747 1. Treasury is not seeking summons authority to obtain a bank customer's records, but rather to obtain records and testimony relating to the Bank Secrecy Act compliance of the financial institution itself. The summons authority proposed in H.R. 2785 and 2786 is limited to examination of financial institution records and testimony of financial institution employees for purpose of investigating civil violations of the Bank Secrecy Act. The records of individual customers will be incidental to this review, just as they are to reviews by bank examiners of a financial institution for safety and soundness. Treasury is considered a bank supervisory agency for Title 31 enforcement under the Right to Financial Privacy Act. As we testifed, this authority is especially needed with respect to the 3000 miscellaneous non-bank financial institutions such as casinos, foreign currency brokers, transmitters of funds and sellers of travelers checks for which examination responsibility has been delegated to the Internal Revenue Service. IRS now depends on the voluntary cooperation of these institutions in the examination process and has no means to compel cooperation. a) In the case of a non-bank institution, the summons would be used when Treasury had information regarding non-compliance or when cooperation was inadequate in the examination process. With respect to banks, we expect that we would most frequently use the summons when a bank was 748 -2 being uncooperative or unforthcoming in a civil penalty case or to follow up on information regarding noncompliance developed in a bank examination. We have not drafted any specific written criteria for use in advance of the b) As set forth above, the focus of the summons is not the bank customer. We do not believe that there is undue potential for abuse of the legitimate customer's privacy rights any more than is the case with any bank examination process. - 2. Since June of last year, we have assessed civil penalties against six teen banks or bank holding companies. A number of other cases are under review and should be announced over the course of the next several months. The nature and extent of the violations varied, as is reflected in the dollar range of the penalties $4.75 million in the case of Bank of America to $112,000 in the case of Barnett Banks of Florida. The violations for which penalties have been assessed are of three general types: 1) failure to report currency transactions with foreign correspondent banks and domestic foreign currency brokers, 2) improper exemption of customers, and 3) general non-reporting of currency transactions unrelated to exemption list problems. Some of the banks had all three types of violations, some only one The violations of some of the banks have been found throughout the banks unit or branches. In others, the violations or two. 749 -3 were limited to one unit or department. 3. Treasury takes many factors into consideration in assessing civil penalties, including the nature and number of the violations, the degree of cooperation Treasury has received from the bank in developing the scope of the bank's liability, the size of the bank, the adequacy of the bank's past compliance program and to a lesser extent, the financial condition of the bank. We make every effort to treat similarly situated banks in a similar manner, but have no set formula. The dollar amount of the penalty is generally keyed to the number of non-filings. 4. As we have testified and reported to the Committee earlier, after a series of meetings with the supervisory agencies, Treasury has developed standard Bank Secrecy Act examination procedures and disseminated those procedures to the supervisory agencies. (Copy attached). Common past compliance problems such as the failure to report currency transactions with foreign banks were also discussed. 5. By the end of this month, we hope to disseminate exemption guidelines to the bank regulatory agencies. This should be very helpful, not only in the examiner's identification of exempt list violations, but in assisting the examiners to explain proper exemption procedures to the institutions they examine. 6. The new IRS Form 4789 will not be in use until July 1, 1986. 750 -4 The form will improve financial institutions accountability by requiring two signatures--one of the financial institution employee who prepares the form and one by a reviewing official. (A copy of the new form is attached.) The form also has been revised in many ways to improve the quality and use of the information received. For instance: The new revised form provides more complete line-by-line completing the form. The new form provides a space (line item 13) for the financial institution to indicate why an individual is not identified in Part I. The new form will contain a space (line item 19.b. of Part II) to indicate whether the organization for whom the transaction was conducted is a securities broker or a non-bank financial institution. With this information the Securities institutions. Part V of the form provides a better way for a financial 751 -5 institution to indicate what type of institution it is. With this information, summary reports of Bank Secrecy Act information can be provided to the supervisory agency that regulates the specific type of financial institution. A special code number (in box 36a.) will indicate who the supervisory agency is for banks. The bank identification number will provide for analysis of the data by Federal Reserve Districts. This will be useful for conducting currency flow studies to target banks for possible non-compliance. 7. The IRS has been delegated authority to examine compliance by casinos and to monitor the agreement with the State of Nevada whereby Nevada casinos report currency transactions to the State which in turn reports the information to Treasury. IRS has not advised Treasury of any major problems with respect to casino compliance with the Bank Secrecy Act. 8. We receive and review excerpts of the examination reports relating to Bank Secrecy Act compliance that the supervisory agencies give to the examined institutions. We can review the underlying workpapers on request. We have not had an occasion to evaluate how the examiners document the examination process. 9. The model examination procedures direct examiners to review activities of all bank cash areas, not just teller transactions. |