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Letter to House and Senate banking Committees regarding the Anti-Money Laundering Proposals of Anti-Terrorism Legislation

Letter to House and Senate banking Committees regarding the Anti-Money Laundering Proposals of Anti-Terrorism Legislation

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Letter to House and Senate banking Committees regarding the Anti-Money Laundering Proposals of Anti-Terrorism Legislation
Letter to House and Senate banking Committees regarding the Anti-Money Laundering Proposals of Anti-Terrorism Legislation

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Letter to House and Senate banking Committees regarding the Anti-Money LaunderingProposals of Anti-Terrorism LegislationOctober 22, 2001The Honorable Paul Sarbanes The Honorable Michael Oxley309 Hart Senate Office Bldg 2233 Rayburn House Office BldgWashington, DC 20510 Washington, DC 20515The Honorable Phil Gramm The Honorable John LaFalce370 Russell Senate Office Bldg 2310 Rayburn House Office BldgWashington, DC 20510 Washington, DC 20515Re: Anti-Money Laundering Proposals of Anti-Terrorism LegislationDear Members of Congress:The anti-money laundering proposals of the House (the Financial Anti-TerrorismAct, H.R. 3004) and the Senate (Title III of the Uniting and Strengthening AmericaAct, S. 1510) deserve closer scrutiny. To paraphrase the title of a movie, manyof the provisions can be called the good, the bad, and those needing cosmeticsurgery. We urge Congress to review some of those sections more closely and makethe necessary changes.While we are encouraged by many of the changes proposed in National MoneyLaundering Strategy of 2001, we need to recognize the many reported failures ofthe anti-money laundering policies the Administration inherited. A bank filedreports to the Financial Crimes Enforcement Network (FinCEN) on transactionstotaling about $100,000 on Mohamed Atta, the reported mastermind of the planehighjackings; however, these reports did not initiate an investigation. Althoughthe United States and the United Nations have attempted to freeze bin Laden’sassets since the U.S. embassy bombings in Africa in 1998, no accounts had beenidentified, nor assets frozen, until after the attacks on the World Trade Centerand the Pentagon (with no new tools for law enforcement). The filing ofSuspicious Activity Reports (SARs) on double agent Aldrich Ames failed to triggeran investigation. Only a miniscule percentage of Currency Transaction Reports(CTRs) are ever used in a criminal conviction. The Bank of New York did not fileany SARs on the questionable accounts until after bank officials were notifiedthose accounts were under investigation.We do not need more of the same types of policies that failed to prevent thetragedies of September 11th. The Strategy institutes objective means to measureeffectiveness and will alter policies accordingly--as well as recognizes the needto balance concerns of privacy and regulatory burden.According to leaked preliminary forecasts from the Organization for Economic Co-operation and Development, this year is likely to be the worst for the world'sleading economies in two decades, and it is not likely to improved much next year.Deteriorating loan quality, increase of loan loss reserves, and increasedinsurance claims for September 11th, all call for reduced—not increased—regulatoryburden.We must be mindful of the law of unintended consequences. Most dangerously, theglobal Know Your Customer campaign has actually increased terrorist stateinfluence in the Caribbean. In a situation where poverty and resentment breedterrorism, Libya has taken advantage of economic hardship in the region (whereprivate banking business is off 30-50% year-on-year while FATF-related costs areescalating) by offering development assistance.
Since the World Trade Center and Pentagon tragedies, tourism has been severelyaffected in the region. The hotel occupancy rate in the Cayman Islands is lessthan 10%, down from a seasonal norm of around 50%, and cancellations continue toincrease. Other islands in the region report a significant decline.“The Good”Authorization to Include Suspicions of Illegal Activity in Written EmploymentReferences (Senate Sec. 335, House Sec. 208): The current inability of financialinstitutions to share suspicions of an employee’s potentially unlawful activity inwritten employment references with other financial institutions hinders thesystem’s ability to weed out potential problem workers who could gain access tocustomers’ sensitive financial information. By not immunizing the bank fromliability that disclosed information about an employee that it knew to be false,or when a bank acted with malice or reckless disregard for the truth, the sectionstrikes the right balance.Bank Secrecy Act Advisory Group (Senate Sec. 336): Adds a representative of anongovernmental organization advocating financial privacy to the Bank Secrecy ActAdvisory Group.Agency Reports on Reconciling Penalty Amounts. (Senate Sec. 337): Directs theSecretary of the Treasury and the Federal banking agencies to submit respectivereports to Congress containing recommendations on possible legislation to conformthe penalties imposed on depository institutions for violations the anti-moneylaundering laws to the penalties imposed on such institutions for safety andsoundness.Unfortunately, “Increase in Civil and Criminal Penalties for Money Laundering”(Senate Sec. 324) and “Penalties for violations of geographic targeting orders andcertain recordkeeping requirements, and lengthening effective period of geographictargeting orders” (Senate Sec. 333, House Sec. 109) go against this spirit ofbalance and proportion and should be reviewed following the reports to Congress.The addition of “Reporting of Suspicious Activities by Securities Brokers andDealers” (Senate Sec. 338) and “Suspicious Activity Reporting Requirements” (HouseSec. 206) should be understood in the context of the Administration’s Strategywhich would require its review for effectiveness and should be abandoned if notsuccessful preventing terrorism.Efficient Use of Currency Transaction Reporting System (House Sec. 204):Acknowledges that current policies result in the government being inundated withmillions of reports that are of no value in identifying potential money launderingor other financial crimes, thereby interfering with effective law enforcement.The section requires the Secretary of the Treasury to report to Congress onpossible ways to expand the statutory exemptions to the CTR requirement availableunder current law; the methods for improving compliance by financial institutionswith the exemptions; and, unfortunately, the possibility of establishing sanctionsor creating incentives for financial institutions that routinely file CTRs thatare covered by a statutory exemption.One way to expand the exemptions would be to adjust the CTR threshold forinflation to $40,000 (the $10,000 limit has never been raised since the BankSecrecy Act was passed in 1970). “Establishing sanctions” instead of easing theregulatory burden is exactly the opposite of what we need to do.Public-Private Task Force on Terrorist Financing Issues (House Sec. 205): Workingunder the existing Bank Secrecy Act Advisory Group, this task force could helpcorrect the fatal conceit that government employees have a monopoly on expertise,knowledge and good ideas.
Prohibition of False Statements to Financial Institutions Concerning the Identityof a Customer (House Sec. 118, the new Sec. 1008): Reasonably serves to protectfinancial institutions from people who falsely identify themselves. Financialinstitutions should have the right to know whom they are doing business with inorder to protect themselves from fraud.“The Bad”Bulk Cash Smuggling Into or Out of the United States and Forfeiture in CurrencyReporting Cases Senate (Senate Sec. 351, House Sec. 101 & 102): Creates thepurportedly new federal crime of "bulk cash smuggling" (punishable by up to fiveyears in prison), imposes a form of capital controls, and authorizes theconfiscation of money. These provisions would undermine the Civil AssetForfeiture Reform Act (CAFRA). While Section 101 purports to create a new offensecalled "bulk cash smuggling," it actually covers conduct that is already criminalunder existing statutes.The true purpose of this section and Section 102 is to overrule the Supreme Courtdecision United States v. Bajakajian (which was codified by CAFRA). In thatdecision, Justice Thomas wrote that the held that forfeiture of $357,144 for amere currency reporting violation was "grossly disproportional" to the gravity ofthat offense. This is a blatant and unseemly attempt to overrule United States v.Bajakajian. Contrary to Bajakajian, the House bill emasculates judicialdiscretion to reduce or reject unfair forfeiture of "clean money." Under theregressive rule created by this legislation, the burden would be on the owner toprove that the money came from a legitimate source; even if the owner leaps thathurdle, the government would keep the maximum amount that is not grosslydisproportional to the gravity of the offense.Since terrorism is not financially driven like other crimes we try to combat withmoney laundering (such as the illegal drug trade), the main benefit of theseefforts is the information learned of their operations. A better approach thanthe bulk cash smuggling proposals might be to take advantage of the uniquehistorical circumstances (new global commitment against terrorism, the changeoverto the euro, new technologies, etc.) and follow the lead of Italy and offer a one-time amnesty under certain conditions. The information gained could be used todismantle terrorist organizations.Laundering the Proceeds of Terrorism (Senate Sec. 315, House Sec. 107): Unwiselyexpands the already sweeping list of crimes that constitute money launderingpredicates -- and for which forfeiture is authorized -- to include numerousforeign offenses. The would-be predicates raise serious policy concerns and donot seem to further the money laundering statutes' purported purpose or the fightagainst terrorism. For example, itadds US Munitions List and other export violations (against a foreign nation),thereby converting many minor regulatory offenses into money laundering offenses;and also adds crimes for which treaty extradition is available, thereby openingthe door for money laundering prosecutions for a kaleidoscope of crimes that maynot be money laundering predicates if committed in the United States and may notbe substantial enough to warrant money laundering charges and their enormouspenalties.Long-arm jurisdiction over foreign money launderers (Senate Sec. 317, House Sec.104): Adds 18 USC Section 1957, which broadly prohibits transactions involvingillegal proceeds of a value greater than $10,000, to the list of offenses forwhich certain civil penalties apply. Since Section 1957 serves no social purposeand is subject to vast abuse, it should not be expanded.

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