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STATEMENT ON

BANK SECRECY ACT ENFORCEMENT,
MONEY LAUNDERING AND CRIMINAL ACTIVITY

IN INSURED FINANCIAL INSTITUTIONS

PRESENTED TO

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION,

REGULATION AND INSURANCE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS

HOUSE OF REPRESENTATIVES

BY

JAMES R. DUDINE
CHIEF, SPECIAL ACTIVITIES SECTION

DIVISION OF BANK SUPERVISION
FEDERAL DEPOSIT INSURANCE CORPORATION

Room 2128, Rayburn House Office Building

April 17, 1986

9:30 a.m.

Mr. Chairman, I am pleased to be here this morning on behalf

of the Federal Deposit Insurance Corporation (FDIC) to report

on the FDIC's enforcement of the Bank Secrecy Act and to discuss,

from the FDIC's perspective, the steps we have taken and our

thoughts on what still could be done to address the problems

the criminal element poses to this country's financial institu

tions.

We have provided the Committee with a comprehensive report on our efforts to improve compliance with the Bank Secrecy Act.

That report reveals we are finding more violations in the banks

we examine.

The trend in violations is up partly because of

FDIC's strategy to focus examination resources on problem banks.

In the past three years, problem banks and banks targeted specif

ically for potential Bank Secrecy Act problems made up a greater

proportion of examinations.

Such banks would be expected to

exhibit a higher incidence of violations than a cross-section

of the banking population.

The great majority of the violations

on which the statistics in our report are based represent in

advertent failures to follow bank procedures and incomplete

or late CTR filings rather than actual failures to file CTRS.

Nevertheless, we are not satisfied with the level of compliance

by the banks we supervise and we

are continually improving our

enforcement efforts.

Since this Committee held hearings last

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and now cover peripheral bank services such as trust departments

and dealer departments.

Examiners will be required to follow

a stricter regimen, look closely at exemptions granted to customers,

and document their activities at various points during the examination.

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in Washington, and regional presentations have been added to

reach a larger number of examiners.

The program includes infor

mation on the latest money laundering methods and instruction

on recognizing possible money laundering schemes.

We are working more closely with Treasury and IRS to improve

the flow of information and to assist each other in carrying

out our responsibilities under the Bank Secrecy Act.

The Working

Group concept has proved to be successful in improving our response

to bank fraud and insider crimes.

We hope to make similar progress

with this concept in the Bank Secrecy Act area.

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We are making more and better use of external targeting of institu

tions for Bank Secrecy Act reviews. The Customs Service's analysis of currency flows and cash shipments of individual banks and bank-to-peer group relationships provides regulators with an intelligent way to select banks for examination. We strongly

support the work being done in this area.

Because the safety and soundness of insured banks is of utmost

importance to the FDIC, the resources we can allocate to Bank

Secrecy Act compliance are limited.

Thus, the method of selecting

banks to be examined is very critical to our overall enforcement

effort.

In addition to targeting banks based on information

from the Treasury Department, IRS or the Customs Service, the

idea of examining a random sample of banks each year is being

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This approach adds flexibility to our enforcement program and permits us to respond quickly to potential

stances warrant.

problems.

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As we have stated in the past, bank supervision and examination

procedures cannot assure day-to-day compliance with currency

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During the past fifteen months, we have given a lot of attention

to improving our efforts to deal with the criminal conduct of

bank insiders.

We are very encouraged by the progress being

made by the Bank Fraud Working Group. The Group was organized

under the interagency agreement signed in April 1985 to improve

cooperation between bank regulators and law enforcement agencies in responding to the criminal threat to insured financial insti

tutions.

Similar progress in dealing with the criminal aspects

of money laundering is possible under the current legal environment.

However, the government's response to the problem would be strength

ened by making money laundering a federal crime.

H.R. 2785

and other bills address this fundamental weakness and would

permit prosecutors to attack organized criminals directly--by making money laundering the crime--rather than having to build

their cases on failures to file currency reports.

We support

a federal crime of money laundering and generally agree with

the higher penalties and stiffer sentences contained in H.R.

2785.

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