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

### TEXT: JONATHAN WINER TESTIMONY ON GLOBAL MONEY LAUNDERING

    (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)

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