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bank is not limited to just money laundering cases. These foreign banks are also used to commit other types of fiscal fraud upon the United States, and I use this as an example in that respect.

Mr. WYLIE. You think there are some banks which are organized for the specific purpose of money laundering; I think you said that earlier?

Mr. WASSENAAR. Oh, I think there is absolutely no doubt about that. Currently we have-

Mr. WYLIE. Not in the United States, though.

Mr. WASSENAAR. No; but of increasing and current concern to us is the fact that we have a number of investigations in process right now, and I'm not able to go into great detail, centering around money launderers or tax shelter promoters who have acquired or are acquiring, either directly or are in control of financial institutions which we know have been used or will be used to perpetrate their fraud and to commit their crimes.

I think in my prepared statement I also give an example of a case that was worked by the Drug Enforcement Administration, worked successfully in terms of prosecuting this narcotics trafficker who indeed owned a controlling interest in the Sunshine Bank in Florida.

Mr. WYLIE. I want to ask a couple more questions, but I guess you have some more of your prepared statement you want to finish.

Mr. WASSENAAR. I'm ready for questions now.

[The prepared statement of Richard Wassenaar can be found in the appendix.

Mr. WYLIE. You have been involved in a lot of money laundering cases?

Mr. WASSENAAR. Yes; some 800 cases since 1981.

Mr. WYLIE. 800 cases. Money launderers are getting around the reporting requirement through using Smurfs who purchase less than $10,000 cashier checks. Do you think that the limit should be reduced, or would that help?

Mr. WASSENAAR. Well, that's a possibility. I would rather see what I think can be accommodated in Mr. Pickle's bill, that first of all, there be an attempt provision within the law and that it be a specific crime to structure your transactions in such a manner to intentionally avoid the Bank Secrecy Act. I think that would help in most of the Smurfing operations.

Mr. WYLIE. That would help. OK.

Mr. WASSENAAR. It would certainly limit the Smurfs to $10,000 a day, or less than $10,000 a day.

Mr. WYLIE. Do you think money laundering should be made a criminal activity?

Mr. WASSENAAR. I think it should, absolutely. You know, an analogy might be that if there were no Federal crime for armed robbery of a bank, then you force the investigators and the prosecutors to use perhaps a violation of failure to register a weapon, when the real crime is robbing the bank.

I think the same thing is true here. We have been I think, quite successful in convicting money launderers, but not on the crime of money laundering itself, but on violations of the Bank Secrecy Act. Mr. WYLIE. Under the law, we require financial institutions, brokers, insurance companies, currency exchangers—and one of your cases involved a currency exchanger-pawnbrokers and even casinos to file currency transaction reports. Are we missing anyone, based on your experience as an investigator in money laundering cases?

Mr. WASSENAAR. Whoever we are missing under the Bank Secrecy Act, we are picking up under the Internal Revenue Code because Congress passed a law about a year ago wherein any business that is not subject to reporting under the Bank Secrecy Act must file a similar form with the Internal Revenue Service under the Internal Revenue Code, a form 8300, which calls for essentially the same type of information. That would cover automobile dealers, any type of business where a transaction in excess of $10,000 is involved.

Mr. WYLIE. Thank you.
Thank you for your testimony. Thank you, Mr. Chairman.

Chairman ST GERMAIN. Mr. Torres, do you have questions you would like to ask?

Mr. TORRES. No, Mr. Chairman, only simply to thank the witness for illuminating evidence and testimony. Thank you, sir.

Chairman ST GERMAIN. To put it another way, we thank you for the Sunshine State Bank. That was in Miami?

Mr. WASSENAAR. It was in Florida.

BANK ADDRESS The Sunshine State Bank is located at 5975 Sunset Drive in South Miami, Florida.

Chairman ST GERMAIN. Your statement says Miami. Which was the one in Largo or Clearwater about a year and a half to two years ago? You don't remember that one?

Mr. WASSENAAR. That perhaps was a Great America Bank.

Chairman ST GERMAIN. The fellow who controlled that bank had a rather salubrious past; didn't he?

Mr. WASSENAAR. Yes.

Chairman ST GERMAIN. You wonder how he ever was allowed to come into control of that bank. That is not for you to answer. That is for us to query of the regulators. I will ask my staff to obtain the exact name of the bank so we can ask the proper agency tomorrow to explain that one for us.

Mr. WASSENAAR. Thank you for getting me off the hook.

Chairman ST GERMAIN. Mr. Wassenaar, we want to thank you for your help this morning. We have a number of technical questions we will submit to you in writing. I think we have kept you here long enough. We want, in view of your caseload, you to get back to work, and continue.

Mr. WASSENAAR. Thank you. We indeed appreciate your interest.

Chairman ST GERMAIN. Thank you. The subcommittee stands adjourned until 9:30 a.m. tomorrow morning. We do have some documents that will be submitted into the record at this point.

[The documents referred to can be found in the appendix.]

ĪWhereupon, at 1:30 p.m., the subcommittee was adjourned, to reconvene at the call of the Chair.]

APPENDIX

STATEMENT OF
THE HONORABLE J. J. PICKLE

BEFORE THE HOUSE SUBCOMMITTEE ON
FINANCIAL INSTITUTIONS SUPERVISION, REGULATION AND INSURANCE

WEDNESDAY, APRIL 16, 1986

MR. CHAIRMAN, IT IS AN HONOR TO APPEAR BEFORE YOU TODAY TO EXPLAIN MY NEW BILL TO COMBAT MONEY LAUNDERING.

THE OVERSIGHT SUBCOMMITTEE OF THE COMMITTEE ON WAYS AND MEANS HAS INVESTIGATED PROBLEMS ASSOCIATED WITH MONEY LAUNDERING. THE SUBCOMMITTEE HELD A HEARING, LAST YEAR, FOCUSING SPECIFICALLY ON THE RESPONSIBILITIES OF THE INTERNAL REVENUE SERVICE IN THIS AREA. IN ADDITION, SEVERAL MEMBERS OF THE SUBCOMMITTEE TOURED THE IRS TRAINING FACILITIES AT THE FEDERAL LAW ENFORCEMENT TRAINING CENTER IN GLYNCO, GEORGIA TO LEARN MORE ABOUT THE IRS ENFORCEMENT IN THIS AREA.

OUR SUBCOMMITTEE'S INVESTIGATION RESULTED IN TWO IMPORTANT FINDINGS. WE FOUND THAT BECAUSE OF LOOPHOLES IN THE CURRENT LAW, THE GOVERNMENT HAS BEEN UNABLE TO SUCCESSFULLY PROSECUTE THE PERSON WHO PUTS TOGETHER SCHEMES THAT ALLOW ILLEGAL SOURCE CASH TO BE "LAUNDERED". WE ALSO FOUND THAT PROBLEMS EXISTED IN THE ABILITY OF IRS TO SEIZE ILLEGAL SOURCE INCOME WHEN A CRIMINAL, SUCH AS THE DRUG DEALER, LAUNDERS HIS ILLEGAL SOURCE INCOME THROUGH DOMESTIC FINANCIAL INSTITUTIONS.

WE AS A NATION, ARE LOSING OUR BATTLE AGAINST THE FLOW OF ILLEGAL DRUGS. MONEY LAUNDERING IS AN INTRICATE PART OF THE DRUG TRAFFICKING PROCESS. THEREFORE, ANY EFFORTS TO TRY TO STOP THE DRUG TRAFFIC MUST STOP THE MONEY LAUNDERING ASSOCIATED WITH IT. ALSO, I SHOULD POINT OUT THAT BUSINESSES AND INDIVIDUALS IN THE U.S. ARE LAUNDERING INCOME, FROM BOTH ILLEGAL AND LEGAL ACTIVITIES. THIS PROBLEM IS A GROWING ONE. AS A RESULT, I AM CONCERNED ABOUT THE IMPACT OF MONEY LAUNDERING OPERATIONS ON THE COLLECTION OF U.Ş. FEDERAL INCOME TAXES.

AS MEMBERS OF THIS SUBCOMMITTEE ARE AWARE, THE ENFORCEMENT OF THE BANK SECRECY ACT REPORTING REQUIREMENTS IS THE RESPONSIBILITY OF THE SECRETARY OF THE TREASURY, WHO HAS DELEGATED HIS AUTHORITY TO THE IRS. UNDER CURRENT LAW, DOMESTIC FINANCIAL INSTITUTIONS MUST REPORT CASH TRANSACTIONS OF $10,000 OR MORE TO THE INTERNAL REVENUE SERVICE. IN A TYPICAL SCHEME, MONEY LAUNDERERS OFTEN BREAK UP LARGE SUMS OF MONEY, INTO TRANSACTIONS OF LESS THAN $10,000, TO AVOID HAVING THE FINANCIAL INSTITUTIONS REPORT THE CASH.

I ASKED THE ADMINISTRATION TO WORK WITH ME IN DRAFTING LEGISLATION THAT WILL CLOSE LOOPHOLES IN THE LAW THAT HAVE NOT ALLOWED THE GOVERNMENT TO SUCCESSFULLY CONVICT MONEY

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LAUNDERERS AND WILL GIVE THE IRS ADEQUATE SEIZURE AND FOR-
FEITURE AUTHORITY. THE BILL THAT I INTRODUCED YESTERDAY,
"THE MONEY LAUNDERING PREVENTION ACT OF 1986", REPRESENTS THE
RESULTS OF THIS JOINT EFFORT. THIS BILL WAS DRAFTED BY THE
ADMINISTRATION IN CLOSE CONSULTATION WITH MY STAFF. THE BILL
CLOSES THE LOOPHOLES IN CURRENT LAW WHICH ALLOW THE MONEY
LAUNDERER TO ESCAPE CONVICTION AND PROVIDES THE IRS WITH
SEIZURE AND FORFEITURE AUTHORITY WHEN THERE ARE VIOLATIONS OF
BANK SECRECY ACT REPORTING REQUIREMENTS.

THE BILL, AS DRAFTED, IS UNDER THE JURISDICTION OF YOUR COMMITTEE. I HOPE THAT YOU WILL EVALUATE THIS LEGISLATION AND IT WILL BE HELPFUL AS YOU IMPROVE THE BANK SECRECY ACT.

BEFORE I OUTLINE MY BILL, I THINK ONE THING SHOULD BE MADE CLEAR. THE ADMINISTRATION HAS DEVELOPED ITS OWN COMPREHENSIVE APPROACH TO ADDRESS THE ENTIRE AREA OF MONEY LAUNDERING. THEIR PROPOSALS ARE BEING ACTIVELY WORKED ON IN THE HOUSE AND SENATE JUDICIARY COMMITTEES. I ENCOURAGE ALL EFFORTS IN THIS AREA.

MY BILL, WHICH HAS THE ADMINISTRATION'S SUPPORT, IS DESIGNED TO COMPLEMENT OTHER MONEY LAUNDERING PROPOSALS. MY BILL, EVEN IF IT IS ENACTED ON ITS OWN, WILL BE A USEFUL ADDITION TO CURRENT LAW IN COMBATING MONEY LAUNDERING ACTIVITIES.

LET ME BRIEFLY OUTLINE THIS LEGISLATION:

SECTION 1 OF MY BILL EXPRESSLY SUBJECTS PERSONS TO
CRIMINAL AND CIVIL LIABILITY WHERE THEY "CAUSE" OR
"ATTEMPT TO CAUSE" AN INSTITUTION TO FAIL TO FILE A
REQUIRED REPORT OR TO FILE AN INCORRECT REPORT.
THIS WILL BE HELPFUL IN NOT ONLY GETTING THE SMURF
WHO DOES THE ACTUAL TRANSACTION, BUT ALSO THOSE WHO
PLAN THE ACTIVITY. THIS WOULD ALSO ALLOW TREASURY
AND IRS TO ACT BEFORE THE 15 DAYS THE FINANCIAL
INSTITUTION HAS TO FORMALLY FILE A CTR. REPORT.

ALSO, THE BILL MAKES IT AN OFFENSE TO "STRUCTURE"
OR TO "ASSIST IN STRUCTURING" A TRANSACTION TO
EVADE THE REPORTING REQUIREMENTS. FOR EXAMPLE,
THIS PROVISION WOULD PROHIBIT THE STRUCTURING OF A
TRANSACTION TO CIRCUMVENT THE REPORTING REQUIRE-
MENTS BY INVOLVING TWO OR MORE FINANCIAL INSTITU-
TIONS.

SECTION 2 OF MY BILL ALLOWS FORFEITURE AND SEIZURE
AUTHORITY TO BE USED BY THE IRS TO SEIZE LAUNDERED
CASH AND PROPERTY "DIRECTLY TRACEABLE" TO THE
LAUNDERED CASH. THUS, BOTH THE IRS AND THE CUSTOMS
SERVICE WILL BE ABLE TO USE SEIZURE AND FORFEITURE
AUTHORITY MORE EFFECTIVELY TO GET THE MONEY OR THE
PROPERTY BEFORE IT DISAPPEARS.

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HOWEVER, THERE ARE PROTECTIONS IN MY BILL FOR
INNOCENT THIRD PARTIES. IF A PERSON PROVES HE WAS
A GOOD FAITH "BONA FIDE PURCHASER" OR COULD PROVE
THAT IT WAS NOT A "WILLFUL" VIOLATION, HE WOULD NOT
BE SUBJECT TO FORFEITURE.

SECTION 3 OF MY LEGISLATION PROVIDES A NEW CIVIL
PENALTY FOR VIOLATIONS OF THE BANK SECRECY ACT.
THE AMOUNT OF THE PENALTY WOULD BE THE DIFFERENCE
BETWEEN THE AMOUNT FORFEITED UNDER SECTION 2 AND
THE TOTAL AMOUNT OF THE LAUNDERING TRANSACTION.
AGAIN, THE STANDARD FOR THIS NEW CIVIL PENALTY
WOULD BE A "WILLFUL" VIOLATION.

IN CONCLUSION, MR. CHAIRMAN, I BELIEVE THE NEED FOR THIS LEGISLATION IS OBVIOUS. FEDERAL COURTS HAVE TAKEN THE POSITION THAT THERE IS INADEQUATE LEGISLATIVE AUTHORITY TO PROSECUTE PEOPLE WHO ARE ACTIVELY ENGAGED IN MONEY LAUNDERING OPERATIONS. AT A MINIMUM, THIS LOOPHOLE SHOULD BE CLOSED FOREVER. UNDER MY BILL, IT WOULD BE.

ALSO, FOR THE FIRST TIME, THIS LEGISLATION WILL ALLOW THE INTERNAL REVENUE SERVICE TO SEIZE AND FORFEIT CASH AND PROPERTY THAT IS INVOLVED IN A VIOLATION OF THE BANK SECRECY ACT. AS MEMBERS OF THIS SUBCOMMITTEE MAY KNOW, LAUNDERED MONEY CANNOT BE SEIZED BECAUSE THERE IS DIFFICULTY IN PROVING THAT THERE IS A "NEXUS" BETWEEN THE LAUNDERED MONEY AND A CRIMINAL ACTIVITY. IN MOST CASES, THE CASE INVOLVES ILLEGAL DRUGS. MY BILL ALSO REPRESENTS A CAREFUL EFFORT TO STRENGTHEN IRS ENFORCEMENT AUTHORITY AGAINST MONEY LAUNDERING, WHILE AT THE SAME TIME, TO PROTECT THIRD PARTIES.

I AM ENCLOSING, FOR THE RECORD, A COPY OF MY BILL WITH A DETAILED SECTION-BY-SECTION EXPLANATION.

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