can Express sent a letter to the head of the organization, stating that a grand jury investigation was looking into his accounts.

Right away he took it to a lawyer, and because of the copy of the letter of the subpena of the records from American Express to the owner of the organization, he was able to flee. And I believe since I've gotten arrested and I've talked to other people, a lot of people have escaped because of certain laws that limit the authorities to investigate certain private records or public records.

Mr. HUGHES. For the record, I think that in that particular situation-I'm sure that the other witnesses will correct me if I'm wrong-in that instance the U.S. Attorney's office had requested that that information not be disclosed to the customer account. However, time ran out and there was no extension, or there was some question as to whether an extension was permitted. And in that instance, the bank did notify the customer.

But let me ask you a broader question: Does that generally present a problem to the investigating agency? Do you have difficulties where, for instance, you are investigating an account, you obviously want to, at that point, keep it confidential, and you have a right to, I presume, the name on the account, the type of account, to aid you on your investigation before it's subpenaed. But a subpe na is required to actually get at how much is in the account, the transactions in the account. And at that point, have you experienced difficulty in maintaining the confidentiality of that investigation so you don't have the type of situation that Mario has described?

Mr. MEYERS. I would say, practically speaking, we never request information from a financial institution without a document, court order or grand jury subpena, or IRS administrative summons.

Mr. HUGHES. Now, once that occurs, is that information, that investigation-confidentiality of that investigation-maintained?

Mr. MEYERS. When a grand jury subpena is issued to a bank for records, there is prohibition for the bank or any financial institution from notifying its customers.

Mr. HUGHES. Should there be?

Mr. MEYERS. I would say, in my estimation, there should be a period, possibly extending to an indictment or a no true bill by a grand jury.

Mr. HUGHES. Should a penalty attach to the fact that confidentiality is violated?

Mr. MEYERS. Yes; you know, some State laws expressly require banks to notify their customers when any type of court order or subpena is issued; California, for instance. But most States leave it up to the whim of bank policy.

Mr. HUGHES. Well, as my colleague from Florida has already indicated, it is a very delicate area, because you're talking about the right to privacy, and it has to maintain, you know, a balance.

But I can see where great damage could be done; and perhaps not just damage. You're dealing with a great deal of money, and the potential for violence is there. Particularly if, in fact, the wrong parties find out that there is an investigation and start to question who is talking, you're talking about the risk of death to witnesses, particularly if that information is prematurely disclosed. So, it is an area that presents some concern to me.

Mr. MEYERS. This investigation took a period of about 24 months, and to have it been compromised in the last 2 weeks of it so that the principal, you know, could escape our jurisdiction was disheartening. However, he didn't share his knowledge with his group, and they were

Mr. HUGHES. I just want to show you that we're democratic here. We've heard of the operations in California, a lot about the operations in Florida, operations in Pennsylvania, and I just presume that you did visit New Jersey.

"MARIO." Yes, we did. We thought about it, because of all the amount of money that comes out of Atlantic City, it would be very easy to conceal where the money came from. We could just simply say, "I just won it in a private poker game."

Mr. HUGHES. Did you attempt to launder any moneys through the casinos in Atlantic City, or was your operation strictly a money-laundering operation through financial institutions?

"MARIO." We never had any intention of doing so, for the simple reason that Reno, NV and Las Vegas, at some time that we were around that area, we picked up money once or twice in that area, we were warned that there was a big investigation of money laundering. And I believe I read something in the newspapers

Mr. HUGHES. This subcommittee had a hearing in Atlantic City. "MARIO." Yes; I read something-

Mr. HUGHES. I guess we did some good, anyway, in Atlantic City. "MARIO." It seems that a lot of money, legal money, does go through certain casinos, not-the exchange of bills.

Mr. HUGHES. Well, we've established that, I think, pretty clearly. But you were not involved in any of that?

"MARIO." No.

Mr. HUGHES. Well, thank you very much. I appreciate your testimony, Mario. We appreciate your cooperation, and I think you've provided us with some insights that will be very valuable to this committee.

And Mr. Meyers, Mr. Velasco, we appreciate your assistance.
So, thank you, Mario, and good luck to you.

Our next witnesses comprise a panel: Mr. Kenneth Albers, on behalf of the National Council of Savings Institutions, and Mr. Boris Melnikoff, on behalf of the American Bankers Association.

Mr. Albers is the chairman of the National Council of Savings Institutions and the chairman of Provident Savings Bank in Jersey City, NJ. He has been with Providence since 1966, when he joined as a regional vice president. Mr. Albers is past president of the New Jersey Council of Savings Institutions and is currently a member of the board. He is a former member of Bank Advisory Board of the State of New Jersey.

Mr. Melnikoff is a group vice president and corporate director of the Special Services Division of First Atlantic Corp. Before joining the bank in 1974, Mr. Melnikoff worked for 6 years in bank security and for some 11 year industrial security. He has been active in the American Society for Industrial Security for some 24 years. He currently serves on the Money Laundering Task Force of the American Bankers Association with the Assistant Treasurer of the United States and others.

Gentlemen, on behalf of the committee we welcome you. We have your statements, which will be made a part of the record in full, and it will not be necessary for you to read your statements to us. And we would prefer, if you would, if you would summarize your testimony, because we've all had your statements and we all took them home last night and digested them. Welcome.

Why don't we start with you first, Mr. Albers. Welcome.

STATEMENTS OF KENNETH F.X. ALBERS, CHAIRMAN, NATIONAL COUNCIL OF SAVINGS INSTITUTIONS; AND BORIS F. MELNIKOFF, GROUP VICE PRESIDENT AND CORPORATE DIRECTOR, SPECIAL SERVICES DIVISION, FIRST ATLANTA CORP., ON BEHALF OF THE AMERICAN BANKERS ASSOCIATION

Mr. ALBERS. Mr. Chairman, basically the National Council is in full accord with the purposes of the bills before the subcommittee. We think that money laundering should be a crime. Our problems are not with the goals of these bills but rather with some of their technicalities.

One of the things that occurs to me is that if an employee has knowledge that a person is about to engage in an illegal transaction it forces a confrontation with the money launderer. We suggest in our prepared testimony, as you see, that perhaps notice prompt notice to regulatory authorities immediately following would avoid confrontation in the bank. So, it is a question of the balance between privacy of the deposition and the legitimate right of the Government to investigate possible illegal transactions.

One other point I did want to make. In one of the two bills, it is recommended or it is mandated that the Secretary of the Treasury can subpoena bank officers. We feel that no need has been demonstrated for this power. We think this power should stay with the Justice Department, and subpoena under oath should be limited to ongoing Government investigations.

Now, having said that, I think the banks, themselves, now are much more conscious of the money laundering problem than they were 6 months ago. And I think you are going to see much more tightening of bank procedures, and better bank training. My own bank, for instance, will not handle a large cash transaction for anyone but a customer. To be a customer you need two types of identification. The previous witness has cited many cases in which no identification is needed. Rarely was he ever asked for more than one kind of identification.

I am in accord, and I think the Council is in accord, with the principle that the national good is well served by legislative action and by bank action that reduces the amount of money that is laundered each year. So, we have no problem with that. We are very anxious and willing cooperators in that effort with our regulators and the other banking authorities.

[The statement of Mr. Albers follows:]

TESTIMONY OF Kenneth F.X. ALBERS ON Behalf of the NATIONAL COUNCIL OF SAVINGS INSTITUTIONS ON H.R. 1367 AND H.R. 1474 RELATING TO MONEY LAUNDERING Mr. Chairman and Members of the Subcommittee, thank you for the opportunity to appear today on behalf of the National Council of Savings Institutions. My name is Kenneth F.X. Albers and I am Chairman of the National Council. I am also

Chairman and Chief Executive Officer of the Provident Savings Bank, Jersey City, New Jersey.

The National Council of Savings Institutions was formed a year and a half ago by the consolidation of the National Association of Mutual Savings Banks and the National Savings and Loan League. The Council represents approximately 600 savings institutions with over $400 billion in assets.

The National Council shares the concerns of the Subcommittee about the need to stop the importation of illegal drugs into this country and the need of our law enforcement agencies for tools to do their work effectively. We are also, of course, concerned about the protection of the financial privacy of our customers.

The President's Commission on Organized Crime, in its October, 1984 Interim Report, "The Cash Connection: Organized Crime, Financial Institutions, and Money Laundering," provides dramatic evidence not only of the scope of the drug problem in this country, but also of the fact that the immense profits derived from illicit drug dealing are of limited use to dealers until converted, or “laundered" through financial institutions into seemingly legitimate cash, negotiable instruments or bank accounts.

The fact that a money launderer must engage in recordable transactions with a financial institution, including, generally, at least one personal appearance at an institution to initiate a transaction, places financial institutions in a pivotal position in the law enforcement process. This role inevitably leads to a conflict between the right to privacy of the records of our customers and the need for law enforcement agencies to compile evidence leading to prosecution and conviction of drug traffick

ers.

Mr. Chairman, the National Council welcomes the opportunity to work with you and members of the Subcommittee to develop carefully thought-out legislation that strikes a reasonable, and workable, balance between these individual rights and the need to eradicate the illegal distribution of drugs in this country.

THE PENDING BILLS

Our testimony will deal with certain provisions in the Chairman's bill, H.R. 1474 and in H.R. 1367 by the ranking minority member, Representative McCollum. H.R. 1474 would:

1. Add a new section 1956 to Title 18 of the U.S., Code to make it a felony for anyone to "knowingly" engage or attempt to engage in a money-laundering transaction as defined therein; and

2. Amend the Bank Secrecy Act ("BSA" or "Act"), 31 U.S.C. 5311 et seq., to:

a. Require exemptions from the reporting requirements of the Act to be approved by the Secretary of the Treasury;

b. Add wire transfer of funds to and from other countries to the reporting requirements of the Act;

c. Require the Federal Reserve Board, the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Federal Home Loan Bank Board to monitor compliance with BSA by financial institutions under their jurisdiction during each examination; and

d. Impose foreign currency transaction reporting requirements on persons "about to" transport or wire funds to or from a foreign country.

H.R. 1367 would:

1. Also add a new section 1956 to Title 18 of the U.S. Code to make a felony for any person to "conduct or cause to be conducted" a transaction with a financial institution for the purpose of carrying out an unlawful activity or "with knowledge or reason to know" that funds or instruments subject to the transactions were derived directly from, or from the proceeds of, unlawful acts as defined therein;

2. Amend the Bank Secrecy Act to:

a. Provide the Secretary of the Treasury with power to subpoena reports and records required by the Act, to summon bank officials to testify under oath on compliance with its reporting requirements and to exercise these powers with respect to compliance with the record keeping requirements imposed on Federally-insured and "uninsured" banks and savings and loan associations by Title I of Public Law 91508, which authorizes the Secretary of the Treasury to require monitoring of canceled checks, account statements, and similar records;

b. Permit the Secretary of the Treasury to make BSA reports available to other agencies on his initiative, rather than waiting for a request from another agency, if he believes that furnishing such information would further enforcement of the Act; and

c. Permit wiretapping in BSA investigations; and,

3. Amend the Right to Financial Privacy Act ("RFPA") 12 U.S.C. 3401 et seq. to: a. Permit a bank to provide a Federal agency with information that it believes may be relevant to the violation of a law;

b. Preempt all state laws, regulations, and court cases that impose stricter restrictions than the RFPA on reporting data on depositors to government agencies; and, c. Strengthen the good faith defense for bank employees in law suits claiming that their reporting of information violated the RFPA.

MAKING MONEY-LAUNDERING A CRIME

The Council supports the principle of making money laundering, or the attempt to launder money, a crime. The provisions in the two bills that would accomplish this purpose, however, pose a potential problem for employees of financial institutions.

As we understand the language in both versions of the proposed new 18 U.S.C. 1956, a bank employee would be included among those subject to prosecution for laundering.

We understand the need to include such employees in order to reach bank "insiders" who may be actively assisting in a laundering scheme. A difficulty is presented, however, for a bank employee and particularly for a teller, who may be completely innocent of any involvement in a laundering operation but who may have actual knowledge that money or checks offered for deposit are derived from an illegal source. If the teller completes the tranactions with the intention of notifying a supervisor or law enforcement agency after it is completed, the teller has presumably committed a felony. If the teller refers the customer to a supervisor or otherwise refuses to complete the transaction, someone in the branch will have to give the customer a reason for the refusal.

We do not believe that the proponents of making laundering a crime intend that bank employees be placed in the position of making these kind of "on the spot" decisions and of directly confronting persons whom they suspect are presenting funds derived from illegal activities.

This problem can be addressed by an amendment to either version of the proposed new section 1956 of Title 18 making it clear, for example, that it will not apply to an employee who knowingly participates in a laundering transaction at his or her financial institution if the transaction and the employee's information about the transaction is immediately reported to a bank officer or law enforcement agency. With respect to making laundering a crime, the Council believes that it is inadvis able to base a criminal offense, particularly a felony, on facts which an individual had "reason to know," as it would be in H.R. 1367.

The standard in H.R. 1474 is much clearer. It would apply to a person who "knowingly engages or attempts to engage" in a laundering transaction.

One of the technical difficulties in making laundering a crime is that the funds to be laundered must be derived from an activity that violates another section of the criminal code. The standard in H.R. 1474 requires knowledge that the funds are in fact "criminally derived." The corresponding provision in H.R. 1367 would subject a person to criminal prosecution who engages in a transaction with a financial institution "with knowledge or reason to know that such [funds] represent income derived directly or indirectly from any unlawful activity...

We believe that the "reason to know" standard is too vague. It would subject bank employees, and other persons as well, to an unfair degree of uncertainty as to proper conduct when laundering is suspected, particularly since the "reason to know" relates to knowledge of a linkage between the funds presented for deposit and a criminal act committed at another time and place. This standard could be subject to considerable abuse and we would urge that if the Subcommittee adopts a new section 1956 of Title 18, that it adopt the version in Section 2 of H.R. 1474.

AMENDMENTS TO THE BANK SECRECY ACT

Section 201 of H.R. 1367 would permit the Secretary of the Treasury to summon a bank officer or employee to testify under oath with respect to compliance with the Bank Secrecy Act and with the recordkeeping requirements of Section 21 of the Federal Deposit Insurance Act and Section 411 of the National Housing Act (which applies to the Federal Savings and Loan Insurance Corporation).

We have some concerns about this grant of power to the Secretary. It would seem more appropriate to lodge such power, if it is needed, with the Justice Department, and to limit its use to an ongoing investigation relating to suspected laundering operations. This modification does not appear to pose an undue burden on the Treasury Department, particularly if the provision in Section 202 of the bill is adopted.