1996 Congressional Hearings
Intelligence and Security

Great Seal Jonathan Winer, Deputy Assistant Secretary for International Narcotics and Law Enforcement Affairs
Testimony before the Subcommittee on General Oversight and Investigations of the House Committee on Banking and Financial Services
Washington, DC, September 5, 1996


U.S. Law Enforcement Response to Money Laundering Activity Associated With the Importation of Illegal Drugs Via Mexico
Mr. Chairman and members of the subcommittee: Thank you for this opportunity to discuss the U.S. Government's response to drug-related money laundering in Mexico. President Clinton and Secretary Christopher have made the fight against global money laundering and international organized crime one of our principal foreign policy concerns, integrating it with our other key national security objectives. In this regard, battling the growing strength and wealth of the Mexican drug cartels, responsible for shipping some 50% to 70% of all cocaine to the U.S. market and huge amounts of other illicit drugs, is especially important.
Success in achieving our foreign policy and law enforcement objectives in Mexico and elsewhere strongly depends on a coordinated strategy at home and abroad. As you know, both the Secretary of State and the U.S. Chief of Mission have statutory responsibilities for coordinating activities of U.S. Government personnel abroad, including the representatives of U.S. law enforcement agencies. The Department of State also supports our law enforcement mission using the tools of diplomacy to enhance international cooperation and by funding technical assistance and law enforcement training programs internationally. I would, therefore, like to discuss the State Department's role in advancing our law enforcement interests in Mexico with special reference to money laundering linked to the illegal drug trade.
As committee members know, the President gave Mexico full certification for its narcotics control record in the last cycle. There should be no mistake about the Administration's position. We share the Congress' serious concerns about the drug trade in Mexico and its impact on our own narcotics problem at home. President Zedillo also recognizes the seriousness of the drug trafficking situation and has declared it to be the principal national security threat to his country. The Mexican Government is taking demonstrable action to fight drug trafficking and related crimes, including money laundering.
The Money Laundering Threat in Mexico
Money laundering is a global phenomenon--a threat to financial institutions and stability around the world. The United States is no exception. It tends to move away from jurisdictions that impose effective controls and to those where such controls are not in place. As criminals have seen the risk and cost of money laundering rise in the U.S., they have looked to Mexico and other markets for the initial placement of their illicit proceeds. As the State Department noted in its 1996 International Narcotics Control Strategy Report (INCSR), Mexico is a high-priority money laundering concern, primarily for this reason. Its proximity to the U.S.; serious problems of corruption; and lack--until earlier this year--of adequate legislation, regulation or enforcement made Mexico an increasingly important "money laundering haven of choice for initial placement of U.S. drug cash into the world's financial system." Once placed into Mexico's increasingly sophisticated financial system, these proceeds can be moved in a variety of forms, including wire transfers and drafts drawn on Mexican banks payable through United States' correspondent accounts. All of these mechanisms are, of course, designed to conceal the illicit source of these funds. Indeed, the successful layering of complex financial transactions allows illicit proceeds, generated in the U.S., to be repatriated to the U.S. undetected.
There are many reasons why Mexico is a major destination of choice for Western Hemisphere drug cartels seeking to evade tighter enforcement measures in the U.S. The porous 2,000-mile border between the U.S. and Mexico allows bulk cash to be smuggled out of the U.S. and into Mexico with relative ease. Because Mexico is only now developing suspicious reporting and large currency transaction reporting requirements, these illicit proceeds have been placed into Mexican banks and non-bank financial institutions with virtual anonymity. Mexican officials have also stated that corruption within the supervision and enforcement systems is another important factor facilitating money laundering in Mexico. Indeed, money laundering activities are enormously profitable for compromised financial institutions, corrupt banking officials and money brokers, and others willing to exploit the weaknesses in the Mexican financial system.
Mexican officials estimate that roughly $30 billion in drug cash was repatriated to Mexican drug cartels in 1994, and an even higher amount was moved into Mexico for repatriation to Colombia during the same period. Recent allegations of money laundering and corruption leveled at important politicians in Mexico have heightened awareness and concern about this problem in Mexico and the United States.
The U.S. Response
U.S. engagement with Mexico to enhance our anti-money laundering efforts is not itself new. As part of the Administration's narcotics control strategy and its rigorous application of the drug certification law, we have targeted money laundering controls as a key component of the program to combat drugs. If we are to attack the drug cartels successfully, we must attack their financial resources with vigorous enforcement of money laundering and asset forfeiture laws. In this regard, we have for some time worked closely with Mexican law enforcement officials to investigate and prosecute money launderers and drug traffickers. The January 1996 deportation of Juan Garcia Abrego, the first foreign-based drug trafficker to be placed on the FBI's Ten Most Wanted List, is only one example of the success of these cooperative efforts. In general, the Mexican Government's performance in extraditing fugitives to the United States has improved substantially in 1996. Twice as many fugitives--10 in all--were extradited to the U.S. in the first eight months of 1996 as in all of 1995. Among the 1996 extraditees are two Mexican nationals, an unprecedented step given the Mexican constitution's strictures on extraditions of nationals. Additional extraditions of Mexican nationals are anticipated. Of course, we want to see all of our extradition requests honored in every country to bring criminals to justice. But we are seeing more criminals returned to the United States or prosecuted in Mexico, and this is progress.
The Department of State works closely with U.S. law enforcement agencies to support the full range of fugitive and other law enforcement investigations involving Mexico and, where appropriate, to secure the cooperation and participation of Mexican authorities. We also support law enforcement training efforts in Mexico designed specifically to enhance its ability to work effectively with U.S. law enforcement officials.
Our efforts have been hampered, however, by Mexico's slow progress in developing a comprehensive anti-money laundering regime of its own. Ultimately, it is the adoption and aggressive enforcement of strong laws and regulations in Mexico that will allow it to become a fully effective partner in the global fight against money laundering. We have, therefore, redoubled our efforts to work with Mexico to develop this comprehensive regimen. Our efforts have centered around two Presidential initiatives that I would like to discuss briefly.
President Clinton directed last fall that Treasury, in consultation with State and Justice, identify countries which have the most serious money laundering problems and pursue appropriate measures to address our concerns. To implement this strategy, the law enforcement, intelligence and diplomatic communities have worked together to assess global money laundering and develop country-specific programs to address it. At this juncture, we are in the initial stages of engaging diplomatic efforts with countries identified as having serious money laundering problems. In accordance with the tenets of this Presidential directive, more aggressive measures to bring about the necessary reforms are being deferred until diplomatic avenues have been pursued fully.
As we developed our money laundering strategy, it became clear that in Mexico, money laundering controls had to be part of a comprehensive drug control effort. Since President Zedillo took office in December 1994, Mexico's counternarcotics efforts have intensified significantly--in eradication, law enforcement action, interdiction, and judicial sector reform. In March 1995, President Clinton and President Zedillo established a High Level Contact Group to ensure that important areas of the bilateral relationship - including money laundering concerns - receive regular attention at the most senior levels of government, both to press for even greater cooperation and work to resolve disputes. Under the supervision of the High Level Contact Group, technical working groups have been established on such issues as counternarcotics efforts, arms trafficking, chemical precursors and money laundering.
Our efforts to engage Mexico in these related Presidential initiatives are already bearing fruit. In May 1996, after years of inaction by previous governments, the Zedillo Administration enacted a bill establishing money laundering as a criminal offense punishable by five to 15 years imprisonment. Prior to this new law, money laundering in Mexico was a tax offense which provided for a penalty of only three to nine years and could only be triggered through the course of an audit of a financial institution.
By contrast, the May 1996 legislation has important features that will clearly strengthen the Mexican Government's capability to detect, investigate and prosecute money launderers. It includes a wide range of predicate offenses--beyond drug trafficking. This is important because we know that sophisticated money launderers increasingly co-mingle the proceeds of drug and non-drug crimes. The legislation also applies equally to all those involved in laundering transactions, including the employees and officers of financial institutions. Moreover, while the law on its face requires an individual to have actual knowledge that the proceeds being laundered come from an illicit source, Mexican officials have advised us that, similar to U.S. law, the knowledge requirement also includes "willful blindness." As our law enforcement colleagues will no doubt tell you, the adoption of this standard is an important feature to compel vigilance among bank officials and others who may otherwise hide their heads in the sand to facilitate money laundering activity.
In addition to the May 1996 money laundering legislation, the Mexican Government has also submitted to the Mexican Congress a critically important legal package aimed at enhancing the government's ability to combat organized crime. This bill was approved overwhelmingly by the Mexican Senate in May and now awaits review by the Chamber of Deputies. It provides for use of modern investigative tools and techniques by Mexican law enforcement personnel, such as electronic surveillance and use of undercover operations, and also establishes a system for witness protection. These have been critical to our success against organized crime in the U.S. and we have long encouraged Mexico to consider adopting similar provisions. It is worth noting, too, that the Zedillo Government had to overcome considerable legal, even constitutional, obstacles, as well as to address public concerns about the potential for abuse of these new authorities.
We hope this important bill will pass soon so that the Government of Mexico can begin work on drafting and implementing regulations and to train its law enforcement personnel how to use the evidence obtained with these tools in criminal prosecution. Many of these regulations will involve significant departures from past practices and traditions. The government also plans to set up systems of checks and balances and other controls to prevent abuse of the new authorities by overzealous or corrupt government personnel. The U.S. has offered to provide training and technical assistance as part of a bilateral plan being developed under the auspices of the U.S.-Mexican High Level Contact Group on Narcotics Control.
The Zedillo Administration has also recognized the importance of developing an adequate reporting system for financial institutions. Pursuant to authorities provided by current money laundering legislation, the government is now drafting regulations that would require banks and other financial institutions to report suspicious transactions and large currency transactions to government authorities. The Mexican Government has established early 1997 as the target for implementing the suspicious transaction reporting (STR) requirements, to be followed by regulations for currency transaction reporting (CTR). However, the timely implementation of these regulations depends in part on Mexico's ability to procure specialized computers and software, which I will discuss in a moment.
Any discussion of Mexican law enforcement efforts must address the Zedillo Government's efforts to counter and control corruption. Both President Zedillo and Attorney General Lozano have publicly acknowledged that official corruption is a serious problem in the Mexican justice sector and have taken aggressive measures to counter it. This was a major objective of the reorganization of the Justice Ministry (PGR) in 1995. The firing of over 1,200 federal police agents for narco-corruption and other abuses is the second such mass dismissal since Zedillo took office; we view this as a promising development.
Moreover, the Mexican Government is taking greater steps to change both recruiting and personnel practices that contributed in the past to the spread of corruption; nonetheless, much more needs to be done to strengthen legal/judicial institutions. The U.S. has offered, and the Government of Mexico has accepted, training and technical assistance, and this will be expanded under the bilateral training plan. The Zedillo Government's progress in this important area to date is encouraging, but we will continue to stress the importance of meaningful and concrete action against narco and other corruption to the bilateral relationship.
Mexico's important legislative and other achievements are not themselves enough to address the threat of money laundering. The true test of the Zedillo Administration's willingness to combat money laundering is whether it will take concrete steps to implement the new laws, to adopt needed regulatory reform to supervise the financial system, to prosecute and convict money launderers in Mexico, and to seize and forfeit the assets involved. It is in these areas that the next phases of our diplomatic efforts are focused.
The Road Ahead
In the upcoming weeks and months, we will continue to move to address money laundering in Mexico. We will do so maintaining our bilateral dialogue with Mexico, supporting these efforts through technical assistance and training, and fully engaging in multilateral activities.
Bilateral Efforts: We are concentrating much of our bilateral dialogue in the High Level Contact Group process. As I noted earlier, within that framework we have formed a special sub-group to discuss specific anti-money laundering efforts and coordination issues with Mexican officials. This money laundering working group includes U.S. experts from the Departments of Treasury, State, and Justice, and Mexican experts from Treasury (Hacienda), Secretary of Foreign Relations (SRE), and the Attorney General's Office (Procuraduria). The general objectives of this group are to establish a forum in which both governments can, at a working level, candidly discuss ongoing initiatives to combat money laundering, and identify technical assistance and training that Mexican officials will require to adequately implement strong anti-money laundering measures. The group has already met twice this year, and will reconvene on a regular basis to discuss further issues such as information sharing, additional legislative and regulatory reforms, training and technical assistance and money laundering methodologies.
Training and Technical Assistance: We will support our bilateral discussions with targeted training and technical assistance. The U.S. is fortunate to have the best trained and most knowledgeable law enforcement and anti-money laundering experts in the world. Our law enforcement agencies have the benefit of decades of experience investigating and prosecuting money laundering in the U.S., more than virtually all other countries in the world. However, when attacking global money launderers, we know we must cooperate and coordinate with foreign law enforcement authorities, many of whom are ill equipped to undertake large financial investigations. We must be willing to provide our expertise to other nations as a way of accomplishing our goals. Our assistance is especially important in the anti-money laundering effort since these investigations in most instances are extremely complex and time consuming.
International law enforcement training is a critical component of U.S. foreign policy objectives. In undertaking international law enforcement training and technical assistance, particularly in anti-money laundering, the State Department has two basic goals in mind. The first is to build institutional expertise and capability in foreign countries so cooperation can increase. The second is to foster close working relationships between U.S. and foreign law enforcement authorities.
We administer our international training and technical assistance programs consistent with U.S. foreign policy. Providing training and technical assistance to Mexican officials can only further our foreign policy and law enforcement interests in combating international money launderers. We do this recognizing that resources are limited and it is important to coordinate this assistance among the multiple U.S. law enforcement agencies that have expertise in this area.
Key objectives of the interagency money laundering working group ares to identifying both short and long-term training and technical assistance needs for Mexico and to insure that practical training and technical assistance is well coordinated among U.S. and Mexican agencies. Based on the first meeting in July 1996 and an initial assessment, the working group has recommended, and the State Department will provide support, to Mexico for the purchase of hardware and software in order for Hacienda to develop the necessary tools to handle Suspicious Transaction Reports (STRs). We will also be supporting and coordinating with Justice and Treasury three to four training programs for PGR and Hacienda personnel among other short-term projects this year.
Although we have a wide range of initiatives ongoing to assist Mexico in combating money laundering, our investment in dollar terms is not large at this stage. As we identify other areas of technical assistance and training through the efforts of the money laundering working group, it is likely that additional funding will be required. All of our training efforts are designed to increase the capabilities of target countries to work effectively with our law enforcement officials and take the battle against organized crime groups to their home turf. As such, these programs further our law enforcement and foreign policy interests.
Multilateral Efforts: It is also important that we engage Mexico in multilateral fora. Not only can we encourage reform in Mexico through organizations such as the Caribbean Financial Action Task Force and the OAS, but Mexico can also be an important ally as we work to establish international standards throughout this hemisphere and beyond.
Mr. Chairman, money laundering activity in Mexico poses a real threat to the national security of the United States, but it is an even bigger threat to the people of Mexico and their financial system. The Zedillo Administration has recognized this threat and is taking concrete steps to address it. So long as Mexico continues to demonstrate the political will to move forward, the Department of State and the law enforcement community will continue to work with and support it. We will continue to work with Mexico to ensure adoption of a comprehensive anti-money laundering regime. Indeed, our experts are meeting here in Washington next week to discuss the implementation and enforcement of its new anti-money laundering law. We will support these efforts with training and technical assistance where necessary. And we will continue to support and enhance joint law enforcement activity to attack the financial base of the drug cartels. It is only through effective regulation, law enforcement and cooperation on both sides of the border that we will be able to fight the drug traffickers and money launderers successfully.

[end of document]