- 23 · of our efforts at curbing what we believe to be illegal activity otherwise known as "smurfing" have either been wounded, or killed, by these decisions. However, The Administration is trying to diminish the devastating effects of these adverse court decisions by effectuating changes to the applicable regulations to bring them within the framework of what would be allowed under the court decisions. even if certain regulatory changes went into effect tomorrow, the fact remains that the Bank Secrecy Act and its regulations, with all the possible feasible amendments, would fall short of giving law enforcement the effective tools it needs to combat money laundering. There is only so much we can do by regulation to prevent structuring without imposing undue burdens on the overwhelming majority of innocent people. You should not be misled by the success stories you have heard about dealing with effective prosecutions under the Bank Secrecy Act, into believing that the Act is a totally effective tool against money laundering. There are many forms of money laundering which are not covered and possibly could never be covered by the Bank Secrecy Act even if further amended. Criminals are very imaginative in circumventing even the best drawn regulations. Bills introduced on April 15, 1986 by Congressman Pickle, H.R. 4573, and its Senate counterpart, S. 2306, by Senator D'Amato are also attempts to deal with the problem of "smurfing" or the structuring of monetary transactions by bringing it with the legal framework set by the recent court decisions pointed to above. - 24 Subject to some technical changes 11/ we endorse these legislative proposals particularly as they pertain to the problem of "structuring." However, they should not be perceived as alternatives to H.P. 2785. These proposals, as they amend Title 31, would only solve the problem as it pertains to the reporting requirements of that Title, which at this moment are needed changes. However, we need a basic money laundering offense that will punish the dealing with proceeds derived from all federal and state crimes as contemplated in H.R. 2785. I would finally like to comment briefly on H.R. 4280. Section 2(a) of the bill without any apparent motive eliminates the discretion granted by the Bank Secrecy Act to the Treasury Secretary to establish the monetary amount above which a CTR has to be filed. Presently that amount is established by regulation at $10,000 or more. However, the Secretary has the discretion to, if found to be necessary, lower that amount to cover the reality of the market place. As stated by Mr. Keating last week, several ideas are presently being considered to use this discretion granted by statute, to deal with the "structuring" problem until a more permanent solution may be obtained with the passage of H.R. 2785. H.R. 4280 would totally eliminate that possibility by setting the amount, above which a CTR must be 11/ At present the Department of Justice and the Treasury Department are working out these technical changes with the purpose of arriving at the most efficient statutory language. filed, at $10,000 or more, by law. The Department of Justice does not favor enactment of H.R. 4280. In sum, Mr. Chairman, while we appreciate the introduction of bills such as H.R. 1367 and H.R. 1945, which by and large contain recommendations of the Organized Crime Commission, as well as H.R. 1474, and H.R. 4573 we believe that our study of all of these bills and intensive consultation with all concerned federal agencies have enabled us to produce the type of comprehensive legislation that is needed in this area. that H.R. 2785 will be carefully considered and then expeditiously processed. We hope Mr. Chairman, that concludes my prepared statement and I would be happy to answer any questions at this time. Recent case law on "structuring" of currency transactions United States v. Varbel, et al.; 9th Cir., Jan. 10, 1986, 780 The Reporting Act (Bank Secrecy Act, Title 31 U.S.C. $5312 et seq.) and its regulations did not impose a duty on appellants to Inform the bank involved (in the handling of what the government claimed were structured transactions) of the nature of their currency transaction. The reporting obligation is clearly on the bank and the bank not knowing of the nature of the transaction did not have any obligation to report it. No crime was commmitted thus appellants could nto aid and abet or cause anyone to commit an offense against the United States. United States v. Ronderos; 9th Cir., February 10, 1986, 781 F.2d 1432 "Based on our recent decision in U.S. v. Varbel, (supra) where each currency transaction involves less than $10,000, there can be no conspiracy under 18 U.S.C. $371 to violate Section 5313, since the individual transaction involved were perfectly legal." United States v. Denemark; 11th Cir., Jan. 16, 1986, 779 F.2d 1559 Defendant could not be convicted under 18 U.S.C. $1001 for causing financial institutions to fail to file currency transaction reports where there were no currency transactions in excess of $10,000 which would require financial institutions to file reports, even though relevant statutes were subsequently amended in a manner which could be construed as making his conduct of purchasing 14 cashiers checks in amounts of $9,900 from 14 different banks criminal. The decision leaves open the possibility that conducting those transactions at the same bank, at least the same day, would be unlawful in that Circuit, unlike the First or the Ninth. U.S. v. Robert C. Cogswell and David P. Schwindt; N.D. of Cal.; "Because this court finds that the Reporting Act (Bank Secrecy Act, Title 31 U.S.C. $5312, et seq.) does not impose a duty to report transactions in amounts under $10,000 it also finds that the defendants cannot be prosecuted for concealing material facts, because the defendants had no legal duty to disclose any facts." (Parentheses ours) U.S. Department of Justice Drug Enforcement Administration Washington, D.C. 20537 STATEMENT OF ALWIN C. COWARD ACTING DEPUTY ASSISTANT ADMINISTRATOR DRUG ENFORCEMENT ADMINISTRATION on MONEY LAUNDERING before the SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION, REGULATIONS AND INSURANCE U.S. HOUSE OF REPRESENTATIVES FERNAND J. ST GERMAIN, CHAIRMAN APRIL 23, 1986 |