The Subcommittee appreciates your appearance at our hearings on May 14. 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. You mention on pages 14 and 15 of your testimony that What What possibilities does the Federal Reserve have in On page 14 of your testimony, you state that "the Can you provide specific instances of when and how the 3. 4. -2 The 1984 Interim Report of the President's Commission on Organized Crime chronicles in detail the important roles Panama and Hong Kong play as financial centers for drug-related money laundering activities originating in the United States. What is the Federal Reserve doing to encourage those governments and financial communities to eradicate or reduce money laundering? What steps are planned to aid those countries in cracking down on such activities? On pages 9 and 10 of your testimony, you stated, in a footnote, that because of a recent decision in the U.S. Court of Appeals Congress may wish to consider legislation clarifying the bank regulatory agencies' enforcement authority against certain individuals. Could you please explain the need for such a clarification? Does the Federal Reserve have any proposed language prepared to clarify this situation? Again, the Subcommittee is appreciative of your efforts in this area. Please submit your responses to the Subcommittee no later than June 4, 1986. Subcommittee on Financial Institutions Supervision, Committee on Banking, Finance and Urban Affairs Dear Chairman St Germain: Thank you for your letter of May 23 containing written questions in connection with the hearing held on May 14. I am pleased to enclose my responses to the questions for inclusion in the record of the hearing. I hope this information is helpful. Please let me know if I can be of further assistance. Governor Seger subsequently submitted the following in response to written questions from Chairman St Germain in connection with the hearing held before the Subcommittee on Financial Institutions Supervision, Regulation and Insurance on May 14, 1986: Question 1: You mention on pages 14 and 15 of your testimony that the representative of the Federal Reserve to the Basle Supervisory Committee sought to raise the issue of money laundering through the international banking system informally to the Committee at its June 1985 meeting. You state further that the Fed's representative plans to use part of the June 1986 Committee meeting to discuss possibilities for greater international cooperation and communication. What possibilities does the Federal Reserve have in mind to specifically increase international cooperation and communication in combatting money laundering? What arrangements, besides mutual assistance treaties, already exist and are in use? Answer: Because the practice of money laundering is international in scope, any effective initiative to eliminate or reduce the opportunity for money laundering within the U.S. banking system must be tied into a global effort. As I noted in my testimony, it is our view that the most effective means of assisting international enforcement efforts is through initiatives such as mutual legal assistance treaties between law enforcement authorities. At the same time, the Federal Reserve can, and has, raised the issue of money laundering in bank supervisor meetings in order to increase awareness of the problem. Most recently, during a meeting of international supervisors in Washington, explanations were offered about the nature of concerns about money laundering in this country, notably the use of banks internationally as a means of legitimizing the funds of -2 organized crime and as conduits for transfers of drug money. In this connection, specific mention was made of the role of U.S. supervisory authorities in policing reporting requirements on cash transactions at banks and of some of the problems encountered in fulfilling this role. The increasing interest of the Congress in involving U.S. bank supervisors in this problem was also noted. In general, the response was one of sympathetic awareness by supervisors about a problem that infects most of our societies. Many characterize the problem in a broader sense as that of "economic crime", going beyond organized crime and the drug business to encompass all types of illegal activities that can benefit from the use of international banking transactions. Nevertheless, supervisors generally have limited powers vis-a-vis the affairs of bank customers. Banks themselves are expected as a general rule to be careful in their choice of bank depositors; but it is recognized how difficult this is to do, particularly when international customers and international transfers of funds are involved. While a consensus exists that further exploration of the problem can be pursued on a bilateral basis, the discussions that have been held suggest a marginal role for collective action by bank supervisors. Most supervisors have responsibilities to inform their law enforcement agencies when they |