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suspicion attached to their use. The processed by which money is laundered through the purchase of cashier's and treasurer's checks is simple. An individual, referred to in the drug community as Smurf" is assigned the task of taking large amounts of currency obtained in street drug transactions to numerous banks to purchase cashier's checks. At each institution, a cashier's check is purchased in an amount less than the current reporting requirement. The cashier's checks are then deposited at another institution without

any reporting requirement. In many cases, they are deposited in an offshore financial institution.

By reducing the threshold reporting requirement on these instruments to $2,000, these transactions will be much more difficult to use for money laundering purposes. Most legitimate purchases of cashier's checks by nonaccount holders will fall below the $2,000 reporting requirement. Most legitimate cashier check purchases by nonaccount holders are by poor people who need a check to pay their bills but do not maintain a checking account. This requirement will not affect them. By requiring the transaction to take more than one business day to complete, the potential money launderer will be required to make two trips to the financial institution. This, coupled with prompt notification of the suspected transaction to law enforcement authorities, will substantially deter money laundering

transactions of this type and increase the likelihood of detection

and apprehension.

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4.

Substantially increase the number of personnel available
to the Secretary of the Treasury and the Attorney General
to investigate compliance with the reporting requirements
of the Bank Secrecy Act and investigate potential money
laundering transactions.

Despite the well recognized importance of money laundering investigations, it is clear that insufficient resources are being

devoted to them.

The Interim Report of the President's Commission

on Organized Crime paints an abysmal picture of enforcement efforts

in this area.

The Bank Secrecy Act, as amended by the Currency and

Foreign Transactions Reporting Act, is the principle tool available

to law enforcement to detect and investigate money laundering. Under these statutes, the Department of the Treasury has the responsibility for prescribing both the types of transactions that must be reported and the specific information that must be reported. The Secretary of the Treasury also has responsibility for supervising compliance

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compliance with the reporting requirements on the Bank Secrecy Act,

it is doubtful that compliance with the reporting requirements is being enforced. According to the Interim Report:

were

Figures on the number of referrals made to the Treasury
Department

not available from all participating
agencies. The FDIC reported that, as of August 1984, three
referrals for civil monetary penalties had been forwarded
to the Treasury Department; in 1983, six; in 1981, one;
and prior to 1980, three. As of July 1984, the SEC had
referred four cases recommending imposition of civil money
penalties against broker/dealers, as well as information
about patterns of suspect transactions just below the
$10,000 reporting requirement in certain brokerage houses.
The FDIC and the SEC both report that to the best of their
knowledge no penalties had been imposed on the referred
institutions.

The Treasury Department has informed the Commission that since the enactment of the Bank Secrecy Act in 1970, it has assessed civil money penalties against four financial institutions. * * No civil penalty has ever been levied against individual bank employee for violations of the Act. Interim Report, pp. 24-25.

*

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The President's Commission on Organized Crime discusses a number

of reasons for the low number of referrals and penalties. The federal

regulatory agencies responsible for monitoring compliance and reporting violations are primarily concerned with other matters. The bank regulatory agencies are primarily concerned with determining

the soundness of the institution under examination.

Communication

problems also appear to exist among agencies.

However, one problem

stands out far above the others: There simply is not enough personnel

assigned to the task.

See, Interim Report, pp. 18-20.

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personal experiences as a federal prosecutor confirms the conclusions

of the President's Commission on Organized Crime.

Problems with lack of sufficient investigative personnel also

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investigation into money laundering in Flordia, dramatic results are

achieved.

See, Interim Report, pp. 26-27.

However, concentrated

investigations of this type are the exception rather than the rule.

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investigative duties in addition to money laundering. Their limited

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Consequently, there simply are not enough personnel assigned to investigate money laundering. Money laundering investigations are "labor intensive." Transactions must frequently be traced through voluminous and complex banking records; a very time consuming process.

Federal law enforcement agencies simply do not have sufficient

personnel to conduct this type of investigation and still discharge

all of their other respons i bilities.

The President's Commission on Organi zed Crime has recommended

that both the Secretary of the Treasury and the Attorney General be

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investigations is the single most effective step that can be taken

to combat money laundering.

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5.

Require the financial institution regulatory agencies and
the Internal Revenue Service as a part of their routine
audits to review compliance with the requirements of the
Bank Secrecy Act and the applicable administrative
regulations.

The number of referrals of noncompliance with the Bank Secrecy

Act to the Treasury Department belie the claims of the regulatory

agencies that they are vigorously monitoring Bank Secrecy Act compliance by institutions under their supervision. Since enactment of the statute in 1970, the FDIC has referred 13 cases and the SEC

has referred four. Granting additional investigative authority to the Secretary of the Treasury should assist somewhat in this problem.

However, because of the large number of institutions involved, the

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Secretary of the Treasury will have to continue to rely on the financial institution regulatory agencies to monitor compliance. order to improve the performance of the regulatory agencies, this Subcommittee should take active oversight role in reviewing compliance examinations. Periodic reports should be required from each regulatory agency and when required, hearings should be held to insure that compliance with the Bank Secrecy Act is being effectively monitored.

6.

Require that before an individual or business be placed
on an "exemption" list exempting the financial institution
from reporting cash transactions, approval be obtained
from the Secretary or his delegate. All approvals should
be periodically reviewed.

A device that has been used to facilitate money laundering

schemes is the so-called exemption list.

The exemption list is a

list of bank customers whose transactions have been determined by

the bank do not exceed amounts commens ur ate with the customary conduct

of the specific customer's business.

See 31 C.F.R., Secs. 103.22

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