While Congress has the authority to confer adequate powers on the other branches of government to cope with the transition from purely local to interstate criminal activity because all such activity occurred in the United States, its ability to provide federal law enforcement authorities and courts with sufficient means to deal with transnational criminal activity is much more circumscribed. We are no longer dealing with one sovereign nation, but with many. The activities of United States investigative agents and prosecutors involved in such cases are regulated not only by United States law, but by the laws of the countries in which all or part of the criminal activity with which they are concerned took place. And, the effect of United States court orders supporting our efforts to obtain investigative information and evidence is limited to a significant extent by the willingness and ability of affected foreign countries to permit the execution of those orders. Thus, if we are to deal effectively with such activity, we must enlist the cooperation of the affected foreign countries. No longer is the problem a purely domestic one. It has become one which can and does affect our foreign policies and relations, and it is one which has become of increasing concern to the State Department. For example, during the past year, the ability of the Justice Department to obtain information from certain Carribbean based banks which were (and continue to be) used to launder proceeds from drugs and narcotics activities has become a growing issue between the United States and some of those countries which now claim financial dependence on the same banking operations for economic stability. As this Subcommittee has noted, banks in foreign jurisdictions play a prominent role in international criminal activity affecting the United States. The role of foreign banks in so-called "offshore" bank secrecy jurisdictions is of particular importance. While banks in certain Caribbean countries are presently playing a significant role in transnational criminal activity affecting the United States, it is a mistake to limit the inquiry to such "offshore" banks. The problem is a world-wide one. Bank secrecy jurisdictions exist all over the world, and their proliferation is continuing. Therefore, resolving our problems with one such country or jurisdiction, can result in criminals merely shifting their activities to other countries or jurisdictions. Moreover, it is a problem involving not only small local foreign banks, but one increasingly involving branches of many of the world's largest banks. The Let me address the noteworthy Interconex case, a case that did not involve drugs or violent crime. Rather, this was a commercial fraud case, the victim was the Raytheon Company and involved a scheme to defraud the Raytheon Company of more that $2 million. scheme employed by the defendants related to certain contracts awarded by Raytheon for the fabrication and shipment of modular housing for a major Raytheon air defense project in Saudi Arabia. The defendants paid a bribe of more than $1 million to certain Raytheon employees to guarantee the awarding of shipping subcontracts for the modular housing in Saudi Arabia. These shipping subcontracts contained inflated charges of more than $2 million, which the defendants diverted to a Swiss bank account. These funds ultimately were distributed through a series of complex transactions involving Swiss, Bermuda, Liechtenstein and Cayman Islands banks and companies. The detailed facts of that case and the indefatigable efforts of the Department of Justice prosecutors demonstrate several salient features that this Subcommittee should not overlook. First, bank secrecy laws can be used improperly to protect commercial swindlers; second, sophisticated criminals use multiple countries with bank secrecy laws to delay and ultimately frustrate legitimate law enforcement investigators beyond the statute of limitations periods and thereby escape prosecution: third, foreign countries rely upon slow, time-consuming and very expensive law enforcement techniques such as letters rogatory at the expense of ligitimate and reasonable law enforcement needs. It is a mistake, however, to condemn bank secrecy, per se, because it is being abused in some countries and jurisdictions. Persons and companies transacting business with and through banks are entitled to a reasonable degree of privacy in connection with such business transactions. The United States itself, through the Right to Financial Privacy Act, recognizes this right. The critical question is not whether a country has bank secrecy laws, but whether the country has built into its laws effective and efficient means of piercing bank secrecy where there is reasonable suspicion that a bank account has been used in connection with a crime or as the depository of the proceeds of a crime. For example, Switzerland has long been regarded as the model bank secrecy jurisdiction. Yet, through the Mutual Assistance Treaty in Criminal Matters ("Treaty") between our countries and the enactment of appropriate enabling legislation in Switzerland, law enforcement and privacy interests have been placed in proper perspective. In the six years the Treaty has been in force, the United States has made more than 200 requests under the Treaty. More than two-thirds of those requests have asked for, among other things, bank records. The bank records we have obtained under the Treaty have been very instrumental in many important successful prosecutions, and, in many instances, have been cited by judges as the basis for enhancing sentences of convicted offenders. Because of the effectiveness in general of mutual assistance treaties in criminal matters, we have made the negotiation of such treaties with other key countries an important element of the Justice Department's program to combat transnational crime. A mutual assistance treaty in criminal matters is now in force with Turkey, and treaties with Colombia and the Netherlands (including the Netherlands Antilles) have been advised and consented to by the Senate and are awaiting ratification by our treaty partners.*/ A treaty with Italy was recently signed by Attorney General William French Smith, negotiations with West Germany are nearing conclusion, and negotiations with Jamica will resume within the next two months. */ Unfortunately these mutual assistance treaties cannot be used for tax or "fiscal" crimes, and thus, because of the unwillingness on the part of foreign countries to grant access to bank records to the U.S. law enforcement agencies investigating tax fraud and tax evasion matters we must seek other avenues for obtasining such information and evidence. In some instances, we have employed foreign counsel to represent the United States in connection with requests for letters rogatory for bank records. In the past two years, we have obtained bank records from the Bahamas in at least six instances through such use of private counsel. In the Interconex case, private counsel was used to successfully obtain bank records from the Cayman Islands. Despite the seccesses we have achieved through the use of private counsel, we do not view this costly, time-consuming method to offer a viable, long term solution to the problem of obtaining foreign bank records. This is wholly unsatisfactory and altogether too expensive. It is the position of the Deaprtment of Justice that the foreign government should represent the U.S. in its requests for information in foreign courts. Over In order to help induce bank secrecy jurisdictions to enter into mutual assistance treaties with the United States, we are considering the feasibility of designing all future treaties in a manner that will permit the forfeiture of narcotics trafficking monies to our treaty partners in whose bank the funds are deposited. The Swiss Treaty, through the operation of Swiss law, permits such forfeiture to the canton in which the bank account is located. the past two years, the Swiss have frozen, and are in process of forfeiting, amounts estimated to be as high as $20,000,000 in narcodollars pursuant to information provided to them under the Treaty. Given the magnitude of narco-dollar accounts in many bank secrecy jurisdictions, the possibility of such forfeitures should offer a significant incentive to enter into mutual assistance treaties in criminal matters and to implement them in a manner that will be mutually beneficial to both parties. Where problem bank secrecy jurisdictions fail to reach a reasonable accomodation between bank secrecy and the requirements of bona fide reasonable law enforcement interests, other measures will be aggressively pursued: First, we shall be obligated to resort to the service of subpoenas on the United States branches of banks whose foreign records we seek. This approach was most recently sanctioned by the United States Court of Appeals for the Eleventh Circuit in United States v. Bank of Nova Scotia, 691 F.2d 1384 (11th Cir. 1982). Second, we shall, after careful review by Department of Justice officials in Washington, D.C., subpoena appropriate officers of foreign banks if they enter the United States where they are concluded to be material witnesses. See, United States v. Field, 532 F.2d 404 (5th Cir. 1976). Third, we shall, applying comparable standards and review within the Department, subpoena attorneys and agents for foreign corporations who travel into the United States involved in money laundering schemes to testify and to produce records of the corporations. United States v. Bowe, 694 F.2d 1256 (11th Cir. 1982). The Until we can obtain the level of cooperation from other bank secrecy jurisdictions which we have obtained from the Swiss and certain other countries, foreign bank secrecy laws will enable criminals to successfully avoid indictment and presecution in the United States. problem presented by the use of banks in such bank secrecy jurisdictions is particularly acute in connection with financial investigations of high level narcotics traffickers and financiers who use banks in such jurisdictions to launder the astronomical profits they make from preying on our society. Many narcotics financial investigations have been frustrated by the invocation of bank secrecy laws. Such use of bank secrecy laws plainly frustrates law enforcement agencies which seek only to protect the public from such criminals and thus, unreasonable bank secrecy should not be tolerated by the international community. In addition to frustrating major narcotics investigations, the improper application of foreign bank secrecy law has also played a substantial role in obstructing the investigation of numerous fraud schemes using banks in such jurisdictions as instrumentalities in carrying out such frauds or as facilities for laundering their proceeds. Finally, as Assistant Attorney General Archer and Commissioner Egger will testify, banks in these jurisdictions are being increasingly used in numerous criminal tax fraud and tax evasion schemes, and, as already described, constitute a focus joint criminal and tax investigations of international narcotics traffickers. Their testimony will deal in depth with these matters. The predominance of the foreign bank secrecy problem in discussions of transnational law enforcement problems affecting the United States should not obscure the need for us to take other steps to improve the effectiveness of United States law enforcement efforts in this area. Many of these improvements can be accomplished without legislation. First, in an effort to improve coordination of our overall federal effort, the Department of Justice recently sponsored a highly successful conference on obtaining evidence from foreign jurisdictions among senior level federal prosecutors and investigators, almost all of whom had significant experience in international investigations, to discuss their activities, the successes thay had achieved, and the problems they had encountered in conducting those investigations.*/ Based on the success of this conference, we anticipate holding future conferences on obtaining evidence from foreign jurisdictions on a regular basis. Second, many impediments to the successful investigation of international criminal activity affecting the United States may be overcome through changes in agency rules and regulations without the need for new legislation. For example, much of the clearing of transactions for banks in Caribbean bank secrecy jurisdictions is done by */ Agencies participating in at th Conference were the Federal Bureau of correspondent clearing banks file a report with any of the bank regulatory agencies as to the foreign banks for which they are acting in this capacity. Identifying such correspondent banks would enable us to pick up many transactions of investigative interest without having to seek the records of the foreign bank itself. Finally, in response to the Subcommittee's specific request for suggestions, there are a number of areas in which legislation may be appropriate in order to assist the efforts of United States law enforcement authorities in combatting and investigating international criminal activity affecting this country. Neither the Department nor the Administration is formally recommending specific legislation, but some areas for discussion are: 1. Further removing obstacles to information sharing between federal law enforcement agencies. At present, there are restrictions on United States criminal investigative agencies prohibiting them from sharing critical information about criminal activity which transcends agency jurisdiction. 2. Changing the Federal Rules of Evidence to facilitate the introduction of foreign business records -- particularly foreign bank records -- on the basis of the certification of the custodian of those records, before an appropriate foreign official, that they were kept in accordance with the requirements of Rule 803 (6) of the Federal Rules of Evidence. The signature of the foreign official would then be authenticated in accordance with Rule 902 (3) or the applicable mutual assistance treaty in criminal matters, and the records would be admissible in United States court proceedings unless the defendant could make a proper showing that there was significant reason to believe the records lacked trustworthiness. 3. Criminalizing attempted violations of the Bank Secrecy Act with respect to exportation of currency and monetary insturments from the United States, and specifically authorizing customs searches of persons and property leaving the United States. 4. Increasing penalties for failure to report the import or export of currency and monetary insturments, and for the failure to report beneficial interests in foreign bank accounts on income tax returns. 5. Amendment of statute of limitations provisions to exclude time required to obtain foreign evidence when there is a showing that the defendant made use of the foreign jurisdictions in committing an offense. 6. Enact federal legislation: a) to authorize expressly the issuance of requests for b) to require defendants to pay the costs of obtaining evidence abroad when it is there due to actions of the defendant; |