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financial institutions, including commercial banks, savings and loan

associations, and credit unions. National banks comprise

approximately 4,400 of that total. The statutory mandate of the Comptroller is to assure that national banks operate both in conformance with safe and sound banking practices and in compliance with the many and varied statutes affecting bank conduct, including the Bank Secrecy Act. The Act and regulations promulgated thereunder are designed to assist law enforcement officials in detection and prosecution of criminal conduct by documenting certain fund flows

which could involve such activities.

The Act and regulations require, among other things, that banks obtain and preserve financial information and file certain reports regarding unusual large cash transactions. The legislative history of the Act emphasizes its purpose to facilitate the investigation of narcotics trafficking, tax evasion, and other "white collar" criminal activities which may have a high degree of usefulness in such investigations by requiring the preservation of financial information. The OCC shares the concern of the Subcommittee and law enforcement officials regarding the potential for abuse of our nation's financial

institutions by criminal elements in the handling of funds obtained

through illegal activities. The Act is designed to expose such abuses. We welcome the interest that this Subcommittee has taken with regard to the implementation and effectiveness of that law.

At the request of the Subcommittee, the General Accounting Office (GAO) has recently examined: (1) enforcement of compliance with the Bank Secrecy Act's reporting requirements; (2) dissemination to law enforcement agencies of reports generated pursuant to the Act; and (3) the uses and usefulness of those reports to law enforcement agencies in carrying out their investigative responsibilities. The process of evaluating the Act's implementation by the Treasury Department and other agencies with responsibilities under the Act has been most useful in focusing attention on existing deficiencies and stimulating a coordinated enforcement effort. The recent success of the Operation Greenback project in South Florida is directly attributable to this increased attention and coordinated effort. The OCC is pleased with the contribution which our examination staff has made to that project.

The GAO has today presented its report to the Congress regarding the Bank Secrecy Act. We would like to take this opportunity to comment upon specific aspects of that report.

Compliance Monitoring Practices

The Bank Secrecy Act requires financial institutions to file a Currency Transaction Report with the Internal Revenue Service whenever they handle a currency transaction in excess of $10,000. The OCC has been delegated responsibility for monitoring the compliance of

national banks with this and other requirements of the Act.

In the report, GAO states that bank regulatory compliance monitoring has been cursory. It is easy to take this GAO criticism out of context. An uninformed reader may not understand the scope and

practical limitations of the OCC's supervision and examination processes.

In the eleven years since enactment of the Bank Secrecy Act, the national banking system has experienced an explosive growth in assets, sophistication, and technology. During this period, Congress has also given the OCC significant new responsibilities for implementing a variety of new banking and consumer protection laws. At the same time, various governmental actions over the past few years, including hiring freezes and employment ceilings, have prevented us from adding to our field examination forces. It has become increasingly important for us to allocate our examiner resources in the most efficient manner to fulfill our many responsibilities.

In carrying out our supervisory responsibilities, our examiners perform periodic on-site examinations. They do not, however, as a matter of course review a bank's daily transactions. It is thus essential that banks under our supervision be informed of the requirements of the law and, during our examinations, be subjected to tests which will determine whether they have adopted and implemented adequate policies and procedures to ensure their compliance with those requirements.

Notwithstanding a

Since the enactment of the Bank Secrecy Act, we have informed banks of its requirements and instructed our examiners to verify the adoption of adequate compliance procedures by each bank. delay in the initial implementation of the Act by a court challenge to the constitutionality of its regulations, as early as April 15, 1972, this Office required compliance with those provisions of the law which were not challenged in that suit. Soon after the resolution of that action, we put full compliance procedures into place. Over the years, as the implementing regulations have been amended, we have provided specific guidance to the national banking industry and to our examination personnel about their responsibilities under the Act, through the issuance of various Banking Circulars and Examining Bulletins.

We believe that the OCC has acted responsibly to inform the banks under our supervision of the Act's requirements and to monitor their compliance with it.

Recent Initiatives--Revised Compliance Examination Procedures

While the GAO acknowledges that efforts are underway to improve implementation of the Act, we feel that the report minimizes the substantial progress that has been achieved. GAO suggests that the regulatory agencies have been reluctant to improve compliance examination procedures. In fact, the OCC has worked with Treasury

since May 1973 to develop appropriate examination procedures. Over the past fifteen months, the OCC, in conjunction with Treasury, GAO, and the other financial institutions regulatory agencies, has developed, tested, and implemented revised compliance examination procedures.

The revised procedures contain a two-module examination approach which requires all financial institutions to be subjected to a more thorough compliance check than was previously utilized. However, it reserves the most extensive, time-consuming procedures for institutions which warrrant further examination based on the results of the first module. This is consistent with all our new examination procedures which rely less on a "hands on" examination than on one which checks to see that the banks have adequate controls and procedures in place.

The revised examination procedures to determine compliance with the requirements of the Bank Secrecy Act represent an efficient allocation of our scarce personnel resources and are consistent with the approach taken with respect to our other examination procedures.

OCC Commitment

The GAO report concludes that the supervisory agencies lack the appropriate commitment to ensuring compliance with the requirements of

the Act. The OCC is fully committed to its compliance

responsibilities.

To better fulfill our delegated responsibilities

under that law, we have:

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