business community said when they testified. I am going to be a lot more curious to see what the Internal Revenue Service says. I think that this is the most shocking testimony that I have heard in my 12 years in the U.S. Congress.

Mr. Gomez and Ms. Jackson, I spent 10 years in the courtroom as a trial attorney prosecuting criminals. What makes me madder than anything, you could take a case to a jury and if you had somebody of low income who could not afford an attorney and had robbed one of these establishments of maybe $1,000, the owner would be on you night and day to give them the maximum penalty. It would be interesting to see if any of these businesses have been robbed or embezzled, to see what the owners did in terms of trying to punish those people.

Now you have the people who controlled the business just having a clear intent to grab the money for pure profit, with knowledge of the transaction and the law and they were willing to do it.

I think we will have to ask Ms. Reagan to change her slogan. It is going to have to be "just say no to cash."

I think this is the most serious indictment that I have ever seen in my 10 years as a prosecuting attorney and 12 years as Member of Congress on the business community that has a total, callous disregard for the law. We can pass all the laws we want, build all the prisons we want, hire all the police and judges we want, but until the people who are at the front line, who are offered this cash are willing to say no, just like those two jewelry store owners and that one automobile dealer said, what I want to do is see if they can be invited to the White House. They need to be given a Medal of Honor.

The others, I can promise you if I stay here another 12 years, I will bug the IRS to see what they do with these cases. If they fail to do something with them, Mr. Chairman, I think this committee ought to do something serious in that regard.

In front of me are two books, each individually documented and had we taken an extra step of completing the transaction making sure that the cash was actually transferred, every one of those businesses could have been hauled off to jail and slapped with a felony count and held for a very large bond.

I think the business community needs to understand that, because the next time we send these investigators out there, they may complete the transaction and they may well be hauled away in handcuffs before the afternoon is over if they try to help launder this money.

I don't think the business community has seen the last of this investigation.

I yield the balance of my time.

Chairman PICKLE. I thank the gentleman.

Mr. McGrath.

Mr. McGRATH. Thank you, Mr. Chairman.

Mr. Gomez, Ms. Jackson, let me congratulate you for a thorough analysis of this particular problem.

I am wondering whether or not you could articulate for us some of the more esoteric ways which businesses offer in order to avoid the reporting rules.

Mr. GOMEZ. There were basically four or five methods, one with cashier's checks less than $10,000. That seemed to be the main method.

Another method involved both cash and a cashier's check under 10,000.

One realtor offered notes as well as money orders to avoid the regulations.

Some suggested that we could come in and use installments, $9,000 one day, $9,000 the next, and $9,000 the next.

Others suggested, as the one automobile dealer did, that we give him money and he would then use the employees in the dealership and their names, assumingly for the remaining amount.

Mr. McGRATH. Intriguing was the $250,000 payment for the condominium here in D.C., and under that kind of scenario, it would take about a month of payments every day, $9,000 payments every day in order to satisfy the sale price.

Was that the arrangement that you would have to perform had you gone through with the transaction?

Ms. JACKSON. With that particular one, we were simply instructed to talk with a particular attorney, and we were told that the attorney was familiar with the fact that we wanted to pay cash and keep it totally quiet and not report it.

He didn't get much into the details of how we were going to do that, simply that this attorney would be able to help us keep the cash transaction quiet.

Mr. GOMEZ. This was the same individual who suggested cashier's checks, notes and money orders.

Mr. McGRATH. Did you happen to call the attorney in question here?

Ms. JACKSON. No, we did not.

Mr. McGRATH. But the name, as you have indicated

Ms. JACKSON. Yes, his name and telephone number are in the file.

Mr. McGRATH. Could you describe for me the nature of the 10 transactions that took place in New York and perhaps make a relevant comparison to other transactions in other cities.

I guess what I am asking is whether they are more inventive in New York than any other of the cities that you have investigated. Mr. GOMEZ. There was nothing different in the conversations or the end results.

However, in New York City, one of the jewelers declined to go along with the cash transaction noting the IRS requirement. Also he was rather adamant about not violating that requirement.

Mr. McGRATH. So there was nothing unusual about the transactions in New York other than the fact that you found somebody who was honest enough to turn it down.

Once again, I think I share the same kind of frustration that everybody has exhibited on the panel today, and as I said in my opening statement, this is truly just a matter of greed, and the extent to which we are going to follow up on this, I think, is going to be very, very significant, because certainly local governments are losing sales tax because of this.

We perhaps are losing excise tax because of this. There is a plethora of problems with these kinds of transactions and we sure want to get to the bottom of them.

Thank you, Mr. Chairman.

Chairman PICKLE. Mr. Shaw.

Mr. SHAW. Briefly, Mr. Chairman.

Mr. Gomez, Ms. Jackson, you must feel like paupers now going into Safeway and comparing the price of poultry and beef after looking at $20,000 jewelry and $15,000 rugs.

I would like to pursue the question Mr. McGrath had with regard to the lawyers and real estate agents here in Washington, D.C.

I think this is an area that should be pursued and I think that someone should pursue the case and actually maybe even go into the lawyer's office and try to figure out what is going on here, because those kinds of trails are very, very difficult to hide.

There may be something much larger here than simply not reporting a cash transaction.

The use of their trust accounts, both the lawyer and the realtor, and I think it might be very advantageous just to try to figure out exactly how this was going to be set up, how the title was going to be handled.

In the area of automobiles, I am very curious as to how the dealer would handle the actual title transaction-I believe in most States the dealer would have to have the title notarized which would mean that he was willfully signing a notarized document that he knew was false.

We should probably expand our investigation into that area to see exactly how they put these pieces together because we know that these transactions are going on.

In my State of Florida, I know they are going on all the time. I am a little curious here as to-I would like to follow up on a line of questioning of prior members-the extent of knowledge that the business people had of the law and the law that they are violating.

We can fix the law by saying that cashier's checks, traveler's checks, money orders, other things that are readily negotiable would be the same as cash in these type of transactions particularly if you use multiple instruments in making the purchase and put the cash requirement on those type of instruments when they are given to you in addition to cash or in multiple form which would exceed the reporting limit.

I think we can work with that.

What percentage of the merchants that you dealt with had actual knowledge of the law and what percentage of them seem to be knowledgeable on how to get around the law and legally close a transaction by just the use of a series of cashier's checks?

Mr. Gomez. There were a total of 26 businesses who knew the regulations or provided us with sufficient information during our conversations to indicate that they knew the regulations.

Of those 26-and not necessarily of those 26-but there were 23 businesses who provided alternative ways to circumvent those regulations.

We didn't do an analysis on how many businesses knew the IRS regulations, nor did we develop percentages.

All I know is a total raw number of 26 businesses indicated that they had sufficient knowledge.

Chairman PICKLE. Does that conclude your questioning?

Mr. SHAW. Yes, for this time.

Thank you, Mr. Chairman.

Chairman PICKLE. Mr. Dorgan, do you wish to question?
Mr. DORGAN. Thank you, Mr. Chairman.

Mr. Gomez, let me go through the chart again with you because what I see here is really shameful.

Your report is excellent, but this on a random basis reads like an infection of greed, people willing and interested in making sales irrespective of the law regardless of the consequences.

You selected, I think, businesses from the Yellow Pages without targeting. You didn't come into a city and say, "Here are a couple of shady operations we are going to look at."

You selected seemingly at random in number of industries, certain businesses you went in and tried to do a cash transaction and in effect in 79 instances you tried to launder $4.1 million worth of money; is that right?

Mr. GOMEZ. Yes, sir.

Mr. DORGAN. In 95 percent of the cases, the business was willing to take a false name?

Mr. GOMEZ. Yes.

Mr. DORGAN. Twenty-five percent of the businesses were actually helping you suggesting ways to avoid the law, avoid compliance, and avoid reporting.

Mr. GOMEZ. Yes, sir.

Mr. DORGAN. And 96 percent of the businesses were willing to take cash without reporting.

So, 95 percent willing to take false names, and 96 percent willing to take cash without reporting, that is a pretty depressing report. It suggests that what a number of us have talked about for a long while in the tax gap. The report that we have done that shows what is falling through the cracks that it may be even more serious than most of us understand.

The practice may be more widespread.

I recall a couple of years ago the President, sort of laughing at this suggestion of stronger IRS enforcement, said what we are trying to do is put an auditor in every kitchen.

That is not the issue. The issue is shutting down the fraud and asking those who are making money to pay taxes on the money they make.

I think you have done some sterling work for this subcommittee and I think for the IRS as well. The Treasury must develop public policy that begins to shut this sort of thing down.

Mr. Anthony held up the books that show a rather complete report on the businesses that you dealt with.

I was particularly interested in the real estate transaction Mr. McGrath talked about.

You did not apparently go to the attorney?
Ms. JACKSON. No, we did not.

Mr. DORGAN. You had the attorney's name?

Ms. JACKSON. Yes, we do.

Mr. DORGAN. It is interesting that you have a whole network here of people apparently motivated by greed, willing to take cash under most any circumstances and even willing to send you to the attorneys who will make that happen in seeming violation of the law.

Mr. Chairman, I hope that we can move aggressively on one of the better investigative reports I have seen since I have been on the committee. We need to take the steps that are necessary now to work with the Internal Revenue Service to hopefully get the kinds of resources that are necessary to enforce this area of the law and to send a message to the American business community that this Congress will not tolerate this kind of shameful report. If people don't comply with the law, we must put muscle behind the enforcement mechanism to make sure they do and to pay the penalties for these who are not in compliance.

Chairman PICKLE. Thank you, Mr. Dorgan.

Mr. Gomez and Ms. Jackson, we thank you for your testimony. I am going to now turn to Mr. Thomas Arnold, a member of our staff, accompanied by Pat Heck and Chris Smith, also part of our staff to present testimony to us now on behalf of the staff.

I presume you are going to concentrate somewhat on the Rayful Edmond case in the Washington area.

If you would proceed with your testimony, I hope you might condense it as much as you can so we can talk to the IRS and Treas

ury.

STATEMENT OF THOMAS K. ARNOLD, ASSISTANT COUNSEL, SUBCOMMITTEE ON OVERSIGHT, COMMITTEE ON WAYS AND MEANS, ACCOMPANIED BY PATRICK G. HECK, PROFESSIONAL ASSISTANT; AND CHRISTOPHER SMITH, MINORITY ASSISTANT FOR INVESTIGATIONS

Mr. ARNOLD. Thank you, Mr. Chairman.

I would like to talk about three transactions in the Rayful Edmond case and the documentation relating to those transactions is attached to the back of my statement.

I will just refer to the attachments and describe them in brief detail.

First, I want to point out that these 3 were selected from 25 that we looked at.

Sixteen were a part of the trial record in the Rayful Edmond case here in Washington this spring.

We obtained documentation from the trial transcript. We talked to the merchants involved in the Washington area in those 16 transactions and identified an additional 9 transactions for a total of 25.

We selected three of those to discuss in the statement and attached documentation relating to them.

No form 8300s, according to the merchants themselves, were filed in any of the 25 transactions that we looked at.

In looking at the 25, we only identified 4 that would have required a form 8300 to be filed.