back in Miami to conduct financial investigations using the reporting information provided by the Bank Secrecy Act. The Treasury task forces modeled after Greenback now total 40 in number, located in cities across the Nation. They have produced over 1300 indictments and over 460 convictions. They have resulted in $81.8 million in currency seizures and $34.3 million in property seizures. And, they have destroyed 18 major money laundering enterprises, which laundered a documented total of $2.8 billion. Mr. Chairman, this is indicated on the chart over here to my left. It lists some of the major money laundering organizations that have been investigated and that have actually been indicted, specifically the ones at the top of the chart, which total seven. The remainder are currently under investigation. But we are able to document the scope of the money laundering operations in each case. Those are indicated by the second column over. They range anywhere from $500 million, over a 36-month period in the case of Isaac Kattan, to $9 million in a 3-month period in the case of the last pending case on the chart. It gives the committee and you, Mr. Chairman, and other members of the committee, some idea of the major investigations that have been conducted here. Most of these investigations, I might add, were conducted in the Florida region through Operation Greenback. Greenback itself has become a component in one of the President's Organized Crime Drug Enforcement Task Forces, which now number 13. These task forces have initiated over 880 cases, even though they have been fully operational for only 21 months. They have produced indictments of more than 4,600 individuals and have resulted in more than 1,860 convictions. Two out of three task force cases have a financial component. Treasury has contributed approximately 480 special agents to work full time on the OCDE task forces, 400 of which are IRS and Customs agents who are investigating money laundering. The other 80 agents are ATF agents who are investigating the firearms violators who participate in and support the drug trade and organized crime. Mr. Chairman, while Treasury's financial investigations have made considerable progress, it is no secret that money laundering remains an enormous challenge. When the Bank Secrecy Act was passed, Congress contemplated that it would strengthen law enforcement's ability to combat whitecollar and organized crime. Over the 15 years since the enactment of this landmark legislation, there is no question that the act has succeeded in this regard. But as a society, it is essential that we set a higher goal. If we are to strike a telling blow against drugs and crime, we must go further, and strive to deny criminals access to our financial system. This, of course, is a task that law enforcement cannot accomplish alone. Banks and other financial institutions must do more to ensure that their employees do not become, wittingly or unwittingly, the prey of the criminal operative with cash to launder. Certainly, full compliance with the reporting requirements is essential. Treasury depends on the reporting data generated by these requirements for its own financial investigations and the analytical support it provides other law enforcement agencies. The Treasury Financial Law Enforcement Center, or TFLEC, combines these data with other sources of intelligence to generate financial intelligence reports, currency flow charts, and link analyses, which probe the financial connections inside and among illicit enterprises. TFLEC provides vital support to ongoing investigations, including those of the OCDE and Treasury task forces, and it generates leads for the development of new cases. It is fair to say that were it not for the reporting information Treasury receives as a result of the Bank Secrecy Act, the major money laundering enterprises I mentioned earlier would all be thriving today. To ensure the availability of reports, we must continue to improve the level of compliance by financial institutions. Recent cases involving banks who have violated the reporting requirements illustrate that there are instances in which currency transaction reports and currency and monetary instrument reports are simply not being filed. We have also seen misuse of the exempt lists, under which specified bank customers may make cash deposits without the filing of CTR's. Now we have begun a number of initiatives to effect further improvements in compliance at Treasury. We are working with the bank regulatory agencies to improve the application of the examination procedures. We have worked with the President's Commission on Organized Crime, which has developed a series of regulatory, administrative and legislative recommendations. Some of the regulatory and administrative recommendations have already been implemented, and the remaining ones are under serious consideration. We are giving assistance to banking industry associates to foster the development of improved training for bank employees. Regarding the banking industry, there is a further point that I would like to make. We must not confine our thinking merely to the bank's legal obligations. Every financial institution has moral and ethical obligations not to be used to further criminal activity. This obligation extends both to the community served by the bank and to our financial system as a whole. For it is certain that when criminal operatives can use a financial institution at will for their own purposes, the overall trust in our banking system is eroded. Thus, banks must be vigilant to spot instances of money laundering and must report suspicious transactions to the law enforcement authorities. Mr. Chairman, I would like to turn to another aspect of the problem facing us, and that is offshore money laundering. Even as we improve compliance with the Bank Secrecy Act, we must recognize that the expanded Federal enforcement effort will cause a shift to offshore money laundering. The Milian-Rodriguez case, in 1983, exemplified this trend, and involved the international transportation of over $300 million in cash to offshore accounts. You will recall that Mr. Rodriguez was picked up in 1983 with about $5.6 million in currency as he was about to board his own Lear jet from the Miami area for Panama. Our Government has responded to this trend by seeking international agreements providing for access to evidence relevant to U.S. criminal investigations. On July 26, 1984, Great Britain and the United States exchanged diplomatic correspondence establishing our access to documentary information located in the Cayman Islands that is material to investigations related to drug trafficking. The agreement became effective on August 29, 1984, and since that time has resulted in the obtaining of valuable information for prosecutions in the United States. Similarly, the Departments of Justice and Treasury have been seeking a similar agreement with the Republic of Panama and will resume negotiations with Panamanian officials later this month. In further response to the trend of offshore money laundering, Treasury published proposed regulations last year that would establish procedures under which the Secretary could require specified U.S. banks to report financial transactions with foreign financial institutions. These regulations, which will be promulgated in final form in the near future, will provide a mechanism to help identify money transfers related to drug trafficking or other organized crime that occur between U.S. and foreign financial institutions. In exercising the authority under this regulation, Treasury will select classes of transactions with foreign financial institutions as the subject of reporting on the basis of available information indicating unusual financial activity. Treasury will strive to impose reporting requirements in the least burdensome manner consistent with our need for the information. The act is quite specific in requiring that Treasury carefully consider how its international transaction reporting requirements affect financial institutions. Mr. Chairman, as I mentioned earlier, the President's Commission on Organized Crime has developed legislative recommendations as well as suggested regulatory changes and improvements for the administration of the Bank Secrecy Act. Some of these legislative recommendations have been incorporated in various bills now pending before the Congress, and I would be remiss if I did not express my appreciation for the efforts that you, Chairman Hughes, have put forth to develop and introduce legislation to combat money laundering. I would also like to express my appreciation to Congressman McCollum, for his leadership and initiative in this area. With regard to the entire body of proposed legislation now pending before both Houses of Congress, I would like to offer a few observations. First, an area of legislative inquiry that we consider worthy of close examination is the Right to Financial Privacy Act. While Treasury recognizes the rationale for preserving the confidentiality of banking records, we strongly suggest that the Congress re-examine the current balance between the maintaining of this confidentiality and the legitimate interest of law enforcement in receiving usable information concerning potential violations. Another topic that certainly deserves examination is the matter of an administrative summons power that Treasury could use in ensuring compliance with title 31. This is the subject of Mr. McCollom's pending legislation. Administrative summons authority is quite common among Federal agencies, and I believe we have counted about 30 Federal agencies that have this power. Yet, Treasury lacks any such authority that could be applied to determine whether a financial institution is complying with applicable title 31 reporting requirements. This authority would be of great benefit to Treasury in fulfilling its civil enforcement responsibility and its oversight responsibility regarding bank regulatory agencies. Mr. Chairman, this concludes my formal statement. I would be pleased to answer any questions that you and other members of the committee might have. [The statement of Mr. Walker follows:] STATEMENT OF JOHN M. WALKER, JR., ASSISTANT SECRETARY (ENFORCEMENT PROGRESS IN THE FIGHT AGAINST MONEY LAUNDERING Mr. Chairman and Members of the Committee, I am pleased to have the opportunity to appear before you today to discuss the problem of money laundering. As this Committee is fully aware, money laundering is a serious challenge to law enforcement and a clear danger to the soundness and integrity of our financial system. In my testimony today, I will discuss the scope of the money laundering problem and some of the reasons why it is so pervasive. I will explain why Treasury believes that an attack on money laundering is essential to a successful fight against organized crime and drug trafficking. I will then summarize the progress we have made and discuss initiatives with the potential to further our progress. The Treasury Department sincerely welcomes the interest that you, Chairman Hughes, and this committee have expressed in this critical topic, and we look forward to assisting you as you consider possible legislative measures to enhance our country's efforts against money laundering and other organized crime. WHY MONEY LAUNDERING POSES A DIFFICULT CHALLENGE TO LAW ENFORCEMENT Mr. Chairman, for a number of reasons, money laundering is a major challenge for law enforcement. First, the scope of the problem is staggering. While no one knows with certainty how much money is laundered in the United States every year, estimates point to anywhere between $50 and $65 billion in laundered crime proceeds from drug trafficking alone. From money laundering cases Treasury has investigated, we know that a single money laundering enterprise can wash $300 million or more in crime proceeds in less than a year's time. Suppressing money laundering is enormously difficult for another reason: there are seemingly infinite ways for criminals to accomplish it. Treasury's investigators have uncovered money laundering schemes that are as varied as the human imagination will allow. They can be conducted domestically or internationally, and they can exploit various types of financial institutions. Because all organized crime depends on skilled money launderers for its very existence, there is a continuous incentive for criminals to develop new methods for circumventing Federal reporting requirements and for concealing cash and pools of assets from the eyes of law enforcement. Money laundering has seen unprecedented growth over the last decade for another basic reason: it is an extremely lucrative criminal enterprise. Treasury's investigations have uncovered members of an emerging criminal class: They are the professional money launderers who aid and abet other criminals through financial activities. These individuals do not fit the stereotype of an underworld criminal. They are accountants, attorneys, money brokers, and members of other legitimate professions. They need not become involved with the underlying criminal activity except to conceal and transfer the proceeds that result from it. They are drawn to their illicit activity for the same reason that drug trafficking attracts new criminals to replace those who are convicted and imprisoned; and that reason is greed. Money laundering, for them, is an easy route to almost limitless wealth. Our free society and our diverse economy, with its ready access to international financial networks, provide the setting for the money launderer's operations. We must recognize that while our law enforcement tools-chiefly the Bank Secrecy Act-allow us the means to obtain reporting that can disclose suspicious transactions, there are limitations on the amount and type of information that law enforcement may obtain. Later in my testimony, I will describe how Treasury is seeking to overcome some of these limitations. I will also address the subject of possible legislative changes that have the potential to strengthen the tools at law enforcement's disposal for use against the money laundering problem. AN ATTACK TO MONEY LAUNDERING IS ESSENTIAL TO THE FIGHT AGAINST ORGANIZED CRIME AND DRUG TRAFFICKING Mr. Chairman, the difficulties I have mentioned should not cause anyone to believe that our fight against money laundering is a hopeless one. Quite to the contrary: In the past four years, we have recorded substantial and remarkable progress. I will give some examples of this progess in a moment. But for now, let me stress a principle that our financial investigations have demonstrated time and time again: that we can never hope to control drug trafficking and other forms of organized crime in our society unless we continue our efforts to go after the money that is at the heart of every criminal enterprise. The reasons behind this conclusion are fundamental ones: Money, of course, is the motivation behind every organized crime transaction and the thread that ties together the components of a criminal enterprise. If we can trace the money, the trail will often lead to high-level criminals. The leaders in any criminal enterprise usually take great pains to distance themselves from the illegal source of their income. But they can usually be found close to the money. The money, if seized, is potentially devastating evidence at a criminal trial. A jury can get lost in the technical details of a white collar crime. But if jurors can be shown the illicit proceeds, they can more readily understand the full impact of the crime. Also, through seizure and forfeiture, we can deprive a criminal enterprise of its lifeblood. For instance, drugs can be readily replaced by a drug trafficking organization, but its cash reserves are essential to its functioning. It is this cash that finances new drug importing ventures, and is the means of corrupting justice. Large monetary seizures can cripple the organization and possibly put it out of business altogether. Finally, the Bank Secrecy Act is itself the authority for criminal and civil penalties. As an independent basis for prosecution, it can be the statutory weapon that breaks up a criminal enterprise and imprisons its members. Treasury's investigative successes under the Bank Secrecy Act demonstrate the validity of this approach. In 1980, Treasury, with the support of the Justice Department, organized Operation Greenback in Miami to conduct financial investigations using the reporting information provided by the Bank Secrecy Act. The Treasury task forces modeled after Greenback now total forty in number, located in cities across the nation. Since 1980: They have produced over 1300 indictments and over 460 convictions; They have resulted in $81.8 million in currency seizures and $34.3 million in property seizures; and They have destroyed eighteen major money laundering enterprises, which laundered a documented total of $2.8 billion. (Chart on Money Laundering.) Greenback itself has become a component in one of the President's Organized Crime Drug Enforcement Task Forces, which now number thirteen. These Task Forces have initiated over 880 cases, even though they have been fully operational for only 21 months. They have produced indictments of more than 4600 individuals and have resulted in more than 1,860 convictions. Two out of three Task Force cases have a financial component. Treasury has contributed approximately 480 special agents to work full-time on the OCDE Task Forces, 400 of which are IRS and Customs agents who are investigating money laundering. The other 80 agents are ATF agents who are investigating the firearms violators who participate in and support the drug trade and organized crime. OUR ATTACK ON MONEY LAUNDERING REQUIRES THE FULL PARTICIPATION AND Mr. Chairman, while Treasury's financial investigations have made considerable progress, it is no secret that money laundering remains an enormous challenge. When the Bank Secrecy Act was passed, Congress contemplated that it would strengthen law enforcement's ability to combat white collar and organized crime. Over the fifteen years since enactment of this landmark legislation, there is no question that the Act has succeeded in this regard. But as a society, it is essential that we set a higher goal: if we are to strike a telling blow against drugs and crime, we must go further, and strive to deny criminals access to our financial system. This, of course, is a task that law enforcement cannot accomplish alone. Banks and other financial institutions must do more to ensure that their employees do not |