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Department of the Treasury
PRESS RELEASES
Press release numbers HP-431 and HP-435 were not used.
Page 10f2
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May 2,2007
HP-375
Treasury Assistant Secretary for Financial Markets Anthony Ryan May 2007
Quarterly Refunding Statement
WASHINGTON, DC- We are offering $32.0 billion of Treasury securities to refund
approximately $54.6 billion of privately held securities maturing on May 15 and to
pay down approximately $22.6 billion The securities are:
- A new 3-year note in the amount of $14.0 billion, maturing May 15,
2010;
- A new 1O-year note in the amount of $13.0 billion, maturing May
15,2017;
- A reopening of the 30-year bond in the amount of $5.0 billion,
maturing February 15, 2037
These securities will be auctioned on a yield basis at 1 :00 PM EDT on Monday,
May 7, Tuesday May 8, and Thursday. May 10, respectively. All of these auctions
will settle on Tuesday, May 15. The balance of our financing requirements will be
met with weekly bills, monthly 2-year and 5-year notes, the June 1O-year note
reopening. and the July 1O-year TIPS and 20-year TIPS reopening. Treasury also is
likely to issue cash management bills in late May and early June
Debt Issuance Considerations
Since our February 2007 statement, Treasury's ongoing monitoring of the fiscal and
economic outlook has resulted in our decision to discontinue issuance of the 3-year
note_ Discontinuing the 3-year note will allow Treasury to ensure large liquid
benchmark issuances, better balance its portfolio, and manage the improving fiscal
outlook.
The final scheduled auction of the 3-year note will be held on May 7, 2007.
Treasury will continue to assess the fiscal and economic outlook and to review the
size, frequency and issuance of securities.
Thirty-Year Bond Issuance
As noted in our August 2006 statement, Treasury will auction a new 29 :y, - year
bond with three months' accrued interest in August 2007, followed by a reopening
of that bond in November 2007
This new 29 :y, - year bond will mature In May 2037.
Treasury Markets and Investor Participation
Treasury places great importance on maintaining a highly liquid and efficient
government bond market. As part of ongoing efforts to enhance the efficiency of
debt management operations, including reducing risks and lowering borrowing
costs, we are examining ways to enhance our cash and debt management
practices In addition, as we stated in February, we are in the process of updating
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6/7/2007
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our auction system.
With respect to overall market efficiency and participation, Treasury acknowledges
and supports private sector efforts to enhance the operating integrity of the
Treasury marketplace, including the creation of principles-based guidance for all
stakeholders in the US Treasury markets.
Please send comments and suggestions on these subjects or others relating to
Treasury debt management to debt.management@do.treas.gov.
The next quarterly refunding announcement will take place on Wednesday, August
1,2007.
-30-
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May 2,2007
HP-376
Minutes Of The Meeting Of The
Treasury Borrowing Advisory Committee
Of The Securities Industry and Financial Markets Association
May 1, 2007
The Committee convened in closed session at the Hay-Adams Hotel at 1135 a.m.
All Committee members except Richard A. Axilrod were present. Under Secretary
Robert Steel, Assistant Secretary Anthony Ryan, Deputy Assistant Secretary
Matthew Abbott and Office of Debt Management Director Karthik Ramanathan
welcomed the Committee and gave them the charge.
The Committee addressed the first question in the Committee charge (attached)
regarding debt issuance in light of intermediate and longer-term fiscal trends as well
as recent economic and market conditions. Director Ramanathan presented a
series of charts discussing the continued strong growth in individual, corporate, and
non-withheld receipts as well as the slower growth of outlays in fiscal year 2007. In
addition, the charts showed the Administration's projections of a rapidly improving
fiscal outlook with a balanced budget by 2012. Director Ramanathan noted that
increased issuance of State and Local Government Series (SLGS) securities has
led to a decline of nearly $50 billion in marketable borrowing needs.
In order to promote large, liquid sizes in its benchmark securities and in light of
potential reduced borrowing needs in the near future, Director Ramanathan noted
that one possible option would be to discontinue the 3-year note following the May
2007 auction. Director Ramanathan noted that current issuance sizes across bills
and coupons may be approaching their lower limits. Discontinuing the 3-year note
would promote liquidity in bills and other benchmark securities and eliminate the
need for Treasury to resort to larger cuts across the curve which could impede
market efficiency. Moreover, given the fiscal outlook and portfolio considerations,
adjusting the auction calendar at this time was feasible. Director Ramanathan
stated that Treasury had the capacity to raise more than $200 billion through
increased bill and coupon issuance if needed through its current menu of offerings.
Another chart noted that TIPS and longer term securities - based on current
issuance patterns and sizes - would be primary tools in raising funds in the future.
If positive fiscal trends continue in the future, additional reductions may be
necessary through coupon reductions or calendar adjustments across the portfoliO.
The TBAC in the February 2007 meeting had suggested the 5-year TIPS as well as
a consolidation of the 1O-year note as other possible options. These options and
others may need to be explored if current pOSitive trends persist.
Director Ramanathan then noted that the TBAC may want to consider several
factors when contemplating adjustments to the auction calendar including portfoliO
considerations, the intermediate to long-term trends, non-marketable borrowing,
and potential legislative changes. From a portfolio perspective, the ability to offer
the market large, liquid offerings on its benchmark securities and grow the bill
sector was important. The economic outlook remains stable but Treasury's current
auction calendar has the ability to raise a large amount of funds fairly rapidly. Nonmarketable borrowing trends, particularly those related to SLGS, could moderate,
but a low interest rate environment may precipitate additional refinancings and
issuance over the next few years. Finally, legislative changes related to tax policy
or entitlement reform could occur and impose additional funding requirements, but
the Treasury generally remained capable of funding such needs.
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The Committee turned to the decision facing the Treasury regarding the
discontinuance of the 3-year note. One member noted that there is no futures
contract and that any 3-year assets that investors want could be obtained through
the Eurodollar market and swaps. Given both the decline in fiscal needs and
concern about maintaining large liquid benchmarks, the Committee member noted
that discontinuing the 3-year note at this point was sensible. Another member
noted that market participants hoping to invest in the three-year space could
purchase off the run 5-year notes as they roll down the curve.
One member raised caveats including uncertainty about the Alternative Minimum
Tax provisions, war expenditures, and cash outflows starting in 2008 and 2009.
This member noted that if the fiscal situation becomes more pessimistic, the
discontinuance of the 3-year note may put significant pressures on other
instruments. This same member noted, however, that outlays remain below trend,
and this might continue into the 2008 elections as Congress potentially remains in
gridlock
Some members expressed the view that there was significant capacity to Increase
issuance in benchmark issues and bills. Several members noted that the market
would welcome larger sizes in the core benchmark securities should the situation
warrant such action. Other members noted that if at some future date, it was
determined that more intermediate financing was needed, Treasury could
reintroduce the 3-year note without significant disruption to the market. This
member acknowledged that generally Treasury has considered the 3-year note to
be a fairly flexible security, and that the market would not view reintroduction of the
security negatively if such a move was properly telegraphed. Several members
agreed with this perspective.
At this point, Committee members reached consensus that discontinuing the 3-year
note at this time was advisable.
The Committee then considered the question of what might be done if the fiscal
situation improves further. Committee members noted that Treasury may need to
consider additional adjustments to the calendar if the fiscal outlook improved more
rapidly than expected. Several members suggested that Treasury continue to
evaluate other options in the event they need to be acted upon, including
eliminating the 5-year TIPS, the consolidation of the 1O-year note auction cycle, and
any other prudent measures.
One member pointed out that 5-year TIPS cash flows were not that unique and that
real money investors where more Interested in the cash flows generated by longerdated TIPS. Another member noted that Treasury has shown commitment to the
TIPS program, and given that inflation-indexed securities are a core element of the
overall portfolio, TIPS need to be reviewed just as any other security. Another
member suggested that Treasury should be flexible in considering all options.
Most members felt that Treasury should keep its options open regarding the future
fiscal situation and the potential need to cut financing. Members suggested that
Treasury wait and evaluate technical and market factors as well as consider
modifications of issue sizes and or elimination of reopenings in certain nominal or
real issues.
The Committee then addressed the second question in the charge regarding debt
management within a framework of improving fiscal trends. Specifically, the
Committee was asked to address what practices Treasury and market participants
should consider in a significantly improving fiscal or surplus environment, given
volatility in budget forecasts and the Administration's long-term plan to balance the
budget. In addition, the Committee was asked to discuss what lessons can be
learned from the 1998-2002 experience.
A presenting member led the discussion with a high level overview of the current
debt management framework-- where the framework is working-- and where
Treasury might consider improvements. The member cited three key areas in the
overall framework 1) debt management 2) cash management, and 3) risk
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management. In the area of debt management, the member felt Treasury had
adequate tools to manage the debt in all environments. The set of tools, which
have been clearly elucidated to market participants, includes changing issue sizes,
frequencies, and finally, the menu of offerings. Debt management has been
proceeding very well on all fronts, according to the member, particularly with
respect to transparency and issuance decisions. Transparency worked greatly to
Treasury's advantage in reducing borrowing costs. The member noted that
Treasury has used buybacks in the past and should be prepared to use this tool in
the future should the fiscal outlook rapidly improve.
Regarding buybacks, the presenting member pointed out that Treasury had used
one form of buybacks quite effectively in the past, and it may want to study another
form of the buyback called "the switch" which is used by other countries. A switch
involves issuing debt in one part of the yield curve to repurchase debt in another
part of the curve. The member pointed out that previous buyback program had
created significant cost savings for Treasury according to one study. The member
also suggested the idea of continuous buybacks in small sizes to better balance the
overall portfolio and maturity structure.
In the area of cash management, the member noted that the timing of receipts often
presented problems for Treasury, and that the Treasury Tax and Loan program was
suboptimal from both a capacity and return standpoint. The member suggested
that Treasury consider using excess cash to buy short-term bills and coupons and
also consider engaging in repurchase agreements. Both options may offer greater
returns to the Treasury
The presenting member then discussed Treasury's risk management, noting at the
outset that other countries were further ahead in this area than the US. Specifically,
the member suggested that Treasury consider using derivative transactions and
swaps to change rollover risk. The member noted that such transactions would
introduce credit risk into Treasury's portfolio, and that Treasury would need to
decide if it wanted to accept such risk. The member noted that other counties such
as Australia and Canada used these tools to continuing issuance despite having
surpluses.
The presenting member than solicited comments and reaction from other
Committee members. One member stated that the way the past buyback program
operated, in which Treasury asked the market for offers on a basket of securities
and selected only the best offers, was not good for real-money accounts because
there was uncertainty about which issues would be repurchased.
Other members pointed out that the former buyback program, which focused
generally on the long end of the market, was predicated on the idea that the US
would be in surplus indefinitely and as such, long-term funding was no longer
needed. Those members pointed out that fiscal outlooks change rapidly, and that
such a motivation may have led to less than optimal repurchases.
A discussion arose whether Treasury should engage in continuous buybacks continuous purchases of small lots in the market in the range of $50 to $100 million
to retire debt - as opposed to the buybacks in the past, which were reverse auctions
as large a $3 billion. Several members thought continuous buybacks were not
advisable because it may not fall into Treasury's regular and predictable behavior
framework. Another member suggested that using excess cash to opportunistically
retire maturing debt - particularly when large maturities were coming due - was
prudent. With regard to using swaps, several members member thought that using
such a tool ran counter Treasury's objectives.
The Committee generally agreed that Treasury should continue to review its debt,
cash, and risk management tools in light of the rapidly improving fiscal outlook in
the event such instruments are necessary sooner rather than later.
Finally, the Committee was asked about trends related to international flows and
capital investments, and if the Committee had any thoughts or suggestions with
regard to these trends and the impact of the trends on Treasury's mission.
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A Committee member presented a series of slides describing and characterizing
international capital flows both into and out of the U.S. The member shared his
thoughts on capital flows into various US capital markets including fixed income
(Treasuries, agencies, corporate bonds), equities, direct investments (merger and
acquisition related transactions), and private equity. The member noted the diverse
set of inflows and the importance such inflows play in the U.S. economy.
The Committee member noted that foreign capital inflows provide a rising share of
U.S. debt financing and allow stable U.S. investment, despite low savings, at lower
interest rates. Estimates regarding how much lower rates are from these foreign
capital inflows varied between 20 and 150 basis points, though such estimates are
extremely difficult to verify. The member also stated that the U.S. net foreign
investment position is still modest relative to GOP, but is forecasted to grow
significantly in coming years
The member noted that sources of foreign inflows are vulnerable to disruptions due
to potential protectionist legislation, and that Congress should be wary of passing
legislation related to international investment given their potential far reaching
consequences.
Several members agreed that international Investment was critical to ensuring
strong, competitive capital markets in the United States. One member noted that
opportunities abound globally, but that international investors still seek U.S.
investments in one form or another given the depth of its markets.
Another member noted that the recent trend in establishing sovereign investment
vehicles in Norway, China, Korea and other nations was a natural trend and that
large flows of capital would still seek the most liquid, developed capital markets in
the long run. One member suggested that Treasury offer products tailored to central
banks given the amount of liquidity which they are seeking.
Director Ramanathan noted that Treasury seeks to have the broadest base of
investors through its security offerings, and that tailoring specific products for
specific audiences was currently not being contemplated.
Several members noted that the market needed to be aware that international
investments came from many avenues and through many vehicles, and that
forming a conclusion based on reviewing just one sector of the market, be it
equities or Treasuries, was not wise.
The meeting adjourned at 12:55 p.m.
The Committee reconvened at the Hay-Adams Hotel at 6:10p.m. All Committee
members were present except for Richard A. Axilrod and Gary Cohn. The
Chairman presented the Committee report to Assistant Secretary Ryan. A brief
discussion followed the Chairman's presentation but did not raise significant
questions regarding the report's content.
The meeting adjourned at 6:20 p.m.
Karthik Ramanathan
Director
Office of Debt Management
May 1,2007
Certified by:
Tom Maheras, Chairman
Treasury Borrowing Advisory Committee
Of The Securities Industry and Financial Markets Association
May 1,2007
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May 2,2007
HP-377
Report to The Secretary of The Treasury
From The Treasury Borrowing Advisory Committee
of The Securities Industry and
Financial Markets Association
May 1,2007
Dear Mr Secretary:
Since the Committee's previous meeting in February, the economic expansion has
continued on a relatively slow track, dominated by the drag from the housing market
correction. Despite a strong gain in consumer spending, the initial estimate of first
quarter GOP rose only 1.3%, capping a year of below-trend growth, Although
homebuilding has fallen sharply, inventories are still high after disappointing sales
this winter, and the loss of the marginal buyer may further delay a rebound.
Nonetheless, strong corporate profits in most sectors are underpinning a healthy
job market and along with reasonably supportive financial conditions, suggests the
expansion will return to trend gradually in coming quarters.
The slowing in economic growth has had a moderating effect on core inflation but
elevated energy and food prices along with higher costs for medical services have
kept alive upside concerns. Declines in housing and motor vehicles softened prices
for a wide range of consumer durables late last year as firms sought to unload
unwanted inventory. As a result, the core CPI has drifted down from a peak near
3% to about 2Yz%, while the Federal Reserve's preferred gauge, the core
consumption deflator, is rising at a 2'1.% rate. Although modest further
improvement is possible, policymakers remain focused on still relatively tight labor
markets and the risk of heightened cost pressures as rising compensation
overtakes slowing gains in productivity.
In light of the tension between slower growth and core inflation and still limited signs
of spillover from housing to consumers, interest rates have edged down but remain
in very narrow ranges. Yields across the U.S. Treasury yield curve have dipped by
roughly 20 to 30 basis points since early February but market participants have
pushed back into 2008 expectations for anything more than a token retracement of
previous Federal Reserve rate hikes.
The Federal Government's fiscal balance continues to improve and probably will fall
to below 1.5% of GOP in fiscal year 2007 as tax receipts are being buoyed by still
solid job growth and rising investment income.
The Treasury opened the meeting by presenting the recently released "Quarterly
Refunding Charts" dated April 30, 2007 and a new exhibit labeled "Presentation to
the Treasury Borrowing Advisory Committee" dated May 1,2007.
The refunding chartbook highlighted the continued improvement in the near-term
outlook for the fiscal budget and a commensurate decline in net marketable
borrowing needs. In fact, the net marketable borrowing needs have been further
reduced by a recent increase in the issuance of state and local government
securities (SLGS).
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The Treasury is now estimating a net marketable pay down of $145 billion of debt
this quarter and net marketable borrowing needs of $43 billion next quarter. These
figures have improved by $15 billion and $6 billion, respectively, since January and
are much improved relative to earlier forecasts.
The fiscal outlook has improved as individual and corporate tax receipts have
continued to outpace estimates and while, at the same time, fiscal year outlays on a
year-to-date basis are registering trlelr smallest growth rate in recent years.
Against this backdrop of continuing improvement in the near-term fiscal outlook, the
Treasury's first charge to the Committee was to solicit our advice with respect to the
Treasury's debt issuance schedule.
After some discussion, the Committee concurred with Treasury that it had largely
exhausted it's flexibility with reduced bill issuance in response to a marked
improvement in borrowing needs. Consistent with its earlier advice, the Committee
recommended the elimination of the quarterly issuance of three-year securities.
Several members pointed out that the three-year note, which had only been reintroduced into the regularly scheduled coupon calendar in 2003, was the most
appropriate security to be eliminated given the prospects for near and intermediate
term borrowing needs. While three-year notes have served the Treasury very well
over the past four years and have strong market acceptance, they are deemed less
valuable than the 2-year, 5-year, 1O-year and 30-year coupons which are the
primary benchmark securities along the government yield curve.
The Committee also discussed the potential need to consider other measures over
time if the fiscal outlook remains strong or improves even further. For example,
several members again suggested that 5-year TIPS are a security that offer little
investor value and have been held and traded primarily by investors and
speculators responding to and anticipating near-term changes in commodity prices
and CPI measures.
Not all members agreed, however, with the recommendation to consider this
security for elimination if needed and thought that it might be more appropriate to
consider other measures.
Finally, many members of the Committee commented on the unpredictability of the
budget and noted how volatile the estimates have been in the past and that the
Treasury should be cautious in making significant further adjustments in debt
issuance in the near term. For example, several members pointed to the recent
slowdown in GOP, the discussions surrounding adjustment to the alternative
minimum tax (AMT) and other factors that should give the Treasury pause before
making significant changes in its debt management schedule. Furthermore, the
difficult fiscal environment predicted for the next decade and beyond by Social
Security and other entitlement programs cannot be ignored.
In the second part of the charge, a Committee member presented his thoughts on
U.S. Treasury debt management within a framework of improving fiscal trends.
This member addressed the question of volatility in budgetary forecasts and
whether Treasury had at it's disposal sufficient tools for an improving fiscal or
surplus environment.
The presenting member focused his commentary on the areas of debt
management, cash management and risk management.
This member opined that in the area of debt management, or the construction of the
portfolio, Treasury has excellent tools and has done a good job of making
adjustments as needed. In the past, Treasury has first focused on the size of
issues and then the frequency of issuance and ultimately the need to add or
eliminate entire issues as appropriate. Treasury has effectively taken into account
liquidity considerations, satisfying the important objective of achieving a regular and
predictable issuance profile.
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Re-openings were cited as another effective tool and, along with buybacks,
provided Treasury with significant degrees of freedom in their issuance programs
This member concluded strongly that Treasury has the tools to manage its debt
portfolio in any reasonable fiscal environment.
In the area of cash management, this member posited that Treasury could do more
to improve it's effectiveness at managing the significant volatility of cash balances.
By having an ability to invest high cash balances more dynamically or to operate in
repo markets, Treasury would insure against the risk of reinvesting balances below
market rates.
He concluded that Treasury could invest more in risk management resources and
would be well served to study the example of other sovereign debt management
programs in surplus environments, such as Australia and Canada.
Several members commented on the success of the buyback programs in prior
periods and the importance of retaining and refining that tool given the pace of
change in fiscal outlooks.
A strong majority of the Committee agreed with the proposition that Treasury has
effective tools to administer debt management and that it should investigate the use
of additional tools for cash and risk management purposes.
For the Treasury's third charge to the Committee, views were solicited as to the
trends in international capital and investment flows and how these flows may affect
the Treasury's mission.
One member of the Committee prepared a chartbook labeled "Trends in
International Investment" and walked the group through the exhibits with
commentary. The exhibits highlighted the increased cross-border activity in
financial markets and investment by private and public investors.
Several of the exhibits highlight the growth in purchases of US securities by nonU.S. investors. For example, the annual net purchases of U.S. securities in 2006
by non-U.S. investors is estimated at a little more than $1.1 trillion with the bulk of
that, or approximately $1 trillion, used to purchase U.S. debt securities. While the
total investment in U.S. securities by foreigners has grown, the bulk of that growth
has been in non-Treasury instruments such as agency and corporate notes and
bonds and, while smaller in size, in equities.
The member also pointed out that while there has been tremendous growth of
foreign investment in our securities markets, the U.S. remains a major investor
abroad. For example, U.S. net purchases of foreign long-term securities (equity
and debt) recently passed $20 billion per month on a 12-month moving average
basis and has increased markedly over the past several years.
The presenting member offered several conclusions from his presentation. Among
them, that foreign capital inflows constitute a rising share of US. debt financing and
provide lower interest rates than otherwise would occur. And, that the source of
foreign inflows are increasingly concentrated in China and oil exporting countries,
raising the risk of disruption in the event of protectionist legislation.
The Committee briefly discussed the members presentation and conclusions and
were generally in agreement with those conclusions.
One member noted that the accumulation of wealth has occurred so rapidly in many
countries that they have reacted by investing in very liquid securities such as fixed
income and are now beginning to broaden their investment policies to include other
asset classes. And, additionally, that for many countries, there are and will
continue to be pressure for them to invest in infrastructure projects within their own
countries.
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In the final section of the charge, the Committee considered the composition of
marketable financing for the April-June quarter to refund approximately $54.6 billion
of privately held notes maturing on May 15, 2007, as well as the composition of
marketable financing for the remainder of the April-June quarter, including cash
management bills, as well as the composition of marketable financing for the JulySeptember quarter.
To refund $546 billion of privately held notes and bonds maturing on May 15, 2007,
the Committee recommended a $14 billion 3-year note due May 15, 2010, a $13
billion 10-year note due May 15, 2017 and a $6 billion re-opening of the 3D-year
bond due February 15,2037. For the remainder of the quarter, the Committee
recommended an $18 billion 2-year note in May and June, a $13 billion 5-year note
in May and June and an $8 billion re-opening of the 10-year note in June. The
Committee also recommended a $25 billion 14-day cash management bill issued
June 1,2007 and maturing June 15, 2007, as well as a $12 billion 8-day cash
management bill issued June 7,2007 and maturing June 15,2007.
For the July-September quarter, the Committee recommended financing as found in
the attached table. Relevant features include three 2-year note issuances monthly,
three 5-year note issuances monthly, a 1O-year note issuance in August with a reopening in September, a 30-year bond issuance in August, as well as a 10-year
TIPS issuance in July and a 20-year TIPS re-opening in July.
Respectfully submitted,
Thomas G. Maheras
Chairman
Keith T. Anderson
Vice Chairman
REPORTS
•
•
Tahlp 02 Oi
Tab:e 03 07
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US TREASURY FINANCING SCHEDULE FOR 2nd QUARTER 2007
BILLIONS OF DOLLARS
ISSUE
ANNOUNCEMENT
DATE
4-WEEKAND
3&6 MONTH BILLS
3/29
4/5
4/12
4/19
4/26
5/3
5/10
5/17
5/24
5/31
6/7
6/14
6/21
AUCTION SETTLEMENT
DATE
DATE
4/2
4/9
4/16
4/23
4/30
5/7
5/14
5/21
5/29
6/4
6/11
6/18
6/25
4/5
4/12
4/19
4/26
5/3
SilO
5/17
5/24
5/31
6/7
6/14
6/21
6/28
4-WK
OFFERED
AMOUNT
3-MO
6-MO
20.00
8.00
8.00
8.00
8.00
8.00
8.00
15.00
15.00
10.00
9.00
9.00
9.00
17.00
15.00
14.00
1300
13.00
13.00
13.00
13.00
14.00
14.00
14.00
14.00
14.00
14.00
13.00
12.00
12.00
12.00
12.00
12.00
12.00
13.00
13.00
13.00
13.00
13.00
480.00
CASH MANAGEMENT BILLS
17-DAY BILL
Matures 4/16
13-DAY BILL
Matures 4/16
12-DAY BILL
Matures 4/17
5-DAY BILL
Matures 4/17
5-DAY BILL
Matures 4/18
MATURING
AMOUNT
NEW
MONEY
57.00
57.00
57.00
55.00
52.00
42.00
42.00
43.00
45.00
45.00
45.00
50.00
49.00
-6.00
-21.00
-23.00
-22.00
-19.00
-9.00
-9.00
-3.00
-3.00
-8.00
-9.00
-14.00
-13.00
639.00
-159.00
17.00
-17.00
3/28
3/30
4/2
4/3
16.00
16.00
0.00
4/4
415
16.00
16.00
0.00
4/10
4/12
15.00
15.00
0.00
4/12
4/13
8.00
8.00
0.00
0.00
14-DAY BILL
Matures 6/15
5/31
6/1
25.00
25.00
8-DAY BILL
Matures 6/15
6/6
6/7
12.00
12.00
0.00
-17.00
COUPONS
10-Year TIPS ®
CHANGE
IN SIZE
-2.00
4/5
4/12
4/16
6.00
5-YearTIPS
2-Year Note
5-Year Note
4/19
4/23
4/23
4/24
4/25
4/26
4/30
4/30
4/30
8.00
18.00
13.00
-2.00
3-Year Note
10-Year Note
30-Year Bond ®
5/2
5/2
5/2
5/7
5/8
5/10
5/15
5/15
5/15
14.00
13.00
6.00
-2.00
2-Year Note
5-year Note
5/24
5/24
5/29
5/30
5/31
5/31
18.00
13.00
10-Year Note®
6/11
6/14
6/15
8.00
2-Year Note
5-year Note
6/21
6/21
6/26
6/27
7/2 *
7/2 *
18.00
13.00
19.70
/1.30
150.00
121.60
26.40
-3.00
600
21.60
17.40
54.60
-21.60
21.40
9.60
8.00
Estimates are italicized
NET CASH RAISED THIS QUARTER:
R = Reopenin9
* The June two and five-year note auctions settle on July 2. As a result, that borrowing is counted as part of the July-September
quarter's net cash raised. The March two and five-year auctions settled in April and thereby are part of this quarter's cash flow.
-149.60
US TREASURY FINANCING SCHEDULE FOR 3rd QUARTER 2007
BILLIONS OF DOLLARS
ISSUE
ANNOUNCEMENT AUCTION SETTLEMENT
DATE
DATE
DATE
4-WEEK AND
3&6 MONTH BILLS
6/28
7/5
7/12
7/19
7/26
8/2
8/9
8/16
8/23
8/30
9/6
9/13
9120
CASH MANAGEMENT BILLS
17-DAY BILL
Matures 9/17
11-0AY BILL
Matures 9/17
7/2
7/9
7/16
7/23
7/30
8/6
8/13
8/20
8/27
9/4
9/10
9/17
9/24
7/5
7/12
7/19
7/26
8/2
8/9
8/16
8/23
8/30
9/6
9/13
9/20
9/27
MATURING
AMOUNT
NEW
MONEY
41.00
38.00
3700
36.00
42.00
43.00
43.00
51.00
55.00
55.00
55.00
54.00
53.00
3.00
7.00
8.00
16.00
13.00
12.00
12.00
4.00
0.00
-8.00
-14.00
-13.00
-12.00
631.00
603.00
28.00
4-WK
OFFERED
AMOUNT
3-MO
6-MO
15.00
15.00
15.00
22.00
24.00
24.00
24.00
24.00
24.00
16.00
10.00
10.00
W.Oo
15.00
16.00
16.00
16.00
17.00
17.00
17.00
17.00
17.00
17.00
17.00
17.00
17.00
14.00
14.00
14.00
14.00
14.00
14.00
14.00
14.00
14.00
14.00
14.00
14.00
14.00
8130
8/31
30.00
30.00
0.00
9/5
9/6
17.00
17.00
0.00
0.00
COUPONS
CHANGE
IN SIZE
10-Year TIPS
7/9
7/12
7/16
9.00
9.00
20-Year TIPS ®
2-Year Note
5-Year Note
7/19
7/23
7/23
7/24
7/25
7/26
7/31
7/31
7/31
6.00
18.00
13.00
3-Year Note
10-Year Note
30-Year Bond
8/1
8/1
8/1
8/6
8/8
8/9
8/15
8/15
8/15
0.00
13.00
9.00
2-Year Note
5-year Note
8/23
8/23
8/28
8/29
8/31
8/31
18.00
13.00
10-Year Note®
9110
9/13
9/17
8.00
2-Year Note
5-year Note
9/24
9/24
9126
9127
1011 •
10/1 •
18.00
13.00
19.70
11.30
140.00
123.80
18.50
17.90
19.10
62.60
-40.60
19.30
11.70
-14.00
8.00
Estimates are italicized
NET CASH RAISED THIS QUARTER:
46.50
R Reopening
• The September two and five-year note auctions settle on October 1. As a result, that borrowing is counted as part of the October-December
quarter's net cash raised. The June two and five-year auctions seUled in July and thereby are part of this quarter's cash flow.
=
Page 1 of 1
------------------~~--~'~~~<:-:---_.-
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!
:
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1-' H L S S H I) Co M
May 2,2007
HP-383
Secretary Paulson to Participate in Forum on Importance of an Open
Economy and International Investment
Treasury Secretary Henry M. Paulson, Jr. will moderate a forum discussion next
week on the importance of an open economy and international investment for U.S.
job creation and economic growth hosted by the Organization for International
Investment and George Washington University's Elliott School of International
Affairs.
Who
Treasury Secretary Henry M. Paulson, Jr.
House Financial Services Committee Chairman Barney Frank
Thomas Friedman
Panasonic North America COO Joe Taylor
Mack Trucks President and CEO Paul Vikner
South Carolina Governor Mark Sanford
What
Panel Discussion on Leading the Global Economy: How an Open Economy and
International Investment Create U.S. Jobs and Growth
When
Thursday, May 10,2:30 p.m. EDT
Where
George Washington University
Jack Morton Auditorium
80521 st Street, NW
Washington, DC
Note Media must pre-set by 2 p.m. and RSVP to James Clarke at jc:lclrhe@ofil_or~]
-30-
http;1Iwww.treas.gov/pr~~/relooaooJfi{)383.htm
6/7/2007
Page 1 of 1
~HLSS
HI')OM
May 3, 2007
HP-384
Visit by Singaporean Prime Minister Lee Hsien Loong
Washington, DC -- Secretary Henry M. Paulson, Jr. will welcome Singaporean
Prime Minister Lee Hsien Loong at a meeting on Friday, May 4,2007. Secretary
Paulson and Prime Minister Lee plan to discuss a range of economic and financial
issues, including efforts to promote trade and investment liberalization, combat illicit
finance, and strengthen capital markets in the Asia-Pacific region. They will also
discuss U.S. engagement in Southeast Asia and the broader Asia-Pacific region
through bilateral channels and multilateral forums including APEC.
http;//www.treas.gov/~:i/reloo~fip384.htm
61712007
Page 1 of6
f--'I"; L S S H (.:0
c· M
May 3,2007
HP-385
Testimony of Treasury
Acting International Tax Counsel
John Harrington
Before the Senate Finance Committee on
Offshore Tax Evasion
Washington, D.C.--Mr. Chairman, Ranking Member Grassley, and distinguished
Members of the Committee, thank you for the opportunity to participate this morning
and discuss the serious problem of offshore tax evasion.
Introduction
From the standpoint of tax administration. offshore tax evasion historically has been
a very difficult area to address Questionable use of low- or no-tax jurisdictions has
been an Issue for decades. Globalization, however, has made foreign investment
and foreign activities common, with overseas markets becoming an increasingly
important source of income for U.S. individuals and businesses.
Individuals invest in foreign entities for a variety of reasons. In most instances,
these investments represent legitimate bUSiness transactions, using foreign entities
in ways that are typical for international commerce. At times, however, foreign
entities can be used for tax evasion. For example, some individuals invest through
a jurisdiction with a reputation for secrecy and opaqueness, hoping to stymie the
Internal Revenue Service (IRS) in its administration of the Internal Revenue Code.
Others try to hide income from the IRS by setting up elaborate business structures
and financial arrangements, some components of which are located offshore.
These varied scenarios make it clear that a one-size-fits-all approach will not work
to stop offshore tax abuse while continuing to permit legitimate cross-border
transactions, which are vital to the United Slates' participation in the global
economy This is why the Treasury Department has undertaken a multi-faceted
approach to deal with the problem of offshore tax evasion. I would like to describe
the actions we have taken and continue to take, especially regarding information
exchange, to deal with this difficult but important issue. It is critical to bear in mind
that this has been a long-term problem, and we must continue to take a long-term
view in combating offshore tax evasion, while managing expectations about the
speed with which progress can be made in addressing it.
The Treasury Department is very concerned about the use of offshore jurisdictions
to evade U.S. tax. There plainly have been abuses in this area. We have been
aggressively pursuing such abuses, and we intend to continue doing so.
We have sought to target our efforts on the sources of abuse and avoid actions that
are so blunt that they hinder the legitimate cross-border trade and investment
activities, which are so critical to U.S. business and U.S. jobs. Cross-border
transactions are now standard business operations, as globalization has led to
increased cross-border investment opportunities. We have to make sure that our
tax rules reflect the current economic environment, without hurting the
competitiveness of U.S. workers and businesses
Regulatory and Administrative Actions
As part of our overall effort to improve compliance. the Treasury Department and
http://www.treas.gov/~:i/reloo~fip385.htm
6/7/2007
Page 2 of 6
the IRS have taken a number of important steps on the administrative front and are
continuing to work on other avenues to address offshore tax abuses. Although
determined tax evaders may flaunt the tax rules, some taxpayers opportunistically
seek to take advantage of ambiguous or outdated tax rules. Accordingly, we modify
or update U.S. tax rules when we determine that they are being used to perpetrate
such abuse. Recent published guidance projects that will improve compliance and
that target potential areas of abuse include:
•
Foreign Tax Credit: We have taken strong steps to halt misuse of the
foreign tax credit. In November 2006, we issued final regulations regarding
the proper allocation of partnership expenditures for foreign taxes. In March
2007, we issued proposed regulations that would disallow foreign tax credits
tied to participation in certain artificially engineered, highly structured
transactions. In August 2006, we issued proposed regulations that would
address the inappropriate separation of creditable foreign taxes from foreign
source income. We intend to make appropriate modifications and finalize
both sets of proposed regulations as soon as possible.
• Transfer Pricing: We have produced, and continue to produce, Significant
guidance in the area of transfer pricing. In an increasingly globalized
economy, cross-border transactions between controlled entities present
significant compliance challenges, making guidance in the transfer pricing
area an important part of our administrative efforts to address
noncompliance. In August 2006, we issued temporary and final regulations
addressing the treatment of cross-border services, and followed them up
with additional guidance in December 2006. We issued proposed transferpricing regulations addressing cost-sharing in August 2005. We intend to
finalize both sets of regulations, with appropriate modifications.
• Other Abusive Transactions: We have also shut down arrangements that
utilized foreign jurisdictions to perpetuate abuse of the Internal Revenue
Code. For example, in October 2006, we published proposed regulations
regarding the Federal tax treatment of annuity contracts. These proposed
regulations address a type of widely marketed transaction in which
taxpayers claimed to be able to defer or avoid gain on the exchange of
highly appreciated property for the issuance of annuity contracts. Recent
Congressional hearings have highlighted how taxpayers were applying prior
law treatment of these contracts to facilitate abusive private annuity
arrangements, often involving offshore issuers. The proposed regulations,
when adopted as final, will shut down those arrangements.
The IRS has also undertaken several compliance initiatives, including the Offshore
Voluntary Compliance Initiative, aimed at taxpayers who used offshore payment
cards or other offshore finanCial arrangements to hide their income, and the
Offshore Credit Card Program, designed to identify taxpayers who use offshore
bank accounts to hide income and offshore credit cards issued by secrecy
jurisdiction banks to repatriate the unreported income. The IRS is continually
monitoring this area for opportunities to implement new programs that will stop
abusive transactions and improve compliance.
Obtaining Information from Other Jurisdictions
In most cases, however, the problem of offshore tax abuse lies not with our tax
rules but with attempts to hide from them. Accordingly, to enforce our tax laws, we
have to exchange information with other countries. Information exchange is an area
in which the Treasury Department has been working assiduously for several years,
and our steady and persistent efforts are bearing fruit.
In today's global economy, countries must be able to obtain and exchange the
information needed to enforce their domestic tax laws. A key element of US. tax
treaties, therefore, is the provision for exchange of information between the tax
authorities. Under tax treaties, the competent authority (i.e., the tax authorities
designated under the tax treaty) of one country may request from the other
competent authority such information as may be relevant for the proper
enforcement of the first country's tax laws. The information provided by the other
country is subject to the strict domestic confidentiality protections that generally
apply to taxpayer information. Because access to information from other countries
http;//www.treas.gov/pre3~/relooaeslflp385.htm
6/7/2007
Page 3 of6
is critically important to the full and fair enforcement of the U.S. tax laws,
information exchange is a priority for the United States in its tax treaty program.
A tax treaty is not feasible or appropriate in all cases, however. In some cases,
there simply may not be the type of cross-border tax issues between the United
States and the foreign cOJntry that are best resolved by treaty. For example, in the
case of a country that does not impose significant income taxes, there may be little
possibility of the double taxation of income that tax treaties are designed to
address. In cases where a full tax treaty is not appropriate or feasible, the Treasury
Department seeks to provide for the bilateral exchange of tax information by
entering into a tax information exchange agreement ("TIEA") with the other country.
Information Exchange Generally
There are three primary forms of information exchange.
•
Exchange of information on request: Exchange of information on request
occurs when the competent authority of one country asks for particular
information regarding specific taxpayers from the competent authority of
another country.
• Automatic exchange of information: Information that is exchanged
automatically is typically information comprised of many individual cases of
the same type. Usually, this type of information exchange consists of details
of incume arising In the source country (eg., interest, dividends, royalties, or
pensions). This information is obtained on a routine basis (generally tnrough
reporting of the payments by the payer) by the sending country and is thus
available for transmission to its treaty partners.
• Spontaneous eXChange of information: Information is exchanged
spontaneously when a country, having obtained information in the course of
administering its own tax laws, which it believes will be of interest to one of
its treaty partners for tax purposes, passes on the information without the
latter having asked for it.
Tax Treaties
Tax treaties typically permit all three types of information exchange. Both the United
States Model Income Tax Convention (US. Model Tax Convention) and the
Organization for Economic Cooperation and Development Model Tax Convention
on Income and on Capital (the OECD Model Tax Convention) provide for broad
information exchange and do not limit the form or manner in which information
exchange can take place. For example, Article 26 of the U.S. Model Tax
Convention generally provides that "the competent authorities of the Contracting
States [the treaty partners] shall exchange such information as may be relevant for
carrying out the provisions of this Convention or of the domestic laws of the
Contracting States concerning taxes of every kind imposed by a Contracting State
to the extent that the taxation thereunder is not contrary to the Convention,
including information relating to the assessment or collection of, the enforcement or
prosecution in respect of, or the determination of appeals in relation to, such taxes."
The Article confirms that each Contracting State must maintain and protect the
confidentiality of the tax information it receives from the other State, with disclosure
permitted only to persons or authorities (including courts and administrative bodies)
involved In the assessment, collection, or administration of, the enforcement or
prosecution in respect of, or the determination of appeals in relation to, such taxes,
or the oversight of such functions.
The Article further provides that each Contracting State "shall use its information
gathering measures to obtain the requested information, even though that other
State may not need such information for its own purpose." Thus, a treaty partner
may not decline to supply information to the other treaty partner merely because the
first treaty partner has no domestic interest in the information. For example, a
country may not refuse to provide information on request about the holder of a bank
account simply because the country does not tax Interest and, therefore, does not
collect such information.
http://www.treas.gov/~~/reletlEtetJlllp385.htm
6/7/2007
Page 4 of6
Article 26 permits a Contracting State to refuse to share information in certain
specified cases, however. A Contracting State may refuse (a) to carry out
administrative measures at variance with the laws and administrative practice of
that or of the other Contracting State; (b) to supply information that is not obtainable
under the laws or in the normal course of the administration of that or of the other
Contracting State; or (c) to supply information that would disclose any trade,
business, industrial, commercial, or professional secret or trade process, or
information the disclosure of which would be contrary to public policy. The Article
specifically prohibits, however, a treaty partner from refusing to obtain or exchange
information because of bank secrecy rules.
The information exchange article in the OECD Model Tax Convention has
substantially similar provisions to those described above.
TIEAs
Compared to tax treaties, TIEAs are a more recent phenomenon. In 1983, as part
of the Caribbean Basin Initiative, Congress granted the Treasury Department the
authority to enter into bilateral or multilateral TIEAs with designated countries in the
Caribbean and Central America. This authority was extended in 1986 to allow the
Treasury Department to enter into bilateral TIEAs with other countries.
There are several items that are essential to the United States when negotiating a
TIEA. First, the TIEA must provide for the exchange ot information on request for
both criminal and civil tax matters. Many Jurisdictions are more willing to exchange
information with respect to criminal tax matters, but such a restriction would greatly
limit the utility of a TIEA from a U.S. standpoint. Second, the TIEA must provide for
the exchange of information even if such ir:formation relates to a person who is not
a resident or national of the United States or the TIEA partner. We may be more
interested in the beneficial owner of an entty formed under the jurisdiction of the
TIEA partner than we are in the entity itself Finally, the TIEA must provide for the
disclosure of IIlformation regardless of local "confidentiality" laws that may prohibit
such disclosure, including laws relating to bank secrecy or bearer shares. Indeed,
such laws may be one of the principal attractions for offshore tax evaders.
Many of our TIEA partners have small tax administrations, and the TIEAs
acknowledge this reality. Accordingly, a TIEA often will specify the details that a
request for information under the TIEA should contain and also require the IRS to
explain why it is making the request. Although each TIEA partner is usually
expected to bear the routine costs of fulfilling its obligations under the agreement,
TIEAs often require the requesting party to bear "extraordinary costs." This type of
feature is often necessary to induce a small jurisdiction to agree to a TIEA.
Information Exchange Is Not Just a Bilateral Issue
The United States is not the only country that has encountered the problem of
offshore tax evaSion, but it has been a leader in increasing worldwide standards of
information exchange to combat such evasion. We have worked with other
countries, particularly through the OECD, to raise international standards of
information exchange. Although exchange of taxpayer information is effected on a
bilateral basis, pursuant to a tax treaty or TIEA, the information exchange practices
of third countries matter significantly. Some of the more complicated cases may
involve transactions in several jurisdictions, requiring eXChange of information with
multiple jurisdictions. Thus, the adoption of high standards of international
information exchange facilitates our ability to obtain the information we need
through our agreements, thereby promoting the sound and effective administration
of U.S. tax laws.
We have made great strides in raising international standards. It is now rare for a
country to insist that it can only exchange information in which it has a domestic tax
interest. In addition, the countries that assert that they cannot provide information
because of bank secrecy are becoming fewer and fewer.
Improving the quality of the information available for exchange (e.g., removing bank
http://www.treas .gov/pres:i/relooaeslfi!J385.htm
6/7/2007
Page 5 of6
secrecy and eliminating the requirement of a domestic tax interest) is one of the
most important developments in the last few years. In other words, access to
relevant information is more important than the method of exchange (e.g., whether
automatic or not). In particular, automatic exchange does no good if the underlying
information is too limited to be of help.
We also have to make sure that tax information is properly protected. Under U.S.
law, we cannot exchange taxpayer information unless we know the other country
will protect the confidentiality of that information.
Exchange of non-taxpayer-specific information is also important. Countries often
share experiences and schemes that they have encountered. For example, the
Treasury Department recently issued proposed foreign tax credit regulations to shut
down abusive foreign tax credit "generator" transactions. We learned about these
transactions from foreign tax authorities. This kind of communications can be as
Important as the more traditional exchange of information
The IRS has been actively involved in the development of several multilateral
information exchange programs The Joint International Tax Shelter Information
Centre (JITSIC) was formed by tax authorities in the United States, the United
Kingdom, Canada, and Australia. The objectives of JITSIC are to deter promotion of
and investment in abusive tax schemes, particularly through information exchange
and knowledge sharing. IRS Commissioner Everson has described JITSIC as
having sharply improved IRS knowledge and understanding in a number of
important international tax areas.
In addition to JITSIC, in January 2006 the IRS and the tax administrations of nine
other countries agreed to the establishment of the so-called "Leeds Castle" Group.
Under this arrangement, the commissioners of the revenue agencies of China,
India, and South Korea agreed to meet regularly with their counterparts from the
United States, the United Kingdom, Japan, Australia, Canada, France and
Germany to consider and discuss issues of global and national tax administration in
their respective countries. By providing additional opportunities to share information
and experience, these organizations are a significant tool in combating offshore
evasion.
Taking Stock of Information Exchange
Successes in information exchange do not come overnight. We have the access to
information that we have today due to years of patient negotiations and cultivation
of Information exchange relationships Moreover, new efforts today may not bear
fruit until years from now. For that reason, we are committed to a multi-year
approach to expanding our information exchange network. It is important to take a
long-term perspective. At times, there have been criticism that we are devoting too
much time and resources to expanding our information exchange network; other
times we hear that we are not devoting enough Because this is an area where
steady pressure is essential and missteps (or overreaching) can undo years of
work, we have to be careful not to disrupt the steady progress we have made.
It is also important to remember that information exchange is inherently VOluntary.
We cannot force any country to agree to exchange tax information. Sometimes
negotiations on this Issue are very difficult. The treaty or TIEA partner may be
required to repeal or modify domestic law. In addition, signing a tax treaty or a TIEA
is only the first step in the process. A healthy information exchange relationship
requires us to maintain good relations with our treaty and TIEA partners. Even an
ideally drafted agreement is of limited value if the tax authorities do not have a
cooperative relationship For example, if a treaty or TIEA partner believes that the
information exchange relationship is not respected or appreciated by the United
States, this may have a chilling effect on exchange of information on request or,
particularly, on spontaneous exchange of information.
We have more to do in this area. Nonetheless, we have made great strides in
recent years. Several new TIEAs have entered into force with jurisdictions that have
figured prominently in previously documented accounts of offshore tax evasion.
http://www.treas.gov/~:i/relooEJeBlflP385.htm
6/7/2007
Page 6 of 6
Within the last two years alone, TIEAs have fully entered into force with the
Cayman Islands, the British Virgin Islands, the Bahamas, the Netherlands Antilles,
Jersey, Guernsey, and the Isle of Man. We also recently signed a TIEA with Brazil,
and the newly signed tax treaty with Belgium provides greater information exchange
than we have previously been able to achieve with that country.
Moreover, it must be kept in mind that TIEAs and the Information exchange article
in tax treaties are enforcement tools. Accordingly, there are limits in what we can
say publicly about the manner in which we use them and the frequency with which
we make requests, without undermining their deterrent effects. The goal is to
enforce our laws, and we do not want to convey inadvertently to tax evaders any
specific Information about how and With whom we exchange information.
However, it is worth noting a few of the public successes that have resulted in part
from our information exchange agreements.
•
•
Recently, the U.S District Court in Washington sentenced an individual to
nine years in prison for failing to report $365 million In income. This
individual, Walter Anderson, had attempted to evade his tax responsibilities
by hiding earnings in offshore entities in the British Virgin Islands, Bermuda,
the Channel Islands, and Panama. Information that the IRS and Department
of Justice gathered through our TIEA with Bermuda helped in the
prosecution of this case.
In 2004, Almon Glenn Braswell was sentenced to 18 months in prison and
ordered to pay over $10 million in back taxes, interest and penalties. Mr.
Braswell's use of a Bermuda corporation and bank account as part of hiS tax
evasion scheme was uncovered through requests made under our TIEA
with Bermuda.
Conclusion
As both Secretary Paulson and Assistant Secretary Solomon stated in recent
testimony before this Committee, the Treasury Department is committed to
improving tax compliance without unduly burdening honest taxpayers who currently
meet their tax obligations. Tax compliance with respect to offshore transactions is
an important aspect of that endeavor. By focusing on information exchange, we
seek to reduce offshore tax evasion while achieving these goals.
Thank you again, Mr. Chairman, Ranking Member Grassley, and other Members of
the Committee for the opportunity to appear before the Committee today I would be
pleased to answer any questions you may have.
http;1Iwww.treas.gov/~:i/reletlEteBlflp385.htm
6/7/2007
Page 1 of2
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May 3,2007
HP-386
2007 National Money Laundering Strategy Released
The U.S. Departments of Treasury, Justice, and Homeland Security today joined
together in issuing the 2007 National Money Laundering Strategy, a report detailing
continued efforts to dismantle money laundering and terrorist financing networks
and bring these criminals to justice.
"The 2007 National Money Laundering Strategy is a direct result of close
cooperation by the Departments of Justice, Treasury and Homeland Security, along
with our foreign counterparts, and signifies our collective commitment to fight
money laundering," said Assistant Attorney General Alice S. Fisher of the Justice
Department's Criminal Division "Implementation of this strategy will greatly assist in
efforts to seize and forfeit millions in illegal proceeds that flow through the
international financial system."
The 2007 Strategy addresses the priority threats and vulnerabilities identified by the
Money Laundering Threat Assessment released in 2006, the product of an
extremely valuable investigation into the current and emerging trends and
techniques used by criminals to raise, move, and launder proceeds, The
Assessment - the first government-wide analysis of its kind - brought together the
expertise of regulatory, law enforcement, and investigative officials from across the
government, culminating in a comprehensive analysis of specific money laundering
methods, patterns of abuse, geographical concentrations, and the associated legal
and regulatory regimes.
"The 2007 National Money Laundering Strategy builds upon
the ground breaking work of the Money Laundering Threat Assessment," said Pat
O'Brien, Treasury's Assistant Secretary for Terrorist Financing. "Focusing on wellestablished money laundering methods and emerging trends Identified in the
Assessment, we have created a robust strategy for combating money laundering,
deterring criminals, and addressing areas vulnerable to exploitation."
The 2007 Strategy builds on initiatives and programs pioneered in preceding
National Money Laundering Strategies. The constant searching by criminals for new
ways to launder and hide dirty money is evidence of our successful regL;latory and
law enforcement efforts to safeguard the banking system, With an aim at continuing
these robust efforts, the 2007 Strategy places an emphasis on bolstering the
efficiency of the anti-money laundering processes currently in place.
"In every type of case, from human smuggling and drug trafficking to intellectual
property rights violations and illegal alien employment schemes, the need to hide
and move ill-gotten gains is a constant. ICE's anti-money laundering initiatives are
at the forefront of attacking existing and emerging money laundering threats" said
Julie L. Myers, Assistant Secretary for Immigration and Customs Enforcement at
the Department of Homeland Security "ICE's trade transparency unit, bulk cash
smuggling initiative and programs targeting illegal money service businesses and
stored value card schemes are making it less profitable to commit these crimes."
Additionally, the 2007 Strategy focuses on leveling the playing field internationally,
helping to ensure U.S. financial institutions are not disadvantaged through the
implementation of controls and standards to combat money laundering and terrorist
financing. Indeed, money laundering is a global threat the United States is working
http;//www.treas.gov/~:i/relooEteBlllp86.htm
6/7/2007
Page 2 of2
to address through international bodies, including the Financial Action Task Force
(FATF), and through direct private sector outreach in regions around the world.
REPORTS
Ittp;llwww.t reas.g ov/pres:i/relooEteBlllp386.htm
6/7/2007
TABLE OF CONTENTS
2007
Nat
anal
Money
Laundering
Strategy
Foreword ............................................................................................................................................. Iii
Introduction ....................................................................................................................................... v
Continue to Safeguard
the Banking System ....................................................................................................................... 1
Enhance Financial Transparency in
Money Services Businesses ....................................................................................................... 3
Stem the Flow of Illicit Bulk
Cash Out of the United States ................................................................................................. 5
Attack Trade-based Money Laundering At
Home and Abroad ........................................................................................................................... 7
Promote Transparency in the Ownership
of Legal Entities ............................................................................................................................... 8
Examine Anti-Money Laundering Regulatory
Oversight and Enforcement at Casinos .............................................................................. 9
Implement and Enforce Anti-Money Laundering
Regulations for the Insurance Industry ............................................................................. 10
Support Global Anti-Money Laundering
Capacity Building and Enforcement Efforts ................................................................... 11
Improve How We Measure Our Progress ........................................................................... 13
Appendices
(A) U.S. Money Laundering Threat Assessment ...................................................... 15
(B) Anti-Money Laundering Statistics .......................................................................... 89
(C) Law Enforcement Data and Intelligence Centers ............................................. 97
(0) The Strategic Use of Asset Forfeiture ................................................................. 101
·II.
eoe
Foreword
2007 National Money Laundering Strategy
FOREWORD
he National Money Laundering Strategy for 2007 bn:aks new ground in two important respects: it responds
directly to the unprecedented u.s. interagency Money Laundering Threat Assessment completed in December
2005, and it focuses exclusively on deterring money laundering, independent of our efforts to combat the
financing of terror. Money laundering, in its own right, is a serious threat to our national and economic security.
Integrating illicit proceeds into the financial system enables organized crime, fuels corruption, and erodes confidence
in the rule of law.
T
The specific money laundering threats and vulnerabilities addressed by the 2007 Strategy were identified by an
interagency working group in a year-long evaluation that culminated in the U.S. Money Laundering Threat Assessment.
The Threat Assessment represents a significant step forward for the U.S. Government's efforts to combat money
laundering and is a testament to our progress. Never before have regulators, policymakers, and law enforcement
professionals come together to identify money laundering trends and methods in the United States, and to assess our
effectiveness against a spectrum of money laundering threats.
Further, the 2007 Strategy builds on a solid foundation of successful initiatives and programs introduced in previous
National Money Laundering Strategies. Although we have made progress, money laundering is a dynamic threat
requiring a dynamic response. As globalization opens borders to travel and trade, and global payments and clearing
systems evolve, new money laundering opportunities are created and exploited. Accordingly, the 2007 National
Money Laundering Strategy responds to established and emerging money laundering trends and techniques both at
home and abroad.
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Foreword
III
IV
eoe
2007 National Money Laundering Strategy
INTRODUCTION
he 2007 National Money Laundering Strategy is
a direct response to the first U.S. Governrnentwide money laundering threat assessment released in December 2005. In addition to following this
new methodology, the 2007 Strategy for the first time
focuses exclusively on money laundering. Previous
U.S money laundering strategies presented a combined
program against both money laundering and terrorist financing. While money launderers and terrorist financiers may use the same financial channels and employ
similar techniques, there are differences in their operations and in our strategies against them.
T
The National Money Laundering Strategy for 2007 identifies areas in which the u.s. government will work to revise, enhance, or renew efforts to enforce existing Federal
laws and regulations; study areas in which new guidance
may be appropriate; and work with State supervisory and
law enforcement authorities to improve financial transparency in State-regulated financial sectors. There are also
areas identified in which the U.S. can more effectively
exploit information-sharing opportunities between law
enforcement and the financial services community.
Although conceived to be the foundation for the 2007
Strategy, the U.S. Money Laundering Threat Assessment
is much more than that. It not only assesses the progress
the United States has made in combating money laundering and highlights areas that require further attention,
but also provides lawmakers, regulators, examiners, law
enforcement, and industry with a cautionary explanation
of how major money laundering methods operate. For
this reason, the Threat Assessment is included in its entirety as Appendix A.
Key findings of the U.S. Money Laundering Threat
Assessment include:
• Banks and other depository institutions remain the
primary gateway to the U.S. financial system. Once
illegal proceeds get into a depository institution, they
can be moved instantly by wire or disguised through
commingling with legitimate funds. With the
advent of Internet and remote banking, depository
institutions face increased challenges identifYing
customers and their customers' sources of funds.
eo.
Introduction
• Money Services Businesses (MSBs) offer an
alternative to banks for both financial services and
money laundering. This industry includes check
cashers, money transmitters, foreign exchange
dealers, and sellers of money orders, stored value
products, and travelers' checks. Small retailers
may offer informal money services as a sideline.
Relatively few MSBs are registered.
• Smuggling cash out ofthe United States for deposit
elsewhere is a well-established money laundering
method and appears to be on the rise due to the
barriers criminals face attempting to launder
cash domestically. Bulk cash smuggling is most
often associated with illegal narcotics. The illicit
proceeds flow out of the U.S., often across the
Southwest border, retracing the route that drugs
frequently take entering the United States. Drugs
and illicit proceeds cross the U.S. northern border
as well.
• Often the most complex money laundering methods
involve the use of international trade to disguise
funds transfers. Trade-based money laundering
takes many forms including the Black Market Peso
Exchange, which separates the crime from the cash
early in the money laundering process. Under this
scheme, drug dealers are able to hand off their
illicit dollars in the U.S. to professional money
launderers who make clean funds available outside
the United States.
• Legal entities, including corporations, limited
liability companies and trusts, serve many
legitimate purposes but also can be used for
money laundering. Criminals who are able to hide
their control of a company or trust can disguise
their money laundering activity as commercial
transactions. Minimal registration requirements
and lax oversight can make it difficult to determine
who owns and operates legal entities.
• Casinos are cash-intensive businesses that often
provide financial services and money laundering
opportunities. The exchange of cash for casino chips
and related money transfer and account services
make casinos vulnerable to money laundering. The
number of gaming establishments in the U.S. is
growing, driven by Native American tribes. Casinos
on Indian reservations today bring in more money
than Las Vegas and Atlantic City combined.
INTRODUCTION
v
Introduction
2007 National Money Laundering Strategy
• The insurance industry has undergone a
transformation, and may become increasingly
attractive to money launderers. While traditional
insurance policies remain an important part of the
life insurance business, agents and brokers now
offer a range of investment services teaturing
financial products that can be purchased and
subsequently transferred, redeemed or sold,
creating new opportunities for money laundering.
The United States has a robust and aggressive anti-money laundering (AML) program. While quantifying the
effectiveness of u.s. efforts against money laundering
is difficult given the nature of the crime, there are ample
indications U.s. regulations and law enforcement are
having an impact. As it becomes more difficult to move
illicit funds using a particular money laundering method,
there is a clear migration to other channels. The Financial Action Task Force recognized the effectiveness of
the U.S. AML enforcement regime in its Report on the
Third Mutual Evaluation ofthe United States adopted in
June 2006. The Report's summary states:
The u.s. Authorities are committed to identifying, disrupting, and dismantling money laundering and terrorist financing networks. They seek to combat money
laundering and terrorist financing on all fronts, including by aggressively pursuing finanCial investigations.
These efforts have produced impressive results in terms
of prosecutions, convictions, seizures, asset freezing,
confiscation and regulatory enforcement actions l .
Statistics demonstrating the Federal law enforcement
and regulatory efforts against money laundering are presented in Appendix B.
The Threat Assessment and 2007 National Money
Laundering Strategy are products of broad-based interagency cooperation. More than a dozen Federal agencies, bureaus, and offices participated in these projects,
each with a unique mission and a unique view of the
money laundering landscape. Each category of financial crime has distinct criminal and financial traits. Accordingly, each Federal law enforcement agency has a
I
VI
lead role in a particular category of crime and often has
expertise interdicting specific money laundering threats.
Participation in crafting the 2007 Strategy came from
across the Departments of the Treasury, Justice, State,
and Homeland Security, as well as from the Board of
Governors of the Federal Reserve System, the Office of
the Comptroller of the Currency, and the Federal Deposit
Insurance Corporation.
Collaboration is an essential component of the U.S.
strategy against money laundering. U.S. law enforcement agencies are most effective when they work together through information sharing, pooled databases,
regional task forces and Suspicious Activity Report
Review Teams. Examples of law enforcement collaboration are included in Appendix C, which includes a listing of databases and intelligence centers that hold bulk
cash seizure and other information.
An important tool in the U.S. fight against money laundering is asset forfeiture, which strips away the profit
from illegal activity. In addition to disgorging criminal
proceeds and deterring crime, asset forfeiture has been
used to facilitate the return of funds to victims of fraud
and has resulted in millions of dollars being transferred
to State, local and international law enforcement efforts
through equitable sharing. A description of the strategic
use of asset forfeiture is presented in Appendix D.
Due to the global nature of financial and communications networks, the United States cannot have a sustained
impact against money laundering unless other countries
impose similar or complementary domestic regulations
and cooperate with international sanctions. The U.S.
government continues to work bilaterally and multilaterally to improve global safeguards. All agencies participating in AML initiatives domestically also work closely with their international counterparts through bilateral
and multilateral channels to assist in capacity-building
efforts and coordination. International support for effective AML programs is vital to the national security of
the United States and is one of the goals outlined in the
2007 National Money Laundering Strategy.
Financial Action Task Force, Summary of the Third Mutual Evaluation Report on Anti-Money Laundering and Combating the Financing of
Terrorism, United States of America, 23 June 2006, available at \\ \\w.ratf-gali.orgJdal<10ecd/44/9/3 71 () I 772.pJr
INTRODUCTION
eoe
GOAL 1
2007 National Money Laundering Strategy
CONTINUE TO SAFEGUARD
THE BANKING SYSTEM
anks and other depository institutions are the principal gateway to the U.S. financial system and are
constantly threatened by criminals attempting to
launder illicit funds. Once illegal proceeds are placed into
a depository institution, the funds can be moved easily by
wire transfer or disguised by intermingling them with legitimate funds. The challenges depository institutions face
include criminals attempting to hide their identities and
sources of income in order to open accounts and launder
illicit proceeds. In addition, use of the Internet as a means
for customers to open or access accounts and the steady influx of immigrants without U.S. government-issued identification are compelling banks to explore new ways to verity
the identity of their customers. Internationally, the use of
"correspondent," "payable through," and "nested" accounts
also create opportunities for concealing a customer's true
identity in the absence of adequate customer due diligence.
Even when currency is smuggled out of the United States,
the funds can get into the banking system abroad and come
back to the u.S. via cross-border wire transfers. 2
B
To safeguard the banking system, the Financial Crimes
Enforcement Network (FinCEN), the Federal banking
regulators, and the Federal law enforcement community
will continue to work closely with the banking industry to
fight money laundering. FinCEN and the Federal banking regulators will develop and publish guidance alerting the banking industry to money laundering threats
and the development and application of AML controls.
FinCEN also will work to enhance information sharing between the law enforcement community and the
banking industry, and will conduct focused outreach in
coordination with law enforcement to demonstrate the
value of Bank Secrecy Act data to the various sectors of
the financial community. The Federallaw enforcement
community will make industry outreach a priority and
will pursue financial crimes aggressively.
• FinCEN will continue to conduct outreach efforts
on the new regulatory requirements implementing
Section 312 of the USA PATRIOT Act. Section
312 requires certain financial institutions to conduct
due diligence when establishing or maintaining
correspondent accounts for foreign financial
institutions or private banking accounts for non-U.S.
persons and to conduct enhanced due diligence when
establishing or maintaining correspondent accounts
for certain types of foreign banks or private banking
accounts for senior foreign political figures, their
families and close associates.
• FinCEN and the Federal banking regulators will
work with the Federal law enforcement agencies to
shut off access to U.S. depository institutions for the
Black Market Peso Exchange (BMPE) by increasing
the use of advisories to alert depository institutions
of relevant threats. The BMPE is considered a
trade-based money laundering technique, but it
often relies on access to accounts at U.S. depository
institutions. 4
• FinCEN will work to sign information-sharing
agreements with States that have not yet signed a
memorandum of understanding (MOU). FinCEN
developed a model information-sharing agreement
that it is seeking to execute with all States that regulate
banks, money services businesses (MSBs), and
other types of financial institutions for compliance
with the Bank Secrecy Act (BSA) or similar AML
requirements.
• FinCEN will place a stronger emphasis on producing
more advanced analytic products and increase its
ongoing efforts to analyze BSA filings to provide
geographic threat assessments. These assessments
help law enforcement better determine where
vulnerabilities may exist in the financial systems
operating within their respective geographic areas
and assist the Federal and State banking regulators
in targeting examinations and enforcement.
-----.-------------------------------------------------------l
For more information on money laundering threats to the U.S. banking system and countermeasures see Appendix A.
J
Many of these Action Items are applicable to the broader category of "financial institutions," which includes banks and other depository
institutions, as well as other financial services businesses.
4
eo.
For more on the BMPE and trade-based money laundering see Goal 4 and Appendix A.
Goa I 1
1
GOAL 1
2007 National Money Laundering Strategy
• FinCEN and Federal law enforcement agencies will
continue information-sharing and partnering with
the financial community through forwns, such as the
Bank Secrecy Act Advisory Group (BSAAG)5 and
its related subcommittees. FinCEN will propose to
the BSAAG the creation of a new subcommittee to
serve as a forum in which all stakeholders can provide
input and maintain a dialogue on stored value issues
as FinCEN implements its regulatory plan.
• The Treasury will work with the Federal law
enforcement agencies to identifY areas where
Geographic Targeting Orders (GTOs) could
be used to identify and attack geographically
specific money laundering activity. The Treasury
Department has the authority, using a GTO, to
require financial institutions in a geographic area
to file additional transaction reports or maintain
additional records beyond those ordinarily required
under the regulations implementing the BSA and
GTOs have
other relevant requirements.
the potential to generate important information
for
law
enforcement,
facilitating
better
targeting of resources to combat illegal activity.
• FinCEN will facilitate improved informationsharing among and between the financial services
community and law enforcement. Section 314
of the USA PATRIOT Act enables government
entities to provide actionable intelligence to
financial institutions, and mandates reporting
by financial institutions, as well as facilitating
information sharing among financial institutions
themselves. FinCEN will provide more frequent
alerts and advisories regarding terrorist financing
and money laundering through the Section 314
information-sharing system to better educate the
industry regarding risks to the U. S. financial system
and enable the industry to interdict appropriately.
2
Introduction
• FinCEN, in conjunction with other components
of the Treasury, will study the application,
supervision, and enforcement of AML policies
and procedures on private-sector global payment
networks, leveraging similar work being undertaken
by a number of governmental and international
organizations on a multilateral basis. The global
reach of these payment networks often puts them
outside the jurisdiction of anyone domestic
authority.
• FinCEN will work to promote consistent reporting
of how BSA data is used and the value ofBSA data
to the relevant agencies.
• The Office of Foreign Assets Control (OFAC) will
continue to foster transparency within the automated
clearing house 6 community to assure that adequate
information is included with cross-border funds
transfers and that transactions subject to financial
sanctions are appropriately interdicted.
• Federal law enforcement agencies that investigate
financial crimes will expand formal outreach
programs with the banking industry and identifY
industry liaisons.
• Federal law enforcement agencies will maintain
robust Suspicious Activity Report (SAR) review
programs and BSA data analysis in order to
initiate and support investigations of attempts to
exploit the banking system for money laundering.
There are 80 SAR Review Teams operating across
the United States analyzing BSA data to identifY
evidence of financial crimes.
5
The BSAAG is an advisory group consisting of representatives of government, financial institutions, and other interested persons. The
BSAAG meets semiannually for the purpose of informing private sector representatives of the utility of Bank Secrecy Act reports and to advise
the Secretary of the Treasury (or his designee) of potential enhancements or modifications to existing Bank Secrecy Act requirements.
6
The Automated Clearing House (ACH) system is a domestic electronic batch transfer interbank payment network. The ACH is used by
participating depository financial institutions to clear electronic funds transfers, such as automatic payroll deposits and certain debit card
transactions. The Federal Reserve and the Electronic Payments Network act as central clearing facilities through which financial
institutions transmit or receive ACH entries. The ACH is governed by the private sector National Automated Clearing House Association.
Goa I 1
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GOAL 2
2007 National Money Laundering Strategy
ENHANCE FINANCIAL
TRANSPARENCY IN MONEY
SERVICES BUSINESSES
riminals unable to move illicit cash directly into
the U.S. banking system may tum to money
services businesses (MSBs) as an alternative.
MSBs encompass a large and varied group of non-depository financial service providers offering both formal
and informal value transfer services. MSBs include
money transmitters, check cashers, currency exchangers, as weB as issuers, sellers, and redeemers of money
orders, traveler's checks, and stored value. The diversity
and accessibility of the MSB sector presents challenges
for regulation and oversight. While the exact number
of service providers in the United States is difficult to
determine, estimates suggest that fewer than 20 percent
of MSBs are registered with FinCEN. It is not known
what percentage of unregistered MSBs are exempt from
registration, due for example to their low business volumes or agent status. Regardless, the result is that the
vast majority of MSBs operate without direct Federal
regulatory supervision. 7
C
The relevant regulatory, supervisory, and law enforcement agencies will work collaboratively to improve and
expand MSB outreach initiatives and will work aggressively to identify and prosecute MSBs that facilitate
money laundering. FinCEN will clarify MSB regulatory obligations, simplify the registration process, and
strengthen the BSA compliance supervisory structure.
• Federal law enforcement agencies will increase
enforcement efforts along the Southwest border,
which they have identified as a primary destination
and transshipment point for suspicious funds sent
7
8
9
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through MSBs. A key finding of the 2005 National
Drug Threat AssessmentS was that drug traffickers
use MSBs - particularly money transmitters,
currency exchanges (casas de camhio), and check
cashing businesses - to launder drug proceeds.
• OFAC will enter into MOUs with the States,
working with the Conference of State Bank
Supervisors and the Money Transmitter Regualtors
Association, to share information and improve
awareness of trade and economic sanctions that are
often connected with money laundering schemes.
• FinCEN, in coordination with the Federal banking
regulators and the industry, will issue guidance and
develop regulatory definitions and requirements
under the BSA for stored value products and
payment systems.
• FinCEN will coordinate with the Federal law
enforcement agencies and the Immigration and
Customs Enforcement (ICE)-led Identity and
Benefit Fraud Task Force to identify unregistered
MSBs, conduct outreach and, where appropriate,
to harmonize law enforcement responses. ICE's
new MSB/IVTS9 initiative has since January
2006 identified more than 400 unlicensed
MSBs, resulting in the initiation of 300 criminal
investigations.
• FinCEN, in coordination with the Internal Revenue
Service (IRS), will enhance public sector outreach
to educate MSBs about their regulatory obligations
as well as making the sector aware of money
laundering indicators.
• FinCEN will explore ways to obtain more
information on MSBs. This will help focus
supervision and enforcement resources on MSBs
that present the greatest vulnerability to money
laundering and other criminal activity. FinCEN
also will seek to clarify the extent to which
branches or agents of foreign MSBs located in the
United States are subject to the BSA.
For more information on money laundering threats involving MSBs and U.S. countcrmeasures see Appendix A.
National Drug Threat Assessment, produced by the National Drug Intelligence Center, available at http://www.usdoj.gov/ndic/
pubs I 111 2620Iindex.htm.
Informal Value Transfer Systems (lVTS) refers to funds transfers that take place outside of the conventional banking system through nonbank financial institutions or other business entities whose primary business activity may not be the transmission of money
Goal 2
3
GOAL 2
2007 National Money Laundering Strategy
• The IRS will work to sign information-sharing
agreements with States that have not already signed
an MOU. The IRS has a model Federal/State MOU
that provides both IRS and the participating State
the opportunity to leverage resources for BSA
examinations, training, and outreach. FinCEN and
the IRS (which has been delegated examination
authority for MSBs to ) are reviewing examiner
training materials, as well as materials used for
education and outreach, and are working with
State regulators to launch a task force dedicated
to educating and assisting MSB regulators on the
conduct of BSA examinations.
• IRS-Criminal Investigation (IRS-c!) and IRS
Small Business/Self Employed BSA (IRS SB/SE
BSA) wiIl continue to implement the Fraud Referral
Program through which civil operating divisions
of the IRS advise IRS-CI of potential criminal
violations encountered during the performance of
their duties. The Fraud Referral Program has been
a traditional tool for criminal tax enforcement,
but in FY 2005 IRS-CI, working with IRS SB/
SE, expanded the program to include MSB BSA
compliance.
10
4
IRS Small Business/Self Employed BSA has been delegated authority to examine MSBs for BSA compliance.
GOAL 2
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GOAL 3
2007 National Money Laundering Strategy
STEM THE FLOW OF
ILLICIT BULK CASH OUT OF
THE UNITED STATES
riminals facing barriers to money laundering
at banks and MSBs in the United States may
attempt to smuggle cash to foreign financial
institutions. Often some of those funds are wired or
transported back to the United States for deposit in U.S.
accounts. The smuggling of bulk currency out of the
United States is the largest and most significant drugmoney laundering threat facing law enforcement. Deterring direct access to U.S. financial institutions by
criminals does not prevent money laundering if illicit
proceeds can still reach U.S. accounts through indirect
means. 11
C
Stopping criminal proceeds from leaving the United
States as illicit bulk cash and reentering the country as
seemingly legitimate funds requires a borderless strategy that includes initiatives against bulk cash smuggling at home and capacity building and cooperation
abroad. I ]
• Treasury's Executive Office for Asset Forfeiture
will provide support for both IRS-CI and ICE to
establish more Federal law enforcement-led task
forces and investigations targeting the smuggling
of bulk cash out of the United States. The
Department of Justice will provide support for Drug
Enforcement Administration (DEA) participation
in task forces and investigations targeting bulk
cash smuggling.
"
• OFAC and the Federal Reserve will continue their
efforts to prevent the wholesale distribution of
U.S. currency, by commercial banks that receive
Federal Reserve Cash Services, to rogue regimes
or entities that appear on OF AC's List of Specially
Designated Nationals and Blocked Persons.
• CBP, DEA, and ICE will expand bulk cash
concealment detection training for State and local
law enforcement. This will include training in
concealment "trap" detection 13, methods of courier
debriefing, and guidance on pertinent evidence
identification.
• The Organized Crime Drug Enforcement Task
Force (OCDETF), through its regional strategic
initiatives, will target illegal bulk cash movement
along the Southwest border and on interstate
highways coming from the Western and Eastern
States.
These bulk cash initiatives will be
supported by OCDETF's Co-Located Strike
Forces in Houston and Atlanta and the Gulf Coast
High Intensity Drug Trafficking Area (HIDTA)14
Blue Lightning Operations Center, which function
as regional points of contact for law enforcement
officers and prosecutors nationwide.
These
regional support centers gather intelligence and
disseminate leads quickly throughout neighboring
areas.
• The DHS-Ied Border Enforcement Security Task
Force (BEST) will be expanded beyond the
Southwest border, where bulk cash smuggling is
For more information on bulk cash smuggling and U.S. countermeasures see Appendix A.
12
For information on international initiatives see Goal 8.
Il
Smugglers use many low- and high-tech methods to conceal cash and other contraband in hidden compartments or "traps" in vehicles and merchandise.
14
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• The Departments of the Treasury and Justice
will continue to sponsor advanced bulk currency
smuggling
and
post-interdiction
financial
investigations training for DEA, IRS-CI, ICE and
Customs and Border Protection (CBP), and the
United States Attorneys Offices.
The HIDTA program enhances and coordinates drug control efforts among local, State, and Federal law enforcement agencies. The
program provides agencies with equipment, technology, and additional resources to combat drug trafficking and its harmful consequences
in critical regions of the United States.
GOAL 3
5
GOAL 3
2007 National Money Laundering Strategy
targeted as an identified vulnerability at specific
points of entry, to include Northern border locations
as well.
• CBP, in coordination with ICE, will increase
the capability for outbound inspections and will
continue to invest in research and development of
non-intrusive bulk currency detection technology.
• CBP, in coordination with ICE, will develop
mitigation guidelines for bulk cash smuggling
violations. Currently, when cash is seized in
violation of the bulk cash smuggling statute,
31 US.c. 5332, CBP has utilized mitigation
guidelines applicable to a person failing to file a
Report of International Transportation of Currency
or Monetary Instruments (required for amounts
exceeding $1 0,000 entering or leaving the country).
Distinct mitigation guidelines must be formulated
for the smuggling of bulk currency.
• FinCEN and the Federal banking regulators will
work with the Federal law enforcement agencies
to help U.S. depository institutions identify illicit
deposits. In April 2006, FinCEN and the Federal
banking regulators issued an advisory warning that
U.S. financial institutions may be misused for the
repatriation of illicit U.S. currency smuggled into
Mexico.
• The National Drug Intelligence Center (NDIC)
will partner with the El Paso Intelligence Center l5
to produce a comprehensive Southwest border
bulk cash threat assessment. This joint analysis
will produce recommendations to maximize the
effectiveness of law enforcement resources to
combat bulk cash smuggling in the Southwest
border region.
• NDIC will conduct a comprehensive analysis of
bulk cash smuggling along the Northern border.
The project will seek to identify the areas in this
region where bulk cash smuggling is taking place,
the methods used, and the groups responsible.
15
6
See Appendix C.
GOAL 3
eo.
2007 National Money Laundering Strategy
ATTACK TRADE-BASED
MONEY LAUNDERING AT
HOME AND ABROAD
he most complex money laundering methods are
often those that use trade to transfer value into
or out of the United States. Trade-based money
laundering encompasses a variety of schemes. The
most common in the Western Hemisphere is the Black
Market Peso Exchange (BMPE) in which Colombian
drug traffickers swap illicit dollars in the United States
for clean pesos in Colombia. Other methods include
manipulating trade documents, and using criminal
proceeds to buy gems or precious metals. Trade-based
schemes are also used by informal value transfer systems
to settle accounts. J6
T
Law enforcement will use all available means to
identify and dismantle trade-based money laundering
schemes. This strategy includes infiltrating criminal
organizations to expose complex schemes from the
inside, and deploying ICE-led Trade Transparency
Units thatfacilitate the exchange and analysis of trade
data among trading partners.
• ICE will work with countries that have expressed
interest in establishing Trade Transparency Units
(TTUs) with the United States. ICE, with the
support of the Department of State, has established
TTUs in Argentina, Paraguay, Brazil, and
Colombia, and is working with the governments of
Mexico, the Philippines, and Malaysia to establish
TTUs. The mission of a TTU is to analyze crossborder trade data in order to identify anomalies that
might indicate trade-based money laundering, such
as the BMPE. With Treasury Department support
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GOAL 4
for domestic TTU operations, ICE conducts
investigations and prosecutions related to tradebased money laundering and other financial crimes
in the United States and abroad.
• Treasury and ICE will investigate how Foreign
Trade Zones (FTZ), known as free trade zones
outside of the United States, are abused for tradebased money laundering and will work with host
nations to close this vulnerability. Operating in an
FTZ allows manufacturers legal options to defer,
reduce, or even eliminate U.S. customs duties.
These zones are intended to promote manufacturing,
but also facilitate money laundering when false
documentation is used to misrepresent imports and
exports.
• The United States will attack both the onshore and
offshore components of the BMPE. Federal law
enforcement agencies and the Department of State
will work cooperatively and collaboratively with
foreign law enforcement authorities to shut down
In addition,
the international BMPE network.
U.S. Federal law enforcement agencies and offices
of the Treasury will continue to work with the
U.S. financial services and trade communities to
raise awareness of trade-based money laundering
strategies, including the BMPE.
• NDIC will dedicate analytic resources to producing
a database that will collect BMPE-related data and
will publish an intelligence product addressing a
reverse BMPE scheme, known as reintegro, which
is believed to account for a significant percentage
of illicit proceeds laundered through the BMPE
annually. When goods are exported from Colombia,
the shipper must obtain documentation that allows
the goods to be exported and payment to be received
into the shipper's bank account. This is known as
a rein tegro , which means "reintegrate papers."
After the initial use of the export documents by
the shipper, these papers are often sold for others
to use, which can create opportunities for money
laundering. J7
For more information on trade-based money laundering and U.S. countermeasures see Appcndix A.
For more information on reintegro. see: "Law Enforcement Efforts to Combat International Money Laundering Through Black Market
Peso Brokering," House of Representatives Subcommittee on General Oversight and Investigations, Committee on Banking and Financial
Services, U.S. House of Representatives, October 22, 1997, at:
hlq1://C(ll1lmdocs,h(llls~,gov/c(lmmillccs/hallk/hha44JJ 7,()()()/hb,,4433 7~()l'.hll11,
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2007 National Money Laundering Strategy
PROMOTE TRANSPARENCY IN
THE OWNERSHIP OF LEGAL
ENTITIES
T
he organization and registration of certain
business entities, such as corporations,
limited liability companies, and trusts can be
accomplished in all State jurisdictions with minimal
public disclosure of personal information regarding
controlling interests and ownership. The current lack
of transparency prevents financial institutions from
identifying suspicious transactions and hinders law
enforcement investigations and prosecutions. Using a
State-registered business entity as a front is one way that
money launderers gain access to U.s. banks and other
domestic financial institutions. IS
FinCEN will enhance awareness of the misuse of
legal entities for money laundering, and, with OFAC
and other offices of the Treasury, will work with
State administrators to explore options to increase
transparency in the beneficial ownership of legal
entities. FinCEN, OFAC, the IRS, and the Federal
functional regulators will issue guidance on the risks
of providing financial services to shell companies.
Law enforcement agencies will target for prosecution
individuals who use the incorporation process to
facilitate money laundering.
• FinCEN will publish an analytical study of the
use of domestic legal entities, focusing on limited
liability companies, in financial crime and money
laundering.
• Offices of the Treasury, including FinCEN and
OF AC, will develop and implement outreach
programs with State authorities and relevant
trade associations to explore legislative and
administrative options torequire the disclosure of
ownership information in the company registration
process. Outn:ach efforts will focus on those States
with the most significant organization activity
and those that are most often cited in Suspicious
Activity Reports involving shell companies and
other legal entities.
• The Treasury, in conjunction with FinCEN and
the Federal functional regulators, will provide
necessary guidance to clarify points of question
about the customer identification program rule.
• The Federal Bureau of Investigation (FBI) is
developing an internal working group that will
focus on service providers that form companies on
behalf of offshore criminal interests. The working
group will identify and develop actionable leads,
initiate investigations, and work cooperatively with
domestic and foreign law enforcement agencies
to combat threats to the United States posed by
criminal organizations operating through U.S.
shell companies and other legal entities.
• FinCEN, OF AC, the IRS, and the Federal functional
regulators will develop guidance for financial
institutions alerting them to the risks inherent in
providing financial services to shell companies
and other legal entities, and will suggest ways to
mitigate those risks consistent with applicable AML
and customer identification program regulations.
18
8
For more information on the money laundering threats associated with legal entities see Appendix A.
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2007 National Money Laundering Strategy
EXAMINE ANTI-MONEY
LAUNDERING REGULATORY
OVERSIGHT AND
ENFORCEMENT AT CASINOS
asinos are a high-volume cash-intensive industry
and are among a broad and varied group of
nonbank financial institutions that offer money
laundering opportunities outside the traditional financial
services system. A number of money laundering
schemes using casinos have been reported by foreign
and domestic law enforcement. 19 The growth of the
casino industry in recent years has been driven primarily
by Native American tribes. A primary concern is to
ensure that tribal gaming commissions understand their
BSA compliance responsibilities.
C
FinCEN and the IRS will develop an aggressive
outreach and supervisory campaign to reach as
broadly as possible across the expanding universe of
casinos to enforce established AML programmatic,
reporting, and recordkeeping requirements. The law
enforcement community will work through the Indian
Gaming Working Group (IGWG), led by the FBI, to
monitor tribal casinos for criminal conduct.
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• FinCEN will leverage Federal supervision and
enforcement resources by working with State
and Tribal authorities to harmonize regulatory
obligations, share information, and coordinate
enforcement actions.
• FinCEN, in conjunction with the IRS, will enhance
outreach to the Native American casino regulatory
community to ensure the Native American tribes
that own casinos fully implement the applicable
BSA requirements, and to alert the sector to money
laundering and terrorist financing indicators.
• FinCEN and the IRS will continue to implement
a revised examination methodology to identify
potentially non-compliant casinos. This new
approach incorporates input from the casinos
themselves, other regulators, and here law
enforcement. 20
• The FBI will continue to lead the IGWG to identify
investigative priorities and allocate resources
for investigations of Tribal casinos. The IGWG
consists of representatives from the FB I' s financial
crimes, public corruption, and organized crime
programs as well as representatives from other
Federal agencies.
19
For more information on money laundering using casinos see Appendix A.
20
The IRS Tax Exempt and Government Entities - Office of Indian Tribal Governments is responsible for: (I) identifying all Tribal casinos
subject to BSA regulation; (2) conducting and documenting BSA outreach; (3) maintaining a compliance database; and (4) assisting IRS
SB/SE BSA with Tribal protocol issues and BSA examination case selection. The IRS SB/SE BSA unit is responsible for conducting BSA
examinations of Tribal casinos.
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9
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2007 National Money Laundering Strategy
IMPLEMENT AND ENFORCE
ANTI-MONEY LAUNDERING
REGULATIONS FOR THE
INSURANCE I'NDUSTRY
nsurance companies are among a broad class of
nonbank financial service providers that offer a
wide variety of financial products. In addition
to traditional insurance policies, insurers today also
market savings and investment products and tax
planning services. These various financial products
and services can offer criminals opportunities for
money laundering.21 A number of money laundering
methods have been used to exploit insurance products,
primarily life insurance policies and annuities.
I
• FinCEN, in conjunction with the Federal
banking regulators, will provide guidance on the
application of the recent insurance rules to banking
organizations that underwrite or sell insurance
products and are already subject to BSA compliance
obligations under the banking laws.
• OF AC will work with State regulators and the
National Association of Insurance Commissioners
to promote detection and prevention of money
laundering schemes that may involve violations of
U.S. trade and economic sanctions.
• IRS SB/SE BSA will work to sign an informationsharing MOU with State insurance regulators. The
MOU provides both the IRS and the participating
State the opportunity to leverage resources for BSA
examinations, training, and outreach. FinCEN
and the IRS are also developing examiner training
materials.
Regulatory, supervisory, and law enforcement agencies
will coordinate to enforce regulations that extend
AML programmatic, reporting, and recordkeeping
requirements to the insurance industry.
• FinCEN will provide outreach and training to the
insurance industry to advise on the implementation
of two recent regulations regarding BSA
compliance obligations. Under the new rules,
certain U.S. insurance companies are required
to establish AML programs and file SARs. The
final rules apply to insurance companies that
issue or underwrite certain products that present
an increased risk for money laundering and other
illicit activity.
21
10
For more information on money laundering using insurance products and U.S. countermeasures see Appendix A.
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2007 National Money Laundering Strategy
SUPPORT GLOBAL
ANTI-MONEY LAUNDERING
CAPACITY BUILDING AND
ENFORCEMENT EFFORTS
ountries with lax AML regulation and
enforcement pose a national security threat to
the United States by providing a safe haven for
criminal enterprise. New payment and communications
technologies are opening up the world to transnational
crime and creating new options for cross-border funds
transfers.
C
The United States will work to detect, disrupt,
dismantle, and defeat money laundering networks
globally by promoting transparency in the international
financial system and encouraging cooperation and
coordination among diplomatic, financial, and law
enforcement authorities.
The United States will
provide education, training, and support for countries
seeking to protect themselves from money laundering
and will work against countries that facilitate money
laundering.
• U.S. law enforcement agencies will continue to
devote resources to training foreign counterparts in
the investigation of sophisticated money laundering
methods. Transnational crime presents a growing
challenge to the U.S. law enforcement community,
requiring support from investigators and law
enforcement agencies worldwide that understand
modern crime fighting techniques.
• DEA, through its co-chainnanship of the
International Drug Enforcement Conference
(IDEC), a forum of 57 countries represented by the
senior drug enforcement official for each country,
will implement, through the IDEC, a global money
flow strategy designed to identify and attack the
flow of illegal drug money as it transits the globe
from countries of drug abuse to countries of drug
supply and bank secrecy havens.
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• ICE, through its 56 international attaches, will
continue to provide technical assistance and
investigative support to foreign counterparts to
facilitate international investigations into money
laundering, bulk cash smuggling, and other
transnational financial crimes.
• FinCEN will assist in the development of financial
intelligence units that will receive, analyze, and
disseminate financial intelligence to domestic law
enforcement and share financial infonnation with
foreign counterparts.
• The Departments of the Treasury, State, Justice,
and Homeland Security, the Federal functional
regulators, and the law enforcement community,
will work bilaterally, regionally, and through
multilateral organizations, in support of the
Financial Action Task Force (FATF) 40
Recommendations
and
Nine
Special
Recommendations
for
preventing
money
laundering and terrorist financing.
• The Department of State will continue to design,
coordinate, and support efforts to develop
comprehensive AML regimes globally, regionally,
and bilaterally with the interagency community
and through multilateral organizations including
the United Nations Global Programme Against
Money Laundering, the Organization of American
States, the Pacific Islands Forum, and the FATFStyle Regional Bodies.
• The Federal bank regulators will continue to provide
training and technical assistance to foreign bank
supervisory officials for the development of AML
compliance programs and program supervision.
• The Treasury, in consultation with the Departments
of State and Justice, and other agencies as
appropriate, will use Section 311 of the USA
PA TRIOT Act to safeguard our financial system
from foreign money laundering threats. Under
this authority, U.S. financial institutions may be
required to take one or more special measures
when dealing with a foreign jurisdiction, financial
institution, class of transaction, or type of account
designated to be of primary money laundering
concern.
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11
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2007 National Money Laundering Strategy
• In conjunction with the National Strategy to
Internationalize Efforts against Kleptocracy, launched
in August 2006, the U.S. Government will employ its
tools and authorities to target, trace, seize, and forfeit
assets misappropriated by CutTent and former senior
foreign government or political officials, their close
associates, and immediate family members or other
politically exposed persons and deny them access to
the international financial system.
• The Treasury, in collaboration with the Department
of State, the Federal banking regulators, and other
agencies as appropriate, will work directly with the
private sector on AML program implementation
in regions of global strategic significance. This
initiative complements the development and
implementation of jurisdictional AML controls.
• The Treasury will continue working closely with
the International Monetary Fund (lMF) and the
World Bank Group to promote member country
programs against money laundering and wiII
continue to help guide improvements through
targeted technical assistance both directly and
through the IMF and World Bank. By the end of
2005, the IMF and World Bank had conducted
more than 50 assessments of member countries'
compliance with the standards of the FATF and
had provided technical assistance on related
projects in more than 125 countries. The Treasury
is also working with the multilateral development
banks to strengthen their internal controls, and is
encouraging the regional development banks to
carry out internal risk assessments similar to those
undertaken by the World Bank.
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2007 National Money Laundering Strategy
IMPROVE HOW WE MEASURE
OUR PROGRESS
easuring the scope of the money laundering
threat and the effectiveness of law
enforcement and regulatory countermeasures
remains a challenge. There are no objective, quantitative
benchmarks that provide a starting point because of the
unreported volume of financial crime. All efforts to
quantify the problem are estimates. 22
M
Traditional measures of our effectiveness against
money laundering, such as the volume of seized
or forfeited assets, indictments, and BSA filings,
although imperfect, do offer useful information
and are indicators of the progress the United States
is making against money laundering. The United
States must work toward more effectively identifying
and connecting criminal activity, illicit cash, money
laundering methods, cases, and outcomes.
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• ICE will compile investigative data, using the
Treasury Enforcement Communications System
(TECS II), which serves as the ICE investigative
database for case management. TECS II contains
data relating to transnational and cross-border
financial crimes, including bulk cash smuggling
violations, cases involving failure to file a Report
of International Transportation of Currency or
Monetary Instruments (CMIR)23, and money
laundering cases.
• FinCEN and other offices of the Treasury will
work with the Federal law enforcement community
to develop a process to evaluate and report on
law enforcement's use of BSA reporting in their
investigations. This information will provide
meaningful feedback to the financial community on
the value of this information to law enforcement,
and will assist institutions in the enhancement of
their AML and Suspicious Activity Reporting
programs.
• OCDETF will support the compilation of money
laundering prosecution statistics by providing
data contained in its management information
system regarding results achieved in OCDETF
designated cases. OCDETF collects data on 14
primary money laundering activity categories
to evaluate the program's progress toward
attacking the financial infrastructure of major drug
trafficking organizations. These 14 categories
cover the most prevalent and sophisticated money
laundering methods used by major drug trafficking
organizations.
II
The FATF Mutual Evaluation Report (MER) of the United States, supra note I and accompanying text, measures the U.S. AMLlCFT
regime against the FATF 40 Recommendations and 9 Special Recommendations and is a significant benchmark of the effectiveness of
the U.S AMLlCFT system ..
n 31 U.S.C. 5316 requires individuals to report the transport or transfer of more than $10,000 in currency or monetary instruments into or out
of the United States.
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13
LIST OF APPENDICES
Appendix A - U.S. Money Laundering Threat Assessment
Appendix B - Money Laundering Statistics
Appendix ( - Law Enforcement Data and Intelligence (enters
Appendix D - Strategic Use of Asset Forfeiture
14
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U.S. Money Laundering Threat Assessment
APPENDIX A
Appendix A: U.S. Money Laundering Threat Assessment
Introduction ...................................................................................................................................... 16
Banking ............................................................................................................................................... 20
Money Services Businesses ................................................................................................. 26
Money Transmitters ............................................................................................................ 30
Check Cas hers ...................................................................................................................... 33
Currency Exchangers ......................................................................................................... 34
Money Orders ........................................................................................................................ 36
Stored Val ue Cards ............................................................................................................. 39
Online Payment Systems ........................................................................................................... 43
Informal Value Transfer Systems .......................................................................................... 46
Bulk Cash Smuggling ................................................................................................................... 50
Trade-Based Money laundering ........................................................................................... 57
Insurance Companies .................................................................................................................. 61
Shell Companies And Trusts .................................................................................................... 63
Casinos ............................................................................................................................................... 67
Appendices
(A) NDIC Analysis ................................................................................................................. 72
(B) FinCEN Analysis ............................................................................................................. 75
(C) Bank Secrecy Act Reports .......................................................................................... 85
(0) Status of BSA Regulations for Financial Institutions .................................... 87
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APPENDIX A
15
APPENDIX A
INTRODUCTION
T
he 2005 Money Laundering Threat Assessment
(ML T A) is the first government-wide analysis
of money laundering in the United States. The
report is the product of an interagency working group
composed of experts from the spectrum of U.S. Government agencies, bureaus, and offices that study and combat money laundering. The purpose of the ML TA is to
help policy makers, regulators, and the law enforcement
community better understand the landscape of money
laundering in the United States and to support strategic
planning efforts to combat money laundering.
The working group synthesized law enforcement statistics and observations, regulatory data (such as Bank
Secrecy Act filings), private sector studies, and public
information to assess the vulnerabilities that allow criminals to launder money through particular money laundering methods or conduits.
The MLT A offers a detailed analysis of thirteen money
laundering methods, ranging from well-established techniques for integrating dirty money into the financial system to modem innovations that exploit global payment
networks as well as the Internet. Each chapter focuses
on a specific money laundering method and provides a
brief overview of the methodology, an assessment of
vulnerabilities - including geographic or other noted
concentrations - and the regulatory/public policy backdrop.
While not exhaustive, the assessment consolidates a tremendous amount of information and insight contributed
by the various participating agencies as to the major
methods of money laundering that they confront. The
overall picture is both sobering and promising. The
volume of dirty money circulating through the United
States is undeniably vast and criminals are enjoying
new advantages with globalization and the advent of
new financial services such as stored value cards and
online payment systems. At the same time, there has
been considerable progress. The approach of U.S. law
enforcement and regulatory agencies has undergone a
sea change over the past decade, such that money laundering is now treated as an independent and primary focus across all relevant agencies. With this change in
approach and focus have come marked improvements
in both systemic and applied anti-money laundering
16
APPENDIX A
U.S. Money Laundering Threat Assessment
(AML) efforts. Most encouraging are interagency initiatives and task forces that, when properly coordinated,
bring the talents, expertise, and resources of multiple
agencies to bear on a problem to great effect. With so
many agencies looking at distinct but related aspects of
this issue, it is critical that information be shared freely
and studied jointly. Highlighted below are some notable
examples of recent U.S. agency advances in organization, analysis, and execution in the fight against money
laundering:
U.S. Immigration and Customs Enforcement (ICE), has
introduced many new initiatives aimed at analyzing and
combating the movement of illicit funds by bulk cash
smuggling, trade-based money laundering, courier hubs,
money services businesses (MSBs), charities, and alternative remittance systems. These initiatives include:
• Operation Cornerstone, founded in 2003 - a private
industry partnership and aggressive outreach
program;
• A Trade Transparency Unit (TTU) aimed at
identifying anomalies related to cross-border trade
indicative of money laundering;
• A multi-agency approach (in partnership with
Internal Revenue Service - Criminal Investigation
(IRS-CI), FinCEN, and the Federal Bureau of
Investigation (FBI)) to target unlicensed MSBs;
and
• A Foreign Political Corruption Task Force in
Miami to address foreign public corruption and
related money laundering.
With respect to bulk cash smuggling m particular,
ICE is:
• W orkingwith Customs and Border Protection (CBP)
to share training and expertise with the Mexican
government as to how to execute successful bulk
cash smuggling interdiction operations;
• Providing training in bulk cash smuggling
interdiction to 28 developing countries in the
Middle East, South America, Africa, and Asia, in
concert with CBP and the State Department; and
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u.s.
Money Laundering Threat Assessment
• Conducting training m bulk cash smuggling
interdiction, funded by the Executive Office for
Organized Crime Drug Enforcement Task Forces
(OCDETF), in seven major cities throughout the
United States, attended by federal, state and local
law enforcement.
The FBI is working to develop advanced technologies
to exploit Suspicious Activity Reports (SARs) and other
Bank Secrecy Act (BSA) data from FinCEN by using
computer software to visualize financial patterns, link
distinct criminal activities, and display the activity in
link analysis charts. The FBI is also implementing a
next-generation electronic file management system that
will help manage investigative, administrative, and intelligence needs while also improving ways to encourage information sharing with other agencies.
The Administrator ofthe Drug Enforcement Administration (DEA) issued a directive in 2003 restoring DEA's
primary focus to the financial aspects of drug investigations. Currently, every DEA investigation includes a financial component. DEA also undertook the following
steps to promote this focus:
• Established an Office of Financial Operations;
• Established specialized money laundering groups
in every DEA Field Division, and increased Special
Agent resources devoted to money laundering
invstigations in key foreign offices;
• Created and presented specialized money
laundering training to DEA agents and analysts;
• Established a "Bulk Currency Initiative" to
coordinate all U.S. highway money seizures for
the purpose of developing the evidence necessary
to identify, disrupt, and dismantle large-scale
narcotics trafficking organizations; and
• Initiated a global money flow study, through
its position as chair of the International Drug
Enforcement Conference, to identify and target
drug proceeds flowing from countries of drug
abuse to countries of drug supply.
The IRS, as part of its core tax administration mission,
addresses both the criminal and civil aspects of money
laundering. IRS-CI special agents "follow the money"
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APPENDIX A
within various inter-agency task forces and centers.
IRS-CI also has 41 active Suspicious Activity Report
Review Teams (SAR-RT) reviewing and analyzing
SAR data for case developmmt and support throughout
the country. Recently-acquired "data mining" software
is improving the ability of IRS-CI's investigators and
analysts to make connections and identify patterns in the
SAR data.
On the civil side, the IRS established a new organization
within its Small Business/Self-employed (SB/SE) Division, the Office of Fraud/BSA, which has end-to-end
accountability for BSA oversight of certain non-bank
financial institutions. There are over 300 examiners
and managers who are fully trained and dedicated fulltime to the BSA program. The IRS has also completed
a model Federal/State Memorandum of Understanding
which provides both IRS and the participating state the
opportunity to leverage resources for BSA examinations, outreach, and training.
Treasury's Office of Terrorist Financing and Financial
Crime (TFFC), a part of the Office of Terrorism and
Financial Intelligence, is working to develop and drive
anti-money laundering policy and initiatives at home
and abroad. A primary initiative of this office is to lead
the interagency development of the National Money
Laundering Strategy. In crafting this and other strategies, TFFC works with the law enforcement, regulatory,
and intelligence communities, in addition to the private
sector and overseas counterparts, to identify and address
systemic vulnerabilities. In addition, TFFC, along with
inter-agency counterparts, has been a driving force behind the worldwide propagation of strong anti-money
laundering standards via the Financial Action Task Force
(F ATF), the preeminent international body on money
laundering issues. Over the past two years, scores of
new countries - from North Africa to the Persian Gulf
region to Eurasia - have joined FATF -style regional
bodies, such that over 150 nations have now committed
themselves to adopting FATF' s standards and to being
evaluated against them.
The BSA, administered by the Treasury Department's Financial Crimes Enforcement Network (FinCEN), is the
cornerstone of the U.S. Govenunent's AML framework
and was recently expanded in scope and depth. Today,
businesses under the BSA umbrella include casinos, jewelers, MSBs (such as check cashers and money transmitters),
securities dealers, and others.
APPENDIX A
17
APPENDIX A
FinCEN is itself undergoing a broad transformation.
The bureau is changing the way it analyzes information,
moving away from functioning simply as a clearinghouse, and moving towards higher-level research and
analysis, which will utilize all sources of infonnation to
analyze the cutting-edge systems of money laundering
and illicit finance. FinCEN has also signed memoranda
of understanding with the federal regulatory agencies
that have received delegated authority from FinCEN to
examine financial institutions for compliance with the
BSA. The goal is better coordination and communication leading to effective implementation and enforcement
of the BSA, which ultimately should help to achieve a
sustained and successful attack on money laundering in
the United States.
The U.S. Postal Inspection Service (USPIS) enjoys the
advantage of having more than 100,000 postal clerks
and managers on the alert for possible suspicious activity. These employees file over 500 SARs per week to
the U.S. Postal Service (USPS) BSA Compliance Office. USPIS recently established an Intelligence Analysis Unit (lAU) at its headquarters office to ensure that
these reports as well as back room analysis are being
utilized effectively. The IAU methodically analyzes the
USPS BSA database, searching for clues that might indicate major money laundering operations and possible
terrorist financing schemes. The IAU both responds to
investigative inquiries from field inspectors and proactively initiates investigative leads for the field.
The Department of Justice's Asset Forfeiture and Money
Laundering Section (AFMLS) reports that the USA PATRIOT Act provided a number of new tools to identify
and track criminal proceeds. Section 319(a) has been of
particular importance, allowing the government to capture criminal assets held abroad if the criminal proceeds
are deposited in a foreign bank that maintains a correspondent account in the United States. The Civil Asset
Reform Act of 2000 is another important tool assisting
federal law enforcement in making asset forfeitures. The
law makes possible both the criminal and civil forfeiture of the proceeds of all specified unlawful activities.
Many U.S. Attorney's Offices will not approve an indictment for presentation to the grand jury until a forfeiture
specialist has reviewed it for possible criminal forfeiture
I
18
U.S. Money Laundering Threat Assessment
and/or the filing of a parallel civil forfeiture complaint.
In 2005, the Departments of Justice, Homeland
Security,) and Treasury established a multi-agency drug
and financial intelligence fusion center through the OCDETF program. Leads resulting from the efforts of the
Fusion Center will support the initiation and development of coordinated international, national, and regional
investigations. AFMLS, in partnership with OCDETF,
has conducted Financial Investigation Training Seminars in every OCDETF region in the country during the
past two years.
The National Drug Intelligence Center (NDIC), whose
mission is to develop strategic domestic drug intelligence, created a Money Laundering Unit in January
2005 to provide a multi-source fusion capability for
money laundering-related information. The mission of
this unit is to identify strategic money laundering trends
and patterns for national policy makers.
The Treasury Executive Office for Asset Forfeiture
(TEOAF) administers the Treasury Forfeiture Fund, and
has implemented a strategic focus on promoting "high
impact cases," or cases that generate $100,000 or more
in forfeited value. In FY 2004, the Fund received more
than $335 million in revenue, 84% of which was derived
from "high impact cases." TEOAF then uses this money
to fund law enforcement training, special programs, and
criminal investigations.
*
Legal, structural, and strategic advances improve the
ability of U.S. agencies to track and combat money launderers. That said, money laundering remains a massive
and evolving challenge that will require clear, strategic
thinking. Measuring the problem is an essential first
step. Studies have traditionally looked to that portion
of illicit activity that is apprehended by authorities as an
indicator of the types of money laundering going on and
trends within the field. Such indicators include seized or
forfeited assets, indictments, and BSA filings
The United States Coast Guard.
APPENDIX A
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u.s. Money Laundering Threat Assessment
APPENDIX A
by financial institutions, such as SARs. Each of these
is admittedly imperfect, but could offer much useful information.
Unfortunately, however, the data are not as developed
as they should be and not collected in a systematic way
across the U.S. government. It is currently not possible,
for example, to quantify with accuracy the total amount
of money laundering activity being apprehended by
federal law enforcement agencies, let alone state and
local law enforcement. Individual tracking systems developed and tailored to meet particular agency priorities and needs have yielded often incompatible systems.
Problems include data fields that are collected by some
but not all agencies, disparities in definitions, and redundancies wherein two or more agencies log the same
seizure or arrest because the case was handled through
a joint task force. Agencies may not even share common definitions of what constitutes "money laundering
proceeds," or what nexus to the United States warrants
defining illicit activity as "United States" money laundering.
Appendices to this assessment make the most of the existing data to offer a rough quantitative analysis ofmoney laundering concentrations. Going forward, though,
more data needs to be collected in a more consistent way
across agencies. Of particular importance is information that would track, with respect to every money laundering seizure, the following: (1) the predicate crime,
(2) the money laundering methodls utilized, and (3) the
source and suspected destination of the proceeds. Accurate, comprehensive data is vitally important if we are
to assess whether we are collectively gaining ground,
keeping pace, or falling behind criminal money launderers in each of the various methodologies that they employ.
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APPENDIX A
19
APPENDIX A
BANKING
anks and other depository financial institutions
in the United States are unique in that they alone
are allowed to engage in the business of receiving deposits and providing direct access to those deposits
through the payments system. The payments system encompasses paper checks and various electronic payment
networks facilitating credit and debit cards and bank-tobank transfers. The unique role banks play makes them
the first line of defense against money laundering.
B
Depository financial institutions (DFls), which include
commercial banks, savings and loan associations (also
called thrifts), and credit unions form the financial backbone of the United States. 2 Although Money Service
Businesses (MSBs) may offer an alternative to banks,
MSBs must themselves engage the services of a DFI to
hold deposits, clear checks, and settle transactions. Thus
in almost every money laundering typology, a bank is
employed domestically or abroad to hold or move funds.
The stage at which funds are introduced into the banking system is a critical one. A report from the New York
Clearing House, which operates bank payment systems,
acknowledges: "Once a person is able to inject funds
into the payment system that are a product of a criminal
act or are intended to finance a criminal act, it is highly
difficult, and in many cases impossible, to identifY those
funds as they move from bank to bank."3
The BSA requires banks to establish and maintain effective anti-money laundering (AML) programs, implement customer identification programs, and maintain
transaction records. Banks also are obligated to report
cash transactions exceeding $10,000 as well as transactions that appear suspicious.
Banks are ubiquitous in the United States but industry
consolidation, due to deregulation and competitive pres-
U.S. Money Laundering Threat Assessment
sures, is reducing the number of distinct DFls. At year
end in 2004 there were, for the first time since the FDIC
was created in 1934, fewer than 9,000 federally-insured
commercial banks and savings institutions in the United
States, not including credit unions. 4
Another significant development in the banking sector is
the ongoing decline in the use of paper checks. By 2003,
for the first time, most payments not made by cash were
made electronically, though it takes all forms of electronic payments combined to rival the number of checks
paid. Previously, paper checks ranked right behind cash
as the most favored form of payment. By the end of
the decade, the Federal Reserve predicts credit and debit
card payments will each surpass check volume. s
The shift from paper to electronic payments is changing
the economics of the payments business putting emphasis on lowering costs. In response, banks are increasingly using the Internet as a means for customers to open
or access accounts. 6 Moving away from face-to-face
customer interaction, particularly for account openings,
challenges the traditional process of customer due diligence. Similarly, the steady influx of immigrants without U.S. Government-issued identification is requiring
banks to explore new ways to verifY the identity of their
customers.
Despite the rapid growth in electronic payments and the
accelerating pace of change in financial services, domestic payment networks in countries around the world
do not connect with one another. A bank in the United
States cannot transmit a payment directly to a foreign
bank unless the U.S. bank has a presence in the foreign
country. That presence can be either an overseas branch
of the U.S. bank or a correspondent account. A bank
chartered in a foreign country faces the same option if it
wants to provide services in the United States for its customers. Instead of bearing the costs of licensing, staffing, and operating its own offices in the United States,
The tenn "bank" will be used generically in this chapter to refer to all forms ofDFI.
Guidelines for Counter Money Laundering Policies and Procedures in Correspondent Banking, sponsored by the New York Clearing House
Association, LLC, March 2002.
4 FDIC Quarterly Banking Profile, Fourth Quarter 2004. Accessed at: hUr://\\ II \\2.laic.gov/qilr/2()()4dcciljhr·rd I'.
s The 2004 Federal Reserve Payments Study, December 15,2004.
6 Saranow, Jennifer, Banks Speed Process for Opening Online Accounts, Wall Street Journal, Feb. 3, 2005.
2
3
20
APPENDIX A
eoe
U.S. Money Laundering Threat Assessment
the bank can open a correspondent account with a U.S.
bank. 7 According to a Congressional report on money
laundering and correspondent banking: "Today, banks
establish multiple correspondent relationships throughout the world in order to engage in international financial
transactions for themselves and their clients in places
where they do not have a physical presence. Many of
the largest international banks serve as correspondents
for thousands of other banks."8
Banks, although obligated to implement a customer
identification program, must contend with businesses
and consumers who may attempt to disguise their true
identity and source of income. Cash-intensive businesses, for example, may inflate how much legitimate
cash comes in each day to disguise the deposit of cash
from illegal drug sales or other criminal activity. Banks
attempt to spot these deceptions at the point accounts
are opened or to recognize suspicious deposit and withdrawal activity as it occurs.
As banks venture into opening accounts online and providing online account access, it becomes increasingly difficult to verify customer identification. The move away
from face-to-face account opening and account access
creates opportunities for fraud and identity theft. Unauthorized access to checking accounts is the fastest growing form of identity theft. In October 2005, the Federal
Financial Institutions Examination Council (FFIEC), a
body composed of the DFI federal regulatory agencies,
issued industry guidance titled: Authentication in an
Internet Banking Environment. The document advises
financial institutions offering Internet-based products
and services to use customer authentication techniques
"appropriate to those products and services."9 According to HSBC, banks may be forced to restrict online ac,
8
9
10
II
12
I)
14
eo.
APPENDIX A
cess only to customers with appropriate hardware and/or
software. 10
In addition to the difficulty financial institutions face
identifying their customers online, the growing adoption
of electronic payment systems is producing new opportunities for electronic fraud. II New forms of electronic
funds transfers, including Intemet- and telephone-initiated payments, and the conversion at the point-of-sale of
paper checks to electronic debits, all use the automated
clearinghouse (ACH), an electronic payment network
designed for bank-to-bank transactions rather than for
direct access by consumers and businesses. 12 More than
12 billion ACH payments were made in 2004, a 20 percent increase over 2003.'3 Consumers initiated almost
one billion ACH payments via the Internet, worth more
than $300 billion last year, which was a 40.4 percent
increase over 2003. 14
A major vulnerability the BSA attempts to address is
foreigners sending and receiving payments through
U.S. banks using "correspondent," "payable through,"
or "nested" accounts, which, without adequate due diligence, can shield the payer's true identity. The farther
removed an individual or entity is from the bank, the
more difficult it is to verify the identity of the customer.
Correspondent accounts and "payable through" accounts streamline cross-border transactions but create
opportunities to use a U.S. or foreign bank without the
bank knowing the true payment originator. A "payable
through" account at a U.S. bank would, for example,
involve a foreign bank holding a checking account at
the U.S. institution. The foreign bank could then issue
checks to its customers allowing them to write checks
on the U.S. account. A foreign bank may have several hundred customers writing checks on one "payable
through" account, and all are considered signatories on
the account at the U.S. bank.
Minority Staff of the Permanent Subcommittee on Investigations Report on Correspondent Banking: A Gateway for Money Laundering,
February 5, 2001.
Ibid.
FFIEC, Authentication in an Internet Banking Environment. Accessed at: http://ww\\.fficc.go\!pdlhillthcnticatilln_gllidancc.pdf.
Goodwin, Bill, HSBC Warns O/Online Banking Bans, Computerweekly.com, April 12, 2005. Accessed at: http://\\W\\.cotnplllcrwcckly.
cOllliarticics/clrticic.asp'.'li!\rticle!D= 13 n22&liArtic!c'!ypcl /)= I &liC'atcgoryl [)=6&liChanlll'III)=22&liF!cwourl /)=1 &sSearch=&nl'age= I #.
Putting an End to Account-Hijacking Identity Theft, FDIC, Division of Supervision and Consumer Protection Technology Supervision
Branch, December 14, 2004.
The ACB was designed for low value recurring transactions, specifically direct deposit of payroll and monthly consumer bill payments that
remain the same each month.
The National Automated Clearing House Association. Accessed at: htlp://w\\w.nacha.org/.
Ibid.
APPENDIX A
21
APPENDIX A
A variation on the "payable through" account is "nesting," in which foreign banks open correspondent accounts at U.S. banks but then solicit other foreign banks
to use the account. Nested accounts provide indirect
access to the U.S. financial system by allowing a foreign bank that does not have a direct correspondent relationship with a U.S. financial institution to use another
bank's U.S. correspondent account. These second-tier
foreign banks then solicit individuals as customers. This
results in an exponential increase in the number of individuals having signatory authority over a single account
at a U.S. banking entity.
Of particular concern are foreign "shell banks" - foreign
banks that do not maintain a physical presence in any
country - that seek to access the u.s. financial system via
correspondent accounts.
u.s.
Money Laundering Threat Assessment
in their U.S. correspondent accounts. The checks and
money orders are bundled up at the foreign banks and
sent with a deposit slip (referred to in the industry as a
"cash letter") with the details of each check and money
order. The U.S. correspondent bank credits the foreign
bank's U.S. account and routes the individual payment
instruments to the appropriate paying banks and other
institutions.
Some banks handle as many as five to seven million
checks a day delivered by shipping companies in pouches and overnight bags. Processing is done as efficiently
as possible, making it very difficult to aggregate related
payments or scrutinize individual payments for evidence
of money laundering.
As cross border wire transfers come under increased
scrutiny and regulation, criminals have found paper
checks, money orders, and cashier's checks to be an effective method to move money internationally. These
more traditional payment instruments take a longer time
to clear when traveling outside the United States but are
perceived by money launderers as being subject to less
scrutiny.
Private banking is defined as "the personal or discreet
offering of a wide variety of financial services and products to the affluent market. These operations typically
offer all-inclusive personalized services. Individuals,
commercial businesses, law firms, investment advisors,
trusts, and personal investment companies may open private banking accounts."16 Private banking relationships
have proved problematic. In contrast to "nesting" or
"payable through" accounts, money laundering through
private banking relationships more often involves a
gross failure of due diligence, ifnot bank complicity.
Money launderers can transfer large dollar amounts by
writing a number of checks or buying a number ofmoney orders at various U.S. locations, with each payment
below the reporting threshold. The dollar-denominated payments are mailed or transported to accomplices
overseas who deposit the checks and other payments
in foreign bank accounts. Because these are dollardenominated payments, the foreign banks that receive
them send them back to the United States for deposit
Riggs National Bank was fined over forty million dollars
as a consequence of serious deficiencies in its AML program, including in its private banking practice. 17 Riggs
opened multiple private banking accounts for former
Chilean dictator Augusto Pinochet, among other politically exposed persons, accepting millions of dollars in
deposits under various corporate and individual account
names and paying little or no attention to suspicious activity in these accounts. IS Other major banks have also
This section is drawn from the testimony of John F. Moynihan and Larry C. Johnson, partners, BERG Associates, LLC, before the House
Committee on Financial Services, Subcommittee on Oversight and Investigations, March 11,2003 .
.. Money Laundering: A Banker's Guide to Avoiding Problems, Office of the Comptroller of the Currency, Dec, 2002. Accessed at:
httr:!/\\ \\'\\'.occ, (I'cas .gm-lll1l111 o.:y laulluo.:ri ng20()2, rdL
17 See, e.g., In the Matter of Riggs Bank, N.A .. No. 2004-01, Assessment of Civil Monetary Penalty (May 13,2004); "Money Laundering and
Foreign Corruption: Enforcement and Eflectiveness of the Patriot Act," Supplemental Staff Report on U.S. Accounts Used by Augusto
Pinochet, U.S. Senate Permanent Subcommittee on Investigations, March 16,2005.
18 Guidance on applying scrutiny to situations of this type has been available for some time. See Guidance on Enhanced Scrutiny for
Transactions that May Involve the Proceeds of Foreign Corruption (January 2001). Accessed at: htlr://\\\\\\·Il:do.:ralrcscn c.gO\ /ooarddoc"l
15
SRLLTI ERS/2001 /srO I 03a I,pd!.
22
APPENDIX A
eoe
U.S. Money Laundering Threat Assessment
come under criticism for the laxity of their private banking AML policies and procedures.'9
In 2003, ICE established a Politically Exposed Person
(PEP) Task Force in Miami to address the vulnerability
of relationships between private banks and corrupt foreign officials. The PEP Task Force works with ICE field
offices and foreign governments in the identification of
public corruption-related proceeds laundered through
U.S. financial institutions. Increasingly, Central American, South American, and Caribbean governments are
seeking the assistance ofthe United States in developing
evidence against, and locating the assets ot~ corrupt government officials and prominent citizens involved in the
theft or embezzlement of public and private funds. ICE
agents are currently investigating several cases that involve illicit funds channeled into the United States from
Caribbean, Central American, South American, and Pacific Rim countries that were used to purchase assets domestically and abroad.
Under the BSA, all financial institutions must develop,
administer, and maintain a program that ensures compliance with the law's reporting and recordkeeping requirements. The compliance program is tailored to a bank's
business operations and risks. By law, the program must
include the following four components:
• A system of internal controls to assure ongoing
BSA compliance;
• Independent testing of the DFI's compliance;
• The designation of an individual responsible
for coordinating and monitoring day-to-day
compliance; and
• Training for appropriate personnepo
APPENDIX A
Banks and certain other DFIs must implement a written customer identification program appropriate for their
size, location, and type of business?'
The program
must include account-opening procedures that specify
the identifying information that will be obtained from
each customer, and it must include reasonable and practical risk-based procedures for verifying the customer's
identity. The procedures are supposed to enable a bank
to form a reasonable belief that it knows the true identity
of each customer.
DFIs are required to file SARs, reporting any instances
of known or suspected illegal or suspicious activity.22
To ensure that it will be able to identify suspicious activity, a DFI should have in place a customer due diligence
(CDD) program under which the organization (1) assesses the risks associated with a customer account or transaction, and (2) gathers sufficient information to evaluate
whether a particular transaction warrants the filing of a
SAR. In addition, appropriate systems and controls are
to be in place to monitor and identify suspicious or unusual activity. COD protocols vary depending on the
activities associated with different types and volumes of
banking transactions and their risk. (See Tables 1 and 2
for SAR data analysis).
The number ofSARs filed by depository institutions from
1996 through 2003 increased on average by more than
25% annually.23 The total number of suspicious activity reports filed in 2005 is projected to surpass 700,000.
FinCEN indicates that some of this increase is warranted, while some may be attributed to "defensive filing"
by financial institutions, in which SARs are filed on nonsuspicious transactions out of concern about regulatory
and criminal scrutiny. Such defensive filing dilutes the
value of the information in the BSA database. 24
Examination authority over banks and other depository
institutions for BSA compliance has been delegated by
Testimony of Herbert A. Biern, Senior Associate Director, Division of Banking Supervision and Regulation, Federal Reserve Board, before
the Committee on International Relations, U.S. House of Representatives November 17, 2004.
20 See 31 U.s.C. § 5318(h)(I).
21 See 31 U.S.c. § 5318(1) and 31 C.F.R. § 103.121 (for banks, savings associations, credit unions, and certain non-federally regulated banks).
u See 31 U.S.C. § 5318(g).
2J FinCEN, By The Numbers, Issue 3, Dec. 2004.
24 Statement of William Fox, Director Financial Crime Enforcement Network, United States Department of the Treasury,
before the United States House of Representatives Committee on Financial Services Subcommittee on Oversight and Investigations, May
26,2005.
19
eo.
APPENDIX A
23
APPENDIX A
FinCEN to the industry's five functional regulators. 25
The federal bank regulators include a review of BSA
compliance in their periodic examinations. In the second half of 2004, the federal banking regulators completed 44 public enforcement actions involving BSA violations. Among the problems most often cited was the
lack of independent testing to validate BSA compliance.
In about 60% of the BSA cases that were closed in the
second half, a bank was ordered to arrange for testing or
was cited for failure to do SO.26 Several banks in recent
years have faced severe criminal and civil penalties as a
consequence ofBSA lapses.
U.S. Money Laundering Threat Assessment
Finally, Section 319 requires covered financial institutions that provide correspondent accounts to foreign
banks to maintain records of the foreign bank's owners and to maintain the name and address of an agent in
the United States designated to accept service of legal
process for the foreign bank for records regarding the
correspondent account.
In June 2005, the FFIEC released ajoint BSAIAML examination manual. This manual wi11 assist examiners
in evaluating banks' BSAlAML compliance programs,
regardless of the size or business lines of the bank. This
manual should provide for enhanced consistency in the
interpretation ofBSA and AML requirements across the
various agencies.
With respect to shell banks, Section 313 of the USA
PA TRIOT Act and its implementing regulations prohibit covered U.S. banks and broker-dealers from establishing, maintaining, administering, or managing a
correspondent account for a foreign shell bank.27 In
addition, U.S. banks and broker-dealers must take reasonable measures to ensure that any correspondent account that they establish, maintain, administer, or manage for a foreign bank is not being used by the foreign
bank to provide banking services indirectly to a foreign
shell bank.28
Section 312 ofthe USA PATRIOT Act provides, among
other things, for enhanced due diligence with respect to
certain correspondent accounts held on behalf of banks
operating under an offshore license and also mandates
enhanced scrutiny for private banking accounts maintained for senior foreign political figures.
25
26
27
28
24
The five functional regulators for the banking industry include the Board of Governors of the Federal Reserve System (Federal Reserve), the
Federal Deposit Insurance Corporation, the National Credit Union Association, the Office of the Comptroller of the Currency, and the Office
of Thrift Supervision. State-chartered private banks, trust companies, and credit unions without federal insurance have no federal functional
regulator, and come under the purvicw of the IRS SB/SE Division for purposes of BSA examination.
Vartanian, Thomas P., Focus on BSA, Laundering Continued; Bank Secrecy Act, American Banker, April 1,2005.
31 U.S.C. §5318U)(1); 31 CFR 103.1 77(a)(1)
31 U.S.c. §5318U)(2); 31 CFR 103.177(a)(I).
APPENDIX A
eo.
APPENDIX A
U.S. Money Laundering Threat Assessment
Rank
State/Territory
Filings
Percentage
1
California
351,784
24.26%
2
New York
167,635
11.56%
3
Texas
92,168
6.36%
4
Florida
89,413
6.17%
5
Illinois
51,004
3.52%
6
Arizona
48,691
3.36%
7
New Jersey
41,403
2.86%
8
Pennsylvania
37,765
2.60%
9
Ohio
34,634
2.39%
10
Michigan
34,506
2.38%
(Overall)
(Overall)
The top ten states for Suspicious Activity Reportfilingsfrom depository institutions from April }, 1996 through June 30,2004 account for
two-thirds of all SARs for the period. Source: FinCEN, By The Numbers, Issue 3.
Violation Type
Filings
Percentage
BSA/Structuring/Money Laundering
769,502
48,22%
Check Fraud
185,839
11.65%
Other
136,021
8.52%
Credit Card Fraud
77,970
4.89%
Counterfeit Check
74,891
4.69%
Check Kiting
55,940
3.51%
Unknown/Blank
46,783
2.93%
Defalcation/Embezzlement
46,323
2.90%
Mortgage Loan Fraud
40,016
2.51%
Consumer Loan Fraud
27,240
1.71%
False Statement
26,724
1.67%
Misuse of Position or Self Dealing
18,460
1.16%
Suspicious Activity Reports filed by depository institutIOns
ranked by suspicious activity, based onfilingsfrom April I,
1996 to June 30, 2004.
Wire Transfer Fraud
17,634
1,11%
* The category "compllter intrusion" was added June 2000 and
Mysterious Disappearance
17,375
1.09%
"identity theft" and "ferraris/financing" were added July 2003.
Source: FinCEN. By The Numbers, Issue 3.
Debit Card Fraud
11,315
Less than 1%
Commercial Loan Fraud
10,699
Less than 1%
Identity Theft*
10,188
Less than 1%
Computer Intrusion"
8,319
Less than 1%
Counterfeit Credit/Debit Card
6,573
Less than 1%
Counterfeit Instrument (Other)
5,142
Less than 1%
Bri be ry / Gratu ity
1,799
Less than 1%
971
Less than 1%
Terrorist Financing*
eoe
(Overall)
(Overall)
APPENDIX A
25
APPENDIX A
MONEY SERVICES BUSINESSES
M
oney Services Businesses (MSBs) provide a
full range of financial products and services
outside of the banking system. For individuals
who may not have ready access to the formal banking
sector, MSBs provide a valuable service. They also
pose a considerable threat. MSBs in the United States
are expanding at a rapid rate, often operate without
supervision, and transact business with overseas
counterparts that are largely unregulated. Moreover,
their services are available without the necessity of
opening an account. As other financial institutions
come under greater scrutiny in their implementation of
and compliance with BSA requirements, MSBs have
become increasingly attractive to financial criminals.
Under existing BSA regulations, MSBs are defined to
include five distinct types of financial services providers
(including the u.s. Postal Service (USPS»: (1) currency
dealers or exchangers; (2) check cashers; (3) issuers of
traveler's checks, money orders, or stored value cards; (4)
sellers or redeemers of traveler's checks, money orders,
or stored value; and (5) money transmitters. Because of
the great variance in characteristics and vulnerabilities
across the various types of MSB, the main categories
of MSBs will be treated in separate subchapters below.
Some introductory remarks follow that pertain to all
MSBs.
u.s.
Money Laundering Threat Assessment
recordkeeping rules?9 Additionally, existing BSA
regulations require certain MSB principals to register
with the Treasury Department 30 Federal regulations
contain a definitional threshold for all MSBs except for
money transmitters: A business that engages in MSBtype transactions will be considered an MSB only if it
conducts more than $1,000 of transactions in a particular
category of money services transactions for any person
on any day (in one or more transactions).31 Finally, many
states have established AML supervisory requirements
that are often incorporated into the requirement that an
MSB be licensed with the state in which it is incorporated
or does business.
Many MSBs, including the vast majority of money
transmitters in the United States, operate through a
system of agents. While agents are not presently required
to register, they are themselves MSBs that are required
to establish AML programs and comply with the other
recordkeeping and reporting requirements described
above. A 1997 Coopers & Lybrand study (Coopers
Study) estimated that approximately eight business
enterprises, through a system of agents, accounted for
the bulk of MSB financial products offered within the
United States and the bulk of locations at which these
financial products were offered. This group comprises
large firms with significant capitalization that are
publicly traded on major securities exchanges. A larger
group of, on average, far smaller enterprises competes
with the largest firms in a highly bifurcated market for
With limited exceptions, MSBs are subject to the full
range of BSA regulatory controls, including the AML
rule, suspicious activity and currency transaction
reporting rules, and various other identification and
29
30
31
26
See 31 CFR 103.125 (requirement for money services businesses to establish and maintain an anti-money laundering program); 31 CFR
103.22 (requirement for money services businesses to file currency transaction reports); 31 CFR 103.20 (requirement for money services
businesses to file suspicious activity reports, other than for check cashing and stored value transactions); 31 CFR 103.29 (requirement for
money services businesses that sell money orders, traveler's checks, or other instruments for cash to verify the identity of the customer and
create and maintain a record of each cash purchase between $3,000 and $10,000, inclusive); 31 CFR 103.33(f) and (g) (rules applicable to
certain transmittals of funds); and 31 CFR 103.37 (additional recordkeeping requirement for currency exchangers including the requirement
to create and maintain a record of each exchange of currency in excess of $1 ,000).
See 31 CFR 103.41. The registration re4uiremcnt applies to all money service~ businesses (whether or not licensed as a money services
business by any state) except the U.S. Postal Service; agencies of the United Slates, of any state, or of any political subdivision of a state;
issuers sellers, or redeemers of stored value, or any person that is a money services business solely because that person serves as an agent
of ano;her money services business (however, a money services business that engages in activities described in § 103.11 (uu) both on its
own behalf and as an agent for others is required to register).
See 31 CFR 103.II(uu).
APPENDIX A
eoe
U.S. Money Laundering Threat Assessment
APPENDIX A
money services. 32 These small enterprises may own
only one location with two to four employees, and may
provide both financial services and unrelated services
or products. 33 Less is known about this second tier of
finns than about the major providers of money service
products.
commonly to customers attempting to evade the $3,000
funds transfer recordkeeping requirement (or the $3,000
recordkeeping requirement for cash purchases of money
orders or traveler's checks) by either breaking up a large
transaction into smaller transactions or by spreading
transactions out over two or more customers.
Based on the Coopers Study, FinCEN estimated the
number of MSBs nationwide in 1997 to be in excess of
200,000. A majority of the MSB population is made up
of agents of the major businesses (e.g., Western Union
and MoneyGram). Additionally, in 1997, approximately
40,000 MSBs were outlets of the USPS, which sells
money orders.
OCDETF identifies MSBs as an increasingly-prevalent
conduit for laundering illicit proceeds. From 2002 to
2004, OCDETF saw a 5 percent increase in MSB-related
cases, with the proportion of total money laundering
cases growing from II % to 16%.
Outside of the major finns, rates of registration with
Treasury have remained low. Despite repeated outreach
efforts to the sector, only a small fraction of the total
MSBs - around 23,000 - have registered with the
federal govemment. 34 FinCEN notes that small MSBs
are largely aware of the pertinent regulations but fail to
register because of language, culture, cost, and training
Issues.
The fleeting nature of the customer's relationship with an
MSB is a significant vulnerability. In contrast to banks,
one does not need to be an existing "customer" of an
MSB and a customer can repeatedly use different MSBs
to transact business. This makes customer due diligence
very difficult.
MSBs are used at all stages of the money laundering
process. A review of SARs filed 35 by MSBs from
October 1,2002 through December 31,2004 shows that
money laundering and structuring represented the most
frequently reported suspicious activity, cited in over
73% of MSB SARs filed. These reports point most
32
JJ
34
JS
eo.
FBI field offices consistently identified MSBs as the
third-most utilized money laundering method that
they encounter, after formal banking systems and cash
businesses, and particularly pointed to money remitters
as a threat. MSBs co-located with convenience stores
CASE EXAMPLE 1
Layering
through MSBs
r=-,
~~~--~-------------LJ
SDNY-2002- An individual defendant laundered more than
$700,000 worth of drug proceeds for a money laundering group
associated with Colombian narcotics traffickers. The defendant
wired funds to bank accounts in Panama, Barbados, and Honduras. As part of the defendant's money laundering scheme,
between November 1998 and June 2000, he made structured cash
purchases of money orders totaling more than $600,000 without
ever causing a Currency Transaction Report (CTR) report to be
filed. On more than 50 occasions, the defendant made multiple
small purchases of postal money orders at various post office
locations, as many as lion a single day, keeping them below
the $3,000 recordkeeping threshold. The defendant completed
the money orders in his name, the name of his company, and the
names of relatives and friends, and then deposited the money
orders into his company's business bank account. The defendant
also exchanged more than $500,000 worth of what he understood
was drug money for checks from various business accomplices,
including numerous carpet dealers. This activity was determined
to have been an intentional circumvention of federal reporting
requirements.
For example, according to the Coopers study, at the time of that study, two money transmitters and two traveler's check issuers made up
approximately 97 percent of their respective known markets for non-bank money services. Three enterprises made up approximately 88 per
cent of the $100 billion in money orders sold annually (through approximately 146,000 locations). The retail foreign currency exchange
sector was found by Coopers & Lybrand to be somewhat less concentrated, with the top two non-bank market participants accounting for
40 per cent of a known market that accounts for $10 hi Ilion. Check cashing is the least concentrated of the business sectors; the two largest
non-bank check cashing businesses make up approximately 20 per cent of the market, with a large number of competitors.
Members of the second group may include, for example, a travel agency, courier service, convenience store, grocery or liquor store.
It is not known how many unregistered MSBs exist that require registration. The 1997 Coopers Study estimate of200,000 included all
MSBs, and is not indicative of the number of MSBs requiring registration.
More than one violation may be identified on a single SAR.
APPENDIX A
27
APPENDIX A
and gas stations were cited as the most common sites
for money laundering, with travel agencies that offer
MSB services also noted as an increasingly prominent
conduit for the illicit transmission of money. Anecdotal
reporting by law enforcement points to the use of MSBs
in counterfeit check schemes and non-government
charitable organizations (NGOs) utilizing MSBs to
transfer proceeds internationally to support terrorist
organizations and terrorist-related activities.
Several FBI field offices reported the laundering of
millions of dollars derived from Internet extortion and
fraud schemes through MSBs such as Western Union,
PayPal, e-gold Limited, and other online payment
systems.
As of December 31, 2001, all MSB principals (not
individual agents) were required to register with FinCEN,
listing the owner or controlling person. Each business
that meets the definition of an MSB must register, except
for the following:
• A business that is an MSB solely because it serves
as an agent of another MSB;
• A business that is an MSB solely as an issuer,
seller, or redeemer of stored value;
• The USPS and agencies of the United States, of
any state, or of any political subdivision of any
state; and
Vulnerabilities particular to specific types of MSBs will
be explored in the respective sub-chapters below.
• A branch office of an MSB is not required to file its
own registration form.
Analysis of FinCEN data from October 1,2002 through
December 31, 2004 indicates that MSBs located in New
York and California filed more MSB SAR forms than
MSBs in any other state, followed by Arizona, Texas,
Florida, Colorado, New Jersey, Massachusetts, Georgia,
and Illinois. These numbers indicate a concentration
of illicit financial activity in major, densely populated
cities and along the Southwest border.
MSB registrations must be renewed every two years.
Failure to register is punishable by a civil fine or criminal
prosecution under 18 U.S.C. § 1960, which prohibits the
operation of an unlicensed money transmitting business.
For purposes of 18 U.S.c. § 1960, an unlicensed money
transmitting business is a person who knowingly
conducts, controls, manages, supervises, directs, or
owns all or part of a money transmitting business, and
who fails to register as required with FinCEN, or in
Law
enforcement
also
identified
geographic
concentrations of MSB money laundering activity in
highly-populated cities but did not identify California
or the Southwest border as focal points for illicit MSB
activity, despite the high volume of suspicious activity
reported by MSBs in these regions to FinCEN.
With respect to destinations, most federal law enforcement
agencies identified Mexico as the primary destination for
suspicious funds sent through MSBs. Other prevalent
destinations were Russia, Colombia, the Dominican
Republic, and various locations in Central and South
America. The majority of these investigations dealt with
narcotics trafficking organizations. Investigations have
also noted increased money laundering concerns among
Middle Easterners in the United States operating MSBs
and sending funds to Egypt, Sudan, and other locations
in the Middle East.
28
U.S. Money Laundering Threat Assessment
APPENDIX A
Table 3
MSB Suspicious Activity Reporting Ranking by States 10/1/02-12/31/04
Ranking
State
s~:: ~I~~'
#1
New York
17%
#1
California
17%
#2
Arizona
9%
#3
Texas
8%
#4
Florida
6%
#5
Colorado
4%
#6
New Jer>ey
4%
#7
Massachu setts
3%
#8
Ceorgia
3%
#9
Illinois
3%
% of US MSB SARs
49%
25%
·Percentages rounded to nearest whole number.
eoe
U.S. Money Laundering Threat Assessment
certain circumstances, operates without a required state
license. MSBs which fail to register also may be liable
for civil money penalties of up to $5,000 for each day
the violation continues and a criminal penalty of up to
five years imprisonment.
APPENDIX A
for the transaction after exammlng the
available facts, including the background and
possible purpose of the transaction; or
4. Involves use ofthe MSB to facilitate criminal
activity.
All MSBs must establish AML programs, and obtain
and verify customer identity and record information
about the transaction, including beneficiary information
if received, for funds transfers of more than $3,000
regardless of whether the activity appears suspicious or
not. They must also keep records regarding the cash
purchase of money orders and traveler's checks between
$3,000 and $10,000, and certain records regarding their
currency exchange transactions. In addition, all MSBs
are required to file reports of transaction in currency of
more than $10,000.
As of January 1, 2002 most MSBs are required to report
suspicious activity. The SAR requirement does not apply
to check cashers or to sellers and redeemers of storedvalue. An MSB is required to file a SAR on a transaction
or series of transactions conducted or attempted by, at,
or through the MSB ifboth of the following occur:
• The transaction or series of transactions involves
or aggregates funds or other assets of $2,000 or
more, and
• The MSB knows, suspects, or has reason to suspect
that the transaction (or a pattern of transactions of
which the transaction is a part) falls into one or
more of the following categories:
I. Involves funds derived from illegal activity
or is intended or conducted in order to hide or
disguise funds or assets derived from illegal
activity as part of a plan to violate or evade
any federal law or regulation or to avoid
any transaction reporting requirement under
federal law or regulation;
2. Is designed to evade any BSA regulation;
3. Has no business or apparent lawful purpose or
is not the sort in which the particular customer
would normally be expected to engage, and
the MSB knows of no reasonable explanation
eoe
Despite the regulatory requirements, the maJonty of
MSBs in the United States continue to operate without
registering with FinCEN. Information obtained from
SAR analysis indicates some lack of understanding
by MSBs about registration requirements, especially
among operators of small businesses that also provide
MSB services. While some individuals made no
attempt to register with FinCEN, others provided partial
registration documentation. Other brokers, when given
a thorough explanation of the registration process, were
willing to comply with registration requirements. The
relative novelty of the regulatory regime and the lack
of familiarity by MSB operators about government and
vice versa will continue to present challenges for both
regulators and law enforcement.
IRS SB/SEhas been delegated authority to examine MSBs
for BSA compliance. A staff of several hundred IRS SB!
SE full-time BSA examiners evaluates compliance with
the reporting and record-keeping requirements of the
BSA and Section 60501 of the Internal Revenue Code.
Monetary thresholds and the Sentencing Guidelines
often impede the prosecution of 18 USC § 1960
violations. U.S. Attorney's Offices may be restricted
by guidelines that force prosecutors to either decline or
defer prosecutions of 18 USC § 1960 violations because
the amount of money at issue is too small. Additionally,
the relative newness of 18 USC § 1960 may limit its
use by law enforcement and U.S. Attorney's Offices.
Despite these factors, the Department of Justice has
successfully prosecuted numerous 18 USC § 1960
violations, particularly in major metropolitan areas such
as New York and Chicago.
The following sub-chapters will address the particular
characteristics and vulnerabilities ofMoneyTransmitters,
Check Chasers, Currency Exchangers, Money Orders,
and Stored Value Cards.
APPENDIX A
29
APPENDIX A
MONEY TRANSMITTERS
T
he financial services industry, law enforcement,
and regulators interchangeably refer to nonbank money transmitters as money remitters,
wire remitters, and wire transmitters, hereinafter money
transmitters. 36 The sheer volume and accessibility of
money transmitters makes them attractive vehicles to
money launderers operating in nearly every part of the
world. Western Union runs the largest non-bank money
transmitter network, with more than 225,000 agent
locations in 195 countries and territories worldwide. 37
As the overwhelming majority of wire transfers at
MSBs are paid for with cash, money transmitters
provide excellent camouflage for the initial introduction
of the illicit proceeds into the financial system. Money
transmitters offer inexpensive services, and often
impose less rigorous AML programs and compliance
than traditional financial institutions.
A funds transfer can generally be described as a series
of steps, beginning with the originator's (customer's)
instructions and including a payment message, which is
used for the purpose of making payment to the beneficiary
(receiving customer). There are a wide range ofpotential
sources of funds for initiating a funds transfer, which
include: cash, certified checks, cashier's checks, money
orders, traveler's checks, account withdrawal, and credit
and debit cards.
The vulnerabilities endemic to MSBs in general
- discussed above - also apply to money transmitters.
As with all industries subject to reporting thresholds,
money launderers attempt to abuse money transmitters
by structuring transactions below federal reporting
thresholds. Owners or employees of registered money
transmitters may help money launderers avoid reporting
requirements by falsifying records to make it appear as
though a large amount of laundered money was derived
from a series of small transactions. Money transmitters
36
31
38
30
u.s.
Money Laundering Threat Assessment
may also knowingly permit individuals to make frequent
structured transactions using false names and telephone
numbers for each transaction.
The rapid movement of funds between accounts in
different jurisdictions increases the complexity of
investigations. In addition, investigations become even
more difficult to pursue if the identity of the originator is
not clearly shown in an electronic payment message.
Money transmitters remain a particularly attractive
vehicle for money laundering due to several inherent
characteristics of the industry:
• Large money transmitters maintain agent offices
in thousands of cities and scores of countries ,
allowing customers to move funds from nearly any
location directly to any other location;
• Money transmitters provide for rapid service,
transmitting funds instantly or in days;
• The sheer volume of legitimate cash transactions
provides an excellent camouflage for money
laundering activity in the placement stage;38
• Money transmitter services are relatively
inexpensive as compared with other means utilized
by money launderers, often charging 10-20 percent
per transmission; and
• Money transmitters increasingly provide online
payment services and accept credit and debit cards.
Although there are often identification safeguards
in place - MSBs must verify identity with valid
forms of identification and often utilize security
features like password protection and online
validation by third parties for signature verification
- the lack of face-to-face interaction between the
customer and the MSB limits the ability of MSBs
to detect suspicious activity, as with other financial
services provided through the Internet.
Informal value transfer systems (lVTS), such as hawalas, are treated seperatcly in Chapter 4.
See "About Western Union." Accessed at: hl1r:lIl\W\v.\"cstcrnlllli(]n.c()Il1/illf(l/ahou(ll~dl1lk:\.asr·!c()un(ry=global.
Th: three st~ge.s of money laundering are: (l) Placement, in which illicit proceeds are introduced into the financial system; (2) Layering, in
whIch the CrimInal attempts to separate the proceeds from the crime through a series of transactions; and (3) Integration, in which the illicit
proceeds are made to look legitimate through investment in legal assets.
APPENDIX A
eoe
u.s.
APPENDIX A
Money Laundering Threat Assessment
Unregistered money transmitters offer money
launderers many of the same advantages as registered
money transmitters, with the added benefit of additional
anonymity:
• The failure to follow federal reporting requirements
reduces transparency yet further;
• Unregistered money transmitters frequently
maintain coded records which may be inscrutable
to investigators; and
States. Roma, McAllen, Benita, Brownsville, Harlingen, Hidalgo, and Rio Grande City are the primary Texas border towns receiving wires, while Houston, and increasingly Dallas, are the primary cities receiving wires.
The unusually large number of wires being received at
the southwest border is particularly apparent in southern Arizona, where S 12 are received for every $1 sent.
As discussed below, this disparity may be accounted for
in bulk cash movements south of the border. Some observed trends in predicate crimes by origin/destination
are described in Table 4.
• Unregistered transmitters may not advertise and
may operate from locations with other primary
purposes, such as gas stations, grocery stores, and
residences, making them more difficult to detect.
These businesses will often use such cash-intensive
retail businesses to justify large-scale bank deposits
and transfers.
In the New YorklNew Jersey area, money transmittal
businesses are extremely prevalent and witness a great
deal of money laundering. Vulnerabilities particular to
specific types of MSBs will be explored in the respective sub-chapters below. OCDETF identified the most
prevalent area of suspicious activity as Jackson Heights,
Queens, which purportedly contains the largest Colombian community outside of Colombia itself.
Ethnic immigrant communities are heavy users of money transmitter services, particularly to send money home
to their native countries. Typically, members of these
communities will use multiple services of an MSB, such
as money transmission in conjunction with check cashing and/or currency exchange. DEA, ICE, FBI, FinCEN, and OCDETF have noted Middle Eastern, Asian,
and Latin American - specifically Mexican - immigrant
communities in major metropolitan areas as primary users of money transmitter services.
OCDETF also reports Colombian and Dominican drug
trafficking organizations actively utilizing New England-based money transmitters to wire illicit drug proceeds to criminal recipients in Colombia and the Dominican Republic, despite some successful prosecutions
in this arena.
Frequently identified points of origin for money transmissions were N ew York, Los Angeles, Chicago, Dallas, Houston, Phoenix, Tucson, Seattle, and San Juan.
Law enforcement reporting indicates that a large amount
of illicit funds laundered through money transmission
services are sent to the southwest border of the United
Internationally, ICE notes that wires sent from the Los
Angeles area were primarily destined for South/Central
America, Asia, Europe, and the Middle East, while wires
sent from the New York area were primarily destined for
Colombia and the Dominican Republic.
Money transmissions received in southern Arizona and
Texas are typically sent in amounts ofless than $3,000.
Table 4
Destination
eo.
Predominant
Predicate Crime
Origin Points
Southern Arizona
California
Narcotics trafficking
Southwest Border
New York, New Jersey, North Carolina and Florida
Alien trafficking
Texas
New York, Florida, North Carolina, and New Jersey
Alien trafficking, narcotics trafficking to a lesser extent
APPENDIX A
31
APPENDIX A
U.S. Money Laundering Threat Assessment
When alien trafficking is the predicate crime, It IS
believed that this amount does not indicate structuring
but rather the relatively small amounts involved in
individual instances of alien trafficking. When the
transactions are received at the border, however, they
become structured as the same receiver must collect the
transactions individually in order to keep them under the
$3,000 threshold.
From the southwest border, the funds are generally
bulk shipped south. From Arizona, most of the money
is smuggled across the border in passenger cars in
amounts under $100,000, with a small amount retained
Table 5
Received in
Originated in
Arizona*
Arizona"
GA
19.9
0.7
IL
25.7
0.7
NC
12.1
0.2
NJ
16.7
0.3
NY
31.6
1.1
PA
6.6
0.3
112.6
3.4
Total
In addition to the rules applicable to all MSBs, money
transmitters are required to collect information regarding
wire transfers involving $3,000 or more and retain
these records for five years. As of January I, 2002, all
money transmitters must maintain a list of agents and
have it available for review. The list must include such
information as the agent's name, depository institution,
and the number of branches and subagents. A business
acting solely as an agent of a money transmitter is not
required to register with FinCEN. However, the agent
must notify the money transmitter when it establishes
subagents so that the transmitter may revise its agent list
as required by FinCEN each January 1.
"Millions of U.S. Dollars'
at the border to cover the operational costs of the alien
smuggling operation. In Texas, 60-70 percent of the
funds are bulk shipped across the border. 39
After being bulk shipped across the border, the
previously wired funds are generally returned to the
United States. ICE reports that this is accomplished by
wiring the money back to the United States, although
various methods - some as simple as returning the funds
via bulk cash shipment - can be used. When reentering
the country, the illicit funds are documented, appear to
be legitimate, and may then be used to meet the financial
needs of the money launderers within the United States.
39
32
Houston Money Laundering Initiative (HMLl).
APPENDIX A
eoe
U.S. Money Laundering Threat Assessment
CHECK CASHERS
heek cashers provide essential services for
Criminals
persons without bank accounts.
can and do abuse these services, however, to
launder illicit funds, often in conjunction with money
transmitters and informal value transfer systems (IVTS).
Not all check cashers perform the same services and
thus not all check cashers pose the same vulnerabilities
or levels of risk.
C
Money launderers use check-cashing businesses to
launder funds via third-party checking. To do this,
a money launderer may make daily visits to small
businesses in order to purchase checks made out to
that business by uninvolved third parties. By selling
these checks to the launderer, the business benefits by
receiving immediate cash, avoiding banking or check
cashing fees, avoiding income taxes, and passing on the
risk of bad checks to the launderer. The launderer pays
for the checks using illicit cash, and can then redeem
the checks without causing the filing of a Currency
Transaction Report (CTR) by not taking payment in
cash. Money launderers sometimes purchase check
cashing businesses outright, in which case checks can
be deposited directly into the launderer's bank account,
also without a CTR being filed.
Check-cashing businesses engaged in money laundering
via third party checks typically will only withdraw a
portion of the sum of checks being deposited, making
up the remainder with dirty cash. This activity may
generate a SAR. However, banks and law enforcement
agencies may not immediately recognize this activity as
suspicious, as the check-cashing business may reasonably
hold accounts at other institutions from which the cash is
being withdrawn. Illicit check-cashers may also arouse
suspicion by withdrawing bills in large denominations.
To avoid scrutiny, money launderers will frequently
send endorsed third-party checks out of the country to
be cashed or deposited. When these checks are cashed
or deposited at foreign banks, the U.S. bank may take
note during the clearing process and file a SAR. Thirdparty checks are also used to send value overseas, akin
to money orders. Because these checks are physically
lighter and occupy less space than their cash equivalents,
it is easier for money launderers to bulk ship or mail
eOe
APPENDIX A
packages of these monetary instruments out of the
country. For narcotics traffickers, shipping checks is
also preferable to shipping currency because narcotics
residues are less likely to adhere to paper checks than to
currency, reducing the likelihood that police dogs will
detect them.
Law enforcement has reported several examples of
abuse in the check cashing industry. In one case, IRSCI reported that numerous corporate checks stolen from
the mail were eventually negotiated at a check casher.
The FBI has witnessed an increase in money laundering
through check cashing services and FBI field offices
throughout the United States are observing large amounts
of money flowing through structured deposits involving
check cashing services. Drug trafficking organizations
are noted as frequent users of this laundering method.
Others have observed these services used by
undocumented immigrants sending money to Mexico
and the Middle East. The lack of record-keeping
requirements for check cashers hinders law enforcement
efforts to identifY the source of the suspect funds.
Check cashers, like most MSBs, must register with
FinCEN. Although check cashers are required to file
CTRs for cash transactions greater than $10,000, they
are not currently required to file SARS (although they
may do so voluntarily).
Only 24 states currently have specific check cashing
legislation or regulations. Check cashers are often
required to be licensed but are subject to less state
regulatory oversight than other money service businesses,
like sellers of money orders or traveler's checks. This is
due, in part, to a perception that check cashing poses a
comparatively smaller risk to consumers. Likewise, net
worth requirements are typically less stringent for check
cashers. State banking authorities or other supervisory
bodies also examine these businesses less frequently.
The exemption of check cashers from SAR reporting
requirements may hinder law enforcement efforts to
identify laundering through this channel.
APPENDIX A
33
APPENDIX A
CURRENCY EXCHANGERS
urrency exchangers, also referred to as currency
dealers, money exchangers, casas de cambia,
and bureaux de changes, provide conversion
of bank notes of one country for that of another and
may be abused by criminals in order to launder illicit
funds, particularly during the placement stage of money
laundering.
C
Although currency exchange, in and of itself, poses a
less serious money laundering risk than the services
provided by other MSBs, certain elements ofthe currency
exchange sector, such as casas de cambia, playa major
role in money laundering operations, particularly for
narcotics organizations. Currency exchange is the MSB
subject to the least state regulation, with fewer than ten
states currently regulating this activity.
Currency exchange businesses are predominately
located along shared borders, at international airports,
and in large tourist areas. The services provided by
currency exchange houses allow money launderers to
exchange large quantities of small-denomination bills
for large-denomination bills of the same or different
currency. Thus exchanged, the bills can be more easily
bulk shipped or deposited in bank accounts. Currency
exchange houses are also used to provide additional
cloaking in a funds transfer chain. An exchange house
may, for example, accept cash from a customer which it
then deposits in its own account at a commercial banking
institution. The origin or source of the funds would be
disguised because the bank will attribute ownership to
the currency exchange business.
Currency exchange businesses also regularly offer
money transmission services, compounding the threat
by introducing the money transmitter risks discussed
above.
Casas de cambia are currency exchange houses
specializing in Latin American currencies and
transactions. In the United States, these businesses are
concentrated along the southwest border, with over 1,000
casas de cambio located along the border from California
to Texas. These currency exchangers generally offer
34
APPENDIX A
U.S. Money Laundering Threat Assessment
other MSB services, and often exist in combination with
retail businesses such as gas stations and travel agencies.
These businesses are generally unregistered and noncompliant with MSB SAR reporting requirements, and
are suspected of being the primary non-bank money
laundering mechanism in the southwest border area.
Typical casas de cambia can launder as much as $5
million per month, primarily on behalf of drug traffickers.
Casas de cambio are often run from mobile or temporary
locations such as pickup trucks, trailers, sheds, and even
telephone booths so that operations may be quickly
relocated to avoid law enforcement. U.S.-based casas de
cambia typically maintain close relationships with their
Mexican counterparts in order to facilitate transactions
such as funds transfers.
Some casas de cambia exist for the primary purpose of
facilitating money laundering activities. Although casas
de cambia are required to file Reports of International
Transportation of Currency or Monetary Instruments
(CMIRs) and Currency Transaction Reports (CTRs),
they will commonly move money on behalf of many
clients in a bulk transaction conducted under the name
of the exchange house, thus cloaking the identity of the
true originators. Any SARs filed in these cases by banks
or other intermediaries will report the casa de cambia as
the violator, often leading to an investigative dead end.
Seized documents in raids conducted by the Venezuelan
Guardia Nacional on casas de cambia and businesses in
the Venezuelan state of Tachiria revealed that a number
of casas de cambia were laundering drug proceeds
originating from the United States through Venezuela
to Colombia. Venezuela was being used to avoid
Colombia's relatively high tariff on U.S. currency. It
was later discovered that numerous casas de cambia
involved in the money laundering process had U.S. dollar
checking accounts through correspondent accounts held
by major banks in Venezuela.
Currency exchangers are subject to general MSB
regulations and are required to file SARs. In a sampling
of 44 SARs filed by Currency Exchangers, FinCEN
found that structuring was the most reported violation
(29%), followed by altering the transaction to avoid
reporting (20%), and two or more individuals conducting
coordinated transactions (20%). The suspects reported
in these SARs resided or transacted in Illinois and
southwest border states, as well as Mexico, Canada,
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APPENDIX A
U.S. Money Laundering Threat Assessment
Colombia, and Spain.
The amounts of violations reported in these SARs
ranged from $0-$25 million. The violation ranges were
as follows:
the filer, the suspect ceased doing business with
this MSB; and
• Unusually large exchanges of currency. One SAR
reported a suspect in connection with the exchange
Table 6
Amount
Number of SARs
Percentage of Total Filings
5
11%
$1,000-$9,999
31
70%
$10,000-$99,999
7
9%
$0-$999
$100,000-$25
million
1
With regard to the 13 SARs reporting violations involving
money exchangers exclusively, the violation amounts
ranged from $425 through $41,983, and structuring was
the most reported violation, appearing in 7 of the 13
SARs (54%).
A review of money exchange SAR narratives reveals the
following recurring patterns:
• The exchange of foreign currency for U.S. dollars
(USD);
of 100,000 pesos for USD. The suspect balked
when asked for lO, but did supply it. He later
returned with a woman he identified as his client,
who also exchanged 100,000 pesos for USD. A
Texas MSB reported that, in one month, a Mexican
:suspect exchanged nearly $42,000. Another SAR
reported a Spanish suspect who visited two Miami
International Airport currency exchanger locations
in three days and exchanged Euros for USD in the
total amount of$21,290.
• Submitting U.S. currency in specific denominations
such as $1 's, $5's, and $10's;
• Odor on the currency;
• Two or more individuals working together to
exchange pesos in an amount under the reporting
requirement;
• Regular exchanges of similar amounts of currency.
A California MSB reported a customer for regularly
exchanging USD into pesos. Amounts ranging
from $300-$800 USD were exchanged daily. The
bills were all in small denominations under $1 ,000.
At one point, the customer transacted over $1,000,
prompting the exchange house to ask for lO and the
purpose of the transactions. The suspect stated that
she had a grocery store in California and bought
supplies in Mexico. After she was questioned by
eoe
APPENDIX A
35
APPENDIX A
MONEY ORDERS
M
oney orders are a highly versatile vehicle
for money laundering, useful for a number
of financial crimes ranging from smuggling
narcotics trafficking proceeds to depositing illicit
proceeds from alien smuggling and corporate fraud into
bank accounts.
Money orders are used by approximately 30 million
people annually to conduct business such as paying bills
and sending money back to families in foreign countries.
It is estimated that over 830 million money orders in
excess of $100 billion are issued annually. The money
order industry is small compared to that of other MSBs
and easier to assess. Eighty percent of all money orders
are issued by the USPS, Western Union, and Traveler's
Express/MoneyGram.
The remaining 20 percent
are issued by smaller, regional companies scattered
throughout the United States.
As a money laundering vehicle, money orders have
several attractions. First, money orders can be issued in
high-dollar denominations and are much less bulky than
cash. Money orders are also replaceable if lost.
U.S. Money Laundering Threat Assessment
destinations include Lebanon, the Palestinian territories,
United Arab Emirates, Saudi Arabia, and Central and
South America.
Financial hubs that see the greatest volume of money
order activity are New YorklNew Jersey, Los Angeles,
EI Paso, Dallas, Miami, Boston, and San Francisco.
DEA, USPIS, ICE, and the New YorklNew Jersey High
Risk Money Laundering and Related Financial Crimes
Areas (HIFCA) 40 all report significant money laundering
activity with money orders in these regions. OCDETF
has consistently reported that approximately 20 percent
of its newly-initiated money laundering investigations
contains a money order component. Law enforcement,
primarily ICE and DEA, and the regulatory community
have seen a steady stream of money order use by
launderers moving bulk cash from narcotics transactions
to Mexico and other regions of Latin America. DEA
and ICE report an area of increasing concern is the use
of Mexican casas de cambia used to transport proceeds
through money orders into Mexico. The vulnerabilities
presented by money orders and the relative lack of
regulatory oversight of casas de cambia in many foreign
countries create an attractive environment for individuals
seeking to launder illicit proceeds.
Anonymity is another major attraction. Money orders
are issued anonymously for amounts under $3,000. Most
money order sellers/issuers do not have any relationship
with their customers and very little, if any, information is
required to purchase a money order. Without originating
information, it can be impossible for law enforcement to
detect patterns of unlawful activity by an individual or
group, or to track suspicious transactions to their source
or ultimate recipient.
USPIS, FBI, DEA, and ICE investigations have all
repeatedly noted dirty cash being converted to money
orders to hide its true source andlor to shrink the physical
size of the contraband in order to facilitate smuggling
it out of the country. Commonly cited international
40
36
HIFCAs were conceived in the Money Laundering and Financial Crimes Strategy Act of 1998 as a means of concentrating law enforcement
efforts at the federal, state, and local levels in high intensity money laundering zones. HIFCAs may be defined geographically or they can
also be created to address money laundering in an industry sector, a financial institution, or group of financial institutions.
APPENDIX A
eoe
APPENDIX A
U.S. Money Laundering Threat Assessment
The illustration below presents a typical cycle of money
laundering through the use of money orders. oil
2
r
J
MO's Held by
Crimirals
5
1
money orders. The great majorIty of these money
order-related SARs (93%) were filed by USPS. USPS
reported
approximately
$296.9 million in suspicious
money
order
activity
equaling
approximately
.01% of the total face value
issued in 2003. In 2004,
Money Orders
reported $408.5
USPS
million in suspicious money
order actIvIty, equaling
approximately .014% of the
total face value issued. The
increase from 2003 to 2004
3
by .005% is believed to
reflect USPS's lowering of
its "back-end" threshold for
detecting suspicious activity
from $10,000 to $5,000.
Trends identified in the
SARs filed include the
following:
Transactions back to Criminal.s
Further Layering
Funds Appear
Legitimate
• The purchase of multiple,
structured money orders
on the same day or within
a short period of time; on
many SARs it was noted
that when the customers
were informed of the
reporting threshold, they
changed their purchase to
lower amounts;
• Money order deposits to the same bank account
composed of multiple, sequentially numbered
money orders;
Regulatory requirements for MSBs that issue money
orders are the same as those for MSBs in general, as set
out above. In addition, many money order businesses
impose their own lower dollar thresholds, such as not
selling more than $2,000 in money orders to a customer in
a given day, which obviate the need for CTR reporting.
Of the total SARs filed for MSBs from October 1,
2002 through December 31, 2004, 32 percent involved
eOe
• Customers lacking proper identification, or
providing false identification, leading some filers
to conclude that these customers could be illegal
aliens;
• Structured purchases frequently followed by the
deposit of the money orders into the same bank
account;
APPENDIX A
37
APPENDIX A
u.s.
Money Laundering Threat Assessment
• Individuals coming into the Post Office together,
but separating inside to make the purchases from
different tellers because the combined total of the
money orders purchased exceeded thc reporting
threshold; and
• Money order purchases being paid for with currency
in specific denominations, sometimes bundled into
stacks, indicating organized-crime involvement.
Anti-money laundering training is required of money
order businesses, but this training can be quite cursory.
Common vendors of money orders, such as small
convenience stores, may neither understand nor value
BSA compliance. When AML training is offered, it is
typically thin, such as requiring employees to read a brief
pamphlet. The fact that the workforce at these businesses
is frequently comprised of part-time, younger, and
less-educated employees with an extraordinarily high
turnover rate, further complicates the training effort.
There is also an accountability gap. All money order
issuers, aside from the USPS, rely to a large extent on
licensed agents, rather than employees, to sell their
instruments. The parent finns have a responsibility to
review activity across their agent network but are not
required to review individual SARs. Indeed, some firms
specifically discourage their agents from submitting
SARs to the parent finn.42
Western Union and MoneyGram combined - which
represent over 50% of the money orders issued in the
United States - represented only I percent of all SARs
filed from October 1, 2002 through December 31, 2004,
where money laundering was listed as the Category of
Violation and where money orders was identified as the
Financial Service(s) Involved. By comparison, USPS which represents one-quarter of all money orders issued
in the United States - represented 93 percent of such
SAR activity.
4Z
38
See, e.g., Travelers Express "Anti-Money Laundering Compliance Guide," July 2002. Accessed at: http://w\\w.moncY),(f<Jm.colll/forllls/
agclltguidl:.pdL
APPENDIX A
eoe
U.S. Money Laundering Threat Assessment
STORED VALUE CARDS
tored value cards (sometimes referred to as
prepaid cards) are an emerging cash alternative for
both legitimate consumers and money launderers
alike. The term "stored value cards" can cover a variety
of uses and technologies. Some cards have embedded
data processing chips, some have a magnetic stripe, and
some cards (e.g. prepaid phone service cards) just have
an access number or password printed on them (the card
itself cannot access or transfer cash).
S
Stored value cards can be characterized as operating
within either an "open" or "closed" system (See Table
7). Open system cards can be used to connect to global
debit and automated teller machine (ATM) networks.
The cards can be used for purchases at any merchant or
to access cash at any ATM that connects to the global
payment networks. 43 Such open system card programs
generally do not require a bank account or face-to-face
verification of cardholder identity. Funds can be prepaid
by one person, with someone else in another country
accessing the cash via ATM. Open system stored value
cards typically may be reloaded, allowing the cardholder
to add value.
Closed system 44 cards are limited in that they can only
be used to buy goods or services from the merchant
issuing the card or a select group of merchants or service
providers that participate in a network that is limited
geographically or otherwise. Examples of closed system
cards include retail gift cards, mall cards, and mass transit
43
44
45
46
47
eOe
APPENDIX A
system cards, as well as the multipurpose cards used on
overseas U.S. military bases and on college campuses.
These cards may be limited to the initial value posted to
the card or may allow the card holder to add value. 45
Stored value cards offer individuals without bank
accounts an alternative to cash and money orders.
Target markets include teenagers, the unbanked, adults
unable to qualify for a credit card, and immigrants
sending cash to family outside the country. The
unbanked in the United States comprise an estimated
10 million households and 75 million individuals. 46
A growing segment of the stored value card market
consists of businesses and government agencies using
plastic cards to replace paper vouchers, checks, and cash
for per diems, insurance and health benefit payments,
and even payroll. Issuers see the greatest fee potential,
however, among the unbanked, who, by using the cards
in place of cash and money orders, generate transaction
fees with every purchase and every cash withdrawa1. 47
Stored value cards provide a compact, easily
transportable, and potentially anonymous way to store
and access cash value. Open system cards lower the
barrier to the U.S. payment system, allowing individuals
without a bank account to access illicit cash via ATMs
globally. Closed system cards, primarily store gift cards,
present more limited opportunities and a correspondingly
lower risk as a means to move monetary value out of
the country. Yet federal law enforcement agencies
International networks on which open system cards can be used include Visa's Plus (ATM) and Interlink (point-of-sale) networks and
MasterCard's Cirrus (ATM) and Maestro (point-of-sale) networks.
Smart cards are another version of a closed system card, but are not widely used in the U.S. In some countries, smart cards have an
embedded data processing chip that carries bank-issued electronic money. The cards can transfer money directly to participating merchants
without the transaction going through an intermediary. The merchant or service provider's bank redeems the stored electronic payments as
conventional cash from the bank that issued the e-money. In some countries, smart cards have achieved modest acceptance for domestic
small-value purchases. Smart cards are also used in countries with inefficient telecommunications, so that merchants do not need to query a
central database for transaction authorizations.
Some retailers do offer redemption of gift cards for cash, but they do not openly advertise that this is an option. In this scenario, the gift
cards can be used to launder funds and hide the paper trai I of not only the source of the funds used to purchase the cards, but also where the
funds go if the cards are redeemed for cash.
Hillebrand, Gail, Payment Mechanism: New Products, New Problems, Consumers Union, presentation delivered at the Federal Reserve
Bank of Chicago, May 29, 2003. Accessed at: httr:!/\\\vw.ehlcagoleuorg/n..:ws and conkr..:nccs/collkr..:ncr,_and_ events/Ii i..:s/2()03_
payments _ conlerenee: _gai I_hillchrand _prc:scntation.rdl.
Issuers have triggered a backlash by going beyond transaction fees, adding charges for checking a balance, adding cash, or even doing
nothing ("inactivity" fees), drawing criticism from consumer rights advocates and attorneys general. For example, California, Washington,
and New Hampshire have passed laws curtailing prepaid card fees and practices. Connecticut, Massachusetts, New Hampshire, and New
York have filed lawsuits against the Visa-branded Simon Malls card specifically because offees.
APPENDIX A
39
APPENDIX A
have reported both categories of stored value cards
are used as alternatives to smuggling physical cash.
Stored value card programs oilen accept applications
online, via fax, or through local check cashing outlets,
convenience stores, and other retailers. Programs that
lack customer identification procedures and systems
to monitor transactions for suspicious activity present
significant money laundering vulnerabilities, particularly
if there are liberal limits or no limits on the amount of
cash that can be prepaid into the card account or accessed
through A TMs. Offshore banks also offer stored value
cards with cash access through ATMs internationally.
Further, programs designed to facilitate cross-border
remittance payments often allow multiple cards to be
issued per account so that friends and family in the
receiving country can use the cards to access cash and
make purchases. These programs can also be used to
launder money if effective AML policies, procedures,
and controls are not in place.
Law enforcement agents on the EI Dorado Task Force48
in New York found they could use false identification to
obtain prepaid cards and even have the cards sent to a
U.S. Post Office box. Secret Service investigations have
found that not only do some prepaid card applicants use
false identification; they fund their initial deposits with
stolen credit cards and money from other illicit sources.
DEA, ICE, and IRS-CI have all found prepaid cards used
in conjunction with bulk cash smuggling. Drug dealers
load cash onto prepaid cards and send the cards to their
drug suppliers outside the country. The suppliers then
use the cards to withdraw money from a local ATM.49
48
49
so
51
52
53
5.
40
U.S. Money Laundering Threat Assessment
Phone cards and other "closed" system prepaid cards
also present opportunities for money laundering. The
cards can be purchased for cash and transferred from
one person to another domestically or internationally
and eventually resold. Closed system cards are not
currently subject to CMIR reporting when moved across
U.S. borders. 50 ICE sees the potential for a variation
on the Black Market Peso Exchange (BMPE)51 with
phone cards exchanged for drug money. Also, prepaid
cards for wireless and long-distance service are a cashintensive business, offering an opportunity to integrate
dirty money. Distributors of prepaid phone cards can
generate more than $100 million in cash annually.
A stored value card llsed in an A TM to access cash from
a prepaid account operates the same way as a debit card
accessing a bank account via A TM, but there can be a
substantial difference in how the two cards are issued
and the accounts managed. Banks and other depository
financial institutions are obligated to have a customer
identification program (CIP) and to report large or
suspicious transactions (SARs). "Issuers, sellers, and
redeemers of stored value" are classed as an MSB under
the relevant regulations 52 and are required to have an
AML program but are not required to file SARs53 or to
register with FinCEN.54
Although open system stored value cards use the same
payment networks as some bank-issued debit cards (e.g.
Visa's Plus and Interlink, and MasterCard's Cirrus and
Maestro), stored value cardholders generally are not
Created in 1992 to target money laundering in New York, the EI Dorado Task Force became one of the nation's most successful money
laundering task forces. It is led by ICE and includes representatives from 29 federal, state, and local agencies.
Even prepaid cards for long distance and wireless services are proving to be money laundering tools as the wholesale distribution system
for these cards is cash-intensive, offering cover for money laundering.
A Report of International Transportation of Currency or Monetary Instruments (CMIR) must be filed by each person who physically
transports, mails, or ships, or causes to be physically transported, mailed, or shipped currency or other monetary instruments in an aggregate
amount exceeding $10,000 at one time from the United States to any place outside the United States or into the United States from any
place outside the United States (FinCEN Form 105).
The BMPE involves drug suppliers in Colombia working with a currency broker. Rather than bringing their illicit dollars from the U.S.
back to Colombia, the drug suppliers turn the cash over to a currency broker who can provide pesos in Colombia. The broker keeps the
dollars in the U.S., selling them to Colombian importers who need the foreign currency to purchase goods from U.S. suppliers. The
importers pay for the foreign currency with the pesos in Colombia that ultimately go to the drug suppliers.
See3l CFR. §103.II(uu)(3) and (4).
See31 CFR. §§103.120 and 103.20(a)(5).
See31 CFR §103.4I(a)(I).
APPENDIX A
eoe
U.S. Money Laundering Threat Assessment
APPENDIX A
obligated to have a bank account. A common model for
stored value card programs is for a firm independent of
the bank to process all cardholder transactions through
a "pooled" bank account held in the name of the firm
managing the card program. In this arrangement, the
bank may have no direct contact with the individual
cardholders. Under current regulations, when a stored
value card firm uses a "pooled" account maintained in
its name for cardholder transactions, banks are required
only to conduct customer due diligence and customer
identification procedures on the card management firm
and not the individual cardholders.55
MasterCard International and Visa USA have suggested
AML guidelines for card issuers including account limits
and requirements to verify identification. But web sites
for stored value card programs that promote cardholder
anonymity and flaunt a lack of AML policies suggest
that this guidance may not be consistently enforced.
Finally, a byproduct of the global market for and use
of stored value products is that domestic action alone
will not adequately address the vulnerability presented
by these products. Issuers outside of the United States
generally are not subject to the BSA,56 yet the cards they
issue may be used in the United States.
55
S6
eOe
See Deposit Insurance Coverage; Stored Value Cards and Other Nontraditional Access Mechanisms, Notice Of Proposed Rulemaking
Federal Register 70: 151 (8 August 2005): 45571 0-45581.
Bank Secrecy Act, Titles 1 and II of Pub. L. 91-508, as amended, codified at 12 U.S.C. § 1829b, 12 U.S.C. §§ 1951-1959, and 31 U.S.c. §§
5311-5332.
APPENDIX A
41
•
•
o
Table 7
FloatS7 , increased
sales
BMPE-style MLs8:
exchanging cash for
cards/Use as alternative
currency /Distribution
method is cash intensive
creating ML threat
Retailer-specific and
Phone service cards
Gift givers
Float, sales, and
transaction fees s9
Money laundering
through bulk card
acquisition and resale
Mall card
Payroll cards
Creates account to
facilitate direct deposit/
Cards can be used at ATM
& POS60
Unbanked workers
who are being paid
by cash or check
Fee income (lower
cost to employer)
Fraudulent businesses
could use to pay
terrorists or launder
money
Various
Remittance cards
Cards are issued for
friends & family to use at
cross-border ATM & POS
Individuals who
send cross-border
remittances
Fee income
Provides anonymous
cross-border access to
funds for purchases or
cash
Various
General use cash
cards
Debit card good at ATM &
POS to access pre-funded
account
Unbanked, teens,
& those unable to
qualify for credit
card
Fee income
Provides anonymous
cross-border access to
funds for purchases or
cash
Various
Replaces paper money,
tickets, and forms for a
variety of functions
Businesses &
government
agencies processing
high volume of
cash, checks or
vouchers
Lower cost
processing
None apparent
Transit systems/ Health
savings accounts/
Govt. benefit programs
Gift cards and
prepaid phone
services
(Single service
provider)
Store- or brand-specific
(No payment network
branding)
Cards often sold in pre-set
denominations/Merchant
collects full value up-front
High frequency
customers
Gift cards:
Multiple
Merchants
Multi-merchant gift card:
can be used for purchases
only (no ATM)/Can be
payment network branded
Function-specific
cards
<{
x
«
x
a
z
UJ
c..
c..
«
Q
Z
Merchant earns interest on idle card funds.
58 Black Market Peso Exchange-type money laundering.
59 Purchases with bank cards generate transaction fees for the issuing bank.
6. Point-of-sale.
57
u..J
"Q.
<{
N
..q-
u.s.
Money Laundering Threat Assessment
ONLINE PAYMENT
SYSTEMS
ew and innovative online payment services are
emer~in~ ~lobally in res~onse to market demand
from mdlvlduals and onhne merchants. Individuals, some of whom may not have a bank account or are
unable to qualify for a credit card, are looking to online
payment services to enable online shopping, electronic
bill payment, and person-to-person funds transfers. And
some online merchants are demonstrating a willingness
to accept new electronic methods of payment that are
less expensive than credit cards. These payment services function as online payment systems, accepting funds
in a variety of ways for the purpose of transferring payment either to a merchant or an individual.
N
Individuals wanting to shop online or participate in an
online auction can use an existing bank account, credit
card, wire transfer, money order, and even cash to fund
an account with an online intermediary that will facilitate the payment. Some online payment services exist to
facilitate transactions for online gambling and adult content sites that U.S.-based money transmitters typically
will not service. 61 U.S. citizens can access payment services online that are based outside of the United States
and transfer funds either electronically or by mail.
Online merchants, particularly those in sectors with high
"chargeback" rates, are generating demand for new payment methods. 62 These markets embrace online payment
systems that set their own clearing and settlement terms
6'
62
63
64
eo.
APPENDIX A
absent any consumer protection or financial regulation.
Typically, transactions through these service providers
are considered final with no recourse for individuals who
believe they have been defrauded. The consequence,
according to federal law enforcement agencies, is that
these systems have become favorite payment mechanisms for online perpetrators of fraudulent investment
schemes and other illegal activity.
Some online payment services defy conventional business models. "Digital currency" dealers, for example,
use precious metals (gold, palladium, platinum, and silver) as the store of value for online transactions and split
the transaction process between two business entities:
the digital currency exchange service and the digital currency dealer. Despite the appropriation of the term "digital currency" to describe the use of precious metals for
online payments, digital currency remains one of many
common phrases with "digital," or "cyber" or "e-," used
to refer to any electronic payment initiated online. 63
The systems work as follows: A person wanting to use
gold for an online purchase would first open a gold account with a digital currency dealer and then fund the
account through an exchange service. Each exchange
service sets its own terms, so that while some may only
accept transfers from bank or credit card accounts, others will accept cash and money orders.64 Similarly, each
exchange service offers different options for receiving
funds. The result is that some service providers pose a
greater risk for money laundering.
The oldest and best known of the digital currency services is e-gold Ltd., licensed in Nevis, with almost 2
In 2002, PayPal, perhaps the largest and best-known online payment system (339.9 million payments worth $18.9 billion in 2004), stopped
providing payment services for online gambling and adult content sites. PayPal, was launched in 1998, and today has 63 million member
accounts in 45 countries. In addition to facilitating transactions for sites Pay Pal no longer services, emerging online payment systems also
are targeting countries in which PayPal does not operate. PayPal is a division of e-Bay, a publicly-held, U.S.-based corporation, and is
licensed in the jurisdictions where it permits customers to send and/or receive money. (Source: httr:/;"" '\.ray ral.(Om) PayPal has also
registered with FinCEN as an MSB.
When a customer using a credit card disputes a charge, the customer is said to "charge back" the transaction. Managing charge backs is
costly to merchants who can be fined by their bank for frequent disputes or required to pay higher transaction fees. Online gambling and
adult content web sites are among industries prone to charge backs and are charged higher credit card fees than brick and mortar businesses.
The use of the term "currency" in this context is not strictly correct. Currency is something monetized by a monetizing authority, generally
central banks. Rather than being used as currency, these precious metals are used as a part of a barter exchange (one party agrees to
exchange a quantity of gold for various goods or services).
In addition to other funding options, a California-based digital currency exchanger accepts cash delivered by courier. Another service
provider based in Panama also accepts cash, but advises: "We have a limit of $2,500.99 per day, per bank for cash deposits. For bigger
amounts please send wires or postal money orders."
APPENDIX A
43
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May 4. 2007
HP-388
Treasury Economic Update 5.4.07
''''We see hopeful signs that growth will pick up through the year, business
investment looks set to rebound. consumer spending is sustaining growth and
strong global activity should propel exports going forward. "
REPORTS
•
Tleasury Ecol1omlc U;)di1le 5 4.07
http://www.treoo-.gov/pre~/reletlSeslHp388.htm
6/7/2007
TREASURY ECONOMIC UPDATE 5.4.07
""·'We see hopeful signs that growth will pick up through the year; business
investment looks set to rebound, consumer spending is sustaining growth and
strong global activity should propel exports going forward. ••
Assistant Secretary Phillip Swagel, May 4, 2007
Job Creation Continues:
Job Growth: 88,000 new jobs were gained in April and nearly 2 million new jobs have been created
over the past 12 months. The United States has added 7.9 million jobs since August 2003 - more new
jobs than all the other major industrialized countries combined. Our economy has seen job gains for 44
straight months. Employment has increased in 47 states within the past year. (Last updated: May 4,2007)
Low Unemployment: The unemployment rate of 4.5 percent is among the lowest reading in six years.
Unemployment rates have decreased or held steady in 36 states and the District of Columbia over the
past year. (Last updated: May 4, 2007)
The U.S. Economy is in Transition to a Sustainable Growth Path:
Economic Growth: Real GOP growth was 1.3 percent in the first quarter of 2007, and 2.1 percent
over the past 4 quarters. (Last updated: April 27, 2007)
Household Spending: Consumer spending-up 3.8 percent in Q1-remains strong and is expected to
provide a solid foundation for faster economic activity in the rest of 2007. (Last updated: April 27, 2007)
Business Investment: Capital investment turned up in the 15\ quarter, boosted by outlays for
commercial structures and equipment and software. (Last updated: April 27, 2007)
Tax Revenues: Tax receipts rose 11.8 percent in fiscal year 2006 (FY06) on top of FY05's 14.6
percent increase. Receipts have grown another 8 percent so far in FY07. (Last updated: April 11, 2007)
Steady Productivity: Labor productivity has grown at an annual rate of 2.8 percent since the business
cycle peak in 2001 Q 1. (Last updated: May 3, 2007)
Americans are Keeping More of Their Hard-Eamed Money:
Real Wages Increased 1.3 percent Over the Past 12 Months (ending in March). This
translates into an additional $450 above inflation for the average full-time production worker.
Real After-Tax Income Per Person has Risen 10 percent - an extra $2,950 per person - since
the President took office.
Pro-Growth Policies will Enhance Long-Term U.S. Economic Strength:
The Administration proposed a budget that reaches a small surplus in 2012. Economic
growth has generated increased tax receipts and dramatically improved the budget outlook. The budget
holds the line on spending. The budget reduces the deficit as a percentage of GOP-the most meaningful
measure of its size-every year through 2012. The time has come for both political parties to work together
on comprehensive earmark reform that produces greater transparency and accountability to the
congressional budget process, including full disclosure for each earmark and cutting the number and cost
of all earmarks by half.
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May 4,2007
HP-389
Notice on Press Credentials for SED
Members of the media seeking press credentials for the second Cabinet level
meeting of the U.S. - China Strategic Economic Dialogue (SED) must complete
and submit the attached form and a digital photo to the Treasury Department's
Office of Public Affairs at pr~~ss@cJo I reasgov or fax to (202) 622-1999 no later than
Friday, May 11, 2007. Incomplete applications or applications submitted after this
date will not be considered for credentials.
The second session of the U.S. - China SED is scheduled to take place in
WaShington, DC on May 22 - 24,2007. A schedule of open press events will be
released in the coming weeks.
REPORTS
•
SED PRESS REG FORM
http;//www.treas.gov/~~/reloo~fip389.htm
6/7/2007
Print
Reset
u.s. - China Strategic Economic Dialogue II
May 2007
Media Credential Registration Form
Completed form and digital photo must be submitted to
Treasury's Public Affairs Office at Press@do.treas.gov by Friday, May 11, 2007.
1. Name:
Last
First
2. Documentation:
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May 4,2007
hp-390
Report Highlights OFAC's Success in Combating Narcotics Traffickers
The U,S Department of the Treasury's Office of Foreign Assets Control (OFAC)
today released the Impact Report on Economic Sanctions Against Colombian Drug
Cartels, which reviews OFAC's highly effective efforts to expose and isolate
significant Colombian narcotics traffickers and their associates and to disrupt and
dismantle their business empires
"Since it's inception in 1995, the Specially Designated Narcotics Traffickers (SDNT)
program has been extremely successful in disrupting the financial operations of
Colombian drug lords and stripping the cartels of their ill-gotten gains," said OFAC
Director Adam J. Szubin.
The Impact Report details the illicit activities of each of the 22 Colombian drug
cartel principals and organizations that have been targeted by OFAC. The report
also focuses on specific highlights of the SDNT program, including the historic
September 2006 plea agreement between the United States Government and the
leaders of Colombia's infamous Cali drug cartel, Miguel and Gilberto Rodriguez
Orejuela. This sanctions program was established by Executive Order 12978,
"We believe the report will be valuable to the Congress and law enforcement
agencies. both domestic and abroad. The report will also inform foreign
governments. fostering closer coordination in fighting the scourge of narcotics
trafficking," Szubin continued.
The Impact Report on Economic Sanctions Against Colombian Drug Cartels, as
well as additional information about the SDNT program, can be accessed through
the following link:
ilttp i www treaSIJ Iy ,go,JlofflceS/er";forcernent!ofac/reportsinarco_lmpact report ..05042007. pdf.
http://www.treas.gov/~:i/reletlEJe6lflP390.htm
6/7/2007
IMPACT REPORT
,,,.
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ECONOMIC SANCTIONS AGAJ;NST
COLOMBIAN DRUG CARTELS
Economic Sanctions Against
COLOMBIAN DRUG CARTELS
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Office of Foreign Assets Control
U.S. Department of the Treasury
March 2007
www.treas.gov/ofac
DEPARTMENT OF THE TREASURY
WASHINGTON
D.C. 20220
STATEMENT FROM THE DIRECTOR OF THE
OFFICE OF FOREIGN ASSETS CONTROL
Treasury's Office of Foreign Assets Control ("OFAC") integrates regulatory, national security,
investigative, enforcement, and intelligence elements towards a single goal: effective implementation of economic sanctions programs against foreign threats and adversaries. OFAC currently
administers and enforces more than 30 economic sanctions programs pursuant to Presidential
and Congressional mandates,l targeting select foreign countries and regimes, terrorist organizations, proliferators of weapons of mass destruction, and narcotics traffickers. OFAC acts under
general Presidential wartime and national emergency powers, as well as specific legislation, to
prohibit transactions and freeze (or "block") assets within the United States or in possession or
control of U.S. persons, including their foreign branches. These programs are administered in
conjunction with diplomatic, law enforcement and occasionally military action. Since 1995, the
Executive Branch has developed an array of "targeted" sanctions programs that focus on drug
cartels and traffickers, international terrorist groups, proliferators of weapons of mass destruction, members of hostile regimes, and other individuals and groups whose activities threaten
U.S. interests.
Narcotics traffickers operating on a global scale require an extensive support network, including procurement, logistics, transportation, communications, security, money laundering, and
other facilitation. Disguising the sometimes vast profits derived from major drug operations
requires the purchase of ostensibly legitimate enterprises capable of handling business on an
international scale. These illicitly funded "corporate empires" can be extensive, complex, and
undermine the integrity of financial systems. They are also one of the drug cartels' greatest
vulnerabilities.
To combat the threats of violence, corruption, and harm posed by narcotics traffickers and their
networks, President Clinton Signed Executive Order 12978 in October 1995, declaring a national emergency with respect to significant foreign narcotics traffickers centered in Colombia.
The impact of these sanctions has been significant and, at times, dramatic. When OFAC designates an individual or entity, any assets within the United States or the possession or control of
a U.s. person anywhere in the world, must be frozen. Trade with or through the United States
is cut off. Moreover, many non-U.S. businesses and banks have voluntarily severed all ties with
individuals and entities that OFAC has listed. As a result, designated persons may lose access
to their bank accounts outside the United States, disrupting their operations and freedom of access. Finally. in many cases, Colombian authorities have taken law enforcement actions against
designated companies or properties after OFAC listed them. Collectively, these actions have
III
disrupted more than $1 billion worth of assets-in blockings, seizures, forfeitures, and the failure of enterprises-and economically isolated the individuals who own and manage the enterprises. The Director of the Office of National Drug Control Policy ("ONDCP"), in fact, stated
that OFAC's efforts have resulted in "the forfeiture of billions of dollars worth of drug-related
assets."
This report reviews the SDNT program's achievements over the past 11 years, as it has targeted
the leaders of Colombia's Cali, North Valle, and North Coast drug cartels. It is our hope that
the report will provide a useful window into the history and achievements of this program, as
well as lessons for refining sanctions targeting and implementation in the future in this and
other programs.
Adam J. Szubin
Director
Office of Foreign Assets Control
IV
CONTENTS
RODRIGUEZ OREJUELA Organization ............................................................................................................. 17
SANTACRUZ LONDONO Organization .............................................................................................................. 27
HERRERA BUITRAGO Organization ...................................................................................................................... 31
VALENCIA TRUJILLO Organization ..................................................................................................................... 35
URDINOLA GRAJALES Organization ................................................................................................................... 43
HENAO MONTOYA Organization ......................................................................................................................... 47
RAMIREZ ABADIA Organization .............................................................................................................................. 51
PATINO FOMEQUE Organization ............................................................................................................................ 55
MONTOYA SANCHEZ Organization...
. ..................................................................... 59
GOMEZ BUSTAMANTE Organization .................................................................................................................. 63
PUERTA PARRA and HERNANDEZ ZEA Organization ........................................................................... 67
RENTERIA MANTILLA Organization ................................................................................................................. 71
GRAJALES LEMOS Organization .............................................................................................................................. 77
VARELA Organization ...................................................................................................................................................... 83
CANO CORREA Organization ..................................................................................................................................... 87
SABOGAL ZULUAGA Organization.....
..............................................................
....................... 91
NASSER DAVID Organization ...................................................................................................................................... 97
International Emergency Economic Powers Act ("IEEPA") ........................................................................ 102
Executive Order 12978 ...........................................................
..........................................................
............. 107
Code of Federal Regulations- Title 31, Part 536 (31 CFR 536) ............................................................... 110
18 U.S.C.§ 3571 ....................................................................................................................................................................... 123
v
a.k.a.
Also known as
AUC
United Self Defense Forces of Colombia (Autodefenses Unidas de
Colombia)
CFR
Code of Federal Regulations
DEA
Drug Enforcement Administration
E.O.
Executive Order
f.k.a.
Formerly known as
FBI
Federal Bureau of Investigation
FNK
Foreign Narcotics Kingpin
ICE
U.S. Immigration and Customs Enforcement
IEEPA
International Emergency Economic Powers Act
n.k.a.
Now known as
OFAC
Office of Foreign Assets Control
ONDCP
Office of National Drug Control Policy
RICO
Racketeer Influenced and Corrupt Organization Act
SDGT
Specially Designated Global Terrorist
SON
Specially Designated Nationals
SDNT
Specially Designated Narcotics Traffickers
SDNTK
SpeCially Designated Narcotics Traffickers Kingpins
USC
United States Code
A.VV
Aruba Vrijgestelde Vennootschap (Aruban Exempt Corporation)
Cia.
Compania (Company)
E.U
Empresa Unipersonal (So/e Proprietorship)
Ltda.
Limitada (Limited)
S. de H.
Sociedad de Hecho (De Facto Partnership)
S. en C.
Sociedad en Comandita (Limited Partnership)
SA
SA de Cv.
Sociedad An6nima (Corporation)
S.C.A.
Sociedad en Comandita por Acciones (Umlted Partnership by Shares)
S.C.S.
Sociedad en Comandita Simple (Limited Partnership)
VI
Sociedad An6nima de Capital Variable (Variable Capital Company)
OVERVIEW OF
SDNT COLOMBIA PROGRAM
President Clinton issued Executive Order 12978, "Blocking Assets and Prohibiting Transactions
with Significant Narcotics Traffickers," on October 21, 1995, under authority of the International Emergency Economic Powers Act ("lEEPA"). The Executive Order found that the activities
of significant foreign narcotics traffickers centered in Colombia and the unparalleled violence,
corruption, and harm that they caused, constituted an unusual and extraordinary threat to the
national security, foreign policy and economy of the United States. The Executive Order called
upon the Treasury to target Colombian drug cartels using financial sanctions. Under this
authority, OFAC launched the Specially Designated Narcotics Traffickers ("SDNT") program
on October 24, 1995. The objectives of the SDNT
program are to isolate and incapacitate the businesses and agents of the Colombian drug cartels by
EXAMPLE OF
publicly exposing them, freezing their assets, and
SDNT LISTING
denying them access to the financial system and to
the benefits of trade and transactions involving U.S.
businesses and individuals. 2
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OFAC's principal tool for implementing these
sanctions against narcotics traffickers is its list of
Specially Designated Narcotics Traffickers. 3 OFAC
works in close consultation with the u.s. Departments of Justice and State to develop this list. It
names not only the principal leadership of targeted
drug cartels, but also their businesses and associates. At the outset of the program, the list included
the four Cali drug cartel kingpins named in the
Annex to Executive Order 12978, Gilberto and
Miguel RODRIGUEZ OREJUELA, Jose SANTACRUZ LONDONO, and Helmer HERRERA
BUITRAGO. Beginning in 1998, OFAC expanded
the SDNT list beyond the Cali drug cartel and it
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Please refer to OFAC's website for complete
listings (www.treas.gov/ofac).
The Order further prohibits any transaction or dealing by a U.S. person or within the United States in property or
interests tn property of persons designated pursuant to the Order, and any transaction that evades or avoids, has
the purpose of evading or avoiding, or attempts to violate, the prohibitioll~ contained in the Order. -Dlis impacts
trade transactions (involving, for example, letters of credit) as well as accounts and other assets.
Another narcotics sanctions program was created on December 3, 1999, when the Foreign Narcotics Kingpin
Designation Act ("Kingpin Act") was signed in to law. The Kingpin Act was modded by Congress after the highly
effective Colombian SDNT program, targeting the activities of significant foreign narcotics traffickers and their
organizations 011 a worldwide basis. As with E.O. 12978, OFAC is the lead agency for implementation ofthe
Kingpin Act. 1hose designated under the Colombian SDNT program arc listed as "[SDNT]" un OFAC's "Specially
Designated Nationals and Blocked Persons" list and those designated under the Kingpin Act are referred to as
Specially Designated Narcotics Traffiders Kingpins "[SDNTK]" to differentiate the two programs. This report
addresses only the Colombian SDNT program.
1
now includes the leaders, associates, and businesses of other Colombian drug cartels, such as
the North Valle and North Coast drug cartels.
As of December 31, 2006, the SDNT list includes 527 companies and 815 individuals involved
in the ownership or management of the 21 Colombian drug cartel leaders' business empires.
The businesses named as SDNTs range across industries and include drugstore chains, a supermarket chain, pharmaceutical laboratories, airlines, a medical clinic, hotels, restaurant service
companies, radio stations, sports teams, communications companies, construction firms, real
estate firms, investment and financial companies, consulting companies, off-shore firms, horse
breeding farms and other agricultural businesses, mining operations, maritime agencies, and a
department store.
Companies and individuals may be identified as SDNTs and placed on the SDNT list if they are
determined to:
playa significant role in international narcotics trafficking centered in Colombia;
materially assist in or provide financial or technological support for, or goods or services in
support of, the narcotics trafficking activities of persons designated in or pursuant to the
executive order; or
be owned or controlled by, or act for on or behalf of, persons designated in or pursuant to
Executive Order 12978.
u.s. individuals and companies are prohibited from engaging in unlicensed transactions, including any commercial or financial dealings with any of the SDNTs. Upon designation as an
SDNT, all SDNT assets within the United States or in the possession or control of u.s. persons,
including their foreign branches, are blocked. This includes bank accounts and other property
and interests in property.
When determined to be in the interest of u.s. foreign policy, OFAC may license activities to
mitigate the effect of sanctions. For example, after OFAC designated Drogas La Rebaja, Colombia's largest chain of drugstores, the Colombian Government seized the company and appointed
a receiver to manage its more than 449 stores across the country. OFAC then established a
licenSing policy to allow U.S. suppliers to engage in transactions with these companies, thus
preserving their commercial viability under Colombian Government control.
OFAC sanctions in U.S. courts have been consistently upheld when challenged by SDNTs. The
SDNT company Copservir filed a lawsuit in the u.s. District Court for the District of Columbia
in April 1998 against the Secretary of the Treasury and the Director of OFAC. Copservir alleged violations of the Administrative Procedures Act, federal forfeiture laws and the u.s. Constitution. In March 1999, the court granted the defendants' motion and dismissed Copservir's
2
complaint. The court's decision was upheld in March 2000 in the u.s. Court of Appeals for the
D.C. Circuit. The U.S. Supreme Court subsequently denied Copservir's petition for certiorari.
Cooperativa Multiactiva v. Newcomb, No. 98-0949-LFO, 1999 U.S. Dist. Lexis 23168 (O.D.C.
1999); aff'd 221 F.3d 195 (D.C. Cir. 2000); cert. denied, 531 U.S. 817 (2000).
Violations carry criminal penalties of up to $500,000 per violation for corporations and
$250,000 for individuals, as well as imprisonment of up to 20 years. Civil penalties of up to
$50,000 per violation may be imposed.
3
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4 MAP OF COLOMBIA Cities identify locations of Colombian drug cartel businesses discussed in this report,
.
SECIION'I
"[TJhe U.S. pressure is reaching unexpected extremes. The largest international
suppliers refuse to deal with us. The banks have closed down our accounts. It is
impossible for us to pay our obligations."
- As told to Colombian television in 1996 by Humberto RODRIGUEZ MONDRAGON-son of Cali
drug cartel leader Gilberto RODRIGUEZ OREJUELA-referring to their business enterprises in
Colombia.
Economic sanctions are employed to financially and commercially impair and impede. and to
ultimately isolate and incapacitate narcotics traffickers. their supporters. and business empires.
OFAC designations help publicly identify drug traffickers and their business empires and are
often accompanied or followed by u.s. law enforcement actions and Government of Colombia
asset seizures and forfeitures. Additionally, the threat of designation often deters top managerial talent-needed to operate and manage the often complex drug trafficking money laundering operations and business empires-from working for the drug traffickers and their business
empires. As of December 2006. OFAC has identified drug traffickers' assets under the Specially
Designated Narcotics Traffickers program valued at more than $1 billion.
Once designated. most narcotics traffickers try to evade and avoid the financial and commercial
restrictions placed upon them and their businesses, by working through others or creating shell
companies through which to control and conduct their business. 4 Initially, sanctions impair
and impede their ability to function; however, as OFAC continues to identify and designate supporters. businesses, and front companies, the drug cartel organizations face increasing isolation
and incapacitation.
"We have been several years without sponsorships ... we have more than one million dollarsJrozen that we won in international sports competitions."
- Colombian news magazine quoting the president of the professional Colombian soccer team
America de Cali. in February 2006-the soccer team was deSignated in June 1999 as an SDNT of Cali
cartel leaders Miguel and Gilberto RODRIGUEZ OREJUELA
At the outset of a deSignation, all assets within the United States of a designated party are
blocked. s Additionally, any transactions with a deSignated person that are caught in the United
States are blocked. OFAC actions in 2006 alone resulted in multi-million dollar blockings in accounts and real property in the United States. stemming from focused, in-depth OFAC investigations of Colombia's North Valle drug cartel's business and financial networks. SDNT companies and individuals face real costs as a result of being denied access to banking services in the
5
United States. An even more significant impact can come from the severing of trade with the
United States. Some companies named as SONTs that were heavily dependent upon trade with
U.S. businesses have been forced out of business.
SECTION 1
OFAC's designation of companies and individuals tied to Colombia's drug cartels often prompts
non-U.S. parties to take similar actions. Many non-U.S. banks have, as a routine practice,
closed the accounts of all persons (individuals and entities) on the OFAC SDNT list. For
example, many Latin American banks have
advised OFAC that they rely on the SDNT list
as part of their due diligence in identifying
high-risk account holders. Non-U.S. companies
In Colombia, the courts have upheld a Colomthat have no obligation to comply with U.S.
bian bank's right to deny service to high-risk
sanctions often refuse to work for, supply or
account holders, such as SDNTs. In March
otherwise do business with SDNT commercial
2001, Copservir, a pharmacy chain owned by
the RODRIGUEZ OREJUELA drug traffickenterprises or employ persons on the SONT list,
ing
organization, filed a lawsuit in the circuit
thereby further isolating them commercially.
court in Cali. Colombia against six Colombian
As a result, designated persons are impeded
banks for refusing to provide banking services
from functioning effectively in the legitimate
to Copservir because of its status on OFAC's
economy or business world.
SDNT list. In May 2003, the Colombian ConAs of December 2006, public records in Colombia and other countries show that hundreds
of companies named as SDNTs have dissolved,
are in the process of dissolution, or are inactive.
As some SDNT companies attempt to continue their operations through changes to their
company names, corporate structure, or other
evasion schemes, OFAC has pursued them for
designation as welL
stitutional Court ruled in favor of the banks'
right to refuse such services Effectively, SDNT
businesses arc forced out of the formal financial
sector-depriving them the use of bank services to pay for goods and payroll, receive payment
for goods, enjoy credit lines, and issue letters of
credit to foreign suppliers. These businesses are
often forced to work on a cash basis.
{([The OFAC list) is the most powerful tool the United States has against the trajfickers. n
- As one Colombian cartel source described OFAC designations.
Throughout the sanctions process, OFAC cooperates with law enforcement agencies. Its designations often provide a picture of the cartels' support networks, helping further inform US.
law enforcement actions and a variety of foreign government enforcement actions geared to
disrupting and dismantling the financial infrastructure of the Colombian drug cartels. Companies designated as SDNTs by OFAC have concurrently or subsequently been investigated by law
enforcement authorities in Colombia, Panama, Ecuador, Costa Rica, Peru, Spain, and Aruba.
In Colombia, the government has initiated numerous asset forfeiture cases against many of the
6
SDNT companies."
SECTION 1
"{The OFACj list is tough."
- A complaint made to u.s. authorities by an SDNT principal individual. Because of OFAC's list, his
companies were going out of busll1ess, his grown children could not get a job, and it became hard for
him to pay for their university studies.
The Department of State also uses the SDNT list. It has denied U.S. visas and revoked existing
U.S. visas to individuals named as SDNTs. which means that family members and other designated associates may be deprived of high-priced and highly-prized U.S. college educations as
well as the amenities and entertainments that their wealth might otherwise afford.
Individuals are deterred from associating with designated narcotics traffickers and their businesses, in part, because their reputations could be ruined, and in part because by doing so, they
also might be designated. An SDNT designation of an individual in Colombia and elsewhere
carries an overwhelming social stigma that tarnishes or ruins personal reputations and forecloses many financial and commercial opportunities. Designation of enterprises has the additional effect of impairing their ability to hire, train, and retain the top talent needed to operate
and manage their often complex narcotics trafficking operations and business empires, as many
talented managers and personnel refuse to work for them. For example, in November 2006,
within 72 hours of the designation of the soccer team Cortulua. the team's president and three
of its five board members resigned, sponsors withdrew their support, and key business partners
publicly announced the severing of all commercial ties with the team.
As previously mentioned, sanctions initially impair and impede the ability of narcotics traffickers and their enterprises to function, but as OFAC continues to identify and designate supporters, businesses, and front companies, the drug cartel organizations face increasing isolation and
incapacitation. This is best illustrated by the actions OFAC has taken over eleven years against
the RODRIGUEZ OREJUELA narcotics trafficking organization-part of the Cali drug cartel in
Colombia-that helped dismantle this organization.
"What was suffered was more than what was enjoyed."
- As quoted by one RODRIGUEZ ORE/UELA family member, referring to the effect of being placed
on OFACs SDNT list.
In October 1995, President Clinton named the two RODRIGUEZ OREJUELA brothers Miguel
and Gilberto, in the Annex to Executive Order 12978. During the next eleven years, OFAC
designated more than 200 front companies, including a prominent Colombian drugstore chain
Drogas La Rebaja-and its successor businesses, which had been created with the purpose of
7
evading the original designation-and key famBy members and business associates who managed the business enterprises owned by the RODRIGUEZ OREJUELA organization.
SECTION 1
In September 2004, the Colombian authorities seized Drogas La Rebaja, which they estimated
to be worth over $200 million.
In a September 2006 agreement with the U.S. Government, Miguel and Gilberto RODRIGUEZ
OREJUELA and 28 SDNT individuals-all key family members associated with the RODRIGUEZ OREJUELA drug trafficking organization-agreed to forfeit their interests in all narcotics-related entities world-wide up to $2.1 billion,7 which mainly consisted of the hundreds of entities designated by OFAC since 1995. H The entities addressed by the agreement will be forfeited
in the jurisdiction in which they are located, primarily Colombia. The agreement also commits
the family members to assist the U.S. and Colombian Governments in any future forfeiture actions. In connection with this agreement, Miguel and Gilberto RODRIGUEZ OREJUELA also
pled guilty to all federal drug trafficking and money laundering charges in the Southern District
of Florida and the Southern District of New York.
"1he list demonizes you in Colombia. 1he worst part is for the family. 1he
banks simply close their doors to you."
- A major Colombian narcotics trafficker
Designations of individuals and entities in the VALENCIA TRUJILLO organization provide additional examples of the impact of the sanctions program.
Joaquin Mario VALENCIA TRUJILLO, head of the VALENCIA TRUJILLO organization,
employed family members, including his brother, Guillermo, and several sisters-to run his
enterprises. 9 He and his family were once considered to be reputable business persons both
in Colombia and internationally. Since designation, the VALENCIA TRUJILLO organization
has been unable to liquidate assets or sell enterprises to third parties. Many of the designated
businesses were either seized by Colombian authorities or forced to close because of the OFAC
designation. All family members involved in the enterprise have been designated and face the
same sanctions prohibitions.
One of the most illustrative examples of the crippling effect that an OFAC designation can
have on a business enterprise involves Criadero La Luisa, a horse breeding farm, which OFAC
designated in March 2003. The farm maintained about 300 paso fino horses-some of which
8
were estimated to be worth more than $1 million a piece. Prior to designation, U.S. customers accounted for the majority of the farm's horse sales and breeding services. Shortly after the
enterprise's designation, OfAC sent out alert letters to the U.S. horse breeding industry, which
effectively shut down all U.S. business relationships and hindered other lucrative non-U.S. sales.
Since 2000, OFAC also has focused its sanctions investigations on Colombia's North Valle drug
carteL The impact of these designations is beginning to take hold. For example, in the past two
years more than $160 million in assets have been affected in a series of actions against four of
the more than 14 North Valle drug cartel leaders.
In March 2005, concurrently with the designation of Carlos Alberto RENTERIA MANTILLA
(a.k.a. "Beto" RENTERIA) , OFAC blocked approximately $1 million worth of assets belonging
to Beta RENTERIA and his family, including bank accounts, cars, and real estate in Boston,
Massachusetts and Miami, Florida. On May 11, 2005, OFAC designated Raul Alberto GRAJALES LEMOS and in the following days, Colombian authorities arrested Raul GRA]ALES
LEMOS and several of his SDNT associates on charges of money laundering.
In February 2005, five months after its designation by OFAC, the Colombian authorities seized
the airline, Intercontinental de Aviacion, controlled by the PUERTA PARRA and the HERNANDEZ ZEA organizations of the North Valle drug cartel. The seizure included the airline's fleet
of six airplanes worth approximately $21 million, according to a Colombian source familiar
with the airline.
In June 2005, shortly after having been designated by OFAC, Colombian authorities seized the
GRAJALES LEMOS organization-controlled Grupo Grajales-one of the largest agricultural
conglomerates in the country that includes a winery and fruit companies, as well as real estate
and other assets. The authorities estimated the worth of the conglomerate to be worth over
$100 million.
In March 2006, a Colombian newspaper announcement placed by the department store chain
Casa Estrella-controlled by the RENTERIA MANTILLA and GRAJALES LEMOS organizations and named as an SDNT in May 200S-stated that the chain would be closing its BarranquiIla store. The department store chain's closing was due to the fact that it did not have financial services and checking accounts, could not accept credit or debit cards, and some national
suppliers refused to sell products to the chain. Subsequently, in August 2006, the Colombian
Government seized the Casa Estrella department store chain, along with other companies and
properties. The real property alone had an estimated worth of approximately $38.5 million
In June 2006, OFAC named five companies in Panama as SDNTs, including Cipe Investments
Corporation, Elizabeth Overseas, Inc., Karen Overseas, Inc., Kattus 11 Corporation, and Rixford
9
SEC liON 1
SECTION 1
Investment Corporation. All of these companies had financial ties to the RENTERIA MANTILLA and GRAJALES LEMOS organizations in Colombia through associates in Casa Estrella.
Shortly afterwards, the Panamanian press reported that judicial authorities initiated a money
laundering investigation against the fronts.
In September 2006, Colombian authorities seized properties and companies belonging to
SDNT individual Eduardo RESTREPO VICTORIA, a key associate of the VARELA organization. Colombian authorities valued the seized assets at more than $22 million.
In November 2006, within 72 hours of the designation of the soccer team Cortulua, the team's
president and three of its five board members resigned, sponsors withdrew their support, and
key business partners publicly announced the severing of all commercial ties with the team.
Economic sanctions are employed to expose, impair and impede, and to isolate and incapacitate
narcotics traffickers and their support structures. In the Specially Designated Narcotics Traffickers
program, there have been Eve major impacts on and implications for the drug trafficking groups and
their business empires. These are;
Asset Blocking in the United States. Any money, assets, or property of a designated person
within U.S. jurisdiction are blocked and any subsequent transactions which are caught are blocked,
depriving the designee use of these assets.
Isolation from U.S. Financial and Commercial Markets. Financial transactions and commercial
dealings by a U.S. person with designated persons are prohibited, barring the designee from the
benefits of the U.S. financial and commercial systems.
Isolation from Non-U.S Financial and Commercial Markets. Many banks outside U.S. jurisdiction refuse to hold funds, provide any type of financial services for the SDNT or the SDNT's
commercial enterprises, and have closed their bank accounts. Businesses outside of u.s. jurisdiction also may refuse to work with the SDNT or supply or do business with the SDNT's commercial
enterprises.
Law Enforcement. The SDNT list often provides a picture of the cartels' support networks, helping
inform U.S. law enforcement actions and foreign seizures and forfeitures geared to disrupting and
dismantling the financial and commercial infrastructure of the Colombian drug cartels.
Deterrence. Anyone-family members, friends, and associates-who is employed by the narcotics
traffickers or controls or manages their business empires is subject to designation under E.O. 12978.
The threat of designation and the reputational risk often deters top manager:al talent-needed to
operate and manage the often complex drug trafficking money laundering operations and business
empires-from working for designated drug traffickers and their business empires.
----------------------------------------------
10
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-
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---
SECTION 1
For ease of reference, set forth below is a brief summary of the Cali, North Valle, and North Coast drug cartels and their principal component organizations.1{J More detailed descriptions of these groups and organizations are set forth in Sections 2, 3, and 1, respectively, of this report and additional information can be found
in Appendix A and B.
Cali Cartel
The Cali drug cartel is based in the city of Cali, Colombia. Led by Gilberta RODRIGUEZ ORE/UELA,
Miguel RODRIGUEZ ORE/UELA, Jose SANTACRUZ LONDONO, and Helmer HERRERA BUITRAGO,
the Cali drug cartel orchestrated the manufacture of hundreds of tons of cocaine in Colombia in the early
19805, which were then moved through the Caribbean and Mexico to U.S. markets. By the early 19905, the
Cali drug cartel was responsible for apprOXimately 80 percent of the world's cocaine supply. Actions taken
by u.s. and Colombian authorities led to the surrender or arrest of the RODRIGUEZ ORE/UELA brothers,
, SANTACRUZ LONDONO, HERRERA BUITRAGO, and other Cali drug cartel leaders between 1994 and
1996, and the dismantling of the Cali drug cartel's trafficking infrastructure. Colombian law enforcement
and OFAC actions led to the disruption of the business empires built with their illicit drug trafficking proceeds. The principal individuals designated by OFAC are:
Gilberta jose & Miguel Angel RODRIGUEZ OREJUELA
Jose SANTACRUZ LONDONO
Helmer HERRERA BUITRAGO
Joaquin Mario & Guillermo VALENCIA TRUJILLO
North Valle Cartel
Based in the northern part of Colombia's Valle del Cauca region, the North Valle drug cartel rose to prominence in the 1990s. It began as a splinter group of the Cali drug cartel following the arrest of Cali drug cartel
leaders Miguel and Gilberto RODRIGUEZ OREJUELA in 1995. Through its brutal tactics and alliances with
narco-terrorist organizations such as the United Self Defense Forces of Colombia CAUC"), the North Valle
drug cartel was able to export over one million pounds of cocaine, worth an estimated $10 billion, to the
United States via Mexico between 1990 and 2004. In 2004, the Drug Enforcement Administration CDEK)
described the North VaIle drug cartel as the "largest and most powerful drug cartel in Colombia" and stated
that the North Valle drug cartel was responsible for one-third to one-half of the cocaine that reaches American shores. The principal individuals designated by OFAC are:
12
Ivan & Julio Fabio URDINOLA GRAJALES
SECTION 1
Arcangel de Jesus HENAO MONTOYA
Juan Carlos RAMIREZ ABADIA
Victor Julio PATINO FOMEQUE
Diego Leon MONTOYA SANCHEZ
Luis Hernando GOMEZ BUSTAMANTE
Gabriel PUERTA PARRA and Luis Antonio HERNANDEZ ZEA
Carlos Alberto RENTERIA MANTILLA
Raul Alberto GRAJALES LEMOS
Wilber VARELA
Jhon Eidelber CANO CORREA
Orlando SABOGAL ZULUAGA
North Coast Cartel
Various drug trafficking organizations based along the northern coast of Colombia have operated maritime
drug smuggling routes for the Medellin, Cali, and North Valle drug cartels since the 1970s. One major
North Coast drug trafficker, Julio Cesar NASSER DAVLD, ran a drug and money laundering group based
out of the city of Barranquilla, Colombia. Since the 19705, NASSER DAVID's organization has smuggled
multi-ton quantities of cocaine and marijuana to the United States via commercial shipments and maritime
vessels. This organization was seriously impaired as a result of NASSER DAVID's arrest in 1997, OFAC sanctions since May 1998, and NASSER DAVLD'S subsequent death in 2001. The principal individual designated
by OFAC is:
Julio Cesar NASSER DAVID
13
Santa rvlart<1
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o
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Puerta Tejada
,
I opayan
0
o
Neiva
14 MAP OF COLOMBIA Cities in bold mark locations of Cali drug cartel businesses.
(
\
')
-,/
During the time the Colombian National Police were engaged in their campaign to bring down
the Medellin drug cartel in the late 19805 and early 19905, a group of powerful drug traffickers
from Cali, Colombia were building what was to become one of the most prolific and successful criminal enterprises in recent history. Led by Gilberta RODRIGUEZ OREJUELA, Miguel
RODRIGUEZ OREJUELA, Jose SANTACRUZ LONDONO, and Helmer HERRERA BUITRAGO, the Cali drug cartel trafficked approximately 80 percent of the world's cocaine by the early
1990s. At the height of their power, the Cali drug cartel's annual revenue reached an estimated
$7 billion.
Working collaboratively, the four principal Cali drug cartel leaders formed an organization
that handled both the entire chain of narcotics trafficking-such as raw material procurement,
processing, delivery, wholesaling, retailing-and subsequent laundering of the illicit proceeds.
While the Cali drug cartel consolidated the production and distribution of illicit narcotics into
one operation, the proceeds from these operations were distributed separately among four
major organizations, each headed by one of the four principals. Each organization largely invested, developed, and managed its own separate business empire. Each business empire grew
to include a vast network of companies, run by family members and a cadre of trusted business
associates in Colombia, Ecuador, Panama, Peru, Spain, and Venezuela. The Cali drug cartel
headquartered its business empire in and around Cali, Colombia, developing a political, social,
and business base of support.
The Cali drug cartel's operations began to unravel in the mid-1990s with a series of u.s. law
enforcement indictments, OFAC designations, and Colombian Government actions. Law
enforcement uncovered the various drug trafficking operations, while OFAC commercially
isolated the drug cartel's business empires by identifying and designating their companies and
principal managers. Ultimately, it was the sheer size of the narcotics trafficking enterprise that
made its operations vulnerable.
Sanctions against the Cali drug cartel began with the naming of all four Cali drug cartel leaders
by the President in the Annex to Executive Order 12978 on October 21, 1995.
As will be explained in more detail below, OFAC's continued sanctions pressure was a key
impetus to the guilty pleas of Miguel and Gilberto RODRIGUEZ OREJUELA in US. Federal Court in Miami, Florida on September 26, 2006. Miguel and Gilberto RODRIGUEZ
OREJUELA admitted to over two decades of drug trafficking and to laundering the proceeds
through the network of companies that OFAC had targeted in over a dozen investigations over
the past decade. The brothers were sentenced to 30 years in jail and ordered to forfeit up to $2.1
billion in assets.
15
SECTION 2
The Cali drug cartel was formed in the 1970s by Gilberto and Miguel RODRIGUEZ OREJUELA
and Jose SANTACRUZ LONDONO. While Gilberto and Miguel RODRIGUEZ OREJUELA
were initially involved in other criminal activities such as kidnappings in the late 1960s, they
gradually expanded into smuggling cocaine base from Peru and Bolivia to Colombia for conversion into powder cocaine. By the late 1970s, the RODRIGUEZ OREJUELA brothers were
known as major transportation specialists who moved cocaine out of Colombia into the United
States and other countries. Gilberto RODRIGUEZ OREJUELA was responsible for the strategic, long-term planning of the organization. Miguel RODRIGUEZ OREJUELA was the handson manager who ran the day-to-day operations. They maintained a sophisticated, highly-structured drug trafficking organization that was tightly controlled. Each day, details of loads and
money shipments were electronically communicated to heads of cocaine cells operating within
the United States. The RODRIGUEZ OREJUELA brothers were intimately involved in every
phase of the business-production, transportation, financing, and communications. They knew
the how, when, and where of every cocaine shipment, down to the markings on the packages.
They even set production targets for the cocaine they sold.
A November 1994 Drug Entorcement Administration CDEA") report entitled, "The Cali Cartel:
The New Kings of Cocaine," stated that Gilberto and Miguel RODRIGUEZ OREJUELA controlled "whal may be the most powerful of the Cali Cartel organizations."
In June 1995, a federal grand jury in Miami, Florida issued a landmark Racketeer Influenced
and Corrupt Organizations Act ("RICO") indictment against the leaders of the Cali drug cartel, including Miguel and Gilberto RODRIGUEZ OREJUELA, and charged the Cali drug cartel
with the importation of 200,000 kilograms of cocaine and the laundering of $2 billion from
1983 through 1995.
In reaction to law enforcement actions, the RODRIGUEZ OREJUELA brothers used a network
of family members and associates as front persons in their companies to disguise the true ownership or control of their assets. Both Miguel and Gilberto were identified early on in public
documents in Colombia as partners in several companies. Subsequently, however, they attempted to conceal their continuing control of these companies in order to insulate their assets
from seizure by law enforcement authorities. Their companies are now held under the names of
family members and associates who may appear as shareholders, officers, or managers at different points in the companies' histories, while in fact the companies continue to be owned or
controlled by Gilberto and Miguel RODRIGUEZ OREJUELA.
Gilberto and Miguel RODRIGUEZ OREJUELA were arrested by Colombian police operations
in June and August 1995, respectively. On October 24, 1995, subsequent to their naming hy
17
SECTION 2
the President in the Annex to E.O. 12978, OFAC designated 13 businesses and 32 individuals
involved with the RODRIGUEZ OREJUELA organization, including its most important asset,
the Drogas La Rebaja drugstore chain.
SECTION 2
In late 1996, the RODRIGUEZ OREJUELA brothers reached an agreement with the Colombian Government to plead guilty to drug charges in Colombia, rather than face future possible
extradition to the United States. However. they continued to control the Cali drug cartel from
prison.
Since the implementation of E.o. 12978 in October 1995 until September 2006, OFAC continued to identify new assets of the RODRIGUEZ OREJUELA organization and followed the organization's attempted evasions to preserve assets by changing names or restructuring of already
designated companies. This resulted in the designation of 246 front companies over 11 years
under at least 12 separate OFAC designation actions against the RODRIGUEZ OREJUELA
organization. OFAC identified assets of the organization in 10 countries, including Colombia,
Costa Rica, Ecuador, Panama, Peru, Spain, Venezuela, the Bahamas, the British Virgin Islands,
and the United States.
In December 2003 and March 2004, two new
federal indictments were unsealed and extradition warrants filed requesting that the Colombian Government extradite Gilberta and
Miguel RODRIGUEZ OREJUELA, ba;;,ed on
new US. charges of narcotics trafficking and
money laundering. Subsequently, they were
extradited to the United States in December
2004 and March 2005, respectively.
In September 2006, Gilberta and Miguel RODRIGUEZ OREJUELA pled guilty to all federal
drug trafficking and money laundering charges
brought by the US. Attorney's Office for the
Southern District of Florida and the US. Attorney's Office for the Southern District of New
York.
"In 1996, afterOFAC applied sanctions against
many of their principal companies, Gilberto
and Miguel RODRIGUEZ OREJUELA arranged
for their pharmaceutical drugs to be sold to
numerous companies outside Colombia in an
effort to protect their assets and avoid OFAC
sanctions. These foreign companies were effectively controlled by trusted associates of the
Cali Cartel. In addition, after their companies
were sanctioned by OFAC, Gilberto and Miguel
RODRIGUEZ OREJUELA and their criminal
associates established "new" or "re-organized"
companies from the previously sanctioned
companies. These "new" companies simply assumed the assets and continued to perform the
services of the previously sanctioned companies."
OFAC designations since October 1995 helped
identify the RODRIGUEZ OREJUELA financial
and business empire throughout the world. The
economic sanctions played a key role in the commercial and financial isolation of the
RODRIGUEZ OREJUELA businesses and impaired its organizational integrity.
18
In Colombia, subsequent to OFAC designations, the authorities have seized the majority of the
RODRIGUEZ OREJUELA organization's assets in the course of a number of large operations.
In September 2004, the Colombian Government finally seized the drugstore chain Drogas La
Rebaja in what was considered the largest asset forfeiture operation in Colombian law enforcement history. A team of 465 Colombian prosecutors, accompanied by 3,000 police and 20
accountants, seized all Drogas La Rebaja drugstores across Colombia. According to Colombian
officials, "This is the largest occupation of property linked to the drug trade in the history of the
count/f' The drugstore chain was valued by Colombian authorities at approximately $220 million.
In August 2005, Colombian authorities followed up the September 2004 seizure of Drogas La
Rebaja by seizing nearly all the RODRIGUEZ OREJUELA property on which the drugstores of
the chain were located.
In May 2006, Colombian authorities initiated a second follow up operation to the September
2004 seizure of Drogas La Rebaja and seized the RODRIGUEZ OREJUELA company Prosalud,
a 17-drugstore chain based in Cali, as well as numerous other affiliated companies, including
Credirebaja, the credit card company used by Drogas La Rebaja.
Also, in May 2006, a Colombian judge ordered the forfeiture of hundreds of assets belonging to
Gilberto and Miguel RODRIGUEZ OREJUELA, including 74 properties located in Cali, Bogota,
and San Andres, their shares in the professional soccer team America de Cali, and 17 companies. These property assets and companies, valued by Colombian authorities in excess of $45
million, had been seized in operations since 1996.
In September 2006, a major agreement was reached with Gilberto and Miguel RODRIGUEZ
OREJUELA when they pled guilty to drug trafficking and money laundering charges. They
agreed to a forfeiture of up to $2.1 billion in assets to be levied against their narcotics-related
assets found anywhere in the world, as well as all RODRIGUEZ OREJUELA business entities
worldwide. These entities are mainly the 246 front companies already designated by OFAC over
the past 11 years under at least 12 separate OFAC designation actions. In a separate agreement, 28 family members of the RODRIGUEZ OREJUELAs agreed to forfeit their right, title,
and interest in all RODRIGUEZ OREJUELA business entities worldwide, including all those
designated by OFAC since 1995. These family members also agreed to forfeit and/or divest
themselves of all the businesses on the OFAC list, in addition to continuing to assist U.S. and
Colombian Governments in any ongoing or later related forfeiture actions against their assets.
If the RODRIGUEZ OREJUELA family members fully comply with the terms of the agreement,
they will be eligible to be removed from OFAC's SDNT list. These agreements resulted from a
combination of the sanctions powers of the Department of the Treasury with the authorities of
19
SECTION 2
the u.s. Attorney's Offices in Miami and New York, the Drug Enforcement Administration, the
Departments of Homeland Security and State, and Colombian authorities.
In November 2006, the RODRIGUEZ OREJUELA brothers entered their guilty pleas to money
laundering charges in the u.s. District Court for the Southern District of New York.
SECTION 2
20
RODRIGUEZ OREJUELA ORGANIZATION
KEY FAMILY MEMBERS
mime
Humberto
RODRIGUEZ MONDRAGON
RODRIGUEZ MONDRAGON
~alion
Gilberta Jose
RODRIGUEZ OREJUELA
Date
Desi8)'l<l!1On DJtc: 2H);;t·l'l'i5
Ret3Bonshlp Son of Gilbarto
~1-(}(;t-l99S
RelalX)ltShlp Son 01 Gllberto
Cedulil: 16637$91
ooB 3D-Mdr-1%O
•
Mariil Alexandra
RODRIIGUEZ MONDRAGON
Designiluco Da!C_ 21-OC1- 1m
R.e!JtlOn~lp-
Daughltl( or
Giloono
COOUliI M810048
Cedlila. 16688683
ooB- 21-Jun-l%3
00B :»May-19Q9
Aliases: °EI AJedrecista"
(The O1ess PIa.,.erl
Date of Des"'atlon~ 21-Qct-1995
POBcoromoo
DOB: 31-Jan·1939
cectum Numiber_ 6068015
Passport Number: rn164:7
Indictments: 1995 RICO in(lIClmen( of
call arug cartel In SOUthern DistrIct
of FlOrida; Dec-2003 (SoLJtll(>rr1
District of Florida); Mar -2000t iSOtIthern
DiStrict of New York)
Arrests/Conviction$: ExtradlleO to u.s
carolina
William
RODRIGUEZ ABADIA
Claudia Pilar
RODRIGUEZ RAMIREZ
RODRIGUEZ ARBELAEZ
[)("'Sl~tlOn
Date 210:t 1995
DNgrtJllon DJte 21-0::[ 1995
~'IilClonStIlP son Qr M1?Uel
C<'fJut,,' 16116259
Relat>::nStIlD. DGlJ&tllef 01 Mlgl.lC'l
DC6: 31-t1.IH %5
OOBll-Mily-Wl'9
CWui;ll
DesigIYJ1IDr11Xlti?: 21-OtI-I99S
RelabC@liP DJ,;&htel 01 Gllter!!)
cro:w.:r 51741013
,n, I }W~
0Cl8 ))'IlIn-l%J
from COlombia in 00::-2C04 Ple.)(Jed
ra
,_,.!
l,
GhJ
guilty to all federal (Jrug trafflcKIf1g ana
money laullClenng Charges m sept-2006_
Juan carlos
Marla Fernanda
RODRJGUEZ ARBELAEZ
Andre Gllberto
RODRIGUEZ RAMIREZ
OeSlgnatJ.:fl DaAe 17-oct-..oro
Re!.;IliOr'lShip oaught'.Y Of M1&Uf11
CCdula_ 6686O%S
OOB-, 28,NQv·''I73
De$tgn.;1tlOl1 Date: 6-feil-;:Q)3
MUiirlOZ ROORfGlJIEZ
tR.SlgnalJOjI Date: 2H)Cl-1995
Re\atlOl1'ihIP Ne~IElI'I
C£'dula 1670314.8
DOO 25·SePt·1%4
KEY
Miguel Angel
ROD'RIGUEZ OREJUELA
Mases: 'EI Seflor"
DIte of Designation: 21-00 -1995
POB: COlombia
DOS: 2J-NO'o'-1943
Cedaila Number. 6095803
Inillctment5: 1995 RICO mdicunent
of Call drug cartel in Southern Dts.trict
ofFlonda; Dec-2C03 {SOuthern DIStrict
of florida}; Mar-2004 (SOUthern Di!>ll'ict
of NeW York)
Afi'ests/COrMctiOM: ooadlted to
the Urited States frOO'! ColOlTlbia in
Mard12005. Pleaded gu4lty to all
federal drug traffictirlgancJmooey
IaLrlderlng c:hiwges In sept-2006.
BUSINESS
Femando AntonIo
GUTIERREZ CANCINO
De'-4fI,)tJOfl Dill!!_ 21-00 -1'jl%
C-eQu1J 60B";~m
OOB.4-[)e(-11f.l11
.,Jaime Alberto
ARtSTlZABAl A19I0iRllJA
()eSIgrlabOll Date-; !>-Mar-1m
Cedula: 16756325
OOB 1H){:\·1968
Relatlonship-, SOn of GlltEr10
COOuld: 1bl'98937
DOB, 22· Mo]( 1972
ASSOCIATES
Alfonso
Gil OSORIO
1)r~1:OO
DiI1(! 1101:1·1995
Cfodula' 1~949279
tJOe: 17-0ec-W46
Eduardo
MOGOllON RUEDA
DeslgJkri:X)lt
Date_ 21·Qd-l99S
Cie(jula~
19194691
DOB: 5·~-t953
ORGANIZATION CHART
21
IMPACT OF. OfAC SANCTIONS ON THE
RODRIGUEZ OREJUELA PHARMACEUTICAL EMPIRE
1M
• • 11991
.,lm
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lin, wtI9
l'i.!Il.l1OOO
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,Gb!r\O
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;~M:.aesw'c~
1' II1u
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IlOOIIIGIJfl
iOlV.lEtA
i tIrOIIh\Bs. n;\Jdrqr
I! .... ~....,
\h! ItI1nek IJ) ;~d\aIII
'~IA
fJlK\#118
QrO!W 121'18 I~
CMC~
~ _ ...
M$OOIIIIJ
IIIOOfIIGUEl
t"IIlroMlJl"""") ,fJfN:.
"00\)1IfI~ l1UIfI.!'>
~
rcuIItC
1:Ud~1tlI'
~1II1d
uOAJlOlrn ~ ....0 II
't~N'.'
W!IItlO
COOC-iIIMP
CHMIAIXCIO'Ief's.
~IICI(l
!IClIti In Q.IIQ
fI:Il/ldgI
oo~n'J'JH
I\Ie$n~
u.s
IlISIna
COI'SlIMR III
<II:r1Il'Mtlt . Coon I'IjaIn'lI
1.1>: tl!lalOd II'll!lJ5.
allIl\lolIlIOIt GIMIImPJt
r..!iONI'l. •'*-'iiRlrli 'b
OfN.:
(l!>
Deln.l
lil'tInU!1
ol8iIl'~ Itl!l
·~aL5l.)S.
III1'SONT
GIMlIlTTlIlfrl
IWIlOI!
COP5iRWI
1995 - 1996
CfiIC
~.$lI
C1)I'~
~
ftu
1tfItt'
CQPS[It'.III.
rl!r.I>OCiMlKI
WI'Ill
ClIIJ't
~
COPS£Ii.VIFr'~
~~
r~
r;;~~
C~
Jli>lfTll4l:~~
lJOCiIIlr,"<_
r.w,m:o
; :·,l J~~'~;i'~~'i!
us. r.au~
uplldIllJ!i
tt...,,1C1
CQ..lr~
dtl!.t'Xr1!(J
tI_
t.cP.nMl!'1
00CI0WICA cCt'llpQorlt
• Sianco Philrma S.A (a ~ 3, L.JO"....ut01';:rS fllanc()
Pnarm.; SA~
• AJ~ PI1.trma S.A
• [)epmllO ~uljJi oe DfOgilS S A
• OIS1trDun:lora de Drc~l~ CJc,ix:!or S A ~.:J ~ a.
DrDgds CCt'>.:JDI)
• OtsfnOUIClOf.!Hle DrC:'l1OlS U} FOOOJIJ fj,ltt.)IlQu.li;}
SA j,;lk,d. Drugar.LiI Rab<llil B.!I't,lrIQullI.J S.\,
f.k..a. seMoos SOCla\eS 1I(1a ,
• 0tS111tJuiclora de Orogas La fOOtldld aUI.:..J(~tldnl5t1
SA lak.<I. Drog;!S la Retli1Ja BUI;.aulfllilng,l S.A. J
• Oi$\JiI'JuldOra de DrogaSLa Reoof<l C<J1i ~ A
(itk.ll. Oroga5 u Retl;Jla cali S.A I
• OiS!rlbtll(l(lrit de Oragas U3 REb-fiji! Ner,'ij ~.,I\
ta.1I: a I)rogas t a l~et1r.Jla Ner.'a S A J
, C!tS1nl1ulI:jOl<l (jl;' Orog,,~ La H:€f'Jdlii P;:l'itlJ c, ll.
1&\"..0( Ir\
Ifll\!ll'~
~"c...f)'1 ..... 11'1
COtla1tJt¥\ ((1...·1
~9.
CCf"">EllVR.
(~t)n:;s
~1d.IdCI,!: If'III
hJ<
()'I~.. dl.1ifr~
C'~':.ard
....-rs
r~n...
!,,)III:IIl/:I""~'''''
'~Y.oO'r:lrl'lN
orAC~rll<>!l
c.c»,~
1999 - 2000
, I Jf4lOJrM A1¥flt.AAI ,
, Oistrlbuidor a de DrogiIS La ~ principal
SA \iI.Ie.a. Drogas UI ReO.:Ila S A I
COI'SIJMII hI<.; :1
~1¥C~.t':.
CA£OIlI~
~
1997
1\liV~_1
Dt'C..ml
'-f :,~¥;"" ',' ,c.,'
",
'" -t
'" .. "
~ -f • '" • "I . . .
eUBIRCIUI
• Cre<l!rell,l)!i 5.A
• COps@f\!l( Llrn. iil.k.i3
~m[1W
• Nmaooop (a.k.a COQIl(!'ralMl MLJllIactwa De
MtJ1Lractl'\fa
oe Emplt?aoos oe DlslrItudo;es de DrtlgilS
CO()SE'IVIt Udal
• DfS"flQrCGCP fJ Ii J. COOpcrLJtlVJ MUI!IiY.:~Ml
tm~jeados d~ SJ.J~.."m"'.!1(i1IJr:z. '( A/;(~I
• FIE'.mernl.ldqUL>!. Lttl;] (I ~;I P\.:J:s1j'~O~Lon~lur
'.Ida,
• Ciijm~rL:!l:>$A (til( a. C~np;lr1r.l f!l!t:!rilfll.;!r'~illfd
n·"
A\1J'llin~r<lciOf1
:t.I..lrc.a~i ',' f{~I~.;rtl" S.t. fa I: <1 Piltm~r
SA)
'liorrorrllm;:.i¥lS.A (I L~ Dec..acunr' '>A)
, Come(11C<;lrr""'lto:;tS ~ A
• ~cafarmJ S A
• ~1nIJUldor.'1. ~[)ne~'.tarlil ColGmbi(!l1i! SA
la,,, a DliiigfOCOi SAl
• I',jJfmiil'>Jgilr lo.k.a. Farrn8hosal CC\?SI?Mf 19.
,
[~ COsm~tll:r.)~ SA I, If le,1 latlOriltono~ ~b1ullilr
(.'e Coloml'lr.l S.lo. J
• cosrnepop tAlii!. (Cooper atr~" de COSl1t:'ll':OS y
''IOPulareS)
• raml<lCOfJP (".Ica. (.~ilflWl MuI1WI::t/'t@de
CG<'IIp.r"illir.ltlQl1 or '>erwr.lo$ Farm,a;.:oop)
• pen,acoop ltda [fica. PBnta f"i1iltm.~ de
Cc;omtll.:i S A)
'i MarleJO NlmaCoop)
; • Dromarca \I' Cia. s..C,S.
~\Jtentes
Droguen<l HlrmatlOF.;ifl
i • Q'd)t1n SA
,
• JD.etSIones 8.1Jfflbi!'; SA I.!I i<.a A,grD"ICfE'nn.:lnn
EI Tem!
• Pollt'mp.3QlJl:j LIlli!.
• Se....lt:l-:)s Filfm;;ccu~lco<; Ser...ll.". S.A la ".J
iii t" Orr)~a!i ,j! Retl<lla P<ao;;to SA 1
• Oi..<;tnbu!(j('.ta (jp lJfogas La ReO-Cop PerFlrij S >\
s.::-rol11arSAI
(iI." a Dr~ UI RE'bclla p\."'!elril SAl
• DislTibuidoia 1.tj.·rarrurE'l s.~\'
• F"rmatOOO S A
• labYalOIl{lS Blalmor do;: ColOmt~a SA 1.3 c; <3
Bfalmar, iJ.k,jj, Cctnt~(Ct5 SAl
• UIOOrat()(105 Gt.."O;?rlC05 1,,'t'1i'f Il1t}fiOS d!'
COlomblll SA (it 1t3 Gen VI."I 5.A)
·l1itlOOltOfIOS r;;rcssl()( 00 Ci".A:I!JlO;') S A. ~a.k.. a
Kre:ssiotl
• PI!ntiI f'harmil de CO'{)ffil)ia SA In I:il.
f'@ntaaJQp uen f
• Pla:li.1lCos Condor UC!J
• R<map Comete.o., Rep<i.':;.!nt.}uc<"i"S SA
• SllrviCK'S S4:Jc1il:~ l KLJ
A~ ,h ... drug ,r.;fhckin9 Of931;i~tion hL"~~1
b}' MI9ud dnd G,i1bt>r10 ROORIC,Ufl OReJWElA 'J'tw. j.O did
stDr(, (Main nil>lT1ed DROGAS LA REBAlA.. It (flAlckly ~ml!' Co40mba.a·s liUgest pharmacy. vtllued
by C.olomb.",,. Inflh.,..tit~ ill apl)rOlUlnh'AlI) S22() wilioCr' in 2IX)o4, ./Irid thAI lI.lgsh,p coa1paoy 0( 1h."
RODfllGUEl OREJUHA ()'9,)nir..tio...'~ fi",aoci .. l ..nd busin"", ~I'~,
t~.r drv'9
In {k[obef 1995, sffnultaf'1~u~ 10 Ih~ PreSidenrs nam.... g of ""'lgue-I aolld Gllbcno AOOfUGUEL OOEJUELA In
t~ "'nnex 10 E<t!'Cutill'l!'
12'97&, OfAC named DROGAS LA RHlAJA.n iln SDN'T. As" re-lu1t o. this
~19nil'tlof\, It wai cut·off from the W.s" financl.lIJ s~lem and (o4ombllilr~ bilnks clMed OftOUP,S,lA RI08AJA'~
tl{(o~m\!L;orCJn~ .hl!' o~r.ttion to \'Yod on" cll~h 005i5 tlnd limlli"9 i~} ck.,lm9' with ot!w, bU5in~~\.
oro!?,
8y ",')rly July 1996. William ROORIGUEZ. tj~ son of Mlgoeol FIODAJGUE:.Z OREJUflA. lold
a (or.o",b~n news
nl.t9""In(·ll ••ll rh('i, -lJylil'~i!"S I.kto ORQGAS lA Rt61lJA ." m~ "'n ....~ lQ sh,,'! 0"'''',,: Con-K'qLJ~nlly, in M'
effort {O C!Vilde OFM. s,)nCljon~, OROGAS LA REIlAJA was Oi.t@ns>bly 'Illid to lIS 4.000 empl~ for
,.pprQ.im<lt ... ly $)] million unckr.., worl«... ·\ (OOp('f4CM.' "'lmt'd COPSERVlR. which ,,(It'mpll'd 10 opt'n lex.1'
biln,1i a<ccolJ"ts and ~1ablhh bu~lnen tiE'S wi1h U.S.finm. In A.pril !997, OFAC ~I§() ndlmoo COPSERVIR as an
Som.
4!'.... de U.S, YnCllom, However.OFAC's o"·l}Oi"9 .n~ ...stig'lIlQn of
, ...... ROC>RIGUEZ OFltJUELA organiZ.llloO('I .md DJ<OG.A.S lA REB!\JA, ,oh'e-aIM iI wmpl.... network ot fron.
(omp,)nll!'~ througl1oout Colomblill .Jnd nl!'ighborr... g counlfiei, Including ECVJOor. Peru. Ve-nelUo:!l.l.I>')n.:tm<l.
(O,UI Ak.l,;!' wo?lI,)5 fin.ancliiJ f!oots ,n the 8a~nl~s..he
ti~h Virgin Isltlnds. and ~p3h OfA( ~rgt!led rh.s
1""9(' network g( front comFMnocs In S<''oTO sl!'p"r~le d!."sil;lNtIOn actlom b"lw~n 1999 dnd 2004. fQl1<in9
dosure of a< counts i1~ comrne-tda1 dE')llng5 with d,ese (roots In 'I~ Unl.ed St.,le>
Plo1'f1phng sitJula.Khons !."Iw......h~'eb~ non-U.s. p~nl~s.
OROGAS lA R!:BAJ.A r.:ootirwed 10 try 10
a..
;"w
In attempts to reffiO'l'e the s.aoctlon§.. COPSH!\lIR filed c()mpiJllnts m both the Unl1:0C0d Stales anod Co4omb.an
Umt'rrd S.U1C'lo, tht~ h-der~! Di\tri(! CourT for th~ Oiwic1 01
(>urt~ in 1998 lind 2001, .~pC<tl ...~. In ~h('
Columbia dismissed COPSERVlft·s complain. In 1999 for liKk of stand.ng <lnG fililuH! to
,,,i.;.,,
~,aEli'
a cliltm. and
11><:· court\ d ..
wM "phdtl by th .. V.S. C;OVrl 01 "ppIMl~ (or ,h<' D.C. Clrcurt in 2000. Coop..,.,.:"'"
Mulr.activo. 211 f,Jd 195. In lOO3. lhe Colomboan ConstitutioNI Coort ruled a9a.in~t COP'SERVIR In its
c(>mpl.loinl. JlUowi"9 b.ankl. to clo~ bccOunt\ <>f SONh dweto fiSk..
OFAC'~ aC\l<C)ns Ollf?( the ytl'ars Ilg<liorut DROGA~ LA REBAJA .lnll tl!'lill00 ffonts promp(l!d the Colomf>.an
Governtl1tnl to InllIJl!l' Iu owrl usetrorft'itwre 01(> a9ilIOST the d.ug ~tor,," cllam, \,<,"ZI,lg " In Seplembi!1
2004. Shortly lIftl!'r lhe scizur\?, OFAC (,it .. bl'~ illi<:en}ing poIit), lhil. aliows U, S. ",pplll!'r~ t~ c"'9"9" in
tlans.x:lIon~ with the drug store chain. ,nilS pres.e'flrlng d,,~ (omp.1n)"~ (ommetcial voablilty under
Colombi,];" GO\ltlmmllnC 'ontr~ MlCi C'n~lJrl"g lhe conlinuro ('mp\oymmt Qf 4.<XlO drull ltorl.' work~~
22 TIMELINE
.'
_
'. fI .
'
_t.....aSl_
CQIcnWn
u.~D$""
~l.II
1J.tII'O", rrol(!'f
.ncuJr1l
c~
~r:ljIJSItt
October, 2003
".ol
• f\¥}O "',ISCG "I~ S;\ r,a
• C II 'i JCO" ·COI~1'0tl Ll<ll
s.A
• rO!>1p.rclill<.l<li1ora
• C,-,merCli~tJJI:loriJ Ct' l'rOOuC1m. Filrn..:tluli
CFJS llila
• C<1)iI5chtl<!rl;) l~ .k. d . COOPl'!r'!~"'d MU~IJC11'1a dt!
CO~fi:;IiJ"lat)(',o v $e1',"C10S)
• Cehrre). LId~
" • CQ(1'1!!t{;tillllMl\Jf a 01&'0 lIll
: • CO!1l<f';;l3lI.Wdora tntenet SA
.: • Conta..43 CQ(11Um:ac.DOeS SA
j • coopc.lJhlr (H:.3. c~aelVa Ileo Trdll~fO
i I\5(I(liKIo C{llomi;)Ia)
i • CQoperi!!1'Ia Mo!rcanlll <..{1Irntt!t<lna Coorftercol
; • COOj)Crawa M/J1'j,l::IN-<1 ~ C,janll:><J
. FQn1(Inti.VT105 UJ t a I=Qmem.;mo5~
• CrasesortilS l ~J .
• Ctedl~ 1,1)." a COOOOf!J!IV,) <lC 1<J'.~· <o ,.
, Cloon() P(lf,J el ~vgr<!W SO,;,)II
- ~\Vi:I MefCllfl'" De' ~"! Llda la ~a
CoopmP.l"'...ur, a;;,a Coorne,"ur)
• r;Cq,>efil(lVd IJ',,.l.adMJ elf; c.l\1'l'~JC. l)rogUl$1a
y
'Credf\l~
Drof.arco (oH:.a, ();ofarco)
SJnianOer coopdisan fp.~, a, CO<Jp<jIQ.an)
• Distnbvidora rtel '.'<lite E.U
• Farmal!'!1 !: .U lil,Ki1I 1alefijrrna E.U)
• G M C GI upa MaQt.ttlC:U:OO ColOtllbiano
• Imw.l MaDrl LlO.
• Incc-mn'lE'lce S A
• lnbi:lri!1c('b~ pn;Jfarmilll(}il
!
• LolbiJtiJ1c;n~
Y Comeltidll~adOtd dtl
MOO.:mnemos OfOCiJrrJ 5 A. ~a,kA DroOldll1
SA)
l . IlISlTItlUc>rJ'lL~ 01On111 Lloa
Cot.rdl.il SA
! • OI5'Ine~port Cor~rclilhl3OOr illnt{~nocc(',-~I
1
SA lil k a. l):;1r>e~POf1 S .A)
; 'I)rQrAd ~A
I . Fillmil 3.COO ltmlladJ
, •"anna XXll.t,;1.a
• lelTl:ll'ar l1aa, 4~,t a lMF ltoa.l
• M!lJ:mlarmB S~A
• 1I1dgt."fI ucla
• M<lpn C'le COOrihia I,tda,
• PI awl<! f Ii r't~ .a . Pq:rvidj,1la/)OrillortO CllOlill
¥Pil1aICJg:il)
I • FOgen!iil SA (li 'Ul, kJftm~ ~nt'l ICol~
I
i
FamtaC!1lJltC3S S,AJ
.) • Gener:l! 0.- Negoc,)S Y ArJIJ'·," ;;<;naC,CifI t tw
r.ak, iJ, G~U;j,)I
Gefit'tICO':) E5{!fJ('JIi.'S S.A. !~k, .j . (,;:'iI"'; S A..I
i . nnot;Ichilf.. Imt3;>,~ , lda
i.
I • ¥Jo\!ISletl!
Farm,)~12'UI '::J
• CC«tt.VilIIVa Mu!11JdM Ot5!tlbUIIlOlil Ot!
oe
~ • DI!lrlwldoril Sanar d~
vne.'ls f'hallT'.3C€<illq\.;'
SA
·CY,)MedtOSf.U
.
~
SA
• s',st<!l'nas Inlf$al~~ OC~\oG11f LtDa 0 .0; .0) , Sisva
Lwa)
-\01 Ph;lm"OC'\'illtda
·W.T"'J frade l!rJii
loean:
CoctJID.~, Paste
Offshore compantes
I> ,",'CrSlOlJeS 00011: Ci;f(l Ell
• fflet5lQl'leS KantCt'l Lr(1,a
2004
• .kll','J( l.:lk: i>. CUU~IilI'\'') de rr..tDa' ,)
I\5OClJt:lo ACli~'oilrl
• CI)Qrn;J\c05!.a !a bl, CoopP.ratwa M".'I,Klt'.'i)
de la Olst(lCcx;mllic051i) ll~ J
• Aie,;l J)r>tnuudC'A'I!!S I tda
•. Ana!. bQrlOSil IVies S.A I,lXa Ail£!'~ SA)
• CO~rogas UQi) la,k,a, COCJPt<,al,\'J
Mul!\l'5e,,"clO5 oe DrlJg'''15I~ LIre.!
• Coopifarmi.l [a,k.a, COQPelill;;.r,I M£hat;wa
d~ CQnlE!rtiallla.:ion ~' SI.'1"'(10$ d~
Col:)"I01al
'
• DISIOgef'l LtOlI (ali: a O<str\l).HJa';~
MeI:li(;atnenl05 Dt5logerl Ltllil)
• (JI:CIPll(l11T1D SA (CI.k.iI c.J:oPteTites
FarmaCeutlta:i f.tIOPlliln1'lil S,,,.
• Fo;IIl1.11lOOt SA
• Fi}tm<l'I~SQ!l Ltlla, l<J ~.iL O~raliva
MuLll,Jc111o'" oe [>,StnLlUO(]o F,lIIn.."VIS'[.In
uda./
• Famle4'Mo ltd<!
• GlaJllX Hoa.
• In~ It9! LtOO
• IVe; AlieSOfe~ t 1M
• ll100tta1Tllll ifj,\::a COOperatiVi), MulthlClrvil
llelLttorafl
• "".egpphi.ltn'.;,'I ~ 10<1. 1CQ.?pp'fil1lva Multla;:u'.-a
Ile Oi.,1l1buOOl MegaPhji1'11d LtrJ;1 ;
CDll1erCOOOI
• ~'(l)1 LIlla.
• 5eI'IIlClOs lOQJ51tCOS V MarXe!lns U!la . (aka
S L M I( ltt;1Q,)
• $olu(:jctte'" CCl\:Q!ra tlVi.tS
• Su se.!\IlctQs SOOO(\ao L!t:lil.
.I--C·Wcwellta.J la.lil T.KllICilS \;(It€'rtnaH~
TeCIl..7I'et Lt!la )
• TrimmUda
• 'tIMID Ltda,
• CA VJ. Cmp.."fatlcHl
NlJti!\IO Dta E.U.
• n."er:;ioncs samp/J EU
olJM!!!>Iones
• collar rna Peru SA
• ft'er5IiJnes Yp.')tI".tuc~ A Pol M una
• t.Uln.1 de C~l1P.bt~ y ~1J1t:oJJ:'0I~ SA
• Matenas Pr·!nit5, ... Sum.!"t,'5tf(",) S, .A
blkJrl.-J~
't
AgIUWljO)
, Cr..:}m;;n In S A
• ~tl!r\( '" ~C!SJt)11J1 E~)tKI;JI'.!iIIlJ Nl
COIomtJca ltrrltlJd.3la k ii . Asprc"<;ol Uffiltooa>
IiI\JIWq </W21'5
oInI .....,ulD
tcorto.... "'UlI)
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• Amf'llCa/lil d? CC'ST11ellCOS
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bIi!euIe
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• A,(jrniolstr<ldora 00 se",";~ 1,\Jf(~ (,,10m') S A
...... tr>IIdt<.
G'uii II!IIhc1q:
t~
eNI1'I"
0CtMl_
_ _ tlkXt'IOOFJ
• Codls.:! ta . ~ it C'X{:<!r(ltr.'a MultnC1~"il de
QlstnlJuclOll Y St!r\~~IOS At:lmn '!.1rdt~~''\J
~p/112
~
dfb'OI .........
'-lOO:IlIICk'l'llll1l
February, March 2003
n. fIOJIIlCjIJU
....
_"'OIOOI~
".1k~ ?t
M;Jlsum"," ,
• Produ!:~ Giro V Ck} ltIji)
• 1'1050\.<1 '( B;enestar S A
• Rental Inmobiarta $A
o~tiJclOlll¥., v OtWllJuCIOl'lt!~ Hui!fWS Y
• E5P.oonil Comer(J~'liIIl()(a ae MeIlIC<lITlf'!1'
w!>c,,'!flETlCOS S A. li;I, k~ . E:.pltlena SA.)
• Jon'''Igil de Co~t.a "iGt SA [ill: il In;erl. tm1i1
SA )
• LJtlFtDilfnenCJfk1 el,] ~i)rn'<llOOS SA M,k Ii
Latlntarm3£o$ 5 A)
·~mier~SA
A50cI.'lOOS S.A
• Seg!.NIr\l di;!l \Qllil ( ,u
• Sef'llltlO!. Futut<lln.iti!(JJ (;) .<,01 :'>ervlrU\\;;tJ
UCla)
• SeMOOS ~riJll' lJ
• ShaM!( SA
o
Si5tetnaS V ~'(IS 1ocnh:OS E'l'O'N
UnipetSOllil! ~a ,k. a Sl$eler;,
• SUperpn lUlil.
• TiaIICM COntittJies v Mmni'>l!ilIMlS (a k,a
feccntal
'll!r~ 'IA.>1l:!rIOOIdUIT"Wda (.1(.<1 . TeM!~
Wit)
TIMELINE
23
TYPE OF INDUSTRY
Bogota
COllstrucClunes Avendano
Gutierrez y Cia Ltda. (ak c
Conage Udal'
Construe clones Colombo-Andillas Ltda.'
Silarper SA
DlreCCIon ComerClal Y Marketing Consultona Empresa
unlpersonal (aka D.CM
Consultoria EU.)"l
Claudia Pilar Rodrrguez y Oa. SC S.'
Flduser Uda.'
Inverslones Geele Uda. (f.ka. Ganadera Caqueta clda)'
valores Corporallvos SA (a.k.a. valorcorp SA)'
cali
Agricola Humyarn
Ltda.'
Comerclallzadora
de Carnes del PacI-
fico Ltda.'
export Cafe Ltda 3
Andrna de Construcclones
SA (nJa. Interamerlcana de
ConstruCCIones SA)'
Constructora Central del Valle
Uda (ak a. CCV Udal'"
ConstruCiOI a Gopeva I Ida
Construetora Tremi Ltda.'
Imerameneana de Construeclones SA (fk.a Andilla de
ConstrueClones SA)'
Inversiones y Construcclones
ABC SA (f k.a. Inverslones
Camino Real SA)'
Inverslones y ConstrucClones
Atlas Ltda. (fka InverSlones
Mompax Ltda, f.k.a. Mompax
Ltda )'
Inversiones y ConstrUCCIO'
n2S Cosmovalle Ltda. (f k.a
Inverslones y Distr,buclones
Com pax Ltda; aka. Com pax
Uda )'
Reparaclcnes y ConstrllcclOnes Ltda. (aKa. Reconstruye
z
o
C)
w
c:::
Asesorras de Ingenierra
Emprese unlpersonal (aXa
ASing EU)'o
Asesorlas Economlcas Munoz Santacoloma E.U. (a.~ a.
Asems E.U.)H'
Asesorias Profeslonales
Especiallzadas en Negoclos
E.U. (a.ka Aspen EU)'H
Pl'Ospectlva Empresa Unlpersonal (aka. Prospectlva
EU)'O
Udal'
Valores Mobillarros de Occdente SA
2000 Dose E.U. (ak.a Doma E Mi'"
A G Representaciones Ltda 14
Amparo Rodnguez de Gil y Cia S. en C-'
Asesorras Cosmos Uda'
Internacional de Divisas S A. H,
InverSlones Ara Ltda.'
InverSlones Ca~lno Real S A I
invCrSlolles Capltall Ida "
,nverSlones Jaer Uda."
Inversiones La Sexta Ltda.'
'nversiones Miguel Rodnguez e HilO'
Inversiones Mompax Ltda (aKa. Mompax Ltda)'
Inverslones Mondragon V Oa. SC S. (f k.a Marrela de
Rodrrguez y Cia. S en C)'
Inverslones Rocrrguez Arbelaez YOil S. en C,
nverslones Rodriguez Moreno y Cia S en C'
InverSIOll8S Rod rl gue1 Ramirez YOil S.C.S.S. '
Inversiones San Jose Uda."
Illversiones y Comerclalizadora Ramirez YCia uda'
Inverslones y Dlstnbuclones Compax Uda. (ak a
Com pax Ltda, n.k.a Inverslones y Construcclones
Cosmovalle Uda )'
M. Rod:lguez 0 y Cia S en C J
Manela de Rodriguez Y Cia S. en C 3
Marrela Mondragon de R y Cia S. en C '
Mann Estrada Y Cia. S. en C S"
Mur'JOZ y Rodriguez y Cia. Uda.;
Obursatlles SA. (a.k.o Operaclones Bursctiles SA
Comlslcnista de Bolsa)"
Outside of Colombia
Bahamas
Ardlla-MarmoleJo, Ltd (f ka. Huyo-Glraldo, Ltd )"
GalavIz Corporation Ltd."
Sepulveda ·Iragorn Ltd"
British virgin
Islands
Kesman Overseas'·J
zaratan Corporation II
Florida (U.S.)
Panama
Spain
Footnotes indicate date of designation by OFAC.
(1)
(2)
(3)
(4)
(5)
(6)
21-0ct-1995
29-Nov-1995
5-Mar-1996
17-Apr-1997
30-Jul-1997
26-May-1998
(7) 8-Jun-1999
(8) 22-Feb-2000
(9) 22-Dec-2000
(10) 6-Feb-2003
(11) 21-Mar-2003
(12) 8-May-2003*
(13) 17-0ct-2003
(14) 17-Nov-2004
* Blocked Pending Investigation.
24
ORGANIZATION TABLE
Ash Trading, Inc. I.i
Internaclonal de Divisas S.A, LLC
Sepulvecra-Iragern, Inc. '"
Farfalla Investment SA"
11
TYPE OF INDUSTRY
Bogota
COllsultorla Salltafe E.Uw
Servlclos de la SalJana E,U laka Serbana E U)'"
Cali
Alerc SA ',1
ASPOlf del PaCIfiCO YCia, Ltda,'
Cllnlca EspeClallzada del Valle SA 11
Comerclallzadora Orobanca SA (a k,a Socir SA)'
Com:eco L1da, (a k,a, ComunicaCiones Temcas de Colombia Limltada)'
ComunlcaClon Visual Ltda, (ak,a ComvlS L1jaJ'
Contaclel CornUrilcaClones SA'
D'Cache SA'
Derecho Integral y Cia. Ltda.;
Dlstnbuldora Migil Cal, SA (aka, Mlgll; a.k.a. Dlstribuldora Mlgil '-tda; a.k.a.
Gran Cadena de Almacenes SA, a,k.a. Gracadai SA, n,k,a, Dlsm)'
FcndaCion VIVlf Me)Or (aka FVM)' 1
Fcndaser (a.k.a Fundacion para el Servlcio del Ser Integral; a,kc, eundaclan oe Call Para el Desarrollo Humano, a.k.a, Fundecalij"
Haydee de MUllOZ y Cia S, en C'
Hlelo Crlstal y RefrigeraCion Llda, (a k.a. Cuatro FriO) "
Industrial de GeSlIOn de Negocios E.U'
M C M YCia, I Ida '
M.O C Echeverry Hermanos L1da '
Maxltlendas Todo en Uno'
Media Malkewg E,U."1
OCClde1tai ComunicaCiones Ltda,<
parque Industnal Las Dellclas L1da."
ProduCCIones Carnaval del Norte y Compania lillltada'
Recltec Uda.'
RepresentaCiooes Zatza Ltda, 11
Soraya y Haydee Ltda,"
Supertlendas La Rebale (aKa Dlstnbuldura Mlgli Call SAY
Color 895 FM Stereo (aka
Radio unldas FM SA I;
Cor~oraCion OeponivJ America
(a k a Club Deportlv<, Arnencii,
Club America de Calli'
Creaclones Deportlvas Willington I
Ltda J
Farallones Stereo 91.5 FM (a k,a,
Radio Unldas FM SA)'
Radio unldas FM S,A (a~a
Color 895 FM Stereo and
Farallones Stereo 91 5 FM);
Revista del Anerlca Ltda,
Socledad Conerelal y Deportlva
Ltda,'
Sonar FM E L: Dieter \i1urrle
(a,k a, Plisma Stereo 89,5 FM,
Fiesta stereo 91 5 FMI'
Sonar FM SA (Ik a RadiO Unldas FM SA, Color Stereo SA,
Color's SA)
::c
m
C')
o
2:
Tobogon'
Outside of Colombia
Bahamas
British Virgin
Islands
Florida (U.S.)
Panama
II~versiones Carlem, S,L "
Imerslones Ciaupi S.L.'"
InverSlones Espa10las Fem,
car SL ,"
Customer Networks S.L
Inverslones Inmobilianas
Valeria S,L,10
Valores Corporativos Espanoles S L,"
10
Spain
Galena ce Portales, SA"
Rodnguez Y Tolbanos SA 10
Socledad Inversora en Proyectos de Internet, SA"
Jaromo InverSlones S,Lw
II
2000-Dodge S.L."
Cafe Andillo S,L.'"
CPV Sistemas Graficos S L, 'I,
_ _ _ _ _ _ _ --.--J _ _ _ _ _ _ _ _
------!
ORGANIZATION TABLE
25
armacoop
!\.~.'\ \.:
I
26
Business Logos
1\ [( '.' \
rn
FUNDASER
In the late 1970s, Jose SANTACRUZ LONDONO was first arrested by US. authorities on drug
charges. After being released, he continued his drug trafficking activities and by April 1980, he
had become a Drug Enforcement Administration ("DEA") fugitive. SANTACRUZ LONDONO
was ultimately the subject of four US. federal indictments for drug trafficking and money laundering.
By 1990, Jose SANTACRUZ LONDONO was considered to be one of the highest ranking
members of the Cali drug cartel leadership. He was also one of the most violent of the Cali
drug cartel leaders-he was wanted for the 1989 assassination of the former governor of Antioquia, Colombia, Antonio Roldan Betancur, and ordered the 1992 slaying of a New York investigative journalist, Manuel de Oios Uname.
Although his talent rested in managing international cocaine transportation networks, his organization was also involved in drug production, wholesale distribution, money laundering, and
playing a key role in the Cali drug cartel's intelligence collection effort. SANTACRUZ LONDONO's major US. wholesale cocaine distribution and money laundering operations centered
around the New York City metropolitan area, but his organization also operated in Miami, Los
Angeles, San Francisco, Houston, Las Vegas, and Chicago.
In June 1995, a federal grand jury in Miami, Florida issued a historic RICO indictment against
the leaders of the Cali drug cartel, including Jose SANTACRUZ LONDONO, and charged the
Cali drug cartel with the importation of 200,000 kilograms of cocaine and the laundering of $2
billion from 1983 through 1995. On July 4,1995, Jose SANTACRUZ LONDONO was arrested
by Colombian authorities in Bogota.
On October 24, 1995, SANTACRUZ LONDONO was designated by the President in the Annex to E.O. 12978. OFAC subsequently designated 20 businesses and 11 individuals involved
with the Jose SANTACRUZ LONDONO organization-almost all located in Cali, Colombia.
On January 11,1996, Jose SANTACRUZ LONDONO escaped from La Picot a prison in Bogota,
Colombia. In March 1996, SANTACRUZ LONDONO was killed outside of Medellin, Colombia.
As is often the case, family members and associates of SANTACRUZ LONDONO attempted to
preserve his organization's existing assets by changing the names of already designated companies. OFAC followed these attempted evasions and in July 1997, OFAC designated an additional
five front companies and five individuals acting for or on behalf of the SANTACRUZ LONDONO organization.
27
SECTION 2
OFAC designations and economic sanctions played a key role in the commercial and financial
isolation of the SANTACRUZ LONDONO businesses in Colombia, in publicly exposing the
SANTACRUZ LONDONO organization, and in increasing Colombian law enforcement pressure targeting SANTACRUZ LONDONO's associates and financial assets:
SECTION 2
In October 2003, the Colombian Government proceeded with the forfeiture of 201 properties that were held in the name oftwo front companies designated by OFAC as SDNTs and
controlled by Jose SANTACRUZ LONDONO and his family.
In April 2004, the Colombian Government announced that they had two ongoing asset forfeiture investigations against 644 properties of SANTACRUZ LONDONO. At the time of
the announcement, the investigations had already resulted in the forfeiture of 295 of these
properties.
In October 2005, the Colombian police seized 137 properties belonging to two front individuals for Jose SANTACRUZ LONDONO.
The SANTACRUZ LONDONO organization was seriously impaired as a result of Jose SANTACRUZ LONDONO's arrest, OFAC sanctions, Jose SANTACRUZ LONDONO's subsequent
death, and the Colombian Government's subsequent seizure and forfeiture of the assets and
companies belonging to the SANTACRUZ LONDONO organization, as recently as October
2005.
28
,IANTACRUZLONDONO ORGANllATIO'N
KEY FAMILY MEMBERS
AtnPtiltO
CASTRO DE SANTACRUZ
JOse
DeSlpllOn DtIte: 21-Oct-1995
SANTACRUZ LONDOf:lO
ReIMiOO!lhill: \We
C4!dlJla: 38983611
DeGeaSed: 5-Mar-96
Alias8$: 'Cllepe"
Date of DeSllflatlon:: 2Hkt·1995
POll: CtJlornbca
DOl: l-OCt-1943
cellula Number. 111432230
Passport Number: AS 149814
006: 13-Jan-11).t8
AnaMllena
SANtACRUZ CASTRO
~ion
DatI!: 21·Oct-1m
RelationshiP: DaugmAlf
CedUIa: 319291!O3
DOlt. 31-Mi!l-1965
IlICIlctments~ The subject 01 4
indictments 111 the U,s, including 1995
RICO incl!ctment of Cali cartel in
SOUthern District 01 Florida
AneStslConwIctions: Arrested by U,S
autllOritJeS in the late 19705,
Arrested by COlomblarJ aLJth()rities
In eQ~lla on .·JuI·l99S
(escaped 1Han-l996l, Muroored In
Mar-l9%,
... "
----------
KEY
BUSIN,ESS
ASSOCIATES
[]J
Hec:.tor fabio
BORRIERO QUlmERO
DeslgnaalOrl Date: 21-Ott-1WS
~.14945412
009: 10.feb-1948
Jqo
MAZUBW ERAZO
DesigJlaIIM Otlte: 2Hkl·l'995
Cellula: 2<I~5m
OOB: \,7·)ul,1936
~--------------~~------------------------------
I)
ORGANIZATION CHART
29
TYPE OF INDUSTRY
Bogota
Bogota
Aurealinmobillaria Uda.'
Inverslones Integral y Cia
S.C.A.'
Inverslones Santa Ltda.
(Ina InverSlones y ConstrucCiones Santa Ltda.)'
Miraluna Ltda. (Ika EI Paso
Ltda.);
Negoclos Los Sauces Ltda.
(Ita. Samaria LtdaY
Negoclos Los Sauces Ltda. y
Cia. SCS (f.ka Inmobillarii:l
Samall3 Udal'
PrevenClo1 y Analysis de
Rlesgos Previa SA (aKa
Previa SA)'
Samaria ArrendalTiento'
Samaria Canas'
Samarra Intereses'
Samaria Ltda (nka. Nego
cios LOs Sauces L1(Ja),
Footnotes indicate the date of designation by OFAC.
(1) 21-0ct-1995
(2) 30-Jul-1997
(3) 8-Jun-1999
(4) 7-Dec-2000
30
ORGANIZATION TABLE
Samaria Tlerras'
Sandrana Canas'
Socledad Constructora La
Cilscada SA (n k a Constrllcciones Astra SA, tk.a
Constructora La Cascada
SA)'
Urbanlzaclones y Construeclones uda. de Ca,l'
Helmer HERRERA BUITRAGO (a.k.a. "Pacho" HERRERA), considered to be one of the highest
ranking members of the Cali drug cartel leadership, started his criminal career selling relatively
small amounts of cocaine in New York where he was arrested in the 1970s. By the early 1980s,
Pacho HERRERA personally directed cocaine distribution and money laundering activities in
the New York City area on behalf of the Gilberta and Miguel RODRIGUEZ OREJUELA organization. By 1990, Pacho HERRERA had established his own family-run cocaine trafficking operations and had become a major supplier of cocaine for both the New York and South Florida
illicit markets. Pacho HERRERA was the subject of two federal indictments for drug trafficking
issued by the U.S. Attorney's Office for the Eastern District of New York.
In June 1995, a federal grand jury in Miami, Florida issued a historic RICO indictment against
the leaders of the Cali drug cartel, including Pacho HERRERA, and charged the Cali drug cartel
with the importation of 200,000 kilograms of cocaine and the laundering of $2 billion from
1983 through 1995.
On October 21, 1995, Helmer HERRERA BUITRAGO was named an SDNT principal individual by the President in the Annex to Executive Order 12978 along with three other leaders of
Colombia's Cali drug cartel. On March 5,1996, OFAC designated 19 companies and an additional 69 individuals acting for or on behalf of Pacho HERRERA.
In September 1996, Pacho HERRERA surrendered to Colombian authorities and was incarcerated.
During 1997 in three separate actions, an additional 24 entities and 58 individuals were designated by OFAC as fronts for the HERRERA BUITRAGO organization. which Pacho HERRERA
continued to run from his Colombian prison cell.
In November 1998, Pacho HERRERA BUITRAGO was murdered in a Colombian prison by
rival drug cartel leaders.
Family members and associates of HERRERA BUITRAGO attempted to preserve the organization's existing assets by restructuring or changing the names of companies designated since
March 1996. OFAC followed these attempted evasions and in June 1999, OFAC designated an
additional nine front companies acting for or on behalf of the HERRERA BUITRAGO organization.
The OFAC designations and economic sanctions played a key role in the commercial and financial isolation of the HERRERA BUITRAGO businesses in Colombia, in helping publicly expose
31
SECTION 2
the HERRERA BUITRAGO organization, and in increased Colombian law enforcement pressure targeting HERRERA BUITRAGO's associates and financial assets. Multiple companies,
including many of those designated by OFAC, and other properties have been seized by Colombian authorities and are pending forfeiture. For example:
In November 2003, a Cali judge ordered the forfeiture of 1,256 Pacho HERRERA properties, including apartments, ranches, warehouses, and commercial real estate, which were
estimated by Colombian authorities to be worth over $80 million.
SECTION 2
In September 2005, Colombian authorities seized 411 additional Pacho HERRERA properties, estimated to be worth more than $14 million.
In May 2006, two front persons for Pacho HERRERA were being prosecuted in Colombia
for unexplained income generated between 1998 and 2000 through their company. designated by OFAC as a Pacho HERRERA front in 1997.
The HERRERA BUITRAGO organization was seriously impaired as a result of OFAC's sanctions since March 1996, Pacho HERRERA's incarceration in September 1996, his subsequent
death in prison in November 1998, the Colombian Government's subsequent seizure and forfeiture of the assets and companies belonging to the HERRERA BUITRAGO organization, and
criminal prosecution of HERRERA BUITRAGO associates, as recently as May 2006.
32
HUBErtA BUITRAGO ORGANIZATION
KEY
FA:MILY
MEMBERS
~l
I
I
t.uMe.,
BUllTMOO DE HERR£IRA
U£CFA.SED
Helmer
HERRERA BUITRAGO
Desiptlon OGle' 5-Mar-l996
FlelattOnShlp MOther
CeduI<!: 29&U219
OOS.2&·Aug·192<1
Stella
HERRERA 9UI'TRAGO
OeSignMiOn Dale: 5-MIar-1996
RellttiOO$hrp: StSIeI
. oooula: 31143871
DCtl: ].iJc;'-W53
DiiCeaSad: 1991:1 (Mllroered in prfson)
AiiMe&: 'Pacoo'
DPJ of oestpatlon: 21-00-1995
POS: COlomb&a
DOB: 24-Aug-19S1
Qed_ NIlIRber: lb247821
Pa$Sp(lrt Numbl!lr: J2a701 1
Indktments~ subject of two fedt'!'fal
I~nts for drug trafficking in Ule
Eastern DIstrIct 01 New York; 1995
RICO IndICtment 0.1 Cali drug cartel
In SOOthem Distntt of FlorIda,
AmiStSfCorrwictions: Arrestw by U.s
iliuthofi\leS III NeW Vol1t In 1975 ~d
1979, 0111-sept-1996. sIJl'TenrJerecl to
COlom4:ltan autllDl'lues. Remaltled
incartera~ed until muroere<l 11'1 prisoo
in NOY·1998.,
SUlay
HERRERA IWlJiTRAGO
[)eSi&n.atIDn OOte: 5·Mar· 1996
ReiatlOllsfllfJ: Sister
Ceoof.a: :t1 , 16167
OOa:l1-NOv-1961
[]J
WIlliam
HERROA IUltlMGO
DesigJ'latlOI1 Dat" 1s.-,Jan·1991
RelatiorY;.hJp' Bralher
CA;dulQ 16716$87
OOB~ 29-Nov· t9b11
Alvaro
HERRERA BUITRAGO
De5ignalion OGte: 5-Mar- t996
ReleJx)nShip: /ll!Othef
Ceo!lula lG:!S!003
DOa~
10·();;t-1%5
NUbIa
BUITRAGO MARIN
DesisnatlOODale: $-Mar·t996
~t.1!lonsl'''p: Aulii
Cooula: 31132922
OOB: S·A.pr-1948
------------,-.-~------ .. ---~------_./
.,.------"-----_.-.._-'------------_._-------_._._--------------._----------,
KEY
BUSINESS ASSOCI.ATES
Phanor
ARJZABALEl'A ARZAYUS
~tion
OOLf!o: 1S<Jiln·t997
Cooula: 231953:)
!::lOa: 12·l\IIay-,m
JII81111 Qul(il$
MONTOYA MAJmNflZ
DeSigrtatiOn D<ll;e. I$-JM-1m
Cooula: W!Ot415
008:
11·0Ct·~%b
RltardiJ .,lose
- UNAfU;$. REYES
~tlOn Dale !i.-Mat-1W6
~.1644G'~
DOll: a-MiIr, 1955
I
Rafael AJllberto
JOse-Isidro
Della Nhota
CULlAT WG$1R
IAlIMES RIVEM.
RAMIREZ CORTes
0eSigt'l3(;JOn DWW:
lS,.jIl~HiI97
C!!OOl!J: ,.962523
DOS: 23<lCt·1940
~tiOn DaLe: 5·Ml>f·1W6
~:1~
008:7~-1949
DeSlgnMlOO 0!I!1!: S·MaI-lm
cedula: 38.9013729
OOB: 2!}-Jan'1959
I
I
I
j
-)
ORGANIZATION CHART
33
TYPE OF INDUSTRY
Central Colombia
Colomblana de Cerdos Ltda
(a k.a Colcerdos Uda )"
ComefCIAllzadora de Carnes
Uda. (a.ka Comecarnes
Udal"
Matildero Metro~olltano Ltda
Pereira
valle del Cauca
Palmira
Valle de Oro SA
Cali
Call
Agropecuarla Betania Uda
(n.ka valladares Uda)1
Agropecuafla I a Robleda
SA (n k.3. Manaure SA)'"
Agropecu3n3 y Reforestadora Herrebe Ltda (nk a.
Invers ones Geminis SA)'
Cnadero de Pollos EI Rosal
SA (fk a Industria Avicola
Palmaseca SA)'
Ganaderlas del Valle SA"
Industra AVlcola Palmaseca SA (nka Criadero de
Polios EI Rosal SA)'
Industria Maderera Arca
Uda.
Inverslones Agrlcolas
AVlcolas y Ganaderas La
Carmel Ita Uda 2
InverSlones Geminis SA
(IKa. Agropecuana y Reforestadora He'rebe LtdiJ.J'
InverslOnes y Construeclones Valle SA (aka
Incovalle SA)'
Manaure SA (fka Agro;JeCLIarla La Robleda SA)'
Mercavlcola SA'
Procesadora de Pollos Superior SA (Ika ComerClalIzadora Internaclonal Va lie
de Oro SA)"
Protluevo de Colombia
Udal
Valladares Uda (f.k.a. Agropecuana Betania etda.)'
z
o
(!)
w
c:::
>
IX)
J
:::;:a
- - --------- - - - --------1
J---Footnotes indicate the date of
I
I - --designatrorrbY-OFAe:--- -1
, (1) 5-Mar-1996
I (2) 15-Jan-1997
E
34
17 -Ap r-1997
ORGANIZATION TABLE
(4) 30-Jul-1997
(5) 8-Jun-1999
(6) 22-Feb-2000
Concretos Cali SAl
Constructora Dimisa SA I
Constructora EI Nogal SA
(fka Construexlto SA, Cone
SAJI
Construexlto SA (a.k a. Cone
SA)'
Construvlda S.A '
DlstnbUidora de Elementos
para La ConstrUCCIon SA
(ak.a D'elcon SA)"
SOCiedad Constructora y
Admlnlstradora del Valle Ltda.
(aKa. Socovalle Uda)1
Importadora y ConerClal:zadora Ltda. (a.ka Imcomer
LtdaY
Interventona, Consultof13 y
Estudlos Ltda (ak.a Ineoes
Udal'
Servlautos Uno A 1A lImltada
(aKa. Dlagnostlcentro La
Garantla)6
Valle Communicaclones Ltda
(aKa Vallecom Uda.)'
VlaJ€S MerCUriO Ltda. 1
Ltda.'
l
Constr Jetora Altos del Retlro
Uda
__ _
Adminstracion Inmobillana Bolivar SA'
Alkala A,oclados SA
(Ik,a. InvllereSi-l S.A )1
con'parlla Admlnlstradora de Vlvlenda
SA (fka. Inverslones
Geminis S.A)"
Consultoria Empresanal
Especlallzada Uda.<
Inmobillana Bolivar
Ltda.'
Inmobiilaria U.MV SA'
InverSlones Ario Ltda.'
I~verslones Betanla
Uda. 1
Inverslones Culzat Guevara y Cia S.C.S l
Inverslones EI Gran CrIsol Ltda. iLk a. W Herrera
y Cia. S en C.)S
Inversiones EI Penon
SAl
InverSlones Invervalle
SAl
Inverslones Herrebe
Ltda.'
Inverslones Villa paz
SA'
Invheresa S.Ai
San Mateo SA. (f.k.a Inversiones Betanl8 Ltda,
Inversiones Betania
SA)"
San Vicente SA (fka.
Inverslones Invervalle
SA, Invervalle SAY'
ServiCios InmoblllafiDS
_
__
l
Inmobdlarla Gales Uda
_ __
comerelal de Negoclos
Claridad y Cia S en C'
ComerClallzadora Experta y
Cia S. en C ..
Since 1979, Joaquin Mario VALENCIA TRUJILLO and Guillermo VALENCIA TRUJILLO
have been active in narcotics trafficking. The VALENCIA TRUJILLO organization has had a
close relationship with other Cali drug cartel leaders, such as Helmer HERRERA BUITRAGO.
Joaquin Mario VALENCIA TRUJILLO and his brother Guillermo VALENCIA TRUJILLO have
also worked with other drug trafficking organizations led by Juan Carlos RAMIREZ ABADIA,
and Ivan URDINOLA GRAJALES.
In August 2002, Joaquin Mario VALENCIA TRUJILLO was indicted by a federal grand jury in
Middle District of Florida for allegedly moving more than 100 tons of cocaine, estimated to be
as much as 20 percent of the cocaine entering the United States each year.
On January 31, 2003, Joaquin Mario VALENCIA TRUJILLO was arrested in Bogota, Colombia
on U.S. drug trafficking and money laundering charges, based upon his control of a large-scale
maritime drug trafficking operation centered in Colombia that threaded through Chile, Ecuador, Mexico, and Panama to the u.s. cities of Tampa, Miami, Houston, New York and Los
Angeles.
On March 27, 2003, seven weeks after the arrest of Joaquin Mario VALENCIA TRUJILLO,
OFAC designated Joaquin Mario and Guillermo VALENCIA TRUJILLO as SDNT principal
individuals along with 28 individuals involved with supporting their financial network. In addition, 28 front companies in the VALENCIA TRUJILLO's financial network were named, including a prominent paso fino horse farm, Criadera La Luisa, an industrial paper manufacturer,
Unipapel s.A., a plastics company, Geaplasticos S.A., a maritime services provider, Gran Muefle
S.A., and five financial firms, Campania de Famenta Mercantil s.A., Credisa S.A., Finve s.A.,
Gestara Mercantil S.A., and Unidas S.A., all located in Colombia. OFAC worked closely with
the u.s. Attorney's Office for the Middle District of Florida and "Operation Panama Express," a
multi-agency drug task force based out of Tampa, Florida, in connection with the designation of
Joaquin Mario VALENCIA TRUJILLO and his financial network.
In March 2004, Joaquin Mario VALENCIA TRUJILLO was extradited to the United States
to stand trial. In October 2006, he was found guilty by a federal grand jury in Tampa of drug
trafficking and money laundering charges. On February 1, 2007, the court sentenced Joaquin
Mario VALENICA TRUJILLO to 40 years in prison and ordered him to forfeit $110 million.
OFAC designations of March 27, 2003, helped identify the VALENCIA TRUJILLO business
empire. The following are examples of how some members and entities of the VALENCIA
TRUJILLO organization were isolated commercially:
35
SECTION 2
Criadero La Luisa E.Lf.. an internationally-recognized breeder of paso fino horses. maintained an average of approximately 300 horses. some of which are worth more than $1
million. Criadero La Luisa sold highly-valued horse sperm for breeding to overseas clients,
especially in the United States, which accounted for the majority of the horse sales and
breeding service business. After the OFAC designation, these commercial and financial
relationships with U.S. persons were shut down.
SECTION 2
Unipapel S.A., a large industrial paper company located in the Yumbo area outside of Cali,
Colombia was principally run by Guillermo VALENCIA TRUJILLO. Unipapel SA. was
forced to close after the OFAC action and was unsuccessful in its attempts to find a buyer.
The arrest in Colombia and subsequent OFAC designation of Joaquin Mario VALENCIA
TRUJILLO shocked the public who knew him as a prominent breeder of paso fino horses
and his wife, Luz Mery TRISTAN GIL, as a national skating champion in Colombia (see
"VALENCIA TRUJILLO ORGANIZATION: EXAMPLES OF FAMILY MEMBERS INVOLVEMENT" box on the next page).
OFAC designations helped publicly expose the VALENCIA TRUJILLO organization and played
a key role in increased Colombian law enforcement pressure targeting VALENCIA TRUJILLO's
associates and financial assets. The Colombian Government has seized approximately $25
million in assets of the VALENCIA TRUJILLO organization, including many of the companies
already deSignated by OFAC. The Colombian Government is moving these seizures to forfeiture proceeding:
In February 2003, the Colombian Government seized the paso fino horse breeding farm
Criadero La Luisa and more than 300 paso finos horses belonging to Joaquin Mario VALENCIA TRUJILLO. In addition, they seized his residence in Cali, Colombia (valued at over
$7 million) in which they discovered over 54 valuable works of art and armored vehicles.
In March 2003, the Colombian Government seized an additional 35 properties belonging to
Joaquin Mario VALENCIA TRUJILLO, including 8 companies designated by OFAC.
In August 2003, Colombian authorities seized three large farms belonging to the VALENCIA TRUJILLO organization valued at approximately $500 thousand.
In June 2005. Colombian prosecutors requested forfeiture of over $13 million in previously
seized assets belonging to Joaquin Mario VALENCIA TRUJILLO, including more than 300
paso fino horses, 10 companies, over 20 properties, vehicles and works of art located in the
cities of Cali, Jamundi, Buenaventura, Candelaria, Calima and Yumbo in the Valle region of
Colombia.
36
-
-
------
--------------- - - - - - - - - - - - - - - - - - - - - ,
Prior to designation, joaquin Mario VALENCIA TRUJILLO, by all appearances, was a prominent and
respected businessman. However, his substantial business empire was created using illicit drug proceeds
and was run by trusted family and friends (see underlined names below). These businesses burnished his
reputation locally and internationally and gave him ready and immediate financial and commercial access
around the world. He used this access in part to facilitate his drug trafficking operations. OFAC's designations not only helped dismantle his businesses, but also struck at these key managers of his businesses, who
are now isolated in the Colombian business and financial communities. The following are examples of how
he involved family and friends in his operations:
SECTION 2
Unipapel SA. Joaquin Mario and Guillermo VALENCIA TRUJILLO's main joint financial holdings
centered around the company Unipapel S.A., a large industrial paper company located in the Yumbo area
outside of Cali, Colombia. Unipapel S.A. managed the payroll for a large security contingent that protected
joaquin Mario VALENCIA TRUJILLO's family and corporate network Agueda VALENCIA TRUJILLO,
joaquin Mario's sister managed the day-to-day operations of Unipapel S.A. from Cali and is also involved in
the corporate management of several other front companies.
Criadero La Luisa E.U. The crown jewel of Joaquin Mario VALENCIA TRUJILLO's financial investments
is his paso fino horse breeding farm. Juan Pablo GAVIRIA PRICE, who has worked more than a decade for
Joaquin Mario VALENClA TRUJILLO, managed Criadero La Luisa E.u. Some reports suggest that the
farm maintained about 300 horses. At the time, some of these horses were worth more than $1 million a
piece, and Criadero La Luisa E.U sold highly-valued horse sperm for breeding to overseas clients.
Gestora Mercantil S.A. Carmen VALENCIA TRUJILLO, another sister of Joaquin Mario and Guillermo,
managed the financial aspects of the real estate company Gestora Mercantil S.A.
Unidas S.A. Agueda, Adela, and Carmen VALENCIA, sisters of Mario VALENCIA, ran Unidas S.A., a
financial loan company. Mario VALENCIA provided the start-up money for this firm.
Gran Muelle S.A, Guillermo VALENCIA TRUJILLO ran this Buenaventura-based maritime agency.
LuzMery TristanE.U. Luz Mery TRISTAN GIL, Joaquin Mario VALENCIA TRUJILLO's wife and former
roller skating star, owns Luz Mery Tristan E.u., a roller skating promotion and merchandise company which
includes the Club Deportivo Luz Mery Tristan, a large skating complex in Cali, Colombia.
37
VALENCIA TRUJILLO ORGANIZATION
KEY FAMILY MEMBERS
Joaquin Mario
VAlENCIA TRUJ.UO
Aliases: "EI JOYCfl"
Date of Des~natlon: 27·Mar·2OO3
POB: cali. Valle, Colombia
DOl; 21-Aug-1957
ced* Number: l6626888
Passport Number /ltC03OO71
Indictments: Aug-2002: Mlddh?
DtWfct of FlorKla.
ArTestSIComric:Uons: 2S·!.ao-1979
arrested Ifl Bogota, COlomtllil lor drug
trafficking. Arrested In Bogota.
COIOfl\()13 on 31-.1an-2003 purSlXJrlt
to US federal Indictment m the
Middle District of FkiriC1a. EXtriX1lleO
Mar-2004 to the l!Ilrted Stales. Oct-2006.
fouM guilty of drug tJafll~.ng il11d
money lauilderlilg.
Adela
AgUeda
VAlENCtA TRWILLO
VALENCIIA TRWILlO
(ie5lgllilLQlllil\e' lH,"<!r· 2003
lJeslgnat1Ol1 DlJte· 27·Mnr-2003
Relationship SlS1er
lle~llOn5tbp: Sister
(;e(M1. J17n251
CedIJI.a 389435.7.4
ooe
009 10-Aug-19S9
2O-0c1-1954
carmen, emilia
VAlENCIA nlUJltLO
oesigna4M3f1 oate: 2Hllar-2Q;l3
Ret.:JtIonSl'lIp_ SiSler
croula: 31244070
008: 8·Apr· 1952
II
consuelo
Alvaro
TRISTAN GIl.
CASTANO CASTANO
VICTORIA CASTANO
I:*.signatuJn Date ?7-M;)r-2Q:l:l
DeslJi1l<ltiOn D<lte: ?7-M;)r-1nJ,3
FUlialJOnstllP: Will'! Of GI,""-Jtmo ~rlC13
RelallOt'lShlp. Etro[l:.er-m-lilW
Cooula 149".:13328
luzMaria
!A,'S-gnalion D3te 7.7 M/lr-2003
R,,~,tlon'ilup
',We of JCliKlUI'1 M<I1IO Vi:JlenCla
cooula 3189S8S2
DC6 lA.:J!·1963
KEY
Cedula. 2'M1r.l435
008: 25--Feo·1951
BUSINESS
Jose Freddy
MAFLA POLO
Design.l\1QI1 0il!E' 27·Mar-2OOJ
Cet:lula: 16689935
ASSOCIATES
Juan Pablo
GAVIRIA PRICE
DL~sJ~illJ1HAt {),Jt~,
(('{Jul.)
2l·\.1dl-:v)3
li:63'iOO1
OOB Q·Jul·WoO
Guillermo
VALENCIA TRUJIlLO
Fablo Heman
FRANCO VALENCIA
Deslgn<lvOll Pale 27-Mar-7.003
CeOul;3 6076743
DOB: 6-i)e(-1940
ABases: None
I).aW of Designation: 27-Mar-03
POB: Cal!, vaHe, COlomoo
Cedula Numb«: 14942909
Freddy
fllVERA ZAPATA
DesignilliOn ~Ie: V-Mar-2OOl
cedul'i" 16601%3
Goozalo
CALDERON C01.LA20S
DesiglliitiOfl Date: 77-Mar-2Cm
cellula: 14989778
008: 29-5ept-1952
Sonia
AGUILAR BERNAl
Ol..'SlgnaYIOfI Date: 27-Mar-2C03
Ce-dula
31~264
--------,/
38
ORGANIZATION CHART
TYPE OF INDUSTRY
North Coast
Santa Marta
Bananera Agricola
SA
Bogota
Flnve SA (f.k.a.
Financlera de Inversiores Ltda.)
Todobolsas y Col 50bres (f.k,a, Rodriguez
Carreno Ltda, Todo
Bolsas y Col sob res)
Cia. Minera Dapa SA
Servlclos Aereo de
Santa[l(j,,[ E.U. (a k.a.
SAS. EU)
Cia. Andlna de Empaques Ltda. (a.ka.
Coempaques Ltda.)
Geoplasticos SA
(rk.a, Colomblana de
Bolsas SA)
Occidental de
papeles Uda. (aka
Occlpapel Udal
Constructora pynzar
L'da.
Luz Mery Tristan E.U.
(aka Club Deportivo Luz Mery Tristan
World Class)
Mira E.U.
NOvaplnskl Ltda
pyza E.U
Cali
Compania de Fomenta Mercantll SA
Credisa SA (Ika
Comercializadora
Automotnz SA)
Gestora Mercantil
Crladera La LUisa
E U (I ka. Industrlil
AgropeCUiJrliJ Santa
Elena Ltlla)
Granla La Sierra Ltda.
z
S.A
J. Freddy Mafia y Cia
SCS
Un,das SA
o
~
w
II::
Valle de Cauca
>
Buenaventura
CD
Dragados y Muelles
Gavlota Uda.
Gran Muelle SA
Trinidad Ltda. y Cia.
S.CS
Yumbo
Boisak E.U. (ak.a
Boisak SA)
Unlpapel SA
Southwestern Colombia
ConstruCCIones
Progreso del Puerto
SA (aKa. Conpuerto
SA)
Puerto Tejada
J
I
Popayan
----------'---
All DeSignated
L
by OFAC
~
_~
parque
ProgresoIndustrial
SA
Valor Ltda. S.C.S.
_
---------"----_-'---------L----_
as SDNTs on 27·Mar-2003.
+
-~, CRIADERO LA LUISA
E,U.
La Cankor.. D.rI c.NlJo d4' P,m ColombliJnO
Un;pap~"Olomb"
ORGANIZATION TABLE
39
---"
-/
8 BaITJnquHJ~
o
San Andres
MalJlllbo /
J
// /,
•-- 1--\
\
\,
"~
/'
,)
,!
/'
.J~
I,
(
\'''
Ansermanuevo
""-,--''-..,
Alcala
,
TOC~ ___~~~~_~J~~~ -' rfereira. ~.
A,
La Un1on~\nnellla H
Bllena~~ntura
,.Bogota
Oru2lbague
~/umbo
"-0
Cali --0
o
Neiva
Pasto
o
,f
.'
//
;
,/
-~
(V
40 MAP OF COLOMBIA
Cities in bold mark Locations of North Valle drug cartel businesses.
The North Valle drug cartel, so named because its leaders are from the northern part of the
Valle del Cauca region in Colombia, is considered one of Colombia's most powerful cocaine
trafficking organizations. U.S. and Colombian law enforcement have investigated the assets
of Colombia's North Valle drug cartel since the early 1990s. It began as a splinter group of
the Cali drug cartel following the arrest and surrender of several Cali drug cartel leaders in
the mid-1990s. The North Valle drug cartel has now overshadowed the Cali drug cartel. The
North Valle drug cartel uses brutality and violence to further its goals. Members of the drug
cartel have murdered rival drug traffickers, buyers who failed to pay for cocaine, and drug cartel
members whose loyalty was suspect. Today, the North Valle drug cartel is a loose confederation of various drug trafficking families.
The North Valle drug cartel's criminal activities led to a May 2004 US. federal RICO indictment against its leaders in the US. District Court for the District of Columbia. The 2004 RICO
indictment claims that the North Valle drug cartel is responsible for one-third to one-half of
the cocaine that reaches the shores of the United States. According to the indictment, the
cartel worked together with various Colombian drug transportation specialists to transport
multi-ton loads of cocaine from Peru, Colombia, and other locations within South America to
Colombia. From Colombia, they shipped the cocaine loads to Mexico via speed boats, fishing
vessels, and other maritime conveyances for ultimate delivery to the United States. Since 1990,
the North Valle drug cartel has been able to export more than one million pounds of cocaine
worth more than $10 billion to the United States via Mexico.
In order to protect its distribution routes and cocaine laboratories, the drug cartel employs the
services of the Autodefenses Unidas de Colombia ("AUC"),l1 a paramilitary group in Colombia
that has been listed as a Foreign Terrorist Organization by the US. Department of State and
a Tier I drug kingpin by the President pursuant to the Foreign Narcotics Kingpin Designation
Act. The AVC also provides persunal protection for North Valle drug cartel members and associates.
OFAC investigations in recent years have documented the extensive network of agricultural,
aviation, cattle, commercial fruit production, investment, mining, pharmaceutical, and retail
companies set up by North Valle drug cartel leaders and their front individuals.
41
SECTION 3
In the 1980s, Ivan URDINOLA GRAJALES became involved in narcotics trafficking. By 1989,
Ivan URDINOLA GRAJALES was managing a major drug trafficking operation that initially
focused on cocaine, but would eventually include heroin.
The URDINOLA GRAJALES organization was associated with the groups that would become
known as the North Valle drug cartel. With Ivan at the helm, the URDINOLA GRAJALES
organization increased its power through violence and close ties to other powerful traffickers from the Valle del Cauca region. For example, Ivan URDINOLA GRAJALES was married
to Lorena HENAO MONTOYA, the sister of SDNT principal individual Arcangel de Jesus
HENAO MONTOYA.
In 1991, Ivan URDINOLA GRAJALES was indicted on drug trafficking charges in the Southern
District of Florida. Julio Fabio URDINOLA GRAJALES, Ivan's brother, was also a significant
drug trafficker twice indicted on drug trafficking charges in the Southern District of Florida in
the early 1990s. Colombian authorities arrested Ivan URDINOLA GRAJALES in April 1992.
Julio Fabio URDINOLA GRAJALES surrendered to Colombian authorities in 1994. However,
they continued to control their organization from prison.
Although, Julio Fabio URDINOLA GRAJALES, who confessed to drug trafficking, was sentenced to 17 11 years prison in Colombia, he received a sentence reduction and was released in
1998.
On February 22,2000, OFAC deSignated Ivan URDINOLA GRAJALES and Julio Fabio URDINOLA GRAJALES as SDNT principal individuals, along with two associated individuals,
including Lorena HENAO MONTOYA, Ivan URDINOL~s wife, and six companies.
In February 2002, Ivan URDINOLA GRAJALES died in a Colombian prison. His brother, Julio
Fabio URDINOLA GRAJALES, was murdered in October 2004 in Bogota, Colombia.
On May 11, 2005, OFAC designated a group of companies associated with the GRAJALES
LEMOS organization that had close ties with Lorena HENAO MONTOYA.
OFAC designations and economic sanctions have played a key role in financially isolating the
URDINOLA GRAJALES businesses, in publicly exposing the URDINOLA GRAJALES organization, and in increased Colombian law enforcement pressure targeting URDINOLA GRAJALES' associates and financial assets:
In April 2001, a little more than a year after the OFAC designation of Ivan URDINOLA
43
SECTION 3
GRAJALES and his organization, a major Colombian daily reported the Colombian Attorney General's office initiated an asset forfeiture case against Ivan URDINOLA GRAJALES
and seized five of the six companies designated in 2000 and 116 of his other properties and
holdings.
In January 2005, Lorena HENAO MONTOYA, an SDNT individual, pled guilty to bribing
Colombian officials charged with seizing the assets of her deceased husband Ivan URDINOLA GRAJALES, who had been named as an SDNT principal in February 2000. She was
sentenced by a Bogota judge to a prison term of four years and nine months, which she is
currently serving.
SECTION 3
In May 2005, OFAC designated Raul Alberto GRAJALES LEMOS, a cousin of Ivan URDINOLA GRAJALES. It was discovered that in the 1990s Ivan URDINOLA GRAJALES obtained silent ownership of agricultural companies, which were managed by the indicted
trafficker Raul Alberto GRAJALES LEMOS. Lorena HENAO MONTOYA inherited these
companies following Ivan's death. Approximately one month after the designation, Colombian authorities seized these agricultural companies, which were estimated to be worth
more than $100 million.
In May 2005, Raul Alberto GRAJALES LEMOS was arrested by Colombian authorities on
charges of money laundering related to the URDINOLA GRAJALES organization.
The URDINOLA GRAJALES organization was seriously impaired as a result of OFAC's sanctions, Ivan URDINOLA's death, the death of his brother Fabio URDINOLA, and the Colombian Government's subsequent seizure and forfeiture of assets and companies belonging to the
URDINOLA GRAJALES organization.
44
UIICINDLA GRAJALES ORGANIZATION
I
!i
W
i
"t
KEY
I
FAMilY
MEMBERS
UE(;fASED
miro Ivan
UIDINOLA GRAJALES
oeceasecI Feb- 2002
Date of Designation: 22-Feb- 2O.XI
poe: COIombca
lOrena
HIENAO MONTOYA
Dest&naliOn Date: 22-f.eb-2000
DOll: '-Dec-196(l
Cedula Number: 94190353
Passport Number AD 12'9003
Indictments. 9-Aug-1991
~lai;JOnship: W~ of IVan urdinola Or3~
cedilla 3198tS33
000: 'HJc.t·l968
by u.s
SOiJltlem DIStrict of F10riaa
~ctlClPS:AI'reS1ed by
ColorltiBn Police on 26-Pt4Jr-199'lRemainecllllCarcerated until his death
In Feb-2002.
KEY
U:ECfASF.J)
B US I N E S S AS SOC I ATE S
Melba
sonia
TREJGS AGUILAR
JuliO Fabio
!)eSIgnation Cine; 22·f"tb.2IXO
ceduIo.: 66615fn1
URDINOLA GRAJAlES
TREJOS AGU"-AR
OiE:9gnatiOO oete; ll-MBV·2005
cedlJ\t. 29991503
JUlio Fabio URDtNOLA GRAJALES
Dece8sed: 2004
Date of Designation: 22-Feb-2000
POI: COlOmbia
Cedlilla Numb«'- '6801454
Indictments: 3Q..OCt·l992 JJlO
13-Aug-1993 by US soothern DI~tnct
or Florida
-~.-~-
-------~-----
------- --- -- --- --
----~------~- -~-
ArrestslConvictions. SutrencJered to
COklmbian 3Uttlorrti~ in 1994.
Released from COlombian prison jn 1998_
Murdered in Bogola. CcAombla,
OCt-2004.
ORGANIZATION CHART
45
TYPE OF INDUSTRY
Valle del Cauca
La Jnlon
Casa Gra]ales SA'
Frutas Exotlcas Colomblanos SA (aka Frexco S.A ),
Gralales SA'
Los Vlnedos De Getsemanl
SA (aka. Hotel Lost Vlneoos; a.k.a. Valle lindo Hostal
Restaurdrlte),
z
0
~
w
0:
>-
co
Tulua
Ibadan Uda.'
Cali
Call
AgrOlnvcrsora Urdlnola
Henao y Cia SCS'
Explotaciones Agflcolas y
Ganaderas La Lorena SCS'
Indust'Jas Agropecuan3s del
Valle Ltda.'
Inverslones EI Eden S.CS'
Footnotes indicate date of designation
(1) 22-Feb-2000
(2) 11-May-2oo5
Constructo'a e Inmobillarra
Urvalle Cia. Ltda.'
Constructora Universal
L:da.'
Panamericana Uda.'
by OFAC.
Glajalel
,
I (.
';
,----
OR(3ANIZATION TABLE
_.""
I
' / {, (/ ( )
..•..
I(f I, /
46
Inverslones Aguila Ltda.'
Inverslones Grame Ltda l
Inverslones LOS Posso Ltda.
S.CS'
InverSlones Santa Cecilia
S C S.2
Inversiones Santa MOllica
Uda.'
Socledad De NegoCios San
Augustin Uda.'
Page 1 of 1
May 2, 2007
HP-387
Treasury Assistant Secretary Swagel to
Hold Monthly Economic Briefing
US. Treasury Assistant Secretary for Economic Policy Phillip Swagel will hold a
media briefing to review economic indicators from the last month as well as discuss
the state of the U.S. Economy. The event is open to credentialed media:
Who
U S. Treasury Assistant Secretary Phillip Swagel
What
Economic Media Briefing
When
Friday, May 4,2007, 10:00 a.m. (EDT)
Where
Treasury Department
Media Room (Room 4121)
1500 Pennsylvania Ave, NW
Washington, DC
Note
Media without Treasury press credentials should contact Frances Anderson at
(202) 622-2960, or frcwu!s;:wdelsoI11[Yclo.lreas qov with the following information
name, Social Security number and date of birth.
http;//www.treas.gov/~:1/reletlEteBlfl[)387.htm
6/7/2007
Page I of I
10 view or pnnt tne /-,UI- content on tnlS page, C1ownloaC1 the free AC1obe® Acrobat® HeaC1er®.
May 4,2007
HP-388
Treasury Economic Update 5.4.07
""We see hopeful signs that growth will pick up through the year; business
investment looks set to rebound, consumer spending is sustaining growth and
strong global activity should propel exports going forward. "
REPORTS
•
Treasury Economic Update 5.4.07
http://WWw,treas,gov!presslreleases/hp388,htrn
811712007
r-'.
"J
TREASURY ECONOMIC UPDATE 5.4.07
""'We see hopeful signs that growth will pick up through the year; business
investment looks set to rebound, consumer spending is sustaining growth and
strong global activity should propel exports going forward."
Assistant Secretary Phillip Swagel, May 4, 2007
Job Creation Continues:
Job Growth: 88,000 new jobs were gained in April and nearly 2 million new jobs have been created
over the past 12 months. The United States has added 7.9 million jobs since August 2003 - more new
jobs than all the other major industrialized countries combined. Our economy has seen job gains for 44
straight months. Employment has increased in 47 states within the past year. (Last updated: May 4, 2007)
Low Unemployment: The unemployment rate of 4.5 percent is among the lowest reading in six years.
Unemployment rates have decreased or held steady in 36 states and the ~istrict of Columbia over the
past year. (Last updated: May 4, 2007)
The U.S. Economy is in Transition to a Sustainable Growth Path:
Economic Growth: Real GOP growth was 1.3 percent in the first quarter of 2007, and 2.1 percent
over the past 4 quarters. (Last updated: April 27, 2007)
Household Spending: Consumer spending-up 3.8 percent in Q1-remains strong and is expected to
provide a solid foundation for faster economic activity in the rest of 2007. (Last updated: April 27, 2007)
Business Investment: Capital investment turned up in the 15t quarter, boosted by outlays for
commercial structures and equipment and software. (Last updated: April 27, 2007)
Tax Revenues: Tax receipts rose 11.8 percent in fiscal year 2006 (FY06) on top of FY05's 14.6
percent increase. Receipts have grown another 8 percent so far in FY07. (Last updated: April 11, 2007)
Steady Productivity: Labor productivity has grown at an annual rate of 2.8 percent since the business
cycle peak in 2001 Q 1. (Last updated: May 3, 2007)
Americans are Keeping More of Their Hard-Earned Money:
Real Wages Increased 1.3 percent Over the Past 12 Months (ending in March). This
translates into an additional $450 above inflation for the average full-time production worker.
Real After-Tax Income Per Person has Risen 10 percent - an extra $2,950 per person - since
the President took office.
Pro-Growth Policies will Enhance Long-Term U.S. Economic Strength:
The Administration proposed a budget that reaches a small surplus in 2012. Economic
growth has generated increased tax receipts and dramatically improved the budget outlook. The budget
holds the line on spending. The budget reduces the deficit as a percentage of GOP-the most meaningful
measure of its size-every year through 2012. The time has come for both political parties to work together
on comprehensive earmark reform that produces greater transparency and accountability to the
congressional budget process, including full disclosure for each earmark and cutting the number and cost
of all earmarks by half.
Page I of I
10 vIew or Print the put- content on tnlS page, C1ownloaC1 tne tree AC1obe'S> Acrobat'S> KeaC1er®.
May 4,2007
HP-389
Notice on Press Credentials for SED
Members of the media seeking press credentials for the second Cabinet level
meeting of the U.S. - China Strategic Economic Dialogue (SED) must complete
and submit the attached form and a digital photo to the Treasury Department's
Office of Public Affairs at press@do.treas.gov or fax to (202) 622-1999 no later than
Friday, May 11,2007. Incomplete applications or applications submitted after this
date will not be considered for credentials.
The second session of the U.S. - China SED is scheduled to take place in
Washington, DC on May 22 - 24,2007. A schedule of open press events will be
released in the coming weeks.
REPORTS
•
SED PRESS REG FORM
http://WWw.treas.gov/press/releaseS/hP35)9.htm
8/17/2007
Page 1 of 1
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May 4,2007
hp-390
Report Highlights OFAC's Success in Combating Narcotics Traffickers
The U_S_ Department of the Treasury's Office of Foreign Assets Control (OFAC)
today released the Impact Report on Economic Sanctions Against Colombian Drug
Cartels, which reviews OFAC's highly effective efforts to expose and isolate
significant Colombian narcotics traffickers and their associates and to disrupt and
dismantle their business empires.
"Since it's inception in 1995, the Specially Designated Narcotics Traffickers (SDNT)
program has been extremely successful in disrupting the financial operations of
Colombian drug lords and stripping the cartels of their ill-gotten gains," said OFAC
Director Adam J. Szubin.
The Impact Report details the illicit activities of each of the 22 Colombian drug
cartel principals and organizations that have been targeted by OFAC. The report
also focuses on specific highlights of the SDNT program, including the historic
September 2006 plea agreement between the United States Government and the
leaders of Colombia's infamous Cali drug cartel, Miguel and Gilberto Rodriguez
Orejuela. This sanctions program was established by Executive Order 12978.
"We believe the report will be valuable to the Congress and law enforcement
agencies, both domestic and abroad. The report will also inform foreign
governments, fostering closer coordination in fighting the scourge of narcotics
trafficking," Szubin continued.
The Impact Report on Economic Sanctions Against Colombian Drug Cartels, as
well as additional information about the SDNT program, can be accessed through
the following link:
http://www .treasu ry. govlofficesl enforcement!ofac/reports/na rco _i m pact_report_05042007. pdf.
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811712007
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May 7, 2007
HP-391
Statement by Deputy Assistant Secretary for Development
Finance and Debt Kenneth Peel at the 40th Annual
Board of Governors Meeting of the Asian Development Bank
Kyoto, Japan -I am honored to represent the United States at the 40th
Annual Meeting of the Asian Development Bank (ADB). On behalf of
Treasury Secretary Paulson, I would like to extend our gratitude to our
gracious hosts - Japanese Finance Minister Omi and ADB's President
Kuroda.
It is right that we are holding this 40th annual meeting in Kyoto, the
magnificent historic capital of the country that has given so much to this vital
institution.
First, allow me to express my deep gratitude for the commitment, expertise
and hard work of Bank staff. I would particularly like to highlight their work
on economic revitalization and reconstruction of Afghanistan, rapid and
appropriate response to natural disasters and to the prevention and control
of infectious diseases, assistance in the reform of local financial systems
and capital markets and assistance in combating money laundering and
human trafficking. This gives us great confidence that they can meet the
challenges ahead.
And the challenges are considerable but they are challenges partly born in
the Bank's own accomplishments.
As we assemble here, Asian economies continue to record remarkable
economic performance, which in turn is creating more economic opportunity
and higher standards of living for more people, contributing to a significant
reduction in poverty. Just between 1990 and 2004 poverty in East Asia
declined from 29% to 8%. And during this same period across the entire
Asia and Pacific region, extreme poverty has dropped from 35% to 19%.
More and more countries in the region are not only on a path to graduating
from concessional borrowing, but from MOB borrowing altogether. And
some are stepping confidently across the next threshold and joining the
ranks of donor nations.
In addition, the strong growth and low inflation of the last few years have
come with an emergence of global imbalances that should be addressed so
that rapid global growth can be sustained. Economic adjustment is a shared
responsibility to improve global imbalances and economic development.
Asian economies have a critical role to play in global economic adjustment
by pursuing greater exchange rate flexibility, strengthening domestic
demand, and reforming the financial sector.
Despite the encouraging trends I cited earlier, about half the world's most
extreme poor still live in the region. The remarkable success of many
countries sits alongside the continuing poverty of millions of people. These
two parallel realities form the challenge we face in charting a strategic
direction for the Bank in the years ahead.
The questions facing the Bank include: First, what is the continuing role for
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the Bank in a region where many of its member countries enjoy the fruits of
hard-won economic success, including ready access to private financial
markets? Second, what can the Bank continue to offer to middle-income
countries, consistent with its core mission of economic growth and poverty
reduction? Third, what are the key challenges facing the region's poorest
countries, and what are the Bank's comparative advantages in meeting
those challenges? Fourth, how can the Bank differentiate itself from other
development partners, including the World Bank, in a manner that makes
the most efficient use of its capital, accumulated expertise and human
resources? And fifth, what is the appropriate role for the Bank in fostering
regional economic integration?
None of us can pretend that we have the answer to all of these questions
today. But we will need the answers soon. As Asia continues its rapid
development, the Asian Development Bank will face the most fundamental
questions related to its first principles - not today, not next year, but
certainly within the next decade or two. One way or another, the ADB will
become a different institution from the one that has served it so well in its
first 40 years.
As we consider those challenges, it is useful to return to some of the first
principles that inspired the founding of this and the other multilateral
development banks. Their most basic mission was, and is, to leverage the
resources of the international community for countries that lacked access to
affordable private capital, to help create jobs, economic growth and higher
living standards for some of the world's most desperate poor. This should
still be the central organizing prinCiple for the Bank, and our decisions on
the Bank's future directions and priorities should flow from it.
This means we should celebrate when countries no longer need the Bank to
finance their development needs, not seek ways to artifiCially create
incentives to lend to them. Instead, we should think of services the Bank
might continue to provide on a transitional basis.
It also means that the Bank should focus on how it can best serve the
poorer countries that continue to need its help. This means not trying to be
all things to all countries, but instead identifying matches between the
Bank's demonstrated capabilities and the critical development needs of the
region. Certainly the ADB's private sector operations have demonstrated the
Bank's expertise and ability to mobilize significant co-financing. The ADB
should continue to support improvements in the region's investment climate
and regulatory environment. At the same time, the ADB must ensure that its
financing achieves development results, contributes genuine additionality,
and catalyzes, rather than competes with, the private sector.
The United States also supports the Bank's work in developing local bond
markets. Strong capital markets require several key components: strong
property rights, robust supervisory regimes with clear and transparent rules,
sound accounting standards, strong corporate governance, objective
financial analysis and research, meaningful disclosure regimes, and
independent credit rating agencies. The ADB can play an important role in
fostering these practices and regulatory frameworks.
Modern, effiCient, well-planned infrastructure is essential to private-sector
led growth. This is already a primary focus of the Bank's work, and can
become even more so. Public-private partnerships should be further
developed to attract private investment in infrastructure. Infrastructure, of
course, has a strong regional integration component, which the Bank is well
placed to explore and develop.
While the Bank may also specialize in other areas, the Bank should identify
and focus on a finite number of areas where it has a comparative
advantage. And it should remain steadfast to its original mandate as an
economic development institution -- not seek new mandates that stray from
this mission. And when the private sector can take over - as it should and
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Page 3 of3
as was always intended - the Bank should step aside and declare victory.
In all of its work, of course, the Bank needs to demonstrate accountability,
transparency and results. While progress has been made in these areas in
recent years, more effort is required to achieve the kind of results-based
management that is needed. The institutional structure and culture of ADB
should reflect the requirements of the results agenda by embracing a new
incentive structure that rewards staff for delivering development impacts, not
for simply increasing lending volumes; it's quality, not quantity, that counts
most.
The Bank must also continue the fight for good governance. Much has been
accomplished in attacking corruption in recent years through the
implementation of the Bank's Governance and Anticorruption Action Plan.
We urge the ADB to continue this work by doing more to mainstream
governance improvements, address the risks of corruption in its programs,
and engage with borrowing countries. Such steps would include crossdebarment and published lists of disqualified firms.
These are surely profound - even daunting - questions about the purpose
and structure of the ADB in the years ahead. But we must not shirk from
our responsibility to address and answer them. We owe it to the people of
the region, to our citizens at home, and to the hard-working staff of the
Bank. I look forward to tackling this challenge together.
Thank you very much.
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May 8, 2007
HP-392
Secretary Paulson to Participate in Forum on
International Investment and Travel to St. Louis
Treasury Secretary Henry M. Paulson, Jr. will moderate a forum discussion
Thursday on the importance of an open economy and international investment for
U.S. job creation and economic growth hosted by the Organization for International
Investment and George Washington University's Elliott School of International
Affairs.
On Friday, Secretary Paulson will travel to St. Louis where he will tour the facilities
of two foreign-affiliated companies operating there to illustrate the importance of
open investment in creating jobs and economic expansion in the U.S. At the first
firm, bioMerieux, Secretary Paulson will tour the facilities and meet with staff.
Paulson will then go to FKI Logistex to deliver remarks.
Who
Treasury Secretary Henry M. Paulson, Jr.
House Financial Services Committee Chairman Barney Frank
Thomas Friedman
Panasonic North America COO Joe Taylor
Mack Trucks President and CEO Paul Vikner
South Carolina Governor Mark Sanford
What
Panel Discussion on Leading the Global Economy: How an Open Economy and
International Investment Create U.S. Jobs and Growth
When
Thursday, May 10, 2:30 p.m. EDT
Where
Jack Morton Auditorium
805 21 st Street, NW
Washington, DC
Note
Media must pre-set by 2:00 p.m. and RSVP to James Clarke at Jclarke@ofli.org .
***
Who
Treasury Secretary Henry M. Paulson, Jr.
What
Tour of bioMerieux
When
Friday, May 11, 10 a.m. (COT)
Where
bioMerieux
595 Anglum Road
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617/2007
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Hazelwood, Missouri
Note
This is a pooled photo event - media should contact Eileen Gilligan at (202) 6222960 or Eileen.Gilligan@do.treas.gov for more information.
Who
Treasury Secretary Henry M. Paulson, Jr.
What
Remarks at FKI Logistex
When
Friday, May 11,12:15 p.m. (COT)
Where
FKI Logistex
9301 Olive Boulevard
Sl. Louis, Missouri
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61712007
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May 8.2007
2007 -5-8-13-42-17 -9779
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S. reserve assets
totaled $66.339 million as of the end of that week. compared to $66.850 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
April 27, 2007
May 4,2007
66,850
66,339
TOTAL
1. Foreign Currency Reserves 1
~securities
Euro
Yen
TOTAL
Euro
13.012
10,648
23,660
12,987
which, issuer headquartered in the US.
II
Yen
TOTAL
10,600
23,587
0
0
b. Total deposits with:
b.i. Other central banks and BIS
13,021
5,192
18,213
12,994
5,167
18.161
b.ii. Banks headquartered in the US.
0
0
b.ii. Of which, banks located abroad
0
0
b.iii. Banks headquartered outside the US.
0
0
b.iii. Of which. banks located in the U.S.
2. IMF Reserve Position 2
I
I
0
0
1
I
4.896
4,542
9,040
9,008
11 ,_n111
..
11,041
0
0
3. Special Drawing Rights (SDRs) 2
I
1
I
14 Gold Stock 3
I
15. Other Reserve Assets
p{""7
II. Predetermined Short-Term Drains on Foreign Currency Assets
I
I
Euro
May 4,2007
1
TOTAL
1. Foreign currency loans and securities
0
I
I
Euro
I
I
TOTAL
Yen
I
0
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
2.a. Short positions
0
2.b. Long positions
0
3. Other
0
0
I
I
0
0
III. Contingent Short-Term Net Drains on Foreign Currency Assets
May 4,2007
April 27, 2007
Euro
I
II
http://WWw .treas.gov/presslreleasesn.o075813421 79779 .htrn
Yen
I
II
TOTAL
Euro
Yen
I
I
TOTAL
I
I
61712007
Page 2 of2
1. Contingent liabilities in foreign currency
I
I
0
0
2. Fmeign currency securities with embedded
options
0
0
3. Undrawn, unconditional credit lines
0
0
II
1.a. Collateral guarantees on debt due within 1
year
~.b. Other contingent liabilities
I
3.a With other central banks
3.b With banks and other financial institutions
Headquartered in the U. S.
I
3.c. With banks and other financial institutions
adquartered outside the U.S.
I
I
II
I
Aggregate short and long positions of options
foreign
Currencies vis-a-vis the U.S. dollar
0
0
4.a Short positions
14.a 1. Bought puts
1
4.a.2. Written calls
4.b. Long positions
4.b.1. Bought calls
Eb2. Written puts
Notes:
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. Foreign Currency Reserves for the latest week may be subject to revision. Foreign Currency
Reserves for the prior week are final.
21 The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are
valued in dollar terms at the official SDRldoliar exchange rate for the reporting date. The entries for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month end.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce.
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61712007
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·
. .
P!RESS ROOM' •
May 8,2007
HP-393
U.S. Treasury Deputy Secretary Kimmitt Statement on the E.U. Economics
and Financial Affairs Council Conclusions on Hedge Funds
Washington, D.C. - The E.U. Economics and Financial Affairs Council, meeting in
Brussels today, reached a consensus on the policy direction for the European
Union regarding hedge funds and provided related guidance to the European
Commission. U.S. Treasury Deputy Secretary Robert M. Kimmitt issued the
following statement supporting the Council's conclusions:
"The Council's statement today underscores the significant progress this year
advancing international work related to the hedge fund industry and in reaching a
consensus on the appropriate path forward. Their conclusions will help ensure a
productive discussion among the G-8 finance ministers in Potsdam this month.
"These findings demonstrate that the European Union and the United States share
consistent approaches to monitoring these investment vehicles. In particular, the
Council's conclusions demonstrate convergent views on the benefits of hedge
funds in promoting efficient and dynamic financial markets and the important role all
actors play promoting financial stability and protecting investors. This approach
mirrors the philosophy of the Principles and Guidelines issued by the U.S.
President's Working Group on Financial Markets in February."
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10 view or print tne fJUt- content on tnls page, aown/oaa me Tree AClobe® Acrobat® KeaCler®,
May 9,2007
HP-394
Testimony of Treasury Deputy Assistant Secretary
Mark Sobel on Currency
Manipulation and its Affect on U.S. Businesses and Workers
Thank you Chairman Levin, Chairman Gutierrez, Chairman Rush, Representative
Herger, Representative Paul and Representative Stearns and members of the subcommittees, for the opportunity to appear today to discuss this important issue,
Treasury's Assessment of Exchange Rate Policies
As you know, twice a year the Department of the Treasury issues a Report to
Congress on International and Exchange Rate Policies, This report, often called
the "Foreign Exchange Report," is required by the Omnibus Trade and
Competitiveness Act of 1988 (the "Act"), The report reviews economic and policy
developments of important world economies and other economies with which the
United States has a large trading relationship, The Act states that "the Secretary of
the Treasury shall analyze on an annual basis the exchange rate policies of foreign
countries, in consultation with the International Monetary Fund, and consider
whether countries manipulate the rate of exchange between their currency and the
United States dollar for purposes of preventing effective balance of payments
adjustments or gaining unfair competitive advantage in international trade,"
Treasury takes the preparation of this report very seriously, We know that it is read
closely by members of Congress as well as the financial community, the general
public, and foreign governments, We make every effort to ensure that we produce
an accurate yet comprehensive report that incorporates analysis reflecting the
realities of today's international monetary and financial systems, In developing our
assessments, Treasury undertakes a careful review of major trading partners'
exchange rate regimes and policies, the evolution of their external balance of
payments positions, their accumulation of foreign exchange reserves,
macroeconomic developments within their economies, and their responses to these
developments in terms of monetary and financial developments and financial and
exchange restrictions,
Treasury has made a concerted effort in recent years to broaden and improve the
coverage and analytical rigor of the report, We have done so because of changing
global circumstances since 1988, including profound technological change and
globalization, which have enabled many more economies today to become
systemically important from an economic and financial perspective, In addition,
global capital flows have increased greatly since 1988, The interdependence of the
United States with the world economy has increased, heightening our sensitivity to
the impact of developments overseas,
In recent reports, therefore, Treasury has strengthened our coverage and analysis
of global economic developments and the evolution of the U,S, balance of
payments position by including a discussion of perspectives on interpreting U,S,
current account developments and international capital flows, In this regard, we
have discussed the shared international strategy for global adjustment and noted
that given the large U ,S, current account deficit, the counterpart to that deficit is
inevitably to be found in large surpluses elsewhere in the world, We also have
provided more extensive descriptions of macroeconomic and financial
developments in many of the key countries of particular interest to the public,
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Further, Treasury has also included a series of appendices on critical international
monetary policy issues. In this regard, we began including a special appendix in
which many variables and indicators are analyzed on a systematic basis to develop
a better understanding of the currency policies of key countries. In this light, and
given the inherent difficulties in defining currency manipulation for the purposes of
preventing effective balance of payments adjustments or gaining unfair competitive
advantage in international trade, we have examined a range of indicators that
economists would typically look at when dealing with currency manipulation
questions. We have analyzed a range of different combinations of indicators and
weights in order to shed light on the judgments that we are asked to make. The
numerical examples illustrate the sensitivity of the rankings to the weighting scheme
chosen and also highlight the fact that, for an array of differing reasons, many
countries throughout the world have large external surpluses.
Treasury also has made a special effort in the report, through additional
appendices, to discuss important related topics. Recognizing that the International
Monetary Fund allows members to choose their own exchange rate regime, we
have discussed at length the advantages and disadvantages of various exchange
rate regimes and, more specifically, fixed versus flexible exchange rates. In light of
the vast accumulation of foreign exchange reserves by some countries, especially
emerging markets, we have discussed the costs and benefits of reserve
accumulation and some of the "rules of thumb" on what are thought to be prudent
levels of reserves. And in light of the considerable attention being given to
misaligned exchange rates, we have discussed some of the methodological
problems involved in estimating equilibrium or fair value exchange rates.
Treasury staff also prepares informal papers, known as Occasional Papers
(avai la ble at: www.treasury .gov/offices/i nternational-affairs/occasional-paperseries/) on a number of other key international monetary policy issues. These staff
papers are not statements of Administration or Treasury policy, but they shed light
on these important issues. The question of currency misalignment was discussed
in detail in a recent Treasury Occasional Paper
(www.treasury.gQv/Qffices/internati()nal-affairs/occ;c;lsLonc;ll-PC!Q~r
seriesLqoc$/ExchangeRat~Models.pdf). That paper reviewed many
of the concepts
of exchange rate equilibrium in use as well as many of the models used to estimate
the over or under valuation of a currency. An important finding of the paper is the
wide variance of views that exist with respect to misalignment, as well as the
sensitivity of the results to various modeling assumptions. In fact, in some cases,
depending on the price deflators used, currencies were found to be overvalued
using one deflator but undervalued using another deflator. Another main message
of the study is that, although the range of estimates can and often do vary
considerably, it is possible to draw certain inferences about misalignment provided
the results are drawn from a variety of models and the results are largely similar in
magnitude and direction. This information must, however, be supplemented with
assessments of other reasons why exchange rates, during relevant periods of time,
might deviate from perceived equilibrium values.
Treasury reported to Congress, in March 2005, on the procedures and inherent
difficulties involved in making designations pursuant to the Act. That report,
entitled, "Report to the Committees on Appropriations on Clarification of Statutory
Provisions Addressing Currency Manipulation," established that to identify
exchange rate manipulation, standard macroeconomic and microeconomic analysis
needed to be supplemented with certain indicators, including but not limited to: (1)
measures of undervaluation; (2) protracted large scale intervention in one direction;
(3) rapid foreign exchange reserve accumulation; (4) capital controls and payments
restrictions; and (5) trade and current account balances. We have since
incorporated much of this in one of the aforementioned appendices where I
indicated the outcomes largely depend on weights assigned and combinations of
indicators used. As since noted in Treasury's November 2005 Report, there is no
mechanistic or formulaic approach in determining manipulation; a complete
assessment requires additional analysis of the interactions among economic
variables, specific factors affecting economies, and current policy formulation and
implementation.
The March 2005 report also noted the role of "intent" in rendering judgments about
designations pursuant to the Act. The language of the Act states that currency
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6/7/2007
Page 3 of 5
manipulation must be undertaken "for purposes of preventing effective balance of
payments adjustments or gaining unfair competitive advantage in international
trade." "Intent" of the country in question is a consideration as it is inherent in the
language of the act. Determining intent behind the policy can be difficult to assess.
The methodology Treasury uses in examining the foreign exchange policies of
foreign economies was also the subject of a review by the Government
l1j
Accountability Office (GAO) in April 2005. The GAO report concluded that
Treasury has complied with the requirements in the 1988 Trade Act. The GAO
report made no recommendations, but did note that currency "manipulation" is a
complex issue that it involves both country-specific and broader international
economic factors. The report also considered the views of outside experts on
whether the renminbi was undervalued, finding that the views varied widely, with
many experts maintaining a view that the currency is significantly undervalued while
others contending that undervaluation was not substantial or that estimating it was
not possible. According to the GAO, even among experts who believe that China's
currency to be undervalued, there was no consensus on how and when China
should move to a more flexible exchange rate regime or whether capital account
liberalization should be a part of that move.
Another key element of Treasury's strategy to ensure that countries pursue
appropriate eXChange rate policies is to encourage the International Monetary Fund
(IMF), the world's only multilateral institution with a mandate for exchange rates, to
improve its work on foreign exchange surveillance. Exchange rate manipulation to
gain competitive advantage is inconsistent with the treaty obligations of the 185
member countries of the IMF. Treasury strongly supports IMF Managing Director
Rodrigo de Rato's effort to update the IMF's thirty-year old operational rules for
exchange rate surveillance.
We take very seriously our responsibilities to ensure that the Report to Congress on
International Economic and Exchange Rate Policy is of high quality, topical, and
thorough. We have been careful to be very clear about how we approach the issue
of deSignations pursuant to the Act and our reasoning in specific cases.
China
As the exchange rate policy of China is of interest to the committee members, I will
address it in more detail.
China's currency policy is an important issue in the economic relationship between
our two countries. Although China abandoned its fixed exchange rate in July 2005
and the RMB has now appreciated against the U.S. dollar by a bit more than 7
percent, China does not yet have the currency policy we want it to have and that it
needs. Secretary Paulson has stated that a major objective of his as Treasury
Secretary will be to press the Chinese government to advance toward the goal of
an RMB for which the value is freely set in a competitive marketplace, based on
economic fundamentals. The Secretary and Treasury staff meets frequently with
Chinese counterparts to press this issue.
The Secretary has laid out several key steps China must take to advance toward
this goal, including: widening the band on daily exchange rate movement; reducing
intervention; developing its capital market; and setting clear monetary policy targets
to avoid inflation and increase confidence in the value of the Chinese RMB. These
reforms will allow China to develop the market infrastructure it needs for a freely
floating currency; we are committed to working towards those reforms. Although
China has embraced currency flexibility as a policy goal, Chinese authorities are not
moving quickly enough for the United States or the rest of the global community.
And they are not moving quickly enough for China's own good. While we agree on
China's broad reform agenda, China's leaders believe there is risk in moving too
quickly. Secretary Paulson has told his Chinese counterparts repeatedly that the
greater risk is in China moving too slowly. The Secretary will again emphasize this
message during the upcoming meeting of the Strategic Economic Dialogue to take
place here in Washington later this month. We hope that Chinese leaders at that
time will have the benefit of meeting with Members of Congress to discuss the U.S.-
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61712007
Page 4 of 5
China economic relationship.
Treasury's foreign exchange report clearly states that China's cautious approach to
exchange rate reform exacerbates distortions in its domestic economy and impedes
the adjustment of international imbalances. With respect to determining whether or
not China manipulates its currency as defined in the legislation. Treasury must take
into consideration the intent of Chinese authorities. In the December 2006 Foreign
Exchange Report, after careful analysis of China's economic and currency policies.
Treasury did not find that China's policies are designed for the purposes of gaining
unfair competitive advantage or preventing effective balance of payments
adjustments. Treasury will continue to carefully analyze China's policies as we
prepare future Reports.
While China's currency policy is critical to the United States and to China, currency
movement alone will not significantly reduce China's trade surplus nor eliminate the
distortions in the Chinese economy. China's trade surpluses are rooted in the
structure of the Chinese economy and are not solely the result of currency policy.
China needs to restructure its economy so that household consumption. rather than
exports and excess investment. powers growth. Reform of China's financial system
is also critically important for the rebalancing process. by providing Chinese
households the means to insure themselves against major risks and finance
expenditures like education. Better financial services will also help address many
of the reasons why Chinese households save so much and can spend so little of
their incomes. Vibrant domestic consumption is key to the welfare of the Chinese
population and is the only way that China can grow without generating huge trade
surpluses.
To be a responsible international stakeholder in the global economy. China needs
to take swift and effective action to remedy these imbalances. This is both for the
global economy and for China's own sake. Currency flexibility will enhance the
ability of China's economic policy makers to use monetary policy to steer China's
economy towards steady and sustained growth. Rebalancing the structure of
economic activity in China will help to alleviate global economic imbalances and will
ensure that China's future growth can be sustained without generating huge trade
imbalances.
Japan
The Department of the Treasury closely monitors Japan's foreign exchange policy.
which is reported on extensively in each Foreign Exchange Report.
The value of the yen is determined in open. competitive global markets. responding
to the forces of supply and demand. Global trading in the yen-dollar market is
extremely large. reflecting the importance of Japan in world trade and the global
financial system. Since 2001. the yen-dollar exchange rate has fluctuated in the
range of 105 to 135 yen to the dollar. and stands today at about 120 yen to the
dollar. While Japan has previously intervened in the foreign exchange market.
there is currently no intervention and Japan has not intervened since March 2004.
In real. price adjusted terms. the yen is at its lowest value since the early 1980s.
The yen's real effective value is the result of a protracted period of deflation in the
Japanese economy that coincided with rising prices in the United States and other
trading partners of Japan. Japan's long deflationary episode reflects the drawn-out
difficulties of Japan's adjustment to the bursting of the asset price bubble in the
early 1990s.
Japan's economy is recovering. The recovery has been underway for several
years. but it has not been brisk and it has not yet gathered steam. One of the most
important contributions Japan could make to the global economy. and to U.S. firms
and workers, would be to resume sustainable and robust domestic demand growth
and exit completely from deflation.
We discuss foreign exchange issues with Japan and the other G7 partners
regularly. Japan has jOined repeated G7 statements supporting foreign exchange
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flexibility.
Thank you.
[1]
GAO-05-351: International Trade "Treasury Assessments Have Not Found
Currency
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May 10, 2007
HP-395
Fact Sheet
An Open Economy is Vital to United States
Prosperity
Today, President Bush reaffirmed America's continuing commitment to
advancing open economies at home and abroad, including open investment
and trade.
"The United States has a longstanding commitment to open economies that
empower individuals, generate economic opportunity and prosperity for all, and
provide the foundation for a free society .... A free and open international
investment regime is vital for a stable and growing economy, both here at home
and throughout the world."
- President George W. Bush
Focusing on the benefits of open investment, Secretary of the Treasury Henry
M. Paulson Jr. will moderate a panel discussion on the gains to the United
States economy from foreign investment here.
"Foreign investment in the United States strengthens our economy, improves
productivity, creates good jobs, and spurs healthy competition. Americans have
prospered as foreign companies have put their money to work here."
- Secretary Henry M. Paulson Jr.
Foreign Direct Investment (FDI) in the United States Creates High-Paying
Jobs
•
Foreign companies in the U.S. employed more than 5 million U.S. workers
in 2005, providing 4.5% of all private sector employment in the United
States.
• Manufacturing jobs accounted for 33% of the jobs created by foreign
companies in the U.S. (2004 data). The manufacturing sector accounts for
just 12% of overall U.S. private sector employment. Thus, FDI is
disproportionately bolstering this important sector.
• An additional 4.6 million U.S. jobs indirectly depend on foreign investment in
the U.S. (2005 data). Foreign companies in the U.S. buy 80% of their inputs
from U.S. companies. This additional business indirectly supports almost as
many U.S. jobs as FDI creates directly.
• Compensation at foreign companies in the U.S. is on average 30% higher
than the U.S. national average. Foreign-owned firms paid U.S. workers an
average of $63,428 in 2004.
Foreign Direct Investment in the United States Strengthens Our Economy
•
Foreign firms in the U.S. account for 5.7% of U.S. economic output, as well
as 10% of all investment in plant and equipment in the United States.
• Foreign firms in the U.S. re-invested $48.6 billion (45% of their income)
back into the U.S. economy in 2004. This investment furthers innovation
and promotes economic growth.
• Foreign firms generate 19% of U.S. exports ($153.9 billion in 2006). This
contribution is greater than their overall percentage of U.S. economic
output, which means they are doing more than their share to help improve
the U.S. trade balance.
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•
•
Foreign firms in the U.S. generate a disproportionate share of national R&D
spending (13%, totaling $29.9 billion). This spending strengthens U.S.
global competitiveness in pharmaceuticals, high-tech, and other key sectors
and produces innovative products that help to improve our standard of
living.
The economic benefits generated by inflows of foreign capital help
strengthen economic leadership. In the late 1980s and early 1990s, some
pointed with alarm to Japanese purchases of U.S. assets, fearing they
foreshadowed the Japanese overtaking our economic leadership. Twenty
years later, the resulting jobs and economic growth show those fears were
misplaced.
Maintaining U,S. Competitiveness in Attracting FDI Requires Renewed
Commitment
•
At $1.9 trillion, the total stock of FDI in the United States in 2005 was
equivalent to 15% of U.S. GOP. Foreign investment in the U.S. is the
ultimate vote of confidence in our economy. It signals a long-term belief in
the strength of our markets and the skill of our workforce.
• In the last few years, the United States has not received as high a share of
total worldwide FDI as it did before 2000. This trend could be due to the
growth of opportunities in emerging markets, burdensome U.S. legal,
regulatory and corporate tax regimes, or the misperception that the United
States is no longer open to foreign direct investments.
• However, this trend is cause for some concern. In 2000, foreign firms
directly employed 5.7 million people in the U.S. (5.1 % of the private sector
workforce) and indirectly supported 6.5 million more jobs. In 2005, those
figures had fallen to 5.1 million (4.7% of the private sector workforce) and
4.6 million, respectively. Foreign firms' R&D spending as a share of total
R&D spending in the U.S. has also slightly declined since 2000.
• This trend reinforces the need for the United States to renew its
commitment to open investment, and to policies that make the U.S.
attractive for FDI.
Our National Security Review Process Has Not Restricted the United States'
Openness to Foreign Direct Investment
•
•
•
Since 1988, the interagency Committee on Foreign Investment in the United
States (CFIUS) has carefully reviewed the potential national security impact
of proposed foreign investments in the United States.
CFIUS's recently more public profile has created the misconception in some
quarters that the United States is becoming less open to foreign
investment. However, CFIUS is continuing its long history of fairly,
efficiently, and narrowly reviewing individual transactions for national
security concerns alone, without any protectionist influence on its decisions.
Less than 10% of foreign investments in U.S. companies were reviewed by
CFIUS in 2006, and the average since 2000 is about 5%. The vast majority
of foreign investment does not raise national security implications - and is
untouched by the CFIUS process.
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P,RESSROOM
May 10,2007
HP-396
Statement of David G. Nason
Nominee for Assistant Secretary for Financial Institutions
and to be a Member of the Board of Directors
for the National Consumer Cooperative Bank
U.S. Treasury Department
Before the Senate Committee on Banking, Housing and Urban Affairs
Washington, D.C.- Chairman Reed, Ranking Member Shelby and members of the
Committee, thank you for inviting me to appear before you today.
I am grateful to President Bush and Secretary Paulson for their trust and confidence
in me. I am honored to be here today as the President's nominee to be Assistant
Secretary for Financial Institutions at the Treasury Department and to be a member
of the Board of Directors for the National Consumer Cooperative Bank, an
organization established to assist underserved communities across the nation.
I would like to thank my family for their unyielding support of my decision to
continue in public service. I'd like to introduce my wife, Nicole, my best friend and
closest adviser, who is also a dedicated public servant, and our daughters,
Alexandra, 6, and Abigail, 2. My parents George and Ann Nason are also here
today. Aside from being very supportive parents, they are two of the greatest
grandparents in the world.
If confirmed, I look forward to working with Secretary Paulson, Under Secretary
Steel and the rest of the Treasury team, along with others in the Administration and
Congress, on a variety of important issues impacting our financial institutions.
In my current role as Deputy Assistant Secretary, I have had the opportunity to
engage on numerous important issues that affect our capital markets and financial
institutions, including Treasury's positions on banking and insurance regulation. I
also serve as an advisor to Secretary Paulson in his capacity as chair of the
President's Working Group on Financial Markets.
If confirmed, I will work constructively in my role as Assistant Secretary for Financial
Institutions to ensure that the Department faithfully carries out its responsibilities
related to financial institutions policy, critical infrastructure protection, and financial
education. These topics are diverse, complex, and have a direct impact on the
lives of Americans.
The legal and regulatory structure imposed on our financial institutions must guard
against systemic risk, protect consumers, and enhance their confidence. If
confirmed, I will help Secretary Paulson shape and implement his agenda on capital
markets competitiveness. I share the Secretary's view that robust and vibrant
capital markets are directly tied to future economic prosperity for all Americans.
I believe that my prior professional experience has prepared me for this important
responsibility. Before coming to Treasury, I served at the Securities and Exchange
Commission as counsel to a commissioner. I was there at a critical moment in the
SEC's history - when the agency implemented the Sarbanes-Oxley Act of 2002, the
most comprehensive piece of securities legislation in decades. My experience
there has contributed significantly in preparing me for this next challenge at the
Treasury Department. Prior to the SEC, I spent time in the private sector as an
attorney at Covington & Burling where I focused on securities offerings, mergers
and acquisitions, and federal tax planning.
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If confirmed, I would seek to ensure a constructive dialogue with members of
Congress and their staffs. I appreciate the time that members of this Committee
have taken to consider my nomination, and I would be happy to answer any
questions.
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PRESSROOM
May 10, 2007
hp-397
Remarks of Deputy Secretary Robert M. Kimmitt on the Role of Finance in
Combating National Security Threats to the Washington Institute for Near
East Policy, Soref Symposium
Thank you very much, Peter. It is a pleasure to join so many distinguished guests
this evening, including Ambassador Dennis Ross, a friend and colleague for more
than 20 years.
When reviewing what previous speakers had said to this august grouP. I noted that
two years ago Paul Wolfowitz told a story about Ambassador Dick Walters, with
whom we had both served during the Reagan Administration. Dick Walters was
subsequently my predecessor as Ambassador to Germany, and he gave me just
one bit of advice before I left for Bonn in the summer of 1991: "Don't ever forget
how important speeches are to the Germans. They like to give speeches, listen to
speeches, and analyze speeches far more than is the case in the United States."
He recounted a story of speaking once to a distinguished group like that assembled
here. He spoke in his excellent German for 40 minutes and sat down, rather
pleased with himself, only to have the host of the evening stand and say, "Mr.
Ambassador, thank you for your remarks. If you ever have time for a real speech,
please come back to see us again." Well, if 40 minutes is when a "real speech"
starts, you will be receiving from me tonight only remarks -- no more than 30
minutes -- so that we can leave time later for your questions.
Like so many others, I have benefited significantly from the work of the Washington
Institute. In addition to reading your excellent analysis and research on a regular
basis, I have also come to appreciate that the Institute and the Treasury
Department engage in an informal, but mutually beneficial "exchange program," as
some of our best and brightest spend time in each organization. In fact, two former
Treasury colleagues, Matt Levitt and Mike Jacobson, are here with us this evening
as they continue their superb research in your organization, and we are also joined
by several current Treasury staff members.
I would like to discuss with you tonight the new and important role of the Treasury
Department in combating national security threats. It is hard to imagine that we
would have had a conversation like this when the Washington Institute held its first
Soref Symposium event in 1988. It is only in recent years that the challenges of
counter-terrorism and counter-proliferation have moved beyond the traditional
province of foreign affairs, defense, intelligence, and law enforcement. Treasury
and other Finance Ministries around the globe have evolved since September 11 th,
and the world of finance now plays a critical role in combating international security
threats.
Treasury Transformed
In this new era, the Treasury Department is uniquely positioned to help address
threats to global peace and security. This evening, I will outline how we have
transformed our Department in order to detect, disrupt, and where possible,
dismantle illicit financial networks. The Treasury Department has drawn upon its
full range of authorities to target state sponsors of terrorism and WMD proliferation,
in particular the Iranian regime, and we have coupled these domestic actions with
coordinated multilateral efforts and engagement of the international financial
community.
Our strategy today is notably different than it was during my first tour at the
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Department in the 1980s, when I served as Treasury General Counsel during the
second Reagan term. During those years, the Treasury Department was rarely
involved in high-level National Security Council discussions - at most, perhaps five
or six times a year. Today, Treasury is represented at five or six NSC meetings a
month. both on the positive side of our agenda - helping stand up the economy in
Iraq, for example - but also on the punitive side, where we seek to constrain illicit
conduct by Iran, North Korea, and others.
To discharge these important responsibilities, the Department has developed new
organizations and authorities to target key transnational security threats. In 2003,
Treasury created a specific office dedicated to targeting the financial underpinnings
of terrorism. This office was the beginning of a transformation within the
Department to leverage existing capabilities to safeguard the financial sector from
corrupt activity and playa more strategic role in combating terrorism. The following
year, congressional and Executive action expanded this effort by creating the Office
of Terrorism and Financial Intelligence, or "TFI" for short. TFI's mission is
ground breaking: it enhances the role of Treasury beyond pure economic and
financial matters to include the development of innovative means to combat
asymmetric, borderless threats. One of the clearest examples of this innovation at
the Department is the creation of an in-house intelligence analysis office to bring
the knowledge of the intelligence community to bear on the evolving threat of illicit
finance. This office, the first of its kind in the world, helps Treasury enhance
national capabilities by enabling our analysis of financial networks and
infrastructure to be disseminated throughout the intelligence community.
With these expanded capabilities, the Treasury Department is uniquely equipped to
address threats to our national security with a wide range of domestic legal
authorities. Some of our tools are defensive measures, such as Section 311 of the
USA PATRIOT Act, which authorizes Treasury to designate as a primary money
laundering concern either a foreign jurisdiction, financial institution, type of account,
or class of transactions. Section 311 enables Treasury to impose a range of
special measures that U.S. financial institutions must take to protect against illicit
financing risks associated with the designated target, including cutting the entity off
from the U.S. financial system. Other authorities, such as the International
Emergency Economic Powers Act (IEEPA) - which I will discuss further -- are more
offensive in nature. These authorities are mutually reinforcing: we use both our
offensive and defensive authorities to enhance and protect the ability of
governments and the private sector to combat threats to the international financial
system.
We have also led the effort in the international community to combat illicit financial
activity. The Treasury Department's Office of Terrorism and Financial Intelligence
leads the U.S. delegation to the Financial Action Task Force (FATF), a key
international organization where finance ministries, central banks, and regulators
meet frequently to share information and best practices, and set global standards
for combating terrorist financing and money laundering. FATF works to establish
standards to counter illicit financial conduct within the international community, and
these standards - which have also been incorporated into the programs of the
World Bank and the IMF -- aid countries in developing their own specific anti-money
laundering and counter-terrorism financing laws and regulations.
Through FATF's working groups and its regional bodies - which include more than
150 countries -- TFI's typologies have spurred the creation of new guidance
materials and best practices that outline methods for countries to implement
counterterrorism financing and anti-money laundering standards. For example, the
United States led international efforts to examine the abuse of non-profit
organizations for terrorism financing purposes, and launched a study regarding the
use of cash couriers as a means for moving funds in support of terrorism and other
illicit activities. This study led to concrete actions by countries around the world to
address the implementation of disclosure and declaration requirements for moving
cash across borders.
We also led efforts within the FATF to address WMD proliferation by creating a
mechanism to target proliferation finance and develop authorities to isolate WMD
proliferators and their support networks. Through these efforts, we have worked to
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broaden the scope of traditional financial regulation to include law enforcement,
intelligence, and policy coordination. This multi-faceted approach to financial crime
creates a broad impact and has resulted in broader adoption of FATF standards -effectively enhancing counterterrorism efforts around the world.
The issue of countering terrorist and proliferation finance is also now firmly on the
agenda of other international organizations such as the United Nations and the
European Union. At the United Nations, nearly every UN Security Council
resolution that has been passed since September 11 th, including all those designed
to counter WMD proliferation and terrorism, contain financial provisions - from
obligating states to perform enhanced scrutiny of financial transactions to the
freezing of assets. In addition to the World Bank and IMF, other major international
financial and economic forums, including the G-7, G-8, and APEC - the Asia Pacific
Economic Cooperation -- are also examining these issues. The G-20, an
increasingly influential group of countries that includes China, India, Brazil,
Australia, Turkey, Saudi Arabia, South Africa, and Mexico, has also become more
involved in combating illicit finance.
With strengthened domestic authorities and increased international action, the
United States is now much better equipped to address the threats faCing a
globalized world. The question then remains - how do we use these tools most
effectively? When we consider the best use of sanctions, many of us remember all
too well Cold War-era sanctions, which often put only moderate pressure on the
Soviet Union but resulted in increased tensions in transatlantic relationships. In fact,
in 1983, one committee of academics, business leaders, and opinion makers
described American economic sanctions against the Soviet Union in this manner:
"Two things are of significance above all others: one, they haven't worked; two,
they can't work."
To avoid past problems and increase effectiveness, we have developed a smarter,
more focused sanctions approach. Specifically, the United States has worked to
apply targeted financial pressure to isolate individuals, entities, and regime
elements engaged in illicit finance in support of terrorism or WMD proliferation.
These financial measures are aimed not at countries in general, but at conduct in
specific. Applying effective financial sanctions requires careful economic, legal, and
policy analysis to ensure that the measures are calibrated to meet their goals and
minimize unintended consequences. The objectives for these measures are to
isolate the target as well as to induce it to abandon harmful policies or practices.
As David Ignatius aptly put it, "these new, targeted financial measures are to
traditional sanctions what Super Glue is to Elmer's Glue-All."
Some of these targeted measures require financial institutions to freeze funds and
close the accounts of designated actors, effectively denying these actors access to
the traditional financial system. Other measures impose bans on travel or arms
transfers, serving to isolate the target. These kind of measures have several
advantages over broad-based sanctions programs. Most importantly, instead of
designating an entire country, they single out those responsible for supporting
terrorism, proliferation, and other criminal activities, and such targeted measures
are more likely to be accepted by a wider number of international actors and
governments.
Iran
Turning to the subject of Iran, the Washington Institute has continued its excellent,
incisive work on the Iranian regime, including during this symposium. The title of
your event is precisely correct - the prospect of an Iranian bomb is unacceptable,
not just to the United States but to the entire world community, as evidenced by two
unanimously adopted UN Security Council resolutions requiring the Iranian
government to cease uranium enrichment. Iran's unrelenting pursuit of a nuclear
weapons capability, combined with its continued provision of financial and material
support to terrorist groups, makes the possibility of a nuclear-armed Iran a direct
and dangerous threat to the international community.
To address the Iranian threat through deterrence and prevention, the United States
has employed a two-fold sanctions strategy: utilizing domestic authorities and
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engaging in international outreach.
First, under the International Emergency Economic Powers Act, which provides
broad statutory authority to respond to threats, the President issued Executive
Order 13382 in 2005. This Executive Order authorizes the Treasury and State
Departments to target key nodes of WMD and missile proliferation networks,
including their suppliers and financiers, in the same way we target terrorists and
their supporters. A designation under Executive Order 13382 denies the targeted
entities access to the U.S. financial and commercial systems and puts the
international community on notice about the threat posed to global security. These
prohibitions have a powerful effect, as the suppliers, financiers, transporters, and
other facilitators of WMD networks tend to have commercial presences and
accounts around the world that make them vulnerable to exactly this kind of
financial action.
The United States designated the Iranian state-owned Bank Sepah under E.O.
13382 for providing financial services to Iran's missile program, and this action has
had a significant impact. Like other Iranian banks, Bank Sepah engages in a range
of deceptive practices in an effort to avoid detection, including requesting other
financial institutions to conceal the Sepah name when processing its transactions in
the international financial system. Additionally, Bank Sepah has facilitated business
between North Korea's chief ballistic missile-related exporter, KOMID, and Iran's
Aerospace Industries Organization. KOMID, which has also been designated by
the Treasury Department under E.O. 13382, is known to have provided Iran with
missile technology. By cutting off Sepah from the U.S. financial system, we have
commercially isolated the institution and have made it more difficult for Iran to
finance its proliferation-related activities.
Second, we have also worked through the international community to build upon
our domestic actions. We are most effective when we proceed multilaterally, either
with a coalition or with the consensus of the United Nations. Our multilateral efforts
have yielded critical success in the fight against proliferation financing, and a key
example is the unanimous adoption last month of UN Security Council Resolution
1747, which reaffirms and expands UN Security Council Resolution 1737 of
December 2006. These resolutions target Iran's nuclear and missile programs, and
among other requirements, obligate states to freeze the assets of named entities
and individuals associated with those programs. Significantly, among these entities
was Bank Sepah. The United States has worked with governments and financial
institutions around the world to implement the common obligation to freeze the
assets and economic resources of all listed entities and individuals, including Bank
Sepah and Bank Sepah International.
We have worked closely with our fellow finance ministries and central banks abroad
to build consensus on these financial measures, and the effect has been striking:
international partners who originally resisted the idea of applying sanctions on Iran
have reversed this position and now support pressuring the Iranian regime to
renounce its support for WMD proliferation and to comply with its international
obligations.
This is especially significant because we believe that segments of Iranian society
beyond President Ahmadinejad and the Islamic Revolutionary Guard Corps including the mullahs, their merchant class backers, and liberalizing forces understand the high costs of the country's increasing isolation and the need to
change its behavior.
Engaging the Financial Community
Our multilateral action to change Iran's behavior is not confined to governments,
however. We have engaged in unprecedented outreach to the international private
sector, meeting with more than 40 banks around the world to share information and
discuss the risks of doing business with Iran. We exchange common interests and
objectives with the financial community when it comes to dealing with threats.
Financial institutions want to identify and avoid dangerous or risky customers who
could harm their reputations and business, and governments want to isolate those
same actors and prevent them from abusing the financial system.
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We are seeing concrete benefits through this partnership. We have learned that the
Swiss bank UBS cut off all dealings with Iran, and Credit Suisse and HSBC have
also significantly limited their exposure to Iranian business. A number of other
foreign banks are refusing to issue new letters of credit to Iranian businesses.
According to the banks, these were business decisions, pure and simple - handling
Iran's accounts was no longer good business. Multinational corporations have also
held back from investing in Iran, including limiting investment in Iran's oil field
development.
Further, in a move that demonstrates that Iran is feeling the effects of financial
isolation, the Iranian government also filed a complaint with the IMF - subsequently
denied - that U.S. action against Bank Saderat, an Iranian state-owned institution,
constituted a foreign exchange restriction.
And last year the OECD raised the risk rating of Iran, reflecting this shift in
perceptions and indicating its sense of the inherent risk in doing business with Iran.
Governments should not subsidize via export credit programs the country risk
created by Iran's illicit behavior. The good news is we have seen a sharp decrease
in export credits from countries such as Germany, France and Japan. We expect
that the OECD's higher risk rating will contribute to a continued downward trend in
export credits to Iran.
Additionally, Iran recently announced that it has reallocated its foreign reserves out
of dollars. This raises the important point that while a growing number of banks
have cut off Iranian business in dollars, they have not yet done so in other
currencies. Regardless of the currency, the core risk with Iranian business
remains the same: when dealing with Iran it is almost impossible to "know your
customer." Since banks cannot be certain that parties are not involved in illicit
activity -- and such conduct is not limited to one currency -- scaling back dollarbusiness reduces the problem, but does not eliminate it.
In spite of these successes, some have asked if further measures should be
considered to increase pressure against Iran. Members of Congress are
considering a number of legislative options, including application of U.S. sanctions
to the business activities of foreign subsidiaries of American companies; mandatory
divestment from companies doing business with Iran; and having the government
"name and shame" firms - both domestic and foreign -- that do business with Iran.
While these proposals are certainly well intended, they could have
significant counter-productive policy implications. Our shared goal is to pressure
the Iranian regime to change its behavior, and the best way to achieve this
objective is to keep the focus on illicit conduct and maintain as broad an
international coalition as possible. Yet many of these proposed measures may be
seen by our allies as extraterritorial U.S. Government action and could affect our
ability to obtain their cooperation on mutual action with respect to Iran.
You might recall the history of this debate. In the 1990s, for example, we were
concerned about the commitment of our allies to put pressure on Iran through the
imposition of sanctions. The European Union, in turn, argued that some measures
under consideration were an inappropriate extension of U.S. law. In recent years,
as discussed earlier, our economic sanctions strategy has evolved into a more
targeted and conduct-based approach. Along with our international outreach, this
has helped to build a coalition of partners with a shared goal of putting as much
pressure as possible on the Iranian regime to change its behavior. As Mike
Jacobson pointed out in a recent Washington Institute policy paper, our economic
sanctions against Iran are intended to engage, not confront, our allies. We must be
careful not turn this successful effort into a debate that would engender transatlantic
friction and turn the focus away from Iran's illicit conduct. Sanctions have the most
comprehensive impact when applied cooperatively and collectively.
In closing, let me make clear that the Treasury Department's objective is to employ
the most effective methods to dissuade the financing of dangerous activities, and
especially Iran's nuclear ambitions.
After 30 years of experience in national security policy, I have come to the
conclusion that the most effective sanctions meet the following criteria: they are
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carefully targeted at illicit conduct; they are multilateral in scope; and they engage
financial and business institutions as well as foreign governments. Any additional
sanctions proposals should be judged against these criteria to ensure maximum
effectiveness in deterring Iran's dangerous behavior. We look forward to continuing
to work with all who support this goal, including the Washington Institute.
Thank you for your kind attention, and I look forward to your questions.
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PRESSROOM
May 10, 2007
hp-398
Transcript of Secretary Paulson's Remarks
at Forum on International Investment
SECRETARY HENRY M. PAULSON: Thank you all for being here, and welcome.
And let me thank Todd Malan and Dean Brown very much for hosting this event.
We appreciate it a great deal.
I'm very much looking forward to today's discussion about the role of investment
and trade in our economy. As you heard, we have a very distinguished panel. We
have a governor, a committee chairman - who will be here shortly - a best-selling
author, a CEO, and a COO, and I'm going to I guess be the secretary of the group.
(Laughter. )
It's very fitting that we gather on a college campus with graduate students. You
know, it's - many of you I know are getting ready to begin careers. You're the next
generation of leaders. You will begin your careers amidst one of the most dynamic
eras of global business and finance: one filled with challenges and one filled with
great opportunities.
This morning, President Bush released an important policy statement reaffirming
the United States' longstanding commitment to open economies. An open
economy, underpinned by the rule of law, includes free markets and trade. It also
includes - as we will discuss in much more detail today - vigorous promotion of
open investment policies.
This reaffirmation comes at a very critical time. As more and more nations move
toward open markets, I'm concerned that the United States' longstanding
consensus of support for an open economy is eroding.
We are witnessing a rise in protectionist sentiment. I can remember back to the
1980s, and I was talking with Governor Sanford earlier - he graduated from Virginia
Business School then. And in the 1980s there were concerns about Japan's
growing economic success when some thought Japan was going to own the world.
Some of you may remember that Japanese companies were buying property buildings and things, landmarks. I remember the Rockefeller Center purchase, and
Pebble Beach. And one might have inferred from the headlines and the hyperbolic
rhetoric of the day that these landmark assets were headed straight for Tokyo. But
the last time I looked, Rockefeller Center is still in New York City.
Twenty years later, we now know that the inflow of foreign capital brought many
new American jobs. As a matter of fact, when a foreign investor makes a direct
investment in our nation, it is the ultimate vote of confidence in our economy.
Unfortunately, the fear of foreign investment may be resurfacing. In a post-9/11
world, there's a sense that we must hold on to our assets more tightly as if
somehow that will keep us safe. Clearly we must and we do take every precaution
to protect our national security. This doesn't mean we should refuse investment
capital that can create jobs and revitalize communities, or that we should
discourage it by raising concerns that foreign investment may not be as welcome as
it was in the past.
We need not be governed by fear. We can protect our national security while
nttp:llww w.treas.gov/press/releases/hp398.htm
61712007
Page 2 of3
welcoming investments that protect our economic security. And we have a process
that does just that.
Since 1989, for 18 years, the U.S. has had interagency process known as CFIUS to
review foreign acquisitions of a U.S. company if there are national security
concerns. The CFIUS process involves all of our national security agencies working
together in a vigorous investigation of the facts.
In the aftermath of the Dubai port situation, this process has received great public
scrutiny, which has led some to believe that the U.S. is less friendly to foreign
investment or attempting to erect barriers. I can assure you that this perception is
not true. The CFIUS process applies only when a transaction may be related to
national security, and that is a very small percentage of foreign investment. The
vast majority are mergers, acquisitions and investments, and everything from retail
to software acquisitions and investments that don't receive a national or - excuse
me - a CFIUS review. Last year, for instance, only 10 percent of foreign direct
investments were reviewed by CFIUS, and the vast majority of those received a
review which was resolved without controversy.
When a transaction may relate to national security, our policy remains as it has
been since CFIUS was created - to ensure national security first while keeping
America open to investment.
Foreign direct investment is an essential part of our domestic economy. U.S.
affiliates of foreign companies bring investments to our shores, creating jobs and
revitalizing communities. By some measures, however, foreign direct investment,
which peaked in 2000 - and the contribution to our economy - excuse me - it's
very interesting because foreign direct investment had been growing pretty steadily
for a long period of time. It peaked in 2000, and the contribution to our economy of
foreign-owned subsidiaries has been tailing off or declining ever since. Now I think
that it's too early to tell whether this is a temporary phenomenon or trend, but it
bears watching very closely because foreign direct investment is, as I said, vital to
our economic strength.
I'm just going to give you a few brief statistics before getting into our discussion.
Foreign-owned companies directly provide jobs to over five million workers or
almost 5 percent of our domestic workforce, and they also provide roughly an
equivalent number of jobs indirectly because foreign-owned subsidiaries sourced
about 80 percent of the inputs domestically. And these companies, which produce
about 6 percent of our output also provide 10 percent of our total capital investment,
13 percent of our R&D, and 20 percent of our exports.
The United States has historically been the best place in the world to do business
and is a magnet for foreign investment, so it's important to reaffirm both our
openness to foreign direct investment and the benefits investment brings to the
U.S. economy. And as we seek to attract foreign capital, we must realize that we
have a constantly changing world where there are an increasing number of
attractive economies across the globe competing for investment dollars. Against
this backdrop, we must assess the cost versus the benefits of our regulatory
structure and certain aspects of our legal system that may discourage foreign
investment.
Our corporate tax system is also increasingly putting us at a competitive
disadvantage with some - with a few other nations which tax companies or capital
at lower rates than does the U.S.
The President's policy statement makes clear that the administration will not retreat.
We welcome foreign investment and the benefits it brings to communities across
America. In fact, I expect the administration will undertake a number of additional
initiatives in support of open investment in the months ahead, and some are already
underway.
And again, I look forward to working with the panelists today, and having a good
discussion with all of you.
http://www.treas.gov/pre~:JSlrelea5~6/hp.398.htm
6/7/2007
Page 3 of3
Thank you.
-30-
http://WWw.treos.gov/press/releaselii/hp398.htm
617/2007
Page 1 of 1
May 11,2007
HP-399
Treasury Deputy Secretary Kimmitt to Attend G8 Finance Ministers
Meeting in Werder (Havel), Germany
U.S. Treasury Deputy Secretary Robert M. Kimmitt will attend a meeting of the G8
finance ministers next week in Werder (Havel), Germany. The following press
conference will be open to credentialed reporters:
Who
Treasury Deputy Secretary Robert M. Kimmitt
What
G8 Press Conference
When
Saturday, May 19
Where
Resort Schwielowsee
Marquee No. 6a
Werder (Havel), Germany
Note
The press conference will begin following the conclusion of the meeting Saturday
afternoon and after German officials have concluded their press conference.
http://www.tre(l8.gov/presslr~1~asesjhp399.htm
6/7/2007
Page 1 of 1
May 14,2007
HP-400
Treasury Secretary Paulson to Discuss Financial Education
U.S. Treasury Secretary Henry M. Paulson, Jr. will deliver remarks at the Financial
Literacy and Education Commission's public meeting at the Treasury Department
on Tuesday, May 15. Secretary Paulson, chairman of the 20-agency commission,
will discuss the group's financial education initiatives. The following event is open to
credentialed media:
Who
U.S. Treasury Secretary Henry M. Paulson, Jr.
Acting Assistant Secretary for Financial Institutions David G. Nason
Deputy Assistant Secretary for Financial Education Dan lannicola, Jr.
What
Remarks before the Financial Literacy and Education Commission public meeting
When
Tuesday, May 15, 10 a.m. (EST)
Where
Treasury Department
Cash Room
1500 Pennsylvania Ave., NW
Washington, DC
Note
Media without Treasury press credentials should contact Frances Anderson at
(202)622-2960, or franc~s.aoc:lerson@_do.tre~s.gov with the following information:
name, Social Security number, and date of birth.
http://WWw.treas.gov/presslreleases/hp400.htm
61712007
Page 1 of 1
~
,.
.
~
.-.
:-.PR ES S Ree M
May 14, 2007
HP-401
Paulson to Deliver Remarks on Financial Education
Photo: Paulson
to Deliver
Remarks on
Financial
Education
u.s. Treasury Secretary Henry M.
Paulson, Jr. will deliver
remarks at the Financial Literacy and Education
Commission's public meeting at the Treasury Department
tomorrow. Secretary Paulson will discuss his recent meeting
with President Bush and the importance of financial education
for future homeowners conSidering a mortgage.
•
•
•
•
Media Advisory
Remarks by President Bush Following Meeting on Financial Education
Free Financial Literacy and Education Commission Resources
Treasury's Office of Financial Education
http://WWw.treas.gov/presslreleases/bp401.htm
8117/2007
President Booh Participate~ in Meetirlg on Financial Literacy
I-...
~
Page I of I
THE WHITE HOUSE
PRESIDENT
GEORCE W. BUSH
For Immediate Release
Office of the Press Secretary
April 25, 2007
President Bush Participates in Meeting on Financial Literacy
Roosevelt Room
4:10 P.M. EDT
THE PRESIDENT: April is Financial Literacy Month, and so I've asked some of our nation's
Video (Windows)
Presidential Remarks
Audio
most caring citizens to come and talk to us about how to develop and hone a strategy that will ,
help more of our American citizens become financially literate. If you're not sure how interest works, it's hard to be a good
homeowner. If you don't understand rates of return, it's hard to be a good investor. If you're not sure how money works, it will be
missed opportunity for people from all walks of life.
It is in this country's interest that people in every neighborhood, from every
background, understand the financial literacy world; understand what it means when
people talks terms related to their money. The more financially literate our society is,
the more hopeful our society becomes.
Ours is a great system. It is a system that means somebody can come to America or
live in America with nothing and end up with a lot; a system where people can realize
dreams and work hard and realize those dreams. But unless we have a financially
literate society, not enough people are going to be able realize the great promise of
America.
And so I want to thank the Secretary of Treasury, and the Secretary of Education,
Secretary of Housing and Urban Development for agreeing to be a part of the committee to make sure the federal effort toward
financial literacy is well coordinated with the private sector. And I thank those from the private sector for joining us. We've got
people from corporate America, we've got people from faith-based America, we've got people from community-based-program
America, we've got people from all walks of life, all around the country, who are deeply concerned about making sure this country
is as finanCially literate as possible, and I thank you for coming. I appreciate you joining us. Mr. Secretary, thanks for chairing the
project.
God bless.
END 4:13 P.M. EDT
Return to this article at:
http://www.whilehouse. gov/news/releases/2007104/20070425-3. him I
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idl CLIG
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8117/2007
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CONTENTS
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FIRST ACCOUNTS
PROGRAM
Office of Financial Education Overview
Press Releases
The John Sherman Award for Excellence in Financial
Education
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Last Updated: July 23, 2007
http://www,treas,gov/officcs/domestic-finance/financial-institutionlfin-educationl
8117/2007
Page 1 of 1
PRESSROOM
May 14, 2007
HP-402
Under Secretary Steel to Deliver
Remarks on Capital Markets Competitiveness
U.S. Treasury Under Secretary for Domestic Finance Robert K. Steel will deliver
remarks before the Council on Competitiveness on Thursday, May 17. Under
Secretary Steel will discuss Secretary Paulson's next steps on his U.S. capital
markets competitiveness initiative. The following event is open to credentialed
media:
Who
U. S. Treasury Under Secretary for Domestic Finance Robert K. Steel
What
Remarks
When
Thursday, May 17 11 :30 am. (EST)
Where
Council on Competitiveness
Suite 850
1500 K Street, NW
Washington DC
Note
Media should RSVP with Micheal Meener with the Council on Competitiveness at
mmeneer@compete.org or (202) 969-3406
http://www.treas.gov/presslreleases/h p402.htm
61712007 7
Page 1 of 5
May 14, 2007
2007 -5-14-17 -38-29-1821
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.s.
reserve assets totaled $66,197 million as of the end of that week, compared to $66,339 million as of the end of the
prior week.
I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)
I
I
II
I
IA. Official reserve assets (in US millions unless otherwise specified)
IIMay 11, 2007
IIEuro
liVen
IITotal
1(1) Foreign currency reserves (in convertible foreign currencies)
II
II
11 66 ,197
I(a) Securities
11 12 ,934
1110,596
11 23 ,530
lof which: issuer headquartered in reporting country but located abroad
II
II
11 0
I(b) total currency and deposits with:
1/
I(i) other national central banks, BIS and IMF
II
12.938
II
5,167
1/18,105
lof which: located abroad
I/O
I/O
I(iii) banks headquartered outside the reporting country
11 0
I(ii) banks headquartered in the reporting country
I/O
lof which: located in the reporting country
1(2) IMF reserve position
11 4 ,533
1(3) SDRs
11 8,989
1(4) gold (including gold deposits and, if appropriate, gold swapped)
1111 ,041
I--volume in millions of fine troy ounces
11 261 .499
1(5) other reserve assets (specify)
10
I--financial derivatives
I--Ioans to nonbank nonresidents
I--other
lB. Other foreign currency assets (specify)
I--securities not included in official reserve assets
--deposits not included in official reserve assets
I
I--Ioans not included in official reserve assets
--financial derivatives not included in official reserve assets
I
1--gOld not included in official reserve assets
[ --other
II
1/
II. Predetermined short-term net drains on foreign currency assets (nominal value)
http://WWw.treas.gov/presslreleases/20075141738291821.htm
61712007
Page 2 of 5
II
I
II
[
II
II
II
IIMaturity breakdown (residual maturity)
II
Total
I
I 1. Foreign currency loans, securities, and deposits
II
II
II
II
I--outflows (-)
IIPrincipal
I
I--inflows (+)
IIlnterest
II
IIPrincipal
II
I
IIlnterest
II
2. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
I
I
I (a) Short positions ( - )
More than 3
months and up to
1 year
More than 1 and
up to 3 months
Up to 1 month
I
I
I
I
I
I
I (b) Long positions (+)
I 3. Other (specify)
I --outflows related to repos (-)
--inflows related to reverse repos (+)
--trade credit (-)
--trade cred it (+)
I
--other accounts payable (-)
II
--other accounts receivable (+)
II
"
III. Contingent short-term net drains on foreign currency assets (nominal value)
I
II
I
I
II
II
I--other national monetary authorities (+)
I
I--BIS (+)
II
[--IMF (+)
II
r
I
II
I
II
13. Undrawn, unconditional credit lines provided by:
(b) with banks and other financial institutions
headquartered in the reporting country (+)
More than 3
months and up to
1 year
II
2. Foreign currency securities issued with embedded
(a) other national monetary authorities, BIS, IMF, and
other international organizations
I
II
II
I(b) Other contingent liabilities
options (puttable bonds)
More than 1 and
up to 3 months
Up to 1 month
11. Contingent liabilities in foreign currency
(a) Collateral guarantees on debt falling due within 1
year
II
applicable)
Total
I
II
II
IMaturity breakdown (residual maturity, where
II
http;IIWWw.treas.gov/presslreleases120075141738291821.htm
II
I
II
I
I
"
6/712007
Page 3 of5
II~C) with
banks and other financial institutions
headquartered outside the reporting country (+)
I
IUndrawn, unconditional credit lines provided to:
Ir(a) other national monetary authorities, BIS, IMF, and
other international organizations
II
I--other national monetary authorities (-)
II
I
II
I
II
I
II
I--BIS (-)
I--IMF (-)
(b) banks and other financial institutions headquartered
in reporting country (- )
(c) banks and other financial institutions headquartered
outside the reporting country ( - )
4. Aggregate short and long positions of options in
foreign currencies vis-a-vis the domestic currency
I
I
II
I(a) Short positions
I
I
II
II
II
l(i) Bought puts
I(ii) Written calls
I
I
I
I(b) Long positions
l(i) Bought calls
I(ii) Written puts
IPRO MEMORIA: In-the-money options 11
I
1(1) At current exchange rate
I(a) Short position
I(b) Long position
1(2) + 5 % (depreciation of 5%)
I(a) Short position
I(b) Long position
1/
1(3) - 5 % (appreciation of 5%)
II
II
I(a) Short position
I(b) Long position
1(4) +10 % (depreciation of 10%)
I(a) Short position
I(b) Long position
1(5) -10 % (appreciation of 10%)
[(a) Short position
[(b) Long position
~6) Other (specify)
[(a) Short position
lib) Long position
IV. Memo items
[
I
K1) To be reported with standard periodicity and timeliness:
I
Ka) short-term domestic currency debt indexed to the exchange rate
I
(b) financial instruments denominated in foreign currency and settled by other means (e.g., in domestic I
I
http://WWw.treas.gov/presslreleases/20075141738291821.htm
61712007
Page 4 of 5
Icurrency)
II
I--nondeliverable forwards
II
I --short positions
II
II
I --long positions
I--other instruments
I
I(c) pledged assets
I--included in reserve assets
I--included in other foreign currency assets
I(d) securities lent and on repo
I--Ient or repoed and included in Section I
I--Ient or repoed but not included in Section I
I
I--borrowed or acquired and included in Section I
II
I--borrowed or acquired but not included in Section I
II
I(e) financial derivative assets (net, marked to market)
II
II
I--forwards
I--futures
I--swaps
I--options
I--other
(f) derivatives (forward, futures, or options contracts) that have a residual maturity greater than one
year, which are subject to margin calls.
--aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
I
I
I(a) short positions ( - )
I(b) long positions (+)
I--aggregate short and long positions of options in foreign currencies vis-a-vis the domestic currency
I(a) short positions
I(i) bought puts
I(ii) written calls
I(b) long positions
I(i) bought calls
I(ii) written puts
1(2) To be disclosed less frequently:
I(a) currency composition of reserves (by groups of currencies)
I--currencies in SDR basket
I--currencies not in SDR basket
I--by individual currencies (optional)
I
Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market values, and deposits reflect carrying values. Foreign Currency Reserves for the latest week may be subject to
revision. Foreign Currency Reserves for the prior week are final.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest
http://WWw.treas.gov/presslreleases/20075141738291821.htm
6/712007
Page 5 of 5
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
nttp:IIWWw.tre::tD.goy/press/rekasesI20075141738291821.htrn
61712007
HP-403:
'f~easury
International Capital Data for March
Page 1 of3
FROM THE OFFICE OF PUBLIC AFFAIRS
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May 15, 2007
HP-403
Treasury International Capital (TIC) Data for March
Treasury International Capital (TIC) data for March are released today and posted on the U.S. Treasury web site (www.treas.gov/tic). 1
will report on data for April, is scheduled for June 15, 2007.
Net foreign purchases of long-term securities were $67.6 billion.
•
Net foreign purchases of long-term U.S. securities were $107.9 billion. Of this, net purchases by foreign official institutions werE
purchases by private foreign investors were $86.9 billion.
•
U.S. residents purchased a net $40.3 billion of long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $56.3 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $18.7
holdings of Treasury bills increased $20.4 billion.
Banks' own net dollar-denominated liabilities to foreign residents decreased $29.9 billion.
Monthly net TIC flows were $45.0 billion. Of this, net foreign private flows were $16.6 billion, and net foreign official flows were $28.5 bi
TIC Monthly Reports on Cross-Border Financial Flows
(Billions of dollars, not seasonally adjusted)
2005
2006
12 Months Through
Mar-06
Mar-07
Dec-07
Jan-I
Foreigners' Acquisitions of Long-term Securities
I
2
3
Gross Purchases of Domestic U.S. Securities
Gross Sales of Domestic U.S. Securities
Domestic Securities Purchased, net (line 1 less line 2) 11
17157.5 21101.7
16145.9 19963.5
1011.5 1138.2
18012.8
16959.3
1053.5
22509.6
21356.5
1153.1
1847.4
1785.5
61.9
181S
1702
lHi
4
5
6
7
8
Private, net 12
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net
891.1
269.4
187.6
353.1
81.0
941.6
128.0
196.9
472.2
144.5
913.0
179.7
210.5
394.8
127.9
950.5
177.2
158.9
483.8
130.5
37.9
4.3
12.3
32.4
-11.1
104
2C
2C
4C
23
9
Official, net /3
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
120.4
68.7
31.6
196.6
69.6
92.6
140.5
76.6
36.0
202.5
57.8
109.2
24.0
6.1
15.5
12
-S
IS
10
11
http://WWw.treas.gov/presslreleases/hp403.htm
61712007
HP-403:
l{~asury
12
13
14
15
16
17
18
International Capital Data for March
Corporate Bonds, net
Equities, net
Gross Purchases of Foreign Securities from U.S. Residents
Gross Sales of Foreign Securities to U.S. Residents
Foreign Securities Purchased, net (line 14 less line 15) /4
Foreign Bonds Purchased, net
Foreign Equities Purchased, net
19
Net Long-Term Securities Transactions (line 3 plus line
20
Other Acquisitions of Long-term Securities, net /5
21
Net Foreign Acquisition of Long-Term Securities
(lines 19 and 20):
27
28
Increase in Foreign Holdings of Dollar-denominated ShortU.S. Securities and Other Custody Liabilities: /6
U.S. Treasury Bills
Private, net
Official, net
Other Negotiable Instruments
and Selected Other Liabilities: 17
Private, net
Official, net
29
Change in Banks' Own Net Dollar-Denominated Liabilities
22
23
24
25
26
30 Monthly Net TIC Flows (lines 21,22,29) /8
of which
31
Private, net
32
Official, net
11
12
/3
/4
/5
/6
17
/8
Page 2 of3
19.1
1.0
28.6
5.8
24.7
3.3
30.6
4.9
2.9
-0.5
3700.0
3872.4
-172.4
5572.2
5819.4
-247.1
4174.0
4350.1
-176.1
6118.4
6395.4
-277.0
521.3
570.1
-48.7
-45.1
-127.3
-139.8
-107.4
-48.8
-127.4
-168.7
-108.3
-29.2
-19.5
-13
839.1
891.1
877.4
876.1
13.2
9~
-140.0
-153.3
-149.6
-160.4
-13.1
-1~
699.1
737.8
727.8
715.7
0.1
83
-47.6
-58.9
-15.6
-43.3
134.4
-9.0
16.0
-25.0
-31.3
-31.8
-11.1
-20.7
185.2
-0.5
19.7
-20.2
6.9
-4.9
4.4
-9.3
Ii
11.4
10.6
0.8
143.4
163.2
-19.8
0.5
6.1
-5.6
185.7
182.0
3.7
11.8
6.0
5.8
2C
-3
16.4
167.1
261.3
-59.8
-18.2
-Hi
667.9
1039.3
957.7
841.1
-11.3
8~
580.6
87.3
897.7
141.6
832.5
125.2
642.7
198.3
-40.9
29.7
6C
25
2
-(
55~
57f.
-1~
-4
]
-3
4
Hi
Net foreign purchases of U.S. securities (+)
Includes international and regional organizations
The reported division of net purchases of long-term securities between net purchases by foreign official institutions and r
of other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and 1O.a.4 on tJ
Net transactions in foreign securities by U.S. residents. Foreign purchases of foreign securities = U.S. sales of foreign se
Thus negative entries indicate net U.S. purchases offoreign securities, or an outflow of capital from the United State5
indicate net U.S. sales of foreign securities.
Minus estimated unrecorded principal repayments to foreigners on domestic corporate and agency asset-backed securitie:
estimated foreign acquisitions of U.S. equity through stock swapsestimated U.S. acquisitions of foreign equity through stock swaps +
increase in nonmarketable Treasury Bonds and Notes Issued to Official Institutions and Other Residents of Foreign C
These are primarily data on monthly changes in banks' and broker/dealers' custody liabilities. Data on custody claims an
quarterly and published in the Treasury Bulletin and the TIC web site.
"Selected Other Liabilities" are primarily the foreign liabilities of U.S. customers that are managed by U.S. banks or br01
TIC data cover most components of international financial flows, but do not include data on direct investment flows, whi
and published by the Department of Commerce's Bureau of Economic Analysis. In addition to the monthly data surr
http://WWw.treas.gov/presslreleases/hp403.htm
61712007
HP-403: TrL'lsury intcrnatioll'-ll (:ap\~al Data for March
Page 3 of3
TIC collects quarterly data on some banking and nonbanking assets and liabilities. Frequently Asked Question 1 on t
site describes the scope of TIC data collection.
REPORTS
•
(PDF) TIC Monthly Reports on Cross-Border Financial Flows (Billions of dollars, not seasonally adjusted)
http://www.treas.goY/press/releases/hp403.htm
61712007
-,
u.s. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
EMBARGOED UNTIL 9 a.m. EDT, May 15,2007
CONTACT Ann Marie Hauser, (202) 622-2960
TREASURY INTERNATIONAL CAPITAL DATE FOR MARCH
Treasury International Capital (TIC) data for March are released today and posted on the U.S.
Treasury web site (www.treas.gov/tic).Thenextrelease.whichwillreportondataforApril.is
scheduled for June 15,2007.
Net foreign purchases oflong-term securities were $67.6 billion.
•
Net foreign purchases oflong-term U.S. securities were $107.9 billion. Of this, net
purchases by foreign official institutions were $21.0 billion, and net purchases by private
foreign investors were $86.9 billion.
•
U.S. residents purchased a net $40.3 billion oflong-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have
been $56.3 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and
other custody liabilities increased $18.7 billion. Foreign holdings of Treasury bills increased $20.4
billion.
Banks' own net dollar-denominated liabilities to foreign residents decreased $29.9 billion.
Monthly net TIC flows were $45.0 billion. Ofthis, net foreign private flows were $16.6 billion, and
net foreign official flows were $28.5 billion.
TIC Monthly Reports on Cross-Border Financial Flows
(Billions of dollars , not seasonally adjusted)
2005
2006
12 Months Through
Mar-06
Mar-07
Dec-07
Jan-07
Feb-07
Mar-07
Foreigners' Acquisitions of Long-term Securities
I
2
3
Gross Purchases of Domestic U.S. Securities
Gross Sales of Domestic U.S. Securities
Domestic Securities Purchased, net (line I less line 2) /1
17157.5 21101.7
16145.9 19963.5
1011.5 1138.2
18012.8
16959.3
1053.5
22509.6
21356.5
1153.1
1847.4
1785.5
61.9
1819.4
1702.6
116.7
2015.9
1938.0
77.9
2604.5
2496.7
107.9
4
5
6
7
8
Private, net /2
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net
891.1
269.4
187.6
353.1
81.0
941.6
128.0
196.9
472.2
144.5
913.0
179.7
210.5
394.8
127.9
950.5
177.2
158.9
483.8
130.5
37.9
4.3
12.3
32.4
-II.I
104.4
20.4
20.0
40.7
23.3
65.3
14.4
-2.2
39.9
13.2
86.9
30.7
2.9
39.7
13.5
9
10
11
12
13
Official, net /3
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net
120.4
68.7
31.6
19.1
1.0
196.6
69.6
92.6
28.6
5.8
140.5
76.6
36.0
24.7
3.3
202.5
57.8
109.2
30.6
4.9
24.0
6.1
15.5
2.9
-0.5
12.3
-5.3
15.8
2.4
-0.6
12.6
2.5
4.2
5.5
0.3
21.0
4.4
12.6
2.7
3700.0
3872.4
-172.4
5572.2
5819.4
-247.1
4174.0
4350.1
-176.1
6118.4
6395.4
-277.0
521.3
570.1
-48.7
558.0
576.0
-18.0
600.0
619.7
-19.8
705.9
746.2
-40.3
-45.1
-127.3
-139.8
-107.4
-48.8
-127.4
-168.7
-108.3
-29.2
-19.5
-4.8
-13.2
-4.5
-15.3
-32.2
-8.1
839.1
891.1
877.4
876.1
13.2
98.8
58.1
67.6
-140.0
-153.3
-149.6
-160.4
-13.1
-15.1
-15.0
-11.3
699.1
737.8
727.8
715.7
0.1
83.6
43.1
56.3
-47.6
-58.9
·15.6
·43.3
134.4
-9.0
16.0
-25.0
-31.3
-31.8
-11.1
-20.7
185.2
-0.5
19.7
-20.2
6.9
-4.9
4.4
-9.3
17.9
1.2
-3.3
4.5
20.8
5.3
4.8
0.4
18.7
20.4
7.3
13.1
11.4
10.6
0.8
143.4
163.2
-19.8
0.5
6.1
-5.6
185.7
182.0
3.7
11.8
6.0
5.8
16.7
20.4
-3.7
15.6
14.6
1.0
-1.7
-4.5
2.7
16.4
167.1
261.3
-59.8
-18.2
-16.0
37.5
-29.9
667.9
1039.3
957.7
841.1
-11.3
85.5
101.5
45.0
580.6
87.3
897.7
141.6
832.5
125.2
642.7
198.3
-40.9
29.7
60.2
25.3
68.6
32.9
16.6
28.5
14
15
16
17
18
Gross Purchases of Foreign Securities from U.S. Residents
Gross Sales of Foreign Securities to U.S. Residents
Foreign Securities Purchased, net (line 14 less line 15) /4
Foreign Bonds Purchased, net
Foreign Equities Purchased, net
19
Net Long-Term Securities Transactions (line 3 plus line 16):
20
Other Acquisitions of Long-term Securities, net /5
21
22
Net Foreign Acquisition of Long-Term Securities
(lines 19 and 20):
27
28
Increase in Foreign Holdings of Dollar-denominated Short-term
U.S. Securities and Other Custody Liabilities: /6
U.S. Treasury Bills
Private, net
Official, net
Other Negotiable Instruments
and Selected Other Liabilities: 17
Pri vate, net
Official, net
29
Change in Banks' Own Net Dollar-Denominated Liabilities
23
24
25
26
30 Monthly Net TIC Flows (lines 21,22,29) /8
of which
31
Private, net
32
Official, net
/I
12
/3
/4
/5
/6
17
/8
Net foreign purchases of U.S. securities (+)
Includes international and regional organizations
The reported division of net purchases of long·term securities between net purchases by foreign official institutions and net purchases
of other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and lO.a.4 on the TIC web site.
Net transactions in foreign securities by U.S. residents. Foreign purchases offoreign securities = U.S. sales offoreign securities to foreigners.
Thus negative entries indicate net U.S. purchases offoreign securities, or an outflow of capital from the United States; positive entries
indicate net U.S. sales offoreign securities.
Minus estimated unrecorded principal repayments to foreigners on domestic corporate and agency asset-backed securities +
estimated foreign acquisitions of U.S. equity through stock swaps estimated U.S. acquisitions offoreign equity through stock swaps +
increase in nonmarketable Treasury Bonds and Notes Issued to Official Institutions and Other Residents of Foreign Countries.
These are primarily data on monthly changes in banks' and broker/dealers' custody liabilities. Data on custody claims are collected
quarterly and published in the Treasury Bulletin and the TIC web site.
"Selected Other Liabilities" are primarily the foreign liabilities of U.S. customers that are managed by U.S. banks or broker/dealers.
TIC data cover most components of international financial flows, but do not include data on direct investment flows, which are collected
and published by the Department of Commerce's Bureau of Economic Analysis. In addition to the monthly data summarized here, the
TIC collects quarterly data on some banking and nonbanking assets and liabilities. Frequently Asked Question I on the TIC web
site describes the scope of TIC data collection.
2
1.3
Page 1 of 8
May 10,2007
HP-404
Testimony of Chip Poncy
Director, Office of Strategic Policy,
for Terrorist Financing and Financial Crimes
U.S. Department of the Treasury
Before the U.S. Senate Homeland Security and Governmental Affairs
Committee
Washington, D.C.--Chairman Lieberman and Ranking Member Collins, and
distinguished members of the Committee, thank you for the opportunity to appear
before you today to discuss the efforts of the U.S. Department of the Treasury
(Treasury) to conduct private sector outreach and develop a better understanding
of Muslim-American communities. Treasury's primary focus in outreach to the
charitable sector and to these affected communities, concerns the ongoing risk of
terrorist organizations' abuse and exploitation of charities, as well as using
preventive measures to combat such abuses.
I.
Introduction
Before describing Treasury's efforts to address these challenging issues, I would
like to make three introductory points. First, as I will explain more fully in discussing
various outreach initiatives, Treasury enjoys a broad-based relationship with the
Muslim community here in the United States and abroad, in the private sector and
with the governments of Muslim countries. This relationship not only includes
critical and constructive engagement on combating terrorist financing and other
threats, but also encompasses economic dialogues on development and financial
markets.
Second, it is critical to clarify up front what violent Islamist extremism means and
what it does not mean in the context of our counter-terrorist finanCing campaign and
broader counter-terrorism mission. As Treasury and the Administration, the
Congress and this Committee have repeatedly recognized, our global war against
terrorism is not an attack against Islam or any religion, nor is it an attack against the
fundamental freedoms of speech or expression. Rather, our war on terror is
focused on AI Qaida and other terrorist organizations that seek to pervert and
distort one of the great religions of the world in order to justify their violent agendas,
intolerant ideologies and terrorist methods.
Third, I would like to recognize at the outset of my testimony that Treasury's role in
combating terrorist financing - and in advancing the broader counter-terrorism
mission of the U.S. Government (USG) - relies upon the leadership and support of
the Congress and the interagency, international and private sector communities.
Since September 11, 2001, and under the direction of the Administration and the
Congress, Treasury has worked together with its law enforcement, regulatory and
intelligence partners from across the interagency community, international
counterparts from finance ministries around the world, state and local governments,
and the private sector to help develop and implement a comprehensive and multifaceted counter-terrorism strategy that degrades the capacity of terrorist
organizations and their support networks. Such communication, coordination and
collaboration across these relationships are essential to the success of our efforts.
To advance our counter-terrorist financing campaign and the broader counterterrorism mission, we must aggressively apply our authorities and resources to
identify, disrupt and dismantle these terrorist organizations and discredit their view
of the world. This includes understanding how violent Islamist extremists can
nttp://WWw.treas.gov/press/rel~as~s/hp404.htrn
6/7/2007
Page 2 of8
function as key members of terrorist organizations and facilitators of terrorist
activity, and taking appropriate action against such individuals. This also includes
partnering with our Muslim neighbors, communities and allies to promote tolerance,
advance fundamental rights such as the freedoms of speech and expression,
protect all citizens of the world against terrorist attacks, and counter the message of
violent Islamist extremism that al Qaida and other organizations often rely on to
cultivate support for their actions.
In order to fully appreciate how Treasury's efforts to combat terrorist financing and
protect the charitable sector from abuse further the overall USG effort to counter
violent Islamist extremism, it is useful to briefly review the general mission of
Treasury's Office of Terrorism and Financial Intelligence (TFI) and to highlight
certain elements of TFI's broad counter-terrorist financing strategy. I would then
like to focus on Treasury's specific outreach efforts to engage the Muslim and
charitable communities, and how these efforts can be particularly effective in
isolating and countering violent Islamist extremism.
II.
TFl's Counter-Terrorist Financing Efforts of Particular Relevance to
Countering Violent Islamist Extremism
In 2004, the Congress and the Administration improved Treasury's ability to
contribute to the counter-terrorist financing campaign and the broader war on terror
through the creation of the Office of Terrorism and Financial Intelligence (TFI).
TFI's overarching mission is to marshal Treasury's unique regulatory, enforcement,
intelligence, and policy authorities and capabilities with the twin aims of: (i)
safeguarding the financial system against illicit use, and (ii) combating rogue
nations, terrorist facilitators, WMD proliferators, money launderers, drug kingpins,
and other national security threats through the development and application of
financial information and economic and financial measures. It is the only office of
its kind in the world.
Combating terrorist financing as an essential element of the broader war on terror
continues to be a primary focus across TFI. I would like to briefly mention those
particular elements of TFI's counter-terrorist financing strategy that are also
relevant in countering violent Islamist extremism. These include:
identifying typologies of terrorist financing support networks and the
vulnerabilities of those networks to targeted sanctions and other financial
measures;
• developing and implementing effective targeted sanctions regimes and
other financial measures against terrorist organizations and their support
networks to identify, disrupt, deter and ultimately prevent such support
networks from providing terrorists with the resources they need to operate;
• globalizing implementation of international standards to combat terrorist
financing, and
• combatting terrorist exploitation of charities.
•
Of these particular elements of TFl's strategy to combat terrorist financing, I would
like to focus on our efforts to combat terrorist exploitation of charities. It is these
efforts that form the basis of our outreach to the charitable and Muslim-American
communities.
Combating terrorist exploitation of charities
Combating terrorist exploitation of the charitable sector represents an important
component of TFI's counter-terrorist financing strategy and is of particular relevance
to countering violent Islamist extremism. Terrorist organizations often establish or
infiltrate charities to raise funds and support for their activities and operations.
Charities are an attractive target for terrorist organizations for a variety of reasons,
including:
•
Charities enjoy the public trust, have access to considerable sources of
funds, and are often cash-intensive.
http://www.treas.gov/pre66/release~/hpA04.htm
61712007
Page 3 of8
•
•
•
•
•
•
Some charities have a global presence that provides a framework for
national and international operations and financial transactions, often within
or near those areas that are most exposed to terrorist activity.
Depending on the legal form of the charity and the country of origin,
charities may often be subject to little or no governmental oversight (for
example, registration, record keeping, reporting and monitoring), or few
formalities may be required for their creation (for example, there may be no
skills or starting capital required, no background checks necessary for
employees).
Unlike for-profit organizations, charitable funds are meant to move in one
direction only. Accordingly, large purported charitable transfers can move
without a corresponding return of value.
Charities attract large numbers of unwitting donors along with the witting,
thus increasing the amount of money available to terrorist organizations.
The legitimate activities of charities related to terrorist organizations - such
as the operation of schools, religious institutions, and hospitals - create
fertile recruitment grounds, allowing terrorists to generate support for their
causes and to propagate violent and extremist ideologies.
By providing genuine relief and development services - as nearly all of the
charities associated with terrorist organizations do - these charities benefit
from public support, generating reluctance by many governments to take
enforcement action against them.
Terrorist organizations have taken advantage of these characteristics to infiltrate
the charitable sector and exploit charitable funds and operations to cover for or
support terrorist activities or agendas. As explained in Section III below, the
ongoing nature of such terrorist exploitation is well documented and described in
the annex to Treasury's revised Anti-Terrorist Financing Guidelines: Voluntary Best
Practices for U.S.-Based Charities (Voluntary Guidelines).
In response to this ongoing threat, TFI has worked with its interagency partners to
develop a four-pronged strategy to combat such exploitation:
A. Enhancing transparency of the charitable sector through coordinated oversight;
B. Protecting the integrity of the charitable sector through targeted enforcement
actions;
C. Raising awareness of terrorist financing threats and risk mitigation practices in
the charitable sector through comprehensive and sustained outreach; and
D. Multi-Iateralizing our efforts through international engagement.
Each element of this strategy is briefly discussed in turn below.
Enhancing transparency of the charitable sector through coordinated
oversight: Strengthening the transparency of the charitable sector combats
exploitation by terrorist organizations and abuse more generally by allowing
charitable organizations, donors, and government authorities to better understand,
oversee and detect abusive activity in the sector. In the U.S., the transparency of
the charitable sector is managed by a three-level web of oversight consisting of: (i)
the federal government; (ii) state authorities; and (iii) the private sector. At the
federal level, the primary vehicle for oversight of charities is the federal tax system,
administered by the Internal Revenue Service (IRS). The IRS oversees the
charitable sector through its Tax Exempt and Government Entities Operating
Division (TEGE). Additionally, U.S. states have agencies with oversight
responsibilities over any charity raising money in that state, no matter where the
charity is domiciled. Thirty-nine states require any such charity to register with
them. Finally, a key element of the U.S. system is the self-regulation and selfpolicing performed by private sector bodies.
TFI and the IRS have worked together to strengthen the transparency of the
charitable sector across federal, state and private sector interests through
coordinated and enhanced oversight and outreach. Recent and ongoing efforts
include the revision of federal tax forms such as the revised Form 1023 application
for tax-exempt status, collaboration and awareness raising regarding terrorist
financing risks and risk mitigation practices with state authorities such as the
iJ.ttv://WWw.tre(:)B.gov/press/relea~esJhp.404.htrn
6/7/2007
Page 4 of8
National Association of State Charities Officials (NASCO) and the National
Association of State Attorney Generals (NAAG), and with private sector umbrella
groups such as Independent Sector, the Council on Foundations, the Evangelical
Council for Financial Accountability (ECFA), the Better Business Bureau Wise
Giving Alliance, and the Islamic Society of North America. These efforts, coupled
with TFI's outreach efforts described below, have improved the transparency of the
charitable sector, making it more difficult for terrorist organizations to penetrate and
exploit charitable and donor communities.
Protecting the integrity of the sector through targeted enforcement actions:
TFI and the IRS, including TE/GE and the Criminal Investigative Division, work with
the Federal Bureau of Investigation (FBI), the Department of Justice and other
interagency partners to investigate and combat cases of terrorist financing in the
charitable sector through targeted regulatory and law enforcement investigations,
information sharing, terrorist financing designations, and criminal prosecutions. To
date, the U.S. has designated five U.S.-based charities for terrorism related
activities, blocked the assets of another U.S.-based charity in aid of investigation,
and designated an additional 39 international charities for terrorist financing.
Additionally, there have been a number of criminal prosecutions, including the
leader of a U.S-based charity for fraud and racketeering based on terrorist financing
activity; an indictment of the largest Muslim-American charity and its leadership on
terrorist financing-related charges, and several investigations of other charities
suspected of terrorist activity. Many of these investigations are ongoing.
Raising awareness of terrorist financing threats and risk mitigation practices
in the charitable sector through comprehensive and sustained outreach:
Identifying, attacking and protecting against terrorist abuse of charities require the
active support of charities themselves. The government and the charitable sector
share common interests in promoting and protecting charitable giving. Through
active engagement with the charitable sector, TFI and its interagency partners are
fostering awareness of terrorist financing risks to the charitable sector, explaining
USG efforts to combat this ongoing abuse, and clarifying and improving ways in
which the sector can mitigate these risks through best practices. These outreach
efforts are described in greater detail below.
Multi-Iateralizing our efforts through international engagement: The threat of
terrorist financing through charities is clearly an international one and requires the
understanding, cooperation and collaboration of our international partners. Through
bilateral engagement and multilateral bodies such as the Financial Action Task
Force (FATF), TFI and its interagency partners have: (i) published typologies of
abuse to improve the global understanding of the terrorist threat to the charitable
sector; (ii) established international standards, best practices and informationsharing channels to combat terrorist financing in national charitable sectors and
international charitable organizations; (iii) improved global oversight of the
international charitable sector; (iv) encouraged investigative techniques for
detecting terrorist abuse of charities, and (v) multi-Iateralized terrorist financing
designations against international charities and charitable officials supporting
terrorist organizations.
These comprehensive efforts to combat terrorist exploitation of the charitable sector
are particularly important in countering violent Islamist extremism for two reasons.
First such efforts attack a primary means of fundraising for terrorist organizations,
thereby depriving violent Islamist extremists and their adherents from a particularly
effective way of providing the funds necessary to execute terrorist activities and
operations. Second, these efforts prevent terrorist organizations and violent
Islamist extremists from leveraging relief and development assistance to win
popular support from vulnerable populations and to recruit and radicalize additional
members and operatives for a terrorist organization.
As discussed in the section on outreach below, such an aggressive strategy in
combating terrorist exploitation of charities requires a robust outreach effort to
charitable and Muslim communities to ensure that they understand the nature of the
threat of terrorist exploitation, the basis of USG actions to combat this threat, and
the efforts that they can undertake to mitigate the risk of terrorist abuse.
nttp:llwww.treas.gov/prc~~/release6/hp404.htm
61712007
Page 5 of8
III.
Treasury's Outreach Efforts to the Muslim-American and Charitable
Communities
In addition to countering violent Islamist extremism through the particular elements
of TFI's counter-terrorist financing strategy discussed above, Treasury is
addressing this threat more directly by working with its partners in the interagency
community and the Muslim-American and charitable communities to:
A.
Sustain a comprehensive outreach campaign to explain and address
the threat of terrorist exploitation of the charitable sector; and
B.
region.
Support a broad economic dialogue with the Middle East / North Africa
The overarching objective of this outreach campaign and economic dialogue is to
better understand and address the challenges facing the moderate Islamic
community and the charitable sector and to support the development and
integration of the moderate Islamic community into American society and the global
economy, thereby alienating violent Islamist extremists and minimizing their ability
to generate support or sympathy for terrorist organizations, agendas or
ideologies.
A.
Charitable and Muslim-American Outreach
Our outreach to the charitable and Muslim-American communities generally
consists of an ongoing discussion relating to the following four fundamental points:
(i)
The USG recognizes and strongly supports the essential role of charity in
Muslim, American and global society.
Almsgiving is an important expression of religious faith for Muslims throughout the
world. Charity is one of the pillars of Islam, pursuant to which observant Muslim
men and women have a duty to give a certain percentage of their earnings to
specified recipients (Zakat), as well provide alms throughout the year (Sadaqah).
Such giving builds local communities, and also links these communities to the other
parts of the world. It is important to recognize and respect this role of charity in the
Muslim faith.
It is also important to note that charitable giving and philanthropy is a core
American value and an integral part of American culture and society. As an
example, in recent years the American people have donated more than $200 billion
annually to charitable causes, including to Muslim populations such as those
affected by the 2004 tsunami in Indonesia and Southeast Asia and the 2005
earthquake in Pakistan.
The USG strongly encourages such expressions of charity, as evident by the
favorable tax treatment that charities and donors receive under the Internal
Revenue Code. We will continue to work with the Muslim-American community and
the charitable sector to promote the practice of charitable giving in ways that are
safe and effective.
(ii)
Terrorist organizations continue to effectively exploit charity to finance their
operations and to cultivate broader support from vulnerable populations.
As described above, various characteristics of the charitable sector make it
particularly vulnerable to terrorist abuse, by both witting and unwitting charities and
donors. Such abuse may involve the narrow diversion of funds intended to support
charitable activities but redirected for terrorist operations or activities. A more
common problem with well-organized terrorist groups such as Hezbollah or Hamas
is the broader exploitation of charitable services to radicalize vulnerable populations
and cultivate support for terrorist organizations, agendas and ideologies. Often,
charitable and Muslim communities are not aware of this problem of broader
exploitation because their charitable funds are actually used for charitable
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purposes. A problem arises, however, when a terrorist organization controls and
administers such charity in ways that recruit support and radicalize communities
that begin to rely on the terrorist organization for assistance.
As described below, the ongoing nature of such broad terrorist exploitation is well
documented and described in the annex to Treasury's revised Voluntary
Guidelines. It is critical that our sustained outreach to the charitable and Muslim
communities conveys the nature and depth of this abuse.
The USG has developed and is applying a comprehensive strategy to
(iii)
combat terrorist abuse of charity through a comprehensive four-pronged strategy.
Another critical component of our outreach message involves a clear explanation of
the USG's four-pronged approach to combating terrorist exploitation of the
charitable sector, as described above. Misperceptions of USG actions to combat
terrorist exploitation of the charitable sector, including through the use of targeted
sanctions and independent criminal investigations against those charities that
operate as part of a terrorist organization's support network, may foster a sense
that the USG is unfairly targeting Muslim communities or Muslim charity. Clear and
sustained outreach is necessary to explain the USG approach and to address any
such misperceptions before they become grounds for victimization and alienation.
It is also essential to explain and underscore the importance of legal safeguards
that remain in place for those under investigation or sanctioned pursuant to
designation under Executive Order 13224.
The USG and the charitable sector must work together to promote safe and
(iv)
effective charitable activity and to protect the sector from terrorist exploitation.
The fourth fundamental element of our outreach to the charitable and Muslim
communities is the need for the USG and these communities to work together to
overcome the threat of terrorist exploitation of charity. A good example of how this
partnership can produce significant results is the revision and issuance of
Treasury's Voluntary Guidelines, based on extensive consultation between
Treasury and the charitable and Muslim communities.
The revised Voluntary Guidelines are designed to enhance awareness in the donor
and charitable communities of the kinds of practices that charities may adopt to
reduce the risk of terrorist financing or abuse. Treasury first released the Voluntary
Guidelines in November 2002 and solicited feedback from the charitable sector,
which indicated that the Voluntary Guidelines could be substantially improved to
assist in identifying reasonable yet effective measures to protect against terrorist
abuse. In December 2005, based on extensive review and comment by public and
private sector interested parties, Treasury revised and released the revised
Voluntary Guidelines in draft form for further public comment. Based on the
comments received, Treasury further amended the Voluntary Guidelines to improve
their utility to the charitable sector in adopting practices that can better protect it
from terrorist exploitation.
Charities and donors are encouraged to consult the revised Voluntary Guidelines
when considering protective measures to prevent infiltration, exploitation, or abuse
by terrorists. In addition, the revised Voluntary Guidelines are intended to assist
charities in understanding and facilitating compliance with preexisting U.S. legal
requirements related to combating terrorist financing, which include various
sanctions programs administered by TFI's Office of Foreign Assets Control. These
pre-existing legal requirements are clearly marked in the text of the revised
Voluntary Guidelines.
The revised Voluntary Guidelines are also clearly risk-based, reflecting Treasury's
recognition that a "one-size-fits-all" approach is untenable and inappropriate due to
the diversity of the charitable sector and its operations. Moreover, Treasury
acknowledges in the revised Voluntary Guidelines that certain exigent
circumstances (such as catastrophic disasters) may make application of the revised
Voluntary Guidelines difficult. In such cases, the revised Voluntary Guidelines
advocate that charities should maintain a risk-based approach that includes all
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prudent and reasonable measures that are feasible under the circumstances.
The revised Voluntary Guidelines also explicitly acknowledge the vital importance of
the charitable community in providing essential services around the world, the
difficulty of providing assistance to those in need, often in remote and inaccessible
regions, and the laudable efforts of the charitable community to meet such needs.
As stated in the introductory section of the revised Voluntary Guidelines, the goal of
the guidance is to facilitate legitimate charitable efforts and protect the integrity of
the charitable sector and good faith donors by offering the sector ways to prevent
terrorist organizations from exploiting charitable activities for their own benefit.
Finally, the revised Voluntary Guidelines include an annex that chronicles the
nature of terrorist abuse of charities. The annex notes the exploitation of relief
efforts by Lashkar e Tayyiba (a.k.a. Jamaat-ud-Dawa) and other terrorist-related
charitable organizations or charitable fronts following the October 2005 earthquake
in South Asia; the critical role of Hamas-associated charities in building popular
support for the Hamas terrorist organization in the Palestinian territories, and
Hezbollah's effective and substantial control of the charitable distribution networks
in southern Lebanon as some prominent examples among many that demonstrate
the ongoing intent and effectiveness of terrorist organizations in exploiting
charitable organizations and relief efforts.
TFI, in coordination with its interagency partners, recently released a risk matrix for
charities to better understand relevant risk factors in applying the revised Voluntary
Guidelines. TFI, in coordination with its interagency partners, has also recently
discussed with the Muslim-American community ways to build upon these efforts
with additional products that may help the community better understand how to
apply the Guidelines under particularly challenging circumstances where the
delivery of assistance is desperately needed but where the risk of abuse is also
extremely high. We will continue to explore ways to help address such particularly
challenging circumstances, in consultation with the private sector and our
interagency partners.
In order to convey and engage the charitable sector and Muslim community on
these four fundamental points, TFI, together with officials from the FBI and the
Department of Homeland Security, has participated in numerous outreach
programs in cities such as Boston, New York City, Chicago, Los Angeles, Detroit
and Dearborn, Michigan. These events often take the form of "town hall meetings"
and address the nature of the ongoing terrorist threat, our counter-terrorism efforts,
and how we can work cooperatively with the Muslim and Arab-American
communities. Such meetings also provide a forum for communities to express
concerns and comment on our efforts. Another important partnership is our work
with NAAG and NASCO, whose state-based resources and contacts are vital to
getting our message out to the widest audience.
TFI also maintains a number of publicly available web sites and resources, which
provide helpful materials related to terrorism financing, U.S. sanctions programs,
and risks of terrorist abuse. These offer materials that range from a comprehensive
list of designated terrorist organizations and individuals, frequently asked questions,
typologies of terrorist behavior, and brochures to a public "hotline". In response to
suggestions from the charitable and Muslim-American communities, TFI has also
developed a particular web page devoted to terrorist financing issues that impact
charities. Treasury is continually updating these materials to reflect changes in law
and regulations, additions to the designations list and the emergence of new
terrorist risks.
B.
A Broad Economic Dialogue with the MENA Region
As noted in my introduction, Treasury's engagement with the Muslim community is
not limited to discussing terrorist financing-related issues, but rather includes broad
economic ties that Treasury has cultivated throughout the Middle East and North
Africa (MENA) region. Treasury regularly meets with Arab-Muslim leaders and
bankers as part of its regular course of business, and through formal and informal
private sector dialogues, to discuss issues affecting financial markets, as well as
the effect of AMLlCFT controls on business developments. More generally,
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Treasury is engaged in a broad effort to expand financial and economic
relationships across the Muslim world in a variety of ways. In 2004, Treasury
launched the G8-Broader MENA Initiative. Recently, Treasury launched a series of
direct bilateral efforts with its colleagues in the Gulf Cooperation Council Countries
(GCC). Additionally, Treasury continues to be extremely active in providing
economic reconstruction assistance, working in particular through the Afghan and
Iraq Compacts. Similarly, Treasury helped to lead the economic aspects of U.S.
and international relief efforts after the tsunami in Southeast Asia and earthquakes
in Pakistan and Indonesia.
Another of Treasury's broader initiatives regarding outreach to the Muslim
community is the U.S.-Middle East and North Africa Private Sector Dialogue (USMENA PSD). This dialogue, which links the banking and regulatory communities
from the U.S. and MENA regions, focuses on the ongoing challenges relating to the
development and implementation of effective AMLlCFT controls in the banking
sector, with the goal of facilitating effective and efficient AMLlCFT implementation
and paving the way for business development interests and commercial
relationships. To date, we have organized two conferences, and the third USMENA PSD conference is scheduled to take place in December 2007 in Dubai.
Our interaction supports moderates within the Muslim faith and allows us to build
new relationships with organizations from the Muslim-American communities, like
the Arab Bankers Association of North America (ABANA).
Treasury is also working with the Muslim/Arab American communities to help
restore confidence in the integrity of the charitable sector. For example, we are
actively working with professional organizations such as the Muslim
Advocates/National Association of Muslim Lawyers to develop outreach efforts
specifically geared towards the Muslim-American philanthropy. The goal is to have
such organizations take responsibility for their own governance and to provide
assistance to their members.
Conclusion
In closing, I would like to underscore the importance of maintaining a
comprehensive approach to defeating violent Isla mist extremism. As members of
this Committee have noted, there is no silver bullet to defeating violent extremism
or absolutism of any kind. Instead, we must continue to work with our interagency
partners, international counterparts, state and local authorities, and the private
sector to aggressively apply our authorities and resources pursuant to the broader
USG strategy to combat global terrorism. We must also continue to aggressively
engage in outreach to the charitable and Muslim communities about the threats we
face and the actions we are taking to combat these threats. And we must
remember that the moderate Islamic community is our most important asset in this
long-term struggle.
In the years since September 11th, we have made substantial progress in forging
and strengthening the necessary relationships across various agencies and
bureaucracies, as well as across nationalities and geographic and cultural
boundaries, but much work still needs be done. I am confident that with the
continued leadership of the Congress, the Treasury, our interagency partners
across the Administration, and our friends and allies at home and abroad, that we
will successfully overcome the challenges that lie before us. And I am honored to
continue to serve as a part of this historic effort.
Thank you for the opportunity to speak with you today. I am happy to answer any
questions you may have.
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May 16, 2007
HP-406
U.S. Special Envoy for China Alan Holmer
to Hold Strategic Economic Dialogue Press Briefing
U.S. Special Envoy for China Alan Holmer will hold two press briefings Friday in
advance of the Strategic Economic Dialogue meeting in Washington, D.C., next
week.
•
•
•
•
Who U.S. Special Envoy for China Alan Holmer
What Strategic Economic Dialogue Press Briefing
When 9 a.m., Friday, May 18
Where Media Room 4121
Treasury Department
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
Note This is a pen and pad briefing, no cameras. Media without Treasury press
credentials planning to attend must contact Frances Anderson in Treasury's Office
of Public Affairs at (202) 622-2960 or (202) 528-9086 with the following information:
name, Social Security number and date of birth. This information may also be
emailed to frances.anderson@do.treas.gov.
• Who U.S. Special Envoy for China Alan Holmer
• What Strategic Economic Dialogue Press Briefing
• When 3 p.m., Friday, May 18
• Where Washington Foreign Press Center
800 National Press Building
529 14th Street, NW
Note This is a pen and pad briefing, no cameras, for credential foreign media only.
For more information contact Gabrielle Price at PriceGM@state.gov or (202) 5046320.
- 30 -
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May 17, 2007
HP-407
Paulson: Financial Reporting
Vital to US Market Integrity, Strong Economy
Washington, DC- The Financial Times published the following opinion editorial
today from U.S. Treasury Secretary Henry M. Paulson, Jr., discussing the first
stage of his plan to enhance U.S. capital markets competitiveness:
The Key Test of Accurate Financial Reporting is Trust
By Henry Paulson
Accurate and transparent financial reporting is vital to the integrity of our capital
markets and the strength of the US economy. In an address last November, I spoke
about the importance of strong capital markets, pointing out that capital markets
rely on trust. That trust is based on financial information presumed to be accurate
and to reflect economic reality.
Our capital markets are the best in the world and so is our financial reporting
system. We must work to keep them that way. On Thursday, the Treasury
department is announcing several important steps to ensure we preserve an
efficient financial reporting system that provides reliable information, is supported
by a sustainable auditing industry, and has enhanced compatibility with foreign
reporting standards.
In March, Christopher Cox, the Securities and Exchange Commission chairman,
and I co-chaired a conference on capital markets competitiveness. Financial
reporting was one of the main topics of discussion.
A strong auditing profession is essential for a well-functioning reporting system. The
auditor's role is key: to examine financial statements and express an opinion that
conveys reasonable, but not absolute, assurance as to the truth and fairness of
those statements. The Sarbanes-Oxley Act of 2002 enhanced financial reporting
integrity, including mandating major changes affecting the auditing profession. The
act created the Public Company Accounting Oversight Board to replace selfregulation, and mandated auditor independence requirements. As these changes
took effect, new challenges arose. We now have fewer major accounting firms, and
legitimate questions about the sustainability of the auditing profession's business
model.
These new challenges require understanding and solutions. To achieve this, the
Treasury has asked Arthur Levitt, former SEC chairman, and Donald Nicolaisen,
former SEC chief accountant, to serve as co-chairs of a non-partisan committee to
address auditing industry concentration, and to consider options available to
strengthen the industry's financial soundness and its ability to attract and retain
qualified personnel. Through this public forum, investors, advocates, and
companies can present a wide range of views, engage in informed debate and
provide recommendations.
In addition to changes in the auditing profession, Section 404 of Sarbox
appropriately emphasised the importance of internal controls over financial
reporting. However, implementation has proven more costly and burdensome than
originally anticipated. Mr Cox, Mark Olson, PCAOB chairman, and their
commissioners and board members have sought to improve the application of
Section 404. A more risk-based implementation will be a positive step.
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Another emerging challenge is the soaring number of financial restatements over
the past decade. In 1997, there were 116 restatements; in 2006, there were 1,876,
or more than 10 per cent of public companies. Restatements pose significant costs
on our capital markets. They have the potential to confuse investors and erode
public confidence in financial reporting. Some of these restatements might not be
material to investors, and others may simply reflect new accounting standards
interpretations.
This volume of restatements reflects, in part, the complexity of our financial
reporting system. Mr Cox and Robert Herz, Financial Accounting Standard Board
chairman, are to be commended for their efforts to reduce that complexity. To
complement this move, the Treasury intends to commission a rigorous analysis of
factors driving financial restatements, and their impact on investors and the capital
markets.
The increasing globalisation of our markets also means that we must enhance the
comparability of foreign company financial statements. Mr Cox's leadership has
been instrumental. He has taken positive steps towards the convergence of US
GAAP and International Financial Reporting Standards, and eliminating the US
GAAP reconciliation requirements for IFRS-reporting foreign companies by 2009.
As the SEC has said, its actions are key steps "toward a future regulatory
framework in which IFRS may be used on a stand-alone basis by foreign private
issuers and possibly also by US issuers." When fully implemented, this will enhance
financial statement consistency and facilitate cross-border transactions and cash
flows.
We will pursue each of these initiatives, and other steps that will be part of the
broader competitiveness discussion, to ensure that US capital markets remain
efficient, innovative and continue to drive capital to its most productive uses. Our
markets must retain the integrity and efficiency that has contributed greatly to
prosperity in America and around
The writer is US Treasury secretary
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May 17, 2007
HP-408
Paulson Announces First Stage of Capital
Markets Action Plan
Washington, DC- US Treasury Secretary Henry M. Paulson, Jr. announced
initiatives today to enhance U.S. capital markets competitiveness, focused on
strengthened financial reporting and a more sustainable and transparent auditing
profession.
"Strengthening the competitiveness of America's capital markets has been a priority
issue for me since taking office," said Secretary Paulson. "I have listened carefully
to many diverging views on this issue, and I heard a common theme throughout: A
transparent financial reporting system and vibrant auditing profession form the
backbone of a marketplace investors can trust. Any plan to strengthen our capital
markets must be based upon this principle."
Today's initiatives are one piece of the follow up from the Capital Markets
Competitiveness conference Secretary Paulson and Securities and Exchange
Commission Chairman Christopher Cox co-chaired in March. At that conference,
financial reporting was one of the main topics of discussion among leading experts
representing investors, auditors, public companies and financial regulators. The
conference raised other issues important to the competitiveness of our capital
markets, and Treasury will be unveiling plans to follow up in those areas in the near
future.
Today's initiatives are part of an ongoing effort to address the issues affecting U.S.
capital markets competitiveness. Initiatives announced include:
Provide Investors with A Transparent and Sustainable Auditing System The
Treasury Department intends to charter a non-partisan committee to develop
recommendations to consider options available to strengthen the industry's financial
soundness and its ability to attract and retain qualified personnel. Treasury has
asked former SEC Chairman Arthur Levitt, Jr. and former SEC Chief Accountant
Donald T. Nicolaisen to serve as co-chairs for this public forum.
Gain Better Understanding of Reasons for Increasing Financial Restatements
Restatements have soared during the past decade from 116 in 1997 to 1,876 in
2006. Treasury intends to commission a rigorous analysis of the factors driving
financial restatements and their impact on investors and the capital markets.
Results of the analysis will be made public upon completion.
Additionally, the Treasury Department believes the following initiatives are
important to maintaining the competitiveness of our capital markets:
Enhance Financial Reporting U.S. Generally Accepted Accounting Principles are
comprised of more than 2000 individual pronouncements issued by various
regulatory bodies. Investors often seek information not provided under financial
reporting requirements. The Treasury Department is supportive of the SEC and the
Financial Accounting Standards Board's efforts to enhance financial reporting
transparency and accessibility for investors.
Streamline Accounting Requirements to Encourage International Companies
to List on U.S. Exchanges and Increase Investor Opportunities U.S. public
markets should not be closed off to companies that adhere to high quality
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internationally accepted accounting standards. The Treasury Department is
supportive of the SEC's action to eliminate the U.S. GAAP reconciliation
requirement by 2009 of International Financial Reporting Standards reporting
companies and the continued convergence of U.S. GAAP and IFRS.
Secretary Paulson will continue to provide follow up steps to other ideas discussed
at the March conference.
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May 17, 2007
HP-409
Under Secretary for Domestic Finance
Robert K. Steel
Remarks Before the Council on Competitiveness
"Strengthening our Capital Markets
Competitiveness"
Washington, DC- Thank you very much. Deborah, thank you for that introduction
and to everyone gathered here this morning, thank you for welcoming me.
It is a privilege to be here at the Council on Competitiveness. You are fortunate to
have Deborah's strong leadership. She has served here at the Council since 1993
and has helped your organization develop a great reputation of excellence.
For nearly two decades, the Council on Competitiveness has brought together our
nation's business, academic and labor leaders to help us chart a course for global
competitiveness. Your mission reflects a commitment to the future prosperity of all
Americans and enhanced U.S. competitiveness in a global economy. These
important objectives echo one of Secretary Paulson's key goals for the Treasury
Department - to encourage the competitiveness of U.S. capital markets.
Strengthening our Bridge
Today, Secretary Paulson announced the first stage of his plan to enhance U.S.
capital markets competitiveness. These steps focus on strengthening financial
reporting to enhance investor protection and encourage a vibrant, sustainable
auditing profession. I will discuss today's announcement in more detail, but first
would like to offer some general perspectives on how we think about issues of
competitiveness.
For some, optimism about the future of our capital markets comes less easily today.
We at Treasury do not share that view. Instead, we start with the fact that our
markets are the strongest in the world. Earlier in this decade, our markets passed
safely through several perils, including the burst of the technology bubble, a terrorist
attack and a series of corporate accounting scandals. Today, our economy is
healthy - the labor market is strong. core inflation is contained and we are
transitioning from an unsustainable to a sustainable rate of growth. Our markets are
deep, vibrant and efficient, and our financial system remains the envy of the world.
We plan to keep things that way. Maintaining this leadership requires having the
confidence to continually self-assess our position and when appropriate, make
changes or adjustments. For that reason, Secretary Paulson has asked the
Treasury Department to engage in a broad, ongoing initiative to strengthen the
competitiveness of our capital markets.
Our efforts kicked off last November with a major speech by Secretary Paulson in
New York, which served to frame the issues. Since his address, an enriching period
of public discourse has followed, highlighted by the release of three separate and
independent reports. In March. Secretary Paulson hosted a conference on capital
markets competitiveness. We heard from key policymakers, consumer advocates,
business representatives and academics, each with different perspectives on ways
to keep U.S. capital markets the strongest and most innovative in the world.
The many voices involved both in our conference and the three reports have
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illuminated the vital role capital markets play in our economy.
Markets serve as a bridge, connecting suppliers of capital with users of capital.
They connect those who have resources to invest with those who could use this
capital to turn new ideas into businesses, generating jobs and contributing to the
economy.
The most effective bridges allow participants and their capital to cross from one
side to the other with as little friction as possible. Effective bridges facilitate an
open. transparent flow of information, and are built on strong pillars of investor
protection, market integrity and risk mitigation.
The structure, management and regulation of a bridge are each crucial. We seek to
ensure that the policies in place for managing our bridge are effective in protecting
investors and consumers, while at the same time enhancing the entrepreneurial
spirit and innovation that has made America great.
As keepers of our bridge, we must carefully consider what measurements we will
use to gauge the strength of our markets, not just for today but also for the future.
The indicators we examine include more than just public offerings. IPOs have
become an often-referenced benchmark of capital markets competitiveness, but
focusing solely on that measurement is too simple and not forward-looking enough.
We should start with a global vision and look broadly at measures that gauge our
ability to foster human capital, encourage innovation and reward efficiency. As
these conditions are met, we will continue to excel in areas such as:
•
•
•
•
•
skills for asset management;
alternative asset management, such as venture capital, private equity and
hedge funds;
trading and execution models characterized by leading-edge technology;
innovation in all types of investor products, including listed and unlisted
derivatives;
and the accessible advice of a trusted advisor for governments, companies
and investors.
By most measurements we remain the uncontested world leader. We are well
ahead of the rest of the world in mutual fund and hedge fund assets, venture capital
and private equity, securitization, syndicated loans, and yield in equities and
exchange-traded derivatives.
•
•
•
•
•
45% of global mutual fund assets are housed in the U.S., compared to 35%
in Europe and 11 % in Asia.
Of the $2.1 trillion in global hedge fund assets, $1.5 trillion resides here in
the U.S.
Worldwide, there are 351 hedge funds with at least a $1 billion in assets,
and almost 70% (241) of them are located in the U.S.
Last year, more than 80% of outstanding OTC foreign exchange derivatives
worldwide were in the U.S. Dollar.
The number of futures contracts traded on organized exchanges in the U.S.
in 2006 was 1.3 times higher than what was traded in Europe and more
than 5 times higher than trading volume in Asia.
Let's be straightforward here: Financial markets in the U.S. are second to none. Our
exchanges in New York and Chicago, asset management industry based all across
the U.S., and commercial and investment banks with a global reach are unrivaled
on an international scale. Additionally, our accounting and auditing professions,
legal advice and management and consulting industries are the strongest in the
world.
Globalization is an Opportunity to Advance our Leadership
Certainly, our markets are not immune to challenges. But we view challenges as an
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opportunity to improve - to make the best capital markets even better. Often when
you are doing well proves to be the best time to focus on improvement. We are a
nation and an economy that overcomes challenges and creates solutions.
Americans are a creative, innovative people; we are entrepreneurs, risk-takers, and
most of all competitors and winners.
Secretary Paulson's capital markets competitiveness initiative is about using recent
trends like globalization as an opportunity to leverage our competitiveness and
bring even greater benefits to our economy and citizens.
Today, emerging markets throughout the world are rapidly expanding and
progressing. More and more countries are borrowing our expertise, emulating our
success and moving to market-based systems. As a result their economies are
growing and becoming stronger. Leaders around the world now realize that a
market-driven economy has the best chance of producing economic growth and
productivity, a higher standard of living and lower rates of unemployment.
Without a doubt, financial capital is more mobile now than ever before, and with
more choices, investors are able to access capital allover the world that was once
available only in the US
This development is not something to fear. In fact, during my career in the financial
services industry, I worked with many companies to take advantage of
globalization, helping firms develop new markets overseas and working with small
companies to become big corporations.
Just as athletes perform better under the pressure of healthy competition, so too
can we use this opportunity to raise our game and further enhance our competitive
edge.
A New Approach to Regulation
The world has continued to evolve. Competition has become more flexible, but
there are many things we can do to compete more effectively, including addressing
internal challenges that our system itself has created over time.
The current U.S. regulatory structure has been evolved together over 150 years with act on top of act, initiative on top of initiative - so that today we have a series
of individual regulations, each designed in response to specific circumstances and
lacking an overarching set of guiding principles.
This creates a difficult environment for both regulators and those being regulated.
Certainly, regulators must find ways to appropriately balance issues of investor
protection, market integrity and systemic risk, as well as the historic tension
between state and federal boundaries. In addition, our structure was born
institutionally focused and now is adapting into one that regulates activities rather
than entities.
As we heard from participants at our conference, these ambiguities generate
inconsistent applications and reduce predictability of outcomes.
If we were starting fresh and had a blank page, no one would choose to draw a
regulatory structure that resembles our current picture. Too often, however,
discussions about ideal regulatory philosophy and structure have been reduced to a
black and white debate of rules vs. principles. This oversimplification undermines
the complexity of these issues, and is not constructive. As Chairman Bernanke said
earlier this week, it is a mischaracterization to draw a "sharp distinction" between
the approach to financial regulation in the U.K. and the U.S. In fact, the U.K.'s socalled "principles-based" system supplements their eleven principles with over
8,000 pages of rules, and our system in the U.S. utilizes some principles.
At Treasury, our goal is to elevate public thinking, so that we are not engaging in an
either/or debate. The optimal construct should balance both rules and principles.
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We need a new, modernized approach to regulation - one that is risk-based,
globally oriented and flexible in scope. A prudent approach recognizes that we
should be guided by prinCiples at an overarching level. But regulation at the retail
level will require some focus on rules, particularly to protect less sophisticated
market participants, where investor protection must be a paramount focus.
Other key elements of this risk-based approach are:
•
Benefit-Burden Analysis - We reject calling for regulation just for
regulation's sake. Instead, we should engage in rigorous cost-benefit
analysis of proposed and current regulation.
• Materiality - Regulators need to focus on issues that are material to
investors and consumers. It is not simply a matter of collecting more
material to review; rather, we should have measures in place to ensure that
we are collecting appropriate, useful material.
• Engagement between regulators and the regulated - We need to facilitate a
move for constructive dialogue between regulators and the entities they
regulate. There should be a clear process for businesses to engage with
their regulators when they have questions or need clarification.
In short, the modernized regulatory regime we seek should be, in the words of
Chairman Bernanke, "principles-based, risk-focused, and conSistently applied."
Other Components of Treasury's Competitiveness Initiative
We have already made some progress toward these goals.
For instance, earlier this year the President's Working Group on Financial Markets
(PWG) - chaired by the Secretary of the Treasury - released principles and
guidelines for private pools of capital. Private pools of capital, which include hedge
funds, private equity and venture capital, exemplify the creativity and innovation that
have helped make our financial markets the strongest in the world.
These principles and guidelines show that issues of systemic risk and investor
protection are best addressed by a combination of market discipline and
government oversight. They put forth a forward-looking, principles-based framework
specifically designed to possess the flexibility to deal with global and dynamic
nature of modern capital markets. These principles are not an endorsement of the
status quo. They represent a uniform view from a broad group of key independent
regulators that heightened vigilance is necessary and desired to address market
developments. Treasury is currently actively engaged to ensure the adoption of
these principles among each respective group of stakeholders - investors, pool
managers, and creditors and counterparties.
Other important steps toward modernized regulation are being taken by the
regulators, and Treasury strongly supports these steps.
The Sarbanes-Oxley Act of 2002 brought much needed reform and restored
investor confidence. This successful piece of legislation is now being replicated
around the world. Public companies have faced significant costs and challenges in
the application of Sarbanes-Oxley's Section 404 internal control requirements, but
we do not believe new legislation is required to amend it.
A reinterpretation is currently in progress, which will reduce unintended and
unnecessary costs of Section 404 to small businesses. Treasury supports the work
of the SEC and the PCAOB, who are actively engaged in replacing Auditing
Standard 2 (AS2) with Auditing Standard 5 (AS5). These efforts will make the
implementation process of Sarbanes-Oxley section 404 more risk-based. As a
result, we are optimistic that this change will achieve the appropriate balance.
Another encouraging development that is underway at the SEC is the move to allow
foreign companies to file their financial statements according to International
Financial Reporting Standards (IFRS) without reconciling to US GAAP. As
lttp://WWw.treas.gov/press/release~/hp409.htm
61712007
Page 5 of 5
contemplated, the U.S. would recognize both major accounting languages - US
GAAP and IFRS.
However. the auditing industry faces other challenges, which if remedied will
enhance our competitiveness. These solutions will take time to develop, but we will
begin to lay the groundwork now for longer-term improvements.
As he announced in an op-ed this morning, Secretary Paulson has asked us to
establish a non-partisan, public federal advisory committee that will develop
proposals for creating a stronger, sustainable auditing profession. We have asked
former SEC Chairman Arthur Levitt and former SEC Chief Accountant Donald
Nicolaisen to co-chair this effort.
This soon-to-be-chartered committee will develop recommendations to address
challenges facing this profession, such as industry concentration, competition,
financial soundness, and employee recruitment and retention. The group will focus
on three areas: (1) audit market competition and concentration, (2) human capital
and (3) financial resources.
We will solicit a broad range of individuals representing views from the auditing
profession, public companies, investor community, and other financial market
participants. We intend to solidify membership this summer and anticipate a first
meeting in the fall.
Auditing plays a unique role in our economy. A resilient and quality auditing
profession is vital to the strength of our capital markets. Of course, management is
ultimately responsible for a company's financial statements but requiring these
companies to have their financial statements audited by an independent accounting
firm enhances investor confidence. Strong, trustworthy auditing helps to encourage
entrepreneurs and capital providers to take appropriate risks.
At the same time, Treasury will seek solutions that will serve to enhance financial
reporting, make the presentation of financial information more meaningful and
accessible to investors, and gain a better understanding of why financial
restatements have increased over the past decade. We will also encourage
managers, directors and investors to focus on long-term value creation while
maintaining frequent and accurate financial reporting.
Conclusion
The steps I have outlined today represent the first in a series of initiatives that we
will undertake to strengthen our bridge that connects suppliers and users of capital.
The maintenance of this bridge will require that some tolls be paid. These tolls will
pay for sound and effective regulation. They enable the free movement of capital,
support appropriate protections for consumers and investors, while also
encouraging innovation and entrepreneurship.
Our markets remain the most liquid, efficient and transparent in the world. And we
are committed to maintaining that competitive edge.
The world is indeed changing, but we will use this as an opportunity to reassess our
position and improve our leadership. As we undergo a period of construction, the
work on our bridge will take time and require patience. These issues do not lend
themselves to easy fixes. But I am confident that we will succeed, and the legacy
we leave behind will be one of enhanced capital markets competitiveness.
Thank you.
lttp://WWw.treasgov/press/relea~eii./hp409.htm
6/7/2007
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May 17. 2007
HP-410
Treasury Identifies Financial Network of
Is mae I Zambada Garcia
The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC)
today designated six companies and twelve individuals in Mexico that act as fronts
for Ismael Zambada Garcia. the leader of a Sinaloa, Mexico-based drug trafficking
organization. Ismael Zambada Garcia was named as a Tier I drug kingpin by
President George W. Bush on May 31,2002, pursuant to the Foreign Narcotics
Kingpin Designation Act (Kingpin Act).
"Zambada Garcia is one of Mexico's most powerful drug kingpins and a fugitive
from justice." said Adam Szubin, Director of the Office of Foreign Assets Control.
"Today's action further exposes the network of front companies and financial
associates that Zambada Garcia uses to hide and launder his drug monies and cuts
them off from the U.S. financial system."
The OFAC designation targets Nueva Industria de Ganaderos de Culiacan S.A. de
C. V.. a large. Sinaloa, Mexico-based cattle and dairy company. Zambada Garcia's
former spouse, Rosario Niebla Cardoza, and their four adult daughters, Maria
Teresa, Midiam Patricia, Monica del Rosario, and Modesta Zambada Niebla, are
also designated today on the basis of their role in the ownership or control of
Zambada Garcia front companies and assets in Mexico. Other companies
designated today are Estab/o Puerto Rico S.A. de C. V., Jamaro Constructores S.A.
de C V.. Mu/tiservicios Jeviz S.A. de C. V.. Estancia Infantil Nino Feliz S.C., and
Rosario Niebla Cardoza A. en P.
Ismael Zambada Garcia is a U.S. fugitive and the State Department has offered a
$5 million dollar reward for information leading to his arrest. In January 2003, the
US District Court for the District of Columbia returned an indictment against Ismael
Zambada Garcia and two key lieutenants, Javier Torres Felix and his son Vicente
Zambada Niebla. Javier Torres Felix was extradited to the United States in
December 2006.
"The Zambada Garcia organization cannot hide behind front companies like the
Sinaloa cattle and dairy business," said DEA Administrator Karen P. Tandy. "We're
working with OFAC to expose these traffickers' front companies for what they really
are - not legitimate businesses, but illegal cash cows that fuel the drug trade, its
violence and corruption. We're relentlessly following the financial trail to deprive
these traffickers of their assets, draining the lifeblood from their criminal drug
enterprises. "
This action is part of an ongoing U.S. Government effort under the Kingpin Act to
apply financial measures against significant foreign drug kingpins worldwide. More
than 300 businesses and individuals associated with the 62 drug kingpins have
been designated since June 2000. Today's designation would not have been
possible without key support from the Drug Enforcement Administration.
Today's designation action freezes any assets the 18 designees may have under
U.S. jurisdiction and prohibits U.S. persons from conducting financial or commercial
transactions with these individuals and entities. Penalties for violations of the
Kingpin Act range from civil penalties of up to $1,075,000 per violation to more
severe criminal penalties. Criminal penalties for corporate officers may include up to
http://WWw.treas.gov!presslreleases/hp410.htm
6/7/2007
Page 2 of2
30 years in prison and fines of up to $5,000,000. Criminal fines for corporations
may reach $10,000,000. Other individuals face up to 10 years in prison for criminal
violations of the Kingpin Act.
REPORTS
•
Chart of Zambada Garcia's financial network
lttp://www.treas.gov/pr~:;l>/releases./hp410.htm
6/7/2007
Zambada Garcia Financial Network
Foreign Narcotics Kingpin Designation Act
May 2007
Department of the Treasury
Office of Foreign Assets Control
All individuals depicted in this
chart are Mexican nationals.
Criminal Associates
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Designated by the President on
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Ismael ZAMBADA GARCIA
(a_k.a. Jeronimo LOPEZ LANDEROS)
REI Mayo lambada"
DOB 01 Jan 1948
POB Sinaloa, Mexico
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Javier TORRES FEUX
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DOB 19 Oct 1960
POB Mexico
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Vicente ZAMBADA NJEBLA
(a.k.a. Vicente SOTELO GUZMAN)
DOB 24 Mar 1975
paB Sinaloa, Mexico
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DOB 30 Jan 1975
CURP # BOZC750130MSLRZN09
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Maria Teresa ZAMBADA NIEBtA
DOB 171un 1969
CURP # ZANT690617MSLMBROl
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Monica del Rosario ZAMBADA NIEBLA
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D08 22 Nov 1982
CURP # ZANM821122MSLM8D07
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Culiacan, Sinaloa, Mexico
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R.F.C. # EPR-000322-UM9
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Culiac:an, Sinaloa, Mexico
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Culiacim, Sinaloa, Mexico
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CURP # PETA58080SHSLRBN09
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Page 1 of 1
May 17, 2007
HP-411
Statement by Secretary Paulson on
World Bank President Paul Wolfowitz
"I commend Paul Wolfowitz for his distinguished career as a dedicated public
servant. His efforts to fight poverty throughout the world, the progress he's effected
for the people of Africa, his bold efforts to fight corruption, and his work on the
World Bank's other critical priorities have made a significant difference across the
globe and in the lives of many. His stewardship of this important institution has
been marked by enthusiasm and dedication to the critical mission of the Bank.
"The World Bank is an important institution for helping to lift people out of poverty a goal that America has been very generous in supporting.
"I intend to move quickly to help the President identify a nominee to lead the World
Bank going forward. I will consult my colleagues around the world as we search for
a leader who will continue to focus the Bank on creating opportunities for the
world's poorest by assuring that resources are directed to effective, efficient, wellcoordinated projects. We at Treasury look forward to working with our colleagues at
the Bank to ensure a smooth transition process."
http://WWw.treas.gov/presslreleases/h p411.htm
6/712007
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PRESS ROOM
May 18, 2007
HP-412
UPDATE:
U.S. and China to Hold Second Meeting of the Strategic Economic Dialogue in
Washington Next Week
Washington, DC -Treasury Secretary Henry M. Paulson, Jr. will host the second
meeting of the U.S.-China Strategic Economic Dialogue next week. Secretary
Paulson will be joined by Agriculture Secretary Mike Johanns, Commerce Secretary
Carlos Gutierrez, Labor Secretary Elaine Chao, Health and Human Services
Secretary Michael Leavitt, Transportation Secretary Mary Peters, Energy Secretary
Sam Bodman, U.S. Trade Representative Susan Schwab, EPA Administrator
Stephen Johnson, Deputy Secretary of State John Negroponte, and other
Administration officials.
In addition, Federal Reserve Chairman Ben S. Bernanke will participate in the
Strategic Economic Dialogue discussions. The opening session will include a
presentation by the Honorable Henry Kissinger.
The second meeting of the U.S.-China Strategic Economic Dialogue will review
progress on work plans agreed to at the December meeting and continue
discussions in areas including policies to address economic imbalances to ensure
continued global growth, China's economic development and further integration into
the world trading system, greater openness of markets, cooperation on energy
security and the environment, and innovation. The dialogue was launched by
Presidents Bush and Hu in September 2006.
The talks will take place May 22-23 at the Andrew W. Mellon Auditorium.
The following events are open to media with SED credentials only:
What
Opening Statements and Introductions
When
Tuesday, May 22,2007,9:15 a.m. EDT
Where
Andrew W. Mellon Auditorium
1301 Constitution Ave., NW
Washington, DC
Note
SED Credentialed press may begin setting up at 5:00 a.m., equipment must be in
place for security sweep no later than 6:00a.m.
What
Presentation by the Honorable Henry Kissinger
When
Tuesday, May 22, 2007, 9:45 a.m. EDT
Where
Andrew W. Mellon Auditorium
1301 Constitution Ave., NW
Washington, DC
What
Family Photo
When
Wednesday, May 23, 2007, 8:00 a.m. EDT
Where
Andrew W. Mellon Auditorium
ttp:llwww.trea~.gov/pre5o/r~lease~Jhp412.htm
61712007
Page 2 of2
1301 Constitution Ave., NW
Washington, DC
Note
SED credentialed photographers may begin setting up at 5:00 a.m., equipment
must be in place for security sweep no later than 6:00a.m.
What
Closing Statements
When
Wednesday, May 23,2007,10:45 a.m. EDT
Where
Environmental Protection Agency
East Building
1201 Pennsylvania Ave., NW
Washington, DC
Note
SED Credentialed press must be pre-set by 10:00a.m.
What
U.S. Delegation Press Conference
When
Wednesday, May 23,2007 .. 11 :30 a.m. EDT
Where
Environmental Protection Agency
East Building
1201 Pennsylvania Ave., NW
Washington, DC
Links to press materials
DECEMBER:
11/2BI2006 U.S. and China to Hold First Meeting of the Strategic Economic
Dialogue in Beijing Next Month http://www.treasuJy.gov/press/releases/hp180.htm
12/13/2006 Introductory Remarks by Secretary Henry M. Paulson, Jr. at the U.S.China Strategic Economic Dialogue
http://www.treasury.gov/press/releases/hp196.htm
12/1312006 Opening Statement by Secretary Henry M. Paulson, Jr. before the
Opening Session of the U.S.-China Strategic Economic Dialogue
http://www.treasury.gov/press/releases/hp197.htm
12/15/2006 Fact Sheet http:/Lwww.trEiq~ljry ·99.',f/Q[Elss/r~le.fts_es/hp2()Q .btm
12/15/2006 Statement from Treasury Secretary Henry M. Paulson, Jr. at the
Closing of the U.S.-China Strategic Economic Dialogue
http://www.treasury.gov/press/releases/hp200.htm
12/15/2006 Statement by Treasury Secretary Henry M. Paulson, Jr. at the ClOSing
Press Conference http://www.treasury.gov/press/releases/hp201.htm
SEPTEMBER:
09/20/2006 U.S.-China Statement on Strategic Economic Dialogue
http://www.treas.gov/press/releases/hp105.htm
09/20/2006 Fact Sheet on Creation of the U.S.-China Strategic Economic Dialogue
http://www.treasury.gov/press/releases/hp107.htm
09/21/2006 Strategic Economic Dialogue Press Briefing Transcript
http://www.treasury.gov/press/releases/hp10B.htm
http://WWw .treas.gov/presslreleases/hp412.htm
61712007
Page 1 of 1
November 28, 2006
HP-180
U.S. and China to Hold First Meeting of the Strategic
Economic Dialogue in Beijing Next Month
Washington, DC -Treasury Secretary Henry M. Paulson will lead a delegation to
Beijing next month for the inaugural meeting of the U.S. - China Strategic
Economic Dialogue. Secretary Paulson will be joined by Commerce Secretary
Carlos Gutierrez, Labor Secretary Elaine Chao, Health and Human Services
Secretary Mike Leavitt, Energy Secretary Sam Bodman, U.S. Trade Representative
Susan Schwab, EPA Administrator Stephen Johnson, and other Administration
officials.
In addition, Federal Reserve Chairman Ben S. Bernanke will join the Strategic
Economic Dialogue discussions.
The dialogue was launched by Presidents Bush and Hu in September as an
overarching forum for discussing ways the U.S. and China can work together to
ensure that citizens in both countries benefit fairly from the growing bilateral
economic relationship While in Beijing, the U.S. delegation will hold a number of
meetings with Vice Premier Wu Yi and other Chinese counterparts to discuss a
range of issues including assuring continued global growth, China's economic
development and further integration into the world trading system, stable energy
markets, and cooperation on the environment. The U.S. delegation will also meet
with Chinese President Hu and Premier Wen while there.
The talks will take place December 14-15 in Beijing.
http://WWw.treas.gov/press/releases/hp180.htm
6/7/2007
Page 1 of 1
December 13, 2006
HP-196
Introductory Remarks by
Secretary Henry M. Paulson
at the U.S.-China Strategic
Economic Dialogue
Beijing, China- Good morning. It is a great pleasure to be here for the inaugural
meeting of the U.S.-China Strategic Economic Dialogue. My colleagues and I are
looking forward to productive discussions with Madame Wu and the distinguished
members of the Chinese delegation. We thank President Hu, Premier Wen and
Vice Premier Wu for hosting the first Strategic Economic Dialogue in Beijing.
The Strategic Economic Dialogue is an opportunity to address important long-term
issues that are central to our economic relationship with China while also providing
an opportunity to address the most pressing short-term issues. China and the US
have a shared economic interest and we look forward to listening carefully to our
Chinese counterparts as well as putting forward our ideas and viewpoints. Our
discussions will focus on China's successful integration into the global economy
and on ensuring that both nations benefit from our growing trade relationship.
Three broad goals will guide our discussions today and throughout the Dialogue.
First we will focus on the importance of maintaining sustainable growth without
large trade surpluses. We will consider ways to achieve balanced growth, and talk
about the importance of currency flexibility in the short-term and a path to freely
tradable currency in the medium-term.
Second, we will emphasize the importance of continuing to open markets to trade,
competition, and investment. Within that discussion, we will highlight the importance
of the rule of law, including property rights - as well as the importance of
transparency in regulations and standards, which are crucial to businesses both
domestic and foreign.
And the third main pillar of our discussions will be energy and the environment. The
United States and China are the world's leading energy consumers. We are
committed to developing the use of cleaner, more abundant energy sources and we
will talk about the best ways to do that.
Today with the first meeting of the Dialogue, we are initiating a long-term effort to
address strategic economic issues. Our goal is to make progress on pressing
needs, while advancing on a number of fronts by laying the foundation for long-term
cooperation.
My great thanks to Madame Wu and this group of distinguished Chinese leaders for
hosting us in this grand venue. We are very much looking forward to today's
discussions.
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6/7/2007
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December 13, 2006
HP-197
,
\
Opening Statement by Secretary
Henry M. Paulson
before the Opening Session of
the U.S.-China Strategic
Economic Dialogue
Beijing, China- Good morning. It is truly gratifying to see so many senior leaders
from two of the world's most important economies gathered together, in the spirit of
cooperation, for this inaugural Strategic Economic Dialogue. Such an illustrious
gathering certainly demonstrates the shared commitment of President Bush and
President Hu to further economic cooperation and integration between our two
countries.
This is also an historic opportunity, for our countries and for the global economy. As
you know, in recent years the United States and China have accounted for almost
half of global growth. The world looks to us together to provide lift to the global
economy. Therefore, we have a responsibility to do our utmost to create the right
environment for sustainable and responsible economic growth, both at home and
abroad.
We have much to learn from each other. The Dialogue should help us manage and
address the most important long term issues facing our two nations while providing
a forum to address the most pressing short term issues. Over the next two days, we
will discuss a number of issues surrounding China's economic development
strategy and the challenges that China faces in the future. It is in everyone's
interest that China's growth continues and in doing so that it strengthens the world
economy. This Dialogue can help us work together to do just that while reducing
tensions along the way. By continuing to pursue economic reform, opening its
markets further, and rebalancing its growth to allow for increased domestic
consumption, China will be sustaining its own growth while contributing even more
to the global economy.
As China advances toward a "Harmonious Society," it will be important that growth
is balanced so that the countryside is not left behind. I look forward to hearing your
plans for addressing the structural causes of the rural-urban divide and other
imbalances that have arisen. My colleagues and I also welcome the opportunity to
share lessons from our own experience with social safety nets, labor mobility, and
transparent and flexible fiscal spending to address income inequality.
To maintain domestic support for continued global economic integration, we both
must pursue macroeconomic policies that facilitate balanced, sustainable growth
and raise living standards. In a market economy, governments have several
essential macroeconomic policy tools that can assure stable and balanced growth.
In order to bring about balanced growth in China's dynamic and increasingly
market-oriented economy, it is important that the government have full use of all
these policy tools, including monetary policy, which would be more effective under a
regime where currency values are determined in a competitive open marketplace
based upon economic fundamentals. We believe that China should move toward
such a system over the next several years. And of course you understand our
strong view that in the meantime more currency flexibility is necessary. I look
forward to having a good discussion about how to bring about balanced growth in
China, a goal we both share.
Having spent most of my career working in financial markets around the world, it is
http://www.tre(l3ury.gov/prc33/rcicu3C51hp197.htm
6/7/2007
Page 2 of2
clear to me that those nations that are open to trade, competition, and investment
are the ones that succeed in today's global market. Just look at how much China
has benefited from joining the WTO - a doubling of the size of your economy in just
a few short years. The best way governments can serve the economic interests of
their citizens is by welcoming healthy competition in all areas, including services. In
particular, increased openness in financial services can be a catalyst for investment
and growth in all sectors of an economy. Economies innovate through competition
and openness to investment, and constant innovation fuels growth. I welcome the
chance to share views on how we can best promote mutually beneficial
liberalization and investment throughout our economies. And I look forward to
discussing the principles of transparency, rule of law, and property rights, which are
essential to expanding trade and investment flows.
Innovation and investment playa particularly important role in ensuring efficiency in
energy use and the development of clean energy technologies. As the world's two
largest consumers of energy, we share a special responsibility to both allocate and
consume energy as efficiently and cleanly as possible. Open, transparent markets
for resources and technologies are the best means of doing so. It is only through
these means that we can achieve the economic growth and environmental
preservation needed to improve quality of life in our own countries and around the
world. The opportunity we have to advance this agenda is important to the entire
world.
China's integration into the world economy has the potential to greatly enhance
global prosperity. As you know, there is resistance in both our countries to greater
integration into the global economy. And there is also skepticism that this Dialogue
will accomplish anything of substance. Therefore, it is incumbent upon us, not only
to have frank and energetic discussions, but also to produce tangible results on the
most important issues facing our two nations. With the collection of talented people
in this room, I have no doubt we will be able to do so.
In closing, I thank Vice Premier Wu Yi who I know paid attention to every detail of
the preparations of this historic event. Under her leadership, the cooperation
between our two countries has been extraordinary. I also thank President Hu and
Premier Wen for hosting the first Strategic Economic Dialogue and providing this
grand venue. I look forward to a fruitful two days of open exchanges of ideas with
this illustrious group of Chinese leaders, which will lay the groundwork for a strong
and mutually beneficial economic relationship between our two countries for many
years to come.
http://www.tre?3ury.gov/prc~~/rcieuseslhp197.htm
6/7/2007
Page 1 of 1
.
-
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--
December 15, 2006
HP-205
The First U.S.-China Strategic Economic Dialogue
December 14-15, Beijing
Fact Sheet
In Beijing on December 14 and 15, the United States and China held the first
Strategic Economic Dialogue, with the theme of "China's Development Road and
China's Economic Development Strategy." The dialogue was co-chaired by
Treasury Secretary Henry M. Paulson, Jr. and Vice Premier Wu Vi, as
representatives of the two countries' Presidents. During one and a half days of
productive and in-depth discussions on overarching and long-term strategic
economic issues, we reaffirmed our commitment to pursuing macroeconomic
policies, such as China's exchange rate regime reform and increasing the U.S.
savings rate, to promote balanced and strong growth and prosperity in our two
nations.
Based on effective intellectual property rights protection, the rule of law. and the
dismantling of trade and investment barriers, we agreed on the importance of
establishing open and competitive markets, accelerating development and job
creation, stimulating domestic and international trade and investment, and
promoting sustainable development through energy security, environmental
protection, and access to health care. Both sides committed to take positive steps
to strengthen the WTO, including through successful conclusion of the Doha
Round, and will intensify bilateral contacts to this end.
Through our discussions, we decided to prioritize work during the next six months in
several strategic areas. Both sides agreed to conduct discussions on development
of efficient innovative service sectors and on ways to improve health care. We are
launching a bilateral investment dialogue with exploratory discussions to consider
the possibility of a bilateral investment agreement, enhancing cooperation on
transparency issues, and launching a joint economic study on energy and
environment.
Furthermore, we committed to invigorate ongoing work within the JCCT on hightech trade, IPR, and market economy status/structural issues. Utilizing other
existing mechanisms, both sides agreed to increase bilateral cooperation on more
efficient and environmentally sustainable energy use, facilitation of personal and
business travel, development assistance, and MOB lending.
Finally, both sides agreed that NYSE and NASDAQ should open offices in China,
that China will participate in the government steering committee of the FutureGen
project, and that the United States will support China's membership in the IADB.
Both sides concluded an agreement facilitating financing to support U.S. exports to
China and agreed to re-Iaunch bilateral air services negotiations.
The next SED will be held in Washington, D.C. in May 2007.
http://www.treu3ury.gov/press/r~1~a~s/hp205.htm
6/7/2007
Page 1 of 1
December 15, 2006
HP-200
Statement from Treasury Secretary Henry M. Paulson
at the Closing of the U.S.-China Strategic Economic
Dialogue
Beijing, China- Thank you Madame Wu for your great hospitality. My colleagues
and I have been welcomed with tremendous warmth by you, your colleagues, and
the Chinese people. We are grateful to President Hu, Premier Wen and you for
hosting the first StrategiC Economic Dialogue.
Thank you also, for fostering the spirit of openness and cooperation in which our
discussions were held. China and the United States have shared economic
interests, and we agree on many issues. When we disagree, we do so with mutual
respect and with an eye toward finding agreement where possible.
Our conversations over the last two days have been very frank and productive. We
both seek the best way forward on difficult issues. While we cannot resolve every
difference in a single meeting, the candid conversations we have had here will
make progress more achievable.
The United States and China know that our economic relationship is best when it
produces benefits for both our countries. And we know that balanced sustainable
growth in China is vital to the strength of the global economy.
We will each take measures to address global imbalances, notably through greater
national savings in the United States and through increased domestic consumption
and exchange rate flexibility in China, and maintaining open investment in both
countries.
The United States will share our experiences with the Chinese government on
enhancing China's social safety net; opening China's markets to competition and
investment; and developing cleaner, more abundant sources of energy.
And we welcome China's role as a responsible stakeholder in international
organizations particularly the WTO. We look forward to working together to help
craft a successful Doha agreement. It also is encouraging that we have agreed on
so many principles even though we have differences on the timing of certain
reforms.
We have agreed to continue and focus discussions on a number of issues,
including working toward sustainable growth and greater integration into the global
economy without significant trade imbalances, and maintaining high productivity
and enhancing protections for intellectual property rights.
The agreements we have forged and the relationships we have built will make
future discussions even more fruitful. On behalf of the American delegation, I thank
Madame Wu for her hospitality. We leave here with more optimism for the future,
and we look forward to hosting you in Washington next year.
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P'RESS ROOM
December 15, 2006
hp-201
Statement by Treasury Secretary Henry M. Paulson
at U.S. Delegation Press Conference
following the U.S.-China Strategic Economic Dialogue
Beijing, China- Good afternoon. Over the last two days my colleagues and I have
met with our Chinese partners to discuss a range of issues that are at the heart of
our long-term economic relationship. Our discussions have been frank and
productive.
We have agreement with the Chinese government on a number of fundamental
principles. We agree on the need for balanced, sustainable growth in China, without
large trade imbalances, which will aid China's successful integration into the global
economy. Important pieces of that equation include exchange rate flexibility,
intellectual property rights protections, increasing the role of consumption in the
economy and opening up the service sector. We will establish a working group to
discuss opening the services sector to competition and investment.
China's currency policy is a core issue in our economic relationship. We have
indicated to the Chinese in the clearest possible terms that more flexibility in their
exchange rate will help China achieve more balanced economic growth, enhance
the effectiveness of monetary policy, safeguard the health of the financial sector
and promote over time an orderly reduction of external imbalances.
The Chinese share our view that long-term growth, balance and stability in their
economy will depend on open, competitive markets, including capital markets.
Open capital markets will create an infrastructure for the Chinese to float their
currency over the medium-term. Both sides have agreed that the NYSE and the
NASDAQ should open offices in China, a symbolic milestone toward China's further
integration into global capital markets. We also have agreed to launch an
investment dialogue with exploratory discussions to encourage investment and
protect investor rights in each of our countries.
China's full participation in the global economy requires transparency and a
commitment to enforcing international laws, especially in relation to property rights.
Both sides have committed to reinvigorating discussions within the Joint Committee
on Commerce and Trade to improve transparency and intellectual property
protections.
Trade is of course an essential element of China's economy and of its connection
with the global economy. We have agreed that both the United States and China
will strive for a successful resolution of the Doha Round of world trade talks, and we
will intensify bilateral contacts to advance toward that goal.
Energy issues were an important part of our discussions. The United States and
China are two of the largest energy users in the world. Our energy policies and
actions have a significant impact on energy markets and on the global environment.
In addition to continuing our dialogue on sustainable and environmentally
responsible growth, we have agreed that China will participate in the FutureGen
project, which is an international effort aimed at developing clean, energy supplies.
We are also launching a joint economic study on energy and the environment.
We leave here with greater confidence that we are on the right path. The Strategic
Economic Dialogue is focused on long-term challenges, but we need tangible
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successes to measure our progress along the way. With that in mind, we have
established a number of important workplans to focus our efforts to tackle a number
of significant issues, including opening of services, health care, energy and the
environment, transparency, investment and aviation.
Our next meeting of the Dialogue will take place in May in Washington. Today we
agreed that at the next meeting we will focus on the efforts of both nations to
achieve innovative societies and greater openness to trade and investment and
without significant trade imbalances.
I am grateful to my colleagues Secretary Leavitt, Secretary Gutierrez, Secretary
Bodman, Secretary Chao, and Ambassador Schwab for making this first meeting of
the Strategic Economic Dialogue a success. I've been in Washington now only a
short time. And I am thoroughly enjoying working with these talented colleagues
and the rest of President Bush's economic team to advance America's interests.
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6/7/2007
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September 20, 2006
HP~105
The Joint Statement
between the United States of America and The People's
Republic of China
on the Inauguration of the U.S.-China Strategic Economic
Dialogue
Today, United States and China are pleased to announce the establishment of the
U.S.-China Strategic Economic Dialogue, which was proposed by the United
States and agreed to by China, implementing an important agreement reached by
President Bush and President Hu Jintao. U.S. Treasury Secretary Paulson is
visiting China on 19-22 September to discuss the establishment of the Strategic
Economic Dialogue. Vice Premier Wu Yi met with him and jointly announced its
formation. President Hu and Premier Wen Jiabao will be meeting with Secretary
Paulson.
Given growing economic globalization and increasing bilateral economic relations, a
high level strategic economic dialogue between the United States and China will
promote economic cooperation and the growth of U.S.-China relations. Its
establishment will have a positive impact on world economic development as well
as global economic stability and security. The dialogue will focus on bilateral and
global strategic economic issues of common interests and concerns. Both sides
intend to meet twice a year in alternate capitals.
Existing bilateral dialogues and consultation mechanisms, such as the Joint
Commission on Commerce and Trade, the Joint Economic Committee, and the
Joint Commission on Science and Technology, will remain unchanged and continue
to play their positive and important role in promoting U.S.-China economic and
trade cooperation.
Both President Bush and President Hu will strongly support and take an active role
in the Strategic Economic Dialogue.
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September 20, 2006
HP-107
Fact Sheet Creation of the U.S.-China Strategic Economic Dialogue
President George W. Bush and President Hu Jintao have agreed to create a
Strategic Economic Dialogue between the United States and China. Reflecting the
growing relationship between the U.S. and Chinese economies, this dialogue will
occur at the highest official levels and is the first of its kind. Further, it will provide
an overarching framework for ongoing productive bilateral economic dialogues and
future economic relations. It will examine long-term strategic issues, as well as
provide coordination among the specialized continuing dialogues. The Strategic
Economic Dialogue will also be a forum for discussing ways the United States and
China can work together to address economic challenges and opportunities as
responsible stakeholders in the international economic system.
The essential goal of this dialogue is to ensure that the benefits of our growing
economic relationship with China are fairly shared by citizens of both countries.
The Strategic Economic Dialogue will convene semi-annually in the United States
and China, with the first meeting occurring before the end of 2006. Each of the two
Presidents will strongly support and take an active role in the strategic economic
dialogue.
President Bush has designated Secretary of the Treasury Henry M. Paulson to lead
the U.S. side of the dialogue. National Economic Adviser AI Hubbard and other
members of the President's Cabinet will join Secretary Paulson. Additional U.S.
agencies will include Commerce, U.S. Trade Representative, State, Health and
Human Services, the Environmental Protection Agency, Energy and others.
Deborah Lehr will serve as Special Envoy to the Strategic Economic Dialogue to
ensure it receives the attention and continuity necessary to produce meaningful
results.
President Hu has designated Vice Premier Wu Yi to lead the Chinese side of the
dialogue. In that role, she has been given full decision making authority across all
aspects of the Chinese economy. To demonstrate the importance of the Dialogue,
the Chinese government has created its largest and the highest ranking interministerial working group which Vice Premier Wu Yi will chair, supported by Foreign
Minister Li Zhaoxing, Finance Minister Jin Renqing, and Deputy Secretary General
of the State Council Xu Shaoshi, as well as the Ministries of Commerce,
Agriculture, Health, and Information Industries, the various financial regulators, the
National Development and Reform Commission, the People's Bank of China and
others.
The Strategic Economic Dialogue will help to ensure leaders of the two countries
can address critical economic challenges facing their economies, have a forum for
discussing cross-cutting issues, and can make the most productive use of the
existing bilateral commissions and dialogues. Likely themes of the discussions will
include: building innovative societies, seizing the opportunities of global economic
integration to assure sustained growth, and the economics of energy and
conservation. The United States will also support China in China's goal of building
a consumer-driven economy rooted in open markets. The intent of this dialogue is
to discuss long-term strategic challenges, rather than seeking immediate solutions
to the issues of the day.
The discussion of long-term structural issues in the StrategiC Economic Dialogue
will provide a stronger foundation for pursuing concrete results through existing
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bilateral economic dialogues and ensuring citizens of both countries benefit fairly
from the growing bilateral economic relationship. The new strategic dialogue will
provide support and guidance for these existing bilateral economic forums, which
will remain essential to managing specialized aspects of the interdependent U.S.China economic relationship. These high level discussions will enhance, not
diminish these existing forums. Bilateral issues will continue to receive full
attention, including pressing China for floating exchange rates, greater intellectual
property rights, and increasing market access. Existing economic and related
dialogues include:
•
•
•
•
•
•
•
•
The Joint Commission on Commerce and Trade (JCCT) between the U.S.
Department of Commerce, the U.S. Trade Representative, and the Chinese
Vice Premier responsible for trade.
The Joint Economic Committee between the U.S. Department of the
Treasury and the Chinese Ministry of Finance.
Joint Commission on Science and Technology between the U.S. Director of
the Office of Science and Technology Policy and the Chinese Ministry of
Science and Technology.
The Economic Development and Reform Dialogue between the U.S.
Department of State and China's National Development and Reform
Commission.
The Energy Policy Dialogue between the U.S. Department of Energy and
China's National Development and Reform Commission.
The Global Issues Forum led by the U.S. Department of State and China's
Ministry of Foreign Affairs.
The Healthcare Forum between the U.S. Department of Health and Human
Services and the Chinese Ministry of Health.
The Asia-Pacific Partnership on Clean Development and Climate, which
brings together China, the United States, Australia, India, Japan, and Korea.
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P'RESSROOM
September 21, 2006
HP-108
Treasury Secretary Henry Paulson Press Briefing
Following the Announcement of
The US-China Strategic Economic Dialogue
Beijing, China
(The following has been edited to remove most unintelligible sections but may
contain misunderstood or unintelligible words.)
SECRETARY PAULSON: Good evening, everyone. Sorry to keep you waiting.
The banquet went a little longer than expected, but it was a good banquet.
As I said at the press conference that Madame Wu and I had, the relationship
between the U.S. and China is the most important bilateral economic relationship in
the world today. And that is why we have created this unprecedented dialogue, this
unprecedented engagement that has the active, the ongoing support of both
President Bush and President Hu. So we start there. The vision is a simple vision,
and that is to take a long-term, a strategic view to managing this relationship where
we focus on fundamental, long-term issues. We address these issues, talking
about identifying areas of mutual benefit and building on those, dealing with the
conflicts and the tensions on a long-term basis, and of course, addressing the
short-term issues. Because only by addressing the short-term issues can we
establish the confidence on both sides that is going to get us keep the relationship
on track. So that's going to be very important.
Now, what President Bush asked me to do was to coordinate across the various
economic issues. And it's important to do this, because only by doing this will we
be able to prioritize it in such a way that I will be able to represent the best interests
of the American people as effectively as possible.
And that is very important because as we look forward and as we manage this
relationship, it's going to be very important that the benefits that come from
economic growth are shared equitably in both countries. And regrettably, there's a
sense in the U.S. that the Chinese don't play fair when it comes to trade and
economics. And so it's going to be my job to get short-term results at the same
time we're keeping our eye on the long-term objective. So with that, why don't I
throw it open to questions? Yep. Yeah.
QUESTION: Some people think that on some level, this is like a consolation prize
because you're going to leave here without anything concrete on the currency.
Can you address that and also can you address what we're hearing from trade
groups in the States who are concerned about what they say is a softening line on
current trade.
SECRETARY PAULSON: All right. Yeah. Okay. Well, let me take both issues.
First of all, in terms of the objective here, I think I've been pretty consistent from day
one of saying when you're talking about something as important and fundamental
as an economic relationship. I don't think I ever indicated to anybody that I was
going to make any first trip to China as the Treasury secretary and bring home a
solution to a long-term economic issue or come here and magically negotiate
something. So this is -- when you talk about what we've accomplished, let's not
confuse process with results. When we met the other day, I think you or someone
who was with you -- I think it might have even been you, Peter -- asked the question
and said, "Well, how are you going to judge your success?" And I said that I've got
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two and a half years, and I was going to judge my success by firstly putting in place
a process where we had a better, more constructive tone and we've laid the
framework for a relationship that's going to have to stand the test of many years.
And secondly, I knew there were going to have to be some results in the short
term. And you always have to get through the night if you want to get to the longer
term. So again, let's not confuse results with process. I think what we've done here
is put a process in place which, based upon my experience, I believe gives us the
best chance of getting the results that we're going to need to get over the next two
years and for many years in the future. This is, I think, an important step, and it's a
step that maximizes our chance of getting results.
To me, the key thing always in working with the Chinese is to be able to get access
to all the right people at the right level and have a process where there's a real
discipline. And the fact that we will have this dialogue in place and we'll have the
big meetings twice a year and a lot of work in between gives us the best chance of
maximizing our success. But again, I never expected and I think I've been pretty
clear in saying that I never expected anything other than a first set of discussions.
Yes?
QUESTION: I have three questions to ask.
SECRETARY PAULSON: Well, I think what we'll
ask all three questions, but I'm not sure. I may be
minutes or whatever, but I want to give everybody
too. So I'll let you ask your first question and then
others.
do is I may ultimately want you to
here for a half an hour or 45
else a chance to ask questions,
I'll come back if we have time for
QUESTION: Okay. Which one do you prefer, the weak dollar or the strong dollar,
and why?
SECRETARY PAULSON: What did you say?
QUESTION: Which one do you prefer, the weak dollar or the strong dollar, and
why?
SECRETARY PAULSON: Okay. Well, I would say to you that - and I think I've
been pretty clear on this - a strong dollar is in our nation's interest. And our
currency values are always determined - and I believe they should be determined in a fair, competitive marketplace based upon underlying economic fundamentals.
And so what we do in the United States and what I very much advocate is policies
that are going to increase confidence, maintain confidence in the U.S. dollar and in
our economy. Yes? Right.
QUESTION: What steps have you taken or are you going to take to try to sell this
project to Congress?
SECRETARY PAULSON: I don't think I have a need to sell this project to
Congress. This is a process. Okay? And I think it's the President's job and it's my
job to design a process for working with the Chinese that will give us the best
results. And I think Congress is going to judge me by the results that I get and this
administration gets over a period of time. I know there's a short-term mentality in
the world today, but I don't think many people are going to judge me by what comes
out of one visit. And if they do, heaven help this country. Yes ...
QUESTION: Thank you. You talk about the need for China to become a flexible
exchange rate regime. In your view, what do you think is a more flexible eXChange
rate regime? For example, would it be expanding the daily band or what would that
be?
SECRETARY PAULSON: The -- of course in the longer term, we all know what it
is. Okay? In the long term it is an exchange rate that is where the currency's value
is set in the competitive marketplace. We're not going to be able to get there until
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we get China to get to the pOint where they have capital markets that are really
competitive in an open financial system That isn't achievable right away. I would
say right now I, when I'm looking at something short of the perfect outcome, which
is a freely tradable currency, I'm not going to get all concerned about what
technique they use to get flexibility. I'm going to know flexibility when I see it and so
are you. Yes?
QUESTION: Mr. Secretary, could you address the recent events in Thailand, the
military takeover, and whether you fear that this could lead to instability both in the
Thai economy and more further afield, in the regional economy as a whole?
SECRETARY PAULSON: I would say I've been traveling so I'm not on top of this
on a minute-by-minute basis, but I would note that there's been very little
dislocation in the Thai capital markets. No spill over in the global capital markets.
So it's always very regrettable when you see a change take place this way in a
democracy. From that standpoint it's something we've all got to look at with regret.
But in terms of the economic impact - and I don't mean to say that an adverse
development isn't possible - but if I'm thinking about the top five or six things I'm
worrying about today, that isn't on the list. Yes?
QUESTION: Thank you. I'm from China Business News. I wonder, Citibank tried
to merge with Guangdong Development bank, but they faced a lot of problems from
China -(Translated from Chinese) There are many restrictions from the Chinese
government on the potential deal of Citigroup to acquire Guangdong Development
Bank. How do you comment on this as the former Chairman and CEO of Goldman
Sachs? In addition, can you update the status on the issue of possibly cutting off
financial connections with Iran? Thank you.
SECRETARY PAULSON: Okay. Remember, I said one question, but I'm going to,
just for you, do two questions, but that's the only one. From now on we're going to
do one question. Now, in terms of the Citigroup transaction, which I haven't
followed closely on a day-to-day basis, I will just say to you that I am a very strong
advocate of this country opening up its capital markets to foreign investment. I
believe when they open up and let foreign competition in, the biggest beneficiary
will be China and it will mean more jobs in the financial services industry for
Chinese people. It will mean better training. It will mean a more competitive capital
market that will have all sorts of other benefits for the economy. And I've noticed as
I've spent time in markets around the world that those economies that have healthy
capital markets are stronger and it really takes a healthy capital market for longterm success. I can't think of a single example anywhere of a situation where a
country has a strong capital market system and they haven't opened themselves up
to competition. So that one, I see pretty clearly.
Now, in terms of the Iranian situation, I have nothing new to report other than what I
said the other day, which is I'm a big believer in the fact that the role of the Treasury
Secretary of the U.S. and financial ministers around the world is to keep our
financial system safe, sound, and secure. And you can't have a secure financial
system, you can't preserve the reputation of a financial system if you let people
come in and abuse it and abuse it for illegal activities of any kind, whether WMD
proliferation or terrorism. Iran is abusing the financial system.
Now as far as the effort I think you're referring to, there are two efforts and they're
related, but they are different. Bank Saderat has been sanctioned. Separate and
apart from that we had noticed that the Iranians were using a series of devices that
were very misleading to infiltrate the system and trick a number of banks around the
world. And so we went around and we talked to those banks and we talked to them
as part of an educational program to help them understand the risks. And as far as
I know, they all were very grateful for the assistance. A number of them learned
things, and I think that that will be an important step in helping maintain the integrity
of our banking system around the world. Yes?
QUESTION: Mr. Secretary, you alluded to voices in the U.S. who see China as an
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unfair trader, and you're trying to discourage people from expecting immediate
results. But when would it be appropriate for people in the U.S. to expect some
concrete results from this new channel that you've opened up today?
SECRETARY PAULSON: I wouldn't want to predict when there should be the
concrete results, but I'm not famous for being very patient. Okay? Check with
anybody who's worked with me. But I really don't believe it is appropriate to carry
on negotiations in a public forum. Behind closed doors I'm pretty aggressive as a
persuader, as an advocate. But I've spent my career doing negotiations, and where
I come from, it's appropriate to do negotiations in private. Yes, the man at the back.
QUESTION: I'm from [inaudible] TV from Korea. My question is a little bit out of
out of theme, but I'll ask something else about the -- is there any specific time
frame, timetable for investigation into the Banco Delta Asia case as a sanction on
the DPRK. And when you are -SECRETARY PAULSON: I missed your question. Is there a time frame for -- for
what case?
QUESTION: As a sanction on the DPRK, but was there any specific timetable for
investigation into Banco Delta Asia? And when you met Korean President Mr. Roh,
was there a request from Mr. Roh to hasten the speed of investigation on Banco
Delta Asia?
SECRETARY PAULSON: Let me say that I met with President Roh. It was a very
good meeting, but it was a confidential meeting. And again, it would be
inappropriate for me to divulge publicly what I'm talking about when I'm meeting
with an important head of state or when I'm meeting with anyone in private. That's
number one. But to your question, no, there is no prescribed time frame. This is a
law enforcement matter, and it will take as long as it takes to resolve it
appropriately. Thank you. Yes, the woman in the farthest back.
QUESTION: Okay. Thank you. I'm from Xinhua News Agency. I know that you
have met with Minister Ma Kai this afternoon.
SECRETARY PAULSON: Yes.
QUESTION: Yes. And later you will meet with the Chinese top leaders Hu Jintao
and Wen Jiabao. So we just want to know that China has to do a lot of work to
push forward its reforms. So what kind of message do you want to deliver to the
Chinese top leaders, and how do you judge China's efforts to push forward its
reforms? Thank you.
SECRETARY PAULSON: Yeah. Well, thank you for that question, because I think
the one thing I have said that I'm going to talk about, because I don't think it's
divulging any confidences and it's pretty clear how I feel, I'm going to encourage
them to move ahead with all of their reforms and the things they said they were
going to do and move forward even more quickly. And when I look at China and
their reforms, what they've done is remarkable, and they move very quickly. I
noticed it years ago in my former job when we'd work on a privatization in China.
Something that historically would have taken well over a year in another country,
we would sometimes get done in six months here.
The pace of change has been quick and it's been remarkable. But my view is that
the biggest danger that China faces is not that they will go ahead too quickly with
the reforms, but that they won't go ahead quickly enough. Because the economy is
so big and complex that it's becoming, in my judgment, increasingly difficult to run it
with administrative procedures, and particularly when they are partway between the
planned economy and a market-driven economy. So the biggest message I would
give is congratulations on what you've accomplished, and it will be in our benefit
and your benefit if you move ahead even more quickly, because then you will do
better. And when you do better, we in the U.S. will do better because our two
economies are very interdependent. Okay? You're going to get your question in a
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minute. But I'll let this man behind you -- okay.
QUESTION: Yes, thank you. I'm from China Business Newspaper. I want to ask
you some questions in Chinese.
SECRETARY PAULSON Okay. Let me just see if I can figure out -- I'm not great
at these high-tech things here, but I think I'll figure it out.
QUESTION: (Translated from Chinese) Thank you. I notice from your news
documents that neither People's Bank of China nor China Securities Regulatory
Commission nor China Banking Regulatory Commission is included in the dialogue
mechanism. Before your trip to China, the Chinese government released some
new regulations on foreign financial institutions that hope to enter China and on
joint ventures in the investment banking sector. These new regulations raise the
entrance criteria for foreign companies that hope to invest in China. What do you
think is the most imperative issue that needs to be solved in China's opening of the
banking sector? Why aren't Chinese financial regulatory bodies included in the
dialogue mechanism? Another question is what was the result of your Hangzhou
trip? Thank you.
SECRETARY PAULSON: Well, I got your question. The financial supervisors who
are looking at the markets in China have a big and a complex job. I've got to begin
by saying that it took the United States many, many years to establish the capital
markets we have in the United States. So I know this isn't easy. But the -- in order
to get the Chinese capital markets where they're going to need to get, I'd said that I
really do believe they'll get there quicker if they let in foreign investors and let
foreign firms come in and establish businesses there.
But to get more specifically to your question, the issues they confront are a
domestic market that is really an equity market that is quite small relative to the size
of the country. There's very little of an institutional market to speak of. It's largely a
retail market. Most of the equities that have been issued in this market are stateowned enterprises where there's still the big overhang. Many of the best offerings
have been sold outside of China, and there hasn't been enough high-quality equity
issuance in China. The quality of the local firms is by and large not strong. Many of
them have -- don't have strong financial positions. Many of them aren't well
managed. So it is an equity capital market that's underdeveloped relative to the
size of the Chinese economy. And the domestic bond market is even more
primitive in its development. But it could be very important to develop a bond
market because that will take some of the pressures off of the banks. Yes?
QUESTION: Thanks. Some members of Congress have promised to put through
their legislation imposing some sanctions on Chinese products. If your visit doesn't
give them what they want, what do you think the possible action is?
SECRETARY PAULSON: Well, I don't want to speculate about actions others may
take. I know you're talking about Senators Schumer and Graham. They are
knowledgeable about China. They share many objectives that I share. I don't
agree with the tactics. You'll never have me favoring protectionist legislation and I
will try to talk them out of it. Whether I'll be successful or not, I don't know. Yes?
QUESTION: Thank you. I'll speak Chinese. Can we ... ? (Translated from Chinese)
Thank you. From your answers to the questions, I can see that you are very
familiar with the current Chinese economic situation and economic development.
As far as I know, you have visited China about 70 times. My question is what is
your source of knowledge on China's economic situation? What's your personal
impression of China's current situation after your 70 or so visits to China? Thank
you.
SECRETARY PAULSON: Well, my source of knowledge is talking to a lot of
people, reading a lot of things, but the best knowledge comes from being right here
and having done business, having, as an investment banker, worked with the
government on privatizations, worked with the private companies in the
marketplace and experienced it on a firsthand basis. And I am a - like everyone
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617/2007
Page 6 of6
else I know who has spent time here - I'm a huge proponent of and believer in the
Chinese economy. And to me it starts with the people, the great human resource
for quality and the talent and the commercial talent of the people. And then you get
to a group of leaders who are very smart and knowledgeable, pragmatic, resultsoriented, looking everywhere for best practices, finding things that will work and
implementing them. And so it is a strong and growing economy.
My own view is, though, that you can't take the past success and automatically
extrapolate it and just assume it's going to keep growing like this and pass all the
other economies in the world, because this economy still needs to make the
transition from being based on low-cost labor and assembling and manufacturing
well-value-added products to developing a more complex economy. And I have
every confidence that will happen. But in my judgment, for that to happen, you'll
have to continue to make the transition to using market-based devices as opposed
to administrative. And that means speeding up the reforms. It doesn't take any
magic. Your leaders have already identified what needs to be done. They stated
what needs to be done. I believe they're right. They just have to do it.
MODERATOR: Last question.
SECRETARY PAULSON: Okay. Last question. Who hasn't asked a question?
Only put your hand up if you haven't asked one. Yes?
QUESTION: Secretary Paulson, you and Madame Wu have each been nominated
to represent the U.S. and China to have the strategic talks. What do you think
about the fact that she is not exactly your counterpart in terms of government
hierarchy? I mean, she is a vice premier above the ministerial level. What do you
think this says about the Chinese government's attitude towards this strategic
topic? Thank you.
SECRETARY PAULSON: First of all, let me say I have got huge confidence in
Madame Wu. She knows how to get things done. She's pragmatic. She's
aggressive. As we say in the U.S., she comes to play every day. And so she
wants results. That's number one. And number two, Madame Wu and I are just
two parts of this, of a process - a process that begins with our presidents and a
process where our presidents are going to be involved. It is a process where I am
going to have access and going to be having substantive conversations on Friday
with your premier, Wen Jiabao, and with President Hu Jintao. And where we're
going to have a ministerial group, an inter-ministerial group in China that is at a very
senior level. And again, it's been my experience in China that to get things done,
you just don't go to one person to get it done; you go to a number of people. And
so to me, the important part of this process was not to have different parts of our
economic relationship "siloed" but to be able to have broad access to senior people
where we could talk about issues that are all interrelated in a more complex way.
And so again, I'm very enthused about the process. But you're not going to get me
declaring a victory because we set up a process. A process is only a process. It's
a means to the end, and this process will be judged by the results it achieves.
Thank you all very much for staying here so late and have a good evening.
MODERATOR: Thank you.
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61712007
Page 10f2
May 19, 2007
HP-1302
Statement by Deputy Secretary Robert M. Kimmitt following Meeting of G-B
Finance Ministers
Werder (Havel), Germany--The G-8 Finance Ministers met today to help prepare
for the Leaders' Summit in Heiligendamm. We covered a wide range of important
topics for the international monetary system, led by the German Presidency and our
very able chair, Minister Steinbruck. I also had the opportunity to meet with many of
colleagues, including from Africa, on a bilateral basis.
As always, the global economic outlook and prospects for the U.S. economy were
in the foreground. The global economy continues its strong performance -indeed,
the strongest in three decades. I informed my colleagues that our fiscal deficit
continues to decline and the U.S. economy is making the transition to a sustainable
growth path. While the economy grew modestly in the first quarter, we are confident
it will return toward trend over the year. We see evidence that housing is stabilizing
and that rising delinquencies in the sub prime mortgage market have not spread
more generally. Inflation remains contained and the job market is strong.
One of the issues I was keen to raise with the G-8 was the ongoing need for open
trade and investment climates in our countries. The United States continues to push
for an ambitious outcome to the Doha Round. The United States also has a
longstanding commitment to economic openness to empower individuals and to
generate economic opportunities and prosperity for all. In statements last week by
President Bush and Secretary Paulson, the United States has strongly reaffirmed
that commitment.
Foreign firms in the U.S. alone employ more than 5 million workers and account for
almost 6 percent of our GOP. At the same time, rising protectionist sentiment - both
at home and abroad - in the fields of trade and investment is worrisome. With the
accumulation of large financial resources in many governmental coffers around the
world, some of which are in turn being recycled into FDI abroad, protectionist
pressures could become more acute. The G-8, individually and collectively, must
seek policies that demonstrate the benefits from open trade and investment, while
avoiding the lost jobs and opportunities that would result from increased
protectionism.
We discussed our common objective to promote a thriving and competitive hedge
fund industry as part of a growing global financial system while maintaining investor
protection and promoting financial stability. We were briefed today by the Financial
Stability Forum, and I commend the Forum's approach to hedge funds in the global
markets. Private pools of capital, including hedge funds, have contributed
significantly to the efficiency of capital markets. Recognizing the important role of
these private pools of capital, the President's Working Group on FinancialMarkets
issued principles and guidelines to further enhance vigilance and market discipline.
Price discovery, liquidity, and risk dispersion are vital components in this effort, as
are maintaining investor protection and promoting financial stability.
As we learned during the emerging market crises of the 1990s, many developing
countries faced large national balance sheet vulnerabilities because they lacked
domestic capital markets and could not borrow in their own currencies. The G-8 this
year placed on its agenda the issue of developing local currency bond markets in
emerging market economies. This is a good issue for the G-8 because there is a
wealth of experience in our countries that can be deployed, in conjunction with the
good work of the International Monetary Fund and World Bank, to help emerging
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6/7/2007
Page 2 of2
markets develop more robust financial markets and achieve more durable growth
and financial stability. I am pleased to announce that today we endorsed an action
plan for developing local bond markets in emerging market economies and
developing countries. The action plan maps out concrete measures to be taken in
six areas: market infrastructure, derivatives and swap markets, institutional investor
base, technical assistance, information availability, regional initiatives and less
developed countries.
I was pleased to be able to join in the discussion of good financial governance in
Africa at last night's outreach dinner with our colleagues from Cameroon, Ghana,
Mozambique, Nigeria, and South Africa. Good governance is absolutely critical for
economic development. I would like to highlight just one of these issues, which is
maintaining sustainable debt levels in the poorest countries. Official lending
activities throughout the world, particularly in Africa, threaten the hard-won gains
from recent debt relief initiatives. It is critical that both borrowers and creditors
agree on an approach to debt sustainability that prevents the reemergence of debt
distress.
We discussed our commitments to improve energy efficiency and security, and to
address climate change issues through actions that accelerate the development of
clean energy technologies without undermining the economic growth that will be
necessary to deploy those technologies. I highlighted the United States'
commitment to improving energy efficiency and security through such efforts as
President Bush's Twenty in Ten initiative.
Finally, we remain engaged in strengthening the international framework against
illicit finance, and developing our national authorities and capabilities to take
effective economic and financial action against the global threats of WMD
proliferation and terrorism. We maintain strong support for the Financial Action Task
Force's efforts to guide implementation of the financial provisions of,WMD-related
UN Security Council resolutions (UNSCRs), and to consider the threat of WMD
proliferation finance more broadly. We agreed on the need to invest the resources
required to identify and economically sanction the individuals and entities within
WMD proliferation and terrorism support networks, in accordance with various
UNSCRs.
Thank you.
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Page 1 of3
PRESS ROOM
May 21,2007
hp-413
Dep Asst Sec Peel's Remarks at EBRD Annual Meeting
I am pleased to be in Kazan for the 16 th Annual Meeting of the EBRD. On behalf of
Secretary Paulson, I would like to thank our hosts from the Russian Federation and
the Republic of Tatarstan, the City of Kazan, Minister Gref, President Lemierre and
Bank staff for their hard work in making this event possible.
We meet at a time of strong global and regional growth. Russia is experiencing
solid economic growth fueled in part by high commodity prices, but also strong
investment. Natural resource driven growth in Central Asia is helping many
countries address broader development challenges. And the countries of the
Caucuses, benefiting from a benign global economy, are pushing forward economic
reforms leading to solid private sector led growth. While the countries of
Southeastern Europe continue to address long-standing tensions, their economies
are rebounding strongly. This has created a positive environment in which the
Bank can and should become more active in accelerating reforms and promoting
greater transition impact.
The new EU member states have benefited from an improved economic outlook.
Here, EBRD's role is essentially over and has been supplanted by the private
sector that the Bank successfully supported for over a decade. We join all other
shareholders in celebrating the fact that the EBRD has met its transition mandate in
these countries and has set a timetable for its exit under last year's Capital
Resources Review (CRR). We particularly congratulate the Czech Republic for
becoming the first EU member country to complete its graduation as a "country of
operation" and join others as a donor to the EBRD.
The EBRD's unique mission as a temporary and transitional multilateral institution
requires it to continually reassess where transition needs and opportunities still
exist and to engage only when and where the private sector cannot or will not.
Unlike a commercial bank, the EBRD can be judged as being more successful the
more the need for its business declines.
The new CRR made clear that the EBRD must step up to the challenge dictated by
its transition mandate and refocus its efforts on more risky environments where it is
most needed. We therefore welcome the increased business volume in Ukraine
and the opening of an additional resident office. We urge the Bank to do more on
the ground in the Early Transition Countries and the Western Balkans.
The Bank's activities here in Russia represent a microcosm of the Bank's remaining
areas of operation. As the Russian portfolio has grown in both absolute and
relative terms - now approaching half of all EBRD new lending - the Bank must
take extra care to achieve only positive transition impact and only catalyze, and
never compete with, the private sector.
Over the past year, the Bank greatly exceeded the lending volume we approved
last year in the CRR. While a private sector financial institution would be
congratulated for such results, we are concerned about the EBRD's apparent
willingness to finance sponsors with ready access to the financial markets. A
stricter application of additionality and transition impact standards would result in a
level of operation more consistent with what Governors approved last year.
The EBRD also needs to avoid operations that could damage its reputation and
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6/7/2007
Page 2 of 3
credibility. The institution must be beyond reproach and stand as a model for
countries and companies that receive its support. To avoid some of the troubling
operations brought to the Board in the past year, the Office of the Chief Compliance
Officer should receive a greater budget, more independence, and increased
oversight of potential projects.
In terms of corporate governance, we continue to be concerned about the huge
cost of funding the Bank's Board of Directors, now running at $20 million, or 6% of
the Bank's total administrative costs. In past years we have encouraged
streamlining the Board, but it may be time to look at an idea being considered at
other institutions: a non-resident Board. Governors should examine the Board's
operations to ensure that they reflect the same level of efficiency and value for
money that we expect from the broader institution.
We commend the EBRD for recent improvements in its anti-corruption policies,
particularly its adoption of the harmonized definitions of fraud and corruption. We
further commend the Bank, which does most of its business with the private sector,
for its commitment to develop a strong private sector sanctioning mechanism. We
note that the Bank, for the first time, debarred a company for corrupt behavior.
The United States was deeply disappointed in this year's process for reviewing
allocation of net income. The Bank's charter dictates that once reserves exceed a
specified threshold, as it did for the first time last year, a full review of options be
presented for consideration. This did not occur. We expect detailed analysis that
allows shareholders to make well-reasoned and prudent decisions on allocation of
net income. A proper process should establish a framework and tools for dealing
with future challenges such as:
•
•
•
expanding operations in the Early Transition Countries;
enhancing the Bank's technical assistance, and
paying a dividend to shareholders.
We have called in the past for consideration of a dividend. This would provide a
positive demonstration effect for current and potential regional investors, make
clear that this is a region where the private sector can profitably invest, and create
discipline in the institution's management for results.
While we were dissatisfied with this year's outcome and voted accordingly, we hope
that other shareholders will join us in urging management to follow an improved
process for 2007 net income, as required by the charter. In this regard, we applaud
management's decision to move the timetable for discussion forward so we can
have a complete and balanced review of this issue.
In conclusion, we encourage management to implement the guiding principles of
the Bank's operations as spelled out in CRR3 to which we remain fully committed,
namely:
more rapid implementation of its strategy to shift operations south and east;
strict adherence to the principles of transition impact and additionality, rather
than the expansion of business volume;
• renewed efforts to improve its integrity due diligence on potential clients;
and
• manage the Bank's business over the balance of the CRR3 period to the
levels approved by Governors.
•
•
By fully implementing these principles, the Bank will better serve the needs of all its
members. We remain confident that EBRD has the skills and resources to make
this happen.
Thank you.
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Page 1 of 5
May 21, 2007
2007 -5-21-16-15-41-4012
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S.
reserve assets totaled $66,041 million as of the end of that week, compared to $66,197 million as of the end of the
prior week.
I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)
I
II
I
IA. Official reserve assets (in US millions unless otherwise specified)
IIMay 18, 2007
IIEuro
IIYen
IITotal
1(1) Foreign currency reserves (in convertible foreign currencies)
II
II
11 66 ,041
I(a) Securities
11 12 ,914
1110,517
11 23 ,431
lof which: issuer headquartered in reporting country but located abroad
II
II
II
II
11 0
I(b) total currency and deposits with:
l(i) other national central banks, BIS and IMF
12.940
II
5,130
Iii) banks headquartered in the reporting country
11 18 ,070
lof which: located abroad
110
11 0
I(iii) banks headquartered outside the reporting country
110
lof which: located in the reporting country
110
1(2) IMF reserve position
11 4,525
1(3) SDRs
11 8 ,974
1(4) gold (including gold deposits and, if appropriate, gold swapped)
11 11 ,041
I--volume in millions of fine troy ounces
11 261 .499
1(5) other reserve assets (specify)
0
I--financial derivatives
I--Ioans to nonbank nonresidents
I--other
lB. Other foreign currency assets (specify)
I--securities not included in official reserve assets
I--deposits not included in official reserve assets
[--loans not included in official reserve assets
[--financial derivatives not included in official reserve assets
1--gOld not included in official reserve assets
[ --other
II
II
II. Predetermined short-term net drains on foreign currency assets (nominal value)
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617/2007
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II
II
II
II
II
II
I
IIMaturity breakdown (residual maturity)
Total
1. Foreign currency loans, securities, and deposits
I
More than 1 and
up to 3 months
Up to 1 mo,th
II
II
IIPrincipal
I
I--inflows (+)
Illnterest
II
Ilprincipal
II
I
Illnterest
II
2. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the domestic
currency (including the forward leq of currency swaps)
II
I
I
II
II
I-outflows (-)
II
I
More than 3
months and up to
1 year
I
II
(a) Short positions ( - )
(b) Long positions (+)
3. Other (specify)
I
--outflows related to repos (-)
I
--inflows related to reverse repos (+)
I
--trade credit (-)
I
--trade credit (+)
II
--other accounts payable (-)
II
II
--other accounts receivable (+)
I
I
I
III. Contingent short-term net drains on foreign currency assets (nominal value)
I
II
I
II
(a) Collateral guarantees on debt falling due within 1
year
applicable)
Total
I
11 Contingent liabilities in foreign currency
I
II
II
II
IMaturity breakdown (residual maturity, where
I
More than 3
months and up to
1 year
More than 1 and
up to 3 months
Up to 1 mo,th
II
II
II
lib) Other contingent liabilities
2. Foreign currency securities issued with embedded
options (puttable bonds)
@. Undrawn, unconditional credit lines provided by:
(a) other national monetary authorities, BIS, IMF, and
other international organizations
~
BIS (+)
II
II
II
t- IMF (+)
II
t-other national monetary authorities (+)
t-
(b) with banks and other financial institutions
headquartered in the reporting country (+)
r
II
II
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I
I
/I
I
6/7/2007
Page 3 of 5
II(c) with banks and other financial institutions
IIheadquartered outside the reporting country (+)
I
IUndrawn, unconditional credit lines provided to:
(a) other national monetary authorities, BIS, IMF, and
other international organizations
I
II
I
"
I
II
II
I
I
I
I
II
I
"
I--other national monetary authorities (-)
I
I--BIS (-)
I--IMF (-)
(b) banks and other financial institutions headquartered
in reporting country (- )
(c) banks and other financial institutions headquartered
outside the reporting country ( - )
I
I
4. Aggregate short and long positions of options in
foreign currencies vis-a-vis the domestic currency
I(a) Short positions
I
"
I(i) Bought puts
I
I(ii) Written calls
I
II
II
II
II
1/
1/
1/
II
I(b) Long positions
II
I
I(i) Bought calls
II
I(ii) Written puts
IPRO MEMORIA: In-the-money options
11
1(1) At current exchange rate
I(a) Short position
I(b) Long position
I
1(2) + 5 % (depreciation of 5%)
I(a) Short position
I
I(b) Long position
1(3) - 5 % (appreciation of 5%)
I(a) Short position
I
I(b) Long position
1(4) +10 % (depreciation of 10%)
I(a) Short position
I
1/
1/
I(b) Long position
1(5) -10 % (appreciation of 10%)
I(a) Short position
I
I(b) Long position
I
1(6) Other (specify)
I
I(a) Short position
II
I(b) Long position
II
II
1/
I
II
II
I
IV. Memo items
[
II
I
[1) To be reported with standard periodicity and timeliness:
II
I
[a) short-term domestic currency debt indexed to the exchange rate
II
I
II(b) financial instruments denominated in foreign currency and settled by other means (e.g., in domestic
I
I
http;IIWWw.treas.gov/presslreleases/2OO75211615414012.htm
6/7/2007
Page 4 of 5
currency)
II
II
II
-nondeliverable forwards
--short positions
--long positions
\--other instruments
I(c) pledged assets
I--included in reserve assets
--included in other foreign currency assets
I(d) securities lent and on repo
I--Ient or repoed and included in Section I
I--Ient or repoed but not included in Section I
I
I--borrowed or acquired and included in Section I
I--borrowed or acquired but not included in Section I
I
I(e) financial derivative assets (net. marked to market)
I
I--forwards
I
I
I--futures
I
I--swaps
I--options
I--other
Ij;t) derivatives (forward. futures. or options contracts) that have a residual maturity greater than one
year. which are subject to margin calls.
--aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
I(a) short positions ( - )
I(b) long positions (+)
I--aggregate short and long positions of options in foreign currencies vis-a-vis the domestic currency
I(a) short positions
l(i) bought puts
I
I(ii) written calls
I(b) long positions
l(i) bought calls
I(ii) written puts
I
1(2) To be disclosed less frequently:
I(a) currency composition of reserves (by groups of currencies)
I
I--currencies in SDR basket
1\66.041
I
I--currencies not in SDR basket
11 6 6.041
I
I--by individual currencies (optional)
II
II
I
I
I
Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market values, and deposits reflect carrying values.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.s. Treasury to IMF data for the prior month
lttp: llwww.tre:w.gov/press!releas€s/2Q075211615414012.htrn
6/7/2007
Page 5 of 5
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
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6/7/2007
Page 1 of2
May 22,2007
HP-414
Opening Statement by Secretary Henry M. Paulson, Jr. at the May 2007
Meeting of the U.S.-China Strategic Economic Dialogue
Washington, DC - Good morning. It is with great pleasure that I welcome Vice
Premier Wu and your colleagues to Washington, and the second meeting of the
Strategic Economic Dialogue.
Your visit is historically unprecedented. Never before have so many Ministers from
China gathered in one place in the United States. The number of senior officials
who are focusing their time and attention on this effort is a demonstration of our
shared and on-going commitment to the vision and purpose of this dialogue. We
both recognize how critical it is for our countries that we get our long-term economic
relationship right.
When President Bush and President Hu created the SED last August, their
leadership set us on a course that led to our inaugural December meeting in
Beijing, has continued through a series of meetings among Chinese and U.S.
officials since then, to this Washington gathering, and will continue after we leave
here. An open, honest economic relationship between our two countries is pivotal
to the future of the global economy. The SED is a forum to manage that
relationship on a long-term strategic basis, for our mutual benefit, and to work
towards near-term agreements that build confidence on both sides.
Our task is not an easy one. We must address the immediate concerns that are
impacting our industries and citizens and simultaneously identify tomorrow's
issues. We must maintain a partnership, and engage in this process to solve what
may seem unsolvable. We conduct our talks under the wary eyes of politicians,
business leaders and workers in both of our countries.
We both face challenges of domestic protectionism and questions about the merits
of trade and globalization. There is a growing skepticism in each country about the
others' intentions. Unfortunately, in America this is manifesting itself as anti-China
sentiment as China becomes a symbol of the real and imagined downside of global
competition. That argument is fueled by the evidence of persistent trade and
financial imbalances. China has its own opposition, with its own set of arguments.
The purpose of this on-going dialogue is to have candid discussions and find ways
to ease, rather than increase, these tensions.
A look back demonstrates, of course, that increasing our ties has benefited both our
people. China's presence in the global economy has raised living standards in
China and fueled growth around the world. Ten years ago, China was an outsider
in the global marketplace; other countries set the rules and China was expected to
abide by them. Now, China is a member of the WTO, a dynamic economic force
and a model for other developing countries. China is able to help lead and define
the rules. Neither America nor China can shrink from the role we have carved for
ourselves in the world. We both must exercise leadership, in positive and
productive ways. I have no doubt that our proud, strong countries can fulfill this
responsibility.
The United States is supportive of a stable and prosperous China. We are not
afraid of the competition. We welcome it, because competition makes us stronger.
It is therefore in our interest to support China's continuing efforts to open its
economy. As I have said before, our policy disagreements are not about the
direction of change, but about the pace of change. Americans have many virtues ---
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6/7/2007
Page 2 of2
we are a hard-working, innovative people---but we are also impatient. Even the
notion of a "dialogue" may seem too passive for America's action-oriented ethic. It
is up to us, over these two days and in the work that follows, to show that words are
precursors to action.
The SED allows us to look forward, together, and define our future bilateral
economic relationship. We are creating a road map for the future. So, welcome
again, Madame Wu, distinguished Ministers and colleagues. Let's get to work.
-30-
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6/7/2007
Page 1 of 1
,
-
"."
.-_ ...
""
.
-
."'
-~i-'RESSROOM' - -
May 22,2007
hp415
Under Secretary Steel Statement on Passage of House GSE Bill
Washington, DC- Treasury Under Secretary for Domestic Finance Robert K. Steel
issued the following statement today regarding the passage of H.R. 1427 to reform
the housing government sponsored enterprises:
"The House made progress to reform the oversight of the housing GSEs today.
Treasury commends Chairman Frank for working in a bipartisan manner to pass
legislation addressing this goal.
"Regretfully the House significantly weakened the regulator's abilities to examine
systemic risk issues. Additionally, we remain troubled by the provisions relating to
conforming loan limits, the Federal government's appointment of directors and
aspects of the affordable housing fund.
"Treasury appreciates the efforts of the Financial Services Committee to advance
the process of creating a strong GSE regulator but as a result of amendments
adopted on the floor, the Department does not believe this bill adequately guards
our financial system with the necessary oversight. We look forward to working with
the Senate to address reforms critical to the safety and soundness of the U.S.
financial system."
-30-
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6/7/2007
Page I of I
_.-
o:~~ESS'RGOJtII"
,__ "" -:-: _-.:= ::-:::-;::
_.-:" __" ._
_~.
M--:._~
__ •
May 23,2007
HP-416
Closing Statement by Secretary Henry M. Paulson, Jr. at the May
2007 Meeting of the U.S.-China Strategic Economic Dialogue
Washington, DC - Thank you, Vice Premier Wu Yi and your distinguished
colleagues for a very productive two days. My colleagues and I have been
impressed by, and grateful for, the openness and positive spirit you brought to this
meeting of the Strategic Economic Dialogue.
Over the last five months, China and the United States have come together to
discuss our shared economic interests with mutual respect. We agree on many
issues. We agree that it is vital to the prosperity of both our nations, that China
rebalance its economic growth, encourage consumption and spread development
more broadly among its people. We agree that by combining the power of our
economies, we can spur further development of clean energy technology. We agree
that strengthening and deepening our two-way trading relationship will create jobs
and give our citizens a wider variety of choices and lower prices on goods.
While we have much more work to do, we have tangible results for our efforts thus
far. These results are like signposts on the long- term strategic road, building
confidence and encouraging us to continue moving forward together.
The United States and China understand that getting our economic relationship
right is vital not only to our people, but to the world economy. Vice Premier Wu and
I see an important part of our job is to communicate frequently, iron out differences,
and keep the economic relationship on an even keel, even during times of tension.
Our relationship works best when it produces mutual benefits, which lead to growth,
balance and a stronger global economy.
We agreed today on a wide variety of next steps, including significant items in
financial services, energy and the environment, and civil aviation. The dialogue will
continue; our cooperative spirit will continue as well. At our next meeting, we will
focus on capturing the benefits and managing the challenges of global economic
integration.
We have built strong relationships since our inaugural meeting in Beijing. Those
relationships will continue to grow stronger and produce on-going returns. On
behalf of the American delegation, thank you for coming and we look forward to
returning to China later this year.
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May 23,2007
HP-417
Fact Sheet: Second Meeting of the U.S.-China Strategic Economic Dialogue
The United States and China today concluded the second meeting of the Strategic
Economic Dialogue (SED). President Bush and President Hu established the
Strategic Economic Dialogue in September 2006 as a focused and effective
framework to address shared priorities and mutual concerns. For the meeting held
May 22 and 23 in Washington, 17 U.S. Cabinet officials and agency heads joined
Secretary Paulson for discussions with China's Vice Premier Wu Yi and a
delegation of 15 ministers and representatives from a total of 21 Chinese
government ministries and agencies.
The Strategic Economic Dialogue is a management tool for our bilateral economic
relationship and is an on-going process involving continuous discussions between
officials from both nations. The SED addresses long-term structural issues and
seeks near-term results which build confidence on both sides and demonstrate
progress toward long-range objectives. At the meeting this week, leaders from both
countries agreed to increase market access, open the financial sector, foster
energy security, protect the environment, and strengthen the rule of law.
Increasing Market Access
Trade fosters an environment of competition, innovation, research and investment,
which leads to higher incomes and a wider range of goods and services at lower
prices. Increased access to markets in China creates opportunities for American
companies. During this second meeting of the Strategic Economic Dialogue, the
United States reached new agreements to further open China's markets to U.S.
products and services.
•
Air Services Liberalization: The United States and China committed to
expand the existing bilateral aviation agreement through liberalization of air
services rights. This new accord provides for a doubling of daily passenger
flights from the United States to China by 2012, starting with the addition of
a new daily flight this year. The agreement also will provide U.S. cargo
carriers with virtually unfettered access to Chinese markets by lifting all
government-set limits on the number of cargo flights and cargo carriers
serving the two countries by 2011. U.S. and Chinese officials have
committed to resume negotiations in 2010 to establish a timetable to
achieve the mutual objective of full liberalization.
• Promoting Growth in the Tourism Industry: The United States and China
signed a declaration of intent to launch negotiations to facilitate Chinese
group leisure travel to the United States. The Chinese travel market is
expected to grow to 100 million travelers within the next 15 years according
to the United Nations World Travel Organization. Allowing tourism
companies to arrange trips for Chinese travelers to the United States is a
significant step, given that one in 17 jobs in the United States is related to
the tourism industry.
• Expanding U.S. Exports: The Export-Import Bank of the United States and
the Export-Import Bank of China signed a memorandum of understanding
that will provide loan guarantees for the export of large scale capital goods
from the United States to China, supporting U.S. export jobs and promoting
China's sustainable development.
Opening the Financial Sector
Financial markets connect money with ideas and ambition, the lifeblood of
innovation and dynamism. U.S. financial institutions are helping to expand a vast
new market in China for American financial services products. During the second
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meeting of the Strategic Economic Dialogue, the United States and China
committed to further financial sector reform, including:
•
Expansion of U.S. Financial Services Industry: China agreed to remove a
block on the entry of new foreign securities firms and resume licensing
securities companies, including joint-ventures, in the second half of 2007.
In addition, China will announce before SED-III that it will allow foreign
securities firms'to expand their operations in China to include brokerage,
proprietary trading and fund management. This will create opportunities for
U.S. firms and provide new competition and expertise in the Chinese
securities industry.
• Increased Qualified Foreign Institutional Investors (QFlls) Quotas: To
develop broader and deeper integration into the global financial market,
China will raise the quota for Qualified Foreign Institutional Investors from
$10 billion to $30 billion.
"The United States also welcomes China's May 10, 2007 announcement to
expand Qualified Domestic Institutional Investors (QDII) investment to include
equity investment. This change can help diversify financial sector assets in China,
which in turn can help enhance financial sector stability. "
Pending Foreign Property Insurance Company Conversion Applications:
The China Insurance Regulatory Commission will now make decisions by
August 1, 2007 on applications for conversion from branch to subsidiary that
have been pending for more than a year. China also commits to abide by
regulations that require 60 day processing for future applications. This will
allow for more efficient and cost effective operations.
• RMB Transactions by Foreign Banks: China agreed to immediately allow
foreign-invested banks to offer their own brand of RMB-denominated credit
and debit cards. This will allow U.S. banks to offer a full range of RMB
services to compete with Chinese banks that currently offer these services.
• Market Access for Insurance Firms: Enterprise Annuities: The Chinese
Government agreed to streamline by SED-III the application and licensing
process for the provision of enterprise annuities by financial institutions,
which will allow U.S. insurance firms already operating in China to widen the
range of services they provide and increase the amount of capital under
their management for investment.
•
Promoting Energy Security and Protecting the Environment
Energy security and environmental protection are shared priorities for both the
United States and China. This creates demand and incentives for the rapid
development and deployment of clean and efficient energy technology. At the
second meeting of the Strategic Economic Dialogue, both countries agreed to:
•
Coal-Mine Methane (CMM) Capture: Over the next five years, the United
States and China will develop up to 15 large-scale CMM capture and
utilization projects in China.
• Develop Clean Coal Technologies: The United States and China will provide
policy incentives to promote the full commercialization of advanced coal
technologies and will advance commercial use of carbon capture and
storage technologies. China uses twice as much coal as the United States
to power its growth and economy, and that number is expected to double by
2020.
• Reduce and Eliminate Trade Barriers: The United States and China agreed
to work together as part of the WTO Doha negotiations to discuss reducing
or eliminating tariff and non-tariff barriers to environmental goods and
services. Working together, the United States and China can increase
access and reduce the costs of these important environmental technologies
and services,
Strengthening the Rule of Law
•
Fighting Counterfeit Goods and Protecting Our Borders: Protecting
intellectual property rights, welcoming competition, promoting transparency
and observing the rule of law are all critical to creating the framework within
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which creative ideas can flourish. During the second meeting of the SED,
the United States and China signed an agreement to strengthen the
enforcement of intellectual property rights laws. The agreement provides for
an exchange of information on counterfeit good seizures, experiences with
counterfeit goods and dialogue among respective Customs staff to improve
intellectual property rights enforcement in our nations.
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May 23, 2007
hp-418
Financial Sector Reform Fact Sheet
Second Meeting of the U.S. China Strategic Economic Dialogue
As leaders in the global economy and in the international financial and trading
systems, the United States and China share a responsibility to promote balanced
and sustained growth in their economies. A competitive and efficient financial sector
will be an engine for growth in China's fast-growing economy, providing
opportunities for American manufacturers, farmers, and other service providers. As
China becomes progressively more integrated into the global economy and
financial system, stability in China's financial sector becomes increasingly important
for the U.S. economy. Introduction of U.S. securities firms, asset managers and
insurance companies will help to develop expertise and depth in China's markets
and improve the stability of the market.
During the second meeting of the Strategic Economic Dialogue, China announced it
will take steps to encourage growth and competition in its financial sector.
•
Expansion of U.S. Financial Services Industry: China agreed to remove
a block on the entry of new foreign securities firms and resume licensing
securities companies, including joint-ventures, in the second half of 2007. In
addition, China will announce before SED-III that it will allow foreign
securities firms to expand their operations in China to include brokerage,
proprietary trading and fund management. This will create opportunities for
U.S. firms and provide new competition and expertise in the Chinese
securities industry.
•
Increased Qualified Foreign Institutional Investors (QFlls) Quotas: To
develop broader and deeper integration into the global financial market,
China will raise the quota for Qualified Foreign Institutional Investors from
$10 billion to $30 billion.
• The United States also welcomes China's May 10, 2007 announcement
to expand QDII investment to include equity investment. This change
can help diversify financial sector assets in China, which in turn can help
enhance financial sector stability.
•
Pending Foreign Property Insurance Company Conversion
Applications: The China Insurance Regulatory Commission will make
decisions by August 1, 2007 on applications for conversion from branch to
subsidiary that have been pending for more than a year. China also
commits to abide by regulations that require 60 day processing for future
applications. This will allow for more efficient and cost effective operations.
•
RMB Transactions by Foreign Banks: China agreed to immediately allow
foreign-invested banks to offer their own brand of RMB-denominated credit
and debit cards. This will allow U.S. banks to offer a full range of RMB
services to compete with Chinese banks that currently offer these services.
•
Market Access for Insurance Firms -- Enterprise Annuities: The
Chinese Government agreed to streamline by SED-III the application and
licensing process for the provision of enterprise annuities by financial
Institutions, which will allow U.S. insurance firms already operating in China
to widen the range of services they provide and increase the amount of
capital under their management for investment.
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PRESSROOM
May 23, 2007
HP-419
Developments Since the First Meeting of the
Strategic Economic Dialogue in December 2006
The SED is a management tool for the U.S.-China economic relationship, not
merely a biannual event. Under the SED, interaction between the U.S. and China is
frequent and ongoing. Progress will occur and be announced throughout the year,
such as the following actions by the Chinese Government which occurred between
the first and second meetings of the SED:
•
•
•
•
•
•
•
•
•
Transparency and accountability: In April, China's State Council issued
new regulations to promote government transparency. This is an important
priority for the U.S. business community.
Protecting private property: In March, China's National People's
Congress approved landmark legislation to protect property rights. This
legislation is an unprecedented, significant step towards China becoming a
market economy and the development of legal rights.
Market access: The conversion of bank branches to subsidiaries under
foreign bank regulations has been a smooth and quick process. In March,
four banks had their applications approved, including one U.S. bank,
Citibank. In April, these banks began accepting RMB deposits, a first in
decades. In December 2006, Citibank purchased a 20 percent stake in
Guangdong Development Bank.
Construction and engineering services: In March, China issued
implementing regulations that relaxed residency requirements, allowing
regulators to recognize the foreign qualifications of license applications of
technical experts.
Reducing export subsidies: In March, China agreed to terminate the
subsidy that allowed major Chinese exporters to receive discounted loans
not available to other companies.
Reduction of Value-Added Tax Rebates: In April, China announced the
reduction of export tax rebates on textile and apparel products, the
elimination of the VAT on some chemical and steel exports, and a reduction
of the VAT rebate to 5 percent on higher-value steel.
Tax rebates for imports: In April, China announced tax rebates on
imported components for advanced equipment. These rebates apply to
imports by 16 industries, including large power-generating plants and
transmission equipment.
Energy Security: In April, officials from China's National Reform and
Development Council (NDRC) visited the national renewal energy lab in
Colorado and the Strategic Petroleum Reserve in Texas as they continue to
develop their strategic petroleum reserves and engage in international
cooperation.
Reducing Tariffs: China announced on May 21, effective June 1, that it will
raise export taxes on 142 goods and cut import tariffs on 209 goods to rein
in its trade surplus, improve energy efficiency, and promote domestic
consumption, effective June 1.
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May 19, 2007
HP-420
Pre-Summit Statement by G8 Finance Ministers
We met and discussed today global economic issues in preparation for the Summit
of the G8 Heads of State and Government in Heiligendamm.
Global growth remains robust and it is more balanced across regions and within our
countries. Risks for the outlook have abated, but high and volatile energy prices
remain a concern and we will remain vigilant. We will continue to pursue sound
policies to foster sustained and balanced growth and support the orderly adjustment
of global imbalances.
We firmly believe that all participants have the responsibility to ensure a successful
outcome of the Doha Development Round. It is necessary to achieve an ambitious
balanced and comprehensive deal that delivers economic benefits for all members,
enhances global growth and contributes to poverty reduction. We remain committed
to resisting protectionist sentiment. We should strive to reach an agreement on the
core modalities as soon as possible, which will require political will and additional
efforts by all parties. Also, open investment regimes are vital for improving
productivity, creating jobs and spurring healthy competition. All countries,
developed and developing countries alike, have the responsibility for ensuring that
Aid for Trade will help secure the full benefits of trade for developing countries. We
expect spending on Aid for Trade to increase to $4 billion, including through
enhancing the Integrated Framework. We support enhanced cooperation to enforce
intellectual property rights and combat counterfeiting which are crucial to our
knowledge economy.
We discussed with the Finance Ministers of Cameroon, Ghana, Mozambique,
Nigeria and South Africa and the President of the African Development Bank
(AfDB) the importance of Good Financial Governance in Africa in achieving the
Millennium Development Goals. With the attached "G8 Action Plan for Good
Financial Governance in Africa" we strongly support efforts to increase the
effectiveness and efficiency of public financial management in Africa, including
capacity building, with special attention to particular needs of post conflict and
fragile states. We commit to engaging actively in implementing the Action Plan and
ask the World Bank, the IMF and the AfDB to do likewise. Improved financial
governance and aid flows must go hand in hand if we are to tackle poverty. We
reaffirm our commitment to meeting our responsibilities as donors, in particular the
importance of delivering on our aid commitments. We welcome proposals for more
effective international cooperation on asset recovery including from the World Bank
and the United Nations. We encourage the use of the debt sustainability framework
by all borrowers and creditors in their decisions. We continue to support the
development of a charter for responsible lending and seek to involve other
interested parties, including the G20. In this context we are concerned about the
actions of some litigating creditors against Heavily Indebted Poor Countries. We
have agreed to work together to identify measures to tackle this problem, based on
the work of the Paris Club.
We express our appreciation to World Bank President Paul Wolfowitz for his service
to the Bank and his commitment to responsible development and poverty reduction,
particularly in Africa.
We endorsed the attached "G8 Action Plan for Developing Local Bond Markets in
Emerging Market Economies and Developing Countries" which is aimed at fostering
growth and financial stability. The plan identifies measures in several areas where
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further progress should be made. The plan for action acknowledges the key
importance of macroeconomic stability and sound legal frameworks as necessary
conditions for the development of local currency bond markets. We call for a
strengthening of market infrastructure to broaden and diversify the investor base.
We encourage the promotion and coordination of technical assistance and ask the
International Financial Institutions to take stock of the available data in support of
local currency bond markets, with a view to data consolidation. We also agree on
the importance of promoting regional initiatives that should provide extra
momentum for developing these markets. We ask the IFls to report regularly on the
progress made in implementing this plan and we agree to monitor the issue. In lowincome countries, the development of local bond markets must take into account
their potential impact on long-term debt sustainability.
We continued our discussion on recent developments in global financial markets,
including hedge funds, which, along with the emergence of advanced financial
techniques and products, such as credit derivatives, have contributed significantly
to the efficiency of the financial system. Nevertheless, the assessment of potential
systemic and operational risks associated with these activities has become more
complex and challenging. Given the strong growth of the hedge fund industry and
the increasing complexity of the instruments they trade, we reaffirmed the need to
be vigilant.
In this context, we welcomed the Financial Stability Forum's (FSF) update of its
2000 Report on Highly Leveraged Institutions and support its recommendations.
The global hedge fund industry should review and enhance existing sound
practices benchmarks for hedge fund managers; in particular in the areas of risk
management, valuations and disclosure to investors and counterparties in the light
of expectations for improved practices set out by the official and private sectors.
Counterparties and investors should act to strengthen the effectiveness of market
discipline, including, by obtaining accurate and timely portfolio valuation and risk
information. Supervisors should act so that core intermediaries continue to
strengthen their counterparty risk management practices. In the exercise of their
supervision of hedge funds counterparties, relevant authorities should monitor
developments and cooperate among themselves. The FSF has agreed to report to
ministers as from October of this year on the progress and actions taken in respect
of these recommendations.
We discussed measures to improve the efficiency of public spending and its
effectiveness in supporting economic growth and employment. This is a key task,
along with securing adequate revenues, in order to ensure public finances are on a
sustainable footing in the face of rising age-related expenditures, while enhancing
citizens' well-being. We agreed that well-designed and well-implemented budget
rules can be useful both in supporting fiscal discipline and raising the efficiency of
public spending. We will continue learning from each other's experiences in order to
improve the performance and outcomes of public services while containing
spending.
In order to ensure energy security and to address climate change, we consider
energy efficiency and the promotion of energy diversification, which can include
advanced energy technologies such as renewable, nuclear, and clean coal, to be
important. We reaffirm the shared responsibility of all countries to act in an effective
and balanced manner to tackle the challenge of greenhouse gas emissions and
energy security without creating economic distortions. We are of the view that it is
particularly important for all countries to pursue policies that mitigate climate
change and facilitate the necessary adaptation. We agree that energy and climate
policy frameworks should be based on market based policies, in order to minimize
the cost of action and to provide incentives for all stakeholders to use existing low
carbon technologies and invest in the development of innovative technologies.
These frameworks, which could include taxes and emission trading, should be
effectively designed to meet specific conditions in each country, whilst capturing the
benefits of integrated markets. We agreed that finance ministers should discuss
these issues further and look forward to a conference on these issues later this
year.
We are committed to fighting money laundering, terrorist financing and other illicit
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financing involving similar risks to the stability and integrity of financial markets. We
are committed to the effective and timely implementation of UN Resolutions 1540,
1718,1737 and 1747. To this end, we ask the Financial Action Task Force (FATF)
to examine the risks involved in weapons of mass destruction proliferation finance.
We urge the FATF to collaborate intensely with jurisdictions that have failed to
recognise the international standards. We urge that, as it reviews its strategic
direction, the FATF consider expanding its mandate, enhancing global
implementation of its standards, improving its strategic surveillance, and examining
ways to bolster accountability and outreach activities. We call on the IMF and the
World Bank to closely cooperate with the FATF.
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May 23, 2007
HP-421
Transcript of U.S. Delegation Press Conference - Second Meeting of the
U.S.-China Strategic Economic Dialogue
SECRETARY PAULSON I'm grateful to my colleagues who are standing here with
me. Their constant, steady leadership is vital to maintaining and strengthening U.S.China relations. We only have these meetings twice a year but the work of the SED
is ongoing. Every one of these cabinet officers is instrumental to the success of our
economic relationship with China. They and their staffs have spent a great deal of
time and effort and logged a lot of air miles working on these issues since our
December meeting in Beijing.
This session of the SED allowed us to sit with our Chinese counterparts and assess
our progress on a number of fronts. While there is much more to do, we have made
progress in a variety of areas, I would like to ask a few of my colleagues to highlight
some of the significant items.
To begin with, Secretary Peters is going to say a few words about civil aviation.
SECRETARY PETERS: Secretary Paulson, thank you so much and good morning
to all of you. Thank you for being here today.
It is my great pleasure today, on behalf of President Bush, and truly a great
pleasure on my part to announce that the United States has reached a new air
services agreement with China. This agreement will strengthen both of our
economies. It will open opportunities for business, travel, and tourism, and cultural
exchanges across the Pacific. I would like to express my sincere appreciation to
President Bush, President Hu, Madam Wu Yi, and of course Secretary Paulson.
The energy and the leadership of this strategic economic dialogue has been
invaluable in helping us reach this historic accord. Today's agreement is tangible
proof of the value of the SED. There was clear understanding during the first
meeting in Beijing that aviation is a critical part of the dialogue on broadening and
deepening our trade relationship.
In the modern world, international trade simply cannot operate without air
transportation. Aviation makes it possible to move products and people through
vast countries like ours and across borders quickly and efficiently.
At December's SED, we set a goal of making meaningful progress toward
amending a U.S.-China air service agreement in time for the spring meeting.
stress the importance that my country attached to this goal when I met with Minister
Yang and others during my trip to China in April, and I reiterated again when we
had the opportunity to meet in a very productive session on Tuesday.
Today, I am able to report that we have made more than progress. We have a
breakthrough, a breakthrough agreement that opens the way for more frequent and
more affordable and convenient air services between China and the United States.
Over the next several years, we estimate that this agreement will stimulate some $5
billion in new business for our airlines as they take advantage for growing demand
for travel between our two countries.
Today's best estimate is that as much as 16 percent of U.S.-China passenger traffic
is being lost to airlines from a third country. This means lost revenues for both of
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our carriers and lost opportunity for our flight crews and other airline employees.
This agreement gives both of our countries much greater freedom to serve the
growing U.S.-China market by introducing new carriers and additional service in the
key cities of Beijing, Shanghai, and Guangzhou
We have seen the intense interest by U.S. airlines in offering this service as they
have competed for the limited new routes under the current agreement. The
competition for these routes make some of the Olympic events look tame by
comparison. With our new agreement, our carriers will be able to more than double
the number of daily passenger flights they offer between the United States and
China and 13 new daily flights over the next five years.
By 2012, US carriers will be able to operate 23 daily flights to China. That is up
from just 10 today. And at the same time, the new agreement raises restrictions on
air cargo flights between our countries. And by 2011 we will have full air cargo
services available.
In a market where every filled seat and every piece of cargo shipped can mean a
difference between success and failure, this agreement will go far in guaranteeing
the success of our airlines in both of our countries.
We have also agreed to resume negotiations in early 2010 to see how we can get
to open skies for passenger carriers as quickly as possible. Both sides have
restated their shared and ultimate objective of getting a fully liberalized agreement
in place Just as the U.S. recently accomplished with the European Union.
Let me conclude by extending my personal thanks to Minster Yang who is a true
visionary, and without whom this agreement would not have been possible. I would
also like to thank the expert team of negotiators from both of our countries who
have worked very diligently and under tight pressure to bring these talks to such a
successful conclusion. Step by step, we are making it easier, cheaper, and more
convenient to fly people and to ship goods between our two countries. Both
countries understand that the path to friendship and cooperation is paved with easy
access and close connections.
Thank you to all who have been involved. Secretary, thank you for your leadership.
SECTRETARY PAULSON: Mary, thank you very much.
Let me turn quickly to financial services. Increasing the pace of reform in China's
financial services markets is important to spread prosperity to all of China's people,
promote greater stability, and to support China's transition to a more determined
exchange rate.
I've laid out in detail many times, including the speech in Shanghai - the steps I
believe China needs to take to develop its financial markets. In our meetings we
made some progress in this area. The Chinese announced they will remove a block
of entry of new foreign securities firms and resume licensing securities companies
this year. They will also allow foreign securities firms to expand into brokerage,
proprietary training and fund management businesses. They will increase supplies
for their qualified foreign institutional investors, the OFlls, from $10 billion* to $30
billion, and remove restrictions on the investments in qualified domestic institutional
investors - the ODlls - to make outside of China.
Together, these will expand opportunities for U.S. financial services firms and by
allowing greater financial flows, help create the basis for moving to a more marketdetermined exchange rate. Also, China will allow foreign-invested banks, including
U.S. banks to offer their own brand of Renminbi-denominated credit and debit
cards, and will complete decisions on pending applications for U.S non-life-insurers
by August 15 1, 2007.
And the Chinese have taken some steps to increase the flexibility of their exchange
rate in RMB and inside - (inaudible) - for greater flexibility in the short term and for
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a transition to market-determined exchange rate in the medium term.
The Chinese share our goal of well-developed financial sector - this supports
balanced growth. Where we differ is not over the goals, but over the pace of
change, and I believe that the greater risk for China is in moving too slowly, not in
moving too quickly.
Of course our discussions here are focused on opening all of Chinese markets, not
just the financial sector. Let me ask Secretary Gutierrez and Ambassador Schwab
to say a few words about that. First, Carlos.
SECRETARY GUTIERREZ: Thank you. Thank you, Secretary Paulson.
Intellectual property and market access remain at the top of our agenda every time
we meet with Chinese officials. Improving protection and enforcement of intellectual
property as you well know is really at the top of the list of concerns for our
companies to do business in China. The Chinese have passed tougher laws. Now
is the time for tough enforcement of those laws, and we had conversations on that.
We also need better market access across a range of industries to continue to drive
competition. We believe, and we have discussed, and I believe the Chinese officials
understand this, competition will sharpen Chinese industry while giving U.S.
companies the opportunity to bring the goods and services to millions of Chinese
consumers. We agree that accelerating discussions to develop tourism - this will
build on the announcement Secretary Peters has made. Technology, trade, and
transparency were also high on the agenda. U.S. high technology exports to China
were up 44 percent in 2006 to $17.7 billion. We explained steps that we will take to
facilitate such exports to trusted civilian customers in China while maintaining our
national security guidelines. We also discussed with our Chinese counterparts ways
to increase the transparency of China's rule-making process.
We listened to China's concerns about a recent decision to apply countervailing
duties and confirmed our position and our firm commitment to use tools at our
disposal to enforce fair competition. We welcome China as a responsible member
and an important contributor to the global economy, and we look forward to working
together to achieve a level playing field for all of us.
AMBASSADOR SCHWAB: As the name implies, obviously this is a dialogue and
therefore one aspect of the broader array of venues and activities important to a
mature bilateral trading reception. SED II covered a range of important topics in the
trade arena: the Doha round prospects, China's role; China's commitments to the
World Trade Organization; trade and agricultural goods, including beef; trade and
services, including trade and prospects for opening trade more fully, and
environmental goods and services; and regulatory conditions, including protection
of intellectual property rights that are necessary for the Chinese economy to
develop and to put the bilateral trading relationship on a more stable footing. Suffice
it to say, we had a healthy exchange of views.
SECRETARY PAULSON: Thank you, Sue and Carlos.
We have also made progress in the area of energy and the environment. Energy
security and a cleaner environment are high priorities for both of our nations. Our
two markets for energy are big enough that by working together, we can drive the
development of clean energy technology that will improve the environment and
reduce our dependence on imported fuel. There will be a briefing on these
particular items later today. And we all know that consumer confidence is a vital
ingredient in growing any trade relationship. During these two days, this issue was
discussed with regard to food safety.
Let me turn now to Secretary Leavitt and then Secretary Johanns on that topic.
SECRETARY LEAVITT: There are many shared issues that we have with the
Chinese government. We have discussed at some length in side sessions about the
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pandemic influenza. We have talked about rural health care. We had lengthy
discussions on the cooperative continued research. But recent events have forced
very clearly as one of our top concerns the safety of food and medicines.
The Food and Drug Administration Commissioner Van Eschenbach and I raised
these concerns directly to the highest levels of the Chinese government. We made
clear that we need to improve in the areas of cooperation, information sharing, and
the registration firms. The Chinese government clearly understands that the world
marketplace will swiftly disadvantage any nation or economy or firm that is not able
to establish a sense of confidence and reliability in safety. We have a continuing
dialogue with them. We'll have additional meetings this week, and we expect that it
will in fact create a pathway for our mutual cooperation and benefit.
SECRETARY JOHANNS: If I might offer just a quick refresher, I deal with meat and
poultry at USDA, and Mike deals with pretty much everything else. So we both get
involved in food safety issues and because of that we were both involved in the
discussions that ocurred over the last couple of days with China.
We discussed with China our concerns about the safety of Chinese food exports
system. I would mention that those conversations took place not only at our level
but they also took playas recently as this morning at the next level, the
undersecretary's level, where Dr. Raymond met at the USDA this morning with
Chinese officials. We believe strongly that we have to have the regulatory system
that assures the American public of safety in the quality of food that is being
imported to the United States. And whether that would be from China or any other
country.
In order to provide that assurance here in the United States, we are asking China to
work with us in many areas. And as Mike indicated, those conversations are
continuing right up to the time that the Chinese leave the United States. Secretary
Leavitt and I will continue to discuss steps that that we feel would be necessary with
our counterparts from China, and again, we anticipate meetings right up to the time
that the Chinese leave. As we continue our discussions, we will be happy to share
any additional details that may come out in the next 24 to 48 hours.
Let me just wrap up and say that I thought our conversations were helpful. I thought
the Chinese worked with us very, very well, and so I'm optimistic about the next
couple of days in dealing with these very, very important issues. Thank you.
SECRETARY PAULSON: Thank you very much, Mike and Mike.
Now I would like to ask Secretary Chao and Secretary Jackson to mention a few
important things in their areas.
SECRETARY CHAO: As part of the Strategic Economic Dialogue, the U.S.
Department of Labor will sign three letters of understanding with China's ministry of
labor and social security to help strengthen the social safety net for China's
workers. A stronger social safety net will allow Chinese workers to decrease their
high rate of precautionary savings so that they will buy more goods and services,
including more U.S.-produced goods and services.
The three areas of cooperation are in pensions, especially employer-provided
pensions in the private sector, unemployment insurance, and labor market
statistics. Labor market statistics were added because accurately measuring
employment and data concerning the workforce is critical to designing social safety
net programs for workers. These agreements are part of an ongoing exchange, part
of ongoing exchanges that the U.S. Department of Labor has been pursuing with
China for several years, which will also lead to cooperation in health and safety and
compensation issues as well. Thank you.
SECRETARY JACKSON: Secretary Paulson and my other colleagues, over the
past two days, we have devoted discussion to mutual benefits from the growing
connectivity between the economies of our two countries. One of the statistics that
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bears this out is the financial market place most of all. In 2002, the total Chinese
investment in U.S. agency marketplace securities was once at a million dollars. By
June of 2006, this number had grown one thousand fold to $107 billion.
The Chinese economy is benefiting from high-yield safe investments in mortgagebacked secuntles. Here at home, American homeowners are benefiting from low
Interest rates on mortgage loans resulting from the great Chinese demand for these
securities.
This week's dialogue has been constructive. We look forward to further the
discussion and further integrating that capital when I get to Beijing this July. Thank
you.
SECRETARY PAULSON: Thank you Elaine and Alphonso. Now, in conclusions, we
have built strong relationships since President Bush and President Hu agreed to the
SED last fall. I believe this dialogue gives us our best opportunity to increase the
pace of change in China. By gathering the economic teams from both nations
together, we can put a wide variety of issues on the table and focus on the items
that are high priorities for both of our nations. We will continue to work on all of
these issues in the coming weeks and months, and the third cabinet-level meeting
of the SED will occur later this year in China.
Now we'll take your questions Yes.
Q: Secretary Paulson - thank you. Thank you. My name is - (inaudible) - from
China - (inaudible). And Secretary Paulson, do you set any deadline for China to
appreCiate Renminbi more faster, and how does China respond to this issue, and
how will you - will you deal with this matter with the congressman, thank you?
SECRETARY PAULSON: Okay, that is a question I have had before so I can(laughter) - I can assure you, and I also have that with the congressman. (laughter)
But let me say in all seriousness, the Renminbi and the rate of appreciation, the
degree of flexibility is an important economic issue. It is an important issue in trade
forums, but even more importantly, it has become a symbol for the rate of reform,
the pace of reform of the Chinese economy. So we talked about it a lot. And we had
a number of very good presentations on it, one in particular during the Strategic
Economic Dialogue.
And the way I think about it is this: The Chinese clearly - (inaudible) - have stated
the principle of greater Renminbi flexibility. They will cite statistics and clearly they
have been moving the Renminbi more quickly. There has been more movement in
the Renminbi, more flexibility over the last six months to a year. So there is no
doubt that that is going on.
If you look at economic data, it's easy to make the case that there is more need to
move the Renminbi now than there was even in July of 2005 because if you look at
the Renminbi on a trade-weighted basis or look at it in economic terms, making
allowances for productivity gains, there is a continued need to move the Renminbi.
So we make the case and they listen and they are moving the Renminbi. They have
widened the band. Now, that is - on the one hand, it's an important signal, but what
really is going to make the difference is how much they take advantage of the (inaudible) - as the Renminbi moves. And so the Renminbi - someone could make
the case that the Renminbi doesn't take full advantage of the narrower band but I
choose to take that as a positive signal, and I think the real test will be how much
flexibility there is in the Renminbi on a daily basis and over time.
So this is an important area. They agree with us on principle. The question is the
pace of change. The pace of change has picked up, but I believe it will be very
much in their best interest and the rest of the world's best Interest If they will move
more quickly.
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Yeah.
0: Thank you. Pete Kasperowicz from Inside U.S. Trade. A question for
Ambassador Schwab: All of you mentioned at some point or another that this
meeting is designed to help create momentum in other meetings like the JCCT.
That would seem to be needed since, by your own accord, China has failed to meet
the obligations it undertook in April of 2006. What sense do you get from this
meeting that China is willing to meet those commitments and maybe move further
beyond?
AMBASSADOR SCHWAB: I think first of all, in terms of the JCCT meeting
commitments in April of 2006, I think we have a mixed picture, including a lot of
positive elements to point to. In intellectual property rights for example, business
software with the Chinese computer companies freeloading legal operating
software for computers to leave the factory. That has had an appreciable
measurable impact on the piracy of business software. So take that as a forexample for a success.
There is still activity underway and implementation that we're looking forward to
seeing. In addition to - as you can imagine, with this many ministers in town, we
also take advantage of the presence of the various Chinese ministers to do sidebar
conversations, quiet conversations over lunch or dinner, meeting separately. And
we talk about the range of issues, including, as I noted, China's compliance with its
WTO commitments. And we are moving ahead. One is never satisfied, but we are
moving ahead and we're seeing some progress.
SECRETARY PAULSON: Yes, the gentleman.
0: Perhaps this is question for Secretary Johanns about beef. Any progress on the
beef front? (Laughter.)
SECRETARY JOHANNS: Well, we did talk about beef. I had an opportunity on a
couple of occasions to visit with my counterparts about beef. Also during the
general session, I would say, though, to announce the very, very positive decision
that was issued by the OlE. So what I can offer at this point is that now with the OlE
backing up the safety of our beef, what we are asking China to do, and for that
matter, all of our trading partners, is to embrace the OlE standard and allow for the
trade in beef based upon that standard. China happens to be here this week, so we
made that request to them but I can tell you, we are dispatching information across
the globe to our trading partners on the OlE decision. So it won't just be China that
will receive this request; it will be Japan; it will be Hong Kong; it will be Korea; it will
be all of our trading partners in beef. So I can't announce a breakthrough but we
had a good week this week because of the OlE decision.
SECRETARY PAULSON: Let me just make one point that I think most of you here
know but maybe all of you don't. The SED is not - doesn't replace the other
bilateral mechanisms we have with JCCT, the JCM, the JEC. So what we do is we
focus on longer-term structural issues and issues that are of the most concern in
the short term, and so that is the approach that the SED is.
The gentleman in the second row?
0: (Inaudible). For longer term, any discussion has ever mentioned about the
bubble of the Chinese stock market - I mean, any reaction for the Chinese side that
they worry about the - (inaudible) - before the Beijing Olympics? Thank you.
SECRETARY PAULSON: Well, we don't -I'm not going to comment on the views I
have one way or the other on the level of any market. And I certainly would never
characterize something as a bubble. But we did, we spent a lot of time talking about
financial markets and capital markets. And one of the points we made, one of the
points I made is that China has come a long way in the development of the overall
economy. They have gotten farther to go, but they have come a long way.
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They had meaningful reforms in the financial markets, but the financial markets are
not yet reflective or representative of the success of the Chinese economy. And
when you think about innovation - and we talked about innovation a lot today - and
I made the point that it's also important to have innovation in financial products and
allow the most innovative financial products when they're appropriate. And so the as the Chinese market develops and as the Chinese market gets representative
and sophisticated, institutional markets when they are allowed more hedging
techniques, risk management techniques, there will be ultimately more protection
for individual investors. Of course, markets go up and markets go down and so
investors in every market need to be prepared to have losses from time to time.
Yes?
Q: Secretary Paulson, Banco Delta Asia, which is of great interest to China and the
region. Last month you mentioned that the strategic objective was to have a denuclearized Korean peninsula. My question is who that objective - I'm Banco Delta
Asia SECRETARY PAULSON: I just - the objective was to have what?
Q: You mentioned in last month's press conference that the objective was - the
strategic objective was to have a de-nuclearized Korean peninsula for Banco Delta
Asia on the issue. And. I'm sorry question is thatSECRETARY PAULSON: I don't know why I'm missing the point. I can't hear you.
Q: It's about Banco Delta Asia and North Korea. Banco Delta Asia.
SECRETARY PAULSON: Oh, Banco Delta Asia. Okay, J've got it.
Q: Yes, I'm sorry. Last month at a press conference, you mentioned the strategic
objective was to have a de-nuclearized Korean peninsula. My question is, for that
objective, are you willing to have special measures or give waivers to American
banks that are willing to transfer the North Korean funds since they can't do so
without violating the - (inaudible)?
SECRETARY PAULSON: Yes, the first - what I said last month in an effort - I
believe you asked the question about Banco Delta Asia and the sanctions on Banco
Delta Asia and I said the biggest, the overriding objective, the forest through the
trees is a de-nuclearized Korean peninsula and that still remains the objective.
There is - I'm still cautiously optimistic.
And in terms of Banco Delta Asia, that situation speaks for itself. The rule speaks
for itself. I think it's pretty clear to everyone in the world today that when the U.S.
government, when we take steps to preserve the security of the banking system
and to protect it against abuses of proliferation, money laundering, any other illegal
activities, that that has a positive result and I think that is a very, very powerful
measure that we use. And I think it ultimately drives better behavior. And so I think
what we're working towards, I said, is the de-nuclearization of the peninsula and
we're ultimately looking for changed behavior.
Q: Thank you, Mr. Paulson. I'm with Beijing Review. Have you got any responses
from the Congress toward the two-day discussions? Are they satisfied? And what's
your expectation for Madame Wu Yi's meetings with the Congress tomorrow?
Thank you.
SECRETARY PAULSON: I don't think it's fair of me to have expectations and let
me say we just finished the meetings today, so I'm not sure what Congress's
reaction will be. I can say there were a number of congressional leaders at our
dinner last night that Secretary Rice hosted at the State Department, including
Chairman Rangel, so there was some discussion there. But again, as I've said
before, we intentionally scheduled this meeting at a time when Congress is in
session because we thought it would be very good for the Chinese to have an
opportunity to meet directly with our Congress.
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I believe that their expectations are that they will hear some strong views that we've
explained to them that the American people have concerns about trade,
globalization, don't believe the benefits of trade are being shared evenly or equally
with our trading partners, particularly China. And so I think they're expecting to hear
that from Congress and hopefully it will be a good two-way dialogue and a learning
experience on both sides, as these discussions always are. Way back, the
gentleman?
0: Hi, with Dow Jones. I just wanted to ask about the securities deal that you all
announced today. If I'm reading this correctly, does this mean that foreign securities
firms no longer need to form joint ventures before they can do a share transaction
from China? And for foreign brokerages looking to expand into the fund
management sector, do ·they no longer have to form joint ventures with domestic
firms?
SECRETARY PAULSON: No, there's been - (inaudible) and it would be - to step
back, that one of our big objectives of the SED is to be talking about things that go
well beyond the WTO obligations and that means opening up China's markets to
competition, their markets for goods and for services.
And the financial markets is one area we've emphasized a lot because opening up
the financial markets will do things for the whole rest of the economy; it's a
multiplier. And we have made the case repeatedly that you can't find an example
anywhere in the world of outstanding capital markets that are composed of joint
ventures. If you want outstanding capital markets, you let the best companies in the
world come in to compete and that's the same with any other markets - any of the
other, telecommunications markets, air service markets, any market.
And so no, what we've announced have been incremental changes - what China's
announced, not what we have announced. What China's announced have been
incremental changes. So there's still joint ventures and what they said is that they
will have to get a hold on joint ventures and securities areas so they're going to take
the hold off and they're going to be setting up new jOint ventures and they are then
going to expand the products and services that existing joint ventures can offer,
which is a positive step forward. They've also said that banks that have - U.S.
banks and other foreign banks that have subsidiaries in China and can take
Renminbi deposits will be able to issue their own Renminbi debit and credit cards.
And then they've changed the OFII, expanded the OFII allocations. So that's what's
been announced.
0: Thank you very much.
SECRETARY PAULSON: Okay, thank you.
*
CORRECTION: from $20 billion.
-30-
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May 24,2007
HP-422
Under Secretary Steel
Statement on Section 404
Implementation Actions
Washington, DC- U.S. Treasury Under Secretary for Domestic Finance Robert K.
Steel released the following statement today regarding the Securities and
Exchange Commission and the Public Company Accounting Oversight Board's
votes to address the implementation of Section 404 of the Sarbanes-Oxley Act:
"The SEC and the PCAOB, after carefully considering the effects of Section 404,
moved this week to strike the right balance in enhancing financial reporting quality
and eliminating unintended costs. These key reforms should ensure that Section
404 is implemented in a risk-based and appropriately-scalable fashion, without
sacrificing investor protection or diminishing the value of sound internal controls
over financial reporting. Now that the regulators have acted, it is critical that public
companies and the auditing profession respond to this call.
"Treasury congratulates the SEC, the PCAOB and their chairmen, Chris Cox and
Mark Olson, for their cooperation in working to uphold investors' confidence in and
the competitiveness of America's capital markets."
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PRESS ROOM
May 24,2007
HP-423
Benefits of Trade with China
•
China is America's 4th largest export market and 2nd largest import supplier
for goods trade. U.S. exports to China last year totaled $55.2 billion and
U.S. imports from China totaled $287 billion.
•
Since China joined the WTO in 2001, U.S. merchandise exports to China
increased 187 percent. During the same period, U.S. exports to the rest of
the world grew 38 percent.
•
The United States has a services trade surplus with China. It was $2.6
billion in 2005.
•
Consumer goods, sporting equipment, apparel and footwear - relatively low
value added consumer products - are among the U.S.'s top imports from
China. High value-added manufacturing products are among top U.S.
exports to China, such as electrical machinery and power generation
equipment, medical instruments, plastics, aircraft, iron and steel, and
agricultural products.
•
China is often the last stop in the assembly process and thus the recorded
import supplier to the United States. However, materials and components
are often first imported into China from other Asian countries then
assembled for export. Over 50 percent of China's goods exports are part of
this global processing supply chain.
•
U.S. industrial production (78 percent of which is manufactured goods) rose
by 46 percent between 1994 and 2006.
•
As the U.S. economy becomes increasingly globally integrated, the U.S.
manufacturing base remains strong. While the U.S.'s manufacturing share
of GDP is declining, America is still the world's number one manufacturer,
accounting for more than 20 percent of worldwide manufacturing valueadded - that's twice as much as Germany and more than 2.6 times as much
as China. The U.S. manufactures more today than ever in its history seven times as much real output as in 1950, with roughly the same number
of workers as in 1950.
Global
•
Increased international trade has raised real incomes, restrained prices,
introduced greater product variety, spurred technological advances and
innovation, and raised real living standards in the United States.
•
The annual payoff from trade liberalization to date is over $10,000 for an
average American family of four. This includes the Tokyo Round, Kennedy
Round and Uruguay Round, NAFTA and other U.S. free trade agreements.
•
The removal of remaining global barriers to trade in goods and services
could generate an additional $600 billion in annual income for the United
States. Most of these gains arise from liberalization of trade in services.
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•
Approximately 57 million American workers are currently employed by firms
that engage in international trade. These firms tend to be more productive,
have higher employment growth and pay their workers higher wages than
domestically-oriented firms.
Imports
•
International trade in goods and services exposes firms to foreign
competition and reduces their ability to charge high markups above
production costs. The average annual growth in U.S. import prices for the
period 1990-2006 was just 1.4 percent compared to 3.1 percent for overall
consumer prices.
Exports
•
Firms engaged in the international marketplace tend to exhibit higher rates
of productivity growth and pay higher wages and benefits to their workers
than domestically-oriented firms. Wages paid by manufacturing plants that
export are 9 percent higher on average than wages paid by non-exporting
plants of the same size. And the wage premium for service-oriented firms
that export is even higher--13 percent.
•
U.S. exports to the ten most recent U.S. FTA partner countries -- FTA's
implemented between 2001 and 2006 -- grew twice as fast as U.S. exports
to the rest of the world (26 percent versus 13 percent).
•
Exports accounted for approximately 30 percent of U.S. economic growth in
2006.
•
All 50 states benefit from exports: exports account for over 20 percent of
manufacturing jobs in South Carolina and over 35 percent in Washington.
Agricultural exports support nearly 400,000 jobs in the U.S. farm sector.
The Role of Multinational Firms
•
International trade is an important channel of international commerce but it
is not the largest channel. Many U.S. firms access foreign markets through
foreign direct investment, and producing and selling abroad.
•
U.S. firms deliver five times the value of services (and two and a half times
the value of goods) through their foreign affiliates as they do through crossborder trade.
•
Globally engaged U.S. multinationals on average pay their employees about
20 percent above the national average.
•
U.S. multinationals have been one of the main drivers of overall U.S.
productivity growth over the last three decades, and accounted for over half
of U.S. productivity growth between 1977 and 2000, and for half of the
increase in U.S. productivity growth between 1995 and 2000.
•
Studies show that economic activity abroad by U.S. multinational companies
complements domestic economic activity. One dollar of additional foreign
capital spending is associated with $3.50 of additional domestic capital
spending. And when multinationals hire abroad they also expand
employment here at home.
•
While U.S. multinationals account for 25 percent of total U.S. output and 20
percent of employment, they account for a disproportionately high share of
U.S. goods exports (49 percent), goods imports (31 percent), physical
capital expenditures (29 percent), and research and development spending
(68 percent).
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May 24,2007
HP-424
Treasury to Help Industry
Test Pandemic Outbreak Response
Washington, DC- The Treasury Department announced today that it will sponsor
an industry-wide exercise this fall for the financial services sector to test its ability to
respond a pandemic crisis, such as a bird flu outbreak.
"A lack of preparedness could turn a biological problem into one that seriously
affects the availability of financial services to Americans and the global economy,"
said D. Scott Parsons, Treasury Deputy Assistant Secretary for Critical
Infrastructure Protection and Compliance Policy. "While the industry has taken up
its responsibility and improved its response plans, there is still much work to be
done. Treasury is encouraging financial institutions of all sizes from across the
country, including banks, credit unions, securities firms and insurance companies,
to participate."
President Bush directed Treasury in May 2006 to coordinate with the banking and
finance sector to better prepare its response to a pandemic crisis.
The VOluntary exercise will bring together the public and private sector through the
Financial and Banking Information Infrastructure Committee and the Financial
Services Sector Coordinating Council. The FBIIC-FSSCC Pandemic Flu Exercise of
2007, beginning September 24 and running for three weeks, will focus on the
continuity of financial services for Americans in the event of a pandemic crisis. The
exercise will examine a number of issues including human resources, continuity of
operations, and dependencies on other sectors such as transportation, energy and
telecommunications.
The test will occur entirely online using a secure website hosted by the Securities
Industry and Financial Markets Association. Treasury will release registration
information in the coming weeks.
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May 23, 2007
HP-425
The Second U.S. - China Strategic Economic Dialogue
May 22-23, Washington
Joint Fact Sheet
In Washington on May 22 and 23, the United States and China held the second
Strategic Economic Dialogue (SED). As special representatives of Presidents Bush
and Hu, Treasury Secretary Henry M. Paulson, Jr. and Vice Premier Wu Yi served
as co-chairs of the SED.
The United States and China agreed to the following principles building on the
consensus reached at SED I:
•
•
•
•
Promoting balanced economic growth in a manner compatible with
sustained development is a shared responsibility of the two sides.
Recognizing the importance of innovation in creating a prosperous
economy, and encouraging market-oriented fair competition, effective
property rights, and, specifically for small and medium enterprises, the
development, management, and application of innovation.
Strengthening cooperation on meeting respective goals in energy security,
conservation, and efficiency; developing clean sources of energy;
environmental protection; clean development; and addressing climate
change.
Cooperating and exchanging information on transparency to enhance
predictability for market participants, promote confidence in our economies
and build on their international obligations.
Discussions led to a number of results that strengthen and deepen the bilateral
economic relationship, including:
•
•
In financial services, China will resume licensing securities companies in the
second half of 2007, and before SED III, China will announce to gradually
expand the business scope of qualified joint-venture securities companies to
allow them to be engaged in securities brokerages, propriety trading and
asset management; increase the total quota for Qualified Foreign
Institutional Investors (QFlls) to $30 billion under the prerequisite of
promoting its international balance of payment; allow foreign incorporated
banks qualified for RMB retail businesses to issue RMB bank cards which
meet the operational and technical standards of China's banking cards, and
enjoy the same treatment as Chinese banks; and allow foreign property
insurance companies to apply for conversions into subsidiaries. China
Insurance Regulatory Commission (CIRC) will complete decisions on
pending applications by August 1,2007. China expanded the scope of
investment products for Qualified Domestic Institutional Investors (QDlls).
The United States strongly supports full membership of China at the
Financial Action Task Force (FATF) in June 2007 with the understanding
that China will take appropriate steps to ensure that it meets FATF's core
membership criteria, confirms that any application by a Chinese bank to
establish branches in the United States will be considered consistent with
the principle of national treatment, and commits to regulatory personnel
exchanges.
In non-financial services and trade, both sides announced an agreement to
expand the existing bilateral aviation agreement which greatly increases the
number of flights between the two countries annually, provides for full
liberalization for cargo services as of 2011, and both sides agreed to
commence negotiations in 2010 on an agreement and timetable for full
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liberalization of passenger services; a joint declaration to launch Chinese
group leisure travel to the United States; a MOU on sovereign guarantee
financing cooperation; and the import by China of U.S. railway equipment.
Both sides agreed on "Guidelines for U.S.-China High Technology and
Strategic Trade Development." Both sides will continue to cooperate on
transparency in government legislation, and co-host a seminar involving
administrative licenses. China will publish revised implementing regulations
on international freight forwarding in 2007.
In energy and the environment, the United States and China agreed to work
together in a pragmatic manner to actively participate in WTO multilateral
negotiations on trade and environment, and engage in discussions on the reduction
or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods
and services. The United States and China will strengthen cooperation in the
following areas: advancing clean coal technology, aiming to develop up to 15 largescale coal-mine methane capture projects in China, finalizing participation of China
in the Government Steering Committee of the FutureGen project, providing policy
incentives to abolish cost barriers to full commercialization of advanced coal
technologies, advancing the research and development of carbon capture and
storage technologies, and formulating a national low sulfur fuel policy for China.
The United States and China jointly announce an agreement for voluntary energy
efficient product endorsement labeling (EnergyStar) certification. Both countries
signed a Memorandum of Cooperation on Nuclear Safety for the Westinghouse
AP1000 Nuclear Reactor.
•
In balancing growth, the United States will provide technical assistance on
developing financial markets and rural finance. Both countries agree to staff
exchanges and information sharing regarding labor market policies. The
US. - China Health Care Forum was successfully convened prior to SED II.
The United States and China also agree to pursue significant measures to
lower China's national saving rate and increase the United States national
saving rate. The United States welcomes China's announcement to widen
the RMB daily trading band.
• In innovation, China's General Administration of Customs, and the U.S.
Customs and Border Protection, Department of Homeland Security signed a
Memorandum of Cooperation on IPR Enforcement. The United States and
China also signed a letter of intent on the establishment of a consultative
mechanism in standards and trade-related technical measures and will host
a seminar on the critical elements of technical innovation.
Both sides decided to prioritize work during the next six months in several areas:
•
To promote a reduction in current account imbalances in a manner
compatible with sustained economic growth, China will continue to deepen
reform of the exchange rate regulation system, further improve the
formation of a RMB exchange rate mechanism, bring into greater role of
market supply and demand, and increase the flexibility of the exchange rate.
The United States will implement measures to increase long run fiscal
responsibility and introduce new ways to encourage private saving. Both
sides also agree to strengthen cooperation on health care services and
statistics related to U.S.-China trade and employment. The United States
welcomes Chinese investment in the United States, and China welcomes
U.S. investment in China.
• Launch agreement consultations to facilitate Chinese group leisure travel to
the United States, continue discussions on the possibility of a bilateral
investment agreement, and strengthen consultation and cooperation on
China's market economy status. The two sides shall seek to clarify
misunderstandings and resolve differences to promote the rapid
development of civilian high technology and strategiC trade. China will
streamline the application and licensing process for the provision of
enterprise annuities including by foreign-invested enterprises by SED III.
• Engage in dialogue on illegal logging and explore ways to cooperate
including through a bilateral agreement. Continue exchanges on
management of oceans and fisheries, strategic petroleum reserves, and on
fostering environmentally sound management of recyclable waste materials;
strengthen cooperation on the Global Nuclear Energy Partnership and
http://www.treas.gov/prc~~/relea3e5/hp425.htm
61712007
Page 3 of 3
•
promote bilateral exchanges and cooperation on energy, environmental
protection, and clean development and climate change; and advance the
Joint Study of Abatement Strategies.
Identify new areas of cooperation to strengthen innovation capabilities, as
well as deepening cooperation to enhance laws, policies, programs and
incentives that encourage innovation. The United States and China will
continue to cooperate on transparency in rule-making, inviting
representatives from their legislative and judicial organs of government to
appropriate future meetings.
The third SED will be held in Beijing in December 2007.
- 30-
http://WWw.treas.gov/oress/releases/hp425.htm
6/712007
Page 10f2
May 29,2007
HP-426
Treasury Designation Targets Sudanese
Government, Rebel Leader
The U.S. Department of the Treasury today blocked the assets of three Sudanese
individuals, including two high-ranking government officials and a rebel leader, for
their roles in fomenting violence and human rights abuses in Darfur. The Treasury
also acted today to sanction 30 Sudanese companies owned or controlled by the
Government of Sudan, and one company that has violated the arms embargo in
Darfur.
"Even in the face of sanctions, these individuals have continued to play direct roles
in the terrible atrocities of Darfur," said Treasury Secretary Henry M. Paulson, Jr.
"We are working to call attention to their horrific acts and further isolate them from
the international community."
Ahmad Muhammed Harun, Sudan's State Minister for Humanitarian Affairs, has
been accused of war crimes in Darfur by the International Criminal Court in the The
Hague. Sudan's head of Military Intelligence and Security, Awad Ibn Auf, was also
designated today, along with Khalil Ibrahim, leader of the Justice and Equality
Movement (JEM), a rebel group that has refused to sign the Darfur Peace
Agreement.
Harun and Auf are among Khartoum's senior leadership and have acted as liaisons
between the Sudanese government and the Government-supported Janjaweed
militias, which have attacked and brutalized innocent civilians in the region. The two
individuals also have provided the Janjaweed with logistical support and directed
attacks. Hundreds of thousands of people have been killed and more than 2.5
million people have been displaced by violence and war since 2003. Previously,
Harun served as State Minister for the Interior, and played a central role in
coordinating and planning military operations in Darfur between 2003 and 2005. In
the 1990s he was responsible for massacres in the Nuba Mountains and was
nicknamed "the Butcher of Nuba."
Fighting between the Government of Sudan, the Janjaweed, and splintered rebel
groups has continued unabated in Sudan, despite the signing of the African Unionbrokered Darfur Peace Agreement in May 2006. The Government of Sudan and the
largest rebel group, the Sudan Liberation Movement, signed the agreement, but
other rebel groups, including the JEM, declined to do so. The JEM is responsible for
violence and suffering in Darfur and Khalil Ibrahim, as leader of the JEM, is
personally responsible for rebel activity aimed at further destabilizing the situation
on the ground.
Today's action brings to seven the number of Sudanese individuals for whom
access to the U.S. financial system is prohibited under Executive Order 13400,
which targets perpetrators of human rights abuses in Darfur in western Sudan.
Azza Air Transport Company has also been sanctioned under Executive Order
13400 for transferring small arms, ammunition and artillery to Sudanese
government forces and Janjaweed militia in Darfur.
An additional 30 companies have been designated today pursuant to Executive
Orders 13067 and 13412 because they are owned or controlled by the Government
of Sudan. These orders permit the imposition of economic sanctions on the
Sudanese government for its continued support for international terrorism, ongoing
efforts to destabilize neighboring governments, and human rights violations - in
http://WWw.treas.gov/press/releas0s/11fl426.htm
6/712007
Page 2 of2
particular with respect to the conflict in Darfur. The United States first imposed
sanctions on the Government of Sudan in 1997.
"These companies have supplied cash to the Bashir regime, enabling it to purchase
arms and further fuel the fighting in Darfur," added Paulson. "By denying these
companies access to the U.S. and international financial system, we will make it
harder for the Government of Sudan to pursue its deadly agenda."
Among the companies designated in today's action are GlAD Industrial City, which
has supplied armored vehicles to the Sudanese government for military operations
in Darfur; Sudatel, the national telecommunications company; and five firms in the
petrochemical sector, including Advanced Petroleum Company, RAM Energy
Company, Bashaier, Hi-Tech Petroleum Group, and Hi-Tech Chemicals.
As a result of Treasury's designations, any assets these individuals and entities
may have that are within U.S. jurisdiction must be frozen, and U.S. persons are
prohibited from transacting or doing business with them.
The United States, the single largest international donor of humanitarian assistance
to Sudan, has called for an end to the fighting in Darfur and for those responsible
for crimes and atrocities to be brought to justice. In particular, the United States,
along with the international community, is concerned about recent attacks on
humanitarian workers in Darfur.
The United States continues to push for a peaceful political solution that will end the
violence in Darfur and allow refugees and displaced persons to return to their
homes.
A complete list of the individuals and entities designated today is posted at the
following link:
http://www.treasury.gov/offices/enforcementlofac/actions/20070529.shtml .
http://WWw.treas.gov/prcss/rclcusc3/hp426.htm
6/7/2007
Page 1 of 3
U.S. Trea:::ury - Recent OF AC Actxms: 05129/2007
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05/29/2007
The names below with the description of [DARFUR] have been added to the SON list
pursuant to E.O. 13400 of April 26, 2006 as contribuing to the conflict in the Darfur region.
The following individuals have been added to OFAC's SON list:
AUF, Awad Ibn (a.ka. AUF, Awad Muhammad Ibn; a.k.a. AUF, Mohammed Ahmed Awad
Ibn; a.k.a. AWF, Awad Ahmad Ibn; a.k.a. AWF, Awad Ibn; a.k.a. NAUF, Awad Mohammed
Ahmed Ebnl; a.k.a. OAF, Awad Mohamed Ahmed Ibn; a.k.a. OUF, Awad Mohamed Ahmed
Ibn); DOB circa 1954; nationality Sudan; Head of Military Intelligence and Security
(individual) [DARFUR]
HARUN, Ahmad Muhammed (a.k.a. HAROUN, Ahmed Mohamed; a.k.a. HAROUN, Ahmed
Mohammed; a.k.a. HARUN, Ahmad; a.k.a. HARUN, Ahmad Muhammad; a.k.a. HARUN,
Mawlana Ahmad Muhammad); DOB 1964; POB Kordofan, Sudan; nationality Sudan; State
Minister for Humanitarian Affairs; former State Minister for the Interior; former Coordinator of
the Popular Police Forces (individual) [DARFUR]
&
TAHA, Khalil Ibrahim Mohamed Achar Foudail (a.k.a IBRAHIM, Khalil; a.k.a. MOHAMED,
Khalil Ibrahim); DOB 15 Jun 1958; POB EI Fasher, Sudan; all. POB AI Fashir, Sudan;
nationality Sudan; National Foreign 10 Number 4203016171 (France) issued 20 Feb 2004;
Registration 100179427 (France); Chairman, Justice and Equality Movement; Co-founder,
National Redemption Front (individual) [DARFUR]
The following entities have been added to OFAC's SON list:
ADVANCED ENGINEERING WORKS, Street No. 53, P.O. Box 44690, Khartoum, Sudan
[SUDAN]
ADVANCED MINING WORKS COMPANY LIMITED, Elmek Nimir Street, Khartoum
Bahri/lndustrial Area, P.O. Box 1034, Khartoum 11, Sudan; Email Address
admico@sudanmail.net (Sudan) [SUDAN]
ADVANCED PETROLEUM COMPANY (a.k.a. APCO), House No. 10, Block 9, Street 33,
Amarat, P.O. Box 12811, Khartoum, Sudan [SUDAN]
ADVANCED TRADING AND CHEMICAL WORKS COMPANY LIMITED (a.k.a. ADVANCED
CHEMICAL WORKS; a.k.a. ADVANCED COMMERCIAL AND CHEMICAL WORKS
COMPANY LIMITED), 19 AI Amarat Street, P.O. Box 44690, Khartoum, Sudan; Email
Address advance@sudanmail.net (Sudan); all. Email Addressaccw@htg-sdn.com (Sudan)
[SUDAN]
AL SUNUT DEVELOPMENT COMPANY (a.k.a ALSUNUT DEVELOPMENT COMPANY),
No.1 Block 5 East, Khartoum 2, PO Box 1840, Khartoum, Sudan; Website
http://WWw. trea.s. gOYlefficeslenforc~mentlofaclactions12007 0529. shtml
6/7/2007
U.S. Treas~ry - Recent OF AC Actions: 05/29/2007
Page 2 of3
www.alsunut.com (Sudan); Email Address info.AlsunutKhartoum@alsunut.com; Email
Address info.AlsunutDubai@alsunut.com [SUDAN]
ALFARACHEM COMPANY LIMITED (a.k.a. AL PHARAKIM; a.k.a. ALFARACHEM
PHARMACEUTICALS INDUSTRIES LIMITED; a.k.a. ALFARAKIM), 27 AI Amarat Street,
Khartoum, Sudan [SUDAN]
ARAB SUDANESE BLUE NILE AGRICULTURAL COMPANY, Khartoum, Sudan [SUDAN]
ARAB SUDANESE SEED COMPANY, Khartoum, Sudan [SUDAN]
ARAB SUDANESE VEGETABLE OIL COMPANY, Khartoum, Sudan [SUDAN]
ASSALAYA SUGAR COMPANY LIMITED, Eastern Bank of White Nile River, near Rabak
town (about 300 km from Khartoum, P.O. Box 511, Khartoum, Sudan [SUDAN]
AZZA AIR TRANSPORT COMPANY LTD. (a.k.a. AZZA AVIATION COMPANY; a.k.a. AZZA
TRANSPORT), German Culture Center, McNimer Street, P. O. Box 11586, Khartoum, Sudan
[DARFUR]
BASHAIER, Khartoum, Sudan [SUDAN]
GlAD AUTOMOTIVE INDUSTRY COMPANY LIMITED (a.k.a. GlAD AUTOMOTIVE AND
TRUCK; a.k.a. GlAD AUTOMOTIVE COMPANY; a.k.a. GlAD CARS & HEAVY TRUCKS
COMPANY), Gazera State (40 km distance from Khartoum), P.O. Box 444/13600, Khartoum
1111, Sudan; Website www.giadmotors.com/giad_auto.html[SUDAN]
GlAD MOTOR INDUSTRY COMPANY LIMITED (a.k.a. GlAD MOTOR COMPANY), Basheer
Mohammad Saeed Building, Baladia Street, PO. Box 13610, Khartoum, Sudan; Website
www.giadmotors.com (Sudan) [SUDAN]
GUNEID SUGAR COMPANY LIMITED (a.k.a. GUNEID SUGAR FACTORY), P.O. Box 511,
Khartoum, Sudan [SUDAN]
HI TECH GROUP (a.k.a. HIGH TECH GROUP; a.k.a. HIGHTECH GROUP; a.k.a. HITECH
GROUP), Amarat Street No. 31, PO. Box 44690, Khartoum, Sudan; Website www.htgsdn.com (Sudan) [SUDAN]
HICOM (a.k.a. HI-COM), Khartoum, Sudan [SUDAN]
HICONSUL T (a.k.a. HI-CONSULT), Khartoum, Sudan [SUDAN]
HI-TECH CHEMICALS, Khartoum, Sudan [SUDAN]
HI-TECH PETROLEUM GROUP, Khartoum, Sudan [SUDAN]
NEW HALFA SUGAR FACTORY COMPANY LIMITED (a.k.a. NEW HALFA SUGAR
COMPANY), EI Gamaa Street (Aljama Street), New Haifa, PO. Box 511/3047, Khartoum,
Sudan; Email Addresssukar@sudanmail.net (Sudan) [SUDAN]
PETROHELP PETROLEUM COMPANY LIMITED, Building No. 20, Street No. 42, AI Riyadh
Area, P.O. Box 44690, Khartoum, Sudan [SUDAN]
RAM ENERGY COMPANY LIMITED, Altiyadh Street 131/Almashtal Street, Block 12, House
No. 87, P.O. Box 802, Khartoum, Sudan [SUDAN]
SENNAR SUGAR COMPANY LIMITED, P.O. Box 511, Khartoum, Sudan; Email Address
sukar@sudanmail.net (Sudan) [SUDAN]
Qtlp://www.treasury.gov/officc3/cnforcement/ofac/actions/20070529.shtml
6/7/2007
U.S. Treasl!ry - Recent OF AC Actions: 05/29/2007
Page 3 of3
SHEIKAN INSURANCE AND REINSURANCE COMPANY LIMITED (a.k.a. SHEIKAN
INSURANCE COMPANY), AI Souq AI Arabi, Sheikan Building, Khartoum SU001, P.O. Box
10037, Khartoum, Sudan; Email Addresssheikan@sudanmail.net (Sudan) [SUDAN]
SUDAN ADVANCED RAILWAYS, Khartoum, Sudan [SUDAN]
SUDAN GEZIRA BOARD (a.k.a. GEZIRA SCHEME), Khartum Gezira Scheme Building, 39th
Street, P.O. Box 884, Khartoum, Sudan [SUDAN]
SUDAN MASTER TECHNOLOGY (a.k.a. GlAD INDUSTRIAL CITY; a.k.a. GlAD
INDUSTRIAL GROUP; a.k.a. SUDAN MASTER TECH), SMT Building, Gamhuria Street,
GlAD Industrial Complex, P.O. Box 10782, Khartoum, SU001, Sudan; Email Address
info@sudanmaster.com (Sudan); Website www.sudanmaster.com (Sudan) [SUDAN]
SUDAN TELECOMMUNICATIONS COMPANY LIMITED (a.k.a. SUDATEL), 9th Floor,
Sudatel Tower, Nile Street, Khartoum, Sudan; Sudatel Tower, AI Horriya Street, P.O. Box
11155, Khartoum, Sudan; Email Addressinfo@sudatel.net (Sudan); Website
www.sudatel.net/en (Sudan) [SUDAN]
SUDANESE SUGAR PRODUCTION COMPANY LIMITED (a.k.a. SUDANESE SUGAR
COMPANY), EI Gamaa Street (Aljama Street), Opposite the Authority of Electricity Building,
P.O. Box 511, Khartoum, Sudan; P.O. Box 511, Building No.3-Block No.7, Alshatte GharbGammaa Avenue, Khartoum, Sudan; Email Addresssukar@sudanmail.net (Sudan) [SUDAN]
WAFRA PHARMA LABORATORIES (a.k.a. WAFRA PHARMACEUTICALS; a.k.a.
WAFRAPHARMA LABORATORIES), Main Street, P.O. Box 2032, Omdurman, Sudan; Email
Address waframed@sudanmail.net (Sudan) [SUDAN]
http://www.treasury.govfofftee3fenforecment/ofaciactions/20070529.shtml
61712007
Page 1 0[2
PR ESSR02M:
May 29, 2007
HP-427
Prepared Remarks of Adam J, Szubin
Director of the Treasury Department's Office
of Foreign Assets Control
The Office of Foreign Assets Control at the Treasury Department administers
financial sanctions to advance our national security and foreign policy goals. The
United States first levied financial sanctions against the Government of Sudan in
1997, in response to its repeated violations of human rights and support for
international terrorism. In 2005, the United Nations Security Council put in place a
targeted sanctions regime imposing worldwide financial and travel restrictions
against individuals responsible for the crisis in Darfur.
Over the past several months, at the direction of the President, Secretary Paulson,
and Secretary Rice, my office has worked to both expand and strengthen financial
measures against the Bashir regime and other culpable parties in Sudan. These
measures fall into four broad categories.
First, as the President announced this morning, we have today designated three
individuals and one company under Executive Order 13400, which targets those
who commit atrocities and foment instability in Darfur. The designated individuals
are:
•
•
•
Ahmad Haroun, a Sudanese Government minister who has been publicly
accused of war crimes by the International Criminal Court in the Hague
Awad Ibn Auf, the director of Sudan's Military Intelligence office, and
Khalil Ibrahim, the leader of the rebel group "Justice and Equality
Movement," who is responsible for acts of violence in Darfur and for
undermining the Darfur Peace Agreement.
We have also designated Azza Air Transport under this authority, a company that
has moved arms and artillery to Janjaweed militia and Sudanese Government
forces in Darfur.
Second, today we designated 30 companies owned or controlled by the
Government of Sudan under Executive Orders 13067 and 13412. The targeted
companies include five petrochemical companies, Sudan's national
telecommunications company, and an entity that has supplied armored vehicles to
the Sudanese Government for military operations in Darfur.
All of the individuals and companies designated today are now cut off from the U.S.
financial system. They may not do business with U.S. individuals or companies
located anywhere in the world, and any of their assets that come into the
possession of a U.S. person or institution must be frozen.
Third, we have stepped up enforcement of our Sudanese sanctions across the
board. This means aggressive investigation of the methods and accomplices that
the Government of Sudan may be using to circumvent our sanctions and access
the U.S. financial system illegally. Those who direct or facilitate evasion of our
sanctions should be on notice: we will be vigilant and the penalties are serious,
including potential criminal prosecution.
Finally, our State Department colleagues are working to introduce a new U.N.
Security Council resolution that will reinforce the measures we are taking in the
http://WWw.treas.gov/press/releaseS/hp427.htrn
6/7/2007
Page 2 of2
United States, and impose new sanctions against the Government of Sudan and its
agents on a global scale.
Collectively, these measures are aimed at bringing stability and peace to Darfur,
and ensuring that the Bashir regime takes meaningful steps to alleviate - rather
than aggravate - the suffering that is occurring there. We hope that is the case,
and we will be watching.
http://WWw.treas.gov/press/releaseS/hp427.htm
6/712007
Page 1 of 5
May 29,2007
2007 -5-29-17 -4 7 -46-23791
U.S. International Reserve Position
The Treasury Department today released U.s. reserve assets data for the latest week. As indicated in this table, U.S.
reserve assets totaled $65,835 million as of the end of that week, compared to $66,041 million as of the end of the
prior week.
I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)
I
II
IIMay 25,2007
I
IA. Official reserve assets (in US millions unless otherwise specified)
IIEuro
IIYen
IITotal
II
11 12 ,854
II
11 10,442
1165,835
I(a) Securities
lof which: issuer headquartered in reporting country but located abroad
II
II
110
I(b) total currency and deposits with:
II
1(1) Foreign currency reserves (in convertible foreign currencies)
II
12,893
10) other national central banks, SIS and IMF
5,119
11 23 ,296
II
11 18 ,012
Iii) banks headquartered in the reporting country
11 0
lof which: located abroad
110
I(iii) banks headquartered outside the reporting country
110
11 0
lof which: located in the reporting country
1(2) IMF reserve position
11 4 ,521
1(3) SDRs
11 8 ,965
1(4) gold (including gold deposits and, if appropriate, gold swapped)
1111 ,041
I--volume in millions of fine troy ounces
11 261 .499
0
1(5) other reserve assets (specify)
I--financial derivatives
I--Ioans to nonbank nonresidents
I--other
lB. Other foreign currency assets (specify)
I--securities not included in official reserve assets
[--deposits not included in official reserve assets
--loans not included in official reserve assets
J
--financial derivatives not included in official reserve assets
I
t-gOld not included in official reserve assets
[ --other
II
II
II. Predetermined short-term net drains on foreign currency assets (nominal value)
http://WWW.treas.gov/prc33/rclca3csI200752917474623791.htm
6/7/2007
Page 2 of 5
II
I
I
II
II
I
II
II
Total
I
More than 3
months and up to
1 year
More than 1 and
up to 3 months
Up to 1 month
1. Foreign currency loans, securities, and deposits
I
IIprincipal
I--outflows (-)
I
I--inflows (+)
I
II
IIMaturity breakdown (residual maturity)
II
IIlnterest
IIPrincipal
IIlnterest
I
2. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the domestic
currency (includinq the forward leq of currency swaps)
(a) Short positions ( - )
(b) Long positions (+)
3. Other (specify)
--outflows related to repos (-)
--inflows related to reverse repos (+)
--trade credit (-)
--trade credit (+)
--other accounts payable (-)
--other accounts receivable (+)
III. Contingent short-term net drains on foreign currency assets (nominal value)
I
II
I
II
II
II
II
I Maturity breakdown (residual maturity, where
More than 1 and
up to 3 months
Up to 1 month
More than 3
months and up to
1 year
II
11. Contingent liabilities in foreign currency
(a) Collateral guarantees on debt falling due within 1
year
I
applicable)
Total
I
I
I
II
I(b) Other contingent liabilities
2. Foreign currency securities issued with embedded
options (pultable bonds)
II
13. Undrawn, unconditional credit lines provided by:
(a) other national monetary authorities, BIS, IMF, and
other international organizations
I
I
I
t-other national monetary authorities (+)
t- BIS (+)
I
E-IMF (+)
I
(b) with banks and other financial institutions
headquartered in the reporting country (+)
r
I
http://www.treas.gov/press/releases/200752917474623791.htm
I
II
I
II
I
I
6/7/2007
Page 3 of 5
(c) with banks and other financial institutions
IIheadquartered outside the reporting country (+)
I
IUndrawn, unconditional credit lines provided to:
(a) other national monetary authorities, 81S, IMF, and
other international organizations
II
I
II
II
I--other national monetary authorities (-)
I--BIS (-)
II
II
II
I
I--IMF (-)
II
"I
I
I
I
II
II
II
(b) banks and other financial institutions headquartered
in reporting country (- )
(c) banks and other financial institutions headquartered
lIoutside the reporting country ( - )
4. Aggregate short and long positions of options in
foreign currencies vis-a-vis the domestic currency
I
I(a) Short positions
I(i) Bought puts
I(ii) Written calis
I(b) Long positions
I(i) Bought calls
I(ii) Written puts
IPRO MEMORIA: In-the-money options
II
I
I
1(1) At current exchange rate
I(a) Short position
I(b) Long position
1(2) + 5 % (depreciation of 5%)
I
I(a) Short position
I(b) Long position
1(3) - 5 % (appreciation of 5%)
I(a) Short position
I(b) Long position
1(4) +10 % (depreciation of 10%)
I(a) Short position
I(b) Long position
1(5) -10 % (appreciation of 10%)
I
I
I(a) Short position
I(b) Long position
[(6) Other (specify)
I(a) Short position
I
lib) Long position
II
IV. Memo items
[
II
I
K1) To be reported with standard periodicity and timeliness:
II
I
(a) short-term domestic currency debt indexed to the exchange rate
II
I
(b) financial instruments denominated in foreign currency and settled by other means (e.g., in domestic
I
I
lttp:IIWWW.treas.gov/press/reieaS6s/2Q.Q752917474623791.htm
6/7/2007
Page 4 of 5
Icurrency)
I--nondeliverable forwards
I
II
I
II
I
II
--short positions
--long positions
I
I--other instruments
I(c) pledged assets
I--included in reserve assets
--included in other foreign currency assets
II
I(d) securities lent and on repo
I
I--Ient or repoed and included in Section I
I--Ient or repoed but not included in Section I
I--borrowed or acquired and included in Section I
I--borrowed or acquired but not included in Section I
I(e) financial derivative assets (net, marked to market)
I--forwards
I--futures
I--swaps
I--options
I--other
(f) derivatives (forward, futures, or options contracts) that have a residual maturity greater than one
year, which are subject to margin calls.
IIII
--aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
I(a) short positions ( - )
I(b) long positions (+)
I--aggregate short and long positions of options in foreign currencies vis-a-vis the domestic currency
I
I(a) short positions
I
l(i) bought puts
I(ii) written calls
I(b) long positions
l(i) bought calls
I(ii) written puts
1(2) To be disclosed less frequently:
I(a) currency composition of reserves (by groups of currencies)
I--currencies in SDR basket
11 65 ,835
I--currencies not in SDR basket
11 65 ,835
1
II
II
I
I
I--by individual currencies (optional)
1
1
Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates, Foreign currency holdings listed as securities reflect markedto-market values, and deposits reflect carrying values.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.s. Treasury to IMF data for the prior month
http://WWw.treas.gov/press/releases/200752917474623791.htm
6/7/2007
Page 5 of 5
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
http://WWw.treas.gov/press/releases/20D752917474623791.htm
61712007
Page 1 of 1
~~::=;i5-~~~~f:-:~~7;~;~1f~~;;~~;:~?~~~~:~
..
.::::.:::--::----=-:.~:::::::...:-~
_...; : ;:
~-.-.:...,.;;
---~:
....::---
···PRESS.;RO.OML·.·.
May 30,2007
HP-428
Statement by Secretary Paulson on World Bank
President Nominee Robert Zoellick
"I welcome the President's nomination of Bob Zoellick to lead the World Bank. The
World Bank's structure and mission require a leader with a proven track record of
working with colleagues around the world to get results. Bob Zoellick will bring that
experience, as well as a passion for development, to the job.
"Bob believes deeply in the mission of the World Bank, and has the trust, respect,
and support of governments in all regions of the world. His leadership will ensure
that the World Bank continues to focus on its mission, helping nations across the
globe invest in their people and lay the foundation for economic growth so as to
reduce poverty and bring opportunities to all their citizens,"
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HP-429
Treasury Assistant Secretary Swagel to
Hold Monthly Economic Briefing
U.S. Treasury Assistant Secretary for Economic Policy Phillip Swagel will hold a
media briefing to review economic indicators from the last month as well as discuss
the state of the U.S. Economy. The event is open to credentialed media:
Who
U. S. Treasury Assistant Secretary Phillip Swagel
What
Economic Media Briefing
When
Friday, June 1,2007, 10:00 a.m. (EDT)
Where
Treasury Department
Media Room (Room 4121)
1500 Pennsylvania Ave, NW
Washington, DC
Note
Media without Treasury press credentials should contact Frances Anderson at
(202) 622-2960, or frances.anderson@do.treas.gov with the following information:
full name, Social Security number and date of birth.
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· .
PH E~S=RO.O~M" ...... .
May 30, 2007
HP-430
Biography of Robert B. Zoellick
Nominee to be World Bank President
Mr. Zoellick, 53, has led and managed large public and private sector organizations,
achieving a record of results during times of rapid change. He motivates, builds
loyalty and constituent support, and focuses on strategies and goals. He has
worked successfully with all regions of the world on a variety of economic, political,
security, environmental, and humanitarian topics - developing coalitions
internationally and bipartisan backing at home. Since first traveling to Sub-Saharan
Africa in the 1980s, he has worked with all regions of the continent on security,
development, governance, trade, business and investment, health, environmental,
and humanitarian causes.
Mr. Zoellick first studied economic development in 1973, when he learned the
theoretical foundations of the subject, as well as the comparative experience of the
ASEAN countries in the 1950s and 1960s. Since then, he has had a strong and
continuing interest in the literature, history, and practice of overcoming poverty,
sustainable economic development, and growth in his own country and the diverse
nations of the developing world. Mr. Zoellick has had the opportunity to gain
considerable experience with governance, management, policy, and performance
of multilateral organizations, national governments, private businesses, financial
markets, foundations, civil society groups, and non-profit organizations. His
background has enabled him to appreciate both the challenge of and need to
achieve the Millennium Development Goals.
Mr. Zoellick is currently Vice Chairman, International of the Goldman Sachs Group,
and a Managing Director and Chairman of Goldman Sachs' Board of International
Advisors. In addition to working with clients in Europe and the United States, Mr.
Zoellick has had a strategic role in the firm's expansion of financial markets
business and investment in China, Southeast Asia, India, the Middle East, Russia,
and Latin America. He serves in the Executive Office and on the firm's Risk and
Business Practices Committees. His work at Goldman Sachs since September
2006 has offered him both strategic and transactional insights on the cutting-edge
developments in global and local financial markets.
In 2005-06, Mr. Zoellick served as Deputy Secretary of the U.S. State Department.
He was the Chief Operating Officer of the Department, which has 57,000
employees and embassies in 165 countries. As Deputy, Mr. Zoellick had to be
familiar with the full range of foreign policy matters in order to support the
Secretary. More particularly, he focused attention on economic, environmental, and
transnational (eg. health) issues; Africa; China; Northeast and Southeast Asia; Latin
America; and Mideast development topics.
Mr. Zoellick was deeply involved with the efforts to overcome the tragedies in
Sudan. He worked with multilateral, national, and private aid and humanitarian
organizations on the reconstruction and development of the new Government of
Southern Sudan, created through the Comprehensive Peace Accord of 2005.
During his many visits to camps all over Darfur, Zoellick worked closely with the
African Union, UN organizations, partner countries, and NGOs to improve security
and basic conditions, while looking to take on the crisis of development if peace
could be restored; he worked in Khartoum and Abuja to press for a path to peace.
As point person on this issue, Mr. Zoellick also operated closely with the U.S.
Congress and a vast range of civil society groups. He was the first person to start
to draw China constructively into the peace effort.
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Mr. Zoellick also guided U.S. efforts in Aceh's reconstruction after the devastating
tsunami. In addition to his ties to Indonesian officials, he dealt with multilateral
institutions, other national governments, and non-profit organizations. Further in
the area of development, Zoellick continued the multidimensional work he initiated
as U.S. Trade Representative with the broader Middle East and Central America,
and assisted with the regional multilateral development banks.
Mr. Zoellick initiated a Strategic Dialogue with China, covering foreign policy,
economic, development, energy, security, and political topics. His efforts led to a
re-articulation of U.S. policy to encourage China to join others as "responsible
stakeholders" in the international system.
From 2001 to January 2005, Mr. Zoellick served in the President's cabinet as U.S.
Trade Representative. He forged an activist approach to free trade at the global,
regional, and bilateral levels, while securing support for open markets with the U.S.
Congress and a broad coalition of domestic constituencies. In doing so, Zoellick
sought to combine national economic interests with others - in development;
foreign policy; security; governance, transparency, and the rule of law; health; the
environment; education; worker adjustment; and improved working conditions. In
the immediate aftermath of September 11th, Zoellick wrote a piece in the
Washington Post emphasizing the importance of open markets, open societies, and
development to counter the poverty and hopelessness that can become the
breeding ground for terrorism.
In 2001, Mr. Zoellick labored with Ministers from almost 150 other economies to
launch the Doha Development Agenda, while at the same time persuading the U.S.
Congress to restore the President's lapsed trade negotiating authority and
completing the accession of China and Taiwan to the WTO. He then advanced
proposals to eliminate all tariffs on manufacturing goods, and to eliminate
agricultural export subsidies, slash domestic farm subsidies, and vastly improve
access to agricultural markets. Zoellick also worked with developing countries,
pharmaceutical companies, and the full WTO membership to achieve accords on
special access to medicines within the WTO's rules for intellectual property. In
2004, he led the international effort to get the Doha negotiations back on track by
assembling a more detailed framework to guide the next stage of commitments. To
do so, he worked closely with African cotton producers to incorporate their
interests. Zoellick continues to believe a Doha accord can and should be achieved
for development and growth.
Mr. Zoellick also devised the plans to launch a Middle East Free Trade Area, the
Enterprise for ASEAN Initiative, and other ventures to foster trade and
development. He pushed for free trade throughout the Americas, linked to aid,
investment, business networks, and other supportive policies. Zoellick enacted or
completed FTAs with Jordan, Chile, Singapore, Morocco, Bahrain, the five
countries of Central America and the Dominican Republic, Australia, and Viet Nam
(a basic trade agreement). He launched FTAs that were completed later with
Oman, Peru, Colombia, and Panama. And he began to create a special trade
project with the five countries of the Southern African Customs Union. Zoellick also
completed or pushed for the accessions to the WTO of Cambodia, Saudi Arabia,
Viet Nam, Russia, and others.
The comprehensive nature of the U.S. FTAs was designed to support governments
advancing institutional, structural, and microeconomic reforms, including
transparency, regulatory processes, customs and trade facilitation, rule of law, and
anti-corruption - as well as to open markets with extensive transitions for
developing economies. The accords were also the first to include enforceable
commitments on environment and labor, which Zoellick sought to supplement with
aid, joint projects, and the involvement of civil SOCiety groups. To support these
initiatives, he appointed Assistant USTRs for Environment and Labor, and guided
their new approaches. He also worked with the leadership of the ILO and WHO to
strengthen cooperation.
Mr. Zoellick was the first USTR to travel to Sub-Saharan Africa; in his final year, he
visited for consultations three times. Working to expand and fully utilize the African
Growth & Opportunity Act (AGOA), Zoellick led U.S. delegations to the AGOA
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forums to encourage trade, investment, business growth, and supportive
development policies. To foster this effort, he built partnerships with regional
African groups, such as COMESA, SADC, SACU, ECOWAS, and WAEMU, as well
as with the African Development Bank and the AU. He also fostered African
participation in the WTO processes, working through the lead Ministers for the LDC,
ACP, and African groups.
Mr. Zoellick drew extensively from World Bank research in making the case for
open trade. He worked closely with the Inter-American Development Bank, the
U.S. Congress, the U.S. Agency for International Development, OPIC, and others to
improve trade capacity-building. His efforts to combine trade and aid effectively
prompted the U.S. Congress to appoint the U.S. Trade Representative to the board
of the newly created U.S. Millennium Challenge Corporation, an innovative aid
design that drew on the World Bank's research and standards for accountability
across the pillars of development.
In addition to active outreach with business and farm groups, Zoellick sought the
advice and assistance of environmental, labor, and civil society groups, including
through formal advisory committees. He followed a similar approach abroad,
meeting with non-governmental groups - from labor unions, indigenous peoples'
organizations, women's empowerment associations, and environmental groups to
micro-lenders, small businesspeople, and university students, in order to listen,
learn, and discuss the challenges and opportunities of globalization.
After leaving government service, Mr. Zoellick met with the World Bank staff at their
request to discuss trade policy, negotiations, and development.
From 1993 to 1997, Mr. Zoellick served as an Executive Vice President of Fannie
Mae, the large housing finance corporation. He supervised the affordable housing
business, as well as offices dealing with legal, regulatory, government and industry
relations, and international services. The international services staff worked with
governments in Latin America, Asia, and Russia seeking to build mortgage
markets.
Zoellick's affordable housing work at Fannie Mae involved establishing business
ties with Governors, Mayors, other state and local officials, low income housing
groups, Native American organizations, non-profits, as well as with multifamily
housing developers, realtors, homebuilders, and a wide range of financial
providers. He managed affordable housing staffs in regional and state or city
partnership offices across the country. His corporate activities also involved dealing
with investors, complex asset-liability and credit risk management, and the global
capital markets. (During an earlier period at Fannie Mae, from 1983-1985, Zoellick
served as Vice President and Assistant to the Chairman and CEO while the
company executed a business turnaround strategy after the surge of high interest
rates exposed its asset-liability mismatch).
Following Fannie Mae, Zoellick served for a year as the Olin Visiting Professor at
the U.S. Naval Academy, as a Senior Advisor to Goldman Sachs, as a Research
Scholar at the Belfer Center at Harvard University, and on three corporate boards
(Alliance Capital, Said Holdings, and Jones Intercable). During the 1990s, he also
served on many non-profit boards, among them the Council on Foreign Relations,
the European Institute, the American Council on Germany, the American Institute of
Contemporary German Studies, the German Marshall Fund of the U.S., the
National Bureau of Asian Research, the Overseas Development Council, and the
Advisory Councils of the World Wildlife Fund and the Institute of International
Economics.
From 1985 to 1993, Mr. Zoellick served with Secretary James A. Baker, III at the
Treasury Department (from Deputy Assistant Secretary for Financial Institutions
Policy to Counselor to the Secretary); State Department (Undersecretary of State
for Economic and Agricultural Affairs as well as Counselor of the Department with
Undersecretary rank); and briefly Deputy Chief of Staff at the White House and
Assistant to the President. He was the "Sherpa" to the President for the
preparation of the Economic Summits in 1991-92.
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In his years at the Treasury Department, Zoellick was deeply involved with the
recovery from the debt crises of the 1980s. This period was his first substantial
professional experience with the World Bank, IMF, and regional banks - a time of
emphasis on structural reforms and, with the IMF, an exploration of international
surveillance and coordination. The U.S. Treasury also urged the World Bank to
incorporate environmental assessments in its lending programs during this period.
As an Undersecretary of State (and as Alternate Governor to the World Bank and
regional banks), Zoellick worked with the International Financial Institutions in
dealing with the post-Communist "Economies in Transition," debt forgiveness, and
support for investment. This was also the period when donors and lenders started
to focus more attention on good governance practices to help lay a foundation for
sound development and growth.
In related economic activities, Zoellick was the lead State Department official in the
NAFTA and Uruguay Round (GATT) negotiations, contributing to the "Blair House"
agreement on agriculture, a critical breakthrough for the Uruguay Round. He was
one of the founding architects of APEC in 1989, a designer of the Enterprise for the
Americas Initiative, and participated in the founding of the EBRD. At the Treasury
Department, he supported Secretary Baker in the completion of the U.S.- Canada
FTA.
In his capacity overseeing the Office of Oceans, Environment, and Science at the
State Department, Zoellick worked with EPA Administrator Bill Reilly to guide the
U.S. negotiations in achieving the Global Climate Change Framework Agreement of
1992. He achieved bans on driftnet fishing and elephant ivory sales; helped
conclude the long-term moratorium for Antarctic development; incorporated
environmental funds into arrangements to forgive official debt in Latin America,
Africa, and Central and Eastern Europe; sought to strengthen CITES enforcement;
and guided negotiations for the creation of the Global Environmental Facility (GEF)
at the World Bank. While at the Treasury Department, working in concert with the
Environment and Science staff at the Smithsonian Institution, he initiated the
change in tax policy that first created the basis for private debt-for-nature swaps.
Mr. Zoellick was also a principal actor on a wide range of political-security issues
that encouraged and eased the end of the Cold War. He led the U.S. delegation in
the Two-plus-Four negotiations for German unification. He actively partiCipated in
the diplomacy and negotiations for the ending of the conflicts in Central America
from 1989-92; was a strategist for the transformation of NATO and new institutional
links between the U.S. and the changing institutions of the EU; helped guide
landmark arms reduction accords with the then-Soviet Union (Conventional Forces,
Strategic Arms, and Chemical Weapons); and played a key role assisting the new
democracies of Central and Eastern Europe.
On the domestic financial front at the Treasury Department, Zoellick helped design
and enact the legislation restructuring the Farm Credit System, played a key
support role during and after the market crash of October 1987, and fought for the
first efforts to clean up and recapitalize the S&L industry. Starting during this
period, and continuing through his later government service, Zoellick developed
close working relations with the Federal Reserve Board of Governors and staff.
Mr. Zoellick graduated Phi Beta Kappa from Swarthmore College in 1975. He
earned a J.D. magna cum laude from the Harvard Law School and a MPP (focusing
on public management and international issues, especially economics) from the
Kennedy School of Government in 1981. He lived in Hong Kong on a fellowship in
1980.
Zoellick has been privileged to receive a number of awards, including: the Knight
Commanders Cross from Germany for his work on unification; the Alexander
Hamilton and Distinguished Service Awards, the highest honors of the Department
of Treasury and State, respectively; the Department of Defense Medal for
Distinguished Public Service; and a Doctorate of Humane Letters from St. Joseph's
College in Rensselaer, Indiana.
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He now serves on the Board of the International Republican Institute, a part of the
National Endowment for Democracy created by the U.S. Congress. He also was
appointed to the Secretary of Defense's Policy Board.
Mr. Zoellick grew up in Naperville, Illinois.
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May 31, 2007
HP-432
Acting Under Secretary for International Affairs Clay Lowery to Speak at
China Investment Forum
Acting Under Secretary for International Affairs Clay Lowery will make remarks to
the Institutional Investors Fourth Annual China Investment Forum on Friday in New
York City.
Who
Acting Under Secretary for International Affairs Clay Lowery
What
Remarks to the Institutional Investors Fourth Annual China Investment Forum
When
9:00 a.m., EDT, Friday, June 1
Where
Manhattan Ballroom
Grand Hyatt New York
109 East 42nd St. at Grand Central Station
New York, New York
Note: Acting Under Secretary Lowery will preview his remarks Thursday, May 31,
to reporters at the New York Foreign Press Center. This briefing is for credentialed
foreign media only. For more information contact Eric Terrell at
TerreIlEW@state.gov or (212) 317-8333.
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May 31,2007
hp-433
Treasury Marks 5th Anniversary of Financial Education Office
Washington, DC - Treasury Acting Assistant Secretary for Financial Institutions
David G. Nason congratulated Treasury's Office of Financial Education as the
organization celebrated its fifth anniversary this month.
"Treasury's Office of Financial Education has been instrumental in helping empower
more Americans to gain control of their finances," said Acting Assistant Secretary
Nason. "In just five years, this office has become a world leader in financial
education, demonstrating how the federal government can effectively bridge public
and private sector leaders and American communities to improve financial literacy."
Treasury established the office in May 2002 to promote access to the financial
education tools that can help all Americans make better informed decisions in all
areas of personal financial management. Since the inception of the office, Treasury
officials traveled to 44 states and held 307 financial education sessions with nearly
25,000 in attendance. The office assisted more than one thousand financial
education providers and public citizens through its Technical Assistance Center and
promoted exemplary financial education efforts by creating the Sherman Award for
excellence in financial education, recognizing 17 local organizations across the
country.
The office also coordinates the Financial Literacy and Education Commission, a
group of 20 federal agencies chaired by Treasury Secretary Henry M. Paulson, Jr.
Some of the commission's major accomplishments include:
Launched MyMoney.gov and 1-888-MyMoney
This Federal government website and toll-free hotline serves as a coordinated point
of entry to Federal financial education materials, programs, grants and other
information. Since October 2004 when established, MyMoney.gov has been visited
approximately 1,800,000 times. Both resources are available in English and
Spanish and serve as a one-stop shop for information about homeownership, credit
management, retirement savings and many other topics.
Release of the National Strategy for Financial Literacy
The 20-agency Commission released Taking Ownership of the Future: The National
Strategy for Financial Literacy in April 2006. The national strategy, covering 13
areas of financial education and containing 32 calls to action, is a comprehensive
blueprint for improving financial literacy in America through public-private
partnerships. The national strategy can be found at MyMoney gOY
Multimedia Campaign
The Office released its first financial education television commercial last month,
which can be viewed at www Illyrnoney.gov. Treasury and the Ad Council also are
pursuing a broader English and Spanish multimedia public service announcement
campaign aimed at increasing credit literacy with a projected launch this year.
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"
May 31,2007
hp434
Secretary Paulson To Speak Next Week On The U.S.-China Economic
Relationship
Treasury Secretary Henry M. Paulson, Jr. will deliver remarks at the Heritage
Foundation in Washington, DC next week. Secretary Paulson's remarks will focus
on the U.S.-China long term economic relationship and both countries' efforts to
strengthen that relationship through the U.S.-China Strategic Economic Dialogue.
The event is open to credentialed media.
Who Secretary Henry M. Paulson, Jr.
What Remarks at The Heritage Foundation
When Tuesday, June 5, 11 :30 a.m. EDT
Where The Heritage Foundation
214 Massachusetts Ave., NE
Washington, DC
Note All media must RSVP to The Heritage Foundation's Media SelVices office at
(202) 675-1761 or lester.romero@heritage.org. Cameras must pre-set by 1 LOO
a.m. EDT, and all other media must arrive no later than 11:15 a.m. EDT.
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-
~-- .~..
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c~RESS.ROOM
May 31,2007
HP-436
What They're Saying: Zoellick Picked to Head World Bank
Speaker of the House, Nancy Pelosi (D-CA):
"My experience working with him on the subject of Darfur tells me that I know that
he cares about that issue, which is very important to the American people," said
House Speaker Nancy Pelosi, D-Calif. "He's sensitive to the need to alleviate
poverty there, to resolve conflict in a peaceful way .... I have been impressed by
what he has done so far." ("Zoellick Must Restore Calm at the World Bank,"
FOXNews.com, 5/30/07)
House Republican Whip Roy Blunt (R-MO):
"Nominating him to lead the World Bank is a good decision by this President, and
it's one I expect will be rightly applauded by our friends and partners around the
globe," said House Republican Whip Roy Blunt, R-Mo. "No one is better prepared
for this job than Bob Zoellick, and I have great confidence in the future of the Bank
under his leadership." ("Bush Nominates Zoellick To Be World Bank President,"
Dow Jones Newswires, 5/30/07)
U.S. Senate Finance Committee Chairman Max Baucus (D-MT):
"It's hard to imagine a more intelligent, hard-working and capable person to assume
the bank's leadership at this difficult point in its history," Baucus told Reuters. (Bush
names Zoellick for World Bank," Reuters, 5/30/07)
Senator Charles E. Grassley (R-IA):
"He's extremely capable, and through his leadership for international trade, I know
he has a real understanding of what it takes to advance economic development in
poor countries," Mr. Grassley said. ("Bush to name Zoellick to lead World Bank,"
The Washington Times, 5/30/07)
Australian Treasurer Peter Costello:
"Mr Zoellick is an excellent candidate for the World Bank Presidency and will be
supported by Australia." ("Nomination of Robert Zoellick for World Bank President,"
Treasurer of the Commonwealth of Australia - Press Release, 5/31/07)
Russian Economy Minister German Gref:
"It's not easy to negotiate with him but it's easy to make agreements with him, since
he is a professional of the highest caliber and he always keeps his word." ("Zoellick
Promises to Heal World Bank Rifts, Reuters, 5/30/07)
Japanese Vice Finance Minister Hideto Fujii:
"Mr. Zoellick is suitable as he has experience in areas such as diplomacy, trade
and finance. Japan will support him," Vice Finance Minister Hideto Fujii told a news
conference. ("Japan backs Zoellick as next World Bank chief: MOF's Fujii," Kyodo
News, 5/31/07)
Brazilian Finance Minister Guido Mantega:
"He is a good choice," Mantega said. "He has good international experience and
has had a pro-active stance in liberalizing world trade." ("Brazil's Mantega Lauds
Zoellick Nomination As World Bank President," Dow Jones Newswires, 5/31/07)
Spokeswoman for South African Finance Minister Trevor Manuel:
"We consider Zoellick to be very competent and hope he will be able to operate in
the same manner as he demonstrated in the World Trade Organisation negotiations
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when he served as the US trade representative, and where he sought to build
consensus in a constructive and professional manner," said Thoraya Pandy
spokeswoman for Finance Minister Trevor Manuel. ("Manuel Lauds Zoellick As
Bank Nominee," Business Day-Johannesburg, 5/31/07)
French Foreign Minister Bernard Kouchner:
"Mr. Zoellick is certainly the right man for the job." ("Bush proposes Zoellick to head
divided World Bank, Agence France Presse, 5/30/07)
Singapore Minister for Foreign Affairs George Yeo:
"Zoellick is an excellent choice ..... I've also been impressed by his concerns of
the needs of the developing world," (Ministry of Foreign Affairs, Singapore, 5/30/07)
Bahrain Central Bank Governor Rashid al-Maraj:
"1 can tell he's a capable man," Rashid al-Maraj, Bahrain's central bank governor,
told Zawya Dow Jones in a phone interview. "He's got a reputable personality and
has patience to solve all problems." ("Arab bank heads cautiously welcome
Zoellick," Gulf Times- Qatar, 5/31/07)
Peruvian Foreign Trade Minister Mercedes Araoz:
"My impression is that it's a good choice President Bush is making," Peruvian
Foreign Trade Minister Mercedes Araoz told The Associated Press. "He was a
driving force of the U.S. trade agenda in seeking association with developing
countries, among them Peru." ("Zoellick to Be Nominated to World Bank,"
Associated Press Newswires, 5/30107)
German Development Minister Heidemarie Wieczorek-Zeul:
Germany's Development Minister Heidemarie Wieczorek-Zeul called Zoellick a
"good candidate, who brings a large measure of international experience with him."
"It's important that the World Bank quickly gets a new president and wins back its
ability to act," she said. ("Zoellick Welcomed as Likely World Bank chief," Reuters,
5/31/07)
Pascal Lamy, head of the World Trade Organization:
"1 have known Bob Zoellick for over two decades," said Pascal Lamy, head of the
World Trade Organization. "1 have always appreciated his skills as a consensus
builder and his capacity to reach out to developing countries." ("Ex-Trade Envoy is
Bush's Choice for World Bank," The New York Times, 5/30/07)
OECD Secretary-General Angel Gurria:
"His leadership and extensive experience in dealing with international
organizations, as well as his clear understanding of the complexities of
development issues, make him an excellent choice for this post," Angel Gurria,
Secretary-General of the Organization of Economic Cooperation and Development,
said in a statement. ("Zoellick Says Unity, Healing are Goals; World Bank Nominee
Finds Global Support," USA Today, 5/31/07)
Nancy Birdsa", President of the Center for Global Development:
"Nancy Birdsall, president of the Center for Global Developmnet, an antipoverty
group in Washington, said Mr. Zoellick's skills as a negotiator and diplomat will
serve him welL .. ·There is a job to do, of calming and healing,' said Ms. Birdsall,
describing Mr. Zoellick as a pragmatist.. .'He wants to get to yes right
away.'" ("Zoellick's World Bank Bid Garners Support, The Wall Street Journal,
5/31107)
Bear Stearns Chief Economist David Malpass:
"Bob is an expert at creating influential networks of people," says Bear Stearns
chief economist David Malpass, who first crossed paths with Zoellick when they
worked in the Reagan administration. ("Ex-U.S. trade official to head World Bank,"
USA Today, 5/30107)
American Enterprise Institute Resident Scholar Philip Levy:
"Zoellick is well-qualified. He is a top competitor in ·brightest guy in the room'
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Page 3 of3
contests. He has been an undersecretary and a deputy secretary of State and
served with great distinction as the United States Trade Representative
(USTR)." ("Banking on Zoellick," American. com, 5/30/07)
Former Secretary of State James Baker:
"Zoellick is a man who gets things done,'" said former Secretary of State James
Baker, who brought him into the Reagan administration in 1985.
("Zoellick May Prove Wolfowitz Antidote at World Bank," Bloomberg News, 5/30/07)
Former Ambassador to the European Union and Deputy Treasury Secretary
Stuart Eizenstat:
"It's really a brilliant appointment,' said Stuart Eizenstat, a former Treasury
Department official during the Clinton administration. (Zoellick Nominated to Head
the World Bank, The Hill, 5/30/07)
The Wall Street Journal:
"Having published at least a dozen of Robert Zoellick's op-eds over the years we
know him as a man who never minces his words nor takes easily to editing. If that's
an indication of the management style he'll bring to the World Bank, then president
Bush has nominated a fine successor to outgoing bank president Paul Wolfowitz ...
As a former trade representative and deputy secretary of state, Mr. Zoellick
understands modern markets and knows his way around multilateral
institutions." (Editorial,"Zoellick's Clean-Up Duty," The Wall Street Journal, 5/31/07)
The Washington Post:
"He is a good choice to lead the bank." (Editorial, "A World Bank Choice; Robert
Zoellick is Well Qualified to Take Over a Troubled Institution," The Washington
Post, 5/31/07)
The New York Times:
"Mr. Zoellick cannot get to work soon enough." (Editorial, "A Clean Start at the
World Bank," The New York Times, 5/31/07)
Financial Times:
"The bank desperately needs a credible and effective leader. The new boss must
heal the wounds that have opened up both between management and staff and
within the board. He needs to provide a sense of direction, clear leadership and
effective management. He needs, not least, to adapt an institution now 61 years old
to the entirely different conditions of today. How does Mr Zoellick match up to these
requirements? Well, is the answer." (Editorial, "Zoellick at the World Bank,"
Financial Times, 5/31/07)
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PRESS ROOM
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May 31,2007
HP-437
Report On Foreign Holdings of U.S. Securities At End·June 2006
The final results from the annual survey of foreign portfolio holdings of U.S.
securities at end-June 2006 are released today and posted on the U.S. Treasury
web site at (http/lwwwtreClscJovltlclfpishtml).
The survey was undertaken jointly by the U.S. Treasury, the Federal Reserve Bank
of New York, and the Board of Governors of the Federal Reserve System. Surveys
are carried out annually, and the next survey will be for end-June 2007.
Complementary surveys measuring U.S. portfolio holdings of foreign securities are
also carried out annually. Data from the most recent survey, which reports on
foreign securities held by U.S. residents at year-end 2006, are currently being
processed. Preliminary results are expected to be reported by September 30,
2007.
Overall Results
The survey measured foreign holdings as of June 30, 2006, of $7,778 billion; with
$2,430 billion held in U.S. equities, $4,733 billion in U.S. long-term debt securities
(of which $980 billion were holdings of asset-backed securities (ABS)), and $615
billion in U.S. short-term debt securities. The previous such survey, conducted as of
June 30, 2005, measured foreign holdings of $6,864 billion; with $2,144 billion in
U.S. equities, $4,118 billion in U.S. long-term debt securities (of which $717 billion
were holdings of asset-backed securities (ABS)). and $602 billion in U.S. short-term
debt securities.
Table 1. Foreign holdings of U.S. securities, by type of security, as of recent
survey dates
(Billions of dollars)
Type of Security
June 30, 2005
June 30, 2006
6,262
7,162
Equity
2,144
2,430
Long-term debt
4,118
Long-term Securities
717
Asset-backed
Other
Short-term debt securities
Total
Of which: Official
4,733
980
3,753
3,401
602
615
6,864
7,778
1,938
2,301
Table 2. Foreign holdings of U.S. securities, by country and type of security,
for the major investing countries into the U,S., as of June 30, 2006
~ttp:IIWWw.treas.gov/press/reieas6s/llp437.htm
6/7/2007
Page 2 of2
(Billions of dollars)
Country or category
Total
Equities
Long-term debt
ABS
1 Japan
1,106
195
Short-term
Other
debt
706
85
121
2 China, mainland1
699
4
122
556
17
3 United Kingdom
640
106
218
16
4 Luxembourg
549
300
193
255
142
32
5 Cayman Islands
485
178
69
135
6 Canada
382
274
22
73
13
7 Belgium
331
21
42
263
4
31
8 Netherlands
280
158
55
58
9
9 Switzerland
262
145
32
76
10 Middle East oilexporters2
243
111
11
80
9
41
11 Ireland
232
211
69
73
60
95
36
37
43
14
62
86
83
42
65
16
20
14
12 Germany
13 Bermuda
14 France
206
164
15 Singapore
163
135
101
7
7
25
51
100
4
16 Taiwan
17 South Korea
124
1
4
106
13
18 Russia
*
*
42
19 Hong Kong
111
110
22
12
65
68
11
20 Australia
109
64
5
32
60
21 Mexico
98
81
22 Sweden
23 British Virgin Islands
78
24 Norway
75
25 Italy
Country Unknown
Rest of world
Total
Of which: Official
53
214
3
8
21
15
2
48
46
4
28
1
1
24
43
29
12
4
16
18
6
4
*
1
212
2
1
637
178
58
299
102
7,778
2,430
980
615
2,301
215
147
3,753
1,635
304
* Greater than zero but less than $500 million.
1. Excludes Hong Kong and Macau, which are reported separately.
2. Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates.
Figures for 2006 reflect market prices at end-June 2006. Long-term securities have
an original term-to-maturity of over one year. Asset-backed securities are backed
by pools of assets, such as pools of residential home mortgages or credit card
receivables, which give the security owners claims against the cash flows
generated by the underlying assets.
REPORTS
•
(PDF) Report On Foreign Holdings of U.S. Securities At End-June 2006
http://WWw.treas.gov/press/releaseS/hp437.htm
6/7/2007
u.s. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
EMBARGOED UNTIL 4 P.M. (EDT) MAY 31,2007
CONTACT Ann Marie Hauser, (202) 622-2960
Report On Foreign Holdings of U.S. Securities At End-June 2006
The final results from the annual survey of foreign portfolio holdings of U.S. securities at endJune 2006 are released today and posted on the U.S. Treasury web site at
(http://www.treas.gov/tic/fpis.html).
The survey was undertaken jointly by the U.S. Treasury, the Federal Reserve Bank of New York,
and the Board of Govemors of the Federal Reserve System. Surveys are carried out annually,
and the next survey will be for end-June 2007.
Complementary surveys measuring U.S. portfolio holdings of foreign securities are also carried
out annually. Data from the most recent survey, which reports on foreign securities held by U.S.
residents at year-end 2006, are currently being processed. Preliminary results are expected to be
reported by September 30, 2007.
Overall Results
The survey measured foreign holdings as of June 30, 2006, of$7,778 billion; with $2,430 billion
held in U.S. equities, $4,733 billion in U.S. long-term debt securities (of which $980 billion were
1
holdings of asset-backed securities (ABS)), and $615 billion in U.S. short-term debt securities.
The previous such survey, conducted as of June 30, 2005, measured foreign holdings of $6,864
billion; with $2,144 billion in U.S. equities, $4,118 billion in U.S. long-term debt securities (of
which $717 billion were holdings of asset-backed securities (ABS)), and $602 billion in U.S.
short-term debt securities.
I Figures for 2006reflect market prices at end-June 2006. Long-term securities have an original term-to-maturity of
over one year. Asset-backed securities are backed by pools of assets, such as pools of residential home mortgages or
credit card receivables, which give the security owners claims against the cash flows generated by the underlying
assets.
Table 1. Foreign holdings of U.S. securities, by type of security, as of recent survey dates
Type of Security
(Billions of dollars)
June 30, 2005
Long-term Securities
June 30, 2006
6,262
7,162
Equity
2,144
2,430
Long-term debt
4,118
4,733
Asset-backed
717
3,401
Other
Short-term debt securities
980
3,753
602
Total
615
6,864
Of which: Official
7,778
1,938
2,301
Table 2. Foreign holdings of U.S. securities, by country and type of security, for the major
investing countries into the U.S., as of June 30, 2006
(Billions of dollars)
CountlY or categolY
1 Japan
2 China, mainland i
3 United Kingdom
4 Luxembourg
5 Cayman Islands
6 Canada
7 Belgium
8 Netherlands
9 Switzerland
10 Middle East oil-exporters2
11 Ireland
12 Germany
13
14
15
16
17
18
19
20
21
22
23
24
25
Bermuda
France
Singapore
Taiwan
South Korea
Russia
Hong Kong
Australia
Mexico
Sweden
British Virgin Islands
Norway
Italy
Country Unknown
Rest of world
Total
Total
Equities
1,106
699
640
549
485
382
331
280
262
243
232
211
206
164
163
135
124
111
110
109
98
81
78
75
53
214
637
7,778
2,301
195
4
300
193
178
274
21
158
145
111
69
73
60
95
101
7
*
22
64
15
48
46
43
29
*
178
2,430
215
Of which: Official
* Greater than zero but less than $500 mi1lion.
1. Excludes Hong Kong and Macau, which are reported ~epara~ely.
.
2. Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, Umted Arab Emirates.
2
Long-term debt
ABS
Other
121
122
106
69
135
22
42
55
32
II
36
37
43
14
7
25
4
*
12
5
2
4
1
12
4
1
58
980
147
706
556
218
255
142
73
263
58
76
80
62
86
83
42
51
100
106
42
65
32
60
28
24
16
18
212
299
3,753
1,635
Short-term
debt
85
17
16
32
31
13
4
9
9
41
65
16
20
14
4
3
13
68
11
8
21
6
4
2
102
615
304
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