18

and 103.23 (c)(3).

Transactions of bank customers on the exemption

list are exempted from the reporting requirements of the Bank Secrecy

Act.

On occasion, persons engaged in money laundering have used

businesses on the exemption list to launder money.

The present

regulations regarding the use of the exemption list make it likely

that this device will continue to be used in the future for money

laundering.

The limited authority of financial institutions to place a depositor on an exemption list should be withdrawn and that the

authority to exempt bank customers from the reporting requirements of the Bank Secrecy Act be given to the Secretary of the Treasury or

his delegate.

The use of an exemption list is a legitimate administrative

convenience for financial institutions. Most financial institutions

.

have customers who legitimately deal in large amounts of currency such as retail department stores and supermarkets. No legitimate law enforcement purpose would be served by the filing of reports on

these customers.

There are, however, a number of bank customers

whose exemptions is questionable.

In some situations, legitimate

businesses have been infiltrated by criminals in order to use the

business as a front for money laundering. As a practical matter, it

is simply impossible for financial institutions to adequately investigate their customers to determine if the customer legitimately

should be on an exemption list.

Financial institutions are not law

enforcement agencies.

They lack the information available to law

enforcement agencies and the investigative resources needed to make an informed decision on whether a customer should be placed on

an

19

exemption list.

In situations where a business

on the exemption

list is being used to conceal money laundering, any effort by a financial institution to investigate the customer is likely to be

un productive because of the efforts made by the customer to conceal

his illicit activity. The authority to exempt a bank customer from the reporting requirements of the Bank Secrecy Act should be placed with the Secretary of the Treasury who has available to him the law enforcement resources and information needed to make an informed

evaluation of the need for an exemption.

The Bank Secrecy Act should be amended to require additional
reporting of

foreign transactions including certain
transactions not involving currency or monetary
instruments which are commonly used as money laundering
transactions. Additional efforts should be made to obtain
agreements for the exchange of investigative financial
information with foreign governments.

а

Most large sophisticated money laundering transactions use foreign account of foreign transaction as part of the laundering

scheme. : In most cases, this transaction is conducted in a bank

secrecy jurisdiction. Money launderers rely on foreign bank secrecy

evidence concerning this aspect of the problem and there is no need

to describe it in detail today.

Because of the territorial limits

of U.S. jurisdiction,

a

legislative response to this as pect of the money laundering problem

is, as

a practical matter, limited.

However, a key ingredient of

any money laundering scheme is that the laundered funds ultimately

be brought back to the United States so that they can be used.

In

the money is brought back through conventional banking

20

channels. A reporting requirement, similar to that imposed on domestic currency and monetary instrument transactions would at least alert law enforcement authorities to potential foreign money laundering transactions. An exemption list similar to that used in domestic transactions could eliminate useless reports on established international businesses.

In the long run, effective control over international money

laundering depends on cooperation between governments.

While some

improvements in this area have been made in the past several years

most notably, the agreement to exchange information with the

Cayman Islands in narcotics cases

much more needs to be done.

Because of the seriousness of the narcotic problem in the United

States, it must be recognized that this country is effectively at

war with this problem and all of the diplomatic resources and sanctions

available to the United States should be brought to bear to obtain

be achieved over money laundereing. I would like now to turn to some

of the legislative proposals being considered by this Subcommittee.

Virtually all of the proposed legislative remedies dealing with money laundering would create a new offense entitled "Laundering of

Monetary Instruments."

Under several of the proposed bills, anyone

"who has knowledge or reason to know that the currency or monetary instruments used in a financial transaction was derived from unlawful activities would be guilty of the crime of money laundering. No need has been shown for this new far-reaching criminal offense. There may be some need for specific legislation to deal with the

problem of using for ei gn transactions for money laundering, but there

is clearly no need for a broad statute of this nature to deal with

domestic transactions.

The "reckless disregard" mens rea standard contained in the

bill is an inappropriate criminal intent standard particularly in

view of the harsh penalties for violation of the statute.

The broad definition of "unlawf ul activity" contained in these

bills is also inappropriate. Unlawful activity is defined in some of the proposed legislation as any state or federal felony. Ву virtue of this definition, all state felonies involving money are

federalized. This provision des troys the division of law enforcement

responsibilities between the states and federal government that has

existed since the founding of the country.

The new offense of money laundering should not be enacted because

of the expanded authority to conduct electronic sur ve illance it would

grant to federal law enforcement agencies.

In the comprehensive

Crime Control Act of 1984, violations of the Bank Secrecy Act were

added to the list of offenses for which federal law enforcement - 22

.

agencies could apply for an electronic surveillance warrant. The extremely broad definition of "unlawf ul activity" contained in most of the proposed money laundering legislation will grant un precedented authority to federal agencies to conduct electronic surveillance. This is neither necessary nor desirable.

One bill, H.R. 1474, introduced by Representative Hughes on

March 7, 1985, is not subject to the objections previously stated. If the Subcommittee believes it necessary to enact a new offense

Several of the proposed bills including H.R. 2785, H.R. 2786,

and s. 1335 contain forfeiture provisions which broadly expand the scope of the current federal forfeiture laws to cover all state and

federal felonies.

I

am strongly opposed to enactment of these

forfeiture provisions. The widespread statutory authority for civil and criminal forfeitures under current law raises substantial doubts

about the need for extending these sanctions to these new, and

untested, criminal offenses.

Ample statutory authority exists for

civil and criminal forfeitures for violations of many current federal

offenses. See, e. 9., 18 U.S.C., Sec. 1963 (RICO, which includes currency reporting violations as a predicate offense); 21 U.S.C., Sec. 853 (all drug offenses); 21 0.s.c, Sec. 881 (civil forfeiture

for drug violations); 31 U.S.C., Sec. 5317(b) (civil forfeiture of

illegally transporting currency and monetary instruments).

The proposed forfeiture legislation will unduly infringe on the

Sixth Amendment right to counsel. Under existing forfeiture laws,