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USE OF CASINOS TO LAUNDER PROCEEDS OF DRUG TRAFFICKING AND ORGANIZED CRIME

FRIDAY, FEBRUARY 10, 1984

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON CRIME,
COMMITTEE ON THE JUDICIARY, ,

Washington, DC. The subcommittee met, pursuant to call, at 10 a.m., in the hearing room of the New Jersey Casino Control Commission, 1325 Boardwalk, Atlantic City, NJ, Hon. William J. Hughes, presiding.

Present: Representatives Hughes and Sensenbrenner.

Staff present: Hayden Gregory, counsel; Eric E. Sterling, assistant counsel; Theresa Bourgeois, professional staff; and Charlene Vanlier, associate counsel.

Mr. HUGHES. The Subcommittee on Crime will come to order. The Chair has received a request to cover this hearing in whole or in part by television broadcast, radio broadcast, still photography or by other similar methods.

In accordance with committee rule 5(a), permission will be granted unless there is objection. Is there objection? [No response.]

Hearing no objection, permission is granted.

The Subcommittee on Crime this morning is examining a situation that is of great importance, not only to the people of New Jersey, but, in my judgment, the country: the alleged use of our casinos by elements of organized crime and drug traffickers to launder the profits of their crime.

To understand what this hearing is about, it's important to realize a crucial fact about drug trafficking and organized crime. The enormous volume of money generated by these criminal enterprises cannot simply be pocketed by the criminals; the money comes in so fast that it just can't be spent fast enough for them.

Spending large sums of cash by persons such as drug traffickers, who are without any visible means of support, often generates suspicion. The goal of every major criminal is to create an ostensibly legitimate source for the wealth they are acquiring and spending, and to invest the proceeds in legitimate as well as illegitimate enterprises.

This is the essential objective of money laundering, and its importance has been recognized by organized crime experts for literally decades.

The fundamental premise of our hearing can be stated as follows: The key to fighting major criminal figures is by a sustained and comprehensive economic attack upon their resources.

When we cripple their ability to move their money around, when we identify where and how they hide their money, then we can drive them into the open, dry up their profits, force them out of business, and into prison.

It's important to recognize that this hearing has not been called to look into wrongdoing by the casinos; on the contrary, we have received no accusations concerning the casinos or their management, for that matter.

In the area of money laundering, the casinos are simply a means of communication, used in the commission of crimes by other people, in somewhat the same way as the telephone company is often used by obscene phone callers.

Congress opened the attack on the problem of money laundering in 1970. When we passed the Bank Secrecy Act, and the Currency and Foreign Transaction Reporting Act, we started to lift the veil of the shipment of money by criminals. The regulations issued under that act require that persons making cash transactions of more than $10,000 must be identified and reported to the Treasury Department, if it takes place at a bank, with a securities broker or dealer, at a money exchange or at a company authorized to transmit money

By using these reports and by investigating those who are in the business of laundering money, the Federal and State authorities have been able to make some of the most significant arrests of high level drug traffickers and organized crime figures.

The regulations of the Treasury Department do not place upon the casinos responsibility for reporting transactions of more than $10,000. Over the last year, however, the Treasury Department has been studying this exemption, and discussing ways to deal with it.

On October 13, 1983, John M. Walker, Jr., the Assistant Secretary of the Treasury for Enforcement and Operations, wrote to New Jersey Gov. Thomas H. Kean, enlisting his support for a Treasury proposal to designate casinos as financial institutions under the Bank Secrecy Act.

Assistant Secretary Walker described the proposal for filing reports and keeping records in ways that would be similar to those currently imposed on banks and other financial institutions. He said, and I quote:

It is my belief that the regulation which the Treasury Department proposes to issue is a positive law enforcement step, which will assist law enforcement efforts against organized crime and major drug traffickers.

Governor Kean replied on November 28, that, and I quote: My administration supports the Treasury Department's proposal to designate casinos as financial institutions under the Bank Secrecy Act. I am in full accord with efforts that assist the Treasury Department and law enforcement agencies in minimizing illegal activities, particularly on the part of organized crime in the New Jersey casinos.

This subcommittee has played a key role in developing new tools to carry out our national strategy to fight drug traffickers. In 1981, for instance, this Crime Subcommittee held the hearings and processed the legislation that enabled the military to legally assist civilian law enforcement authorities.

The subcommittee passed legislation to provide for Federal assistance for State and local crime fighting programs that have been proven effective, and passed the legislation to strengthen our forfeiture laws, and substantially raised the penalties that can be imposed on drug traffickers that will wipe out their ill-gotten gains.

Today, we want to see if the casino regulations can be added to that particular strategy. This hearing is designed to look into the problem of money laundering through casinos, and how best it can be solved.

We want to know what impact the availability of the casinos to organized crime figures and/or traffickers for use to launder their cash has on New Jersey and this country.

We want to know what the Treasury Department, after their year of study, is going to propose that will close the money laundering loophole that the reporting exemptions for casinos has created.

We want to know what the effect upon the casino industry might be if the reporting requirements are implemented. And, just as importantly, I think it's going to be extremely significant to determine just what is the extent, the nature and extent of money laundering in casinos.

I want to thank the Casino Control Commission for generously allowing us to use their hearing room, and look forward to hearing the testimony of what I think is a most distinguished series of panels of witnesses and individual witnesses here this morning.

Let me just, before I recognize Congressman Sensenbrenner of Wisconsin, say that we were to have been joined this morning by Congressman Larry Smith. We do have a Florida witness from the banking industry, and Larry wanted to be here, in particular, to hear his testimony as well as the other testimony, but his wife was just taken to the hospital, and he had to cancel his trip in this morning. So, he extends his apology to the witnesses this morning.

I also want to express my deep regret that the casino industry declined to come into testify. I regret that. I think we want to hear the industry's legitimate concerns. I had hoped that they would testify here this morning. I think it's important for them to cooperate.

I think, and everybody agrees, particularly the law enforcement community, that without their complete cooperation and support, we won't really begin to address the problem.

I'm going to hold the hearing record open, and hope-and just hope that the industry will submit for the record such comments that they want to make relative to this inquiry dealing with money laundering.

At that, I'm going to recognize Congressman Sensenbrenner of Wisconsin. [Statement of Mr. Hughes follows:]

STATEMENT OF CONGRESSMAN WILLIAM J. HUGHES The Subcommittee on Crime this morning is examining a situation that is of great importance not only to the people of New Jersey, but this country. Use of our casinos by elements or organized crime and drug traffickers to launder the profits of their crimes.

To understand what this hearing is about, it is important to realize a crucial fact about drug trafficking and organized crime. The enormous volume of money generated by these criminal enterprises cannot simply be pocketed by the criminals. The money seems to come in faster than it can be spent. Spending large sums of cash by persons such as drug traffickers, who are without any visible means of support, often generates suspicion.

The goal of every major criminal is to create an ostensibly legitimate source for the wealth they are acquiring and spending, and to invest the proceeds in legitimate as well as illegitimate enterprises. This is the essential objective of money laundering and its importance has been recognized by organized crime experts for decades.

The fundamental premise of our hearing can be stated as follows: The key to fighting major criminal figures is by a sustained and comprehensive economic attack upon their resources. When we cripple their ability to move their money around, when we identify where and how they hide their money, then we can drive them into the open, dry up their profits, force them out of business and right into prison.

It is important to recognize that this hearing has not been called to look into any wrongdoing by the casinos. We have not received any accusations concerning the casinos or their management in this regard. In the area of money laundering, the casinos are simply a means of communication used in the commission of crimes by other people, in somewhat the same way as the telephone company is used by an obscene phone caller.

Congress opened the attack on the problem of money laundering in 1970. When we passed the Bank Secrecy Act, we started to lift the veil on the shipment of money by criminals. The regulations issued under that act require that persons making cash transactions of more than $10,000 must be identified and reported to the Treasury Department if it takes place at a bank, with a securities broker or dealer, at a money exchange or at a company authorized to transmit money. By using these reports and by investigating those who are in the business of laundering money, the Federal authorities have been able to make some of the most significant arrests of high level drug traffickers and organized crime figures.

The regulations of the Treasury Department do not place upon casinos the responsibility of reporting these transactions of more than $10,000. Over the last year, however, the Treasury Department has been studying this exemption, and discussing ways to end it.

On October 13, 1983, John M. Walker, Jr., the Assistant Secretary of the Treasury for Enforcement and Operations wrote to New Jersey Governor Thomas H. Kean enlisting his support for a Treasury proposal to designate casinos as financial institutions under the Bank Secrecy Act. Assistant Secretary Walker described the proposal for filing reports and keeping records in ways that would be similar to those currently imposed on banks and other financial institutions. He said, “it is my belief that the regulation which the Treasury Department proposes to issue is a positive law enforcement step which will assist law enforcement efforts against organized crime and major drug traffickers.” Governor Kean replied on November 28, that “My administration supports the Treasury Department's proposal to designate casinos as financial institutions under the Bank Secrecy Act. I am in full accord with efforts that assist the Treasury Department and law enforcement agencies in minimizing illegal activities, particularly on the part of organized crime, in New Jersey casinos.”

This subcommittee has played the key role in developing new tools to carry out our national strategy to fight drug traffickers. In 1981 the Crime Subcommittee held the hearings and processed the legislation that enabled the military to legally assist civilian law enforcement authorities. The subcommittee passed legislation to provide for Federal assistance for State and local crime fighting programs that have been proven to be effective, and passed the legislation to strengthen our forfeiture laws and substantially raise the penalties that can be imposed on drug traffickers that will wipe out their assets. Today, we want to see if the casino regulations should be added to that strategy.

This hearing is designed to look into the problem of money laundering through casinos, and how best it can be solved. We want to know what the impact is on New Jersey and the Nation of the availability of the casinos for organized crime figures and/or traffickers to use to launder their cash. We want to know what the Treasury Department, after a year of study, is going to propose that will close the money laundering loophole that the reporting exemption for casinos has created. We want to know what the effect upon the casino industry might be if the reporting requirements are implemented.

I would like to thank the casino control commission for generously allowing us to use their hearing room and look forward to hearing the testimony from a most distinguished group of witnesses.

TESTIMONY OF HON. F. JAMES SENSENBRENNER, JR., A REPRE

SENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN

Mr. SENSENBRENNER. Thank you very much, Mr. Chairman, and I want to thank you for bringing the subcommittee to Atlantic City. This is my first trip to Atlantic City. I wish it would have been in a month other than February, but I guess a trip to Atlantic City at any time of the year is a real pleasure, and I'm glad to be able to be here.

The subject of this hearing is an important one, and for this boy from the rural part of Wisconsin, it's somewhat of a strange subject. I come from a State where no gambling is permitted, except allowing churches to conduct bingo games, which was a rather controversial issue that went to a public referendum about 10 years ago in our State. The problems that exist in any State that has casino gambling are something that we are not very familiar with in the State of Wisconsin.

Today, the Subcommittee on Crime is investigating money laundering. One sure way to reduce drug trafficking is to decrease the profits of the traffickers.

The subcommittee has attempted to do this by amending the posse comitatus statute, thereby allowing the military to participate in seizing the drugs as they enter our borders.

The subcommittee is also processing legislation to improve the Government's ability to seize assets used in drug trafficking or purchased with illegal drug profits, as a way of making this type of activity far less profitable for those involved in it.

Money laundering is an attempt to hide ill-gotten gains, such as the profits of drug traffickers and the like. Unfortunately, traffickers and others find casinos an easy way to hide or clean their dirty money.

Today, the subcommittee will study the potential benefits of applying banking reporting requirements to casino transactions. I realize the important impact such a change would have on the casino business, but I am also aware of the serious law enforcement gap which presently exists.

The issue requires thoughtful study by the subcommittee and I commend the chairman for holding this hearing today. [Complete statement of Mr. Sensenbrenner follows:]

OPENING STATEMENT OF THE HONORABLE F. JAMES SENSENBRENNER, JR. Mr. Chairman: I want to thank you for welcoming the Subcommittee to Atlantic City, New Jersey. Your District is a beautiful one, even in the month of February.

Our Subcommittee on crime study today involves money laundering. One sure way to reduce drug trafficking is to decrease the profits of the traffickers. The Subcommittee on Crime has attempted to do this by amending the posse comitatus status, thereby allowing the military to participate in seizing the drugs as they enter our borders. The Subcommittee is also processing legislation to improve the government's ability to seize assets used in drug trafficking or purchased with illegal drug profits.

Money laundering is an attempt to hide ill-gotten gains, such as the profits of drug traffickers. Unfortunately, the traffickers and others find casinos an easy way to hide or clean their dirty money. Today, the Subcommittee will study the potential benefits of applying banking reporting requirements to casino transactions. I realize

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