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sufficient to promote compliance. Perhaps some of the merchants did not understand the law. Maybe there are flaws in the statute which allow businesses to easily circumvent the requirements. Possibly the business community needs to be forcefully reminded that their country needs their help to fight money laundering and tax evasion.
Everyone has a role in supporting our tax system. The time has certainly come for the business community to do their share. Today, we hope this message is heard "loud and clear".
I will recognize Mr. Schulze. I appreciate the witnesses appearing today. We all recognize this is a national religious holiday for Jewish individuals and some could not testify today. We have asked them to submit statements and appear for us at other hearings, we appreciate your cooperation very much.
Mr. Schulze, do you have an opening statement?
Money laundering enforcement is an area that I have been involved with for quite some time. In fact in the past four Congresses, I have sponsored legislation to replace existing $100 bills with newly issued notes. This would put a quick brake on the $100 billion moving through the underground economy annually, including the tremendous amounts of cash generated by the illegal drug trade. Mr. Rangel and I recently supported a Bank Secrecy Act amendment requiring Treasury, for the first time, to conduct a serious feasibility study of this idea, and I plan to ask Treasury about their effort later on this morning.
But today, Mr. Chairman, we are focusing on another, and I am sorry to say, neglected, link in the money laundering story. I am talking about the large cash transactions, involving trades or businesses right in our own backyard, who sell the luxury cars, private airplanes, and real estate that are the trappings of the drug trade. In fact, we could have titled today's hearing "The Lifestyles of the Rich and In-famous". This activity shows the virtually unlimited shopping spree of those who have reaped the ill-gotten gains of the drug trade and other illicit enterprises.
Mr. Chairman, we all know the old adage, "if you are not part of the solution, you are part of the problem." Unfortunately, that seems to be the story of IRS' enforcement of cash reporting requirement in section 60501 of the Internal Revenue Code, the so-called form 8300 program. Persons engaged in a trade or business who receive more than $10,000 in cash are supposed to report this to IRS. When Congress passed 60501 back in 1984, we intended it to be an important tool for tracking unreported income-the kind of income often derived from the drug trade.
However, our investigation found an almost total breakdown in the 8300 program. We will hear from the subcommittee's undercover investigators not only how easy it is to avoid the 8300 requirement, but also just how willing some businesses are, across the board, to act like the old "no-tell motels" for those who want to hide their cash from IRS' scrutiny. We will also hear about how businesses right here in the Nation's Capital knowingly profited from the lavish, "cash-rich" lifestyle of midlevel drug lords.
Now I am the first one on this committee to oppose placing unnecessary burdens on the legitimate businessman, especially small
businesses. But, if we are ever going to put a stop to the drug and crime scourge ravaging this country, everyone, including the business community, has to do their part.
The bottom line, though, Mr. Chairman, is that the IRS has just "dropped the ball" on the 8300 program. They are the sole agency entrusted with getting out the word to people that we mean business when it comes to combatting money laundering.
Yet, their enforcement efforts have been weak at best. For example, our investigators found confusion and misunderstanding running rampant. Only one of the establishments in the D.C. area visited by our staff fully understood the requirement, while many other thought this was a problem that only the banks had to deal with.
Clearly, we in the Congress need to do our part to fix this situation and reexamine the 60501 statute. I know for a fact that there are loopholes in 60501 big enough to literally drive a brandnew Mercedes Benz through. So, Mr. Chairman, I look forward to working with you on ways to tighten up the 60501 statute, and to ensure that what we ask of the business community is reasonable, enforceable, and effective. I also look forward to hearing from today's witnesses from Treasury and IRS about their plans for putting this program back on track.
Chairman PICKLE. Do any other members care to make a statement?
Mr. RANGEL. Mr. Chairman, let me take this opportunity to congratulate you for the fearless leadership you are providing in this and other violations of the criminal law.
To go after criminals whether they are in churches, in banks or other types of businesses, is not popular. It certainly is not political. We get very little help from the IRS because these are areas that they find it very difficult to tread.
I want to congratulate the agents for coming up with an accurate report of what Dick Schulze and I have known has taken place in everybody's congressional district. It is easy enough to see the DEA agents and police kicking on people's doors and landing in jail. We think that is a part of the war.
But those people behind the counter, in the banks, in the businesses are just as much violators and criminals in the war as the hoodlums on the street. So I want to congratulate you because you have been consistent. I want you to know the members stand with you in the type of investigations and leadership you have provided this committee.
Thank you, very much.
Chairman PICKLE. I thank you, Mr. Rangel.
We appreciate your remarks. We appreciate the leadership_you are giving to the Nation and this committee in the Narcotics Committee as a whole. You are giving great leadership and we appreciate it.
Mr. McGRATH. Thank you, Mr. Chairman.
Mr. Chairman, I, too, appreciate your interest and leadership to achieve greater compliance with the section 60501 of the IRS Code. One of the great frustrations we share at many levels of Govern
ment is the apparent inability to deal with organized criminal activity, particularly with the illegal drug trade.
Any law enforcement directed at detecting high levels of cash transactions depends on the Government's ability to reduce or eliminate economic incentives that attract participants in drug trade or other illicit enterprises. I am appalled by the lack of compliance with fairly simple reporting requirements concerning large cash transactions. Every business person who evades the law in this area is contributing to our Nation's most serious domestic problems.
In a democratic society such as ours, the thought of Government agents constantly spying on private enterprise is compulsive. Voluntary compliance is the cornerstone of our tax system. But unbridled greed seems to have overtaken feelings of responsible citizenship in many cases.
I hope that our efforts today can lead to an improved enforcement and to a greater awareness among the business community of their legal obligations.
Thank you, Mr. Chairman.
Chairman PICKLE. Mr. Shaw.
Mr. SHAW. Mr. Chairman, I have a prepared statement that I ask unanimous consent to be inserted in the record. I will sunmarize it. I think of all the opening statements of the remarks that were most telling was stated by our friend, Charlie Rangel, when he said that people who avoid this law or evade this law are just as much a part of the problem as the drug dealers themselves.
The Congress passed the statute which we are having this hearing on this morning in order to make it more and more difficult for the drug dealers to dispose of their cash by cash transactions and require them to expose a paper trail to make it more and more difficult for them to profit from their ill-gotten gains.
It is absolutely shocking to me. This testimony this morning I understand will bring this out, that the very large percentage, the very large majority of American business people who are willing to not only flaunt this law, willfully violate this law, or coach those with the large amounts of cash as to how they can avoid this law. To me this is absolutely unconscionable. Mr. Chairman, I congratulate you for having this hearing. I think we do have a big problem with this law. We will have to address what our definition of currency is. However, I think we have an even greater problem with people out there obeying this law.
Their motives, as Mr. McGrath just stated, are nothing but greed. People who otherwise do not steal, people who file income taxes properly, but when it comes to turning down the sale of a $100,000 boat, or $150,000 worth of rugs and all types of transactions, they are not willing to pass up the sale.
I think law enforcement in this area is everybody's obligation. Mr. Chairman, I look forward to the hearing this morning. I know that the Congress is out today for the Jewish holiday but because of the importance of this particular matter and because of the difficulty in scheduling things during the closing days of Congress, I congratulate you and the Members who are here today for having this hearing this morning.
[The prepared statement follows:]
OPENING STATEMENT OF HON. E. CLAY SHAW, JR.
Mr. Chairman, I thank the subcommittee for bringing this extensive problem to our attention. As this investigation has shown, the extent to which the cash transaction reporting requirement has been ignored by these businesses is deeply disturbing. Despite the fact that nearly all the businesses clearly understood the nature and intent of the money laundering statute, most were perfectly willing to accept cash payments in excess of $10,000 on the condition that the transaction not be reported to the I.R.S. In addition, some of the businesses actually suggested ways for purchasers to skirt the reporting requirements, by, for example, using multiple cashiers checks as payment.
As a result of this investigation, several conclusions deserve mention. First, these violations are widespread. The oversight investigation found businesses in cities nationwide that were willing to break the law. Clearly, wherever there is ill-gotten and unreported wealth, especially from the drug trade, there will be individuals willing to flout reporting requirements for cash transactions.
Second, the businesses found to disregard this law are not limited to those normally associated with the drug trade. The willingness of antique and rug dealers to accept large cash payments without reporting them indicates that this underground economy may not be financed exclusively with drug dollars.
And there, the Rayful Edmond case suggests that drug dollars can be readily laundered to purchase real estate, autos, and jewelry. It is clear that in order to fully prosecute the war on drugs, we must keep dealers from enjoying the spoils of the drug trade. By closing ranks on those who allow drug dealers to launder their profits, we can cut off incentives for the drug trade. This is imperative, and I am eager to address the conditions behind this problem.
Mr. Chairman, when the widespread violation of the bank currency transaction reporting requirement was made public, the number of bank reports filed skyrocketed. I hope that, as a result of this hearing and follow-up action, we can spur a similar reaction from businesses. By targeting money laundering, we can and must stop drug dealers from enjoying the profits of their destructive trade.
Chairman PICKLE. Thank you.
Mr. Anthony, do you have a statement?
Mr. ANTHONY. Mr. Chairman, I look forward not only to our own witnesses who went out and gathered the information for us but I must say I am more anxious to hear representatives of the business community to come in and try to explain why 95 percent of their colleagues are willing to circumvent a very simple, straightforward law that asks them to put a certain amount of information such as a name and address, no more information that would be required if you try to cash a check downtown or if you make a purchase with Visa or Mastercard.
It is obvious from a preliminary review of this information these are greedy business people who felt if they did not take the cash somebody down the street would. They were willing to bypass the law to make some profit. That business person needs to know that if they do violate the law, they become a coconspirator in every single crime that is made behind those particular transactions. I am asking the business community to come forward with some explanations on what they plan to do in their own community to see to it that this egregious situation is corrected.
Chairman PICKLE. Thank you.
Now the committee will hear testimony from the two investigators who served as representatives of our committee and went to nine different cities, Barney Gomez, and Leigh Jackson loaned to us from the GAO. Mr. Gomez, we will hear the testimony you wish to present.
STATEMENT OF BARNEY GOMEZ, ACCOMPANIED BY LEIGH JACKSON, SPECIAL AGENTS ASSIGNED TO THE SUBCOMMITTEE ON OVERSIGHT, COMMITTEE ON WAYS AND MEANS, FROM THE OFFICE OF SPECIAL INVESTIGATIONS, U.S. GENERAL ACCOUNTING OFFICE
Mr. GOMEZ. Good morning Mr. Chairman and members of the subcommittee. We are pleased to be here today to discuss the results of our investigation of business establishments' compliance with Internal Revenue Code section 60501 relating to money laundering. My name is Barney Gomez, and with me today is my partner, Leigh Jackson, who assisted with the investigation. We are on assignment to the subcommittee from the Office of Special Investigations, U.S. General Accounting Office.
We conducted our investigation from July 31, 1990, through September 7, 1990. During that period we visited nine cities throughout the Nation-Atlanta, Ga; Boston, Mass.; Denver, Colo.; Detroit, Mich.; Indianapolis, Ind.; Minneapolis/St. Paul, Minn.; New York City, N.Y.; San Antonio, Tex.; and Washington, D.C. At each location we focused our investigation on five types of business establishments: automobile dealers, jewelers, antique dealers, oriental rug dealers, and real estate firms. During the course of our investigation we discussed purchasing 82 different items, each for more than $10,000. In total, we negotiated the cash purchase of items valued at over $4.2 million with owners, managers, and/or sales representatives of 79 business establishments.
We conducted our undercover operation in the following manner. At each business location we visited, we expressed to the business owner, manager, and/or sales representative an interest in purchasing item(s) valued over $10,000. We engaged in conversations with these individuals to determine whether they were, one, knowledgeable about the IRS reporting requirement; two, willing to accept a cash transaction of more than $10,000 without reporting it; three, willing to record the purchase in the name of a third person, or company; and four, willing to voluntarily suggest ways to avoid the IRS reporting requirements.
The overall results of our investigation were quite astonishing and indicated to us a blatant and knowing disregard for the filing requirements under 60501. Representatives from 76 businesses of the 79 businesses we visited expressed both a willingness to accept cash in excess of $10,000 for the sale of an item and not report it to the IRS, and to register the sale under a false name, a company name, or as a "cash sale". Only three businesses declined.
Representatives of 23 of the 76 businesses communicated a knowledge of, or provided sufficient information to suggest a knowledge of the Internal Revenue Code reporting requirements. Representatives of 21 of these 23 businesses voluntarily suggested ways to circumvent the requirements, or at least what they perceived to be the requirements, such as using two or more cashier's checks in amounts under $10,000, making partial payments with cash and cashier's checks, splitting purchases into amounts under $10,000, extending cash payments over a period of days, and using two or more individuals to handle the cash transaction.