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The

produce information especially useful in identifying individuals and companies involved in money laundering and tax evasion. Internal Revenue Service's Office of Criminal Investigations is developing a plan for the initial use of this regulatory authority.

We are also discussing a number of other regulatory amendments, including regulatory solutions to problems of "smurfing" and structuring transactions to avoid the reporting requirements of the Bank Secrecy Act. These revisions are being discussed within Treasury and with the Department of Justice and should be published in the Federal Register within the next few weeks. 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 needs of law enforcement.

Legislation

I would now like to address 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 (identical bills), the "Money Laundering and Related Crimes Act," which was developed jointly by the Departments of Justice and Treasury. I would like to remark on the critical revisions to the Bank Secrecy Act contained in the bill. I understand that my colleague from the

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Department of Justice, who will testify before you next week,

will address the provisions of the bill establishing the criminal offense of money laundering and related revisions to Title 18.

Most important, under H.R. 2785 and 2786 the Secretary would be given for the first time summons authority both for financial institution witnesses and documents in connection with Bank

Secrecy Act violations. This authority was among the legislative recommendations in the October, 1984 report of the President's Commission on Organized Crime on money laundering and is also contained in H.R. 1945 and H.R. 1367.

or

The Secretary may summon a financial institution officer,

an employee, former officer, former employee or custodian of records, who may have knowledge relating to a violation of a recordkeeping or reporting violation of the Act and require production of relevant documents. This authority is essential both to investigate violations and to assess the appropriate level of civil penalties once a violation is discovered.

This authority is essential to enforcement of the Bank Secrecy Act with respect to miscellaneous non-bank financial institutions such as casinos and foreign currency brokers, which number in excess of 3,000. The responsibility for compliance review of these institutions has been delegated to the Internal Revenue Service. However, currently, the IRS summons authority is restricted to Title 26 purposes. Therefore, in examining these institutions IRS must rely on voluntary cooperation.

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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, e.g., the Internal Revenue Service, the Comptroller of the Currency or the Customs Service. An agent or bank examiner in the field could not issue a summons on his or her own authority. H. 1367 by contrast provides that Treasury may not delegate summons authority. For Treasury, the ability to delegate summons authority is a practical necessity.

The bill also provides for a civil penalty for negligent violations of the Bank Secrecy Act. Currently, Treasury has authority to assess civil penalties for "willful" violations under 31 U.S.C. § 5321. "Willful" in a civil penalty context means with specific intent or with reckless disregard of the law. Nevertheless, mere negligent non-filing of currency reports deprives the government of potentially useful law enforcement information to the same extent as willful non-filings. The prospect of penalties for negligent violations should encourage financial institutions to give more attention to good compliance.

H.R. 2785 and 2786 also provide important revisions to the Right to Financial Privacy Act (RFPA). The revisions to the RFPA contained in the Administration's money laundering bill can be considered as an adjunct to that bill, with application separate from the subject of criminal money laundering legislation or enforcement of the Bank Secrecy Act.

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The most important and least controversial of the revisions is the amendment to subsection 1103(c) of the RFPA, 12 U.S.C. S 3403(c). Currently, $ 3403 (c) provides that nothing in the Act shall preclude a financial institution 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, e.g., summons, subpoena, or search warrant, in accordance with the RFPA. This information at a minimum must include the nature of the sus

picious activity, the name of the customer, and other identifying information necessary to identify the customer or the account involved.

We believe you should find very little opposition in the financial community to this particular revision of the RFPA. The revision imposes no new legal duty on financial institutions, clarifies the right of financial institutions to act as good citizens without risk of civil liability, far outweighs any

jeopardy to legitimate privacy interests, and would be of major assistance to Federal law enforcement.

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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 RFPA 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 RFPA.

In addition to the Administration's money laundering bill, there is another legislative initiative on which I urge early and favorable action. That is the bill discussed in this Committee yesterday by Congressman Pickle.

This bill would prohibit structuring of currency transactions to avoid the $10,000 currency transaction reporting requirement. Structuring includes the well-known practice of "smurfing." Recent decisions in three Federal Circuits have made it clear that the current law is inadequate to sustain consistent prosecutions for structuring. 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.