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In addition, this agency is currently developing a number of issuances related to the Bank Secrecy Act. Specifically:
1. We are revising our Bank Secrecy Act examination procedures:
As part of a revision of our entire Examination Objectives and
utility for examiners.
which have recently been amended.
0 To reflect recent recommendations from the Department of the
Treasury and the Internal Revenue Service concerning the content of examination procedures.
2. We are writing Bank Secrecy Act supervisory procedures for the
Supervisory Agents in the Federal Home Loan Banks; these procedures will be part of a new Supervisory Objectives and Procedures Manual currently under development.
3. We are drafting, a reissuance of Bulletin PA-7a-3 with specific
guidance on audit work relative to detection and reporting of money laundering activities; the language of Bulletin PA 7a-3 originally issued was too broad to provide adequate guidance to
Independent public accountants. 4. We are also preparing several memoranda distributing recent issuances
from the Department of the Treasury. These include the recently revised Currency Transaction Report, joint Treasury/Internal Revenue Service (IRS) guidelines for reviewing Currency Transaction Reports, IRS guidelines for reviewing exemptions from the currency reporting requirements, Treasury's revised definition of willful Bank Secrecy Act violations, and responses by Treasury to financiar institutions
questions about the Bank Secrecy Act. Title I (Supervisory Authority Over Depository Institutions)
The Subcommittee has asked whether there is any merit to considering giving the regulators authority to impose civil money penalties upon financial institutions for failure to report under BSA, or whether the Treasury should continue to have the authority to impose such penalties.
As you undoubtedly know, the assessment process is a lengthy one, requiring a full Administrative Procedure Act hearing if the institution or individual does not consent to payment of a proposed penalty. Therefore, it is our view that where other authorities Treasury, Justice, IRS --already have primary responsibility for imposing penalties under the Bank Secrecy Act, it is not necessary or desirable to duplicate this effort and authority within the financial institutions regulatory agencies.
The Subcommittee also asked to what extent the powers granted by Title I of FIRICA could be improved to support in appropriate cases criminal law enforcement investigations and to what extent, if any, the supervisory powers over depository Institutions under existing law might 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.
Existing statutory authority to remove management officials is extremely exacting. In addition to proving a violation of law, rule, or regulation, or an unsafe or unsound practice, the agency must demonstrate, among other things, that the violation or unsound practice resulted in substantial financial loss to the institution or personal gain to the individual. Money laundering may be undertaken without loss of any kind to the financial institution involved, and cooperative bank officials rarely have been found to have profited personally from their involvement. If violations of BSA were added to the grounds for the institution of removal proceedings against institution officials and employees, a significant deterrent effect would surely result.
While the agencies have broad power to examine and investigate for civil purposes, it is the Justice Department and IRS that have criminal investigative authority in the identified areas. We recommend that any impediments to their conduct of such investigations be removed. We fully support the proposed amendments to the Right to Financial Privacy Act recommended by the Department of Justice to deal with one of these impediments.
TITLE XI (Right to Financial privacy Act)
The Subcommittee also asked our views of the Right to Financial Privacy Act (RFPA). In our view, this Act creates clear impediments to criminal law enforcement efforts. This is particularly troubling when one realizes what the RFPA does not cover, while it imposes itself on one of the most necessary and sensitive areas of criminal law enforcement efforts -- the referral process.
The RFPA exempts completely each of the Federal financial institutions regulatory agencies
carrying out examination and supervisory responsibilities within our respective regulated financial institutions. By an amendment in 1982, the five regulatory agencies also may exchange information among and between one another without violating the RFPA. And the Act has never applied to transfer of information by any of the regulatory agencies to state and local law enforcement authorities.
Moreover, when an agency has information from the accounts of protected customers under the RFPA, the Act permits it to freely transfer such information to the Justice Department or other appropriate Federal law enforcement authority without prior notice to or approval from the customer. What is required is notice to the affected customer, within ten days after the transfer, that such transfer of information has occurred. This has two clearly bad effects: a customer who is involved in the suspected crime may alter records, destroy evidence, or disappear in response to the notice, and the Innocent customer (such as a person who does not know that his savings accounts have been manipulated) is shocked by a nearly unintelligible notice (the exact language is mandated in the RFPA) that his records have been transferred to the Department of Justice.
The only alternative to this post-referral notice to customers is to make the referral in a very abbreviated fashion (without names or back-up documents) to avoid triggering the RFPA requirements. Justice must then issue a Grand Jury subpoena, which is exempt from the customer notice provisions of the RFPA, to obtain the detailed information it requires to properly investigate and prosecute. It is this circuitous and undesirable route that was adopted by the Attorney General's Bank Fraud Working Group with regard to Forms 366 because of the Justice Department's strong belief that customer notices counterproductive to sound investigative and prosecutorial procedures.
"Honey Laundering Bills"
The Administration's bill (H.R. 2785) contains what we believe are the necessary provisions, i.e., it would make money laundering a crime if done with Intent, knowingly, or with reckless disregard for the origin of the unlawful funds. Moreover, the amendment that this bill would make to the RFPA is clearly needed to allow the flow of information required to combat crime. The McCollum bill (H.R. 1367) is acceptable to
the Administration's bill. However, because it imposes a higher standard on bankers and others (who can be prosecuted if they "have knowledge or reason to know that they are involved in the conduct of money laundering activity), we anticipate that this bill might meet with great opposition from the banking industry, just as the Bank Bribery Act (18 U.S.C. 215) has, for subjecting 'ignorant but innocent“ bankers to prosecution. The McCollum bill contains an amendment to the RFPA that should adequately resolve the problems with that act which we discussed earlier.
Change in Savings and Loan Control Act
The Subcommittee has expressed interest in the Bank Board's recommendations concerning possible amendments to the Change in Control Act (Control Act), particularly with respect to the criteria used to review a notice filed under the Control Act and the time period for Bank Board review and processing of a notice. In addition, the Subcommittee has requested the Bank' Board's advice regarding problems 1t has encountered in enforcing violations of the Control Act and in eliciting information probative of a foreign national acquiror's qualifications to control an insured institution.
Acquisitions of "control" of insured institutions are governed either by the Control Act or by the Savings and Loan Holding Company Act (Holding Company Act). The Holding Company Act prohibits any "company," directly or indirectly or acting in concert with one or more other persons, through one or more subsidiaries, or one or more transactions, from acquiring control of an insured institution without the prior written approval of the Bank Board. The Control Act applies to acquisitions of control that are not subject to the Holding Company Act. It prohibits any "person,' acting directly or indirectly or through or in concert with one or more persons, from acquiring control of an insured institution through a purchase, assignment, transfer, pledge or other disposition of voting stock of an insured institution unless the Bank Board has been given sixty days' prior notice pursuant to a complete Control Act Notice, and within that time period has not objected to the acquisition or extended up to another thirty days the period for objection.
Due primarily to the volume and complexity of the information submitted in Control act notices by prospective acquirors, it has been the Bank Board's experience that most, if not all, of the sixty-day statutory period is required for the Board to complete its careful review and analysis of the notices. In many cases, the Board must extend the time period for up to an additional thirty days, as permitted under the Control Act. In order to provide the Bank Board with sufficient time to review and process Control Act notices, the Board encourages the Subcommittee to consider an amendment to the Control Act to extend from sixty to ninety days the period for objection to an acquisition and to retain the current thirty-day provision for extension of the period for objection. The proposed amendment would be consistent with the Holding Company Act, which requires the Bank Board to render its decision on an acquisition within ninety days after submission of a complete application.
Both statutes employ expansive definitions of control. In the Control Act, the term connotes the power, directly or indirectly, to direct the management or policies of an insured institution. The Holding Company Act provides that the term includes control in any manner of the election of the majority of the directors of an insured institution. Control may also be found under the Holding Company Act if the Bank Board determines that a person, directly or indirectly, exercises a controlling influence over the management or policies of an insured institution. Finally, under either statute, control is conclusively determined to exist upon the acquisition of the power to vote more than 25 percent of the voting shares or securities of an insured institution. Both statutes specifically authorize the Bank Board to issue rules and regulations to carry out their purposes and prevent evasions of them. However, the Board has introduced to the Senate Committee on Banking. Housing and Urban Affairs a proposal to amend the term "control' under the Control Act to clarify the Board's authority to define by regulations that aspect of the term that connotes the power, directly or indirectly, to direct the management or policies of an insured institution.
The substantive criteria set forth in the statute to be used in considering applications under the Holding Company Act are broad and general and focus on whether the financial and managerial resources and future prospects of the acquiring company and the institution to be acquired would cause the acquisition to be detrimental to the institution or to the insurance risk of the FSLIC. In certain acquisitions involving more than one insured institution or where the acquiring company is already a savings and loan holding company, certain anticompetitive factors also must be considered. The Holding Company Act specifically prohibits the Bank Board from approving acquisitions that would have monopolistic results. Nor may the Board approve a proposed acquisition that would substantially lessen competition unless the anticompetitive effects of the transaction are clearly outweighed by a greater service to the convenience and needs of the community. Beyond the foregoing standards, however, consideration of applications under the Holding Company Act involves a significant exercise of judgment and discretion by the Bank Board.
In contrast to the Holding Company Act's approval process, the Control Act review function performed by the Bank Board is expressed in the statute in terms of a disapproval or non-disapproval of a notice filed pursuant to that Act. The Control Act provides that a proposed acquisition may be disapproved by the Bank Board on the following grounds:
1. It would result in a monopoly or be in furtherance of any combination
or conspiracy to monopolize the savings and loan business in any part of the country:
2. In any section of the country it would substantially lessen
competition, tend to create a monopoly, or be in restraint of trade, and the anticompetitive effects are not clearly outweighed by any benefits in the public interest;
3. The financial condition of any acquiring person is such
might jeopardize the financial stability of the institution prejudice the interests of the depositors;
The competence, experience, or integrity of any acquiring person or any of the proposed management personnel indicates that it would not be in the interests of the depositors or the public to permit such person to control the institution; or
5. Any acquiring person neglects, fails, or refuses to furnish all the
Through its experience in administering the Holding Company Act and Control Act, the Bank Board has encountered a variety of situations which have proved to be indicative that a potential acquiror may not meet the statutory tests. In an effort to facilitate the review process, the Board's new Acquisition of Control rules set forth certain 'presumptive disqualifiers" types of legal proceedings or events, which, based on the Board's experience, are indicative that an acquiror may lack the qualifications to acquire control of an insured institution. These "presumptive disqualifiers" put potential acquirors on notice of the grounds upon which an application or notice may be disapproved unless adequately refuted by the acquiror.