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information at local levels. We believe that initiatives of this type will be
expanded to other areas of the country and will further strengthen enforcement
of the bank secrecy rules.
In a cooperative effort to make further improvements in the currency
transactions reporting system, FDIC and the other agencies agreed with Treasury to facilitate return of incomplete or inaccurate Forms 4789 filed by
banks with the IRS Reports Analysis Unit in Ogden, Utah. We have also agreed
to notify the banks under our supervision that IRS will no longer accept
currency reports on outdated forms and are in process of distributing a bank letter to this effect which includes a copy of the revised Form 4789. The
form is suitable for photocopying by those banks which do not have a ready
supply of up-to-date forms.
In summary, many of the deficiencies included in GAO's report have been
eliminated or corrected. The FDIC is committed to improving the compliance monitoring and enforcement of these rules and has taken the necessary steps to fulfill this commitment. In so doing, many of the GAO's recommendations have
already been adopted.
While our experience with the new examination program is too limited at this
time to accurately project its increased cost or assess its merits, we are certain that examination hours and FDIC's costs dedicated to bank secrecy
compliance will increase in the current as well as future examination cycles. Because of the tightened reporting requirements (more reports are now required
and more customers are covered by the regulations) compliance costs to the
banking industry will also be increased; perhaps significantly.
We trust that over the next two or three years our efforts will at least assist
in providing a better framework to accurately assess the benefits and
usefulness of these reports in containing criminal activity in relation to the
overall costs of the regulatory program.
It is in this spirit that we support
GAO's recommendation that Congress amend the Bank Secrecy Act by inserting a
provision to require reauthorization of the reporting requirements in 1984.
Chairman MINISH. Thank you.
Mr. Ryan, you may proceed with your statement, or whatever you care to do.
Mr. RYAN. I will make a few brief remarks and ask that the full statement be included in the record.
STATEMENT OF JOHN E. RYAN, DIRECTOR, DIVISION OF BANK
ING SUPERVISION AND REGULATION, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Ryan. I appreciate the opportunity to appear before your subcommittee to discuss the GAO's final report.
At the outset, let me say that the Federal Reserve is fully committed to taking and strenghtening, whenever necessary, appropriate measures to insure compliance with the Bank Secrecy Act and to provide accurate and timely information for ultimate use by the law enforcement agencies.
We are pleased to know that the GAO believes new procedures implemented by the Federal Reserve will enhance our ability to monitor compliance with the Bank Secrecy Act and that, together with actions taken by the Treasury, they will improve the quality, timeliness, and usefulness of the Bank Secrecy Act reports.
In conjunction with their procedures, the Federal Reserve has taken a number of other actions to contribute to these objectives. In particular, the Federal Reserve has increased the number of examiner days devoted to bank secrecy, expanded training in this area, and improved the timeliness and detail associated with the information on possible violations that is provided to the Treasury on a quarterly basis.
In addition, the Federal Reserve is continuing to explore ways in which the study of cash flows between member banks and Reserve banks can be effectively used in targeting the bank's secrecy exam procedures to those banks whose circumstances suggest a high volume of cash transactions.
In conclusion, we believe that the recent changes in the regulation, the steps being taken by the Department of the Treasury to make greater use of the reported data and the new exam procedures, will improve the level of compliance with the Bank Secrecy Act.
We believe, however, that compliance with the act and the monitoring and enforcement of it are costly to both the Government and to the financial institutions.
Because of these costs, we concur with the GAO in its suggestion that the overall cost to the Government and the banks complying with the act be studied in relation to the value of the banks' secrecy reports to the primary law enforcement agencies that use them.
[Mr. Ryan's prepared statement, on behalf of the Federal Reserve, follows:]
John E. Ryan
Director, Division of Banking Supervision and Regulation
Board of Governors of the Federal Reserve System
Subcommittee on General Oversight and Renegotiation
Committee on Banking, Finance, and Urban Affairs
United States House of Representatives
July 23, 1981
I appreciate the opportunity to appear before this Subcommittee on
behalf of the Federal Reserve to discuss the GAO's final report on the Currency
and Foreign Transactions Reporting Act ("Bank Secrecy Act"). The GAO report
addresses the investigative use made of Bank Secrecy reports by responsible law
enforcement agencies and the value of the reports to these agencies, the level of
compliance with the Act's reporting requirements and the steps taken by Federal
bank regulatory agencies to monitor compliance in financial institutions. At the
outset, let me say that the Federal Reserve is fully committed to taking and
strengthening whenever necessary appropriate measures to ensure compliance with
the Bank Secrecy Act and to providing accurate and timely information for ultimate use by the responsible law enforcement agencies. As background to my discussion of issues raised by the GAO, I would like to briefly describe the scope of
approximately 1,000 State member banks and 150 Edge Corporations, domestic
subsidiaries of banks that are licensed to engage exclusively in international banking. The System is charged by Congress for ensuring that these commercial
banking organizations are operated in a safe and sound manner and for determining
their compliance with U.S. banking laws and regulations, including the Bank
Secrecy Act. The Federal Reserve discharges its safety and soundness and compliance responsibilities largely through the conduct of supervisory examinations
and through the referral of possible violations of law to the designated agency with
primary responsibility for enforcing the relevant statute.