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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 concentrate our efforts in geographical areas where problems are apparent or where problems have occurred in the past.
In addition, we anticipate that our revised two module examination procedures will result in comprehensive examination of a broad cross-section of banks nationwide.
We believe that selecting banks for more comprehensive review on the basis of experience, rather than random selection, will make for a more effective deployment of limited resources.
The FDIC is committed to both improving compliance monitoring and continued cooperation with the other agencies responsible for Bank Secrecy Act administration and enforcement.
Many of the GAO's recommendations have already been adopted, and we anticipate a greater proportion of our overall resources will be expended in a meaningful manner on Bank Secrecy Act compliance.
In view of the substantial resources involved, we support GAO's recommendation that Congress amend the Bank Secrecy Act by adding a provision to require reauthorization of the reporting requirements in 1984.
[Mr. Snyder's prepared statement, on behalf of the Federal Deposit Insurance Corporation, follows:
GAO REPORT ON ENFORCEMENT OF THE BANK SECRECY ACT
SUBCOMMITTEE ON GENERAL OVERSIGHT AND RENEGOTIATION COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
HOUSE OF REPRESENTATIVES
JESSE G. SNYDER
DIVISION OF BANK SUPERVISION
10:00 a.m. Thursday, July 23, 1981
Room 2128 Rayburn House Office Building
Mr. Chairman, I am pleased to be here today to testify in response to the
findings of the General Accounting Office on the Bank Secrecy Act reporting
The bank regulatory agencies were given an opportunity to provide written comments on an earlier version of the GAO's report, and I will reiterate some
of those comments at this time.
Deficiencies in the Regulations Prior to July 1980
The GAO has concluded that the examination procedures and techniques employed in the past by bank regulatory agencies were generally inadequate to detect nonreporting of currency transactions, that procedures were insufficiently
comprehensive to ensure substantial compliance by the industry.
We would point out as we have in earlier testimony before this subcommittee
and in our written comments to GAO that until June of 1980--when the Treasury
adopted amendments to the currency reporting regulations which closed the
loopholes and significantly tightened the rules--the reporting requirements
were very difficult to enforce.
Under the previous regulations financial
institutions could legally evade the spirit of the Bank Secrecy Act if they
chose to do so, and our examiners could do little about it.
For example, (1) the exempt customer provisions were so loosely worded that almost any customer of the bank (who made large currency deposits or withdrawals with some regularity) could be granted an exemption, (2) banks were not required to retain copies of Currency Transaction Reports, and
(3) the rules did not require banks to maintain a list of their exempt customers, merely the ability to generate a list if requested by the Secretary of the Treasury. Our examiners did not have the legal authority to require
that such a list be maintained.
The amendments adopted in June of last year closed these loopholes and, we
believe, sufficiently tightened the rules to enable examiners to identify
undisputed violations of the reporting regulations. The amended rules will resolve many of the practical problems encountered by our examiners which have
contributed to what may have been perceived as ineffective enforcement.
New Compliance Examination Procedures
In April of this year, FDIC implemented new examination procedures for
determining compliance with the Bank Secrecy Act regulations. The procedures are now in place nationwide and were uniformly adopted by the FDIC, the Office
of the Comptroller of the Currency and the Board of Governors of the Federal
The new procedures consist of a two-stage examination approach designed to identify banks which require a more intensive review and to avoid imposing
burdens of full-scope examinations where they are not warranted.