BUSINESS COMMUNITY'S COMPLIANCE WITH FEDERAL MONEY LAUNDERING STATUTES THURSDAY, SEPTEMBER 20, 1990 U.S. HOUSE OF REPRESENTATIVES, The subcommittee met, pursuant to call, at 9:30 a.m., in room 1100, Longworth House Office Building, Hon. J.J. Pickle (chairman of the subcommittee) presiding. [The press release announcing the hearing follows:] (1) FOR IMMEDIATE RELEASE TUESDAY, SEPTEMBER 18, 1990 PRESS RELEASE #34 SUBCOMMITTEE ON OVERSIGHT U.S. HOUSE OF REPRESENTATIVES THE HONORABLE J. J. PICKLE (D., TEXAS), CHAIRMAN, ANNOUNCES HEARINGS ON THE BUSINESS COMMUNITY'S COMPLIANCE The Honorable J. J. Pickle (D., Texas), Chairman of the Subcommittee on Oversight, Committee on Ways and Means, U.S. House of Representatives, announced today that the Subcommittee will conduct a hearing to review the business community's compliance with Federal money laundering statutes. The hearings are scheduled for Thursday, September 20, 1990, beginning at 9:30 a.m., in the main Committee hearing room, 1100 Longworth House Office Building. Over the past year, the Subcommittee has conducted a series of investigations into compliance with Internal Revenue Code section 60501 and other related money laundering statutes. Section 6050I was enacted in 1984 and intended to help the Internal Revenue Service (IRS) identify taxpayers who were underreporting income by requiring the reporting of certain large cash transactions. Today, these reports have taken on greater importance as drug money is being converted directly from cash into luxury consumer products. Section 60501 requires a person, engaged in a trade or business, who receives more than $10,000 in cash in one or more related transactions, to report the transaction to the IRS. The business person who receives the cash must file a Form 8300 with the IRS within 15 days after the transaction is complete. Form 8300 requires information on the name, address, social security number, and occupation of the person who paid in cash, and, if applicable, the person for whom the buyer was purchasing the item. "The In announcing these hearings, Chairman Pickle stated: Subcommittee's investigation of the business community's compliance with Federal money laundering laws shows that some merchants, including automobile dealers, real estate agents, jewelers, antique dealers, oriental rug dealers, and others are deliberately violating Internal Revenue Code reporting requirements. For example, Subcommittee investigators operating undercover found that 95 percent of the 79 merchants approached were willing to take cash and not report the transaction to the IRS. A quarter of them went out of their way to suggest ways to structure anticipated transactions to avoid the reporting requirements. It seems that whatever the Internal Revenue Service is doing is not effective. "The law is crystal clear--cash transactions over $10,000 received in a trade or business must be reported. To find that the portion of the business community the Subcommittee investigated is flagrantly violating the law, is alarming, to say the least. This needs to get fixed and fixed fast." DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: Because the oral testimony at the hearing will be presented by invited witnesses only, interested parties are encouraged to provide written statements to the Committee for the printed hearing record. Persons submitting written comments should submit six (6) copies by the close of business, Friday, October 19, 1990, to Robert J. Leonard, Chief Counsel, Committee on Ways and Means, U.S. House of Representatives, room 1102 Longworth House Office Building, Washington, D.C. 20515. -2 FORMATTING REQUIREMENTS: Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request for written comments must conform to the guidelines listed below. Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee. 1. All statements and any accompanying exhibits for printing must be typed in single space on legal-size paper and may not exceed a total of 10 pages. 2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use by the Committee. 3 Statements must contain the name and capacity in which the witness will appear or. for written comments. the name and capacity of the person submitting the statement, as well as any clients or persons, or any organization for whom the witness appears or for whom the statement is submitted. 4. A supplemental sheet must accompany each statement listing the name. full address, a telephone number where the witness or the designated representative may be reached and a topical outline or summary of the comments and recommendations in the full statement. This supplemental sheet will not be included in the printed record The above restrictions and limitations apply only to material being submitted for printing. Statements and exhibits or supplementary material submitted solely for distribution to the Members, the press and public during the course of a public hearing. may be submitted in other forms. Chairman PICKLE. The Chair would ask the committee to please come to order and ask our guests to please take their seats. I have an opening statement. I think Mr. Schulze also has an opening statement. so we will proceed with the order of business. In 1984, section 60501 of the Internal Revenue Code was enacted requiring businesses to report to the IRS all transactions that involved more than $10,000 in cash. This requirement was added because Congress believed that reporting the spending of large amounts of cash would enable the IRS to identify taxpayers with large cash incomes that might otherwise be underreported. The business community was asked 6 years ago to help the Government. To date, the Government's call has been largely ignored. In fact, I believe subcommittee investigators have uncovered a national disgrace involving our business community. Since July, subcommittee investigators went to 79 businesses nationwide and negotiated for the purchase of $4.2 million in luxury goods-each for more than $10,000 cash and subject to section 60501. The investigators made arrangements to purchase, with cash, expensive items including a $55,000 persian rug, a $250,000 condominium, a $22,000 antique mirror, a $73,000 Porsche, a $15,000 Mazda Miata, and a $17,000 Rolex watch. Seventy-six out of seventy-nine of these businesses agreed to accept cash and not report the transactions to the IRS. In fact, some of the businesses actually suggested ploys to circumvent the reporting requirements. It is shocking that businesses throughout the country are routinely conniving with customers to violate the law. The testimony of subcommittee investigators, which follows, is in my opinion a serious indictment of the U.S. business community. To say the least: it is an embarrassment to the business community. While some of the unreported cash being used to purchase expensive consumer items may be from drug dealers, the law is intended to enhance tax compliance by everyone, including those doctors, lawyers, professional executives, businessmen, and others with large cash incomes. The business community is in the best position to witness the spending of ill-gotten gains, and they are the ones responsible for reporting these transactions. Just like for banks, there is a law on the books which clearly requires the reporting of cash transactions over $10,000. Just like the currency transaction reports-CTRS-filed by banks, businesses must faithfully comply with the law and file the form 8300. The form 8300 is a simple, one page document. The information required by statue is essentially the same as demanded by most businesses for credit card purchases-name, address, amount, and other data, most of which is contained on a driver's license. Our investigation will show that violation of the law is common practice. Section 60501 has been on the books for 6 years and yet only 94,000 form 8300s have been filed, including 22,000 filed in 1989, in the entire U.S.A. Businesses in the District of Columbia, by way of example, only filed three form 8300s so far this year. Something is clearly wrong. Businesses from across our land are willing to assist others in laundering money and evading taxes for a "quick buck." This is a shocking and unacceptable fact. It seems that businesses will take cash from anybody-without question and regardless of where it comes from. These businesses are costing taxpayers billions in uncollected taxes. I consider such businesses as coconspirators and, they must, and will, be held accountable. Today's hearing will show that 95 percent of the businesses investigated were ready, able, and willing to violate the law. In many cases, the merchants suggested to the subcommittee investigators how to structure the transactions with money orders or cashier's checks, multiple payments, fictitious names, or other questionable schemes, in order to avoid the reporting requirements. There was one case where an established jewelry store in Atlanta was willing to accept in excess of $17,000 for two Rolex watches despite the fact that two IRS agents were literally in the store's back room looking at the company's records for cash transactions. The salesman even asked the subcommittee investigators to lower their voices while he proceeded to concoct a scheme to circumvent the law. Several dealers admitted having clients who regularly dealt in cash-like doctors and lawyers. In one instance, the sales representative said he had a "pastor who brought in a satchel of bills in small denominations," and wondered if the pastor had been dipping into the collection plate. Subcommittee investigators also looked at the trial records of the notorious Washington, D.C. drug dealer, Rayful Edmond, who was recently prosecuted along with 29 other defendants for narcotics trafficking. It is well known that his drug ring freely spent millions of cash dollars for consumer goods and services in the Metropolitan D.C. area. In order to understand the nature of cash sales and schemes to evade section 60501 reporting, the subcommittee obtained public records relating to cash transactions from the trial and talked with the merchants who did business with the defendants and others on a cash basis. According to the merchants themselves, none of these transactions were ever reported to the IRS. We will hear more about this and other aspects of the subcommittee's investigation in a few minutes. The fact that any merchant would knowingly accept large sums of cash and deliberately conceal these transactions is unconscionable-but more importantly a violation of the law. It is quite possible that the civil sanctions applicable to willful violations are not |