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Before Senate Caucus on International Narcotics Caucus, FACT Calls for Stronger Anti-Money Laundering Safeguards Against Narcotics Financing

Oral Testimony of FACT Government Affairs Director, Erica Hanichak:

Chairman Whitehouse, Co-Chairman Grassley, all – thank you for holding this important hearing. It’s critical that Congress deny drug traffickers the financial tools that they use to bury their criminal gains.

​​I am here on behalf of the FACT Coalition and its more than 100 civil society, business, and labor members to discuss bipartisan reforms to counter the U.S. financial secrecy that fuels the public health harms, economic distortion, and corruption perpetuated by the drug trade.

In my testimony, I will highlight three ways in which Congress can tackle U.S. financial secrecy. Congress should:

  1. Encourage the Financial Crimes Enforcement Network (or FinCEN) to fully implement existing anti-money laundering laws; 
  2. Pass legislation requiring additional due diligence by opaque sectors; and
  3. Fund FinCEN at levels to ensure the agency has the staff and resources necessary to fulfill its anti-money laundering mission. 

U.S. Financial Secrecy Fuels Narcotics Trafficking

Secretary of the U.S. Treasury Janet Yellen stated the problem clearly in a speech in December: “…right now, the best place to hide and launder ill-gotten gains is actually the United States.” This is shocking. Americans usually think this illicit activity only happens in places like the Cayman Islands.

As the world’s largest economy – and one of the most opaque – the United States is a leading destination for drug traffickers and the corrupt officials they work with to park their illicit funds. While my written testimony discusses several vulnerabilities, I will use this time to address just two: anonymous U.S. shell entities and the role of professional enabling industries, such as the U.S. private investment sector. 

Anonymous U.S. Shell Entities

U.S. anonymous shell entities pose an immense money laundering risk. More personal information is required to obtain a library card in all 50 states than it takes to establish a legal entity that can be used to facilitate drug trafficking, money laundering, and corruption. 

This isn’t an abstract risk. Just in the past two weeks, New York-based money launderer Da Ying Sze pled guilty to laundering $653 million in drug money through shell companies with bank accounts in New York, New Jersey, and Pennsylvania, and then remitting that illicit money to China and Hong Kong.

We further know that U.S. anonymous entities play a role in fueling drug networks’ efforts to strategically corrupt societies and governments. A report by the UN Office on Drugs and Crime found that anonymous entities were used to hide the proceeds of corruption in the majority of grand corruption cases, with U.S. entities being the most common. 

Congress has already taken a critical step  to address this problem. Last year, Congress passed the bipartisan Corporate Transparency Act, which would effectively end the abuse of anonymous shell entities by requiring certain entities to name their true owner to FinCEN. The Treasury Department is diligently working to implement the law, but to-date, none of its three anticipated rules are finalized. These rules must be finalized by the end of 2022. 

Enabler Professions and Private Investment

Next, it’s imperative that the U.S. bring the “enablers” of crime and corruption under its anti-money laundering laws. While anonymous entities often act as the “getaway vehicle” for financial crimes, certain industry professionals can serve as the “getaway driver.” Drug trafficking organizations rely on these professionals to understand and gain access to the U.S. financial system. 

The Financial Action Task Force found that the United States was completely deficient and well behind international norms in regulating these enabling professions in its most recent comprehensive evaluation. 

The Administration already has the authority and stated will to tackle one gaping loophole in our system: the opaque $11 trillion private investment industry. Unlike banks and broker dealers – which perform similar functions in the securities market – none of private equity, hedge funds,  venture capital firms, or their investment advisers currently have any obligations under U.S. anti-money laundering laws. 

The opacity of this sector led the FBI to conclude with “high confidence” that the private investment market is increasingly a vehicle for money laundering and sanctions evasion. In one such case, Mexican drug cartels in California used hedge funds to launder $1 million a week. In a similar case, a boutique investment firm in Florida allegedly laundered more than $100 million through high-end U.S. real estate as part of the Black Market Peso Exchange. 

Access to private investment vehicles or other U.S. financial vehicles does not occur in a vacuum; other professionals are critical. The United States is in the last 10 percent of countries that have not taken the step of requiring other business professionals like lawyers, accountants, and other trust and company service agents to conduct anti-money laundering due diligence. The risks to these sectors demand further legislative action by Congress. 


So, what can Congress do? Congress should pursue financial reforms to help investigators follow the money fueling the transnational drug trade. Such reforms will have follow on effects – including in improving the enforcement of U.S. sanctions. As Congress considers how to respond to Russia’s unlawful invasion of Ukraine, I am sure this is top of mind.

Here are three recommendations, in addition to those outlined by Ms. Kumar, that Congress must pursue to keep Americans safe and uphold the integrity of U.S. systems. 

Support Timely and Robust FinCEN Rulemakings on the CTA and Private Investment

First, Congress must fulfill its oversight role to ensure existing anti-money laundering laws are fully implemented. 

Co-chairs, I thank you for your leadership supporting the Corporate Transparency Act. The first rule proposed by FinCEN was strong, and, with your and others’ input, will ensure meaningful disclosures of an entity’s true owner. Still, members of this Caucus should continue engaging FinCEN regarding how law enforcement gains access to this database. Congress should urge FinCEN to craft protocols that guarantee timely and uncomplicated database access for state, local, and federal law enforcement. Further, access protocols must be written to facilitate international cooperation, including on narcotics cases.

In a similar fashion, Congress should continue its oversight of FinCEN to ensure it follows through on the Administration’s stated commitment to meaningfully bring the U.S. private investment sector under U.S. money laundering regulations, as a way to crack down on illicit narcotics financing in that sector.

Legislate to Stop Enablers

Second, Congress will need to take action to bring more transparency to enabler professions. Congress should advance legislation – such as the ENABLERS Act or successor legislation – to require professionals such as lawyers, accountants, or corporate and trust service agents to fulfill basic anti-money laundering checks. This will introduce transparency into otherwise opaque sectors often exploited by drug trafficking networks. 

Fund FinCEN 

Finally, there is one thing that only Congress can, and must,  do: fund the Financial Crimes Enforcement Network. It is imperative that Congress supply the agency with the resources and the staffing necessary to do its job. Congress must finally approve a budget that meets the Biden Administration’s request to increase the agency’s funding by 50 percent, so that FinCEN can meaningfully contribute analysis and new rulemakings to aid the fight against the transnational narcotics trade. 


In conclusion, Congress still has much work left to ensure the U.S. financial system is not a vehicle for drug trafficking, corruption, or other financial harms. Thank you, and we look forward to working with you on these important issues.

A copy of Erica Hanichak’s written testimony can be accessed here.