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feiture more effectively to get the money or the property before it disappears.

However, there are protections in my bill for the innocent third parties. If a person proves he has acted in good faith, is a bona fide purchaser of cash or goods from a money laundering scheme or could prove that his failure to file a CTR was not a willful violation, his cash or property would not be subject to seizure or forfeit


Section 3 of the legislation provides a new civil penalty for violation of the Bank Secrecy Act. The amount of the penalty would be the difference between the amount forfeited under section 2 and the total amount of the laundering transaction. Again, the standard of this civil penalty would be a willful violation.

In conclusion, Mr. Chairman, I believe the need for this legislation is obvious. Federal courts have taken the position that there is inadequate legislative authority to prosecute people who are actively engaged in money laundering operations. At a minimum, this loophole should be closed forever, and under this bill, it would be.

Also, for the first time, this legislation would allow the Internal Revenue Service to seize and forfeit cash and property that is involved in the violation of the Bank Secrecy Act. As members of this subcommittee may know, laundered money cannot be seized before there is difficulty in proving that there is a nexus between the money launderer and a criminal activity. In most cases, the case involves illegal drugs.

This bill represents a careful effort to strengthen IRS enforcement authority against money laundering while at the same time protecting third parties.

I am enclosing for the record, Mr. Chairman, a copy of the bill with a detailed section-by-section explanation.

Mr. Chairman, that completes my testimony. I have with me Vanessa Clark, a member of the Oversight Subcommittee staff, to assist in any questions that might be asked by your subcommittee. [The prepared statement of Congressman Pickle can be found in the appendix.]

Chairman ST GERMAIN. Thank you, and initially I would like to commend you on the actions you have taken to resolve this problem. Certainly, we need the help and support of as many Members as possible, and it is nice to see someone like you taking a lead in this area.

Now I would like to ask you one question. Forfeiture under any circumstances is a very drastic action; but nonetheless, you do make a very valid case for forfeiture provisions in your bill. Would you tell the subcommittee what safeguards are contained in your bill so that innocent individuals would not become subject to the forfeiture provisions?

Mr. PICKLE. Mr. Chairman, I stated in my legislation that one section of the bill attempted to protect these innocent third parties. More specifically

Chairman ST GERMAIN. Yes, if we could have more detail on


Mr. PICKLE. You raise a question about what protections are in the bill to protect innocent third parties from the forfeiture provision. Well, No. 1, the bona fide purchasers are exempt from the

bill. That is a person who actually gets the property, the cash, and gets it innocently and he can so prove that. If he is a bona fide purchaser, he would be exempt.

Second, the violations which are not willful are exempt from the bill. That is if a third party accidentally came into possession of this money, which could happen, and if that could be proved, that it wasn't a willful evasion, then that transaction would be exempt.

Also, the Internal Revenue procedures would allow for immediate corrections where there is an error. The intent is that if you are a third party and you are an innocent third party, you ought to be exempt, and we are trying to make that as clear as we can in the legislation.

Chairman ST GERMAIN. I would like to now recognize another distinguished member of our subcommittee, who has conducted hearings in this area with his Subcommittee on Government Operations. Those hearings addressed the Federal response to criminal misconduct and insider abuse in the Nation's financial institutions. Additional hearings were also held on tax evasion through the Netherlands Antilles, and other tax haven countries.

So we have the benefit of the assistance of another distinguished colleague who, as I say, has had his own hearings in this area. At this point, I recognize Mr. Barnard.

Mr. BARNARD. Thank you, Mr. Chairman.

Also let me express welcome to the Honorable Jake Pickle for being with us this morning and compliment Jake on what he has done in this area and also the legislation he has brought before us.

Chairman Pickle, if your bill had been into law before now and with all of the revelations of money laundering operations that we have had in the last several years, what do you think would have been the consequences of that? Have you studied that?

Mr. PICKLE. Well, we have looked at it, and it is hard to speculate. We know now that the money laundering is a wholesale operation and that these evaders, launderers, move from one part of the country to another as soon as the heat moves in on them. They go from the Florida area to the west coast, and of all things, they are about to come into the Rio Grande Valley.

I think if we had the authority to actually have seizure and forfeiture, and if we could actually move in and get a conviction on the smurf or those who are planning money laundering operations. I think we could cut the money laundering in half. I also think we could cut the violations on the drug smuggling, perhaps, in half.

Now, that is conjecture on my part. I don't know that we have got any actual figures on how much this legislation if passed, we cut money laundering.

Mr. BARNARD. What would have happened to some of those who have been negligent in reporting money laundering operations in some of the financial institutions of the country? What would have happened in some of those instances?

Mr. PICKLE. I would venture to say, Mr. Barnard, that if those individuals, had cooperated in a money laundering scheme, they would have been subject to prosecution under the law.

Mr. BARNARD. And this is one thing that your bill does, it does bring those who have been guilty from the standpoint of not reporting.

Mr. PICKLE. Yes. Either the smurf or the individual working in the institution, if they are negligent in reporting the currency transaction, would be subject to the provisions of this law. Some of our financial institutions haven't done it, and they are claiming now that they haven't filed these reports innocently and find it was a surprise that they were supposed to make these currency transactions known. But the truth of the matter is, I think, we ought to be very diligent in reporting currency transactions and use this legislation to insist on it.

Mr. BARNARD. Do you think we need to do something in your bill to strengthen the enforcement of the law? In other words, I notice in the testimony of our chairman he indicated that this responsibility had been turned over from the Treasury to the IRS, but the IRS seems to be in on it after the action, not before the action, while we have got the Bank Examination Department of the Comptroller of the Currency supposed to be in there on an active periodic examination.

Do you think there should be some change in direction as far as investigating these reports?

Mr. PICKLE. I would assume that the bills that the administration has supported in the other areas under the jurisdiction of other committees, for instance, Judiciary, would probably emphasize enforcement. I try to concentrate on the two or three areas that are mentioned here because, I think, the Internal Revenue Service should be given the information and the right to do something before they have to wait until the full 15 days, for instance, for the report to be filed.

This bill allows the Internal Revenue Service to move in and move in quickly. Now, whether you should have increased penalties, I think, would be a matter that would be more appropriately under the Judiciary Committee.

We want to give the law enforcement authority the right to go in and act immediately.

Mr. BARNARD. Your hearings, have they indicated any more importance been given to this operation by the banks, the regulators and IRS than before?

Mr. PICKLE. I don't know how much importance they put on money laundering. I do know that the areas of money laundering and the tax evasion are directly related. Also, probably a great percentage of the violations now are in the area of drug trafficking.

Unless we can give the governmental entities the authority to move and move quickly, then, I think, we are going to let the money laundering operations go untouched.

I would say that we ought to serve clear notice to the financial institutions that they should know what the law is, what amount of cash must be reported, and to whom it should be reported. If we give the authorities the right to move in and catch these people when they have proof that these people are, in fact, money launderers, the authorities can move in on money laundering operations.

Mr. BARNARD. That is the thing that concerns most of the members of our committee. The law has been in place for a number of years. It seems to be just lackadaisically overlooked. Somehow or another, we have to put more emphasis on the fact that these insti

tutions have got to report these transactions. I guess your bill does in that regard put more teeth into the law, as far as if they don't do it, somebody in that institution, whether it is a bank or money exchange, or whatever it might be, which is another thing we have to do. We have to broaden this bill to include more than just banks and investment houses. There are others in the money exchange business that are being left out of this bill.

I think your bill is a good step forward in getting something done. I compliment you.

Mr. PICKLE. I pointed out to you that the administration recognized this is a problem. They ought to give the Internal Revenue Service forfeiture and seizure authority. They also ought to have the right to say it is illegal to cause a violation of the Bank Secrecy Act. Having recognized that, the administration, through the Treasury and the Office of OMB, has said the Congress ought to pass this legislation.

I think it is a base. I hope this committee will consider it as a part of your bank secrecy legislation as you move forward.

Mr. BARNARD. Thank you.

Chairman ST GERMAIN. Mr. Wylie.

Mr. WYLIE. Thank you, Mr. Chairman. I, too, would welcome you, Jake, and commend you for your concern and your conscientious hard work in an area which is a serious problem to us.

You say that you have worked with the administration and they support your legislation. Chairman St Germain and I also introduced a bill at the request of the administration.

Do you know up front, and I wouldn't expect you to, how the two bills compare? Are there similarities in the approach taken in your bill and our bill?

Mr. PICKLE. I am not sure. I know there is legislation pending in other committees, here and in the Judiciary and Government Operations.

Mr. WYLIE. We will have staff take a look at that.

Mr. PICKLE. This would be a part of the composite bill that I assume you primarily will advance.

Mr. WYLIE. Yes. I think the point and place where I am coming from is that we are all concerned about this money laundering problem. We thank you very much for your testimony this morning. You are a member of the Ways and Means Committee. You say this problem is a growing one. As a result, I am concerned about the impact of money laundering operations on the collection of U.S. Federal income taxes. We just passed a big day in our year as far as income taxes are concerned, yesterday. I am glad to see you do pay attention to such things. Do you have any notion as to how much of an impact in the loss of Federal tax revenues this might have?

Mr. PICKLE. Let me ask Vanessa Clark to comment on that. Before I do, with respect to the tax laws, we quite often cannot move in on these money launderers unless we can show a direct connection with a tax case, such as a criminal violation of the Tax Code.

Pending the proof of that, a lot of these people get their money laundered and move on. We don't have time to act. This legislation would give the IRS the authority to seize and forfeit laundered

cash immediately, without having to wait, or to connect it to or requiring a nexus with a violation of the Tax Code.

I think our legislation would help speed up the Government's ability to act. Ms. Clark, do you have any comment to make?

Ms. CLARK. Yes. I have several comments to make. First of all, on the seizure and forfeiture authority, and I'm sure this committee is aware that the-

Chairman ST GERMAIN. Excuse me. Ms. Clark, if you would pull your microphone closer. We have lousy microphones; but we can't do anything about it because of Gramm-Rudman. You have to cuddle up to it. [Laughter.]

Ms. CLARK. There are several points I would like to make. First of all, I would like to talk about why the IRS should have seizure and forfeiture authority. The CTR's, as your committee is aware, are reported to the IRS. They are the agency that has the information on hand from the banks. Therefore, it is logical and appropriate to have the IRS have the authority to take some action, where they are on notice that a money laundering operation is going on and money is not being reported through the CTR process.

As it stands now, seizure and forfeiture authority under the IRS is somewhat restricted and there has to be that nexus to the evasion of taxes or unreported taxes. That is, seizures have to be related to the fact that you haven't reported taxes, you haven't paid taxes or some other Tax Code violations.

This bill would expand that seizure and forfeiture authority given to the IRS. As the authority exists now, the IRS does not have that authority to seize laundered cash. The IRS's ability to seize laundered cash without having a nexus to a Tax Code violation would be a major difference between the current authority of the IRS and the expanded authority under this bill.

Mr. WYLIE. Do you have any notion as to how much money we might be losing? Did IRS give you any estimate on that? You can supply that for the record.

Ms. CLARK. We have had some estimates given to us. I can't vouch to the sources at this particular point. We can submit that for the record. There have been estimates of maybe $90 billion altogether due to tax avoidance or evasion and maybe approximately half of that could be attributed to money laundering alone.

Mr. WYLIE. Did you say $90 billion?

Ms. CLARK. $90 billion. We are talking about maybe $50 billion of this amount being attributable to money laundering operations. Mr. WYLIE. Holy smoke. Thank you very much. Thank you, Mr. Chairman.

Chairman ST GERMAIN. Mr. Annunzio.

Mr. ANNUNZIO. Thank you, Mr. Chairman.

I am delighted to associate myself with your remarks and the remarks of the other members of the committee in welcoming a dear and old friend, Jake Pickle, to the hearing this morning.

I want to publicly acknowledge that at the time you became chairman of the Subcommittee on Social Security, everybody was so worried and concerned that the Social Security system would go under as it was operating in the red. Under your chairmanship of that subcommittee, you managed legislation whereby the Social Security fund is now solvent. It is in the black, it is not in the red.

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