Thursday, May 19, 2005

Key Note Address of Under Secretary Stuart Levey

California & Florida Bankers Associations’
Business Leaders Luncheon

I would like to thank Janet Lampkin (CBA CEO) and the California Bankers Association and Alex Sanchez (FBA CEO) and the Florida Bankers Association for the opportunity to speak with you today.

Your organizations are vitally important to this nation's efforts to combat terrorist financing and financial crime, and it is a pleasure for me to be speaking before you.

I have the honor of serving as the first ever Under Secretary for Terrorism and Financial Intelligence at the Department of the Treasury. My job is to marshal Treasury's resources to combat national security threats, such as proliferation and terrorism, and to safeguard our financial system from terrorist financing and money laundering. Many facets of my role, I am sure, are important to your institutions – that is, oversight of both the Financial Crimes Enforcement Network (FinCEN), which administers the Bank Secrecy Act, and the Office of Foreign Assets Control (OFAC), which administers U.S. sanctions imposed upon terrorists, drug kingpins and rogue countries.

Before I begin my remarks today, I would like to take a moment on behalf of both Secretary Snow and myself to thank you for the terrific support you and your institutions have provided us in our efforts. Before I came to Treasury, I worked at the Justice Department for the Deputy Attorney General. I knew then of the assistance financial institutions all over the country were giving to help make our country safer. Since I have come to Treasury, I have seen many more examples. I want you to know that we appreciate your assistance and great corporate citizenship very much. The partnership between the government and the financial industry established after September 11th must continue to grow as we make our country safer.

In some ways, our partnership has been codified in the USA PATRIOT Act in which the Congress recognized a new national security paradigm brought about by 9/11: information is key to the security of the nation. There are many critical provisions in the PATRIOT Act, but perhaps the most important ones deal with information sharing. The PATRIOT Act broke down walls that prevented the sharing of information between law enforcement and the intelligence community. Significantly for those of us here today, the PATRIOT Act provided us new tools to share information both between the government and financial institutions and among financial institutions themselves. These tools – when used effectively – can add immeasurably to our national security for one key reason: financial information, unlike some other types of intelligence, is highly reliable and valuable to identifying, locating and disrupting terrorist networks and others that mean to do us harm.

I am often asked how we are doing in the fight against terrorist financing. It is a difficult question, because, frankly al Qaida and other terrorist groups do not publish financial statements. Instead, we must rely on various proxies to give us a sense of our progress. In my mind, the most useful of these proxies is the intelligence information we receive. While I am limited in what I can say about it, I can tell you that the information we have been receiving lately is encouraging. We have seen intelligence suggesting that terrorists are having trouble raising, moving and storing money. We are also seeing terrorist groups avoiding formal financing channels, and instead resorting to riskier and more cumbersome financial conduits like bulk cash smuggling. Because of aggressive action by the Departments of Treasury and Justice and other agencies to shut down corrupt charities and to hold individuals who fund terrorism personally accountable as terrorists – just like terrorist operatives – we are seeing that once willing donors are being deterred from sending money to terrorist groups.

We have also used financial information to identify and disrupt terrorist networks and operations. Most importantly, we have indications that terrorist groups like al Qaida and Hamas are feeling the pressure and are hurting for money. During this same time period, we have also made our financial system's infrastructure more resilient. In short, through our partnership, we have made a difference.

I am keenly aware that this partnership has meant significant investment on your part. The Bank Secrecy Act and the burden that it places on financial institutions have gotten a great deal of attention recently. I think that attention is healthy and appropriate. Those of us charged with responsibilities in this area realize there are problems that must be resolved. We want to do a better job defining your obligations and helping you meet them, and we need to hear your ideas about the implementation of the Act for us to do this correctly. We have no desire to impose unnecessary burdens on industry and we certainly do not have all of the answers in Washington.


In the spirit of that candid dialogue, I would like to make a couple of points to keep in mind as we discuss the compliance burdens being placed upon you.

First, the threat against us continues to be real. The enemy we face is motivated, patient and ruthless. Our terrorist enemies do still want to attack us and they are very focused on our economy and financial systems in particular. We know that al Qaida targeted our nation's financial sector on September 11th with the attack on the World Trade Center, and the financial sector continues to be a favored target. We are reminded of this on a regular basis. Just last month, indictments were handed down in New York charging Issa al-Hindi and two others with conspiring to use weapons of mass destruction and providing material support to terrorists. According to the indictment, they conducted surveillance of the International Monetary Fund (IMF) and World Bank (WB) headquarters in Washington, the Prudential Financial headquarters in New Jersey, and the New York Stock Exchange Building and Citigroup Centre in New York. I am sure that you find this as chilling as I do. I am sure you will recall the heightened threat level in August of 2004 in response in part to these matters. The further we get from September 11, 2001, the harder it may be to keep our sense of urgency, but we must never let our guard down.

It is not just terrorism that we have to guard against. Many national security threats have a sophisticated financial underpinning that we can work together to degrade, proliferation of weapons of mass destruction for example. We must stay vigilant and continue to improve our capabilities to identify and act on financial information.

The second item I would like to address is the assertion made by some that the BSA reports you file are useless or at the very least unused. This is, quite frankly, a myth. To the contrary, the importance of these reports cannot be overstated. I had lunch last week with the terrorist financing section of the FBI, and they were shocked when I mentioned this assertion was being made. They were able to show me statistics suggesting that BSA data is by far the most valuable source of leads in terrorism investigations and in other sophisticated investigations being conducted by the Bureau.

I am constantly receiving examples of criminal investigations initiated by BSA reporting. Each of the federal law enforcement agencies routinely reviews suspicious activity reports, often with dedicated SAR review teams. Recently, the Drug Enforcement Administration, conducting a routine SAR review by zip codes, followed leads that uncovered a violent street gang using a money remitter to move drug proceeds both domestically and internationally. Also recently, the FBI, using SAR analysis, initiated an investigation that resulted in federal felony charges filed against seven people associated with an organization that purported to be a charity raising money for needy people in the Middle East. Four people have already pled guilty and are cooperating with the ongoing investigation.

The list of such cases is virtually endless. I hope you are as pleased as I am that the SARs and CTRs your institutions have been filing are so valuable, and understand that we take them very seriously.

We are also well aware that we need to do better on our end of the partnership, and you should know we are committed to doing that. I believe that Bill Fox, FinCEN's director, has demonstrated that he is committed to meeting you halfway in this partnership and to engage in the open dialogue I mentioned before. Let me just say a few words about how we are trying to do better.

First, we have recognized that there is a need for a single, clear voice about what is expected from the industry. We have heard the complaints about conflicting and mixed messages from various agencies, and we are taking steps to do something about it. We are now acting to coordinate the bureaucracies with responsibilities under the Bank Secrecy Act to ensure that we are implementing the BSA in a reasonable and consistent way that achieves the Act's policy goals. FinCEN is doing an outstanding job in endeavoring to direct and harmonize the government's guidance on BSA compliance. As the administrator of the Bank Secrecy Act, FinCEN must ensure that when one of the delegated examiners takes action, it is consistent with the policy goals of the BSA. Also, FinCEN must ensure that policy set in Washington translates into action by the line examiners. The federal banking regulators have shown great commitment and cooperation in working with FinCEN to bring coherence to the enforcement of the BSA. We are starting to see a change already.

I have also begun a dialogue with the Department of Justice to see what can be done to improve coordination with respect to prosecutorial decisions to seek, or even to threaten, criminal charges under the Bank Secrecy Act. I know this is something the industry is very concerned about, and I think we will be seeing significant improvements in the very near future.

Finally, we are making it a high priority to improve the flow of information to the private sector. Section 314 of the USA PATRIOT Act envisioned a robust flow of sensitive information to the private sector – a flow that we are working to create. In the past few weeks FinCEN has finalized a secure web site that can be used for this purpose, and we will now endeavor to make that real. This is a critical step because it will enable us to help you help us in identifying the types of suspicious activity that pose real dangers.

We are also working hard to ensure that your counterparts all over the world are being asked to do their part in this fight. International cooperation in combating money laundering and terrorist financing is more important than ever. As this audience well knows, the U.S. financial system does not exist as an island, which is why I spend a great deal of my time reaching out globally, working with multinational organization and regional bodies, and bilaterally with other countries to encourage the adoption of fundamental anti-money laundering and counter terrorist financing policies and procedures.

One of the most significant advances we have seen in recent weeks is foreign banks adopting OFAC's Specially Designated Nationals, or SDN, list even for transactions that do not touch the U.S. This is a momentous event in terms of multiplying the effects of our domestic sanctions authorities. In countries that lack the infrastructure to establish sanctioning bodies like OFAC, we are working directly with the private sector at the invitation of national governments and central banks. Our goal is to engage the private sector as our partners against money laundering and the financing of terrorism just as we are doing here at home.

Our continued success requires building bridges across governmental departments, between the regulatory agencies and to you, the private sector. It is a big project and it is ongoing. We are keenly aware of the mixed messages you have received and the growing pains we have all endured. However, I want to leave you with the thought that our efforts against terrorist financing and to protect our national security are a shared responsibility.

The old paradigm of governments defending their citizenry from outside threats vanished on 9/11. The threats to our security are no longer purely external, but can come from within, and require that we all think about the threat differently. In short, the government cannot do it alone. We need your help. We will work tirelessly to fulfill our obligations in this partnership. Working together, we have made great progress, and only by working together can we build upon that success.

Thank You.
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