1997 Congressional Hearings
Intelligence and Security

This hearing of the Subcommittee on Crime will come to order.

This morning the Crime Subcommittee convenes to examine an urgent, global problem that only grows worse and more complex by the day -- money laundering. Every day, throughout the United States and around the world, narco traffickers engage in thousands of financial transactions so as to conceal their ill-gotten gain. These international criminal organizations are driven by greed, and the laundering of their proceeds is the only pathway to profit.

The magnitude of the money laundering problem can only be grasped in relation to the global drug problem. The illegal drug business is now estimated to generate $800 billion to $1 trillion in sales annually -- more than the entire global petrochemical industry. Such a magnitude of drug-tainted money poses a constant threat of political corruption and de-stabilization around the world.

Approximately 780 metric tons of cocaine are trafficked out of South America each year, of which 640 metric tons are destined for the United States. Colombian heroin, with unprecedented purity and low prices, is showing up in a growing number of cities around the country, including my own district -- Orlando. Mexican drug gangs have grown so strong and sophisticated that they now rival Colombian cartels, and pose what the Administrator of the DEA Thomas Constantine has called "the premier law enforcement threat facing the U.S. today."

And hand in hand with the growth of these sophisticated, international drug trafficking organizations, has come the growth of money laundering. Today, money laundering has reached alarming and unprecedented levels on both the national and international level.

The Mexican money laundering problem has grown so bad that drug traffickers are now driving truckloads of cash to Mexico without being challenged along the 2000-mile Southwest border. It's now estimated that $6 billion to $30 billion in drug profits are laundered through Mexico annually. And it's also estimated that more than $2.5 billion in drug money is funneled back into Colombia each year -- an amount equal to Colombia's annual income from coffee sales, and representing about 20 percent of Colombia's total exports. Most of the drug money returns in the form of contraband goods: This booming trade is actually believed to have caused a sharp slowdown in Colombia's industrial sector.

It is now estimated by law enforcement and banking officials that as much as $500 billion -- or 2 percent of the global domestic product -- is laundered each year. New York City, and Queens in particular, is described by law enforcement as the crossroads where drugs are smuggled into the United States and cash proceeds are shipped out. The law enforcement challenge in New York and throughout the world is daunting. Consider just one aspect of the problem, posed by wire transfers: The world's intricate wire transfer systems move over $2 trillion a day, involving more than 500,000 transactions.

As law enforcement has sought to uncover and prosecute money laundering over the years, the methods used by drug organizations to launder their money have grown increasingly complex and exotic. They have diversified the way they do business beyond banks and money service businesses, and are now targeting corporations. As we'll hear from our witnesses, a popular method of laundering money now is to purchase and resell fungible commodities such as cosmetics, electronics, furniture and heavy equipment. Another trend is for drug organizations to launder money by creating shell corporations that go into joint ventures with legitimate companies.

Unusual money laundering cases are becoming more commonplace as the lure of such large sums of money becomes more and more tempting. Just last month in New York City, a rabbi was indicted for taking cash proceeds from Colombian drug traffickers, and -- for a 15 percent commission -- running them through the bank accounts of a synagogue and a religious school. A second rabbi was indicted in the same case for laundering money by writing checks from the same accounts to businesses that were known fronts for the Colombian drug dealers. The rabbis were also indicted for providing $3.4 million from U.S. and Swiss bank accounts to buy an aircraft for Colombian drug traffickers.

At congressional hearings in March, 1997, law enforcement officials estimated that drug cartel money launderers in New York City have been sending more than a billion dollars annually to Colombia through storefront shops that sell telephone debit cards and money orders, cash checks, rent beepers and wire money. While the average immigrant family from Colombia in New York City earned $27,000 a year, before taxes, the amount of money being wired to Colombia from New York City was $1.3 billion. Since there were 25,500 Colombian families in New York City, each household would have to be sending $50,000 a year to Colombia to account for the flow of money.

Recently, law enforcement officials report a trend of Colombian cartels investing in American-made goods, such as computers, automobile parts and even clothing made in New York's garment district. The U.S. Attorney's Office for the Eastern District of New York is now discovering that a growing number of drug traffickers are contracting out their business to money brokers who buy and sell drug profits like a commodity.

Over the years, federal, state and local law enforcement have taken numerous steps to attack the money laundering problem. We'll hear from our witnesses today about those efforts and how successful they've been. We'll also hear some ideas about what else we have to do to take the profit out of the drug trade. Some of these ideas might sound bold -- even fanciful. But I would submit to you the following. As of July 24th, 1997, the United States is not fighting the drug war to win it. Our present campaign will not lead to victory. I've chaired and participated in numerous hearings examining U.S. counter-narcotics efforts, and I'm convinced that we do not have a national strategy for victory. I know that many members agree with me when I say that we must have a smarter, tougher, and more comprehensive plan to fight the drug war.

Drug quantity is up. Drug purity is up. And drug use among youth is up. This is unacceptable. So I'm here this morning looking forward to hearing from our witnesses about how to make it more difficult for international drug cartels to realize profit from their trafficking. And I'm prepared to consider bold initiatives that may help us fight the drug war to win it.

I recognize my friend from New York, Mr. Schumer, for an opening statement.