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Our experience in the improvement and standardization of

examination procedures made clear to me the need for ongoing interchange of ideas between Treasury and the agencies to which Treasury has delegated Bank Secrecy Act enforcement responsibility.

Therefore, I am convening a permanant Interagency Working Group on Bank Secrecy Compliance, consisting of representatives of Treasury, Customs, IRS, the SEC, and the bank supervisory agencies. The group will be chaired by the Deputy Assistant Secretary (Law Enforcement) and will meet monthly or more frequently as needed. We will use this forum to discuss not only examination procedures, but mutual enforcement problems and Treasury policy initiatives including revisions to regulations.

Commitment of Treasury Resources

The establishment of

In July, 1985, the Treasury Department established the Office of Financial Enforcement to assist in implementing and administering the Bank Secrecy Act regulations. this office provided a focal point for 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 has broad responsibilities for the compliance activities of all agencies that have been delegated responsibilities under the Act, and there has been an increased commitment of staff resources to the office.

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In addition to the increase in the Office of Financial

Enforcement, there has been a very large commitment of resources by both the Customs and the IRS. As Assistant Commissioner

Wassenaar testified yesterday, the IRS has established a separate division in Detroit to handle BSA reporting matters.

Regulatory Initiatives

Since last year, we have strengthened the Treasury Bank Secrecy Act regulations in several respects. On May 7, 1985, regulations became effective that designated casinos as financial institutions subject to Bank Secrecy Act reporting and recordkeeping requirements. As evidenced in hearings by the President's Commission on Organized Crime last summer, money laundering through casinos, may have been even more widespread than once thought. We believe that the new regulations have reduced the attactiveness of the use of casinos for money laundering.

A regulatory amendment pertaining to international transactions was published as a final rule last summer. Under the regulations, Treasury will be able in the future 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 defined periods of time. We envision that this will require reporting of transactions with financial institutions in designated foreign locations that would

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The

produce information especially useful in identifying individuals and companies involved in money laundering and tax evasion. Internal Revenue Service's Office of Criminal Investigations is developing a plan for the initial use of this regulatory

authority.

We are also discussing a number of other regulatory amendments, including regulatory solutions to problems of "smurfing" and structuring transactions to avoid the reporting requirements of the Bank Secrecy Act. These revisions are being discussed within Treasury and with the Department of Justice and should be published in the Federal Register within the next few weeks. 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 needs of law enforcement.

Legislation

I would now like to address 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 (identical bills), the "Money Laundering and Related Crimes Act," which was developed jointly by the Departments of Justice and Treasury. I would like to remark on the critical revisions to the Bank Secrecy Act contained in the bill. I understand that my colleague from the

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Department of Justice, who will testify before you next week, will address the provisions of the bill establishing the criminal offense of money laundering and related revisions to Title 18.

Most important, under H.R. 2785 and 2786 the Secretary would be given for the first time summons authority both for financial institution witnesses and documents in connection with Bank

Secrecy Act violations. This authority was among the legislative recommendations in the October, 1984 report of the President's Commission on Organized Crime on money laundering and is also contained in H.R. 1945 and H.R. 1367.

The Secretary may summon a financial institution officer, or an employee, former officer, former employee or custodian of records, who may have knowledge relating to a violation of a recordkeeping or reporting violation of the Act and require production of relevant documents. This authority is essential both to investigate violations and to assess the appropriate level of civil penalties once a violation is discovered.

This authority is essential to enforcement of the Bank Secrecy Act with respect to miscellaneous non-bank financial institutions such as casinos and foreign currency brokers, which number in excess of 3,000. The responsibility for compliance review of these institutions has been delegated to the Internal Revenue Service. However, currently, the IRS summons authority is restricted to Title 26 purposes. Therefore, in examining these institutions IRS must rely on voluntary cooperation.

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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, e.g., the Internal Revenue Service, the Comptroller of the Currency or the Customs Service. An agent or bank examiner in the field could not issue a summons on his or her own authority. H. 1367 by contrast provides that Treasury may not delegate summons authority. For Treasury, the ability to delegate summons authority is a practical necessity.

The bill also provides for a civil penalty for negligent violations of the Bank Secrecy Act. Currently, Treasury has authority to assess civil penalties for "willful" violations under 31 U.S.C. § 5321. "Willful" in a civil penalty context means with specific intent or with reckless disregard of the law.

Nevertheless, mere negligent non-filing of currency reports deprives the government of potentially useful law enforcement information to the same extent as willful non-filings. The prospect of penalties for negligent violations should encourage financial institutions to give more attention to good compliance.

H.R. 2785 and 2786 also provide important revisions to the Right to Financial Privacy Act (RFPA). The revisions to the RFPA contained in the Administration's money laundering bill can be considered as an adjunct to that bill, with application separate from the subject of criminal money laundering legislation or enforcement of the Bank Secrecy Act.

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