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U.S. House of Representatives,
Committee on Financial Services,
Washington, DC.

    The committee met, pursuant to call, at 10 a.m., in room 2128, Rayburn House Office Building, Hon. Michael G. Oxley, [chairman of the committee], presiding.

    Present: Chairman Oxley; Representatives Leach, Roukema, Bereuter, Bachus, Castle, Kelly, Weldon, Riley, Manzullo, Shadegg, Fossella, Miller, Cantor, Grucci, Capito, Tiberi, Lucas of Oklahoma, Ney, Paul, Gillmor, Biggert, Green, Shays, Ferguson, Rogers, LaFalce, Frank, Kanjorski, Waters, C. Maloney of New York, Gutierrez, Watt, Bentsen, Sandlin, Lee, Schakowsky, Moore, Gonzalez, Lucas of Kentucky, Clay, Israel and Ross, J. Maloney of Connecticut, Hooley, Sherman, Mascara, Inslee, Capuano, Ford, Shows, Crowley.

    Chairman OXLEY. The hearing will come to order.

    Today, the Committee on Financial Services meets to hear testimony on the issue of terrorist financing and money laundering. We remember today the thousands of people who died in the four attacks in September. The terrorists used American freedoms and American dollars against us. They executed their plans with access to our financial systems, including credit cards, ATMs, local checking accounts and wiring money overseas. The best way for our committee to commemorate the victims' lives is to take every step possible to ensure that the gates to the financial services system in this country are locked to terrorists.
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    Today, along with Ranking Member LaFalce and other Members of this committee, I will introduce bipartisan legislation that will demonstrate to our friends and enemies here and abroad that the United States Congress stands shoulder to shoulder with the President in his campaign to dismantle the financial infrastructure of terrorism and to ''starve terrorists of funding.''

    I applaud the President and our distinguished witness today, Treasury Secretary Paul O'Neill, for taking swift action to block terrorist assets that may be located here in the United States and to warn foreign banks that the U.S. is poised to block their assets in this country and deny them access to U.S. markets if they refuse to freeze terrorist assets overseas.

    The Secretary is also to be commended for setting up a new Foreign Terrorist Asset Tracking Center, which I hope will become a model for interagency cooperation in law enforcement and in the sharing of financial intelligence.

    Finally, I applaud the Administration for sending us its legislative proposals, many of which are included in our bill.

    This crime was not about money, but about mass murder, so we have a major challenge before us. Many in Congress and in the financial services sector are asking questions like: ''What is terrorist financing?'' For example, are terrorist organizations moving funds into the U.S. banking system through third-party correspondent accounts at major U.S. banks, or are they relying more on cash transfers through underground money services businesses?
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    How did they get credit cards, checking accounts, and the like, without raising suspicion? If the attacks could be executed without leaving an obvious financial trail, what might be missing now? And finally, the chilling question, is it possible that terrorist financing is continuing undetected in the United States?

    These are urgent questions, and our goal today is to learn the answers and to craft effective legislation to stop it whenever, wherever and however it happens.

    I am not convinced our money laundering laws are adequate to address the particular features of terrorist financing we have witnessed. The current money laundering regime seems better designed to detect the kind of money laundering associated with the crimes that generate significant proceeds. It does not appear to be particularly well-suited to cash an unconventional terrorist operation.

    We know, too, that there are limitations to what we can expect from Federal laws that allow for the freezing of terrorist assets. Osama bin Laden and his organization, al Qaeda, have been on Treasury's blocking list for a couple of years. Any financial role bin Laden and his organization played in those horrific acts appears to have escaped detection and to have fallen below our financial radar.

    The committee's work on money laundering will produce effective, targeted solutions to the immediate problems we encounter following the events of September 11. We will not throw in the legislative kitchen sink for no clear purpose. This is our first important step on money laundering, but it will be, by no means, our last.
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    With that in mind, Members of this committee will introduce today comprehensive anti-terrorism and money laundering legislation that focuses on three major goals: One, bolster law enforcement's ability to find and destroy the financing of terrorist organizations, whether in banks or in underground ''hawala'' systems; two, establish a Government-industry partnership to stop terrorist funding in real time; and three, track any terrorist money kept in secret offshore havens and increase foreign cooperation with U.S. efforts.

    Today marks the beginning of the legislative process on this comprehensive package, which should be enacted before Congress adjourns this year. It is time for the civilized international community to exclude financial outlaws, whether they are bin Laden's terrorist operatives or shadowy offshore banks, from access to the international financial system. This is the time and this is the place to draw that line.

    The time has expired, and I yield to the gentleman from New York, the Ranking Member, Mr. LaFalce.

    Mr. LAFALCE. Thank you Mr. Chairman. I ask unanimous consent to put my entire statement in the record.

    Chairman OXLEY. Without objection, all the Members' statements will be made part of the record.

    Mr. LAFALCE. Money laundering represents a serious threat to global, political and economic security. The International Monetary Fund has estimated the amount of money laundered annually to be between $600 billion to $1.5 trillion, or 2 to 5 percent of the world's annual gross domestic product. Since the 1970s, I have been very concerned about this, but the events of 3 weeks ago demonstrate that the very safety of our citizens depends on effective national and international anti-money-laundering policies. There is a need for a new, concerted anti-money-laundering offensive, internationally and domestically.
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    The President's action to freeze assets of persons and organizations associated with bin Laden, al Qaeda and other terrorist organizations was a very important first step in cutting off bin Laden and other terrorists from the funds that sustain them. However, if we are to lead the world in this fight against terrorism, we must ensure that our own anti-money-laundering laws are up to the difficult task at hand. And yesterday, Chairman Oxley and I agreed that we will work together on a bipartisan basis to enact legislation as soon as possible that will give the United States the tools it needs to combat international money laundering and to disrupt the funding of international terrorist organizations. I look forward to working with the Chairman and all the other Members of this committee and the Administration to develop most expeditiously sound legislation.

    I am pleased to see that the initial draft of this bipartisan bill includes the International Counter-Money Laundering and Foreign Anticorruption Act that I worked on last year with Chairman Leach, members of the Clinton Administration, including Ambassador Eizenstat, who will be testifying in a later panel, which was adopted by our Banking Committee last year on a bipartisan vote of 33-to-1.

    The International Counter-Money Laundering and Foreign Anticorruption Act would greatly enhance the tools available to combat money laundering in the United States and raise anti-money-laundering standards globally. While most of the debate at that time was focused on the importance of the bill in the context of combatting drug trafficking and organized crime, the Clinton Administration also designed the bill to be useful in disrupting terrorist funding. That bill fills a gap in the authorities of the Secretary of the Treasury to respond to money laundering threats from institutions in foreign jurisdictions with an inadequate or nonexistent anti-money-laundering enforcement regime.
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    Right now, as I understand it, we have but two limited options. At the one end of the scale, the Treasury Secretary can issue informational advisories to U.S. financial institutions about specific offshore jurisdictions, but these orders do not impose specific requirements, so they are often inadequate to address the complexity of money laundering. At the other end of the scale, the President can issue blocking orders under the International Emergency Economic Powers Act following a Presidential finding of a national security emergency, which operate to suspend financial and trade relations with the offending targets.

    The President appropriately invoked this authority on September 24 when he blocked transactions with foreign banks that did not cooperate with his order to freeze the assets of bin Laden, his associates and related entities. But invocation of the International Emergency Economic Powers Act is not always appropriate, because the United States might not want to block all transactions with an offending target, such as a country, or because our concern centers around the inadequacy of anti-money-laundering regimes in a foreign country. So the Act which I reintroduced earlier this Congress with Representative Velazquez, Representative Roukema, and so forth, would provide the Treasury Secretary with the ability to fashion measured, precise and cost-effective ways to address this problem.

    It is unfortunate that neither the full House nor the Senate took up the bill that we reported out last year, almost unanimously. I hope we will enact that as part of the bill. But there are many other proposals that others have made that are worthy of inclusion in a comprehensive legislative package. Congresswoman Roukema has an excellent bill which I have co-sponsored that addresses the inadequacies of our bulk cash smuggling laws. National due diligence standards to help prevent the use of fraudulent identification in the opening of bank accounts should also be considered.
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    I think that we should provide for better coordination of anti-money-laundering efforts within the Federal Government and for enhancing the ability of law enforcement agencies to obtain important investigative information from financial institutions. I look forward to working with the Administration in developing this package. I thank you.

    Chairman OXLEY. I thank the gentleman.

    The Chair now recognizes the gentleman from Alabama, Mr. Bachus, the Chairman of the Financial Institutions Subcommittee.

    Mr. BACHUS. Thank you.

    I thank the Chairman for having this hearing, and, Secretary O'Neill, I want to thank you and the President for the decisive action that you took last week to block and freeze terrorist assets, both in this country and around the world. I am gratified, and I think all America is, to hear the Treasury is receiving a high degree of cooperation from our allies and that you are following the money trail and that they are assisting you in helping to choke off the sources of this terrorist funding. So a job well done.

    From what investigators have pieced together of the evidentiary trail thus far, there are still more questions than answers on how the operation that culminated in the horror of September the 11th was bankrolled. But what we do know suggests that we should place a much higher priority on non-traditional or ''underground'' banking systems. These systems fall largely outside the scope of the formal reporting and recordkeeping requirements that have been the backbone of the Government's anti-money-laundering efforts for the last three decades.
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    While we need to give our law enforcement officials the additional tools they need to uncover and root out the financial infrastructure of terrorism, we also must make sure that the existing tools are being used effectively and wisely.

    As Chairman of the Banking Committee's Oversight Subcommittee in the 104th and the 105th Congresses, I chaired a number of hearings which examined the operations of the Financial Crimes Enforcement Network, FinCEN, which is the Government's lead agency in collecting and analyzing financial intelligence. Those hearings yielded troubling findings, substantiated by several GAO studies that I commissioned, and I would direct the Secretary's attention to those at some time. They suggest that more can and must be done to enhance and to coordinate the Government's efforts to track dirty money that fuels narco-traffickers, international terrorists and other large criminal organizations.

    The President's Executive Order freezing and blocking terrorist assets was a powerful first step. It sends a strong message, a message that we will track down and cut off terrorist blood money wherever we can find it. Congress needs to examine other measures, including an approach similar to the one I put forward in the context of the genocide taking place in Sudan. That is, conditioning access to U.S. financial markets on other countries' willingness to assist us in the financial war on terrorism declared by our President.

    I want to conclude, Mr. Chairman, by thanking the members of the staff who have basically worked for 16 and 18 hours putting together this effort; the cooperation we received from Treasury and law enforcement agencies. And I want to, in particular, commend Jim Clinger for his work. Thank you.
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    Chairman OXLEY. Thank the gentleman.

    The Chair now recognizes the Ranking Member of the committee, the gentlelady from California, Ms. Waters.

    Ms. WATERS. Thank you very much. Mr. Chairman, thank you for calling this hearing on money laundering. It is crucial that we take steps to ensure the terrorist funding is cut off at its source.

    I have been working on money laundering issues for years, and I believe that the time has come. The time for action is long overdue. I have long maintained that the way to capture criminals is to follow the money. If we deny these criminals, terrorists, drug traffickers and bloody dictators access to the world markets, they will not be able to function.

    Money laundering has become an indispensable element of drug trafficking, for example, and other criminal activities as organized crime has expanded its economic influence both domestically and internationally. Without the ability to manipulate our financial institutions, the illegal drug trade, for example, would be brought to its knees. If there were no drug profits, there would be no drugs on the street.

    Similarly, the terrorists took advantage of the weaknesses in our financial system. They had credit cards and somehow paid significant sums of money for flying lessons. Some of them even may have profited from the advance knowledge of September 11 by selling airline and insurance stocks short.
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    I don't understand how these individuals, some of whom were suspected associates of bin Laden, were able to reside in the United States virtually undetected. Their financial transactions left a trail, a trail that must be followed, and we must ensure that every financial institution that is a part of that trail fully cooperates with law enforcement to root out the sources. We must close the loopholes in our financial system that permit illegal activities to flourish undetected. We must punish America's financial institutions that launder money, whether it is tied to financing terrorism or other illegal activities.

    The day is over when our own financial institutions are too big to touch. According to a 1990 report by the Financial Crimes Enforcement Network, FinCEN, drug profits have injected an estimated $100 billion into the financial systems of the United States. Nonetheless, information I received from the U.S. Department of Justice states that no U.S. or foreign depository institution, none, not one, has ever lost its license as a result of money laundering activities in the United States of America, although many institutions have received substantial penalties for money laundering activities. For some of these institutions, penalties were merely the cost of doing business.

    We need to focus national and international attention on the money laundering vulnerabilities of private banking relationships and the concentration accounts used by some private bankers. In an October 28, 1999, letter, Citibank private bank division defined private banks as ''banks which provide specialized and sophisticated investments and other services to wealthy families and individuals.'' The letter went on to say that ''private banks are inevitably exposed to the risk that an unscrupulous client will attempt to launder proceeds of illegal activities through the bank.''
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    This is stating the situation mildly. A 1998 GAO report on private banking detailed how known drug trafficker and international criminal Raoul Salinas was able to transfer between $90 to $100 million of proceeds through Citibank's private banking system. In November of 1999, the Senate's Committee on Governmental Affairs Permanent Subcommittee on Investigations presented revealing accounts of how Raoul Salinas and other private banking customers were able to launder funds through Citibank's private banking system.

    According to the subcommittee Minority staff report, a key problem area within the private banking system is the use of concentration accounts. Concentration accounts are bank accounts maintained by financial institutions in which funds from various bank branches and bank customers are commingled into one single account. Banks have used concentration accounts as a convenient internal banking transfer mechanism. However, by combining funds from various sources into one account and then wire-transferring those funds into separate accounts, the true ownership and identity of the funds are temporarily lost, and, more importantly, the paper trail is effectively ended.

    Law enforcement officials have stated that one of the biggest problems they encounter in money laundering investigations, particularly where there is an international flow of funds, is the inability of investigators to reconstruct an audit trail for prosecution purposes. This was a major obstacle in the case of Citibank and Raoul Salinas and has also presented problems for law enforcement in the Bank of New York money laundering scandal. In a sound practices guideline paper issued in 1997, the Federal Reserve Bank of New York reported the use of concentration accounts——

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    Chairman OXLEY. Could the gentlelady sum up, please? We want to get to the Secretary.

    Ms. WATERS. Well, let me just say that until we deal with our own banks here in the United States, we can't begin to talk about forcing other banks in other countries to clean up their acts. I am still waiting on reports that I have requested on the investigation of the money laundering schemes of Raoul Salinas and Citibank, and since that time Citibank has continued to purchase banks that they know launder money, and they launder drug money.

    This is tell the truth time, and I want to see what we are going to do right here before we talk about what we are going to do offshore.

    Chairman OXLEY. The gentlelady's time has expired.

    We now turn to the distinguished Secretary of the Treasury, Mr. O'Neill. Thank you for appearing before the committee. The Chair would inform the Members, the Secretary has another obligation on the other side of the Capitol, but we will keep you as long as we possibly can, but we understand the time constraints as well.

    Thank you again. Obviously your appearance today shows a strong interest in the money laundering issue from the highest levels of this Administration, and we appreciate your testimony today.

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    Secretary O'NEILL. Thank you, Mr. Chairman, Congressman LaFalce and Members of the committee. Thank you very much for inviting me to be with you today. Under Secretary Gurule is with me and will appear on the next panel and will provide more details on our view of actions that could usefully be taken.

    And I do want to make a special point of saying to the committee, to the Chairman and to the committee Members, how much we appreciate the interaction we have had with you and the leadership that you have shown over the years in working on these issues. Now is the time when we have to bring all of these things to bear, because this issue of financial affairs and movement of money of terrorists and suspected terrorists is a very important and essential part of the broad-front war the President has indicated we are going to wage against these evil people.

    We believe money can be as lethal as a bullet. If we are to deter and prevent future calamities, and if we are to root out terrorists that threaten to do violence to our people and our communities, we have to enlist the active help of financial institutions to hunt down the financial benefactors who underwrite murder and mayhem. We have already made an excellent start with the President's Executive Order and the adoption of the United Nations Security Council resolution. The U.N. resolution represents a confirmation by the global community that an aggressive hunt for terrorist funds is underway and merits the cooperation of all countries.

    The importance of this global campaign cannot be overstated. Building an action-taking coalition for the financial campaign against terrorism is as important as a military campaign. We have set a deliberate course to prosecute that campaign. First we are engaged in an effort to identify the potential financial intermediaries of suspected terrorists and their associates. The interagency task force that we chair includes the CIA, the Departments of State and Justice, the FBI and the NSC.
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    Second, we are acting on that intelligence with the issuance of domestic blocking orders that freeze accounts and bar all trade with terrorist associates.

    Third, we are engaged with the FBI in the investigation of the financing of the September 11 attacks and are making significant contributions in ferreting out those who financed those horrendous acts.

    Fourth, we are engaged in an outreach to secure the endorsement of our blocking orders by allies in the G7, the EU, and throughout the world.

    Fifth, we have begun to link the disparate databases and to analyze the patterns of terrorist financing.

    Here at home, you can help arm us with additional legislative tools to enhance Treasury's capability to track, block and seize those assets, to secure our borders, and to freely share information about terrorist activity between law enforcement and U.S. intelligence services. Our intent is straightforward: to remove structural limitations that handicap the Government efforts to eliminate the violence of terrorism.

    To date, the President's program has produced meaningful results. As this committee knows, we have taken action domestically, and, just as importantly, scores of countries have followed suit with bank freezes and pledges to take measures to heighten scrutiny of suspicious transactions. In our effort we are partnering with the private U.S. banking industry which has helped us to interpret and analyze financial data. Finally, international financial regulators have made clear their willingness and commitment to provide us with whatever assistance we may need to track down the assets of international terrorists. Other countries have been asked to provide assistance under treaties that provide Treasury and the Justice Department with evidence in the current probe and to share leads for the pursuit of new names. In addition, numerous international banks have made plain that they will assist us in any manner lawfully permitted under their respective domestic laws.
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    Additionally, we have formed the Foreign Terrorist Asset Tracking Center to help identify patterns in terrorist financing practices discoverable only through interagency coordination and analysis. The center joins for the first time disparate databases from law enforcement, the intelligence community, banking regulators and open-access data libraries. The data is then linked to build a mosaic of terrorist financing activity. This operation allows us to take a different tack by sustaining a targeted effort at terrorist financing. This approach is not limited to the episodic, targeted and staccato-like pace of a case-specific criminal problem. Instead, we are using intelligence and law enforcement resources to find patterns that will allow us to address the global problem of terrorist financing.

    This is admittedly ambitious, but it is at the core of our declared end. This hunt is not about money. It is about money that kills. Our approach is proactive and preventative. Our goal is to drain the financial lifeblood that allows terrorists to finance and accomplish their deadly goals, and in doing so, we aim to shackle their ability to strike again.

    The Treasury Department is committed to this purpose. It is for this reason that we believe the provisions of the Administration's anti-terrorism bill are essential. In particular, the IEEPA amendment that would protect classified data from disclosure would remove barriers to the successful prosecution of our cause. While I understand these provisions are not currently a part of the House anti-terrorism package, we are hopeful that they will ultimately be included.

    In addition, I look forward to working with this committee on some issues not addressed in the anti-terrorism package; in particular, additional provisions to ensure more effective sharing of information between law enforcement and intelligence agencies.
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    Government should not be handcuffed in this endeavor. More can usefully be done, and Under Secretary Gurule is prepared to outline potential additional measures.

    But my pledge to you is simple. The Treasury Department will use every tool we have at our disposal to shut down terrorist fundraising and dismantle their organizations one dollar at a time. Their moral bankruptcy will be matched by an empty wallet.

    I thank you very much for the opportunity to appear, and I look forward to your questions, Mr. Chairman.

    Chairman OXLEY. Thank you, Mr. Secretary. It is good to have you with us this morning.

    Let me make an announcement. The Chair will recognize Members in the following order for questioning our witnesses: the Chair and Ranking Minority Member of the full committee, the Chairs and Ranking Minority Members of the subcommittees, and other Members in the order of their appearance, with seniority determining the order of Members present at the fall of the gavel.

    Because of the size of the committee and the importance of the issues, the time limit for our witnesses, the Chair will vigorously enforce the 5-minute rule. The Chair appreciates the cooperation of the Members and witnesses.

    Mr. Secretary, based on what Treasury has learned in the investigation so far, is it fair to say that the vast majority of the financial assets used to underwrite the terrorist operations of al Qaeda are overseas rather than in the United States?
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    Secretary O'NEILL. What we have seen so far, we believe that to be true, but that doesn't mean we are not continuing to pay attention to the possibility of financing that we don't yet know about. But your suggestion is like what we have seen so far, specifically the al Qaeda resources seem to be mostly in non-U.S. accounts.

    Chairman OXLEY. Can you share with the committee the effect so far that the President's September 24 Executive Order has had in freezing known assets of terrorists and their financial supporters?

    Secretary O'NEILL. Well, the President indicated the other day on the basis of an interim report that we had identified 27 specific accounts and individuals that we wanted assets frozen. And we have blocked assets in the U.S. The numbers are changing on a daily basis. The figure the President used the other day was $6 million. The amounts of money that have now been targeted, but without a return yet from the financial institutions that have been tasked, we are looking at something over $13 million in the U.S. and substantially larger sums offshore. The UK has indicated that their total blocking numbers are $88 million, and on the same basis, if you incorporate data even before the 11th of September that has been blocked or challenged on the basis of authorities that existed before and then the President's expansion, the numbers in our case equivalent to the Brit number is something over $250 million.

    But, we are at the beginning of this phase, and your question prompts me to say this: In discussions with the President, he has made very, very clear how he intends to measure our effectiveness, and that is by the number of individuals that are identified and accounts that are identified and by the amounts of assets that are blocked. So it is not our intention to measure effectiveness by inputs, but by actions taken to actually interfere with, and hopefully near-term, close down al Qaeda's financing operations and those of other terrorist organizations.
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    Chairman OXLEY. You mentioned the list of 27 organizations. I am led to believe that there is another list forthcoming. Could you share with us exactly, or perhaps when that might be available, and perhaps how many other groups would be involved?

    Secretary O'NEILL. Hopefully in the next few days we will be adding a substantial number of additional names to the list. As we are doing this, and I think it is pertinent to the legislation that you are considering, and to the past practices, for the first time there is a dedicated and determined sharing and vetting of information between the law enforcement and intelligence agencies that, for a variety of reasons, has not taken place before, some blockages and some narrowness of scope in earlier Executive Orders. This is now a full-front effort that involves all the resources.

    And I might say in furtherance of what I said about the response of countries outside the U.S., without exception I have had, I would guess, dozens, maybe even more than 100, letters from Presidents, Prime Ministers and Ministers assuring us, both at Treasury and in my role as the Treasury Secretary, that they are fully committed to doing anything and everything that they can, including amending their own laws where that is necessary to do, in order to be full partners in going after the financial networks of terrorists, individual terrorists and terrorist groups.

    We have had nothing but outstanding cooperation. Last week I had about a 90-minute telephone call linking the Finance Ministers of the G7, and their response was without reservation they will be here this Saturday for a full-day meeting in the furtherance of pursuing this objective.
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    And so we are getting nothing but what we ask for, including from all the financial institutions that we have talked to in the United States.

    Chairman OXLEY. The Chair's time has expired.

    The gentleman from New York.

    Mr. LAFALCE. Thank you very much, Mr. Chairman.

    Secretary O'Neill, are you familiar with the bill that was reported out of the House Banking Committee in the last Congress by a vote of 33-to-1 that we worked on with the Clinton Administration? And if so, is your Administration supportive of that bill?

    Secretary O'NEILL. Yes. Generally there is one provision that the Under Secretary reminds me. I think we have filed them, a memorandum with you indicating that we would like to provide what we call a due process provision so that——

    Mr. LAFALCE. That could be accommodated.

    Secretary O'NEILL. With that change we are going to be fine with what you are proposing to do.

    Mr. LAFALCE. OK. Good.

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    Now we have got this Financial Action Task Force list of noncooperating countries and territories. Is the United Arab Emirates on that list?

    Secretary O'NEILL. I don't think so. No, they are not on that specific list.

    Mr. LAFALCE. Is Pakistan on that list?

    Secretary O'NEILL. I don't think so.

    Mr. LAFALCE. OK. Well, with respect to countries that are not on that list, but whose standards might not be what we think they should be, do we have a different list, and are we trying to get them to improve both their laws and their practices? I mean, I have heard and read that much of al Qaeda's funding has come from accounts belonging to charities and others and banks in the United Arab Emirates. And apparently Mohamed Atta received a wire transfer of $100,000 from a bank account in Pakistan under the control of one of bin Laden's lieutenants. And so I am just curious about that.

    Secretary O'NEILL. The President has said, in this war against terrorism, that other countries and people are either with us or against us. And as I said to you, we believe running the financial network of the terrorists to the ground is an essential part of waging this war, and we are going to put to all the other nations of the world the issue of finally coming to grips with issues that in the past were looked at under the umbrella concept of money laundering and put each of them to the test of providing information in a structured way that we have said we want to do with everyone.
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    And as I said to you, so far, as we have put these questions, people have been very responsive. Finance Ministers of——

    Mr. LAFALCE. Mr. Secretary, I have a limited amount of time, and I concur with the language that is being used by virtually every country that has corresponded with you. The question is not so much the language and the good intent. The question is, you know, the proof is in the pudding. And so I am just wondering—it is difficult to bring about international harmonization of standards, and somehow we have got to do it quickly, within weeks or so. And we have to have some standards. We have to know whether each country, especially certain targeted countries where the terrorists might be most active, have in place a set of standards that we think is adequate, and if not, we have got to get them to do it yesterday. And that is why I am focusing in on the United Arab Emirates and Pakistan, for example, not getting letters of good intent.

    Secretary O'NEILL. The answer is I agree with you, and I am also a results-oriented person, as your question suggests. I am not interested in having more paper and good wishes and resolutions. I am interested in getting action, and, yes, we are going to work with every one of these countries, including the list of countries that have not yet entered information-sharing treaties with the U.S. so we can prosecute this part of the war as diligently and successfully as I am sure the President and the military establishment will prosecute the more familiar part of the war.

    Mr. LAFALCE. Thank you, Mr. Secretary.

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    Chairman OXLEY. The gentleman's time has expired.

    The gentleman from Alabama, Mr. Bachus.

    Mr. BACHUS. I thank the Chairman.

    Secretary O'Neill, I will be yielding my time to Mr. Riley, but I did want to commend you for one statement. Your opening statement, I thought, was magnificent.

    Secretary O'NEILL. Thank you.

    Mr. BACHUS. You said the hunt is not about money, it is about money that kills. And I think that is really the essence of what we are talking about here. Prior to September the 11th, I said the issue is very basic: dollars or lives. And sometimes that is going to be the choice. When it comes to a question of dollars or lives, there should be no question. And we are going to have that—that is going to confront us from time to time. So thank you.

    I will yield at this time my remaining time to the gentleman from Alabama, Mr. Riley, who is very knowledgeable on these issues.

    Mr. RILEY. Thank you, Mr. Bachus. I appreciate that. I have got another meeting I was going to, but I did want to ask a couple of questions, Mr. Secretary. Following up on Mr. LaFalce's line of questioning, how many countries would you say today are not being helpful?
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    Secretary O'NEILL. So far, as I said, no one has said no. Most have volunteered a willingness to do anything and everything that we suggest they might do within their own boundaries. But you all know, because you have followed this subject for a very long time, there is a long list of countries that don't have information-sharing treaties with the United States so that we can track even the narrower subject of money laundering, and I believe it is now time to put the question to them, actually the demand to them, that we finally create a basis so that we can follow money around the world, both for the broader purpose of money laundering and for the specific purpose of interdicting and confiscating the money of terrorists and suspected terrorists.

    Mr. RILEY. Well, I couldn't agree with you more, Mr. Secretary, but, again, I think Mr. LaFalce is absolutely right. Now time is of the essence. If we could, I would love to see a list of the number of countries that have not participated or have been reluctant to participate.

    But, because our time is short, let me ask you one other question. Prior to September the 11th, what kind of policies and procedures did the Treasury Department have in place that allowed us to track the terrorist money before the attack on New York?

    Secretary O'NEILL. I guess I would say, now I am thinking about on the intelligence side, we had an ability in the intelligence community to identify terrorists and to look at information on a worldwide basis outside of the United States to pursue the financial affairs of terrorists. But we had a habit and a practice, and I think even a legal prohibition, against using in a direct way the information collected by the international intelligence agencies without a very complex procedure to bring it on board in the United States and to systematically pursue potential terrorists inside the geographic borders of the United States.
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    And, you know, one of the things that is happening, as a consequence of these terrorist acts, I think we are finally going to use the resources of our own community and the intelligence agencies of the rest of the world to go after terrorists, not without protections to make sure that there isn't overreach, but to take away the handcuffs that I think perhaps were applied and supplied with the best of intentions to protect individual liberties, but at a cost that made it very difficult to systematically erase the financial sources of terrorist operations.

    Mr. RILEY. Well, sir, again, prior to September the 11th, could you categorize on a scale of 1-to-10, compared to what you are doing today, how active your department was, or how active this Government was, in tracking terrorist money, knowing where the accounts were, and did we have the ability before to do something preemptively that we should have done?

    Secretary O'NEILL. I think one measure of where we were is frankly not one I like very much, but one measure of where we are, you can look at the annual reports on so-called money laundering activity and attempts to interdict money that was flowing from illicit, base purposes. If memory serves me right, last year the number was $670 million. That is a fair amount of money. And, you know, I began, when I came asking the question, and what did we get for it, and I was not, frankly, satisfied that we were getting results for dollars spent.

    I have a great deal of confidence that we are now going to start seeing results for dollars spent, because at the very top of our Government, the President of the United States has said he wants to know how many individuals have we identified; how many accounts have we blocked; how much money have we either blocked or confiscated. So I think with a clarity of purpose you are going to begin seeing results.
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    And I think also, as a consequence of these unbelievable acts, the cooperation from other governments around the world is going to be the difference between night and day. This is no longer going to be a conversation about convenience or something else. What I have seen from everyone that I have talked to is a determination that the world is not going to be a hostage to terrorists, and we are going to use every means at our disposal, including attacking their financial sources, to put them out of business.

    Chairman OXLEY. The gentleman's time has expired.

    The gentlelady from California.

    Ms. WATERS. Thank you very much.

    Mr. Secretary, I would like to see the legislation. I am seeing it for the first time. We just got it last night. I would like to see this be a three-pronged attack. While most of the references in this Act are to terrorists, it should be terrorists, drug traffickers and corrupt dictators. There is a nexus in all of this. Even as we talk about the terrorists and the Taliban, I don't know at this time how much drug trafficking plays a role in this. It appears that the Taliban is only going to be able to finance anything, even war, through its drug trafficking, and it appears that that is on the rise in Afghanistan. So I would like to see us talk about terrorists, drug traffickers and corrupt dictators in all that we do.

    Number two, are you willing to shut down big banks right here at home who are found to be laundering terrorist money, along with—and I would like to see in that also drug money and money that is deposited in our banks by bloody dictators. Are you willing to shut down the big boys?
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    Secretary O'NEILL. If I believe that we find evidence that big banks or small banks or medium-size banks are aiding and abetting terrorists, you bet my recommendation to the President will be that we shut them down tomorrow morning.

    Ms. WATERS. Thank you.

    Mr. Secretary, also, one of the biggest banks in this country was under investigation for laundering drug money at the same time they were under investigation they were purchasing small banks in Latin America that had strong representations for laundering drug money. Can you think of, or will you think about, as we should think about, ways by which we can discontinue the practice of our banks buying banks that have strong representations for laundering money, because they end up using it as an excuse. ''It is not the bank's policy,'' they will say, ''but some individual in the bank who is misusing his or her power like a private banker,'' and so forth. But they knew when they bought that bank that that is what they had the reputation for doing, and the same employees are in the bank. Are you willing to deal with that issue?

    Secretary O'NEILL. Not on the basis that you suggest. I don't think that—and this is a question of protecting our freedoms as we work the subject diligently. I don't think that we should act on the basis of so-called reputational opinions. I think we should operate on the basis of facts. And if we can demonstrate through intelligence and investigation that institutions deserve, as you say, the reputation that they have, then I am for stopping their activity, interdicting their activity, taking their money away. But I am not for operating on something as flimsy as reputation, because I am wary of the dangers that are associated with attacking individuals or institutions on the basis of reputation.
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    Ms. WATERS. I am not thinking about reputation in the case of Citibank. They bought a bank called Confia. It was under investigation by our own DEA agents, and they covered and they documented that it was involved in laundering money, and they bought the bank anyway.

    Finally, can you give me an update or have someone give me an update if the statute of limitations has not run on the investigation of the Salinas money that was deposited in Citibank, assigned a private banker who purchased all of the assets for Salinas through the private banking situation, just as in our book today we find that one of our U.S. bankers helped to—testimony demonstrated how a U.S. banker was used by bin Laden to send money from the Shamal Bank to a bin Laden associate in Texas using a corresponding account. Essam Al Ridi, who worked for bin Laden, testified that he received $250,000 wire-transferred at his bank in Texas that was sent by the Shamal Bank, which he then used to purchase a plane for bin Laden, which he later delivered himself to bin Laden.

    I want to tell you again, let me just reiterate, we have got to clean up our act. Our banks have got to be willing to stop taking money from every bloody dictator, terrorist-associated persons and drug traffickers. Until we get tough on them, other countries are not going to believe us.

    Chairman OXLEY. The gentlelady's time has expired.

    Mr. Secretary, again, we appreciate your testimony today, and your appearance really sent a strong signal of the Administration's intense desire to work on a money laundering bill, and we most appreciate it. We understand your time constraints to go over to the other body. We appreciate your testimony, and we look forward also to your excellent colleague, Mr. Gurule, who will testify on the next panel. Thank you very much.
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    Secretary O'NEILL. Mr. Chairman, Members of the committee, thank you all very much.

    Chairman OXLEY. We are pleased to have our second panel, and let me introduce the panel as they are taking their seats. The aforementioned, the Honorable Jimmy Gurule, Under Secretary for Enforcement, the Department of the Treasury; Mary Lee Warren, Deputy Assistant Attorney General, the Criminal Division; Mr. Dennis Lormel, Chief, Financial Crimes Section, from the Criminal Investigations Division of the FBI.

    Gentlemen and lady, we appreciate your appearance today before the committee, and Mr. Gurule, we will begin with you.


    Mr. GURULE. Chairman Oxley, Chairman LaFalce and other distinguished Members of the House Committee on Financial Services, permit me to begin by thanking you for inviting me to testify before the committee on the Administration's policies and proposals for dealing with the threats posed to the United States and the global financial systems by international terrorists and terrorist groups. It is an honor to meet with you this morning as we assess the Treasury Department's strategy to cut off the financial lifeblood of the individuals and organizations responsible for the heinous, cowardly acts of September 11.

    Insofar as possible, my testimony today is structured along the lines requested by you, Mr. Chairman, in your September 27 letter to Secretary O'Neill inviting him to testify. On September 24, President Bush stated, and I quote: ''We will direct every resource at our command to win the war against terrorists, every means of diplomacy, every tool of intelligence, every instrument of law enforcement, every financial influence. We will starve the terrorists of funding.''
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    It is that last statement by the President that has been the mandate for the Department of the Treasury, starving terrorists of funding. The strategy that we can employ to accomplish that goal is a multistep process. It includes the following: The Department of the Treasury is intensely involved in investigating and identifying targets; second, identifying assets for potential blocking or seizure; third, identifying methodologies, systems, techniques used to move funds for operational support of these terrorist organizations; fourth, the sharing of information with appropriate law enforcement personnel, specifically the FBI and Department of Justice officials; and lastly, application of an array of authorities, regulatory tools and law enforcement initiatives to deprive terrorists of access to their funds within the United States.

    With respect to the first question that you have asked the Department of the Treasury to address today, the financial networks and operations of terrorist groups, let me say the following: The schemes used by these terrorist organizations to move money that underwrites these terrorist activities are challenging and complex, to say the least. Make no mistake about it. It is very complex, varied schemes that are used, and they defy easy definition. So I don't want to create any unreasonable expectations with respect to the ease in identifying these systems of operation.

    Certainly, we know from our investigation that in some instances these organizations use charitable organizations that on the one hand are involved in raising funds for humanitarian and legitimate activities, but at the same time are involved in raising funds that are used to underwrite terrorist activities. They use front companies, businesses, banks, and underground money transfer systems such as the ''hawala'' system, which we are actively investigating. And, of course, they attempt to smuggle bulk cash in and out of the country to support their activities.
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    And so our strategy with respect to undermining these financial networks must be multilayered, must attempt to address and confront these diverse and varied schemes. There isn't a kind of single, one-fits-all type of strategy that we can implement if we intend to be successful in dismantling these operations.

    What are the tools that we are currently using to dismantle these financial networks? Secretary O'Neill spoke briefly about IEEPA, the International Emergency Economic Powers Act. This is the principal tool that is being used to stop terrorism financing. President Bush issued Executive Order 13224 on September 24 declaring a national emergency under IEEPA with respect to acts of terrorism and threats of terrorism committed by foreign terrorists against the United States. This Executive Order is important for a number of reasons. First, it expands the coverage of existing Executive Orders from terrorism in the Middle East to global terrorism. Further, it expands the targeted groups to include those who provide financial or other support or services to terrorist groups or persons associated with terrorist groups. So it is much broader in its scope and coverage.

    It further makes clear our ability to block U.S. assets and deny access to the U.S. financial markets to foreign institutions that refuse to assist the United States in tracking and freezing terrorist assets abroad.

    With respect to this Executive Order, we have put in place the means to carry out the goals of the Executive Order. The vehicle that is being used for this purpose is the Foreign Terrorist Asset Tracking Center that is being administered by the Office of Foreign Assets Control.
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    Its goal is to identify the source of funding for terrorist organizations and to cut off the cash flow to these groups. It has been in operation, as you know, a short period of time. However, I do believe that the progress that we are making with respect to the tracking center is substantial, and the early news is certainly encouraging, and we are very optimistic about with respect to the future effectiveness and success that is going to be realized by use of the Foreign Terrorist Asset Tracking Center.

    As the Secretary stated, its value is multifold. It brings together and accesses multiple databases, law enforcement databases, intelligence community databases, public source information, and the Bank Secrecy Act databases, which include currency transaction report information and suspicious activity report information. So we are pulling together, coordinating the utilization of these important bases of information and doing so in a coordinated fashion with the law enforcement community and the intelligence community.

    One additional tool that we are using in this war against these financial terrorist networks is the Bank Secrecy Act. As you know, the Bank Secrecy Act is administered by the Financial Crimes Enforcement Network, or FinCEN. The Bank Secrecy Act permits us with a database—the data that is collected via the Bank Secrecy Act permits us to develop linkages between individuals and particular banks and particular bank accounts with respect to specific transactions. It gives us a much clearer picture of who is involved in the financial network. And, of course, we are sharing the information that we are learning through FinCEN with the Federal Bureau of Investigation and Department of Justice prosecutors and officials. So it is one other important tool that is available to us.

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    At the same time, Treasury enforcement bureaus are actively engaged in investigating the terrorist acts of September 11th, including the United States Customs Service, which has extensive expertise in the area of anti-money-laundering; IRS-C.I., which, again, has extensive knowledge and expertise with respect to investigating complex money laundering schemes, following the money, following the paper. We are working closely with IRS and the Secret Service. So we have a strong intra-agency cooperative effort. And again, these agencies, Treasury bureaus are working closely with the Department of Justice and the Bureau.

    What additional legislation is needed? Well, let me address that in general terms initially, and I am happy to respond in a more specific way during the question-and-answer session. There are current laws on the books that make it difficult for law enforcement to do its job with respect to investigating these financial networks. For example, there are some provisions that permit access to relevant data by Department of Justice officials, but prohibit or deny access to the same information by the Department of the Treasury law enforcement officials. And it seems to me that if the evidence or the information is relevant for criminal justice law enforcement purposes, it should be accessible at the same time by FinCEN, by the Office of Foreign Assets Control, and by the Foreign Terrorist Asset Tracking Center.

    Currently, laws on the books do not permit the sharing of that information by Treasury bureaus. At the same time, there is information that Treasury may access, but is prohibited from sharing with the intelligence community. So we can share it internally within Treasury, but we are prohibited from sharing it with the intelligence community. And, again, I think these are obstacles and hurdles that make it difficult to do the job that we need to do in an expeditious and efficient way.

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    And the Secretary commented on IEEPA and the importance of being able to defend, let's say, a blocking action in court by being able to submit in camera, ex parte to a judge, the classified information that was used to support a blocking order. If we don't have that ability, it really places the tracking center in a quandary, if you will, because they are having to decide whether or not to block accounts based upon classified information. And if the fear is that we may have to disclose this classified information, then the question is perhaps we shouldn't block the account. Or if we block the account, maybe we should block it on information other than classified information. And so the underlying evidentiary basis for the blocking is not as strong as it otherwise would be. Or if we block the account, we may find ourselves in a situation at court where the blocking order is being challenged where—because it is classified information, and if we are ordered to disclose it, we may then have to make a decision to withdraw the blocking order, because we can't disclose the classified information in open court.

    So, we certainly would welcome your support with respect to amendments to the IEEPA legislation to fix this problem.

    Lastly, let me just comment briefly on the extent of international cooperation. There isn't much that I can add to what the Secretary stated in his statement. The cooperation has been—first of all, the activity has been aggressive, and it has been on multiple fronts. The effort has first and foremost been one of seeking cooperation with our allies to block accounts that we believe are linked to terrorist activities, and the response has been quite positive.

    With respect to the Financial Action Task Force, we are undertaking efforts to ensure that banks that maintain accounts that are linked to terrorist organizations, that that is prohibited conduct under the 40 recommendations of FATF, and that may serve as a basis to have such a country listed on the list of noncooperating countries and territories.
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    These are just a few of the things that we are undertaking at this time. And again, thank you for the invitation. I am happy to answer any questions that you have at the appropriate time. Thanks very much.

    Chairman OXLEY. I thank you.

    Our next witness, Mary Lee Warren from the Justice Department, speaking for Michael Chertoff.


    Ms. WARREN. Thank you, Mr. Chairman, and I appreciate the opportunity to appear today before this distinguished committee to discuss the Administration's strategy to attack the financial lifeblood of these individuals and organizations responsible for the September 11th attack. Mr. Chertoff, the Assistant Attorney General for the Criminal Division, regrets not being here today, but the White House has tasked him with other anti-terrorism matters today.

    Let me report for my part that we are making substantial progress toward unraveling the network that provided the financial support for the attacks of September 11th. Unfortunately, our work is made much more difficult, because many of our existing money laundering laws are out of date. As this committee well knows, those laws that were originally enacted in 1986 sought to address what was then a domestic problem of money laundering. It is now an international, global problem of money moving across borders, being transferred electronically and smuggled from time to time.
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    The seriousness of this problem has been repeatedly underscored in the days since the attack. Press reports have indicated that some of the money was drawn from other crimes, that cash was smuggled, and that money moved electronically.

    The terrorists, and certainly other international organized criminals, are fully aware that the United States, among other countries, is ill-equipped to permit the international cooperation necessary to restrain and forfeit the funds as they move around the globe. We need to modernize our money laundering laws to be able to respond to today's threats of terrorism as well as the international crime problem today.

    Our present laws are simply inadequate to deal with these, or with the variety of new methods that our criminals are now using to move money across borders, of moving money as proceeds of crimes they committed abroad into the United States, and money that is the profits of crimes here moved out of our country. To meet this challenge we must do all we can to prevent foreign criminals, first of all, from using our banking system to hide their dirty money; and second, we must ensure that criminals who commit crimes here and send their money abroad will also be subject to the confiscation and prosecutions necessary.

    Our Federal courts must be able to enforce foreign judgments of forfeiture. When crimes have been found and forfeiture ordered by a foreign court, we are able to enforce those judgments if it is a drug case, but not for any other crime, including terrorism, today. Such enforcement is in the broad interest of international justice, but it is also in our own justice interest. Foreign courts will be less likely to work with us and cooperate on enforcement of our judgments if we cannot provide the same reciprocal authority.
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    In addition, we must take steps to crack down on the ease with which foreign criminals use correspondent accounts of foreign banks maintained here in U.S. banks to hide the profits of their crimes. We must prevent fugitives from hiding behind a corporate veil or ''front'' from challenging those forfeitures. They can't do it in their own right while they are on the run. They shouldn't be able to do it behind a corporate front.

    We also have to take new steps to address the most recent methods that money launderers have employed to hide the proceeds of their domestic crimes by moving that money abroad. The success that we have had in enforcing the Bank Secrecy Act has led criminals to deal increasingly in cash. Hoards of cash are routinely moved across borders, and couriers move that cash interstate. They conceal it in many different ways and move through many types of transportation. It should be a violation of Federal law for a person to transport such currency knowing that it is derived from crime or that it is intended to be used for an unlawful purpose. Similarly, it should be a crime to smuggle cash across borders to avoid the reporting requirements that we have.

    The Money Laundering Act of 2001, which the Attorney General sent to Congress on the 18th of this month, contains many of these and numerous other provisions intended to update our money laundering laws to address today's globalization of crime. We are gratified to see that many of these provisions are incorporated in the House bill.

    The inadequacy of our present laws has been brought into sharp and sad relief by the horrific events of September 11th and the ensuing reports of the means by which the terrorists financed their crimes, but this is a problem that goes beyond terrorism in this era of globalization. We must find ways to make our laws keep pace with the methods employed by all those who would prey upon our citizens. We look forward to working with this committee and your colleagues in the House and those in the Senate in realizing our shared commitment to an effective anti-money-laundering regime in the United States.
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    Thank you very much. I look forward to your questions.

    Chairman OXLEY. Thank you, Ms. Warren.

    Agent Lormel.


    Mr. LORMEL. Thank you, sir. On behalf of the FBI, I would like to express my gratitude to the committee to afford us the opportunity to participate today. I have submitted a written statement for the record which broadly addresses the issues your invitation letter asked me to address.

    The terrorist acts of September 11th were among the most horrific crimes ever committed. We in the FBI are deeply committed to conducting a comprehensive investigation. Director Mueller has committed the full resources of the FBI to this initiative. An important adjunct component of the investigation has been the formation and inclusion of a multiagency financial review group. My colleagues here at the table have both referenced some of the initiatives, and we will get into a little more detail on that.

    From the financial investigative standpoint, our mandate is to conduct a collateral investigation consistent with the terrorism investigation, and certainly to rely on our friends in Treasury in accomplishing this. My oral comments will briefly touch on the specific questions you asked me to address.
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    First, the description of the financial networks and operations of the terrorist groups involved in the September 11th attack. Mr. Gurule and Ms. Warren each made some references to them. I don't think it is appropriate to get into specifics; however, it is important to note there was a financial network and a support mechanism that supported the hijackers responsible for the September 11th attack. We are conducting, as I mentioned, an exhaustive and comprehensive financial investigation in this regard, unlike anything we have done before. I applaud the committee for your efforts and your initiative in addressing this issue and recognizing the importance of cutting off the lifeblood of financial support to the terrorist organizations.

    Second, you asked about the FBI's strategy for identifying and taking action against those involved in financing the individuals and the organizations involved in the terrorist attacks. Again, I don't think it is appropriate because of the ongoing nature of the investigation to comment specifically on that, but I would like to specifically emphasize that there is a partnership among the Federal law enforcement community including the Department of Justice and the Department of Treasury and coupled with the financial services community, the financial institutions of America, and the general businesses, the general business community itself. In fact, personally I find it very heartening the response and the cooperative initiatives that we are receiving.

    You asked about vulnerabilities and high-risk areas in the financial services sector. There are a number of those areas, and, again, my colleagues have addressed those a little bit, but certainly the areas of wire transfers, correspondent banking, money service businesses. You referenced the ''hawala'' system. Traditional fraud schemes; certainly the use of false identification, credit card fraud, insurance fraud and traditional fraud schemes are what are prevalent here. We have seen that with the hijackers in this case.
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    As an aside, I would also like to address a vulnerable area which is internet gambling. The internet gambling and online capabilities have become a haven for money laundering activities. We believe there is a huge potential for offshore sites being utilized to launder money, and there are examples of pending cases, particularly in our organized crime program, involving enterprises using these types of services as conduits for money laundering.

    You asked about any obstacles the FBI is encountering in its efforts to obtain the cooperation of U.S. financial institutions. I would like to say that in my 25 years of experience, I have never seen the level of cooperation and support toward law enforcement that we are encountering in this particular case. The responsiveness of the financial industry, financial services sector and the entire business community has been most heartening and symbolic of the spirit of patriotism that has galvanized the country.

    You asked about the extent to which the current law provides the necessary tools for the FBI and other law enforcement agencies to stop the financial operations of the terrorist groups. Again, my colleagues here at the table have addressed those issues, and I will certainly defer to their comments. I have articulated in my written statement that the FBI strongly supports the Money Laundering Act of 2001, which the Justice Department submitted to Congress. We are encouraged by what we have seen in your write-up, sir. And we concur with Ms. Warren's testimony. Enactment of these proposals would greatly assist our efforts to fight terrorism as well as a wide variety of financial crimes.

    If I may just make one anecdotal comment. Mr. Gurule commented about the machinations and some of the prohibitions that we deal with in dealing with sharing of information. In our financial review group, FinCEN is an active partner, yet we have some problems that we are trying to overcome in sharing information and taking full advantage of the capabilities and databases that FinCEN offers us, and that would certainly be an area we would like to see pursued.
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    You asked about the degree to which the FBI, FinCEN, Customs, DEA and other law enforcement agencies are working collaboratively to end terrorist funding. In conjunction with the Assistant Attorney General Mr. Chertoff and his staff, to include Ms. Warren, the Financial Crimes Section of the FBI recognized the importance of establishing a financial review group to participate in the immediate criminal and terrorist investigation as well to establish a template for future terrorist and significant criminal enterprise investigations that certainly we have to coordinate with the Department of the Treasury.

    In order to succeed, the financial review group will require the full participation of the Federal law enforcement community. Secret Service, the Internal Revenue Service, the Customs Department, the Postal Inspection Service, FinCEN, the CIA, and the National Drug Intelligence Center are full partners in our financial review group, kind of an ad hoc task force if you would. We have reached out to the entire Inspector General community and have gotten their pledge of support, and they are reviewing their databases for any type of linkage and nexus to the terrorist groups.

    It should be noted that there are myriad agencies in addition to the agencies I have mentioned here that participate in the terrorist side of the investigation. This is a very unique case for the FBI because it is first time, I believe, that we have a fully integrated financial component in a terrorist investigation.

    You asked about the nature and extent of international collaboration on law enforcement. Again, based on my experience, the full international coordination and cooperation is unprecedented. The worldwide law enforcement community has rallied to support our investigative efforts.
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    In conclusion, cutting off the financial lifeblood of the individuals and organizations responsible for the September 11th acts of terrorism is a vital step in dismantling the organization and preventing future terrorist attacks. With the assistance of Congress, the combined resources of the Federal law enforcement community and law-abiding people throughout the world, we are confident we can succeed in this challenging mission.

    With that, sir, we are all available for questions.

    Chairman OXLEY. Thank you, Agent Lormel, and thanks to all of our witnesses.

    The Chair now recognizes the Vice Chairlady of the full committee, Mrs. Roukema.

    Mrs. ROUKEMA. I thank the Chairman.

    I have been listening very carefully here, and I want you to know about my own background on this subject not only with bulk cash smuggling, but the McCollum-Roukema bill of 2 or 3 years ago, Congressman McCollum, formerly a Member of this panel as well as a major senior representative of the judiciary panel probably. And that bill went noplace, but it is my understanding from the Attorney General that their proposal and the proposal that I hope we are going to be marking up hopefully next week here in this committee and the one that is reflected in the Senate is 90 percent of what we were doing at that time.

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    Now, what does that have to do with our hearing here today? I was more than a little disappointed that Secretary O'Neill had to leave before we were able to ask him with more specificity what he would be recommending. I would like to know a little bit more from this panel with specificity what we should be doing to get corrective legislation.

    I was concerned that, Mr. Gurule—I am sorry, Mr. Gurule, people mispronounce my name all the time, too—but, Mr. O'Neill implied that we have the legal authority to close some of these money launderers down tomorrow. I don't believe that. I don't believe that that is possible. But I wonder if Mr. Gurule would please help us, when you say the Bank Secrecy Act permits—you made it sound as though that is adequate. I don't believe that is adequate, and I think we need additional legislation. And you did indicate that Treasury, law enforcement, the current law restricts Treasury and law enforcement cooperation. You did indicate that.

    Now, are you familiar with not only the bulk cash smuggling portion of our legislation, which I am forcefully advancing, but the more comprehensive proposal that we and the Senate hope to get passed? Could you please give us your assessment of that legislation not only in terms of bulk cash smuggling, but also in terms of how we are going to facilitate information gathering and the cooperation as was already stated about the correspondent banking and wire transfers that I believe the FBI representative here today referenced? Could you give us your help on that, please?

    Mr. GURULE. Certainly. Since taking office as Under Secretary for Enforcement, I have identified money laundering as the top priority for the enforcement office at the Treasury. The first task upon becoming Under Secretary was the development and publication of the 2001 National Money Laundering Strategy, and that was released just a few weeks ago. It was released in September, and it sets forth a very comprehensive strategy with respect to anti-money-laundering efforts.
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    With respect to legislation specifically, I have had an opportunity to review the bill that has been prepared by the Department of Justice, and I think that the provisions that are contained therein are important provisions, necessary provisions in terms of strengthening our current anti-money-laundering laws.

    So, on one hand, with respect to new legislation, again, the provisions articulated there are ones that we view quite favorably. In addition, as the Secretary stated, we have had an opportunity to review the Kerry bill or the House version that, of course, has been submitted sponsored by Congressman LaFalce, and we believe that the authority, the discretionary authority, that is set forth in that bill with respect to the Secretary of the Treasury being able to impose special measures where there is a finding of a primary money laundering concern is important. It is valuable.

    The one caution, the one objection that we have raised with respect to that is the need for a due process provision, which I believe, if I understand Congressman LaFalce, he supports as well. We have been working with the staff of Senator Sarbanes, who is the Chairman of the Banking Committee, the staff of Senator Gramm, who is the Ranking Member. We have been working cooperatively there in an effort to craft what that due process provision should look like and what process should be due under the circumstances that are set forth therein. So there, again, is another specific example of where I think we can support legislative initiatives that are currently being undertaken.

    Chairman OXLEY. The gentlelady's time has expired.

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    The gentleman from New York, Mr. LaFalce.

    Mr. LAFALCE. Thank you very much.

    Mr. Gurule, I thank you for your endorsement of the bill that I have introduced so long as we can come up with some due process provisions. I do want to caution you, however, that the same bill was held up in the Senate last year by one individual, the former Chairman of the Senate Banking Committee. I caution you that it is possible to come in with due process provisions that will choke the effectiveness of the bill. And so I would encourage your staff to work with my staff in coming up with some reasonable due process provisions.

    Next point: Your office is extremely important. It is responsible for money laundering, but it is also responsible for the Customs Bureau. And as a northern border Congressman, I have the following questions. First of all, do we know how many of the 19 or so hijackers who were killed may have come in from Canada, if at all, if any?

    Number two: Do we know if any came in illegally as opposed to legally from wherever they came?

    And number three: There has been a gross inadequacy over the years in the number of Customs and Immigration personnel on the northern border. We have increased the amount of traffic exponentially, and we have fewer personnel. Second, the Customs Department has had on the books for about a decade what is known as a proposal for ACE, an automated commercial environment, that would cost in excess of a billion dollars, but we are woefully behind the times in implementing that. Is there any way that we can make a giant leap forward both with respect to numbers of personnel and to an automated commercial environment that would: A, enhance our security and: B, facilitate the flow of traffic?
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    Mr. GURULE. I think that was four questions, so let me see how I can respond to them and take them in order.

    Let me first comment that I am pleased to announce that the U.S. Customs Service has a new Commissioner as of last week. Robert Bonner was sworn in as the new head of the Customs Service. Mr. Bonner is someone that I worked closely with when he was a U.S. attorney for the U.S. Attorney's Office in Los Angeles and I was a Federal prosecutor heading up the drug section, deputy chief there.

    The issues that you raised with respect to ACE, the issue that you raised with respect to the inadequacy of Customs inspectors at the northern border are issues that Commissioner Bonner and I are addressing. Clearly, both of those are important, and I agree with you. I think the numbers in terms——

    Mr. LAFALCE. There is $40 billion that we have appropriated, a significant portion of which can be used in the absolute discretion of the President. Is your office putting in for a significant portion of that for more personnel and the most expeditious of ACE that is possible?

    Mr. GURULE. With respect to additional Customs Service inspectors, yes. They are being addressed, and there will be and there is a request in there for additional inspectors.

    With respect to the ACE program, the Secretary has spoken on that as well. We are going to do everything that we can to ensure that it is implemented. We understand and appreciate the importance of it.
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    Mr. LAFALCE. I want you to come back to me with the—when ACE was first suggested, how much it would cost in toto, what the implementation plans are for it right now, and what the most ambitious implementation plan for it could be if you had all the financial resources you need; second, the number of additional personnel that you have requested of the Administration for the northern border.

    Now, what about individuals coming in from Canada? Have we identified any as having come in from Canada at all?

    Mr. GURULE. I am not aware of any.

    Mr. LAFALCE. Of those who have come in, the 19 hijackers, do we know if any have come in illegally, or did they all come in quite legally, or do we know that?

    Mr. GURULE. Perhaps that question may be better addressed with Mary Lee Warren.

    Mr. LAFALCE. Mary Lee, your answer.

    Ms. WARREN. The best that comes to my recollection at the moment, they came in legally, but then overstayed their visas or went beyond the authority of their visa.

    Mr. LAFALCE. They all came in legally. So it wasn't a question of a deficiency of a border question to your present knowledge?
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    Ms. WARREN. At the moment not to my knowledge, but I remind you that Ressam, who came in, who was captured at the time of the Millennium, came across the Canadian border.

    Mr. LAFALCE. I am well aware of that. I am talking about these 19.

    Mr. LORMEL. If I may follow up. We don't believe that any of them came in through Canada. They may have all had legitimate identification, but some of it may have been counterfeit. That is a possibility and certainly is something we are looking at.

    Chairman OXLEY. The gentleman from Nebraska, Mr. Bereuter.

    Mr. BEREUTER. Thank you, Mr. Chairman. I would like to use my time for comments directed to the panel or the people they work for.

    First, Mr. Lormel, I want to tell you that one of your highest priorities is to protect the American citizens here and abroad against terrorism. It is an important but lower priority to bring these terrorists to courts. You must share information with the intelligence agencies and with the other domestic agencies and not put your first priority on simply protecting information so that you can prosecute terrorists.

    I hope that change in attitude can affect the FBI. I know Mr. Mueller had only been there 6 days when this terrorist attack happened.
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    I, too, am disappointed that Secretary O'Neill is not here, but I understand perfectly. Just want to say if you will take this back to him, Mr. Gurule, that, first of all, I appreciate his statement that you are going to use every tool at your disposal, and that the President has given you the authority under an EPA to go after the U.S. assets of foreign banks that refuse to freeze terrorist assets abroad.

    I have an interesting nexus between my service on this committee and service on the Intelligence Committee where I am doing my second tour as Vice Chairman, and I would like to say that we have notoriously had insufficient cooperation between the law enforcement agencies and the intelligence agencies in this country. It has been going on for decades. That has to be corrected.

    I wrote a letter to Secretary O'Neill on August 2nd to clarify the position of Treasury with respect to the Financial Actions Task Force, which is an international effort primarily focused on OECD, and he clarified that indeed the Administration is very supportive of identifying the noncooperative countries and territories. I hope you will keep the pressure on those countries and territories. We have to have their cooperation.

    With respect to Treasury's Office of Foreign Assets Control, my experience with them gives me only minimum at the most—minimum confidence that they are the entity that should be placed with some responsibility for pursuing this important task for Treasury. I hope that the Secretary will look, Mr. Gurule, at Section 116 in our draft legislation which relates to the Financial Crime Enforcement Network. I think Section 116 has to go forward, and I hope that Treasury will support it. I am not at all enthused, and I think many people on the staff and Members here in this committee are not enthused, about the organizational structure that you are coming up with.
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    Finally, I want to say that within our Government we have information about a relatively small number of financial managers and lawyers and law firms in the world, primarily in Europe, but also in the United States, that are facilitating the movement of massive amounts of money for drug trafficking, for international criminal syndicates and for terrorist organizations, and we need to come down hard on those. The Treasury bureaucracy, I hope, will be fully behind an effort to come down on those groups. Among the few Americans are people who actually live and work in Manhattan. And if they survive a terrorist attack, I hope they never have a peaceful night of sleep in the future.

    So you have got your work cut out for you, and I think you can count on the Congress to give you the tools. I only regret that you are coming to us—not you personally, but Treasury is coming us to and Justice is coming to us so late in the game. We all have some catching up to do. We all have some responsibilities. But I hope you will understand that we want to work cooperatively. We will work cooperatively to try to close the loopholes that do exist.

    And, finally, I would say to all of you as key representatives for our Government, I hope you are going to investigate whether you are getting the degree of cooperation you need from the U.S. Postal Service on this matter as well, because I understand there are some real problems there.

    Thank you, Mr. Chairman.

    Mr. LORMEL. May I make a couple of observations? First, a couple of comments that you made at the outset about the investigation and the interagency cooperation, your points are well taken. I think that the playing field has changed forever, and I believe firmly that there is a growing consensus and a sharing as allowable in terms of the investigation. Mr. Mueller has made it his top priority to look at future activities, and in that regard that is the primary investigative focus right now.
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    In terms of Postal, from our involvement with Postal, they have been nothing but absolutely cooperative and a full partner. In fact, we are relying heavily on some of their databases.

    Chairman OXLEY. The gentlelady from California, Ms. Waters.

    Ms. WATERS. Yes. I would like to ask any of the members of the panel who would like to answer, what do you know about private banking and concentration accounts, and do you think there are loopholes that we can close?

    Mr. GURULE. Well, in terms of loopholes that we can close, my view is that with respect to criminal investigations involving money laundering, that everything should be on the table. I mean, if there is any vehicle that is being used to conceal criminal proceeds to make it appear that the funds were generated from legitimate activity, we need to follow the money trail, wherever it leads us. If it leads us to a concentration account, then so be it. If it leads us to a bank, and if the bank officials are knowingly complicitous——

    Ms. WATERS. Yes, I know. Reclaiming my time. Are you in favor of closing down concentration accounts as a method of operation where you lose the identity of the persons who have money in those accounts, usually transferred or operated or handled by private bankers?

    Mr. GURULE. Not based on that alone. What I would want to know is whether or not these accounts—just because they create—or perhaps there is a possibility of misuse, I don't believe that.
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    Ms. WATERS. Do you know what a concentration account is?

    Mr. GURULE. Yes.

    Ms. WATERS. Would you describe it for us?

    Mr. GURULE. I think you described it quite well in terms of different sources of funds that are being directed into a particular account intermingled, commingled, if you will, and then the monies are being distributed into separate entities or separate accounts.

    Ms. WATERS. Does the money lose its identity?

    Mr. GURULE. Perhaps.

    Ms. WATERS. Do you think that is a problem?

    Mr. GURULE. It might be.

    Ms. WATERS. If you tried to freeze assets and follow the money line for traffic evidence and money launderers, do you think it is important to be able to follow the money? If you lose the identity of the account, doesn't that cause you some problems?

    Mr. GURULE. It does. It complicates law enforcement's mission.
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    Ms. WATERS. Don't you want to do something about that?

    Mr. GURULE. In a particular case I certainly would. If there was evidence that that system was being used to further criminal activity, absolutely.

    Ms. WATERS. Well, you need to know that there are some bankers who are coming forward and saying, yes, it is bad, and they are going to voluntarily stop using concentration accounts. Will you please take a look at that?

    Second, would you describe to us what is expected of private bankers in relationship to know your customer? In the case of Raul Salinas, there was not even a card on file to tell us where he lived, where he got his money from. He had a private banker that was assigned to him who purchased cars and homes, and so forth, and so forth. Are private bankers required to follow know your customer rules, laws, and so forth? How do they escape that?

    Mr. GURULE. You want me to comment on which of the many questions that you asked?

    Ms. WATERS. I wouldn't have asked you if I didn't want you to comment. Please do your best.

    Mr. GURULE. Know your customer certainly is important, and it is certainly important with respect to aggressive and successful enforcement of money laundering.

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    FTAF, as you know, is a multilateral organization that the U.S. Treasury and the Department of Justice are actively involved in. We have assumed a strong leadership role with respect to FTAF.

    One of the 40 recommendations is the know your customer recommendation. It is one that we support. It is a measurement by which countries are measured in terms of their cooperation and whether or not the banking systems have an aggressive banking regulatory regime that is not vulnerable to money laundering.

    Ms. WATERS. I yield back the balance of my time.

    Chairman OXLEY. The gentlelady yields back.

    The gentlelady from New York, Mrs. Kelly.

    Mrs. KELLY. Thank you, Mr. Chairman. I just have a couple of questions. One is about an article in the September 20th Wall Street Journal, I have a copy of this, and I would like to enter it into the record, Mr. Chairman. I would like unanimous consent to do that.

    Chairman OXLEY. Without objection.

    Mrs. KELLY. It talks about the bin Laden network, and it refers to a money exchange called ''hawala.'' Hawala is something that bothers me a great deal, because I don't see how—given the nature of the beast, how you are going to be able to address that with regard to drying up any money that is being moved. How would you combat this? I am throwing this out to each of you. I have only 5 minutes, and I really want to ask another question as well as a follow-up, because in this article it talks about the bin Laden networking run on a shoestring. Other people say that bin Laden's network is extremely wealthy, that he has put a lot of money into it, and there is lot of money there. I need a clarification on that as well.
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    Could we start with you, Mr. Lormel?

    Mr. LORMEL. Yes, ma'am. I am not familiar with the article, number one. I will just speak from an investigation.

    Mrs. KELLY. Are you familiar with ''hawala''?

    Mr. LORMEL. Yes.

    Mrs. KELLY. Have you any idea what we can do to try to stop or reach into that to regulate it?

    Mr. LORMEL. In terms of regulation no, ma'am, I would defer to the Department of Justice. But in terms of investigation, certainly we will do everything in terms of tracking back and exploiting all of our databases and exploiting the expertise of all of our fellow agencies in terms of tracking it back.

    Mrs. KELLY. Mr. Gurule.

    Mr. GURULE. Hawala, as you stated, and accurately so, certainly complicates the ability to follow the money, because based upon a hawala system, money can be exchanged without the money ever being transferred from a foreign country into the United States.

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    Mrs. KELLY. Therefore you have no record anywhere, and you can't go to a database and try to extract it?

    Mr. GURULE. It depends. I am not sure, up to that the point. But what if the request in the foreign country is for, let's say, $25,000 to be transferred by a hawala dealer in the United States to someone that is associated with a terrorist organization, unless that $25,000 is being kept in a shoe box in the broker's business in the United States, you are right, in that situation there would be no money trail. But if the hawala dealer in the United States has to go to a bank to withdraw $25,000 to make the payment in the United States, certainly that would generate a CTR and might, in addition, generate a suspicious activity report that would be submitted to FinCEN.

    So, I am not convinced that we need to throw up our hands and despair that there is no way that we can trace the money. I think it makes it more complicated, you are absolutely right. It may make it necessary for us to rely upon informants more than we have with respect to these types of money laundering operations. But it is a challenge. It certainly poses a challenge.

    Mrs. KELLY. I am surprised that you would assume that someone would have to go to a bank to withdraw something like $25,000. Having been on this committee for a little while, we have had other hearings that indicate there is a lot of cash that is lying around in suitcases and so forth. There is no way to find that because there is no record.

    Mr. GURULE. I agree.

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    Mrs. KELLY. I would suggest that there be some thinking about how we combat this. I also want to know if any of you can give me any information about whether you think that the bin Laden network was actually run on a shoestring rather than having a great deal of money pumped into it?

    Mr. LORMEL. I think that is highly speculative. I believe that there were clearly monies—and significant amounts of monies—coming directly to the 19 terrorists from the support mechanisms. In some regard, they will be linked to Mr. bin Laden.

    With regard to your concerns about the hawala accounts, we are in the front end of our investigation. What we are seeing is a pattern of cash activity which I believe——

    Mrs. KELLY. Flight school cost $20,000. They had to get that money somewhere.

    Mr. LORMEL. Yes. Right on the front end, ma'am, they wired over $100,000 in to Mr. Atta a year ago, and we are aware of that. And we tracked that back to accounts in the UAE.

    Mrs. KELLY. Just want to make one final statement. We know that there is a problem with agencies sharing information, but if you don't trust each other to share information, how can we trust you to protect us?

    Mr. LORMEL. I don't believe it is a matter of trust, ma'am. I think that is what the heart of this hearing is about. It is the ability to share information. I don't believe for a second, and I represent the financial section at headquarters with the Bureau, we have no qualm about sharing information. We went out at the outset of this investigation specifically to bring in our fellow agencies because we need their expertise, and I don't believe it is a matter of the sharing as much as the regulatory concerns as to what we can share.
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    Chairman OXLEY. The gentlelady's time has expired.

    Mr. Frank.

    Mr. FRANK. On the point of sharing, and Mr. Gurule mentioned the constraints currently on the sharing information, the anti-terrorism part of the legislation does include, as you know, sections that greatly increase the ability to share tax information, but it does look to me like we have dealt with that. On that subject I want to thank you, Mr. Gurule, and maybe stress there is one thing you ought to share with the Justice Department, and that was the very commendable concern you and Secretary O'Neill showed for adding due process provisions to this kind of regulatory legislation. Frankly, when some of us in the Judiciary Committee held up the anti-terrorism bill for exactly that purpose, we had to explain that to people. So I agree that providing due process provisions is a very important thing to do.

    People should understand that is one of the things that was happening in the Judiciary Committee on anti-terrorism, because obviously we don't think that due process is only important for people with money and not for people without it. So we are putting it in both places.

    I want to return in my question to a point that the gentlemen from Nebraska raised, and that is the question of the OECD approach. What bothered me, frankly, was earlier in July—I am sorry, too, that with we could only get 45 minutes or 50 minutes from the Secretary—he told Senator Levin's committee that he was not at this point in favor of sanctions to force compliance from countries that were allowing total bank secrecy. And what particularly disturbed me was that was raised in a September 24th press conference, and Ari Fleischer was asked about this whole question, the OECD has been going after tax havens, the Administration hasn't shown support, is it changing, his answer, and his answer troubles me. It is, ''I think you should not confuse the two issues. One deals with domestic laws and dealing with tax consequences and tax dodgers or tax evasions. This deals with terrorism.''
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    In fact, what we are talking about is total secrecy of financial assets, and that can be for purposes of tax evasion or drug money or terrorism. So this separation, this notion that worrying about the tax havens—and maybe we shouldn't call them tax havens, we should call them total bank secrecy entities—seeing that not related to terrorism is disturbing to me. I wonder if you would comment on that.

    Mr. GURULE. First, make no mistake that the Department of the Treasury and Secretary O'Neill are deeply committed to investigating and prosecuting tax fraud.

    Mr. FRANK. Excuse me. We only have 5 minutes. You have got to get specific. OECD, is, in fact, that notion of bank secrecy relative to terrorism or not?

    Mr. GURULE. I believe that is certainly has the potential. With respect to how to go about confronting the problem, I was going to say that the Secretary has undertaken to engage with our foreign counterparts information, and tax-sharing agreements so that we have the information that is needed to aggressively prosecute cases. He made that commitment to Senator Levin, and we are well on our way.

    Mr. FRANK. But he also said to Senator Levin that at this point he did not want to threaten sanctions. I think that is a mistake. The question is has there—we are not just talking about tax fraud. That is what he said. We are talking about—Mr. Gurule, you have got to wait. We are not just talking about tax fraud. I asked you about bank secrecy. You went back to tax fraud. I quote, for instance, Mr. Chertoff, who noted in Senator Levin's committee, ''We are dealing not only with the issues of Americans who put money in these banks, we are talking about foreign criminals who put money in these banks and then move them into the United States.''
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    In other words, this is not a tax haven issue only. Allowing this total bank secrecy which the OECD was going after has to do with exactly what we are talking about, leaving aside the tax issue. The Secretary said, well, he didn't want to threaten sanctions yet against these countries that would not put an end to that. I want to know what the status of that is.

    Mr. GURULE. I don't think that is—that is not what the Secretary said. The Secretary said that he doesn't want to go ahead and impose sanctions based upon a requirement of uniform tax rates; that simply because there isn't a uniform tax rate, that all——

    Mr. FRANK. I am sorry, but that is not an accurate representation because we were not talking only about uniform tax rates. Indeed that wasn't specifically part of it. I read the testimony. The Secretary seemed to be saying that he was not ready to threaten sanctions for a period of time on the question of secrecy. I am not now talking about taxes.

    Secrecy helps tax evasion, but secrecy enables a lot of other things. That is my problem with Ari Fleischer. He seems to, again, equate the anti-bank secrecy thing to the tax evasion issue. So, from the standpoint of bank secrecy, should we not be threatening sanctions right away against these countries?

    Mr. GURULE. We are against bank secrecy. I think our position on that is clear. With respect to the role we played if FTAF, I think it is further clear based upon the Secretary's statements with respect to these tax information——
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    Mr. FRANK. Sanctions if they don't comply. Has the time come to threaten sanctions against countries that continue to maintain the kind of secrecy that frustrates our efforts to find out where that money is?

    Mr. GURULE. It is a hypothetical. I would want to look at the particular——

    Mr. FRANK. It is not hypothetical. I am talking about the world today. There are countries that refuse to sign those treaties that still have bank secrecy. Not hypothetical. It is real. There are countries that still maintain that secrecy. Should we threaten them with sanctions against their banking situations here if they don't immediately comply?

    Mr. GURULE. FTAF may have to implement sanctions, countermeasures, and further list these countries that are not complying on the list of noncooperating countries and territories. And the U.S. has been at the forefront of that effort, as has the Department of the Treasury.

    Chairman OXLEY. The gentleman's time has expired.

    The gentleman from Iowa, Mr. Leach.

    Mr. LEACH. Thank you, Mr. Chairman. I want to express my appreciation for the thoughtful legislation you have just proffered. I would also like to express my appreciation for the comments of the FBI present on two scores; one, the cooperation of U.S. financial institutions in this probe, and second, the notion that internet gambling has many difficulties, but one of them is that it is a money laundering haven, and that is something that the committee has to bear in mind.
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    I want to note that, as the committee Members know, last year we passed legislation both in this area of money laundering as well as on internet gambling. And at other levels of the Congress and other parts of the Congress, this was pretty highly objected to, even though it had strong votes from this committee, and objected to by industry representatives in particular. And I think we all have to recognize that there is a burden involved in implementing money laundering and internet gambling kinds of approaches.

    On the other hand, ironically, the people that opposed this legislative approach yesterday are those most in need of protection today. And I stress this as strongly as I can, because if you look at vulnerabilities in our society, this is obviously very significant. But if you look at American institutions most vulnerable in the world today, there are diplomatic outposts, and there are financial services outposts, and it strikes me that for the financial industry to continue, if they choose to, to object to approaches that do involve some extra burden on constraining terrorism and narco-trafficking, that not only weakens the fabric of our society, but puts in jeopardy the very lives of the people most identified with democratic market-oriented kinds of values that are globalist in nature.

    And so I just have a couple of questions, one to the Justice Department. You know, when it comes, for example, to internet gambling, we have the Wire Act and other prohibitions that might well apply. But many of us have come to the conclusion that one of the most effective tools to deal with internet gambling relate to prohibitions and financial instruments. And I understand that is the Justice Department's position. Is that the case?

    Ms. WARREN. That is correct. But beyond that, I mean, in principle we support the provision as written. There are a few suggestions we might make in subprovisions, but in principle we support it.
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    Mr. LEACH. I appreciate that.

    Second, as we look around the world—and Mr. Frank, I think, was going at a point that I think many on this committee shared his concern about the United States is always in a difficult position if it acts alone in that there is a lot of international cooperation that is needed, but also the United States is in a difficult position if it doesn't have model laws that can be looked at by other countries. And it strikes me that if we don't enact that kind of legislation here at home, we are going to have a very hard time expecting other countries to enact similar approaches in their lands.

    And so, to some degree, when we deal with legislation, it is simply an expression of how it affects our sovereign laws. But by the same token, as we deal with legislation that is often looked at as models for our societies, and it puts the Treasury in particular, but not alone, in a position of saying to other countries, ''We have done this, why don't you follow a similar pattern?'' Does that make sense to you, representative from the——

    Mr. GURULE. Well, it certainly does, and that is a position that we have taken with respect to the Executive Order on blocking assets. I think it is important that this new Executive Order be signed by the President that the Foreign Terrorist Asset Tracking Center be up and operating in order to block assets. Having established that foundation, then we have much greater credibility when we reach across to our allies and ask them to do the same with respect to blocking of assets in foreign bank accounts.

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    So, by analogy, certainly it holds true. We need to be the model. We need to demonstrate strong leadership with respect to criminal justice issues and enforcement of our laws.

    Mr. LEACH. Thank you.

    Ms. WARREN. If I could just add something to that, also. When we are lagging behind, that sets a very poor example. One of those instances is that we cannot enforce foreign forfeiture judgments, but we ask other countries to do that for our judgments. They have many foreign crimes as predicates to their money laundering act. We have very few. We need to increase those to be the leader that we need to be.

    Chairman OXLEY. The gentleman's time has expired.

    The gentleman from Pennsylvania, Mr. Kanjorski.

    Mr. KANJORSKI. Thank you very much, Mr. Chairman. A couple of observations. Actually just one. One of the successes learned at Treasury from the IRS is the award for performance. If I remember reading somewhere, almost two-thirds of the successful prosecutions occur because either the accountants or the spouses become the informant. Now, it would seem to me that if you are serious about using that methodology with tax collection, why can't you create an informant's reward for money laundering? An informant would get to keep half the proceeds if he or she turns the perpetrator in. I don't think you are going to be able to cover all the cases of information you will get from bank employees or from cohorts of the smugglers themselves. Quite frankly, it may upset the entire money laundering scheme in this country and abroad and probably be quite rewarding. Why hasn't someone thought about that stimulus?
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    Mr. GURULE. Actually we do have that authority.

    Mr. KANJORSKI. Well, it is good you have the authority. How about implementing it?

    Mr. GURULE. Well, absolutely. I don't necessarily want to go into specific cases with specific individuals other than to say that with respect to some major Federal money laundering investigations, those money laundering investigations were made possible, the success possible, based upon cooperating informants and cooperating informants that were ultimately paid for their services.

    Mr. KANJORSKI. Well, they may be paid, but that is on a one-by-one or an ad hoc basis. Why don't we make it a public policy in the Treasury of the United States and the Justice Department that if people come forward in the laundering of illegal money in this country or externally, then they are going to get a 30 or 50 percent reward. Let's see what we can upset. There must be an awful lot of people in the drug countries that would love to retire to Miami Beach if they could stop the transfer of $100 million in drug money. There must be an awful lot of people in Mexico or Colombia that would like to do the same thing. I would also imagine that some of the lawyers that were talked about in New York with their level of ethics, they may just as easily turn on their clients instead of getting fees to get rewards as being informants. So why don't we use that mechanism?

    Mr. GURULE. I agree with you. I was a Federal and State prosecutor for 10 years and was deputy chief of the major narcotics section in Los Angeles, and we had to rely extensively on informants to make these important cases.
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    Mr. KANJORSKI. Nest week, I am going to see if the Treasury announces they are going to pay informants, announce the amount, and let it be publicly known. Come forth if you have any ideas.

    The next thing I want to do is off the subject. We are talking about what laws we can pass, what rules and regulations and simplicity. And I get to worry about implementation. I am not sure, particularly at Treasury, that Congress is going to get all of the laws we pass implemented. I will tell you why, and I would like you to take the message back.

    Besides money laundering and security, we have a problem with the economy in the United States. I mean, Congress is trying to put together fiscal programs, and one of the things that disturbed me is we passed a fiscal program last year in the omnibus bill called the New Markets Initiative, and the law said it had to be implemented in 120 days, and that would have ended April 15. Now, I know we had a change in Administration, but it is now more than 150 days since the law was on its face to be implemented, and it is still not implemented. The New Markets Initiative is a major economic development tool and a fiscal tool to help the economy. And if Treasury can't implement these acts, I am not certain any powers we give you will be able to be implemented.

    Now we are going into a meeting this afternoon that I would like to favorably report back that this program will be implemented. We have already lost the first year of the billion dollars in credits under the Initiative. We are into the second year, another a billion-and-a-half. That is $2.5 billion in tax credits that are to be released, and we are thinking of doubling or tripling that amount to help the economy. Mr. Gurule, can you tell me on behalf of Treasury when I can tell my colleagues that this is a worthwhile activity for us to undertake because it will be done?
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    Mr. GURULE. With respect to the issues that you raise involving domestic policy, I am happy certainly to take those concerns back to the Under Secretary for Domestic Policy, Peter Fisher, and have him prepare a more specific response, to your questions.

    With respect to your general concerns about the Treasury's ability to get the job done, make no mistake about it, we are going to get the job done. We are going to get the job done with respect to these terrorists and undermining and dismantling their financial networks, seizing accounts, and convincing our foreign counterparts to do the same. We are committed to that, and the job will get done.

    Mr. KANJORSKI. I am going to test you on that, on the fact of offering rewards publicly for money laundering, and see how fast that gets out on the street.

    Chairman OXLEY. The gentleman's time has expired.

    The gentlelady from New York, Mrs. Maloney.

    Mrs. MALONEY. Thank you Mr. Chairman.

    I would first like to thank all of the panelists and their agencies and really the entire Administration for your extraordinary efforts in New York in the wake of the attack, especially the FBI. Some of my neighbors told me that the FBI agents saved their lives rushing them out of buildings, rushing them out of the vicinity before the buildings fell, and I am aware of one agent that fell and died, and I want to express our appreciation. I know I speak for many New Yorkers for all that you have done to help us during this tremendously difficult time.
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    I have always been of the opinion that the country needs stricter money laundering laws and enforcement. Whether it's terrorism or the drug war, cutting off the money that funds criminal activities is sometimes the most effective way for the Government to stop unlawful acts. I would like to know if you have any proof if hawala was involved in the September 11 attack, that medieval financing system. Do you have any indication that that was involved?

    Mr. LORMEL. No, ma'am, not at this juncture. Certainly there a lot of questionable cash transactions that we are looking at and questionable cash that we are looking at, but at this point we have no direct correlation.

    Mrs. MALONEY. But it seems from listening to your testimony today that we are talking about all types of high-tech sharing of information, sort of Star Wars technology. But what we are really looking at is a Middle Age financing system that seems the prevalent way that they are moving their monies. The bank, the al Shamal Bank, has correspondent accounts with European and other non-U.S. banks, and what steps has the Administration taken to identify these banks, and what steps have you taken to prevent money from al Shamal banks from entering the U.S. banking system?

    Mr. GURULE. Well, the Foreign Terrorist Asset Tracking Center is the vehicle that is being used to identify monies, bank accounts that are linked or associated with terrorists and terrorist organizations, and more specifically, we are taking advantage of and examining all relevant sources of intelligence, law enforcement intelligence, CIA intelligence information, classified information, Bank Secrecy Act information, as well as open-source public records information. So we are looking at a multiple array of different sources to make those determinations. We are doing it now. And as the Secretary stated, in addition to the 27 individuals and entities that were listed a little over a week ago, we anticipate that in the next couple of days that there will be others that will be added to that list and a significant number of others and additional accounts being blocked with respect to this first group and this anticipated second group.
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    With respect to a particular bank and a particular one that you mention, I would prefer not to comment publicly on anything that specific.

    Ms. WARREN. Could I just comment on correspondent banking generally? We could do a lot better in law enforcement with some additional tools, and one of those that we have suggested is that if a foreign bank is going to maintain a correspondent account in a U.S. bank, that they must also have a representative for acceptance of service of subpoenas here in the U.S. so that we don't have to try to find a bank that has no physical existence anywhere in the world. If they are going to do that kind of business in a U.S. bank, they need to have someone who will accept service of process and can respond to our investigative inquiries.

    Mrs. MALONEY. Sounds like a good idea to me. I would say there is a great deal of bipartisan support and cooperation now during this time of crisis, and really you should use all of your leverage for increased funding or whatever tools you feel you need to get the job done to track these people down.

    Some of our allies and some of our friends in the international community have told us that they will only support U.S. military action in Afghanistan if we can prove that bin Laden is responsible for the attacks. And could you comment, any of you who wish to comment, on how existing laws have contributed to your efforts to prove that the hijackers are tied to al Qaeda and the Osama bin Laden network?

    Ms. WARREN. Maybe if I could just——
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    Mrs. MALONEY. Specifically, how have you tied him to the hijackers?

    Ms. WARREN. That I won't be able to do, but I can tell you that we do use the financial side to not only track the money, but also to prove associations. The ways they work together, the people who share accounts, draw money from another's account, that it is as good as evidence of a conspiracy and association as it is a financial tracking system. So we use that kind of information, both ways. In this particular case, I cannot comment.

    Chairman OXLEY. The gentlelady's time has expired.

    The Chair recognizes the gentleman from Nebraska Mr. Bereuter.

    Mr. BEREUTER. Mr. Chairman, I would ask unanimous consent that a letter of August 2 to Secretary O'Neill and his response of August 29 be made a part of the record and, incorporated by reference, the latest report of the Financial Action Task Force on Money Laundering dated June 22, 2001.

    Chairman OXLEY. Without objection.

    Chairman OXLEY. The gentleman from Texas, Mr. Gonzalez.

    Mr. GONZALEZ. Thank you very much, Mr. Chairman. A couple of questions and comments from the witnesses. You say there are impediments to the sharing of the information. I have always just been under the impression that once the appropriate law enforcement agency or department zeroes in on somebody and identifies them as a suspect, then all sorts of doors would be open regardless of the other agency or department that may be in possession of information as a result of the regulatory obligations. My understanding is what you are asking for now is not necessarily being privy to that information once you have established that somebody is a suspect, but rather more of a coordination between departments, agencies and so on, with all the information that they may be gathering in the regulatory duty or responsibilities that would not be privy to law enforcement agencies, for instance.
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    What I am saying is the FBI or the Department of Justice can't make certain requests of financial institutions for the sake of making the request for that kind of information and such. Treasury can in the regulatory scheme of things, which is appropriate. So we would be expanding that universe of individuals or parties that would be privy to this information in the past; would we not? So I suspect that you want this coordination so that you can have this information-gathering facilitated to identify individuals in such suspicious activities.

    Now, what you are also saying is now we can't have that without some sort of due process consideration. I am not really sure what we mean by due process today. I mean, it is always in the eye of the beholder, and at the present time my question is I am not really sure about our vision being 20/20 under the circumstances. So I am looking at potential abuses, misuse. What do you all see is the downside, the potential abuse of what we are contemplating in doing? Because we are going to do it because we have to do it, and there has to be some sort of a downside, and no one has addressed that. So I would want you all to tell me what you see is the potential abuses of opening up all of the information that different departments might have that at one time you weren't sharing for all the obvious reasons.

    The second question is if, in fact, we had moved forward with everything that you are asking, and had this been in place prior to September 11, would it have prevented the occurrence, the criminal acts of September 11? And I would like your views or whatever your thoughts are on that.

    Mr. GURULE. Let me respond first to your question with respect to the legislative proposals that we are supporting or considering or asking you to consider. It isn't simply a question of coordinating. I mean, coordination is certainly important here. But, for example, with respect to Section 6103, the sharing of tax record information, the Department of Justice, upon an application to a judge, to a Federal judge, may obtain tax record information in furtherance of a criminal investigation, but that information is limited to the Department of Justice attorneys; I mean, in terms of its sharing, cannot be shared outside of the Department of Justice attorneys in furtherance of that investigation.
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    So, if Treasury went to the Department of Justice and said, ''Gee, this information would be very helpful to the blocking efforts underway involving the Foreign Terrorist Asset Tracking Center,'' DOJ would say, ''We would like to help, but we can't, because we are prohibited under Section 6103 from sharing that information because it is not in furtherance of our criminal investigation. It is in furtherance of this blocking effort that you are involved in.'' So they can't do it.

    We could take a look at grand jury secrecy information as well under Rule 6(c), what FinCEN is doing, or the use that FinCEN would be making of grand jury information with respect to its use for comparing and analyzing Bank Secrecy Act information, or the use that would be made of that information with respect to the Foreign Terrorist Asset Tracking Center would not necessarily be part of the criminal investigation, and therefore, the Department of Justice would say, we would like to help, but we can't.

    And so these are ways in which the Department of the Treasury is being handcuffed in its ability to investigate these kinds of cases as aggressively as possible.

    With respect to whether, you know, if we had these laws prior to September 11, would it have prevented, I mean, we can only speculate. I mean, there are some other issues here with respect to airport security that obviously need to be considered. But I think the point is that it certainly would have made it more difficult. I think we would have the ability to be more proactive in terms of disrupting the ability of these organizations to fund their operations, and, therefore, they are valuable tools that we need, and we need them now.

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    Chairman OXLEY. The gentleman's time has expired.

    The gentlelady from Illinois, Ms. Schakowsky.

    Ms. SCHAKOWSKY. Were Secretary O'Neill here, I really had a message for him that I hope, therefore, you will relay back to him. The amount of money that we are going to need to investigate and fight this terrorist attack, and all the other costs associated with the attack, is just immense, and we need to spend the money. But it seems to me that as we are rethinking the spending side of the ledger, we also ought to be looking at revenue; that many of us who are concerned that the $1.7 trillion, whatever it was—some of us think more—tax cut—feared that it left no cushion to deal with emergencies or possible economic downturn, and in the last few weeks, now we see that we face both. And as we take money from the Social Security and Medicare Trust Funds to pay for this, it seems to me that it is time to rethink the tax cut that gave the wealthiest Americans such a disproportionate amount of that, in my view, and particularly since Social Security is only paid for on wages up to $80,000 a year. So those people are paying a disproportionate amount, it seems. So I would hope that we would step back as we are stepping back on spending and look at revenue as well.

    You answered in part my question. You know, this whole attack has been estimated, at least in press accounts, to cost about $500,000. Relative to the amount now that we are looking at spending in response, it seems like such a small amount of money, and I wanted to ask you what specifically are the new tools that we need that would have addressed this specific incident, not some hypothetical future incident, but what could we have done on the investigative and the enforcement side that would have made us safer and protected us from this attack that we absolutely need to have?
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    Throughout this morning we have talked about some, and I wonder if you could just quickly enumerate those things that you think would have, could have perhaps prevented this.

    Ms. WARREN. One of the new tools we are looking at is just expansion of the foreign predicates for money laundering. We could have looked at a lot of these individuals on—and certainly the larger organization on money laundering crimes if we had those foreign predicates. Terrorism at the moment is not a predicate to money laundering. We have used other violent crimes as substitutes in some instances, but it should be declared a predicate.

    There are other parts of the proposed legislation that I think would assist as well, and one was raised in the inability to share information. One bit of information that might be corrected by the proposed legislation and the legislation as drafted by this committee is to move the 8300 reporting requirements out of Title 26 into Title 31 so that information can be shared broadly with law enforcement so that we can look at who is purchasing an aircraft in cash, or paying for other things with large amounts of cash, against other databases that we already have. We might find them on our drug registers. We might find them elsewhere. But that information now is kept separately under the Tax Code and not available broadly to law enforcement. So there are more ways that we could get more information that would help us.

    Ms. SCHAKOWSKY. Let me ask you this: Are there things that were left on the table in the way of tools that we need to now make sure that we are making better use of? And it would seem to me there are those who think that there were intelligence failures, but are there tools of investigation that we did not fully utilize that we, in addition to new ones, need to be concentrating on?
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    Mr. LORMEL. From the standpoint of lessons learned, I think what we will see more emphasis on predictive financial analysis and profiling, for lack of a better word, but I think that there is a predictive analytical tool out there that perhaps we need to focus on collectively as the law enforcement community in terms of proactively looking to deter or prevent any future activities.

    This was a very well-planned act that took an incredible period of time to carry off. And I think when the template is set, and we are able to really go back and do a study of how they conducted and the characteristics that they followed, we can do and implement, I think, predictive analytical steps that will help us identify future such attacks.

    Chairman OXLEY. The gentlelady's time has expired.

    The gentleman from Texas, Mr. Bentsen.

    Mr. BENTSEN. Thank you, Mr. Chairman. Let me say at the outset I know Mr. LaFalce brought up the issues of the Customs Service. And after September 11, I met with the Customs Service personnel who worked the Port of Houston Authority. And I think this is true elsewhere. I would hope that the Administration, when we work the final Treasury-Postal bill, will accept the higher figures of either the House or the Senate bill than what was in the original budget request. I think the original budget request was about a 4.6 percent increase in the Customs Service budget. The Senate passed a 12 percent increase, the House a 17 percent increase, and obviously, things have changed since this past March or February when the new Administration submitted their budget requests. But if we are going to want to enhance our security, we obviously are going to have to pay for it. So I would hope that would you take that back to your superiors.
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    We heard some talk from both the previous Chairman and Mr. LaFalce about the bill that we passed last year in this committee, and it never went beyond that committee, and I supported it. Most of the Members supported it, and I would support it again. All right. A lot of that bill is in the draft bill that I have looked at today, it appears, with some modifications. And I want to raise a couple of issues about that. But before I do, Ms. Warren, in response to an earlier question, you talked about the ability—in order to enhance cooperation with other nations in tracking and freezing assets, that we should enhance our ability to freeze assets that might be the result of, or would be part of, a foreign judgment against a U.S. party. Now, I don't necessarily disagree with that, but I think it does raise some concerns that we should look at very closely.

    There was some discussion about the OECD and their efforts to fight laundering and corruption, and some saw that as a way to equalize tax levels throughout the industrialized world, and there was some objection to that in the Administration and throughout this town. But I would hope you all would look very closely at that, that we are not in some way ceding some rights of U.S. citizens that we do not want to cede. And I assume you all are doing that. And you don't need to respond. If you want to, you can, but I just—that is something that I—you know more than I, but I would hope you would look at that.

    Ms. WARREN. Let me just offer some of the safety provisions in that, enforcing foreign judgments of confiscation, of forfeiture. First of all, the Attorney General must certify that the judgment was obtained according to due process, and it cannot proceed without that kind of certification from the Attorney General. And the second, the forfeiture must be for a crime that we recognize, either through our extradition relationship or on our predicate list.
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    Mr. BENTSEN. I appreciate that.

    Now, I also want to ask you about the way your bill is drafted, and this is an issue that came up with us last year, and I pulled the file from last year. I have got a letter from a State banking association, I won't say which State it is, but that raised a great deal of concerns about how the bill was drafted and the enhanced requirements. And the gentleman from the FBI raised the issue of CTRs and SARs and what—and I don't think you quite said this, but I at least interpreted or inferred that you might be saying whether the levels were accurate. But in your bill on the one hand you talk about enhancing the criminal penalties for failure to file SARs or CTRs, and then in another section of the bill, you raise the concern that too many CTRs are being filed for otherwise exempted persons or accounts, and that, if, in fact, that it requests a study, and, in fact, that there might be some additional penalty for those institutions which file, I don't want to say, erroneous, but unnecessary CTRs.

    And I understand what you are getting at, but I just want to warn you where you are going to hear a great deal of criticism from otherwise law-abiding institutions that are going to say that, in our efforts to help in tracking the money laundering of terrorists or drug traffickers or others, we are going to get hit with an avalanche of regulations that will make it impossible for us to conduct our business. And, again, I would urge you—again, I supported the bill last year, and I am going to support the bill this year, because I think we need to do these things. But I would urge you to take a very hard look at that.

    I read the testimony of the banking institutions that are going to be here next, and they don't quite say this, and we are all being cautious because we do want to be together, and we want the Administration to succeed in this effort. But I would urge you to take a very hard look at how you approach those issues going forward.
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    Chairman OXLEY. The gentleman's time has expired.

    Let me ask Mr. Gurule, under my time, we have provisions in the bill that Mr. LaFalce and I will be introducing later today that attempt to address the obstacles to information-sharing among the agencies that you identified in your testimony. To the extent that there are specific areas that we have not addressed in the bill, can I have the Treasury's commitment that you will work with us over the next few days to make sure that those necessary revisions are made?

    Mr. GURULE. Certainly. Absolutely.

    Chairman OXLEY. Thank you.

    Ms. Warren, what is the Department's position on the Leach-authored internet gambling provisions of the bill that we are going to be introducing today?

    Ms. WARREN. In principle we support it. We can offer some suggestions on some of the subparts. For example, I believe there is a requirement before instituting a civil injunctive action for the Attorney General to seek either advice or consultation with the bank regulators. We believe we should be able to go right into court.

    Chairman OXLEY. Thank you.

    Agent Lormel, in prior hearings and staff investigations on the issue of internet gambling, we have heard from law enforcement officials that there is a link between offshore internet gambling and money laundering. A lax regulation of offshore internet gambling operations would seem to lend itself to the possibility that large amounts of terrorists' funds could be laundered through these sites with relative impunity. What are your comments in that regard?
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    Mr. LORMEL. Well, sir, it is certainly a possibility and a concern, as we have seen here. This network of terrorists, if you use them as a model, they have certainly exploited the system, our system, as well as they could, and that is a very attractive and lucrative area of financing and potential financing. So it certainly is a concern, and we certainly should be vigilant in monitoring that. And certainly, beyond the terrorism, the network of enterprises that certainly do exploit that particular area is something we must look at.

    Chairman OXLEY. I won't ask you to discuss specifics, but is the Bureau pursuing any cases that involve a linkage between internet gambling and money laundering?

    Mr. LORMEL. Yes, sir. There are a minimum of two pending investigations as we speak that I am aware of. It is more in keeping with our organized crime side of the house, which is not my area of expertise, but from my prior assignment in Pittsburgh, I am aware of a case that we actually worked in our shop out there.

    Chairman OXLEY. And are you pursuing any cases linking organized crime to internet gambling?

    Mr. LORMEL. I believe so, sir, yes.

    Chairman OXLEY. Thank you.

    The gentleman from New York.
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    Mr. LAFALCE. I thank you, Mr. Chairman.

    The bipartisan bill which Chairman Oxley and I are working on, hopefully to be introduced sometime this week, is a work in progress, very much so. For example, there has been an agreement to include the money laundering bill that was authored by myself and Chairman Leach with the assistance of Stu Eizenstat of the Clinton Administration and passed this committee. But, while I have agreed to go along with some due process provisions, it is due process provisions that I would find productive to the approach of the bill rather than counterproductive. And I am recalling that Senator Gramm unilaterally stopped this bill in the last Congress on the Senate side. So I am a little concerned about your negotiations with him. I would prefer you be negotiating with some of us who are promotive of the bill.

    Second, something similar is true with respect to internet gambling. I offered the bill that created the national commission to study the problems of gambling, and I introduced legislation to effectuate the recommendations with respect to internet gambling. And the former executive director of that commission endorsed my bill. My bill is not the one that is included in the draft so far, and I am very, very fearful that the bill that is presently in the draft could be counterproductive. I mean, if we are going to say that we will choke off credit for unlawful gambling, then we have to define unlawful gambling, and we don't. Or if the State defines something as lawful and we are not preemptive, or if an offshore entity permits some type of gambling lawfully and we do not make it unlawful, then the provisions of our bill can be counterproductive.

    I am also concerned that we have to act expeditiously, and knowing the huge gambling industry that is out there that has hampered internet gambling legislation in the past, I am not sure whether we will be able to move expeditiously with such a provision in this bill.
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    So my first question, and I do want to get around to Justice so I can go into the subject of short-selling and FBI pursuits of illegal short-selling, taking advantage of this situation, or inappropriate use, or use of information about short-selling to detect individuals that might have been involved in.

    My first question is to Justice, though, on internet gambling. Are you aware that the principal intent of the bill could be counterproductive if the wording of the bill is not helpful?

    Ms. WARREN. Well, I understand your point. Perhaps the best thing that can I offer, and both for Justice and Treasury at this time, that we are more than willing to have our staffs work with your staff to try and find these problems and iron them out in the next minutes, hours, days.

    Mr. LAFALCE. Understand there is a fundamentally different approach between saying we are going to choke off credit for internet gambling unless the following conditions are met and to say we will not choke off credit unless it is deemed unlawful. Very different approaches.

    With respect to FBI, what are you doing to detect inappropriate short-selling that may have taken place in connection with airline stocks, insurance stocks, and so forth?

    Mr. LORMEL. That is a very good observation. One of the very first things we did in forming our financial review group was to have a team specifically designated to look at that particular area. The team has coordinated with all of our field offices and with all of the regulatory agencies, particularly SEC, for any such activity.
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    To date there are no flags or indicators that the people that were associated with this particular attack, nor are there any indications that people took advantage of this. That is certainly not to say that didn't happen, and there are certainly some rumors out there to that effect, but we are fully exploring that. And as I said, we have a team totally dedicated to that aspect of the investigation.

    Chairman OXLEY. The gentleman's time has expired.

    And, again, we thank all of you for your participation today. It has been most helpful.

    The Chair will call the third panel. While they are making their way up, let me introduce the panel. Mr. Edward Yingling, Deputy Executive Vice President of the American Bankers Association; Mr. Marc E. Lackritz, President of the Securities Industry Association; Ambassador Stuart E. Eizenstat, former Deputy Secretary of the Treasury; and Mr. John F. Moynihan, partner of BERG Associates.

    Gentlemen, thank you, and we appreciate your appearance today. Thank you all for your appearance.

    Let us begin with Mr. Yingling.

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    Mr. YINGLING. Mr. Chairman, thank you for inviting ABA to testify today on this critical issue. Accompanying me is John Byrne, Senior Counsel with ABA. He is responsible for ABA's efforts on money laundering and is a well-known expert in this field.

    We were all shocked and saddened by the events of September 11, and we mourn for those who lost their lives that day and their families. The financial community was particularly hard hit by the attack. Nevertheless, the banking system continued to run smoothly and consumer confidence in the system held steadfast. We are proud of our preparedness and response. We are also proud about how we have assisted law enforcement agencies in tracking the money trail of terrorists, and we immediately instituted the account freeze order announced by the President. Today we reaffirm our pledge to support fully efforts to find and prosecute perpetrators of these acts and their supporters. We commend you, Mr. Chairman, for holding this hearing and moving so quickly to address this issue.

    Today, I would like to emphasize three points. First, the banking industry strongly supports efforts to track the flow of money that finances terrorism, and we will do everything in our power to help shut that flow down. It takes close coordination with the Government to identify individuals and groups suspected of illegal activities. While banks facilitate $2 trillion a day in transactions, a large volume flows outside traditional banking channels. Dealing with these flows is critical. We believe that by forging an aggressive public-private partnership, we will make significant progress in the fight against terrorism.

    Second, it is important to understand there is already a strong base in law and regulation to prevent money laundering through the U.S. banking system. In my written statement I outline extensive laws and regulations already applicable. A feel for the extent of current laws is given by the fact that banks filed over 12 million currency transactions reports last year.
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    Our third point is that we are committed to strengthening and extending current law where needed. By working together we can assure that any new laws maintain the right balance, one that is both effective and that protects the due process concerns of Americans.

    Let me touch on a few of our recommendations. The ABA strongly supports the President's initiatives announced on September 24, and we will continue to fully implement them as more names are added to the freeze list and as international efforts are extended.

    The ABA strongly supports the 2001 national money laundering strategy recently announced by the Treasury and Justice.

    The ABA recommends advanced training for law enforcement agents in techniques for combatting money laundering and investigating financial transactions of terrorists.

    ABA strongly supports expanding money laundering laws to all providers of financial services including those in the nontraditional channels. This is essential for effectiveness.

    The ABA strongly supports the expansion of money laundering laws recommended in recent days by the Attorney General.

    The ABA strongly supports provisions that would make currency smuggling a criminal offense.

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    The ABA strongly supports giving the Secretary of the Treasury more flexible authority to designate matters that should be subject to special treatment because they raise money laundering concerns. However, we do suggest that bank regulators be included in the process and that a public comment be required. We believe our suggestions will make the authority even more effective.

    And finally, ABA strongly recommends that improved methodologies be developed for identifying individual account holders, particularly for non-U.S. Citizens.

    We hope our recommendations are helpful to the committee, and we pledge to work with you on an expedited basis as you move forward. Thank you.

    Mr. TIBERI. [Presiding.] Thank you.

    Mr. Lackritz.


    Mr. LACKRITZ. Thank you, Mr. Chairman.

    I am Marc E. Lackritz, President of the Securities Industry Association, and I am pleased to appear before you today to testify about strengthening the means to cut off the financial activities of terrorists or terrorist organizations. We strongly commend the committee for holding these hearings.
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    I also want to take this opportunity to express the very deep appreciation of everyone in our securities industry for the heroic firemen, policeman, FBI agents and other rescue workers who made unimaginable sacrifices, including their lives in far too many instances, trying to save the lives of others.

    The atrocities of September 11 also inflicted a terrible toll on the securities industry. While that day was a grievous one for our Nation and our business, our industry has shown remarkable resilience, reopening the bond markets 2 days after the attacks and the equity markets the following Monday. In fact, the New York Stock Exchange handled record trading volumes in the first trading session after the attacks, and NASDAQ handled almost a record volume. We, in cooperation with our regulators, our self-regulatory organizations, utilities and data facilities, have all pulled together magnificently in this difficult time, and I have never been prouder to represent this industry.

    SIA and our member-firms have long been strong supporters of the Government's anti-money-laundering efforts. Public trust and confidence in our industry is our most important asset, and we are fully committed to completely eliminating any possible money laundering from the securities industry. Securities firms presently are subject to a number of statutory and regulatory requirements that enable the Federal Government to better identify and combat money laundering.

    Since 1970, broker-dealers have been subject to certain Federal anti-money-laundering laws imposing reporting and recordkeeping requirements. Like banks, securities firms have been required by the Bank Secrecy Act to report currency transactions over $10,000. Most major broker-dealers also file suspicious activity reports with the Treasury Department. Further, securities firms, like banks, are subject to the provisions of various sanctions programs administered by the Office of Foreign Assets Control, known as OFAC.
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    While the securities industry has been subject to many specific rules, many firms have gone beyond these requirements and developed their own anti-money-laundering programs. Most firms on their own initiative have developed a policy of prohibiting or restricting the receipt of currency or cash equivalence at the firm. Firms also have procedures when an account is opened, pursuant to self-regulatory organization know your customer rules, to obtain information pertaining to the customer. As a matter of good business practice, many securities firms go beyond the know your customer rules and suitability rules and seek even more information.

    Many firms, particularly large firms, have adopted special procedures and written software programs to monitor transactions and detect even very sophisticated patterns of money laundering. For many years we in our firms have worked very closely with regulatory agencies and Members of Congress on anti-money-laundering initiatives. Among other things, we have worked with financial regulators to develop regulations extending the requirements to file suspicious activity reports to all broker-dealers, and we have worked with the SEC on its examination program for anti-money-laundering compliance, and we have also taken additional systems that I have outlined in my written testimony.

    I would like to now turn to what our industry is doing in response to the President's September 24 order freezing U.S. assets of and blocking transactions with 27 individuals and organizations. We immediately sent notice of that order to our member firms and posted it on our website and have asked firms to check their records for individuals or organizations named in that order or in the list of names issued by the FBI. Many of our firms have received requests from self-regulatory organizations for information on certain trading in securities that occurred before September 11, and they are responding to those requests. Firms are going beyond those requests, however, and are examining and looking for unusual trading patterns in equities, fixed income, options and futures in certain industries.
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    SIA is also supportive of the need to have further anti-money-laundering legislation and would welcome any legislative tools that will enable our members to combat money laundering. To the extent any legislation imposes additional due diligence obligations, we think it is important to provide flexibility with respect to those requirements.

    We also think legislation should facilitate communication between broker-dealers and between banks and broker-dealers when they are investigating suspicious activity. Presently brokerage firms are constrained from sharing with each other or with banks information they have received which they believe may be suspicious.

    We support the expansion of the Bank Secrecy Act Advisory Group's mandate to include terrorism and other issues related to the security of our financial system. Alternatively we would support the creation of a joint industry-government task force to examine these issues.

    We have had a long and constructive working relationship with regulators and Congress on preventing money laundering, and we look forward, Mr. Chairman, to continuing those efforts. Thank you very much.

    Mr. BACHUS. Thank you.

    Ambassador Eizenstat.

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    Mr. EIZENSTAT. Mr. Chairman, Mr. LaFalce, I want to thank you for the leadership that you have shown in the last Congress and in this one, Mr. LaFalce, and the fact that you and Chairman Oxley are going to have a joint bill I think is a tremendous step forward.

    Money laundering is the financial side of crime, and money launderers are the criminals' investment bankers. The IMF has estimated that the amount of money laundered annually is between $600 billion and $1.5 trillion, or 2 to 5 percent of the world's annual GDP, and at least a third of that amount, up to half a trillion dollars annually, is thought to pass through U.S. financial institutions at least once on its clandestine journey.

    Now we are brought face to face with another aspect of the criminal financial system that is used by merchants of terror. Terrorists must have money to pay for weapons, travel, training, and even benefits for the family members of suicide bombers. We shouldn't be misled by the supposed low cost of the September 11 atrocities.

    The fact is, huge amounts of money are raised by the central operations of bin Laden and al Qaeda to support terrorism around the world. Terrorists raise funds in many ways through financial donors, through so-called charitable organizations by relying on state sponsors of terrorism, by making investments, some legal, and by the commission of crime. Each of these is camouflaged at each step.

    The fight to curtail money laundering has always been a product of bipartisan consensus and should remain so, and hopefully an Oxley-LaFalce bill will be a further indication of that.
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    The fact is, we have too few tools to protect the financial system from international money laundering. On one end of the spectrum, the Secretary of the Treasury can issue advisories, as we did in the summer of 2000, to encourage U.S. financial institutions to pay special attention to transactions involving certain jurisdictions, but they are only advisories. At the other end of the spectrum, IEEPA, the International Emergency Economic Powers Act, following a Presidential finding of a national security emergency, can be used for a full-scale set of sanctions and blocking orders to suspend financial and trade relations with the offending targets. President Clinton issued two of these, one in 1995 and the other in 1998, and President Bush, a week ago Monday, invoked IEEPA, appropriately sending a forceful and blunt message.

    The problem is, however, there is nothing in between these two ends of the spectrum, and there are other situations where we will not want to block all transactions or in which our concern centers on underregulated foreign financial institutions or holes in the foreign counter-money-laundering effort. We need these more flexible tools, and that is what H.R. 1114, which Mr. LaFalce has introduced, and what the discussion draft seems to provide. There would have to be a finding of primary money laundering concern, and that would then trigger, subject to very significant protections which I will get to in a moment, special recordkeeping, customer identification requirements, especially important being the identification of foreign beneficial owners of accounts opened in the U.S. and permitted through correspondent or payable-through accounts.

    H.R. 1114 and the discussion draft is carefully tailored against real abuse. Actions would be graduated in the sense that the Secretary could act in a manner proportional to the threat. They would be targeted so the Secretary could focus his or her response to particular facts and circumstances, and they would be discretionary so the Treasury could integrate any possible action into bilateral and multilateral diplomatic efforts.
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    On the due process concern, which has been mentioned several times, the fact is that the bill you passed last year in H.R. 1114, Mr. LaFalce does have significant due process already built into it; namely, the Secretary, for one thing, can only act after consulting with other members of the Cabinet, including the Secretary of State and Attorney General. But more important, the Secretary's determination there is a primary money laundering concern is itself fully reviewable under the Administrative Procedure Act in court by any bank which feels that that determination is inappropriate.

    Importantly, the legislation would not jeopardize privacy. The focus of the legislation is not on American citizens, but on foreign jurisdictions, foreign financial institutions and certain classes of transactions with or involving a jurisdiction outside the U.S. It is narrowly tailored and does not burden financial institutions.

    Let me close by just saying that there ought to be a whole range of steps that we take in addition to passing this legislation promptly and giving the Secretary of the Treasury the authority that is required. First, in addition to this, additional crimes should be added, including terrorism, official bribery, arms trafficking and certain crimes of violence which are now not predicate crimes and, therefore, against which we cannot use money laundering tools. So we should broaden the number of predicate crimes.

    Second, we should level the playing field for U.S. banks by assuring, as Mr. Lackritz, I think, appropriately said, that broker-dealers and casinos are covered. The regulations for that have been delayed. They need to be promptly issued so that broker-dealers and casinos know the rules under which they are playing.
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    Third, the hawala system, which clearly was a part of the bin Laden process here, the informal money traders should be required to register. There is a hawala in every major city in this country, and they are facilitating terrorism in many cases. This is an age-old practice that goes back decades, if not centuries, in the Middle East and South Asia, but if they are going to operate in the United States, they should be required to register.

    Fourth, diplomatic efforts should be marshaled to bring foreign money laundering regimes up to international standards. The so called FATF process has been successful, but it needs to be accelerated with particular attention to the Arab world.

    Fifth, we should identify and publicize foreign world banks as we identify those countries whose own regimes don't come up to international standards.

    And last, we should apply much greater scrutiny to charitable organizations in the United States and particularly encourage our friends abroad in the Gulf and in the Arab world to more closely check Pan Islamic charities or so-called charities which are often front groups for terrorism.

    This kind of multiplicity of actions is necessary to deal with the problem, and certainly this committee can take an important first step by trying to pass the same legislation you did last year and by moving on the joint legislation that Mr. LaFalce and Mr. Oxley are considering cosponsoring this year. Thank you.

    Mr. BACHUS. Mr. Moynihan.
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    Mr. MOYNIHAN. Mr. Chairman and Members of the committee, I want to thank you for inviting me here today for this very important hearing. For the record, my name is John Moynihan, and I am founding member and owner of the consulting firm BERG Associates. Among other things, BERG offers our clients services that assist them in prevention and detection of money laundering and other related forms of financial crime. My experience in this area of investigative expertise derives from my professional background both in public and private sector, which I have summarized in my written statement which I have submitted for the record.

    Let me begin by stating that the Achilles heel of any criminal organization is its financial infrastructure. If you can break the link between a terrorist like Osama bin Laden and Pablo Escobar and his money, you have greatly impacted on his ability to succeed in realizing his stated objective.

    Mr. Chairman, today there is much that we do not know about the financial dealings of Osama bin Laden and his surrogates across the globe. However, we do understand how informal money markets work.

    Unregistered, unlicensed money remittance businesses: In the United States there exist many individuals at international business corporations that have opened bank accounts at U.S. banks for the purpose of engaging in the unlicensed exchange of monies and/or for the remittance of these monies to recipients. These accounts, which are used by these persons and businesses, are opened as mainstream retail accounts or through the private banking departments. These accounts can generate millions and sometimes billions of dollars in transactions within a given year.
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    So what exactly is being accomplished by these underground banking systems? The underground banking system provides the following services or benefits: one, a source of money; two, a system for aiding in avoiding of taxes; three, a system for moving wealth anonymously; four, a system to move money to support or sustain criminal activity.

    The underground banking system thrives in the United States because the people who move money know how to exploit the key vulnerabilities in our financial and banking system. If I may, I would like to present an example. One, a man from a Middle Eastern company sells perfume in Boston. He sells wholesale and retail and collects payments in checks and cash for deposits into his regular checking account.

    Second, a second man, with cash or checks, wishes to send his money home to a South American country. He approaches the perfume seller. He purchases from the perfume seller either, one, a check in dollars that is not filled in on the payee line, or, two, perfume for resale in a South American country.

    Three, if the South American man purchases checks, he carries this check to his country and sells it to an intermediary broker, a money exchanger, at a discount to the value of the check. He in turn receives the local currency sought. The money exchanger can now resell the check to another customer seeking these dollars. Given that the check has not been endorsed and the payee section has not been filled in, the check can be sold to anyone or used to pay for anything.

    Fourth, if the South American man purchased perfume, and he does not want to pay import duties, he smuggles the perfume into the country and resells it, thus accomplishing his goal of converting his dollars from Boston to local currency without paying duties or exchange fees for just converting the funds.
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    Fifth, the Boston perfume man now has his customer's funds, and he wants to accumulate his wealth in his country of origin in the Middle East without paying taxes. He, therefore, sells the funds received to an intermediary in the Middle East who is seeking to purchase dollars. Upon the sale of these dollars, the intermediary instructs the perfume man where he or his agent can pick up the local Middle Eastern currency.

    Six, the Middle Eastern intermediary tells the perfume man a number or code, and it is to be used by the man who purchased the dollars in the Middle East with the local currency.

    Seventh, the Middle Eastern intermediary tells his Middle Eastern customer the code and where to pick up the dollars in the U.S. All transactions are complete and everybody wins.

    My recommendations: The issue of underground banking and payment systems must be immediately addressed by the Legislature. The Federal law criminalizing the act of engaging in money exchanging without a license should be promulgated. Although 18 U.S.C. 1960, Subsection (b)(1)(B) provides for violations for people who fail to comply with the money transmitting registration requirement, the regulations have not been promulgated, and therefore, law enforcement has had to rely on 18 U.S.C. 982 for criminal forfeitures. It is recommended that 18 U.S.C. 1960 be included in the civil forfeiture statute, 18 U.S.C. 981.

    As well, such underground banking should be identified as a specified unlawful activity so as to be able to seize and forfeit real property and funds that facilitate the activity. This will significantly hinder persons who are engaging in underground banking from delivering monies to person as a favor, for those people will fear criminal sanctions.
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    Second, if it is the intent of the Congress to add to existing forfeiture laws a component addressing terrorism, the assets associated with the terrorist groups that are identified should be forfeited using guidelines prior to CAFRA 2000. There exists a carve-out section to this law, to the existing civil forfeiture statute.

    Under present conditions, the reality is that it is going to be incredibly difficult to investigate and develop the kind of evidence required to meet the burden of proof with regard to identified terrorist assets. Without the use of hearsay evidence, barred under the new law, there is a very high probability that there won't be much more evidence. The truth is if we believe differently, then we are fooling ourselves and being somewhat naive.

    Three, future laws to combat money laundering and illegal transfers of funds must address all identified forms of this activity, including those involved through banking financial institutions and the sale of goods and services. Additionally, said laws must be flexible enough to allow U.S. law enforcement agencies to address new and creative forms of money laundering as they appear.

    Fourth, ensure that the United States Drug Enforcement Administration plays a vital role in the investigation of these terrorists. The people who appear to be responsible for these acts are not religious. They are thugs and criminals who have distorted religion and hijacked the country. Osama bin Laden's accomplices are clearly protected by the Taliban, a group of fanatics who have distorted the Islam faith and want us to think that they are religious and acting as a government over Afghanistan.

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    The reality is that Afghanistan is the major producer of heroin, and the verdict is out on what role the Taliban plays in this heroin trade. The DEA has the best international informant and intelligence-gathering capability on transnational drug crime. They are expert on the collection and presentation of conspiracy evidence.

    Mr. Chairman, Members of the committee, this concludes my remarks. I would be pleased to answer any questions that you may have.

    Mr. BACHUS. I appreciate your testimony, and I will commence questions, and then we will go to other Members of the committee.

    Ambassador Eizenstat, let me direct the first question to you. I can recall back in 1997 as Oversight Chairman the Treasury Department trying to come up with new money laundering business regulations, and we still don't have those regulations in place. Law enforcement has given sort of short shrift to addressing these underground-type movements of money, hawalas and others. Why is it that the Treasury Department has taken years to put these requirements in place?

    Mr. EIZENSTAT. I am not familiar with the particular regulations you refer to.

    Mr. BACHUS. Yeah. The MSB regulations.

    Mr. EIZENSTAT. I think that the Treasury was so preoccupied with the Financial Modernization Act and all the requirements that it had that that may have delayed action, but certainly there should be movement on this. And there should be movement on covering the regulations which have also been delayed in covering broker-dealers and casinos and others.
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    And I agree very much also with Mr. Moynihan that we need to take much firmer action to license and register and criminalize if they don't, those informal underground money exchangers or the so-called hawala system.

    Mr. BACHUS. Some have argued that terrorist funding differs in significant ways from traditional money laundering. And what I mean by that, if you have drug traffickers, they take dirty money and they try to convert it into clean money. With terrorist organizations, they are taking basically clean money—we talked about money given to charities—and converting that to dirty money, or money used for dirty purposes to kill people.

    Do you agree, and if so, are money laundering statutes ill-suited to deal with the kind of terrorist operations that we are now confronted with?

    Mr. EIZENSTAT. Well, first I think terrorism, particularly as organized by bin Laden and al Qaeda, represent a level of sophistication that one rarely sees in drug traffickers, although they are also very sophisticated, but even more so. And they differ in the following ways as well, Mr. Chairman. That is, with respect to drug traffickers, they are making, as you indicate, their money illegally at the outset. Here, money is being organized through so-called lawful donations, and those donations through charitable organizations, which the donors in some cases know to be fronts for terrorist organizations, and others do not. They are advertised as being for Bosnian orphans, for example, or for Gazans. Get very wealthy donors to make presumably lawful contributions.

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    So that is why we need the legislation that Mr. LaFalce and Mr. Oxley are talking about. But in addition, we need a much broader net. We need to get foreign financial institutions to come up to international standards. We need to have our diplomacy work to get the Gulf States and Arab countries to look through these charitable organizations. We need them to educate their own citizens about being careful not to donate to such organizations. We need a kind of panoply of powers that I have talked about in addition to going after the registration of hawalas, because you are quite right. This is a qualitatively different set of problems.

    Mr. BACHUS. All right.

    Mr. Moynihan, let me ask you a question. There have been news reports that some of the funding associated with the hijackers can be traced to formal banking networks, particularly in Islamic banks like al Shamal in the Sudan and banks in the United Arab Emirates. Do those banks handle funds for bin Laden, al Qaeda or charitable groups that have been associated with al Qaeda?

    Mr. MOYNIHAN. I can't say precisely right now, but the commentary on the unlicensed money remitters, unlicensed banking that goes on in this country is prolific. I am very involved with my own clients and with the United States Government as an expert for cases in helping them dismantle these things.

    What I think needs to be recognized here is that there are different groups of people within the hijackers. There are those people who might have been more organizers of the efforts, and others who might have been more underlings of the efforts. The crime that was committed on 9/11/01, in my opinion, was only the conclusion to the crime that began last February in 1993. To investigate this case, I think people should recognize that maybe the reason they went after the World Trade Center is they tried it one time before and failed. They didn't bring the building down.
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    To go further in this investigation, people might want to look back at that time period and shortly thereafter for those people who were involved at that time period or those associations. Money laundering is only about relationships and association, and that might be the time period I would suggest people start to look and bring that forward. You might find people that were involved in this incident on 9/11 having been in this country, in geographical areas, having somewhat of a loose affiliation or some relationships to those previous acts. This was just a culmination of it, and that is where I would suggest people should look.

    Mr. EIZENSTAT. Mr. Bachus, may I just add one more point to your very important question about the difference in terrorism and other criminal activities, and that is, in addition to the donors and the charitable organizations, in most instances drug traffickers and other criminals don't have overt state sponsorship. In the case of terrorism, they do. State sponsors provide money, provide sanctuary, provide camps for training, provide facilities without which terrorist groups would have a great difficulty operating.

    Mr. BACHUS. You know, Ambassador, I was surprised after these attacks to again read actual information that we had before, but I think none of us focused on with the same attention, that many of these terrorist organizations were receiving $100 million or more a year from certain Middle Eastern countries, and this was a yearly annual funding of these organizations. So you are talking about very well-funded organizations, and, obviously, it took state sponsored funding.

    Mr. LaFalce.

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    Mr. LAFALCE. I will yield to Mr. Frank.

    Mr. FRANK. I have a meeting with the Governor of Massachusetts in a few minutes, so I appreciate this.

    Mr. Eizenstat, particularly with your experience, I want to get back to the OECD issue, because the Administration had taken the position that that had to be reconsidered, and they had watered down the support, and the Secretary of the Treasury did tell Senator Levin in July that he thought he would like a chance to negotiate before deciding whether or not they were going to try to implement sanctions.

    But part of my problem with the approach is over and above the question of taxes, part of the problem that I tried to get across to Mr. Gurule, and I think, frankly, he kind of reinforced the mistake, I asked him about it, and he said, well, we are working hard on tax evasion. Part of the problem is collapsing the OECD effort into that single issue of tax evasion.

    And, again, I was unhappy to see Mr. Fleischer's answer. Just last week he was asked about this. The question, the OECD has been going after tax havens for a while. The Administration hasn't shown a whole lot of support for that effort. Mr. Fleischer: I think you should not confuse the two issues. One deals with domestic laws in dealing with tax consequences and tax dodgers or tax evaders. This deals with terrorism.

    And the problem, of course, is that once you have bank secrecy, you don't know whether it is just your garden variety tax evader or somebody else. I mean, isn't that the problem?
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    Mr. EIZENSTAT. Yes. And I—frankly, some of the pre-September 11 signals both on money laundering and on tax havens were very discouraging. With respect to the OECD effort on tax havens, this is part and parcel of the problem. That is terrorists, terrorist organizations and other criminals will seek out those jurisdictions to put their money in whose bank laws have no questions asked, who don't have to file suspicious activity reports, and they will also seek to hide from taxation their ill-gotten goods by going to tax havens so that there is a definite relationship.

    And the other point, Mr. Frank, which you properly raised, it is in the OECD, and this will never be successful, the whole effort to attack this problem, unless it is done multilaterally. Otherwise, for one thing, we are disadvantaging our own institutions, but it will simply squeeze money to jurisdictions that don't abide by them. So they ought to be considered as simply problems, and both should be addressed.

    Mr. FRANK. I would hope that would mean that we have to tell other countries that are refusing to end this total bank secrecy and refusing to allow their financial institutions to be used to provide total cover that they will be subject to sanctions if their financial institutions will not have the access to ours, and that up until September 11 the Administration hasn't been willing to say.

    Let me just say to reinforce this, just to paraphrase some comments, because I had been reading the uncorrected transcript, I acknowledge, of the eleven hearings, but Assistant Attorney General Chertoff, whose deputy testified, saying essentially we are dealing not only with Americans who put money in these banks, we are talking about foreign criminals who put money in the bank and then move them into United States; for example, not a tax issue, but an issue of using that anonymity for criminal purposes. And District Attorney Morganthau, I think, the world's oldest living prosecutor, says for all of these defendants the principal attraction of doing business in offshore havens was not the nonexistent tax rates. They sought to take advantage of other benefits that provided tax haven jurisdictions, strict bank and corporate secrecy, lack of transparency, lack of any meaningful law enforcement supervision.
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    So again we want to be clear. The OECD effort is an essential part of an anti-terrorism fight. It is not simply an anti-tax fight.

    Mr. EIZENSTAT. Yes, and I would also say that those countries which are tax havens tend to be those countries which have the most lax money laundering laws.

    Mr. FRANK. Thank you.

    One other point I just want to make, because I was confused about this, I have been asked by some members of the press, and that is, you know, what is the legislative status here. And I think we ought to be clear. The Administration has clearly decided that there are two levels of urgency here. I am on the Judiciary Committee. At 2:00 we will be marking up a compromised version of the Anti-terrorism Act. It did not include, as submitted by Attorney General Ashcroft or as amended by the Republicans and Democrats on the Judiciary Committee, any money laundering pieces. It did deal with one of the things that Under Secretary Gurule mentioned, and that was the lack of sharing information. And the bill that will be marked up in Judiciary as a compromise does explicitly authorize sharing of tax information for appropriate legislative purposes. It has got a 2-year sunset for people who are worried about how that will work out.

    So the use by the Justice Department and others in fighting terrorism of tax information will now be clearly allowed in this bill, but, at least to date—and I am told the Judiciary Committee has a lot of the jurisdiction here, and I have been at all these Judiciary Committee meetings and conversations—we have not been asked by the Administration to take any action on the money laundering issue.
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    Now, that is apparently coming, but people should understand that, that the money laundering piece, much of which is under the jurisdiction of the Judiciary Committee, isn't part of the anti-terrorism bill and wasn't part of the anti-terrorism bill as requested. So probably there is a second order. I would hope, because it now looks as if the Judiciary Committee will be voting out the first part of the anti-terrorism package that the Attorney General sent us, that the Administration will now show some eagerness to get the other part through.

    And I would just say in closing, finally, Mr. Chairman, I appreciate this. I was pleased, and I want to repeat this, when Secretary O'Neill and Under Secretary Gurule said they liked Mr. LaFalce's bill as long as it had due process protection. That is what we said about Ashcroft's bill on the Judiciary Committee, and I think we ought to be very clear what is due process source for money laundering is due process source for the anti-terrorism bill, too. That is one of the reasons why we did not instantly enact what the Attorney General asked us, but held it back to put in precisely the kind of due process provisions that he has asked for and that Mr. LaFalce agrees should be in there.

    Thank you, Mr. Chairman.

    Mr. BACHUS. I thank you.

    Mr. LaFalce.

    Mr. LAFALCE. Thank you very much, Mr. Chairman.
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    I thank you all for testifying, especially Ambassador Eizenstat. It is always a pleasure to see you and to work with you. I thank you for your comments about the administrative procedures, and the fact of the matter is that we have heard nothing from the Administration with respect to so-called due process. I think they were just responding to concerns that were expressed in the Senate, and they said, yes, we will be glad to have some. I see no language whatsoever that they think improved upon the bill, and that is one of the difficulties in trying to do it quickly. But we will be vigilant on that point.

    You made the statement, Mr. Ambassador, that hawala exists in every single major city in America, and, Mr. Moynihan, you made some suggestions for dealing with underground illegal banking. I need a better handle on that. Can you better explain what the difference between the hawala system and underground banking is, if any? Is it one and the same? Is there something different about it? To what extent would your existing law work? The proposals that we have fashioned thus far deal with it. Is it necessary to go beyond that? Because, you know, we don't want to come up with a solution to a decade ago problem. We want to come up with a solution to today's modus operandi.

    Mr. EIZENSTAT. Well, I'll let Mr. Moynihan deal with some of the underground banking systems. But the hawala system is a system which would operate as follows. Someone would go to a hawala in, say, Pakistan, Karachi, and these are often families that have been in the business for decades or centuries, passed along, oftentimes completely legally. And, say, we have a customer who is going to pick up $5,000 in cash in Chicago or Buffalo. And this should be honored, and he will have this identification number which we are now giving you. That person then comes into Buffalo, picks up the $5,000 in cash, and there is no actual movement of money between Pakistan and Buffalo. There is no wire transaction. All there is—''hawala'' means ''trust,'' and so there is ultimate accounting that will go on between those two hawala dealers so that it is a system that depends on informality and personal trust, and there seems to be little doubt that some of the cash which was used at the end of this process for the atrocity that was carried on probably came through that kind of hawala system.
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    But we ought not to be daunted in going after money laundering by the difficulty of getting at that, because that $5,000 will, in turn, have come from a hierarchy that at the central level has raised tens of millions of dollars by state sponsorship, by charitable organizations, and that will have touched, through investments and other ways, the actual financial system.

    Mr. LAFALCE. Now, the system of trust, though, has to be verified or accounted for. So there has to be some type of verification that the $5,000 was given in order for it to be accounted for wherever it originated.

    Mr. EIZENSTAT. Yes, but the verification is often, Mr. LaFalce, not by a paper transaction, not by a paper trail. It would be by perhaps a personal phone call or some other indication.

    Mr. LAFALCE. There has got to be some method of communication though. There has to be some method of communication.

    Mr. EIZENSTAT. Yes, there is.

    Mr. LAFALCE. Either in person or electronically.

    Mr. EIZENSTAT. There is, because there has to be accounting at the end of the day.

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    Mr. LAFALCE. Yeah. Yeah.

    Mr. Moynihan.

    Mr. MOYNIHAN. Mr. LaFalce, I think there is so many permutations on what goes on, and we have to start at that point. It could be as simple as a guy who owns a gas station down the street here who wants to secrete his wealth in Pakistan or Iran or whatever, and he just flat out doesn't want to send a wire transfer over there because he is afraid someone's going to see it at the Fed. He just doesn't want anybody to know what he is doing. So he offers that money that he has earned here, cash, for sale simply through the internet, maybe a message and putting it on the street, making a phone call to someone who he knows on the other end who is either an intermediary or someone who seeks out an intermediary. It is merely a system of swapping money. That is it.

    What is unique about the hawala, from my experience in doing these cases, unlike Colombian drug traffickers who generally will set up a contract, I have experienced this with a number of DEA cases that I do, they will set up a contract and broker the money at a discount some time out. It could be either a spot transaction, but generally it goes out 30, 60, 90 days, and you earn different discounts based upon how far it goes and the form of the money.

    The hawala is different in that it is still underground. It is still the gas station owner engaging in unlicensed money exchange, and that is why I made the suggestion that should be criminalized across the board. People should just not be using their checking accounts to make money on money. If you sell gas, sell gas. If you want to be a money exchanger, go get licensed. That is not what goes on. But here, in the hawala, it is more of a loose affiliation, and, as the Ambassador has said, it is based on trust. These people make these swaps and exchanges of money in volumes you just can't imagine. It is huge. It is massive. It is everywhere. It is not reported. People trust it, and if those hawala participants aren't satisfied, they are back out of it, and they use somebody else. There is so many people who do it.
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    The last thing I will say on this, of grave concern, from the cases that I have been——

    Mr. LAFALCE. If it is that widespread, it would seem to me that the more widespread it is, the more detectable it would be, assuming we had widespread usage, utilization of undercover agents.

    Mr. MOYNIHAN. That is the key. The techniques have to change. The techniques for penetrating those organizations have to change. One of my partners in my business, Larry Johnson, has been seen on the television all week, and he keeps using the term, ''you are not going to catch these rats by not getting into the sewer.'' And that is true. These cases are not being made in the Vatican. If you want to make these cases, you have got to get down and get dirty with these people, and if you won't, the techniques are not going to work, and that is why it has proliferated.

    Mr. EIZENSTAT. We have had some experience with similar systems. For example, the so-called black market peso system operates in some respects in the way that Mr. Moynihan was describing with respect to imports. In fact, oftentimes major American companies have their products used as part of the exchange, and we had a meeting last year at the Justice Department with the Attorney General and others, and we had some of the major corporations come in to alert them to the fact that their products were being used as part of this process.

    The hawala system operates in a sense even more underground, and it will require human intelligence and penetration if we are going to be successful at rooting that out. And, again, all of these things we are talking about, including legislation, are not going to end the practice per se. What we want to do is throw sand into the gears, make it more difficult, complicated, make people come up from the subterranean level they operate, take greater risks and disrupt the process.
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    Mr. BACHUS. Thank you.

    Ambassador Eizenstat, we actually had hearings on the black market peso back, I think, in 1997.

    Mr. EIZENSTAT. Yes. We appreciate it.

    Mr. BACHUS. A lot of that is categorized as trade mispricing, too, to avoid taxes. And I think some U.S. corporations have spoken up against the practice.

    Mr. EIZENSTAT. They have. But now that they have been alerted to it, they are trying to be much more sensitive about suspicious transactions involving their products.

    Mr. BACHUS. And that, obviously, is something that ought to be brought into this.

    Mr. Yingling, without divulging any investigative details, can you tell us whether or not any banks that are members of the ABA have found and frozen any of the accounts of the parties that were named in the President's Executive Order?

    Mr. YINGLING. We understand that there are several that have, but they don't report to us on an ongoing basis about it. They report to law enforcement.

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    Mr. BACHUS. I would ask Mr. Lackritz. Can you tell us whether any securities firms have found and frozen any accounts of the persons named in the President's Executive Order?

    Mr. LACKRITZ. I can't tell you right now. They are in the middle of doing searches for all that information now, and as Mr. Yingling said, they don't have the obligation to report to us. I don't have that information at this time.

    Mr. BACHUS. Does it concern you? And I am sure that you heard the testimony of Under Secretary Gurule about the al Qaeda operatives using brokerage accounts.

    Mr. LACKRITZ. Well, absolutely. It concerns us, and, in fact, our members have all been working with the self-regulatory organizations and the SEC in terms of going back into unusual trading patterns prior to September 11. But, yes, of course that would concern us.

    Mr. BACHUS. OK. What are some of the operational differences between a securities firm and a bank that we in Congress should be mindful of as we craft legislation preventing money laundering?

    Mr. LACKRITZ. Well, I think that they are very different businesses, and I suspect Mr. Yingling would be happy to point out some of the differences between banking and securities. But, in general, the relationship with customers is very different in the sense that, generally speaking, when customers open accounts with securities firms, there is an ongoing relationship that is fairly frequent, and there is many points of contact on a regular basis where professionals from the industry will be talking to the customer about what has happened.
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    In addition, when the account is actually opened, our firms are subject to know your customer rules. I think it is Rule 401 of the New York Stock Exchange, and I think it is 3110 of the NASD, have know your customer requirements for our firms when they open accounts, and that is to assure that our firms, in fact, follow suitability obligations which they have owing their customers to make sure that their recommendations are suitable for that customer in the account.

    In addition, the industry has a number of obligations under the regulation to make reports on a regular basis to self-regulatory organizations. For example, U-4 reports about employees, U-5 reports when they are terminated articulate reason for dismissal or reasons why something hasn't worked out.

    In addition, we have forms called RE3s to report possible rule violations. We also have to report to our self-regulatory organization and the SEC.

    And finally, Mr. Chairman, I would just suggest that the regulatory regimes that deal with banking and securities philosophically are very different and are grounded on very different assumptions. Banking regulation tends to be more focused on safety and soundness of the financial system, and as a result there is a lot of oversight and review of individual decisions by bankers. On the securities side the philosophy has to do with disclosing material fast, protecting the integrity of the marketplace, protecting the investors, and let competition determine the outcome, and as a result there are very substantial differences in that respect.

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    Mr. YINGLING. And if I could just comment, I think there are differences along the lines that Mr. Lackritz just outlined. But, we do believe that it is very important to extend the rules beyond the banking system, and we just had a long discussion about the underground system. We are not going to be effective if we don't do that. But it is very important that this be done in a flexible manner where the expertise of the regulators and the various industries can come into play to design the right response.

    And I think one of the big advantages of the approach in Congressman LaFalce's bill that was worked out in the Banking Committee last year, and Ambassador Eizenstat was involved in that, is that the way it is written, it does give that kind of flexibility. Therefore, you can identify the different types of transactions or relationships or groups or countries, and you can identify different responses to each.

    There is, on the Senate side, as you may know, similar legislation that is in the process of being looked at. And we support, Mr. LaFalce, the kind of approach that you are talking about. We have a couple of suggestions which we will get to you, but there is an alternative out there that is very rigid, and we think that is a big mistake because you are going to end up with situations where in some cases you need a fly swatter, and you are going to have a sledgehammer; then in other cases you need a tank, and you are going to have a sledgehammer. So, we think the approach that you are working on is the right approach, as opposed to a very rigid approach written into law.

    Mr. BACHUS. We do hope to incorporate flexibility in how you deal with your clients. You know, why, I mean, there are varying ways in which firms conduct their business and take that into effect. And, Mr. Yingling, you actually—in your written testimony, not in your oral testimony, but you made some suggestions on how the legislation should be modified. So we will take those into account.
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    Mr. Moynihan, we earlier had testimony from the FBI, and Mr. Lormel mentioned the offshore internet gambling sites and abuse there. You have been in the trenches. I would like to get your opinion on any possible nexus between internet gambling and money laundering and, you know, what we could do in that regard.

    Mr. MOYNIHAN. In my firm, with my partner Bobby Evers and Larry Johnson, we travel the globe doing anti-money-laundering initiatives and investigations of internet gambling and the banks associated with that. We have done a considerable amount of work on it.

    One of the keys that we have found has been where the actual CPU that drives and conducts the transactions is actually located. For example, you might have a person in New York City who gets on his computer to play a sports book game. He thinks he is playing it in the Bahamas because that is where it was advertised out of, but traditionally in many cases that CPU is resting in Belize. The transactions will actually be transacting in that particular country, where, in fact, in that country where they are looking for hard currency and they try to drive hard currency into that location. They want this business. They want this business.

    And as the Ambassador said, a bilateral approach to this is very important because we may recognize ourselves as the First World economic type of situation, and other nations want to rise to that level of economic activity quickly because they watch the television and they visit Disneyland. They want to get there as fast as they can. That is just the reality of it. So they are going to offer things that we want, whether it is drugs or whether it is internet gambling.
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    So the internet gambling situation is as complex as it gets, because the participants in the gambling aren't necessarily participating in the way that they think they are. They think they are participating in the Bahamas. They are not. They are not, and their credit card might be clearing through a bank somewhere else. So it is multi-jurisdictional.

    Mr. BACHUS. Thank you.

    Mr. Yingling, let me ask you one other question. In the money laundering bill that we have drafted, there is a provision that would prohibit the U.S. banks from having correspondent accounts with offshore shell banks. Do you all have any objection to that?

    Mr. YINGLING. We do not have any objection to that. We had some questions about making sure we have a clear definition of what a shell bank is so we know what the rules are. We haven't had a chance to look at it in detail, but I think you have a good definition in there, so we are supportive of that.

    Mr. BACHUS. Thank you.

    Mr. LaFalce, do you have any questions?

    Mr. LAFALCE. Just to the extent that any of you are involved in future discussions or deliberations with respect to internet gambling, I want to, first of all, make one point. I have yet to discern anything that is at all socially redeeming about the concept of internet gambling, so to even sanction a little bit of it causes me some difficulty.
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    Second, please help impress upon others that the legislation that they enact could have negative rather than positive consequences if it is inappropriately drafted. And to say that internet gambling is permitted unless it is specifically deemed unlawful would require a finding of unlawfulness in virtually every State or the entire United States or offshore jurisdictions, and so forth. That is not the approach to take.

    I do want to ask Mr. Yingling a question, and then I will conclude. You know, one way that terrorists can help shut down the economy of the United States is by going to its transportation network. That could include airlines, buses, borders, and so forth. But another way would be to choke off its source of credit. And as we try to have redundancy and backup systems for our stock exchanges, and we were able to get them up in a relatively short period of time, what group within ABA, for example, discusses the redundancy of the capacity to make sure that credits, credit cards, ATM machines, and so forth, are able to function and not shut off at some choke points?

    Mr. YINGLING. It is a very good question and one that is maybe the other shoe here, if you will. We have the money laundering side of it that we need to work on, and we have the securities side of it. We are very proud of what happened in the immediate aftermath after the attack in terms of the way the banking system was able to respond. Mr. Lackritz in his statement talked about the great job the securities industry did.

    Part of that, quite frankly, was a result of preparing for the changeover in the Millennium—all the work we did there that a few days afterwards everybody scratched their head and said, ''Well, maybe we did more than we needed to.'' A lot of that work was building in redundancy, and a lot of that work was making sure we had contingency plans.
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    There is no one group to address your point—although John Byrne sitting behind me is an expert in security and does a lot of work in that regard—because we are many different industries—for example, the credit card industry, and we are the clearing industry for a lot of what goes on in the securities area. We also transport cash around, so we have to cut across many different aspects of our business.

    We have been talking internally about the need to really address this question in a comprehensive fashion. We have had preliminary discussions with Treasury about the need to do this. We have actually talked with the SIA about the importance of getting the key groups together and reviewing everything we are doing in security.

    Mr. LAFALCE. I would encourage you to create some type of a committee or a task force, and so forth, because if we couldn't use the credit cards, if businesses couldn't, you know, our economy is really devastated. If we couldn't have an effective clearinghouse system, our economy would be devastated. And I think that this is an extremely important issue, and I don't know that we have a problem. I hope we don't. And it may have been anticipated, but it is something that I think should be looked into very seriously.

    Mr. YINGLING. We will definitely do this, and we have also on a very preliminary basis raised the issue with Governor Ridge that this ought to be done in a comprehensive fashion. We agree completely with your concerns.

    Mr. EIZENSTAT. If I could just reinforce what has been said, the backup systems and the work which was done for the Y2K exercise really proved themselves, because with the disaster that occurred, the fact that the securities markets and banking system were able to get back on their feet so quickly meant that there were sufficient backup systems. The firm which handled all the bond work, much of the bond work, for example, used their London system. So a lot of that investment, although no one realized it would be for this, did come in handy.
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    Mr. LAFALCE. All right. Thank you very much.

    Mr. BACHUS. Mr. Leach.

    Mr. LEACH. Let me first start with the big picture in terms of the financial services community here. I think it has to be underscored and underscored, and that is that despite this kind of instant stability in the United States, A, dependent on financial services and, B, our financial services community is incredibly stable, and that is the big picture, and that is wonderful and all that that represents. The financial community ought to take pride. This is for a good cause, and it is principally private sector.

    Having said that, there is a trauma on some little picture issues that you can have some big pictures ramifications, and that is the history of the 20th century has been one that too much regulation has been helpful, and we all recognize that. On the other hand, there is some regulation that is prudential. We don't normally think of this in the national security vein, but suddenly it has been a national security vein.

    So issues like money laundering have implications in tracking accountability of people who have committed crimes. They also have some implications for preventing crimes before they are led forth, and that can be in the realm of terrorism. It can be narco-trafficking. It can be corruption of many different levels. And I think that the financial community is going to have to rethink the position they took in the last Congress on objecting to some legislative approaches that were on the table at the time.

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    I have been particularly surprised that the banking community hasn't been leading the charge on everything to do with internet gambling. In fact, I have been so startled with that, Mr. Yingling, I cannot tell you. The approach that originally confronts one is that based upon that, why should we take accountability, and that is a very reasonable question. Why should the banks be the principal law enforcement for internet gambling?

    But it ends up, for whatever reason, all other approaches have proved to be frail, if not lacking, in virtually any capacity to me. For example, many of us believe current laws preclude internet gambling, and yet they are unenforceable. And so the only way that we know to bring some enforcement is through putting some prohibitions in through financial instruments. I would wish there were other approaches.

    But I will tell you, forgetting everything you do with terrorism, the implications of internet gambling for credit card companies is going to be stunning new losses as people are headed out with these credit cards. There are people that get hooked on it, and it looks like a small percentage of the American public easily gets hooked on internet gambling. It is going to be very devastating on the credit card industry. It is going to be very devastating for certain parts, with losses.

    Now we come to the issue of terrorism. It appears that there is a role for money laundering, and it also is pretty evident, perhaps, not tied to the events of last month that gambling is historically a wonderful technique for money laundering. Internet gambling in particular is a good technique for money laundering.

    It is also of interest in terms of terrorism that the country that we are most interested in today is the country that has become one of the leading heroin producers in the world, if not the leading heroin producer. And money laundering is traditionally a narco-trafficking circumstance. And so the linkage of narco-trafficking and the potential of terrorism is not direct, but there is a tangential link that I think we all have to be concerned with.
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    But I would, as strongly as I can, tell you that when I talk to small bankers, they all are appalled by internet gambling. When I talk to big bankers, there is no support for internet gambling. And yet the body of conversation has gone to the assemblage of institutions that represent financial institutions. Some of the bigger credit card companies have been in desperate opposition to anything that involves dealing with financial instruments and internet gambling. And I think that is a true mistake, and I think people ought to think about this in a very deep way, not only the implications for the issues of the week, but what it is going to mean for our economy if this internet gambling takes off to the degree that most people now assume it is going to. I think we are at the last edges of the timetable to try to bring it down.

    We worked very carefully with the Treasury in the last Congress, and I am pleased that they came out with the approach that seemed relatively realistic. I am very disappointed that in the bowels of the legislative channels, opposition was brought to bringing this kind of approach to the floor. But I really think all of you are going to have to think this through much deeper, much more carefully.

    Finally, with regard to money laundering, I don't think it is, by any means, the answer to terrorism, but it is one of the tools that can be applied. And I would only stress what I did a little bit earlier. It is self-evident. The institutions of finance abroad and in the United States of America can be vulnerable to terrorism in the years ahead. And I think, frankly, supporting legislative efforts of this nature is about as prudential as anything I know of, and I just am really, truly calling for a real look within the financial community at both of these issues.
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    I don't want to ask for a response. I know you all have difficulties because you represent a processed way of reaching decisions, but I am really hopeful that this is thought of in a new kind of parameter. Thank you.

    Chairman OXLEY. Gentlemen, thank you for your testimony, and I know you have answered numerous questions. The hearing is now adjourned.

    [Whereupon, at 1:50 p.m., the hearing was adjourned.]