trate 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 compli ance. 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. Thank you. [Mr. Snyder's prepared statement, on behalf of the Federal Deposit Insurance Corporation, follows:] STATEMENT ON GAO REPORT ON ENFORCEMENT OF THE BANK SECRECY ACT PRESENTED TO SUBCOMMITTEE ON GENERAL OVERSIGHT AND RENEGOTIATION COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS HOUSE OF REPRESENTATIVES BY JESSE G. SNYDER CHIEF, INTELLIGENCE SECTION 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 requirements. 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 Reserve System. 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. 83-873 0-81--6 The first stage, or module as it is called, requires the examiner to establish that the institution has appropriate operating and auditing standards. In addition, the module requires the examiner to conduct a detailed review of the institution's internal audit function and to check procedures and selected workpapers, reports and responses. This review of auditing methodology and implementation should help the examiner to decide whether to conclude the review at this point or examine further. The second module involves an intensive examination of teller operations for compliance with the financial recordkeeping and reporting regulations. It sets out procedures and guidelines the examiner should use in checking actual transactions and related documentation. Criteria for selection of branches for such detailed review are provided along with general guidelines that apply to examination of multiple and single-office financial institutions. Under this second module the examiner reviews a minimum of five, and preferably ten or more, days of transactions at one to three branch offices. The procedures have been fully integrated into FDIC's regular compliance examination program which also covers compliance with federal consumer laws and the Bank Protection Act. The compliance examination program is administered by a single review examiner in each of our regional offices who is responsible for instituting follow-up actions with banks which have been cited for violations by the compliance examiner. This follow-up action can take |