Opening Statement of Chairman Paul S. Sarbanes (D-MD)

Hearing on the Administration's "National Money Laundering Strategy for 2001"
Wednesday, September 26, 2001, 10:00 a.m - Dirksen 538

I want to begin by welcoming Senators Levin, Kerry and Grassley, as well as Representatives LaFalce, Leach and Roukema to our hearing. They along with a bipartisan group of Members of Congress, including Senator Schumer and Representative Velazquez, have long advocated aggressive legislative initiatives to counter money laundering.

This morning's hearing focuses on the federal government's efforts to fight money laundering - what has been done, and what must be done. Its starting-point is the National Money Laundering Strategy for 2001, mandated by the Money Laundering and Financial Crimes Act of 1998.

We will first hear from our Congressional colleagues. They will be followed by Jimmy Gurule, Undersecretary of Treasury for Enforcement and Michael Chertoff, Assistant Attorney General for the Criminal Division of the Department of Justice. Next we will hear from Ambassador Stuart Eizenstat, former Deputy Secretary of the Treasury. He will be followed by William Wechsler, former Clinton Administration National Security Council staff member and Treasury money laundering advisor; Jonathan Winer, former Deputy Assistant Secretary of State for International Law Enforcement; and former Treasury Special Agent Alvin James.

We meet, of course, in the shadow of the terrorist attacks of September 11. It is more urgent now than ever before for us to develop and put in place the array of tools necessary to trace and interdict the funds on which terrorists like Osama bin Laden rely to pay for their operations. Make no mistake - the terrorist campaign confronting us is not a penny-ante proposition. It cannot be carried out without major investments of time, planning, training and practice - and the financial means to pay the bills. Our response to terrorism must include national and international programs to check-mate terrorism that are as complex and sophisticated as the practice of terrorism itself.

September 11 has sharpened our focus on the ways that vulnerabilities in regulatory and enforcement procedures in our financial system can be exploited to support terrorism. We have long known, however, the toll that money laundering takes on world economic activities. The IMF estimates the global volume of laundered money to be two to five percent of global GDP annually - that is, between $600 billion and $1.5 trillion. Money laundering combines the investment banking and payment system mechanisms of the criminal financial system; it fuels organized crime; it creates the transmission belt for money spirited out of national treasuries in numerous countries by corrupt officials. It is the terrorists' source of financial oxygen.

The United States has long taken the initiative in efforts to stop the laundering of proceeds from crime and corruption, beginning with the passage in 1970 of the Bank Secrecy Act. That Act requires banks to report suspicious activities and large currency transactions. But despite the progress we have made, especially during the last fifteen years, money laundering has become more difficult to detect. Globalization, which eliminates barriers to free capital movement and relies on advanced technology, makes it possible to move money virtually instantly between any two points on the globe. These changed circumstances have left normal banking practices and traditionally-tolerated offshore banking facilities open to grave abuse.

Recent investigations by Senator Levin's Permanent Subcommittee on Investigations have revealed that correspondent banking facilities and private banking services offered by U.S. banks can contribute to international money laundering by impeding financial transparency and hiding foreign client identity and activity. The Committee's reports also described how crime syndicates, corrupt foreign dictators and narcotics traffickers use these practices and exploit loopholes in current U.S. law. Thus criminals and terrorists achieve hidden, but direct, access to the U.S. financial system, moving under the radar screen of U.S. law enforcement officials and financial supervisors.

The Administration has yet to clarify fully its views on money laundering. In the wake of the September 11 attacks the Administration has asserted the need to track down the financial circuits that support terrorism, and the President's Executive Order of September 24 freezes the assets of 27 groups and individuals. This is certainly a step in the right direction. In the past, however, Administration officials have expressed skepticism about anti-money laundering laws already on the books, and about at least some aspects of U.S. involvement in multilateral efforts aimed at offshore bank secrecy havens.

It is time to cut the financial lifelines which facilitate terrorist operations by reducing the vulnerabilities and closing the loopholes in our financial system. I note with great interest that within the past week both the Washington Post and the New York Times have argued forcefully for tougher and broader laws. In an editorial on Saturday, September 22, the Post urged that current reporting requirements be extended beyond banks "to other types of financial institutions, such as stockbrokers, insurers and casinos. The reports that allies of last week's hijackers may have bought financial options to profit from the carnage underscore the suspicion that a bank-only focus is too narrow." And two days ago the New York Times called upon the Administration and the Congress to revive "international efforts begun during the Clinton administration to pressure adopt and enforce stricter rules. These need to be accompanied by strong sanctions against doing business with financial institutions based in these nations."

This is the time to move forward decisively, to address a confused and hazy situation that has plagued us for years, and today poses an unprecedented challenge.

I look forward to hearing from our witnesses.