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The Bank of Nova Scotia deserves considerable credit for getting on the right side of the issue fast. The Brits moved in. The law was changed the law in the Cayman Islands and now the Bank of Nova Scotia is up and running, and helping us out a lot.
Chairman ST GERMAIN. Page 19 and 20 of your statement, you comment that requiring reports of all foreign wire transfer of funds of $10,000 or more presents difficult practical problems that may not be justifiable.
We received that same testimony from Mr. Keating from the Treasury last week; did we not? Now, according to books that cite Federal Reserve studies, items written for over $1,000 account for only 5 percent of the total volume of items processed by commercial banks.
Eighty-eight percent of the dollar value; however, so it is unclear what percentage of total volume of wire transfers is over $10,000, or what volume they might represent.
In other words, 5 percent of the total volume of items processed by commercial banks, but 88 percent in terms of dollar value.
Now, my question is, if indeed wholesale payment mechanismswholesale mechanisms are deemed as such because they involve large dollar items, according to the Federal Reserve Bank of Atlanta, items written for more than 1,000 accounted for 5 percent of the total volume of items processed by commercial banks, but 88 percent of the dollar value.
That would seem to indicate that the size of these large wire transfers are rather substantial individual transfers; correct?
Mr. TROTT. I would think that would be correct.
Chairman ST GERMAIN. It seems as though, going back to last week's hearing, wire transfers can be a very integral part of this money laundering scheme. From what was described to us, we should give some consideration to it during the legislative process on it, especially when we are considering amendments. We should have a little input as to the reporting requirements for these wire transfers.
I don't think it is proper to say that there are too many of them for us to look at. What is your reaction, Mr. Saphos?
Mr. SAPHOS. Mr. Chairman, I agree with you, both in the concept that the wire transfers bear scrutiny, and a scrutiny of wire transfers will reveal conduct which bears investigation; if not, it is just criminal on its face.
I agree with that, and I don't think it is nearly satisfactory to skip that as a crime. What I would suggest, though, and this is something I spent a little time examining, the Congress has already given to the Secretary of the Treasury the authority to require reports concerning wire transfers to be reported to the Secretary of the Treasury.
One of the regulatory schemes that the Secretary came up with last year is a very good idea. The concept was that the Secretary of the Treasury will give notice to financial institutions in a certain region on a certain type of financial institution that for the next period of time, 90 days, you must report to the Secretary of the Treasury all wire transfers received, sent out of the United States or received back in the United States from every Caribbean nation, or whatever.
All wire transfers for the next 90 days or whatever period you wish and whatever group or class of financial institutions you wish to address at that particular time, much like the way the Secretary of the Treasury has the discretion to require the reporting by financial institutions of their exempt list.
With a mechanism then set up by the Secretary of the Treasury to examine that class of wire transfers
Chairman ST GERMAIN. Let me interrupt. How does Treasury determine which geographic area, which institutions or what have you, they will require for that 90-day period?
Mr. SAPHOS. One of the suggestions I would have to Treasury, is within their own-in their own TFLEC system, they have a lot of valuable data to assist you, and some will tell you what excess currency we have floating around the United States, which shows which areas are receiving more currency today than yesterday or more currency than other areas of the United States.
Another thing is, we can determine from offshore, their returns as reported to the Federal Reserve, which are not private documents, their returns from foreign banks in the United States of money, who is receiving an awful lot now, which needs to be examined.
Using that data, we can determine, for instance, that there appears to be an awful lot of money flowing from San Francisco to Hong Kong this week that bears scrutiny and perhaps criminal investigation.
Chairman ST GERMAIN. Thank you.
Mr. WYLIE. I wrote a note here, Mr. Coward, when you were testifying that says a money laundering statute probably wouldn't help too much in enforcement. Did you say that, or did I misunderstand?
Mr. Coward. I certainly don't recall saying it. On the contrary, the proposed bill for a variety of reasons, and I mentioned three in particular, such as making money laundering per se an offense certainly allows for removing from the trafficking scheme a number of people who DEA and IRS are not able to reach with current legislation.
The facilitation part of the pending legislation is good for DEA from a couple of viewpoints. First of all, it allows the smurfing problem to be-to be more frontally addressed and as I mentioned, we would like to see that happen, not only because Smurfs will make nice defendants, but also very good witnesses.
Mr. WYLIE. There are numerous forms of money laundering, and criminals are becoming more and more imaginative, and as our law enforcement efforts become more proficient, they figure out better ways to launder money, but you want to be on record this morning saying you think a money laundering statute will be quite helpful
Mr. Coward. No question about that, sir. But we may well be back again next year.
Mr. WYLIE. Where do most of the drugs come in from?
Mr. COWARD. Depends on the drug, sir. Cocaine is entirely from South America, and there are a variety of trafficking routes. There is a growing incidence of it coming across the Texas border now.
The Caribbean has been sewed up a little bit with all of the heavy emphasis on enforcement in that area. Heroin comes from Southwest Asia principally, accounting for approximately 50 percent of the heroin that comes into the country-Mexico accounting for 38 percent and Southeast Asia the remainder.
And with regard to marijuana, it is neck and neck between Colombia and Mexico with Mexico edging out Colombia just a bit in the marijuana traffic.
Mr. WYLIE. A big problem is Colombia.
Mr. COWARD. Yes, the great majority of cocaine hydrochloride is manufactured in Colombia, the raw product is grown in Bolivia and other countries. The laboratory operations are generally in Colombia, but there are exceptions to that.
Mr. WYLIE. Where do most of the drugs come into?
Mr. COWARD. Again, traditionally, coming from South America, into Florida. When things heated up a bit down there, we found them moving farther north, particularly with some of the large marijuana shipments, we were seeing the mother ship operations all the way up the east coast, offshore.
With regard to cocaine, whereas we saw very little cocaine coming through Mexico up until the last year or two, we are seeing a greater and greater incidence of that now. Substantial seizures are being made at the Mexican border, or we are making substantial seizures that we are able to tie back through Mexico as a trafficking route.
That is because of the success we have had in the Caribbean area, the Federal enforcement effort, not just DEA.
Mr. WYLIE. The real help of our efforts would come if we could work out some arrangement with countries like Colombia. How much success have you had with that?
Mr. COWARD. We work closely with the Colombians. Their resources are limited to a degree, but we have found them extremely cooperative in a number of situations, and we continue to work very closely with them.
Mr. WYLIE. Are the banks cooperative?
Mr. COWARD. We have not been that much involved with the banking in Colombia. They are negotiating now for some agreements.
Mr. TROTT. Their Treasury cooperates with Federal law enforcement, yes. Colombia has done quite a lot in the last few years to assist in this problem.
The Minister of Justice, Mr. Lara Bonilla, was assassinated in Colombia by drug traffickers, and at that point, President Betancur stepped up the program and started to extradite Colombia drug traffickers to the United States to stand trial here in this country for Federal crimes, and they had not done that before.
That has been such a controversial program in Colombia that it resulted in part in an attack on the Colombian Supreme Court, during which many justices of the Colombian Supreme Court and other people were murdered.
When I was there the last time, talking to the new Minister of Justice, I saw written on walls in that city, "Extradition: No."
Nonetheless, President Betancur has continued to cooperate and hauled out the assets of the military in that country. Daily they bomb airstrips that belong to traffickers throughout the country, and they have an eradication program going with respect to marijuana that has been stepped up very much.
Mr. WYLIE. You also have said that the situation seems to be getting worse.
Mr. TROTT. When I go to Colombia, and for the lack of a better description, belly up to them and say: "What are you doing about this problem down here?” They remind me that the market is in the United States and they ask what we are doing about the market, and they describe the demand side of the equation as the root of the problem.
They point out, “If your people weren't spending $80 billion a year on this stuff, we wouldn't have our people growing it."
Chairman ST GERMAIN. It takes two to tango.
Chairman ST GERMAIN. Maybe what we should do is instead of all this controversy about aid to-military aid to Contras, we ought to give more military aid to President Betancur so he can do a little better job on those planes, and airstrips, and what have you.
Mr. WYLIE. You put that bill in, I will support it.
Chairman ST GERMAIN. Mr. Coward, the testimony last week was that the smurfs went in and bought all kinds of money orders, cashier's checks, and it was to any Latin name, the payee could be any, they put in any Latin name at all, and then as a payor, USD Co. of Florida, Realty Management Co., et cetera, and that those checks, money orders, that went into an envelope, and that individual took a plane to Colombia.
It is obvious that those transactions, those checks and money orders then are deposited or brought into a financial institution in Colombia, right?
What are the banks in Colombia doing to cooperate? And I thought you said they were cooperating, no problem; but it seems to me, if they had a suspicious reporting requirement, face it, a little envelope can contain a lot of checks and money orders.
Aren't those banks in essence part of the circuit here?
Mr. Saphos. I am sorry. In Colombia, sir? They are going to co lombia. Those negotiable instruments in false names are being treated by the narcotics traffickers in Colombia like specie, like money.
The Colombian cocaine trafficker buys his cocaine paste in Peru, and the Peruvians won't take pesos because of inflation. He uses those moneys to buy cocaine paste. We turn them over and look at the back of that thing, and notice five or six people have had their pseudonym endorse that over to other persons, because it has been used as a negotiable instrument offshore.
It has that made-up name on the face. We are seeing it goes through Panamanian banks, and back into the United States, and the turnover rate between that Panamanian bank and its corresponding bank in the United States.
If my bank in Virginia could do one-tenth as well in turning those things over rapidly, I would be very lucky and my float time would be a lot quicker.
A smurf would buy a check in Los Angeles on a Friday, it was being cleared through the financial institution back in Miami after going overseas and coming back into the United States over a 3-day weekend, 4th of July. That is pretty good work.
That gave the doper the use of the money in Panama, and it gave the institution in the United States the use of the money almost overnight.
Chairman ST GERMAIN. The Panamanian bank is principally involved as the collecting bank?
Mr. SAPHOS. That particular bank, we seized the assets of that bank in south Florida in the United States. We are litigating the case right now, but we have probable cause to believe that they were acting as a mere conduit for narcotics money-
Chairman ST GERMAIN. You were able to look at those instruments and you found that the Panamanian bank was involved. Now that that bank has had a hold put on it, as a result of litigation, will you be able to then trace and find out which banks will be utilized?
Mr. SAPHOS. Quite often, by tracking the negotiable instrument itself when it comes back into the United States by obtaining a subpoena for the instruments from the U.S. financial institutions, unfortunately, they have no obligation to keep secret the fact that we are conducting that investigation and have no obligation.
Chairman ST GERMAIN. If you get all those pseudonyms on there, there ain't no customer.
Mr. SAPHOS. The pseudonym is the name of the payee. No real obligation in the law requires the remitter be disclosed at all. It is a mere convenience.
Chairman ST GERMAIN. Mr. McCollum.
Mr. McCOLLUM. Mr. Trott, I have a couple of questions. This is an area we have talked about many times, but I don't know if we ever nailed down something I discussed last week with Mr. Keating.
Right now, there is a procedure that individual banks file for exemption from reporting requirements under the Bank Secrecy Act. They can take a customer that has a lot of cash normally, grocery store, whatever, that exceeds the amount we would expect somebody to put in there by cash, and put them on an exempt list.
The customer at the present time is not a party to the exemption, he doesn't have to sign anything, request the exemption, an internal thing done for the purposes of the bank, and the Treasury Department.
It was suggested last week, and Mr. Keating seemed to think it was a good idea, that it might be helpful to law enforcement and everybody else involved if the customer were required to sign some kind of a statement at the time the exemption is granted to him indicating the source of cash, the nature of his business, so forth, so that if it turns out later to be false and not true, it might be an easier prosecution than otherwise would be available to law enforcement.
Is it a concept that you think is viable, and would you suggest we
Mr. TROTT. That sounds like a very good idea.