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95–012 PDF 2004

IMPROVING FINANCIAL OVERSIGHT:

A PRIVATE SECTOR VIEW OF ANTI-MONEY

LAUNDERING EFFORTS

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

MAY 18, 2004

Printed for the use of the Committee on Financial Services

Serial No. 108–87

(

(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: 

May 18, 2004 ..................................................................................................... 1

Appendix: 

May 18, 2004 ..................................................................................................... 31

WITNESSES 

TUESDAY, MAY 18, 2004

Aufhauser, David D., Senior Counsel, Center for Strategic and International 

Studies and Counsel, Williams & Connolly LLP ............................................... 6

Byrne, John J., Director of Center for Regulatory Compliance, American 

Bankers Association ............................................................................................. 8

Cachey, Joseph III, Vice President, Global Compliance and Chief Compliance 

Officer and Counsel, Western Union Financial Services, Inc. .......................... 10

Emerson, Steven, Executive Director, The Investigative Project ........................ 14

Richards, James, Operations Executive for Global Anti-Money Laundering, 

Bank of America ................................................................................................... 12

APPENDIX 

Prepared statements: 

Kelly, Hon. Sue W. ........................................................................................... 32

Aufhauser, David D. ......................................................................................... 34

Byrne, John J. ................................................................................................... 40

Cachey, Joseph III ............................................................................................ 50

Emerson, Steven ............................................................................................... 61

Richards, James ................................................................................................ 72

(1)

IMPROVING FINANCIAL OVERSIGHT: 

A PRIVATE SECTOR VIEW OF ANTI-MONEY 

LAUNDERING EFFORTS 

Tuesday, May 18, 2004

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to call, at 10:07 a.m., in Room 

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

of the subcommittee] presiding. 

Present: Representatives Kelly, Hensarling, Garrett, Gutierrez, 

Inslee, Moore, Maloney, and Matheson. Also present was Representative Royce. 

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

An effective money laundering system relies on a collaborative effort from the public and private sectors. This effort has received additional scrutiny recently due to problems at Riggs Bank, an instance where the public-private collaboration stumbled badly in 

protecting the public’s best interest. It is evident that the public 

and private sectors must continue to improve the way that suspicious activity is detected, reported and analyzed. 

Today we examine ways to improve the oversight and utilization 

of transaction information by regulatory and law enforcement agencies so the failures at Riggs are the last of their kind in our country. 

The current enforcement structure we have put in place to enforce our anti-money laundering laws disperses various levels of responsibility through a convoluted group of Treasury bureaus and 

independent agencies. It resembles somewhat a bowl of spaghetti. 

While these agencies have been focused on efforts to oversee the 

safety and soundness of our financial institutions for decades, they 

must embrace new responsibilities which acknowledge that money 

laundering is no longer a second-tier issue for financial regulators. 

Of particular interest to this subcommittee are proposals to simplify the governmental structure so that regulation and compliance 

for these laws are better unified, perhaps even under the auspices 

of a single entity. 

Given the vulnerabilities exposed by the Riggs case, I am inclined to believe that the current structure is a relic of a foregone 

era and that substantive organizational reforms are necessary. At 

a bare minimum, Congress should begin now an active and thorVerDate 0ct 09 2002 15:10 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 G:\DOCS\95012.TXT FIN1 PsN: MICAH
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ough assessment of proposals aimed at strengthening our enforcement regime. This subcommittee intends to do just that in the coming weeks and months, and therefore I look forward to testimony 

from some of our witnesses as to how we might significantly improve the effectiveness of our system without creating yet another 

layer of bureaucracy. 

Our financial regulators must place a strong emphasis on compliance through rigorous oversight, taking swift and forceful action for 

non-compliance when necessary. This oversight includes working 

with the private sector to develop accurate risk assessments that 

enable examiners to focus on specific institutions, because resources need to be concentrated appropriately. 

The continued leadership of the administration and the Treasury 

Department is essential to improving financial oversight. Earlier 

this year, President Bush signaled his commitment to the war 

against terror by proposing a 14 percent increase in funding for the 

Financial Crimes Enforcement Network. FinCEN plays a key role 

in efforts to stop financial crimes by working with the financial 

community and supporting local, State and Federal law enforcement and intelligence agencies. 

The administration has also announced the creation of the Office 

of Terrorism and Financial Intelligence—the acronym for that they 

are using is TFI, Terrorism and Financial Intelligence—within the 

Department of the Treasury to unify, under one structure, the 

functions of several offices. I applaud the administration for its efforts to streamline and centralize our anti-money laundering efforts. There must be greater communication between FinCEN, law 

enforcement, banking regulators and financial institutions, and I 

believe this office was an important step toward improving this coordination. 

Now we must work to bring the next steps into focus. As evidenced by the failures of Riggs Bank and its regulator, the OCC, 

it is time to explore further reforms that improve the overall structure of our anti-money laundering efforts. It is unacceptable that 

a Washington, D.C.-based bank with the largest embassy banking 

clientele allowed tens of millions of dollars to pass unnoticed and 

unreported through accounts belonging to Saudi Arabian government officials. This activity continued even after a consent order 

was put in place last year. The mechanisms we put in place to detect and report suspicious activity failed, and they failed repeatedly. We no longer live in a world where such failures can be tolerated. 

I thank the witnesses for appearing here today. You are on the 

front line of these efforts, and I look forward to hearing your views 

on how we can continue improving financial oversight. 

I turn now to our ranking member, Mr. Gutierrez. 

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

page 32 in the appendix.] 

Mr. GUTIERREZ. Good morning, Madam Chairman, and thank 

you very much for calling this hearing today. It is important, especially given recent events, that we closely examine our anti-money 

laundering efforts and whether they are sufficient. I welcome the 

witnesses here today and look forward to their testimony. 

3

I understand that many financial institutions are truly committed to this effort, and I welcome their suggestions for improving 

compliance. However, I am concerned about the commitment of the 

relevant regulators to this effort, because criminals will always 

seek out the weakest link in the chain and will exploit any lapses 

in supervision. 

After September 11, the passage of the PATRIOT Act, bank regulators were given more tools to combat terrorist financing, building 

on the foundation of existing anti-money laundering efforts. I am 

truly troubled by the Riggs situation. It represents not merely a 

failure of one institution’s internal controls but a fundamental flaw 

in its regulation. It is my understanding that the flaws in Riggs’ 

systems were long-standing and systematic, dating back well before 

the PATRIOT Act. 

The consent order of last week is something that should have 

happened 2 years ago, if not earlier. I don’t understand why the 

OCC was not more vigilant on this front and why it took them so 

long to take these actions. September 11 was a wake-up call for the 

industry and should have been for regulators as well. Our safety 

depends on banks and bank regulators to be on the forefront, on 

the front lines and prevent terrorists from using international financial systems to fund their activities. 

I understand that the regulators take the risk-based approach to 

examining books under their purview, and I can’t imagine why 

Riggs’ book of embassy business would not have placed them in a 

category demanding extra scrutiny. 

I am very concerned that the regulator has not made this responsibility a higher priority or that their resources may be spread too 

thin to fulfill their obligations. I have previously expressed concern 

about the OCC’s attempt to broaden their portfolio into areas that 

Congress has not authorized without commensurately increasing 

their operational budget. In fact, the Financial Services Committee 

is on record in agreement with me on this point. 

This recent incident with Riggs makes me even more concerned 

about the OCC’s operations, and I really believe they should be testifying here today. Chairwoman Kelly, I know you share my concerns here, and I hope we can work together to get the OCC to testify before our subcommittee regarding this issue. I want to know 

if they have actively looked at every major bank that could have 

potential terrorist financing issues and what steps they have taken 

to aggressively control these issues. 

One final point: The OCC issued its findings late last Thursday, 

and Friday a Maryland woman called her congressman and she 

was very concerned about her account at Riggs Bank. She was referred to the Banking Committee staff, and she said she wanted to 

talk to the regulators. My staff supplied the phone number for the 

OCC’s Customer Assistance Group, but, unfortunately, they don’t 

operate on Fridays. They only work 4 days a week. They only talk 

to consumers 4 days a week and then only from 9 o’clock to 4 

o’clock. 

So that woman had to wait from Thursday until Monday before 

she could possibly reach someone at the OCC. I think this agency 

is not concerned about consumers, and I have doubts about their 

commitment to anti-money laundering efforts. 

4

Thank you, again, Chairman Kelly, for calling this hearing and 

for your leadership on this vital issue. 

Chairwoman KELLY. Thank you, Mr. Gutierrez, and it is my intention, as you know, to continue discussing with the various agencies who have this responsibility what we can do to make sure 

there are no more failures of this type. 

Mr. Royce? 

Mr. ROYCE. Let me begin by thanking the Chair for calling this 

hearing today, and I am very grateful for your interest and leadership on this topic. 

I think we are very fortunate to have with us this morning two 

of the countries foremost experts on terrorism, and I think it is unfortunate that both Mr. Aufhauser and Mr. Emerson have for so 

long been right on their predictions about our long fight against 

terrorism. 

In both cases, they have warned us that what we are in for is 

a long struggle against a movement, not an organization but a 

movement, and it is a movement of a very extreme arm of the 

Wahabi Sect that is determined to ruin our way of life. 

From the perspective of a member of this committee and of the 

International Relations Committee, I could not agree more with the 

assessments that they have made. We cannot win the war on terror 

unless the global community works to cut off the flow of funds that 

terrorists use and that terrorists receive. Certain terrorist acts do 

not require vast amounts of funding; however, the costs of indoctrination, the costs of recruitment and sustainability for their operations are quite high. If these rogue terror groups have no financial 

support, it is very difficult for them to continue to operate effectively. 

In my view, the question we need to ask as members of the committee is how can the Financial Services Committee play a lead 

role in the fight on terror? We have the world’s best safety and 

soundness financial regulators. As a part of their job, these regulators are also tasked to enforce the Bank Secrecy Act and certain 

provisions of the PATRIOT Act. This committee needs to emphasize 

the importance of that role to these regulatory agencies. 

I think we may need to create a new structure and we may need 

statutory changes whereby each safety and soundness regulator 

would have a designated group that works hand in hand with the 

newly created Office of Terrorism and Financial Intelligence in the 

Treasury Department. 

The Bank Secrecy Act and the PATRIOT Act give our examiners 

a number of tools to fight terror finance. This committee should 

lead Congress down the path of creating an environment where financial intelligence is gathered and then is shared and analyzed 

and used appropriately and effectively. 

As Mr. Aufhauser argued in his testimony that he is going to 

present to us, ‘‘Much of the information that is submitted to the 

government under the Bank Secrecy Act is merely lodged like a 

book like a library shelf without a card catalog,’’ in his words. 

In the absence of an express and pointed request from law enforcement, he says, ‘‘the information remains unexploited. Surely 

we ought to have an artificial intelligence program that red flags 

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quiry.’’ He is absolutely correct. Not only do we need to utilize the 

PATRIOT Act, but we need to use it to data mine and to uncover 

terrorist activity. 

And, again, I thank Chairwoman Kelly for her leadership on this 

subject, and I very much look forward to hearing the testimony of 

our witnesses this morning. 

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

Ms. Maloney? 

Mrs. MALONEY. In the interest of time, I am just going to place 

my comments in the record and wait for the testimony. Thank you. 

Chairwoman KELLY. Thank you. 

Mr. Hensarling, you have no statement? 

Mr. Matheson? 

Mr. Moore? 

Mr. Garrett? Oh, all right. 

We now turn to our panel of witnesses. Thank you. It is a pleasure to welcome back to the committee Mr. David Aufhauser, the 

former general counsel of the Treasury Department who is currently with the law firm, Williams & Connolly. While at the Treasury Department, Mr. Aufhauser was the Chair of the U.S. Government Coordinating Committee on Terrorism Financing and a leader in implementing the USA PATRIOT Act. Through his work, he 

has helped shape our war against terror. 

I am also very pleased to introduce Mr. John J. Byrne, the director of the Center for Regulatory Compliance for the American 

Bankers Association. Mr. Byrne has over 20 years of experience in 

regulatory and educational efforts on money laundering, asset forfeiture, computer security, privacy and other general electronic 

banking and compliance issues. He was the first private sector recipient of FinCEN’s Director’s Medal for Exceptional Service. 

In addition, the subcommittee welcomes Mr. Joseph—let me 

make sure I am pronouncing it, Cachey? Cachey—representing 

Western Union. Mr. Cachey is responsible for administering compliance with the requirements of the Bank Secrecy Act. Regulations 

of the Office of Foreign Assets Control and related anti-money 

laundering and anti-terrorist financing laws in 196 countries in 

which the Western Union conducts its business. 

Our next witness is James Richards, a senior anti-money laundering executive at Bank of America. Mr. Richards was formerly a 

supervisor of the Narcotics Forfeiture Group as the Massachusetts 

district attorney. He is also a Canadian barrister and later served 

as the BSA compliance and financial intelligence director with 

Fleet Financial. 

Finally, the subcommittee will hear from Steven Emerson, the 

executive director of the Investigative Project, a well-known expert 

on international terrorism and terrorist financing. Mr. Emerson 

has shared his very important insights with this subcommittee on 

a number of occasions in recent years. His expertise is based on 

daily contact with sources in government and key financial institutions as well as his participation in major terrorist financing cases. 

I thank all of our witnesses for your appearance here today and 

for your testimony. Without objection, your written statements will 

be made part of the record. You will each be recognized for a 5-

minute summary of your testimony. I don’t know if anyone needs 

6

this, but I am going to remind you that there is a box on the end 

of each table. The green light means you have 5 minutes for your 

testimony, the yellow light means there is one minute remaining, 

and the red light means that we would like you to summarize your 

testimony. If you haven’t gotten to the end, please summarize and 

let us move on to the next witness. Thank you very much. 

And let us begin with you, Mr. Aufhauser. Thank you very much 

for being here. 

STATEMENT OF DAVID D. AUFHAUSER, COUNSEL, WILLIAMS 

AND CONNOLLY LLP 

Mr. AUFHAUSER. Thank you. It is an honor to be here. When I 

was at a Treasury I had a big staff and so I would get my testimony in early. I apologize that I got it into you about 7 minutes 

ago. 

Chairwoman KELLY. Don’t worry about that Mr. Aufhauser. It is 

valuable one way or another, so we accept it. 

Mr. AUFHAUSER. For that reason, I am actually going to refer to 

much of it, but I think I can do it in 5 minutes. It was written 

knowing how this committee operates. 

Probably one of the most vexing issues that this committee faces 

is the unprecedented nature of the threat of terrorism. The DNA 

of war has changed and changed inalterably. Confirming the asymmetry power of our military, no force is going to confront the 

United States on a conventional battlefield, at least currently, with 

a uniformed army under a recognized flag of state. Nor is there, 

importantly, a finite list of strategic targets to bunker with concrete and steel. Rather, the highest of profile targets are said to be 

soft, open to the most outrage and the most unspeakable scenes of 

mayhem. It is a school bus, it is a marketplace, it is a monument, 

it is a place of worship, indeed, it is this hall of Congress. 

The greatest infamy, of course, in this uncommon war is the premium placed on the death of innocent people. Bullets and boots on 

the ground will not alone protect us. This is shadow warfare and 

it requires a rethink of how do you defend a nation. Every element 

of national power must be brought to bear, even the finance ministry of the United States, as anomalous as that may sound to 

folks. 

With so many targets that defy military purpose and, therefore, 

escape common measures of detection, the three most critical factors that emerge as you talk about forging a new national power 

defense are, one, the need for enhanced intelligence, two, the 

leveraging effect of disrupting the logistical lines that constitute 

the purchase for stealth, and the need for a genuine partnership 

between business and government. 

The funding of terror, the financing of terror, the money of terror 

is the one common denominator in all three theorems. First, as 

Congressman Royce pointed out, it is virtually the only intelligence 

that has true integrity in this war. The rest is a product of deceit 

or treachery or bribery or betrayal and sometimes torture. But the 

record, the financial records that you discover don’t lie. They are 

diaries, they are confessions of which can save a populace, as was 

the case from a mass poisoning of ricin in the London subway system. 

7

Indeed, when we read about the capture of Hambali several 

months ago, what was trumpeted was of course what we can learn 

from his interrogation. What was not trumpeted, and probably was 

more important than anything we are learning from his interrogation, is what was in his PC and what the PC contained in terms 

of his financial dealings. 

Second, the ambition of a terrorist cell is defined by its resources, 

much like the ambitions of a business or a government. Moreover, 

the only link in the chain of terror that is subject to deterrence is 

the would-be banker who otherwise enjoys his anonymity and his 

affluence and his family’s prominence. If he can be deterred—that 

is to be distinguished from the man who puts a bomb, straps a 

bomb on himself and walks into a marketplace, he is implacable, 

he is beyond redemption—but the banker who enjoys his anonymity, he can be stopped if he fears discovery and the loss of his freedom. If we can cut him short, we can cut the designs of terrorism 

short. 

Third, no one is better suited to help police our financial borders 

than the financial services community and most of the folks on this 

panel. Indeed, the infinite number of ways that money can be spirited around the globe with the intention of killing people drives the 

need for more gatekeepers than this government has. That is in 

part the genius and in part the burden of Title III of the PATRIOT 

Act. To be sure, it is was and is at best a proxy for getting at a 

lethal challenge that we have never encountered before. I think, as 

I say later, it is very hard to judge the character of money. And 

in fact, when you talk to professionals to my left, it is characterized 

as a cliquesodic adventuresome idea. 

And maybe it oughtn’t be tried in a time of peace but we are at 

war, and if we don’t try it, we abdicating the single most promising 

way to stop violence attributed to terror. Changing people’s hearts 

and minds is a generational challenge. Stopping the logistical lines 

that fuels the terror, which is to say the money, is what we can 

do and what we should do and what our resources should be devoted to doing. 

Now, there were great successes, as my testimony suggests, from 

the existence of the scrutiny at our financial borders, and my time 

is running fast. There are six specific suggestions I set forth in my 

testimony for continuing oversight by this committee. The most 

promising, I think, is the 314 safe harbor that has been established 

for discussions between one financial institution and another to do 

their own kind of scrutiny. 

For whatever reasons, and perhaps the professionals to my left 

will tell us, I don’t think that has borne the fruit it can bear. There 

are a host of other recommendations that I make—do I have—well, 

I had more time than I thought. 

Chairwoman KELLY. Mr. Aufhauser, just go ahead and summarize. We are here to hear your testimony. 

Mr. AUFHAUSER. Well, let me refer to this because it is constructive. I mentioned 314 and the dialogue that we ought to encourage 

between financial institutions to talk about suspicious activity. 

Similarly, the government has an obligation to share reciprocal information with the financial institutions. That has been devilishly 

difficult because to do so has a procedural hurdle, which is the seVerDate 0ct 09 2002 15:10 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 G:\DOCS\95012.TXT FIN1 PsN: MICAH
8

cure transmission of very sensitive data, and a substantive hurdle, 

which is you don’t want to jeopardize ongoing investigations. 

A lot of people are thinking about that. No one has found the 

panacea. Perhaps this committee can help, help examine that, so 

that the dialogue from government to financial institutions is complete and seamless and that we can be allied in guarding our financial borders. 

We have yet to develop a topology for terrorist financing. I think 

it is because it is very difficult, but with all the intellectual caliber 

of the Silicon Valley and the financial community, I am convinced 

we can do it and that we have to have a war-like cabinet to make 

it happen. 

Finally, very significantly, a lot of foreign countries have followed 

our lead in the adoption of anti-money laundering legislation, but 

it is at the wholesale level, as the finance minister of Pakistan said 

to me, ‘‘David, we need to take it retail, and we don’t have the capability of taking it retail.’’ So this committee should explore and 

urge a significant uptick in capacity-building, particularly in transitional economies about how to enforce and how to train people to 

enforce effectively anti-money laundering legislation and to combat 

terrorist financing. 

I have more but I don’t want to intrude on other people’s time. 

[The prepared statement of David D. Aufhauser can be found on 

page 34 in the appendix.] 

Chairwoman KELLY. Mr. Aufhauser, thank you. I know you have 

more. All of your testimony will be in the record, and if we have 

time, I hope that the questions will bring out any testimony that 

you may be unable to give at this moment. But if not, I will probably go back and ask everyone to summarize again because this is 

a very important topic. 

We move to you, Mr. Byrne. 

STATEMENT OF JOHN BYRNE, DIRECTOR OF CENTER FOR 

REGULATORY COMPLIANCE, AMERICAN BANKERS’ ASSOCIATION 

Mr. BYRNE. Madam Chairman and members of the subcommittee, the ABA appreciates this opportunity to represent the 

committed men and women in the banking industry that work 

daily wit the USA PATRIOT Act on all of the laws covering the 

anti-money laundering obligations. When we last appeared before 

your subcommittee in March of 2003, ABA outlined a series of recommendations regarding needed areas of improvement to USA PATRIOT Act oversight. 

We are pleased to report that a number of areas of concern have 

been addressed, and our partners in the government continue to 

work closely with the industry on needed improvements. We ask, 

however, that the regulatory agencies and law enforcement address 

several of the remaining 2003 recommendations. 

In addition, ABA has two more recommendations. First, there 

needs to be a dramatic change in routine cash reporting under the 

Bank Secrecy Act so that there can be intelligent and efficient use 

of resources by both the government and the private sector in the 

continuing challenge of preventing our financial system from being 

used by criminals. Next, with the increased attention being placed 

9

on risk-based compliance, the industry needs clear and concise 

guidance on suspicious activity reporting obligations. 

Last year, we repeated our frustration that the Treasury Department had never fulfilled the 1994 statutory mandate to publish an 

annual staff commentary on Bank Secrecy Act regulations. As we 

stated at the time, ‘‘This indifference to congressional direction has 

contributed to industry confusion, examination conflicts and inconsistent interpretation of Bank Secrecy Act obligations.’’

We are pleased to report that FinCEN director, William Fox, has 

expressed his commitment to improved guidance through the use 

of advisories and commentary. We reiterate our promise to work 

with FinCEN and the appropriate agencies to achieve this overdue 

goal. 

While we repeat our 2003 call that Congress ask the regulatory 

agencies to report on efforts in coordinating Bank Secrecy Act 

exams, we have seen a commitment to consistency in the past several months. For example, not only has FinCEN Director Fox expressed public support for uniform assessments, but he has also directed the Bank Secrecy Act Advisory Group to form a Subcommittee on Exam Issues. This subcommittee, co-Chaired by the 

ABA and the Federal Reserve Board, will review existing guidance 

and offer appropriate recommendations. We would be happy to report to this committee on our findings. 

With the increased entities required to file suspicious activity reports, as well as the heightened scrutiny by regulators on SAR policies and programs, it is essential for the regulatory agencies, law 

enforcement and FinCEN to assist SAR filers with issues as they 

arise. This need is particularly obvious in the area of terrorist financing. As you heard from Mr. Aufhauser, this crime is difficult, 

if not impossible, to discern as it often appears as a normal transaction. 

We have learned from many government experts that the financing of terrorist activities often can occur in fairly low dollar 

amounts and with basic financial products. Guidance in this area 

is essential if there is to be effective and accurate industry reporting. The bottom line is that terrorist financing can only be deterred 

with government intelligence shared with the financial services industry. 

Recently, several financial institutions have contacted ABA about 

examiner criticisms received in reviews of their Suspicious Activity 

Report programs due, in large part, to the number of SARs that the 

institution has filed. These financial institutions expressed the concern, which we share, that the number of SARs filed meets a minimum threshold or that institutions are not filing the same number 

of SARs as peer institutions. The concern expressed is that there 

be new requirements in the form of a quota for determining the 

adequacy of SAR programs consisting, in large measure, of counting the number of SARs filed and, in some instances, comparing 

the number of SARs filed between peer institutions. Obviously, this 

would be a significant and alarming development in the examination and review process. 

Moreover, regulatory scrutiny of SAR filings, and the recent civil 

penalty assessed against Riggs Bank for SAR deficiencies, has and 

will cause many institutions to file SARs as a purely defensive tacVerDate 0ct 09 2002 15:10 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 G:\DOCS\95012.TXT FIN1 PsN: MICAH
10

tic to stave off unwarranted criticism or second guessing of an institution’s suspicious activity determinations. Obviously, if that 

continues, the legitimacy of the information in the SAR database 

will be called into question. 

In terms of routine cash reporting, a February analysis by 

FinCEN shows that over half the CTRs filed would be eliminated 

if the current $10,000 threshold were raised $20,000 for businesses. 

The current dollar amount was created 35 years ago. While $10,000 

is still a large amount of cash for individuals and probably should 

not be raised, reports on routine businesses simply clog the system. 

Those who would argue that a change in CTR reports will lessen 

the banks’ focus on cash transactions need to be reminded that the 

industry will still have reporting infrastructures in place, be required to file SARs on suspicious transactions and would retain the 

mandate to report individual CTRs over $10,000. We believe now 

is the time to adjust a process that is in sorely need of repair. 

The ABA has been in the forefront of industry efforts to develop 

a strong public-private partnership in the areas of money laundering and now terrorist financing. This partnership has achieved 

much success but we know more can be accomplished. We commend the Treasury Department, the banking agencies and FinCEN 

for their recent efforts to ensure a workable and efficient process. 

We will continue our support for those efforts. 

Thank you for this opportunity, and we will be happy to answer 

any questions. 

[The prepared statement of John J. Byrne can be found on page 

40 in the appendix.] 

Chairwoman KELLY. We thank you for your testimony, Mr. 

Byrne. 

Mr. Cachey? 

STATEMENT OF JOSEPH CACHEY III, VICE PRESIDENT, CHIEF 

COMPLIANCE OFFICER AND COUNSEL, GLOBAL COMPLIANCE 

Mr. CACHEY. Thank you, Madam Chairman and committee members. Western Union is a global leader in money transfer, and you 

are correct, we do business in 195 countries and territories around 

the world through 185,000 global locations. Internationally, over 70 

percent of these locations are banks or national post office systems. 

Domestically, in the United States, we have over 45,000 locations 

which were made up of grocery store chains, convenience stores 

and check cashers, among other businesses. The important thing to 

note is that these are local businesses serving local communities’ 

needs. 

I just want to highlight three or four areas of my submitted testimony today in my opening comments. First, it is important for the 

committee to realize that from an anti-money laundering compliance standpoint, this is still a fairly new game to money services 

businesses. SAR reporting became a requirement for our industry 

at the beginning of 2002, and the Section 352 PATRIOT Act compliance programs went into effect the summer of 2002. So we are 

only 2 years in the process of educating an industry and getting an 

industry up to speed as to the responsibilities and how to do this 

right. 

11

Our goal in working with our agents in the U.S. is twofold: First, 

education, and, second, to make it cost effective. From an educational standpoint, we have provided agents with turnkey compliance guidelines to get them up to speed as to something as simple 

as what does a compliance officer do? What do policies and procedures for anti-money laundering compliance program typically look 

like? What is employee education on these issues, and how do you 

document that? And then of course the internal reviews that need 

to occur. 

We also provide our agents with ongoing regional training, topicspecific workshops and one-on-one training if they request it. And 

then we are currently and constantly enhancing these tools so that 

our agents are getting new information, information in a variety of 

languages, information that will allow them to build their programs and monitor their activities so they can fulfill the suspicious 

activity reporting requirement. We continue these efforts today and 

believe that the regulatory community should continue this effort 

in the same way. 

Education is key. As a compliance officer, I tell my business clients, internal clients all the time that to start at ground zero and 

work your way to a full-fledged, mature compliance program takes 

3 to 5 years. We have been scrambling to get it done in two to 

three ways, and I think we are well on our way, but we need to 

keep this in mind as we move forward. 

Secondly, and a number of panel members have mentioned this, 

the regulations call for a risk-based approach, and we appreciate 

that. Industry and regulators should focus resources where the 

highest risk is actually located. In Western Union, for example, we 

treat different categories of our agents differently. We break agents 

down to national accounts, networks and independents, or what we 

commonly refer to in the industry as mom-and-pops. 

A national account is typically a publicly traded corporation. 

They have internal legal departments, internal audit departments, 

typically you can start at the top, express what needs to be done 

for your particular service, and that could get pushed through to 

an organization in a very efficient manner. It takes less work to get 

a national account to do what needs to be done than any other account because they want to do it the right way. 

Networks typically are regional. They also have internal infrastructures, if you will, but they typically need more help on the 

legal aspect: ‘‘What is BSA compliance, what is AML compliance, 

can you help us build our program?’’ But, again, once that program 

is built, they have good mechanisms and infrastructures in place 

to roll those programs out. 

And then probably the greatest challenge is the mom-and-pops 

because they don’t have access to lawyers readily, you don’t want 

to make them hire a lawyer or a consultant to have to go figure 

out what the BSA is and how to build a program. They don’t have 

a need for intense infrastructure within their business, and so you 

really need to walk them hand in hand through the process. 

Western Union views this as a risk-based approach because each 

organization poses different levels of risk in getting programs 

rolled out, and we believe that FinCEN and the IRS should take 

12

the same approach in applying their resources, both for education 

and then also the IRS’ examination process. 

Finally, I would just like to say a word on terrorist financing. As 

we have all indicated, today’s terrorist cells strive to weave themselves into the fabric of our society to camouflage a financial legitimacy. Typically, they enter whatever jurisdiction they are entering 

into legally, they get valid government IDs, they get bank accounts, 

they get credit cards, they get debit cards, and, as we all know, we 

need a surprisingly small amount of money to do what they are 

striving to do. If a name gets put a public list, like the OFAC list, 

we will make sure that that person doesn’t receive or send any 

transactions. 

But the key is better non-public information, non-public intelligence from the government to let us know what should we be 

looking for? What are the government intelligence agencies seeing, 

what patterns are they seeing, what activities they are seeing so 

that we can look for that in our back room and identify that type 

of activity which is most useful to law enforcement. 

Thank you very much for this opportunity, and I will be happy 

to answer any of your questions. 

[The prepared statement of Joseph Cachey III can be found on 

page 50 in the appendix.] 

Chairwoman KELLY. Thank you, Mr. Cachey. I was interested 

that you pointed out in your testimony that the terrorists can use 

rather discrete amounts of money in various ways, and I think that 

is an important piece of your testimony. I thank you for pointing 

that out. 

Mr. Richards? 

STATEMENT OF JAMES RICHARDS, OPERATIONS EXECUTIVE 

FOR GLOBAL ANTI-MONEY LAUNDERING, BANK OF AMERICA 

Mr. RICHARDS. Thank you, Madam Chairman, Ranking Member 

Gutierrez, members of the subcommittee. As pointed out, I am the 

senior vice president and the global anti-money laundering operations executive for Bank of America. I held a similar position at 

FleetBoston Financial prior to the merger. 

In both rolls, I have or had responsibility for the bank’s operational aspects of preventing, detecting and reporting potential 

money laundering or terrorist financing. I stress, Madam Chairman, the operational aspects or operational perspective, as I bring 

to this subcommittee the perspective of someone who sees the Bank 

Secrecy Act and USA PATRIOT Act, the regulations and regulatory 

expectations and guidance firsthand and in operation. 

From a purely operational point of view, money laundering and 

terrorist financing are two, very, very different problems. Traditional money laundering prevention is a transaction-focused internally sourced issue where transactions lead to relational links. Terrorist financing prevention is very different. It is a relationship-focused, externally sourced issue where relational links lead to transactions. 

Take a typical money laundering case. We are required to detect 

and report potential structuring. Customers have come into the 

bank and structure cash transactions so as to avoid the large cash 

reporting requirements. Looking solely at those large cash transVerDate 0ct 09 2002 15:10 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 G:\DOCS\95012.TXT FIN1 PsN: MICAH
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actions is a pretty basic exercise and can lead to potentially suspicious activity but building a tool and having a program that enables you to take every customer who opens up an account without 

a taxpayer identification number, with an opening deposit of less 

than $100, who structures cash deposits in the United States and 

withdraws money through ATM machines in high-risk countries. 

Now, that is interesting and frankly is not that difficult to do. 

Compare that typical money laundering case with a typical terrorist financing case. Almost every one of them starts with some 

sort of request from the government, whether it is a grand jury 

subpoena or a Section 314(a) information-sharing request. Let’s say 

the request is for Bin Laden Enterprises, 123 Main Street. That 

would be a very typical 314(a) request. First, we have to scrub our 

various customer and transactional systems to determine if we 

have a match on that name. 

Let us assume we don’t have that customer at that address but 

we have Khalid Sheikh Mohamed and KSM Enterprises at the 

same address. We would have to then review our transactional systems, and we would find that KSM Enterprises sent wires to another entity called AQ Recruiting. We would use a surface web 

search engine, such as Google, to find more information on Khalid 

Sheikh Mohamed, KSM Enterprises and AQ Recruiting. Very often, 

even more important than what we find is what we do not find. Legitimate businesses generally cannot hide from the Internet. 

We would also use what we call the invisible web resources such 

as Search Systems to find that Khalid Mohamed was an officer of 

both KSM and AQ, and there were six others that were officers of 

both. We may also find that those six were officers of six other companies. We then go back into our systems and perhaps find another 

15 customers and 6 addresses that appear linked to all the people 

either transactionally or relationally. We would run those addresses and telephone numbers, and we would add more entities. 

If one of our targets had a web site, let’s say one of them is a 

charitable organization, we would then be able to go into the historical web and look at all of their web sites back as far as 1996. 

What we would have is something that was sourced by the government: even though it was not a match under 314(a), we would now 

have a case that involved at least 15 people, 10 companies 

transacting between themselves where the public information 

doesn’t match their activity. And if the totality of the relationships 

and transactions led to a standard of suspiciousness, we then have 

a very effective and very good Suspicious Activity Report to file. 

The success of the financial sector’s anti-money laundering and 

terrorist financing prevention efforts is entirely dependent on two 

things: First, cooperation between and coordination by all of the 

parties involved: the law enforcement and intelligence communities, the regulatory community, the private sector, our trade associations, such as the ABA, and others; and, second, creative, committed professionals dedicated to this task. 

In my experience, Madam Chairman, the American financial sector has both. 

Thank you for this opportunity to testify on this very important 

topic. Bank of America remains committed to meeting its obligations of protecting, preventing, reporting and indeed mitigating the 

14

effects of money laundering and terrorist financing and recognizes 

and applauds the efforts of its private sector colleagues and public 

sector partners in these efforts. Thank you. 

[The prepared statement of James Richards can be found on page 

72 in the appendix.] 

Chairwoman KELLY. Thank you, Mr. Richards. 

Mr. Emerson? 

STATEMENT OF STEVEN EMERSON, EXECUTIVE DIRECTOR, 

THE INVESTIGATIVE PROJECT 

Mr. EMERSON. Madam Chairman, members of the committee, I 

want to thank you for inviting me, and I also want to commend 

your for assembling a phenomenal panel this morning—the best 

panel I have seen on money laundering and counterterrorism 

issues. I also want to let you know, Madam Chairwoman, that I am 

very appreciative of the incredible leadership you have played the 

last 2.5 years since September 11 in terms of bringing to the attention of the American public, Congress, the media and other institutions the role that needs to be played by the private sector and government in fighting the scourge of terrorism. 

I also want to express my appreciation to Congressman Royce 

who I have had the privilege of working with very closely following 

September 11 when Congressman Royce invited me to join his 

squatter’s movement in various members’ offices until they agreed 

to approve and support the PATRIOT Act. And I understand and 

appreciate very much what it takes to pass legislation in this great 

body. 

I also want to let you know that I am very appreciative of my 

staff, Jon Levin and Dana Lessman, of the Investigative Project for 

their help in preparing this testimony. 

One of the issues that we obviously would be looking at today in 

much greater detail, and are looking at, is the Riggs case. The 

question is does Riggs represent an exception or does it represent 

a pattern? Its failure to obey the order and file SARs, a suspicious 

activity report, in deference to the client’s desire, principally that 

of the government of Saudi Arabia for secrecy, is the most single, 

serious breach every in the first line in U.S. history of financial 

controls against terrorism. 

The bank officials who participated in these willful violations 

should be held personally responsible, and there are many questions that need to be answered. Whether clients are assured of a 

quid pro quo? How long did it continue to operate? To what activities have drawn funds from diplomatic accounts from Saudi Arabia 

at the Riggs branches? And considering the long-term problems 

with Riggs, why didn’t the OCC consider it a high-risk institution? 

I urge this committee to conduct a thorough and comprehensive 

review of the reports prepared by financial regulators and to work 

closely with law enforcement and financial oversight institutions to 

see exactly what went wrong in the Riggs case. 

And although the Riggs case represents the failure of the financial sector in oversight, there are cases and examples that represent the courageous successes of institutions in helping to track 

and interdict possible terrorist operations. In this category, although he is very humble, my co-panelist, Jim Richards, I must tell 

15

you, has played a singular role in helping and actually leading the 

government in identifying terrorists in the United States and helping to stop operations because of his recognition of actual activities 

in financial reporting that led the government to identify and issue 

law enforcement sanctions against possible terrorists. 

Also, David Aufhauser has continued to play a leadership role in 

the war of terrorism financing. His vision and leadership is thoroughly needed as we move forward. 

In one instance where I can discuss, and it has been publicly 

cited in previous reports, a major financial institution cut ties with 

a terrorist-linked bank after being advised to do so. In the year 

2000 and 2001, Citigroup was participating in joint ventures with 

the al-Aqsa Bank, which has ties to Hamas. When informed by the 

Israeli government of those ties, Citicorp contacted the U.S. Treasury for guidance and subsequently terminated its relationship with 

al-Aqsa Bank. 

So what is the true relationship and paradigm here? Is it 

Citigroup taking the initiative with the Treasury Department or is 

it Riggs Bank’s failure to comply with the government mandates? 

Al Qaida and other terrorist groups have found huge crevices and 

holes in the financial structures of Western nations, exploiting not 

just their freedom of regulation but also the freedom of religion and 

freedom of thought, the freedom of expression to basically promote 

religious extremism under the guise of financial transactions. 

That is something that necessarily financial regulators will not 

always be advised of or even be aware of, and in this case the concept advanced by Congressman Royce for a much needed financial 

intelligence ability, the creation of which is equivalent of having a 

CIA at Treasury that could recognize patterns, activities from those 

who established accounts to those who are the recipient, is absolutely critically needed for the first time in the war against terrorism. 

Al Qaida itself has established its own banking system outside 

of European and U.S. law. Al-Taqwa Bank, for example, was created by the Muslim brotherhood in 1988 to move and safeguard 

large quantities of cash for terrorist causes. It was designated a 

terrorist entity by U.S. authorities in 2001. In January 2002, the 

Treasury deputy general counsel wrote to a Swiss prosecutor notifying that as of October 2000 Al-Taqwa seemed to be providing a 

clandestine line of credit for a close associate of Bin Laden. Reportedly, the Justice Department might now be close to bringing indictments. 

The questions that you face in the future, and as you have faced 

in the last 2.5 years, is to what extent we can enlist and ensure 

that the private sector participates aggressively in the interdiction 

and recognitions of the dangers. 

One very good statistic that I will tragically leave you with is the 

ratio of what the costs were to the damage of September 11. The 

costs of carrying out September 11 to the terrorists was about 

$500,000, largely in transfers of less than $5,000. The cost to the 

U.S. economy was $500,000 billion. That is a ratio, I don’t need to 

do the match of a million to one. If we had spent a little bit more 

money ahead of time and invested it paying the price that we 

16

should have paid, we might have been able to prevent this incredible tragedy. 

Thank you, Madam Chairwoman. 

[The prepared statement of Steven Emerson can be found on 

page 61 in the appendix.] 

Chairwoman KELLY. Thank you, Mr. Emerson. 

Mr. Aufhauser, there was a discussion in the April 20 Summit 

Banking Committee hearing about your suggestion of a separate 

examination and compliance force within the Treasury. In that 

hearing, there was some resistance from one of the witnesses, a 

head of one of the regulatory agencies. His resistance was based, 

first, on the idea that regulators should be given more time to 

prove that they can perform at the level that we expect in a postSeptember 11 environment. He went on to suggest that implementing new structural reforms would take time that we do not 

have. 

I am very interested in your thoughts on these concerns. I think 

most of us would agree that we are in a new security environment 

for the long haul, but we should probably make sure that we have 

in place now a regulatory and compliance structure that will be capable of serving us all at a high level of effectiveness over a long 

period of time. 

If we don’t act now, aren’t we just deferring legal reforms to a 

later date? And if, as suggested, I think we give the current regulators some time and we still don’t reach the performance levels 

that we expect, then do we face the possibility of being in similar 

circumstances a couple of years down the road, having gained nothing during the way? 

The Riggs Bank failed to report, the OCC failed to detect, this 

was something that I am wondering if it wouldn’t happen again if 

we don’t act now to do something. And I would be interested in 

what you have to say about that. 

Mr. AUFHAUSER. Well, I can’t divine whether if we had changed 

the structure, Riggs would have been discovered earlier, but what 

informed my testimony earlier, and I still endorse it, is two concerns. One is for uniformity. Two is without discounting in any way 

the professionalism of the folks at the OCC and the Federal Reserve, their larger mandate is safety and soundness when they 

take look at financial institutions. 

AML issues and terrorist financial issues, which is a subset of 

AML in my judgment, are at risk. I am not saying it happens necessarily but are at risk of becoming stepchildren to the examinations. And in the best of all possible worlds, to quote, Penglas, I 

do believe it would be better to have one uniform compliance office 

that was enforcing the BSA regulations. 

The second thing that informs that judgment is that the Treasury Department has relied on OCC and the Federal Reserve and 

indeed the SEC on delegating the authority and responsibility for 

examining compliance, because they are already heavily involved in 

the regulation of their industry actors. But the PATRIOT Act extended AML requirements to a whole host of industry sectors that 

do not have any coverage by any Federal regulator, whether it is 

casinos or whether it is insurers or whether it is car dealers and 

jewelry stores, and hedge funds, by way of example, also. 

17

So there is a complete community of interest out there, which 

under 352 of the PATRIOT Act is responsible for complying and establishing AML programs, yet no one is policing them—no one, no 

one. 

Chairwoman KELLY. That is really serious, and I think that it is 

something that we have got to—that is one of the reasons why we 

are having this hearing. I think it is very important that we move 

on with it. 

I would like to ask both you and Mr. Emerson, should the new 

Undersecretary at the Office of the Treasury—that office is designated to coordinate anti-terrorist financial efforts. Should that office have the enforcement authority or should they just have intelligence capability and let the enforcement authority go to another 

agency? 

And I would like to start with you, Mr. Aufhauser and move to 

you, Mr. Emerson. 

Mr. AUFHAUSER. That is a hard question. That is a hard question 

because I haven’t thought about it. I have always married the two 

interests, and I think it wildly inefficient not to have both. I do 

agree with what Steve said, and I am sure he will say more, we 

need a professional first-class, best-in-class financial intelligence 

unit in the U.S. government. 

We have extraordinarily people populating various agencies of 

the government that pursue that interest. There is no one FIU 

right now, and there is no one woman or man charged with not 

only directing the resource application, directing the analysis but 

also holding people accountable. So that is a very important part 

of your question which is that there ought to be a very strong intelligence FIU unit. 

What you do with that next in terms of enforcement, you used 

the word, ‘‘enforcement.’’ It may not be enforcement. It may be 

other endeavors that you undertake, diplomatic or otherwise, to 

make sure that you are frustrating somebody’s attempt to penetrate our financial borders to kill people. 

I do think the person who possesses the best knowledge of the 

intelligence and who is charged with responsibility for establishing 

a strategy ought to be charged also with the responsibility for executing. 

In the past, during my tenure, a lot of that was done by committee at the NSC, and although I think we did a really credible 

job, I do think the NSC is the wrong place to have an operational 

organization. It sets policy; it doesn’t execute. 

Chairwoman KELLY. Mr. Emerson? 

Mr. EMERSON. I think you rightfully point out that the problem 

exists today. I remember reading the hearings, I think, last week 

or the week before, various officials in the Treasury as well as ICS 

where the number of three-and four-letter acronyms, I was dizzy 

by the time I read the third testimony. I think there were 19 I read 

and it was sort of like a Reuben Goldberg machine, and obviously 

there really wasn’t some type of coordinating mechanism but there 

was a stovepipe relationship. 

And I think your question goes to the heart of what is now being 

faced at the FBI, which is to the extent to which there needs to 

be a separate intelligence branch broken out of the FBI for enforceVerDate 0ct 09 2002 15:10 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 G:\DOCS\95012.TXT FIN1 PsN: MICAH
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ment; that is let the enforcement people do the enforcement and let 

the intelligence people specialize the intelligence. 

As much as I theoretically would like to endorse the notion of a 

combined enforcement and intelligence position, my feeling is that 

the intelligence people need to be thoroughly instructed, mandated 

and only focused on intelligence gathering. They have to live and 

breath it all the time. They have to work on an equal playing field, 

perhaps even in a higher playing field in terms of being able to 

mandate sanctions or enforcement, but there has to be a cadre. 

As Congressman Royce has pointed out, the financial intelligence 

that needs to be created is only going to come from people. You can 

have the best software in the world, the best link analysis—I know 

that in our office we use Analyst Notebook, it is wonderful but in 

the end it is garbage in, garbage out—and it is only on the ability 

of people like Jim Richards to look at transactions in the actual account to say, ‘‘You know, there is something suspicious.’’

Last night I was reading over the actual transactions in the 

Sami Al-Hussayen case, that is the IANA prosecution that is being 

carried out in Idaho right now. And what was interesting to me I 

was looking over an 80-page matrix of financial transactions from 

his bank account over the last 2 years, and I was trying to figure 

out if I was a bank officer or a teller, could I have detected a pattern here of suspicious activity merely by looking at it. 

If I look at the numbers, no, even though there are large num- bers sometimes of $10,000, $15,000, $20,000 transfers within days 

of one another. But in terms of who was making the deposits and 

withdrawals in terms of either the Saudi cultural offices or Saudi 

government, this would have triggered something automatically, 

and it would have taken somebody who was read on to this and 

sensitized to this issue. 

So I think to be comprehensive about it, a new undersecretary 

should be vested with everybody who reports to him on intelligence 

matters and I think actually have a position that oversees issues 

of enforcement. 

Chairwoman KELLY. That is very interesting. 

Mr. Richards and Mr. Cachey, I will start with you, Mr. Richards, but, Mr. Cachey, I want to go to you too. Can you identify 

any particular case in which your companies worked with law enforcement to stop the flow of funds to a terrorist group or an activity of some sort? 

Mr. RICHARDS. Madam Chairman, off the top of my head, I can 

think at least two particular cases: One prior to September 11 and 

one after September 11. In both cases, we identified what we 

thought was suspicious activity. Again, we are not required to detect money laundering or terrorist financing, we are required to detect and report suspicious activity. We did that. 

In both cases, we felt it was significant enough that we immediately contacted law enforcement, which we are entitled and indeed perhaps required to do if it is an ongoing, serious matter. And 

in this case, it was the Boston U.S. Attorney’s Office, and they immediately contacted us and sought the underlying records that 

were the basis of our suspicious activity reports. Subsequent news 

events confirmed that what we had reported was indeed tied to potential terrorist financing. 

19

Chairwoman KELLY. Mr. Cachey? 

Mr. CACHEY. I think the important thing that I took away from 

Mr. Richards’ comments was he discovered that they had done 

something wonderful through a news report, and I think that is the 

challenge we have. When we see suspected activity that we think 

is terrorist related, we report it directly to certain agencies within 

the government along with FinCEN, particularly Operation Green 

Quest when that was in effect and now Homeland Security. 

But we don’t get the type of feedback from law enforcement that 

we would like to get to say that SAR you filed or that phone call 

you made led to this activity. Because if you don’t read about it in 

the newspaper, you really don’t get any feedback, so we do have 

processes in place, both through our Compliance Department and 

our Security Department with several fellow agencies that we report suspected activity to, but feedback is hard to get, particularly 

if there is an ongoing investigation, which you can understand. 

Chairwoman KELLY. Thank you both very much. 

Mr. Gutierrez? 

Mr. GUTIERREZ. Than you very much. I would like to thank all 

of the witnesses. It seems to me from listening to all the panelists 

that there are a couple of things that maybe we can improve on. 

I kept hearing the phrase, ‘‘educating people,’’ starting with you, 

Mr. Aufhauser, and others about who do we need to educate on our 

financial industries and how could we go about doing it better in 

terms of watching for suspicious activity and getting to it. Do we 

call them all in for—I mean they call us all in for meetings and 

I get educated on ethics rules and my staff does, and we get constantly—I know the doctors—good doctors will continuously get reeducated after. What do we need to do so that we can better do 

this? 

Mr. AUFHAUSER. If I said the financial community needs to be 

educated, I only said half of what I intended to say. So does the 

government. I mean it really is a two-way street, and without the 

reciprocity, the exchange of the knowledge universe that each has, 

it is a fruitless endeavor. 

I think what we have to educate each other on is getting smarter, ironically. My brief experience in my private life for the last 3 

months has been there is actually overreporting of SARs, in part, 

simply out of a cautionary note by financial institutions and, in 

part, because with the exception of perhaps Jim Richards who 

seems to be very long on the tooth on what to look for, a lot of the 

new actors who are subject to SAR reporting don’t exactly know 

what to be looking for. 

Jim is exactly right, they don’t file a SAR because they know it 

is terrorism and you don’t file a SAR because you know it is a 

crime. You file a SAR because there is a suspicion, something to 

the character. 

Mr. GUTIERREZ. I gathered that from your comments and from 

what Mr. Richards said. So is there a way of taking Bank of America and the kinds of things that we have heard here today and ensuring that other institutions do more? 

Mr. AUFHAUSER. I don’t know if it is that institutions need to do 

more. I just think we need to be smarter about what we are looking 

20

for, and that requires what used to my office talking more to private industry. 

Mr. GUTIERREZ. How do we——

Mr. AUFHAUSER. What we didn’t have the genius, Congressman, 

and I didn’t have the genius for is how do you do that without jeopardizing something incredibly sensitive? And I mean it in terms of 

broadcasting the information, sort of these 314 requests that go out 

and say, ‘‘Hey, this guy, Aufhauser, is suspicious. Do you have anything on him?’’ The most important dialogue I ever had with people 

like Jim or Joseph—and, by the way, there are stories one could 

tell about Western Union being terrific ally of the U.S. government 

in the war on terror which has nothing to do with capture but has 

everything to do with helping us abroad. 

I think what we—you know, I have actually lost my train of 

thought there. What we need to be—the most productive thing I 

ever did was a specific targeted request for information because of 

a very sensitive piece of information. And I went to somebody I 

trusted in that institution. There was an element, a bond of personal trust. If we can figure out how to multiply that so that we 

can do more broadcasting of sensitive information, we will be more 

effective. 

One last very soft observation: This is not about just capturing 

bad guys, it is about them fearing capture. And I have read plenty 

of intelligence, actually overheard intercepts where bad guys 

abroad said, ‘‘We can’t use the U.S. financial banking system; they 

will catch us.’’

Mr. GUTIERREZ. And I guess what I have heard is maybe we are 

going to need to look into this a little further. And anybody who 

has any other comments on what we can do to better educate our 

folks and who we need to educate within that system that certainly, I think, would be helpful from your perspective. And, as you 

say, obviously we both need to educate each other. We need to do 

a better job on our side. 

I have limited of time so I just want to—can we ask the other—

thank you. 

Mr. Byrne and Mr. Cachey, please. 

Mr. BYRNE. Congressman Gutierrez, I want to make a couple of 

points about education. I don’t want the committee leaving today 

thinking that there hasn’t been for a good number of years a whole 

host of programs on big picture education, certainly, not just the 

laws and regulations but examples of money laundering cases once 

they are closed and the typologies that we share with bankers on 

what to look for going forward in the areas of money laundering 

and fraud and those sorts of crimes. So that goes on on a regular 

basis, and many of us participate in those sorts of programs. 

I was at a program a couple of weeks ago on the west coast in 

which law enforcement, bank regulators and bankers met for 3 

days and worked on terrorist financing and PATRIOT Act issues in 

which, for example, the IRS Criminal Division or the FBI would do 

a presentation on how a particular line of SAR reporting turned 

into a conviction, what to look for—while we don’t have enough of 

these, what to look for in terms of terrorist financing going forward 

or money laundering. 

21

Law enforcement does a very good job of doing training and programs. We in the industry need to be part of those as much as we 

can. We are not talking about investigations as they are pending, 

we are talking about once they are closed and we get some information going forward. So a lot of that has been occurring for the 

longest time that I have been at the ABA. 

Mr. GUTIERREZ. I understand that. I mean I wish I had—I could 

take excerpts of what you have all said and either I am taking 

things out of context but I kind of heard here that we could do better. 

Mr. BYRNE. Absolutely. 

Mr. GUTIERREZ. So I don’t want anybody to be defensive about 

what we are already doing well but what we can do better, and I 

kind of heard that we could do better from almost everybody, from 

Mr. Aufhauser all the way to Mr. Emerson. So from left to right, 

I heard we could do better. 

So that is all I want to know is what we could do better. I understand that the institutions have done well and especially since we 

called this hearing because of what happened at the Riggs institution. So, obviously, Riggs would not be in the situation it is in 

today and Mr. Aufhauser said that the OCC and the Federal Reserve, which I agree with him, have safety and soundness as their 

basic mission. And they are expanding, the OCC is expanding its 

purview of what it decides it wants to do as a regulatory institution. 

So, obviously, we could do better, and we want to be able to command those resources, and I think that is what this hearing is all 

about is to look at Riggs and how we move forward. 

One last question, if I could, Madam Chair, and that is to the 

Bank of America and Mr. Richards. It seems to me you have harnessed common resources of the Internet and Excel to develop the 

systems to detect and prevent money laundering. What kind of 

compliance guidance have you gotten from your regulator regarding 

anti-money laundering efforts? 

Was the system developed within your own institution or with 

the help from the government? Are you working together with us 

to develop the system at Bank of America or just by yourself in the 

private? How closely does your regulator monitor those activities? 

And how often do you hear back from the regulator after seeking—

you file a SARs report, send them your report?: How often do you 

hear back from them, the regulators? That was a big question. 

Mr. RICHARDS. I think it was perhaps four questions. I will try 

to answer them all. 

Our program was developed at the former FleetBoston Financial. 

It was developed starting in January of 1999, and I often joked 

that it was two guys and two laptops, but that is exactly what it 

was. 

What we did was try to build a—rather than build an anti-money 

laundering program, we tried to build a data management program. Our belief was that we needed to marshal all of the data and 

information that we had in the bank, and once we were able to 

marshal it, we could then look at it in a creative way for any purpose, whether it was money laundering or terrorist financing or 

marketing—any purpose. 

22

As we developed that program our primary Federal regulators, 

which are the Federal Reserve and the OCC, monitored our development of that program literally on a continual basis. We met with 

them through our compliance partners in the bank on a quarterly 

basis, and they were very, very intrigued by it, not only because 

it was developed at a very low cost and used tools that people had 

on their desktops but hadn’t before been using for anti-money laundering, but they were intrigued by the fact that it was a program 

that seemed to work reasonably well in a large institution but was 

applicable to the very, very smallest institutions. 

And so the feedback we got was very, very positive. They were 

very, very interested in it, and indeed they have had me down to 

the FFIEC on I believe now four occasions to talk to the Federal 

bank examiners from all five agencies and tell them how we developed the program. And I know that John Byrne, the ABA, has directed other banks to speak with us, to see what we did and how 

we did it, and we have been sharing what we have done with every 

bank that is interested, which is a number of them. And I know 

that Western Union has also shown a great interest, and we have 

worked very closely with them as well. 

So I think I have answered at least some of your questions. But, 

particularly, the OCC I think has been very, very interested in 

what we have done and how we have done it. And we are working 

very, very closely with them. 

Mr. EMERSON. Mr. Gutierrez, if I could just add one thing here, 

because I think you have raised a very good point, and Mr. 

Aufhauser also raised the issue of sensitivity and information. Before September 11, the debate was always secrecy versus shared. 

After September 11, we realized that more people in the JTTFs and 

in law enforcement need to get intelligence, and the risks of having 

that information leak out was outweighed by the issue of having 

other people basically in line and aware of the threat and the information. 

I think we should consider the possibility of certain bank institutions in need of certain thresholds to having designated officers 

that would be read on to certain classified information that they 

would be privy to information that is not made available just to the 

general public but made available to certain classified security programs, which they would be able to then use to help discern patterns in the larger context for transactions. 

And, of course, there is always the risk of operational secrecy and 

leakage, but I think that would far outweigh the problems that 

would ensue if we didn’t do that. So maybe that is something to 

consider to ensure that there is this financial intelligence of a nature that goes just beyond what the public stores documents, 

which, unfortunately, most of the time does not give a bank officer 

enough information to determine whether the transaction is sinister or not. 

Mr. GUTIERREZ. Thank you. Thank you all for your service. 

Mr. CACHEY. Madam Chairman, could I address that——

Chairwoman KELLY. Yes, by all means. 

Mr. CACHEY.—just briefly? First, on the question of education, I 

think it is important from a money services businesses standpoint 

to realized that a number of the types of businesses that Mr. 

23

Aufhauser mentioned before, the money transmitters, the pawnbrokers, the car dealerships, everybody that has become part of the 

PATRIOT Act family, if you will, are typically licensed and regulated at the State level. 

So I think there needs to be greater cooperation between States 

that are licensing all these separate entities and the Federal Government and figuring out who is actually a money service business 

and should be having a program in place and reporting out on suspicious activity, and then coordinating those efforts between the 

Federal Government and the States. 

Because right now you could have an IRS representative walk 

into your company and tell you X and then a State banking examiner from one of 47 different States come in and tell you why Z or 

A or B. And it is difficult, number one, to build consistent programs 

nationwide, but it is also difficult for the smaller MSBs to say who 

is correct here and what is the right thing for me to do because 

what we have discovered is we have worked through our agent 

basis. 

Ninety-nine point nine, nine, nine percent of these business want 

to do the right thing, but they need somebody to tell them what 

is the right thing. 

Mr. GUTIERREZ. You know something, I agree with you totally, 

and, unfortunately, we get results at the State level. Because when 

I try to reign in Western Union and Money Gram on the exchange 

rate, we could do nothing here in the Congress of the United 

States, but we could do things at the local level so that your exchange rate at Western Union is comparable to Mr. Byrne’s Association of Bankers exchange rate. So I think we will have a difference of opinion on that. 

Thank you very much. 

Chairwoman KELLY. Mr. Hensarling? 

Mr. HENSARLING. Thank you, Madam Chair. 

Mr. Aufhauser, in your testimony, I believe you mentioned some 

anecdotal evidence of some intelligence intercepts where some of 

the bad guys were saying, ‘‘We have to steer away from the U.S. 

financial services system. It is not going to work for us.’’ So I take 

that as very good news. As a former student of economics, I typically think in terms of cost and benefits. So the anecdotal evidence 

is persuasive but as a society what are we getting for all of these 

suspicious activity reports and the currency transaction reports? 

How do we measure success here? 

Mr. AUFHAUSER. If you want to put a calculus on this, I have 

read studies that have suggested that the adverse consequence, 

that is the cost, of the World Trade Center is in the trillions of dollars. It wasn’t just the loss of 3,000 lives, it wasn’t just the disintegration of the buildings, it wasn’t just the closing of our financial 

markets, but it was a market cap loss of an astonishing historic 

amount of money and the now daily tax, as I say in my testimony, 

that we all pay for enhanced security at virtually every door you 

pass through in America today. And that cost to me is almost incalculable and immeasurable, but it is certainly large. 

So I measure that against—that is to say another calamity. If I 

measure the cost of another calamity, what it will do to our markets, our capital markets, what it will do to even more tightening 

24

of what our freedoms are and more security cops and more machines and more taxes on the airline tickets and less freedoms, it 

strikes me that the cost and the burdens of a SAR compliance program are diminimus. 

In addition, if you take it on a microeconomic level, every institution that is at risk of losing its good name, which is the principal 

asset any company has today because one errant transaction goes 

through there which is the cause of massive death, I think if you 

talk to many institutions, many of which are my clients, nothing 

is a higher priority than protecting their good name. And they don’t 

measure it in dollars and cents. 

Mr. HENSARLING. Mr. Emerson, part of your testimony, if I understood you properly, you said that most, if not all, of the financing of September 11 took place in financial transfers of approximately $5,000 increments. Did I understand you correctly on that 

point? 

Mr. EMERSON. Yes. Most of them took—I think there were a couple of increments—not that all of this has come out or that I am 

privy to all of the transactions, but many of the transfers took 

place from banks, institutions in the Middle East, UAE, and transfers to corresponding accounts in the United States of $5,000 or 

less and then ATM transfers withdrawals of $300 or less by some 

of the September 11 hijackers. 

Mr. HENSARLING. So right now if we have a $10,000 level on our 

currency transaction reports, in all probability those transactions 

would not be discovered in the system. Is that a fair assessment? 

Mr. EMERSON. A $10,000 threshold would not have covered those 

$5,000 transfers, that is correct. 

Mr. HENSARLING. Mr. Byrne, a question for you on the cost side 

of the equation. I was here last week participating in a hearing 

dealing with the regulatory burden on community banks. I represent the 5th Congressional District of Texas, which is kind of 

urban, suburban and rural, and we heard from a number of community bankers. For example, a banker in the city of Athens, 

Texas, a city roughly the size of 13,000. He was complaining 

about—and he wants to do his part as an American—the question 

of who reads all these reports, and is it doing good, and is it really 

worth the amount of money that I am having to put into the system in order to generate all these reports? Can you just very briefly 

tell us a little about your impression of the costs? 

Mr. BYRNE. Well, first, I would just like to say in terms of the 

September 11 hijackers, those transfers that were mentioned were 

not necessarily cash transactions. So the CTR threshold issue really isn’t relevant to whether we would or would not have caught 

those, because ATM withdrawals are not reportable today. You 

would have to have a suspicious reporting regime and looking at 

particular individuals. 

But in terms of your question, I don’t want to hang it on cost. 

I want to talk about policy, because, clearly, the small community 

bank does wonder about 13 million currency reports, the lion’s 

share of those on Wal-Mart and JC Penny, what happens with 

those? And I would argue that even an IRS agent will tell you, 

‘‘Not much.’’ Suspicious activity reports, those are more subjective, 

25

and certainly more goes into those reports, and I would argue that 

those are valuable, especially when we get the additional guidance. 

So I think you have to look at the risk of a particular community 

bank and what type of response that institution has to have to 

make a determination whether they should have the same infrastructure as Jim Richards has at Bank of America. But the bottom 

line is we think you should focus more on suspicious reporting 

versus cash reporting, and that will help the small bank and the 

large bank if we make some dramatic changes there. 

Mr. HENSARLING. Madam Chairman, I see I am out of time. 

Would I be able to ask one more question? 

Chairwoman KELLY. Yes, please. 

Mr. HENSARLING. Thank you, Madam Chair. 

Mr. Richards, I believe in your testimony you stated that money 

laundering or terrorist financing is not a problem but a symptom 

of a problem. Could you elaborate and explain that statement? 

Mr. RICHARDS. Yes. We believe that within the context of the 

total issue of operating risk, that the act of filing a suspicious activity report is not the end of your duty but indeed you take the suspicious activity reports and then you go back and look at the commonalities between them to determine whether the money laundering that you have reported or suspicious activity you are reported is caused by issues relating to account opening, failure to 

collect the proper identification, it might be a branch training issue 

where you have to train the people in the branch environment, 

something like that. 

So that rather than looking at the end game being the filing of 

a suspicious activity report, you look at it as just the beginning of 

trying to see if there is an underlying operational issue in the 

bank. If you address the underlying operational issue, you may resolve the suspicious activity that is occurring in your bank. So, 

again, if you look at it as not a problem but a symptom, you can 

then drill down and see what the real underlying operational problem may be. 

Mr. HENSARLING. Thank you. 

And thank you, Madam Chair, for your indulgence. 

Chairwoman KELLY. Thank you. We have been called for a vote. 

Mr. Garrett, I am going to call on you, but I know Mr. Royce has 

very specific questions he would like to ask. So I will call on your 

Mr. Garrett, and then we will go—Mr. Royce, I know you have very 

specific questions you would like to ask, and with the indulgence 

of this panel, I would like to let Mr. Garrett go, we will then take 

a brief break and go to our vote, because it is apparently only one 

vote. We should be able to do that quickly and——

Mr. ROYCE. Could I inquire if we have 15 minutes, there might 

be time for Mr. Garrett and myself. He could go first and then I 

could follow up. 

Chairwoman KELLY. Let’s see what we can do. 

Mr. ROYCE. Thank you, Madam Chair. 

Chairwoman KELLY. Mr. Garrett? 

Mr. GARRETT. Thank you, and I will keep it brief. There was an 

article in the American Banker publication with regard to the hearings that we had just a week ago and also the hearings that the 

Senate had, and I wasn’t following the Senate hearings but they 

26

were, and they said they saw a difference between the two panels. 

The House panel was raising some questions such as Jeff Seer, 

that I asked as well, with regard to some of the reporting requirements that maybe there is too much. Whereas the Senate hearings 

were sort of going in the opposite direction saying that failure of 

compliance is endemic, I think was the caption in the article, on 

behalf of the industry. 

And nothing that I have heard so far or either one of the hearings indicates to me that there is an endemic problem as far as the 

industry is concerned. I am a little bit more concerned as to what 

we can do as far as the regulatory side of the equation. Mr. Gutierrez raised the point but we agree that a lot has been done already, 

some more, from your recommendations, can be done, and so I am 

just going to go along those lines very quickly. 

Mr. Byrne, you raised the question, I would make a comment 

about the frustrations we have had over the time with the Department of the Treasury’s failure to comply way after a 1994 mandate 

to publish an annual staff summary on the commentary on the 

Bank Secrecy Act. I don’t know whether there are any repercussions on the Treasury Department for failure to comply. I don’t 

know whether there are repercussions that had it been the other 

way around on the industry failing to comply with the Treasury 

Department, I have a feeling there probably would be. 

Where are we now exactly on that? What is the explanation—because we don’t have somebody here from them to ask—what is the 

explanation that we have had that we had a 10-year hiatus and 

failure to comply with congressional intent, as far as you are 

aware? 

Mr. BYRNE. It is not clear that there is a proper answer to why 

there has been delay, but the good news, I believe, is that with the 

appointment of Mr. Fox at FinCEN, one of the first things that he 

said he would do is put together that long awaited commentary so 

that the industry could have the interpretations in one place so 

that both the regulators and the industry would have some place 

to go for some of those questions that are very difficult to discern 

for the local banker out in—you pick a place. 

So from our perspective, we are trying to point out it has been 

there, it has been delayed, but we see some major progress, and we 

certainly have offered to work with them to communicate the final 

commentary or guidance when it comes out. 

There have been some advisories, Mr. Garrett, in the past couple 

of years to give us some particular advice on certain issues, but it 

has not been enough. So we are very hopeful that Mr. Fox will 

come through with his commitment, and we are going to work with 

him and help him do that. 

Mr. GARRETT. I am amazed, I guess, in a positive sense, by Mr. 

Emerson’s testimony that last night or the last couple of nights you 

have been studying an 80-page matrix of these reports. There is 

nothing else that you would rather be doing at night than reading 

over these reports. 

Mr. EMERSON. It is the life I live or the fact that this is the only 

thing that keeps me awake. And I would be happy to provide you 

a copy if you would like to see it. 

27

Mr. GARRETT. Maybe your executive summary. I applaud that 

you do that, and I applaud that the industry has done that. I guess 

it is the overarching question as to where the dividing line comes 

as far as what the industry’s responsibility is in these areas, and 

the suggestion has been made even as far as allowing some additional information, as far as security measures being woven over to 

the industry and how far we can go for that certainly for the large 

institutions and how far we can go for that as far as the smaller 

institutions as well. Can you comment as to how much of this burden can we actually place on the industry and where it should be 

laid best for the government? 

Mr. EMERSON. Congressman, you raise an excellent question, and 

I don’t know that I have the answer here, in part, because we 

haven’t traversed this avenue before and in part because what has 

been done in the past hasn’t really worked. 

And I was speaking to a senior government official last night and 

I was asking him, ‘‘How can you expect a bank teller to make a 

determination that somebody is making a deposit and therefore 

triggering some type of—should trigger an investigation and report 

it?’’ And he says, ‘‘You are right, you can’t really expect a bank teller to do that.’’ On the other hand, the ability for someone like Mr. 

Richards or others who sort of have an inside intuitive nature because of their previous experience as prosecutors and the fact that 

they have good connections with law enforcement gives them an 

ability to discern patterns that ordinarily wouldn’t accrue to somebody. 

Now, you can’t buy that off the shelf. It comes from hiring the 

right people, investing in the right people and making sure that 

the industry understands that people like Mr. Richards play a critical role in saving their institutions as opposed to sort of being a 

tolerated necessity that they have to endure as opposed to somebody that really should be brought in fully vested with as much financial resources as they can provide to give them that ability. 

And, again, you raise an excellent question about what that dividing line is, and, unfortunately, it is impossible to discern it 

ahead of time. 

Mr. GARRETT. And I thank all the members of the panel, and I 

am going to take this home and digest what you have said today. 

Thank you. 

Chairwoman KELLY. Thanks, Mr. Garrett. 

Mr. Royce? 

Mr. ROYCE. Yes. I would like to go to Mr. Aufhauser and in my 

opening statement I talked about the need for better computeraided efforts that would be used against terror finance, and right 

now the Financial Crimes Enforcement Network at Treasury has 

to depend on the IRS for its computer back office. No one I know 

thinks that the IRS is all that good with computers, and my question is would FinCEN be better at its job if it owned and operated 

its own computer systems? 

Mr. AUFHAUSER. I actually don’t think it is a question of hardware. It is almost irrelevant where the data is stored or the sophistication of the machine. I think it is the software. I think it is the 

need to have a dynamic technology platform that exploits the information as it rolls in. It answers both the question of trying to diVerDate 0ct 09 2002 15:10 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 G:\DOCS\95012.TXT FIN1 PsN: MICAH
28

vine, as difficult as it is, whether something is afoot, and it also 

in the longer run answers the question about whether these forms 

that get filed have utility and how to smarten both of those up; 

that is, the regulatory community and the regulator in terms of 

under what circumstances forms should be filed. 

Going back to Mr. Garrett’s question, it is, in part, burden, but 

it is also a genuine opportunity for each complying institution to 

participate in trying to know their customers and know the nature 

of the transaction that is ferreting through their institutions, because the risk to their reputation and their franchise is so great. 

Mr. ROYCE. If Congress passed legislation that would create one 

key financial intelligence unit that would be housed in Treasury, 

that had appropriate powers, that had stature, not something in 

NSC but something really is given stature in Treasury, could that 

legislation be effective in solving the problem that we are talking 

about in terms of not only computer-aided efforts but the wider aspect of how you pull all the information together under one brain, 

under one controlling system that is able to analyze all of this? 

Mr. AUFHAUSER. I am mindful of George Tenet’s testimony before 

the 9-11 Commission when he said, ‘‘If you think establishing one 

single director of intelligence in this town is a smart idea, you don’t 

know this town.’’ You know, it is not the be all and end all but it 

is a necessary first step that is necessary but not sufficient. 

I think it would be very important. There were literally times 

when I was told I was in charge of a theater of the war, and I responded, ‘‘I don’t have troops.’’ It would be better to have troops. 

Mr. ROYCE. So that is a role that Congress, frankly, could solve. 

If we go, Mr. Aufhauser, to Mr. Emerson’s testimony, one of the 

things he said in his printed testimony is permanent renewal of a 

strong and effective PATRIOT Act is fundamental to maintaining 

maximum pressure on the terrorisms advanced financial apparatus 

and machinations. And I would ask if you agree with that assessments? 

Mr. AUFHAUSER. Yes. I am going to be parochial about this. With 

respect to Title 3 of the PATRIOT Act, absolutely. With respect to 

the broader content of the PATRIOT Act in terms of breaking down 

the wall, that is the ability of intelligence and law enforcement to 

talk to each other, and then Title 3, which breaks down the wall 

further of the ability of the government to talk to the financial 

community, it is absolutely essential. 

If there is any lesson out of Madrid, if there is a lesson in the 

finance area out of Madrid, it is that every template that we have 

been looking at in the past for the financing of global terrorism, 

which is cross-border trafficking, is now actually betrayed. Because 

the financing from Madrid was local and pedestrian crime, as I 

said in my testimony. We need to marry cops with intelligence officials, with banks to stop the terror. 

Mr. ROYCE. You mentioned the Hashish trade, you mentioned illegal immigration and how localities or whatever you would call 

them, they got information—they got funding through handling illegal immigrants that came across the border, and there was a 

third source of funding? 

Mr. AUFHAUSER. Forged identity papers. 

29

Mr. ROYCE. Oh, and the forged identity papers, again, used in 

immigration. 

Mr. AUFHAUSER. What I call common crime. 

Mr. ROYCE. Out of that they put the resources together that allowed them to organize and carry out that crime. 

Mr. AUFHAUSER. They used it to purchase the explosives and to 

plan and to execute. 

Mr. ROYCE. I would just close by asking Mr. Emerson if there is 

any other role for Congress here that you see besides what you 

have advanced in this paper that you would like to articulate, and 

then I guess we would better go and run and make that vote, 

Madam Chair. 

Chairwoman KELLY. Yes. Unfortunately, because of the vote, I 

had expected to allow the panel some extra time to sum up anything that they had wanted to include in their testimony. I would 

ask you to do that in writing, please, because we haven’t the time. 

So 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 am very grateful to all of you. You have been a wonderful, intelligent, very helpful panel. Thank you so much for sharing time 

with us today. This hearing is adjourned. 

[Whereupon, at 11:41 a.m., the subcommittee was adjourned.] 

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