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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 Boston case. 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, and in good measure as a response to the hearing of this Committee, over sixty banks or bank holding companies have come forward 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.

$ 5321, ranging from $112,000 to $4.75 million in the case of Bank of America.

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Other cases are under review, and we anticipate that

additional penalties will be assessed shortly.

In many

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 transactions 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 institutions to come forward to disclose past violations. Nonvolunteer 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 to contact Treasury are running a serious risk. We are planning a major effort to uncover these non-volunteers. This effort will ultimately depend heavily on the support of the bank supervisory agencies.

We believe that Treasury's rigorous enforcement of the Bank 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.

Improved Examination Procedures

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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.

These

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. 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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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