The President's Commission on Organized Crime, saying that as much as $10 billion in narcotics profits is deposited in U.S. financial institutions annually, proposed legislation today that would let bankers police their customers.

"We think banks are in the best position to know their customers," said James Harmon, the commission executive director and chief counsel, in presenting a report on money laundering.

The report calls for the passage of a law titled the Financial Institution Protection Act. It would permit banks to turn over detailed information on suspect customers to law enforcement authorities without fear of civil action.

"Whether they know it or not, banks are part of the problem" of proliferating organized crime in the United States by providing criminals with ways of making their ill-gotten gains seem legitimate, Harmon said.

Under the current Right to Financial Privacy Act, banks are prevented from going to the law with anything but the most general information about a possible criminal customer.

Harmon said the new law would also override state statutes that in many cases were even stricter about the privacy of bank customers than were federal regulations.

Asked how the commission would prevent abuses of the new disclosure rules, he said, "Law enforcement doesn't have the time" to investigate any but the most suspect individuals.

The commission also suggested that money laundering be made a separate criminal offense, punishable by fines as high as $250,000 or twice the amount that was laundered and up to five years in prison for a first time offender. A second conviction could result in a $1 million fine and 10 years in prison.

Currently, U.S. banks must report transactions of $10,000 or more to the Internal Revenue Service. But wire transfers of money, bank checks and bank drafts are excluded from the reporting rule.

Last month, Congress increased the penalties for anyone taking $10,000 or more in cash out of the country and failing to file an IRS report. Nonreporting is now a felony punishable by five years in prison and a $250,000 fine.

Harmon said between $5 billion and $15 billion of profits made by the narcotics trade was put into the world financial system each year from the United States.