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Report to the

Subcommittee on Financial Institutions

Supervision, Regulation, and Insurance
Committee on Banking, Finance, and Urban Affairs

United States House of Representatives

Bank Secrecy Act Enforcement Since January 1, 1985

Office of the Comptroller of the Currency

April 14, 1986

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The Office of the Comptroller of the Currency (OCC) has accomplished a great deal since January 1, 1985, in its efforts to improve national banks' compliance with the Bank Secrecy Act (BSA). Our efforts have proceeded along the lines set forth in our testimony before this Subcommittee on April 3, 1985. Specifically, as reported in our October 1985 six-month progress report and again in briefings for your staff in February of this year, we have improved training of our examiners, increased awareness and understanding of the Act's provisions in the national banking community, improved management control over our examination efforts, and worked to further effective enforcement by increasing coordination with Treasury, the other federal banking agencies, and the law enforcement community. The following progress report responds to specific questions posed in your March 27, 1986, letter of invitation.

Question 1.

The number of institutions examined by your agency since January 1. 1985. and the number and type of violations of the BSA found at these institutions, and actions taken by_your_agency on these violations.

During the period January 1, 1985, through December 31, 1985, OCC conducted approximately 4,150 examinations. These examinations varied in duration as well as scope. An examination may be conducted by one examiner for as little as a day or many examiners for several weeks. The scope of an examination may involve an analysis of a specific area of a bank's operation or a comprehensive analysis of the entire institution. Of the 4,150 examinations, 1,084 identified violations of the BSA. The most frequently cited violation relates to improper completion of Form 4789, Currency Transaction Report (CTR). Common errors include incomplete addresses, improper identity verification, incomplete/incorrect name and address of reporting financial institution, incorrect identification number of financial institution, and failure to sign the CTR. Late filing of CTRS is also a problem, though to a lesser degree. Another problem noted was the failure to file CTRS. A major problem involved the non-filing of CTRS on transactions with foreign banks. This problem relates to a 1980 change in the regulation which eliminated the exemption for transactions with foreign banks. Although we forwarded copies of the changed regulation to the national banks, it is apparent that many missed the change. Since early 1985, the banking community has become much more aware of this requirement, and we are now seeing fewer of these violations.

Some problems in complying with the exemption list requirement in the regulation have also been noted. Examiners have found instances where ineligible customers are included on exemption lists, exemption lists fail to include the required information, or the dollar amount of the exemption is suspect.

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Banks have also been cited for recordkeeping violations. Foremost has been the failure to properly record a statement of purpose on loans in excess of $5,000 not secured by an interest in real property. The majority of the BSA violations appear to result from the weaknesses in banks' internal controls and policies. However, through the efforts of all parties, enhanced compliance efforts within banks are being noted. OCC submits all violations noted in examination reports to the Department of the Treasury on a quarterly basis. Where special attention is warranted, OCC makes a separate referral of the matter. More than 75 such referrals were made in 1985. These referrals had been made directly to Treasury's Office of the Assistant Secretary for Enforcement. In light of the recent delegation from the Secretary to the IRS, and in line with the suggestion of the new IRS/Financial Institutions Regulatory Working Group that was created in December of 1985, these separate referrals for consideration of criminal or civil penalties are now being sent directly to the IRS, Criminal Investigation Division (CID), with a copy provided to the Assistant Secretary for Enforcement. Once referrals have been made, our examiners and attorneys attempt to assist the agents of the IRS or other members of the law enforcement community as requested in their investigations. Administratively, where a bank's systems need improvement, we direct that corrective actions be taken. In certain instances, OCC has used its formal enforcement powers to require that these actions be taken.

Question 2.

Describe the training programs given to your examiners in BSA techniques and procedures. What improvements, if any, have been made

since January 1. 1985? OCC has enhanced the training of its examiners in the BSA. Through a variety of programs, instruction has been and continues to be provided to all levels of examining personnel.

Training Crew

Virtually every new examiner hired by the OCC is placed on a training crew for a period of at least six months. Crews consist of commissioned national bank examiners (leaders), seasoned associate examiners (assistants) and trainees. The program training manual specifically addresses BSA issues and was recently updated to improve the BSA segment. The training crews circulate to national banks and conducts examinations as a team. The training they receive is a combination of "classroom" sessions and on-the-job training. Part of the training agenda is to conduct BSA compliance examinations.

District Staff Training Conferences In 1985, District staff training conferences were held for District examining personnel in all occ Districts. Specialists from the Washington and District Offices conducted BSA training sessions at each.” The participants in these sessions generally were examiners with at least two years experience. Senior examiners and district management also participated in the sessions. The purpose of the sessions was to: heighten BSA awareness; increase expertise; provide examination guidance and guidance for referring cases of noncompliance to Treasury/IRS; and address miscellaneous concerns and problems encountered in BSA. Associate National Bank Examiner School for Advanced Study This school is for examiners preparing for commission as a national bank/trust examiner. A special BSA section was written for the school and is part of the curriculum for 1986. The objectives of the course are twofold: to impart knowledge of BSA requirements and to ensure that attendees are knowledgeable of OCC's BSA examination procedures.

Field Manager Meetings

These meetings are attended by all supervising examiners, District management and certain District Office staff. A variety of issues are covered. In many instances, District policies and procedures are established for those items requiring such action. BSA was a significant topic in each District during 1985.

White-Collar Crime School

This school trains examiners in the detection of white-collar crime and how to work with law enforcement matters. Given four times a year, it is attended by senior commissioned examiners. A special segment has been developed on BSA and money laundering issues. Likewise, throughout the course the importance of working cooperatively with the law enforcement community is stressed. FBI/Financial Institutions Regulatory In-Service Program Pursuant to the recommendations of the Department of Justice/Financial Institutions Regulatory working Group Agreement of April 2, 1985, a new training course jointly sponsored by the FBI and the bank regulatory agencies to be attended by senior FBI agents and senior examiners from each of the agencies was developed. The purpose of the course is to cross-train examiners from all of the federal financial institutions regulatory agencies and FBI agents in investigations and prosecutions. Since its inception, this course has been given a number of times in various locations throughout the country.

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OCC's Training and Development Division has established a computer-based technical progress evaluation for newly promoted examiners. This system has been implemented in each of the Districts. The purpose of the evaluation is to identify areas where an examiner requires additional training. BSA issues are a part of this program. The Uniform Commission Examination is given to all examiners progressing from the rank of associate national bank examiner to national bank examiner. This is a test of an individual's overall knowledge of laws, policies, and procedures. The incidence of BSA related material has been increased.

OCC is committed to developing and maintaining BSA knowledge of its employees at a high level. Their awareness and knowledge are further increased through our efforts to alert the banking industry and the public to BSA concerns.

Question 3.

Describe efforts your agency has undertaken to improve communication with law enforcement agencies. What legal or policy impediments still exist that interfere with an open communication between the agency and law enforcement officials. Are they justified, in your opinion?

In late 1984, the OCC was instrumental in establishing the Justice! Financial Institutions Regulatory Working Group, consisting of senior officials from the OCC, U.S. Department of Justice Criminal Division, the FBI, the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC) and the Federal Home Loan Bank Board (FHLBB). The purpose of this group was to address common problems and to promote cooperation toward the goal of improving the Federal Government's response to white-collar crime in the Nation's federally regulated financial institutions. Through a series of meetings conducted first on a weekly basis and subsequently on a monthly basis, the working group made significant progress in a number of areas. Chief among these are the design and implementation of a standard criminal referral form for use by each of the supervisory agencies and institutions. The purpose of the form is to create a consistent manner of reporting suspected criminal offenses and to provide the Department of Justice with a better means to track criminal referrals. Each agency also worked to adopt new regulations, guidelines or policies similar to OCC's to require all regulated institutions to report potential criminal offenses to law enforcement.

Each agency and the Department of Justice also established a network of contacts on a national and local level who could be contacted for purposes of coordinating referrals and prosecutions. This list has been widely distributed and will be periodically updated.

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