FOR IMMEDIATE RELEASE
March 2, 2000
LS-432

I would like to talk to you today about international money laundering. Let me first say that much of what we are doing to combat money laundering has been greatly helped by recent discussions between Treasury and bodies such as the BAFT, ABA, and SIA. We look forward to continuing these mutually beneficial discussions and working together to achieve real progress in combating money laundering.

Anyone who has followed events over the last six months knows that money laundering is a growing problem that affects virtually every country in the world. We have recently witnessed an executive at a bank in New York admit her guilt in a conspiracy in which she and her husband ran an operation that helped launder millions of dollars in Russian criminal proceeds. We have heard that the brother of a former head of state allegedly laundered millions of dollars of drug money by exploiting legitimate private banking facilities at another American bank. And we have read recent reports that $70 billion out of a total $74 billion that flowed from Russia to offshore centers in 1998 moved through accounts in the tiny island of Nauru.

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. This makes it even harder to detect money laundering.

Former IMF Managing Director Camdessus has estimated the amount of laundering at two to five per cent of the world's gross domestic product - almost $600 billion even at the lowest end. Having said that, it is hard to be confident about any estimates owing to the secretive nature of the process of money laundering.

Combating this scourge is important for three reasons.

• First, laundering is a crucial adjunct to the underlying crimes that generate the money, whether drug trafficking, kidnapping or other forms of crime. However bloodless money laundering may seem, there is often a violent reality at its core. Tackling dirty money gives us more weapons to fight the underlying crimes. As is often noted, it took an accountant to catch Al Capone.
• Second, money laundering facilitates foreign corruption, undermining U.S. efforts to promote democratic institutions and economic development around the world.
• Third, money laundering risks undermining the integrity of our financial system. When dirty money finds its way into American banks, the reputations of all involved suffer.

In the past year, the Administration has intensified its already considerable efforts to combat money laundering. Last September, Attorney General Reno and I announced the Administration's first National Money Laundering Strategy, a broad-based international and domestic program to combat dirty money.

Under the leadership of Deputy Secretary Stuart Eizenstat at Treasury and Deputy Attorney General Eric Holder at the Justice Department, we have been implementing the dozens of action items outlined in the 1999 Strategy.

Moreover, in addition to our normal budget requests this year, I have asked for $15 million to set up a centralized account to implement key items in the 2000 strategy. The strategy will be released next week by Deputy Secretary Eizenstat and Deputy Attorney Holder.

Today I want to focus on the growing threat of international money laundering. Let me divide my remarks into three parts:

• First, the problems posed by jurisdictions that are too lax in their approach to money laundering and the measures we are taking within our existing authority to tackle this problem.
• Second, new legislation we are proposing that would better equip us to combat international laundering and penalize jurisdictions that fail to comply with international standards.
• And third, what the financial institutions in the U.S. must do to better protect themselves against dirty money.

If we are to make progress in our efforts to combat money laundering, we must focus on jurisdictions that provide the raw material and on those that provide the finished product. That is to say, we should focus on countries that have become major sources or destinations for dirty money.

Let me be clear: New York, London, Hong Kong and other developed financial centers are no strangers to money laundering: there can be little doubt that much of the world's dirty money flows through these financial centers. But the U.S. and its partners are taking aggressive action to curb money laundering.

Today I want to highlight countries that have yet to take action against dirty money before discussing what we are doing to encourage them to combat money laundering without our existing authorities.

Lax jurisdictions.

Crime is universal. But some countries export more of it than others. Countries lacking an effective rule of law pose a disproportionate threat to the wellbeing of more stable societies. They are a major source of cross-border flows of dirty money.

And some countries appear more willing than others to import the proceeds of crime. Jurisdictions with inadequate financial supervision are often the ultimate destination of these flows. Money that begins life as the proceeds of a drug deal or an illegal arms trade is often laundered in one of the more than 50 offshore centers around the world.

These havens offer strict bank secrecy laws and "economic citizenship" that allow criminals to escape the legal reach of their countries of origin. In addition many offer zero tax and stamp duty and facilities for establishing offshore "shell" companies that disguise the true owners.

Let me give you some prominent examples of both "source" and "haven" countries:

• Crime continues to flourish in Russia due to the lack of the rule of law. Russian organized crime conducts operations in Russia and around the world, hurting law-abiding Russians more than anyone else. Recognizing this, Minister Putin pledged last October to push for passage of an effective money laundering law. We encouraged the Russian government to act on this measure expeditiously. To date, however, the Russian government has still not enacted meaningful reforms.
• Colombia remains the leading supplier of drugs to the U.S. that in turn are a major source of dirty money in this country. The Colombian Black Market Peso Exchange that drugs traffickers use to disguise the origins of their money is probably the biggest laundering market in this hemisphere, reportedly exceeding $5 billion a year. Criminal organizations in Mexico and Nigeria also pose large risks to neighbors and the rest of the world.
• In the absence of proper anti-money laundering laws, Nauru has proved a popular conduit for funds flowing out of Russia. Russian organized crime has also exploited Nauru's lax regulations by employing middlemen to establish charters or open bank accounts in non-Russian names. Due to international pressure, Nauru recently has taken steps to amend its banking secrecy laws and we are working with its government to deepen these reforms.
• Dominica has also benefited from weak regulation. It offers low-fee "economic citizenship", confidential finance and "virtual" gambling. Recently a new government was elected that pledged to eliminate economic citizenship. We will work with the new Dominican government towards this objective and push for a wider review of other laws in Dominica.
• Liechtenstein is an established offshore center that still has not adequately joinedinternational efforts to combat dirty money. It offers anonymous accounts, bearer shares, and complete banking secrecy. Although laundering has been a criminal offense since 1993, its laws are not well implemented. Four investigators oversee the entire financial sector.
• Cyprus has recently taken comprehensive steps to combat international laundering, and is reviewing its laws and authority to deal with attempts to circumvent international sanctions. Nevertheless, the Milosevic regime has continued to use Cyprus's financial system, according to international regulators. We want to encourage the Government of Cyprus in its efforts to deal with this problem.

We are proposing new legislation next week that would enable us to better encourage lax jurisdictions to take action against money laundering. I will turn to these new proposals in a few moments.

But let me first mention a number of ways that we have been working, within our existing authority, to encourage both "source" and "haven" jurisdictions to combat dirty money.

First, working at the international level, we have achieved broad consensus on the range of measures that governments need to adopt to combat laundering.

• We are a leading member of the 26 nation Financial Action Task Force that was launched by the G-7 in 1989. The FATF has set the standard for effective counter-money laundering with its 40 recommendations and peer review. Members of regional FATF-style bodies in the Caribbean, Eastern Europe, and the Asia/Pacific region have joined the effort, and new FATF-style bodies are beginning to emerge in Africa and South America. We welcome and support these efforts to strengthen regulatory controls and improve cooperation between law enforcement and regulators.
• FATF has also recently committed to take action against jurisdictions that have failed to join this global movement. FATF will issue a report in June listing some of the world's worst offending money laundering havens. Last month, the FATF announced that Austria - one of its founding members - would be suspended as of June 15 of this year unless the new government introduces and supports a law to abolish anonymous passbook accounts. We welcome the Austrian government's pledge to meet FATF's conditions and will be monitoring its progress closely.

Second, we have acted to publicize the worst offending jurisdictions and warn U.S. financial institutions to apply especially close scrutiny in their transactions with these countries. For example:

• Last year the U.S. and the U.K. issued a joint advisory against Antigua and Barbuda after attempts were made to weaken its laws against laundering. Antigua has since largely rectified this. But more needs to be done to bring Antigua up to international standards. We also stand ready to issue financial advisories against countries that appear on the FATF's list of offending money laundering havens in June.

Third, at a bilateral level we are helping countries to tackle their root problems of crime and corruption and pushing for the enactment and implementation of effective counter-money laundering regimes. For example:

• The U.S. government is working directly with Moscow to push for effective anti-money laundering legislation. To help Colombia, the President has proposed a $1.6 billion package, most of which targets drug production and the operation of the drugs trafficking organizations, while Treasury is coordinating inter-agency efforts to close the Black Market Peso Exchange. And, with the support of the U.S. and our partners, Mexico is tightening implementation of money laundering laws, while Nigeria has pledged to introduce new laws to clamp down on criminal finance and official corruption.

Fourth, through programs of the international financial institutions we are pressing to reduce corruption and encourage source countries to adopt statutes to fight money laundering. For example:

• The I.M.F. has incorporated the goal of taking effective action against crime and corruption as part of its ongoing lending dialogue with Russia. The Administration has also worked with its G7 colleagues to encourage international financial institutions, including the World Bank and the IMF, to develop systems of financial safeguards and transparent practices in their lending to Russia to ensure that funds lent to Russia are used for their intended purposes.

And fifth, we are taking parallel action against offshore centers that provide a haven for tax evasion. This is critical, because many of the incentives that havens offer to tax evaders also prove attractive to money launderers. These include lack of transparency and weak regulation.

• The OECD will issue a report in June identifying the world's worst tax havens. It will be interesting to see which countries appear on both the FATF's list for money laundering and on the OECD list for tax evasion. In our FY2001 budget request, we have also proposed legislation that would allow us to target tax havens by requiring individuals to report most payments to offshore tax havens.

Let me say that we have been pleased by the interest shown by members of Congress in combating money laundering. We thank Representatives Leach, LaFalce, Velazquez, Waters, Roukema, McCollum, King and Vento, and Senators Grassley, Schumer, Coverdell and Levin in addressing these issues.

I think it is fair to say that our approach has been built on the foundations of bills proposed in recent months and share many of their characteristics. In addition, the money laundering bill proposed by the administration last fall shares a key provision with a number of these bills - namely, that foreign corruption should serve as a predicate offense for a U.S. prosecution against money laundering. We look forward to working with the leadership in the Senate and House Banking committees to enact effective legislation to combat international money laundering.

The U.S. government and its partners have made genuine progress in tackling international money laundering. But the range of weapons that we have to protect ourselves from the worst offending havens, financial institutions, and individuals is limited. At one end of the scale, we can issue financial advisories as we have done in Antigua. At the other, we can apply sweeping economic sanctions against countries that the President finds pose a national security threat to the United States.

As the President said in his State of the Union, there is a need for new legislation to combat money laundering.

That is why early next week we will be working with Congress to introduce the International Counter-Money Laundering Act. Our legislation would provide important new tools, filling the wide gap between advisories and full-blown sanctions.

Under our proposal, if the Secretary of the Treasury, in consultation with key Cabinet members, makes a determination that a given nation, foreign institution or type of international transaction poses a primary money laundering concern, the Secretary could then select from a series of measures. These would range from requiring new reporting requirements on U.S. financial institutions that are doing business with the affected entity, to barring U.S. financial institutions from opening or maintaining correspondent accounts with countries or foreign institutions that pose a money laundering threat.

The new measures are designed to be graduated, discretionary, and targetable. Graduated, so we can calibrate our action to be proportionate to the threat. Discretionary, so we can integrate these tools into our more active bilateral and multilateral diplomatic efforts to persuade offending jurisdictions to change their laws. And targetable, so we can focus our response on the precise threat we confront in each specific jurisdiction. Deputy Secretary Eizenstat will describe this legislation in more detail next week when we issue the 2000 strategy.

In addition to the measures taken by this Administration to combat international money laundering, the private sector also has grave responsibilities.

U.S. financial institutions are the first line of defense against money laundering. In general, they take this role very seriously. We were pleased to note, for instance, that several U.S. banks, recently cut off correspondent relations with banks from Nauru based on their own assessment of the risks involved.

But more can be done. Last year, in our National Money Laundering Strategy, I called for a review of whether additional guidance was appropriate for banks in their dealings with high-risk accounts, including accounts held by wealthy foreign individuals. We have concluded that such guidance is an appropriate and necessary concomittant of an effective strategy. But it must be appropriately crafted to take into account the competitive concerns of banks and to ensure that it does not interfere with their ordinary business.

Next week, when Deputy Secretary Eizenstat unveils the 2000 strategy, he will discuss the collaborative process in which we will engage to work out the details of such guidance. This will involve consultations with every interested party, including privacy advocates, the financial sector, regulators and others. The Deputy Secretary will also say more about other critical steps we will be taking to combat domestic and international money laundering.

We live in a new global economy, one that is driven by economic integration. Globalization has bought unparalleled wealth to U.S. citizens and brought emerging markets onto the ladder of prosperity. But if integration is going to continue to work, we must deal effectively with forces that threaten to undermine it including dirty money. That is why we have been vigorously engaged in a wide-ranging effort to confront global money laundering. And it is why we are proposing new legislation to bolster our counter-money laundering capacity. We look forward to working with the financial sector, members of Congress, the regulatory agencies and others in ensuring that effective legislation is enacted soon. Thank you very much.

Treasury Home Page