bomb airstrips that belong to traffickers throughout the country, and they have an eradication program going with respect to marijuana that has been stepped up very much. Mr. WYLIE. You also have said that the situation seems to be get ting worse. Mr. TROTT. When I go to Colombia, and for the lack of a better description, belly up to them and say: "What are you doing about this problem down here?" They remind me that the market is in the United States and they ask what we are doing about the market, and they describe the demand side of the equation as the root of the problem. They point out, "If your people weren't spending $80 billion a year on this stuff, we wouldn't have our people growing it." Chairman ST GERMAIN. It takes two to tango. Mr. WYLIE. Thank you, Mr. Chairman. Chairman ST GERMAIN. Maybe what we should do is instead of all this controversy about aid to-military aid to Contras, we ought to give more military aid to President Betancur so he can do a little better job on those planes, and airstrips, and what have you. Mr. WYLIE. You put that bill in, I will support it. Chairman ST GERMAIN. Mr. Coward, the testimony last week was that the smurfs went in and bought all kinds of money orders, cashier's checks, and it was to any Latin name, the payee could be any, they put in any Latin name at all, and then as a payor, USD Co. of Florida, Realty Management Co., et cetera, and that those checks, money orders, that went into an envelope, and that individual took a plane to Colombia. It is obvious that those transactions, those checks and money orders then are deposited or brought into a financial institution in Colombia, right? What are the banks in Colombia doing to cooperate? And I thought you said they were cooperating, no problem; but it seems to me, if they had a suspicious reporting requirement, face it, a little envelope can contain a lot of checks and money orders. Aren't those banks in essence part of the circuit here? Mr. TROTT. They are not going to banks. Mr. SAPHOS. I am sorry. In Colombia, sir? They are going to Colombia. Those negotiable instruments in false names are being treated by the narcotics traffickers in Colombia like specie, like money. The Colombian cocaine trafficker buys his cocaine paste in Peru, and the Peruvians won't take pesos because of inflation. He uses those moneys to buy cocaine paste. We turn them over and look at the back of that thing, and notice five or six people have had their pseudonym endorse that over to other persons, because it has been used as a negotiable instrument offshore. It has that made-up name on the face. We are seeing it goes through Panamanian banks, and back into the United States, and the turnover rate between that Panamanian bank and its corresponding bank in the United States. If my bank in Virginia could do one-tenth as well in turning those things over rapidly, I would be very lucky and my float time would be a lot quicker. A smurf would buy a check in Los Angeles on a Friday, it was being cleared through the financial institution back in Miami after going overseas and coming back into the United States over a 3-day weekend, 4th of July. That is pretty good work. That gave the doper the use of the money in Panama, and it gave the institution in the United States the use of the money almost overnight. Chairman ST GERMAIN. The Panamanian bank is principally involved as the collecting bank? Mr. SAPHOS. That particular bank, we seized the assets of that bank in south Florida in the United States. We are litigating the case right now, but we have probable cause to believe that they were acting as a mere conduit for narcotics money-— Chairman ST GERMAIN. You were able to look at those instruments and you found that the Panamanian bank was involved. Now that that bank has had a hold put on it, as a result of litigation, will you be able to then trace and find out which banks will be utilized? Mr. SAPHOS. Quite often, by tracking the negotiable instrument itself when it comes back into the United States by obtaining a subpoena for the instruments from the U.S. financial institutions, unfortunately, they have no obligation to keep secret the fact that we are conducting that investigation and have no obligation. Chairman ST GERMAIN. If you get all those pseudonyms on there, there ain't no customer. Mr. SAPHOS. The pseudonym is the name of the payee. No real obligation in the law requires the remitter be disclosed at all. It is a mere convenience. Chairman ST GERMAIN. Mr. McCollum. Mr. MCCOLLUM. Mr. Trott, I have a couple of questions. This is an area we have talked about many times, but I don't know if we ever nailed down something I discussed last week with Mr. Keating. Right now, there is a procedure that individual banks file for exemption from reporting requirements under the Bank Secrecy Act. They can take a customer that has a lot of cash normally, grocery store, whatever, that exceeds the amount we would expect somebody to put in there by cash, and put them on an exempt list. The customer at the present time is not a party to the exemption, he doesn't have to sign anything, request the exemption, an internal thing done for the purposes of the bank, and the Treasury Department. It was suggested last week, and Mr. Keating seemed to think it was a good idea, that it might be helpful to law enforcement and everybody else involved if the customer were required to sign some kind of a statement at the time the exemption is granted to him indicating the source of cash, the nature of his business, so forth, so that if it turns out later to be false and not true, it might be an easier prosecution than otherwise would be available to law enforcement. Is it a concept that you think is viable, and would you suggest we pursue it? Mr. TROTT. That sounds like a very good idea. Mr. MCCOLLUM. I also have a question relative to your testimony regarding the bill Mr. Torres and the chairman had put in, and I know you have testified to some of this, in your testimony, with regard to the $10,000 reporting requirement, but I didn't see any mention in the testimony, and I apologize for missing this. I don't believe you have been asked any questions about the $3,000 recordkeeping requirement in that bill as well. The bill calls for the banks to keep records on cash transactions, $3,000 or more, doesn't require that they report all of those, but that they keep certain records. Do you have a problem with that requirement? Is that a problem for anybody, or should we leave that one alone, too, in your view? Mr. SAPHOS. That in itself, no, sir. Mr. MCCOLLUM. Would you say that? Mr. SAPHOS. That in itself, no, I have no problem with that, but we are working with Treasury to come up with what we think might be a better solution, using the same number. One of the solutions we are working with Treasury on is that it be illegal for anyone to structure a transaction, it is wrong to go to different banks in the same day, same bank on the same day, same bank on multiple days for the purpose of keeping a bank from filing a report. The problem is that we are now simply telling the bank, if he comes into your bank many times in the same day, then you must report it. We are not addressing the rest of those questions. The $3,000, the document kept and maintained by the bank concerning $3,000 transactions, can be a significant contributor to that. If we tell the bank, you must report, if your customers comes into you many times in the same day, and has transactions in excess of $10,000, but you must also report if he goes back into your institution and others in the same day, and has transactions in excess of $10,000. And the way you may learn that is if your customer purchases a negotiable instrument with you for cash in the amount of more than $3,000 or what have you, then he has to fill out an application, and on the application you ask him whether he is structuring his transaction and you are allowed to rely upon that. We are not trying to make you the bank-a detective. You are allowed to rely upon his representation to you. Mr. MCCOLLUM. He didn't get stuck. He made a statement that you can prosecute him for. Mr. SAPHOS. Right. If he lies we can prosecute him. Mr. MCCOLLUM. Same idea I asked about. I like that. I know we are about to vote. Chairman ST GERMAIN. Let me ask you, on a false statement, Mr. McCollum just asked you about this, if you were to prosecute someone, wouldn't you have to have a signed false statement on record? Mr. TROTT. A provable false statement, right, and we would try to make it in terms of a document that is signed. Chairman ST GERMAIN. Do you agree or disagree with that? Mr. TROTT. That would be a good predicate for a Federal prosecution. Chairman ST GERMAIN. The requirement? Mr. TROTT. Yes. Chairman ST GERMAIN. So, you have no problem with that? Who was objecting to it? Mr. WYLIE. I don't think anybody was, Mr. Chairman. Chairman ST GERMAIN. Hold it a minute. My staff feels that the Treasury already has regulatory authority to require a signed false statement. Mr. TROTT. We are working on that with Treasury. Chairman ST GERMAIN. The thought was that perhaps there was a bit of a resistance because this would involve a substantial dossier, so to speak; correct? Mr. TROTT. Yes, banks would be required to keep additional records. I don't think there is necessarily resistance, but what I do, whenever I am imposing a requirement like this on somebody, I try to ask, is this an unreasonable requirement? Are we creating so many problems for the banking system that the tail starts to wag the dog so that they can't do anything except fill out reports. We want to make sure it is balanced and meets the objective without causing too many problems. Chairman ST GERMAIN. I find it hard to believe that there are that many people coming in, with those large denominations of cash, that are in a legitimate business, except for the grocery store. Mr. TROTT. There are a lot of cash businesses out there. I have heard bankers describe many people you might not otherwise expect. Chairman ST GERMAIN. They would be on an exempt list; wouldn't they? The fellow dealing with his or her local bank, if they are recognized. Mr. TROTT. That is what the exempt list is created for, you are right. Chairman ST GERMAIN. You exempt the legitimate businesses, or the bankers who are very familiar with their local customers. It seems to me that that volume should not be too great. Mr. WYLIE. We have had another excellent session, Mr. Chairman, with three very excellent witnesses, and you have made a very significant contribution, at least as far as this member is concerned. Thank you very much. Chairman ST GERMAIN. I, too, want to add my thanks to you. There are a few questions we propounded to you and I would ask— I will have the staff ask the real burning ones, those where we would like the replies as soon as possible, so we have them for the record if we go into a markup session soon. Mr. TROTT. Fine. Chairman ST GERMAIN. The subcommittee will stand adjourned until the call of the Chair. [Letters of invitation to witnesses of this day's hearing can be found in the appendix.] [Whereupon, at 12:45 p.m., the subcommittee adjourned subject to the call of the Chair.] APPENDIX Department of Justice STATEMENT OF STEPHEN S. TROTT ASSISTANT ATTORNEY GENERAL CRIMINAL DIVISION BEFORE THE SUBCOMMITTEE OF FINANCIAL INSTITUTIONS COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS CONCERNING MONEY LAUNDERING LEGISLATION ON APRIL 23, 1986 |