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nals and money launderers. This dysfunctional impact appears to reach well beyond the legitimate privacy concerns that Congress intended to protect.

As we have pointed out before, the act, as interpreted by most interested parties, extends the customer-privacy protections to bank insiders who are often also customers of the bank. Insider abuse of federally insured financial institutions is unquestionably a major cause of bank failures and of losses to the FDIC's insurance fund. We believe that insiders, by virtue of their position in federally insured institutions, ought to be treated differently than a bank's "arms-length" customers.

The amendments to the Right to Financial Privacy Act contained in H.R. 2785 would correct this and other flaws, while preserving the privacy interests of law-abiding bank customers. Moreover, financial institutions would be freed from the restrictions and uncertainties now affecting their ability to make informative criminal referrals.

In conclusion, I am convinced that we are making progress in our efforts to deal with criminal conduct in the banking industry. The commitment by the Department of Justice evidenced in the signing of the interagency agreement and the efforts to date of the Bank Fraud Working Group are important examples of the type of progress that can be achieved by working together.

This working group approach should work equally well for the agencies charged with the responsibility to enforce the Bank Secre

cy Act.

Thank you.


[The prepared statement of Mr. Dudine on behalf of the Federal Deposit Insurance Corporation (FDIC] can be found in the appen

) Chairman ST GERMAIN. Thank you, Mr. Dudine. Now we will hear from, not a stranger to our subcommittee, Robert B. Serino, who is Deputy Chief Counsel for Operations, with the Office of the Comptroller of the Currency.

We will put your entire statement in the record. You may proceed.



Thank you for the opportunity to bring you up-to-date on the activities of the Office of the Comptroller of the Currency in the Bank Secrecy Act area, and to express our view on the legislative changes needed to facilitate our efforts and to assist the law enforcement community in its criminal enforcement efforts.

As supervisors of the national banking system, we share this subcommittee's concern that our Nation's financial institutions not be used wittingly or unwittingly to facilitate or conceal criminal activity. We recognize the importance of our role in assisting the law enforcement community and have worked to support their efforts.

While we believe we have made substantial progress in the past year, we recognize that much more needs to be done. The progress report which we provided to you earlier this week in the attachment to this testimony addressed questions you asked in your March 27, 1986 letter. I will not repeat what we have written, but would like to highlight for you certain points.

First, we have improved our management control over the agency's Bank Secrecy Act program. We have, for instance, established in the Chief National Bank Examiner's office a central clearinghouse for BSA operations. Our Enforcement and Compliance Division in the law department has been coordinating activities and giving legal guidance. In each of our districts, we have established focal points for bank secrecy activities. Bank secrecy specialists are in each of the districts, as well as our district counsel and our district attorneys, who are charged with additional responsibilities. These changes have ensured a continuing focus on BSA issues, a reliable flow of information on BSA matters, and a sound operating structure for BSA compliance activities.

Second, we have intensified significantly our BSA training of our examiners. During the past year alone, over half of our examiners received training in BSA matters. This training was put together by our BSA specialists and attorneys and was presented at various district staff conferences. It was also presented in our white collar crime school that we give four times a year for our examiners, and was given to our associate national bank examiner school for advanced studies.

Likewise, in the training area, we give significant amounts of onthe-job training. Through this method, BSA training has been given to many of our examiners.

Third, not only have we sought to train our examiners, but we have also taken great steps to increase the awareness with the industry. Attached to the material we submitted earlier, Mr. Chairman, were several bulletins that we have forwarded to the banking industry. We do that as a matter of course and we think it's very helpful.

We likewise have provided speakers to participate in meetings before banking and law enforcement community groups to discuss Bank Secrecy Act and other enforcement issues. We continue to provide materials to the industry on bank secrecy matters.

Fourth, we are a very active participant in various inter-agency task forces and working groups and have continued to assist the enforcement community whenever possible. We were, for instance, in late 1984, instrumental in establishing a working group consisting of senior officials from our office, the Department of Justice Criminal Division, the FBI, and each of the major financial institution regulatory agencies. The group's purpose was to improve the Federal Government's effectiveness in fighting crime in the financial institutions.

In my opinion, the group made significant progress during 1985 and continues to operate effectively. Chief among its achievements were a variety of improvements in communications between and among the financial institution regulatory agencies and the law enforcement community.

A standard criminal referral form was designed and implemented by each of the supervisory agencies and is being used by each of the supervisory agencies and by the financial institutions.

Agreement was also reached that each regulatory agency would issue or adopt regulations or guidelines similar to those that we already had outstanding which require banks to report any suspected criminal violation.

In addition, the group improved communications and established a network of individuals responsible for coordinating referrals and prosecutions.

Likewise, to accelerate the OCC's response to law enforcement inquiries, we have recently formally delegated additional authority to our district offices to respond and provide information directly to the law enforcement community.

We have also enhanced our enforcement and compliance information system to track criminal referrals and improve communications.

The working group also recommended and worked to develop a joint training course to cross-train FBI agents and bank examiners. A series of joint training sessions have been held, both at the FBI Academy at Quantico and at selected sites around the country. These training courses are an ongoing undertaking.

In addition to our work with the Department of Justice working group, OCC participated actively in efforts specifically focused on improving BSA enforcement. We worked with the Treasury Department and other financial institution regulatory agencies to revise the uniform BSA examination procedures.

We also vigorously support the work of the IRS financial institutions regulatory working group which was created in December 1985_after the IRS was delegated additional responsibilities under the Bank Secrecy Act. This group will play an important role in facilitating communications among the agencies and in providing a vehicle for resolving many of our problems.

Despite this progress, Mr. Chairman, we believe that we must continue to do more. To ensure that the progress of the last year is not lost, on-going training and industry awareness are critical. However, in light of the Deficit Reducation Act of 1985, although OCC remains committed to such efforts, we may not be able to maintain the same pace we did during 1985.

Resources have been severely strained and it has been necessary to make across-the-board reductions in training expenditures. Moreover, district training conferences and OCC attendance at public conferences and seminars, which have been valuable vehicles for sharing information on BSA matters and other important topics, have been cancelled or reduced.

In addition to ongoing training and education efforts, we believe that progress is essential in two critical areas if gains are to be made in the Federal Government's efforts to ensure compliance with the Bank Secrecy Act. These areas are, first, the increased coordination among agencies with BSA responsibility and, two, continued use of available data for targeting our limited resources.

Mr. Chairman, we have great faith in the benefits which can be derived from an interagency working group. The Justice Department working group has proven how effectively the bank regulators can work together with the law enforcement community. In my opinion, that working group accomplished tremendous things

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working together. The desire for all to work together going forward gives me great hope for the future in the criminal law area.

As an active participant in the IRS financial institution regulatory working group, we are looking forward to the same successes in the BSA area.

Improved communications and utilization of available BSA material and other financial data could, we believe, significantly increase the return on our resources. Clearly, neither the OCC, nor any other agency, has the resources necessary to find all compliance violations through the examination process. Instead, our examiners continually make judgments based on available information as to where problems are most likely to exist, targeting their effort in an attempt to identify and correct the most serious deficiencies.

We have had some successes in targeting BSA compliance efforts using computer analyses provided to us periodically by the Customs Service. We actively encourage further efforts through the IRS working group to increase the use of available data so that we can target institutions for intensive compliance reviews.

A great deal can and has been accomplished. We believe, nevertheless, that additional legislation is necessary to eliminate restraints on interagency cooperation and coordination, and to specifically address those who launder money.

We agree with the general concept and intent of the various money laundering bills that have been proposed. We support the administration's proposal. Among other things, these bills would specifically make it a substantive crime for anyone to knowingly use or allow a financial institution to be used to engage in financial transactions with criminally derived property.

We fully support the concept of such proposals. We believe, however, that care must be taken to ensure that the law does not proscribe inadvertent conduct or unwitting participants.

We likewise believe that the proposed modifications to the Right to Financial Privacy Act are necessary to enable individuals and institutions to make referrals of suspicious activities to the law enforcement community without inadvertently exposing themselves to potential liability for violations of the RFPA or other privacy acts, whether State or Federal.

The bill introduced by Representative Hughes, H.R. 1474, would make wire and other electronic transfers subject to being reported on a currency or monetary instrument report.

In light of the number of wire transfers that occur between institutions daily, we doubt this provision would be cost effective. Also, in light of the Treasury Department's new regulation, which enables them to require a specific financial institution to provide copies of all wire transfers for a particular period, we do not believe such a provision is necessary.

We believe changes are also needed in other laws which constitute constraints in our efforts to work with the law enforcement community. These barriers, which include the RFPA, certain State privacy acts, grand jury secrecy rules, and the procedures of various agencies, limit cooperation among the Federal supervisory and law enforcement officials.

While these statutes are designed to protect values we all support, they unduly restrain legitimate Government informationgathering and the free flow of information between and among the agencies.

We have found that the RFPA, in particular, has interfered with our criminal referrals and has in all likelihood degraded the ability of the recipient agency to decide which of those referrals should be pursued.

Similarly, the grand jury secrecy rule limits and prevents the law enforcement community from working closely with our office and sharing information that they obtained before Federal grand juries.

These limitations on the ability of the Federal agencies to cooperate were highlighted significantly in the agreement reached and signed by all the agencies on April 2, with a unanimous recommendation that legislative relief be swiftly obtained.

Law enforcement agencies and bank_regulatory agencies alone can only provide a part of the solution. The industry's

own commitment and efforts at self-policing are essential because the banks' own internal control processes are in fact the most effective mechanism for ensuring compliance.

We believe the industry has done much since January 1985 to address the Bank Secrecy Act problems. We encourage a continued effort on behalf of the industry.

With the changes we have urged and with an active interagency working group and a committed industry, we are confident that the substantial additional progress and efforts to prevent the Nation's financial institutions from wittingly or unwittingly being used to further criminal activities will be possible.

We fully support this effort.
Thank you, Mr. Chairman.

[The prepared statement of Mr. Serino on behalf of the Office of the Comptroller of the Currency [OCC] can be found in the appendix.]

Chairman ST GERMAIN. Mr. Serino, you do agree that the wire transfer problem is also an important and significant one, I'm sure, because we had testimony yesterday from the IRS on the Botero case down in Florida and on the Mankiewicz case, where they actually had a bank president, as well as some officers, involved in California.

In those two examples he gave us, he said they were the classics because they used the wire transfers to transfer the money to either Swiss banks or banks in the Grand Cayman of the Bahamas.

So we do have to be alert to the wire transfer problem, although I can appreciate the fact that it could be very burdensome.

Let me ask this question of you gentlemen, and then we will go to Mr. Keating.

Mr. SERINO. Do you want me to comment on the wire transfer issue?

Chairman ST GERMAIN. OK.

Mr. SERINO. The problem is burdensomeness. I think that the Treasury Department's regulations--which will allow them to go to a particular institution and tell the institution, for the next 2 weeks, to provide copies of all the wire transfers coming in-is an

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