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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.

Recent Developments

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currency reports on outdated forms and are in process of distributing a bank letter to this effect which includes a copy of the revised Form 4789.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.



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:]

Statement by

John E. Ryan

Director, Division of Banking Supervision and Regulation

Board of Governors of the Federal Reserve System

before the

Subcommittee on General Oversight and Renegotiation

of the

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

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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.

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