EMBARGOED UNTIL 10 A.M. EST
Text as Prepared for Delivery
March 11, 1997
Introduction. Good morning Mr. Chairman and members of
the Subcommittee. I am pleased to appear before the Committee
to discuss Treasury enforcement's successful use of a geographic
targeting order (GTO) or "The Order" to fight narcotics
money laundering through a segment of the money transmitter industry
in the New York Metropolitan Area. The New York GTO has been in
place now for over seven months, and it has caused a dramatic
reduction in the amount of illicit funds moving through New York
The circumstances surrounding the Treasury's issuance of the New York GTO, and the lessons we are learning from it, are significant for Treasury enforcement, and we appreciate your interest. The El Dorado Task Force investigations that led to the issuance of the GTO demonstrate the value of Treasury's coordinated, systematic attack on money laundering problems affecting a particular segment of an industry. The implementation of the GTO is an example of enforcement and regulatory cooperation at its best. Perhaps most important, the GTO has demonstrated graphically that drug money launderers have been extensively abusing a segment of the relatively unsupervised money transmitter industry, and that this underground market does respond to regulatory and enforcement pressures. The GTO therefore confirms the need for all of us to work together to bring appropriate resources to bear more broadly on the problem.
The GTO. If you would, allow me to provide you with a brief overview of the GTO. The GTO has been in place since August 7, 1996, and is currently scheduled to expire on April 3, 1997. It currently requires 22 licensed money transmitters and their approximately 3,500 agents to report information about the senders and recipients of all cash purchased transmissions to Colombia of $750 or more. The GTO was issued under a provision of the Bank Secrecy Act which allows the Treasury, either on its own initiative or upon a request from an appropriate law enforcement authority, to require a financial institution or a group of financial institutions in a geographic area to comply with special reporting or record keeping obligations. The special requirements may be put in place upon finding that there is reason to believe that such reporting or record keeping is necessary to ensure compliance with, or prevent evasions of, the Bank Secrecy Act. GTOs may be authorized for no more than 60 days at a time.
The statute and regulations under which the GTO was issued constitute
a very flexible and powerful tool. Prior to the New York GTO,
Treasury had issued two other GTOs: in Phoenix in 1989; and in
Houston in 1991. Like the New York GTO, both of the earlier orders
required special reporting of cash purchased money transfers through
non-bank money transmitters. But the past two GTOs were not as
successful as the New York GTO. This was so because they were
not issued in the context of a sustained, multi-agency law enforcement
and regulatory task force investigation into abuses across a broad
segment of an industry.
Extension and Expansion. The GTO was extended and expanded
in October to include a total of 22 licensed transmitters and
approximately 3,200 agents. The order was extended again in December,
and a third time at the beginning of February.
The Money Transmitter Industry. In addition to a review
of the GTO itself, an examination of the money transmitter industry
is essential to understanding Treasury's initiative. Due to the
global trend of rapidly increasing electronic commerce and the
continuing influx of immigrants who use international transfer
services to send money home to family and friends, the U.S. market
for money transmission services has grown steadily over the last
ten years. U.S. money transmitters remit upwards of $10.8 billion,
exclusive of fees, each year, through approximately 43,000 locations
nationwide. The industry is highly concentrated: the vast majority
of the funds transfers and locations are handled by two companies,
Western Union and MoneyGram. And most of the money transmission
outlets are concentrated in six major states: California, New
York, Texas, New Jersey, Florida, and Illinois.
Most of the smaller money transmitters in competition with the
major national companies are oriented toward particular ethnic
markets and rely on their own service infrastructures for transferring
funds, and for communications and settlement among outlets. The
niche customers served by these smaller providers are willing
to pay a premium for value- added services, such as receiving
informal news from other countries. These niche transmitters often
are bilingual, and located in urban ethnic communities.
State regulators are monitoring the growing money transmission
market with great interest. Twenty-three states now have licensing
requirements for money transmitters, but those regulations vary
a great deal, and are primarily focused on consumer protection
issues. Some states, including New York, also require each licensed
money transmitter to register the names and locations of each
of its legal agents or vendors. There are 52 licensed money transmitters
in New York, which operate through thousands of agents.
Despite these licensing procedures, it has become clear that the
money transmitter industry is vulnerable to abuse by organized
money launderers. This fact has been made plain as day by the
work of the Treasury-led El Dorado Task Force.
El Dorado. The third piece of the picture requires further
description. The El Dorado Task Force can serve as a model of
interagency cooperation and innovation in combating a broad base
of money laundering and financial crime. The task force is a joint
federal, state and local effort that includes some 140 agents,
police officers and support personnel from 13 agencies, including
the Customs Service, IRS Criminal and Examination Divisions, the
Secret Service, the NYPD and New York State Banking Department.
The task force targets systems or industries that facilitate money
laundering. Its resources are aimed at abuses in non-bank financial
institutions, banks, brokerage houses and private banking, and
the bulk transportation and smuggling of cash. Since its inception
in 1992, El Dorado has enjoyed a legacy of success unmatched in
federal law enforcement. The task force has seized in excess of
$150 million in currency, made 700 arrests, and captured more
than 2 tons of cocaine and 120 pounds of heroin.
El Dorado's Operation Wire Drill helped lay the groundwork for
our GTO. Wire Drill is an ongoing investigative effort focused
on systemic abuses in the money transmitter industry. Over the
past several years preceding the GTO, Operation Wire Drill investigations
have led to the conviction of hundreds of persons and the seizure
and forfeiture of over $10 million dollars associated with money
laundering through the agents of licensed money transmitters.
These investigations focused primarily on transfers of funds to
Colombia and the Dominican Republic. El Dorado has been able to
demonstrate the complicity of money remitter agents in the simple
scheme of structuring large cash transactions to avoid the reporting
and record keeping obligations of the Bank Secrecy Act, using
false invoices and fabricated identities of senders and recipients.
In July 1996, based on an investigation conducted by the El Dorado
Task Force, the government secured the first-ever guilty plea
of a licensed money transmitter, Vigo Remittance Corp., to money
Armed with information generated by El Dorado's Wire Drill investigations,
the U.S. Attorneys from the Southern District of New York, the
Eastern District of New York, and the District of New Jersey,
along with senior officials of Customs, IRS, and FinCEN presented
me with a compelling case that a GTO would be an appropriate measure
to take with respect to a broad segment of the money transmitter
industry in the New York area.
Tailoring the GTO. As I already have indicated, the GTO
is a very flexible tool. FinCEN worked closely with the primary
Assistant U.S. Attorney, and representatives of Customs, IRS and
the Department of Justice, to review the application and craft
an appropriate order. Twelve licensed transmitters and their 1,600
agents were identified as particularly vulnerable to abuse. A
number of factors were considered in addition to the evidence
generated by the Wire Drill investigations in the identification
of their subjects. Perhaps most strikingly, the business volume
of the 12 money transmitters simply did not accord with the size
of the Colombian community in the New York area. New York State
Banking Department figures indicated that the 12 originally targeted
transmitters, serving a community of approximately 25,000 households,
have been sending approximately $1.2 billion annually to South
America. About two thirds of this amount, or $800 million, goes
to Colombia. To account for this figure, each Colombian household
would have to send approximately $30,000 per year through money
transmitters to Colombia. Given that the median household income
of this same community is roughly $27,000 per year, there was
cause for concern.
The terms of the GTO. The terms of the order were designed
to avoid interfering with legitimate commerce as much as possible.
--The order was directed against transactions to Colombia because
of its peculiar status as perhaps the predominant narcotics source
country in this Hemisphere.
--The reporting threshold of $750 was estimated to be well above the average legitimate transmission of $200 - $500.
--Money transmitter agents were required daily to report identifying information about the sender and recipients of each covered transaction on a special form, and to collect and file a copy of one of three standard forms of photo ID of the sender.
--At the same time, the licensed money transmitters were required
to file, electronically on a weekly basis, the same information
filed by the agents. This feature of the order was intended to
enable investigators to check the accuracy and completeness of
filings, by comparing the filings of the agents with the filings
of the licensed money transmitters.
Finally, the GTO was made confidential, so that it would be a
breach of the order to notify any person (other than an attorney
or accountant in the context of seeking professional advice) about
its terms or even its existence.
All of the information reported under the GTO is collected at
the New York High Intensity Drug Trafficking Area (HIDTA) office
and entered into a database designed by FinCEN to facilitate entry
and analysis of the information collected.
Effects of the GTO . At this point, I would like to highlight
directly the results the GTO has produced. The GTO caused an immediate
and dramatic reduction in the flow of narcotics proceeds to Colombia
through New York City money transmitters. Curiously, business
to Columbia dropped off even at the money remitters not
subject to the GTO. This suggests that much of the money remitted
to Colombia has been controlled centrally by high level cartel
Our analysis of data generated by the GTO is ongoing, but the
targeted money transmitters' overall business volume to Colombia
appears to have dropped by approximately 30%. We believe that
most of this money has been physically removed from the New York
Metropolitan area, either for transfer through money transmitters
operating in other cities along the East Coast, or for bulk smuggling
out of the U.S. On this latter point, we have observed a dramatic
increase in Customs interdiction and seizure activity at the airports,
seaports, common carriers and highways along the east coast --
over $50 million since the GTO went into effect. This figure is
approximately four times higher than it has been in prior years.
We have also gleaned a substantial amount of intelligence out
of Customs undercover operations.
At the same time, it is clear that a significant number of money
transmitter agents have been willing to structure transactions
beneath the GTO's $750 reporting threshold. The number of transactions
in amounts below $750 have risen sharply, and the amount of funds
transferred to Colombia in such increments appears to have almost
doubled. The El Dorado Task Force has already arrested three defendants,
and executed search warrants on 22 money transmitter agents suspected
of intentionally structuring transactions in violation of the
Order; additional people are currently under investigation. One
of the three defendants has already pleaded guilty. Two suspects
are considered fugitives. El Dorado is continuing to pursue investigations
of this type. Treasury will consider imposing civil penalties
against violators who are not pursued criminally.
GTO Filings. Ironically perhaps, the reports of transactions
actually required by the GTO -- on cash purchased transfers of
$750 or more to Colombia -- have proven to be of only limited
use to investigators. Although we have no indications of widespread
non-compliance with the order, only about 1,000 required filings
have been received each month. These filings have for the most
part amounted to a "good guy" database with information
about people who have nothing to hide.
Industry Reaction.. Several aspects of the industry response
to the GTO are notable. First, representatives of most of the
licensed money transmitters have reported that they generally
approve of the GTO. Some have praised the GTO's "bright line"
rule, observing that it is is both easy to follow and easy to
enforce upon their agents. They also welcome the GTO's elimination
of any unfair competitive advantage one transmitter might have
over the others. They believe the GTO assists them in maintaining
their network of agents, and that it is it is particularly important
to those transmitters which have imposed tight restrictions on
their agents in response to pressure already brought to bear upon
them by El Dorado investigators.
Also of interest, is the fact that since the GTO was put in place,
several money transmitter agents have lowered their fee for transfers
to Colombia from 7% to 5% of the value of the transfer. This appears
to be a logical business response to a reduction in the demand
for services. This is particularly important because it represents
a benefit of the GTO to legitimate customers of money transmitters.
Next Steps. The final issue I would like to discuss today
is next steps. The GTO's confidentiality provision was lifted
in early December, in order to begin a public policy discussion
about what has been learned, and what next steps are available
Naturally, we have begun to consider whether, and under what circumstances,
the Department of the Treasury might wish to issue additional
GTOs. The New York experience has taught us a couple of key lessons
as we ponder this question. First -- and I can't stress this point
enough -- the task force environment is key to the successful
management of the additional administrative, analytic and investigative
work involved in a GTO. Without the coordinated analytic and investigative
effort involving all of the El Dorado task force participants,
we would not even know what a success we have, let alone be in
a position to capitalize on it. In addition, the New York GTO
involved considerable administrative effort (and opportunity cost),
much of which was born by FinCEN.
Second, the efforts of the U. S. Attorney's Office in the Eastern
District of New York in pursuing a series of cases over a two-
year period were critical to building an investigative foundation
that justified the GTO. We applaud the Department of Justice for
encouraging other districts, to take this kind of approach. This
is a classic example of less in the short term leading to more
in the long term.
Third, the GTO tool is intended to prevent and detect abuses,
and cannot replace traditional enforcement techniques. The New
York experience has demonstrated the powerful enforcement ramifications
a GTO can have when the local authorities are prepared to make
use of it and where the regional record justifies it. Those conditions
may not prevail everywhere, at all times.
With this in mind, and in the context of our overall strategy
to combat money laundering, we at Treasury intend to continue
looking carefully, and working with the Department of Justice
and other law enforcement and regulatory officials, to find appropriate
situations that may lend themselves to application of additional,
tailored GTOs in other locations.
Permanent Regulatory Solutions. We are also nearing completion
of a number of notices of proposed rulemaking intended to address
vulnerabilities in the money transmitter industry. First, we intend
to implement the Congressional mandate to register money services
businesses generally. A Federal registration requirement -- while
relatively easy for businesses to comply with -- will consolidate
information about the industry for investigators, and put real
teeth into the law that already makes it a federal crime to operate
an unlicensed or unregistered money transmitting business. In
addition to the registration requirement, we hope to publish in
the near future proposed rules to require special record-keeping
and reporting by money transmitters. Finally, we are working with
the Department of Justice to develop a series of meetings of U.S.
Attorney's and Federal law enforcement agencies from other parts
of the country where drug money laundering is a particular problem.
We will be looking to explore ways to leverage Treasury's unique
tools in partnership with Justice to develop additional innovative
Conclusion. In closing, I would like to emphasize how proud
I am of the men and women in Treasury enforcement as well as the
Department of Justice, the New York Police Department, and the
New York State Banking Department, who have worked so hard to
make the El Dorado Task Force and the New York GTO so successful.
The dedication to service, team-work, and professionalism demonstrated
by these individuals is deserving of the Committee's attention.
Thank you for the opportunity to tell you their story.
I would be happy to answer any questions you may have.