Testimony of
Christie Sciacca
Associate Director
Division of Supervision
Federal Deposit Insurance Corporation
on
the Bank Secrecy Act and Bank Reporting Requirements
Joint Hearing before
the Financial Institutions and Consumer Credit Subcommittee
and
the General Oversight and Investigations Subcommittee
Committee on Banking and Financial Services
U.S. House of Representastives
2:00 p.m. April 20, 1999
2128 Rayburn House Office Building
Thank you, Chairwoman Roukema, Chairman King, Ranking Members Vento and
Sanders, and members of the Subcommittees. I appreciate the opportunity to testify on
behalf of the Federal Deposit Insurance Corporation on the Bank Secrecy Act and the
bank reporting requirements. The FDIC insures the nation’s 10,483 commercial banks
and savings institutions and is the primary federal supervisor of 5,853 state-chartered
banks that are not members of the Federal Reserve System. My statement first
provides some background on the Bank Secrecy Act itself, and the FDIC’s role in its
enforcement. Next, I will address the question of reporting by the banking industry.
The FDIC is well aware of the sometimes competing public policy issues raised
between financial privacy and combating financial crimes by statutory requirements that
the banking system report suspicious activity. Our recent experience with the "Know
Your Customer" proposal was strong evidence that the American public values its
financial privacy. The public is rightfully skeptical of the government employing efforts to
attack the problem of illegal financial activity through rules that may infringe upon the
privacy of all individuals. We confirmed through the "Know Your Customer" rulemaking
process that the public's relationship with financial institutions is based on trust, and the
government must be cautious about adopting rules that might upset that trust.
The integrity of the nation's banking system is also rooted in confidence. Confidence
between a financial institution and its customers is what enables banks and other
financial institutions to attract and retain legitimate funds from legitimate customers.
Illegal activities, such as money laundering, fraud, and other transactions designed to
assist criminals in illegal ventures pose a serious threat to the integrity of financial
institutions and, therefore, the public's confidence in the banking system. Maintaining
confidence in the nation’s banking system is the mission of the FDIC. Highly publicized
cases involving money laundering demonstrate the importance of federal supervision
and bank vigilance in this area. While it is impossible to identify every transaction at an
institution that is potentially illegal or involves illegally obtained money, financial
Christie Sciacca
Associate Director
Division of Supervision
Federal Deposit Insurance Corporation
on
the Bank Secrecy Act and Bank Reporting Requirements
Joint Hearing before
the Financial Institutions and Consumer Credit Subcommittee
and
the General Oversight and Investigations Subcommittee
Committee on Banking and Financial Services
U.S. House of Representastives
2:00 p.m. April 20, 1999
2128 Rayburn House Office Building
Thank you, Chairwoman Roukema, Chairman King, Ranking Members Vento and
Sanders, and members of the Subcommittees. I appreciate the opportunity to testify on
behalf of the Federal Deposit Insurance Corporation on the Bank Secrecy Act and the
bank reporting requirements. The FDIC insures the nation’s 10,483 commercial banks
and savings institutions and is the primary federal supervisor of 5,853 state-chartered
banks that are not members of the Federal Reserve System. My statement first
provides some background on the Bank Secrecy Act itself, and the FDIC’s role in its
enforcement. Next, I will address the question of reporting by the banking industry.
The FDIC is well aware of the sometimes competing public policy issues raised
between financial privacy and combating financial crimes by statutory requirements that
the banking system report suspicious activity. Our recent experience with the "Know
Your Customer" proposal was strong evidence that the American public values its
financial privacy. The public is rightfully skeptical of the government employing efforts to
attack the problem of illegal financial activity through rules that may infringe upon the
privacy of all individuals. We confirmed through the "Know Your Customer" rulemaking
process that the public's relationship with financial institutions is based on trust, and the
government must be cautious about adopting rules that might upset that trust.
The integrity of the nation's banking system is also rooted in confidence. Confidence
between a financial institution and its customers is what enables banks and other
financial institutions to attract and retain legitimate funds from legitimate customers.
Illegal activities, such as money laundering, fraud, and other transactions designed to
assist criminals in illegal ventures pose a serious threat to the integrity of financial
institutions and, therefore, the public's confidence in the banking system. Maintaining
confidence in the nation’s banking system is the mission of the FDIC. Highly publicized
cases involving money laundering demonstrate the importance of federal supervision
and bank vigilance in this area. While it is impossible to identify every transaction at an
institution that is potentially illegal or involves illegally obtained money, financial
institutions must take reasonable measures to identify such transactions in order to
ensure their own safe and sound operations.
In October 1970, Congress enacted the statute commonly known as the Bank Secrecy
Act, or BSA. The BSA authorized the Secretary of the Treasury to require banks to
report cash transactions over $10,000 to the Department of the Treasury. In addition,
the BSA requires financial institutions to keep records that are determined to have a
high degree of usefulness in criminal, tax, and regulatory matters, and to implement
programs and compliance procedures to counter money laundering. Vigorous
enforcement of the BSA requirements beginning in the early 1980s, coupled with the
criminalization of money laundering by the Money Laundering Control Act of 1986, have
resulted in the filing of a large number of currency transaction reports, or CTRs. In 1992,
the Annunzio-Wylie Money Laundering Act broadened the reporting requirements by
authorizing the Secretary of the Treasury to require any financial institution, and its
officers, directors, employees and agents, to report any suspicious transaction relevant
to a possible violation of law or regulation. As a result of the legislation, the Treasury
Department issued regulations requiring financial institutions to file Suspicious Activity
Reports, or SARs. Among other things, the regulations eliminated the existing
requirement to file CTRs alleging suspicious activity. One purpose of the change was to
draw a distinction between routine large cash transactions and those that are
considered suspicious. This increased the amount of useful information available to
investigators in a reasonable period of time and effectively separated the reporting of
apparent illegal activity from that associated with the normal conduct of a commercial
business enterprise.
Pursuant to authority in the Federal Deposit Insurance Act and the BSA as amended by
the Annunzio-Wyle Money Laundering Act, the FDIC, along with the other federal
financial institution regulatory agencies, adopted regulations requiring banks and
savings institutions to establish and maintain procedures to monitor their compliance
with the BSA. Institutions are required to establish a compliance program that will
provide for, at a minimum a system of internal controls to assure ongoing compliance,
independent testing for compliance, the designation of an individual to be responsible
for coordinating and monitoring day-to-day compliance, and training for appropriate
personnel. Failure to comply with the regulations may result in a supervisory action
against the institution.
Interagency examination procedures were developed for examiners to determine bank
compliance. At each safety and soundness examination, FDIC examiners review a
bank’s BSA program and compliance procedures. Based on our experience with state-
chartered non member banks, compliance with the BSA has substantially improved in
the last ten years. Although some isolated violations have been detected, most appear
to be technical in nature. Many of these violations appear to result from a
misunderstanding of the CTR reporting exemption rules. Recently introduced
amendments to these rules further simplify the exemption process for the banks and
should eliminate a number of the technical violations of the BSA that are currently noted
by examiners.
ensure their own safe and sound operations.
In October 1970, Congress enacted the statute commonly known as the Bank Secrecy
Act, or BSA. The BSA authorized the Secretary of the Treasury to require banks to
report cash transactions over $10,000 to the Department of the Treasury. In addition,
the BSA requires financial institutions to keep records that are determined to have a
high degree of usefulness in criminal, tax, and regulatory matters, and to implement
programs and compliance procedures to counter money laundering. Vigorous
enforcement of the BSA requirements beginning in the early 1980s, coupled with the
criminalization of money laundering by the Money Laundering Control Act of 1986, have
resulted in the filing of a large number of currency transaction reports, or CTRs. In 1992,
the Annunzio-Wylie Money Laundering Act broadened the reporting requirements by
authorizing the Secretary of the Treasury to require any financial institution, and its
officers, directors, employees and agents, to report any suspicious transaction relevant
to a possible violation of law or regulation. As a result of the legislation, the Treasury
Department issued regulations requiring financial institutions to file Suspicious Activity
Reports, or SARs. Among other things, the regulations eliminated the existing
requirement to file CTRs alleging suspicious activity. One purpose of the change was to
draw a distinction between routine large cash transactions and those that are
considered suspicious. This increased the amount of useful information available to
investigators in a reasonable period of time and effectively separated the reporting of
apparent illegal activity from that associated with the normal conduct of a commercial
business enterprise.
Pursuant to authority in the Federal Deposit Insurance Act and the BSA as amended by
the Annunzio-Wyle Money Laundering Act, the FDIC, along with the other federal
financial institution regulatory agencies, adopted regulations requiring banks and
savings institutions to establish and maintain procedures to monitor their compliance
with the BSA. Institutions are required to establish a compliance program that will
provide for, at a minimum a system of internal controls to assure ongoing compliance,
independent testing for compliance, the designation of an individual to be responsible
for coordinating and monitoring day-to-day compliance, and training for appropriate
personnel. Failure to comply with the regulations may result in a supervisory action
against the institution.
Interagency examination procedures were developed for examiners to determine bank
compliance. At each safety and soundness examination, FDIC examiners review a
bank’s BSA program and compliance procedures. Based on our experience with state-
chartered non member banks, compliance with the BSA has substantially improved in
the last ten years. Although some isolated violations have been detected, most appear
to be technical in nature. Many of these violations appear to result from a
misunderstanding of the CTR reporting exemption rules. Recently introduced
amendments to these rules further simplify the exemption process for the banks and
should eliminate a number of the technical violations of the BSA that are currently noted
by examiners.