[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
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
_____
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COMMITTEE ON THE JUDICIARY
LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina JERROLD NADLER, New York
ELTON GALLEGLY, California ROBERT C. ``BOBBY'' SCOTT,
BOB GOODLATTE, Virginia Virginia
DANIEL E. LUNGREN, California MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana MAXINE WATERS, California
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio MIKE QUIGLEY, Illinois
TED POE, Texas JUDY CHU, California
JASON CHAFFETZ, Utah TED DEUTCH, Florida
TIM GRIFFIN, Arkansas LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania JARED POLIS, Colorado
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
MARK AMODEI, Nevada
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 ROBERT C. ``BOBBY'' SCOTT,
DANIEL E. LUNGREN, California Virginia
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
TED POE, Texas HENRY C. ``HANK'' JOHNSON, Jr.,
JASON CHAFFETZ, Utah Georgia
TIM GRIFFIN, Arkansas PEDRO R. PIERLUISI, Puerto Rico
TOM MARINO, Pennsylvania JUDY CHU, California
TREY GOWDY, South Carolina TED DEUTCH, Florida
SANDY ADAMS, Florida SHEILA JACKSON LEE, Texas
MARK AMODEI, Nevada MIKE QUIGLEY, Illinois
JARED POLIS, Colorado
Caroline Lynch, Chief Counsel
Bobby Vassar, Minority Counsel
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
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 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.
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.
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?
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. 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:]
__________
Mr. Sensenbrenner. Thank you, Ms. Shasky.
Mr. Bronin?
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.
In one recent case that highlights that risk, a large
finance institution failed to monitor effectively more than
$420 billion in cross-border 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:]
__________
Mr. Sensenbrenner. Thank you, Mr. Bronin.
Mr. Smith?
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 so-called 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 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:]
__________
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 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, 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 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 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 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.
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 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 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.
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 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.
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 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
anti-money 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 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.
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.
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 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.]