16 June 1998
Source:
http://www.usia.gov/current/news/topic/global/98061109.lgi.html?/products/washfile/newsitem.shtml
United States Information Service Washington File
11 June 1998
(State Dept. official says illicit funds threaten stability) (10,460)
WASHINGTON -- "Money laundering has devastating social consequences
and is a threat to national security because [it] provides the fuel
for drug dealers, terrorists, arms dealers and other criminals to
operate and expand their criminal enterprises," says Jonathan Winer,
deputy assistant secretary of state for international narcotics and
law enforcement.
Testifying June 11 before the House Committee on Banking and Financial
Services, Winer delivered a compelling account of the myriad dangers
posed by money laundering to a nation's political, judicial and
economic integrity, and offered his views on methods to combat the
practice on a global scale.
The problem affects not just individual countries but entire regions,
he argued, as financial systems interact or merge in the course of
transnational business dealings. "Organized financial crime is
assuming an increasingly significant role that threatens the safety
and security of peoples, states and democratic institutions," he
warned. "Moreover, our ability to conduct foreign policy and to
promote our economic security and prosperity is hindered by these
threats to our democratic and free-market partners."
As laws and regulations seek to prevent direct access of money
launderers to banking services, Winer observed, criminal operators
have become ever more resourceful in disguising their illicit
proceeds. Also, rapid advances in technology have rendered detection
more difficult, he said.
"Modern financial systems permit criminals to transfer instantly
millions of dollars through personal computers and satellite dishes,"
he pointed out. "Money has been laundered through currency exchange
houses, stock brokerage houses, casinos, automobile dealerships,
insurance companies, and trading companies. The use of private banking
facilities, offshore banking, wire systems, shell corporations, and
trade financing all have the ability to mask illegal activities."
The interdependence of nations in the global marketplace makes
cooperation imperative in eliminating such loopholes for criminal
enterprise, Winer emphasized. "There is now worldwide recognition that
we must deal firmly and effectively with increasingly elusive,
well-financed, and technologically adept criminals who are determined
to use every means available to subvert the financial sytems that are
the cornerstone of legitimate international commerce," he declared.
Praising the commitment of the United States' partners and allies in
the fight against global money laundering, Winer described some
initiatives that these countries have undertaken, in conjunction with
the State Department's own efforts, to paralyze the operations of
criminal organizations.
Following is the text of his statement, as prepared for delivery:
(begin text)
Statement to the House Committee on Banking and Financial Services
By
JONATHAN WINER
DEPUTY ASSISTANT SECRETARY
BUREAU FOR INTERNATIONAL NARCOTICS AND LAW ENFORCEMENT AFFAIRS
HOUSE COMMITTEE ON BANKING AND FINANCIAL SERVICES
JUNE 11, 1998
Mr. Chairman and Members of the Committee:
Thank you for the opportunity this hearing provides to give you an
update on recent federal efforts to combat money laundering. Money
laundering has developed into a global problem and, to address this
problem, the Department of State has undertaken a variety of
initiatives to combat this evolving national security threat. I would
like to discuss global money laundering and address why it is
important to fight its growth on a global basis. I also would like to
discuss several initiatives the Department of State has developed to
reduce the threat of international money laundering.
The Money Laundering Problem
Criminals that commit crimes need to disguise their money so that they
can then use it freely by integrating it into global financial
systems. This is the basis for money laundering and involves
ill-gotten gains from a variety of crimes including drug trafficking,
organized crime, terrorism, arms trafficking, kidnapping, and various
financial crimes.
Money laundering generally involves a series of multiple transactions
used to disguise the source of financial assets so that those assets
may be used without compromising the criminals who are seeking to use
the funds. Through money laundering, the criminal tries to transform
the monetary proceeds derived from illicit activities into funds with
an apparently legal source.
Due to the clandestine nature of money laundering, it is difficult to
estimate the total volume of laundered funds circulating
internationally. Analytic techniques are highly imprecise, involving
such measures as multiplying the volume of trade in an illicit
activity -- such as drug trafficking, arms trafficking, or fraud -- by
the value of that trade. Such rough estimates place the annual,
worldwide value of laundered funds in the range of $300-500 billion.
Weak financial regulatory systems, lax enforcement, and corruption are
key factors that make certain jurisdictions particularly attractive
for laundering illicit proceeds by international drug trafficking and
other criminal organizations, by terrorist groups financing their
activities, and by pariah states undertaking financial transactions to
evade international sanctions and to acquire technologies and
components for weapons of mass destruction.
As the United States assesses a jurisdiction's vulnerability to money
laundering, it evaluates the role of the jurisdiction's financial
services sector in facilitating illicit financial transactions,
including: the laundering or otherwise improper transfer or
distribution of funds or maintenance of accounts; the nature and
extent of legislation and regulations to prevent illicit transactions;
the capabilities and willingness of the government to enforce existing
legislation and regulations and the results of the government's
actions to enforce those laws; and, the volume of illicit transactions
detected by U.S. law enforcement agencies in the financial services
sector of that jurisdiction.
There are three elements to the complete laundering of funds,
beginning with the placement of currency into a financial services
institution ("placement"), continuing with the movement of funds from
institution to institution to hide the source and ownership of the
funds ("layering"), and concluding with the reinvestment of those
funds in an ostensibly legitimate business ("integration").
While countermeasures to all three components of money laundering are
important, laundered money is most vulnerable to detection at the
placement stage. As a consequence, international regulatory and law
enforcement efforts have concentrated especially on developing methods
to make it difficult to place illicit funds without detection by
developing measures such as suspicious transaction reporting
requirements, cross-border monetary declaration requirements, and
"know your customer" rules for those accepting cash deposits.
International standards to discourage layering have also begun to
develop, through a focus on transparency and through pressure to
eliminate techniques such as the use of nominees and numbered accounts
to disguise the actual ownership of assets. Of additional importance
has been the growing international recognition that bank secrecy rules
must give way to permit law enforcement agencies to review financial
records in cases where there is an active criminal investigation
pertaining to the source of the funds.
Finally, integration of illicit proceeds can be fought through the
strengthening of asset forfeiture laws, by which governments can seize
the proceeds of criminal activity even when those proceeds have been
reinvested in ostensibly legitimate enterprises. Currently, the United
States and its international partners are examining methods by which
asset forfeiture regimes, and asset sharing among law enforcement
agencies of different countries, can be strengthened to place more
pressure on money launderers and to make it more difficult for them to
assume that after "integration" they have successfully protected their
money from the law.
Why It Is Important To Fight Money Laundering
Money laundering has devastating social consequences and is a threat
to national security because money laundering provides the fuel for
drug dealers, terrorists, arms dealers, and other criminals to operate
and expand their criminal enterprises. In doing so, criminals
manipulate financial systems in the United States and abroad.
Unchecked, money laundering can erode the integrity of a nation's
financial institutions. Due to the high integration of capital
markets, money laundering can also negatively affect national and
global interest rates as launderers reinvest funds where their schemes
are less likely to be detected rather than where rates of return are
higher because of sound economic principles. Organized financial crime
is assuming an increasingly significant role that threatens the safety
and security of peoples, states and democratic institutions. Moreover,
our ability to conduct foreign policy and to promote our economic
security and prosperity is hindered by these threats to our democratic
and free-market partners.
In recent years, crime has become increasingly international in scope
and the financial aspects of crime have become more complex due to the
rapid advances in technology and globalization of the financial
services industry. Money laundering can have devastating effects on
financial institutions and undermine the stability of democratic
nations. Modern financial systems permit criminals to transfer
instantly millions of dollars though personal computers and satellite
dishes. Money has been laundered through currency exchange houses,
stock brokerage houses, casinos, automobile dealerships, insurance
companies, and trading companies. The use of private banking
facilities, offshore banking, wire systems, shell corporations, and
trade financing all have the ability to mask illegal activities. The
criminal's choice of money laundering vehicles is only limited by his
or her creativity. Ultimately, this laundered money flows into global
financial systems where it can undermine national economies and
currencies. Money laundering is not only a law enforcement problem but
a serious national and international security threat as well.
There is now worldwide recognition that we must deal firmly and
effectively with increasingly elusive, well-financed, and
technologically adept criminals who are determined to use every means
available to subvert the financial systems that are the cornerstone of
legitimate international commerce. Money launderers can impact
countries by reducing tax revenues through underground economies,
competing unfairly with legitimate businesses, damaging financial
systems, and disrupting economic development. Money laundering is now
being viewed as a central dilemma in dealing with all forms of
international organized crime because financial gain means power.
Fighting money launderers not only reduces financial crime, but it
also deprives criminals of the means to commit other serious crimes.
Many countries around the world already engage in a concerted effort
to combat money laundering and other financial crimes. Through the
enactment of counter-money laundering laws, bilateral and multilateral
agreements, and other cooperative efforts, nations have joined
together to foster an international awareness of the seriousness and
threat of this criminal activity.
With a complex and sophisticated financial system that is often a
target for money laundering, the United States is working hard both at
home and abroad to fight this crime. An increasing number of countries
have also moved to deny criminals unfettered access to their financial
systems. While much progress has been made, there are still nations
that are not yet adequately addressing this problem. And the
international criminal is taking full advantage, moving vast sums of
illicit money through the world's financial systems. International
criminals know no geographic boundaries and still operate in "safe
haven" jurisdictions that permit, or even encourage, this criminal
activity.
If the United States, along with its international partners and
allies, is ultimately going to be successful in this fight, then we
must make it even more difficult for criminals. Efforts must focus on
both those areas where criminals are now operating and where they will
try to infiltrate in the future, and we must foster cooperation with
those nations that, heretofore, have allowed criminal enterprises to
flourish unchecked.
Current Global Trends in Money Laundering
Several general observations can be made regarding the current
characteristics of money laundering. One, drawn from the two most
recent Financial Action Task Force (FATF) typologies exercises, is
that the global nature of the money laundering phenomenon has rendered
geographic borders increasingly irrelevant. Launderers tend to move
their activity to jurisdictions where there are few or weak money
laundering countermeasures.
Two, a number of traditional money laundering techniques, such as
smurfing and the use of offshore businesses, continue to be prominent
methods for hiding the proceeds of crime.
Three, while changes continue to be observed in usage of various
traditional money laundering methods, there is a growing trend of
money launderers moving away from the banking sector to the non-bank
financial institution sector. In the non-bank financial sector, the
use of bureaux de change (currency exchange houses) and money
remittance businesses (such as wire transfer companies) to dispose of
criminal proceeds remain among the most often cited threats.
Four, there is also a continuing increase in the amount of criminal
cash being smuggled out of countries for placement into financial
systems abroad. In many European and other countries there are no
cross-border controls on the movement of cash, and it is relatively
simple for launderers to take large sums of cash by road to
neighboring countries. As with drugs, law enforcement officials
believe that while passengers are carrying large amounts of cash on
their persons, an even greater amount of cash is probably being hidden
in cargo shipments. This trend of cash smuggling appears to be mostly
attributable to the success of anti-money laundering measures in banks
and other financial institutions.
Finally, the most noticeable trend is the increase in the use by money
launderers of non-financial businesses or professions related to
banking institutions. Money launderers are increasingly receiving the
assistance of professional facilitators such as accountants, notaries,
lawyers, real estate agents, and agents for the purchase and sale of
luxury items, precious metals and even consumer durables, textiles and
other products involved in the import-export trade -- who utilize a
variety of vehicles to mask the origin and ownership of tainted funds.
The use of shell companies, usually incorporated in offshore
jurisdictions, is a common technique. Laundering of accounts held by
relatives or friends is also popular.
The Administration's Anti-Money Laundering Activities
On October 21, 1995, President Clinton signed Presidential Decision
Directive 42 (PDD-42) which specifically addresses the nation's fight
against international crime. PDD-42 recognizes that such criminal
activity threatens U.S. national security and directs the federal
agencies to combat international crime from the criminal barons
sheltered overseas to the violence and destruction they deliver to our
streets. In this directive, the President ordered the Departments of
Justice, State and Treasury, the Coast Guard, National Security
Council, intelligence community, and other federal agencies to
increase and integrate their efforts against international crime
syndicates and money laundering. Specifically, the President noted the
corrosive effect on markets and governments of the laundering of
massive illicit profits and ordered U.S. government agencies to
increase efforts in going after those criminal proceeds. The United
States strategy has been to integrate domestic and international
efforts and to expand cooperation and consultation among its agencies
to reduce international crime.
On the following day, October 22, 1995, the President addressed the UN
General Assembly and called for international cooperation to address
the threats posed by money laundering, narcotics trafficking and
terrorism, noting that the forces of international crime "jeopardize
the global trend toward peace and freedom, undermine fragile
democracies, sap the strength from developing countries, [and]
threaten our efforts to build a safer, more prosperous world."
Following these mandates, in consultation with the Secretary of State
and the Attorney General, the Secretary of the Treasury has identified
egregious overseas money laundering centers, or "safe havens," for
illegally obtained wealth. Interagency teams have negotiated with
those governments to end the safe havens they offer. Successful
negotiations have resulted in strengthened anti-money laundering
regimes and weakened safe havens. If negotiations are unsuccessful,
stronger measures will be employed. Significant achievements since
President Clinton signed PDD-42 include:
-- Improved internal coordination of international crime-fighting
efforts across a broad range of federal agencies and programs.
Administration officials have developed strategic approaches to combat
international crime on bilateral, regional and global bases. These
approaches combine training with aggressive enforcement that
investigates, prosecutes and disrupts major criminal groups. Federal
agencies continued to identify money laundering centers that have
important implications for U.S. national security and where expanded
cooperation would significantly strengthen global anti-money
laundering efforts. Several of these centers have been approached by
the United States in an effort to increase cooperation bilaterally as
well as multilaterally and to reduce the threat posed by money
laundering. As a result, several of these centers have significantly
strengthened their anti-money laundering regimes and reduced the
incidence of money laundering in their regions.
-- Increased and more effectively targeted, assistance and training in
the anti-money laundering field. In addition, federal agencies have
sought better ways of collecting, analyzing and sharing intelligence
globally regarding money laundering and other financial crimes.
Bilateral and multilateral initiatives to stop criminals from moving
funds throughout the international financial system have been launched
in tandem with other nations.
-- Strengthening of multilateral efforts against international crime
through increased emphasis in such forums as the FATF, CFATF, Asia
Pacific Group on Money Laundering, Council of Europe, European Union,
U.N., Organization of American States, and G-8.
-- Engagement of other countries in unprecedented bilateral law
enforcement cooperation, with increasing acceptance both of the
"nowhere to hide" principle and the critical importance of attacking
money laundering. The United States has worked with more than a dozen
countries especially vulnerable to money laundering to encourage them
to address their deficiencies. The United States uses a two-pronged
approach of assistance with anti-money laundering programs and
warnings about consequences of failing to take action.
-- Effective use of International Emergency Economic Powers Act
(IEEPA) authority to block Colombian cartel assets in the United
States and prevent U.S. entities from trading with the identified
individuals and businesses. Thus, sanctions have been imposed under
IEEPA, attacking the finances, companies and individuals owned or
controlled by the Cali cartel as well as other Colombian drug cartels,
freezing their assets in the United States, identifying their front
companies and barring Americans from doing business with them. As of
June 10, 1998, over the past two and a half years, the Administration
has identified 154 businesses and 297 individuals to be directly
involved with illegal traffickers and their so-called legitimate
business fronts for a total of 451 individuals and businesses that
have been subjected to these IEEPA sanctions. As part of the PDD-42
process, an interagency group reviews whether measures can be taken
against other international criminals.
-- Revocation of U.S. visas of international criminals and corrupt
officials to prevent them from coming to the United States to do
business.
Notwithstanding these accomplishments, much work remains to be done.
In his statement before the 52nd session of the U.N. General Assembly
on September 22, 1997, President Clinton remarked that: "In the 21st
century, our security will be challenged increasingly by
interconnected groups that traffic in terror, organized crime and drug
smuggling. Already these international crime and drug syndicates drain
up to $750 billion a year from legitimate economies. That sum exceeds
the combined GNP of more than half the nations in this room."
Accordingly, and to promote further progress in implementing PDD-42,
the National Security Council called upon the Departments of Justice,
State and the Treasury to develop and implement a comprehensive
national strategy to attack international crime. The International
Crime Control Strategy is that plan of action and was announced by the
President on May 12, 1998.
The Strategy articulates eight broad goals with thirty related
objectives as the blueprint for an effective, long term attack on the
international crime problem. The Strategy also expresses the nation's
strong resolve to combat international crime aggressively and reduce
substantially its adverse impacts on the American people. At this
point, Mr. Chairman, I would like to submit a copy of the Strategy to
you and to the members of the committee and ask that it be attached to
my testimony as part of the record.
The Strategy's goals and objectives are dynamic. They will evolve over
time as conditions change, new crime trends emerge, and improved
anti-crime techniques are developed. However, our firm resolve to
attack and make significant inroads against international crime must
and will be sustained.
Goal Four of the Strategy is to counter International Financial Crime.
This goal has four objectives: First, combat money laundering by
denying criminals access to financial institutions and by
strengthening enforcement efforts to reduce inbound and outbound
movement of criminal proceeds. Second, seize the assets of
international criminals through aggressive use of forfeiture laws.
Third, enhance bilateral and multilateral cooperation against all
financial crime by working with foreign governments to establish or
update enforcement tools and implement multilateral anti-money
laundering standards. Fourth, target offshore centers of international
fraud, counterfeiting, electronic access device schemes and other
financial crimes. The Department of State will play a significant role
in implementing these objectives in its fight against global money
laundering.
The Department of State provides financial support and participates in
the following activities to fight money laundering.
The Department of State's Bureau of International Narcotics and Law
Enforcement Affairs (INL) has developed a fiscal year 1997 $36.2
million dollar program for providing law enforcement, rule of law, and
central bank training and assistance to emerging democracies. A prime
focus of the training program is a multi-agency approach to addressing
international financial crimes, law enforcement development, organized
crime, and counternarcotics training. Supported by and in cooperation
with INL, the Department of Justice (DOJ), Treasury Department
component agencies (including the Financial Crimes Enforcement Network
(FinCEN)) and the Office of the Comptroller of the Currency (OCC)),
the Board of Governors of the Federal Reserve (FRB), and
non-government organizations offered law enforcement and criminal
justice programs worldwide.
During 1997, INL funded numerous programs to combat international
financial crimes, including money laundering. Nearly every federal law
enforcement agency assisted in this effort by providing over eighty
basic and advanced training courses in all aspects of financial
criminal activity to over fifty countries. These activities included
funding to conduct assessments and develop specialized training in
identified countries worldwide by numerous federal law enforcement
agencies.
In 1998, INL has planned an additional fifty anti-money laundering and
financial crime programs covering over thirty countries. The programs
will provide multiagency financial crime training, technical
assistance, and money laundering assessments for a variety of
countries world-wide.
As in previous years, INL training programs continue to focus on the
interagency approach and bring together, where possible, law
enforcement, judicial, and central bank authorities in assessments and
training programs. This approach allows for an exchange of information
and a dialogue usually not undertaken by those attending the training
seminars. This approach has proved successful in various parts of the
globe, from Central and South America to Russia, the Newly Independent
States (NIS) of the former Soviet Union, and Central Europe. INL
provides funding for many of the training and technical assistance
programs offered by the various law enforcement agencies, including
those at the International Law Enforcement Academy (ILEA) - Budapest.
International Law Enforcement Academies (ILEA)
Five 12-hour training segments were presented at ILEA in Budapest.
These segments provided instruction in financial investigative
techniques and money laundering. They were attended by participants
from the region, including representatives from Hungry, Croatia, and
the Former Yugoslav Republic of Macedonia, Estonia, Latvia, and
Lithuania. These courses were a portion of a consolidated interagency
curriculum presented by various U.S. law enforcement agencies during
an 8-week period.
In Panama, several ILEA-related financial crime and money laundering
courses will be taught during 1998. These modules are included in the
regular two week ILEA training courses and an additional one week
specialized course has been added on financial crime.
ILEA Bangkok is just in its organizational stage; however, we are
planning to initiate training by fall 1998. Several financial crime
and money laundering modules are scheduled for ILEA Bangkok and may
commence as early as September 1998. Attendees are expected from
countries throughout the region.
Treaties And Agreements
Mutual Legal Assistance Treaties (MLATs) allow generally for the
exchange of evidence and information in criminal and related matters.
In money laundering and asset forfeiture cases, they can be extremely
useful as a means of exchanging banking and other financial records
with our treaty partners. MLATs, which are negotiated by the
Department of State in cooperation with the Department of Justice, are
in force with the following countries: Argentina, the Bahamas, Canada,
Hungary, Italy, Jamaica, Mexico, Morocco, the Netherlands, Panama, the
Philippines, Spain, South Korea, Switzerland, Thailand, Turkey, the
United Kingdom, the United Kingdom with respect to its Caribbean
dependent territories (the Cayman Islands, Anguilla, the British
Virgin Islands, Montserrat, and the Turks and Caicos Islands), and
Uruguay. MLATs have been signed but not yet brought into force with
another 21 governments: Antigua and Barbuda, Australia, Austria,
Barbados, Belgium, Brazil, Colombia, the Czech Republic, Dominica,
Grenada, Hong Kong, Israel, Latvia, Lithuania, Luxembourg, Nigeria,
Poland, St. Kitts and Nevis, St. Lucia, Trinidad and Tobago and
Venezuela. The United States is actively engaged in negotiating
additional MLATs around the world. The United States has also signed
the Organization of American States' MLAT.
In addition, the United States has entered into executive agreements
on forfeiture cooperation, including: (1) an agreement with the United
Kingdom providing for forfeiture assistance and asset sharing in
narcotics cases, and (2) a forfeiture cooperation and asset sharing
agreement with the Netherlands. The United States has asset sharing
agreements with Canada, Colombia, Ecuador, Mexico, and the United
Kingdom on behalf of Anguilla, the British Virgin Islands, the Cayman
Islands, Montserrat, and Turks and Caicos.
Financial Information Exchange Agreements (FIEAs) facilitate the
exchange of currency transaction information between the U.S. Treasury
Department and other governments' finance ministries. The United
States has FIEAs with Colombia, Ecuador, Mexico, Panama, Paraguay,
Peru, and Venezuela. FinCEN has a Memorandum of Understanding or an
exchange of letters in place to facilitate exchange of information
with the FIUs of the following countries: Argentina, Australia,
Belgium, France, Slovenia, Spain, and the United Kingdom.
The United States has Customs Mutual Assistance Agreements (CMAAs)
with the European Community and with the following countries:
Argentina, Australia, Austria, Belarus, Belgium, Canada, Cyprus, the
Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary,
Italy, Japan, Korea, Mexico, Mongolia, New Zealand, Norway, Poland,
Portugal, the Russian Federation, Slovakia, Spain, Sweden, Ukraine,
the United Kingdom, and Yugoslavia. (The U.S. view is that the
Socialist Federal Republic of Yugoslavia (SFRY) has dissolved and that
the successors that formerly made up the SFRY -- Bosnia and
Herzegovina, Croatia, the Former Yugoslav Republic of Macedonia,
Slovenia, and the Federal Republic of Yugoslavia (Serbia and
Montenegro) -- continue to be bound by the agreement with the SFRY at
the time of dissolution.) The United States has also concluded CMAAs
which are not yet in force with the following countries: Honduras,
Ireland, Kazakhstan, the Netherlands, Turkey, and Venezuela. In
addition, the United States has non-binding CMAAs with both Hong Kong
and the United Kingdom. All of these agreements are patterned after a
World Customs Organization Model CMAA. Since assistance can be
provided under these agreements in the enforcement of any laws related
to customs, the USCS uses these agreements to assist in the gathering
of information and evidence for criminal and civil cases involving
trade fraud, smuggling, violations of export control laws, and most
recently, in the growing effort to combat narcotics trafficking and
money laundering.
Asset Sharing
Pursuant to the provisions of the 1988 UN Drug Convention, the
Departments of Justice, State and Treasury have aggressively sought to
encourage foreign governments to cooperate in joint investigations of
drug trafficking and money laundering, offering the inducement of
sharing forfeited assets. A parallel goal has been to encourage use of
these assets to improve narcotics law enforcement. The long term goal
has been to encourage governments to improve asset forfeiture laws and
procedures so that they will be able to conduct investigations and
prosecutions against property within their own borders. The United
States and its partners in the G-8 (formerly the G-7 industrialized
nations plus Russia) agreed, at the May 1998 Birmingham Summit, on
principles and the need for adequate legislation to facilitate asset
confiscation from convicted criminals, including ways to help each
other trace, freeze and confiscate those assets, and where possible,
in accordance with national legislation, share seized assets with
other nations. To date, Canada, Switzerland, Jersey and the United
Kingdom have shared forfeited assets with the United States.
From 1989 through December 1997, the international asset sharing
program, administered by the Department of Justice, resulted in the
forfeiture in the U.S. of $190,275,879 of which $66,096,963 was shared
with foreign governments which cooperated and assisted in the
investigations. In 1997, the Department of Justice transferred
forfeited proceeds to: Canada ($84,669); the Cayman Islands ($58,439);
Luxembourg ($18,104,348) and the United Kingdom ($244,238). Prior
recipients of shared assets (1989-1996) include: Argentina, the
Bahamas, the British Virgin Islands, Canada, the Cayman Islands,
Colombia, Costa Rica, Ecuador, Egypt, Guatemala, Guernsey, Hungary,
Israel, Liechtenstein, Luxembourg, Paraguay, Romania, St. Maarten,
Switzerland, the United Kingdom and Venezuela.
MULTILATERAL ACTIVITIES
Financial Action Task Force (FATF)
The Financial Action Task Force on Money Laundering (FATF), which was
established at the G-7 Economic Summit in Paris in 1989, is an
inter-governmental body whose purpose is the development and promotion
of policies to combat money laundering. These policies aim to prevent
proceeds of crime from being utilized in future criminal activities
and from affecting legitimate economic activities.
The FATF currently consists of 26 jurisdictions and two international
organizations. Its membership includes the major financial center
countries of Europe, North America and Asia. The 26 FATF member
countries and governments are: Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland, Italy,
Japan, Luxembourg, the Kingdom of the Netherlands, New Zealand,
Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Turkey,
United Kingdom, and the United States. The two international
organizations are the European Commission and the Gulf Cooperation
Council. One of the guiding principles of the FATF is that money
laundering is a complex economic crime which cannot be effectively
controlled by conventional law enforcement methods alone, and that
finance ministries, financial institutions, and regulators must work
closely with law enforcement agencies in combating money laundering.
Accordingly, the FATF is a multi-disciplinary body, bringing legal,
financial and law enforcement experts into the policy-making process.
In 1997, the FATF focused on several major initiatives. Perhaps the
greatest achievement during 1997 is that all FATF members now have
anti-money laundering legislation substantially in line with the FATF
40 Recommendations. With the strong encouragement of its FATF
co-members, Turkey passed significant anti-money laundering
legislation and enacted implementing regulations which put the law
into force in 1997.
The FATF's second round of mutual evaluations, which commenced in
early 1996 and is currently underway, is focused on the practical
effectiveness of members' anti-money laundering measures and also
assesses follow-up action taken in response to the recommendations for
improvement made in the first round. During 1997, FATF conducted 11
second round mutual evaluations. Denmark, the United States, Austria,
Belgium, Switzerland, Canada, Netherlands, Germany, Italy, Norway and
Japan. In addition, the Gulf Cooperation Council (GCC) agreed to
institute a self-assessment program for its member states. This is a
first step in addressing the problem that although the GCC is a FATF
member, the GCC member states are not subject to FATF member
requirements.
In February 1997, discussion began on the future of the FATF after
1999. At the Denver Economic Summit held in June 1997, the G-7 Heads
of State issued a Statement which "urged the FATF to review ways to
advance its essential work and consider renewal of its mandate for an
additional five-year period." Specific issues, such as expansion of
membership and identification of possible new members, were approved
by the FATF in February 1998. At the May 1998 meeting of the Finance
Ministers of the G-8 in Birmingham, the FATF mandate was continued for
another five years.
The FATF adopted a policy allowing those international organizations
that have agreed to carry out mutual evaluations of their members and
whose evaluation procedures have been validated by the FATF Plenary to
attend the discussions of the FATF mutual evaluation reports and to
receive the related documents. Specifically, the FATF endorsed the
mutual evaluation procedures of the Caribbean Financial Action Task
Force (CFATF), the Council of Europe (which will be focusing on those
of its members which are not FATF members), and the Offshore Group of
Banking Supervisors (OGBS). The FATF will provide guidance to these
organizations and may issue public statements regarding efforts made
by non-members to combat money laundering. This will further encourage
non-FATF members to adopt the FATF's recommendations and procedures.
In addition, several Multilateral Development Banks, including the
International Monetary Fund (IMF) and the World Bank, are increasingly
focusing on anti-money laundering issues, and the FATF has established
a constructive dialogue with them. The FATF has approached these
organizations and attempted to gain their support for inclusion of
anti-money laundering programs in their operations.
Other external relations activities included the participation of FATF
representatives in the June 1997 United Nations Center for
International Crime Prevention's Regional Ministerial Workshop on
Organized Crime in Dakar, Senegal. In September 1997, a FATF mission
to Cyprus was conducted to assess the money laundering situation and
measures to combat it. In October 1997, the FATF co-hosted a money
laundering seminar with the Bank of Russia in St. Petersburg. FATF
provided a detailed exposition of anti-money laundering guidelines and
recommendations of various FATF member countries and addressed the
issue of cooperation between the financial sector and law enforcement
authorities. FATF plans to co-host another money laundering seminar
with the Black Sea Economic Cooperation (BSEC) in early 1998.
In June 1997, Mr. Jean Spreutels of Belgium assumed the FATF
Presidency for FATF's ninth round of work (1997-1998). In June of
1998, FATF will continue to work with the private financial services
sector by hosting another Financial Services Forum. The
President-Elect for FATF-X (1998-1999) is Mr. Jun Yokota from Japan's
Ministry of Foreign Affairs. This will be the first time an Asian FATF
member will serve as President of the FATF.
During June 1997, FATF established an Internet web site that allows it
to reach a much wider audience, providing access to basic FATF
documents, such as the 40 Recommendations and the annual Typologies
Reports on money laundering methods and trends, as well as other key
documents on money laundering (including the 1988 UN Drug Convention,
the 19 Aruba Recommendations, and the Riga Declaration), and other
documents of concern to FATF members. The site also serves as a single
location in which the texts of various anti-money laundering statutes
and regulations for both FATF and non-FATF members may be placed.
Additionally, users will be able to find still more related
information either through links to other related sites or through
contact information provided within the site. The FATF web site can be
found at http://www.oecd.org/fatf.
In 1997, FATF created a regional Ad Hoc Group on Central and Eastern
Europe, chaired by the Netherlands, to support, coordinate and
exchange information between the other international organizations who
are conducting anti-money laundering initiatives in the region. There
are currently Ad Hoc Groups on Asia (Australian Chair) and Latin
America (French Chair). The regional ad hoc groups serve as a catalyst
for external relations efforts in each particular region and have been
instrumental in creating FATF regional bodies.
An Ad Hoc Group on Estimating the Magnitude of Money Laundering,
chaired by FinCEN's Director, was also established last year to
develop a methodology to measure the money laundering problem from a
global perspective. The purpose is to confirm that money laundering is
a significant element in the global financial system and to quantify
the amount of money laundering activity. Each participating country
has formed an advisory board of experts for the purpose of identifying
the quantifiable sources of data. This Ad Hoc Group will compile a
draft methodology which will be used to develop a quantifiable
estimate of the problem. Several international organizations,
including the OECD, IMF, INTERPOL, Commonwealth Secretariat, and
OAS/CICAD, are actively contributing to the work of this group. Once
determined, this figure will allow policy makers and the public,
through press reporting, to appreciate the critical value of
anti-money laundering programs and their relationship to ensuring the
integrity of the global financial system.
In November 1997, the FATF concluded a highly successful meeting on
money laundering typologies. The purpose of the typologies exercise is
to provide a forum for law enforcement experts -- those primarily
tasked with combating money laundering -- to discuss recent trends in
the laundering of criminal proceeds, emerging threats, and effective
countermeasures. Discussions focused primarily on new payment
technologies, remittance services and the use of non-financial
businesses in money laundering schemes. Money laundering
countermeasures were also discussed in greater detail than in prior
years. Overall, FATF jurisdictions found that conventional money
laundering methods are still being used with refinements being made to
existing techniques. In addition, as new countermeasures are
developed, money launderers continue to shift from traditional
financial institutions to non-financial businesses. The FATF will meet
next at the end of June 1998.
Asia Pacific Group on Money Laundering (APG)
In order to make progress in the external relations work of the
Financial Action Task Force (FATF), an "FATF Asia Secretariat" was
created in 1994 to set up a regional anti-money laundering body in the
Asia/Pacific region. The United States has been working with the FATF
to create regional anti-money laundering groups to form an
international alliance against money laundering. Through the results
of the FATF Asia Secretariat and other FATF members, the Asia Pacific
Group on Money Laundering (APG) was formally established in February
1997 at the Fourth Asia/Pacific Money Laundering Symposium in Bangkok,
Thailand. Initial membership of the group consists of Australia,
Bangladesh, Hong Kong, Japan, New Zealand, People's Republic of China,
Philippines, Singapore, Sri Lanka, Taiwan, Thailand, the United
States, and Vanuatu. The establishment of this group is a positive
step toward recognizing that money laundering is a significant
international issue that affects the Asia/Pacific region and that
jurisdictions within the region need to cooperate in combating money
laundering.
The APG will meet twice yearly to provide a focus for regional
anti-money laundering efforts and will work in close cooperation with
the FATF and the CFATF. The first goal of this group is to develop a
statement of principles and measures for application within the
region.
The Fourth Asia/Pacific Money Laundering Symposium also resulted in a
set of proposed recommendations and a consensus that money laundering
is a serious threat that must be addressed globally. Participants
recognized that money laundering undermines the integrity of the
region's financial institutions and that anti-money laundering
controls have a positive effect on economic growth by attracting
legitimate investments and capital. There was agreement that bank
secrecy laws should not interfere with the ability to ensure the
integrity of financial institutions and that central banks and Finance
Ministries play a very important role. It was also recognized that the
offense of money laundering should cover all serious crimes.
In July 1997, the first meeting of the APG's Working Party was held in
Beijing, China. The Working Party developed a work program and a
statement of principles and measures for application within the region
in relation to money laundering. The Working Party agreed that the APG
accepts the FATF 40 Recommendations in principle as the "international
standard" and discussed how they can be applied in the region. The APG
will have members complete anti-money laundering "jurisdiction
reports" which will include each jurisdiction's relevant laws as well
as identify what training is needed.
In 1997, the Asia Pacific Economic Cooperation (APEC) continued to
express support for anti-money laundering initiatives. The APEC
Finance Ministers issued a Joint Ministerial Statement on April 6,
1997 which supported the establishment of the APG. The anti-money
laundering text of that statement follows:
"Anti-Money Laundering. Money laundering remains a priority concern
because of the threat it can pose to the integrity of legitimate
financial institutions. In this regard, we welcome the establishment
of the Asia-Pacific Group on Money Laundering of which several APEC
economies are members. We pointed out however that money laundering is
a global phenomenon and in this regard, we encourage all other
economies to join in a determined global effort to effectively address
it . We ask the assistance of the relevant international organizations
to integrate support for anti-money laundering activities in their
operations to strengthen the integrity of financial systems."
During March 1998, the APG held its first annual meeting in Tokyo,
Japan. As part of the meeting, the group established an action plan
which addressed the FATF 40 Recommendations, agreed to the completion
of the tasks identified at the Beijing Working Party Meeting, and
agreed to conduct various other tasks such as assistance missions to
member jurisdictions, money laundering workshops, and missions to
offshore financial centers in the South Pacific.
Caribbean Financial Action Task Force (CFATF)
The Caribbean Financial Action Task Force (CFATF) continues its
important anti-money laundering initiatives in the region. The CFATF
requires its member jurisdictions to implement the FATF 40
Recommendations as well as an additional 19 recommendations specific
to the region that CFATF adopted. Barbados currently chairs the
organization, and Attorney General David Simmons will serve as
Chairman until October 1998. The Cayman Islands has been elected as
the next CFATF chair. The Secretariat of the CFATF is housed in
Trinidad and Tobago.
In October 1996, the CFATF adopted a Memorandum of Understanding (MOU)
which formalizes the organization by delineating its mission,
objectives, and membership requirements. Since November 1996, the
following have been CFATF members: Anguilla, Antigua and Barbuda,
Aruba, the Bahamas, Barbados, Belize, Bermuda, the British Virgin
Islands, the Cayman Islands, Costa Rica, the Dominican Republic,
Grenada, Guatemala, Montserrat, the Netherlands Antilles, Nicaragua,
Panama, St. Lucia, St. Vincent and the Grenadines, Turks and Caicos,
and Trinidad and Tobago. In October 1997, Jamaica and Venezuela
subscribed to the CFATF MOU, and in December 1997, Dominica subscribed
as well, raising the organization's membership to a total of 24
members. Additional countries are expected to sign the MOU in the near
future. There has been no change in membership of the five Cooperating
and Supporting Nations (Canada, France, the Netherlands, the United
Kingdom, and the United States), which have provided financial and
other support to CFATF since its inception.
The pace of CFATF's activities has continued to increase. In 1997,
CFATF conducted mutual evaluators of four of its members (the
Dominican Republic, Barbados, St. Vincent and the Grenadines, and the
Bahamas). Six additional CFATF mutual evaluations are scheduled to
occur in 1998: Antigua and Barbuda, Turks and Caicos, Bermuda, St.
Lucia, St. Kitts and Nevis, Nicaragua.
In July 1997, CFATF and FinCEN co-sponsored a Casino Regulatory
Conference in Aruba as part the CFATF typologies exercise. The
conference identified vulnerabilities to money laundering within the
gaming industry and as well as minimum regulatory and legislative
standards needed to address those vulnerabilities. Representatives
from Aruba, the Bahamas, Belize, Brazil, the British Virgin Islands,
Canada, Cayman Islands, Chile, Colombia, Costa Rica, Dominica, the
Dominican Republic, France, Jamaica, the Netherlands Antilles, Panama,
Peru, St. Lucia, the Netherlands, Trinidad and Tobago, the United
Kingdom, the U.S. Virgin Islands, Uruguay, the United States, and
Venezuela attended the conference.
CFATF also completed two typologies exercises, which are used to
assess current trends in money laundering in the Caribbean and to
develop effective countermeasures. The first typologies exercise
focused on domestic financial institutions, and the second addressed
the casino and gaming industry in the region.
The CFATF will play a leading role in implementing the joint U.S.- EU
anti-money laundering training and technical assistance initiative for
the Caribbean. This comprehensive program, covering financial, legal,
law enforcement, and regulatory measures, is the culmination of a
number of efforts to develop a regional training and technical
assistance program by the U.S., EU, CFATF, and UNDCP. At the December
1997 regional meeting held in the Dominican Republic to review the
progress in implementing the May 1996 Barbados Plan of Action, the
participants agreed, in the Santo Domingo Declaration, to implement
the regional anti-money laundering project through CFATF in
association with the EC, the U.S., and other cooperating and
supporting countries. Funding to implement this project has been
committed jointly by the European Commission and the United States
government (INL), and implementation plans were discussed at the March
1998 CFATF meeting in Port of Spain. CFATF will meet next this coming
August..
Summit of the Americas
The Heads of State of the Western Hemisphere most recently singled out
the money laundering threat when they gathered in Santiago, Chile,
last April, for the Summit of the Americas. There, they agreed to an
antidrug and crime action plan that called on financial institutions
to redouble their efforts to prevent money laundering. And they agreed
to strengthen national efforts to establish or strengthen existing
specialized units (otherwise known as financial intelligence units --
FIUs) to request, analyze, and exchange information on money
laundering.
OAS/CICAD
In recognition of the growing importance of money laundering issues
and the need to develop a framework to assist member governments in
implementing the provisions of the Buenos Aires communiqué, the
OAS/CICAD reconvened the CICAD Experts Group to Control Money
Laundering in June 1996. Substantive discussion of regional money
laundering issues now regularly occurs within this Experts Group under
the OAS framework.
In its meeting in Santiago in October 1997, the Experts Group made a
number of significant recommendations, which were officially adopted
by the OAS/CICAD in its November 1997 meeting in Lima, Peru. Among the
recommendations of the Experts Group were:
-- To amend, for the first time, the OAS Model Regulations on money
laundering by adding language which encourages governments to
establish Financial Intelligence Units (FIUs) in accordance with the
Egmont Group definition.
-- To harmonize the OAS Model Regulations with the provisions of the
Summit of the Americas Buenos Aires Communique Plan of Action, and to
examine the Model Regulations to determine if the Model Regulations
need to be revised further in order to keep them abreast of new money
laundering methods.
-- To formulate a comprehensive training and technical assistance plan
to assist governments in their efforts to implement the provisions of
the 1995 Buenos Aires Communique Plan of Action. This training plan
will include provisions for training and technical assistance in the
financial sector, for FIUs, and for law enforcement personnel, judges,
magistrates and prosecutors.
The Experts Group also agreed to conduct a yearly typologies exercise
to determine the money laundering methods being utilized in the
hemisphere by sharing experiences in dealing with this problem. The
United States and two other countries presented typologies at the
Santiago meeting. Annual typologies reports will be produced.
During May 1998, the Experts Group met in Washington, D.C., to discuss
possible changes to the Model Regulations to control money laundering
and to formulate a training and assistance plan to assist governments
to implement anti-money laundering programs. The meeting resulted in
agreement to amend some of the Model Regulations and a money
laundering training program. Both of these initiatives will be
addressed further when the Group next meets in Argentina this coming
October. Two countries also made typologies presentations.
An initial analysis of member responses to the CICAD Self-Assessment
Questionnaire (used to determine progress in implementing the Buenos
Aires Communiqué Plan of Action) was produced and an English text will
be widely circulated in the near future.
Finally, progress also continues on the joint Organization of American
States/Inter-American Development Bank Anti-Money Laundering Training
and Technical Assistance Initiative. It is expected that the IDB will
provide funding in 1998 for a pilot project focused on "know your
customer" policies and reporting of suspicious transactions for
banking regulators and key management positions within financial
institutions as well.
Financial Intelligence Units (FIUs) and the Egmont Group
Over the past five to seven years, a number of specialized
governmental agencies have been created as countries develop systems
to deal with the problem of money laundering. These entities are
commonly referred to as "financial intelligence units" or "FIUs."
These units have attracted increasing attention with their ever more
important role in anti-money laundering programs.
The FIU concept has developed rapidly during the past two years. In
spite of the specialized nature of such units, there has often been
some confusion between FIUs "financial intelligence units" and other
official entities with seemingly similar responsibilities. Police
units established for the purpose of investigating financial and
white-collar crime -- to include money laundering -- have often been
dubbed "financial investigative units" with the acronym "FIU". These
units certainly play an important and useful role in their countries'
overall anti-money laundering effort; however, the simple designation
"FIU" does not necessarily mean that the unit functions as defined by
the Egmont Group.
A number of countries have resolved this confusion by continuing to
call the purely police unit an "FIU" ("financial investigative unit"),
while terming the intelligence unit an "FAU" ("financial analysis
unit"). Making this distinction then allows some countries to avoid
the word "intelligence" (which has a somewhat negative connotation in
certain areas) by focusing on the function of the unit rather than the
material with which it works.
An FIU, quite simply, is a central office that obtains financial
disclosure information, processes it in some way and then provides it
to an appropriate government authority in support of a national
anti-money laundering effort. Although the definition states that the
activities performed by an FIU include "receiving, analyzing, and
disseminating" information, it does not exclude other activities that
may be performed on the basis of this material. Therefore, an FIU
could conceivably perform the activities mentioned in the definition
and investigate and/or prosecute violations indicated by the
disclosures.
The creation of FIUs has been shaped by two major influences: law
enforcement and detection.
-- Law Enforcement: Most countries have implemented anti-money
laundering measures alongside already existing law enforcement
systems. Certain countries, due to their size and perhaps the inherent
difficulty in investigating money laundering, decided to provide a
clearinghouse for financial information. Agencies created under this
impetus were designed, first and foremost, to support the efforts of
multiple law enforcement or judicial authorities with concurrent or
sometimes competing jurisdictional authority to investigate money
laundering.
-- Detection: Through the FATF 40 Recommendations and regional
organizations initiatives such as the European Union, the Council of
Europe, CFATF, and OAS/CICAD, the concept of suspicious transaction
disclosures has become a standard part of money laundering detection
efforts. In creating transaction disclosure systems, some countries
saw the logic in centralizing this effort in a single office for
receiving, assessing and processing these reports. FIUs established in
this way often play the role of a "buffer" between the private
financial sector and law enforcement and judicial/prosecutorial
authorities. This has, in some cases, fostered a greater amount of
trust in the anti-money laundering system with the FIU serving as the
honest broker between the private and government sectors.
Over time, FIUs in the first category have tended to add the
disclosure receiving function to their list of attributions. Moreover,
regulatory oversight has also increasingly become a function of a
number of FIUs. Since a disclosing requirement mandates the receiving
agency to deal with the disclosing institution, it was logical that
some FIUs would become primary forces in working with the private
sector to find ways to perfect anti-money laundering systems.
The Egmont Group
Despite the fact that several FIUs were created throughout the world
in the early 1990s, their creation was at first seen as individualized
phenomena related to the specific needs of the jurisdictions
establishing them. Since 1995, a number of FIUs have begun working
together in an informal organization known as the Egmont Group (named
for the location of the first meeting at the Egmont-Arenberg Palace in
Brussels). The goal of the Group is to provide a forum for FIUs to
find ways of improving support to their respective national anti-money
laundering programs. This support includes expanding and systematizing
the exchange of financial intelligence information, improving
expertise and capabilities of personnel of such organizations, and
fostering better communication among FIUs through application of
technology. Within the Egmont Group, working groups are focused on
three major areas: legal matters, technology, and training. The next
Egmont meeting will take place at the end of June 1998.
Council of Europe (COE)
During December 1997, the COE established the Select Committee of
Experts on the Evaluation of Anti-Money Laundering Measures
(Committee). The Committee was organized for its 21 European countries
which are members of the COE but are not members of the FATF. One of
the purposes of the Committee is to conduct money laundering mutual
evaluations for the 21 member countries and make recommendations for
improving or developing money laundering regimes. During June 1998,
the COE held its second meeting of the Select Committee of Experts on
the Evaluation of Anti-Money Laundering Measures. The meeting covered
the results of the 1997 self-assessment questionnaire approved at the
December 1997 organizational meeting and the results and discussion of
the mutual evaluations of both Slovenia and Cyprus. In addition,
countries selected for future evaluations were discussed along with
time frames and the need for evaluators. The COE Committee is expected
to be a significant influence on its membership and result in
elevating money laundering standards throughout the region.
On June 8, 1998 President Clinton addressed the Special Session of the
United Nations General Assembly regarding the common threat of
worldwide drug trafficking and abuse. As a part of his remarks,
President Clinton indicated the U.S. partnership in global law
enforcement and specifically noted assistance that the U.S. is
providing to establish and strengthen financial intelligence units to
fight money laundering.
Future Policy Initiatives
The Administration has created an anti-money laundering and financial
crime program with activities that literally span the globe. Working
in a coordinated fashion, U.S. diplomats, law enforcement agents,
regulators and financial analysts have drafted and reviewed money
laundering legislation and regimes in the Americas, the Middle East,
Africa, Asia and Europe and have provided training and technical
assistance to countries seeking to strengthen their capabilities
against money laundering.
In Russia, for instance, U.S. regulatory, law enforcement and foreign
affairs specialists are working as a team with their counterparts to
develop new laws, regulations and investigative capabilities. The
Administration plans to implement new anti-money laundering
initiatives in countries in countries throughout the world, including
in Kazakhstan, Kyrgyzstan, Uzbekistan and Romania. The Administration
also has embarked upon an innovative, multi-year, multilateral
training program with the European Union in conjunction with CFATF and
UNDCP in the Caribbean to address the problem of money laundering in
that region.
As technology improves and continues to provide new ways to steal and
launder money, so too will the Administration marshall the resources
necessary to thwart such criminal enterprises. With significant U.S.
contributions, CFATF is attacking these problems by bringing together
experts on issues such as cyberpayment systems and Internet gaming.
With the active support of the United States and our international
partners, CFATF is emerging as a model for development of other
regional anti-money laundering organizations around the globe.
As money launderers and other financial criminals constantly search
for jurisdictions with weak regulatory, legal and law enforcement
regimes, the Administration is committed to raising international
crime fighting standards by promoting the development of such regional
organizations and encouraging those regional bodies to work together
in a spirit of cooperation. In the coming years, the FATF will promote
the development of regional FATF-style bodies and will likely increase
its own membership to expand its effectiveness. As FATF norms continue
to gain prominence throughout the world, so too do the anti-money
laundering practices that the United States and other FATF members are
continuing to develop and implement. In the same vein, the
Administration is continuing to seek support of entities such as the
multilateral development banks and regional political bodies to
promote increased transparency and good governance practices by
nations in which failure to adhere to these norms have resulted in
financial or economic chaos.
Related financial crimes such as counterfeiting, advance fee and
credit card fraud, and other crimes of financial deception have cost
consumers, financial institutions and governments billions of dollars.
The Administration will increase aggressive enforcement against
foreign criminal groups engaged in financial schemes that victimize
U.S. nationals, attack U.S. and international financial systems,
threaten to destabilize foreign financial institutions, and undermine
world economic progress.
Counterfeiting: Because of vigorous anti-counterfeiting measures, the
amount of counterfeit currency has dropped precipitously, with passed
and seized counterfeit $100 bills falling from $126 million to $53
million between 1994 and 1997. Nevertheless, the problem is
significant and increasingly global. The Federal Reserve System
estimates that approximately $450 billion of U.S. currency circulates
worldwide and that two-thirds of that currency circulates outside the
country. As the demand for genuine U.S. currency grows overseas, so
will the threat of counterfeiting by foreign organized crime groups.
In fiscal year 1996, approximately 65 percent of all counterfeit U.S.
currency detected domestically was produced outside our borders.
International counterfeiting schemes -- furthered by improved copying
and publishing technology -- include reproduced financial instruments,
such as commercial checks, traveler's checks and money orders. In
addition, international criminal enterprises are increasingly using
fictitious securities and negotiable instruments to defraud the
government, individuals, corporations and financial institutions.
Criminals have used bogus instruments to obtain government benefits,
underwrite loans, serve as insurance collateral, and defraud
individual investors, pension funds and retirement accounts.
The Administration will seek enhanced cooperation from foreign and
domestic manufacturers to help prevent the production of counterfeit
currency and instruments, partnerships with private sector financial
institutions to improve detection of counterfeit instruments, and
aggressive investigations to pursue counterfeiters in the
international arena. The redesign of the $100 and $50 bills, which
made them harder to replicate, is an example of preventive actions to
combat counterfeiters here and abroad. At the same time, the
Administration continues to strengthen its overseas presence to
respond more effectively to any counterfeit currency and instruments
actually produced.
Advance Fee Fraud: Advance fee fraud is committed largely by Nigerian
criminal enterprises, and it has become one of the most lucrative
financial crimes worldwide. Criminals purporting to be officials of
their government, banking system or oil companies, mail or fax letters
to numerous individuals and businesses in the United States, enticing
them to take part in million dollar windfalls, but requiring "up
front" fees to pay for bribes, taxes and legal fees -- which must be
paid before the deal can be concluded. Often, the criminals persuade
victims to travel to Nigeria to close the deal, where they are then
intimidated into further participation and sometimes are even killed.
Financial losses associated with these frauds are estimated in the
hundreds of millions of dollars annually.
In response to this growing problem, the Administration has
established programs designated to target advance fee frauds on a
global scale. Through "Operation 4-1-9" (whose name is derived from
the Nigerian criminal statute covering advance fee fraud), the Secret
Service receives approximately 100 calls and 300-500 pieces of
correspondence per day from potential victims and has established
liaisons with the Departments of Justice and State, and with the
Government of Nigeria. Those efforts have significantly reduced the
number of reported victims.
Access Device Fraud: Frauds involving a variety of financial "access
devices" such as credit cards, debit cards, smart cards and
communications systems that transfer financial data are a growing
problem. Major credit card issuers estimate fraud losses in excess of
$2 billion dollars in 1996. Approximately one third of the issuers'
losses occurred because of international fraudulent activity.
While South America and Mexico are emerging as centers of counterfeit
credit card manufacturing plants, the criminal activity is global. A
recent counterfeit credit card suppression case in Guanzhuang, China
resulted in the seizure of thousands of counterfeit credit cards,
uncut blank credit cards, magnetic strips, issuer holograms,
embossers, encoders, laptop computers and extensive manufacturing
equipment. The investigation revealed that the scheme stretched to
Honolulu, Bangkok, Hong Kong, Macau, Canada, Taiwan, and Buffalo, New
York.
Investigative activity against international financial frauds and the
criminal groups that employ them will be increased. The President's
proposed International Crime Control Act will enhance our ability to
strike at credit card and other overseas access device fraud by
authorizing U.S. law enforcement to take action when the activity is
directed at U.S.-based payment systems or financial institutions.
International Cybercrime: Governments cannot solve all these problems
alone. This is especially true in the context of cybercrime that can
transcend international borders in a matter or seconds. In one
illustrative example of what we can achieve through international
efforts, cooperation among private sector executives, U.S. federal
agents, and numerous foreign law enforcement officials enabled the
United States to charge and bring to New York in September 1997 the
perpetrator of the first documented case of on-line bank theft.
Vladimir Levin pilfered $5 million from Citibank accounts worldwide,
and placed them into his accomplices' accounts in the United States,
Israel, Finland, Germany, the Netherlands and Switzerland. Levin
worked from a small business in St. Petersburg, Russia, and he
accomplished his crimes with a home computer and modem. Russian
Ministry of the Interior (MVD) officers and FBI worked closely to
investigate the case, and Russian police officers traveled to New York
in August 1996 to obtain evidence related to the case. Levin was
extradited to the United States in 1997, pled guilty in January 1998
to conspiracy to commit bank fraud, and was sentenced in February 1998
to 36 months' imprisonment.
Further Efforts to Research Emerging Problems: Recent high tech
advances include new media for conducting financial transactions
electronically, such as the Integrated Circuit (or smart) Card.
Electronic commerce today is an estimated $400 million a year
industry, but by the year 2000 it could increase to as much as $3
trillion annually. Smart card technology will enable multiple currency
values to be maintained on a card and transferred to another card or
around the world via computer or telephone. This technology is fast
becoming standardized for financial and telecommunications services.
Shifting from paper to electronic money will present new international
challenges for law enforcement, most notably in money laundering and
fraud-related crime, as ever larger sums are stored on these small,
portable cards. Further research efforts focused on emerging
technology's vulnerability to international crime will be undertaken.
At this point, I would be happy to address any questions that you
might have. Thank you.
(end text)