type of information should be put out by the Secretary of Treasury, just as we publicize other tax matters and other things of that nature changes in the holding rates. Businesses must be notified if the provisions that this Congress adopted last year are going to be effective.

Second, I think there is a need for mandatory training programs in those types of financial institutions, primarily banks and savings and loans, which are most likely to deal with money laundering. I pointed out in my prepared statement that the American Bankers Association has an excellent training program for bank officers, but the testimony of Mario and others that have been heard by this and other subcommittees indicates that this is not getting down to the teller level. I suspect what is happening is branch managers and higher level bank employees are going to these seminars and getting a lot of information, but this information simply is not getting down to the teller level; and that's, gentlemen, where the rubber hits the road on a money-laundering situation. The tellers have to be notified. I think a mandatory program, where a teller has obtained at least certain minimal training would go a long way to prevent money laundering. Examination, particularly of the report issued by one of the Senate subcommittees last year, indicated that it wasn't an intentional violation of the Bank Secrecy Act in many of the cases, it was mere unawareness of the filing requirements.

The second recommendation I have made is to provide the Secretary of the Treasury and the Attorney General specific legislative authority to investigate violations of the Bank Secrecy Act. Again, I would like to turn to the President's Commission on Organized Crime. They have cited a case, United States v. Deak-Perera, which is recorded at 566 F. Supp. 1398. When an Internal Revenue Service agent was in conducting a bank secrecy examination, he got a list of 83, to say the least, suspicious transactions and was unable to refer this to other investigative agencies to be pursued and followed up. And the reason for this was the court construed the Bank Secrecy Act as setting up a privacy right which I don't think the Congress intended. They set up a privacy right that prevented even information of specific violations to be furnished even to the Criminal Investigation Division of IRS.

Now, Mr. Chairman, this was a situation where an IRS agent couldn't even walk down the hall and give information on a violation to his criminal investigative counterpart. This sort of thing needs to be taken care of. For any effective approach to be taken on money laundering, the Secretary of the Treasury must have the legal resources to go about it.

I will not opine one way or the other whether the court's opinion's right or wrong, we simply must realize the fact that these opinions are out here and they are restricting the ability of the Secretary to conduct an adequate investigation.

I would like to say in that regard, too, there is a need for a substantial increase in manpower to be assigned to money-laundering investigations. I dealt with money laundering as a prosecutor in the Department of Justice in a fairly large project called "Project Haven," which involved the use of offshore bank accounts, primari

ly in the Bahamas and in the Cayman Islands. Money laundering was commonly used there to facilitate tax evasion schemes.

Mr. HUGHES. What timeframe was that?

Mr. BAILOR. Mr. Chairman, that was during the period 1975 through 1977.

We had one group of IRS agents assigned to assist that grand jury investigation. The group consisted at that time of approximately 12 to 13 agents. On certain transactions all 12 or 13 agents were tied up trying to trace these cash transactions on just one individual. The money in this particular scheme was sent offshore through a phony commodity transaction with a foreign trust controlled by the U.S. taxpayer. The money then went through Panama, back to the Bahamas, and then came back into the United States in the form of a loan.

Now, to discover that type of transaction, you've got to match up transaction dates, you've got to match up transaction amounts, and you've got to spend a greater part of your working week in the bowels of banks. It is extremely labor intensive. And if you look at the problem in that regard, it is obvious that people are the most important thing you can devote to money laundering. There is no other way of doing that, if we give the Secretary the authority. But if you don't give him additional people and don't give him additional resources, you're wasting your time. Passing a law would be the functional equivalent of the D.C. Red Light Statute; unless there's a cop on the corner, it's ignored, and I think we've all experienced that.

The third recommendation I would make is that the Bank Secrecy Act should be amended to provide for faster notification of suspect transactions to the Federal Government. I would like again to turn to the so-called "smurf" type of transaction. Unless an agent gets on the scene of that transaction quickly, it can never be investigated. In most cases the smurf has come in with a fictitious name, it is a cash transaction, he has left no paper or no traces. He has got to get out of there quickly.

I have recommended that banks, at the time of the transaction, fill out the CMIR, Currency and Monetary Instrument Report, and drop it into the mail that day. I don't see any practical reason why they can't do it. We all know that if we go to the bank to purchase a cashier's check or if we go to the bank to purchase travelers' checks, we fill out the forms routinely, right then and there, when the transaction takes place. I don't see any reason, legitimate reason, why, at least within one business day, you couldn't fill out the Currency and Monetary Instruments Report and forward it in. I recommend that an 800 number be set up and the information be called in to the Internal Revenue Service or whatever other investigative agency would be assigned to the Secretary, so that that information hits the street-level agent who can deal with it promptly. Unless you can deal with it promptly, all evidence is going to be gone.

The President's Commission on Organized Crime has described, and I've outlined it in my written statement, the cumbersome, awkward procedure which Treasury goes through before information from the Currency and Monetary Instrument Report reaches the street-level law enforcement agency. Now, Mr. Chairman, this

is absolutely ridiculous and frustrates the whole purpose of the Bank Secrecy Act, where 6 to 8 weeks pass between the date of the transaction and the information reaches an agent who is capable of investigating it. I heartily endorse the recommendations of the President's Commission on Organized Crime to speed up that proc

ess.

I would like to specifically address the smurf issue, and I have made some recommendations on page 12 on dealing with the smurf. I think this is the most common money-laundering type of transaction.

The smurf, of course, is the gentleman who goes around to various banks throughout a city and buys cashier's checks in $5,000 to $9,000 denominations. I have suggested that cashier's checks purchased by non-account holders be limited to $2,000. I have to admit I was somewhat arbitrary in picking that number, but the reason I picked $2,000 is, I'm informed by my friends in the banking community that most non-account holders that purchase cashier's checks are simply poor people coming in to pay their bill and they use that cashier's check in lieu of a bank account. Most, if not all, of those cashier's checks will fall under the $2,000 limit.

The transactions which we normally use cashier's checks for, for example the closing of a real estate transaction or the purchase of large assets such as a car or something of that nature, these are going to be done by people who normally have accounts. That step alone would put that smurf out of business. You're making him go to five times more banks every day.

The second recommendation that I have made is on transactions over $2,000 you take more than one banking day to complete. That means the smurf is going to have to make two trips to the bank. Now, I did not see Mario testify, but I suspect that if that question had been asked of Mario, "What if you had to go back to that bank twice?" he would have shuddered, and he wouldn't have done it; because it doubles his exposure. It also, if you implement the prompt reporting requirement with the 800 number, is likely that when the next time he comes back to the bank, there is going to be a Federal agent standing there and say, "Excuse me, Mr. Mario, I would like to talk to you." That, gentlemen, will put the smurf out of business. It's that simple, and that's all this subcommittee has to do to deal with that particular problem.

Mr. Chairman, I have recommended that this subcommittee consider taking the authority for the use of an exemption list away from the financial institutions and put it into the hands of the Secretary of the Treasury. An exemption list is a list maintained by the bank of certain large customers whose transactions are not reported to a financial institution. The most common example of that would be your large supermarkets such as your Safeway, your Giant, who obviously deal in $10,000 or more of cash every day. To require that those particular transactions be reported is simply to burden the system and accomplish no legitimate law enforcement purpose. There is no problem with having an exemption list, the problem is that the exemption list can be and has been abused. I've seen that in my own private practice in several instances, persons engaged in money laundering simply take over a business already on an exemption list or corrupt an employee in a business already

on an exemption list and use that bank's facilities to money launder their funds.

Now, the suggestion has been made that banks should make credit checks and do other types of checks of this nature to make sure that people are legitimately on the exemption list. Based on the cases I have personally experienced on misuse of an exemption list, Mr. Chairman, there is no way any bank or financial institution can conduct the kind of in-depth investigation that's needed to determine whether someone is legitimately on a business list. The books are going to look great if you go look at that type of business. The operation will look legitimate and the bank would probably lend money on it. The authority has to be in a law enforcement agency; they have access to the tax returns, they have access to the intelligence files, they have access to the investigative resources that can make a determination of whether or not this is a legitimate business.

Obviously, if the Secretary of the Treasury sees that a company that is reporting gross annual receipts of $200,000 a year now wants on an exemption list to deposit in excess of $10,000 cash a day, he's going to know something's wrong. The banks won't have access to that information, and banks are not policed, they're not law enforcement agencies, and I think it is grossly unfair to do it. That authority should be transfered to the Secretary of the Treasury and it will go a long way towards preventing the use of legitimate business by organized crime individuals to launder money.

Mr. Chairman, I have recommended, also, that in the foreign transaction area that additional reporting be required. As I said, I think, at the outset of my statement, most large money laundering transactions, particularly the sophisticated ones, use a foreign light, and this is the most difficult to deal with. I encountered that, of course, in Project Haven. The evidence, the records, is offshore. It's very difficult to get access, even when a bank secrecy jurisdiction cooperates as they sometimes rarely do.

We've got to recognize that we have a very difficult problem with this foreign area. The most common way money comes back in from foreign money laundering is through bank facilities, a loan, sometimes an investment, sometimes a fictitious commodity trade. I think what we have to do to deal with that is to start having foreign transactions of individuals and companies reported. Again, you could use an exemption list to eliminate the recording on obviously legitimate companies. But until we become aware of the foreign transactions, we can't even begin to investigate them.

In the long run, the only way you can deal with foreign money laundering, I think, is through effective diplomatic efforts. The Administration recently signed an agreement with the Cayman Island Government to provide for exchange of information in narcotics cases. I think that is clearly a commendable step and a step in the right direction to deal with money laundering. Obviously, a lot more has to be done. I don't know of any other situation, or other country, where such an agreement has been signed, but until you have that sort of an agreement, where actual, admissible evidence-in U.S. courts-can be obtained legitimately, you simply are not going to deal with the money-laundering situation.

I think the drug problem in this country is probably the most serious problem this country faces. I think it even outweighs the Federal deficit, tax reduction, and all the other large issues that Congress is dealing with. We have to recognize we have a war on our hands, and I really feel the United States should use its resources.

I just want to tell the subcommittee, at the time I was dealing with Project Haven, we were making a great effort to get information out of a certain bank in the Bahamas, and a lot of reluctance was being expressed by the Bahamian attorney general. At the same time we were doing this, I learned that the U.S. Customs was putting in a special clearance facility in the Bahamas. Now, why we, on the one hand, let money laundering go on and do not push the Government into cooperating with us, and, at the same time, turn around and give them something which obviously helps boost their tourism, just doesn't make sense to me. If you recognize we're dealing with a serious war on crime, we should put all the pressure the United States has to bear on dealing with that foreign problem. Because of the time constraints, I'm not going to discuss my other recommendations in detail, because I know there are a lot of other folks here that have some very important things to say. I would, however, like to briefly comment on the new offense of money laundering.

Mr. Chairman, I oppose most of the proposed legislation on money laundering which contains a mens rea or criminal intent standard of reason to know and some of the other reckless disregard standards which are set up in some of the other legislation. It is far too easy for an imaginative prosecutor to come back with hindsight and put together facts and circumstances which could lead to a conclusion of reason to know. I particularly like your bill, Mr. Chairman, because it contains the traditional criminal intent standard. I think the administration bill is far too reaching and is subject to too much abuse when you put what is essentially a negligence standard into the criminal law.

I would also like to comment that I seriously doubt if a new money-laundering statute is going to have much deterrent effect on people that are engaged in money laundering. The people that do money laundering, Mr. Chairman, are drug traffickers and racketeers. They are already facing severe penalties under the Continuing Criminal Enterprise statute and the RICO statute. Continuing Criminal Enterprise, for example, has the possibility of sentence of up to life imprisonment, adding another 10-year felony. I do not think it is going to substantially increase the deterrent effect of the Federal criminal law in that matter.

I would also oppose the administration's bill because of its definition of unlawful activity. As I read the administration bill, it is defined as any State or Federal felony. We are going to federalize every crime and break up the division of law enforcement responsibility that has existed since the founding days of this republic. And in my experience, most crime is local. Some crime, and the most serious crime, is national. The Federal Government has a proper role in combating national crime because the States do not have the resources to do so, but we should not give the Federal Government the authority to investigate every type of State crime.