Opening Statement
Of Rep. James A. Leach
Chairman, House Banking and Financial Services Committee
Hearing on Money Laundering, H.R. 4005 and H.R. 1756

The Committee meets this morning to review efforts by federal law enforcement authorities and financial regulators to combat the problem of money laundering, particularly as it relates to the massive narcotics trade between the U.S. and its Latin, Central American and Caribbean neighbors.

It should be stated at the outset that while money laundering is typically viewed as part and parcel of the larger problem of narcotics trafficking, it is also closely connected to another issue of central concern to this Committee – the assault on the integrity of financial systems around the world. In an era of rampant crony capitalism and corruption – with financial institutions from the Caribbean to Moscow increasingly becoming beltways for money laundering rather than vehicles for facilitating legitimate commerce – the efforts of policymakers and law enforcement officials to develop innovative approaches to fighting money laundering take on particular urgency.

In assessing the current status of federal anti-money laundering initiatives, the Committee confronts a "good news-bad news" circumstance. The "good news" is that U.S. law enforcement has in recent weeks scored significant successes in revealing channels and methodologies used by narco-trafficking organizations to launder the proceeds of their U.S. operations. The Committee will hear from the federal law enforcement officials responsible for overseeing Operation Casablanca, a three-year undercover investigation which the Treasury Department has called the "largest, most comprehensive drug money-laundering case in the history of U.S. law enforcement." We are here today in large part to recognize the outstanding efforts of law enforcement officials who planned and executed this operation, which to date has yielded indictments of a series of banks and over 100 individuals, as well as the seizure of about $100 million in illicit drug proceeds.

The "bad news" is that Operation Casablanca has exposed significant tensions in the important bilateral relationship between the U.S. and Mexico, which arise out of a Mexican contention that both its national sovereignty and its laws have been violated by the activities of U.S. law enforcement officials operating on Mexican soil. Some senior Mexican officials have even gone so far as to suggest that their government will seek to prosecute U.S. Customs agents who conducted undercover investigative activity in Mexico.

The U.S. must of course be sensitive to sovereignty concerns of any country, especially one whose border we share and whose economic stability and continued commitment to democratic principles are paramount to U.S. interests in this hemisphere. However, what is difficult for many Americans to understand is why sovereignty should be invoked in protest of a legitimate law enforcement operation that had as its ultimate targets the narco-traffickers who have wreaked such devastation on communities and families in both of our countries.

It goes without saying that any attempt by Mexico to extradite U.S. law enforcement agents who participated in Operation Casablanca would risk irreparable damage to relations between our two countries. On this question, there should be no mistaking the resolve of Congress to stand four-square behind law enforcement officers as they participate in legitimate law enforcement efforts. They deserve our unqualified support.

On the matter of sovereignty, two separable issues present themselves. The first relates to the importance of sworn law enforcement officials abiding by the rule of law, both U.S. and Mexican, which I am assured was the case in Operation Casablanca. The second relates to national security, which is a fundamental element of national sovereignty. Arguably, for instance, in today’s post-Cold War environment, U.S. national security is in greater jeopardy from international drug cartels than from any foreign army.

After all, the sovereignty of any nation is jeopardized when its social systems are undermined by those who would poison its citizenry. That is why this country has accorded so much attention to the interdiction issue. Those countries where narcotics are produced and transshipped may be correct in pointing out that the principal challenge for user countries such as the United States is to decrease demand. Certainly, we in this country have a grave responsibility to do everything in our power to stifle demand by educating our populace about the debilitating consequences of drug addiction. By the same token, we have a responsibility not to neglect the supply problem, which is why the effort in Operation Casablanca to identify drug traffickers and bring to justice those who launder their ill-gotten gains should be applauded.

Here, commonality, rather than dissimilarity, of Mexican and American interests should be stressed.

The history of the drug trade is that those countries whose citizens produce drugs and/or which serve as transshipment points for narcotics generally find that drug use increases among their own people as well, and that corruption inevitably follows. Indeed there is no more corrupting influence on society than the drug trade. It inflicts damage both on countries with excess demand and countries whose citizens profit from that demand. Combating drug trafficking is an international responsibility, the failure of which jeopardizes the sovereignty of all countries.

The aspect of Operation Casablanca that has created particular controversy in Mexico is that it was a sting operation, in which Mexican bankers and financial intermediaries for drug cartels did business with U.S. Customs agents posing as money launderers. Mexican officials have complained that they were given only minimal advance notification of the sting, and may not have been informed how extensively U.S. agents were operating in undercover capacities on Mexican soil.

In this regard, let me simply say that sting operations are a legitimate law enforcement technique that can only succeed if conducted with a high degree of confidentiality and a minimum of disclosure. For example, when Members of Congress were "stung" by the FBI in the Abscam affair some years ago, the House leadership was not, to my knowledge, notified in advance that members of this body were targets of a government probe, nor should it have been. Moreover, Customs officials have been publicly quoted saying that the targets of Operation Casablanca were not entrapped or in any way coerced into committing unlawful acts; rather, they were active and eager participants in the laundering of millions of dollars they clearly understood to be the proceeds of narcotics trafficking.

The results of Operation Casablanca – which disclosed complicity in drug-related money laundering by employees of 12 of Mexico’s 19 largest banks – suggest a pervasive problem, rather than an isolated or incidental one

But the financial institution corruption that has been revealed should not obscure the fact that many Mexican law enforcement officials labor heroically at significant personal risk against narcotics smuggling organizations in their country that are among the most sophisticated and violent in the world. Those on both sides of the border who have put their lives in jeopardy deserve respect and commendation. Just last week, for instance, it was reported that Mexican authorities had arrested the leaders of what the head of the U.S. Drug Enforcement Administration called the "largest methamphetamine and chemical trafficking organization identified by U.S. law enforcement" on money laundering and racketeering charges. This comes as particularly goods news to my state because cities such as Des Moines have literally been inundated in recent years by methamphetamine, much of which is manufactured and distributed by Mexican cartels. These arrests demonstrate the very tangible benefits that accrue when Mexican and U.S. law enforcement work together in a cooperative spirit. It was therefore dismaying to read yesterday that a Mexican judge has dismissed all but one of the charges brought against the suspected methamphetamine traffickers, though the same report also indicated that the Mexican Attorney General has promised to pursue their extradition to the U.S. to stand trial on pending narcotics indictments.

Here, the obvious deserves underscoring: Law enforcement – especially drug related – is dangerous business. While Mexican authorities were notified in broad outline of the Caseblanca probe, they were not informed of the details of this money laundering investigation because such disclosure would have jeopardized the lives of law enforcement agents. In this regard, it is impressive, if not astonishing, that in a world of loose tongues the Casablanca investigation was kept confidential for three years. The U.S. Customs Service is to be commended for its extraordinary discipline, as well as bravery. And, as we look at problems of our two societies – too much demand in America and too much trafficking in Mexico – it should be stressed that in the last two years some 200 hundred police officers were killed in the line of duty in Mexico. This is particularly significant for in drug investigation circumstances, Mexican law enforcement officials are understood to frequently be confronted with the dilemma of either going on the take, thus enriching their families, or putting their lives in jeopardy. Clearly, the lose of life statistics underscores that there are heroes, as well as villains, on both sides of the border.

From this perspective, it would seem self-evident that what is needed is a commitment by both the Mexican and U.S. governments to put this episode behind us and to work diligently to ensure that the ill will it apparently engendered does not fester and poison the critically important relationship between our countries. In this regard, it is encouraging that even as this Committee convenes this morning, an interagency working group of U.S. and Mexican officials – established by President Clinton and President Zedillo in 1996 to develop a cooperative strategy for bi-national action against drug trafficking – is meeting in Washington. Hopefully, a candid exchange of views at that session on Operation Casablanca and the issues that have arisen in its aftermath will go a long way toward restoring the sense of trust and mutual respect that must exist if our two governments are to wage a successful battle against drug-related money laundering.

In addition to reviewing the efforts of U.S. law enforcement agencies to combat money laundering, the Committee meets today for the purpose of examining whether the tools we have given law enforcement to fight this battle are sufficient. Toward that end, the Committee has asked the government witnesses who will appear this morning to provide us with their views on two pieces of pending legislation: H.R. 4005, the Money Laundering Deterrence Act of 1998, a bill I have introduced to strengthen the hand of federal law enforcement in detecting and prosecuting money laundering offenses; and H.R. 1756, the Money Laundering and Financial Crimes Strategy Act of 1997, which has been introduced by our colleague from New York, Ms. Velazquez, and of which I am a co-sponsor. It is the intention of the Chair to move to mark up these two bills immediately upon the conclusion of today’s hearing.

I will let the gentlelady from New York address the merits of her bill in her opening statement. My legislation, which is co-sponsored by the Ranking Minority Member and several other members of this Committee, does a number of things:

• First, it transfers from the U.S. tax code to the Bank Secrecy Act the requirement that merchants report cash transactions in excess of $10,000, thereby making such reports more widely available within the law enforcement community.
• Second, it extends "safe harbor" protections to accountants who file Suspicious Activity Reports.
• Third, it clarifies existing statutory language regarding the disclosure of the filing of a Suspicious Activity Report.
• Fourth, it provides financial institutions with liability protection when supplying employment references that may include suspicions of involvement in illegal activity, unless such suspicions are known to be false or the institution has acted with malice or reckless disregard for the truth.
• Fifth, it makes Suspicious Activity Reports available to self-regulatory organizations as defined by the Securities and Exchange Act of 1934.
• And finally, it makes clear that violating a geographic targeting order issued by the Treasury Department is illegal.

I am pleased to announce that the American Bankers Association has endorsed this legislation, and I ask unanimous consent that their letter of support be included in the record. It is also my understanding that the Treasury Department and the Department of Justice, both of which are represented here today, generally support the legislation.

Appearing before the Committee this morning is the distinguished senior Senator from Iowa, Charles Grassley, who chairs the Senate Caucus on International Narcotics Control and has a long and distinguished legislative track record on drug and money laundering issues. He will be followed by Treasury Undersecretary for Enforcement Raymond Kelly, Deputy Assistant Attorney General Mary Lee Warren, and Deputy Assistant Secretary of State Jonathan Winer, who will provide us with a report from the front lines of the battle against money laundering.

I want to offer the Committee’s special thanks to Mr. Kelly for being here this morning, because I know that he has a date later today with a Senate Committee that will be considering his nomination to be the next Commissioner of Customs. We wish him luck in the confirmation process, and commend him for the outstanding job he has done in the post he will be vacating at Treasury. Representatives of the Federal Reserve and the Comptroller of the Currency will provide us with a regulatory perspective on money laundering issues; and, as we will hear, the Federal Reserve also played a critical role in the success of Operation Casablanca. Finally, we will hear from a panel comprised of Jack Blum, a leading member of a United Nations commission that has just released a major study of international money laundering, and Chuck Saphos, former chief of the Narcotic and Dangerous Drug Section of the Criminal Division at the Department of Justice.

I would now like to recognize the Ranking Member, Mr. LaFalce, for an opening statement. Because Senator Grassley has a pressing engagement on the other side of the Capitol, it is my hope that we can limit opening statements to the Mr. LaFalce, Ms. Velazquez, and Rep. Bachus, who has demonstrated a strong commitment to fighting money laundering in his capacity as chairman of the Committee’s Oversight Subcommittee.

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