questions that arise from this ability to transfer information back and forth between financial institutions and law enforcement I think are these.

Does the obligation of citizenship end when a person enters the threshold of a financial institution? Why cannot financial institutions relay information of suspected criminal conduct to the appropriate authorities like any other citizen and why don't they want to be able to do that?

The current Federal scheme that attempts to strike at money laundering essentially focuses as I know you, Mr. Chairman, and members of the committee are well aware, focuses on reporting requirements. That is requirements of reporting by institutions themselves.

The anomaly which you have pointed out is that money laundering itself is simply not a Federal crime. The reason that the Commission focused on this issue among others was that the Commission believed that the result of creating a substantive money laundering offense was focus enforcement efforts on the other side of the teller's window, outside of financial institutions, on the launderers themselves rather than on the financial institutions.

The objective of a strategy in this area, an intervention strategy designed to get at the mob's profit as the Commission saw it, was to interrupt the cash-flow of organized crime in all its forms. Think of it this way if you would, Mr. Chairman, think of it as another kind of interdiction, think of it as an interdiction which does not depend on planes and boats and the commitment of the military, a kind of interdiction that can be done right here in this country, interdicting the flow of money into the coffers of organized crime.

This is the only way that I know of after 2 years of study of organized crime, Mr. Chairman, that members of the public, and the private sector can play a decisive role in combating organized crime, especially the drug trade.

With those general thoughts in mind, gone into more specifically in the course of my statement, Mr. Chairman, I would be prepared and happy to answer any questions that you or the members of the subcommittee might have.

[The prepared statement of Mr. Harmon can be found in the appendix.]

Chairman ST GERMAIN. Thank you, Mr. Harmon.

Now we will hear from Samuel Buffone, member of the White Collar Crime Committee of the American Bar Association.

Mr. Buffone.

STATEMENT OF SAMUEL J. BUFFONE, MEMBER, WHITE COLLAR CRIME COMMITTEE, CRIMINAL JUSTICE SECTION; ON BEHALF OF THE AMERICAN BAR ASSOCIATION [ABA]

Mr. BUFFONE. Mr. Chairman, members of the subcommittee, thank you. I would like to first relate the authority under which I offer my testimony today.

The American Bar Association's White Collar Crime Committee began its analysis of the money laundering problem in December 1984. After an extensive study by that committee, a report was pre

pared and forwarded to the criminal justice section of the American Bar Association, which adopted the report as its own. It was then forwarded to the full ABA, which through its House of Delegates adopted the resolution which is attached to my testimony.

The American Bar Association recognizes the pervasive nature of money laundering activities and the importance of combating them. Our recommendations support the enactment of Federal legislation which will assist Federal law enforcement agencies in combating money laundering.

While we believe that it is important to provide effective tools to combat money laundering, our review of proposed legislation has led us to the conclusion that the proposals go much farther than is necessary to provide an effective means to combat this problem. The breadth of many provisions of the proposed legislation create significant problems and do not in our view provide the most effective means for combating money laundering activities.

It is our belief that the focus should be on detection of the transactions rather than the tools available for post-detection prosecution. We have listed in our testimony available Federal criminal statutes that can be applied to money laundering once it has been detected. These shifting statutes provide a broad range of prosecutorial tools to prosecute money launderors once they are detected. We urge the subcommittee to consider several factors. There were comments during the first witness' testimony as to the incredible backlog of information which has built up on these transactions.

We urge the subcommittee to consider increased staffing at both the Departments of Treasury and Justice. As we noted in our report, the process of investigating money laundering is a labor-intensive endeavor and we believe that if there is ever to be an effective solution the finances and personnel must be provided to these Federal agencies.

There is a 2 month or greater delay between the collection of the information and its turnover to Federal law enforcement authorities. That is too lengthy a delay.

We have offered some proposals as to how to improve the processing of that information and its turnover to law enforcement personnel. One is that the period of time for turning over information from a customer to a bank and from the bank to Federal authorities be reduced to 1 day, we have also suggested that a post cardtype form be adopted which could be filled out by the customer at the time he made a cash transaction at a bank and immediately deposited in the mail by the bank.

Statements on that form could be subject to verification by bank personnel and subject to a criminal penalty under title 18, United States Code 1001 for knowingly making false statements. We have suggested that perhaps banking institutions could be required to immediately report to Federal authorities transactions which they believe are suspect through an 800 toll-free telephone number or some other means of reporting only those transactions that are so obviously suspect that Federal authorities should have immediate notification of them.

We urge increased regulation of the use of cashier checks and have suggested that cashier checks of greater than $2,000 be re

ported and that more than 1 day be required for the issuance of cashier checks to cut down on the kind of multiple transaction, Smurf money laundering that I know your subcommittee has heard testimony on in the past.

We have analyzed the proposed legislation and have included within our written testimony our comments. I would like to focus on several specific elements.

First, our strongest recommendation is that a traditional criminal law mens rea requirement be included in any statute. We support the mens rea requirements in H.R. 1474 and oppose any reason to know or reckless disregard standard for criminal culpability.

I listened with interest this morning to Mr. McCollum's question about whether or not there should be a negligence standard for a regulatory violation. We are not opposed to that kind of regulatory standard but are opposed to criminal applicability of such a standard.

We oppose those provisions of H.R. 2785 which would invade on the scope of State law criminal prosecutions and expand criminal jurisdiction over any State felony which had an economic motive as its end product because we recognize that any crime that has an economic motive will result in some form of financial transaction. We are opposed to the expansion of wiretap authority which would be inherent in H.R. 2785 since the Comprehensive Crime Control Act of 1984 provided wiretap authority for any title 31 offense.

We oppose the amendment of title 18, United States Code, section 2, which would provide a new facilitating an offense provision. We note that the proposed amendment would apply not only to money laundering but to any Federal offense and would greatly modify the contours of current criminal law by subjecting any Federal criminal offense to a facilitating standard.

We oppose the amendment of rule 17C of the Federal Rules of Criminal Procedure to permit the issuance of grand jury and trial subpoenas with a restriction on the recipient of the subpoena being able to notify anyone.

This prohibition would include the ability to contact an attorney and prohibit the recipient of a subpoena from even seeking any legal advice about his obligations to comply with the subpoena.

On two final points, we object to the provisions of the proposed legislation which will create a new crime of receiving the proceeds of a criminal endeavor. We note that this would create significant sixth amendment problems for any attorney who received a fee from a client with any indication that the fee may have been derived from illegal conduct.

The administration's legislation would place the criminal attorney in a unique position. Because of the receipt of attorney/client privileged communication, an attorney who had any reason to believe that a fee proffered to him may have been the result of criminal activity would by mere receipt of the fee have committed a crime himself.

Finally, we are opposed to the expansion of in personna forfeiture. An expansion of in personna forfeiture would create problems when applied to money laundering transactions.

Thank you for the opportunity to address the subcommittee. I would be pleased to answer any questions.

[The prepared statement of Mr. Buffone can be found in the Appendix.]

Chairman ST GERMAIN. Now to Earl Hadlow.

STATEMENT OF EARL B. HADLOW, VICE CHAIRMAN AND GENERAL COUNSEL, BARNETT BANKS OF FLORIDA IN JACKSONVILLE, FL, AND MEMBER OF THE AMERICAN BANKERS ASSOCIATION GOVERNMENT RELATIONS COUNCIL

Mr. HADLOW. Thank you, Mr. Chairman.

I am Earl Hadlow, vice chairman and general counsel of Barnett Banks of Florida in Jacksonville, and a member of the American Bankers Association Government Relations Council.

We in the banking community have spoken out with a single voice, in favor of the use of the Bank Secrecy Act as a tool for Government to combat drug trafficking and organized crime.

Chairman ST GERMAIN. Is that microphone on?

Mr. HADLOW. As I said, the banking industry, has supported from the beginning the use of the Bank Secrecy Act as a tool for Government to combat drug trafficking and organized crime.

We have offered to sit down with the various Government agencies, the Treasury and others, to work out a detailed plan to attempt to make money laundering a crime and define it carefully so that it will be done with a scalpel and not with a shotgun. We have not been well received. We continue to offer possible solutions that will accomplish these ends and will protect the rights of American citizens and will permit the banking industry to function. Instead, they have regularly pointed out how poorly the banking industry has performed and how many banks have been fined for their late filings.

We think it is time to get on with the business of drafting a bill that will be, in the chairman's words, universally acceptable; a bill that will place the burden on the money launderers.

Money launderers are the criminals. They are the ones who need to have the stick taken to them and we want to assist you in getting something that will pass the Congress. Let's get on with it.

The banking industry has made a monumental effort to comply with the existing Bank Secrecy Act.

Since 1981, our bank, to give you some numbers, has filed approximately 60,000 CTR's and has established a computerized system that takes untold manpower to operate.

The IRS is half a million to a million CTR's behind in processing and that may translate into 6 months or so before they can take any action on the data that they already have. One of the reasons for that is the banking industry has been scared by the attitude of the regulators and some banks are, for example, taking their exempt lists down to zero so nobody can question them on their discretionary decisions.

We are filing reports for every cash transaction so that is the reason the number has jumped so dramatically. In any case, the banking industry is prepared to deal with the legislative solutions and get something that is universally acceptable.

There are three main issues in the various bills that have come forward. One is to create a new title 18 crime of money laundering which goes beyond the reporting of cash transactions and, essentially, makes a crime out of money getting into the banking institution through any means, if that cash can be tied to any illegal activity.

One of the most difficult jobs will be to draft legislation that is fair to everyone, including the bank teller who generally has no way in the world to determine the background behind money that is deposited.

Watching out for cash that is coming in is something that no teller can know the source and nature of every cash transaction. If you are seeking a bill that will pass and pass quickly, we believe you should not create a new title 18 crime of money laundering. Instead, you should take the existing Bank Secrecy Act and strengthen it. You should also pick up smurfing by defining structured transactions as a crime under the Bank Secrecy Act. Smurfing transactions, where someone deceives a bank or attempts to induce them into not filing the required CTR, could become a Federal crime simply amending the Bank Secrecy Act as has been done in Mr. Pickle's bill, H.R. 4573.

The banking industry would almost unanimously support that sort of bill. It is very discouraging to pick up a smurfing transaction, know that you have one, turn it in to somebody, as we now do under existing law, and have no action taken because the three Federal court decisions that have ruled that smurfing is not a violation of the Bank Secrecy Act.

A person can come in with $50,000 in his hand and deposit $9,000 and say I am leaving and I am going to go and deposit the rest of this in another branch later on that day and he has not violated the law.

Now, that sort of thing-we have been reporting these activities to the U.S. attorney and the FBI and it is simply now declared not to be illegal.

There is absolutely no need to amend the Right to Financial Privacy Act. It has not been shown to be any obstacle to law enforcement.

I think the American public would get very upset with Congress if they found that their bank records were uniformly opened without the use of the ordinary subpoena powers now available to the Government.

We would support Mr. Wortley's approach and Senator DeConcini's approach to have the Secretary of the Treasury review exempt lists.

The banks would love it because right this minute it is very difficult to get a decision from the Treasury Department on any questionable exempt customer or group of customers. If you go to them now and say what about these special cases, it is like pulling teeth to get an answer. Many banks, therefore, have stricken virtually everybody from their exempt list and the CTR flow accelerated dramatically.

Chairman ST GERMAIN. I am amazed at that because, as we saw in the Bank of Boston case, there were questions that came from Treasury to the Bank of Boston about certain exemptions that had