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Agreement was also reached that each regulatory agency would issue or adopt regulations or guidelines similar to those that we already had outstanding which require banks to report any suspected criminal violation.
In addition, the group improved communications and established a network of individuals responsible for coordinating referrals and prosecutions.
Likewise, to accelerate the OCC's response to law enforcement inquiries, we have recently formally delegated additional authority to our district offices to respond and provide information directly to the law enforcement community.
We have also enhanced our enforcement and compliance information system to track criminal referrals and improve communications.
The working group also recommended and worked to develop a joint training course to cross-train FBI agents and bank examiners. A series of joint training sessions have been held, both at the FBI Academy at Quantico and at selected sites around the country. These training courses are an ongoing undertaking.
In addition to our work with the Department of Justice working group, OCC participated actively in efforts specifically focused on improving BSA enforcement. We worked with the Treasury Department and other financial institution regulatory agencies to revise the uniform BSA examination procedures.
We also vigorously support the work of the IRS financial institutions regulatory working group which was created in December 1985 after the IRS was delegated additional responsibilities under the Bank Secrecy Act. This group will play an important role in facilitating communications among the agencies and in providing a vehicle for resolving many of our problems.
Despite this progress, Mr. Chairman, we believe that we must continue to do more. To ensure that the progress of the last year is not lost, on-going training and industry awareness are critical. However, in light of the Deficit Reducation Act of 1985, although OCC remains committed to such efforts, we may not be able to maintain the same pace we did during 1985.
Resources have been severely strained and it has been necessary to make across-the-board reductions in training expenditures. Moreover, district training conferences and OCC attendance at public conferences and seminars, which have been valuable vehicles for sharing information on BSA matters and other important topics, have been cancelled or reduced.
In addition to ongoing training and education efforts, we believe that progress is essential in two critical areas if gains are to be made in the Federal Government's efforts to ensure compliance with the Bank Secrecy Act. These areas are, first, the increased coordination among agencies with BSA responsibility and, two, continued use of available data for targeting our limited resources.
Mr. Chairman, we have great faith in the benefits which can be derived from an interagency working group. The Justice Department working group has proven how effectively the bank regulators can work together with the law enforcement community. In my opinion, that working group accomplished tremendous things
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working together. The desire for all to work together going forward gives me great hope for the future in the criminal law area.
As an active participant in the IRS financial institution regulatory working group, we are looking forward to the same successes in the BSA area.
Improved communications and utilization of available BSA material and other financial data could, we believe, significantly increase the return on our resources. Clearly, neither the OCC, nor any other agency, has the resources necessary to find all compliance violations through the examination process. Instead, our examiners continually make judgments based on available information as to where problems are most likely to exist, targeting their effort in an attempt to identify and correct the most serious deficiencies.
We have had some successes in targeting BSA compliance efforts using computer analyses provided to us periodically by the Customs Service. We actively encourage further efforts through the IRS working group to increase the use of available data so that we can target institutions for intensive compliance reviews.
A great deal can and has been accomplished. We believe, nevertheless, that additional legislation is necessary to eliminate restraints on interagency cooperation and coordination, and to specifically address those who launder money.
We agree with the general concept and intent of the various money laundering bills that have been proposed. We support the administration's proposal. Among other things, these bills would specifically make it a substantive crime for anyone to knowingly use or allow a financial institution to be used to engage in financial transactions with criminally derived property.
We fully support the concept of such proposals. We believe, however, that care must be taken to ensure that the law does not proscribe inadvertent conduct or unwitting participants.
We likewise believe that the proposed modifications to the Right to Financial Privacy Act are necessary to enable individuals and institutions to make referrals of suspicious activities to the law enforcement community without inadvertently exposing themselves to potential liability for violations of the RFPA or other privacy acts, whether State or Federal.
The bill introduced by Representative Hughes, H.R. 1474, would make wire and other electronic transfers subject to being reported on a currency or monetary instrument report.
In light of the number of wire transfers that occur between institutions daily, we doubt this provision would be cost effective. Also, in light of the Treasury Department's new regulation, which enables them to require a specific financial institution to provide copies of all wire transfers for a particular period, we do not believe such a provision is necessary.
We believe changes are also needed in other laws which constitute constraints in our efforts to work with the law enforcement community. These barriers, which include the RFPA, certain State privacy acts, grand jury secrecy rules, and the procedures of various agencies, limit cooperation among the Federal supervisory and law enforcement officials.
While these statutes are designed to protect values we all support, they unduly restrain legitimate Government informationgathering and the free flow of information between and among the agencies.
We have found that the RFPA, in particular, has interfered with our criminal referrals and has in all likelihood degraded the ability of the recipient agency to decide which of those referrals should be pursued.
Similarly, the grand jury secrecy rule limits and prevents the law enforcement community from working closely with our office and sharing information that they obtained before Federal grand juries.
These limitations on the ability of the Federal agencies to cooperate were highlighted significantly in the agreement reached and signed by all the agencies on April 2, with a unanimous recommendation that legislative relief be swiftly obtained.
Law enforcement agencies and bank regulatory agencies alone can only provide a part of the solution. The industry's own commitment and efforts at self-policing are essential because the banks' own internal control processes are in fact the most effective mechanism for ensuring compliance.
We believe the industry has done much since January 1985 to address the Bank Secrecy Act problems. We encourage a continued effort on behalf of the industry.
With the changes we have urged and with an active interagency working group and a committed industry, we are confident that the substantial additional progress and efforts to prevent the Nation's financial institutions from wittingly or unwittingly being used to further criminal activities will be possible.
We fully support this effort.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Serino on behalf of the Office of the Comptroller of the Currency [OCC] can be found in the appendix.]
Chairman ST GERMAIN. Mr. Serino, you do agree that the wire transfer problem is also an important and significant one, I'm sure, because we had testimony yesterday from the IRS on the Botero case down in Florida and on the Mankiewicz case, where they actually had a bank president, as well as some officers, involved in California.
In those two examples he gave us, he said they were the classics because they used the wire transfers to transfer the money to either Swiss banks or banks in the Grand Cayman of the Bahamas. So we do have to be alert to the wire transfer problem, although I can appreciate the fact that it could be very burdensome.
Let me ask this question of you gentlemen, and then we will go to Mr. Keating.
Mr. SERINO. Do you want me to comment on the wire transfer issue?
Chairman ST GERMAIN. OK.
Mr. SERINO. The problem is burdensomeness. I think that the Treasury Department's regulations-which will allow them to go to a particular institution and tell the institution, for the next 2 weeks, to provide copies of all the wire transfers coming in-is an
effective way of targeting particular institutions that we think might be involved in using wire transfers.
Chairman ST GERMAIN. I heard you say that one of your task forces agreed that it needs some legislative assistance in a timely fashion.
In other words, you don't want this to drag on and on and on. I certainly am sympathetic to that.
In fact, the way I'm looking at it right now, I think I'm going to gather some of my committee members together and say to them, let's look at what is universally acceptable and agreeable and let's enact that now and where we have some of the sticky wickets, we'll leave those to work on later.
But I don't think that we should sit back and wait until we've dotted every "i" and crossed every "t." If we run out of dots and crosses, well, let's put those aside. But let's enact that which is universally agreed upon.
Does anybody on the panel, including Mr. Keating, disagree with that?
Mr. SERINO. Mr. Chairman, I fully support that. In fact, I would suggest that a real focus be made on how can the law enforcement agencies coordinate and communicate better with the banking agencies and vice versa.
Chairman ST GERMAIN. Mr. Serino, you had better be careful because, I remember Penn Square, OK, where the Comptroller's Office was not communicating with the Comptroller's Office. Do you recall that?
Mr. SERINO. We have made some significant improvements, Mr. Chairman
Chairman ST GERMAIN. You've been making significant improvements. You did it after-what was that little bank in the Texas shopping center years ago? The Sharpstown.
Mr. SERINO. Sharpstown was a State bank, Mr. Chairman. Chairman ST GERMAIN. OK. Well, then, let's go to Franklin National. Let's go to our friend in California, USNB, in San Diego. Mr. SERINO. Mr. Chairman, the point
Chairman ST GERMAIN. The significant, sweeping changes, Jim Smith's computerization and all of that-don't get me wrong. You have to keep trying. You have to keep trying, and that's the only way you get better, by constantly working at improvement.
Mr. SERINO. The point I would like to make is that we think that one of the problems is the ability, for us to communicate with law enforcement and them to communicate with us. And we think two minor changes will solve that problem. One is in the right to financial privacy, and that is in your bill, and the other is in the grand jury secrecy rule that prevents law enforcement from giving us information from grand juries.
We think those two pieces will help.
Chairman ST GERMAIN. Well, remember, we have a jurisdictional thing here. There are those areas where we have jurisdiction, fine. That's where we'll proceed. And I'm of a mind not to wait for other committees and their jurisdictions.
That's what I meant a little earlier.
And now we will hear from Francis Keating, who is the Assistant Secretary of the Treasury for Enforcement and Operations.
We will put your entire statement in the record. You may proceed.
STATEMENT OF FRANCIS A. KEATING II, ASSISTANT SECRETARY (ENFORCEMENT AND OPERATIONS) TREASURY
Mr. KEATING. Thank you.
Mr. Chairman, I sincerely appreciate the opportunity to appear before you to discuss legislative responses to the problem of money laundering, especially legislative initiatives that will enhance Treasury's enforcement of the Bank Secrecy Act.
This is my first opportunity to testify before Congress on this subject since I assumed the position of assistant secretary for enforcement some 90 days ago, and to affirm to you my commitment to rigorous enforcement of the Bank Secrecy Act, as I personally assured you in my office meeting with you.
I'm pleased to introduce Mr. Robert Stankey, the Acting Director of the Office of Financial Enforcement, who I know is a familiar figure to you, Mr. Chairman, and to the members of your staff.
Mr. Stankey has been with Treasury since the inception of the Bank Secrecy Act. It is fair to say that he, more than any other person, has been responsible for the development of the Bank Secrecy Act into an effective law enforcement weapon and the cornerstone in Treasury's Financial Law Enforcement Program.
Before turning to the legislative measures, I would like to briefly update you, Mr. Chairman, on Treasury's Bank Secrecy Act enforcement activities since my predecessor testified before you last year in your hearings following the Bank of Boston case.
On February 14, 1986, we prepared for the committee a report on those activities which we have made available for distribution today.
First, I would like to discuss Treasury's imposition of civil penalties against financial institutions for past noncompliance. In the wake of the publicity surrounding the Bank of Boston case, and in good measure as a response to the hearing of this committee, over 60 banks or bank holding companies have come forward to Treasury with past violations of the Bank Secrecy Act. To date, 15 civil penalties have been assessed ranging from $112,000 to $4.75 million in the case of the Bank of America. Other cases are under review and we anticipate assessing additional penalties shortly.
We believe that Treasury's rigorous enforcement of the Bank Secrecy Act, including the imposition of publicly announced substantal civil penalties, where appropriate, has contributed to enhanced Bank Secrecy Act compliance.
Another major initiative has been our work with bank supervisory agencies to improve and standardize Bank Secrecy Act examination procedures. Our experience in this effort has made clear to me the need for an ongoing interchange of ideas between us at Treasury and the agencies to which Treasury has delegated Bank Secrecy Act enforcement responsibilities.
Therefore, I am convening a permanent interagency working group on Bank Secrecy Act compliance consisting of representatives of Treasury, Customs, the Internal Revenue Service, SEC, and the bank supervisory agencies. The group will be chaired by the