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Question 4: On pages 9 and 10 of your testimony, you stated, in a footnote, that because of a recent decision in the U.S. Court of Appeals Congress may wish to consider legislation clarifying the bank regulatory agencies' enforcement authority against certain individuals.
Could you please explain the need for such a clarification? Does the Federal Reserve have any proposed language prepared to clarify this situation?
Recently, in Larimore v. Conover,
Nos. 84-1971, 1972, 1973, 1974 (7th Cir., April 30, 1986),
Seventh Circuit Court of Appeals concluded that section 8(b)(1)
of the Federal Deposit Insurance Act (12 U.S.C. 1818(b)(1)) did not allow the Comptroller of the Currency in an administrative
cease and desist proceeding to hold directors who knowingly
violate statutory loan limits responsible for the substantial
injuries they caused a national bank.
In contrast, the Ninth
Circuit Court of Appeals in del Junco v. Conover, 682 F.2d 1338
(9th Cir. 1982), cert denied, 459 U.S. 1146 (1983), upheld a
virtually identical order imposing such liability.
this discrepancy, we believe that it is important for Congress to clarify the meaning of section 8(b)(1). The amendment to
section 8(b)(1) would overturn the Larimore decision and would
uphold the ruling of the del Junco court and would provide generally that reimbursement is one form of affirmative action that the banking agencies may order to redress violations of law
and unsafe or unsound practices.
Under an amendment to section 8(b)(1), the financial
institutions regulatory agencies would have broad discretion to determine which remedies are appropriate in correcting condi
tions, such as losses, that result from wrongdoing. When directors or others associated with a bank or bank holding
company knowingly violate the law or knowingly engage in unsafe or unsound practices, they could be held responsible for the injuries they cause to the banking institutions.
Board staff believes that the wording of any proposed
amendment to section 8(b)(1) should be worked out jointly
amorigst the agencies. However, as a preliminary suggestion, we submit the following draft amendment to section 8(b)(1) to the Subcommittee so that it can ascertain the scope of our request:
Section 8(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1818(b)(1)) would be amended by deleting the "." at the end of 1818(b) (1) and inserting in lieu thereof ", including, without limitation, reimbursement, restitution, rescission or other action the appropriate Federal banking agency deems appropriate. The authorities granted to the Federal banking agencies under this section shall be in addition to, and not restricted by, any other authority provided by federal or state law."
Chairman ST GERMAIN. After the departure of Governor Seger, we will ask our panel to ensconce themselves at the witness table. The angel of doom is putting out the name plates. She is called this because she is the one that gives "the time is expired” notes up here.
I would say to the panel that it is important that you get close to the microphone. You have to get real close to them so that they function properly.
Our first witness on this panel-we will put all your statements in the record, incidentally, without objection. Our first witness will be James Harmon, Jr., the former Executive Director of the President's Commission on Organized Crime. Mr. Harmon, you may proceed.
STATEMENT OF JAMES D. HARMON, JR., FORMER EXECUTIVE DIRECTOR, PRESIDENT'S COMMISSION ON ORGANIZED CRIME Mr. HARMON. Thank you, Mr. Chairman.
With your permission, Mr. Chairman, members of the subcommittee, I will summarize the main points of my statement which you have placed into the record.
At the outset I think it is important to express my personal thanks and the thanks of the members of the President's Commission on Organized Crime and the staff for the extensive work and commitment that the full committee has shown and this subcommittee has shown to a very crucial subject, that is efforts to strike at the profits, at the economic base of organized crime.
I think that the public will long owe you a debt for crafting the tools which law enforcement can ultimately use to get at organized crime in all its forms.
Money laundering is very important to organized crime. In a study done by the Commission we determined that organized crime's net income as $42 billion a year. Resulting in a very substantial and measurable economic impact; minimally $6 billion lost in revenues through tax evasion; a loss of 394,000 jobs in our legitimate economy; reduction of the gross national product of over $17 billion, and an increase in consumer prices thereby enabling organized crime to effect in a very important way the life of every man, woman, and child in the United States.
I submit to you, Mr. Chairman, that the safest way to view these figures contained in my statement is that they represent a very conservative estimate of the economic impact of organized crime.
For the moment I would like to focus on two major points which seem to be raised repeatedly by the legislation before this subcommittee.
That is first of all the flow of information between the law enforcement and financial institutions.
First of all, I think it is important to recall that the Commission has estimated $5 to $15 billion in illegal drug money alone moves into international financial channels, banks and other financial institutions, on an annual basis. This may seem like a lot of money, $5 to $15 billion. In fact for law enforcement officials charged with the responsibility of getting at these profits, it is like looking for a needle in 1,000 haystacks. They need a little bit of help. And the questions that arise from this ability to transfer information back and forth between financial institutions and law enforcement I think are these.
Does the obligation of citizenship end when a person enters the threshold of a financial institution? Why cannot financial institutions relay information of suspected criminal conduct to the appro priate authorities like any other citizen and why don't they want to be able to do that?
The current Federal scheme that attempts to strike at money laundering essentially focuses as I know you, Mr. Chairman, and members of the committee are well aware, focuses on reporting requirements. That is requirements of reporting by institutions themselves.
The anomaly which you have pointed out is that money laundering itself is simply not a Federal crime. The reason that the Commission focused on this issue among others was that the Commission believed that the result of creating a substantive money laundering offense was focus enforcement efforts on the other side of the teller's window, outside of financial institutions, on the launderers themselves rather than on the financial institutions.
The objective of a strategy in this area, an intervention strategy designed to get at the mob's profit as the Commission saw it, was to interrupt the cash-flow of organized crime in all its forms. Think of it this way if you would, Mr. Chairman, think of it as another kind of interdiction, think of it as an interdiction which does not depend on planes and boats and the commitment of the military, a kind of interdiction that can be done right here in this country, interdicting the flow of money into the coffers of organized crime.
This is the only way that I know of after 2 years of study of organized crime, Mr. Chairman, that members of the public, and the private sector can play a decisive role in combating organized crime, especially the drug trade.
With those general thoughts in mind, gone into more specifically in the course of my statement, Mr. Chairman, I would be prepared and happy to answer any questions that you or the members of the subcommittee might have.
[The prepared statement of Mr. Harmon can be found in the appendix.)
Chairman ST GERMAIN. Thank you, Mr. Harmon.
Now we will hear from Samuel Buffone, member of the White Collar Crime Committee of the American Bar Association.
STATEMENT OF SAMUEL J. BUFFONE, MEMBER, WHITE COLLAR
CRIME OMMITTEE, CRIMINAL JUSTICE SEC ION; ON BEHALF OF THE AMERICAN BAR ASSOCIATION (ABA)
Mr. BUFFONE. Mr. Chairman, members of the subcommittee, thank you. I would like to first relate the authority under which i offer my testimony today.
The American Bar Association's White Collar Crime Committee began its analysis of the money laundering problem in December 1984. After an extensive study by that committee, a report was prepared and forwarded to the criminal justice section of the American Bar Association, which adopted the report as its own. It was then forwarded to the full ABA, which through its House of Delegates adopted the resolution which is attached to my testimony.
The American Bar Association recognizes the pervasive nature of money laundering activities and the importance of combating them. Our recommendations support the enactment of Federal legislation which will assist Federal law enforcement agencies in combating money laundering.
While we believe that it is important to provide effective tools to combat money laundering, our review of proposed legislation has led us to the conclusion that the proposals go much farther than is necessary to provide an effective means to combat this problem. The breadth of many provisions of the proposed legislation create significant problems and do not in our view provide the most effective means for combating money laundering activities.
It is our belief that the focus should be on detection of the transactions rather than the tools available for post-detection prosecution. We have listed in our testimony available Federal criminal statutes that can be applied to money laundering once it has been detected. These shifting statutes provide a broad range of prosecutorial tools to prosecute money launderors once they are detected.
We urge the subcommittee to consider several factors. There were comments during the first witness' testimony as to the incredible backlog of information which has built up on these transactions.
We urge the subcommittee to consider increased staffing at both the Departments of Treasury and Justice. As we noted in our report, the process of investigating money laundering is a labor-intensive endeavor and we believe that if there is ever to be an effective solution the finances and personnel must be provided to these Federal agencies.
There is a 2 month or greater delay between the collection of the information and its turnover to Federal law enforcement authorities. That is too lengthy a delay.
We have offered some proposals as to how to improve the processing of that information and its turnover to law enforcement personnel. One is that the period of time for turning over information from a customer to a bank and from the bank to Federal authorities be reduced to 1 day, we have also suggested that a post cardtype form be adopted which could be filled out by the customer at the time he made a cash transaction at a bank and immediately deposited in the mail by the bank.
Statements on that form could be subject to verification by bank personnel and subject to a criminal penalty under title 18, United States Code 1001 for knowingly making false statements. We have suggested that perhaps banking institutions could be required to immediately report to Federal authorities transactions which they believe are suspect through an 800 toll-free telephone number or some other means of reporting only those transactions that are so obviously suspect that Federal authorities should have immediate notification of them.
We urge increased regulation of the use of cashier checks and have suggested that cashier checks of greater than $2,000 be re