SPEAKERS CONTENTS INSERTS
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USE BY THE DEPARTMENT OF THE
TREASURY OF THE GEOGRAPHIC TARGETING
ORDER AS A METHOD TO COMBAT
TUESDAY, MARCH 11, 1997
House of Representatives,
Subcommittee on General Oversight
Committee on Banking and Financial Services,
The subcommittee met, pursuant to call, at 10:10 a.m., in room 2128, Rayburn House Office Building, Hon. Spencer Bachus [chairman of the subcommittee] presiding.
Present: Chairman Bachus, Representatives LaTourette, Velázquez, Kilpatrick and Hooley.
Chairman BACHUS. Good morning. This is the first meeting of the Banking Oversight and Investigations Subcommittee in the 105th Congress. I would like to start off by welcoming Ms. Carolyn Kilpatrick of Michigan to the subcommittee, and we are certainly glad to have you on board.
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The bipartisan group of the Congress met together this weekend in Hershey, Pennsylvania. You all may have read about that. And bottom line we have received a message, I think all of us, from the American people that they are tired of a lot of this partisanship, they are tired of us creating problems for each other. What they want is us to make progress on dealing with the people's problems. And I think it is fitting that right after that weekend, I think with this subcommittee hearing we have a perfect opportunity not to talk about our failures, but to talk about our successes, successes of good government agencies, government agencies being successful and addressing the problems of the people, agencies cooperating together, and really a success story, Ray.
I think we are here to talk not about something that went wrong, which we often do, or an agency where people are coming before us complaining, but a situation where the NYPD, the New York State Police, Treasury, your various bureaus all work together, U.S. Attorneys' offices, too. I am going to get you--no, we are going to give you the opportunity to tell us who all participated in this effort. We want you to tell the story and not us.
But bottom line, this has been a tremendous victory in the war against drugs. We have had a lot of, you know, a lot of bad news in the press, but drug dealing is--basically people forget it is a two way street. The drugs come in, and the money goes out. And to be successful for the drug dealers to make a profit, the drugs have to come in and the profits have to get out. If they are interrupted along the process the drug dealer gets hurt, and their profit goes away and with their profit going away goes their motivation. So if you hit their bottom line, their profits, you help take away that motivation.
Page 3 PREV PAGE TOP OF DOC And that is basically what the El Dorado Task Force has done. They have hit organized crime and they have hit the drug dealers of our country hard. They cost them a lot of money. They have made it harder for them to do business. They have made them seek new ways to get the money out of the United States, and when they did that, it caused a ripple effect, and we have all seen that your agencies have been much more successful in making intercepts of money at airports and other locations.
Now, the public may not have realized when they read about these large interdictions of money what was causing this, but hopefully at the end of this hearing they will understand that the work of the El Dorado Task Force in and around New York City actually precipitated a lot of seizures of money going out of the country. You did a good job in disrupting drug deals in and out of this--drugs coming into this country and money going out.
I think we all have to be concerned that in doing this, we recognize that there is a lot of legitimate business internationally. We live in a global economy, and as we seek to hit the drug dealers, to take away their profits, we have to design a system that at the same time recognizes the legitimate need to move money and financial instruments from country to country. And it is a hard balancing act. With NAFTA, with GATT, with world trade, there is an increasing and a continuing need for international financial transactions. But I think you have really gone out and are on the forefront of constructing a system and constructing a strategy and a tactic where you have not interrupted legitimate financial business transactions, but at the same time you have targeted and you have done a very good job of disrupting illegal activities.
I read in the New York Times this morning a page one story which pretty much says it all when it says that there are 25,500 Colombian families in New York City, most of them honest, law abiding citizens. Knowing that the median income for those families was somewhere around, I think the paper reported $27,000 is their total income for the year, that those families would each have to average sending $50,000 back to Colombia annually, and we know that that is not possible. We know that what had to happen is hundreds of millions of dollars of illegal drug money went back to Colombia.
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At this time we have some other Members of the subcommittee. I want to make some introductions. I am going to start with Steve LaTourette from Ohio.
Steve, we want to welcome you to this hearing today.
Mr. LATOURETTE. Thank you, Mr. Chairman.
[The prepared statement of Hon. Steve LaTourette can be found on page 34 in the appendix.]
Chairman BACHUS. And also I want to welcome Darlene Hooley of Oregon.
Darlene, we are really glad to have you on this subcommittee, thrilled to have you.
Ms. HOOLEY. Thank you.
Chairman BACHUS. Then from really the district where a lot of this happened, and someone that knows more about this subject than I do, Ms. Velázquez.
If you want to make an opening statement since Ms. Waters is not here, I will let you do that.
I simply want to close by saying we have three people that will testify here today. We have Ray Kelly, Under Secretary of Treasury, who heads up FinCEN, Customs, the agencies who participated in many of these activities. And, Ray, I really sincerely mean this, people want government. I think they may not realize sometimes they need government. Sometimes they are downright anti-government, but if there were more Ray Kellys out there, they would certainly have a better feeling toward the government and its agencies. And when they do the type of work you did here, I think it makes them feel good about what you are doing, and I think it is public service in the truest sense of the word, and I want to thank you.
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We talk about looking for heroes in our country and who the heroes are, and do we make drug dealers heroes, or who are our heroes? I think three of the gentlemen here testifying before you today are heroes.
Also, Chief O'Boyle, I am glad to have you and the NYPD; you and the State Police, I think Nassau and Suffolk County Police, as well as Customs, Treasury and IRS--I did say IRS, didn't I? IRS did a lot of good work on this case, and I am sure we will hear that from you. But, Chief, we welcome you to our city. And NYPD really came through this time and hit the drug dealers hard, and we appreciate this effort.
I think this GTO is really going to be a weapon that worked well here, and as long as we preserve the surprise in the system it will continue to work. And I think maybe surprise was something that worked up here; that, plus you pulled together a big team. You had the people on board that were able to make it work: good staff, coordinated effort, and surprise.
And finally, Robert Litt, U.S. Attorneys Office. That is where you are from, isn't it?
Mr. LITT. Department of Justice.
Chairman BACHUS. Department of Justice. You are here speaking about what the U.S. Attorneys did in this case in the Department of Justice?
Mr. LITT. Yes, sir.
Page 6 PREV PAGE TOP OF DOC Chairman BACHUS. Congress, in 1992, I think they also should claim at least a cooperating effort. As opposed to getting in your way, I think they gave you some of the tools in 1992 and 1994, and Treasury did a great job in putting this together.
Ray, I want you to go back to your supervisor, I guess Robert Rubin, and tell him that we are proud of his efforts. And as I said, I hope the message that comes out of today is that we are having some success in the drug war.
At this time I am going to yield to the gentlelady from New York for a statement; and after that we will hear in order from Ray Kelly, Robert Litt, and Chief O'Boyle.
[The prepared statement of Hon. Spencer Bachus can be found on page 30 in the appendix.]
Ms. VELÁZQUEZ. Thank you, Chairman Bachus, for holding this hearing on an issue that is not only timely, but of great importance to the community I represent, money laundering through the booming money remitting industry. I am especially happy to see the familiar faces of some fellow New Yorkers. Welcome, Under Secretary Kelly and Chief O'Boyle. Unfortunately, Commissioner Safir could not join us, but I wish him a speedy recovery. I would also like to thank Deputy Assistant Attorney General Litt for joining us.
If you take a walk down Roosevelt Avenue in Jackson Heights, within a five-block radius there are over 300 money remittance centers in operation. These envios, as they are called, spring up and close down so quickly that tracking them is nearly impossible. Worst of all, the negative impact this criminal enterprise has on the hard working families in my district is enormous.
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Today we will hear testimony on the El Dorado Task Force, a network of Federal, State and local law enforcement. Their work has revealed that many of these envios have been and continue to be used by drug cartels to funnel their illicit proceeds from drug sales to drug source countries. The Task Force's recent success in closing down several small- and medium-sized cash remitters in Jackson Heights has resulted in a dramatic reduction in the flow of drug proceeds abroad.
The fact of the matter is that money laundering--sorry. The fact of the matter is that money laundering has become big business, which is why it is drawn to financial centers like New York City. But in doing so, it has settled in areas like Jackson Heights, Queens, in my district. The unfortunate reality is that these criminals do not bring investment dollars and a better way of life for my constituents; they bring guns, fear and death.
In fact, Federal authorities have identified 12 large scale businesses in the New York metropolitan area that were used to wire more than $1.2 billion a year, including hundreds of millions in illegal drug proceeds. These large companies are affiliated with hundreds of smaller businesses ranging from travel agencies to beeper and cellular outfits. The widespread abuses this loosely supervised envios industry has on catching legitimate businesses in the cartel's criminal web is devastating.
Initiatives like El Dorado are a huge step in the right direction in ridding this plague from neighborhoods, but we here in Congress need to do more. It is up to us to ensure that local law enforcement has the best tools to fight these criminals.
Page 8 PREV PAGE TOP OF DOC To date Congress has done little as partners in this war. How can we expect local police departments to fight a crime network with a budget larger than many States' and that can relocate anywhere at any time? Simply stated, they cannot. It is time for Washington to reach out even more and form partnerships with those on the front lines.
Better partnerships must be formed in order to assure an equitable distribution of resources. Greater attention must be given to foster participation of smaller local enforcement agencies by making additional resources available and giving them great ability to share information with each other and obtain information from the Federal Government.
As this and past hearings have shown, there are many good people fighting this war and winning more than their fair share of battles. A perfect example of how effectively this war is being fought on the local front are the efforts of someone who I have been working very closely with to stem this criminal tide, Queens District Attorney Richard Brown. D.A. Brown could not be with us this morning, but I assure you his presence on this issue has been felt in my community. With limited assistance from the Federal Government, D.A. Brown has stayed one step ahead of many of these criminals. Why? Because of sheer ingenuity and hard work. I urge everyone here today to form strong ties with local law enforcement. By working together as a team, we will root out these criminals.
Mr. Chairman, thank you again for convening this hearing that sheds national attention to an urgent problem that faces my constituents. But even if you do not represent New York, Texas or California, the effects of these crimes are far reaching. The Task Force's work has been great, and I urge them to keep fighting. It is time Congress sent a clear message to these criminal organizations they will no longer be tolerated.
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Thank you, Mr. Chairman.
Chairman BACHUS. Thank you.
[The prepared statement of Hon. Nydia Velázquez can be found on page 35 in the appendix.]
Chairman BACHUS. Now we are going to hear from the panelists. First of all, I want to point out that the Police Commissioner of New York City, Howard Safir, was supposed to have testified today, and Friday he underwent open heart surgery, so as opposed to hearing from him, we want to wish him success in his recovery and recuperation and tell him that we are thinking about him, and we obviously know why he is not here today.
And, Chief O'Boyle, I appreciate you being here, and we want to thank you. We do want to recognize the Commissioner for his efforts in this Task Force.
Ms. Kilpatrick, you are going to make an opening statement. By all means.
Ms. KILPATRICK. Thank you very much, Mr. Chairman. I certainly appreciate the opportunity and that you called this hearing. It is most important. I do believe that drugs are the cancer of America and that we must, as the U.S. Congress, take a more active role.
I first want to ask, Mr. Chairman, for unanimous consent that all statements are submitted to be part of the record of this hearing, that we allow those statements to be submitted.
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Chairman BACHUS. So done, without objection.
Ms. KILPATRICK. As was mentioned earlier, I certainly want to commend both Justice and Treasury for the work they have already done in the El Dorado case as well as what will follow.
I do believe that interdiction has got to be enforced, that we must do something to stop the flow of drugs into America. We always talk about Miami and the borders around the country, but, in fact, drugs are a cancer throughout this country.
I chaired a prison budget in Michigan where the budget went from $200 million to today it is $1.3 billion; where it cost $43 million to build a prison; $15 million a year to operate it. We are now spending more money on prisons than we are on education; and that 67 percent of the people incarcerated in Michigan are there because of drug offenses, mostly drug use, some drug trafficking, which are mostly found in the Federal system.
I commend you, Chief O'Boyle and Mr. Kelly and others, for the work that you have already done, but unless we get more serious and go to the source, I think there will not be enough money.
In New York I read that they stopped $29 million in 3 to 4 months, an astronomical figure, but I contend that there are many more millions floating in this country, and we must--and Mr. McCaffrey met with our Drug Crime Task Force a couple of weeks ago and talked about the efforts that the Department is doing, and we commend you for that. But I would hope that this 105th Congress and the men and women who serve here will take this a bit more seriously, that we stop the drug trafficking. I believe it can be done. This is the richest country in the world, and our children's lives are at stake.
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Mr. Chairman, I commend you for discussing this today and commend you for calling this hearing. Thank you very much.
Chairman BACHUS. Thank you. And I commend the lady's staff from Michigan for their cooperation on holding this hearing as well as yours, Ms. Velázquez.
I might mention at this time that General Barry McCaffrey, who is the Director of the Office of National Drug Control Policy for the Administration, had originally hoped to testify here today. However, we made a decision because of the Mexican Certification, he is working very hard on that, that is something that obviously, as you know, is before Congress this week and is basically consuming an awful lot of his time, as it should. That is quite proper.
[The prepared statement of Gen. Barry McCaffrey can be found on page 68 in the appendix.]
Also because we wanted to give you gentlemen an opportunity to be heard and felt like your story was important enough not to have two panels on 1 day, General McCaffrey will meet with this subcommittee in April, and we will have a follow-up hearing at that time.
We will also have Mr. Stan Morris from your office, Mr. Kelly, who is scheduled to testify before us March the 19th in this matter, and we will go into some regulatory matters as far as FinCEN and how we are combatting the problem. So we will be having follow-up hearings. This is the first of at least three hearings on this matter.
Page 12 PREV PAGE TOP OF DOC And with that, if no other Members wish to comment, I will turn this over. Mr. Kelly, if you will start off our testimony. We originally listed you as the first speaker; Robert, you as the second speaker; and, Chief O'Boyle, you are going to be testifying third, and in no certain order except that is how we got back the acceptances.
Mr. Kelly, do you have an opening statement?
And I will say this, I am going to submit my written statement for the record, which is quite lengthy, and I spared you all today. And also I want to submit an article from the Washington Post, March 7th, which really I want to commend Pierre Thomas for, I think, condensing a very complex subject down into a readable form. It is a very good article, and it also, I think, is helpful in that it describes Treasury and FinCEN successfully combatted money laundering through banks and other financial institutions; this pushed the money launderers into our non-banking financial institutions or transactions, and how this had an effect of doing that, and you have successfully adapted your tactics to counter theirs. And I think he does a good job on that.
With that, Mr. Kelly, we appreciate your attendance.
STATEMENT OF HON. RAYMOND KELLY, UNDER SECRETARY FOR ENFORCEMENT, DEPARTMENT OF THE TREASURY
Mr. KELLY. Thank you very much, Mr. Chairman and Members of the subcommittee. Thank you particularly for giving us the opportunity to tell the success story. The New York Geographic Targeting Order has been in place now for 7 months, and it has dramatically disrupted the Cali Cartel's movement of drug money through New York money transmitters.
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Before giving you an overview of how the GTO works, I would like you to meet the El Dorado Task Force who made it work, and I would like the people to stand and be recognized.
First, from the Customs Service, Supervisory Agent John Forbes and his team. Would you stand? Thank you.
From New York City Police Department, Lieutenant Ronald Rose and his team.
From the HIDTA Task Force, Sharon Garvey and Kwok Sang Chong. Thank you.
And I want to especially recognize the hard work of U.S. Attorney Bonnie Klapper of the Eastern District of New York. Thank you.
And finally, from the Financial Crimes Enforcement Network, Joseph Meyers and his team. Thank you.
Now I would like to provide a brief overview of the----
Mr. BACHUS. I would like to recognize these people, and let's give them a hand of applause.
Mr. KELLY.----Hopefully we are able to follow along on our slide presentation here.
The GTO has been in place since August 7th of 1996 and is scheduled to expire next month. It currently requires 22 licensed money transmitters, and there are approximately 3200 agents to report information about the senders and recipients of all cash transmissions to Colombia of $750 or more.
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Chairman BACHUS. Let me say at this time we have kind of got one of those quandaries where, Ray, you are probably losing a little TV time, and at the same time that I want us to hear these, to see these graphics, I think, through the electronic eye and the press, we also want your message to get out. So if you would turn the lights back up somewhat. We could see it before I think. Would you rather have them up? I asked them to turn them down, and they did. Now I ask them to turn them up.
Mr. KELLY. These locations are typically small storefronts where you can walk in to send cash to a friend or a relative. The cartels have been using them to move their drug profits out of the United States.
Now, the GTO was issued under a provision of the Bank Secrecy Act, which allows the Treasury to require remittees and other financial institutions in the given geographical area to comply with special reporting or recordkeeping obligations. Instead of being able to send up to $3,000 anonymously, now people can send only $750 at a time without showing photo identification. For higher amounts they have to identify themselves and have their names kept on record.
Virtually overnight the cartel instructed its people to stop using the remitters. The cartel's cash piled up, and when they tried to get the money out of the country by smuggling it out, the Customs Service began seizing it in record amounts.
Despite State licensing procedures, it has become clear that the money transmitter industry across the country is vulnerable to abuse by organized money launderers. This fact has been made plain as day by the work of the Treasury-led El Dorado Task Force.
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The El Dorado Task Force can serve as a model of interagency cooperation and innovation in combatting a broad base of money laundering and financial crime.
The task force includes 140 agents, police officers and support personnel from 13 agencies, including the Customs Service, the IRS Criminal and Examination Divisions, the Secret Service, the New York City Police Department, and the New York State Banking Department.
The Task Force targets banks, brokerage houses and others who try to launder drug money by smuggling it out of the country. Since its inception in 1992, El Dorado has enjoyed a legacy of success unmatched in Federal law enforcement. The Task Force, these people introduced earlier, have seized over $150 million in cash, made 700 arrests, and captured more than 2 tons of cocaine and 120 pounds of heroin.
Along with the fruits of El Dorado's earlier work, we had the basis to issue the targeting order in the New York metropolitan area.
Twelve licensed transmitters and their 1,600 agents were identified as particularly vulnerable to abuse. The $1.2 billion business volume of the 12 money transmitters sending money to Latin America simply did not accord with the size of the Colombian community in the New York area. $800 million of the total went to Colombia.
To account for this figure, each Colombian household would have to send approximately $50,000 a year through money transmitters to Colombia. Given that the median household income of this same community is, roughly, $27,000 a year, there was cause for concern.
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The terms of the order were designed to avoid interfering with legitimate commerce as much as possible. We targeted Colombia because that is where most of the large cash transfers were going. The reporting threshold of $750 was estimated to be well above the average $200 to $500 for legitimate transmissions.
Money transmitter agents were required daily to report identifying information about the sender and the recipients of each covered transaction on a special form, along with the photo identification of the sender. At the same time, the licensed money transmitters were required to file electronically on a weekly basis the same information filed by the agents. This enables investigators to check the accuracy and completeness of both.
All of the information reported was forwarded to the New York High Intensity Drug Trafficking Area, or HIDTA office, and entered a FinCEN database to help analyze it. The GTO caused an immediate and dramatic reduction in the flow of drug money to Colombia.
Our analysis of data generated by the GTO was ongoing, but the targeted money transmitters overall business volume to Colombia appears to have dropped by approximately 30 percent. We believe that most of this money has been physically removed from the New York metropolitan area either by transfers through money transmitters operating in other cities along the East Coast or by bulk smuggling out of the United States.
Customs agents have seized over $50 million since the GTO went into effect. That is four times higher than it has been in prior years.
Page 17 PREV PAGE TOP OF DOC Up and down the East Coast, Customs has seized money that had been concealed in some of the most ingenious ways imaginable. The El Dorado Task Force has already arrested 10 defendants, executed 22 search warrants on 22 transmitters suspected of structuring transactions in violation of the GTO and won the first ever guilty plea of that activity.
The GTO has taught us some valuable lessons: First, the cartel was centrally controlling money laundering; second, cartel bulk money shipments were vulnerable to seizure; third, our Task Force approach was the GTO's key to success; fourth, the GTO requires intense administrative support; fifth, it complements traditional law enforcement techniques; sixth, the GTO could be applied in other targeted locations.
And finally, where do we go from here? Naturally we have begun to consider when and under what circumstances the Department of Treasury might wish to issue additional GTOs. We need to devote the right combination of investigative, analytic and administrative support to do it right.
Treasury and Justice plan a series of enforcement meetings involving U.S. Attorneys and Treasury agents across the country, to employ future strategies. We are also implementing the Congressional mandate to register money service businesses generally. The Federal registration requirement will consolidate information about the industry for investigators and put real teeth into the law that already makes it a Federal crime to operate an unlicensed or unregistered money transmitting business.
We want to require suspicious transaction reports, and we want to lower the cash threshold for when reporting by money transmitters is required.
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Before I end, Mr. Chairman, I would like to show you a few quick news clips. They show what happened when the GTO tightened the noose.
Can we roll that tape, please?
It took 3 full days before U.S. Customs agents could count all these bills, $6.2 million in somebody's drug profits, wrapped, stacked and stashed in merchandise bound for Cali, Colombia, the kind of merchandise shipped daily from the Port of Miami. In this case, though, the electronics are surgically gutted, the appliance boxes refilled. The small bills weathered and worn tell agents this is likely from street level drug sales.
Well, what is significant is the volume, of course, $6,200,000 is a lot of money to be moved out in cash. And it just proves that the bulk movements of currency are still taking place. Twice in a single week, millions in cocaine profits bound for Colombia were found stashed in stereo equipment and seized.
I feel like we should be sending a drum roll because in the last week we obviously seized $15 million. This time the ship carrying the drug cash was turned back, the containers seized, and box after box, a quarter million dollars worth of gutted electronics of hot water heaters X-rayed and opened, the cash more than $9 million. This is a representation of bulk cocaine coming into the country, or bulk money going back out.
Page 19 PREV PAGE TOP OF DOC Just last Friday, police and Federal agents nabbed $6 million packed the same way, all tied to the same alleged Cali Cartel operatives in New York. These particular two seizures represent the largest single amount of cash that the Federal agencies and all State locals intercepted going back to Colombia. So what we are trying to do basically is take the profit out of the crime.
Mr. Chairman, I want to thank you and the subcommittee for giving us this opportunity, and to emphasize once more how proud I am of the men and women of the Treasury Enforcement as well as Department of Justice and New York Police Department, in which I have served for 31 years, who have worked hard to make El Dorado and GTO so successful.
Thank you very much, sir.
Chairman BACHUS. Mr. Kelly, I am aware that you are a Police Commissioner of New York. But would you tell the other Members of the subcommittee your background because I think that is quite impressive, and I think obviously that background and that experience gave you a leg up in helping coordinate this.
Mr. KELLY. Thank you, sir.
I was a member of the New York City Police Department for 31 years. I started as a police cadet, which is lower than a police officer, and worked in 25 different commands and was fortunate enough to be Police Commissioner from 1992 to 1994. Thank you, sir.
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Chairman BACHUS. You also were a Marine; were you not?
Mr. KELLY. Yes, sir. I spent 30 years in the Marine Corps, in the Marine Corps Reserve, then I retired as a Colonel in 1993.
Chairman BACHUS. I see. And when were you appointed by President Clinton?
Mr. KELLY. I was appointed on June 27th of 1996.
Chairman BACHUS. OK. Thank you.
Mr. KELLY. Thank you, sir.
[The prepared statement of Hon. Raymond Kelly can be found on page 44 in the appendix.]
Chairman BACHUS. Mr. Litt.
STATEMENT OF ROBERT LITT, DEPUTY ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE
Mr. LITT. Thank you, Mr. Chairman, Members of the subcommittee, for the opportunity to address you on this important aspect of our fight against the laundering of drug proceeds.
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And, Mr. Chairman, I want to echo what you said at the beginning about particularly appreciating the opportunity to come here and talk about a success story. Because this really is a success story, both in terms of the really terrific cooperation that has been had between the Department of Justice, Department of the Treasury and a variety of State and local law enforcement agencies, and also in terms of the fact that we have actually had a real and substantial impact, I believe, on the laundering of drug money proceeds.
In 1992, Congress gave law enforcement a new weapon in the war against money laundering. That weapon, which is codified at Section 5326 of Title 31 of the United States Code, gives the Secretary of the Treasury or his designee authority to issue an order to financial institutions in a geographic area where reasonable grounds exist to find that additional recordkeeping or reporting is necessary to enforce the money laundering laws.
In other words, this law gives the government the authority to identify and target and entire financial sector in an area where we believe money laundering is occurring. Because anonymity is essential for money launderers, the additional recordkeeping and identification requirements and the lower threshold for reporting cash transactions that occur under this kind of geographic targeting order, or GTO, make it possible to squeeze the illicit proceeds out of a financial sector in a particular geographical area.
This past year, the cooperative efforts of the Department of Treasury and Department of Justice have done just that. In August of 1996, at the combined request of three United States Attorneys Offices, the Customs Service, the Internal Revenue Service and others, Under Secretary of the Treasury Raymond Kelly issued a GTO directed initially at 12 identified money remitters in the New York City/New Jersey area, each of whom did more than 10 percent of their business in shipping funds to Colombia.
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The order required these remitters and their agents to report on a special form all transactions in cash or monetary instruments of $750 or more that were going directly or indirectly to Colombia. The order has since been extended and expanded to include a total of 22 licensed remitters.
The origins of this GTO go back more than 3 years to an initiative of the United States Attorneys Office for the Eastern District of New York, and in particular, Assistant United States Attorney Bonnie Klapper, who was introduced to you before, and the El Dorado Task Force, which Under Secretary Kelly already introduced to you and described to you, the anti money laundering project led by the Department of Treasury.
They agreed that they would devote significant resources and personnel to pursuing lower level targets in the money remitting industry in Jackson Heights and Queens, with the expectation that these lower level targets would lead to higher level targets, and possibly, if the evidence warranted, to the targeting of an entire financial sector.
This interagency effort involved hundreds, if not thousands, of hours of painstaking review and evaluation of money remitter records and activities. A database on that industry, as well on the population it served, was created and analyzed.
The underlying data came from the execution of search warrants, from criminal charges against individual agents of licensed remitters, from responses to grand jury subpoenas, from analysis of undercover operations in the New York/New Jersey area, and from financial records obtained directly from the remitter industry and the banks where they maintained their accounts. This prodigious effort, which is continuing today, provided the justification necessary for the Treasury Department to issue and renew the GTO.
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An equally impressive example of interagency cooperation, which was also essential to the success of the GTO, was the development of a comprehensive plan of action for supporting steps that would be taken on the day that GTO went into effect, and continued each day thereafter. This plan involved the U.S. Attorneys Offices, the El Dorado Task Force, FinCEN, the U.S. Postal Inspection Service, State and local participants, as well as the Justice and Treasury headquarters.
We knew that it was not going to be enough to put the GTO into effect. Money launderers would quickly learn to avoid the targeted remitters. Millions of dollars of drug proceeds that normally flowed to Colombia through these remitters would be flushed back on to the streets of New York and New Jersey and would travel by car or plane or boat or whatever other means of transportation through and out of the United States.
Thus, we had to allocate and apply resources and personnel in advance to ensure not only that the terms of the GTO were being followed but also that all other possible pipelines for the illicit money were closed down to the best of our ability and that we followed up to track and seize the drug proceeds displaced by the GTO.
The U.S. Attorneys Office for the Eastern District of New York thus coordinated and directed the implementation of a plan in which Federal, State and local law enforcement would be on the lookout for these funds, both in the affected area and in other parts of the country where we knew these monies had gone in the past.
I don't want to go into too much detail about our investigative strategy, but I can tell you that we have under surveillance locations where we were aware that large quantities of cash were broken down and repacked and used to purchase monetary instruments such as money orders; that we stepped up our enforcement actions, particularly seizures, at the airports and the border; that we enhanced street level enforcement and surveillance of all the routes of known transportation of drug cash transportation out of the GTO area; and that we coordinated and monitored all money laundering cash undercover activity in the GTO area.
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This unprecedented combination of a Geographic Targeting Order and a cooperative interagency enforcement effort has had remarkable results. As a result, GTO money remitted to Colombia has dropped significantly both in the GTO area and elsewhere. As Under Secretary Kelly mentioned, the overall remissions to Colombia have dropped by 30 percent.
Perhaps even more significant is that for the particular remitters who prior to the issuance of the GTO had done the bulk of their business with Colombia, their remissions to Colombia have dropped 7080 percent.
At the same time, there have been very few of the actual reports filed, suggesting that what we are doing is actually targeting the people who are violating the law and not having a substantial impact on legitimate people.
Second, as Under Secretary Kelly mentioned, seizures of illicit cash are up dramatically, not just in the GTO area but also in Miami, Boston and other locations. We are aware, of course, that we are not stopping all the drug cash from getting out of the New York metropolitan area, but the fact that we knew in advance what the effects of this GTO were going to be, gave us the opportunity to step up enforcement and have a tremendous impact.
Third, painstaking analysis of the reports that have been filed or that have not been filed under the GTO, as well as continuing financial analysis of the financial records of money remitters, has led to a number of criminal investigations and prosecutions in the Eastern District of New York.
Page 25 PREV PAGE TOP OF DOC We have obtained a guilty plea in the first criminal case ever filed in connection with a GTO. In that case, Stella Lopez, the owner and manager of two money remitting agencies, was charged with failing to file reports under the GTO. She pled guilty on January 22, 1997, and is scheduled to be sentenced in April.
In two other cases, we have arrest warrants issued for two owners and operators of money remitter agents for laundering drug proceeds and failing to file reports required by the GTO. And in other cases, we have arrested three other persons, one of whom is now under indictment.
And our criminal investigations are now continuing, based in part on the search warrants that Under Secretary Kelly has mentioned. We seized over $500,000 in drug proceeds. We are analyzing information we obtained from those. And there may or may not be other criminal prosecutions.
We also moved to support the GTO internationally. As I said, the GTO targeted funds were intended to be sent to Colombia, and we knew from our investigations which establishments in Colombia were on the receiving end of these funds. Accordingly, the Criminal Division through our Embassy sent a letter to the Colombian Banking Superintendent and asked her to take whatever steps she could against the people who were receiving these funds in Colombia.
We learned that the Colombian Banking Superintendent has been taking some steps. We are going to continue to closely monitor the actions they take and continue to provide them information if we learn that other money remitters in Colombia are receiving these funds.
Page 26 PREV PAGE TOP OF DOC So by any yardstick, whether it is the amount of currency seized, the criminal prosecutions, the reduction of remissions to Colombia, this has been a tremendous success. It is the latest chapter in the cooperative effort by all of U.S. law enforcement to deny drug dealers an easy route to launder their illicit proceeds.
The basic objective in this regard is to identify and prevent the initial placement of drug proceeds into our Nation's financial system, because it is at this stage that the launderers of drug money are most vulnerable to detection and prosecution, and their illicit proceeds to identification, seizure and forfeiture.
It is a lot more difficult for them to take thousands and millions of dollars of cash and get that into the financial system than it is subsequently to move the same amounts of money through wire transfers between accounts. So our primary effort has been targeting that initial placement of money into the system.
For two decades we have had great success working with our banks to deny money launderers the opportunity to directly put money into banks. And while there are still exceptions, by and large money launderers no longer have direct access to place their cash into our banks.
As a result, they are looking for other opportunities and have been using non-bank financial institutions, such as remitters involved in this case, to get their proceeds indirectly into the banks, and law enforcement collectively is, therefore, examining these non-bank financial institutions very closely.
The GTO and the enforcement strategy that we used in New York is but a first step. We are drawing on our experience in this case and examining methods by which the laundering of drug proceeds in other areas could be attacked by targeting one or more financial sectors in those areas, not necessarily money remitters, but whoever happens to be laundering the money in other parts of the country.
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The most important lesson we believe we have learned from the New York/New Jersey GTO is the value of close and careful interagency cooperation. Prosecutors and investigators must work actively and in tandem to target the appropriate financial sector, to identify their targets, to obtain and analyze financial records, and if necessary to take the time to work slowly up the ladder from the street to reach the most important targets.
To help carry out this strategy across the country, the Criminal Division and the Department of the Treasury are holding a series of meetings involving those districts where money laundering is a pressing problem and where we believe a financial sector targeted approach could have a great result in combatting that problem.
The Criminal Division has already hosted one such meeting involving Assistant U.S. Attorneys from across the country and representatives of the El Dorado Task Force, and we will be holding a number of them with the Department of the Treasury in the future. We are going to bring together the investigators, State and local and Federal, and the prosecutors and the regulators. We are going to bring them up to date on what the latest developments in this area are. We are going to analyze the types of money laundering in each part of the country and figure out how can we take what we did in New York and transform it to be effective in other areas.
We are also going to step up our training for Assistant United States Attorneys so they know about this kind of financial sector approach, and we are working with the Department of the Treasury on legislative and regulatory proposals that we hope will allow us to continue to make maximum use of this kind of strategy.
Page 28 PREV PAGE TOP OF DOC In conclusion, the successful use of this GTO and enforcement strategy in the New York and New Jersey area is really an outstanding example of what we can do when Federal agencies and State and local agencies all work together. I can assure you that this Attorney General, who, as you know, is a former local prosecutor, is constantly reminding us to bring the State and local law enforcement into our plans that we have to work with them in order to have a maximum impact.
It shows what we can do when we have careful planning, and we identify a target in the financial community that is being abused by money launderers, and we go after it in a comprehensive and well thought out manner.
The Department of Justice is extremely proud of the role we were able to play in this, and we congratulate the Department of the Treasury for its innovative use of this technique. We are committed to the same approach in the future.
I appreciate the opportunity to present this testimony, and I will be pleased to answer any questions you have.
[The prepared statement of Hon. Robert S. Litt can be found on page 53 in the appendix.]
Mr. BACHUS. I mentioned earlier Commissioner Safir is recovering.
Chief O'Boyle, we are very happy to have you, if you will give us a little of your background.
Page 29 PREV PAGE TOP OF DOCSTATEMENT OF MARTIN O'BOYLE, CHIEF, ORGANIZED CRIME CONTROL BUREAU, NEW YORK CITY POLICE DEPARTMENT ON BEHALF OF HOWARD SAFIR, POLICE COMMISSIONER, CITY OF NEW YORK
Chief O'BOYLE. Good morning, Mr. Chairman and Members of the subcommittee.
Police Commissioner Safir would indeed have been here, but he elected to have surgery this past Friday, and he is recovering. He is still in the hospital. I will bring back to him your concerns for his well being.
I have been a member of the New York City Police Department for 35 years. Much of that time was spent in narcotics law enforcement, approximately 19 years of narcotics law enforcement experience in various areas within the city, various bureaus, and currently I am the Chief of the Organized Crime Control Bureau.
I want to thank you for giving me the opportunity to speak with you today about the steps we have taken, together with other government agencies, to stop drug cartels from laundering their profits through the use of licensed money remitters, moving huge sums of money out of the country with little scrutiny or impediment.
Beginning around the late 1980's, New York City began to experience a tremendous surge in the number of licensed money remitters and their agents. Even as recently as 1994, the number of licensed money remitters in New York was 42, with 12,500 agents. In 1995, that number jumped to 52 licensed remitters, with 15,000 agents.
Page 30 PREV PAGE TOP OF DOC In searching for reasons to explain this phenomenon, none can be found by examining the traditional areas where one might look for such explanations, such as population shifts, a significant increase in the number of recent immigrants, significant increases in the income amongst immigrant groups, and so on.
Eventually, based upon information received through investigations, from informants, and by observations, it became evident that the explosion in the number of remitters was due to the exploitation of the system by the drug cartels. They had learned that these licenses were fairly easy to obtain and the cost of setting up such a business was relatively inexpensive and that under current regulations the money remittance system was ripe for subversion to their purposes.
As this system currently exists in New York City, there is no limit to the number of agents a licensee may have, yet the designation of agents fall under no one's scrutiny, except for the licensee. Similarly, there is no limit as to how many licensees one agent may represent.
At the same time the licensee is able to evade responsibility for the conduct of its agents. Whereas a bank is responsible for its branch, there is no such regulation in the money remittance field. This creates an atmosphere where willful blindness on the part of licensees toward their agents is almost encouraged.
Since the granting of agencies is solely based upon the discretion of the license holder, requirements for operating as an agent are minimal, at best. In fact, investigation has shown that even after law enforcement action has been taken against an agent they have been allowed by licensees to simply set up an operation at a new location. Verification of information on invoices, also referred to as payment orders, submitted by agents to licensees is virtually nonexistent.
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Investigations have repeatedly uncovered literally thousands of invoices with incomplete, incorrect, or false information. Yet licensees rarely, if ever, address these issues with their agents. As long as the cash is deposited, it is sent on its way.
Investigators have found licensees expressing concern to their agents over the average dollar amount of the transactions. If all laws and regulations are being adhered to, there is no legitimate business reason for concern over these particular averages. The only reason for such concern would be if an agent was trying to make a large transaction appear as several smaller ones; in other words, in order to structure the activity.
As the weaknesses in this system came to be exploited more and more by those engaged in narcotics-related money laundering, the problem became more visible in certain areas of New York City. For example, in the Jackson Heights section of Queens, along stretches on Roosevelt Avenue, the main commercial strip that was alluded to by Mr. Litt, there are sometimes dozens or more agents in a particular block. To the citizens of this and other areas where the situation is similar, this is a blatant and visible example of the drug cartel's intrusion and influence in those neighborhoods.
While it appeared obvious that the legitimate market for these services could not support this number of identical businesses, concrete proof of this was sought. Figures obtained from the New York State Banking Department indicated $1.3 billion being moved through money remitters, the majority to Colombia.
Investigation revealed that three major vendors alone were sending $600 million to Colombia. In an attempt to explain this amount of money transmitted, the U.S. Census and Planning Department data was examined.
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In New York City, there are, as you mentioned, 25,521 households characterized as having Colombian ethnicity, with a median income, again, as you mentioned, of $27,000 per year, totaling $689,067,000 of income annually. Even adjusting this for persons and dollars not accounted for by the census, it is apparent the bulk of the funds transmitted are proceeds of illegal activity; namely, drug proceeds. There is no other possible explanation.
As investigation into the money remitting industry in New York City continued, it was learned that legitimate transactions were in the $400 to $500 range. One particular investigation showed that every Colombian household in New York City would have to send $5,800 to one of six cities in Colombia, again, based upon total gross income of $27,000 per year.
It soon became apparent that attacking individual agents and licensees alone was not the answer to addressing the problem of this corrupted system. Through the efforts of the El Dorado Task Force, the U.S. Attorneys Office, Eastern District of New York, and the Under Secretary of the Treasury for Law Enforcement, Mr. Kelly, the GTO was placed into effect to aid in further examining the situation.
The GTO is a mechanism by which the Treasury Department is able to enhance regulation of specific geographically based cash transactions. In this case, the normal reporting requirement regarding cash transactions over $10,000 was imposed on all transactions over $750 to Colombia via money remittance from the New York metropolitan area.
Almost overnight the flow of dollars through this system to Colombia stopped. Again, the only plausible explanation for this phenomenon is that the system had been subverted by the drug cartels, and when it became unsuitable for their needs, they immediately stopped using it.
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The figures collected by those implementing and monitoring the GTO shows that since the GTO was placed in effect, remittances by three major licensees in amounts greater than $750 dropped from $67,481,936 to $2,147,543. The number of transactions dropped 95.4 percent, and the dollar amount dropped 96.8 percent. This is clear and dramatic evidence as to how the system has been corrupted and where new regulations can affect permanent change.
It is important to note that this system also serves as a feeder for the Black Market trade of dollars and pesos in Colombia. As this system exists, narcotic traffickers in Colombia are not free to spend the dollars they have gotten from the streets of New York. They need pesos they can spend in Colombia. Similarly, there are business people importing goods into Colombia who need to pay their invoices in United States dollars in this country.
Therefore, the importers agree to buy the drug dealers' dollars in New York at less than the official exchange rate by providing pesos to the narcotics traffickers in Colombia. They also avoid paying the tariffs and taxes imposed on such exchanges by the Colombian Government. The importers then use the dollars in New York to satisfy their debts. The proliferation of these transactions destabilizes the Colombia economy in addition to providing a conduit for money laundering.
Based on these facts, it is my view that the GTO has been tremendously effective in gathering evidence of money laundering via the money remittance system in New York City. The basis for the implementation of the GTO could not have been provided as quickly, completely, or effectively as it was if not for the coordinated efforts of the El Dorado Task Force.
Page 34 PREV PAGE TOP OF DOC It is because of the task force approach that all areas were covered as efficiently as they were. Each agency was able to bring its particular expertise and information to a central point for collection, examination, and distribution as a comprehensive strategy.
An unexpected benefit of the implementation of the GTO became apparent shortly after it was instituted. The costs of sending a remittance to Colombia dropped from 7 percent to 5 percent, and in some instances even slightly lower. Consequently, those who used the system legitimately to send money to their families overseas realized these instant savings.
The importance of attacking money laundering as part of the general anti-drug strategy cannot be overstated. It is at this point that the drug cartels are most vulnerable. Up until this point, they have expended resources without realizing any profits, and profits is why they are in business. Everything possible must be done in order to prevent the cartels from realizing their profits.
Furthermore, the full extent of the impact of drug profits on the world economy has yet to be fully realized, but clearly in many instances it is a threat to some nations' security and stability, thereby affecting the world economy as a whole.
While the El Dorado Task Force is a good example of interstate coordination to fight money laundering, there is room to grow and improve. There must be participation by all agencies involved to address the money laundering threat. This coordination of effort would be greatly aided by access to new technology. New computing capabilities are necessary to keep pace with growing databases and the use of technology by those involved in committing those crimes.
Page 35 PREV PAGE TOP OF DOC As a result of this type of systems oriented approach to fighting the money laundering and the implementation of the GTO, new trends in money laundering are constantly being observed.
Since the initiation of the GTO, there has been an increase of 40 percent in seizures involving physical transportation of currency at JFK Airport and an increase of 240 percent into Newark Airport. The Miami seaport and airport area has experienced a 606 percent increase in currency seizures; that is post GTO. This includes the seizure of $17,327,651 known to have originated in New York City.
These figures are an indication of some of the displacement in the movement of drug proceeds; and, again, that is post GTO. Other trends include the increase in the use of money orders and travellers' checks as well as the use of ''smurf'' checking accounts. These are accounts set up so that small amounts of money may be deposited on behalf of drug dealers in order to avoid the reporting requirements.
There has also been a steady increase in the use of ''brokered'' dollars which have been exchanged for Colombian pesos to pay for wholesale goods purchased in the U.S. and shipped overseas. Hopefully, the application of the system type approach to address these trends, along with coordinated task force efforts and increased computing capabilities, will result in remedies for those areas as effective as the GTO has been in the money remittance field.
We would like to see the regulations put into effect by the GTO made permanent and expanded to include other geographical areas dominated by the drug cartels.
Additionally, we would like to see legislation that requires licensees to be strictly accountable for the actions of their agents and a requirement that agents meet qualifying criteria, including standard background checks.
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We also support a Federal registration requirement for money transmitting businesses.
Finally, we would like to see serious financial penalties assessed against licensees and agents who engage in violation of these laws and regulations.
Enforcement would be further enhanced if such penalties were eligible for asset forfeiture. State and local enforcement would then be able to expand their role in monitoring these businesses and curtail money laundering through the system.
Again, I am thankful for the opportunity to share with you our experience in successfully attacking the scourge of drug trafficking in New York City by attacking the means by which its profits are realized.
[The prepared statement of Chief Martin O'Boyle can be found on page 81 in the appendix.]
Mr. BACHUS. Thank you.
First of all, I want to ask Bonnie Klapper, U.S. Assistant Attorney General, would you please stand up? I know in reviewing a lot of the information I have reviewed over the past week, this is a name I have seen on more than one occasion. I want to commend you. I had my head down when you were introduced, but I wanted to tell you, a lot of law enforcement agents have commented favorably on the cooperation they have gotten from you.
Page 37 PREV PAGE TOP OF DOC I think that is right, isn't it, Chief? I did hear that right, didn't I?
Chief O'BOYLE. Yes, sir.
Mr. BACHUS. Sometimes there is an adversarial relationship between law enforcement and prosecutors. I know from my experience as a former Special Assistant Attorney General that can really have a harmful effect. Yet when people work together and respect your efforts, it can result in some amazingly good prosecutions and enthusiastic law enforcement support. So I appreciate that.
Ms. KLAPPER. Thank you. I want it to be known that it couldn't have been done without the cooperation of El Dorado, and in particular John Forbes' group, and without the cooperation of the the NYPD. It was crucial that from the very beginning we identified the problem and devised a cause of action. It was a joint effort.
Mr. BACHUS. Thank you.
Some U.S. Attorneys don't realize it is the police that generate the case, are out there on the front line, and that they deserve a lot of credit. A lot of them are undercover and you never hear much about what they have done. I am sure that is true in this case.
In fact, my first question, Undersecretary Kelly: Would you briefly describe again El Dorado, and specifically the El Dorado Task Force, and specifically Operation Wire Drill?
Mr. KELLY. Yes, sir. The El Dorado Task Force was formed in 1992, and it consists of 140 Federal agents, the NYPD, as you said there are other police departments involved, Nassau County, and the New York State Banking Department. They came together in an effort to address the burgeoning problem of drug related money laundering.
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Now, under the overarching umbrella of El Dorado, there was a discrete operation called Wire Drill which focused on the money remitters or money transmitter industry. Focusing on this industry, they used classic undercover techniques, information gathering, Title III wiretaps, to amass this body of information that really turned out to be the predicate, the precursor to this GTO.
As has been said here a few times, it is only through their hard work and efforts that we are able to impose a GTO. We need that predicate. It has only been done twice before in the history of the Treasury Department, GTO's, and both of those GTO's were attacked in court. This one, I think significantly, has not been challenged in court because of the factual basis, because of the foundation that we have to go forward.
So I have been in law enforcement a long time, and I think what is really unique here is the level of cooperation that exists with this Task Force, in the Task Force, and with agencies outside of the Task Force. They are the key to the success of this operation.
Mr. BACHUS. I know there have been many impressive results; I heard the figure 600 arrests, $130 million seized. Are there any troubling aspects?
Mr. KELLY. The overall work of the Task Force, as I believe, confiscated $150 million with 700 arrests, and the cocaine and heroin seizures are phenomenal as well; 120 pounds of heroin is a very significant amount.
I am sure there are lots of war stories sitting here behind me. I don't know of any significant challenges that they have. We are, of course, looking to use the GTO in other locations and in other ways. I think we are in the process of learning from this GTO experience, and resources are always an issue of course.
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Do we have enough resources to do this? I think that is an issue we are still discussing. Being a bureaucrat most of my life, hey, I always like to see more resources. But I think the only troubling or challenging aspect of where we are now is what resources we might need to expand the use of GTO throughout the country.
Mr. BACHUS. All right.
Ms. KILPATRICK. Thank you, Mr. Chairman.
Again, I want to commend Justice and Treasury in the working of the interagency groups as you went about your business. I think it is massive, and I commend you on the work you have done.
The individual control we saw was quite graphic, and I think, again, interdiction and stopping the money is the key, and we must up our resources. That is why I wanted to start with Mr. Kelly.
I think Phoenix was the other city, by the way. It was Houston and Phoenix. Somewhere along the line, the GTO was enacted. I want to see more of them. I want to talk about the resources. I am a former high school teacher and a member of the Michigan Legislature for 18 years. I feel that when you put the money where it is needed--and it is education, and in this case it is drugs--then we will see some result on the end. I would much rather see those dollars spent in GTO actions than in prison building and that kind of thing.
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Of course, we have to have prisons because we have created a monster. We have to address that.
What kind of resources are needed? I want to go on the side of whatever it takes. I think we ought to do that, and you ought to start with this Congress to make us understand the importance of it, because we are all affected by it. The cooperation of the interagencies is paramount. You have shown it can work and can be effective.
What kind of dollar amounts? I don't want to use the word ''study,'' but you did the investigation in laying the foundation before you actually went in. It is needed in other places.
I am from Michigan. We are surrounded by Great Lakes. What kind of dollars would be needed--would this Congress need to give, so we could have more GTO's, which seem to be effective? Interdiction and stopping the money flow is the key to solving the problem we have in America today.
Mr. KELLY. I think before we come up with a dollar figure we have to define the scope of the problem throughout the country. That is what we hope to do, starting next month.
Mr. Litt mentioned we are going to have meetings with the U.S. Attorneys and with Treasury enforcement personnel throughout the country to see what is going on, see what their money laundering problems are, because each district conceivably has different problems, different issues.
Page 41 PREV PAGE TOP OF DOC The GTO is unique because it is flexible. It gives us information but also provides us a tool to disrupt money laundering. So we have to determine how it is going to be applied.
It is manpower intensive though; as you can see, 140 people in the El Dorado Task Force. It calls for 30 full time equivalents to be devoted strictly to the GTO. So in New York it takes a lot of people; it takes a lot of administrative support.
We are getting support from the HIDTA Task Force. We have to get a better handle on the size and scope of the problem in our major cities throughout the country. We hope to do that within the next 2- to 3-month period. Then we will have a better sense of what the resources are that we need.
Ms. KILPATRICK. Along the same line, you mentioned that you believe you stopped 30 percent of the resources going back to Colombia. I heard a 70- or 80-percent figure that paralleled that.
Mr. KELLY. That is a conservative figure, the 30 percent. If you look at the money going back to Colombia--let's use rough figures, $800 million was going back--if you project and do it in a generous fashion, the money that would be going back for family remittances would be roughly $80 million. So you have a big gap there. We are saying we can verify roughly $300,000. But there is certainly a suspicion there is a lot more money being laundered in that process.
So the numbers are not exact, because it is difficult to get the numbers from the other side, so to speak.
Page 42 PREV PAGE TOP OF DOC Ms. KILPATRICK. Sure.
My final question would be, what would be the impact of El Dorado on New York's drug trade? If you start with 100 percent there, what dent percentage did the El Dorado Task Force with GTO make?
Mr. KELLY. In terms of confiscation?
Ms. KILPATRICK. Confiscation, impact. If I used impact as 100 percent, what percentage did this GTO make in terms of all of that, if you could put a percentage on it? Did you eradicate it a quarter--25 percent--or some other figure? Is that able to be evaluated?
Mr. KELLY. It is difficult to say. What this does is take the profit out. You are taking money out. It is the back end of drugs coming in and money going out.
I think New York has had significant success in reducing the on the street drug problem. Some other major cities have as well. This is a component, an important component. Again, we are going after the dollars. That is why this is all coming about, to make money and make lots of money.
It is having an impact. To say how much it has reduced drug consumption or drug trade in New York City, it is difficult. But I think it is fair to say that the classic on the street drug trafficking that we have seen in New York for years has dissipated significantly.
Ms. KILPATRICK. If I might, just one last question. Your career, your work today, and what you have done for the last 30 or 40 years of your life, and you know the problem we have with drugs in America, if you could delineate what needs to be done, if there is an order? Laundering, of course, interdiction. What other variables ought we be looking at?
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Mr. KELLY. I certainly like the plan put forward by General McCaffrey. It makes sense to me, with emphasis on education. We are never going to arrest our way out of the drug problem in this country. We have to face up to the fact that there is a demand here, and we have to reduce that demand significantly.
General McCaffrey's priorities of education, in which we are talking about an initial outlay of perhaps $175 million to advertise and to reach young people, I think that is a very important step.
We have the most sophisticated advertising industry in the world. We should be able to use that to reach young people. We sell them a lot of other things. We sell them the notion that drugs are bad at a very early age. That is a very significant step and a recognition on the part of the government.
Also, the fact that looking for a 5 year budget, that makes sense to me in General McCaffrey's plan. He still talks about certainly source interdiction to control our borders, to recognize that the use of narcotics is, to a large degree, a health issue in this country that has to be addressed. I just think there is a lot of common sense in the policy that was put forward about 2 weeks ago.
I am really enthused by the emphasis on education. I have been saying that for a long time. I think education has to be focused on at a much earlier age. A lot of parents don't like that idea. They don't like the idea of giving recognition that there is a problem, and if you give that information to the young people, there is a resistance on the part of many parents.
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But I think the younger, the better. Get out there and make a major investment in educating our young people.
Ms. KILPATRICK. Thank you.
Mr. BACHUS. Ms. Velázquez.
Ms. VELÁZQUEZ. Thank you, Mr. Chairman.
Mr. Kelly, it is really refreshing to listen to you talking about the important role that education plays in our youngsters. You should come more often before this Congress.
I just would like to ask you, to what do you attribute the success of the El Dorado Task Force in Queens?
Mr. KELLY. I think the fact that we have been able to bring together in the El Dorado Task Force a lot of expertise of different disciplines; for instance, IRS; the Examination Division and the Criminal Investigation Division of IRS bring a phenomenal amount of expertise in going after money launderers or people who are trying to hide income; the Customs Service, with all of their experience on the border, with their vast resources that they have; the NYPD; this is the biggest police department, three times bigger than any other police department in the country; they have 38,000 sworn officers now; so they have a lot of resources there brought together.
But I have seen other task forces in my time, many task forces. There is something unique here. There is a certain synergy that works. I would like to say that a lot of it has to do with the fact that many of these Federal agencies are in Treasury, but there is an excellent relationship, as you can see, with the U.S. Attorneys here as well.
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Ms. VELÁZQUEZ. That is an exception. When we bring together different Federal agencies?
Mr. KELLY. I think it is getting better. I think, as I said, nobody can do it alone, and task forces are working better than ever before. There are still some rough spots; there are still some turf battles. There is always going to be that, unfortunately.
I think this is a unique organization, and people, certainly people with as much experience as me and more experience, have said that. It is just working, and we want to try to capture whatever that is and replicate it.
Ms. VELÁZQUEZ. Based on your experience with this task force, would you recommend a national strategy to combat money laundering?
Mr. KELLY. Well, first let me say we are very much appreciative of your concern, Congresswoman Velázquez, in this issue, and we support the spirit of your proposed legislation. It makes a lot of sense, and we look forward to working with Justice and working with your staff to make that best possible proposal.
I think, yes, we need a comprehensive, coherent national strategy as far as financial crime is concerned, and your proposal certainly holds out the hope of having a vehicle to do that. We thank you for it.
Ms. VELÁZQUEZ. I look forward to it. I wanted to thank you and the staff of Treasury and Justice. You have been very cooperative, working with my staff, and I look forward to that cooperation.
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I have another question, and mainly a concern. As you are well aware--and I would like to ask this question to be answered by each one of you--money remitters are largely used as a bank by a large section of the population. Poor immigrants in the communities send money to their relatives overseas. How do we protect against unfairly targeting ethnic communities of low-income immigrants who are playing by the rules?
Mr. KELLY. I think we just have to be sensitive to that. I believe we have been. As I said in my prepared remarks, we are very much aware that these transmitters provide a service, provide important services to communities that don't have access to banks, that are organized around ethnic communities, and we have to be very conscious of that, and I believe we are when we put forward our regulations.
I know FinCEN works continually with the industries that they are involved in regulating to capture that information. This is something that we are certainly very much aware of and sensitive to in Treasury.
Mr. LITT. This is one of the reasons why there was a lot of care taken when the order was structured, in picking the dollar thresholds for the reporting requirement. It was set at 1.5 times of the upper range of what the average remittance was figured to be. They set it at $750 in the expectation that would not impose a burden on the great majority of working families trying to send money back to their relatives. And I think the effect of the GTO suggests that we have successfully targeted that group, and the fact there have not been a lot of legitimate burdens of having to go through the burden of identifying themselves. I think one of the indications of that is the fact that, by and large, the industry out there has supported this GTO and they have felt it is a positive step. But this is something we are very sensitive to.
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Ms. VELÁZQUEZ. My concern is that people who are involved in this Task Force should be sensitive to the fact that many of these remitters place the lack of financial services in poor communities. Not everybody who walks into one of these places is a drug dealer, a money launderer.
Chief O'BOYLE. Our analysis revealed that the average remittance by a legitimate person, law abiding person, ranges from about $250, I believe, to $500. So, again, the threshold of $750 would seem to be reasonable.
Ms. VELÁZQUEZ. Thank you, Mr. Chairman.
Mr. BACHUS. I would like to maybe make an additional comment, which I thought you all have done a very effective job of doing. Legitimate transactions: Normally someone walks in, they get a $500 transaction, they get a $200 transaction, they don't get 12 $500 transactions, they don't get 6 $700 transactions, this bundling that you all have identified.
So maybe actually we may get to the point where someone does 50 $150 transactions, and that is $7500, but it is 100 of those transactions at one time. Why would a legitimate business want to do that? So, I think you all recognize that, but it is something we are going to have to look at.
I agree with Attorney General Litt that we have had a lack of public displeasure with this, and that demonstrates we have been able to hit the illegal activities without interfering with legitimate business and people's needs to transit funds.
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Let me ask you this, and I will address all three of the panel. One of the reasons we know that the GTO is so effective is that Customs has reported this high increase in the amount of money, other money laundering efforts by the cartels, increase in seizures at airports, and such as that.
I am troubled by one thing though. Last October, before this same subcommittee, we had a report from Customs that they examine about 1 out of every 100 shipments. My question is, knowing that they examine maybe 1 out of every 100 packages leaving the country, is this a futile effort if we don't beef up our Customs function?
Mr. KELLY. I think one of the keys to doing an effective job outbound monitoring is information, intelligence, whatever you want to call it, and that is what Customs has been about for the last few years, developing information or tracking systems--advanced tracking system, in fact, is what it is called--that will enable it both inbound and outbound to better target what and who they may question or search.
You are right, volume is increasing. Customs resources have remained static for a few years, with the exception of Operation Hard Line and Gateway, in which they have gotten some additional resources in the last couple of years. But, even so, the volume is going up significantly.
So the key to this is a tracking system, a profiling system. That is somewhat a motive term, but all it means is, if you have information about the shipper, there is a registration process or there is a way of finding out information about shippers that we do business with every day, then to a certain extent you can focus on the much smaller universe of shippers or people who are going across the border.
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I think there is a lot of hope in emerging technology that will help us address exactly the problem you mentioned, Mr. Chairman.
Mr. BACHUS. Would you keep us posted? In fact, I would like to hear from Chief O'Boyle in the coming weeks. We have follow-up hearings, as you know. But we would like to know what type of resources aren't there at Customs that need to be there. We know there have been cutbacks and freezes, and these efforts are going to result in more cash smuggling. And that is good. That means we are making it harder for the drug cartels. There is more risk with cash smuggling.
So these people are doing their job in New York, but we are creating another increase in cash smuggling, and I just don't want to see the efforts in New York be futile because we don't close the gate over here. So we need to know as a subcommittee and as a Congress what resources you need there, because it is going to have to be a comprehensive effort.
Mr. KELLY. Yes, sir.
Mr. BACHUS. With that, I will ask if any other Members have questions.
In closing, would you all like an opportunity to make any statement? Some question may have raised a need to make a statement about anything.
Chief O'BOYLE. Mr. Chairman, in regard to your last remark, the NYPD increased its personnel commitment to the Task Force at the airports in New York, the Kennedy Airport Narcotics Smuggling Unit. We recently added a fourth team with Customs to that Task Force.
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Mr. BACHUS. Thank you.
One thing I would like to stress, Mr. Kelly. It is becoming more and more apparent to me, the more I get to appreciate what you all have done, the element of surprise. I think sometimes by coming in, hitting an area hard, as you all have done, you set a model for what we can do, as long as we are selective, and as long as we have that element of surprise, and as long as they don't know where we are going to hit next. I think that this has been a tremendous success.
One question we are not going to ask you here today is where you are going next.
Ms. KILPATRICK. Mr. Chairman, I just was provided the chief's testimony this morning, but he alluded to several legislative initiatives you would like to see. I am assuming they are part of your written testimony.
Chief O'BOYLE. They are.
Mr. KELLY. I would simply again like to thank you, Mr. Chairman, for this opportunity to spotlight this success. I think the GTO shows as far as Treasury is concerned, the unique abilities of prevention, enforcement, and regulation that are all under the Treasury umbrella. All too often we don't have the opportunity to get out the good story. This is a good story, and we at Treasury very much appreciate your concern in allowing us to put this story forward.
Thank you very much, sir.
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Mr. BACHUS. I think it is concrete evidence that there have been successful efforts among the administrations and that there is a commitment in this group and with the agencies that put it together to hit the drug cartels hard, and they have done it, they have hit them hard and have done it with a minimum of disruption to honest business people and the public.
We are going to continue to stress education, but we know that the easier it is to get drugs, the more of our youth are going to fall in the trap. I will tell you, this is where we educate the cartels, and you have done a good job at making them pay the price.
Ms. VELÁZQUEZ. Mr. Chairman, I would like to ask one last question of Mr. Kelly.
Mr. BACHUS. Certainly.
Ms. VELÁZQUEZ. Today New York State banking laws that govern them are one of the weakest in the country. Do you see any connection between that and the activities that are taking place in New York City?
Mr. KELLY. Well, clearly I think there needs to be more enforcement in New York State. The New York State Banking Department I think has limited resources, but we would like to see more focus on this area of enforcement.
In the Money Laundering Suppression Act of 1994, which a lot of good things have come from, it calls for the development of a Nationwide model of regulatory system and law. I think as States sign on to that, we will have a much more effective way of addressing these types of situations throughout the country.
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As far as New York State is concerned, I think it is an issue of resources. You need more people focusing on this issue. I think there are--I am told there are three inspectors for the entire State that do this type of work. So that is clearly not sufficient.
Ms. VELÁZQUEZ. Mr. Litt, would you like to comment on that?
Mr. LITT. No. I think that obviously these are licensed facilities in New York, and I think that to the extent that the State of New York is able to beef up its resources and we are able to provide some assistance to them, that would obviously be helpful in keeping these under control.
Ms. VELÁZQUEZ. Thank you.
Mr. BACHUS. I would like to close and say this in closing about this same problem. Senator Sam Nunn in 1992 did a lot of important work on identifying the non-bank financial institutions and the money transmitters as basically a weak link in our enforcement efforts. I think that the efforts by El Dorado prove that indeed it was and that more focus needs to be made on the NBFI's and the money transmitters.
John Spratt, his committee, this subcommittee with the 1994 legislation, but, more important than that, what you have done in New York--legislation doesn't arrest anybody, it is law enforcement doing innovative things like you have done with this.
This is just great. Thank you very much. We commend every one of you. We are going to stop this hearing if for no other reasons, we want you back on the streets.
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[Whereupon, at 11:50 a.m., the hearing was adjourned.]