Before the Latvian Commercial Bankers Associations Conference: The Fight Against Money Laundering and Financial Crimes
Riga, LATVIA Good afternoon. It is an honor to be here today to address Latvia's financial community about the importance of effective anti-money laundering and counter-financing of terrorism (AML/CFT) controls. I would like to thank the Latvian Commercial Bankers Association for helping to bring us together. Thanks also to Ambassador Bailey, Mark Draper and the rest of her staff for their ongoing commitment to this issue. I am also grateful for the informative comments and views of the speakers, panelists and other participants that we have heard from over the past two days. It is conferences like this one that demonstrates how effective public-private partnerships can be in enhancing understanding and communication on both sides.
Latvia sits at the crossroads between east and west. As such, Latvia is well positioned to be a key regional and international financial center. The United States welcomes this role and stands ready to help Latvia achieve all of its aspirations. But with opportunity comes responsibility. The same factors that make Latvia an attractive center for legitimate financial transactions also make it attractive for illicit business. Such illicit business corrupts systems and institutions, and destroys confidence in them.
And this is not just a problem for Latvia globalization and the computer and telecommunications revolution means that the international financial system is only as strong as its weakest link. Financial centers that are susceptible to abuse provide criminals access to the international financial system as a whole. This is why the efforts to combat money laundering and terrorist financing must be uniform and global. Laxity in just a few jurisdictions undermines the efforts made by the rest. Financial crimes, including terrorist financing, are global threats, which must be addressed by common, global approaches. As members of the financial community, not only are we charged with the responsibility to ensure the movement of capital around the world in pursuit of investment and development, but also to prevent that capital from supporting crime and terror.
Fortunately, the choice between strong AML/CFT measures and a healthy, vibrant financial center is a false one. In fact, you cannot have one without the other. In the end, AML systems are about transparency, and transparency creates the proper conditions for a healthy financial system, reinforcing foundations for sustainable economic growth and development. As we work to implement strong AML/CFT measures, we are creating the basis for a healthy financial center that will enjoy a strong international reputation.
However, this is not simply about such concepts as the integrity of the domestic and international financial system. Put simply, terrorists and organized criminals are supported by complex international financial networks that thrive in non-transparent environments. These organizations kill innocent civilians indiscriminately, pollute our communities with drugs, traffic in weapons of mass destruction, and undermine the very foundations of our societies. As we have witnessed in London, Egypt, Bali, Madrid, Russia, and four years ago in New York and Washington, DC, the stakes in human life are unimaginably high.
It is our collective obligation to do all we can to identify, disrupt and dismantle the financial networks that support these nefarious activities. Working together, we have the ability to make it harder, costlier and less efficient for terrorists and organized criminals to move their funds through our institutions. In the end, this will save lives and constitute a vital contribution to the international effort to combat terrorists and other groups that prey on our society.
Prime Minister Kalvitas and the Latvian government understand these truths and are taking steps to crack down on money laundering. I am encouraged by Latvia's recent passage of an anti-money laundering law, which represents an important development in Latvia's road towards crafting AML/CFT controls in compliance with international standards. There is much more hard work to be done in this area. Passage of the Latvian anti-money laundering law should be followed with comprehensive implementation measures, including vigorous application of relevant regulations and appropriate money laundering prosecutions.
Components of a comprehensive AML/CFT regime are well known and fairly intuitive. They are outlined clearly by the Financial Action Task Force's (FATF) 40 + 9 Recommendations on Money Laundering and Terrorist Financing, which have been endorsed by over 120 countries, the IMF, World Bank and most recently, the United Nations Security Council. They include:
- Criminalization of money laundering and terrorist financing;
- Customer identification and verification requirements;
- Suspicious transaction reporting in a broad range of vulnerable financial sectors;
- Access to information by competent authorities; and
- International cooperation.
Additionally, specific components are related particularly to combating terrorist financing. These include the ability to freeze assets and block transactions, and appropriate targeting of vulnerabilities in the charitable sector and alternative remittance systems.
The United States like countries throughout the world - is working to ensure that we are implementing an effective and comprehensive regime that is compatible with our legal, regulatory and financial systems. This effort began in earnest in 1970 with the enactment of the Bank Secrecy Act (BSA), which established the first AML-related regulatory requirements in the United States, and has been amended and expanded consistently since that time, most recently by the USA PATRIOT Act. Much of the expanded BSA is similar to regimes in many other jurisdictions. Other aspects provide us with unique authorities, and I'll discuss briefly two of those.
Section 314 of the Patriot Act authorizes the United States Government is to share information with and within its financial sector; that is, both vertically between the government and the industry and horizontally providing a safe harbor that allows industry members to share with each other. The Treasury Department has implemented this section by creating a pointer system for law enforcement. The system gives the appropriate authorities, in the right circumstances, the ability to work with the Financial Crimes Enforcement Network (FinCEN) to transmit the names of persons of interest to the financial sector to determine whether those institutions possess any relevant transaction or account information. If there are any hits, law enforcement can then follow up with a subpoena to obtain specific information. The system has been successful, and a valuable tool for law enforcement.
Beyond Section 314, we have worked hard to establish an embedded ethos of information sharing between financial institutions and government authorities, and directly between individual financial institutions. With this in mind, the Treasury relies heavily on the Bank Secrecy Act Advisory Group (BSAAG) as a forum in which to discuss important issues and emerging threats. The BSAAG is comprised of high-level representatives from financial institutions, federal law enforcement agencies, regulatory authorities, and others from the private and public sectors. Through the BSAAG and other regulatory and educational seminars and programs, the Treasury maintains a close relationship with U.S. financial institutions to ensure a smooth exchange of information related to money laundering and terrorist financing.
Section 311 of the Patriot Act authorizes the Secretary of the Treasury to designate a foreign jurisdiction or institution as a primary money laundering concern. Once designated as such, the Treasury Department may take a range of regulatory actions to protect the U.S. financial system, including requiring U.S. financial institutions to terminate correspondent relationships with the designated entity. Such a measure essentially cuts the designated entity off from the U.S. financial system.
We have used this tool in several instances to date, which have affected entities across the globe. Targeted jurisdictions and institutions have been located in Ukraine, Nauru, Burma, Syria, the Turkish Republic of Northern Cyprus and here in Latvia. In some of these instances, the designated entities have reversed course and implemented serious reforms, which has resulted in the U.S. lifting the proposed rules against them.
I would also like to take this opportunity to discuss in greater detail the financial war on terrorism. As I discussed earlier, the international community must work in concert to disrupt and dismantle the financial networks that support terrorism. A vital component of this effort must be the application of targeted financial sanctions.
Endorsed by the United Nations through UN Security Counsel Resolutions (UNSCR) 1373 and 1267 which was just recently expanded and fortified in UNSCR 1617 targeted financial sanctions are preventive measures quite different from criminal or regulatory action. These endorsements are an acknowledgment that countries need the ability to move without delay to deprive terrorists of resources that may lead to terrorist attacks, and that those who provide financial support to terrorists must be isolated from our financial systems immediately, separate from any efforts to prosecute them criminally.
The United States has responded to this United Nations mandate by designating 408 entities associated with a wide range of terrorist organizations throughout the world, including al Qaida, Hamas, Hizballah, Palestinian Islamic Jihad, ETA and the FARC. I am sad to say, however, that this vital component of any AML/CFT regime the one component which has the most explicit United Nations endorsement and mandate through two separate UNSCRs is probably the least understood and most poorly implemented component worldwide. I am not talking simply about countries that do not have the capacity to block terrorist assets. I am referring to entire regions of the world that do not implement this United Nations requirement. This must change.
Although most countries do have some mechanism in place to block the assets of al Qaida-related entities specifically identified for them by the United Nations, too many countries have taken little or no action to block the assets of other terrorist groups as specifically required by UNSCR 1373. It is urgent for countries throughout the world to begin to develop effective administrative mechanisms to do just that.
But the efforts of the international community to implement targeted financial sanctions should not be limited to the fight against terrorism. A concerted international effort should be undertaken to identify, disrupt and dismantle the financial networks that support the proliferation of weapons of mass destruction (WMD), and to financially isolate those who engage in such activities. The United States has already taken the first steps.
President Bush recently signed a WMD Proliferation Financing Executive Order that authorizes the freezing of assets of WMD proliferators and their supporters and forbids U.S. persons from transacting any type of business with them. We hope that this lays the foundation for expanded international cooperation against WMD networks. In the case of WMD proliferation, just as it is with terrorist financing, the international community must join forces in order to protect our society.
As we face the 4th anniversary of the September 11th attacks, it is more apparent than ever that following dirty money and attacking its illicit sources is an essential part of winning the financial war against terrorist financing and financial crimes. It is also quite clear that the fight against terrorist financing and financial crimes necessitates robust and effective AML/CFT systems, targeted actions and coordinated international public and private sector responses. Illicit threats are constantly evolving, and our foes are elusive. I look forward to working with you to meet these challenges and others that may lie ahead.