Karen P. Tandy
Drug Enforcement Administration
United States Senate
March 4, 2004
"United States Efforts to Combat Money Laundering and Terrorist Financing"
Chairman Grassley, Senator Biden, and distinguished members of the Caucus, I particularly appreciate your invitation to testify today on the importance of combating money laundering and terrorist financing as it is one of the cornerstones of my vision for the Drug Enforcement Administration.
The motivation for virtually everyone involved in illegal drug trafficking, from kingpin to street dealer, is the money. To make a significant impact on the drug trade in America and around the world, there is no strategy more effective than following the money back to the sources of drug supply and taking away the dirty proceeds of that trade. But our efforts to date clearly have not successfully done the job. While the Office of National Drug Control Policy (ONDCP) has estimated that Americans spend approximately $65 billion per year on illegal drugs, current seizures are well short of $1 billion per year. Drug traffickers pay more than that each year in fees to launder their ill-gotten gains.
Without question, law enforcement can and must better address drug proceeds and profits. One of my top priorities since becoming Administrator has been to systematically transform not only the organization and operation of the DEA regarding financial investigations, but also our fundamental mindset. Since every drug transaction has a profit motive, every investigation has a financial component. Therefore, I have established a new Office of Financial Operations at DEA headquarters as well as financial teams in each field division. We are also making financial background a priority in hiring new Special Agents and undertaking other initiatives to increase interagency cooperation and enhance training in drug financial investigations. The DEA is already bringing this focus to bear on such problems as bulk currency movement and the black market peso exchange.
Restoring DEA’s Emphasis on Financial Investigations
Let me begin by explaining my vision to restore the DEA’s emphasis on financial investigations. I firmly believe that it is not possible to truly dismantle a drug organization when any meaningful part of its assets and infrastructure are left in place. Accordingly I have made the financial attack on drug money laundering and money laundering organizations one of my top priorities for the DEA.
Although the DEA has had the drug intelligence, technology and agents to address drug revenue, we needed a vision of how to best expand the agency’s mission toward the financial side of the drug business. We began to rebuild expertise on money laundering means and methods shortly after my Senate confirmation, focusing on how to identify, document and prosecute drug-money laundering organizations in the U. S. and abroad.
We quickly determined that we would need specialized training, identification and gathering of financial intelligence, and redirection of enforcement priorities. We needed special projects targeting money-laundering systems and techniques, enhanced working relationships with the financial services industry, and collaboration with our federal, state, local and international law enforcement counterparts.
To spearhead this effort, I reorganized and enhanced the structure of the headquarters section responsible for financial investigations by elevating and re-establishing it as the Office of Financial Operations (FO), a separate office under the Chief of Operations. FO will augment all of the DEA’s domestic and foreign financial investigations in the field by providing the necessary assistance to enhance and build the expertise to identify, document, disrupt, dismantle, and prosecute drug and drug-money laundering organizations, and identify, seize and forfeit their illicit revenues. The formation of FO was necessary to revitalize DEA’s attack on the illicit proceeds of drug trafficking organizations.
To implement my vision, I asked the Special Agents in Charge of each of the DEA’s 21 field divisions to establish at least one Financial Investigative Team (FIT) in each division, and they have done so. Many of our FIT Teams are staffed not only with DEA special agents and analysts but also with special agents from the Internal Revenue Service-Criminal Investigations (IRS-CI), U. S. Immigration and Customs Enforcement (ICE), the Federal Bureau of Investigation (FBI), the Postal Inspection Service, and state and local law enforcement officers. These FIT Teams are vital to our success, and will be responsible for handling the more complex drug-money laundering investigations and projects, serving as field division resident experts and supporting DEA’s national money laundering initiatives. However, DEA will not rely entirely on its FIT Teams to carry the financial investigative workload. I have mandated that every DEA investigation have a financial investigative component, and we are currently implementing new inspections accountability standards to insure that this directive is carried out. We are placing an increased emphasis on our collection of intelligence relative to the way drug networks make, transport, and store money and assets. I have told our agents that they are not truly gathering drug intelligence unless they are asking about the money. Our Special Agents in Charge and Country Attaches agency-wide are reemphasizing the importance of debriefing human sources of information about the drug trade and the money that fuels it. We our also implementing “post mortem” reviews in our investigations to ensure that the money side is attacked completely and thoroughly. This renewed emphasis has been integrated into our inspection and internal compliance policies to ensure consistent and uniform application of this strategy.
DEA Country Offices in Colombia and Mexico are increasing their special agent commitments to money laundering investigations. Other DEA Country Offices also are refocusing their investigative efforts to increase concentration on the financial aspects of their investigations.
We also have expanded and reemphasized financial investigations in our hiring and training. With respect to hiring, we are aggressively recruiting new personnel with financial degrees and work experience.
With respect to training, FO currently conducts and coordinates all training for DEA relating to money laundering and financial investigations. Training is also provided to federal, state, local, and international law enforcement counterparts in addition to individuals in the banking and financial sectors. DEA Training at Quantico is in the process of increasing its financial investigative instructor cadre and will be assuming most of the responsibility for DEA’s financial investigative training.
DEA conducts a three-day conference annually on Attorney General Exempted Operations (AGEO). A DEA supervisor, case agent, and an Assistant United States Attorney (AUSA) from each of DEA’s 21 field divisions attend. Representatives from other various Department of Justice (DOJ) components are also in attendance. A representative from each AGEO provides an overview on their operation. Presentations are also made from such agencies as the World Bank, Office of the Controller of the Currency and the Commerce and Treasury Departments on matters relating to currency flow and trade. Representatives are also sought from the private banking arena to discuss normal banking practices.
Specific Priorities and Financial Initiatives
The smuggling of large sums of cash across our borders continues to be the primary method used to expatriate drug proceeds from the United States. This has been increasingly prevalent after the USA PATRIOT Act tightened the controls and reporting requirements on financial and non-financial institutions.
To address this increasing threat, the DEA, IRS-CI and ICE are working together to initiate a bulk currency program to coordinate all U.S. highway interdiction money seizures in order to develop the evidence necessary for identifying, disrupting and dismantling large-scale narcotic trafficking organizations. Upon notification of a cash seizure by a state or local municipality, agents will respond to the scene, assist with debriefing of the defendants, and coordinate potential controlled deliveries of currency. Agents will also assist in follow-up investigations, seizure and forfeiture of currency, and provide guidance on federal prosecution. The resources of the DEA’s El Paso Intelligence Center (EPIC) will be used to conduct research and analyze evidence and intelligence relating to priority organization targets and other types of investigations.
Black Market Peso Exchange (BMPE)
The Black Market Peso Exchange (BMPE) is currently the largest known money laundering system in the Western Hemisphere, responsible for moving an estimated $5 billion worth of drug proceeds per year from the United States back to Colombia. The BMPE is a "parallel exchange" system where drug traffickers sell U.S. drug proceeds to brokers for pesos. Brokers then sell the drug proceeds to Colombian importers who purchase goods in the United States and elsewhere. These goods often appear in Colombia as smuggled contraband. By purchasing the U.S. dollars on the BMPE and not through Colombia's regulated exchange system, the importers avoid Colombian taxes and tariffs, gaining significant profit, and a competitive advantage over those who import legally. Prosecution of individual peso brokers, their agents in the U.S. who are often referred to as “smurfs”, and businesses that buy or receive BMPE dollars have been successful individually, but have had little effect on the system and no effect on the Colombian drug trafficking organizations who sell their dollars to the peso brokers. Consequently, DEA is changing its investigative tactics to assure that our BMPE money laundering investigations are focused to inflict the most damage against the Colombian sources of drug supply. DEA is also a participant in a multi-agency initiative to attack the BMPE as a system rather than on an individual case-by-case basis.
Bilateral Southwest Border Collective Targeting Initiative
The Bilateral Southwest Border Collective Targeting Initiative focuses on identifying and targeting Southwest Border money laundering schemes. The DEA Southwest Border Offices are investigating a wide range of narcotics related money laundering and bulk smuggling practices. We presently have active investigations targeting laundered U.S. dollars from Mexico and Colombia into the United States and the smuggling and transportation of bulk cash shipments from the United States into Mexico.
We are also working to share information on drug financial investigations with other agencies, both to assist in the fight against terrorism and to improve overall coordination and cooperation for financial investigations.
Drug enforcement can play a critical role in protecting our national security by starving the financial base of criminal organizations. Traditional criminal organizations continue to dominate the international drug trade at all levels, but some terrorist organizations are involved in drug-related activities. Drug income is among the sources of revenue for some international terrorist groups. Department of Justice investigations have highlighted the links between groups and individuals under investigation for drug violations and terrorist organizations. In fact, 47 percent of the 36 Foreign Terrorist Organizations identified and updated by the Department of State in October 2003 are on record with DEA as having possible ties to the drug trade.
Although the DEA does not specifically target terrorists or terrorist organizations we do target those associated with major drug trafficking organizations like the Revolutionary Armed Forces of Colombia (FARC) and the United Self-Defense Forces of Colombia (AUC). For example, in 2002, several high ranking members of the FARC and the AUC were indicted in the United States for drug trafficking. This represents one of the first times that drug-trafficking charges were brought in the United States against members of foreign terrorist organizations. In fiscal year 2003, DEA disrupted one Consolidated Priority Organization Target and dismantled four Priority Target Organizations with terrorism links.
The DEA terrorism Information Sharing Program institutionalizes within DEA the Attorney General’s directive to coordinate information and activities to prevent and disrupt terrorist activities. Under this program, all DEA entities must identify investigations that have a nexus or potential nexus to extremist and terrorist organizations, and agencies. For financial investigations, FO also coordinates with the National Money Laundering Committee, the Treasury Department's Financial Crimes Enforcement Network and Interagency Coordinating Group and the FBI’s Terrorist Financial Review Group. In addition, DEA’s Special Operations Division (SOD) presently coordinates and mutually shares investigative and intelligence resources with the FBI, the ICE, and the IRS-CI in a concentrated and centralized environment.
To further expand the exchange of information the Departments of Justice, Homeland Security, and Treasury are planning to join together and establish a multi-agency Drug Intelligence Fusion Center. The mission of the Drug Intelligence Fusion Center will be to gather, store, and analyze all-source drug and related financial investigative information to support coordinated, multi-jurisdictional investigations focused on the disruption and dismantlement of the most significant drug trafficking and money laundering enterprises. To achieve this mission the Drug Intelligence Fusion Center will create a powerful information and analytical capability not available today by completing a cross-agency integration and analysis of law enforcement and intelligence data that has historically been segregated by organizational and technical boundaries.
Drug trafficking organizations attack the soul and fabric of America in pursuit of one thing, money. As America’s defenders against these vile organizations, it is incumbent upon us in the Drug Enforcement Administration to attack these groups on all fronts. There is no more important battle in this effort than the attack against the proceeds that fuel this illicit industry and provides the motive to those who prey upon our society. DEA is embracing this responsibility through its investigative efforts, to lead the fight against drug money laundering.
Mr. Chairman, thank you for the opportunity to testify here today and I will be happy to answer any questions you may have.