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On April 16, 1986, the Subcommittee will begin hearings
on proposals to protect against financial institutions
becoming havens for tax evaders, drug traffickers and
launderers of funds derived from criminal activity. It is
requested that Francis A. Keating II, Assistant Secretary
(Enforcement and Operations) appear before the Subcommittee
on Thursday, April 17, 1986, at 10:00 a.m. in Room 2128,
Rayburn House Office Building, to discuss these matters which
are more fully explained in this letter of invitation.

As you know, last year the Subcommittee on Financial
Institutions Supervision, Regulation and Insurance held three
days of hearings on this nation's financial institutions'
compliance with the currency and foreign transactions
reporting requirements under the Bank Secrecy Act (BSA) and
the administrative efforts of the banking regulators to
fulfill their responsibilities to enforce such compliance. А
major focus of this Subcommittee's attention centered on the
Bank of Boston's failure to comply with certain provisions of
the BSA which resulted in that institution's plea of guilty
to knowingly and willfully violating the law.

At that time, I stated that the Subcommittee was
determined to find out how widespread the noncompliance had
become and to find out why. Subsequent to the Bank of Boston
hearing, a number of financial institutions, voluntarily
and some not -- came forward "confessing" that they too had
violated the law. Since then, information received by the
Subcommittee indicates that as of February 14, 1986, 13 banks
or holding companies have entered into civil settlements with
the Treasury Department and have paid over $10 million in
fines. This seems to confirm the Subcommittee's early

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suspicions that BSA violations are widespread and extremely serious.

In that regard, the Subcommittee will continue to examine efforts undertaken by the banking regulators to improve their enforcement procedures of the BSA in the series of hearings beginning on April 16. In accordance with my request of January 14, 1986, the Subcommittee appreciates the written report submitted by Assistant Secretary Keating concerning the activities of the office of Enforcement and Operations to promote the compliance of financial institutions with the provisions of the Bank Secrecy Act. In his testimony on April 17, the Committee would appreciate an update of that report and any additional information which your office deems relevant to the subject matter before us.

It has become apparent that limiting the Subcommittee's review to BSA provisions, as important as that is, does not fully address the grievous problems that currently exist with respect to criminal elements in our society using financial institutions for tax evasion, drug trafficking, money laundering, and other criminal activity. Therefore, the Subcommittee intends to revisit other banking statutes and to review the number of bills that have been referred to the Banking Committee, which bills are generally referred to as "money laundering" legislation.

There are four Titles of the Financial Institutions Regulatory and Interest Rate Control Act of 1978 (FIRICA), also known as the Safe Banking Act of 1978, which the Subcommittee intends to review and which we feel may lend support to our efforts to fight those criminals who use our financial institutions for their illegal gains. They are Titles I, VI, VII and XI (Supervisory Authority Over Depository Institutions; Change in Bank Control Act; Change in Savings and Loan Control Act; and the Right to Financial Privacy Act, respectively).

Your response to the following questions and any other comments you feel are pertinent to the issues raised would be appreciated.

Title I (Supervisory Authority Over Depository Institutions)

In 1978 Congress gave banking regulators authority to impose civil money penalties for violations of laws, rules and orders. The new authority gave the agencies the flexibility they needed to impose penalties on individuals or institutions for violations which did not rise to a criminal violation.

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A.

Specifically, is there any merit to considering giving the regulators authority to impose civil money penalties upon financial institutions for their failure to report under BSA, or should the Treasury continue to have the authority to impose such penalties?

B.

To what extent could these powers be improved upon to lend support in appropriate cases to criminal law enforcement investigations?

C.

To what extent, if any, might the supervisory
powers over depository institutions under existing
law be extended to uncover criminal activities such
as tax evasion, drug trafficking or money
laundering, which could affect the safety and
soundness of a financial institution?

Title VI and VII (Change in Bank Control Act and Change in Savings and Loan Control Act

The Safe Banking Act of 1978 corrected, to a great extent, one of the most glaring gaps in the regulatory structure of our depository institutions, i.e., the lack of control over transfers of ownership of banks and savings and loans between individuals or groups of individuals. However, in light of certain ongoing criminal activities, the Change in Bank Control Act may need to be amended. A. What modifications, if any, do you feel are

necessary to deny acquisitions of control
unqualified or dishonest individuals?

to

B.

C.

Should more specific standards regarding what
constitutes sufficient integrity or criteria used
to determine what would not be in the best interest
of the depositors or the public, be included by
statute or imposed by regulation?
Should the agency be given more time in which to
disapprove an application for change of control
(currently within 60 days, not to exceed 90 under
certain circumstances)?
What is the standard used for the term "willful"
under the Act? Does this definition cr
problems for the agency? If so, what are they?

D.

te

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E.

What problems, if any, is the agency incurring in obtaining sufficient relevant information of foreign nationals seeking to acquire U.S. depository institutions?

Title XI (Right to Financial Privacy Act)

As you know, the Right to Financial Privacy Act gives individuals notice of, and a chance to challenge, federal government agency requests for their bank records. In 1978 this Committee sought to strike a balance between a customer's right of privacy and the need of law enforcement agencies to obtain financial records pursuant to legitimate investigations. Today, our goals are not any different from what they were in 1978. However, some law enforcement officials have suggested that the 1978 Act is at times an impediment to legitimate law enforcement investigations. Indeed, the Administration's bill, H.R. 2785, would deny the customer's financial privacy protection under the Act under certain circumstances. The Subcommittee would welcome your comments on the experiences you have had with right to financial privacy concerns, and whether in your opinion amendments to the Right to Financial Privacy Act are warranted.

"Money Laundering Bills"

As noted above, several bills dealing with money laundering, but having impact on various banking and other statutory law have been referred to the Banking Committee. The Subcommittee intends to review these proposals and would appreciate your comments and analyses of them. The bills we intend to review are: H.R. 2785 (Administration's bill)., H.R. 1367 (McCollum), H.R. 1945 (Hubbard), H.R. 1474 (Hughes), H.R. 3892 (Wortley), and H.R. 4280 (Torres).

Please provide the Subcommittee with 175 copies of Assistant Secretary Keating's testimony, and 175 additional copies of the BSA report, no later than April 16, 1986. Please have your staff contact Earl F. Rieger, Counsel of the Full Committee staff, if there are any questions.

Singerely,

Fefnand J. St Germain
Ch Sirman

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Dear Mr. Chairman:

On April 16, 1986, the Subcommittee on Financial
Institutions Supervision, Regulation and Insurance will begin
hearings on proposals to protect against financial
institutions becoming havens for tax evaders, drug
traffickers and launderers of funds derived from criminal
activity. It is requested that you appear before the
Subcommittee on Thursday, April 17, 1986, at 10:00 a.m. in
Room 2128, Rayburn House office Building, to discuss these
matters which are more fully explained in this letter of
invitation.

For your information, last year the Subcommittee held
three days of hearings on this nation's financial
institutions' compliance with the currency and foreign
transactions reporting requirements under the Bank Secrecy
Act (BSA) and the administrative efforts of the banking
regulators to fulfill their responsibilities to enforce such
compliance. A major focus of this Subcommittee's attention
centered on the Bank of Boston's failure to comply with
certain provisions of the BSA which resulted in that
institution's plea of guilty to knowingly and willfully
violating the law.

At that time, I stated that the Subcommittee was
determined to find out how widespread the noncompliance had
become and to find out why. Subsequent to the Bank of Boston
hearing, a number of financial institutions, voluntarily
and some not -- came forward "confessing" that they too had
violated the law. Since then, information received by the
Subcommittee indicates that as of February 14, 1986, 13 banks
or holding companies have entered into civil settlements with
the Treasury Department and have paid over $10 million in
fines. This seems to confirm the Subcommittee's early

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