Chairman MINISH. Thank you.

Mr. Green, do you have any questions?
Mr. GREEN. Yes.

I wonder whether any of you have done any studies within your agencies as to the cost of your participation in the enforcement of the act?

Mr. ZITO. Congressman Green, the GAO responded in their report that they felt we were somewhat tardy in implementing new examination procedures or revising our examination procedures. It did take us a degree of time. While we did not do any cost-benefit analysis per se, we were trying to balance or weigh the cost of expanding our examination procedures, consistent with the regulatory burden that is imposed on an institution.

As was referred to by Mr. Anderson of the GAO, there are 15,000 banks, and then about another 25,000 financial institutions who are involved in this effort among all of the financial institution regulatory agencies. And therefore, we were concerned about not going overboard with respect to compliance because of regulatory burdens and OCC's limited resources.

While we do not have hard numbers, we tried to weigh the difference in examination time, based on how extensively we would expand our procedures.

Mr. GREEN. Do any of the others have any comments on that? Mr. SNYDER. First of all, I would like to preface some of these numbers. The monitoring of compliance with the Bank Secrecy Act is just one of our many functions. We have tracked the direct hours expended and related overhead time.

In 1980 we expended approximately $500,000 solely on this act. I know in our testing of the new procedures, which had a great deal to do with how the procedures developed as they are, we estimated that we would have about a tenfold increase if we adopted the full expanded procedures across the board.

In this two module approach, we have sampled a few of the regions that would not have banks that would normally be examined under the full scope, many of the small rural banks. There we estimate that the first module of our revised procedures will cause approximately a 50-percent increase in examiner time in those banks.

Each of our statements indicated that the banking agencies just this spring implemented the new procedures. We know the times are increasing across the board, but it is too soon to say just exactly how much they will increase.

Mr. RYAN. We have very rough estimates of the time involved, because it is such a mixed universe of institutions that we deal with.

As you know, the procedures are divided into two phases or modules, one phase that deals broadly with the bank's own internal procedures and the ability of the bank's own procedures to insure that compliance is being achieved.

The second phase is much more detailed and requires our examiners to review individual teller transactions and go back through tellers' worksheets and the like.

We estimate that the module 1 approach requires about half a person-day. And if we go into the module 2 approach, that it can range anywhere between three- and four-person days per office. Mr. GREEN. Am I correct in assuming that you will charge the institutions you regulate for your reviews of them and therefore, ultimately, that is charged back against the institutions?

Mr. RYAN. I believe the other two agencies charge. The Federal Reserve does not charge.

Mr. SNYDER. The FDIC does not charge a bank for examinations. Mr. ZITO. We do not. Our revenues are generated through an overall assessment, not through hourly billing or anything like that.

Mr. GREEN. In making those assessments, do you consider these costs as well as your other costs?

Mr. ZITO. Not specifically, Congressman.

Mr. GREEN. Mr. Zito, you indicated you were looking to the information from the Fed as to which banks were turning large amounts of cash into the local Reserve bank as a good indicator of what banks to which you ought to pay special attention. I got some inference from what you said that you felt you were now getting the information manually, and you would like to see it automated. Mr. ZITO. We work together closely on a lot of matters, Congressman. This is one of them. We feel that, prospectively, the most efficient and effective use with our limited resources, consistent with the regulatory burdens on the industry, is to work with the Federal Reserve, the FDIC, Treasury, and other agencies, in targeting specific institutions which are handling an abnormal amount of cash.

Then we can devote our examination and investigatory resources and that of the IRS, Customs, DEA, Treasury, at those specific entities.

What we would hope to accomplish, as the Fed referenced in their testimony, is to automate the amount of cash being shipped from a particular financial institution to the local Federal Reserve. If it is a relatively small bank but it is shipping an unusually large amount of cash, then something must be awry and is worthy of an investigation or examination.

Mr. GREEN. Is the automation of that now in progress? Where does that stand?

Mr. RYAN. We are working on a pilot project in the New York Fed. The New York Fed is developing a software program that should give us the capability of providing the information across the system.

Mr. GREEN. Thank you, Mr. Chairman.

Chairman MINISH. The committee will stand in recess for 10 minutes. I hope the members will get back as soon as they can after the vote, so that we can proceed.

If you will just be patient, gentlemen, we ought to be back in 10 or 15 minutes.

[Recess.]

Chairman MINISH. The committee will come to order.

Mr. Zito, I read your statement last evening, and throughout your statement, you are concerned about the manpower, the freeze,

the money. Why do you have a money problem in hiring people when you don't go the appropriation route?

Mr. ZITO. Well, the Comptroller's office is funded through assessments on national banks, according to their asset size.

Chairman MINISH. Right.

Mr. ZITO. The assessment is analogous to a tax, if you will, Mr. Chairman, and I think, you know, that taxation is a touchy subject these days in terms of whether one increases taxes or have a tax cut and while overhead and inflation and salaries paid continue to increase, we must be concerned about our budget, limited resources, and so forth, in the context of our mission.

Chairman MINISH. Your name is Zito, not Stockman? [Laughter.] Mr. ZITO. Yes, Mr. Chairman. These items play increasingly important roles in our own budget. We are concerned with striking the proper balance in terms of efficient and effective use of our resource allocations in this area. That is where we are coming from with regard to our comments.

Chairman MINISH. I hope we can impress you that this ought to be the No. 1 priority-anyone dealing in drugs ought to be run out of the country or into jail.

Mr. ZITO. Mr. Chairman, we tried to compliment the subcommittee and the subcommittee staff on their work and concern in this area, and they certainly have done an outstanding job in assisting us not only to focus our attention but the Treasury's and the other law enforcement agencies' attentions on this significant problem. Chairman MINISH. On page 8, you said:

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.

Mr. ZITO. Yes, Mr. Chairman.

Chairman MINISH. What do you really mean?

Mr. ZITO. What we really mean is that GAO commented that coordinated efforts among the Federal law enforcement agencies have been difficult to achieve. Barriers to coordination arise from conflicts in agency missions and different management policies. But there are also legal constraints.

We agree with the GAO, and we particularly would ask the subcommittee to focus in on those legal constraints. We feel that there are portions of several statutes, including the Tax Reform Act of 1976, the Right to Financial Privacy Act of 1978, the Privacy Act of 1974, and the Freedom of Information Act, State privacy acts, grand jury secrecy rules, as well as some other procedures, which are all impediments in some way, shape, or form to getting this job done in the most efficient and effective way in terms of coordination.

We have testified before-these barriers have been commented on before the Congress, various committees, including the Senate Permanent Subcommittee on Investigation, where witnesses testified about many of the problems faced by the law enforcement agencies and the community in dealing with these matters.

In addition, Mr. Chairman, we understand that the subcommittee of the Government Operations Committee is presently looking at the Freedom of Information Act.

Chairman MINISH. Thank you.

Mr. McCollum, you are next in line.

Mr. MCCOLLUM. Thank you very much, Mr. Chairman.

I have obviously not been in the hearing this morning as much as I would like to, and I apologize to the chairman and to the witnesses for that.

I have not had much of a chance to digest anything that you have said, although I took it for selective perusal during the voting period.

I am curious, though, from what I have just glanced at in the testimony and have heard, if there are any legislative changes that any of you gentlemen see that need to be made to improve the posture now as opposed to sometime into the future.

Mr. ZITO. Mr. McCollum, we were just touching on that. There are several statutes which the Comptroller of the Currency believes places legal impediments in the accomplishment of an efficient and effective way the enforcement of the Bank Secrecy Act. Those statutes, not in their entirety, but parts of them, are the Tax Reform Act of 1976, the Right to Financial Privacy Act of 1978, the Privacy Act of 1974, and the Freedom of Information Act. In addition, there are State privacy statutes that also impact the sharing of information and the effective use of agency or government resources in terms of concentrating on a variety of information that is developed, either through Customs', IRS', DEA's, or the financial regulatory agencies' efforts.

Mr. MCCOLLUM. I am going to be visiting a bank during the recess period in August that has been targeted by random selection in my State of Florida. When I say visiting, I'm going to spend a day there, as sort of a surprise visit and one that is set up with the concurrence of someone in your office. With that in mind, what should I be looking for, if anything, that I could ask about in connection with this act that would be available at least for such a perusal by a Congressman who might not otherwise know what he is looking for?

That may be an unfair question to ask you.

Mr. ZITO. I will take a crack at it, and then my associates can join in. We have set as our objective to try to educate and elevate senior management's awareness of the importance of this act. And so I would-and we would be glad to help you formulate a list of questions or whatever-probe whether you feel senior management has their arms around the nature and importance of the act. The key here is that the regulatory agencies are only in banks about once a year, or once every 18 months. What we need to do is to make sure that senior management has put in place internal and external audit programs which are going to insure ongoing compliance with the act. And then we come in once a year, once every 18 months, to check that compliance.

So it all starts at the top. It starts with the board of directors of the bank or the financial institutions and senior management-so I would probe to see whether you feel that the senior management of that bank is taking this seriously.

Mr. MCCOLLUM. In other words to see if they are really aware and fully taking advantage of it. I would appreciate that advice,