criminal wire and mail fraud. And under the language of the administration bill, it would catch that type of a transaction.

Mr. BERMAN. I believe it would, and I think it's just sweeping. Mr. HUGHES. I think the same way.

I thank you very much. You've been very helpful to us and we appreciate that.

Our next witness will be, when we return, the Honorable John K. Van de Kamp, the attorney general of the State of California; and we'll be back in 10 minutes.

The subcommittee stands recessed.

[Recess.]

Mr. HUGHES. Our next witness is Hon. John K. Van de Camp, the attorney general for the State of California, on behalf of the National Association of Attorneys General.

At this time, I'm going to recognize the gentleman from California, our distinguished colleague Dan Lungren, for the purpose of introducing our most distinguished witness.

Mr. LUNGREN. Thank you, Mr. Chairman. I know our colleague, Don Edwards, wished to be here, and did make an effort to be here, to make the introduction. In his absence I'd like to introduce the attorney general for the State of California.

I'm not sure he recalls, but when I was still a law student and trying to figure out how I should become a trial attorney, it was suggested that I go meet this young, very aggressive attorney working at the Justice Department, who turned out to be John Van de Camp. He has had a number of positions here in Washington. He has served as the assistant U.S. attorney for the Central District of California in the 1960's. In 1966 he was appointed U.S. attorney for the Central District of California by President Johnson. He then served the Department of Justice in Washington as the director of the executive office of U.S. attorneys. He was the first Federal public defender in Los Angeles in 1971. In 1975, he was appointed district attorney for L.A. County, and then was elected to that office. And as I recall, I crossed partisan lines in a nonpartisan office and supported him for that effort, and he was reelected in 1980. He has been the attorney general of California since 1982.

And, Mr. Chairman, I might say that just several days ago he had an article in the Op-Ed section of the Los Angeles Times on an issue that I've discussed with you, designer drugs, talking about the problem we have in the State, what the State needs to do, and the suggestions he made there are very complimentary to what we have discussed as looking at on the Federal level in further pursuit of that question. So, it is a pleasure for me to introduce the attorney general of California to this panel for his testimony; he's been on both sides of the courtroom as a public defender and as a prosecutor, and I'm sure that he will give us some excellent insights into this particular question.

Mr. HUGHES. I thank you for that introduction.

Mr. Attorney General, Don Edwards, our colleague, had intended to be here, but there's just so many different meetings. I suspect that he may be stopping by, and at that time we'll recognize him.

But I am familiar with your background, particularly in law enforcement, and it's a most distinguished one. I want to commend you for that and also for your leadership and the National Associa

tion of Attorneys General on this particular issue, money laundering. Welcome to the committee.

If you have a statement, without objection, it will be made a part of the record in full, and you may proceed as you see fit.

STATEMENT OF JOHN K. VAN DE KAMP, ATTORNEY GENERAL, STATE OF CALIFORNIA, ON BEHALF OF THE NATIONAL ASSOCIATION OF ATTORNEYS GENERAL, ACCOMPANIED BY GARY W. SCHONS, DEPUTY ATTORNEY GENERAL

Mr. VAN DE KAMP. Thank you, Mr. Chairman, and thank you, Congressman Lungren, for the kind words.

I'm here today with Deputy Attorney General Gary Schons, who is my in-house expert from our San Diego office. And what I'd like to do is, in a sense, synthesize the remarks which will go into the record this morning: essentially, to urge the committee to pass out legislation making money laundering as it pertains to financial institutions a criminal offense; second, to amend the Right to Financial Privacy Act to clear the way for financial institutions to cooperate in suppressing money laundering; third, to strengthen our cash transaction reporting laws, at the Federal level, and then fourth, to urge greater rulemaking and lawmaking at the State and local levels so that we have strong antimoney laundering enforcement not only from the Federal level, but also there as well. Let me tell you why I'm here this morning. For years, Federal authorities have worked on this issue. For many years Florida banks served as, the center place for global money laundering in this country, and they were used routinely to wash away connections between dealers, drugs and their profits. I went to Florida in 1982 to observe the President's Anti-Drug Task Force in action, in which Vice President Bush was involved, and had a chance to spend a couple of days there, trying to figure out what they were doing and whether it was making good sense. And I vividly recall the imposing facades and the glittering towers of the banks along Brickell Avenue in Miami, and seeing many of the shameful monuments to cocaine smuggling that are still standing there.

Fortunately, the Federal effort had begun to pay off. Operation Greenback, which is the operation that the Federal Government instituted that was aimed at money laundering, had some impact, and the total effort that was introduced there, both at the Federal and State levels, has begun to make a difference. Indeed, the State of Florida has passed its own money-laundering laws. It has a wiretap bill, both of which have been utilized; the result has been good in Florida, but not so good elsewhere, because it has tended to push the drug trade and related money-laundering operations to such States as my own, that of California.

The problem has already reached great proportions in our States, as indicated by the huge fines levied recently against the Crocker Bank. I'm told the Bank of America is soon to follow. We are witnessing an unending string of criminal prosecutions for laundering drug money.

In 1981, we had the Garfield Bank case, which ended in a number of convictions, and an execution gang-style murder, mind you, of a lawyer, a principal-who helped set up the money-laun

dering operation and turned Federal Informant. Bob Perry, a former AUSA, who testified, before you this spring, Bob was the resident expert in Los Angeles in Federal money laundering. I was very closely involved in that case.

In 1982, we arrested the notorious Conrado Valencia Zalgado, known in the underworld as "El Loco," one of the many who had moved his drug operations from Miami to Los Angeles because the heat was on there. He brought to Los Angeles not only his cocaine operation but money laundering, drive-by murders, and the rest, all the terrible things that had been associated for some time with Miami and the drug trade there.

In June of this year, there was the Coronado Bank case, laundering apparently over $20 million, much of it stuffed into satchels, plastic bags and boxes. "This is a bank, not a church," a bank officer allegedly told one of her employees. She said, "If they sell hard drugs, they sell hard drugs; in a sense, that's none of our business." In July we broke a $4 million ring in Los Angeles.

But perhaps the situation that best exemplifies the problem that brings me here comes out of the Grandma Mafia case of 1982, where a middle-aged woman, one of the ring leaders, told television viewers-it's on videotape exactly why she had set up shop in California. The money originated in Florida, but the heat was on the banks there, and Florida had gotten tough through moneylaundering and wiretap statutes; it was a lot easier to run a moneylaundering operation in California. So, it's increasingly clear to us, from a State where there's a high demand for drugs, that we have to do more to get at this problem, and we have to go at it in a variety of ways.

Despite determined efforts by Federal authorities under existing Federal law, including the Bank Secrecy Act, Federal laws have not proven adequate to deal with the problem. Under existing law, money laundering must be prosecuted under statutes where the theory of criminal culpability is at best tenuous and prosecution extremely difficult; in short, under the Bank Secrecy reporting requirements or under a law where you have to prove a conspiracy to defraud by obstructing the filing of accurate reports.

These are laws that have had their shortcomings exposed, one of the most recent decisions coming in the case of United States v. Anzalone, a U.S. Court of Appeals decision from the First Circuit, July 1, 1985. In that case, the Court ruled that the present law does not cover multiple deposits of amounts below the $10,000 threshhold, or, what we've been talking about here this morning, the so-called "smurfing" operations. In reversing the defendants' conviction, the Court of Appeals invited Congress to eliminate the loopholes in the law, and warned that it was "unwilling to stretch statutory construction past the breaking point to accommodate the Government's interpretation." End of quote.

And so the critical need for straightforward money laundering statutes is readily apparent. The National Association of Attorneys General, whom I represent here today, has unanimously urged this Congress to criminalize the knowing laundering of proceeds from criminal activity. So compelling is the need that I, in California, have sponsored State legislation which will create under State law a money laundering offense. Our legislation also creates a broad

monetary instrument transaction reporting requirement which will close what we view to be substantial loopholes in the existing Federal reporting requirements. Indeed, it goes right at the smurfing problem. This provision will require reports to be filed when any series of transactions attributable to one customer or one account exceeds $10,000 in 1 day, which is the present law, or exceeds $25,000 over a 5-day period. Although none of the bills presently pending before your committee calls for such a cumulative transaction reporting requirement, the National Association of Attorneys General and I join you in requesting your serious consideration towards enacting that kind of amendment to the Bank Secrecy Act. Another deficiency in the existing Bank Secrecy Act is the lack of control over exemptions from reporting, which are granted unilaterally by financial institutions. Ergo, if you have a market, restaurant, or someone who is making large cash deposits over a regular period of time, unilateral power is given to the financial institution for exemption. In the legislation that we are sponsoring in California, we propose to give the Attorney General the right to review and disallow any exemption, which must in the first instance be approved formally by two officers of the financial institution. I note that Chairman Hughes, in his bill, H.R. 1474, proposes a similar amendment to the Bank Secrecy Act. We support that proposal.

Let me briefly mention some of our areas of agreement and disagreement with the laws and bills that are before you this morning.

First of all, in my opinion the formulation of the money-laundering offense in the administration's bills, H.R. 2785 and 2786, defines the offense too broadly, and may bring within its sweep transactions which should not be the subject of Federal criminal sanctions.

If the formulation is designed to reach transactions not conducted through what is traditionally believed to be a financial institution and should be reached, then I suggest that your definition of financial institution be broadened out to include them. For example, in our proposed bill in California, we have a fairly long laundry list of those that would fall in the so-called definition of financial institutions. That can be broadened or it can be narrowed, but in that sense you can define the coverage of your particular cash transaction reporting as well as the definition of money laundering, so that it does not apply to every transaction under the Sun.

The reckless disregard scienter requirement, which is also part of the administration bill, is regarded by our lawyers as a somewhat unclear standard which may pose compliance difficulties and unnecessarily complicate prosecutions of the offense. In our view, the reason-to-know test is as rigorous as the reckless-disregard stand

ard.

I must say that I do support those aspects of the administration's bills which tie money laundering to a Federal or State felony, and I strongly support the criminal forfeiture provisions. In particular, the substitute assets or tracing feature should prove a powerful weapon in the arsenal of the prosecution.

As I mentioned earlier, I support the various proposals to amend the Right to Financial Privacy Act to clarify what information fi

nancial institutions may provide regarding possible violations to law enforcement without running afoul of the act. I also support extending civil immunity for a good-faith defense to financial institutions for reporting suspicious activity to law enforcement.

Obviously, as a State attorney general, I would look with caution about any form of Federal preemption of State laws; but I just have to tell you that in this particular instance, that we understand the underlying validity of what you are trying to do, and do not object to your preemption provision.

In general, I support the thrust of the measures before the committee which will strengthen the effectiveness of the Bank Secrecy Act. Here I have reference to increased penalties, the enhanced summons activity for the Secretary of the Treasury restrictions on customer notification.

I enthusiastically support the proposed revision of section 5319 of title 31, as contained in the administration's proposals, which would explicitly authorize the Secretary of the Treasury to provide Bank Secrecy Act information to local law enforcement when consistent with the purposes of the act.

One of the problems that we have today, and I can't underscore this enough, is that we have a Federal anti-money-laundering effort without a concommitant effort from the States. On top of that, there's been very little communication permitted between the Federal Government and the States with respect to cash transaction reporting. The result, is that we are not making optimum use of the information received.

In closing, let me just say how important the subject of money laundering is. The future of narcotics trafficking in America is one of our most significant national issues. We have to move very strongly to cut off the flow of money and we have to take the profit out of the business. The thrust of what we are trying to do in California as well as here, is to pass a law which says to those who engage in criminal activity and who are using banks to launder the proceeds that, if you use a bank, you go to jail.

Thank you.

[The statement of Mr. Van de Kamp follows:]