Bank Secrecy Act Reporting Requirements Have Not Yet Met Expectations, Suggesting Need for Amendment

--the reports value to criminal, tax, and regulatory investigations; and

--recommendations for legislative or program changes.

An assessment such as this could demonstrate whether the act is cost-beneficial and could highlight changes needed to make the act's requirements more effective.

In the interim, to more aggressively and effectively implement the reporting requirements of the Bank Secrecy Act, GAO recommends that the Secretary:

--Allocate, within Treasury, the staff necessary to effectively implement, monitor, and evaluate the act's reporting requirements; and assure that Customs' commitments to increase staff in its Reports Analysis Branch are fulfilled.

--Revise the Department's Bank Secrecy Act data dissemination guidelines to provide (1) law enforcement investigators easier access to Bank Secrecy Act report data and (2) regulatory examiners data to verify financial institutions report filings.

--Work with the financial institution regulatory agencies in (1) developing a workable compliance enforcement policy specifying penalties to be applied for noncompliance; (2) establishing effective compliance monitoring procedures that provide for each regulatory agency to extensively test some portion, perhaps as much as 10 percent, depending on resource availability, of the institutions examined each year; and (3) designating a single supervisory examiner in each district or region to review Bank Secrecy Act examinations.

--Develop, in cooperation with Customs Reports Analysis Branch and the financial institution regulatory agencies, the capability to identify financial institutions which may not be complying, so that the regulatory agencies can most effectively focus their limited examination resources.

--On a test basis, obtain and distribute the names of retail businesses exempted from filing currency transaction reports to determine if such data is useful to law enforcement agencies.

--Establish a system to obtain the data necessary to make a comprehensive assessment of the costs and benefits of the act's reporting requirements. (See p. 57.)

AGENCY COMMENTS AND GAO'S EVALUATION

Treasury and the responsible regulatory and law enforcement agencies agreed with GAO's conclusion that the effectiveness of the act has been hampered by many problems. They also generally agreed that, although recent actions by several agencies have been directed at correcting some of these problems, more needs to be done.

However, Treasury officials and officials of the bank regulatory agencies disagree with certain of GAO's conclusions and recommendations. Treasury officials disagreed with (1) GAO's conclusion that the act's reporting requirements have not demonstrated their usefulness and (2) GAO's recommendation that the Congress amend the act by requiring reauthorization. GAO recognizes and includes in this report examples of the Bank Secrecy Act reports usefulness, but GAO does not believe these are sufficient to demonstrate the reporting requirements' potential overall usefulness as envisioned by the Congress. Further, many of the cases Treasury refers to are recent and have yet to be successfully completed. It is in consideration of this uncertainty over usefulness and the uncertainty about the costs associated with implementing the act, after 10 years, that GAO recommends the Congress amend the act to require reauthorization of the reporting requirements. Recent actions indicate the reporting requirements' potential, but unless their overall usefulness can be demonstrated at an acceptable cost, the act's reporting requirements should not be continued. Officials of the bank regulatory agencies disagreed with GAO's recommendation for extensive examination, each year, of a randomly selected sample of banks. GAO does not argue that the

regulatory agencies' plan to geographically target potential noncomplying financial institutions is an unreasonable approach to compliance examination. However, GAO does not believe this is the most balanced approach to assessing compliance because criminal activity is a national problem that seldom limits itself to one or two geographical areas.

GAO believes the most effective and efficient approach to checking compliance would be one based on targeting financial institutions using data received by Customs' Reports Analysis Branch. However, that capability has not been developed. Until such capability exists, GAO believes a random selection of financial institutions nationwide would provide the best picture of financial institutions' compliance with the act's reporting requirements.

In their comments, several agencies referred to additional actions taken since the completion of GAO's review. These actions, as well as other points raised by the agencies, are discussed in appropriate places throughout the report and in greater detail at the close of chapters 2 and 3. The Justice Department's and Securities and Exchange Commission's comments were received too late to be evaluated and included in the text

of the report. However, their comments, along with the comments of all other agencies that responded, are included in their entirety in appendixes IV through XI.