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98–001 PDF 2004

LEGISLATIVE PROPOSALS TO

IMPLEMENT THE RECOMMENDATIONS

OF THE 9/11 COMMISSION

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

SEPTEMBER 22, 2004

Printed for the use of the Committee on Financial Services

Serial No. 108–112

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

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)

C O N T E N T S 

Page 

Hearing held on: 

September 22, 2004 .......................................................................................... 1

Appendix: 

September 22, 2004 .......................................................................................... 27

WITNESSES 

WEDNESDAY, SEPTEMBER 22, 2004

Levey, Hon. Stuart A., Under Secretary for the Office of Terrorism and 

Financial Intelligence, Department of the Treasury ......................................... 11

Roseboro, Hon. Brian C., Under Secretary for Domestic Finance, Department 

of the Treasury ..................................................................................................... 13

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 28

Biggert, Hon. Judy ........................................................................................... 30

Kelly, Hon. Sue W. ........................................................................................... 31

King, Hon. Peter T. .......................................................................................... 33

Levey, Hon. Stuart A. ...................................................................................... 35

Roseboro, Hon. Brian C. ................................................................................... 41

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Gutierrez, Hon. Luis V.: 

John D. Hawke Jr., Comptroller of the Currency, letter, August 26, 

2004 ................................................................................................................ 44

Levey, Hon. Stuart A.: 

Written response to questions from Hon. Barbara Lee ................................. 48

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LEGISLATIVE PROPOSALS TO 

IMPLEMENT THE RECOMMENDATIONS 

OF THE 9/11 COMMISSION 

Wednesday, September 22, 2004

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to call, at 11:03 a.m., in Room 

2128, Rayburn House Office Building, Hon. Michael Oxley [chairman of the committee] presiding. 

Present: Representatives Oxley, Leach, Baker, Bachus, Royce, 

Kelly, Biggert, Tiberi, Kennedy, Garrett, Brown-Waite, Barrett, 

Frank, Maloney, Gutierrez, Watt, Carson, Sherman, Lee, Moore, 

Lucas of Kentucky, Clay, Israel, McCarthy, Matheson, Miller of 

North Carolina, Emanuel, and Scott. 

The CHAIRMAN. [Presiding.] The committee will come to order. 

We meet today to continue some of the most important work this 

committee ever has considered, work that began in the tense hours 

and days after the tragic attacks on September 11, 2001. 

During that unsettled time, this committee pulled together to 

produce comprehensive bipartisan legislation that aimed to disrupt 

the financing of terrorism and to strengthen the country’s antimoney-laundering laws. 

That bill, H.R. 3004, later became Title III, the anti-terror finance title of the USA PATRIOT Act, signed into law less than 

seven weeks after the attacks. 

It is a testament to that legislation that the so-called 9/11 Commission report issued a month ago cited it with approval and said 

that, ‘‘On anti-terror finance and anti-money-laundering issues, the 

various elements of the government generally are doing a good job.’’

‘‘Nevertheless,’’ the report went on to say, ‘‘terrorists are motivated and highly adaptive, and efforts to block their finances will 

need to continue to evolve and improve.’’

With that in mind, the committee has assembled a package of 

legislative proposals to improve the tools with which the government fights terrorist financing. Most of these are common-sense 

items on which everyone in this committee can agree. In fact, a few 

are items we feel strongly about and have agreed upon often unanimously in the past, only to have them fall victim to jurisdictional 

objections in this body or to inaction by the other body. 

Frankly, when this sort of thing happens, it is more than a little 

disappointing. And so in this package we have assembled the sorts 

2

of pieces we believe are important and on which we think there 

should be broad, bicameral agreement. 

Today, we have two strong witnesses to discuss the proposal with 

us: Treasury’s Stuart A. Levey, Under Secretary of the Office of 

Terrorism and Financial Intelligence; and Brian C. Roseboro, 

Under Secretary for Domestic Finance. 

There are four main themes to the legislation: new funding for 

the fight against terror financing; new tools to fight the financing 

of terrorism; preparedness tools to help make the financial system 

more resilient in case of another attack; and tools to improve international cooperation in the fight against terror. 

Included are additional authorizations for the Treasury Department’s Financial Crimes Enforcement Network, FinCEN, which 

generally mirror last week’s resounding vote on the House floor 

during consideration of the Transportation-Treasury appropriations 

bill. 

That amendment was sponsored by our own Ms. Kelly. It favored 

a one-time investment in technology to radically improve the usefulness of FinCEN’s data and the ease of use by law enforcement 

while reducing compliance burdens on banks. It also included reauthorization of a national anti-money-laundering strategy report, 

along with some modest grants to local law enforcement to fight financial crimes. 

The proposed legislation makes a series of purely technical corrections to the anti-terror finance title to the PATRIOT Act that 

correct inadvertent drafting errors that occurred because of the 

speed with which it was assembled, along with some language to 

address the counterfeiting of currency and legislation that would 

allow the Treasury Department to help countries strengthen their 

currencies against counterfeiting, which in turn would make their 

economies stronger. 

The draft also includes language identical to the Internet gambling legislation that passed the House last year. The Justice Department has testified that illegal Internet gambling provides a 

dangerous loophole in our anti-terror finance and anti-money-laundering regimes that can easily be exploited. 

Under the preparedness rubric, the proposal includes the socalled netting bill that revises the banking and bankruptcy laws to 

provide for the orderly unwinding of certain financial contracts 

where one party to the transaction becomes insolvent, thereby 

minimizing the risk of market disruption. 

Members will recall that Fed Chairman Alan Greenspan believes 

this is vital and has testified to that effect on a number of occasions. And continued threats against the nation’s financial centers 

render passage a necessity that is long overdue. 

And finally, a critically important component of this country’s 

ability to fight terrorist financing requires the cooperation of our 

allies. 

In this area, the Treasury Department has been extremely successful in enlisting a broad range of countries within the Group of 

Eight, the Financial Action Task Force at the OECD, the IMF, the 

World Bank and the regional development banks. These initiatives 

create a common language and framework for interdicting terrorist 

financing. 

3

Treasury has also done an exemplary job of working collaboratively with other agencies, particularly the State Department, in 

the process of crafting international standards and fostering implementation at the bilateral level. This legislative proposal looks to 

codify and make permanent a number of those efforts. 

I believe this package, like the bill that became Title III of the 

PATRIOT Act, will enjoy broad, if not unanimous, bipartisan support in the committee and on the House floor. I imagine there will 

be useful suggestions made today in committee and during markup 

next week. 

I look forward to working with the members to craft the very 

best piece of legislation we can under another extraordinarily short 

timeline. I recognize it means a lot of work, but I am certain we 

will believe the outcome is important and worth the effort. 

With that, I yield to the gentleman from Massachusetts. 

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

on page 28 in the appendix.] 

Mr. FRANK. Thank you, Mr. Chairman. 

This is one of the areas where this committee has been able to 

work without regard to partisanship or ideology. There is a specific 

task to be accomplished here. We made a good start on it with the 

work we have already done, and I appreciate your committing us 

to continuing it. 

I do want to comment on one specific item which you mentioned, 

because I was told that there was some question raised, frankly, 

by members of the House leadership, about the netting provision, 

and specifically some people asked us if it was true that the Democrats have been objecting to including the netting provision in the 

bill. 

The answer is no, we support that. So for people who have raised 

that question, we agree with you that the netting provision ought 

to be part of the bill. If there is opposition, it comes from elsewhere 

and not from here. 

The only other point I would make is this: In this area, as in 

other areas, it is important for us to protect the public as a whole 

while minimizing the likelihood that individuals will be treated unfairly. Human beings do not achieve perfection, so there will always be error. 

I think that requires us to do two things: first of all, try to be 

careful to prevent error, but we should be explicit. 

In a period of danger, perceived and real, to our security from 

murderous thugs, there is going to be a greater chance of error. 

When you are under pressure, when you are dealing with the kind 

of hateful enemies that we are dealing with, you will act in ways 

that you would not act if you had a greater margin of safety and 

more leisure. 

That makes it all the more important that in our proposals and 

our legislation and our rules and our administration, we have 

means of correcting our errors. That is that it is not enough just 

to try to avoid error; I want to do that. But there is, at some point, 

a tradeoff between avoiding error and restricting yourself too much. 

And in the current climate, it is going to be hard to draw that balance—maybe we should not even try—to totally minimize error. 

4

What we can do though is to make sure, recognizing that errors 

will happen—and we have seen them. We have seen them with 

Captain Yee, with Mr. Mayfield. We have seen them with a number of other people. And it is inevitable. This is not a criticism of 

the individuals who made the errors; it is a recognition of what 

happens when people are under stress, as we are through no choice 

or fault of our own. 

So the one issue that I have is, I do not think we have paid full 

attention to corrective measures. For example, and we have talked 

about this, with regard to asset seizures, the Treasury Department, 

I believe it was who has jurisdiction, reassured us that when someone’s assets are seized and he or she wishes to contest that and all 

of the assets that he or she had are seized so that that individual 

cannot afford to pay a lawyer, people can almost always or always 

get a waiver to pay for the lawyer. 

Well, it ought not to be a matter of waiver. It ought to be a matter of statutory right. 

After all, we are talking, in the case of asset seizure, of cases 

that have not yet been proved. And this is an example of what I 

mean. We now have asset seizure in an administrative way before 

the case is proven, and then the individual has the right to disprove that. Question of where the burden of proof is; he does not 

have the same benefit of a burden of proof as he would have in a 

criminal case. 

We have situations where all of the assets of an individual are 

seized, and we were told reasonably, ‘‘Yes, they will get a waiver 

so they can pay for a lawyer.’’ The government does not pay for 

lawyers in this case; it is a civil situation. Well, we ought to put 

that into the law. It just ought to be automatic. 

Now, obviously, we need to have a monitoring capacity there, so 

that the right to get a lawyer does not become a way to bootleg out 

a lot of extra money. But I think we are capable of doing that. If 

there is one thing we in government know a lot about, it is how 

to pay lawyers. Some of us used to be lawyers and get paid. Some 

of us pay lawyers. So I think we can handle that one. That is an 

example of what I mean. 

I also was glad to see the 9/11 Commission’s call for a board to 

monitor privacy and protection. I do have some concerns about the 

board that the President established because it is all members of 

the administration. And again, decent, honorable people will make 

mistakes when they are doing what we are doing. I think there 

needs to be some independence built into that board. 

And I do not say this in criticism. I think we have done a reasonably good job of trying to accomplish this, but I say we should always—we have a dual task. We want to empower the administration and law enforcement officials to be able to take tough, quick 

action. But precisely because we are empowering them to take action that may be tougher and quicker than in normal circumstances, it is all the more important that we have a self-corrective capacity equal to what we have done. 

And remember, this self-corrective capacity, it comes in after the 

fact. The protections, the action of self-defense is taken, and then 

we ought to make sure that without any threat or danger to security we have adequate procedures for protecting it. 

5

Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman yields back. 

Are there members seeking to make an opening statement? 

The gentleman from California, Mr. Royce? 

Mr. ROYCE. Thank you, Mr. Chairman. I want to thank you first 

for holding this hearing. 

I also want to thank you for your leadership on the effort to destroy the financial network of radical Islamist terrorists. You and 

Subcommittee Chairwoman Kelly have held numerous oversight 

hearings on this topic, and I think it sends a very strong signal to 

our enemies that the Congress of the United States is very serious 

about terror financing. 

Mr. Chairman, I was also proud last week to join you and to join 

some colleagues across the aisle in being the lead cosponsors for 

Chairwoman Kelly’s amendment to the Treasury/Transportation 

bill, which increased funding for the Financial Crimes Enforcement 

Network by an additional $25.5 million. And I think this will undoubtedly make it easier for the Treasury Department to enforce 

provisions of Title III of the USA PATRIOT Act, which originated 

in this very committee. 

The legislation that we are discussing today has some very important components that will go a long way to fight against terror 

dollars. And I am very supportive of the Chairman’s effort to grant 

new authority to FinCEN, to reauthorize the national money laundering strategy and to increase Treasury’s profile at home and 

abroad as a key player in the fight against terror financing. 

But I would like to suggest that this committee take two additional steps to fight terror financing. 

And, one, I think we should include language in this bill that 

would create a Treasury-led certification regime on terrorist financing. This certification law would require the executive branch to 

submit to Congress, on an annual basis, a written certification detailing steps that foreign nations have taken to cooperate in the 

U.S. and in the international efforts to combat terrorist financing. 

This would be along the lines of what Richard Clarke has suggested. 

I think failure to comply in such a plan would result in automatic sanctions unless the President issued a waiver for national 

security purposes. 

Representative Kelly and I have just introduced legislation which 

does just this. And we hope to gain the support of our colleagues 

here on both sides of the aisle so that it is included in the bill the 

committee sends to the full House. 

Additionally, I believe that our financial system cannot be secure 

unless we know who is accessing it. And to that end, I believe we 

need to strengthen Section 326 of the PATRIOT Act, otherwise 

known as the ‘‘know your customer’’ provision. 

The phrase ‘‘trust, but verify’’ should be the operative words 

here. We can and should be willing to trust the identification cards, 

certificates and passports of our friends and allies, but only if their 

IDs can be verified with biometric technology as called for by the 

9/11 Commission, as called for by our friends like former chairman 

Lee Hamilton of the International Relations Committee. 

The security of our financial system should be our top priority. 

6

Mr. Chairman, I yield back my time. 

The CHAIRMAN. The gentleman yields back. 

Any other opening statements? 

The gentleman from North Carolina? 

Mr. WATT. Mr. Chairman, I will not take 5 minutes. I am just 

a little perplexed, I guess, and do not mean to be the skunk at the 

party here. 

I thought we had a hearing at which the 9/11 Commission people 

testified that there really were not any recommendations in the 9/

11 Commission’s report that really fell under our jurisdiction. 

And I am fine with moving forward with doing substantive 

things that are going to make us secure. But I do want to caution 

folks that if we position ourselves with a lot of flurry as being 

somehow, doing something that is at the heart of the 9/11 Commission’s report, I think we are doing more politics than we are doing 

substantive work here. 

Some of the stuff that is here we have already passed even before 

the 9/11 Commission report. There really was nothing in the 9/11 

Commission report that substantively was at the heart of the Financial Services Committee’s jurisdiction. 

And if we are going to do something substantive, then I hope we 

are going to package it with things that may not be under our jurisdiction, such as the creation of this privacy board that the 9/11 

Commission did recommend strongly to balance additional security 

protections against the need for individual privacy and individual 

rights. 

So I am not trying to be negative about this; I am just trying to 

be realistic about it. And sometimes we have a tendency to rush 

into doing something just to make it appear to the public that we 

are doing something new and substantive and in response to the 

9/11 Commission’s report, when I really do not see much here that 

is in response to the 9/11 Commission’s report. 

So I am delighted that we are having the hearing so that we can, 

kind of, flesh that part of this out. And I appreciate the Chairman 

giving me the opportunity to express those reservations about what 

we are doing here. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentlelady from New York? 

Mrs. KELLY. Thank you, Mr. Chairman. I want to thank you for 

your efforts on this critically important matter. 

And I also want to thank Mr. Levey and Mr. Roseboro for being 

here with us today. 

We are here because of our shared commitment to strengthening 

our ability to track and take out the financial support systems of 

the terrorists. 

Through our work, and as chairman of the Oversight and Investigations Subcommittee, it has become evident that, in spite of remarkable progress over the last three years, there remains a pressing need for continued improvement. 

I very much look forward to the hearing today and to the additional committee activity prior to adjournment, which should enable us to make progress in achieving the needed reforms. 

As Mr. Royce has stated, the House, led by Chairman Oxley and 

a bipartisan group of Financial Services Committee members, inVerDate 0ct 09 2002 11:47 Feb 03, 2005 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 G:\DOCS\98001.TXT FIN1 PsN: MICAH
7

cluding Mr. Royce, Mr. Gutierrez, Ms. Maloney, took an important 

step last week—and Mr. Frank was with us also—in the overwhelming passage of the amendment giving FinCEN a $25.5 million increase. And this kind of progress really has to be continued. 

In the coming weeks, it is imperative that the committee substantively address the vulnerabilities of our disjointed anti-moneylaundering system. The current patchwork structure, whereby 

FinCEN is given large responsibilities for administering our antimoney-laundering law but limited tools for meeting them, needs to 

be reshaped to reflect the new realities of our national security. 

This committee needs to take the first steps forward in creation 

of a single BSA compliance office by providing FinCEN with a wellequipped force of audit and compliance officers. This would allow 

FinCEN to more effectively ride herd over the front-line regulators, 

who literally look over their shoulder when necessary, and would 

give the Treasury new and better capabilities in monitoring financial sectors which are largely unfamiliar with the BSA requirements. 

Vigilant oversight is the only way we are going to able to determine when additional steps need to be taken toward having a single compliance officer. And I think that may be in the direction 

that we are going to have to move. But additional improvements 

within Treasury and with the regulators also have to be considered. 

I am concerned, for example, that the IRS is the only agency 

with criminal enforcement powers regarding the Bank Secrecy Act. 

And I believe that proposals to address this matter with a small, 

stand-alone criminal enforcement program warrant the committee’s 

attention. 

Given the unacceptable regulatory failures that we have seen 

over the last year, I encourage this committee to adopt the coolingoff legislation that I have cosponsored with Mr. Gutierrez, which 

will reinforce the need for independent financial regulators. 

The concept of the regulation was suggested by the Comptroller 

of the OCC after the agency was sluggish to take action against the 

Riggs Bank and several high-profile employment conflicts of interest that have been discovered between the agency and the bank. 

In the coming days, this committee should also focus on our ability to collect and analyze information regarding cross-border fund 

transfers. As members of this committee recall, the 9/11 Commission clearly articulated the direct relevance of international wire 

transfers to terror finance. We need to do more to ensure that our 

wire transfer systems are not being used for illicit purposes. And 

I hope to work with the committee on this matter in coming days. 

I further hope that this committee is able to address other international aspects of combating terror finance. The participation of 

other nations is critically important to success in so many different 

facets of this undertaking, and it is clearly an area where we have 

to continue to push for progress. 

Thank you, and I yield back the balance of my time. 

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

page 31 in the appendix.] 

The CHAIRMAN. The gentlelady yields back. 

Are there further opening statements? 

8

The gentleman from California? 

Mr. SHERMAN. Mr. Chairman, one issue that we probably will not 

deal with this year, but is related to terrorism, is to have circuit 

breakers and other responses available if there is a market panic, 

because a terrorist act could cause such a panic. 

I believe that such a panic may also be caused by a meltdown 

of the dollar, given the fact that we are running a $500 billion 

budget deficit, a $500 billion trade deficit, and that we are increasing our status as the world’s largest debtor nation in history by 

$500 billion every year as that debt to the world adds up. 

And so I would hope, Mr. Chairman and Mr. Ranking Member, 

that next year we have separate hearings dealing with the possibility of a market panic, and particularly one that is international 

and that focuses on currency markets. 

You may not join me in having as great a fear as I do that we 

are headed toward a crisis sometime in the next decade, but you 

may agree with me that it would be wise to prepare for such a crisis. 

I yield back. 

The CHAIRMAN. The gentleman yields back. 

Are there other opening statements? 

The gentleman from Louisiana? 

Mr. BAKER. Thank you, Mr. Chairman. I will be very brief. 

I just wanted to thank you for your leadership on this matter 

and the inclusion of two particular provisions in the package, one 

that clarifies and expands the authority of the SEC to act in the 

necessity of a market trading suspension, clarifying their authorities and to the extent and duration of any suspension that might 

subsequently be ordered. 

And secondly, with regard to the contract netting provision, as 

has been previously noted, the committee has acted in this area before, but prior to a 9/11 event contract netting provision was advisable, post-9/11 event contract netting is absolutely essential. 

As derivatives contracts are extremely complex and intertwined, 

the failure of any single counterparty to meet its obligation could 

bring about unexpected and negative economic consequences for innocent third parties. So this provision is extremely important in 

the management of and control of the consequences of some terrorist action, whether intended to be financial or not. 

Specifically, for those two reasons, Mr. Chairman, I want to express my appreciation to you and my strong support for the legislation. 

I yield back. 

The CHAIRMAN. I thank the gentlemen. 

The gentleman from Illinois, Mr. Gutierrez? 

Mr. GUTIERREZ. Thank you, Mr. Chairman, and thank you for 

calling this important hearing. 

At this point I would like to make the committee aware of a provision that I seek to include in this legislation based on a bill that 

Ms. Kelly and I jointly introduced, H.R. 5097, Close the Bank Examiner Revolving Door Act. It would impose a one-year cooling-off 

period for senior bank examiners in supervising a bank at a regulatory agency and working for that bank as an employee. 

9

This issue has been prominent lately due to the former OCC examiner in charge who was subsequently hired by Riggs Bank, Mr. 

R. Ashley Lee, who is currently under criminal investigation. 

This common-sense prohibition, which is very similar to the prohibition that certain Department of Defense employees have 

against working for defense contractors, was originally suggested 

by Comptroller Hawke, in a letter August 26, 2004, which I would 

like to add to the record, if there could be unanimous consent, Mr. 

Chairman. 

The CHAIRMAN. Without objection. 

[The following information can be found on page 44 in the appendix.] 

Mr. GUTIERREZ. In this letter, Comptroller Hawke indicates that, 

‘‘When an examiner in charge retires and immediately goes to work 

for the bank he or she has been supervising, questions are likely 

to be raised about the agency supervision of that institution.’’

He further stated that, ‘‘The potential for substantial injury is 

great for the agency, the individual, the bank and the national 

banking system.’’

He concluded, ‘‘For this reason, I would strongly support legislation that imposed a one-year moratorium on the EIC, or an examiner with some comparable responsibility, accepting employment 

with the bank he or she had been in charge of.’’

You know, I had disagreements with the OCC, but this I think 

is an excellent idea. And if you take the Riggs case and you take 

money-laundering cases and how they are examined and the coziness which may or may not exist between examiners and banks, I 

think it would be a great idea that we include it. And I look forward to having that debate and that discussion. 

I ask that the rest of my opening statement be included in the 

record, Mr. Chairman. 

The CHAIRMAN. Without objection, all of the opening statements 

will be made part of the record. 

Are there other opening statements? 

The gentlelady from Illinois? 

Mrs. BIGGERT. Thank you, Mr. Chairman, and thank you for 

holding this hearing, which is yet another testament to our committee’s active and bipartisan approach to combating terrorist financing. 

The 9/11 Commission also recognized the successful efforts of 

this committee and that of our friends at the Department of Treasury. 

I would like to welcome and commend our witnesses today for 

appearing before us, for their diligent efforts to track and disrupt 

terrorists’ finances, and for collaborating with other government 

agencies and private-sector coalitions like ChicagoFIRST. 

And with that, I would ask to submit the remainder of my testimony for the record. I yield back. 

[The prepared statement of Hon. Judy Biggert can be found on 

page 30 in the appendix.] 

The CHAIRMAN. Without objection. 

Who else needs recognition? 

The gentleman from Georgia? 

Mr. SCOTT. Thank you very much, Mr. Chairman. I will be brief. 

10

I, too, want to thank you for this hearing. It is very important 

as a follow-up to the hearing we had earlier in regarding recommendations from the 9/11 Commission. 

Specifically, my hope is to try to see if we cannot come up with 

a more clear understanding of the operations of hawalas. I brought 

that up at our previous meeting. 

I think that unless and until we can find a way to really get our 

arms around that—for I think it is a primary means of financing, 

this ancient method of network of fund-raising that works to support such groups as Al Qaida. 

The other area of financing, of course, comes from charities within the Muslim communities. 

I would like to know what we are doing to strengthen those 

areas, as well as taking a look at the PATRIOT Act to find out if 

Section 14 is sufficient, if we need to do more there, and Section 

313 and 319, which, of course, deals with money laundering and 

these shell companies, as we move going forward. 

I am again hopeful that we can get our investigators the right 

tools to identify the customers, trace these financial transactions in 

the fast-moving counterterrorism investigations in our efforts to 

shut down once and for all these terrorist networks. 

But we have to look at these outside means, grassroots means, 

of financing, in addition to the regular ones of shell companies 

working through the legitimate banking process. And I would be 

interested to know what we can do, if there is legislation we need 

to offer in that regard. 

I look forward to the hearing, and certainly welcome you both, 

undersecretaries Mr. Levey and Mr. Roseboro. 

Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman yields back. 

The gentleman from Alabama? 

Mr. BACHUS. Mr. Chairman, first of all, I want to commend you 

as the primary author of the anti-terrorist financing legislation 

that, as Ms. Biggert said, the 9/11 Commission singled this legislation out for specific praise. 

It did recommend, and the members did recommend to us in a 

hearing, ways to strengthen that act. And I think that the legislation that you are introducing and we are considering here today 

does that. 

The gentleman from Georgia mentioned some of the more nontraditional financial institutions that were not included under the 

Bank Secrecy Act, and actually former Congressman Lee Hamilton 

actually said that that is one thing that would strengthen the Act. 

And I would recommend that we take a close look at what Mr. 

Scott recommended, consistent with what Congressman Hamilton 

and the 9/11 Commission has said in their testimony. 

Secondly, and I will close with this, Governor Olson testified before our committee two weeks ago about the serious need for the 

netting provisions. That was originally H.R. 2120. It was in the 

Bankruptcy Reform Act that left the House. We have still not 

adopted that as a Congress, although the House has passed it. 

Just the credit default swaps alone are over $2 trillion. And if 

we had a terrorist attack and we had to use those netting provisions, it could really threaten our financial markets. Chairman 

11

Greenspan, in some speeches the last week or two, has again urged 

the Congress to adopt those. 

And I would point out to the members that in Chairman Oxley’s 

legislation proposed today, unlike some of the others proposed in 

this Congress, he does include the netting provisions in his legislative proposal. 

It would greatly—particularly if you will recall what we have 

just found out, and that is that some of the Al Qaida has actually 

targeted our financial institutions and our financial markets for 

disruption, in some of the intelligence that has been revealed in the 

last two or three months, I think it makes it even more urgent that 

we adopt these provisions which will allow the orderly unwinding 

of certain financial contracts. Particularly with a lot of our businesses, particularly our airlines, lately filing bankruptcy, it even 

makes it more urgent. 

So I commend the Chairman for including the netting provisions 

and would ask the committee to strongly consider taking immediate action on this legislation and moving it out. 

And with that, I yield back the balance of my time. 

The CHAIRMAN. The gentlemen yields back. 

Are there further opening statements? 

Noting none, we now turn to our distinguished panel, the Honorable Stuart A. Levey, Under Secretary for the Office of Terrorism 

and Financial Intelligence at the Department of the Treasury; and 

the Honorable Brian C. Roseboro, Under Secretary for Domestic Finance at the Department of the Treasury. 

Mr. Levey, we will begin with you. And, again, thank you for returning to the committee. 

STATEMENT OF HON. STUART A. LEVEY, UNDER SECRETARY, 

OFFICE OF TERRORISM AND FINANCIAL INTELLIGENCE, DEPARTMENT OF THE TREASURY 

Mr. LEVEY. Thank you, Mr. Chairman and distinguished members of the committee. Thank you for inviting me here today to continue our discussion with respect to terrorist financing and financial crime. 

This past August I had the privilege of speaking with you about 

the work we have been doing in combating these scourges and the 

recommendations of the 9/11 Commission. Today, I am pleased to 

return to address several legislative proposals aimed at bolstering 

our abilities to detect and impede terrorist financers, money 

launderers and other criminals. 

I greatly appreciate the attention and insight that you have 

brought to these important issues. And I look forward to working 

with you in the months ahead. 

In my first six weeks in this job, a few things have already become clear. First, that the people I have joined at Treasury are as 

talented and dedicated as they come and are working very hard on 

every aspect of this multifaceted issue. 

But our efforts depend on a host of agencies, as others have alluded to. These include the State Department, the Defense Department, the CIA and my former home, the Justice Department. Our 

greatest accomplishments to date have been collaborative efforts, 

and our success in the future will depend on the strength of our 

12

interagency cooperation as well as our cooperation with the Congress. 

I have also been even more convinced that, while terrorist financing and money laundering are not the same, our ability to prevent 

terrorist financing depends on a continued effort to ensure compliance with the Bank Secrecy Act and the related provisions of the 

PATRIOT Act. 

As this committee is well aware, the Riggs case and other incidents have highlighted an imperative for the Treasury Department. 

We must ensure that we are getting appropriate information from 

the banking regulators so that we can know whether Riggs is just 

the tip of the iceberg or, as we hope, more of an outlier. 

This information will also enable us to identify other needed improvements in our overall BSA compliance regime. 

In that respect, we have been working together intensively with 

the Federal Reserve, the FDIC, the OTS, the NCUA and the OCC 

to create just this sort of needed relationship. I commend the leadership of those organizations for their excellent cooperation with us 

to date on this issue. 

Another point that has become even more clear to me is the critical importance of international coordination. The terrorist threats 

we face and the capital provided to fuel terrorist activity emanate 

principally from abroad. 

We continue to work with international organizations in this respect, including the FATF, to develop aggressive but workable 

standards for combating terrorist financing. And we anticipate the 

announcement of a new special recommendation this fall to address 

the movement of cash across borders. 

The FATF standards will gain additional impetus in the coming 

months with the creation of two new FATF-style regional bodies, 

one in Eurasia and another spanning the Middle East and North 

Africa, both of which will be extremely important to our efforts. 

Just late last night, I returned from a trip to England, where I 

spoke at Cambridge University about the immense value of the PATRIOT Act and particularly Title III of the Act. I also had excellent 

discussions with my British counterparts about additional ways we 

can work with our allies to improve transparency in the financial 

industry overall. 

I am pleased to be able to tell you we are making a real difference. We have seen that it has become costlier, riskier and more 

difficult for Al Qaida and like-minded terrorist groups to raise and 

move money around the world. 

Indeed, intelligence reports suggest that many terrorist financial 

networks are hurting for cash, while financiers and facilitators are 

killed, caught or cut off from the financial system, and as conduits 

of the international financial system become more transparent and 

less hospitable to those who seek to stay hidden. 

Also playing a major role is the deterrent effect of public actions 

like prosecutions and designations, and prospective donors are increasingly thinking twice about contributing to disreputable or 

shady organizations. 

Our successes breed new challenges as the terrorists continue to 

adapt to our efforts and devise new and more sophisticated ways 

13

to move money. We must not become reliant on familiar methods 

or comfortable ways of thinking. 

This committee has been vigilant in making sure we are asking 

the right questions and that we have the tools we need to combat 

terrorist financiers and other financial criminals. Your attention 

and input is deeply appreciated, and I look forward to continuing 

to work with you to safeguard our financial sector and our country. 

Thank you very much. 

[The prepared statement of Hon. Stuart A. Levey can be found 

on page 35 in the appendix.] 

The CHAIRMAN. Thank you, Mr. Levey, and thank you for your 

great service. I know you just got back from London and have a 

little bit of jet lag, but hang in there. 

Mr. LEVEY. Thank you, sir. 

The CHAIRMAN. Mr. Roseboro? 

STATEMENT OF HON. BRIAN C. ROSEBORO, UNDER SECRETARY FOR DOMESTIC FINANCE, DEPARTMENT OF THE 

TREASURY 

Mr. ROSEBORO. Thank you very much, Mr. Chairman, and thank 

the members of the committee. 

I greatly appreciate this opportunity to provide the Treasury Department’s views on legislation impacting financial institutions and 

financial markets that the committee is considering, including the 

broad September 11 legislation. 

In particular, you asked for our views on five specific issues. Let 

me note that while these legislative items merit consideration, they 

should not interfere with specific 9/11-related reforms that have 

been called for by the President. 

The war on terror continues to be fought at home and abroad, 

using tools existing under current law. As the 9/11 legislative proposal makes clear, there are still other weapons which are needed 

to continue this fight. It is imperative that the President’s 9/11 legislative recommendations be enacted without delay. 

With regard to Internet gambling, or H.R. 2143, the bill designates financial regulators and the FTC as the appropriate rulemakers for payment systems, transactions affecting financial institutions, financial instruments and financial products and services. 

It also designates the federal financial regulators as the appropriate enforcers. 

The administration opposes illegal Internet gambling and looks 

forward to continuing to work with the Congress on this very important issue. 

With regard to the Securities and Exchange Commission emergency authority, or H.R. 657: The provisions incorporated in H.R. 

657 were first proposed in the wake of 9/11 to provide the SEC 

with enhanced authority to respond to extraordinary market disturbances. Coordination continues to play an important role for financial service regulators to consider in light of the interconnected 

nature of today’s markets. 

The President’s Working Group on Financial Markets continues 

to meet regularly to discuss issues common to the financial service 

regulators regarding contingency planning in the event of largescale market disruption. 

14

With regard to the netting legislation, or H.R. 2120, the Treasury 

strongly supports enactment of financial contract netting legislation such as H.R. 2120. The President’s Working Group on Financial Markets originally proposed such legislation in March of 1998 

and has supported financial contract netting legislative proposals 

ever since. 

In addition, in October of 2001, the Treasury Department and financial institution regulators urged Congress to pass netting legislation separately from bankruptcy legislation. 

H.R. 2120 eliminates uncertainties that exist under current law 

due to changes in the market over the past several years. This important legislation is necessary to help ensure that markets continue to operate without disruption in the event of a failure of a 

bank or a large market participant. 

With regard to the Bureau of Engraving and Printing Security 

Printing Act of 2004, or H.R. 3786: H.R. 3786 would authorize the 

Bureau of Engraving and Printing to print securities and other documents for foreign governments. Current statutory limitations preclude BEP from providing actual production support. 

The Treasury strongly supports H.R. 3786, as it is similar to a 

bill that we submitted to Congress in 2001. That bill, introduced 

as H.R. 2509, received overwhelming bipartisan support and 

passed the House by a vote of 403-11 on March 19, 2002. More recently, H.R. 3786 passed the House of Representatives on March 

25, 2004, by a vote of 422-2. 

Finally, with regard to clarifying the delegation authority of the 

Treasury’s fiscal assistant secretary: The Office of the Fiscal Assistant Secretary performs critical functions related to the financial operations of the government and Treasury, including the delivery of 

payments, the collection of the government’s revenues and the 

management of the Treasury’s cash balances. All of these functions 

occur under the direction of the fiscal assistant secretary. 

In the event of a natural or other catastrophic disaster, it may 

be necessary for the Treasury to take unusual or extraordinary 

measures to ensure these critical functions continue. The proposed 

fix would conform to the secretary’s delegation of authority relating 

to the fiscal assistant secretary to the secretary’s authority relating 

to other Treasury officials who are not appointed by the President. 

Thank you for allowing me to testify today, and I look forward 

to answering your questions. 

[The prepared statement of Hon. Brian C. Roseboro can be found 

on page 41 in the appendix.] 

The CHAIRMAN. Thank you, Mr. Roseboro. 

And let me begin with Mr. Levey. 

As you know, the House adopted an amendment to strike the 

Transportation/Treasury appropriations bill language that would 

have prevented the Treasury Department from spending any funds 

to enforce its regulations implementing Section 326 of the PATRIOT Act regarding verification of customer identification. 

The Treasury Department, Justice and the White House have all 

supported the amendment. It now appears an attempt may be 

made to amend Section 326 to prohibit financial institutions from 

accepting the matricula consular form of identification issued by 

Mexican consular officers of the United States. 

15

What would the Treasury Department’s position be on such an 

amendment? 

Mr. LEVEY. Mr. Chairman, first let me thank you for your leadership on defeating the first amendment. I know that you worked 

with us closely on that issue, and it is very much appreciated. 

The Treasury Department would oppose the provision that you 

describe in your question. 

As you know, sir, under Section 326, the secretary was directed 

to work jointly with other federal regulators to issue regulations to 

financial institutions to make sure that they took reasonable steps 

to verify the identity of account holders. 

And in developing that regulation, we had to make a difficult set 

of choices. On the one hand, if you have very, very strict identity 

requirements, then you drive many people into the unregulated 

sector where we have very little control. And on the other hand, we 

have to make sure that we have enough identity requirements to 

preserve the integrity of our system. 

We believe that we have struck that balance appropriately under 

Section 326, and believe it would be inappropriate to single out the 

matricula card in particular for special treatment in that respect 

given the overall balance that needs to be struck. It is not the only 

card that has issues associated with it. 

The CHAIRMAN. Thank you. 

Mr. Roseboro, this committee, in the past, has approved netting 

legislation, which has been supported by Treasury as well as 

Chairman Greenspan. 

Can you explain why the committee needs to continue to pursue 

netting provisions and, particularly in light of what the gentleman 

from Alabama said, in terms of the obvious attempt by the terrorists to attack our financial system, what that would mean in the 

event of a major catastrophe with our financial institutions? 

Mr. ROSEBORO. Yes, Mr. Chairman. 

Financial markets, as a general principle, do not like uncertainty. As financial innovation has continued to occur and will continue to occur into market, it becomes increasingly necessary to alleviate, wherever practical and possible, that uncertainty related to 

particularly settlement and operations. 

Whether an institution is faced with a financial failure through 

natural consequences or we are faced with a catastrophic situation 

such as September 11th, which causes undue stress on the operations of a financial institution, having the netting provision 

passed will go a great way to minimizing the risk base and continuing to have effective markets. 

The CHAIRMAN. Mr. Levey, the Bank Secrecy Act placed an enormous burden on financial institutions to provide law enforcement 

the sort of information that can stop financial crimes, including terrorist-related financing. And these institutions tell us that it is essential that we improve two-way communication with law enforcement. 

That was the goal of Section 314 of the PATRIOT Act, which 

Vice Chairman Hamilton singled out for special praise in the testimony to our committee last month. 

16

What is Treasury doing to promote a better flow of information 

to those financial institutions that are our first line of defense 

against terrorist financiers? 

Mr. LEVEY. Mr. Chairman, I would agree that Section 314 and 

the information sharing that is provided for there is an excellent 

tool. And I would also agree that giving feedback to the financial 

sector is critical in making our BSA compliance work and SAR reporting work. 

FinCEN places a very high priority on giving feedback to the financial sector in this respect. And I think they have done an excellent job. 

Among other things, they have the SAR Activity Review, which 

they publish, I think, quarterly, which summarizes some of the 

trends that they are seeing, so that they can help the financial sector look for those same trends in their businesses. 

We also have the Bank Secrecy Act Advisory Group that is 

chaired by FinCEN, which has an exemption from the Federal Advisory Committee Act to provide for just that sort of frank and full 

exchange of views that is particularly helpful to the financial sector. 

And in that group, we were able to pull together FinCEN, law 

enforcement and all at the same place to have just this kind of exchange. 

That is not to say we do not have more work to do; we certainly 

do. But we are committed. This is one of the highest priorities, is 

to figure out better ways to share information from law enforcement to the financial sector. 

The CHAIRMAN. Thank you. 

My time has expired. The gentleman from Massachusetts? 

Mr. FRANK. Thank you, Mr. Chairman. 

Mr. Roseboro, are the terrorists we are dealing with, the Islamist 

fundamentalists, are they big gamblers? Have I missed something? 

I mean, what do they play? What is their game? 

Mr. ROSEBORO. I have no knowledge of their professional or 

amusement activities, sir. 

Mr. FRANK. Thank you. 

Then why is there a big thing on Internet gambling in this antiterrorism bill? I mean, there is a lot of language in here about 

Internet gambling that is in this bill. I mean, why is that in the 

terrorist bill? 

I differ with many of my colleagues on whether or not people 

should be allowed to gamble. Many of my very conservative friends 

think the government should stay out of people’s business, except 

if they decide to make a bet with their own money. 

But I do not understand, why is it in the terrorism realm? 

Mr. ROSEBORO. I would not speculate on the writing of the bill 

and the——

Mr. FRANK. But it is in your testimony, Mr. Roseboro. 

Mr. ROSEBORO.—legislation. 

Mr. FRANK. I would not ask you to speculate, because that is too 

close to gambling and I do not want to get you in trouble. 

[Laughter.] 

But it is in your testimony here that we are going to do Internet 

gambling. 

17

Mr. ROSEBORO. Again, the administration’s position—we are 

against Internet gambling. As to whether or not the appropriate 

place to addressing that issue is in this legislation or another, we 

leave that to the Congress. 

Mr. FRANK. I thank you. 

I will say, I am struck by the selectivity with which the administration leaves things to the Congress. I guess this would be in the 

category of the assault weapon ban, where the administration will 

decide that it will defer, as opposed to a highway bill which it is 

going to veto if it has enough money. 

But I stress that because I do want to guard against what has 

been an unfortunate tendency here to, kind of, I think, misuse the 

legislative process. I do not mean to accuse you of this. You are just 

the backboard. 

There was a tendency on the part of the leadership of the House 

to take things that are overwhelmingly popular and package them 

with things that are much less popular, much more controversial, 

not directly relevant, and put them all in one bill, figuring that 

they would be able to, kind of, intimidate people into voting for 

things they would not otherwise vote for, because they will otherwise be criticized for not voting for the strongly supported pieces. 

And that has become such a tendency. 

And then often they come up and raise it when they come to the 

floor unamendable, a little late in the session. We will have a 

chance to vote on amendments here in the committee, but when 

this bill comes to the floor it is probably not going to be easily 

amendable. And I can understand that this late in the session. But 

I do hope we will keep out of this bill things that are so controversial of this sort. 

On the Internet gambling, I just use that as an example, we have 

had some debate on that. And I do not mean to say I do not like 

that part. But I worry about that precedent being followed. 

Mr. Levey, just two questions. One, when you use your authority—obviously a lot of it has to do with international activity—how 

much consultation do you do with the State Department? Do you 

find yourselves sometimes having to overrule them? 

I mean, you know, it is, again, not anybody’s fault, but there is 

a tension there between the foreign policy concerns they have and 

the security concerns you have, at least potentially. 

How do you work that out? 

Mr. LEVEY. Generally, sir, these things are worked out in collaboration. I have not, in fact, experienced many even disagreements, 

let alone situations where one would, as you put it, overrule the 

other, which, of course, is not possible. 

Mr. FRANK. Well, you do have the final say with regard to this, 

I assume. 

Mr. LEVEY. Well, it depends on what exactly we are talking 

about. I do not know the ‘‘this’’ is. 

But, for example, under Section 311, which is an authority we 

use, there is a statutory requirement for consultation. What in fact 

happens is a very detailed consultation with the State Department——

Mr. FRANK. Right. But you would have the last word if there was 

a disagreement? 

18

Mr. LEVEY. Yes. 

Mr. FRANK. But it is encouraging to know that there has not 

been those kinds of disagreements. 

And I say that, again, because there is a general issue here, I 

find. More and more of foreign policy has become economic policy, 

particularly with the end of the Cold War, although now we have 

the terrorism issue—trade, relationships with the international financial institutions. 

And I have felt—I first began to think this under the Clinton administration—that in economic foreign policy there is insufficient 

coordination between Treasury and State. And so I am glad to see 

we have it here. 

Just the last point, quickly. You say, and I am glad to see this, 

‘‘We need to be acutely sensitive to the privacy and reputational interests of our citizens. We will be studying this issue and considering ways,’’ et cetera. 

I would hope that it would not lag. I mean, I understand security 

is very important; I do not want to stop it. And that is why I said 

what I said before. 

Rather than think that we are going to find a way to do tough 

security measures that will be error-free, I think we should accept 

the fact that they will include errors and include a simultaneous 

corrective mechanism. And I just think that then ought to be contemporaneous, not one after another. 

So, I mean, can you reassure me or not that efforts to protect privacy—the self-correcting mechanisms are going to be equal to the 

enforcement mechanisms, both in terms of their power and in 

terms of timing? 

Mr. LEVEY. Well, I can assure you that this is not an issue that 

we are allowing to lag. This is an issue we take very seriously and 

which we are working on at the same time as we are trying to protect——

Mr. FRANK. All right. I would just ask if you could address some 

of that in writing to me afterwards, because it is, I think, a very 

important issue. 

And I would just say, it is not just a privacy issue, it becomes 

a law enforcement issue. Because if a significant number of citizens 

are afraid of arbitrary action that cannot be corrected, then they 

are going to start objecting to the powers. 

And I really think it is in our interest, to get good law enforcement, that we show people that we are going to go ahead with the 

good, tough law enforcement, along with the full self-corrective 

mechanisms, otherwise people will begin to resist the enforcement 

mechanisms. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from California, Mr. Royce? 

Mr. ROYCE. Thank you, Mr. Chairman. 

In my opening statement, I suggested that we should strengthen 

language of Section 326 of the PATRIOT Act. Some people have 

taken this to mean that I want to ban matricula consular cards. 

And to them I say, this issue is so much bigger than matricula 

cards. This is about the national security of our country. And I do 

not want terrorists using false I.D. from any country, especially 

given that the 9/11 Commission report specifically says that we 

19

should be moving in the opposite direction, we should be moving 

toward a biometric entry-exit screening system. 

Now, as an example of concern here, let us look at the L.A. 

Times and their story last Wednesday, in which the article highlighted the threat of Islamist terrorism coming from our southern 

border. 

The story quoted Magnus Ranstorp, the director of the Centre for 

the Study of Terrorism and Political Violence at the University of 

St. Andrews, as saying, ‘‘We are seeing a pattern of terrorist suspects exploring opportunities to get hold of Mexican passports and 

documents and infiltrating into the United States through Mexico.’’

The L.A. Times story also reports that, ‘‘According to staff members of the commission investigating the September 11th attacks 

on the United States, accused mastermind Khalid Shaikh Mohammed had a keen interest in smuggling Al Qaida operatives across 

the Mexican border.’’

There are plenty of other stories to quote from, but the point is 

that it is highly likely Islamist terrorists are trying to access our 

country through Mexico and that they are using Mexican identification documents to do so. And if these terrorists have Mexican documents, they can easily get matricula consular cards. 

So Mexico is certainly not the only country where the problem 

exists, but rather one where intelligence experts have raised a 

number of red flags. 

Now, my question is, shouldn’t we have tough standards for 

those wanting to access our financial system? 

And I am going to quote from some in the administration—I can 

understand, politically, why you might want to endorse the use of 

matricula consular cards. But I am going to quote Asa Hutchinson, 

Department of Homeland Security Under Secretary, on the PBS 

‘‘NewsHour,’’ when the question was put to him. He said, ‘‘We have 

very little confidence in the security of the matricula consular 

cards.’’

I understand politically why we would want to endorse this. But 

I want to quote from the FBI officials we have heard before this 

committee under the questions of how this operates. 

‘‘It is not a reliable form of identification due to the nonexistence 

of any means of verifying the true identity of the card holder. In 

addition to being vulnerable to fraud, it is also vulnerable to forgery. It is used for the purpose of obtaining a driver’s license, typically, in 13 States. False identities are particularly useful to facilitate the crime of money laundering.’’

I will go on to quote from the Office of Intelligence, Federal Bureau of Investigation, Mr. Steve McGraw, before the Congress: 

‘‘The ability of foreign nationals to use the matricula consular to 

create a well-documented but fictitious identity in the United 

States provides an opportunity for terrorists to move freely within 

the United States without triggering name-based watch lists that 

are disseminated to local police offices. It also allows them to board 

planes without revealing their true identity.’’

So, again, I come back to my question: Shouldn’t we have tough 

standards for those wanting to access our financial system? 

Mr. LEVEY. Well, sir, I have to say at first that I agree with the 

premise of your question. This is a difficult problem. And I am glad 

20

you put it this way: It is bigger than the matricula card. And that 

is essential to the answer, as well. 

We need to try to keep substandard identification cards from 

being used, whether they are from Mexico or they are from our own 

country, our own drivers’ licenses, for example. 

Mr. ROYCE. Right, you do not want to legalize a method that 

would make it easy for terrorists to gain access to our financial system and enable the next group of terrorists to freely move money 

around the United States to finance their operation. I agree. 

Mr. LEVEY. The point is we need to work across the government 

to improve standards for identity cards not just for accessing our 

financial system, but for all sorts of purposes. 

But meanwhile we had to make a judgment. We have a responsibility to regulate our financial system right now, and we have to 

decide what we are going to allow. 

And given the situation on the ground right now with the question of what sorts of identification cards are out there, whether 

they be matricula cards or other cards including drivers’ licenses 

from certain States, while those standards are being developed and 

while we are hoping to improve the standards across the board, we 

have to make the balance between allowing people into our financial system, where we at least have some transparency into what 

is happening, as opposed to driving them into an underground sector where we will not have any knowledge of how they are moving 

their money. 

And we have made the judgment that we have made to date. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from North Carolina, Mr. Watt? 

Mr. WATT. Thank you, Mr. Chairman. 

Mr. Chairman, I want to try to distinguish between terrorist legislation and just financial services legislation because I am not sure 

that this is about terrorism anymore. 

Mr. Roseboro’s statement specifically says, ‘‘Let me note that 

while these legislative items merit consideration, they should not 

interfere with the specific 9/11-related reforms which have been 

called for by the President.’’

He then says, ‘‘It is imperative that the President’s 9/11 legislative recommendations be enacted without delay.’’

Mr. Roseboro, is there anything in these bills that you have been 

asked to comment on that is included in the President’s 9/11 legislative recommendations? 

Mr. ROSEBORO. I do not believe so, sir. 

Mr. WATT. Okay, so this is not about enacting something that either the 9/11 Commission recommended or that the President has 

recommended in response to the 9/11 Commission’s report? 

Mr. ROSEBORO. Correct. This is——

Mr. WATT. Okay. That is not to say it is bad. I just want to make 

sure that we are not parading this in some way as a response to 

the 9/11 Commission’s report and trying to convince the public that 

somehow we in this committee are doing something in response to 

the 9/11 Commission report. 

We may be doing something, and it may be good. I am not arguing with that. But it is not in response to either the President’s 9/

21

11 Commission recommendations or the commission’s 9/11 recommendations. 

Now, with that having been said, let me be clear on what you 

all are saying on behalf of the administration. There are four or 

five things you were asked to comment on. One is Internet gambling, which Mr. Frank has already questioned how that is related 

to terrorism in any way. 

Your last sentence says the administration opposes illegal Internet gambling and looks forward to continuing to work with Congress on this important issue. I take that to be less than a resounding endorsement of any particular legislation, this or any other. 

You do not seem to be endorsing this particular legislation, or 

are you? 

Mr. ROSEBORO. Again, from the administration’s perspective, illegal Internet gambling is a problem, and anything that the Congress can do to about that, we support. 

Mr. WATT. Okay. But you are not endorsing this particular legislation, or are you? 

Mr. ROSEBORO. We do not have an objection to the legislation. 

Mr. WATT. Okay. All right. 

And then in the next part, the Securities and Exchange Commission emergency authority, you go to some lengths to point out that 

the bill leaves unchanged an existing statutory provision enabling 

the President to terminate any SEC emergency action. 

And then you say the President’s Working Group on Financial 

Markets continues to meet regularly to discuss issues common to 

the financial services regulators regarding contingency planning in 

the event of a large-scale market disruption. 

I take that to be less than a resounding endorsement of the specifics of what is being proposed here, because you all are still working on that. Am I missing something here? 

Mr. ROSEBORO. No, I would characterize it a little differently. 

Mr. WATT. Okay. Well, I did not mean to characterize it. Characterize it in the way you would like to characterize it. 

Mr. ROSEBORO. Basically, what that says is that there is a mechanism in place now, and will need to be ongoing under any circumstances, where possible, of good communication between all the 

major regulators to try to anticipate as well as respond to any 

major market disruptions. 

This legislation, however, also provides a further backstop, 

should, for whatever reasons, those deliberations or consultations 

are disrupted significantly in any way. 

Mr. WATT. Okay. That is a fair characterization. I am not trying 

to mischaracterize it. I am just trying to make sure we understand 

what it is we are doing. 

The netting provision is already in another piece of legislation, 

and you are suggesting pulling it out from the bankruptcy legislation, which a number of us have been suggesting for a long time, 

get the noncontroversial away from the controversial. 

You support that? 

Mr. ROSEBORO. That is correct, sir. 

Mr. WATT. Okay. And then the other bill we have already passed 

in the House 403 to 11, so it is not as if this is much controversy 

there. So you support us passing that 403 to 11 again, I suppose. 

22

Mr. ROSEBORO. Absolutely. 

Mr. WATT. Okay, all right, just want to be clear that if we are 

doing terrorism legislation, let us do it. But if we are just trying 

to fool the public into thinking that we did something, I do not 

have much sympathy for that. 

I yield back. 

Mrs. KELLY. [Presiding.] Thank you. 

I believe I am next in the line of questioning here. 

The 9/11 Commission staff report on terror financing noted that the 9/11 hijackers received wires totally approximately $130,000 in 

amounts from $5,000 to $70,000 from institutions overseas. The report reads, ‘‘No financial institution filed a suspicious activity report, and even with the benefit of hindsight none of them should 

have.’’

As you know, the United States lags behind other countries in 

our ability to deter and detect the misuse of these international 

funds transfer systems for illicit purposes. 

For example, Australia and Canada have determined that a reporting requirement to a financial intelligence unit is extremely effective and minimally burdensome. 

In fact, some U.S. authorities have suggested that a well-structured reporting requirement for international wire transfers would 

do more to address terrorist financing than any other change to the 

Bank Secrecy Act. 

Since money laundering and terror finance are inherently international, and law enforcement’s ability to trace funds is curtailed 

from where the funds originate or transit to other countries, my 

question is: What impact would having this authority have on our 

government’s ability to fight terrorist financing? 

And I am going to go to you, Mr. Levey. 

Mr. LEVEY. I would like to say two things in response that. 

One is that it may well be that that authority is one that would 

be beneficial to us with respect to combating terrorist financing, 

money laundering, in particular to helping us with ongoing investigations that would provide us with additional information that we 

can follow up on. 

But I want to be careful not to say that that would have—and 

I think the 9/11 Commission was trying to get at the same point. 

Even if that had existed at the time, what they are trying to say 

is that no one would have looked at any of these transactions and 

thought them suspicious because they were clean-on-their-face 

transactions. And I do not think that would have changed even 

with this authority. 

But the authority may well be useful, and the reason I cannot 

be stronger is I just need to make sure that what we do is something that we are capable of taking in. In other words, I do not 

want to require the reporting of a lot of information that we do not 

have the capacity to use and analyze at this point. 

So that is something where, while I agree with you in principle, 

we would need to work with you to make sure we are not imposing 

something we cannot deal with. 

Mrs. KELLY. Mr. Levey, we stand ready and willing to work with 

you to see if there is not something more we can do to identify 

these cross-border transmittals and get them into some kind of a 

23

position where they are going to work as flags to help us regarding 

terrorists. 

I want to talk a minute about the BSA compliance. What is the 

status of the MOUs between Treasury and the banking regulators? 

We have discussed this for sometime now. We need to get it 

done, and it needs to really be done yesterday. Can you talk to me, 

talk to us about that? 

Mr. LEVEY. Well, we are making excellent progress in that respect. If I had not been out of town the last few days, I might be 

able to give you a better and perhaps more satisfying answer. 

But as you know, when the deputy secretary announced this program he said we have to do this before October 1st and I have 

every reason to believe we will do it before October 1st. We are on 

the verge, I believe. 

Mrs. KELLY. I think this really needs to be done very quickly. It 

is an important step toward a single compliance office. 

And the regulators have to be cooperating with Treasury. And if 

they are not, this committee needs to help the regulators understand if it is an appropriate position for this committee to mention 

that to the regulators. 

And if there is any help that we can give you to making sure 

that these MOUs get worked out, the directions—one of the problems I know that we have had is the communication between the 

various regulators and the Treasury. And we need to help get that 

done. 

So I would urge you, if you think it can be done the month of 

October, I would urge you to get back to us and keep us informed 

about where that actually stands. 

Mr. LEVEY. Can I just say, because I do not want to alienate, you 

know, any of the regulators out there, I do know, even though I 

cannot give you more information at the moment, that they have 

been very cooperative. And we will get this done in September, not 

October. We will get done in September. 

Mrs. KELLY. That would be very good. It would help us a lot. 

I yield back the balance of my time. And I call on Mr. Scott. 

Mr. SCOTT. Thank you very much, Chairman. 

I would like for us to get at this issue of the hawalas. It seems 

to me that the issues before us and the proposals—Internet gambling, netting, the PATRIOT Act—it is almost like we are putting 

traps for elephants when we ought to be putting traps for squirrels. 

Agile, jumping from pole to pole, getting in corners, getting into 

little spots, this is how the terrorists are getting their funding. And 

it is clear that we need to get a handle on these hawalas—the 

other source being charities coming from the community—if we are 

really going to make a dent. 

And I would like to find out from you all at Treasury, what do 

you know about these hawalas? Are we monitoring them? Do we 

have a system and a strategy in place? 

What help do you need from us in terms of resources or legislation or whatever to really get at really putting out there some traps 

that catch squirrels as opposed to elephants? 

Mr. LEVEY. I think this is more in my area than Mr. Roseboro’s. 

24

I think we need to, on the hawala question, separate that into 

two separate subsections. One is that most of the way terrorist organizations are moving their money, of course, is worldwide. 

And one of the most, I think, successful efforts we have made is 

to get the international community, through the FATF, or Financial Action Task Force, to adopt a special recommendation that obligates countries who are FATF members to regulate and license 

hawalas. And that has been a significant step forward, and it is a 

first step. Obviously you first have to register and license them. 

On the domestic side, we also have under the PATRIOT Act is 

the requirement—actually it predated the PATRIOT Act—the requirement to register with FinCEN, but the PATRIOT Act made 

the operating of a money service business without being licensed 

a crime. 

And this is something where it is more of a coming up with an 

effective way to enforce it rather than an additional authority that 

is needed. On the one hand, if we enforce as a criminal matter, it 

has great deterrent effect but it also has the effect of driving people 

further underground. 

And so we are trying to, at the same time as we reach out to the 

community to register with FinCEN, also use the enforcement authority that we have under the criminal statute under the PATRIOT Act to sort of be the stick, you know, have a carrot and 

stick approach. 

And this is something which the Immigration and Customs Enforcement at the Department of Homeland Security has done a lot 

of good enforcement on unlicensed money service businesses. 

Mr. SCOTT. And you mentioned the countries. Which countries 

are most at need of this licensing? Which countries are presenting 

the greatest area of threat through which these hawalas operate? 

Do we have that knowledge? 

Mr. LEVEY. I am not sure that I am in a position to lay out—

first of all, that I would be able to give you a comprehensive list 

or and, even if I could, whether it would be appropriate to. 

Mr. SCOTT. That is fine. I understand that and I appreciate that. 

We do not want to get out any information on that. 

Is there anything that we can do here in Congress to aid you in 

more effectively getting your hands around this? Because it is clear 

from our information that Al Qaida is getting a tremendous 

amount of their financing through these hawalas. 

It would be very helpful to us. Is there anything that you feel we 

can do to further assist in tackling this issue? Legislatively, resources? 

Mr. LEVEY. I certainly appreciate the offer and would be happy 

to take you up on it, if we do identify such things. 

This committee and the Congress generally have been very supportive of the type of efforts we have been making thus far, and 

it is greatly appreciated. 

Tough problem, though. 

Mrs. KELLY. Thank you very much, Mr. Scott. 

Mr. Garrett, I am going to try—there are two more questioners, 

Mr. Garrett, Ms. Maloney. I am going to try to fit them in. I would 

hope that our questions and responses are very rapid. We have 

four votes, and it will be hard for us to come back. 

25

Mr. Garrett? 

Mr. GARRETT. I will try to be rapid on this. Just following Mr. 

Royce’s comments with regard to Mexican matricula consular 

cards, am I able to, as a American citizen, able to get one of these 

Mexican matricula consular cards and use it at a local bank? 

Mr. LEVEY. My understanding is that you should not be able to. 

Mr. GARRETT. Right. So, in other words, if I have been living in 

my community for my entire life and I go to a local bank and I 

wanted to open up a bank account there, I would have to use the 

document that was made in America, right, like a driver’s license, 

a birth certificate, or some other document that was made here in 

the United States. Isn’t that correct? 

Mr. LEVEY. Assuming that the bank knew you were an American, that would be something that I would expect them to require. 

Mr. GARRETT. Right. But if someone crossed the border last 

night, whether they are legal or illegal, they would be able to come 

into that same bank and be able to use a card that was made by 

some foreign government, such as Mexico. Is that correct? 

Mr. LEVEY. I believe so, yes. 

Mr. GARRETT. Okay. And the purpose that you said—I listened 

to your testimony earlier—the reason you do not want to prohibit 

them is because you do not want to make it more difficult and 

therefore drive the illegal immigrants in this country into the underground market. Is that correct? 

Mr. LEVEY. Anyone who wanted to use the matricula card, yes, 

or any other substandard card. 

Mr. GARRETT. Well, how far does that go? What you are basically 

saying, or what your basic testimony is, is that we are trying to 

make is easier for someone who is in this country to use the financial systems in this country, as opposed to making it harder. 

Mr. LEVEY. As a general matter, yes, we want to make it easier 

for people to go into the parts of the financial sector that we have 

some transparency into, rather than those parts of the sector that 

we do not. And that is generally what we are trying to do. We are 

trying to bring people into the system where they are making 

transactions that we have some ability to track. 

Mr. GARRETT. And that, of course, is regardless of whether they 

are in this country legally or whether they are in this country illegally. 

Mr. LEVEY. That is correct. 

Mr. GARRETT. Right. So part of your testimony is that we are trying to make it easier for people who are in this country illegally 

to use our financial system? 

Mr. LEVEY. What we are trying to do is strike the right balance 

with respect to financial transparency, to bring as many people as 

possible—without regard to their immigration status—to bring as 

many people as possible who are using our financial system, bring 

them into that part of the financial system that is transparent and 

that we have some ability to track their transactions, rather than 

driving more of them into that part which we do not. 

Mr. GARRETT. And also your testimony was, part of the problem 

right now is that we do not have a uniform system out there, as 

far as the 50 States, with regard to drivers’ licenses and the like, 

and that maybe somewhere down the road, when we have a more 

26

uniform system, we will be able to address this problem in a more 

comprehensive way. I forget your exact words. 

Mr. LEVEY. Right. The point is, it is not matricula cards that is 

our only problem. The standards for identity cards—people talk 

about biometric standards. A lot of our drivers’ licenses, for example, do not have the kind of biometric standards that we would 

want. 

And it is not just bringing people into the financial institutes. 

There are all sorts of places where people use their identification 

cards. I think, referring to Asa Hutchinson, obviously people boarding airplanes is more of a risk than going into a bank to open an 

account. 

Mrs. KELLY. Thank you very much, Mr. Garrett. 

Ms. Maloney? 

Mrs. MALONEY. Very briefly, and I would just ask you to get back 

to me in writing, last week I joined Chairwoman Kelly and other 

members of the committee to get an additional $25 million for 

FinCEN. And the proposal we are considering today has no-year 

additional funding for that purpose. 

And it would be helpful for us to have Treasury’s official comment on what FinCEN plans to do with this funding exactly and 

exactly how much money you feel that you need for this operation. 

There have been various estimates out there. 

And I would like to, very quickly, because we have to run to vote, 

go to counterfeiting. The $100 bill is the most counterfeited bill in 

the world. There are estimates that 70 percent of them are counterfeited. And yet we are not using the most advanced technology on 

our bills—the Kinegrams that are here on the London bills, the 

euros and so forth. 

And just last week the FBI reported that $3 million in $100 bills 

were taken from a group of Dutch criminals. And as a result, merchants abroad are beginning to see the euro, not the dollar, as the 

safe currency, which I do not think is good for our country, yet our 

RFP that is out on the dollar bill asks for the strip technology, 

which is good for banks but not for commerce on the street. 

And my question is, why are we not at the forefront of counterfeit deterrence by using the most advanced technology? 

And if you could get back to me in writing, because we have to 

run to vote, and I do not want to miss the vote. 

And I thank the lady for letting me get this in, those two questions in. 

Thank you very much. 

Mrs. KELLY. Thank you, Ms. Maloney. 

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

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

for members to submit written questions to these witnesses and 

place their responses in the record. 

We thank the witnesses for their testimony today. 

This hearing is adjourned. 

[Whereupon, at 12:23 p.m., the committee was adjourned.] 

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A P P E N D I X

September 22, 2004

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