A Treasury official attacked the recently withdrawn know-your-customer proposal Tuesday but launched a vigorous defense of the Bank Secrecy Act.
James E. Johnson, Treasury under secretary for enforcement, told House Banking's financial institutions subcommittee that Bank Secrecy Act rules strike "the right balance between the needs of law enforcement and the interests of the banking public in privacy."
"The recently withdrawn know-your-customer rules were very different ... and far more intrusive," he said.
Mr. Johnson cited suspicious-activity reports as an example of a reasonable law enforcement tool. Such reports pose minimal burdens on financial institutions and are only filed when illegal activity by a customer or employee is suspected, he said.
Moreover, he and other government witnesses testified, suspicious- activity reports have been instrumental in the fight against illegal drug trafficking in the United States.
For example, said Mary Lee Warren, deputy assistant attorney general in the Justice Department's criminal division, a group of federal and local law enforcement officials in San Diego meet regularly to review the estimated 100 suspicious-activity reports filed monthly in Southern California. A 1998 investigation resulting from one of those reports led to the indictment of two men on a charge of laundering $135,000 in drug cash.
Bonni G. Tischler, assistant commissioner for investigations at the Customs Service, said government investigators used about 80 suspicious- activity reports to help nail suspects and assets linked to Operation Casablanca, a recent high-profile money-laundering case.
American Bankers Association senior counsel John J. Byrne agreed the reports are worthwhile, but said lawmakers should do more to insure that banks filing them are protected from civil liability.
He also drew a distinction between suspicious-activity reports and currency transaction reports, which must be filed for all cash transactions involving more than $10,000. Mr. Byrne said that currency transaction reports are more burdensome than useful, and that Congress should consider increasing the $10,000 threshold, which was set in 1972.
If adjusted for inflation, the original threshold would be nearly $40,000 today, he said.
Tuesday's hearing was the second in a series on money laundering. The next one, not yet scheduled, will examine offshore banking.