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the important impact such a change would have on the casino business, but I am also aware of the serious law enforcement gap which now exists. This issue requires the thoughtful study by the Subcommittee and I commend the Chairman for holding this hearing today.
Mr. HUGHES. Thank you very much. I'd like, at this time, to recognize my good friend and distinguished colleague from the New Jersey State Legislature, the Honorable William Gormley, the senator from the second district of Atlantic County, a very important part of the Second Congressional District, I might say.
Bill has served in the State Senate since 1982, and is a member of the Judiciary Committee. From 1977 until 1982, he served in the New Jersey General Assembly on the Judiciary Committee on the special subcommittee studying the impact of casino gaming.
For the 2 years before that, he was an Atlantic County freeholder. Bill is a graduate of Notre Dame University and Villanova Law School.
Bill, we welcome you to the committee this morning, and we appreciate your hospitality and recognize you for such remarks as you might want to make. TESTIMONY OF HON. WILLIAM GORMLEY, SENATOR, DISTRICT 2,
ATLANTIC COUNTY, ABSECON, NJ Mr. GORMLEY. Well, my remarks are going to be quite general. I'm glad to be here, and I'm very happy to have been able to work with you, Congressman Hughes, in helping to set up the hearing today.
And I'm here generally to give a welcome. I think there are a couple of observations I would like to make.
We have a heavy burden representing this particular district. On occasion, public perception of the quality of people and what we're about in this district, both the congressional and legislative districts, is not perceived in the proper light.
I welcome a hearing of this nature. I welcome the fact that not only on this piece of legislation, but on legislation dealing with an exemption to the National Labor Relations Act, Congressman Hughes has been in the forefront.
It's not enough for legislators from this district or representatives from this State merely to say we are against organized crime. We have to be in the forefront because when you deal with issues of this nature, being passive is not the way to handle it, especially when you are the district most affected.
So, I welcome the hearing, I welcome whatever hearings or review might come in the future. It is unfortunate that the industry is not here today. I feel that I could make one observation.
If, in fact, this type of legislation, and obviously we all see a need for it, is deemed appropriate as in dealing with matters of cash, I think from the industry's perspective and the region's perspective, we have to look at general legislation in the future dealing with cash. We have found, in general, that cash transactions are one sensitive element in regulating casino gaming when that particular area is singled out.
So, if, in fact, this be a good piece of legislation, and I think it is a good piece of legislation, I think you also have to look to the problems in general with cash, whether it be to car agencies or
other agencies throughout the country, and not single out this industry because we are sensitive to it, because it does single out this region and singles out only one other region in the country.
want to thank the Congressman for bringing the hearing today. The area welcomes it. We have what obviously we consider to be the finest group of citizens, as fine a group of citizens as there are in the country, and we want our area, shall we say, to be the focal point of this type of review because we welcome it. We don't shy away from it. We want to make sure that the world knows that the people of this district want this type of control. Atlantic City is saying to the world, "this element is not welcome," and, unfortunately, with casino gaming, even though you might not welcome that element, you're going to be accused of passively welcoming it.
That's why Congressman Hughes has been so active, and the attorney general and the Governor of this State have likewise been vigilant, and this hearing and any other actions of this nature are more than welcome and appreciated by the people of this district, the district most affected by casino gaming.
Thank you very much.
Mr. HUGHES. Thank you, Bill, for that very fine statement. I think you said two things which I could not agree with you more
No. 1, that we do have a great many fine people involved in this business. No. 2, that New Jersey wants to deal with its problem, and the purpose of the hearing is to try to determine, first of all, if there is a problem; second of all, the magnitude of the problem, so that we and New Jersey can deal with the problem.
And I think that's what you said, and I couldn't agree with you more on that score.
So, again, thank you. I appreciate your assistance in setting up this hearing today. You've been of invaluable help to us. Thank you. Mr. GORMLEY. Thank you very much, Congressman.
Mr. HUGHES. I'd like to welcome to the subcommittee, Hon. Irwin I. Kimmelman, the attorney general of the State of New Jersey.
General Kimmelman was appointed by Gov. Thomas Kean on January 19, 1982, and was confirmed by the New Jersey Senate on the same day.
General Kimmelman has had a most distinguished career over the years. A graduate of Rutgers School of Business Administration and the Harvard Law School, where he was awarded the Roscoe Pound prize, he served as prosecutor, and as an assistant U.S. attorney for the District of New Jersey from 1956 to 1958.
He served as a member of the New Jersey Assembly from Essex County, one of our larger counties, and later as Essex County counsel.
In 1970, he was appointed the chairman of the New Jersey Election Law Review Commission. In 1971, General Kimmelman was appointed judge of the Superior Court of New Jersey, where he served for some 5 years.
In 1976, he returned to private practice of law until his appointment as attorney general.
Accompanying General Kimmelman are his top law enforcement officers and the gaming enforcement director.
Col. Clinton Pagano joined the New Jersey State Police in 1952. In 1962, he was promoted to detective sergeant, assigned as a confi. dential investigative aide to the attorney general.
In 1972, Colonel Pagano was placed in command of the State Narcotics Bureau. In 1973, he was named assistant supervisor of the Criminal Investigative Section. In 1975, Colonel Pagano was nominated as a colonel and superintendent of the New Jersey State Police, the position he's held for almost 9 years.
Lt. Col. Justin Dintino, just to his right, was promoted last week from executive officer to acting deputy superintendent of the New Jersey State Police. Incidentally, congratulations. He has served on the State police for some 32 years, and for the last 15 years has specialized in investigations involving organized crime.
In fact, he has a reputation throughout the country as one of the premier experts on the subject of organized crime.
In 1983, the President saw that and appointed him to serve as a member of the President's Commission on Organized Crime.
For the past 3 years, he's served as General Chairman of the Law Enforcement Intelligence Unit, composed of State and local intelligence officers around the country.
Lieutenant Colonel Dintino has served on the policy board of Mid-Atlantic Great States Organized Crime Law Enforcement Network since it was founded.
Thomas R. O'Brien, to the far side of the witness table, the Director of the Division of Gaming Enforcement, was sworn in as director of that division on January 31, 1983.
He has had extensive experience in the private practice of law for some 14 years, and served as a municipal court judge.
Gentlemen, we welcome you here this morning, and we have your prepared statements, which, without objection, will be made a part of the record in full, and you may proceed as you see fit.
General Kimmelman, welcome this morning.
TESTIMONY OF HON. IRWIN I. KIMMELMAN, ATTORNEY
GENERAL OF NEW JERSEY General KIMMELMAN. Good morning, Congressman Hughes, Congressman Sensenbrenner. We thank you for inviting us here this morning, and soliciting our views on the issue which the Commission has succinctly identified as money laundering in Atlantic City gaming casinos as well as gambling casinos elsewhere.
This is a problem with which the attorney general's office is concerned, since, as I am indicating, New Jersey is one of the two jurisdictions in the country which has legalized casino gaming.
Although, by way of footnote, we observed that several other States are actively considering casino gaming.
In our State, the casinos were allowed for the specific reason of advancing several public purposes, and, therefore, we have a significant stake in preventing their use by criminal elements to further their own illegal ends.
One such abuse is the subject matter presently under consideration by this subcommittee. The process of legitimizing profits gained from an unlawful venture or criminal enterprise is often described as the laundering of money.
Specifically, it is the method whereby unlawfully obtained funds are converted or substituted into new money or other assets, generally through establishments which are not required by law to maintain records or file reports of large currency transactions as would be the case for established financial institutions.
Although money laundering can be accomplished in a number of different ways, the purpose behind this theme is twofold. One, it is a means to evade criminal detection and prosecution for the underlying criminal activity; and, two, it is a means to evade income taxes on the illicit profits derived from either the criminal activity itself or from legitimate sources.
The initial question that I am sure all of you wish to ask is whether money laundering is a problem in the Atlantic City casinos.
The unqualified answer to that question is yes. Second, you will ask, how pervasive is the problem of money laundering in Atlantic City casinos.
That question is more difficult to answer, but the preliminary indications we have are that it is very serious.
It is a problem that must be addressed firmly by the regulatory authorities of New Jersey, the law enforcement community, both on the State and Federal levels, and the casino industry itself.
Let me emphasize today, Congressman, that my comments are not intended to be unduly critical of the casino industry. The casino industry, by its very nature, is a cash intensive industry.
Whenever you are dealing with a cash intensive business, there is a heightened proclivity for the criminal element of society to use that industry as a conduit or as a vehicle to launder their illicit profits.
At the same time, unfortunately, there is a tendency on the part of casino management employees to accept cash inflow from any source and not to ask too many questions.
In line with your observations earlier this morning, Congressman Hughes, let me say this. We are satisfied that, for the most part, the casino management acts in good faith, and is sincere in its efforts to cooperate with the regulatory authorities in our State.
But, we are also keenly aware of the intensive competitive pressure always bearing down on management to maximize their profits.
In an attempt to balance off their good faith obligation against the heavy burden to maximize profits, management of casinos are often put on the horns of a dilemma. And, they become subject, unfortunately, to the frailties of human nature. And, that's when the Government must be alert and must step in to help them.
In order to preserve and to foster the integrity of their business, that is, legalized gaming in New Jersey, all interested parties must take whatever steps are necessary to deter and, hopefully, eliminate any unwelcomed infusion of the criminal element into the casino industry, and certainly the money launderers.
We are engaged in the development of a close working relationship between and amongst the various involved State and Federal law enforcement agencies which are concerned with the Atlantic City scene.
To date, the New Jersey State Police and the division of gaming enforcement, which is the arm of the attorney general's office re sponsible for regulating casinos, have worked very closely with the Federal Bureau of Investigation, with the Internal Revenue Service, with the U.S. Customs Service, all in attacking the problem of money laundering in Atlantic City.
As a result of this cooperative arrangement, and with the assistance of the security and surveillance department of the Atlantic City casinos themselves, a number of significant arrests have recently been effectuated.
In January 1983, these are some examples, Congressman, in January 1983, five suspects in a multimillion-dollar theft of moneys were apprehended and arrested at Atlantic City casinos while attempting to wash serialized $100 bills that had been stolen at the JFK Airport in 1982.
The five suspects, acting separately, were exchanging these $100 bills for chips at the craps table, playing one roll of the dice, and then exchanging the chips back at the cage for clean money, intending to leave the so-called laundered money behind.
In May 1983, through the cooperative efforts of the New Jersey State Police, the division of gaming enforcement, the Federal Bureau of Investigation, and the New Jersey Insurance Commission, a multimillion-dollar insurance fraud scam was detected and broken up. The primary suspect in this fraudulent scheme had utilized six Atlantic City casinos to make various cash deposits totaling $350,000 in the form of fraudulent cashiers checks.
1 The suspect has recently been convicted of perjury, and is currently under Federal arrest for extortion.
In another recent investigation, New Jersey State Police arrested two suspects who had allegedly committed a bank robbery in California. On the same day of the bank robbery, these two suspects flew to Atlantic City and deposited the proceeds of the robbery at an Atlantic City casino in order to wash the marked bills from the robbery.
In a similar although more tragic situation on October 2, 1983, just some months ago, the wife of a successful restauranteur was abducted from her home in northern New Jersey. On October 5, 1983, a $150,000 ransom was paid by the husband of the victim.
The serial numbers of the ransom money were recorded and one of the suspects in the kidnaping attempted to wash the marked bills at several Atlantic City casinos. This led directly to his apprehension and arrest on October 18, 1983, just 2 short weeks after the incident occurred.
Unfortunately, though, the victim, that is the wife, has not been found, and the case is now considered a homicide.
a Also, in October 1983, FBI agents in New York arrested four individuals for an alleged theft by embezzlement of over $5 million from the Prudential Bache securities firm.
All four of the individuals arrested had made large cash deposits at various Atlantic City casinos over the past 1/2 years, totaling in excess of $2.6 million.
Perhaps even more disturbing have been the number of cases involving the laundering of illicit profits from major narcotic trafficking operations.