I think it's worthy of review because there are certain areas where there's a lot of money laundering going on.

Gentlemen, with respect to the fact that some institutions and some bank employees seem to look the other way almost purposely, do any of you have any thoughts on how to solve that problem? My one suggestion now is to lower the amount, but that still doesn't help with the employees who pretend that nothing's amiss when strangers come in to launder money.

Mr. Woodard, what's your reaction to that? Do you have any thoughts?

Mr. WOODARD. Not so much on the issue of lowering the dollar amounts. But one of the things that we've been trying to put a lot of emphasis on is that once we get our act together in getting compliance with the filing requirements, we've certainly got to be in a position to know how to use that information effectively.

That's the general thrust of the approach that we're taking. I really don't have an answer in terms of dollar amounts.

Chairman ST GERMAIN. Mr. Serino.

Mr. SERINO. Mr. Chairman, one of the things that I think is helpful to us is the passage by the Congress of the new bribery statute that makes it a crime now for an employee of the institution to take something of value before perhaps laundering

Chairman ST GERMAIN. Mr. Serino, there was no allegation that anything of value was taken. There was no bribery involved-just inattention or pretension of stupidity, almost.

I am referring to the situation that was described to us yesterday. The same man went into the same institution once or twice a week on a weekly basis, with $9,000 in cash. Questions were never asked and he did this for about 8 or 9 months in the very self-same institution, with a group of maybe 10 or 12 banks. He was laundering $100,000 a day, in 10 or 12 banks. No allegation of bribery. That's not the point.

Mr. SERINO. OK. Well, I guess the answer would be, then, that we have stressed the requirements for banks to, in fact, train their employees. We think they have, in light of the hearings you had back in April, have taken that to heart and they are doing significant training of their employees.

In fact, several of the institutions themselves are going around giving conferences on how to comply with the bank-

Chairman ST GERMAIN. There is an ABA representative here today. Maybe the ABA representative could get a hold of Mr. Freidberg, who testified yesterday, and have him repeat his description of how this was done in a film and then they could sell that film to their institutions. This would help poor Mr. Freiberg, who has had to sell his house and his condo and hasn't been working because he's been testifying all over the place, helping the Government and not being paid for any of this.

So maybe the ABA could give serious consideration to helping this wonderful citizen and helping solve this problem.

Mr. SERINO. Well, the ABA itself did put together a conference, as you know, Mr. Chairman.

Chairman ST GERMAIN. I'm aware of that.

Mr. SERINO. And many other people have put together confer

ences.

Chairman ST GERMAIN. But, you see, we can't legislate every little bit of this. It's common sense that has to prevail here, I think. I want to get to the other Members' questions. Let me ask all of you this.

Some of you use nice terminology, but what it boils down to Mr. Serino, has Gramm-Rudman cut into your available personnel? I think you said that you had to cut out conferences, training seminars, et cetera; right?

Mr. SERINO. That's correct, Mr. Chairman.

Chairman ST GERMAIN. So Gramm-Rudman is proving to be a problem as far as enforcement of the Bank Secrecy Act is concerned, and enforcement of regulations and detection of drug traffickers, tax avoiders, et cetera.

Mr. SERINO. We have felt that our training conferences not only for our examiners, but for the industry, have been very valuable. And we have cut those out now.

We are also under a hiring freeze so that we will not be able to bring on new examiners, so we will be hurting down the road when these examiners should be-

Chairman ST GERMAIN. Of course, we have more and more institutions-not to get away from this-that are having problems because of the farm situation, the energy situation and foreign debtors. And there, again, with a reduced work force, you have an increased workload.

Is that not a fact?

Mr. SERINO. That's correct, Mr. Chairman.

Chairman ST GERMAIN. Mr. Dudine, this is happening at the FDIC as well; correct?

Mr. DUDINE. Yes, sir, no question about it.

Chairman ST GERMAIN. So Gramm-Rudman has proven to be burdensome, or has proven to make it more difficult for you to discharge your duties?

Mr. DUDINE. Yes, sir. We've cut back on our 1986 hiring projections and, as you know, safety and soundness is our top priority, and our resources are directed there first.

Chairman ST GERMAIN. What was your percentage cut, to date, as far as the number of personnel are concerned?

Mr. DUDINE. We had planned to hire, I believe, something like 600 new examiners. We have cut that to approximately 400 in 1986.

Chairman ST GERMAIN. Yes. But were those to replace those that are leaving-

Mr. DUDINE. Yes, sir.

Chairman ST GERMAIN [continuing]. Or to increase the overall requirement?

Mr. DUDINE. A little bit of both. We've had a lot of examiners leaving. We've had a good deal of our examination staff transferring its activities to our liquidation area.

So there's a little bit of both.

Chairman ST GERMAIN. So the overall number is remaining the same or is it going down after this first cut?

Mr. DUDINE. Based on our 1987 projections, Gramm-Rudman-Hollings will require drastic cuts.

Chairman ST GERMAIN. It will be going down drastically. Can you give us any numbers?

Mr. DUDINE. I don't really have those numbers. I could give you a ballpark figure.

Chairman ST GERMAIN. Well, would you supply them for the record, please?

Mr. DUDINE. The impact of Gramm-Rudman-Hollings on FDIC's 1986 operations will primarily affect training and employee relocations. The real impact will come in 1987. Anticipated staff levels at the end of 1987 would be at least 400 fewer than the minimum necessary to carry out our responsibilities in an effective manner. We currently have about 1,650 examiners in the field and project about 1,800 examiners by the end of 1986, the munimum number needed to effectively carry out our mission. Gramm-Rudman-Hollings would necessitate cuts, through postponed hiring and furloughs, of about 400 examiners in 1987.

Chairman ST GERMAIN. Mr. Passarelli?

Mr. PASSARELLI. It won't affect our field staff because they've been transferred to the bank system. But it will

Chairman ST GERMAIN. OMB hasn't been able to get at those yet? [Laughter.]

Mr. PASSARELLI. But they will affect our headquarters staff. You know, you mentioned about an effective way to maybe get the institutions the proper training and encourage them to comply with the Bank Secrecy Act. In my testimony, I recommended it, perhaps. You might want to amend the act to allow for the removal of an officer or employee if they violate the Bank Secrecy Act.

I think that's an effective way to get their attention. Chairman ST GERMAIN. Mr. Woodard, has Gramm-Rudman had an effect on your work force?

Mr. WOODARD. Not at this point, Mr. Chairman. We're not sure what the overall effect is going to be because the Commissioner's position has been to try to protect the enforcement activities.

The budget situation was such that, based on the Grace Commission recommendation, the examination function has been scheduled to receive an additional 2,500 staff-years a year for the next 3 years. And that first increment was included in the President's budget for fiscal year 1987.

How that will roll out when we get through Gramm-Rudman, we really don't know.

Chairman ST GERMAIN. Mr. Keating, is Gramm-Rudman going to affect your ability to enforce or oversee the Bank Secrecy Act?

Mr. KEATING. Mr. Chairman, it's difficult to say because, of course, we don't know how far or how long Gramm-Rudman will bite.

Recently, prior to my coming here 90 days ago, the resources within the Office of Financial Enforcement were increased. Our office is a small office and to date, we have had no adverse impact. I might say that it's unfortunate, but we're losing Mr. Stankey, who is retiring. At this time, I am in the process of assembling a list of candidates for that position.

Once that position is filled, which, hopefully, will be very quickly, the whole resource issue will be reviewed with that individual, as well as with the Secretary.

But to date, we have not had any adverse consequences.

Chairman ST GERMAIN. I'd like to make this statement and then go to my colleagues. You just mentioned Mr. Stankey and I think it's timely that we thank him for the years he's put in, particularly his 14 years in this division.

We all know that as a result of his efforts and his ingenuity, a great deal has happened in this area. He's been very helpful. As a matter of fact, more than very helpful. He's been, I think, probably the catalyst here to really get this thing off the dime because, as we found out in that first hearing, there were a lot of people ignoring the provisions of the act.

Mr. Stankey, we really and truly are grateful to you, and I think a lot of people in the country should be grateful to you. We want to wish you well upon your retirement. We hate to see you leave.

Mr. STANKEY. Thank you very much, Mr. Chairman. It's truly been my pleasure to have served the government.

Chairman ST GERMAIN. Mr. Wylie.

Mr. WYLIE. Thank you, Mr. Chairman. And I would associate myself with the observation of our chairman with reference to Mr. Stankey's service and say that I, too, think that he'll be missed and hard to replace.

Mr. MCKINNEY. Would the gentleman yield for just a moment? Mr. WYLIE. Yes, of course.

Mr. MCKINNEY. Maybe I'll add my comments to that at this point so it's all in one place. Mr. Stankey has been a ray of sunshine in an otherwise muddled picture. For a great many years that I've been in this town, he has foreborne-and that's a tough word in this town. He's accomplished great things, particularly with some of our friends in Boston and other places.

Mr. WYLIE. Well, he's been an excellent witness, too, when he's appeared before our committee and has provided helpful expertise, and we'll miss that.

I wanted to follow up just a moment and then go to something else on this idea of across-the-board reductions in training expenses and so forth, vis-a-vis Gramm-Rudman. That's very distressing to me because I had written a letter earlier to the Director of the Office of Management and Budget expressing the thought that I didn't think Gramm-Rudman should be applied to, as you know, the Office of the Comptroller, the FDIC, and the Federal Home Loan Bank Board, because your money comes from fees and assessments on your institutions and is not really taxpayers' money.

I thought that Gramm-Rudman applied to receipts from taxpayers. But it is still being applied to you, as I understand it, Mr. Serino.

Is that correct?

Mr. SERINO. That is correct, Mr. Wylie.

Mr. WYLIE. I brought this up with the President of the United States and he had suggested that Mr. Regan look into it. So we might have to revisit that scene.

But, as I say, I'm distressed by what I learned this morning, that some of the examiners that we're going to need to help us in this problem that we have before us are apparently being laid off.

I hope that the panel either heard or heard about the testimony that we received yesterday. The committee learned a great deal,

may I say, about the business of money laundering from an honestto-goodness money launderer.

I would like to commend this panel today, in preparing a response to Chairman St Germain's letter requesting an update on the regulatory agency's examination and enforcement efforts with respect to the Currency and Foreign Transactions Reporting Act.

I think the information, while quite voluminous and hard to digest, is very helpful and indicates, I hope, a word to the chairman, the regulators' intent to continue active enforcement of the Bank Secrecy Act.

But yesterday, Mr. Dudine, we heard from a former Smurf, and on page 7, you note that you are considering a regulatory solution to the problem of smurfing and structuring transactions to avoid the acts reporting requirements. And Mr. Keating referred to this, and the chairman a little earlier. And I did hear his exchange with you, the exchange with Mr. Keating, about reducing the $10,000 reporting requirement.

I'd like you to be a little bit more specific, since you specifically mentioned this in your testimony.

Mr. Dudine.

Mr. DUDINE. Are you speaking to me, Mr. Wylie?

Mr. WYLIE. Yes, sir.

Mr. DUDINE. I don't believe that the FDIC actually proposed any suggestions to that problem. But I could comment on it, if you like. We had issued a communication-

Mr. WYLIE. I'm taking the statement from your testimony, page 7, that you are considering a regulatory solution to the problem of smurfing and structuring transactions to avoid the act's reporting requirements.

Mr. DUDINE. Yes, sir. I believe that's Mr. Keating's statement. Mr. WYLIE. Oh, that's not in your statement?

Mr. DUDINE. No, sir.

Mr. WYLIE. Mr. Keating, would you like to be more specific on that, then?

Mr. KEATING. Mr. Wylie, at this time, as I indicated, we are in the process of finalizing the preparation and discussion for public comment of a proposed regulation which would apply the bank secrecy penalty to smurfing or the structuring of transactions, as well as to apply the reporting requirement to monetary instrument transactions in excess of $3,000 and require that the purchaser of that cashier's check show identification.

Those will be put out for public comment in the very near future, those proposed regulations. They are the result of the discussions with the Department of Justice.

Mr. WYLIE. I attributed that statement to you, Mr. Dudine. But my second question is a kind of a followup one and it is with reference to your statement, on page 1, that the great majority of the Bank Secrecy Act violations represent inadvertent failures to follow bank procedures in incomplete or flawed CTR filings rather than actual failures to file CTR's.

Could you be more specific on that? Do you have anything in the way of a breakdown which would indicate where you're coming from there?