Department of Justice STATEMENT OF JAY B. STEPHENS ASSOCIATE DEPUTY ATTORNEY GENERAL BEFORE THE SUBCOMMITTEE ON CRIME CONCERNING MONEY LAUNDERING LEGISLATION ON July 24, 1985 Mr. Chairman and Members of the Subcommittee, I am pleased to be here today to present the views of the Department of Justice on one of the biggest problems presently facing law enforcement, the laundering of money derived from criminal activity. Let me initially express my appreciation for the Subcommittee's willingness to tackle this difficult subject as indicated by the fact that this is the third hearing you have held on money laundering this year. - the process As the Subcommittee knows, money laundering by which one conceals the existence, illegal source, or illegal application of income and then disguises the source of that income to make it appear legitimate is big business. Just big nobody knows for sure because drug rings and organized cri families don't prepare annual reports, but the Treasury Department has estimated that Americans spend more than $80 billion each year to buy illegal drugs. Sales of $80 billion would make the illegal drug trade a bigger operation than all but one of the Fortune 500 companies, larger even than General Motors. And that is just from drug trafficking. In a recent Wall Street Journal article which supported the Administration's money laundering bill that I will be describing in a minute it was estimated that somewhere in the neighborhood of $150 billion is generated each year by drugs, gambling, and vice in general. The Attorney General summed up the problem when he recently described money laundering as "the life blood of the drug syndicates and traditional organized crime." Unfortunately, this problem has grown in size and complexity. More people are - 2 involved, there is more money being laundered, and the schemes to wash "dirty money" are now often so sophisticated that they involve an intricate web of domestic and foreign bank accounts, shell corporations, and other business entities through which funds are moved by high speed electronic fund transfers. Perhaps even more disturbing is the increasing willingness of professional persons such as lawyers, accountants, and bankers at all levels from tellers to senior officials to become active participants in money laundering. While some criminal organizations still wash their own illegally generated money by such relatively crude methods as one of their members' smuggling a suitcase full of currency out of the country for deposit in an offshore bank, a number of drug rings and other criminal syndicates now hire professionals to launder the money produced by their operations. Consequently, this Administration has determined that what is needed is new legislation to directly prohibit the laundering of money. Today the Subcommittee has before it five bills that would create such an offense, and I will be discussing those parts of them that deal with money laundering and related offenses. They are H.R. 1367, H.R. 1474, H.R. 1945, H.R. 2785, and H.R. 2786. The last two are identical bills that were submitted by the Department of Justice just last month. The Administration strongly supports these two bills on which the Treasury Department provided considerable assistance. Before discussing them, however, I think it would be helpful to review some of their background. H As you know, on July 28, 1983, the President established the Commission on Organized Crime. Among its other responsibilities, the Commission was charged with reporting to the President from with a final report to be submitted by March 1, time to time 1986 - - and with making recommendations concerning any legislative changes needed to better combat organized crime and to improve the administration of justice. In October of 1984, the Commission issued an interim report to the President and the Attorney General dealing specifically with money laundering. Entitled The Cash Connection: Organized Crime, Financial Institutions, and Money Laundering, the report graphically illustrated the problem and set out draft legislation designed to deal with it. The suggested legislation contained a new money laundering offense in title 18, amendments to the Currency and Foreign Transactions Reporting Act in title 31, and Amendments to 1/ the Right to Financial Privacy Act located in title 12. The Department of Justice and the Treasury Department have thoroughly reviewed the proposals drafted by the Commission on Organized Crime and analyzed them in light of our experiences in 1/ The Commission recommended other measures, such as a new bank bribery statute and an amendment of the federal wiretapping statute (18 U.S.C. 2510 et seq.) to allow law enforcement authorities to seek court orders authorizing the interception of communications involving criminal violations of the Currency and Foreign Transactions Reporting Act, which were enacted as part of the Comprehensive Crime Control Act of 1984 (P.L. 98-473). Moreover, a number of its recommended amendments to the Currency and Foreign Transactions Reporting Act, such as greatly increased fine levels and the addition of an attempt provision, were also enacted as part of the Comprehensive Crime Control Act. investigating and prosecuting money laundering cases around the country. While the recommendations of the Commission provided an excellent starting point, we concluded that modifications and refinements were needed in a number of areas, and that certain additional provisions and offenses not discussed by the Commission would also be of great assistance in combatting money launderers. Of primary importance is our agreement with the Commission that a new offense dealing specifically with money laundering is needed in title 18. As the Subcommittee knows, at the present time we do not have such a statute and most prosecutions for this offense are brought under the provisions in title 31 that require the filing of various reports concerning certain monetary transactions with financial institutions and which punish the failure to file the reports or to do so truthfully. This approach is no longer adequate and we think that a new provision should be added to title 18 making it an offense to conduct or attempt to conduct a transaction involving monetary instruments or the wire transfer of funds, if the transaction affects interstate or foreign commerce or is conducted through a financial institution the activities of which affect interstate or foreign commerce, provided that the government can show either of the following: first, that the person acted with the intent to promote, manage, establish, carry on, or facilitate an unlawful activity (defined as a state or federal felony), or, second, that the person knew or acted in reckless disregard of the fact that the monetary |