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Mr. McCollUM. I also have a question relative to your testimony regarding the bill Mr. Torres and the chairman had put in, and I know you have testified to some of this, in your testimony, with regard to the $10,000 reporting requirement, but I didn't see any mention in the testimony, and I apologize for missing this.
I don't believe you have been asked any questions about the $3,000 recordkeeping requirement in that bill as well. The bill calls for the banks to keep records on cash transactions, $3,000 or more, doesn't require that they report all of those, but that they keep certain records.
Do you have a problem with that requirement? Is that a problem for anybody, or should we leave that one alone, too, in your view?
Mr. Saphos. That in itself, no, sir.
Mr. SAPHOS. That in itself, no, I have no problem with that, but we are working with Treasury to come up with what we think might be a better solution, using the same number.
One of the solutions we are working with Treasury on is that it be illegal for anyone to structure a transaction, it is wrong to go to different banks in the same day, same bank on the same day, same bank on multiple days for the purpose of keeping a bank from filing a report.
The problem is that we are now simply telling the bank, if he comes into your bank many times in the same day, then you must report it. We are not addressing the rest of those questions.
The $3,000, the document kept and maintained by the bank concerning $3,000 transactions, can be a significant contributor to that. If we tell the bank, you must report, if your customers comes into you many times in the same day, and has transactions in excess of $10,000, but you must also report if he goes back into your institution and others in the same day, and has transactions in excess of $10,000.
And the way you may learn that is if your customer purchases a negotiable instrument with you for cash in the amount of more than $3,000 or what have you, then he has to fill out an application, and on the application you ask him whether he is structuring his transaction and you are allowed to rely upon that.
We are not trying to make you-the bank-a detective. You are allowed to rely upon his representation to you.
Mr. McCOLLUM. He didn't get stuck. He made a statement that you can prosecute him for.
Mr. Saphos. Right. If he lies we can prosecute him.
Mr. McCOLLUM. Same idea I asked about. I like that. I know we are about to vote.
Chairman ST GERMAIN. Let me ask you, on a false statement, Mr. McCollum just asked you about this, if you were to prosecute someone, wouldn't you have to have a signed false statement on record?
Mr. TROTT. A provable false statement, right, and we would try to make it in terms of a document that is signed.
Chairman ST GERMAIN. Do you agree or disagree with that?
Mr. TROTT. That would be a good predicate for a Federal prosecution.
Chairman ST GERMAIN. The requirement?
Mr. TROTT. Yes.
Chairman ST GERMAIN. So, you have no problem with that? Who was objecting to it?
Mr. WYLIE. I don't think anybody was, Mr. Chairman.
Chairman ST GERMAIN. Hold it a minute. My staff feels that the Treasury already has regulatory authority to require a signed false statement.
Mr. TROTT. We are working on that with Treasury.
Chairman ST GERMAIN. The thought was that perhaps there was a bit of a resistance because this would involve a substantial dossier, so to speak; correct?
Mr. TROTT. Yes, banks would be required to keep additional records. I don't think there is necessarily resistance, but what I do, whenever I am imposing a requirement like this on somebody, I try to ask, is this an unreasonable requirement?
Are we creating so many problems for the banking system that the tail starts to wag the dog so that they can't do anything except fill out reports.
We want to make sure it is balanced and meets the objective without causing too many problems.
Chairman ST GERMAIN. I find it hard to believe that there are that many people coming in, with those large denominations of cash, that are in a legitimate business, except for the grocery store.
Mr. TROTT. There are a lot of cash businesses out there. I have heard bankers describe many people you might not otherwise expect.
Chairman ST GERMAIN. They would be on an exempt list; wouldn't they? The fellow dealing with his or her local bank, if they are recognized.
Mr. TROTT. That is what the exempt list is created for, you are right.
Chairman ST GERMAIN. You exempt the legitimate businesses, or the bankers who are very familiar with their local customers.
It seems to me that that volume should not be too great.
Mr. WYLIE. We have had another excellent session, Mr. Chairman, with three very excellent witnesses, and you have made a very significant contribution, at least as far as this member is concerned. Thank you very much.
Chairman ST GERMAIN. I, too, want to add my thanks to you. There are a few questions we propounded to you and I would askI will have the staff ask the real burning ones, those where we would like the replies as soon as possible, so we have them for the record if we go into a markup session soon.
Mr. TROTT. Fine.
Chairman ST GERMAIN. The subcommittee will stand adjourned until the call of the Chair.
[Letters of invitation to witnesses of this day's hearing can be found in the appendix.]
(Whereupon, at 12:45 p.m., the subcommittee adjourned subject to the call of the Chair.)
Department of Justice
STEPHEN S. TROTT
SUBCOMMITTEE OF FINANCIAL INSTITUTIONS
UNITED STATES HOUSE OF REPRESENTATIVES
MONEY LAUNDERING LEGISLATION
APRIL 23, 1986
Mr. Chairman and Members of the Subcommittee, I am pleased to be here today to present the views of the Department of Justice on one of the biggest problems presently facing law enforcement, the laundering of money derived from criminal activity. Let me say initially that this is a difficult and complex subject as evidenced in part by the large number of bills that have been introduced.
As the Subcommittee knows, money laundering -- the process by which one conceals the existence, illegal source, or illegal application of income and then disguises the source of that income to make it appear legitimate is big business. Just how big nobody knows for sure because drug rings and organized crime families do not prepare annual reports, but the Treasury Department has estimated that Americans spend more than $80 billion each year to buy illegal drugs. Sales of $80 billion would make the illegal drug trade a bigger operation than all but one of the
Fortune 500 companies, larger even than General Motors.
that is just from drug trafficking. A Wall Street Journal article which editorially supported the Administration's money laundering bill that I will be describing in a minute contains an estimate that somewhere in the neighborhood of $150 billion is generated each year by drugs, gambling, and vice in general. We ourselves are unable to determine exactly how much is laundered, but obviously it is a multi-billion dollar figure.
The Attorney General summed up the problem when he described money laundering as "the life blood of the drug syndicates and traditional organized crime." Unfortunately, this problem has
grown in size and complexity.
More people are involved, there is
more money being laundered, and the schemes to wash "dirty money" are now often so sophisticated that they involve an intricate web of domestic and foreign bank accounts, shell corporations, and
other business entities through which funds are moved by high speed electronic fund transfers.
Perhaps even more disturbing is the increasing willingness of professional persons such as lawyers, accountants, and bankers
at all levels from tellers to senior officials to become active
participants in money laundering.
While some criminal
organizations still wash their own illegally generated money by such relatively crude methods as one of their members' smuggling
a suitcase full of currency out of the country for deposit in an
offshore bank, a number of drug rings and other criminal
syndicates now hire professionals to launder the money produced
by their operations.
Consequently, this Administration has determined that what
is needed is new legislation to directly prohibit the laundering
The bills that I will be discussing today would create
such an offense. Before I do that, however, I think it would be
helpful to review some of their background.
On July 28, 1983, the President established the Commission
on Organized Crime.
Among other responsibilities, the Commission
was charged with making recomiendations concerning any legislative changes needed to better combat organized crime and
to improve the administration of justice. In October of 1984, the Commission issued an interim report to the President and the