Legislation Introduced to Curb ‘Laundering’ of Money in California

Two bills aimed at cracking down on “laundering” money earned from criminal activity send a clear message to drug dealers and bankers: “Use a bank, go to prison,” state Atty. Gen. John Van de Kamp said Monday in Los Angeles.

If enacted into law, one bill would make money laundering a felony, and the other would go beyond current federal law in its requirements of what cash transactions financial institutions must report, Van de Kamp said at a press conference announcing the proposed legislation.

Also present were Los Angeles County Dist. Atty. Ira Reiner, Riverside County Dist. Atty. Grover Trask and the legislators who introduced the two bills Monday, Assemblyman Steve Clute (D-Riverside) and Sen. Dan McCorquodale (D-San Jose).

One of the bills would impose penalties of up to three years in prison and fines of up to $250,000 on depositors or officers of financial institutions convicted of “knowingly” engaging in money laundering. All of the laundered cash would also be forfeited.

‘Awash’ in Illegal Drug Profits

The other bill carries the same penalties and would require financial institutions to report to the state Department of Justice any cash--or cash-equivalent--transactions in a single account that amount to $10,000 or more during a 24-hour period. It also would require reporting of $25,000 in cash transactions over a five-day period.

Current federal law requires only that single cash transactions of $10,000 or more be reported. The Reagan Administration recently proposed making money laundering a federal crime punishable by up to 20 years in prison and fines of up to $250,000.

Tough new laws in Florida and Georgia have sent drug dealers “scurrying to California to wash their money,” Van de Kamp said. “California is awash in a sea of illegal drug profits. Between $50 billion and $65 billion in tainted cash is laundered through legitimate financial institutions in this country every year.”

“Regrettably, many financial institutions are knowingly involved in dealing with large sums of money that come directly out of the narcotics traffic,” Reiner added.

Reiner cited the E. F. Hutton brokerage house accepting “$13 million from a previously unknown depositor in dirty, crumpled small bills and stuffed into gym bags, cardboard boxes and paper bags. That comes under the heading of ‘Who’s kidding who?’ They knew perfectly well what they were doing.”

Money Orders Popular Tool

The bills broadly define financial institutions as banks, trust companies, savings and loan associations, credit unions, currency exchanges, check-cashing operations, securities brokers, investment bankers, insurance companies, precious metals and jewelry dealers, pawnbrokers, telecommunications companies, personal property brokers, bail bondsmen, mortgage loan brokers and anyone “regularly engaged in transmitting funds abroad for others.”

Investigators say money-laundering schemes are limited only by the imagination of the launderer, but a typical scheme might involve a drug dealer buying several money orders for $5,000 each--transactions that don’t have to be reported under federal law because they’re less than $10,000.

Those money orders are then wired to a foreign bank account, where U.S. investigators can’t determine the owner because of bank secrecy laws. The funds are held in the foreign bank or returned to a U.S. account controlled by a drug dealer or front company.

“Financial institutions have made substantial contributions to the Legislature, and we expect a tough fight from these special interests,” Clute said.

“We also expect to put drug dealers and organized crime on notice: Take your dirty money somewhere else.” Kirk Hallahan, a vice president of the 200-member California League of Savings Institutions, said the league favors tougher regulation “to the degree that it will help curb illegal activities.”

He pointed out, however, that there are “significant operational problems in tracking account activities of customers on a day-to-day basis.

May Have Legitimate Reason

“It’s one thing for a customer to present $10,000 in cash at a teller window and require the institution to report the transaction. It’s quite another thing, however, to require an institution to report that a customer has deposited $25,000 over several days.”

That customer, Hallahan said, might have a legitimate reason for that kind of activity in his account.

“While we certainly would adhere to all reporting requirements, this requirement might pose a problem for institutions in maintaining the confidentiality of customer accounts as required by state and federal law.”