On April 23, 1986, the Subcommittee on Financial Institutions Supervision, Regulation and Insurance will continue its hearings on proposals to protect against financial institutions becoming havens for tax evaders, drug traffickers and launderers of funds derived from criminal activity.

As part of these hearings, the Subcommittee will conduct
hearings on the several bills dealing with money laundering,
including the Administration's bill, HR 2785. The other
bills the Subcommittee intends to review are: HR 1367 (Mr.
McCollum), HR 1945 (Mr. Hubbard), HR 1474 (Mr. Hughes), HR
3892 (Mr. Wortley), HR 4280 (Mr. Torres), and HR 4573
(Mr. Pickle).

The Subcommittee would appreciate the Department's analysis of these various proposals, and it is requested that Mr. Stephen S. Trott, Assistant Attorney General for the Criminal Division, appear and testify before the Subcommittee to discuss these matters on April 23, 1986, at 10:00 a.m. in Room 2128 Rayburn House Office Building.

In addition to the bills mentioned above, there are four
titles of the Financial Institutions Regulatory and Interest
Rate Control Act of 1978 (FIRICA), also known as the Safe
Banking Act of 1978, which the Subcommittee intends to review
and which we feel may lend support to our efforts to fight
those criminals who use our financial institutions for their
illegal gains. They are Titles I, VI, VII and XI
(Supervisory Authority Over Depository Institutions; Change
in Bank Control Act; Change in Savings and Loan Control Act;
and the Right to Financial Privacy Act, respectively).

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The Subcommittee would appreciate any comments or opinions which the Department might have with respect to the aforementioned Titles that you believe would provide guidance to us in these matters.

Please provide the Subcommittee with 175 copies of Mr. Trott's testimony no later than 24 hours in advance of his appearance. Please have your staff contact Earl F. Rieger, Counsel of the Full Committee staff, if there are any questions.

The Subcommittee appreciates your appearance at our hearings on April 23. Your testimony is of great assistance in our review of the Bank Secrecy Act and other pertinent issues.

There are several questions which the Subcommittee would like to have you answer and which will be submitted for the record. They are as follows:

1.

2.

3.

5.

What is the justification for eliminating customer
notification requirements under the Right to Financial
Privacy Act when interagency transfers of financial
records are obtained?

The Department has had some recent setbacks regarding
prosecutions in "structuring" cases. Wouldn't the
Pickle bill, H.R. 4573, resolve those difficulties?

The Department already has an arsenal of primary
offenses utilized in Title 31 prosecutions, such as
false bank entries, defrauding the U.S., RICO, Title 26
offenses, Title 21 offenses, etc. Why is it necessary
to create a new criminal offense?

Under current regulations, the CTR filing duties are
placed solely upon the financial institution, not the
customer. Wouldn't placing a duty also on the customer
to file or to sign a sworn statement be an additional
effective law enforcement tool?

Why do you feel Treasury needs summons authority?
Specifically, what are they precluded from doing now
under existing authority?

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6.

7.

8.

It is my understanding that the offense of money laundering created in the Administration's bill is not limited to cash transactions through financial institutions, but would cover any transaction involving the movement of funds that affects interstate commerce, whether or not it involves a financial institution, and which is conducted with the intent to facilitate any unlawful activity or with the knowledge or reckless disregard of the fact that the funds were derived from Illegal activity.

(a) What is meant by "any unlawful activity"?

(b) Is the standard "reckless disregard" an appropriate standard for criminal liability -- especially for this offense?

(c) Does this extremely expansive definition give you pause to consider what ultimate effect such a sweeping criminal statute could have on protected constitutional rights and what effect such a statute would have on the rights of individual states to administer their criminal laws?

As you know, the Right to Financial Privacy Act of 1978
(RFPA) was passed, in large part, as a result of the
Supreme Court's decision in United States v. Miller.
The Court held that citizens had no property or privacy
interest in their bank records. The Act, in effect,
overturned that decision.

At present, there is a move to substantially amend RFPA because it is claimed by some that current law has created clear impediments to criminal law enforcement efforts. Has RFPA created clear impediments to criminal law enforcement efforts and, if so, please explain.

In testimony before the Subcommittee, Mr. Richard Wassenaar, Assistant Commissioner, Criminal Investigation, IRS, testified that during 1985 the IRS recommended prosecution of 137 cases involving money laundering. How many of these recommendations were pursued by the Department of Justice? What is the current status of these cases?

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9.

The Banking Committee received a letter from Mr.
Frederick B. Lacey, Chairman, Advisory Committee on the
Federal Rules of Criminal Procedure of the Judicial
Conference of the United States, a copy of which is
attached. Mr. Lacey states that "with regard to grand
jury subpoenas for financial records, the Right to
Financial Privacy Act of 1978 has created doubt
concerning the courts' power." He cites two provisions
of RFPA, one which permits a delay in notifying the
customer that a subpoena has been served on a financial
institution, and the other provision which exempts grand
jury subpoenas and related court orders from the Act.
Do you share Mr. Lacey's concern?

...

Again, the Subcommittee is appreciative of your efforts in this area. Please submit your responses to the Subcommittee no later than May 23, 1986.

Sincerely,

Fernand J. St Germain
Chairman