OVERSIGHT HEARING ON THE BANK SECRECY

ACT

THURSDAY, JULY 23, 1981

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS, SUBCOMMITTEE ON GENERAL OVERSIGHT AND RENEGOTIATION, Washington, D.C.

The subcommittee met at 10:03 a.m., in room 2237 of the Rayburn House Office Building; Hon. Joseph G. Minish (chairman of the subcommittee), presiding.

Present: Representatives Minish, Gonzalez, McCollum, and Carman.

Also present: Representatives Green and Zeferetti.

Chairman MINISH. The subcommittee will come to order.

Today the General Oversight and Renegotiation Subcommittee continues hearings on the enforcement and usefulness of the Bank Secrecy Act. As I am sure everyone knows by now, this law imposes three types of reporting requirements: One, banks must file reports on currency transactions in excess of $10,000 which are not done as part of an established, ongoing business; two, individuals entering or leaving the United States must file a disclosure form if they are carrying more than $5,000 in cash or monetary instruments; and three, individuals subject to the jurisdiction of the United States must disclose any interest they have in foreign bank accounts. The information required under these laws is very limited. At the same time, it can be very useful in tracking down organized crime and enabling the Government to seize the proceeds of criminal activity.

Information which can be collected, if the Bank Secrecy Act is properly utilized, can be very important. This has been shown by the success of Operation Greenback in southern Florida. However, in the past there have been a number of breakdowns in the machinery for the Bank Secrecy Act. In fact, we were told last year that both the Treasury and the regulatory agencies have been somewhat lax in doing their part to enforce and use this law. Today we shall receive the final report of the GAO on its investigation of the Bank Secrecy Act. They have spent a lot of time preparing this report and I congratulate them on its quality. It raises a number of questions about both the enforcement and utilization of the statute. I hope that we will find answers to some of these questions during today's hearing.

I want to emphasize that I do not consider our hearings today to be adversarial. I think everyone agrees that our country has a serious problem with drugs and that we have to cooperate to try to

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deal with it. That is what this hearing is all about, and I hope all of our witnesses will see things in that light.

I would like to welcome two guests at this morning's meeting. First, Representative Leo Zeferetti, who I have been just told is on his way over. He is chairman of the Select Committee on Narcotics and as a result is very knowledgeable on the subject of this morning's hearing. We also have the former ranking minority member of this subcommittee, Representative Bill Green of New York. Congressman Green was instrumental in getting this subcommittee started on its investigation in the Bank Secrecy Act. If our subcommittee work results in more prosecutions and convictions because of the Bank Secrecy Act is enforced more stringently, he will deserve much of the credit.

Mr. Green, I welcome you to the hearings.

Mr. GREEN. Thank you, Mr. Chairman. I deeply appreciate your very kind words about my role in this ongoing look at the enforcement of the Bank Secrecy Act. My concerns were the same as yours, in terms of the violations of the Bank Secrecy Act_assisting in the international drug trade. There were reports afloat that people, particularly in Florida but also other parts of the country, would come to the banks with suitcases full of $100 bills and would make deposits of hundreds of thousands of dollars with no questions asked. As our hearings in the previous Congress developed, it became clear that the primary responsibility under the law for the Bank Secrecy Act lay with the Treasury, and the Treasury was largely relying on the bank regulatory agencies to insure compliance with the act by banking institutions.

Banks receiving large amounts of cash are not in a weak financial condition and that is what the bank regulatory agencies are concerned with. I think it is safe to say that we came away with the very strong impression that the whole thing was falling between the two stools; the Treasury on the one hand and the bank regulatory agencies on the other.

want to compliment the chairman of the committee, the gentleman from New Jersey, for pushing ahead on this and seeing that everyone's feet are kept to the fire to resolve the issues that have been raised, and I think he has done a good job of it.

Chairman MINISH. Thank you, Mr. Green.

I also want to include into the record a statement by Representative Ron Paul of Texas, the present ranking minority member. The reason some of our members are not here, and I am sure their interest is as great as ours, is that there is also a meeting of the Banking Committee going on right now.

[The statement of Representative Ron Paul follows:]

STATEMENT OF REP. RON PAUL

Mr. Chairman:

I regret that an overriding commitment prevents me from attending this oversight hearing concerning the Bank Secrecy Act of 1970. The full Committee is holding its semiannual hearing on monetary policy and two high officials of the Treasury Department, Under Secretary Beryl W. Sprinkel and Assistant Secretary Roger W. Mehle are testifying, respectively, on the monetary policy of the Reagan Administration and on the problem's confronting the nation's thrift institutions. I feel an obligation as a Member of Congress to attend this hearing.

With respect to the Bank Secrecy Act, I note the finding by the General Accounting Office that the reports required by the Act have not been widely used. This leads naturally to a choice of responses between redoubling the effort to use the reports and an abandoning the effort altogether. My own preference would be to take the latter course, because I have always considered the Bank Secrecy Act to be an unwarranted intrusion into the privacy Accordingly, I sympathize with the recommendations

of individual citizens.

by the GAO that the reporting requirements be terminated in 1984 unless Treasury can demonstrate a need for them.

It is for this reason that I opposed a proposal by the Carter Adminstration last year to increase the power of Federal authorities under the Bank Secrecy Act. The avowed purpose of the bill was to provide an additional weapon against the drug trade by authorizing Federal Customs officials to conduct unwarranted searches of citizens entering or leaving the United States to determine, in the course of searches for contraband, whether travelers might be carrying large sums of currency without reporting it as required by the Act. It was my belief that the bill would have imposed a hardship upon innocent travelers which would have outweighed any impact against criminals,

who would have little difficulty evading the law. On July 28, 1980, the

House failed, by an overwhelming vote, to suspend the rules and pass the

bill.

Because of my longstanding interest in the Bank Secrecy Act, I sincerely regret that I cannot attend this hearing, but the reasons for

my absence, and for the absences of other Members on both sides of the aisle, are compelling.

Chairman MINISH. Mr. Anderson, you may proceed, and I want to thank the GAO for all of the cooperation in this effort.

STATEMENT OF WILLIAM J. ANDERSON, DIRECTOR, GENERAL GOVERNMENT DIVISION, GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY DANIEL HARRIS, GROUP DIRECTOR, AND RONALD MAXON, PROJECT MANAGER

Mr. ANDERSON. I have a very short statement I would like to read, sir.

We are pleased to be here to report to the subcommittee the results of our review of the implementation of the Bank Secrecy Act's reporting requirements. Last October, when our review was still ongoing, we presented our interim observations and conclusions before this subcommittee, which requested the review. We are here today to provide our final conclusions and recommendations. Therefore, at this time, I would like to formally submit for the record our final report to the Congress entitled "Bank Secrecy Act Reporting Requirements Have Not Yet Met Expectations, Suggesting Need For Amendment."

As indicated by the report title, it is our assessment that the act's reporting requirements have not been as useful to Federal law enforcement efforts as the Congress intended when it enacted Public Law 91-508, the Currency and Foreign Transactions Reporting Act, more commonly known as the Bank Secrecy Act. The act's implementing regulations require three reports: One, the currency transaction report, for cash transactions exceeding $10,000; two, the report of international transportation of currency or monetary instruments, or the export or import of more than $5,000; and three, the report of foreign bank, securities, and other financial accounts. These reports have not been widely used by Federal law enforcement and regulatory investigators. Furthermore, it is uncertain how well financial institutions and individuals are complying with the act's reporting requirements.

In our final report, as in our October 1980 testimony, we discuss in detail the problems which contributed to the current situation. That is, after over 10 years, the extent of compliance with the act, the potential utility of the act's reports, and the costs involved in implementing the act are still unknown.

Since the act's implementation problems have been thoroughly recorded, we will not dwell on them at this time. More important, the Treasury Department and other responsible agencies have initiated several actions in the last 2 years that should correct many of the problems related to the implementation of the Bank Secrecy Act reporting requirements. The following are some of the recent initiatives.

Treasury revised the act's regulations to eliminate problems with the filing, exemption, and retention of currency transaction reports by financial institutions.

Customs' Reports Analysis Branch improved its computer program and plans to add staff to correct problems with compiling and distributing current, meaningful report information.

IRS implemented a program to improve the completeness and accuracy of currency transaction reports which should resolve some

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