```

[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

                       COMBATING MONEY LAUNDERING

=======================================================================

                                HEARING

                               before the

                   SUBCOMMITTEE ON CRIMINAL JUSTICE,
                    DRUG POLICY, AND HUMAN RESOURCES

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 23, 2000

                               __________

                           Serial No. 106-224

                               __________

       Printed for the use of the Committee on Government Reform

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

                              ------------

                   U.S. GOVERNMENT PRINTING OFFICE
72-447                     WASHINGTON : 2001

_______________________________________________________________________
 For sale by the Superintendent of Documents, U.S. Government Printing 
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                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
HELEN CHENOWETH-HAGE, Idaho              (Independent)
DAVID VITTER, Louisiana

                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
           David A. Kass, Deputy Counsel and Parliamentarian
                    Lisa Smith Arafune, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

   Subcommittee on Criminal Justice, Drug Policy, and Human Resources

                    JOHN L. MICA, Florida, Chairman
BOB BARR, Georgia                    PATSY T. MINK, Hawaii
BENJAMIN A. GILMAN, New York         EDOLPHUS TOWNS, New York
CHRISTOPHER SHAYS, Connecticut       ELIJAH E. CUMMINGS, Maryland
ILEANA ROS-LEHTINEN, Florida         DENNIS J. KUCINICH, Ohio
MARK E. SOUDER, Indiana              ROD R. BLAGOJEVICH, Illinois
STEVEN C. LaTOURETTE, Ohio           JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
DOUG OSE, California                 JANICE D. SCHAKOWSKY, Illinois
DAVID VITTER, Louisiana

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
           Sharon Pinkerton, Staff Director and Chief Counsel
              Andrew Richardson, Professional Staff Member
                           Ryan McKee, Clerk
           Micheal Yeager, Minority Professional Staff Member

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 23, 2000....................................     1
Statement of:
    Baker, Raymond W., Center for International Policy; and 
      Kenneth W. Rijock, aviation and financial crime consultant.   101
    Warren, Mary Lee, Deputy Assistant Attorney General, Criminal 
      Division, Department of Justice; William F. Wechsler, 
      special advisor to the Secretary and Deputy Secretary for 
      Money Laundering, U.S. Department of the Treasury; John C. 
      Varrone, Acting Deputy Assistant Commissioner, Office of 
      Investigations, U.S. Customs Service, Department of 
      Treasury; Edward M. Guillen, Chief, Financial Operations 
      Section, Drug Enforcement Administration, Department of 
      Justice; and James F. Sloan, director, Financial Crimes 
      Enforcement Network........................................    13
Letters, statements, etc., submitted for the record by:
    Baker, Raymond W., Center for International Policy, prepared 
      statement of...............................................   104
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............    10
    Guillen, Edward M., Chief, Financial Operations Section, Drug 
      Enforcement Administration, Department of Justice, prepared 
      statement of...............................................    77
    Mica, Hon. John L., a Representative in Congress from the 
      State of Florida:
        Report from the trenches.................................     5
        Prepared statement of....................................     7
    Rijock, Kenneth W., aviation and financial crime consultant, 
      prepared statement of......................................   115
    Sloan, James F., director, Financial Crimes Enforcement 
      Network, prepared statement of.............................    83
    Varrone, John C., Acting Deputy Assistant Commissioner, 
      Office of Investigations, U.S. Customs Service, Department 
      of Treasury, prepared statement of.........................    59
    Warren, Mary Lee, Deputy Assistant Attorney General, Criminal 
      Division, Department of Justice, prepared statement of.....    17
    Wechsler, William F., special advisor to the Secretary and 
      Deputy Secretary for Money Laundering, U.S. Department of 
      the Treasury, prepared statement of........................    49

 
                       COMBATING MONEY LAUNDERING

                              ----------                              

                         FRIDAY, JUNE 23, 2000

                  House of Representatives,
Subcommittee on Criminal Justice, Drug Policy, and 
                                   Human Resources,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:30 a.m., in 
room 2247, Rayburn House Office Building, Hon. John L. Mica 
(chairman of the subcommittee) presiding.
    Present: Representatives Mica, Cummings, Mink, Kucinich, 
and Schakowsky.
    Staff present: Sharon Pinkerton, staff director and chief 
counsel; Steve Dillingham, special counsel; Frank Edrington, 
professional staff member; Ryan McKee, clerk; Sarah Despres, 
minority counsel; and Earley Green, minority assistant clerk.
    Mr. Mica. Good morning. I'd like to call the Subcommittee 
on Criminal Justice, Drug Policy, and Human Resources to order.
    This morning we have a subcommittee hearing entitled 
Combating Money Laundering Worldwide. We are going to proceed, 
and I'll be joined shortly by other Members.
    But we have a full schedule. We're going to have some 
votes, and we want to try to get as much business in as we can 
and proceed with regular order. And the order of business will 
be first, I will provide an opening statement and then will 
yield to other Members as they arrive or submit their 
statements in the record.
    Today, the subcommittee will examine the subject of money 
laundering and how it works internationally as the financing 
engine that drives most of the world's illegal drug trade. 
Money laundering is defined as the process by which money is 
derived from illegal activities and is transformed or laundered 
to make it appear legitimate. Once it's been laundered, this 
money can be moved and used as capital for further investments 
in illegal or in legal activities.
    Of particular concern to this subcommittee is the fact that 
money laundering is a critical element of the criminal 
activities of drug traffickers. Through the money laundering 
mechanism, criminals move illegal proceeds of their drug deals 
and profits through the international financial system to wash 
away the criminal taint of that money, and then reinvest the 
illegal proceeds in new drug deals.
    Other kinds of criminal organizations launder money as 
well, like that, unfortunately of human smugglers and corrupt 
officials. The IMF has estimated that the volume of cross 
border money laundering is between 2 and 5 percent of the 
world's gross domestic product, staggering figures. And at the 
lower end of the range, the amount of money laundered 
worldwide, even again the smallest projection, is $600 billion.
    Because of the United States' dominant role in 
international finance, a substantial amount of that $600 
billion is being laundered through U.S. financial institutions. 
If we can successfully reduce the ability of drug dealers to 
launder the proceeds, the cartels and smaller dealers would be 
forced to reduce the size and numbers of their transaction and 
certainly make their business much more difficult. This 
reduction will substantially reduce the amount of drugs 
available to our citizens and most importantly, to our 
children.
    When criminals deal with legitimate commercial and 
financial sectors during the laundering process, they enable 
law enforcement officials to follow the money trail and to 
develop methods officials can use to apprehend them. With a 
trail to follow, law enforcement officers can often identify 
the persons who bring about or finance criminal drug activity. 
The trail can also lead back to drug dealers and other 
criminals whose illegal activities generated the money in the 
first place.
    It is at the first of these three stages of money 
laundering, the placement stage, that laundered money is most 
easily detected. The placement stage is the point where 
illegally derived money is inserted into the legitimate 
financial system. So international regulatory and enforcement 
efforts are focused on methods which will make it especially 
difficult for criminals to place funds, illegal funds, without 
being detected.
    Our first national strategy to combat money laundering, 
which was entitled the Money Laundering Strategy for 2000, has 
established goals and objectives to be achieved during this 
year, including the following. And let me read some of those, 
if I may. First, the designation of the first four high risk 
money laundering and financial crime areas, and the launch of a 
financial crime free community support program, including a 
State and local grant program.
    Second, the proposed legislation giving the Secretary of 
the Treasury new discretionary authority to crack down on 
foreign jurisdictions, institutions and classes of transactions 
which pose serious money laundering threats. Third, this 
strategy also asks for legislation affording prosecutors and 
investigators new tools to fight money laundering and the 
designation of foreign corruption as money laundering predicate 
offenses. And fourth, part of the strategy announces a final 
rule for applying suspicious activity reporting, which are also 
known as SRA requirements, to money service businesses, and 
proposes rules for casinos and brokers and dealers in 
securities.
    Fifth, part of this is to develop a new method to identify 
countries which pose serious threats. The sixth part is setting 
out a plan to issue guidance to financial institutions to apply 
scrutiny to certain high risk accounts. And the seventh and 
last point calls for studies on the appropriate role of 
gatekeepers in the international financial system, such as 
lawyers and accountants. Those are seven points of the 
strategy.
    The problems various law enforcement organizations face in 
fighting money laundering are in fact formidable. Drug 
organizations have become much more sophisticated and use the 
latest technology as well as more traditional methods to 
launder money. The modern electronic transfer of funds means 
that every business day, more than $2 trillion is wire 
transferred around the world through more than a half a million 
transactions. This tremendous number of transactions makes it 
extremely difficult for law enforcement agencies to identify 
those financial transactions that are in fact illegal.
    Other methods of money laundering which have become popular 
among drug dealers include the buying and selling of 
commodities like cosmetics, electronics and heavy equipment. 
Colombian drug cartels have also been reported as investing in 
American-made goods, such as automobile parts, clothing, 
computers, and even outsourcing the money laundering part of 
their business to brokers whose business it is to buy and sell 
drug profits like profits for some type of a commodity.
    Electronic money, e-money, is making it much easier for 
criminals to conceal the source of their illegal funds and to 
move that money without detection. Internet transfers are also 
another problem, and transfer of these funds combine the speed 
of bank-generated wire transfers with the anonymity of currency 
in multiple currencies and without intermediaries.
    According to recent reports, the gold trade has also become 
much more important as a money laundering mechanism and is 
being used to clean. The reports we have are staggering, that's 
the term, staggering amounts of dirty money. These funds are 
used to buy gold in any form, including gold bars, jewelry, and 
even gold scrap. The illegal profits are cleaned when the gold 
is shipped across various borders and sold.
    With nearly every United States money laundering case in 
recent years involving gold, authorities have been unable to 
trace the movement of tons of gold and billions of dollars to 
drug deals by Latin American drug cartels. Gold gives money 
launderers a level of certainty in their laundering efforts, as 
they can exchange it in any country in the world.
    Gold traders have complained that the pervasive influence 
of drug traffickers is taking over the Latin American gold 
trade and squeezing out legitimate dealers. An example of the 
increase in gold trade is the jump in United States gold 
imports from the Netherland Antilles in the Caribbean. Between 
1993 and 1997, the gold exports to the United States soared 
from $68,000 to $29 million. At the Miami International Airport 
annual gold imports rose from $18 million in 1989 to $465 
million in 1998, a 26 fold increase.
    Recent legislation entitled the Money Laundering Act of 
2000 not only addresses many of the problems and situations 
I've described, but like the strategy for 2000, give law 
enforcement authorities new tools to fight money laundering. 
Among these are a provision which enables the U.S. District 
Court to have jurisdiction over a foreign bank that violates 
the money laundering statute, so long as that bank maintains an 
account in the United States and receives appropriate service 
of process.
    However, other provisions in the law give the Treasury 
Department discretion in pursuing activities relating to 
foreign jurisdictions. So while Congress has acted to improve 
our ability to detect money laundering and to pursue the drug 
traffickers who use that money to destroy the lives of millions 
of Americans, I wonder if we've still done enough.
    While I'm pleased that the Financial Action Task Force 
yesterday released a list of non-cooperating countries, and 
some of you may have seen that in the news account, and I think 
they cited the countries, some 15 countries according to Deputy 
Treasury Secretary Stuart Eizenstat, and those countries are in 
fact on the list, Bahamas, Cayman Islands, Cook Islands, 
Dominica, Israel, Lebanon, Liechtenstein, Marshall Islands, 
Nauru, Niue, Panama, Philippines, Russia, St. Kitts and Nevis, 
St. Vincent and the Grenadines. And they were again cited.
    While I'm pleased that they have named these countries, the 
list begs some questions. What action did the Treasury 
Department take to ensure that these countries will make 
changes in their banking system? Naming and shaming exercise 
will only be effective if we act decisively to bring about 
positive change.
    I also want to bring to the attention of the subcommittee 
the Money Laundering Alert for June, one of the preeminent 
resources for tracking what's going on in the area of money 
laundering, and cite from its volume 2 No. 8 report a very 
interesting and disturbing finding. It says, money laundering 
cases plummet despite the flood of SRAs. And again, SRAs are 
suspicious activity reports, SRAs.
    But again, let me quote from this report. It says, the 
number of money laundering cases produced by the principal U.S. 
enforcement agencies has declined dramatically, despite 
hundreds of thousands of SRA reports filed and millions of wire 
transferred records kept by U.S. financial institutions since 
1996. In the 5-years from 1994 to 1998, the number of persons 
charged with money laundering as the prime offense who were 
referred for prosecutions by the IRS, FBI, Customs Service and 
DEA fell by more than 24 percent. That startling finding 
emerged from an analysis by Money Laundering Alert of data in a 
unique source called the Transactional Records Access 
Clearinghouse, a research center at Syracuse University.
    I'd like to submit for the record the balance of that 
report, which is entitled, Report from the Trenches. It 
outlines the decline in the number of cases that have been 
prosecuted which is pretty dramatic from 1994 to 1998. Without 
objection, that will be made part of the record.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T2447.001
    
    Mr. Mica. Our witnesses this morning posses both knowledge 
and experience to help us to understand the whole money 
laundering process and problem and some of the steps we may 
need to take to reduce problems we have incurred with money 
laundering. Hopefully, they can shed some light on what each of 
these agencies are doing to deal with that problem.
    With their ability to finance drug deals, drug traffickers 
have an incredible ability to continue their death and 
destruction. It's important that we find some way to contain 
that illegal money laundering.
    [The prepared statement of Hon. John L. Mica follows:]

    [GRAPHIC] [TIFF OMITTED] T2447.002
    
    [GRAPHIC] [TIFF OMITTED] T2447.003
    
    Mr. Mica. With that, I look forward to hearing from our 
witnesses, and at this time, I am pleased to yield to the 
gentleman from Maryland, Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman. I thank 
you for holding this hearing on international money laundering.
    Back in 1996, the amount of money laundered internationally 
was $300 billion. Just 4 short years later, that amount has 
doubled. At least $600 billion in laundered money is currently 
filling the bank accounts of international organized crime and 
drug trafficking organizations. This issue definitely hits home 
for me. The ability to launder dirty money fuels an empire that 
has debilitated my district and continues a cycle of drug abuse 
and addiction.
    Although this act is incredibly difficult to investigate, 
we're making progress. This progress is demonstrated by one 
investigation we've often discussed in this subcommittee, 
Operation Casablanca. According to the Treasury Department, $35 
million was recovered in the operation and officials from 12 of 
Mexico's 19 largest banks were indicted. This was a major coup 
for the United States Government, and a blow to major drug 
traffickers in Mexico.
    Unfortunately, this was only a drop in the bucket. I hope 
this hearing will allow us an opportunity to discuss H.R. 3886, 
an administration supported bill that was recently passed by 
the House Banking Committee. The International Counter-Money 
Laundering Act of 2000, a bipartisan bill, would increase the 
authority of the Treasury Department to combat these crimes. I 
look forward to hearing more about this bill in today's 
testimony.
    Additionally, globalization and electronic technology have 
made it easier to transfer funds around the world and 
increasingly more difficult to track. Yesterday, the Financial 
Action Task Force, a group of 26 countries, including the 
United States, working together to fight money laundering, 
identified 15 countries as potential havens of money 
laundering. I'm interested in hearing from the witnesses 
regarding how this list will assist in the Government's 
counter-money laundering efforts.
    Will it be used in the same way as our annual drug 
certification process? Mr. Chairman, I look forward to hearing 
from our witnesses today, and again I want to thank you for 
your vigilance with regard to drug trafficking in this country 
and around the world. And I look forward to the hearing.
    [The prepared statement of Hon. Elijah E. Cummings 
follows:]

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[GRAPHIC] [TIFF OMITTED] T2447.005

[GRAPHIC] [TIFF OMITTED] T2447.006

    Mr. Mica. I thank the gentleman from Maryland, and the 
gentleman from Maryland moves that the record be left open for 
a period of 2 weeks for additional statements or responses from 
witnesses. Without objection, so ordered.
    We'll now move to our first panel. Our first panel consists 
of Ms. Mary Lee Warren, who's the Deputy Assistant Attorney 
General, Criminal Division, of the Department of Justice. Next 
witness is Mr. John C. Varrone, and he is the Acting Deputy 
Assistant Commissioner of the Office of Investigations, U.S. 
Customs Service, in the Department of Treasury. Mr. Edward Mr. 
Guillen, and he is the Chief of the Financial Operations 
Section of DEA, Department of Justice. And Mr. James F. Sloan, 
Director of Financial Crimes Enforcement Network. Our final 
witness on this first panel is William F. Wechsler, and he is 
the Special Advisor to the Secretary and Deputy Secretary for 
Money Laundering in the Department of Treasury.
    Some of you have been before us before, you know this is an 
investigations and oversight subcommittee of Congress. We swear 
in our witnesses. We also ask that if you have a lengthy 
statement or anything that exceeds 5 minutes that that be 
submitted for the record. And upon request, will be done so.
    At this time, if you'll please stand to be sworn. Raise 
your right hands.
    [Witnesses sworn.]
    Mr. Mica. Witnesses answered in the affirmative, and we're 
first pleased to recognize Mary Lee Warren, Deputy Assistant 
Attorney General, of the Criminal Division of the Department of 
Justice, for your statement. Thank you.

   STATEMENTS OF MARY LEE WARREN, DEPUTY ASSISTANT ATTORNEY 
 GENERAL, CRIMINAL DIVISION, DEPARTMENT OF JUSTICE; WILLIAM F. 
WECHSLER, SPECIAL ADVISOR TO THE SECRETARY AND DEPUTY SECRETARY 
FOR MONEY LAUNDERING, U.S. DEPARTMENT OF THE TREASURY; JOHN C. 
   VARRONE, ACTING DEPUTY ASSISTANT COMMISSIONER, OFFICE OF 
 INVESTIGATIONS, U.S. CUSTOMS SERVICE, DEPARTMENT OF TREASURY; 
 EDWARD M. GUILLEN, CHIEF, FINANCIAL OPERATIONS SECTION, DRUG 
ENFORCEMENT ADMINISTRATION, DEPARTMENT OF JUSTICE; AND JAMES F. 
     SLOAN, DIRECTOR, FINANCIAL CRIMES ENFORCEMENT NETWORK

    Ms. Warren. Thank you, Mr. Chairman. I'm pleased to be 
back, to take this opportunity to appear today regarding the 
important issue of international money laundering.
    In my testimony today, I wish to highlight some recent 
trends in international money laundering and to explain why 
recently introduced legislation noted by the chairman is 
necessary to help U.S. law enforcement effectively work against 
international money laundering.
    Back in 1986, when the U.S. money laundering laws were 
first enacted, money laundering was primarily a domestic 
problem. Over time, and certainly today, it has become an 
international scourge requiring collaborative efforts around 
the globe. Our laws regrettably have not kept pace with this 
change.
    The money laundering problem is now global, but the basic 
challenge for many money launderers, and especially for drug 
proceeds money launderers, remains the same: concealing and 
moving the enormous amounts of illicit cash generated by 
narcotics sales. Once the cash is entered or placed into one 
country's financial system, it can be wired instantaneously 
around the world. The United States, through the banking sector 
and reporting requirements of the Bank Secrecy Act, has 
effectively closed the U.S. banking system to this initial 
placement. No longer do we routinely see people without 
legitimate means of support dragging duffle bags full of tens 
and twenties into banks for deposit.
    The traffickers and their money launderers are most 
vulnerable to law enforcement detection when their cash hoards 
have been collected from their drug selling stash houses, drug 
selling spots and their stash houses. We've noted that our 
estimate on calculations is that cash collected is about three 
and a half times the drug weight from which those proceeds are 
generated. So the sheer volume of the cash is a problem to the 
traffickers.
    And as the chairman noted, it is for this reason, even in 
the international context, that law enforcement has focused on 
the placement stage of money laundering. Money launderers must 
look more than ever before to non-traditional U.S. financial 
institutions, or they must find ways to move the money outside 
of the United States.
    The use of money services businesses, especially wire 
remittance businesses, is not new for the money launderers. 
This was set out in stark relief when the Treasury Department 
entered its geographic targeting order in the New York 
Metropolitan area a few years ago. The data collected showed 
that the area's remitters were sending amounts of money from 
one neighborhood, Jackson Heights in Queens, NY, to Colombia, 
that would have shown that each household was very, very 
wealthy, if not of millionaire status. In fact, demographics 
show the opposite.
    The original GTO was extended several times and a similar 
effort was in place in Puerto Rico to crack down on the abuse 
of these wire remittance houses.
    The black market peso exchange system also introduced by 
the chairman is a second major system for laundering drug 
proceeds. It's a system that has existed for decades to avoid 
tariffs and duties that were very high in Colombia. But now the 
system has been co-opted by the drug traffickers, and billions 
of dollars that are United States drug proceeds are in fact 
converted into United States goods that are imported and 
smuggled into Colombia.
    The black market peso exchange system relies on three 
principal parties: a trafficker who has drug dollars in the 
United States and needs pesos in Colombia; a Colombian, 
particularly an importer, who has pesos in Colombia and needs 
dollars in the United States to buy import goods; and a peso 
broker in Colombia who puts those parties together. The peso 
broker has the same problem as the traffickers and other money 
launderers, introducing the drug dollars into a legitimate 
financial sector and tries this through various means, smurfing 
structuring amounts, trying to get it into our system or wire 
remittances and other money services businesses, or bulk 
smuggling of the currency.
    Recent undercover operations, Operations Skymaster and 
Juno, detailed in my written statement, are real life 
illustrations of how the black market peso systems works in 
action. Those defendants, peso brokers, traffickers, 
launderers, are now charged, some already convicted.
    We dispute the Money Laundering Alert figures. Prosecutors 
in the Federal courts have filed more than 2,000 money 
laundering charges against more than 200 defendants each year 
since 1996, 1996 through 1999. Each year it has gone up. So we 
dispute those figures presented in the Money Laundering Alert.
    Just in summary, the black market peso exchange in essence, 
what starts out as drug proceeds on the streets of United 
States cities ends up as smuggled United States trade products 
in the markets and businesses in Colombia. And in essence what 
it does is it fuels the drug trade.
    The bulk movement of cash, we see it more and more. It does 
carry the greatest risk to the traffickers. And that is the 
reason for targeting this bulk cash shipment and concealment. 
One of the HIDTHs mentioned by the chairman is at the Texas-
Arizona border with Mexico, and focuses on the movement, bulk 
movement of cash across to Mexico and back.
    Legislative solutions. The reality of international money 
laundering in the year 2000 has prompted most countries to look 
for ways to update their domestic laws and find ways to work 
collaboratively against this problem. I would like to 
underscore that the recently introduced Money Laundering Act of 
2000, H.R. 4695, addresses two principal problems in the anti-
money laundering area, the concealing and laundering of 
foreign-derived illicit proceeds that are sought to be brought 
into the U.S. financial system and the transport or laundering 
of U.S. criminal proceeds going into foreign financial systems.
    As to the first, no one wants the United States to become 
the haven for the world's criminal proceeds. It should be a 
crime for a criminal to use our domestic financial institutions 
to launder the proceeds of his foreign crime. Except in a few 
instances, our current laws do not address this problem. H.R. 
4695 would.
    Section 6 expands the list of money laundering predicate 
crimes to include many serious foreign offenses. Section 21 
would allow us to assist other nations by commencing a formal 
action to confiscate foreign criminal proceeds. For the flip 
side, that is the U.S. criminally derived proceeds that are 
going outside, Section 18 would make bulk cash smuggling a 
crime in and of itself. It is not a crime to smuggle cash 
today. It is a crime to smuggle most every other thing, but not 
cash.
    Section 19 would make it a crime to be a knowing courier of 
dirty proceeds. You mentioned the long arm jurisdiction that 
would allow us to reach those foreign banks that have used the 
U.S. financial system.
    In response to the globalization of money laundering, and 
especially the trends concerning money laundering service 
businesses, the black market peso exchange and bulk cash 
smuggling, law enforcement needs some updating of the present 
anti-money laundering laws. We have had important successes, 
even with our current laws. But I would wish to say, and pledge 
that the Department of Justice is ready to work with the 
Congress on H.R. 4695, which we view as an important step in 
enhancing our effectiveness against money laundering in the 
21st century.
    Thank you.
    [The prepared statement of Ms. Warren follows:]

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    Mr. Mica. Rather than interrupting the next witness, I 
think what we're going to do is recess until 10:15, 
approximately 10:15. I'll ask all the witnesses to stand by, 
and we will proceed. Since there is a vote at the present time, 
we'll stand in recess.
    [Recess.]
    Mr. Mica. If I could, I'd like to call the subcommittee 
back to order.
    I'll recognize our next witness, which is Mr. William F. 
Wechsler. He is the Special Advisor to the Secretary and Deputy 
Secretary for Money Laundering, in the Department of Treasury. 
Welcome, sir, and you're recognized.
    Mr. Wechsler. Thank you very much, Mr. Chairman, Ranking 
Member Mink, members of this committee, thank you very much for 
your focus on this very important issue.
    On behalf of Secretary Summers and Deputy Secretary 
Eizenstat, I appreciate your opening statements and agree with 
virtually everything that you said.
    I won't go through what you went through, which is the 
national money laundering strategy for 2000, which I think you 
summarized very well. The main point I want to make there is 
that all four tenets of fighting money laundering have to be 
done together. That means law enforcement on the Federal level, 
law enforcement on the State and local level, banking 
regulation and supervision, and international policy. And if 
you leave out any one of those tenets of combating money 
laundering, you're going to leave wide loopholes for money 
launderers to run right through.
    We have other people here before the committee that can 
talk about the law enforcement side, so I'll let them do that. 
But I will focus, it's also in my written remarks, but I will 
focus today on the international side.
    Let me begin with a little bit of context. The last decade 
on the international money marketing front has seen two 
different trends which need to be understood. First, the good 
news. In the last decade, the United States and its partners 
and developed major financial centers have come a long way to 
establishing international standards to fight money laundering, 
to create good anti-money laundering regimes, and have brought 
a lot of countries in the developed major financial centers up 
to these high levels.
    We've mostly done that through the Financial Action Task 
Force, which was created in 1989 under the Bush administration 
project. And in 1990, created the first set of international 
anti-money laundering standards. And when countries join the 
FATF, they make a political commitment to bring their domestic 
anti-money laundering regime up to those standards. Those 
standards were again re-issued and updated in 1996.
    This has been, the FATF in the Bush and Clinton 
administrations has been a great success story. Now it has 26 
nations that have joined, 3 more are on the way. All these 
countries are making political commitments to improve their 
regimes.
    The end result of it is, you see things like in 
Switzerland, where almost every month now we read a fascinating 
story about a major money laundering case being made there, 
involving Russian organized crime, involving Latin American 
drug cartels. These are things that as early as 5 years ago, 
you would have never seen out of Switzerland. This can be 
ascribed to the FATF process and countries like Switzerland 
joining the FATF process and raising their money laundering 
standards.
    That's the positive trend. But unfortunately, there's a 
negative trend over the last decade, or actually even more 
recently that has gone along the same side. And that trend is 
the proliferation of money laundering havens around the world. 
As a result of globalization and advances in banking and 
communications technologies, money can move farther and faster 
than ever before. Of course, this is a great boon to business, 
but it can also provide new opportunities for money laundering.
    As Secretary Summers said in a speech last March, in a 
world where capital can silently traverse the globe at the push 
of a button, proceeds of crime can move just as quickly and 
just as quietly. Only a decade ago, many nations in the world 
were too physically remote to be significantly involved in 
international banking. So the quality of their anti-money 
laundering regimes did not significantly affect the United 
States or other countries.
    But now they are only a click of a mouse away. And now just 
as quickly, they can become money laundering havens. Becoming a 
money laundering haven is easy to do. It costs no money. All 
you have to do is pass a few laws that provide, for example, 
excessive bank secrecy, anonymous company formulation, and non-
regulated offshore financial services, then you wait for the 
money to flow in. Better yet, you can pass a law banning 
information sharing with foreign law enforcement on financial 
matters.
    It's not taken long for other countries to choose this 
path. Indeed, just in the last few years, we've seen a number 
of countries do just that. Many openly declare they are passing 
such laws as a formal part of their economic development 
programs. Some even blatantly advertise on the Internet that by 
putting money in their banks, you'll be protected by their laws 
from investigations by U.S. law enforcement.
    Of course, for these countries, it's extremely difficult 
for them to know if the money that goes into their banks in 
this fashion is dirty or clean.
    To give one quick example, in the South Pacific there's a 
small island called Nauru, which as the chairman noted was on 
the list that the Financial Action Task Force put out 
yesterday. Some time ago, it had one of the highest per capita 
incomes in the world, because of phosphate mining. The 
phosphate ran out, they became a money laundering haven.
    The Russian Central Bank told the press that in 1998, $74 
billion left Russia to go into offshore financial centers. Now, 
we of course don't know if this is capital flight or money 
laundering or what. We don't know how much of it went back to 
Russia. But these are the Russian Central Bank's numbers. $74 
billion is a huge amount.
    Of that, $70 billion in 1998 went through banks chartered 
in Nauru. It's an amazing statistic.
    So let me tell you what we've done about this. Last year, 
the United States, along with the United Kingdom, started to 
take against this front when we issued an advisory against 
Antigua and Barbados because of some significant weaknesses in 
their regime. This public rebuke had a profound effect on 
Antigua, which has since worked with the United States to 
change its laws to move toward international standards.
    But even as we were taking this action, we knew that a more 
systematic approach, a more multilateral approach was needed.
    So in February of this year, the Financial Action Task 
Force's 26 member nations reached agreement on a list of 25 
criteria which would be objective measures that we could use to 
determine whether countries fell significantly short of 
international anti-money laundering standards. FATF then agreed 
on a list of countries that were deserving of priority 
attention to be judged against these criteria, there were 29 of 
them. Then experts of the 26 countries of FATF produced 
comprehensive analyses of their laws and regulations and 
practices. We then had processes between the FATF and these 
countries to give a give and take where they could do written 
comments on it, which they could do face to face meetings, that 
we had all the information that we needed, and just this past 
week in Paris, the 26 nations of FATF came up with their list 
that you read at the start of this hearing.
    This is a major accomplishment, the first ever multilateral 
designation of countries that fall short of international 
standards on any subject, something that we have not been able 
to accomplish, other law enforcement, other foreign policy 
subjects, but we've been able to do on money laundering.
    This public naming and shaming should have a profound 
effect, indeed, it already has. If you look at some of the wire 
stories coming out today, from the Philippines, for instance, 
where they publicly committed to improve their standards. 
Liechtenstein, even through this process, has done more in the 
last couple of months to fight money laundering than it has in 
years preceding. It has hired an Austrian special investigator, 
which has arrested a number of prominent members of people in 
the country, including the brother of the deputy head of 
government, the brother of the chief justice of the supreme 
court and a sitting member of parliament for money laundering.
    In large part, these actions have been taken because the 
international community is now taking strong public measures.
    Next step is two-fold. In the fall, FATF will start 
examining another group of countries and see if they meet or 
fail the FATF standards. Also, the member countries of FATF, 
including the United States, are now actively considering what 
next steps we have to take with these countries, what kind of 
guidance we need to give to our domestic financial institutions 
on what they need to do in dealings with these countries, and 
what kind of actions, other actions we should be taking vis-a-
vis these countries, both positive and negative. Positive for 
countries that want to cooperate and build their systems up to 
international standards, including offers of technical 
assistance and training. And if countries continue to be 
outliers and continue to flaunt international standards, we 
will have to look at harsher measures.
    That is one of the reasons why, as you mentioned, Mr. 
Chairman and Representative Cummings also mentioned in his 
introductory remarks, that the administration strongly supports 
the International Counter-Money Laundering Act of 2000 which 
passed bipartisanly overwhelmingly in the House Banking 
Committee, 31 to 1, which would give the Treasury Department 
new tools, tools that we do not have right now, to be able to 
crack down on these havens who willfully ignore international 
standards.
    Sadly, if this legislation is not passed, we could be in a 
position in the worst of all situations where countries are 
flaunting international standards, other countries are taking 
action, but the United States, because it simply does not have 
the tools, is unable to do so.
    Thank you very much again, Mr. Chairman. The only other 
comment I'd like to make is, you made reference to statistics 
that were in Money Laundering Alert. Deputy Secretary Eizenstat 
has sent a letter to the editor of the Miami Herald on this 
subject, and I'd like it to be introduced into the record, if 
that's OK.
    Mr. Mica. Without objection, that will be made part of the 
record.
    Mr. Wechsler. And I'd also like to introduce to the record 
a letter that was singed by six heads of law enforcement 
agencies supporting the legislation, the International Counter-
Money Laundering Act.
    Mr. Mica. Without objection, we will also include that 
letter.
    [The prepared statement of Mr. Wechsler follows:]

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    Mr. Mica. Thank you for your testimony. We'll withhold 
questions until we've heard from all the witnesses.
    The next witness will be Mr. John C. Varrone, who's Acting 
Deputy Assistant Commissioner, Office of Investigations, U.S. 
Customs Service. You're recognized, sir.
    Mr. Varrone. Thank you, Mr. Chairman.
    Good morning to members of the subcommittee. Thank you for 
inviting me today to discuss the global impact of money 
laundering and the U.S. Customs Service approach in addressing 
this increasing international threat.
    Mr. Chairman, as you and your committee are aware, money 
laundering is a threat to the economic and national security of 
this Nation. It is estimated that the worldwide volume of money 
laundering is between 2 and 5 percent of the world's gross 
domestic product, or in excess of $600 billion.
    In response to this threat, the Departments of Treasury and 
Justice developed and implemented a money laundering strategy 
for all of the law enforcement bureaus. Pursuant to this new 
strategy, four high intensity financial crime areas have been 
identified. These HIFCAs are intended to concentrate law 
enforcement efforts at the Federal, State and local level to 
combat money laundering in these designated high intensity 
zones.
    The cities of Los Angeles, San Juan, Puerto Rico and the 
New York-New Jersey area have been designated as HIFCA areas. 
HIFCAs can also be formed to address a specific money 
laundering system. With that in mind, the fourth HIFCA along 
the Arizona-Texas border will concentrate on the bulk cash 
system that moves large volumes of smuggled currency between 
the United States and Mexico.
    Customs played a primary role in the working group, 
determining the placement of the HIFCAs because of the primary 
enforcement agency responsibilities that we have at our 
Nation's borders. We have the jurisdictional responsibility for 
enforcing lawful international trade involving commodities and 
monetary instruments. The Congress has given the U.S. Customs 
Service the requisite authority for the enforcement of 
international financial crime and related money laundering 
investigations. Our enforcement efforts are not related to drug 
related money laundering investigations, but to the proceeds of 
all crime.
    Investigation or interdiction activity is often triggered 
by the illegal movement of criminally derived funds, services 
or merchandise across our national borders, and is applied 
pursuant to the authority under the Bank Secrecy and the Money 
Laundering Control Acts of 1986 and 1988.
    This jurisdiction also enables us to address money 
laundering outside the context of narcotics trafficking in such 
areas as prime investment fraud, advanced fee schemes and 
telemarketing fraud. For example, Project Cult, a joint 
international telemarketing enforcement with the Canadian 
authorities, has been credited with the prosecution of 19 
violators and presently pending 30 additional suspects, pending 
prosecution, and the seizure of the nexus of $10 million which 
has been recovered and returned to the victims of this fraud.
    The Customs Service has an aggressive strategy to combat 
money laundering and dedicates a nexus of 400 agents worldwide 
to pursue these investigations. Over the past 3 fiscal years, 
the Service has conducted over 12,000 financial investigations, 
resulting in the arrest of 3,150 violators and the seizure of 
over $1 billion.
    Customs combats money laundering through a systems based 
approach. Enforcement programs that we use to attack these 
systems include outbound interdiction, undercover 
investigations, regulatory interventions, industry outreach, 
multi-agency operations, and global partnerships.
    One of our most effective programs has been our undercover 
money laundering operations. During the past 12 years, the 
Customs Service long term undercover operations have resulted 
in the seizure of over $1 billion in cash, over 2,000 arrests 
and the seizure of more than 37,000 kilograms of cocaine.
    To assist with our large number of undercover financial 
investigations, we've developed and implemented the money 
laundering coordination center. This center, which has been 
operational since 1997, is providing deconfliction support to 
all U.S. Customs undercover operations. The MLCC also serves as 
a safety mechanism, so that all Customs investigations are 
tracked and coordinated in real time.
    As outlined in the National Money Laundering Strategy, the 
MLCC is also the repository for all U.S. Government information 
relating to the black market peso exchange. This information is 
analyzed by Customs in order to develop targets and systems for 
investigation.
    The black market peso exchange system is another method 
violators employ to circumvent the currency reporting 
requirements of the Bank Secrecy Act. It is one of the most 
efficient and extensive money laundering systems in the western 
hemisphere. It is estimated that the black market peso exchange 
launders approximately $4 billion in drug moneys per year.
    In addition to our investigative efforts, the Customs 
Service, through the MLCC, has implemented an industry outreach 
program to educate U.S. businesses as to how the black market 
peso exchange operates and to solicit their cooperation on the 
implementation of compliance programs.
    A key instrument in our outreach is our brochure, which 
describes in detail the black market peso exchange process and 
highlights red flags which may be indicative of a black market 
peso exchange transaction, and last, provides industry with a 
point of contact if they identify such suspect transactions. 
Criminal organizations are highly adaptable and employ a 
variety of methods to repatriate their assets.
    Some are quite sophisticated, like the black market peso 
exchange, and others are more simplistic and riskier, such as 
the smuggling of bulk cash. Through a variety of investigative 
intelligence and interdiction programs, the Customs Service has 
identified and seized numerous bulk cash shipments concealed in 
aircraft, vessels, vehicles, appliances, stereo equipment, 
machine parts and even violators who are willing to ingest 
currency to avoid detection.
    A recent example of a bulk cash seizure by Customs occurred 
on May 1st, when six boxes of currency totaling $2.6 million 
were discovered in a tractor trailer that had entered the 
United States from Canada en route to Florida. Subsequent 
investigation revealed that the money was going to be used to 
purchase a large quantity of cocaine.
    Bulk cash smuggling presents the trafficker with the 
logistical problem of securing modes of transport capable of 
handling the amounts of cash generated by drug sales. Consider 
the following. If the proceeds of cocaine----
    Mr. Mica. Mr. Varrone, it looks like you have a number of 
pages. Can you begin to summarize? Because we can submit the 
entire statement.
    Mr. Varrone. Yes, sir.
    In sum, Mr. Chairman, through the regulatory interventions 
such as the GTO, which others have discussed on the record, 
enforcement operations at the Customs Service has a variety of, 
I just think that we're in a position where the balance of all 
of these programs is good for law enforcement, and we support 
the H.R. 3886, which the committee has put forth. The Customs 
Service would like to go on the record to support that.
    And then I'll just be available to answer any questions you 
may have.
    [The prepared statement of Mr. Varrone follows:]

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    Mr. Mica. Yes, and we'd like to get to that. Without 
objection, Mrs. Mink asks that your entire statement be made 
part of the record, and it will be so ordered.
    Let me recognize Mr. Guillen, and he is the Chief of 
Financial Operations Section for DEA in the Department of 
Justice. You're recognized, sir.
    Mr. Guillen. Thank you, Mr. Chairman.
    Mr. Chairman and members of the subcommittee, I appreciate 
the opportunity to appear before the subcommittee today on the 
subject of international money laundering. My comments will be 
limited to an objective assessment of the law enforcement 
issues involving drug trafficking and money laundering, with 
specific attention devoted to the challenges that today's 
organized crime syndicates from Colombia and Mexico present to 
our law enforcement officers.
    Whereas previous organized crime leaders were millionaires, 
the Colombian drug traffickers and their counterparts from 
Mexico are billionaires. They have learned to exploit a variety 
of weaknesses in order to protect their drug profits, which are 
the lifeblood of these organizations. Their ultimate purpose is 
to amass large sums of money in order to maintain their obscene 
and lavish lifestyle, free from the boundaries or confines of 
the law.
    As you are well aware, money laundering is a process used 
by drug traffickers to convert bulk amounts of drug profits 
into legitimate money. The need to launder conspicuously large 
amounts of small denomination bills renders the traffickers 
vulnerable to law enforcement interdiction. Tracking and 
intercepting this illegal flow of drug money is an important 
tool in identifying and dismantling international drug 
trafficking organizations.
    Laundering drug proceeds from Mexican crime syndicates is 
commonly accomplished by relatively simple and direct means, 
the bulk shipment of currency back to Mexico. Tractor trailers 
and cars with hidden compartments are frequently used to 
smuggle drugs out of Mexico into the United States. And then 
these same vehicles are packed with the proceeds from the 
street sale of the drugs and returned to Mexico.
    Drug traffickers based in Colombia also move the proceeds 
from their operations in the United States to Los Angeles, New 
York and Miami for bulk shipment out of the United States. Both 
the Colombians and Mexicans frequently use vehicles with hidden 
compartments to carry large quantities of United States 
currency. The bulk movement of United States cash to Mexico has 
resulted in significant increases of financial seizures along 
United States roadways.
    During calendar year 1999, U.S. law enforcement seized over 
$69.4 million on U.S. highways. From January 2000 to March 31st 
of this year, law enforcement agencies have seized over $19.2 
million. It is estimated that most of the currency seized was 
destined for drug trafficking organizations operating out of 
Mexico.
    Another system commonly used by Mexican traffickers or 
traffickers wishing to repatriate their moneys to Mexico is 
through the use of the money service businesses, which have 
been discussed by other witnesses before the committee today. 
Due to geographical considerations, Colombian traffickers face 
many difficulties during their initial phase of the money 
laundering process that Mexican syndicates do not encounter. 
Colombian drug organizations have in the past relied on a 
multifaceted collection process. They have amassed currency in 
strategic locations, used a variety of methods, including 
smuggling and bribery to introduce the cash into the U.S. 
banking system and subsequently transferring it to Colombia.
    In an effort to avoid the high risks associated with direct 
deposits in United States or European banks, many Colombian 
drug traffickers have returned to the simplest of money 
laundering methods, the bulk movement of cash. Currently, the 
vast majority of United States currency bound for bank accounts 
of the Colombian drug lords leaves the United States either 
through air cargo or commercial cargo freighters.
    Due to the enormous amount of commercial trade the United 
States has with Colombia, this method makes the traffickers' 
operations not only less complicated, but less vulnerable to 
discovery by law enforcement. In addition, Colombian drug 
trafficking will exploit any means possible to safely launder 
their drug proceeds. One such form of money laundering is known 
as the black market peso exchange. The black market peso 
exchange is a complex system currently used by drug trafficking 
organizations to launder billions of dollars of drug money each 
year, utilizing the advantages of the Panama Canal Free Zone, 
which serves as an integral link in the Colombian money 
laundering chain.
    In order to respond to the threat of money laundering, the 
DEA is actively involved in a host of joint initiatives with 
all of the organizations represented by panel members here 
today. These initiatives are designed to target the money 
laundering capabilities of major drug trafficking organizations 
operating in the United States. DEA's current ongoing 
undercover operations have thus far resulted in the arrests of 
373 individuals, over $72.7 million in currency and asset 
seizures, 9,399 kilos of cocaine, 30 kilos of heroin and 140 
kilos of marijuana.
    DEA additionally continues to support a number of 
interdiction programs that target the bulk shipment of illicit 
funds across our Nation's highways.
    The U.S. national money laundering strategy issued by the 
Department of Treasury and Justice in September 1999 and 
further refined and expanded in February 2000 prescribes a wide 
range of laundering control measures that affect public and 
private entities in the United States and abroad. DEA actively 
participates in several of the target specific work groups 
responsible for developing new enforcement, regulatory 
strategies and initiatives.
    In conclusion, Mr. Chairman and committee, DEA remains 
committed to our primary goal of targeting and arresting the 
most significant drug traffickers in the world today. We will 
continue to work with our law enforcement partners to improve 
our cooperative efforts against international drug trafficking 
organizations. The ultimate measure of success will come when 
we dismantle the drug trafficking organizations that bring 
misery to the nations in which they operate.
    Mr. Chairman, thank you for inviting me to appear before 
the subcommittee today. I will be happy to answer any questions 
you may have.
    [The prepared statement of Mr. Guillen follows:]

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    Mr. Mica. Thank you, and we'll withhold questions until 
we've heard from our final witness, which is James F. Sloan, 
and he's director of the Financial Crimes Enforcement Network. 
You're recognized, sir.
    Mr. Sloan. Thank you, Mr. Chairman.
    Mr. Chairman, members of the subcommittee, I want to thank 
you for giving the Financial Crimes Enforcement Network 
[FinCEN], an opportunity to speak before you today. I'm going 
to be incredibly brief; and, I think this is the first time 
that FinCEN has appeared before this committee, but given the 
interest expressed by the chairman and from what I know of the 
subcommittee, I think we may be returning in the future. So I 
think that as FinCEN provides the subcommittee with further 
information about its operations, I think the questions and 
answers will certainly suffice.
    But I would say that as far as FinCEN is concerned, the 
success or failure of our operations is essentially the success 
or failure of the operations of the agencies that you've heard 
from today. Suffice it to say that FinCEN is the nexus that 
provides information to the financial community through the 
Bank Secrecy Act, adds value to that information, provides it 
to law enforcement so they can follow the money. We also 
provide, what I believe to be, the appropriate conduit as a 
network between and among the law enforcement community, both 
at the Federal, State and local levels.
    And we also provide an important conduit to law enforcement 
in the area of financial investigations overseas. I welcome the 
opportunity to answer any questions. I have prepared a 
statement that I would like to have submitted for the record.
    Mr. Mica. Without objection, so ordered.
    Mr. Sloan. And I apologize for cutting the comments brief, 
but I think you want to get on to some questions.
    [The prepared statement of Mr. Sloan follows:]

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    Mr. Mica. Right. Well, thank you so much, and I thank all 
the panelists for their opening comments.
    Let me jump right to the first thing, which is the report 
we received with a number of prime money laundering case 
referrals having dropped for most of the agencies, DEA dropped 
from 241 to 184, 1994 versus 1998; 469 for FBI, to 356; Customs 
has a slight increase, I think they're the only ones that don't 
show a decrease. But again, the major enforcement agencies.
    Ms. Warren, you dispute some of these statistics. Now, 
these are comparing apples and apples, not apples and oranges, 
as I understand it. Are these figures correct?
    Ms. Warren. I don't think it's comparing apples and apples. 
What are case referrals? A single case may involve as many as 
300 defendants.
    Mr. Mica. Are you prepared to provide us with information, 
specific information on prosecutions?
    Ms. Warren. Yes. We have the statistics by the statutory 
charge, 18 U.S.C. Section----
    Mr. Mica. Is it chronological?
    Ms. Warren. We have it for 3 years, 4 years now, and I can 
produce that for the committee.
    Mr. Mica. Does that show an increase or decrease in 
prosecutions?
    Ms. Warren. An increase each year.
    Mr. Mica. Is that for each of the agencies under DOJ?
    Ms. Warren. It is for Federal prosecution. I don't believe 
I'll be able to show it as to individual agencies, because most 
of those cases are multi-agency cases. But I can show you for 
the defendants charged in Federal court by the statute, by the 
money laundering statutes, during the years 1996 through 1999.
    Mr. Mica. Well, we'll look at that and try to get some 
comparison, again, trying to be fair in the comparison.
    But again, one of the outside independent agencies seems to 
differ with some of the emphasis and shows a 24 percent 
decrease, at least, in the case referrals.
    Ms. Warren. Could I offer one further explanation of that 
data? I think limited to primary offense, if that is measured 
by the sentence under the sentencing guidelines, the offense 
with the greatest sentencing exposure will be the sentence for 
conviction and sentencing. If there for example is a drug count 
along with the money laundering count, just because of the 
nature of our drug laws, it will eclipse the lesser sentence of 
money laundering. And they may be counting from that. I'm 
counting from numbers of prosecutions.
    Mr. Mica. Mr. Guillen, was it you that cited that 26 have 
joined in an international cooperative effort? OK, that was Mr. 
Wechsler.
    Mr. Wechsler. That was me, sir.
    Mr. Mica. You were talking about the 26 countries that have 
joined in this cooperative effort. Are they the same countries 
that have now named these offenders?
    Mr. Wechsler. Yes, exactly, sir.
    Mr. Mica. It's nice to name them, but is there any 
anticipated penalty? Is there any action, be it unilateral 
action that's proposed by this administration to go after the 
known offenders, or by this group?
    Mr. Wechsler. It's an excellent question, sir. We're going 
to do that in a number of fronts. First of all, in addition to 
just naming them, the 26 member nations of FATF, included 
what's referred to in FATF as recommendation 21, which is a 
recommendation to all the banks in the FATF member countries to 
take special measures to examine transactions with the 
countries that are listed.
    Mr. Mica. What kind of actions?
    Mr. Wechsler. Well, we under our own law have to interpret 
that. And right now we are working very hard, and it will only 
be a matter of weeks, I expect, before you see the conclusion 
of this, of exactly what guidance we are going to give to our 
banks on each one of these countries on how and what kind of 
additional actions, hopefully in accordance to the Bank Secrecy 
Act, to give suspicious activity reporting to FinCEN, so it can 
then get information to the law enforcement agencies.
    Mr. Mica. Does your agency currently weigh in on the 
decertification process?
    Mr. Wechsler. Absolutely.
    Mr. Mica. And certification?
    Mr. Wechsler. Absolutely.
    Mr. Mica. Do you think it will be the intent to recommend 
that these offenders also be decertified under the drug 
statutes?
    Mr. Wechsler. I do think, sir, it's an excellent question, 
that already money laundering is of course an annex to the 
State Department report that provides the background 
information for the drug certification process. Through this 
FATF process, I think what we have just done is improved, in 
many cases by leaps and bounds, the quality of information that 
we have about the anti-money laundering regime in these 15 
countries in particular and actually 29 countries if they were 
done. So our hope is that that information should be much more 
utility to the drug certification process.
    Mr. Mica. Certainly the United States also has influence in 
all the international banks and finance markets and really 
supports some of these countries' financial stability and 
ability to conduct transactions through again our large 
influence and our potentially large ability to weigh in in 
these international banking institutions and finance 
institutions and agreements that we have. Is there intent to go 
after these countries through some of those mechanisms and 
agencies that we're a part of?
    Mr. Wechsler. Absolutely, sir. In fact, this FATF exercise 
was originally done by FATF at the request of the G7 finance 
ministers. The G7 finance ministers will take up this report 
when they meet in early July in the context of abuses of the 
financial system writ large. And I think a lot of the issues 
that you just mentioned, sir, will be high up on the agenda.
    I would also like to add, sir, that again, on each one of 
these countries on a bilateral basis the United States will 
also be pushing them to improve their money laundering regime. 
For the ones that want to cooperate, we will, as appropriate, 
offer both technical assistance and drafting of laws and 
creating institutions and training for law enforcement as 
resources and appropriate demands.
    But there are likely to be some countries that in spite of 
all the naming and shaming and at the end of the day will still 
perhaps want to refuse the pressure from the international 
community, and will not want to improve their anti-money 
laundering regimes. We need to be in a position to be able to 
take hard, targeted, graduated measures against those 
countries. And right now, the executive branch does not have 
that authority to take those kind of targeted measures. And 
that's why, as you said in your opening statement and as 
Representative Cummings also said, the International Counter-
Money Laundering Act of 2000, the bipartisan initiative, is so 
important to pass this year.
    Mr. Mica. Well, we already have some current tools, but we 
also have some new challenges, e-mails, and now the 
transactions in gold which have been described today and other 
commodities.
    Mr. Sloan, is it possible for us to develop rat traps, 
though, to catch the rats in this, either through a unilateral 
U.S. effort or through some international cooperative effort?
    Mr. Sloan. The quick answer is yes, and we're working on 
that direction. As far as the rat traps, as you describe them, 
we'd like to think that the protocols that are in place under 
the auspices of the Bank Secrecy Act. For instance, the 
expansion of the Bank Secrecy Act will cause the money 
launderer, or the drug dealer in this case, trying to get money 
into the financial system a great deal of difficulty, making 
them try to move to alternate remittance systems which clearly 
becomes riskier.
    As you may know, and I know you commented on the Money 
Laundering Strategy for 2000, we are in the process of 
expanding BSA regulations, specifically for suspicious activity 
reporting, to other elements of the financial services 
industry. In fact, in March, we issued regulations regarding 
suspicious activity reporting requirements in the money 
services business. And this includes all the wire transmitters, 
all the check cashers, money order providers, and travel check 
providers throughout the United States.
    We anticipate that we'll have a final rule of a similar 
requirement for suspicious activity reports for casinos at the 
end of the summer, and we're working with the SEC now in 
drafting proposed regulations that would apply the same sort of 
suspicious activity reporting in the securities industry, 
brokers and dealers in securities. The point I'm getting at is 
we are expanding the net, if you will, relative to the Bank 
Secrecy Act. I think with regard to the alternate remittance 
systems, which I think perhaps my colleague from Customs is 
more appropriately prepared to discuss, the increase in the use 
of some of these alternate remittance systems, whether it's 
gold or the black market peso, may be to some degree a measure 
of success in the Bank Secrecy Act. So we are building a 
tighter net, if you will. It is going to provide, I believe, 
law enforcement with greater tools to capture the money at the 
placement stage, which is as you mentioned, really the key to 
success.
    Mr. Mica. Well, just in closing, you mentioned, Mr. 
Wechsler, I think, the Russian Central Bank identified $70 
billion run through Nauru. And I think you mentioned 
specifically, Mr. Guillen, Mexico and the problems we've been 
having there, even with the largest money laundering case I 
think that Customs had internationally with Operation 
Casablanca, where you have corrupt officials all the way up to 
the top of the Mexican Government including the banking 
industry. How do you deal with these situations that we know 
exist, Mr. Guillen?
    Mr. Guillen. We're continuing our efforts along those 
lines. Specifically with money service business, what we are 
able to do domestically is to monitor. Again, with the help of 
FinCEN and the reporting requirements, our investigations are 
being targeted toward those industries that help to support or 
facilitate the money movements via the wire remittance 
companies to Mexico. Also as was mentioned with the bulk 
shipments across the United States border into Mexico, as Mr. 
Varrone had mentioned from Customs, one of the specific HIFCAs 
that has been established was for that express purpose, to 
monitor and to be able to target the bulk shipments between the 
United States and Mexican border.
    So more efforts are being given along those lines. What 
we're able to do with the Mexicans is on a case by case basis. 
But all of our efforts are in fact being focused in order to be 
able to do what we can here domestically in our investigations, 
and then break into successful prosecutions here in the United 
States.
    Mr. Mica. Could we trace any of the $70 billion from the 
Russian Central Bank?
    Mr. Wechsler. Yes, that's where that number came from.
    Mr. Mica. No, I know we have the number, but what happened?
    Mr. Wechsler. What you do is you attack it again through 
many different fronts. You attack the problem through law 
enforcement, you attack it, as was just said, you attack it 
from regulation to make sure that we have the kind of anti-
money laundering regimes that dirty money doesn't hide or is 
difficult to get dirty money into the U.S. financial system.
    But then also through the international policy, you try to 
bring other countries into line with the United States.
    Mr. Mica. Specifically on the $70 billion?
    Mr. Wechsler. Specifically what you do is both of the 
countries that were involved in this, Russia and Nauru, put 
them on the FATF list and get them to improve their anti-money 
laundering regime. But if they don't, then you figure out what 
other kind of countermeasures could be appropriate.
    Mr. Mica. I'm trying to find out specifically, what did we 
do? We knew $70 billion went through there.
    Mr. Wechsler. What we did expressly is the Treasury 
Department has asked the Russians for more information on the 
subject. We've asked Nauru to shut down banks that have 
participated in it. Nauru has taken some actions in this 
regard.
    United States banks, domestically, especially what I've 
read in the papers, Bank of New York, Public Bank, Bankers 
Trust, have closed off correspondent relationships with Nauru.
    Mr. Mica. So from those transactions, then the $70 billion 
money coming from Nauru into the United States shouldn't be 
that hard to trace.
    Mr. Wechsler. It shouldn't be that hard.
    Mr. Mica. We've gone after our domestic bankers, too, that 
may be recipients or third parties to that illegal 
transactions?
    Mr. Wechsler. Well, yes, and we have been very pleased 
that, like I said, Bank of New York or Public Bank, Bankers 
Trust----
    Mr. Mica. Has anybody been prosecuted in that case?
    Mr. Wechsler. Well, the Bank of New York case, writ large, 
which Nauru's name came up in that as well as ongoing, and I'll 
defer to the Justice Department if there's anything we can say 
on that.
    Ms. Warren. It remains an ongoing investigation.
    Mr. Mica. OK, let me yield to the ranking member, Mrs. 
Mink. Thank you.
    Mrs. Mink. Thank you all very much.
    I think if an average citizen were listening in to this 
hearing today, they would be as mystified as I am about this 
whole issue. There is a general expectation, I think, in the 
public at large, and certainly in my own mind, that in this 
three-pronged issue regarding illicit drug sales in this 
country and worldwide, that one of the things that we certainly 
should have come to grips with and thoroughly implemented, was 
the fight against money laundering. With all the sophistication 
and the ability and talent in our intelligence operations, and 
in the financial aspects of these dealings, I think we have a 
right to expect that in this one instance, there would be 
vigorous, aggressive, total non-stop efforts to prevent these 
cartels from benefiting from the victimization of the citizens 
of this country.
    So it's rather disturbing to hear the general tone of the 
hearing this morning that most of the efforts are conjectural, 
prospective, anticipated, we're working on it, and so forth. 
And maybe there are details of what you're doing that you're 
not able to disclose. But I must say that I'm very disturbed by 
what has been presented this morning.
    So is there any of the five of you that disagrees that the 
total worldwide amount of money laundering is estimated 
correctly between $600 billion and $1.2 trillion worldwide? 
There's general agreement?
    No response. Mr. Chairman.
    Mr. Sloan. If I may respond, FinCEN has been tasked with 
developing a model to determine the magnitude of money 
laundering.
    Mrs. Mink. Well, just give me the figure that you deal with 
on a daily basis, when it's running through your heads in terms 
of the magnitude of the problem. Is $600 billion about right?
    Mr. Sloan. I'd say that most experts would say $600 
billion.
    Mrs. Mink. Is about right? And what percentage, then, which 
is my real question, of this money laundering occurs within the 
United States? Is there a buzz number that goes through your 
brain in similar thought processes in figuring out how much of 
this is within the United States?
    Mr. Sloan. One of the measures that FinCEN explored in 
trying to determine a model for the magnitude of money 
laundering project were the proceeds of crime, in this case 
specifically the proceeds of narcotics crimes. And if I'm not 
mistaken, I don't have the statistics in front of me, but ONDCP 
figures for 1999 estimate that roughly $63 billion was spent on 
illegal narcotics in the United States.
    Mrs. Mink. $63 billion within the United States. Is that a 
figure that all five of you----
    Mr. Sloan. I believe that's the figure that ONDCP reported 
in its 2000 strategy.
    Mrs. Mink. That's the total traffic in illegal drugs within 
the United States in 1 year?
    Mr. Sloan. The cash spent on illegal drugs, yes.
    Mrs. Mink. Now, how much of that is traceable in all of 
your money laundering investigation? How much of that can you 
actually trace? Where does it go and how does it get out of the 
country?
    Mr. Sloan. From our perspective, there's two issues that 
are raised, from FinCEN's perspective. First of all, that's a 
lot of cash.
    Mrs. Mink. A lot of shoe boxes.
    Mr. Sloan. Exactly right. It's a lot of shoe boxes in so-
called stash houses in Miami and in Los Angeles and New York. 
And it's 5s, 10s, 20s, 50s and 100s. In fact, one statistic I 
think was mentioned earlier, that a kilo of cocaine is the 
equivalent of 2\1/2\ kilos of cash. So clearly the drug dealer 
has to get his proceeds into the financial system somehow in 
order to benefit from the street sales.
    Mrs. Mink. Is this money invested in some way in American 
businesses, construction, buildings, whatever?
    Mr. Sloan. In some instances it works its way through the 
black market peso exchange, which I can defer to my colleagues 
to discuss in greater detail. But from FinCEN's perspective, 
the key to our success is catching the placement of that $63 
billion as closely as possible as it tries to enter the 
financial system.
    Mrs. Mink. How much of that do you have a handle on, of the 
$63 billion?
    Mr. Sloan. I don't have a figure on that that I'd be 
prepared to discuss today.
    Mrs. Mink. Just a general top of your head estimate?
    Mr. Sloan. I wouldn't even venture a guess, frankly. I 
don't know if anybody else would want to comment. But the point 
I was going to make, as far as the money getting into the 
system, was the reason that we have the protocols in place 
within the Bank Secrecy Act to capture, for instance, $10,000 
deposits in cash. Although $10,000 may not be a lot of money, 
it's a lot of cash, and the fact that the drug dealer has to 
get the money from the so-called stash houses into the 
financial system, it's important for us to maintain those 
requirements and to analyze that information and report back to 
the law enforcement community.
    Bottom line is it helps law enforcement follow the trail 
which is ultimately getting to the drug dealer.
    Mrs. Mink. With respect to these 15 countries that have 
been named now by this special group, take Nauru that you 
mentioned specifically. Why isn't is possible under U.S. laws 
to simply cut them off in terms of the allowance of any of 
their money coming into the United States?
    Mr. Wechsler. The only authority that we have under United 
States law right now is the International Emergency Economic 
Power Act which would prohibit totally all business relations 
between Americans and anyone, in this case in Nauru, or any 
Nauru citizen anywhere in the world. This is the provision that 
was used against Iraq and Syria.
    Mrs. Mink. But if we utilize that law against Nauru----
    Mr. Wechsler. We have not used that law against Nauru, nor 
have we used it against money laundering. It is a one size fits 
all rule. It does not distinguish between dirty money and 
legitimate money. And the law that we have, the bill that 
passed under the House Banking Committee, that 31 to 1, 
completely bipartisan approach, would give us the authority to 
be able to target that, to be able to cutoff correspondent 
relationships which goes more to your question, between the 
United States and Nauru, should that prove necessary.
    Which right now, the Treasury Department does not have that 
authority. Other countries, should we go in that direction and 
should Nauru not improve its laws, might be able to take that 
kind of action. But the United States cannot. And we see this 
as being a hole in our comprehensive efforts, integrated 
efforts to combat money laundering, one that we very much hope 
that the Congress will fill this session.
    Mrs. Mink. Thank you, Mr. Chairman.
    Mr. Mica. Thank you. I recognize the gentleman from 
Maryland, Mr. Cummings.
    Mr. Cummings. Mr. Chairman, I wish this was on C-SPAN so 
that my constituents, the guys who are on the corner selling 
the drugs, could hear this. And I really do mean that. Let me 
tell you why I say that. You know, in Baltimore, we have a real 
big problem with drugs. And the thing that I hear over and over 
again is, Mr. Cummings, there's no desire on this country's 
part, and I don't agree with this, by the way, to shut down 
drugs, because if you shut down drugs, you shut down the whole 
country. I have heard that so many times.
    And when I think about the kind of money that we're talking 
about here, it's a lot of money. And I guess there is some 
truth to that, that if you shut down drugs, you shut down a 
whole lot of folks. Congresswoman Maxine Waters has spent a lot 
of time addressing this whole issue of our domestic banks and 
how they may be playing in this whole money laundering game. 
She has over and over again on the floor of the House 
questioned whether we're doing all that we can do to address 
the domestic banks.
    And I'm just wondering, would most of this be hard to do 
without the cooperation, the things that you all have talked 
about, would it be hard to do without the cooperation of 
domestic banks? In other words, I know there are some pieces 
that you would not need them for. But what would you need 
domestic banks for as far as these kinds of efforts are 
concerned?
    Ms. Warren. We need the cooperation of the banks in terms 
of their reporting, they provide us the information that lets 
us proceed against the launderers and the traffickers, that 
create the paper trail. And so we depend on the banks to do 
that.
    But we don't always treat them as friends. We've prosecuted 
a great number of U.S. banks as well as worldwide financial 
institutions. We have a chart of those prosecutions, and I'll 
gladly submit it to the subcommittee so that you can see the 
number of financial institutions that we have prosecuted in 
Federal court over the years.
    Mr. Cummings. And those prosecutions, I guess you can sort 
of pinpoint a person or persons in the banks, or do you find, 
there's a tendency that there's a group of people at the top 
that are doing these things?
    Ms. Warren. We have to be able to, just under traditional 
principles of corporate liability that we have to show that 
they've had some knowledge, and were taking actions for the 
benefit of the bank. We do that as part of our proof and 
proceed against those institutions.
    Mr. Cummings. So you've seen, of the cases that you've 
talked about, the number of cases that you just talked about, I 
take it that you're saying that in many of those cases, there 
are folk at the top who know what's going on?
    Ms. Warren. Know at the top and want the extra commissions, 
the extra interest of all that cash-flowing through. And for 
that, we'll prosecute them as money launderers.
    Mr. Cummings. This increase, the last 4 years, amount 
increased from $300 billion to $600 billion, what would you say 
aided that? What happened there?
    Mr. Wechsler. Well, I can say, one of the, while numbers, 
of course, on money laundering, like numbers of crime, are 
difficult to pin down, one of the trends that we have seen just 
in the last number of years is that because of advances in 
technologies, because of the internet, because communication is 
so easy around the world, that again, places that previously 
were physically remote, that were not significant players in 
the international financial system, now suddenly can be 
connected all over the world. So one of the negative trends 
that we've seen just in the last couple of years is some of 
these places setting themselves up as money laundering havens. 
And that's what the Financial Action Task Force just yesterday, 
with United States strong participation and leadership, tried 
to take some of the strong initial steps to crack down on.
    Of course, the other trend that's good is that developed 
centers have just in the last decade really started to improve 
their anti-money laundering regimes. So again you have these 
two trends, one going in a positive direction and one sadly 
going in a very negative direction because of changes in 
technology.
    Mr. Cummings. What's going to happen with that list of 15 
countries? What do we do with that?
    Mr. Wechsler. We're going to do a couple of things. First, 
we're going to expand it as the months go on. But there is 
already seeing some market reaction. I saw a wire report that 
Standard and Poors downgraded their rating for one of the major 
banks in Liechtenstein, which was on the list. And this kind of 
market reaction that you see gives teeth to naming and shaming.
    But we can't just rely on markets to solve this problem for 
us. We are going to work, the United States and with our allies 
in FATF, with those countries to bring them up to international 
standards, to U.S. standards, on how to do a comprehensive 
anti-money laundering regime. And then once again, if there are 
countries that refuse to do this, we will have to try to take 
aggressive actions against them to penalize them for that 
behavior. And once again, we really need more tools in order to 
do that effectively.
    Mr. Cummings. This subcommittee, and I do give the chairman 
a lot of credit, and it has been a bipartisan effort, we've 
done everything we know how to try to make sure that the tools 
that law enforcement needs are there in order to do the job 
that you all have to do. And we do have a tremendous amount of 
respect for what you do, because it is a very important job, 
and I'm sure you get your share of criticism.
    But one of the things that I have learned since I've been 
on this subcommittee now several years is that this problem, I 
mean, not just money laundering, but the whole drug problem, is 
much greater than I ever imagined. And I ask you this question 
based upon that. Other than H.R. 3886, what tools, what if any 
tools do you need from the Congress? And I'm talking about, do 
you feel like you have sufficient resources to do the things 
that you all need to do in your various departments? Do you 
need legislation more than what we've talked about here today?
    I mean, if you had a wish list that was a reasonable wish 
list that falls within the confines of our collective belief, 
that is we as Congress persons, that money should be spent, tax 
dollars should be spent effectively and efficiently, what if 
anything don't you have that you think you need from us?
    Ms. Warren. Could I start just with the legislation, just 
to remind the subcommittee that we need the international money 
laundering new authorities that we're seeking.
    But we also need the money laundering authorities for 
prosecutors and investigators that are under the Money 
Laundering Act of 2000, H.R. 4695. It creates new crimes, the 
smuggling of cash across the border, gives us new jurisdiction 
to reach those foreign banks that have done business in the 
United States, allows us to go after currency couriers as 
criminals. Those are the kinds of tools we need so these people 
don't slip through the net. And we want to work with you in 
perfecting that legislation.
    Mr. Cummings. Anyone else?
    Mr. Varrone. If I may add, Mr. Cummings, the 
administration's budget for the Customs Service in 2001 
includes a variety of initiatives. Some are personnel 
resources, and some are technology. We don't have x-ray 
machinery at all major ports in the country. It's equipment 
like that that helps us in our outbound bulk cash enforcement 
activity. So there are a variety of other elements to that 
budget, but clearly support for that, sir.
    Mr. Cummings. Is that it?
    Mr. Wechsler. The one other thing I'd like to add is with 
this budget cycle, the Treasury Department has asked for a new 
centralized account to help us implement the key action items 
in the new money laundering strategy. One of those, and we can 
get for you the breakdown of what that money would be, to make 
sure that this committee is fully abreast of that budgetary 
initiative. That would be on top of the important requests for 
money that Customs, FinCEN and the other bureaus are asking for 
the Treasury Department.
    One of the things that also would be in this account would 
be seed grants for local law enforcement to get better trained 
and equipped to fight money laundering, because money 
laundering is a complicated issue that not all State and local 
law enforcement have the capacity right now to fight as 
effectively as they could. And we are just starting this 
program, the CFIC program, as it's called, to give seed grants. 
The applications just went out last week, I believe, from the 
Treasury and the Justice Departments. We are asking for more 
money for that program, because we think State and local could 
also do a lot more.
    Mr. Cummings. Just one last question--yes, Ms. Warren.
    Ms. Warren. Could I just make sure that the Justice 
Department appropriations are also looked favorably upon for 
law enforcement and the prosecutors, so that we can try and 
keep pace with the problem.
    One other bill I didn't mention is Congresswoman Roukema's 
anti-bulk smuggling bill that of course we support completely. 
That's H.R. 240.
    Mr. Wechsler. The Treasury Department seconds that, of 
course.
    Mr. Cummings. One last question to Mr. Guillen. You were 
talking about the bulk money going into Mexico and you said 
something to the effect that when that money goes over the 
border, it's less vulnerable to discovery by law enforcement 
officers because of our certain trade policies. I think that's 
what you were saying, is that accurate?
    Mr. Guillen. No, I don't think so.
    Mr. Cummings. Let me ask you this. Just give me the 
logistics of this. Somebody is coming, I don't know whether 
this would be your question, Mr. Varrone, I'm talking about 
Customs, more or less, somebody has $1 million in the truck 
coming across the border. What happens? Coming across the 
Mexican border. He's got $1 million. So what happens? In some 
kind of way, you discover he's got $1 million. It's not like 
you have dogs that sniff it out, but you somehow you discover 
it. What happens than?
    Mr. Varrone. Most of the time, sir, the bulk cash that 
we're intercepting, as the exhibit here to my right indicates, 
in south Texas alone, we made 228 seizures just this fiscal 
year for about $6 million. But most of the bulk cash is 
outbound. On the inbound side, we don't see that kind of 
volume. But in an outbound, the percentage of resources that we 
dedicate to outbound is approximately 10 percent. We are so 
concentrated on the inbound activity that we don't have a large 
inspectional force that does outbound inspection. So a lot of 
it gets driven through the investigative activity.
    Mr. Cummings. Thank you.
    Mr. Mica. Thank you.
    I had just a final question or two here. Mr. Varrone, could 
you tell the subcommittee a little bit more about the use of 
gold in money laundering, and what kinds of cases Customs is 
now pursuing and what kinds of challenges that creates? This 
seems to be a new conduit for money laundering.
    Mr. Varrone. The gold phenomenon, while this news article 
shows it as a new, emerging trend, it's been around for years, 
the precious metals, the gold, diamonds. If you recall back in 
the early 1990's, there was a significant national operation, a 
multi-agency operation called Polar Cap, where all the agencies 
at this table were heavily involved in it. It lasted 4 or 5 
years and it was all precious metals based.
    I think at the time that we did, collectively that we did 
that investigation that we had a lot of success identifying 
violators and putting gold, domestic people who were involved 
in the industry, out of business. But I don't think that we 
either understood at that time or focused on this black market 
relationship to the black market peso exchange activity. So I 
think that it's really just a recurring theme, not necessarily 
a new and emerging theme.
    And second to that would be that we have numerous cases 
that do involve the precious metals industry that are ongoing. 
Of course, I can't speak to them here. But the ones that we 
have had and had success at clearly support the concept that 
the black market peso exchange is the predominant method there.
    We have a system in place now, a computer system called a 
numerically integrated profile system, which helps us identify 
disparities. And we've been at the forefront of identifying the 
disparities in the gold import-export from Colombia to the 
United States, and have pointed out, as you can see in that 
article, many of those anomalies.
    We're actively trying to investigate those, and where we 
can, we're sharing with the Colombian Government certain 
information that they may be able to do some proactive things. 
But it's a rule based computer system that analyzes trade 
disparities.
    Mr. Mica. I guess to make money laundering and combating 
money laundering a priority in agencies a directive would have 
to come from either I guess the Attorney General, one of the 
primary jurisdictional principles, or the Secretary of the 
Treasury, I guess. Are there letters or edicts or 
communications that set forth money laundering as a priority, 
Ms. Warren?
    Ms. Warren. Yes. There is a joint memorandum that went out 
from the Secretary of Treasury and the Attorney General to the 
Federal prosecutors as well as the Federal agency heads.
    Mr. Mica. When was that, and could you provide this 
subcommittee with a copy?
    Ms. Warren. A copy can be provided, and it was in March, a 
few months ago. It directed them to the importance of following 
the money, the importance of looking at every possible 
investigative technique, and training our personnel.
    Mr. Mica. And for the record, just provide us a copy. And 
then any of the items that were outlined, maybe a brief 
progress report since it was issued.
    The other thing that is necessary is resources to go after 
combating money laundering in the budgets of the Department of 
Justice and Treasury Department. Were there additional 
resources requested in the budgets and what's the status of 
those? Maybe you could start with Justice. Ms. Warren, are you 
familiar?
    Ms. Warren. I know that each of the components have 
requested over the past few years additional money.
    Mr. Mica. I'm talking about in fiscal year 2001.
    Ms. Warren. I'm just not that familiar and I can only 
answer generically.
    Mr. Mica. Could you provide that for the committee, too? 
Because I think it's important that we see what has been 
requested and then where we are, particularly at this critical 
time in the appropriations process. We have a problem if you 
aren't requesting the resources, because God knows everybody 
requests all kinds of things from us. But we have a problem if 
you're not requesting them.
    And then if the request is in jeopardy or if there is a 
problem, this is the perfect time to look at that. Who's from 
Treasury? I guess we are sort of stuck with Mr. Varrone. He's 
down the pike.
    Mr. Varrone. Well, I can say that the Treasury Department's 
budget----
    Mr. Mica. I'm sorry, I apologize, Mr. Wechsler. I had to 
pick on Mr. Varrone because I know him better. But it looks 
like you're up the pike. Can you provide us with the same 
information?
    Mr. Wechsler. Absolutely. And the requests have increased 
this year. And we would love to work with you.
    Mr. Mica. Specifically to go after money laundering?
    Mr. Wechsler. Specifically for money laundering.
    Mr. Mica. You don't know the status of that request?
    Mr. Wechsler. We will get you all the numbers and status, 
sir.
    Mr. Mica. Can you? Because it's nice to have these 
hearings, but if we aren't doing something to see that our 
investigations and oversight are translated into some actions, 
we're all wasting our time.
    I have no further questions. Mr. Cummings.
    Mr. Cummings. I just want to thank you.
    Mr. Mica. Thank you. I thank the panelists. We appreciate 
your participation and look forward to your working with us to 
make this a more effective effort.
    I'll call our second panel this morning. The second panel 
this morning consists of two individuals. The first is Mr. 
Raymond W. Baker, and he's with the Center for International 
Policy. The second one is Mr. Kenneth Rijock, and he is an 
aviation and financial crime consultant. Those are our two 
witnesses on this panel.
    Both of you are, I think, new witnesses to the 
subcommittee. This is an investigations and oversight 
subcommittee of the House of Representatives, part of the 
Government Reform Committee. In that regard, we do swear in our 
witnesses. Also, if you have any lengthy statement, more than 5 
minutes, we'd like you to submit that for the record and 
summarize verbally to the subcommittee your comments. Upon 
request, your entire statement will be made part of the record, 
and we'll also upon request include additional data, 
information and background as part of the record.
    You can remain standing. Please raise your rights hand to 
be sworn.
    [Witnesses sworn.]
    Mr. Mica. The witnesses answered in the affirmative. I'm 
pleased to welcome both of you this morning to provide your 
insight and testimony to our subcommittee on the problem of 
money laundering. Hopefully, we can hear also some of your 
recommendations for doing a better job in that regard.
    I'd like to recognize first Mr. Raymond W. Baker, and he is 
with the Center for International Policy. Welcome, sir, and 
you're recognized.

   STATEMENTS OF RAYMOND W. BAKER, CENTER FOR INTERNATIONAL 
  POLICY; AND KENNETH W. RIJOCK, AVIATION AND FINANCIAL CRIME 
                           CONSULTANT

    Mr. Baker. Mr. Chairman, distinguished members of the 
committee, thank you for the opportunity to appear before you. 
I am Raymond Baker, a senior fellow at the Center for 
International Policy, and recently a guest scholar at the 
Brookings Institution studying money laundering and flight 
capital.
    I would like to put forward and elaborate briefly on three 
points. One, there has been an absolute explosion in the volume 
of dirty money during this, the first decade of the globalizing 
world. Two, the U.S. Treasury Department estimates that 99.9 
percent of the laundered criminal money that is presented for 
deposit in the United States gets comfortably into secure 
accounts. Three, at the core of our anti-money laundering 
efforts for many years has resided a basic intellectual flaw.
    The issue of dirty money can be most easily approached by 
breaking it down into its three principal, though sometimes 
intermixed, components: criminal, corrupt and commercial. The 
criminal component arises from the proceeds of scheduled crimes 
that violate anti-money laundering legislation. The corrupt 
component refers to receipts generated through bribery and 
theft by foreign government officials. The commercial component 
is transactionally procured and derived from tax evasion out of 
other countries, also called illegal flight capital.
    The criminal component of dirty money is often estimated at 
perhaps $500 billion to $600 billion a year. The corrupt 
component I have estimated at $20 billion to $40 billion per 
year. And while it is the smallest of the three, it has a 
multiplier effect on the other two.
    The commercial component I have also studied and would put 
at roughly $500 billion a year, comparable to the criminal 
component. The combination of the three, therefore, amasses to 
more than $1 trillion a year, passing into western coffers. 
Other estimates range from a half trillion to $3 trillion 
annually. But regardless of where the most accurate figure 
rests, dirty money clearly constitutes the biggest loophole in 
the free market system.
    Virtually all of this flow is facilitated by business 
people and bankers in the United States and Europe, often 
acting lawfully or taking advantage of gaps, ambiguities and 
contradictions in laws, regulations and enforcement. In my 
written statement, I have provided a number of examples of 
this. Suffice it to say that it is the process of cooperation 
in moving corrupt and tax evading money that undermines our 
ability to curtail the flow of criminal money.
    Dirty money from corruption and commercial tax evasion 
brings the benefit of several hundred billion dollars a year 
spread across the United States and Europe in bank deposits, 
markets and properties. The cost of this inflow can be seen in 
the impact on both our domestic and foreign interests. 
Domestically, the proceeds of tax evasion and corruption 
provide the cover that is necessary for laundering of criminal 
money, making it possible for 99.9 percent of laundered money, 
Treasury's own estimate, to pass into U.S. accounts.
    Indeed, the easiest thing for criminals to do is to make 
their criminal money look like it is merely corrupt or tax 
evading money. And when they do, we usher it readily into our 
economy. Our pursuit of corrupt wealth and illegal flight 
capital effectively removes anti-money laundering as an 
instrument in our fight against drugs, crime and terrorism.
    Similarly, concerning our foreign interests, the pursuit of 
dirty money erodes our strategic objectives in the transitional 
economies of former communist countries and badly impairs 
economic progress in developing countries, contributing to 
political instability.
    For many years, an implicit cost benefit analysis has 
suggested that the inflow of corrupt and tax evading money into 
the United States is beneficial. In fact, that case cannot be 
made. Current U.S. laws, regulations and government practices 
attempt to attack criminal money while preserving our 
opportunity to solicit and welcome corrupt and tax evading 
money. With this approach, the United States would never 
effectively curtail the staggering inflow of criminal proceeds.
    Therein lies the intellectual flaw. This contradictory 
process simply cannot work.
    Mr. Chairman, we have a decision to make as a society. 
Which is more important to us, to fight drugs, crime and 
terrorism with all legal and reasonable means at our disposal? 
Or to pursue the billions in corrupt and tax evading dollars 
that can be drawn out of other countries into our economy? This 
decision will significantly influence the outcome of the issues 
that have been so important to you.
    Thank you.
    [The prepared statement of Mr. Baker follows:]

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    Mr. Mica. Thank you for your testimony.
    I'm now pleased to recognize Mr. Kenneth Rijock, an 
aviation and financial crime consultant. Welcome, sir. You're 
recognized and we appreciate your coming forward to testify.
    Mr. Rijock. Thank you, sir. I'd like to thank the 
subcommittee and Chairman Mica for the invitation to testify 
today on international money laundering and its relationship to 
illegal drug trafficking.
    My name is Kenneth Rijock, and I was for 10 years a career 
money launderer for narcotics trafficking organizations who 
smuggled drugs through Florida and thereafter distributed them 
throughout the United States and Canada. It was my 
responsibility to ensure that the proceeds of narcotics crime 
made it safely through the world banking system and into the 
tax havens, whose offshore jurisdictions attracted dirty money 
by combining bank secrecy with a legal obscenity known as 
corporation secrecy.
    I was able to operate with virtual invincibility from law 
enforcement attack due to these laws. The tax havens are the 
most powerful ally drug traffickers have. Without a protected 
venue to hold their wealth in transition, these vast funds 
would be exposed to seizure and forfeiture. Only by targeting 
their illegal activities and shutting down their operations can 
we hope to seriously impact the money laundering activities of 
narcotics traffickers.
    After serving time in Federal prison for my crimes, I have 
spent the last 8 years teaching money laundering techniques to 
law enforcement, my former adversaries. I teach from my own 
personal experience and from my study of the developing 
dynamics of money laundering tactics and strategy, with the 
goal of stopping the investment of the end results of drug 
crime into our domestic economy.
    I believe that the international money laundering situation 
is out of control in the western hemisphere, and our efforts to 
date have failed to seriously impact or damage its successful 
operation. We simply have not efficiently mobilized our law 
enforcement resources to either interdict or suppress the 
crime. Remembering that the cash profits of narcotics activity 
are the sole weak link in the never ending story of drug 
commerce, our Government must recognize that current efforts 
are not working, and make a quantum leap to a different type of 
comprehensive program, one that gets results.
    Present efforts are reactive, not proactive, and at best 
expose only a small percentage of ongoing money laundering 
operations. Let's talk about some of the fundamental weaknesses 
of our current efforts. Perhaps by understanding the inherent 
problems, we can strive for a positive solution.
    First, our law enforcement efforts are largely conducted by 
agents and officers without advanced degrees in finance and 
law, and who have generally never worked in a commercial 
business setting. How can we expect them to uncover money 
laundering crime if they don't have a clear understanding of 
the day to day business operations with all their complexities 
of our economy?
    We must establish long term educational requirements for 
these law enforcement agencies entrusted with the 
responsibility for money laundering interdiction. Post-graduate 
degrees in relevant and important fields should be encouraged, 
subsidized and required.
    Second, the rotation system in general use by Federal law 
enforcement, where an agent is routinely transferred to a new 
location and assignment just when he is becoming proficient at 
his current job, has got to change. One of the lessons of the 
Vietnam conflict was that this practice takes the experienced 
person away at the wrong time. Frankly, I don't subscribe to 
the notion that variety for the purposes of career enhancement 
is more important than getting the job done. I have seen far 
too many instances of newly transferred unit commanders needing 
several months to become familiar with and proficient in their 
new assignments. This simply has to change.
    Third, I can tell you from personal experience that 
narcotics traffickers and their money laundering cohorts 
exploit law enforcement's seniority system. When all of your 
experienced senior agents are watching the Redskins game on 
Sunday, leaving more junior, inexperienced hands on duty during 
the infinite number of off days and legal holidays, the dope 
comes in and the money goes out right past the people least 
qualified to recognize what's happening.
    Duty assignments can no longer reward those with the most 
time in grade. We need those people in the field during high 
risk periods.
    Fourth, let's take a page from the business world. The 
airlines of the United States routinely hire experienced 
military aviators to be commercial pilots because they are 
qualified. But instead of hiring qualified individuals from the 
ranks of the business world, our Federal law enforcement draws 
upon State and local enforcement where it is most unlikely they 
will obtain agents with the skills necessary to identify and 
interdict financial crime.
    I realize that we'll have to pay these new hires from the 
private sector more money than a young State or local police 
officer. But we need business experience in the field of 
business crime.
    Fifth, we fail to field a sufficient number of law 
enforcement staff in money laundering investigations. The 
agents are vastly outnumbered by the number of major money 
laundering operators. How can we hope to make serious inroads 
affecting the multi-billion dollar multi-laundering engine when 
we fail to detail sufficient staff to the task? Not to mention 
that the actual dimensions of the scope of money laundering 
activities are unknown and nobody seems overly concerned about 
this critical gap in our knowledge.
    Another applicable lesson from the Vietnam conflict was the 
failure of our Government to realize how vastly outnumbered our 
infantry was in the field. I fear that we are understaffed in 
money laundering investigations in every major city where a 
substantial amount of international trade occurs.
    Last, we must adequately train our investigators. Send them 
to the tax havens to learn the mechanics of offshore banking. 
Take them into several financial institutions to understand the 
problems and vulnerabilities. Instruct them in generally 
accepted accounting procedures. Show them money laundering 
scenarios from the perspective of how they can be detected 
through adequate knowledge of business practices. Only then can 
we expect to glean acceptable results.
    After we have properly equipped our law enforcement to meet 
the challenges of international money laundering, we must then 
support them in their efforts by moving forward, by passing 
pending legislation which will assist them. The prohibition of 
commerce with tax haven banks and the Bulk Cash Smuggling Act 
are but two notable examples of how this could be accomplished.
    We must also begin to strictly enforce the laws we have. No 
federally chartered commercial bank has ever lost its charter 
for money laundering violations, no matter how serious the 
crime. Senior bank officers themselves are rarely indicted for 
money laundering. The institution simply pays a multi-million 
dollar fine.
    This has got to change. Only now are we going to name and 
ostracize the most blatant offshore tax haven banks. We still 
don't indict their presidents and directors for violation of 
the Money Laundering Control Act. Make no mistake: money 
laundering is financial terrorism. And unless we change the way 
we attack its operations, it will not only flourish, but 
continue to impact our lives in an adverse manner, whether 
through the hotel in Georgetown purchased with laundered funds 
or soft money funneled to achieve the goals of criminal 
enterprise, or economic control of a friendly Third World 
country.
    If we don't vigorously attack its machinery, and disrupt 
its operations, then the influence and power of narcotics 
traffickers will continue to grow.
    Thank you.
    [The prepared statement of Mr. Rijock follows:]

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    Mr. Mica. Thank you both for your testimony.
    Reading back through your testimony, the testimony of our 
first witness, Mr. Baker, you cite the problem, and I'm 
concerned that I don't see harder recommendations for 
solutions. We know what the problem is, everybody's testified 
that there's a dramatic increase in money laundering. Some of 
your recommendations here, consistency of regulatory 
requirements and oversight of major sectors of community.
    Again, maybe we could take a specific example. We received 
information from the Russian Central Bank that this island 
nation, this small island nation, is moving $70 billion. Now, 
that seems fairly easy to track that in money flowing back into 
the U.S. banks. Why can't we get a handle on going after these 
folks or making it a matter of policy to search out money 
laundering in a case like that?
    Mr. Baker. Mr. Chairman, let me comment on the Russian 
situation a bit more broadly, if I may. Out of Russia has come 
something on the order of $200 billion to $500 billion over the 
past decade, the greatest illicit diversion of resources that 
has ever come out of any country in a short period of time. 
Much of that money was criminal in origin, much of it was tax 
evading in origin, much of it was theft by government 
officials. It was a combination of all.
    Let's take Bank of New York, for example. Bank of New York 
went across the financial landscape of Russia with a vacuum 
cleaner and sucked up every correspondent banking relationship 
it could, perhaps not every one. But my understanding is 
several hundred.
    I would respectfully suggest that in the process of 
establishing several hundred correspondent banking 
relationships in Russia, you know going into that situation 
that you're going to be handling a combination of criminal and 
corrupt and commercially tax evading money, a combination of 
stolen money. You know that. That was perfectly legal for them 
to do, to establish such correspondent banking relationships.
    Now, how can we necessarily expect to be able to control 
what's going on in Nauru when we can't control what's going on 
in New York City? We've received a great deal of money from 
Russia through correspondent banks.
    Mr. Mica. My question is, we know the money's coming in in 
direct transfers and also through sham transfers, through 
several other banking institutions, or covered corporations, 
whatever, we have uncovered incredible sums of illegal money. 
We have an instance here with an island nation where the 
Russian banks give us information of $70 billion going through 
a small island nation. And I don't know that we really pursued 
that particular case actively. Is this a lack of will, a lack 
of policy, a lack of law, a lack of being able to deal with 
that kind of transfer activity?
    Mr. Baker. Certainly we are hamstrung by a lack of law. The 
solution to the problem is to have the power to cutoff 
correspondent banking relationships.
    Mr. Mica. You're saying that there is a lack of law that 
does not allow us to go after, if we know where that $70 
billion was transferred into the United States, we can't touch 
it or go after it?
    Mr. Baker. That's my understanding, Mr. Chairman. It 
normally is transferred in in the form of overnight deposits 
and frequently transferred back out again in the form of 
overnight deposits. It's the ability to cutoff the overnight 
deposits from tax havens and bank secrecy jurisdictions that 
would give us the power of putting such island tax havens out 
of business.
    Mr. Mica. You testified, sir, that you didn't feel our 
policy was proactive.
    Mr. Rijock. No, sir, I do not. Going back to your example, 
you wanted to know why the gentlemen that were sitting at this 
table can't give you a straight answer to the question of where 
is this money. The short answer is that the level of 
sophistication of international money laundering is frankly 
beyond the capabilities of the average law enforcement 
individual.
    Most law enforcement agencies neither have the budget, the 
inclination or the staffing to send six people tonight to 
Nauru, posing as tourists, to spend 3 months there, riding 
around in taxicabs, acquiring intelligence, talking to 
individuals, engaging in bogus transactions, to learn how it 
works. Not to mention the fact that the moment they get off the 
plane, they're made by somebody in the hire of one of these 
institutions or one of the criminal cartels.
    The transfers that you're referring to, sir, are intricate 
and quite complex. They involve what's called layering. What 
would happen is, let's take $5 million sitting in a bank 
account in Nauru. The next day it goes to Taiwan; 2 days later, 
it's in the account of a French mortgage company; 3 weeks later 
it ends up in a Panamanian corporation with bearer shares.
    It ends up being used to obtain a loan in a western 
European country, totally kosher. Comes into the United States 
and only if somebody wants to backtrack 17 steps and has the 
time and is not under pressure from his own bureaucracy to come 
up with fast results, can that individual actually criss-cross 
the globe and come up with those answers.
    And if money laundering institutions which are very well 
organized by now know that, we're not talking about people from 
Miami with gold around their neck, sir. We're talking about 
people with Ivy League law and MBA degrees who sit in some of 
the biggest cities in the United States and form overseas 
companies without so much as picking up a telephone. We're 
talking about organizations that are so sophisticated that they 
almost defy description.
    And they've been in place now for 20 years, they're getting 
better and better. And that's why more money is moving.
    Mr. Mica. Do you believe that there are enough laws on the 
books or adequate laws to deal with this situation, 
domestically? And then what are the problems internationally?
    Mr. Rijock. Well, the international problem appears to be a 
failure of purpose. We treat Iraq, Iran and any other terrorist 
country to a level at which we can deal with the problem. 
Financial terrorism is money laundering. And we have yet to 
come to the conclusion that that's just as much a clear and 
present danger to our country as gas warfare from Iraq.
    In 1 week, we could shut down these tax havens. But nobody 
in the present administration, quite candidly, wants to pick up 
the ticket for that. All we would have to do, sir, is No. 1, 
shut off air travel, just like we do to the terrorist nations. 
No. 2, declare that for national security purposes there shall 
be no more banking relations between American banks and banks 
in those tax haven countries.
    And three, let's take all these foreign branches that all 
of our big banks in the United States have in the tax havens 
and let's declare them defunct. Our Government has got the 
ability to do these things. As to whether or not somebody's 
going to get serious with it is another story.
    The traffickers just keep making more and more money. Last 
year, they literally took over the government in St. Kitts. And 
they turned it into the world's first narco-dictatorship. Well, 
that's the shape of things to come. We're going to find that 
more and more of these tax havens are going to have so much 
wealth and so much power they don't need our tax dollars, they 
don't need our aid money, they don't need anything from us 
except to be a conduit for dirty money, sir.
    Mr. Mica. Well, the other problem we have is even if we 
gave Treasury, say, the authority to cutoff correspondent bank 
accounts, would the Treasury use that authority, the will to 
even implement that type of action. What do you think, Mr. 
Baker?
    Mr. Baker. That's the key question, Mr. Chairman, would we 
have the will to do so. And I'm not certain of that. These sums 
bring a great deal of money into the United States. And they 
are mixed, criminal inflows are mixed with commercial and 
corrupt inflows. And we have not yet decided that we want to 
cutoff the whole of the dirty money problem.
    If I may, Mr. Chairman, comment a bit on Mr. Rijock's 
statement. I agree with his analysis of how you move money from 
one place to another. And he says this has been going on for 20 
years.
    I would like to make the point that the process of moving 
corrupt and tax evading money out of developing countries and 
now transitional economies has been going on for decades and 
decades, a long time. It is precisely the same process. There's 
no difference in the process.
    We created the channels through which that kind of money 
flows. Money launderers have not invented any new ways of doing 
this. They have merely stepped into the same procedures that we 
have cultivated and used to move corrupt and tax evading money.
    For 35 years, I've been in the private sector before coming 
to Brookings Institution, doing business all over the world, 
including consulting and advisory work. I have never heard of a 
scheme in the business of moving criminal money that I have not 
observed first in the business of moving corrupt and tax 
evading money. We attach the name money laundering to that part 
of the process that we don't like. We attach the names good 
business and good banking to the parts of the process that we 
do like.
    But the process is the same across all three forms of dirty 
money.
    Mr. Mica. So Mr. Rijock, you have cited both in your 
testimony and in response to a question that the need to really 
have a qualified force of professionals, because this is a very 
complex trail that you have to pursue and it takes a certain 
amount of skills. And you say that we don't have those forces 
in place to deal with the modern transactional pattern that 
these money launderers are developing.
    Mr. Rijock. Well, our problem, sir, is that we generally 
take our law enforcement from people who are already on duty 
and transition people who are involved in interdicting other 
crimes into financial crime. We don't take people who have come 
from a business background. That's a rare exception in my 
experience.
    I've been teaching money laundering all across North 
American for 8 years. And I'll stand up in front of the class 
and I'll hold up a copy of Money Laundering Alert, which for 
anybody in this business, it's the Time magazine of money 
laundering. Two-thirds of the people in the room won't even 
know what it is, which means that there's a basic lack of 
information intake.
    Mr. Mica. They also trashed it today.
    Mr. Rijock. Yes, I understand that, sir, because of the 
article on the 24 percent.
    Mr. Mica. It appears that they've at least monitored the 
same type of activity, which was prime money laundering case 
referrals over that period. So that should be an accurate 
reflection or at least a snapshot of that activity?
    Mr. Rijock. Well, sir, the basic problem is priorities. If 
you were to take somebody in Federal law enforcement and ask 
them which do they want to go after first, the drugs or the 
money, they will always tell you they want the drugs today and 
the money tomorrow. Independent money laundering investigations 
where that's the only thing they're going after is a money 
laundering syndicate, are not anything compared to the number 
of criminal narcotics investigations.
    And that's where we go wrong. Because we're not putting up 
a Chinese wall between our white collar crime people and our 
drug people. Problem being that there's always going to be 
pressure to show results that play very well on the 6 o'clock 
news. And 500 kilos of cocaine looks a lot better than one 
cashier's check for $100 million from a bank in the South 
Pacific. That's the basic problem, it's a priority problem.
    Mr. Mica. Well, we know who some of the enemies are. Now 
they've identified them, I think they've identified the 15 top 
offenders. What do you think should be done next? It doesn't 
sound like they have a game plan in place to deal with these 
top offenders. How would you proceed?
    Mr. Rijock. Sir, when I teach my class, I hand out to them 
a list produced by the Commissioner of Internal Revenue in 
1981, which lists all of the major tax havens of the world. 
With a few additions, it's basically the same. We have known 
for two decades about these tax havens. Calling them outlaw 
financial institutions, denominating them as such, doesn't do 
anything. If you look at a few days before the FATF came out 
with its list, all of a sudden you find that both Bermuda and 
the Cayman Islands are now rushing to say that they are now 
going to expose their records to us for tax evasion issues.
    However, if you look at it closely, you'll see that they'll 
do some of it in 2003 and the balance by 2005. Well, I can tell 
you from my own experience that within 1 week, I would have 
moved all of my clients' dirty money out of the Cayman Islands 
and into a tax haven not on the list or too new to be 
recognized, or created just for that purpose.
    And it's just window dressing, sir. Calling them tax 
havens, all it does is put it out in the public what everybody 
has known for two decades. We need to do something a lot more 
proactive. And that is, we need to make them financial pariahs. 
If we don't do that, we'll never stop it.
    Mr. Mica. Mr. Baker.
    Mr. Baker. Mr. Chairman, going along with Mr. Rijock's 
point, I have stated earlier, 4 or some months ago, that I 
would give these tax havens and bank secrecy jurisdictions 18 
months to pass U.S. anti-money laundering scrutiny. And if they 
did not do so by implementing the necessary anti-money 
laundering procedures that are required by FATF, the 40 
recommended procedures, then they would lose their 
correspondent banking relationships with the United States at 
the end of that time.
    That's a tough approach. I would give them no more than 18 
months to satisfy us that their anti-money laundering 
procedures are in place and working.
    Mr. Mica. Possibly we need money laundering certification 
law that would encompass that provision. That might be 
interesting.
    Mr. Rijock. The problem, sir, is time. And we don't have 
time any more. Because narcotics traffickers have had so many 
years to consolidate their gains, to double the production of 
cocaine. If we're going to wait 18 months to finally clamp down 
the hammer, 18 months from now the FARC may control Colombia. 
Eighteen months from now, there may be more heroin on the 
street in Orange Country than there is in China.
    We can't really wait that long. Some group----
    Mr. Mica. I think we're already there on both accounts.
    Mr. Rijock. I know, but some agency has to pick up the 
responsibility to prioritize this issue. It can no longer be 
one where it's one of the six things that the agency does, and 
it does it because it's got a mandate to do so. Frankly, 
although I really am a foe of governmental bureaucracy, it 
might be time to create a new agency, an agency whose sole 
operation is to disrupt financial crime. Not to handle 
kidnappings, not to handle narcotics. Just to go after the 
proceeds of crime.
    And we have to remember that that's what this is. These 
funds are the proceeds of crime. We cannot stop narcotics from 
coming into this country in a free and open society. But we can 
sure as heck shut down these organizations by taking away their 
profits.
    Mr. Mica. Would you recommend that both on a domestic and 
international or separate them out?
    Mr. Rijock. Well, I think, frankly, the international 
sphere is the one in which we have fallen down so far. That's 
the one in which, when I have a group of students in the room 
and I find that not one of them has ever even been to the tax 
havens, how would they even understand and identify the problem 
if they're not familiar with it?
    Granted, it's a much more difficult task if you couple 
domestic with international money laundering. Domestic money 
laundering, thank God, it's here. We can seize assets here, we 
can arrest bankers, we can arrest individuals. Overseas, people 
may be totally immune from prosecution for political, economic 
or monetary reasons. So the international one is the first 
priority.
    I would hope that our law enforcement agencies in the 
United States could eventually get a handle on domestic money 
laundering, as they have passed a number of the serious banking 
regulation code.
    Mr. Mica. Are either of you familiar with whether the EU or 
the U.N. are doing anything in this regard?
    Mr. Baker. The EU, Mr. Chairman, is only now in the process 
of passing, EU countries are only now in the process of passing 
regulations to outlaw bribery of foreign government officials. 
Neither of us, the EU or the United States, have yet made 
handling the proceeds of corruption an offense under anti-money 
laundering legislation. That is included in Strategy 2000. And 
that's in my judgment by far the most important provision in 
Strategy 2000.
    It is also in the House and the Senate bills. There are 
other important provisions in those bills also.
    Mr. Mica. Anything particularly lacking in the Strategy 
2000 you might recommend to enhance the effectiveness of that 
legislation? Both the legislation that's pending and also the 
strategy.
    Mr. Baker. The thrust of my testimony, Mr. Chairman, has 
been that we have to include corruption and commercial tax 
evasion within the scope of dirty money that we are trying to 
address. Secretary Summers made a very interesting statement at 
the beginning of the week. He said, ``In today's economy, it is 
vital that we put an end to international tax practices that 
encourage tax evasion and improper tax avoidance and that 
disrupt capital flows.''
    Mr. Chairman, when we take that sentiment and put it into 
Strategy 2001, make it a part of U.S. policy, then in my 
judgment we will for the first time have taken the steps 
necessary to begin to curtail the dirty money problem, 
including the money that is laundered by criminals. For the 
first time, we will have encompassed a policy that can be 
effective.
    Mr. Mica. Mr. Rijock.
    Mr. Rijock. Mr. Chairman, to answer your question about the 
European Union, we're in this all by ourselves. You need to 
understand a little bit about money laundering history. Money 
laundering statutes are taken directly from the Swiss model. 
The only impact that the European Union now has on the tax 
haven countries in the Caribbean is that they are expressing 
their intense displeasure with the fact that the money 
laundering tax havens are now pulling money out of the European 
tax havens, as for example, the Channel Islands.
    We cannot expect to get any help from that quarter. 
Unfortunately, they complicate our problem, because they 
provide another venue on a very sophisticated level. I think 
that money laundering is an American problem and we need to 
apply an American solution.
    When I used to launder cash in the Caribbean, and I would 
sit out there on the porch in St. Martin and drink a cup of 
coffee and watch the sun come up, I wondered, one of these 
days, am I ever going to see an American aircraft carrier out 
there, and are the Marines going to come ashore, arrest all the 
bankers, close down the banks, take the records, take them to 
Miami, and charge all those people in Federal court with money 
laundering. Well, that's never happened. Because nobody's 
decided that it's important enough.
    And crossing the border, unfortunately, unless it's 
Grenada, is not politically correct. The bottom line, sir, is 
that it's a threat to our national security and nobody has yet 
reached that point in their development.
    When we find that there are rumors about narcotics 
traffickers sending huge amounts of money to aid in political 
campaigns in the United States, when we find that they out and 
out aid political campaigns all over Central and South America, 
we should get nervous about that. But somehow, I'm not seeing 
that. It's out of hand, sir.
    And as far as a result, it's time for drastic measures. 
Because for the Government to come in here and say, well, we're 
looking at this and maybe in 2 years we'll have a handle on it, 
well, within 2 years, these organizations will make billions or 
trillions of dollars, will become infinitely larger, more 
powerful, will hold so much more in the way of assets that 
before you know it, we may find ourselves unwelcome in a number 
of countries in Latin America because we're not supplying the 
bulk of the money. The traffickers are.
    Mr. Mica. Well, I want to thank both of you for your 
testimony today. We are an investigations and oversight 
subcommittee of Congress, and we are trying to look at all of 
the aspects of illegal drug activity. In addition to that, we 
do oversee Department of Justice and some of the other agencies 
as far as the criminal justice system is concerned. We are 
looking for solutions, looking for problem areas and how we can 
get a better handle on this and keep legislation up with 
changing times and challenges.
    And also, to pursue agencies, both their current activities 
and future initiatives. And that's the purpose of today's 
hearing, is to see how we can do a better job and prompt them 
to action.
    I want to thank both of you again for your testimony, for 
your participation and contribution today. Hopefully it will 
help us as we do our job.
    And with that, the subcommittee stands adjourned.
    [Whereupon, at 11:45 a.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
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