first proof of this is the scope of the money laundering crime. The second is the unnecessary amendment of the Right to Financial Privacy Act. The third is that section 8 of the bill also

establishes a crime of "facilitation" and a new offense of "receiving the proceeds of a crime."

These are crimes of general application and may have sweeping and dangerous applications. We believe the crime of facilitation goes far beyond established concepts of criminal mens rea and is both overbroad and vague. Does a bus company facilitate a crime by bringing demonstrators to Washington who are planning to engage in civil disobedience? Does a hotel facilitate a crime by making space available to alleged mafia figures who use the facility to plan a crime?

The crime of receiving the proceeds of a crime would punish anyone who received such proceeds knowing or believing the same has been obtained in violation of law. Are employees of E.F. Hutton or a defense contractor found to have violated the law guilty of a crime for taking home their paychecks because they believed the money was derived from illegal activity?

Conclusion

In conclusion, Mr. Chairman, we have today focused our testimony on the Administration bill, H.R. 2785 and principally on how it would adversely effect bank record privacy. However, we believe the legislation deserves close and broad scrutiny on a range of issues posed by various other sections of the bill.

As we said at the outset, we believe money laundering is a problem but that a balanced approach which meets law enforcement

needs without violating civil liberties is necessary.

H. R. 2785

is not balanced and constitutes a serious threat to civil liberties. We urge its rejection and that the Congress proceed with more narrowly drawn legislation that indeed strikes a just balance between competing and compelling public interests.

STATEMENT OF EUGENE T. ROSSIDES

REGARDING MONEY LAUNDERING PROPOSALS

TO THE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

SUPERVISION, REGULATION AND INSURANCE OF

THE COMMITTEE ON BANKING,

FINANCE AND URBAN AFFAIRS OF THE

HOUSE OF REPRESENTATIVES

MAY 14, 1986

Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity to express my views on the various money laundering bills now being considered by Congress. I address this issue from the somewhat unique perspective of having dealt with the Currency and Foreign Transactions Reporting Act of 1970 ("Act") from both sides of the regulatory fence. From 1969 to 1973 I served as Assistant Secretary of the Treasury for Enforcement, Tariff and Trade Affairs and Operations. In that position I presented the views of the Treasury Department and the Administration to the House and Senate Banking Committees which considered the Act when it was proposed in 1969. Following its enactment, my responsibilities included the enforcement of the Act. In my present capacity as a partner in a law firm in Washington, D.C. I represent a major U.S. banking institution. I also serve as a director of a national bank. These banks are committed to doing all they can to fully carry out their responsibilities under the Act but at the same time are concerned about protecting the trust of their law abiding customers -- a trust which is the linchpin of our domestic banking industry and which depends so importantly upon individual privacy, which has been increasingly encroached upon by government actions. I therefore appreciate the opportunity to present my views on this important issue.

As the recent Congressional hearings have underscored, money laundering is an important complement to drug trafficking and other criminal activity. While efforts thus far to abate money laundering have had serious limitations, Congressional and media attention to the subject over the past year have produced a high level of vigilance in financial institutions and a high level of consciousness among enforcement officials. In general, this has been an altogether salutary development.

60-672 0 - 86 - 40

Nevertheless, I perceive as troublesome certain aspects of the current debate about money laundering legislation.

First, while money laundering is a serious problem that must be vigorously addressed, it does not necessarily follow that imposing broad new requirements upon banks will solve the problem. Second, I become concerned when I see the law enforcement community shifting its focus away from drug traffickers and others in organized criminal groups and preoccupying itself with reporting failures by banks. While some banks have been less than diligent in meeting their filing obligations under the Act, I think William Nickerson, former Deputy Assistant Secretary of the Treasury for Enforcement, was directly on point recently when he observed that the government had "misenforced" the law by prosecuting bankers instead of narcotics dealers and other money launderers and that "what we've seen is a loss of understanding of the purpose of the act."1/ While the recent Congressional attention given to enforcement of the Act has been commendable, the Congress should not in the process allow the law enforcement community to escape critical review and scrutiny for its own singular failure to effectively combat drug trafficking.

The Currency and Foreign Transactions Reporting Act of 1970

To understand the application of the Currency and Foreign Transactions Reporting Act of 1970, often referred to as the "Bank Secrecy Act", one must recall the purpose for which it was enacted. With direct authority over the U.S. Customs Service and Secret Service, as well as policy supervision regarding IRS criminal enforcement, I, along with other law enforcement officials, supported passage of the Act as a useful tool to augment existing criminal investigations. The data to be retained by the banks under the Act was to provide a source of information to bolster or help direct ongoing investigations of targeted suspects and future specific investigations. It was created to ensure that documents relevant to a particular suspect remained available for the use of investigators and prosecutors. The Act's target was the alleged criminals being investigated, not the banks. The reporting requirement established pursuant to the Act was, in general, a continuation and alteration of then existing reporting requirements.

The Act was passed only after Congress took the time to strike a balance of the needs of law enforcement with the administrative burdens the recordkeeping and reporting requirements imposed on financial institutions. The Act was viewed by those in law enforcement, the financial industry and the Congressmen and Senators who passed it as primarily a

3

recordkeeping and record retention law. Indeed, its provisions are contained in the United States Code under the heading "Records and Reports on Monetary Instruments Transactions." The Act did not establish and was never understood to have established a relationship between financial institutions and government whereby banks would be required to conduct surveillance on their customers and report the slightest suspicious transactions to government agencies. Such a concept is alien to our system of law and justice.

Application of the Act Over the Last 15 Years

After conducting a thorough investigation of utilization of the data gathered under the Act, the Comptroller General reported to Congress in 1981 that "the reports required under the Act are not widely used and their potential utility as an investigative tool is unknown. "2/ The Comptroller General

concluded:

"After 10 years, the Bank Secrecy Act has not been used sufficiently to demonstrate whether the demands it places on the private sector, especially financial institutions, are commensurate with the benefits obtained by the Federal Government."3/

the

Although the Comptroller General's report put agencies on fair notice as to the lack of adequate utilization of currency transaction reports ("CTRS") and related documents, the banking industry was not made aware of any substantial failure of compliance on its part. Thus, the Comptroller General reported that according to the bank regulatory agencies in 1981, "fewer than 2 percent of financial institutions fail to comply with the reporting requirements."4/ While the fact that the government was seemingly satisfied with the banking industry's compliance with the Act is not an excuse to become complacent about the reporting requirements, it was certainly evidence of the relative lack of importance the government placed on the reporting requirements imposed under the Act.

In the intervening four years between the 1981 GAO report and public revelations of the Bank of Boston situation, the federal government did little to alert the financial industry to any serious compliance problems. As reported to Congress on October 29, 1985 by William J. Andersen of the General Accounting Office, a then recently commissioned study demonstrated that the agencies "have given Bank Secrecy examinations a relatively low priority."57 The study showed

the agencies had allocated insufficient resources to this area, used relatively inexperienced examiners, failed to establish sufficient procedures for compliance examinations, and failed to adequately document their examinations. GAO found a lack of