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95–651 PDF 2004

OVERSIGHT OF THE

DEPARTMENT OF TREASURY

HEARING

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JUNE 16, 2004

Printed for the use of the Committee on Financial Services

Serial No. 108–94

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

DOUG BEREUTER, Nebraska 

RICHARD H. BAKER, Louisiana 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

DOUG OSE, California 

JUDY BIGGERT, Illinois 

MARK GREEN, Wisconsin 

PATRICK J. TOOMEY, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

JOHN B. SHADEGG, Arizona 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

MELISSA A. HART, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

TIM MURPHY, Pennsylvania 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JAY INSLEE, Washington 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

KEN LUCAS, Kentucky 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

MIKE ROSS, Arkansas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

RAHM EMANUEL, Illinois 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

CHRIS BELL, Texas 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

SUE W. KELLY, New York, Chair

RON PAUL, Texas, Vice Chairman 

STEVEN C. LATOURETTE, Ohio 

MARK GREEN, Wisconsin 

JOHN B. SHADEGG, Arizona 

VITO FOSSELLA, New York 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

TIM MURPHY, Pennsylvania 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

LUIS V. GUTIERREZ, Illinois 

JAY INSLEE, Washington 

DENNIS MOORE, Kansas 

JOSEPH CROWLEY, New York 

CAROLYN B. MALONEY, New York 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

ARTUR DAVIS, Alabama 

CHRIS BELL, Texas 

(V)

C O N T E N T S 

Page 

Hearing held on: 

June 16, 2004 .................................................................................................... 1

Appendix: 

June 16, 2004 .................................................................................................... 43

WITNESSES 

WEDNESDAY, JUNE 16, 2004

Bodman, Hon. Samuel W., Deputy Secretary, Department of the Treasury ...... 6

Fox, William J., Director, Financial Crimes Enforcement Network, Department of the Treasury ........................................................................................... 24

Jardini, Nancy J., Chief, Criminal Investigation, Internal Revenue Service ..... 29

Newcomb, R. Richard, Director, Office of Foreign Assets Control, Department 

of the Treasury ..................................................................................................... 26

Schindel, Dennis S., Acting Inspector General, Department of the Treasury .... 30

APPENDIX 

Prepared statements: 

Kelly, Hon. Sue W. ........................................................................................... 44

Oxley, Hon. Michael G. .................................................................................... 46

Bodman, Hon. Samuel W. ................................................................................ 47

Fox, William J. .................................................................................................. 57

Jardini, Nancy J. .............................................................................................. 71

Newcomb, R. Richard ....................................................................................... 89

Schindel, Dennis S. .......................................................................................... 112

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Gutierrez, Hon. Luis V.: 

Office of Inspector General Report, ‘‘Safety Soundness, and Accessibility 

of Financial Services’’ ................................................................................... 128

Bodman, Hon. Samuel W.: 

Written response to questions from Hon. Luis V. Gutierrez ........................ 161

Fox, William J.: 

Written response to questions from Hon. Luis V. Gutierrez ........................ 177

Schindel, Dennis S.: 

Written response to questions from Hon. Luis V. Gutierrez ........................ 186

(1)

OVERSIGHT OF THE 

DEPARTMENT OF TREASURY 

Wednesday, June 16, 2004

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATION, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to call, at 2:07 p.m., in Room 

2128, Rayburn House Office Building, Hon. Sue Kelly [chairwoman 

of the subcommittee] presiding. 

Present: Representatives Kelly, Paul, Garrett, Oxley (ex officio), 

Gutierrez and Inslee. Also present were Representatives Royce and 

Sanders. 

Chairwoman KELLY. [Presiding.] This hearing of the Subcommittee on Oversight and Investigations will come to order. 

The war against terrorism is the single most important challenge 

facing the federal government today. Our task is made difficult by 

the insidious methods of our enemies and also by the bureaucratic 

inertia inherent in a fundamental reorganization of our government’s priorities. 

This hearing today is important because we will examine the 

specific difficulties faced by the Treasury Department in adapting 

to its new critical purpose in battling the illicit funding networks 

upon which our enemies rely. 

It is evident that the fight against terror financing must go well 

beyond ensuring compliance with the Bank Secrecy Act, but this 

law is at the foundation of our efforts. When that law is flouted as 

egregiously as it was in the Riggs case, or as consistently as the 

inspector general suggests, then it is our duty to respond so that 

such failures are bad memories instead of perpetually looming possibilities. We cannot afford to ignore any problems in the system 

charged with the enforcement of our anti-money-laundering law. 

I believe the fragmented nature of our anti-money-laundering 

system is structurally not capable of keeping pace with the demands of the war on terror. I believe that we ought to establish a 

single office dedicated to ensuring the compliance with the Bank 

Secrecy Act. 

To those who would resist this proposal, I would hope that there 

is at least recognition of the need to establish a vigilant watch 

tower above the vast expanse of bureaucracies that are currently 

responsible for the Bank Secrecy Act. There must be a unifying 

center to our anti-money-laundering efforts. 

Mr. Fox’s recent proposals to strengthen FinCEN’s role in BSA 

compliance, including the establishment of an examination proVerDate 0ct 09 2002 11:02 Oct 05, 2004 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 G:\DOCS\95651.TXT FIN1 PsN: MICAH
2

gram office, are important steps in that direction. But if we are 

going to fully establish the integrated, accountable oversight regime we clearly need, FinCEN should be equipped not just for observation, but also for action. 

FinCEN needs the compliance examination capabilities it currently lacks. Its efforts should be reinforced with criminal investigative powers that are largely absent from our anti-money-laundering system. Through FinCEN, although it has been given a statutory responsibility for the Bank Secrecy Act, it has few resources, 

and it is easily marginalized by the frontline regulators. 

If you consider the 6-year lag between when the OCC first noticed problems at Riggs and when FinCEN was made aware of 

them, that is a tremendous lag. A clean money compliance force at 

FinCEN could unify our anti-money-laundering responsibilities and 

even broaden our efforts by examining financial sectors that currently have no regulator. 

With the ability to deploy its own examiners to trouble spots and 

literally look over the shoulder of the regulators, FinCEN could ensure a strong focus on high-risk transactions, such as those that occurred under our own nose at Riggs with their Saudi clientele. 

And as we read reports about the Saudi Embassy’s continuing 

search for a bank to replace Riggs, the establishment of these new 

powers could provide greater certainty to our hopes that the era of 

free-wheeling, unregulated Saudi cash infusions to Islamic militants in our own country are over. 

On a related note, I hope that Treasury will give serious consideration to the proposal made yesterday by the Independent Task 

Force on Terrorist Financing. Among its recommendations were 

that Congress enact a Treasury-led certification regime on terrorist 

financing that will annually report to Congress the efforts of their 

other countries to combat terror funding and would impose sanctions on countries that failed to perform up to standard. 

A system like this could provide a useful lever in securing better 

cooperation from recalcitrant governments such as the Saudis who 

have facilitated the flow of funding to terrorist organizations, despite their protests to the contrary. 

This administration has done a remarkable job in getting the 

Saudis to enact the reforms that we have seen recently, but we 

must never forget that we are dealing with a government that has 

been a chief financial supporter of the fanaticism that led to the 

murder of more than 3,000 people on September 11th. 

I am also very deeply concerned by the circumstances surrounding the UBS case, in which flagrant mismanagement of a 

U.S. currency depot overseas resulted in our currency being 

shipped to countries currently under U.S. sanctions. While the Fed 

was clearly the frontline regulator responsible for the failure, we 

need to examine ways to ensure that the Treasury Department 

sanctions are enforced and that the ECI program is implemented 

properly. 

I am interested in learning more about how OFAC and the other 

Treasury assets might be better utilized in the future. 

On a final note, I am very interested in how Treasury intends 

to handle the pending expiration of the Terrorism Risk Insurance 

Act. While TRIA was designed as a temporary bridge to the develVerDate 0ct 09 2002 11:02 Oct 05, 2004 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 G:\DOCS\95651.TXT FIN1 PsN: MICAH
3

opment of a functional private-sector terrorism insurance market, 

a recent study by the General Accounting Office concluded that 

there is not a sustainable marketplace for this coverage after the 

program expires. 

In addition, the NAIC, representing 51 bipartisan state insurance commissioners, agrees that we must act this year to avoid the 

market disruptions that we are already beginning to see. 

Given the state of the insurance marketplace and the continuing 

threat of terror, I believe it is in the best interest of the American 

people that we consider retaining a systematic approach in place 

to protect our country’s economic security. 

In fact, I recently sent a letter to Secretary Snow, signed by 183 

of my colleagues, urging the Treasury Department to extend the 

make-available provision which expires at the end of this fiscal 

year and to support the overall continuation of this critical program. 

There is broad, bipartisan support in this committee and in the 

House for doing so, and I hope to learn more from Treasury as to 

how they intend to handle this matter. 

I thank you, and I look forward to today’s testimony. 

I want to just simply say that, without objection, all members’ 

opening statements will be made part of the record. 

And I turn to you, Mr. Gutierrez. 

[The prepared statement of Hon. Sue W. Kelly can be found on 

page 44 in the appendix.] 

Mr. GUTIERREZ. Thank you. 

Good afternoon, and thank you very much, Chairwoman Kelly, 

for calling this hearing. We have been having a series of these 

oversight hearings, and this one about the Department of Treasury 

is very important. There are a number of areas of concern which 

I hope we can address today. 

As you know, I have been very troubled by the actions of the 

OCC. I believe that their preemption rules issued earlier this year 

represent an unprecedented expansion of federal preemption authority without appropriate congressional authorization. 

In February, the members of our full committee adopted these 

concerns as part of the committee’s budget views and estimates, 

along with the fact that the OCC’s budget did not increase to reflect its significant absorption of states’ responsibilities. 

This meant that it would either be inadequately funded to fulfill 

its mission—ensuring the safety and soundness of national banks 

and protecting the deposit insurance system—and its congressionally mandated functions, or that it would be giving short shrift to 

these new consumer protection duties it was taking over from the 

States. 

None of these alternatives is acceptable. 

Since that time, it has become clear that the OCC has not even 

been living up to its primary responsibility, which makes it even 

more illogical to give them additional responsibilities which are 

currently being ably performed by the States, especially since almost every instance where the OCC eventually took action against 

an institution—and I do mean eventually, because they have a long 

history of dragging their feet in a completely unacceptable way—

in any case, in almost every instance where they eventually took 

4

action against an institution, the initial problem was often brought 

to their attention by either the FBI or an attorney general or even 

the bank itself. 

I am very glad that the inspector general is here today. And I 

am particularly interested in the report issued on May 28th regarding material loss reviews of failed institutions. I am disturbed by 

the OCC’s significant supervisory weaknesses identified in that report, and I ask that it be made part of the record. 

[The following information can be found on page 128 in the appendix.] 

I trust that the I.G.’s office will also be conducting a thorough 

investigation of the Riggs matter so that we can determine why the 

OCC failed to discover wrongdoing, failed to act when the FBI and 

the press alerted them to the problem, and why the OCC failed to 

disclose material information to Congress when it testified on the 

matter before this subcommittee and the Senate. 

I believe the OCC has proven time and time again that it needs 

more direct supervision from the I.G.’s office, Treasury and Congress. 

To that end, I strongly support your efforts, Madam Chair, to 

crackdown on criminal activity in our financial system. And I cannot imagine why the OCC would not welcome the assistance, since 

they are clearly not excelling in this area. 

But that is not enough. Not only does the OCC need additional 

assistance in the form of the I.G. and the State attorneys general 

and state banking supervisors enforcing against banks, but the 

OCC clearly needs stronger oversight and accountability from both 

Treasury and Congress. 

Therefore I also intend to introduce legislation to make the OCC 

an appropriated agency so they can be more accountable to Congress for their actions. I hope my colleagues will support me in this 

effort. 

Regarding other issues, I would like to hear about the investigation into the use of Treasury staff to analyze the tax-cut analysis 

and how that rhetoric ended up on the RNC Web page along with 

Secretary Snow’s investment. 

I will ask questions about these and other issues later in the 

hearing. And I yield back the balance of my time and thank the 

Chairwoman once again for calling this hearing. I am looking forward to the testimony of the witnesses. 

Chairwoman KELLY. Thank you very much, Mr. Gutierrez. 

Mr. Oxley, our Chairman? 

Mr. OXLEY. Thank you, Chairwoman Kelly, for convening today’s 

oversight hearing to review functions and activities of the Department of the Treasury, with Deputy Secretary Samuel Bodman; in 

particular, its efforts to deal with money laundering and terrorist 

financing. 

Mr. Bodman, welcome to the committee. It is good to have you 

with us today, particularly on the issue of terrorism financing. 

This subject continues to be an urgent one for all of us. Those 

who are current in their newspaper reading saw the recent news 

of a federal grand jury indictment of Nuradin M. Abdi, most recently of Columbus, Ohio. 

5

This four-count indictment in the plot to attack a central Ohio 

shopping mall should remind us all of the seriousness of our work 

on these issues. Clearly, Mr. Abdi was being funded somehow. I 

doubt if he was working a 9-5 job. 

And I would remind everybody that we are working to protect innocent Americans from murder. This mission will continue to require our complete dedication. Clearly, if terrorists can target Columbus, Ohio, they can target anyplace in our country. 

Additionally today, I hope we will discuss recent and current activities of the Department, as well as talk about the status of the 

regulated financial sectors. 

Clearly, we could spend endless hours reviewing issues within 

Treasury’s charter, considering the breadth of Treasury’s mission. 

With the focus on the jurisdiction of this committee, however, I 

hope you can share your thoughts on at least a few of these issues. 

I look forward to your comments on the new Office of Terrorism 

and Financial Intelligence, as well as government-sponsored enterprises, the Office of the Comptroller of the Currency and the Office 

of Thrift Supervision. 

In addition to the Deputy Secretary, we have with us today a 

panel of four distinguished public officials to talk about the pressing need for the effective collection, accurate integration and 

prompt analysis of information related to the movement of funds 

related to terrorist financing. So let me offer my thanks to our distinguished witnesses for their time and effort to appear and to answer our questions. 

Again, my thanks to Chairwoman Kelly for her leadership on 

these important issues of oversight. And I yield back. 

[The prepared statement of Hon. Michael G. Oxley can be found 

on page 46 in the appendix.] 

Chairwoman KELLY. Thank you very much, Mr. Chairman. 

Mr. Inslee? 

Mr. INSLEE. Thank you. 

I just want to thank the Chair for being so diligent in giving this 

opportunity. It really is something that is very important. 

Just a brief comment: I am looking forward to testimony about 

our current status, particularly the Saudi Arabia situation in regard to those families involved in the hijackings of September 11th 

and their exit from this country and our follow-up in that regard. 

So I look forward to that testimony. 

Thank you. 

Chairwoman KELLY. Thank you. 

I want to go back to a bit of business here. So without objection, 

I ask that the I.G. report to which Gutierrez referred in his opening statement be placed in the record. 

Without objection, so ordered. 

Mr. Gutierrez? 

Mr. GUTIERREZ. I simply ask unanimous consent that the gentlemen from Vermont, Mr. Sanders, should he arrive at the subcommittee, be allowed to be part of the committee proceedings. 

Chairwoman KELLY. So moved. 

Mr. Garrett, have you an opening statement? 

Then let us proceed. 

6

On our first panel, the subcommittee is pleased to have with us 

today the Deputy Secretary of the Treasury, Dr. Samuel Bodman. 

President George W. Bush nominated Samuel Wright Bodman to 

be the Deputy Secretary of the Treasury on December 9, 2003, and 

the U.S. Senate confirmed him on February 12, 2004. Dr. Bodman 

previously served as the Deputy Secretary of the Department of 

Commerce beginning in 2001. A financier and executive by trade, 

with three decades of experience in the private sector, Dr. Bodman 

manages the day-to-day operations of the Cabinet agency. 

Without objection, sir, your written statement will be made part 

of the record. You will be recognized for a five-minute summary of 

your testimony. Thank you so much for appearing here today. 

STATEMENT OF HON. SAMUEL W. BODMAN, DEPUTY 

SECRETARY, DEPARTMENT OF TREASURY 

Mr. BODMAN. Madam Chairman, Congressman Gutierrez and 

members of the committee, thank you for the opportunity to be 

here. 

I have had the pleasure of meeting with Congresswoman Kelly 

as well as Chairman Oxley over the last couple of weeks, and I 

know that they, like I, view the Treasury Department and this 

committee as partners in the critical effort to safeguard our nation’s financial system. 

As requested, I have submitted testimony that addresses a number of issues that I was asked to comment on. I would be pleased 

to answer questions about those. 

I would like to use my time in the oral testimony to touch on two 

major issues of interest to our Department: first, the Department’s 

ongoing efforts to advance our campaign against terrorist financing; and secondly, and related, the Department’s role in ensuring 

compliance with and enforcement of the Bank Secrecy Act. 

The Treasury Department has broad authorities. It has relationships and expertise in the financial area. That is really the core of 

what we do. 

As importantly, we have a cadre of dedicated and very diligent 

individuals who work very hard every day, along with countless 

others in the U.S. government, to fight the financial war on terror 

and to protect the integrity of our financial system. 

We have very real and concrete successes that I have seen firsthand, having arrived just four months ago. 

But as the recent attacks around the world demonstrate, our enemies are numerous, they are resourceful and they are continually 

adapting to new circumstances. We must do the same. We must 

use every tool at our disposal, including those in the financial 

realm. 

The challenges we face require unwavering political will, active 

and continuous leadership by senior policymakers and sustained 

commitments from all of us. 

We are in this fight for the long term and the Treasury Department must be organized to reflect that reality. 

That is why the administration has collaborated with Congress 

to develop a new structure in Treasury, a high-profile office led by 

an undersecretary—it would be one of only three that would be in 

7

the Department; there are two now—together with two assistant 

secretaries. 

This office, the Office of Terrorism and Financial Intelligence, or 

TFI, as we call it, will bring together Treasury’s intelligence, regulatory, law enforcement, sanctions and policy functions to cover this 

area. 

The office has two major components. One assistant secretary 

will lead the Office of Terrorist Financing. Building on efforts already under way, this arm will function as our policy and outreach 

apparatus on the issues of terrorist financing, money laundering, 

financial crime and sanctions. It will continue to develop and help 

implement policies and regulations in support of the Bank Secrecy 

Act and the PATRIOT Act. 

In the international arena, the office will advance international 

standards, conduct assessments, administer technical assistance 

and apply protective measures against high-risk jurisdictions. 

The second assistant secretary will lead the Office of Intelligence 

and Analysis, or OIA. This office will ensure that Treasury properly analyzes relevant information to create actionable financial intelligence that the government can use effectively. 

Meeting this essential mission will necessarily require increased 

coordination with other elements of the government, including law 

enforcement and regulatory agencies. 

A word or two about resources: Secretary Snow has made a commitment to fund the personnel and related start-up costs for the 

TFI operation for the current and next fiscal year without requesting new money. And we will honor that commitment by 

reprioritizing existing funds. 

At the same time, we will need to invest in substantial information technology and infrastructure systems to make TFI into a 

world-class organization, particularly on the intel side. 

We are currently looking at just how much that will cost and 

what funding resources are available to us, such as Treasury’s 

Asset Forfeiture Fund, in order to implement the systems for this 

new office as soon as possible. 

You will hear more about the Department’s activities in the TFI 

area from FinCEN Director Fox, OFAC Director Newcomb and 

IRS-CI Chief Nancy Jardini during the next panel. 

Turning to the second topic, the related topic, the Department’s 

efforts to ensure compliance with the BSA: The purpose of BSA, enacted in 1970, is to promote transparency and accountability in the 

U.S. financial system in order to preserve the integrity of that system and to protect it from criminal abuse. 

Most recently, the PATRIOT Act strengthened and expanded 

BSA regulations to include enhanced due diligence and customer 

identification requirements, expanded information-sharing authorities and new industries subject to BSA obligations. 

While Congress has placed the responsibility for complying with 

the requirements of BSA on the private sector, the businesses that 

fall under this framework, the Treasury is responsible for ensuring 

that the act is effectively implemented and administered. In other 

words, banks and other institutions are required by law to comply. 

We are charged with enforcing that compliance. 

8

The Secretary has delegated responsibility for enforcement of 

this system to FinCEN. This includes the authority to pursue civil 

enforcement actions and monetary penalties. 

However, in order for FinCEN to have the information necessary 

to assess compliance and to levy penalties, we rely on the regulatory oversight of eight different federal agencies to which the Secretary has delegated authority to examine institutions subject to 

the BSA. 

Several of the eight, like the IRS, the OCC and OTS, are part 

of the Treasury Department, albeit with varying degrees of statutory oversight by the Secretary. 

Others, like the FCC and the FDIC are fully independent agencies with no official relationship to Treasury. Therefore, the Secretary has no direct authority over them. 

I say this not to imply a desire on the part of Treasury to exercise control over other agencies, but in order to make clear the 

operational realities of our current arrangement. 

There are substantial benefits from this approach. This approach 

capitalizes on existing structures and on the unique expertise and 

examination capabilities of the regulatory agencies that already 

exist and are most familiar with specific financial industries. 

However, there are also potentially serious risks associated with 

this kind of decentralized system, particularly in terms of transparency, accountability and timeliness. In other words, this type of 

system requires intense management. 

In light of these challenges, and given recent events, the Secretary and I are directing a fresh look at the status of BSA compliance and enforcement across the U.S. financial system. 

We are engaged in discussions with various regulatory agencies, 

both those within and outside the Treasury. We are discussing with 

them ways to monitor and evaluate their progress and their proficiency. We are considering methods to develop and enhance regular reporting and information-sharing. 

We are working on matters related to examination policies and 

procedures; aggregate results of examinations across each of the 

regulated financial industries; deficiency trends in BSA and OFACrelated compliance; and enforcement actions contemplated in response to those deficiencies. 

There are other challenges related to BSA implementation, and 

we are addressing those as well. 

For example, the PATRIOT Act extended BSA reporting beyond 

the traditional banking system. There is much work to be done to 

be fully confident that those non-banking financial institutions are 

fulfilling their responsibilities. 

FinCEN and the IRS have taken significant steps, for instance, 

in registering money service businesses. But the magnitude of the 

task of ensuring compliance in this area is enormous. 

I would just reiterate that effective enforcement of BSA requires 

intense management and close coordination and communication 

among the regulatory agencies. Just today, for example, the bank 

regulators and FinCEN jointly issued guidance on accepting accounts from foreign governments and embassies. 

It has long been the policy of the United States government that 

persons residing or working in this country should have access to 

9

U.S. banking services. And we also have had the policy that financial institutions must comply with the Bank Secrecy Act. 

These policies, in our view, are not in conflict. We believe that 

financial institutions can provide appropriate banking services 

while also satisfying the BSA. 

Before I conclude, let me say that the Department’s acting inspector general, Dennis Schindel, and his team continue to examine a wide range of issues related to BSA compliance. I appreciate 

their contributions to the Department’s mission, and I am very 

pleased that Mr. Schindel will participate in the next panel. 

Despite the challenges that exist, I do think that as a general 

matter the government and private sector have done a good job of 

developing and implementing the regulatory changes to the BSA 

following the passage of the PATRIOT Act. I would be happy to discuss these issues in greater detail. 

I thank you for the opportunity to be here, and I hope that this 

will be the start, Madam Chairman, of an ongoing dialogue between our Department and this committee. 

Thank you. 

[The prepared statement of Hon. Samuel W. Bodman can be 

found on page 47 in the appendix.] 

Chairwoman KELLY. Thank you very much, Dr. Bodman. 

Yesterday, the Council on Foreign Relations Independent Task 

Force on Terrorist Financing released a report which recommended 

that Congress enact a Treasury-led certification process to put 

more pressure on foreign nations to combat the financing of terrorist organizations. 

Do you agree that a certification process for foreign countries 

would help ensure a greater cooperation from our counterparts? 

Mr. BODMAN. First, let me say that, looking at the report that 

was delivered as a whole, in general I am quite supportive of what 

the council had to say. They made observations, suggestions, particularly with respect to Saudi Arabia and the progress that the 

Saudis have made, on the one hand, and on the other hand, had 

made observations about what improvements should be made. 

With respect to that particular recommendation, I would not 

want to respond at this particular point in time, Madam Chairman, 

until I had had an opportunity to study it or think it through. 

I think that the general approach that I have always favored is 

one of trying to utilize resources that are already there and utilize 

the power of persuasion, as opposed to threats and as opposed to 

sanctions, and that those should only be used as a last resort. 

And so it would be my observation that that would be an obstacle 

that would have to be overcome, at least in my mind, in order to 

reach support for that proposition. 

Chairwoman KELLY. Thank you. 

As you know, the OCC has reportedly been obstructing the 

Treasury I.G.’s ability to investigate national banks accused of 

criminal activities. 

I am deeply concerned that the OCC previously misled this committee, whether intentionally or accidentally, in answering a question I asked about what happened to the examiners in charge of 

investigating Riggs and where they are now. 

10

The person who testified failed to admit the troubling fact that 

the chief examiner in charge of Riggs from 1998 to 2002 is now 

working at Riggs as the vice president and chief risk officer. 

I am especially disappointed that the OCC would disrupt the inspector general’s efforts to review and strengthen antiterrorist financing efforts. 

What is the Treasury Department doing to address this dispute? 

And actually, I am going to ask you a follow-up right now, so you 

know it is coming. There seems to be a vacuum with regard to 

criminal investigative powers at the Treasury. And the OCC seems 

intent on making sure no one fills it. Couldn’t the OCC attempt to 

thwart the I.G.’s efforts, undermine our total efforts against terror 

financing? 

So I have asked you two questions: What are you doing to address it? And do you think that what the OCC is doing is in fact 

going to help undermine our efforts against terrorist financing? 

Mr. BODMAN. Let me take the questions in the order that you 

asked them, Madam Chairman. 

The first question, if I may, I will split that in half as well, because I believe there are two issues. 

One, there is in fact a difference of opinion between the OCC and 

the inspector general. The acting inspector general is here, and he 

can speak to that when he is before you. But, as I understand it, 

there is a difference of opinion over the authority that does or does 

not exist at the I.G. to investigate alleged criminal behavior on the 

part of specific bankers. 

The OCC, for very good reasons, is very jealous, guards very jealously its independence. It has received that independence from 

Congress in a bill passed by Congress, signed by the President 

some years ago. And it is that in my mind, raises the question from 

time to time about what specific authorities exist for the Secretary 

or for others who work for the Secretary in overseeing the affairs 

of the bureaus that report to the Treasury under his general oversight. So that is the issue there. 

In terms of the specific question that came up with respect to a 

Florida bank, and that is where the controversy arose. And at the 

present time, the Office of the General Counsel in Treasury is 

working to adjudicate that matter and to make a determination as 

to where it stands. 

I will tell you, from having met with our general counsel, that 

this matter is uncertain, has a good deal of uncertainty about it. 

And that is why it is taking them some time to work out the various matters related to it. We want to get it right. And it is something that they are working very hard on. 

Your second question relates to your observation that there was 

a vacuum with respect to the criminal investigation activities within Treasury. 

I would respectfully disagree with that. The Treasury has had, 

when you look at the Riggs situation and you look at other problems, UBS being another case in point, has had some failings with 

respect to the system as it is now practiced. 

It is my view, that even with the current legislative framework 

that we have that there are opportunities to substantially improve 

the management of the system under the current authorities that 

11

we have, such that we, I believe, can have a much more effective 

system. 

As we go about doing this in the weeks and months ahead, I 

would expect to maintain contact with this committee and to report 

back to this committee as to how we are doing and what the issues 

are and if there is anything that we believe needs to be done that 

would more effectively further this. 

This is a very high priority, it is a very high priority. It is not 

my only priority, I have to tell you, but it is a very high priority 

on the list of things that the Secretary gave me to do when I took 

this job starting four months ago. 

Chairwoman KELLY. I believe that when you were here before, 

you testified that the IRS criminal investigation is the only entity 

within Treasury with a BSA criminal investigative authority. 

I doubt very much that Riggs could have continued to flout the 

BSA last year with the OCC examiners on site if there was any 

real threat regarding criminal enforcement. 

So I am not sure, but I think maybe it is a real mistake for them, 

the OCC, to be fighting a stronger criminal enforcement element in 

the Treasury. 

Do you think this is going to impede the I.G.’s ability to investigate Riggs? 

Mr. BODMAN. It strikes me that the issues related to Riggs relate 

to something that would certainly be fair game for the I.G. And Mr. 

Fox will speak to that. I hope that after we get FinCEN reorganized and itself focused with respect to its responsibilities in this 

area, that it would be fair game for them on an ongoing basis. 

So I do not think the difference of opinion that exists vis-a-vis 

the Florida situation, I would not think that it would impede the 

I.G.’s ability to investigate the situation at Riggs. 

I can tell you that we have had, following the publicity involving 

Riggs, following the meetings, frankly, that I had with you, Madam 

Chairman, and with Chairman Oxley over the last couple of weeks, 

we have had a series of meetings that have involved the Secretary 

himself, as well as myself and the members of the various bureaus 

that are involved in this, including FinCEN, including OFAC, including OCC, including OTS, about the need for there to be in 

place a system of evaluation, of monitoring, how good a job is being 

done by OCC, OTS, as well as these other agencies. 

And that needs to be done on behalf of the Secretary by FinCEN. 

And they need to get themselves organized to do that, to think that 

through. Mr. Fox, I think, will be in a position to speak to that. 

And because he, through this new TFI organization—and hopefully we get Mr. Levey confirmed and get him in place, which will 

bring, frankly, a great relief to me to have someone who can work 

on these issues full-time, that once we get that in place, he will be 

reporting up through Mr. Levey to me, and that I can then ask the 

questions that you are asking of me, I can put to the people who 

are doing the work full-time. 

And when the Secretary asks me, which he has done, ‘‘Is Riggs 

an outlier, is Riggs a singularity,’’ and my answer to him, Madam, 

is that I believe it is. I believe that, in general, the work that our 

regulators are doing with respect in the financial area is very good 

and it is very strong, but I do not have proof. I do not have a sysVerDate 0ct 09 2002 11:02 Oct 05, 2004 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 G:\DOCS\95651.TXT FIN1 PsN: MICAH
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tem in place, that I am used to from my prior experience, in my 

prior business life, such that I have a group of individuals that 

work for me that can evaluate, monitor a new program. 

And so that is what we need, that is what the Secretary needs, 

and that is what we are trying to create. 

Chairwoman KELLY. I had hoped that if you are putting FinCEN 

in a place of responsibility of reporting to the Secretary, that you 

would give them both civil and criminal ability. I would think that 

they would need a complete panoply at their fingertips, and I hope 

that that will be considered. 

Unfortunately, sir, we have been called for a group of five votes. 

Oh, Mr. Chairman? 

Mr. OXLEY. Thank you. I thank the Chairwoman. If you could 

just indulge me for a couple of minutes for some questions. I cannot 

return. And I did want to ask Mr. Bodman some questions. 

Chairwoman KELLY. By all means. 

Mr. OXLEY. Thank you. 

Mr. Bodman, I have some questions on the BSA. How much 

money on an annual basis does IRS spend inputting, maintaining 

and warehousing BSA data? 

Mr. BODMAN. I do not happen to know that offhand, Mr. Oxley. 

But I would be very pleased to get you the answer. 

Mr. OXLEY. Thank you. 

The Canada and Australia and other newer financial intelligence 

units have there own computer systems up and running because 

they think that is the most efficient method. Shouldn’t FinCEN 

own and operate its own computers? 

Mr. BODMAN. Right now, the information on BSA, as I am sure 

you are aware, sir, is collected in the IRS facility in Detroit. I understand that there have been differences of view within Treasury. 

And, here again, my approach has been to try to get IRS and 

FinCEN together. 

The collection of information, which numbers hundreds of thousands of bits of information, and the auditing and certification of 

it, is something that is done, can be done, should be done, by a 

group of individuals. It can be done by the IRS; I believe it can be 

done effectively. 

But it cannot be done without oversight in the same way that 

FinCEN needs to have oversight and access to the Secretary to get 

changes made if he or the organization is not satisfied with the 

quality of the work being done, that, therefore, he has access and 

that the place can be managed. 

The problem, sir, that we have is that Treasury has not had a 

deputy in a year and a half, and there has not been a person who 

has been able to take the responsibility to see to it that issues of 

this sort are dealt with. 

It may be that you are correct. It may be that FinCEN has to 

start from scratch and to create its own system and have its own 

clerical group to collect the information, do the data entry and so 

forth. 

I would hope, sir, that we could avoid that and make use of resources that we already have. 

Mr. OXLEY. Well, I appreciate your candor on that, although I do 

say that there is some evidence that other countries are quite sucVerDate 0ct 09 2002 11:02 Oct 05, 2004 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 G:\DOCS\95651.TXT FIN1 PsN: MICAH
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cessful using that method of their own computer and information 

base. And obviously we will pursue this. And that is obviously one 

of the reasons why this series of oversight hearings that Ms. Kelly 

is so well doing is part of this process. 

I thank you and yield back. 

Mr. BODMAN. I appreciate your comments, sir. And we will certainly look into what those countries are doing. I, frankly, was unaware of it, and I will find out. 

Chairwoman KELLY. Thank you very much, Mr. Chairman. 

We are going to have to recess. We will, with luck, be back here 

somewhere in the vicinity of 3:15, 3:20. It depends on how rapidly 

these votes go. But the committee will stand in recess until such 

time as we are able to reassemble. 

Thank you. 

[Recess.] 

Chairwoman KELLY. Another bit of business we are going to do 

here. I ask unanimous consent that the gentleman from California, 

Mr. Royce, be allowed to participate in today’s hearing and be able 

to revise and extend his remarks. Without objection, so ordered. 

I am sorry, Dr. Bodman, that we had to keep you here for this, 

but we will try to go fast. This subcommittee has looked closely at 

the concept of streamlining our efforts, which was also recommended by David Aufhauser when he was the general counsel 

at the Treasury. 

In light of the recent failures at Riggs and UBS, wouldn’t it be 

more efficient and effective if there were a centralized body in 

Treasury that had compliance and audit officers who could oversee 

the banking regulators and other targeted areas, as well as broaden our BSA compliance efforts to new areas that do not have financial regulators? 

You kind of addressed that a bit in your testimony. I wonder if 

you would want to enlarge on that. 

Mr. BODMAN. With all due respect to Mr. Aufhauser, whom I 

know and have great regard for, I would respectfully disagree, at 

least at this point in my learning curve at the Treasury. 

It is my view that whenever government finds a problem—and 

to be sure, you have certainly defined a problem here, Madam 

Chairman, there is no doubt about that—there is a tendency to create a group to solve the problem. And that, of course, tends to lead 

to an ever-increasing size of the government. 

I would believe that with a more intensive management regime, 

and particularly focusing on the effect I believe that FinCEN can 

have—you will get a chance to talk to Mr. Fox and hear what it 

is he has in mind subsequently—but I think you will find that 

there is plenty of room for improvement, plenty of opportunity to 

create the kind of environment that would make you proud as a 

congresswoman to have been, at this point in time, overseeing what 

we are doing. 

So I would like to have a go at it and to see if we cannot use 

all of these resources. We have all of these people who have devoted their lives and they have great expertise and know these institutions. And I would like to try to make use of them. 

And by training them and training their staffs and expanding 

and making sure that we have a way of verifying that OCC or 

14

OTS, whoever it is, is doing what it is they are supposed to be 

doing, that has, frankly been the missing link, is having an outside 

observer, outside evaluator, outside monitor of what is going on. 

So that is what I would prefer to do. At least, that is one man’s 

view. 

Chairwoman KELLY. That takes me back to some of your prior 

testimony when you were here before, because at that time when 

I asked a question of you, you indicated that some of your concern 

was, at that time, the fact that the OCC and the OTS are not funded by the regulated community, but instead are funded by outside 

sources, that that might weaken the Treasury Department’s sway 

over their bureaus in their own department. 

I am just thinking that if we had a compliance force that is within Treasury that has a greater oversight on these entities, that it 

might strengthen Treasury’s ability to ensure that they are performing up to standard. 

Certainly, Mr. Gutierrez picked that up. And he is obviously 

going to offer legislation to alter the structure so that these two 

come under the oversight surveillance of Treasury. 

Basically, I think what it is we see, at least Congress, my committee, seems to see that we have a patchwork enforcement program, and there is no true center of gravity here. 

So if we leave the regulators to their own devices, as we have 

seen, can be kind of problematic, because clearly they have not 

seen anti-money-laundering as being one of their main responsibilities and at least as important as their safety and soundness responsibilities. And now it is. And now we have to face that and 

focus on that. 

So I am just going to go back to the original question: Don’t you 

think a compliance force in Treasury that has a greater oversight 

over all of the eight entities, wouldn’t that strengthen Treasury’s 

ability to ensure that they are performing up to the standards that 

they, themselves, are requiring? 

Mr. BODMAN. Let me start with the areas where I agree with 

you, ma’am. 

One, if you leave anybody to function on their own, without outside supervision, without another pair of eyes looking at what they 

are doing, any institution, you are asking for trouble. Even corporate executives have found ways to create lots of trouble. So, 

therefore, you and I are in agreement on that. 

The question is: Is there a way to take what we have now and 

to make it work? That is really what it gets down to. And I would 

agree with you that what we have been doing heretofore has been 

wanting. We have problems. I mentioned before that I cannot tell 

the Secretary, if asked, that Riggs is an outlier, or UBS is an 

outlier, because we do not have a mechanism for ascertaining that. 

Now, when you and I talked before, and when I first met you, 

we chatted, and I did allude to the fact that OCC and OTS have 

specifically written legislation that precludes the Secretary from 

entering into the discussions on any matter that comes before those 

bodies. 

It then gets down to a definition of what the word ‘‘matter’’ 

means. That is almost a direct quote out of the FIRA, the Financial 

15

Institution Restoration Act. And it is therefore a question of how 

that act links with other kinds of legislation that govern this area. 

I also mentioned, you were quite right, your memory is quite accurate, that both OTS and OCC have means of financing themselves outside the normal authorization, appropriation techniques 

and are funded by their licensees, their clientele, if you will. 

And, therefore, both of those tend to loosen the authorities that 

the Secretary specifically, the Department generally, has over those 

institutions. And we try to respect that, because that is the law. 

I think it is important, however, to note that we do have some—

I have learned something since I saw you, and I continue to learn 

on this, and that there may be in the delegation process under the 

BSA that the Secretary undertook vis-a-vis FinCEN that, where 

the Secretary, back in the 1970s when this delegation of responsibility was initially made, that in connection with that, there may 

well be the opportunity for FinCEN to perform exactly the function 

that you would like performed. 

And that is what I would like to hold out as an opportunity, rather than go through the exercise of trying to either get new legislation or new regulation. It may be that what we have now can be 

made to work. And so that is what I meant; I would like to try that 

and then work with you and your committee and report back as to 

how we are doing. That is what my hope would be. 

Chairwoman KELLY. Thank you. 

I wanted to ask one quick question about the TRIA situation. 

Given that some insurance contracts are being written right now 

that extend beyond the expiration of TRIA, and Treasury is not 

going to be reporting to Congress on this until June of 2005, do you 

agree that with the GAO finding that there is a mismatch between 

the policy calendar and the commercial insurance cycle? 

Mr. BODMAN. There is a mismatch. But I have been in the insurance business, at least part of my life in the insurance business, 

and I have great confidence in the industry to be able to price that. 

As you know, we are hopefully in the final stages of the make 

available study and that that hopefully in the near term will be announced, the decision on that will be announced by the Secretary. 

And then we have a report due, as you mentioned, next June. 

And I am not prepared to comment on extending this until we 

know more. And hopefully, as we go through this exercise of learning more and determining whether the GAO study is correct or 

not—I am not in a position, at least as I sit here, to tell you that 

I agree or disagree with what the GAO had to say. 

Chairwoman KELLY. I want to simply place in your mind the fact 

that I had a conversation with someone who came to me and said, 

‘‘I want to buy a $4 million building in a city. I cannot do that because the mortgage people will not give me my mortgage because 

I cannot get terrorism reinsurance extending through the life of the 

mortgage.’’

I am hearing this problem from the real estate people, universities, hospitals, museums. It goes on and on and on. It is a very 

broad spectrum of our economy that is being affected by the lack 

of certainty with regard to what Treasury’s going to do or what this 

government is going to do about TRIA. 

16

It is extremely important, I believe, so that it does not move as 

a dislocator in this present economic structure, that we get some 

certainty with regard to TRIA. And I am sure you know where my 

personal prejudice is on that. 

I thank you very much for answering my questions. And I turn 

to Mr. Gutierrez. 

Mr. GUTIERREZ. Thank you. 

Mr. Bodman, at a recent G-8 summit in Sea Island, Georgia, and 

Summit of the Americas earlier this year, the Bush administration 

made a commitment to reduce by half, by 50 percent, the cost of 

remittances to consumers by the year 2008. The communiques referred to efforts to promote competition, use financial literacy efforts and help people join the financial mainstream. 

Can you please outline for the subcommittee the specific policies 

the administration will adopt to promote competition in the remittances industry and other specific efforts that will lead to reducing 

the cost by 50 percent by the year 2008? 

Mr. BODMAN. Yes, sir, I would be pleased to talk to you about 

that. 

First, we do have an Office of Financial Education that has been 

active, those of us in the Department have been active during—I 

believe I am correct that April was Financial Literacy Month. And 

we were all out on the road all over the country working on this 

matter. 

There is also within the government a group of governmental 

agencies that are all involved in financial education. We formed 

them into a financial education advisory group. I have met with 

them. So we are very active in that area. 

To be more specific in answering your question, the goal of reducing by half the cost of remittances comes, I believe—I was not involved personally in setting the agenda at Sea Island, but I believe 

it must have come from the experiences of the Inter-American Development Bank, which has been specifically successful in reducing 

the cost of remittances from the United States to Latin America, 

including the Caribbean, with specific focus on Mexico. 

And there it has been done largely by being very aggressive with 

the financial community and making it known to them that there 

was opportunity there. It turns out that the very high fees that 

were being charged in the early days, some 15 percent I think as 

an order of magnitude, were there because only one company was 

serving that market. And the IDB worked hard, others worked 

hard in order to develop that. And that has now come from 15 percent down to 7 percent. 

They, within IDB and with respect to Latin America, have——

Mr. GUTIERREZ. Well, let me just say, Mr. Bodman, maybe you 

could submit in writing for the committee the specific policies that 

the administration is going about specifically to reduce, what steps 

are going to be taken to achieve it by 2008. Because it still costs 

you $14.95 to send $100, Western Union or MoneyGram. 

And we still do not know what the cost of the transaction truly 

is, since we do not know what the exchange rate is. You know, you 

and I, we get a great exchange rate when we are down vacationing 

somewhere in Latin America, because we use our card from our 

bank. Well, do not think that the other companies have the same 

17

exchange rate when you walk into an exchange company, a remittance company. 

Mr. BODMAN. We will be happy to give you a specific policy——

Mr. GUTIERREZ. Let me ask you——

Mr. BODMAN. If I could just reiterate, sir, if I may. Forgive me 

for interrupting you, but I do want to reiterate that at least my understanding is that the cost of remittances from the United States 

to Latin America now averages 7 percent, not 15 percent. 

It started out at 15 percent, your number is quite right, 14 percent, 15 percent. It is now 7 percent, on average. 

Mr. GUTIERREZ. But when Western Union and MoneyGram got 

sued, it could be as high as 19 percent. 

Mr. BODMAN. That could be. 

Mr. GUTIERREZ. Well, it was. We checked it on a daily basis. It 

was easy to check. You send $100. You call the hotel in Mexico 

City. You see what the exchange rate at the hotel was. You see 

how many pesos arrived for your $100. Voila, 19 percent. 

Mr. BODMAN. I understand, sir. 

Mr. GUTIERREZ. And we have not done anything specifically, legislatively or from a matter of public policy to put the MoneyGrams 

and the Western Unions in check, other than obviously get trial 

lawyers, thank God they exist, to sue them in court and embarrass 

them to change their policies. 

But anyway, let me ask you a specific question about an area 

where Treasury is going to have an opinion. Recently Ranking 

Member Frank and others asked banking regulators whether it is 

permissible under current regulations to provide CRA credit to regulated financial institutions for offering of low-cost remittances 

services. 

The regulators agree that this is possible. Do you support this effort? And what will the Treasury Department do to encourage financial institutions to enter the remittances market so they can 

offer lower-cost alternatives to consumers? 

I guess the point being that the cheapest way is to get rid of the 

middle people and to get people into financial institutions and give 

them what I imagine you and I have—maybe you do not have an 

ATM card, but I imagine you have one, I have one. And that is 

really the cheapest way to send money. So we get ATM card, send 

it down to our brothers, sisters, family members. And they go to 

a local financial institution, $1.25, $1.50, $2, they can pull out 

$200. 

As you can see, we can get it down to 1 percent, and we can get 

the best exchange rate possible, which is the bank rate that you 

are getting from your bank. 

What about using this as a CRA criteria, how do you see that, 

and giving them credit for that? 

Mr. BODMAN. I cannot speak to the CRA issues, sir. I would be 

happy to examine that and give you some specific written response 

to your question. 

I would reiterate that the way the IDB has been successful is to 

introduce competition for exactly the reasons that you mentioned. 

And they have been successful. 

And it is not down to 1 percent, but their goal is to get it down 

to 3 percent. And they have done it strictly through, just as you 

18

suggested, sir, encouraging and making it known that one can 

make a lot of money——

Mr. GUTIERREZ. Well, I will tell you what. Then maybe we would 

agree that if we could encourage—since the money flows from here 

to there and not vice versa, the billion dollars a month goes from 

the United States to Mexico, for example, and 30 percent of the 

gross national product of Guatemala and El Salvador, even sometimes more, comes from here to there. 

Maybe if Treasury would adopt the position and encourage financial institutions and encourage the regulators and support us in 

this effort, so that when somebody is getting their CRA evaluation 

they get credit for having gone out to the community and offered 

measures that allow remittances cost to be lowered. 

Suggestion. You can get back to us in writing on it. 

Mr. BODMAN. Be happy to, sir. 

Mr. GUTIERREZ. Thank you. 

Last thing, just a small question. Maybe you will be able to answer this one. 

Is it true that the internal Web at Treasury is still very vulnerable to hackers and that the documents in former Secretary 

O’Neill’s book are still readily available to hackers through Treasury’s Web? 

We understand that there are a lot of problems in security over 

at Treasury on the Web site. Does the problem really exist? And, 

if it does, what are you doing to correct the security issues there? 

Mr. BODMAN. There are problems with respect to the security of 

the IT systems at Treasury, sir. One of my first acts when I arrived 

four months ago was to order that the chief information officer of 

the Department report directly to me. Within a month, the person 

who was the CIO chose to resign and has left. 

Yesterday morning was the first day of work of our new chief information officer, a man named Ira Hobbs. He has 22 years of experience, having worked at the Department of Agriculture. He is a 

very gifted man, very experienced man. 

I met with him this morning with all of the bureau heads, as 

well as with the heads of all the Department offices. His first assignment is to deal with the questions related to the security of the 

Department’s IT operation. It has my——

Mr. GUTIERREZ. Is he doing it all on his own? Are you hiring outside people? 

Mr. BODMAN. No, we have people in the Department who are capable of dealing with information security. We have a CIO office. 

Mr. GUTIERREZ. I guess since the last guy left after getting the 

message to take care of this after three months and the new guy 

just started, I think you said yesterday or today——

Mr. BODMAN. That is right. 

Mr. GUTIERREZ.—and it has not been fixed, maybe we should 

look externally to fix it. 

Thanks a lot for the answer. 

Mr. BODMAN. Thank you. 

Chairwoman KELLY. Thank you, Mr. Gutierrez. 

Dr. Bodman, I understand that you have a time limit in appearing before this committee. I wonder if you have the ability to allow 

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minute time period with which to ask questions. Is that going to 

be possible for you? 

Mr. BODMAN. I do have a meeting back at the Department. But 

I would certainly want to entertain questions from both of the Representatives. 

Chairwoman KELLY. Thank you very much. 

Well, then I call on you, Mr. Garrett. 

Mr. GARRETT. Thank you. Then I will get right to it, and I thank 

the Secretary here for being with us. 

Based upon your testimony, one of the objectives you say of the 

Department, of course, is for those who are living and working in 

the United States to have access to financial services. 

And on reading your testimony, you were saying that Treasury’s 

job is to make sure that private-sector institutions fulfill their legal 

responsibilities. And it is noted that the BSA places the actual responsibility for compliance in several different areas on the private 

sector, one of which is for checking the identity of customers to financial services. 

We have had a number of hearings on money laundering, terrorism, use of our financial services. And one of the things that 

came out of that is easy access to the banking, financial institutions was one of the critical weaknesses that the terrorists exploited back on September 11th, and that is one of the areas that 

is being focused on in the future. 

I have a piece of legislation in right now, Financial Customer 

Verification Improvement Act, that goes to this point, because 

under the system that we have existing is that individuals are able 

to use documentation issued not by this government or any entity 

in this government, but by outside governments, most specifically 

consular cards. 

And that would seem to fly in the face of everything that we are 

trying to do and the responsibilities of private institutions, as far 

as identifying the customers who are coming into those financial 

institutions. 

What is the Department doing to try to address this problem? 

And why, up to this point in time, have we not limited the ability 

to use those cards? 

Mr. BODMAN. It is the Department’s view, sir, that those decisions are best made by the institutions in question and not by the 

bureaucracy of this department. This is a highly technical question 

related to the capability of any document being used to demonstrate that the person carrying the document is represented by 

that document. 

Having lived my life at the Commerce Department before I came 

over here, I can tell you that they are doing the technical work on 

this. And we, the U.S. government, have a couple of years of work 

to even set the standards for being able to do that for our own employees. It is going to be a major undertaking to do that. 

Treasury, I think wisely, I can tell you, as a newcomer, took the 

position that these decisions are best made by the institution that 

has to form the judgment, does this card represent the individual 

who is carrying it and does the information that is provided by that 

individual match up with the card? 

20

Mr. GARRETT. Since I do not have much time, who would be 

using that card, other than an illegal individual, immigrant? 

Because if you were anyone other than an illegal immigrant into 

this country, you would have some form of other legal identification—passport, visa, work permit or something of that sort. 

So is there anyone who would be using that type of card that is 

not an illegal immigrant? 

And my second question: If that is true, isn’t it incumbent upon 

Treasury to make that known to the private institutions, that only 

illegal immigrants are the individuals who will be using those 

cards? 

Mr. BODMAN. If Treasury believed your proposition, then I would 

guess that there may be an obligation of Treasury to inform people. 

But, in my judgment, there are plenty of people who are not illegal 

immigrants that would be using cards. People do not like carrying 

their passports around in order to identify. Even U.S. citizens who 

are living abroad, members of government, have identification 

cards that they use to identify themselves when they are living 

abroad. 

So I think that there are lots of people that would have these 

cards, because for convenience, it is a way, just like a driver’s license—the primary way we have of identifying ourselves as we go 

about our day-to-day lives here including getting on aircraft is a 

driver’s license. 

You can then query what the ability is to counterfeit the driver’s 

license, depending on which state it might come from. You have 

different quality driver’s licenses and so on. 

So, I mean, this is very complicated, what you are onto, and I 

think an important issue. But the technology of it is a very important part of it. 

And I do think that, if I may say so, sir, the claim that only illegal immigrants would be using such a card is, in my judgment, incorrect. 

Mr. GARRETT. I guess, it is not that they would be the only ones 

who may be using it, but they would be the only ones who have 

an exclusive need for it, whereas anyone else would have some 

other form of identification. 

And if Treasury is charged to make sure that the banks are making the best possible approach to verify, then perhaps there should 

be some responsibility say that other identification should first be 

demanded. 

Well, my time is up. And I thank you very much. 

Mr. BODMAN. Thank you for your comments, sir. 

Chairwoman KELLY. Thank you. 

Mr. Royce. 

Mr. ROYCE. Madam Chairwoman, I would like to begin by commending your leadership, in particular, on combating terrorism finance. And I think you have used your position on this committee 

and in this Congress to very diligently pursue this matter, and I 

am appreciative. 

As I have said before, and nothing has changed to alter my 

thinking, I am greatly concerned about how this government is set 

up to fight the way Islamic terrorists are financing their engines 

of hate and murder. 

21

I think the Treasury Department needs to be the lead agency for 

fighting terror finance. As I see it, the Treasury needs to have firstrate capabilities in three distinct areas: in financial intelligence, in 

compliance, in enforcement. If one of the components is missing, 

then the other two become much less effective. 

I applaud the current efforts of Treasury to build up its resources. But today I think it is fair to describe the Department’s 

compliance resources as scarce. 

And I think it is fair to say that its financial intelligence unit’s 

ability to provide actual information is certainly not there yet. And 

as a result, we have seen some enforcement, but clearly not 

enough. 

And I think the argument that we do not want to overspend in 

this area is not a very credible one with me, because this is the 

one area where government, frankly, needs to be spending money 

right now to protect property and to protect human life. And if we 

were to do a calculation on 9/11, it would be in the hundreds of billions of dollars. And so I did not quite understand that response, 

in response to some comments that former Deputy Secretary 

Aufhauser had made before. 

But let me say that I applaud your efforts, Mr. Bodman. And I 

am very encouraged to have someone with your proven management skill and expertise at the Treasury. 

That being said, I think that the Treasury, and you in particular, 

should have the central role fighting terror finance. And I would 

like to learn more from you today about Treasury’s role on the 

NSC’s Policy Coordinating Committee on Terror Finance on the 

PCC. 

In your appearance before the Senate Banking Committee in 

April, you were asked about the PCC. And in answering the question, you said that Treasury did not need to chair the PCC. And 

I must tell you that I am troubled by Treasury’s position in this 

regard. 

One of the things I hope to do is to get you to check some of your 

premises and maybe rethink some of your positions. Mr. Garrett 

asked you a rather pointed question. 

I want you to think about what would happen if we have another 

9/11 and we find out that falsified documents like the ones he worries about were used by those here illegally in this country by, let’s 

say, another deputy of Osama bin Laden to carry out an attack. 

I would like you to think about the fact that many of us believe 

that Treasury was supposed to be the lead agency in the war on 

terror finance. And I thought that you were supposed to be the person accountable in the government. And I think that, just like Defense runs combat and State runs diplomacy, I cannot understand 

how it should not be that Treasury would not run the war on terror 

finance. 

I understand that this battle requires that all governmental 

agencies work closely together, but that is the case in all major undertakings in government. 

In my view, we need clear, visible leadership. I do not think the 

NSC is the place for that. The NSC has not spent any time up here 

testifying on these issues to the American people. 

22

And I would like to give you the chance to voice your views on 

this subject, but afterwards, I would just like you—like I try to do. 

After 9/11, I tried to check a lot of my premises about the way in 

which government was organized to handle some of these challenges. And I just urge you to think about how we could reorganize 

Treasury. 

And I know that may put a lot more responsibility and certainly 

additional resources into Treasury. But we have a chair of this 

committee that is dedicated to try to rethink some of the fundamentals. And my intent here is to, over time, enlist your support 

in helping us do that. 

Mr. BODMAN. Well, I am not sure where to start, sir. 

First, I believe that we are showing visible leadership with respect to the war on terror, terrorist finance, for the reasons that 

I have already commented on, some of the suggestions of the Chairperson. 

I will take your suggestion. I will rethink my positions, if that 

is what you have asked me to do, I will certainly do that. I would 

do that anyway. Frankly, this is a major responsibility, and I would 

tell you, based on our experiences to date, our system is less than 

perfect. We do have holes in the system, and we are attempting to 

deal with them. 

There are a number of hurdles that have to be overcome. I will 

not bother you with trying to enumerate them. Just suffice it to say 

that they are there, and we are attempting to deal with them. 

I do not consider the chair of the PCC to be a hurdle. We have 

very good relations. I think it is a good thing, frankly, that the 

NSC is taking, that the White House is taking strong role in this, 

a leadership role. We have an active role. We are deeply involved 

in the deliberations of that committee, which meets every couple of 

weeks. 

More importantly, we have a counterterrorism security group 

that meets almost every day, four, five days a week, every morning. 

And a number of my colleagues are involved with that, in looking 

at specific threats that are here and looking at the financial aspects of that. These are matters where specific issues are brought 

up and are dealt with on a day-by-day basis, and we are deeply involved in that as well. 

So I am quite proud of the work that has been done by the people 

of this department, and I would not want to leave here without 

saying that to you. 

Having said that, I would reiterate, there are barriers, there are 

issues. I mentioned some of these before to the Chairwoman. And 

as you requested, sir, I will reassess my thinking——

Mr. ROYCE. And think also about the economic argument there, 

or the budgetary argument about resources, because the risk premiums, frankly, paid in our financial markets as a consequence of 

9/11 are very high. 

And I would argue that it would be well worth the investment 

to put more resources into Treasury for your efforts on financial intelligence and compliance and enforcement. And I would be up here 

asking for those resources and finding ways that you can really be 

the lead agency in this battle against terror finance. 

And I thank you for your appearance here today. 

23

And, Madam Chair, thank you again for all you do on this committee. 

Chairwoman KELLY. Thank you very much, Mr. Royce. 

I agree with what Mr. Royce has been saying here. We need to 

get the resources to you, sir. We need to get whatever you need for 

you. And we stand willing to do that. 

Our concern, I think, is pretty clear. It is that the agencies that 

are currently under control of the Treasury are not really communicating very well, or enough, with each other, and that there is 

right now a lack of strong leadership from a centralized office with 

not only civil, but criminal regulatory ability. 

I hope you will think through what can be done to rapidly centralize and make more precise the oversight ability of Treasury. 

And I emphasize ‘‘rapidly.’’ We do not have the luxury of time 

when it comes to terror and terrorism’s response into this nation 

of ours. The sooner we get this done, the better. We stand willing 

to help you in any way possible. 

And with that said, I want to thank you very much for your appearance here today. 

The Chair notes that some members may have additional questions for the panel which they may wish to submit in writing. So 

without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses and to 

place their responses in the record. 

I thank you, Dr. Bodman, especially for your indulgence of a few 

more minutes here and for the time that you have spent here with 

us today. We look forward to working with you, sir. Thank you so 

much for giving us your time. 

With that, you are excused. 

Mr. BODMAN. Thank you very much. 

Chairwoman KELLY. While this panel is leaving, I will introduce 

the second panel. We have with us witnesses from FinCEN, OFAC, 

the IRS and the acting Treasury inspector general. 

William J. Fox was appointed by Treasury Secretary John Snow 

to be the fourth director of the Financial Crimes Enforcement Network on December 1, 2003. Prior to his appointment as FinCEN’s 

director, Mr. Fox served as Treasury’s associate deputy general 

counsel and acting deputy general counsel. 

Since September 11, 2001, he has also served as the principal assistant and senior adviser to Treasury’s general counsel on issues 

relating to terrorist financing and financial crime. 

Mr. Fox was recognized for his work on these issues with a meritorious rank award in October of 2003. 

We have Mr. R. Richard Newcomb. He is the director of the Office of Foreign Assets Control, OFAC, the agency within the U.S. 

Treasury Department that is responsible for implementing and enforcing economic sanctions and embargo programs ordered by the 

President. 

Following the terrorist attacks of September 11, 2001, OFAC is 

the primary U.S. government body responsible for implementing 

economic sanctions to isolate and impede terrorists and their support networks. 

Since assuming this position in January of 1987, Mr. Newcomb 

has played a leadership role in ensuring that these programs are 

24

fully and effectively developed, implemented, administered and enforced. 

We have Ms. Nancy Jardini, she is chief counsel of investigation 

at the Internal Revenue Service. In January of this year, IRS-CI, 

as it is called in shorthand, is the agency’s law enforcement division. 

Ms. Jardini is the first woman in CI’s 85-year history to lead the 

organization. She directs a nationwide staff of about 4,500 employees, including more than 2,900 special agents. CI special agents investigate and assist in the prosecution of criminal tax, money laundering and narcotics-related financial crime cases. 

And finally we have Mr. Dennis S. Schindel. He is the acting inspector general of the Department of Treasury. Mr. Schindel has 

been with the Department of Treasury since 1972. 

Prior to his designation as the acting inspector general, Mr. 

Schindel was the deputy inspector general assisting the inspector 

general, providing leadership and direction to the Office of the 

Treasury of Inspector General since March of 2001. 

I thank you for your appearance before the subcommittee. 

Without objection, your full written statements will be made part 

of the record. And you will each be recognized for a five-minute 

summary of your testimony. 

Thank you so much. 

Let us begin with you, Mr. Fox. 

STATEMENT OF WILLIAM J. FOX, DIRECTOR, FINANCIAL 

CRIMES ENFORCEMENT NETWORK, DEPARTMENT OF THE 

TREASURY 

Mr. FOX. Thank you, Madam Chairman, Congressman Gutierrez 

and distinguished members of this committee. 

I appreciate the opportunity to appear before you today to discuss our vision for the Financial Crimes Enforcement Network. 

This is my first opportunity to appear before a House committee. 

And I would like you to know that I consider it a great honor. 

We very much appreciate your leadership and the commitment 

of the House Financial Services Committee, particularly this subcommittee, on the important issues that are the focus of today’s 

hearing. 

We also appreciate the diligent work of your staff, both majority 

and minority. They have been great to work with. And, in my view, 

they are serving you very well. 

I have a prepared statement, which we have submitted. And I 

will try to keep these remarks very brief. 

Madam Chairman, I was appointed FinCEN’s fourth director in 

December 2003. Before I came to FinCEN, I was the principal assistant to David Aufhauser, as he led the Treasury Department 

and the government on issues relating to the financing of terror. 

Working with David, I quickly gained a very keen appreciation 

for the importance of what has been referred to as the financial 

front of this war. That importance can be stated quite simply: 

Money does not lie. 

A good part of the time, financial intelligence is actionable intelligence. It can be extremely useful for identifying, locating and capturing terrorists and defining their networks. And, just as imporVerDate 0ct 09 2002 11:02 Oct 05, 2004 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 G:\DOCS\95651.TXT FIN1 PsN: MICAH
25

tant, financial intelligence can lead to effective, strategic action 

that stops or disrupts the flow of money to terrorists and their networks, which in turn serves to halt or impede terrorists operations. 

The Financial Crimes Enforcement Network is right in the middle of these two aspects of exploiting financial information. 

The women and men of FinCEN have been learning about, understanding and exploiting financial information for almost 14 

years. My job is clear: to lead FinCEN in a direction that ensures 

we are the gold standard when it comes to collecting, understanding, analyzing, employing and disseminating financial information to combat terrorism and financial crime. 

Let me tell you what I found my first 180 days on the job. I 

found an agency populated with highly motivated employees with 

diverse and, in many ways, specialized talents and skills who are 

very dedicated to FinCEN and its mission. 

But I have also found an agency facing many significant challenges. Let me highlight a couple of specifics. 

An important and fundamental challenge facing FinCEN relates 

to the security and dissemination of the data we have been charged 

with safeguarding, the data collected under the Bank Secrecy Act. 

FinCEN must ensure that this data is properly collected, is kept 

secure and is appropriately, efficiently and securely disseminated 

to law enforcement, intelligence and regulatory agencies. 

This is one of FinCEN’s core responsibilities. We believe our BSA 

Direct Project, which is discussed at length in my statement, will 

address many of these issues. In my view, this project is critical to 

our future success. 

Another of FinCEN’s core responsibilities relates to the administration of the Bank Secrecy Act. As you know, FinCEN is the delegated administrator of the Bank Secrecy Act. Through that delegation, FinCEN is answerable to the Secretary of the Treasury for ensuring that the ultimate goals of that act are achieved. 

While we eagerly accept this responsibility, the responsibility is 

not ours alone. The federal bank regulators, as well as other agencies such as the Securities Exchange Commission, the Commodities 

Future Trading Commission and the Internal Revenue Service, 

have been delegated responsibility to supervise and examine financial institutions for Bank Secrecy Act compliance. 

Indeed, presently, implementation of the Bank Secrecy Act’s regulatory regime involves eight different federal agencies and three 

SROs. This unusual structure is both a strength and a weakness. 

The weaknesses are obvious and sometimes are clearly manifested. 

To diffuse responsibility across so many bureaucracies can cause, 

and indeed on occasion has caused, inconsistency in application, 

lack of clarity of purpose and, most importantly, diffusion of accountability. 

However, if managed properly, we believe this structure could 

also be a strength, because it builds upon existing expertise, knowledge base and examination functions of regulators who know their 

industries best. The structure leverages resources where resources 

would otherwise be completely insufficient and possibly duplicative. 

I view it, Madam Chairman, as my responsibility to work with 

my colleagues in these agencies to help manage this structure in 

26

a manner that builds on our strengths that our diverse partners 

bring to the table. 

In other words, administration of the Bank Secrecy Act in this 

context really means oversight—exercising oversight coordination 

and ensuring consistency of application. 

In my view, of all the challenges facing FinCEN, there are no 

challenges as important as the proper and appropriate implementation of the Bank Secrecy Act regulatory regime. We have several 

ideas on how to better manage and coordinate the implementation 

of this regime, and we have outlined those in my written statement, so I am not going to recite them again here. 

What I want you to know, Madam Chairman, is that I clearly 

understand how important this set of issues is to the success of our 

country’s anti-money-laundering and counterterrorist financing efforts. 

The implementation of this risk-based regularity system is a delicate matter that demands balance, consistency and clarity. The cornerstone of the Bank Secretary Act, suspicious activity reporting, 

requires financial institutions to make judgment calls. If we fail in 

properly implementing this regime, if we get it wrong, then the 

system will fail. 

For example, if as regulators we are either too aggressive or too 

passive in supervising and examining the financial industries that 

we regulate, there could be two equally unacceptable outcomes. 

Compliance should not be about second-guessing individual judgment calls on whether a particular transaction is suspicious. If we 

are overzealous in our supervision and examination, financial institutions, as conservative institutions, will merely defensively file on 

anything and everything to protect themselves from regulatory 

risk. 

If, on the other hand, we are too lax when it comes to ensuring 

institutions are implementing these programs, proper reporting 

will not be generated. 

Either scenario represents a failure. 

Madam Chairman and distinguished members of this committee, 

you should know that you have my commitment, and the commitment of the women and men at FinCEN, to do all in our power to 

ensure the implementation of this critical regulatory regime does 

not fail. 

Again, Madam Chairman, we appreciate the committee’s continued support and your focus on these critical issues. I hope our presence here today will add to this important conversation. 

I will be happy to answer any questions that you may have. 

[The prepared statement of William J. Fox can be found on page 

57 in the appendix.] 

Chairwoman KELLY. Thank you very much, Mr. Fox. 

Mr. Newcomb? 

STATEMENT OF RICHARD NEWCOMB, DIRECTOR, OFFICE OF 

FOREIGN ASSETS CONTROL, DEPARTMENT OF THE TREASURY 

Mr. NEWCOMB. Madam Chairman, thank you for the opportunity 

to testify on the Office of Foreign Assets Control’s efforts to combat 

terror support networks, which forms an important part of the 

27

Treasury Department and our government’s national security mission. 

I will begin with an overview of our overall mission and conclude 

with our strategies for addressing the threat of international terrorism. 

The primary mission of the Office of Foreign Assets Control is to 

administer and enforce economic sanctions against targeted foreign 

countries and groups and individuals, including terrorists and terrorist organizations, narcotics traffickers, who pose a threat to the 

national security, foreign policy or economy of the United States. 

We act under the general presidential wartime and national 

emergency powers, as well as specific legislation, to prohibit transactions and freeze assets subject to U.S. jurisdiction. 

Economic sanctions are intended to deprive the target of the use 

of its assets and deny the target access to the U.S. financial system 

in the benefit of trade, transactions and services involving U.S. 

markets. 

We currently administer and enforce some 28 economic sanctions 

programs pursuant to presidential and congressional mandates. 

These programs are crucial elements in preserving and advancing 

the foreign policy and national security objectives of the United 

States and are usually taken in conjunction with diplomatic, law 

enforcement and occasionally military action. 

Our historical mission has been the administration of sanctions 

against target governments that engage in policies inimical to U.S. 

foreign policy and national security, including regional destabilization, severe human rights abuses and repression of democracy. 

Since 1995, the executive branch has increasingly used the statutory powers to target international terrorist groups and narcotics 

traffickers. Many so-called country-based programs are part of the 

U.S. government’s response to the threat posed by international 

terrorism. 

The Secretary of State has designated seven countries—Cuba, 

North Korea, Iran, Libya, Iraq, Sudan and Syria—as supporting 

international terrorism. Three of these countries are subject to 

comprehensive economic sanctions: Cuba, Iran and Sudan. Comprehensive sanctions have been imposed in the past against Libya, 

Iraq and North Korea. 

In addition, effective May of this year, the President issued a 

new executive order which prohibits specific types of transactions 

with Syria, due to its continued support for terrorism and other 

reasons. 

OFAC administers also a growing number of list-based programs, 

targeting members of government regimes and other individuals 

and groups whose activities are inimical to U.S. national security 

and foreign policy interests. In addition to our terrorism and narcotics trafficking programs, these include sanctions against persons 

destabilizing the western Balkans and against the regimes in 

Burma and Zimbabwe. 

OFAC also administers programs pertaining to nonproliferation, 

including the protection of assets relating to disposition of Russian 

uranium and trade in rough diamonds. 

28

OFAC as an organization has grown over the past 18 years from 

an office with about 10 employees administering a handful of programs to an operation of 144 employees with some 28 programs. 

To accomplish our objectives, we rely on good, cooperative working relationships with other Treasury components and other federal agencies, particularly the State and Commerce Departments 

and Justice Department, law enforcement agencies, the intelligence 

community, domestic and international financial institutions, the 

business community and foreign governments. 

We are an organization which blends regulatory, national security, law enforcement and intelligence into a single entity with 

many mandates but a single focus: effectively implementing economic sanctions programs against foreign adversaries when imposed by the President or the Congress. 

In order to carry out our mission, the organization is divided into 

10 divisions with offices in Miami, Mexico City, Bogota and, soon 

to be opened this summer, an office in Manama, Bahrain. 

Our licensing, compliance and civil penalties divisions serve as 

OFAC’s liaison with the public and figure prominently in promoting the transparency of our operations. 

Our enforcement division provides crucial liaison with law enforcement community, while our international programs and foreign terrorist divisions are primarily devoted to narcotics and terrorism programs and the preparation of evidentiary material to 

support our designation process. 

Briefly, I would like to talk about our vision for the future and 

the important challenges we face at the Office of Foreign Assets 

Control. 

In order to meet the increasing demand placed on us and to fulfill our multiple missions against governmental and organizational 

targets, particularly a recent critical role in countering international terrorism and narcotics trafficking, we are seriously addressing several specific challenges facing our component divisions. 

For example, our civil penalties division is expanding the transparency of our civil penalty enforcement process by developing an 

automated system to report enforcement actions. 

Our compliance division is in the process of building new customer interaction capabilities with a state-of-the-art automated 

telephone system, enhanced hot-line capabilities and improved 

Web-based forms to allow the public to transmit detailed live transaction data for our real-time analysis and response. 

We expect that the new automated reporting systems we are developing will allow financial institutions and others to provide more 

quickly comprehensive information on interdicted transactions. 

We are building a new specially designated national database 

that will allow wide access to declassified target information and 

permit our analysts to directly link from the name on our SDN list 

to underlying declassified evidentiary material for easier access. 

We intend in the near future also to make a new data feature 

available on our Web site that will allow users of our specially designated nationals list to more easily shop for information that is 

tailored to their specific compliance needs. 

Madam Chairman, I would like to thank you and the committee 

for giving me the opportunity to speak on these issues. This conVerDate 0ct 09 2002 11:02 Oct 05, 2004 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 G:\DOCS\95651.TXT FIN1 PsN: MICAH
29

cludes my oral remarks today, and I am very pleased to answer 

any questions you may have. 

[The prepared statement of R. Richard Newcomb can be found on 

page 89 in the appendix.] 

Chairwoman KELLY. Thank you very much, Mr. Newcomb. 

Now, Ms. Jardini? 

STATEMENT OF NANCY JARDINI, CHIEF, CRIMINAL 

INVESTIGATION, INTERNAL REVENUE SERVICE 

Ms. JARDINI. Thank you very much, Madam Chairman. 

It is a pleasure for me to be here with my colleagues from 

FinCEN, OFAC and the Treasury Inspector General’s Office to discuss our work and our interactions with one another. 

I also very much appreciate the opportunity to highlight the 

unique and specialized skill of the Internal Revenue Service Criminal Investigation Division and discuss our efforts to investigate financial fraud and money laundering wherever it occurs. 

The fundamental mission of criminal investigation, or CID, as it 

is known, is to serve the American public by detecting and investigating criminal violations of the Internal Revenue Code and related financial crimes, most importantly money laundering. 

To that end, we recruit only individuals who have an educational 

background in accounting and business and, through rigorous 

training, shape them into law enforcement professionals who are 

experts in forensic accounting, financial investigations and computer forensics. These highly skilled special agents are devoted to 

following the money in tax and money-laundering and related investigations that involve sophisticated schemes and complex transactions that span the globe. 

The unique sophistication of our special agents is in demand 

throughout the law enforcement community, because we add value 

to every financial investigation. These are precisely the same skills 

that make such a valuable contribution in unraveling organized 

crime, narcotics trafficking and global terror financing networks. 

In addition to bringing significant technical expertise to these investigations, there is often an important nexus between tax crimes, 

Bank Secrecy violations, money laundering and terrorism. 

Indeed, money laundering is tax evasion in progress. It is criminals hiding their ill-gotten gains from the authorities, most particularly the IRS. Just as corporate executives, drug kingpins and terrorists employ various methods to move money, the IRS is using 

various means to detect them. 

One of those is to exploit effectively the Bank Secrecy Act. We 

in CI lead 41 suspicious-activity report review teams nationwide. 

These teams are comprised of federal, state and local law enforcement officials who evaluate between 12,000 and 15,000 SARs each 

month. 

In addition, last year alone, just the criminal investigation division of the IRS spent over $60 million evaluating BSA data, which 

led to over 1,000 investigations in the criminal arena. 

Another unique analytical contribution CID is making in the financial crimes arena is the counterterrorism project that we are piloting in Garden City, New York. When fully operational, the center will use advanced analytical technology and data modeling of 

30

tax and other information, such as the wealth of information contained in BSA data, to support ongoing joint investigations and 

proactively identify potential patterns and perpetrators. 

The center analyzes information not available to, nor captured 

by, any other federal law enforcement agency. 

So far, the lead development center has helped identify individuals, entities and relationships between them previously unknown 

to law enforcement. 

As an example, the lead development center began compiling and 

analyzing financial data that culminated in the linking of several 

individuals and businesses, some of whom are or were under criminal investigation, one with ties to Al Qaida. 

With no identifiers other than listed names, the center established significant connections to individuals and businesses potentially involved in illegal activities, including international heroin 

smuggling and Iraqi artifacts smuggling. 

The scope of this criminal enterprise was previously unknown 

prior to the analytical work done by CI at the Garden City Lead 

Development Center. 

Because this type of financial analysis is not duplicated in any 

other law enforcement agency, we are encouraged and enthusiastic 

about the unique contribution we are able to make. 

In conclusion, the men and women of IRS-CI, some of the most 

skilled financial investigators in federal law enforcement, are proud 

of the role we have had in these successes. For all of us, it is one 

of the great rewards of public service. 

We thank you for inviting us here today. And I welcome your 

questions. Thank you. 

[The prepared statement of Nancy J. Jardini can be found on 

page 71 in the appendix.] 

Chairwoman KELLY. Thank you very much. 

Mr. Schindel. 

STATEMENT OF DENNIS SCHINDEL, ACTING INSPECTOR 

GENERAL, DEPARTMENT OF THE TREASURY 

Mr. SCHINDEL. Thank you, Madam Chairman, for the opportunity to testify. 

In your invitation letter, you ask that I address several issues. 

Briefly, they include BSA compliance efforts by the various regulators, OCC and OTS oversight of BSA compliance by banks and 

their private banking and trust operation, usefulness of the 

FinCEN database, and concerns we have resulting from our review 

of the OFAC sanctions program. 

Let me say that oversight of Treasury’s role in combating terrorist financing is among our highest-priority work. In fact, we designated it as one of Treasury’s six most significant management 

challenges. 

While Treasury takes its BSA responsibilities seriously, in almost every area we have audited, we have identified problems significant enough to impact Treasury’s ability to effectively carry out 

its role in combating terrorist financing and money laundering. 

I will briefly highlight our work. 

With regard to BSA compliance by the regulators, our work is 

limited to OCC and OTS. In one of our early audits issued in JanuVerDate 0ct 09 2002 11:02 Oct 05, 2004 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 G:\DOCS\95651.TXT FIN1 PsN: MICAH
31

ary 2000, we reported that OCC needed to improve BSA compliance exams. We found that many of the exams in our sample 

lacked sufficient depth to adequately assess a bank’s compliance. 

Over half the exams we reviewed did not have documentation to 

determine whether an adequate BSA exam was conducted. 

We also reported that OCC rarely referred BSA violations to 

FinCEN and that OCC procedures did not require examiners to review SARs filed by the banks. 

More recently, we issued a report in September of 2003 on BSA 

enforcement actions at OTS. We found that OTS was not aggressive in taking enforcement actions against thrifts in substantial 

non-compliance with BSA requirements. 

Specifically, while OTS examiners identified substantive BSA 

non-compliance at 180 of 986 thrifts that they examined, OTS 

issued written enforcement actions against only 11. For most of the 

thrifts, OTS exercised moral suasion and relied on thrift management to comply with the BSA requirements. We found that that approach did not work more than 30 percent of the time. And in some 

instances, subsequent BSA exams found that compliance actually 

got worse. 

On the issue of oversight of BSA compliance in private banking 

and trust operations, we completed an audit at OCC in November 

of 2001. We found that OCC needed to focus greater attention on 

private banking and trust operations when conducting BSA compliance exams. 

In 60 percent of the exams we tested, OCC examiners did not 

cover the bank’s private banking operations. Even where OCC did 

include private banking and trust operations in their BSA compliance exams, more than 30 percent of the time the examiners did 

not fully comply with OCC’s own BSA examination guidelines. 

Exams often lacked sufficient testing of high-risk transactions commonly associated with money laundering. 

With regard to the subcommittee’s questions on FinCEN’s database, we completed two audits on the accuracy and reliability of the 

FinCEN database for SARs and we have one in process. These audits have consistently shown that the SAR database lacked critical 

information, included inaccurate information or contained duplicate 

SARs. 

In the more recent audit, which we issued in December 2002, we 

found that regulatory and law enforcement officials generally felt 

that the database was useful. However, they indicated that its usefulness would be enhanced if it contained more complete and accurate SAR data. 

We found that incomplete or inaccurate data resulted because filers disregarded instructions, did not always understand the violations or were concerned with personal liability. We made several 

recommendations to include more editing, more mandatory fields, 

more feedback to filers, revisions to the SAR form and more efforts 

to eliminate duplicate SARs in the system. 

Before I discuss my concerns with OFAC’s foreign sanctions program, I want to briefly comment on some limited work that we 

have done on referrals to FinCEN. 

In October of 2002, we issued an audit report on FinCEN’s efforts to deter and detect money laundering in casinos and its reVerDate 0ct 09 2002 11:02 Oct 05, 2004 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 G:\DOCS\95651.TXT FIN1 PsN: MICAH
32

lated enforcement actions. IRS is responsible for BSA compliance 

exams of casinos. Overall we found that FinCEN was inconsistent 

and untimely in its enforcement actions against casinos for BSA 

violations referred to them by IRS. 

At the time, FinCEN was embarking on a new enforcement approach focused on fostering casino compliance through education 

and outreach. IRS officials apparently did not fully agree with several aspects of this approach, but their disagreements were not resolved. 

We reported our concern that IRS might be reluctant to refer future BSA violations to FinCEN. Our concern was subsequently reiterated by the Treasury inspector general for tax administration in 

a report that they issued in March of 2004. 

The last area the subcommittee asked me to address was my concerns with OFAC’s foreign sanctions program. In April 2002 we reported that OFAC was limited in its ability to directly monitor financial institution compliance with foreign sanction requirements. 

While OFAC devotes considerable effort to increasing awareness of 

the foreign sanctions requirements, like FinCEN, OFAC is dependent on the regulators to examine for compliance. 

Our tests have found gaps in the regulators’ testing for compliance with OFAC sanctions requirements. While most of the exams 

included some coverage of compliance with OFAC’s sanction requirements, almost none of them included transaction testing. 

Transaction testing is the most effective way to determine whether 

a prohibited transaction was allowed in violation of an OFAC sanction order. 

Also, because OFAC is not a bank supervisory agency, it cannot 

dictate the requirements of how institutions ensure compliance. We 

found that the extent of foreign sanction compliance efforts varied 

among the various financial institutions. 

In conclusion, I would like to make a few observations. While the 

BSA compliance process is dependent on many federal and non-federal regulators, ultimately it is Treasury’s responsibility, primarily 

through FinCEN, to ensure that there is adequate compliance and 

law enforcement is getting what they need. In this regard, Treasury can do a better job. 

The universe of BSA filers is expanding. This will result in disbursing BSA compliance monitoring among even more regulatory 

bodies. One of FinCEN’s challenges has been ensuring that the regulators of these various BSA filers provide adequate and effective 

BSA compliance monitoring. 

To this end, FinCEN’s approach has been focused on consensusbuilding, rather than leading, an approach that has met with limited success. I believe that for the current regulatory structure to 

work, it must be effectively managed through a cohesive effort that 

transcends the stovepipes of the individual regulators. 

FinCEN needs to take a more aggressive leadership role in that 

effort and require from all those involved in the regulatory structure an approach that, while risk-based, is thorough and intolerant 

of non-compliance. FinCEN also needs to be more engaged in analyzing the results produced by the various regulators so that it can 

be more proactive in addressing gaps in compliance monitoring. 

33

This type of approach would also apply to programs for which 

OFAC is responsible, since it also relies on other regulators to administer its programs. The newly created Treasury Office of Terrorism and Financial Intelligence, to which FinCEN and OFAC will 

report, can perhaps be the vehicle to pull all this together and establish a regulatory structure for BSA and the OFAC sanction programs that is strong, effective and accountable. 

I would be pleased to answer any questions the subcommittee 

may have. 

[The prepared statement of Dennis S. Schindel can be found on 

page 112 in the appendix.] 

Chairwoman KELLY. Thank you very much, Mr. Schindel. I appreciate the fact that you are speaking very strongly here. And I 

hope that the people sitting in this panel with you will take your 

reports back. And perhaps, Mr. Fox, since he is new at the agency, 

will read that report and take it to heart. 

Mr. Fox, in light of the failures at Riggs Bank and UBS, what 

do you think? Do you think it would be beneficial if FinCEN had 

a compliance and audit team that could oversee the banking regulators and then broaden our BSA compliance efforts into those new 

areas? 

Mr. FOX. No question, Madam Chairman. 

Chairwoman KELLY. No question, yes or no? 

Mr. FOX. No question, yes. 

Chairwoman KELLY. You think you would really like——

Mr. FOX. I would like to tell you, I mean, that is part of our plan. 

I mean, we have new leadership in our regulatory programs division. And one of the things we are doing is standing up what we 

are calling an examination program unit that is really meant to 

more aggressively oversee and ensure that the regulators, the disparate regulators that are out there ensuring this act is complied 

with, are actually doing their job and making sure of it. 

I think that is important on a couple levels. Again, one of the 

great challenges, Madam Chairman, I think is to ensure consistency in this area. I have seen, since I have been director of 

FinCEN, even differences in approach between bank regulators, 

not to mention, you know, differences in approach between bank 

regulators and SEC and maybe the SEC and an SRO. 

You know, each regulatory agency brings with it a history and 

a culture that cause inconsistencies. So we have to work very hard 

to make sure that that is minimized as much as possible. 

But I could not agree with you more. And it is a plan that we 

have. 

Chairwoman KELLY. Does FinCEN currently have the authority 

to actively examine the frontline BSA regulators and to conduct 

spot checks on their performance? I mean, I really do not know. Do 

you have that? 

Mr. FOX. Well, as I understand this, ma’am, the Bank Secrecy 

Act—the authority to supervise and examine these institutions has 

been delegated to various agencies by the Treasury. The responsibility for administering the Bank Secrecy Act has been delegated 

by the Secretary to FinCEN. 

34

Generally, when you delegate an authority, you retain that authority as well. And if you read the delegation that is in our regulations, it has been in place since 1972. 

You know, it is pretty broad. I mean, the Secretary of the Treasury still, and now FinCEN because of that, still retains a lot of authority here. 

So we are certainly going to test that and make sure that the 

regulators are performing. 

We are thinking of various things, things like requiring reports; 

going in and actually finding out about how they are conducting 

these examinations; conducting joint examiner training; ensuring 

that examination procedures are consistent and actually make BSA 

as important maybe as safety and soundness. 

So we are very keen to do that. And we think we have the authority right now to be able to do that. 

I will tell you if we learn soon that we do not, we will be back 

to you, and I will be back to the Deputy Secretary. Because I do 

not think we can do an effective job administering the act without 

that. 

Chairwoman KELLY. Mr. Fox, do you think you are going to need 

some more personnel to do that in FinCEN? Do you have enough 

people to do what you have outlined? 

Mr. FOX. No. But, you know——

Chairwoman KELLY. Well, that was the short answer. 

Mr. FOX. What we are going to do honestly is—you know, one of 

the things that we are trying to do at FinCEN right now is to really re-look at what it is FinCEN is supposed to be doing and maybe 

redirect some of the assets that we are working on some things 

that maybe we should not be doing. 

For example, I think that is why our technology projects are so 

important to us, because I think that will free up some people that 

we can redirect and put on programs like this. 

And I was not part of the budget process for either this year or 

next year. But you can be assured that in future budget processes 

that we are going to be asking for additional help in that regard, 

again because I think you simply need human bodies to be able to 

do this work. 

Chairwoman KELLY. Thank you. 

Mr. Schindel, I would like to go to you. As you probably know, 

I recently sent you a letter asking that you examine the regulatory 

environment that allowed the failure at Riggs to occur. I specifically asked you to look at relevant OCC documents that I have not 

been allowed to view. 

Do you anticipate that this dispute that is going on with OCC 

will interfere with your efforts to review those documents and to 

examine the conduct of the OCC personnel in the Riggs case? 

Mr. SCHINDEL. The short answer is that I do not. 

When there was an article that came out a week ago that quoted 

the comptroller, Mr. Hawke, as indicating that they were doing a 

lessons-learned review and also looking into whether there was 

undue influence on the lead examiner as a result of him subsequently taking a job with Riggs bank, when I read that, I immediately contacted our counsel and our head of investigations and 

asked that they reach out to OCC and let them know that we did 

35

not think it would be appropriate for them to investigate whether 

there was undue influence, that that was in our domain. 

We received assurances that we would get their full cooperation 

in conducting such an investigation, and we have opened up that 

investigation. 

Chairwoman KELLY. And so you feel that you will be able to see 

those documents? 

Mr. SCHINDEL. Yes. 

Chairwoman KELLY. Do you have any time line for how long this 

overall review is going to take? 

Mr. SCHINDEL. I really do not. We have just initiated it. 

Chairwoman KELLY. But you are doing the review, not OCC. It 

is not an internal review. 

Mr. SCHINDEL. Correct. OCC is still, I believe, continuing with 

their lessons learned review of Riggs and their examination of it. 

And I am not saying that that is inappropriate, and that is probably a good thing for them to do. 

We will probably, if we have the resources, come in behind that 

effort and take our own look at it using what they have developed. 

Chairwoman KELLY. From what I understand, there are some 

other things, investigations, that are going on where OCC is simply 

not cooperating. I wonder if you would be good enough to explain 

those circumstances and discuss what information you are being 

blocked from getting access to. 

Mr. SCHINDEL. Well, primarily we had initiated a couple efforts 

to engage in looking at potential bank fraud activities and a couple 

bank failures, one in particular involving Guarantee National Bank 

in Tallahassee, Florida. 

It was our understanding that there were some concerns regarding OCC’s access to information from the bank. And we were concerned that this presented a possible obstruction of the bank examination process. 

We were down at that bank to join the FDIC as they engaged 

in the process of closing down that bank so that we could join that 

effort and look at that issue in particular. OCC reached out to the 

assistant U.S. attorney in Tallahassee and raised concerns that we 

did not have an appropriate jurisdiction. And the AUSA was, I 

guess, concerned enough that it raised a question that they requested that we step off joining that investigation until that could 

be sorted out. 

And as you know, Dr. Bodman has indicated that this whole 

issue of our jurisdiction, we are hoping to resolve it through the 

Treasury counsel. 

Chairwoman KELLY. What do you think the implications are of 

the effort by the OCC to block this? 

Mr. SCHINDEL. Well, I understand that they have some concerns 

about their responsibilities to protect the Right to Financial Privacy Act data that we might have to obtain in investigations like 

this or other investigations we might do. 

We just do not feel that our access to Right to Financial Privacy 

Act information is a matter of concern. We think we have access 

to that information. And we hope to get that resolved. 

Chairwoman KELLY. I want to just pursue one follow-up here. Is 

the OCC’s resistance in cooperating with you, the Treasury inspecVerDate 0ct 09 2002 11:02 Oct 05, 2004 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 G:\DOCS\95651.TXT FIN1 PsN: MICAH
36

tor general, an isolated instance? Or are there other cases besides 

these that I have raised, that I happened to know about? 

Are they not cooperating with investigations by other inspectors 

general or with law enforcement as well? 

Mr. SCHINDEL. Well, we would be the only inspector general that 

would be conducting investigations regarding OCC. I cannot speak 

to their level of cooperation with the FBI or the Justice Department on other bank fraud cases that those law enforcement agencies are engaged in. 

But there has been at least one other bank investigation that we 

were involved in, in the Midwest where they also, again, reached 

out to the AUSA’s office and raised questions about our jurisdiction. And, similarly to the Tallahassee situation, we were asked to 

step off of that investigation. 

Chairwoman KELLY. Dr. Bodman did not indicate that he had 

any real time line on this. Do you have any kind of an idea how 

quickly this is going to be resolved? 

Mr. SCHINDEL. I do not. I know that we have formulated the 

issues, both my office and OCC, for the general counsel that we 

think need to be answered. The general counsel has now pushed 

back to both us and OCC to provide some additional information 

on those issues. 

So it is being worked. I would say it is somewhat slow from my 

perspective. But, I am sure, I am confident that it is going to get 

resolved. 

And one thing I can tell you is I will keep this committee informed on the outcome. 

Chairwoman KELLY. Good, thank you. We would appreciate that. 

Mr. Newcomb, I just wanted to ask you a question about UBS. 

The UBS-ECI contracts, there are indications that we have found 

that the Fed saw hints of OFAC-related problems at UBS early in 

the ECI program. And they had some conversations with the bank 

early on. 

Were those concerns communicated to OFAC? And with that hint 

of there possibly being problems, shouldn’t OFAC have been involved right away? 

Mr. NEWCOMB. Madam Chairman, the Federal Reserve Bank of 

New York brought this to our attention when they first saw currency moving in the Iraq situation, post-invasion, when dollars 

were moving from countries nearby. And they began an investigation which led to UBS. 

They notified us very shortly thereafter, last summer, July of 

2003. And they were faced with a situation where the bank was deliberately telling them stories which were not true. And not only 

were they not true, there seems to have been an attempt to falsify 

what was, in fact, told. 

They kept us informed. And then in the winter of last year, in 

January, they gave us information of what had taken place. And 

before a penalty was rendered against UBS, the general counsel of 

the Federal Reserve Bank of New York and executive vice president came and spoke with us, laid out what he intended to do, the 

$100 million penalty. 

That was a penalty for a foreign institution. It was an institution 

over which we do not have jurisdiction. There is a continuing matVerDate 0ct 09 2002 11:02 Oct 05, 2004 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 G:\DOCS\95651.TXT FIN1 PsN: MICAH
37

ter that I cannot talk about where there may have been U.S. involvement that we are continuing to work with the Justice Department, U.S. Attorney’s Office to determine if in fact there was any 

U.S. involvement. 

Important thing here that I want to stress is, following that 

meeting we had with the general counsel of the Fed, I have met 

on three occasions with the Fed, and we have a program in place 

as a direct result of seeing the possibilities of these ECI contracts 

being abused in this manner and are planning a compliance visit 

to all eight of the ECI institutions beginning next month and then 

expanding that to other financial institutions, the largest 15 or so 

financial institutions that, though they are not ECI contractors and 

even though they may not be subject to U.S. jurisdiction, because 

they do have branches operating in the United States, we are going 

to be providing visitations to them with the possibility of follow-up 

audits wherever we have jurisdiction. 

So the situation is being addressed in a very robust manner. 

Chairwoman KELLY. Thank you very much. 

I am going to come back to this in a minute. But I understand 

Mr. Sanders, who has joined us, has an amendment that is going 

on the floor, so I am going to yield some time to him. 

Mr. SANDERS. Thank you very much, Madam Chair, for allowing 

me to say a few words. I am not on this subcommittee. And I will 

be brief. 

Chairwoman KELLY. Well, with unanimous consent, we approve 

of your presence here today. 

Mr. SANDERS. Well, I appreciate that. And I am going to just go 

forward in one line of questioning and be as brief as I can. 

Madam Chair, last September I offered an amendment to the fiscal year 2004 Treasury-Transportation appropriations bill that 

would prohibit the Treasury Department’s proposed regulations regarding cash balance payments from taking effect for one year. 

That amendment passed Congress and was signed into law. 

And yesterday, to its credit, the Treasury Department finally 

withdrew those proposed regulations for good. Now I wish that that 

was the end of the story, but unfortunately, it is not, which is why 

I am here right now. 

During the consideration of my amendment, an IBM lobbyist emailed a document on Treasury Department letterhead that stated 

that the Treasury Department strongly opposed this amendment. 

But according to the Treasury Department, in an article that appeared in The Wall Street Journal, they never released this document and, ‘‘It appeared to be doctored.’’

Madam Chair, no one is surprised when important issues involving hundreds of billions of dollars generate a lot of controversy. But 

the distribution of phony documents purporting to be from the 

Treasury Department goes beyond even the loose ethical rules that 

are sometimes followed here in Washington. 

Doctoring Treasury Department documents is a violation of the 

law and should be prosecuted to the fullest extent possible. 

When Secretary Snow appeared before the full committee, he 

pledged to look into this matter and immediately referred it to the 

Inspector General’s Office. 

38

Six months later, we are still awaiting a report from the inspector general on how their investigation is going. 

Madam Chair, it is my understanding that the Inspector General’s Office has a draft report on this investigation that has been 

sitting on someone’s desk for months. 

It is my understanding that this report may confirm that the 

IBM lobbyists and the Tax Benefits Council at Treasury violated 

the law by doctoring Treasury Department’s documents and releasing non-public information. 

It is also my understanding that the Inspector General’s Office 

may have recommended that the individuals involved be prosecuted but that the U.S. attorney at the Justice Department declined to prosecute. 

Essentially, what I would like to ask Mr. Schindel, if I might, I 

have some questions that I would like to ask you, if I may, Madam 

Chair. 

Mr. Schindel, were Treasury Department documents opposing 

my amendment doctored? 

Mr. SCHINDEL. Yes. 

Mr. SANDERS. If so, who doctored those documents? 

Mr. SCHINDEL. The IBM employees involved. 

Mr. SANDERS. Is it a violation of the law to doctor Treasury Department documents? 

Mr. SCHINDEL. Yes, it is. 

Mr. SANDERS. And what is the penalty for doctoring documents 

in a case like this? 

Mr. SCHINDEL. Well, I think the penalties probably—I cannot 

speak specifically to that. I am sure there is a wide range of penalties. 

But as to whether there will be prosecution of that issue, is 

something we are still vetting with the U.S. attorney’s office. 

Mr. SANDERS. Does the Treasury Department regard this as a serious offense? 

Mr. SCHINDEL. I believe they do. 

Mr. SANDERS. Did the Inspector General’s Office recommend that 

individuals be prosecuted for doctoring those documents. 

Mr. SCHINDEL. We have not made a specific recommendation yet. 

You are correct to say there is a draft report. It is being reviewed 

by my head of investigations with the investigator to be sure that 

we have covered all aspects. There are several aspects of this investigation involving IBM employees, lobbyist employees and Treasury 

employees. 

Mr. SANDERS. That was my next question. Did anyone at the 

Treasury Department assist lobbyists in doctoring these documents? If so, who was that? 

Mr. SCHINDEL. We are continuing to look into that. And that is 

one part of the investigation, and that is all going to be thoroughly 

included in our final investigative report. 

I would not rule out the possibility that there is additional work 

that may need to be done after my head of investigations has gone 

over this with the investigator. We feel we are close to wrapping 

that investigation up, but it is in essence still ongoing. 

Mr. SANDERS. It is my understanding that a report on this investigation has been drafted——

39

Mr. SCHINDEL. Correct. 

Mr. SANDERS.—and has been sitting on someone’s desk at the Inspector General’s Office for a number of months. 

Mr. SCHINDEL. Well, that part I would disagree with. And I can 

tell you it has not been sitting on my desk. But the head of our 

office of investigations has that draft and is currently going over 

it with the investigator. They have reached back out to the U.S. attorney’s office to make sure that we have thoroughly vetted all the 

issues with them and that they would fully consider all the aspects 

of prosecution action that could be taken in this case. 

Mr. SANDERS. When this report is finished, will you provide a 

non-redacted to me as well as the Chairwoman and Ranking Member of this subcommittee? 

Mr. SCHINDEL. Sir, it is my understanding that we have clear authority to provide an unredacted copy of that report to the chairs 

of the various committees that have jurisdiction, but not to individual members. 

Mr. SANDERS. Not to the member who authored the amendment 

in which there was doctoring of documents? 

Mr. SCHINDEL. I understand your frustration with that issue, but 

the guidance that we are operating under does not take into account those unique situations. 

The redacted version of the report, I would hope, would not be 

so heavily redacted that if you were to receive that copy that you 

would not be able to fully understand what was involved, who did 

what and what the results of the investigation——

Mr. SANDERS. Just two more questions. Do I understand that you 

will provide a non-redacted copy to the Chairwoman? 

Mr. SCHINDEL. Yes. 

Mr. SANDERS. Maybe the Chairwoman would be so kind as to 

allow me to peek in and take a look at it. 

My last question is, this really has dragged on. And can you give 

me, give the committee a sense of when you are going to have your 

final report? 

Mr. SCHINDEL. I would hope that we would have the final report 

out within the next two months. 

Mr. SANDERS. Okay, thank you very much, Madam Chair. 

Chairwoman KELLY. Thank you. Thank you, Mr. Sanders. 

I am going back to you, Mr. Newcomb. You have mentioned a 

couple of things that I have found very interesting in light of a 

book that I happen to be reading. You talked about the commodities that are being utilized for money transfer and money laundering. 

This is a huge field. The whole business of terrorist financing 

and money laundering and money transfer is a huge field. 

All of you sitting at this desk actually have indicated in what 

your statements have been how difficult it is. And especially you, 

Ms. Jardini, talked about the need for these highly specialized people who are in fact doing forensic work with regard to the financial 

ends of things. 

Mr. Newcomb, I would assume that you have people in your 

agency doing that kind of work as well. 

I would put to you a question, and that is whether or not you 

have enough people and if you have enough resources to cover the 

40

enormity of what this task is. We must get our arms around it. We 

must face down the ability of terrorists to fund the evil that they 

would fund. 

Do you have enough people? Do you have enough resources to do 

this job? 

Mr. Newcomb, I want to ask you that. And then I am going to 

go to Ms. Jardini and Mr. Fox. 

Mr. NEWCOMB. Madam Chair, that is a difficult question to answer, in this regard. We are doing our job. We administer 28 programs, and we are fully employed in all of the divisions that we 

operate under, such that we are able to implement what we are 

mandated to do. 

You could always do more with more people; if we had more people, we could do more. That follows. 

It is a large mission. There are terrorists organizations operating 

worldwide, in the Middle East, North Africa, East Africa, South 

America, Southeast Asia and other places. 

One thing we have sought to do in order to, forgive the expression, create a force multiplier is we have worked with the U.S. 

combatant commands and the military where we have people physically on location in six of the combatant commands working on the 

general staff of those organizations. That is one way to create additional positions. 

I would certainly be able to say if I had more people, there is 

more we can do. You can always do more with more people. 

But in terms of what we have, we are delivering a product that 

serves the Treasury Department and achieves our mandate. 

Chairwoman KELLY. I just want to do a follow-up there. Do you 

think that the notification requirements of FinCEN and OFAC are 

functioning adequately? 

Mr. NEWCOMB. Excuse me, Madam Chairman, what notification 

requirements are you referring to? 

Chairwoman KELLY. Well, in light of the UBS and the Riggs situations, and in light of some of the other things that you and I know 

are happening out there, do you think you have adequate notification requirements? 

Mr. NEWCOMB. This is a situation where, when the Fed found out 

about it, I am told by senior officers of the Fed, they notified us 

immediately. They did not know until they knew, and when they 

found out they were in touch with us. It was foreign jurisdiction 

that was located. 

But just so we have learned a lesson from this, we have created 

a robust monitoring system, not only with the ECI contracting parties worldwide where we are going to begin with visitations to their 

senior officers, and then with follow-up audits in conjunction with 

the Fed to make sure those contractual commitments are met. We 

are following that in that regard. 

As far as non-ECI banks, there are literally hundreds of banks 

that can move currency on behalf of the Federal Reserve Banks. So 

we need to cover that as well. 

Certainly as a lesson learned, we have heard about this and we 

are moving forward with all due speed to take this situation in 

hand, so that even though, as in this situation, we did not have juVerDate 0ct 09 2002 11:02 Oct 05, 2004 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 G:\DOCS\95651.TXT FIN1 PsN: MICAH
41

risdiction, we are seeking to extend jurisdiction we do have as 

broadly as possible. 

I hope that answers your question. If not, I will be happy to come 

back again and try to——

Chairwoman KELLY. I think that is a good indicator. 

I am going to go back to the other question I had, which now I 

am going to ask Ms. Jardini, and that is whether or not you have 

the resources and the people that you need to do your job right 

now. 

Ms. JARDINI. Thank you, Madam Chairman, for asking that question. 

The President’s 2005 budget provides for the largest hiring year 

ever in CI history, and we hope that it will be adopted as written. 

If it is passed, we will be hiring over 400 new special agents and 

over 200 analysts who will be assisting us in doing the important 

work we are going in tracking terrorist financing, as well as our 

overall tax administration mission. 

I would like to point out to you that IRS-CI has never turned 

down a Treasury request and never will turn down a Treasury request to lead or to participate in any important terrorist financing 

investigative initiative. We have freely and generously given of our 

resources because of the importance of that mission and because of 

the strong leadership that Treasury has provided in that arena. 

Furthermore, 97 percent of the terrorism investigations we are 

involved with we do in conjunction with our partners in federal law 

enforcement, primarily the joint terrorism task forces at the Justice 

Department and FBI. 

Our work in that area is specifically governed by an MOU that 

we have with the FBI which outlines that our specifically talented 

and technical special agents should be deployed only in those cases 

where our expertise is most needed. And that really has been a 

very successful partnership. 

Of the 270 open investigations that we have, 120 of those are 

pending at the Justice Department for prosecution. The remainder 

that are open and that we are actively working, 60 percent of those 

cases have a Title 26 tax crime involved in them; 30 percent are 

pure tax; 30 percent are tax and money laundering; and the final 

40 percent are pure money laundering. 

In addition, 25 percent of those cases involve BSA data; 18 percent of those cases involve charities, 990 tax returns and information received from the tax-exempt and government entity section of 

the IRS. 

So we are very, very pleased with the direction that we have 

taken, our work in this area, and believe that with the addition of 

the desperately needed 408 special agents and 200 analysts we 

hope to receive in fiscal year 2005, we will be able to target those 

strategically to apply to our mission most effectively. 

Chairwoman KELLY. Good. Thank you. 

Mr. Fox? 

Mr. FOX. Madam Chairman, to go back to your original question 

about some of the complexities relating to money laundering, particularly as it relates to trade-based money laundering or commodities-based money laundering, again I find myself in complete 

42

agreement with the Chair. This is a very complex area and a very 

difficult area. 

And it is an area that we are focusing on quite heavily at 

FinCEN. 

I would like to see, as I said in my written statement, our analysts to spend a great deal more time on more complex matters and 

maybe a little less time on direct tactical support to law enforcement. 

As Ms. Jardini has indicated, you know, I think what we are 

finding is that law enforcement entities out there have sort of gotten it when it comes to finance. They understand how important 

finance is. And I think they are developing tactical intelligence, 

analytic capabilities for financial information. 

And it seems to me that as law enforcement agencies do that—

that is a very good thing, in my view, by the way—as they do that, 

that frees FinCEN up to maybe take it to a higher level or focus 

on things that are not being focused on. And we plan to do that. 

And commodities-based money laundering and trade-based 

money laundering is an area that is very important. We are working very closely with the Bureau of Immigration and Customs Enforcement and other entities to try to get a handle on this. 

Chairwoman KELLY. I thank you. 

I really thank all of you for being here today and for your patience. 

The Chair notes that some members may have additional questions for this panel which they may wish to submit in writing. So, 

without objection, the hearing record will remain open for 30 days 

for the members to submit written questions to these witnesses 

and to place their responses in the record. 

I cannot thank you enough for your very patient answering of 

our questions. 

And, Mr. Schindel, I hope to hear more from you soon. 

Thank you. With that, this hearing is ended. 

[Whereupon, at 5:21 p.m., the subcommittee was adjourned.] 

(43)

A P P E N D I X

June 16, 2004

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