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The proposed legislation also provides for forfeiture of the proceeds of money laundering. Under existing law no forfeiture provision exists. As a consequence, a prospective money launderer, individual or institution, can anticipate minimal jail time in a Federal Correctional Institution after which the proceeds of his money laundering, safely stored in a foreign Bank Secrecy jurisdiction, will be his to use. Recognition of this penal reality has encouraged an almost cavalier attitude among money launderers. If detection is so difficult and prosecutions result in minimal jail time, why sacrifice the profits which can realistically be anticipated from a sucessful criminal enterprise. The forfeiture provision, as it dovetails with the enhanced penalties, should provide a sobering answer to this question.

While the broad language of the Financial Privacy Act would arguably allow financial institutions to provide information or access to copies of the information contained in the financial records of a customer, the realistic fear of civil suit by the customer for precipitous disclosure of such information has substantially chilled the interest of bankers in providing full disclosure of suspected law violations. The absense of this information has significantly hindered law enforcement efforts at early detection of money laundering violations and seizure of these violators and their criminal bounty.

The proposed legislation would allow financial institutions to more readily share with federal law enforcement authorities information and records which are relevant to crimes against (or by) financial institutions, violations of the Bank Secrecy Act, violation of specific drug offenses and violation of the proposed Money Laundering and Related Crimes Act of 1985. The upshot of this provision is to allow financial institutions the opportunity to provide law enforcement agencies necessary information without risking civil liability and means to do so without the obligation of notifying the customer of the cooperation. The importance of early yet confidential disclosure of financial information and records is critical to effective law enforcement. Again, the list of persons convicted of money laundering offenses would, I project, be substantially longer if this segment of the proposed legislation were presently the law.

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Question 3: 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?

Answer:

We are increasingly encountering professional money laundering operations in which the offenders wash currency without regard to whether the "client" is a narcotics trafficker, traditional organized crime syndicate or a tax evader. As we are often unable to prove knowledge of the illegal source of funds on the part of the launderer, we are limited to a prosecution for failure to report currency transactions. Even then, as explained in my answer to question 2, prosecutions are limited to instances where the money is physically transported into or out of the United States or where the criminal is so indiscreet as to use a financial institution to carry out his plans. Even where we can demonstrate multiple counts, courts are inclined to sentence such offenders leniently. A substantive Title 18 money laundering offense would, in our view, be a vitally needed tool for effective prosecution of money launderers and could be expected to have a much greater deterrent effect than current law.

Question 4: 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?

Answer:

Yes, in fact, the "application for the transaction", or "transaction slip" need not be sworn so long as the institution and its regulators rely upon it in determining whether to file a CTR. It is our understanding that the Department of the Treasury is currently drafting regulations to complement H.R. 2785 and make it more difficult to "structure transactions."

Question 5: Why do you feel Treasury needs summons authority? Specifically, what are they precluded from doing now under existing authority?

Answer:

The Department of the Treasury is in the best position to respond to this question. We support the summons authority provision in H.R. 2715, however, as it is our understanding that Treasury presently lacks such authority in connection with investigations in preparation for imposition of administrative penalties. Thus, in cases where we determine that we cannot proceed with a criminal prosecution, Treasury is seriously disadvantaged in terms of imposing administrative penalties. the administrative penalty is a valuable adjunct to criminal prosecution, we believe the summons provision is highly important.

As

Question 6: 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?

Answer:

At the outset, we should note that we are keenly aware of concerns with respect to the breadth of our proposed substantive criminal money laundering offense. While we continue to support the formulation embodied in H.R. 2785, we would not object to adjustments necessary to resolve some of the concerns which have arisen.

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As to your specific questions, "unlawful activity" is defined at Sec. 2(c)(5) as any federal or state felony.

We believe "reckless disregard" is an appropriate standard for criminal liability. The most recent precedent for such a standard is the product tampering statute, 18 U.S.C. 1356, enacted in 1983. As defined at Sec. 2(c)(6), we believe the "reckless disregard" standard is eminently defensible. Moreover, given the fact that money launderers often make it a point "not to know" the source of the currency they are laundering, such a standard is greatly needed to convict sophisticated operators.

Finally, we are confident that the administration of this provision would not adversely affect individual rights. As to state law enforcement, our general policy in matters of concurrent federal-state criminal jurisdiction is to defer to state prosecution in the absence a compelling federal interest in the matter. We believe this legislation complements existing state laws in those situations where the felon or his professional money launderer purposefully transmits the proceeds of the crime (usually a pattern of crimes as in narcotics trafficking) outside the territory of the state. In those instances, the Article III counts with national subpoena power and national investigative agencies are needed to recover the ill gotten proceeds and punish the wrong doers who profit from being in the chain of persons and entities spiriting the proceeds away.

Question 7: 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.

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Answer:

We believe the RFPA has impeded law enforcement, particularly in the areas where we have sought amendments. Most importantly (1) it deters financial institutions and other federal agencies from reporting bank related crimes to the Department of Justice; and (2) by applying only to federal agencies, it creates questions in some areas as to whether the RFPA or similar but inconsistent state laws apply to federal investigative access to financial records.

Question 8: In testimony before the Subcommitteee, 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 recommenda

tions were pursued by the Department of Justice? What is the current status of these cases?

Answer:

According to figures provided by the Internal Revenue Service, Fiscal Year 1985 (FY85) began with 144 allegations of possible Title 31 violations under review by the U.S. Attorneys or pending indictment. During FY85, the IRS referred an additional 317 matters to the U.S. Attorneys. Of those 451 matters, it is our understanding that 276 were indicted, prosecution was declined as to 25 matters and 150 were under review or pending indictment at the end of the fiscal year. During FY85, there were 163 convictions for Title 31 violations which had been investigated by the IRS. However, because of the time which passes between indictment and trial, not all of those 163 convictions were for matters referred or indicted during FY85.

Question 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?

Answer:

Yes. Prosecutors report that this is one of the most difficult problems they face.