-9 CONCERNING THE INDIVIDUALS OR ACCOUNT INVOLVED, AS WELL AS THE NATURE OF THE SUSPECTED ILLEGAL ACTIVITY. THIS PROVISION WOULD NOT AUTHORIZE FULL DISCLOSURE OF ALL INFORMATION AND RECORDS IN THE FINANCIAL INSTITUTION'S POSSESSION. ANOTHER PROPOSED AMENDMENT WOULD ALLOW A FINANCIAL INSTITUTION TO MAKE FULL DISCLOSURE IN CERTAIN NARROWLY DEFINED HAS REASON TO BELIEVE MAY BE RELEVANT TO CERTAIN POSSIBLE CRIMES · CRIMES BY OR AGAINST A FINANCIAL INSTITUTION OR FINANCIAL INSTITUTION SUPERVISORY AGENCY, BANK SECRECY ACT VIOLATIONS OR VIOLATIONS OF THE PROPOSED MONEY LAUNDERING OFFENSE, 18 U.S.C. $ 1956, OR ENUMERATED DRUG-RELATED CRIMES. THE BILL EXPANDS UPON THE CURRENT "GOOD-FAITH" DEFENSE THAT A FINANCIAL INSTITUTION MAY RAISE UNDER SUBSECTION 1117(c) OF THE RIGHT TO FINANCIAL PRIVACY ACT, 12 U.S.C. 3417(c) IN A CIVIL SUIT UNDER THE RFPA. SECTION 3417(c) NOW STATES THAT IF A FINANCIAL INSTITUTION PROVIDES INFORMATION IN GOOD FAITH RELIANCE UPON THE CERTIFICATION OF A GOVERNMENT AUTHORITY THAT IT HAS COMPLIED WITH THE APPLICABLE PROVISIONS OF THE RFPA, THE INSTITUTION SHALL NOT BE LIABLE TO THE CUSTOMER FOR SUCH DISCLOSURE. THE AMENDMENT ADDS THAT THE FINANCIAL INSTITUTION WILL ALSO HAVE THIS GOOD -10 FAITH DEFENSE IT IF PROVIDES RECORDS OR INFORMATION IN THE GOOD FAITH BELIEF THAT IT IS RELEVANT TO A POSSIBLE VIOLATION OF LAW IN ACCORDANCE WITH § 3413(L) OR § 3403(c) DISCUSSED ABOVE. FINALLY, THE BILL ADDS A NEW SECTION 3423 TO TITLE 12 TO MAKE EXPLICIT THAT THE RIGHT TO FINANCIAL PRIVACY ACT PREEMPTS ANY STATE FINANCIAL PRIVACY LAW, INCLUDING ANY STATE REQUIREMENT FOR CUSTOMER NOTICE NOT REQUIRED UNDER THE RFPA WITH RESPECT TO POSSIBLE VIOLATIONS OF LAW, THAT IS MORE RESTRICTIVE OF DISCLOSURE TO A GOVERNMENT AUTHORITY CONCERNING A POSSIBLE VIOLATION OF LAW. WITH RESPECT TO THE OTHER BILLS BEFORE THE COMMITTEE, TREASURY OPPOSES TWO PROVISIONS IN H.R. 1474. SECTION 3 OF H.R. 1474 WOULD PROVIDE THAT EVERY BANK SECRECY ACT REPORTING EXEMPTION BE APPROVED BY THE SECRETARY. CURRENTLY UNDER THE REGULATIONS (31 C.F.R. § 103.22(B)), A BANK MAY EXEMPT FROM REPORTING CERTAIN CASH DEPOSITS AND WITHDRAWALS OF ACCOUNTS OF RETAIL BUSINESSES IN AMOUNTS COMMENSURATE WITH THE LAWFUL, CUSTOMARY CONDUCT OF SUCH A BUSINESS. THE BANK HAS A CONTINUING DUTY TO MONITOR THE QUALIFICATIONS FOR SUCH EXEMPTIONS, AND IT WOULD BE UNWISE, IN OUR VIEW, TO SHIFT THE BURDEN OF MONITORING THE ELIGIBILITY OF BANK CUSTOMERS FOR EXEMPTIONS AWAY FROM THE BANK. THE BANK IS IN THE BEST POSITION TO KNOW ITS CUSTOMERS AND CHANGES IN THEIR STATUS. THE PROVISION IS ACCORDINGLY OVERLY BURDENSOME TO THE GOVERNMENT AND UNNECESSARY. WE ARE CONSIDERING -11 INSTEAD A REGULATION THAT WOULD PROVIDE IRS WITH COPIES OF ALL EXEMPT LIST APPLICATIONS, THE TRUTHFULNESS OF WHICH WOULD BE SECTION 4 OF H.R. 1474 WOULD REQUIRE THAT EVERY PERSON, INCLUDING EVERY FINANCIAL INSTITUTION, REPORT ALL OUTGOING INTERNATIONAL WIRE TRANSFERS. AS DISCUSSED ABOVE WITH RESPECT TO TREASURY'S NEW TARGETING REGULATIONS, TREASURY ALREADY HAS AUTHORITY UNDER 31 .S.C. § 5314 TO REQUIRE REPORTING OF INTERNATIONAL WIRE TRANSFERS. HOWEVER, WHOLESALE REPORTING OF INTERNATIONAL WIRE TRANSFERS WOULD NOT BE IN KEEPING WITH THE RESTRICTION IN $ 5314 THAT TREASURY CONSIDER THE NEED TO "AVOID BURDENING UNREASONABLY A PERSON MAKING A TRANSACTION WITH A WOULD CREATE A VIRTUAL BLIZZARD OF REPORTS, BURDENING FINANCIAL WOULD BE UNRELATED TO MONEY LAUNDERING. THIS CONCLUDES MY PREPARED REMARKS. I WOULD BE HAPPY TO ANSWER ANY QUESTIONS FROM THE COMMITTEE. Mr. HUGHES. Thank you, Mr. Walker. Our next witness is James D. Harmon, Jr., the Executive Director and Chief Counsel of the President's Commission on Organized Crime. Mr. Harmon, we also have your statement, which is a part of the record in full. You may proceed as you see fit. We hope you can summarize. Mr. HARMON. Thank you, Mr. Chairman. As Executive Director of the President's Commission on Organized Crime, I appreciate the opportunity to testify concerning the various money laundering bills now under consideration in this subcommittee. Since its establishment in July 1983, the Commission's responsibilities for analyzing organized crime and for defining the uses to which organized crime puts its income have prompted it to devote substantial attention to the problem of money laundering. Although Mr. Stephens and Assistant Secretary Walker are thoroughly familiar with the challenges that money laundering have created for their departments, I want to convey to you some of the concerns that impelled the Commission to devote such attention to money laundering and to make a number of legislative recommendations in its first interim report, the "Cash Connection." In so doing, I also hope to dispel some of the misconceptions which a few people have recently expressed in newspaper articles concerning the need for various provisions in this bill. At the outset, Mr. Chairman, I would like to take a moment to express appreciation for the sustained attention that this subcommittee and its members have devoted to the issue of money laundering. Through the subcommittee's hearings last year on the use of casinos to launder money, and through the introduction of money laundering bills such as H.R. 1474 and H.R. 1367, you and other members of this subcommittee have underscored the significance of the problem and made clear that new measures must be devised to deal directly with that problem. So, if I may, Mr. Chairman, first turn to the obvious question: Why did the Commission spend so much time, and what drew the Commission's attention to this issue? Well, it has been said often that money is the life blood of organized crime. At the same time, Mr. Chairman, it presents a logistics problem for organized crime as well as the narcotics networks: How do you get access to this money, how do you get access to it in a form either to further capitalize your network, or else to profit, to actually use the profits in some way, in the legitimate stream of commerce? What the commission devised and recommended to the President and to the Attorney General was a kind of domestic interdiction, not of narcotics but a way to interdict the mob's money, attempting to devise a way to literally make the mob choke on its own money and in some way in that way diminish its capacity to operate at current levels. We have noted in our work certain trends with regard to money laundering, that it is increasing in magnitude and complexity and in diversity. We think as time goes on that this diversity is a result of the unprecedented attention both from the Congress, from this subcommittee, and the unprecedented attention coming to this question from law enforcement. As an example of this diversity, the money must go somewhere. In the past it has gone basically to financial institutions. We would submit, Mr. Chairman, that as pressure is put on laundering through financial institutions, it is going to pop up someplace else within the United States. Understanding your interest in this question as well as the Commission's desire to act in partnership with the Congress and all of those who seek to answer and resolve this question, we asked the Internal Revenue Service to do for us a statistical analysis of these forms 8300, which in essence are the equivalent of currency transaction reports filed by financial institutions. The result of an analysis provided to us on June 4, 1985, of 605 of these returns filed by people engaged in businesses other than financial institutions reflects this. Of those 605 returns, 52 percent of them were filled out by auto dealers; 11 percent were filled out by precious metals dealers; 4 percent, the next largest category, were filed by attorneys. I have the balance of the information, but that represents the bulk of the analysis of these forms picked at random and analyzed by us for IRS. If I could turn to another question, that is, the issue of intent under the money laundering statute and why it's important to go beyond the question of actual knowledge. But before I do that, Mr. Chairman, I would like to just turn for a moment to another significant trend which the Commission has seen in money laundering. That is the willingness of organized criminal groups to sustain substantial losses of their profits where such losses may aid in concealing the illegal source of those proceeds or the conduct of the laundering activities themselves. Two significant examples of this trend were disclosed in public testimony at the Commission's hearings last month on gambling and organized crime. The first is a powerful Cuban organized crime group known as "The Corporation", which has amassed several hundred million dollars in assets, primarily through its control of illegal policy betting operations in various cities throughout the United States. To aid its members in developing ostensibly legitimate sources of income, The Corporation has evolved a scheme involving the legal lottery operated in Puerto Rico. By purchasing winning tickets in excess of their face value, members of The Corporation then would cash in these winning tickets and in that process legitimizing a large amount of its illegally obtained income. In a case also now under indictment, to turn to a second case, in the Eastern District of New York, more than $3 million in cash from heroin sales was deposited in the cashiers' cages at four Atlantic City casinos. At one of the casinos, the Golden Nugget, Anthony Castelbuono made an initial deposit of $1,187,450 in small bills, represented by this graphic which appears to your right, Mr. Chairman. That volume of bills was 5.75 cubic feet and weighed approximately 280 pounds. Its permission to accept this deposit was given by the chairman of the Golden Nugget himself, as he testified at the Commission's hearing. After losing more than $300,000 in chips and transferring chips among themselves, Castelbuono and a few associates withdrew $800,000 in $100 bills. Such a withdrawal would have a volume of only one-third of a cubic foot and would |