September 11, 2001 : Attack on America
Secretary of the Treasury Paul O'Neill Dubai Business Channel Interview Emirates Towers Hotel, Dubai; March 8, 2002

Secretary of the Treasury Paul O'Neill Dubai Business Channel Interview Emirates Towers Hotel, Dubai March 8th 2002 -- 7 a.m. Interviewer -- Simon Mars

Interviewer: Thank you for coming in and joining us.

Question: Are you satisfied by the amount of support you are being given by the Gulf states in your campaign against money laundering?

Answer: The support is excellent. It's really gratifying to have been here for a week now and to have had talks with so many people. I have found without exception that we're united in our goal to defeat terrorism and I know that we've had support of the initiative that we found here without failure, so it's been really a wonderful week. I really enjoyed being here. I've been in the Gulf in the past -- in Dubai and Bahrain, but I had not been to Saudi Arabia or Kuwait before, and so I really found that very satisfying, to meet people.

Question: Do you think any terrorist money is still being funneled through the UAE at the moment, or the Gulf, or do you think it has dried up?

Answer: I see this on a bigger world stage. For me this is not an issue about the Gulf. This is an issue about a hundred and eighty nine countries around the world banding together with a determination that we're going to defeat terrorism so that people everywhere in the world are able to live without fear in their lives every day. So I don't see this in terms of one country, or a few countries, or a particular destination, as you suggest the Gulf states. We're all in this together.

Question: If we are all in this together, why did your department or the administration help derail the Financial Action Taskforce -- the OECD's Financial Action Taskforce last February the 17th? You announced at the G7 Summit you're putting a multilateral agreement under review, and if it is a global campaign, did it just start after September eleventh? I mean, why did you stop before?

Answer: No, I don't think so at all. I think maybe you're talking about my concern about what was being done with the so-called tax-haven legislation. This is a different issue. But if you're interested in that, let me say a word about it. There's a school of thought in the world that was reflected in some of the work that was being done that all countries should have the same tax regime. I don't think that's right. I think sovereign nations should have an ability to have their own tax regime, and if one country wants to have no tax, and other countries have relatively high tax, I think that's the prerogative of the people, of the independent, individual countries themselves.

When I raised the issue about what's going on with this so-called tax-harmonization, I think people wondered why. To me it's a fairly straightforward proposition of sovereignty. In the broader context of money laundering -- which is I think it's the face for illegal, illicit, evil kinds of activity, and it's been going on for a long time -- we've been prosecuting a war against drug lords and doing it by trying to find connections through financial systems, and for me, in a way, the evil that's at the drug trade is connected to the evil of the terrorism in a broader sense. And so what I see going forward is a renewed, determined, connected effort around the world to interdict money that's connected to evil doers, whether it's drugs, or assaults, or assassinations, and I see around the world a real conviction that we can do this.

Question: Why then again, on November 27th last year, did you announce that you've an agreement with the Cayman Islands which, despite what you say, is not just about plain tax (inaudible), that this concerns money laundering and terrorist funds being channeled through there. They didn't have to tighten their banking or tax laws until 2004. That's at odds with your previous statement.

Answer: Not at all. We set out to find agreements with all countries around the world that we don't have specific agreements with, and there haven't been any done for years and years. Last year in testimony before the Congress, I promised them in one year that we would sign agreements with at least fifty percent of the represented accounts in the world, and we're going to easily make that part. Cayman Islands was part of that. There are procedures for how quickly these things can be done, and it takes a year and a half or so in their case. But I think the agreement is already beginning to be in practical effect. (interruption). Pardon me.

Question: You're (inaudible) at the wrong time (inaudible) present situation.

Answer: Well, you know, the world is a few thousand years old, and as much as I would like to change it tomorrow, I find that it's not within my power to do everything I would like to do overnight.

Question: And it's got nothing at all to do with the fact that Enron have some 874 subsidiaries like (inaudible)...

Answer: You know we've signed an agreement with four jurisdictions now and you will see we're going to sign some more. Within the next couple of months, we're going to be relentless about this, and this doesn't have anything to do with anything else except pursuing and prosecuting evil people.

Question: OK. Last time I'm turning to this. According to the FT last year, you said that banks having to report any cash deposits over ten thousand dollars imposed a significant cost on society. Do you still subscribe to that view?

Answer: Well, I didn't say that. I didn't say that, but you know, I've become acquainted with mis-assertions about what I said. It's one of the reasons I welcome doing television: what I say is what I say and as long as it doesn't get edited, then I'm very (inaudible). My belief is this: that we should seek out and identify and confiscate money of terrorist organizations, and what they were saying is something that is quite important. In the U.S. we have a provision that requires banks to report transactions of over ten thousand dollars. And when I began having responsibilities for these matters I asked the question how many people have we identified as a result of the reporting rule for ten thousand dollars. At first I discovered that with all these reports that cost seventeen million dollars a year for the Treasury people to convert the reported information into computer data so that could be used, and when I asked the question, how many people have we caught because of this, no one could tell me a single case. I'm one who believes tax payers deserve to get value for their money, and I want to stop every one of these dollars from drug traders and terror, and so I'm not comfortable at all with having a process in place that appears to do something when it doesn't do anything. And so I'm questioning every aspect of what we're doing, because I'm going to make sure we accomplish our purpose, and I want taxpayers to get value for their money.

Question: Are you going to support Senator Levin's money laundering abatement act then, because he said he has reports of ... your domestic banking sector's a gateway to an entry of massive criminal sums to the US. He said that laundering is around a five hundred billion dollar a year US industry, so are you working with him?

Answer: Yes, I think we are working with him, and it was when I testified before his committee last June that I made this assertion, much to his amazement I must tell you, that I would do something that has never been done -- that I would work with my people and we would cause at least fifty percent of these questionable accounts to be covered by treaties, and it was a great pleasure to call them up and tell them about the Cayman Islands and about Bermuda and the others that we have signed, because I intended to do what I said, and I said, "Yes, I'm working very closely with them."

Question: OK. Moving on. How do you assess the current state of the U.S. economy? Are you happy?

Answer: Yes, I must say I'm not surprised by it. Last fall when everyone seemed to be so certain that we were going to have a negative GDP growth in the fourth quarter, it didn't look like that to me. From the people that I talked to around the country I was pretty convinced that there was a possibility that we could be positive for the fourth quarter. As you know it's turned out that not only were we positive, but that we were positive one point four percent, and I saw in the overnight report that productivity numbers have not been revised so that we have five point two percent productivity increase for the fourth quarter, which is a mark of an economy that's moving quite quickly. So yes, I'm pleased with the movement back to a significant positive growth rate that we're seeing in the U.S. economy, and I expect it to continue.

Question: Are you at all worried about the implications of the tariff that's been imposed on steel by the US. That the rest of the world might decide to retaliate? It could cause a global trade war. And the implications on the global economy?

Answer: As people look at the details of what the President has decided to do, they will have a second thought as they look at how this will work, because (interruption). No I don't think so at all. I think that other people, when they see what the President said is this: we've got an industry that's got thirty one companies in bankruptcy...

Interviewer -- genius - capitalism...

Answer: That's a troubled industry. But with that troubled industry, the President said "all right." For example for slag product he said we're going to draw a line on the level of imports that can come in at the level that came in the year 2000. And if the imports go above that level, then there will be an imposition of a tariff. So it's not really saying there has to be a cut-back. The level that's been suggested for the next three years is above the current level. The first reaction that I've seen on television as I've been traveling, and having an opportunity to look at the television reports at night - it seems to me are, not unexpectedly, the kind of quick reaction you get before people study the details. I think that they've studied the details and maybe we'll have some calming on this issue.

Question: OK. Maybe we will, but it certainly appears not to be free trade, and it appears to have a lot more to do with domestic interests to help the Republicans in the mid-term elections.

Answer: No. This is an industry I know a lot about, because in a way it was a controlling industry to the one I was in -- aluminum -- before I accepted this post in the government. The world has, arguably, thirty five percent too much capacity, and we would all be well served if the highest cost, most environmentally damaging capacities were shut down around the world. And toward that end, over a year ago, the President asked us to work with other countries, which we arranged to do through the OECD, to bring the world producers together to talk about how this overcapacity could be brought down so that there wasn't such a lot, creating all these problems. The truth of the matter is this is an industry that has not earned the cost of capital for forty years. That's a troubled industry. It's not just a U.S. problem. It is a world-wide problem, and it exists because of subsidies, and a continuation of equipment that should be shut down. And then to your question about how is this dealt with in the United States. When you look at this in the United States, this is not a problem that's spread uniformly across the United States. These mills, these steel mills, exist in communities where oftentimes they're the only thing in the community. So there are thirty or forty thousand people who are dependent on one mill. For them, going out of business is a calamity of great dimensions.

What the President's proposed is that over a three year period, we work our way out of this calamity for individual people, toward free and open trade for these products, so that the beneficiaries are going to be spread across the entire economy. There are going to be casualties, and in major places, and we've got to deal from the specifics of people who are for all practical purposes are going to be subjected to a depression, while other people benefit from a world-wide trade in these products. What the President has done is reasonable, and it's not anti-free trade. It's trying to smooth a problem that comes in big lumps in specific places, for individual human beings, and gets us into a position where this product will be traded on a free and open basis everywhere in the world.

Question: OK. Last question. Just a general question about economic policy. Seems to be a return to increased spending and production (inaudible) deficit based economy. Are you at all worried about this? I mean, after all it was a similar sort of policy that might be argued that helped lose your boss's dad the last election. I mean, it doesn't really work, does it?

Answer: Well, you know it's an interesting question, and one I've had an opportunity to talk to the members of Congress about quite a bit over the last couple of months. The spending level that's in this year's recommendations from the President includes a major increase to support the war on terrorism. It includes a doubling of the level of money that we were spending on what we've come to call homeland security; and it delivers on the President's promise for things like big increases in education spending. And so, as I've had the same question you've given me from Congress, I've said to them, "What is it you would like to stop doing?" You know, and I must say I'm getting a deafening silence from the members of Congress. They don't want to say that we shouldn't pursue terrorists, and they don't want to say that we shouldn't have better homeland security, and they don't want to say that we shouldn't have better education for our children.

We're going to pay for it by having economic growth that will return us to surpluses at the federal level. The way to develop surpluses in a federal budget is to have a fast growing economy -- not to take more money away from the people, who are already paying an historically high level of their income to the federal government. Even with the tax reductions that were made last year, the American people are going to be paying nineteen percent of all of their income to the federal government, and since 1945, the average level has been eighteen percent. So we're asking them to do more already. As we see this economic improvement take place, we're going to return to surpluses at the federal level, and I think this is the correct way of doing it, not by diminishing the money we need to spend on priorities, and not by raising taxes, which will kill the economic boom.

Interviewer: Mr. Secretary, thank you very much.

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