Lapas attēli
PDF
ePub

[The prepared statement of Mr. Hadlow can be found in the appendix.]

Chairman ST GERMAIN. Mr. Hadlow, I compliment the banks of this country through you because, since the Bank of Boston and the awareness by financial institutions of the reporting requirements, many institutions have implemented exceptionally fine plans to comply with the act. In many instances, they have gone a step further and have become very aggressive because they now agree that it is an opportunity to stem crime and to discourage drug trafficking and avoid some taxes, among other things.

So I want to compliment you. I hope there aren't any banks left that have even negligently or nonwillfully not reported because I think they are all aware of it now and are doing a great job.

Unless there is some bank out in the hills there that is still receiving its communications by Pony Express and doesn't have television and radio, I think they are all doing a good job, and coming from me that is really something.

Mr. HADLOW. Thank you.

Chairman ST GERMAIN. Now we will hear from Lawrence Pedowitz, who represents the Committee on Federal Legislation, the Association of the Bar of the City of New York. Welcome.

STATEMENT OF LAWRENCE B. PEDOWITZ, MEMBER, FEDERAL

LEGISLATION COMMITTEE, ASSOCIATION OF THE BAR OF THE
CITY OF NEW YORK
Mr. PEDOWITZ. Thank you very much, Mr. Chairman.

Mr. Chairman, I am a member of the Federal Legislation Committee of the Association of the Bar of the City of New York. That association consists of approximately 15,000 attorneys, most of whom practice in the New York City area.

The association-
Chairman ST GERMAIN. How many?

Mr. PEDOWITZ. 15,000, Mr. Chairman. The association very much appreciates the opportunity to testify this morning and I personally appreciate the opportunity to appear.

The Federal legislation committee of our bar association has prepared a lengthy report. I hope it is also a helpful report.

It is approximately 84 pages, dealing with the pending money laundering legislation. Since neither my brief remarks this morning nor my written statement, in which we attempted to summarize the major points in our report, cover adequately the analysis that is contained in that report, we have also requested in our written statement that our report be made part of the subcommittee's record as well.

Chairman ST GERMAIN. Very definitely.
Mr. PEDOWITZ. Thank you very much.

We of the Federal legislation committee and the Association of the Bar have concluded that new legislation is indeed needed to combat money laundering. We are concerned, however, as is the American Bar Association, that the pending proposals, in particular H.R. 2785, the administration bill, and H.R. 1367, which contains the Organized Crime Commission's proposals, are in a number of important respects over-broad

I should say before I comment, and I am going to only very briefly on the Right to Financial Privacy Act, that in arriving at our rather extensive conclusions, we had a broad consensus on our committee. I want to tell you that our committee consists of a broad range of individuals with a broad range of backgrounds. Our members include Federal prosecutors-a number of assistant U.S. attorneys, former prosecutors, and defense lawyers on the committee. There are also bank lawyers on the committee and a member of the staff of the American Civil Liberties Union.

I will tell you, for example, I spent 2 years as chief of the Criminal Division of the U.S. Attorneys' Office in the southern district of New York under Mr. Guiliani and Mr. Martin, his predecessor. In 1977, I was responsible for bringing down one of the very first Bank Secrecy Act criminal prosecutions against the Chemical Bank, and I might add, Mr. Chairman, that in 1978, as a consequence of the prosecution in 1977, we also saw a very substantial number of CTR's suddenly being filed by banks. The Chemical Bank case was also a case which made the front page of the Wall Street Journal and the other major newspapers of the United States, but the problem of noncompliance still rearose in the early 1980's.

We are very concerned on our committee that new legislation is indeed needed. The money laundering legislation that is being pro posed makes a great deal of sense with certain narrowing. I was told that this committee was particularly concerned about the Right to Financial Privacy Act. I am only going to spend a minute or two on that subject and then open myself up to questions on a broad range of subjects.

The administration and the Organized Crime Commission both believe that the Right to Financial Privacy Act should be amended. They believe it should be amended to permit bank employees to let the Government know about suspected illegal activity, most particularly money laundering. That is what they are most concerned about. They are concerned that employees of banks should be permitted to do that without running afoul of the Right to Financial Privacy Act.

We agree that the Right to Financial Privacy Act should be amended, but we think the administration and the Organized Crime Commission bills go too far in trying to accomplish this purpose and farther than they need to go.

The problem, if I can state it very, very briefly, is that section 1103(c) of the Right to Financial Privacy Act seems right now to contemplate information being made available by bank employees to the Government about possible violations of law. That section provides specifically that the Right to Financial Privacy Act does not preclude financial institutions, that is banks, from notifying the Government that the institution has information that may be relevant to a possible violation of any statute. So, a bank can notify the Government that it has information that may be relevant to a possible violation of law.

The problem with the Right to Financial Privacy Act is that it does not explain what can be said to the Government when this notification occurs. For example, can a bank provide the name of the customer who is suspected of illegal activity?

That information is arguably derived from customer records, or financial records, which are covered by the Right to Financial Privacy Act and the bank could arguably, therefore, be precluded from providing that information.

Can the bank lawfully provide the number of the account that the customer is dealing with, the suspected customer is dealing with? That, too, is information derived from financial records which is covered that is included within the definition of financial records which are protected by the Right to Financial Privacy Act.

Can the bank provide specific information about the suspected illegal activity, what is going on in that account? That arguably, too, is derived directly from the customer's financial records which are covered by the Right to Financial Privacy Act.

Banks, therefore, in our view, can justifiably be concerned that this information-all of this information they would like to turn over-is derived from financial records of the customer and, therefore, covered by the Right to Financial Privacy Act and, therefore, they can be concerned about prosecution. They can be concerned about suit by customers. There are also State privacy laws to be concerned about.

Now, the administration and the Organized Crime Commission want that information turned over, that is, information that identifies a customer, identifies the bank records and gives some information about suspected criminal activity. We think that should happen.

However, the administration and the Organized Crime Commission bill would cure this problem by effectively taking totally out of the Right to Financial Privacy Act any disclosures concerning any customer which is relevant to a possible violation of law.

As a consequence, if you look at those two bills, what could happen is a bank, if those provisions were enacted, could pack up all of the customer's financial records, all of the files, and ship them directly to the Government without running afoul of the Right to Financial Privacy Act. We think that goes too far. It goes needlessly too far.

If the Government receives information identifying the customer, identifying the accounts and briefly summarizing what the suspected illegal activity is, the Government has more than enough information to then use a subpoena or use a summons to obtain the information that is needed from the bank with the protections of the Right to Financial Privacy Act that follow from that summons or subpoena.

We have many, many other concerns about the legislation which is pending. It is all specified in our report and in our written statement.

I would be prepared to answer any questions about those particular recommendations.

[The prepared statement of Mr. Pedowitz and Jeffrey Glekel on behalf of the Association of the Bar of the City of New York can be found in the appendix.]

Chairman ST GERMAIN. Let's go back to the point you just made that a bank, under the proposed legislation, could just package all the records and send them on to the Government and say, "Here it is.” Unfortunately, that goes too far.

Now, I think it might not go too far if there were an added ele ment or if something was stricken from the proposed legislation.

As I recall, the proposed legislation also includes a section that exempts from liability both civil, particularly civil, the bank that turns over those type of records. Now I would like to address that.

It seems to me, and I have never practiced law to that extent-I practiced about 4 or 5 years, so it has been a long time-but it seems to me that if the bank has good reason to believe there is criminal activity, and they turn over the records, then that in itself is a defense to a suit that would be brought by the bank customer against the bank. In other words, there was cause or reason to believe that there was criminal activity going on.

What is your reaction to that?

Mr. PEDOWITZ. Mr. Chairman, I think you are absolutely right. That is what the new legislation would do. It would permit the bank to arrive at a conclusion there was suspected criminal activity and, therefore, pack up all of the customer records and send them to the Government, and then the legislation also provides that they could not be prosecuted or sued civilly by the customer.

Our concern is that that goes too far in letting the banks make decisions about how much information should be turned over to the Government. Our view is that if the legislation provides only that the bank may provide the following limited information to the Government, that information will be sufficient, and that that information is the following: The bank should be permitted to identify who the suspected customer is, to identify the accounts through which the suspected illegal activity is occurring, and to identify in a general way the nature of the illegal activity that the bank thinks is occurring.

We do not think that the bank should, of its own accord, be permitted simply to pack up the customer records, the accounts, the statements, et cetera, and send those directly to the Government. Let the Government make a judgment after seeing the limited information supplied by the bank that it wants to pursue this further.

If the Government decides to pursue it further, it can proceed by summons or it can proceed by grand jury subpoena. If it proceeds by summons, then the customer is going to get the protections of the Right to Financial Privacy Act. If it provides by grand jury subpoena, then the Right to Financial Privacy Act has no applicability anyway because grand jury subpoenas are exempt.

In short, we think there is a way of accomplishing all that the Government needs to accomplish without having as broad a provision-as broad an exclusion-as is being requested in the pending legislation.

Chairman ST GERMAIN. You have not addressed the question I asked you about whether the exemption from liability is necessary.

Mr. PEDOWITZ. I think the bank should be exempt from liability to the extent it provides only the limited information I suggested that it should be allowed to provide. Then I think it should be permitted a good-faith defense and should be exempt to that extent.

Chairman ST GERMAIN. Mr. Buffone, would you like to address that?

Mr. BUFFONE. I concur in most of what I heard, and I would defer to the extensive experience Mr. Pedowitz has had with running a grand jury. I only point out to the subcommittee that one of the effects of the proposed legislation would be to delete the requirement that information obtained actually be presented to the grand jury. That would set aside all the protections the grand jury provides for the criminally accused.

I think what is necessary in judging the need for legislation is to focus on what Mr. Pedowitz has said, and that is the Government can always come back and institute a grand jury investigation, and obtain by their broad power of subpoena all the documentation they need to fully investigate and make a prosecutorial determination.

What we are debating here is making money laundering transactions unique in that the Government would be able to go through an investigation without the benefits of grand jury protection to the right of the accused or the potential targets of the investigation.

Chairman ST GERMAIN. Mr. Harmon, as to the grand jury subpoena process, do you recall how many times that has been utilized? I think they had something like less than 42, and as a matter of fact, most of them were in a particular State; 10 out of 30 were in Nebraska alone. So why do you think that has been utilized in so few instances?

Mr. HARMON. That is the actual production of the records before the grand jury, Mr. Chairman?

Chairman ST GERMAIN. I misspoke. I am told that it is the notice provision that permits the prosecutors to go in and file a notice, and as a result, to be exempt from the disclosure to the customer. This I think, has only been utilized in 30-some-odd cases. That is since 1978.

Mr. HARMON. If I am not mistaken, there is an exemption for grand jury subpoenas with regard to the notice requirements. That is a recognition of the possibility of the destruction of records, flight, movement of assets and that sort of thing.

But to answer, if I could, Mr. Chairman, Mr. Pedowitz-

Chairman ST GERMAIN. Let's for a moment, but then please tell me why it has been used in so few instances.

Mr. HARMON. Well, as I understand it, the notice provision applies only to the use of administrative summons or subpoenas in civil matters. Under those circumstances, there is a requirement in the absence of a court order that the customer be notified.

I really can't speak to that, Mr. Chairman. I can only speak to the-

Chairman ST GERMAIN. What we will do is submit that to you in writing then.

Mr. HARMON. Fine, Mr. Chairman.
[The information referred to can be found in the appendix.]
Chairman ST GERMAIN. Now you can address the other point.

Mr. HARMON. Essentially what the Association of the Bar of the city of New York is saying is we can give you a little bit more information than financial institutions now give; however, if you want possession, physical possession of the records, a grand jury subpoena will be required. I think that that is an important ac

« iepriekšējāTurpināt »