Milstein Criminal Justice Policy Forum: FBI Counterterrorism Measures

8/9/2019 Milstein Criminal Justice Policy Forum: FBI Counterterrorism Measures

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M I L S T E

I N C R I M I N A L J U S T I C E

P O L

I C Y F O R U M

Remarks by Robert S. Mueller,Director of the FBI

Introduction by Howard P. Milstein

December 19, 2002

FBICOUNTERTERRORISMMEASURES

Citizens Crime CommissionOF NEW YORK CITY, INC.


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THE MILSTEIN

CRIMINAL JUSTICE

POLICY FORUM

Since 2002, the Ci tizens

Crime Commission of New

York C i ty has p re sented

a series of Criminal Justice

Policy lectures sponsored by

Edward L. and Howard P.

Milstein through the Milstein

Brothers Foundation. Each

event features a nationally

prominent speaker who addresses the Commiss ion

on such issues as crime, criminal justice or terrorism.

The formal remarks are followed by a question-and-

answer period. Each meeting is open to the media.

Attendance is limited to 150 invited guests drawn

from the top ranks of the New York City business and

law enforcement communities. Each lecture is printed

and distributed to top business, civic and law enforce-

ment leaders.

The Citizens Crime Commission of New York City

is an independent, non-profit organization working to

reduce crime and improve the criminal justice system

in New York City. The Commission is supported by the

business community; its board of directors is drawn from

top corporate executives and members of major law

firms. The Commission was established in 1978.

Howard and Edward Milstein are prominent New York

bankers and real estate owners. They have a long record

of working with the New York City criminal justice system

to create and support innovative programs. They are also

active in national crime prevention issues.

HOWARD P. MILSTEIN


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Introduction by

Howard P. MilsteinTOM REPPETTO: Good afternoon. My nameis Tom Reppetto. I'm the president of theCitizen's Crime Commission of New York City. And I would like to welcome you to theMilstein lecture and to thank JP MorganChase and company for hosting this event.

For those of you not familiar with ourformat, after our speaker concludes his

remarks, there will be an opportunity to ask questions, both by the audience and thepress. And I will stand off to the side andsignal to those who are asking questions to be recognized.

I would now like to call to the podiumHoward Milstein, who is the sponsor of today's lecture. Howard is the founder of Milstein Brothers Capital Partners andManaging Partner of Milstein Properties,

among many other successful businessventures. He is equally well known for hisphilanthropy and the special commitmenthe has made to law enforcement. He wasrecently honored with the Federal LawEnforcement Foundation's HumanitarianAward. And I have just learned that he hasmade a major grant to the National CrimePrevention Council to create a new childsafety website. Howard, we're very proudto have you with us today.

Thank you for your kind words, Tom.My brother Edward and I are proud tosupport the great work you're doingwith Citizen's Crime Commission of New

York City. We've been honored to sponsorthe Milstein Lectures since 1997.

Each year our speaker has been top-notch.But perhaps no speaker has been as timely astoday's speaker and no speech more impor-

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tant. The tragic events of September 11thchanged our world in so many ways. We've

experienced shock and loss and fear in waysnever before experienced in America.

The whole concept of domestic securityhas changed and with it the role of the FBI.The FBI, through its capacity to both detectterror threats and to arrest those involved, isin a unique position to protect us.

But it cannot do the job alone. As a citizenand businessman I think I speak for many in

the private sector when I say that 280 millionAmericans stand ready to help the FBI andall our law enforcement agencies. As a citizenand businessman, I'm ready to put my timeand resources into creating the kind of public/private partnerships that give every Americanways to participate in homeland defense.

Giving ordinary citizens a useful rolewill strengthen the bonds of community andshared national commitment to our greatcountry. Individual participation not only bolsters our effectiveness against terrorism,it also serves as an antidote to the fear anduncertainty that can be so corrosive.

The time is right for community service for

homeland defense. And the time is right tomobilize volunteers to work with governmentagencies to respond to the threat of terrorism.These are my thoughts as an amateur butconcerned individual.

Now let's turn to a more refined view.I take great pleasure in introducing today'sspeaker, the honorable Robert S. Mueller,Director of the FBI.

Director Mueller was named to his currentpost by President George Bush and confirmed by the Senate in August 2001, just before theterrible attacks of 9/11. Mr. Mueller's careerin public service began in 1976 with a longstint at the US Attorney's office in Northern

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California and in Massachusetts. He prose-cuted fraud, narcotics, corruption and racket-

eering cases. But most important for oursituation, he worked major terrorism cases.

Bob Mueller moved to the Departmentof Justice in 1989 where he served as anassistant to then Attorney General RichardThornburgh. By 1990 he was placed in chargeof the Department of Justice criminal division.

Director Mueller earned his spurs in theprivate sector as well, where he was associ-

ated with several leading law firms. APrinceton graduate with an MA in interna-tional studies from NYU and a JD from theUniversity of Virginia, Bob Mueller waselected a Fellow of the American College of Trial Lawyers.

And I shouldn't leave out that he is ahero. He served in Vietnam as an officer inthe Marines, earning a Bronze Star, two Navycommendation medals, the Purple Heart and

the Vietnamese Cross of Gallantry. It's animpressive record Bob. And I'm sure you'llneed to draw on every bit of it as you steerthe FBI through these difficult times. Ladiesand gentlemen, please welcome DirectorRobert S. Mueller.

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tively have been changed by the events thatoccurred here not too far away. We've all been

changed. But nowhere is that change I think more apparent than in the FBI.

Let me start if I could with an update onour war on terror. This is truly a war. And itis a global war. It is a war that is fought from

Kabul to Karachi. From Bali to Mombasa. ToSana, Yemen to New York City. And prevent-ing terrorism in the course of this war requiresus to identify cells and disrupt their opera-tions no matter where they might be, whetherit be in the United States or around the world.

And it requires all of us together, cripplingand dismantling those terrorist networks.And we have to do it country by country,operative by operative, dollar by dollar, sothat these networks no longer pose a threatto the United States. Now reflecting back on2002, we understand that in the first full yearof the war, much has been accomplished.

We have taken the fight to al Qaeda. Towhere they train, to where they recruit. Towhere they plan and to where they live.And we have taken away their safe haven.We have taken into custody more than 3,000al Qaeda leaders and foot soldiers worldwide.

And here in the United States we havecharged nearly 2,000 suspected terrorist asso-ciates with a variety of crimes. And world-wide, we have come to understand that wehave prevented any number of terroristattacks on United States facilities, some of them within the United States.

And I must say that these successes havecome because of the singular, united focus of virtually everyone engaged in this war. Lawenforcement, intelligence, the military, ourdiplomatic community and, I might add, theprivate sector. Every level.

Federal, state, local, international hascontributed its unique set of skills. Perhapsnowhere is that more evident than here in

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New York. And I must say that as it is infinance, as it is in business, the city of New

York has been a leader in the war againstterror since the 1920 bombing of the JPMorgan building located near here.

And that tradition of leadership continuestoday under the auspices of Commissioner

Kelly, who has done just an outstanding jobleading the New York Police Departmentsince 9/11. And I also might add thatthe new Counter Terrorism division that'sheaded up by Frank Libutti and the newlyrevamped Intelligence division headed up by David Cohen are models for the rest of the country.

Commissioner, my thanks to you, mythanks to Frank, my thanks to David. Andmost particularly, my thanks to the 40,000officers and detectives who serve this cityso well. And New York's leadership alsoincludes the men and women of the FBI. AndI have with me today Kevin Donovan, whowas picked up as the assistant director incharge. He picked up where the tireless BarryMawn, who many of you have known, left off in the war on terror.

September 11th made prevention of ter-rorist attacks the FBI's top priority and itsover-riding focus. While we remain commit-ted to our other important national securityand law enforcement responsibilities, theprevention of terrorism takes precedence inour thinking and planning. It takes prece-dence in our hiring now and in our staffing.

And it takes precedence in our training andtechnologies.

And with this shift in priorities has come amajor shift in allocation of resources withinthe bureau. We have doubled the number of

agents who are now devoted to terrorism.We've hired nearly 300 new counter terrorismtranslators, specializing in Middle Easternlanguages. And we have completely over-hauled our counter-terrorism program atheadquarters. Centralizing coordination and

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accountability, beefing up existing units, andadding new capabilities.

But essentially to preventing future ter-rorist attacks is improving our intelligenceanalysis and predictive capability. Well,the FBI has always been a collector of intel-ligence in pursuing its criminal cases. With

a mandate of prevention, we now have torestructure ourselves to provide the properanalysis and dissemination of intelligence toall of our partners in the war on terror.

We have taken a number of steps to build

that capacity within the FBI. Soon afterSeptember 11th, we established the Counter-Terrorism Watch, a 24/7, 365 day a year clear-ing house for every terrorist threat that wereceive. And we have received and fieldedmore than 3,000 threats since 9/11.

We have set up a National Joint TerrorismTask Force, a FBI headquarters staffed byrepresentatives from 30 different federal,state and local agencies. And this nationaltask force coordinates the two-way informa-tion flow of intelligence between headquar-ters and the joint terrorism task forces locatedaround the country. And we have quadrupledthe number of strategic analysts at headquar-ters hoping to build to a coterie of more than

700 analysts nation-wide in the next year.And as a result of these efforts, we are

now able to produce a greater quantity anda greater quality of analytical product, andto share that product more effectively with

policy makers, with the intelligence commu-nity and with our law enforcement partners.

We're also completely upgrading ourinformation technology capability in the bureau. It's sad to say, but our longstanding

problems with information technology arerelatively well known. What is less wellknown at this point is what we are doing tofix these problems and what we are doing toadd a whole new set of capabilities to FBIoperations.

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And we have brought in some of the best and brightest from private industry.

These individuals, along with a range of outside experts, are bringing the bureau intothe digital age. From the roll out of thenew hardware to the upgrade of criticalnetworks, to the re-design of investigativeapplications, we are making progress. Andthanks to these new initiatives, we will soonhave a system that we can mine for dataand analysis. And that will allow agents tomanage their case files electronically forthe first time in history.

In step with these institutional changeshave come important legal and culturalchanges that are enhancing our ability tofight terrorism. Principal among these is themanner in which September 11th has torn

down the legal walls between intelligenceand law enforcement agencies.

For those of you who followed theSeptember 11th hearings in Congress thisFall, you may recall the meetings being held between the CIA and the FBI where it wasunclear what information on a hijackercould be legally shared under the arcane setof rules and laws that was known in thetrade as the wall. And since September 11th,that wall has been breached.

First, thanks to the Patriot Act. And sec-ondly thanks to the recent FISA appeals courtruling, we no longer have the legal obstaclesto the coordination and information sharing

between the law enforcement communityand the intelligence agencies. And lawenforcement officers can now coordinate theirapproach to terrorist targets without runningafoul of the law.

In addition to the collapse of the legalwall, we have also seen a collapse of thecultural and the operational wall betweenthe FBI and the CIA. Those who focus onstories of the feuding between the agencies inthe era of J. Edgar Hoover and Allen Dulles

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Building new walls is going in the wrongdirection. There is no reason to separate the

two functions of law enforcement andintelligence. On the contrary, combining lawenforcement and intelligence, as is beingdone in the NYPD, grants us ready access toevery weapon in the government's arsenalagainst terrorists. We can now make strate-gic and tactical choices between our lawenforcement options of arrest and incarcera-tion and our intelligence options of surveil-lance and source development.

And the wisdom of this approach has been clearly borne out. Over the last year,the FBI along with its state and local coun-terparts has identified, disrupted and neu-tralized a number of terrorist threats andcells. Not only here in the United States but

overseas as well. And we have done so inways that an intelligence-only agency suchas MI5 could not.

Now why is this? Why is this? Because I believe the FBI is uniquely situated for the

counter-terrorism mission. We have the per-sonnel. And we have the tools and assetsneeded to perform this mission. We have aworldwide network of highly trained anddedicated special agents. And we have theintelligence tools to collect and analyzeinformation. And they are improving daily.

We have the law enforcement tools to actagainst and neutralize these threats. And wehave the expertise in investigations and in

the recruitment and cultivation of humansources of information. And we have long-standing and improving relationships withstate and local law enforcement. And they,state and local law enforcement, are the intel-ligence gatherers closest to the informationwe seek from each of our communities.

And finally, the FBI has nearly a centuryof experience in working within the confines,within the bounds of the Constitution. Forthese reasons, I'm convinced that the people

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of the United States are better served byenhancing the FBI's dual capacity for law

enforcement and intelligence gathering andanalysis than by creating a new agency fromwhole cloth.

And it is for these reasons that I believethat at the same time in our history, estab-lishing a new domestic intelligence agencywould constitute a step backward in thewar on terror, not a step forward. Nowthere will come a time, and perhaps it ishappening today, when the majority of Americans will move on to other concerns,dreams, fears and challenges. And that isunderstandable.

But for those of us, many of this room,who are fighting the war on terror, such a

lapse would be a disaster. We are in a war.And we will prevail over our foe only if weare more determined, more relentless andmore resourceful.

It's a challenge that demands dedication.

It demands sacrifice. And I have to say thatI am tremendously proud of every man andwoman in the FBI who is working so hardto meet this challenge. And the longer I'mwith the bureau, the more I appreciate howprivileged I am to call them my colleagues.And how privileged I am to call not onlythe FBI agents my colleagues, but my coun-terparts in state and local law enforcementmy colleagues as well.

I want to close with a story that says agreat deal about the intangibles of teamwork and courage that are so important to defeat-ing terrorism. I've told this story before, butit bears repeating, particularly here in NewYork. And it is a story of Lenny Hatton,

special agent of the FBI who was one of themany law enforcement officers who losttheir lives on September 11th.

Lenny was an exceptional agent anda remarkable man. He was on his way to

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work on September 11th when he saw theWorld Trade Center on fire. He went straight

to the scene and started working with policeand fire fighters to evacuate the buildings.Lenny was last seen helping a victim out of one of the buildings and then rushing back in to save more.

Several days after September 11th, Iattended Lenny's funeral mass in his home-town in New Jersey. And the last speakerwas a close friend and colleague of Lenny's,an individual by the name of Chris

O'Connell. Chris talked about how Lennydevoted his life to serving as a Marine, as avolunteer fire fighter, as an FBI agent and asa husband and a father.

And he recounted how Lenny had serveduntil his last breath trying to evacuate peoplefrom the World Trade Center. And at the end,in tears, he saluted his friend, Agent Hatton,with the words, "Until we meet again. Mypartner. My friend."

And Chris O'Connell, you see, was Lenny'spartner. And Chris was and is a detectivewith the New York City Police Department.Lenny and Chris cared for each other. It

didn't matter that one worked for the FBIand one worked for the New York PoliceDepartment. They were a team.

Were he alive today, I think Lenny would be proud to see the team that has cometogether since September 11th. The team isstrong and is unified. And it is single-mindedin its determination to prevent a 9/11 fromever happening again.

I'm proud to be part of that team. And Ithank all of you here today for your hardwork, your sacrifices and your dedication tothe cause of justice. Thank you for havingme today. Thank you for your leadership.And God bless.

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Questions & Answers

Robert S. MuellerMr. Mueller. Barry Cunningham, Fox 5

television. Do you have any security con-cerns over the architect's proposed plans

for rebuilding the World Trade Center,particularly the height of some of theseproposed skyscrapers? And will theBureau be reviewing the architect's plansfor possible security risks?

I must confess that the only knowledgeI have of the plans is what I saw portrayedon the front page of the New York Timestoday. We are generally not in the business

of reviewing architectural plans. However,as it goes down the road, to the extent thatthe Bureau could help in any way, shape orform, we would be certainly willing to do so.I know I've followed from afar the debate onwhat should replace the World Trade Center.But I really am not familiar with the variousproposals that have been made.

Mr. Mueller, you mentioned over theweekend that the FBI has broken up 100operations. Could you tell us, were thoseimminent and where were they beingplanned? In the US or elsewhere?

And if I could ask a second question, youtalk about the wall having been breached.Could you mention a specific example of cooperation between the CIA and the FBIsince that wall has come down?

Well, let me speak generally to the firstquestion. I was quoted in the papers as say-ing that we have disrupted a number of plans, plots around the world. Several werewithin the United States, perhaps as manyas 100. I have not totaled them all up.

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But when you look at the plans thwarted by us - and by us I mean the FBI, the CIA, the

Defense Department around the world -, butalso by our counterparts, it would be at least100. I can tell you in the last two days, we'veseen the French authorities take down a cell.And yesterday, in the United Kingdom, inLondon, they also took down a cell.

Now where a particular group is in itsplanning process is often difficult to say. If you look at the hijackers of September 11ththey had no explosives, they had no guns.So if you had arrested one of them youwould find nothing except an innocuous box cutter. But across the world, all of uswho are working together have disruptedany number of plots.

In terms of the breaking down of thewalls, I'll tell you, 10 years ago when I wasat the Department of Justice, I had occasionto travel overseas to I think it was Germany.I was in the embassy with the Attorney Generalat the time and the CIA was not speaking tothe FBI legat.

And that kind of day-to-day not workingtogether was somewhat prevalent amongstour agencies. Now you go overseas and theCIA and the FBI are working not only excep-tionally closely together, but with our coun-terparts, whether it be in Pakistan or Egyptor Jordan or even Indonesia, Malaysia.

And so that sharing of information,working together, I think it started withLouie Freeh way prior to September 11th, but has advanced substantially sinceSeptember 11th. In terms of the legal walls,the sharing of information that is allowednow or has been allowed by the Patriot Act,

has allowed us now to take the benefits of our criminal investigations where we convictsomebody and they become a cooperator.When we have grand jury testimony, thereare now provisions whereby we can integratethat intelligence information that the CIA

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may have on the same subject on a sameterrorist group in ways that we could not

do it before.

Mr. Mueller, when you talk about thewar on terrorism and you mention the othercountries, one area that you didn't talk about

was South America. I'm reading a lot aboutthe tri-border region and how it may bewhere a lot of al Qaeda may go, were they tohide out. Is that an area of concern? Is that onyour radar screen?

We've got our eye on it. Yes, sir. I didn'tmean to take it from you Tom.

Alvin Bessent with Newsday. Congres-sional intelligence committees not so longago recommended a cabinet level post becreated for intelligence to coordinate theefforts of all of the intelligence agencies. Iwonder what your view of the wisdom of that kind of move?

Well, yeah I've been in Washington fora year and a half, and I've picked up somethings in that period of time. But I don'tpurport to be an expert in the intelligence

community.And not being an expert in the intelligence

community, I'm somewhat reluctant to opineas to the best structure for the intelligencecommunity. Suffice to say that I think we

have to improve our intelligence, analyticaland dissemination capability to be a biggerpart of that intelligence community, regard-less of the structure that is ultimately decidedfor the intelligence community.

I think around the country, we and ourstate and local counterparts are reaching outto business, particularly businesses thatrepresent part of the backbone of the country.Whether it be financial, the rail system, orchemical manufacturers.

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Particularly those businesses that perhapscould be targets. We have developed tremen-

dously close relationships, particularly sinceSeptember 11th. In terms of others where theinformation from private citizens is impor-tant, we have tried to develop mechanismsso that we can get that information in.

Whether it be hotlines. Whether it bemeetings with security officers. I venture tosay that FBI agents have talked to the secu-rity officers on any number of occasionssince September 11th. With just about everylarge corporation and many of the smallercorporations around the country.

In order to develop that liaison so if some-thing comes to your attention, it is broughtto us. And if there is an episode or an attack,we then have that liaison in place so thatwe can react quickly. So I think that's hap-pening around the country in ways that aretruly remarkable.

Robert Laird from the Daily News.There were certain things in the 1970s that became issues. You know there were objec-tions to having your agency being involvedin gathering intelligence in operationsin certain cases that could infringe uponcivil rights. Can you comment?

Since the 1970s there have been anumber of changes in the way the FBI does

its business. We now have a FISA court,Foreign Intelligence Surveillance Act court.We cannot, do not, go out and utilize tech-nical surveillance without the approval of that court.

We have the Attorney General's guide-lines that have been instituted that gives usguidance, which we do follow with, in howwe conduct our investigations. And it is acompletely different world for the FBI nowthan it was back in the '70s.

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I may also add, many of you can recog-nize it. There is Congressional oversight.

And so it is not that we do not go withoutscrutiny. And consequence-- consequently itis a different world in terms of the bureautoday in terms of the guidance that wereceive and the oversight that we receivefrom the days of the '70s.

Let me also say that FBI agents are tutoredat length as to the importance of performingan investigation according to the guidelines.The average age in our incoming class isabout 30. The reason for that is we want per-sons who have judgment and experience. If you give those individuals a badge and agun, and the power to arrest somebody, wewant to make certain that those individualshave the maturity and the judgment to

undertake that responsibility within theConstitution, and appropriately.

The other thing I will say is one of thethings that Louie Freeh instituted. I think itis tremendously important for every agent

to go to the Holocaust Museum for the pur-pose of understanding what can happen if you don't understand the limits of thepower that you have. And so the Bureautoday I think is a far different bureau thanyou saw in the '70s.

But by the same token it is an aggressive bureau. It is a changing bureau. And is a bureau, it's not just agents, but every personin the FBI I think understands now that ourprincipal role is to protect the United Statesfrom the next terrorist attack. And we will be aggressive and we will be hard charging, but we will do it within the constraints of theConstitution and the guidelines.

Senator Shelby in Washington recentlysaid that the FBI's organizational institu-tional culture is terribly flawed. And thatit's fundamentally incapable of protectingAmericans from terrorism. How can the FBI

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go forward when it has lost the trust andfaith of the senior government officials?

Well, I would respectfully differ withSenator Shelby's characterization. The peopletalk about the culture of the FBI. The factof the matter is the culture of the FBI is hard

work and dedication and excellence.Any one of you who know FBI agents

know that that is what you see when you talk to, when you meet, when you work with anFBI agent. Part of the argument is that, "Okay,

we are investigators. And we cannot shift."The argument is that we look at everythingthrough the prism, as if it is a piece of infor-mation admissible in court.

And the fact of the matter is often we do,

but we cannot afford to in the future. We are,I think, some of the best information gatherersin the world. In terms of going out and inter-viewing people, pulling in records, reviewinginformation. And that is information. It can be used as intelligence or it can be used asevidence in a courtroom.

And we have to understand that when weare pulling in information, there are thosetool objectives down the road. Part of doingthat, if you think up to the intelligence side between collection and analysis, I think we'vealways been superbly trained investigatorsand collectors of intelligence.

What we have not always had is theanalytical capability, but centralization of that

information, and the infrastructure to takethat information, analyze that informationand then disseminate it around the country,and particularly within the intelligencecommunity.

And that is what we have to change. Wehave to build up that analytical capabilitythat is in the CIA, that is in the military,that will enable us to take that informationcollected, distill it, and be more predictiveabout where the next attack may come

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from. And we are, so I respectfully, as I say,disagree with the good Senator.

TOM REPPETTO: That is the more typicaltype of question that is asked at the CrimeCommission.

It's a more typical type of question toask on the Hill.

Since the creation of Homeland Security,are there more walls and is the FBI seekingto bring down the walls?

No, since Tom Ridge has been in, wemeet every morning. That will probably

continue, although he'll now be a cabinetofficer and the like. But the exchange of information with Homeland Security aslong as it has been an office in the WhiteHouse has I think been very good.

There are meetings every day. And thatwill continue. People will ask, "Well, what isthe role of the intelligence analysts at theCIA versus FBI versus Homeland Security."And the fact of the matter is, going back toyour question, we have the responsibility of

gathering information within the UnitedStates. CIA is barred from doing that.

But we have that responsibility. CIAhas the responsibility overseas. We needthe intelligence analysis so we can take our

information, distill it, and send out leads asthat piece of information comes in. You mayneed to interview somebody. You may haveto pull records. So it has to be a continuousprocess of intelligence development. Andwe need the analysts of the FBI to do thatand be more predictive within the FBI andput out reports.

That will then go to Homeland Security.And Homeland Security's responsibilityprincipally is to match the intelligence,

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whether it comes from CIA or FBI, withwhat it knows and understands about the

infrastructure in the United States and thetargets. And to match the intelligence thatwe provide with what they know and whatthey are doing in order to harden, whetherit be New York City or Washington, D.C. orthe electrical infrastructure.

And they need from their perspective,the capability of assimilating what we have, being together more predictive in a unifiedfashion as to where those attacks might come.But most particularly what we're doing toprotect against those attacks if it did happenin a particular segment of the economy inthe United States.

TOM REPPETTO: There are other people in

the room who have responsibility for counter-terrorism. With your permission, I would liketo know, if any of them have any comments.

Director Mueller, what are the FBI's

restrictions in a terrorism investigation?

We are not precluded from going in.The guidelines do not require that we havereason to believe that a crime is imminent in

order for us to conduct further investigation.The critical part of any investigation in mymind is having the predication for thenext step of the investigation. And what theAttorney General guidelines focus upon isthat as we go forward in an investigation wehave adequate predication for the next step inthe investigation, and appropriately so. Sam?

The FBI had a senior Hammas leaderin custody in 1997 and let him go saying it

was better to track his activities. Now he's been indicted for financing terrorism and oneof your own agents says letting him go wasa significant failure. How do you respondto this criticism and was it a mistake to lethim go?

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Well, I've got a number of judges herewho would understand when I say that

because the case is in the courts, I can'tcomment on it. Right?

GROUP: Right.

DIRECTOR MUELLER: I could expect thatresponse. And not only right, but so ordered.But generally speaking, one of the mostdifficult things you have to do is determinewhether or not you detain somebody. Whetherit be on some criminal charge or an immi-

gration charge. Or you let the person runfor a while because you want to determinewhether or not that person has other associatesout there.

That is a very difficult question, and it

comes up in many of our investigations.What you want to have under one roof as Iwas trying to articulate earlier is the oneperson looking at the advantages of eitherside. If you believe that an individual or agroup of individuals are getting near tocommitting some sort of terrorist attack,then there has to be the one person. You canhave all of the intelligence in the world, butthere has to be a mechanism for neutralizingthem. Incapacitating them.

And generally you've got very limitedchoices. You arrest him, one, for the crime of say, material support to terrorism. You canarrest them on some other crime if statuteshave been violated, whether it be state, local

or federal. Or if they're out of status, youmay be able to detain them on immigrationdetention. But there has to be some capacityto deter that activity.

It is a very difficult decision to make

whether you go forward, if you think there areother co-conspirators out ther e, or you takethe group off. What you do want to have inthe hands of one decision maker is all of thefacts. In the past, we've had in certain circum-stances and because of some of the legal walls,

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the facts, in terms of the intelligence side of the house, are on one side. Where the facts in

terms of what has happened on the criminalinvestigation on the other. And they have not been exchanged.

And that, I think, has been beneficialsince September 11th. Breaking down those

walls so the decision makers can have theintelligence facts, or the facts from the intelli-gence side of the house together with the factsfrom the criminal side of the house to make anappropriate decision as to which way to go.

TOM REPPETTO: Have other cities in theUnited States organized their counter-terroristoperations in similar ways to the NYPD?

There are a couple of things. I think almost all of the cities in the United States arefacing the same problems with budget asNYPD and other police agencies. Because of this, last year in particular, in terms of threatscoming in and overtime and the like.

And so cities around the country are being constrained in terms of their develop-ment of, or reorganizations to address ter-rorism. I think it's fair to say that New York is on the cutting edge of setting up a counterterrorism division and an intelligence divi-sion. I think there are a number of policedepartments, and Ray Kelly would know better than I, that are wrestling with thenecessity for gathering intelligence in ways

that we have not been in the past becausewe need that intelligence to prevent thenext terrorist attack. Although there are anumber of communities and cities aroundthe country who have disbanded policeintelligence units a number of years ago because of perceived abuses.

I think New York is ahead of the game inestablishing these two divisions. And inenlisting the support and the informationfrom just about every officer out on the beat.

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Regarding the investigation, if I remember back, there was a secret subpoena of

a reporter's home telephone records. I waswondering if in hindsight if you now stillthink that was the correct step to take whenyou conducted or helped conduct that leak investigation?

Now first of all, it's ancient history. Andsecondly, you know I can't answer that ques-tion. That was a nice try. And I know who youare by that question.

Are you concerned about the security atthese airports?

That's a good question as to what is being done with regard to general aviation.We have reached out a hand to each of ourfield offices, to airports and companies thatprovide charters and the like or provide haulfreight by aircraft.

But TSA also is looking very closely at that.It has been working very closely with the net-work of the larger companies that either char-ter aircraft or move freight by aircraft, toassure that those who are let into the cockpits

of these planes have some security check.And we have to work closely with the TSA

on that. It's an ongoing issue, an ongoingdialogue between us and TSA and an ongoingdialogue between TSA and the general avia-

tion community.

Sir, you said the FBI's top priority ispreventing the next terrorist attack. We herein New York are waiting for the other shoe to

drop for nearly three months. Thank God ithasn't happened. But we know we're at aheightened threat level here.

We're code orange, I guess it is, and therest of the country is code yellow. Or maybe

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it's the other way around. I don't know.But is there anything that would make

you especially concerned that New York could get hit again? Are there any links inthese recent terror risks to New York City?What about security here during the holidayseason?

Well, it's yellow as far as I understand.In terms of specific threats, there are nonethat I am aware of. In terms of generalthreats, I think you have to be aware that

al Qaeda's modus operandi is to go aftertargets that they've hit before. And I think you have to put that into your frame of reference.

But nonetheless, I think in general andNew York in particular has made substantialstrides in protecting the city in ways it wasnot protected perhaps prior to September11th. I think we are much safer off, whetherit be New York City, Washington, D.C. or inthe country. We are much safer than wewere prior to September 11th.

Now I cannot sit here and say there will be no further attacks, whether it be on NewYork City and Washington. But we are much

safer. New York City is much safer. And Ido not believe there is any reason to beconcerned about an elevated risk of anattack on New York over the holiday season.Do you see it any differently?

Okay, thank you. Anything else?

TOM REPPETTO:

No further questions. We'd like to thank youvery much.

ROBERT S. MUELLER:

Thank you. Thank you very much.

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M I L S T E


P O L

I C Y F O R U M

Remarks by Asa Hutchinson,Under SecretaryBorder and Transportation Security

U.S. Department ofHomeland Security

October 29, 2003

HOMELAND SECURITY:DETECTING VISAOVERSTAYS ANDFALSE IDENTITYPAPERS

Citizens Crime CommissionOF NEW YORK CITY, INC.


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THE MILSTEIN

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POLICY FORUM


















ment leaders.













HOWARD P. MILSTEIN


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Introduction by

Howard P. Milstein

Thank you, Tom. Good afternoon,ladies and gentlemen. My brother,Edward, and I are proud to spon-

sor the new Criminal Justice Policyseries organized by the Citizens CrimeCommission of New York City. Andwere proud to support law enforcementat all levels of government.

Since the events of September 11th,weve become particularly interestedin Homeland Security as our nationsmost immediate need in preserving ourdemocratic society. As a businessperson,I understand the impact terrorism canhave on our financial markets and oureconomy. More importantly, Americanlives and our way of life are at stake.This is a challenge that every American isprepared to address. When our leaderscreate structures and ways for private cit-izens to help with the war against terror-ism, 280 million Americans will answerthe call.

Today, we have the good fortune tohear from one of the people who is work-ing to restore our sense of safety aswe go about our day-to-day business:the Honorable Asa Hutchinson, UnderSecretary of Homeland Security forBorder and Transportation Security.

Secretary Hutchinson is a man with adistinguished career.

In 1982, at the age of 31, Ronald Reaganappointed him U.S. Attorney for the

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Western District of Arkansas. He was theyoungest U.S. Attorney in the nation.

Elected to Congress in 1996, he servedas a U.S. Representative from Arkansasand was a member of the Select Committeeon Intelligence and the House JudiciaryCommittee. In 2001, after being re-electedto his third term, Mr. Hutchinson wasappointed Administrator of the DrugEnforcement Administration (DEA), wherehe combined tough law enforcement initia-tives with increased investment in treat-ment and education programs.

This past January, after being appoint-ed by President Bush, the U.S. Senateunanimously confirmed Asa Hutchinsonas Under Secretary of Homeland Securityfor Border and Transportation Security.As Under Secretary, he leads a directorateof over 110,000 employees and is respon-sible for coordinating the enforcementactivities of our borders, transportationand immigration systems. And these days,I cant think of a bigger job than that!

Please join me in giving a warm wel-come to Under Secretary Asa Hutchinson.

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We have increased intelligence sharingamong the federal government and withfirst responders and the private sector.

But each day we work, we are remind-ed that in the land of freedom we must domore to protect America and to giveAmerica confidence and hope that weare doing all we can to prevent anotherterrorist attack.

Today I want to discuss two problemsthat impact the security of our Nation.The first is visa overstays in other wordsan alien who enters legally but stays ille-gally; and the second is misuse of identitydocuments.

The attack on America was perpetrated by 19 hijackers who entered the U.S. onvisas travel visas, business visas, andstudent visas.

At least three of the hijackers hadexpired visas. When they wanted toattack America, why did they use thevisa process? Why did they not cross our borders illegally? It is because terroristswho enter our country need an identity.They have to maneuver. They must haveaccess. They must work or go to school.

They must operate for a period of timewithout detection.

To accomplish this necessity, they choseto misuse our visa system and to be aided

by misuse of identity documents.How have we responded to these vul-

nerabilities? The Department of HomelandSecurity has taken substantial steps in

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coordination with the State Department toaddress vulnerabilities in our visa system.

We now require security checks forapplications; personal interviews; and as Imentioned, biometric identifiers will betaken in coming months under U.S. VISIT.

The U.S. VISIT system also helps usaddress the second concern: misuse of identity documents, fraud, and visas andpassports. Last year our border inspec-tors detected over 60,000 fraudulent doc-uments at our ports of entry. Under U.S.VISIT, fraudulent documents will nolonger work because we confirm identity biometrically.

But the problem goes beyond visas andpassports we are also concerned aboutthe fraudulent use of drivers licenses andother forms of identity, including birthcertificates.

For example, as you know, an Americancitizen can travel anywhere in the westernhemisphere, with the exception of Cuba,without a passport. Historically, the statedrivers license has been a principal formof identity. But if states do not have stan-dards of integrity in the issuance, then we

will have to reconsider any reliance on statedrivers licenses for identification purposes.

Let me make some additional points.The Department of Homeland Security

will work with the states to develop secu-rity standards for state drivers licensesand other identity documents. If the trendis not reversed, then America will need tore-educate ourselves on the limited purpose

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of a drivers license, which is to verifyidentity and residence.

Private entities need to take responsibility for establishing standards to identifyand verify their business partners. If stan-dards are inadequate, businesses run therisk of facilitating criminal conduct.

Other actions at the Department of Homeland Security are important in thearea of document fraud. First, training is acritical part of protection, including thetraining for our inspectors. The fact thatSecretary Ridge unified our inspectionforces will help us and increase our abilityto properly train our inspectors.

Now agriculture inspectors, customsinspectors, and immigration inspectorswill all be unified. Their training will beenhanced at the border. We will also trainthe secondary inspectors to receive moreadvanced training on document fraudidentification.

Secondly, the Bureau of Immigrationand Customs Enforcement, or ICE, has avery aggressive forensic document labo-ratory that gives real-time assistance forthe inspectors in the field and provides

alerts to the field.For example, we sent out an alert ref-

erencing stolen blank Filipino passports.Another alert provides information on

counterfeit N-series passports that wereavailable in Turkey for $500 each. Theseinformation circulars help our inspectorsidentify fraudulent travel documents.

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It takes a commitment to checks and balances to achieve security without dimin-ishing our values. But we can achieve this balance.

Almost 100 years ago, the Princetonprofessor Henry Van Dyke gave a seriesof lectures, which were then collectedin a book called The Spirit of America.Van Dyke described Americans this way:A people of idealists, set about to accom-plish a very practical task.

We are idealistic about our nation our freedoms, our values, and our future.But today we find before us a verypractical task protecting our nationagainst the threat of terrorism. Workingtogether, this is a task that we can accom-plish, and will accomplish.

Thank you for your continued supportand partnership. n

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Citizens Crime Commission of New York City, Inc.

150 East 42nd Street, 2nd FloorNew York, New York 10017

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THE MILSTEIN

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HOWARD P. MILSTEIN


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Introduction by

Howard P. Milstein

Thank you, Tom. Once again, youve brought together a stellar group of leaders to meet with an exceptionalcriminal justice policy maker. Todays speaker,Senator Carl Levin, is known as a lawmakerwho puts principle before politics. And he sureknows how to get to the bottom of things -whether it's tracing the web of deceptionthat led to the collapse of Enron, the manip-

ulation of gas prices in the US, or moneylaundering schemes that have tainted partsof our economy.

Senator Levin has been a leader in toughinvestigations of the white collar crime thatcan have such subversive and far-reachingeffects. As an advocate of public/private part-nerships, he understands the limits of govern-ment and the essential role the private sectormust play in improving our communities and

our society.Senator Levin was elected to the United

States Senate in 1978. Prior to that, he practicedlaw in his home state of Michigan. He servedas Assistant Attorney General of that state andlater as president of the Detroit City Council.

Senator Levin is currently the rankingminority member of the Senate ArmedServices Committee, where he has earned areputation as a strong supporter of our nation-al defense and an effective waste fighter. In January 2003, the Secretary of the Navy citedSenator Levin for "exceptional service to theNavy and the Marine Corps," and presentedhim with its Distinguished Public Service

Award the highest award given to someonenot a member of the Navy.

Senator Levin also serves as the rank-ing minority member of the permanentSub-Committee on Investigations of the

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Government Affairs Committee. In 2002, aschairman of that sub-committee, Senator Levin

led Congress's most in-depth examination of the collapse of Enron. Senator Levin is also amember of the Small Business Committee andthe Senate Select Committee on Intelligence.

Senator Levin is the author of theCompetition and Contracting Act, which ledto significant reductions in federal procurementcosts. His Whistler Blower Protection Act pro-tects federal employees who expose wastefulpractices. He also helped alter the Taxpayers' Bill

of Rights, which protects individuals andsmall businesses from IRS harassment.

Newspapers in his home state havedescribed him as "a thoughtful, probing lawmaker," and, "the Senate's wise counsel on thenation's most precipitous issues."

Aside from all Senator Levins publicaccomplishments that he has achieved sincehe first started out on the Detroit City Councilin 1969, there are a few sides to him thatparticularly endear him to people like us.

Although he is magnificently qualified to be the President of the United States, he isone of the few members of the United States

Senate who does not spend his waking hourstelling everyone that he should be President.

Pictured left, Howard P. Milstein andright, Senator Carl Levin

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Instead, he simply undertakes the businessof the nation and performs his job as our

leading military expert in the Senate withtotal competence and collegiality.

He has a great sense of humor and henever takes himself too seriously. Come tothink of it, Carl, maybe you should run forthe Presidency. In a time of such rank parti-sanship on both sides of the aisle, with members of Congress almost coming to blows overtheir differences, Senator Levin is from theold school of politics. He works closely with

his Republican colleagues and treats themwith respect.

Senator Levin maintains his dignity inthe midst of the most rancorous debates of our time. One has only to observe his rela-tionship with Senator John Warner, the cur-rent chair of the Armed Services Committee,to understand one of the most important rea-sons for his effectiveness in the Senate whether the Democrats are in or out of power. I wish that more Senators went to thatsame old school.

Maybe one of the reasons for his well-documented humility has to do with beingthe kid brother of another high achiever andwonderful public servant. Some of youmight not be aware that there are twoextraordinary Levins in public life. Each of them with a list of accomplishments thatwould satisfy the most determined Jewishmother in America.

Sandy Levin is a respected member of theHouse Ways and Means Committee and hasserved in Congress for more than 20 years.

Without diminishing GW and Jeb, Carl andSandy may be the greatest one-two familypunch in public life today.

It's my pleasure to introduce SenatorCarl Levin.

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Remarks by

Senator Carl Levin

Thank you for inviting me here today toaddress this distinguished gathering.You are a unique mix of law enforce-ment officials and concerned citizens, leadersin our legal and business communities andpublic life. Your tradition of coming togetherin this forum to put a spotlight on the criticalissues facing the law enforcement communityis truly a worthy public service.

There are a lot of financial scandals todaythat pollute the business climate. Accountingfraud. Mutual fund misconduct. Price manip-ulation in energy markets. Phony corporateoffices opened in offshore tax havens to avoidpaying taxes while the corporation continuesto use American services. But I'd like to talk today about a serious scandal that hasn'treceived the attention it deserves, largely because it is so complicated - namely, the

design and mass marketing of so-called "abu-sive" tax shelters.

Unlike legitimate tax shelters, abusive taxshelters are very complicated transactionspromoted to provide large tax benefits

unintended by the tax code. Abusive taxshelters are marked by one characteristic:there is no real economic or business rationaleother than a tax deduction. As Judge LearnedHand put it in Gregory v. Helvering, theyare "entered upon for no other motive but toescape taxation."

Crimes like terrorism, murder, fraud andembezzlement produce instant recognition of the immorality involved. Abusive tax shelters

are MEGOs - that means "My Eyes GlazeOver." Those who cook up these concoctionscount on their complexity to escape scrutinyand public ire. And the anti-tax climate con-tributes to the lack of public anger. If tax isspelled B-A-D in right-wing dictionaries, how

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can concocting tax shelter schemes to avoidpaying taxes be bad?

But complicated or not, MEGOs or not,the fact is that the mass marketing of abusivetax shelters by respected accounting firms,law firms, banks, and investment adviserswho are hawking these so-called "tax prod-ucts" to thousands of people like late-night,cut-rate TV bargains, is surely scandalous, just as Enron was scandalous.

And it is massive. It involves tens of billions of dollars each year. It goes on acrossthe country and around the clock. It under-mines the fabric of American society bydepriving our government of funds neededto strengthen homeland security, supportour troops, care for the sick, educate kids,

and more. It is corrupting some of our mosttalented professionals in law, accountingand finance. And it leaves honest taxpayersto make up the difference.

Last year, the Permanent Subcommittee onInvestigations, of which I'm now the rankingDemocrat, opened an in-depth investigationinto the development and marketing of abusive tax shelters by professional firms likeaccounting firms, banks, investment advisors,

and law firms. I was then the Subcommitteechairman and initiated this effort due to ourEnron investigation which, among othermisconduct, disclosed that company's use of elaborate tax dodges.

In December 2002, the Subcommittee helda hearing which examined an abusive taxshelter known as Slapshot, which J.P. MorganChase had designed and sold to Enron for $5million. Enron had calculated Slapshot would

produce tax benefits exceeding $120 million.As detailed in a Subcommittee report, this taxshelter relied primarily on a sham $1 billionloan that was arranged and financed by J.P.Morgan Chase, and concealed within a mind- boggling array of loans, stock swaps, and

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structured finance transactions, many of which occurred within minutes of each other.

The shelter's complexity was designed in partto prevent tax authorities from finding outwhat really happened.

We pierced the Slapshot veil only by sub-poenaing hundreds of boxes of documents;reading thousands of emails, conductingnumerous interviews, and spending monthsunraveling how that tax shelter worked.

We figured out Slapshot. But it took a

huge effort. The larger issue, which wehave spent the last year investigating withthe full support of our new SubcommitteeChairman, Senator Norm Coleman, is howrespected U.S. professional firms act like

schlock-houses, hawking shoddy, abusivetax shelters and enlisting the help of otherprofessionals in the marketing effort.

Our investigation found what could becalled a target-rich environment - numerousaccounting firms, investment advisors, banks, and law firms developing the internaland external infrastructure necessary toaggressively design, market, and implementhundreds of complex tax shelters that peoplewould otherwise be unable, unlikely, orunwilling to employ. These products are sodubious that some of their developers evenhad clients take out insurance policies in casethe IRS caught up with them! And they are

doing it in exchange for hundreds of millionsof dollars in fees and other compensation,some of it contingent, while robbing the U.S.Treasury of billions of dollars in revenueseach year.

The Government Accounting Officereports that an IRS database tracking unre-solved, abusive tax shelter cases over a number of years estimates potential tax losses of $85 billion. The GAO also reports that the IRS

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minimize taxes. In response, their tax advi-sors would provide legitimate tax planning,

or in some cases, abusive tax shelters. Thistax advice was sought and provided on aone-to-one basis.

That's not the heart of the professional taxshelter industry today. Our investigationfound that it was not individuals and corpora-tions visiting their tax advisors, but a horde of tax advisors cooking up one complex schemeafter another, packaging them up as generic"tax products" with boiler-plate legal and tax

opinions, and then devising and undertakingelaborate marketing schemes to peddle theseproducts to literally thousands of personsacross the country.

Some of the professionals peddling thesetax dodges have the audacity to claim thatthey are not tax shelter promoters. If theyadmitted that they do what they so blatantly but secretively do, they would be subject toIRS regulations requiring tax shelter promot-ers to disclose their activities. Listen to thisemail from a senior tax professional to his staff who just finished designing a tax shelter in acompany that denies it promotes tax shelters:

"I want to personally thank everyone fortheir efforts during the approval process of this strategy. It was completed very quicklyand everyone demonstrated true teamwork.

Thank you! Now let's SELL, SELL, SELL!!"

That's the tax shelter industry of today,aggressively mass marketing its self-named"tax products". We have uncovered disturbingevidence of tax professionals convincingclients to buy complicated tax schemes result-ing in hefty profits for the so-called profession-als. In too many cases, the firm pushing thetax product advised its staff of tax profes-sionals - I'm talking about CPAs and lawyers -to use high-pressure sales tactics to close the

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sales. Some firms are even using telemarket-ing. For example, one firm that now claims

its tax products were specialized and avail-able only for limited distribution, made coldcalls to thousands of people across the coun-try to market one particular shelter. The firmset sales goals for its employees and offered

rewards for those who met these goals.These are the tactics you might expect of a boiler room operation selling phony landdeals, but here they are coming from peoplein our top professions.

Some people are trying to claim that theworst tax shelter abuses are already over, sothere is no need for investigations, reforms, orstronger laws. But that's not what our investi-gation found. What we found is that, while afew promoters are calling it quits, the tax shel-ter industry as a whole is still going strong,targeting new opportunities and market seg-ments, intensifying the pressure on lawyersand accountants to become tax shelter huck-

sters, continuing to cheat the treasury and, inthe process, victimizing tax professionalswho don't hawk these abusive tax products but have to compete against those who do.

Next week in Washington, the Senate'sPermanent Subcommittee on Investigationswill hold two days of hearings that will peel back the curtain and provide an inside look,with detailed case histories, at how respected

accounting firms, banks, securities firms andlawyers develop, market, and implementabusive tax shelters. We plan to present evi-dence on the corporate culture and the per-sonal attitudes involved, and what happenswhen someone doesn't want to go along withapproving or peddling, such tax shelters. Wewill also show the extensive, indeed highlyaggressive, marketing operations behind themodern tax shelter industry and the push tosell, sell; sell.

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We are determined to do everything wecan to expose, condemn, and stop the unethi-

cal and illegal conduct involved in the ped-dling of abusive tax shelters. Here are someactions we need to take:

First , we need to tighten the law on what isknown as the "economic substance" test.This test involves examining whether,from an objective standpoint, the trans-action had a business purpose and wasintended to produce economic benefitsaside from a tax deduction. This test is

the primary anti-abuse tool that tax offi-cials use to penetrate bogus transactions.The Senate has twice passed provisionsoffered by Senators Grassley and Baucusthat would codify and strengthen this judicial doctrine to provide the IRS astronger set of tools to set aside transac-tions whose only real purpose is taxavoidance, but these provisions have notyet been enacted into law.

Second , we need to increase the penalties onthose who produce and peddle illegal taxshelters. The current penalties are a joke.$1,000 for promoting an illegal tax shel-ter, $1,000 for aiding and abetting anoth-er person's tax evasion. These are thepenalties on a firm selling a tax sheltergenerating fees totaling hundreds of thousands or even millions of dollars. Inone email we reviewed, a senior tax pro-fessional advised his firm not to worry

about failure to comply with the shelterdisclosure requirements, because thepenalties for noncompliance with theregistration requirement were so low.This so-called professional concluded

that an average deal resulting in fees of $360,000 had a maximum penalty expo-sure of only $31,000. That's some deal - if you get caught stealing, you only have togive back 10% of what you stole! It's nothard to see where the incentive is.

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Third , we need to get rid of the conflictsof interest that are so rife in this area.

Last month I introduced S. 1767, withthe co-sponsorship of Senator McCainand Senator Baucus, to end the conflictsof interest that now arise when anaccounting firm sells a tax shelter toan audit client and then audits thatclient's financial statements - in effectauditing its own work. Our proposedAuditor Independence and Tax SheltersAct would bar an accounting firmfrom auditing the books of a publiclytraded company to which it has solda tax shelter.

Fourth , we need to increase enforcementdollars for the IRS so they can go after

these abuses. Every dollar invested intax enforcement returns many timesover to the Treasury.

Finally , the key regulators - the IRS, thePublic Company Accounting OversightBoard, the SEC, and the bank regulators -need to get together and brainstormabout how they can use their existingauthority to put a damper on the massmarketing of illegal or abusive tax shel-

ters. New regulations are needed, such asprohibiting contingency fees, and doingso on a nation- wide basis, as over 20states now do.

Regulation, of course, is but part of theanswer, and it is not the ideal answer. We needto restore professional pride. Professionalismshould mean high standards, codes of conduct, avoidance of conflict of interest,and a sense of fiduciary duty. Justice Louis

Brandeis, in speaking at Brown University'sCommencement in 1912, spoke about how aprofession differed from other occupations:

"A profession is an occupation in whichthe amount of financial return is not the

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accepted measure of success." He continued:"[Recognized professions] select as their

test, excellence of performance in the broadest sense-and include, among otherthings, advance in the particular occu-pation and service to the community...In them a large income is the ordinaryincident of success; but he who exagger-ates the value of the incident is apt to failof real success."

We also need our professionals to offertheir services to our communities by showing

leadership on the role of taxes in supportingour civilization. I'm afraid the opposite mes-sage was transmitted by former PresidentReagan when he said in his State of the UnionAddress in 1985 that "Every dollar the FederalGovernment does not take from us...will makeour economy stronger, our lives more abun-dant, our future more free."

Some tax dollars are wasted, Lord knows, but not most. Taxes are a price of progress,

freedom and security. Some extreme anti-tax activists would have us celebrate TaxFreedom Day, the day of the year when alldollars we earn are kept and no more goesfor taxes. This day should also be recognized by more responsible people as the End of Government Services Day. A Day withoutclean air or homeland security. A Day whenwe do not have the protection of our police orfirefighters or our air traffic controllers. A Daywhen food is no longer inspected or our bor-ders guarded.

But I'm not sanguine about this. Until all of us share Franklin D. Roosevelt's belief that"Taxes, after all, are dues that we pay for the

privileges of membership in an organizedsociety," there will be the hucksters and thehustlers who peddle tax havens and taxshelters. For them we'll need tough penaltiesand regulations with teeth that have the fullsupport of our leaders.

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And I frequently remember an incidentin my father-in-law's life, Barb's dad, who

recently passed away at the age of 101 whowas an immigrant. And who came to thiscountry with very little and he did all right.Went into small business. Worked hard.Ended up with an estate which was adequate but wasn't gonna be enough to pay anyestate taxes.

And he knew that. And he decided heowed so much to this country that he wantedto make a statement. And so he left a bequest

to his Uncle Sam of $10,000. We gottaremember what this country's all about toimmigrants particularly like my father-in-law.But hopefully to all of us whether we'reimmigrants, family of immigrants or other-wise. We should be inspired.

I want to close by recognizing an unsunggroup of heroes in this area. First, there arethose whose mission it is to enforce lawsgoverning business conduct. Folks like

District Attorney Robert Morgenthau andAttorney General Eliot Spitzer, who are tack-ling issues as complex as many of these taxshelters. And like William McDonough,Chairman of the new Public CompanyAccounting Oversight Board, who testified before the Senate Finance Committee as to just how troubling these tax shelters are tothe accounting profession. Their work isaimed at more than enforcement - it is alsoaimed at changing the cultural norms.

Our unsung heroes also include the manyprofessionals who struggle for meaningfulself-regulation inside their professions, thosewho follow ethical principles, even when itputs them at a competitive disadvantage.And the professors who teach our futureleaders the principles of business ethics.There are many of these unsung heroes in thiseffort here in this room today. To each of you,I say we are in your debt. Thank you. I

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Questions & Answers

Senator Carl Levin

Thank you for the invitation. I'd behappy to try and answer some ques-tions on this subject. Or, perhaps to

the relief of many of us who are MEGOswhen they look at this, just about any othersubject you might want to throw at me.Thank you so much.

My question is this. When you have thelargest law firms and accounting firmsinvolved in this kind of misbehavior how doyou proceed?

Well, happily everyone isn't participat-ing. Too many people are. But happily thereare some who refuse to participate in the abu-sive tax shelters and limit their tax advice tolegitimate tax advice to people who want toreduce their taxes in an honest way, which hasa business purpose or an intentional purposein the tax code.

We have a lot of ways in which peoplecan legitimately reduce the burden of taxeson them that are intended or planned by thetax code. So we're talking here about the onesthat are unintended and the transactions thathave no economic purpose at all except to,again, reduce taxes. But you put your fingeron a huge challenge because of the complex-ity of this scheme. Not this scheme, but of these schemes.

The complexity makes it extremely dif-ficult to pierce through the layers are clothingthat are put on these bodies in order to tryto hide what is not going on. If there is noeconomic substance to the transaction, if there's no economic business purpose to

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the transaction, there are incredible lengthswhich are taken to try to hide that fact and

to make it appear as though there is an eco-nomic purpose.

And, again, there'll be three or four taxshelters a few weeks from now that we will beexploring and trying to analyze, laying out forthe public, before we have our witnesses try todefend them. But I think there are just twoways to do it that I know of, or three ways todo it. One is inside the profession. That is, forpeople to take action against those in their

own profession who are abusing the rules andtaking advantage of the difficulty and thecomplexity to hide things they're doing,which they shouldn't do. That's an internalmatter, internal to the professions. And pro-

fessions do that. Every one of our professionshas an internal mechanism to try to go afterthe abusers.

We need to strengthen their hand, thefolks that make that effort. And there are twoways that I know of to do it. Increase penal-ties so that they are a deterrent. What wehave now in the abuse of tax shelter area - forthe aiders and abettors, the people who putthese together and market them - is a joke. A

$1,000 fine is completely irrelevant. And soyou have to have a deterrent that is real interms of the law.

And secondly, through our oversightprocess and through making public what isgoing on. Trying to get the public awarenessup to the point where people will - internallyin the professions; their clients and the publicitself, acting through elected officials andappointed officials - take action against them.

So all three of those things are necessary. It'sa constant battle.

I think if we win this battle there'll besomeone here, probably speaking to anothergroup ten or 20 years from now, who have a

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similar problem or problems. It's the reasonwhy you need the Morganthaus and the

Spitzers and folks like that, who are willing totake on this kind of an issue - which is a dryissue, complicated, and difficult to make comealive for people.

Again, the difficulty is reinforced as Imentioned in my remarks. If you're in anenvironment which is, in this case, an anti-taxenvironment, a lot of people's instinct would be opposed to taxes. And that's fueled andfed by some of our top leaders in this country

as a matter of fact. We're in that environmentwhere taxes are viewed by a segment of ourcommunity and fueled by some of their lead-ers, who I consider to be irresponsible in thisregard, and it makes it more difficult to do

what needs to be done.And that's why you need the people who

talk about why taxes are the price of civiliza-tion. But you need all that together. But youdon't go over the goal line for good. You don'twin this football game for good. This is theannual football game between Michigan andOhio State or Notre Dame and Navy.

Senator, I was really struck by your can-did view of taxation in this country. I'mwondering how a public official can promoteand espouse taxation without committingpolitical suicide?

Well, first of all, you make your speech-es so damn dull no one can understand them.It's so that no headline writer can say, "LevinFavors Taxes." Actually, I voted against both

the Reagan and the Bush tax cuts because Ithought they were fiscally irresponsible anddeficit creators and so forth.

It's a challenge to survive in that environ-ment. But I think if you're straightforward

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and honest, you also let people who are pay-ing taxes know that they're going to be left

holding the bag if folks who should be pay-ing taxes don't pay their share. That connectsto that average voter, that average personout there.

When people hear, "Hey, let's go after thefolks who pretend to open their new officeat some tax haven," they actually keep their business here, thank God. But they aren'tpaying taxes because they've created a new afiction that they're now totally owned by

some new entity that's off-shore and, there-fore, don't pay taxes here although they'reusing our police and fire and schools andeverything else.

If you're willing to go after those, andsometimes there's some powerful intereststhere, then that average voter out there, whenyou tell them, "Hey, I oppose this PresidentBush tax cut because I think one, two andthree," they'll be a little more forgiving. Eventhough they weren't otherwise inclined, theythink you're willing to go after some powerfulinterests as well on the same subject.

But I think people like honesty. I really do.There are a lot of folks. My colleagues willtell you the same thing, how reassuring it isin a way. How you look forward to the folkswho come up to you on the street and say,"We don't agree with you on this issue butwe think you're honest." If I didn't get votesfrom people who disagreed with me on alot of issues, but who voted for me anyway because they thought I would tell themstraight what I was going to do or what theissue was, I wouldn't be in the U.S. Senate.

I've taken an unpopular position on lotsof issues including taxes during the Reaganyears. But people thought I was being straightwith them. And I was also willing to take onsome of the powerful interests, which that

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average voter wanted to be taken on in thisarea. And that combination I think persuaded

enough people in a couple of my elections not by big margins, but enough people tokeep me in office.

Senator, how deep do you think thisdiseased part of our economic tree goes interms of the Enrons of the world? In otherwords, I think there's a sense within busi-ness communities that these are very badapples but that the barrel is sound. What isyour sense? Where do you sit in terms of corporate ethics?

It's a deviling question. What we see arethe problems and it's hard for us to get thewhole picture. People who are in it, who arehonest, have a much better assessment as towhat the whole picture is than we do. Butwhat is particularly troubling to me, frankly,are some of the major institutions in our coun-try the pillars of this country financially. Imean Citibank, Chase Bank, Merrill Lynchwho are involved in Enron and schemes thatare deceptive schemes.

I'm not saying Chase and Citibank aredeceptive companies. I'm saying that theywere willing to engage. And we showed howconscious, at least, the people who wereinvolved were and how they cover up stuff.These are pillars of our community. These are banks and you know that. You say, "My God,that's where my account is." These are thefolks we rely on.

And these are some of the best names.And I assume, for the most part, these arehonest companies. We had a major bank thatwas engaged in helping some of the mostcrooked leaders in the world hide theirmoney. Major institutions. Does that mean the

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whole institution is polluted? No, I don't believe that's true.

And yet when you've got some of thenames, these are proud names with hugereputations that then will go about with lead-ership cleaning up their act. Firing peoplewhere they need to fire people and so forth.But how deep it permeates? I cannot giveyou an honest assessment, other than to saythere's too much of it. But I can't tell you it'sfive percent, ten, 20, 30. I just don't know. Iguess, I'm like a police officer in this regard.

You know, somebody who sees bad thingsgoing on all the time, sooner or later you justwonder if you're a police officer. "My God, isthis the way the world is?" I mean, everyday

just constantly arresting the drug runnersand the bad guys. But that's not the way theworld is. That's five percent or two percent of the world.

And yet to that police officer it's his life'swork. It's like the judge. You got a judge sit-ting here who sees case after case after case infront of her where there are bad things hap-pening. And she has, somehow or other, gotto separate that from her world and her fam-ily so that it doesn't affect that. But then she'llmake a judgment. If I asked Judge Uvillerright now, what percentage of the world arelike the people that come in front of her, I'd be interested in her answer. But I'm not going

to embarrass her here because it would look like I'm ducking the answer to the question.

But it's kind of the same thing, youknow? We all have to do that, whether we're judging people or enforcing the law, or inmy position. I hope it's a small percentage.But whatever it is - because of the tremen-dous reputation of some of the institutionsthat are involved here it's too deep and toodiscouraging.

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Senator, you mentioned the fine is$1,000. Have you formulated what you think might be a more appropriate penalty and canyou name a specific figure?

I have not. Actually, I've reviewed thempersonally just in the last couple of weeksas we're preparing for these hearings. Welook, and the taxpayer actually has somereal jeopardy here, the taxpayer himself orherself because there you can get the

money back. The IRS can get all the money back and impose a penalty.

It's all the aiders and abettors all thepeople who concocted this scheme, peddledthem, marketed them, sold them to thetaxpayer - who get not even a slap on thewrist, in terms of any realistic assessment.And so I don't know what our bill will doin terms of new penalties to try to deterthis kind of behavior by the accounting

firms and the lawyers and the investment banks and so forth that participate in theabusive shelters.

I don't know where we're going to landon that, except to say what's there now istotally inadequate. And it's something,frankly, which shocked us. We should haveknown it. I guess we should know every-thing that's in all of our law books. But thiscame as a real surprise to us. And I'd say of all the things we've learned, I'd say that , plusthe marketing, including the telemarketing,of these tax shelters.

The way in which, instead of the taxpayer

coming into the accountant seeking advice,it's this peddling of these generic shelterswith cold phone calls going to thousandsof people. That is a pretty stunning shift inthe way tax advice should be given and usedto be given. I

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Remarks by Chief Judge

John M.Walker, Jr.

Introduction by Howard P. Milstein

March 8, 2005

M I L S T E


P O L

I C Y F O R U M Citizens Crime Commission

OF NEW YORK CITY, INC.

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