While these characteristics may also be observed in the context of wholly legitimate transactions, they can provide financial institutions with at least some guidance on the steps that they can take to discourage money laundering. 3. Internal Auditing Function Many financial institutions, including banks and savings and loan associations, have internal audit groups to examine their routine functions and activities. However, no institution reviewed by the Commission has an audit unit devoted solely to Bank Secrecy Act compliance, and the enormous number of technical violations discovered during government compliance checks clearly indicates that far too little attention is given to this area. To aid in their self-review for compliance with the Act, financial institutions should implement an internal clearinghouse for all CTRs and CMIRs generated in branch commercial activity. Such an internal function would enable management to review compliance efforts at an early stage. 4. Exemption Lists When customers wish to be exempted from the Act's reporting requirements, financial institutions should perform background investigations which are as thorough as those performed on loan applicants. Special attention to the customer's business needs and the proposed upper range of exempt currency transactions is a necessity. If an exemption is to be granted to a customer, this decision should be approved by at least two officers of the financial institution, reducing opportunities to corrupt officials in furtherance of a laundering scheme. 5.- Fiduciaries Internal auditors should give particular attention to activities that frequendy evade cursory review, such as the purchase and cashing of largedenomination cashier's checks and deposits or exchange of large amounts of currency by a person in an agency or fiduciary relationship with the principal or account holder. Because this practice has occurred in documented money laundering schemes, review of such transactions should be expanded to reveal patterns of suspicious activity. 6. Electronic Data Processing The Department of the Treasury and the financial community should undertake a joint study to determine the feasibility and cost of on-site electronic data processing of Bank Secrecy Act reporting forms. The current processing system creates a significant lag between the time of a suspicious financial transaction and the time at which this information is available to investigators. 7. Notification to Law Enforcement Agencies Financial institutions should establish a formal policy that encourages their officers and employees to report promptly to the appropriate law enforcement agencies all transactions suspected of involvement with money laundering. Such a policy should recognize the need of law enforcement agencies to receive such reports as soon as possible during or after the transactions, as well as the duty of the institution to act in conformity with Federal and state law governing the financial privacy of its customers. In implementing such a policy, each financial institution should provide specific guidelines to its tellers and branch supervisors for identifying such transactions. B. Administrative Recommendations 1. To increase substantially the costs and difficulties associated with the conduct of money laundering, and to deter money launderers in the United States from using foreign countries so freely for money laundering, the Department of the Treasury should determine which countries are most likely to be repositories for significant amounts of laundered money, by combining a country-by-country analysis of CTRs, CMIRS, and Foreign Bank Account Reports (FBARs) with investigative information obtained from various Federal agencies. Thereafter, the Department of Justice should expand on its use of Financial Task Forces and develop teams of United States Attorneys, other Department of Justice attorneys, and investigative agencies to coordinate their investigations and prosecutions of money launderers on a country-by-country basis, to target the foreign countries most heavily used for money laundering from the United States. 2. To increase the effectiveness with which the IRS can review financial transactions for compliance with the Bank Secrecy Act, and to ensure that financial institutions have a specific Federal agency to contact if they become aware of violations of the Bank Secrecy Act, the Secretary of the Treasury (through the IRS) should be given substantial additional personnel, devote those personnel (including both Revenue Agents and Special Agents) and resources (including civil summons power) to the IRS office that handles Bank Secrecy Act compliance, and designate that office as the initial contact for financial institutions. 3. To complement the efforts of the Department of the Treasury to assure compliance with the Bank Secrecy Act, and to facilitate the efforts of the FBI and the DEA to investigate other money laundering-related violations within their respective jurisdictions, the Attorney General (through the FBI and the DEA) should be given substantial additional personnel and devote those personnel to investigations of such violations. 4. To reduce the time that is required to process and analyze CTR data, the Secretary of the Treasury should consolidate the processing of such data into a single location. 5. To expedite the process by which financial institutions can inform law enforcement agencies of specific violations of the reporting requirements under the Bank Secrecy Act, the Secretary of the Treasury and financial institutions should coordinate the implementation of a procedure whereby a financial institution can make a special standardized notation on any CTR or CMIR that it believes involves a questionable transaction, mail that CTR or CMIR, as appropriate, to the IRS or Customs office responsible for inputting such data, and telephone a particular office (such as the IRS compliance office) to alert it to the contents of the CTR or CMIR. Such a procedure would in no way conflict with the provisions of the Right to Financial Privacy Act, and can quickly call the attention of law enforcement agencies to a possible money laundering scheme, as the Orozco case demonstrates. 6. To facilitate review for Bank Secrecy Act compliance during audits of financial institutions, the Secretary of the Treasury should arrange for the generation of exemption lists compiled by financial institutions, as well as lists of CTRs and CMIRs that have been received by the Department of the Treasury from particular financial institutions, and for the transmission of those lists to bank examiners or other auditors in advance of their audits of those institutions. 7. To discourage officials or employees of a financial institution from abusing that institution's authority to exempt customers from the requirements of the Bank Secrecy Act, the Secretary of the Treasury should amend the Department of the Treasury's regulations under the Bank Secrecy Act to establish the following procedure (1) the customer requesting the exemption would be required to complete and sign a sworn statement (falsification of which would violate 18 USC §1001), on a form provided by the Department, that sets forth all of the information concerning the exemption that the financial institution is currently required to maintain, as well as the information that the customer has provided to the institution in support of the request for the exemption. (2) the financial institution would be required to submit the form to the Department within seven working days after the customer has completed and signed the form. 8 To minimize the possibility, in situations where a law enforcement agency has requested information from a financial institution concerning a customer, that disclosure of the agency's request might result in the destruction of evidence or other impediments to the agency's investigation, the agency should request that the financial institution not disclose the agency's request for information to the customer until the agency has provided the customer with the notice required under the Right to Financial Privacy Act. In those instances where the agency has obtained a judicial delay in notice under section 1106(c) or 1109(a) of the Right to Financial Privacy Act, and an official or employee of the financial institution notifies the customer of the agency's request for information during the pendency of that delay, the Department of Justice should consider criminal prosecution of that official or employee under Chapter 73 of Title 18, United States Code (concerning obstruction of justice), if the notification to the customer results in one of the cir cumstances described in section 1109(a)(3) of the Right to Financial Privacy Act. 9. To discourage the use of casinos by criminals as conduits for money laundering, and to subject casinos, where appropriate, to the reporting and recordkeeping requirements of the Bank Secrecy Act, the Secretary of the Treasury should amend the regulations under the Act to include casinos in the definition of “financial institutions." (While the Commission endorses such an inclusion, as the Department of the Treasury has proposed in its recent notice of proposed rulemaking, the Commission offers no additional comment at this time on any other aspect of that notice.) 10. To improve communications between the Department of the Treasury and bank supervisory agencies concerning Bank Secrecy Act compliance, and to encourage those agencies in their efforts to ensure such compliance, the Department of the Treasury should formally notify a bank supervisory agency that has referred a case to the Department for investigation of possible criminal violations of the Act, if the referral results in the filing of an indictment or information. In appropriate cases, the Department of the Treasury should also formally express its appreciation to any employee or unit of the bank supervisory agency whose work significantly contributed to the referral. C. Legislative Recommendations (Note: As this report went to print, the House of Representatives, on October 11, 1984, passed legislation, H.J. Res. 648, containing, either in whole or in part, recommendations 4, 6, 7, 9, and 10, marked with asterisks on the following pages.) 1. To permit financial institutions to cooperate more actively and regularly with Federal law enforcement agencies in providing information concerning ongoing money laundering schemes, Congress should amend the Right to Financial Privacy Act. Such an amendment should permit those institutions not only to notify the agencies that they have information which may be relevant to a violation of law, but also to disclose a sufficient amount of such information to permit the agencies to determine whether a formal investigation is warranted and how such an investigation should proceed. Such an amendment could be drafted so that all subsequent disclosures of information in customers' financial records could be made only in conformity with the provisions of the Right to Financial Privacy Act (See Appendix.) 2. To clarify the law concerning Federal agencies' rights of access under state law to the financial records of financial institutions' customers, Congress should also amend the Right to Financial Privacy Act to preempt the provisions of any state constitution, statute, regulation, or judicial decision that create a more stringent standard for financial institutions' disclosures to Federal agencies than the Act does. (See Appendix.) 3. To ensure that financial institutions will not inadvertently render themselves subject to private damage actions under the Right to Financial Privacy Act for disclosing information to law enforcement agencies concerning violations of law, or for failing to notify customers of such disclosures, Congress should amend the Right to Financial Privacy Act. Such an amendment should permit an institution to raise as a defense that it had disclosed the information in a good-faith belief that it may be relevant to a possible violation of a statute or regulation. (See Appendix.) 4. To increase the incentive for officials or employees of financial institutions or other persons to inform Federal agencies that money laundering is taking place at a particular institution, Congress should add a provision to the Bank Secrecy Act that would permit the Secretary of the Treasury to give rewards for information leading to penalties under the Bank Secrecy Act. (See Appendix.) 5. To facilitate the process by which the Department of the Treasury may transfer information in reports filed under the Bank Secrecy Act to other Federal agencies, Congress should amend the Bank Secrecy Act. Such an amendment would permit the Secretary of the Treasury to |