VI. Countering International Financial Crime

Criminal enterprises are moving vast sums of ill-gotten gains through the international financial system with absolute impunity. We must not allow them to wash the blood off profits from the sale of drugs, from terror, or from organized crimes.

President Bill Clinton
Speech at the United Nations
October 22, 1995

A. Goal: Counter International Financial Crime

The Strategy seeks to counter criminal exploitation of financial systems and institutions. Financial crimes pose a national security threat because they threaten the integrity of the financial system while fueling numerous other types of criminal activity. Financial crimes fall into two related categories: money laundering and associated offenses that criminals use to disguise illegally gained proceeds; and counterfeiting, fraud and similar activities, such as international securities and credit card fraud, that harm individuals as well as financial systems and institutions.

B. Objectives

Combat money laundering by denying criminals access to financial institutions and by strengthening enforcement efforts to reduce inbound and outbound movement of criminal proceeds;

Seize the assets of international criminals through aggressive use of forfeiture laws;

Enhance bilateral and multilateral cooperation against all financial crime, by working with foreign governments to establish or update enforcement tools and to implement multilateral anti-money laundering standards; and

Target offshore centers of international fraud, counterfeiting, electronic access device schemes and other financial crimes.

C. Programs and Initiatives

1. Combating Money Laundering

Money Laundering Methods

Large scale drug trafficking and international organized crime operations usually seek international avenues to launder money. Money launderers currently attempt to launder money using a variety of techniques such as structuring deposits into U.S. banks to avoid reporting requirements, exploiting money services businesses, using international black market exchange operations, smuggling cash in bulk to countries with less effective money laundering laws than the United States, and misusing offshore corporations, accounts and trusts. Each of these channels will be attacked through integrated federal law enforcement efforts.

Money laundering is the process that enables drug and gun traffickers and terrorist groups to convert illegal and unusable proceeds into usable funds. It is the "life blood" of organized crime. But it is also the "Achilles heel," as it gives us a way to attack the leaders of criminal organizations. While the drug kingpins and other bosses of organized crime may be able to separate themselves from street-level criminal activity, they cannot separate themselves from the profits of that activity.

Robert E. Rubin
Secretary of the Treasury
May 19, 1997

Need for a Comprehensive Approach

Experience teaches us that in order to be successful we must attack money laundering in a comprehensive manner. Sophisticated anti-money laundering strategies have driven the cost to launder money -- the percentage fee charged by the launderer - from approximately six to 25 percent in the last 15 years. Criminals, thwarted by these tougher anti-money laundering measures in the United States, now are increasingly attempting to smuggle cash to foreign countries and launder money overseas.

Denying Access to the U.S. Financial System. The strength of our financial institutions and variety of investment opportunities make the U.S. financial system an inviting haven for criminals seeking to launder their illicit proceeds. Denying criminals access to the U.S. financial system significantly hampers their ability to profit from their criminal actions.

Bank Secrecy Act. Bank Secrecy Act (BSA) provisions will be used increasingly to help law enforcement detect criminal transactions by requiring record keeping and reporting by private individuals, banks and other financial institutions. For example, financial institutions are required to file Currency Transaction Reports (CTRs) on cash transactions greater than $10,000. The Department of the Treasury further strengthened the reporting and record keeping system in 1996 by requiring financial institutions to report suspicious transactions.

BSA regulations have forced criminals to create elaborate networks to launder money, increasing both their costs and risks. Prevention and detection mechanisms to identify sophisticated criminal financial transactions will be further improved, as will current methods of analyzing BSA information and new enforcement strategies to identify, investigate and prosecute international money launderers. Money laundering investigations by Customs, the FBI, DEA and IRS have increased steadily for several years.

Halting Cash Smuggling

Increased enforcement efforts will be directed to prevent cash from being smuggled out of the United States by using undercover operations, electronic surveillance, and other investigation techniques to focus interdiction operations on high risk departures. Recent examples of the success of interagency operations and intelligence sharing include record cash seizures in Miami of $15 million concealed in ocean freight bound for Cali, Colombia in 1996, and in El Paso of $5.6 million destined for the Mexican Juarez drug cartel in 1997. In 1997, Customs seized $55.1 million in outbound currency.

In 1990, American and Swiss officials cooperated to seize and forfeit more than $48 million of criminally derived assets, including a record $24 million in U.S. currency. From 1994 to 1996, Customs seized $20 million in outbound currency and monetary instruments from private mail carriers, mainly to South American countries. Customs seized a total of $50 million in outbound currency in 1996. In a recent landmark case, the Colombian Ortiz Gaitan organization, responsible for distributing more than 30,000 kilograms of cocaine in the United States, was blocked in its attempts to wire drug profits from U.S. banks to Swiss bank accounts.

Criminal Exploitation of Outbound Mail

Customs has identified various other methods of currency smuggling that remain a challenge. Notable among these methods is the exploitation of the U.S. mail. Hundreds of thousands of dollars can be smuggled out of the United States, at only the cost of postage, in letters and packages. The ICCA will modify statutes that currently hamper Customs' ability to search outbound U.S. mail.

2. Seizing and Blocking the Assets of International Criminals

Asset forfeiture laws will also be used to deprive criminals of their ill-gotten gains. Instead those assets will be shared with foreign governments that cooperate with us in fighting financial crime. Sharing seized and forfeited assets with cooperating foreign governments builds on the already proven success of such programs at the state and local level.

Case of Juan Garcia Abrego

The case of Mexican drug trafficker Juan Garcia Abrego illustrates the effectiveness of asset forfeiture. In this case, American, British and Mexican authorities, working together and sharing information, uncovered an elaborate money laundering scheme that used multiple offshore investments, foreign bank accounts and money couriers to launder illegal drug proceeds. By the time of Garcia Abrego's arrest in 1996, joint investigative efforts had resulted in the forfeiture of over $30 million. Garcia Abrego was convicted of money laundering and narcotics charges and is serving a life sentence. American, British and Mexican law enforcement agencies shared the forfeited assets and used them to support international criminal investigations.

The Antiterrorism and Effective Death Penalty Act of 1996

Pursuant to the Antiterrorism and Effective Death Penalty Act of 1996, designation of a group as a "foreign terrorist organization" has two important financial consequences. First, it renders it illegal for persons within the United States or subject to the jurisdiction of the United States to knowingly provide material support to a designated organization. Second, U.S. financial institutions are required to block the assets of foreign terrorist organizations or their agents in this country. Any U.S. financial institution that has control over funds in which the foreign terrorist organization has an interest must report the existence of such funds to the Department of the Treasury.

Improving Asset Seizure Laws

The proposed ICCA would significantly strengthen the ability of the United States to strike at the finances of international criminals in a variety of ways. It will add numerous serious foreign crimes, including public corruption and fraud against foreign governments, as predicate acts for money laundering prosecutions.

It also will allow us to freeze the U.S. assets of criminals arrested abroad and will close loopholes related to foreign bank secrecy laws that criminals currently use to avoid forfeiture of ill-gotten gains from criminal enterprises.

3. Enhancing Bilateral and Multilateral Cooperation

Bilateral anti-money laundering efforts with foreign governments will receive greater emphasis. Pursuant to PDD-42, the United States is actively engaged in negotiating with other governments to eliminate financial safe havens. These cooperative efforts include providing assistance in drafting money laundering laws and regulations, establishing anti-money laundering institutions, and providing training in civil and criminal financial crimes enforcement.

With U.S. encouragement, for instance, Mexico has enacted anti-money laundering regulations that impose large currency transaction and suspicious activity reporting requirements on Mexican financial institutions. The United States has assisted Mexico in creating a "financial intelligence unit" (FIU) to collect and analyze financial investigative information. FinCEN is the U.S. FIU and is recognized as a leader in the field. Many other countries also have sought and received U.S. assistance in developing FIUs. There are now at least 28 functioning FIUs throughout the world.

Financial Information Exchange Agreements (FIEAs) facilitate the exchange of currency transaction information between the Department of the Treasury and other governments' finance ministries. The United States currently has FIEAs with Colombia, Ecuador, Mexico, Paraguay, Peru and Venezuela.

Multilateral efforts are essential to fight money launderers, because they move their assets to the points of least regulation and enforcement. The United States is working with other countries to develop and promote international anti-money laundering standards. The United States is promoting a number of joint efforts, including those associated with the Summit of the Americas, the Financial Action Task Force (FATF), the Caribbean Financial Action Task Force (CFATF), the Inter-American Drug Control Commission (OAS/CICAD), the Egmont Group (of FIUs), as well as other groups. Through these processes, the United States supports a system of common standards, the cooperation of FIUs, and asset forfeiture and sharing. It also participates in mutual evaluations where experts of several countries evaluate another country's compliance -- including U.S. compliance -- with international anti-money laundering standards and recommend improvements.

Multilateral efforts have contributed to the enactment of anti-money laundering laws and regulations in a number of countries. In Europe, for example, since January 1994, Austria, Finland, Greece, Ireland, Monaco, the Netherlands and Spain have implemented new money laundering legislation ranging from the criminalization of money laundering to the creation of transaction reporting systems. In 1997, Colombia passed a civil forfeiture law allowing for the seizure of drug proceeds.

4. Targeting Offshore Centers of International Fraud, Counterfeiting, Electronic Access Device Schemes and Other Financial Crimes

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 of Currency and Monetary Instruments

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 Secret Service 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 Secret Service and FBI have 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 proposed ICCA 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.

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