(Archived Content)
FROM THE OFFICE OF PUBLIC AFFAIRS
LS-623Good morning, Chairwoman Roukema. I am pleased to testify before your Subcommittee today on the issue of money laundering. Joining me today is John Varrone, the Acting Deputy Assistant Commissioner of the United States Customs Service.
The Treasury Department welcomes this hearing and the continued interest of the House Committee on Banking and Financial Services, as well the Subcommittee on Financial Institutions, in our efforts to fight money laundering. Madam Chairwoman, we appreciate your time and continued leadership on these issues, and we welcome this opportunity to discuss our program to counter domestic and international money laundering, and in particular our efforts to combat bulk cash smuggling.
The Money Laundering Strategy
The Clinton-Gore Administration has made the fight against money laundering one of its top priorities. Indeed, President Clinton highlighted the battle against money laundering in his State of the Union address. Under the leadership of Treasury Secretary Summers and Attorney General Reno, the National Money Laundering Strategy for 2000 provides a comprehensive approach to fight money laundering locally, nationally, and internationally. It assigns specific responsibilities for meeting specific goals and milestones to measure progress in improving our regulatory, enforcement, and international efforts.
Among other things, the Strategy seeks to improve regulatory and cooperative public-private efforts to prevent money laundering, in part by assuring that financial institutions and others providing financial services are subject to appropriate, effective Bank Secrecy Act requirements. In this regard, Treasury recently announced a final rule on applying suspicious activity reporting (SAR) requirements to money service businesses, as well as a plan to issue this year final SAR rules for casinos and proposed SAR rules for securities brokers and dealers. Madam Chairwoman, your leadership and support of the SAR requirements on all these matters, and particularly with respect to the money services businesses, has been critical, and we look forward to working with you and the Committee as we move forward on this important matter.
Strengthening federal partnerships with state and local governments forms another of the Strategy's fundamental goals. We will support state and local investigators and prosecutors by, among other things, awarding grants as part of the Treasury and Justice Financial Crime-Free Communities Support Program or C-FIC, which I will discuss in greater detail in a moment. We will also create a model curriculum for a financial investigations course for state and local law enforcement agencies, and provide technical assistance for enhanced state laws against money laundering.
Similarly, the Strategy is aimed at strengthening international cooperation to disrupt the global flow of illicit money. Specific action items include working with our allies to identify and take appropriate countermeasures regarding international money laundering havens. In this regard, you have proposed a House Resolution to support the Financial Action Task Force on Money Laundering, or FATF, that includes a strong statement of the importance of the FATF's efforts to develop a list of international money laundering havens. As you know, the United States is a founding member of FATF. We have participated fully in the ongoing process of identifying these havens, and we support FATF's plans to publish its list next month. Treasury strongly concurs in the goals of this resolution, which shows important support for the FATF process, and our continuing efforts to approach the problem of non-cooperative jurisdictions on a multilateral basis. We look forward to working with you and our other partners in the public and private sectors on the final text of this important resolution.
In addition to its international aspects, the Strategy strengthens domestic enforcement to disrupt the flow of illicit money. This includes enhancing interagency cooperation on investigations, and identifying and targeting major money laundering systems such as the Black Market Peso Exchange.
HIFCAs
We are also concentrating resources in high-risk areas. To that end, as part of the Strategy, Secretary Summers and Attorney General Reno designated the first four High Intensity Financial Crime Areas, or HIFCAs, including the New York/Northern New Jersey HIFCA. As you know, a HIFCA is a geographic area, industry, sector, or institution or group of financial institutions which is being victimized by, or is particularly vulnerable to, money laundering and related financial crimes. The HIFCAs concentrate law enforcement efforts at the federal, state and local levels. In HIFCA areas, such as New York/New Jersey, law enforcement resources will be targeted specifically towards money laundering itself, rather than treating the money laundering as an offshoot of an underlying crime.
Currently, officials representing a range of agencies in New Jersey and New York are having meetings to discuss the best approach to bring all the necessary federal, state and local law enforcement players to the table to develop the HIFCA action teams. The Departments of the Treasury and Justice oversee the HIFCA process, but have given the field wide latitude to configure the HIFCA action teams in the most effective way possible. We understand that the on-going discussions are examining a variety of possibilities, including formal Memoranda of Understanding, to improve cooperation throughout the New York-New Jersey area.
The Strategy also reports the availability of over $2.5 million in grant funds to eligible state and local applicants as part of the C-FIC program I mentioned earlier. These grants provide seed money to help state and local communities marshal information and expertise to build innovative approaches to address money laundering enforcement and prosecution. Although any state or local law enforcement agency is eligible for a C-FIC grant, location within a HIFCA is an important factor in grant determinations, given that these areas are already identified as being of particular concern for money laundering. We hope that the C-FIC grant application forms will be publicly available on the DOJ's Bureau of Justice Assistance web site in the very near future.
Administration's Proposed Legislation
In addition to these initiatives, the Strategy calls for passage of two key pieces of legislation, which are essential to increasing our ability to combat money laundering both here in the U.S. and internationally. First, the Money Laundering Act of 2000 would close loopholes in our current criminal money laundering laws by giving prosecutors and investigators important new tools to combat money laundering. The legislation's proposed amendments to the federal criminal laws would expand the list of foreign crimes, such as corruption, for which money laundering prosecutions may be brought in this country when the proceeds of those foreign crimes are laundered in the United States. It also includes provisions to bring in some domestic offenses that are not now listed as specified unlawful activities underlying money laundering. The legislation would also grant U.S. district courts jurisdiction over foreign banks that violate our money laundering laws, and also give federal prosecutors greater access to foreign business records.
Second, we seek passage of the International Counter-Money Laundering Act of 2000. The Department is grateful for your sponsorship of this bill. This legislation would provide the Secretary of the Treasury with new discretionary authorities to crack down on foreign money laundering havens that the Secretary, in consultation with the Attorney General and the Secretary of State, finds to pose a serious money laundering threat. In short, the Act would allow the U.S. to take targeted, proportionate measures to protect its financial system from foreign money laundering.
Bulk Cash Smuggling
Of course, our continued efforts to shut down newer, more sophisticated money laundering schemes, including the new initiatives in the Strategy and proposed legislation, do not detract from our efforts to stop the money laundering methods used for years. Money launderers may be sophisticated, but they're not proud. They will use any available method to launder their dirty money, and old-fashioned bulk cash smuggling remains a significant concern. It is one of the primary methods by which narcotics traffickers move their drug proceeds out of the country. Indeed, bulk cash smuggling often increases in response to our successful efforts to shut down other avenues, as evidenced by Customs' increased seizures at ports in the New York - New Jersey area after the 1996 order imposing greater reporting requirements on wire transfers from a geographic section of New York City to Colombia.
Bulk cash smuggling is not designed simply to get criminal cash out of the U.S., but often forms part of a system in which cash sent out of the country is then reintroduced by wire transfer and other means so that the funds can be further disposed of or reinvested. The Department appreciates your efforts to combat this insidious form of money laundering.
While a significant threat, bulk cash smuggling also provides additional opportunities for law enforcement, since the smuggled cash is often heavier and more cumbersome than the drugs that are smuggled in. The money used to pay for cocaine often weighs over three times more than the drugs themselves.
As you will hear from Mr. Varrone, Customs seized more than $60 million in undeclared currency in both FY 1998 and FY 1999. Last year, Customs made almost 1,500 seizures, an increase of 20% over the previous year. While we cannot estimate the amount of currency smuggling that goes undetected, these seizure figures demonstrate the importance of our efforts to stop bulk cash smuggling.
Moving forward, the Money Laundering Strategy specifically targets bulk cash smuggling in several ways. First, we have designated a HIFCA along the Southwest border that is expressly dedicated to the issue of bulk cash smuggling. This is the only sector HIFCA designated in the Strategy; the others are geographic areas. We recognize that bulk cash smuggling may be a priority in the other HIFCAs, as well.
In addition, the Administration seeks to further enhance the tools available for Customs' enforcement efforts. In addition to base funding that will contribute to Customs' anti-money laundering efforts at our borders, the President's FY 2001 budget proposes $10 million in additional funding for Customs' Narcotics Illicit Proceeds Strategy Initiative. This funding would permit Customs to increase the number of personnel devoted to this problem. Mr. Varrone can address this Initiative in greater detail.
The Administration also is currently seeking legislative clarification of the Customs Service's authority to conduct limited warrantless searches of outbound international letter class mail in instances when there is a reasonable suspicion that the mail contains bulk cash. Currently, Customs has the authority to conduct border searches without warrants in virtually every situation in which people or merchandise cross the U.S. border. For example, Customs can search individuals, luggage, and international shipments sent through private carriers whenever they enter or exit the United States. Customs also can conduct border searches of international mail entering the country that is sent through the U.S. Postal Service, but may not conduct border searches of mail leaving the country. Thus, outbound international letter-class mail is virtually the only way for merchandise to be transported across the U.S. border without being subject to Customs inspection, unless a warrant is obtained.
This leaves a gap in Customs' abilities to detect bulk cash smuggling. Simply by using our own Postal Service, criminals may mail cash across our borders, and their transmittals are not subject to Customs inspections. Under Postal Service regulations, a letter-class mail parcel can weigh up to four pounds when mailed internationally other than to Canada, and up to 60 pounds when mailed to Canada. A single four pound letter class parcel can accommodate approximately $180,000 in $100 bills. A sixty-pound package to Canada can accommodate $2.2 million in $100 bills.
To close this loophole, the Administration will continue to support provisions in crime bills that would permit Customs to search outbound international letter-class mail when there is reasonable cause to suspect that the parcel contains monetary instruments, weapons of mass destruction, drugs, or merchandise mailed in violation of certain specified statutes. Such legislation would simply bring Customs' outbound search authority into line with its inbound search authority. Of course, Customs would still be required to obtain a search warrant to inspect any domestic mail, or to read any correspondence contained in any international or domestic mail parcel.
Comments on H.R. 240
Combating bulk cash smuggling also requires legislative initiatives to increase the penalties for the perpetrators. Like H.R. 240, which you introduced and we support, the Money Laundering Act of 2000 includes a provision that specifically targets bulk cash smuggling. Both provisions would make it a crime to smuggle over $10,000 out of the country with the intention of avoiding a reporting requirement. Currently, such behavior is not a smuggling offense, but rather simply a violation of a reporting requirement. We must remedy the current enforcement problem of insufficient sanctions for bulk cash smuggling. This is an example of one of the loopholes in our money laundering laws I referred to earlier, and underscores the need to pass both of the money laundering bills submitted by the Administration.
Madam Chairwoman, the Department appreciates your support of these and related measures, and your leadership on H.R. 240.
Conclusion
Combating money laundering requires a long, sustained commitment from government at all levels. The issues that you raise today, particularly how best to shut off the outbound flows of illicit currency, are central to our efforts. We look forward to continued close, cooperative, and productive work with you and others in Congress as we all respond to the threat that money laundering poses to our financial systems and societies.
Thank you, and I will be happy to answer any questions you have.