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dealers. In only 17 months, from July 1, 1971 through December 31, 1972, the program resulted in 1,175 major drug dealers coming under full net worth tax investigation and tax action taken against 1,239 minor traffickers. Collection and seizures amounted to $15,625,792, which amount exceeded the cost of the program. (See Exhibit "A" The Twelve Month and Seventeen Month Reports issued by the Treasury Department, Office of Law Enforcement). By prosecuting violators under the Tax Code, this highly successful and cost-effective program resulted in the indictment, conviction and imposition of fines on unprecedented numbers of drug traffickers and disruption of their operations. Unfortunately, that program was phased out after I left Treasury. It should be revived if we are serious about effective and cost-efficient law enforcment against drug traffickers.
The importance of financial information to a specific criminal civil investigation does not, however, warrant transforming the banks into arm of the federal prosecutor. This is precisely what the proposed amendments to the Right to Financial Privacy Act contained in the bills presented to Congress would do.
Reacting to the Supreme Court decision in United States Miller, which held that customer of financial institution has standing to contest illegal government access to his bank records, Congress in 1978 debated long and hard
than 100 privacy bills were introduced and more than 40 days of hearings were held in the House alone -- on the Right to Financial Privacy Act. What was debated for so long
how to permit maximum law enforcement use of financial records while protecting the rights of citizens to entrust their money to a financial institution with the knowledge that their personal financial records would not be turned over to the government without a legitimate reason. Both the majority and minority House reports recognized this balancing of interests as the primary focus of the RFPA:
Title XI is intended to protect the customers of
pursuant to legitimate investigation.
Against the needs of
government, it is
Congress should not
in the name of the admirable goal of reducing money laundering and the drug trafficking intertwined with it, act too hastily and destroy that delicate balance it reached in 1978, particularly when there is little
no proven benefit to be derived therefrom. The rights of the overwhelming majority of bank customers who engage in proper and legal transactions should not be abrogated simply because prosecutors are able to relate to this Subcommittee several stories about the "one who got away". In this regard, I want to express my full agreement with the sentiment you expressed, Mr. Chairman, during the recent hearings of this Subcommittee that "we must tread very softly" in this area.
The RFPA, in its present form, already allows the government to:
obtain customer's financial records pursuant to court order, judicial or administrative subpoena or, under certain circumstances, simply formal written request to the financial institution; (2) delay the bank's notice to the customer of the inquiry if there is reason to believe the notice will lead to tampering with evidence, flight from prosecution
otherwise seriously jeopardize investigation of criminal conduct; (3) receive information voluntarily provided by financial institutions regarding the possible violation of a criminal statute; and (4) share with another agency financial records which
relevant to a legitimate law enforcement inquiry of that agency.
The bills seeking to amend the RFPA, such as H.R. 1367, 2785 and 2786, relax the standards under which banks are to provide the government with information about their customers and increase the information and records to be provided. In combination with the proposed amendments to Title 18 of the U.S. Code which would subject banks and their employees to criminal prosecution for conducting transaction in which there was
any reason to believe the funds were illegally derived, the proposed changes to the RFPA would force banks into the untenable position of spying on the very customers whose trust is essential
their survival. Financial institutions would be forced to report transactions involving the slightest suspicious behavior, for fear of being prosecuted for engaging in a money laundering transaction. Thus, the proposed amendments to Title 12 subvert
of the main
purposes of the RFPA, which, as stated by Congressman Whalen, Co-sponsor of the principal bill finally enacted, was to "restore the record holders, the banks and credit card companies, to their proper
role impartial custodians of records.- 13/
Additionally, the Administration's bill would allow government agencies to trade financial records in the event they "may be relevant to a matter simply within the agency's jurisdiction. This new power would turn traditional notions of law enforcement
their head. Agencies could trade information on our everyday financial transactions until they find or create some reason for an investigation. Such Orwellian atmosphere in which our financial transactions are subject to daily review by the government is an intrusion of privacy rights of the highest order.
There is simply no precedent for the type of unwarranted governmental power which would result from the proposed amendments. I do not believe it to be an exaggeration to state that if the procedures proposed in the Administration's bill are enacted, the trust upon which banking institutions depend so dearly will be severely damaged. Banks would in effect become assistant prosecutors or at the very least well-placed snitches who keep tabs on the local citizenry. If the public comes to believe that their bank on the corner is acting as conduit of information for a host of government agencies, many upstanding citizens may find alternatives for retention of their funds.
The requirements Congress put in the RFPA are reasonable and the minimum necessary for protection of our privacy. These Congressionally created "obstacles" are no greater than Miranda warnings or probable cause and warrant requirements or other limitations on the prosecutor which are designed to protect the vast majority of law-abiding citizens. For instance, each and every time federal law enforcement officials have sought to delay notification to the bank customer that his records were being obtained, that request has been granted. The government, however, has made little use of this provision, seeking a delay of notification only 48 times since 1978.147 The loss of confidence that further encroachment on our privacy may entail is too high a price to pay when the new stepped-up compliance with the Act, it presently exists, has already resulted in significant increases in the filing of CTRS.
Proposed Amendment to 18.U.S.C.
Although there is a respectable body of opinion that current law provides adequate bases for dealing with money
laundering, there appears to be need of statute punishing individuals who knowingly and intentionally participate in the laundering of illegally derived funds. We must be careful, however, not to create a law whose effect will be to punish the innocent bank teller or official who is unsuspectingly made a party to the
money laundering scheme the bank with faithless teller or official. For this reason, Congress should reject any money laundering legislation which imposes criminal liability on bank personnel for anything less than knowledge that the transaction they are handling involves illegal funds and specific intent to
engage in that transaction for the purpose of laundering those funds. Unfortunately, none of the bills presently before Congress impose such a standard.
The application of criminal penalties under the "reason to know", "reckless disregard" or "substantial risk" standards which appear in the bills is not only unfair but also unworkable. These bills would question whether the teller had
reason to know if an otherwise perfectly proper and everyday transaction involves money from some other illicit transaction, which occurred at some earlier time, at some other place at which the teller
not present. The problems in applying such standard are obvious, especially given the fact that most tellers have only a high school education and typically remain in the job less than a year.
When does a teller have "reason to know" or act with a "substantial risk" that
otherwise normal transaction involves tainted funds? What if an ex-convict deposits $5,000 in cash? Must a teller file a report when an individual under indictment for embezzlement obtains cashier's check for $6,500? What if one teller read the story in the newspaper about the indictment and another teller did not? Are they held to different standards? What if a customer buys a new car and starts dressing in more expensive clothes? would a teller have to report all transactions close to but under $10,000? How close? $9,800? $9,000? $8,000? Must a teller report the transaction of a customer rumored in the neighborhood to be involved in organized crime? What if it merely involves a $150 deposit?
Additionally, what is the teller to do if he or she actually suspects the transaction to involve illegally derived funds? Under most of the bills it would be illegal for the teller to engage in the transaction. Thus, the teller would be forced to confront the alleged money launderer. This would, of course, result not only in . warning the alleged criminal that his actions will be reported to law enforcement officials, but also place the teller in a potentially dangerous situation. Moreover, when the overly suspicious teller which is exactly
what these bills would force the teller to become confronts an individual who is innocently engaged in a legal and proper transaction, the bank is placed into the role of accuser and thereby risks losing its customers as well as impairing the long term trust of those individuals in financial institutions in general.
These bills turn the emphasis from the criminal activity of the drug dealer to the bank teller to the average law abiding man and woman. That was never the purpose of the Act and never should be. We should not allow the federal law enforcement community's attention and efforts to be diverted from targeting drug dealers to targeting bank tellers and banks. I am not aware that we did not have a sufficient number of drug dealers and others in organized crime as targeted individuals. We do not need prosecution of tellers on weakened
standards of intent to give the impression that we are succeeding in drug law enforcement.
For these reasons, if Congress decides to enact a money laundering statute, it should be limited to the real targets, those who intentionally and knowingly engage in transactions involving criminally derived funds for a criminal purpose. Such a standard would encompass the bank teller or official who acts with criminal intent without refocusing the emphasis from the criminal activity of the drug dealer, where it should be. While Congressman Hughes' bill, H.R. 1474, comes closest to the necessary standard, it does not include the "intent" standard necessary to protect the teller who, with no intent to launder funds, conducts transaction with funds he or she suspects were derived illegally but for fear of personal safety, or to avoid embarrassing long time customer who is in fact not laundering funds, does not confront the individual.
Proposed Amendments to Title 31 -
As has been amply demonstrated in the Congressional hearings, the recent problems associated with the Act were due to a lack of administration, enforcement and compliance with existing regulations, and not to the lack of an existing legislative regulatory framework. The creation of new reporting requirements will serve only to hinder the process that is already in existence, which
is being properly applied. During a time of personnel cutbacks in government agencies, the IRS must now process between three and four times the number of transaction reports it handled in 1984. Indeed, both former Assistant Treasury Secretary John M. Walker, Jr. and present Assistant Secretary Francis A. Keating, II reported