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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.

STATEMENT OF THE HONORABLE FRANCIS A. KEATING, II
ASSISTANT SECRETARY (ENFORCEMENT)

U.S. DEPARTMENT OF THE TREASURY
BEFORE THE

COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
UNITED STATES HOUSE OF REPRESENTATIVES

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 enforcement.

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 person, 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.

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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 report civil penalty assessment, improved Bank Secrecy Act examination procedures, commitment of Treasury resources to Bank Secrecy Act enforcement and regulatory amendments.

Civil Penalty Assessment

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 as a response to the hearing of this Committee, over sixty banks or bank holding companies have come forward to Treasury with past violations of the Bank Secrecy Act. Some have come forward as a result of bank regulatory examinations, particularly those of the Comptroller of the Currency. To date, fifteen civil penalties have been assessed under 31 U.S.C.

§ 5321, ranging from $112,000 to $4.75 million in the case of Bank of America.

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Other cases are under review, and we anticipate that additional penalties will be assessed shortly.

In many

instances, the cases are taking several months to conclude

because of the time required for banks to conduct an examination of past compliance and to reconstruct past unreported transactions 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 institutions to come forward to disclose past violations. Nonvolunteer banks will be dealt with more severely. Financial institutions that have not filed required 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 to contact Treasury are running a serious risk. We are planning a major effort to uncover these non-volunteers. This effort will ultimately depend heavily on the support of the bank supervisory agencies.

We believe that Treasury's rigorous enforcement of the Bank 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 Act. 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 institutions.

Improved Examination Procedures

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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 procedures.

These

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 workpapers, 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.