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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Opening Remarks at Joint Regulatory Anti-Money Laundering Training


Commissioner Kathleen L. Casey

U.S. Securities and Exchange Commission

Washington, D.C.
April 23, 2008

Good morning, and a special good morning to our colleagues from FINRA who have been so helpful in organizing this week's "Joint Regulatory AML Training" for SEC and FINRA examiners. I am very pleased to be here this morning to underscore the importance of what your anti-money laundering work is doing to protect our country and its investors.

You may be wondering what I have brought here this morning to a money laundering conference at the SEC. This is a cowling, the plastic protective cover, of a Yamaha V6 200 horsepower outboard engine. Drug trafficking organizations in Colombia build what are called "go-fast" boats, which are little more than fiberglass hulls with four of these massive engines mounted on the back to make them the fastest thing moving on the water — and used to smuggle a load of up to four tons of cocaine packed into plastic barrels.1 The only way the U.S. Coast Guard has found to stop these boats is to chase them with a HITRON helicopter in the open sea and shoot out the engines with a .50 caliber sniper rifle. Even if you are in the back of the room, you can see the many large bullet holes in this cowling.

I brought in this bullet-riddled cowling because these engines are the means that the three armed groups designated by the State Department as Foreign Terrorist Organizations (the FARC, the ELN, and the AUC) finance their operations — by moving cocaine to the United States. A problem that the drug traffickers have is what to do with all the bulk cash they get from selling drugs. The top choice for these Foreign Terrorist Organizations is to launder their cash into the U.S. financial system and from there move it around the world.

Although the SEC doesn't yet have a maritime helicopter program, and I don't recall Chairman Cox requesting one in his budget submission to Congress, we do have the metaphorical equivalent that renders money laundering dead in the water. Our equalizer is the authorities we have under the Bank Secrecy Act and the USA PATRIOT Act.

Immediately after 9/11, Congress, the agencies, and the private sector worked together to strengthen programs that had been in place since the 1970s to further protect the financial sector and our financial markets against money laundering by terrorists, drug lords, traffickers in persons, and other criminals. The USA PATRIOT Act amended and strengthened the Bank Secrecy Act by imposing a number of anti-money laundering obligations directly on broker-dealers, including: anti-money laundering compliance programs; customer identification programs; monitoring, detecting, and filing reports of suspicious activity; due diligence on foreign correspondent accounts, including prohibitions on transactions with foreign shell banks; due diligence on private banking accounts; and mandatory information-sharing in response to requests by federal law enforcement.

The information gleaned from attentive personnel in the private sector not only gives regulatory, law enforcement and intelligence agencies indicators of illicit activity, but also provides data for identifying and tracking suspicious transactions, for identifying patterns, trends, vulnerabilities and compliance-related deficiencies, and for focusing law enforcement resources.

The SEC has two key interests in anti-money laundering efforts. First, the SEC is responsible for ensuring that industry participants comply with their anti-money laundering obligations through our anti-money laundering examination program and, where necessary, our enforcement program. Second, as a law enforcement agency fighting securities fraud, the SEC is a consumer of financial intelligence. Securities fraud is a predicate offense to money laundering and we are seeing an increased law enforcement focus on those who facilitate the secreting away of illegal proceeds of securities fraud. The effectiveness of regulators and law enforcement authorities around the world relies substantially on the industry's ability to recognize and report suspicious activity, as well as the ability of regulators and law enforcement to access and share quality financial intelligence on a real time basis.

Let me assure you that building networks among regulatory and law enforcement financial crimes professionals and their private sector counterparts pays big dividends. Last December, the SEC conducted a major anti-money laundering program held in Santo Domingo, Dominican Republic for regulatory and law enforcement officials, as well as compliance officers and other industry professionals, from 18 Latin American and Caribbean countries. Just yesterday it was announced by the U.S. Department of the Treasury's Office of Foreign Assets Control that it has designated two entities and four individuals for acting on behalf of the Revolutionary Armed Forces of Colombia or "FARC," a narco-terrorist group. This is the latest in a string of targeted developments this year to take down the FARC's trans-national financial networks used to launder money from its cocaine, heroin, and kidnapping operations, and I am pleased that the SEC's work with allies in the region will make it increasingly difficult for terrorist organizations to penetrate the financial markets.

As evidenced by the participants listed on the agenda for your training program this week, we are utilizing a mix of regulators to discuss and further educate one another about the wealth of allies we have in this fight. Today you will hear from representatives of FinCEN, OFAC, Main Treasury, FBI, FINRA and, of course, the SEC. Of all of these relationships, one of the most crucial is that with FinCEN, with whom we signed a Memorandum of Understanding in late 2006. This MOU establishes a formal framework for information sharing between the SEC-on behalf of itself and the SROs-and FinCEN on anti-money laundering. We expect that this closer collaboration will ultimately lead to more effective identification, deterrence and prevention of terrorist financing and money laundering. Already we have a success story that is a result of the MOU. The work of the Bank Secrecy Act Review Group, a team comprised of SEC Enforcement and OCIE staff that reviews suspicious activity reports filed by and on industry members daily, has resulted in the review of over 11,000 Suspicious Activity Reports, leading to enforcement, examination and SRO referrals in appropriate cases.

In addition to the formal MOU, FinCEN has been an invaluable resource to the SEC and FINRA staffs on a more informal basis, reviewing our exam modules and answering numerous questions on navigating the sometimes confusing maze of anti-money laundering rules. In addition, because many regulated securities firms are now also affiliated with banks, we also consult, share information and, as appropriate, conduct joint examinations with the federal banking regulators. This all helps to ensure that weaknesses do not develop along the frontiers of regulatory boundaries that could be exploited by our enemies, and also promotes consistency in interpretations and examination coverage.

I am also impressed by the level of cooperation between the SEC and FINRA. We have made and continue to make unprecedented efforts to communicate and coordinate with each other, to keep up with anti-money laundering regulatory, examination and enforcement developments.

Specifically, the staffs of the SEC and FINRA meet quarterly to discuss examination trends, expand and clarify our understanding of the anti-money laundering rules and regulations, and apprise each other of key examinations and enforcement cases. Staff consults with each other even more frequently on an informal basis.

In addition, we plan and participate in joint training exercises like this one, which is actually the third joint SEC/SRO anti-money laundering training-following successful sessions in 2002 and 2005. Most importantly, based on the number of anti-money laundering examinations that the SEC and FINRA have completed — over 2,800 in FY'07 alone — we know that anti-money laundering is a major focus area for securities examiners.

In our effort to deter and detect money laundering, the industry serves as a vital first line of defense. As you may know, industry representatives contribute to the collaborative anti-money laundering effort by participating in the work of the Bank Secrecy Act Advisory Group, where they sit side-by-side with staff from the SEC, SROs, Treasury and FinCEN. And, we're providing informational resources to help securities firms comply with the anti-money laundering laws and rules. For example, the SEC staff published the "AML Source Tool" to assist broker-dealers in anti-money laundering compliance. This compilation of key anti-money laundering laws, rules and guidance applicable to broker-dealers, including links to materials, is available to firms on the SEC's public website. And, FINRA's template on Anti-Money Laundering Policies and Procedures is an invaluable tool for smaller firms in fulfilling their anti-money laundering responsibilities and contains many resources that are useful for developing an anti-money laundering plan. In addition, FINRA's website has been significantly expanded.

Most importantly, based on information from all of the examinations you have completed, we know that firms are taking anti-money laundering seriously and that they are engaged. The industry is asking thoughtful, intelligent questions that demonstrate that they are focused on important issues and want to do the right thing. They are filing more Suspicious Activity Reports, and more importantly, higher quality Suspicious Activity Reports to help us unravel entire criminal enterprises. We need to continue to support them in asking questions and talking with us about these issues-our job isn't just to "catch firms" when they do the wrong thing — although that is our job too — it is also to try and help them do the right thing. The dialogue between securities firms and regulators is helping us all identify strong compliance practices, trends, vulnerabilities and deficiencies in this protean area of compliance.

Finally, let me thank you for being here this week. Your work as examiners is paramount to detecting and deterring money laundering. The exams that you do in this area help to identify prohibited activity and improve firms' compliance programs.

Financial crime is insidious, and there are finite compliance resources to devote to the problem. To be effective and efficient, these limited resources should be focused on the greatest risks. Examiners and law enforcement personnel and their allies are looking for the financial equivalent of a 200 horsepower engine they can knock out, and just ruin the day of a criminal enterprise trying to use the U.S. financial system to launder ill-gotten gains.

As you can see, all of us-in this room and beyond-are working shoulder to shoulder to bring the best tools to bear on the most difficult problems. We can accomplish so much more together than we can on our own, and it is important that we all continue to work together to make anti-money laundering compliance efforts as effective as possible. I hope what you learn this week will be used to good advantage — happy hunting.



Modified: 05/01/2008