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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

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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,

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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.

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S 5321, ranging from $112,000 to $4.75 million in the case

of Bank of America.

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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 trans

actions 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 insti

tutions to come forward to disclose past violations.

Non

volunteer 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

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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.

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Improved Examination Procedures

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.

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.

These

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.

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interchange of ideas between Treasury and the agencies to which

Treasury has delegated Bank Secrecy Act enforcement respon

sibility.

Therefore, I am convening a permanant Inter agency

Working Group on Bank Secrecy Compliance, consisting of repre

sentatives 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 for um to discuss not

only examination procedures, but mutual enforcement problems and

Treasury policy initiatives including revisions to regulations.

commitment of Treasury Resources

In July, 1985, the Treasury Department established the Office of Financial Enforcement to assist in implementing and administering the Bank Secrecy Act regulations. The establishment of

this office provided a focal point for Bank Secrecy Act related

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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

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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 trans

actions was published as a final rule last summer.

Under the

regulations, Treasury will be able in the future to reguire a

financial institution or

a selected group of financial institu

tions 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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