(Archived Content)
TG-317
Washington, D.C.
Good afternoon and thank you for that nice introduction. This conference, now in its 21st year, has always provided an essential forum for the discussion of key developments in the law and practice of anti-money laundering (AML) and sanctions compliance, and so I am very pleased to have the opportunity to speak to you today.
As many of you know, I joined the Department of the Treasury this spring from private law practice, where I worked with many of you in building anti-money laundering and sanctions compliance programs and grappling with the often difficult legal, regulatory and prudential questions that arise in running those programs. Before that, I worked in Treasury's Office of General Counsel, and was part of Treasury's efforts in the late 1990s to internationalize our anti-money laundering laws. Along with my Treasury colleagues at the time, we drafted and sought to elicit Congressional interest in legislation that, after 9/11, formed the core of the AML provisions in Title III of the USA PATRIOT Act. So, I come here this afternoon with some understanding of, and appreciation for, the pressures you are under and the challenges you face. I also have a few ideas I would like to share with you about how we can work together on some very pressing issues – most importantly, disrupting the flow of funds derived from criminal activity, including possibly international organized crime, to terrorist organizations.
I would like to begin by briefly describing the scope of my responsibilities as Assistant Secretary for Terrorist Financing. First of all, do not let my title fool you – although I am the Assistant Secretary for Terrorist Financing, I am firmly against terrorist financing. The statute creating my office, which gives me my title, also charges me with formulating and coordinating the counter terrorist financing and anti-money laundering efforts of the Department of the Treasury. In practice, this means that my colleagues and I in the Office of Terrorist Financing and Financial Crimes are focused on developing policy to combat all manner of illicit finance at home and abroad – from mortgage fraud to money laundering, from transactions facilitating WMD proliferation to those funding terrorists. This places my Office squarely in the middle of the national security issues and regulatory policy discussions that directly affect how you do your business and measure your risk. And it reinforces for me the point – which I understood while in private practice, but has been driven home to me since I returned to the Treasury Department – that the success of our policy to combat illicit finance is highly dependent on the quality of your efforts to comply with your AML/CFT legal and regulatory obligations.
Let me give you a few examples. For several years, the Treasury Department's Office of Terrorism and Financial Intelligence, led by Under Secretary Stuart Levey, has played a central role in the United States Government's efforts to prevent Iran from developing nuclear weapons and to combat Iran's support to international terrorist groups. As you know, the Obama Administration is pursuing a two-track strategy with Iran. This strategy is aimed at resolving international concerns over Iran's nuclear program diplomatically, while also making clear to the Iranian government that it faces increased isolation and pressure if it does not adequately resolve those concerns. We at Treasury have been especially focused on the second piece of the two-track strategy, working intensively to craft a plan for imposing additional pressure if the President determines it is appropriate to do so. While I cannot go into specifics, I can say that in the event that Iran's actions make it necessary to implement this plan, it seems quite likely that we will turn to you to help ensure the effective implementation of any financial, investment or trade-related measures that are imposed.
We are also focused on the difficult situation in Mexico, where President Felipe Calderon has undertaken a courageous fight against the drug cartels. The flow of drug proceeds and weapons across our southwest border is fueling violence in Mexico, and the criminal activity that it supports threatens the security of both Mexico and the United States.
At President Obama's direction, the entire United States Government is working very closely with our Mexican counterparts to combat the drug cartels. For its part, Treasury is taking a comprehensive approach to countering the illicit financial activity that fuels the drug trade and, more generally, supports the international criminal networks that are behind much of the violence. We are helping Mexico strengthen its laws and build the institutional capacity to execute those laws, and we are working with the Mexicans in joint task forces to exploit shared information and take coordinated action.
As many of you know very well, we are also using the Foreign Narcotics Kingpin Designation Act to identify significant drug traffickers in Mexico and expose and disrupt their financial networks. Over the last decade, the President has named 37 top-level – or Tier I – Mexican narco-traffickers, and Treasury's Office of Foreign Assets Control has followed up by designating over 250 individuals and entities tied to these Mexican traffickers. Recently, the President imposed Kingpin Act sanctions on three major Mexican narcotics organizations: the Sinaloa Cartel, Los Zetas and La Familia Michoacana. Again, your efforts to implement these sanctions, as well as your continuing efforts to detect, deter and deny drug traffickers access to the financial system, is critical to our strategy to combat this menace.
One last example. Working closely with Ambassador Richard Holbrooke, the State Department's Special Representative for Afghanistan and Pakistan, Treasury is deeply involved in the effort to deny financial support to the Taliban, al Qaida, the Haqqani network, Lashkar-e-Tayibba and other terrorist groups that are active in that region. The Treasury Department leads an interagency task force whose mission is to coordinate and enhance our actions to disrupt the terrorists' and insurgents' financial support networks while, at the same time, spurring the development of a well-regulated financial sector in Afghanistan and Pakistan. We oversee working groups focused on a diverse array of issues, ranging from improving the United States' engagement with our Persian Gulf allies to stem the flow of donations to the Taliban and other terrorist groups, to working with the Afghan and Pakistani governments to facilitate the development of mobile banking in both countries.
Now, when I mention sanctions against Iranian banks, or our anti-money laundering efforts aimed at drug traffickers' proceeds, I expect that you readily understand how a robust AML/CFT compliance program can contribute. Well-designed and well-implemented compliance programs protect your financial institutions from abuse, legal liability and reputational harm. Effective compliance programs also lead to the detection and reporting of valuable information that helps us identify illicit activity, target our enforcement resources and tailor our policies.
But it is also true that well-designed and well-implemented compliance programs contribute meaningfully in our drive to disrupt the funding channels for the Taliban, al Qaida and other terrorist groups. And some recent trends relating to how terrorist groups finance their deadly work have created new and significant opportunities for the private sector to make an even more substantial contribution to our mutual efforts to combat the financing of terrorism around the world. I would like to spend a few minutes explaining why this is so.
Over the past several years, working with our colleagues in law enforcement, we have achieved some real success in choking off the facilitation networks that link individual donors and terrorist organizations. Employing our authorities under Executive Order 13224, the Treasury Department has designated several organizations in the United States for funneling money to terrorists groups, including the al Qaida network, HAMAS and Hizballah. We have also designated a large number of foreign entities and individuals for financing terrorist organizations around the world, including donors, fundraisers and facilitators.
These targeted financial measures, used alongside other national security and law enforcement tools, have had a significant disruptive impact on terrorist financing networks, and not only with respect to the specific targeted or designated individuals and entities. By disrupting certain key financing nodes, we achieve the collateral benefit of interfering with the entire terrorist network's ability to move money. This degrades their ability to finance recruitment and training, and to plan and execute attacks.
Furthermore, our designations are a powerful deterrent to other would-be financiers. We may not be able to deter someone who, for ideological reasons, is committed to conducting a terrorist attack. But donors and facilitators are different. They may have transnational business dealings, property in the United States or other interests that require access to the international financial and commercial systems. Many see themselves as upstanding members of society. Being identified as a terrorist financier directly threatens those interests, and the fear of designation deters their conduct.
Steps taken by the private sector, moreover, have been an important force multiplier in combating illicit finance, including terrorist financing. Many foreign financial institutions voluntarily use our designation lists in their filtering software and policies and procedures because they have no interest in doing business with individuals and entities we have designated. These foreign financial institutions – just like the institutions represented here today – do not want to risk their reputations or their financial relationships with U.S. institutions by even inadvertently facilitating illicit business.
Al Qaida's current financial predicament represents one good measure of the success of these coordinated strategies. In the first six months of this year, al Qaida's leaders made four public appeals for money, including one in June of this year, when an al Qaida leader announced that a lack of funding was hurting the group's recruitment and training. We assess that al Qaida is in its weakest financial condition in several years, and that, as a result, its influence is waning.
This success is important. It is a sign that we are moving in the right direction. But let me be clear: We are not taking any victory laps – not even close – for several reasons. First, we know that there continues to exist a pool of donors who are ready, willing and able to contribute to al Qaida. We have, at least temporarily, disrupted some of the most significant facilitation networks between these donors and al Qaida. But we have not yet dissuaded nearly enough donors from wanting to give in the first place. To do so will require increased assistance from our partners in the Persian Gulf, Southeast Asia and elsewhere, in working with us in a sustained effort to counter radicalization.
Second, many other terrorist organizations – most prominently, the Taliban – are in much stronger financial shape than al Qaida. These other organizations continue to pose serious threats to US interests around the world.
And third, terrorist organizations, including parts of the al Qaida network, appear to be increasingly turning to conventional criminal activity to finance their operations. Due, in part, to the success we have had in disrupting their traditional funding sources, terrorist organizations' reliance on crime to finance their operations appears to be expanding. To be sure, this shift has presented some new and difficult challenges, but it also has created new opportunities that we – working together – can exploit. Simply put, to the extent that terrorist organizations increasingly turn to traditional criminal conduct to finance their activities, their funding networks become increasingly vulnerable to detection by well-designed, well-implemented, and well-funded AML/CFT programs.
Now, we know that terrorist organizations' use of crime to finance their violence is not a new phenomenon. In fact, the first material support for terrorism case to be tried to a jury in the United States involved the proceeds of a cigarette smuggling ring run by Hizballah operatives. A recent RAND study on Film Piracy, Organized Crime and Terrorism contains an entire section discussing Hizballah's expanding reliance on pirated music, movies and computer software to generate revenue.
Similarly, it is well known that the FARC, a designated Foreign Terrorist Organization, relies on drug trafficking, kidnapping for ransom and extortion schemes to raise money to fund its insurgency against the Colombian government.
We also know that historically some al Qaida cells have financed their activities through street crime, such as robberies and burglary, drug trafficking and bank fraud. In 2007, for example, British authorities arrested a 22-year-old man and accused him of supporting al Qaida in Iraq through a credit card fraud scheme, in which he had allegedly sold stolen credit card numbers online and purchased goods for fighters with the proceeds.
And in Afghanistan today, the Taliban finances attacks against U.S. and coalition forces through a wide range of criminal activity. It extorts funds from those involved in the heroin trade by demanding protection payments from poppy farmers, drug lab operators, and the smugglers who transport the chemicals in to, and the heroin out of, the country. It also demands protection payments from legitimate businesses seeking to operate in Afghanistan, especially in the southern and eastern regions of the country. You can be assured that some of the money it extorts moves out of the country and into the international financial system.
Moreover, as terrorist groups increasingly reveal a willingness to engage in criminal activities to raise funds, the risk that they will collaborate with international criminal organizations increases. Organized criminal enterprises, as we know, distort economic markets, undermine the rule of law in developing countries, compromise regulatory standards, place financial institutions at risk, and make it difficult for law-abiding businesses to compete. These enterprises seek to acquire wealth, influence and power by engaging in such illicit activity as counterfeiting, human trafficking, arms trafficking and drug trafficking.
Although these purely profit-driven criminal organizations are typically indifferent to the political and operational goals of terrorist groups, their willingness to take advantage of money-making opportunities could readily lead them to facilitate the activities of terrorists. We know that these criminal enterprises are more than willing to exploit the institutions they have corrupted – often through bribery or intimidation – and the distribution networks they have developed, for a wide variety of illicit activity. Their expertise in manufacturing, smuggling and distributing one type of contraband can be easily transferred – and increasingly is transferred – to other types of contraband and illicit activity. For example, it has become clear that Mexican criminal groups are no longer simply smuggling drugs. To increase their profits, they have offered up their smuggling routes and financial infrastructure to support such illicit activities as weapons trafficking and human trafficking.
Of course, international criminal organizations are harmful in their own right. In their wake, they leave corrupted financial institutions, insecure borders and broken bureaucracies. These weakened states, in turn, can become transit points for contraband or cash, and may themselves fall prey to exploitation by terrorist groups, as the state is no longer able to assert effective control over its own territory.
For these and other reasons, combating international criminal organizations has long been a priority for the Government, and still is. But the willingness of these criminal enterprises to allow terrorist groups to use their infrastructures poses a different, and even greater risk.
So what is the significance of terrorists' apparent increasing reliance on traditional criminal activity to generate funds, and the potential nexus between transnational organized crime and terrorist networks? As I mentioned earlier, I believe these developments create an opportunity for us, working together, to more effectively detect, disrupt and dismantle terrorist financing networks.
Financial institutions have long noted – with some justification – that terrorist financing can be very difficult to detect unless the Government provides a designation list or some other specific information about the individuals and front companies that are involved. It is the classic conundrum created by the fact that terrorist financing often involves good money being put to bad use, rather than bad money trying to find its way into the formal financial system without revealing its illicit source.
But the increasing use of financial crime by terrorist organizations to fund their activities places financial institutions in a much stronger position to detect terrorist financing, and to provide valuable information to the government to help us disrupt financing networks. Financial institutions have decades of experience in detecting and preventing money laundering and illicit activity. Your systems are tuned to detect the large movements of cash associated with cash-intensive crimes, such as drug trafficking or weapons trafficking. Your monitoring and reporting also provides us with valuable information about suspicious wire transfers and other transactions that are often indicative of the placement, layering and integration phases of the laundering cycle. And your know your customer procedures and due diligence practices provide you with the ability to avoid taking on problematic clients, and to monitor effectively the financial behavior of the clients you do have to ensure their activity is consistent with the purposes and profiles of their relationships with you. Indeed, with the advent of new technologies and ever more sophisticated programmatic infrastructures, you have become increasingly adept at all of these tasks.
As a result of the terrorist financing trends I have described, there is now a greater opportunity for you to provide us with actionable information that permits us to understand better how terrorist networks form, raise revenue and move their money. Although the suspicious transactions you detect in your financial institution may be several steps removed from a terrorist act, the information you provide is analyzed to protect against international terrorism. What may appear to be routine suspicious activity relating to criminal conduct – whether it be fraud, counterfeiting, or money laundering – could also be the critical piece of information necessary to map out a terrorist network. In short, because of the changing nature of terrorist financing, your hard work in preventing illicit transactions from flowing through your institutions is all the more crucial in our efforts to protect our national security.
We will continue to be aggressive and creative in our efforts to combat terrorist financing, and to assist you in your efforts to do so as well. But to be truly successful, we need the private sector to ensure that its systems, training and procedures continue to evolve with the changing nature of the threat. Well-designed AML/CFT programs, backed by the necessary commitment of money, personnel and management attention, will help protect your institutions from unwitting involvement in illicit activity. And now, more than ever before, well-designed and well-supported AML/CFT programs also generate the reports that help us target the deployment of our administrative, civil and criminal tools to detect, disrupt and dismantle terrorist activity, the development of terrorist financing networks and terrorist radicalization efforts.
Thank you for your time today, and, more importantly, thank you for everything you do to protect your financial institutions and our country. I look forward to working with you in the years to come.
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