-

pesos in Colombia, meet through a money launderer and agree to do their own private exchange. The drug trafficker deposits his dollars for the Colombian in the U.S., while in Colombia, the businessman deposits his pesos for the drug trafficker. Laundering has taken place without any currency physically leaving either country (and, perhaps, without the knowledge of the businessman that he is helping to launder drug money). This process serves to supply the criminal organizations with the capital needed to maintain their empires what the Attorney General has called the "life-blood" of their operations. But, putting a stop to it is not easy: it means imposing sanctions on otherwise legitimate business activities, which could have a significant impact on our economic relationships with developing countries, and it requires a significant change in the level of cooperation between foreign governments and foreign banks in the exchange of information and quite possibly in the structure and enforcement of banking laws.

Another way of laundering money without having the money leave the United States is simply to spend it. When a drug dealer buys a car, boat, airplane or piece of real estate for cash he passes his cash management problem to the seller and acquires an asset that can be used in his drug business or converted to suit his purpose. Section 60501 of the Internal

Revenue Code of 1986 provides a means to assist law enforcement in tracking these transactions.

The statute was enacted as part of the Deficit Reduction Act

of 1984, because "Congress believed that reporting on the spending of large amounts of cash would enable the Internal Revenue Service to identify taxpayers with large cash incomes." Staff of the Joint Committee on Taxation, 98th Cong. 2d Sess., General Explanation of the Revenue Provisions of the Deficit Reduction Act of 1984, 491 (Comm. Print 1986). The statute requires any person engaged in a trade or business who receives more than $10,000 in cash payments in a single transaction or series of transactions to file an information return (Form 8300) with the Internal Revenue Service. On this return, the recipient of cash must, among other information, report the name, address, and taxpayer identifying information (such as social security number or passport number) of the payor, the amount of cash received, and the date and nature of the transaction giving rise to the payment. This form is similar to the Currency Transaction Reports (CTRS) filed by financial institutions under 31 U.S.c. 5313.

-

the year Section

Section 5313 was enacted as part of the Bank Secrecy Act of 1970, but compliance by financial institutions covered by the CTR filing requirement was very poor until 1985 60501 first became effective. Since then, compliance with the CTR filing requirement has improved markedly. Although it might be argued that this delay was attributable, in part, to the normal gestation period for such legislation, it is the

Department's view that the increased compliance is largely due to a number of high profile criminal prosecutions of major banks

that took place in 1985.

On the other hand, the rate of taxpayer compliance with Section 60501 remains at unacceptably low levels. It will likely take action on the legislative front, coupled with vigorous civil and criminal enforcement to raise the level of compliance. Moreover, we believe that the current sanctions for failure to comply with Section 60501 are inadequate to spur voluntary compliance. We would, therefore, support legislation designed to strengthen the penalties for noncompliance.

While Section 7203 of the Internal Revenue Code was amended in 1988 to increase the penalty for willful failure to file Forms 8300 from one to five years imprisonment, the civil penalties for failure to file the forms remain at relatively low levels. Thus, Section 6721 of the Code imposes only a $50 penalty for each incorrect or incomplete return filed by a trade or business (up to a maximum penalty of $250,000 per year). And the penalty for intentional disregard of the filing requirement is only $100 for each failure (with a maximum penalty of 10 percent of the aggregate amount of the items reported incorrectly). These civil penalties should clearly be raised to a level where they will have a meaningful economic, and hence deterrent, impact on noncompliance.

Audit and collection efforts in the area of Section 60501 must also be increased. Since the reporting requirements of Section 60501 cover all trades or business more diverse group than the financial institutions covered by the

-

a vastly larger and

public awareness of the filing requirement must include wide dissemination of information, coupled with vigorous civil

enforcement. Civil agents from the IRS Collection and

Examination Divisions regularly participate in targeted efforts

to encourage filing of Forms 8300.

Section 60501 compliance

checks should become routine in civil tax audits involving businesses likely to receive large cash payments.

Finally, the Department of Justice is working with the

Internal Revenue Service to target for prosection those business that typically deal in amounts of cash exceeding $10,000 (such as car and boat dealers and jewelry stores) and that willfully fail to file Forms 8300. In the past, the most egregious cases have been prosecuted under the money laundering statutes, which impose greater penalties. However, experience has taught that successful and well publicized criminal prosecutions lead to increased voluntary compliance, and we intend to increase prosecutions for failure to comply with Section 60501.

Similarly, it may be possible to increase our activity on the civil forfeiture front under 18 U.S.C. 981 in cases in which a failure to comply with Section 60501 is part of a money laundering scheme. The Department is considering whether additional forfeiture authority is necessary to address cases involving compliance with Section 60501 that are not now reached by existing statutes.

Lawyers have presented unique compliance problems in the

enforcement of Section 60501. As a group, lawyers have filed several thousand incomplete Forms 8300 with the Internal Revenue Service asserting attorney/client privilege claims in various foras. The Internal Revenue Service has issued administrative summonses to lawyers seeking to compel disclosure of nonprivileged client identity and fee information. The lawyers' privilege claims are not being tested in the courts, and the Tax Division of the Justice Department has formulated procedures for initiating and handling enforcement actions against lawyers and law firms to complete compliance with Section 60501. (See attached letter dated September 7, 1990, from Deputy Assistant Attorney General James Bruton to Michael S. Ross of the American Bar Association Grand Jury Committee.)

.

However, compliance with the reporting requirements alone may not be sufficient to realize the full potential of Section 60501's application to law enforcement. Once information reported on Forms 8300 is received and assembled, appropriate dissemination of that information is essential. Unlike information gathered on CTRS under the Bank Secrecy Act, Forms 8300 are tax returns and are, therefore, subject to the confidentiality rules of Section 6103 of the Internal Revenue Code. Under this provision, only the Internal Revenue Service and some law enforcement offices within the Treasury Department have unrestricted access to the information supplied on Forms 8300.

Section 6103 (i) (8) of the Code authorizes certain federal