o emphasized the need for the industry to develop compliance

audit programs;

o met with accounting firms to emphasize the need for external

audit coverage in the Bank Secrecy Act area;

improved our examination procedures and training;

reported violations of the Bank Secrecy Act to the Treasury Department on a quarterly basis;

made specific referrals to the Treasury Department and the Justice Department and assigned examiners to assist in related investigations;

taken administrative actions against banks for Bank Secrecy Act violations;

O denied, upheld, or conditionally approved corporate applications based on a bank's compliance with the Bank Secrecy Act.

We believe that the OCC has indeed demonstrated a substantial commitment to compliance with Bank Secrecy Act requirements.

Impediments to Usefulness of Bank Secrecy Act Information

Compliance with the requirements of the Act must be coupled with the use of Bank Secrecy Act information by law enforcement agencies in order to effectuate the Act's intended purpose. We agree with GAO that the major impediments to the effective use of information developed pursuant to the Bank Secrecy Act are the numerous barriers that have been established which limit cooperation between federal supervisory and law enforcement agencies.

The report indicates that "coordinated efforts among Federal law enforcement agencies have been difficult to achieve. Barriers to coordination arise from conflicting agency missions, differing management policies, and constraining legal and policy issues." The major impediments are statutory. These are limitations, actual or perceived, that arise from, among others: the Privacy Act of 1974, the Freedom of Information Act, the Tax Reform Act of 1976, the Right to Financial Privacy Act of 1978, state privacy acts, grand jury secrecy rules, as well as the procedures of various agencies. For example, in hearings held last week before the Subcommittee on Government Information of the House Committee on Government Operations, extensive discussion was directed to problems faced by the law enforcement agencies under the Freedom of Information Act. The procedural mechanisms and rights established by that law, and similar statutes, are designed to promote Congressionally sanctioned values and may, inadvertantly or purposefully, restrain government information-gathering activities.

The OCC endorses cooperative government efforts which are aimed at achieving legitimate law enforcement purposes. We believe that statutory barriers to interagency cooperation should be re-examined and revised to assure the intended purposes of each such law in a

manner which is least disruptive to efficient and effective law enforcement efforts.

GAO Proposals

In its report, the GAO makes two suggestions to the banking supervisory agencies. First, GAO suggests that the agencies every year select at random a set percentage of banks, e.g., 10 percent, in which extensive compliance examination procedures would be performed. We do not believe that this is the optimal way to deploy our limited

resources.

The OCC will commit to undertake intensified examinations of targeted banks in specified cities. We have suggested to the Federal Reserve Board that targeting of specific financial institutions for extensive examinations could be based on amounts of cash shipments from the individual bank to the local Federal Reserve branch. This process could be automated and result in an early warning system which would allow us more effectively to target institutions for more intensive examination.

We also believe that receipt of information from the law enforcement community may help us to target institutions in which we

should concentrate our resources. Targeting would ensure that intensified examination efforts would be more likely to bring forth' useful results. Random, nationwide sampling does not provide such

assurance.

Additionally, GAO proposes the designation of one supervisory examiner in each region to review Bank Secrecy Act compliance examinations. We believe that our present review procedures for examination reports are adequate and feel that this additional commitment to specialization would be an inefficient use of our limited resources. It should be noted, however, that certain Regional Office personnel have developed a degree of expertise in Bank Secrecy Act matters, as needed, although these individuals continue to have other responsibilities.

Conclusion

Re-examination of the implementation and effectiveness of the Bank Secrecy Act has proved a useful exercise in pinpointing deficiencies in existing compliance procedures. We believe that the recent tightening of implementing regulations, improved examination procedures, and cooperation among the agencies should facilitate enforcement of the Act and result in improved compliance. Let me underscore the commitment of the OCC to continued efforts to ensure the compliance of national banks with the requirements of the Bank

Secrecy Act and to improve cooperation with the law enforcement community.

Chairman MINISH. Mr. Snyder.

Mr. SNYDER. Mr. Chairman, I would like to summarize the comments contained in our prepared statement, and would also ask that the entire statement be accepted for the record.

Chairman MINISH. Without objection.

STATEMENT OF JESSE G. SNYDER, CHIEF, INTELLIGENCE SECTION, DIVISION OF BANK SUPERVISION, FEDERAL DEPOSIT INSURANCE CORPORATION

Mr. SNYDER. I am pleased to testify in response to the findings of the GAO on the Bank Secrecy Act reporting requirements. As you know, the FDIC is one of several Federal agencies assisting the Treasury Department in the enforcement of the Bank Secrecy Act. Specifically, the FDIC is responsible for monitoring and compliance with the act by the approximately 9,300 insured State-chartered banks which are not members of the Federal Reserve System as well as insured branches of foreign banks operating in the United States.

Many of the enforcement difficulties encountered by our examiners in the past have been resolved by the 1980 amendments to the Treasury's regulations. In particular, the amendments tightening the criteria for exempting customers, requiring that banks maintain copies of currency transaction reports forwarded to IRS, and requiring that a centralized list of exempt customers be maintained facilitate the day-to-day efforts of our compliance examiners.

These amendments, coupled with the revised examination procedures uniformly adopted by the Federal bank regulators and implemented earlier this year, are expected to result in an improved level of compliance.

Although sufficient data to thoroughly assess the new procedures has not been accumulated, feedback from our regional office review examiners has been favorable, and bank managers have been made aware of intensified efforts to monitor compliance.

The procedures and accompanying instructions have been distributed to all examiner staff, and approximately 200 examiners per year are being formally trained in the revised examination procedures.

FDIC Bank Secrecy Act compliance examinations are separate from our safety and soundness examinations and we anticipate no cutbacks in periodic, on-site compliance examination.

Our compliance examination program is administered by a single review examiner in each of our regional offices who is responsible for scheduling examinations and initiating follow-up actions with banks cited for noncompliance. The FDIC notes GAO's observations concerning centralization of the review function.

This arrangement has been in place for several years at the FDIC and for us it is working well.

We oppose the GAO recommendation that the banking agencies conduct full-scale compliance examinations in up to 10 percent of the banks selected at random. It is our opinion that this approach would constitute an inefficient allocation of limited examination

resources.

We know that the vast majority of small rural banks do not handle many large currency transactions, and we prefer to concen