How Criminal Organizations Launder Money and Innovative Techniques for Fighting Them

Chairman Sasse, Ranking Member Donnelly, and other distinguished members of the Senate Banking Subcommittee on National Security and International Trade and Finance, I am honored by your invitation to testify before you today.

This hearing on money laundering and innovative techniques to counter such criminal activity comes at an important time. Today’s criminal organizations continue to exploit the U.S. and international financial system to launder criminal proceeds and finance illicit activities ranging from terrorism to the proliferation of weapons of mass destruction. Such exploitation capitalizes on the growing complexities of the international financial system and weaknesses in institutional, jurisdictional, and global counter-illicit financing regimes. Some of these weaknesses stem from a failure to implement global standards designed in large part by U.S. leadership to combat crossborder money laundering and other financial crime. Other weaknesses stem from outdated approaches to combating these threats. Congressional attention and action is urgently needed to address these challenges.

In recent years, Congress has indicated interest in strengthening the U.S. anti-money laundering and countering the financing of terrorism (AML/CFT) regime to meet these challenges. Over the past year alone, several hearings in both the Senate and the House have focused on systemic reform to modernize U.S. efforts to combat money laundering and all forms of illicit financing activity. I am hopeful that my testimony today will assist this Subcommittee in supporting and accelerating these reform interests. Such reform should be grounded in an understanding of how money laundering, financial crime, and corresponding AML/CFT regimes have evolved to become clear matters of national and collective security.

Such reform should also be informed by an understanding of how criminal organizations and other national security threats continue to exploit the financial system to launder criminal proceeds and finance illicit activity. Such reform should close critical gaps in the U.S. AML/CFT regime, including by ending the creation of anonymous companies in the United States. Finally, such reform should encourage innovative approaches and capitalize on new technologies to build upon and improve U.S. and global AML/CFT frameworks.

The United States has one of the most effective AML/CFT regimes in the world. Yet many of the global and systemic challenges to AML/CFT regimes abroad also confront our own AML/CFT regime. These challenges present opportunities for criminal organizations and other threats to launder money and finance illicit activities that undermine our collective security, the integrity of our financial system, and corresponding confidence in our markets. Our capability and willingness to address these challenges at home will substantially impact our credibility and capability in driving other countries to do the same – and in holding accountable those countries that fail to meet such standards. Given the increasingly globalized nature of organized crime and illicit finance, our AML/CFT reform efforts must consider these important ramifications.

My testimony today focuses on each of these points as follows:

• Section I summarizes the modern evolution of money laundering and financial crime and the growing importance of AML/CFT regimes in combating these threats to protect our collective security and safeguard the integrity of the financial system.
• Section II presents characteristics of money laundering, terrorist financing, and other financial crime and describes how these threats chronically exploit systemic challenges to financial transparency and accountability.
• Section III outlines reforms that Congress should pursue to modernize and secure a more effective and sustainable AML/CFT regime. Such reforms should capitalize on U.S. leadership that has guided and galvanized a common commitment to combating money laundering and financial crime across nearly all financial centers and jurisdictions over the past several generations.

My testimony draws in large part from prior testimony that I have provided before other Congressional committees and subcommittees considering these issues over the past three years. As with such prior testimony, I am grateful for the incredible dedication of my partners, colleagues, and friends at the Financial Integrity Network, the Center on Sanctions and Illicit Finance, the Treasury and across the U.S. Government, and in the global AML/CFT community – including the other expert witnesses who are testifying before you today. The primary basis of my testimony is the experience that I have gained in working with these experts and stakeholders to help shape and implement AML/CFT policy over the past sixteen years in the U.S. Government, the international community, and the private sector.