The Honorable Fernand J. St Germain During the review of an exemption list, we look for entities that are clearly outside of the regulatory definitions, such as automobile, boat, and aircraft dealers. We review for incomplete data required by the regulations, such as tax identification and account numbers. We ensure that personal accounts are not listed for exemption. We evaluate the dollar limitations for reasonableness. We contact the banks, where warranted, for information to complete the determination. Where warranted, we will request a recent 2-month summary of deposit and withdrawal activity, and the amount of activity in $100 bills. A determination is then made to either accept, remove, or modify an exemption. Sometimes, we will have to direct the banks to remove a customer (s) from the exemption list and file CTRS for both prior and future transactions. Examples of modification might include a reduction of the dollar limitations, or qualifying the exemption to accommodate weekend deposits or seasonal fluctuations. At present, civil penalties are under the jurisdiction of the Department of Treasury. Where the evidence demonstrates that the bank, and/or its unqualified customer, knowingly, used the exemption list for the purpose of circumventing the financial reporting requirements, IRS Criminal Investigation can recommend prosecution of the financial institution under 31 U.S.C. 5322 for failing to file a CTR and/or of the customer (under 18 U.S.C. 2(b) in conjunction with 31 U.S.C. 5322 or 18 U.S.C. 1001) for causing the institution to fail to file a CTR. However, not all judicial circuits agree that the customer is subject to prosecution. See United States v. Dela Espriella, 781 F. 2nd 1432 (9th Cir. 1986). At the present time, the reporting requirement and Title 31 penalties are directed at the bank. We do not have direct Title 31 civil sanctions to impose on customers who are improperly on the exemption list. Question 3. Should the term "monetary instruments" in the Bank Secrecy Act and its regulations be amended to include "postal money orders" in order to include them under the requirements of the Act and its regulations. Response: We understand that Treasury will be responding directly to you on this question. The Honorable Fernand J. St Germain Question 4. Has any thought been given to the use of the civil money penalty provisions of the Financial Institution Regulatory and Interest Rate Control Act, with appropriate amendments, in connection with violations of the Bank Secrecy Act by financial institutions and their employees? Present delays caused by extended negotiations and record review to determine "willfulness" possibly could be minimized. Response: We understand that Treasury will be responding directly to you on this question. Question 5. In your testimony, you explained what financial institutions were under the Internal Revenue Service's (Examination) jurisdiction for Bank Secrecy Act purposes. You included in your list, "Licensed entities that send or transmit funds abroad for others". Please describe these "licensed entities", including examples and an explanation of who licenses these entities. Response: By "licensed" we mean that the entity is licensed by a state or federal regulatory agency, such as a State Banking Commission. Although Customs has the compliance jurisdiction for funds being sent or transmitted abroad, IRS also shares in this responsibility. For instance, if a foreign currency exchange dealer sends funds outside the U.S. via an air courier service, the IRS is responsible for ensuring compliance by the dealer relative to the filing of Forms 4789 (CTR) and 4790 (CMIR). In general, a foreign currency exchange dealer is licensed by a State Banking Commission or other state regulatory agency. It should be noted that the term "Licensed entities ... " is from 31 CFR 103.11(e) (5). ... I hope this information is of assistance to your review of the Service's role in connection with the Bank Secrecy Act. Sincerely yours, Frederic P. Williams TAX EVASION, DRUG TRAFFICKING, AND MONEY LAUNDERING AS THEY INVOLVE FINANCIAL INSTITUTIONS WEDNESDAY, APRIL 23, 1986 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FINANCIAL INSTITUTIONS COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS, Washington, DC. The subcommittee met, pursuant to call, at 10 a.m., in room 2128, Rayburn House Office Building, Hon. Fernand J. St Germain (chairman of the subcommittee) presiding. Present: Chairman St Germain; Representatives Annunzio, Barnard, Kaptur, Wylie, McKinney, McCollum, and Wortley. Also present: Representative Torres of the full committee. Chairman ST GERMAIN. The subcommittee will come to order. Today, the subcommittee continues its hearings on the abuse of financial institutions by tax evaders, drug traffickers, and money launderers to facilitate their illegal activities. Last week, the subcommittee heard from, among others, a former money launderer, or "smurf," now a witness for the Federal Government, who told us how easy it was to deceive banks into believing that reporting requirements under the Bank Secrecy Act were not applicable. This witness laundered as much as $100,000 per day without any questions asked, apparently with no suspicions aroused, and arguably, although there are differing opinions among the circuit courts, without breaking the law. I am sure that my colleagues on this subcommittee agree with me that this preposterous activity must be put to an end promptly, and that Congress should provide to the courts a clear statement of intent that will assist law enforcement in this regard. We have been told that while the Bank Secrecy Act has been an effective tool in exposing criminals who use this Nation's financial institutions to facilitate their crimes, this tool, in itself, is not enough. It is argued that a statute creating a crime for money laundering must be enacted. The subcommittee will examine this contention and will consider other proposals within our jurisdiction that would conceivably strengthen the current provisions of the Bank Secrecy Act. Our first witness is Stephen S. Trott, Assistant Attorney General, Criminal Division, Department of Justice, who will give us the (785) benefit of the Department's views on the various money-laundering bills, including the administration's, which have been referred to the Banking Committee. The Chair would note that the subcommittee heard last week from Assistant Secretary Keating of the Treasury Department, who also appeared as a spokesman for the administration's views. Our second witness is Alwin C. Coward, Acting Deputy Assistant Administrator for Intelligence, Drug Enforcement Administration, Department of Justice. This is DEA's first appearance before the subcommittee. Not only will we receive a briefing of that agency's functions, but, most importantly, we will be advised as to how it coordinates its drug enforcement activities with other appropriate agencies of the Federal Government. We are also looking forward to hearing how the DEA uses the financial intelligence and other data available to it to carry out its mission. Mr. Trott and Mr. Coward, welcome to the subcommittee. Prior to your beginning, I will call upon our distinguished ranking minority member, Mr. Wylie, for a brief statement. Mr. WYLIE. I want to also welcome our witnesses here this morning, and I know that they will give us valuable testimony. In testimony last week before this subcommittee, and confirmed by Assistant Attorney General Trott, in his testimony today, we learned that the drug trade generates an estimated $80 to $90 billion a year. This astounding amount of unreported income is then laundered through financial institutions and other entities into legitimatelooking funds. While the financial institution regulators and the IRS are beefing up their training enforcement and investigations in the area of money laundering and unreported earnings, we need to keep in mind the major source of these funds, and that is drug sales. We can do everything within our power to crack down on money laundering. Yet, it won't decrease the availability of illegal drugs, unless there is cooperation between regulatory agencies, the Internal Revenue Service, and law enforcement officials. Money laundering goes far beyond the failure to meet reporting requirements. Money laundering in itself masks other crimes. This $90 billion figure representing the amount of money moving through our economy attributed directly to drug trafficking is staggering. Money laundering is easy. Stopping it is hard. We have to use all reasonable means at our disposal to help stop this, and I am sure today's witnesses from the Justice Department will enlighten us further on this issue, and I do look forward to your testimony. Thank you, Mr. Chairman. Chairman ST GERMAIN. Mr. Trott and Mr. Coward, we will put your entire statements in the record. You may now proceed. |