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review of their overall relationships. Such systems are very expensive to create and the maintenance and updating cost is equally expensive. This proposal would result in a manual review of reportable cashier's checks in the banking system and would create a large reporting burden, both in operations and in cost. Additionally, a surveillance system of this type could be easily avoided. For example, to avoid the reporting threshold, a $2,000.00 cash transaction would be easy to do to escape detection.
On page 13 the Report recommends that reporting requirements extend to wire transfers of funds from foreign countries, for letters of credit and for similar guaranty-type instruments. Exemptions would be provided for "established international businesses," If a major percentage of these transactions did not qualify for the exemption, the reporting burden, cost, and flow of paper would be enormous. Even if they did qualify for nonreporting, the monitoring, cross-checking, and review process could still be onerous. It is believed that one major bank receives as many as 9,000 international wire transfers a day, which, when compounded with the volume from the total banking industry, would dangerously narrow the existing bottlenecks in the regulatory mechanism (which, from the Report, is a major .. delay problem with present volumes). For letters of credit the problem would be similar. It is believed that over the last four years the Department of Commerce averaged approximately 30,000 boycott reports a year, of which letters of credit were a large percentage. Of the total number of letters of credit which flow through the American banking system each year, so-called boycott transactions would be a very small portion of the total. The number of reports of letters of credit arising from this proposal would be huge, with resulting cost and management problems vastly increasing. Obviously, what is needed is the striking of a balance between the need of government to know and the ability of the reporting institutions to manage and to support the cost and reporting overhang.
There is no question that international cooperation is a critical cornerstone of controlling money laundering. This requires sourcing foreign based information which is an area of extremely delicate negotiations presently going on between countries like Switzerland, England, France, and Germany, which have very restricted transborder data flow laws based upon their concerns over confidentiality and privacy. These laws presently raise significant compliance obstacles for financial institutions in responding to requests for information domiciled in their foreign branches. Until such time as diplomatic negotiations can resolve the restrictions on disclosures in laws of given foreign countries, requirements of U.s. law mandating a foreign or domestic bank to produce records and information maintained in an office or branch outside the United States will create impasses for which the courts have not yet developed an intelligent or practical resolution. Evidence of these problems is clearly of
record in cases which have been decided or are currently pending in the states of New York and Florida.
It would appear that placing further legislative mandates in an area which we believe is already under substantial international strain may be counterproductive at this time. Both England and France have enacted "blocking" statutes to prevent U.S. courts or agencies from reaching data held in those countries even if held by a branch of a Ú.s. bank. Hong Kong courts have issued orders prohibiting the disclosure of certain information deemed protected by their privacy laws, and Canada has pending before Parliament legislation which would be similar to the English "blocking" statutes.
Again, the Section supports the general concepts contained in the Recommendation, but is not able to support specific suggestions in the accompanying Report which are described in this Commentary.
EARL B. HADLOW
on behalf of the
AMERICAN BANKERS ASSOCIATION
var ious proposals
to amend the
Currency and foreign Transaction Reporting Act
SUBCOMMITTEE ON FINANCIAL INSTITUTION SUPERVISION, Mr. Chairman and members of the committee: I am Earl B. Hadlow, Vice
REGULATION AND INSURANCE
HOUSE COMMITTEE ON BANKING, FINANCE
and URBAN AFFAIRS
May 14, 1986
Chairman and General Counsel of Barnett Banks of Florida in Jacksonville,
and a member of the American Bankers Association Government Relations
Council. The combined assets of the members of our Association comprise
approximately 95 percent of the industry total. Our members range from the smallest to the largest banks, and close to 85 percent of them have assets of less than $100 million. I welcome the opportunity to present ABA'S
views on H.R. 1367, H.R. 1474, H.R. 1945, H.R. 2785, H. R. 3892, H.R. 4280,
H.R. 4573 and Titles I, VI and XI of the Financial Institutions Regulatory
and Interest Rate Control Act of 1978.
A number of the bills that have been introduced will amend the
Currency and Foreign Transaction Reporting Act (Bank Secrecy Act); severely weaken the Right to Financial privacy Act (RFPA); and create a federal
crime of money laundering.
The ABA understands the challenge that law enforcement officials face in attempting to combat drug trafficking and organized crime. The use of financial institutions as havens for drug money is as abhorent to our members as it is to the public in general. We want to maintain a balance between the legitimate needs of law enforcement and the legitimate need to protect our customers privacy from unlimited governmental intrusion.
Our feelings were best summed up by Mr. R.L. Wood when he appeared
before the House Committee on Ways and Means on July 18, 1975, and I quote:
"The right of privacy of an individual's financial records...in the absence of a known violation of law by the individual involving his finances...is an integral element of the American concept of political rights of the individuals. These rights have been characterized as being protected under our constitution and under the common law."
Mr. Wood's remarks were based upon our policy as expressed by the
General Counsel of the American Bankers Association in 1940, when he said:
A bank should, as a general policy, consider information concerning its customers as confidential, which it should not disclose to others without clear justification. Milohnich v. First National Bank of Miami Springs, 224 So. 21. 759, 761 (1969).
A small number of financial institutions have been fined for failure
to file the reports required by the Bank Secrecy Act.
In cases where
employees of the financial institutions have conspired with criminal elements to evade the reporting requirements, individuals have been brought
to trial by the Department of Justice.
The violations of the reporting
requirements have exacted a swift response by our banks.
The industry has
dramatically increased it's educational programs and compliance efforts. The financial industry's repeated requests for practical solutions, have thus far only been met by echoes of our inadvertent reporting failures.
Now is the time to focus on the future, not dwell on the past.
The numerous bills now pending before this Committee reflect the
concerns of Congress about the problem of drug trafficking. As this Committee focuses on possible solutions to that problem, you should follow the admonition of your chairman, "to enact something now that is universally acceptable," universally acceptable legislation will maintain the proper regard for civil liberties," and will also throw the gauntlet
down against money laundering transactions."
The first step toward solving the problem is to separate out those
issues that will prevent the enactment of acceptable legislation. proposals that we believe will prevent immediate action are a new crime of money laundering and amending the Right to Financial privacy Act,
The ABA continues to support making money launder ing a crime. However, the process of criminalizing money laundering demands broad-based discussions on its possible ramifications. The shaping of the crime must
be done with a scalpel, not a shotgun. Therefore, now is not the time to