-3 We currently are in the process of extracting data from the Bank Secrecy Act data base to identify additional banks that appear to have violated the currency transaction reporting requirements. Within a few days, we expect to receive a listing of reports that were filed in 1985 concerning transactions that occurred in 1984 and prior years. Since the data base appears to be complete through August, 1985, the list should identify all of the banks that filed delinquent reports including those banks that failed to bring their violations to our attention. Preliminary estimates indicated that about 70,000 reports have been filed late. Our analysis of the data base information should result in a considerable number of additional penalty cases. In Late in 1985, the IRS agreed to assume the day-to-day responsibility for reviewing exemptions from the currency transaction reporting requirements and approving special exemptions under the provisions of 31 CFR 103.22 (d). January, 1986, the transfer was completed. We have been assisting the IRS during the transition stage. Their assumption of this responsibility has permitted us to devote more time to civil penalties and the improvement of bank examination procedures. Over a period of several months, we have been meeting with the Federal bank supervisory agencies and others who have an interest in improving the procedures used by examiners for checking the compliance of financial institutions with the Bank Secrecy Act. As many of the civil penalty cases and the Bank of Boston case demonstrated, the procedures being used by the examiners did not detect the failure to report international bank-to-bank transactions. The gap in their instructions had to be closed, and a number of other issues also had to be considered in order to make compliance examinations more effective. These issues included the maintenance of detailed workpapers, the sharing of informa- tion among bank supervisory agencies, and the uniform application of the examination procedures. On January 8, 1986, we transmitted our recommendations to the supervisory agencies. A copy of Deputy Assistant Secretary (Enforcement) Queen's letter to the Division of Banking Supervision and Regulation, Federal Reserve System, is enclosed for your information. We plan to hold additional meetings with the agencies and develop a consensus on what the procedures should be. It is expected that the process will be completed within 60 days. In addition, we have been working with the IRS to develop guidelines for bank examiners and others to use in reviewing a bank's retained copies of currency transaction reports (IRS Form 4789) for completeness. Since the Bank of Boston case, bank examiners generally have paid increased attention to the way in which the reports are prepared. With thousands of examiners in the field, there is a need to develop uniform standards to help them in evaluating the reports. We are also assisting the IRS in their efforts to provide their staff members with written instructions and guidelines covering the review of bank exemption lists and the approval or denial of requests for special exemptions from the currency transaction reporting requirements. The guidelines for the review of exempt lists will also be made available to the bank supervisory agencies for the use of bank examiners in reviewing exemption lists as part of their compliance examinations. The IRS (Examination Division) is currently in the process of circulating a draft of those guidelines to the supervisory agencies for comment. In an effort to streamline the initiation of criminal investigations of financial institutions, the IRS has been delegated authority to open criminal cases without obtaining approval from the Office of Enforcement and Operations. The IRS has agreed to review all requests for authority to open a case in its National Office. This should help to ensure the application of uniform standards and avoid unwarranted negative impact on the soundness of financial institutions. We also worked with the IRS to develop a revision of IRS Form 4789, which financial institutions use to report currency transactions. The new form includes a number of improvements designed to require additional review by the preparing institution and to clarify the method for reporting currency transactions between financial institutions. We believe that the use of the revised form will improve the quality of the reports and focus accountability within the filing bank. It will also result in more accurate descriptions of transactions and consequently, it will facilitate our analysis of the data base and increase the value of the output. We expect that the form will be in use by the second half of 1986. A copy is enclosed for your information. -5 There were two major regulatory amendments after March, 1985. First, the final regulations which included casinos in the definition of "financial institution" and required them to file currency transaction reports became effective on May 7, 1985. Then, on August 7, 1985, the amendment governing the selective reporting of international transactions became effective. During a recent meeting with Subcommittee staff members, our representatives agreed to provide information concerning current statutory authority for administrative subpoenas and summons issued by various Federal offices. A list of those offices and their statutory authority is enclosed. The Treasury Department believes that similar authority is necessary for the most effective enforcement of the Act. I hope that this letter is responsive to your request. If you would like additional information, please let me know. Comptroller of the Currency Washington, DC. 20219 April 14, 1986 The Honorable Fernand J. St Germain Subcommittee on Financial Institutions Urban Affairs U.S. House of Representatives Dear Mr. Chairman: In response to your letter of March 27, 1986, we are pleased to provide a report updating the Subcommittee on our efforts to improve enforcement of the Bank Secrecy Act (BSA). The report includes detailed responses to the eight points mentioned in the letter. Together with the responses to the questions raised on the Financial Institutions Regulatory and Interest Rate Control Act of 1978 and the requested analysis of various bills dealing with money laundering appended to our testimony, it offers a comprehensive overview of what we have accomplished in the BSA area and progress we hope to see made in the future. We Since this Office testified before the Subcommittee last April on the BSA, we have taken strides to improve BSA compliance. have focused management control over our BSA program, establishing a central clearinghouse for BSA operations and responsibilities in the Chief National Bank Examiner's office and designating focal points for BSA activities in the districts. We have intensified BSA training of examiners such that over half of our examiners received some BSA training last year. We have made a concerted effort to increase industry awareness of the BSA by participating in meetings to discuss the Act and by helping to develop a training segment for an American Bankers Association teleconference on the subject. And, we have taken an active role in establishing and facilitating interagency task groups on bank-related crime in general and BSA enforcement in particular. In order to build on the progress that we have made in the BSA area over the past year, we will continue on-going training and efforts to heighten industry awareness. In addition, we will work toward increased interagency coordination and improved utilization of information to target BSA enforcement efforts. While much has been accomplished since January 1985, more needs to be done. This Office is committed to its role in ensuring BSA compliance. But, law enforcement agencies and bank supervisors alone can provide only part of the answer. The industry's own commitment and efforts at self-policing are essential because banks' internal controls are the most effective mechanisms for promoting BSA compliance. With the legislative changes we urge in our testimony and active interagency cooperation and a committed industry, we are confident that substantial additional progress can be made in preventing the nation's financial institutions from being used, wittingly or unwittingly, to further criminal activity. I look forward to working with the Subcommittee in the important task of improving BSA compliance. Sincerely, Мишин, ник Robert L. Clarke Comptroller of the Currency |