brought to their consideration of this problem diverse professional backgrounds and experience. We include government attorneys, former prosecutors, staff member of the American Civil Liberties Union, law professors, and banking lawyers. Despite these different perspectives from which we approached this issue, we arrived at a broad consensus concerning where the balance should be struck between legitimate law enforcement concerns and other important societal interests. Summary of Conclusions Money laundering is a growing national problem. Its existence contributes significantly to the vitality and profits of organized crime in the United States, especially to narcotics trafficking. We believe that this Subcommittee is rightly focusing upon money laundering's pervasiveness and its ill effects. also agree with the Administration and others who believe that new legislation is needed to combat money laundering. We We are concerned, however, that any legislation enacted in response to significant law enforcement interests be narrowly tailored so as not to encroach unnecessarily on other societal interests, such as the protection of individual rights of privacy. In our view, most of the pending legislative proposals, and in particular H.R. 2785, are overbroad in a number of important respects and cannot be sufficiently justified by law enforcement concerns. We believe that if, after enactment of narrower legislation, experience dictates the need for more expansive legislation, amendments can be proposed. We principally urge, in summary, that federal legislation in this area should be subject to a number of key restraints. First, we recommend that a federal offense of money laundering be limited to those instances in which the money laundering: (i) is undertaken "knowingly"; (ii) utilizes a bank or other "financial institution"; and (iii) involves the cash proceeds of federal offenses that qualify as "racketeering activity" under the Racketeering Influenced and Corrupt Organizations ("RICO") statute. Second, although we agree that there is some need to liberalize the disclosure provisions of the RFPA, we do not believe there is any justification for permitting voluntary disclosure by financial institutions of customer financial records beyond certain derivative information. We recommend -3 that voluntary disclosure be strictly limited to identifying information concerning the customer and account involved in, and the nature or specifics of, the suspected illegal activity. Third, we recommend against creating a receipt of criminal proceeds offense which would criminalize on a federal level conduct of a much broader scope than we believe desirable. A. Money Laundering Statute 1 The need for a money laundering statute seems plain. As the Commission Report makes evident, nothing short of new legislation will "strike directly at the activities in which money launderers engage. Money launderers who comply with the recordkeeping and reporting requirements of the Bank Secrecy Act ("BSA") by completing CTRS and other required forms "can operate with virtual impunity, unless and until it can be proved that the launderer has violated another Federal statute."2 Moreover, bank officials and employees who know that money laundering is occurring, but nonetheless continue to file the requisite BSA forms, also may 1 President's Commission on Organized Crime, The Cash Connection: Organized Crime, Financial Institutions, and Money Laundering 61 (Interim Report to the President and the Attorney General, October 1984) [hereinafter "Commisson Report"] escape liability. The BSA poses simply too indirect and ineffective attack on the problem. Some direct prohibition which would apply to financial institutions, and their officers and employees is necessary. - Accordingly, a statute narrowly designed to address these issues by criminalizing the knowing participation in or facilitation of money laundering schemes would appear to be an effective and necessary complement to the existing statutes (i.e., the BSA) available to combat money laundering. By increasing both the amount and likelihood of incurring penalties for money laundering activities, such legislation should act as a more definite deterrent. It would also squarely attack the money laundering problem and serve the dual purposes of striking at organized crime and protecting the integrity of financial institutions. 1. Mens Rea. A very troublesome aspect of the money laundering statutes contained in the legislative proposals is the level of culpability giving rise to criminal liability. The scienter requirement must create a statute that is broad enough to reach those persons actively involved in money laundering, but narrow enough to avoid covering innocent parties. 3 The "reason to know" standard of H.R. 1367 and to a lesser degree the "reckless disregard" standard of H.R. 2785 are objectionable because they may in practical application, particularly when presented to a jury, give rise to convictions for what is merely negligent conduct. The difficulty is that each standard, either definitionally or through connotations associated with common usage, creates a purely objective basis upon which to convict a defendant, i.e., these standards ask what should the defendant have known or done. These standards will thus also create uncertainty among financial institutions and the public at large over what constitutes the offense of money laundering. These objective standards go well beyond the money laundering problem as defined by the Commission Report and testimony before Congress. Typical money launderers are persons who actually know they are dealing with "dirty money" or have a strong suspicion with regard thereto but deliberately close their eyes in 3 Such a standard has few precedents in existing federal criminal statutes. But see, Foreign Corrupt Practices Act, 15 U.S.c. $ 78dd-2(a)(3). |