SPEAKERS CONTENTS INSERTS
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IMPLEMENTATION OF THE USA PATRIOT ACT
Thursday, September 19, 2002
U.S. House of Representatives,
Committee on Financial Services,
The committee met, pursuant to call, at 10:08 a.m., in Room 2128, Rayburn House Office Building, Hon. Michael Oxley [chairman of the committee] presiding.
Present: Representatives Leach, Bachus, Royce, Ney, Kelly, Shays, Miller, Grucci, Hart, Capito, Rogers, Tiberi, LaFalce, Waters, Maloney of New York, Watt, Bentsen, Maloney of Connecticut, Sherman, Meeks, Inslee, Moore, Lucas, Clay, and Israel.
The CHAIRMAN. [Presiding.] The committee will come to order. We would like to welcome the directordistinguished director of the Federal Bureau of Investigation, Bob Mueller, to the committee.
Director Mueller, the committee welcomes you and later on we will welcome Treasury Deputy Secretary Dam and Undersecretary of State Larson.
Disrupting terrorist financing is an issue of utmost importance and we appreciate your being here today. A year ago last Wednesday, our nation suffered its worst ever attack. The president and Congress immediately began work on a number of fronts including an effort to strangle the money supply that fuels international terrorists. The president expanded the government's ability to block and freeze assets and transactions of terrorists and terror organizations.
Page 2 PREV PAGE TOP OF DOC One month after the attacks, this committee passed the most far-reaching anti-money-laundering legislation in more than two decades, aimed at giving the government even more tools to disrupt terror financing and to stop the laundering of money from other illegal activities. The USA PATRIOT Act was signed into law by President Bush October 26, and is a source of great pride for this committee.
Director, as you well know, that effort was only the beginning of the job. Some of the first arrests with the new powers laid out in the Act came just three days after the signing, in Boston and in Minnesota and in my home state of Ohio. But the legislation laid out a strict timetable under which the Treasury Department was to promulgate regulations spelling out the way financial institutions, and a broad array of other businesses in this country, were to carry out their new duties. It was a Herculean task, and we have closely monitored the progress.
Now with the issuance yesterday of three final sets of regulations and two proposed regulations, the regulatory work on these new tools to stop dirty money is largely done. And I think we can now all step back and applaud the hard work Treasury has performed in drafting the regulations, and the FBI and others have done to apply them.
Looking forward we must ask if there are other holes we must plug. Did we ensure that the extra burdens we placed on businesses are rewarded with the sure knowledge that more dirty and terror money is being stopped? Have the terrorists and traffickers regrouped to move their assets into other channels? And can we devise new ways to stop it? I think the answer to all those questions is, yes.
The administration has seized more than $34 million, and worldwide more than $112 million has been seized. However, a United Nations report that will be released today says, ''The terrorists still have access to sizable chunks of money.'' And reports have indicated that they have transformed cash into commodities, from heroin to gold, and are moving and using it in a form to fund their efforts.
Page 3 PREV PAGE TOP OF DOC Director, this is good news. It means the PATRIOT Act is working, squeezing bad money out of the system and into forms that are harder to move and easier to interdict.
Director, we look forward to your report on the FBI's success at stopping or interrupting terrorist financing mechanisms. We are interested to know if you have identified any new tools you need or changes you believe are necessary in the Act to make it more effective.
I also hope Deputy Secretary Dam will fill us in on the Secret Service's successes in stopping counterfeiting of U.S. currency using the new tools on that front, from the PATRIOT Act. And on whether passage of the bill by the gentleman from New York, Mr. King, that would authorize the Bureau of Engraving and Printing to print currency for other countries, would help strengthen their economies and help squeeze out terrorism. That language also was part of the House anti-money-laundering legislation, but fell out in conference. Director Mueller, we thank you again for your time. And I now yield the chairor yield the floor to the gentleman from New York, Mr. LaFalce.
Mr. LAFALCE. Thank you very much, Mr. Chairman
One year ago this week our entire nation and the world struggled to recover from the shock and the trauma of the September 11 terrorist attacks. Shortly thereafter, all of us came together at a crucial time in our nation's history, and in the wake of the most egregious acts of terrorism ever on U.S. soil, to enact far-reaching and meaningful money laundering laws.
Today we examine the progress made thus far in implementing those new powers. In the previous Congress, the 106th Congress, I authored and then Banking Committee Chairman Jim Leach joined with me in introducing legislation, bipartisan legislation, to enhance the federal government's ability to protect our nation against money laundering threats world wide. We worked very closely with the then Deputy Secretary of the Treasury Stu Eizenstat on that.
Page 4 PREV PAGE TOP OF DOC And our banking committee took up the bill and we passed it on a nearly unanimous vote of 33 to one. I think it was Representative Paul who voted against it. But unfortunately, even after a 33 to one vote, the Republican leadership never scheduled a bill for House floor consideration.
And early in the 107th Congress, I reintroduced the bill, which as it now turns out, became one of the most important provisions in title three of the PATRIOT Act. My bill proposed to do something that had never been done in the history of anti-money-laundering legislation. It created a flexible set of practical authorities for the treasury secretary that could be invoked against specific money-laundering threats.
Prior to the enactment of the PATRIOT Act, successive treasury secretaries were limited in their ability to take proactive action on money laundering matters. After the tragic events of September 11, the need for stronger, more effective measures became quite clear.
As a result of the PATRIOT Act, which again includes the legislation I authored, the Treasury Secretary will have more flexible anti-money-laundering powers to tackle the abuses of our financial system by terrorist and criminals with much more effectiveness. Under the PATRIOT Act, the secretary can identify a region, a particular institution and even a foreign jurisdiction, as an area of primary money laundering concern, and impose a series of special measures. The secretary can prohibit certain transactions with certain countries or regions, or require collection of certain information that could be enormously useful in tracking the financial dealings of terrorists or block the opening of accounts in the U.S. by banks and other financial institutions in such jurisdictions.
Unfortunately, the administration has not used the new law, to my knowledge, to declare any part to the world, through which terrorists funnel their cash, as an area of primary money laundering concern. If that is incorrect, I can be so advised.
It is clear that the more we learn about terrorist financial networks, and the various countries through which their money passed, the more compelling it becomes for the new measures to be invoked. By failing to impose, or even to threaten to impose, a special measure, I fear that the administration may be missing an opportunity to seek permanent changes in countries that need to be more cooperative in the fight against terrorism.
Page 5 PREV PAGE TOP OF DOC It is my understanding the Treasury is working internally to develop the most effective way of taking advantage of the secretary's new authorities, and I certainly support those efforts. And I look forward to hearing from Treasury's witness, Deputy Secretary Dam, on that, and hope he will shed more light on it.
I also want to note that yesterday the Treasury did finalize two regulations pursuant to the PATRIOT Act. One specifying the steps financial institutions must take to comply with the act's prohibitions on the opening of correspondent accounts with shell banks, and the other relating to information sharing among financial institutions, regulators and law enforcement. I am hopeful that soon we will see a proposed regulation to implement section 3-11 of the Act, which would facilitate the imposition of anti-money-laundering measures against rogue jurisdictions.
Now, Mr. Mueller, you are the head of the FBI. And this past weekend the FBI arrested six individuals from the greater Buffalo, New York area. And I commend you on those efforts. Within a week after the September 11 attacks, I met with the leadership of the Muslim community at Buffalo State College. And as I looked at the list of the attendees, one of the attendees was one of the six, so I did have about a two hour meeting.
This matter is beyond the concern of this committee, but it is of deep concern to me. It is an appropriate time whether it is in your questions and answers or now. I am not sure what you can say publicly. I will leave that up to your discretion, and I will abide by it, but I am a little curious about the 1996 law under which these individuals have been charged. And I am curious as to whether the factual nexus, that might exist, is adequate to support the charges under the 1996 law. And I am sure you believe they are, and I would just like to have some brief explanation of that. This is a large issue.
The CHAIRMAN. The gentleman's time has expired. Is there furtherare there further opening statements. Noting none, we now turn to the distinguished director of the FBI.
Page 6 PREV PAGE TOP OF DOC Mr. Mueller, thank you again for appearing.
Could you turn your mike on, please?
Mr. MUELLER. On now?
The CHAIRMAN. There we go.
STATEMENT OF HON. ROBERT S. MUELLER, DIRECTOR, FEDERAL BUREAU OF INVESTIGATION
Mr. MUELLER. There we go.
Good morning, Chairman Oxley, and thank you for having me. And good morning Congressman LaFalce, and other members of the Committee. I appreciate this opportunity to discuss the work of the Terrorism Financial Review Group and our use of the provisions contained in Title III of the USA PATRIOT Act, also known as the International Money Laundering and Anti-Terrorist Financing Act of 2001.
I would like to thank the members of this committee, and this Congress, for your prompt and comprehensive response to the terrorist threat we face. I would also like to thank the Treasury Department and Secretary O'Neil for their crucial assistance in this endeavor. The USA PATRIOT Act provided law enforcement powerful tools to carry out our mission. And as we use these tools in an aggressive, but responsible manner, the act will significantly help us achieve our overarching goal, and that is to prevent future acts of terrorism.
As you know, civilized countries face grave threats from terrorists. As the President stated, the war on terrorism is a long-term battle. It will not be won overnight nor without the extraordinary cooperation and coordination among law enforcement and intelligence agencies around the globe. Terrorism knows no borders, and the threat is not limited to any one region of the world. Creating an alliance between law enforcement and intelligence agencies is the key to dismantling terrorist organizations and eliminating the threat they pose.
Page 7 PREV PAGE TOP OF DOC Terrorists do not play by the rules of a civilized society. Fighting the war on terrorism requires new and formidable tools and a multi-agency approach. After 9/11, more than one-half of our agents, almost 6,500 out of 11,500, were assigned to identify the hijackers and their international sponsors and, most importantly, with other agencies, prevent the next attack.
Today, the number of FBI Agents assigned to combating terrorism is twice the number of our pre-9/11 commitment. And we will apply to prevention whatever level of resources is necessary to address this threat. In addition, 9/11 has triggered a wide range of organizational and operational changes within the FBI.
One such is the setting up of what is now called the Terrorism Financial Review Group. And I want to spend a few moments today talking about the TFRG, but also talk about the anti-money-laundering provisions of the PATRIOT Act.
In order to illustrate how these anti-money-laundering provisions aid our efforts, it is necessary for me to spend a few moments explaining how the FBI has been re-structured to address terrorist financing matters.
Identifying and tracking the financial structure supporting terrorist groups is critical to dismantling the organization and preventing future attacks. As in ordinary criminal investigations, following the money identifies, links, and develops evidence against those involved in criminal activity.
In the early stages of the investigation into the events of September 11, it was financial evidence that quickly established links between the hijackers and identified co-conspirators, particularly those co-conspirators overseas. It was also in the early stages of the 9/11 investigation that the FBI and the Department of Justice identified a critical need for a more comprehensive, centralized approach to terrorist financial matters. And in response, we established an interagency Terrorism Financial Review Group operating out of FBI Headquarters. By bringing together vast databases and the expertise of numerous federal agencies, the TFRG focuses a powerful array of resources on the financial tentacles of terrorist organizations.
Page 8 PREV PAGE TOP OF DOC As Chairman Oxley, you well know having been an FBI agent, the FBI in the past has principally been based on office of origin where investigations are conducted out of particular field office that has the responsibility of conducting such investigations. What we have done with the TFRG is set up a centralizeda centralized review group that will assist, not just one particular investigation, but any terrorist investigation whether it be within the United States or around the world.
Now, after September 11th, the FBI and CIA quickly combined our resources to investigate terrorist funding mechanisms, including exchanging of personnel between the FBI and the CIA Counterterrorism Center. In addition, after decisions with George Tenant, the CIA has generously agreed to detail a number of its analysts to the FBI Counterterrorism Division to help develop more effective analytical processes.
I believe that the relationship and information sharing with the CIA is at an unparalleled level and will continue to pay dividends in our common mission, particularly when it comes to addressing terrorist financing. Now, information sharing has also been facilitated by PATRIOT Act provisions that permit the FBI to disclose foreign intelligence information, including information obtained through FISA, to the intelligence agencies, and exchange of information, that prior to September 11, prior to the PATRIOT Act, was precluded.
Now, the TFRG was formed with a two-fold mission. First, it was designed to conduct a comprehensive financial analysis of the 19 hijackers to link them together and to identify their financial support structure within the United States and abroad. Second, it was designed as a template for preventive and predictive terrorist financial investigations. And the mission of the TFRG has since evolved into a broader effort to identify, to investigate, to prosecute, to disrupt, and to dismantle terrorist-related financial and fund-raising activities.
The TFRG has taken a leadership role in coordinating the financial investigative effort, and it is a comprehensive one. To accomplish this mission, it has implemented initiatives to address all aspects of terrorist financing.
Page 9 PREV PAGE TOP OF DOC For instance, it conducts full financial analyses of terrorist suspects and their global financial support structures; coordinates liaison and outreach efforts to exploit financial resources of private, government and foreign entities along with the Treasury Department; uses FBI and LEGAT expertise and relationships to develop financial information from foreign law enforcement and private agencies; works jointly with the law enforcement, regulatory, and intelligence communities; develops predictive models and mines data to proactively identify terrorist suspects. And it provides the financial component to classified counterterrorism investigations in support of the FBI's counterterrorism responsibilities.
The TFRG has conducted an international outreach program, along with Treasury, to share information regarding terrorist financing methods with the financial community and with law enforcement, and we have built upon long-established relationships with the financial services community in the United States and abroad.
The international outreach initiative is coordinated through the network of FBI Legal Attache Offices located in 44 key cities worldwide, and providing coverage for more than 200 countries and territories.
Now, a significant focus of this review group is prediction and prevention. It has developed numerous data mining projects to provide further predictive abilities and to maximize the use of both public and private database information. These efforts are complemented by the centralized terrorist financial database which the TFRG has developed. This information is used to identify terrorist cells operating in the United States and abroad to prevent further terrorist acts.
And indeed, the TFRG meets regularly with representatives from the banking community and the financial services industry to share information and to refine methods to detect and identify potential terrorists around the world.
The TFRG created and updates a financial control list which contains names and identifying data for individuals under investigation for potential links to terrorist organizations. These lists are regularly shared with domestic and international law enforcement and intelligence agencies, and with the Federal Reserve Board, which disseminates the lists to financial institutions so they can flag suspicious financial activity.
Page 10 PREV PAGE TOP OF DOC As a participant on the National Security Council's Policy Coordinating Committee on terrorist finance, the TFRG participates in the effort to target non-governmental organizations believed to provide financial support to known foreign terrorist organizations and affiliated terrorist cells. The PCC coordinates the development and implementation of policies to combat terrorist financing and provides analysis on these issues. Numerous FBI Field Offices have open investigations into organizations that may be funneling money to foreign terrorist organizations, and the TFRG has acted as a clearinghouse for these cases, gathering and summarizing data.
The task force regularly shares information with the joint terrorist tracking task forces around the country, customs' operation green quest and FinCEN.
Further, the TFRG is working with FinCEN to explore new ways to data mine the suspicious activity report, and the currency transaction report and the currency and monetary instrument report databases.
Based on its international investigative abilities, and its close association with the intelligence community, the TFRG is in a position to coordinate anti-terrorism financial investigations and to ensure those investigations are coordinated with the goals and objectives of our counter-terrorism program.
Now let me turn for a moment to the use to which we have put the provisions of the PATRIOT Act. Terrorist financing methods range from the highly sophisticated to the most basic. Traditionally, their efforts have been aided considerably by the use of correspondent bank accounts, private banking accounts, offshore shell banks, bulk cash smuggling, identity theft, credit card fraud, and other criminal operations. Informal value transfer systems, such as hawalas, also present problemssubstantial problems for law enforcement. They permit terrorists a means of transferring funds that is difficult to detect and to trace. These informal systems are particularly prevalent in societies in Pakistan, Afghanistan, and the Philippines.
Page 11 PREV PAGE TOP OF DOC However, provisions of the PATRIOT Act will significantly erode the effectiveness of such methods. The act establishes stricter rules for correspondent bank accounts, requires securities brokers and dealers to file SARs, and certain cash businesses to register with FinCEN and file suspicious action reports for a wider range of financial transactions.
The act contains many other provisions I believe will considerably aid our efforts to address terrorist financing. These include the authority to seize terrorist assets, and the addition of terrorism and other offenses to the list of racketeering offenses. The act also enables prosecutors to seize money subject to forfeiture in a foreign bank account by authorizing the seizure of a foreign bank's funds held in a U.S. correspondent account.
Other important provisions expand the ability to prosecute unlicensed money transmitters, allow law enforcement faster access to reports of currency transactions in excess of $10,000 and provide authority for the service of administrative subpoenas on foreign banks concerning records of foreign transactions.
This latter provision allows law enforcement to obtain critical information in an investigation on a more timely basis than was possible before. In counter-terrorism investigations, of course, speed is the essence because prevention is the goal.
Section 362 of the PATRIOT Act mandates that FinCEN establish a highly secure network to, number one, allow financial institutions to file SARs and CTRs on-line; and secondly, to provide financial institutions with alerts and other information regarding suspicious activities that warrant immediate and enhanced scrutiny.
FinCEN has developed the PATRIOT Act Communication System, known as PACS, to meet this mandate and is implementing this system. This will be a valuable tool for law enforcement, but it will require the full cooperationthe full cooperation of private financial institutions. The TFRG has worked with these financial institutions and has provided to them information to help them to detect patterns of activity possibly associated with terrorists. I am confident that the PACS will help considerably in these efforts.
Page 12 PREV PAGE TOP OF DOC While I am optimistic that the PATRIOT Act will help, it is too early to judge its full effect. We continue to digest its provisions; develop guidelines and protocols for its appropriate use; and educate investigators and prosecutors. And in addition, many of its provisions, as has already been mentioned here today, require the Department of the Treasury to issue regulationsregulations which it is working on expeditiously to promulgate. And as I understand, we mentioned before, several of these were promulgated as of yesterday.
Now the committee has also indicated an interest in recommendations that the FBI might have regarding additional legislative measures to advance the financial war against terrorism.
In September of 2001, the Department of Justice submitted the proposed ''Money Laundering Act of 2001'' to Congress. The FBI concurs with the recommendations made by the DOJ, which is in the best position to address these issues. And I would like to briefly summarize these recommendations and proposals for you. The foremost problem we face regarding the recovery of criminal proceeds in terrorism cases, as well as those involving corporate fraud, is the inability to freeze assets pending trial. In both criminal and civil cases, with a limited exception, pre-trial restraining orders are limited to property directly traceable to the offense. Post-conviction, the court can enter an order permitting the confiscation of an amount of money equal to what the defendant obtained by committing the offense. But by that time the money we hope to recover and return to the victims is often gone.
Now, these strict tracing requirements serve little purpose. Many common law countries permit the pre-trial restraint of property that will be subject to forfeiture without requiring strict tracing of the funds to the underlying crime. It is important to the success of our efforts against the economic underpinnings of crime that we be able to do the same.
Simply put, if the property can be confiscated after the conviction, it should be frozen prior to a conviction. Thus, the criminal forfeiture laws should be amended to allow the pre-trial restraint of all forfeiture assets without requiring strict tracing to the offense. And the civil forfeiture laws should be amended to treat all electronic funds, as well as diamonds, gold and other precious metals, as fungible property for the period of the applicable statute of limitations.
Page 13 PREV PAGE TOP OF DOCAnd we also need to address the clandestine movement of cash that represents the proceeds of crime or that will be used to finance a future criminal or terrorist act.
Section 371 of the PATRIOT Act created a new offense of bulk cash smuggling that makes it illegal to knowingly conceal more than $10,000 in currency and attempt to transport it into or out of the United States with the intent to evade currency reporting requirements. However, it is not an offense for a money courier to transport bulk currency in a vehicle inside the country, even if the funds represent criminal proceeds.
Moreover, terrorists engage in what amounts to reverse money laundering, in which they transport large quantities of cash that is not derived from any illegal source, but which is intended to be used to finance a terrorist act or to commit another crime.
The Department of Justice proposed to make it illegal to transport more than $10,000 in currency concealed in a vehicle traveling in interstate commerce, knowing that the currency was derived from some kind of criminal activity or knowing that the currency was intended to be used to promote such activity. And we support this provision.
The Department of Justice noted gaps in our ability to seize proceeds resulting from foreign crimes, as well as our ability to restrain the funds, even temporarily, of criminals arrested in the United States. Under current law, only a limited number of foreign crimes are specified unlawful activities.
This enables foreign criminals to launder the proceeds of many foreign crimes in the United States without providing us the ability to prosecute and seize those funds for forfeiture. We similarly lack authority to temporarily restrain funds in a U.S. bank account of an international terrorist arrested in the United States to determine whether such funds were connected to illegal activity.
Let me conclude, if I might, Mr. Chairman, by saying that the PATRIOT Act is an important and certainly a necessary fix and its passage was a remarkable achievement. The act will makeand has madea difference. It enhances the ability of law enforcement and intelligence agencies to achieve our common goal of preventing acts of terrorism, without compromising the civil liberties and constitutional protections enjoyed by our citizens
Page 14 PREV PAGE TOP OF DOC The PATRIOT Act is a shining example of this committee's devotion to that endeavor and I thank you for your support.
I am proud to be part of what I consider to be one of the premiere, if not ''the'' premiere law enforcement agency in the world. We take great pride in what we do, and the quality of the work performed by the men and women of the FBI is truly remarkable. There is always room for improvement and we, as always, welcome your guidance.
I thank you for the opportunity to appear here today. I look forward to working with this committee in the war against terrorism.
And I am happy to respond to whatever questions you have.
Thank you, Mr. Chairman.
[The prepared statement of Robert S. Mueller can be found on page 77 in the appendix.]
The CHAIRMAN. Thank you, Director Mueller. And again, we appreciate your participation in this oversight hearing on the PATRIOT Act, specifically as it relates to any money laundering issues.
One of the primary objectives, as you know, of the anti-money laundering bill was to facilitate more effective and timely sharing of information within the government about possible terrorist financing. And you have cited several law enforcement successes in your testimony for which the administration should be commended.
There have been some recent press accounts that suggest that turf consciousness after 9/11 is still with us, particularly as it relates to combating money laundering.
What assurances can you offer our committee that information is being shared freely among the relevant federal agencies and that interagency tensions are not impeding the administration's war on terrorist financing?
Page 15 PREV PAGE TOP OF DOC Mr. MUELLER. There are a number of steps that have been taken not only within the FBI, but within the CIA and Treasury and other federal agencies since September 11 to greatly enhance the sharing of information.
And just to mention a few, every morning I am briefed by the CIA on what has occurred overnight, both domestically, to the extent that they have information, but most particularly internationally when it relates to terrorism. By the same token our briefing papers are exchanged with the CIA. Both George Tenant and I meet with the president each day to discuss where we are in the war against terrorto discuss any developments there have been in the last 24 hours.
Within our organizations, there has been a substantial exchange of not only types of information, but also of individuals. We have individuals, as I think you are well aware, over at the counter-terrorism center at CIA.
I have, in the FBI, approximately 25 CIA analysts who have come from the CIA to participate in our revamped intelligence structure within the counter-terrorism division. And we are continuing to enhance our ability to analyze that information that we gather both here and overseas. And one of the benefits of having those analysts in the FBI is they can look at our information and put it together with what the CIA may have to be far more predictive than perhaps we were prior to September 11 of last year.
With regard to our sharing of information with Treasury, we have on our task force the TFRGTreasury agents participating from a number of agencies, as well as agents from a number of other different agencies within the department or outside the Department of Treasury.
We also have persons that are participating in Greenquest, as I think I have discussed in my testimony earlier. We had database information that we are pulling together. This is shared on a weekly basis not only with the Treasury Department, but also with the CIA and other entities.
Page 16 PREV PAGE TOP OF DOC We have meetingsnot only the exchange of personnel, but joint meetings with private industry and meetings of individuals on particular cases to share information.
So up and down the organizational structure from the very top to myself and George Tenant down to those individuals that are working on particular cases who are sharing information in ways that we have not shared, I think, prior to it.
Part of our ability to do that are the provisions of the PATRIOT Act that now allow us to share with the intelligence agencies information that previously we could not.
Having been an FBI agent, you understand that much of the information that comes into the FBI in the course of its investigations may come in pursuant to grand jury subpoena and/or maybe testimony before a grand jury. Prior to the PATRIOT Act, none of that could be shared with the intelligence community.
With the PATRIOT Act, we now can share that information whether it be from the West Coast, the East Coast, north or south and investigations with the intelligence community so that information that we have pulled together by the efforts of our agents in the United States is now provided to the CIA, the DIA and other agencies so that it can be part of the larger picture.
The CHAIRMAN. There have been several press reports, as you know, that the Al Qaeda network, feeling the pressure, I think, from the PATRIOT Act, has moved a lot of cash from traditional banking sources into precious metals and commodities. There was an article recently about moving large amounts of gold bullion or bars to Sudan.
Would you care to comment on that? And, indeed, does the PATRIOT Act need to be looked at as a result of those changes in activities?
Mr. MUELLER. I think without a question of a doubt the efforts of the government, whether it be the FBI, the CIA, the Department of Defense and whether it be within the United States or in Afghanistan or Pakistan or elsewhere around the world, has substantially disrupted the Al Qaeda networktheir communicationstheir capability of planning and plotting additional attacks and their financing.
Page 17 PREV PAGE TOP OF DOC And because of the efforts of a number of different agencies, I do believe that the Al Qaeda network is seeking alternative ways of transportingtransmitting its funds.
And as we fear, as you have heard and some of them have made it into the press, as we hear of new ways of exchanging items of value, whether it be cash or gold or diamonds, each of those pieces of information is followed up on not only by us, but certainly by the CIA overseas.
And there have been instances where we have received reports of such things happening and we have followed them up. Most of those reports relay to the transmission of items of value overseas, as opposed to within the United States. And quite obviously, if it is overseas, it is much more difficult for us to get a clear handle on, principally because we have to rely on our counterpartsand whether it be intelligence agencies or law enforcement agencies in other countries, principally in the Middle East.
The CHAIRMAN. Well, I guess the obvious question is that if this report appears in a major newspaper, even after the fact, the issue is where was the intelligence community? And is there any effort to try to interdict that? For example, moving large amounts of gold seems to me to be relativelyI would not say ''easy'' to detect, but it is probably easier to detect than some of the other money laundering aspects, and particularly if they have located the country in which it was supposed to be reposited.
Mr. MUELLER. Well, without being too specific, let me just say that there are reports that get into the press about movements of monies, movements of gold, movements of diamonds. To the extent that there are such reports, we have generally seen them beforehand. They may well have come to our attention through the efforts of the intelligence community. And certainly when there is any such report that has any degree of specificity, the intelligence community, as a whole, follows up on it.
To the extent that there is not the degree of specificity, I can assure you that efforts are made, nonetheless, to follow up generally as to whether or not that mechanism is being used. And that all sources are queried as to whether or not such a report has credibility.
Page 18 PREV PAGE TOP OF DOC So we look atit may well have come to our attention as a result of the intelligence efforts. The efforts of the intelligence community as a whole are put to determining whether or not the report is true. And, as an adjunct to that, we also want to make certain as to the credibility of the individual or individuals who come forward with such reports.
The CHAIRMAN. One last question, if I may, there have been some concerns that because of the concentration by the Bureau, understandably on antiterrorist activity that it may divert resources away from traditional FBI investigations, for example bank robberies. And there have been, as you know, some concerns expressed by local authorities that that could very well impede their investigations or perhaps even spark an increase in bank robberies.
How would you respond to that?
Mr. MUELLER. Well, as I am sure the committee is aware, I recommended the shifting of approximately 500 agents last summer to the counter-terrorism effort. And that was done after looking at the needs in each of our field offices to address counter-terrorism adequately. And the vast majority of those agents will be coming from the narcotics side. There is some from white collar and some from violent crime.
I have had extensive discussions withand we have, as an institution, with DEA in terms of what we will be doing on the narcotics front in the future. And we will be focusing on larger investigationsnot doing the stand-alone cases that, perhaps, we have in the past. And adjusting with DEA to continue in the war on terrorism, particularly in the task force arena, but not do as many stand-alone cases as we have done in the past. And to defer to the DEA on certain of the cartel cases, whether they be Colombian or Mexican.
I have had discussions with the IACP, for instance, on how we would handle bank robberies. And over the last several years, we have generally not responded on one-note jobs where you have an individual and an isolated case. But we have, in the past, and we will, in the future, continue to participate with state and local where we have multi-county bank robberies, where we have violent bank robberies and where we bring something special to the table.
Page 19 PREV PAGE TOP OF DOC Where there is a state or local law enforcement entityand the caliberthe quality of our state and local law enforcement agencies today are terrificwhere there is the capability, in my mind, we, the Bureau, should be refocusing our resources on that which state and local cannot doon terrorismon cyber intrusionson the counter-intelligence responsibilities of the FBI.
And so we have tried to do it in such a way that we have met our needs in counter-terrorism for the time being. I will have to evaluate it every three to six months. But also, are taking care of other areas of responsibility and focusing our resources on cases such as Enron, WorldCom and the corporate fraud cases that are critically important.
The CHAIRMAN. Well, I thank you for the answer, particularly because the last partbecause our committee was so involved in corporate accounting accountability and so forth. And that is a very good point that you make.
The gentleman from New York?
Mr. LAFALCE. I thank the chairman. And I hope he will give me some latitude, permitting me to question because of the serious problem that has arisen within the past week in Western New York where six individuals have been arrested.
And FBI Director MuellerI asked some questions in my opening statement regarding the 1996 law. And the six individuals have been arrested under it, and I incorporate that by reference now and will ask your comment on that.
But additionally, there are some other concerns that I have, too.
I have received briefings over the years and on the basis of the briefingsit is my understanding that maybe the hottest spot in the world where terrorists gather to consult and talk is Vienna, Austria. But I understand that possibly Niagara Falls could be a close second. And I know that the FBI has a major officea counter-terrorism office in Niagara Falls. It used to be directly across from my congressional office. It has been moved now because it is going to expand by about 15 employees.
Page 20 PREV PAGE TOP OF DOC I also want you to know something that you may or may not knowwell, if you do know that sometimes money laundering can take place at casinos where gambling takes place.
You may not know that within the past two weeks the Seneca Nation and Governor Pataki have filed an application with the Department of Interior for casino gambling in Niagara Falls, New York.
Now, we do have casino gambling in Niagara Falls, Ontario, right now. And in this morning's ''Buffalo News,'' one of the arrested six supposedly spent $89,000 at Casino Niagara in Niagara Falls, Ontario where the Canadian Royal Mounted Police are omnipresent.
One of my concerns is that the Seneca Nation is proceeding, along with Governor Pataki, not under the Indian Gaming Act of 1988, which requires careful review and requires consideration of the costs and benefits, et cetera. They are proceeding under the Seneca Nation's Settlement Act that was passed a decade ago, saying that they should get the decision within a relatively short period of time. And they can be up and operational by New Year's Eve.
And they are seeking an affirmative response to that application. And they have gone to the very highest level seeking it from Secretary of the Interior Norton.
One of my great concerns is that the police power of the United States federal governmentyour officethe police power of the statethe police power of local officials will have virtually nothing that they can do or little that they can do within the sovereign land that the Seneca Nation is seeking within this portion of the center of the city of Niagara Fallsapproximately 50 acres.
And if you are not aware of that, I just made you aware of it and I would like you to consult with Secretary Norton and make any comments now that you wish concerning it.
But also, I am wonderingthis is a separate issue nowwhether or not the FBI recommended the arrest of these six individualswhether you thought that the quality of the evidence was sufficient and sufficient for whatfor a violation of the 1996 law? Or was there some encouragement from the Justice Department to the FBI to find somebody someplace that could be arrested within the month of September?
Page 21 PREV PAGE TOP OF DOC I make no allegations, I just pick up rumors on the street. And, in order to satisfy those, I would like you to respond to that question, too.
Mr. MUELLER. Can I respond to that one
Mr. LAFALCE. Sure.
Mr. MUELLER. if I might interrupt?
Mr. LAFALCE. Yes.
Mr. MUELLER. Because that is
Mr. LAFALCE. Yes.
Mr. MUELLER. absolutely not true.
Mr. LAFALCE. Good.
Mr. MUELLER. The FBI does not respond to entreaties to find somebody to arrest.
Mr. LAFALCE. Yes.
Mr. MUELLER. Our agents look at the evidence and the information that is pulled in and present it to prosecutors to make a determination whether or not the elements of the offense have been made.
Mr. LAFALCE. Yes.
Mr. MUELLER. And at no point in time, during the time I have been director of the FBI or even previously, as a prosecutor, have I seen that occur. And I would not expect to see it in the future.
Mr. LAFALCE. Well, that is great. I am delighted to hear that, too.
What is the policy, toobecause I know that at the press conference on SaturdayI was not invited and I do not think I should have been invitedbut I do know that other members of Congress who were of a different political persuasion were invited to the press conference and they did not represent any of the individuals or the territory that was in question where the individuals lived. What is the FBI policy on that?
Page 22 PREV PAGE TOP OF DOC Mr. MUELLER. I am not certain we have any particular policy on who is invited to press conferences.
Mr. LAFALCE. Well, I think the fewer politicians, the better. In fact, no politicians would be a good policy, I think. And I would encourage in the future.
Why don't you proceed to respond to the other questions?
Mr. MUELLER. I think in large part I have responded, I hope, to the material supportthe question about
Mr. LAFALCE. Tell me about the 1996 law.
Mr. MUELLER. Yes. Well, I can briefI do not have it in front of me, quite obviously, but it provides that any individual who provides material support to a terrorist entity, as defined by the Department of State, is guilty of an offense and can be sentenced up toI believe it is 15 years.
Mr. LAFALCE. Okay, now
Mr. MUELLER. And
Mr. LAFALCE. I guess ''material support'' is what I want to focus in on. Some individuals have claimedthe attorney for these individuals, in the papers, that, ''Hey, attending a school that somebody may have thought was a religious school cannot be deemed material support.''
Now, I do not know what was in the minds of these individuals. I do not know what went on at those schools.
I do know, for example, that I have had to defend, the entirety of my time in Congress, the School for the Americas. And my very best friends at my church have condemned me. And they call it the School for Assassins. And I have consistently voted to keep open the School for the Americas saying, ''That is not a school for assassins.'' There are 50,000 individuals who have graduated from it. And a relatively small handful have been involved in terrible, terrible things. And maybe some teachers have said some things at certain times that at the School for the Americas that they should not have.
Page 23 PREV PAGE TOP OF DOC Now, I do not mean to make a comparison, because it could be 1,000 times different. But at least there is a question in my mind.
And also, I suspect that there are different degrees amongst the six individuals. Some may have been lured in and some may be guilty of the most serious type of offenses. I do not know. And I am not sure what you can say publicly, but you make that judgment.
Mr. MUELLER. Well, as I am sure that the congressman is aware, I cannot talk publicly about the
Mr. LAFALCE. Okay.
Mr. MUELLER. evidence in the case. I can just refer you to that which is already on public record. And I believe the affidavits in support of the arrest are a matter of public record. And it is possible to compare thatthe allegations that are a matter of public record, whether it be in the complaint, in the affidavit supporting the complaint or in that which is disclosed in open court to your characterization of the culpability of the individuals.
I think there is a public record that one can go to and look at the allegations and the facts that support the issuance of the arrest warrants.
Mr. LAFALCE. Okay.
As you know, I authored the
Mr. BACHUS. Actually, you have exceeded the time by about four minutes.
Mr. LAFALCE. I am sorry? What did you say?
Mr. BACHUS. I said according to the thing, you have exceeded the time.
Mr. LAFALCE. I thank the chair.
Page 24 PREV PAGE TOP OF DOC Mr. BACHUS. Thank you.
Director Mueller, I want to thank you. I have been at a cancer awareness rally. And we have had about 10,000 volunteers on the Hill from all over the United States advocating for cancer research. And I have been there.
Now it is my honor to chair this hearing.
And I want to personally welcome you. And I do not know before I arrived whether you have been thanked for the difficult work that the men and women of your agency have been doing since September 11the long hours and the sacrifices they have been making. But I want to commend you for that.
Mr. MUELLER. Thank you, sir
Mr. BACHUS. I also
Mr. MUELLER. on behalf of the men and women of the FBI who do the real workthank you.
Mr. BACHUS. Thank you.
I also want to commend you for the tremendous progress that you have made in the war against terrorism. Just this last week you have arrested one of the logistical and financial masterminds behind the 9/11 attacks in Pakistan. You have broken up an Al Qaeda cell here in the United States.
So you have accomplished a lot in just the past two weeks to ensure that those who mean to do us harm cannot do us harm. And you know and I know it is going to be a difficult battle.
Mr. MUELLER. Could I comment just briefly on that?
Mr. BACHUS. Absolutely.
Mr. MUELLER. And say that much of the credit goes to our counterpartsour sister agencies, as well as the Pakistani authorities, who were much involved in this.
Page 25 PREV PAGE TOP OF DOC So I thank you for your expression of appreciation, but it would be wrong of me to sit here and accept it without indicating that much of the credita great deal of the credit goes to, you know, other agencies both here and overseas.
Mr. BACHUS. Thank you.
And I think your efforts and those of other agencies demonstrate the absolute commitment that President Bush and this administration has to hunting down those who caused September the 11th and the aftermath and their absolute commitmentunwavering commitment to bringing them to justice. And I thank you for youryou and the men and women of the FBI for your efforts.
At this time, I am going to yield to Congressman Leach the remainder of my time and then his five minutes.
Mr. LEACH. Thank you, Mr. Chairman. I will be very brief with respect for the time issue.
I have just one principal question, Mr. Director. Last fall, the FBI testified that Internet gambling was a potentially grave source of difficulty for money laundering and also for other crimes, such as identity theft, a very significant issue.
And I am wondering if you can update us because we may be bringing a bill before the floor in the near future on this subjectif this is still your position that Internet gambling poses criminal difficulties for the United States.
Mr. MUELLER. It is still our position. We have a number of investigations ongoing into Internet gambling. And I am sure the committee is aware of the difficulty that we have in addressing Internet gambling with its capability of operating almost wholly overseas, but having an impact and effect within the United States. It is still a substantial problem and we look forward to working with you on that bill.
Mr. LEACH. Good. Well, I appreciate that very much.
Page 26 PREV PAGE TOP OF DOC And I yield back my time.
Mr. BACHUS. Thank you.
The gentlelady from New York?
Mrs. MALONEY OF NEW YORK. Thank you, Mr. Chairman.
And I likewise welcome you and compliment you on the collective efforts that you have had with other agencies in cracking down on the Al Qaeda and cracking down on terrorism.
I would like to offer my condolences for the FBI agent who lost his life while assisting others to safety on September 11.
Mr. MUELLER. Thank you.
Mrs. MALONEY OF NEW YORK. And a number of my constituents mentioned to me that along with the police and fire, FBI agents led them out of the buildings to safety. So I thank you for all that you have done and what you are doing.
And I am sure you will agree that you face a monumental task in cutting off the financing of terrorism in the scope of the world economy. The amount of money it takes to run a terrorist operation is minuscule. The attacks on my city, New York, the Pentagon and Flight 93it is reported that the combined cost of these efforts were less than a half-a-million dollars.
And we all know how difficult it is to distinguish from legitimate financial transactions and conventional strategiesthe difficulty we had with the hawala and other ways that they are moving the money.
My question really is one of an international scope. It is difficult for us to do this unilaterally. We cannot just do it with our own financial institutions cracking down on shell banks and determining who the owners of these accounts are. How are the financial regulators in other countries participating? And how are the law enforcement on an international basisare our allies coming forward and helping you? Are they undertaking the efforts to implement the PATRIOT Act to stop terrorists from using financial institutions? Or are European and other countries around the world resisting efforts to adopt and enforce PATRIOT Act like money laundry protections?
Page 27 PREV PAGE TOP OF DOC So what is the cooperation we are getting internationally?
Mr. MUELLER. Well, let meif you will grant me a moment, I want to thank you for mentioning the efforts of Lenny Hatton
Mrs. MALONEY OF NEW YORK. Yes.
Mr. MUELLER. who is the FBI agent we lost in New York when the World Trade Center towers fell. As you are probably aware, Lenny was on his way to work
Mrs. MALONEY OF NEW YORK. Yes.
Mr. MUELLER. that day. And decided tothat was part of his duties as an FBI agent to do what he could. And he went over to the scene and we have the report of one individual who was deposited on the sidewalk by another individual and he turns around and says, ''Where are you going?'' as that individual goes back into the building. And that individual who went back in is Lenny Hatton. And he was a family mana volunteer firemana former Marine and long-time FBI agent who lost his life on that day. And thank you very much for mentioning his sacrifice. He is an example to all of us in the Bureau of the commitment to public service.
Going to the issue of what kind of cooperation we are receiving internationally, I think I probably shouldI know you have individuals from the Treasury Department coming this afternoon. I probably should defer to them in terms of the discussions that they have had with their counterparts overseas.
From the law enforcement perspective, we are getting, I think, successful helpcooperation from a number of important companiesor countries, I should say.
I know last fall I went to the Middle East and one of the countries that was of critical importance to us is the United Arab EmiratesUAEbecause the financing of the terrorists came through the UAE. And I had discussions with the head of the National Bank and with our counterparts in law enforcement. And on the day before I was there, they had passed legislation to give them the powers that they had previously lacked to address financing of terrorists and to help choke off the funds that are coming through the UAE that might be used by terrorists.
Page 28 PREV PAGE TOP OF DOC I think throughout the world there are examples where we do have legislative bodies, along with executives that have made steps to choke off terrorist financing. But there are also other areas where we think more could be done.
I would probably leave the specifics to my brothers and sisters in the Treasury Department who are more familiar with the overall state of play internationally through their discussions with their counterparts.
Mrs. MALONEY OF NEW YORK. Thank you.
And before I ask my final question, I do want to express my deep sadness at the attack in Tel Aviv this morning where a suicide bomber killed five people and injured 53 others. And this follows the killing of a Israeli police officer by a suicide bomber yesterday. And it is a stark reminder of how innocent lives are being targeted and people are being murdered around the world and of the importance of the hearing that we are having today and the importance of the work that you are doing every day in the FBI.
I would like to ask about money laundering for traditional crimes, such as drugs. And regrettably New York City was a center for money laundering prior to 9/11. And what effect has the PATRIOT Act had in the traditional or the usual crimes that have used money laundered money, such as drugs? Have you seen a difference in the crack down or your ability to move in this are because of this law?
Mr. MUELLER. Yes. We have in a number of areas. Just let me mention a couple of them.
As you are undoubtedly aware, the PATRIOT Act expanded the number of money laundering predicates. And by expanding those predicates, it gives us the ability to bring money laundering charges where the underlying activity had previously not been a SUA but currently is. So that has been helpful in our development of cases.
One of the areas which I think we are assisted in many different types of cases is the provision that allows subpoenas for overseas bank records. As a former prosecutor, in working with agents in the past one of the large difficulties we had was getting information from certain offshore banks who operated both offshore and bank secrecy countries. But sold their services within the United States. And so that provision is helpful across the board.
Page 29 PREV PAGE TOP OF DOC The provision that provides immunity from civil liability for banks who provide and voluntarily disclose to us information they have of illegal activity is helpful in opening up the information from the banking employees who may see something, but in the past were concerned that other the bank or themselves would be prosecuted for privacy violations. And that provision of immunity from civil liability has been helpful.
And lastly, as you crack down on one area of money laundering, other areas crop up and the expansion of 18 USC 1960 to include money transmitting businesses has given us a capability that we, prior the PATRIOT Act did not have and has enabled us to conduct successful investigations in that arena.
Mrs. MALONEY OF NEW YORK. Thank you very much for your fine work.
Mr. MUELLER. Thank you, ma'am.
The CHAIRMAN. The gentlelady from New York?
Mrs. KELLY. Thank you, Mr. Chairman.
And, Mr. Mueller, I really appreciate you are being with us this morning.
Mr. LaFalce, I want to thank you for pointing out that theone of the people arrested in Buffalo had lost that money, $89,000 I believe you said, in the casino in Canada, because if that is actually proved to be an Al Qaeda cell, that takes us right into this situation of a question of money laundering. $89,000 is a lot of money for normal people to have. And, from what I understand, most of those people did not even have jobs. So, perhaps that was an issue there that could be looked at in terms of possible money laundering.
I would like to focus, though, on another issue and that is the hawalas that you mentioned in your testimony. Can you describe what steps the FBI has taken to combat hawalas and what progress you have made? I have been concerned about this issue for a long time and I wonder if you can share uswith us, any information on what you are doing to combat hawalas?
Page 30 PREV PAGE TOP OF DOC Mr. LAFALCE. Would the gentlelady add to her question by asking if there are any hawalas in Western New York in particular?
Mrs. KELLY. Well, I would be interested to add to the question asking is there any in all of the New York state since we heard two different directions.
Mr. MUELLER. Well, let me say that there are three areas in which we havewe are addressing hawalas. As you are aware in the wake of the PATRIOT Act, FinCEN, the treasury operation, is in the process of registering all of what we call money service businesses of which a hawala would be classified one. And we are supporting the FinCEN in trying to get a thorough and exhaustive listing of such businesses.
Mrs. KELLY. Excuse me, sir, but may I just ask you, Dennis Lormel came before my subcommittee and testified that you were going to also put together some sort of a centralized database, are you working in conjunction, then, with FinCEN on this?
Mr. MUELLER. We are working
Mrs. KELLY. Is that how it is working?
Mr. MUELLER. We are working with FinCEN on this.
Mrs. KELLY. Okay. Thank you. I am sorry. Please go on.
Mr. MUELLER. Yes, no, we are working with FinCEN on this. And, we are supportive of FinCEN's efforts. We also are sponsoring a conference in October with a number of federal agencies, but also with our counterparts from overseas, the Pakistanis, Indians, some other countries where hawalas are a predominant mechanism of exchanging cash.
So, it is an effort on our part and Treasury's part to bring together those within the banking community and the United States, the regulators within the United States and law enforcement entities within the United States and the intelligence community within the United States, along with our counterparts overseas so that we can share our experiences and our expertise and also learn from others.
Page 31 PREV PAGE TOP OF DOC Lastly, the task force, Dennis Lormel's task force, has been and maybe this is that to which you are averting, assisting our field offices in identifying hawala like or type businesses so that in addition to what FinCEN is doing we also have reached out to our various field offices with a description explanation of what we are looking for and our tasking our 56 field offices to provide the information that then would be fed into FinCEN to identify that type of money remitter or hawala type of money exchange operation.
Mrs. KELLY. Thank you. I would hope that we can be successful with that. I have one more question and that regards identify theft. The people who use credit cards are protected because from most credit card agencies will pay fraudulent use. You will pay $50 yourself if it is your credit card and beyond that the credit card agencies pick it up. They lose money. What protections can the FBI provide for people, or are there protections there if a person gives a credit card number, unknowingly, to an international criminal site? Is the FBI looking at how the websites are used with the fraudulent use of possible acceptance of what would beI am getting all inside out here? I think you know what I mean. If you have a credit card, you are giving the credit card because you, in good faith, think this is an actual website and in fact it is a fraudulent website and they are stealing your identity through that credit card. Are youdo you have things in place, are you moving in placethings in place, to protect our American consumers who are utilizing those credit cards so that they do not experience an increase in identity theft that is then used by terrorism?
Mr. MUELLER. Well, separating a second from terrorism, we are, in conjunction with Customs and with the Secret Service, investigating every incidence we have where we believe that type of activity relating to the provision of a credit card number to a website that is a false or specious website takes place.
The tracing or the investigating of a credit numbers that are the result of hacking, for instance, where there may be batches of credit card numbers are also being addressed by the FBI. We have a new what is called cybera division where we pulled together a variety of pieces that have been spread throughout the FBI within the cyber division and part of the mandate of the cyber division is to look at not only the various scams that you have out there relating to the internet and that you address, but also where you have hackers who have hacked into a business and pulled, whether it be Social Security numbers or credit card numbers and then use those to product illegal profits. We are also looking at those, particularly in that new division.
Page 32 PREV PAGE TOP OF DOC When it comes to any credit card number, Social Security number, anything associated with terrorism is given special attention. And, it is given special attention by Douglasor the review group. It is given special attention by the CIA, and other components of the intelligence community. And, so that where we have an indication that a credit card number or a telephone number or a Social Security number, or a license number is associated in any way with a person who might be a terrorist it is given special attention in a variety of ways, different from, for better or for worse, different from that which is given to your ordinary consumer in the United States.
Mrs. KELLY. Thank you very much.
The CHAIRMAN. Thank you.
The gentleman from Texas, Mr. Bentsen?
Mr. BENTSEN. Thank you, Mr. Chairman.
And, Director Mueller, I apologize for being absent during your testimony, but I was speaking to the American Cancer Society out on the mall. And, so they have a large group of survivors that are out there.
I did want to ask you about a couple of things that have been reported in the press over the last few months. One had to do with international cooperation. But, I think, based upon your comments earlier, I will reserve those for the later panel if your response is going to be similar that really that is something for Treasury.
But, in particular I am concerned about what sort of cooperation we are getting from our friends in Saudi Arabia and other parts of that area. I would like to follow up, though, on Ms. Kelly's comments with respect to hawalas and how the agency is responding to that sort of money transferring. And, as I understand those types of organizations and I may have this wrong, it is not reallyit is not a money processes or money wiring, it is sort of fronting cash for forward delivery ofor future delivery of goods that may or may not occur and so it is a pretty good set up for a laundering operation. And, my question is, associated with that, there have been a number of stories in the press about gold and diamonds and a non-currency assets that are now being used by Al Qaeda to move money around, which is another form of doing it.
Page 33 PREV PAGE TOP OF DOC Have you all figured out a way to confront that in how they convert, how you can track the conversion of gold or diamonds into cash? Or is that looking for a needle in a haystack? And, the other question has to do with the enhanced SAR requirements, which I realize, again, is a Treasury responsibility, but, in my home state, as you know, we have had a lot of problems with money wiring and money laundering in the drug business, and the success of Attorneys General in Texas who have regulated it at the state level have had problems because it is, you know, you come it at $9,999 or $8,000 or $4,000 to get under the $10,000 cap. And, what they have tried to do at the state level is to really go and follow some of these small money-transferring shops.
Are you now trying to do that with respect to potential transfer of funds for terrorist activities?
Mr. MUELLER. Let me talk briefly about the transfer of gold and the like. In fact, Chairman Oxley I think asked the question much along the same lines alluding to reports in the press about transferring the gold. And, what I explained was that whenever you see in the press a story thatabout the use of gold or diamonds, we will have seen it, us or the CIA or one of our sister agencies. Indeed, it may have come to the attention of us from the sources and somehow found its way into the press. But, in each occasion where that has, to my knowledge, that has happened, we have focused on that report and followed up, both to determine the credibility of the person or persons from which it came, but also to determine whether or not the assertions, the allegations were true to the extent that we could do that with overseas assets. And, that would be more in the CIA's bailiwick than ours. But, the intelligence community as a whole has looked at those circumstances seriously and has followed up.
Turning to the second issue with regard to the SAR requirement
Mr. BENTSEN. Before you answer that, though, are you able toto the extent that that is occurring, is there a way to track that, or is really needle in a haystack stuff? I mean it is
Page 34 PREV PAGE TOP OF DOC Mr. MUELLER. If you transport gold from place A to place B, the extent of your investigation really is to find somebody who was participant or aware of that transaction. There are no records so to speak. You may have reports and there may be people you can go back to to get reports, or ultimately at one end of it you may be able to find where the gold has been transformed into some other financial mechanism. But, it is not the same type of investigation that you do when you have wires or pieces of paper and the like. And, so, it is a different type of investigation. But, it is done to the extent that we can do it.
As I mentioned before, unfortunately most of, if not all, of this type of activity would occur overseas. And, so, we have to, in large part, rely on our counterparts to assist us in any investigation that is done overseas, intelligence gathering that is done overseas because, while we have legates in 44 countries, we do not have the assets to do the type of investigation we would have to do in the United States when we get report.
Mr. BENTSEN. Okay.
Mr. MUELLER. With regard to the SAR requirements, and we are all familiar with, and have been for a number of years, with a number of entities or individuals who will utilize a mechanism to transmit money, always $9,500, $9,600, so it is under the $10,000 limit. And, what we have become increasingly successful at is denoting patterns. Often we need the help of private industry to do that. But, with the computer capabilities in this day and age you can run programs that will identify such patterns. And, in a number of occasions we have had success in identifying those patterns and prosecuting individuals for money laundering even though not one of the transmissions will have been over $10,000.
Mr. BENTSEN. Thank you.
Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Rogers?
Mr. ROGERS. Thank you, Mr. Chairman.
Page 35 PREV PAGE TOP OF DOC Director, I want to just take a minute and thank you and the men and women of the FBI.
I have had the good occasion to meet with some of your agents overseas, as well as talking to agents around the country. They are working incredibly long hours, but they have very clear sense of purpose. And, it made me very proud to know that at least one point in my history, I carried that badge from the work that they are doing. And, I am glad you brought it up in your remarks because this is very important. It is very easy to find to fault with the bureau and highlight those isolated cases where bad things tend to happen. And, I am glad that the bureau is handling those and I think they are doing it in a judicious matter.
But, part of the problem with information sharing was a culturewas not specifically a cultural event of the FBI. It was also the policies put into place by past congresses and past administrations on how the FBI was to operate and share information. I am glad you brought that to light. It is extremely important to understand that the bureau has stepped up to the plate and is changing what cultural problems they have, as well as with the issues in the PATRIOT Act, changing the way that we are allowed now, by law, to communicate with other branches of the intelligence folks and because the FBI is the most public of all the intelligence gathering agencies, you tend to take the black eye for lots of the problems. And, I just want to commend you and those folks.
And, I just wanted to give you a couple figures that you did not mention in your details. I happened to go to the financial review group and saw the great work of multi-agencies coming together under the leadership of the FBI and in a very short period seized about $34 million of Al Qaeda assets, $112 million belonging to about 200 different individuals and entities that were being blocked through really a global effort, but again, led by the FBI. And, if we have any marked success in disrupting and interfering terrorist operations in the United States and abroad, it was the fact that you shut down their financial operations in a hurry. And, I do not think the FBI gets enough credit for that.
Page 36 PREV PAGE TOP OF DOC I want to applaud you and the agents who are doing great work out there. Thank you, please, from all offrom the policymakers to the folks who are out in the field doing great work. I hope you will take that message to them that we are very proud of the work they are doing all across the country, and thank you for it.
I did have two quick questions; I am checking my time there. There are a couple of states who havenow offer the ability to incorporate businesses in a form that keeps the corporate structure totally away from IRS and U.S. law enforcement. One of those states is now advertising heavily to this service that keeps, certainly, the stiff arm away from law enforcement ability to look at those records. And I just hope you can talk a little bit about what that does and what kind of haven that represents to people who are specifically trying to hide cash for the purposes of any criminal enterprise, be it organized crime or terrorism?
Mr. MUELLER. Let me start by thanking you for acknowledging the work of the agents. I greatly appreciate that, and for mentioning those figures. I will be quick to say that yes we have putand I think we make a substantial contribution to those figures, but I cannot leave without saying that it also is in conjunction with our counterparts at Treasury and the other agencies in which we all are participating.
Turning to the corporate structures let me ask one question if I might. Well, I am trying to see what familiarity we have with those laws that apparently are in two states. This is the first I have heard about there being some provisions that will keep from law enforcement, corporate structures.
I can tell you that if we do not have access to corporate structures then it is exceptionally difficult for us to trace funds without knowing the corporate structures, particularly if you have a subsidiary of a parent and money is shifted back and forth between a subsidiary and a parent without knowing and understanding that corporate structure, we would be blind. And, it is something that, now that I am alerted to it, that we wouldI would look at those particular statutes in those states and see what can be done. Thank you for bringing it to my attention.
Page 37 PREV PAGE TOP OF DOC Mr. ROGERS. Thank you, director. I would like to follow up on that issue if I may in writing, as well as the other question I have. I see my time is short. Again, I just want to thank you and the bureau for stepping up to the plate. You have made the changes because of the PATRIOT Act. The way you changed the analytical capability of the FBI in such a short period. That is extremely impressive. I have been very impressed with it. And, America needs to know that not only are you tackling the very difficult issues of terrorism, you are still arresting child pornography rings. You are arresting public officials who are violating the public trust. You are bringing to justice organized criminals all across this great nation. And, if I have to fault anything for the FBI, the bureau has the worst PR operation I have ever seen of any organization. You are doing incredible things out there and America needs to hear about it, because people are quick to condemn without knowing the whole total story. And, again, thank you and thanks to the agents and men and women of the bureau.
Mr. MUELLER. Thank you, sir.
Mr. BACHUS. Thank you, Mr. Rogers.
I would like to associate myself with those remarks as well.
At this time I would recognize the gentlelady from California, Ms. Waters.
Ms. WATERS. Thank you. Good morning. Mr. Chairman, I would like to thank you for holding this hearing. While I was not a supporter of the USA PATRIOT Act for any number of reasons, I have spent a lot of time working on drug money laundering and money laundering since I have been here in this House. And, have, for the most part been disappointed with the lack of real movement as it relates to money laundering and drug money laundering in particular.
Mr. Director, given all that you have described here today about the changes that you have made and the new emphasis that you are putting on money laundering and looking at terrorist funding, allow me to ask you whether or not you have paid any particular attention to the proceeds that come from the growth of the poppies in Afghanistan? I find it very interesting that we have little or no discussion about the drugs that are being produced in Afghanistan despite the fact we have a big presence there.
Page 38 PREV PAGE TOP OF DOC We are there. We are protecting Mr. Karzi. We seem to know what the drug lords are doing. As a matter of fact, our servicemen appear to be at great risk as they continue to be fired on and there are attempts at bombing them even right in Kabul, let alone the work that they continue to do in Tora Bora and other places. But, we know that the drugs are being grown. We know that. We see the poppy fields.
I maintain that one source of funding for terrorism could certainly be from the production of the poppy seed and who harvests it? Who has followed the money line as it relates to drugs? And, what do you know about it, because I would suspect that that may be a source of funding for terrorism. I understand that those fields are controlled by a combination of drug lords, Taliban, Al Qaeda, et cetera, that is number one.
Number two, the Saudis, for example, if you do not have great exports from certain places like Afghanistan and maybe even Pakistan to some degree, and money is not being produced there because of obvious products and goods and services, then the question is where does the money come from? For example, the Saudis are our friends. We have a great relationship with them because of oil and other things, but they fund, obviously, the madras' of the schools in Pakistan that produce people who make up the Al Qaeda network eventually. We know that, and you know that. What else is funded by the Saudis, and how do we trace the money that the Saudis use to do other kinds of things? I do not know about their deposits in American banks. We talk a lot about foreign banks, but one of the things we discovered as we looked at money laundering is that it is not the hawalas and a lot of these places we would like to think about that are responsible for laundering money and providing maybe money for terrorists, I do not know. But, a lot of the money that we may be concerned about is sitting right here in our own banks. What do you know about private banking and concentration accounts?
We did find, right in this committee and other places, that one of the largest financial institutions in America managed the drug money out of Mexico and provided a private banker for a convicted killer, who happened to be the brother of the president at one time in Mexico, and the private banker managed all of their assets, bought their houses and their boats and helped to wire transfer their money offshore. So, are we looking everywhere and missing what could be happening right under our own nose, right here in the United States? So, that is kind of three questions in one, the first being the drug money from the growth of the poppies in Afghanistan, where is that money going? Who is tracing and tracking and is that some of the money that has been used to sponsor terrorist activities, that is the first question.
Page 39 PREV PAGE TOP OF DOC Mr. MUELLER. I think without a question of a doubt that to the extent that there is money that is coming out of the growth of the poppies and the crop in Afghanistan, certainly in the past it had supported the Taliban and supported Al Qaeda when Al Qaeda was resident in Afghanistan. I think it is far more difficult, both because of the policies of the Karzi regime, the fact that there is an American presence there, the fact that we are looking, and by weand, I do not want to speak for my counterparts, DEA and others, but I am aware that this has not gone unnoticed. There are other areas, or another agencies that are looking at that particular problem. I think it is far more difficult for that cropthe proceeds of any crop that is coming out of there to find its way into the terrorist network. But, that is not to say that it is not happening.
I think it was substantial in the past, particularly with the Taliban running the country and Al Qaeda having such a large presence. We at the bureau at the FBI are alert to any sign in any of our investigations, whether we are doing it by ourselves or as a part of OCDETF or with the DEA in another capacity, or in investigations, international investigations, with our counterparts overseas that relate to narcotics, are sensitive to and are alert to any indications that monies are coming from drugs, whether it is coming from Afghanistan and the poppy fields there or the Columbian cartels or the Mexican transporters. And, the DEA has a substantial undertaking to determine whether or not any of the funding from narcotics trafficking groups across the world is going in toto fund terrorism.
There have been certain instances where that is the case, but I cannot say that they were related to the poppy growth in Afghanistan. It came from narcotics traffickers in other countries.
As to your second question with regard to Saudi Arabia and funding by Saudi Arabia, there has been discussion and I would ask you to ask my counterparts at Treasury. I am sure you will ask the question of them, but there has been concern about NGO's, non-governmental organizations, and charities, whether they be supported by individuals from Saudi Arabia or elsewhere in the Middle East, being used as conduits for money to terrorists and it is often difficult to separate out those funds that are going to legitimate charitable causes and those funds who are ending up in the coffers of terrorists. But, the FBI, as well as the CIA and the Treasury Department have made, I think, strides, substantial strides in addressing that concern, but that is a concern, it continues to be a concern.
Page 40 PREV PAGE TOP OF DOC And, I know there was a third question, but I cannot remember what it is at this point.
Ms. WATERS. Well, the third question is what do you know about private banking and concentration accounts in our major banks in the United States that tend to hide money of dictators and others from foreign countries that could be used also to fund terrorist activities?
Mr. MUELLER. I think the one thing I would say is thatactually I will say two things. I believe that the provisions of the PATRIOT Act will be helpful in assisting us in uncovering those instances where our banks are being used by individuals from overseas or elsewhere to launder monies or hide monies. That aspect of the PATRIOT Act that provided immunity to financial institutions, both the institutions and the individuals from civil liability from voluntarily disclosing to the United States suspicious activity, I think will be helpful.
The expanded SAR provisions I think will be helpful. And, consequently, I believe, while we have not solved all the problems, the publicity in the last few years of some of our major institutions being embarrassed by the fact that they were a recipient and conduit for individuals overseas who were parking their ill-gotten gains here, that is important. The provisions of the PATRIOT Act are important. And, I actually saw yesterday in theit was in USA Today a poll of individuals who are in the financial business and it indicated it was in response to a question, which was as follows: Will the USA PATRIOT Act, signed into law by President Bush, prevent terrorists access to the U.S. financial system? And, 69 percent of these financial professionals said yes it would. So, this is a report from the financial professionals in the business themselves who say that that which you would pass in the PATRIOT Act will go a ways to preventing access by terrorists to the U.S. financial system.
And, I see here it was a survey of over 2,000 financial professionals around the United States. So, I do think that the provisions of the PATRIOT Act will go a ways, a far ways to preventing the use of our financial systems by terrorists, as well as by others as those financial systems have been used in the past.
Page 41 PREV PAGE TOP OF DOC Ms. WATERS. Mr. Chairman, if I may
Mr. BACHUS. Actually you have used
Ms. WATERS. Is time up?
Mr. BACHUS. Twelve minutes and 10 seconds.
Ms. WATERS. All right. Thank you very much.
Mr. BACHUS. Thank you.
Director Mueller, let me ask you two questions. First of all, what challenges will be posed or removed in the effort to combat dirty or terror money laundering by the formation of the Department of Homeland Security?
Mr. MUELLER. I certainly do not think our efforts will in any way be diminished. I believe that they actually will be enhanced by the Department of Homeland Security. And, let me explain why.
I think it is important, as I have indicated in other forum, that we have an analytical capability that is closely tied to our investigations throughout the country, whether it be intelligence investigations or criminal investigations, to be able to take in the information we gather, analyze it and then disseminate it and disseminate to the CIA, and likewise for the CIA, analyzing that which comes in from overseas and then disseminating it. But, it is important that we have, and particularly in the FBI, build up our analytical capability, our intelligence capability in ways we had not before.
Now, the Department of Homeland Security is also going to have an intelligence capability and they are going to look at that which is provided from our 11,500 agents within the United States or the CIA, how many agents they have overseas and look at it from the perspective of what does this information say about the vulnerabilities of our infrastructure, including the financial infrastructure. And, so the focus of their intelligence capability will be looking at the vulnerabilities of our infrastructure and matching it to that which we at the FBI or the CIA or NSA or other of the intelligence community have discerned in the analysis of their investigations. So, I think they bring, the Department of Homeland Security will bring a different facet to the effort that is a necessary facet that will augment that which we and the other entities, whether it be Treasury, CIA, NSA or the FBI are doing currently.
Page 42 PREV PAGE TOP OF DOC Mr. BACHUS. Thank you. In that regard, and I read an article in the Wall Street Journal, you were talking about the being able to communicate between the agencies and between your field offices. I read an article in the Wall Street Journal that described at the time that you took over as director what was considered an inadequate ability to communicate and technology, you did not have the system in place to adequately communicate between the field offices and headquarters. Has the bureau examined what the Treasury Department does, their Treasury Enforcement Communication System, which is considered sort of the gold standard for communicating back and force as a model for maybe rebuilding the bureau's system?
Mr. MUELLER. I would have to check on that. I know we have looked at many of the systems in the federal government, not just in law enforcement, but I would have to check and determine whether we have. I am confident that some persons within the bureau has, but I am not certain when or who.
Mr. BACHUS. Are you addressing that problem of your ability to link and transfer data?
Mr. MUELLER. Yes. We absolutely are. We have got a multi-phased program into place. We put in the first phase, which was upgrading our desktop computers, putting in the LANs and the WANs that are necessary to provide the type of communication that we would like to see. But, we still got a long ways to go. And, we need additional software applications. We need greater bandwidth. We have astill have problems in and including photo files and that kind of thing because of bandwidth. We are moving to address that as expeditiously as we can. Congress has certainly given us the money. And, we are moving to shore up our technology.
Mr. BACHUS. Thank you. One final question, when our committee marked up the terrorist financing portion of the PATRIOT Act I actually authored and included a provision giving Customs the right to search outbound mail. And, I know the bureau in the past was very supportive of those efforts. It was included in the House version. And, as you know, the Customs has the right tounlimited right, basically, to search inbound mail. But, it has very restricted rights to search mail going out of the country. And, with all the revelations about actually bundling of cash and mailing it out of the country, you actually see websites that are used by people who sell drugs or, you know, marijuana in the United States, that they say ''use the postal service.'' It is safe and it is not searched.
Page 43 PREV PAGE TOP OF DOC In the Conference Committee that provision was pulled from the PATRIOT Act. So, still there is a very limited right or ability for Customs to search outbound mail. I have been listening to, you know, my fellow members that have asked you all to really step up the effort on money laundering and do things you are not doing. The Congress' failure to give you that right to search outbound mail, is that an important tool in the fight against money laundering?
Mr. MUELLER. I will have to say at the outset it sounds like something that I as a prosecutor and investigator would believe is an important tool. But, again, I do not speak solely. I would have to look and see whether this particular piece of legislation is within the department.
Mr. BACHUS. All right. And, I know that is Customs' primary responsibility, but then, you know, you all work with Customs closely
Mr. MUELLER. Yes.
Mr. BACHUS. on, you know, seeing what is moving in the outbound mail. I would like you maybe to respond in writing once you have sort of
Mr. MUELLER. Sure.
Mr. BACHUS. run the traps on that.
Mr. MUELLER. Sure.
Mr. BACHUS. Because it is a concern to me that it has been something that has been asked for since at least 1996 and it was a priority of Customs and it still is not the law. The Customs still does not have the ability to search outbound mail.
Mr. MUELLER. I will follow up on that.
Mr. BACHUS. The gentleman from Washington?
What we are doing is we are going forthere are votes on the floor.
Mr. MUELLER. I understand.
Page 44 PREV PAGE TOP OF DOC Mr. BACHUS. But, you have a 12:30 commitment and I have just told the members to get back and as soon as the gentleman from Washington questions you, I anticipate discharging you.
Mr. MUELLER. Thank you, sir.
Mr. INSLEE. Thank you, Mr. Mueller. Thank you for all your team. They are doing an exceptional job under very trying circumstances. And, I hope you will pass that on from all of us on the committee.
I wanted to ask you about the harvest, if you will, of intelligence from the PATRIOT Act and other work that you have been doing pertaining to the attack on September 11. We have seen that very clearly there were various nations associated with the attack of September 11. We know, obviously, Saudi Arabians were, I think 17 out of 19 were Saudi nationals.
Mr. MUELLER. Fifteen were.
Mr. INSLEE. We knowI am sorry?
Mr. MUELLER. Fifteen were.
Mr. INSLEE. Thank you. I believe an Egyptian.
Mr. MUELLER. There was one Egyptian, two from the UAE and one from Lebanon.
Mr. INSLEE. We know that Afghanistan was clearly involved in their training, at least their beginning training process. We know that the terroristsa cell developed in Germany. I am told that there is some evidence that there was some association with England. And, obviously, there was training in the United States.
Do you have substantive credible evidence that has led you to believe that Iraq was involved in training or operationally in some fashion on the attack of September 11?
Mr. MUELLER. I hesitate to answer that because any answer probably would behave to be given in closed session. But, by really declining to open it or answer it in open session, I do not want to give any substance to the belief that there may be such evidence out there. That particular question as to Iraq's relationship to the events of September 11 I think and believe have been spoken to by others in the intelligence community and the military and I would be hesitant to speak. Yes, as Director of the FBI, I have got some quantum of knowledge on the investigation, but there are others out there who haveI look at it from different perspective. And, so I am really reluctant to answer that question.
Page 45 PREV PAGE TOP OF DOC Mr. INSLEE. Well, we are now grappling with the issue of what type of threat Iraq poses and it looks like Al Qaeda has been at war with our country since the early 1990's, maybe we did not fully understand that, but it is clear that they were. And, they turn to Afghanistan for a place to train very clearly. They turn to Germany for a place to do their work on their cell. They turn to Saudi Arabia, Egypt and the United Arab Emirates for personnel to do this.
And, from the information that I have available, it did not turn, at least in a way that we have knowledge about, significantly to Iraq. And, I guess what have you concluded from that, if anything, in regard to if Iraq does present a imminent danger to the security of the United States why did this international organization that has been at war with us since 1990 do everything all around the world that we have discovered and it is now public information, but not in Iraq? What conclusions or thoughts should we draw from that? I mean they went to Afghanistan, they went to Saudi Arabia, they went to Egypt, they hit the Germany but not Iraq and we are trying to grapple with this issue of how imminent this threat is. Could you give anyshed light in that regard?
Mr. MUELLER. Well, I can shed light to the extent that the results of our investigation and the investigation of our counterparts in Germany or Pakistan or like have disclosed exactly what you say, that the plot was put together in Germany, Afghanistan, Malaysia, other countries overseas and executed in the United States. I am reluctant to speculate as towell, number one, let me put it this way. I guess I am reluctant to discuss in open session the specifics of your question for two reasons, one, I do not believe that such a discussion should be in open session, but secondly, the discussion should be held in the context of what intelligence is known by other agencies other than the FBI.
Mr. INSLEE. Well, I have sat in the closed sessions. And, I think it is a very important issue for us to consider when we decide what our Iraq strategy should be.
Page 46 PREV PAGE TOP OF DOC Let me turn, if I can, to your resource issues. If we do start an invasion of Iraq in the near future, some have suggested that this would have Saddam decide to use it or lose it. Anything he had he would have no restraints to use. Right now he has a survival instinct and therefore has not used some of the weapons that he has. Some have suggested that once those restraints are removed he would be a more dangerous character, at least for a short period of time, as far as them having an incentive to give his chemical and biological weapons to terrorists, which to date does not appear to be the case. That would lead me to conclude you will have additional responsibilities to guard against that on a domestic basis.
First off, do you believe you will have additional duties to guard against that? And, if so, what are your resources to do that and will they, to some degree, diminish your activities now trying to hunt down the Al Qaeda cells that may be in existence.
Mr. MUELLER. It is hard for me to speculate as to what will happen a week, two weeks down the road with regard to Iraq. I believe that whether it be the threat from Iraq or from any other country where we see an enhancement of that threat, we would enhance our capabilities of addressing that threat, which would mean being much more sensitive to operatives that might be in our country or coming into our country, would be utilizing our counter-intelligence tools to identify those who might seek to do us harm within the United States. And, we would be on an enhanced state of readiness and alert and would mobilize what resources we have to address that threat, regardless of which countryfrom which country it comes.
I will also tell you though that our number one priority is counter-terrorism and to the extent that I do not have agents assigned on any given day to that priority, if there is a threat in a particular town or a particular city or a particular region of the country, I will have no hesitancy in transferring for a period of time agents from whatever else they are doing to address that threat. And, since September 11 we have had occasion to do that on any number of places within the United States. And, in the future, to the extent that there is a threat presented anyplace in the United States and I have inadequate resources in that particular city, town or region, we will put the resources on it to address that and make certain that we do everything we possibly can to prevent another terrorist attack.
Page 47 PREV PAGE TOP OF DOC Mr. INSLEE. Well, I would like to help you in that regard because I think it is clear you are going to have some additional worries and you are going to need some additional resources and you will not be able to do this job against Al Qaeda unless you get some additional resources. And, there is a concern of some of us that in diluting your concentration on Al Qaeda and not giving you any more FBI agents, I have not heard anyone suggest we are going to give you more agents next month, to deal with this additional front, we have concerns and we would like to help you with that, if indeed that occurs.
And, I want to thank you for your testimony.
And, thanks for the chair. Thank you.
Mr. MUELLER. The only thing I would add
Mr. BACHUS. Thank you.
Mr. MUELLER. is we are looking forward towe have put in a request for additional agents and we are looking forward to receiving the 2003 budget because that will augment our capability to address Al Qaeda.
Mr. INSLEE. Thank you.
Mr. MUELLER. Thank you.
Mr. BACHUS. Thank you, Director Mueller. You know, in that regard, I would also say, you know, there has been some concern expressed, particularly by some rural bankers because the FBI has had to deploy people away from investigating bank robberies except the most violent ones. And, there is concern expressed for that. So, if you will continue to make us aware of your funding needs in that regard.
I want to again express to you our thanks for all the efforts that you and the men and women of the FBI are making to combat money laundering and disrupting the financial operations of the terrorists. We are going to discharge you. We thank you for your testimony.
The committee will recess until 2:00, at which time we will hear from representatives of the Treasury and the State Department. The hearing is adjourned until that time. Thank you.
Page 48 PREV PAGE TOP OF DOC Mr. MUELLER. Thank you very much.
The CHAIRMAN. The committee will reconvene and we are pleased to present the second panel of our discussion over the implementation of the USA PATRIOT Act. We are pleased to welcome the Honorable Kenneth Dam, Deputy Secretary, Department of the Treasury, and the Honorable Alan Larson, Undersecretary, Economic and Agricultural affairs at the State Department.
Gentlemen, thank you for your solid work in this area and we are pleased to recognize Mr. Dam.
Let's get that microphone on or get it a little closer to you. Should be a button there.
Mr. DAM. Button? Oh yes, I see.
The CHAIRMAN. You will be pleased
Mr. DAM. Technologically
The CHAIRMAN. The FBI director had the same problem, so you are in good company.
STATEMENT OF HON. KENNETH DAM, DEPUTY SECRETARY, DEPARTMENT OF TREASURY
Mr. DAM. Chairman Oxley and members of the committee, thanks for inviting me to testify here today on the implementation of the USA PATRIOT Act. Rather than read my prepared, I would like to ask you to please enter it in the record and I will summarize that.
But before turning to the latest rules and regulations that we have issued under that act, I wanted to report briefly on progress we are making in the financial war on terrorism in general. Since September 11, the United States and other countries have frozen more than $112 million in terrorist-related assets. More importantly, the actual amount of money blocked understates the full effect of the blocking action in that our blocking actions have effectively cut the flow of terrorist money through funding pipelines. For example, we disrupted Al-Baraka's worldwide network, that by some estimates was channeling $15 million to $20 million a year through Al Qaeda. Another example, we froze the assets of the Holy Land Foundation for relief and development, which is a principal U.S. fund raiser for Hamas, raised over $13 million in 2000.
Page 49 PREV PAGE TOP OF DOC Now, we have obtained strong international cooperation in this effort, I am pleased to say, and I will leave it to Under Secretary Larson to have the opportunity to explain these efforts in some detail. I do wish to say, however, that all but a small handful of countries have pledged support for our efforts, and over 160 countries have blocking orders in force. The hundred of accounts with more than $70 million have been blocked abroad, and the foreign law enforcement agencies have acted swiftly to shut down terrorist financing networks. The United States has often led these efforts, but there have been important independent and shared initiatives.
Let me just site three examples. On March 11 of this year, the United States and Saudi Arabia jointly referred to the U.N. sanctions committee, two branches of a particular charity. On April 19, the G7 jointly designated nine individuals in one entity. And on just this past September 6, the United Nations and Saudi Arabia jointly referred to the U.N. sanctions committee a man named Javidon, who is an associate of Osama bin Laden and a supporter of Al Qaeda terror. These efforts have been bolstered by actions from the European Union, which has issued three lists of designated terrorist and terrorists groups for blocking.
Now, as I say that is a very, very short summary and I am sure Under Secretary Larson will have more to say. So, I would like to turn to the implementation of the PATRIOT Act itself, excuse me. And, let me just summarize some of our major accomplishments over the last 12 months, actually 11 months since the passage of the statute.
Together with the federal functional regulators, we have issued customer identification and verification regulations. We have developed a proposed rule which seeks to minimize risks presented by correspondent banking and private banking accounts. We have expanded our basic money laundering program requirement to the major financial services sectors including insurance and unregistered investment companies, such as Hedge Funds. And we have developed rules to permit and facilitate the sharing of information between law enforcement and financial institutions as well as among financial institutions themselves.
Page 50 PREV PAGE TOP OF DOC Now, I want to underline that each of these accomplishments animated from the very legislation that this committee was instrumental in drafting. And I have addressed these implementation efforts and detail my written testimony, and I will be pleased to take any questions you have on them.
So in summary, we have made substantial progress in implementing the USA PATRIOT Act. The Act is making a difference, and I think that people recognize it is making a difference.
Just yesterday, the USA Today reported the results of a survey of over 2,000 financial professionals. Sixty-nine percent of those agreed that the PATRIOT Act will prevent terrorist access to the U.S. financial system, and I think they are right on that. We believe that the act is making it increasing difficult for terrorists to use the U.S. financial system. We are disrupting their ability to plan, operate and execute attacks, and we are forcing them to resort to substitute methods such as bulk cash smuggling to finance their operations.
Let me say that bulk cash smuggling is costly. It takes time. It is uncertain. Smuggling exposes the cash. There are instruments for possible detection and seizure by the authorities, and indeed those who are trying to pass them as well. For example, since September 11, our Customs Service seized over $9 million cash being smuggled out of the United States to Middle Eastern destinations, or destinations with some other Middle Eastern connection.
By making bulk cash smuggling a crime, the USA PATRIOT Act helped make these increased seizures possible. Smuggling exposes the careers, as I just said, to a possible capture. This summer, Customs, the United States Secret Service and FBI agents apprehended and subsequently indicted Jordanian-born Omar Shishani in Detroit for smuggling $12 million in forged cashier's checks into the United States.
The detention and arrest of Shishani is highly significant, as they resulted from the Customs Services cross indexing of various databases, including information obtained by the U.S military in Afghanistan. That information was entered into customs watch list, and when cross checked against in bound flight manifests, they identified Shishani. This is a good example of how the type of information sharing that our security now depends on is being implemented and made effective.
Page 51 PREV PAGE TOP OF DOC Of course we have a lot more work to do. I pledge to you that we will continue our efforts with the same intensity and professionalism that I believe have characterized this first 11 months. That as we complete our tasks in the months ahead, are preparing final implementing rules, I believe firmly that our job will just have begun. Time and experience will allow recent reflection on the decisions we are making today, incumbent upon Treasury to make adjustments to these rules, when it is necessary, to ensure that they continue to achieve our goals.
To that end, I am pleased to announce the creation of a new task force within the Treasury. The specific mandate of the task force would be to work with other financial regulators, the regulated community, law enforcement and customers and members of the financial community to improve the regulations that we have already implemented.
As we learn more about what works in the war on terrorist financing, we can find ways to calibrate our existing regulations both to better disrupt terrorist financingand this is importantand to do so in a way that imposes the least cost on the regulated community.
Let me say, Mr. Chairman, that we look forward to working with you and with the other members of the committee and with the staffs on this task force project as well. Thank you very much.
[The prepared statement of Kenneth Dam can be found on page 55 in the appendix.]
The CHAIRMAN. Excuse me.
Thank you, Mr. Dam, we appreciate it.
Page 52 PREV PAGE TOP OF DOCSTATEMENT OF HON. ALAN LARSON, UNDER SECRETARY, ECONOMIC AND AGRICULTURAL AFFAIRS, DEPARTMENT OF STATE
Mr. LARSON. Mr. Chairman and distinguished members of the committee, thank you for inviting me to be here. Like Secretary Dam, I would like to submit my written statement for the record and, with your permission, give a quick summary.
The CHAIRMAN. Without objection both full statements will be part of the record.
Mr. LARSON. Mr. Chairman, we are engaged in a sustained campaign against terrorists and terrorist organizations that have global reach. We would like to thank the committee and the Congress and for its support in this effort, and in particular, for passing the USA PATRIOT Act, which provides important new tools for waging this campaign.
Since our enemy does have global reach, and is supported by a global network, we need to have a global strategy and we need to have international partners who can help us carry it out. The State Department's particular responsibility in this inner-agency effort has been to lead in the effort of developing the plans for eliciting that cooperation and that support from other countries
The international dimension of our strategy includes the following principal elements: one, establishing the norms and obligations, primarily through the United Nations Security Council Resolutions and through international conventions; two, putting the issue of terrorism at the very top of our agenda with every country in the world; three, working with other countries, in cooperation with the Treasury, to block the assets of terrorists and terrorist organizations; four, placing the issue of terrorist finance at the heart of the work plans of various international organizations; five, strengthening law enforcement cooperation across borders; and six, extending training and technical assistance.
Page 53 PREV PAGE TOP OF DOC The PATRIOT Act has been a useful tool, and I would like to give you four examples. First, under the PATRIOT Act, the secretary of state has put 39 organizations on their terrorism exclusion list. Since the enactment of the PATRIOT Act, which gave the State Department for the first time access to data from the National Crime Information Center, we have been able to incorporate approximately eight million NCIC records into the visa look-out database. Third, pursuant to authorities under the PATRIOT Act, the Secretary of State has established a money laundering watch list which identifies over 400 individuals world-wide who are known or are suspected of money laundering. And this list is checked by consular officers and other federal officials before the issuance of visa for admission to the United States. And fourth, the State Department has consulted closely with the Justice Department in the first use of the correspondent bank account provision of the USA PATRIOT Act. And in this action, the government obtained assets of some $1.7 million.
As Secretary Dam stressed, while much has been accomplished, there is a great deal that remains to be done. As formal financial systems are purged of terrorist finance, the terrorists naturally resort to other, more costly, but still serviceable, mechanisms for moving resources. We are working hard with other countries to develop the mechanisms that will help ensure that Hezbollah systems or other informal financial systems are not misused. And to try to ensure that funds donated for worthy charitable purposes, do not end up being diverted to terrorist ends.
As we move forward, the importance of technical assistance in training is likely to grow. We are likely to need to develop improved training programs, establish clear bench marks, exchange information on best practices and ensure that countries that are committed to the fight against the financing of terrorism get the help they need to carry out their obligations.
President Bush has reminded us that the war against terrorism will be long and difficult and will require patience and persistence. The financial dimension of this war is no different. We have made considerable progress, but we really need to stick with it. We appreciate very much the strong support of the Congress and of this committee, and we look forward to trying to answer your questions.
Page 54 PREV PAGE TOP OF DOC
[The prepared statement of Alan Larson can be found on page 70 in the appendix.]
The CHAIRMAN. Thank you, Mr. Larson.
Let me begin with Mr. Dam. It was reported earlier this year that Treasury was working on a bilateral and multilateral basis with the Persian Gulf states to address some of the use of Islamic charitable organizations as a conduit for terrorist financing. Could you bring us up to date on the status of that effort and what kind of cooperation we have gotten from some of the leading Gulf States like the Saudis or UAE?
Mr. DAM. We have been, Mr. Chairman, talking quite a lot to governments from that region. There was a conference that touched on that issue in the Middle East that was also dealing with hawala-type questions. I myself have had at least one conversation dealing directly with this question.
Meanwhile, we have been doing a lot of homework ourselves because the whole question of charities is quite complicated. The fact of the matter is that charities do a lot of good work, do a lot of good work in Middle East-Persian Gulf area because they help support hospitals, orphanages, a lot of things that are quite important. They provide a social safety net, in fact.
And in Islam, charity is just as important as in the United States. And as in the United States, there are a lot of sensitivity about interfering with charity, so terrorists have strategically, I believe personally, decided to use charities for that very reason, because they are complex to deal with.
And so we are working hard and consulting on a regular basis with other countries about how to go about this. As you know, in the United States there are some constitutional problems about interfering with charities so it is a delicate question and we are pushing ahead on it.
Page 55 PREV PAGE TOP OF DOC The CHAIRMAN. Thank you.
As you know, the U.S. Customs Service is the lead agency on Operation Greenquest
Mr. DAM. Correct.
The CHAIRMAN. which the FBI director referred to us this morning, and, the multi-agency task force established after September 11 to dismantle the terrorist financing networks. How will the proposed transfer of Customs to the new Homeland Security Department affect that effort if at all?
Mr. DAM. My understanding is that it will continue, Mr. Chairman. I have not information to the contrary, and I certainly hope it will because I think they have made a lot of progress and they bring to bear a lot of people with expertise who otherwise might now be working together.
The CHAIRMAN. And how do you see the new Homeland Security Department assuming the leadI assume they would take the lead in the war on terrorist financing, in particular. And indeed, are there any particular potential problems that relate to interconnection between the Treasury and the Financial Crimes Enforcement Network, Office of Foreign Asset Control? Could you give us some idea about how the overall plan would work?
Mr. DAM. Well, as you know Homeland Security is not in existence this present time, but it is my understanding, and perhaps you have some information to the contrary, that it is contemplated the Treasury would continue to lead the effort.
Obviously customs is a very important part of the whole enterprise. Secret Service also plays a role. And they will be in the Department of Homeland Security, but the Treasury is the department that has the relationship with the financial community. And ultimately, we are dependent on the financial community for their efforts and their cooperation in carrying out this financial war on our behalf.
Page 56 PREV PAGE TOP OF DOC There are plenty of things we can do directly, but a lot of things have to be done with the cooperation of the private sector. And since then is in regular relations with all financial institutions, and will soon be on a regular basis with all financial institutions and will soon be on a regular basis in electronic contact with them. Similarly, OLFAC has a long history in this area working with the financial community, carrying out blocking orders and so forth.
So however it may be organized, I don't think there will be any difference in the focus that is placed on this area, and I don't see any reasons for difficulties of cooperation, collaboration. We have learned a lot about how to cooperate in the last months since September 11.
The CHAIRMAN. Well, as you commented, the need under the PATRIOT Act was to have this very active private-public partnership. In your view, how is that working with the financial institutions? What kind of feedback are they getting in terms of information that you have been able to acquire? And is it indeed a two-way street that we had envisioned in the PATRIOT Act?
Mr. DAM. I believe so, Mr. Chairman. I had a meeting just this week with all of the different sectors of the financial community that might be impacted by the PATRIOT Act and by the regulations. They were uniformly quite complimentary about the work that had been done by the regulators and the lawyers and the other specialists within the Treasury Department.
We have had a lot of contact. They have come in to tell us about their problems. We have issued regulations in draft form to get their comments. We have had a lot of comments. Sometime in addition to draft proposed regulations, we put out interim final regulations for one last chance.
And as I indicated today in my testimony, we plan to be in steady contact with them to make changes as are necessary, either to relieve unnecessary burdens or to make them more effective.
Page 57 PREV PAGE TOP OF DOC Moreover, the PATRIOT Act itself provides for the exchange of information with the financial community, so that they know who they should be on the look out for and provides for them to cooperate among themselves with a regulatory safe harbor, so that they can freely pass information among the various individual institutions.
So I don't have any information at all to suggest that that is not working very well. Now, to be sure some firms are concerned about the burden. Some are concerned about whether they really should be covered.
And for example, in the regulations we have just issued with regard to the insurance industry, we have made the determination that those portions of the insurance industry that should have to do certain things are primarily the life insurance industry. The casualty insurance industry, the title insurance industry, the health insurance industry, really do not, so far as we now say, present a problem with regard to terrorist finance and money laundering because of the nature of their policies. Should they, however, adopt new products which have the characteristics that you find, say, in life insurance where it can store value then transfer it somewhere else, we would change our mind on that.
And we discussed that. We discussed that this week with the industry to be sure. And I think the life insurance industry, which is definitely impacted, understands that and accepts that responsibility. And I think the casualty and property sector of the insurance industry understands what we are saying and of course they are happy to know that they won't be faced with the same burden as the life insurance portion of the industry.
So my point is we are trying to adopt a strong but nuanced approach, so we are doing what is necessary and appropriate, but no overreaching it. I don't think we are overreaching, but we will stay in contact to make sure that there is no unintended overreach or unintended burden here.
The CHAIRMAN. Mr. Larson, one of the troubling loopholes in the international regime for cracking down on money laundering and on terrorist financing is the lack of meaningful regulation of money transfer businesses or hawala issues. And that is obviously something that is rather endemic, particularly in the Middle East. What is the administration doing to encourage these countries to adopt procedure for registering and monitoring these kinds of activities?
Page 58 PREV PAGE TOP OF DOC Mr. LARSON. Mr. Chairman, we are working very hard on what is admittedly a very tough problem. I think the starting point is in the Financial Action Task Force, which Treasury and State participate in. We are working with other countries to develop a best practices approach and to exchange information.
We have conducted technical assistance programs with countries where hawalas are prominent; to help identify loopholes, identify problem areas. And we are sponsoring a conference in the region so that we can help countries, first of all, to identify where the difficulties are and what measures could be put into place to bring regulation to these types of informal systems.
I think another angle on this is that these systems are a substitute for the formal system, and the fact that they are in existence is in part an indication of certain inadequacies in the formal system. And I think there is the opportunity to try to improve regular systems of remittances. One of the projects that Secretary Dam and I are working on in the Mexican contacts is to lower the context of remittances for people who are working in this country. And I think some of the things that have been learned in that exercise could be helpful in creating alternatives to the hawala for the law-abiding people and the lawful purposes that make up the bulk of the transactions in those systems.
The CHAIRMAN. The committee went to Europe in April, and one of the issues that we were discussing at that time was the whole issue of money laundering. And we picked up some concerns among our European allies, specifically in Great Britain and in Germany that in some cases, the U.S. has often failed to provide intelligence and other investigative information on which they could support court orders authorizing the blocking of assets in those countries. I assume you have probably heard some of those same complaints.
What are we doing to try to address some of those issues?
Mr. LARSON. Mr. Chairman, again, Treasury and State are working very hard on this. I think the starting point is that we do try to present the best possible evidentiary record when we are asking other countries to join us in an action to freeze assets. In many cases, that involves trying to declassify certain types of information, or to try to draw from classified sources of information, an unclassified summary that we can share with countries.
Page 59 PREV PAGE TOP OF DOC I think our agencies have worked very, very hard on that effort. I would just quickly interject that one of the difficulties here is that there are difference evidentiary standards in some of these other countries, and that is one of the issues that we face.
What is interesting to me is that, not withstanding these difficulties, the Europeans have joined us in designating virtually all of the individuals in organizations that we have brought forward. So I think while there have been discussions and there has been some public discussion of this issue, it has not stopped us from moving forward.
Mr. DAM. If I could add a point on that, Mr. Chairman, the committee very wisely, and the Congress, very wisely put in the PATRIOT Act a provision which allows us to sustain blocking orders in any court challenge based on classified information presented in an ex parte way in the chambers of the judge, so that we don't have to, in order to carry out a blocking order, give away classified information. It is very valuable.
I would encourage our European colleagues to consider such legislation themselves, because frankly, if one approaches terrorism as just a law enforcement matter where you are only going to act after the fact against terrorist and terrorist financiers, we are not going to be able to make the kind of progress we need.
And the general council of the U.S. Treasury was just in the United Kingdom this last week discussing this kind of issue with the U.K. authority. He also met with the Wolfsberg Group, which is a group of banks that operate internationally. Many of them banks have located in other countries, not incorporated in the United States, to discuss these kinds of issues, because if we have high evidentiary standards, which after we met, before you can do anything, then I think we have a bit of a problem. So we are working to find common ground here.
The CHAIRMAN. The gentleman from New York, Mr. Grucci?
Mr. GRUCCI. Mr. Chairman, I have no questions at this time.
The CHAIRMAN. The gentleman from North Carolina?
Page 60 PREV PAGE TOP OF DOC Mr. WATT. Thank you Mr. Chairman. I don't have any questions either. I just want to express my thanks to the chairman for convening this hearing. And my apologies to the witnesses; I was trying to get here at 2 o'clock to hear your testimony, but unfortunately got waylaid just as I walking out the door, and so I wasn't able to get here in time, but I will certainly review the testimony.
I think it is very important to do this follow up about the effectiveness of legislation that has been passed, and the follow up that the FBI and the Department of Treasury and the Department of State are doing to implement the new law. So it is an extremely important and timely issue. I had hoped to ask some questions to the director of the FBI about the way he sees the balance playing out between individual rights and privacy rights and this new PATRIOT Act, but unfortunately he ran out of time and we got called for vote, so I didn't get to ask him any questions either, but I think it has been an extremely helpful and informative hearing. And I appreciate the chairman convening it.
I yield back.
The CHAIRMAN. I want to thank my friend from North Carolina who was a participant in the European trip and many of these issues were surfaced there and obviously very important.
Gentleman from Texas have any questions?
Mr. BENTSEN. Thank you, Mr. Chairman. I do have a couple of questions I would like to ask if I could.
Secretary Dam, there was an article in the Washington Post, a front page article of June 18th that I asked my staff to get for me because I remember reading it. And it raised a number of concerns, one being that there were various turf battles going on between Treasury and Justice on the implementation of the PATRIOT Act. In fact, you were quoted in the article as saying that, ''It isn't working like clock work.'' And I would like to get an update from if the concerns that you apparently had have been addressed.
Page 61 PREV PAGE TOP OF DOC The other thing is raised were concerns that not all of the 160 plus countries that we were trying to work with were being as cooperative as we might hope they would be. In particular, you noted at the time, problems in South-East Asia. There were issues with respect to Saudi Arabia. And I would be curious whether or not this article is old news at this point, and most of these issues have been addressed. Or are these still concerns that we have?
And then I have another follow up area I would like to discuss with you.
Mr. DAM. Well, thank you for that question. I am glad to address those issues, and perhaps Under Secretary Larson might want to say something about the international situation as well.
In terms of problems within the administration, obviously there were growing things. We had not done this kind of thing until immediately after September 11, and so there were some learning steps, some learning pains that we had to face. Also, we got some important authority under the PATRIOT Act that we were able then to exchange information more freely between the classified parts of the government and the rest of the government, which had not been possible before for legislative reasons that had a history that was right at the time that doesn't fit the current circumstances.
So we had to learn how to work together. And my impression is that the number of complaints about this have fallen very steadily. And in fact, I haven't heard a complaint along these lines in some weeks. Now that doesn't mean there are not still glitches, problems, and so forth, but I think that we are working out the kinks.
With regard to other countries, I don't think there are very many countries, which out of conviction on policy, don't want to do what they need to do in the terrorist finance area, but the fact of the matter is that they have had no experience at all. We have had the Office of Foreign Asset Control, I believe, as my popular history tells me that we have had it ever since World War II when were dealing with the Nazis. That is not exactly right historically, but we have had lots and lots of experience.
Page 62 PREV PAGE TOP OF DOC But there are other countries who have never done anything like this before. They didn't have statutes. They certainly didn't have regulations. And if they had statutes and if they had regulations, they didn't have trained personnel. So we have put a lot of emphasis on technical assistance to help them bring themselves up to date, and there is still a lot to be done in that arena.
As for South-East Asia, I think since the time of that article, there has been a startling amount of news about the operations of Al Qaeda and of sister organizations, terrorist organizations, in South-East Asia. In fact, it is in the news virtually every day. It was an important set of articles just this week about further police actions in Singapore, I believe. I read the big article in The Post, perhaps this morning, about Indonesia. So I think there is a great new focus in South-East Asia and countries on this problem.
Mr. BENTSEN. And you don't feel that you are getting the department, or the State Department for that matter, is getting a pushback from any countries that are being non-cooperative?
Mr. DAM. I wouldn't say we are getting any overly pushback or, perhaps, any pushback at all. But the fact of the matter is things, the wheels of justice, the wheels of prevention even, sometimes grind slowly when it goes against the cultural attitudes or the bureaucratic cabinets or, as I try to indicate, the plain capacity of the government to take the action that is needed.
And that is not specific to any part of the world. That is a general problem, particularly in countries which do not have well developed banking regulatory authorities or just the plain experience to do what is required.
Mr. BENTSEN. With the chairman's indulgence, and Mr. Larson may want to comment, as well, in the pastand I can't remember which acronym it is; there are too many to keep up with. But I don't know if it is FATF or which one. But in the past, Treasuryor maybe through FinCENhas maintained a list of nations which we consider, for a variety of reasons, either not having the sophisticated banking laws or perhaps intentionally not having sufficient banking laws for money laundering purposes. In the past, I guess semi-annually, that list is reviewed. Nations either graduate; some nations may well end up on the list who weren't there before.
Page 63 PREV PAGE TOP OF DOC Has there been a change in that list? Have countries been added? Or are you proposing to add countries as a result of the PATRIOT Act and as a result of this new emphasis on money laundering related specifically to Al Qaeda?
And second to that, has the Treasury entertained, to the extent you can tell us, using some of the tools provided for in the PATRIOT Act in order to pressure those nations?
Mr. DAM. Well, let me answer it in a general way and then Mr. Secretary Larson may want to fill in any gaps.
Under the FATF, as you suggested, there is a process for designating countries that are non-cooperating in the war against money laundering. And there have been a number of countries that have been so cited by this process of these 29 countries in FATF acting collectively. And many countries have taken this seriously and gotten themselves out from under that problem.
There are still some countries that have not yet come into cooperative compliance. But, in many cases, they very much want to and they are just trying to figure out how to do it. And in some cases they have legislative problems. Some cases they may have some capacity problems. And the list, I think, is shrinking, not growing.
They have also, nowthe FATF hasthis is Financial Action Task Force, for those who are not familiar with the acronym. The FATF has also gotten eight new proposalsrecommendations, they call themfor issues having to do with terrorism. So that is in addition to the 40 recommendations having to do with money laundering.
And the time hasn't run out yet for countries to comply there. There is a meeting, I believe, in October of the FATF where things will begin to come to a head.
And, by the way, Mr. Chairman, one of those recommendations has to do with charities. And Treasury is preparing a paper specifically on that issue for consideration at this international conference sponsored by the FATF.
Page 64 PREV PAGE TOP OF DOC So that is where we stand there.
Now, perhaps I haven't answered all of your question.
Mr. BENTSEN. Well, if I understand you correctlyagain, with the chairman's indulgencethat there are eight neware you saying there are eight new potential members of that list?
Mr. DAM. Right.
Mr. BENTSEN. Or is it eight new issues that you are
Mr. DAM. Eight new recommendations.
Mr. BENTSEN. recommendations that you are looking at?
Have you found an occasion with the new tools provided for in the PATRIOT Act that have been discussed for a number of yearssomewhat controversialto utilize those tools, with respect to any of the nations who are on that list today?
Mr. DAM. Well, one of the most important tools is Section 311, which calls for designating jurisdictions or firms and so forth as a primary money laundering concern.
We are looking at that very carefully. Frankly, it is a very powerful weapon, but it may be one of those weapons that is best kept in the closet or behind your back, flourishing it, because we are ultimately interested not in imposing what could be used as a sanction on a country, but getting them into compliance. And most of the countries certainly want to get into compliance. And all of them claim they want to get into compliance with the FATF recommendations to bring it home to that question.
So we may well chose to invoke those powers in an appropriate case. But at this point, we have not yet used that tool, which even though not applied, remains a very, very useful and powerful tool.
Mr. BENTSEN. Could I ask this one brief final question because it sort of goes to a question the chairman asked?
Page 65 PREV PAGE TOP OF DOC Yesterday or the day before there was a story that Treasury is now looking at unregulated hedge funds as a potential source of money laundering. Is that because it fits the profile? Or do you have some reason to believe that hedge funds are being used as a money laundering tool?
Mr. DAM. Well, yes, we have just issued a regulation which would impose the regulatory scheme to a certain extent on hedge funds. Actually all they have to do specifically is to file and identify themselves. But they are still subject to the regulation.
Now, there have been a few new stories about the possibility that hedge funds are being used for this purpose. And I have even been visited by several people from the banking communities suggesting this possibility. We have been trying to be very careful. This would apply only to hedge funds where they allow withdrawals within a two-year period. Most hedge funds you can't just go in and out when you want to.
And so I am not sure what proportion the hedge fund industry would even be involved.
But especially because they are unregulated, they don't have any particular regulator in the United States, although the SEC is now asking them some questions. They are a potential problem. And we are trying to address that problem in a deliberate way.
But potentially, a particular hedge fund could be a source of problems.
Mr. BENTSEN. Thank you.
Thank you, Mr. Chairman.
The CHAIRMAN. The gentleman's time has expired.
The gentleman from Connecticut, Mr. Shays?
Mr. SHAYS. Thank you, Mr. Chairman. And I appreciate the opportunity to ask three questions.
I have a question relating to Section 326 of the PATRIOT Act which directs the, you know, the Treasury Department to submit a report to Congress containing recommendations about the most effective way to require foreign nationals to provide U.S. financial institutions with accurate identity information, compared to that required to be provided by U.S. nationals.
Page 66 PREV PAGE TOP OF DOC Under the statute, the report should have been submitted last April and is, therefore, now five months overdue. Can you give us a sense of when this report is going to be coming in?
Mr. DAM. Let me just have a moment. I could tell you about 326 more generally. And perhaps somebody will be able to provide that information to you. I will tell you where we stand on the report.
The fact of the matter is that we have issued proposed regulations in this area. And we have gotten a lot of comments; and getting a lot of comments on this area.
Now, I do have here some information on the report, itself.
I am told that the report is in draft form. But we are still trying to address some of the questions. And we will be happy to discuss the issues with you, but we have not yet completed the report.
Mr. SHAYS. Have you begun the report?
Mr. DAM. It is already in a draft form
Mr. SHAYS. Okay.
Mr. DAM. and could be submitted. But we would like to be able to take a position and provide more information on the
Mr. SHAYS. Why don't you give us a date as to when
Mr. DAM. specific questions. For example, one of the kinds of questions is, ''How do financial firms check Social Security numbers, which is the leading form of taxpayer ID?'' And we have been working with the Social Security Administration to create a system, which we believe is close to being operational, in which banks would be able to check with Social Security to see if the number is a real number and corresponds to the name of the customer before them.
Mr. SHAYS. Just because I know we have a vote and you don't want to wait until after we get back and you want to finish up, when can we expect the report?
Page 67 PREV PAGE TOP OF DOC Mr. DAM. Let me say, obviously, as soon as we possibly can. Let me just, for a moment, consult to see
Mr. SHAYS. I think we need to have some kind of outer limit as to what is
Mr. DAM. Just one moment.
Mr. SHAYS. And this is particularly relevant given that these false identifications, you know, some of the September 11 terrorists used false identification documents to open accounts in the United States. And there is reason to want this done soon.
Mr. DAM. Yes. I am informed that you shall have it in 30 days.
Let me just say we are well aware of the fact that we are not asking the banks because we really can't ask them to certify that this person is who he says he is or she is who she says she is. But they can take reasonable steps. And, in fact, most of them are already doing so.
In fact, many banks in certain countries require more than anything we are contemplating. For example, in some countries, you must provide a photo to go into the bank's records. So if there is any question that arises later, you can go back to the photo.
So all we are asking them to take is reasonable measures, which most of them are already taking, to identify the customer.
Mr. SHAYS. We have two success stories, I think, that I would like you to make reference to. We have been helping the Colombians establish a database on shipments of commodities that is part of the financial intelligence unit, like the FinCEN. And now I understand Warner and Schumer have introduced legislation aimed at increasing our understanding of the contents of the containers that arrive in U.S. ports.
And so I would like your reaction to the idea that an international end-to-end tracking system for container and similar shipments with information about bills of lading and letters of credit and about the shipping and receiving could help interrupt terrorist financing and a host of other crimes.
Page 68 PREV PAGE TOP OF DOC Is this something that you all can speak to?
Mr. DAM. I can't speak to it with great authority. This is a project of Customs, who has been working very hard on it. We have good collaboration on this very subject with Canada. We have been talking to some of the other major ports of the world and the countries in which they are located. And I can give you something on how
Mr. SHAYS. Is the sense, though, that
Mr. DAM. far along we are. But I believe it can make a major contribution.
Mr. SHAYS. Right, and that we could adapt it with other countries, as well?
Mr. DAM. Absolutely. That is the whole point: that it works best when there is that kind of cooperation.
It does lead to certain questions, for example, in the European Union, which would like to bring all of their countries in at the same time and all of their ports in at the same time. But I think it is important to push ahead as quickly as possible.
And I think Secretary Larson would like to say something on the subject.
Mr. LARSON. If I could, just very briefly, add to this. Precisely because we think we need to get as many countries involved in this as possible, the United States made this an initiative in the G8. And we got endorsement by all the countries of the G8 in this transport security initiative that would do the things that you are suggesting.
We have also placed it on the agenda of the U.S.-European Union dialogue, so as to assuage some of the concerns that Secretary Dam mentioned. And I think we are really making good traction on this. It is something that countries, once they learn about it, see could both improve security, but also efficiency.
Mr. SHAYS. Yes.
Page 69 PREV PAGE TOP OF DOC Could I deal with one other question? And that deals with some success with the Secret Service in counterfeiting, based on tools in the PATRIOT Act. Is that something that either of you could address?
Mr. DAM. Yes, sir, I can address it in a general way, and then, perhaps, even more specifically.
The PATRIOT Act recognized that we are in a new generation of technology in which a lot of the counterfeits use high-speed copiers or very high-resolution copiers. And there was a problem with the previous statute, which referred to ''stones'' and a lot of the practice required the use of the negative and so forth, as evidence, in order to prosecute counterfeiting.
Today, the PATRIOT Act recognizes that the counterfeiting law extends to counterfeits made by analog, digital or electronic images. That is a major step forward, because that is how the really good counterfeiting stuff is done today. So it addresses it very squarely.
It also deals with the question of what kind of evidence is required. And so I think it gives us the tools we need to keep up with the technology. The law had, frankly, fallen behind.
The CHAIRMAN. The gentleman's time has expired.
The chair would note we have votes on the floor. I think they will be the last votes of the day.
So we want to thank both of you gentlemen for excellent testimony.
The chair would also indicate that there may be some members, including myself, who would like to submit questions for the record and in writing. And we would appreciate your prompt response.
With that, the committee stands adjourned.
[Whereupon, at 2:58 p.m., the subcommittee was adjourned.]
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