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and 103.23 (c)(3).
Transactions of bank customers on the exemption
list are exempted from the reporting requirements of the Bank Secrecy
On occasion, persons engaged in money laundering have used
businesses on the exemption list to launder money.
regulations regarding the use of the exemption list make it likely
that this device will continue to be used in the future for money
The limited authority of financial institutions to place a depositor on an exemption list should be withdrawn and that the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
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
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
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
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
foreign transactions including certain
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,
legislative response to this as pect of the money laundering problem
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.
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.
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
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
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
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,