*EPF504 06/23/00
Text: U.S. Treasury Fostering Cooperation Against Financial Crimes
(FinCEN Director Sloan testifies before congressional panel) (2850)

The Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury, established in 1990 to help coordinate law enforcement against domestic and international financial crimes, has become an "active player" in helping other governments develop effective anti-money laundering controls, FinCEN Director James Sloan told a congressional committee June 23.

"The promotion of international cooperation remains an essential part of our networking efforts," he said.

Those efforts include cooperating with the Belgian government to establish the "Egmont Group" in 1995, which brings together domestic financial intelligence units (FIUs) from around the world.

Sloan reported that five countries -- Colombia, the Dominican Republic, Estonia, Japan and Romania -- were admitted to the Egmont Group in May 2000, bringing the total to 53.

He also noted that FinCEN is currently working with Peru, Bolivia, El Salvador, Canada, Thailand and Israel in making their FIUs operational by the end of 2000.

One successful outcome of FinCEN-supported information exchanges has been the establishment of the Egmont International Secure Web System, Sloan said in his prepared remarks to the House Subcommittee on Criminal Justice, Drug Policy and Human Resources.

"Developed almost entirely by FinCEN, this system permits members of the Egmont Group (the core group of FIUs) to communicate with one another via secure e-mail and to post and access information on FIUs, money laundering trends, financial analysis tools, and technical developments," he said.

Following is the text of Sloan's remarks, as prepared for delivery:

(begin text)

STATEMENT OF JAMES F. SLOAN
DIRECTOR, FINANCIAL CRIMES ENFORCEMENT NETWORK (FinCEN)

BEFORE THE
SUBCOMMITTEE ON CRIMINAL JUSTICE, DRUG POLICY
AND HUMAN RESOURCES

JUNE 23, 2000

Mr. Chairman and Members of the Subcommittee, thank you for giving the Financial Crimes Enforcement Network this opportunity to discuss the serious problem of international money laundering and its impact upon our country.

Money laundering is the lifeblood of narcotics trafficking and other financial crimes. Moreover, it fuels organized criminal activity. These criminal organizations now dwarf some of the world's largest legitimate business enterprises, laundering enormous sums of money throughout the international financial system. These organizations buy and sell drugs, deal in weapons, sponsor terrorism and corrupt government officials.

No nation is immune and no nation acting alone can eradicate this international threat of the 21st century.

FinCEN's Mission

Created in 1990, FinCEN's mission is to support law enforcement investigative efforts and foster interagency and global cooperation against domestic and international financial crime; and to provide U.S. policymakers with strategic analyses of domestic and worldwide money laundering developments, trends and patterns. FinCEN's unique staffing reflects and sustains its mission. FinCEN employs a small workforce of mostly analysts and experts in finance and technology. In addition, there are long-term detailees from different law enforcement and regulatory agencies assigned to FinCEN.

As our name implies, FinCEN is a network -- a link between the law enforcement, financial, and regulatory communities. It brings together government agencies and the private sector to identify ways to prevent and detect financial crime.

FinCEN serves as a network in several ways. First, it provides analytical case support -- through the use of state-of-the-art technology and intelligence analyses -- to many federal agencies, including the U.S. Customs Service, Internal Revenue Service's Criminal Investigation Division, U.S. Secret Service, Federal Bureau of Investigation, and the Drug Enforcement Administration, as well as providing support to state and local law enforcement in all 50 states.

Using Bank Secrecy Act (BSA) information reported by banks and other financial institutions, such as Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs), FinCEN serves as the nation's central clearinghouse for broad-based intelligence and information sharing on money laundering that helps illuminate the financial trail for law enforcement to follow as they track criminals and their assets. Also, FinCEN recognizes the importance of maintaining an appropriate balance between its objectives in fighting money laundering and respecting and protecting the personal privacy of our citizens. FinCEN has imposed a comprehensive set of legal and technological restrictions to ensure proper use of the data.

And finally, in response to the growing international dimensions of money laundering, it promotes global efforts to formulate and implement effective money laundering programs and build the necessary mechanisms to facilitate cooperation among countries and law enforcement officials around the globe.

Support to Law Enforcement

FinCEN's analysts provide case support to more than 150 federal, state and local law enforcement agencies, issuing approximately 7,000 reports in the past year. Using various methods for analyzing and delivering information to law enforcement, our main objective is to add value to the information we collect through BSA reporting and record keeping requirements from financial institutions and deliver it in the most effective way possible to law enforcement. The most widely used of these BSA reporting requirements are the Currency Transaction Reports or CTRs and Suspicious Activity Reports or SARs. CTRs are required on cash transactions above $10,000, and SARs must be filed by depository institutions to report suspicious activity. FinCEN provides this information through various programs such as Direct Case Support, Platform, and Gateway.

Direct Case Support

Direct Case Support is FinCEN's flagship program designed to support federal law enforcement agencies. Through the use of advanced technology and numerous data sources (i.e., BSA data, law enforcement and public record information), FinCEN links together various aspects of a case, finding the missing pieces to the criminal puzzle. The experience we have gained in analyzing and disseminating financial data to support criminal investigations, combined with improved outreach efforts has resulted in greater demands for our case support services.

For example, FinCEN received a request from an Office of the Attorney General for assistance in investigating a suspicious money remitting system. FinCEN used its Artificial Intelligence System (the system uses technology and analytical expertise) to analyze millions of BSA data. The analyst was able to identify over 2,000 linked BSA records and approximately 300 suspicious bank accounts totaling over $500 million dollars. This information provided new leads for the criminal investigators that greatly expanded the scope of their investigation. This on-going investigation has subsequently expanded to 15 states.

Platform Program

FinCEN's Platform program was designed to permit other federal law enforcement agencies to use FinCEN resources directly to carryout their own case work. This program was pioneered by FinCEN in 1994, offering training, office space and database access to employees of other federal agencies who come to FinCEN, on a part-time basis, to work only on cases being conducted by their own agencies. FinCEN is currently assisting Platform participants from over 30 agencies.

Gateway Program

The Gateway Program supports state and local law enforcement by providing direct electronic access to over one hundred million reports filed under the BSA. Access to the information is provided to designated, specially-trained law enforcement coordinators in each state, the District of Columbia, and Puerto Rico. This information is delivered through a secure and carefully monitored system, providing invaluable assistance for investigators since it is not readily available from any other source. In FY99, Gateway processed approximately 85,000 queries from state and local law enforcement partners around the country.

One of the most outstanding and useful features of Gateway is its "alert" mechanism that automatically signals FinCEN that two agencies have an interest in the same subject. In this way, FinCEN can assist state and local law enforcement in coordinating their investigations among themselves but also with federal agencies. The number of alerts issued in FY99 was 1,580, a 10 percent increase over the past year.

For example, the Gateway Program assisted West Virginia's Cabell County Federal Drug Task Force, which includes the Federal Bureau of Investigation, IRS Criminal Investigation Division, the West Virginia State Police, the Cabell County Sheriff s Office and the Huntington City Police Department in conducting a drug trafficking/money laundering investigation. The Task Force requested, through the West Virginia coordinator, a review by FinCEN of BSA reports relating to members of a drug trafficking organization. The reports included a SAR and 17 CTRs. The Task Force said the information obtained from the CTRs and SAR helped them to identify assets and to locate bank accounts used by this drug trafficking organization. The head of this organization pleaded guilty to laundering $5.9 million in drug proceeds from the sale of marijuana in West Virginia and Kentucky.

Identifying Trends and Patterns

A front line of defense in the efforts to counter organized and international crime, drug trafficking and money laundering is to monitor the funds that support these activities and identify methods and patterns used to commit these crimes. FinCEN provides a unique capability to identify trends, patterns, and national-level issues associated with money laundering and other financial crimes. It serves as a catalyst for research, analysis and dissemination of information on money laundering methodologies through the integration of all-source information and the application of state-of-the-art data processing techniques.

In addition, the Office of National Drug Control Policy's National Drug Control Strategy recognized FinCEN as the principal center for strategic analysis and investigative support for efforts aimed at narcotics-related financial crimes. Under the national counter intelligence architecture established by the General Counterdrug Intelligence Plan (GCIP), FinCEN is one of the four national intelligence centers. Within the context of the GCIP, FinCEN will continue to provide a full range of analytical support in response to requests from federal law enforcement agencies, as well as enhanced delivery of information to federal, state and local law enforcement agencies. On the strategic level, FinCEN will expand the preparation and dissemination of drug-related money laundering trends and patterns analysis in support of national and international drug threat assessments.

FinCEN is also currently working with various federal agencies in analyzing a number of trends and patterns in money laundering. One of the most egregious trends we are seeing is the increased use of alternate remittance systems. Law enforcement is reporting increased criminal financial activity involving methodologies by which monetary value is moved outside of or parallel to traditional banking or other financial institution channels. These include ethnic-based methodologies such as the Indian Hawala and East Asian Chit systems, as well as trade-based systems such as the Colombian Black Market Peso Exchange. Manipulation of the international gold trade is also used to mask money-laundering activities. Other trends include the following:

-- Electronic Funds Transfer Systems: Electronic funds transfer systems are the fundamental building blocks for both the legitimate and illicit movement of money domestically and globally. The large-scale money laundering cases described by law enforcement almost universally involve a wire transfer component by which millions of dollars in drug and non-drug criminal financial activity are camouflaged within the trillions of dollars moved electronically every day.

-- Emerging Technologies: There is a growing body of evidence that the evolving tools of e-commerce are being exploited for criminal financial purposes. The crimes range from fraud committed in on-line auctions to the establishment of rogue financial institutions. The development of other technologies that integrate financial services with communications systems, such as the transfer of value from one credit card to another via a cell phone without going through a bank, are extremely problematic from a money laundering standpoint. The rapid evolution of technology may outpace the ability of law enforcement and regulatory policy makers to implement effective controls.

Treasury/Justice Money Laundering Strategies

FinCEN has a key role in supporting and implementing numerous action items contained in the Strategies. One of the objectives of the 1999 Strategy was the need to consider the threat of financial crime from a systemic risk or geographical basis for establishing a High Intensity Financial Crime Area (HIFCA). The Strategy outlined HIFCA factors to include demographic and general economic data; patterns of suspicious financial transactions developed from BSA information reported by financial institutions; and information requiring analysis or assessment by law enforcement and regulatory agencies generally.

The 2000 Strategy designates four HIFCAs: New York City metropolitan area/Northern New Jersey; Los Angeles; San Juan, Puerto Rico; and bulk cash smuggling along the Southwest border. FinCEN has been working extensively in supporting this process for designating HIFCAs. As a member of the Treasury/Justice subgroup responsible for making HIFCA determinations, FinCEN is responsible for conducting analyses and assists in coordinating efforts to identify and support the areas designed as HIFCAs. In addition, FinCEN will provide additional support to complex law enforcement money laundering investigations and assist HIFCA personnel in effectively utilizing on-site research tools provided by FinCEN.

Fostering International Cooperation

FinCEN works to engage, encourage, and support our international partners in taking the necessary steps to combat money laundering and other financial crimes, and establish mechanisms for the exchange of information and cooperation to support ongoing law enforcement efforts.

Not only is FinCEN viewed as an invaluable resource on money laundering in this country, but we have also been an active player in encouraging other governments around the world to develop and implement effective anti-money laundering controls. The promotion of international cooperation remains an essential part of our networking efforts.

Just over five years ago, FinCEN started working with other countries to establish their own domestic financial intelligence units-known as FIUs. In June 1995, FinCEN in cooperation with its Belgian counterpart, brought together a group of FIUs at the Palais d'Egmont-Arenberg in Brussels, thus the name -- Egmont Group. Since that time, FinCEN has been continuing to work with other countries to establish these units.

The 2000 National Money Laundering Strategy calls upon FinCEN to "assist four new FIUs to become operational by the end of the year." We have already exceeded that mandate. I am pleased to report that five countries were admitted to the Egmont Group (Colombia, Dominican Republic, Estonia, Japan and Romania) just last month, bringing the current total to 53.

In addition, FinCEN is being called upon to provide technical assistance and training to many more countries in varying stages of development. Currently, we are working closely with Peru, Bolivia, El Salvador, Canada, Thailand, and Israel in making their FIUs operational by the end of 2000. Next month, we will host a senior-level delegation from South Korea for an intensive week of training and technical assistance in establishing and maintaining a working financial intelligence unit.

But we are pushing beyond the establishment of foreign intelligence units to enhancing their operations and making them more effective in the fight against money laundering and other financial crimes. FinCEN is working hard to make FIUs more receptive to and sensitive of law enforcement needs and concerns. We have reached out to our domestic law enforcement partners in an effort to inform them of additional valuable resources to help in the U.S. battle against money laundering. Just in the past year, we have tripled the number of cases involving domestic law enforcement case support. Furthermore, during 1999, FinCEN was able to refer U.S. law enforcement agencies to foreign counterpart agencies that were working like investigations on at least 32 occasions.

One successful outcome from the exchange of this type of information has been the development of the Egmont International Secure Web System. Developed almost entirely by FinCEN, this system permits members of the Egmont Group (the core group of FIUs) to communicate with one another via secure e-mail and to post and access information on FIUs, money laundering trends, financial analysis tools, and technical developments.

Magnitude of Money Laundering

The programs that I have just described are key to FinCEN's goal to support law enforcement and foster global cooperation. Today, we have heard about the extent of the problem as well as the many successes in the battle to combat money laundering. But, the difficulty to truly gauge the effectiveness of our nation's battle against financial crime remains unsupported until we find a way to measure the magnitude of money laundering. FinCEN started this effort over two years ago and it has been a difficult one. FinCEN has organized and chaired two interagency committees -- Economic Policy and Law Enforcement -- to identify available data and recommend a strategy for estimating the magnitude of money laundering. Because of the lack of useful data concerning the proceeds of all crimes other than drug trafficking, the Committees recommended that a private contractor be engaged to propose a methodology to address the data issue, as well as to produce an estimate. FinCEN is currently in the process of identifying a private firm capable of delivering a useful estimate.

Conclusion

In this broad brush sketch of FinCEN's overall approach to the problem of international money laundering, I have tried to illustrate a strategy designed to provide timely support to law enforcement. There is no question that criminals are successfully finding ways to continue disguising the proceeds of their illegal activities. However, we have also been successful in making money laundering more difficult and more costly. Clearly, Treasury's policies are having an effect. It is FinCEN's goal to continue doing all it can in support of law enforcement efforts to help make the business of crime even more difficult and costly.

(end text)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)
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