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Mr. Chairman and members of the Subcommittee, I am John Byrne, Senior Counsel and

Compliance Manager, with the American Bankers Association, Washington, D.C. I am pleased to be here today to present the views of ABA on the broad issue of money laundering prevention and the "Money Laundering Act of 2000." We want to salute you, Mr. Chairman, for your continuing efforts to combat money laundering.

The ABA brings together all categories of banking institutions to best represent the interests of this rapidly changing industry. Its membership - which includes community, regional and money center banks and holding companies, as well as savings associations, trust companies and savings banks- makes ABA the largest bank trade association in the country.

Mr. Chairman, the banking industry has a long history of support for government efforts

directed at money laundering prevention, but we have also frequently raised concerns about the various mandates crafted to address that worthy goal. You have asked for our views regarding the Administration's proposal. Before we offer some brief comments on that initiative, I would like to present some general comments regarding how the industry views the 15 year anti-money laundering efforts through the current statutory and regulatory structures.

Therefore, in my statement today, I will cover the following three areas:

• The critical need for requiring all financial service providers to report possible violations of law;
• The importance of reforming the civil asset forfeiture laws before passing ANY new forfeiture provisions; and
• Ensuring that enhancing prosecutorial tools for money laundering by foreign entities does not result in retribution against domestic financial institutions or the creation of extensive new burdens on our industry.

Mr. Chairman, the American Bankers Association has participated in every congressional debate regarding the subject of money laundering since 1985. In fact, the ABA was privileged to work with you and your staff when the original crime of money laundering was created in 1986. Since that time, the banking industry has made money laundering awareness and prevention a key element in employee training and education for all banks, and we are proud of the fact that bankers have assisted law enforcement in many successful prosecutions of money laundering violations. It should also be emphasized, however, that the banking industry remains virtually alone in the private sector as partners in this effort because of the woeful lack of requirements on other financial service providers to prevent and report possible violations of law. The ABA is skeptical of the value of enacting new laws and regulations affecting the banking industry as long as there remains this regulatory "chasm" between banks and everyone else. This is not just a problem for banks; money launderers know the "holes" in the system and are certainly using non-banks for their criminal activities.

In addition to the criminal statutes covering money laundering, the banking industry has had to comply with the Bank Secrecy Act (BSA). This law, enacted in 1970 (PL 91-508), was created "to require certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings." The BSA is a reporting and recordkeeping mandate that, in general, requires the filing of currency transaction reports (CTRs) for cash transactions over $10,000. This statute has been costly for the industry to implement, but we acknowledge that it has achieved some success in the money laundering prevention area. Whether or not the benefits have been worth the resource allocation is an issue that should continue to be addressed.

In 1993, Mr. Chairman, I authored a law review article on the subject of BSA burdens on our industry and their relative lack of utility. I pointed out that the BSA regulations have not always been consistent with the 1970 goals mentioned above, and that subsequent changes to the Act "have resulted in a patchwork of regulations and laws that have saddled financial institutions with many responsibilities" that have "never been subject to any thorough analysis of whether they have (or will) fulfill the intended purpose of the BSA."

Congress and the agencies also believed there was a need to change how cash transactions were filed and as a result passed the 1994 Money Laundering

Suppression Act. This law received widespread support, in part, because of the

Congressional concern that routine CTRs "are expensive for financial institutions to file and for the Treasury to process, and [they] impede law enforcement by cluttering Treasury's CTR database." We appreciated your efforts then, and we are pleased with the forum you are providing now, to continue the debate on the laws affecting money laundering issues.

The 1994 statutory changes to the CTR reporting system were finally implemented by Treasury's Financial Crimes Enforcement Network (FinCEN) in 1998, and financial institutions may now reduce, to a one-time filing, cash reports of many retailers, governmental agencies and other legitimate entities. FinCEN deserves much credit for actively seeking industry input while trying to improve an old and cumbersome system. Since banks file millions of routine CTRs each year, a mandate to reduce those filings was indeed welcome. While this revised system is still relatively new, unfortunately the number of CTR filings is not dropping as dramatically as both the industry and the government had hoped. If the filings remain at these very high levels, the usefulness of cash reporting for law enforcement purposes will continue to be called into question. ABA will continue to urge our members to take advantage of the new system but this is an area that bears watching. If there is no change, ABA would recommend that after a reasonable period of time additional changes to the filing of routine CTRs should be considered, such as increasing the threshold for reporting.

The high volume of CTR reports is another area that should receive attention prior to enacting any additional money laundering related laws.

Finally, ABA asks that Congress revisit another BSA-related mandate.

In 1990, the Treasury Department required financial institutions to maintain a centralized

chronological "log" of all sales of certain monetary instruments purchased with over $3000 in cash. These instruments, (cashier's checks, traveler's checks or money orders) had been characterized by law enforcement as tools to move illegal monies through the banking system.

Since law enforcement failed to request copies of those logs for several years, the banking industry requested a change in this recordkeeping mandate. Treasury agreed and eliminated the log requirement in 1994 by allowing banks to retain the statutorily required information in any format as long as it was accessible within a reasonable period of time. The banking industry applauded the move in concept, but because the information was still required by law, many institutions have retained a monetary instrument log as the only practical method of compliance. This is an unacceptable burden to the industry and runs contrary to the intent of the Treasury Department.

To remedy this inequity, we recommend an amendment to the original statute that completes the 1994 effort by Treasury to both streamline Bank Secrecy Act recordkeeping requirements and "increase the effectiveness of institutions operating under the BSA to detect and report actual or potential money laundering." Under our proposal, financial institutions would still be required to verify the identity of the customer or noncustomer purchasing the monetary instrument and report

possible criminal activity engaged in by those individuals. However, instead of retaining all of the information on the purchase of the monetary instrument, financial institutions would be required to simply maintain a copy of the instrument purchased for the 5-year retention period under the Bank Secrecy Act. Verification of accountholders would be the same as today, that is by looking at the signature card. Nonaccountholder purchases would need a record of the identification verification, as the Treasury now requires. Therefore, banks would need additional information for nonaccountholders sales but would only have to keep copies of the instrument for account-holders.

This change can be accomplished by amending 31 USC 5325 (a)(1)(B) to read:

(1) the individual has a transaction account with such financial institution and the

financial institution -

(A) verifies that fact through a signature card or other information maintained by

such institution in connection with the account of such individual ; and

(B) retains a copy of the monetary instrument sold.

Mr. Chairman, this change will result in a cost savings to the industry but, more importantly, will eliminate a requirement that neither the industry nor the government believes has any utility.

Mr. Chairman, the American Bankers Association has also been a strong supporter of utilizing the civil and criminal forfeiture laws as deterrents to crime. Once again, the forfeiture laws are yet another example of well-intended laws having negative and harmful effects on legitimate commerce. ABA, and many other business organizations, have lent their support to H.R. 1658, a bill that would, for the first time, place the burden of proof in a civil forfeiture case on the government instead of the individual or company. That measure has overwhelmingly passed the House and is now being considered in the Senate. (We support a similar measure, S. 1931 that is also receiving extensive backing by the business community)

The financial services industry has long sought improvements to the forfeiture process where "innocent owners or lienholders" are harmed by a system that delay justice and unfairly increases costs. As you have pointed out, Mr. Chairman, we need to balance reforms on the one hand, with consideration of the "rights of innocent third-parties and principles of due process" on the other.

We are hopeful that a reform bill can pass this year, due to the areas of agreement from both proponents of the House bill and the Administration. It has been especially encouraging that the Department of Justice has stated its support for changing the burden of proof and a uniform innocent owner defense. ABA urges all sides to work together to move a bill this year, and we will be happy to assist in that endeavor in a useful and productive manner.

It is important, Mr. Chairman, that, in order to achieve this goal, Congress not enact any other laws modifying the forfeiture laws until the necessary reforms are made. There are a number of amendments to the forfeiture laws included in the Money Laundering Act of 2000. These provisions, no matter how laudable, should not be permitted to move through the Congress until such time as there is an agreement on civil asset forfeiture reform. We believe this can occur during this session.

Let me now turn to our general comments on the Administration's anti-money laundering proposal. First, we would like to commend the Administration for many of the elements contained in its September 1999 Strategy relating to the need for cooperation with the private sector. As an original and current member of the Treasury Department's BSA Advisory Group, I know first hand the value of working with the government on issues of common ground. For example, there is an ongoing effort to develop new ways of providing feedback to the industry on the results of the Suspicious Activity Reporting process. Feedback will enable us to better train our employees on how to report criminal activity that assist in prosecuting criminals and further protecting customer privacy. We hope that not only will we be able to work with you, Mr. Chairman, on this and any other money laundering related proposals, but that the Administration will continue to recognize the value of having input on operational and other effects that any new proposal may have on our industry.

The 1999 draft of the proposal is designed to "address the international laundering of criminal proceeds" and to grant prosecutors added tools to use against foreign criminals. Mr. Chairman, we share those goals, but we have concerns that U.S. banks may be subject to retaliation by foreign jurisdictions where we are engaged in business. In addition, the industry has expressed fears that the expansion of the list of "specified unlawful activities" which constitute the predicate offenses for money laundering may place an untenable burden on U.S. banks to have to understand the nuances of foreign laws. We hope that, as the Congress considers this bill, these questions can be resolved.

The following are comments on specific portions of the bill:

This section clarifies the knowledge requirement for prosecutors so that it is sufficient to prove the operation of an illegal money transmitting business by showing that the defendant knew that the money transmitter was unlicensed and that a license was required by state law. We think this is a useful change and may help stem the increase in money laundering by illegal money transmitters.

These sections-- which grant access to U.S. officials of records in bank secrecy jurisdictions, create a "long-arm statute" for foreign money launderers and make it a crime to launder money through foreign banks are all worthy and important law enforcement goals. As we stated above, the industry is concerned about retaliation against our banks in those countries and simply asks for a thorough discussion of this matter. It would be helpful to know the views of the State Department. We respectfully urge the Congress to clarify this question.

The Justice Department has voiced strong support for expanding the list of foreign crimes for which money laundering prosecutions may be brought. While it is true that there are already several foreign offenses that are predicates for money laundering, the addition of some of the new crimes presents new challenges to the U.S. banking industry. For example, the addition of fraud against a foreign government may force a financial institution to have to be aware of what constitutes a violation of foreign law that is not a crime in our country. We are not suggesting that a bank might be unwilling to report a crime about which it has direct knowledge to our government. Instead, we are concerned about instances of "capital flight" whereby a foreign customer is simply moving his or her funds to a U.S. institution because of fear of economic or political instability. If moving those funds is a "crime" in the host country, we could be liable for failure to report such a transaction and if we are required to report this legitimate activity, we run the very real risk of losing customers who are not criminals to institutions outside of the United States.

Mr. Chairman, ABA is opposed to any changes that place our industry in this untenable situation.

The Administration is also seeking a change to 31 USC 5331 creating a new bulk cash smuggling offense. This change, also in Rep. Roukema's H.R. 240, gives the government another strong weapon against smugglers and should be adopted, but only after the reform of the civil asset forfeiture laws that we have mentioned above.

As Congress grapples with these issues, ABA would ask that you consider an additional proposal. Another related issue is the inability of banks to disclose the fact that former employees were terminated for committing fraud against an institution. Insider abuse and bank frauds have been the focus of industry and governmental concern for many years. Fraud losses are in the billions of dollars, and banks have stepped up their efforts to report possible crimes, improve investigative techniques and create fraud deterrence programs. Congress has increased the penalties for fraud and for hiring individuals that have been convicted of crimes against financial institutions.

Unfortunately, not all reports are investigated due to limited government resources, so crooked employees often go unpunished. In addition, financial institutions cannot inform another institution that an employee was terminated for theft or embezzlement for fear of lawsuit. Several states (eleven, at last count) have remedied this situation by granting liability protection to employers who respond to requests for employee work records including advising of "any involvement in a theft, embezzlement, misappropriation, or other defalcation by the subject for which the request for reference is made." [See 8-2-111.5 of the Colorado Statutes]

In order to protect financial institutions from hiring individuals that have already committed fraud against another institution, we urge the Congress to consider a change that grants liability protection for assisting other institutions. Financial institutions need this liability protection to improve the tools at their disposal for ensuring the safety and soundness of our financial industry. It should be noted that the Senate is currently considering a bill with a similar provision (S. 1663) and the House Banking Committee Chairman has that section included in H.R. 2896.

Mr. Chairman, as more and more requirements are placed on the banking industry, we need strong protection against potential problems--this section would accomplish that.

The American Bankers Association appreciates the opportunity to discuss these issues and we welcome being part of this important debate. We look forward to continuing to work with you and your staff. I would be happy to answer any questions.