sary, just because we permit an undertaker to transport human remains across a State line because it's necessary, we are going to have to recognize that attorneys are going to have to engage in business where they're going to get knowledge from their clients because it's necessary for them to defend the rights of their client. Mr. Chairman, I appreciate the opportunity to address these matters, and I look forward to any question you may ask. [The statement of Mr. Bailor follows:] STATEMENT OF BERNARD S. BAILOR ON PROPOSALS RELATING TO MONEY LAUNDERING BEFORE THE SUBCOMMITTEE ON CRIME OF THE COMMITTEE ON THE JUDICIARY UNITED STATES HOUSE OF REPRESENTATIVES SEPTEMBER 12, 1985 INTRODUCTION Mr. Chairman and Members of the Subcommittee, my name is Bernard S. Bailor. I am pleased to appear here today as a public witness to testify on the various legislative proposals currently being considered by the Subcommittee to deal with money laundering. Before getting into the substance of my testimony, I would like to briefly introduce myself. I am a practicing criminal defense attorney with the law firm of Caplin and Drysdale, Chartered, at One Thomas Circle, Washington, D.C. I have been involved in the practice of criminal law since 1970. I was a senior trial attorney with the Criminal Section of the Tax Division of the Department of Justice for over six years. Since 1977, I have been actively involved in the defense bar, specializing in white collar crimes. While a prosecutor, I spent several years supervising grand jury investigations examining the illegal use of tax havens, principally in the Caribbean. In that position, I investigated numerous money laundering schemes. I have also encountered money laundering as a defense attorney. During the past year, I have chaired a White Collar Crime Subcommittee of the American Bar Association's Criminal Justice Section looking into the problem of money laundering. I do wish, however, to emphasize that I am not testifying today on behalf of the American Bar Association. In testifying today, it is my hope that my views, shaped by my experiences with money laundering, will be of assistance to the Subcommittee. 2 Money laundering is the process used to conceal the source of illegally obtained funds. It is also used to facilitate other crimes such as tax evasion, smuggling and bribery. One of the most effective ways to investigate and prosecute certain types of crimes is to focus on the criminal profits. By investigating the use of illicitly earned profits, it is often possible to identify parties involved in criminal activity who, because of their high level role in the criminal organization, would otherwise escape detection. This approach has proven to be highly effective in narcotics and organized crime investigations. High level individuals in these types of criminal organizations rarely get directly involved in the dirty work. Thus, they can only be linked to the criminal activity through the substantial profit earned from it. Recognition of the significant role money laundering plays in the operation of criminal organizations has led to a number of proposals now being considered by this Subcommittee to increase the effectiveness of federal law enforcement in dealing with money laundering. The most effective way to combat money laundering is to enact legislation and take administrative steps to facilitate its detection. This includes allocating substantial additional personnel and other law enforcement resources to money laundering investigations. Unfortunately, most of the proposed legislation does not do this and for this reason is not an effective response to the money laundering problem. Analysis of the Interim Report to the President and the Attorney General, THE CASH CONNECTION: Organized Crime, Financial Institutions, and Money Laundering, President's Commission on Organized Crime (October 1984), which I will refer to from time to time as the "Interim Report," reveals that detection of money laundering is a far more significant problem than prosecuting the responsible parties after it is discovered. Similar conclusions can be drawn from an analysis of other congressional hearings and reports dealing with money laundering. Each of the twenty examples of money laundering cited in the Interim Report could be and was prosecuted under existing legislation. The difficulty encountered was detecting the crime and the associated money laundering in the first instance. This is understandable since money laundering by its very nature is clandestine. In virtually all cases, successful money laundering schemes involve at least one of the four following steps: 1. 2. 3. 4. The use of a foreign transaction or a foreign bank account. The use of a series of transactions in lieu of a single Conducting large transactions with individuals and institutions who are not subject to the Bank Secrecy Act reporting requirements. Analysis of the examples of money laundering cited by the President's Commission on Organized Crime in the Interim Report reveals that the following methods were used to launder funds: |