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Mr. TROTT. I don't know.
Mr. COWARD. In a 1983 Miami conspiracy case, DEA arrested 36 individuals, 2 of whom were bank officials, a vice president of the Great American Bank and a vice president of the Bank of Miami.
The defendants had negotiated with undercover DEA agents to recruit clients for money laundering and investment services. Approximately $45 million in drug money had been laundered through these banks for various cocaine traffickers.
In another case, Isaac Kattan was arrested by DEA in February 1981. He had on him at the time $18,000 in cash and $365,000 in checks. The next day, search warrants were executed and a bank account worth almost $1 million was seized, along with an international telex machine, several money counting machines, and thousands of financial documents.
Analysis of the seized documents showed that Kattan's organization had handled gross proceeds estimated at $200 to $250 million per year. During the 4-month period prior to Kattan's arrest, his money couriers transported $61 million in cash to a brokerage firm.
This money was the proceeds from cocaine sales in New York, Los Angeles, and Miami, and movement of the funds was facilitated by Kattan's travel agency in Cali, Colombia, which was also licensed to conduct business as a money exchange.
These examples are dated for obvious reasons. We have more current examples. The cases are still open, however.
Our agents, acting undercover, are being approached on a routine basis by traffickers who are looking to launder enormous sums of money. Traffickers have claimed to have as much as $200 million to launder and we can easily suspect that if they have $200 million to place with one_money launderer, there is even more being handled by others. Rarely do these people put all of their eggs in one basket.
To cope with these approaches to our undercover agents, DEA has developed techniques designed to ultimately forfeit as much as possible of these moneys to the Government. However, it would be inappropriate to discuss the details of these investigative approaches in open session.
One thing I would like to tell you about is the Cooperative Arrangement we have with Florida.
The comptroller's office in the State of Florida processes copies of CTR's, which the banks file with the Federal Government, but there is State legislation which requires the banks to submit copies to the State comptroller's office and to report suspicious banking activity in amounts less than $10,000.
The banks are complying with this, and are filling out what amounts to a CTR.
Chairman ST GERMAIN. How long has that been in effect?
Mr. COWARD. Sir, I don't know. At least for a year or so that I am aware of. The banks are cooperating with this, and using the CTR form itself, marking it as suspicious activity and submitting this to the State comptroller's office, and they are entered into their computer system, and there is only a 7-day backlog, which is very good, and they are being analyzed.
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If there are a series of suspicious reports being made by the bankers, these are being compared and the banks are being recontacted, the comptroller's office might call the bank
Chairman ST GERMAIN. Give us an example of suspicious activi
Mr. Coward. An individual that comes in on 2 or 3 days in 1 week with $9,500 to deposit in one account, or even separate accounts, anything of that nature. I don't believe the statute spells it out.
Chairman ST GERMAIN. You say you have seen some of those reports?
Mr. COWARD. The reports come to us in the form that there has been suspicious activity. We get back with the investigators in the comptroller's office by phone and discuss the situation.
As they generally do some analysis first, we don't see all of the reports that they make. Because they are able to weed them out, only those they think have some meat to them are referred to the Florida Department of Law Enforcement and to our office. After some cursory computer checking here in DC, we farm them out to our local field offices, generally in Miami.
Chairman ST GERMAIN. A witness last week testified that he was going to the same 10 or 12 banks over a 1-year period once or twice a week, laundering cash in $9,000 denominations. Never once did anyone ever question him.
He also reported observing a couple of ladies while he was doing undercover work, doing the same thing in a couple of banks, and he was never the subject of a suspicious report. That is why I asked. He was operating between 1984 and 1985.
Mr. COWARD. I would have to check to find out.
Chairman ST GERMAIN. Does H.R. 2785 contain such a provision, Mr. Trott? Would H.R. 2785 in any way require this type of suspicious reporting?
Mr. TROTT. It wouldn't require it, but it would clearly permit it and encourage banks to do that by making it clear that any report of this type of activity would not go against the bank in some sort of a civil suit.
I might say that we have done a lot to encourage banks to become involved in this as part of the solution rather than part of the problem.
A tape has been made as part of a program for bankers by Mr. Saphos and Charlie Blair of the Department of Justice and others, describing money laundering techniques, and it is now being put on in 64 cities for 6,200 bankers.
Chairman ST GERMAIN. Tellers, managers or officers?
Chairman ST GERMAIN. You know what the trouble is. The management people are not the ones who are going to catch the launderers.
Mr. TROTT. I brought these tapes along, which I could furnish. Banks are making tapes to be shown to the tellers, putting up signs-this is from the Bank of Nova Scotia-putting up signs for tellers, other people, describing what the conduct is and encouraging them to report it to law enforcement.
The financial institutions want to be there and want to know
Chairman ST GERMAIN. Has the ABA bought these tapes? Mr. TROTT. They paid for the series, I am advised. Chairman ST GERMAIN. The ABA is encouraging this as well? Mr. TROTT. Yes, they sponsored the entire program. Chairman ST GERMAIN. I am going to ask staff to check with the ABA to see what they are doing in this area, as well as the U.S. League, because I think the industry itself could do a great deal if they were to take advantage of this informational material that
Mr. Trott. The industry must be at the frontlines as you point out, with the tellers. The tellers must know what this activity is, be able to spot it and be encouraged by the management of the bank to turn it in.
These tapes start out with the CEO of the Bank of Nova Scotia saying we do not want to help racketeers, and let's get in and solve this. It is a very good attitude, and I encourage all banks to continue that attitude.
Chairman ST GERMAIN. I interrupted Mr. Coward.
Mr. WYLIE. What is the usual source of your suspicious activity reports?
Mr. COWARD. They come through the State comptroller's office in the State of Florida. They are prepared by the tellers working the cages in the banks, and this may very well account for the fact that someone may or may not have been reported.
Suspicion is in the eye of the beholder.
Mr. COWARD. Yes, sir, it is a program the State of Florida developed on their own. In return for providing us with these reports, they have asked that we review the names they submit when they receive applications with regard to the change of control of a bank in Florida. They forward those names to us, and we review our indices and let them know if we have any activity with regard to those names.
They are very concerned about drug traffickers taking over banking institutions. We are providing the assistance they request and they help us with the suspicious activity reports. We are able to review the names for them which helps us, of course.
Mr. WYLIE. Should we pass legislation which would require all State comptrollers to have some sort of a report?
Chairman ST GERMAIN. Mr. Coward.
Mr. COWARD. I am through. I would like to echo Mr. Trott's comments that the banking industry itself is concerned and interested. DEA participated with the Department in the teleconference, and reached many of the bankers last year.
Since then, we have been asked by a number of regicnal banking associations to provide speakers. Our agents in the field have met with groups of bankers on several occasions, and the bankers have made it clear that they are very anxious to help us.
Generally, we are joined by IRS whenever we attend these meetings or make a presentation. IRS interprets the regulations and we encourage the banks to give us a call. We are finding that in those areas where bankers are more comfortable that they are not going to somehow be liable civilly or otherwise for revealing information to us they are quite willing to do it.
That is the reason that the clarification part of the pending legislation would be useful. It would put their minds at ease, and we would get more calls which would help our cause.
To conclude, as we become more and more proficient in our investigation of money laundering, and in particular with the seizure of assets from traffickers after the criminal investigations have been completed so that they are not able to go right back into business, or so their lieutenants don't go right back into business, we suspect the traffickers will become more sophisticated. We have got to stay alert to make sure our investigative techniques are up to date.
And we have to make sure that our laws stay up to date with them.
I think that the pending legislation will go a long way to accomplish that. We have a great deal to do, and I think the asset seizure route, and the removing of the proceeds of the crime, particularly in drug cases, is one of the best ways to attack the problem.
[The prepared statement of Mr. Coward on behalf of the Drug Enforcement Administration (DEA) can be found in the appendix.]
Chairman ST GERMAIN. Thank you, Mr. Coward. Your testimony has been beneficial and helpful.
We, however, have limited jurisdiction. In other words, there are certain portions of H.R. 2785 that come within the jurisdiction of this subcommittee and full committee; but other provisions do not. It is our hope that we can at least move those portions that come within our jurisdiction.
The Comprehensive Crime Control Act of 1984 raised the crimi. nal penalties for not reporting violations by imposing a fine of $250,000 or imprisonment for not more than 5 years or both. H.R. 2785 would substantially raise those criminal penalties.
Some are impressed by these provisions, others are troubled by them. What bothers me, with the cases you cite; this Orozco, for instance, found guilty of conspiracy, and then sentenced to 8 years in prison.
I checked with one of my counsels and he says that you are usually eligible for parole on most Federal crimes after a third of the sentence has been served, with time off for good behavior. So, probably an 8-year deal would amount to 4 months.
Perhaps this man will serve 242 or 2 years, if he is a good boy?
Mr. TROTT. Yes, early release on the parole system is distinctly probable for everybody now in the system.
Chairman ST GERMAIN. He was fined $1 million. He laundered $150 million over a period of time, that you are aware of. Who knows, really and truly, how much he laundered?
A lot of people have to work a lifetime to make the kind of money that this fellow probably has got stashed away. So he did this for years, and he will spend only 242 years in a Federal penitentiary where the taxpayers of the United States are going to feed him, clothe him, bathe him, and entertain him. After 242 years, he comes out, goes anyplace in the world and retires for the rest of his life.
Last week, we received testimony as well, and we were told by one money launderer who laundered millions and millions of dollars, and he probably, according to the percentages the smurfer was getting, made himself a couple million dollars, and was only given a 3-year sentence.
They seized hardly any of his money. He probably put away $2.5 to $3 million, not a bad deal. It is all well and good to talk about increasing these penalties, but if Justice is going to negotiate in the way they have been to date, for sentences to be reduced to such a minimum amount, you wonder whether crime does pay after all.
Mr. TROTT. I think that the No, 1 fix to the problem you point out is in the law passed by Congress in 1984, abolishing the system of parole. We now have a sentencing commission that is meeting regularly to design new guidelines for sentencing.
We used to call it the truth in sentencing bill, and we are very delighted that that is now the law.
When it kicks in, it will say when a judge sentences somebody to a certain sentence, that that sentence is going to stick, and there won't be a parole commission that cuts it down by two-thirds.
Mr. Saphos advises me this is a gentlemen who handled $240some million and got a 6-year sentence out of the process. What you are driving at we agree with completely. Not only must there be substantial prison penalties, but complete forfeiture and massive fines to provide an adequate penalty for this activity, and a deterrent for others who might be thinking about engaging in it.
Chairman ST GERMAIN. According to the Privacy and Protection Study Commission Report, Justice William Douglas, in this instance, observed, “The banking transactions of an individual give a fairly accurate account of his religion, ideology, opinions, and interests.
Moreover, the emergence of a checking account as an economic and social diary for many individuals, is one reason why commercial banks are acutely aware of keeping their clients' financial affairs confidential.
Yet, as is noted in chapter 1, the Supreme Court recently rejected the notion that such expectations of confidentiality are either warranted or legally enforceable.
This is one of the items that gave rise to the Right to Financial Privacy Act.
Now, in H.R. 2785, you ask that we immunize the banks in order to encourage them to report; that is, give them immunity from civil suit. I asked the question last week, and I ask you, Mr. Trott; do you disagree?
John Q. Citizen sees a crime being committed or reports what he thinks is a crime being committed. If indeed they have done this, not because a crime was committed, but because they had ill-advised intentions, or feelings for the individual that they report against, they then are liable to a civil suit for damages; are they not?
Mr. TROTT. That is-
Chairman ST GERMAIN. Anybody is liable for a civil suit if you falsely accuse someone?
Mr. TROTT. That usually will result in a civil suit, if the person so accused desires to bring one.