through the international banking system. In June 1985, this subject was raised informally by the Federal Reserve's representative to the Basle Supervisory Committee. Another occasion for such discussions will be the forthcoming

meeting of the Committee which is to be held in Washington at the end of June. A portion of the meeting has already been scheduled to include a discussion of current issues before United States banking authorities, and our representative plans to use this occasion to discuss the possibilities for greater cooperation and communication.

It is important to point out, however, that the ability of bank supervisors to deal with activities such as drug trafficking and money laundering is limited. It is, for example, difficult to monitor international financial transactions given the number and volume of such

transactions each day. Moreover, even if such monitoring were feasible, it would be problematic, at best, to hope to draw valid conclusions regarding utlimate origins or

destinations of individual transactions.

Further, both foreign and domestic bank

supervisors usually are not empowered to investigate

criminal activity and, therefore, must refer any evidence of illegal conduct to their respective law enforcement authorities. Foreign bank supervisors may also face serious legal obstacles when disclosure of information on individual customers is involved. It is with regard to these kinds of

The

In conclusion, I would like to emphasize that the Federal Reserve Board, in conjunction with other federal agencies, has intensified its efforts to address the problem of criminal activity involving financial institutions. Bank Secrecy Act is but one of the several areas on which we have been focused. Bank fraud, officer and director misconduct, and insider abuse have also received special attention.

We understand the critical importance of promoting improved enforcement and prosecution of bank-related criminal activity, and we look forward to working with the Subcommittee as it reviews and weighs the merits of the various proposals before it.

STATEMENT

OF

JAMES D. HARMON, JR.

FORMER EXECUTIVE DIRECTOR AND CHIEF COUNSEL PRESIDENT'S COMMISSION ON ORGANIZED CRIME

BEFORE

THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, SUPERVISION, REGULATION AND INSURANCE

OF

THE

COMMITTEE ON BANKING, FINANCE

AND URBAN AFFAIRS

UNITED STATES HOUSE OF REPRESENTATIVES

CONCERNING

H.R. 1367, H.R. 1474, H.R. 1945, H.R. 2785, H.R. 3892, H.R. 4280 and H.R. 4573

ON

MAY 14, 1986

Mr. Chairman and Members of the Subcommittee:

As the former Executive Director of the President's Commission on Organized Crime, I appreciate the opportunity to testify concerning the various money laundering-related bills now under consideration in this Subcommittee. Since its establishment in July, 1983, the Commission's responsibilities for analyzing organized crime and for defining the uses to which organized crime puts its income have prompted it to devote substantial attention to the problem of money laundering. Although the Departments of Justice and Treasury are thoroughly familiar with the challenges that money laundering has created for law enforcement I want to convey to you some of the concerns that impelled the Commission to devote such attention to money laundering, and to make a number of legislative recommendations in its first interim report, The Cash Connection, that are substantially reflected in the bills now under consideration. In doing so, I also hope to dispel some of the misconceptions, which a few people continue to express concerning the need for various provisions in some of these bills.

At the outset, Mr. Chairman, I would like to take a moment to express appreciation for the sustained attention that this Subcommittee and its members have devoted to the issue of money

-2

laundering. Through the Subcommittee's earlier hearings

on this subject, and through the introduction of money laundering bills such as H.R. 1474 and H.R. 1367, you and other members of the Subcommittee have underscored the significance of the problem and made clear that new measures must be devised to deal directly with that problem.

The Scope of the Problem

After the issuance of its interim report entitled The Cash Connection: Organized Crime, Financial Institutions and Money Laundering in 1984, the President's Commission continued to analyze organized crime as an economic force. This further analysis

has reaffirmed the need for new legislation to make money laundering a Federal criminal offense.

In a study done by Wharton Econometric Forecasting Associates, Inc. of Philadelphia at the request of the President's Commission, Wharton constructed an independent estimate of the income

of organized crime using new data sources on the number of persons engaged in organized criminal activities and on the average income of persons involved with criminal organizations. This data was collected through a nationwide survey of law enforcement agencies conducted by the Commission and from a sample of closed IRS tax cases involving members of criminal organizations involved in the