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An Update on Money Services Businesses Under Bank Secrecy and Usa Patriot Regulation

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An Update on Money Services Businesses Under Bank Secrecy and Usa Patriot Regulation S. HRG. 109–517 AN UPDATE ON MONEY SERVICES BUSINESSES UNDER BANK SECRECY AND USA PATRIOT REGULATION HEARING BEFORE THE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS FIRST SESSION ON MONEY SERVICES BUSINESSES UNDER BANK SECRECY ACT AND USA PATRIOT ACT REGULATIONS, FOCUSING ON FEDERAL AND STATE EF- FORTS IN THE ANTI-MONEY LAUNDERING AREA APRIL 26, 2005 Printed for the use of the Committee on Banking, Housing, and Urban Affairs ( Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html U.S. GOVERNMENT PRINTING OFFICE 29–429 PDF WASHINGTON : 2006 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001 VerDate 11-MAY-2000 07:53 Aug 23, 2006 Jkt 025856 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 29429.TXT SBANK4 PsN: SBANK4 COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS RICHARD C. SHELBY, Alabama, Chairman ROBERT F. BENNETT, Utah PAUL S. SARBANES, Maryland WAYNE ALLARD, Colorado CHRISTOPHER J. DODD, Connecticut MICHAEL B. ENZI, Wyoming TIM JOHNSON, South Dakota CHUCK HAGEL, Nebraska JACK REED, Rhode Island RICK SANTORUM, Pennsylvania CHARLES E. SCHUMER, New York JIM BUNNING, Kentucky EVAN BAYH, Indiana MIKE CRAPO, Idaho THOMAS R. CARPER, Delaware JOHN E. SUNUNU, New Hampshire DEBBIE STABENOW, Michigan ELIZABETH DOLE, North Carolina ROBERT MENENDEZ, New Jersey MEL MARTINEZ, Florida KATHLEEN L. CASEY, Staff Director and Counsel STEVEN B. HARRIS, Democratic Staff Director and Chief Counsel SKIP FISCHER, Senior Staff Professional JOHN O’HARA, Counsel STEPHEN R. KROLL, Democratic Special Counsel JOSEPH R. KOLINSKI, Chief Clerk and Computer Systems Administrator GEORGE E. WHITTLE, Editor (II) VerDate 11-MAY-2000 07:53 Aug 23, 2006 Jkt 025856 PO 00000 Frm 00002 Fmt 0486 Sfmt 0486 29429.TXT SBANK4 PsN: SBANK4 CONTENTS TUESDAY, APRIL 26, 2005 Page Opening statement of Chairman Shelby ................................................................ 1 Opening statements, comments, or prepared statements of: Senator Johnson ............................................................................................... 2 Senator Stabenow ............................................................................................. 4 Prepared statement ................................................................................... 44 Senator Allard ................................................................................................... 14 Prepared statement ................................................................................... 44 Senator Sarbanes .............................................................................................. 23 Senator Carper ................................................................................................. 27 WITNESSES Julie L. Williams, Acting Comptroller of the Currency ........................................ 4 Prepared statement .......................................................................................... 45 Kevin Brown, Commissioner, Small Business/Self-Employed Division, Internal Revenue Service ................................................................................................... 6 Prepared statement .......................................................................................... 49 Response to a written question of Senator Shelby ........................................ 84 William J. Fox, Director, Financial Crimes Enforcement Network, U.S. De- partment of the Treasury .................................................................................... 8 Prepared statement .......................................................................................... 54 Diana L. Taylor, New York State Superintendent of Banks ............................... 10 Prepared statement .......................................................................................... 58 John J. Byrne, Director, Center for Regulatory Compliance, American Bank- ers Association ...................................................................................................... 30 Prepared statement .......................................................................................... 64 Gerald Goldman, General Counsel, Financial Service Centers of America, Inc. ......................................................................................................................... 31 Prepared statement .......................................................................................... 68 Dan O’Malley, Vice President of the Americas, MoneyGram International, Inc. ......................................................................................................................... 33 Prepared statement .......................................................................................... 72 David Landsman, Executive Director, the National Money Transmitters Asso- ciation, Inc. ........................................................................................................... 34 Prepared statement .......................................................................................... 77 ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD Guidance and Advisory Issued on Banking Services for Money Services Busi- nesses Operating in the United States, dated April 26, 2005 .......................... 85 (III) VerDate 11-MAY-2000 07:53 Aug 23, 2006 Jkt 025856 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 29429.TXT SBANK4 PsN: SBANK4 VerDate 11-MAY-2000 07:53 Aug 23, 2006 Jkt 025856 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 29429.TXT SBANK4 PsN: SBANK4 AN UPDATE ON MONEY SERVICES BUSINESSES UNDER BANK SECRECY AND USA PATRIOT REGULATION TUESDAY, APRIL 26, 2005 U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. The Committee met at 10:05 a.m., in room SD–538, Dirksen Sen- ate Office Building, Senator Richard C. Shelby (Chairman of the Committee) presiding. OPENING STATEMENT OF CHAIRMAN RICHARD SHELBY Chairman SHELBY. This hearing will come to order. This morning, the Committee will hear testimony from rep- resentatives of the banking and money services industries, as well as from the Government agencies that regulate them, on the rap- idly growing problem of what for lack of a better term we will call ‘‘the unbanking of MSB’s.’’ Money services businesses, MSB’s as we call them, include wire transmitters, check cashers, sellers and redeemers of money orders, and currency exchangers. MSB’s are a large and vital part of the global economy. It is estimated that the international market for remittances by itself is as much as $80 billion per year. That is money generally earned in developed countries by foreign nationals that is wired home to family members in less developed countries. It is a large and important component of those countries’ economies and has helped hundreds of thousands if not millions of otherwise desperately poor families to earn vitally needed currency. Even more than within the formal banking system, however, MSB’s are vulnerable to abuse by criminals and terrorist organiza- tions. It is now well-known of course that much of the money that supported the terrorists that carried out the horrible attacks of September 11, 2001 was wired to them from the Persian Gulf, es- pecially the Emirate of Dubai. It is not only al Qaeda though that moves cash around by way of money transmitters. The Times of London reported on April 3 of this year that Hezbollah has contin- ually provided funding to Palestinian terrorist organizations by way of money transmitters. The Times quotes a captured member of the Palestinian Islamic Jihad as stating with respect to Hezbollah’s support for Palestinian terrorist groups, ‘‘They would send Islamic Jihad money in amounts of something like $4,000,’’ said the 27-year-old leader of that organization. ‘‘It is easy. They just use Western Union.’’ (1) VerDate 11-MAY-2000 07:53 Aug 23, 2006 Jkt 025856 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 29429.TXT SBANK4 PsN: SBANK4 2 It is not just terrorists. Drug traffickers too routinely exploit the vast MSB world to move the proceeds of their criminal activity. Ex- actly one year ago a DEA-led organized crime drug enforcement task force in Texas concluded a major investigation, Operation Candy Box. It involved the use of wire transfer services to launder and move money. Concurrently, an FBI-led investigation also in Texas and dubbed Operation Foreign Exchange resulted in the fil- ing of 6 criminal complaints charging 7 individuals with money laundering and violations of the Bank Secrecy Act. Enhanced scrutiny and oversight of MSB’s was then, and re- mains, fully warranted. Unfortunately, the very nature of many MSB’s, in effect their global reach, ease, and reliability, has in- creased perceptions of them as high risk by the banks with whom they have to maintain accounts in order to do business. Banks in turn have been dumping or unbanking their MSB accounts, and they are doing this in a major way. MSB’s, a vital component of the global financial system, are at risk of being driven out of busi- ness, or more ominously, underground. That brings us to the subject of today’s hearing, the latest in the Banking Committee’s ongoing examination of money laundering and terror financing. How do we regulate MSB’s sufficient to en- sure that they are not abused by criminals and terrorists? How do the MSB’s police themselves in conformity
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