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TREASURY, POSTAL SERVICE, AND GENERAL GOVERNMENT APPROPRIATIONS FOR
1998
THURSDAY, MARCH 6, 1997.
DEPARTMENT OF THE TREASURY
WITNESSES
HON. ROBERT E. RUBIN, SECRETARY
GEORGE MUNÓZ, ASSISTANT SECRETARY FOR MANAGEMENT AND CHIEF
FINANCIAL OFFICER
Opening Comments From Chairman Kolbe
Mr. KOLBE. The Subcommittee on Treasury,
Postal Service and General Government will come to order. This morning we
have, as a wrap up to the Treasury part of our hearings, we have Secretary
Rubin and Assistant Secretary Munóz. Assistant Secretary
Munóz was with us yesterday as well.
This is our last hearing with Treasury in this
cycle, the fiscal year 1998 appropriations cycle.
Mr. Secretary, I just want to say that with very
few exceptions I have certainly been very pleased with what I have learned
about Treasury operations over the past few weeks, and I feel like I've
been getting a crash course. As someone who has not been on this
subcommittee before it's been a lot of work to get up to speed, and I
certainly wouldn't say I'm there.
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But I have certainly been impressed by the facets
of Treasury law enforcement which runs the gamut from gang
reduction—reducing violence in our streets, to a very major
component, of course, with Customs and drug interdiction, to tracking the
high tech criminal through intelligence networks.
I think we've come a long way, and I give you a
lot of credit for this, since the days of the good old boys round up, and
last year's challenging efforts to try to get the Tax Systems Modernization
plan on track—though we'll have some more issues in that to deal
with.
I was certainly pleased yesterday with Deputy
Secretary Summers and his testimony. I think my friend and colleague, Steny
Hoyer, said it best: once Treasury starts paying attention to a problem,
they do a very good job of getting it fixed. The problem seems to have been
getting Treasury sometimes to pay attention.
And I appreciate the hard work and the dedication
of both Treasury and the IRS in addressing the really serious problems of
the TSM program in IRS. The candor with which you, Deputy Secretary Summers
and Mr. Gross have addressed this thing I think has gone a long way to
defusing what otherwise would have been a very, very contentious issue here
in this subcommittee.
So we've taken some big steps, but we're clearly
not there yet, and I'm going to have some questions for you on that. So
we've, I think, gotten the attention on the IRS and the TSM issue, and I
certainly hope that we can keep it.
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I want to repeat to you a commitment that I made
yesterday to Deputy Secretary Summers, and that is that if you people bring
us a TSM plan that works, we will fund it.
I also said I hope you will understand the
skepticism with which we approach this. This is not a partisan issue,
because you can go back 20 years and look through at least 4 major efforts
at modernization that have failed miserably within IRS. So it has nothing
to do with which administration or who is in charge there.
It has to do with the complexity of the tax code.
It has to do with the complexity of the problems that we have to deal with.
So we're going to be very skeptical of this, and ask—I
hope—some intelligent and tough questions about it, but I can tell
you that this subcommittee will fund a TSM plan that works if you bring one
to us.
Having said that, let me just share with you a
couple of the other concerns that I have, and I have spoken to some of the
component parts of Treasury when they have been before this subcommittee
earlier.
One is the continuing allegation of corruption
along the border in Customs. I think it's serious. The allegations are
serious. They have been numerous, more numerous than with many of the other
agencies, and I think aggressive action has to be taken in this regard. I
can't think of anything that will undermine our credibility, or ability to
interdict drugs than to have a public perception which is to some extent
taking hold along the border in my area, that there is widespread
corruption.
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We need to assure the integrity of our drug
interdiction efforts.
Second is technology investment. We have some of
the appropriate investment review processes in place for IRS, but I think
one of the questions we need to look at—and I'll have some questions
in this area—is the technology investments that are being made in
other areas of the Treasury and making sure we are reviewing those
investments, and that we're making wise decisions.
And lastly, again which I'll address some
questions to, is the funding for law enforcement within Treasury, that
component of our Federal law enforcement program, versus the Justice
programs.
Quite honestly, I'm just not convinced that
Treasury is getting its fair share. I can fight that battle here with my
counterparts in Appropriations subcommittees, and authorizing committees,
but I want to address with you the question of the battle, or what you do
within the administration to assure that we're getting an adequate share of
law enforcement funding within the Treasury Department.
Having said that, let me turn to my ranking
member, Mr. Hoyer here, for his comments.
Mr. HOYER. Thank you very much, Mr.
Chairman. As I have said, Mr. Secretary, and you have probably heard me say
it, I think the Treasury Department and all of the agencies that come
within the purview of this committee are advantaged by the fact that we
have as our new chairman Jim Kolbe. As I've said in the past, and you have,
I'm sure, already determined, Mr. Secretary, he is one the brightest and
most thoughtful members of the Appropriations Committee and of the
Congress. He threatens to use that in his next campaign.
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Mr. KOLBE. Mr. Hoyer, I assure you, that
you're going to be a household word in Arizona before my next campaign.
Mr. HOYER. Mr. Haywood thinks I already am,
apparently, on the other side.
The fact of the matter is that the chairman has
raised many of the important issues that I'm sure we're going to discuss in
this hearing that you have been addressing. In welcoming you to this
committee, as the Secretary of Treasury, I want to say that I think the
country is greatly advantaged by your agreeing to leave a very, very
profitable experience in the private sector to come into government with
this administration—early on in the White House, and then
subsequently as the head of this critically important department.
I think the numerous newspaper articles and
comments that people have made are absolutely accurate. As somebody who has
had the opportunity to work with you since before you came into government,
when you were in the private sector, and who was a great admirer of yours,
I think that they capture the essence of Bob Rubin correctly when they
describe you as an individual who is interested in results.
I was kidding the Secretary—I know of no
secretary that I have served with, frankly, at the national or at the State
level who is easier to work with, more open to suggestions, and more
positive in approach.
And I think America has benefitted by your
service, Mr. Secretary, and I look forward to hearing your testimony, and
to working with you as we try to solve some of the problems. And I'm going
to ask some questions on what we're doing in the economy, which I obviously
think is good. To some degree we ought to take credit for that. When I say
we, those of us who supported the economic program of 1993, I mean.
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But in addition, your steady hand at Treasury, I
think, has been a significant—both from an international standpoint
and domestic standpoint—reason for the performance that we've had.
And I welcome you here.
Thank you, Mr. Chairman.
Mr. KOLBE. Thank you very much. Mr.
Secretary, your full statement, of course, will be placed in the record. If
you would like to summarize it, we would be happy to have you do that, and
then we will go into questions.
I might say that the Department has gotten better,
during the last couple of weeks as the hearings have gone on. Mr. Munoz was
wonderful in summarizing his statement yesterday. He did it in one
sentence—but you don't have to do it in one sentence, Mr.
Secretary.
Opening Statement of Secretary Rubin
Secretary RUBIN. I have submitted a
statement for the record, and let me summarize it in brief.
Let me start, Mr. Chairman, by saying that we
worked together on trade issues over the last 4 years, and I would echo Mr.
Hoyer's comments. We enormously welcome your chairmanship, and look forward
to working with you.
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We have also had a very good working
relationship with Mr. Hoyer, and I said the other day as we were talking
about preparation for this hearing that in the two years—a little
over two years now—that I've been Secretary of the Treasury the
relations with this committee has really been a very useful and
constructive one.
I think without question, as we focus on the tax
issues, that you have played a major role in causing us to pay the
attention that it deserved. And now what we need to do is not only pay
attention at the moment, but also to institutionalize that, and that's what
we're going to do.
Our overall budget, as you know, was designed to
continue and build on the debt reduction of the last 4 years, and to
balance the budget, and the Treasury budget was constructed within that
context.
My written testimony discusses all the various
areas that Treasury plays a major role in. Without going through them all,
let me just say that we have an enormous breadth of activity, from the IRS
and tax policy; economic policy; international economic operations; to
roughly 40 percent of the Federal Government's law enforcement officers,
and then a very large manufacturing—what I think of as a
manufacturing and processing center, manufacturing the nation's currency;
payments for many of the agencies of the Federal Government, and the
like.
We have submitted a budget request of $11.7
billion. $500 million of that, as you know, is a no year request with
respect to TSM. So that leaves you $11.2 billion on an operating basis, an
increase of about 4.2 percent. That's basically current services for the
great breadth of Treasury, and then additional funding for some special
initiatives.
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We are also one year ahead of schedule in terms of
complying with the GPRA, and I think that's real tribute to George and the
people who work in management, and our commitment to strategic planning and
to focusing on what we're spending and what we want to get for what we're
spending—to use Mr. Hoyer's word, ''results.''
Our 1998 request includes what we consider to be a
requisite funding for the Departmental offices, because that is where our
policy operations are housed. And I can tell you, Mr. Chairman, in the
policy deliberations of the Administration, Treasury is actively involved
in the great preponderance of the issues.
We thought it was very, very important to continue
to attract and retain outstanding policy people. And that takes place
predominantly, but not totally, in Departmental offices.
LAW ENFORCEMENT
Having said that, let me focus briefly on 3 key
Treasury missions, and the budget request for them. As you know, with
respect to law enforcement, as I said a moment ago, we have about 40
percent of the Federal Government's law enforcement officers, who focus on
a broad array of issues.
The funds requested will enable us to decrease the
flow of guns to juveniles. We have a Kids and Guns initiative which has
been very successful. I think it's in something like 17 demonstration
cities. We've had applications from many more cities. We'd like to expand
that program.
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We have very active Customs operations, as you
know. But as we put in place effective Southwest border operations, or
operations in the Caribbean and the Virgin Islands, then smugglers shift
their resources, and we have to strengthen the areas that they shift to.
And that's part of what we're looking for in terms of Customs.
Financial crime is an area of special focus in
Treasury, and there are really, in the broadest sense, two pieces of that.
One area is credit card fraud, and telephone card fraud, and the upcoming
issues that could exist with respect to electronic money—all of this
is becoming enormously more important as value is transferred not by cash,
but by other mechanisms, all of which have the potential for fraud, an area
of Treasury's jurisdiction.
Another area that I think we need to particularly
focus on as we go forward is money laundering. It obviously has the
potential for destabilizing financial institutions, not only in this
country, but abroad. But I think there's maybe in some ways an even larger
issue, which is that while those who run organized crime or drug rings can
almost always separate themselves from the people they have on the street,
they can't separate themselves from their money.
And so as they seek to launder their illegal
profits, it provides a vulnerability that we can get at. We have had a
tremendous focus on employing our resources around this area of money
laundering.
ATF continues its focus on decreasing explosive
and arson crimes and in the context of the anti-terrorism effort, expanding
our activity with the canine explosive detection program, and an arson
clearinghouse.
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We are also seeking to upgrade enforcement
equipment, and I had a discussion the other day with somebody about the
automobiles that we use in Treasury, and how outmoded most of these cars
are. There is a real need to bring our equipment up to date, and to also
make sure that FLETC, the Federal Law Enforcement Training Center, is in an
appropriate state.
MANAGING THE GOVERNMENT'S FINANCES
In terms of managing the Government's finances,
our primary focus there is the IRS. You discussed that yesterday with Larry
Summers. Let me just say, as he said, that I think we have accomplished a
great deal. I do believe that we really have made a sharp turn with respect
to TSM, but, having said that, as was related in a New York Times article
of some weeks ago, these problems with respect to systems in TSM started
decades ago, and problems that are decades in the building are not going to
be solved quickly.
But if we do this right, if we go at it right, and
work together, I believe that we can build on what we have done so far to
get this on the right track, and over time we can provide the IRS with what
it needs, which is modern systems capability.
We have made enormous changes. I think Larry
Summers went through them with you. I won't repeat them here. But I would
just like to say that we're going to institutionalize the capability, the
oversight capability that we have in place at Treasury, and I think, with
that and various other steps we're planning to take, we are doing things
that will get this on the right track.
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We are also, in the area of financial management,
very focused on electronic money. I believe that the electronic transfer of
value is going to become an ever larger part of our economy, and we've got
to figure out what the regulatory response to that should be. And we don't
have views on that at the moment, but we have spent a lot of time on it,
and at some point we'll fully develop our views.
WORLD ECONOMY
Finally, promoting a prosperous world economy, we
are very active in the international economic operations, or activities of
the Administration, Russia, Bosnia, Mexico, and the rest.
This area is not under your jurisdiction, but it
is our absolute conviction that if we're going to maintain our leadership
position, we have to fund—meet our arrears and negotiated
commitments—the World Bank, the IMF, the sister banks of the World
Bank, the United Nations, and the rest. And that's not in your
jurisdiction, but the support function at Treasury that works in this area
is in your jurisdiction.
ECONOMICALLY DISTRESSED AREAS
Finally, Mr. Chairman, Treasury has been very
active with respect to this whole question of inner cities, and people
living in distressed areas, and bringing the residents of economically
distressed areas into the economic mainstream.
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There are a lot of things we have done in
that respect. One of our principal initiatives is the CDFI fund, which
unfortunately is not in this subcommittee. We're asking $125 million this
year. It's a vibrant, successful program. It's robust. We believe it should
be in this subcommittee, because we think it would get more systematic
attention in this subcommittee, and it is an integral part of Treasury.
That's a matter that is in your province to
accomplish, not Treasury's.
Let me conclude by saying something I said at the
beginning of my remarks, which is that we have worked very well with this
committee, certainly in the two and a half years I've been here. But I
think that is a longstanding tradition.
The committee really has played a very helpful
role. It has sharpened our focus on the problems of the IRS. You've been
very helpful in the law enforcement area, an area in Treasury that
sometimes tends to get a touch overlooked. And I think it's very, very
important that Treasury law enforcement bureaus receive appropriate funding
so they can perform their vital missions.
TREASURY DEPARTMENT STAFF
And finally one of the things that has struck me
at Treasury, and I often say this when I speak, is that Treasury has an
enormous number of extraordinarily capable people. It has been a very
strong positive for me, and I would say a little bit of a surprise to find
the extraordinary number of people of great ability, who are dedicated and
committed, and who really do a remarkably good job at the various things
that they do.
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They very much deserve our respect and our
support, and I think we all need to work together, particularly as we go
through the difficulties of reaching a balanced budget, to make sure that
we can continue to attract and retain and motivate the kinds of
extraordinary people that make Treasury the institution that it is.
With that, Mr. Chairman, George Munoz and I would
be delighted to respond to whatever you would like to discuss.
[The information follows:]
"The Official Committee record contains additional
material here."
Mr. KOLBE. Thank you very much, Mr.
Secretary. Let me just say once again that we'll do the questioning in the
usual way, which is myself and the ranking member, and then in the order in
which the members were in the room at the time we started or as they come
in.
And we will try to adhere to the 5 minute rule.
I'll tap gently, but I don't want to cut anybody off in the middle of a
question or a line of questioning. But I think we found it works very well,
to make sure that everybody gets to have several rounds of questioning that
way.
LAW ENFORCEMENT FUNDING
So I will begin. Let me ask you one in the area of
budget that I alluded to. You mentioned again in your testimony
thereabouts, Treasury's share of law enforcement funding.
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As I look at the budget figures, I have to tell
you that it does concern me. I was just looking at a chart here of Justice
versus Treasury, over the last—this is over 2 administrations, from
1990 through 1997.
For example, in Justice, DEA is up 79 percent; INS
is up 160 percent; FBI is up 70 percent. You come over to Treasury and you
look at Customs, it's 30 percent; Secret Service, 49 percent; BATF is the
only one that comes close, 63 percent, but it's still under the lowest,
FBI, of the Justice Department law enforcement agencies. The Marshal's, by
the way, is up 110 percent in Justice.
And if you look at this year's, comparing Customs
and INS, Customs is up—even though 38 percent of its effort,
according to its figures, is drug interdiction, its budget is up 3 percent.
INS, which has 15 percent—it's more responsible for controlling the
immigration along the border and throughout the country, so only 15 percent
of its effort is supposed to be in drugs, and its budget is up 13
percent.
If you separate out the drug parts, from INS, the
drug part is up 15 percent; the Customs' drug part, which is so much
bigger, is up 5 percent. Customs, we're told over and over, is the front
line of our defense on the interdiction effort, drug interdiction
effort.
And I just—I question whether or not we're
really getting the attention to this that it deserves, and I would like
some assurance, I guess, from you—I don't know what process you go
through with OMB, or the White House or whatever—that you're making
the case for the law enforcement efforts in Treasury, most particularly
Customs, which is supposed to be our front line in drug interdiction.
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Secretary RUBIN. I think your point is well
taken, Mr. Chairman. Let me just make a few comments, if I may. One is
that—I'm told by people who have been at this for a long
time—that the working relationship between Treasury and Justice in
the law enforcement area is A) good, and B) on a relative basis, better
than it's been since these people can remember.
I think that is very important, because it's
extremely important that the two institutions work together effectively. As
I say, a lot has been accomplished in that regard.
As to the funding, I think it is very important
that we do not have a national police force. From the beginning of this
nation there has been this notion that you have Federal, State, and local
police, and then within the Federal Government you have police powers in
different agencies. It's a very sound principle for all sorts of
reasons.
But if you're going to do that, then you have to
make sure that people get treated equitably, which is my point, and I agree
with you.
In terms of the Administration, because I've
personally been integrally involved in our overall budget operations, I
really have two opportunities to do this. George and I present the Treasury
budget, certainly very forcefully, and I think we have effectively
advocated sound funding with respect to Treasury law enforcement.
And then there is an overall budget group, which I
am part of, so I took the opportunity to see how different things were
being done.
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The OMB people and the Administration generally
have been very responsive to the needs of the Treasury law enforcement
agencies, though there has been disproportionate funding, which is I think
something that needs to be focused on each year and very intensely.
On the congressional side, I don't know how you
all function, but it seems to me it is very important, since the Justice
bureaus tend to have a higher profile—especially the FBI—that
this committee very forcefully advocate what they think is right for
Treasury.
Mr. KOLBE. Well, I assure you that we will,
that I will, and this takes place through a process that includes the
discussions with the other chairmen of the subcommittees, and the full
chairman of the committee, plus the leadership as we come to what's called
the 602(b) allocations, where we divide the money up under law
enforcement.
We get it in a function, and then we have to
divide it up. But I have to tell you, it makes it tougher when we have in
front of us requests from the Administration which so clearly emphasize the
Justice programs and not Treasury law enforcement.
Secretary RUBIN. Well, I think that's a
valid comment. I don't actually know how we did this year relative to
Justice, but I can assure you——
Mr. KOLBE. Well, I gave you those figures a
moment ago.
Secretary RUBIN. Were those one year
figures?
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Mr. KOLBE. The one year figure is 3 percent
for Customs. This is just Customs only.
Secretary RUBIN. Yes.
Mr. KOLBE. 3 percent versus 13 percent for
INS. So 4 times as much in INS. 3 times as much if you separate out the
drug function.
Secretary RUBIN. OMB had actually said to
us at one point that they were going to focus on equitableness of funding
between the two.
I'm outside of my expertise so I'll go carefully
on this—but I think there was a special issue with respect to INS
that may have resulted in that funding.
Mr. KOLBE. Let me just ask, you
said——
Secretary RUBIN. But I will say we do
everything on our part, because the principle is right. Now, as I said, my
impression is there are certain circumstances with respect to INS, or at
least there were deemed to be.
OFFICE OF THE UNDERSECRETARY FOR LAW ENFORCEMENT
Mr. KOLBE. My time is about up, so I just
want to ask this one other question. I don't feel I have a very clear idea,
and maybe you can help me clarify this, about the Office of the Under
Secretary, Mr. Kelly, for law enforcement.
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Do you see this as an operational entity, or an
oversight function? It's not clear to me in the organization chart exactly
how he fits in here.
Secretary RUBIN. Well, it's a good
question, and I think that that has evolved some over even the time that I
have been there. Not necessarily in the dichotomy that you mentioned, but
in terms of what—if you look back at the Waco report—I don't
know if you have read that or not, but it was really a very good piece of
work. We can see what Mr. Hoyer thinks.
But my view is that you need is an effective and
professional oversight capability that is able to exercise serious
oversight of the law enforcement bureaus. I think that's what it's function
ought to be.
When you talk about very major operations, if
that's what you're asking—I don't think you should have a shadow head
of each of these institutions. I do not believe that.
But I do think when you have very major
operations, that those should get a review. One of the criticisms of the
Waco experience at Treasury, as you know, is that none of it was reviewed
at the Assistant Secretary—there was no Under Secretary then. There
was a feeling on the part of many, including many in Congress, and I think
rightly, that there should have been a greater review, and that was one of
the conclusions that was drawn from this.
And so what Under Secretary Kelly is doing, and I
think rightly doing, is building the capability to perform that function
effectively. And also there needs to be a strong policy operation in the
Under Secretary's office.
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Mr. HOYER. I'd like to just follow up on
what you said, Mr. Chairman, and what the Secretary has said. As someone
who went through Waco from beginning to end, I think sometimes we learn
lessons from incidences which aren't there.
And what happened in Waco, from my perspective, is
that the oversight within ATF left to the law enforcement side the
oversight of that—not even at the Director's level. Because Higgins,
of course, came out of regulatory side, he had served with the law
enforcement people for a long time, and effectively allowed them to be the
overseers of that operation.
So it did not get to the secretary level. Director
Higgins essentially knew about it, had been informed about it, agreed on
it, but of course what ultimately happened in Waco was that a grievous
error was made on the ground at the time of the implementation of the
effort to arrest Koresh and others at the site.
They were found out, and they should have aborted,
and they didn't. That was the ultimate mistake. But I agree with the
Secretary, Mr. Chairman, in the sense that I think that we now have some
extraordinary leaders of the component parts of our law enforcement in
Treasury, and that Assistant Secretary Kelly's role is not as the operating
head of the agency, but as the CEO to whom the operating agencies report to
insure that policy is being implemented properly and procedures followed
properly.
And to that extent, Mr. Secretary, you and I
agree, and I think that works well. And particularly now, when you have
John Magaw at ATF. He is an outstanding law enforcement official himself,
as well as having a keen understanding of the regulatory side. ATF has two
roles to play.
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But I agree, and think that's an important issue.
And as I've mentioned on a number of occasions, Mr. Secretary, the Waco
report from Treasury is the best example I know of an agency looking at
itself in a very critical, but also constructive way.
That report really said, look, we messed up in
this, this and the other area. It took personnel actions, as you know. Some
of those were reversed, at least partially. But nevertheless they took
corrective action. And although I don't want to pick on Justice, the
Justice analysis was far less, self critical or useful because of that.
TAX SYSTEMS MODERNIZATION
Mr. Secretary, let me ask you a couple of
questions, first on Tax Systems Modernization. Deputy Secretary Summers did
respond. You have mentioned it in your opening statement briefly.
There has been some suggestion about
privatization—not privatization necessarily, but splitting off IRS as
an independent agency. I personally think that would be a mistake, but I
would like to hear your thoughts on the record on that issue.
Secretary RUBIN. I've also heard the
thought put forth. I think TSM is clearly an area that is absolutely
essential. You cannot have an IRS that does not have modern systems
capability. We've got to get there.
I think that the kinds of things that we're doing
today at Treasury, and the institutionalization, through Executive Order or
otherwise, plus additional things we can do, will provide us, and I think
are in the process of providing us with the right program to get what we
need to get.
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And there really has been a sharp turn. I think
the notion of splitting the IRS off would be precisely the wrong thing to
do, because that will reduce the probability of getting—I feel this
way very strongly—what we need to get, instead of enhancing it.
There is a notion around that, if you can just get
a few private sector people to oversee this, that somehow that will deliver
us. I was in the private sector for 26 years. I've been here now for a
little over 4 years. There are enormous differences between managing the
private sector and the public sector, and I think we need to recognize
those when you think about structure and governance.
I do think the MMB was a very good idea—it
was Mr. Summer's idea, as far as I know. It certainly wasn't my idea. That
I do know. But I think it was a very, very good idea. And as you know, we
have people from OMB and a performance review on that.
I think it is that kind of proactive oversight
that we needed. We've been very receptive to having the input of private
sector people. The question is how do you structure that.
One thing you surely do not do, at least that I
think would be just the opposite of a constructive approach, would be to
split IRS off from the Treasury. There is also the very serious problem of
how you would then handle the integration, which exists today, between the
tax policy people in the Treasury and the people who perform similar
functions in the IRS, because they work very closely together, and that is,
as you know, a critical component of the administration of the nation's tax
law.
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Mr. HOYER. Mr. Secretary, I have a number
of questions, but the last one I'll ask on this round is—I'll preface
it with——
Secretary RUBIN. Can I add just one more
thing, Mr. Chairman? You know, I've been here 4 years now. I have a general
belief that the way you get things right is to have accountability to
elected officials. I really have come to believe that very strongly.
And what you have right now is accountability to
elected officials. And ultimately it's the President, but in this case it's
the Secretary of the Treasury, Deputy Secretary and the rest. And partly
through the efforts of this committee and partly for other reasons we have
become very much focused on the IRS, and I have no doubt that the Treasury
will continue to be that way going forward, while we're here and whoever
follows us is here.
It's that kind of accountability that provides the
key to doing what needs to be done.
MEXICO'S PRESENT SITUATION
Mr. HOYER. Thank you. On the issue of
Mexico, and our loan to Mexico, I was one who thought that your leadership
in this area, as well as in others, was extraordinarily good. I think your
advice and counsel has proved to be excellent, and we were successful in
this effort.
But I would like you to comment on Mexico's
present position, its stability. Obviously they have paid us back. We made
a profit on our loan. They paid us back early, but how do we see them as
our NAFTA partner, and their stability at this point in time?
Page 23 PREV PAGE TOP OF DOC Segment 1 Of 2
Secretary RUBIN. At the time of the support
program, we said it was enormously in our economic and national security
interest that Mexico have a healthy economy, and I believe that
unquestionably.
We also said there are no certainties in life, and
Mexico was facing extremely difficult conditions. In our judgment in that
context the right thing for this country to do was the support program.
If you bring that concept now to the present day,
you have a Mexican president for whom I have developed enormous respect.
The things that he did in putting in place his economic program were
tremendously courageous. And they have had real effect, though there are
many economic challenges left in Mexico.
I believe that the best thing that we can do in
terms of trying to maximize the probability that Mexico will deal with its
very considerable problems—and they are very
considerable—social problems, political problems, economic problems,
and issues of corruption and drugs—is to support a courageous and
honest president.
And so that leads me to believe that we did the
absolutely right thing with respect to certification. But we all need to
recognize that we are dealing with a country that has enormous challenges
to meet.
Mr. HOYER. Thank you.
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INTERNAL REVENUE SERVICE
Secretary RUBIN. Could I say one more thing
on the independence question? There are many issues in the IRS. It is also
a vital national asset. As I go around to other countries and meet with
finance ministers, this Internal Revenue Service, for all of its problems,
is in some sense the envy of the world. We have something like an 85
percent compliance rate, voluntary compliance rate, which is pretty much
unheard of around the world.
It is a vital national asset. It has problems. We
recognize that. We have to deal with them. They will not be solved over
night. But it is enormously important that we work together on these in a
constructive fashion.
I think there are temptations sometimes for people
to use those problems to advance other purposes, and that is really not
constructive and not in the interests of this country.
Mr. HOYER. Thank you, sir.
Mr. KOLBE. Mr. Istook.
Mr. ISTOOK. Thank you, Mr. Chairman.
Mr. Secretary, good to be with you this morning. I
would like to explore with you part of the area that has to do with your
Department as the core center for economic policy development. But I want
to get into a particular area, because I think it is of enormous impact
right now.
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CLEAN AIR STANDARDS
This deals with the proposed new regulations on
clean air standards from the EPA, the Environmental Protection Agency. I am
aware that although the EPA has submitted what they say is an estimate of
$8.5 billion a year as the cost of its proposals, the Council of Economic
Advisors calculated in a memo in December that the cost of the ozone rule
of that they estimated would be about $60 billion, compared to, on that
factor, an EPA cost estimate of $2.5 billion.
Now, I don't expect you, of course, to be focusing
on all the details of the environmental impact. I know that you want clean
air. I want clean air. That goal is not in question.
What is in question is the level of the benefit,
compared to the level of the cost, and whether we have an accurate gauge of
each of them. Your expertise, of course, has to do more with the area of
the cost, not the benefit.
But since there are some conflicting figures
coming out from within the administration, since you act as a clearinghouse
for generalized, broad-based economic impact, and this one is about as
broad as it gets, could you expand for my benefit, and that of others what
is going on within Treasury, within the administration on trying to get a
correct handle on that?
Is there a problem with the initial figures from
the EPA? What's under way, and how is it being approached?
Page 26 PREV PAGE TOP OF DOC Segment 1 Of 2
Secretary RUBIN. You raise an important
question. Let me give you a process answer, if I may, because I don't know
the substantive answer. I just had a memo from our Assistant Secretary for
Economic Policy over the weekend—actually, that's not true; he gave
it to me a week or so ago, but I didn't have a chance to read it until last
weekend—in which he talked about a number of the environmental issues
the administration is dealing with, and the processes that are going on
therewith.
With respect to the Clean Air Act, which I really
have no personal knowledge of at all, I wrote back a note to him that said
the National Economic Council—which is really responsible for dealing
with issues that aren't ordinarily thought of as economic, but have very
large economic ramifications—needs to get its arms around this and
work with the EPA and with environmental people in the White House to sort
out what we think in terms of the benefits. As you say, we all want clean
air. I happen to think it's a very, very important thing we're doing.
But what are the costs and how do we deal with all
of this? I don't really have any wisdom for you other than to say it's very
important that we have the appropriate process around this, and I am
confident we will.
Mr. ISTOOK. Let me urge you, then, because
I recognize that your position is—I'm just going to refer to it as
the clearinghouse position. Certainly there are the different councils,
there are the different assessments and different departments, but you are
there at the heart of the matter.
Page 27 PREV PAGE TOP OF DOC Segment 1 Of 2
I would certainly encourage you to, at the
Department level, try to bring these differing groups that are trying to
assess this together. More and more we are hearing from the cities, we are
hearing from the business, and we are hearing that this could have
tremendous potential crippling effect on jobs in the country, on economic
development, and to not create any appreciable improvement in air quality,
and in the health that can follow from that.
I am not asking you to, you know, share whether
you think that is accurate or not, but I am asking that you make an effort,
because I think you are in the key position, to bring those forces
together.
You are in the key position to have a more
coordinated approach within the administration. I would encourage you to
take the initiatives to do that.
Secretary RUBIN. I just made a note for
myself when I get back to call Gene Sperling, who is head of the NEC, and
who is really doing a very good job. And I'll talk to Gene about this,
because we clearly need to have a process—there is a process around
this, but I'm just not quite sure where it stands.
I think your point is well taken. This is a major
economic issue, and we need to make sure the economic considerations are
properly analyzed and weighted.
PRIVITIZATION OF THE INTERNAL REVENUE SERVICE
Mr. ISTOOK. I did have a question with
regard to the IRS also, if I can shift to that. There's been a lot of
discussion, of course, not just of the Tax Systems Modernization, but
issues about what work by the IRS potentially might be privatized, and
thereby improved, because you get around some of the inherent problems that
you have in the government's ability to conduct operations on this
scale.
Page 28 PREV PAGE TOP OF DOC Segment 1 Of 2
In that, of course, there is proper concern about
issues of privacy, when you're dealing with an individual's tax return.
What I would like to ask is, recognizing that it's an issue, it's a valid
issue we both share, have you done any assessment as to how this relates to
other privacy issues within the Government? And I'm talking about with
private sector involvement.
Tremendous amounts of the intelligence community
work is done by the private sector, and certainly that's at the highest
levels of secrecy and national security. The same is true for the defense
industry as a whole. The Commerce Department has to deal with a large
number of trade secrets and confidential economic information.
I would appreciate it, if you don't already have
it, if your Department is able to pull together an assessment of the
significance of the privacy issues regarding privatization of some IRS
work, as it compares with privacy issues and secrecy and confidentiality
issues as they are handled by other areas of government, and compare the
level of success or non-success with what we might anticipate within the
IRS.
Secretary RUBIN. Two comments on that. One,
it's a very good suggestion. George is handing me a note. Let me see what
it says.
I think I might ask George to read his own note.
We should see what is the optimal outsourcing. That is the question we need
to face ourselves.
My own instinct, and I know it's very much Larry
Summers' instinct, is that in this whole TSM thing that we have to do a lot
more outsourcing. And we actually have. It's my recollection that we've
increased our outsourcing from roughly 40 percent to roughly 60 percent.
And there are no secrecy issues so we don't have the problems that you are
raising.
Page 29 PREV PAGE TOP OF DOC Segment 1 Of 2
As you get into debt collection and other kinds of
activities, you obviously get into much more sensitive areas. I don't have
a personal view of the question of privatizing debt collection. I know some
in the Congress have an enthusiasm for it. They may be right. I don't
know.
But the secrecy issues bother me a little bit, and
we haven't sorted our way through all that. But we have talked a fair bit
about the importance of protecting confidentiality. But you make a very
interesting point—comparing it. If we've done it, I'm not aware of
it, and it's a very good idea.
Mr. ISTOOK. Because I think it's been kind
of looked at in a vacuum, as though this was the only area of government
that involved that issue, secrecy or privacy.
Secretary RUBIN. But you raised it in the
context of, for example, privatizing debt collection, or were you raising
it in the context of privatizing the whole of the IRS?
Mr. ISTOOK. Processing returns. Actually in
the whole scale, whether it may be debt collection, whether it may be the
processing of returns, and really just as we're having to look in the TSM
process at the issue of the capability of government to take on a task such
as that.
There are the parallels with FAA and so forth. So,
too, I think, as we consider this potential privatization, or outsourcing,
we need to look at the broad issue of whether the private sector can deal
with the issues of confidentiality equally as well as the government can,
as far as looking where there's been violations, is it really getting more
significant in one than the other.
Page 30 PREV PAGE TOP OF DOC Segment 1 Of 2
Secretary RUBIN. Just contextually, my view
is that, as I said before in response to Mr. Hoyer, we've got the
governance of this thing about right. There may be some changes we should
make one way or the other, but I think the basics we've got about
right.
I think within that context we can rely on the
private sector a great deal more, subject to various caveats, one of which
is the issue you raised. George?
Mr. MUNÓZ. In fact because of TSM
we did start looking into the whole area of outsourcing with security
requirements. And it's really in that context that we have taken a very
close look at it.
All of our procurement requirements for
outsourcing put high premiums on security clearances and security
procedures. Beyond that, all I can say is that we approach these things
extremely cautiously because there is the reality of possibly having a
similar level of risk on confidentiality, but then there is the perception
problem because, as the Secretary has said, we enjoy a very high level of
confidence from the taxpayers' point of view in compliance.
Mr. ISTOOK. I won't engage on that
issue.
Mr. MUNÓZ. But at least from the
point of view of compliance, there's a sense of fair share, fair
administration, and we want to make sure that if we get out of the box, at
least from our systems, that we approach it extremely cautiously.
Mr. ISTOOK. Thank you. I look forward to
further information on that.
Page 31 PREV PAGE TOP OF DOC Segment 1 Of 2
Mr. KOLBE. Mrs. Northup.
Mrs. NORTHUP. Thank you. Secretary Rubin,
there are a number of questions I would like to ask you. I'll do the first
five minutes here.
BANK REGULATORY COMPLIANCE
The first thing is that I hear from banks all the
time about the cost of compliance with the regulatory agencies, and this
drives up their costs to their consumers, of course.
One of the things in particular that they talk
about is that because there are all these laws, particularly in trying to
protect against money laundering and drug operations and so forth that they
feel like these regulations, in the end—quite honestly, the statement
they make is, they spent all their time prosecuting us for—and they
would maybe say persecuting—but prosecuting us for administrative
mistakes, mistakes their bank clerks make, who are not in compliance with
very technical parts of the law, instead of prosecuting the drug smugglers
that they can't catch anyway.
Now, I realize that's one sided, but could you
tell me the percentage of efforts, both in enforcement and prosecution,
that you all do to actually drug operations, focused on the person that is
breaking the law in that area, in comparison with prosecuting banks for
technical violations, errors that are made, where there is no suspicion or
little evidence that they are actually engaged in money laundering or drug
operations, but have made a mistake in compliance.
Page 32 PREV PAGE TOP OF DOC Segment 1 Of 2
Secretary RUBIN. I don't know the answer to
your question. We can try to get it, but I must say I wouldn't frame the
question that way.
Mrs. NORTHUP. I understand.
Secretary RUBIN. I was in a regulated
industry for 26 years, and I will tell you, one of the things that is most
striking about the American financial system—and it's true really in
Western Europe and in some other nations like Japan as well—is how
amazingly free of corruption it has remained, given the vast flows of
money.
I personally believe that it is extremely
important that we have an effective and vigilant regulatory effort. So I do
not agree with the premise of your question. I don't believe there is a
persecutorial view. I think what you have is a very effective regulatory
regime that has really prevented what could easily happen,
which—given these vast amounts of money, and the temptation that has
to provide to organized crime—has prevented the corruption of our
system.
And I think we need to remain very, very
vigilant.
Mrs. NORTHUP. Well, I guess, I wonder if
there is a way of trying to—first of all focus our efforts on
examples of corruption or opportunities of corruption. Are there times and
how often when you all find a bank, or investigate a bank or whatever you
do, when there is no suspicion that there is actually money laundering
there, but that there was a technical violation.
Page 33 PREV PAGE TOP OF DOC Segment 1 Of 2
Secretary RUBIN. Well, we can look at this
for you if you like.
Mrs. NORTHUP. Would you, please?
Secretary RUBIN. We'd be delighted to.
[The information follows:]
BANK REGULATORY COMPLIANCE
Question. The percentage of efforts both in
enforcement and prosecution, that actually involve drug operations, (i.e.
involves a person breaking the law) in comparison with prosecuting banks
for technical violations or errors, where there is little suspicion or
evidence that the persons were actually engaged in money laundering or drug
operations but have made compliance mistakes?
Answer. The question as I understand it is whether
the government has used its enforcement authority to punish financial
institutions for technical mistakes rather than going after the criminals.
While we do not expect banks to act as law enforcement agents, we do need
and require their assistance as they are our front line of defense in the
battle against money-laundering and other financial crimes.
Because banks are most likely to have initial
contact with money launderers and other financial criminals, we must
require that they pay close attention to the financial activity of their
customers. The government receives outstanding cooperation from the
financial sector and is committed to work in partnership to reduce
unnecessary burdens to permit both the industry and the government to focus
its resources on more sophisticated measures and analysis to prevent and
detect financial crime. We need the financial sector not to act as police
but as our allies. By ensuring compliance with the currency transactions
and recordkeeping requirements, we also ensured that information assists
law enforcement in civil, criminal regulatory and tax investigations. There
are, however, BSA requirements such as the mandatory reporting of
suspicious activity that do and must involve the bank's discretion.
Page 34 PREV PAGE TOP OF DOC Segment 1 Of 2
If a bank has reason to suspect that activity
involves funds derived from illegal activity, or is designed to evade the
BSA requirements, it is required to file a Suspicious Activity Report
(SAR). In addition, if a transaction has no business or apparent lawful
purpose, then the bank must examine all of the available facts and if it
still finds no reasonable explanation, it must also file a SAR. SAR data is
made available to more than a dozen federal law enforcement and regulatory
agencies via computer. A single SAR is filed with FinCEN, thus reducing the
banks' burdens as well as providing for more comprehensive analyses of
these reports to identify trends and patterns. (Note: Of the almost 65,000
SARs filed to date, more than a third reported suspected money laundering
activity and/or violations of the BSA.)
Banks, their employees, officers and directors who
are either knowingly involved in or willfully blind to money laundering
activity face the full consequences of Title 18 U.S.C., Sections 1956 and
1957, which is administered by the Department of Justice. Financial
institutions must also comply with the BSA's reporting and recordkeeping
requirements to ensure that they have sufficient internal controls and
compliance procedures to prevent and detect financial crime. If a bank
fails to comply with these requirements, a BSA enforcement action, such as
a civil money penalty or a cease and desist order issued from its federal
regulator, may be considered independent of whether there is a
determination that money laundering has occurred.
Statistics on the number of banks that have been
prosecuted for money laundering, drug offenses, or other federal offenses
are maintained by the Department of Justice.
Mrs. NORTHUP. Would you also tell
me—there is quite a debate going on between credit unions and banks,
and a point that the banks make all the time is that they have to comply
with all sorts of regulatory agencies that the credit unions don't.
Page 35 PREV PAGE TOP OF DOC Segment 1 Of 2
I know that CRA is in another area, but can you
tell me what other—if there are any regulatory costs that the banks
bear that credit unions don't?
Secretary RUBIN. Well, we are doing—I
think it's congressionally mandated, if I recollect—a credit union
study. I don't know off hand when it is going to be completed.
We'll get back to you. I just don't know when it
is going to be completed. But there is a credit union study which was
congressionally mandated, and it deals with all those kinds of issues.
And so when that comes back——
Mrs. NORTHUP. Would you respond to that for
the record so that we will have that? In other words, I want that to be
included in the record.
Secretary RUBIN. We will do the best we can
to give you a response for the record.
And then, as I say, in the fullness of time we'll
be getting a very thoughtful study.
[The information follows:]
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CREDIT UNION STUDY
A congressionally-mandated credit union study is
due by September 30, 1997. I fully expect that our final report will
address these issues. But it would be premature for me to comment on them
at this time.
RECERTIFICATION OF MEXICO
Mrs. NORTHUP. Let me ask you one more
question. Since you are so involved in the question of drugs coming across
the border from Mexico, did the President consult you before he—and
Mr. Chairman, I'm sorry if I'm repeating another question—did he
consult you, or did you make a recommendation about the recertification
that happened last week?
Secretary RUBIN. Yes. He did and I did.
Mrs. NORTHUP. And so you suggested that
Mexico be recertified?
Secretary RUBIN. I think it was absolutely
the correct thing to do.
Mrs. NORTHUP. Why?
Secretary RUBIN. Because you have very much
the same situation that we faced back in 1995, although this time in the
context of a particular law. To bring that up to the present moment, I
think you have a President in Mexico who is honest and who is committed,
who is dealing courageously and effectively, given the problems he's
facing—the enormous economic, social and political problems that
affect our economic and national security interests. Our economic and
national security interests, and our law enforcement interests lie in
supporting an honest and courageous president as he deals with what are
unquestionably very difficult problems in a situation where they are not
going to be solved over night. This is going to be a long term
situation.
Page 37 PREV PAGE TOP OF DOC Segment 1 Of 2
And I believe we need to support Mexico and
support the forces of reform and honesty in Mexico as they try to deal with
these very difficult problems.
Mrs. NORTHUP. Actually, I understand that
they have issued some—I realize they have internal corruption that's
a problem, but they actually also have issued regulations that make it
harder for us to participate with them. The fact that our people can no
longer carry guns when they cross the border has reduced our ability to
train their people.
There are several other restrictions they have
placed on us. And I understand the importance of the trade, and I'm not at
all suggesting——
Secretary RUBIN. Well, mine was not a trade
comment. If you look strictly at law enforcement, our best chance to
protect our interests is to support an honest President as he tries to work
his way through very, very difficult problems.
Mrs. NORTHUP. Well, we could have not
recertified them and instead just granted them a waiver, so that the
economic interests could have been accommodated and still have put the
pressure that personally I believe—you know, we could have made,
asked for certain accommodations, so that we would be more able to, for
example for them to deport people that we have named in warrants.
If they're not willing to do that, they're not
really participating.
Secretary RUBIN. Well, you know, reasonable
people could disagree about this. It was our judgment that the best chance
of accomplishing, or moving forward in the areas that you're talking about
is by recertification. Regarding the issue of carrying firearms into
Mexico—mind you, we wouldn't be wildly enthusiastic about Mexican law
enforcement officials coming here with firearms. There are very delicate
sovereignty issues here.
Page 38 PREV PAGE TOP OF DOC Segment 1 Of 2
But in any event, while working on extradition and
the other issues, we should support the President rather than do something
such as a decertification with a waiver, which is what you're referring to,
which could possibly undermine him.
And, as I say, reasonable people might disagree on
that, but there is no question in my mind that we made the right
judgment.
Mrs. NORTHUP. Thank you. Most of the $52.2
million increase that you're asking for the drug work, most of it is
focused on the Southwest, even though we know there's a growing trade
coming from the Southeast.
And, you know, it seems to me like we're bearing a
tremendous cost to try to shore up that effort, where there is a tremendous
amount of corruption across the border. I don't think they have made every
accommodation, and, you know, I don't know whether you would comment on the
breakdown of the $52 million, or whether you already have.
Secretary RUBIN. I don't think they have
made an accommodation. I think the question is how much it is viable for
them to make. They also have a political system, and, as I said, enormous
problems. I'm repeating myself now. But we thought our chances of
accomplishing what we want would be greatest by supporting this
President.
Mrs. NORTHUP. And one more question. The
people that oversee the agency—I've forgotten who came before
us—was that a recommendation from the bottom up, or did you make that
decision in your office and recommend it to the President?
Page 39 PREV PAGE TOP OF DOC Segment 1 Of 2
Secretary RUBIN. Oversee which agency?
Mrs. NORTHUP. Customs. Was the question of
recertification—at what level was that decision made to recommend to
the President that we recertify Mexico?
Secretary RUBIN. In terms of the Treasury
Department?
Mrs. NORTHUP. Yes.
Secretary RUBIN. My level.
Mrs. NORTHUP. That's all,
Mr. KOLBE. We have two votes on the way for
sure, and a possible third, so I don't think it's fair to ask you to wait
around.
Mr. Hoyer, we have a couple of minutes. Do you
want to get one in quick? And I'll try to get one in quick.
COMMUNITY DEVELOPMENT FINANCIAL INSTITUTION
Mr. HOYER. Because of the time, I've got a
number of questions, one, on the Community Development Financial
Institutions Program, you've got money in for that. I want to give you an
opportunity to comment on that. We don't have time, but I'll do so for the
record.
Page 40 PREV PAGE TOP OF DOC Segment 1 Of 2
FINANCIAL CRIMES ENFORCEMENT NETWORK
Also FINCEN. You mentioned the problems that we're
having as we go to electronic transfers, and the money laundering
capability that gives.
I've been to FINCEN, a very important agency, but
because we're going to leave, I wanted to make a comment that I would have
made at the close.
TREASURY FIRE/EMPLOYEE PROFESSIONALISM
Mr. Chairman, we had a major fire over at
Treasury. I went over there the day of the fire. Secretary Rubin has talked
about something that I have heard every major Presidential appointee say.
I'm glad that Anne stayed, Congresswoman, because we deal with Federal
employees a lot.
I don't know whether you were in the room, but he
said that he was surprised. Every major business leader that has been
brought into government under—and I've only been here since the
Reagan administration—under the Reagan administration, the Bush
administration and the Clinton administration—every one of them had
been surprised as Secretary Rubin was with respect to the quality,
motivation and hard work of the Federal employees.
And I think that was demonstrated in spades at the
time of this fire, which could have demoralized the agency. You weren't
here. But there was a major fire at the top floor, caught between two
floors. Smoke throughout the building. Luckily we didn't have as much
physical damage as we could have had, but we had a lot of physical
damage.
Page 41 PREV PAGE TOP OF DOC Segment 1 Of 2
But the employees confronted that in absolutely an
incredible fashion, both at the management level and the folks who do the
work on a day to day basis level. And they are to be congratulated, Mr.
Secretary. You and all of your people. I'm not going to mention all of
them. Some are sitting in the room. Linda and I had spent a lot of time
walking around in water and smoke.
But they did an extraordinary job, and I was
pleased to see you reference the employees, because they are an outstanding
group of people, and I'm very pleased that you would mention them as you
did. And I think almost every leader that comes in with the bias, the
perception, the demagoguery that occurs about Federal employees, or public
employees in general, has the same pleasant surprise that you had with the
quality of people that we have.
Secretary RUBIN. I think that is a
challenge for all of us, to continue to attract and retain those
people.
Thank you. I think we're going to have to go. I
have a series of questions that I'll have to submit for the record on the
testimony of the Secret Service agents on the taggant study.
Mr. KOLBE. And I was hoping to have a
conversation with you on coin/dollar. We'll have to save that for another
day.
This subcommittee will stand adjourned.
Page 42 PREV PAGE TOP OF DOC Segment 1 Of 2
[CLERK'S NOTE.—At the time of
publishing, the Department of the Treasury failed to provide answers to the
question for the record on the subject of the IG investigation of Secret
Service Agents: Agent Testimony.]
[Questions for the record and Treasury's Budget in
Brief follows:]
"The Official Committee record contains additional
material here."
