Testimony of Dennis M. Lormel, Chief, Financial Crimes
Section, FBI
Before the House
Committee on Financial Services
October 3, 2001
"Cutting off the Financial
Lifeblood of the Terrorists"
Good morning Mr. Chairman and
members of the Committee on Financial Services. While I am
pleased to appear today on behalf of the Federal Bureau of
Investigation (FBI), I am deeply saddened by the tragic circumstances
that have brought us together for this hearing. The terrorist
acts of September 11 were among the most horrific crimes ever
committed against the citizens of this Country. Of course
it was not only the citizens of the United States that were
victims of these unprecedented terrorist attacks, it has profoundly
impacted people throughout the world.
As a preliminary matter, the
FBI strongly supports the Money Laundering Act of 2001, which
the Justice Department submitted to Congress on September
25th. Assistant Attorney General Chertoff's testimony discusses
this legislation in detail. I will simply say that enactment
of these proposals would greatly assist our efforts to fight
terrorism, as well as a wide variety of financial crimes.
As you well know, the FBI ,
in conjunction with law enforcement and intelligence agencies
throughout the U.S. and the world, is in the midst of the
largest, most complex and perhaps the most critical criminal
and terrorism investigation in our history. The FBI has dedicated
all available resources to this investigation including over
4,000 Special agents and 3,000 support personnel. Nothing
has a higher priority than determining the full scope of these
terrorist acts, identifying all those involved in planning,
executing and/or assisting in any manner the commission of
these acts, and bringing those responsible to justice. First
and foremost in our priorities is doing everything in our
power to prevent the occurrence of any additional terrorist
acts.
So while I wish none of us needed
to be here today, circumstances sadly have made this hearing
all too necessary. Therefore, I welcome the opportunity to
work with this Committee and all members of Congress in our
efforts to cut off the financial lifeblood of the individuals
and organizations responsible for these terrorist attacks.
Identifying, tracking and dismantling the financial structure
supporting terrorist groups is critical to successfully dismantling
the organizations and preventing future terrorist attacks.
I thank this Committee for realizing the importance of the
financial structure of terrorist organizations to their activities,
and for calling this hearing to focus attention on cutting
off the financial lifeblood to these organizations.
Given that the FBI is currently
engaged in a highly complex and sensitive pending criminal
investigation, I am limited in what I can discuss in an open
hearing concerning aspects of the investigation, and in regards
to specific strategies for identifying and taking action against
those involved in financing the individuals and organizations
involved in these terrorist attacks. I will of course make
every attempt to accommodate any requests the Committee might
have in these regards in a closed hearing/briefing or through
written questions and responses. For purposes of today's hearing,
I will speak in general as to the FBI's strategy to identify
and take action against the financial structure of terrorist
organizations, and vulnerabilities or high risk areas in the
financial services sector that should be addressed.
In general, the FBI's strategy
in the investigation of terrorist organizations emphasizes
identifying and tracing funds used to finance and fund these
organizations. As is the case in so many types of criminal
investigations, identifying and "following the money"
plays a key role in identifying those involved in criminal
activity, establishing links among them, and developing evidence
of their involvement in the activity. Locating, seizing and/or
freezing assets tied to terrorist organizations plays a key
role in cutting off the financial lifeblood of these organizations
and in not only dismantling the organization, but in preventing
future terrorist acts. Due to the international nature of
terrorist organizations, these investigations require considerable
coordination with foreign authorities as well as the CIA and
the intelligence community to ensure that the criminal investigation
does not jeopardize or adversely impact sensitive national
security matters. This requires careful adherence to restrictions
separating criminal investigations from those involving national
security and classified intelligence matters.
VULNERABILITIES OR HIGH RISK
AREAS IN THE FINANCIAL SERVICES SECTOR
There are a number of vulnerabilities
or high risk areas in the financial services sector that can
be exploited by terrorist and other criminal organizations.
These organizations rely heavily upon wire transfers to provide
funds for terrorist cells. Tracing these transfers in a timely
manner is critical in an investigation. Most often, law enforcement
must subpoena information from each institution having a role
in the wire transfer before the details of the complete transfer
can be determined. This can cause significant delays in tracking
the funds. Modifications to existing wire transfer rules have
previously been proposed which would provide law enforcement
with complete information about a wire transfer at any stage
of the transfer upon receipt of a subpoena. Decreasing the
time necessary to obtain this information would greatly enhance
law enforcement's ability to track the funds and identify
those involved in the transactions.
Correspondent banking is another
potential vulnerability in the financial services sector that
can offer terrorist organizations a gateway into U.S. banks
just as it does for money launderers. As this Committee well
knows, the problem stems from the relationships many U.S.
Banks have with high risk foreign banks. These foreign banks
may be shell banks with no physical presence in any country,
offshore banks with licenses limited to transacting business
with persons outside the licensing jurisdiction, or banks
licensed and regulated by jurisdictions with weak regulatory
controls that invite banking abuses and criminal misconduct.
Attempts to trace funds through these banks are met with overwhelming
obstacles. The problem is exacerbated by the fact that once
a correspondent account is opened in a U.S. Bank, not only
the foreign bank but its clients can transact business through
the U.S. bank. As Congress has noted in the past, requiring
U.S. banks to more thoroughly screen and monitor foreign banks
as clients could help prevent much of the abuse in correspondent
bank relationships.
Another vulnerability in the
financial services sector involves Money Service Businesses
(MSB). These nonbank financial institutions are frequently
employed by criminals engaged in sophisticated money laundering
schemes. Terrorist organizations are also able to exploit
this weakness in the financial system due to the previous
lack of adequate regulation in this area. Proposed regulation
for MSBs would require registration of these businesses, establish
cash reporting requirements for certain threshold transactions,
and require some of these businesses to file Suspicious Activity
Reports (SARs). They would also have to provide FinCEN with
information as to their ownership, geographic location, and
operational details.
Finally, terrorist cells often
resort to traditional fraud schemes to fund their terrorist
activities. Prevalent among these are credit card fraud, identity
theft, insurance fraud and credit card bust-out schemes. The
ease with which these individuals can obtain false identification
or assume the identity of someone else, and then open bank
accounts and obtain credit cards, make these attractive ways
to generate funds. The growing use of the Internet and the
relative anonymity it provides make it even easier to open
bank accounts and obtain credit cards on-line using an alias.
OBSTACLES THE FBI IS ENCOUNTERING
IN OUR EFFORTS TO OBTAIN THE COOPERATION OF U.S. FINANCIAL
INSTITUTIONS
The FBI has encountered no obstacles
from U.S. financial institutions in our efforts to obtain
their cooperation. The level of cooperation by U.S. financial
institutions has been outstanding and nothing short of extraordinary.
In all respects, the financial institutions have gone to considerable
efforts to provide subpoenaed information as expeditiously
as possible, and have done everything possible within the
legal framework to provide any cooperation requested. The
response we have received from the financial services sector
as well as other private sector entities has exemplified the
patriotism and sense of duty America was built upon. From
a law enforcement perspective as well as from the perspective
of an ordinary citizen, it has been heartening to witness
the unwavering support law enforcement has received from American
companies and citizens.
THE DEGREE TO WHICH THE FBI
AND OTHER LAW ENFORCEMENT AGENCIES
ARE WORKING COLLABORATIVELY TO END TERRORIST FUNDING
The acts of terrorism on September
11 highlighted the need for a comprehensive law enforcement
response to international terrorism. With the help of Congress,
the FBI had previously established joint terrorism task forces
in key areas of the country which brought together the combined
expertise and resources of other local, state and federal
law enforcement agencies. In the early stages of this investigation,
it was financial evidence that quickly established direct
links among the hijackers of the four flights and helped to
identify a web of co-conspirators. In order to provide a comprehensive
analysis of the financial evidence, the FBI has established
a Financial Review Group to conduct this analysis and determine
the source and movement of funds both within and outside the
United States that supported these acts of terrorism. The
Financial Working Group will strive to coordinate the financial
investigative effort; organize, catalog and review personal
and business records; develop linkage and time lines concerning
the cells and groups responsible; facilitate Mutual Legal
Assistance Treaty (MLATs) requests and Letters Rogatory; develop
financial and investigative leads in support of this investigation
as well as future terrorism investigations; and identify criminally-related
fund-raising activities by terrorist organizations. Contributions
from other law enforcement agencies are critical to the success
of such a group. Accordingly, the group is comprised of representatives
from the Department of Justice (DOJ), FBI Financial Crimes
Section, FBI Counterterrorism Division, Internal Revenue Service
(IRS) - Criminal Investigative Division (CID), United States
Customs Service (USCS), FinCEN, United States Postal Inspection
Service (USPIS), Office of Foreign Asset and Control (OFAC),
the United States Secret Service (USSS), and the Inspector
General community. Each of the participating agencies has
unique skills and resources. Each agency immediately responded
to the FBI's request for participation by detailing some of
their best qualified personnel along with the pledge of whatever
resources were needed. Combined, the Group is capable of focusing
a powerful array of resources at the financial structure of
terrorist organizations. The FBI considers this Financial
Review Group to be an integral part not only of the response
to the acts of terrorism of September 11, but of future terrorism
investigations as well.
THE NATURE AND EXTENT OF
INTERNATIONAL COLLABORATION ON LAW ENFORCEMENT
Terrorism is a global problem.
No country is immune from its reach and terrorist groups are
scattered throughout the world. By their nature, Terrorism
investigations require significant collaboration on an international
level. In order to subpoena records, utilize electronic surveillance,
execute search warrants, seize evidence and examine it in
foreign countries, the FBI must rely upon local authorities
for assistance. The level of assistance and the timeliness
of such assistance often varies from country to country. The
FBI's Legal Attache Program provides critical contributions
in these matters. The DOJ also plays a key role through its
foreign liaison and participation in various international
forums. The FBI and the DOJ must rely heavily upon the MLAT
process and the use of Letters Rogatory to obtain information
from foreign countries such as bank records. While the MLAT
process works well for the most part with those countries
that are participants in the Treaty process, it can at times
be a slow and cumbersome method in which to obtain information.
In this case, however, many of our treaty partners are speeding
up the process and cutting through red tape. Our Legal Attaches
have been working closely with their law enforcement counterparts
in foreign countries to coordinate investigations involving
the terrorist groups responsible for these acts of terrorism.
The level of cooperation by foreign law enforcement agencies
has been unparalleled both in terms of its breadth and timeliness.
We will work to maintain this level of cooperation as a model
for future terrorism investigations.
CONCLUSION
Cutting off the financial lifeblood
of the individuals and organizations responsible for the September
11 acts of terrorism is a vital step in dismantling the organization
and preventing future terrorist acts. The FBI has placed a
high priority on this aspect of the investigation and welcomes
the opportunity to work with this Committee to ensure that
law enforcement efforts can be most effective. With the assistance
of Congress, the combined resources of the law enforcement
community, and law-abiding people throughout the world, we
are confident we can succeed in our mission. Thank you.
|