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state (Arizona) has recently enacted a money laundering statute that employs a bifurcated standard of intent, and that specifically uses the standard of knowledge or "reason to know" for "seconddegree" money laundering. (See Appendiz A.) Moreover, two of the bills pending in the Subscommittee (H.R. 1367 and H.R. 1945) also propose the use of the bifurcated standard of intent.

H.R. 2785 also employs a bifurcated standard of intent, although it substitutes the concept of recklessness for the concept of reason to know. It should be noted, however, that the underlying objective of the Commission's proposal is substantially similar to that of H.R. 2785; despite the difference in terminology, both seek to ensure that a money launderer may be held to account even if he did not have actual knowledge that the funds he was laundering were the proceeds of, or were directly or indirectly derived from, an unlawful activity.

The Commission's approach to this problem was intended solely to reaffirm the longstanding rule that, where knowledge of the existence of a particular fact is an element of an offense, the government can meet its burden of proof by proving beyond a reasonable doubt that the defendant was aware of a high probability of the existence of that fact, unless he actually believes that fact does not exist. See generally United States v. Jewell, 532 F.2d 697, 700-01 (9th Cir) (en banc), cert. denied, 426 U.S.


951 (1976). This rule, as stated in Section 2.02 (7) of the Model Penal Code, is intended to deal with the situation known as "wilful blindness" or "conscious avoidance of knowledge," in which "a party has his suspicion aroused but then deliberately omits to make further enquiries, because he wishes to remain in ignorance ." G. Williams, Criminal Law: The General Part Sec. 2.02(7) comment 9 at 129-30 (Tentative Draft No. 4 1955). In applying this rule, courts will look to all the circumstances pertinent to the person's intent. See, e.&., United States v. McAllister, 747 F.2d 1273, 1275 (9th Dir. 1984); United States v. Jacobs, 475 F.2d 270, 287-88 & n.37 (2d Cir. 1973).

Similarly, the recklessness standard in H.R. 2785 would require courts to look to all the circumstances of the transaction (including, but not limited to, the amount and type of funds or monetary instruments and the nature of the transaction) to determine whether a person is aware of a substantial risk that such funds or monetary instruments represent the procees of, or are derived directly or indirectly from the proceeds of, an unlawful activity, but disregards the risk. This standard of reckless disregard, of course, is not identical to the standard of actual knowledge or "wilful blindness." See McAllister, 747 F.2d at 1275. Its principal focus is the standard of care that a reasonable person would exercise in such a situation. Although the definition of this standard uses certain words and


phrases found in the Model Penal Code's definitions of recklessness and negligence, see Model Penal Code Sec. 2.02(2) (c), (d), it clearly contemplates that courts will conduct a subjective inquiry into the person's appreciation of the risks involved in his conduct. See P. Low, J. Jeffries, & R. Bonnie, Criminal Law 232 (1982).

The reasons for specifying that "all the circumstances of the transaction" include the amount and type of funds or monetary instruments, as well as the nature of the transaction, are clear. In many instances involving the laundering of narcotics proceeds, for example, even the most elementary details of the transaction reflect the effort to launder: (1) the predominant use of

small-denomination bills

ones, fives, tens, twenties,


sometimes, fifties; (2) a substantial volume of bills used in the course of a single transaction; (3) the appearance of counterfeit bills, which are often included in payments for narcotics, in large-volume deposits of bills; (4) unusual methods of transporting funds or monetary instruments for a transaction (such as cardboard boxes, suitcases, duffel bags, flight bags, gym bags, and even garbage bags); and (5) unusual behavior by persons involved in the transaction (such as the failure or refusal of persons initiating a transaction to identify themselves or to take receipts for any funds deposited in a financial institution).


One other issue concerning the standard of intent has been raised in the past by the National Council of Savings Institutions. The Council believed a bank teller who is innocent of any involvement in a money laundering operation, but who may have actual knowledge that monetary instruments offered for deposit are derived from an illegal source, would presumably be violating the proposed section 1956 if the teller were to complete the transaction with the intention of notifying a supervisor or law enforcement agency after the completion of the transaction.

Although it is highly unlikely that a United States Attorney or an Organized Crime Strike Force Chief would find substantial merit in prosecuting a teller in those circumstances, the matter warrants some clarification. While it seems clear that no reputable financial institution would want to hold itself out as a haven for criminal proceeds, the fact remains that Federal law enforcement agencies may want financial institutions, on occasion, to begin or to continue accepting deposits from suspected money launderers. By authorizing or permitting what might be termed "controlled deliveries" of criminal proceeds to financial institutions, Federal law enforcement agencies can better determine the scope and extent of a money laundering operation and amass sufficient evidence to indict and convict the leaders of such an operation and, just as important, to seize the laundered funds.


For these reasons, it may be appropriate to clarify in the legislative history that an officer or employee of a financial institution who knows or suspects that monetary instruments being offered for deposit have an illegal source will not be deemed to have the resquisite intent under section 1956, if that officer or employee notifies a Federal law enforcement agency of that knowledge or suspicion either before the transaction is completed or immediately thereafter (i.e., no later than the end of that day).

The Right to Financial Privacy Act

I would now like to turn to a second principal topic: the changes that H.R. 1367 and H.R. 2785 propose in the Right to Financial Privacy Act. In the past, a representative of the American Bankers Association has been quoted in The American Banker as saying that the provisions of the Administration's money laundering bill "would virtually repeal all the protections established by Congress in 1978 when it approved the Act."

That statement, in my view, is wholly without foundation: nothing

in either the text or the accompanying explanation of the proposed changes contemplates either a total or a partial repeal of the Right to Financial Privacy Act. A careful examination of these changes will demonstrate that they are carefully crafted to deal with certain specific problems that came to the Commission's

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