SPEAKERS CONTENTS INSERTS
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H.R. 240THE BULK CASH SMUGGLING ACT OF 1999
MONDAY, MAY 15, 2000
U.S. House of Representatives,
Subcommittee on Financial Institutions and Consumer Credit,
Committee on Banking and Financial Services,
The subcommittee met, pursuant to call, at 10:00 a.m., at the Martin Luther King Federal Building, 50 Walnut Street, Newark, New Jersey, Hon. Marge Roukema, [chairwoman of the subcommittee], presiding.
Present: Chairwoman Roukema.
Chairwoman ROUKEMA. All right. If the first panel will please come forward. Getting started not too late, just slightly, but I do appreciate everyone being here today.
Before I introduce the first panel, I willas is customaryas is procedure, I should say, make an opening statement, but I do want to announce to everyone and remind all our witnesses, as well as those that are observing this hearing today, that your full written statements will be included in the official hearing record.
Page 2 PREV PAGE TOP OF DOC The subcommittee, and all the committees of Congress, I should say, at least our full Banking Committee, as well as our subcommittees, operate on what is called the five-minute rule. So that in practice, if notwell, in theory, if not in practiceI guess I should say it that waywe would like you to confine your oral presentations to five minutes, but I will use my discretion, recognizing that we do have a time limit on this morning's hearing because of other requirements on my schedule.
But, I want you to know that Members of the subcommittee who are not here today will be able to submit written questions to all the witnesses, subsequent to this hearing.
And I say that with a special stress, because it is not that this subject or this hearing is not of special importance. There were certain conflicts that did not permit others to be here today, but Members have expressed an interest in submitting questions.
The official record of the hearing is open for two weeks, so that questions can be received and answered or you may add and expand on your testimony during that two-week period.
I want you to know that this is an official hearing of the subcommittee so that the full record of the committee, of this subcommittee hearing will be made available, not only to the press, but most specifically to all the Members of the committee, so that they can follow up on the questions, or if they do not have follow-up questions, certainly they will be fully informed and it will be used as the basis of our continuing committee inquiry into the questions of money laundering.
Page 3 PREV PAGE TOP OF DOC And I don't have to tell those in this room how important this issue is to us today. It's rather astounding to believeor to knowthat over $600 billion is laundered worldwide on an annual basis, and recent press accounts of the loans of the International Monetary Fund to Russia and the Ukraine, that they may have been diverted and possibly used for illegal purposes and laundered through an intricate web of transactions.
The last year has seen allegations of large scale money laundering throughRussian money laundering through the Bank of New York, which was rather startling. And over a three-year period, more than $7 billion in money from Russian companies was reportedly siphoned through accounts of the Bank of New York.
Further, and I want to stress this particularly with our witnesses here today, the U.S. Treasury issued in the early spring of 1999, a money laundering advisory to all U.S. financial institutions with respect to transactions originating in the Caribbean nation of Antigua and Bermuda.
This advisory was rather specific in its intention to caution against doing business in the Caribbean, and in the banking world this was most effective in almost closing down these financial institutions in that region.
Money laundering is not just a problem in foreign countries. A significant amount of the annual $600 billion which is laundered comes in to or goes out of the United States.
So we are not just talking about something overseas. Drug dealers and organized crime organizations produce huge sums of cash and currency annually from their illegal activities and must find ways to get their illegal proceeds into the economy and the banking system.
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This is an issue that has caused many responsible law enforcement agencies, as well as legislatures, to just shake their heads and say we must do something and do something now.
Certainly that is my conclusion. One method money launderers have resorted to over recent years is bulk cash smuggling, which means they are transporting large sums of cash and currency.
Bulk cash smuggling appears to be on the increase. I think without question, it's on the increase and involves, of course, substantial sums of money.
Today's hearing is focused on the issue of bulk cash smuggling and what Congress should be doing about it, considering it is a large and growing problem.
As you should know, if you do not, I want you to know that I have been closely involved with the bulk cash smuggling issue since the 105th Congressmaybe it was a little before its time.
I wish we had taken action at that time, but I think attention is obviously now building, but at the beginning of the 106th Congress, I introduced H.R. 240, the Bulk Cash Smuggling Act of 1999.
This bill would criminalize the smuggling of cash or currency in excess of $10,000 in to or out of the United States.
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Violations of the Act would result in the forfeiture of cash or currency as well as up to five years in prison.
Oddly enough, this legislation is due to the Supreme Court decision, and I hope I pronounce this right, Supreme Court decision U.S. versus Bajakajian, I believe.
In any case, we know what we are talking about here today. The case was a 1998 Supreme Court decision and it invalidated the forfeiture of cash and currency because there was nothing in the law that made it a criminal violation.
In April 1999, my subcommittee held a hearing on trends in money laundering. We were told by the administration of the Customs ServiceI'm sorry, the U.S. Attorney and the Department of the Treasurythat money laundering is a significant problem and that bulk cash smuggling needs to be addressed legislationally, the Administration at that time strongly supported enactment of H.R. 240 as another tool necessary to fight this scourge.
A year has passed since the April 1999 hearing. Several money laundering items of note have taken place since then.
The Administration has issued not one, but two national money laundering strategies, and as recently as March of this year, Secretary of the Treasury Summers gave a major address on the issue of money laundering, signaling that the Administration is committed to making progress in this area.
Page 6 PREV PAGE TOP OF DOC Several legislative proposals on money laundering have received serious consideration on Capitol Hill. Clearlyand we can go into that during this discussionbut, of course, it is my legislation, plus HR 2896 that was first introduced by Mr. Leach and Mr. LaFalce and myself and others earlier this year, as well as a second bill in March of this year, HR 3886, which is submitted by the Administration and International Counter-Money Laundering Act of 2000.
Both are out there, along with my legislation, plus efforts by Mr. McCollum and myself to introduce other legislation that will be very comprehensive in the Judiciary Committee, which has a large responsibility there of jurisdiction and complementing what the Banking Committee would do.
In any case, the political mood seems to be moving in the right direction of giving law enforcement some of the tools that are desperately needed, and that, I believe, will give added weight and underscore the need for this hearing, specifically on H.R. 240.
We are going to hear and see today that bulk cash smuggling is a major problem that is growing. Billions of dollars in drug and organized crime are leaving the country each year, but I don't believe that anyone in this room will doubt that question, doubt that issue. The question is how can we best move ahead in the fastest way to deal with it on a comprehensive basis.
Let me also observe that money is spirited out of the United States in many ways. It's shipped from the east and west coasts. It's through airports and driven across borders, especially the Mexican border, but the New Jersey Attorney General and the Texas Attorney General are hopefully going to explain to us in detail about the flow of bulk cash and what their experience has demonstrated we must do about it.
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It is clear to me that we not only have to criminalize bulk cash as smuggling, as H.R. 240 would do, but also provide Customs and law enforcement, both State, local and Federal, with the money and the resources, so that they can do their job.
So with that introduction, I would like to get on to the people who really know about this problem and introduce our first panel so that we can get the best minds that we know of in the country with the best experience to advise Congress on how we can move ahead in an expeditious way.
The first panel we have with us today are State and local law enforcement officials from both New Jersey and Texas, and I would like to note as I introduce these people, that these two States represent two of four, or 50 percent of the high-risk money laundering financial crime areas that have been outlined as high intensity financial crime areas.
So we have at least 50 percent of the States, the regions represented here today with the people who have the greatest knowledge on how we deal with this problem.
And in that respect, I will first note that the Honorable John Farmer, the Attorney General for the State of New Jersey, who was to be here today and is unable to be here today, he evidently has been called by the Governor for some overseas purpose, but he has sent his very valuable and very responsible and experienced First Assistant Attorney General, Paul Zoubek here today to testify on behalf of the administration of the New Jersey Attorney General.
Mr. Zoubek has been in the position since 1999, but before that, prior to that, he comes from the U.S. Attorney's office for ten years and was Deputy Chief of the Criminal Division.
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So we welcome you here today. I will introduce each of the other members as they speak so that we can be specific and pointed in terms of understanding your backgrounds.
So with that as the first introduction, I will introduce the First Assistant Attorney General from New Jersey, Mr. Zoubek.
STATEMENT OF PAUL ZOUBEK, FIRST ASSISTANT ATTORNEY GENERAL, STATE OF NEW JERSEY
Mr. ZOUBEK. Good morning and thank you very much for giving the Attorney General's office the opportunity to be here.
Attorney General John Farmer sends his regards to you and to the committee. He is covering something for the Governor who is out of the country today.
As we know, because of New Jersey's geographic location and its accessibility to markets, New Jersey is a target for money laundering.
We are, after all, a major transportation hub in New Jersey. The level of international trade passing through our State facilitates a criminal's ability to transport large amounts of cash concealed in shipments of goods exported through legitimate channels of trade.
In 1998, New Jersey ranked ninth among the States, having exported over $22 billion in goods. In 1997, the ten destination countries receiving the highest dollar value of exports from New Jersey received goods valued at more than $13 billion.
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The State Department has designated those ten countries as a primary concern for narcotic trafficking and money laundering.
Our interstate highways in New Jersey represent significant routes for East Coast drug trafficking activities. Over the last few years, there have been numerous currency seizures on New Jersey roadways and in New Jersey warehouses where currency was being concealed within packages destined for shipments on legitimate commercial carriers.
Our investigations frequently turn up a wide variety of motor vehicles, including cars, mobile homes and trucks, traveling the Jersey highways, used to transport drugs in concealed compartments under seats, in trunks, in other storage spaces. The only limits are the limits of creativity.
During various road stops we had found hidden cash in ashtrays and dashboards and travel bags. In another case, we turned up $180,000 in a concealed compact disc changer in the trunk of a vehicle.
We have also found significant warehousing of cash destined for shipments back to Colombian drug cartels.
In 1998, for example, electronic surveillance was used to identify a warehouse where computers and computer manuals were being shipped to Colombia, with over $1 million in cash concealed inside of hollowed-out skids.
Page 10 PREV PAGE TOP OF DOC Another significant example of bulk cash currency collection and shipment was caught on videotape by the New Jersey State Police during a 1994 investigation. The tape contains excerpts showing the delivery and distribution of the money and the way in which the money was hidden.
As Warner Wolf says, ''. . . if we could go to the videotape.'' You will see inside the warehouse that a few deliveriesoh, this is the outside of the warehouse. In the beginning of the videotape you see some of the deliveries actually occurring in large bags.
The men shown there can't even lift the bag, they are dragging it across the floor, it is filled with cash. And this is an example of the volume of the cash that is seen in terms of the bulk cash transactions.
If you go through the warehouse, the search shows various boxes and suitcases of different denominations, each box has slips of paper in it containing the amount of money that is in those bags. Again, you need a weightlifter to transport those bags. That slip of paper identifies $300,000 in that particular bag.
Right here, we have battery chargers that were going to be transported, and if you look in the back of the battery chargers, they are filled with cash.
It was going to be a charge there, but it was going to be a charge to the drug profiteers there that were able to get the cash out of the battery chargers.
The tape shows some of the creativity that occurs in connection between the drug trade and legitimate commercial transportation of goods in commerce.
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There, again, opening the back of the battery charger, stacked all the way, there are tens of thousands of dollars. That represent monies earned from the drug trade.
The review of the records kept by that one particular warehouse in Union County revealed in 1993 that $53 million had been processed and shipped in that manner.
That is $53 million from the drug trade. $53 million in profits on the backs of citizens in New Jersey and the tri-state area affected by the scourge of drugs and the profits that are going out of this country in those bulk cash transactions. Those bulk cash transactions represent innumerable drug transactions.
As you can see, the insidious nature of currency smuggling makes it difficult to detect and defeat, but we have had our successes.
One of the strategies we have pursued is the use of specialized units in New Jersey that are addressing this issue. The New Jersey State Police's ''Calico'' unit has addressed money laundering as it relates to the Colombian drug cartel as was highlighted here today in the tape we saw which was as a result of those efforts.
In 1998, the Attorney General's office examined issues with respect to money laundering in New Jersey, and what the State needed to do more aggressively. We have copies here of the white paper on money laundering that we completed in 1998, that had a number of recommendations on the State level for new legislation, for additional law enforcement efforts, and for the creation of a financial investigation unit within the Division of Criminal Justice in the Attorney General's office that was formed in 1998.
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You would be interested to know, Madam Chairwoman, just one of the things that that unit is doing now is working with FinCEN in Washington, out of the Treasury Department, to increase the use of the cash transaction reports as a method of guiding investigations with respect to money laundering in New Jersey.
And I am proud to say within a one-year period of time, New Jersey has moved from thirty-fourth in the country in using those cash transaction reports in conjunction with FinCEN to fourth in the country in using that as a resource to identify where money is going from New Jersey, where cash is coming in and where cash is going out.
We have also noted that one of the important things that we do for law enforcement is to increase the training to law enforcement so that they can identify some of the indicia of money laundering that they may see in a drug case, and we have trained more than 500 attorneys and investigators in New Jersey in the last year to focus on those issues.
And one of the important things that we are trying to do as much as possible in New Jersey is to partner with other law enforcement agencies and to recognize that Federal law enforcement in particular is uniquely positioned to access this information, but to partner with the local and State and county officials in New Jersey who will see some of this activity, and we are going to be sponsoring in the beginning of June a joint conference with Federal law enforcement at the Princeton University Woodrow Wilson Center that is focusing on money laundering and its impact on the East Coast and we will be co-sponsoring that with FinCEN.
But we need to do more. We need to do more cooperatively.
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Chairwoman ROUKEMA. Excuse me, may I just ask this question? Stop the time, I am taking out of his time, but you talk about this conference.
Is it going to be with specificity about legislative needs or simply enforcement or a combination with FinCEN and Federal authorities, because that is one of my intense areas of interest.
If you can be a little more specific.
Mr. ZOUBEK. Because of the support FinCEN has gotten, FinCEN has been involved in outreach to State authorities and we have joined in partnership with FinCEN and the U.S. Attorney's office here, and you will be hearing from experts from that office later today to sponsor a conference, very much addressed to training law enforcement to use some of the tools that are out there already.
For example, if there is, and we have found this already occurring, if there is a cash checking facility in Union City, New Jersey, by way of example, that has significant activity in cash transaction reports, and local law enforcement can identify some of the individuals involved in that, what we are finding is we are able to tap into the network of information that is available out there so we don't just rely on seizures, but we can have some pro-active investigations that look for the money, that perhaps engage in the banking institutions, and I think that is the concentration there, but the legislation that you are sponsoringand one of the reasons we are here today, I think will help significantly in this joint Federal and State effort to combat money laundering, and we believe that H.R. 240 will enhance the overall ability of law enforcement to combat currency smuggling by eliminating several problems which exist under Federal law.
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Under New Jersey law, possession of proceeds known to be derived from criminal activity is deemed money laundering, but under Federal law currently there is a requirement of a specific transaction.
We think elimination of that specific requirement will be helpful. We also believe that the provision in your bill that would provide that there not be a requirement of proof that was being transported or was not derived from specific unlawful activity would also be helpful, because we have found in a number of cases, like that highlighted on the videotape, what illegitimate businesses are involved in transporting the proceeds of their business enterprise in bags filled with cash such that they are dragging the bags out of a trunk and they can't even lift it into a warehouse and then hiding the cash in battery chargers.
One of the problems that law enforcement faces is attempting to prove the specific unlawful activity. And the provisions in your bill that eliminate that requirement are significant and we believe will significantly help the effort.
We want to thank you for sponsoring these hearings. We are committed to working with your committee and with Federal law enforcement to fight this particular problem. And you may rest assured that here in New Jersey we will continue to aggressively fight money laundering and the related criminal activity that underlies that money laundering.
Chairwoman ROUKEMA. Thank you very much. I appreciate that. And I think you came in within the timeframe.
Page 15 PREV PAGE TOP OF DOC Let me now introduce our second person. Mr. Donald Clemmer is here to testify as the Assistant Attorney General of the State of Texas. Mr. Clemmer has been the Chief of Financial Crimes and Specialized Programs Division since 1993, so he brings a wealth of experience and knowledge to this hearing.
I would also like to note that Mr. Clemmer and his colleague, Mr. Boatright, who is next up to testify, had also testified before the subcommittee in Washington last year.
Mr. Clemmer, we welcome you.
STATEMENT OF HON. DONALD J. CLEMMER, ASSISTANT ATTORNEY GENERAL, STATE OF TEXAS
Mr. CLEMMER. Thank you, Madam Chairwoman. I am here on behalf of the Attorney General, to discuss an epidemic as it currently exists in Texas.
As you know, the problem facing Texas is unique in that we have a border with Mexico that is over 1,200 miles long and it is virtually impossible to adequately patrol and adequately guard against currency smuggling going from this country into Mexico. That is what we have seen most recently as being the key money laundering problem in our State.
Years ago, the South American controlled drug cartels traditionally would put money into U.S. financial institutions and then use wire transfers to move money out of the country.
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But more recently, what we have seen, especially with the advent of Mexican drug trafficking organizations which have in our State taken the place of many of the formerly Colombian controlled cartels, with these new Mexican drug trafficking organizations, the preferred method of moving money, moving drug proceeds out of the U.S. is by smuggling the money through Texas and across the border into Mexico.
This is done in a variety of ways that many of you have seen illustrated here today. Many of the exhibits that are here show exactly the same thing as what we show in Texas. It is very common for highway patrolmen in the State of Texas to stop a vehicle, search the vehicle and find anywhere from $100,000 to $500,000 hidden in the car, either in secret compartments or in luggage in any number of ways, and when you consider that those traffic stops, those random traffic stops that uncover that type of cash, the frequency of that occurring, the likelihood of that occurring successfully is maybe 1-in-1,000.
You can imagine how much money is actually being smuggled through the highways in Texas and into Mexico.
In the last several years, we have seen over 200 percent increase in the number of seizures of that type in our State.
In 1999, our Department of Public Safety, which is our Highway Patrol, they seized over $19 million in stops such as that in small increments, anywhere from $50,000 to $200,000 each time. It all added up to something over $19 million, which does not include what we estimate to be another $10 million which was seized by local authorities.
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So just looking at that amount of seizures and realizing that that is a very small amount of the money that is actually moving, being smuggled along the highways, you can see the enormity of the problems with bulk cash smuggling.
It is not, however, just a problem that is confined to our highway system. We routinely see money being smuggled into airports, passengers on airplanes withwe have a case that is illustrated in our written testimony about a TV/VCR combination in which there was over $200,000 concealed.
That is just a typical situation that we would see.
Also, we have the same problem with our rail system. We see people smuggling money as train passengers, $200,000 in a duffle bag, it is not an uncommon event at all.
And also, besides the highway system, we have the companies' line, where, in the Gulf of Mexico, we see money being smuggled through our ports. All of this money, again from what we can tell, is destined to go back to the Mexican drug trafficking organizations, that once that money is in Mexico, they can put it into the Mexican financial system and put it anywhere in the world that they want that money sent.
It is a very severe problem now. I think in the early 1990's we dealt fairly successfully with the problems associated with the money transmitters, particularly in the Houston area where people were putting money into banks and wiring it overseas, through the Federal Government's enforcement of currency reporting laws and through our own enforcement, our own State laws.
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I think we have gotten to the point where we are getting that situation under control. But now as money declines moving through those financial institutions, what we see is that bulk smuggling is now the preferred method of moving money and it has just become a severe problem for our State.
We have tried to do several things in response to that. We have passed laws in our State which make it a crime for a person to transport cash for a fee; in essence, be in the business of transporting cash, unless that person first obtains a license to do that. Obviously someone who is going to do what we have seen so far today, someone who is going to smuggle $100,000 in a battery charger is not going to go through the trouble to conduct that type of business; so just by virtue of the fact that someone is smuggling money and does not have a license, we can charge that person with a felony offense.
We have also tried to work with the government of Mexico in coming up with ways in which we can work together in sharing information as to where this money is going, who is in charge of this money smuggling operations, and somehow put together successful programs both in Texas and in Mexico, because they face some similar problems in their country that we do here. Their laws don't successfully or don't adequately address the problem of currency smuggling.
We have spoken with representatives of their Attorney General's office, and they discussed these same situations we see here, with individuals in Mexico, smuggling hundreds of thousands of U.S. dollars. They stop an individual with that much money and there is nothing they can do other than let that person continue on their way, because they don't have laws that deal with that type of situation, so we are working with them also to try to come up with ways that we can deal with this problem.
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We have reviewed the Bulk Cash Smuggling Act that you have proposed, and it is very similar to some of the same things that we have tried to do at the State level in our State.
Like I have already mentioned, our Currency Transportation Act says you have to have a license to transport money like this. Our money laundering statute itself makes it a crime just to possess money that is derived from narcotics transactions.
You have to know it came from a narcotics transaction, but you don't have to do anything to further the narcotics enterprise. Just mere possession is enough, so we have tried to come up with ways to deal with this at the State level, but obviously that is not enough.
It's something where we have to have cooperative effort with Federal authorities and, hopefully, Congress can deal with some of these same issues, like what you had proposed in the Bulk Cash Smuggling Act.
Obviously the main things that we need are some type of statutory change that would correct the problem that you have already mentioned today and also increases in manpower and technology to deal with how do you stop the money from moving across the border so easily as it moves today.
It's just an in-rem problem and it is something that we have to continue to address.
Page 20 PREV PAGE TOP OF DOC I think the new HIFCA program is one way of bringing all of these programs together, of bringing together Federal and State resources.
We have worked with the HIDE program for years. It has been a very successful program and we see HIFCA as being just another way of doing the same type of thing on the financial level, certainly on the drug level.
I don't want to take too much time today. Our written testimony outlines some of the facts that I have spoken to.
Captain Boatright is here to discuss some of the specifics about some of the cases we have dealt with. Specifically, some of the cases between New York and New Jersey and Texas, the way the money moves from those States to our State and across the border and to discuss the HIFCA program. But if there are any questions, I would be happy to answer those at this time.
Chairwoman ROUKEMA. Thank you.
Captain Boatright is Captain of the Special Crimes Division of the Attorney General's office in Texas.
Mr. Boatright, do you have something that you want to add or coordinate with Mr. Clemmer's testimony?
STATEMENT OF CAPTAIN DAVID BOATRIGHT, SPECIAL CRIMES DIVISION, TEXAS ATTORNEY GENERAL'S OFFICE
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Mr. BOATRIGHT. Yes, Madam Chairwoman, thank you very much.
It is a pleasure to appear before you today, and as a follow up to our 1999 testimony, I would like to just make a couple of brief points to bring to your attention some of the things that are occurring in Texas and some of the responses that we have begun to formulate.
I first became aware in the early and mid-1990's, of the Texas-to-New-Jersey connection, primarily investigating our Colombian based money remitters that existed in Texas.
As we began primarily in Houston to look at this phenomenon of wire transfers and Colombian money remitters, we began to discover just a tremendous number of criminal ties and criminal organizations that existed both in Texas and in New York, New Jersey and in the Miami area that facilitated the placement of cash in the financial institutions and the eventual wire transfer of that money.
In Texas, we were very successful in the Houston area in eliminating those types of businesses at the same time that the Eldorado group was working in the New York/New Jersey area.
I would want to report to you today that as a result of our elimination of the wire transmitter industry in Houston, that really caused a displacement and resulted in this bulk cash phenomenon that we see now.
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The other thing that occurred in Texas about the same time was the changing of the guard as far as the drug side, the drug organizations.
Of course, in Texas now we have much more involvement from the Mexican drug organizations as opposed to Central and South America. A lot of the cash that we see now in our Texas highways moving through Texas is actually owned by the Mexicans now, as in the past that money was really owned by Central and South American groups.
Just to illustrate what we are seeing, and again to further illustrate the ties between your area here and our area in Texas and the Southwest border, we have recently completed an investigation that began with just a routine seizure of money at one of our airports along the Southwest border, and what we found was over the preceding three to four years, and this is, you know, in documents and in hard facts, that this individual weekly was making trips via commercial airline from El Paso, Texas to Chicago and also traveling from Chicago to Newark and Newark back to El Paso. And also traveling from Chicago into the interior of Mexico.
The evidence that we have been able to develop during the course of the investigation, each one of these trips from our Southwest border, not only to the Chicago area, but to the Newark area, each time was to pick up money and to return bulk currency back to Texas and eventually move that bulk currency through our Texas airports south across the border and into Mexico.
So it is an ongoing situation, it is an ongoing problem as the previous persons have pointed out, the amount and the volume is just staggering to us in law enforcement, the millions and billions of dollars that are moving across our Southwest border.
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I would like to report back to you today as we mentioned a year ago, you know, we now have in place in El Paso through the efforts of the Customs Service and in cooperation with State and local law enforcement in the El Paso area, we have our first HIFCA action team in place.
We have a structure developed, we have management in place, we have personnel in place and I would want you to know that at the local level on the Southwest border, that because of the structure that was set out in the national money laundering strategy in bulk cash being identified as a problem and the advent of the HIFCA system, that that is happening and that is beginning to take place.
It is bringing agencies together that had not always worked together in the past. And we see HIFCA as a real bonus to us along the Southwest border.
That is all I have. If there are any questions
Chairwoman ROUKEMA. All right. Thank you.
We will have some follow-up questions, I am sure.
Chief of Police Jerry Speziale, who is now with the New Hope, Pennsylvania Police Department, I understand just a few days or a couple of weeks ago?
Mr. SPEZIALE. That is correct.
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Chairwoman ROUKEMA. You are the former Captain of the Narcotics and Money Laundering Section of Passaic County Sheriff's Department in New Jersey, and that, of course, with that history and experience that you have had here in New Jersey and specifically with the Passaic County Sheriff's Office, we invited you here today because you have experience not only there for three years on this subject, but also prior to that you spent, I believe, close to fifteen years with the New York Drug Enforcement Task Force, so you bring very special experience to the panel.
We welcome you here today.
STATEMENT OF JERRY SPEZIALE, CHIEF OF POLICE, BOROUGH OF NEW HOPE, PA; FORMER NARCOTICS DIVISION COMMANDER, PASSAIC COUNTY SHERIFF'S DEPARTMENT
Mr. SPEZIALE. Thank you, Madam Chairwoman, for inviting me to testify before this committee.
I want to give you my view on the problem with money laundering activity in the State of New Jersey and I think more from a global aspect, because I feel that the problem is more a global problem where New Jersey has become the hub for these illegal money launderers and illegal money laundering activity.
I think that is based, because of our central location, you know, with the New York Metropolitan Area and Philadelphia being right south of us, that these money launderers all come to New Jersey at one point in time and they sort of stay here and then they move on to the other areas where they pick up their illicit narcotics proceeds.
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A lot of this activity, you know, the way we see it in some of the cases that have gone on since 1998, since I have been here in New Jersey as a commander with Passaic County, I can tell you that the ten-man unit was responsible for seizing more than $30 million in narcotics proceeds.
Now, that is in bulk cash. That is not property. That is not vehicles. That is just bulk cash. We have developed a number of strategies to go after this. This is one of the biggest problems we have come up against since I was there, was the fact that when we formed our money laundering task force, being local officers, you know, the bad guys from these organizations did not see the Hudson River as a border, where law enforcement did see that as a border, where if we had a problem, a local officer would need to go over into New York City, and we were being faced in a situation of a jurisdictional problem.
Early on, because of this, we had to team up on our own to meet up with the New York City Police Department, the Customs Service, the DEA and some of the other Federal agencies that are out there involved in this fight against this money laundering.
What we had done, at that point, when we teamed up and started to attack the money launderers from a joint or cooperative effort, we became very successful with it.
But in going back with what some of the other presenters said, I think one of the more serious issues are, a lot of times we would find these people moving the money, shipping these bulk cash amounts of money and moving it around our area, but as soon as we stopped them we were faced with a situation where if there weren't statements against what they were doing or there were no wiretaps, all we were left with was a currency seizure, and we would seize this currency and let this individual walk out on the door, because we had no real crime against them.
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So I think one of the more important things in this money laundering is that we come up with some sort of a way to make the mere possession of $1 million or $2 million or $10 million to be some sort of a crime if you can't prove or substantiate where these funds have come from.
Additionally, we have had situations in investigations that I have outlined in my statement where money launderers would come in from the South Florida area or the L.A. area and they would fly and land here at Newark International Airport, and what they would do after they left here, they would set up in a hotel in the general area of New York or New Jersey and then what they would do is just keep making shuttle trips over the border into New York City.
When they would get into New York City, they would stand right on a midtown Manhattan street similar to the way you viewed that video, and they would drag suitcases out of cars on the corner of 42nd Street and just go car to car and drop this money off.
And nobody would botheror they would stand in front of a hotel and make it appear that they were going to check into a major midtown hotel, and then what they would do, they would return back to our State in New Jersey and then after they were all set up, they would jump back on the plane at Newark Airport and fly out of here and bring their currency down into the South Florida area.
I mean, that is where a majority of the stuff would go from our investigations.
Page 27 PREV PAGE TOP OF DOC Another thing we noticed is we have watched private Lear jetssome fly into Teterboro, New Jersey airport, they would fly into the airport, rent a limousine, take a limousine, like they were a movie star, into New York City, and once again, stay in the best motels or hotels in the New York City area, and they would come out with bags and they would rent that limousine and drive back onto the tarmac in Teterboro Airport and they would put it into their private jet and fly off to Miami.
Another issue that hasn't really been touched on, I know that some of the presenters have discussed the wire transmitters. We have done a good job of holding back the wire transmitters that are transmitting this currency overseas, but what has happened is a lot of this bulk cash is never leaving our country, because they are picking this bulk cash up in New York, taking it through New Jersey and then bringing it back down into South Florida where they will deposit it into a financial institution.
When they deposit it into that financial institution, they will have a money broker in Colombia that will actually sell our dollars, and what happens is those dollars are sold to satisfy legitimate debt here in this country. So the currency never leaves this country in a lot of situations anymore. And that is sort of the black market dollar peso exchange.
I think that is something else that we have to really look at and attack. I can only say that I am very proud to sit here, because it's high time that we have a high intensity financial crime area.
I would like to just state that several people that have worked hard here in New Jersey. I know the U.S. Attorney, Robert Cleary, and Marion Percell, the Assistant U.S. Attorney have worked tirelessly to make sure that this program gets together and that we all team up as one and go after this problem.
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Once again, I would like to thank you for inviting me.
Chairwoman ROUKEMA. Thank you for your testimony. We appreciate it. It's very helpful.
Our last member of this panel is Director Fred Morrone, Superintendent of Police, Port Authority of New York and New Jersey. Director Morrone is in charge of 1,300 members of the police force for the Port Authority and they are responsible for security at the major airports in the area; not only Newark, but JFK and LaGuardia.
In addition, they are responsible for the ports of New York and Elizabeth City. It is a huge responsibility, and I am sure you have much to contribute to our understanding of the problem.
STATEMENT OF FRED V. MORRONE, DIRECTOR, PUBLIC SAFETY DEPARTMENT, SUPERINTENDENT OF POLICE, PORT AUTHORITY OF NEW YORK AND NEW JERSEY
Mr. MORRONE. Good morning, Madam Chairwoman.
My name is Fred Morrone and I am the Director of Public Safety and Superintendent of Police for the Port Authority of New York and New Jersey.
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As you indicated, the Port Authority Police Department is a 1,300 member force responsible for the policing of all Port Authority facilities. The Port Authority operates key transportation facilities throughout New York and New Jersey, including all three major airports and the region's major commercial marine terminals.
In 1999, over 89 million passengers traveled through Kennedy, LaGuardia and Newark International airports, and over 17 million tons of cargo moved through port facilities.
In addition, over 123 million vehicles used Port Authority crossings between the two States.
Regrettably, as a major gateway into and out of the United States for both passengers and cargo, Port Authority facilities are also used by those involved in illegal activities, including the smuggling of currency.
The Port Authority Police Department works closely with other State and Federal law enforcement agencies to aggressively combat this activity.
In 1999 alone, approximately $16 million in U.S. currency was seized at Kennedy Airport. $13 million was seized in 1998. At Newark Airport, approximately $1 million was seized in 1999.
Our efforts to reduce and prevent bulk currency smuggling into and out of the United States has become increasingly difficult as currency smugglers have become more sophisticated in their concealment methods.
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For example, in June of 1998, as part of Operation Brass Ring, which I might add, Madam Chairwoman, was a U.S. Customs initiative, Port Authority Police and Customs officials inspected a 20-foot cargo container at Port Newark loaded with used truck parts destined for Venezuela.
The inspection resulted in the discovery of bundles of undeclared U.S. currency valued at over $11 million. This money was duct-taped in 23 truck transmissions.
Currency smuggling activities are not limited to the seaport. At the airports, both inbound and outbound would-be smugglers attempt to evade detection from Customs and other law enforcement agencies by concealing large sums of U.S. currency either on their body or secreted in luggage.
Our efforts are directed toward identifying, disrupting and dismantling systems or organizations involved in the currency smuggling trade. To that end, Port Authority Police have participated in ongoing multi-agency task force initiatives with the Drug Enforcement Administration, U.S. Customs, the FBI, the Coast Guard, New York and New Jersey State Police, New York City Police and the Waterfront Commission.
Port Authority officers and detectives at the three airports are currently working with existing State and Federal law enforcement task forces involved in interdicting the laundering of proceeds from narcotics trafficking and other financial crimes in the New York/New Jersey area.
Page 31 PREV PAGE TOP OF DOC While current interdiction programs have had their success, there are actions that could be taken to improve the overall effectiveness of combating currency smuggling activities.
Money laundering is the by-product of other, equally serious illicit activity. Building upon existing interagency law enforcement relationships, a more concentrated investigative effort on currency smuggling activities through the New York/New Jersey region's airports, seaports, bridges and tunnels could well lead to the interdiction of and ultimate prosecution for drug trafficking and other forms of organized crime activity.
The seriousness of the money laundering activity deserves focused intelligence attention. This intelligence function, perhaps with Interpol involvement, would focus on the tactical and strategic aspects of money laundering.
It could also serve as the repository of a national computer data bank that would gather and disseminate information among existing law enforcement agencies and task forces on the movement of money laundering proceeds. This data bank and intelligence effort should be federally-funded, multi-agency and multi-jurisdictional.
Finally, Federal sentencing guidelines need to be amended to reflect the seriousness of money laundering crimes. New legislation is needed to increase penalties for those convicted of this activity.
Madam Chairwoman, currency smuggling activity is a serious national and international issue. Attacking it successfully cuts at the heart of other serious and dangerous crime. By targeting law enforcement efforts and resources in this area, we have the opportunity to combat a wide range of criminal activity.
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I thank you and congratulate you on holding this hearing to bring attention to this important matter. The Port Authority and I stand ready to assist you in this effort.
Chairwoman ROUKEMA. Thank you. That's all of you.
I don't quite know how to put my questions to you. You have all been very articulate and there is absolutely no disagreement that we have a horrendous problem out here.
I guess I do want to ask questions in a couple of different ways, and I know each of you have commented in one form or another on this, but I wonder if we could summarize here and I would like to ask each of you if you could contribute to this, because there is so much information out there, and seeing that taping, I mean, there is no contradiction as to what is going on.
I would suggest from your testimony that you know who these people are, no? Perhaps there is a rapid turnover, but the point I am trying to get to is: If we know all these things and you certainly have a wealth of information there that would lead to criminal indictments or whatever, arrests, and so forth, specifically, how would you summarize how we have to focus on this to improve
And, by the way, I would like to make the connection, too, to improve Federal and StateFederal assistance to State prosecution or vice versa.
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Who would like to be the first to comment? I think that the case is so compelling that it's perplexing to me as to why there is still such a different opinion as to what we should be doing here.
Mr. ZOUBEK. I think as I mentioned in my testimony and others from the Attorney General's Office in Texas, the cooperation between State, local and Federal authorities is really at the core.
I think the new HICFA areas that have been funded are an important new focus of that cooperation. There has been a tendency at times to only focus on drug arrests and drug seizures, but I think now law enforcement recognizes that we must all focus on the international aspects of the money laundering. I would submit that one of the ways in which the operators of the warehouse in the video tape could be discovered is to train law enforcement officers to be looking for the signs of this.
To be looking for, for example, someone driving by without any apparent reason to be in that warehouse, or going in and out of that particular warehouse, if there are police officers that are in contact with those warehouses and looking out for things a lot of the activity going in and out of this warehouse at odd hours and we are not seeing any legitimate business coming out of that warehouse, then contact the local prosecuting authorities who can then contact State and Federal authorities to look at the group.
That is how we are able to accomplish that in a cooperative fashion. Obviously, when it gets to the point in time of tracing where the cash is going, it's interstate cooperation and ultimately international.
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But one of the things that has been clear, FinCEN has been very helpful with this as it relates to some of the banking transactions, and the cash transactions by taking the information that exists in Washington, in the FinCEN database, and making it more accessible and usable to local authorities so we can identify where we see some of the problems are and then work with our Federal partners to trace that cash and to trace the organizations, because one law enforcement agency is not going to do it by themselves.
Chairwoman ROUKEMA. Thank you.
May I just ask, if any of you, and if you don't have it today with you, could you contribute it to the record of this hearing, any comments beyond my bill, which I think is a major step, major step, but comment on the other bills that are out there, including where Mr. McCollum and I are trying to go with a very comprehensive bill relating to both the judiciary as well as the banking side of things.
And you could apply this because I think we needthere is a feeling hereand I don't want to distract you from the first question I asked you, but there is a feeling here certainly from my own point of view that maybe what the Administration is proposing, the International Money Laundering Act of 2000 does not have the teeth into it as much as we feel is necessary, but if you can't comment on that today, I do want you to please respond with specificity to the legislation that has been mentioned here, my legislation as well as H.R. 2896 and the staff will give you that information to get back to us on.
All right, continue please. We know all these things. How are we going to focus
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Mr. CLEMMER. Madam Chairwoman, I agree with everything Mr. Zoubek said, specifically we have worked with FinCEN since 1992. It has been a tremendous resource for us.
It's the first example that I was involved with where the Federal Government came to the States to share information and share resources, and it has been a great success in our State and with the HIDTA programs and HIFCA programs, it's just another good example of what can be accomplished when the States and locals and Federal authorities all work together.
I do want to make clear that the HIDTAs and the HIFCAs, they don't serve just as a funding mechanism. It is not just that the States are asking the Federal Government to give us money to do these things. The HIDTAs and the HIFCAs both serve as a point of unity to these efforts so that they bring together the Federal, State and local agents into one group that can work on a specific problem and it's that unifying factor that makes them so important in addition to the funding resources that are provided.
It is not just the money. It's the fact that it brings people together to work on these problems.
Chairwoman ROUKEMA. And when you bring them forward, what are the penalties? Is it a deterrent?
Mr. CLEMMER. When you have both the Federal laws that you can proceed under and the State laws that you can proceed under, it gives the law enforcement groups that are working together in a group like that a variety of different ways they can go.
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For instance, in Texas, in a lot of cases we find that the best way for us to proceed in an anti-money laundering case is to proceed under our State financial code, which puts into effect certain banking offenses; running a bank without a license in some ways can be easier to prove when you are dealing with money launderers than it is to prove that they are dealing with cash derived from drug transactions.
When you have these groups like HIDTA or HIFCA enforcement groups, it gives you more to work with and it is a very effective tool.
Chairwoman ROUKEMA. All right. I am going to refrain from listening to you because of time.
Mr. Boatright, anything?
Mr. BOATRIGHT. Yes, Madam Chairwoman.
The fact that in the Southern District of Texas and the Western District of Texas we have points of contact that the U.S. Attorney's Office has assigned to work with our anti-money laundering groups, and that has been a vast improvement. We have single-stop shopping where we can go to someone and get issues resolved or questions answered, and that is a tremendous benefit to the officers on the street and along the Southwest border, just the cooperation and coordination between State and local officers and Federal.
I am a native of the border and it's better now than it ever has been. People are working together not just on the drug side, but the money laundering side as well.
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So having brought these different groups together has been a tremendous benefit.
And in addition, as Mr. Clemmer alluded to, in these task force settings when you have the ability to prosecute people in State court and the ability to prosecute people in Federal court, oftentimes we will use our State prosecution to make in roads to an organization and take tactical steps to begin to dismantle or attack a few people in hopes of working our way up the organizational chart, so these multi-agency settings are perfect for that type of attack.
Chairwoman ROUKEMA. Thank you.
Mr. SPEZIALE. Yes, Madam Chairwoman.
Basically, what I think is one of the more important issues that we have to address to combat this is to make sure that the flow of the intelligence information is shared among law enforcement agencies.
The U.S. Customs Service is the main focus on the crime of money laundering, and I think there has been so many fragmented other organizations out there trying to attack this money laundering problem, and I don't think that we are all sharing with Customs to get that information into one central database.
Page 38 PREV PAGE TOP OF DOC I think that if we focus in that direction and had Customs with a central database receiving all this information from DEA and FBI and IRS, anything pertaining to the crime of money laundering, us as local law enforcement would have one location to go to and find out about a particular target or a particular location.
The way it stands now, we have to call the Customs Service. We have to check with the Drug Enforcement Administration. We have to check with the FBI or the IRS.
I think that is something that would really make it a lot easier if we had a central location to deal with to know what we are dealing with, run a location, run a target, so we know who we are dealing with.
Chairwoman ROUKEMA. Interesting. We may have to look at that in the context of the planned McCollum/Roukema bill particularly on the judicial side to that question.
Mr. SPEZIALE. And then I think as a second approach to the money laundering problem, I think that we have to use different techniques.
I think that here in New Jersey we use a lot of wiretap techniques because a lot of these people were very evasive, their names were not known to us, a lot of times they were just using various communication devices to circumvent law enforcement, and I think that a lot of the success that we have had in New Jersey is by attacking this problem by looking at the wiretap statutes, both Federal and State.
Page 39 PREV PAGE TOP OF DOC I think that is what has made it so important, because we didn't just end up with a bulk cash seizure. We also ended up with a Federal prosecution or a State prosecution where somebody serves substantial time.
Chairwoman ROUKEMA. Thank you.
I didn't mean to imply in my statement about the planned McCollum/Roukema bill, and your point about having a central enforcement oversight group, that this is not important to the banking area.
A couple of people have spoken about the increasing use of banks as depository institutions and this is bringing banks in more and more. So it has to be a coordinated effort.
I didn't mean to imply that there was not a Banking Committee responsibility here, but it has to be integrated, not coordinated, integrated with the banks, because we are finding more and more banks are being used in one form or another.
Go ahead, Mr. Morrone.
Mr. MORRONE. I just would like to add and emphasize, if I may, Madam Chairwoman, the importance of the intelligence function, not on a tactical level, on a strategic level, and that is to say so that law enforcement could then become more proactive in this area and that is to establish patterns of how money laundering is an ongoing process.
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Right. Now it has been alluded to by all of the presenters here today. Coordination among law enforcement at the municipal, county, State and Federal level has been enhanced and has become better.
However, I think what you heard here today is only the tip of the iceberg. Consequently, our intelligence function is lacking.
I mean, when you have six million people that went through three major airports on the East Coast alone, and we presented to you here today with a number of million dollars, millions of dollars, as you indicated earlier, it's into the billions of dollars.
Chairwoman ROUKEMA. Thank you. I appreciate your testimony.
But I did want to hear each one of you say ''Aye-Aye,'' to the point where H.R. 240 to be a significant step as part of our overall reform here to be genuine and serious about real enforcement.
''Aye-aye,'' do we hear that?
[All voices, ''Aye-aye.'']
Mr. ZOUBEK. All present and accounted for.
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Chairwoman ROUKEMA. I would like to have from you, and there is not time for it now, but if there is any specific way based on your law enforcement experience as to how we should be dealing with the banks as integrated into this enforcement effort, and to make the case as to why you know the banks should be deeply concerned about this, not only banks, but other financial services.
All right. I would really appreciate that.
All right, is our next panel here? I think we are here now.
Our first member of the panel to testify, and we are very pleased to have him here, representing the Department of the Treasury, David Medina. Mr. Medina is Deputy Assistant Secretary for Enforcement Policy at Treasury, and he has held that position since 1997 and has served, however, with the Department of the Treasury in a number of capacities since 1994.
So he has considerable experience at enforcement dealing with these issues at the Federal level.
Mr. Medina, your five minutes are yours.
STATEMENT OF HON. DAVID MEDINA, DEPUTY ASSISTANT SECRETARY FOR ENFORCEMENT POLICY, U.S. DEPARTMENT OF THE TREASURY
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Mr. MEDINA. Thank you and good morning, Chairwoman Roukema. I am pleased to testify on this important issue.
Joining me today is John Varrone, the Acting Deputy Assistant Commissioner of the United States Customs Service.
I have submitted a longer statement for the record and in the interest of time, will seek to summarize it here.
Madam Chairwoman, we greatly appreciate your time and continued leadership on these issues as well as that of Chairman Leach.
For our own part, the Administration has made the fight against money laundering one of its top priorities. Under the leadership of Secretary Summers and Attorney General Reno, the National Money Laundering Strategy for 2000 provides a comprehensive approach to fight money laundering locally, nationally and internationally.
Among other things, the Strategy seeks to improve private and public efforts to prevent money laundering, in part by assuring that financial institutions and others providing financial services are subject to appropriate, effective Bank Secrecy Act requirements.
In this regard, Treasury recently announced a final rule on applying Suspicious Activity Reports, or ''SAR'' requirements to money services businesses.
Page 43 PREV PAGE TOP OF DOC This year, we also plan to issue final SAR rules for casinos and proposed SAR rules for securities brokers and dealers.
For example, we will support local efforts by awarding $2.5 million in grants as part of the Treasury and Justice Financial Crime-Free Communities Support Program or C-FIC. These grants will provide seed money to help State and local communities develop innovative approaches to money laundering enforcement and prosecution.
We hope that the application forms will be publicly available from the DOJ Bureau of Justice Assistance on its website in the very near future.
Internationally, our efforts include working with allies to identify and take appropriate countermeasures to combat money laundering. As you know, we have participated in the process of the Financial Action Task Force on Money Launderingor FATF, to develop a list of non-cooperative jurisdictions and territories. We support FATF's plans to publish its list next month.
Treasury strongly concurs with the resolution you recently introduced to support the FATF process and we look forward to working with you on the final text of this important resolution.
Finally, we look to strengthen domestic enforcement to disrupt the flow of illicit money. This includes enhancing interagency cooperation on investigations and identifying and targeting major money laundering systems such as the Black Market Peso Exchange.
Page 44 PREV PAGE TOP OF DOC A major component of our domestic strategy is to concentrate resources in high-risk areas. To that end, Secretary Summers and Attorney General Reno designated four High Intensity Financial Crime Areas, or ''HIFCAs,'' including the New York/Northern New Jersey HIFCA.
Currently, officials representing a range of law enforcement agencies in New York and New Jersey are meeting to discuss the best approach to bringing all the necessary players to the table to develop the HIFCA action teams, which will concentrate our efforts and improve cooperation throughout the area.
In addition to this initiative, the strategy calls for passage of two key pieces of legislation.
We are grateful, Madam Chairwoman, for your sponsorship of each of these bills. First, the Money Laundering Act of 2000 would close loopholes in our criminal money laundering laws by giving prosecutors and investigators important new tools to combat money laundering.
Second, the International Counter-Money Laundering Act of 2000 will provide the Secretary of the Treasury with new discretionary authorities to crack down on foreign money laundering havens that pose a serious money laundering threat.
In short, the act will allow the U.S. to take targeted measures to better protect the financial system from foreign money laundering.
Of course, even as we shut down newer, more sophisticated schemes, we do not neglect the money laundering methods used for years. Money launderers may be sophisticated, but they are not proud. They will use any available method to launder their dirty money, and bulk cash smuggling remains a significant concern, either as a final step in repatriating dirty money or as one of the first steps in more intricate schemes by which cash sent out of the country gets reintroduced into the U.S. and further reinvested.
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Bulk cash smuggling often increases in response to unsuccessful efforts to shut down other avenues. For example, Customs increased currency seizures at ports in the New York/New Jersey area after the 1996 order imposing greater reporting requirements on wire transfers from a geographic section of New York City to Colombia.
In addition, bulk cash smuggling provides opportunities for law enforcement, since the cash is often heavier and more cumbersome than the drugs that are smuggled in.
You will hear more about this, I am sure, from Mr. Varrone, but the money used to pay for cocaine often weighs three times more than the drugs themselves.
As you will hear from Mr. Varrone, Customs seized more than $60 million in undeclared currency in both fiscal year 1998 and fiscal year 1999.
The strategy specifically targets bulk cash smuggling in several ways. First, we have designated a HIFCA along the Southwest border that is expressly dedicated to the issue of bulk cash smuggling.
In addition, the President's fiscal year 2001 budget proposes $10 million in additional funding for the Narcotics Illicit Proceeds Strategy Initiative. This funding will permit Customs to increase the number of personnel devoted to this problem. Mr. Varrone can address this initiative in greater detail.
Page 46 PREV PAGE TOP OF DOC The Administration also seeks legislative clarification of Customs authority to conduct searches of outbound international letter class mail.
Currently, Customs has the authority to conduct border searches of international mail entering the country through the U.S. Postal Service, but may not conduct border searches of mail leaving the country without a warrant.
Thus, outbound international letter-class mail is the only way for merchandise to be transported across the U.S. border without being subject to Customs inspection, unless a warrant is obtained.
This leaves a gap in Customs' ability to detect bulk cash smuggling. Under Postal Service regulations, a letter-class mail parcel can weigh up to four pounds when mailed internationally other than to Canada, and up to 60 pounds when mailed to Canada. A single four-pound letter class parcel can accommodate approximately $180,000 in $100 bills.
To close this loophole, the Administration will continue to support provisions in crime bills that would permit Customs to search outbound international letter-class mail in certain circumstances.
Such legislation would simply bring Customs' outbound search authority into line with its inbound search authority. Of course, Customs would still be required to obtain a search warrant to inspect any domestic mail, or to read any correspondence contained in any international or domestic mail parcel.
Page 47 PREV PAGE TOP OF DOC Combating bulk cash smuggling also calls for increasing the penalties to perpetrators. Like H.R. 240, which you introduced and we support, the Money Laundering Act of 2000 includes a provision that specifically targets bulk cash smuggling.
Both provisions would make it a crime to smuggle over $10,000 out of the country with the intention of avoiding a reporting requirement. Currently, such behavior is not a smuggling offense, but rather simply a violation of a reporting requirement. We must remedy the current enforcement problem of insufficient sanctions or bulk cash smuggling. This is an example of one of the loopholes in our money laundering laws I referred to earlier, and underscores the need to pass both of the money laundering bills submitted by the Administration.
Madam Chairwoman, the department appreciates your support of these and related measures, and your leadership on H.R. 240.
In conclusion, combating money laundering requires a long, sustained commitment from Government at all levels. The issues that you raise today, particularly how best to shut off the outbound flows of illicit currency, are central to our efforts.
We look forward to continued close, cooperative and productive work with you and others in Congress as we all respond to the threat that money laundering poses to our financial systems and societies. Thank you.
Chairwoman ROUKEMA. I thank you. That was very helpful testimony.
Page 48 PREV PAGE TOP OF DOC Mr. Stuart Rabner is here today in place of or representing Robert Cleary, who is the U.S. Attorney for the District of New Jersey. My understanding is that Mr. Cleary has a case that he is arguing as we speak above us on the third floor so that he was not able to change the court schedule.
But we do appreciate having Mr. Rabner here. He is the First Assistant U.S. Attorney for the District of New Jersey. And he comes with excellent qualifications. He has been with the U.S. Attorney's Office since 1986 and has had a distinguished career across the board, but particularly in this aspect of law enforcement.
So we do welcome you here and we will trust that Robert Cleary is able to win his case, but in any case, you are going to help us win ours here today.
STATEMENT OF STUART RABNER, FIRST ASSISTANT U.S. ATTORNEY, DISTRICT OF NEW JERSEY
Mr. RABNER. Thank you, Madam Chairwoman, and good morning.
As you know, Robert Cleary, U.S. Attorney, unfortunately is not here. He is in the middle of an ongoing criminal trial that is upstairs at this moment. If we want to take a break, we can go up and watch him.
Chairwoman ROUKEMA. It's in good hands. We will stay here.
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Mr. RABNER. On behalf of Mr. Cleary and the U.S. Attorney's Office, we thank you for the opportunity to address you on recent trends in money laundering.
This is a very serious problem and it's appropriate to start by thanking you, the Chair, for your efforts to strengthen our Nation's money laundering statutes. In particular, the Department of Justice supports the Bulk Cash Smuggling Act of 1999. We do indeed salute it, and to use your words, we say ''aye-aye'' to that bill.
It is an appropriate one. We certainly endorse it.
In New Jersey, the U.S. Attorney's Office and Federal investigative agencies have a long history of aggressively investigating and prosecuting money laundering cases in a variety of forms, forms that we have seen change over time.
Criminals who hold on to large amounts of cash, whether they are the proceeds of drug money laundering, drug proceeds, organized crime or some other illicit activity look to reintroduce that money into the economy and they do so in a variety of ways: First, trying to put that money back into the banking system or indirectly through money service businesses, like money remitters, check cashers or vendors of travelers checks or money orders. Still another technique is the risky, and all too common, effort of smuggling currency that is the subject of H.R. 240.
You asked the last panel briefly to touch upon banks and how they fit into the situation and perhaps I can start there.
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The currency transaction reports that are required to be filed for cash transactions in excess of $10,000 have made it very difficult for narcotics smugglers to use our banking system. Nevertheless, they continue to try by structuring their deposits, by breaking them into smaller amounts under $10,000 and engaging in these transactions at different banks at different times.
This structuring activity has the sustained attention of law enforcement in New Jersey and elsewhere. In New Jersey, we review the credit reports that are filed on a regular basis and they trigger investigations.
Beyond that, banks are now required, as you know, to file Suspicious Activity Reports.
For suspicious transactions of less than $10,000, how do we focus on that? Every month Federal law enforcement in New Jersey with an Assistant U.S. Attorney sit down with representatives from the Customs Service, IRS, FBI, DEA, Secret Service and the Postal Inspection Service sit together and review the Suspicious Activity Reports that are filed in New Jersey.
We look for patterns, and with the information obtained from the databases and from the intelligence that we have, we open investigations and join in cooperative efforts with local and with State law enforcement to pursue the money laundering cases that we identify.
Our Financial Investigations Task Force has been in existence since 1995 and it has served as a model for other States in the Nation.
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Also, in New Jersey now some casinos are voluntarily filing Suspicious Activity Reports. They are reviewed by another task force that we have set up, the Atlantic City Casino Task Force created in 1998. It's another multi-agency group that involves Federal, State and local law enforcement to review these various filings and identify potential money laundering targets for investigation.
Given CTRs and Suspicious Activity Reports, money launderers have turned to the other entity that you alluded to earlier, money remitting agencies and other money service organizations, and in New Jersey we have prosecuted money remitters who have either cooperated with money launderers or who have joined corruptly in force with them by concealing the large deposits that they handle.
In 1997, law enforcement responded with Geographic Targeting Orders affecting five northern New Jersey counties. This required money launderers to file CTRs for transactions in excess of $750. We saw a dramatic decrease in the volume of financial transactions of these money remitters as a result, confirming suspicions that they were, in fact, being used by money launderers. These efforts, as well as others, have led money launderers to return or to turn to the old fashioned technique of smuggling currency in bulk amounts in any number of ways as the panelists before and as you have alluded to: by plane, by train, by car, in luggage, by containers.
It's no surprise that this is a serious issue in New Jersey, because not far from where we sit today are two of the largest ports of entry in the United States: Newark International Airport and Port Newark, Port Elizabeth, which is the largest containerized seaport on the East Coast of the United States.
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Under current law, Currency and Monetary Instrument Reports, CMIRs, reports must be filed when efforts are made to transport or attempt to transport more than $10,000 in cash across the border. The duty to file the CMIR, however, is triggered at the border, not before reaching that place. And because it's only a reporting requirement, you noted earlier the Supreme Court's decision that it is not constitutional to forfeit the entire amount of currency that is being attempted to be transferred across the border, because that was deemed by the Supreme Court to be contrary to the excessive fines clause of the Eighth Amendment.
Which brings us to the Bulk Cash Smuggling Act. Under the bill, attempting to smuggle more than $10,000 out of the United States with the attempt to evade the CMIR requirement, whether at the border or not, subjects the individual to punishment, to imprisonment and to forfeiture, and simply put, the bill rightly treats this very serious act to conceal currency in order to smuggle it out of the country as a much more serious offense than simply failing to file a form.
The forfeiture provisions of the proposed legislation are appropriately drafted so that a property owner has a chance to show that the money was derived from a legitimate source and that it was intended for a lawful purpose. If the property owner can do that, the forfeiture may be reduced. But narcotics money launderers who will not be able to make that showing would have every reason to expect that every penny they are trying to transfer in these bulk cash smuggling efforts will be forfeited from them as it should be.
This is a wise bill. It is a needed bill and it's one that the Department of Justice fully supports.
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I would like to thank you again for the opportunity to speak on behalf of the bill and for your efforts to help in our combined attack on money laundering.
Chairwoman ROUKEMA. Thank you very much.
Mr. John Varrone, Mr. Varrone has been with the Customs Service since 1977 and is currently the Acting Deputy Assisting Commissioner for the U.S. Customs Service.
Prior to assuming that position, Mr. Varrone, I understand you were Executive Director of Domestic Operations for the East Coast of the United States Customs Service. I believe that you have had a long and distinguished career in the New York/New Jersey area and you certainly understand the problem that we have.
I think you have a friend with you here today?
Mr. VARRONE. Yes, I do.
Chairwoman ROUKEMA. All right.
Mr. Varrone, I will leave the next five minutes to you and your friend.
STATEMENT OF JOHN C. VARRONE, ACTING DEPUTY ASSISTANT COMMISSIONER, OFFICE OF INVESTIGATIONS, U.S. CUSTOMS SERVICE
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Mr. VARRONE. Thank you. Good morning, Chairwoman.
I am pleased to join my colleagues today to discuss U.S. Customs efforts in combating international money laundering.
I am particularly pleased to hear the complimentary comments from my current panelists and former panelists on the performance of the U.S. Customs Service and the serious role it takes in money laundering.
I am especially pleased to have the opportunity to comment on H.R. 240, the Bulk Cash Smuggling Act of 1999, which includes provisions which will substantially assist the U.S. Customs Service.
The topic of today's hearing, currency smuggling, is a very significant issue for the Customs Service and by virtue of our jurisdiction and mission, one that we are uniquely qualified to address. Through a combination of undercover investigations, regulatory interventions, and outbound border inspections, the Customs Service routinely seizes multi-million dollar amounts of currency that criminal organizations attempt to illegally export.
In fact, over the past four years, the Customs Service has seized in excess of $256 million that violators had attempted to smuggle out of the United States.
In fiscal year 2000, the Customs Service has seized $23 million at our international borders, including over $2.5 million at Newark International Airport.
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Madam Chairwoman, it is particularly appropriate to conduct this hearing in Newark. As you're aware, the northern New Jersey/New York Metropolitan Area has been designated a high risk financial crime area. The designation of this area is HIFCA-supported by Customs enforcement action in the northern New Jersey area which since 1998 has resulted in the seizure of over $30.2 million, approximately 37 percent of this amount. Already this year the Customs Service has seized $2.4 million in the Newark International Airport.
Just last week, Customs inspectors at Newark Airport seized over $460,000 from a passenger bound for Venezuela.
Thus far in fiscal year 2000 we have seized $23 million at our international borders.
We have implemented an aggressive and balanced strategy to combat money launderers and have designated 450 inspectors and in excess of 400 agents worldwide to pursue money laundering investigations.
Over the past three fiscal years, the Customs Service conducted just over 12,000 financial investigations which resulted in the arrest of 3,150 individuals and the seizure of over $855 million. These investigations are not limited to drug-related money laundering, but to the proceeds of all criminal activity which is laundered in a variety of ways.
Our numerous arrests and seizures are a direct result of the variety of enforcement programs which the Customs Service employs in a systems-based investigative approach, this approach which includes undercover investigations, asset identification and removal groups, our money laundering coordination center, outbound interdiction, regulatory interventions, financial frauds and international training.
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International criminal organizations launder their criminal proceeds through variety of different means and methods. The systems they use range from extraordinarily complex, such as the Black Market Peso Exchange to the less complex such as the physical movement of currency, which is one of the least sophisticated, but one of the more highly challenging methods.
One of the reasons that criminal organizations resort to the smuggling of bulk cash resides within the Bank Secrecy Act, which has afforded U.S. law enforcement the tools to deny criminals direct access to the United States banking system: The audit trails established by the Currency and Monetary Instruments Report (CMIR) afford us the opportunity to trace the movement of funds, especially across our borders. Because of the success in establishing these audit trails, the most viable alternative for criminal organizations is to move the cash to a location, usually another country, where there is access to an international banking system.
As the term bulk cash smuggling implies, criminal organizations collect sizable amounts of currency, derived from varied crimes, and then smuggle the cash in large shipments out of the United States.
However, smuggling cash in this method is not without risk. In fact, it is at this placement stage, the first stage in the three stages of money laundering, followed by the layering stage and the integration stage, that the profits of the criminal organization are most vulnerable to law enforcement efforts.
There are multiple reasons for this vulnerability. The logistical problem of moving bulk currency is first among them, as it presents a tremendous physical challenge for the criminal organization.
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Consider the following: If the proceeds of cocaine trafficking are received in street money, $5, $10 and $20 bills, the money will likely weigh at least 3 1/2 times as much as the cocaine from which it was derived.
So if a cocaine trafficker smuggled 700 pounds of cocaine into the country, he would face the daunting task of attempting to smuggle over a ton of money out of the United States.
This presents the trafficker with a large logistics problem and is one of the reasons that the placement stage, which is the first stage in the money laundering cycle, where the profits of the criminal organization are most vulnerable to law enforcement investigations, present the greatest risk.
The U.S. Customs Serviceand I will describe in further detail the concealment method, but the U.S. Customs Service has discovered and seized bulk cash. While the Customs Service has been responsible for a myriad of bulk cash seizures, I would like to take just a moment to describe a few of the most significant.
In June of 1998, a Customs inspector here in Port Newark effected one of the largest bulk cash seizures. It began when our Newark outbound inspector targeted 20-foot container truck parts which were destined for Venezuela.
Our inspectors discovered $11.2 million hidden within large truck transmissions, as you can see in the photograph to the extreme right.
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On the investigative front, numerous long-term undercover investigations continue to lead us to currency stash houses where money is counted and wrapped before being illegally transported.
Last month, Customs agents working with the New York City Police Department seized more than $4.5 million from a currency stash house in New York. The money had been packaged and was being prepared for shipment to Colombia.
A key to the continued success of Customs and financial investigations has been the continued support and leadership of Members of Congress.
Madam Chairwoman, I would like to take a moment to speak today about an issue which may soon appear before Congress, and that is the issue of outbound mail search authority. The relative ease with which criminal organizations can ship cash is not lost on those organizations.
Who knows that a small four-pound international letter class package can contain over $180,000? In fact, these organizations routinely use both international and domestic mail to ship their drug proceeds.
The strategy recognizes the outbound mail issue and called for legislative remedy to provide Customs clear authority to search outbound mail for smuggled money, currency.
The Administration has made the outbound mail proposal a feature of previous crime bills.
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And, finally, I would like to take this opportunity to thank you, Madam Chairwoman, for your leadership and sponsorship of the Bulk Cash Smuggling Act of 1999. This legislation makes it a crime to knowingly conceal more than $10,000 in currency or monetary instruments with the intent to circumvent the currency reporting requirements.
The Customs Service believes that this legislation, with the accompanying penalty provisions, will substantially assist the Customs Service as well as all of Federal law enforcement, in our anti-money laundering operations.
Madam Chairwoman, on behalf of the dedicated men and women of the United States Customs Service who serve our country as the first line of defense, I wish to thank you and your subcommittee for all your support to law enforcement.
I thank you and your subcommittee for the opportunity to comment on the Bulk Cash Smuggling Act of 1999 and commend you for your work in providing Customs and all Federal law enforcement agencies with the legislation necessary to more effectively fight global money laundering.
I, of course, would be very happy to answer any questions that the subcommittee might have now, at this time.
Chairwoman ROUKEMA. I'm sorry, did I misunderstand about your bringing someone in for us to observe, to support or
Page 60 PREV PAGE TOP OF DOC Mr. VARRONE. I may have read faster than getting the canine into the room.
Chairwoman ROUKEMA. Should we wait for the canine or should I ask my questions?
Mr. VARRONE. He is here.
[Whereupon, canine enters room.]
Chairwoman ROUKEMA. Can you explain to us who your friend is?
Mr. SCHNEIDER. This is Kelly. She is almost a three-year-old Belgian Malinois. Her specialty is finding the currency. She is a passive response dog, which means she can work passengers, but also she can work cargo, vehicles, things of that nature.
What I am here to do basically is to find
Chairwoman ROUKEMA. To find out who in this room has more money than anybody else?
Mr. SCHNEIDER. If they work for the Government, they probably have no money.
Chairwoman ROUKEMA. No.
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Please, you go ahead. I don't mean to interrupt you.
Mr. SCHNEIDER. Not a problem. This is what she does. You could put 100 pounds of marijuana right next to her and she doesn't care. She has never been trained on any narcotics whatsoever. It's just purely currency that she is trained for.
Chairwoman ROUKEMA. Thank you.
Mr. SCHNEIDER. Do we have it set up for her?
VOICE. Start in the back.
Chairwoman ROUKEMA. Excuse me, I couldn't hear you.
Mr. SCHNEIDER. Is it possible to give me like three or four other volunteers perhaps?
Chairwoman ROUKEMA. Do we have a volunteer?
Mr. SCHNEIDER. This young lady has set up for us. She has got a fanny pack on that I have loaded up. I guess right in front, if it is all right with you, right in front of this bench area right here.
Chairwoman ROUKEMA. If it does not take too long, we would like to see it.
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Mr. SCHNEIDER. Three seconds.
Chairwoman ROUKEMA. We like to see enforcement in action.
Mr. SCHNEIDER. What she will do, when she finds the odor she will sit down.
[Whereupon, demonstration is held.]
Mr. SCHNEIDER. That is it.
Chairwoman ROUKEMA. All right.
Mr. SCHNEIDER. Just so you understand, what is in this bag is a jar of ink that we have gotten from the Treasury. It's the regular ink that comes on the denominations of bills, and we also train with actual currency.
The currency handlers have been given $500 to train with.
Chairwoman ROUKEMA. Now tell me, how do you use him or her on location?
Mr. SCHNEIDER. Probably 90 percent of the time that I use her is on an outbound flight, working passengers. I have worked her on baggage and cargo, but probably 90 percent of the time is passengers going out with loaded handbags or body carriers and things like that.
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Chairwoman ROUKEMA. I see.
Do you have anotherI won't call them a fleet, but a group of dogs in the luggage area, but they are trained differently, is that what you are telling me?
Mr. SCHNEIDER. The only difference between the luggage dogs overall, which are also the same as the dogs that would be on the border are is their response.
In her case, what she does is she sits down when she gets to the odor. The positive response dogs will bite and scratch whatever the material is, so we are not able to use them on people, but she has been trained to sit so we can use her on passengers.
Chairwoman ROUKEMA. I see. I'm sorry, my staff tells me that we have to have your name for the record and your title.
Mr. SCHNEIDER. Not a problem. I am Canine Enforcement Officer Gene Schneider.
Chairwoman ROUKEMA. Yes, and you are out of which office?
Mr. SCHNEIDER. I am at JFK right now at the airport.
Chairwoman ROUKEMA. We thank you very much.
Page 64 PREV PAGE TOP OF DOC Mr. Varrone, we really are pleased that you were able to give us this experience.
Mr. VARRONE. It is our pleasure, Chairwoman.
Chairwoman ROUKEMA. Thank you.
Mr. SCHNEIDER. Thank you, ma'am.
Chairwoman ROUKEMA. I have to get to our third panel, but I do appreciate what has been said here today by this panel and the Bankruptcy Act you have greatly stressed, and I think that is something that we have not gone into as much as perhaps we should up until now.
So I would invite both of you, if you have other additions, we don't have time for them right now, but any other additions, to write directly to me and I will have them inserted in the record. I want to know with specificity what you are recommending with respect to the Bankruptcy Act, but on the larger question, particularly for Mr. Medina and anyone who wants to comment, including Mr. Rabner, because I think you arealthough you are at the State level, you did reference the banks' role here. Not just the banks' role, but I want to know from all of you, particularly Mr. Medina, how we can get a higher profile on this and get more action.
I do hear that you are supporting my legislation, but I have not even the sense of feeling that there is not support in the Administration to expedite action, legislative action.
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Now, if you are telling me that there is a new focus on this, that we can get help and assistance, active assistance from Treasury to expedite legislative action, I would greatly appreciate that.
And I think whether it is my bill or the larger more comprehensive bills that we have talked about today or the future of the McCollum/Roukema bill that is about to be introduced, could you help us out and at the same time, if Mr. Rabner wants to or if Customs wants to add to it.
I would like to have your help in expediting this process.
Mr. MEDINA. Madam Chairwoman, we stand squarely behind the legislation proposed on both the domestic and international side. We also look forward to working closely with you on the bill, H.R. 240, that you submitted and proposed. We feel very strongly that these are necessary pieces of legislation. They go to a point that we have been hearing quite a bit about, or piecing together various points, that is, that money laundering requires a comprehensive response. And while no single piece of legislation, even no group of legislation, will be a panacea, we should do everything we can to come up with the legal tools so that our investigators can enforce them and go about this in a comprehensive way, and then we must continually monitor this type of legislative development to see what else needs to be done.
So in answer to your question, we feel very strongly that the two pieces of legislation that we propose as well as H.R. 240 should be passed.
Page 66 PREV PAGE TOP OF DOC Chairwoman ROUKEMA. I'm sorry, I have to interrupt you.
What were the two pieces? I missed the first one.
I know, of course, H.R. 3886, the International Counter Money LaunderingI keep tripping over ''counter'' instead of ''anti-'' money laundering. So, that is one of 2000.
But what is the other one you mentioned earlier?
Mr. MEDINA. We labeled one the International Act, while the first one that we submitted is more domestically focused. Although it does have some very important international provisions as well, such as making foreign corruption one of the predicate crimes for money laundering, the first bill that was originally introduced last year by the Administration was more domestically focused. We have brought it out again this year and also added our international bill.
So when I refer to two bills, I refer to the one that was first introduced last year which includes a series of domestic and some related international provisions, and which includes a provision somewhat similar to H.R. 240, which is one of the reasons we feel very strongly that we are on the same page with you.
Chairwoman ROUKEMA. Mr. Rabner, I don't know if you are familiar with these bills, so if you are not, I would like you to have someone from your State legislature comment on them.
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But let me direct in the limited time that we have something more to Mr. Medina. I don't mean to be abusive or contrary, but there has been criticism out there on this legislation that it does not have the teeth that it should have in it and can you tell me where we can work together to tighten that up, or do you feel that the criticism has been unjustified?
Mr. MEDINA. I wouldn't use the word ''unjustified'' because I know this is the type of issue that raises fairly strong feelings and also fairly well-considered views.
I would say, though, that very often, or almost always, you will have some who will say that a certain bill does not go far enough and others who will say that it goes too far.
And when you are dealing with this type of issue, which includes issues such as those going to bank reporting requirements and additional scrutiny of certain matters, we believe that we are in the appropriate place at this time with the type of bill that we introduced.
We think that it's the appropriate legislative response. We also believe that moving forward we will work appropriately on enforcing it and making use of those provisions. But as I noted earlier, we learn a lot as we enforce a certain law and we would need to work very, very closely with you to give you our feedback on how it works in practice.
Chairwoman ROUKEMA. Thank you.
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Mr. Rabner, do you wish to make any comment at this time or do you wish to withhold comment until you have had a chance to review?
Mr. RABNER. Very briefly. Particularly with regard to H.R. 240, it would make a difference in and it would have a significant enough impact on Federal law enforcement here.
I have spoken with representatives from the Department of Justice in preparing for today and I understand that they support it. I will speak to them after today's hearing and relay your concern about trying to expedite this directly to them, and I will also mention, and I don't know the number for this proposal, there are two proposals that we highlighted for the prepared statement that I didn't touch upon.
One is our encouragement and our support for the proposal to make it an offense for the international transportation of more than $10,000 in currency, currency that is derived from specified unlawful activity or intended to promote that type of activity.
As you have heard, there are large amounts of currency that travel through our roadways toward Florida, toward Texas and this particular proposal would enhance our ability to fight that.
Chairwoman ROUKEMA. We will look into that and be very alert to that and try to integrate it, if it is not already integrated, into the more comprehensive bill. We will do what we can.
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Mr. Varrone, of course, I did note, I didn't want to leave you out of this, but I did note that your reference to the Bankruptcy Act and the outbound mail authority that you referenced, and I am certainly sure that Mr. McCollum and I will have to look at that aspect of the question if it isn't covered.
Mr. Medina, do you think it's covered in any of these other pieces of legislation? I don't think so.
Mr. MEDINA. Mr. Varrone can check me, but I believe it is in one of them. I would have to double-check. We will have it also in the Administration's International Crime Control Act, which was submitted a few years back.
Chairwoman ROUKEMA. It is not something that up until now I have focused on, but it is essential, an essential component.
Mr. MEDINA. It's something that has been presented to the Hill at some point.
Chairwoman ROUKEMA. All right. Thank you.
Without further comment from me, if you have anything that you would like to add as an addendum to what has already been said, but I do look forward to all of you helping us to expedite this.
Page 70 PREV PAGE TOP OF DOC I don't want to wait for other great tragedies or scandals to happen before we take action on this. I think we have clearly laid out the path that all informed people know that we must be doing if we are serious about this drug catastrophe in our culture, in our society and in our financial services. So I look forward to working with you. Thank you very much.
All right, our last panel is a gentleman with tremendous experience in the area.
Mr. RIJOCK. Good morning, ma'am.
Chairwoman ROUKEMA. Mr. Rijock, Kenneth Rijock is a Financial Crimes Consultant and he is from Miami, Florida, where you undoubtedly have a lot of seizures.
We would invite you to come to New Jersey, please. He has significant personal experience in the area of bulk cash smuggling and he has lectured extensively in the area and has testified previously before the Banking Committee, and we welcome you here today. You have been listening attentively. We want the value of your experience and perhaps your evaluation of some of the relative areas of our focus today.
STATEMENT OF KENNETH RIJOCK, FINANCIAL CRIMES CONSULTANT, MIAMI FL
Mr. RIJOCK. Yes, ma'am, thank you.
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First, I would like to thank you, ma'am, and the subcommittee for the invitation to testify today in support of the H.R. 240, the Bulk Cash Smuggling Act. I am Kenneth Rijock, and ma'am, I was born in Nyack, this part of the world.
Chairwoman ROUKEMA. That is not too far from my district, which is right along the New York/New Jersey border.
Mr. RIJOCK. I spent most of my young life in Bergen County, ma'am. I was born in Nyack and raised in Tappan, which is right on the border.
My name is Kenneth Rijock and I am a veteran of over 100 domestic and international bulk smuggling operations, all of them successfully completed. These activities were conducted by me in direct support of narcotics smuggling and operations which distributed most of the drugs in the New York/New Jersey metropolitan smuggling area.
My role was essentially that of attorney and offshore financial adviser, and my responsibilities included insuring that the proceeds of crime made it safely to the tax havens of Anguilla, Antigua and Panama, where they began the circuitous route unique to money laundering, known as placement, layering and integration, most commonly known as wash, dry and fold.
My trips involved large sums of currency ranging from several hundred thousand dollars to $6 million. Obviously, I didn't keep permanent records of my activities, but the U.S. Attorney prosecuting only one of my client organizations stated that they earned in excess of $200 million.
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The ever-expanding web of bank reporting requirements cause many criminals to avoid the domestic financial sector entirely and to rely upon an underground pipeline to export their net cash profits. Bulk cash smugglers utilize every variety of international conveyance in use today to accomplish their goals.
All forms of air, sea, land and communications transport are involved and cash smugglers are only limited by the scope of their imaginations in contriving unusual and complex techniques in practicing their trade.
The New York/New Jersey area, being a major international transportation hub, is a center for major bulk cash smuggling activity, as are Los Angeles, San Francisco, South Texas and Miami.
To illustrate some of the tactics in current use, the cash is being carried on the person of a supposed tourist leaving JFK for a holiday in Antigua; it's concealed inside new computers in the hold of a ship at the Port of Newark, bound for Caracas and Cartagena; it is in the baggage of a group of businessmen leaving Teterboro Airport for Ft. Lauderdale Executive and the British Virgin Islands.
It is stowed in the bulkhead of a passenger liner leaving for Bermuda and it is onboard a New York to Toronto train inside the padding of a hockey shirt of a fan attending a sporting event in Canada.
My personal methods of preference included the use of business jets carrying millions of dollars of drug cash, small, twin-engine aircraft owned by an affiliated charter service, taking scheduled airline service, meaning that I carried the cash right past the noses of airport security staff, and even small boats and water taxis.
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In short, bulk cash smugglers secrete their illegal cargoes in the midst of a large flow of people and products on their way out of the United States and they are constantly fine-tuning and modifying their methods so as to totally deceive and confuse law enforcement seeking to intercept them and suppress their illicit operations.
The testimony of Assistant Customs Commissioner Bonni Tichler last year indicated that more than $700 million has been seized by that agency in the past seven years, and that cash seizures are doubling every two years.
Obviously, no accurate figures exist as to the total amount of bulk cash being illegally smuggled overseas, but if we take even the most conservative drug sales statistics and estimates, the $68.4 million intercepted in 1998 represents less than 1 percent of what was successfully exported to the tax havens of the Caribbean and the drug source countries of South America.
Why such a low figure? Outbound traffic does not generate revenue, through duties levied, and historically, law enforcement has been focused on incoming matters; therefore, we don't give exiting commerce sufficient attention. This is probably the single most important reason why bulk currency smuggling has become such a highly successful activity for narcotics traffickers and others with dirty cash.
If Congress does not approve additional inspectors and agents, we cannot hope to stem the flow of illicit cash heading for the tax havens.
Page 74 PREV PAGE TOP OF DOC So why are we here today? To impose a strict penalty that will punish and deter this criminal activity. Bulk cash smugglers have always been the foot soldiers, the infantrymen of money laundering, and the penalties levied in the past haven't been sufficient to stop them.
A civil seizure and forfeiture of criminal cash is merely the cost of doing business; often, unless the cash smuggler could be placed within a major criminal conspiracy at a later time, he or she wasn't indicted. While the Money Laundering Control Act of 1986 made prosecution possible, there still exists the scenario where a connection to a criminal organization cannot be proved.
The importance of the Bulk Cash Smuggling Act is that it imposes serious penalties for transport or transfer or attempted transport or transfer, as a separate and distinct crime, eliminating the requirement that there be a proven link to some other criminal activity.
The Act would, in my opinion, operate as a deterrent to persons who choose to engage in cash smuggling in connection with tax evasion or some other white-collar crime; discourage cash smuggling as an impulse crime; give law enforcement an important tool in taking down career money launderers and open the door toward charging the tax haven banks and the whole offshore infrastructure with their role in the smuggling pipeline.
I do have a few suggestions for improving the Act; just as the currency and monetary instruments form is applicable to the functional equivalent of over $10,000 in foreign currency, the Act must extend to foreign money, especially since the new 500 euro note looms on the horizon. To do otherwise would encourage money launderers to simply convert from U.S. dollars to some other stable currency.
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It says a half an ounce. That means a four-pound package that everybody is worried about can now contain as, of January 1st, $1 million or its functional equivalent. Therefore, starting January it's open season on money laundering. This bill is not legal tender until January 1st and these are not real. These are 500 euro notes actually. But this is to show you
Chairwoman ROUKEMA. Yes, I understand. Are we in a global economic world? Is that it, are you telling us that?
Mr. RIJOCK. Unfortunately we are.
Chairwoman ROUKEMA. We deal with that all the time. I am happy to see that you noted it.
Mr. RIJOCK. I was the individual who originally proposed a ten-year term of imprisonment for sums of over $500,000, because a short jail term for moving major amounts of cash merely signals career criminals that they have but to cooperate with the authorities and a one or two-year period of imprisonment will be the likely outcome.
Most criminals are more than willing to assume the risk when they believe that the worst case scenario will not impose a major disruption in their lives. I have reached this conclusion as a result of many conversations with career criminals, both in and out of prison.
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Professional bulk cash smugglers, who place large amount of currency in commercial transport every day, represent an important link in the delivery of drug cash to traffickers overseas, and any serious effort to incapacitate them and interfere with their activities must have sufficient teeth to be effective.
All the seizures of large cash shipments from the New York/New Jersey area into Texas and the Mexican border States illustrate the seriousness of the related issue of the interstate transportation of bulk cash; remembering that most drug proceeds are earned far from the offshore tax havens and source countries, domestic transport, to a location convenient for export, becomes necessary.
This presents both a target of opportunity for law enforcement interdiction, as well as the possibility of disrupting the entire narcotics distribution network, as drug distribution resources are frequently trusted with deadheading, with cash, to the organization's command structure or money laundering operators.
I strongly suggest that interstate transportation, the proceeds of crime receive the same treatment as international bulk cash smuggling.
Another related issue is the Administration proposal in legislation that would confer jurisdiction over offshore financial institutions that transact criminal business in the United States. As a criminal who applied his knowledge of banking and corporate law, in partnership with tax haven banks, to effectively secrete the assets of drug clients, I made good use of the black hole that is correspondent banking in the United States.
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I would urge the subcommittee to proceed, with all deliberate speed, to support any proposal that allows United States courts to assert jurisdiction over the money laundering institutions of the banking republics.
Effective money laundering legislation, on bulk cash smuggling, correspondent banking and jurisdiction over offshore financial institutions, will go a long way toward giving law enforcement sufficient tools to effectively interdict and suppress money laundering activities in the United States.
Thank you, and I will be happy to answer your questions.
Chairwoman ROUKEMA. Thank you. I really appreciate that strong endorsement of H.R. 240.
But I also heard what you suggested with respect to improvements. We will see what we can do about that. I am a little concerned about these correspondent banks and how we can deal with that problem, and we will have to go over that again.
Do you want to add something more? I am not quite sure how we deal with that.
Mr. RIJOCK. I speak from personal experience. I have had a decade of being in the Caribbean and being in Europe and dealing with correspondent banks that the correspondent banks practice a form of what I call financial terrorism. What they are doing is they are allowing these criminal organizations to exert sufficient economic power all over the world based upon their success.
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We need to treat them as financial terrorists. What does that mean? We need to treat the offshore banking institutions the same way we treat Libya, Iraq, Iran and a few other places where they sponsor terrorists.
Chairwoman ROUKEMA. The way the advisory has shut some things down?
Mr. RIJOCK. I don't think that is really going to make a difference. I think the only thing that will work would be basically a restriction on certain types of international commerce.
Understand this, that many of the tax havens happen to be the location of American tourism in a big way. And if one day American Airlines didn't fly to Antigua and if one day the Bank of New York no longer had a correspondent relationship with every offshore bank in that country, I think somebody in the government would wake up and take notice, and if we also even charge the presidents of these offshore money laundering banks and try them in a very public place like Miami and give them a twenty-year penalty that no one ever seems to want to give.
Chairwoman ROUKEMA. With your experience, your legal and your enforcement experience, could you add that, some specificity to this part of the subject if it isn't included in your full statement?
Mr. RIJOCK. Yes, ma'am. I would be more than happy to contribute my comments.
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Chairwoman ROUKEMA. Now, I would like to ask you aboutyou did say we need fine-tuning and modifying, but what about expanding the web of bank reporting requirements and the Bankruptcy Act, can you give us a little more specificity with respect to that from your vast experience in the real world, so to speak?
Mr. RIJOCK. Ma'am, what is happening now is basically any sophisticated narcotics trafficker will totally avoid the banking system because of the web of the reporting requirements and will go to the non-banking financial institutions.
As soon as you enact legislation for that, they will just jump ship and go to another and now they are going to the Fortune 500 companies.
Yes, ma'am, you cannot enact enough legislation to effectively stop their innovativeness. Every time you regulate one particular aspect of the world of finance and commerce, they will just jump over to another one that you have not touched.
What you basically have to do is find other ways in which to tag the proceeds of crime. There is not ever going to be a way that you are going to effectively regulate every Ma and Pa company in the United States and every Fortune 500 corporation, but what you can do is you can make the penalties for cooperating with trafficking so Draconian that people will think twice rather than worry about going to prison for life.
And you know, under the new sentencing guidelines, there is no good time for a life sentence.
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Chairwoman ROUKEMA. I'm sorry, I didn't hear that last part.
Under the sentencing guidelines
Mr. RIJOCK. There is no good time for a life sentence under the Federal sentencing guidelines.
Chairwoman ROUKEMA. I am one of those people, yes. Well, that is interesting. You are the first; however, that has referenced Fortune 500 companies.
How can we deal not only with the banks, but penalties that will apply to banks that may be inadvertently or absolutely directly as well as Fortune 500 companies, how can they be brought into the penalty phase here?
Mr. RIJOCK. You need to understand that I used to be a banking lawyer before I decided to be a career money marketer, and most people in the banking industry feel they are being singled out for, be that as it may, everybody in the world of commerce needs to be held up to that standard and that means you don't cooperate with criminal elements so I have absolutely no reservations about applying suspicious activity procedures to all aspects of commerce.
The willful blindness principle, it should not just be limited to the banking industry. If somebody comes to you with $5 million and offers to buy a 50 percent share of your losing business, that is willful blindness and we need to find a way in which everybody in the country understands that they can go to jail for that too, not just the bank president.
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So I recommend
Chairwoman ROUKEMA. In that respect, I appreciate your looking at what we currently have outlined in the McCollum/Roukema bill and see where in that legislation that would probably be the vehicle for this, where your approach here could be expanded.
Mr. RIJOCK. Yes, ma'am, I will.
Chairwoman ROUKEMA. Thank you. All right. I believe that is the sum of my questions to you. I think that all told, you would probably agree that we have had a very useful hearing here today from your perspective and it has been constructive.
Mr. RIJOCK. Yes, ma'am, I am impressed on some of the statistics.
Chairwoman ROUKEMA. You're impressed. I am depressed.
Mr. RIJOCK. I am impressed because they are moving upward. Ten years ago a seizure of bulk cash was rare. Now, it's happening on an almost daily basis.
Chairwoman ROUKEMA. You mean it's evidence of better enforcement?
Mr. RIJOCK. Better awareness on behalf of enforcement.
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We don't have enough enforcement people, in the Customs Service especially, and I have been a sworn enemy of the Customs Service people for ten years and I will tell you there is not enough manpower.
Chairwoman ROUKEMA. I looked at it from another point of view, and these are parallel and we both should be working together in the end, but I look at it as a trader, and trader evidence is that the drug industry is growing despite all that we have been trying to do, particularly in the last ten years to control illicit drugs. We don't seem to have been making much progress, the industry is growing.
Mr. RIJOCK. What is happening is just the same thing that is happening in any commercial business. Success breeds power and power breeds corruption.
Let me just draw the analogy which I have done before. In the Western Hemisphere, first, narco democracies, where a country becomes so much under the thumb of a narcotics trafficker that nobody can be extradited, nobody can be convicted in a court of law and you need to understand that a drug trafficker, when they reach a certain level in their development they become like wealthy Republican businessmen, they want to have somebody in their family elected senator and they want to have power.
Chairwoman ROUKEMA. That applies to Democrats as well. Particularly right here in the State of New Jersey, right now there is a Democratic primary going on with a few verywith at least one very wealthy Democrat, so you didn't mean that to be a partisan statement?
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Mr. RIJOCK. No, ma'am, I was not casting aspersions on any particular party. Unfortunately, successful drug traffickers who have power and influence then are looking for political clout.
Chairwoman ROUKEMA. I understand that. I do understand that, but in any case, whatever help you can give me and all of us on this committee, because there are good people on this committee that are really intent on moving legislation, and we are not just acting on it or putting up a facade of interest.
I really, generally, want to mobilize more Congressional support and expedite the process and whatever help you and your colleagues can give us both in Florida and around the country, I would greatly appreciate it.
And thank you for your testimony.
Mr. RIJOCK. You are very welcome.
Chairwoman ROUKEMA. With that, we are going to draw this hearing to a conclusion.
[Whereupon, the hearing was adjourned.]