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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--
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.
Chairman ST GERMAIN. OK.
Mr. KEATING. What we're especially interested in, Mr. Chairman, of course, is to provide the bank the discretion, where that discretion is appropriate, to handle the exemptions as they have in the past, and as the chairman knows, in most cases, have handled it with credibility and integrity.
Section 4, Mr. Chairman, of H.R. 1474, would require that every person, including every financial institution, report all outgoing international wire transfers. Treasury already has authority under the act to require reporting of international wire transfers. Wholesale reporting of international wire transfers would not be in keeping with the restriction of section 5314 that Treasury consider the need to avoid burdening unreasonably a person making a transaction with a foreign financial agency. And that's explicitly in the statute, Mr. Chairman.
This broad reporting requirement would burden financial institutions out of all proportion to the utility of the information generated.
I would now like to turn to H.R. 4280. This bill would make two major changes to the Bank Secrecy Act. First, it would amend 31 U.S.C. 5313 to provide that the Treasury could only require reporting of domestic currency transactions in excess of $10,000. We strongly disagree with this restriction on our rulemaking flexibility because it would adversely affect our ability to respond to changing law enforcement needs.
Another provision of H.R. 4280 would require a financial institution to keep special records relating to any cash transaction in excess of $3,000. Similar proposals have been under discussion within Treasury and within the Department of Justice as regulatory solutions to the various schemes being used to avoid the currency reporting requirements.
We believe that a regulatory, rather than a legislative, response is appropriate to address these situations so that we can maintain the flexibility to respond to changing law enforcement needs.
Moreover, in considering any proposal that imposes a new requirement on financial institutions, the cost and administrative burden to the institution must be considered, as well as the law enforcement interest served.
Another bill introduced by Congressman Wortley provides that Treasury review all exemptions not less than once a year, and in any case in which there's a change in management or control of a financial institution.
The annual review of all exemptions is a practical impossiblity. However, we would have no objection to the review of exemptions when there is a change of control or ownership.
Finally, Mr. Chairman, I want to express my appreciation for the continuing interest and support that you and the other members of this committee have demonstrated for Treasury's administration of the Bank Secrecy Act.
This concludes my prepared remarks. Mr. Stankey and I would be pleased to answer any questions that you or any member of the committee might have.
[The prepared statement of Mr. Keating can be found in the appendix.]
Chairman ST GERMAIN. Thank you.
Mr. KEATING. Yes, sir.
Chairman ST GERMAIN. We had testimony yesterday from a gentleman who was a professional money launderer and then came over to the Government to assist the Government. As a result thereof, many prosecutions and pleas were obtained.
But when he described his operations and the manner in which he operated, he laundered $100,000 a day with no problem. On any given day, he was out in California and a stranger-he asked a yellow cab driver at the airport where a lot of banks were. He said: Wilshire Boulevard. So they laundered $200,000 in a matter of hours on Wilshire Boulevard. One of them could hardly talk English and the other one was very fluent in English.
But that doesn't bother me as much. It's bothersome. But the operation in Miami, where this man was going to the same institution on a regular basis and purchasing $9,000 in cashier's checks or money orders, sometimes going to the same teller once a week or twice a week, and never a question was asked bothers me more. Questions were never asked.
Do you provide training films or informative films not only for your examiners, I would ask the regulators, but also to the financial institutions?
Have you made one up for the financial institutions so they could instruct their tellers and their employees and their branch managers not to act like Mickey the Dunce when people come in. Again, it's similar to the situation that prevailed in South Boston, when you see people coming in on a regular basis with large amounts of money, particularly strangers, no questions are asked.
Have you given any thought to that? I mean, the bill that Mr. Torres introduced and I cosponsored, brings the amount down to $3,000. You say that would be burdensome. But let me ask my second question.
Mr. Keating, could you establish regulations that would bring the present $10,000 requirement down to $2,000 for any particular area? For instance, the Miami area obviously is replete with money launderers. By the same token, if you went to Vermont and New Hampshire, you would not find much money laundering there. Could you establish regulations on a regional basis?
Mr. KEATING. Mr. Chairman, I might say in partial response and then I'll have to turn to Mr. Stankey for some advice on the latter part of your question, but in partial response, we are at this time reviewing possible regulations that would affect a smaller amount of money involving cashier's checks, for example.
As far as regional regulations, if I may defer to him briefly, I'll find out.
Mr. KEATING. I'm informed that the legalities of it are unknown at this time, but obviously, anything that would affect and improve law enforcement response in this area will be viewed.
Now whether or not it can be done, I don't know. We'll take a look at it.
Chairman ST GERMAIN. If you would take a look at that, because I don't know which committee would be involved; but, nonetheless,