three through five of H.R. 1474 and to the title 31 amendments

made in H.R. 1367 and H.R. 1945.

As for section six of H.R. 1474, this section is now unnec

essary.

Prior to the passage of the Comprehensive Crime Control Act of 1984, 31 U.S.C. 5316 (a) punished one who "transports or has transported monetary instruments" of a certain amount into or out of the United States without filing a report. 8/ There was no attempt provision and the prosecution of persons discovered with large amounts of undeclared currency about to board departing international flights was often difficult. Courts had drawn fine

lines as to the particular point at which the provision was violated, with some holding that no violation could be found until the person with the currency was on the verge of boarding the plane or other mode of transportation at the final call for departure (at which point apprehension was often difficult) even though the person had falsely declared to a Customs Officer some time earlier that he was not transporting more than the reportable amount. Section 901 (c) of the Comprehensive Crime Control Act added an attempt provision to 31 U.S.C. 5316(a), thus overcoming this problem.

Section six of H.R. 1474 would replace the new attempt provision and make the subsection reach one who "transports, is

8/

Under the old law, reports were required whenever a person transported $5,000 or more. The Comprehensive Crime Control Act raised the amount for which reports would be required to $10,000

or more.

about to transport, or has transported" unreported monetary instruments of $10,000 or more. In our view, while such a change would probably not lessen our ability to reach the conduct now covered by the attempt provision, it is simply not necessary to replace this provision, which sets out a familiar concept applied in a number of circumstances, with the unique phrase "about to transport" which may well cause needless litigation

In sum, Mr. Chairman, while we appreciate the introduction of bills such as H.R. 1367 and H.R. 1945, which by and large contain recommendations of the Organized Crime Commission, and H.R. 1474, we think that our study of all of these bills and intensive consultation with all concerned federal agencies have enabled us to produce the type of comprehensive legislation that is needed in this area. We hope that H.R. 2785 and 2786 will be carefully considered and then expeditiously processed.

Mr. Chairman, that concludes my prepared statement and I would be happy to answer any questions at this time.

DOJ-1985-07

Mr. HUGHES. Thank you very much, Mr. Stephens.

It is the Chair's intent to hear from all the witnesses on the panel first, and then we will go into questioning.

Our next witness is John M. Walker, Jr., the Assistant Secretary of the Treasury for Enforcement and Operations of the U.S. Department of the Treasury.

As I indicated, Mr. Walker is no stranger to the subcommittee. This past Friday, Mr. Walker was confirmed as one of the new judges for the Southern District of New York, Federal District Court. I want to offer the congratulations of the subcommittee to you, John, and wish you well with your new challenge.

Mr. WALKER. Thank you very much, Mr. Chairman.

Mr. HUGHES. We have your statement. You may proceed as you see fit.

Mr. WALKER. Thank you. Mr. Chairman, I would like to thank you personally and the committee for your continued interest in and support for our Government's attack on money laundering and the illegality that it supports.

I also appreciate this opportunity to testify about the bills that are before the committee that address the problem of money laundering and its connections with organized crime in our society. While all the bills before the committee have much to commend them, I am especially pleased to discuss and endorse the administration's Money Laundering and Related Crimes Act of 1985, H.R. 2785 and 2786, which was the result of a joint effort by the Department of Justice and the Department of the Treasury, building upon the ideas of the President's Commission on Organized Crime.

Not only would this bill create a new criminal offense of money laundering, but it would significantly strengthen Treasury's Bank Secrecy Act enforcement effort.

Another significant benefit of this bill is its removal of what we perceive to be certain impediments to law enforcement posed today by the Right to Financial Privacy Act. It is these aspects of the bill, the Bank Secrecy Act amendments in section 5 and the Right to Financial Privacy Act amendments in section 3 that I would like to discuss principally in my remarks today.

The provisions in the bill amending the criminal code, including the new offense of money laundering, have been fully addressed by Mr. Stephens on my left. Before discussing the money laundering initiatives, I would like to take this opportunity to update the committee very briefly on Treasury's Bank Secrecy Act enforcement activities since I was last before the committee on April 16.

First, in the wake of the criminal investigation in which the Bank of Boston pleaded guilty to numerous violations of the Bank Secrecy Act, it has become apparent that Bank Secrecy Act compliance is in need of improvement throughout the financial community. Over 40 banks have come forward to Treasury, mostly on a volunteer basis, to confess Bank Secrecy Act violations. On June 18, 1985, Treasury announced that civil penalties ranging from $210,000 to $360,000 had been imposed on four of these banks: Chase Manhattan Bank, Manufacturers Hanover Trust, Irving Trust, and Chemical Bank. The appropriate disposition of the cases of many other banks that have come forward is currently under review by my office.

In addition, my office has authorized the IRS to conduct Bank Secrecy Act investigations in approximately 100 cases involving financial institutions. Those will be criminal investigations. We have also been working with financial institution regulatory agencies to strengthen their Bank Secrecy Act audit procedures. More strenuous audits should lead to discovery of more violations by financial institutions. Financial institutions whose violations are unearthed by a regulatory agency audit will be subject to more stringent civil penalties than those who have volunteered.

Second, we have strengthened the Treasury Bank Secrecy Act regulations in several respects. On May 7, 1985, regulations became effective that designated casinos as financial institutions, subject to certain Bank Secrecy Act reporting and recordkeeping requirements. As evidenced by the recent hearings before the President's Commission on Organized Crime, money laundering through casinos may be even more widespread than once thought. The Treasury regulation should foreclose the attractiveness of the use of casinos for money laundering.

Finally, the targeting amendments to the Bank Secrecy Act regulations were published as a final rule in the Federal Register on July 8, 1985. These regulations do not themselves impose any reporting requirements. Under the regulations, however, Treasury will be able in the future to target a financial institution or a group of financial institutions for a defined period of time for reporting of specified international transactions, including wire transfers. We envision that this targeting generally will require reporting of transactions with financial institutions in designated foreign locations where there are indications that information on currency transaction patterns from these locations would be especially useful.

As I will discuss later in these remarks, Treasury has clear legal authority under the Bank Secrecy Act to require reporting of international transactions without legislative amendments.

Now I would like to turn to H.R. 2785 and 2786. Section 5 sets forth several amendments to the Bank Secrecy Act provisions in title 31 of the United States Code that are essential to effective enforcement of the act by the Secretary of the Treasury. Most importantly, the secretary would be given, for the first time, summons authority for both financial institution witnesses and documents in connection with Bank Secrecy Act violations. This authority was among the legislative recommendations in the October 1984 report of the President's Commission on Organized Crime on money laundering and is also contained in H.R. 1945 and H.R. 1367.

The Secretary may summon a financial institution officer or employee, former officer, former employee, or custodian of records who may have knowledge relating to a violation of a recordkeeping or reporting violation of the act and require production of relevant documents. This authority is essential, both to investigate violations and to assess the appropriate level of civil penalties once a violation is discovered. Under this bill, a summons would be issued only by the Secretary or by a supervisory level official of an organization to which the Secretary has delegated Bank Secrecy Act enforcement authority. An agent or bank examiner in the field could not issue a summons on his or her own authority.

Section 5(c) contains amendments to 31 United States Code 5321 to strengthen the civil penalty provisions of the Bank Secrecy Act. The increased penalties will make clear to financial institutions that proper reporting is extremely important to law enforcement and that the financial consequences of noncompliance could be dire.

The bill provides a new penalty for negligent violations of the recordkeeping and reporting requirements. Negligent_nonfiling by banks deprives the Government of important law enforcement information, but there is some question regarding the degree of negligence that is required to satisfy the legal standard of reckless disregard, which is necessary to subject violators to civil penalties under current law. This provision would subject violators to a $10,000 civil penalty in cases of mere negligence.

Section 5(b) revises 31 USC 5319 relating to disclosure by the Secretary of the Treasury of information reported under the Bank Secrecy Act. Currently, the Secretary is required to make such information available to a Federal agency upon request. The amendment clarifies that the Secretary may also make this information available to a State or local agency and may make disclosure to any Federal agency if he has reason to believe the information would be useful to a matter within the receiving agency's jurisdiction with or without a request.

Disclosure may also be made to the intelligence community for national security purposes.

Section 3 sets forth several amendments to the Right to Financial Privacy Act of 1976, the RFPA. Many of these amendments are designed to refine the extent to which financial institutions may cooperate in law enforcement efforts without risking civil liabilities under the RFPA. These amendments would compromise no legitimate privacy interests. Several of the amendments are variations of recommendations made by the President's Commission on Organized Crime, which appear in H.R. 1367. In viewing these amendments, it is important to bear in mind that the Right to Financial Privacy Act does not confer any rights on the part of an aggrieved customer to recover damages from a bank or for that bank's release of information to State law enforcement authorities or to private parties. The act provides protection only in the case of disclosure to the Federal Government. It should not be used as a shield to prevent banks from voluntarily making timely disclosure of ongoing criminal activity to Federal law enforcement authorities.

In my view, the most important amendment is to subsection 1103(c) of the Right to Financial Privacy Act. Currently, 3403(c) provides that nothing in the act shall preclude a financial institution from notifying a Government authority that the institution has information which may be relevant to a possible violation of any statute or regulation. The provision has created much confusion among financial institutions regarding how much information relating to the possible violation of law can be given to a governmental authority without notice to the affected customers and the risk of civil liability.

For effective enforcement against money laundering it is critical that financial institutions be free to divulge enough information about the nature of the possible violation and the parties involved