Testimonies

Testimony of Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson before the Caucus on International Narcotics Control, U.S. Senate

As prepared for Delivery

Chairman Whitehouse, Chairman Grassley, and Distinguished Members of the Caucus, I want to thank you for the invitation to speak today on behalf of the Treasury Department about this critical national security issue. I am pleased to be here alongside my colleague from the Department of State, with whom we work closely on counter-narcotics priorities.

The Treasury Department has long recognized the threat from money laundering linked to drug trafficking. We are key implementers of the President's National Drug Control Strategy (NDCS), which identifies counter illicit finance as a critical pillar to degrade and disrupt transnational criminal organizations (TCOs).

Treasury pursues a multi-pronged strategy against these threats that encompasses: (1) understanding risks and mapping TCO financial networks; (2) imposing preventative measures on financial institutions that include reporting suspicious activity, which directly generates lead information for law enforcement; (3) public-private partnerships to facilitate robust information-sharing; (4) the use of targeted financial sanctions to identify and cut off DTOs, their members, and supporters from the international financial system; (5) closing outstanding regulatory gaps; and (6) working with international partners.

Financial crimes impose a significant cost on ordinary Americans. Drug trafficking, and the profits derived from it, are particularly pernicious threats. Drug overdose deaths are exacting a terrible toll in the United States and American families, with an estimated 108,000 deaths in 2021, an increase of 15% over the previous year. Such numbers do not only represent a public health crisis, but also a threat to U.S. national and economic security.

As documented in the 2022 National Money Laundering Risk Assessment, the movement and laundering of drug proceeds in the United States continues to be dominated by traditional methods and techniques, such as bulk cash smuggling (BCS) and trade-based money laundering (TBML). Law enforcement is seeing an increase in TCOs’ use of Chinese Money Laundering Organizations (CMLOs) who offer services at lower fees than traditional money brokers, exploit Chinese currency controls, and use communication technology effectively. TCOs are growing more comfortable with darknet markets and the use of digital assets to launder funds, although the size and scope of this activity remains low in comparison to cash-based retail street sales.

To address these challenges, Treasury undertakes several high-impact actions. The preventative measures we require of certain private sector entities, including due diligence, record keeping, and reporting requirements, provide the basis for law enforcement investigation of all manner of illegal activity, including drug trafficking.

This information also informs the use of our sanctions authorities, which are among our most effective tools for targeting the command, control, and financial facilitation infrastructure of TCOs worldwide. The President’s December 2021 Executive Order (E.O. 14059), “Imposing Sanctions on Persons Involved in the Global Illicit Drug Trade,” will support the Biden-Harris administration’s priority to disrupt the operations of the drug cartels who direct the supply of illicit drugs to U.S. markets.

The E.O. affords the Office of Foreign Assets Control (OFAC) greater flexibility to sanction foreign actors involved in narcotics trafficking that threaten U.S. national security. Our first tranche of designations under this expanded authority in December 2021 targeted DTOs based in Brazil, China, Colombia, and Mexico.

The highly valuable financial intelligence we collect also informs our efforts to close regulatory gaps, in order to ensure the U.S. AML/CFT framework is fit for purpose in addressing an evolving threat environment. As you are aware, Treasury is currently undertaking rulemaking to implement key provisions of the Corporate Transparency Act (CTA) to deny illicit actors the ability to hide behind anonymous front and shell companies. Another priority in this category is addressing how drug traffickers exploit the U.S. real estate market. The Financial Crimes Enforcement Network (FinCEN) is pursuing a rulemaking process to address how criminal actors exploit the U.S. real estate sector by bringing greater transparency to non-financed transactions.

Another important component of our counter-narcotics strategy is international engagement. My first trip as Under Secretary was to Mexico, and this was an essential opportunity to build strong relationships with key counterparts. While there, I met with public and private sector partners to discuss ways to enhance our collaboration on counter-narcotics, human smuggling, and anti-corruption. We will also continue to support ongoing Biden-Harris administration efforts to engage China on counter- narcotics, including encouraging and pressing Beijing to curtail the illicit diversion of Chinese-origin precursor chemicals to Mexican drug cartels.

So long as major criminal organizations threaten the U.S. financial system, the Treasury Department will maintain these significant lines of effort. I want to close by thanking the Caucus for its support. I look forward to taking your questions.