official texts & speeches
Press Roundtable with Deputy Secretary of the Treasury Robert M. Kimmitt
Berlin, Germany
March 19, 2007
PRESS ATTACHE WOOD: Good morning everyone. Thanks for being here on a very early Monday morning. Our guest obviously needs no introduction, Deputy Secretary of the Treasury, Ambassador Robert Kimmitt. He's going to speak for a couple of moments, give you a little sense of why he's here, and then take your questions. As always, if you could just identify yourself and the news organization you work for that would be greatly appreciated. Mr. Secretary, thank you and welcome.
DEPUTY SECRETARY: Thank you, Robert. It's a pleasure to be back in Berlin. It always feels like a homecoming here for me, especially to be back at the Embassy. As I note in my remarks, my parents were actually married in Berlin 60 years ago today; and I was born exactly nine months later in the United States, so as I've always said, like President Kennedy I can say "Ich bin ein Berliner," but in my case also "Made in Germany." And I appreciate the Chancellor scheduling this speech on my parents' anniversary (laughter).
I look forward to talking with you today about what's on your mind. I thought what I might do is make a few brief comments by way of introduction but leave really the bulk of the time for questions. Later this morning I'll join Chancellor Merkel to speak about globalization and the transatlantic economic partnership. When any European Union presidency, but particularly a German European presidency, makes a transatlantic initiative a central element in its agenda, that alone sends a very strong political signal. It recognizes that progress on economic and financial matters can also help improve the political relationship between Europe and the United States and can also provide a strong foundation upon which to rely during those periods of political turbulence that come and go. The U.S. strongly supports the Merkel Initiative and we're working aggressively to enhance it in a way that benefits our transatlantic economies. Now, the Merkel Initiative is not, as some have suggested, a proposal for a transatlantic free-trade agreement. On trade, Doha remains our common priority. What this new initiative does is focuses on regulatory and other non-tariff barriers. We're seeking to lower regulatory burdens on both sides of the Atlantic, then converge, harmonize or mutually recognize the fewer regulations that remain. Fundamentally, Europe and the U.S. both trust markets to serve as essential organizing principles of our economies. The best way for Europe to reap the full benefits of globalization is to build a competitive market-led and integrated single market economy with the flexibility to quickly adapt to change in the global economy. Between now and April 30, which is when the EU-U.S. Summit will take place, we'll work with our EU and EC counterparts to develop results that will strengthen the economic relationship between the U.S. and Europe and move us to a more integrated transatlantic marketplace.
One major achievement that is within our grasp is the recently-negotiated EU-U.S. Air Transport Agreement set to be approved by the Transport Council of the European Union later this week. Approval of this agreement is absolutely essential to demonstrating that Europe and the United States can reach common understandings on difficult economic and regulatory matters affecting our most important business sectors.
Other areas currently under discussion include extending regulatory cooperation in a range of sectors, advancing cooperation on the enforcement of intellectual property rights, thereby spurring innovation; encouraging progress on the work plan aimed at promoting consistent application of IFRS and U.S. GAAP accounting standards, and integrating our efforts on energy and addressing climate change, including advancing work on biofuels, energy efficiency, and clean coal.
But our target is not just a successful summit; it is most important how this effort will be judged not only on April 30, 2007 but on April 30, 2008 and beyond. So we're also working closely with German and EC counterparts to put in place a mechanism to ensure that the Merkel Initiative bears fruit for years to come.
Why don't I stop there and take your questions on this -- or I would imagine, knowing this group, on other subjects, too.
QUESTION: Chris Burns, Bloomberg Television. It certainly seems close to Doha, I mean how -- is this is not Doha?
DEPUTY SECRETARY: Well, again, Chris, both Doha and this initiative fall under the general heading of what one needs to do in the economic and financial area to improve each of our economies and then the transatlantic economic relationship more broadly. Doha obviously has been proceeding for quite some number of years and we are both committed to success in the Doha Round, and that effort will continue as a high priority for both Germany and the United States. What this initiative recognizes, though, is that even with success on the Doha Round there still exists quite a different regulatory structure in Europe and in the United States. Both of us are committed to reducing regulatory burden, but even as we do that we have to find ways to harmonize, or converge, or mutually recognize the differing political, excuse me, differing economic and financial regulatory structures that we have. And again, I'm not saying that it is unrelated to Doha because, again, we look at these efforts as mutually reinforcing and indeed, I would say that a success in Doha would help the Merkel Initiative succeed, and the progress that we can make under the Merkel Initiative certainly should help us move forward in Doha. But, again, one is trade, the other really is non-trade tariff barriers and regulatory, I think that's the distinction that we're drawing.
QUESTION: Could you just put a little pressure on Doha to actually get going -- this has been dragging on for so long, maybe showing that the world's two largest trading blocs might go their own way if Doha doesn't actually happen?
DEPUTY SECRETARY: No. I don't think there is any suggestion, that the Merkel Initiative, even as we try to bring these two great economies closer together, is not a zero-sum game with the rest of the world. We live in an interdependent, interconnected world economy. What we're saying is that there is much that we can do to bring the economies of Europe and the United States closer together to the benefit of the U.S., Europe and the rest of the world. To the extent that this gave any additional impetus on the Doha Round, I think that would be nothing but good both for the U.S., Europe, and the rest of the world.
QUESTION: Joachim Zepelin, Financial Times Deutschland. Just a brief question on that. What do you think speaks against a free-trade agreement between Europe and the U.S? We have many free-trade agreements with other areas in the world?
DEPUTY SECRETARY: Well, again, I think it is that right now we have a clear priority on the trade agenda, and that is the successful conclusion of the Doha Round. Even as we pursue that priority, our belief is, and certainly the Chancellor's belief is, that we can make progress on non-tariff barriers and on the regulatory side. I think we can pursue both those objectives and again this is something that we think is complementary, that is work on the trade side and on the regulatory side. But again, in the near term, while the Doha Round is at this critical point, we think all the focus, all the priority on the trade side should be on the Doha Round and the success that we both seek.
QUESTION: Andrea Rinke, Handelsblatt. I have two questions. Would you please tell us first what exactly is going to happen on April 30? Is that the conclusion of a treaty, the start of negotiations for a treaty, a framework agreement? Second question, there's a parallel debate about hedge funds, some regulations about hedge funds in G8. Will hedge funds be mentioned within the framework of the transatlantic partnership?
DEPUTY SECRETARY: Okay, first, as we look toward April 30, that's precisely what the discussion is right now among Germany, representing the Union, the European Commission led by President Barroso’s office, and then the United States, led by our National Economic Council at the White House. And, again, it's, I think, in two parts. What specific results could be announced at the summit on the 30th? Again, we would think a successful conclusion of this EU-U.S. Air Transport Agreement would be one such result, but there may be others. But then, I think, as your question suggests, there would also be an announcement at the time of the summit about what would be the structure and process that would take the Merkel Initiative forward in the future presidencies. On your second question, one of the things that we're doing even as we prepare for April 30 and beyond, is to take a look at past initiatives in this area and past structures that are working.
One of the structures that has been developed based on past initiatives that has been working quite well is called the Financial Markets Regulatory Dialogue. This is conducted between the U.S. and the European Commission, led by the Treasury Department on the U.S. side, Commissioner Charlie McCreevy on the EC side -- in fact, Charlie and I met in Washington just earlier this month -- and in that dialogue we have a whole range of financial and financial markets issues on the table. Last month, the United States, through what's called the President's Working Group, put out a statement
QUESTION: Is this coming up in Heiligendamm?
DEPUTY SECRETARY: Again, this is something that had been discussed in the G-7 finance ministers. I can't really speak as to what would happen at the G-8, that is, where there is a broader set of discussions, a broader set of priorities, but certainly the discussion will continue among the key finance ministers both in Europe, Asia, and in the United States
QUESTION: Hans Maurus, German Public Radio. If there's one area which could be the ideal field for this initiative, this new initiative, I reckon it would be in the energy security area. I think the German foreign minister, Steinmeier, even suggested during the Munich security conference that there should be a technological initiative, an energy security partnership, and I hear very little about it. Isn't that something where one could even devise a grand strategy because obviously what you have mentioned -- biofuels and clean coal -- that might not be really the long-term answer; we might need really something revolutionary -- hydrogen or something like that. So what we need to do is pool resources, to pool brain power, and so forth. And are not Europe and the United States not the two national partners to go on that?
DEPUTY SECRETARY: Again, we were very pleased that when the Chancellor put forward this initiative, she mentioned that among the subjects to be discussed would be energy security and climate change; so I think it's very appropriate that those subjects would be discussed within this particular initiative, again, focusing on the regulatory aspects between the U.S. and Europe. There are other forums that we have both between the U.S. and Europe and then globally: We have a High-Level Dialogue between the U.S. and Europe, this is a subject that is obviously on the agenda of the G-8 for Heiligendamm. We have set up a new mechanism whereby the U.S., China, Japan, Korea, Australia are discussing this subject in the Asia-Pacific context, and we've made this a major part of our Strategic Economic Dialogue with China, led by Secretary Paulson. So, again, we're quite open to discussing that subject both within this particular initiative -- but I think it would not stand in the way of broader discussions, recognizing that these issues are certainly important to the U.S. and Europe but are important to the world more broadly.
QUESTION: Judy Dempsey, International Herald Tribune. I was wondering, could I ask you a political question? Do you think that the economic relationship between the U.S. and the EU is actually out of sync with the political relationship? I'm now particularly thinking of the missile defense issue. The German foreign minister is going to Washington today, and he's been very vocal against missile defense, at least (inaudible). Do you think the two are out of sync?
DEPUTY SECRETARY: I do not. I think that European-American relationships are good and improving. We have open lines of communications on issues ranging from politics, to security, to economics. I think the fact that I'm here today, that the foreign minister is in Washington, that we have the web of relationships that allow both for bilateral and multilateral discussions indicates that the relationship is quite healthy. I think sometimes the measure of a healthy relationship is when you can discuss openly issues of concern and even differences of opinion.
QUESTION: Joachim Müller with Capital. I have a question about hedge funds. Could you go a bit more into detail, where are possible areas where you would like more transparency, where would you like to receive, you know, more information from hedge funds? And, as I understand the German position, they are sort of in favor of regulating hedge funds. Are you saying we don't really want to regulate these funds, that we're hoping to gather more information but we don't want to regulate?
DEPUTY SECRETARY: I thought that Finance Minister Steinbrück was quite clear, when he was in the United States, that this is not a question of regulation but rather one of perhaps more transparency and information; and what I would do again is refer you to the statement that the President's Working Group put out in terms of how we are looking at this issue. Certainly, the fact that this is being referred by the G-7 finance ministers to the Financial Stability Forum shows that one of the things we are looking to quite closely is to make sure that these private pools of capital, including hedge funds, proceed in a way that does not have an adverse effect on the world's financial markets. In our statement – again, I would refer you to it for details – but one of the things we've made clear is that we have regulated counterparties in the hedge funds' business, for example, so one of the things that we're looking at quite closely is, how are those counterparties, who are already regulated, dealing with the issue both of hedge funds and other forms of private pools of capital. I think exactly how we would take this forward including on issues like receiving more information, on transparency, disclosure, and so forth - it's part of the discussion both between Europe and the U.S. in the Financial Markets Regulatory Dialogue, but then within the G-7 and, ultimately, I think we'll listen quite closely to the report that Mr. Draghi, the central bank governor in Italy who is heading this Financial Stability Forum effort, gives to the ministers. Again, though, I would refer you to what the finance minister said in Washington, where he had said quite clearly this is not about regulating hedge funds; it's rather taking steps to ensure that these are proceeding in a way mindful of the need for investor protection and to avoid systemic risk.
QUESTION: Following up on that, I wonder why everybody is so shy about the private pools of capital. I mean, if banks are regulated, if insurance companies are regulated -- and they used to be the dominant players in the capital markets -- why should there be no regulation now of the new power in the financial markets, which clearly are those private capital pools? We should see it from the dimensions, I mean, (inaudible) said that the next deals are going to be in a dimension of 50 billion or 100 billion. If a company or two or three hedge funds could buy a company like DaimlerChrysler (inaudible) so I think this maybe has led to a significance even the regulators should think about regulating, because that's their job, isn't it?
DEPUTY SECRETARY: Well, again, in the U.S., regulators have looked at this issue, have come out with the position that we put out in the statement of the President's Working Group. But right now in the conduct of the financial markets aspects to these private pools of capital, there are some regulated parties that provide a window into how the system is operating. Certainly if you get to large transactions, particularly of the sort that you mentioned, you're talking about the acquisition of public companies themselves who are regulated. Such transactions would be subject to review by appropriate regulatory authorities. Our statement made clear that we and the market need to be vigilant, that this was not a statement that called for business as usual. We are going to continue to watch this, watch it quite closely, but we think that where the system stands right now, including the regulatory system, is right based on what we know at this point. But the discussions continue both in the U.S. and between the U.S. and Europe, and then within the G-7 more broadly.
QUESTION: And a second question on a totally different issue. Would you update us on the situation with the Banco Asia Delta? As far as I know now, the U.S. Treasury has asked the American banks to cut all ties with the bank from April. Is that correct?
DEPUTY SECRETARY: Sure. So this is actually called Banco Delta Asia, it was their branch in Macau which we have designated under Section 311 of the Patriot Act as a prime money-laundering concern, and for that reason no U.S. bank or foreign bank operating in the United States can have any kind of relationship with that bank. So we have issued our final rule and it becomes effective within the next 30 days. Our deputy assistant secretary, Daniel Glaser, has been in Macau the last number of days working with the Macanese authorities -- because they are the regulators of this bank, they are the ones who froze money in the Banco Delta Asia accounts -- to lay out the information that we have that led us to make this decision and then to talk about what further steps will be taken by the Macanese authorities to respond to the rule that we've put out. There was a statement that was put out today by Deputy Assistant Secretary Glaser, I would refer you to that, in which -- and I haven't talked to Danny this morning -- in which it appears that the money that was frozen will not be returned to the original account holders, because some of those were connected with illicit activity. But rather the amount that was frozen would be transferred to the account in the Bank of China of I think what's called the Foreign Trade Bank of North Korea and then that money would be used, but for humanitarian and other purposes not related to the illicit conduct that existed in those particular accounts. We had made an agreement under the framework of the Six Party Talks to resolve the banking matter by March 15; that's what we did with the rule that you mentioned, the final rule, but now the implementation proceeds, working with the Macanese, and ultimately the Chinese authorities. But I would refer you to the statement that came out this morning from Secretary Glaser which lays that out in some detail.
QUESTION: How much money are we talking about?
DEPUTY SECRETARY: It was about 25 million, Chris, again that the Macanese authorities froze once we put out our preliminary rule. That goes all the way back to September 22, 2005. The way the system operates, if we have evidence that indicates that a bank anywhere in the world is involved in money-laundering activities, we put out a preliminary rule which puts them off-limits on a temporary basis. We then work with the jurisdiction in question as we come to the final rule. We've taken such action against banks in Latvia, in Syria, I think in Colombia, and elsewhere. Again, these are very much illicit-conduct focused, they are not nationality focused. We focus on the illicit conduct. And I might say not just we. One area that I don't think is covered quite as much in the press, if I may say, as it should be, is the work of something called the Financial Action Task Force, FATF. This is a global organization under which regional organizations work together -- that is, treasury departments, finance ministries, central banks, bank regulators -- to stop the flow of illicit finance, and whether that be terrorism related, proliferation, narco-trafficking, organized crime. It really is one of the big challenges that we face particularly in the post-9/11 world, because while you can conduct individual terrorist activities using small amounts of money, even cash or informal banking systems, but to run a terrorist network or do to anything in the world on proliferation, you need to be able to move big amounts of money around the world, and the way you do that is coming into the world's financial system. Once they come in, that's where we have the best ability to detect, disrupt, and ultimately dismantle these illicit finance networks. And Banco Delta Asia was a key node in that network. We've been very complimentary with the work that we've done together with the Macanese with this, and again, I'd refer you to Secretary Glaser's statement for the details, but it looks like the most fundamental principle in that is that this money should not go back to illicit actors, that is the account holders that are involved in this illicit activity, was the result announced today.
QUESTION: Just one question. What you've just described, is that something the U.S. is suggesting or is it something the North Korean government agreed on already?
DEPUTY SECRETARY: Well, Jana, do you have a copy of that statement? Could you print that out so that everybody gets a copy? Again, I've not talked to Danny about this but I'm pretty sure that the announcement was one that had been coordinated among the key parties involved here, the U.S., China, and Macau. I know that there had been discussions between Assistant Secretary Chris Hill and the North Koreans in Beijing, so my belief would have been that this would have been coordinated among the parties; but I just read very quickly on my Blackberry this morning the opening lines of Danny's statement. Why don't we take a look at that. I think it might indicate however that this has been done, you know, in cooperation with all the parties involved. Excuse me?
QUESTION: Paul-Anton Krüger, Süddeutsche Zeitung. A follow-up question on that. You have designated, or Treasury has designated, two state-owned Iranian banks. Question one would be, are there any plans to designate further Iranian banks? And second one would be, Mr. Steinbrück was in the U.S. on Wednesday I think, and he was questioned again about German-Iranian business ties. Could you comment on that?
DEPUTY SECRETARY: We did recently, that is, this year, take further regulatory action against two Iranian state banks. The first was Bank Sepah, which plays a key role in the Iranian state-sponsored terrorism program, particularly the funding of Hamas and Hezbollah, including through Saderat branches in Europe, most specifically London. Subsequently we took action against Bank Sappah, which plays a prime financing role in the Iranian missile technology acquisition program, including also through branches in Europe, most specifically its branch in Rome. Again, we look for any illicit conduct in the financial system wherever it takes place. We've talked North Korea and Macau, we've talked Latvia, we've talked Colombia, we've talked now Iran. Again, this is very much focused on the illicit conduct, again in those two cases terrorism and missile technology particularly. What I would say though, and this is really important to note, is that while some of this has been taken under U.S. individual authority, this is very consistent with the unanimous Security Council resolution 1737 passed on December 23, in which the world community said that it needed to take steps, including financial measures, to ensure that we were not, as an international community, supporting Iran's move towards nuclear weapons or long-range missile technology. As you may know, there are continuing discussions in the Security Council right now, the Perm 5+1 -- that is, Germany, because of the EU's role, leadership role in negotiations with Europeans -- has a text that has been circulated among the 15 of the Security Council with some likelihood that there would be action later this week on that subject. I think the message is quite clear, that this is not a bilateral issue between Iran and the United States, this is a matter of the world community making clear to the Iranians that we do not want to see them move toward a nuclear bomb and then the delivery means that could bring that danger to Europe and other areas far from the Middle East. With regard to -- I didn't see specifically the statements that Minister Steinbrück made -- but we've had very good discussions both with Europe, that is through the EC, and bilaterally here in Germany. I'll continue those discussions later today. On the agenda right now is full implementation of 1737, that is an obligation that we all have as member states of the United Nations, but then we also want to discuss what next steps we will take to try to increase the pressure on the Iranians and hopefully convince them that the best course is to suspend their nuclear program and come back to the negotiating table.
QUESTION: Paul Carrel from Reuters. On another issue, how significant do you think the recent turbulence, if you like, has been in the U.S. sub-prime mortgage market for the broader U.S. economy? And secondly, does the recent correction that we've seen on the stock market reflect the broader risks that there are facing the U.S. economy?
DEPUTY SECRETARY: I won't comment on the markets, I'll let the markets basically speak for themselves. But the issue of what's happening in the sub-prime mortgage areas is something that we and other regulators in the U.S. are watching closely. Right now, some of the softness that we saw in the U.S. housing market, which I might say appears to be stabilizing, has not spread into other sectors, especially into the consumer sector, and right now the U.S. economy remains strong. The outlook is positive, but of course as regulators, we're vigilant about developments in important market segments like the mortgage markets, so we are watching the sub-prime issue.
QUESTION: Can I go back to…
DEPUTY SECRETARY: Sorry, could I just take a look at this (handout) real quickly? Alright, in direct answer to your question, the second paragraph, the U.S. and the North Korean government have reached an understanding on the disposition of these funds at Banco Delta Asia. So, the short answer to your questions is yes, this is something that North Koreans were involved in. We had the Six Party Talks on the multilateral political side focused on the North Korean nuclear program, and we were asked by the State Department to have a separate but related set of bilateral discussions with North Korean financial officials. We've had three meetings with them. I don't know if there was another meeting that led to this, but we had that opportunity for both a bilateral and multilateral dialogue to interact with one another. Excuse me?
QUESTION: Deputy Secretary, can I go back to Iran. Could you be bit more concrete. Given the evidence that Iran is continuing its program, the next steps you want to discuss, could you be a bit more concrete about what steps?
DEPUTY SECRETARY: Well, again, I think that, from the Treasury Department perspective, we would just hope that the next UN Security Council resolution takes further measures to make it difficult for the Iranians to use the world's legitimate banking system for illegitimate and illicit purposes that have been condemned by the international community. There are a number of specific proposals that are being discussed, but again, because that's now the subject of negotiation among 15 countries, I would rather not discuss those specifics. But I would say that the next resolution will go beyond where 1737 was; I would imagine both on financial measures but also on other political measures.
QUESTION: Obviously you will call on the international community to refrain from financial transactions with Iran voluntarily. Would you …
DEPUTY SECRETARY: I'm sorry, could you start your question again, I missed …
QUESTION: As far as one could hear from New York on the weekend, the resolution will call for the international community to refrain from financial transactions with Iran voluntarily. Would you issue something like this regarding the German economy doing business with Iran?
DEPUTY SECRETARY: I'm nor sure what reports came out of New York on the weekend, but what the UN puts out this week I would imagine would also, as was 1737, be under Chapter 7 of the UN Charter, and therefore would not be calling for voluntary steps. These would be mandatory requirements put on all member states of the United Nations. That's what 1737 said, I would imagine the new ones would be the same. I don't think anyone, even the United States, has called for all financial transactions to be cut off with Iran. Again, our focus has been on stopping financing that supports illicit activities, whether it be terror or weapons proliferation, nuclear or missile technology. However, the problem is, and certainly the problem that European banks and others would face, is that in Iran it's almost impossible to “know your customer.” The Iranians are very aggressive in their use of deceit, denial, and front companies to cover the work that actually supports the proliferation program and the terrorism program; so what we've said is that whenever a bank does its normal risk-return analysis, that as they look at business with Iran, just know that almost any business there bears a high degree of risk precisely because you cannot be sure that the party with whom you're dealing is not connected to some form of illicit activity. And certainly, if any of the state banks such as Sepah and Sappah are involved, these are clearly instruments of the state, a state that supports terrorism and that has embarked upon a nuclear and missile technology program. So people need to be very, very careful about any business that they do with Iran, but the specific call by the United Nations, supported strongly by the U.S., is to stop financing of illicit activities.
PRESS ATTACHE WOOD: Okay, thank you all very much.
DEPUTY SECRETARY: Thank you.
