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FROM THE OFFICE OF PUBLIC AFFAIRSJuly 16, 2003JS-559

Remarks byMichael A. DawsonDeputy Assistant SecretaryCritical Infrastructure Protection and Compliance PolicyDepartment of the TreasuryTo theBankers' Association for Finance and TradeWashington,D.C.July 15,2003Implementation of the USA PATRIOT Act with respect to Participation byU.S.Domestic Financial Institutions in International Financial ServicesThank you for inviting me to speak to you this evening. I am especially pleased tobe here tonight because the Bankers' Association for Finance and Trade has beenthinking about anti-money laundering issues since President Reagan was in theWhite House, when money laundering was finally made acrime. Indeed, since itsbeginning, almost exactly 82 years ago in the Summer of 1921, the BAFT has beenand remains a catalyst in developing solutions in international banking legislationand regulation. And TomFarmerhas been associated with you for the last fewyears, and is someone who has effectively represented you and the more than 150members of the BAFT.Needless tosay, nternational financial services are an important component of theU.S. and world economy. In the United States, you and your membership provideimportant parts of the foundation of international finance. For example, you ensurethat the dollar clearing operations operate smoothly and in an orderly fashion,financing not only American trade, butmuch of the trade of an entire world. Inaddition to supporting trade, international financial services support trade, helpmultinational companies hedge risk, and promote economic development aroundthe world.It would be a mistake to conclude that international financial services are rarifiedproducts that benefit only the very wealthy or global companies. Indeed,international financial services in one way or another are part of the arrayoffinancial services offered by very small banks, and by the banks in the Cityof

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Manhattan in Riley County, Kansas, as well as by the banks on Manhattan island inNew York. International financial services benefit people at all income levels withinboth poor and rich countries. For example, 12 million Americans work in jobs thatdepend onexports of U.S. products andservices - U.S. international financialservices finance the trade that creates these jobs. Later in my remarks, I wish tofocus on another example- the international retail money transfer business. Toborrow a description of remittances from Don Terry at the Inter-American Dialogue,this year 100 million people working abroad will send $100 billion to their familiesback home. For every sender, there is typically not just one recipient, but a familyof recipients. Each year, therefore, as many as 500 to 600 million people benefitfrom the international money transfer business. That's about one out of every tenpeople on the planet. This helps demonstrate the reach and importance ofinternational financial services.Our challenge at the Treasury, as regulators, is to preserve the importantcontributions that international financial services make to the well-being of people inthe United States and around the world while ensuring that international financialservices are not abused by terrorists and money launderers to exploit our financialsystem. This requires a risk-based approach in which we ask financial institutionsto guard against real and active threats with significant consequence, rather thanagainst threats that are imagined or of relatively little practical significance.We do this best, we believe, by setting targets rather than by micromanagement ofyour operations by regulation, and by fostering a system in which transparencyexists. Indeed, President Jefferson wrote to Treasury Secretary Gallatin in 1803that transparency in financial institutions "gives a chance for the public eyepenetrating into the sanctuary of those proceedings and practices." What PresidentJefferson said 200 years ago about the importance of transparency in the financialsystem is as true today.In my remarks tonight, I will report on our progress in implementing the provisionsof the USA PATRIOT Act that bear on international financial services. I will alsoshare some observations on the degree to which other important financial centershave followed suit. I will then focus on a specific international financial service -remittances - international transfers of money by people working abroad in the USto their families back home. I will conclude with some suggestions about next stepsand future directions.Implementationof the Provisions of the USA PATRIOT Act that Bear onInternational Financial Services. f y,

Ws:-'"President Bush noted on October 26, 2001, that the USA PATRIOT Act "will giveintelligence and law enforcement officials important newtools to fight a presentdanger." Title III of this Act gives the Treasury the responsibility to forge those newtools within the financial services sector, balancing the national needs to be vigilantagainst money laundering andterrorist financing, while ensuring that these toolsactually work and can be meaningfully operated in the reality of modem financialinstitutions.I want to focus my remarks on our progress in implementing provisions of the USAPATRIOT Act that bear most directly on international financial services. I shouldnote, however, that in a very real sense virtually all of the regulations we issueunder the USA PATRIOT Act impact international financial services in one way oranother.Starting immediately after passage of the Act, the Treasury began efforts thatresulted in late 2001 in the implementation of Sections 313 and 319 with a ban onties by U.S. banks with foreign shell banks. The banking industry respondedheroically by providing its energy, thoughts, and best efforts to ensure that we hadquickly up and in place a ban on all such activities, both direct and indirect. Shellbanks had been abused on many occasions by criminals, and it was time for thegovernment and the banking industry to act to stop their perfidious activity.

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Indeed, your industry was able to help uscraft a meaningful process fo rcertifications that would in fact meet the two goals of stopping these activities anddoing so in a way that was workable. In so doing, you were not only furthering theresponsibilities set before you by law, but were also doing a service for theAmerican people.A further area of effort was the establishment of formal customer identificationprograms pursuant to Section 326 of the PATRIOT Act. Although theimplementation of this effort is still underway, I want to note the superb quality ofcomments provided by the industry, and your ready willingness to meet with us toclarify or shed light on all comments made.We finalized these requirements in May, thanks to the many excellent points made,and are working to consider areas where we can further be of assistance inclarifying the intent of the regulations issued. I would also note here thetremendous assistance provided to us by all those within the regulatory community,including the independent regulatory agencies. The joint 326 rule is, I am told, oneof the largest, most complicated joint rulemakings that our experts can remember.Another tool is the requirement under Section 312 of the PATRIOTAct that wepromulgate rules requiring enhanced due diligences for foreign correspondentaccounts andprivate banking accounts. I know that this topic is of intense interestto many of you. Our rulemaking is still in progress, however, and I can't tell youanything about what the final rule will say. What I can tell you is that we appreciatethe many fine comments we have received, and that we are working on finalizingthese regulations. ,

ac.'iStill another important tool is the authority under Section 311 of the PATRIOTAct torequire U.S. financial institutions to take one or more special measures with respectto a "primary money laundering concern." This is an extremely powerful tool. OurGeneral Counsel, David Aufhauser, has called this the "smart bomb" of terroristfinancing. It can be directed against a country, an institution, or a practice. And itcan require special measures ranging from increased recordkeeping and recordingobligations, to enhanced due diligence, to termination of banking relationships. Wehave used this extremely powerful tool, most notably with regard to Nauru, andstand ready in appropriate circumstances to use it again. While we are mindful ofthe fact that such measures should be used sparingly, and not generally as a firstresort, wewill not hesitate to use these extraordinary special powers again if thecircumstance warrants its use.Progress of Other Financial Centers in Improving Their Anti-MoneyLaundering and Anti-Terrorist Financing Rules.As we increase the anti-money laundering and anti-terrorist financing burdens onU.S. financial institutions, we must ensure that other jurisdictions are following suit.This is for two reasons. First, raising the obligations for U.S. financial institutionswill do little good if money launderers or terrorists can, as the 2002 National MoneyLaundering Strategy notes, "escape detection merely by moving funds to countrieswith weak anti-money laundering regimes." Second, the obligations raise costs forU.S. financial institutions serving legitimate customers. Unless other jurisdictionsimpose similar obligations on their institutions, our institutions will suffer acompetitive disadvantage.Fortunately, other jurisdictions are following suit.In Switzerland, for example, the number of reports on suspicious moneytransactions received by the Swiss government increased by 56 percent in 2002.Interestingly, for the first time, the majority of reports have originated from the non-banking sector. Both the marked increase and the fact that reports from thebanking sector no longer predominate, are attributed by the Swiss to a change andtightening of reporting regulations on international money transactions. This isanother example of the importance of various countries working together andlearning from one another benefits us in the United States, as well as those abroad.



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Similarly, the U.K. government has been a leader in anti-money launderingrequirements, that work to balance benefits with burden. However,as the U.K.government itself as noted, thereare challenges remaining in achieving that levelofbalance. Indeed, recent U.K proposals to examine the administrative structure ofU.K. agencies devoted to countering money laundering evidence the persistentchallenge of money laundering, and the need by all governments to ensure thatsuspicious activity reports are actually used, and that meaningful and concreteinformation is provided to the financial institutions charged with making reportsofsuspicious activity.One challenge we face going forward is to keep our focus on anti-money launderingand, especially, anti-terrorist financing regulations. Moving beyond these objectivesand attempting to use anti-money laundering regulations to address other issuesrisks undermining the broad private sector and public sector support for theseinitiatives. A second challenge is to ensure that other jurisdictions enforcethe lawsthey enact. Otherwise, our successes will be illusory. A third challenge is tomeasure the effectiveness of our domestic and international efforts to fight money-laundering and terrorist financing. Only then can we ensure that our regulations arewell-calibrated to stop money-laundering and terrorist financing while expandingaccess to financial services and minimizing the impact on consumers' interest inprivacy.Remittances.

I wish to focus for a few moments on one of the most important internationalfinancial services - remittance. As I mentioned at thebeginning of myremarksabout 100million people send $100 billion to as many as 500million people aroundthe world. One out of every ten people on the planet participate in thesetransactions. They are extremely important. The numbers are staggering. In2001,$10 billion was sent to India, by Indian workers around the world. Another $10billion was sent to Mexico. Most of that money comes from Mexicans working inthe United States, making the U.S.-Mexico remittance market the single biggestremittance market in the world. In some countries remittances amount tosignificant portion ofGDP. In2001, $6.4 billion was remitted to the Philippines -that's 8.9% of GDP in the Philippines. Remittances are particularly significant to anumber of countries in the Western Hemisphere. In2001, remittances amount to7.9% of GDP in Ecuador, 8.5% in Honduras, 9.3% in the Dominican Republic,13.5% in Jamaica, 13.8% in El Salvador, and 16.2% in Nicaragua.At Treasury, we are focused on ensuring that the regulations we pronrjulcjate underthe USA PATRIOTAct do not impede competition or impose undue .burdens' on thebusinesses - money transmitters, banks, and credit unions - that that have steppedin to provide these important services. While remittancesare very large in theaggregate, they are typically very small in any one particular instance. Evenaslight increase incosts that flow from increased regulations can have a significantimpact for the recipients.As one customer told Time Magazine, in describing the significance of costcompetition among financial services institutions, "[t]wo dollars is not a bigdifference here, but it's a big difference in Nicaragua." The lower we can keepcompliance costs while at the same time preventing the use of international moneytransfers in money laundering and terrorist financing, the better.

Next Steps.In the course of my remarks, I have mentioned many of the challenges that wefaceas we continue to implement the anti-money laundering and anti-terrorist financingprovisions of the USA PATRIOT Act. I would like to close by emphasizing what Iregard as one of the most important challenges - measuring oureffectivenessandsharing that information with the private sector.As I have said before, it is in the government's interest to provide financialinstitutions with this information. The government, like you, wants to ensure thatyour resourcesare put to their most productiveuse in the financial front of the waron terrorism. We, quite literally, want to maximize the bang we get out of your



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bucks. We want to sustain your institutions' commitment to the financial front of thewa r on terror, by showing you how valuable your efforts are. Of course, there arelimits to what information we can share. We can't compromise open investigations.We can't compromise sources and methods of collecting intelligence. There arealso limits to the information we have. It is difficult to quantify the deterrent impactof the regulations, it is also difficult to trace some of the specific successes in thefinancial front of the war on terror to the efforts of specific institutions to comply withspecific provisions of the USA PATRIOT Act. Our principal challenge is to worktogether within these constraints to develop and share information that helpsmaximize the effectiveness of the regulations and sustains the strong private sectorcommitment to fighting terror.I have been encouraged by recent improvements in information sharing. Forexample, at the most recent meeting of the Bank Secrecy Act Advisory Group, fieldagents described their experiences in using Section 314 requests as aninvestigative tool. They documented, first, that the majority of these requests wererelated to terrorist financing cases, alleviating a concern in the industry that theSection 314 requests would be used for less significant cases. They also explainedhow useful the information generated by the requests has been. Financial CrimesEnforcement Network Director James Sloan also detailed steps that we have takento improve the Section 314 process to minimize the compliance burden on financialinstitutions while preserving the effectiveness of the requests as an important lawenforcement tool. I wish to note, in particular, the efforts of the Bank Secrecy ActAdvisory Group to improve information sharing between law enforcement and theprivate sector. I look forward to seeing other examples of such improvedinformation sharing across government.


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T4 B7 Dawson- Michael Fdr- Entire Contents- 7-15-03 Michael a Dawson Remarks to Bankers Association for Finance and Trade- 1st Pg Scanned for Reference 458