The Treasury Department is considering creation of an office of financial investigation to attack crime in the banking industry, particularly money laundering by organized crime syndicates and drug traffickers.
Treasury Secretary James A. Baker III said yesterday he is "stepping up" the department's effort against money laundering, saying it was "a very active area and we are very active in it." Baker made his disclosures in testimony before the Senate Appropriations subcommittee for Treasury, Postal Service and general government.
Baker said that already the Treasury has issued regulations requiring gambling casinos to meet some of the same reporting requirements as banks in an attempt to sharpen detection of money laundering.
Treasury officials said they did not have details of the new enforcement effort, but that it would extend beyond the department's current role of monitoring bank reports on currency movements.
Most of the bank investigations are handled by other federal agencies, such as the Federal Deposit Insurance Corp. and the Federal Reserve Board, Treasury officials said. The Justice Department is involved when there is evidence of crime.
The idea for a separate department of financial investigation within Treasury arose after revelations earlier this year that the Bank of Boston failed to comply with the Bank Secrecy Act in connection with the transfer of $1.22 billion in cash between the United States and Europe during a four-year period, a Treasury official said.
Treasury officials have said compliance with the reporting requirements of the secrecy law has been spotty. After the Bank of Boston pleaded guilty to a reporting violation in February and was fined $500,000, a number of other major banks said they discovered that they had failed to report transactions covered by the law.
Since entering that guilty plea, the Bank of Boston said it discovered another $73 million in cash transactions involving Haiti that the bank also failed to report.
Further investigations and congressional testimony disclosed that the bank also failed to report other large transactions by exempting two New England real estate firms controlled by reported organized crime figures from filing forms when making large cash deposits.
For several years, the Treasury Department has required banks to report any cash transactions exceeding $10,000. Since May 7, casinos with sales exceeding $1 million a year have been subject to this regulation, Treasury officials said.
Because casinos handle large amounts of cash, federal investigators suspect they are being used to launder money, Treasury officials said.
Government regulators hoped the reporting requirements would make it more difficult for drug traffickers and others to convert undetected the cash they accumulate from the sale of narcotics into easily transferrable bank deposits. However, in the Bank of Boston case, bank employes did not realize that reports were required, the bank maintained.
Baker was pressed about stepping up enforcement of money laundering by senators who said they were concerned about illegally gained funds passing through banks and gambling casinos. Baker did not elaborate on how the new office would operate. But he said Treasury would not need congressional approval to set it up.
In other remarks, Baker said the Treasury is examining "the entire gray market," in which Americans purchase goods overseas and have them shipped home to avoid paying the full domestic retail price. "We are going to examine the issue" and offer recommendations to the president, Baker said.