In response to your letter of May 8, I am enclosing responses to the questions you posed by way of follow-up to my April 23 testimony on money laundering. On behalf of the law enforcement community, I wish to express our profound appreciation for the deep interest you have shown in strengthening federal laws related to money laundering. I believe this is the most important criminal justice legislative issue before the Congress and am thus eager to supply any support and assistance you may require as you examine this vital law enforcement issue. Sincerely, Enclosure Stephen S. Trott Assistant Attorney General Question 1: What is the justification for eliminating customer notification requirements under the Right to Financial Privacy Act when interagency transfers of financial records are obtained? Answer: Our Justification is basically practical necessity. Notice to a potential criminal defendant that he or she is under investigation is something which must be avoided at all costs in the early stages of an investigation to avoid flight from prosecution, tampering with evidence not yet in the possession of the government, subornation of perjury and other acts which are, in themselves, discrete criminal offenses. In short, notice that a person is under criminal investigation often results in the commission of further crimes. While the RFPA does provide a judicial procedure for delay of notice, our experience is that this procedure is simply unworkable in practice. In this regard, federal prosecutors receive literally tens of thousands of referrals each year from federal, state and local agencies, private organizations and citizens. Only those involving crimes by or involving financial institutions detected by a federal agency entail the prospect that, but for the entry of a judicial order delaying notice, the putative defendent will be notified, within 14 days of the transfer of records, that he is under investigation. At the early stages of an investigation, prosecutors usually do not have sufficient information to determine whether the referral merits prosecution, much less to provide a court with evidence that notice would result in flight or one of the other bases for delay of notice specified in 12 U.S.C. 3409(a)(3). Finally, even if all of this information were available, the paperwork required to prepare and file an application for delay of notice and then to renew that order every ninety days (criminal investigations, particularly in "paper" cases, frequently require over six months to complete) result in such a drain on our resources as to make the matter not worth pursuing. For these reasons, federal agencies rarely transfer financial records in connection with referrals of criminal violations. While it may be felt, from a privacy standpoint, that this is a desirable result, we believe that it probably results in declination of some worthwhile referrals because prosecutors do not have access to all available evidence. Even where the case is pursued, the restraints upon interagency transfer of financial records can result in substantially delaying the prosecution; your overnight - 2 (Answer to question 1 continued) - hearings on the Golden Pacific National Bank case captured a classic example of an investigation which dragged on far longer that it should have, in part because of problems in getting information from the Office of the Comptroller of the Currency to the Department of Justice. We believe that the basic purpose of the interagency transfer restriction was twofold: (1) Congressional concern over the compilation of "data banks" which would include, in some central computer, all information in the possession of the Federal Government with respect to citizens, and (2) a view that it would somehow be unfair for the government to obtain financial records for one purpose, perhaps regulatory or civil, and then to use them for another purpose criminal investigation or prosecution. As to the first point, there may be some less drastic means of avoiding the "data bank" problem, perhaps a requirement that the records be destroyed or returned to the originating agency if no formal criminal investigation is initiated within six months of receipt by the Department of Justice. As to the second point, we would take the view that all citizens and particularly federal employees who are sworn to support and defend the Constitution and laws of the United States, have an obligation to report federal criminal violations that come to their attention. In fact, under aggravated circumstances the withholding of information concerning criminal activity can be a federal felony, 18 U.S.C. 4, Misprison of a felony. Even in the Fourth Amendment area, the courts have recognized the "plain view" doctrine permitting the seizure of evidence in "plain view" even in the absence of a warrant specifying the item seized. In short, we believe very strongly that 12 U.S.C. 3412 should be amended to create an exemption for criminal referrals to the Department of Justice. We are, however, more than willing to discuss revisions in our original proposal to the extent necessary to accomodate the concerns of the Subcommittee. Question 2: The Department has had some recent setbacks regarding prosecutions in "structuring" cases. Wouldn't the Pickle bill, H.R. 4573, resolve those difficulties? Answer: It certainly would help and has our strong support as a supplement to the tools now available in the Bank Secrecy Act, particularly when it is accompanied by regulatory changes to 31 Code of Federal Regulations, Sections 103.11 et. seq. However, this remedy is insufficient to correct the problems of illegal money laundering which are addressed by H.R. 2785. Passage of the Money Laundering and Related Crimes Act of 1985 would significantly assist law enforcement efforts in several significant ways. Several examples are set forth below. Presently, in order to convict an individual or a financial institution of a Title 31 offense, the United States must prove actual knowledge of the reporting requirements and actual knowledge that the reporting requirements governed the individual transaction(s) at issue. Actual knowledge is an onerous standard of proof, especially as applied to financial institutions. Indeed, as you review the statistics of convicted money launderers, you will notice the limited number of banks and bankers convicted of money laundering. This is, I submit, not a result of noncriminal activity, Rather, it bespeaks the difficult proof problems Assistant United States Attorneys encounter in these cases. In fact, many cases which intuitively would appear to be "criminal" must be handled civilly because of proof problems. Under the proposed legislation, the government has the alternative prosecution standard of reckless disregard of the fact that monetary instruments or funds represent the proceeds of, or are derived from, any unlawful activity. This alternative standard of proof would greatly increase the chances of convicting both financial institutions and individual money launderers without imposing unfair burdens on innocent parties to the transactions in question. To be liable for criminal penalties under this test, it would have to be proved that the subject in question consciously disregarded an obvious risk in a manner that constituted a gross deviation from the standard of care that a reasonable person would exercise under the circumstances. Under the Bank Secrecy Act, institutional or individual money launderers are most frequently prosecuted under 18 U.S.C. 1001 (False Statement) and/or 18 U.S.C. 371 (Conspiracy). The operative prosecution theory is that the money launderers schemed or conspired to cause a financial institution to fail to file a Currency Transaction Report (CTR). Thus, the depository acts of the money launderers are not per se prohibited, rather, what renders the conduct illegal is the plan employed to hide the fact of the transaction in currency (i.e. its source, origin, and existence) from the Department of the Treasury. This prosecution 4 theory, while quite viable, is a roundabout way of attacking the problem of money laundering. Often, prosecutors are needlessly forced to immunize a witness, offer very favorable plea bargains to co-conspirators, or treat the financial institution civilly in order to break the conspiracy of silence which permeates money laundering circles. The Hobson's choice imposed upon prosecutors would be significantly diminished with passage of the proposed legislation. The Money Laundering and Related Crimes Act would directly prohibit an individual or an institution from conducting a transaction involving the movements of money generated by or derived from the commission of any crime. Further, whereas the Bank Secrecy Act only deals with cash transactions, the proposed legislation would reach wire or other electronic transfers; transfers which are traditionally conducted by financial institutions willing to turn a blind eye to the criminal origin of the money to be transferred. Again, the absence of this prosecutive mechanism in the Bank Secrecy Act has caused the statistics regarding convicted bankers to be artifically low. Under 31 U.S.C. $5322 an individual who is convicted of a felony may be sentenced to up to five years in prison and/or fined $500,000, or both. Under current parole guidelines, if a money launderer is convicted of laundering less than $500,000 but greater than $100,000, his parole eligibility range, absent extenuating circumstances, will be 24 to 36 months. If a money launderer is convicted of laundering more than $500,000, his parole eligibility range, absent extenuating circumstances, will be 40 to 52 months. Thus, money laundering prosecutors can realistically expect to incarcerate money launderers who have handled millions of dollars in narcotics money for the maximum of fifty-two months regardless of the sentence actually imposed. These guidelines reflect the perception that Title 31 offenses are essentially banking regulatory crimes. Under the proposed legislation, the maximum sentence for the crime of "money laundering" will be twenty years and/or $250,000 or double the value of the funds laundered, whichever is greater, or both. Thus, with the separate designation of a crime entitled money laundering, which has penalties attached which are substantially equivalent to narcotics statutes, it is expected that money launderers will be incarcerated for a period of time commensurate with the offense committed. |