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31–041 PDF 2006

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

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

CAMPBELL, JOHN, California 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SPENCER BACHUS, Alabama, Chairman

WALTER B. JONES, JR., North Carolina, 

Vice Chairman 

RICHARD H. BAKER, Louisiana 

MICHAEL N. CASTLE, Delaware 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SUE W. KELLY, New York 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

JUDY BIGGERT, Illinois 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

RICK RENZI, Arizona 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

MICHAEL G. OXLEY, Ohio 

BERNARD SANDERS, Vermont 

CAROLYN B. MALONEY, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

LUIS V. GUTIERREZ, Illinois 

DENNIS MOORE, Kansas 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

AL GREEN, Texas 

GWEN MOORE, Wisconsin 

WM. LACY CLAY, Missouri 

JIM MATHESON, Utah 

BARNEY FRANK, Massachusetts 

(V)

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

(1)

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 wellVerDate 0ct 09 2002 17:08 Dec 18, 2006 Jkt 031041 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 F:\DOCS\31041.TXT HFIN PsN: TERRIE
2

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 

3

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. 

4

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. 

5

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 

6

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. 

7

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 

8

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 requireVerDate 0ct 09 2002 17:08 Dec 18, 2006 Jkt 031041 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 F:\DOCS\31041.TXT HFIN PsN: TERRIE
9

ment 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. 

10

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. 

11

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. 

12

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 

13

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 opVerDate 0ct 09 2002 17:08 Dec 18, 2006 Jkt 031041 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 F:\DOCS\31041.TXT HFIN PsN: TERRIE
14

portunities, 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. 

15

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. 

16

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? 

17

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 

18

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 footdragging, 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 fouryear-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 

19

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 WalMarts, 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 organi- zation, 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 

20

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. 

21

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. 

22

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. 

23

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 

24

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 

25

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] 

26

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. 

27

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 

28

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 wellestablished 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. 

29

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. 

30

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 

31

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 nonpublicly 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. 

32

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, 

33

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. 

34

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. 

35

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. 

36

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 

37

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 realworld 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.] 

38

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. 

39

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 usefulVerDate 0ct 09 2002 17:08 Dec 18, 2006 Jkt 031041 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 F:\DOCS\31041.TXT HFIN PsN: TERRIE
40

ness.’’ 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. 

41

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 evVerDate 0ct 09 2002 17:08 Dec 18, 2006 Jkt 031041 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 F:\DOCS\31041.TXT HFIN PsN: TERRIE
42

erybody 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 

43

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. 

44

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.] 

(45)

A P P E N D I X

May 18, 2006

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