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U.S. Department of State

Diplomacy in Action

Treasury Action Pursuant to Section 311 of the USA Patriot Act

Under Secretary for Terrorism and Financial Intelligence Stuart Levey (left) and Derek Maltz, Special Agent in Charge, Drug Enforcement Administration
Washington, DC
February 10, 2011

Date: 02/10/2011 Location: Washington D.C. Description: Under Secretary for Terrorism and Financial Intelligence Stuart Levey (left) and Derek Maltz, Special Agent in Charge, Drug Enforcement Administration hold a pen and pad briefing to outline a major Treasury action targeting an international narcotics trafficking and money laundering network under Section 311 of the USA PATRIOT Act.  - State Dept Image

10:30 A.M. EST

MODERATOR: Good morning, everyone. Welcome to the Foreign Press Center. Thank you for joining us this morning. Before we get started, I’d like to remind you to turn off your cell phones, BlackBerrys, and other devices so that we aren’t interrupted during the event. Also, I’d like to remind you that there’s no use of still cameras or video cameras or any recording devices for broadcast use during this event or during the question-and-answer session afterwards. You may use tape recorders for personal use, though.

We are pleased to have with us today Under Secretary for Terrorism and Financial Intelligence Stuart Levey. And joining him for questions afterward will be Derek Maltz, Special Agent in Charge from the Drug Enforcement Administration. They will be outlining a major Treasury action today, outlining an international narcotics trafficking and money laundering network under Section 311 of the USA Patriot Act.

Under Secretary Levey.

UNDER SECRETARY LEVEY: Okay, thank you, and thank you all for coming. It’s nice to be here with Special Agent in Charge Derek Maltz; also with me, Danny Glaser, our Deputy Assistant Secretary at Treasury, and Jim Freis, the Director of FINCEN. And as you probably already know, earlier today, the Treasury Department took targeted action to protect the integrity of the U.S. financial system by identifying the Lebanese Canadian Bank, or I’ll refer to it as LCB, as a financial institution of primary money laundering concern, primarily for its role in facilitating the activities of international narcotics trafficking and money laundering operating globally.

Today’s action is taken pursuant to Section 311 of the Patriot Act. It seeks to protect the U.S. financial system from illicit proceeds flowing through LCB, and to deprive this international narcotics trafficking network of its preferred access point to the formal financial system. In conjunction with this identification, Treasury also issued a proposed rule today to impose a special measure under Section 311, which, if finalized, would prohibit U.S. financial institutions from opening or maintaining correspondent bank accounts for LCB.

The underlying basis for our action is that through management complicity, failure of internal controls, lack of application of banking standards, LCB’s management allowed this bank to serve as an access point to the formal financial sector for this drug trafficking network, and it has laundered hundreds of millions of dollars monthly in drug proceeds through LCB accounts. Today’s identification also exposes links between both LCB and members of that drug money laundering network and to elements of terrorist organization Hezbollah. LCB managers and clientele, including several narcotraffickers, are connected to Hezbollah. Hezbollah has long sought access to the international financial system in order to move terrorist funds and its illicit profits. And today’s action provides financial institution within – financial institutions globally with information to help them protect themselves against this threat.

This action that we take today should be considered, we believe, in conjunction with an action we took just a couple of weeks ago when the Office of Foreign Assets Control at Treasury, or OFAC, designated a key figure in this money laundering network, Ayman Joumaa – that’s J-o-u-m-a-a – and a number of the companies that are associated with him and individuals under the Foreign Narcotics Kingpin Act. And according to USG information, Hezbollah has derived financial support from the criminal activities of that network.

It’s also worth pointing out that in addition to the drug money laundering that I’ve mentioned and the connections between the – Joumaa’s network and Hezbollah, that Hezbollah’s Tehran-based envoy, Abdallah Safieddine, is involved in Iranian officials’ access to LCB and key LCB managers who provide them with banking services. And in addition, part – a part owner of LCB’s subsidiary in Gambia called Prime Bank, also a Hezbollah supporter.

The types of illicit conduct that are laid out in the finding that we published today, which you can find on both the Treasury website and the FINCEN website – the types of illicit activity described in that finding – massive money laundering for global drug trafficking organization, connections with Hezbollah – these are precisely the kind of conduct that Section 311 of the Patriot Act is designed to protect against.

Treasury plans to work closely with the Lebanese Central Bank and other relevant Lebanese authorities to address the concerns that we’ve highlighted in today’s actions. And we’re confident that, working together, the U.S. and Lebanese authorities can be successful in protecting the integrity of the international financial system.

Before I close, I want to just talk briefly about the collaboration that we’ve had with the DEA in this case. We work with the DEA very closely in a number of contexts, and our collaboration is generally excellent. In fact, a lot of our drug trafficking designations are based on collaboration with the DEA. But this action in particular, I think, represents a – is a tremendous example of that collaboration, and Special Agent In Charge Maltz, representing the DEA – I’m pleased to have him here, because a lot of the information that we relied upon to develop the factual record underlying today’s action is DEA information and grows out of a global DEA investigation.

And that investigation and the kind of action we’re taking today represents a comprehensive USG – U.S. Government campaign to expose and disrupt this very significant international narcotics and money laundering network, both by taking action in the law enforcement lane and also the types of regulatory actions that I’ve described that the Treasury Department can take under the Drug Kingpin Act in today’s action under Section 311 of the Patriot Act.

With that, I’ll stop and take some questions.

MODERATOR: Great, thank you very much. I also want to mention that we’re pleased to be joined today by our colleagues and journalists in New York. I don’t know if we have them – if they’re going to be able to ask questions because we’re having a few technical problems, but if I see them appear on screen, I will call on them.

We’ll call on you, but please give your name and your media organization before you ask your question. Yes.

QUESTION: Thanks. Yes, Joyce Karam with Al Hayat newspaper. I actually have three questions, but really quick. So where is the network exactly operating? I mean, where is the money coming from? Is Latin America part of that?

And my second question: What is the message to other Lebanese banks that you would like to send? I mean big banks that operate in Lebanon.

And final question: With the change of government in Lebanon and with somebody the New York Times called Hezbollah’s guy taking the premiership, do you see your cooperation with the Lebanese Central Bank and other institutions in Lebanon threatened?

UNDER SECRETARY LEVEY: I’m sorry, I’m writing them down because three questions is beyond the – my capability to remember. So let me try to do all three of those. Those are three very good questions.

So in our finding, you can see a detailed description of how this drug money laundering network works, but I can just describe it in summary terms very quickly. So it’s drugs coming from South America being sold around the world – Europe, Middle East, elsewhere – and generating a great deal of cash. The cash is moved ultimately to Lebanon, although some of it goes through West Africa first, but – and some goes directly to Lebanon.

In Lebanon, it’s largely deposited in LCB or in exchange houses that are associated with the money laundering network and the Joumaa network that we designated a couple of weeks ago, and then moves into their accounts at LCB. From LCB, the money is moved through wire transfers, some of it – in many ways, but two primary ways. One is to come to the United States to be used for the purchase of used cars in the United States, which are then shipped largely to West Africa and sold for profit in West Africa. And some of the money is wired from LCB to Asia to purchase consumer goods that are then resold, and again, the money moves back in this kind of closed loop to LCB.

I want to emphasize a piece of what I just said, which is the money moving through the United States, which is one of the primary reasons why we felt it’s necessary to use this very powerful tool that we have – Section 311 of the Patriot Act – to protect the integrity of the U.S. financial system. And that’s a piece of why we felt it necessary to act.

With respect to your second question about other Lebanese banks, this is not about other Lebanese banks. This is about this bank. This is the bank that we have identified this illicit conduct in, and we’ve taken this action. Having said that, there are certain vulnerabilities in the Lebanese financial system that I think are worthy of attention, and that we think could be improved, that might mitigate the sort of risk here. One is the lack of cash reporting requirements going in and out of Lebanon, and so cash can come in and out of Lebanon freely, which is not consistent with international standards. And so that’s a vulnerability that you can see has been exploited here based on the fact that we have exposed with respect to LCB.

And also, of course, there’s the issue that I think you alluded to in your question about the financing of terrorism. Now – which – about which I’d make two points. In Lebanon, they have not signed on to the UN Convention for Suppression of the Financing of Terrorism. They do have domestic laws that are targeted at terrorism financing, but of course, Hezbollah is not covered by those laws. And so we think there’s a vulnerability there.

With respect to your third question about the change in government in Lebanon and whether that will compromise our cooperation, we have had traditionally very good cooperation with the regulatory authorities in the Lebanese Central Bank, and we are in touch with them on this matter and we believe that we can work together with them to address the risks that are highlighted in today’s finding. And we intend to move forward with that and expect and believe we’ll get good cooperation.

QUESTION: Yeah, Mike Isikoff with NBC.

MODERATOR: Wait for the microphone.

QUESTION: Okay, sorry. I have three questions as well.

UNDER SECRETARY LEVEY: Good, I’ll pick one. (Laughter.)

QUESTION: Number one, Stuart, I think you said that you’re going to try to work with the bank to correct the problem. The notice here says that the U.S. Government has information that LCB, through management complicity, is involved with international drug trafficking and money laundering. If management of the bank is complicit, why would you try to work with them? Number two, on the used car dealerships in the United States, why aren’t you moving against them? And third, do you – well, I’ll leave it at two, just the --

UNDER SECRETARY LEVEY: Such a modest – only two questions. So I don’t want to be misunderstood. What I intended to say, and maybe if I did say this wrong, then I’d like to correct it, which is we intend to work with the Lebanese Central Bank and the regulatory authorities in Lebanon to address these concerns. And it’s that group of people that we have confidence that we’ll be able to continue to work with cooperatively.

With respect to the car dealers in the United States, I’m going to fall back on the answer that one has to give in law enforcement situations, which is we’re not going to comment on the existence or nonexistence of law enforcement investigations, and whatever actions that would be taken in the law enforcement lane, we’ll leave it to those law enforcement agencies to announce at the appropriate time.

QUESTION: Thank you. Elvira Paloma with EFE News Services. I wonder if you can tell something about the countries of Latin American, does the drugs come from. Did you find any connection between Colombia and (inaudible) FARC or Mexican guns in this particular case?

UNDER SECRETARY LEVY: I don't believe that there are those connections in this case to Colombia and the FARC. At least, that’s not what’s highlighted in our public finding. The drugs – the drug trafficking network, however, does export the drugs from South America, in general, and that’s where the drugs originally come from in large part. But I am not aware of any FARC connection, at least none in the record that we’re making public today.

QUESTION: Evan Perez from Wall Street Journal. Can you tell us how much involvement you believe Hezbollah has in the actual drug trafficking part of the – of this operation, beyond the money laundering, the drug trafficking part?

UNDER SECRETARY LEVEY: I think we’ve laid out as completely as we can in the finding the connections that we believe Hezbollah has in this case. They have certainly, according to our information, benefited from the drug trafficking activities of Jumaa and the network that we designated a couple of weeks ago, and that is using LCB for the laundering of its proceeds. We also, as part of that network, we see a Hezbollah supporter essentially controlling its – he’s one of the part owners of the LCB subsidiary in Gambia, called Prime Bank, which is part of this network. We also see the connection whereby Hezbollah’s envoy in Tehran, Abdullah Safiadeen, is the person who has been brokering the connection between Iranian Government officials and LCB and LCB managers from whom they obtain banking services. And then the final point is just the fact that the bank services this money laundering clientele that benefits Hezbollah. Beyond, that I can’t say more about Hezbollah’s connection to the drug trafficking other than what I’ve said in response to your question.

QUESTION: Mina Al-Oraibi – sorry. Mina Al-Oraibi, Asharq Al-Awsat newspaper. I have a couple of questions. My first is, have you informed the Lebanese authorities; what steps are you taking with the Lebanese authorities? And my second question is – and excuse the ignorance here for a lay person – how much of an impact does this have on LCB, and how much control do you have on trying to limit their activities? Thank you.

UNDER SECRETARY LEVEY: We have been in touch with Lebanese authorities and had conversations about this action today. And I don't want to go into more detail, but yes, we have had contacts with the Lebanese authorities, and we intend to continue to work with them to address the concerns that we’ve laid out in this finding.

With respect to the impact on LCB, what we’ve done today is two things. We have put in the public domain our finding that this bank is a primary money laundering concern, which is this term of art under section 311 of the Patriot Act. That’s information that is now available for financial institutions and regulators everywhere to take into account as they make their own decisions about managing their risk. Historically, that has led to financial institutions taking protective action as of – as a prophylactic measure to ensure that they’re not engaged in or facilitating any illicit conduct.

The second thing that we did today is issue a proposed rule, a proposed rule that, if finalized, would cut them off from banking services, essentially, in the United States. But again, that’s just a proposed rule. We have given – we have put out a 60 day comment period, during which anyone is free to comment, including LCB, as to why we should or shouldn’t go further with that regulatory action. And so the formal – that formal action that is proposed would not take place until at least after the 60 day comment period closes and we make a decision based on all the information that is then part of our record as to whether or not going forward with this proposed rule or some other action or no action at all is the appropriate step.

QUESTION: (Off mike) Iran and India?

MODERATOR: Please identify your organization.

QUESTION: This is Lalit Jha from Press Trust of India. Last year in September, you slapped sanctions against EIH Bank in Germany, and this month India has announced that it will start using EIH Bank for paying for – paying to Iran for its import of crude oil from them. How do you respond to that?

UNDER SECRETARY LEVEY: I certainly don’t want to comment about conversations that we’re having with the Government of India and relevant institutions in India about how to handle this issue. I think those are more appropriately left there. I’ll just say a couple things about the basic facts.

We have identified this bank that you refer to in Germany as a bank that is facilitating Iran’s nuclear missile programs, and therefore it has been designated, under our proliferation authorities, as a bank that – its assets are frozen in the United States and it can’t do business in the United States. In addition, there’s a separate law – I’m sorry for people who are coming for a different purpose, but there’s a separate law in the United States, SESADA (ph) that President Obama signed in July of 2010, which says that any financial institution that’s doing significant business with a bank that is designated as EIH is could lose access to the U.S. financial system. And those are the kind of rules that we are responsible for enforcing.

And I think that that has presented issues that, I think, are being worked on and being grappled with by financial institutions around the world that largely have decided that because of the information that we have made available about why we have sanctions – certain Iranian banks that they don’t want to do business with those banks. And that remains a topic of ongoing dialogue with banks around the world, including with authorities in India.

MODERATOR: Yes, the gentleman in the – second to the back. Sorry. Yourself, yeah.

QUESTION: Thank you. My name is Andrey Surzhanskiy. I’m with ITAR-TASS news agency of Russia. Mr. Secretary, thank you for your remarks. In light of the recent terrorist attack in Moscow Airport, have you been in touch with your Russian counterparts in terms of preventing financial networks from funding terrorist organization? And could you give us any examples of the successful cooperation in that area between two countries? Thank you.

UNDER SECRETARY LEVEY: I personally have not been in contact with my Russian counterparts since the incident that you mentioned. But I introduced Mr. Glaser at the outset of this press conference, and he has been, for a number of years even, in very close collaboration with our Russian counterparts in dealing with illicit finance issues generally. And I think it’s fair to say that this has been an ongoing bright spot in our overall bilateral relationship with Russia, where we have been able to work very closely and collaboratively to identify illicit finance risks and try to take action against them. And we have plans to continue that collaboration going forward to do everything we can to make sure that terrorist organizations and those that are intent on harming civilians through violence are – that their financial networks are stressed.

MODERATOR: Yes, you, right there. This will be our last question, though.

QUESTION: Hi. Mamog Labensky (ph) from CBC, Canadian Broadcasting. Is there any evidence of implication of the Montreal office of the LCB, and have you been in touch with the Canadian authorities on that?

UNDER SECRETARY LEVEY: We have been in touch with the Canadian authorities, but none of the information that we – to make sure that they’re aware of this action and that they weren’t – that they were aware of it in advance. But despite the name and the history of the bank, this is not really about banking in Canada. None of the activities that we’ve highlighted that this bank is involved in that give rise to our concern are activities that occurred in Canada.

MODERATOR: Thank you very much to our guest today, and hank you. There will be a transcript of this event on our website. Have a good day.

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