*EPF503 06/23/00
Text: Treasury's Wechsler on International Money Laundering
(Warns that technology offers new avenues for crime) (2980)
Global efforts to eradicate money laundering are vitally important in the fight against drug trafficking, says Deputy Secretary of the Treasury William Wechsler, because "there would be no incentive for the cartels to push drugs on the streets of the United States if they could not launder the profits back into their home countries' financial systems, making their money appear to be legitimate and themselves very wealthy."
Testifying June 23 before a congressional subcommittee, Wechsler cited the Clinton Administration's "National Money Laundering Strategy for 2000" as "the most comprehensive plan ever put forth on the subject."
The March report, he said, "identifies four critical fronts" in attacking the money-laundering infrastructure: federal law enforcement, financial services regulation and supervision, partnership with state and local efforts, and international initiatives. "I cannot stress strongly enough our conviction that in order for us to have success in combating money laundering, all four of these fronts must be part of a comprehensive, integrated strategy," Wechsler added.
He also identified two "fundamental trends" in international money laundering over the past decade. During this time, "most of the world's major developed financial centers have worked together to establish global anti-money laundering standards," including the creation in 1989 of the Financial Action Task Force (FATF), which has issued comprehensive recommendations on what countries need to do in terms of laws, regulations and enforcement to crack down on money laundering.
"Today FATF has grown to 26 members and three more are on their way toward full membership: Brazil, Argentina and Mexico," Wechsler said. "This top-down, cooperative approach has been greatly successful in encouraging FATF member nations to improve their money laundering regimes."
He conceded that the second trend, however, is a troubling one. "As a result of globalization and advances in banking and communications technologies, money can move farther and faster than ever before," he said. "That is a great boon to business, but can also provide new opportunities for money laundering." Explaining that some countries have opted to become "money laundering havens" in order to attract large flows of capital, he cited examples of countries that offer unregulated "offshore financial services" and "even blatantly advertise on the Internet that by putting money in their banks you will be protected by their laws from investigations by U.S. law enforcement."
Moving to combat this trend, the FATF on June 22 released its first report to identify non-cooperative countries and territories -- a list that includes the Bahamas, the Cayman Islands, Panama, St. Kitts and Nevis, St. Vincent and the Grenadines, Russia and Lichtenstein. The public "naming and shaming" of these states has already had a profound affect, Wechsler asserted: "countries such as Lichtenstein, which for years had never had a successful prosecution of a money laundering case, are now taking commendable steps when confronted with FATF action."
Wechsler concluded his remarks by praising the House Banking Committee for its support of proposed legislation known as the International Counter-Money Laundering and Foreign Anti-Corruption Act of 2000, which he said would help "focus our efforts on dirty money while allowing legitimate commerce to continue unimpeded."
Following is the text of Wechsler's testimony, as prepared for delivery:
(begin text)
TREASURY SPECIAL ADVISOR TO THE SECRETARY AND DEPUTY SECRETARY
WILLIAM F. WECHSLER TESTIMONY BEFORE THE HOUSE COMMITTEE ON
GOVERNMENT REFORM, SUBCOMMITTEE ON CRIMINAL JUSTICE, DRUG
POLICY AND HUMAN RESOURCES
Mr. Chairman and Ranking Member Mink and Members of this Committee:
I want to thank you for this opportunity to speak to you today about international money laundering. Treasury Secretary Lawrence Summers and Deputy Secretary Stuart Eizenstat applaud your continued focus on this important issue. International money laundering is a growing, global problem that requires a global solution. Former IMF Managing Director Camdessus has estimated the volume of cross-border money laundering at between two and five percent of the world's gross domestic product. If he's right, that means that between $600 billion and $1.5 trillion each year is laundered around the world.
To some, money laundering may look like a clever game played by accountants and other white-collar professionals. But we know that there is often a bloody reality at its core. International drug cartels, criminal organizations and terrorist groups must launder their dirty money in-order to receive the ultimate benefit of their crimes, and to finance their ongoing criminal operations. There would be no incentive for the cartels to push drugs on the streets of the United States if they could not launder the profits back into their home countries' financial systems, making their money appear to be legitimate and themselves very wealthy.
By cracking down on international money laundering we can accomplish three things. First, we can disrupt international criminal networks by attacking their financial foundations. Second, we can raise the cost of laundering money and thereby help deter criminals from abusing legitimate financial systems. And third, we can follow the trail of dirty money to the underlying crimes or to the criminals themselves. We all remember that it took an accountant to put Al Capone behind bars.
I. The National Money Laundering Strategy
Secretary Summers and Deputy Secretary Eizenstat are fully committed to combating money laundering, both at home and abroad. Under their leadership, we at the Treasury have worked with the Department of Justice, the law enforcement and regulatory agencies and the rest of the executive branch to develop a series of new initiatives to combat money laundering. In March, we unveiled the National Money Laundering Strategy for 2000, the most comprehensive plan ever put forth on the subject. It includes literally scores of specific action items to combat money laundering. For each item, goals for this year are laid out and specific government officials are listed who are personally responsible for meeting those goals.
The National Money Laundering Strategy for 2000 identifies four critical fronts for our efforts to combat money laundering: federal law enforcement, financial services regulation and supervision, partnership with state and local efforts, and international initiatives. I will quickly describe some highlights of our approach toward the first three fronts before focusing my remarks on the fourth, the specific subject under examination today, how we have improved international cooperation to combat money laundering. As I do so, I cannot stress strongly enough our conviction that in order for us to have success in combating money laundering, all four of these fronts must be part of a comprehensive, integrated strategy. If we only focus on one without paying attention to another, money launderers will easily be able to elude our grasp.
-- Strengthening Domestic Law Enforcement. In March, the Departments of Justice and the Treasury designated the first-ever High Risk Money Laundering and Financial Crime Areas (HIFCAs). Three geographic areas were chosen, New York/New Jersey, Los Angeles and San Juan, and one systemic focus, bulk cash smuggling across the border between Mexico and Texas and Arizona. For each of these HIFCAs, an action team composed of all relevant law enforcement authorities, prosecutors and financial regulators is being established to spearhead a coordinated, concentrated, strategically focused law enforcement attack on money laundering. Many other specific law enforcement initiatives are underway and can be better described by the representatives of the law enforcement agencies you have here today.
-- Enhancing Regulatory and Cooperative Public-Private Efforts. Among our initiatives on this front is our ongoing program to eliminate outstanding loopholes in our anti-money laundering regime by bringing in all significant providers of financial services. In March FinCEN issued a final rule requiring suspicious activity reporting by money services businesses that will become effective at the end of 2001. Later this year FinCEN will issue a final rule for casinos, and by the end of the year FinCEN, working with the SEC, will issue a proposed rule for brokers and dealers in securities. This will help to better deter money launderers from abusing these financial services.
-- Strengthening Partnerships with State and Local Governments. A critical initiative on this front is our new grant program to provide seed capital for emerging state and local counter-money laundering enforcement efforts. The Financial Crime Free Communities Support Program (C-FIC) will provide approximately $2.5 million this year in technical assistance and training to state and local law enforcement. Last week the Departments of Justice and the Treasury formally began the application process.
-- International Initiatives. We have a wide range of Initiatives on this fourth front which will be the focus of my remarks today.
II. International Trends
Let me begin with some context. The last decade has seen two fundamental trends in international money laundering. First, the good news. In the last decade or so most of the world's major developed financial centers have worked together to establish global anti-money laundering standards. This effort is critical because it is a statistical certainty that much of the world's dirty money flows through these financial centers.
The U.S. and its partners took a great step forward in combating international money laundering in 1989 with the creation of the Financial Action Task Force (FATF) by the G-7. In 1990 and again in 1996, the FATF issued its set of comprehensive recommendations on what countries need to do -- in terms of laws, regulations and enforcement -- to combat money laundering effectively. In joining FATF, every member nation makes a political commitment to adopt the recommendations and allows itself to be evaluated by the other member nations on whether it has fulfilled that commitment. Today FATF has grown to 26 members and three more are on their way toward full membership: Brazil, Argentina and Mexico. This top-down, cooperative approach has been greatly successful in encouraging FATF member nations to improve their money laundering regimes.
That is the positive trend that we have witnessed in the last decade. It is because of this trend that we now routinely read of significant money laundering cases being brought by Swiss authorities involving Russian crime, Latin American drug cartels and African official corruption -- something that only a few years ago was unimaginable. Just last week, FATF achieved another major triumph when Austria, yielding to FATF's demands, finally agreed to abolish its system of anonymous passbook saving accounts.
Now for the bad news. While we have been working to improve anti-money laundering regimes in major, developed financial centers, there has been a second trend that has served to undermine our accomplishments. As a result of globalization and advances in banking and communications technologies, money can move farther and faster than ever before. That is a great boon to business, but can also provide new opportunities for money laundering. As Secretary Summers said in a speech last March, "In a world where capital can silently traverse the globe with the push of a button, proceeds of crime can move just as quickly and just as quietly." Only a decade ago, many nations in the world were too physically remote to be significantly involved in international banking. The quality of their anti-money laundering regimes did not significantly affect the U.S. or other countries. But now they are only a click of the mouse away. And now they can just as quickly become money laundering havens.
Becoming a money laundering haven is easy to do. It costs no money. Simply pass a few laws that provide, for example, excessive bank secrecy, anonymous company formation and unregulated offshore financial services and wait for the money flow in. Better yet, pass a law banning information sharing with foreign law enforcement on financial matters. It has not taken long for a number of countries to choose this path. Indeed, there has been a proliferation of these money laundering havens in the last few years. Many openly announce that they are passing such laws as a formal part of their economic development programs. Some even blatantly advertise on the internet that by putting money in their banks you will be protected by their laws from investigations by U.S. law enforcement. Of course, it will be extremely difficult for these countries to ever know whether the money in their banks is dirty or clean.
To give just one example: In the South Pacific there is a small island nation called Nauru. It once had one of the highest per capita incomes in the world due to phosphate mining. But the phosphate ran out, so it turned to offshore financial services. Nauru quickly became very popular -- so popular that late last year the Russian Central Bank announced that out of a total $74 billion that flowed from Russia to offshore centers in 1998, $70 billion moved through accounts in Nauru. Now, we may never know how much of that money was capital flight and how much was criminal proceeds, but the point is from Nauru's point of view they had no way of knowing either.
III. Identification of Non-Cooperative Countries and Territories
The United States and the rest of the responsible international community has acted quickly to staunch this new, dangerous proliferation of money laundering havens. Last year, the United States and the United Kingdom issued advisories to our domestic financial institutions urging them to enhance their scrutiny of transactions coming in or going out of Antigua because of our serious concerns about glaring weaknesses in Antigua's anti-money laundering regime. This public rebuke had a profound affect on Antigua, which has since worked with the U.S. to change its laws to move toward international standards. But even as we were taking this action, we knew that a more systematic approach was needed.
So in February of this year, the 26 nations of the Financial Action Task Force reached agreement on a list of 25 criteria -- objective measures that we could use to determine whether countries fell significantly short of international anti-money laundering standards. These countries could be both money laundering havens and large sources of dirty money. The FATF also agreed on a list of countries that would be the first to be judged against those criteria. The FATF then produced comprehensive analyses of each of those countries legislative, regulatory and enforcement anti-money laundering efforts. Finally, the FATF offered all of the countries under review ample opportunity to respond to FATF's analyses both in writing and in face-to-face meetings.
Yesterday FATF released its first report to identify non-cooperative countries and territories. Included on that list were: the Bahamas, the Cayman Islands, the Cook Islands, the Marshall Islands, Israel, Lebanon, Liechtenstein, Nauru, Niue, Panama, the Philippines, Russia, St. Kitts and Nevis, St. Vincent and the Grenadines. This is a major accomplishment, to my knowledge the first-ever multilateral designation on any subject listing countries that fail to comply with well-established international standards. These conclusions are not just the conclusions of the United States, but are firmly backed by 26 nations. This public "naming and shaming" should have a profound affect. Indeed, it already has. Countries such as Liechtenstein which for years had never had a successful prosecution of a money laundering case, are now taking commendable steps when confronted with FATF action. In recent months, the Austrian who Liechtenstein recently appointed to be their first-ever independent prosecutor on money laundering has arrested a number of prominent officials on money laundering charges including the brother of the deputy head of government and a sitting member of parliament. Just last week, he raided the bank that belongs to the family of the Prince. All because the international community has taken strong measures.
IV. Next Steps
In the coming months, the FATF will undertake similar analyses of additional countries. I expect that some more countries will be added to the list over time. I also expect that some countries named yesterday by FATF will react constructively and will bring their anti-money laundering regimes up to international standards. If so, they will be dropped from the list. As appropriate we will offer technical assistance to help them on their way, and encourage our allies in FATF to do the same.
It is possible, however, that some nations will instead continue to ignore international standards and thereby remain money laundering havens. We will then have to explore with our allies what appropriate countermeasures could be taken. Unfortunately, the United States at present does not posses all the tools we need to crack down on international money laundering havens and other foreign money laundering threats. That is why we worked with Chairman Leach and Ranking Member LaFalce in the House Banking Committee to develop a bipartisan bill that would give us these tools.
We were very pleased that the House Banking Committee, by an overwhelming bipartisan vote of 31 to 1, on June 8 reported out H.R. 3886, the International Counter-Money Laundering and Foreign Anti-Corruption Act of 2000. This bill would authorize the Secretary of the Treasury to designate a foreign jurisdiction, a foreign institution or a class of international transactions as being a "primary money laundering concern." Then, in consultation with the Chairman of the Federal Reserve and other appropriate officials, he could impose one or more targeted actions, including provisions for additional record-keeping and reporting, the identification of beneficial owners and those using correspondent or payable-through accounts, and for restricting correspondent relationships with money laundering havens and rogue foreign banks.
In this way, we could focus our efforts on dirty money while allowing legitimate commerce to continue unimpeded. We could thereby help prevent laundered money from slipping undetected into the U.S. financial system and crack down on foreign money laundering havens in ways that we cannot today. I cannot stress strongly enough how important passage of this bipartisan legislation will be to our comprehensive efforts to combat international money laundering.
Again, thank you for this opportunity to speak about this important subject.
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(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)
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