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 The limited authority of financial institutions to place a depositor on an exemption list should be withdrawn and that the authority to exempt bank customers from the reporting requirements of the Bank Secrecy Act be given to the Secretary of the Treasury or his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 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 unproductive 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 Most large sophisticated money laundering transactions use a 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 to conceal their transactions. This Subcommittee, as well as other Congressional committees, have already gathered considerable 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 aspect 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 most cases, the money is brought back through conventional banking 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 international agreements to exchange information, particularly in narcotic cases. COMMENTS ON LEGISLATIVE PROPOSALS If the recommendations I have just mentioned are implemented particularly increasing the number of law enforcement personnel effective control can assigned to money laundering investigations - be achieved over money launder eing. I would like now to turn to some of the legislative proposals being considered by this Subcommittee. A. Creation of New Offense: "Laundering of Monetary Instruments" 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 foreign 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 "unlawful activity" contained in these bills is also inappropriate. Unlawful activity is defined in some of the proposed legislation as any state or federal felony. By virtue of this definition, all state felonies involving money are federalized. This provision destroys 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 surveillance 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 agencies could apply for an electronic surveillance warrant. The extremely broad definition of "unlawful activity" contained in most of the proposed money laundering legislation will grant unprecedented 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 dealing with money laundering, this bill warrants favorable 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.g., 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 U.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, |