New Laws Needed to Check Flow of Drug Money, Van de Kamp Asserts

A battery of new state laws is needed to combat the ever-increasing flow of drug-trafficking dollars across the border and into banks and other financial institutions throughout California, state officials said Friday.

Testifying in San Diego before a session of the Assembly Committee on Public Safety, California Atty. Gen. John Van de Kamp and others argued in support of proposed legislation that would increase financial-reporting requirements imposed on banks and other financial institutions. The goal is to curb the practice known as money-laundering--that is, the disguising of illicit revenue by depositing the funds in banks or using them in other legal financial transactions.

“It is increasingly clear that the integrity of California’s entire financial system is at risk,” Van de Kamp said.

Nationwide, the need to crack down on money-laundering operations has come to be viewed as a central element of the fight against drug smugglers. Without any place to put their cash, federal officials have said, traffickers will simply drown in a sea of bank notes.

In August, federal officials imposed civil penalties of $2.2 million against Crocker National Bank of San Francisco for failure to report cash transactions of almost $4 billion--including $30 million at branches in San Ysidro and Calexico, on the border. Federal officials are investigating similar allegations at other California banks, Van de Kamp said.

But critics of the state proposals, including representatives of the banking industry, argued that the new laws would intrude on individual privacy and would create an administrative nightmare for financial institutions.

George Cook, representing the California Bankers Assn., said bankers support measures aimed at curbing money laundering. But he expressed fears that the state requirements would be costly to implement and could amount to intrusive “fishing expeditions” against innocent investors.

Nonetheless, the attorney general and others argued that decisive action must be taken soon, particularly since an ongoing crackdown against narcotics traffickers based in South Florida has pushed the drug trade--and companion money-laundering operations--westward to California. Moreover, California’s long border with Mexico has made it a major conduit for the increasing amounts of illegal drugs and illicit cash entering the United States, according to law enforcement officials.

“Our proximity to the border invites attempts to launder money,” said San Diego County Dist. Atty. Edwin Miller, who also testified at the hearing.

Three bills now pending in the state Legislature seek to counter the money-laundering problem by making the practice a state crime and requiring that banks and other financial institutions meet additional record-keeping and reporting requirements for large cash transactions. The extra documentation is designed to create a paper trail so that investigators can trace the often-obscured origins and destinations of illicit cash.

A federal law known as the Bank Secrecy Act already requires that financial institutions file reports of individual currency transactions that exceed $10,000 with the secretary of the Treasury. In addition, travelers entering or leaving the United States with $10,000 or more in cash must file reports with the U.S. Customs Service. Federal officials say both requirements have been essential in cracking money-laundering schemes nationwide.

However, Van de Kamp noted that state officials often do not have access to the federal data. He maintained that additional state laws are needed so that state law enforcement agencies may also launch informed investigations of money-laundering schemes and prosecute wrongdoers. State officials also assert that more stringent cash-reporting requirements are needed because of inherent shortcomings in the federal laws.

The proposed state laws would not only require reports for one-day transactions of at least $10,000, but records would also be mandated for “cumulative” transactions totaling $25,000 or more during a five-day period. Secondly, the state legislation would eliminate various exemptions to the federal reporting requirement.

“We cannot stand idly by while drug profits are funneled through our financial institutions and back into the pockets and operations of criminal profiteers,” Van de Kamp said.

Legislative committees will consider the anti-laundering bills early next year. Officials voiced the hope that the measures may be enacted into law by early 1987.

But a federal official warned that money laundering will doubtless continue to be a problem, particularly along the border. Drug traffickers simply must find ways to legitimize the large sums of cash generated in their business, said Barry Moskowitz, an assistant U.S. attorney in San Diego.

“No matter what law any Assembly or any Congress passes,” Moskowitz said, “we’ll never keep drug money out of the banks.”