Criminal enterprises generate enormous amounts of cash. To make them easier to conceal and transport, some criminal enterprises convert illicit cash proceeds into monetary instruments, such as traveler’s checks, money orders, or cashier’s checks. To combat this practice, Treasury, in implementing the requirements of BSA, requires financial institutions to report and maintain records of certain financial transactions. These reporting and recordkeeping requirements, which vary by the amount of the financial transaction, are intended to (1) assist law enforcement officials in criminal, tax, or regulatory investigations and proceedings and (2) help law enforcement officials identify suspicious and unusual financial transactions. To further assist law enforcement officials in their efforts to combat money laundering, financial institutions are urged by Treasury and federal financial industry regulators to develop an effective know-your-customer program. Know-your-customer programs are designed to encourage employees of financial institutions to become familiar with the banking practices of their customers so that they can recognize transactions that are outside the normal course of a customer’s business practices and report them as suspicious to the appropriate federal oversight agencies. In implementing BSA requirements, Treasury requires financial institutions to file a currency transaction report for each deposit, withdrawal, exchange of currency, or other payment or transfer by, through, or to financial institutions, that involves more than $10,000 in currency. This requirement includes cashier’s checks. Because concern existed that money launderers were making financial transactions in amounts of $10,000 or less to evade the BSA reporting requirements, Congress in 1988 amended the BSA to require financial institutions to capture, verify, and retain a record of the identity of the purchasers of cashier’s checks and certain other monetary instruments for currency of $3,000 or more. The Secretary of the Treasury also determined that it would be useful to criminal investigators to require banks to retain (1) either the original or a copy of certain checks, including cashier’s checks, exceeding $100 and (2) records prepared or received in the ordinary course of business that would be needed to reconstruct a customer’s deposit account and to trace through the bank’s processing system a check in excess of $100 deposited in an account. Treasury requires that these records be retained for 5 years and be made readily available to the Secretary of the Treasury upon request. In addition, after it had received inquiries from financial institutions about whether suspicious transactions should be reported and what information should be reported, the Department of the Treasury issued Administrative Ruling 88-1 on June 22, 1988. This ruling encouraged but did not require financial institutions to report transactions that might be “...relevant to a possible violation of the BSA or its regulations or indicative of money laundering or tax evasion” to the local office of the Internal Revenue Service’s (IRS) Criminal Investigation Division (CID). Also in 1988, the Comptroller of the Currency Regulation 12 C.F.R. section 21.11 and corresponding regulations issued by the other bank regulatory agencies required financial institutions to report suspected money laundering and/or BSA violations and provide a copy of these reports to the local office of IRS’ CID. A 1992 amendment to BSA prohibits financial institutions from notifying persons involved in suspicious transactions that the transaction had been reported to IRS. Table 1 summarizes the current recordkeeping and reporting requirements for cashier’s checks. In 1990, Treasury developed a regulation to implement the 1988 amendment to BSA that required financial institutions to capture, verify, and retain information on the identity of purchasers of cashier’s checks and other monetary instruments. After considering several alternative recordkeeping requirements, including a requirement that information be kept on copies of monetary instruments and be retrievable by copy, Treasury concluded that maintaining a log of the BSA-required information would be the most effective method of keeping the information. Imposing a specific requirement that financial institutions maintain the BSA-required information on copies of monetary instruments was viewed as too burdensome because, according to Treasury officials, it would require financial institutions to sift through thousands of documents located at various branches to comply with a Treasury request for purchaser information. Treasury also took into consideration that financial institutions keep different kinds of records for each type of monetary instrument and decided that a log would make the BSA information more easily accessible by both the financial institutions and the Treasury Department. Treasury’s August 1990 regulation requiring the log did not specify the form in which the log was to be maintained. In addition, the 1990 regulation allowed for but did not require that a separate log be maintained for each type of monetary instrument. Treasury anticipated that it would request copies of logs by date of issuance rather than by customer name, account number, or type of monetary instrument. Subsequent to the institution of the log requirement, Treasury found that the BSA information that was being logged on the sale or exchange of cashier’s checks for currency was seldom used by law enforcement officials and federal regulators to initiate or conduct money laundering investigations. Compliance with the log requirement was found to impose an expensive and time-consuming burden on the financial industry. As a result, in October 1994, Treasury rescinded the log requirement. Treasury now permits financial institutions to maintain the required BSA information in any format they choose, as long as the information can be readily retrieved at the request of the Secretary of the Treasury. Federal regulators, financial industry officials and advisory groups, and law enforcement officials with whom we spoke or who had expressed their views in published documents agreed that the rescinding of the log requirement that was associated with current BSA recordkeeping requirements and the renewal of emphasis on having financial institutions (1) develop effective know-your-customer programs and (2) report suspicious financial transactions, are sufficient requirements for financial institutions issuing cashier’s checks. In addition, they agreed that imposing additional recordkeeping requirements, such as one that would specifically require financial institutions to retrieve copies of cashier’s checks by customer name or account number, would not add to the effectiveness of the current BSA recordkeeping requirements. Federal regulators, financial industry officials and advisory groups, and law enforcement officials with whom we spoke or who had expressed their views in published documents supported Treasury’s decision to rescind the log requirement for cashier’s checks and other monetary instruments. Reasons cited included the time and effort it took to retrieve the required BSA information on specific purchasers, the limited usefulness of the data retrieved, and the expense associated with maintaining the data. In 1993, Treasury formed a money laundering task force to consider ways to reduce the regulatory burden of complying with BSA while enhancing the utility of the information collected. In 1994, the task force concluded that the BSA information that financial institutions were required to maintain in logs had been infrequently requested and used by law enforcement officials. In addition, the task force and representatives of the financial services industry found that compliance with the log requirement imposed an expensive and time-consuming burden on financial institutions when weighed against more immediate leads in the hands of law enforcement officials, such as reports of suspicious transactions that were being sent directly to IRS. Criminal investigators from IRS and the FBI said that, because of other leads and the ease of utilizing information obtained from direct reporting of suspicious criminal activities, including suspicious-transaction reports, the logged BSA data on the sale or exchange of monetary instruments were used infrequently. They said that the logged BSA information was used on a limited basis, primarily to build a stronger case against a suspect or for further investigation or research. Representatives of financial institutions said that they found the log requirement to be costly and burdensome. To avoid the requirement, some financial institutions prohibited the direct sale of monetary instruments for cash to both deposit and nondeposit customers. Under this policy, customers were required to deposit cash into an account from which a financial institution could then issue a withdrawal to pay for the monetary instrument. Many bankers had indicated their preference for policies prohibiting the sale of monetary instruments for cash because this lessened the possibility of errors and omissions on the logs and eliminated the additional paperwork created by the log requirement. The American Bankers Association estimated in October 1994 that the elimination of the log requirement could save the financial industry about $1 million a year in compliance costs and ease the administrative burden on financial institutions. Federal regulators, financial industry officials and advisory groups, and law enforcement officials with whom we spoke or who had expressed their views in published documents agreed that increased emphasis is currently being placed on developing effective know-your-customer programs and suspicious-transaction reporting, that banks are required to retain copies of certain monetary instruments, and that financial institutions are required to obtain purchaser identifying information. They further agreed that these requirements are sufficient for assisting law enforcement officials in their efforts to detect and further investigate the use of monetary instruments to launder money. Treasury consulted with a BSA advisory group composed of 30 representatives from the financial services industry, trades, businesses, and federal and state governments. Treasury concurred with the BSA advisory group’s conclusion that financial institutions’ resources could be more effectively used to assist law enforcement officials if more emphasis were placed on (1) developing effective know-your-customer programs and (2) reporting suspicious financial transactions to the appropriate regulatory agencies. The American Bankers Association also agreed with this conclusion. Treasury and federal financial regulators have increased their efforts to alert financial institutions to be more aware that the institutions may be misused by criminals who engage in financial transactions to conceal illegal proceeds and avoid federal currency transaction reporting requirements. Financial institutions are being encouraged to become more familiar with the banking practices of their customers—commonly referred to as the know-your-customer program—so that transactions that are outside the norm can be readily identified and reported to appropriate regulatory agencies as suspicious. Treasury expects to issue federal guidelines on developing know-your-customer programs and reporting suspicious transactions in 1995. In the absence of such guidelines, federal bank regulators and financial industry groups have for some time provided guidance to their members either in writing or through seminars that address the importance of know-your-customer programs and suspicious-transaction reporting.