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We have long maintained that these limitations could be significantly relaxed without any significant intrusion into privacy rights, with an amendment such as that contained in the Administration's bill, H.R. 2785. The bill's provisions would not intrude on any right of privacy as they would only allow information already legally in the hands of the Government to be used by other agencies of the Government for law enforcement purposes. The purposes of the RFPA, to prevent the extra-legal use of bank records, would be preserved.

Money Laundering Bills Several bills now before the House would create a new crime of money laundering. They prohibit a person from engaging in a financial transaction with criminally derived property, knowing that the property is criminally derived. We support fully these bills' intent to prevent anyone, whether inside or outside of a financial institution, from knowingly using the institution to launder funds. We agree particularly that the knowing standard should be maintained to ensure that individuals or institutions are not subject to severe criminal penalties for inadvertent violations. We similarly endorse the enhanced penalties and suggest that the size of any monetary penalty be based on various factors, including the culpability of the individual or institution and the financial solvency of the violator. We believe that the provisions in the bills that would modify the RFPA and that would preempt state law are necessary to enable individuals or institutions to make referrals to the law enforcement community of suspicious activities without inadvertently exposing themselves to potential substantial liability for violations of the RFPA or other Federal or state privacy acts. Likewise, as explained in detail in our April 14, 1986 progress report to this Subcommittee in response to question 3 of the Chairman's letter of invitation of March 27, 1986, we believe that the limitations in the RFPA should not apply to Government sharing of information for law enforcement purposes once the information has been obtained through lawful processes.





APRIL 17, 1986

Mr. Chairman and Members of the Committee :

I sincerely appreciate the opportunity to appear before

you to discuss legislative responses to the problems 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 last December and to affirm to you my commitment to rigorous Bank Secrecy Act


I am pleased to introduce Mr. Robert J. Stankey, the Acting Director of the Office of Financial Enforcement, who I know

is a familiar figure to you, Mr. Chairman, and 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 per son, has been responsible for the development of the

Bank Secrecy Act into an effective law enforcement weapon and

cornerstone in Treasury's financial law enforcement program.


Update on Treasury's Bank Secrecy Act Enforcement

Before turning to

the legislative measures under discussion,

I would like to briefly update the Committee 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

these activities which we have made available for

distribution today. I will highlight four topics from that

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First, I would like to discuss Treasury's imposition of civil

penalties against financial institutions for past non-compliance.

In the wake of

the publicity surrounding the Bank of Boston case,

and in good measure


a response to the hearing of this commit

tee, over sixty banks or bank holding companies have come forward

to Treasury with past violations of the Bank Secrecy Act.


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S 5321, ranging from $112,000 to $4.75 million in the case

of Bank of America.

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because of the time required for banks to conduct an examination

of past compliance and

to reconstruct past unreported trans

actions for late-filing of Currency Transaction Reports.

We want to emphasize that Treasury has not as yet closed the

door to volunteers, and we continue to encourage financial insti

tutions to come forward to disclose past violations.


volunteer banks will be dealt with more severely.


institutions that have not filed reguired Currency Transaction

Reports for any reason have a continuing legal duty to do so.

Banks that become aware of past non-compliance and make no effort

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Secrecy Act, including the imposition of publicly announced,

substantial civil penalties, where appropriate, has contributed

to enhanced awareness of the requirements of the Bank Secrecy


As a consequence, and as confirmed in our dealings with

many banks and the increased volume of Currency Transaction

Reports, we believe that overall compliance has improved and that

compliance has become a high priority with many major financial


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Improved Examination Procedures

Another major initiative to ensure full compliance with the

Bank Secrecy Act has been Treasury's work with bank supervisory

agencies to improve and standardize Bank Secrecy Act examination


As many of the civil penalty cases and the Bank of Boston

case demonstrated, the procedures being used by the examiners

were not sufficient to ensure that all violations of the Act

would be detected, particularly failures to report international

bank-to-bank transactions.

These procedures needed to be

improved, and a number of other issues also had to be considered

in order to make compliance examinations more effective.


issues included the maintenance of detailed work papers, the

sharing of information among bank supervisory agencies, and the

uniform application of the examination procedures.

To address

these matters, we have had a series of meetings 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 a result of these consultations, we expect to send final

instructions on examination procedures to the supervisory

agencies this week.

It is axiomatic that improved and aggressive

examination will foster improved compliance.

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