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10. Upon request, the Federal Reserve banks provide Treasury with information regarding currency surpluses by banks in a given district. Treasury can then analyze that information and compare it to Currency Transaction Report levels of the banks. In this way, potential violators can be identified. Such an analysis as you know, identified institutions in the New England area, such as Bank of Boston. Customs did such an analysis last summer of banks in Louisiana, which was forwarded to the supervisory agencies. A similar analysis is being done now of banks in Texas.

11. As set forth above, we are now satisfied that banking regulators have detailed Bank Secrecy examination procedures and we have been assured that they will apply those procedures.

12. Bank examiners have not been provided systematically with records of the BSA forms that have filed in order to verify that examined institutions have actually filed the forms. Bank examiners have brought to our attention that this information would be a useful. We are considering ways to address this problem, e.g., giving the examiners limited on-line access to the Bank Secrecy Act data base for this purpose.

13. The regulation that authorizes Treasury to select banks for special reporting of transactions including wire transfers, with foreign financial agencies became effective July 8, 1985. The Internal Revenue Service Criminal Investigation Division is currently developing a pilot program for the use of this

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regulatory authority. We are hopeful that this new regulation will be very effective in detecting illegal actiivity, focusing Treasury's financial enforcement efforts and identifying needs for international law enforcement cooperation initiatives.

14. We believe that the term "monetary instruments" under the BSA does include postal money orders, if they are issued in blank or to a fictitious payee. However, Treasury has not designated the Postal Service as a financial institution subject to the reporting and recordkeeping provisions of the Act. As testimony before your Committee demonstrated, postal money orders may be the next frontier for money launderers as Bank Secrecy Act compliance by financial institutions improves. As a direct result of the hearing, we intend immediately to discuss the problem with the Postal Service.

The Subcommittee appreciates your appearance at our hearings last Thursday. Your testimony is of great assistance in our review of the Bank Secrecy Act and other pertinent issues.

There are several questions which the Subcommittee would like to have you answer and which will be submitted for the record. They are as follows:

1.

2.

Both Mr. Serino, of the Office of the Comptroller
of the Currency, and Mr. Woodard, of the Internal
Revenue Service, in their testimony, express
support for amending Title 31 of the Bank Secrecy
Act via the Administration's Bill (H.R. 2785) to
permit the issuance of a summons to a bank, or its
employees, for a bank customer's records. This.
raises some questions about balancing the need for
effective investigations of BSA non-compliance with
a bank customer's right to privacy.

a) What criteria do you propose for use of the
summons?

b) How do you intend to prevent this power from
abusing the privacy rights of the legitimate
customer?

Concerning names and businesses which may

inappropriately appear on a financial institution's
exempt list, presently, how does your agency ensure

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3.

4.

that appropriate entities are on such lists? Assuming there is an unqualified name or business on such a list, what types of enforcement action would your agency pursue? At present, would civil or criminal liability be possible against either the financial institution or its exempted customer for inappropriately appearing on such a list?

Should the term "monetary instruments" in the Bank Secrecy Act and its regulations be amended to include "postal money orders" in order to include them under the requirements of the Act and its regulations?

Has any thought been given to the use of the civil money penalty provisions of the Financial Institutions Regulatory and Interest Rate Control Act, with appropriate amendments, in connection with violations of the Bank Secrecy Act by financial institutions and their employees?

Present delays caused by extended negotiations and record review to determine "willfulness" possibly could be minimized.

Again, the Subcommittee is appreciative of your efforts in this area. Please submit your responses to the Subcommittee no later that May 7, 1986.

FStG:sTf

Sincerely,

Perhand J. St Germain
Chairman

In your April 25, 1986 letter to James R. Dudine, Chief of the Special
Activities Section, you asked the FDIC to respond to four additional questions
pertaining to the Subcommittee's review of the Bank Secrecy Act. Our
responses to these questions appear in the attachment.

Sincerely,

LVM Selma

L. William Seidman

Chairman

Attachment