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We are making more and better use of external targeting of institutions for Bank Secrecy Act reviews. The Customs Service's analysis

of currency flows and cash shipments of individual banks and bank-to-peer group relationships provides regulators with an intelligent way to select banks for examination. We strongly support the work being done in this area.

Because the safety and soundness of insured banks is of utmost importance to the FDIC, the resources we can allocate to Bank Secrecy Act compliance are limited. Thus, the method of selecting banks to be examined is very critical to our overall enforcement effort. In addition to targeting banks based on information from the Treasury Department, IRS or the Customs Service, the idea of examining a random sample of banks each year is being considered.

FDIC usually conducts Bank Secrecy Act examinations in conjunction with its review for consumer compliance. We have recently begun reviewing Bank Secrecy Act regulations at safety and soundness examinations or conducting an independent examination, as circumstances warrant. This approach adds flexibility to our enforcement program and permits us to respond quickly to potential

problems.

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As we have stated in the past, bank supervision and examination procedures cannot assure day-to-day compliance with currency reporting requirements. Financial institutions must install internal controls and systems. They must also train and re-train their employees and audit for compliance. Even under the best

of conditions, employees can be corrupted into circumventing the controls and violating the laws.

During the past fifteen months, we have given a lot of attention to improving our efforts to deal with the criminal conduct of bank insiders. We are very encouraged by the progress being made by the Bank Fraud Working Group. The Group was organized under the interagency agreement signed in April 1985 to improve cooperation between bank regulators and law enforcement agencies in responding to the criminal threat to insured financial institutions. Similar progress in dealing with the criminal aspects of money laundering is possible under the current legal environment. However, the government's response to the problem would be strengthened by making money laundering a federal crime. H.R. 2785 and other bills address this fundamental weakness and would permit prosecutors to attack organized criminals directly--by making money laundering the crime--rather than having to build their cases on failures to file currency reports. We support a federal crime of money laundering and generally agree with the higher penalties and stiffer sentences contained in H.R.

2785.

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H.R. 2785 contains much needed amendments to the Right to Financial Privacy Act of 1978. There is no question that the Right to Financial Privacy Act serves as a legal and psychological barrier

to the flow of information from financial institutions and their regulators to federal law enforcement agencies. Unimpeded information flows are essential to the successful investigation and prosecution of financial criminals and money launderers. This dysfunctional impact appears to reach well beyond the legitimate privacy concerns that Congress intended to protect.

As we have pointed out before, the Act, as interpreted by most
interested parties, extends the customer-privacy protections
to bank insiders who are often also customers of the bank.
Insider abuse of federally insured financial institutions is
unquestionably a major cause of bank failures and of losses
to the FDIC's insurance fund. We believe that insiders, by
virtue of their position in federally insured institutions,
ought to be treated differently than a bank's "arms-length"

customers.

The amendments to the Right to Financial Privacy Act contained in H.R. 2785 would correct this and other flaws, while preserving the privacy interests of law abiding bank customers. Moreover, financial institutions would be freed from the restrictions

and uncertainties now affecting their ability to make informative

criminal referrals.

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In conclusion, I am convinced that we are making progress in

our efforts to deal with criminal conduct in the banking industry, despite the strain placed on our resources by unprecedented

bank failures and by budgetary considerations.

The commitment

by the Department of Justice evidenced in the signing of the interagency agreement and the efforts, to date, of the Bank

Fraud Working Group are important examples of the type of progress that can be achieved by working together. This approach should work equally well for the agencies charged with the responsibility to enforce the Bank Secrecy Act.

Thank you.

EMBARGOED UNTIL DELIVERY

STATEMENT OF ROBERT B. SERINO

DEPUTY CHIEF COUNSEL (OPERATIONS)

OFFICE OF THE COMPTROLLER OF THE CURRENCY

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

SUPERVISION, REGULATION AND INSURANCE

COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS

UNITED STATES HOUSE OF REPRESENTATIVES

April 17, 1986

Mr. Chairman and members of the Subcommittee:

Thank you for the opportunity to bring you up to date on the Office of the Comptroller of the Currency's (OCC) activities in the Bank Secrecy Act (BSA) area and to express our views on the legislative changes needed to facilitate our efforts to assist the law enforcement community in its criminal enforcement efforts. As supervisors of the national banking system, we share this Subcommittee's concern that our nation's financial institutions not be used wittingly or unwittingly to facilitate or conceal criminal activity. We recognize the importance of