U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

72–786 PDF 2012

COMBATING TRANSNATIONAL ORGANIZED CRIME: 

INTERNATIONAL MONEY LAUNDERING AS A 

THREAT TO OUR FINANCIAL SYSTEMS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CRIME, TERRORISM, 

AND HOMELAND SECURITY 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

FEBRUARY 8, 2012 

Serial No. 112–86 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

LAMAR SMITH, Texas, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

DENNIS ROSS, Florida 

SANDY ADAMS, Florida 

BEN QUAYLE, Arizona 

MARK AMODEI, Nevada 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

JARED POLIS, Colorado 

SEAN MCLAUGHLIN, Majority Chief of Staff and General Counsel 

PERRY APELBAUM, Minority Staff Director and Chief Counsel 

SUBCOMMITTEE ON CRIME, TERRORISM, AND HOMELAND SECURITY

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman 

LOUIE GOHMERT, Texas, Vice-Chairman 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

J. RANDY FORBES, Virginia 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

SANDY ADAMS, Florida 

MARK AMODEI, Nevada 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

JUDY CHU, California 

TED DEUTCH, Florida 

SHEILA JACKSON LEE, Texas 

MIKE QUIGLEY, Illinois 

JARED POLIS, Colorado 

CAROLINE LYNCH, Chief Counsel 

BOBBY VASSAR, Minority Counsel 

(III) 

C O N T E N T S 

FEBRUARY 8, 2012 

Page 

OPENING STATEMENTS 

The Honorable F. James Sensenbrenner, Jr., a Representative in Congress 

from the State of Wisconsin, and Chairman, Subcommittee on Crime, Terrorism, and Homeland Security .......................................................................... 1 

The Honorable Robert C. ‘‘Bobby’’ Scott, a Representative in Congress from 

the State of Virginia, and Ranking Member, Subcommittee on Crime, Terrorism, and Homeland Security .......................................................................... 2 

WITNESSES 

Jennifer Shasky Calvery, Chief, Asset Forfeiture and Money Laundering Section, Criminal Division, Department of Justice 

Oral Testimony ..................................................................................................... 5 

Prepared Statement ............................................................................................. 7 

Luke A. Bronin, Deputy Assistant Secretary for Terrorist Financing and 

Financial Crimes, U.S. Department of the Treasury 

Oral Testimony ..................................................................................................... 23 

Prepared Statement ............................................................................................. 25 

David B. Smith, Chair, Forfeiture Committee, National Association of Criminal Defense Lawyers 

Oral Testimony ..................................................................................................... 33 

Prepared Statement ............................................................................................. 35 

(1) 

COMBATING TRANSNATIONAL ORGANIZED 

CRIME: INTERNATIONAL MONEY LAUNDERING AS A THREAT TO OUR FINANCIAL 

SYSTEMS 

WEDNESDAY, FEBRUARY 8, 2012 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON CRIME, TERRORISM,

AND HOMELAND SECURITY, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10 a.m., in room 

2141, Rayburn Office Building, the Honorable F. James Sensenbrenner, Jr., (Chairman of the Subcommittee) presiding. 

Present: Representatives Sensenbrenner, Goodlatte, Chaffetz, 

Marino, Scott, Pierluisi, Chu, Jackson Lee, Quigley, Polis 

Staff present: (Majority) Caroline Lynch, Subcommittee Chief 

Counsel; Tony Angeli, Counsel; Arthur Radford Baker, Counsel; 

Lindsay Hamilton, Clerk; (Minority) Bobby Vassar, Subcommittee 

Chief Counsel; Joe Graupensberger, Counsel; and Veronica Eligan, 

Professional Staff Member. 

Mr. SENSENBRENNER. The Subcommittee will come to order. 

Today’s hearing examines the subject of transnational organized 

crime, specifically how international money laundering is a threat 

to our financial and banking systems. As a part of its overall national security strategy, the Administration has proposed a strategy to combat transnational organized crime. 

TOC is organized crime coordinated across national borders for 

the purpose of attaining power, influence, or financial gain, wholly 

or in part by illegal means. These criminal networks protect their 

activities through a pattern of corruption and violence, while exploiting transnational commerce. The networks can take many 

forms, such as cells, clans, or cartels, and may involve into other 

criminal structures. 

Although the crimes they commit vary, these criminal organizations share the similar primary goal of financial gain, and they use 

similar methods to achieve their profits. The use of violence to intimidate or threaten, the exploitation of differences between countries, and the influence of government, politics, and commerce 

through corrupt and legitimate means. 

Part of the Administration’s transnational organized crime, or 

TOC, strategy focuses on ensuring that our anti-money laundering 

and anti-organized crime statutes reach criminal enterprises that 

2 

target the United States, but operate globally, often outside of the 

U.S. Transnational criminals are more sophisticated than ever, and 

their growing infiltration of lawful commerce fundamentally threatens free markets and financial systems that are critical to the stability of the global economy. TOC syndicates acquire an unfair competitive advantage by disregarding the laws and norms that legitimate businesses respect. 

This proposal purports to expose and close emerging 

vulnerabilities that could be exploited by terrorist organizations 

and other elicit financial networks manipulated by transnational 

criminals. Now, more than ever, money laundering is a global phenomenon. 

Transnational criminal organizations maintain the same goal as 

most legitimate transnational corporations: increased revenue and 

profit. The return of these profits to the legitimate corporation or 

illicit organization is one point at which the common goal deviates. 

The illicit organization undertakes the launderant’s profits and 

avoid detection by law enforcement, including the payment of 

taxes. 

The increase of global commerce has brought an increase in 

cross-border movement of financial instruments, both physical and 

electronic. The presumptive goal of the TOC strategy is distinguished between the legal and illegal transactions, and to stop the 

illegal transactions which threaten our financial security, as well 

as the integrity of our Nation’s banking systems. 

This hearing will focus on the current trends in money laundering by transnational criminal organizations and the mechanisms they use to launder illegal profits of any kind, and the legal 

enterprises that they use to hide and/or launder income. 

We will also learn how international money laundering threatens 

the financial and banking systems of the United States. We then 

will ascertain whether there may be loopholes in current Federal 

law which may need to be closed to better protect our national security. 

I look forward to hearing more about the proposals advanced by 

the Department of Justice for implementing the TOC strategy and 

how these matters are important to our national security. 

I would like to thank our witnesses for participating in today’s 

hearing. 

It is now my pleasure to recognize for his opening statement, the 

Ranking Member of the Subcommittee, gentleman from Virginia, 

Mr. Scott? 

Mr. SCOTT. Thank you, Mr. Chairman. And I thank you for convening the hearing. I look forward to discussing money laundering 

and its role in transnational organized crime. 

It is important for this Subcommittee to learn about crime that 

is taking place internationally that yields or relies upon funds that 

are laundered to avoid detection by law enforcement. True money 

laundering takes the proceeds from crime and converts them into 

funds which may be used by criminals in ways that appear legitimate, as they try to enjoy the fruits of their schemes. 

Of course, one of the great harms is that funds taken from crime 

victims become obscured and difficult for law enforcement to find 

and make the victims whole. 

3 

The title of the hearing refers to the potential threat money laundering poses to our financial systems. Challenges to find ways to 

combat real money laundering and protect the integrity of our financial system, while protecting the principles which are no less 

important, due process, individual liberty, privacy of law-abiding 

citizens, and the fairness of our criminal justice system. 

For example, it is often difficult to separate the money laundering from the actions which constitute the underlying crime, and 

prosecutors have sometimes brought charges for both, when the 

conduct was virtually indistinguishable, such as instances of mail 

and wire fraud, and conspiracy to commit those offenses. 

And we were concerned about these issues when we enacted the 

Fraud Enforcement Recovery Act of 2009, and included a sense of 

Congress that Federal prosecutors need to obtain high-level approval for certain types of money laundering prosecutions. 

While we want to do what we can to ensure the criminals don’t 

hide and keep the proceeds of illegal activity, we need to make sure 

that the anti-money laundering regulation and criminal prosecution initiatives don’t fall into the same traps that we have stepped 

into in some of our other efforts to enforce our criminal laws. 

The statutory maximum penalty for violations of principle and 

money launderings, the principle money laundering statute, section 

1956 of the Federal criminal code, is 20 years. This is a case 

whether someone is a corrupted banker, who hides money for international drug kingpins or someone who is a low-level courier with 

small amounts of money, with no knowledge of the overall money 

laundering scheme or underlying crimes. 

And there is cause for concern where it is possible for someone 

to receive a greater prison sentence for laundering money than for 

committing the underlying crime. This scheme sends the wrong 

message for—to our prosecutors, and has a negative impact on the 

allocation of resources within our system. 

It is the case of other crime problems, over-incarceration is not 

the answer. In fact, when we find that overcharging and over-incarceration is taking place, it is usually a sign that we are frustrated, 

because we have not done a better job at preventing or prosecuting 

the underlying crimes for occurring in the first place. 

We need to increase our focus on the crimes that produce the 

proceeds which are laundered, such as financial crimes, identity 

theft, organized retail theft, and cybercrime. For example, few instances of individual identity theft are even being investigated. 

When the crimes being committed are so lucrative that the volume 

of cash accumulated presents enough of a logistical problem for a 

criminal operation that they seek to launder it, we are already behind the curve. 

With those thoughts in mind, I look forward to our witnesses 

telling us more about the nature of the threats, particularly the dimensions of the transnational organized crime. And I hope we will 

discuss the ways in which we can better focus our resources on 

solving the crimes that yield the proceeds that are laundered, as 

well as how we can focus on the key players in international money 

laundering schemes, without enacting additional measures that 

scoop in unwary law-abiding citizens. 

Thank you, Mr. Chairman. I yield back. 

4 

Mr. SENSENBRENNER. Yes. I thank the Ranking Member. Without objection, other Member’s opening statements will be made 

part of the record at this point. 

And without objection, the Chair will be authorized to declare recesses during votes on the House floor. 

It is now my pleasure to introduce today’s witnesses. Jennifer 

Shasky was appointed Chief of the Asset Forfeiture and Money 

Laundering Section of the U.S. Department of Justice in July 2010. 

Ms. Shasky first joined the Department through the Attorney General’s honors program in 1997. 

For most of her first decade with the Department, she served as 

a trial attorney in the organized crime and racketeering section. 

Prior to her current job, she served as the criminal division’s office 

of the Attorney General, and then in the office of the Assistant Attorney General, and then in the office of the Deputy Attorney General. 

She received her undergraduate degree in international affairs 

from George Washington University in 1993, and her law degree 

from the University of Arizona College of Law, 1997. 

Luke Bronin is the Deputy Assistant Secretary for Terrorist Financing and Financial Crimes at the U.S. Department of the 

Treasury. Before joining the Treasury Department, he was an 

international affairs fellow with the Counsel on Foreign Relations, 

hosted by the Institute for Financial Management and Research, in 

Shani, India. 

Prior to his time with the Counsel on Foreign Relations, Mr. 

Bronin worked at the Hartford Financial Services Group as chief 

of staff to the president and chief operating officer of the property 

and casualty operations, and he also served as associate counsel 

and special assistant to the general counsel. 

He received his bachelor of arts in philosophy from Yale College 

and masters of science and economic and social history, and his jurist doctor, from Yale Law School. 

He is an officer in the U.S. Navy Reserve, and recently returned 

to the Treasury following a deployment to Kabul, Afghanistan, in 

support of Operation Enduring Freedom. 

David Smith served 8 years as a prosecutor for the criminal division of the U.S. Department of Justice, and at the U.S. attorney’s 

office in Alexandria, Virginia. At Justice, he served in the appellate 

and narcotics sections of the criminal division, and as the first deputy chief to the asset forfeiture office. 

From 1995 through 1996, he served as a part-time associate 

independent counsel in the investigation of Michael Espy, the 

former secretary of agriculture. Mr. Smith’s practice includes Federal criminal defense and criminal appeals. 

He received his bachelor of arts from the University of Pennsylvania in 1970, and is jurist doctor from Yale Law School in 1976. 

Without objection, all of the witnesses’ written testimony will be 

entered into the record in its entirety. I ask that each of you summarize his or her testimony in 5 minutes or less. 

And we have the lights all in front of you. The yellow light tells 

you to wrap it up. The red light tells you to finish. And the Chair 

is known for his strict enforcement of time limitations, as the Members of the Committee know. Ms. Shasky, why don’t you start? 

5 

TESTIMONY OF JENNIFER SHASKY CALVERY, CHIEF, ASSET 

FORFEITURE AND MONEY LAUNDERING SECTION, CRIMINAL DIVISION, DEPARTMENT OF JUSTICE 

Ms. SHASKY. Mr. Chairman, Ranking Member Scott, distinguished Members of the Committee, thank you for the opportunity 

to testify about the threats posed by transnational organized crime 

and the use of our money laundering laws to stop these groups. 

This is a topic that is very personal to me. I spent 8 years as 

a prosecutor fighting and bringing cases against the very 

transnational organized crime groups about which this hearing is 

focused. 

I then moved to the Office of the Deputy Attorney General. The 

Office of the Deputy Attorney General leads the Department’s effort to craft a comprehensive strategy to confront these same 

groups. During that time, I initiated and then became the first 

head of the International Organized Crime Intelligence and Operations Center, which gives law enforcement the capacity to share 

information and coordinate multidistrict cases. 

I can tell you from experience, the threat posed by transnational 

organized crime to our people, our businesses, and our institutions 

is real, and it is sobering. We are talking about groups, some of 

which have billions of dollars at their disposal. They have the 

money to engage in corruption on a global scale and at the highest 

levels of government. They have the money to pay the brightest 

business and technical experts to develop their criminal schemes. 

They move into legitimate business, they corrupt markets, and 

they undermine competition. They perpetrate a broad array of 

crimes significantly impacting the average U.S. citizen. These include crimes ranging from cybercrime, drug trafficking, and the associated violence, identity theft, intellectual property theft, and sophisticated frauds, which include schemes targeting government 

programs, like Medicare or tax fraud. Perhaps, most alarmingly, 

they develop alliances with foreign intelligence services and terrorist organizations operating against U.S. interests. 

In some, they pose a uniquely modern threat to our economy and 

our national security. Yet, through my experiences combating 

transnational organized crime, one thing has become increasingly 

and unmistakably clear: Money is what motivates, and it is what 

empowers these groups. But it is also their Achilles heel. 

Transnational organized crime is a business, and like any business, profit is their primary motivation. Because money is the foundation on which these criminal organizations operate, our money 

laundering laws are our primary means to stop them. It is their 

core vulnerability. By taking their operating capital through money 

laundering prosecutions and forfeiture, we undermine their ability 

to harm our people, our businesses, and our institutions. 

So, it is with this conviction and a desire to get back on the 

frontlines in a meaningful way that just over a year ago I left the 

Deputy Attorney General’s office to become Chief of the Criminal 

Division’s Asset Forfeiture and Money Laundering Section. 

Since that time, I have seen firsthand the sophisticated means 

used by transnational criminal organizations to move and launder 

money. I have seen international drug trafficking organizations use 

trade-based money laundering schemes to move illegal proceeds. 

6 

First, in bulk cash, and then through the formal banking system, 

disguised as legitimate trade transactions. 

Consistently, we see them exploit shell companies, front companies, offshore financial centers, and free trade zones. I have seen 

Eurasian organized crime groups transmit the proceeds of 

healthcare fraud, identity theft, and cybercrime, by exploiting alternate channels outside the mainstream banking system, such as 

check cashers, money remitters, and prepaid access devices. I explain all of these methods in more depth in my testimony. 

The Department of Justice is part of a multifaceted effort to disrupt the ability of these criminal organizations to commit crimes 

and access their funds, and together, we have achieved some successes. But in far too many instances, investigations have revealed 

deficiencies in our current legal regime, exposing our failure to stay 

current with the realities of globalization and technology. 

Accordingly, the Administration has put forward a number of legislative proposals that would modernize our legal regime and enhance our ability to combat transnational organized crime. These 

include making all foreign crimes money laundering predicates, if 

the criminal proceeds are moved through the U.S.; extending our 

money laundering law to cover a wider range of money transmitting businesses operating outside the main street banking system; 

preventing criminals from evading money laundering laws, by comingling clean and dirty money; clarifying the extraterritorial application of RICO, and holding drug traffickers, who had reason to 

believe their drugs would be sent to the United States accountable, 

an issue upon which I understand Mr. Marino, of this Subcommittee, has recently introduced legislation. 

Another important legislative fix, which we have been developing 

with the Department of Treasury, would negate the utility of shell 

companies as money laundering instruments, by requiring the disclosure of beneficial ownership information. 

Finally, while money laundering is the focus of today’s hearing, 

I think it is important to also acknowledge the importance of permanently depriving these organizations of their money and criminal tools, and thus, their capacity to operate. 

I would be happy to answer any questions that the Committee 

may have. 

[The prepared statement of Ms. Calvery follows:] 

7 


JSC-1.eps
8 


JSC-2.eps
9 


JSC-3.eps
10 


JSC-4.eps
11 


JSC-5.eps
12 


JSC-6.eps
13 


JSC-7.eps
14 


JSC-8.eps
15 


JSC-9.eps
16 


JSC-10.eps
17 


JSC-11.eps
18 


JSC-12.eps
19 


JSC-13.eps
20 


JSC-14.eps
21 


JSC-15.eps
22 

Mr. SENSENBRENNER. Thank you, Ms. Shasky. 

Mr. Bronin? 


JSC-16.eps
23 

TESTIMONY OF LUKE A. BRONIN, DEPUTY ASSISTANT SECRETARY FOR TERRORIST FINANCING AND FINANCIAL 

CRIMES, U.S. DEPARTMENT OF THE TREASURY 

Mr. BRONIN. Mr. Chairman, Ranking Member Scott, distinguished Members of this Subcommittee, thank you for the opportunity to testify today. 

Transnational organized crime networks, TOC networks, have 

become increasingly globalized, sophisticated, and powerful. Today, 

they represent not just large-scale criminal enterprises, but a real 

and increasing threat to national security. 

Last summer, President Obama announced a national strategy to 

combat this growing threat. The strategy is comprehensive and aggressive. And most important for today’s hearing and for the Department of Treasury, the strategy emphasizes the importance of 

disrupting the financial networks on which transnational criminal 

organizations, TCOs, depend. 

Access to the international financial system gives TCOs the ability to hide, move, and make use of ill-gotten games on a massive 

scale. To combat the threat of international money laundering by 

TCOs, the Department of Treasury takes both a systemic and a 

targeted approach. 

On the systemic front, we work to promote transparency and to 

strengthen the anti-money laundering architecture domestically 

and globally. The U.S. has one of the strongest and most effective 

anti-money laundering regimes in the world. Suspicious activity reporting and currency transaction reporting play a vital role, shining a light on elicit activity and supporting financial investigations 

by law enforcement. 

But we do believe that there are places where even our own 

framework can be strengthened. The most basic AML precept for 

financial institutions is know your customer. The criminal actors 

can easily disguise their activities by operating in the name of shell 

companies and front companies. We believe that the absence of a 

general obligation to collect beneficial ownership information, along 

with the lack of a clear customer due diligence framework, has created some confusion and inconsistency across financial sectors. Accordingly, we intend to clarify, consolidate, and strengthen customer due diligence requirements. 

One of the greatest challenges that both financial institutions 

and law enforcement face when trying to identify and disrupt elicit 

activity is the lack of transparency and the beneficial ownership of 

legal entities. That is why we strongly support the passage of beneficial ownership legislation, which has been introduced both in the 

House and in the Senate. 

Beneficial ownership legislation would make it easier for financial institutions to conduct appropriate customer due diligence, 

easier for law enforcement to follow leads, and more difficult for 

criminals to hide behind front companies and shell companies. 

We believe these potential changes in law and in regulation will 

significantly strengthen our system’s AML defenses. But I do want 

to note that the effectiveness of the U.S. anti-money laundering regime ultimately depends on vigorous implementation. And when 

banks let down their guard, the financial system can be compromised. 

24 

In one recent case that highlights that risk, a large finance institution failed to monitor effectively more than $420 billion in crossborder financial transactions, with high-risk Mexican currency exchange houses, including millions of dollars subsequently used to 

purchase airplanes for narcotics traffickers. Because of the size, efficiency, and legitimacy of the U.S. banking system, criminal organizations will always probe at its weak points, and we need to stay 

vigilant. 

As we work to promote transparency and to strengthen the AML 

architecture domestically and around the world, we will continue to 

use our targeted authorities to disrupt the financial networks of 

TCOs. 

Since June of 2000, over 1,000 individuals and entities have been 

designated under the Foreign Narcotics Kingpin Designation Act. 

Last summer, President Obama signed Executive Order 13581, 

identifying and imposing sanctions on four significant TCOs, the 

Brother’s Circle, also known as the Moscow Center, the Camorra, 

the Yakuza, and Los Zetas. We are working to designate entities 

and individuals related to those TCOs. 

Finally, we will continue to use section 311 of the Patriot Act, a 

powerful tool that, in practical terms, enables us to cut off from the 

U.S. financial system foreign financial institutions that pose a significant money laundering risk. You may be familiar with and I 

will be happy to talk about Treasury’s February 2011 identification 

of the Beirut-based Lebanese-Canadian bank, under section 311, a 

perfect illustration both of the threat we face, and of the tools we 

can use. 

To break the economic power of transnational criminal organizations, and to protect the U.S. financial system from penetration 

and abuse, we must continue to attack the financial underpinnings 

of TOC networks, strip them of their elicit wealth, sever their access to the financial system, expose their criminal activities hidden 

behind legitimate fronts, and protect the integrity of the U.S. financial system. 

Thank you. 

[The prepared statement of Mr. Bronin follows:] 

25 


Bronin-1.eps
26 


Bronin-2.eps
27 


Bronin-3.eps
28 


Bronin-4.eps
29 


Bronin-5.eps
30 


Bronin-6.eps
31 


Bronin-7.eps
32 

Mr. SENSENBRENNER. Thank you, Mr. Bronin. 

Mr. Smith? 


Bronin-8.eps
33 

TESTIMONY OF DAVID B. SMITH, CHAIR, FORFEITURE COMMITTEE, NATIONAL ASSOCIATION OF CRIMINAL DEFENSE 

LAWYERS 

Mr. SMITH. Thank you, Mr. Chairman. 

Although the money laundering laws were enacted with a narrow 

purpose in mind, to take the profit out of drug trafficking and organized crime, the laws were written so broadly in 1986 that they 

were made to cover many transactions that don’t fit the common 

understanding of money laundering, since they don’t conceal any 

transactions, and in some cases, even apply to clean money. 

Many of these transactions that are criminalized by the money 

laundering statutes are routine and innocent in nature, such as depositing a check in your own bank account, and do not add anything to the social harm flowing from the underlying predicate 

crimes. Thus, no purpose is served by criminalizing those innocent 

transactions. 

The last two decades have witnessed an alarming further expansion of the money laundering statutes by the Department of Justice 

and the Congress. Once a tool primarily intended for drug or racketeering cases, these laws are now applied to almost every Federal 

felony offense, and the current legislation on the table today would 

apply the money laundering laws to every single Federal felony, as 

well as a few misdemeanors. 

I would like to quote something Attorney General Edwin Meese 

said in 2003. He was Attorney General when the Money Laundering Control Act became law. And in 2003, he said the money 

laundering laws have been used in circumstances that are considerably different from the original intent of the law. ‘‘When money 

laundering statutes are used simply to pile on charges where major 

financial manipulation was not the intent, nor was it related to 

syndicated crime, then I think the statutes would be misused.’’ 

We also quoted Deputy Attorney General Larry Thompson saying 

more or less the same thing in a Law Review article. And this statute has really become almost a Frankenstein monster in the criminal code. It is the most overused and abused statute in the code, 

and compounding the statute’s over-breadth is the prosecutorial 

practice of piling on money laundering charges that are simply incidental to and indistinguishable from the underlying offense, the socalled merger cases, which gave the Supreme Court so much concern in the recent Santos decision, which, by the way, was written 

by Justice Scalia. 

And prosecutors have also routinely charged money laundering 

where the defendant has done no more than deposit the proceeds 

of some unlawful activity into his bank account, even though the 

bank account is clearly identifiable as belonging to him. This is 

usually done under the promotion prong of section 1956, which 

serves no purpose, except to increase the penalties for the underlying predicate felony. Promotion offenses are not really money 

laundering at all, and do not increase the social harm from the underlying felony offense. 

The courts have interpreted the promotion prong very broadly, so 

that all you have to do is deposit the proceeds of crime in your own 

bank account, and the money from the bank account is used in any 

way, such as in one actual case, to buy pencils for your secretarial 

34 

staff. That constitutes money laundering, because you have somehow promoted the criminal activity by supplying these pencils to 

your secretaries. 

Given this unfortunate legal landscape, our primary message to 

the Committee today is that the Committee should exercise great 

caution when considering proposals to further expand the already 

vastly overbroad money laundering laws. And we do agree that the 

problems of combating transnational crime are serious, and that 

Congress should help the government do something about it, but 

we don’t really see the connection between these proposals in this 

bill and helping the government combat transnational organized 

crime. Maybe it is explained in Ms. Shasky’s written statement, 

which I haven’t had a chance to read yet, but I don’t see the connection. 

But I go back quite a ways, and I have seen a lot of these bills, 

and time after time, we see the government trying to justify expansions of the criminal law by telling Congress, we need this to combat terrorism, or we need this to combat organized crime, and then 

the statute that is enacted is used 99.99 percent of the time to combat something else, that is ordinary individual criminals who are 

already covered by other laws. 

Mr. SENSENBRENNER. The gentleman’s time has expired. 

Mr. SMITH. Thank you. Thank you. 

[The prepared statement of Mr. Smith follows:] 

35 


Smith-1.eps
36 


Smith-2.eps
37 


Smith-3.eps
38 


Smith-4.eps
39 


Smith-5.eps
40 


Smith-6.eps
41 


Smith-7.eps
42 


Smith-8.eps
43 


Smith-9.eps
44 


Smith-10.eps
45 


Smith-11.eps
46 


Smith-12.eps
47 


Smith-13.eps
48 

Mr. SENSENBRENNER. Thanks to all of the witnesses. I will not 

recognize Members of the Committee under the 5-minute rule, beginning with myself. 

Ms. Shasky and Mr. Bronin, when I was Chairman of the Committee, and we were more into terrorist funding and figuring out 

how to curtail or stop that, increasingly, the method of hawala 


Smith-14.eps
49 

funding was a matter of concern. And for those who don’t know 

what hawala funding is, that has been a very informal type of arrangement, where money can be transferred across national boundaries on a strictly honor code basis, meaning somebody whose son 

in another country had run out of money at college could get a few 

hundred dollars or a few hundred pounds from mom and dad to be 

able to keep them in business until the next raid on the parental 

ex-checker. 

However, instead of being relative minor transactions, a couple 

hundred dollars or a couple hundred pounds, because this was 

strictly outside the banking system, was a cash-only transaction, 

and was done entirely on the honor system, there were increasing 

amounts of money that were transferred this way, which are very, 

very difficult to track down. But if you have a corrupt or a terrorist-infiltrated money system, that way, the terrorists that had 

been put underground in another country would have been able to 

be kept in business and, you know, kept the refrigerator full. 

What are the Justice Department and the Treasury Department 

doing to increase scrutiny on this type of funding, and how effective 

has it been? 

Ms. SHASKY. Mr. Chairman, the use of hawalas in laundering 

money outside of the formal banking system is something that the 

Department of Justice takes very seriously. And unfortunately, we 

see quite a bit of it. 

These techniques that, as you mentioned, are used by 

transnational, or—I am sorry, by terrorist organizations have also 

bled over and are being used by transnational criminal organizations. We see transnational organized crime that one day is profit 

motivated, and the next day, starts to become ideological, and looks 

more like a terrorist organization. 

We see terrorist organizations that were one day ideological start 

enjoying the profits that they are making from their crime, and become a little more like a criminal organization. So, sometimes it is 

hard to tell these apart, and their techniques bleed from one to the 

other. 

As you mentioned, hawala, or an illegal money transmitting 

business, is very difficult to investigate, and to detect in the first 

place, because it is done outside of the formal banking system, for 

the most part. Oftentimes, the only evidence that the transaction 

is occurring would be the communication, the communication between the individual in one country and the other individual in the 

United States, who are talking and agreeing that they will make 

this exchange of value. That is why we believe it is so important 

to extend our wiretap authorities to include violations of section 

1960, which would get right at this type of conduct. 

Mr. SENSENBRENNER. Mr. Bronin? 

Mr. BRONIN. Thanks, Mr. Chairman. It is an important question. 

And for the reasons you identify and Ms. Shasky identifies, it is a 

challenging issue as well. 

You know, this issue received a lot of attention around the attempted bombing in Times Square, when the terrorists involved in 

that attempt received two payments through two separate 

hawaladars. You know, I think it is important to emphasize that 

we do have the tools to go after that kind of activity. In that case, 

50 

both of those hawaladars ultimately pled guilty to operating as unregistered money service businesses. And, you know, I think that 

is an important part of the effort, both here and globally, is to try 

and bring those informal value transfer systems into the regulated 

sector by requiring them to register and subjecting them to appropriate regulation. That is something we spend a lot time promoting 

internationally as well. 

There are other tools, you know. One hawala that had the characteristics that Ms. Shasky identified was the New Ansari money 

exchange in Afghanistan. This was a hawala that was involved in 

moving billions of dollars of narcotics money in and out of Afghanistan. And we used our targeted tools, the Kingpin Designation Act, 

to designate New Ansari network, and effectively shut it down. So, 

we also—you know, whenever we can, we take the opportunity to 

disrupt that kind of activity. 

If I could just make one last quick point. Although hawalas operate on trust, as you say, they often do have to touch the banking 

sector. A lot of times they try to settle, you know, hawaladars settle 

their accounts through banks. And as a result, there are opportunities for banks to identify activity that looks suspicious and called 

to the attention of appropriate authorities. 

Thank you. 

Mr. SENSENBRENNER. Thank you very much. Gentleman from 

Virginia, Mr. Scott? 

Mr. SCOTT. Thank you, Mr. Chairman. Ms. Shasky, you mentioned several of the kinds of crimes that you are trying solve. 

Cybercrime. I.D. theft. Intellectual property. Medicare fraud. Tax 

fraud. Organized retail theft is another one that I assume would 

be involved. It seems to me that waiting on an I.D. theft to try to 

solve I.D. theft, waiting for the illegal operation to make enough 

money so that the cash—so they have got so much cash that it creates a logistical problem, seems a little late in the process to try 

to solve I.D. theft. 

Isn’t it true that very few individual I.D. theft cases are even investigated? 

Ms. SHASKY. We certainly, in any area of crime fighting, do not 

seek not to wait to allow criminal activity to continue before using 

our enforcement tools to stop it. So certainly, if we are in a position 

to prevent identity theft in the first place, we would do so, 

or—— 

Mr. SCOTT. Do you have the resources to effectively deal with individual I.D. theft? 

Ms. SHASKY. I am sorry. I didn’t—— 

Mr. SCOTT. Do you have sufficient resources to effectively deal 

with I.D. theft? 

Ms. SHASKY. We have many resources that are dedicated to dealing with identity theft. 

Mr. SCOTT. I mean isn’t it true that when people get somebody 

uses their credit card that nothing happens? 

Ms. SHASKY. I am sorry? 

Mr. SCOTT. That nothing happens, from the criminal law standard, when somebody steals someone’s credit card information. 

Ms. SHASKY. I don’t think that is correct. I believe we have many 

cases and examples, and we would be happy to—I would be happy 

51 

to take it back and follow-up, where we have convicted individuals 

for engaging in identity theft, on a massive scale. So not just someone who is stealing one identity, but individuals that are stealing 

hundreds and thousands of identities, selling those, letting them be 

putting onto stored value cards, and then going to ATMs and taking those money out of ATMs. 

In those cases, what we find to be one of the most effective tools 

is to use our money laundering and forfeiture tools to take that 

money away from the criminal organization and get it back to the 

victims. Last year, using these tools, we returned over $320 million 

to victims of crime in the United States. 

Mr. SCOTT. Approximately how many cases of I.D. theft are there 

in the consumer-level I.D. theft are there in the United States 

every year? 

Ms. SHASKY. I don’t know the answer to that, but I would be 

happy to follow-up. 

Mr. SCOTT. How much does it cost to launder money? 

Ms. SHASKY. It can—it depends on who is laundering the money 

for you, and what type of laundering technique you need. But I 

hear numbers anecdotally, and through our cases, anywhere from 

2 percent to 25 percent of the transaction. 

Mr. SCOTT. And know your customer, how much due diligence 

should a banker do before they can do business with someone? And 

are they expected to turn into law enforcement anyone who comes 

in with suspicious transactions? 

Ms. SHASKY. I would defer that question to my colleague from 

the Department of Treasury. 

Mr. SCOTT. Mr. Bronin. 

Mr. BRONIN. Thanks, Ranking Member Scott. 

You know, just to start, you know, as highlighted in my testimony, we have the strongest AML regime in the world, and banks, 

you know, as a general matter, are extremely diligent and effective 

in carrying out their AML obligations. You know, there are a lot 

of different elements of an effective customer due diligence plan. 

As I highlighted in the testimony, one of the things that we 

would like to do is sort of bring those various elements together in 

a clear way, put them in one place, so that there is, you know, less 

opportunity for confusion about what precisely those customer due 

diligence obligations are. 

You know, you raised the question of their bank’s obligation to 

notify law enforcement regulators of suspicious activity. You know, 

in general, financial institutions do have to identify all suspicious 

activity reports when they know or have reason to suspect that 

particular financial transaction is, you know, in some way related 

to a crime, to money laundering, to terrorist activity, to the broad 

range of threats that we are concerned about. 

Mr. SCOTT. Okay. And Ms. Shasky, Mr. Smith indicated that depositing money in your own checking account can constitute money 

laundering. Is that true? 

Ms. SHASKY. It depends on the facts and circumstances. If you 

deposit over $10,000 of criminal proceeds into your checking account, yes, that can be a money laundering offense. If you do that 

after you have allowed it to circulate the globe, going through free 

52 

trade zones, shell companies, and offshore centers, yes, that can be 

money laundering. 

If you do it to promote a terrorist crime, yes, that can be a form 

of terrorism finance, which is a subset of money laundering. 

Mr. SENSENBRENNER. The gentleman’s time has expired. The 

gentleman from Utah, Mr. Chaffetz. 

Mr. CHAFFETZ. Thank you. Thank you all for being here. Mr. 

Bronin, Ms. Shasky, I appreciate your efforts and the great work 

that you do. 

Help me understand the cooperating countries and maybe the 

three countries that you are having the biggest challenges and 

problems with. 

Ms. SHASKY. We have a number—we are actually quite fortunate. We have a number of very cooperative foreign partners 

throughout the world that help us on organized crime. Our biggest 

challenges, and that is from Western Europe, to Asia, to the continent of Africa, to Latin America. On every continent, we can rest 

assured that we have got good partners with whom we are working. 

Unfortunately, that is not across the board. And the areas where 

we find the biggest challenges are the countries where corruption 

remains the systemic problem. And while cooperative many times, 

we still find challenges with countries that are offshore tax or financial havens, and countries that have free trade zones. 

Mr. CHAFFETZ. Can you give me a few names? 

Ms. SHASKY. Let’s see. I would defer to my colleague from Treasury to talk about some of the countries that are on the Financial 

Actions Task Force list of non-cooperative countries. And several of 

them are in Asia. So I will let him answer. Put him on the hot seat. 

Mr. CHAFFETZ. Good pass. Go ahead. [Laughter.] 

Mr. BRONIN. Thank you, Ms. Shasky. And thank you, Congressman. 

To the last point about the—I think the list that Ms. Shasky just 

mentioned is a good place to look. It is the list—— 

Mr. CHAFFETZ. When I say countries that aren’t cooperating, 

what comes to mind? Name three. 

Mr. BRONIN. If I could, what I would like to do is give you—I will 

get back to you with the full list. 

Mr. CHAFFETZ. All right. I will look up the list. 

Mr. BRONIN. There are a number of countries on that list. We are 

particularly concerned about the—let me—we are particularly concerned about the framework that they have in place, meaning that 

they are vulnerable to exploitation. You know, there are—you can 

put countries in a bunch of different categories. There are countries 

that don’t have an adequate legal framework. There are countries 

where, you know, just don’t think they are doing enough. They 

don’t have quite enough political will. 

And then, you know, there may be countries where we are, you 

know, concerned about their actual complicity in promoting crimes. 

I mean the most obvious one that falls into that category is Iran. 

Mr. CHAFFETZ. Okay. And I guess that is my concern, Mr. Chairman, is understanding these countries and then what is it that we 

are doing to promote this. How we understand the cyber component 

53 

of it. Because I know these transactions can happen in fractions of 

seconds. 

I worry about our ability to track that, to follow-up on that, how 

cybers—can you quantify the problem and the challenge that we 

are facing in this regard? 

Ms. SHASKY. I can tell you that it is increasingly becoming a 

problem, and that we are seeing stored value cards, where individuals can move, or prepaid access devices where people can move 

money globally in seconds, where law enforcement does come on 

the scene, and does steal or sees the stored value card, the criminal 

can then transfer the value off that card with just a computer key 

stroke. 

Mr. CHAFFETZ. And what is the range of value of these cards? 

Ms. SHASKY. Some of them are unlimited. There—you know, 

when we are talking about prepaid access devices, we are talking 

about everything from the Starbucks card, that you can get and 

have 20—load $25 onto it, to the cards that look more like a Visa 

or a MasterCard, and have unlimited amounts that can be put on 

them. So they are a challenge for law enforcement. 

We are looking at mobile payments, and the use of transferring 

money using a cell phone as the next wave with which to deal. But 

when you combine the advances in technology with globalization, 

money can move across the globe in just seconds. 

Mr. CHAFFETZ. Where is online gambling on your radar, and how 

that affects the movement of money? 

Ms. SHASKY. Well, online gambling, of course, is one of many 

crimes that is profit- driven, and involves both cyber and 

globalization. And we are seeing the value related to online gambling moving in the same ways that we see any of the cybercrime 

monies moving. 

It is instantaneous. It is often through the stored value cards. It 

is often through the online payment methods. And so it is one more 

challenge for law enforcement. 

Mr. CHAFFETZ. My time is about to expire, but particularly, Mr. 

Bronin, I would love to follow-up on this hawala, if there are insufficient laws to follow through on this. 

The quick question for you, as I conclude, is: Are we seeing that 

those hawala-type transactions permeate into the United States, do 

you see them within the United States? I know it has been a lot 

in the Middle East, and other places, but are you seeing that 

with—you know, pop up or expand within the United States? And 

then very quickly, how many convictions are we getting in the 

course of a year? I am just not familiar with those numbers. 

Thank you, Mr. Chair. 

Mr. BRONIN. Sure. Thanks, Congressman. 

You know, hawala is a very broad term, and it could cover a 

whole lot of activity that you might think of just informal value 

transfer. And, you know, it is no doubt happening quite a bit 

around the world. 

Sometimes, you know, as already been mentioned, it is hard to 

identify. But we have seen it. And where we have seen it, you 

know, we have taken action, using—you know, taking advantage of 

the requirement that hawala is another money transmitter’s register, with financial crimes enforcement network. 

54 

On a prosecutions convictions front, I defer to Justice. 

Ms. SHASKY. We can get back to you with that information. 

Mr. SENSENBRENNER. The gentleman’s time has expired. The 

gentleman from Colorado, Mr. Polis. 

Mr. POLIS. Thank you, Mr. Chairman. 

The first question is: Are there still a set of countries that are 

problematic, in terms of transparency and sharing information? 

And is there a formal identification somewhere of which countries, 

in fact, are difficult to penetrate with regard to transparency into 

flows? I will go to Ms. Shasky? 

Ms. SHASKY. There is. It is through the Financial Action Task 

Force. 

Mr. POLIS. Good. 

Ms. SHASKY. There is a list of such countries. There are international standards, by which all countries are meant to be judged. 

When it comes to money laundering, there are protections against 

money laundering. There are protections against terrorist finance. 

There are a number of recommendations. 

If countries do not meet those recommendations, they can be put 

on this list and action can be taken. 

Mr. POLIS. Are there any actions that are automatically associated with the list, or is it just merely for identification purposes? 

Mr. BRONIN. Yes. So, one of the actions is that if a country is 

identified as being, you know, non-compliant with the FATAF 

standards. And I am sorry. The FATAF, it is a multilateral body. 

It is an international body. It is a standard setting and sort of peer, 

and peer implementation body that has been tremendously effective in promoting these standards internationally. 

When a country is identified as being non-compliant, non-cooperative, you know, there are certain implications from the U.S. standpoint. Most important is that financial crimes enforcement network 

will notify U.S. financial institutions that they need to subject 

transactions with institutions in that jurisdiction to enhance due 

diligence. They need to be extra careful. 

Mr. POLIS. Next set of questions are about drug trafficking. And 

I am wondering if one of you can give me just an estimate of about 

what percentage of money laundering activity is related to drug 

and narcotic trafficking-related activities. Is it the majority? Is it 

a third? Is it two-thirds? Kind of what ballpark would you say that 

is related to drug trafficking? 

Ms. SHASKY. This is a very difficult question to answer. And 

there are all kinds of projections out there as to what these numbers look like. 

I think the numbers that I focus on in approaching my job every 

day are the estimates that I see of what are the amounts of drug 

trafficking monies that are laundered in the United States. And I 

have seen estimates ranging from $85 billion a year, and upward. 

Mr. POLIS. And so I just defer to that. And so as a percentage 

of overall laundering, is that a majority of overall money being 

laundered that derives from these sources, or approximately, you 

know, at that level, what would it be, relative to other sources? 

Ms. SHASKY. Again, just looking at the various estimates out 

there, and not quite ever knowing their reliability, my sense is that 

55 

it is a very significant amount. Anywhere from a third, on upwards. 

Mr. POLIS. Okay. So the $85 billion figure would be somewhere, 

a third, to half, or so of money that is being laundered. Obviously, 

the fact that money is begin laundered, we—is difficult to come up 

with objective data. But that is that my understanding as well. 

Good. Thank you for your time, and appreciate your answers. 

Yield back. 

Mr. SENSENBRENNER. The gentleman from Pennsylvania, Mr. 

Marino. 

Mr. MARINO. Thank you, Chairman. Good morning, ladies and 

gentleman. I apologize for being late. But I am going to get very 

specific here, if you don’t mind. And Ms. Shasky, and anyone else 

who wants to follow-up. I am going to refer to your complete testimony, and particularly, the narcotics section. 

In your testimony, you mentioned H.R. 3909, the ‘‘Targeting 

Transnational Drug Trafficking Act.’’ It is legislation which I recently introduced here on the House side, and as an important tool 

for prosecutors to combat the foreign drug trade industry. 

Can you describe to me a little more in detail, particularly for 

the Committee and my colleagues, why this legislation is important 

to the Department, and why we should pass the bill? 

Ms. SHASKY. Thank you, Mr. Marino, for that important question. H.R. 3909 is very important to the Department. It relates to 

proposals we have made in the area of international drug trafficking. And particularly, it captures today’s realities of the drug 

trade. 

At one time, we were fighting Columbian cartels, who not only 

produce the drugs, but also traffic the drugs, and laundered the 

money. Today, we see much more networking between our international drug trafficking trade. You know, we have one group, such 

as the Columbian cartels, who might be involved in production. 

Maybe it is the Mexican drug cartels, who are then involved in the 

trafficking, and yet another group who is involved in the money 

laundering. And so what your legislation seeks to do is to deal with 

that reality, that specialization. 

What we have been seeing is that because of this kind of bifurcated and specialization in the drug trafficking trade, is that we 

have individuals who are specifically trying to thwart U.S. laws, by 

trying to pretend that they don’t know the final destination of the 

drugs. That is, that those drugs are going to the United States. 

We actually hear them saying, ‘‘Don’t tell me. I don’t want to 

hear where the drugs are going.’’ 

Mr. MARINO. Exactly. 

Ms. SHASKY. Because they know that is a loophole in U.S. law 

that they can exploit. 

So what we are asking, and what is the legislation is that the 

standard be changed so that drug traffickers, or folks involved in 

the drug trade, had to know, intend, or have reason to believe that 

those illegal narcotics would be trafficked to the United States. 

This is a question of evidence and something that is very important. 

Mr. MARINO. Thank you. Anyone else? I am going to pose a scenario that is much less eloquent than you stated, but would you 

56 

describe this as being standard procedure now, because of the drug 

cartels, the business, the money they are making, they can afford 

people, attorneys from their countries, who are working for this organized crime, to figure out the loophole. And a loophole would be 

example of we know that we have to take that the drug dealers 

take the cocoa leaf, they have to break it down. But we have an 

individual who says, I am going to take a solvent. I am going to 

sell a solvent, such as acid, or a hydrochloride, or precursor chemicals, and I am going to sell it to someone in Mexico or Peru. 

Now, I know that this chemical is used in the process of manufacturing cocaine. However, when I make this sale, trying to legitimize it, to whomever I’m selling it, I don’t know what you are going 

to do with it. Don’t talk to me about anything. Just place your 

order, pay me, and I will give you this chemical that he or she 

knows very well is used in, if not all the time, most the time, the 

production of cocaine. 

Is that a good example of what takes place? 

Ms. SHASKY. I think that is a very good example. And it raises 

a very important point. And that is, with international drug trafficking organizations, and non-drug organized crime, they have billions of dollars at their disposal. They have the ability to hire the 

best legal minds, the best business minds, the best cyber minds to 

help them craft their schemes, to exploit loopholes in the United 

States, and our laws, and to exploit loopholes and the laws of other 

countries. And the challenge for us is to try to make sure that we 

are keeping up with the times. 

Mr. MARINO. Thank you. Mr. Chairman, do I have any more 

time? 

Mr. SENSENBRENNER. 29 seconds. 

Mr. MARINO. So, Mr. Smith, do you see a downside to this legislation? Are you opposed to it? 

Mr. SMITH. Absolutely. As I said in my brief oral statement, I 

don’t see the connection between this legislation and combating 

transnational organized crime. What this legislation would do, for 

example, in expanding section 1960, the money—businesses that 

are engaged in money transmitting, it would enormously expand 

that—that statute to cover every check cashing business in the 

United States, every money exchange, or cambio business in the 

United States, and—which employ thousands and thousands. 

Mr. MARINO. Well, let me interrupt here for a moment. 

Mr. SMITH. And basically shut them down. 

Mr. MARINO. Let me interrupt. 

Mr. SENSENBRENNER. Well, the gentleman’s time is now expired. 

Mr. MARINO. May I have 30 seconds. 

Mr. SENSENBRENNER. Without objection. 

Mr. MARINO. Thank you. You know darn well when you use the 

term ‘‘every,’’ every scenario is not going to be utilized. It is scenarios where we are talking about we know, coming from Columbia 

and Peru, we know the large chemical transactions and the large 

cash transactions are taking place. 

I, as a prosecutor for 18 years, and you as a defense lawyer, I 

cannot believe that you would not want to, if not completely eliminate this, curtail this, because it is the main focus of operation in 

the drug trafficking, and now it has become more sophisticated. 

57 

I yield my time. 

Mr. SENSENBRENNER. Okay. 

Mr. MARINO. You may respond. 

Mr. SMITH. I don’t disagree with what you have just said, but 

that is not in the bill. There is nothing to deal with precursor 

chemical scenarios. 

Mr. SENSENBRENNER. Okay. The gentlewoman from California, 

Ms. Chu, has been very patient. 

Ms. CHU. Thank you, Mr. Chair. 

The issue of transnational organized crime, in particular, money 

laundering, is important to me, since I am from Southern California, and we are affected by activities of the Mexican drug cartels. Last year, my colleague, Mr. Poe, and I worked on legislation 

that would allow U.S. law enforcement to more easily freeze the illicit proceeds of international criminal organizations and U.S. financial institutions, in the hopes of preserving those assets for future seizures. And fortunately, this legislation was signed into law 

in 2010, and ensures that U.S. courts can freeze assets once they 

determine that there is evidence of criminal activity, instead of 

having to wait to freeze assets after final decision has been made. 

Can you give any indication as to what role this newly enacted 

law has played in stopping foreign criminal money laundering operations? 

Ms. SHASKY. Absolutely. First of all, I would like to thank you, 

because we much appreciated the efforts that you made, Ms. Chu, 

and then Mr. Poe made to get this legislation passed on an emergency basis, to clarify what we believe was already this body’s intent in enacting the initial legislation. That is, when a foreign 

country comes to the United States and asks us to freeze money 

on their behalf, because of one of their criminal cases, that we be 

able to do that at the outset, and not wait until a final conviction 

and a final order of forfeiture. By the time we all know that the 

money is going to be long gone. 

Ms. CHU. Right. 

Ms. SHASKY. And putting that legislation in place was crucial. 

Since the time it has been there, we have already frozen more than $50 million for foreign countries under that legislation. We 

are engaged in conversations daily with countries around the 

world, talking about what we can do on their behalf, and how we 

might use this provision to help them. It is absolutely essential, as 

we work with our partners around the world, to confront 

transnational organized crime, that we are able to work together 

hand in hand to do so. 

Thank you. 

Ms. CHU. Thank you. 

I would like to also ask about problems pertaining to cracking 

down on comingled funds, that include both clean and dirty money. 

And there is section 1957, which applies to the withdrawal of 

money from an account in which there is comingled money. But 

there is disagreement about how section 1957 applies, as you stated in your testimony. 

And notably, both the Fifth and Ninth Circuit courts have held that when a defendant transfers over $10,000 from a comingled account, with both clean and dirty money, the defendant is entitled 

58 

to a presumption that the first money moved out of the account is 

legitimate. However, this presumption seems to be contrary to all 

other accepted rules of tracing. 

So, can you explain how troubling this presumption is, especially 

in the Fifth and Ninth circuits, which rules over the Southwest 

border States that are the greatest targets for money laundering? 

Ms. SHASKY. Absolutely. It is a good question. And I guess once 

I address the specifics, I would turn to my colleague from the Department of Treasury to give a very real example of trade-based 

money laundering scheme in the Lebanese-Canadian bank matter, 

that maybe can highlight this a bit more. 

But essentially, the problem, or the loophole that we believe is 

out there, based on some of these court decisions, is that we see 

transnational organized crime every day. It is a common technique 

to comingle the clean money with the dirty money. It makes it 

harder for law enforcement to trace. It makes it harder for law enforcement to prosecute. 

The law recognizes that in almost all instances that when such 

money is comingled, there is a transaction out of a bank account 

containing comingled money, that the government can take the 

presumption that that first money out, that transaction was with 

dirty money. Because money is fungible. You can’t always tell. You 

don’t know, you know, whether it is dirty money or clean money, 

but we get that presumption. 

The one exception to that is with the statutes 1957, 18 United 

States Code, 1957. In the Fifth and the Ninth circuits, as you mentioned, there have been some cases that say that we don’t get that 

presumption, and that instead it is the exact opposite. We have to 

assume that it is clean money coming out, which completely undermines our ability to go after these transnational organized crime 

groups. 

So, we are asking and proposing that we fix that loophole, by 

making it clear that it—the presumption should be that it is clean 

money that comes out first. Or I am sorry. Dirty money that comes 

out first. 

Ms. CHU. All right. And Mr. Bonin, could you respond to this? 

Mr. BONIN. Sure. Well, I mean, first, as a general matter, this 

you know, the comingling of dirty money and clean money is sort 

of, you know, at the heart of money laundering. And it is one of 

the primary ways you conceal the origin of funds, the nature of 

funds. 

Before I get to the example that Ms. Shasky just referenced, 

there was a recent example involving a Texas retailer that was depositing millions of dollars in cash in a bank account, mingled, you 

know, cash that was generated from the sale of drugs with cash 

that was generated from legitimate sales of, you know, the product 

they were selling. And, you know, fortunately, this activity was 

identified as suspicious, and, you know, able to take action. But it 

is a very common way of laundering money. 

The specific example Ms. Shasky references, the example of the 

Lebanese-Canadian bank that I mentioned earlier, and, you know, 

there were sort of two elements of that, that you had drug money 

going in via West Africa, ultimately being deposited into a Lebanese-Canadian bank in Beirut. 

59 

Then you had money going back to purchase used cars in the 

U.S., which were then transferred to West Africa, and sold. And 

then, you know, that money was, in a sense, that was part of the 

cleaning process. The revenue generated from the sale of cars was 

then cleaner. Then you had other money that was used to purchase 

consumer goods in Asia, that were sent back to the Western Hemisphere, where they were sold to, you know, go back to the place 

where the drugs originated. 

So, it is a perfect example of trade-based money laundering, a 

perfect example of sort of the intersection of, you know, what are 

apparently legitimate businesses, with illegitimate activity, and the 

use of those, you know, apparently legitimate businesses to cover 

the illicit activity. 

Ms. SENSENBRENNER. The gentlewoman’s time has expired. The 

gentleman from Virginia, Mr. Goodlatte. 

Mr. GOODLATTE. Thank you, Mr. Chairman. 

Let me ask each of you just to tell me, in general terms, how 

does money laundering affect business and job growth in the 

United States. Ms. Shasky, we will start with you 

Ms. SHASKY. Sure. To the extent that criminals and 

transnational organized crime are able to continue and flourish, it 

is going to affect our average U.S. citizens, and our businesses, and 

job growth in the United States. So, let me try a more tangible example of that. 

We have transnational organized crime groups that are targeting 

our U.S. businesses to steal their information, whether that be 

their customer lists, so that they can then steal their identities, 

whether that be their intellectual property, so that they can sell it 

abroad and have copyright goods made. They are targeting our 

businesses. We have insurance fraud, targeting our insurance companies, by filing fraudulent claims. 

Any place they can get money, they are targeting. So to the extent we let them continue, we are going to have problems with our 

businesses. Our money laundering laws are a key way to stop these 

groups. They are motivated by money. If we can take away their 

motivation and their operating capital, we can help to dismantle 

them. And to the extent we are talking about crimes that have victims, like the ones just mentioned, we can take that money and get 

it back to its rightful owner. 

Mr. GOODLATTE. Mr. Bonin, can you add anything to that? 

Mr. BONIN. Thanks, Congressman. I mean I just echo what Ms. 

Shasky said. It is obviously difficult to quantify the impact, the economic impact. In fact—— 

Mr. GOODLATTE. To what extent do these organized criminals use 

the internet to perpetrate all of these crimes on U.S. businesses? 

Mr. BRONIN. I will defer to Ms. Shasky on that one. 

Ms. SHASKY. They use the internet just like a normal legitimate 

business uses the internet. It is a tool of the trade. And, you know, 

now it is Facebook and Twitter. So, we see them using every tool 

that a legitimate business uses to perpetrate their schemes. 

Mr. GOODLATTE. Thank you. 

Mr. Smith? 

Mr. SMITH. Yes, Mr. Goodlatte. I like your question, because I 

think one—one aspect of—of this whole debate that tends to get 

60 

overlooked is how much the money laundering laws cost American 

business every year. 

If you ask the American Bankers Association or other business 

organizations what do these anti-money laundering requirements 

cost them, they will tell you it costs them many billions of dollars 

every year to enforce these very strict money laundering laws. And 

it is very burdensome. And it also creates a competitive disadvantage for American banks and other financial institutions. And they 

complain about it, although, I don’t think this Committee probably 

has heard them much. 

But there is one provision in this bill that I think that I have 

emphasized. The vast expansion of section 1960, to cover all sorts 

of businesses, not just money transmitting businesses, which would 

create a huge burden on thousands and thousands of small businesses around the country that cash checks, provide currency exchange. Armored truck businesses. 

Mr. GOODLATTE. Let me—— 

Mr. SMITH. And—— 

Mr. GOODLATTE. Let me interrupt you here, because I have got 

limited amount of time. And let me ask Ms. Shasky if she wants 

to respond to that, and, in particular, tell us what havens, financial 

or otherwise, is the United States providing for transnational organized crime. 

Ms. SHASKY. Sure. Thank you. 

I guess first, in answer to the Administration’s proposal on making amendments to 1960, at the outset, I think it is important to 

note that the U.S. financial system is considered world class. And 

part of the reason for that is because of our efficiency and our integrity. We don’t want the financial system to become the safe 

haven for the world’s criminal proceeds, which will inevitably also 

give transnational organized crime groups not presently operating 

in the United States a toehold to do so. 

Because of the vulnerabilities of the ability to move money 

through the financial system, it is regulated. It is regulated. Money 

transmitting businesses are regulated. Check cashers are regulated. Stored access devices are regulated. Or prepaid access devices, rather, are regulated. All we are asking is that the definition 

of those money transmitting businesses used by Treasury in its 

regulation be harmonized with the definition in section 1960, so 

that if folks are failing to get a license, that we can prosecute them 

for doing that. We are looking for harmonization of the definitions 

here. Nothing more. Not a significant expansion. 

Mr. GOODLATTE. Mr. Bronin? 

Mr. BRONIN. We agree entirely. That is why we are very supportive of the Proceeds of Crime Act. 

If I could just respond briefly, again, echoing Ms. Shasky, I 

couldn’t disagree more with the point made that our anti-money 

laundering laws put us at a competitive disadvantage. Our antimoney laundering laws are what help make us the most transparent system in the world. They are the foundation of the integrity of our financial system. They are why it is so attractive to 

criminals to try to get access to our financial system. Our financial 

system, if you can get into it, confers they are legitimacy, because 

61 

it is so legitimate, so transparent, and has such integrity. So, I 

couldn’t disagree more. 

And to highlight what is at stake, you know, I referenced in my 

oral testimony and the written testimony this case where a bank 

that failed to implement effectively its obligations, conducted $420 

billion in transactions with entities that it should have recognized 

were obviously suspicious. If you didn’t have those anti-money 

laundering laws, that problem that you know, minor problem, with 

a lack of implementation, would be a huge problem of a lack of 

framework. 

Mr. SENSENBRENNER. The gentleman’s time has expired. The 

gentleman from Puerto Rico, Mr. Pierluisi. 

Mr. PIERLUISI. Good morning. I am sorry I was late. According 

to the 2011 drug market analysis report, published by DOJ’s National Drug Intelligence Center, the Caribbean region is a major 

center for drug traffickers to move bulk cash. That report states 

that bulk cash smuggling surged in 2009, and remained high 

through 2010. For example, bulk cash seizures in Puerto Rico more 

than doubled, from $3.5 million, in 2008, to almost $7.4 million in 

2009. And the amount is similar in 2010. 

The report further states that the amount of bulk cash seized in 

Puerto Rico is much higher than the amount that can be generated 

through local drug sales, indicating that bulk cash is smuggled 

from the mainland U.S. to the island, which, as you know, is an 

American territory, and banking laws, Federal banking laws, apply 

pretty much the same as in any State. 

These findings are consistent with increasing drug trafficking we 

have seen through Puerto Rico and the U.S. Virgin Islands over the 

past several years. It also makes sense that Puerto Rico and the 

Virgin Islands are attractive targets for laundering money. As I 

was kind of implying or saying, a shipment of cash on a commercial 

airline from the States to Puerto Rico does not have to clear Customs, unlike a shipment from the States to a foreign Caribbean nation. 

Once in Puerto Rico or the VI, the cash can easily be transported 

via boats or aircraft, to neighboring Caribbean Islands. Not to talk 

about other types of transactions. 

In light of these findings, I would like to ask Chief Shasky and 

Mr. Bronin what steps each of your offices is taking to address 

money laundering through Puerto Rico. We have seen these bulk 

cash seizures. So, I want to see—I want to know if you have increased both personnel and assets in your own agencies, but also 

if you have noticed that related agencies, such as DEA and ICE are 

doing the same. 

There is a crisis in Puerto Rico. There is a violence crisis, but 

fueled by the drug trafficking issue, and the money laundering that 

goes along with it. So I would like to see some attention given to 

Puerto Rico and the VI. 

Ms. SHASKY. Thank you. We bring cases in Puerto Rico like any 

judicial district throughout the United States. And where we have 

seen transnational organized crime operate, including the very 

drug trafficking organizations that you speak of, we will investigate 

and prosecute those crimes, and do so. 

62 

The Department of Justice is committed to enforcing our laws in 

the District of Puerto Rico. I understand that both the Attorney 

General and Director Mueller of the FBI recently made visits to 

show our commitment. 

What we see in terms of the money laundering down there, my 

section has a proud history of dealing with that. One of the first 

big bank cases that was brought against a financial institution that 

did not have appropriate anti-money laundering controls in place 

was allowing drug trafficking money to be sent through the bank 

was a case that our section was involved in. And it was against 

Banco Popular back in 2003. And they entered into a deferred prosecution agreement, and made several changes as a result of that 

prosecution. 

Since that time, we have seen bulk cash continue to go through 

Puerto Rico. And more recently, we have seen trade-based money 

laundering schemes as a problem there. I know that there have 

been some recent cases brought, focusing on that problem as well, 

in conjunction, as you mentioned, with our colleagues from ICE 

and the Department of Homeland Security. 

Mr. PIERLUISI. Mr. Bronin? 

Mr. BRONIN. Thanks, Congressman. 

I don’t have a lot to add to what Ms. Shasky just said, other than 

to say, you know, with respect to the Caribbean region, in general, 

we are very active working in partnership with the Caribbean Financial Action Task Force. It is the FATAF style regional body for 

that region. And we work closely with them in promoting, you 

know, the framework that can help address this problem, and, you 

know, I think we have found that we have very good partners in 

that group. 

Mr. PIERLUISI. By the way, I am calling for a Caribbean border 

initiative set forth by ONDCP, the drug czar’s office. Because I believe there should be an overall strategy in the Caribbean, particularly given that there are two American territories over there, similar to the one we have in the Southwest border. I hope to count 

on your offices’, respective offices’ support. 

Thank you. 

Mr. SENSENBRENNER. The gentleman’s time has expired. The 

gentlewoman from Texas, Ms. Jackson Lee. 

Ms. JACKSON LEE. I thank the Chairman and the Ranking Member for this hearing, and I think I will be somewhat global in my 

questions, just recognizing some of the challenges that we are facing with recent news announcement that Iran was opening or establishing a Spanish-speaking television show, that Hezbollah is in 

South America, and engaged in drug activity. And I imagine that 

because there might be a network, those dollars would find themselves in devastating locations, harming innocent persons. I balance that with making sure that we can work through the laws, 

through the respect of the judicial system that we have. 

I just want to ask a general question to Jen Shasky. The effort 

that the Administration has put forward, has that been helpful? 

Has that allowed your efforts to be focused on the scourge of money 

laundering and using it for ill-conceived activities? 

Ms. SHASKY. Thank you, Congresswoman. 

63 

The Administration’s efforts in this area have been helpful. I 

think the big change that I see having occurred over the last several years is that we are now taking an all-of-government approach 

to fighting transnational organized crime. That means it is not just 

law enforcement that is focused on a crime problem. It is the entire 

U.S. Government that is focused on a national and economic security problem. 

Our partners at Treasury are using their targeted authorities to 

help in this regard. Our friends at the State Department are helping us on the diplomatic front, and so on and so forth around the 

government. We are now working together. 

Ms. JACKSON LEE. Before I ask my other question, I do want to 

publically say to Mr. Pierluisi that I want to be helpful. I think he 

mentioned his effort to me. And I want to join with him. I think 

that is initially important for his area and the whole previous work 

we have done on CBI, the Caribbean Basin Initiative. 

Let me ask a question—— 

Mr. PIERLUISI. Thank you. 

Mr. JACKSON LEE. Of the treasurer, and then I would like Mr. 

Smith to comment on it. I said I wanted a balanced approach. I 

want to know how Americans may be entrapped in this. 

As you may recall, the issue in the Cuellar case was the money 

laundering provision that prohibits international transportation of 

money designed to conceal the nature, location, or ownership of 

criminal proceeds under 18 USC 1956. In Cuellar, the defendant 

was caught hiding drug proceeds in his vehicle while en route to 

Mexico. The court held that secretive transportation is insufficient 

for conviction. The court, the government must prove that the purpose of the transportation was to conceal the nation, the nature, location, or ownership of criminal proceeds. 

Is the Justice Department’s attempt to abrogate the Supreme 

Court’s decision in Cuellar versus United States overreached? The 

question goes to Mr. Bronin and Mr. Smith. 

Mr. BRONIN. Thanks very much, Congresswoman. I am afraid I 

have to defer to Justice on that question. I am not sufficiently familiar. 

Ms. SHASKY. The Administration’s proposal would merely seek to 

make a change to the law, as recommended in the Cuellar decision, 

and that where we are finding problems with the Cuellar decision, 

most interestingly, is not in the drug trafficking arena, but more 

in the fraud arena. And our ability to bring cases targeting 

transnational organized crime, when they commit significant 

frauds against individuals in the United States, has been thwarted 

by the Cuellar decision, because we need to show each individual 

member’s specific knowledge that the design, the way they move 

the money was designed to conceal it. Not that they knew they 

were concealing it, not that they knew they were concealing criminal proceeds, which they do know, but they had to know that this 

was one part of an overall design that was meant for concealment. 

We think that is too much, and is more than should be required 

by the law. We believe that we should be able to show that they 

knew they were moving criminal’s proceeds and knew they were 

concealing them, and that is sufficient. It is very important for our 

64 

ability to get monies and return them to victims in the United 

States. 

Ms. JACKSON LEE. Mr. Smith? 

Mr. SMITH. Yes, Congresswoman. 

I think the government overlooks the fact that they can usually 

prosecute folks like Ms. Shasky is mentioning by using conspiracy 

and aiding and abetting charges. If the person knows that they are 

transporting dirty money, and that that is helping the fraudulent 

organization, that is enough to make them a conspirator. 

They don’t need to be prosecuted under the money laundering 

statutes to put them in jail or to forfeit their property. This is just 

another example of, you know, when the government loses a case 

in the Supreme Court, the first thing they do is ask Congress to 

overrule the decision. They don’t start thinking about, well, gee, 

maybe the Supreme Court is right, and the law is—has been interpreted too broadly, and we don’t really need this. 

This sort of a knee-jerk reaction, in my experience, of wanting to 

overrule the decision, and I think that they ought to think about 

it a little bit more, and make a bit more compelling case. 

Mr. SENSENBRENNER. The gentlewoman’s time has expired. 

Ms. JACKSON LEE. Thank you. 

Mr. SENSENBRENNER. That concludes our hearing today. I would 

like to thank the witnesses for their very pertinent testimony and 

answers to the questions. 

Without objection, the Subcommittee stands adjourned. 

[Whereupon, at 11:18 a.m., the Subcommittee was adjourned.] 

Æ