Senator Sarbanes, Senator Gramm, other members of the Banking Committee, thank you for inviting me to testify here today. As we are all aware, the Senate has a full plate right now. Holding this hearing on money laundering says something about how important it is that our efforts be well coordinated and executed.
In 1997, when I first started thinking about what would eventually become the Money Laundering and Financial Crimes Strategy Act, there were a couple of facts that I wanted to highlight. First, I believed then, and I believe now, that money laundering poses a significant threat to the United States. It undermines legitimate financial transactions. It promotes corruption. It funds terrorism. It allows profit from a plethora of illicit transactions, from drugs to prostitution to gambling.
And second, it seemed to me that to best respond to this threat, we needed a comprehensive and coordinated response. Coordinated not only between Federal law enforcement agencies, but between regulators, industry experts, and policy makers as well. And to accomplish this coordination, we would need a plan.
Working with Representatives Velázquez and Leach, as well as the former chairman of this committee, Senator D'Amato, we agreed that the best way to encourage a comprehensive, coordinated response to money laundering was to require the development of a National Strategy on money laundering. As a model we used Operation El Dorado, a joint venture between Federal, State, and local law enforcement in New York City. Operation El Dorado was able to identify and shut down money laundering in a segment of the money transmitter industry. We hoped that the strategy would take the lessons learned from Operation El Dorado and apply them on the national level.
These elements of cooperation and coordination which made the strategy an important concept in 1998 make it essential today. We know that money laundering is the functional equivalent of a war industry for terrorist groups. More than ever, I am convinced that we need a coherent, comprehensive response to the issue. If we are going to insure the legitimacy and security of our financial system while protecting the privacy of investors, then everyone from law enforcement to bank regulators need to understand the threat and what their particular role is in addressing that threat. Difficult topics or turf disagreements cannot be swept under the rug.
Unfortunately, this latest Strategy falls short of this goal. I am disappointed to have come to this conclusion. But we must think clearer about what can be done, and we must exercise leadership and establish responsibility to ensure that it happens.
This is not a criticism of current efforts. Most of the efforts we are making, such as Treasury's Operation Greenquest or the Terrorism Financing Review Group at Justice, are doing a great job. I am confident Deputy Dam and Deputy Thompson will give you a full report. But there are weaknesses that these groups and others have identified in our financial system that we will need to address if we are going to make an effective difference. And unfortunately these weaknesses are not discussed in the latest money laundering strategy.
For example Mr. Chairman, I am concerned that not enough attention is being paid to the correspondent accounts U.S. banks have established. While the PATRIOT Act moved the ball significantly forward, it appears that greater steps should be taken that may not be best accomplished with additional legislation.
We know that even today, a satchel of thousands of U.S. dollars can be taken to a foreign bank that is willing to accept the deposit with no questions asked. The foreign bank, through its correspondent relationship with a U.S. bank, will provide either readily negotiable U.S. dollar checks drawn on a U.S. bank or wire transfers initiated by the U.S. bank in exchange for the cash. These checks and wire transfers are drawn on the account of the foreign bank with the U.S. bank, effectively hiding the source of the funds.
Since no banker wants to hold excess currency, the foreign banker, who does not have the option of sending his excess dollars to a Federal Reserve Bank, deposits the dollars to his U.S. correspondent account. This is a gaping hole in our money laundering net. It circumvents all of the safety measures we have put in place– yet it is not discussed at all in the Money Laundering Strategy. What we have instead is a report on current activities. Only actions currently under way are addressed, and potential new components which have been discussed in the past– such as the report required in the 2001 Strategy on the roles lawyers and accountants play in money laundering– are ignored.
I believe a strategy should not be a report card on what has been done, but instead should provide a roadmap to where we want to be tomorrow. It should identify threats and the tools needed to address these threats. And it should provide direction for the steps necessary to reach our objectives. If we are going to avoid duplication or inconsistent, ad hoc responses to new threats then we need to develop a clear, systematic approach to money laundering.
We have had such a document in the past. The 2000 Strategy was a strategic document. The 1999 Strategy was as well, although it wasn't released until the end of the year. But both documents identified problems, and then listed specific steps that would or should be taken to address these challenges. They charged specific, individual offices with action items. Each of us may have had some difficulties with where the Strategy was taking us-- but any good strategy will be controversial. It laid out a coherent, comprehensive plan to deal with money laundering.
If we were going to address money laundering in a coordinated and effective manner in the future, then we must have a coherent plan of action. An effective strategy should be released at the beginning of the year, before funding decisions have been made. By law, the 2003 Strategy is due on the 1st of February. It should talk less of targeting the individuals who manipulate the system, and more about how to make the methods that they use no longer workable. And it should outline the steps necessary to get from where we are today to where we want to be.
I know that we can do better, and I hope that when the 2003 Strategy is released early next year, it is. Thank you again for inviting me to testify here today. I look forward to continuing to work with the members of this committee and the Administration on this important issue. Thank you.
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