FROM THE OFFICE OF PUBLIC AFFAIRS

June 23, 2004
JS-1754

Keynote Address of Deputy Assistant Secretary Juan C. Zarate
Ninth Annual American Express Anti-Money Laundering Conference

Thank you. I am honored to be joining you for the Ninth Annual American Express Anti-Money Laundering Conference, and I'm pleased you invited me to be part of this important event.

The team at American Express should be proud: you are on the front lines – protecting the global financial system from terrorist dollars and tainted capital. For your work, Treasury Secretary Snow and I thank you.

For those of us who don't live in New York, it is difficult not to reminisce about September 11th when we are sitting so close to the World Trade Center site. Indeed, it is far too easy to grow a bit jaded about the effect of that day on the world – not just as the memory of that day fades but as we witness the continuing heinous acts of terror around the world.

This organization felt the effects of September 11th directly and braved that turbulent time well, along with other organizations located near the World Trade Center site, by relocating employees and operations.

That horrific day launched a new era of responsibilities as well as burdens that we collectively share. In many respects, it has been difficult for some to come to grips with the changed landscape.

The recasting of our responsibilities has been felt vividly in the financial community, and I would like to talk to you a bit about that. This is an important opportunity to do so with an organization like American Express, whose lines of business run the gamut from banks and broker-dealers to accountants and travel services providers.

As mentioned, companies like American Express are on the front of the battle to protect the integrity of our financial system. The true guardians of the financial sector don't roam the halls of the Treasury building; they stand at every teller window and money service business provider around the world. That's why this conference, and others like it, are so important as we talk about evolving trends in money laundering and terrorist financing and expanded requirements under the law.

The recasting of responsibilities and actions has taken shape in the context of our overarching war against terrorist financing. This is a war where we have been successfully disrupting and, in some cases, dismantling the financial infrastructure of terrorist operations. We have frozen approximately $140 million in terrorist-related assets, designated 377 individuals and entities as terrorist supporters, captured or killed key terrorist facilitators and deterred donors from supporting al Qaida and other like-minded terrorist groups.

We have made it harder and costlier for al Qaida and other terrorist groups to raise and move money around the world. One of the most important elements of this campaign has been our work with organizations like American Express and with regulators to increase levels of due diligence, expand anti-money laundering controls to new sectors and enhance international standards to deal with the increased threat from terrorist financing.

These notable achievements include expanded regulatory efforts. After passage of the USA PATRIOT Act, we have broadened and deepened the regulatory scope of our anti-money laundering efforts. It is working. We are seeing important filings from money service businesses which we have never seen before. We are seeing important suspicious activity and leads being reported through FinCEN's hotline. We are seeing greater vigilance on OFAC compliance and reporting from credit card companies and other financial service providers. Greater information sharing through the Section 314 process has allowed for the efficient sharing of criminal leads with the banking community.

These efforts are critical as the financial community takes greater control over the safeguards of the financial system. It is also important that we expand the breadth of transparency and regulation to potentially vulnerable sectors. Our outreach, for example, to the money service business continues as we build awareness and a compliance culture. There has been a tremendous resolve in the financial community to deal with these issues, but there is always more that can be done.

With the recent fine of UBS for $100 million by the Federal Reserve of New York, we see that diligence in OFAC compliance matters has to be overseen aggressively.

With the recent fine of $25 million by the OCC and FinCEN against Riggs Bank, there is no doubt that we need greater diligence by the regulatory community to ensure compliance with anti-money laundering controls.

That's why the Treasury has undertaken a review of the U.S. government's administration of the Bank Secrecy Act. We are engaged now directly with the regulatory community to see how we can do a better job collectively – working toward harmonized and consistent compliance and expectations in this field.

We have also enlisted the team here at American Express and other members of the Bank Secrecy Act Advisory Group to determine what further steps we need to take to enhance our efforts.

With such expectations come responsibilities for us in the Treasury and in the U.S. Government – responsibilities not just to the financial community but to the public at large:

• We must increase information to the financial community regarding trends and threats in the money laundering and terrorist financing context.
• We should increase the level and detail of feedback from law enforcement to ensure that the regulated industries understand the value of their diligence.
• We are obligated to consistently weight the costs and benefits, as well as efficiencies, of our regulations and the burdens we impose upon the various industries we regulate.
• We must continue to enhance our international partnerships, to enhance the information available to us about the changing nature of the threat we face,as well as to understand how rogue capital may be afflicting the international financial system.

With respect to this, we must use Treasury authorities and relationships judiciously but effectively to deal with emerging threats:

• We will continue to identify and designate charities that are being used by al Qaida and other groups to raise and move money, while at the same time working with the charitable community in the United States and worldwide to raise standards of practice and expectations in the charitable sector.
• We will build new partnerships with the private sector, like our Buddy Bank initiative, to address the needs for technical assistance and capacity building in the financial communities of developing countries.
• We will continue to use Section 311 aggressively against rogue financial institutions, so as to alert and protect the U.S. financial system from the taint of their activities.

A critical area of the PATRIOT Act calls for the Treasury to use the force of Section 311 against foreign jurisdictions or banks that are "primary money laundering concerns." We are using this power in a project we affectionately refer to this as the "Bad Banks Initiative" to identify rogue jurisdictions, institutions and classes of transactions that pose a threat to our financial system because of lax anti-money laundering controls, criminal facilitation or blind negligence that allows rampant financial criminal activity.

Most recently, the Treasury Department used this authority to designate the Commercial Bank of Syria (CBS) and its subsidiary Syrian Lebanese Commercial Bank and issued a notice of proposed rule-making that would prohibit any U.S. bank, broker-dealer, futures commission merchant, introducing broker or mutual fund from opening or maintaining a correspondent account for or on behalf of CBS. Correspondent accounts involving CBS would have to be terminated without exception.

Last November Treasury also authorized Section 311 against two Burmese banks, Myanmar Mayflower Bank and Asia Wealth Bank, two banks that within that jurisdiction that are heavily implicated in facilitating the notorious drug trafficking organizations in Southeast Asia. Since the PATRIOT Act was signed into law in October 2001, the Bush Administration has also taken action, pursuant to Section 311, against the foreign jurisdictions of Burma, Nauru and the Ukraine.

In addition, the Treasury has used the power of the threat of a 311 designation to our advantage, spurring several countries, including Nigeria, the Philippines and Indonesia to implement stricter anti-money laundering regimes.

The USA PATRIOT Act and the power of Section 311 represent some of the key resources in Treasury's arsenal to protect the U.S. financial system and combat terrorist financing and financial crimes.

However, as we strengthen our defenses against financial crimes, terrorists and criminals will resort to other financial institutions and underground networks to move their money. While we know that driving terrorists to move their money in unfamiliar ways heightens the chance for mistakes and detection, we also know we must be flexible in order to adapt to the changing face of terrorist financing.

We have a responsibility to organize ourselves for the long term. To that effort, the Bush Administration recently announced the creation of a new office in the Treasury to bolster our efforts in cutting the financial ties of terror and better safeguarding the U.S. financial system against criminal activity.

The Office of Terrorism and Financial Intelligence, or TFI, brings under one umbrella the intelligence, enforcement, diplomatic, policy, in-depth analysis and regulatory resources of the Treasury. It will allow us to consolidate our information and analysis to best utilize Treasury authorities to advance our national security interests and protect our financial systems both now and in the long term. TFI will be led by an Under Secretary, one of only three at Treasury, and two Assistant Secretaries – one devoted to terrorist financing and one to intelligence.

TFI's efforts will be aided by targeted intelligence analysis. The combined use of intelligence and financial data is the best way to detect how terrorists are exploiting the financial system and to design methods to stop them. By coordinating Treasury's intelligence functions and capabilities, TFI will benefit from enhanced analytical capabilities, as well as additional expertise and technology.

All of this is intended to establish mechanisms and the institutional framework to deal effectively with the protection of our financial system for the long term.

As I said before, however, the true guardians of our financial citadel sit in this room today. Whether it's putting in place rigorous anti-money laundering programs in your banks and travel service providers or increasing due diligence by your broker dealers and money service businesses, American Express is on the front lines.

What you do matters not only for American Express, but also for the industries which you affect. Your practices and expectations help set the benchmarks worldwide in all the respective industries.

This is important as we collectively strive to protect the international financial system from tainted capital. More significantly, it's important because your work can help save lives.

This is a shared responsibility and burden, but it is one that we must embrace together as the nature of terrorism, terrorist financing and money laundering evolves.

Thank you, again, for inviting me to be with you here today, and thank you for your continued commitment to these important efforts. We look forward to strengthening the relationship we've cultivated with American Express and the broader financial sector.

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