effective way of targeting particular institutions that we think might be involved in using wire transfers.

Chairman ST GERMAIN. I heard you say that one of your task forces agreed that it needs some legislative assistance in a timely fashion.

In other words, you don't want this to drag on and on and on. I certainly am sympathetic to that.

In fact, the way I'm looking at it right now, I think I'm going to gather some of my committee members together and say to them, let's look at what is universally acceptable and agreeable and let's enact that now and where we have some of the sticky wickets, we'll leave those to work on later.

But I don't think that we should sit back and wait until we've dotted every "i" and crossed every "t." If we run out of dots and crosses, well, let's put those aside. But let's enact that which is universally agreed upon.

Does anybody on the panel, including Mr. Keating, disagree with that?

Mr. SERINO. Mr. Chairman, I fully support that. In fact, I would suggest that a real focus be made on how can the law enforcement agencies coordinate and communicate better with the banking agencies and vice versa.

Chairman ST GERMAIN. Mr. Serino, you had better be careful because, I remember Penn Square, OK, where the Comptroller's Office was not communicating with the Comptroller's Office. Do you recall that?

Mr. SERINO. We have made some significant improvements, Mr. Chairman

Chairman ST GERMAIN. You've been making significant improvements. You did it after-what was that little bank in the Texas shopping center years ago? The Sharpstown.

Mr. SERINO. Sharpstown was a State bank, Mr. Chairman. Chairman ST GERMAIN. OK. Well, then, let's go to Franklin National. Let's go to our friend in California, USNB, in San Diego. Mr. SERINO. Mr. Chairman, the point

Chairman ST GERMAIN. The significant, sweeping changes, Jim Smith's computerization and all of that-don't get me wrong. You have to keep trying. You have to keep trying, and that's the only way you get better, by constantly working at improvement.

Mr. SERINO. The point I would like to make is that we think that one of the problems is the ability, for us to communicate with law enforcement and them to communicate with us. And we think two minor changes will solve that problem. One is in the right to financial privacy, and that is in your bill, and the other is in the grand jury secrecy rule that prevents law enforcement from giving us information from grand juries.

We think those two pieces will help.

Chairman ST GERMAIN. Well, remember, we have a jurisdictional thing here. There are those areas where we have jurisdiction, fine. That's where we'll proceed. And I'm of a mind not to wait for other committees and their jurisdictions.

That's what I meant a little earlier.

And now we will hear from Francis Keating, who is the Assistant Secretary of the Treasury for Enforcement and Operations.

We will put your entire statement in the record. You may proceed.

STATEMENT OF FRANCIS A. KEATING II, ASSISTANT SECRETARY (ENFORCEMENT AND OPERATIONS) TREASURY

Mr. KEATING. Thank you.

Mr. Chairman, I sincerely appreciate the opportunity to appear before you to discuss legislative responses to the problem of money laundering, especially legislative initiatives that will enhance Treasury's enforcement of the Bank Secrecy Act.

This is my first opportunity to testify before Congress on this subject since I assumed the position of assistant secretary for enforcement some 90 days ago, and to affirm to you my commitment to rigorous enforcement of the Bank Secrecy Act, as I personally assured you in my office meeting with you.

I'm pleased to introduce Mr. Robert Stankey, the Acting Director of the Office of Financial Enforcement, who I know is a familiar figure to you, Mr. Chairman, and to the members of your staff.

Mr. Stankey has been with Treasury since the inception of the Bank Secrecy Act. It is fair to say that he, more than any other person, has been responsible for the development of the Bank Secrecy Act into an effective law enforcement weapon and the cornerstone in Treasury's Financial Law Enforcement Program.

Before turning to the legislative measures, I would like to briefly update you, Mr. Chairman, on Treasury's Bank Secrecy Act enforcement activities since my predecessor testified before you last year in your hearings following the Bank of Boston case.

On February 14, 1986, we prepared for the committee a report on those activities which we have made available for distribution today.

First, I would like to discuss Treasury's imposition of civil penalties against financial institutions for past noncompliance. In the wake of the publicity surrounding the Bank of Boston case, and in good measure as a response to the hearing of this committee, over 60 banks or bank holding companies have come forward to Treasury with past violations of the Bank Secrecy Act. To date, 15 civil penalties have been assessed ranging from $112,000 to $4.75 million in the case of the Bank of America. Other cases are under review and we anticipate assessing additional penalties shortly.

We believe that Treasury's rigorous enforcement of the Bank Secrecy Act, including the imposition of publicly announced substantal civil penalties, where appropriate, has contributed to enhanced Bank Secrecy Act compliance.

Another major initiative has been our work with bank supervisory agencies to improve and standardize Bank Secrecy Act examination procedures. Our experience in this effort has made clear to me the need for an ongoing interchange of ideas between us at Treasury and the agencies to which Treasury has delegated Bank Secrecy Act enforcement responsibilities.

Therefore, I am convening a permanent interagency working group on Bank Secrecy Act compliance consisting of representatives of Treasury, Customs, the Internal Revenue Service, SEC, and the bank supervisory agencies. The group will be chaired by the

Deputy Assistant Secretary in my office for law enforcement, David Queen, and will meet monthly or more frequently as needed. We will use this forum to discuss not only examinations-

Chairman ST GERMAIN. Mr. Keating, when you say the bank supervisory agencies, do you include the NCUA?

Mr. KEATING. Pardon me?

Chairman ST GERMAIN. Do you include NCUA?

Mr. KEATING. Mr. Chairman, at this time, the specific membership of the committee has not been set. But any that would be relevant

Chairman ST GERMAIN. You mean this subcommittee is receiving the initial announcement of this?

Mr. KEATING. Yes. We're taking this opportunity to announce our plan, Mr. Chairman, but we certainly intend to have the first meeting very soon and the membership of the committee.

Chairman ST GERMAIN. Well, I would recommend that NCUA be included because from testimony to date, we know that they do have checks and money orders and what have you at credit unions as well. So credit unions could be utilized by smurfs.

Mr. KEATING. Very well. I appreciate the suggestion, Mr. Chairman. We'll do that.

We will use this forum to discuss not only examination procedures, but mutual enforcement problems and Treasury policy initiatives, including revisions to regulations.

In July 1985, the Treasury Department established the Office of Financial Enforcement. This provided a focal point for the Bank Secrecy Act-related activity within the Treasury Department and acknowledged the increasing importance of the act in Treasury's law enforcement efforts.

The Office oversees the compliance activities of all agencies that have been delegated responsibities under the act and we have increased its staff resources for this purpose.

In addition, there has been a very large commitment of resources both by Customs and the Internal Revenue Service.

Since last year, we have strengthened the Treasury Bank Secrecy Act regulations in several important respects. On May 7, 1985, casinos were designated as financial institutions subject to Bank Secrecy Act reporting and recordkeeping requirements.

Last summer, a regulatory amendment pertaining to international transactions was published as a final rule. Under the regulations, Treasury will be able to require a financial institution or a selected group of financial institutions to report specified international transactions, including wire transfers or cashier's checks for a defined period of time.

We are also discussing a number of other regulatory amendments, including regulatory solutions to the problems of smurfing and structuring transactions to avoid the reporting requirements. As with all amendments to the bank secrecy regulations, Treasury will consider carefully the financial and operational impact of regulatory changes on financial institutions as it seeks to meet the legitimate needs of law enforcement.

I would now like to discuss, with your indulgence, Mr. Chairman, the various proposals under discussion to bolster our attack against

money laundering and to improve Treasury's enforcement of the Bank Secrecy Act.

First is H.R. 2785 and 2786, the Money Laundering and Related Crimes Act, which was developed jointly by the Departments of Justice and Treasury.

I would like to comment on the critical revisions to the Bank Secrecy Act contained in the bill. Most important, the Secretary would be given summons authority both for financial institution witnesses and documents in connection with Bank Secrecy Act violations. This authority is essential to enforcement of the act, especially with respect to miscellaneous nonbank financial institutions, such as casinos and foreign currency brokers which now number in excess of 3,000.

The responsibility for compliance review of these institutions has been delegated to the Internal Revenue Service. However, the IRS summons authority is restricted, as indicated this morning, to title 26 purposes only. Therefore, in examining these institutions, IRS must rely on voluntary cooperation.

Under this bill, a summons would be issued only by the Secretary or with his approval, by a supervisory level official of an organization to which the Secretary has delegated Bank Secrecy Act enforcement authority. For example, the Internal Revenue Service, the Comptroller of the Currency, or the Customs Service.

H.R. 1367, by contrast, provides that Treasury may not delegate summons authority. For Treasury, the ability to delegate that authority is a practical necessity.

The bill also provides for a civil penalty for negligent violations of the act. Currently, Treasury has authority to assess civil penalties only for willful violations, with willful in the civil context meaning with specific intent or with reckless disregard of the law. The prospect of penalties for negligent violations will encourage financial institutions to give more attention to good compliance.

The bill also provides important revisions to the Right to Financial Privacy Act. The most important and least controversial of those revisions is the amendment to subsection 1103(c) of the act. Currently, that section provides that nothing in the act shall preclude financial institutions from notifying a Government authority that the institution has information "which may be relevant to a possible violation of any statute or regulation."

The statute gives no guidance on what information can be given without running the risk of exposure to civil liability under the RFPA.

The proposed amendment sets out explicitly that enough information can be given to enable Federal law enforcement authorities to proceed with legal process. We believe you should find very little opposition in the financial community to this particular revision of the RFPA. The revision imposed is no new legal duty on financial institutions and clarifies the right of financial institutions to act as good citizens without the risk of civil liability.

For consistent application throughout the United States, this amendment must be accompanied by the proposed preemption provision so that a financial institution that complies with the act will not run afoul of any more restrictive State privacy laws.

The proposed clarification of the good faith defense to civil liability is also needed to protect financial institutions who cooperate with Federal law enforcement in good faith within the confines of the Right to Financial Privacy Act.

In addition to the administration's money-laundering bill, Mr. Chairman, there is another legislative initiative on which I urge early and favorable action. That is the bill introduced yesterday by Congressman Pickle and Senator D'Amato. This bill would prohibit structuring of currency transactions to avoid the $10,000 currency transaction reporting requirement, including the well known practice of smurfing. The proposal would make a person who structures transactions to avoid the currency reporting requirements or who causes a financial institution not to file a required report, subject to the criminal and civil sanctions of the Bank Secrecy Act.

The bill also provides necessary seizure and forfeiture authority for currency related to a domestic CTR reporting violation.

With respect to the other bills before the committee, Treasury respectfully opposes two provisions in H.R. 1474. Section 3 of H.R. 1474 would provide that every Bank Secrecy Act reporting exemption be approved first by the Secretary. Under the current regulations, a bank may exempt from reporting certain cash deposits and withdrawals of accounts of retail businesses in amounts commensurate with the lawful customary conduct of such business.

It would be unwise, in our view, to shift the burden of monitoring the eligibility of bank customers for exemptions away from the bank which knows its customers best.

Section 4 of H.R. 1474 would require that every person――

Chairman ST GERMAIN. Excuse me, Mr. Keating.

Mr. KEATING. Yes, Mr. Chairman.

Chairman ST GERMAIN. I can see where you have a problem with the Secretary's having to approve this. But you just said the bank knows the customers best.

Now, in South Boston, the Bank of Boston's employees obviously never read any Boston newspapers, where the Anjulo family was portrayed over many, many years on the front pages of the newspapers. And these are the very people, the Anjulos, who were coming in with sacks full of money, and they had an exemption. And the branch manager was born and brought up in South Boston, probably went to the same church, was confirmed and received Holy Communion for the first time from the same priest as the Anjulo family, did you know that?

So to say the bank knows best is not a totally accurate statement because sometimes they know best, but they don't always know best.

Mr. KEATING. Mr. Chairman, we don't question for a minute the fact that there are situations that have occurred in the past and would occur in the future where bank officers or directors or employees would be participants in the violation of the act. But we would hope that the criminal and civil penalties that would be applicable to them would be adequate. Certainly if we were able to have the money laundering

Chairman ST GERMAIN. To the employees.

Mr. KEATING. That's correct. Especially if we had the money laundering act passed, would take care of that situation.