[House Hearing, 107 Congress]
[From the U.S. Government Printing Office]




                               BEFORE THE

                              COMMITTEE ON
                           FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION


                            OCTOBER 3, 2001


       Printed for the use of the Committee on Financial Services

                           Serial No. 107-46

                            WASHINGTON : 2002
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                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice      BARNEY FRANK, Massachusetts
    Chair                            PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska              MAXINE WATERS, California
RICHARD H. BAKER, Louisiana          CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama              LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware          NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma             KEN BENTSEN, Texas
ROBERT W. NEY, Ohio                  JAMES H. MALONEY, Connecticut
BOB BARR, Georgia                    DARLENE HOOLEY, Oregon
SUE W. KELLY, New York               JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                MAX SANDLIN, Texas
CHRISTOPHER COX, California          GREGORY W. MEEKS, New York
DAVE WELDON, Florida                 BARBARA LEE, California
JIM RYUN, Kansas                     FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama                   JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina      CHARLES A. GONZALEZ, Texas
DOUG OSE, California                 STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois               MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin                HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania      RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona             RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York              JOSEPH CROWLEY, New York
GARY G. MILLER, California           WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia                STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York       MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania         

             Terry Haines, Chief Counsel and Staff Director

                            C O N T E N T S

Hearing held on:
    October 3, 2001..............................................     1
    October 3, 2001..............................................    65

                       Wednesday, October 3, 2001

Eizenstat, Hon. Stuart E., former Deputy Secretary of the 
  Treasury.......................................................    47
Gurule, Hon. Jimmy, Under Secretary for Enforcement, U.S. 
  Department of the Treasury.....................................    15
Lackritz, Marc E., President, The Securities Industry Association    45
Lormel, Dennis, Chief, Financial Crimes Section, Criminal 
  Division, Federal Bureau of Investigation......................    20
Moynihan, John F., Partner, BERG Associates, LLC.................    49
O'Neill, Hon. Paul H., Secretary, U.S. Department of the Treasury     7
Warren, Mary Lee, Deputy Assistant Attorney General, Criminal 
  Division, U.S. Department of Justice...........................    19
Yingling, Edward L., Deputy Executive Vice President and 
  Executive Director of Government Relations, American Bankers 
  Association....................................................    44


Prepared statements:
    Oxley, Hon. Michael G........................................    66
    Bachus, Hon. Spencer.........................................    69
    Bereuter, Hon. Doug..........................................    70
    Carson, Hon. Julia...........................................   105
    Ford, Hon. Harold Jr.........................................   107
    Israel, Hon. Steve...........................................   108
    Kelly, Hon. Sue W............................................   109
    LaFalce, Hon. John J.........................................   114
    Chertoff, Hon. Michael, delivered by Mary Lee Warren.........   131
    Eizenstat, Hon. Stuart E.....................................   179
    Gurule, Hon. Jimmy...........................................   121
    Lackritz, Marc E.............................................   164
    Lormel, Dennis...............................................   140
    Moynihan, John F.............................................   198
    O'Neill, Hon. Paul H.........................................   117
    Yingling, Edward L...........................................   150

              Additional Material Submitted for the Record

Bereuter, Hon. Doug:
    Department of the Treasury letter dated August 29, 2001......    72
    Financial Action Task Force on Money Laundering Report, June 
      22, 2001...................................................    75
Kelly, Hon. Sue W.:
    ``Terror on a Budget,'' Wall Street Journal, Sept. 20, 2001..   111
America's Community Bankers and Independent Community Bankers of 
  America, joint prepared statement..............................   204



                       WEDNESDAY, OCTOBER 3, 2001

             U.S. House of Representatives,
                           Committee on Financial Services,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10 a.m., in room 
2128, Rayburn House Office Building, Hon. Michael G. Oxley, 
[chairman of the committee], presiding.
    Present: Chairman Oxley; Representatives Leach, Roukema, 
Bereuter, Bachus, Castle, Kelly, Weldon, Riley, Manzullo, 
Shadegg, Fossella, Miller, Cantor, Grucci, Capito, Tiberi, 
Lucas of Oklahoma, Ney, Paul, Gillmor, Biggert, Green, Shays, 
Ferguson, Rogers, LaFalce, Frank, Kanjorski, Waters, C. Maloney 
of New York, Gutierrez, Watt, Bentsen, Sandlin, Lee, 
Schakowsky, Moore, Gonzalez, Lucas of Kentucky, Clay, Israel 
and Ross, J. Maloney of Connecticut, Hooley, Sherman, Mascara, 
Inslee, Capuano, Ford, Shows, Crowley.
    Chairman Oxley. The hearing will come to order.
    Today, the Committee on Financial Services meets to hear 
testimony on the issue of terrorist financing and money 
laundering. We remember today the thousands of people who died 
in the four attacks in September. The terrorists used American 
freedoms and American dollars against us. They executed their 
plans with access to our financial systems, including credit 
cards, ATMs, local checking accounts and wiring money overseas. 
The best way for our committee to commemorate the victims' 
lives is to take every step possible to ensure that the gates 
to the financial services system in this country are locked to 
    Today, along with Ranking Member LaFalce and other Members 
of this committee, I will introduce bipartisan legislation that 
will demonstrate to our friends and enemies here and abroad 
that the United States Congress stands shoulder to shoulder 
with the President in his campaign to dismantle the financial 
infrastructure of terrorism and to ``starve terrorists of 
    I applaud the President and our distinguished witness 
today, Treasury Secretary Paul O'Neill, for taking swift action 
to block terrorist assets that may be located here in the 
United States and to warn foreign banks that the U.S. is poised 
to block their assets in this country and deny them access to 
U.S. markets if they refuse to freeze terrorist assets 
    The Secretary is also to be commended for setting up a new 
Foreign Terrorist Asset Tracking Center, which I hope will 
become a model for interagency cooperation in law enforcement 
and in the sharing of financial intelligence.
    Finally, I applaud the Administration for sending us its 
legislative proposals, many of which are included in our bill.
    This crime was not about money, but about mass murder, so 
we have a major challenge before us. Many in Congress and in 
the financial services sector are asking questions like: ``What 
is terrorist financing?'' For example, are terrorist 
organizations moving funds into the U.S. banking system through 
third-party correspondent accounts at major U.S. banks, or are 
they relying more on cash transfers through underground money 
services businesses?
    How did they get credit cards, checking accounts, and the 
like, without raising suspicion? If the attacks could be 
executed without leaving an obvious financial trail, what might 
be missing now? And finally, the chilling question, is it 
possible that terrorist financing is continuing undetected in 
the United States?
    These are urgent questions, and our goal today is to learn 
the answers and to craft effective legislation to stop it 
whenever, wherever and however it happens.
    I am not convinced our money laundering laws are adequate 
to address the particular features of terrorist financing we 
have witnessed. The current money laundering regime seems 
better designed to detect the kind of money laundering 
associated with the crimes that generate significant proceeds. 
It does not appear to be particularly well-suited to cash an 
unconventional terrorist operation.
    We know, too, that there are limitations to what we can 
expect from Federal laws that allow for the freezing of 
terrorist assets. Osama bin Laden and his organization, al 
Qaeda, have been on Treasury's blocking list for a couple of 
years. Any financial role bin Laden and his organization played 
in those horrific acts appears to have escaped detection and to 
have fallen below our financial radar.
    The committee's work on money laundering will produce 
effective, targeted solutions to the immediate problems we 
encounter following the events of September 11. We will not 
throw in the legislative kitchen sink for no clear purpose. 
This is our first important step on money laundering, but it 
will be, by no means, our last.
    With that in mind, Members of this committee will introduce 
today comprehensive anti-terrorism and money laundering 
legislation that focuses on three major goals: One, bolster law 
enforcement's ability to find and destroy the financing of 
terrorist organizations, whether in banks or in underground 
``hawala'' systems; two, establish a Government-industry 
partnership to stop terrorist funding in real time; and three, 
track any terrorist money kept in secret offshore havens and 
increase foreign cooperation with U.S. efforts.
    Today marks the beginning of the legislative process on 
this comprehensive package, which should be enacted before 
Congress adjourns this year. It is time for the civilized 
international community to exclude financial outlaws, whether 
they are bin Laden's terrorist operatives or shadowy offshore 
banks, from access to the international financial system. This 
is the time and this is the place to draw that line.
    The time has expired, and I yield to the gentleman from New 
York, the Ranking Member, Mr. LaFalce.
    [The prepared statement of Hon. Michael G. Oxley can be 
found on page 66 in the appendix.]
    Mr. LaFalce. Thank you Mr. Chairman. I ask unanimous 
consent to put my entire statement in the record.
    Chairman Oxley. Without objection, all the Members' 
statements will be made part of the record.
    Mr. LaFalce. Money laundering represents a serious threat 
to global, political and economic security. The International 
Monetary Fund has estimated the amount of money laundered 
annually to be between $600 billion to $1.5 trillion, or 2 to 5 
percent of the world's annual gross domestic product. Since the 
1970s, I have been very concerned about this, but the events of 
3 weeks ago demonstrate that the very safety of our citizens 
depends on effective national and international anti-money-
laundering policies. There is a need for a new, concerted anti-
money-laundering offensive, internationally and domestically.
    The President's action to freeze assets of persons and 
organizations associated with bin Laden, al Qaeda and other 
terrorist organizations was a very important first step in 
cutting off bin Laden and other terrorists from the funds that 
sustain them. However, if we are to lead the world in this 
fight against terrorism, we must ensure that our own anti-
money-laundering laws are up to the difficult task at hand. And 
yesterday, Chairman Oxley and I agreed that we will work 
together on a bipartisan basis to enact legislation as soon as 
possible that will give the United States the tools it needs to 
combat international money laundering and to disrupt the 
funding of international terrorist organizations. I look 
forward to working with the Chairman and all the other Members 
of this committee and the Administration to develop most 
expeditiously sound legislation.
    I am pleased to see that the initial draft of this 
bipartisan bill includes the International Counter-Money 
Laundering and Foreign Anticorruption Act that I worked on last 
year with Chairman Leach, members of the Clinton 
Administration, including Ambassador Eizenstat, who will be 
testifying in a later panel, which was adopted by our Banking 
Committee last year on a bipartisan vote of 33-to-1.
    The International Counter-Money Laundering and Foreign 
Anticorruption Act would greatly enhance the tools available to 
combat money laundering in the United States and raise anti-
money-laundering standards globally. While most of the debate 
at that time was focused on the importance of the bill in the 
context of combatting drug trafficking and organized crime, the 
Clinton Administration also designed the bill to be useful in 
disrupting terrorist funding. That bill fills a gap in the 
authorities of the Secretary of the Treasury to respond to 
money laundering threats from institutions in foreign 
jurisdictions with an inadequate or nonexistent anti-money-
laundering enforcement regime.
    Right now, as I understand it, we have but two limited 
options. At the one end of the scale, the Treasury Secretary 
can issue informational advisories to U.S. financial 
institutions about specific offshore jurisdictions, but these 
orders do not impose specific requirements, so they are often 
inadequate to address the complexity of money laundering. At 
the other end of the scale, the President can issue blocking 
orders under the International Emergency Economic Powers Act 
following a Presidential finding of a national security 
emergency, which operate to suspend financial and trade 
relations with the offending targets.
    The President appropriately invoked this authority on 
September 24 when he blocked transactions with foreign banks 
that did not cooperate with his order to freeze the assets of 
bin Laden, his associates and related entities. But invocation 
of the International Emergency Economic Powers Act is not 
always appropriate, because the United States might not want to 
block all transactions with an offending target, such as a 
country, or because our concern centers around the inadequacy 
of anti-money-laundering regimes in a foreign country. So the 
Act which I reintroduced earlier this Congress with 
Representative Velazquez, Representative Roukema, and so forth, 
would provide the Treasury Secretary with the ability to 
fashion measured, precise and cost-effective ways to address 
this problem.
    It is unfortunate that neither the full House nor the 
Senate took up the bill that we reported out last year, almost 
unanimously. I hope we will enact that as part of the bill. But 
there are many other proposals that others have made that are 
worthy of inclusion in a comprehensive legislative package. 
Congresswoman Roukema has an excellent bill which I have co-
sponsored that addresses the inadequacies of our bulk cash 
smuggling laws. National due diligence standards to help 
prevent the use of fraudulent identification in the opening of 
bank accounts should also be considered.
    I think that we should provide for better coordination of 
anti-money-laundering efforts within the Federal Government and 
for enhancing the ability of law enforcement agencies to obtain 
important investigative information from financial 
institutions. I look forward to working with the Administration 
in developing this package. I thank you.
    Chairman Oxley. I thank the gentleman.
    The Chair now recognizes the gentleman from Alabama, Mr. 
Bachus, the Chairman of the Financial Institutions 
    Mr. Bachus. Thank you.
    I thank the Chairman for having this hearing, and, 
Secretary O'Neill, I want to thank you and the President for 
the decisive action that you took last week to block and freeze 
terrorist assets, both in this country and around the world. I 
am gratified, and I think all America is, to hear the Treasury 
is receiving a high degree of cooperation from our allies and 
that you are following the money trail and that they are 
assisting you in helping to choke off the sources of this 
terrorist funding. So a job well done.
    From what investigators have pieced together of the 
evidentiary trail thus far, there are still more questions than 
answers on how the operation that culminated in the horror of 
September the 11th was bankrolled. But what we do know suggests 
that we should place a much higher priority on non-traditional 
or ``underground'' banking systems. These systems fall largely 
outside the scope of the formal reporting and recordkeeping 
requirements that have been the backbone of the Government's 
anti-money-laundering efforts for the last three decades.
    While we need to give our law enforcement officials the 
additional tools they need to uncover and root out the 
financial infrastructure of terrorism, we also must make sure 
that the existing tools are being used effectively and wisely.
    As Chairman of the Banking Committee's Oversight 
Subcommittee in the 104th and the 105th Congresses, I chaired a 
number of hearings which examined the operations of the 
Financial Crimes Enforcement Network, FinCEN, which is the 
Government's lead agency in collecting and analyzing financial 
intelligence. Those hearings yielded troubling findings, 
substantiated by several GAO studies that I commissioned, and I 
would direct the Secretary's attention to those at some time. 
They suggest that more can and must be done to enhance and to 
coordinate the Government's efforts to track dirty money that 
fuels narco-traffickers, international terrorists and other 
large criminal organizations.
    The President's Executive Order freezing and blocking 
terrorist assets was a powerful first step. It sends a strong 
message, a message that we will track down and cut off 
terrorist blood money wherever we can find it. Congress needs 
to examine other measures, including an approach similar to the 
one I put forward in the context of the genocide taking place 
in Sudan. That is, conditioning access to U.S. financial 
markets on other countries' willingness to assist us in the 
financial war on terrorism declared by our President.
    I want to conclude, Mr. Chairman, by thanking the members 
of the staff who have basically worked for 16 and 18 hours 
putting together this effort; the cooperation we received from 
Treasury and law enforcement agencies. And I want to, in 
particular, commend Jim Clinger for his work. Thank you.
    [The prepared statement of Hon. Spencer Bachus can be found 
on page 69 in the appendix.]
    Chairman Oxley. Thank the gentleman.
    The Chair now recognizes the Ranking Member of the 
committee, the gentlelady from California, Ms. Waters.
    Ms. Waters. Thank you very much. Mr. Chairman, thank you 
for calling this hearing on money laundering. It is crucial 
that we take steps to ensure the terrorist funding is cut off 
at its source.
    I have been working on money laundering issues for years, 
and I believe that the time has come. The time for action is 
long overdue. I have long maintained that the way to capture 
criminals is to follow the money. If we deny these criminals, 
terrorists, drug traffickers and bloody dictators access to the 
world markets, they will not be able to function.
    Money laundering has become an indispensable element of 
drug trafficking, for example, and other criminal activities as 
organized crime has expanded its economic influence both 
domestically and internationally. Without the ability to 
manipulate our financial institutions, the illegal drug trade, 
for example, would be brought to its knees. If there were no 
drug profits, there would be no drugs on the street.
    Similarly, the terrorists took advantage of the weaknesses 
in our financial system. They had credit cards and somehow paid 
significant sums of money for flying lessons. Some of them even 
may have profited from the advance knowledge of September 11 by 
selling airline and insurance stocks short.
    I don't understand how these individuals, some of whom were 
suspected associates of bin Laden, were able to reside in the 
United States virtually undetected. Their financial 
transactions left a trail, a trail that must be followed, and 
we must ensure that every financial institution that is a part 
of that trail fully cooperates with law enforcement to root out 
the sources. We must close the loopholes in our financial 
system that permit illegal activities to flourish undetected. 
We must punish America's financial institutions that launder 
money, whether it is tied to financing terrorism or other 
illegal activities.
    The day is over when our own financial institutions are too 
big to touch. According to a 1990 report by the Financial 
Crimes Enforcement Network, FinCEN, drug profits have injected 
an estimated $100 billion into the financial systems of the 
United States. Nonetheless, information I received from the 
U.S. Department of Justice states that no U.S. or foreign 
depository institution, none, not one, has ever lost its 
license as a result of money laundering activities in the 
United States of America, although many institutions have 
received substantial penalties for money laundering activities. 
For some of these institutions, penalties were merely the cost 
of doing business.
    We need to focus national and international attention on 
the money laundering vulnerabilities of private banking 
relationships and the concentration accounts used by some 
private bankers. In an October 28, 1999, letter, Citibank 
private bank division defined private banks as ``banks which 
provide specialized and sophisticated investments and other 
services to wealthy families and individuals.'' The letter went 
on to say that ``private banks are inevitably exposed to the 
risk that an unscrupulous client will attempt to launder 
proceeds of illegal activities through the bank.''
    This is stating the situation mildly. A 1998 GAO report on 
private banking detailed how known drug trafficker and 
international criminal Raoul Salinas was able to transfer 
between $90 to $100 million of proceeds through Citibank's 
private banking system. In November of 1999, the Senate's 
Committee on Governmental Affairs Permanent Subcommittee on 
Investigations presented revealing accounts of how Raoul 
Salinas and other private banking customers were able to 
launder funds through Citibank's private banking system.
    According to the subcommittee Minority staff report, a key 
problem area within the private banking system is the use of 
concentration accounts. Concentration accounts are bank 
accounts maintained by financial institutions in which funds 
from various bank branches and bank customers are commingled 
into one single account. Banks have used concentration accounts 
as a convenient internal banking transfer mechanism. However, 
by combining funds from various sources into one account and 
then wire-transferring those funds into separate accounts, the 
true ownership and identity of the funds are temporarily lost, 
and, more importantly, the paper trail is effectively ended.
    Law enforcement officials have stated that one of the 
biggest problems they encounter in money laundering 
investigations, particularly where there is an international 
flow of funds, is the inability of investigators to reconstruct 
an audit trail for prosecution purposes. This was a major 
obstacle in the case of Citibank and Raoul Salinas and has also 
presented problems for law enforcement in the Bank of New York 
money laundering scandal. In a sound practices guideline paper 
issued in 1997, the Federal Reserve Bank of New York reported 
the use of concentration accounts----
    Chairman Oxley. Could the gentlelady sum up, please? We 
want to get to the Secretary.
    Ms. Waters. Well, let me just say that until we deal with 
our own banks here in the United States, we can't begin to talk 
about forcing other banks in other countries to clean up their 
acts. I am still waiting on reports that I have requested on 
the investigation of the money laundering schemes of Raoul 
Salinas and Citibank, and since that time Citibank has 
continued to purchase banks that they know launder money, and 
they launder drug money.
    This is tell the truth time, and I want to see what we are 
going to do right here before we talk about what we are going 
to do offshore.
    Chairman Oxley. The gentlelady's time has expired.
    We now turn to the distinguished Secretary of the Treasury, 
Mr. O'Neill. Thank you for appearing before the committee. The 
Chair would inform the Members, the Secretary has another 
obligation on the other side of the Capitol, but we will keep 
you as long as we possibly can, but we understand the time 
constraints as well.
    Thank you again. Obviously your appearance today shows a 
strong interest in the money laundering issue from the highest 
levels of this Administration, and we appreciate your testimony 

                        OF THE TREASURY

    Secretary O'Neill. Thank you, Mr. Chairman, Congressman 
LaFalce and Members of the committee. Thank you very much for 
inviting me to be with you today. Under Secretary Gurule is 
with me and will appear on the next panel and will provide more 
details on our view of actions that could usefully be taken.
    And I do want to make a special point of saying to the 
committee, to the Chairman and to the committee Members, how 
much we appreciate the interaction we have had with you and the 
leadership that you have shown over the years in working on 
these issues. Now is the time when we have to bring all of 
these things to bear, because this issue of financial affairs 
and movement of money of terrorists and suspected terrorists is 
a very important and essential part of the broad-front war the 
President has indicated we are going to wage against these evil 
    We believe money can be as lethal as a bullet. If we are to 
deter and prevent future calamities, and if we are to root out 
terrorists that threaten to do violence to our people and our 
communities, we have to enlist the active help of financial 
institutions to hunt down the financial benefactors who 
underwrite murder and mayhem. We have already made an excellent 
start with the President's Executive Order and the adoption of 
the United Nations Security Council resolution. The U.N. 
resolution represents a confirmation by the global community 
that an aggressive hunt for terrorist funds is underway and 
merits the cooperation of all countries.
    The importance of this global campaign cannot be 
overstated. Building an action-taking coalition for the 
financial campaign against terrorism is as important as a 
military campaign. We have set a deliberate course to prosecute 
that campaign. First we are engaged in an effort to identify 
the potential financial intermediaries of suspected terrorists 
and their associates. The interagency task force that we chair 
includes the CIA, the Departments of State and Justice, the FBI 
and the NSC.
    Second, we are acting on that intelligence with the 
issuance of domestic blocking orders that freeze accounts and 
bar all trade with terrorist associates.
    Third, we are engaged with the FBI in the investigation of 
the financing of the September 11 attacks and are making 
significant contributions in ferreting out those who financed 
those horrendous acts.
    Fourth, we are engaged in an outreach to secure the 
endorsement of our blocking orders by allies in the G7, the EU, 
and throughout the world.
    Fifth, we have begun to link the disparate databases and to 
analyze the patterns of terrorist financing.
    Here at home, you can help arm us with additional 
legislative tools to enhance Treasury's capability to track, 
block and seize those assets, to secure our borders, and to 
freely share information about terrorist activity between law 
enforcement and U.S. intelligence services. Our intent is 
straightforward: to remove structural limitations that handicap 
the Government efforts to eliminate the violence of terrorism.
    To date, the President's program has produced meaningful 
results. As this committee knows, we have taken action 
domestically, and, just as importantly, scores of countries 
have followed suit with bank freezes and pledges to take 
measures to heighten scrutiny of suspicious transactions. In 
our effort we are partnering with the private U.S. banking 
industry which has helped us to interpret and analyze financial 
data. Finally, international financial regulators have made 
clear their willingness and commitment to provide us with 
whatever assistance we may need to track down the assets of 
international terrorists. Other countries have been asked to 
provide assistance under treaties that provide Treasury and the 
Justice Department with evidence in the current probe and to 
share leads for the pursuit of new names. In addition, numerous 
international banks have made plain that they will assist us in 
any manner lawfully permitted under their respective domestic 
    Additionally, we have formed the Foreign Terrorist Asset 
Tracking Center to help identify patterns in terrorist 
financing practices discoverable only through interagency 
coordination and analysis. The center joins for the first time 
disparate databases from law enforcement, the intelligence 
community, banking regulators and open-access data libraries. 
The data is then linked to build a mosaic of terrorist 
financing activity. This operation allows us to take a 
different tack by sustaining a targeted effort at terrorist 
financing. This approach is not limited to the episodic, 
targeted and staccato-like pace of a case-specific criminal 
problem. Instead, we are using intelligence and law enforcement 
resources to find patterns that will allow us to address the 
global problem of terrorist financing.
    This is admittedly ambitious, but it is at the core of our 
declared end. This hunt is not about money. It is about money 
that kills. Our approach is proactive and preventative. Our 
goal is to drain the financial lifeblood that allows terrorists 
to finance and accomplish their deadly goals, and in doing so, 
we aim to shackle their ability to strike again.
    The Treasury Department is committed to this purpose. It is 
for this reason that we believe the provisions of the 
Administration's anti-terrorism bill are essential. In 
particular, the IEEPA amendment that would protect classified 
data from disclosure would remove barriers to the successful 
prosecution of our cause. While I understand these provisions 
are not currently a part of the House anti-terrorism package, 
we are hopeful that they will ultimately be included.
    In addition, I look forward to working with this committee 
on some issues not addressed in the anti-terrorism package; in 
particular, additional provisions to ensure more effective 
sharing of information between law enforcement and intelligence 
    Government should not be handcuffed in this endeavor. More 
can usefully be done, and Under Secretary Gurule is prepared to 
outline potential additional measures.
    But my pledge to you is simple. The Treasury Department 
will use every tool we have at our disposal to shut down 
terrorist fundraising and dismantle their organizations one 
dollar at a time. Their moral bankruptcy will be matched by an 
empty wallet.
    I thank you very much for the opportunity to appear, and I 
look forward to your questions, Mr. Chairman.
    [The prepared statement of Hon. Paul H. O'Neill can be 
found on page 117 in the appendix.]
    Chairman Oxley. Thank you, Mr. Secretary. It is good to 
have you with us this morning.
    Let me make an announcement. The Chair will recognize 
Members in the following order for questioning our witnesses: 
the Chair and Ranking Minority Member of the full committee, 
the Chairs and Ranking Minority Members of the subcommittees, 
and other Members in the order of their appearance, with 
seniority determining the order of Members present at the fall 
of the gavel.
    Because of the size of the committee and the importance of 
the issues, the time limit for our witnesses, the Chair will 
vigorously enforce the 5-minute rule. The Chair appreciates the 
cooperation of the Members and witnesses.
    Mr. Secretary, based on what Treasury has learned in the 
investigation so far, is it fair to say that the vast majority 
of the financial assets used to underwrite the terrorist 
operations of al Qaeda are overseas rather than in the United 
    Secretary O'Neill. What we have seen so far, we believe 
that to be true, but that doesn't mean we are not continuing to 
pay attention to the possibility of financing that we don't yet 
know about. But your suggestion is like what we have seen so 
far, specifically the al Qaeda resources seem to be mostly in 
non-U.S. accounts.
    Chairman Oxley. Can you share with the committee the effect 
so far that the President's September 24 Executive Order has 
had in freezing known assets of terrorists and their financial 
    Secretary O'Neill. Well, the President indicated the other 
day on the basis of an interim report that we had identified 27 
specific accounts and individuals that we wanted assets frozen. 
And we have blocked assets in the U.S. The numbers are changing 
on a daily basis. The figure the President used the other day 
was $6 million. The amounts of money that have now been 
targeted, but without a return yet from the financial 
institutions that have been tasked, we are looking at something 
over $13 million in the U.S. and substantially larger sums 
offshore. The UK has indicated that their total blocking 
numbers are $88 million, and on the same basis, if you 
incorporate data even before the 11th of September that has 
been blocked or challenged on the basis of authorities that 
existed before and then the President's expansion, the numbers 
in our case equivalent to the Brit number is something over 
$250 million.
    But, we are at the beginning of this phase, and your 
question prompts me to say this: In discussions with the 
President, he has made very, very clear how he intends to 
measure our effectiveness, and that is by the number of 
individuals that are identified and accounts that are 
identified and by the amounts of assets that are blocked. So it 
is not our intention to measure effectiveness by inputs, but by 
actions taken to actually interfere with, and hopefully near-
term, close down al Qaeda's financing operations and those of 
other terrorist organizations.
    Chairman Oxley. You mentioned the list of 27 organizations. 
I am led to believe that there is another list forthcoming. 
Could you share with us exactly, or perhaps when that might be 
available, and perhaps how many other groups would be involved?
    Secretary O'Neill. Hopefully in the next few days we will 
be adding a substantial number of additional names to the list. 
As we are doing this, and I think it is pertinent to the 
legislation that you are considering, and to the past 
practices, for the first time there is a dedicated and 
determined sharing and vetting of information between the law 
enforcement and intelligence agencies that, for a variety of 
reasons, has not taken place before, some blockages and some 
narrowness of scope in earlier Executive Orders. This is now a 
full-front effort that involves all the resources.
    And I might say in furtherance of what I said about the 
response of countries outside the U.S., without exception I 
have had, I would guess, dozens, maybe even more than 100, 
letters from Presidents, Prime Ministers and Ministers assuring 
us, both at Treasury and in my role as the Treasury Secretary, 
that they are fully committed to doing anything and everything 
that they can, including amending their own laws where that is 
necessary to do, in order to be full partners in going after 
the financial networks of terrorists, individual terrorists and 
terrorist groups.
    We have had nothing but outstanding cooperation. Last week 
I had about a 90-minute telephone call linking the Finance 
Ministers of the G7, and their response was without reservation 
they will be here this Saturday for a full-day meeting in the 
furtherance of pursuing this objective.
    And so we are getting nothing but what we ask for, 
including from all the financial institutions that we have 
talked to in the United States.
    Chairman Oxley. The Chair's time has expired.
    The gentleman from New York.
    Mr. LaFalce. Thank you very much, Mr. Chairman.
    Secretary O'Neill, are you familiar with the bill that was 
reported out of the House Banking Committee in the last 
Congress by a vote of 33-to-1 that we worked on with the 
Clinton Administration? And if so, is your Administration 
supportive of that bill?
    Secretary O'Neill. Yes. Generally there is one provision 
that the Under Secretary reminds me. I think we have filed 
them, a memorandum with you indicating that we would like to 
provide what we call a due process provision so that----
    Mr. LaFalce. That could be accommodated.
    Secretary O'Neill. With that change we are going to be fine 
with what you are proposing to do.
    Mr. LaFalce. OK. Good.
    Now we have got this Financial Action Task Force list of 
noncooperating countries and territories. Is the United Arab 
Emirates on that list?
    Secretary O'Neill. I don't think so. No, they are not on 
that specific list.
    Mr. LaFalce. Is Pakistan on that list?
    Secretary O'Neill. I don't think so.
    Mr. LaFalce. OK. Well, with respect to countries that are 
not on that list, but whose standards might not be what we 
think they should be, do we have a different list, and are we 
trying to get them to improve both their laws and their 
practices? I mean, I have heard and read that much of al 
Qaeda's funding has come from accounts belonging to charities 
and others and banks in the United Arab Emirates. And 
apparently Mohamed Atta received a wire transfer of $100,000 
from a bank account in Pakistan under the control of one of bin 
Laden's lieutenants. And so I am just curious about that.
    Secretary O'Neill. The President has said, in this war 
against terrorism, that other countries and people are either 
with us or against us. And as I said to you, we believe running 
the financial network of the terrorists to the ground is an 
essential part of waging this war, and we are going to put to 
all the other nations of the world the issue of finally coming 
to grips with issues that in the past were looked at under the 
umbrella concept of money laundering and put each of them to 
the test of providing information in a structured way that we 
have said we want to do with everyone.
    And as I said to you, so far, as we have put these 
questions, people have been very responsive. Finance Ministers 
    Mr. LaFalce. Mr. Secretary, I have a limited amount of 
time, and I concur with the language that is being used by 
virtually every country that has corresponded with you. The 
question is not so much the language and the good intent. The 
question is, you know, the proof is in the pudding. And so I am 
just wondering--it is difficult to bring about international 
harmonization of standards, and somehow we have got to do it 
quickly, within weeks or so. And we have to have some 
standards. We have to know whether each country, especially 
certain targeted countries where the terrorists might be most 
active, have in place a set of standards that we think is 
adequate, and if not, we have got to get them to do it 
yesterday. And that is why I am focusing in on the United Arab 
Emirates and Pakistan, for example, not getting letters of good 
    Secretary O'Neill. The answer is I agree with you, and I am 
also a results-oriented person, as your question suggests. I am 
not interested in having more paper and good wishes and 
resolutions. I am interested in getting action, and, yes, we 
are going to work with every one of these countries, including 
the list of countries that have not yet entered information-
sharing treaties with the U.S. so we can prosecute this part of 
the war as diligently and successfully as I am sure the 
President and the military establishment will prosecute the 
more familiar part of the war.
    Mr. LaFalce. Thank you, Mr. Secretary.
    Chairman Oxley. The gentleman's time has expired.
    The gentleman from Alabama, Mr. Bachus.
    Mr. Bachus. I thank the Chairman.
    Secretary O'Neill, I will be yielding my time to Mr. Riley, 
but I did want to commend you for one statement. Your opening 
statement, I thought, was magnificent.
    Secretary O'Neill. Thank you.
    Mr. Bachus. You said the hunt is not about money, it is 
about money that kills. And I think that is really the essence 
of what we are talking about here. Prior to September the 11th, 
I said the issue is very basic: dollars or lives. And sometimes 
that is going to be the choice. When it comes to a question of 
dollars or lives, there should be no question. And we are going 
to have that--that is going to confront us from time to time. 
So thank you.
    I will yield at this time my remaining time to the 
gentleman from Alabama, Mr. Riley, who is very knowledgeable on 
these issues.
    Mr. Riley. Thank you, Mr. Bachus. I appreciate that. I have 
got another meeting I was going to, but I did want to ask a 
couple of questions, Mr. Secretary. Following up on Mr. 
LaFalce's line of questioning, how many countries would you say 
today are not being helpful?
    Secretary O'Neill. So far, as I said, no one has said no. 
Most have volunteered a willingness to do anything and 
everything that we suggest they might do within their own 
boundaries. But you all know, because you have followed this 
subject for a very long time, there is a long list of countries 
that don't have information-sharing treaties with the United 
States so that we can track even the narrower subject of money 
laundering, and I believe it is now time to put the question to 
them, actually the demand to them, that we finally create a 
basis so that we can follow money around the world, both for 
the broader purpose of money laundering and for the specific 
purpose of interdicting and confiscating the money of 
terrorists and suspected terrorists.
    Mr. Riley. Well, I couldn't agree with you more, Mr. 
Secretary, but, again, I think Mr. LaFalce is absolutely right. 
Now time is of the essence. If we could, I would love to see a 
list of the number of countries that have not participated or 
have been reluctant to participate.
    But, because our time is short, let me ask you one other 
question. Prior to September the 11th, what kind of policies 
and procedures did the Treasury Department have in place that 
allowed us to track the terrorist money before the attack on 
New York?
    Secretary O'Neill. I guess I would say, now I am thinking 
about on the intelligence side, we had an ability in the 
intelligence community to identify terrorists and to look at 
information on a worldwide basis outside of the United States 
to pursue the financial affairs of terrorists. But we had a 
habit and a practice, and I think even a legal prohibition, 
against using in a direct way the information collected by the 
international intelligence agencies without a very complex 
procedure to bring it on board in the United States and to 
systematically pursue potential terrorists inside the 
geographic borders of the United States.
    And, you know, one of the things that is happening, as a 
consequence of these terrorist acts, I think we are finally 
going to use the resources of our own community and the 
intelligence agencies of the rest of the world to go after 
terrorists, not without protections to make sure that there 
isn't overreach, but to take away the handcuffs that I think 
perhaps were applied and supplied with the best of intentions 
to protect individual liberties, but at a cost that made it 
very difficult to systematically erase the financial sources of 
terrorist operations.
    Mr. Riley. Well, sir, again, prior to September the 11th, 
could you categorize on a scale of 1-to-10, compared to what 
you are doing today, how active your department was, or how 
active this Government was, in tracking terrorist money, 
knowing where the accounts were, and did we have the ability 
before to do something preemptively that we should have done?
    Secretary O'Neill. I think one measure of where we were is 
frankly not one I like very much, but one measure of where we 
are, you can look at the annual reports on so-called money 
laundering activity and attempts to interdict money that was 
flowing from illicit, base purposes. If memory serves me right, 
last year the number was $670 million. That is a fair amount of 
money. And, you know, I began, when I came asking the question, 
and what did we get for it, and I was not, frankly, satisfied 
that we were getting results for dollars spent.
    I have a great deal of confidence that we are now going to 
start seeing results for dollars spent, because at the very top 
of our Government, the President of the United States has said 
he wants to know how many individuals have we identified; how 
many accounts have we blocked; how much money have we either 
blocked or confiscated. So I think with a clarity of purpose 
you are going to begin seeing results.
    And I think also, as a consequence of these unbelievable 
acts, the cooperation from other governments around the world 
is going to be the difference between night and day. This is no 
longer going to be a conversation about convenience or 
something else. What I have seen from everyone that I have 
talked to is a determination that the world is not going to be 
a hostage to terrorists, and we are going to use every means at 
our disposal, including attacking their financial sources, to 
put them out of business.
    Chairman Oxley. The gentleman's time has expired.
    The gentlelady from California.
    Ms. Waters. Thank you very much.
    Mr. Secretary, I would like to see the legislation. I am 
seeing it for the first time. We just got it last night. I 
would like to see this be a three-pronged attack. While most of 
the references in this Act are to terrorists, it should be 
terrorists, drug traffickers and corrupt dictators. There is a 
nexus in all of this. Even as we talk about the terrorists and 
the Taliban, I don't know at this time how much drug 
trafficking plays a role in this. It appears that the Taliban 
is only going to be able to finance anything, even war, through 
its drug trafficking, and it appears that that is on the rise 
in Afghanistan. So I would like to see us talk about 
terrorists, drug traffickers and corrupt dictators in all that 
we do.
    Number two, are you willing to shut down big banks right 
here at home who are found to be laundering terrorist money, 
along with--and I would like to see in that also drug money and 
money that is deposited in our banks by bloody dictators. Are 
you willing to shut down the big boys?
    Secretary O'Neill. If I believe that we find evidence that 
big banks or small banks or medium-size banks are aiding and 
abetting terrorists, you bet my recommendation to the President 
will be that we shut them down tomorrow morning.
    Ms. Waters. Thank you.
    Mr. Secretary, also, one of the biggest banks in this 
country was under investigation for laundering drug money at 
the same time they were under investigation they were 
purchasing small banks in Latin America that had strong 
representations for laundering drug money. Can you think of, or 
will you think about, as we should think about, ways by which 
we can discontinue the practice of our banks buying banks that 
have strong representations for laundering money, because they 
end up using it as an excuse. ``It is not the bank's policy,'' 
they will say, ``but some individual in the bank who is 
misusing his or her power like a private banker,'' and so 
forth. But they knew when they bought that bank that that is 
what they had the reputation for doing, and the same employees 
are in the bank. Are you willing to deal with that issue?
    Secretary O'Neill. Not on the basis that you suggest. I 
don't think that--and this is a question of protecting our 
freedoms as we work the subject diligently. I don't think that 
we should act on the basis of so-called reputational opinions. 
I think we should operate on the basis of facts. And if we can 
demonstrate through intelligence and investigation that 
institutions deserve, as you say, the reputation that they 
have, then I am for stopping their activity, interdicting their 
activity, taking their money away. But I am not for operating 
on something as flimsy as reputation, because I am wary of the 
dangers that are associated with attacking individuals or 
institutions on the basis of reputation.
    Ms. Waters. I am not thinking about reputation in the case 
of Citibank. They bought a bank called Confia. It was under 
investigation by our own DEA agents, and they covered and they 
documented that it was involved in laundering money, and they 
bought the bank anyway.
    Finally, can you give me an update or have someone give me 
an update if the statute of limitations has not run on the 
investigation of the Salinas money that was deposited in 
Citibank, assigned a private banker who purchased all of the 
assets for Salinas through the private banking situation, just 
as in our book today we find that one of our U.S. bankers 
helped to--testimony demonstrated how a U.S. banker was used by 
bin Laden to send money from the Shamal Bank to a bin Laden 
associate in Texas using a corresponding account. Essam Al 
Ridi, who worked for bin Laden, testified that he received 
$250,000 wire-transferred at his bank in Texas that was sent by 
the Shamal Bank, which he then used to purchase a plane for bin 
Laden, which he later delivered himself to bin Laden.
    I want to tell you again, let me just reiterate, we have 
got to clean up our act. Our banks have got to be willing to 
stop taking money from every bloody dictator, terrorist-
associated persons and drug traffickers. Until we get tough on 
them, other countries are not going to believe us.
    Chairman Oxley. The gentlelady's time has expired.
    Mr. Secretary, again, we appreciate your testimony today, 
and your appearance really sent a strong signal of the 
Administration's intense desire to work on a money laundering 
bill, and we most appreciate it. We understand your time 
constraints to go over to the other body. We appreciate your 
testimony, and we look forward also to your excellent 
colleague, Mr. Gurule, who will testify on the next panel. 
Thank you very much.
    Secretary O'Neill. Mr. Chairman, Members of the committee, 
thank you all very much.
    Chairman Oxley. We are pleased to have our second panel, 
and let me introduce the panel as they are taking their seats. 
The aforementioned, the Honorable Jimmy Gurule, Under Secretary 
for Enforcement, the Department of the Treasury; Mary Lee 
Warren, Deputy Assistant Attorney General, the Criminal 
Division; Mr. Dennis Lormel, Chief, Financial Crimes Section, 
from the Criminal Investigations Division of the FBI.
    Gentlemen and lady, we appreciate your appearance today 
before the committee, and Mr. Gurule, we will begin with you.


    Mr. Gurule. Chairman Oxley, Chairman LaFalce and other 
distinguished Members of the House Committee on Financial 
Services, permit me to begin by thanking you for inviting me to 
testify before the committee on the Administration's policies 
and proposals for dealing with the threats posed to the United 
States and the global financial systems by international 
terrorists and terrorist groups. It is an honor to meet with 
you this morning as we assess the Treasury Department's 
strategy to cut off the financial lifeblood of the individuals 
and organizations responsible for the heinous, cowardly acts of 
September 11.
    Insofar as possible, my testimony today is structured along 
the lines requested by you, Mr. Chairman, in your September 27 
letter to Secretary O'Neill inviting him to testify. On 
September 24, President Bush stated, and I quote: ``We will 
direct every resource at our command to win the war against 
terrorists, every means of diplomacy, every tool of 
intelligence, every instrument of law enforcement, every 
financial influence. We will starve the terrorists of 
    It is that last statement by the President that has been 
the mandate for the Department of the Treasury, starving 
terrorists of funding. The strategy that we can employ to 
accomplish that goal is a multistep process. It includes the 
following: The Department of the Treasury is intensely involved 
in investigating and identifying targets; second, identifying 
assets for potential blocking or seizure; third, identifying 
methodologies, systems, techniques used to move funds for 
operational support of these terrorist organizations; fourth, 
the sharing of information with appropriate law enforcement 
personnel, specifically the FBI and Department of Justice 
officials; and lastly, application of an array of authorities, 
regulatory tools and law enforcement initiatives to deprive 
terrorists of access to their funds within the United States.
    With respect to the first question that you have asked the 
Department of the Treasury to address today, the financial 
networks and operations of terrorist groups, let me say the 
following: The schemes used by these terrorist organizations to 
move money that underwrites these terrorist activities are 
challenging and complex, to say the least. Make no mistake 
about it. It is very complex, varied schemes that are used, and 
they defy easy definition. So I don't want to create any 
unreasonable expectations with respect to the ease in 
identifying these systems of operation.
    Certainly, we know from our investigation that in some 
instances these organizations use charitable organizations that 
on the one hand are involved in raising funds for humanitarian 
and legitimate activities, but at the same time are involved in 
raising funds that are used to underwrite terrorist activities. 
They use front companies, businesses, banks, and underground 
money transfer systems such as the ``hawala'' system, which we 
are actively investigating. And, of course, they attempt to 
smuggle bulk cash in and out of the country to support their 
    And so our strategy with respect to undermining these 
financial networks must be multilayered, must attempt to 
address and confront these diverse and varied schemes. There 
isn't a kind of single, one-fits-all type of strategy that we 
can implement if we intend to be successful in dismantling 
these operations.
    What are the tools that we are currently using to dismantle 
these financial networks? Secretary O'Neill spoke briefly about 
IEEPA, the International Emergency Economic Powers Act. This is 
the principal tool that is being used to stop terrorism 
financing. President Bush issued Executive Order 13224 on 
September 24 declaring a national emergency under IEEPA with 
respect to acts of terrorism and threats of terrorism committed 
by foreign terrorists against the United States. This Executive 
Order is important for a number of reasons. First, it expands 
the coverage of existing Executive Orders from terrorism in the 
Middle East to global terrorism. Further, it expands the 
targeted groups to include those who provide financial or other 
support or services to terrorist groups or persons associated 
with terrorist groups. So it is much broader in its scope and 
    It further makes clear our ability to block U.S. assets and 
deny access to the U.S. financial markets to foreign 
institutions that refuse to assist the United States in 
tracking and freezing terrorist assets abroad.
    With respect to this Executive Order, we have put in place 
the means to carry out the goals of the Executive Order. The 
vehicle that is being used for this purpose is the Foreign 
Terrorist Asset Tracking Center that is being administered by 
the Office of Foreign Assets Control.
    Its goal is to identify the source of funding for terrorist 
organizations and to cut off the cash flow to these groups. It 
has been in operation, as you know, a short period of time. 
However, I do believe that the progress that we are making with 
respect to the tracking center is substantial, and the early 
news is certainly encouraging, and we are very optimistic about 
with respect to the future effectiveness and success that is 
going to be realized by use of the Foreign Terrorist Asset 
Tracking Center.
    As the Secretary stated, its value is multifold. It brings 
together and accesses multiple databases, law enforcement 
databases, intelligence community databases, public source 
information, and the Bank Secrecy Act databases, which include 
currency transaction report information and suspicious activity 
report information. So we are pulling together, coordinating 
the utilization of these important bases of information and 
doing so in a coordinated fashion with the law enforcement 
community and the intelligence community.
    One additional tool that we are using in this war against 
these financial terrorist networks is the Bank Secrecy Act. As 
you know, the Bank Secrecy Act is administered by the Financial 
Crimes Enforcement Network, or FinCEN. The Bank Secrecy Act 
permits us with a database--the data that is collected via the 
Bank Secrecy Act permits us to develop linkages between 
individuals and particular banks and particular bank accounts 
with respect to specific transactions. It gives us a much 
clearer picture of who is involved in the financial network. 
And, of course, we are sharing the information that we are 
learning through FinCEN with the Federal Bureau of 
Investigation and Department of Justice prosecutors and 
officials. So it is one other important tool that is available 
to us.
    At the same time, Treasury enforcement bureaus are actively 
engaged in investigating the terrorist acts of September 11th, 
including the United States Customs Service, which has 
extensive expertise in the area of anti-money-laundering; IRS-
C.I., which, again, has extensive knowledge and expertise with 
respect to investigating complex money laundering schemes, 
following the money, following the paper. We are working 
closely with IRS and the Secret Service. So we have a strong 
intra-agency cooperative effort. And again, these agencies, 
Treasury bureaus are working closely with the Department of 
Justice and the Bureau.
    What additional legislation is needed? Well, let me address 
that in general terms initially, and I am happy to respond in a 
more specific way during the question-and-answer session. There 
are current laws on the books that make it difficult for law 
enforcement to do its job with respect to investigating these 
financial networks. For example, there are some provisions that 
permit access to relevant data by Department of Justice 
officials, but prohibit or deny access to the same information 
by the Department of the Treasury law enforcement officials. 
And it seems to me that if the evidence or the information is 
relevant for criminal justice law enforcement purposes, it 
should be accessible at the same time by FinCEN, by the Office 
of Foreign Assets Control, and by the Foreign Terrorist Asset 
Tracking Center.
    Currently, laws on the books do not permit the sharing of 
that information by Treasury bureaus. At the same time, there 
is information that Treasury may access, but is prohibited from 
sharing with the intelligence community. So we can share it 
internally within Treasury, but we are prohibited from sharing 
it with the intelligence community. And, again, I think these 
are obstacles and hurdles that make it difficult to do the job 
that we need to do in an expeditious and efficient way.
    And the Secretary commented on IEEPA and the importance of 
being able to defend, let's say, a blocking action in court by 
being able to submit in camera, ex parte to a judge, the 
classified information that was used to support a blocking 
order. If we don't have that ability, it really places the 
tracking center in a quandary, if you will, because they are 
having to decide whether or not to block accounts based upon 
classified information. And if the fear is that we may have to 
disclose this classified information, then the question is 
perhaps we shouldn't block the account. Or if we block the 
account, maybe we should block it on information other than 
classified information. And so the underlying evidentiary basis 
for the blocking is not as strong as it otherwise would be. Or 
if we block the account, we may find ourselves in a situation 
at court where the blocking order is being challenged where--
because it is classified information, and if we are ordered to 
disclose it, we may then have to make a decision to withdraw 
the blocking order, because we can't disclose the classified 
information in open court.
    So, we certainly would welcome your support with respect to 
amendments to the IEEPA legislation to fix this problem.
    Lastly, let me just comment briefly on the extent of 
international cooperation. There isn't much that I can add to 
what the Secretary stated in his statement. The cooperation has 
been--first of all, the activity has been aggressive, and it 
has been on multiple fronts. The effort has first and foremost 
been one of seeking cooperation with our allies to block 
accounts that we believe are linked to terrorist activities, 
and the response has been quite positive.
    With respect to the Financial Action Task Force, we are 
undertaking efforts to ensure that banks that maintain accounts 
that are linked to terrorist organizations, that that is 
prohibited conduct under the 40 recommendations of FATF, and 
that may serve as a basis to have such a country listed on the 
list of noncooperating countries and territories.
    These are just a few of the things that we are undertaking 
at this time. And again, thank you for the invitation. I am 
happy to answer any questions that you have at the appropriate 
time. Thanks very much.
    [The prepared statement of Hon. Jimmy Gurule can be found 
on page 121 in the appendix.]
    Chairman Oxley. I thank you.
    Our next witness, Mary Lee Warren from the Justice 
Department, speaking for Michael Chertoff.


    Ms. Warren. Thank you, Mr. Chairman, and I appreciate the 
opportunity to appear today before this distinguished committee 
to discuss the Administration's strategy to attack the 
financial lifeblood of these individuals and organizations 
responsible for the September 11th attack. Mr. Chertoff, the 
Assistant Attorney General for the Criminal Division, regrets 
not being here today, but the White House has tasked him with 
other anti-terrorism matters today.
    Let me report for my part that we are making substantial 
progress toward unraveling the network that provided the 
financial support for the attacks of September 11th. 
Unfortunately, our work is made much more difficult, because 
many of our existing money laundering laws are out of date. As 
this committee well knows, those laws that were originally 
enacted in 1986 sought to address what was then a domestic 
problem of money laundering. It is now an international, global 
problem of money moving across borders, being transferred 
electronically and smuggled from time to time.
    The seriousness of this problem has been repeatedly 
underscored in the days since the attack. Press reports have 
indicated that some of the money was drawn from other crimes, 
that cash was smuggled, and that money moved electronically.
    The terrorists, and certainly other international organized 
criminals, are fully aware that the United States, among other 
countries, is ill-equipped to permit the international 
cooperation necessary to restrain and forfeit the funds as they 
move around the globe. We need to modernize our money 
laundering laws to be able to respond to today's threats of 
terrorism as well as the international crime problem today.
    Our present laws are simply inadequate to deal with these, 
or with the variety of new methods that our criminals are now 
using to move money across borders, of moving money as proceeds 
of crimes they committed abroad into the United States, and 
money that is the profits of crimes here moved out of our 
country. To meet this challenge we must do all we can to 
prevent foreign criminals, first of all, from using our banking 
system to hide their dirty money; and second, we must ensure 
that criminals who commit crimes here and send their money 
abroad will also be subject to the confiscation and 
prosecutions necessary.
    Our Federal courts must be able to enforce foreign 
judgments of forfeiture. When crimes have been found and 
forfeiture ordered by a foreign court, we are able to enforce 
those judgments if it is a drug case, but not for any other 
crime, including terrorism, today. Such enforcement is in the 
broad interest of international justice, but it is also in our 
own justice interest. Foreign courts will be less likely to 
work with us and cooperate on enforcement of our judgments if 
we cannot provide the same reciprocal authority.
    In addition, we must take steps to crack down on the ease 
with which foreign criminals use correspondent accounts of 
foreign banks maintained here in U.S. banks to hide the profits 
of their crimes. We must prevent fugitives from hiding behind a 
corporate veil or ``front'' from challenging those forfeitures. 
They can't do it in their own right while they are on the run. 
They shouldn't be able to do it behind a corporate front.
    We also have to take new steps to address the most recent 
methods that money launderers have employed to hide the 
proceeds of their domestic crimes by moving that money abroad. 
The success that we have had in enforcing the Bank Secrecy Act 
has led criminals to deal increasingly in cash. Hoards of cash 
are routinely moved across borders, and couriers move that cash 
interstate. They conceal it in many different ways and move 
through many types of transportation. It should be a violation 
of Federal law for a person to transport such currency knowing 
that it is derived from crime or that it is intended to be used 
for an unlawful purpose. Similarly, it should be a crime to 
smuggle cash across borders to avoid the reporting requirements 
that we have.
    The Money Laundering Act of 2001, which the Attorney 
General sent to Congress on the 18th of this month, contains 
many of these and numerous other provisions intended to update 
our money laundering laws to address today's globalization of 
crime. We are gratified to see that many of these provisions 
are incorporated in the House bill.
    The inadequacy of our present laws has been brought into 
sharp and sad relief by the horrific events of September 11th 
and the ensuing reports of the means by which the terrorists 
financed their crimes, but this is a problem that goes beyond 
terrorism in this era of globalization. We must find ways to 
make our laws keep pace with the methods employed by all those 
who would prey upon our citizens. We look forward to working 
with this committee and your colleagues in the House and those 
in the Senate in realizing our shared commitment to an 
effective anti-money-laundering regime in the United States.
    Thank you very much. I look forward to your questions.
    [The prepared statement of Hon. Michael Chertoff can be 
found on page 131 in the appendix.]
    Chairman Oxley. Thank you, Ms. Warren.
    Agent Lormel.


    Mr. Lormel. Thank you, sir. On behalf of the FBI, I would 
like to express my gratitude to the committee to afford us the 
opportunity to participate today. I have submitted a written 
statement for the record which broadly addresses the issues 
your invitation letter asked me to address.
    The terrorist acts of September 11th were among the most 
horrific crimes ever committed. We in the FBI are deeply 
committed to conducting a comprehensive investigation. Director 
Mueller has committed the full resources of the FBI to this 
initiative. An important adjunct component of the investigation 
has been the formation and inclusion of a multiagency financial 
review group. My colleagues here at the table have both 
referenced some of the initiatives, and we will get into a 
little more detail on that.
    From the financial investigative standpoint, our mandate is 
to conduct a collateral investigation consistent with the 
terrorism investigation, and certainly to rely on our friends 
in Treasury in accomplishing this. My oral comments will 
briefly touch on the specific questions you asked me to 
    First, the description of the financial networks and 
operations of the terrorist groups involved in the September 
11th attack. Mr. Gurule and Ms. Warren each made some 
references to them. I don't think it is appropriate to get into 
specifics; however, it is important to note there was a 
financial network and a support mechanism that supported the 
hijackers responsible for the September 11th attack. We are 
conducting, as I mentioned, an exhaustive and comprehensive 
financial investigation in this regard, unlike anything we have 
done before. I applaud the committee for your efforts and your 
initiative in addressing this issue and recognizing the 
importance of cutting off the lifeblood of financial support to 
the terrorist organizations.
    Second, you asked about the FBI's strategy for identifying 
and taking action against those involved in financing the 
individuals and the organizations involved in the terrorist 
attacks. Again, I don't think it is appropriate because of the 
ongoing nature of the investigation to comment specifically on 
that, but I would like to specifically emphasize that there is 
a partnership among the Federal law enforcement community 
including the Department of Justice and the Department of 
Treasury and coupled with the financial services community, the 
financial institutions of America, and the general businesses, 
the general business community itself. In fact, personally I 
find it very heartening the response and the cooperative 
initiatives that we are receiving.
    You asked about vulnerabilities and high-risk areas in the 
financial services sector. There are a number of those areas, 
and, again, my colleagues have addressed those a little bit, 
but certainly the areas of wire transfers, correspondent 
banking, money service businesses. You referenced the 
``hawala'' system. Traditional fraud schemes; certainly the use 
of false identification, credit card fraud, insurance fraud and 
traditional fraud schemes are what are prevalent here. We have 
seen that with the hijackers in this case.
    As an aside, I would also like to address a vulnerable area 
which is internet gambling. The internet gambling and online 
capabilities have become a haven for money laundering 
activities. We believe there is a huge potential for offshore 
sites being utilized to launder money, and there are examples 
of pending cases, particularly in our organized crime program, 
involving enterprises using these types of services as conduits 
for money laundering.
    You asked about any obstacles the FBI is encountering in 
its efforts to obtain the cooperation of U.S. financial 
institutions. I would like to say that in my 25 years of 
experience, I have never seen the level of cooperation and 
support toward law enforcement that we are encountering in this 
particular case. The responsiveness of the financial industry, 
financial services sector and the entire business community has 
been most heartening and symbolic of the spirit of patriotism 
that has galvanized the country.
    You asked about the extent to which the current law 
provides the necessary tools for the FBI and other law 
enforcement agencies to stop the financial operations of the 
terrorist groups. Again, my colleagues here at the table have 
addressed those issues, and I will certainly defer to their 
comments. I have articulated in my written statement that the 
FBI strongly supports the Money Laundering Act of 2001, which 
the Justice Department submitted to Congress. We are encouraged 
by what we have seen in your write-up, sir. And we concur with 
Ms. Warren's testimony. Enactment of these proposals would 
greatly assist our efforts to fight terrorism as well as a wide 
variety of financial crimes.
    If I may just make one anecdotal comment. Mr. Gurule 
commented about the machinations and some of the prohibitions 
that we deal with in dealing with sharing of information. In 
our financial review group, FinCEN is an active partner, yet we 
have some problems that we are trying to overcome in sharing 
information and taking full advantage of the capabilities and 
databases that FinCEN offers us, and that would certainly be an 
area we would like to see pursued.
    You asked about the degree to which the FBI, FinCEN, 
Customs, DEA and other law enforcement agencies are working 
collaboratively to end terrorist funding. In conjunction with 
the Assistant Attorney General Mr. Chertoff and his staff, to 
include Ms. Warren, the Financial Crimes Section of the FBI 
recognized the importance of establishing a financial review 
group to participate in the immediate criminal and terrorist 
investigation as well to establish a template for future 
terrorist and significant criminal enterprise investigations 
that certainly we have to coordinate with the Department of the 
    In order to succeed, the financial review group will 
require the full participation of the Federal law enforcement 
community. Secret Service, the Internal Revenue Service, the 
Customs Department, the Postal Inspection Service, FinCEN, the 
CIA, and the National Drug Intelligence Center are full 
partners in our financial review group, kind of an ad hoc task 
force if you would. We have reached out to the entire Inspector 
General community and have gotten their pledge of support, and 
they are reviewing their databases for any type of linkage and 
nexus to the terrorist groups.
    It should be noted that there are myriad agencies in 
addition to the agencies I have mentioned here that participate 
in the terrorist side of the investigation. This is a very 
unique case for the FBI because it is first time, I believe, 
that we have a fully integrated financial component in a 
terrorist investigation.
    You asked about the nature and extent of international 
collaboration on law enforcement. Again, based on my 
experience, the full international coordination and cooperation 
is unprecedented. The worldwide law enforcement community has 
rallied to support our investigative efforts.
    In conclusion, cutting off the financial lifeblood of the 
individuals and organizations responsible for the September 
11th acts of terrorism is a vital step in dismantling the 
organization and preventing future terrorist attacks. With the 
assistance of Congress, the combined resources of the Federal 
law enforcement community and law-abiding people throughout the 
world, we are confident we can succeed in this challenging 
    With that, sir, we are all available for questions.
    [The prepared statement of Dennis M. Lormel can be found on 
page 140 in the appendix.]
    Chairman Oxley. Thank you, Agent Lormel, and thanks to all 
of our witnesses.
    The Chair now recognizes the Vice Chairlady of the full 
committee, Mrs. Roukema.
    Mrs. Roukema. I thank the Chairman.
    I have been listening very carefully here, and I want you 
to know about my own background on this subject not only with 
bulk cash smuggling, but the McCollum-Roukema bill of 2 or 3 
years ago, Congressman McCollum, formerly a Member of this 
panel as well as a major senior representative of the judiciary 
panel probably. And that bill went noplace, but it is my 
understanding from the Attorney General that their proposal and 
the proposal that I hope we are going to be marking up 
hopefully next week here in this committee and the one that is 
reflected in the Senate is 90 percent of what we were doing at 
that time.
    Now, what does that have to do with our hearing here today? 
I was more than a little disappointed that Secretary O'Neill 
had to leave before we were able to ask him with more 
specificity what he would be recommending. I would like to know 
a little bit more from this panel with specificity what we 
should be doing to get corrective legislation.
    I was concerned that, Mr. Gurule--I am sorry, Mr. Gurule, 
people mispronounce my name all the time, too--but, Mr. O'Neill 
implied that we have the legal authority to close some of these 
money launderers down tomorrow. I don't believe that. I don't 
believe that that is possible. But I wonder if Mr. Gurule would 
please help us, when you say the Bank Secrecy Act permits--you 
made it sound as though that is adequate. I don't believe that 
is adequate, and I think we need additional legislation. And 
you did indicate that Treasury, law enforcement, the current 
law restricts Treasury and law enforcement cooperation. You did 
indicate that.
    Now, are you familiar with not only the bulk cash smuggling 
portion of our legislation, which I am forcefully advancing, 
but the more comprehensive proposal that we and the Senate hope 
to get passed? Could you please give us your assessment of that 
legislation not only in terms of bulk cash smuggling, but also 
in terms of how we are going to facilitate information 
gathering and the cooperation as was already stated about the 
correspondent banking and wire transfers that I believe the FBI 
representative here today referenced? Could you give us your 
help on that, please?
    Mr. Gurule. Certainly. Since taking office as Under 
Secretary for Enforcement, I have identified money laundering 
as the top priority for the enforcement office at the Treasury. 
The first task upon becoming Under Secretary was the 
development and publication of the 2001 National Money 
Laundering Strategy, and that was released just a few weeks 
ago. It was released in September, and it sets forth a very 
comprehensive strategy with respect to anti-money-laundering 
    With respect to legislation specifically, I have had an 
opportunity to review the bill that has been prepared by the 
Department of Justice, and I think that the provisions that are 
contained therein are important provisions, necessary 
provisions in terms of strengthening our current anti-money-
laundering laws.
    So, on one hand, with respect to new legislation, again, 
the provisions articulated there are ones that we view quite 
favorably. In addition, as the Secretary stated, we have had an 
opportunity to review the Kerry bill or the House version that, 
of course, has been submitted sponsored by Congressman LaFalce, 
and we believe that the authority, the discretionary authority, 
that is set forth in that bill with respect to the Secretary of 
the Treasury being able to impose special measures where there 
is a finding of a primary money laundering concern is 
important. It is valuable.
    The one caution, the one objection that we have raised with 
respect to that is the need for a due process provision, which 
I believe, if I understand Congressman LaFalce, he supports as 
well. We have been working with the staff of Senator Sarbanes, 
who is the Chairman of the Banking Committee, the staff of 
Senator Gramm, who is the Ranking Member. We have been working 
cooperatively there in an effort to craft what that due process 
provision should look like and what process should be due under 
the circumstances that are set forth therein. So there, again, 
is another specific example of where I think we can support 
legislative initiatives that are currently being undertaken.
    Chairman Oxley. The gentlelady's time has expired.
    The gentleman from New York, Mr. LaFalce.
    Mr. LaFalce. Thank you very much.
    Mr. Gurule, I thank you for your endorsement of the bill 
that I have introduced so long as we can come up with some due 
process provisions. I do want to caution you, however, that the 
same bill was held up in the Senate last year by one 
individual, the former Chairman of the Senate Banking 
Committee. I caution you that it is possible to come in with 
due process provisions that will choke the effectiveness of the 
bill. And so I would encourage your staff to work with my staff 
in coming up with some reasonable due process provisions.
    Next point: Your office is extremely important. It is 
responsible for money laundering, but it is also responsible 
for the Customs Bureau. And as a northern border Congressman, I 
have the following questions. First of all, do we know how many 
of the 19 or so hijackers who were killed may have come in from 
Canada, if at all, if any?
    Number two: Do we know if any came in illegally as opposed 
to legally from wherever they came?
    And number three: There has been a gross inadequacy over 
the years in the number of Customs and Immigration personnel on 
the northern border. We have increased the amount of traffic 
exponentially, and we have fewer personnel. Second, the Customs 
Department has had on the books for about a decade what is 
known as a proposal for ACE, an automated commercial 
environment, that would cost in excess of a billion dollars, 
but we are woefully behind the times in implementing that. Is 
there any way that we can make a giant leap forward both with 
respect to numbers of personnel and to an automated commercial 
environment that would: A, enhance our security and: B, 
facilitate the flow of traffic?
    Mr. Gurule. I think that was four questions, so let me see 
how I can respond to them and take them in order.
    Let me first comment that I am pleased to announce that the 
U.S. Customs Service has a new Commissioner as of last week. 
Robert Bonner was sworn in as the new head of the Customs 
Service. Mr. Bonner is someone that I worked closely with when 
he was a U.S. attorney for the U.S. Attorney's Office in Los 
Angeles and I was a Federal prosecutor heading up the drug 
section, deputy chief there.
    The issues that you raised with respect to ACE, the issue 
that you raised with respect to the inadequacy of Customs 
inspectors at the northern border are issues that Commissioner 
Bonner and I are addressing. Clearly, both of those are 
important, and I agree with you. I think the numbers in terms--
    Mr. LaFalce. There is $40 billion that we have 
appropriated, a significant portion of which can be used in the 
absolute discretion of the President. Is your office putting in 
for a significant portion of that for more personnel and the 
most expeditious of ACE that is possible?
    Mr. Gurule. With respect to additional Customs Service 
inspectors, yes. They are being addressed, and there will be 
and there is a request in there for additional inspectors.
    With respect to the ACE program, the Secretary has spoken 
on that as well. We are going to do everything that we can to 
ensure that it is implemented. We understand and appreciate the 
importance of it.
    Mr. LaFalce. I want you to come back to me with the--when 
ACE was first suggested, how much it would cost in toto, what 
the implementation plans are for it right now, and what the 
most ambitious implementation plan for it could be if you had 
all the financial resources you need; second, the number of 
additional personnel that you have requested of the 
Administration for the northern border.
    Now, what about individuals coming in from Canada? Have we 
identified any as having come in from Canada at all?
    Mr. Gurule. I am not aware of any.
    Mr. LaFalce. Of those who have come in, the 19 hijackers, 
do we know if any have come in illegally, or did they all come 
in quite legally, or do we know that?
    Mr. Gurule. Perhaps that question may be better addressed 
with Mary Lee Warren.
    Mr. LaFalce. Mary Lee, your answer.
    Ms. Warren. The best that comes to my recollection at the 
moment, they came in legally, but then overstayed their visas 
or went beyond the authority of their visa.
    Mr. LaFalce. They all came in legally. So it wasn't a 
question of a deficiency of a border question to your present 
    Ms. Warren. At the moment not to my knowledge, but I remind 
you that Ressam, who came in, who was captured at the time of 
the Millennium, came across the Canadian border.
    Mr. LaFalce. I am well aware of that. I am talking about 
these 19.
    Mr. Lormel. If I may follow up. We don't believe that any 
of them came in through Canada. They may have all had 
legitimate identification, but some of it may have been 
counterfeit. That is a possibility and certainly is something 
we are looking at.
    Chairman Oxley. The gentleman from Nebraska, Mr. Bereuter.
    Mr. Bereuter. Thank you, Mr. Chairman. I would like to use 
my time for comments directed to the panel or the people they 
work for.
    First, Mr. Lormel, I want to tell you that one of your 
highest priorities is to protect the American citizens here and 
abroad against terrorism. It is an important but lower priority 
to bring these terrorists to courts. You must share information 
with the intelligence agencies and with the other domestic 
agencies and not put your first priority on simply protecting 
information so that you can prosecute terrorists.
    I hope that change in attitude can affect the FBI. I know 
Mr. Mueller had only been there 6 days when this terrorist 
attack happened.
    I, too, am disappointed that Secretary O'Neill is not here, 
but I understand perfectly. Just want to say if you will take 
this back to him, Mr. Gurule, that, first of all, I appreciate 
his statement that you are going to use every tool at your 
disposal, and that the President has given you the authority 
under an EPA to go after the U.S. assets of foreign banks that 
refuse to freeze terrorist assets abroad.
    I have an interesting nexus between my service on this 
committee and service on the Intelligence Committee where I am 
doing my second tour as Vice Chairman, and I would like to say 
that we have notoriously had insufficient cooperation between 
the law enforcement agencies and the intelligence agencies in 
this country. It has been going on for decades. That has to be 
    I wrote a letter to Secretary O'Neill on August 2nd to 
clarify the position of Treasury with respect to the Financial 
Actions Task Force, which is an international effort primarily 
focused on OECD, and he clarified that indeed the 
Administration is very supportive of identifying the 
noncooperative countries and territories. I hope you will keep 
the pressure on those countries and territories. We have to 
have their cooperation.
    With respect to Treasury's Office of Foreign Assets 
Control, my experience with them gives me only minimum at the 
most--minimum confidence that they are the entity that should 
be placed with some responsibility for pursuing this important 
task for Treasury. I hope that the Secretary will look, Mr. 
Gurule, at Section 116 in our draft legislation which relates 
to the Financial Crime Enforcement Network. I think Section 116 
has to go forward, and I hope that Treasury will support it. I 
am not at all enthused, and I think many people on the staff 
and Members here in this committee are not enthused, about the 
organizational structure that you are coming up with.
    Finally, I want to say that within our Government we have 
information about a relatively small number of financial 
managers and lawyers and law firms in the world, primarily in 
Europe, but also in the United States, that are facilitating 
the movement of massive amounts of money for drug trafficking, 
for international criminal syndicates and for terrorist 
organizations, and we need to come down hard on those. The 
Treasury bureaucracy, I hope, will be fully behind an effort to 
come down on those groups. Among the few Americans are people 
who actually live and work in Manhattan. And if they survive a 
terrorist attack, I hope they never have a peaceful night of 
sleep in the future.
    So you have got your work cut out for you, and I think you 
can count on the Congress to give you the tools. I only regret 
that you are coming to us--not you personally, but Treasury is 
coming us to and Justice is coming to us so late in the game. 
We all have some catching up to do. We all have some 
responsibilities. But I hope you will understand that we want 
to work cooperatively. We will work cooperatively to try to 
close the loopholes that do exist.
    And, finally, I would say to all of you as key 
representatives for our Government, I hope you are going to 
investigate whether you are getting the degree of cooperation 
you need from the U.S. Postal Service on this matter as well, 
because I understand there are some real problems there.
    Thank you, Mr. Chairman.
    Mr. Lormel. May I make a couple of observations? First, a 
couple of comments that you made at the outset about the 
investigation and the interagency cooperation, your points are 
well taken. I think that the playing field has changed forever, 
and I believe firmly that there is a growing consensus and a 
sharing as allowable in terms of the investigation. Mr. Mueller 
has made it his top priority to look at future activities, and 
in that regard that is the primary investigative focus right 
    In terms of Postal, from our involvement with Postal, they 
have been nothing but absolutely cooperative and a full 
partner. In fact, we are relying heavily on some of their 
    Chairman Oxley. The gentlelady from California, Ms. Waters.
    Ms. Waters. Yes. I would like to ask any of the members of 
the panel who would like to answer, what do you know about 
private banking and concentration accounts, and do you think 
there are loopholes that we can close?
    Mr. Gurule. Well, in terms of loopholes that we can close, 
my view is that with respect to criminal investigations 
involving money laundering, that everything should be on the 
table. I mean, if there is any vehicle that is being used to 
conceal criminal proceeds to make it appear that the funds were 
generated from legitimate activity, we need to follow the money 
trail, wherever it leads us. If it leads us to a concentration 
account, then so be it. If it leads us to a bank, and if the 
bank officials are knowingly complicitous----
    Ms. Waters. Yes, I know. Reclaiming my time. Are you in 
favor of closing down concentration accounts as a method of 
operation where you lose the identity of the persons who have 
money in those accounts, usually transferred or operated or 
handled by private bankers?
    Mr. Gurule. Not based on that alone. What I would want to 
know is whether or not these accounts--just because they 
create--or perhaps there is a possibility of misuse, I don't 
believe that.
    Ms. Waters. Do you know what a concentration account is?
    Mr. Gurule. Yes.
    Ms. Waters. Would you describe it for us?
    Mr. Gurule. I think you described it quite well in terms of 
different sources of funds that are being directed into a 
particular account intermingled, commingled, if you will, and 
then the monies are being distributed into separate entities or 
separate accounts.
    Ms. Waters. Does the money lose its identity?
    Mr. Gurule. Perhaps.
    Ms. Waters. Do you think that is a problem?
    Mr. Gurule. It might be.
    Ms. Waters. If you tried to freeze assets and follow the 
money line for traffic evidence and money launderers, do you 
think it is important to be able to follow the money? If you 
lose the identity of the account, doesn't that cause you some 
    Mr. Gurule. It does. It complicates law enforcement's 
    Ms. Waters. Don't you want to do something about that?
    Mr. Gurule. In a particular case I certainly would. If 
there was evidence that that system was being used to further 
criminal activity, absolutely.
    Ms. Waters. Well, you need to know that there are some 
bankers who are coming forward and saying, yes, it is bad, and 
they are going to voluntarily stop using concentration 
accounts. Will you please take a look at that?
    Second, would you describe to us what is expected of 
private bankers in relationship to know your customer? In the 
case of Raul Salinas, there was not even a card on file to tell 
us where he lived, where he got his money from. He had a 
private banker that was assigned to him who purchased cars and 
homes, and so forth, and so forth. Are private bankers required 
to follow know your customer rules, laws, and so forth? How do 
they escape that?
    Mr. Gurule. You want me to comment on which of the many 
questions that you asked?
    Ms. Waters. I wouldn't have asked you if I didn't want you 
to comment. Please do your best.
    Mr. Gurule. Know your customer certainly is important, and 
it is certainly important with respect to aggressive and 
successful enforcement of money laundering.
    FTAF, as you know, is a multilateral organization that the 
U.S. Treasury and the Department of Justice are actively 
involved in. We have assumed a strong leadership role with 
respect to FTAF.
    One of the 40 recommendations is the know your customer 
recommendation. It is one that we support. It is a measurement 
by which countries are measured in terms of their cooperation 
and whether or not the banking systems have an aggressive 
banking regulatory regime that is not vulnerable to money 
    Ms. Waters. I yield back the balance of my time.
    Chairman Oxley. The gentlelady yields back.
    The gentlelady from New York, Mrs. Kelly.
    Mrs. Kelly. Thank you, Mr. Chairman. I just have a couple 
of questions. One is about an article in the September 20th 
Wall Street Journal, I have a copy of this, and I would like to 
enter it into the record, Mr. Chairman. I would like unanimous 
consent to do that.
    Chairman Oxley. Without objection.
    [The information can be found on page 111 in the appendix.]
    Mrs. Kelly. It talks about the bin Laden network, and it 
refers to a money exchange called ``hawala.'' Hawala is 
something that bothers me a great deal, because I don't see 
how--given the nature of the beast, how you are going to be 
able to address that with regard to drying up any money that is 
being moved. How would you combat this? I am throwing this out 
to each of you. I have only 5 minutes, and I really want to ask 
another question as well as a follow-up, because in this 
article it talks about the bin Laden networking run on a 
shoestring. Other people say that bin Laden's network is 
extremely wealthy, that he has put a lot of money into it, and 
there is lot of money there. I need a clarification on that as 
    Could we start with you, Mr. Lormel?
    Mr. Lormel. Yes, ma'am. I am not familiar with the article, 
number one. I will just speak from an investigation.
    Mrs. Kelly. Are you familiar with ``hawala''?
    Mr. Lormel. Yes.
    Mrs. Kelly. Have you any idea what we can do to try to stop 
or reach into that to regulate it?
    Mr. Lormel.  In terms of regulation no, ma'am, I would 
defer to the Department of Justice. But in terms of 
investigation, certainly we will do everything in terms of 
tracking back and exploiting all of our databases and 
exploiting the expertise of all of our fellow agencies in terms 
of tracking it back.
    Mrs. Kelly. Mr. Gurule.
    Mr. Gurule. Hawala, as you stated, and accurately so, 
certainly complicates the ability to follow the money, because 
based upon a hawala system, money can be exchanged without the 
money ever being transferred from a foreign country into the 
United States.
    Mrs. Kelly. Therefore you have no record anywhere, and you 
can't go to a database and try to extract it?
    Mr. Gurule. It depends. I am not sure, up to that the 
point. But what if the request in the foreign country is for, 
let's say, $25,000 to be transferred by a hawala dealer in the 
United States to someone that is associated with a terrorist 
organization, unless that $25,000 is being kept in a shoe box 
in the broker's business in the United States, you are right, 
in that situation there would be no money trail. But if the 
hawala dealer in the United States has to go to a bank to 
withdraw $25,000 to make the payment in the United States, 
certainly that would generate a CTR and might, in addition, 
generate a suspicious activity report that would be submitted 
to FinCEN.
    So, I am not convinced that we need to throw up our hands 
and despair that there is no way that we can trace the money. I 
think it makes it more complicated, you are absolutely right. 
It may make it necessary for us to rely upon informants more 
than we have with respect to these types of money laundering 
operations. But it is a challenge. It certainly poses a 
    Mrs. Kelly. I am surprised that you would assume that 
someone would have to go to a bank to withdraw something like 
$25,000. Having been on this committee for a little while, we 
have had other hearings that indicate there is a lot of cash 
that is lying around in suitcases and so forth. There is no way 
to find that because there is no record.
    Mr. Gurule. I agree.
    Mrs. Kelly. I would suggest that there be some thinking 
about how we combat this. I also want to know if any of you can 
give me any information about whether you think that the bin 
Laden network was actually run on a shoestring rather than 
having a great deal of money pumped into it?
    Mr. Lormel.  I think that is highly speculative. I believe 
that there were clearly monies--and significant amounts of 
monies--coming directly to the 19 terrorists from the support 
mechanisms. In some regard, they will be linked to Mr. bin 
    With regard to your concerns about the hawala accounts, we 
are in the front end of our investigation. What we are seeing 
is a pattern of cash activity which I believe----
    Mrs. Kelly. Flight school cost $20,000. They had to get 
that money somewhere.
    Mr. Lormel.  Yes. Right on the front end, ma'am, they wired 
over $100,000 in to Mr. Atta a year ago, and we are aware of 
that. And we tracked that back to accounts in the UAE.
    Mrs. Kelly. Just want to make one final statement. We know 
that there is a problem with agencies sharing information, but 
if you don't trust each other to share information, how can we 
trust you to protect us?
    Mr. Lormel.  I don't believe it is a matter of trust, 
ma'am. I think that is what the heart of this hearing is about. 
It is the ability to share information. I don't believe for a 
second, and I represent the financial section at headquarters 
with the Bureau, we have no qualm about sharing information. We 
went out at the outset of this investigation specifically to 
bring in our fellow agencies because we need their expertise, 
and I don't believe it is a matter of the sharing as much as 
the regulatory concerns as to what we can share.
    Chairman Oxley. The gentlelady's time has expired.
    Mr. Frank.
    Mr. Frank. On the point of sharing, and Mr. Gurule 
mentioned the constraints currently on the sharing information, 
the anti-terrorism part of the legislation does include, as you 
know, sections that greatly increase the ability to share tax 
information, but it does look to me like we have dealt with 
that. On that subject I want to thank you, Mr. Gurule, and 
maybe stress there is one thing you ought to share with the 
Justice Department, and that was the very commendable concern 
you and Secretary O'Neill showed for adding due process 
provisions to this kind of regulatory legislation. Frankly, 
when some of us in the Judiciary Committee held up the anti-
terrorism bill for exactly that purpose, we had to explain that 
to people. So I agree that providing due process provisions is 
a very important thing to do.
    People should understand that is one of the things that was 
happening in the Judiciary Committee on anti-terrorism, because 
obviously we don't think that due process is only important for 
people with money and not for people without it. So we are 
putting it in both places.
    I want to return in my question to a point that the 
gentlemen from Nebraska raised, and that is the question of the 
OECD approach. What bothered me, frankly, was earlier in July--
I am sorry, too, that with we could only get 45 minutes or 50 
minutes from the Secretary--he told Senator Levin's committee 
that he was not at this point in favor of sanctions to force 
compliance from countries that were allowing total bank 
secrecy. And what particularly disturbed me was that was raised 
in a September 24th press conference, and Ari Fleischer was 
asked about this whole question, the OECD has been going after 
tax havens, the Administration hasn't shown support, is it 
changing, his answer, and his answer troubles me. It is, ``I 
think you should not confuse the two issues. One deals with 
domestic laws and dealing with tax consequences and tax dodgers 
or tax evasions. This deals with terrorism.''
    In fact, what we are talking about is total secrecy of 
financial assets, and that can be for purposes of tax evasion 
or drug money or terrorism. So this separation, this notion 
that worrying about the tax havens--and maybe we shouldn't call 
them tax havens, we should call them total bank secrecy 
entities--seeing that not related to terrorism is disturbing to 
me. I wonder if you would comment on that.
    Mr. Gurule. First, make no mistake that the Department of 
the Treasury and Secretary O'Neill are deeply committed to 
investigating and prosecuting tax fraud.
    Mr. Frank. Excuse me. We only have 5 minutes. You have got 
to get specific. OECD, is, in fact, that notion of bank secrecy 
relative to terrorism or not?
    Mr. Gurule. I believe that is certainly has the potential. 
With respect to how to go about confronting the problem, I was 
going to say that the Secretary has undertaken to engage with 
our foreign counterparts information, and tax-sharing 
agreements so that we have the information that is needed to 
aggressively prosecute cases. He made that commitment to 
Senator Levin, and we are well on our way.
    Mr. Frank. But he also said to Senator Levin that at this 
point he did not want to threaten sanctions. I think that is a 
mistake. The question is has there--we are not just talking 
about tax fraud. That is what he said. We are talking about--
Mr. Gurule, you have got to wait. We are not just talking about 
tax fraud. I asked you about bank secrecy. You went back to tax 
fraud. I quote, for instance, Mr. Chertoff, who noted in 
Senator Levin's committee, ``We are dealing not only with the 
issues of Americans who put money in these banks, we are 
talking about foreign criminals who put money in these banks 
and then move them into the United States.''
    In other words, this is not a tax haven issue only. 
Allowing this total bank secrecy which the OECD was going after 
has to do with exactly what we are talking about, leaving aside 
the tax issue. The Secretary said, well, he didn't want to 
threaten sanctions yet against these countries that would not 
put an end to that. I want to know what the status of that is.
    Mr. Gurule. I don't think that is--that is not what the 
Secretary said. The Secretary said that he doesn't want to go 
ahead and impose sanctions based upon a requirement of uniform 
tax rates; that simply because there isn't a uniform tax rate, 
that all----
    Mr. Frank. I am sorry, but that is not an accurate 
representation because we were not talking only about uniform 
tax rates. Indeed that wasn't specifically part of it. I read 
the testimony. The Secretary seemed to be saying that he was 
not ready to threaten sanctions for a period of time on the 
question of secrecy. I am not now talking about taxes.
    Secrecy helps tax evasion, but secrecy enables a lot of 
other things. That is my problem with Ari Fleischer. He seems 
to, again, equate the anti-bank secrecy thing to the tax 
evasion issue. So, from the standpoint of bank secrecy, should 
we not be threatening sanctions right away against these 
    Mr. Gurule. We are against bank secrecy. I think our 
position on that is clear. With respect to the role we played 
if FTAF, I think it is further clear based upon the Secretary's 
statements with respect to these tax information----
    Mr. Frank. Sanctions if they don't comply. Has the time 
come to threaten sanctions against countries that continue to 
maintain the kind of secrecy that frustrates our efforts to 
find out where that money is?
    Mr. Gurule. It is a hypothetical. I would want to look at 
the particular----
    Mr. Frank. It is not hypothetical. I am talking about the 
world today. There are countries that refuse to sign those 
treaties that still have bank secrecy. Not hypothetical. It is 
real. There are countries that still maintain that secrecy. 
Should we threaten them with sanctions against their banking 
situations here if they don't immediately comply?
    Mr. Gurule. FTAF may have to implement sanctions, 
countermeasures, and further list these countries that are not 
complying on the list of noncooperating countries and 
territories. And the U.S. has been at the forefront of that 
effort, as has the Department of the Treasury.
    Chairman Oxley. The gentleman's time has expired.
    The gentleman from Iowa, Mr. Leach.
    Mr. Leach. Thank you, Mr. Chairman. I want to express my 
appreciation for the thoughtful legislation you have just 
proffered. I would also like to express my appreciation for the 
comments of the FBI present on two scores; one, the cooperation 
of U.S. financial institutions in this probe, and second, the 
notion that internet gambling has many difficulties, but one of 
them is that it is a money laundering haven, and that is 
something that the committee has to bear in mind.
    I want to note that, as the committee Members know, last 
year we passed legislation both in this area of money 
laundering as well as on internet gambling. And at other levels 
of the Congress and other parts of the Congress, this was 
pretty highly objected to, even though it had strong votes from 
this committee, and objected to by industry representatives in 
particular. And I think we all have to recognize that there is 
a burden involved in implementing money laundering and internet 
gambling kinds of approaches.
    On the other hand, ironically, the people that opposed this 
legislative approach yesterday are those most in need of 
protection today. And I stress this as strongly as I can, 
because if you look at vulnerabilities in our society, this is 
obviously very significant. But if you look at American 
institutions most vulnerable in the world today, there are 
diplomatic outposts, and there are financial services outposts, 
and it strikes me that for the financial industry to continue, 
if they choose to, to object to approaches that do involve some 
extra burden on constraining terrorism and narco-trafficking, 
that not only weakens the fabric of our society, but puts in 
jeopardy the very lives of the people most identified with 
democratic market-oriented kinds of values that are globalist 
in nature.
    And so I just have a couple of questions, one to the 
Justice Department. You know, when it comes, for example, to 
internet gambling, we have the Wire Act and other prohibitions 
that might well apply. But many of us have come to the 
conclusion that one of the most effective tools to deal with 
internet gambling relate to prohibitions and financial 
instruments. And I understand that is the Justice Department's 
position. Is that the case?
    Ms. Warren. That is correct. But beyond that, I mean, in 
principle we support the provision as written. There are a few 
suggestions we might make in subprovisions, but in principle we 
support it.
    Mr. Leach. I appreciate that.
    Second, as we look around the world--and Mr. Frank, I 
think, was going at a point that I think many on this committee 
shared his concern about the United States is always in a 
difficult position if it acts alone in that there is a lot of 
international cooperation that is needed, but also the United 
States is in a difficult position if it doesn't have model laws 
that can be looked at by other countries. And it strikes me 
that if we don't enact that kind of legislation here at home, 
we are going to have a very hard time expecting other countries 
to enact similar approaches in their lands.
    And so, to some degree, when we deal with legislation, it 
is simply an expression of how it affects our sovereign laws. 
But by the same token, as we deal with legislation that is 
often looked at as models for our societies, and it puts the 
Treasury in particular, but not alone, in a position of saying 
to other countries, ``We have done this, why don't you follow a 
similar pattern?'' Does that make sense to you, representative 
from the----
    Mr. Gurule. Well, it certainly does, and that is a position 
that we have taken with respect to the Executive Order on 
blocking assets. I think it is important that this new 
Executive Order be signed by the President that the Foreign 
Terrorist Asset Tracking Center be up and operating in order to 
block assets. Having established that foundation, then we have 
much greater credibility when we reach across to our allies and 
ask them to do the same with respect to blocking of assets in 
foreign bank accounts.
    So, by analogy, certainly it holds true. We need to be the 
model. We need to demonstrate strong leadership with respect to 
criminal justice issues and enforcement of our laws.
    Mr. Leach. Thank you.
    Ms. Warren. If I could just add something to that, also. 
When we are lagging behind, that sets a very poor example. One 
of those instances is that we cannot enforce foreign forfeiture 
judgments, but we ask other countries to do that for our 
judgments. They have many foreign crimes as predicates to their 
money laundering act. We have very few. We need to increase 
those to be the leader that we need to be.
    Chairman Oxley. The gentleman's time has expired.
    The gentleman from Pennsylvania, Mr. Kanjorski.
    Mr. Kanjorski. Thank you very much, Mr. Chairman. A couple 
of observations. Actually just one. One of the successes 
learned at Treasury from the IRS is the award for performance. 
If I remember reading somewhere, almost two-thirds of the 
successful prosecutions occur because either the accountants or 
the spouses become the informant. Now, it would seem to me that 
if you are serious about using that methodology with tax 
collection, why can't you create an informant's reward for 
money laundering? An informant would get to keep half the 
proceeds if he or she turns the perpetrator in. I don't think 
you are going to be able to cover all the cases of information 
you will get from bank employees or from cohorts of the 
smugglers themselves. Quite frankly, it may upset the entire 
money laundering scheme in this country and abroad and probably 
be quite rewarding. Why hasn't someone thought about that 
    Mr. Gurule. Actually we do have that authority.
    Mr. Kanjorski. Well, it is good you have the authority. How 
about implementing it?
    Mr. Gurule. Well, absolutely. I don't necessarily want to 
go into specific cases with specific individuals other than to 
say that with respect to some major Federal money laundering 
investigations, those money laundering investigations were made 
possible, the success possible, based upon cooperating 
informants and cooperating informants that were ultimately paid 
for their services.
    Mr. Kanjorski. Well, they may be paid, but that is on a 
one-by-one or an ad hoc basis. Why don't we make it a public 
policy in the Treasury of the United States and the Justice 
Department that if people come forward in the laundering of 
illegal money in this country or externally, then they are 
going to get a 30 or 50 percent reward. Let's see what we can 
upset. There must be an awful lot of people in the drug 
countries that would love to retire to Miami Beach if they 
could stop the transfer of $100 million in drug money. There 
must be an awful lot of people in Mexico or Colombia that would 
like to do the same thing. I would also imagine that some of 
the lawyers that were talked about in New York with their level 
of ethics, they may just as easily turn on their clients 
instead of getting fees to get rewards as being informants. So 
why don't we use that mechanism?
    Mr. Gurule. I agree with you. I was a Federal and State 
prosecutor for 10 years and was deputy chief of the major 
narcotics section in Los Angeles, and we had to rely 
extensively on informants to make these important cases.
    Mr. Kanjorski. Nest week, I am going to see if the Treasury 
announces they are going to pay informants, announce the 
amount, and let it be publicly known. Come forth if you have 
any ideas.
    The next thing I want to do is off the subject. We are 
talking about what laws we can pass, what rules and regulations 
and simplicity. And I get to worry about implementation. I am 
not sure, particularly at Treasury, that Congress is going to 
get all of the laws we pass implemented. I will tell you why, 
and I would like you to take the message back.
    Besides money laundering and security, we have a problem 
with the economy in the United States. I mean, Congress is 
trying to put together fiscal programs, and one of the things 
that disturbed me is we passed a fiscal program last year in 
the omnibus bill called the New Markets Initiative, and the law 
said it had to be implemented in 120 days, and that would have 
ended April 15. Now, I know we had a change in Administration, 
but it is now more than 150 days since the law was on its face 
to be implemented, and it is still not implemented. The New 
Markets Initiative is a major economic development tool and a 
fiscal tool to help the economy. And if Treasury can't 
implement these acts, I am not certain any powers we give you 
will be able to be implemented.
    Now we are going into a meeting this afternoon that I would 
like to favorably report back that this program will be 
implemented. We have already lost the first year of the billion 
dollars in credits under the Initiative. We are into the second 
year, another a billion-and-a-half. That is $2.5 billion in tax 
credits that are to be released, and we are thinking of 
doubling or tripling that amount to help the economy. Mr. 
Gurule, can you tell me on behalf of Treasury when I can tell 
my colleagues that this is a worthwhile activity for us to 
undertake because it will be done?
    Mr. Gurule. With respect to the issues that you raise 
involving domestic policy, I am happy certainly to take those 
concerns back to the Under Secretary for Domestic Policy, Peter 
Fisher, and have him prepare a more specific response, to your 
    With respect to your general concerns about the Treasury's 
ability to get the job done, make no mistake about it, we are 
going to get the job done. We are going to get the job done 
with respect to these terrorists and undermining and 
dismantling their financial networks, seizing accounts, and 
convincing our foreign counterparts to do the same. We are 
committed to that, and the job will get done.
    Mr. Kanjorski. I am going to test you on that, on the fact 
of offering rewards publicly for money laundering, and see how 
fast that gets out on the street.
    Chairman Oxley. The gentleman's time has expired.
    The gentlelady from New York, Mrs. Maloney.
    Mrs. Maloney. Thank you Mr. Chairman.
    I would first like to thank all of the panelists and their 
agencies and really the entire Administration for your 
extraordinary efforts in New York in the wake of the attack, 
especially the FBI. Some of my neighbors told me that the FBI 
agents saved their lives rushing them out of buildings, rushing 
them out of the vicinity before the buildings fell, and I am 
aware of one agent that fell and died, and I want to express 
our appreciation. I know I speak for many New Yorkers for all 
that you have done to help us during this tremendously 
difficult time.
    I have always been of the opinion that the country needs 
stricter money laundering laws and enforcement. Whether it's 
terrorism or the drug war, cutting off the money that funds 
criminal activities is sometimes the most effective way for the 
Government to stop unlawful acts. I would like to know if you 
have any proof if hawala was involved in the September 11 
attack, that medieval financing system. Do you have any 
indication that that was involved?
    Mr. Lormel. No, ma'am, not at this juncture. Certainly 
there a lot of questionable cash transactions that we are 
looking at and questionable cash that we are looking at, but at 
this point we have no direct correlation.
    Mrs. Maloney. But it seems from listening to your testimony 
today that we are talking about all types of high-tech sharing 
of information, sort of Star Wars technology. But what we are 
really looking at is a Middle Age financing system that seems 
the prevalent way that they are moving their monies. The bank, 
the al Shamal Bank, has correspondent accounts with European 
and other non-U.S. banks, and what steps has the Administration 
taken to identify these banks, and what steps have you taken to 
prevent money from al Shamal banks from entering the U.S. 
banking system?
    Mr. Gurule. Well, the Foreign Terrorist Asset Tracking 
Center is the vehicle that is being used to identify monies, 
bank accounts that are linked or associated with terrorists and 
terrorist organizations, and more specifically, we are taking 
advantage of and examining all relevant sources of 
intelligence, law enforcement intelligence, CIA intelligence 
information, classified information, Bank Secrecy Act 
information, as well as open-source public records information. 
So we are looking at a multiple array of different sources to 
make those determinations. We are doing it now. And as the 
Secretary stated, in addition to the 27 individuals and 
entities that were listed a little over a week ago, we 
anticipate that in the next couple of days that there will be 
others that will be added to that list and a significant number 
of others and additional accounts being blocked with respect to 
this first group and this anticipated second group.
    With respect to a particular bank and a particular one that 
you mention, I would prefer not to comment publicly on anything 
that specific.
    Ms. Warren. Could I just comment on correspondent banking 
generally? We could do a lot better in law enforcement with 
some additional tools, and one of those that we have suggested 
is that if a foreign bank is going to maintain a correspondent 
account in a U.S. bank, that they must also have a 
representative for acceptance of service of subpoenas here in 
the U.S. so that we don't have to try to find a bank that has 
no physical existence anywhere in the world. If they are going 
to do that kind of business in a U.S. bank, they need to have 
someone who will accept service of process and can respond to 
our investigative inquiries.
    Mrs. Maloney. Sounds like a good idea to me. I would say 
there is a great deal of bipartisan support and cooperation now 
during this time of crisis, and really you should use all of 
your leverage for increased funding or whatever tools you feel 
you need to get the job done to track these people down.
    Some of our allies and some of our friends in the 
international community have told us that they will only 
support U.S. military action in Afghanistan if we can prove 
that bin Laden is responsible for the attacks. And could you 
comment, any of you who wish to comment, on how existing laws 
have contributed to your efforts to prove that the hijackers 
are tied to al Qaeda and the Osama bin Laden network?
    Ms. Warren. Maybe if I could just----
    Mrs. Maloney. Specifically, how have you tied him to the 
    Ms. Warren. That I won't be able to do, but I can tell you 
that we do use the financial side to not only track the money, 
but also to prove associations. The ways they work together, 
the people who share accounts, draw money from another's 
account, that it is as good as evidence of a conspiracy and 
association as it is a financial tracking system. So we use 
that kind of information, both ways. In this particular case, I 
cannot comment.
    Chairman Oxley. The gentlelady's time has expired.
    The Chair recognizes the gentleman from Nebraska Mr. 
    Mr. Bereuter. Mr. Chairman, I would ask unanimous consent 
that a letter of August 2 to Secretary O'Neill and his response 
of August 29 be made a part of the record and, incorporated by 
reference, the latest report of the Financial Action Task Force 
on Money Laundering dated June 22, 2001.
    Chairman Oxley. Without objection.
    [The information can be found on page 72 in the appendix.]
    Chairman Oxley. The gentleman from Texas, Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman. A couple 
of questions and comments from the witnesses. You say there are 
impediments to the sharing of the information. I have always 
just been under the impression that once the appropriate law 
enforcement agency or department zeroes in on somebody and 
identifies them as a suspect, then all sorts of doors would be 
open regardless of the other agency or department that may be 
in possession of information as a result of the regulatory 
obligations. My understanding is what you are asking for now is 
not necessarily being privy to that information once you have 
established that somebody is a suspect, but rather more of a 
coordination between departments, agencies and so on, with all 
the information that they may be gathering in the regulatory 
duty or responsibilities that would not be privy to law 
enforcement agencies, for instance.
    What I am saying is the FBI or the Department of Justice 
can't make certain requests of financial institutions for the 
sake of making the request for that kind of information and 
such. Treasury can in the regulatory scheme of things, which is 
appropriate. So we would be expanding that universe of 
individuals or parties that would be privy to this information 
in the past; would we not? So I suspect that you want this 
coordination so that you can have this information-gathering 
facilitated to identify individuals in such suspicious 
    Now, what you are also saying is now we can't have that 
without some sort of due process consideration. I am not really 
sure what we mean by due process today. I mean, it is always in 
the eye of the beholder, and at the present time my question is 
I am not really sure about our vision being 20/20 under the 
circumstances. So I am looking at potential abuses, misuse. 
What do you all see is the downside, the potential abuse of 
what we are contemplating in doing? Because we are going to do 
it because we have to do it, and there has to be some sort of a 
downside, and no one has addressed that. So I would want you 
all to tell me what you see is the potential abuses of opening 
up all of the information that different departments might have 
that at one time you weren't sharing for all the obvious 
    The second question is if, in fact, we had moved forward 
with everything that you are asking, and had this been in place 
prior to September 11, would it have prevented the occurrence, 
the criminal acts of September 11? And I would like your views 
or whatever your thoughts are on that.
    Mr. Gurule. Let me respond first to your question with 
respect to the legislative proposals that we are supporting or 
considering or asking you to consider. It isn't simply a 
question of coordinating. I mean, coordination is certainly 
important here. But, for example, with respect to Section 6103, 
the sharing of tax record information, the Department of 
Justice, upon an application to a judge, to a Federal judge, 
may obtain tax record information in furtherance of a criminal 
investigation, but that information is limited to the 
Department of Justice attorneys; I mean, in terms of its 
sharing, cannot be shared outside of the Department of Justice 
attorneys in furtherance of that investigation.
    So, if Treasury went to the Department of Justice and said, 
``Gee, this information would be very helpful to the blocking 
efforts underway involving the Foreign Terrorist Asset Tracking 
Center,'' DOJ would say, ``We would like to help, but we can't, 
because we are prohibited under Section 6103 from sharing that 
information because it is not in furtherance of our criminal 
investigation. It is in furtherance of this blocking effort 
that you are involved in.'' So they can't do it.
    We could take a look at grand jury secrecy information as 
well under Rule 6(c), what FinCEN is doing, or the use that 
FinCEN would be making of grand jury information with respect 
to its use for comparing and analyzing Bank Secrecy Act 
information, or the use that would be made of that information 
with respect to the Foreign Terrorist Asset Tracking Center 
would not necessarily be part of the criminal investigation, 
and therefore, the Department of Justice would say, we would 
like to help, but we can't.
    And so these are ways in which the Department of the 
Treasury is being handcuffed in its ability to investigate 
these kinds of cases as aggressively as possible.
    With respect to whether, you know, if we had these laws 
prior to September 11, would it have prevented, I mean, we can 
only speculate. I mean, there are some other issues here with 
respect to airport security that obviously need to be 
considered. But I think the point is that it certainly would 
have made it more difficult. I think we would have the ability 
to be more proactive in terms of disrupting the ability of 
these organizations to fund their operations, and, therefore, 
they are valuable tools that we need, and we need them now.
    Chairman Oxley. The gentleman's time has expired.
    The gentlelady from Illinois, Ms. Schakowsky.
    Ms. Schakowsky. Were Secretary O'Neill here, I really had a 
message for him that I hope, therefore, you will relay back to 
him. The amount of money that we are going to need to 
investigate and fight this terrorist attack, and all the other 
costs associated with the attack, is just immense, and we need 
to spend the money. But it seems to me that as we are 
rethinking the spending side of the ledger, we also ought to be 
looking at revenue; that many of us who are concerned that the 
$1.7 trillion, whatever it was--some of us think more--tax 
cut--feared that it left no cushion to deal with emergencies or 
possible economic downturn, and in the last few weeks, now we 
see that we face both. And as we take money from the Social 
Security and Medicare Trust Funds to pay for this, it seems to 
me that it is time to rethink the tax cut that gave the 
wealthiest Americans such a disproportionate amount of that, in 
my view, and particularly since Social Security is only paid 
for on wages up to $80,000 a year. So those people are paying a 
disproportionate amount, it seems. So I would hope that we 
would step back as we are stepping back on spending and look at 
revenue as well.
    You answered in part my question. You know, this whole 
attack has been estimated, at least in press accounts, to cost 
about $500,000. Relative to the amount now that we are looking 
at spending in response, it seems like such a small amount of 
money, and I wanted to ask you what specifically are the new 
tools that we need that would have addressed this specific 
incident, not some hypothetical future incident, but what could 
we have done on the investigative and the enforcement side that 
would have made us safer and protected us from this attack that 
we absolutely need to have?
    Throughout this morning we have talked about some, and I 
wonder if you could just quickly enumerate those things that 
you think would have, could have perhaps prevented this.
    Ms. Warren. One of the new tools we are looking at is just 
expansion of the foreign predicates for money laundering. We 
could have looked at a lot of these individuals on--and 
certainly the larger organization on money laundering crimes if 
we had those foreign predicates. Terrorism at the moment is not 
a predicate to money laundering. We have used other violent 
crimes as substitutes in some instances, but it should be 
declared a predicate.
    There are other parts of the proposed legislation that I 
think would assist as well, and one was raised in the inability 
to share information. One bit of information that might be 
corrected by the proposed legislation and the legislation as 
drafted by this committee is to move the 8300 reporting 
requirements out of Title 26 into Title 31 so that information 
can be shared broadly with law enforcement so that we can look 
at who is purchasing an aircraft in cash, or paying for other 
things with large amounts of cash, against other databases that 
we already have. We might find them on our drug registers. We 
might find them elsewhere. But that information now is kept 
separately under the Tax Code and not available broadly to law 
enforcement. So there are more ways that we could get more 
information that would help us.
    Ms. Schakowsky. Let me ask you this: Are there things that 
were left on the table in the way of tools that we need to now 
make sure that we are making better use of? And it would seem 
to me there are those who think that there were intelligence 
failures, but are there tools of investigation that we did not 
fully utilize that we, in addition to new ones, need to be 
concentrating on?
    Mr. Lormel. From the standpoint of lessons learned, I think 
what we will see more emphasis on predictive financial analysis 
and profiling, for lack of a better word, but I think that 
there is a predictive analytical tool out there that perhaps we 
need to focus on collectively as the law enforcement community 
in terms of proactively looking to deter or prevent any future 
    This was a very well-planned act that took an incredible 
period of time to carry off. And I think when the template is 
set, and we are able to really go back and do a study of how 
they conducted and the characteristics that they followed, we 
can do and implement, I think, predictive analytical steps that 
will help us identify future such attacks.
    Chairman Oxley. The gentlelady's time has expired.
    The gentleman from Texas, Mr. Bentsen.
    Mr. Bentsen. Thank you, Mr. Chairman. Let me say at the 
outset I know Mr. LaFalce brought up the issues of the Customs 
Service. And after September 11, I met with the Customs Service 
personnel who worked the Port of Houston Authority. And I think 
this is true elsewhere. I would hope that the Administration, 
when we work the final Treasury-Postal bill, will accept the 
higher figures of either the House or the Senate bill than what 
was in the original budget request. I think the original budget 
request was about a 4.6 percent increase in the Customs Service 
budget. The Senate passed a 12 percent increase, the House a 17 
percent increase, and obviously, things have changed since this 
past March or February when the new Administration submitted 
their budget requests. But if we are going to want to enhance 
our security, we obviously are going to have to pay for it. So 
I would hope that would you take that back to your superiors.
    We heard some talk from both the previous Chairman and Mr. 
LaFalce about the bill that we passed last year in this 
committee, and it never went beyond that committee, and I 
supported it. Most of the Members supported it, and I would 
support it again. All right. A lot of that bill is in the draft 
bill that I have looked at today, it appears, with some 
modifications. And I want to raise a couple of issues about 
that. But before I do, Ms. Warren, in response to an earlier 
question, you talked about the ability--in order to enhance 
cooperation with other nations in tracking and freezing assets, 
that we should enhance our ability to freeze assets that might 
be the result of, or would be part of, a foreign judgment 
against a U.S. party. Now, I don't necessarily disagree with 
that, but I think it does raise some concerns that we should 
look at very closely.
    There was some discussion about the OECD and their efforts 
to fight laundering and corruption, and some saw that as a way 
to equalize tax levels throughout the industrialized world, and 
there was some objection to that in the Administration and 
throughout this town. But I would hope you all would look very 
closely at that, that we are not in some way ceding some rights 
of U.S. citizens that we do not want to cede. And I assume you 
all are doing that. And you don't need to respond. If you want 
to, you can, but I just--that is something that I--you know 
more than I, but I would hope you would look at that.
    Ms. Warren. Let me just offer some of the safety provisions 
in that, enforcing foreign judgments of confiscation, of 
forfeiture. First of all, the Attorney General must certify 
that the judgment was obtained according to due process, and it 
cannot proceed without that kind of certification from the 
Attorney General. And the second, the forfeiture must be for a 
crime that we recognize, either through our extradition 
relationship or on our predicate list.
    Mr. Bentsen. I appreciate that.
    Now, I also want to ask you about the way your bill is 
drafted, and this is an issue that came up with us last year, 
and I pulled the file from last year. I have got a letter from 
a State banking association, I won't say which State it is, but 
that raised a great deal of concerns about how the bill was 
drafted and the enhanced requirements. And the gentleman from 
the FBI raised the issue of CTRs and SARs and what--and I don't 
think you quite said this, but I at least interpreted or 
inferred that you might be saying whether the levels were 
accurate. But in your bill on the one hand you talk about 
enhancing the criminal penalties for failure to file SARs or 
CTRs, and then in another section of the bill, you raise the 
concern that too many CTRs are being filed for otherwise 
exempted persons or accounts, and that, if, in fact, that it 
requests a study, and, in fact, that there might be some 
additional penalty for those institutions which file, I don't 
want to say, erroneous, but unnecessary CTRs.
    And I understand what you are getting at, but I just want 
to warn you where you are going to hear a great deal of 
criticism from otherwise law-abiding institutions that are 
going to say that, in our efforts to help in tracking the money 
laundering of terrorists or drug traffickers or others, we are 
going to get hit with an avalanche of regulations that will 
make it impossible for us to conduct our business. And, again, 
I would urge you--again, I supported the bill last year, and I 
am going to support the bill this year, because I think we need 
to do these things. But I would urge you to take a very hard 
look at that.
    I read the testimony of the banking institutions that are 
going to be here next, and they don't quite say this, and we 
are all being cautious because we do want to be together, and 
we want the Administration to succeed in this effort. But I 
would urge you to take a very hard look at how you approach 
those issues going forward.
    Chairman Oxley. The gentleman's time has expired.
    Let me ask Mr. Gurule, under my time, we have provisions in 
the bill that Mr. LaFalce and I will be introducing later today 
that attempt to address the obstacles to information-sharing 
among the agencies that you identified in your testimony. To 
the extent that there are specific areas that we have not 
addressed in the bill, can I have the Treasury's commitment 
that you will work with us over the next few days to make sure 
that those necessary revisions are made?
    Mr. Gurule. Certainly. Absolutely.
    Chairman Oxley. Thank you.
    Ms. Warren, what is the Department's position on the Leach-
authored internet gambling provisions of the bill that we are 
going to be introducing today?
    Ms. Warren. In principle we support it. We can offer some 
suggestions on some of the subparts. For example, I believe 
there is a requirement before instituting a civil injunctive 
action for the Attorney General to seek either advice or 
consultation with the bank regulators. We believe we should be 
able to go right into court.
    Chairman Oxley. Thank you.
    Agent Lormel, in prior hearings and staff investigations on 
the issue of internet gambling, we have heard from law 
enforcement officials that there is a link between offshore 
internet gambling and money laundering. A lax regulation of 
offshore internet gambling operations would seem to lend itself 
to the possibility that large amounts of terrorists' funds 
could be laundered through these sites with relative impunity. 
What are your comments in that regard?
    Mr. Lormel. Well, sir, it is certainly a possibility and a 
concern, as we have seen here. This network of terrorists, if 
you use them as a model, they have certainly exploited the 
system, our system, as well as they could, and that is a very 
attractive and lucrative area of financing and potential 
financing. So it certainly is a concern, and we certainly 
should be vigilant in monitoring that. And certainly, beyond 
the terrorism, the network of enterprises that certainly do 
exploit that particular area is something we must look at.
    Chairman Oxley. I won't ask you to discuss specifics, but 
is the Bureau pursuing any cases that involve a linkage between 
internet gambling and money laundering?
    Mr. Lormel. Yes, sir. There are a minimum of two pending 
investigations as we speak that I am aware of. It is more in 
keeping with our organized crime side of the house, which is 
not my area of expertise, but from my prior assignment in 
Pittsburgh, I am aware of a case that we actually worked in our 
shop out there.
    Chairman Oxley. And are you pursuing any cases linking 
organized crime to internet gambling?
    Mr. Lormel. I believe so, sir, yes.
    Chairman Oxley. Thank you.
    The gentleman from New York.
    Mr. LaFalce. I thank you, Mr. Chairman.
    The bipartisan bill which Chairman Oxley and I are working 
on, hopefully to be introduced sometime this week, is a work in 
progress, very much so. For example, there has been an 
agreement to include the money laundering bill that was 
authored by myself and Chairman Leach with the assistance of 
Stu Eizenstat of the Clinton Administration and passed this 
committee. But, while I have agreed to go along with some due 
process provisions, it is due process provisions that I would 
find productive to the approach of the bill rather than 
counterproductive. And I am recalling that Senator Gramm 
unilaterally stopped this bill in the last Congress on the 
Senate side. So I am a little concerned about your negotiations 
with him. I would prefer you be negotiating with some of us who 
are promotive of the bill.
    Second, something similar is true with respect to internet 
gambling. I offered the bill that created the national 
commission to study the problems of gambling, and I introduced 
legislation to effectuate the recommendations with respect to 
internet gambling. And the former executive director of that 
commission endorsed my bill. My bill is not the one that is 
included in the draft so far, and I am very, very fearful that 
the bill that is presently in the draft could be 
counterproductive. I mean, if we are going to say that we will 
choke off credit for unlawful gambling, then we have to define 
unlawful gambling, and we don't. Or if the State defines 
something as lawful and we are not preemptive, or if an 
offshore entity permits some type of gambling lawfully and we 
do not make it unlawful, then the provisions of our bill can be 
    I am also concerned that we have to act expeditiously, and 
knowing the huge gambling industry that is out there that has 
hampered internet gambling legislation in the past, I am not 
sure whether we will be able to move expeditiously with such a 
provision in this bill.
    So my first question, and I do want to get around to 
Justice so I can go into the subject of short-selling and FBI 
pursuits of illegal short-selling, taking advantage of this 
situation, or inappropriate use, or use of information about 
short-selling to detect individuals that might have been 
involved in.
    My first question is to Justice, though, on internet 
gambling. Are you aware that the principal intent of the bill 
could be counterproductive if the wording of the bill is not 
    Ms. Warren. Well, I understand your point. Perhaps the best 
thing that can I offer, and both for Justice and Treasury at 
this time, that we are more than willing to have our staffs 
work with your staff to try and find these problems and iron 
them out in the next minutes, hours, days.
    Mr. LaFalce. Understand there is a fundamentally different 
approach between saying we are going to choke off credit for 
internet gambling unless the following conditions are met and 
to say we will not choke off credit unless it is deemed 
unlawful. Very different approaches.
    With respect to FBI, what are you doing to detect 
inappropriate short-selling that may have taken place in 
connection with airline stocks, insurance stocks, and so forth?
    Mr. Lormel. That is a very good observation. One of the 
very first things we did in forming our financial review group 
was to have a team specifically designated to look at that 
particular area. The team has coordinated with all of our field 
offices and with all of the regulatory agencies, particularly 
SEC, for any such activity.
    To date there are no flags or indicators that the people 
that were associated with this particular attack, nor are there 
any indications that people took advantage of this. That is 
certainly not to say that didn't happen, and there are 
certainly some rumors out there to that effect, but we are 
fully exploring that. And as I said, we have a team totally 
dedicated to that aspect of the investigation.
    Chairman Oxley. The gentleman's time has expired.
    And, again, we thank all of you for your participation 
today. It has been most helpful.
    The Chair will call the third panel. While they are making 
their way up, let me introduce the panel. Mr. Edward Yingling, 
Deputy Executive Vice President of the American Bankers 
Association; Mr. Marc E. Lackritz, President of the Securities 
Industry Association; Ambassador Stuart E. Eizenstat, former 
Deputy Secretary of the Treasury; and Mr. John F. Moynihan, 
partner of BERG Associates.
    Gentlemen, thank you, and we appreciate your appearance 
today. Thank you all for your appearance.
    Let us begin with Mr. Yingling.


    Mr. Yingling. Mr. Chairman, thank you for inviting ABA to 
testify today on this critical issue. Accompanying me is John 
Byrne, Senior Counsel with ABA. He is responsible for ABA's 
efforts on money laundering and is a well-known expert in this 
    We were all shocked and saddened by the events of September 
11, and we mourn for those who lost their lives that day and 
their families. The financial community was particularly hard 
hit by the attack. Nevertheless, the banking system continued 
to run smoothly and consumer confidence in the system held 
steadfast. We are proud of our preparedness and response. We 
are also proud about how we have assisted law enforcement 
agencies in tracking the money trail of terrorists, and we 
immediately instituted the account freeze order announced by 
the President. Today we reaffirm our pledge to support fully 
efforts to find and prosecute perpetrators of these acts and 
their supporters. We commend you, Mr. Chairman, for holding 
this hearing and moving so quickly to address this issue.
    Today, I would like to emphasize three points. First, the 
banking industry strongly supports efforts to track the flow of 
money that finances terrorism, and we will do everything in our 
power to help shut that flow down. It takes close coordination 
with the Government to identify individuals and groups 
suspected of illegal activities. While banks facilitate $2 
trillion a day in transactions, a large volume flows outside 
traditional banking channels. Dealing with these flows is 
critical. We believe that by forging an aggressive public-
private partnership, we will make significant progress in the 
fight against terrorism.
    Second, it is important to understand there is already a 
strong base in law and regulation to prevent money laundering 
through the U.S. banking system. In my written statement I 
outline extensive laws and regulations already applicable. A 
feel for the extent of current laws is given by the fact that 
banks filed over 12 million currency transactions reports last 
    Our third point is that we are committed to strengthening 
and extending current law where needed. By working together we 
can assure that any new laws maintain the right balance, one 
that is both effective and that protects the due process 
concerns of Americans.
    Let me touch on a few of our recommendations. The ABA 
strongly supports the President's initiatives announced on 
September 24, and we will continue to fully implement them as 
more names are added to the freeze list and as international 
efforts are extended.
    The ABA strongly supports the 2001 national money 
laundering strategy recently announced by the Treasury and 
    The ABA recommends advanced training for law enforcement 
agents in techniques for combatting money laundering and 
investigating financial transactions of terrorists.
    ABA strongly supports expanding money laundering laws to 
all providers of financial services including those in the 
nontraditional channels. This is essential for effectiveness.
    The ABA strongly supports the expansion of money laundering 
laws recommended in recent days by the Attorney General.
    The ABA strongly supports provisions that would make 
currency smuggling a criminal offense.
    The ABA strongly supports giving the Secretary of the 
Treasury more flexible authority to designate matters that 
should be subject to special treatment because they raise money 
laundering concerns. However, we do suggest that bank 
regulators be included in the process and that a public comment 
be required. We believe our suggestions will make the authority 
even more effective.
    And finally, ABA strongly recommends that improved 
methodologies be developed for identifying individual account 
holders, particularly for non-U.S. Citizens.
    We hope our recommendations are helpful to the committee, 
and we pledge to work with you on an expedited basis as you 
move forward. Thank you.
    [The prepared statement of Edward L. Yingling can be found 
on page 150 in the appendix.]
    Mr. Tiberi. [Presiding.] Thank you.
    Mr. Lackritz.


    Mr. Lackritz. Thank you, Mr. Chairman.
    I am Marc E. Lackritz, President of the Securities Industry 
Association, and I am pleased to appear before you today to 
testify about strengthening the means to cut off the financial 
activities of terrorists or terrorist organizations. We 
strongly commend the committee for holding these hearings.
    I also want to take this opportunity to express the very 
deep appreciation of everyone in our securities industry for 
the heroic firemen, policeman, FBI agents and other rescue 
workers who made unimaginable sacrifices, including their lives 
in far too many instances, trying to save the lives of others.
    The atrocities of September 11 also inflicted a terrible 
toll on the securities industry. While that day was a grievous 
one for our Nation and our business, our industry has shown 
remarkable resilience, reopening the bond markets 2 days after 
the attacks and the equity markets the following Monday. In 
fact, the New York Stock Exchange handled record trading 
volumes in the first trading session after the attacks, and 
NASDAQ handled almost a record volume. We, in cooperation with 
our regulators, our self-regulatory organizations, utilities 
and data facilities, have all pulled together magnificently in 
this difficult time, and I have never been prouder to represent 
this industry.
    SIA and our member-firms have long been strong supporters 
of the Government's anti-money-laundering efforts. Public trust 
and confidence in our industry is our most important asset, and 
we are fully committed to completely eliminating any possible 
money laundering from the securities industry. Securities firms 
presently are subject to a number of statutory and regulatory 
requirements that enable the Federal Government to better 
identify and combat money laundering.
    Since 1970, broker-dealers have been subject to certain 
Federal anti-money-laundering laws imposing reporting and 
recordkeeping requirements. Like banks, securities firms have 
been required by the Bank Secrecy Act to report currency 
transactions over $10,000. Most major broker-dealers also file 
suspicious activity reports with the Treasury Department. 
Further, securities firms, like banks, are subject to the 
provisions of various sanctions programs administered by the 
Office of Foreign Assets Control, known as OFAC.
    While the securities industry has been subject to many 
specific rules, many firms have gone beyond these requirements 
and developed their own anti-money-laundering programs. Most 
firms on their own initiative have developed a policy of 
prohibiting or restricting the receipt of currency or cash 
equivalence at the firm. Firms also have procedures when an 
account is opened, pursuant to self-regulatory organization 
know your customer rules, to obtain information pertaining to 
the customer. As a matter of good business practice, many 
securities firms go beyond the know your customer rules and 
suitability rules and seek even more information.
    Many firms, particularly large firms, have adopted special 
procedures and written software programs to monitor 
transactions and detect even very sophisticated patterns of 
money laundering. For many years we in our firms have worked 
very closely with regulatory agencies and Members of Congress 
on anti-money-laundering initiatives. Among other things, we 
have worked with financial regulators to develop regulations 
extending the requirements to file suspicious activity reports 
to all broker-dealers, and we have worked with the SEC on its 
examination program for anti-money-laundering compliance, and 
we have also taken additional systems that I have outlined in 
my written testimony.
    I would like to now turn to what our industry is doing in 
response to the President's September 24 order freezing U.S. 
assets of and blocking transactions with 27 individuals and 
organizations. We immediately sent notice of that order to our 
member firms and posted it on our website and have asked firms 
to check their records for individuals or organizations named 
in that order or in the list of names issued by the FBI. Many 
of our firms have received requests from self-regulatory 
organizations for information on certain trading in securities 
that occurred before September 11, and they are responding to 
those requests. Firms are going beyond those requests, however, 
and are examining and looking for unusual trading patterns in 
equities, fixed income, options and futures in certain 
    SIA is also supportive of the need to have further anti-
money-laundering legislation and would welcome any legislative 
tools that will enable our members to combat money laundering. 
To the extent any legislation imposes additional due diligence 
obligations, we think it is important to provide flexibility 
with respect to those requirements.
    We also think legislation should facilitate communication 
between broker-dealers and between banks and broker-dealers 
when they are investigating suspicious activity. Presently 
brokerage firms are constrained from sharing with each other or 
with banks information they have received which they believe 
may be suspicious.
    We support the expansion of the Bank Secrecy Act Advisory 
Group's mandate to include terrorism and other issues related 
to the security of our financial system. Alternatively we would 
support the creation of a joint industry-government task force 
to examine these issues.
    We have had a long and constructive working relationship 
with regulators and Congress on preventing money laundering, 
and we look forward, Mr. Chairman, to continuing those efforts. 
Thank you very much.
    [The prepared statement of Marc E. Lackritz can be found on 
page 164 in the appendix.]
    Mr. Bachus. Thank you.
    Ambassador Eizenstat.

                        OF THE TREASURY

    Mr. Eizenstat. Mr. Chairman, Mr. LaFalce, I want to thank 
you for the leadership that you have shown in the last Congress 
and in this one, Mr. LaFalce, and the fact that you and 
Chairman Oxley are going to have a joint bill I think is a 
tremendous step forward.
    Money laundering is the financial side of crime, and money 
launderers are the criminals' investment bankers. The IMF has 
estimated that the amount of money laundered annually is 
between $600 billion and $1.5 trillion, or 2 to 5 percent of 
the world's annual GDP, and at least a third of that amount, up 
to half a trillion dollars annually, is thought to pass through 
U.S. financial institutions at least once on its clandestine 
    Now we are brought face to face with another aspect of the 
criminal financial system that is used by merchants of terror. 
Terrorists must have money to pay for weapons, travel, 
training, and even benefits for the family members of suicide 
bombers. We shouldn't be misled by the supposed low cost of the 
September 11 atrocities.
    The fact is, huge amounts of money are raised by the 
central operations of bin Laden and al Qaeda to support 
terrorism around the world. Terrorists raise funds in many ways 
through financial donors, through so-called charitable 
organizations by relying on state sponsors of terrorism, by 
making investments, some legal, and by the commission of crime. 
Each of these is camouflaged at each step.
    The fight to curtail money laundering has always been a 
product of bipartisan consensus and should remain so, and 
hopefully an Oxley-LaFalce bill will be a further indication of 
    The fact is, we have too few tools to protect the financial 
system from international money laundering. On one end of the 
spectrum, the Secretary of the Treasury can issue advisories, 
as we did in the summer of 2000, to encourage U.S. financial 
institutions to pay special attention to transactions involving 
certain jurisdictions, but they are only advisories. At the 
other end of the spectrum, IEEPA, the International Emergency 
Economic Powers Act, following a Presidential finding of a 
national security emergency, can be used for a full-scale set 
of sanctions and blocking orders to suspend financial and trade 
relations with the offending targets. President Clinton issued 
two of these, one in 1995 and the other in 1998, and President 
Bush, a week ago Monday, invoked IEEPA, appropriately sending a 
forceful and blunt message.
    The problem is, however, there is nothing in between these 
two ends of the spectrum, and there are other situations where 
we will not want to block all transactions or in which our 
concern centers on underregulated foreign financial 
institutions or holes in the foreign counter-money-laundering 
effort. We need these more flexible tools, and that is what 
H.R. 1114, which Mr. LaFalce has introduced, and what the 
discussion draft seems to provide. There would have to be a 
finding of primary money laundering concern, and that would 
then trigger, subject to very significant protections which I 
will get to in a moment, special recordkeeping, customer 
identification requirements, especially important being the 
identification of foreign beneficial owners of accounts opened 
in the U.S. and permitted through correspondent or payable-
through accounts.
    H.R. 1114 and the discussion draft is carefully tailored 
against real abuse. Actions would be graduated in the sense 
that the Secretary could act in a manner proportional to the 
threat. They would be targeted so the Secretary could focus his 
or her response to particular facts and circumstances, and they 
would be discretionary so the Treasury could integrate any 
possible action into bilateral and multilateral diplomatic 
    On the due process concern, which has been mentioned 
several times, the fact is that the bill you passed last year 
in H.R. 1114, Mr. LaFalce does have significant due process 
already built into it; namely, the Secretary, for one thing, 
can only act after consulting with other members of the 
Cabinet, including the Secretary of State and Attorney General. 
But more important, the Secretary's determination there is a 
primary money laundering concern is itself fully reviewable 
under the Administrative Procedure Act in court by any bank 
which feels that that determination is inappropriate.
    Importantly, the legislation would not jeopardize privacy. 
The focus of the legislation is not on American citizens, but 
on foreign jurisdictions, foreign financial institutions and 
certain classes of transactions with or involving a 
jurisdiction outside the U.S. It is narrowly tailored and does 
not burden financial institutions.
    Let me close by just saying that there ought to be a whole 
range of steps that we take in addition to passing this 
legislation promptly and giving the Secretary of the Treasury 
the authority that is required. First, in addition to this, 
additional crimes should be added, including terrorism, 
official bribery, arms trafficking and certain crimes of 
violence which are now not predicate crimes and, therefore, 
against which we cannot use money laundering tools. So we 
should broaden the number of predicate crimes.
    Second, we should level the playing field for U.S. banks by 
assuring, as Mr. Lackritz, I think, appropriately said, that 
broker-dealers and casinos are covered. The regulations for 
that have been delayed. They need to be promptly issued so that 
broker-dealers and casinos know the rules under which they are 
    Third, the hawala system, which clearly was a part of the 
bin Laden process here, the informal money traders should be 
required to register. There is a hawala in every major city in 
this country, and they are facilitating terrorism in many 
cases. This is an age-old practice that goes back decades, if 
not centuries, in the Middle East and South Asia, but if they 
are going to operate in the United States, they should be 
required to register.
    Fourth, diplomatic efforts should be marshaled to bring 
foreign money laundering regimes up to international standards. 
The so called FATF process has been successful, but it needs to 
be accelerated with particular attention to the Arab world.
    Fifth, we should identify and publicize foreign world banks 
as we identify those countries whose own regimes don't come up 
to international standards.
    And last, we should apply much greater scrutiny to 
charitable organizations in the United States and particularly 
encourage our friends abroad in the Gulf and in the Arab world 
to more closely check Pan Islamic charities or so-called 
charities which are often front groups for terrorism.
    This kind of multiplicity of actions is necessary to deal 
with the problem, and certainly this committee can take an 
important first step by trying to pass the same legislation you 
did last year and by moving on the joint legislation that Mr. 
LaFalce and Mr. Oxley are considering cosponsoring this year. 
Thank you.
    [The prepared statement of Hon. Stuart E. Eizenstat can be 
found on page 179 in the appendix.]
    Mr. Bachus. Mr. Moynihan.


    Mr. Moynihan. Mr. Chairman and Members of the committee, I 
want to thank you for inviting me here today for this very 
important hearing. For the record, my name is John Moynihan, 
and I am founding member and owner of the consulting firm BERG 
Associates. Among other things, BERG offers our clients 
services that assist them in prevention and detection of money 
laundering and other related forms of financial crime. My 
experience in this area of investigative expertise derives from 
my professional background both in public and private sector, 
which I have summarized in my written statement which I have 
submitted for the record.
    Let me begin by stating that the Achilles heel of any 
criminal organization is its financial infrastructure. If you 
can break the link between a terrorist like Osama bin Laden and 
Pablo Escobar and his money, you have greatly impacted on his 
ability to succeed in realizing his stated objective.
    Mr. Chairman, today there is much that we do not know about 
the financial dealings of Osama bin Laden and his surrogates 
across the globe. However, we do understand how informal money 
markets work.
    Unregistered, unlicensed money remittance businesses: In 
the United States there exist many individuals at international 
business corporations that have opened bank accounts at U.S. 
banks for the purpose of engaging in the unlicensed exchange of 
monies and/or for the remittance of these monies to recipients. 
These accounts, which are used by these persons and businesses, 
are opened as mainstream retail accounts or through the private 
banking departments. These accounts can generate millions and 
sometimes billions of dollars in transactions within a given 
    So what exactly is being accomplished by these underground 
banking systems? The underground banking system provides the 
following services or benefits: one, a source of money; two, a 
system for aiding in avoiding of taxes; three, a system for 
moving wealth anonymously; four, a system to move money to 
support or sustain criminal activity.
    The underground banking system thrives in the United States 
because the people who move money know how to exploit the key 
vulnerabilities in our financial and banking system. If I may, 
I would like to present an example. One, a man from a Middle 
Eastern company sells perfume in Boston. He sells wholesale and 
retail and collects payments in checks and cash for deposits 
into his regular checking account.
    Second, a second man, with cash or checks, wishes to send 
his money home to a South American country. He approaches the 
perfume seller. He purchases from the perfume seller either, 
one, a check in dollars that is not filled in on the payee 
line, or, two, perfume for resale in a South American country.
    Three, if the South American man purchases checks, he 
carries this check to his country and sells it to an 
intermediary broker, a money exchanger, at a discount to the 
value of the check. He in turn receives the local currency 
sought. The money exchanger can now resell the check to another 
customer seeking these dollars. Given that the check has not 
been endorsed and the payee section has not been filled in, the 
check can be sold to anyone or used to pay for anything.
    Fourth, if the South American man purchased perfume, and he 
does not want to pay import duties, he smuggles the perfume 
into the country and resells it, thus accomplishing his goal of 
converting his dollars from Boston to local currency without 
paying duties or exchange fees for just converting the funds.
    Fifth, the Boston perfume man now has his customer's funds, 
and he wants to accumulate his wealth in his country of origin 
in the Middle East without paying taxes. He, therefore, sells 
the funds received to an intermediary in the Middle East who is 
seeking to purchase dollars. Upon the sale of these dollars, 
the intermediary instructs the perfume man where he or his 
agent can pick up the local Middle Eastern currency.
    Six, the Middle Eastern intermediary tells the perfume man 
a number or code, and it is to be used by the man who purchased 
the dollars in the Middle East with the local currency.
    Seventh, the Middle Eastern intermediary tells his Middle 
Eastern customer the code and where to pick up the dollars in 
the U.S. All transactions are complete and everybody wins.
    My recommendations: The issue of underground banking and 
payment systems must be immediately addressed by the 
Legislature. The Federal law criminalizing the act of engaging 
in money exchanging without a license should be promulgated. 
Although 18 U.S.C. 1960, Subsection (b)(1)(B) provides for 
violations for people who fail to comply with the money 
transmitting registration requirement, the regulations have not 
been promulgated, and therefore, law enforcement has had to 
rely on 18 U.S.C. 982 for criminal forfeitures. It is 
recommended that 18 U.S.C. 1960 be included in the civil 
forfeiture statute, 18 U.S.C. 981.
    As well, such underground banking should be identified as a 
specified unlawful activity so as to be able to seize and 
forfeit real property and funds that facilitate the activity. 
This will significantly hinder persons who are engaging in 
underground banking from delivering monies to person as a 
favor, for those people will fear criminal sanctions.
    Second, if it is the intent of the Congress to add to 
existing forfeiture laws a component addressing terrorism, the 
assets associated with the terrorist groups that are identified 
should be forfeited using guidelines prior to CAFRA 2000. There 
exists a carve-out section to this law, to the existing civil 
forfeiture statute.
    Under present conditions, the reality is that it is going 
to be incredibly difficult to investigate and develop the kind 
of evidence required to meet the burden of proof with regard to 
identified terrorist assets. Without the use of hearsay 
evidence, barred under the new law, there is a very high 
probability that there won't be much more evidence. The truth 
is if we believe differently, then we are fooling ourselves and 
being somewhat naive.
    Three, future laws to combat money laundering and illegal 
transfers of funds must address all identified forms of this 
activity, including those involved through banking financial 
institutions and the sale of goods and services. Additionally, 
said laws must be flexible enough to allow U.S. law enforcement 
agencies to address new and creative forms of money laundering 
as they appear.
    Fourth, ensure that the United States Drug Enforcement 
Administration plays a vital role in the investigation of these 
terrorists. The people who appear to be responsible for these 
acts are not religious. They are thugs and criminals who have 
distorted religion and hijacked the country. Osama bin Laden's 
accomplices are clearly protected by the Taliban, a group of 
fanatics who have distorted the Islam faith and want us to 
think that they are religious and acting as a government over 
    The reality is that Afghanistan is the major producer of 
heroin, and the verdict is out on what role the Taliban plays 
in this heroin trade. The DEA has the best international 
informant and intelligence-gathering capability on 
transnational drug crime. They are expert on the collection and 
presentation of conspiracy evidence.
    Mr. Chairman, Members of the committee, this concludes my 
remarks. I would be pleased to answer any questions that you 
may have.
    [The prepared statement of John F. Moynihan can be found on 
page 198 in the appendix.]
    Mr. Bachus. I appreciate your testimony, and I will 
commence questions, and then we will go to other Members of the 
    Ambassador Eizenstat, let me direct the first question to 
you. I can recall back in 1997 as Oversight Chairman the 
Treasury Department trying to come up with new money laundering 
business regulations, and we still don't have those regulations 
in place. Law enforcement has given sort of short shrift to 
addressing these underground-type movements of money, hawalas 
and others. Why is it that the Treasury Department has taken 
years to put these requirements in place?
    Mr. Eizenstat. I am not familiar with the particular 
regulations you refer to.
    Mr. Bachus. Yeah. The MSB regulations.
    Mr. Eizenstat. I think that the Treasury was so preoccupied 
with the Financial Modernization Act and all the requirements 
that it had that that may have delayed action, but certainly 
there should be movement on this. And there should be movement 
on covering the regulations which have also been delayed in 
covering broker-dealers and casinos and others.
    And I agree very much also with Mr. Moynihan that we need 
to take much firmer action to license and register and 
criminalize if they don't, those informal underground money 
exchangers or the so-called hawala system.
    Mr. Bachus. Some have argued that terrorist funding differs 
in significant ways from traditional money laundering. And what 
I mean by that, if you have drug traffickers, they take dirty 
money and they try to convert it into clean money. With 
terrorist organizations, they are taking basically clean 
money--we talked about money given to charities--and converting 
that to dirty money, or money used for dirty purposes to kill 
    Do you agree, and if so, are money laundering statutes ill-
suited to deal with the kind of terrorist operations that we 
are now confronted with?
    Mr. Eizenstat. Well, first I think terrorism, particularly 
as organized by bin Laden and al Qaeda, represent a level of 
sophistication that one rarely sees in drug traffickers, 
although they are also very sophisticated, but even more so. 
And they differ in the following ways as well, Mr. Chairman. 
That is, with respect to drug traffickers, they are making, as 
you indicate, their money illegally at the outset. Here, money 
is being organized through so-called lawful donations, and 
those donations through charitable organizations, which the 
donors in some cases know to be fronts for terrorist 
organizations, and others do not. They are advertised as being 
for Bosnian orphans, for example, or for Gazans. Get very 
wealthy donors to make presumably lawful contributions.
    So that is why we need the legislation that Mr. LaFalce and 
Mr. Oxley are talking about. But in addition, we need a much 
broader net. We need to get foreign financial institutions to 
come up to international standards. We need to have our 
diplomacy work to get the Gulf States and Arab countries to 
look through these charitable organizations. We need them to 
educate their own citizens about being careful not to donate to 
such organizations. We need a kind of panoply of powers that I 
have talked about in addition to going after the registration 
of hawalas, because you are quite right. This is a 
qualitatively different set of problems.
    Mr. Bachus. All right.
    Mr. Moynihan, let me ask you a question. There have been 
news reports that some of the funding associated with the 
hijackers can be traced to formal banking networks, 
particularly in Islamic banks like al Shamal in the Sudan and 
banks in the United Arab Emirates. Do those banks handle funds 
for bin Laden, al Qaeda or charitable groups that have been 
associated with al Qaeda?
    Mr. Moynihan. I can't say precisely right now, but the 
commentary on the unlicensed money remitters, unlicensed 
banking that goes on in this country is prolific. I am very 
involved with my own clients and with the United States 
Government as an expert for cases in helping them dismantle 
these things.
    What I think needs to be recognized here is that there are 
different groups of people within the hijackers. There are 
those people who might have been more organizers of the 
efforts, and others who might have been more underlings of the 
efforts. The crime that was committed on 9/11/01, in my 
opinion, was only the conclusion to the crime that began last 
February in 1993. To investigate this case, I think people 
should recognize that maybe the reason they went after the 
World Trade Center is they tried it one time before and failed. 
They didn't bring the building down.
    To go further in this investigation, people might want to 
look back at that time period and shortly thereafter for those 
people who were involved at that time period or those 
associations. Money laundering is only about relationships and 
association, and that might be the time period I would suggest 
people start to look and bring that forward. You might find 
people that were involved in this incident on 9/11 having been 
in this country, in geographical areas, having somewhat of a 
loose affiliation or some relationships to those previous acts. 
This was just a culmination of it, and that is where I would 
suggest people should look.
    Mr. Eizenstat. Mr. Bachus, may I just add one more point to 
your very important question about the difference in terrorism 
and other criminal activities, and that is, in addition to the 
donors and the charitable organizations, in most instances drug 
traffickers and other criminals don't have overt state 
sponsorship. In the case of terrorism, they do. State sponsors 
provide money, provide sanctuary, provide camps for training, 
provide facilities without which terrorist groups would have a 
great difficulty operating.
    Mr. Bachus. You know, Ambassador, I was surprised after 
these attacks to again read actual information that we had 
before, but I think none of us focused on with the same 
attention, that many of these terrorist organizations were 
receiving $100 million or more a year from certain Middle 
Eastern countries, and this was a yearly annual funding of 
these organizations. So you are talking about very well-funded 
organizations, and, obviously, it took state sponsored funding.
    Mr. LaFalce.
    Mr. LaFalce. I will yield to Mr. Frank.
    Mr. Frank. I have a meeting with the Governor of 
Massachusetts in a few minutes, so I appreciate this.
    Mr. Eizenstat, particularly with your experience, I want to 
get back to the OECD issue, because the Administration had 
taken the position that that had to be reconsidered, and they 
had watered down the support, and the Secretary of the Treasury 
did tell Senator Levin in July that he thought he would like a 
chance to negotiate before deciding whether or not they were 
going to try to implement sanctions.
    But part of my problem with the approach is over and above 
the question of taxes, part of the problem that I tried to get 
across to Mr. Gurule, and I think, frankly, he kind of 
reinforced the mistake, I asked him about it, and he said, 
well, we are working hard on tax evasion. Part of the problem 
is collapsing the OECD effort into that single issue of tax 
    And, again, I was unhappy to see Mr. Fleischer's answer. 
Just last week he was asked about this. The question, the OECD 
has been going after tax havens for a while. The Administration 
hasn't shown a whole lot of support for that effort. Mr. 
Fleischer: I think you should not confuse the two issues. One 
deals with domestic laws in dealing with tax consequences and 
tax dodgers or tax evaders. This deals with terrorism.
    And the problem, of course, is that once you have bank 
secrecy, you don't know whether it is just your garden variety 
tax evader or somebody else. I mean, isn't that the problem?
    Mr. Eizenstat. Yes. And I--frankly, some of the pre-
September 11 signals both on money laundering and on tax havens 
were very discouraging. With respect to the OECD effort on tax 
havens, this is part and parcel of the problem. That is 
terrorists, terrorist organizations and other criminals will 
seek out those jurisdictions to put their money in whose bank 
laws have no questions asked, who don't have to file suspicious 
activity reports, and they will also seek to hide from taxation 
their ill-gotten goods by going to tax havens so that there is 
a definite relationship.
    And the other point, Mr. Frank, which you properly raised, 
it is in the OECD, and this will never be successful, the whole 
effort to attack this problem, unless it is done 
multilaterally. Otherwise, for one thing, we are disadvantaging 
our own institutions, but it will simply squeeze money to 
jurisdictions that don't abide by them. So they ought to be 
considered as simply problems, and both should be addressed.
    Mr. Frank. I would hope that would mean that we have to 
tell other countries that are refusing to end this total bank 
secrecy and refusing to allow their financial institutions to 
be used to provide total cover that they will be subject to 
sanctions if their financial institutions will not have the 
access to ours, and that up until September 11 the 
Administration hasn't been willing to say.
    Let me just say to reinforce this, just to paraphrase some 
comments, because I had been reading the uncorrected 
transcript, I acknowledge, of the eleven hearings, but 
Assistant Attorney General Chertoff, whose deputy testified, 
saying essentially we are dealing not only with Americans who 
put money in these banks, we are talking about foreign 
criminals who put money in the bank and then move them into 
United States; for example, not a tax issue, but an issue of 
using that anonymity for criminal purposes. And District 
Attorney Morganthau, I think, the world's oldest living 
prosecutor, says for all of these defendants the principal 
attraction of doing business in offshore havens was not the 
nonexistent tax rates. They sought to take advantage of other 
benefits that provided tax haven jurisdictions, strict bank and 
corporate secrecy, lack of transparency, lack of any meaningful 
law enforcement supervision.
    So again we want to be clear. The OECD effort is an 
essential part of an anti-terrorism fight. It is not simply an 
anti-tax fight.
    Mr. Eizenstat. Yes, and I would also say that those 
countries which are tax havens tend to be those countries which 
have the most lax money laundering laws.
    Mr. Frank. Thank you.
    One other point I just want to make, because I was confused 
about this, I have been asked by some members of the press, and 
that is, you know, what is the legislative status here. And I 
think we ought to be clear. The Administration has clearly 
decided that there are two levels of urgency here. I am on the 
Judiciary Committee. At 2:00 we will be marking up a 
compromised version of the Anti-terrorism Act. It did not 
include, as submitted by Attorney General Ashcroft or as 
amended by the Republicans and Democrats on the Judiciary 
Committee, any money laundering pieces. It did deal with one of 
the things that Under Secretary Gurule mentioned, and that was 
the lack of sharing information. And the bill that will be 
marked up in Judiciary as a compromise does explicitly 
authorize sharing of tax information for appropriate 
legislative purposes. It has got a 2-year sunset for people who 
are worried about how that will work out.
    So the use by the Justice Department and others in fighting 
terrorism of tax information will now be clearly allowed in 
this bill, but, at least to date--and I am told the Judiciary 
Committee has a lot of the jurisdiction here, and I have been 
at all these Judiciary Committee meetings and conversations--we 
have not been asked by the Administration to take any action on 
the money laundering issue.
    Now, that is apparently coming, but people should 
understand that, that the money laundering piece, much of which 
is under the jurisdiction of the Judiciary Committee, isn't 
part of the anti-terrorism bill and wasn't part of the anti-
terrorism bill as requested. So probably there is a second 
order. I would hope, because it now looks as if the Judiciary 
Committee will be voting out the first part of the anti-
terrorism package that the Attorney General sent us, that the 
Administration will now show some eagerness to get the other 
part through.
    And I would just say in closing, finally, Mr. Chairman, I 
appreciate this. I was pleased, and I want to repeat this, when 
Secretary O'Neill and Under Secretary Gurule said they liked 
Mr. LaFalce's bill as long as it had due process protection. 
That is what we said about Ashcroft's bill on the Judiciary 
Committee, and I think we ought to be very clear what is due 
process source for money laundering is due process source for 
the anti-terrorism bill, too. That is one of the reasons why we 
did not instantly enact what the Attorney General asked us, but 
held it back to put in precisely the kind of due process 
provisions that he has asked for and that Mr. LaFalce agrees 
should be in there.
    Thank you, Mr. Chairman.
    Mr. Bachus. I thank you.
    Mr. LaFalce.
    Mr. LaFalce. Thank you very much, Mr. Chairman.
    I thank you all for testifying, especially Ambassador 
Eizenstat. It is always a pleasure to see you and to work with 
you. I thank you for your comments about the administrative 
procedures, and the fact of the matter is that we have heard 
nothing from the Administration with respect to so-called due 
process. I think they were just responding to concerns that 
were expressed in the Senate, and they said, yes, we will be 
glad to have some. I see no language whatsoever that they think 
improved upon the bill, and that is one of the difficulties in 
trying to do it quickly. But we will be vigilant on that point.
    You made the statement, Mr. Ambassador, that hawala exists 
in every single major city in America, and, Mr. Moynihan, you 
made some suggestions for dealing with underground illegal 
banking. I need a better handle on that. Can you better explain 
what the difference between the hawala system and underground 
banking is, if any? Is it one and the same? Is there something 
different about it? To what extent would your existing law 
work? The proposals that we have fashioned thus far deal with 
it. Is it necessary to go beyond that? Because, you know, we 
don't want to come up with a solution to a decade ago problem. 
We want to come up with a solution to today's modus operandi.
    Mr. Eizenstat. Well, I'll let Mr. Moynihan deal with some 
of the underground banking systems. But the hawala system is a 
system which would operate as follows. Someone would go to a 
hawala in, say, Pakistan, Karachi, and these are often families 
that have been in the business for decades or centuries, passed 
along, oftentimes completely legally. And, say, we have a 
customer who is going to pick up $5,000 in cash in Chicago or 
Buffalo. And this should be honored, and he will have this 
identification number which we are now giving you. That person 
then comes into Buffalo, picks up the $5,000 in cash, and there 
is no actual movement of money between Pakistan and Buffalo. 
There is no wire transaction. All there is--``hawala'' means 
``trust,'' and so there is ultimate accounting that will go on 
between those two hawala dealers so that it is a system that 
depends on informality and personal trust, and there seems to 
be little doubt that some of the cash which was used at the end 
of this process for the atrocity that was carried on probably 
came through that kind of hawala system.
    But we ought not to be daunted in going after money 
laundering by the difficulty of getting at that, because that 
$5,000 will, in turn, have come from a hierarchy that at the 
central level has raised tens of millions of dollars by state 
sponsorship, by charitable organizations, and that will have 
touched, through investments and other ways, the actual 
financial system.
    Mr. LaFalce. Now, the system of trust, though, has to be 
verified or accounted for. So there has to be some type of 
verification that the $5,000 was given in order for it to be 
accounted for wherever it originated.
    Mr. Eizenstat. Yes, but the verification is often, Mr. 
LaFalce, not by a paper transaction, not by a paper trail. It 
would be by perhaps a personal phone call or some other 
    Mr. LaFalce. There has got to be some method of 
communication though. There has to be some method of 
    Mr. Eizenstat. Yes, there is.
    Mr. LaFalce. Either in person or electronically.
    Mr. Eizenstat. There is, because there has to be accounting 
at the end of the day.
    Mr. LaFalce. Yeah. Yeah.
    Mr. Moynihan.
    Mr. Moynihan. Mr. LaFalce, I think there is so many 
permutations on what goes on, and we have to start at that 
point. It could be as simple as a guy who owns a gas station 
down the street here who wants to secrete his wealth in 
Pakistan or Iran or whatever, and he just flat out doesn't want 
to send a wire transfer over there because he is afraid 
someone's going to see it at the Fed. He just doesn't want 
anybody to know what he is doing. So he offers that money that 
he has earned here, cash, for sale simply through the internet, 
maybe a message and putting it on the street, making a phone 
call to someone who he knows on the other end who is either an 
intermediary or someone who seeks out an intermediary. It is 
merely a system of swapping money. That is it.
    What is unique about the hawala, from my experience in 
doing these cases, unlike Colombian drug traffickers who 
generally will set up a contract, I have experienced this with 
a number of DEA cases that I do, they will set up a contract 
and broker the money at a discount some time out. It could be 
either a spot transaction, but generally it goes out 30, 60, 90 
days, and you earn different discounts based upon how far it 
goes and the form of the money.
    The hawala is different in that it is still underground. It 
is still the gas station owner engaging in unlicensed money 
exchange, and that is why I made the suggestion that should be 
criminalized across the board. People should just not be using 
their checking accounts to make money on money. If you sell 
gas, sell gas. If you want to be a money exchanger, go get 
licensed. That is not what goes on. But here, in the hawala, it 
is more of a loose affiliation, and, as the Ambassador has 
said, it is based on trust. These people make these swaps and 
exchanges of money in volumes you just can't imagine. It is 
huge. It is massive. It is everywhere. It is not reported. 
People trust it, and if those hawala participants aren't 
satisfied, they are back out of it, and they use somebody else. 
There is so many people who do it.
    The last thing I will say on this, of grave concern, from 
the cases that I have been----
    Mr. LaFalce. If it is that widespread, it would seem to me 
that the more widespread it is, the more detectable it would 
be, assuming we had widespread usage, utilization of undercover 
    Mr. Moynihan. That is the key. The techniques have to 
change. The techniques for penetrating those organizations have 
to change. One of my partners in my business, Larry Johnson, 
has been seen on the television all week, and he keeps using 
the term, ``you are not going to catch these rats by not 
getting into the sewer.'' And that is true. These cases are not 
being made in the Vatican. If you want to make these cases, you 
have got to get down and get dirty with these people, and if 
you won't, the techniques are not going to work, and that is 
why it has proliferated.
    Mr. Eizenstat. We have had some experience with similar 
systems. For example, the so-called black market peso system 
operates in some respects in the way that Mr. Moynihan was 
describing with respect to imports. In fact, oftentimes major 
American companies have their products used as part of the 
exchange, and we had a meeting last year at the Justice 
Department with the Attorney General and others, and we had 
some of the major corporations come in to alert them to the 
fact that their products were being used as part of this 
    The hawala system operates in a sense even more 
underground, and it will require human intelligence and 
penetration if we are going to be successful at rooting that 
out. And, again, all of these things we are talking about, 
including legislation, are not going to end the practice per 
se. What we want to do is throw sand into the gears, make it 
more difficult, complicated, make people come up from the 
subterranean level they operate, take greater risks and disrupt 
the process.
    Mr. Bachus. Thank you.
    Ambassador Eizenstat, we actually had hearings on the black 
market peso back, I think, in 1997.
    Mr. Eizenstat. Yes. We appreciate it.
    Mr. Bachus. A lot of that is categorized as trade 
mispricing, too, to avoid taxes. And I think some U.S. 
corporations have spoken up against the practice.
    Mr. Eizenstat. They have. But now that they have been 
alerted to it, they are trying to be much more sensitive about 
suspicious transactions involving their products.
    Mr. Bachus. And that, obviously, is something that ought to 
be brought into this.
    Mr. Yingling, without divulging any investigative details, 
can you tell us whether or not any banks that are members of 
the ABA have found and frozen any of the accounts of the 
parties that were named in the President's Executive Order?
    Mr. Yingling. We understand that there are several that 
have, but they don't report to us on an ongoing basis about it. 
They report to law enforcement.
    Mr. Bachus. I would ask Mr. Lackritz. Can you tell us 
whether any securities firms have found and frozen any accounts 
of the persons named in the President's Executive Order?
    Mr. Lackritz. I can't tell you right now. They are in the 
middle of doing searches for all that information now, and as 
Mr. Yingling said, they don't have the obligation to report to 
us. I don't have that information at this time.
    Mr. Bachus. Does it concern you? And I am sure that you 
heard the testimony of Under Secretary Gurule about the al 
Qaeda operatives using brokerage accounts.
    Mr. Lackritz. Well, absolutely. It concerns us, and, in 
fact, our members have all been working with the self-
regulatory organizations and the SEC in terms of going back 
into unusual trading patterns prior to September 11. But, yes, 
of course that would concern us.
    Mr. Bachus. OK. What are some of the operational 
differences between a securities firm and a bank that we in 
Congress should be mindful of as we craft legislation 
preventing money laundering?
    Mr. Lackritz. Well, I think that they are very different 
businesses, and I suspect Mr. Yingling would be happy to point 
out some of the differences between banking and securities. 
But, in general, the relationship with customers is very 
different in the sense that, generally speaking, when customers 
open accounts with securities firms, there is an ongoing 
relationship that is fairly frequent, and there is many points 
of contact on a regular basis where professionals from the 
industry will be talking to the customer about what has 
    In addition, when the account is actually opened, our firms 
are subject to know your customer rules. I think it is Rule 401 
of the New York Stock Exchange, and I think it is 3110 of the 
NASD, have know your customer requirements for our firms when 
they open accounts, and that is to assure that our firms, in 
fact, follow suitability obligations which they have owing 
their customers to make sure that their recommendations are 
suitable for that customer in the account.
    In addition, the industry has a number of obligations under 
the regulation to make reports on a regular basis to self-
regulatory organizations. For example, U-4 reports about 
employees, U-5 reports when they are terminated articulate 
reason for dismissal or reasons why something hasn't worked 
    In addition, we have forms called RE3s to report possible 
rule violations. We also have to report to our self-regulatory 
organization and the SEC.
    And finally, Mr. Chairman, I would just suggest that the 
regulatory regimes that deal with banking and securities 
philosophically are very different and are grounded on very 
different assumptions. Banking regulation tends to be more 
focused on safety and soundness of the financial system, and as 
a result there is a lot of oversight and review of individual 
decisions by bankers. On the securities side the philosophy has 
to do with disclosing material fast, protecting the integrity 
of the marketplace, protecting the investors, and let 
competition determine the outcome, and as a result there are 
very substantial differences in that respect.
    Mr. Yingling. And if I could just comment, I think there 
are differences along the lines that Mr. Lackritz just 
outlined. But, we do believe that it is very important to 
extend the rules beyond the banking system, and we just had a 
long discussion about the underground system. We are not going 
to be effective if we don't do that. But it is very important 
that this be done in a flexible manner where the expertise of 
the regulators and the various industries can come into play to 
design the right response.
    And I think one of the big advantages of the approach in 
Congressman LaFalce's bill that was worked out in the Banking 
Committee last year, and Ambassador Eizenstat was involved in 
that, is that the way it is written, it does give that kind of 
flexibility. Therefore, you can identify the different types of 
transactions or relationships or groups or countries, and you 
can identify different responses to each.
    There is, on the Senate side, as you may know, similar 
legislation that is in the process of being looked at. And we 
support, Mr. LaFalce, the kind of approach that you are talking 
about. We have a couple of suggestions which we will get to 
you, but there is an alternative out there that is very rigid, 
and we think that is a big mistake because you are going to end 
up with situations where in some cases you need a fly swatter, 
and you are going to have a sledgehammer; then in other cases 
you need a tank, and you are going to have a sledgehammer. So, 
we think the approach that you are working on is the right 
approach, as opposed to a very rigid approach written into law.
    Mr. Bachus. We do hope to incorporate flexibility in how 
you deal with your clients. You know, why, I mean, there are 
varying ways in which firms conduct their business and take 
that into effect. And, Mr. Yingling, you actually--in your 
written testimony, not in your oral testimony, but you made 
some suggestions on how the legislation should be modified. So 
we will take those into account.
    Mr. Moynihan, we earlier had testimony from the FBI, and 
Mr. Lormel mentioned the offshore internet gambling sites and 
abuse there. You have been in the trenches. I would like to get 
your opinion on any possible nexus between internet gambling 
and money laundering and, you know, what we could do in that 
    Mr. Moynihan. In my firm, with my partner Bobby Evers and 
Larry Johnson, we travel the globe doing anti-money-laundering 
initiatives and investigations of internet gambling and the 
banks associated with that. We have done a considerable amount 
of work on it.
    One of the keys that we have found has been where the 
actual CPU that drives and conducts the transactions is 
actually located. For example, you might have a person in New 
York City who gets on his computer to play a sports book game. 
He thinks he is playing it in the Bahamas because that is where 
it was advertised out of, but traditionally in many cases that 
CPU is resting in Belize. The transactions will actually be 
transacting in that particular country, where, in fact, in that 
country where they are looking for hard currency and they try 
to drive hard currency into that location. They want this 
business. They want this business.
    And as the Ambassador said, a bilateral approach to this is 
very important because we may recognize ourselves as the First 
World economic type of situation, and other nations want to 
rise to that level of economic activity quickly because they 
watch the television and they visit Disneyland. They want to 
get there as fast as they can. That is just the reality of it. 
So they are going to offer things that we want, whether it is 
drugs or whether it is internet gambling.
    So the internet gambling situation is as complex as it 
gets, because the participants in the gambling aren't 
necessarily participating in the way that they think they are. 
They think they are participating in the Bahamas. They are not. 
They are not, and their credit card might be clearing through a 
bank somewhere else. So it is multi-jurisdictional.
    Mr. Bachus. Thank you.
    Mr. Yingling, let me ask you one other question. In the 
money laundering bill that we have drafted, there is a 
provision that would prohibit the U.S. banks from having 
correspondent accounts with offshore shell banks. Do you all 
have any objection to that?
    Mr. Yingling. We do not have any objection to that. We had 
some questions about making sure we have a clear definition of 
what a shell bank is so we know what the rules are. We haven't 
had a chance to look at it in detail, but I think you have a 
good definition in there, so we are supportive of that.
    Mr. Bachus. Thank you.
    Mr. LaFalce, do you have any questions?
    Mr. LaFalce. Just to the extent that any of you are 
involved in future discussions or deliberations with respect to 
internet gambling, I want to, first of all, make one point. I 
have yet to discern anything that is at all socially redeeming 
about the concept of internet gambling, so to even sanction a 
little bit of it causes me some difficulty.
    Second, please help impress upon others that the 
legislation that they enact could have negative rather than 
positive consequences if it is inappropriately drafted. And to 
say that internet gambling is permitted unless it is 
specifically deemed unlawful would require a finding of 
unlawfulness in virtually every State or the entire United 
States or offshore jurisdictions, and so forth. That is not the 
approach to take.
    I do want to ask Mr. Yingling a question, and then I will 
conclude. You know, one way that terrorists can help shut down 
the economy of the United States is by going to its 
transportation network. That could include airlines, buses, 
borders, and so forth. But another way would be to choke off 
its source of credit. And as we try to have redundancy and 
backup systems for our stock exchanges, and we were able to get 
them up in a relatively short period of time, what group within 
ABA, for example, discusses the redundancy of the capacity to 
make sure that credits, credit cards, ATM machines, and so 
forth, are able to function and not shut off at some choke 
    Mr. Yingling. It is a very good question and one that is 
maybe the other shoe here, if you will. We have the money 
laundering side of it that we need to work on, and we have the 
securities side of it. We are very proud of what happened in 
the immediate aftermath after the attack in terms of the way 
the banking system was able to respond. Mr. Lackritz in his 
statement talked about the great job the securities industry 
    Part of that, quite frankly, was a result of preparing for 
the changeover in the Millennium--all the work we did there 
that a few days afterwards everybody scratched their head and 
said, ``Well, maybe we did more than we needed to.'' A lot of 
that work was building in redundancy, and a lot of that work 
was making sure we had contingency plans.
    There is no one group to address your point--although John 
Byrne sitting behind me is an expert in security and does a lot 
of work in that regard--because we are many different 
industries--for example, the credit card industry, and we are 
the clearing industry for a lot of what goes on in the 
securities area. We also transport cash around, so we have to 
cut across many different aspects of our business.
    We have been talking internally about the need to really 
address this question in a comprehensive fashion. We have had 
preliminary discussions with Treasury about the need to do 
this. We have actually talked with the SIA about the importance 
of getting the key groups together and reviewing everything we 
are doing in security.
    Mr. LaFalce. I would encourage you to create some type of a 
committee or a task force, and so forth, because if we couldn't 
use the credit cards, if businesses couldn't, you know, our 
economy is really devastated. If we couldn't have an effective 
clearinghouse system, our economy would be devastated. And I 
think that this is an extremely important issue, and I don't 
know that we have a problem. I hope we don't. And it may have 
been anticipated, but it is something that I think should be 
looked into very seriously.
    Mr. Yingling. We will definitely do this, and we have also 
on a very preliminary basis raised the issue with Governor 
Ridge that this ought to be done in a comprehensive fashion. We 
agree completely with your concerns.
    Mr. Eizenstat. If I could just reinforce what has been 
said, the backup systems and the work which was done for the 
Y2K exercise really proved themselves, because with the 
disaster that occurred, the fact that the securities markets 
and banking system were able to get back on their feet so 
quickly meant that there were sufficient backup systems. The 
firm which handled all the bond work, much of the bond work, 
for example, used their London system. So a lot of that 
investment, although no one realized it would be for this, did 
come in handy.
    Mr. LaFalce. All right. Thank you very much.
    Mr. Bachus. Mr. Leach.
    Mr. Leach. Let me first start with the big picture in terms 
of the financial services community here. I think it has to be 
underscored and underscored, and that is that despite this kind 
of instant stability in the United States, A, dependent on 
financial services and, B, our financial services community is 
incredibly stable, and that is the big picture, and that is 
wonderful and all that that represents. The financial community 
ought to take pride. This is for a good cause, and it is 
principally private sector.
    Having said that, there is a trauma on some little picture 
issues that you can have some big pictures ramifications, and 
that is the history of the 20th century has been one that too 
much regulation has been helpful, and we all recognize that. On 
the other hand, there is some regulation that is prudential. We 
don't normally think of this in the national security vein, but 
suddenly it has been a national security vein.
    So issues like money laundering have implications in 
tracking accountability of people who have committed crimes. 
They also have some implications for preventing crimes before 
they are led forth, and that can be in the realm of terrorism. 
It can be narco-trafficking. It can be corruption of many 
different levels. And I think that the financial community is 
going to have to rethink the position they took in the last 
Congress on objecting to some legislative approaches that were 
on the table at the time.
    I have been particularly surprised that the banking 
community hasn't been leading the charge on everything to do 
with internet gambling. In fact, I have been so startled with 
that, Mr. Yingling, I cannot tell you. The approach that 
originally confronts one is that based upon that, why should we 
take accountability, and that is a very reasonable question. 
Why should the banks be the principal law enforcement for 
internet gambling?
    But it ends up, for whatever reason, all other approaches 
have proved to be frail, if not lacking, in virtually any 
capacity to me. For example, many of us believe current laws 
preclude internet gambling, and yet they are unenforceable. And 
so the only way that we know to bring some enforcement is 
through putting some prohibitions in through financial 
instruments. I would wish there were other approaches.
    But I will tell you, forgetting everything you do with 
terrorism, the implications of internet gambling for credit 
card companies is going to be stunning new losses as people are 
headed out with these credit cards. There are people that get 
hooked on it, and it looks like a small percentage of the 
American public easily gets hooked on internet gambling. It is 
going to be very devastating on the credit card industry. It is 
going to be very devastating for certain parts, with losses.
    Now we come to the issue of terrorism. It appears that 
there is a role for money laundering, and it also is pretty 
evident, perhaps, not tied to the events of last month that 
gambling is historically a wonderful technique for money 
laundering. Internet gambling in particular is a good technique 
for money laundering.
    It is also of interest in terms of terrorism that the 
country that we are most interested in today is the country 
that has become one of the leading heroin producers in the 
world, if not the leading heroin producer. And money laundering 
is traditionally a narco-trafficking circumstance. And so the 
linkage of narco-trafficking and the potential of terrorism is 
not direct, but there is a tangential link that I think we all 
have to be concerned with.
    But I would, as strongly as I can, tell you that when I 
talk to small bankers, they all are appalled by internet 
gambling. When I talk to big bankers, there is no support for 
internet gambling. And yet the body of conversation has gone to 
the assemblage of institutions that represent financial 
institutions. Some of the bigger credit card companies have 
been in desperate opposition to anything that involves dealing 
with financial instruments and internet gambling. And I think 
that is a true mistake, and I think people ought to think about 
this in a very deep way, not only the implications for the 
issues of the week, but what it is going to mean for our 
economy if this internet gambling takes off to the degree that 
most people now assume it is going to. I think we are at the 
last edges of the timetable to try to bring it down.
    We worked very carefully with the Treasury in the last 
Congress, and I am pleased that they came out with the approach 
that seemed relatively realistic. I am very disappointed that 
in the bowels of the legislative channels, opposition was 
brought to bringing this kind of approach to the floor. But I 
really think all of you are going to have to think this through 
much deeper, much more carefully.
    Finally, with regard to money laundering, I don't think it 
is, by any means, the answer to terrorism, but it is one of the 
tools that can be applied. And I would only stress what I did a 
little bit earlier. It is self-evident. The institutions of 
finance abroad and in the United States of America can be 
vulnerable to terrorism in the years ahead. And I think, 
frankly, supporting legislative efforts of this nature is about 
as prudential as anything I know of, and I just am really, 
truly calling for a real look within the financial community at 
both of these issues.
    I don't want to ask for a response. I know you all have 
difficulties because you represent a processed way of reaching 
decisions, but I am really hopeful that this is thought of in a 
new kind of parameter. Thank you.
    Chairman Oxley. Gentlemen, thank you for your testimony, 
and I know you have answered numerous questions. The hearing is 
now adjourned.
    [Whereupon, at 1:50 p.m., the hearing was adjourned.]

                            A P P E N D I X

                            October 3, 2001