penalty, I think, two levels below the penalty for the offense that was facilitated. In this I guess it would have the facilitator punished to the same extent as the principal, so it goes beyond what was a very controversial aspect before. Maybe we had somebody at the Justice Department who had this on the back shelf and thought it was something-▬ I don't know, we've seen that in Treasury before, and I'm asking you the question even though my name's on the bill. Maybe we'd better take a real look at this. I wonder, Mr. Attorney General, if you would talk a little bit more about why you believe the reason-to-know standard of intent is sufficient for the new offense. You mentioned that the Justice Department felt that reason to know was applicable in a negligence-type standard, perhaps of a civil nature as opposed to a criminal nature. I'd like you to think a little bit more about why you think it would be sufficient for the level of scienter to be established with that standard. Mr. VAN DE KAMP. Let me turn that question over to Mr. Schons, who has worked in this area. It's his particular view that this test is, at least under our law in California, more functional and more usable, and it means more to juries. Mr. SCHONS. Yes, Congressman Lungren, as we've looked at it, we have real problems with the administration proposal of reckless disregard. By the very nature of the fact they have to go so far to define it in the statute, itself, indicates the trouble that prosecutors would actually have in prosecuting an offense if they were strapped with that kind of a standard. The talk about risk of where the proceeds came from and trying to prove that the person was aware of such a risk and then consciously disregarded the risk is—No. 1, a very difficult problem in terms of the kind of proof that the prosecutor would offer in the first instance. But No. 2, and most importantly, to frame that issue in terms of a jury understanding it and trying to apply those types of concepts in reaching a determination of guilt or innocence is very difficult. Now, to answer your question directly as to why we support the reason-to-know standard, No. 1, in order to have an effective money-laundering proposal you need to have a standard somewhat lower than actual knowledge. In other words, if that is the require ment, I don't think that you will reach many situations that you intend to and that you ought to reach. So, the question is, What sort of a scienter standard do you have? Reason-to-know is, in fact, more than a negligence standard. It's not "should have known," it's that there are facts that give you reason to know the criminal source of the proceeds. The same type of facts that the administration talks about as supporting the reckless-disregard standard would apply to reasonto-know, and that, as applied in an actual prosecution, it is: No. 1, easy for a jury to understand, No. 2, it's amenable to reasonable proofs that the prosecution would have available to it; and, No. 3, in proving such a scienter requirement beyond a reasonable doubt, which would obviously be required, the prosecution would all but prove that the person had knowledge. So, I don't think it's a negligence standard. What it's saying is, is that if we can couple these facts together and show that you had knowledge of these underlying facts, we're going to impute to you actual knowledge. So, in a sense it's like in a murder prosecution, the difference between actual malice and implied malice. Under an implied malice standard, we impose murder culpability if you do these acts with knowledge of these facts, we impute to you the very high mental standard of malice. And I think here all we're saying is, if the prosecution can prove that you had knowledge of these underlying facts, that is going to be sufficient to impose criminal liability, because it is reason to know of the criminal source of the proceeds. Mr. LUNGREN. So, you wouldn't view, in substance, a proof of reckless disregard as really much different than reason to know. But as I understand what you are saying, in terms of explaining it to a jury and having a jury handle it, you think it would actually be better for the reason-to-know standard. Mr. SCHONS. Exactly. I don't really think that in terms of proof itself, which is, the way you ought to examine the issue, that there's any real difference between a reckless-disregard standard and a reason-to-know standard, it's just the latter is clearer. Mr. LUNGREN. Well, I appreciate those comments. I'm going to get back to the Justice Department and see what their response is, because of the problems I had when I first came here, after practicing law in a courtroom, was that I didn't think there was as much sensitivity as there should be on the part of those of us who make the laws as to what comes out at the end, which is trying to explain to a jury, through jury instructions, precisely what their standard is. And oftentimes it sounds great here, and we can spend months disagreeing and trying to figure out what we mean, then you've got the poor juror sitting there in a box, being given a 20minute explanation by a judge, and I've always felt jurors, by and large, with very few exceptions, really do try and do what they're asked to do. And I think we have an obligation to try and make it as clear for them-not as easy, but as clear for them-as possible. So, I appreciate that response and I'm going to go back to the Justice Department and see how they would view that, as well. Let me just ask this, Mr. Attorney General: Do you view there to be any federalism concern raised by the administration proposal which makes laundering proceeds from any State or Federal felony a Federal crime? Mr. VAN DE KAMP. Yes. It seems to me that, just knowing the balance you're dealing with balance here that local government will be very concerned if there is overreaching into their territory. And I know that Mr. Arcara will be testifying about that. Our view is that we do not have any objection to a Federal statute dealing with money laundering from any Federal or State crime, provided that a financial institution is involved in it. That gives you the Federal nexus. But I do have concerns if we deal with a whole range of other transactions that lie outside the financial institution. And those, it seems to me, should be dealt with at the local level. Do you understand the distinction I'm trying to make? Mr. VAN DE KAMP. It goes back to, I think, the thrust of your bill and Congressman McCollum's bill as opposed to the administration's bill, about requiring that you have a financial-institution nexus. Mr. LUNGREN. I understand that. I'm sensitive to that concern, because I know in the career criminal bill that was worked individually and then part of the total package, that there was some concern about whether we were overstepping our bounds, and one of the concerns I have is to make sure that prosecutors on the Federal level try and work out arrangements with local prosecutors in the career criminal provisions, so that we're not overstepping our bounds and so that it's a cooperative and complimentary effort as opposed to the feds coming in and overreaching and making it look like the locals don't know what they're doing or are incapable of doing it. Mr. VAN DE KAMP. The more narrowly drawn bill does a lot of good things, it seems to me, but it also preserves, I think, what are much better understood as the traditional jurisdictional guidelines. Banks traditionally come under Federal jurisdiction, whether it's bank robbery or bank embezzlements. The locals know that. But if, on the other hand, you went off and took Federal prosecutions, let's say, of a realtor or someone involved in the sale of a house, coming up by virtue of criminal proceeds from a local law violation, you could be jumping into almost any kind of transaction in the State, and I think that that is apt to bring much more business than the feds could ever handle, first of all, but, second, it would cause the kind of disruption and unhappiness that I am spending my day here, today and tomorrow, trying to undo. We meet in an Executive Working Group with the Justice Department officials about three times a year-in fact, I broke out of my meeting this morning to come over-where we try to work out these kinds of arrangements. It's been a very satisfactory process that Ben Civiletti started a couple of years ago and has been continuing. Mr. LUNGREN. Thank you very much. Thank you, Mr. Chairman. Mr. HUGHES. Thank you. Mr. Attorney General, we're very sensitive to the federalism issue, as my colleague from California has indicated, and we do appreciate your contribution today. You've given us a great deal to think about and we appreciate that. Mr. VAN DE KAMP. Thank you. Mr. HUGHES. Thank you very much. Our next witness is Mr. Neal Sonnett, third vice president, National Association of Criminal Defense Lawyers, of Miami, FL. Mr. Sonnett is a former assistant U.S. Attorney in the southern district of Florida and chief of the criminal division. He is president of the Metropolitan Bar Leaders Caucus of the American Bar Association and former president of the Dade County Bar Association. Mr. Sonnett has been a adjunct member of the faculty of the University of Miami School of Law since 1976. Mr. Sonnett is testifying on behalf of the National Association of Criminal Defense Lawyers of which he is third vice president and legislative chair person. I want to, first, apologize for the delay and indicate that I do appreciate your willingness to accommodate the Attorney General. All those bells indicate that it's not a Chinese fire drill, it's another vote. And so that we don't interrupt your testimony, why don't we just recess for 10 minutes. We'll get back as soon as we can. It's the Chair's intent to attempt to complete all the testimony. I'm not going to recess for lunch, I apologize for that; but I think we all agree that everybody else has other commitments, and I'm going to see if we can't complete the testimony. Mr. SONNETT. My schedule is flexible, Mr. Chairman, and I'm enjoying and learning from this hearing; so I'm perfectly willing to stay as long as you want me. Mr. HUGHES. The subcommittee stands recessed for 10 minutes. I'm sorry, it's going to be closer to 20 minutes, because we have a 15-minute quorum and then a 5-minute vote; so, perhaps you'll have time for a quick snack. [Recess.] Mr. HUGHES. The subcommittee will come to order. Sorry for the interruption. We have your statement, which was made a part of the record in full, and you may proceed as you see fit. STATEMENT OF NEAL SONNETT, THIRD VICE PRESIDENT, NATIONAL ASSOCIATION OF CRIMINAL DEFENSE LAWYERS, MIAMI, FL Mr. SONNETT. Thank you, Mr. Chairman. Because of the hour and the fact that there is another distinguished witness who will testify before you, I will try to summarize my statement and will not attempt to report everything that has been included in my written testimony. Mr. HUGHES. We appreciate that, because we do have your statement and we've read it. It is an excellent statement, very comprehensive, and we appreciate that. Mr. SONNETT. Thank you, Mr. Chairman. The National Association of Criminal Defense Lawyers is a national voluntary bar association that is committed to furthering the criminal justice system and the integrity of the criminal lawyer. As we said in our written statement, we join with this committee and share its concerns over the terrible problems of drug trafficking and money laundering, and it's our desire to work with the committee to do what we can in suggesting legislation to solve these problems. Other witnesses before this committee have mentioned the proper balance between effective law enforcement and individual liberties which is very important to the NACDL. That is often very complex, and a complex issue like money laundering is one that deserves the careful consideration of this committee. It is in that light that I want to discuss several provisions of the administration's bill, H.R. 2786, because I believe that there are parts of the bill which are neither appropriate nor necessary, and some which, indeed, create substantial risks to classes of citizens who are not and may never be involved in the types of activities which the committee has heard described as money laundering. While we agree that a need exists for new legislation which would strengthen, simplify, and streamline statutes relating to money laundering, that we have seen no compelling need for the kind of broad, far-reaching legislation that has been suggested in the administration's bill. The first objection that we have to the administration's proposal deals with the scope of the offense, that is the new offense that is created in H.R. 2786 of "Laundering of Monetary Instruments.” As other witnesses have said, this offense, we believe, is much too broad to be capable of ready definition, and, by its own language, we believe it can be applied in almost any circumstances involving the exchange of funds before, during or after any Federal or State felony. That is due to the way the proposed statute defines unlawful activity, the way it defines the term "conducts," and the way it defines the term "transaction." The statute can be directed at anyone involved in the exchange of funds, we think, whether or not that individual is involved in, or knowledgeable about the criminal offense itself. The second major problem that the National Association of Criminal Defense Lawyers has with the administration proposal is in the bifurcated standard of intent. We have no problem with the first of those two standards, because it tracks the language of section 1952 of title 18, and we believe that's clear. But we believe the reckless-disregard standard of intent is extremely troublesome and almost dangerous. Other witnesses have expressed that same concern to the committee in their testimony. In my written testimony I set forth a hypothetical that I believe bears repeating here. The hypothetical deals with a gentleman I call Sam Smuggler, who is the owner of a furniture store and is arrested for smuggling cocaine in imported furniture crates. His arrest receives prominent media attention, both in the electronic and print media, and I suppose we could go further in this hypothetical and say that he is in a small enough town so that the town is aware, because of his prominence, that he has been arrested. The next morning, following his release on bail posted by a bail bondsman, he picks up his store's payroll checks, which have been prepared by a certified public accounting firm, and he distributes them to his employees as their weekly pay checks. He stops at his bank, makes a mortgage payment to his friendly banker, goes to his barber for a haircut and a manicure, keeps an appointment with his dentist, and then he lunches at his usual table at the country club, served by his favorite waiter. After lunch, he attends his weekly therapy session with his psychiatrist, stops at the auto dealership to pick up his car which has been serviced, stops at the grocery to pick up some supplies for home, and comes home as his wife is paying the weekly salary to the housekeeper. Under the administration's proposal of "Laundering of Monetary Instruments", and, indeed, under the other two new offenses created, that is "Facilitation" and "Receiving the Proceeds of a Crime", all of those people are subject to prosecution for one of the three offenses, and, perhaps, for all three offenses, because all of them, presumably, were aware of the substantial risk that the money they received might have been directly or indirectly derived |