September 11, 2001 : Attack on America
Testimony Of Kenneth W. Dam Deputy Secretary Department Of The Treasury Before The Senate Banking Committee; January 29, 2002

Testimony Of Kenneth W. Dam Deputy Secretary Department Of The Treasury Before The Senate Banking Committee January 29, 2002 The United States Senate

Chairman Sarbanes and distinguished members of the Senate Banking Committee, thank you for inviting me to testify about the Treasury Department's efforts to disrupt terrorist financing and, in particular, the steps we are taking to implement the provisions of the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. I have asked Under Secretary for Enforcement Jimmy Gurulé to join me today.

On September 24, 2001, President Bush stated, "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 funding." The Treasury Department is determined to help make good on this promise. I am here today to tell you about the progress we have made and some of the complexities we still face.

Much of our progress is directly attributable to the Congress and this Committee. The swift passage of the USA PATRIOT Act and, in particular, Title III of that Act -- the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, have given us important new tools in the financial front of the war on terrorism. To highlight just two aspects of the Act:

The Act requires financial institutions to terminate correspondent accounts maintained for foreign shell banks and to take reasonable steps to ensure that they do not indirectly provide banking services to foreign shell banks. Treasury provided immediate, interim guidance to financial institutions, suggesting that they obtain certification from all foreign banks with correspondent accounts that they were not shells and that the foreign banks did not themselves maintain correspondent accounts for shell banks.

The Act requires all financial institutions to have an anti-money laundering program in place by April. Although many broker-dealers already had anti-money laundering programs in place, the Act ensures that all will. This Committee played an important role in securing the passage of these and other provisions. On behalf of the Treasury Department -- including our 25,000 law enforcement officers -- I thank you.

I also wish to thank the many federal agencies that have worked with Treasury. This is a team effort. We have worked closely with the State Department, the Defense Department, the Department of Justice, the Federal Bureau of Investigation, the intelligence community, and many other parts of the federal government. We coordinate daily at all levels and, I think, have done a good job of setting aside some of our historical rivalries. To cite just one of many examples of this coordination, the Administration recently created a new-high level strategies and priorities committee that I chair. This committee brings together senior officials from across the government to chart our strategy for pursuing terrorist finances over the coming months and years.

Summary of Developments in Financial Aspects of U.S. Anti-Terrorism Initiatives

Our priority is to help prevent terrorist attacks by disrupting terrorist finances. As the President has said, we seek to "starve the terrorists of funding. "Our goal is to deprive terrorists of one of the raw ingredients in terrorism: money for arms, explosives, plane tickets, and even the day-to-day sustenance of operatives. I will tell you candidly that where there is a conflict between preventing terrorist attacks and the prosecution of criminal cases against terrorists, preventing terrorist attacks comes first.

The strategy for the financial front of the war on terrorism closely tracks our strategy in the rest of the war. We remain focused on finishing off Al Qaeda. We are targeting not only Al Qaeda operatives, but their financial intermediaries and others that support them. Increasingly, we are also focusing on other terrorist groups of global reach. In addition, we are striving to ensure that fight on the financial front is not a unilateral effort or even a U.S.-led effort, but, like the rest of the war, a multilateral effort led by nations around the world.

We use several tactics on the financial front of the war on terrorism. Some of our tactics are public -- like the public designation of terrorist organizations and the civil blocking of terrorist assets. Other tactics are private -- for example, we work with foreign governments to enable them to designate and block terrorist assets on their own behalf. I would be pleased to tell you more about our private efforts in a closed session.

One thing that is different about the financial front from the rest of the war is that it is perhaps harder to measure success in the financial effort. To address this, we measure success in many ways. For example, we track the total amount of terrorist assets blocked. Since September 11th, the United States and other countries have frozen more than $80 million in terrorist-related assets. We expect the amount of blocked assets to continue to grow -- although we also expect to release some of the money. For example, assets once controlled by the Taliban regime of Afghanistan will be returned to the legitimate government of Afghanistan.

The amount of assets blocked underscores the importance of another measure -- the amount of international cooperation in the financial front of the war. I cannot emphasize enough how vitally important international cooperation is. After all, we cannot bomb foreign bank accounts. We need the cooperation of foreign governments to investigate and block them. So far, we have received a remarkable degree of cooperation. Foreign governments have blocked more than $46 million -- over half of the total of $80 million. 147 countries and jurisdictions around the world have blocking orders in place. We work with these countries daily to get more information about their efforts and to ensure that the cooperation is as deep as it is broad. For example, we are providing technical assistance to a number of countries to help them develop the legal and enforcement infrastructure they need to find and freeze terrorist assets.

We have also had success pursuing international cooperation through multilateral fora including the U.N., the G7, the G20, the Financial Action Task Force (FATF), and the international financial institutions to combat terrorist financing on a global scale. A good example of Treasury leadership on this issue is in the role of the United States in the FATF on Money Laundering, a 31-member organization. In late October 2001, the United States hosted an Extraordinary FATF Plenary session, at which FATF members established eight Special Recommendations on Terrorist Financing. These recommendations quickly became the international standard on steps that countries can take to protect their financial systems from abuse by terrorist financiers. Our delegation is at a meeting in Hong Kong as I speak establishing a process by which all countries will engage in a self-assessment of compliance with these recommendations. Still a third measure is the flow of funds disrupted. For example, when we shut down the Al-Barakaat hawala network, we seized $1.9 million in assets. But we disrupted the flow of much more. Our analysts believe that Al-Barakaat's worldwide network channeled as much as $15 to $20 million to al Qaeda a year. It is important, therefore, to keep an eye on the flow of funds -- how much money moved through a pipeline that we froze -- as well has how much money happened to be in the pipeline when we froze it.

Finally, we do not ignore non-quantified measures of success. I would be willing to elaborate upon these measures in a closed session. I can tell you in open session, however, that we believe from our intelligence channels that Al Qaeda and other terrorist organizations are suffering financially as a result of our actions. We also believe that potential donors are being more cautious about giving money to organizations where they fear that the money might wind up in the hands of terrorists.

Having discussed some of our successes, I wish to spend a moment on some of the complexities we face. This Committee is intimately familiar with the challenges facing our anti-money laundering efforts. Stopping terrorist financing is perhaps more nuanced than money laundering because terrorist financing could be described as "reverse money laundering." In money laundering, the proceeds of crime are laundered for legitimate use or for use in perpetrating more crimes. If you find evidence of the original crime, you are likely to be placed on the trail of some money laundering. In terrorist finance, it is often the other way around. Proceeds of legitimate economic activity are used for illicit purposes. The money can come from almost anywhere.

A particular form of this problem is presented by the case of illicit charities. Illicit charities are organizations that exploit their charitable status to funnel money to terrorists. Such organizations are, in my view, particularly deplorable. But at the same time, it cannot be doubted that some of them do perform some charitable acts and that many donors believe that their donations are paying for charitable works. To solve this problem, we are developing a comprehensive, coordinated, inter-agency strategy to clean up illicit charities while still providing vehicles for legitimate charitable works.

I would like to highlight a few additional steps that we have taken. First, we got the Foreign Terrorist Asset Tracking Center (FTAT) up and running under the direction of the Office of Foreign Assets Control (OFAC). FTAT was funded by Congress in the FY 2001 Appropriations Bill and was being organized and staffed when the attacks occurred. When fully operational, FTAT will serve as an analytical and strategic center for attacking the problem of terrorist financing.

Since September, FTAT has served not only to provide analysis of particular targets and networks, but also as an information hub where intelligence and law enforcement agencies can share and analyze information for a common purpose. Thus far, the Department of Defense, the Department of Justice, and the intelligence community have made vital contributions to this inter-agency effort to hunt down the sources of terrorist financing. Though FTAT is still in its infancy, it is making a significant impact on this cooperative and concentrated interagency venture.

Second, on October 25, 2001, Treasury created Operation Green Quest ("Green Quest"), a new multi-agency financial enforcement initiative intended "to augment existing counter-terrorist efforts by bringing the full scope of the government's financial expertise to bear against systems, individuals, and organizations that serve as sources of terrorist funding." Green Quest is made up of investigators and analysts from the U.S. Customs Service, the IRS-Criminal Investigation Division, the Financial Crimes Enforcement Network (FinCEN), OFAC, the Secret Service, and the FBI, with support from the Department of Justice. These agencies have brought their world-renowned financial expertise to bear on terrorist financing and have seen remarkable results in the three months FTAT has been in existence.

Green Quest has complemented the work of FTAT in identifying terrorist networks at home and abroad, and it has served as an investigative arm in aid of blocking actions. Green Quest's work, in cooperation with the Department of Justice, has led to 11 arrests, 3 indictments, the seizure of nearly $4 million, and bulk cash seizures of over $8.5 million. Green Quest agents, along with the FBI and other government agencies, have traveled abroad to follow leads, exploit documents recovered, and to provide assistance to foreign governments. The work of these financial experts is just starting but they have already opened well over two hundred terrorist financing investigations and are following new leads on a daily basis.

Third, we have worked closely with the FBI-led investigation into the September 11th attacks. Immediately after the attacks, Treasury deployed personnel to the FBI's Financial Review Group, bringing additional financial investigative capabilities, contacts in the financial sector, and expertise to the FBI's group. Treasury has also deployed people to serve on various Joint Terrorism Task Forces (JTTFs) headed by the FBI. Since then, those committed to this mission have made significant contributions, in the Group and in the field, to tracking the perpetrators of those heinous acts.

The November 7, 2001, designation of al-Barakaat as a terrorist-related financial entity is an example of how Treasury efforts, along with the fine work of our inter-agency partners, can lead to results in this war on terrorist financing. Al-Barakaat is a Somali-based hawala operation, with locations in the United States and in 40 countries, that was used to finance and support terrorists around the world. FTAT analysis identified Al-Barakaat as a major financial operation that supported terrorist organizations and was providing material, financial, and logistical support to Usama bin Laden, Al Qaeda, and other terrorist groups.

Treasury coordinated efforts to block assets and to assist other law enforcement agencies to take actions against Al-Barakaat. On November 7, 2001, federal agents executed search warrants in three cities across the country (Boston, Columbus, and Alexandria) and shut down eight Al-Barakaat offices across the U.S., including locations in the following cities:

-- Boston, Massachusetts; -- Columbus, Ohio; -- Alexandria, Virginia; -- Seattle, Washington; and -- Minneapolis, Minnesota.

As part of that action, OFAC was able to freeze $1,900,000 domestically in Al-Barakaat-related funds on November 7, 2001. Treasury also worked closely with key officials in the Middle East to facilitate blocking of Al-Barakaat's assets at its financial center of operations. Disruptions to Al-Barakaat's worldwide cash flows could be as high as $300 to $400 million per year, according to our analysts. Of that, our experts and experts in other agencies estimate that $15 to $20 million per year would have gone to terrorist organizations. The Al-Barakaat investigation exemplifies the importance of the flow of funds disruption measure that we are attempting to use more broadly. In addition, the combined work of FTAT and law enforcement led to additional leads in the Al-Barakaat investigation.

This is an example of what our combined efforts can do when we join our resources and our expertise to fight the scourge of terrorist financing.

Although we have made much progress, we still have much work to do. First, we must encourage more independent identification of terrorist groups by other countries. The EU designation at the end of December is a step in the right direction, but we need more countries to initiate more designations.

Second, we have to ensure that more countries issue blocking orders for more of the entities identified, by the United States, other countries, and the international community, as being part of terrorist financial networks. We must also do a better job of following up with the countries to make sure that their orders, once issued, are fully implemented and obeyed.

Third, we must do a better job of exploiting the "industrial quantity" of documents captured in Afghanistan and increasingly elsewhere. Hard drives and e-mails must be exploited as well. This is a massive task. To do it, we must bring documents together from all over the world, translate them, cross-reference them, and thereby build a complete picture. No one document can tell us that much.

Fourth, we must redouble efforts by U.S. and allied intelligence services against such financial intermediaries as hawala dealers and other informal systems.

To conclude this portion of my testimony, I believe that we have had several important successes on the financial front of the war on terrorism. We have marshaled the considerable expertise of our Treasury law enforcement personnel to execute the President's mission to detect, disrupt, and dismantle the financial infrastructure of terrorist financing. We have worked closely with other agencies of the federal government and, I believe, obtained an unprecedented level of cooperation and coordination. We have worked extensively with foreign governments to ensure that terrorist money has nowhere to hide.

Some have said that the financial war on terrorism is an impossible task. After all, money is fungible and illegal money tends to flow to the most hospitable country. I disagree. That the task is difficult does not mean that it is impossible. This is an unconventional war where there are no boundaries, where civilians are the targets, where people (or so-called "martyrs") are the weapons, and where electronic money transfers and messaging are the fuel and the logistics train. Among other things, identifying the flow of money helps us find the footprint of sleeper cells, disable them, and perhaps prevent the next attack.

Implementation of the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001

The Treasury Department is committed to the aggressive and thorough implementation of the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. In the aftermath of September 11, efforts to enhance the Federal Government's ability to combat international money laundering, which had already begun before September 11th, were given a whole new level of priority by Congress and the Administration. The government and the financial community were forced to rethink assumptions, to reevaluate risks of money laundering and abuse in connection with terrorist financing, and, ultimately, to take the steps necessary to protect the country's financial system. The results of this reassessment were dramatic. Through the Act, which is also known as Title III of the USA PATRIOT Act, Congress took up the challenge of eliminating vulnerabilities within our anti-money laundering regime. Now, we at Treasury will continue this initiative through implementing regulations.

The Act is ambitious not only in scope, but also in its aggressive implementation schedule. The inclusion of numerous key provisions demonstrates remarkable resolve by Congress following the September attacks. Perhaps the most striking aspect of the Act is that in one legislative package, Congress addressed many deficiencies identified in our counter-money laundering regime. Treasury must address a wide array of challenging issues and promulgate regulations with far-reaching consequences-all on an accelerated schedule.

Treasury's Implementation Plan

Our plan for implementation relies heavily on tapping the existing resources and expertise found in the government to develop creative solutions to complex issues. Once the Act became law, we formed interagency working groups to handle each of the statutory provisions requiring implementation or reports. After identifying the appropriate Treasury personnel to chair these working groups, we solicited interagency participation. This system offers two distinct advantages: (1) it brings the collective knowledge and expertise of the various governmental agencies and departments together; and (2) it facilitates the consultation requirements found in many provisions of the Act. I am pleased to say that the results thus far have been remarkable. Other agencies and departments stepped forward immediately, committing personnel and resources. For example, less than one month after the Act was signed by the President, Treasury issued interim guidance on two key provisions that were set to take effect on December 26, 2001. When Treasury requested consultation, the other agencies and departments responded quickly, assisting with our analysis of the issues and the completion of the guidance in time for the affected financial institutions to use it. And the cooperation continues. Working groups and subgroups meet almost daily. Drafts are being circulated and comments are received when requested. We are grateful for the assistance.

Another encouraging result of this process has been the response of the private sector and industry groups. With respect to several key provisions, we have received not only positive comments about the legislation, but also helpful insight into implementation issues. Others have contributed by simply taking the time to educate us on their particular industry and existing practices and procedures. Regulations cannot be conceived and drafted in a vacuum. Creative and constructive suggestions from those who will be affected by the regulations allow us to identify issues early and then find solutions early.

As I noted, our implementation plan has met with some early success. Since October of last year, we have issued interim guidance and regulations covering four statutory provisions. The two provisions that took effect in December were the prohibition against certain U.S. financial institutions maintaining correspondent accounts for foreign shell banks or indirectly providing services to them (Section 313) and the requirement that U.S. financial institutions obtain ownership and registered agent information from foreign banks for which they maintain correspondent accounts (Section 319(b)). On November 20, less than one month after the passage of the Act, Treasury issued interim guidance that explained the provisions, identified their scope, and provided financial institutions with a certification that could be utilized to comply with the provisions. Treasury subsequently issued a formal proposed rule in December that codified the Interim Guidance as a regulatory standard. On a separate front, four months ahead of the statutory deadline, Treasury issued in December a regulation implementing Section 365 of the Act, which effectively gives FinCEN access to reports filed by non-financial trades or businesses when they receive $10,000 or more in coins or currency. Finally, as required by Section 356 of the Act, Treasury issued in December a proposed rule that would require securities brokers and dealers to file suspicious activity reports. In support of FinCEN's increased responsibilities under the Act, the President's FY 2003 budget calls for a $3.3 million dollar increase in FinCEN's budget to help FinCEN expand suspicious activity reporting to a number of new industries and maintain the Suspicious Activity Reporting Hotline, begun this fall, to expedite the investigation of suspicious financial activities.

We have many additional regulations to promulgate and reports to file with Congress. We are determined to promulgate these regulations and prepare the reports expeditiously. We are always cognizant of the urgency of our task. At the same time, we are also working closely with other agencies, the private sector, and, of course, the Congress to ensure that we do our job not just fast, but well.

Treasury's Implementation Principles

As we implement the Act, we are guided not only by the express statutory language, but also by certain core principles that reflect our vision of what this legislation should accomplish and the manner in which it should be implemented. This legislation addresses broad issues and relies heavily on implementing regulations to define the scope of the provisions. Through the regulatory process, we will take the general and make it specific, exercising our discretion where appropriate. In this role, it is essential that we remain true to our core principles, which are as follows:

1. Prevent regulatory arbitrage.

The Act takes aim at those areas of our financial and regulatory system that present opportunities for exploitation. Treasury embraces this goal, and, through the regulatory process, will adhere to the principle that people should not be able to shift from one type of financial institution to another in order to avoid a regulatory scheme or anti-money laundering controls. The test is a functional one, namely, can a similar financial transaction be accomplished through another financial institution with less regulation. The justification for this principle is two-fold: first, our financial system is only as secure as its most vulnerable point; and second, a regulatory scheme must not create a competitive advantage for one type of financial institution over another when they perform the same or similar functions.

Our proposed regulation for Section 319(b) illustrates the point. Section 319(b) provides the Secretary of the Treasury and the Attorney General with administrative subpoena authority to compel the production of documents from foreign banks with correspondent accounts in the U.S. The section also requires "covered" U.S. financial institutions that maintain a correspondent account on behalf of a foreign bank to maintain records identifying the owners of the foreign bank as well as its registered agent. But, Section 319(b) does not define "financial institution" for purposes of the section. Based on the notion that similar activity ought to be regulated similarly, instead of limiting the application to depository institutions-such as banks, thrifts, credit unions-Treasury proposed to extend the rule to securities brokers and dealers who also maintain correspondent accounts for foreign banks. In this way, the rule does not create the opportunity to shift from a bank to a securities broker or dealer in order to avoid regulation.

The provision of the Act requiring Treasury to issue a rule requiring securities brokers and dealers to file suspicious activity reports embodies this same principle. Banks and other depository institutions must file suspicious activity reports because such reports are important to the fight against money laundering. Because the potential for money laundering exists in the securities industry, a similar rule will soon apply. Section 356 of the Act also directs us to recommend whether and how to bring investment companies under the Bank Secrecy Act. For this as well we will analyze the functional activities of such entities, compare them with the activities of regulated entities, and identify the money laundering risks presented. With this information, Treasury will be able to proffer methods for applying the BSA to such entities.

2. Honor a central purpose of the Act: to enhance coordination and information flow.

An overarching goal of this legislation, and an important lesson we are learning as we continue our work to disrupt the financial underpinnings of terrorism, is that appropriate information must be made available to enable law enforcement, the intelligence community, and the regulators to protect our financial system. The financial institutions themselves have a critical role in sharing and reporting information. The Act facilitates information sharing on a number of levels: (1) among law enforcement and financial institutions; (2) among regulators, law enforcement, and the intelligence community; and (3) among financial institutions themselves. We will fulfill this goal of enhancing the ability to use and share information to combat terrorism and money laundering.

Treasury, through FinCEN, is well positioned to continue to expand its role as the lynchpin for information sharing and coordination between the government and the financial sector. Indeed, Section 361 of the Act, among other things, requires FinCEN to establish a high-speed network for access to its extensive BSA data and information. Similarly, Section 362 requires Treasury to establish a highly secure network through which financial institutions can make Bank Secrecy Act filings and receive alerts regarding suspicious activities or persons requiring immediate attention. Treasury is charged with establishing a highly secure network through which financial institutions can make Bank Secrecy Act filings and receive alerts regarding suspicious activities or persons requiring immediate attention. I am pleased to report that FinCEN is on schedule to have a working prototype for initial testing by mid-April.

Additionally, Section 314 of the Act contemplates an expanded role for Treasury in the sharing of information regarding terrorism and money laundering not only among law enforcement and financial institutions, but also among financial institutions themselves.

Treasury is completing work on a regulation that will be issued by the February deadline that, in part, first sets up the procedures by which financial institutions may share information among themselves regarding suspected terrorist financing, including money laundering, after providing notice to Treasury.

3. Respect important privacy rights.

The significant anti-money laundering provisions of the Act also serve to highlight the tension between the need to share information and the legitimate need for financial privacy. We acknowledge, as we must, that now more than ever law enforcement and the intelligence community must have the ability to obtain and share financial information. However, that need must always be balanced against our fundamental notions of privacy. Striking that balance is the challenge for Treasury as we implement this legislation.

4. Require only the degree of reporting that results in action by the government.

The potential new reporting obligations created by the Act mean that we must be even more vigilant in ensuring that the information reported is useful and in fact will be used effectively by the government. One consequence of an aggressive regulatory scheme is increased reporting obligations. But additional reporting requirements in and of themselves cannot serve as proxies for an effective anti-money laundering regime. If the information is not going to be used, it should not be requested. This principle guided our approach to implementing Section 365. That Section requires that non-financial trades or business file a report when they receive over $10,000 in coins or currency-a requirement that is virtually identical to the requirement placed on the very same businesses to file a report with the IRS under section 6050I of the Internal Revenue Code. Although the purpose of Section 365 was unquestionably to provide law enforcement and regulatory authorities with access to the same information currently received by the IRS-information that could not be easily shared because of the IRS confidentiality statute-as written, Section 365 seemed to impose a new reporting requirement. Thus, we crafted a rule that permits businesses to file a single cash reporting form that will go to both FinCEN and the IRS, thus satisfying both reporting requirements with a single report.

5. Protect our financial system.

The Bank Secrecy Act exists to protect our financial system. The Act provides Treasury with additional authority to systematically eliminate known risks to the financial system as well as to act in response to a specific threat that may arise. Proven high-risk accounts, such as correspondent accounts maintained on behalf of foreign shell banks, will no longer be permitted access to our system. In Section 311, you have also given us a powerful weapon with which we can apply graduated, proportionate measures when specific money laundering risks involving foreign jurisdictions and individuals arise. This new authority makes it clear that the Secretary, in consultation with other agencies, can impose an array of special measures that are tailored to the particular risk presented. Treasury is conducting active training and outreach to educate law enforcement agencies about this new tool.

Treasury's Implementation Priorities

Within the framework of the principles I have outlined above, the first priority for Treasury is to take all reasonable steps to meet the deadlines imposed by the Act.

We have devoted considerable resources to this task, redirecting our policy objectives to accommodate this effort. I will not sit here today and assure this Committee that, without fail, we will meet each deadline. The issues presented are complex and, as we proceed, new ones continue to arise. I can assure you, however, that we are working and will continue to work diligently on implementation, while taking the time that may be necessary to resolve difficult legal and policy questions.

Beyond the deadlines imposed in the Act, we have identified various provisions which, for a variety of reasons, we seek to pursue at the outset. These are provisions that, in our view, ought to be addressed on an expedited basis if possible. Finally, certain provisions with no immediate deadlines will inevitably have to be implemented after the more immediate priorities.

1. The First Tranche -- To be Implemented by April.

Over the next three months, we are striving to implement statutory provisions addressing: (1) information sharing among financial institutions, law enforcement and regulatory authorities (Section 314); (2) enhanced due diligence provisions applicable to financial institutions that maintain either private bank accounts or correspondent accounts for non-U.S. persons (Section 312); (3) methods for identifying and confirming the identity of foreign nationals (Section 326); (4) the minimum requirements for anti-money laundering compliance programs for financial institutions; (5) the role of the IRS in the administration of the Bank Secrecy Act (Section 357); and (6) methods for improving compliance with the obligation to report foreign bank accounts (Section 361). Additionally, we will be issuing final regulations covering the foreign shell bank correspondent account prohibition (Section 313), the record-keeping provision under Section 319(b), and the cash reporting requirements (Section 365).

2. The Second Tranche -- To Be Implemented as Expeditiously as Possible.

Treasury is moving forward now to implement the following provisions addressing: (1) the authority of the Secretary, in consultation with other agencies, to designate primary money laundering concerns and impose special measures against them (Section 311); (2) concentration accounts (Section 325); (3) account opening procedures (Section 326); (4) suspicious activity reporting for futures commission merchants, commodity trading advisors, and commodity pool operators (Section 356); and (5) the efficient use of exemptions for currency transaction reports (Section 366). We intend to issue regulations further defining terms contained in Section 311 at the same time we issue regulations implementing the due diligence provisions of Section 312. Also, Treasury and the regulators are aggressively moving forward to draft regulations setting forth customer identification procedures for financial institutions.

Immediate Results

Although we have much to do to fully implement the provisions of the Act, I wish to emphasize that the Act has helped us generate immediate results in the financial front of the war on terrorism. I alluded to two of those results at the beginning of my testimony.

Information Sharing

The amendments to the Bank Secrecy Act clarify the authority of the Secretary to share BSA information with the Intelligence Community for intelligence or counterintelligence activities related to domestic or international terrorism, regardless of whether the BSA information is related to law enforcement.

The amendments to the Right to Financial Privacy Act ("RFPA") further enhance the ability of government to obtain and share relevant financial records with another agency or department, such as FinCEN and OFAC, involved in intelligence or counterintelligence activities related to international terrorism without notifying the targets. The amendment to the Fair Credit Reporting Act facilitates government access to information contained in suspected terrorists' credit reports when the inquiry relates to international terrorism. This amendment allows those investigating suspected terrorists prompt access to credit histories that may reveal key information about the terrorists' plan or source of funding -- without notifying the targets.

The Act also allows for greater information sharing with the private sector and self-regulatory organizations. Under the Act, for example, financial institutions that submit voluntary disclosures of information relating to terrorism and money laundering are immunized from liability, and Bank Secrecy Act reports can now be made available to securities and commodities self-regulatory organizations.

IEEPA Amendments That Have Helped in Our Freezing Efforts

This Committee was also largely responsible for amendments to the International Emergency Economic Powers Act ("IEEPA") that clarified the authority of the President and the Treasury Department to target and block terrorist assets successfully and efficiently. On December 14, 2001, OFAC utilized this authority to block suspect assets and records during the pendency of an investigation in the case of Global Relief Foundation and Benevolence International Foundation, two charities with locations in the United States.

In addition, it has become easier to share and use intelligence information for freezing assets since the PATRIOT Act authorized courts to consider classified information under the Act without such information being disclosed to those challenging the blocking. The IEEPA amendment also grants the President the power to confiscate and vest in the United States Government property of countries or persons involved in hostilities or attacks against the United States. Though this authority has not been used, it is a powerful new tool available to the Executive and a deterrent effect to those who would support terror.

New Tools to Follow the Money and to Deter Money Laundering

The Act also strengthens existing money laundering provisions and enhances the Treasury Department's ability to deal with this problem -- which, in many respects, is related to the issue of terrorist financing. For example, the Act now requires that trades or businesses receiving more than $10,000 in coins or currency file reports with FinCEN. In addition, as of January 1, 2002, certain money service businesses are required to register with FinCEN and are now required to file suspicious activity reports (SARs) for money orders, traveler's checks, and all transactions by money transmitters. While Congress gave Treasury the authority to impose some of these requirements before the Act was enacted, the Act extended the requirement to underground money transmitters. We have acted promptly to take full advantage of this new extension of authority. To date, it appears that registration is on track, and we will be able to begin the process of finding those underground money remitters who fail to register and charge them criminally if they have not registered in accordance with the law. In addition, the Act has given sharper teeth to these provisions by increasing civil and criminal penalties for Bank Secrecy Act violations.

In all, the Act enables us to fulfill our mission of thwarting the criminal use of the financial system in a way that was unavailable or impossible before October 25, 2001.


Mr. Chairman, we are engaged in a long-term battle against illegal abuse of the financial system. Whether it is terrorist financing or classic narcotics money laundering, we need to take every measure possible to combat the evil deeds that soil our financial system and pose a real threat to our security.

Treasury will continue to use the powers and assets at its disposal to ferret out terrorist financiers and networks and choke the funding source for terrorists here at home and abroad. We will continue to work in close coordination with our sister departments and agencies and with our international partners to make our campaign against terrorist financing as effective as possible. Furthermore, we will continue to fight the battle against money laundering and the criminal misuse of the financial system. An essential part of this mission is the complete and efficient implementation of the provisions of the Act. We are ready for this sustained effort, and we appreciate your support.

Mr. Chairman, this concludes my formal testimony. I would be pleased to answer any questions that you, or members of the Committee, may have regarding the Administration's goals and policies regarding terrorist financing and the Act.

Thank you.

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