16 June 1998
Source:
http://www.usia.gov/current/news/topic/global/98061110.lgi.html?/products/washfile/newsitem.shtml
United States Information Service Washington File
11 June 1998
(Dept. of Justice official comments on proposed legislation) (5020) WASHINGTON -- "In ongoing anti-money laundering initiatives, our primary line of attack against domestic and international drug and other money launderers has been and continues to be to focus on denying our financial system to money launderers," says Mary Lee Warren of the Justice Department. Testifying June 11 before the House Committee on Banking and Financial Services, Warren outlined law-enforcement efforts of the Justice and Treasury Departments against the laundering of illicit proceeds from drug trafficking or other criminal activities. Although foreign drug cartels depend upon the U.S. market, Warren said, they become vulnerable as soon as they sell their products in the United States. As she explained, once illegal drugs are smuggled across the border and sold in the U.S., "that trafficker or his domestic or international money launderer immediately faces a U.S. law enforcement anti-money laundering regime in the form of Bank Secrecy Act laws and regulations, including large-value and suspicious reporting, federal, state and local anti-money laundering investigators, prosecutors and regulators, undercover operations, court-authorized electronic surveillance interceptions" and other sophisticated means of identifying unlawful transactions. "Our banks and other depository institutions are our first line of defense against the placement of illicit cash proceeds into our financial system, and for the past two decades we have been working with these institutions to deny launderers easy access directly into those institutions," she stated. "While exceptions still occur, we have largely succeeded in barring launderers' direct access to our banks." In consequence, Warren added, money launderers are often forced to resort to non-bank financial service providers such as wire remitters and vendors of money orders, but increasingly U.S. financial regulators are limiting their access to these resources, as well. She discussed at length the strategies of the U.S. legal system, encompassing both current and pending legislation, to restrict the money-laundering capabilities of criminal enterprises. Following is the text of her statement, as prepared for delivery: (begin text) Statement of Mary Lee Warren, Department of Justice Thank you, Chairman Leach and Members of the Committee. I am Mary Lee Warren, Deputy Assistant Attorney General in the Criminal Division of the Department of Justice. I very much appreciate the opportunity to address you concerning anti-money laundering enforcement efforts that we at the Department, and in tandem with the Department of the Treasury, are considering or undertaking to enhance our joint abilities to identify, target and prosecute domestic and international money launderers, as well as seize, freeze and forfeit their assets. You have also requested our preliminary views on two pieces of anti-money laundering legislation, the Money Laundering Deterrence Act of 1998 (H.R. 4005) and the Money Laundering and Financial Crimes Strategy Act of 1998 (H.R. 1756). I will comment briefly on these bills, as well as offer a description of legislation that the Administration has proposed. Targeting the Money Clearly, illicit proceeds generated from criminal activity serve as the rationale of any "for-profit" criminal activity. An equally accurate, though rarely stated, fact is that -- at least where organized criminal activity generates its profits in the form of cash -- the volume of this illicit cash and the need of the enterprise to enter it into the legitimate financial system are vulnerabilities for that criminal enterprise, and could provide law enforcement with perhaps its best opportunity to target those illicit proceeds. Equally important, the international drug trafficker produces, processes and transports his illicit products in places with only a limited U.S. law enforcement presence until the moment his product arrives at the borders of the United States. Once the illicit drugs are sold in the U.S., however, that trafficker or his domestic or international money launderer immediately faces a U.S. law enforcement anti-money laundering regime in the form of Bank Secrecy Act laws and regulations, including large-value and suspicious reporting, federal, state and local anti-money laundering investigators, prosecutors and regulators, undercover operations, court-authorized electronic surveillance interceptions, and interagency attacks such as Geographic Targeting Orders. Thus, our basic anti-money laundering objective must be and is currently to identify and prevent the initial placement of drug proceeds into our nation's financial system. It is at this stage that the launderers of drug money are most vulnerable to detection and prosecution, and their illicit proceeds are most vulnerable to identification, seizure and forfeiture. Financial Sector Strategy of Attack In ongoing anti-money laundering initiatives, our primary line of attack against domestic and international drug and other money launderers has been and continues to be to focus on denying our financial system to money launderers. Our banks and other depository institutions are our first line of defense against the placement of illicit cash proceeds into our financial system, and for the past two decades we have been working with these institutions to deny launderers easy access directly into those institutions. While exceptions still occur, we have largely succeeded in barring launderers' direct access to our banks. As a result, illicit cash proceeds money launderers necessarily are looking more than ever before to other non-bank, financial institutions, such as wire remitters, casas de cambio, vendors of money orders and traveler's checks, and check cashers to introduce drug proceeds indirectly into our banks. We view these institutions as representing discrete financial sectors, and are continuing to work jointly with the Treasury Department, the Postal Inspection Service and federal regulators to identify abuse of these sectors by the money launderers, and to deny access to our financial system through these entry points. 1. Geographic Targeting The most successful joint attack to date on a discrete financial sector has been in the use of the Geographic Targeting Order ("GTO") in the New York City/New Jersey area with respect to money remissions to Colombia, and in a GTO targeting the New York City/New Jersey area, as well as Puerto Rico for money remissions to the Dominican Republic. In each case, by reducing the reporting requirements below the $10,000 threshold, and mandating identification, we disrupted the flow of drug currency through money remittance houses by making the money launderers more vulnerable to identification and thus prosecution, and the drug proceeds more exposed to seizure and forfeiture. We squeezed the illicit proceeds out of a licit, but vulnerable part of the sector that was being corrupted by the money launderers. 2. Proposed Regulations Applying the methodology used in the New York/New Jersey GTO, law enforcement collectively is examining a host of non-bank financial institutions more closely than ever before. On May 21, 1997, FinCEN published three notices in the Federal Register proposing: (1) to make specified money service businesses (traveller check and money order issuers and sellers and money transmitters) subject to Suspicious Activity Reporting; (2) to require national registration with the Department of the Treasury by money service businesses (traveller check, money order and stored value sellers and redeemers, check cashers, retail currency dealers or exchangers and money transmitters); and (3) to require a new identification process and federal reporting by money transmitters remitting $750 or more in cash outside of the United States. 3. Forging a Collective Approach Use of the GTO mechanism and passage of the proposed regulations are but first steps. More must and will be done to target the attempts to place immense volumes of illicit currency into U.S. financial sectors, as well as those attempts to move currency physically out of, and then, once in a financial system, to transfer it back into the United States. We believe that the most important lesson from the GTO is the value of consistent and close interagency cooperation at all stages of financial sector targeting strategy. Prosecutors and investigators must work actively and in tandem to target the appropriate financial sector, to identify their targets, to obtain and analyze as many financial records as can be made available, and, if necessary, to take the time to start enforcement at the lowest level and work slowly up the ladder. Further, we believe a collaborative approach must be utilized in the Districts in order to assure that the Suspicious Activity Reports (SARs) are reviewed and acted upon. At two prior national Department of Justice/Treasury Financial Sector Targeting Conferences, we have stressed to the more than 21 Districts that participated the value of constituting, with an Assistant United States Attorney actively participating, interagency SAR Review Teams in their Districts. We will continue to press for this collaborative approach. 4. Targeting Outbound and Inbound Cash A crucial point, however, must be remembered: if we are 100% successful in denying drug money launderers the ability to place their millions in illicit proceeds directly or indirectly into our financial system, the launderers will still bulk ship the currency out of the United States. Indeed, as our financial sector attacks have developed, we are seeing more and more bulk cash shipping every day through every conceivable method. In two prior national Department of Justice/Treasury Financial Sector Targeting Conferences, as well as at smaller working group meetings, we have focused on the need to target the bulk cash smuggling of currency out of the United States and, the later movement of the currency, largely by courier, back into the United States. One possibility being discussed by Treasury and Justice involves funding and studying technological aids that would permit the detection of large volumes of currency being smuggled into the country. Inbound currency largely is repatriated by couriers who file Currency and Monetary Instruments Reports (CMIR). In this area, we will scrutinize these filings more closely, work with our foreign counterparts to verify the CMIR information as soon as possible, perhaps contemporaneously, and utilize all state and federal laws to prosecute couriers bringing in illicit drug proceeds, as well as seize and forfeit these proceeds. In this connection, we will encourage all States to adopt money courier licensing requirements that, where not followed, permit law enforcement to take immediate action. This approach already has been employed successfully in Miami; unfortunately, other states have practiced less vigorous oversight. International Cooperation and Colombian Money Laundering/Asset Forfeiture Unit Training The reality of the increasing use of bulk cash smuggling also reemphasizes the importance of our continuing to work closely, bilaterally and multilaterally with those countries and areas receiving this cash. We must ensure that those countries have the political will and professional capability to identify, track and seize illicit drug proceeds entering their territory, whether in the form of cash, wire transfers, or in other financial instruments, and that we have bilateral mechanisms in place to permit us to work together, as appropriate, to sift out the licit from the illicit proceeds. In an unprecedented collaboration of in-country and Headquarters training, this month in the Washington, D.C. area, investigators and prosecutors in Colombia's new Anti-Money Laundering/Asset Forfeiture Unit are being given intensive, specialized training by a Justice/Treasury team of prosecutors, and investigators. This training of the Unit made up of prosecutors from the Colombian Fiscalia, and investigators from the CTI, DAS and National Police, as well as financial and banking intelligence agencies, supplements the ongoing training and support provided in Bogota by the Criminal Division's Overseas Prosecutorial Development, Assistance and Training (OPDAT) and International Criminal Investigative Training and Assistance Program (ICITAP). At the core of the training is the need for a task force approach of the investigators and prosecutors working together over a period of time against these sophisticated crimes and criminals. The Colombian Prosecutor General's Office has given its commitment not to remove any of the assigned prosecutors or investigators from this unit for the next three years, other than for cause. In addition to the basic regimen of anti-money laundering/asset forfeiture training, this course of instruction will focus on the Colombian Black Market Peso Exchange Process, [see footnote 1] and to the importance of Colombia's aggressively enforcing its recently-enacted anti-smuggling law. As is always the case, the ultimate proof of this training will be in investigations undertaken, prosecutions successfully completed and illicit proceeds identified, seized and forfeited. Even prior to the U.S. training of the Unit, however, we have seen great progress made. The Unit, acting with the Department of Justice's Judicial Attache in Bogota, has quickly and aggressively pursued Colombian destination accounts identified by U.S. investigators as used in drug proceeds money laundering. We understand that the Unit currently is developing further money laundering investigations using these accounts as their starting points. Legislation Several bills are now pending in Congress that address the need to revise and enhance the money laundering statutes in response to the increasingly international nature of criminal activity. I will briefly offer comments on the bills now pending in this Committee and then will discuss two significant Administration proposals. 1. The Money Laundering Deterrence Act of 1998 (H.R. 4005) and Money Laundering and Financial Crimes Strategy Act of 1998 (H.R. 1756) You have requested our views on the "Money Laundering Deterrence Act of 1998," as well as the "Money Laundering and Financial Crimes Strategy Act of 1998." The Criminal Division has had a preliminary opportunity to work both with your staff, as well as the staff of Congresswoman Velazquez, to review the draft proposals and to offer technical comments. Our initial technical view of the "Money Laundering Deterrence Act of 1998" is very favorable. It contains a provision relating to Geographic Targeting Orders that is similar to a provision of the International Crime Control Act, which I will mention later. Also, the proposal contains a provision transferring 26 U.S.C. no. 6050I from the Internal Revenue Code to Title 31, and applying the sanction of forfeiture to violations of that statute. We support the forfeiture provisions, which are part of the Department's money laundering proposal, and understand the need to transfer the functions from Title 26 to Title 31. [footnote 2] Another provision of the Administration's money laundering proposal that we would ask you to consider adding to the Money Laundering Deterrence Act of 1998 is the provision concerning the forfeiture of fungible property in a bank account. A key element of the government's strategy for recovering the laundered funds in any money laundering case is 18 U.S.C. no. 984. That statute, which was drafted by this Committee and was enacted as part of the Annunzio-Wylie Anti-Money Laundering Act in 1992, provides that all bank deposits are fungible, and thus authorizes the forfeiture of money from a bank account without requiring the government to prove that the money in the account on one day is the "same money" as was in the account on a prior occasion. Because bank accounts to which laundered funds are transferred typically fluctuate broadly, with balances frequently falling to zero, recovery of the money would be impossible without no. 984. Unfortunately, no. 984 has a one-year statute of limitations. In other words, under current law, bank deposits are only considered fungible if the government initiates the forfeiture action within a year of the money laundering offense. Because investigations may continue for several years, much of the laundered money will fall outside the one-year limitations period and will not be recovered. The Administration's proposal addresses this problem by extending the limitations period to two years. We hope the Committee will consider making this proposal part of the Money Laundering Deterrence Act of 1998. With respect to the "Money Laundering and Financial Crimes Strategy Act of 1998," again we have had an opportunity to review this proposal in the past. Last year, the Departments of Treasury and Justice submitted a collectively-produced revised proposal on this legislation, and we are pleased that at least some of our joint recommendations were accepted. Again, speaking only from a technical perspective, although we do not object to the idea of a national money laundering strategy, we believe that the proposed legislation may be too broad, and that the strategy, at least initially, should focus on the placement of drug and other illicit proceeds into our financial system, or its export in the form of bulk cash shipping. We look forward to continuing to work with you and your staffs on that legislation. 2. Legislative Proposals of the Administration. a. The Money Laundering Act of 1998 (H.R. 3745) To enhance federal law enforcement's ability to combat illegal money laundering, the Department of Justice has drafted a bill entitled the "Money Laundering Act of 1998." Most, but not all, of the provisions in this proposal were included in H.R. 3745, a bill pending in the House Judiciary Committee. The bill was designed to address the international laundering of criminal proceeds, either by criminals who commit crimes abroad and launder them in the United States, or by those who commit offenses in this country and then seek to conceal their ill-gotten gains abroad. For example, in keeping with the recommendation of the G-8 countries last month in Birmingham, England, the bill would expand the list of "specified unlawful activities" which constitute the predicate offenses for money laundering to include an array of foreign crimes, including crimes of violence, terrorism, fraud and corruption. This would make it possible to prosecute a person who commits such crimes in another country and attempts to launder the proceeds through our domestic financial institutions. I would like to highlight just a few of the other important provisions of this legislation: -- Money Purchased on the Black Market. Law enforcement believes that billions of dollars of drug proceeds generated in the United States is sold on the black market peso exchange to South American customers. In this way, the drug trafficker exchanges U.S. dollars for the local currency he needs to pay his employees and continue his drug trafficking operation. See "FinCEN Advisory: Colombia Black Market Peso Exchange," November, 1997. One of the best ways to interrupt the recycling of drug money in this fashion is to confiscate the money sold on the black market under the civil forfeiture laws. Unfortunately, current law allows a third party in possession of laundered drug money to defeat the forfeiture action by asserting lack of knowledge that the money was derived from drug trafficking at the time he purchased it on the peso exchange. In other words, he has no affirmative duty to inquire as to the source of the money or to take any steps to avoid purchasing money derived from illegal activity [footnote 3]. Indeed, by simply asserting "lack of knowledge," black market customers can defeat efforts to confiscate drug proceeds more easily in money laundering cases than in most other contexts [footnote 4]. Section 16 of H.R. 3745 takes the standard used in drug cases and other contexts and applies it to money laundering. It simply requires that a person who buys laundered drug money on the black market must establish that he was a bona fide purchaser who took all reasonable affirmative steps to make sure that he was not buying property derived from a criminal offense. -- Fugitive Disentitlement. Until 1996, fugitives were barred from contesting the civil forfeiture of their property unless they surrendered to face related criminal charges. In Degen v. United States, 116 S. Ct. 1777 (1996), however, the Supreme Court held that judges lack the authority to dismiss automatically claims filed in absentia by fugitives. Thus, under present law, the fugitives will be able to contest the civil forfeiture of their bank accounts without surrendering on the criminal charges. This vitally important provision was added to H.R. 3745 in an amendment offered by Rep. Wexler at the subcommittee mark-up on June 5, 1998. -- Civil Money Laundering Jurisdiction. When a bank launders drug money in the United States, the government may file a civil enforcement action against the bank under 18 U.S.C. no. 1956 (b). We have filed such actions against domestic banks in the past, and will do so against foreign banks, as the circumstances warrant. However, our ability to bring such an enforcement action is limited by the absence of a federal "long-arm" statute giving the federal courts in personam jurisdiction over foreign banks that violate U.S. money laundering laws. Also, the government's ability to recover against foreign defendants in a no. 1956 (b) action is limited by the absence of any provision explicitly authorizing the court to restrain the defendants' property in the U.S. pre-trial to ensure its availability to satisfy the civil judgment. Section 7 of H.R. 3745 addresses both problems. -- Proceeds of Parallel Transactions/Continuing Offense. Money laundering often proceeds through several steps -- the initial placement,then a series of layering transactions, until it reaches a final destination. Under current law, each step in the money laundering cycle must be charged as a separate offense, and the government must prove that each offense involves the proceeds of "specified unlawful activity" [footnote 5]. Thus, any instance where a defendant deposited the drug proceeds into one account, but then committed the next step in the scheme by transferring money from a separate account, posed a problem for the prosecutors; while the second step in the scheme would have to be charged as a separate offense, it would not necessarily be one involving drug proceeds. Section 12 of H.R. 3745 addresses part of this problem by permitting the government to charge money laundering as a continuing course of conduct. Another provision added to the bill addresses the rest of the problem by treating money involved in both parts of a parallel transaction as criminal proceeds. -- Commingled Bank Accounts. The amendments at the subcommittee mark-up also address another problem involving the laundering of funds that are commingled with other funds in the same bank account. In United States v. Rutgard, 108 F.3d 1041 (9th Cir. 1997), a defendant, who was ultimately convicted of health care fraud, wire transferred millions of dollars from his bank account in California to an account in the Isle of Man when he became aware that he was under investigation. The government charged the defendant with money laundering under no. 1957, alleging that the money transferred to the Isle of Man was the proceeds of the fraud scheme. But the Ninth Circuit held that because the California account contained commingled funds, some of which were from a legitimate source, the defendant was entitled to a presumption that the criminal proceeds remained in the California account while the legitimate funds were transferred overseas. Thus, the Court reversed the defendant's money laundering conviction. The subcommittee mark-up amendments reject this "criminal proceeds -- last out" rule and provides that when a defendant transfers funds from a bank account containing commingled funds, the presumption is that transfer involves the illegally obtained money. -- Foreign Bank and Business Records. To recover laundered funds, the government often needs to obtain access to foreign business and bank records and admit them into evidence. Under present law, access to foreign records is limited, particularly in "bank secrecy" jurisdictions, and there is no provision for the admission of foreign business records into evidence in federal court. Sections 5 and 11 of H.R. 3745 address both problems, respectively. The former provision forces persons challenging civil or criminal forfeiture actions to release relevant bank records, notwithstanding the bank secrecy laws of the country where the laundered funds are located. The latter provision provides a mechanism for admitting foreign business records into evidence. -- Money Laundered Through a Foreign Bank. Under certain circumstances, the present money laundering laws do not apply to money laundered through a foreign bank. Section 7 of H.R. 3745 addresses this problem with a technical correction to the definition of a "financial institution." -- Subpoenas for Bank Records. As the government proceeds in a criminal investigation, typically we find that some of the bank accounts to which the laundered funds were sent have been closed. To determine what happened to the money, the government will need to subpoena bank records. Under present law, there is no mechanism for subpoenaing bank records in the course of a civil forfeiture investigation; under 18 U.S.C. no. 986, records can be subpoenaed only after a complaint is filed. Section 10 of H.R. 3745 solves this problem by authorizing the issuance of bank subpoenas before a complaint is filed so that the evidence needed to draft the complaint can be gathered. b. International Crime Control Act of 1998 (ICCA) The Administration has also sent Congress a wide-ranging proposal dealing with other aspects of global criminal activity called the International Crime Control Act of 1998 (ICCA). The ICCA would substantially improve the ability of U.S. law enforcement agencies to investigate and prosecute international criminals and, in particular, to seize and forfeit their assets. Many of the provisions of the Money Laundering Act discussed above are included in the ICCA. For example, provisions of the bill would expand the scope of money laundering "predicate crimes" to include certain violent crimes, international terrorism, and public corruption against foreign governments; allow for the immediate seizure in the United States of bank accounts of drug traffickers and money launderers who are arrested abroad; and create a long-arm statute giving U.S. authorities jurisdiction over foreign banks who launder money and who maintain a bank account in the United States. The bill contains a provision that appears in H.R. 4005 clarifying the law applying criminal penalties to violations of Geographic Targeting Orders issued under the BSA. These and the other provisions of the ICCA would give U.S. law enforcement important new tools to fight international criminals and to reduce the impact of their activities on Americans. c. Other Legislation. One last Administration proposal that is not included in any of the pending money laundering bills concerns the pre-trial restraint of substitute assets. A Ninth Circuit rule bars the restraint of such assets in criminal cases [footnote 6]. Other circuits permit the issuance of such restraining orders to ensure that the property subject to forfeiture as substitute assets will be available at the end of the trial [footnote 7]. The question is one of statutory interpretation, and is vitally important in money laundering cases because the assets directly involved in the criminal violation are seldom identifiable by the time of trial due to the nature of the offense. Section 46 of H.R. 1965, another House bill, addresses this problem by authorizing the pre-trial restraint of substitute assets in criminal cases. We request that such a provision be included in any money laundering legislation considered this year. Conclusion I would like to conclude by expressing the appreciation of the Department of Justice for the firm support that the Chairman and this Committee have demonstrated for our anti-money laundering and asset forfeiture activities. Stemming the level of drug proceeds money laundering in this country and abroad remains a top priority for the Administration and the Department. I will gladly try to respond to any questions you may have at this time. FOOTNOTES: (1) Both U. S. and Colombian law enforcement believe that billions of dollars worth of drug proceeds generated in the United States are laundered through the Colombian black market peso exchange in Bogota and elsewhere in Colombia, and these narcodollars supply the funds for the movement of billions of dollars worth of smuggled goods such as cigarettes, alcohol products and electronic goods into Colombia. Thus, attacking smuggling of consumer and other goods into Colombia indirectly attacks the system by which narcotraffickers are being paid for their product. (2) There is one minor point with respect to the transfer of Section 6050I to Title 31. The bill would codify the new provision as 31 U.S.C. no.5313A. Simply to avoid confusion no.no. 5313(a) and 5313A, it might be preferable to give the new statute another designation. (3) See United States v. Funds Seized From Account Number 20548408 at Baybank, N.A., 1995 WL 381659 (D. Mass. 1995) (wealthy Colombian who purchased 182 dollar-denominated money orders totaling $100,000 was innocent owner; he had no duty to inquire as to source of the money); United States v. Real Property 874 Gartel Drive, 79 F.3d 918 (9th Cir. 1996) (in contrast to other innocent owner statutes, claimant in a money laundering case governed by no. 981(a)(2) can prevail simply by showing lack of knowledge; there is no requirement that claimant take all reasonable steps to avoid acquiring criminal proceeds); United States v. $705,270.00 in U.S. Currency, 820 F. Supp. 1398, 1402 (S.D. Fla. 1993) (because no. 981(a)(2) does not contain a consent prong, the "all reasonable steps" test does not apply). (4) See e.g. United States v. One Parcel of Real Estate (1012 Germantown Road), 963 F.2d 1496 (11th Cir. 1992) (in drug cases, innocent owner defense requires proof that claimant "took all reasonable steps to prevent illegal use of his property"); United States v. Property Identified as 1813 15th Street, N.W., 956 F. Supp. 1029 (D.D.C. 1997) (taking "some" steps to bar drug dealers from property not sufficient; landlady must take all reasonable steps, such as evicting tenants convicted of drug offenses); United States v. 5.382 Acres, 871 F. Supp. 880 (W.D. Va. 1994) ("Unless an owner with knowledge can prove every action, reasonable under the circumstances, was taken to curtail drug-related activity, consent is inferred and the property is subject to forfeiture"). (5) See United States v. Kramer, 73 F.3d 1067 (11th Cir. 1996) ("transfer" under no. 1956(a)(2) is not a continuing offense; each transfer is a separate offense). (6) United States v. Ripinsky, 20 F.3d 359 (9th Cir. 1994). (7) In Re Billman, 915 F.2d 916 (4th Cir. 1990). (end text)