent
relationship with a U.S. bank willing to make those dollars available
in the United States," he explained. "We found that U.S. banks often
perform an inadequate background review of the foreign banks seeking
to open a correspondent account in the United States."
According to Levin, testimony offered in February 2001 at the trial
concerning the 1998 terrorist bombings of U.S. embassies in Kenya and
Tanzania revealed that a correspondent relationship between a Sudanese
bank and a U.S. bank permitted funds traced to suspected terrorist
mastermind Osama bin Laden and his al-Qaeda organization to be
disbursed to a bin Laden associate in Texas.
Levin, who recently introduced legislation designed to eliminate
terrorist penetration of the U.S. financial system, outlined the
advantages of his proposal and urged Congress to "take the next step
by strengthening and modernizing our outdated and inadequate
anti-money laundering laws."
His own six-step plan, he said, would address those "key areas where
change is needed" in U.S. banking laws. "First, Congress needs to stop
unscrupulous individuals and foreign banks from gaining entry to the
U.S. banking system through U.S. correspondent accounts," he declared.
"Second, Congress needs to eliminate a forfeiture loophole in U.S. law
that now makes it almost impossible for U.S. law enforcement to freeze
suspect funds in U.S. correspondent accounts opened for foreign
banks."
And "third, we need to make it easier for prosecutors to prosecute
money laundering cases," Levin said. "Fourth, we need to make bulk
cash smuggling a crime. ... Fifth, we need to increase the number of
financial institutions required to report suspicious activity when
they see it, particularly stock brokers." The sixth step, he
indicated, would be to "give the Treasury Secretary greater
flexibility to take measures against foreign banks and foreign
countries believed to be involved in money laundering."
Swift action is critical in thwarting the aims of terrorist
organizations, the senator emphasized. Acknowledging the global nature
of the threat, he added: "Let's not forget the need to galvanize the
international community to join us in our efforts to chase down
terrorist assets and deny terrorists access to international financial
networks. We need to convince other countries to enact the same
anti-money laundering controls we are talking about today."
Following is the text of his testimony, as submitted to the Senate:
(begin text)
Statement by Senator Carl Levin
before the
Committee on Banking, Housing and Urban Affairs
on Money Laundering and Terrorism
Wednesday, September 26, 2001
Thank you, Mr. Chairman, for the opportunity to testify. I'm here this
morning to share with you the work of the Permanent Subcommittee on
Investigations with respect to international money laundering.
Over the past three years we've conducted an extensive investigation
into the use of U.S. banks for money laundering purposes. We've held
three sets of hearings and produced two extensive reports as well as a
five-volume record on how correspondent banking has been used as a
tool for money laundering. To address the problems we've uncovered, in
August I introduced -- along with Senator Grassley, Chairman Sarbanes,
and Senators Kyl, DeWine, Bill Nelson and Durbin -- S. 1371, the Money
Laundering Abatement Act. This bill has been referred to this
committee, and I hope to work with the committee's Members to get it
enacted into law.
Tightening our money laundering laws will strike a blow against
terrorism, because a consensus has emerged that any effective
anti-terrorism campaign must include tracking the money supply that
funds terrorism and shutting it down. Disrupting terrorists' financial
networks is vital to ending their ability to carry out massive
terrorist operations like the September 11th tragedy.
Unlike drug and organized crime operations, terrorist acts sometimes
do not generate illegal proceeds that have to be laundered. Terrorists
use financial networks to collect funds from both legitimate and
illegitimate sources and make them available to carry out terrorist
acts. Look at what we know so far about the September 11th terrorists.
According to press reports, the 19 terrorists identified by the FBI
used cash, checks, credit cards and wire transfers involving U.S.
banks in states such as Florida, New York and Pennsylvania. We've seen
the photograph of two terrorists using a U.S. bank's ATM machine.
There are also reports that the 19 terrorists left behind large unpaid
credit card bills, in effect using U.S. credit card companies to help
finance the September 11th attack.
The fact that these terrorists used U.S. financial institutions to
accomplish their ends doesn't mean that any U.S. bank or credit card
company did anything wrong; these terrorists may have met every
requirement for credentials and credit histories, false though such
information may prove to be. But the evidence is clear that terrorists
are using our own financial institutions against us, and we need to
understand our vulnerabilities and take new measures to protect
ourselves from similar abuses down the road.
One of the vulnerabilities that the Permanent Subcommittee on
Investigations has concentrated on is how correspondent banking is
used for money laundering. Correspondent banking occurs when one bank
provides services to another bank to move funds or carry out other
financial transactions. For example, if a bank in London has a client
who wants U.S. dollars available to him or her in the United States,
the London bank needs a correspondent relationship with a U.S. bank
willing to make those dollars available in the United States. That
means the U.S. bank has to agree to open and manage a correspondent
account for the London bank.
We found that U.S. banks often perform an inadequate background review
of the foreign banks seeking to open a correspondent account in the
United States. Too often the U.S. banks assumed -- and we heard this
verbatim -- that a bank is a bank is a bank. But that's not the
reality. There are good banks and there are bad banks, and we found
numerous situations where U.S. banks held accounts for foreign banks
engaged in criminal activity or operated with such poor banking
practices that they provided an open invitation for criminals to bank
with them. Criminals can then use these bad banks to gain access to
the U.S. banking system through their U.S. correspondent accounts. We
found that current law has many holes in how it treats money
laundering through correspondent accounts. So I designed my bill to
close them and tighten anti-money laundering controls over
correspondent banking.
Look at what we've recently learned about the al Qaeda terrorist
organization headed by bin Laden. Numerous media reports have
described the many corporations and businesses that bin Laden has
helped establish and finance over the years. According to a 1996 State
Department fact sheet, in 1991, bin Laden helped establish a bank in
the Sudan called the Al Shamal Islamic Bank, allegedly providing it
with initial capital of $50 million. An article dated March 16, 2000,
in the Indigo Publication's Intelligence Newsletter states that bin
Laden "remains the leading shareholder" of the bank.
Testimony provided in February 2001 at the trial concerning the 1998
terrorist bombings of the U.S. embassies in Kenya and Tanzania
described the Shamal bank's use by bin Laden and al Qaeda. One bin
Laden associate, Jamal Ahmed al-Fadl, who had handled financial
transactions for al Qaeda, testified that al Qaeda had used a half
dozen accounts at the Shamal bank; one account was in the name of bin
Laden. He described a 1994 incident in which the Shamal bank was used
by al Qaeda to provide al-Fadl $100,000 in U.S. $100 bills, which he
was directed to take on a plane to an individual in Jordan, which he
did. This testimony shows that, in 1994, the Shamal bank maintained
accounts used by bin Laden and al Qaeda and was supplying bin Laden
operatives with funds.
Testimony also demonstrated how a U.S. bank was used by bin Laden to
send money from the Shamal bank to a bin Laden associate in Texas
using a correspondent account. Essam al Ridi, who worked for bin
Laden, testified that he received a $250,000 wire transfer at his bank
in Texas that was sent by the Shamal bank, which he then used to
purchase a plane for bin Laden and which he later delivered himself to
bin Laden. Transactions like this one were the focus of our recent
investigation into correspondent banking and money laundering, and
that is what I want to focus on this morning -- how criminals,
including terrorist organizations, can use the correspondent accounts
of foreign banks to gain access to the U.S. financial system.
The Shamal bank's website currently lists an extensive correspondent
network including banks in Europe and the United States. I have a
chart that shows some of the correspondent banks listed on the Shamal
bank's website. Three of the banks are U.S. banks -- Citibank,
American Express, and the Arab American Bank, which was recently
acquired by the National Bank of Egypt. Thankfully all three banks
told us that the correspondent accounts they had with the Shamal bank
are either closed or have been largely inactive since 1997 or 1998.
This followed action taken by the U.S. government in November 1997 to
add Sudan to its official list of countries that support terrorism.
But the Shamal bank's website also lists as correspondents major banks
in other countries, including Credit Lyonnais in Switzerland, Commerz
Bank in Germany, ING Bank in Indonesia, and Standard Bank in South
Africa, each of which also has correspondent accounts with U.S. banks,
and that's a problem.
First, we have to ask how the Shamal bank was able to open its
correspondent accounts in the United States when U.S. banks are
supposed to exercise due diligence about their customers; the bank is
located in the Sudan, a country known for lawlessness and
weak-to-nonexistent banking regulation and anti-money laundering
controls; and the bank is also known to be associated with bin Laden.
Under the legislation I have sponsored, U.S. banks would have to
exercise enhanced due diligence; that means they would have to take an
extra hard look at any bank from the Sudan and could accept a Sudanese
bank as a customer only if the U.S. bank were convinced the Sudanese
bank was completely above board and had appropriate money laundering
controls.
Second, we need to look at the current status of the Shamal bank's
correspondent accounts in other countries. We learned in our
Subcommittee investigation that bad banks can "nest" in other foreign
banks and obtain access to U.S. banks that way. They can open a
correspondent account with a foreign bank that already has a U.S.
correspondent account, and then take advantage of the correspondent
chain to access the U.S. financial system. This chart shows how bin
Laden could be using the Shamal bank to gain access to U.S. banks
through the banks' correspondent networks. We talked to four of these
correspondent banks in countries other than the United States, and
they indicated to us that they still have Shamal bank correspondent
accounts that are not frozen. While at least three of these accounts
have reportedly experienced little activity and one was reported to
law enforcement a few weeks ago, all of these accounts are still open
and could be used at any time. That means any customer of the Shamal
bank -- including a member of bin Laden's organization -- could
penetrate the U.S. banking system by going through one of these other
correspondent accounts.
The Shamal bank is, of course, not the only bank of concern. Testimony
in the criminal trial identified several other banks with accounts
being used by al Qaeda. Press reports indicate that Barclays Bank in
London has already closed one suspect account, and banks in countries
as diverse as Switzerland, the United Arab Emirates, Malaysia and Hong
Kong are checking their records for suspicious activity. Banks in
Afghanistan also warrant scrutiny, as indicated by this Bankers
Almanac printout which lists nine banks with offices in Afghanistan,
including two with correspondents in the United States and elsewhere.
While the U.S. accounts may, again, be inactive, given the absence of
Afghan banking and anti-money laundering controls and the elevated
status of bin Laden and al Qaeda in Afghan society, we need to ask how
these banks were able to open correspondent accounts in the first
place and what steps, if any, its correspondents have taken to ensure
terrorist funds were not and are not moving through them.
Another possibility is that bin Laden has set up his own shell banks
to handle terrorist activities. Shell banks are unaffiliated with any
other bank and have no physical presence in any jurisdiction. They are
licensed by a handful of jurisdictions around the world including
Nauru, Vanuatu and Montenegro. This chart shows how shell banks can be
used to gain entry to the U.S. banking system. My Subcommittee's
investigation found that shell banks carry the highest money
laundering risks in the banking world because they are inherently
unavailable for effective oversight. There is no office where a bank
regulator or law enforcement official can go to observe bank
operations, review documents or freeze funds. Essentially no one but
the shell bank's owners know what the bank is up to. Our staff report
provides four detailed case histories of shell banks that opened U.S.
correspondent accounts and used them to move funds related to drug
trafficking, bribe money and financial fraud money. The possibility
that terrorists are using such banks to conduct their operations is
one that cannot be ignored.
Some good news is that more countries than ever before have passed
anti-money laundering laws requiring their financial institutions to
know their customers and report suspicious activity. More countries
have empowered law enforcement to freeze suspect assets. New
technologies can scan millions of financial transactions to link
seemingly unrelated transactions and detect suspicious patterns and
transactions. Financial intelligence units have been established in
over 50 countries with the authority, technology and resources to
identify and investigate suspicious activity. They have, in turn,
formed the Egmont Group and developed international protocols for
sharing financial information. And new groups, like the six-country
Gulf Cooperation Council, which includes Saudi Arabia and the United
Arab Emirates, have joined the fight to stop criminals from exploiting
international financial systems.
These developments have better prepared the world to identify and
freeze terrorist assets, trace connections from terrorist cells to
those directing their activities, deny access to terrorist-affiliated
businesses and foundations, and provide valuable evidence of the
financing of terrorist acts.
Much more needs to be done. The Administration established a new
interagency task force focused exclusively on rooting out terrorist
assets and by expanding the country's official list of known
terrorists and terrorist-affiliated businesses and foundations. That's
a good step. Congress needs to take the next step by strengthening and
modernizing our outdated and inadequate anti-money laundering laws.
Here are a few key areas where change is needed.
-- First, Congress needs to stop unscrupulous individuals and foreign
banks from gaining entry to the U.S. banking system through U.S.
correspondent accounts. As I said earlier, my bill would require U.S.
banks to exercise enhanced due diligence when opening accounts for
offshore banks, banks in jurisdictions with poor anti-money laundering
controls, or for foreign persons with $1 million or more in a private
bank account and it would outright prohibit U.S. banks from opening
correspondent accounts for foreign shell banks.
-- Second, Congress needs to eliminate a forfeiture loophole in U.S.
law that now makes it almost impossible for U.S. law enforcement to
freeze suspect funds in U.S. correspondent accounts opened for foreign
banks. Under current law, in order for law enforcement to seize the
funds of a criminal with money in a U.S. correspondent account, the
law enforcement agency has to prove that the foreign bank with the
correspondent account was involved in the criminal activity. That's
because the money in the correspondent account is treated as the
foreign bank's money and not the money of the foreign bank's
depositors. My bill would change the law to treat money that is
attributable to an individual depositor but held in a U.S.
correspondent account as the depositor's money and make it subject to
the same civil forfeiture rules that apply to depositor's funds in
other U.S. bank accounts.
-- Third, we need to make it easier for prosecutors to prosecute
money-laundering cases. My bill would provide such basic improvements
as simpler pleading requirements, clear long-arm jurisdiction over
foreign money launderers acting inside the United States, easier ways
to serve legal papers on foreign banks with U.S. accounts, and the
assistance of court-appointed federal receivers to find money
laundering assets hidden at home or abroad.
-- Fourth, we need to make bulk cash smuggling a crime. There is
currently no statutory basis for seizing bulk cash from a terrorist
transporting it over our borders or on U.S. roads or common carriers,
even though seizing cash from terrorists could go a long way to
disrupting their operations. Legislation introduced by Congresswoman
Roukema addresses this issue, and it deserves our support and
enactment into law.
-- Fifth, we need to increase the number of financial institutions
required to report suspicious activity when they see it, particularly
stockbrokers. Media reports indicate that terrorists may have used
stock trades to profit from the September 11th attack. Suspicious
activity reports provide vital leads and evidence for law enforcement,
and we are the only G-7 [Group of Seven industrialized countries]
country that doesn't require all of our brokerage firms to file them
right now. Past administrations have promised but failed to issue
regulations requiring these reports, in part due to lobbying by
financial institutions that don't want to have to spend the time and
resources to fill out the paperwork. Well, times have changed and
shown all too clearly the high cost of not reporting suspicious
activity. The President ought to require these reports by January 1,
2002. If he doesn't, Congress should.
-- Sixth, we need to give the Treasury Secretary greater flexibility
to take measures against foreign banks and foreign countries believed
to be involved in money laundering. Right now, we have only two
weapons -- blocking a bank's assets or issuing a voluntary advisory
urging U.S. banks not to do business with the suspect country or
institution. We need more tools, such as options for requiring
specific know-your-customer or reporting requirements, as set out in
S. 398 introduced by my friends Senator Kerry, Senator Grassley and
others.
New anti-money laundering legislation is an essential companion to the
Executive Order issued by the President earlier this week. The
Executive Order is an emergency measure; these bills go beyond
emergency measures to prevent terrorists and other criminals from
gaining entry to the U.S. banking system in the first place. U.S.
banks would be barred from opening correspondent accounts for shell
banks, and they would be required to do a lot more homework on foreign
banks before letting them into the United States. Had our legislation
been in place earlier, it's possible the Shamal bank would never have
obtained a correspondent account in the United States.
Finally, let's not forget the need to galvanize the international
community to join us in our efforts to chase down terrorist assets and
deny terrorists access to international financial networks. We need to
convince other countries to enact the same anti-money laundering
controls we are talking about today.
The conclusion is clear: stronger laws are critical if we are to stop
terrorists and other criminals from benefiting from the safety,
soundness, efficiency and profitability of the U.S. banking system. We
must deny terrorists access to our banks, to our credit cards, to our
stockbrokers and to all of the other modern financial tools we've
developed to move money around the world.
I ask unanimous consent to include in the hearing record a letter from
the Department of Justice supporting my bill, letters of support from
the Drug Enforcement Agency, the Federal Deposit Insurance
Corporation, the Attorney Generals for the states of Michigan, Arizona
and Massachusetts, and other materials relevant to my testimony.
(end text)
(Distributed by the Office of International Information Programs, U.S.
Department of State. Web site: http://usinfo.state.gov)



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