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ported and that more than 1 day be required for the issuance of cashier checks to cut down on the kind of multiple transaction, Smurf money laundering that I know your subcommittee has heard testimony on in the past.
We have analyzed the proposed legislation and have included within our written testimony our comments. I would like to focus on several specific elements.
First, our strongest recommendation is that a traditional criminal law mens rea requirement be included in any statute. We sup port the mens rea requirements in H.R. 1474 and oppose any reason to know or reckless disregard standard for criminal culpa. bility.
I listened with interest this morning to Mr. McCollum's question about whether or not there should be a negligence standard for a regulatory violation. We are not opposed to that kind of regulatory standard but are opposed to criminal applicability of such a standard.
We oppose those provisions of H.R. 2785 which would invade on the scope of State law criminal prosecutions and expand criminal jurisdiction over any State felony which had an economic motive as its end product because we recognize that any crime that has an economic motive will result in some form of financial transaction.
We are opposed to the expansion of wiretap authority which would be inherent in H.R. 2785 since the Comprehensive Crime Control Act of 1984 provided wiretap authority for any title 31 offense.
We oppose the amendment of title 18, United States Code, section 2, which would provide a new facilitating an offense provision. We note that the proposed amendment would apply not only to money laundering but to any Federal offense and would greatly modify the contours of current criminal law by subjecting any Federal criminal offense to a facilitating standard.
We oppose the amendment of rule 17C of the Federal Rules of Criminal Procedure to permit the issuance of grand jury and trial subpoenas with a restriction on the recipient of the subpoena being able to notify anyone.
This prohibition would include the ability to contact an attorney and prohibit the recipient of a subpoena from even seeking any legal advice about his obligations to comply with the subpoena.
On two final points, we object to the provisions of the proposed legislation which will create a new crime of receiving the proceeds of a criminal endeavor. We note that this would create significant sixth amendment problems for any attorney who received a fee from a client with any indication that the fee may have been derived from illegal conduct.
The administration's legislation would place the criminal attorney in a unique position. Because of the receipt of attorney/client privileged communication, an attorney who had any reason to believe that a fee proffered to him may have been the result of criminal activity would by mere receipt of the fee have committed a crime himself.
Finally, we are opposed to the expansion of in personna forfeiture. An expansion of in personna forfeiture would create problems when applied to money laundering transactions.
Thank you for the opportunity to address the subcommittee. I would be pleased to answer any questions.
[The prepared statement of Mr. Buffone can be found in the Appendix.]
Chairman ST GERMAIN. Now to Earl Hadlow.
STATEMENT OF EARL B. HADLOW, VICE CHAIRMAN AND GENER
AL COUNSEL, BARNETT BANKS OF FLORIDA IN JACKSONVILLE,
I am Earl Hadlow, vice chairman and general counsel of Barnett Banks of Florida in Jacksonville, and a member of the American Bankers Association Government Relations Council.
We in the banking community have spoken out with a single voice, in favor of the use of the Bank Secrecy Act as a tool for Government to combat drug trafficking and organized crime.
Chairman ST GERMAIN. Is that microphone on?
Mr. Hadlow. As I said, the banking industry, has supported from the beginning the use of the Bank Secrecy Act as a tool for Government to combat drug trafficking and organized crime.
We have offered to sit down with the various Government agencies, the Treasury and others, to work out a detailed plan to attempt to make money laundering a crime and define it carefully so that it will be done with a scalpel and not with a shotgun. We have not been well received. We continue to offer possible solutions that will accomplish these ends and will protect the rights of American citizens and will permit the banking industry to function. Instead, they have regularly pointed out how poorly the banking industry has performed and how many banks have been fined for their late filings.
We think it is time to get on with the business of drafting a bill that will be, in the chairman's words, universally acceptable; a bill that will place the burden on the money launderers.
Money launderers are the criminals. They are the ones who need to have the stick taken to them and we want to assist you in getting something that will pass the Congress. Let's get on with it.
The banking industry has made a monumental effort to comply with the existing Bank Secrecy Act.
Since 1981, our bank, to give you some numbers, has filed approximately 60,000 CTR's and has established a computerized system that takes untold manpower to operate.
The IRS is half a million to a million CTR's behind in processing and that may translate into 6 months or so before they can take any action on the data that they already have. One of the reasons for that is the banking industry has been scared by the attitude of the regulators and some banks are, for example, taking their exempt lists down to zero so nobody can question them on their discretionary decisions.
We are filing reports for every cash transaction so that is the reason the number has jumped so dramatically. In any case, the banking industry is prepared to deal with the legislative solutions and get something that is universally acceptable.
There are three main issues in the various bills that have come forward. One is to create a new title 18 crime of money laundering which goes beyond the reporting of cash transactions and, essentially, makes a crime out of money getting into the banking institution through any means, if that cash can be tied to any illegal activity.
One of the most difficult jobs will be to draft legislation that is fair to everyone, including the bank teller who generally has no way in the world to determine the background behind money that is deposited.
Watching out for cash that is coming in is something that no teller can know the source and nature of every cash transaction. If you are seeking a bill that will pass and pass quickly, we believe you should not create a new title 18 crime of money laundering. Instead, you should take the existing Bank Secrecy Act and strengthen it. You should also pick up smurfing by defining structured transactions as a crime under the Bank Secrecy Act. Smurfing transactions, where someone deceives a bank or attempts to induce them into not filing the required CTR, could become a Federal crime simply amending the Bank Secrecy Act as has been done in Mr. Pickle's bill, H.R. 4573.
The banking industry would almost unanimously support that sort of bill. It is very discouraging to pick up a smurfing transaction, know that you have one, turn it in to somebody, as we now do under existing law, and have no action taken because the three Federal court decisions that have ruled that smurfing is not a vio lation of the Bank Secrecy Act.
A person can come in with $50,000 in his hand and deposit $9,000 and say I am leaving and I am going to go and deposit the rest of this in another branch later on that day and he has not violated the law.
Now, that sort of thing—we have been reporting these activities to the U.S. attorney and the FBI and it is simply now declared not to be illegal.
There is absolutely no need to amend the Right to Financial Privacy Act. It has not been shown to be any obstacle to law enforcement.
I think the American public would get very upset with Congress if they found that their bank records were uniformly opened without the use of the ordinary subpoena powers now available to the Government.
We would support Mr. Wortley's approach and Senator DeConcini's approach to have the Secretary of the Treasury review exempt lists.
The banks would love it because right this minute it is very difficult to get a decision from the Treasury Department on any questionable exempt customer or group of customers. If you go to them now and say what about these special cases, it is like pulling teeth to get an answer. Many banks, therefore, have stricken virtually everybody from their exempt list and the CTR flow accelerated dramatically.
Chairman ST GERMAIN. I am amazed at that because, as we saw in the Bank of Boston case, there were questions that came from Treasury to the Bank of Boston about certain exemptions that had been granted. So do you think it is a question of time and/or lack of personnel?
Mr. Hadlow. Time and staffing, yes.
Chairman ST GERMAIN. Well, that is Gramm-Rudman. There it is again. It is not funny. That is why we only have three microphones for four people, too.
Mr. HADLOW. They certainly have the power to respond.
Chairman ST GERMAIN. As you know, they testified that they don't want the power.
Mr. HADLow. I heard that.
Mr. McCollum asked a question earlier about a possibility of a penalty for negligent violation. In fact, we have that now, because in every case, other than the Bank of Boston, a bank has been fined for violation of the Bank Secrecy Act, and the Treasury concluded that the bank was not guilty of any willful violation of the law, but concurrent with this conclusion levied a fine.
They publicize that fact and then go ahead and fine you anyway. So they are fining you for a negligent violation.
Chairman ST GERMAIN. Mr. Hadlow, with all due respect, and I mean that sincerely, all of these wonderful self-analyses and reports that were rendered came after the Bank of Boston case; did they not?
Mr. HADLOW. Yes, sir.
Chairman ST GERMAIN. And absent the Bank of Boston case, I wonder how many banks would have come in and said: "Well, we haven't been filing our reports."
Mr. HADLOW. Was your question after the Bank of Boston case how many banks did that?
Chairman ST GERMAIN. Had it not been for the Bank of Boston case, I wonder how many banks would have been standing in line to say: "Mea culpa, mea culpa, we haven't filed our reports.
Mr. Hadlow. It may be a little self-serving, but I think every one of them would have done it because every one of the violations
Chairman ST GERMAIN. How many did it before the Bank of Boston case?
Mr. Hadlow. None; the reason is none of the banks that failed to file were aware of this 1981 change. All of the violations were the same, by the way.
Chairman ST GERMAIN. But Mr. Hadlow, the ABA, among others, had big instructions in their journals to the banks prior to the Bank of Boston case saying that banks are supposed to report CTR's.
We had that hearing. It was very thorough. I recommend that you read it sometime if you are having trouble going to sleep. You will find it very interesting.
There was no one in that bank, no one, reporting to anyone. Everybody said, gee, the other guy is doing it but nobody, and as a result, thereof, nobody was doing it.
Now, Mr. Brown himself heads it up. I went to the Bank of Boston recently with staff and we saw what they have now implemented, their training film, et cetera. They have done a magnificent job, but don't tell us that all of a sudden-I am not saying banks are evil-but by the same token don't make saints out of them because they just hadn't reported anything until all of the
sudden in the press, they found out that the Bank of Boston had been slapped with a horrendous fine.
I am sorry for interrupting you, but that is the case.
My bank, for example, had filed by the time of the Bank of Boston case, it had filed 56,000 CTR's and had set up a very expensive system where we gathered in all the data on the computer from all the branches so we could aggregate them and all that sort of thing. We had missed filing 500, all of a single type and that is when we swap our own money in, when we get an aggregate of Canadian dollars—we had too many Canadian dollars-we would swap that money with a Canadian bank for American dollars.
Prior to 1981, that was exempt. It was right on the form that it was exempt. In 1981 they removed that exemption. It took the Fed, and the Treasury 1 year to change the form and during that period of time a number of banks, failed to pick up that change in the law and everyone of these transactions that the Treasury has fined these banks for has centered around that one change when that exemption was removed.
There was no culpability in any case and the Treasury will tell you that. There was no money laundering, there was not any drug trafficking, there was not anything, but a bunch of banks failed to catch that change and that was not a well-publicized change.
There were no seminars, no special releases on it. The form was finally changed a year later and there were a couple of small releases and a lot of banks just carelessly missed it. We are not saints.
Chairman ST GERMAIN. By that, do I hear that you will sue the ABA for not having their legal counsel inform you of change?
Mr. Hadlow. We would have loved to sue somebody and blamed somebody, but we don't blame anybody but ourselves.
We were definitely negligent just like everybody else by not picking it up. We are supposed to pick it up. It is our duty under the law, but we missed it.
So there is no culpability. That is the reason I answered your original question. We filed as soon as we found out about it, went back and filed those 500. We think the Bank Secrecy Act ought to be amended to make smurfing a crime. We think you can do it quickly and easily. We don't think you need a new title 18 crime because that is a difficult thing to define.
A title 18 crime endangers innocent customers unless you are extremely careful and you get the ACLU and the American Bar Association and all the people who are concerned about the customers' privacy rights. I don't think they will object at all to Mr. Pickle's bill which just simply says anybody who knowingly comes in and attempts to avoid filing the form 4789 is guilty of a crime.
So we support that. We have suggested in our testimony that banks that uncover failures to file CTR forms through internal audits and who make a good faith effort to report these failures shall not be subject to fines.
We think that would induce more of them to do more soulsearching and would be consistent with the aims of this act.
Thank you, sir.