As an example of this diversity, the money must go somewhere. In the past it has gone basically to financial institutions. We would submit, Mr. Chairman, that as pressure is put on laundering through financial institutions, it is going to pop up someplace else within the United States. Understanding your interest in this question as well as the Commission's desire to act in partnership with the Congress and all of those who seek to answer and resolve this question, we asked the Internal Revenue Service to do for us a statistical analysis of these forms 8300, which in essence are the equivalent of currency transaction reports filed by financial institutions. The result of an analysis provided to us on June 4, 1985, of 605 of these returns filed by people engaged in businesses other than financial institutions reflects this. Of those 605 returns, 52 percent of them were filled out by auto dealers; 11 percent were filled out by precious metals dealers; 4 percent, the next largest category, were filed by attorneys. I have the balance of the information, but that represents the bulk of the analysis of these forms picked at random and analyzed by us for IRS. If I could turn to another question, that is, the issue of intent under the money laundering statute and why it's important to go beyond the question of actual knowledge. But before I do that, Mr. Chairman, I would like to just turn for a moment to another significant trend which the Commission has seen in money laundering. That is the willingness of organized criminal groups to sustain substantial losses of their profits where such losses may aid in concealing the illegal source of those proceeds or the conduct of the laundering activities themselves. Two significant examples of this trend were disclosed in public testimony at the Commission's hearings last month on gambling and organized crime. The first is a powerful Cuban organized crime group known as "The Corporation", which has amassed several hundred million dollars in assets, primarily through its control of illegal policy betting operations in various cities throughout the United States. To aid its members in developing ostensibly legitimate sources of income, The Corporation has evolved a scheme involving the legal lottery operated in Puerto Rico. By purchasing winning tickets in excess of their face value, members of The Corporation then would cash in these winning tickets and in that process legitimizing a large amount of its illegally obtained income. In a case also now under indictment, to turn to a second case, in the Eastern District of New York, more than $3 million in cash from heroin sales was deposited in the cashiers' cages at four Atlantic City casinos. At one of the casinos, the Golden Nugget, Anthony Castelbuono made an initial deposit of $1,187,450 in small bills, represented by this graphic which appears to your right, Mr. Chairman. That volume of bills was 5.75 cubic feet and weighed approximately 280 pounds. Its permission to accept this deposit was given by the chairman of the Golden Nugget himself, as he testified at the Commission's hearing. After losing more than $300,000 in chips and transferring chips among themselves, Castelbuono and a few associates withdrew $800,000 in $100 bills. Such a withdrawal would have a volume of only one-third of a cubic foot and would weigh only 16 pounds. Thereafter, Castelbuono and his associates transported this money to secret bank accounts located in Switzerland. Mr. Chairman, it is almost always the first step of the laundering process to reduce the bulk of currency from small denominations, otherwise known as street money, from narcotics sales to $100 bills to increase its portability. And that almost always involves a financial institution. Mr. HUGHES. Did Mr. Castelbuono take that in at one time? Mr. HUGHES. What did he have, a forklift? Mr. HARMON. Well, one of the questions that I neglected to ask the chairman of the Golden Nugget was— Mr. HUGHES. It would be interesting to find out. Mr. HARMON. I must admit, Mr. Chairman, I did not ask the chairman of the Golden Nugget how big the slot was in the cash ier's cage. In any event, it was big enough, as we saw in the video tape, for the $100 bills to be slid out and returned to Mr. Castelbuono. There is another case, which is not contained in my statement. These two, I think, Mr. Chairman, reflect the increasing use of techniques that do not require the direct involvement of financial institutions. But there is another which I think demonstrates the willingness of organized crime elements to sustain large losses or apparently large losses to launder their money. As recognized in the Commission's report of money laundering, the Pizza Connection heroin traffickers laundered $13.45 million through E.F. Hutton in New York for transfer to Switzerland. There, as with the Atlantic City casinos, millions of dollars in small bills were brought in. In a deposition before the Commission, the general counsel of E.F. Hutton testified that the Pizza Connection traffickers apparently lost $10.5 million in precious metals trades placed through E.F. Hutton. Put another way, the Sicilian Mafia was apparently willing to gamble $13.45 million to legitimize less than $3 million, in the process paying a laundering fee of over 75 percent. That, Mr. Chairman, is how important laundering is to the mob. On the issue of intent under the money laundering statute, in drafting its proposed statute to make money laundering a crime, the Commission realized that, while all participants in a money laundering scheme might be deemed equally responsible for its success, some participants will be more knowledgeable than others about the illegal activities which generate the funds to be laundered. Those responsible for planning, organizing, and overseeing the scheme, for example, are more likely to be privy to information concerning the scope and extent of their client's illegal activities. In contrast, those responsible for more ministerial duties such as the picking up or delivery of the funds being laundered may not know all the details of their client's activities but are highly likely to be exposed to information that gives them actual knowledge or reason to know the true nature or source of the funds they are laundering. For these reasons, the Commission decided to adopt and to recommend a bifurcated standard of intent that would encompass both the directors and the minions of a money laundering scheme. I hope, Mr. Chairman, it would be valuable for the subcommittee to understand the method of investigation by the Commission, using the subpoena power, which in its wisdom this subcommittee recommended that the Commission have in order to be able to do its job. As you know and as we pointed out, the State of Arizona has already enacted a money laundering statute which adopts a standard of intent, actual knowledge as well as reason-to-know. As you know, I am sure, as a former prosecutor, Mr. Chairman, the State of New York holds persons accountable for manslaughter in the second degree, for a degree of homicide, for recklessly causing the death of another person. By the Commission's recommendation, we think that it is not too much in those appropriate circumstances to hold somebody accountable for recklessly, in effect, laundering the mob's money. What the Commission did in reaching that conclusion was to look at documented and proven money laundering cases. Using the Commission's subpoena power, we went back into financial institutions and tried to see these laundered transactions through the eyes of the bankers, through the eyes of the brokerage firms, to understand on those occasions where they acted innocently whether or not it was fair to say that somebody should be held accountable for recklessly dealing in the mob's money or recklessly furthering the interest of organized crime. What we did was to focus on the critical point, that point at which the cash is actually introduced into legitimate commerce. While there may be a way to look at the legislation that has been proposed here as being comprehensive, in fact it is a comprehensive attempt to deal with single most important critical phase of the laundering process. Based upon this analysis, trying to see these transactions through the eyes of the financial institutions themselves, the Commission has submitted by its report that this reckless disregard is a fair and reasonable formulation of the intent with which one could be held to account as a money launderer, as a person who furthers the interests of money launderers. Finally, Mr. Chairman, if I may just turn to the issue of the right to financial privacy. It has been said that one of the bills under consideration here would virtually repeal all the protections established by Congress in 1978 when it approved the Right to Financial Privacy Act. That statement, in my view, Mr. Chairman, is wholly without foundation. What the Right to Financial Privacy Act does at this point in time is to permit financial institutions to wave a kind of red flag to law enforcement and to say that we suspect that something is taking place here, but we can't tell you what it was. So, with that red flag, law enforcement is expected to do something, by being put on notice but not being provided with the facts upon which they might be able to react. The question, I submit, Mr. Chairman, is why should banks not be able to do what every other citizen in this country is permitted to do when he or she believes that he has seen a criminal act take place? Why should financial institutions not be able to report to law enforcement the precise details of apparently criminal conduct, in the process being protected by proposed amendments to the Right to Financial Privacy Act, as long as they act in good faith? Again, Mr. Chairman, in our investigation we looked at the Right to Financial Privacy Act to see whether or not, to see the extent to which it did hinder financial institutions from providing information. And I would report that the President's Commission on Organized Crime found the same sort of impediment to its investigation by invocation of the Right to Financial Privacy Act, as has been reported by law enforcement. In one case, where there was a documented, proven convicted money laundering situation, a financial institution refused to identify even the bank officials who were involved in those transactions to the President's Commission on Organized Crime until the chairman of that financial institution had actually been served with a subpoena. I submit, Mr. Chairman, that under no reading and under no view of the Right to Financial Privacy Act could it ever be thought that the Right to Financial Privacy Act protected that kind of information. Last, we hope-and I speak for the Commission in saying-we hope that we have made simple the idea of money laundering. We hope we have been able to reduce it from something only understood by those expert in the fields of international finance to the average person. We know that in your work, Mr. Chairman and members of the subcommittee, that you have done a lot to make that be a reality. But it only occurred to me very recently, as I was reading U.S.A. Today, in a column called Voices from Across the U.S.A., it occurred to me that at least the public education job has been done. The public now does understand what money laundering is and does see how really very simple it is to understand. In talking to people from Stafford, VA; Bismarck, ND; DePere, WI; Whittier, CA; Kansas City, MO; and Salem, OR, U.S.A Today found a unanimous response that something must be done about money laundering. But the one I would like to leave you with, Mr. Chairman, are the words of Elizabeth Barrows, age 68, a retired domestic employee from Falmouth, MA, who said this: Money laundering is a frightening problem. Those banks that accept large amounts of cash without reporting it should be penalized in some way. Some of those cash deposits could be drug money or illegal money. We should start cracking down on the banks before it's too late. We shouldn't ignore this problem. With that, I would like to conclude my remarks with this, Mr. Chairman. If Elizabeth Barrows, a retired domestic employee understands what money laundering is, it's fair enough to hold accountable persons in financial institutions and otherwise in this day and age who recklessly act in disregard of a risk that certain money is being laundered. Thank you, Mr. Chairman. [Statement of James Harmon follows:] |