Chief Dennis M. Lormel
FBI Financial Crimes Section
Statement Before the House Committee on Financial Services
October 3, 2001
Good morning Mr. Chairman and members of the Committee on Financial Services.
While I am pleased to appear today on behalf of the Federal Bureau of Investigation
(FBI), I am deeply saddened by the tragic circumstances that have brought us
together for this hearing. The terrorist acts of September 11 were among the
most horrific crimes ever committed against the citizens of this Country. Of
course it was not only the citizens of the United States that were victims of
these unprecedented terrorist attacks, it has profoundly impacted people throughout
As a preliminary matter, the FBI strongly supports the Money Laundering Act
of 2001, which the Justice Department submitted to Congress on September 25th.
Assistant Attorney General Chertoff's testimony discusses this legislation in
detail. I will simply say that enactment of these proposals would greatly assist
our efforts to fight terrorism, as well as a wide variety of financial crimes.
As you well know, the FBI , in conjunction with law enforcement and intelligence
agencies throughout the U.S. and the world, is in the midst of the largest,
most complex and perhaps the most critical criminal and terrorism investigation
in our history. The FBI has dedicated all available resources to this investigation
including over 4,000 Special agents and 3,000 support personnel. Nothing has
a higher priority than determining the full scope of these terrorist acts, identifying
all those involved in planning, executing and/or assisting in any manner the
commission of these acts, and bringing those responsible to justice. First and
foremost in our priorities is doing everything in our power to prevent the occurrence
of any additional terrorist acts.
So while I wish none of us needed to be here today, circumstances sadly have
made this hearing all too necessary. Therefore, I welcome the opportunity to
work with this Committee and all members of Congress in our efforts to cut off
the financial lifeblood of the individuals and organizations responsible for
these terrorist attacks. Identifying, tracking and dismantling the financial
structure supporting terrorist groups is critical to successfully dismantling
the organizations and preventing future terrorist attacks. I thank this Committee
for realizing the importance of the financial structure of terrorist organizations
to their activities, and for calling this hearing to focus attention on cutting
off the financial lifeblood to these organizations.
Given that the FBI is currently engaged in a highly complex and sensitive pending
criminal investigation, I am limited in what I can discuss in an open hearing
concerning aspects of the investigation, and in regards to specific strategies
for identifying and taking action against those involved in financing the individuals
and organizations involved in these terrorist attacks. I will of course make
every attempt to accommodate any requests the Committee might have in these
regards in a closed hearing/briefing or through written questions and responses.
For purposes of today's hearing, I will speak in general as to the FBI's strategy
to identify and take action against the financial structure of terrorist organizations,
and vulnerabilities or high risk areas in the financial services sector that
should be addressed.
In general, the FBI's strategy in the investigation of terrorist organizations
emphasizes identifying and tracing funds used to finance and fund these organizations.
As is the case in so many types of criminal investigations, identifying and
"following the money" plays a key role in identifying those involved
in criminal activity, establishing links among them, and developing evidence
of their involvement in the activity. Locating, seizing and/or freezing assets
tied to terrorist organizations plays a key role in cutting off the financial
lifeblood of these organizations and in not only dismantling the organization,
but in preventing future terrorist acts. Due to the international nature of
terrorist organizations, these investigations require considerable coordination
with foreign authorities as well as the CIA and the intelligence community to
ensure that the criminal investigation does not jeopardize or adversely impact
sensitive national security matters. This requires careful adherence to restrictions
separating criminal investigations from those involving national security and
classified intelligence matters.
VULNERABILITIES OR HIGH RISK AREAS IN THE FINANCIAL SERVICES SECTOR
There are a number of vulnerabilities or high risk areas in the financial services
sector that can be exploited by terrorist and other criminal organizations.
These organizations rely heavily upon wire transfers to provide funds for terrorist
cells. Tracing these transfers in a timely manner is critical in an investigation.
Most often, law enforcement must subpoena information from each institution
having a role in the wire transfer before the details of the complete transfer
can be determined. This can cause significant delays in tracking the funds.
Modifications to existing wire transfer rules have previously been proposed
which would provide law enforcement with complete information about a wire transfer
at any stage of the transfer upon receipt of a subpoena. Decreasing the time
necessary to obtain this information would greatly enhance law enforcement's
ability to track the funds and identify those involved in the transactions.
Correspondent banking is another potential vulnerability in the financial services
sector that can offer terrorist organizations a gateway into U.S. banks just
as it does for money launderers. As this Committee well knows, the problem stems
from the relationships many U.S. Banks have with high risk foreign banks. These
foreign banks may be shell banks with no physical presence in any country, offshore
banks with licenses limited to transacting business with persons outside the
licensing jurisdiction, or banks licensed and regulated by jurisdictions with
weak regulatory controls that invite banking abuses and criminal misconduct.
Attempts to trace funds through these banks are met with overwhelming obstacles.
The problem is exacerbated by the fact that once a correspondent account is
opened in a U.S. Bank, not only the foreign bank but its clients can transact
business through the U.S. bank. As Congress has noted in the past, requiring
U.S. banks to more thoroughly screen and monitor foreign banks as clients could
help prevent much of the abuse in correspondent bank relationships.
Another vulnerability in the financial services sector involves Money Service
Businesses (MSB). These nonbank financial institutions are frequently employed
by criminals engaged in sophisticated money laundering schemes. Terrorist organizations
are also able to exploit this weakness in the financial system due to the previous
lack of adequate regulation in this area. Proposed regulation for MSBs would
require registration of these businesses, establish cash reporting requirements
for certain threshold transactions, and require some of these businesses to
file Suspicious Activity Reports (SARs). They would also have to provide FinCEN
with information as to their ownership, geographic location, and operational
Finally, terrorist cells often resort to traditional fraud schemes to fund their
terrorist activities. Prevalent among these are credit card fraud, identity
theft, insurance fraud and credit card bust-out schemes. The ease with which
these individuals can obtain false identification or assume the identity of
someone else, and then open bank accounts and obtain credit cards, make these
attractive ways to generate funds. The growing use of the Internet and the relative
anonymity it provides make it even easier to open bank accounts and obtain credit
cards on-line using an alias.
OBSTACLES THE FBI IS ENCOUNTERING IN OUR EFFORTS TO OBTAIN THE COOPERATION OF
U.S. FINANCIAL INSTITUTIONS
The FBI has encountered no obstacles from U.S. financial institutions in our
efforts to obtain their cooperation. The level of cooperation by U.S. financial
institutions has been outstanding and nothing short of extraordinary. In all
respects, the financial institutions have gone to considerable efforts to provide
subpoenaed information as expeditiously as possible, and have done everything
possible within the legal framework to provide any cooperation requested. The
response we have received from the financial services sector as well as other
private sector entities has exemplified the patriotism and sense of duty America
was built upon. From a law enforcement perspective as well as from the perspective
of an ordinary citizen, it has been heartening to witness the unwavering support
law enforcement has received from American companies and citizens.
THE DEGREE TO WHICH THE FBI AND OTHER LAW ENFORCEMENT AGENCIES
ARE WORKING COLLABORATIVELY TO END TERRORIST FUNDING
The acts of terrorism on September 11 highlighted the need for a comprehensive
law enforcement response to international terrorism. With the help of Congress,
the FBI had previously established joint terrorism task forces in key areas
of the country which brought together the combined expertise and resources of
other local, state and federal law enforcement agencies. In the early stages
of this investigation, it was financial evidence that quickly established direct
links among the hijackers of the four flights and helped to identify a web of
co-conspirators. In order to provide a comprehensive analysis of the financial
evidence, the FBI has established a Financial Review Group to conduct this analysis
and determine the source and movement of funds both within and outside the United
States that supported these acts of terrorism. The Financial Working Group will
strive to coordinate the financial investigative effort; organize, catalog and
review personal and business records; develop linkage and time lines concerning
the cells and groups responsible; facilitate Mutual Legal Assistance Treaty
(MLATs) requests and Letters Rogatory; develop financial and investigative leads
in support of this investigation as well as future terrorism investigations;
and identify criminally-related fund-raising activities by terrorist organizations.
Contributions from other law enforcement agencies are critical to the success
of such a group. Accordingly, the group is comprised of representatives from
the Department of Justice (DOJ), FBI Financial Crimes Section, FBI Counterterrorism
Division, Internal Revenue Service (IRS) - Criminal Investigative Division (CID),
United States Customs Service (USCS), FinCEN, United States Postal Inspection
Service (USPIS), Office of Foreign Asset and Control (OFAC), the United States
Secret Service (USSS), and the Inspector General community. Each of the participating
agencies has unique skills and resources. Each agency immediately responded
to the FBI's request for participation by detailing some of their best qualified
personnel along with the pledge of whatever resources were needed. Combined,
the Group is capable of focusing a powerful array of resources at the financial
structure of terrorist organizations. The FBI considers this Financial Review
Group to be an integral part not only of the response to the acts of terrorism
of September 11, but of future terrorism investigations as well.
THE NATURE AND EXTENT OF INTERNATIONAL COLLABORATION ON LAW ENFORCEMENT
Terrorism is a global problem. No country is immune from its reach and terrorist
groups are scattered throughout the world. By their nature, Terrorism investigations
require significant collaboration on an international level. In order to subpoena
records, utilize electronic surveillance, execute search warrants, seize evidence
and examine it in foreign countries, the FBI must rely upon local authorities
for assistance. The level of assistance and the timeliness of such assistance
often varies from country to country. The FBI's Legal Attache Program provides
critical contributions in these matters. The DOJ also plays a key role through
its foreign liaison and participation in various international forums. The FBI
and the DOJ must rely heavily upon the MLAT process and the use of Letters Rogatory
to obtain information from foreign countries such as bank records. While the
MLAT process works well for the most part with those countries that are participants
in the Treaty process, it can at times be a slow and cumbersome method in which
to obtain information. In this case, however, many of our treaty partners are
speeding up the process and cutting through red tape. Our Legal Attaches have
been working closely with their law enforcement counterparts in foreign countries
to coordinate investigations involving the terrorist groups responsible for
these acts of terrorism. The level of cooperation by foreign law enforcement
agencies has been unparalleled both in terms of its breadth and timeliness.
We will work to maintain this level of cooperation as a model for future terrorism
Cutting off the financial lifeblood of the individuals and organizations responsible
for the September 11 acts of terrorism is a vital step in dismantling the organization
and preventing future terrorist acts. The FBI has placed a high priority on
this aspect of the investigation and welcomes the opportunity to work with this
Committee to ensure that law enforcement efforts can be most effective. With
the assistance of Congress, the combined resources of the law enforcement community,
and law-abiding people throughout the world, we are confident we can succeed
in our mission. Thank you.