[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                    H.R. 5341, THE SEASONED CUSTOMER

                       CTR EXEMPTION ACT OF 2006

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
               FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 18, 2006

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-95




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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
RON PAUL, Texas                      JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       JOSEPH CROWLEY, New York
VITO FOSSELLA, New York              WM. LACY CLAY, Missouri
GARY G. MILLER, California           STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio              CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota           JOE BACA, California
TOM FEENEY, Florida                  JIM MATHESON, Utah
JEB HENSARLING, Texas                STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina   ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida            AL GREEN, Texas
RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania            MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin,
TOM PRICE, Georgia                    
MICHAEL G. FITZPATRICK,              BERNARD SANDERS, Vermont
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California

                 Robert U. Foster, III, Staff Director
       Subcommittee on Financial Institutions and Consumer Credit

                   SPENCER BACHUS, Alabama, Chairman

WALTER B. JONES, Jr., North          BERNARD SANDERS, Vermont
    Carolina, Vice Chairman          CAROLYN B. MALONEY, New York
RICHARD H. BAKER, Louisiana          MELVIN L. WATT, North Carolina
MICHAEL N. CASTLE, Delaware          GARY L. ACKERMAN, New York
EDWARD R. ROYCE, California          BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
SUE W. KELLY, New York               LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      DENNIS MOORE, Kansas
PAUL E. GILLMOR, Ohio                PAUL E. KANJORSKI, Pennsylvania
JIM RYUN, Kansas                     MAXINE WATERS, California
STEVEN C. LaTOURETTE, Ohio           DARLENE HOOLEY, Oregon
JUDY BIGGERT, Illinois               JULIA CARSON, Indiana
VITO FOSSELLA, New York              HAROLD E. FORD, Jr., Tennessee
GARY G. MILLER, California           RUBEN HINOJOSA, Texas
PATRICK J. TIBERI, Ohio              JOSEPH CROWLEY, New York
TOM FEENEY, Florida                  STEVE ISRAEL, New York
JEB HENSARLING, Texas                CAROLYN McCARTHY, New York
SCOTT GARRETT, New Jersey            JOE BACA, California
GINNY BROWN-WAITE, Florida           AL GREEN, Texas
J. GRESHAM BARRETT, South Carolina   GWEN MOORE, Wisconsin
RICK RENZI, Arizona                  WM. LACY CLAY, Missouri
STEVAN PEARCE, New Mexico            JIM MATHESON, Utah
RANDY NEUGEBAUER, Texas              BARNEY FRANK, Massachusetts
TOM PRICE, Georgia
PATRICK T. McHENRY, North Carolina
MICHAEL G. OXLEY, Ohio

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 18, 2006.................................................     1
Appendix:
    May 18, 2006.................................................    45

                               WITNESSES
                         Thursday, May 18, 2006

DelliColli, Kevin A., Deputy Assistant Director, Financial and 
  Trade Investigations, Office of Investigations, U.S. 
  Immigration and Customs Enforcement, U.S. Department of 
  Homeland Security..............................................    12
Meyer, F. Weller, Chairman, President & CEO, Acacia Federal 
  Savings Bank, on behalf of America's Community Bankers.........    36
Morehart, Michael F.A., Chief, Terrorist Financing Operations 
  Section, Federal Bureau of Investigation, U.S. Department of 
  Justice........................................................     8
Rock, Bradley E., Chairman of the Board and President & CEO, Bank 
  of Smithtown, on behalf of the American Bankers Association....    39
Rowe, Robert, Regulatory Counsel, Independent Community Bankers 
  of America.....................................................    38
Werner, Robert W., Director, Financial Crimes Enforcement 
  Network, U.S. Department of the Treasury.......................     7

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    46
    Bachus, Hon. Spencer.........................................    49
    Hinojosa, Hon. Ruben.........................................    52
    DelliColli, Kevin A..........................................    53
    Meyer, F. Weller.............................................    70
    Morehart, Michael F.A........................................    78
    Rock, Bradley E..............................................    87
    Rowe, Robert.................................................    99
    Werner, Robert W.............................................   107

              Additional Material Submitted for the Record

    Letter from B. Dan Berger, NAFCU, in Support of H.R. 5341....   112
    GAO Testimony Before the U.S. Senate.........................   114
    Letter from the Financial Services Roundtable in Support of 
      H.R. 5341..................................................   128
Hon. Sue Kelly:
    Responses to Questions Submitted to Michael Morehart.........   130
    Responses to Questions Submitted to Bradley Rock.............   132
    Responses to Questions Submitted to Robert Werner............   133


                    H.R. 5341, THE SEASONED CUSTOMER



                       CTR EXEMPTION ACT OF 2006

                              ----------                              


                         Thursday, May 18, 2006

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:10 p.m., in 
room 2128, Rayburn House Office Building, Hon. Spencer Bachus 
[chairman of the subcommittee] presiding.
    Present: Representatives Bachus, Kelly, Ryun, Biggert, 
Tiberi, Feeney, Hensarling, Garrett, Neugebauer, McHenry, 
Maloney, Sherman, Moore, Hinojosa, Clay, Israel, McCarthy, 
Matheson, and Green.
    Also present: Ms. Wasserman-Schultz of Florida.
    Chairman Bachus. Today the Subcommittee on Financial 
Institutions and Consumer Credit meets to consider H.R. 5341, 
the Seasoned Customer CTR Exemption Act of 2006, which I filed 
with the ranking member, Mr. Frank, and 16 other members of the 
committee, both Republicans and Democrats.
    It is identical to a provision in H.R. 3505, which passed 
the House on a vote of 415 to 2. The intention of the 
legislation is to reduce the number of CTR's on seasoned 
customers. Seasoned customers are individuals who operate a 
well-established business and make routine deposits of large 
amounts.
    That provision was not included in the Senate reg relief 
bill. Mr. Hensarling, I see, is here today, and he was the 
primary sponsor, along with Mr. Moore, of the reg relief bill. 
The Senate, it's my understanding, removed the CTR provision 
upon the request of FinCEN. FINCEN actually testified 
specifically before this committee on two occasions about the 
need for the provision, the credibility of the provision, and 
the fact that the provision would not impede law enforcement, 
but would actually be of value to law enforcement.
    So, today's hearing, as much as anything, is simply to go 
back--because I think we all agree that GAO, back in 1994, 
studied this issue at the request of the Senate. Now, the 
Senate has requested another GAO report, basically asking the 
same thing that it asked in 1994, which was answered by GAO in 
testimony before the committees. In response to an almost 
identical question posed in the GAO report requested by the FBI 
and FinCEN through the Senate, that question was answered. And 
the answer was--reading directly from the GAO report--``The 
CTR's filed on routine deposits by well-established businesses 
could and should be reduced. They impose cost on the government 
and the Nation's banking industry, and are unlikely to identify 
potential money laundering or other currency violations.''
    The same question, which was answered by GAO in 1994, has 
now been asked again. And part of the hearing today is to 
determine why we have had all these hearings, and why we have 
had one answer, why all of a sudden, some may say another 
answer may be appropriate today. I'm not saying that it's not. 
But we want to know what's changed in the past--not only in the 
past few months, but from all the other testimony that we have 
taken in the past.
    I do know that FinCEN--and this is quite disturbing to me--
Mr. Werner, you are going to testify before the committee 
today, but a month ago--at least in an interview, and I hope 
you were misquoted--you said that, ``The banking industry needs 
to prove that these CTR reports are not a burden on them.'' Yet 
FinCEN has testified before these committees that it is an 
unnecessary burden in the past.
    We have all sorts of government reports concluding that 
these reports are a burden. The U.S. Money Laundering Threat 
Assessment determined that they were an unnecessary burden on 
the financial industry. FinCEN, their own conservative estimate 
was that the cost of 25 minutes per report for filing and 
record keeping--per report, we're talking about 15 million 
reports, 25 minutes a report--5.5 million staff hours if we 
take your estimate as to the amount of time consumed. A cost 
approaching $200 million, just on reports on seasoned 
businesses such as Wal-Mart, Macy's, Cracker Barrel, and on and 
on.
    And on a positive note, I believe your testimony that you 
submitted, unlike maybe what was said a month ago, I think--and 
I never hold people to what I read in the paper, because I'm 
often misquoted, and often taken out of context--but according 
to your testimony today--and I want to compliment you on your 
written testimony--is that these can and should be reduced, and 
that this legislation is a step in the right direction.
    What I am hearing is that you are acknowledging that--and 
correct me if I'm wrong in your opening statement--but that you 
absolutely agree that we could reduce these reports by 30 or 40 
percent. They are an unnecessary burden on the industry and 
many of them are of absolutely no value to law enforcement, and 
finally, that you believe this legislation is--I think, as you 
described it--a step in the right direction.
    I do want to close by pointing out that the Secretary of 
the Treasury, according to the legislation sponsored by them 
that passed this Congress in 1994, required the Secretary of 
Treasury to submit an annual report to Congress for 5 years 
running about their attempts to reduce the overall number of 
currency transactions, and that the Secretary of Treasury, in 
this Act, is tasked with the job of reviewing, on an annual 
basis, and submitting suggestions for reducing the number of 
CTR's.
    So, I would be very interested, and I think FinCEN was 
tasked with that--to find out whether you all are, in fact--and 
I think Mr. Fox was doing this when he worked with this 
committee, and we fashioned this legislation, sat down and all 
agreed on it, is to how we can go forward with that.
    So, with that, Mr. Moore, do you have an opening statement? 
Thank you.
    Mr. Moore. Thank you, Mr. Chairman. Welcome to the 
witnesses, and I look forward to your testimony. I would like 
to thank my good friend, Chairman Bachus here, for convening 
today's hearing and for introducing H.R. 5341, the Seasoned 
Customer CTR Exemption Act, of which I am an original co-
sponsor.
    The Financial Services Committee has a strong record of 
bipartisanship, and I am glad that it is extended to this 
proceeding and this bill, as well. H.R. 5341 has 21 bipartisan 
co-sponsors from all different--all ends of the political 
spectrum. And I think I can speak for the bill's co-sponsors 
when I say that we all want to protect our country from money 
launderers, from terrorists, and from anyone else who wants to 
do harm to our country.
    As a former district attorney for 12 years, I certainly 
understand and appreciate the value of information that could 
aid in an investigation and eventually lead to prosecution. At 
the same time, I believe there is a way to strike a reasonable 
balance between ensuring our country's safety, and providing 
our financial institutions with a sensible regulatory framework 
in which to work. Waging a strong war on terror and providing 
reg relief to our financial institutions are not incompatible 
goals.
    As the agency charged with administering the Bank Secrecy 
Act, FinCEN received over 12 million CTR's from financial 
institutions in 2005, according to my information. I think 
Chairman Bachus covered this, so I'm going to skip part of my 
statement and--he covered this in his opening statement, so I 
will just skip some of the information and move right on to say 
that the banking industry estimates that the industry paid just 
under $200 million in wages for the staff time that it took 
last year alone to file CTR's.
    Nine years ago, in 1997, FinCEN promulgated new rules 
establishing categories of entities that are eligible for 
exemptions from CTR filings. But the process by which an 
exemption is granted to a financial institution is confusing 
and difficult to comply with, and consequently, many financial 
institutions end up filing unnecessary CTR's that strain 
resources.
    I look forward to hearing Director Werner's testimony today 
on the exemption process, in particular. And finally, I would 
note that under H.R. 5341, even when financial institutions 
receive an exemption from filing a CTR, if a particular 
transaction either above or below the $10,000 CTR trigger does 
not seem like a normal transaction to the bank, that 
institution is still required to file a suspicious activity 
report. Thank you, and I look forward to your testimony.
    Chairman Bachus. Mr. Ryun? Mr. Feeney? Mr. Hensarling?
    Mr. Hensarling. Thank you, Mr. Chairman. I want to thank 
you again for holding this hearing, although I must admit that 
I am a little disturbed that we have to be here in the first 
place. There are other things that I wish I could have been 
doing this afternoon.
    I am disturbed because I thought this was a matter that had 
already been settled. I thought that when we negotiated the 
financial services regulatory relief bill, I thought FinCEN was 
at the table. I thought ICE was at the table. I thought the FBI 
was at the table. I thought we negotiated something that, 
although perhaps no one was particularly enthused about, that 
it was something that was a balance that met the cost benefit 
test, and everyone could live with. And I think I'm waking up 
to the fact that either I was incorrect, or people are walking 
away from the negotiation.
    I mean, clearly, I didn't put everything in the legislation 
that I would have liked to have seen. Left to my own devices, 
we would have indexed CTR's to inflation. There are a lot of 
other things I would have done, but I thought I was sitting 
down with people and trying to negotiate a reasonable 
settlement here.
    Certainly we need not go back and re-cover the ground about 
the burden that BSA imposes on our banking industry, 
particularly our community banks. Clearly, some of that is 
necessary. But the question is, what is the proper balance? It 
is a question of balance.
    There is no doubt that, clearly, we need to do everything 
that is reasonable to ferret out money laundering, and 
terrorist financing. Clearly, they are among our Nation's 
greatest priorities. But we have to remember that these costs 
that are imposed upon our financial services industry are 
ultimately borne by the customers. And it's borne by the 
customers in having less credit and more expensive credit. That 
means fewer people can go and send their children to college. 
Fewer people can buy their first homes. Fewer small businesses 
are capitalized. Fewer jobs are created.
    And so, it again is a question of balance. I believe that 
the House, in a vote of 415 to 2, decided that the seasoned 
customer exemption struck that proper balance, which was a 
very, very strong affirmation by this body, that particularly 
when you juxtapose the CTR requirements against what's going on 
in SAR's with know-your-customer, that maybe we're not quite 
meeting the cost benefit test, and that maybe we're not quite 
meeting with the 14 million-some-odd SAR's that all of these 
reports have a high degree of usefulness in the prosecution of 
criminal activity.
    I have an open mind. It is not an empty mind, but it's an 
open mind. So I look forward to hearing from the law 
enforcement community in figuring out what has changed since 
the last time we met. So I do look forward to hearing that. But 
again, the seasoned customer exemption strikes me as a very, 
very reasonable approach to this situation that strikes the 
proper balance, frankly, between our physical security and our 
fiscal security. And with that, Mr. Chairman, I yield back.
    Chairman Bachus. Thank you. Mr. McHenry?
    Mr. McHenry. Thank you, Mr. Chairman. I just want to 
commend you for taking the leadership on this issue. I think 
it's important that we strike the proper balance of both safety 
and national security, along with what is necessary and proper 
for the private sector.
    And I want to echo what Jeb Hensarling, my colleague from 
Texas, said in this regard, that is our role in this committee 
to make sure that both protection in the market place is 
available for the customers, the consumers, those institutions 
that have to provide the data, as well as providing law 
enforcement with the means to ensure the safety of the American 
people.
    And so, to that end, I think this is a proper step in that 
role, and I look forward to an eventful hearing. Thank you, 
Chairman Bachus, for your leadership on this important issue, 
as well.
    Chairman Bachus. Thank you, Mr. McHenry. And Mr. Garrett, 
do you have an opening statement?
    Mr. Garrett. Yes. Thank you, Mr. Chairman. And again, also 
I applaud the chairman for holding this hearing on this 
important topic. I also appreciate the members of this panel 
for their work in keeping this country safe through your 
efforts.
    I do share Mr. Hensarling's comments about the concern 
about revisiting this issue. For that reason, perhaps we do 
need to revisit and once again point out the need for 
addressing the topic.
    And so, for the members of the second panel, I will say 
right now I appreciate right now their anticipated testimony as 
pointing out the complexity and also the burden of the current 
situation.
    You know, I think most people in the room know, as it goes 
back to the 1970's, when we realized the complex nature of 
financial products and the way the criminals were using 
finances in our banking industry, that this Congress realized 
that we needed to pass the BSA to try to reign in the criminal 
element, how they use our banks. But that was 36 years ago, and 
a lot has changed in all our lives--I was this big 36 years 
ago--but a lot has changed in the financial markets and 
elsewhere.
    So, why do we revisit today? Back then, of course, it was 
dealing with a fixed number in an original threshold of $10,000 
and $10,000 isn't what it was worth back in the 1970's. The 
criminal element, obviously, has changed their focus. They have 
changed their methodologies, they have changed their practices. 
And so we need to revisit it, and once again look to see 
whether we need to change things, as well, for the reason that 
we don't want people to be inundated or drowned in paperwork.
    For that reason, earlier this week I drafted a letter and 
sent it out to the Secretaries of Treasury and of Homeland 
Security, and to the Attorney General, asking if they could 
provide, with some specific questions and answers, the numbers 
regarding how the data is collected, and how specifically it is 
used, how it is kept, and also what we may hear today, exactly 
just how useful it is.
    At the end of the day, I think everyone on this panel from 
both sides of the aisle have the same objective in mind, and 
that is to gather data that is useful for deterring the 
criminal element, but not in a way that is going to be a 
tremendous burden or a regulatory burden, nor--on financial 
institutions--nor should it be cause of a significant privacy 
interest invasion, as well.
    We all have the same interests in mind in that regard, and 
so once again I look forward to your testimony, and likewise 
look forward to the testimony of the next panel, as well. And I 
yield back, Mr. Chairman.
    Chairman Bachus. Thank you. Mr. Sherman?
    Mr. Sherman. I think it makes sense for banks to be able to 
exempt some of their well-known customers from the reporting 
requirements, and it probably makes more sense for bank 
regulators to specify, through regulation, exactly how that 
process will work, rather than a system now that we have in 
statute, which makes it less than flexible, hard to amend, and 
at the same time, seems to lack the kind of workability that we 
would like to see in this area.
    So, I look forward to trying to make our system of banking 
and dealing with cash transactions work better, while at the 
same time achieving all of the security objectives we are 
trying to achieve.
    Chairman Bachus. Thank you. Mr. Neugebauer?
    Mr. Neugebauer. Well, thank you, Mr. Chairman. And I 
appreciate you bringing this issue back up, because like my 
friend from Texas, Mr. Hensarling, I am a little surprised that 
we have to be here today.
    You know, I was in the banking business in the middle--the 
early 1980's. And one of the things that--I know that things 
have changed since then. But unfortunately, some things haven't 
changed. And the fact that we are still dealing with a $10,000 
limit nearly 30 years later, and secondly, at a time when we 
have such tremendous technology available to us, you know, I 
think we need to have policy in this country that fosters and 
encourages us to use that technology today, and to identify 
those transactions that are suspicious, yet use the common 
sense approach that we have bankers and banking, and people in 
the financial services business all over this country that have 
knowledge of their customers, and they know the types of 
businesses they're in and the types of transactions they're in, 
and to rely on their ability and the technology that we have 
available to us today to be able to make common sense choices.
    Our national security is of utmost importance to every 
member of this panel. But we also understand that we can't put 
unreasonable burden on our businesses to do our law 
enforcement. Yet what we want to foster is a partnership with 
law enforcement, using common sense and the technology that we 
have today to focus on the information that may be most 
meaningful, and not to judge a financial institution's 
cooperativeness by the numbers of reports they file.
    And quite honestly, I have had bankers tell me--community 
bankers--that they have been written up because they just 
didn't have enough of those. Well, the fact is that maybe their 
customer base was such that they didn't have a lot of cash 
transactions. Or, in many cases, they knew the customer. And so 
I think we need to get away from this quantitative thing and 
look at the qualitative ways that we can monitor transactions 
in our country.
    And so I appreciate the chairman bringing this back up. And 
I thank you for the time, and I appreciate these witnesses 
coming today.
    Chairman Bachus. Are there other members who wish to make 
an opening statement?
    [No response]
    Chairman Bachus. If not, I would like to welcome our first 
panel, made up of Mr. Robert Werner, Director of the Financial 
Crimes Enforcement Network, U.S. Department of the Treasury; 
Mr. Michael Morehart, Chief, Terrorist Financing Operations for 
the FBI and U.S. Department of Justice; and Mr. Kevin 
DelliColli, Deputy Assistant Director, Financial and Trade 
Investigations, Office of Investigations, U.S. Immigration and 
Customs Enforcement, U.S. Department of Homeland Security.
    And at this time, we will hear your opening statements. Mr. 
Werner?

   STATEMENT OF ROBERT W. WERNER, DIRECTOR, FINANCIAL CRIMES 
      ENFORCEMENT NETWORK, U.S. DEPARTMENT OF THE TREASURY

    Mr. Werner. Chairman Bachus and distinguished members of 
the subcommittee, I appreciate the opportunity to appear before 
you today to discuss H.R. 5341, the Seasoned Customer CTR 
Exemption Act of 2006.
    Balancing the regulatory burdens imposed upon the financial 
services industry under the Bank Secrecy Act, while at the same 
time ensuring an unimpeded flow of useful information to law 
enforcement officials, is an ongoing challenge that requires 
the attention of law makers and regulators alike.
    As the recently appointed Director of the Financial Crimes 
Enforcement Network, which is responsible for administering the 
BSA, I take this issue seriously, and I look forward to working 
with the members of this subcommittee in our ongoing fight 
against illicit financial activity.
    I am happy to be here today with my law enforcement 
colleagues. Both of these agencies work tirelessly to keep our 
country safe from terrorist activity, and I am gratified that, 
in part, they accomplish their missions by utilizing financial 
information provided to FinCEN under the Bank Secrecy Act.
    Our partnership with these law enforcement agencies allows 
for the seamless flow and effective utilization of this 
critical information in our united fight against terrorist 
financing and money laundering. The BSA's recordkeeping and 
reporting requirements provide transparency in the financial 
system, and help create a financial trail that law enforcement 
and other agencies can use to track criminals, their 
activities, and their assets.
    Relevant to this hearing is the fact that reporting by 
financial institutions of CTR's has been a foundation of the 
Bank Secrecy Act since its inception. In fact, prior to 1996, 
when regulations issued by FinCEN and the Federal banking 
agencies required banks to file SAR's, CTR's were the primary 
BSA tool used by law enforcement to identify activity 
indicative of money laundering. Those SAR's have been required 
to be filed by a growing number of financial institution 
industries since 1996. These reports have augmented our ability 
to stem the flow of illicit financial transactions by providing 
different but often complementary types of data to CTR filings.
    Despite the efforts of FinCEN and industry groups to 
encourage use of the CTR exemption system that exists today, 
financial institutions have remained hesitant to do so. H.R. 
5341, like section 701 of H.R. 3505, which passed the House of 
Representatives in March, is an attempt to address this concern 
by reducing CTR reporting requirements for seasoned customers.
    My predecessor offered technical assistance to this 
committee on the CTR exemption language contained in H.R. 3505. 
Although we support the intent of this provision, which is to 
reduce unnecessary CTR filings, as well as the effort and 
expertise behind the assistance we provided, as we all 
recognize, it is imperative that we avoid undermining law 
enforcement's efforts to combat terrorist financing and money 
laundering.
    As such, we must be very attentive to reasonable concerns 
raised by law enforcement regarding the potential loss of the 
investigative value of CTR data presently collected. The 
ability of law enforcement to utilize BSA data has been 
improving at a rapid pace, in light of advances in technology 
and analytic practices. This has led to a concern on their part 
that we will end up losing data that, once excluded, we will be 
unable to assess the value of through subsequent data mining.
    Given the concern expressed by our law enforcement 
partners, we believe it would be prudent to permit further 
study of the issue before making any changes to the current 
exemption system. Such a study provides both the financial 
services industry and law enforcement an opportunity to define 
clearly, through an empirical study, those areas that represent 
either a compliance burden or the potential loss of benefit 
from useful data.
    Through such a cost benefit analysis, we may be able to 
highlight opportunities for the regulators, law enforcement, 
and the regulated community to achieve a balanced and workable 
alternative to the current regulatory regime.
    In conclusion, Mr. Chairman, we stand ready to assist you 
in reducing the number of CTR's that provide little or no value 
for law enforcement purposes. Like H.R. 3505, we believe that 
H.R. 5341 is a step in the right direction, but we share 
responsibility with you and law enforcement in considering any 
potential loss of BSA data law enforcement considers important 
to their investigations.
    Thank you for the opportunity to appear before you today. I 
look forward to any questions you have regarding my testimony.
    [The prepared statement of Mr. Werner can be found on page 
107 of the appendix.]
    Chairman Bachus. Thank you.
    Mr. Morehart?

STATEMENT OF MICHAEL F.A. MOREHART, CHIEF, TERRORIST FINANCING 
   OPERATIONS SECTION, FEDERAL BUREAU OF INVESTIGATION, U.S. 
                     DEPARTMENT OF JUSTICE

    Mr. Morehart. Thank you, Mr. Chairman, and distinguished 
members of the subcommittee. On behalf of the FBI, I am honored 
to appear before you today to discuss the FBI's efforts to 
disrupt and dismantle national and international money 
laundering operations, and the operational impact of the 
successful utilization of information obtained from the 
financial sector.
    Chief among the investigative responsibilities of the FBI 
is the mission to proactively neutralize threats to the 
economic and national security of the United States. Whether 
motivated by criminal greed or radical ideology, the activity 
underlying both criminal and counterterrorism investigations is 
best prevented by access to financial information by law 
enforcement and the intelligence community.
    In the criminal greed model, the FBI utilizes a two-step 
approach to deprive the criminal of the proceeds of his or her 
crime. The first step involves aggressively investigating the 
underlying criminal activity, which establishes the specified 
unlawful activity requirement of the Federal money laundering 
statutes, and the second step involves following the money to 
identify the financial infrastructures used to launder the 
proceeds of criminal activity.
    In the counterterrorism model, the keystone of the FBI 
strategy is countering the manner in which terror networks 
recruit, train, plan, and effect operations, each of which 
requires a measure of financial support. The FBI established 
the terrorist financing operations section--or, as we call it, 
TFOS--of the counterterrorism division on the premise that the 
required financial support of terrorism inherently includes the 
generation, movement, and expenditure of resources which are 
oftentimes identifiable and traceable through records created 
and maintained by financial institutions.
    The analysis of financial records provides law enforcement 
and the intelligence community real opportunities to 
proactively identify criminal enterprises and terrorist 
networks. And more importantly, to disrupt their nefarious 
designs.
    Money laundering has a significant impact on the global 
economy. The International Monetary Fund estimates that money 
laundering could account for 2- to 5 percent of the world's 
gross domestic product. In some countries, people avoid formal 
banking systems in favor of informal transfer systems such as 
hawalas, or trade-based money laundering schemes, such as the 
Colombian black market peso exchange.
    There are several more formalized venues that criminals use 
to launder the proceeds of their crime or crimes, the most 
common of which is the United States banking system, followed 
by cash-intensive businesses like gas stations and convenience 
stores, offshore banking, shell companies, bulk cash smuggling 
operations, and casinos.
    Money service businesses, such as money transmitters and 
issuers of money orders or stored value cards serve an 
important and useful role in our society, but are also 
particularly vulnerable to money laundering activities.
    The FBI currently has over 1,200 pending cases involving 
some aspect of money laundering, with proceeds drawn from a 
variety of traditional criminal activities, as well as 
terrorism-related activities. By first addressing the 
underlying criminal activity and then following the money, the 
FBI has made significant inroads into the financial 
infrastructure of domestic and international criminal and 
terrorist organizations, thereby depriving the criminal element 
of illegal profits from their schemes.
    In recent years, the international community has become 
more aware of the economic and political dangers of money 
laundering, and has formed alliances on several fronts to share 
information and conduct joint investigations. Members of the 
Egmont Group, a consortium of financial intelligence units, of 
which the United States is a member, can access a secure Web 
site developed by FinCEN, the United States' FIU, to share 
vital information on money laundering between participating 
countries in a further demonstration of international 
cooperation, the international recommendations and the nine 
anti-terrorist financing recommendations of the Financial 
Action Task Force, otherwise known as FATF.
    Access to financial information significantly enhances the 
ability of law enforcement and members of the intelligence 
community to thwart terrorist activity. The lack of complete 
transparency in the financial regulatory system is a weakness 
on which money launderers and financiers of terrorism rely to 
reap the proceeds of their crimes and to finance terrorist 
attacks. Limited access to financial records inhibits law 
enforcement's ability to identify the financial activities of 
terrorist networks.
    Efforts to detect terrorist activity through financial 
analysis are further complicated by the fact that the funding 
of terrorism may differ from traditional money laundering 
because funds used to support terrorism are sometimes 
legitimately acquired--for example, charitable contributions 
and the proceeds of legitimate businesses. Overcoming these 
challenges so we can prevent acts of terror has increased the 
importance of cooperation with our partner law enforcement 
agencies, the intelligence community, and the private financial 
and charitable sectors. Records created and maintained by 
financial institutions pursuant to the Bank Secrecy Act are of 
considerable value to these critical efforts.
    As I previously testified before this subcommittee, the FBI 
enjoys a cooperative and productive relationship with FinCEN, 
the broker of BSA information. FBI cooperation with FinCEN has 
broadened our access to BSA information, which in turn has 
allowed us to analyze this data in ways that were not 
previously possible.
    When BSA data is combined with the sum of information 
collected by the law enforcement and intelligence communities, 
investigators are better able to ``connect the dots,'' and thus 
are better able to identify the means employed to transfer a 
currency or move value.
    Sometimes the investigative significance of BSA data--a 
filing, if you will--cannot be appreciated until the BSA data 
is compared to predicated law enforcement or intelligence 
information that may not be in the public record. Such critical 
information can be biographical or descriptive information, the 
identification of previously unknown associates and/or co-
conspirators, and in certain instances, the location of a 
subject in time and place.
    The value of BSA data to our anti-money laundering and 
counterterrorism efforts cannot be overstated. The importance 
of access to that information has already proven invaluable on 
both the micro or individual case level, as well as the macro 
or strategic level.
    BSA data has proven its great utility in counterterrorism 
matters. And any contemplated change to the underlying 
reporting and recordkeeping requirements of the BSA should be 
measured very carefully and very, very carefully considered 
before such action is taken. Either increasing the transaction 
amount at which currency transaction reports would be 
generated--currently at the $10,000 level--or abolishing the 
reporting requirement all together, or changing the seasoned 
customer exemption for that matter, would deprive law 
enforcement of a valuable investigative tool.
    Recent macro-level analysis of the impact of BSA data 
provided by FinCEN to the FBI reinforces the investigative 
significance of that data. Some of the examples are as follows.
    For the years 2000 through 2005, 38.6 percent of all CTR's 
filed reported transactions in the amounts between $10,000 and 
$14,999. For the same time period, 18.5 percent of all the 
CTR's filed reported transactions in amounts between $15,000 
and $19,999. 10.8 percent of all CTR's filed during that same 
time period were for amounts between $20,000 and $24,999. 6.2 
percent of those CTR's were for transactions between $25,000 
and $29,999, and so forth.
    Less than 2 percent of all the CTR's filed in that period 
involved transactions of $100,000 or more.
    Chairman Bachus. Mr. Morehart, if you could, wrap up and 
then we--
    Mr. Morehart. Yes, sir.
    Chairman Bachus. Thank you.
    Mr. Morehart. I am almost done, sir. To determine the 
operational impact of BSA data relative to the FBI 
investigations, a sample of the FBI's records for the years 
2000 through 2005 were matched by the exact name and date of 
birth, or by exact social security number to almost 13,000 
CTR's reported in that same time period.
    This statistical example, when extrapolated to the 
universal CTR's, concludes that an excess of 3.1 million CTR's 
were pertinent to FBI investigations during that time period. 
And Mr. Chairman, in deference to your request, sir, I will not 
go into the statistics, but it is in the written record.
    The CTR reporting threshold is set by regulations, and has 
been fixed at $10,000 for more than 25 years, as was mentioned 
here earlier. In that time, technology associated with the 
movement of money has advanced significantly. The movement of 
funds through electronic means has now become the standard. It 
should be noted that CTR's are not required for the electronic 
movement of funds. The practical effect on law enforcement 
activities of an increase to the CTR threshold reporting amount 
would be to severely limit or even preclude law enforcement 
access to financial data associated with cash transactions that 
are not otherwise documented.
    In other words, the filing of CTR's at the current 
reporting threshold ensures a degree of transparency in the 
financial system that would not otherwise be available.
    My attention now turns to the important issue of the so-
called seasoned customer CTR exemption.
    Chairman Bachus. Mr. Morehart?
    Mr. Morehart. Yes, sir?
    Chairman Bachus. Actually, they are 5-minute opening 
statements, and you have gone 10 minutes.
    Mr. Morehart. I apologize.
    Chairman Bachus. If there is any way you could just wrap 
up--
    Mr. Morehart. Yes, sir. I will do my very best.
    Chairman Bachus. And I know this is valuable information, 
so I do want to give you some leeway.
    Mr. Morehart. Thank you, sir. If I can, Mr. Chairman, I 
have got about one page left, if I may go through that. My 
attention now turns to the important issue of the so-called 
seasoned customer exemption.
    As you are aware, the BSA allows financial institutions to 
seek CTR filing exemptions pursuant to the designated persons 
exemption protocol. However, certain types of businesses 
considered most susceptible to abuse, such as money service 
businesses, are ineligible for such exemptions. We are not 
opposed to such exemptions for long-term, well-established, and 
documented customers, as has been previously stated during this 
hearing.
    While the SAR is an extremely valuable tool, the suggestion 
that a SAR requirement could effectively substitute for the CTR 
misunderstands the differences between the requirements for the 
two documents.
    In contrast, CTR's are only available on select matters 
where a bank official has made the subjective--and I emphasize 
subjective--determination that a particular transaction or 
activity is suspicious.
    And in closing, sir, any decision to change the working of 
the current CTR customer exemption should be undertaken with 
great care. This is particularly so because of the steadily 
increasing ability in the Bureau to use these data points to 
meaningfully track national security threats and criminal 
activity. Though information on the evolution of this 
capability is not appropriate for public discussion, we would 
be happy to provide information on a non-public hearing, and 
have done so for some of the members of your staff already.
    In conclusion, BSA data is invaluable to both our 
counterterrorism efforts and our more traditional criminal 
investigations. Our experience shows that terrorism activities 
are relatively inexpensive to carry out, and that the 
majorities of CTR's of value to law enforcement and 
intelligence communities are typically those that are prepared 
at or near the current reporting requirements.
    To dramatically alter the transaction reporting 
requirements without careful, independent study would be 
devastating, and would be a significant setback to the 
investigative intelligence efforts relative to both the global 
war on terrorism and traditional criminal activities. Thank you 
for your forbearance, Mr. Chairman.
    [The prepared statement of Mr. Morehart can be found on 
page 78 of the appendix.]
    Chairman Bachus. Let's see, Mr. DelliColli?
    Thank you.

 STATEMENT OF KEVIN A. DELLICOLLI, DEPUTY ASSISTANT DIRECTOR, 
 FINANCIAL AND TRADE INVESTIGATIONS, OFFICE OF INVESTIGATIONS, 
 U.S. IMMIGRATION AND CUSTOMS ENFORCEMENT, U.S. DEPARTMENT OF 
                       HOMELAND SECURITY

    Mr. DelliColli. Chairman Bachus and distinguished members 
of this subcommittee, my name is Kevin DelliColli, and I am the 
Deputy Assistant Director for Financial and Trade 
Investigations at U.S. Immigration and Customs Enforcement, or 
ICE. I appreciate the opportunity to share with you today how 
ICE is applying its financial investigative authorities to 
track criminal enterprises that violate our Nation's borders 
and homeland security.
    ICE is the largest investigative component within DHS. 
Working overseas, along our borders, and throughout the 
interior, ICE agents are demonstrating that our unified customs 
and immigration authorities constitute a powerful tool for 
combating international money laundering and trans-national 
crimes.
    During Fiscal Year 2005, ICE investigations led to the 
seizure of nearly $1 billion of currency and assets and the 
arrest of over 23,000 individuals. As highlighted in the U.S. 
money laundering threat assessment, ICE is addressing bulk cash 
smuggling, unlicensed and illegal use of money service 
businesses, trade-based money laundering, abuse of U.S. 
financial systems by politically exposed persons, the use of 
stored value cards, and other schemes.
    Because of ICE's expertise in customs matters, our special 
agents are highly effective at combating trade fraud and trade-
based money laundering.
    Trade can be used to transfer proceeds in a variety of 
ways, including: over-valuing the cost of imported goods to 
disguise illegal proceeds as legitimate payment for those 
goods; converting proceeds into merchandise, which is then 
exported and sold for local currency. Even hawalas use trade 
transactions as a way to balance their accounts.
    To detect and combat trade-based money laundering, ICE 
established a trade transparency unit, or TTU. The ICE TTU 
initiates and supports investigations related to trade-based 
money laundering. The ICE TTU analyzes trade data to identify 
anomalies indicative of money laundering and trade fraud.
    In addition, ICE found that the TTU analytical software is 
very effective at analyzing BSA data, Bank Secrecy Act data, 
either to enhance the analysis of the trade data, or just the 
BSA data alone. ICE is just beginning to exploit and realize 
the potential of this expanded capability.
    The TTU, though, is just one area ICE is utilizing BSA 
data. ICE has a long history of analyzing and utilizing BSA 
data in criminal investigations. ICE's use of CTR data is a 
valuable analytical tool for detecting illegal activity, 
developing case leads, and furthering investigations.
    The so-called ``placement'' of funds into the financial 
system is the most vulnerable stage of the money laundering 
process for criminal organizations.
    Generally, individuals and businesses conducting legitimate 
transactions have no reason to structure deposits or 
withdrawals to avoid the current $10,000 threshold for the 
filing of a CTR. The CTR requirement leads criminals to 
deliberately structure deposits into the financial system in 
order to avoid the reporting requirement in the hopes of 
evading suspicion and detection.
    Because criminals must structure their illicit proceeds, 
they are forced to make multiple financial transactions to 
place the illicit proceeds into financial institutions. This 
forces the criminal organization to expend additional time and 
effort, and provides law enforcement with indicators used to 
detect the illegal activity. In an effort to circumvent the CTR 
reporting requirement, international criminal organizations 
have employed numerous peripheral employees to structure 
transactions for them.
    U.S. law enforcement has learned to exploit the inherent 
weakness created by this process. As it provides law 
enforcement with a greater number of targets for interdiction 
efforts, undercover opportunities, and confidential source 
development, it also causes criminals to engage in other, more 
costly and time consuming methods, such as bulk cash smuggling 
and trade-based schemes to move their proceeds.
    In the course of our investigations, CTR's are used to 
establish links between persons and businesses to identify co-
conspirators, potential witnesses, and to reveal patterns of 
illegal activity. CTR information has been utilized to meet the 
probable cause requirement necessary to obtain search and 
arrest warrants. CTR's link individuals and businesses to 
financial institutions, and provide this information so the 
investigator can utilize the information for subpoenas.
    Most importantly, as mentioned above, the CTR requirement 
causes violators to deliberately structure deposits or 
otherwise behave in a manner that arouses suspicion.
    To illustrate how important CTR's are to ICE, ICE special 
agents queried CTR records over 454,000 times in just Fiscal 
Year 2005. ICE has many examples of investigations that were 
initiated, enhanced, or perfected because of access to the Bank 
Secrecy Act repertoire of documents, including CTR's.
    ICE will continue to aggressively apply our authorities to 
combating international money laundering and the methods and 
means used to move illegal proceeds across our borders.
    This concludes my remarks, and I thank the subcommittee and 
its distinguished members for their continued support of ICE's 
investigative endeavors. I would be pleased to answer your 
questions.
    [The prepared statement of Mr. DelliColli can be found on 
page 53 of the appendix.]
    Chairman Bachus. Thank you. Mr. Werner, the conclusion of 
your statement says, ``We stand ready to assist you in reducing 
the number of CTR's that provide little or no value for law 
enforcement purposes.''
    Do you agree that there are a large percentage, whether 
it's 15, 20, 25 percent of CTR, which are of no value to law 
enforcement?
    Mr. Werner. Mr. Chairman, I don't know what the percentage 
is, but I would agree that, in light of the fact that the 
existing exemptions are not being taken advantage of by 
financial institutions, there are CTR's being filed that are of 
little value to law enforcement.
    Chairman Bachus. Do you realize that--as, I think, Mr. 
Moore and Mr. Sherman both said, and several members on this 
side--that those exemptions, while well meaning, seem to be so 
complex that financial institutions have advised you that it's 
hard to implement that? Do you understand that there are 
problems with the--
    Mr. Werner. I do understand that, Mr. Chairman. There are 
different kinds of exemptions available under the existing 
scheme. And for example, the fact that banks continue to file 
CTR's on--you mentioned a host of companies--like the Wal-Marts 
of the world is a little mystifying to me, because those are 
under a phase one exemption, which are clearly articulated, as 
a publicly-traded company, would be exempt. And the phase two 
exemptions tend to be more complicated, in terms of 
administering them.
    But it appears that many banks find it easier just to file 
automatically all SAR's en masse, rather than even to take 
advantage of the phase one exemptions.
    Chairman Bachus. That being the case, you all are being 
flooded with 15 million of these CTR's, is that right?
    Mr. Werner. We receive--
    Chairman Bachus. Let me say this. You say you share 
responsibility with law enforcement in considering any 
potential loss of BSA data law enforcement considers important 
to their investigations.
    Now, in your testimony--and I'm going to direct you to page 
five--you say that H.R. 5341, like section 701 of 3505, is an 
attempt to address this concern by reducing CTR reporting 
requirements for seasoned customers. And then you acknowledge 
that your predecessor worked with the committee to offer 
technical assistance.
    In fact, he did sit down and we worked out exact language. 
You're aware of that, are you not? And he testified in favor of 
the provision.
    Mr. Werner. Yes, sir.
    Chairman Bachus. Okay. And then it says this, and this is 
what I want to focus on. And Mr. Morehart has talked about 
terrorist financing, and countering terrorism, and it says, 
``Although we support the intent of this provision, as well as 
the effort and expertise behind the assistance we have 
provided, we recognize it is imperative that we avoid 
undermining law enforcement efforts to combat terrorist 
financing.'' Okay?
    ``As such, we must be very attentive to reasonable concerns 
raised by law enforcement regarding the potential loss to 
investigative value.'' Okay, we're talking about terrorist 
financing in your statement here.
    Mr. Werner. Although my oral statement broadened that, sir, 
to say terrorist financing and money laundering.
    Chairman Bachus. Okay. But, you know, a lot of what--even 
Mr. Morehart, you talked about counterterrorism, you talked 
about terrorist financing. That's what you focused on, not just 
these other activities. And that's a lot of what you all have, 
at least publicly, talked about, how to undermine those 
efforts.
    But let's just focus on terrorist financing--because this 
is what your written statement says--for a minute. It says, 
``In that regard, law enforcement has significant concerns with 
the proposed language of this provision that would permit the 
exemption of certain businesses that are presently ineligible 
for CTR filing exemption under the current system,'' and then 
you list four: car dealerships; attorneys; physicians; and 
accountants.
    Now, is it law enforcement's experience that we have car 
dealerships or accountants or physicians that are aiding 
terrorists, that you've caught some with the--
    Mr. Morehart. Is that being addressed to me, Mr. Chairman?
    Chairman Bachus. And we're talking about that make deposits 
in the ordinary course of business of large cash transactions, 
yes.
    Mr. Morehart. Well, sir, I will say this. I can't 
specifically say terrorism related, nor would I want to do it 
in this open forum, but we could discuss that, or perhaps it 
could be the subject of a QFR.
    But I will say this, Mr. Chairman, it has been the FBI's 
experience that those types of entities, particularly those 
that are currently listed as not available for DEP exemption 
under current BSA regulations, are frequently utilized by 
criminals, whether wittingly or unwittingly, to launder money.
    Chairman Bachus. Okay.
    Mr. Morehart. If I may say this, sir, terrorist financing 
oftentimes fails to include a very important aspect. The 
financial aspect of cases does not necessarily mean the funding 
of terrorism.
    There were, in my testimony, three different steps that I 
characterize--and forgive me, I cannot remember the page, but 
basically we're talking about the origination, which would be 
the funding or financing aspect, and the movement and storage 
of funds.
    Chairman Bachus. Well, yes. I noticed here you said--you 
talked about transfer of funds to foreign bank accounts.
    Mr. Morehart. I--
    Chairman Bachus. That's part of what you're talking about?
    Mr. Morehart. Yes, sir. Part of what I am talking about--
    Chairman Bachus. You identify one of the most common 
destinations for international fund transfers as Mexico.
    Mr. Morehart. I don't know. Is that in my testimony, sir?
    Chairman Bachus. Yes, on page two, the bottom line. It 
indicates the most common destination of international fund 
transfers are Mexico, Switzerland, and Colombia.
    Mr. Morehart. Yes, sir?
    Chairman Bachus. Do you find that these money transfers to 
Mexico are terrorist-related? Have you found any instances of 
that?
    Mr. Morehart. Well, sir, again, I would prefer not to 
discuss those types of issues in public forum, and I would--
    Chairman Bachus. I'm just saying, wouldn't most of that be 
immigrants wanting to remit money home?
    Mr. Morehart. I can't answer that question, sir. I am sure 
that there is some of that.
    Chairman Bachus. Well, you actually say 73 percent of money 
service business filings involve money laundering or 
structuring.
    Mr. Morehart. That's what statistics show, sir.
    Chairman Bachus. What?
    Mr. Morehart. That's what our statistics show, yes, sir.
    Chairman Bachus. So, 73 percent of the money ordering 
businesses, you believe, are money laundering activities?
    Mr. Morehart. Yes, sir.
    Chairman Bachus. And so, Mexico is the primary--I mean one 
of the primary--points that that money has been sent back to?
    Mr. Morehart. Yes, sir.
    Chairman Bachus. And you believe that's money laundering?
    Mr. Morehart. I believe it is, yes, sir. And I would also 
add--
    Chairman Bachus. Do you think any small fraction might be 
the 12 million illegal immigrants and probably 20 million legal 
immigrants who are sending money back home?
    Mr. Morehart. Well, sir, again, I cannot answer that 
question. I would suspect, yes, logically speaking, that might 
be the case.
    Chairman Bachus. Sure. Okay, thank you.
    Mr. Morehart. Yes, sir.
    Chairman Bachus. Mrs. McCarthy?
    Mrs. McCarthy. Thank you, Mr. Chairman. I guess the only 
question I have--and I've read the testimony, and I can 
certainly understand your concern--but when we were writing 
up--when the committee was considering this regulatory relief, 
we didn't hear any objections from anyone when we were going 
through all this.
    So, is this something new that came up after the relief, 
you know, was going through, when we were having the committee 
hearings in the past?
    Mr. Morehart. Yes, ma'am. I can say, from the FBI's 
standpoint, I testified before this committee--I guess it was 
about a year ago--with the then-Director, Mr. Fox. And the 
FBI's position on this data has remained the same, at least 
since that time, when I testified, in terms of the value of BSA 
data.
    Mr. DelliColli. May I answer as well?
    Mrs. McCarthy. Absolutely.
    Mr. DelliColli. This is the first opportunity that ICE has 
to testify before this subcommittee on this matter. However, we 
have, you know, met with subcommittee staffers and expressed 
some concerns that we had with the seasoned customer exemption 
back in the summer of 2005.
    Mrs. McCarthy. Thank you. No further questions, sir.
    Chairman Bachus. Mr. Feeney?
    Mr. Feeney. Mr. Chairman, actually I have another meeting, 
but I really am perplexed. I mean, when we asked questions 
about why this overzealous, overburdensome regulation has been 
constantly imposed by--we thought we had a compromise last 
year. We are told that, because of sensitive information, we 
can't get the answer.
    And it really is disturbing that the automatic assumption 
is that every businessman that has more than $10,000 worth of 
deposits to make must somehow be subject to, you know, Federal 
oversight every day, 10 times a day, if that's when he or she 
makes their deposits. And I just find it insufficient, in terms 
of trying to meet with this effort.
    And if somebody is trying to support the President on the 
Patriot Act, indicating that we felt like the FISA courts and 
secret courts were available, that there wasn't any 
surveillance on domestic activities--and, of course, now we 
find out that may not be accurate--and we're constantly told 
that the reason that we can't get information to do appropriate 
oversight, to protect the privacy of Americans in legitimate 
business activity, is because there is secret stuff that, if we 
knew, we would be totally supportive.
    And even your supporters are becoming frustrated that 
that's not sufficient. The trust-me argument, ``We know better, 
and we can't tell you why,'' only goes so far. And if we can't 
find a way for people who have had business relationships for a 
long-standing period of time, that have legitimate reasons why 
they may be making a deposit of more than $10,000, without 
having 3 or 5 different agencies of the Federal Government 
involved in every single transaction, then it comes time to 
rethink the question of all of what we're doing with respect to 
privacy.
    It's just incredibly frustrating, and this is one 
Congressman who has been as sympathetic and supportive as 
possible, because we do live in a day and age when the threats 
are here and they're real. But by gosh, if every shadow is a 
threat, and every businessman making a deposit of $10,000 and 
everybody making phone calls is a threat, then I live in a 
different country, one I don't recognize from pre-9/11.
    And fundamentally, I think that you guys need to be 
cooperative when you get a chance. And maybe individually 
you're trying to, and when you try to do it collectively it 
doesn't work, but it's very, very frustrating.
    And I don't really have any questions, other than to say 
that at some point we may--without the benefit of all this 
secret stuff that you know--we may simply instruct you what to 
do. If you can't work with us, we're going to work without you. 
Mr. Chairman, I yield back.
    Mrs. McCarthy. Would the gentleman yield before he yields 
back?
    Mr. Feeney. I will yield to the gentlelady.
    Mrs. McCarthy. I can't remember which testimony I read, but 
actually in one of the testimonies they said that they would 
meet with us privately in our office, or work with staff to 
give us some of that information.
    Mr. Feeney. Well, I appreciate that. But here is the 
problem with that. At that point, you're put in the box. Once 
you get secure information--and it may be appropriate for us to 
have it--but once you get that secure information, then it 
becomes very difficult for you to articulate the reasons why 
you're making decisions.
    And to the extent that people can cooperate with us, and we 
can come to compromises--and a lot of these discussions were--
had behind closed doors, perhaps where they should have 
occurred, and then we come back and find out that what we 
expected and intended was deliberately unraveled, or that there 
has been foot-dragging, then we have that Catch-22: go behind 
closed doors, and whether you agree or disagree with the 
conclusions, you're precluded from coming out and explaining 
why you do or don't--I would never leak information.
    And I have, up to this point, been very trusting on a host 
of issues--I serve on the Judiciary Committee--and want to 
continue to be trusting. But the deliberate foot-dragging--at 
least it appears to be deliberate foot-dragging--is perhaps 
changing my confidence and increasing the frustration level. 
Mr. Chairman, having reclaimed my time, I yield back.
    Chairman Bachus. Thank you. So, Mr. Hensarling?
    Mr. Hensarling. Well, Mr. Chairman, I am very tempted to 
yield my 5 minutes to Mr. Feeney.
    [Laughter]
    Mr. Hensarling. But knowing that he has yielded back, I 
will go ahead and use my 5 minutes.
    First, gentlemen, notwithstanding what you have heard from 
many of us, I do want to thank you for what you do. I want to 
thank you for your service to your country. I know that my 
four-year-old daughter and two-and-a-half-year-old son go to 
sleep in a safer Dallas, Texas, USA due to your efforts. And 
so, I want to thank you for that.
    But again, I want to go back to a question of balance. And 
I want to go to a question, really, of cost. I am sure there is 
a lot I can learn about law enforcement. I have a brother who 
is a Federal prosecutor; I learn a little bit from him. I do 
know a little something about economics.
    And let me ask this question. One, how much do your 
organizations pay to the financial services industry for their 
filings under BSA? Mr. Werner?
    Mr. Werner. We don't pay for those filings.
    Mr. Hensarling. The other gentlemen?
    Mr. Morehart. I'm not aware that we pay for them, sir. We 
get them--
    Mr. Hensarling. Well, that was my impression, as well. We 
have testimony that the banking industry is paying somewhere in 
the neighborhood of $200 million, give or take, just for their 
CTR filings. If I did the math correctly--I think I got this 
information from the Congressional Research Service--that for 
$200 million, you could hire another 1,000 special agents for 
the FBI.
    You are receiving a lot of information that you don't pay 
for. Things that I don't pay for I have an unlimited demand 
for. Things I pay for, well, all of the sudden my demand 
becomes a little bit more limited. I'm kind of curious at just 
how valuable this information is to you, on top of the SAR's, 
on top of the know-your-customer.
    So, if you had a choice of continuing what many view as a 
fair amount of redundancy in CTR reporting, Mr. Morehart, would 
you rather have that information or would you rather furlough 
1,000 agents?
    Mr. Morehart. Sir, that is a conundrum I hope that I am 
never actually faced with. That would be a difficult one.
    I will say this, sir, if I might. We understand that, from 
everything I have heard, that it does place a burden on the 
industry, in terms of the filing requirements. As I have 
testified before, most recently before the Senate Banking 
Committee about a month ago, we stand ready--although we're not 
a regulatory entity--to try to help in any way we can to reduce 
the burden on the financial services industry. Because, quite 
candidly, it makes our job more difficult.
    The more data that is there, the more it populates, and the 
more fuzzy the field becomes, if you will. So we stand ready at 
any time to try to assist with that. As I previously testified, 
there is data that is provided to us that is of very little 
use. And as the chairman spoke earlier, we're talking about 
CTR's associated with Wal-Marts, with various well-known 
companies and well-established customers.
    The concern we have, however, is this: Not that we oppose 
any logical change to the regulations or the legislation, but 
that it be done in a very careful and measured way, which we 
would be more than happy to participate in and help in any way 
we can--
    Mr. Hensarling. If I could, let me come at it a different 
way.
    Mr. Morehart. Yes, sir.
    Mr. Hensarling. As far as the opportunity cost for your 
organization, let's look at another--$200 million is coming out 
of our economy, principally in--I think mainly in terms of our 
community banks.
    We have had testimony in this committee before that it 
takes roughly $25,000 to capitalize a small business. The 
average small business employs 10 people. I don't recall whose 
testimony it was, but there was something there about 
protecting the economic security of Americans. If I did the 
math right, 425,000 to launch a small business, 10 employees, 
$200 million is roughly 80,000 jobs, 80,000 people who might 
have a paycheck, versus having a welfare check.
    Now, again, if the information is highly useful in 
prosecution, maybe it's worth that. Maybe it's worth the 80,000 
jobs. But Mr. Werner, is it worth that much?
    Mr. Werner. When you try and quantify the exact value of 
every piece of data we get, I think it's difficult for all of 
us to assess that and make those kinds of judgements. What we 
can tell you is that through over 30 years of collecting Bank 
Secrecy Act data, we know that we have had an enormous amount 
of value.
    My two law enforcement colleagues have spoken to some 
specifics, in terms of deterring certain kinds of financial 
activity, all the way to detecting very serious criminal 
activity. And to date, we have a lot of anecdotal evidence of 
that.
    My whole view here is that there is clearly a burden on the 
industry. And, clearly, there is a benefit from the data. We 
ought to try and get that cost-benefit analysis correct, we 
ought to try and really hone in on it in a truly empirical 
study.
    And based on what I have seen in my 2 months as Director of 
FinCEN, I haven't seen a study that has really done that, to 
date. So it's very difficult to answer your question when we 
haven't really dug into the data in an empirical way to allow 
us to do that cost benefit analysis.
    On both sides of the equation, we have a lot of anecdotal 
issues. The question isn't whether there is burden. The 
question is whether there is an unreasonable burden. The 
question isn't whether there is benefit. The question is 
whether the benefit justifies the cost to the industry. And 
those are the kinds of issues I would be very interested in 
obtaining a more comprehensive understanding.
    Mr. Hensarling. I see I am out of time, but you do have the 
burden of convincing 415 of us that it does meet that burden 
test. With that, Mr. Chairman, I yield back.
    Chairman Bachus. Mr. Garrett?
    Mr. Garrett. Thank you again, Mr. Chairman. And again, I 
thank the panel. Just a couple of questions.
    But first, I just want to follow off of a line of 
questioning that the chairman had raised. And the point that 
you raised, Mr. Chairman, with regard to testimony on page two, 
Mr. Morehart, maybe I am reading more into that one paragraph 
than I should be. But if I am, then can you clarify for me?
    When the chairman elicited the information with regard to 
your paragraph or sentence which says, ``A recent review of 
SAR's filed with financial--with FinCEN, indicated that 
approximately 73 percent of money services involved money 
laundering or structuring.''
    Just sitting here and hearing your testimony, that sounds 
like an astonishing number, even if it's off by 10 percent. 
Now, first question is that's talking about money services, as 
opposed to banks, correct?
    Mr. Morehart. Yes, sir.
    Mr. Garrett. Okay. So, looking just now at money services, 
again, not being law enforcement, it sounds like an astounding 
number and it sounds like an area that should rise to the level 
of huge interest from your part, bringing it to our attention 
not just as a footnote, but as a major point prior to this, 
saying--and this seems to be an area that we should be 
investigating even further, from a Congressional point of view, 
as to what these money services agencies are doing if three-
quarters of all--not all transactions, but all of the SAR's 
transactions going through are involving money laundering. Any 
comment?
    Mr. Morehart. Well, it is an area of concern for us, 
Congressman. I'm not sure exactly where you're going, or what 
response you're attempting to seek from me, but it is an area 
of concern.
    And I don't want to suggest that we're not doing anything. 
Quite to the contrary. Actually, money service businesses are 
required to file with FinCEN, as any financial institution is. 
And we are working jointly together on projects to address that 
issue.
    Mr. Garrett. Do you--
    Mr. Morehart. Yes, sir?
    Mr. Garrett. Well, I guess where I was going, contrary to 
where I was coming into this meeting today, was saying whether 
we need less regulation--but on this area, if three-quarters of 
all of them are money laundering, is there something more we 
should be doing in that area--but how does that number compare 
to the rest of the financial marketplace? Do you have a number 
that you can give us?
    Mr. Morehart. No, sir. I don't have that number off the top 
of my head. We could try to get that to you.
    Mr. Garrett. Okay. I think that would be a relevant number 
that I would be interested to hearing about.
    Also, in your testimony on page six, I guess--this was your 
footnote, and I know you weren't able to dig into all this 
during your testimony--you were talking about doing the 
investigation, and it said 3.1 million CTR's directly impacted 
FBI investigations. What does that exactly mean, that 3.1 
million dealt with an investigation?
    Mr. Morehart. Sure--
    Mr. Garrett. Would that mean without that information, that 
those investigations would be significantly encumbered, or that 
just because in any investigation there is a whole collection 
of data that you get, and each one of them has something to do 
with it, but is it significantly, actually, to the outcome of 
the investigation?
    Mr. Morehart. Yes, sir. Let me try to explain. That 3.1 
million is a statistical extrapolation of a smaller sample, 
first of all.
    Mr. Garrett. Sure.
    Mr. Morehart. So, what that means is--let me try to explain 
it this way. We are working very diligently with FinCEN to try 
to provide the answers to the questions that you have, in terms 
of how useful that data is.
    To date, we have been able to do that, I believe, 
strategically. And what I mean by that is we have been able to 
give you these types of statistical samplings. For example, the 
terrorism watch list. We ran all those names against BSA data, 
including CTR's, and we came up with some 83,000 or 84,000--
please don't quote me on that exactly; it's off the top of my 
head.
    But let me provide one quick example, and then I will 
explain further what I mean. Of those 83,000 hits, if you will, 
against CTR's associated with the terrorism watch list that now 
can be exploited for further information, if the seasoned 
customer exemption, as suggested under 5341 is applied, and 
those entities were given that exemption, we would lose 82,000 
of those documents.
    Now, having said that, we have not fully vetted each of 
those documents, so I can't tell you exactly what value they 
would be. But I will say this. Not every single document is 
going to result in an arrest, either for a traditional crime or 
for terrorist activity. However, the way we view this data is 
much different than the lay person might view it. We view it as 
a dot. That dot may bridge to pieces of information that we 
would not have been able to connect before.
    For example, we may not have been able to make the 
connection between two individuals that was critical to 
identifying a terrorist cell, for example, or two individuals 
that are involved in some type of narcotic money laundering 
activity.
    Mr. Garrett. Well, I appreciate that, and my time is 
growing short. And my last portion of the question is this. Do 
you not have the ability, just through your normal 
investigatory powers, your subpoena powers, whether or not a 
crime has occurred, you still have the ability for subpoena 
powers, just on the contemplation that there is a crime out 
there, to obtain the necessary information in any one of these 
investigations to connect all the dots, even if you didn't have 
the CTR's that were providing the information?
    In cases where there is less than the $10,000 threshold, 
doesn't that authority in the Justice Department already exist, 
and allow you the ability to get that information?
    Mr. Morehart. It exists, sir, but it does not allow us to 
get the information that we might not otherwise be aware of. 
And what I mean by that, sir, is if we know the name of a 
target, we can see their records. If we don't, we can't. And 
the CTR offers us an objective method to identify potential 
targets.
    That is, somebody who is involved in money laundering or 
suspicious activity that pops up on a CTR may not pop up on a 
SAR, because it's a subjective measure. They--we wouldn't know 
to subpoena that individual's records, or whatever. So, no, 
sir. The answer is no.
    Mr. Garrett. I see my time is up. Thank you very much.
    Mr. Morehart. Yes, sir.
    Chairman Bachus. Mrs. Biggert?
    Mrs. Biggert. Thank you, Mr. Chairman. Mr. Morehart, of the 
CTR's that have been used in criminal prosecutions, how many 
were filed on business transactions and how many on 
individuals?
    Mr. Morehart. Ma'am, we have not kept metrics on exactly 
how they were filed, or what types. As I mentioned just a 
moment ago, much of the information we have now--we have only 
recently, as Mr. Werner suggested, developed the investigative 
data warehouse, which I testified to before, and which I'm sure 
you have seen in other testimony and perhaps in the media. That 
is an IT capability that allows us to exploit this information 
like never before. We have only been using that for a little 
over a year.
    We have metrics at a strategic level, and quite candidly, 
we are struggling at the moment to try to develop and acquire 
that type of information at a tactical or case level, so that 
we can provide it to you, so that you will understand how 
valuable the data is. So I apologize.
    Mrs. Biggert. Yes.
    Mr. Morehart. I do not have that information available, and 
it's not likely I can get it quickly. But we are working on it.
    Mrs. Biggert. Yes.
    Mr. Morehart. And as a matter of fact, Mr. Werner's staff 
and my staff are actually forming what we call a BSA working 
group, and we are using that group for a number of purposes.
    One is to try to identify how to collect those metrics, so 
that we can show you, in a more definitive way, how valuable 
the data is. Another way we're using that is to identify 
methods and ways and ideas on how to exploit that data in order 
to protect our national security, much like the comparison I 
mentioned between the terrorism watch list individuals and the 
BSA data.
    Mrs. Biggert. Well, I am glad that you're working on that, 
because I think that this committee probably believes that the 
routine business transactions are not as relevant for the law 
enforcement as transactions from individuals. But we can't 
really make that final decision until we have the data to--
    Mr. Morehart. And with all due respect, ma'am, I would say, 
based upon my anecdotal knowledge of ongoing investigations, I 
would have to disagree with that.
    Mrs. Biggert. Okay. So Mr. Werner--and maybe you can't 
answer these questions, either--but how many CTR's did FinCEN 
receive in 2005? Is that--
    Mr. Werner. I came--
    Mrs. Biggert. Is it 12 million?
    Mr. Werner. I actually came prepared to answer that for 
you. In 2005, we received 14,210,333 CTR's--
    Mrs. Biggert. Okay, thank you. Then how many of those CTR's 
were filed on reoccurring customer transactions?
    Mr. Werner. That data I do not have.
    Mrs. Biggert. Okay. Well, wouldn't it be valuable to know 
how many--
    Mr. Werner. It would be valuable, which, Congresswoman, is 
why I think, really, to have a comprehensive study that permits 
us time to go into that kind of data mining would be of 
terrific use to all of us.
    Mrs. Biggert. Okay, thank you. Then, Mr. DelliColli, in 
your testimony you state that every dollar of criminal proceeds 
seized is one dollar--one less dollar that criminals can use 
to--in their business. And I realize this, and how--and 
understand how difficult your job is with defending our 
country, and thank you for your efforts.
    But I want to turn the statement around, and point out that 
every dollar spent on complying with filing CTR's is one less 
dollar that banks can use to lend to people and the businesses 
of this country, and in effect, hurt the economy.
    And in addition, I think it doesn't help our businesses 
compete in the global marketplace. So I would ask you to look 
at the entire picture and ask how we can solve this problem as 
it specifically pertains to the burdensome and costly filing of 
CTR's.
    Mr. DelliColli. My response to that would be that, you 
know, an ounce of prevention is worth a pound of cure. And I 
believe the discussion here today is to try to figure out how 
many ounces of prevention do we need to find the right cure.
    With respect to, you know, the burden and the cost that the 
law enforcement efforts have on drug trafficking 
organizations--and money launderers and criminals in general--
you know, part of the strategy is to raise the cost of doing 
business for the drug trafficking organizations.
    The efforts that the U.S. anti-money laundering efforts 
undertake contribute greatly to that, raising the cost. I mean, 
these other methods that I referred to, the cost of structuring 
transactions in the U.S. financial institutions puts a great 
cost on drug trafficking organizations. To the extent that they 
actually sell their money at a great discount to peso brokers 
in Colombia, just to walk away from that difficulty.
    So that, obviously, raises their cost. The cost of drugs 
may increase as a result of their cost, their profits being 
reduced. If drugs were much cheaper coming into this country, 
there may be more costs associated with health costs, and 
things of that nature. I'm not a sociologist or health 
professional. But I think you have to look at the whole 
situation.
    Mrs. Biggert. Do other countries have similar CTR 
requirements?
    Mr. DelliColli. Other countries do have similar reporting 
requirements, mainly because the United States leads the way. 
And I would yield that question to, you know, Mr. Werner, with 
FinCEN. But Treasury actually leads the U.S. delegation on the 
financial action task force, actually does try to find 
standards.
    And you know, if we don't have standards, you can rest 
assured that the rest of the world is not going to have those 
standards as well.
    Mrs. Biggert. Mr. Werner, would you like to comment on 
that?
    Mr. Werner. Yes, I would. Thank you very much. We do push 
the standards for cash transactions. Not just CTR's, but also 
what are called CMIRs, which are the export and import of cash 
into and out of the country. And we are part of the Egmont 
Group, and a leader of the Egmont Group, in which financial 
intelligence units of countries around the world mine that data 
and share it with each other. So it's of great value to us, in 
that sense.
    Mrs. Biggert. Thank you. I yield back.
    Chairman Bachus. Thank you. I would like unanimous consent 
for Ms. McCarthy to ask a follow-up question.
    Mrs. McCarthy. Thank you, Mr. Chairman. Just a couple of 
things that I need to clarify. And I also want to thank you for 
your work.
    And I happen to agree with you. Holistically, when you look 
at what you're spending and what hopefully we save on 
healthcare costs, whether it's drugs or anything else, I happen 
to think makes--and I also believe that the work that you're 
doing, taking away money from those that might be terrorists 
that want to do our country harm, or even drugs--and I know 
we've been doing a better job on getting the drug money, and I 
hope we're doing a good job getting the money not going to the 
Taliban, or whoever it's going to.
    The clarification--and I was thinking about this when the 
chairman asked the question--you indicate that 73 percent of 
money services' business filings involve money laundering or 
structuring. But the truth of the matter is--and I think this 
is where the chairman was supposed to go--we're not looking at 
the little guy that's here in this country, because most of 
them--you only look at those deposits that are over $10,000. Am 
I correct on that?
    So we're actually not looking at someone who is sending a 
little bit of money to home to support their family back home 
or anything else like that.
    Mr. Morehart. Yes, ma'am. That would be accurate.
    Mrs. McCarthy. Okay. And the only other thing I thought of, 
Mr. Chairman, as this debate was going on--and it is a burden 
to the banks, and I understand that--maybe somewhere down the 
way we can have a discussion on giving them some sort of tax 
credit or something, because they're doing their part.
    That's enough for our committee or whatever, but that is a 
thought, because I think the work that you're doing is 
important. We need to support it. And if we can help the banks 
not have that financial burden on them, then we should be doing 
that. That should be our part of the government. Thank you. 
Thank you for your answers.
    Chairman Bachus. Thank you. Let me address one final 
question to you gentlemen. It deals with what banks and 
financial institutions, credit unions, are having to do right 
now. And I just want to make sure you all are aware of the 
requirements that you have imposed on them over the past 10 or 
15 years.
    One is the customer identification program. Now, Mr. Werner 
and Mr. Morehart, are you all familiar with that program?
    Mr. Werner. Yes, sir.
    Chairman Bachus. What's your understanding of the 
requirements in a customer identification program? What does 
the Federal Government require the banks to do when someone 
opens an account?
    Mr. Werner. The customer identification program is laid out 
in section 326 of the Patriot Act. There are some very clear 
requirements and others are risk-based. I haven't come with a 
text of that document with me, so I would be reluctant to try 
and do it from memory, sir.
    Chairman Bachus. They are required to gather quite a bit of 
information on that customer.
    Mr. Werner. They are depending, again, on the nature of the 
business and the customer, but yes.
    Chairman Bachus. Well, I think every customer.
    Mr. Werner. That's correct.
    Chairman Bachus. And that information is available to you.
    Mr. Werner. Well, the institutions keep it on file.
    Chairman Bachus. Sure. It is available to you. Then there 
is the customer due diligence process. Are you all familiar 
with that, the basic requirements?
    [No response]
    Chairman Bachus. They are supposed to check out their 
customers, find out whether they have a legitimate business.
    Mr. Werner. That would be part of any standard--
    Chairman Bachus. You have imposed that on the banks, 
haven't you? I say the Federal Government has.
    Mr. Werner. That is correct.
    Chairman Bachus. Then you have this FFIEC BSA AML 
examination manual, which--imposes on our financial 
institutions additional controls, policies, and procedures to 
be implemented in order to actively uncover and track 
suspicious activity among their customers.
    Mr. Werner. Well, sir, that manual was produced at the 
request of the financial institutions so they would have 
guidance to--
    Chairman Bachus. Sure, sure. But they have agreed to do all 
that.
    Mr. Werner. That's correct.
    Chairman Bachus. And as a result of that, from--suspicious 
activity filings have increased from 52,000 in 1996--that and 
other requirements you put on them--have increased from 52,000 
in 1996 to 689,000 in 2004, and they projected--I think the 
figures for 2005 will be over 1 million times that a financial 
institution has said, ``This is outside the regular course of 
business,'' or, ``This breaks a pattern,'' or, you know, ``This 
is suspicious to us. This isn't what we consider normal.'' A 
million times they file that information that you have 
available to you.
    Mr. Werner. My statistics are that in--if you are 
discussing suspicious activity reports, there were over 600,000 
in Fiscal Year 2005, over 800,000 in Fiscal Year--excuse me, in 
2004; over 800,000 in Fiscal Year 2005, and then I wouldn't be 
surprised if we reached the million mark in the current fiscal 
year.
    Chairman Bachus. Then the USA Patriot Act imposes some new 
requirements on banks and credit unions to gather additional 
information that they didn't have to do before from their 
customers when their account is open. I mean, these are brand 
new requirements.
    Mr. Werner. Many of the requirements you have mentioned 
previously are part of the Patriot Act requirements.
    Chairman Bachus. There are some additional requirements.
    Mr. Werner. The entire AML program is more extensive than 
just customer identification and due diligence, yes.
    Chairman Bachus. Now you've got all that, and then what we 
have here in our legislation is if we have a well-established 
business that is incorporated by the laws of the United States, 
or a State, or a sole proprietorship that is licensed to do 
business in the United States, it's registered and eligible to 
do business, and it maintains a deposit account with a bank for 
at least 12 months, and during that period of time engages or 
uses the account with multiple currency transactions of $10,000 
or more, that after the end of that one-year period, you are 
advised.
    You are advised about the customer, you are advised of 
certain information which you have asked to be collected about 
the customer--the type of business they are engaged in, their 
identity, their social security number, their residence, their 
citizenship, you know, all these things you're given.
    And the fact that they have made multiple transactions in a 
normal course of business, for example, every Friday? Or, 
``This is the pattern they have engaged in in the last month'' 
or the last year.
    And then the bank certifies to you that they believe--and 
they continue to say if they see any suspicious activity, or if 
these transactions change, or the pattern of these 
transactions, that you will be advised, or anything suspicious 
goes on with that account, you will be told. Do you have all of 
that?
    But all this information is submitted. And simply what they 
ask you to do is just to prove this as a legitimate, well-
established business that has a need, a necessary--a necessity, 
a demonstrated necessity, to deposit $10,000 or more in regular 
intervals as a regular part of their business. And you're given 
that information.
    Going forward, why would you have to receive notice every 
time these well-established businesses licensed to do business, 
which the bank has certified that they have done their due 
diligence, they have identified this customer, they have 
supplied you all this information, why would you--and what 
reason does law enforcement have to have access, to go in any 
time you wanted to, and see every single deposit that that 
well-established business engaged in?
    In what regard does this have anything to do with 
counterterrorism or terrorist activities?
    And let me say this. Let's just suppose that what you've 
said here in your testimony is that you believe that car 
dealerships, attorneys, physicians, accountants, convenience 
stores--and there are about six other different types of 
businesses--anyone that sells or anyone that operates--I think 
you said buses or--there are about 10 other categories that you 
would still like the right to, every time they make a deposit 
of $10,000 or more, you want to know about it.
    You can turn down the bank's request to certify them as a 
seasoned customer. You can say, ``We have a question about 
this.'' You can--what--why does the Federal Government, our 
national government--when, you know, 20 years ago they had none 
of these rights, why do they need to know what every account in 
this country, every time he deposits $10,000, why do they need 
to know that?
    And if you suspect him, you can take action, you can say, 
``I suspect this person, I want to know that''--if you're 
investigating him, as Mr. Garrett said, you can go in and 
request this information. But isn't this a tremendous--and you 
talk--you describe all this as data mining. Is that the word? 
And losing data, and data mining.
    You are basically mining information from every business, 
every sole proprietorship in this country that, in a regular 
course of business, well-established, deposits money every day 
or every week of, considerable sums.
    Do you see why we, some of the members of this committee, 
could consider this as somewhat of a loss of privacy that the 
American people are concerned about, and that's not necessary?
    Do you believe that law enforcement has an overwhelming 
right to know every time an American citizen makes a deposit of 
$10,000 or more? If you have been advised that they are a 
legitimate business, they have been identified to you, the 
purpose of that business, they have a license to do business, 
they are incorporated under the laws of a State, and they 
deposit money on a daily or weekly basis in the regular course 
of business, of $10,000 or more, why do you need to know the 
details of each and every transaction, as opposed to their 
right of some privacy? There are some legitimate rights that 
American citizens should have not to supply all of this 
information to the government?
    The IRS itself in 1994 testified before this committee that 
there was absolutely no legitimate purpose for--``IRS estimates 
that 30 or 40 percent of CTR's filed are reports of routine 
deposits by well-established retail businesses, and that these 
CTR costs on the government and the nation's banking industry 
impose costs on the government and the nation's banking 
industry.'' What they didn't say is a tremendous loss of 
privacy that we have actually agreed to.
    This Congress, they have agreed to all this stuff. They 
have agreed that every time somebody walks in a bank and tries 
to establish an account, that we tell the FBI all about it.
    Then the FinCEN comes before our committee and testifies 
that, in fact, there is no legitimate need for this, other 
than--I understand, Mr. Morehart, you're the FBI. I suppose 
that you would come before this Congress and say, ``It would 
help us if you would give us every bit of information on every 
American out there. You give us everything they do, everywhere 
they go, every time they make a call, every time they walk in a 
bank.''
    It would be of help to you. We could put a wire on 
everybody. But would that be right? Do you understand why we 
have legitimate concerns about the level of surveillance. I am 
a little disturbed that you've walked in and said car 
dealerships, accountants, doctors, physicians, that, these 
people--and part of it is in the name of counterterrorism.
    And I just don't believe that American citizens here, 
licensed to do business here, and do business in the regular 
course of business, and are of such--and their business is so 
well-established that they, on a weekly basis, they deposit 
$10,000 or more, that somehow the Federal Government is here 
making a case that we need to know each and every time, going 
forward, each and every time they make a $10,000 deposit.
    Mr. Morehart. Mr. Chairman--could I address that, Mr. 
Chairman?
    Chairman Bachus. Sure.
    Mr. Morehart. I do understand your concerns, sir. And I do 
think they are relevant concerns. I will say I jotted down 
myself a couple of notes while listening to you speak. And if 
you don't mind, I will address them.
    Chairman Bachus. Sure, sure.
    Mr. Morehart. I think they may answer some of your 
questions.
    First and foremost, let me say that, again, I want to 
reiterate we recognize it's a burden. There is data that is 
included in the BSA data, particularly the CTR's, that we do 
not need. We will be the first to admit that. The Wal-Marts, as 
you say, the Cracker Barrels, you name it. And we would be more 
than happy--
    Chairman Bachus. Even the guy who has had a pharmacy in 
town for 20 years--
    Mr. Morehart. Absolutely, sir.
    Chairman Bachus.--or the guy that's operated a restaurant 
for 15 years.
    Mr. Morehart. Absolutely, sir.
    Chairman Bachus. Because, you know, I am also troubled, to 
a certain extent, that you say if it's a publicly listed 
company and it trades, they're legit, but if it's a small 
businessman, you know, that--
    Mr. Morehart. Yes, sir. But may I add, too, that there are 
those companies out there that we do know are involved in 
nefarious activity, that we do know are funding terrorists, and 
those are the ones we're looking--
    Chairman Bachus. Sure. And I suggest with those companies, 
that if they don't sell you on the fact they're a legitimate 
industry, turn this request down.
    And also, if you think they are engaged in suspicious 
activity, revoke their exemption.
    Mr. Morehart. My--
    Chairman Bachus. Or, if you are investigating them, go 
interview them. Or, if you need to, ask for a subpoena--you can 
get a subpoena prior to indictment--to subpoena their records. 
Or you could probably--I think you could even go to the bank 
and ask for their records, can't you?
    Mr. Morehart. Well--
    Chairman Bachus. In fact, you do that, on a--
    Mr. Morehart. You can, under the Right to Financial 
Privacy--
    Chairman Bachus. Sure--
    Mr. Morehart.--certain data, but not the records without 
a--
    Chairman Bachus. Well, it's kind of funny that you say you 
can't go into a bank and ask for this information, because it 
violates financial privacy, but you're gathering it every day. 
You see what I'm talking about?
    Mr. Morehart. No, sir. It's actually different data.
    Chairman Bachus. It's what?
    Mr. Morehart. It's different data, sir.
    Chairman Bachus. Okay, all right.
    Mr. Morehart. Yes.
    Chairman Bachus. I stand corrected. And go ahead, I 
interrupted you.
    Mr. Morehart. No, sir, not at all. No problems. I just 
wanted to make clear that there are a couple of reasons we need 
that data. It is not oftentimes immediately obvious whether you 
have someone who is involved in the various activities.
    Again, I re-emphasize, we don't want all data. And quite 
candidly, sir, with all due respect, I wouldn't want to put a 
wire on everybody, and I wouldn't want everybody's data, 
because I don't have the manpower or the--
    Chairman Bachus. I will say I understand that.
    Mr. Morehart. Yes, sir. It does act as a deterrent, though. 
Please understand--
    Chairman Bachus. Oh, absolutely. Let me tell you something. 
I understand that. I understand that if the banks just mail you 
a copy of everybody's bank account transactions every month, 
there would be a deterrent.
    Mr. Morehart. Yes, sir.
    Chairman Bachus. I acknowledge that.
    Mr. Morehart. And please understand, 30 years ago we didn't 
have electronics funds transfer to the extent that we do today, 
thereby making cash transactions even that much more unusual. 
And when you're talking about cash transactions--businesses 
sometimes do have those, and there are legitimate reasons to do 
them.
    However, the majority of us use either our debit card, 
checks, or some form of transaction that does not require a CTR 
filing. That's why a lot of those documents are of interest to 
us. And we use them--again, I emphasize--not only for tactical 
issues, for cases--that is, for example, to put the bad guy in 
jail, that piece of evidence will do that.
    More often than not, we use it for intelligence purposes. 
It's important for us to know what part of the United States, 
for example, is heavy with CTR filings. That may be either a 
traditional criminal hub that you would want us to identify, 
for example, with narcotics issues, or it may be a hub of some 
type of terrorist funding activity, or money movement.
    Chairman Bachus. Well, I wouldn't think that with the 
terrorist activity--I can't imagine that any well-established 
business that has been certified to use well-established 
incorporated--you know, and you have been told that they do 
file--you know, you've been told that, for a year, they have 
filed numerous cash transactions. If you suspect them, then you 
know that information. You know, you already have that.
    But if it's narcotics, and trying to determine regions of 
the country, I can just tell you that narcotics are a problem 
everywhere. And I just almost think that--
    Mr. Morehart. Sir, could I give you an example?
    Chairman Bachus. Yes, yes.
    Mr. Morehart. Let me give you an example. I won't go into 
great detail, because of the classification issues, and I 
apologize for that, I have no control over that.
    However, I will say that there are those businesses out 
there that are involved in this type of activity. And I could 
go, let's say, let's speculate and say I went and got a 
national security letter or a subpoena, and I got those bank 
account records. What would I lose in terms of CTR value if 
CTR's weren't filed?
    Let me give you an example. If a CTR is filed and the money 
is brought in by an individual that is not associated with the 
account--i.e. he is an employee of the account holder, but not 
associated with the account--does the subpoena document tell me 
that?
    Chairman Bachus. No, but a suspicious transaction report--
    Mr. Morehart. Yes, sir?
    Chairman Bachus.--in a case like that, they're required to 
file a--
    Mr. Morehart. Not necessarily, sir. And that's--
    Chairman Bachus. If it's not in the ordinary course of 
business--
    Mr. Morehart. No, sir. It's not. For example, if you look 
at the CTR filing document, it basically says did someone else 
come in and make this deposit to this person's account, and 
they're required to collect that data. That individual may or 
may not be the subject of a suspicious activity report, 
depending upon who negotiates the transaction.
    They may see this individual do this every single day for a 
year, and have developed a relationship, and therefore, it's 
not unusual. And I can tell you, from my 10 years as a street 
agent working white collar cases, that happened all the time, 
that they would develop a relationship, and the next thing you 
know, an individual would take the bank for some money, they 
would be gone, and they would go, ``Gosh, Fred was a nice 
guy.''
    So, sir, there are those instances where that does happen. 
And without that CTR, we have lost valuable data where we 
might--and again I emphasize, and perhaps--I don't want to seem 
too dramatic--but you might identify a cell member through that 
CTR that you would then not know about.
    Chairman Bachus. We already have a process, CTR exemption 
process, where you could deal with it in that way.
    Mr. Morehart. And again, sir, we're more than willing to 
work together to try to address that issue. I know Mr.--
    Chairman Bachus. Sure, and I understand you are. Can you 
understand the frustration of our financial institutions?
    Mr. Morehart. Yes, sir.
    Chairman Bachus. Thank you.
    Mr. Werner. Sir, if I might address the existing CTR 
process, because you did question the distinction between a 
publicly traded company versus a non-publicly traded company.
    And I think it's important to recognize that the reason we 
provided an exemption in the existing rules for publicly traded 
companies is because a publicly traded company is subject to 
certain disclosure requirements, and has a level of 
transparency that a non-publicly traded company may not. And 
so, I think that goes to your point of--
    Chairman Bachus. Yes, but I think that's because the 
Federal Government says, ``If you're going to publicly trade, 
and if you're going to operate, then you should reveal certain 
things. If you're an individual, you have an absolute right not 
to reveal that.''
    Mr. Werner. I recognize that, sir, but the transparency is 
what allows you to understand the nature of the business and 
have assurances--
    Chairman Bachus. Sure. All I--
    Mr. Werner.--that it's legitimate.
    Chairman Bachus. I'm not going to argue with the fact that 
we can be so transparent that everything we do, as I say--that 
we supply law enforcement all that information. And obviously, 
it's going to be of assistance, so I appreciate your testimony 
today, and I look forward to working with you. Mr. Hinojosa has 
a question.
    Mr. Hinojosa. Thank you, Mr. Chairman. And I want to thank 
the panelists for coming to visit with us this afternoon, and 
talk to us, and explain to us some of the things that are 
happening out there in the world of business.
    H.R. 5341 makes it easier for financial institutions to 
exempt certain customers, as the chairman was pointing out. I 
gather that some of you are concerned that the bill might allow 
exemptions for certain types of customers of financial 
institutions.
    I want to stress that the bill gives broad authority to the 
Treasury Secretary to prescribe regulations to define a 
``seasoned customer?'' Is it your position that the bill, as 
currently drafted, would not permit the Secretary to continue 
to make ineligible certain types of high-risk customers such as 
services, businesses, car dealerships, law practices, 
accountancies, and others? If so, explain your interpretation.
    Mr. Werner. My concern, sir, with the bill is that law 
enforcement has looked at the exemption as drafted, and is 
worried that, given their current capacities to mine data, that 
they are evolving in ways that they feel we ought to study this 
issue further to make sure we get it right.
    And their point is once we lose the data, it's very 
difficult to assess the need for it, because you don't know 
what you don't know.
    With respect to the Secretary's ability, my reading of that 
provision was that the Secretary could reject a request for an 
exemption, or revoke an exemption. And again, it puts us in a 
very difficult position. Because, as Mr. Morehart has said, you 
don't--and this is the problem that the banks, the financial 
institutions, have as well--you don't always know there is 
something suspicious about a customer. They have established a 
pattern of conduct in the course of doing business which 
becomes regularized.
    And you have--looking at it from just a pure objective 
standard without any other relational information, you may not 
realize that there is something wrong there. And I think that's 
what--and law enforcement can speak to this point, but I think 
that's what they're afraid of losing, is data that they--either 
the Treasury Department or the financial institutions do not 
realize can provide investigative value.
    But because of the data they have, and the way they can hit 
this information against their data, they can make use of that, 
and make that assessment.
    Mr. Morehart. Yes, sir. Thank you. I would agree with 
everything that Director Werner said. I would also add this, 
too, is that in terms of the entities, if you will, the 
business types that are currently excluded from the exemption 
process, many of those there is a good reason for that.
    Some of those businesses--for example, car dealerships, and 
perhaps Mr. DelliColli can talk more about this from the 
narcotics standpoint--are historically known to be utilized, 
whether wittingly or unwittingly, for the movement of money, 
whether it's money laundering or otherwise for those purposes. 
And that's why we asked, I guess a long time ago, that those be 
included in there for that purpose.
    I would be concerned that if we just wiped the slate clean 
and started over again, that provides an opportunity where we 
have to again go through and prove up once again why those 
entities should not be subject to those exclusions.
    I will also point out, as I mentioned to the chairman, that 
it is unusual in this day and time to move great deals of cash, 
unless you're in a cash-intensive business. Car dealerships are 
not in a cash-intensive business. It is unusual to carry 
$20,000 or $30,000 or $40,000 in to buy a car with cash, for 
example. It is unusual to carry cash to your accountant to pay 
him or her for their services, or an attorney, for that matter. 
That is an unusual--and I would characterize as a suspicious--
activity, in and of itself.
    Granted, there are those entities that are involved in the 
movement of actual cash, and that's why the exemption process, 
as I understand it, was originally created. I would suggest 
that perhaps, as Director Werner suggested, we take a look at 
this; we do a study. The FBI is willing to try to identify 
whatever data we can to assist to make the process easier, to 
make sure that we have identified the right entities for 
exclusion.
    But I would strongly urge that caution ought to be applied 
in simply wiping the slate clean before there is a 
comprehensive study to see if we can adapt, adjust, and assist 
the financial services sector in reducing their burden, while 
at the same time satisfying our need for information, not only 
to address traditional criminal activity, but to ensure our 
nation's security from terrorists, or would-be terrorists. 
Thank you, sir.
    Mr. Hinojosa. I will come back to you with another 
question. But, I want to ask Mr. Werner if the bill gives the 
Secretary of the Treasury a great deal of discretion? Yes or 
no?
    Mr. Werner. I'm not sure how to answer that, because it 
does permit exemptions to be made. But again, they have to be 
made on a reasonable basis. And if you don't have the 
information to do that, I wouldn't expect a lot of exemptions.
    Chairman Bachus. Would the gentleman from Texas yield?
    Mr. Hinojosa. Yes, I will.
    Chairman Bachus. Now, Mr. Werner, I don't mean to correct 
you, but the legislation creates absolutely no new exemptions.
    Mr. Werner. I don't think I said it created any new 
exemptions.
    Chairman Bachus. Okay, I--
    Mr. Werner. What I said is it does permit the Secretary to 
make exemptions, and--
    Chairman Bachus. Well, it doesn't require him to do any of 
that. But what it does do is streamline the existing process 
for exemptions. These are exemptions that already are in the 
law.
    And it only focuses on known customers who have a 
legitimate business purpose for depositing large amounts of 
money, which--
    Mr. Werner. Well, I think as drafted, the exemptions would 
be broader in who is exempted than is currently exempted under 
the two phases of the--
    Chairman Bachus. Oh, the people. But the exemptions, we're 
not creating any new exemptions.
    Mr. Werner. I agree with that.
    Chairman Bachus. Mr. Morehart, you said we're wiping the 
slate clean. We're not creating--we're not going in and saying 
we're going to exempt these--we're going to exempt them from 
the filing requirements.
    Mr. Morehart. Well, sir, the way I understand it, current--
    Chairman Bachus. And we're not--in the suspicious 
transaction reports--
    Mr. Morehart. Well, sir, what I was getting ready to say 
was that there are a number of entities that cannot be provided 
a customer exemption, and that's what I was trying to--
    Chairman Bachus. Okay.
    Mr. Morehart.--answer the gentleman's question about 
before.
    Chairman Bachus. Sure, and I--
    Mr. Morehart. What this legislation does, H.R. 5341, is it 
basically says you can be afforded that exemption. What I am 
saying is--if I may--is that I think we ought to be very 
cautious in doing that, because there are those entities where, 
in and of itself, it's suspicious to carry cash into--
    Chairman Bachus. I guess what I am saying is that you used 
the example of a car dealership, a guy walking in a car 
dealership, and he pays $40,000 for a car. Okay?
    But the CTR that's filed doesn't list that some guy walked 
in and bought a car for $40,000. You're not going to get any 
information about that transaction in a CTR. What you're going 
to get in a CTR is that Bruebaker Buick deposited $160,000 last 
week, and $180,000 this week, and $240,000 the week after.
    And you would have to then go out to Bruebaker Buick and 
say, ``Hey, guys, you've been depositing $200,000. It jumped up 
to $240,000 this time. Give me a list of your''--it's of no 
value in determining--
    Mr. Morehart. Well, it--
    Chairman Bachus.--identity, or identifying an individual 
who pays $40,000 for an automobile.
    Mr. Werner. Well, I think where it could be of value is 
where you see cash transactions coming out of a dealership over 
time that create a pattern, and then you have got a case--
    Chairman Bachus. You break the pattern--the banks, through 
your own instruction books, are legally obligated to try to 
report that if it's suspicious, or if it's a change in their 
normal practice.
    Mr. Werner. That's true. But maybe you don't break the 
pattern, but some other lead, investigative lead, pops up a 
name which, when the law enforcement puts it into a 
consolidated data--
    Chairman Bachus. Yes. The name on there is just the 
business, correct?
    Mr. Werner. But it may be the business that's involved in 
the illicit activity. And that's what is so significant. And 
when a business is involved in illicit activity, particularly 
if there is large cash transactions, you may have other 
documents that supplement it, such as an 8300. So there is a 
long trail that you can follow, once you get into a--once you 
understand--
    Chairman Bachus. If they're depositing more and more cash, 
it may mean their business is increasing.
    Mr. Werner. That's the difference between CTR's and SAR's. 
CTR's are just objective data points that are filed, whether 
you know that it's suspicious or not. And it may turn out it is 
suspicious and you didn't know it. And that's why I think it's 
dangerous to equate a suspicious activity report with a CTR.
    Chairman Bachus. Okay. Let me just say one more time our 
legislation streamlines an existing process for exemptions. It 
creates no new exemptions. Mr. Morehart, I'm just saying, I 
don't want to mislead you.
    A guy walks in, pays $40,000 for a car at a dealership here 
in Maryland. You know, you're not getting a report from the 
bank that says, ``Bill Smith bought a $40,000 car and he paid 
cash,''.
    Mr. Hinojosa? I can understand what you are saying there.
    Mr. Hinojosa. Thank you, Mr. Chairman. I think that this is 
all very interesting, and I am pleased to be able to hear some 
of the explanations that you all have given.
    But prior to my coming to the meeting, there was in your 
testimony, Mr. Morehart, something about a 73 percent of 
filings by the MSB's, which in no way means that, from your 
standpoint, that the $35 billion to $40 billion sent from the 
United States to Latin America in remittances by hard working 
people is money laundering, is it?
    Mr. Morehart. Well, I--the one clarification that--I am 
glad you asked the question, sir, because that question was 
brought up before--is that that 73 percent relates only to the 
SAR's that were filed, not to all the money that was moved by 
money service businesses.
    Mr. Hinojosa. So the 73 percent is just the SAR's that were 
filed?
    Mr. Morehart. Correct.
    Mr. Hinojosa. That's more realistic.
    Mr. Morehart. Yes, sir.
    Mr. Hinojosa. Because here in the last 3 to 4 years, 
remittances have become a big part of not only the big banks, 
but small community banks and credit unions. And with the 
Treasury allowing the banks to decide whether to accept 
matricula consular identification card to be used as 
identification, we have seen more and more of those remittances 
sent through our mainstream financial institutions, rather than 
from some of the organizations--I'm not going to name them by 
name--that were traditionally used to send remittances to their 
families.
    So, I am pleased that you have given that explanation, 
because that was worrying me, that there was something 
happening of which I just was not aware. I appreciate that 
explanation. Mr. Chairman, I'm going to yield back my time.
    Mr. Hensarling. [presiding] Thank you. At this time, 
gentlemen, we thank you very much for your testimony, and the 
consumption of much of your time. At this time, we would ask 
that our second panel be seated.
    And with some housekeeping here, I ask for unanimous 
consent to submit the following written statement into the 
record, a letter of support for H.R. 5341 from the National 
Association of Federal Credit Unions from Mr. B. Dan Berger, 
senior vice president of government affairs; a letter of 
support for H.R. 5341 from the Financial Services Roundtable, 
from the Honorable Steve Bartlett, president and CEO; the March 
1994 GAO report titled, ``Money Laundering: the Volume of 
Currency Transaction Reports Filed Can and Should be Reduced''; 
and opening statement from the Hon. Debbie Wasserman-Schultz, a 
member of the full committee, but not of our subcommittee.
    Mr. Hensarling. At this time, we will begin our second 
panel. I have personally had the opportunity to read the 
testimony and apparently, as the last Republican in the room, I 
will now have the honor of hearing the testimony, as well.
    We would like to welcome to the committee Mr. Weller Meyer, 
chairman and president and CEO, Acacia Federal Savings Bank, 
representing American Community Bankers. Welcome, sir.
    Mr. Robert Rowe, regulatory counsel, Independent Community 
Bankers of America. Welcome to you, sir.
    And now, I would like to yield time to Mr. Israel for our 
last introduction.
    Mr. Israel. Thank you very much for your courtesy, Mr. 
Chairman. I have the good fortune of introducing to the 
committee Mr. Brad Rock. I had the opportunity to visit with 
Mr. Rock several months ago in his office, and learn first-hand 
of the regulations involved in the Bank Secrecy Act.
    He pulled out a file cabinet drawer for me, and showed me 
just reams and reams and reams of paperwork. And I told him I 
hadn't seen that much paperwork since I visited my doctor's 
office and saw the medical records that they have to keep under 
the HIPAA regulations.
    Mr. Rock knows about this issue from practical experience, 
but also from his position of leadership. He is the 2005/2006 
ABA vice chairman and chairman. He is president and CEO of the 
Bank of Smithtown and Smithtown Bank Corp., in Smithtown, New 
York. He is a former chairman of the ABA Government Relations 
Council, and has testified in Congress numerous times for the 
ABA on the subject of regulatory reform. And he is the former 
president of the Independent Bankers Association of New York 
State.
    So, we are very proud of his leadership, and very proud to 
be able to benefit from his expertise today. And I thank the 
chairman for the courtesy.
    Mr. Hensarling. Thank you. And at this time, Mr. Meyer, you 
are recognized for 5 minutes.

STATEMENT OF F. WELLER MEYER, CHAIRMAN, PRESIDENT & CEO, ACACIA 
 FEDERAL SAVINGS BANK, ON BEHALF OF AMERICA'S COMMUNITY BANKERS

    Mr. Meyer. Chairman Hensarling and members of the 
committee, I am Weller Meyer, chairman, president, and CEO of 
Acacia Federal Savings Bank in Falls Church, Virginia. I am 
here this afternoon representing America's Community Bankers, 
whose board I chair.
    I want to thank Chairman Bachus for calling this hearing. 
Mr. Chairman, we appreciate your leadership and the leadership 
of the committee members, Ranking Member Frank, Congressman 
Renzi, Congresswoman Maloney, and others, in crafting H.R. 
5341.
    Community Bankers fully support the goals of the anti-money 
laundering laws, and we are prepared to do our part to fight 
crime and terrorism. However, the CTR reporting regime is 
broken. H.R. 5341 is an important step towards balancing the 
burdens and benefits of CTR reporting.
    The Seasoned Customer CTR Exemption Act of 2006 would 
reduce costs and regulatory burdens on financial institutions, 
and it would ensure that the government receives highly useful 
information to help law enforcement prosecute and prevent 
financial crime.
    H.R. 5341 would provide streamlined criteria for exempting 
established business customers from CTR reporting. Depository 
institutions that exempt business customers would be required 
to file a one-time notice for each exempted customer. This 
approach would be simpler and less burdensome than the 
exemption requirements under the current regulatory regime.
    H.R. 5341 would also advance the Bank Secrecy Act's goal of 
collecting reports and records that have a high degree of 
usefulness for law enforcement. We do not believe that the 
repeated reporting of routine transactions of reputable 
businesses has a high degree of usefulness in prosecuting 
financial crime.
    If H.R. 5341 is adopted, financial institutions would still 
be required to screen the transactions of exempted customers 
for signs of illicit activity. Institutions would still be 
required to conduct customer due diligence, monitor customer 
account activity, and report suspicious transactions, and they 
would still be required to search customer databases for the 
names of known or suspected money launderers or terrorists.
    We support law enforcement's efforts to develop improved 
data mining capabilities. But the promise of future improved 
data mining techniques does not justify waiting to improve a 
CTR database. Waiting ignores the Congressional mandate in the 
Money Laundering Suppression Act of 1994, that requires the 
number of CTR filings to be reduced by 30 percent. And waiting 
ignores the real-world burdens of CTR filings on community 
banks.
    The banking industry has worked with FinCEN, the banking 
regulators, and law enforcement agencies to meet the 
Congressional mandate to reduce CTR filings, and to improve the 
quality of the CTR database. But frankly, we reached a 
stalemate in 2004. The time has come for Congress to intervene. 
We call on Congress to adopt H.R. 5341.
    In addition to enacting the Seasoned Customer CTR Exemption 
Act of 2006, we believe that it is also time for Congress to 
increase that dollar value that triggers a CTR filing, at least 
with respect to business customers. The current $10,000 
threshold was established in 1970. When adjusted for inflation, 
$10,000 in 1970 is equivalent to more than $52,000 today.
    This important reform will help those institutions that do 
not use the CTR exemptions, and further improve the usefulness 
of the CTR database.
    The cumulative burden of BSA and other regulatory 
requirements has very real opportunity costs. For example, the 
fees that a community bank must spend for software that 
monitors cash transactions is money that cannot be spent to 
hire multiple tellers, a new loan officer to reach out to 
community small businesses, or to develop and market new 
products.
    What may seem like insignificant costs to law enforcement 
have real business implication for community banks and their 
communities.
    Thank you for inviting ACB to testify on the importance of 
improving the CTR system so that it collects only information 
that is highly useful to law enforcement. ACB believes that 
H.R. 5341 would provide important regulatory relief to 
community banks by providing a simpler alternative to the 
current CTR exemption provisions. I am happy to answer any 
questions that you may have.
    [The prepared statement of Mr. Meyer can be found on page 
70 of the appendix.]
    Mr. Hensarling. Now, Mr. Rowe, you are recognized for 5 
minutes.

   STATEMENT OF ROBERT ROWE, REGULATORY COUNSEL, INDEPENDENT 
                  COMMUNITY BANKERS OF AMERICA

    Mr. Rowe. Mr. Chairman and members of the Committee, my 
name is Robert Rowe, and I serve as regulatory counsel for the 
Independent Community Bankers of America. I have held that 
position since April 1995, but I have worked on Bank Secrecy 
Act compliance for over 15 years, and for more than 7 years 
have been an active member of the Treasury Department's Bank 
Secrecy Act advisory group.
    During that time, I have played an active role in 
discussions on how to improve the currency transaction 
reporting process, and have served on a Bank Secrecy Act 
advisory group subcommittee on the issue.
    On behalf of ICBA's more than 5,000 member banks, I want to 
express our appreciation for the opportunity to testify on 
legislation to reduce the regulatory burden of filing currency 
transaction reports. We commend Chairman Bachus, Representative 
Frank, and the many other members of the committee for 
introducing H.R. 5341, the Seasoned Customer CTR Exemption Act 
of 2006, which is based on section 701 of H.R. 3505.
    We look forward to working closely with Chairman Bachus and 
this committee to find solutions to reducing the BSA compliance 
burden, while still meeting the needs of law enforcement. We 
hope today's hearing will improve the chances for this 
provision to become law.
    The Nation's community banks are committed to supporting 
the Federal Government's efforts to prevent money laundering, 
terrorist financing, and other fraudulent activities. However, 
bankers across the country continue to identify the Bank 
Secrecy Act as the most burdensome area of compliance. ICBA 
believes that it is critical that resources be focused where 
the risks are greatest.
    ICBA fully supports the committee's efforts to address this 
regulatory burden through the Seasoned Customer CTR Exemption 
Act of 2006. ICBA has long believed that it is important to 
develop a simple and easily applied exemption process that can 
eliminate currency transaction reports that have little value 
for law enforcement. We therefore support the provisions of 
H.R. 5341 that would allow banks to exempt seasoned customers 
from CTR's without being required to renew the exemption 
annually.
    Eliminating unnecessary reporting would result in 
substantial savings to our banks, and increase the time our 
employees can spend on customers' financial needs. It would 
also make law enforcement analysis of the data much more 
efficient by eliminating unnecessary data.
    The bill would require Treasury to implement the provisions 
of the statutory definition of a qualified customer. ICBA 
strongly encourages that Treasury be given sufficient authority 
to make this definition flexible and easily applied, for 
example, by allowing certain customers to be exempt, even 
though they have not had accounts for 12 months.
    ICBA will gladly work with Treasury and law enforcement to 
develop a rule that is workable and that properly balances the 
costs against the benefits. Many financial institutions report 
that the cost of using the current exemptions outweighs any 
associated benefits. As a result, many institutions find it is 
much simpler and less risky to file a CTR on every cash 
transaction over $10,000. Our members report that this approach 
is more practical and cost effective than using the current 
exemption process.
    Using the existing BSA exemption not only consumes a 
community bank's limited resources in time and money, it also 
increases the burden on the bank's existing compliance program 
by requiring that the bank develop policies and procedures for 
exempting customers, train personnel on the procedures, and 
establish audit programs to monitor compliance with the 
exemption process.
    For example, if a community bank establishes an exemption 
for a customer under current rules, it must document the 
decision and annually file an exemption with the government. It 
then must ensure that it has up-to-date exemption lists 
available for all branch personnel, and that all branch 
personnel are properly trained in which customers are exempt, 
and when those exemptions can be used, since not all 
transactions for an exempt customer may be exempt.
    With turnover of tellers and other branch staff, it is 
often much simpler, less complicated, and certainly less 
confusing to simply file the currency report. All that the bank 
staff has to remember is that currency in or currency out over 
$10,000 requires a report. Plain, simple, and easily applied. 
Unfortunately, it also means many routine transactions are 
reported.
    Anecdotal evidence and comments from financial institutions 
of all sizes support the notion that avoiding the current 
exemption process is significantly less burdensome in terms of 
cost and compliance management. Barring a significant change in 
the CTR filing process or the exemption regulations, many 
institutions will continue to file on all transactions that 
exceed the $10,000 threshold. This defeats the purpose of 
creating a reporting system that allows law enforcement and the 
Federal Government to properly focus resources.
    ICBA believes this bill is an important step towards 
eliminating unnecessary reports and appreciates this 
committee's commitment to moving legislation that would reduce 
the regulatory burden on community banks by creating the 
seasoned customer exemption to the CTR requirement.
    Thank you. I will be happy to answer any questions.
    [The prepared statement of Mr. Rowe can be found on page 99 
of the appendix.]
    Mr. Hensarling. Thank you, Mr. Rowe.
    Now, Mr. Rock, you are recognized for 5 minutes.

    STATEMENT OF BRADLEY E. ROCK, CHAIRMAN OF THE BOARD AND 
 PRESIDENT & CEO, BANK OF SMITHTOWN, REPRESENTING THE AMERICAN 
                      BANKERS ASSOCIATION

    Mr. Rock. Thank you, Mr. Chairman. When establishing the 
BSA regulatory regime, Congress sought to require reports when 
they have, in the words of the Act itself, ``a high degree of 
usefulness.'' The current CTR requirements have long departed 
from this standard of usefulness, and in fact, serve more to 
distract and impede efforts against crooks and terrorists than 
to help identify and stop them.
    The original CTR requirements were enacted more than 35 
years ago in 1970. Subsequently enacted requirements for 
suspicious activity reporting, rigorous customer identification 
programs, mandates to match government lists to bank accounts, 
and the availability of focused and detailed information under 
section 314(a) of the Patriot Act, leave little value to be 
added by collecting millions of CTR's on legitimate routine 
business activity.
    In 1994, Congress tried to address this problem by enacting 
an exemption process for some CTR reporting. Nonetheless, since 
that exemption process was passed, the number of CTR's has 
grown from approximately 11 million in 1994 to more than 14 
million today.
    Unfortunately, the compliance technicalities for banker use 
of the exemption and renewal processes, and examiner second-
guessing of banker use of the exemptions, have severely 
discouraged most banks from seeking exemptions for any of their 
customers.
    The exemptions go largely unused. Bankers do not want to be 
put in the position of being asked what they are trying to hide 
by filing for exemptions, nor do banks want to be threatened 
with penalties and regulatory criticism by examiner second-
guessing.
    In my bank, during the past year, we filed 2,766 CTR's. 
Most of these CTR's were filed for ordinary transactions by an 
ice cream parlor, a clam bar, a restaurant, and a high-volume 
Amoco dealer, all of whom have done business with us for many, 
many years. My tellers spent more than 460 hours in the 
branches, preparing the CTR forms, and one person in our main 
office spent more than 1,000 hours checking the forms for 
accuracy, checking them against computer print-outs, and filing 
the forms with the appropriate government office.
    Having watched this process for years, and being thoroughly 
familiar with the businesses that are the subject of these 
filings, I can tell you with firm assurance that all of this 
time and paper did absolutely nothing to further advance our 
collective efforts to thwart money laundering and terrorism.
    We have passed the time for studying what to do. The time 
has come to take effective action to make the system better. 
Accordingly, we support H.R. 5341, which recognizes that the 
best way to improve the utility of cash transaction reporting 
is to eliminate the valueless reports being filed on legitimate 
transactions by law-abiding American business people.
    This improvement can be achieved by establishing a seasoned 
customer exemption for business entities, including sole 
proprietorships that, I might add, was endorsed by FinCEN last 
year in testimony before Congress, and now embodied in H.R. 
5341.
    The clear standards, as proposed in the bill, would avoid 
the compliance barbs that have made the previous exemption 
effort ineffective. As H.R. 5341 makes clear, all customers 
would continue to be subject to suspicious activity monitoring 
and reporting. SAR's provide precise account and related 
transaction information, as well as narrative detail not 
available in CTR's.
    In addition, by using the 314(a) inquiry process, law 
enforcement will be able to locate transaction data and other 
relevant information on a broad range of accounts of suspects. 
This more targeted approach is working, and producing tangible 
results today.
    I thank you, Mr. Chairman, and your colleagues, for your 
commitment to improving the BSA system. And I assure you that 
ABA and its member banks share that commitment. We are all 
striving to make the system work best to protect the security 
of our banking system from abuse by money launderers and 
terrorists, and to safeguard the confidence that our customers 
have that the integrity of their legitimate business conduct is 
respected. Thank you.
    [The prepared statement of Mr. Rock can be found on page 87 
of the appendix.]
    Mr. Tiberi. [presiding] Thank you to all three of you. Mr. 
Rock, let me ask you a question. Mr. Rock, the banks worry 
about using the exemption system today because of concerns that 
their decisions to seek an exemption are going to be impacting 
their customers, and maybe will be second-guessed by examiners. 
Some would say that this is not a true concern, a legitimate 
concern.
    Tell me why you think it might be a legitimate concern from 
a banker's point--
    Mr. Rock. Well, that's not supposition, Mr. Chairman. When 
the exemption process was enacted in 1994, in the first round 
of exams that followed in the year or two after that exemption 
process was enacted, it was widely discussed among bankers that 
examiners came in and said, ``What are you trying to hide by 
filing for exemptions for these customers?''
    Not only that, you have to look at the exemption process 
closely--and nobody wants to be put in that position, by the 
way, because we want to play our role; that's important to us. 
But the other thing is, is that if you look at the exemption 
process itself, it has an annual renewal process, and it has a 
biannual renewal process in which certifications have to be 
made.
    If you read through the footnotes for those certifications, 
they carefully define the word ``frequently.'' And what 
examiners do is they come in and they question and second-guess 
the amount of due diligence that you have done in the renewal 
process, and then threaten penalties if you don't live up to 
that unspecified amount of due diligence in following the 
annual and the biannual renewal system.
    So, the risks and the difficulty far exceed the amount of 
time and effort for just filing the form in the first place.
    Mr. Tiberi. Thank you, Mr. Rock. Mr. Meyer, I understand 
that many community banks do not use the CTR exemption. Can you 
explain to us why that is the case?
    Mr. Meyer. There are a variety of reasons. I think many 
banks want to train their employees to one single standard, 
because it's a lot easier. We were having a discussion earlier 
today about how difficult it is, particularly when you're using 
part-time employees, to train to different standards. So, from 
a training perspective, it's just a lot easier for an 
institution to train to a simple standard that says, ``This is 
the way you do it,'' and to not make any exemptions.
    I think the issue regarding the regulatory second-guessing 
is the stories are more than anecdotal. They are real stories. 
I think everybody has acknowledged in recent years that the 
landscape has changed. There have been discussions within the 
regulatory agencies, on a joint basis, to try to get out to the 
industry to indicate to them that the second-guessing does not 
continue. However, that has not been proven to be true in fact.
    So, I think there are a variety of reasons that cause 
people to say, ``Let's take the path of least resistance. Why 
utilize an exemption when it's going to potential expose us to 
second-guessing and criticism by the regulatory agencies?''
    Mr. Tiberi. For the record, for the Committee record, can 
you tell us, or estimate to us, what it would cost one of your 
average members, community banks, to implement a CTR filing 
system? How much cost, how much staff time?
    Mr. Meyer. I am sorry that I don't have that data available 
to me.
    Mr. Tiberi. Is it something you think would be easy to get 
ahold of, just for the record?
    Mr. Meyer. If I might, I would like to sort of lean back 
and get some--
    Mr. Tiberi. Go right ahead. You may lean.
    Mr. Meyer. I missed an opportunity.
    Mr. Tiberi. We all do.
    Mr. Meyer. One of the costs--and I neglected to talk about 
this--and I can give you a real example with my own 
institution, when we looked into the cost of automating the 
software that would be necessary--buying the software that 
would be necessary--to perform this analysis on an automated 
basis, we were given a quote of $120,000 plus an annual $10,000 
fee. And that has nothing to do with the cost of our employees 
actually performing the work, the review process, the 
recordation, sending the documentation off to the appropriate 
agencies.
    So, if you're looking at a global sense, that gives you 
some magnitude for just one institution. And we do not--we, in 
our institution, made the decision not to. We're not a very 
retail-oriented business, so we made the decision that with the 
staff, it would be less expensive for us to utilize staff, and 
if necessary, to add on additional staff, as opposed to taking 
on the burden of that initial outlay plus the ongoing expense 
associated with it.
    Mr. Rock. Mr. Chairman, if I could add to the explanation--
    Mr. Tiberi. You may.
    Mr. Rock.--of my friend, Mr. Meyer, and the software that 
he is talking about, that $120,000, is just the cost of the 
software that gets appended to the existing infrastructure for 
teller transactions. And many community banks across the 
country cannot afford the kind of massive infrastructure at the 
teller station that larger banks can afford in order to append 
that additional software to it.
    I mean, keep in mind that 3,300 banks in the country have 
fewer than 25 employees. So they don't even have the 
infrastructure to append that software to, let alone the 
$120,000 cost and the other costs that Mr. Meyer has referred 
to.
    Mr. Tiberi. How big is your bank, your personal bank--
    Mr. Rock. $950 million. And we use computer print-outs of 
two kinds. We have a computer program that prints out 
everything over $10,000, and we have one that aggregates all 
transactions by one customer in amounts of more than $10,000. 
And we have a person who sits and reviews the reports every 
single day, those computer print-outs, against the CTR's that 
were prepared by the teller. And that takes her--her name is 
Mrs. Ragusa, and it takes her about two-and-a-half hours a day, 
because in preparation for this testimony I checked with her 
every day last week to see how long it took her to do that 
work.
    So, that's about two-and-a-half hours a day, just on that 
review process. So that's more than 1,000 hours a year on the 
review process, and that's in addition to the cost of the 
computer programs.
    Mr. Tiberi. Ohio is a good banking State, if you're 
interested in expanding, by the way.
    Mr. Rowe, I saw you shaking your head. I'm over my time. If 
you could, just briefly comment.
    Mr. Rowe. Just very quickly, one of the things I would like 
to add is that the software packages that these gentlemen are 
talking about, while the costs are coming down, there is an 
infrastructure that is needed to be there. These systems are 
off-the-shelf systems that are designed merely to catch and 
aggregate currency transactions.
    The exemption process doesn't even enter into these costs. 
To try and add that on would geometrically increase the cost of 
these software packages. And for many community banks, it's 
just completely out of the realm of believability.
    Mr. Tiberi. Thank you. My friend from Texas, Mr. Hinojosa.
    Mr. Hinojosa. Thank you, Mr. Chairman. I have enjoyed 
listening to all three of the presenters. I want to clarify 
that this bill addresses currency transaction reports, and not 
suspicious activity reports. Am I correct on that?
    Mr. Rock. Yes. Yes, sir.
    Mr. Hinojosa. And the bill further provides Treasury with 
the flexibility and authority it needs to define ``seasoned 
customers,'' isn't that correct?
    Mr. Rock. Yes, sir.
    Mr. Hinojosa. Your responses reaffirm why I agreed to 
become an original cosponsor, along with the bill's author and 
original sponsors, Spencer Bachus and Barney Frank. After 
listening to your experiences and those of the small community 
banks of less than $1 billion, I really don't have a question, 
Mr. Chairman. I want to just say that after hearing all three 
of our panelists, I am convinced that H.R. 5341 is a good, 
justifiable bill, that should be reported favorably to the 
House and passed. Community banks and other financial 
institutions need to be given the considerations that you all 
have asked for.
    So, Mr. Chairman, I am not going to ask them any questions. 
I think that they have done a good job, and that the record 
will reflect why we are going to be supporting this bill.
    Chairman Bachus. I thank you, Mr. Hinojosa. And gentlemen, 
I did read your testimony last night, because I was locked out 
of my house.
    [Laughter]
    Chairman Bachus. And I spent the night on my couch, so I 
couldn't sleep. So I read every bit of it. And it was--it's 
very good testimony. It will help us in continuing to document 
this case.
    I know you are as frustrated as we are, in that we sat down 
with FinCEN and worked out a very reasonable approach that all 
parties agreed was a good, common-sense solution, and at some 
point, for whatever reason, it came off the tracks.
    And I think more--if for no other reason that law 
enforcement always wants more information. They're just--
they're going to always want to know as much as they can know. 
But I think there has to be a limit to, you know, to what 
you're required to do, and the cost of what you're required to 
do, and particularly when it's information that is of really--
of marginal use, or could be obtained, you know, in a more 
effective way.
    So, if you will continue to make your case before other 
Members of Congress, your associations, I know it's 
frustrating. In 1994, GAO took a look at this very issue and 
said that the widespread use of these on well-established 
businesses was of no value. It just simply served as an expense 
to both government and to your institutions, and actually made 
the job of combating money laundering more complicated than it 
should be. And we proposed a solution, and worked with law 
enforcement in fashioning, which passed this body with two 
dissenting votes.
    And I believe that maybe separating this out and sending it 
over to the Senate, I think the Senate--I really have heard no 
disagreement from any senator to this legislation. I would--I 
am not sure, you know, how carefully it was considered. But 
they will have to deal with the policies of this.
    So, I have been handed a note that says, ``Wrap it up,'' 
because I'm supposed to be in the Senate in about 10 minutes, 
meeting on a different subject matter. I very much appreciate 
your testimony. And if you have suggestions for us and certain 
of your associations were very--all of you were very valuable, 
but we worked with you in fashioning this, and then talking to 
law enforcement. Any suggestions you have got for us will be 
appreciated, in addition to your testimony today. So thank you 
very much.
    Some members may have additional questions for this panel, 
which they may submit to writing, or to the former panel. So, 
without objection, the hearing record will remain open for 30 
days for members to submit written questions to these 
witnesses, and the first panel witnesses, to place their 
responses in the record. This hearing is adjourned.
    [Whereupon, at 4:35 p.m., the subcommittee hearing was 
adjourned.]
                            A P P E N D I X



                              May 18, 2006
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