29 January 2002
Text: U.S. Says Global Help Is Key to Stopping Terror Funds
(Treasury's Dam says focus remains on al Qaeda network) (6780)
The campaign to disrupt terrorist funding networks will require deeper
and stronger cooperation among the United States and its allies,
Deputy Treasury Secretary Kenneth Dam told a Senate panel.
Following the September 11 terrorist attacks, the United States and
other countries have blocked $80 million in terrorist-related assets,
he said. Half of the total -- $46 million -- has been blocked by
foreign governments, Dam said, adding that 147 countries and
jurisdictions in the world have blocking orders in place.
"I cannot emphasize enough how vitally important international
cooperation is," Dam told the Senate Banking Committee January 29.
"After all, we cannot bomb foreign bank accounts. We need the
cooperation of foreign governments to investigate and block them."
The United States is helping a number of countries participate more
fully in the anti-terror campaign by providing technical assistance
that will help them develop the legal and enforcement infrastructure
they need to find and freeze terrorist assets, he said.
Dam indicated that building on the progress made to date would require
broader cooperation on the financial front.
"We must encourage more independent identification of terrorist groups
by other countries," Dam said. "Second, we have to ensure that more
countries issue blocking orders for more of the entities identified by
the United States, other countries, and the international financial
community as being part of terrorist financial networks."
Another priority will be reviewing the documents, computer drives and
e-mails captured in Afghanistan and elsewhere. "This is a massive
task," Dam said. "To do it, we must bring documents together from all
over the world, translate them, cross-reference them, and thereby
build a complete picture. No one document can tell us that much."
U.S. and allied intelligence services need to "redouble" their efforts
to detect and follow terrorist money exchanges through "hawala"
dealers and other informal banking systems, he said.
Dam stressed that such information can lead to devastating legal
action against terrorist groups. When U.S. officials shut down the
offices of the Al-Barakaat hawala, they seized $1.9 million in assets,
but disrupted the flow of about $15-20 million that would have been
channeled to terrorist organizations during the year.
"It is important, therefore, to keep an eye on the flow of funds --
how much money moved through a pipeline that we froze -- as well as
how much money happened to be in the pipeline when we froze it," he
said.
The U.S. Treasury is working to develop new regulations in connection
with the counter-terrorism legislation passed by Congress following
the September 11 terrorist attacks. Dam said many of the new
requirements should be in place by April.
He told the lawmakers that the U.S. continues to focus its
antiterrorism efforts on Osama bin Laden's al Qaeda network and its
supporters.
"The strategy for the financial front of the war on terrorism closely
tracks our strategy on the rest of the war," Dam said. "We remain
focused on finishing off al Qaeda
Following is the text of his remarks as prepared for delivery:
(begin text)
TESTIMONY OF KENNETH W. DAM
DEPUTY SECRETARY
DEPARTMENT OF THE TREASURY
BEFORE THE SENATE BANKING COMMITTEE
JANUARY 29, 2002
THE UNITED STATES SENATE
Chairman Sarbanes and distinguished members of the Senate Banking
Committee, thank you for inviting me to testify about the Treasury
Department's efforts to disrupt terrorist financing and, in
particular, the steps we are taking to implement the provisions of the
International Money Laundering Abatement and Anti-Terrorist Financing
Act of 2001. I have asked Under Secretary for Enforcement Jimmy Gurulé
to join me today.
On September 24, 2001, President Bush stated, "we will direct every
resource at our command to win the war against terrorists, every means
of diplomacy, every tool of intelligence, every instrument of law
enforcement, every financial influence. We will starve the terrorists
of funding." The Treasury Department is determined to help make good
on this promise. I am here today to tell you about the progress we
have made and some of the complexities we still face.
Much of our progress is directly attributable to the Congress and this
Committee. The swift passage of the USA PATRIOT Act and, in
particular, Title III of that Act -- the International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001, have
given us important new tools in the financial front of the war on
terrorism. To highlight just two aspects of the Act:
-- The Act requires financial institutions to terminate correspondent
accounts maintained for foreign shell banks and to take reasonable
steps to ensure that they do not indirectly provide banking services
to foreign shell banks. Treasury provided immediate, interim guidance
to financial institutions, suggesting that they obtain certification
from all foreign banks with correspondent accounts that they were not
shells and that the foreign banks did not themselves maintain
correspondent accounts for shell banks.
-- The Act requires all financial institutions to have an anti-money
laundering program in place by April. Although many broker-dealers
already had anti-money laundering programs in place, the Act ensures
that all will. This Committee played an important role in securing the
passage of these and other provisions. On behalf of the Treasury
Department -- including our 25,000 law enforcement officers -- I thank
you.
I also wish to thank the many federal agencies that have worked with
Treasury. This is a team effort. We have worked closely with the State
Department, the Defense Department, the Department of Justice, the
Federal Bureau of Investigation, the intelligence community, and many
other parts of the federal government. We coordinate daily at all
levels and, I think, have done a good job of setting aside some of our
historical rivalries. To cite just one of many examples of this
coordination, the Administration recently created a new-high level
strategies and priorities committee that I chair. This committee
brings together senior officials from across the government to chart
our strategy for pursuing terrorist finances over the coming months
and years.
Summary of Developments in Financial Aspects of U.S. Anti-Terrorism
Initiatives
Our priority is to help prevent terrorist attacks by disrupting
terrorist finances. As the President has said, we seek to "starve the
terrorists of funding. "Our goal is to deprive terrorists of one of
the raw ingredients in terrorism: money for arms, explosives, plane
tickets, and even the day-to-day sustenance of operatives. I will tell
you candidly that where there is a conflict between preventing
terrorist attacks and the prosecution of criminal cases against
terrorists, preventing terrorist attacks comes first.
The strategy for the financial front of the war on terrorism closely
tracks our strategy in the rest of the war. We remain focused on
finishing off Al Qaeda. We are targeting not only Al Qaeda operatives,
but their financial intermediaries and others that support them.
Increasingly, we are also focusing on other terrorist groups of global
reach. In addition, we are striving to ensure that fight on the
financial front is not a unilateral effort or even a U.S.-led effort,
but, like the rest of the war, a multilateral effort led by nations
around the world.
We use several tactics on the financial front of the war on terrorism.
Some of our tactics are public -- like the public designation of
terrorist organizations and the civil blocking of terrorist assets.
Other tactics are private -- for example, we work with foreign
governments to enable them to designate and block terrorist assets on
their own behalf. I would be pleased to tell you more about our
private efforts in a closed session.
One thing that is different about the financial front from the rest of
the war is that it is perhaps harder to measure success in the
financial effort. To address this, we measure success in many ways.
For example, we track the total amount of terrorist assets blocked.
Since September 11th, the United States and other countries have
frozen more than $80 million in terrorist-related assets. We expect
the amount of blocked assets to continue to grow -- although we also
expect to release some of the money. For example, assets once
controlled by the Taliban regime of Afghanistan will be returned to
the legitimate government of Afghanistan.
The amount of assets blocked underscores the importance of another
measure -- the amount of international cooperation in the financial
front of the war. I cannot emphasize enough how vitally important
international cooperation is. After all, we cannot bomb foreign bank
accounts. We need the cooperation of foreign governments to
investigate and block them. So far, we have received a remarkable
degree of cooperation. Foreign governments have blocked more than $46
million -- over half of the total of $80 million. 147 countries and
jurisdictions around the world have blocking orders in place. We work
with these countries daily to get more information about their efforts
and to ensure that the cooperation is as deep as it is broad. For
example, we are providing technical assistance to a number of
countries to help them develop the legal and enforcement
infrastructure they need to find and freeze terrorist assets.
We have also had success pursuing international cooperation through
multilateral fora including the U.N., the G7, the G20, the Financial
Action Task Force (FATF), and the international financial institutions
to combat terrorist financing on a global scale. A good example of
Treasury leadership on this issue is in the role of the United States
in the FATF on Money Laundering, a 31-member organization. In late
October 2001, the United States hosted an Extraordinary FATF Plenary
session, at which FATF members established eight Special
Recommendations on Terrorist Financing. These recommendations quickly
became the international standard on steps that countries can take to
protect their financial systems from abuse by terrorist financiers.
Our delegation is at a meeting in Hong Kong as I speak establishing a
process by which all countries will engage in a self-assessment of
compliance with these recommendations. Still a third measure is the
flow of funds disrupted. For example, when we shut down the
Al-Barakaat hawala network, we seized $1.9 million in assets. But we
disrupted the flow of much more. Our analysts believe that
Al-Barakaat's worldwide network channeled as much as $15 to $20
million to al Qaeda a year. It is important, therefore, to keep an eye
on the flow of funds -- how much money moved through a pipeline that
we froze -- as well has how much money happened to be in the pipeline
when we froze it.
Finally, we do not ignore non-quantified measures of success. I would
be willing to elaborate upon these measures in a closed session. I can
tell you in open session, however, that we believe from our
intelligence channels that Al Qaeda and other terrorist organizations
are suffering financially as a result of our actions. We also believe
that potential donors are being more cautious about giving money to
organizations where they fear that the money might wind up in the
hands of terrorists.
Having discussed some of our successes, I wish to spend a moment on
some of the complexities we face. This Committee is intimately
familiar with the challenges facing our anti-money laundering efforts.
Stopping terrorist financing is perhaps more nuanced than money
laundering because terrorist financing could be described as "reverse
money laundering." In money laundering, the proceeds of crime are
laundered for legitimate use or for use in perpetrating more crimes.
If you find evidence of the original crime, you are likely to be
placed on the trail of some money laundering. In terrorist finance, it
is often the other way around. Proceeds of legitimate economic
activity are used for illicit purposes. The money can come from almost
anywhere.
A particular form of this problem is presented by the case of illicit
charities. Illicit charities are organizations that exploit their
charitable status to funnel money to terrorists. Such organizations
are, in my view, particularly deplorable. But at the same time, it
cannot be doubted that some of them do perform some charitable acts
and that many donors believe that their donations are paying for
charitable works. To solve this problem, we are developing a
comprehensive, coordinated, inter-agency strategy to clean up illicit
charities while still providing vehicles for legitimate charitable
works.
I would like to highlight a few additional steps that we have taken.
First, we got the Foreign Terrorist Asset Tracking Center (FTAT) up
and running under the direction of the Office of Foreign Assets
Control (OFAC). FTAT was funded by Congress in the FY 2001
Appropriations Bill and was being organized and staffed when the
attacks occurred. When fully operational, FTAT will serve as an
analytical and strategic center for attacking the problem of terrorist
financing.
Since September, FTAT has served not only to provide analysis of
particular targets and networks, but also as an information hub where
intelligence and law enforcement agencies can share and analyze
information for a common purpose. Thus far, the Department of Defense,
the Department of Justice, and the intelligence community have made
vital contributions to this inter-agency effort to hunt down the
sources of terrorist financing. Though FTAT is still in its infancy,
it is making a significant impact on this cooperative and concentrated
interagency venture.
Second, on October 25, 2001, Treasury created Operation Green Quest
("Green Quest"), a new multi-agency financial enforcement initiative
intended "to augment existing counter-terrorist efforts by bringing
the full scope of the government's financial expertise to bear against
systems, individuals, and organizations that serve as sources of
terrorist funding." Green Quest is made up of investigators and
analysts from the U.S. Customs Service, the IRS-Criminal Investigation
Division, the Financial Crimes Enforcement Network (FinCEN), OFAC, the
Secret Service, and the FBI, with support from the Department of
Justice. These agencies have brought their world-renowned financial
expertise to bear on terrorist financing and have seen remarkable
results in the three months FTAT has been in existence.
Green Quest has complemented the work of FTAT in identifying terrorist
networks at home and abroad, and it has served as an investigative arm
in aid of blocking actions. Green Quest's work, in cooperation with
the Department of Justice, has led to 11 arrests, 3 indictments, the
seizure of nearly $4 million, and bulk cash seizures of over $8.5
million. Green Quest agents, along with the FBI and other government
agencies, have traveled abroad to follow leads, exploit documents
recovered, and to provide assistance to foreign governments. The work
of these financial experts is just starting but they have already
opened well over two hundred terrorist financing investigations and
are following new leads on a daily basis.
Third, we have worked closely with the FBI-led investigation into the
September 11th attacks. Immediately after the attacks, Treasury
deployed personnel to the FBI's Financial Review Group, bringing
additional financial investigative capabilities, contacts in the
financial sector, and expertise to the FBI's group. Treasury has also
deployed people to serve on various Joint Terrorism Task Forces
(JTTFs) headed by the FBI. Since then, those committed to this mission
have made significant contributions, in the Group and in the field, to
tracking the perpetrators of those heinous acts.
The November 7, 2001, designation of al-Barakaat as a
terrorist-related financial entity is an example of how Treasury
efforts, along with the fine work of our inter-agency partners, can
lead to results in this war on terrorist financing. Al-Barakaat is a
Somali-based hawala operation, with locations in the United States and
in 40 countries, that was used to finance and support terrorists
around the world. FTAT analysis identified Al-Barakaat as a major
financial operation that supported terrorist organizations and was
providing material, financial, and logistical support to Usama bin
Laden, Al Qaeda, and other terrorist groups.
Treasury coordinated efforts to block assets and to assist other law
enforcement agencies to take actions against Al-Barakaat. On November
7, 2001, federal agents executed search warrants in three cities
across the country (Boston, Columbus, and Alexandria) and shut down
eight Al-Barakaat offices across the U.S., including locations in the
following cities:
-- Boston, Massachusetts;
-- Columbus, Ohio;
-- Alexandria, Virginia;
-- Seattle, Washington; and
-- Minneapolis, Minnesota.
As part of that action, OFAC was able to freeze $1,900,000
domestically in Al-Barakaat-related funds on November 7, 2001.
Treasury also worked closely with key officials in the Middle East to
facilitate blocking of Al-Barakaat's assets at its financial center of
operations. Disruptions to Al-Barakaat's worldwide cash flows could be
as high as $300 to $400 million per year, according to our analysts.
Of that, our experts and experts in other agencies estimate that $15
to $20 million per year would have gone to terrorist organizations.
The Al-Barakaat investigation exemplifies the importance of the flow
of funds disruption measure that we are attempting to use more
broadly. In addition, the combined work of FTAT and law enforcement
led to additional leads in the Al-Barakaat investigation.
This is an example of what our combined efforts can do when we join
our resources and our expertise to fight the scourge of terrorist
financing.
Although we have made much progress, we still have much work to do.
First, we must encourage more independent identification of terrorist
groups by other countries. The EU designation at the end of December
is a step in the right direction, but we need more countries to
initiate more designations.
Second, we have to ensure that more countries issue blocking orders
for more of the entities identified, by the United States, other
countries, and the international community, as being part of terrorist
financial networks. We must also do a better job of following up with
the countries to make sure that their orders, once issued, are fully
implemented and obeyed.
Third, we must do a better job of exploiting the "industrial quantity"
of documents captured in Afghanistan and increasingly elsewhere. Hard
drives and e-mails must be exploited as well. This is a massive task.
To do it, we must bring documents together from all over the world,
translate them, cross-reference them, and thereby build a complete
picture. No one document can tell us that much.
Fourth, we must redouble efforts by U.S. and allied intelligence
services against such financial intermediaries as hawala dealers and
other informal systems.
To conclude this portion of my testimony, I believe that we have had
several important successes on the financial front of the war on
terrorism. We have marshaled the considerable expertise of our
Treasury law enforcement personnel to execute the President's mission
to detect, disrupt, and dismantle the financial infrastructure of
terrorist financing. We have worked closely with other agencies of the
federal government and, I believe, obtained an unprecedented level of
cooperation and coordination. We have worked extensively with foreign
governments to ensure that terrorist money has nowhere to hide.
Some have said that the financial war on terrorism is an impossible
task. After all, money is fungible and illegal money tends to flow to
the most hospitable country. I disagree. That the task is difficult
does not mean that it is impossible. This is an unconventional war
where there are no boundaries, where civilians are the targets, where
people (or so-called "martyrs") are the weapons, and where electronic
money transfers and messaging are the fuel and the logistics train.
Among other things, identifying the flow of money helps us find the
footprint of sleeper cells, disable them, and perhaps prevent the next
attack.
Implementation of the International Money Laundering Abatement and
Anti-Terrorist Financing Act of 2001
The Treasury Department is committed to the aggressive and thorough
implementation of the International Money Laundering Abatement and
Anti-Terrorist Financing Act of 2001. In the aftermath of September
11, efforts to enhance the Federal Government's ability to combat
international money laundering, which had already begun before
September 11th, were given a whole new level of priority by Congress
and the Administration. The government and the financial community
were forced to rethink assumptions, to reevaluate risks of money
laundering and abuse in connection with terrorist financing, and,
ultimately, to take the steps necessary to protect the country's
financial system. The results of this reassessment were dramatic.
Through the Act, which is also known as Title III of the USA PATRIOT
Act, Congress took up the challenge of eliminating vulnerabilities
within our anti-money laundering regime. Now, we at Treasury will
continue this initiative through implementing regulations.
The Act is ambitious not only in scope, but also in its aggressive
implementation schedule. The inclusion of numerous key provisions
demonstrates remarkable resolve by Congress following the September
attacks. Perhaps the most striking aspect of the Act is that in one
legislative package, Congress addressed many deficiencies identified
in our counter-money laundering regime. Treasury must address a wide
array of challenging issues and promulgate regulations with
far-reaching consequences-all on an accelerated schedule.
Treasury's Implementation Plan
Our plan for implementation relies heavily on tapping the existing
resources and expertise found in the government to develop creative
solutions to complex issues. Once the Act became law, we formed
interagency working groups to handle each of the statutory provisions
requiring implementation or reports. After identifying the appropriate
Treasury personnel to chair these working groups, we solicited
interagency participation. This system offers two distinct advantages:
(1) it brings the collective knowledge and expertise of the various
governmental agencies and departments together; and (2) it facilitates
the consultation requirements found in many provisions of the Act. I
am pleased to say that the results thus far have been remarkable.
Other agencies and departments stepped forward immediately, committing
personnel and resources. For example, less than one month after the
Act was signed by the President, Treasury issued interim guidance on
two key provisions that were set to take effect on December 26, 2001.
When Treasury requested consultation, the other agencies and
departments responded quickly, assisting with our analysis of the
issues and the completion of the guidance in time for the affected
financial institutions to use it. And the cooperation continues.
Working groups and subgroups meet almost daily. Drafts are being
circulated and comments are received when requested. We are grateful
for the assistance.
Another encouraging result of this process has been the response of
the private sector and industry groups. With respect to several key
provisions, we have received not only positive comments about the
legislation, but also helpful insight into implementation issues.
Others have contributed by simply taking the time to educate us on
their particular industry and existing practices and procedures.
Regulations cannot be conceived and drafted in a vacuum. Creative and
constructive suggestions from those who will be affected by the
regulations allow us to identify issues early and then find solutions
early.
As I noted, our implementation plan has met with some early success.
Since October of last year, we have issued interim guidance and
regulations covering four statutory provisions. The two provisions
that took effect in December were the prohibition against certain U.S.
financial institutions maintaining correspondent accounts for foreign
shell banks or indirectly providing services to them (Section 313) and
the requirement that U.S. financial institutions obtain ownership and
registered agent information from foreign banks for which they
maintain correspondent accounts (Section 319(b)). On November 20, less
than one month after the passage of the Act, Treasury issued interim
guidance that explained the provisions, identified their scope, and
provided financial institutions with a certification that could be
utilized to comply with the provisions. Treasury subsequently issued a
formal proposed rule in December that codified the Interim Guidance as
a regulatory standard. On a separate front, four months ahead of the
statutory deadline, Treasury issued in December a regulation
implementing Section 365 of the Act, which effectively gives FinCEN
access to reports filed by non-financial trades or businesses when
they receive $10,000 or more in coins or currency. Finally, as
required by Section 356 of the Act, Treasury issued in December a
proposed rule that would require securities brokers and dealers to
file suspicious activity reports. In support of FinCEN's increased
responsibilities under the Act, the President's FY 2003 budget calls
for a $3.3 million dollar increase in FinCEN's budget to help FinCEN
expand suspicious activity reporting to a number of new industries and
maintain the Suspicious Activity Reporting Hotline, begun this fall,
to expedite the investigation of suspicious financial activities.
We have many additional regulations to promulgate and reports to file
with Congress. We are determined to promulgate these regulations and
prepare the reports expeditiously. We are always cognizant of the
urgency of our task. At the same time, we are also working closely
with other agencies, the private sector, and, of course, the Congress
to ensure that we do our job not just fast, but well.
Treasury's Implementation Principles
As we implement the Act, we are guided not only by the express
statutory language, but also by certain core principles that reflect
our vision of what this legislation should accomplish and the manner
in which it should be implemented. This legislation addresses broad
issues and relies heavily on implementing regulations to define the
scope of the provisions. Through the regulatory process, we will take
the general and make it specific, exercising our discretion where
appropriate. In this role, it is essential that we remain true to our
core principles, which are as follows:
1. Prevent regulatory arbitrage.
The Act takes aim at those areas of our financial and regulatory
system that present opportunities for exploitation. Treasury embraces
this goal, and, through the regulatory process, will adhere to the
principle that people should not be able to shift from one type of
financial institution to another in order to avoid a regulatory scheme
or anti-money laundering controls. The test is a functional one,
namely, can a similar financial transaction be accomplished through
another financial institution with less regulation. The justification
for this principle is two-fold: first, our financial system is only as
secure as its most vulnerable point; and second, a regulatory scheme
must not create a competitive advantage for one type of financial
institution over another when they perform the same or similar
functions.
Our proposed regulation for Section 319(b) illustrates the point.
Section 319(b) provides the Secretary of the Treasury and the Attorney
General with administrative subpoena authority to compel the
production of documents from foreign banks with correspondent accounts
in the U.S. The section also requires "covered" U.S. financial
institutions that maintain a correspondent account on behalf of a
foreign bank to maintain records identifying the owners of the foreign
bank as well as its registered agent. But, Section 319(b) does not
define "financial institution" for purposes of the section. Based on
the notion that similar activity ought to be regulated similarly,
instead of limiting the application to depository institutions-such as
banks, thrifts, credit unions-Treasury proposed to extend the rule to
securities brokers and dealers who also maintain correspondent
accounts for foreign banks. In this way, the rule does not create the
opportunity to shift from a bank to a securities broker or dealer in
order to avoid regulation.
The provision of the Act requiring Treasury to issue a rule requiring
securities brokers and dealers to file suspicious activity reports
embodies this same principle. Banks and other depository institutions
must file suspicious activity reports because such reports are
important to the fight against money laundering. Because the potential
for money laundering exists in the securities industry, a similar rule
will soon apply. Section 356 of the Act also directs us to recommend
whether and how to bring investment companies under the Bank Secrecy
Act. For this as well we will analyze the functional activities of
such entities, compare them with the activities of regulated entities,
and identify the money laundering risks presented. With this
information, Treasury will be able to proffer methods for applying the
BSA to such entities.
2. Honor a central purpose of the Act: to enhance coordination and
information flow.
An overarching goal of this legislation, and an important lesson we
are learning as we continue our work to disrupt the financial
underpinnings of terrorism, is that appropriate information must be
made available to enable law enforcement, the intelligence community,
and the regulators to protect our financial system. The financial
institutions themselves have a critical role in sharing and reporting
information. The Act facilitates information sharing on a number of
levels: (1) among law enforcement and financial institutions; (2)
among regulators, law enforcement, and the intelligence community; and
(3) among financial institutions themselves. We will fulfill this goal
of enhancing the ability to use and share information to combat
terrorism and money laundering.
Treasury, through FinCEN, is well positioned to continue to expand its
role as the lynchpin for information sharing and coordination between
the government and the financial sector. Indeed, Section 361 of the
Act, among other things, requires FinCEN to establish a high-speed
network for access to its extensive BSA data and information.
Similarly, Section 362 requires Treasury to establish a highly secure
network through which financial institutions can make Bank Secrecy Act
filings and receive alerts regarding suspicious activities or persons
requiring immediate attention. Treasury is charged with establishing a
highly secure network through which financial institutions can make
Bank Secrecy Act filings and receive alerts regarding suspicious
activities or persons requiring immediate attention. I am pleased to
report that FinCEN is on schedule to have a working prototype for
initial testing by mid-April.
Additionally, Section 314 of the Act contemplates an expanded role for
Treasury in the sharing of information regarding terrorism and money
laundering not only among law enforcement and financial institutions,
but also among financial institutions themselves.
Treasury is completing work on a regulation that will be issued by the
February deadline that, in part, first sets up the procedures by which
financial institutions may share information among themselves
regarding suspected terrorist financing, including money laundering,
after providing notice to Treasury.
3. Respect important privacy rights.
The significant anti-money laundering provisions of the Act also serve
to highlight the tension between the need to share information and the
legitimate need for financial privacy. We acknowledge, as we must,
that now more than ever law enforcement and the intelligence community
must have the ability to obtain and share financial information.
However, that need must always be balanced against our fundamental
notions of privacy. Striking that balance is the challenge for
Treasury as we implement this legislation.
4. Require only the degree of reporting that results in action by the
government.
The potential new reporting obligations created by the Act mean that
we must be even more vigilant in ensuring that the information
reported is useful and in fact will be used effectively by the
government. One consequence of an aggressive regulatory scheme is
increased reporting obligations. But additional reporting requirements
in and of themselves cannot serve as proxies for an effective
anti-money laundering regime. If the information is not going to be
used, it should not be requested. This principle guided our approach
to implementing Section 365. That Section requires that non-financial
trades or business file a report when they receive over $10,000 in
coins or currency-a requirement that is virtually identical to the
requirement placed on the very same businesses to file a report with
the IRS under section 6050I of the Internal Revenue Code. Although the
purpose of Section 365 was unquestionably to provide law enforcement
and regulatory authorities with access to the same information
currently received by the IRS-information that could not be easily
shared because of the IRS confidentiality statute-as written, Section
365 seemed to impose a new reporting requirement. Thus, we crafted a
rule that permits businesses to file a single cash reporting form that
will go to both FinCEN and the IRS, thus satisfying both reporting
requirements with a single report.
5. Protect our financial system.
The Bank Secrecy Act exists to protect our financial system. The Act
provides Treasury with additional authority to systematically
eliminate known risks to the financial system as well as to act in
response to a specific threat that may arise. Proven high-risk
accounts, such as correspondent accounts maintained on behalf of
foreign shell banks, will no longer be permitted access to our system.
In Section 311, you have also given us a powerful weapon with which we
can apply graduated, proportionate measures when specific money
laundering risks involving foreign jurisdictions and individuals
arise. This new authority makes it clear that the Secretary, in
consultation with other agencies, can impose an array of special
measures that are tailored to the particular risk presented. Treasury
is conducting active training and outreach to educate law enforcement
agencies about this new tool.
Treasury's Implementation Priorities
Within the framework of the principles I have outlined above, the
first priority for Treasury is to take all reasonable steps to meet
the deadlines imposed by the Act.
We have devoted considerable resources to this task, redirecting our
policy objectives to accommodate this effort. I will not sit here
today and assure this Committee that, without fail, we will meet each
deadline. The issues presented are complex and, as we proceed, new
ones continue to arise. I can assure you, however, that we are working
and will continue to work diligently on implementation, while taking
the time that may be necessary to resolve difficult legal and policy
questions.
Beyond the deadlines imposed in the Act, we have identified various
provisions which, for a variety of reasons, we seek to pursue at the
outset. These are provisions that, in our view, ought to be addressed
on an expedited basis if possible. Finally, certain provisions with no
immediate deadlines will inevitably have to be implemented after the
more immediate priorities.
1. The First Tranche -- To be Implemented by April.
Over the next three months, we are striving to implement statutory
provisions addressing: (1) information sharing among financial
institutions, law enforcement and regulatory authorities (Section
314); (2) enhanced due diligence provisions applicable to financial
institutions that maintain either private bank accounts or
correspondent accounts for non-U.S. persons (Section 312); (3) methods
for identifying and confirming the identity of foreign nationals
(Section 326); (4) the minimum requirements for anti-money laundering
compliance programs for financial institutions; (5) the role of the
IRS in the administration of the Bank Secrecy Act (Section 357); and
(6) methods for improving compliance with the obligation to report
foreign bank accounts (Section 361). Additionally, we will be issuing
final regulations covering the foreign shell bank correspondent
account prohibition (Section 313), the record-keeping provision under
Section 319(b), and the cash reporting requirements (Section 365).
2. The Second Tranche -- To Be Implemented as Expeditiously as
Possible.
Treasury is moving forward now to implement the following provisions
addressing: (1) the authority of the Secretary, in consultation with
other agencies, to designate primary money laundering concerns and
impose special measures against them (Section 311); (2) concentration
accounts (Section 325); (3) account opening procedures (Section 326);
(4) suspicious activity reporting for futures commission merchants,
commodity trading advisors, and commodity pool operators (Section
356); and (5) the efficient use of exemptions for currency transaction
reports (Section 366). We intend to issue regulations further defining
terms contained in Section 311 at the same time we issue regulations
implementing the due diligence provisions of Section 312. Also,
Treasury and the regulators are aggressively moving forward to draft
regulations setting forth customer identification procedures for
financial institutions.
Immediate Results
Although we have much to do to fully implement the provisions of the
Act, I wish to emphasize that the Act has helped us generate immediate
results in the financial front of the war on terrorism. I alluded to
two of those results at the beginning of my testimony.
Information Sharing
The amendments to the Bank Secrecy Act clarify the authority of the
Secretary to share BSA information with the Intelligence Community for
intelligence or counterintelligence activities related to domestic or
international terrorism, regardless of whether the BSA information is
related to law enforcement.
The amendments to the Right to Financial Privacy Act ("RFPA") further
enhance the ability of government to obtain and share relevant
financial records with another agency or department, such as FinCEN
and OFAC, involved in intelligence or counterintelligence activities
related to international terrorism without notifying the targets. The
amendment to the Fair Credit Reporting Act facilitates government
access to information contained in suspected terrorists' credit
reports when the inquiry relates to international terrorism. This
amendment allows those investigating suspected terrorists prompt
access to credit histories that may reveal key information about the
terrorists' plan or source of funding -- without notifying the
targets.
The Act also allows for greater information sharing with the private
sector and self-regulatory organizations. Under the Act, for example,
financial institutions that submit voluntary disclosures of
information relating to terrorism and money laundering are immunized
from liability, and Bank Secrecy Act reports can now be made available
to securities and commodities self-regulatory organizations.
IEEPA Amendments That Have Helped in Our Freezing Efforts
This Committee was also largely responsible for amendments to the
International Emergency Economic Powers Act ("IEEPA") that clarified
the authority of the President and the Treasury Department to target
and block terrorist assets successfully and efficiently. On December
14, 2001, OFAC utilized this authority to block suspect assets and
records during the pendency of an investigation in the case of Global
Relief Foundation and Benevolence International Foundation, two
charities with locations in the United States.
In addition, it has become easier to share and use intelligence
information for freezing assets since the PATRIOT Act authorized
courts to consider classified information under the Act without such
information being disclosed to those challenging the blocking. The
IEEPA amendment also grants the President the power to confiscate and
vest in the United States Government property of countries or persons
involved in hostilities or attacks against the United States. Though
this authority has not been used, it is a powerful new tool available
to the Executive and a deterrent effect to those who would support
terror.
New Tools to Follow the Money and to Deter Money Laundering
The Act also strengthens existing money laundering provisions and
enhances the Treasury Department's ability to deal with this problem
-- which, in many respects, is related to the issue of terrorist
financing. For example, the Act now requires that trades or businesses
receiving more than $10,000 in coins or currency file reports with
FinCEN. In addition, as of January 1, 2002, certain money service
businesses are required to register with FinCEN and are now required
to file suspicious activity reports (SARs) for money orders,
traveler's checks, and all transactions by money transmitters. While
Congress gave Treasury the authority to impose some of these
requirements before the Act was enacted, the Act extended the
requirement to underground money transmitters. We have acted promptly
to take full advantage of this new extension of authority. To date, it
appears that registration is on track, and we will be able to begin
the process of finding those underground money remitters who fail to
register and charge them criminally if they have not registered in
accordance with the law. In addition, the Act has given sharper teeth
to these provisions by increasing civil and criminal penalties for
Bank Secrecy Act violations.
In all, the Act enables us to fulfill our mission of thwarting the
criminal use of the financial system in a way that was unavailable or
impossible before October 25, 2001.
Conclusion
Mr. Chairman, we are engaged in a long-term battle against illegal
abuse of the financial system. Whether it is terrorist financing or
classic narcotics money laundering, we need to take every measure
possible to combat the evil deeds that soil our financial system and
pose a real threat to our security.
Treasury will continue to use the powers and assets at its disposal to
ferret out terrorist financiers and networks and choke the funding
source for terrorists here at home and abroad. We will continue to
work in close coordination with our sister departments and agencies
and with our international partners to make our campaign against
terrorist financing as effective as possible. Furthermore, we will
continue to fight the battle against money laundering and the criminal
misuse of the financial system. An essential part of this mission is
the complete and efficient implementation of the provisions of the
Act. We are ready for this sustained effort, and we appreciate your
support.
Mr. Chairman, this concludes my formal testimony. I would be pleased
to answer any questions that you, or members of the Committee, may
have regarding the Administration's goals and policies regarding
terrorist financing and the Act.
Thank you.
(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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