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compliance with the Fair Credit Billing Act, the Fair Debt Collection Act, and the Community Reinvestment Act. In fact, in addition to the basic legislation establishing the Board and its responsibilities, at least 15 statutes give examination and/or enforcement responsibilities to the Board.

The Bank Secrecy Act

The Bank Secrecy Act (BSA), which is designed to detect and deter activities of money launderers serving white collar and organized crime, is addressed in Board examinations. The Treasury Department has primary responsibility for enforcement of the Act, but its regulations, called the Financial Recordkeeping and Reporting Regulations (31 C.F.R. Part 103), delegate to the Board and other Federal financial regulatory agencies the responsibility for assuring compliance by the institutions they regulate. Thus, Treasury has delegated to the Bank Board responsibility for assuring compliance by institutions whose accounts are FSLIC-Insured. We have carried out this responsibility in part by having our examiners include in their regular examinations a review of institutions' compliance with the Bank Secrecy Act.

The Board's Bank Secrecy Act examination procedures were developed in conjunction with the Office of Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corporation and in consultation with the Treasury Department and the Government Accounting Office. These Examination Objectives and procedures (EOP) are designed to test institutions' compliance with the BSA regulations and are divided into minimum scope and expanded scope procedures. In order to focus our limited examination resources on the most urgent, targeted areas, the EOP's mandatory usage was suspended in 1982, but the EOP, Examiner Worksheets, and Bank Secrecy Act check list remained the principal guidance to field examiners with regard to full scale compliance examinations and the Bank Secrecy Act, and examiners continued to be responsible for meeting examination objectives. Whenever necessary,

examiners have the responsibility to apprise institution management, particularly of newly chartered or insured Institutions, of its responsibilities under the BSA regulations. The Board's Supervisory Agents at the twelve Federal Home Loan Banks have the responsibility to take appropriate supervisory action necessary to obtain institution compliance with these requirements.

Substantive violations that appear to warrant civil or criminal penalties are referred to the Treasury Department as soon as they are discovered by Bank System examiners. In addition, summary reports of all violations observed by our examiners are transmitted twice a year to the Treasury Department. Included in the Board's report to the Treasury is the identity of the institution where a violation occurred, a description of the violation and corrective action promised or already taken by the institution.

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The BSA statute and regulations authorize the Treasury Department to assess a savings Institution and any partner, director, officer, or employee thereof a civil penalty for any violation of the BSA. The statute and regulations also provide for imposition of a criminal penalty by the United States District Courts. OES may recommend to the Treasury Department imposition of civil penalties and may make referrals for possible criminal investigation regarding suspected BSA violations.

In 1985, 1,808 thrift institutions were examined. In 10 of those institutions, examiners found 46 violations of the Bank Secrecy Act. Forty of those violations concerned failure to file currency transaction reports; the remaining six concerned failure to maintain a list of exempt customers. In all cases, we required corrective action, such as directing that Currency Transaction reports be filed and obtaining assurances from management that the violations and the practices that led to them would be corrected. In one instance, we referred the matter to Treasury with the recommendation that a civil penalty be assessed and a criminal investigation be undertaken.

We hope that the small number of violations we detected in our examination process in 1985 reflects that most institutions we regulate are in compliance with the Bank Secrecy Act. Further, we have recently received the General Accounting Office's draft report of its audit of the way our examiners have carried out our Bank Secrecy Act examination procedures, and will be reviewing that report and its recommendations very carefully. Moreover, we have taken a number of actions to strengthen our examination and supervisory processes in general and with regard to the Bank Secrecy Act in particular, and we actively in the process of taking a number of other actions that we believe are needed. I would like to share those with you today.


The Bank Board recognized that our examination staff was too small to handle the increased demands imposed by a more complicated thrift environment under deregulation and by the need to review and enforce a multitude of statutory and regulatory requirements, including those of the Bank Secrecy Act. Therefore, the Bank Board, on July 6, 1985, transferred the Board's 747 examiners from the Federal civil service system to the employ of the 12 District Banks. At the same time, the Bank Board delegated responsibility for conducting examinations to the District Banks, under policies and procedures established by the Board.

With this reorganization, the examiners and the District Banks' Supervisory Agents became part of the same organizational structure, providing closer coordination and faster response to early warning signals of an institution's financial problems.


Removing the examiners from the civil service system permitted hiring more examiners, raising examiners' salaries, and increasing their benefits. Ву making compensation competitive, the Board took an important step to reduce the rapid turnover among examiners, and thus ensure that the Bank System would have more and better qualified examiners to meet the increased demands. By December 31, 1985, the Federal Home Loan Banks had increased their examination staffs to 1,003, a more than one-third increase over the July 6, 1985, figure.

Subsequent to the field reorganization, the Federal Home Loan Banks, at the Chairman's direction, have also increased the size of their supervisory staffs and increased the number of other professional staff members who assist in carrying out the authorities the Board has delegated to the Banks. The result is that the total professional staff in the Banks has increased from 1,086 in July 1985 to 1,487 at the end of March 1986. Moreover, the Chairman's goal is for this figure to reach 1,688 by June 30 1986, which will be a total growth of more than 50 percent in one year.


Strengthened Supervision

Substantial and material violations of law require immediate and firm supervisory action. To ensure that violations are corrected promptly, Chairman Gray has consistently directed Bank System staff to take aggressive supervisory action. For example, on August 9, 1985, the Chairman issued a memorandum directing inter alia that supervisory correspondence to depository institutions be firm and precise and that there be no hesitancy to recommend formal enforcement actions where violations unsound practices cannot be expeditiously resolved through informal supervisory efforts. on August 23, 1985, Chairman Gray issued a memorandum directing prompt and vigorous use of forma l enforcement tools for material violations and deficiencies, and requiring reporting to Washington whenever such enforcement is not immediately appropriate. On February 12, 1986, the Chairman issued a memorandum directing immediate reporting of significant problems detected during examinations via the use of interim examination reports.

These directives, while applying to violations of all the laws and regulations the Board must enforce, have special meaning for strengthening our Bank Secrecy Act enforcement program. They provide clear instructions to our Supervisory Agents in resolving Bank Secrecy Act violations found in examination reports, or discovered from other sources, and make it clear that the Supervisory Agents must take prompt, effective corrective action.


Examiner Training

In its effort to carry out the enforcement of the Bank Secrecy Act, the Bank Board has been especially concerned with proper training for the examination staff in detecting violations of the Act. All new examiners are required to attend the New Examiners Training School, which includes a section on the Bank Secrecy Act as part of its curriculum. Bank Secrecy Act training includes a video tape presentation which combines a video tape we prepared with video material we purchased. It is designed for both newly hired examiners and as a refresher course for all staff members involved in examination or supervision functions relating to the

In addition, as part of the training session, examiners are given a copy of the Interim Report to the President and the Attorney General entitled, "The Cash Connection: Organized Crime, Financial Institutions, and Money Laundering.'


Dissemination of Information to Insured Institutions

During 1985 and thus far in 1986, we have issued a number of notices providing full information concerning the Bank Secrecy Act to institutions in the Federal Home Loan Bank System.

For example:

o Bulletin PA-7a-3 described the responsibility of independent public

accountants under the Bank Secrecy Act.

o Memorandum o T 53-7 directed the management of each institution to

establish Bank Secrecy Act employee training programs, and to establish operating procedures and compliance guidelines' for all employees who

come into contact with currency transactions. o Memorandum AB-69 provided thrift institutions with an internal

Revenue Service news release on IRS' taking over responsibility for reviewing exempt ion lists and approving or denying individual requests for exemptions from the currency transaction reporting requirements of the Act.

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Memorandum T 53b distributed to our institutions the amended Bank Secrecy Act regulations in their entirety, summarized their key provisions, and consolidated several earlier memoranda.

In addition, the Board also participated in the planning and production of a seminar on the Bank Secrecy Act presented to the entire banking industry at sixty locations by the National Council of Savings Institutions and the American Bankers Association.


Improved Communications with Law Enforcement Agencies

The Federal Home Loan Bank Board has worked closely with the Department of Justice, as well as the Federal banking agencies, to design and put into use a revised criminal referral form (Form 366). The revised form Incorporates recommendations from the Department of Justice concerning specific information the Department needs to initiate and pursue criminal investigations. We have also developed a short version of the form to facilitate reporting less serious offenses, such as crimes that involve less than $10,000 and do not involve directors, officers, or other affiliated persons. In 1985, the Board's examiners filed 150 Forms 366 and insured institutions filed 652 forms. In the first three months of 1986, examiners filed 27 Forms 366 and the institutions themselves filed 911.

The revised Form 366 was developed jointly by members of the Attorney General's Bank Fraud Working Group, of which the Bank Board has been an active participant. The group continues to meet on a monthly basis to assure implementation of the use of the revised Form 366, and to promote further cooperation among the regulatory authorities and law enforcement agencies. As a result of the Working Group, the Bank Board and other participants have established local points of contact throughout the country so that the supervisory agency and the Justice Department can communicate quickly and directly whenever law enforcement concerns arise. In addition, the Bank Board is participating in the Justice Department's recently implemented tracking system for agency criminal referrals, and we, along with other agencies, are now providing specialized training on investigation of bank fraud that was previously available only to FBI agents.


As we look to the future, there are a number of possibilities being explored by the Bank Board to make our enforcement of the Bank Secrecy Act more efficient and effective.

One such possibility is the use of currency shipment reports that are made available by the Federal Reserve. Such reports have been of little use to our examiners, because, until recently, savings and loan associations were not permitted to use the currency services of the Federal Reserve Banks. Therefore, none of the institutions we examine and regulate were included in the reports. Now, the prohibition has been lifted, and some savings and loan associations are beginning to use the currency services of the Federal Reserve Banks. To make use of the currency shipment reports, as they pertain to institutions in the Federal Home Loan Bank System, we have incorporated in proposed new instructions for our examiners an instruction to review the reports.

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