become, wittingly or unwittingly, the prey of the criminal operative with cash to launder. Certainly, full compliance with the reporting requirements is essential. Treasury depends on the reporting data generated by these requirements for its own financial investigations and the analytical support it provides other law enforcement agen cies. The Treasury Financial Law Enforcement Center, or TFLEC, combines these data with other sources of intelligence to generate financial intelligence reports, currency flow charts, and link analyses, which probe the financial connections inside and among illicit enterprises. TFLEC provides vital support to ongoing investigations, including those of the OCDE and Treasury Task Forces, and it generates leads for the development of new cases. It is fair to say that were it not for the reporting information Treasury receives as a result of the Bank Secrecy Act, the major money laundering enterprises I mentioned earlier would all be thriving today. To ensure the availability of reports, we must continue to improve the level of compliance by financial institutions. Recent cases involving banks who have violated the reporting requirements illustrate that there are instances in which currency transaction reports and currency and monetary instrument reports are not being filed. We have also seen misuse of the exempt lists, under which specified bank customers may make cash deposits without the filing of CTR's. We have begun a number of initiatives to effect further improvements in compli ance: We are working with the bank regulatory agencies to improve the application of the examination procedures; We have worked with the President's Commission on Organized Crime, which has developed a series of regulatory, administrative, and legislative recommendations. Some of the regulatory and administrative recommendations have already been implemented, and the remaining ones are under serious consideration. We are giving assistance to banking industry associations to foster the development of improved training for bank employees. Regarding the banking industry, there is a further point I would like to make: we must not confine our thinking to the bank's legal obligations. Every financial institution has a moral and ethical obligation not to be used to further criminal activity. This obligation extends both to the community served by the bank and to our financial system as a whole. For it is certain that when criminal operatives can use a financial institution at will for their own purposes, the overall trust in our banking system is eroded. Thus banks must be vigilant to spot instances of money laundering and must report suspicious transactions to the law enforcement authorities. THE GROWING PROBLEM OF OFFSHORE MONEY LAUNDERING Mr. Chairman, I would like to turn to another aspect of the problem facing us: offshore money laundering. Even as we improve compliance with the Bank Secrecy Act, we must recognize that the expanded Federal enforcement effort will cause a shift to offshore money laundering. The Milian-Rodriguez case, in 1983, exemplified this trend, and involved the international transportation of over $300 million in cash to offshore accounts. Our government has responded to this trend by seeking international agreements providing for access to evidence relevant to U.S. criminal investigations. On July 26, 1984, Great Britain and the United States exchanged diplomatic correspondence establishing our access to documentary information located in the Cayman Islands that is material to investigations related to drug trafficking. The agreement became effective on August 29, 1984, and since that time has resulted in the obtaining of valuable information for prosecutions in the United States. The Departments of Justice and Treasury have been seeking a similar agreement with the Republic of Panama and will resume negotiations with Panamanian officials later this month. In further response to the trend of offshore money laundering, Treasury published proposed regulations last year that would establish procedures under which the Secretary could require specified U.S. banks to report financial transactions with foreign financial institutions. These regulations, which will be promulgated in final form in the near future, will provide a mechanism to help identify money transfers related to drug trafficking or other organized crime that occur between U.S. and foreign financial institutions. In exercising the authority under this regulation, Treasury will select classes of transactions with foreign financial institutions as the subject of reporting on the basis of available information indicating unusual financial activity. Treasury will strive to impose reporting requirements in the least burdensome manner consistent with our need for the information. The Act is quite specific in requiring that Treasury carefully consider how its international transaction reporting requirements affect financial institutions. INITIATIVES TO STRENGTHEN OUR ATTACK ON MONEY LAUNDERING Mr. Chairman, as I mentioned earlier, the President's Commission on Organized Crime has developed legislative recommendations as well as suggested regulatory changes and improvements for the administration of the Bank Secrecy Act. Some of these legislative recommendations have been incorporated in various bills now pending before the Congress, and I would be remiss if I did not express my appreciation for the efforts that you, Chairman Hughes, have put forth to develop and introduce legislation to combat money laundering. I would also like to express my appreciation to Congressman McCollum, for his leadership and initiative in this area. With regard to the entire body of proposed legislation now pending before both houses of Congress, I would like to offer a few observations. First, an area of legislative inquiry that we consider worthy of close examination is the Right to Financial Privacy Act. While Treasury recognizes the rationale for preserving the confidentiality of banking records, we strongly suggest that the Congress re-examine the current balance between the maintaining of this confidentiality and the legitimate interest of law enforcement in receiving usable information concerning potential violations. Another topic that certainly deserves examination is the matter of an administrative summons power that Treasury could use in ensuring compliance with Title 31. Administrative summons authority is quite common among Federal agencies, yet Treasury lacks any such authority that could be applied to determine whether a financial institution is complying with applicable Title 31 reporting requirements. This authority would be of great benefit to Treasury in fulfilling its civil enforcement responsibility and its oversight responsibility regarding bank regulatory agencies. Mr. Chairman, this concludes my formal statement. I would be pleased to answer any questions that you and other members of the Committee may have. Mr. HUGHES. Thank you, Mr. Walker. And would you identify who you have with you today. Mr. WALKER. Yes, on my left is the associate general counsel of the Treasury, Mr. Merber, and he has been deeply involved in the regulatory and legislative initiatives that are being worked on at Treasury in connection with the Bank Secrecy Act. Mr. HUGHES. Last April, there was a proposed amendment to the regulations identifying unusual money transfers to and from foreign financial facilities by criminal enterprises and it was expected that you would move ahead and publish that. I assume on page 11 of your statement that that is the proposed regulation that you indicate will be published in the near future. Mr. WALKER. That is correct. It was put out for comment and comments have been received. It now is in the process of receiving appropriate clearances, internal clearances, both at Treasury and then- Mr. HUGHES. But why does it take a year? That was April 11. We knew 2 years ago that we had serious problems. A year ago we had regulations, in fact almost to the day, and it was indicated then that you would be moving ahead. Now here it is a year later and we don't have the regulations, let alone▬▬ Mr. WALKER. Well quite frankly, Chairman Hughes, I share some of your frustration. We push and we work on it and there is a regulatory process Mr. HUGHES. The regulatory process doesn't take a year. Mr. HUGHES. The regulation was prepared a year ago. Mr. WALKER. No, it was proposed and put out for comment. Mr. HUGHES. What I am talking about is that it was ready to be published at that time. Mr. WALKER. Right, and it was published in proposed form. Mr. HUGHES. When was it published? Mr. WALKER. I don't have the exact date but I can supply that for the record. April 5, 1984. Mr. HUGHES. Why don't you do that. Mr. WALKER. Then we received a host of comments on the regulation which had to be evaluated and that is the normal comment period. Then after that we have been working on it to try and determine certain ways in which the regulation should be finally drafted. I can say that we are close to putting out the regulation in final form. Mr. HUGHES. If we could just go back again. It usually takes anywhere from 90 days to 120 days to publish a regulation. Do you have any idea when the comment period closed? Mr. WALKER. No, I don't. I would be happy to supply that for the record. June 4, 1984. Mr. HUGHES. I think that is important, because it seems to me that you have a great deal of administrative authority that you haven't always used expeditiously. This committee and the last Congress, the 98th Congress, took a great deal of testimony on money laundering, and the members of this subcommittee work very diligently to try to provide the additional authority that Treasury sought to cover attempts to move money out of the country. It was felt that this was not covered by existing law. I know my colleague from Florida, Mr. Shaw, who is not with us, was particularly interested in trying to come to some kind of a compromise. And, we finally did fashion some language that would permit attempts, the problem being that under some interpretations it had to wait until somebody actually departed the country before there was a violation of existing regulations. The law that we passed as part of the Comprehensive Crime Control Act, really is of no effect until we modify regulations. My question is that I am not aware of any attempt to modify at this point and I am not aware of any notice that you intend to modify that, and so once again we haven't been able to implement that authority. Mr. WALKER. Well Mr. Chairman, on this particular provision, the attempt provision, we have analyzed it, counsel has analyzed it and you are quite correct, obviously, in pointing out that the attempt language was added by the Act last year and was designed to correct the problem that has resulted from conflicting decisions regarding whether a person violating the CMIR requirements could be apprehended before his actual departure from the country. We believe that the provision as enacted, coupled with the legislative history of the amendment, is clear with regard to Congressional intent and provides authority in this area even without specific regulations. We are in the process, however, of changing our regulations now to technically reflect the language of the new law. Mr. HUGHES. You have lost me. If I understand, you haven't committed any offense unless you violate a regulation. In other words, the violation is the failure to file. Mr. WALKER. The regulation is currently, I believe, ready to be issued. I am advised now that it is being forwarded to me. If it hasn't been forwarded to me right now, it will Mr. HUGHES. Mr. Walker, why has it taken since October of last year until April of this year to promulgate a regulation to carry out the intent of the modification of our law. Mr. WALKER. Well, all I can say is that the process-perhaps we need to review our clearance procedures if they are too slow. But, my understanding is that the problem is being addressed, will be addressed and I know of no instance where an individual or the Government's interest has been prejudiced because of the delay, and this matter is forthcoming at the present time. Mr. HUGHES. Under the current laws we have the authority to use it and obviously unless you have the authority, you can't stop it. Mr. WALKER. Well, in the past there have been plenty of instances where people have been arrested and prosecuted prior to boarding planes and as I have said, there appears to have been a conflict in the decisions. But, obviously there were successful prosecutions in the past or there wouldn't have been any conflict. Mr. HUGHES. Is it a resource problem? I mean, do you lack the resources? Mr. WALKER. In part. But I▬▬ Mr. HUGHES. I think that everybody agrees that money laundering is probably one of the most important aspects of enforcement that you have in trafficking and organized crime. Mr. WALKER. There is little question about that. Mr. HUGHES. We have come to recognize how important it is to try to trace the money. In tracing the money we find often the people who are at the top of these organizations. We have sought the authority to cover attempts but unfortunately, we haven't been able to use that authority now for some 5 or 6 months because we haven't moved ahead with the administrative aspect of it. If it is a resource problem, then we want to know about it. Mr. WALKER. Well, I have taken steps to correct the resource problem. Quite frankly, I think that that is what lies at the heart of it. We have gotten additional resources for the office involved in preparing these regulations and we have currently— Mr. HUGHES. What kind of staff do you have there to handle the reporting requirements? Mr. WALKER. We have, between general counsel and my office, currently about four to five individuals on this. Mr. HUGHES. Do they also review the financial transaction reports? Mr. WALKER. No, that is conducted separately at the Treasury Financial Law Enforcement Center. Mr. HUGHES. How many are involved in that particular department? Mr. WALKER. I could supply that for the record but it is a considerably larger number of analysts who are active in that area. They are Customs and IRS employees. Mr. HUGHES. Who heads up that particular area? Mr. WALKER. Currently the Financial Law Enforcement Center is under the Office of Financial Investigations which is headed up by Ms. Tischler at the Customs Service. Mr. Chairman, I am advised that there are 30 to 40 individuals at TFLEC, Treasury Financial Law Enforcement Center, on staff there. Mr. HUGHES. And how many different reports do they have to handle on a yearly basis? Mr. WALKER. We are currently getting, on the CTR's, about 700,000 reports. They are put into the computer, so they are not individually analyzed as such. Computer runs are being done and they would all be part of the universe of reports that are covered. And then there are also CMIR reports. I don't have the exact number for those but I can supply that for the record. Mr. HUGHES. I think what I would like to do is to pick that up in the next line of questioning. I think that that is one of the major problems that we have to look at. Obviously the Bank of Boston has had to accept a lot of the blame for these agencies that oversee that Bank of Boston. They have had to accept a lot of the responsibility for what has been a lack of effort. Mr. WALKER. Well, I would like to point out a couple of things. We have shifted all of a sudden, the discussion from resources and from the regulations, with regard to certain violations, to compliance by the large financial institutions. I think it would be remiss on the part of Government to somehow take the burden off the banks. In the case of the Bank of Boston, as Mr. Conover will point out, the Comptroller of the Currency did not find some of the violations that were later on determined. But, I do not think that that takes the monkey off the banks. The financial institutions have the legal obligation- Mr. HUGHES. Nobody suggested that. What I suggested was that there seems to be widespread ignorance of the law. They are, first of all, to follow up on exemptions that were never covered by statutes. That only came about as a result of a criminal investigation. I think that for now-let me just stop right here because I think that there are other areas that we should get into and that I think other members want to get into those areas because there are a lot of other questions that are related to those issues. Mr. WALKER. There is only one point that I would like to make just as a follow up to this. As far as oversight, just so the record is clear, as far as oversight for compliance purposes, my office does not conduct and cannot conduct under the current framework, direct oversight of any financial institutions. That has been delegated to the bank regulatory agencies, most of whom, all of whom except for the Comptroller, are outside the Treasury Department. That was done pursuant to congressional intent as expressed in the legislative history of the act and pursuant to a provision of the act which authorizes that Secretary to do that. It was always the intention that that be done. One of the issues that currently exists in this whole area is whether or not Treasury should have some kind of backup, if you will, authority or ability to look at the financial institutions for compliance. That particular issue would be addressed by Congress |