Office of Public Affairs
LONDON – Good afternoon. It is a pleasure to join you today to discuss the intersection of transnational organized crime and illicit finance, and to join the conversation about what we can and should be doing to combat this threat.
I would especially like to thank the Royal United Services Institute for hosting this timely and important conference and also the Home Secretary, Theresa May, for her leadership and interest in advancing our thinking and efforts to address the pressing problem of transnational organized crime. I very much appreciate the opportunity to offer some thoughts on this issue from the perspective of the United States government and, in particular, the Department of the Treasury.
United States Efforts Against Organized Crime and Illicit Finance
I have the privilege of leading the Treasury Department’s Office of Terrorism and Financial Intelligence. Bringing together under one roof intelligence, regulatory, policy, and enforcement tools, my office works to combat illicit finance, promote global financial transparency, and tackle key national and international security challenges. One of our core duties is to safeguard the U.S. financial system from abuse by all those who would seek to harm it, manipulate it, or undermine its integrity, including transnational criminal organizations (TCOs).
Although our office is rather new – we just marked our 10-year anniversary last week – the United States government’s efforts to combat organized crime are not.
Back in the 1950’s and 1960’s, mobsters – including the notorious Italian-American Mafia known as La Cosa Nostra – engaged in a variety of illicit schemes, including gambling rings, loan sharking, narcotics trafficking, extortion, and prostitution, that generated hordes of cash, which these criminals would deposit into banks, using essentially anonymous, numbered accounts.
Most banks were blind to the illicit nature, source, or ownership of these funds, while others actively facilitated the money laundering. And while all of this was happening, local governments, law enforcement, and regulators were often outmatched – and sometimes even infiltrated – by these illicit actors and their cronies.
It was against this gloomy backdrop that Congress in 1970 passed a suite of legislation aimed at organized crime. Among the new laws was the inaptly named Bank Secrecy Act (BSA), a law actually intended to combat “bank secrecy,” the “underpinning of organized crime in the United States,” according to a Congressional finding at the time.
The BSA has helped bring transparency to what had been an opaque world of banking. Under the BSA, the Treasury Department now requires banks and other financial institutions to take a number of steps to help in the fight against money laundering, terrorist financing, and financial crime, including establishing compliance programs and filing suspicious transaction reports.
The Current Threat from Transnational Organized Crime
But, as you all know, much has changed since the heyday of La Cosa Nostra.
For one, technological innovations have made us all more interconnected. Modern financial, trading, telecommunication, and transportation systems move people, goods, and money across the global economy and across borders at dizzying speeds.
It is worth reflecting on how these changes have made the threat from transnational organized crime more dangerous – and often more insidious – than ever before.
Today, organized crime less frequently takes the shape of hierarchical, centralized organizations. The new threat emanates from decentralized, nimble, and highly adaptable networks. Organized crime today also is more transnational and multi-faceted than it ever was. And today, organized crime is no longer just a threat to the rule of law or to our economies. It is a growing threat to national and international security.
It also seems that almost no illicit activity is off-limits for today’s transnational criminals. From drug trafficking to human trafficking to weapons trafficking, and from identity theft to cyber theft to intellectual property theft, TCOs today engage in an unprecedented array of illicit activities all across the globe, often aided by corrupt officials and criminally-connected powerful businessmen. In doing so, they have become adroit at exploiting the scale and speed of information flows, online money transfers, and virtual “black marketplaces” while reducing their risk of detection by taking advantage of regulatory gaps and open borders.
And while organized crime can involve fewer bullets and more banks than in years past, it is still an increasingly sinister threat to hardworking people around the world. It empowers gangsters, drug lords, war lords, and kleptocrats. It costs economies precious tax revenue and promotes a dangerous culture of impunity, violence, and corruption. And it undermines those who play by the rules and engage in legitimate economic activity.
Not only that, transnational organized crime threatens the global economy. Sophisticated and business savvy, these criminals operate in shadow economies and set up transcontinental supply chains that erode the integrity of global markets. This illicit underworld can cause significant damage to the international financial system through the subversion and distortion of legitimate markets, competition, and commerce.
Importantly, today’s TCOs do not limit their operations to the power vacuums typically found in ungoverned or under-governed spaces; they actively seek entry into developing and developed economies that offer the greatest potential for financial gain.
Many “hubs” in the illicit global economy, in fact, are found in major cities that contain significant advantages for TCOs – infrastructure, banking, and a baseline level of rule of law. Hidden behind seemingly legitimate investments in real estate, businesses, and other entities in places such as New York, London, Moscow and Hong Kong, these networks acquire, conceal, transfer, and spend ill-gotten funds on a massive scale.
Meanwhile, some TCOs are forging powerful alliances with corrupt elements of national governments and leveraging these relationships to gain influence over strategic markets, such as natural gas, telecommunications, and precious metals – to the competitive disadvantage of legitimate businesses in the United States, Europe, and elsewhere.
Further complicating efforts to combat them, TCOs often have professional help. Using “third-party” facilitators and service providers, these networks are able to straddle the grey zone between licit and illicit economies. Professionals such as attorneys, accountants, and bankers are recruited, co-opted, or exploited by TCOs to create the necessary infrastructure – including shell corporations, offshore bank accounts, and front businesses – to pursue their illicit schemes.
The existence and extent of collaboration between TCOs and terrorist organizations is also an area of intense interest.
A globalized, interconnected world has enabled terrorists and criminals – with no direct link or interaction with one another – to learn from one another. Some terrorist groups – including the Taliban, the FARC, and Hizballah – have adopted criminal techniques to help finance and sustain their operations, while some criminal organizations have turned to terrorist tactics to intimidate and silence populations.
Moving beyond just emulation, we have seen some instances of terrorists joining forces with smaller, local criminal organizations to raise funds. For example, Al-Qa’ida affiliates in Yemen and North Africa have teamed up with local criminal groups to turn kidnapping-for-ransom into today’s greatest non-state source of terrorist financing.
But while these developments are worrying, let me be clear: We do not today see widespread collaboration between TCOs and terrorist groups. Sharp financial, motivational, and ideological differences between these actors make their interactions largely opportunistic and transactional. For terrorists, money is a means to an end, not an end in itself. TCOs, on the other hand, are principally motivated by financial gain with little care for ideology, particularly an ideology that may raise their profile among law enforcement and intelligence agencies.
And while terrorists aim to undermine stability, disrupt societies, and terrorize populations and markets, TCOs generally seek to maintain the existing social fabric as they benefit from political stability, the consistent flow of commerce, and the ordinary trading of goods – all of which serve to promote their appearance of legitimacy.
Indeed, it is precisely this dependence on global commerce and the international financial system that makes the U.S. Treasury Department’s toolkit well-suited to the fight against transnational crime. The financial dependencies of TCOs breed financial vulnerabilities. We aim to exploit those vulnerabilities to deter, disrupt, and destroy the financial scaffolding of these organizations.
Treasury’s Strategy to Combat Transnational Organized Crime
The Critical Role of Financial Intelligence
Before I describe Treasury’s strategy to combat transnational organized crime, I would like to take one moment to highlight the critical contribution of financial intelligence to our efforts.
Put simply, combatting illicit finance depends on access to timely, accurate, and specific intelligence. To maximize the impact of our financial tools we must understand how illicit actors use and abuse the financial system. We gain this perspective by using “all-source information,” including BSA reporting from financial institutions, such as suspicious activity reports and currency transaction reports; law enforcement investigative information; reporting from our intelligence agencies, including human and signals intelligence; information and intelligence shared by foreign governments; academic research; and press reports.
We use this all-source intelligence to understand more than just how groups raise and spend money. We learn about their operations, their motivations, and their weaknesses. We understand better their priorities, their infrastructures, and their linkages. And we leverage all of this information to identify and target the critical financial nodes that enable their illicit networks to operate.
Now, over the past two decades Treasury has developed the capabilities to disrupt illicit actors – from terrorist groups to WMD proliferators to TCOs – through various tools, ranging from financial sanctions, to civil enforcement actions, to direct engagement with compromised financial institutions and their home jurisdictions.
This strategy is premised on the simple reality that all of our adversaries, to one degree or another, need money to operate, and that by cutting off their financial lifelines, we can significantly impair their ability to function.
This is particularly true in the profit-hungry universe inhabited by TCOs. Taking away their money means taking away their very reason for existing.
What’s more, targeting the assets of a criminal organization is often more effective, and more feasible, than trying to put its members and associates behind bars, especially considering the ease with which these resilient networks can regenerate and the extent to which many operate in safe havens.
This approach is not new. Treasury’s use of targeted financial measures to combat transnational organized crime dates back twenty years, when President Clinton in 1995 established a sanctions program aimed at significant narcotics traffickers in Colombia. The traffickers sanctioned under this program had their U.S.-based assets frozen and were barred from transacting with any U.S. business or financial institution.
We aggressively implemented this program, imposing sanctions on dozens and dozens of individuals and entities. The list of sanctioned actors became so entrenched in Colombian society that it even entered their lexicon as “La Lista Clinton.”
Following up on this, in 1999, Congress passed what became known as the Kingpin Act, which expanded Treasury’s ability to impose economic sanctions on drug traffickers anywhere in the world, depriving drug kingpins and their lieutenants of their U.S.-based assets and of access to the U.S. financial system.
Under these authorities, we have designated more than 3,400 individuals and entities. And this work continues to be a priority. In 2013, Treasury designated 91 individuals and 76 entities, and the President identified six new significant international narcotics traffickers. We have focused on cartels operating out of Mexico and Central America by repeatedly targeting the close associates of the leaders of the Sinaloa Cartel, including complicit family members; the associates and businesses of Los Zetas; and an ever-expanding network of narcotics trafficking organizations in Central America.
Coordinated action with partners is key in fighting these cartels, and so last year we worked closely with the Honduran government when we designated Los Cachiros, a Honduran drug trafficking organization that plays a critical role in transporting narcotics from Colombia to Mexico. On the same day that we designated the organization, the Government of Honduras embarked on a week-long seizure action against Los Cachiros’ network, seizing more than $500 million in financial and commercial assets.
The importance of international cooperation in the fight against transnational organized crime is also illustrated by our work with the Colombian government. Ten years ago, terrorist, insurgent, and criminal groups controlled large parts of Colombia. But through coordinated actions by the United States and Colombia – including intelligence sharing, extraditions, and targeted sanctions – the Colombian people have reclaimed their country, their security, and their future. Today, Colombia’s police use their experience battling organized crime to train other forces across the region and around the world.
Our Sanctions Tool Aimed Directly at Transnational Organized Crime
While we have made some progress against drug cartels, we know there is much more to do to confront the broader threat of transnational organized crime. And so, in July 2011, President Obama announced a White House Strategy to Combat Transnational Organized Crime. Leveraging diplomatic, intelligence, development, regulatory, military, and law enforcement resources, the Obama Administration initiated an “all-tools, whole-of-government” approach. The UK, of course, also released its own strategy to combat organized crime that same month.
From the outset, financial measures were a critical part of our new strategy. In fact, the same day the White House strategy was announced, the President signed a new Executive order establishing a sanctions program focusing specifically on TCOs.
Grounded in a recognition that transnational organized crime is a threat to our national security and economy, the Executive order authorizes the Treasury Secretary to impose economic sanctions against significant TCOs and anyone who supports them or acts on their behalf.
Five TCOs have been identified under the Executive order as presidential priorities for sanctions: the Brothers’ Circle (a.k.a. Moscow Center), the Camorra, the Yakuza, Los Zetas, and, more recently, MS-13. These groups are large, multi-national organizations engaged in a wide variety of dangerous criminal enterprises that include narcotics trafficking, human trafficking, weapons trafficking, murder, bribery, extortion, complex financial fraud, and intellectual property theft.
To combat these groups, we map out their networks, their leadership and associates, and their assets. We figure out where they do business, how they do business, and with whom they do business. And then we aggressively apply sanctions against their leaders as well as those who work for or on behalf of them and the businesses they own or control. Any person or entity designated for sanctions is cut off from the U.S. financial system and can no longer transact under their names.
Using so-called “derivative” designations – which are a hallmark of all of our sanctions programs – sanctions are an extremely flexible and powerful tool. They allow us to apply sanctions against the organization and its key leaders, and also to extend our sanctions into the business and personal networks surrounding and supporting these organizations.
What is more, when these illicit groups adapt by co-opting new associates and facilitators, or by establishing new fronts and infiltrating new businesses, we also adapt by going after the individuals and entities that step in for those that were designated. Derivative designations enormously increase the pressure on these networks and help prevent us from falling behind as groups evolve.
Promoting Financial Transparency
Now, while sanctions and regulatory actions make public splashes, the success of these tools is highly dependent on the existence of a transparent, well-regulated global financial system – one that identifies, and affirmatively excludes, illicit actors and their facilitators.
When financial institutions know their customers and are able to identify suspicious financial activity, illicit actors have a much harder time navigating the global financial system. Not only that, the information produced by well-executed efforts to achieve financial transparency is extremely durable and reliable. It allows investigators and analysts to recreate chains of transactions, and it leaves criminals with fewer places to hide.
Yet, the growth and increasing sophistication of the global financial system in recent years has created opportunities for TCOs and other illicit actors to move money, conceal assets, and conduct transactions anywhere in the world, exposing financial centers to abuse in an unprecedented way.
Wherever transnational criminals seek to create or exploit opacity in the global financial system, we must seek to bring transparency. This is a uniquely global threat and it requires a uniquely global strategy.
Working across jurisdictions, our success in combating the misuse of the financial system going forward will depend critically on our continued efforts to increase financial transparency across the globe. Inconsistent, gap-ridden regulation and uneven, patchy enforcement will simply create arbitrage opportunities for opportunistic illicit actors.
One key priority in this global fight against organized crime is encouraging transparency in company ownership.
To this end, the G-8 took an important first step last year, under the leadership of the UK, when it endorsed a core set of beneficial ownership principles. This was a signal advancement in the fight against illicit finance, and we have the UK to thank for that.
The United States is doing its part to implement these commitments by expanding access to accurate information about the true beneficial owner of legal entities.
In March, the White House announced a legislative proposal to require all legal entities formed in the United States to declare their beneficial owner and to make that information more accessible to law enforcement. And at Treasury, we are developing regulations to clarify and strengthen customer due diligence obligations for U.S. financial institutions, including a requirement that they identify the beneficial owners of certain legal entity customers.
Effectively combating transnational organized crime also requires the buy-in of another crucial stakeholder: financial institutions. As we all know, financial institutions serve as the front line of defense against TCOs. By virtue of their similarly transnational structures and their indispensable role in modern commerce, financial institutions act as both the plumbing and the gatekeepers of the global financial system.
Importantly, TCOs do not see shell companies, front companies, or lax jurisdictions as alternatives to the regulated global financial system, but merely as points of access into that system. For Treasury, therefore, the most important battleground in the fight against TCOs remains the regulated financial sector.
Financial institutions must continue to be vigilant partners in protecting the global financial ecosystem from being infiltrated by TCOs. They must continue to implement rigorous due diligence procedures and effective risk management strategies to address the various threats posed by transnational organized crime.
We recognize that this must be a collaborative effort. We are constantly looking for ways to foster more dynamic, real-time information sharing, between our government and financial institutions, between financial institutions, and between law enforcement agencies around the world.
Receiving more accurate information from the private sector enhances our ability to combat illicit actors, while getting better information in the hands of the private sector is a force multiplier for our efforts.
Therefore, in addition to issuing public advisories, we also alert financial institutions to individuals, entities, or organizations engaged in or suspected of money laundering or terrorist financing through a secure channel. And we have begun exploring new ways of enhancing this flow of information from government to industry by providing more context to financial institutions to make the information even more valuable to them.
As we continue to increase and improve information sharing among all concerned stakeholders, let us recognize that this issue is not without its complications. Financial institutions have legitimate legal and economic concerns regarding the sharing of proprietary information. Meanwhile, we need to be protective of our intelligence sources and methods and mindful of the potential competitive and regulatory disadvantages we may be introducing by enhanced information sharing with some, but not all, financial institutions. And finally, we must find the right balance between protecting personal privacy while not hindering law enforcement’s ability to share important leads transnationally with their counterparts.
While these challenges are real, they are not insurmountable. We must work through these issues alongside the financial sector and alongside partner governments to achieve our shared objective of maintaining the integrity of the global financial sector.
The stakes are high in the fight against transnational organized crime. Deft, dispersed, and decentralized, we face adversaries with much to lose. And so, if we are to effectively combat this multifaceted threat, we must employ a multifaceted toolkit. Through the use of financial intelligence, targeted financial tools, and an international commitment to financial transparency, we are doing just that.