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TERRORIST FINANCING AND MONEY LAUNDERING

INVESTIGATIONS: WHO INVESTIGATES AND

HOW EFFECTIVE ARE THEY?

HEARING

BEFORE THE

SUBCOMMITTEE ON CRIMINAL JUSTICE,

DRUG POLICY AND HUMAN RESOURCES

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

MAY 11, 2004

Serial No. 108–243

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform
(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

TIM MURPHY, Pennsylvania

MICHAEL R. TURNER, Ohio

JOHN R. CARTER, Texas

MARSHA BLACKBURN, Tennessee

PATRICK J. TIBERI, Ohio

KATHERINE HARRIS, Florida

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland

ELEANOR HOLMES NORTON, District of

Columbia

JIM COOPER, Tennessee

——— ———

———

BERNARD SANDERS, Vermont

(Independent)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director/Communications Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON CRIMINAL JUSTICE, DRUG POLICY AND HUMAN RESOURCES

MARK E. SOUDER, Indiana, Chairman

NATHAN DEAL, Georgia

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

DOUG OSE, California

JO ANN DAVIS, Virginia

JOHN R. CARTER, Texas

MARSHA BLACKBURN, Tennessee

PATRICK J. TIBERI, Ohio

ELIJAH E. CUMMINGS, Maryland

DANNY K. DAVIS, Illinois

WM. LACY CLAY, Missouri

LINDA T. SANCHEZ, California

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland

ELEANOR HOLMES NORTON, District of

Columbia

——— ———

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

J. MARC WHEAT, Staff Director

NICHOLAS COLEMAN, Professional Staff Member and Counsel

MALIA HOLST, Clerk

TONY HAYWOOD, Minority Counsel
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C O N T E N T S

Page

Hearing held on May 11, 2004 ............................................................................... 1

Statement of:

Roth, John, Chief of Criminal Division’s Asset Forfeiture and Money

Laundering Section, Department of Justice; Daniel Glaser, Director,

Executive Office for Terrorist Financing and Financial Crimes, Department of Treasury; Marcy Forman, Deputy Assistant Director, Financial

Investigations, U.S. Immigration and Customs Enforcement, Department of Homeland Security; Donald Semesky, Chief, Office of Financial

Operations, Drug Enforcement Administration, Department of Justice;

Michael Morehart, Section Chief, Terrorist Financing Operation Section, Federal Bureau of Investigation, Department of Justice; Dwight

Sparlin, Director, Operations Policy and Support for the Criminal Investigations Branch, Internal Revenue Service, Department of Treasury; and Bob Werner, Chief of Staff, FinCen, Department of Treasury .. 9

Tischler, Bonni, vice president, Pinkerton Global Transportation Supply

Chain Security Department; and Richard Stana, Director of Homeland

Security and Justice of the General Accounting Office [GAO] .................. 111

Letters, statements, etc., submitted for the record by:

Cummings, Hon. Elijah E., a Representative in Congress from the State

of Maryland, prepared statement of ............................................................ 144

Forman, Marcy, Deputy Assistant Director, Financial Investigations, U.S.

Immigration and Customs Enforcement, Department of Homeland Security, prepared statement of ...................................................................... 39

Glaser, Daniel, Director, Executive Office for Terrorist Financing and

Financial Crimes, Department of Treasury, prepared statement of ........ 24

Morehart, Michael, Section Chief, Terrorist Financing Operation Section,

Federal Bureau of Investigation, Department of Justice, prepared statement of ........................................................................................................... 55

Roth, John, Chief of Criminal Division’s Asset Forfeiture and Money

Laundering Section, Department of Justice, prepared statement of ........ 12

Semesky, Donald, Chief, Office of Financial Operations, Drug Enforcement Administration, Department of Justice, prepared statement of ..... 48

Souder, Hon. Mark E., a Representative in Congress from the State

of Indiana, prepared statement of ............................................................... 5

Sparlin, Dwight, Director, Operations Policy and Support for the Criminal Investigations Branch, Internal Revenue Service, Department of

Treasury, prepared statement of ................................................................. 69

Stana, Richard, Director of Homeland Security and Justice of the General

Accounting Office [GAO], prepared statement of ....................................... 119

Tischler, Bonni, vice president, Pinkerton Global Transportation Supply

Chain Security Department, prepared statement of .................................. 114

Werner, Bob, Chief of Staff, FinCen, Department of Treasury, prepared

statement of ................................................................................................... 86

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TERRORIST FINANCING AND MONEY LAUNDERING INVESTIGATIONS: WHO INVESTIGATES AND HOW EFFECTIVE ARE THEY?

TUESDAY, MAY 11, 2004

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON CRIMINAL JUSTICE, DRUG POLICY AND

HUMAN RESOURCES,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:05 a.m., in room

2154, Rayburn House Office Building, Hon. Mark E. Souder (chairman of the subcommittee) presiding.

Present: Representatives Souder and Blackburn.

Staff present: J. Marc Wheat, staff director and chief counsel;

David Thomasson, congressional fellow; Nicholas Coleman, professional staff member and counsel; Malia Holst, clerk; Tony Haywood, minority counsel; and Jean Gosa, minority assistant clerk.

Mr. SOUDER. Good morning, ladies and gentlemen. Thank you all

for coming. Today’s hearing represents the fifth in a series of hearings this year by the subcommittee concerning the effects of narcotics growth and distribution in Afghanistan and the Andean Ridge

areas. Today this subcommittee will focus on monetary gains from

the same drug trade financing terrorism at home and abroad. Second, we will focus on the aspects of the money laundering, the proceeds of narcotics trafficking perpetuating the operations of individuals and organizations involved in this criminal undertaking.

The laundering of money gained by illegal activities that support

terrorist groups, narcotraffickers, arms dealers and the like, threaten to undermine both our national security and our financial stability. Equally affected by these criminal endeavors are our Canadian

and Mexican neighbors. Terrorist groups will use whatever means

available to obtain funding for their cause. Since the tragedy of

September 11, our attention and rhetoric have been focused on financing mechanisms used specifically by terrorist organizations to

support their activities. However, we would be naive if we did not

recognize that the tools used to launder and disguise funds for terrorist organizations are similar, and quite often identical, to those

used by many drug traffickers and criminal organizations to wash

their own dirty money.

According to the International Monetary Fund the amount of

money laundered globally is somewhere between $600 billion and

$1.8 trillion each year. To put this into perspective, the total

amount of money currently being moved by illegal means through-
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out the world financial system is greater than the gross domestic

product figures for most nations. The low end of the estimate compares with the GDP of Canada at $700 billion, while the high end

is larger than the $1.6 trillion GDP of the United Kingdom.

For the United States, approximately half of all laundered money

passes through financial institutions and commercial operations

within our borders or jurisdiction. This makes the United States

the keystone in any attempt to bridge financial transactions and

law enforcement activities. As markets continue to open up and as

new methods of transferring value between individuals, businesses,

and nations are created, the options available to the smuggler

greatly increases. The countless methods to obtain, transfer and

store profits by criminal organizations has tremendously complicated the efforts of agencies charged with enforcing money laundering statutes.

The complex nature of financial crimes currently engages over 20

Federal law enforcement and regulatory agencies. The roles and responsibilities of these Federal agencies as they pertain to money

laundering investigations significantly changed when Congress created the Department of Homeland Security through the Homeland

Security Act in 2002. The act removed the U.S. Customs Service

from the Department of Treasury and sent them to the newly

formed Department of Homeland Security. The investigative functions of Legacy Customs, now known as Immigration Customs Enforcement [ICE], have been altered at the direction of its new parent organization. The creation of the Department of Homeland Security also brought about organizational changes within the executive branch with respect to the investigation of terrorism financing.

On May 13, 2003 Homeland Security Secretary Ridge and Attorney General Ashcroft signed a memorandum of agreement giving

the FBI the lead role in investigating terrorism and terrorist financing. Immigration Customs Enforcement [ICE], was to pursue

terrorist financing solely through participation in FBI-led task

forces except as expressly approved by the FBI. Specific provisions

of the agreement directed the FBI and ICE to, among other things,

develop collaborative procedures for handling applicable ICE investigations or financial crimes leads that have a nexus to terrorism.

Change in the enforcement of financial crimes is also evident within the Department of Justice’s Drug Enforcement Agency.

The Honorable Karen Tandy, administrator of the DEA, testified

earlier this year in the other body that ‘‘we are making financial

background a priority in hiring new special agents and undertaking other initiatives to increase interagency cooperation and enhance training and drug financial investigations.’’ The DEA is already bringing this focus to bear on such problems as bulk currency movement in the black market peso exchange. The question

bears asking, have the changes in the investigation of financial

crimes within the Federal law enforcement agencies led to greater

efficiencies to apprehend individuals and groups involved in the

laundering of dirty money?

Our first panel of witnesses from the FBI, ICE, IRS and DEA

each have unique roles in engaging this large criminal enterprise.

However, these roles may also conflict, and at times be duplicative

in nature. Case in point, last fall the General Accounting Office re-
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leased two reports on the effectiveness of legislation facilitating our

ability to effectively address money laundering and terrorist financing. In it, the GAO reports that there is a lack of coordination between the agencies in charge of investigating money laundering

and financial crimes. The report notes that the following are needed for an effective national money laundering strategy; effective

leadership, clear priorities and accountability mechanisms.

Additionally, change in the Department of Treasury and its subordinate agencies, the Internal Revenue Service and the Financial

Crimes Enforcement Network, FinCEN, have also altered their financial crime capabilities. They have announced that they will

place FinCEN under the control of the new Under Secretary for the

Office of Terrorism and Financial Intelligence. Congress mandated

the creation of the new office in the 2004 Intelligence Appropriations Law, Public Law 108–177 to streamline the ‘‘uneven and disjointed’’ coordination on terrorist financing between Treasury and

the other intelligence agencies. All of this change represents a

marked departure from the money laundering culture of the 1980’s

when the U.S. Customs developed Operation Greenback designed

to identify and penetrate the reasons for the unusually high level

of cash-flow through the Federal Reserve in the south Florida area.

U.S. Customs worked with the IRS, DEA and the prosecutorial

support from the Department of Justice to prosecute money

launderers, ultimately leading to the Money Laundering Control

Act of 1986, making the act of money laundering a Federal crime.

During that timeframe, the Department of Treasury had direct

oversight over the investigations of financial crimes through the organizational authority over IRS and Customs. Today that relationship no longer exists. Rather, the Department of Treasury characterizes itself as a developer and implementer of U.S. Government

strategies to combat terrorist financing and financial crimes.

Change does not necessarily denote a decrease of law enforcement

capabilities. However we need to investigate if change warrants a

course direction as it pertains to financial investigations and their

oversight.

The subcommittee has chosen to call the first panel of witnesses

from the agencies within Departments of Treasury, Justice and

Homeland Security. All of the representative agencies have very

important roles in the investigation and prosecution of those involved in the laundering of moneys gained from criminal operations.

The subcommittee has also called a second panel made up of experts in financial investigations from the Government Accounting

Office and a former Assistant Commissioner of ICE, formerly U.S.

Customs. The testimony of both panels will provide a basis of evaluation of the U.S. Government’s efforts to combat terrorist financing and money laundering. There is no lack of important issues for

discussion, and I expect today’s hearing to cover a wide range of

pressing questions, mostly dependent upon my ability and voice to

ask them.

On our first panel we have representatives from four government

agencies responsible for the investigation of individuals and organizations suspected of financial crimes, as well as three governmental

agencies charged with the oversight and implementation of Federal
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financial policies and statutes. From Immigration and Customs Enforcement, we are pleased to have testify Ms. Forman, Deputy Assistant Director of Financial Investigations. From the Drug Enforcement Agency, we are pleased to have testify Mr. Donald

Semesky, Chief Officer of Financial Operations. From the Federal

Bureau of Investigations, we are pleased to have testify Mr. Michael Morehart, Section Chief of the Terrorist Financing Operation

Section.

From the Internal Revenue Service, we are pleased to have testify Mr. Dwight Sparlin, Director, Operations Policy and Support

for the Criminal Investigations Branch. From the Financial Crimes

Enforcement Network [FinCEN], we are pleased to have testify Mr.

Bob Werner, Chief of Staff. From the Department of Treasury, we

are pleased to have testify Mr. Daniel Glaser, Director, Executive

Office for Terrorist Financing and Financial Crimes.

From the Department of Justice we are pleased to have testify

Mr. John Roth, Chief of the Criminal Division’s Asset Forfeiture

and Money Laundering Section. On our second panel we are

pleased to have miss Bonni Tischler, vice president of the Pinkerton Global Transportation and Supply Security Department. Ms.

Tischler formerly held positions as assistant commissioner for the

Office of Investigations and the Office of Field Operations for the

U.S. Customs Service. Bonni also served as one of the lead agents

of Operation Greenback in the early 1980’s.

Joining Bonni will be Mr. Richard Stana from the General Accounting Office. Mr. Stana is Director of Homeland Security and

Justice Office at GAO. He is an expert in the field of financial

crimes, having authored recent reports on terrorism financing and

money laundering. I ask unanimous consent that all Members have

5 legislative days to submit written statements and questions for

the hearing records and that any answers to written questions provided by the witnesses also be included in the record. Without objection it is so ordered.

Also ask unanimous consent that all exhibits, documents and

other materials referred to by Members and the witnesses may be

included in the hearing record, and that all Members be permitted

to revise and extend their remarks. And without objection, it is so

ordered. As all of you know, it’s our standard practice to ask witnesses to testify under oath.

[The prepared statement of Hon. Mark E. Souder follows:]
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Mr. SOUDER. So would you please rise so I can administer the

oath to you.

[Witnesses sworn.]

Mr. SOUDER. Let the record show that each of the witnesses responded in the affirmative. I thank you all for coming. I’m still a

little groggy too. We had terrible weather in the Midwest getting

in, and so it was after midnight last night when I got in to D.C.

But this is an important hearing and so I was glad—I was prepared to drive if I had to because I appreciate the time it takes

each of your agencies to put this together, and your long time commitment to working with us, and this is probably the single most

effective weapon we have in the United States at fighting narcotics

and terrorism.

So we really appreciate all of your leadership in this, and we

need to work together to make it even stronger. We’ll start with

Mr. John Roth on behalf of the Department of Justice. You’re recognized for 5 minutes.

STATEMENTS OF JOHN ROTH, CHIEF OF CRIMINAL DIVISION’S

ASSET FORFEITURE AND MONEY LAUNDERING SECTION,

DEPARTMENT OF JUSTICE; DANIEL GLASER, DIRECTOR, EXECUTIVE OFFICE FOR TERRORIST FINANCING AND FINANCIAL CRIMES, DEPARTMENT OF TREASURY; MARCY

FORMAN, DEPUTY ASSISTANT DIRECTOR, FINANCIAL INVESTIGATIONS, U.S. IMMIGRATION AND CUSTOMS ENFORCEMENT, DEPARTMENT OF HOMELAND SECURITY; DONALD

SEMESKY, CHIEF, OFFICE OF FINANCIAL OPERATIONS,

DRUG ENFORCEMENT ADMINISTRATION, DEPARTMENT OF

JUSTICE; MICHAEL MOREHART, SECTION CHIEF, TERRORIST FINANCING OPERATION SECTION, FEDERAL BUREAU OF

INVESTIGATION, DEPARTMENT OF JUSTICE; DWIGHT

SPARLIN, DIRECTOR, OPERATIONS POLICY AND SUPPORT

FOR THE CRIMINAL INVESTIGATIONS BRANCH, INTERNAL

REVENUE SERVICE, DEPARTMENT OF TREASURY; AND BOB

WERNER, CHIEF OF STAFF, FINCEN, DEPARTMENT OF

TREASURY

Mr. ROTH. Thank you. I want to thank you for the invitation to

testify today. I come to you as a career justice—Department of Justice prosecutor, having served in the Department for over 17 years

as a prosecutor in two different judicial districts before coming up

here to main Justice to head the Asset Forfeiture and Money Laundering Section. We have a lot of challenges in money laundering

enforcement, not the least of which is the coordination of all the

different Federal agencies that are involved. We deal with DEA,

with FBI, with ICE, with the Internal Revenue Service as well as

people that support them like, Treasury, FinCEN and the 94 U.S.

attorneys offices.

It also requires coordination of high level policy agencies such as

Justice, Homeland Security, Treasury and State. Let me talk for a

minute about Operation Double Trouble, which I think is typical of

the kind of enforcement that we are doing these days. It successfully targeted and disrupted key Colombian drug and money laundering brokers, money brokers who operated between the United

States and Colombia, United States and Colombian enforcement
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personnel in a coordinated enforcement effort arrested over 50 individuals, seized a total of 36 bank accounts from 11 Colombian

banks.

This operation was also responsible for the seizure of over $12

million, 353 kilos of cocaine and 21 kilograms of heroin. In some

ways this case typifies money laundering enforcement in the 21st

century. It took 4 years to make this case. It required the resources

of 9 U.S. attorneys offices, 2 sections of main justice, 12 State or

local police departments, 3 Federal investigative agencies as well

as the cooperation of the Colombian police and Colombian prosecutors. How do we do this kind of coordination and why do we do it?

Our coordination is designed to insure that information is shared

so that the agents in the field know what other agencies know; that

specific cases or operations are conducted in a way to take advantage of the resources and expertise of each individual agency, and

to avoid dangerous crossovers between agencies, particularly in undercover investigations.

How do we do it? We have a number of different operational coordination components. First we have the special operations division, a multi agency entity set up to attack command control and

communications networks of high level narcotics traffickers. We

have the Organized Crime Drug Enforcement Task Forces

[OCDEF], also a multi agency group that is designed to attack the

high level narcotics and money laundering traffickers across the

United States and, in fact, internationally. Each of these OCDEF

investigations has to have a financial component to it. In other

words, if you attack the drug organization, you also have to attack

the financial component.

We sit on undercover review committees, each of the investigative agencies have review committees to look at sensitive or undercover activities. The Department of Justice sits on each of these

committees and is able to assist in coordination in that way. We

have the high intensity drug trafficking areas, the HIDTAs in the

28 different regions which we assist in the coordination among

agencies. We have the HIFCAs, the high intensity money laundering and related financial crime areas that do the same thing, but

focus on money laundering. We have suspicious activity review

teams in 40 different judicial districts, over 40 judicial districts.

And these are the folks that review the suspicious activity reports

that banks file.

And it is one of the core ways that we gain intelligence about

money laundering through financial institutions. Finally, we have

FinCEN, which is as you know, the Treasury entity that is involved

in collecting and analyzing Bank Secrecy Act data. Where are we

in the future? Where do we need to go? In looking into the future,

one of the things that we need to do is continue to attack major

money laundering organizations. It’s the core of our mission. It’s

what we do well. There are a number of cases in the last 5 years

that I could talk about that illustrated those kinds of successes.

Second, we have to look at the gateways to money laundering. We

have to attack the people who control the access points to the U.S.

financial institutions, the bankers, the accountants, the lawyers,

the financial analysts, the peso brokers who allow dirty money to

get into the financial system.
11

Third, we have to take the fight overseas. It is far easier to try

to launder U.S. currency overseas in places like Mexico, Panama,

off shore in specific Caribbean nations than it is to try to launder

it in the United States and we have to take the fight overseas and

go to those banks and go to those jurisdictions with some vigorous

enforcement efforts. We have our challenges and coordination.

There is no question about it, but I think we do a good job

through the mechanisms that I mentioned, both in my oral remarks as well as my written testimony, to help us do that job.

Thank you.

Mr. SOUDER. Thank you very much.

[The prepared statement of Mr. Roth follows:]
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Mr. SOUDER. Mr. Glaser.

Mr. GLASER. Chairman Souder, thank you for inviting me to testify today, and thank you for you an interest in the combined efforts to combat money laundering and terrorist financing. This is

a subject that has been of great interest to Congress, and I’m

happy to be here today to continue this important dialog. I’m also

pleased to be on this panel with my interagency colleagues. Defeating terrorist financing money laundering and drug traffic requires

all of us to work in concert while employing all of our respective

authorities. Our efforts against these threats have been most successful when we have worked in a coordinated approach and attack.

Since September 11, the U.S. Government has launched an aggressive offensive to disrupt, dismantle terrorist groups and their

operations. We are making it harder, costlier and riskier for al

Qaeda to raise money and move money around the world. The need

to track and cutoff sources of tainted funds has now become integrated into the efforts to attack money laundering, financial crimes

and drug trafficking as well.

To succeed, we need both a long-term and a short-term approach.

Over the long term, we are enhancing the transparency and accountability of financial systems around the world to protect these

systems from criminal abuse. In the short term, we are exploiting

these transparencies to identify and capture terrorists and criminal

funds and financial information. Let me provide three examples of

where agencies sitting right here at this table work together to

neutralize immediate threats.

First, on February 19, 2004, the Treasury Department, in coordination with United States and Colombian law enforcement, used

the Drug Kingpin Act to designate 40 key leaders of two

narcoterrorist organizations in Colombia, the FARC and the AUC,

as well as AUC front companies. In March of this year, the U.S.

attorneys office in New York City announced an indictment of two

of Colombia’s most important drug kingpins based on Treasury-related prohibitions. The indictment was part of the joint effort

among the DEA, Department of Justice, and the Treasury Department’s Office of Foreign Assets Control. This is the first time that

IEEPA violations have been used as a predicate offense in the drug

area.

I would like to draw particular attention to one action taken last

December which demonstrates how Treasury-unique authorities

can be put to use effectively in support of law enforcement. The

Treasury Department used section 311 of the USA Patriot Act to

designate Burma as a primary money laundering concern, because

of Burma’s inadequate money laundering laws, and its failure to

cooperate with U.S. enforcement. Treasury also designated two

Burmese banks because of their drug trafficking ties. Last month,

FinCEN issued final rules to block these banks from access to the

U.S. financial system. These actions were taken in very close coordination with the DEA and the U.S. Secret Service, and they

have already borne fruit.

Burma has now enacted anti money laundering laws. Burma has

announced investigations of the two banks in question. And just

this week, a team of Treasury and law enforcement officials are in
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Burma to discuss money laundering issues and law enforcement cooperation. This example also shows that we can also have a practical impact on the ground by focusing on broad systemic and structural issues. There are other examples of our efforts to deal with

identified vulnerabilities in the United States and in the international financial system.

First we have worked internationally through the financial action task force to strengthen customer identification, reporting, recordkeeping and information sharing standards. These efforts have

produced meaningful change in countries like the Cayman Islands,

Egypt, Guatemala, Indonesia, Israel, Lebanon and the Philippines,

just to name a few. We have strengthened international standards

and capabilities to attack terrorist financing, including freezing terrorist-related assets, regulating and monitoring alternate remittance systems, such as Hawala, insuring accurate and meaningful

information on cross-border wire transfers, and protecting nonprofit

organizations from abuse by terrorists.

And under the USA Patriot Act, Treasury’s FinCEN has published three proposed and final rules to broaden and deepen our

own anti money laundering regime to now include for example

oversight of money service businesses and broker dealers and securities. Treasury will continue to use its powers to influence judiciously, but aggressively to change behavior by blocking tainted assets, naming, shaming and shutting out rogue regimes and institutions and ensuring the integrity of the United States and international financial system.

In addition to these current capabilities, I have just mentioned,

the Treasury Department, in collaboration with Congress, is taking

steps to enhance our organization and abilities. On March 8 2004,

Treasury formally announced the creation of the Office of Terrorism and Financial Intelligence within the Department of the Treasury. This office would bring together Treasury’s intelligence, regulatory, law enforcement sanctions and policy components. This new

structure led by an Under Secretary and two assistant secretaries

will allow United States to better develop and target our intelligence analysis and financial data to detect how terrorists are exploiting the financial system and to design methods to stop them.

It will also allow United States to better coordinate an aggressive

regulatory enforcement program, international engagements while

managing Treasury resources wisely. We appreciate the subcommittee’s focus on these issues and we look forward to continuing to work with Congress to ensure the effective implementation

of our national anti money laundering and counterterrorist financing strategies.

Thank you, chairman.

Mr. SOUDER. Thank you.

[The prepared statement of Mr. Glaser follows:]
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Mr. SOUDER. Ms. Forman.

Ms. FORMAN. Good morning, Chairman Souder, it is a privilege

to appear before you to discuss the accomplishments of ICE and

our ongoing efforts to combat terrorist financing and money laundering. ICE developed investigative expertise in all forms of financial crime, especially trade and commodity-based crime and operational and analytical insight into non traditional methods of

transferring value. ICE continues its proud history as the recognized leader in investigating and uncovering the types of financial

crime and money laundering that undermines America’s security.

ICE works in close coordination with the Federal law enforcement

community and private sector partners to protect the economic security of this Nation.

Cornerstone is a comprehensive economic initiative that is based

upon collaboration between ICE and the private sector. Cornerstone promotes a systematic approach of identifying vulnerabilities

in the financial and trade sectors, vulnerabilities that criminal and

terrorist organizations might exploit to raise or launder their

funds. In November 2003, the General Accounting Office report

noted that terrorist organizations, like criminal organizations, use

a variety of alternate funding mechanisms to earn, move and store

the illicit funds that finance their operations. Cornerstone

coordinatesICE’s diverse array of commercial, trade and financial

investigations toward the common goal of targeting the methods

through which terrorist and criminal organizations earn, move and

store their illicit proceeds.

With our broad jurisdictional authorities, ICE is uniquely positioned to target the methods through which terrorists and criminal

organizations earn their illicit funds. These methods includes narcotics smuggling, intellectual property rights, counterfeit pharmaceuticals, human smuggling and trafficking, commercial fraud, export violations and cyber crime. ICE brings a wealth of experience

and authority in tracking the illegal movement of funds derived

from criminal activity into and out of the United States. ICE has

applied a methodology to identify financial trade systems that are

vulnerable to exploitation by criminal organizations and terrorist

financiers. These systems include both currency smuggling, tradebased money laundering, courier hubs, banks, money service business, alternate remittance systems, charities and cyber crimes.

ICE, along with our partners at Customs and Border Protection,

are well equipped to identify commodities that are imported and

exported from the United States and that could be used to store the

proceeds of illegal activity. Criminal organizations have used commodities, such as gold and precious metals, to disguise their ill-gotten gains.

For example, Operation Meltdown, an investigation conducted by

the ICE El Dorado Task Force and the IRS in New York, resulted

in the arrest of 23 individuals, the seizure of more than $1.5 million in currency, $1.3 million in gold, and 118 kilograms of cocaine.

ICE has taken a step beyond traditional law enforcement. Cornerstone provides the comprehensive investigative and intelligence resources necessary to track trends in criminal and terrorist financing schemes. Rather than attempting to target and investigate specific terrorist organizations and how they raise their money, Cor-
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nerstone targets the criminal methods themselves, identification

and shutting down the vulnerabilities in commercial, trade and financial systems exploited by both criminal and terrorist organizations.

Money laundering and terrorist financing are complex crimes

that are beyond the scope of any one agency or sector. ICE recognizes the importance of sharing information and partnering with

the law enforcement community, the regulatory community and the

private sector to combat money laundering and terrorist financing.

Through Cornerstone, ICE has embarked on an aggressive outreach program with the private sector. Special agents serve as liaisons with the private sector in facilitating the exchange of vital information. ICE shares this information through a quarterly report,

Tripwire. Tripwire provides up-to-date information on criminal

methods used to exploit vulnerabilities within trade and financial

systems. ICE is home to the Money Laundering Coordination Center.

The MLCC serves as the central clearinghouse for ICE’s undercover drug money laundering operations, many of which target the

BMPE. The MLCC serves as a repository for identifying information that is derived as a result of these operations. Information

that is collected by the MLCC is analyzed to identify a target, recipients of BMP dollars, methodologies, and trends and patterns.

The MLCC serves as a deconfliction mechanism for the 27 ICE

field offices conducting drug money laundering operations. ICE has

developed an important analytical tool called numerically integrated profiling system. NIPS is an advanced software program

that analyzes foreign and domestic trade data, passenger travel information, Bank Secrecy Act data, immigration data seeking to

identify anomalies in the collective information.

The MLCC and NIPS fully complement ICE’s Plan Colombia Initiative for providing the infrastructure to analyze the information

that is developed on the BMPE. ICE has worked closely with our

Colombian counterparts providing training and computers to exchange data. ICE continues to work with our partners at CDP to

enforce currency and monetary instrument reports and bulk currency laws. Thus far in fiscal year 2004, ICE has seized approximately $54 million in currency. Since the enactment of the bulk

currency statute, ICE special agents have 133 arrests that have resulted in 103 indictments and 53 convictions.

Last ICE has established the first politically exposed persons

currency task force in Miami. The task force’s goal is to identify locate and seize assets of corrupt politically exposed persons involved

in the theft of embezzled government funds. With the expansion of

enforcement capabilities and innovative investigative techniques

that ICE has brought together and Cornerstone, the agency is well

positioned to combat money laundering and terrorist financing.

I would like to thank the chairman for allowing me to testify before this committee.

[The prepared statement of Ms. Forman follows:]
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Mr. SOUDER. I thank each of you as you are going through this

testimony, because it is, like, summarize in 5 minutes everything

that you and hundreds of people do a very detailed type of thing.

So I appreciate your ability to summarize this, and we will try to

develop it further in questions.

Mr. Semesky.

Mr. SEMESKY. Chairman Souder, I would like to thank you for

the opportunity to testify before your subcommittee today on the

importance of cooperation and coordination between those agencies

entrusted with the investigation and enforcement of money laundering and terrorist financing laws of the United States. As the

Nation’s single mission Drug Enforcement Agency, the Drug Enforcement Administrations anti money laundering mission is directed solely at funds derived from the trafficking of illegal narcotics. Under administrator Karen P. Tandy’s leadership, significant

strides have been made in DEA’s financial enforcement program.

Structurally, the Office of Financial Operations has been formally

established at DEA headquarters. Each DEA domestic field division has formed one or more financial investigative teams, or FIT

teams. FIT teams are also being established in DEA country offices

in Colombia, Mexico and Thailand.

The cultural mind set is also changing as evidenced by DEA’s enthusiastic pursuit of specialized money laundering training, eager

participation in multi agency financial initiatives, and most importantly, a renewed focus on the money and all of its domestic and

international drug investigations. DEA recognizes that the estimated $65 billion per year illegal drug industry in the United

States is a national tragedy that requires the dedicated resources

of many Federal, State and local agencies to combat. DEA believes

that the best way to combat this scourge is through interagency cooperation, the sharing of intelligence and coordination of enforcement activities.

I would like to share with the subcommittee some of the ways

the DEA has put this into action on the drug money laundering

front. On the national level, DEA is participating in the multi

agency OCDEF Drug Fusion Center. The Fusion Center, which will

have a financial intelligence component known as the Narcotics Financing Strategy Center, will integrate drug-related financial intelligence with critical drug intelligence, allowing connections between

the money and the underlying criminal activity that heretofore has

not been possible. In 1999, DEA created a financial group of the

special operations division or SOD to coordinate high level money

laundering wiretap investigations.

To encourage participation, ICE was given the lead and placed

an assistant special agent in charge at SOD to supervise this section, which includes agents from DEA, ICE, IRS, CI and the FBI.

Financial operations is working toward implementation of several

national money laundering initiatives that involve joint partnership with one or more of our Federal law enforcement counterparts.

Two of these initiatives involve the combining of separate ongoing

bulk cash and wire remitter initiatives into joint agency initiatives

aimed at the integration and analysis of financial intelligence information.
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Financial operations is also established in an interagency working group made up of both Federal law enforcement and regulatory

agencies to identify major drug money laundering threats and form

a consensus of what criminal and regulatory measures would form

the best combination for addressing these threats. Financial operations has also taken over liaison responsibility with Treasury Office of Foreign Assets Control and will be assisting OFAC in compiling and vetting intelligence information on individuals and related entities nominated for inclusion on OFAC’s Drug Kingpin and

specially designated narcotics traffickers programs.

Under DEA’s terrorism information sharing program, all DEA

entities must identify and report investigations that have a nexus

or potential nexus to extremist or terrorist organizations to an established SOD mechanism to ensure that all terrorist-related information is immediately shared with the appropriate agencies. 17 of

DEA’s 21 domestic field divisions FIT teams have participation of

one or more Federal law enforcement agencies that also have

money laundering jurisdiction. The FIT teams have also been

tasked to participate in all high intensity financial crime area task

forces and suspicious activity report review teams in their areas of

responsibility. DEA currently has 80 offices in 56 countries around

the world. These offices work closely with their host nation counterparts.

DEA is already working closely with its foreign law enforcement

counterparts on many significant drug money laundering investigations, most in support of DEA domestic field division cases and at

times, other U.S. agencies investigations as well. Drug trafficking

organizations attack the soul and fabric of America in pursuit of

one thing, the money. As American defenders against these vile organizations, it is incumbent upon the U.S. Drug Enforcement Administration to attack these groups on all fronts.

There is no more important battle in this effort than the attack

against the proceeds that fuel this illicit industry and provides a

motive to those who prey upon our society. DEA is committed to

working with its law enforcement counterparts to fight against

drug money laundering.

Mr. Chairman, thank you for the opportunity to testify here

today, and I will be happy to answer any questions you may have.

Mr. SOUDER. Thank you.

[The prepared statement of Mr. Semesky follows:]
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Mr. SOUDER. Mr. Morehart.

Mr. MOREHART. Good morning, Chairman Souder and distinguished members of the committee. On behalf of the FBI, I’d like

to thank you for this opportunity to testify before you today. I’ll

discuss the combined efforts of the FBI in combination with its

partners in law enforcement toward enhancing both cooperation

and the efficiency with which we interact to address the investigation of money laundering and terrorist financing matters. The

FBI’s counterterrorism program has made comprehensive changes

in order to meet its primary mission of detecting, disrupting and

defeating, or more simply put, preventing terrorist operations before they occur. We have spent the last 21⁄2 years transforming operations and realigning resources to meet the threats of the postSeptember 11 environment.

Terrorists, their networks and their support structures require

funding in some form to exist and operate. The financial support

usually leaves a trail that can be exploited by law enforcement for

investigative purses. Being able to identify and track those financial trails after a terrorist act has occurred is important. But the

key to achieving the mission of prevention lies in exploiting financial information to identify previously unknown or undetected terrorists and/or terrorist cells. To this end, the FBI has bolstered its

ability to effectively combat terrorism through the formation of the

terrorist financing operation section, or as it is more commonly

known, TFOS.

The mission of TFOS is broad. It ranges from conducting full financial analysis of terror suspects and their financial support

structures in both the United States and abroad to developing predictive models and conducting data analysis to facilitate the identification of previously unknown terrorist suspects. In addition, the

FBI has undertaken a number of other investigative initiatives to

improve information sharing and coordination with our national

and international partners. For instance, we have significantly increased the number of joint terrorism task forces, or JTTFs across

the country. Prior to September 11 there were 34 JTTFs. There are

now 84.

The JTTFs, as you may know, effectively partner FBI personnel

with literally hundreds of investigators from various Federal, State

and local agencies. The members include representatives from a variety of Federal agencies, including most, if not all, of those represented here today as well as others. Subsequent to the events of

September 11, 2001, the U.S. Customs Service was mandated to investigate terrorism financing. This was achieved via the initiation

of Operation Green Quest that attained a number of successes, but

represented in some measure a duplicative effort and reinforced the

need for a centralized coordinating entity.

Consequently, a memorandum of agreement pertaining to the investigation of terrorism financing was entered into between the Department of Justice and the Department of Homeland Security.

The MOA addressed the importance of waging a seamless coordinated law enforcement campaign against terrorist financing. The

MOA, signed by Attorney General Ashcroft and DHS Secretary

Ridge on May 13, 2003, designated FBI as the lead agency in terrorism financing investigations and operations there by enabling
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DHS to focus its law enforcement activities on protecting the security and integrity of the U.S. financial systems through Operation

Cornerstone, which was previously described by Ms. Forman.

Former U.S. Customs Service Operation Green Quest criminal

cases, having no nexus to terrorism, are still being worked by ICE,

while those having a nexus to terrorism were transferred or

transitioned to the appropriate JTTF, where ICE task force members continue to play significant roles. In accordance with the MLA,

ongoing and future ICE financial investigations have developed

links to terrorism will be referred to the FBI through TFOS. I will

also note that the FBI, pursuant to the MOA along with ICE has

developed collaborative procedures to insure that will happen in

the future.

In addition to the aforementioned efforts on a national level, the

National Security Council formalized a policy coordinating committee on terrorist finance at the end of 2001. The NSC chairs the

PCC, which regularly meets to coordinate the U.S. Governments

campaign against terrorist financing. The Departments of State,

Treasury, Homeland Security and Justice also participate in an

interagency terrorist financing working group chaired by the State

Department. The working group has identified 42 countries whose

cooperation is crucial to the war on terrorism. All of the participating agencies work closely to provide training or technical assistance

to each of those countries.

With respect to the 2003 money laundering, national money

laundering strategy, the FBI concurs with the strategies, goals and

objectives as set forth by the Treasury Department, the blocking of

terrorist assets worldwide, establishing and promoting international legal standards for adoption by other countries to safeguard their financial infrastructures from abuse and facilitating an

exchange of international information are several key objectives

which must be achieved if we are to stem the flow of illegal funds

throughout the world.

Also I would like to add the FBI’s efforts to combat terrorism

have been greatly aided by the provisions of the USA Patriot Act,

and pursuant to the 2003 national money laundering strategy, the

FBI is insuring its vigorous and appropriate application that has

already an extraordinary beneficial in the war on terrorism. Most

importantly, the Patriot Act has facilitated the sharing of information within the law enforcement and intelligence community.

In summary, the FBI understands that combating terrorist financing is a mission that cannot be accomplished independently.

The need for information sharing and close cooperation cannot be

overstated.

I’d like to thank you for the opportunity to testify before you

today and to highlight the FBIs investigative efforts and the role

of the FBI in combating terrorist financing. It would be my pleasure to answer any questions that you might have.

Mr. SOUDER. Thank you.

[The prepared statement of Mr. Morehart follows:]
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Mr. SOUDER. Mr. Sparlin.

Mr. SPARLIN. Good morning, Mr. Chairman, Congresswoman

Blackburn. Thank you for the opportunity to be here today to highlight the specialized skills of the Internal Revenue Service Criminal Investigation Division and the contributions we make along

with our counterpart law enforcement agencies to our national effort to combat money laundering and terrorist financing. I wish to

thank the subcommittee for the work you have done and are doing

on these important issues. And I would especially like to thank

your staff for the assistance in the preparation for these important

discussions today.

The fundamental mission of the Criminal Investigation Division

is to investigate complex tax and money laundering cases. To accomplish this, we recruit individuals with accounting and business

backgrounds. Through a process of rigorous training and years of

experience, we shape them into law enforcement professionals

adept at investigating the most sophisticated financial crimes,

whether they involve tax evaders, corporate fraudsters, narcotics

traffickers or terrorist financiers. The unique sophistication of our

2750 criminal investigators is in demand throughout the law enforcement community because we add value to any financial investigation.

Money laundering activities and sophisticated tax evasion

schemes are frequently interconnected. For example, an ongoing investigation combines both money laundering activity and an ambitious offshore evasion scheme in Costa Rica. The schemes promoter

has assisted 1500 clients in obtaining over $30 million in fraudulent refunds. To date, 39 defendants have been recommended for

prosecution and those already convicted have received significant

sentences.

In addition to bringing significant technical expertise to tax and

money laundering investigations, there is often a nexus between

these crimes and terror. For example, one significant investigation

of an international charitable foundation revealed ties to international terrorist organizations. In that case, the crimes that

formed the basis for the search warrant related to the filing of the

foundations tax return and bank secrecy data.

In another investigation the executive director of the benevolence

international foundation, a purported charitable was sentenced to

over 11 years in Federal prison for fraudulently obtaining charitable donations that were ultimately used to support violent activities overseas. Terrorists employ a variety of means to move money,

and we are using a variety of means to detect it. One way is to capitalize on Bank Secrecy Act data. Criminal investigation leads 41

suspicious activity report review teams nationwide. These teams

are comprised of Federal, State and local law enforcement officials

who evaluate over 12,000 SARs each month.

An example of the usefulness of an SAR review team is illustrated in a case involving a fast food restaurant employee who was

convicted of operating an unlicensed money service business. This

case was initiated after an SAR review team evaluated numerous

suspicious activity reports filed by several banks because the subject was making cash deposits inconsistent with his occupation. It

was ultimately proven that the subject made numerous cash and
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check deposits to several accounts and wired over $3 million overseas to locations in Europe, South America the Middle East and

Asia.

IRS also makes a unique contribution to the war on terror

through our counterterrorism project we are piloting in Garden

City, New York, which when fully operational, will use advanced

analytical technology and data modeling of tax and other information to identify patterns and perpetrators.

The Center analyzes information not available to any other law

enforcement agency. Already the Center has identified individuals,

entities and the relationships between them previously unknown to

law enforcement. As an example, the Center began compiling and

analyzing financial data that culminated in the linking of several

individuals and businesses, some of whom are or were under investigation and one with ties to al Qaeda.

In conclusion, I would like to thank and pay tribute to not only

the men and women of IRS CI, but the law enforcement professionals. It is our honor to work with them on task forces combating

money laundering and terrorism. Cooperation is the backbone of

law enforcement, and the task force approach has served our Nation well in confronting many critical national law enforcement

challenges.

I thank you for this opportunity to appear before you this distinguished committee and would be happy to answer any questions

you and the committee members may have.

Mr. SOUDER. Thank you very much.

[The prepared statement of Mr. Sparlin follows:]
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Mr. SOUDER. Mr. Werner.

Mr. WERNER. Good morning, Mr. Chairman, Congresswoman

Blackburn. It is a privilege to appear before you to discuss

FinCEN’s role in the terrorist financing and money laundering investigations. Since its establishment in 1990, FinCEN has been a

service-oriented information-sharing agency dedicated to collecting,

analyzing and disseminating financial data to help identify and

trace the financial intersection of potential criminal and terrorist

activity. Although FinCEN examines its data in support of a wide

range of criminal investigations, its top operational priority is unquestionably counterterror support to the law enforcement intelligence communities. We make our information products and services available to all agencies that have a role in investigating or

analyzing terrorist related activity and information.

We also strive to adapt quickly to changing needs. One of the

first actions FinCEN undertook following September 11 was the establishment of a financial institution hot line to provide financial

institutions with an expedited means of vetting suspicious financial

activity possibly linked to terrorism. Although the financial institution will continue to file a suspicious activity report through the

formal BSA filing process, the hotline now makes it possible to

quickly assess the value of the information and get it into the

hands of law enforcement well in advance of the normal time constraints associated with the formal process.

Since its inception in September 2001, the hotline has fielded

over 1,300 calls, and over 850 of those have resulted in immediate

referrals of the information to law enforcement. Strategically

FinCEN is working expeditiously to enhance the quality of its analysis. We have adjusted our analytic methodology from a reactive

approach to a more proactive think tank environment that will

focus on the ways in which terrorist groups move money. To that

end, a pilot is underway to look at some of the top known foreign

terrorist organizations through a financial lens. Three analysts are

presently conducting extensive research to study the business models of these organizations.

The objective of each analyst is to become familiar with the

mechanisms each group uses to—in order so that we can identify

inherent vulnerabilities in the organizations business structure. We

are also initiating a bilateral study with our Italian counterpart to

track illicit currency flows between our two countries. This will be

the first collaborative effort with a foreign financial intelligence

unit on a strategic project. It is anticipated that this project will

be the foundation for additional collaborative efforts amongst the

members of this dynamic international network which is known as

the Egmont Group.

Most significantly, FinCEN’s information products and services

are available to all agencies, whether Federal, State or local that

have a role in investigating illicit finance. Networking is an integral part of this service. It extends the value of our data in multiple ways. Our technologies, for example tells United States when

different agencies are searching the same data, enabling United

States to put those agencies together and there by avoid investigative overlap, and more importantly, permit the agency to leverage

resources and information.
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But perhaps the most prominent example of FinCEN’s role as a

centralized network recently has been its implementation of section

314 of the USA Patriot Act. In recognition of its unique position as

a central focal point for financial information, FinCEN was mandated under that section to facilitate and enhance the flow of information potentially related to terrorist financing and major money

laundering.

In general, section 314(a) allows law enforcement to query U.S.

financial institutions about suspects, businesses and accounts in

major money laundering and terrorism investigations. FinCEN facilitates this interaction by sending law enforcement information

requests to thousands of financial institutions across the country.

These financial institutions, in turn, search their records and

transactions and report positive matches back to FinCEN. FinCEN

then consolidates the data and provides this pointer information to

the law enforcement requester for followup through appropriate

legal process. Another key dimension of the FinCEN network is its

global reach. Transnational crime cannot be successfully confronted

without building alliances within the global community. Finance

today knows no borders. Law enforcement officials are now able to

come to FinCEN to request assistance from our international counterparts, the financial intelligence units of 84 countries throughout

the world.

In fact, we are implementing a program where FinCEN will

automatically request information from relevant financial intelligence unit counterparts as part of any terrorism related analysis

project. FinCEN, its network and its missions are dedicated to fostering a dynamic information sharing environment among its law

enforcement, regulatory and financial partners. FinCEN will continue to buildupon its expertise and add the benefit of its successes

and lessons learned to our Nation’s antiterrorism and money laundering efforts.

Thank you again for this opportunity to testify today on

FinCEN’s role in terrorist financing and money laundering investigations. I’d be happy to answer any questions the subcommittee

may have.

[The prepared statement of Mr. Werner follows:]
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Mr. SOUDER. Before I start on my questions, I want to just ask

you, Mr. Werner, about something that you said. You are able to

tell when different agencies are accessing the same information. Is

that automatic notification?

Mr. WERNER. It’s done in two ways. We have the gateway system, whereby State, Federal and local law enforcement access BSA

data. That has an automatic alert system when data has been

touched by more than one agency. In addition, when we get direct

requests for assistance from agencies, we network that through our

data base and feed it back into the gateway system so that we can

collect any double touchings of that.

Mr. SOUDER. Thank you. I want to start with the Andean region.

It is the largest area producing narcotics into the United States.

And I believe it was Mr. Semesky said that the black market peso

exchange was the largest laundering mechanism for Colombia.

Does everybody agree with that, about the black market peso exchange? There’s no disagreement. Could you describe that more

completely, the extent of that, and how are you tackling that if

that’s the largest place where the money is moving.

Mr. SEMESKY. Mr. Chairman, the black market peso exchange is

a mechanism that actually began in the 1960’s when Colombia imposed foreign exchange restrictions on its citizens. Due to the inability of Colombian businesses to get foreign exchange for international trade, a black market grew up and involved Colombia. In

the late 1970’s when the U.S. Government started cracking down

using Bank Secrecy Act violations on Colombian drug organizations, those drug organizations became the supply end of the dollars that fed that system. And it just mushroomed from there.

Quite simply, how it works is that you have a drug trafficking

organization that operates, that produces drugs in Colombia, sells

them in the United States. As they collect their drug proceeds, they

have a need to either smuggle them out of the United States or get

rid of them, launder them in some fashion. What the black market

peso exchange does is it brings a peso broker into the loop. That

peso broker will buy the dollars from the narcotics trafficking organization, usually at a very substantial discount. This negotiation

takes place in Colombia. Messages through various means are

given to workers, both for the drug organization and the money,

the peso brokers organization here in the States. They exchange

the funds.

At that point the drug traffic organization is paid in Colombia in

pesos, less the discount. The peso broker now owns the dollars that

are resident here in the United States. And his or her particular

problem is getting that money in the banking system, which generates a lot of the work that the agencies here at the table conduct.

That money is then put in a lot of times to the trade system, commodities are purchased and smuggled into, or undervalued and

taken into Colombia, where they are sold through the San

Androsidos, or the black markets in Colombia.

That is kind of the cycle how it runs. What the U.S. agencies are

doing, they mainly attack this system through the identification of

the peso brokers and the delivery of the funds here in the United

States, and then tracking the funds through the system into the

commodities and then both the United States and the free trade
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zones around the world to Colombia. And then go after the accounts that the moneys go through and in the system. One of the

things that we are pushing at DEA and our office is more to focus

primarily back on the drug organizations that are delivering the

funds in the United States, rather than on where the funds are

going. ICE is the expert in trade and they conduct more of the

trade investigations than DEA does. DEA investigations we want

to focus on the drug organizations that are generating the money

and take that back to Colombia and to the drug traffickers that are

supplying those organizations here in the States. So its kind of a

twofold approach. There are plenty of targets, both on the supply

side of the dollars, the facilitating peso broker, and the demands

side, which are the businesses that are buying the dollars for all

of the agencies to concentrate on.

Mr. SOUDER. Does anybody else want to comment on this as

well? I want to make sure I understand. In the black market peso,

in this market are they dealing solely with Colombia? Or do they

have legitimate peso exchanges too, or are these just basically

rogue operations from the word go? Are they intermingled with

Mexican peso or other currencies as well.

Mr. SEMESKY. Primarily, Mr. Chairman, it deals with Colombia.

This is a system that is, in effect, in Colombia. There are other

black markets throughout the world that do buy illegal dollars. Colombia relaxed its foreign exchange restrictions in 1991 and it is

now perfectly legal to buy and sell pesos for foreign exchange in

Colombia, in most situations. However, there are still regulated situations that do require registration with the central bank, and one

of those is international trade. Because of that, there is still a demand for dollars for international trade. And so the drug industry

is still supplying literally hundreds of millions of dollars, if not billions,—well, the estimate is up to $5 billion a year for the black

market peso exchange. But to answer your question, it primarily

deals with Colombia, although we do see a good bit of the money

go through Mexico first. But it is still being handled by Colombian

peso brokers.

Mr. SOUDER. Panama to.

Mr. SEMESKY. A lot of the money ends up in Panama to buy commodities from the cologne free trade zone which are then taken to

Colombia either is smuggled out right or undervalued with the Colombian Customs service, which is called the Dion.

Mr. SOUDER. Do any of you have any specific suggestions of anything where we would need more cooperation and legal changes in

Colombia, Peru, any of the Andean countries that would help go

after this?

Mr. SEMESKY. Mr. Chairman, as the Colombians have relaxed

the laws on foreign exchange, it has decreased it, I believe, somewhat. However, the agencies here at the table are addressing the

black market peso exchange with the regulatory agencies to go

after it as a system, and we are working toward that and working

with our counterparts in Colombia. They are well aware of our efforts and they want, they have expressed a desire to work with

United States on that. We have also, through FinCEN, talked to

the governments of Panama, Aruba, Venezuela as well, because a

lot of the drug dollars that flow through their system go into those
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free trade zones as well. And we know that if we address one free

trade zone and not the others, that the money will just shift.

Mr. SOUDER. Anybody else?

Mr. ROTH. I would just like to highlight that, that the cooperation that we get from these other countries is crucial in trying to

knock down these black market peso exchanges and some of the investigations that we have had literally could not have been done

without, for example, the cooperation of the Colombian government

who’s been very responsive.

Ms. FORMAN. Mr. Chairman, if I may, some of the tools that

we’re utilizing to attack the BMPE, the black market peso include

a number of undercover operations that target the drug dollars in

the streets of the United States and that information is collected,

at least by ICE, in the money laundering coordination sector, but

we are able to take the identifying information, identify patterns

and trends and recipients of the black market dollars. We’re also

working under Plan Colombia very closely with the Colombian government. We’re exchanging trade data. The NIPS program that I

spoke about identifies anomalies on trade leaving the United

States and trade going into Colombia to identify these anomalies

because, for example, if a million dollars worth of batteries are

leaving the United States and Colombia says that they’re only receiving 100,000, that’s an indicator that maybe the batteries may

be smuggled in.

So we have that relationship. We have also assigned agents to

Colombia to work with the Colombian authorities and help identify

leads and targets, joint targets to work together. Very successful

case that we worked together with DEA and the ICE El Dorado

Task Force was a case called Wire Cutter, where we worked with

the Colombian authorities and we were able to take down eight

major brokers in Colombia as well as violators here in the United

States. Thank you.

Mr. SOUDER. Any comments on Mexico or where we are there?

It’s been a checkered history.

Mr. SEMESKY. Mr. Chairman, the DEA country office in Mexico

is, on the money laundering side, is being expanded to a full financial investigative team. We work, we do work closely with the

OFFI, which is their equivalent of the FBI, on money laundering

investigations. That being said, Mexico is probably the largest repository of drug dollars leaving the United States. And most of that

leaves the United States in bulk cash. Many of the investigations

the DEA conducts and the other agencies here conduct address the

bulk cash that is leaving the United States across the southwest

border into Mexico. We are currently as a interagency trying to address that problem and look at different means of addressing it either on the criminal enforcement or the regulatory side.

Mr. SOUDER. I know on the north border we do some back-checking of people going back into Canada. We have had a couple of experimental places. Are we doing that at any of the south border

where we are catching any bulk cash.

Ms. FORMAN. ICE has conducted a number of operations with our

Mexican counterparts in conjunctions with ICE foreign attache officers, and are in the process of establishing another outbound operation, but we actually assign agents as well as Customs border pro-
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tection officers in Mexico, and we exchanged information as the operation is ongoing. And we also provide x-ray vans and the expertise to share that information. So this is an ongoing process.

Mr. SOUDER. So do we do any checking on the U.S. side of the

Texas-Arizona-California borders?

Ms. FORMAN. I’m sorry?

Mr. SOUDER. In other words, what you described is mostly working with the Mexicans on their side of the border. Do we do any

back checking at our side of the border looking for money before

they leave U.S. soil?

Ms. FORMAN. Yes. It’s a two-way exchange of information. It’s not

just a one-way. They also feed information back to us during these

operations.

Mr. SOUDER. OK. Ms. Blackburn.

Mrs. BLACKBURN. Thank you, Mr. Chairman. I want to say thank

you to each of you for taking your time to come over here this

morning and talk with us and give us an update on where you are

with this. I think when you have a district like mine, where Fort

Campbell is located in Montgomery County, Tennessee, where you

have many families that have military men and women who are

deployed, we have Guardsmen and Reservists who are deployed

and are aggressively working in Afghanistan and Iraq and fighting

in this war on terror. And I appreciate the information that you all

bring to us this morning.

Mr. Chairman has talked with you about Colombia and Mexico.

We know that and we’ve been watching what DOD has done over

in Afghanistan with the stockpiles or removing the stockpiles of

opium and heroin. What I’d like to know, we know that the cell of

these finances a lot of terrorist activity. And do we currently have

any significant reports of success trafficking—tracking the financing mechanisms or apprehending individuals that are engaged in

terrorist financing in this region? And whomever from the panel

would like to answer that?

Mr. SPARLIN. I’ll speak for the Internal Revenue Service. As we

have responsibility for many of the Bank Secrecy Act violations, we

review the significant amount of data that is supplied by FinCEN

with the—through the banking community. We are working in

partnership with the banking community to identify suspicious activity. They file those reports with us.

In addition to that, we are looking at a number of charitable organizations who have been identified as having relationships with

terrorist organizations. And I mentioned in my opening statement

a couple of those we have shown to be raising money in this country through their charitable organizations through donors to that

program, and then shipping the money overseas.

We’ve had a couple of significant successes in that, as I—the Benevolent Foundation that I spoke about earlier, the individual

there raised millions of dollars, sent it overseas and now is facing

over 11 years in prison.

So we are looking at both the organization charitable organizations that may be involved in that sort of thing, the banking community, the financial community is working with us in partnership

to identify those who are potentially conducting suspicious activities.
98

Mrs. BLACKBURN. And that is specific to Afghanistan and to that

region, am I correct?

Mr. SPARLIN. Well, it’s to the Middle East. I mean, they—it’s

kind of a know-your-customer type of a situation.

Mrs. BLACKBURN. Exactly. OK. Thank you.

I also want to ask you just a little bit about looking at some of

the other avenues of financing, the alternative means, if you will,

diamonds, gold, contraband, counterfeit goods, and intellectual

property theft. It’s particularly important to us in Tennessee because of what happens with entertainment product and with music.

And my songwriters in Tennessee talk about this regularly.

And the FBI leads some investigations and maintains case data,

according to the GAO, and does not systematically collect and analyze data on terrorist use of alternative funding mechanisms. And

if I’m wrong in that, I want you to correct me. Does the FBI anticipate collecting this type data in the future and could it provide useful information about the utilization of these types of alternative

funding schemes?

Mr. MOREHART. Yes, ma’am, to answer that question, let me give

you a little detail on that. It is, as you might expect, difficult to

accumulate that kind of information because there are so many different types of alternate financing methods. It’s limited only by

your imagination, if I might describe it that way.

What the FBI is undertaking now is a number of different initiatives, if you will, or projects to try to accommodate that information

if I can describe it as a data base so that we can accumulate it and

send it out not only to FBI agents out in the field and the managers there, but also the other agencies we interact with through

the JTTF so they are aware of those type of financing mechanisms.

One of the things we are doing is we are—we have what we call

an annual field office report. For the first time last year that annual field office report included questions regarding terrorism financing methods, mechanisms, if you will, that we are accumulating and analyzing as we speak.

In addition, we intend to go back out to the field with a detailed

survey that will be answered by those supervisors, if you will, that

oversee the joint terrorism task forces that handle the terrorism financing matters. And we’re going to ask for specific detailed information on the various types of financing mechanisms that they

have observed so that we can also accumulate that information and

disseminate it for educational purposes, if you will.

Also we are in the process—this is a growing process—of suggesting manual changes. One of the things that FBI agents have to do

and their counterparts on the JTTFs is to report back to our headquarters as to preliminary investigations and full investigations of

terrorist matters. One of the aspects that we are requesting is that

they specifically must include any information they have on terrorist financing that relates to any specific investigation. We’re in the

process now of collecting that information and within, I would say,

the very near future, we will have a product that describes the

types of financing mechanisms that we’re seeing.

Mrs. BLACKBURN. Thank you, sir. Let me ask—Mr. Chairman,

may I continue for just a moment? Thank you, sir.
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Do you all—is there a way for you to construct for us, and there

may not be, just a chart that would show what you estimate to be

the amount of money that leaves this country with drug sales,

what is there with the alternative means, that terrorists or organizations are pulling out this country? I think sometimes people have

a tough time visualizing good people with good money sometimes

end up spending it on counterfeit goods or contraband or different

things. I don’t know if you have an estimate of the amount of

money that gets tied back to terrorist activity.

Mr. MOREHART. You know, that would be extremely difficult to

even guess on that amount. The bottom line, when you’re talking

about terrorist financing in terms or equating it to money laundering, the bottom line with those funds is concealing the funds and

their ultimate use as opposed to pure laundering of the funds to

make illicit funds look as if they’re, you know, good money, if you

will, or clean money. So that, in and of itself, poses a problem.

The concealment issue, it is extremely difficult, as you describe

Congresswoman, a lot of people, for example, may contribute funds

to an NGO thinking that it’s a legitimate donation when, in fact,

that money is taken down through several transactions and used

to fund insurgency, for example, in Iraq. It’s very difficult to determine when it becomes from legitimate money, if you will, to illicit

funds. So it’s almost impossible to give you a dollar amount.

Mrs. BLACKBURN. Well, and I know that’s one of the things that

makes your job very difficult and we appreciate the efforts you all

continue to place on it.

I do have one other question, methamphetamines, and the situation that we have in Canada with smuggling of the precursor

chemicals that are coming in. And we know that grew through the

1990’s. And without revealing any sensitive or classified information, can you tell us what your agencies are doing to target the financial side of the precursor chemical smuggling?

Mr. SEMESKY. Congresswoman Blackburn, the Drug Enforcement

Administration has targeted and, quite successfully, the precursor

chemicals coming from Canada into the United States and has seen

a dramatic drop in the amount brought into the United States as

well as a very steep increase in the price for the pseudoephedrine.

I don’t have specific figures to give you on that.

As far as the financing side of that, they have, in those investigations, addressed the financing or the money that is earned from the

sale of pseudoephedrine and ephedrine. As Mr. Morehart pointed

out, as we tracked those funds and they’ve gotten into the banking

system, once they get to the Middle East they literally disappear

because they go over many times in the form of money orders or

checks and they hit the first bank and are turned into cash again

and the trail is gone.

Mrs. BLACKBURN. Thank you. We appreciate your efforts and

thank you for your time for being here today.

Mr. SOUDER. I want to followup briefly and first on that subject

of the precursor chemicals. At our Detroit hearing, we heard the

good news that the different agencies feel that we’ve had both in

Homeland Security, DEA, and others, progress. Particularly there

where we had at least signs from a few big busts that a large percentage of the precursor chemicals are coming across at Detroit,
100

and we had a couple of big busts, of course the ecstasy bust. But

I want to confirm these and then ask a question.

We also understood, when I asked a followup question, that there

has not been a dramatic reduction on the ground in the United

States in meth, either in precursor chemicals or in the use of methamphetamine. That we’ve not seen a decline or we don’t—assume

there’s a decline in Rotterdam and Antwerp as the shipping points,

so therefore if it’s not coming from Canada, where is it?

Mr. SEMESKY. Mr. Chairman, that is not something my division

addresses, but my understanding is that there are new routes and

one of them is Mexico. And that is something that is being addressed.

Mr. SOUDER. Because one of the questions is it’s presumably,

since the precursor chemicals are predominantly made for these

kind of drugs in the area of the Netherlands and in Belgium, and

we know where the bulk of it is coming from, it seems like one of

the best ways to trace this would be the money. Somebody is shipping it.

Mr. SEMESKY. Again, that is something that our diversion and

foreign operations divisions are addressing. There are several operations that are gathering financial intelligence on the wire transfers that are going to—they have to—and my division is working

with them on that and tracing back the precursors as they’re seized

to the manufacturer and then looking at the manufacturers who

they are receiving payments from. And it’s, obviously, a long process and it involves getting information from foreign banks, but that

is something that is being addressed.

Mr. SOUDER. So you’ve kind of hinted, and I want any other comments from anybody who are tracking the finances of this. If this

stuff moves from Europe and hits Mexico, which we’re only at the

preliminary stage, in other words, we don’t have lots of big cases

here with which to sort this through, but if there’s been a reduction

in Canada and it’s moving in Mexico, are there things that we need

to do? Are we able to track that when it hits Mexico? Presumably

they’re shipping to the northern parts of Mexico rather than to the

southern parts of Mexico.

Let me ask Mr. Werner, in FinCEN you said you have a conceptual group that is starting to look at patterns of how terrorists

think. Will that be for narcotics too or just weapons of mass destruction terrorism?

Mr. WERNER. Mr. Chairman, it’s targeted to the designated terrorist groups, the known terrorist groups. But to the extent that

some of those groups derive revenue from narcotics trafficking, it

will include their business model.

Mr. SOUDER. They both have been involved. In the Middle Eastern groups it’s easy for us to say in Congress, say ‘‘Middle Eastern’’

and imply that it’s terrorists. Middle Eastern groups are often just

profiteering groups and they may not even be necessarily from terrorist countries or they may be rogue or cooperating with the government. It’s a wide range. But given the fact that in meth precursors, much of this is coming from the Middle East, is FinCEN looking at the potential and how it hits Mexico?

Mr. WERNER. We haven’t been targeting the specific example

you’re giving, but I think as we get to understand these terrorist
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organizations’ business models better, again to the extent those

business models include drug trafficking we’ll be looking very carefully at that.

Mr. SOUDER. Let me ask you, and I would like kind of a general

comment because I had this as a later question because I want to

come back to Canada again. How much do you think—we’ve been

operating under the assumption that lots of the narcotics, child

trafficking and the traditional underground economy will only get

to be a larger percentage of terrorist funding because we will go

after the above-board, above-ground type of operations, that how

much of the terrorist funding do you think will be in those categories versus things like the Holy Land Foundation or groups that

may, in fact, be doing lots of good work or some good work and hide

inside that, versus hybrids like the black market pesos, where you

would have a currency exchange and they would try to work

through semi-legitimate businesses to then convert it into gold so

it looks like another product?

Mr. WERNER. Based on what we know now about terrorist financing models, I think I would lean toward Mr. Morehart’s statement

which is that primarily based on what we know now the revenue

derived by terrorist organizations is a lot of good money turned into

bad. That’s not to say that within certain regions and certain terrorist groups they’re not relying more primarily on illicit activity.

But, again, I think the studies we’re doing now on these strategic

business models will help us understand that a lot better.

Mr. SOUDER. Are you looking at your models presumably as they

develop and if they want to take the battle to our soil, they’re going

to disperse and not be as easy to identify. And use mules and other

organizations—mules with quotes around it, human smugglers, for

example, and we clearly don’t have control of our south border. And

if terrorist organizations move things through, quite frankly, on the

south border it’s easier to spot a middle easterner coming in the

south border than it is the north border.

We have huge vulnerabilities on our south border, not to mention

Asian groups like you say. The Taliban was clearly funded by narcotics, the FARC is funded by narcotics, other groups less so depending on whether they get in the precursor business or not. And

the precursor business, obviously Indonesia and the Philippines are

two areas that everybody is watching very closely.

Are you trying to do predictive models as well to see how well

we’re doing? What I would like to think as a Member of Congress,

in a public forum, not a classified forum, that you have people who

are emulating the terrorists trying to think how you would penetrate our own models.

Mr. WERNER. Mr. Chairman, that’s exactly what we’re going to

be trying to do. These models are intended to be predictive in nature. And we really are going to be doing war-gaming in the sense

of trying to get inside the mentality of the organization that we

look at and understand not only how it’s functioning now, but how

it might evolve in reaction to law enforcement.

Mr. MOREHART. Mr. Chairman, if I might add to that, the terrorist financing operation section is also involved in that type of activity. We have one of our units, the financial investigative analysis

unit has an element in it that deals with proactive investigation,
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if you will, or doing exactly as you suggest, the gaming, trying to

identify proactively sources of funding for terrorist activity.

To go back to your earlier question in terms of trying to quantify

how much money would come from one particular activity, either

legitimate or illicit activity, that’s difficult to estimate. Also, your

question as to whether doing away with the legitimate activity, for

example, contributions to NGO’s, whether that would increase or

enhance illicit activity, that’s also hard to say.

The bottom line is, I think, it’s probably well known that it

doesn’t take a whole lot of money to finance these folks. As I mentioned before, it’s essentially limited to their imagination whether

they’re smuggling cigarettes to avoid taxes and then making money

in that fashion or any other way they can derive income, whether

it’s a contribution to a charitable organization and it’s funnelled to

some entity for their activities, it’s very difficult to answer that.

But the bottom line is the proactive entity we have within TFOS

is doing exactly what have you described and having some success

at that.

Mr. SOUDER. We had a hearing.

Mr. GLASER. If I could also add to that because I think it’s a very

important point you raise. As we, here in the United States, take

efforts to close off our financial sector to terrorists and to narcotics

traffickers and other organized criminals through the—largely

through the law enforcement action through the regulations that

are issued on money laundering and terrorist financing by FinCEN,

and as we work with our partners abroad in the Middle East, in

Europe, in Asia and in Mexico where they have just recently enacted and we hope are putting into effect some new anti money

laundering regulations, it’s becoming more and more difficult for

organized criminals, for narcotic traffickers, and for terrorist financiers to use the formal financial sector. As a result, we do expect

them to be moving more and more toward alternate means of financing their activities, be it through cash couriers, be if through

systems like Hawala, through the black market peso exchange,

which, frankly, has many similarities to the way Hawala systems

work. And that’s why we are turning our focus to these activities.

To go and to give a specific example, and this gets to another

question that you just asked, with respect to the links between

these types of networks between drug traffickers and between terrorist financiers, a good example would be a man named Dawood

Ibrahim, who is an Indian organized criminal, a narcotics trafficker, who was designated by the Treasury Department as a financier in October of last year, this individual makes available the

same systems he uses to finance his activities he makes available

to terrorist organizations. So we can see those systems already

linking up with each other.

So, again, it is something that we are all collectively focusing on,

making sure that these alternate systems of supporting any type

of illicit activity, be it terrorism, organized crime, narcotics trafficking, are being looking at.

If I could just, since Ms. Blackburn is back, I didn’t have a

chance to just let you know one recent success that we have had

in the Afghanistan region with respect to terrorist financing is earlier this year the Treasury Department designated on the Al
103

Haramain Foundation in Pakistan and froze and blocked the assets

of that organization. That was a Saudi-based charity in Pakistan

that was connected with al Qaeda and connected particularly with

moving people in and out of Afghanistan, al Qaeda operatives in

and out of Afghanistan. Earlier this year, we closed down that particular financial mechanism of supplying terrorists, terrorist money

into Afghanistan.

Mr. SOUDER. I want to touch on Canada again for a minute on

BC bud and this hydroponic marijuana that’s not marijuana as we

traditionally know it, but has a much higher THC content and has

an action much like other drugs and is sweeping much more like

meth in many areas of our country and their country. We have

seen the first corruption cases in British Columbia, or at least allegations, that it is my understanding from a hearing we conducted,

that marijuana is now in Canada, and it’s as big as any other product they’re selling us, including wheat and timber. And that is a

sign that Canada may be headed down the way of Mexico and Colombia if they don’t get control of this in the sense of you start

dealing as your biggest trade product, all of a sudden you have tremendous potential for corruption.

In fact, that data may have come from their attorneys general in

their provinces who have been very critical of some of the Federal

Government’s stances in enforcement in Canada.

What I would like to know is, do you have any suggestions as

we have good government-to-government relations and as we work

with the new government there are some things that need help. I

know it’s not an RCMP question or even attorney general question,

it’s a question of what laws do they need on the books and what

do their courts need to do.

Ms. FORMAN. Chairman, if I may, we actually have an international rep in Canada as we speak, meeting with Canadian officials and authorities to discuss politically exposed problems in Canada to include narcotics trafficking, embezzlement and bribery and

the proceeds which enter the United States. The program we have

in Miami is—we hope to duplicate throughout the country and to

work with our counterparts. ICE has approximately 40 overseas offices and we’re hoping to duplicate the success of the program in

Miami with the South American countries, with Canada, and Mexico and other countries as well.

Mr. SOUDER. Anyone else have any comments? Mr. Werner, my

staff recently looked at their FinCEN system and their tracking of

money and it seemed their computer search engine and related programming may be superior to ours. Have you looked at their system?

Mr. WERNER. We’ve had a lot of discussions with them. In fact,

we assisted them with designing their system. They had the benefit

of learning from what we did well and what we wished we did better. They’re a much smaller system which has given them some advantages. But what they can do is pretty amazing at this point. I

think it’s approximately 99 percent of their data is electronically

transmitted. And they get all wire transfers. So they’re collecting

a terrific amount of data and their system seems to be very robust.

Again, the difference is that it’s a very modern system that—they

were having lots of problems a number of years ago. They have got-
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ten their financial intelligence unit really up to the proper criteria,

and with it came new technology applied to a much smaller financial system which allows them to do more than really would be possible here. But, yes, we are actually going to make a visit to look

at it. We’ve heard about it. We met with them and the director is

going to go up to Canada to take a look at it.

Mr. SOUDER. One last thing related to Canada that I asked a

question earlier on the Mexico border, because what I heard was

heavy amounts of cash going south. My experience with our hearings on the north border is that cash going north has not been the

primary problem. In fact, we’re the biggest drug exporter into Canada, and often the BC bud and the marijuana is coming and being

swapped for cocaine and heroin and other things that are going

back across the border.

Mr. Semesky, is that your impression too, or do you think there’s

a lot of cash moving as well?

Mr. SEMESKY. Mr. Chairman, I believe there is a lot of cash moving as well. I’ve met recently with the director of the organized

crime unit with RCMP, and will be meeting next week with the director of the proceeds of crime unit with RCMP who have expressed an interest in working with DEA. But in the information

exchange with them, there is a tremendous amount of cash, and

some of our officers have seen it, that are going—is going back to

Canada as well as the drugs. And I must confess I don’t have a lot

of information about that.

But the cash is going back to Canada. We’ve seen it in several

cases, one in particular, Operation Candy Box, which was taken

down recently which involves millions of dollars going back to Canada. And a lot of times it exits the United States—in that particular case much of the money went to Vietnam first and then back

to Canada.

Mr. SOUDER. That was the ecstasy case.

Mr. SEMESKY. Yes, sir.

Mr. SOUDER. As part of the U.S. Canada parliamentary group

meeting on an annual basis, I’m always, no matter what else everybody else is talking about, I always raise narcotics to them, and

some of the border issues to try to keep the pressure on how we

deal with our border. And we’re about to have these meetings

again. My understanding is both that Niagara Falls, Buffalo, and

I can’t remember, I think it may have been Montana where we

were back-checking. By back-checking, I mean people who were

headed into Canada. In other words, we check both directions. Not

having the Canadian side of the border checking, but before they

leave American soil, we were actually finding almost as much going

out as going in.

Now, a lot of that was customs violations people trying to avoid

tariffs. A lot of it was guns. They were converting Canadian drugs

into American guns for sale because of their gun restrictions.

But I wondered and that’s why I was asking related questions,

now I’m going to continue to pursue that. But trying to sort out

how much is the money problem in the north border versus the

south border. Ecstasy is a little bit different product because it’s

coming more from Europe and Canada is a pass-through. The Vietnamese trade is more complicated coming through British Colom-
105

bia because that may be a pass-through organization too, and shipping.

When it’s grown in Canada, the question if it’s not a passthrough, is it a swap in the networks or not? Probably there isn’t

as big a market either. In other words, they’re selling more drugs

in the United States than they can consume on their end. Any

other comments on that?

Ms. FORMAN. Currently, ICE is working an undercover operation

with the Canadians on addressing the proceeds of BC Bud. That

operation is still ongoing. And we have seized and identified currency here in the United States destined to go back to Canada.

In addition, based on an assessment we’ve done on the currency

and monetary instrument reports, there is minimal reporting of

currency going north. And as we speak, we’re in the process of

working with the Canadians to help establish their money laundering regulations in their reporting requirements. We had three ICE

agents detailed to Canada to help them with the reporting program.

Mr. SOUDER. You’re saying they don’t have a law that allows

them to do it, they have a law that prohibits them from doing it,

or they’re just not doing it?

Ms. FORMAN. They’re doing it. We’re working in conjunction. But

we’re hoping for consistency in the reporting requirements going

across and coming into the United States. I’m not really sure what

the amounts and their threshold are going into Canada for reporting purposes. I know they have laws that prohibit the exact changing, exchange of information on a timely basis. So that’s one of the

issues we’re working to try to overcome.

Mr. SOUDER. With us?

Ms. FORMAN. With us.

Mr. SOUDER. One of the whole things that is determinate as to

whether or not this whole financial reporting system works is

whether the banks are cooperating and Riggs Bank is currently

under investigation facing sanctions because they may not have

filed basic reports on unusual transactions particularly related to

Saudi diplomats. How confident are you about the banking system

as a whole? This whole thing falls apart if the banks aren’t, in fact,

reporting, and if the only ones they are not reporting on are critical

to the ones you are doing, it becomes even more problematic.

Mr. WERNER. Mr. Chairman, we feel very confident that the SAR

reporting system is working well at this point. That’s not to say

there isn’t an opportunity for improvement. And, in fact, the Deputy Secretary has recently said that would like to initiate a study

to look at the system and see how we might enhance improvements

to it. But I can tell you now that we’re receiving over 20,000 SAR

activity reports a year and they contain extremely valuable data.

We will continue to work with the industry to educate them as to

the value—as to what data is valuable to law enforcement and give

them as much feedback as possible.

And, in addition, as the reporting system ages, particularly postSeptember 11, and we’re bringing on additional institutions now

who we haven’t filed SARS before, we have to engage in an outreach which we’re working with the IRS extensively on to do. And

it’s going to take work and it’s going to take time. But in the mean-
106

time, very valuable data is continuing to come into FinCEN and

we’re working with law enforcement to continually generate feedback to the industry so that they can keep improving what they’re

doing.

In addition, working with the functional regulators, we’re able to

improve and look at the compliance of financial institutions. The

IRS is our partner in doing the actual compliance on the MSBs.

And it’s a massive undertaking, but our view now is that it’s a system that is working.

Mr. GLASER. If I could add to that from the Treasury Department’s perspective. We certainly agree with Bob that we do believe

that the financial sector is largely complying with their obligations

under the Bank Secrecy Act. Any time you see an incident where

a bank seems not to have been, it does raise concerns and you do

start to wonder, you know, what are the implications of that.

As Bob mentioned, Deputy Secretary Bodman did commit to do

a study, to launch a study to look at the overall level of compliance

with respect to these requirements. Tomorrow, the Bank Secrecy

Act advisory group will be meeting. That is a group of the Treasury

Department, FinCEN, law enforcement and the private sector, the

financial institutions. We do plan on using that group to conduct

the study to work with the private sector and law enforcement and

the regulators to make sure that there is an overall review done

to ensure that the level of compliance is where we want it to be.

Mr. SPARLIN. I would like to add that we are partnering very

well with the banking community. Just last week in northern California, we had a joint co-sponsored with us and the banking community anti money laundering seminar, where we had over 100

bankers there to talk about how we could better serve the community. And the successes we’ve had with the information that they’ve

provided, when they hear about how we use their information, how

we use the SARs and CTRs to go out and find people and prosecute

them, it encourages them to continue doing what they’re doing.

There is obviously room for improvement but we are working

throughout the country with groups just like that to improve.

Mr. SEMESKY. Mr. Chairman, if I could add one other thing. I

think you can look at the dramatic increase in bulk cash smuggling

as somewhat of the banks compliance with the Bank Secrecy Act

reporting requirements. I think that’s gone up as the bank’s compliance has gone up. I’ve worked with banks since the early 1980’s

on this issue, and they are doing a very good job at compliance.

One of the problems they face right now is that whereas in the

1980’s, initial placement was made in the form of cash, these days

a lot of the initial placement into the U.S. system is kind of a secondary phase, where it’s either in the form of money orders or wire

transfers coming in from somewhere else. So the banks are trying

to adjust and where they look across their product lines. Instead

of just cash, they now have to address all of their product lines

which is money orders, cashiers checks, wire transfers, cash letters

coming in from overseas. And that is very difficult and it’s a training process for them. It’s a very expensive process for them to put

the safeguards in place to do that. But it’s something that I think

all of the agencies here are working with them on. And that as

they get better, we’re going to detect more sophisticated means of
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laundering, rather than just the cash placement. The cash is going

outside the borders and a lot of times it comes back in.

Mr. MOREHART. If I may add to Mr. Semesky’s comment. In

terms of bank compliance, I think Hawalas are further evidence of

that. The banks, obviously, if they weren’t complying, those who

are interested in moving money to the terrorist entities wouldn’t be

using Hawalas which are informal money movement entities, if you

will. And obviously, being informal they’re not going to comply with

the SARS issues and that’s obviously a concern. But I think it’s indicative of the fact that those individuals who want to move money

are concerned that the banks will comply with that.

Mr. ROTH. Just to add to what’s been said, I think Mr. Morehart

had it exactly right, that there is this entire industry out there, the

money service business industry, that was just newly regulated for

Bank Secrecy Act compliance under the USA Patriot Act. To my

view, that is the greatest challenge we face, because it does not

have a financial regulator like banks has, and it is new for them.

And to get compliance, I think, is extremely difficult.

With regard to banks, we’ve had some success in prosecuting

those outliers, which, I think, has a significant deterrent effect.

We’ve had two prosecutions of banks for failing to comply with the

Bank Secrecy Act requirements which, I think, sends a terrific

message to the community that the failure to do so could have significant consequences.

Mr. SOUDER. I sit on the Homeland Security Committee, too. And

the challenge is when we’re dealing with narcotics, which actually

is causing 20,000 deaths a year in the United States, but because

it’s so repetitive, you can kind of watch a pattern. One mess-up in

homeland security and all of a sudden people are dead and everybody is gone. It’s not that weapons of mass destruction, which may

not occur are more important. It’s not that necessarily next year

we’re going to have any deaths from terrorists, and we know we’re

going to have 20,000 here. But because it’s more of a steady thing

just, getting through on the one side, your job of sorting through

and the cooperation is substantially different and to the degree

they mesh.

I wanted to ask one other question, and I’m struggling to make

sure I have the right letters, and I don’t have it in front of me, but

when we were talking about the HIDTAs, the drug trafficking centers, and the finance centers, and I believe it was Mr. Roth and Mr.

Glaser both were probably most likely to be involved in this, in the

overlap between these two. In your testimony, was it Mr. Roth who

testified to this?

Mr. ROTH. Probably.

Mr. SOUDER. That you said that some weren’t funded, it was unclear where this program was going to head. Could you describe a

little bit more to me are there any cities that currently—of the

seven, how many of those currently have a HIDTA off the top of

your head? Do you know the seven?

Mr. ROTH. Yes. I think each one of them has a HIDTA. Each city

that has a HIFCA also has a HIDTA. It’s a little different with the

southwest border which is a systems HIFCA, that doesn’t exactly

match up. But the big ones certainly do.
108

Mr. SOUDER. We’re supposed to have a systems HIDTA too but

that’s another matter.

Mr. ROTH. OK. But yeah, the HIFCAs match up with the

HIDTAs generally. The difficulty obviously with the HIFCAs was

that they were not funded. What they essentially were forced to do

is find a rich uncle, if you were, which many cases was the HIDTA.

New York is a terrific example of that where they have a very well

developed, very aggressive anti money laundering program that

was the HIFCA but it was married up with the HIDTA.

Mr. SOUDER. That’s the question I was going to ask because

when I was up in New York I thought it was inside.

Mr. ROTH. Correct. It is. It is.

Mr. SOUDER. So why wouldn’t that be a subunit of a HIDTA

where you have a potential meshing of narcotics and terrorism?

That might be different in some areas of the country. Any comments?

Mr. GLASER. I think that’s a good point. The whole notion of the

HIFCA program when it was developed was to pick particular

areas where there was a high risk of financial crime or concern

about a high degree of financial crime and focus law enforcement

and generally Federal regulatory law enforcement and policy attention on that area.

To the extent that there was overlap with an OCDETF task force

or with HIDTA or anything else, it was expected that would be coordinated. I think that we see that it has been. I do think that you

raise an important point, however, with respect to the future of the

HIFCA program and that is the fact that there is no money attached to the HIFCA program. So that is going to, by definition,

affect the way that HIFCAs are structured.

I’m not suggesting that there should be a change in that, I’m just

suggesting that the way that the HIFCA program is set upright

now on a statutory basis informs the way the HIFCAs actually operate with respect to the HIDTAs and the OCDETF teams.

Mr. SOUDER. Because I wouldn’t think this is tremendously hard

to figure out where the highest priorities are. I mean, we know the

history of Miami being the banking region for the Caribbean in the

south, New York clearly has the most terrorism potential drug

nexus, but there we’re pretty well meshed. Presumably somebody

on the West Coast between Los Angeles, San Francisco, and Seattle

is going to emerge as the dominant center. Right now they would

each argue about that, maybe, on the Asian pacific rim corridor.

Conceivably you could have a jump up to Atlanta. I mean, I don’t

even know what they are but just from looking at the different

areas you can kind of zero in on logical overlaps.

Now, one final question on this, but the southwest border is really messed up. And I don’t think any of us believe that we’re going

to be able to control terrorism in this country long-term unless we

stop a million people getting across a year illegally in spite of what

we’re doing. And if we all grant that’s where most of the narcotics

are going—and I heard today that’s where most of the cash back

is going—unless we can get control of the southwest border, we

don’t have functional control of our borders.

And what I heard you to say on the financial incentive is it’s

been difficult to look at it as a border. I mean, partly in the
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HIDTAs, we’re having this problem. Theoretically there’s a southwest border HIDTA, then you have the bigger cities behind it as

the second tier. The problem here comes as you have this feeling

that the narcotics guys don’t say, hmm, I wonder where the line

is between New Mexico and Arizona. We better not go that way because we’re the Arizona guys. It doesn’t work that way. They’re

going to push wherever we have an opening. In the financial tracking, do you see some of that difficulty? Is that why it was difficult

to put together the network on the southwest border or is it less

of a problem on the financial side than it is on the drug trafficking

side?

Mr. ROTH. I think it’s enormously difficult. Part of the problem,

as you acknowledge, is the fact that the method itself is difficult

to detect and difficult to track. So I would say it’s less of an organizational issue than it is just trying to crack the problem. That’s

where I think the big problem lies. We still don’t have as good a

handle on how to meet that threat as we probably should.

Mr. SOUDER. Any other comments on the southwest border? I

mean, when you look at the narcotics in Indiana, we have multiple

patterns. A lot of big busts coming up through Laredo had big

groups that came through Douglas, Arizona, and we’ve since

learned our major meth source from the outside. About 30 percent

of the local cookers, and that’s what you see in the news taking

down the labs that are messed up, but 70 percent, even in Indiana

which is fifth in the Nation in meth, are these super-labs coming

out of California and Mexico. They’re going all the way up, our

major busts go all the way up to Washington State to Yakima all

the way across the top.

We have this one family and when they saw them down in Georgia and in Indiana and Yakima they said oh, there’s a family working inside, a migrant group that’s doing the drug trafficking, that

the money would be an indication too. Because if they’re moving

the drugs that direction, you would think there would be an equivalent of a cash pulse moving back through the system and the two

sides would be working together to establish that.

Are you telling me that is happening or not happening? Because

the border is where it’s going to leave the United States and it’s

gone. I mean, we’re working with other countries, but our greatest

control is going to be getting it before it hits that border.

Mr. SPARLIN. One of the things that we are looking at right now

is the wire transfer project that we’ve got going on with the money

service business where that money is being transferred via Western Union, whatever money service from Indiana to California to

the mega drug centers in California. We have just started this

project kind of on a localized basis. Now we’re partnering with

DEA to do it on a national basis so we can see both sides. Initially

we’re looking at one side. California, I happened to be the special

agent in charge in San Francisco. When we started the project, we

got all the outgoing wires—we weren’t getting the incoming wires—

to see the money going out. Now we’re working this project to get

both sides. And I think that project is going to be very successful

in identifying that flow, internal flow of money within the country.

Mr. SOUDER. Do people use the postal service, UPS, and Fed Ex

for cash as well?
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Mr. SPARLIN. Yes.

Mr. SOUDER. Have you got a project on that as well?

Mr. SPARLIN. We’re partnering with all of them, yes.

Mr. SOUDER. Anybody want to add anything else?

Ms. FORMAN. Mr. Chairman, we have an operation going in Arizona called Ice Storm. Ice Storm is looking at the methods, the

gangs, the narcotics money, the aliens, the alien organizations that

are going into and out of Mexico and into Arizona doing tremendous damage. As a component of Ice Storm there’s a operation

called Green Mile where we’re looking at the system, the money

service wire systems, the Western Unions.

We conducted a census on the money service businesses to determine a threshold for narcotics smuggling and for alien smuggling.

And we’re working with the State of Arizona and utilizing something called damming warrants where we’re working with Western

Union to determine the senders of the funds and seeing if we can

penetrate these organizations that are coming into a Arizona and

slowly moving into California and some of the other west coast cities.

Mr. MOREHART. Mr. Chairman, if I could add to what Mr.

Sparlin said, I think from the cases that we’ve seen, you can almost

track the money going through the wire remitter industry with the

spread of methamphetamine across the country and the problems

that we’ve seen. So you are absolutely correct. There is a method

that we are trying to address to look at the financing side of this.

And I think all the agencies here, you know, are seeing that, we’re

trying to bring this all together so we can make those connections

instead of having small cases make big cases. You can only do that

when you bring your intelligence together.

Mr. SOUDER. It’s got to be a system similar to a trucking system

or any other transportation system, and you’re going to have large

companies, and you’re going to have mid-size companies, you’re

going to have independent little truckers. I’m not saying little

truckers aren’t good, I’m just saying you’re not going to spend as

much time on a little trucker, you’re going to figure out which ones

are the big ones. It’s real interesting to watch when you start to

see certain patterns come back through as to which size.

Sometimes you’ll catch them for different reasons but then that

hopefully then gets transferred over to the financial end where you

try to figure out whether a bank was disguising it, or were they

using Western Union. You all have to be talking on every case, particularly in the terrorism area because zero tolerance is impossible.

It is a great goal, but it’s just very discouraging when you start to

get into it because this balance between the individual’s rights to

privacy in the United States as we refight the Patriot Act. And it

was very important to hear the importance of the Patriot Act in

looking at the terrorism question, but this is going to get tougher

before it gets easier because they’re going to get smarter over time

as well. We just have to stay a step ahead rather than a step behind.

Would anybody else want to make any comments? I appreciate

all your time this morning. We may have some additional written

questions. Appreciate you coming. Appreciate your testimony. If
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you’ll communicate to each your agencies we also appreciate the

work of the men and women in each of your agencies.

Second panel is Ms. Bonni Tischler, vice president, Pinkerton

Global Transporation Supply Chain Security Department and Mr.

Richard Stana, Director of Homeland Security and Justice of the

General Accounting Office [GAO].

If each of you could stand I’ll administer the oath.

[Witnesses sworn.]

Mr. SOUDER. Let the record show that both witnesses responded

in the affirmative. Appreciate you being with us this morning and

testifying in front of our committee, nothing like going on and on

and then doing a quick halt and catching you by surprise there.

But looking forward to your testimony.

Ms. Tischler, we’ll have you go first.

STATEMENTS OF BONNI TISCHLER, VICE PRESIDENT, PINKERTON GLOBAL TRANSPORTATION SUPPLY CHAIN SECURITY

DEPARTMENT; AND RICHARD STANA, DIRECTOR OF HOMELAND SECURITY AND JUSTICE OF THE GENERAL ACCOUNTING OFFICE [GAO]

Ms. TISCHLER. Morning, Mr. Chairman. I’ll leave out my career

highlights since you were kind enough to mention them. As a career special agent specializing in money laundering investigations,

I was privileged to have been at the forefront of anti money laundering efforts in an era of virtually no applicable legislation with

the exception of the Bank Secrecy Act.

At that time there was no substantive law that could be used

against organizations laundering money until the Money Laundering Act was passed in 1986.

Money laundering is probably the third oldest crime with prostitution and smuggling tying at the No. 1 position. The concept of

money laundering is not complex, although the methods means and

opportunities as my FBI ex-peer pointed out, are only exceeded by

one’s imagination. Money laundering involves simply disguising or

concealing the source and origin of illicit funds. Detection is, therefore, paramount to effectively disrupting a criminal organization.

Additionally, an organization’s financial underpinning is usually

its soft under belly and therefore much more vulnerable to attack.

These funds including operational capital which is used to fund the

mechanics of a criminal scheme and the potentially obscene profit

which is, of course, why most financially driven crime is committed

in the first place.

Efficient and devastating acts of terrorism require steady source

of high level efficiently concealed funding mechanisms. While terrorist organizations may be funded by contributions and gifts,

criminal schemes may also contribute to a steady influx of operational capital. The crime base could be the drug trade which is

certainly among the most lucrative structures, or it could include

so-called white collar crime, such as fraud or counterfeit intellectual property schemes, which are perceived as not as heinous, and

therefore not deserving of Draconian penalties.

In 1980, the Treasury Department under the auspices of Customs and the IRS, initiated a prototype project known as Operation

Greenback. Greenback was designed to identify and penetrate the
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reasons for the unusually high level of cash-flow through the Federal Reserve in the south Florida area. The flow was found to be

the direct result of the burgeoning drug trade in that region. At the

onset, we thought we were only looking at narcotics smuggling organizations, but as we progressed, it became apparent that what

we were dealing with was a series of service organizations that

were laundering money for one or more drug smuggling groups. As

Operation Greenback evolved, we found it necessary to add the

Drug Enforcement Administration to the project since at that time

the sole jurisdiction for Title 21, narcotics trafficking, rested with

that agency. And since the crime was drug smuggling and trafficking, the DEA became a partner.

The task force concepts was successful and spawned other Greenback-styled investigations over the next several years. We found

that putting together customs IRS and DEA expertise along with

prosecutorial support from the U.S. attorneys offices was successful

in disrupting and prosecuting criminal organizations involved with

money laundering activities.

We were so successful that a number of congressional committees

became interested in creating legislation specifically designed to

target money laundering as a felony. In 1986, the vulnerability involved with not having anti money laundering legislation was resolved when laws—the law was initiated and passed by both

Houses. The Money Laundering Act of 1986 included a number of

predicate offenses. And as more offenses were added over the years

a number of Federal agencies acquired the jurisdiction to investigate money laundering offenses. Unfortunately, this did not always mean that the agencies having substantive jurisdiction developed their ability to investigate money laundering activities.

One of the most interesting tools developed to impact criminal organizations both from a substantive and subsequent money laundering perspective was the asset forfeiture addictions to existing

and newly planned legislation. Taking away the assets of an organization immediately impacts their present and future operational

capabilities as well as their profit and loss statements. For instance, one can always replace smuggled drugs as a commodity, but

it’s hard to make up the seizure of cash or hard assets. Some of

the most successful financial cases such as Operation Sea Chase in

1988, also known as the BCCI or Bank of Credit and Commerce

case, and Operation Casablanca in 1998, were also examples of

U.S. Customs-initiated investigations that added elements of other

local, State, and Federal agencies to bring about successful outcomes.

While combining jurisdictions of Federal agencies is a force multiplier, duplication of similar projects is not, nor is it cost effective.

An example of this is the proliferation of operational or intelligence-driven money laundering centers designed to do a similar

job in identifying and analyzing intelligence and indicators of

money laundering activities. Usually there is little or no passage

of information to concerned agencies, and therefore no feedback.

Part of the problem is that in strictly based intelligence and analysis centers, there is no real operational insight and often a window

of insight cut into an organization is not fully exploited because the

operational day-to-day knowledge of an investigator is missing.
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To summarize, my personal belief based on a number of years experience in both the investigation and oversight of money laundering related cases is that a task force develops and brings to the

table a synergistic and dynamic way of eliminating elicit organizations who are involved in drug smuggling or terrorist related activities. However, the potential for a powerful response to money laundering activities and the substantive involved criminal activities

can only be maximized in a completely transparent environment

free from redundancy and agency duplication. Thank you for the

opportunity to testify today before you and your attention this very

important matter.

[The prepared statement of Ms. Tischler follows:]
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Mr. SOUDER. Thank you.

Mr. Stana.

Mr. STANA. Chairman Souder, I am pleased to be here today to

discuss efforts by Federal law enforcement agencies to cooperatively investigate money laundering and terrorist financing. As you

know, money laundering provides the fuel for drug dealers, arms

traffickers, terrorists and other criminals to operate and expand

their activities. Terrorist financing is generally characterized by

different motives than money laundering and the funds often originate from legitimate sources.

However, investigations of money laundering and investigations

of terrorist financing observe involve similar approaches or techniques because the methods used for hiding the movement of funds

also involve similarities. My prepared statement is based on two

reports we recently provided to Congress on Federal efforts to improve interagency coordination fortunately these are our September

2003 report on the development and implementation of the annual

national money laundering strategy, and our February 2004 report

on the implementation status of a memorandum of agreement on

terrorist financing investigations.

Our September 2003 report found that the national money laundering strategy generally has not served as a useful mechanism for

guiding the coordination of money laundering and terrorist financing investigations. For example, the HIFCAs were expected to have

a central role in coordinating money laundering investigations.

However, we found that they generally had not been structured

and operating as intended and had not met expectations for

leveraging investigative resources or creating investigative

synergies. As a second example, while Treasury and Justice have

made progress on some strategy initiatives designed to enhance

interaction coordination, we found that most had not achieved what

was expected, including plans to centrally coordinate investigations.

And although the 2002 strategy elevated the importance of combat being terrorist financing, it does not address agency and task

force roles and interagency coordination procedures. This contributed to duplication of efforts and disagreements over which agency

should lead investigations.

To help resolve coordination and jurisdictional issues in May

2003, the Attorney General and the Secretary of Homeland Security signed a memorandum of agreement regarding roles and responsibilities of the FBI and ICE in investigating terrorist financing.

Turning to our February 2004 report, we found that the FBI and

ICE had implemented or taken concrete steps to implement most

of the key provisions in the memorandum of agreement. For example, the agencies had developed collaborative procedures to determine whether ICE investigations or leads may be related to terrorism or terrorist financing and, if so, whether these investigations

or leads should be turned over to the FBI for further action. However, the FBI and ICE had not yet issued a joint report on the status of implementation of the agreement which was to be produced

last fall.
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Moreover, we found that the FBI and ICE have faced and will

continue to face a number of operational and organizational challenges such as building effective interaction relationships and insuring that the financial crimes expertise and other investigative

competencies of both agencies are appropriately and effectively

used.

In closing, let me say that our work in reviewing various national strategies has identified several critical components that are

needed for any strategy to be successfully developed and implemented. However, to date these components have not been well reflected in the national money laundering strategy. While Federal

law enforcement officer agencies recognize that they must continue

to develop and use interagency coordination mechanisms to leverage existing resources to investigate money laundering and terrorist financing, the annual strategy continues to fall short of expectations.

Our September 2003 report recommended that if the requirement for a national strategy is reauthorized, the Secretaries of the

Treasury and Homeland Security and the Attorney General take

three actions to help assure investigative success. These are: First,

to strengthen the leadership structure for strategy development

and implementation; second, establish priorities based on threat,

risk and vulnerability assessments; and third, establish performance measures and accountability mechanisms.

As for the agreement on terrorist financing investigations, the

FBI and ICE have made progress in waging a coordinated campaign against sources of terrorist financing. Continued progress

will depend largely on the ability of the agencies to build effective

interagency relationships and meet various other operational and

organizational challenges.

This concludes my oral statement and I’d be happy to address

any questions you may have.

[The prepared statement of Mr. Stana follows:]
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Mr. SOUDER. Thank you for your testimony.

Ms. Tischler, did you hear the whole first panel?

Ms. TISCHLER. Yes, sir.

Mr. SOUDER. From your work in the field and then listening

today, could you first make any kind of suggestions you might have

on how to make it more efficient and what you think were some

fundamental flaws that you may have heard?

Ms. TISCHLER. Actually, as I was listening to the testimony, I

was thinking, I retired 2 years ago. And I don’t think much has

changed since then. But I really don’t think a whole lot has

changed since the mid-1980’s in terms of how they were talking

about strategy issues.

The Black Market Peso Exchange, before we knew it was a Black

Market Peso Exchange, we knew there were lateral transfers in the

late 1970’s and early 1980’s. And as I pointed out, we didn’t have

a method really to get at them, which thank you to Congress, we

then were supplied in the mid-1980’s.

But a lot of the issues that the folks who were testifying were

talking about are the same issues we were talking about in the

mid-1980’s and early 1990’s and mid-1990’s. So, are there flaws? I

don’t know that there are flaws. What there seems to be is sort of

a lack of historical retrospective. A lot of the agencies who are involved in anti-money-laundering activities and the analysts from

the mid-1980’s and 1990’s have retired, and it sounds as if they’re

almost reinventing the wheel to some extent.

I think that the Department of Homeland Security, when it was

established and the concept was to take agencies that had border

interests and put them within the DHS and they split customs up

in the process, I think that was a flaw. If I were in the position

to do so and you granted me a wish, I’d certainly wish that never

happened. There was a lot of synergistic activity between the operational and investigative sides of the Customs house—and I had

the privilege to head up both, so I know of which I speak—that I

think are probably lacking now, and I think that probably as GAO

calls it a material weakness.

The financial crime issue, I think when they took Customs out

of Treasury, and I’m not saying that was good or bad, and sort of

separated it from IRS at the top level. That caused a disconnect,

too, because, quite frankly, IRS and Customs sort of functioned as

a rock in a hard place with a lot of financial investigations that

were underway. And even though I know that they are coordinating through the task forces, it didn’t sound like it was that same

type of relationship to me.

So, I don’t know. I don’t know that the current system is inefficient. I think there are an awful lot of agencies performing activities that have to do with anti-money-laundering. And probably,

some of them don’t have the expertise in the financial investigative

arena to really complete that forward pass, so to speak.

So my emphasis really is on a task force atmosphere where

you’re bringing elements of all the agencies in one place at one

time, where there is a transparent environment, and they can all

function together and hopefully learn enough to pass on the information to the next generation of investigators.
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Mr. SOUDER. Well, Mr. Stana, I want to ask you the same question, but let me predicate it slightly differently. One of the things,

as we try to pound and reshape the Department of Homeland Security, which it’s not clear it’s ever going to be smooth because it has,

by definition, multiple functions. I’ve been very focused on making

sure narcotics doesn’t get lost in the Department of Homeland Security, where we’re hunting for a potential needle in a hay stack

and we’ve got a whole bunch of things happening all the time,

namely illegal drugs that are killing people and you devote your

whole time looking for the one terrorist crossing at any border and

forget that you have a narcotics mission.

And the Coast Guard, they have a fisheries mission. They have

a search-and-rescue mission. And I, like every other Member of

Congress, think that it’s absolutely most important to get anybody

with weapons of mass destruction, unless, of course, my area has

a bunch of deaths next week due to narcotics or unless there is a

company put out of business that employed 2,000 people because

the trademark was stolen and Customs wasn’t paying attention to

the trademark getting stolen. Or that the Border Patrol, if you’re

in areas where you don’t have controlled immigration or you have

been run over, all of a sudden immigration is the huge issue.

To some degree, these groups have multiple missions. And even

in listening in the financial end here today, the question is that,

how can we get cooperation? The idea of putting everybody together, which is what we try to do in Homeland Security, is difficult. If we try to get everybody to talk to each other, my feeling

is they have 6 hours a day where they meet and then 2 hours

where they work on a project because they have so many different

working groups they have to work with.

That’s an exaggeration, obviously, for the record. That was sarcasm. Sometimes people take that literally. But it does seem like

they have a lot of meetings they’re going to be having.

But the IRS function is only partly to do with financial crimes

of the type we are talking, with terrorism or narcotics. The Customs group has a different focus. The narcotics groups have a different focus. If we put them all in one place, they wouldn’t necessarily have the same mission. So where do you see we could do

some tightening, understanding and respecting that there are multiple missions they have, without making them go to 6 hours of

meetings a day where they’re interactive?

I like, by the way, the idea that when two groups hit the same

piece of data, they are going to be notified that two people are in

there. That’s a step.

Mr. STANA. Yes. Before I get into the meat of the answer, let me

just say that we are also concerned about the formation of the Department of Homeland Security. In fact, we put it on our high-risk

list, not that there is a Department, but just putting it together

and making all the component pieces work as one.

It took a long time for the Defense Department to come together

and work in the same direction. So on one level, it’s to be expected

that there are going to be some bumps in the road in making

Homeland Security. On the other hand, it has a very important

mission. And we just can’t afford too many bumps in the road and

too long a time to pull it all together.
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Now, with respect to what could we do to find, sort of get our

traction on certain issues, I think coming or focusing on certain

strategies is a step in the right direction. For example, I thought

that the money laundering strategy held a lot of promise, particularly in its early years where the deputy assistant secretaries or

the deputy secretaries were involved with setting the direction and

assigning task roles and responsibilities. At that time, you had

high level buy in. And it was just a matter of drilling down the

commitment to the lower levels on an issue. And this is important

when you have an agency that has many issues, many missions.

What we found with the strategy and its implementation is people like those that were sitting on the first panel can agree and

generally, you know, think in terms of the problem the same way

and are agreeable to coordinating, cooperating and sharing jurisdictions. It’s when you get to the working level where the problems

seem to arise. All too often, and it’s not in every jurisdiction, but

all too often, you have agents and agencies who just despise each

other. And if you can overcome that, I think you’ll go a long way

to helping out here.

Now, where should this go in the future? There are lots of agencies that need to be involved here. And my fear is that each agency,

instead of calling on another, like for DEA, instead of calling ICE

or instead of calling the IRS when they need a financial crime investigative capability, the knee-jerk reaction is to develop its own

capability. And that’s a tremendous waste of resources. When most

in Government agree that those two agencies are the primary financial crime analysts, why build your own?

And so I think one of the challenges is that you recognize that

we are working in a team environment. We have a strategy that

we all buy into. And it’s a matter of implementing it in a way that

is both efficient and effective.

Mr. SOUDER. What did you think about the comments on

FinCEN today, their testimony. How do you think that’s going to

evolve and?

Mr. STANA. Well, again, there’s lots of promise. It depends on

how it’s implemented.

I think, as Ms. Tischler pointed out, this isn’t the first time we

have heard things like what we’ve heard from the first panel today.

I think these are steps in the right direction. I certainly wouldn’t,

you know, cast aspersions on anything anybody said. But I think

we have to wait to see what happens.

Mr. SOUDER. How do you see its role defined differently from

what the FBI is supposed to be doing and trying to figure out on

terrorism?

Mr. STANA. Well, the FBI, you know, through the Memorandum

of Agreement and I think through its jurisdiction, is the leading

agency here on terrorist financing investigations. I don’t think

there’s any question.

The question is, how does FinCEN help in the overall effort and

what coordination mechanisms exist to facilitate that? The Memorandum of Agreement that my statement details has been successful in getting ICE and the FBI to at least cooperate and coordinate

investigations. I think a mechanism like that for FinCEN would be

helpful.
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Mr. SOUDER. My understanding, what I heard from the FBI representative as opposed to the ICE representative, was that FBI

takes the case if it’s terrorism related.

Mr. STANA. That’s right. What is supposed to—let me back up.

The Memorandum of Agreement called for a joint vetting unit to

be created, composed of both ICE and FBI agents.

When the unit was first created, the FBI identified 30 cases that

it said ICE was working on that had a definite nexus to terrorism.

As of, I believe, last month, 10 of those cases were turned over to

the FBI, and the other 20 cases, they are still talking about how

far along the case is and how strong is the nexus to terrorism. In

addition, ICE has turned over 7,000 leads to the FBI for its use in

its investigations and 11 other cases, if it chose to take them, and

the FBI did not.

So the mechanism is there. The question is, does the mechanism

have staying power? And as the months and years go on, will the

enthusiasm for this sort of a coordinated approach sustain itself?

Mr. SOUDER. Now, Ms. Tischler said, and you repeated that, she

said, specifically, that the Black Market Peso issue is hardly new.

That, to some degree, the other things that we talked about today

are not new. I have now been in Congress 10 years and been involved in the narcotics issues all those 10 years. And if they

weren’t the predominant, they certainly were the emerging threats

10 years ago, just watching it, such as UPS and FedEx and the

Postal Service being able to do that, wire transfers through Western Union.

Is part of the problem here not that these are emerging threats,

but we just simply don’t know how to deal with them? Or our laws

such that there would be such a civil liberties threat with it that

we can’t get a law that’s tightened down on these questions? Because if that’s where most of the money is and they’re moving this,

those areas that are hard to track, let alone the Internet——

Mr. STANA. I think you pointed out in your comments on the first

panel’s statements that there is a constant leap frog. You know, we

get ahead, you get ahead. You get ahead, we get ahead. And we

have just got to make sure that we stay one step ahead. And I

guess that would be the Congress’ job to make sure that the legal

framework is there to enable that.

But beyond that, I think we just have to be sure that the agencies are clear about what their mission is and how they can help

one another to most effectively fight these instances. Add one

thing, we had a discussion while we were doing our work with one

of the U.S. attorneys in the country and asked him well how did

we get to this point with terrorist financing where it seems that

everybody’s in terrorist financing and you just have to deconflict

and make rational sense out of the whole thing. And he said, ‘‘Well,

what happened is, and this happens with new areas often, is that

people will take whatever jurisdiction they have and run to address

the problem.’’

With September 11, you had agencies that seemingly had overlapping jurisdiction, and they all ran in the same direction, trying

to, you know, do their best with a pure heart, to defeat the problem. However, over time, you get to the point where you have to

deconflict, you have to coordinate. You want to make sure, when
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you’re doing something, you’re not messing up somebody’s investigation or worse, you know, causing harm to an agent who is undercover.

And so it comes to a point where you just have to stop and reassign roles and responsibilities and clarify lines of control and provide the leadership to make sure that things don’t get messed up.

Mr. SOUDER. I always refer to it as, like when my little kids are

playing soccer, the difference between an adult team and a little

kids team is, as everybody runs for the ball, you can always tell

where the ball is when little kids are playing because everybody is

there. You’re supposed to stay in your positions, and then when the

ball comes there. That’s how you get the goals, because you’re positioned right.

This is part of the problem, and it’s also true inside Congress.

I mean, our committees are the same way. Everybody runs to the

jurisdiction. Funding flows the same way. Anybody who’s even

around Federal Government for 5 years figures out what’s the hot

subject this year to get funding. If it is missing children, and then

all of a sudden everything’s missing children. If it’s child abuse, it’s

that. If it’s terrorism, it’s that. If it’s drugs, it’s that. If it’s literacy,

then every agency and their brother is coming up with something

explaining how their problem relates to literacy.

And it’s one of our challenges, driven by the fact that the public

attention expects us as elected officials to respond. And the bureaucracy responds some to that in the monetary flow that comes

out of Congress. And I don’t know, I mean, we have a responsibility

to try to keep that separated.

Do you have specific suggestions of what we should be looking

at? The financial issue is clearly the way in American history that

we’ve nailed almost every criminal. And if you can’t get them on

the money, if you can’t follow the money, we’re not going to be able

to stop most of these crimes. It’s underneath it, because we’re going

to be pressing on the narcotics issues and the terrorism issue, but

the money’s the best place to move with that.

Ms. Tischler, in the comments of specifically, do you have any

comments—and I meant to ask you both this question—on the

HIDTAs and the financial centers?

Ms. TISCHLER. Yes.

I was around when they created the HIFCAs. We were the institution—most of the agencies opposed to creating those HIFCAs.

The reason was because the OCDETF and the HIDTA structures

that were already in place, the HIDTAs themselves, had financial

components to them, where the agencies were coming together to,

in fact, investigate not only money laundering issues but other, you

know, narcotics crimes that had other financial components to

them as well, for instance the IRS tax stuff.

So we didn’t see the need to have the HIFCAs, and they were

coming in not funded anyway. And they were pretty much in the

same place as the HIDTAs were. And so we weren’t—I can say this

now, if you’d asked me that X years ago, I would have gone with

the party line. But it was a political thing. And we were forced to

go along with it.
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And yet, the structure was already in place, doing exactly the

types of things Mr. Stana was talking about and that I was talking

about in terms of coordination issues.

Now, you know, I was on the ground for some of these things he

was talking about. And no matter what I think about or don’t think

about GAO, I think that they get along better at the local level

than they do in Washington. So it’s the complete opposite of what

he says. And I think the agents do a heck of a lot more talking in

Miami than they do in the committee meetings up here.

Mr. SOUDER. Can you check your microphone to make sure it’s

on?

Ms. TISCHLER. Oh, you’re right. I forgot. I was bleeding over into

him.

Did you hear me because I don’t want to have to go back and

trash GAO?

No, I mean, I just saw it up close and personal.

Mr. SOUDER. Well, let me ask you a question about that. I see

that there has been a pretty intense conflict between the legacy

Customs and legacy Border Patrol at the southwest border, at the

local level. Would you agree with that.

Ms. TISCHLER. Is that question—you know, when they—it’s back

to sort of that DHS question. I mean, I really was a believer in

making sure there was a marriage and that was a marriage of opportunity when they put everything together.

But Border Patrol’s pretty much separate. And they have their

own uniforms and their own way of doing things. So over at Customs and Border Protection, I don’t think they’re seen as sort of an

integral dance partner. That’s just my opinion.

The whole issue with ICE and CBP, I mean, they are not at each

others’ throats from an institutional Customs perspective, except

for coordination.

You know, your question on outbound cash, nobody really answered that question. Yes, we did a number of operations dedicated

to, in fact, interdicting outbound cash. Now, I can’t speak to that

now, because I don’t know what’s going on. But when I was at Customs, we decided we’d run an operation, we would sit down with

operations or we’d sit down with investigations, depending on

where I was at the time, and they’d design an operation to get at

outbound cash. So I think that’s missing more than this issue with

Border Patrol.

I think that it’s a cultural thing, and this is really going to take

some time. But they knew that going in, as Mr. Stana has pointed

out. And that’s one of the bumps.

Another big bump is having, for instance, Coast Guard report to

Ridge instead of Asa Hutchinson, where the rest of the law enforcement agencies seem to be reporting. So it’s just a personal opinion.

But the Border Patrol thing, I think that, from an enforcement perspective, it’s going better now than when the marriage first happened.

Will it take some more time? I think you’re going to see that it’s

going to take more time.

Mr. SOUDER. The reason I made that comment is, it seems to me

that, to some degree, as the people are in Washington, you have

some commonality. And those two agencies seem to have the most
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tension in training, pay grades, even racial differences, that nobody

would talk about it in that direction, but you can kind of tell who

wants to report to whom. That is real explosive to say, but boy, its

there. And I don’t know, basically, how to do it.

I also think there are some substantive problems, like you say,

because some of it is cultural. When you say cultural, cultural also

means they have different missions, of how they viewed the border.

I mean, I talked to a Customs person who, at one part of the north

border, was working undercover. And one of his things was not to

get caught by the Border Patrol. He was working inside the drug

groups and knew how to break through because he viewed the Border Patrol mentality was to police the border and intimidate. And

he knew how to run it right through when they were doing it.

On the other hand, the Border Patrol says, ‘‘Look, we don’t have

enough people to catch everybody; we do intimidation by moving

through.’’ There’s a philosophical difference on even how you patrol

that border, which is now to the forefront when they’re merged.

And one of the questions I have, I want to followup on something

you just said on the cash. Did checking cash back work? I mean,

are you saying that was a good effort or a bad effort?

Ms. TISCHLER. You know, when we had some type of intelligence

to back up what was happening because we knew, for instance, the

trucks were coming down from Houston and crossing at Laredo

with outbound cash, it worked the best, obviously.

If we’re out there 24 hours, it’s just like, 7 by 24, trying to catch

something inbound with Customs. There are too many vehicles

coming through. But we did produce, because we sort of do these

things in a small window.

I mean, obviously, after a day or so, the bad guys knew we were

out there. So we learned to just do these sort of quick hits and back

off. And that’s when they produced cash coming through.

But a lot of it, back to what I said, I mean it had to do with dealing with the State and locals and finding out that they suspected

this stuff was on its way. Customs did interdict outbound cash,

what we called cold hits, just because they were there. But you

couldn’t have an operation that lasted more than 3 days, actually,

more than 2. You were in trouble already because the word got

back after you caught the first thing coming through.

So I thought—and I don’t know what they’re doing now. I’m assuming they’re doing something like that. But the coordination between the investigative component, OI and OFO, were very close

then. Now I assume that they pick up the phone and call and have

a meeting and decide that they’re going to stand up an operation.

Now, you know you’re talking about the Border Patrol, but

there’s the Border Patrol and there’s the INS inspectors and there’s

Customs inspection and then there were the agents and then the

Air and Marine Division with Customs. And Air and Marine went

with the agents over to ICE, which is clearly an interdictive function, and you know, they’re patrolling the border, too. And Border

Patrol has their airplanes up.

So I think one of your staffers can probably help you out, Dave

Thomasson is with—I have to remember—ICE, Air and Marine Division, and he can probably speak to that. But it’s all a coordination issue. And that’s why, when they split the agency up, I really
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didn’t see how they were going to actually effectively continue the

border mission plus everything else they were doing.

Mr. SOUDER. Mr. Stana, I wanted to ask you this question yet,

Ms. Tischler just gave a very depressing statement. In other words,

is the southwest border so out of control that if you stop at one

point and do it for more than 2 days, they just move and go across

to another point. How in the world do we stop terrorist money from

using the south border?

Mr. STANA. It’s interesting that the line of questioning has

turned to this, because most of my portfolio has to do with border

control issues, so this is something I’m sort of familiar with.

A lot of this stems from the Border Patrol strategy that was formulated in the mid-1990’s, where they attempted to gain control of

the border at two points, El Paso and San Diego, and move out

from there with more agents, more technology, more sensors, more

aircraft and so on.

We’ve come to the point where these actions, as they are implemented in phases, move the flow of traffic to areas that they think

the DHS thinks it has the tactical advantage or that’s too desolate

that aliens wouldn’t even try to cross. But we found that neither

was true. The tactical advantage, not true because they just didn’t

have the number of agents and equipment to cover the Arizona border, eastern California. And it certainly didn’t deter—whether it

was the jobs magnet that keeps drawing people in or whether it’s

criminal enterprises that want to position people in the United

States, very difficult to control the southern border.

Having said that, I think the northern border also prevents significant vulnerabilities. Where there are about 10,000 border patrol

agents along the 1,900, 2,000-mile stretch of the southern border,

there are almost, not quite, but almost 1,000 agents across the

4,500 mile expanse and if you’re familiar, from Indiana, I know you

go up to Gary or that little area up there.

Mr. SOUDER. You have to go from Glacier National Park to the

lake of the woods.

Mr. STANA. Yes, I mean, if you would go up the St. Lawrence

seaway and you could see boat traffic going, how do you stop that?

Or you know, go into the logging areas of Montana and the old logging trails that cross the border when Immigration or Customs just

wasn’t a concern.

Mr. SOUDER. Is this supposed to be encouraging to me that the

north border is as bad as the south border?

Mr. STANA. Well, I guess what I’m trying to say is, whereas most

folks would focus on the southwest border as being a problem, and

it is, don’t turn your attention away from the northern border, because if you recall, the LAX bomber came through ports in Washington State.

Ms. TISCHLER. We caught him.

Mr. STANA. Yes. And there were others that came across the

northern border, not the southwest border. So I guess, we don’t

take comfort in that.

I’d like to return to one point you made earlier, about the

HIDTAs and HIFCAs and how many tasks forces is too many task

forces. And I think we’ve got to the point where maybe it’s time to

reexamine all the roles and responsibilities of all these task forces.
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Why do you need a JTTF and a HIDTA and an OCDETF and a

HIFCA and, you know, these task forces when maybe a fewer

would do?

One of the reasons why the HIFCAs didn’t take off, and I don’t

doubt the view that Ms. Tischler had about another task force that

seemed to be redundant, was that there weren’t any dollars attached to it. And so who wants to participate if it doesn’t mean

anything to me to get more agents? And this, particularly, with the

State and locals.

So I think it’s time to re-examine what all these task forces are

doing and how many we need, and how most effectively and efficiently to operate them.

Ms. TISCHLER. Can I just add something, since I just happened

to be there when they did most of these things?

The OCDETF was set up to do investigations. When HIDTA

came along, it was there to do investigations that OCDETF was not

doing because OCDETF was focusing on really a kingpin strategy,

which included money laundering investigations. BCCI was, in

fact, an OCDETF case. So the big cases, as we were talking about,

they were being taken care of.

When they stood up HIDTA, it was to get at a lot of the smuggling and trafficking groups that weren’t being covered by

OCDETF. And they were right to do that because there were an

enormous amount of cases out there that we wouldn’t get into

OCDETF nor could the OCDETF attorneys really handle them.

OK, so then we had two task forces, and they really didn’t overlap. I was in Miami then, and there was a lot of coordination with

the U.S. attorneys office. It was just that HIDTA did go in the way

of financial investigations. So that’s why we really didn’t care if

they stood up the HIFCA or not because they were already doing

it.

And the money that was there actually was coming through the

HIDTAs and through OCDETF, to some extent, and whether they

took off or not was really irrelevant. The case work was being done.

So don’t worry about that part. That wasn’t depressing. That was

the good news.

The bad news was I think of it as a project that may not have

taken off. And you know, I’m a big believer at going back and looking at task forces because they outlive their existence. Greenback

was stood up in 1980. The thing went like to 1988, and they went

through various generations of agents, which wasn’t bad, but it sort

of lost the initial focus and oomph it had. And you know, sometimes it’s good to undo a Task Force and, perhaps, crank up one

in another direction. And the most successful ones have been like

that. They haven’t been these things that have been perpetuated

forever. So I sort of have that kind of view.

Mr. SOUDER. Well, I thank you. We need to clear out of the room

because they have another hearing.

If you have additional comments you want to give, we may have

some additional written questions. With that, the subcommittee

stands adjourned.

[Whereupon, at 12:35 p.m., the subcommittee was adjourned.]

[The prepared statement of Hon. Elijah E. Cummings and additional information submitted for the hearing record follow:]
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