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Chairman ST GERMAIN. What is the jagged line?

Mr. WASSENAAR. Well, the total amount there is $1,832,000. I did not have poster board that could go up high enough to accurately reflect that, in relation to the other lines. So I put a jagged line there.

Chairman ST GERMAIN. Excuse me. That being the case, it should be more than twice as high as the 1984 number; right?

Mr. WASSENAAR. Absolutely. And my poster board did not go that high.

Chairman ST GERMAIN. Was there a period of time in 1985 when the increase became more dramatic?

Mr. WASSENAAR. That is a very interesting point.
Chairman ST GERMAIN. I thought it might be.

Mr. WASSENAAR. In the first month of 1985, we were receiving an average of about 60,000-65,000 CTR's a month, which was about average for the entire year 1984. The latter part of February 1985, the Bank of Boston was indicted and pleaded guilty and there, of course, was a lot of publicity relating to that situation. And I think a few months later this subcommittee held a hearing relative to that same matter and that also caused additional publicity.

But within 4 or 5 months after the Bank of Boston case occurred, we saw the volume of CTR's increase from an average of 60,000 a month up to a current amount of 250,000 a month. So we are talking about at least a fourfold increase in the volume and numbers of CTR's that are being filed by financial institutions on a monthly basis.

Current projections are

Chairman ST GERMAIN. Excuse me, but would you agree that the fact that Mr. Stanke's suspicions were aroused and he started looking a little more at that Federal Reserve district in Boston, and the fact that there were public hearings with substantial coverage, helped to arouse the awareness or to motivate financial institutions to be more cautious or more attentive to reporting the CTR report, the cash transaction report?

Mr. WASSENAAR. I think there is no doubt about it. I think it started primarily with the Bank of Boston publicity itself, followed up by a number of subsequent disclosures to the Treasury of selfadmitted violations on the part of institutions. I think the subcommittee's hearing, later on that same year, also brought additional publicity relative to this matter.

All of this, certainly, helped.

Shortly after the Bank of Boston case occurred, Treasury was approached by the American Banking Association for assistance, for example, in helping to educate financial institutions in terms of the currency transaction reports that were to be filed. And I think Treasury as well as the Department of Justice participated in a substantial training effort with the American Banking association to help educate the American banking community.

That, too, caused an increase in the number of CTR's filed.

The problem, however, of generating so much activity, is that currently the currency transaction reports are filed in the IRS Detroit Data Center and last year, at this point in time, they were geared up to process about 60,000 or 70,000 currency transaction reports every month. And now

Chairman ST GERMAIN. Were you really geared up or were you straining?

Mr. WASSENAAR. No, we were geared up-
Chairman ST GERMAIN. You had no problem processing those?

Mr. WASSENAAR. We had no problem processing CTR's at a volume of 60,000 to 70,000 a month. But in a 12-month period of time we saw the volume increase fourfold, and now we are receiving an average of about 250,000 a month. Of course, it has created somewhat of a backlog.

We are getting on top of that backlog, and we have every reason to believe that in the next few weeks we will be current. It is our goal to process into the computer system, into the Treasury Enforcement Communication System (TECS], which houses all of this information, currency transaction reports within 30 days after receipt.

Chairman ST GERMAIN. Let me ask you this, do you have to upgrade your computer? I do not know much about computers.

Mr. WASSENAAR. Yes; we absolutely did. The computer we had was certainly not capable of handling the capacity that we are currently experiencing. Chairman ST GERMAIN. How about personnel?

Mr. WASSENAAR. Yes; we have had a very substantial increase in personnel.

Chairman ST GERMAIN. From what number to what number, approximately?

Mr. WASSENAAR. Last year, at this time, we had approximately 50 individuals at the Detroit Data Center involved in the processing of the CTR's. Today we have approximately 250.

Chairman ST GERMAIN. Now when you say processing-you know, it is all well to say processing—but are they also looking at these to determine whether they should go into the next phase, or the investigatory phase?

Mr. WASSENAAR. Well, most of the screening is done once it is put into the computer. Once the information is put into the computer, that is when you can have the computer help analyze and provide certain printouts in a more meaningful form.

However, when the CTR forms are first received in the data center, all of them have to be numbered so that we have adequate control over the form-not only in terms of control during the processing of the form, but also in terms of subsequently retrieving that form should it be necessary for evidentiary purposes.

There is a fairly elaborate coding and editing process, a process that is necessary before it is put into the computer. We also have people who screen the forms to determine that they are accurate. Does the form contain all of the information that is required? And if not, then that individual has to either return the currency transaction report to the bank or make a phone call to the bank to have the additional information provided.

So it is a fairly involved process, but this year we anticipate receiving approximately 3 million CTR's, which again will be almost a 100-percent increase over last year.

One of the perhaps popular misconceptions, when we talk about the subject of money laundering, is that we think that virtually all money laundering involves narcotics trafficking. And while I would submit that perhaps the greatest percent of money laundering cases involves narcotics trafficking, the chart on my right reflects that not all of them do. This chart shows the total number of money laundering investigations we have had in each of the last 5 years. The number on top of each of those columns reflects the total number of investigations initiated in that year, and the orange-shaded portion of each of those columns reflects those money laundering investigations where we have been able to establish a narcotics connection.

[The chart referred to follows:)

[merged small][merged small][merged small][graphic][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][merged small][merged small][merged small]

For example, in 1985 we initiated a total of 338 money laundering investigations. We were only able to establish that the proceeds were connected to narcotics in 162 cases. Now the difference could well be-

Chairman St GERMAIN. Approximately 50 percent.

Mr. WASSENAAR. About 50 percent in each of the last 4 years. The difference, however, could be that many of those involve narcotics proceeds. It is just that we were not able to prove, in the course of that investigation, that it came from that particular source.

I submit that some of the difference might also be accounted for by normal tax evasion attempts on the part of individuals, like skimmed receipts from restaurants and organized crime money that does not necessarily deal with narcotics but could be from some other illegal source.

The bill that Congressman Pickle talked about this morning I think would be of help to us in this respect, in that looking at the cases we worked last year we were able to establish 162 cases tied into narcotics. Seizure and forfeiture is relatively no problem in those cases because once we are able to establish a narcotics connection and prove that the income came from an illegal source, we are able to seize it.

But in many of the remaining 180 cases, where we were not able to tie it in to narcotics, although we were able to prosecute the individuals involved in the money laundering, we were not able to seize or seek forfeiture of the money that was being laundered.

Since 1981, we have completed 873 money laundering cases. At the present time, we have in our inventory or under active investigation, over 300 money laundering investigations. Included in that 300 number are over 60 financial institutions that are currently under investigation. I use the term "financial institutions" in the fairly broad sense. I do not mean to imply that the 60 financial institutions is limited to banks. Indeed, it is not. It includes savings and loans. It includes credit unions. It includes brokerage houses, et cetera.

Last year we recommended criminal prosecution in 317 cases. Since 1981, the Internal Revenue Service has been successful, along with the Department of Justice, in convicting some 31 financial institutions. Eight of those were last year alone.

In response to a question that was asked earlier this morning, or a concern that was expressed, since 1984, we have also prosecuted 34 officers and employees of financial institutions.

With your permission, I would like to talk about a couple of cases. I have another poster that we can put up that I think will graphically depict the flow of funds in this particular case.

[The poster referred to during this part of the testimony was presented during the hearing to illustrate money laundering activities and is not available as a page-sized document.)

This case involved an individual in Florida by the name of Botero. In the course of 8 months, Mr. Botero laundered some $57 million through a branch of the Fort Lauderdale Bank. In this particular case, Smurfing was not involved. He didn't need the Smurfs. He had the cooperation of three bank officers. Each of the

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