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"Presumptive disqualifiers" are divided into two types: integrity-related factors and financial factors. In the former category, for example, a prospective acquiror would be presumptively disqualified from acquiring an insured institution if during the ten-year period immediately preceding filing of the application or notice, criminal, civil or administrative judgments, consents or orders, and any indictments, formal investigations, examinations, or civil or certain administrative proceedings that terminated in any agreements, undertakings, consents or orders, were issued against, entered into by, or involved the acquiror or affiliates of the acquiror by any federal or state court, any department, agency or commission of the U.S. Government, any state or municipality, any Federal Home Loan Bank, any self-regulatory trade or professional organization, or any foreign government or governmental entity involving (a) fraud, moral turpitude, dishonesty, breach of trust or fiduciary duties, organized crime or racketeering, or (b) violation of securities or commodities laws or regulations; depository institution laws or regulations; housing authority laws or regulations; or rules, regulations, codes of conduct or ethics or a self-regulatory trade or professional organization. addition, a prospective acquirer would be presumptively disqualified if the acquiror or affiliates of the acquiror had sought to acquire a bank or a thrift and been denied permission to do so; controlled or managed a financial institution that failed, or filed false statements with the Bank Board in connection with an application or notice. These presumptive disqualifiers shift the burden to the prospective acquiror to rebut the presumptive disqualification and provide a more manageable procedure for the Bank Board to apply in considering questionable applications.

In

The Subcommittee has expressed interest in the Bank Board's recommendations concerning possible modifications to the criteria used to review a notice filed under the Control Act, particularly those relating to an acquiror's qualifications to control an insured institution. In this regard, the Board encourages the Subcommittee to consider in its pursuit of possible legislation regarding thrift institutions an amendment to the Control Act to clarify the Board's authority to define further by regulation the terms "competence, experience and integrity." As discussed above, the Bank Board has set forth with specificity in its recently adopted Acquisition of Control rules conduct it believes probative of an acquiror's lack of qualifications to satisfy the statutory standards.

In addition, the Subcommittee has expressed interest in the Bank Board's procedures to elicit information which would raise significant concerns regarding a foreign national acquiror's qualifications to control an insured institution. In addition to the use of computerized background checks, liaison with other agencies to verify arrest records and other background information, and the use of targeted questions designed to elicit information concerning legal proceedings and other events which would raise substantial questions concerning an acquiror's qualifications to control an insured institution, the Board makes every feasible effort to contact the appropriate foreign law enforcement agency and, if applicable, foreign banking agency to verify a foreign national acquiror's arrest records and other background information. Although the Bank Board's experience in reviewing and processing Control Act notices and Holding Company Act applications from foreign nationals has been limited to date, it has revealed some reluctance on the part of foreign

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nationals to disclose information about their backgrounds and qualifications to control an insured institution but no lack of cooperation on the part of the foreign agencies to verify background information.

Finally, the Bank Board would like to take this opportunity to bring to the Subcommittee's attention a disparity between the Holding Company Act and Control Act with respect to penalties for violations of the statutes and the regulations thereunder. The Control Act only authorizes the Board to assess civil monetary penalties against any person who willfully violates the statutory provisions or regulations. Unlike the Control Act, the Holding Company Act provides for the imposition of criminal penalties against companies for willful violations and against individuals for willful violations or for aiding and abetting willful violations of the statutory provisions and regulations. In addition, the Holding Company Act authorizes the Bank Board to assess civil monetary penalties against any company that violates or any individual that aids and abets a violation of the statutory and regulatory provisions -- whether or not such violation is willful. The term "willfully" is not defined in either the Control Act or Holding Company Act, but the Board, consistent with judicial definitions of the term, generally has interpreted it as encompassing an intentional action by a person that results in a statutory or regulatory violation.

With respect to the Control Act, the Bank Board has found that the lack of a statutory definition for the term "willfully" and the absence of explicit statutory authority to assess civil monetary penalties for statutory and regulatory violations other than those committed willfully has in many cases impaired the Board's ability to enforce effectively the Control Act and the regulations thereunder. In order to eliminate uncertainty in this area and enhance the Bank Board's enforcement of the statutory and regulatory provisions, the Board requests that the Subcommittee consider amendments to the Control Act to clarify the Board's authority to define by regulation. In addition, the Bank Board recommends that the Subcommittee's consideration of amendments to Control Act in this regard include clarification that private rights of action exist under the Control Act and that the Board may seek equitable relief for statutory and regulatory violations, and a description of the procedures to be followed by the Board in assessing civil monetary penalties.

I hope that the comments I have provided the Subcommittee will be helpful as the Subcommittee considers possible changes to the Financial Institutions Regulatory and Interest Rate Control Act of 1978 and the "money laundering" bills that have been proposed.

STATEMENT ON

BANK SECRECY ACT ENFORCEMENT,
MONEY LAUNDERING AND CRIMINAL ACTIVITY
IN INSURED FINANCIAL INSTITUTIONS

PRESENTED TO

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION, REGULATION AND INSURANCE

COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS HOUSE OF REPRESENTATIVES

BY

JAMES R. DUDINE

CHIEF, SPECIAL ACTIVITIES SECTION
DIVISION OF BANK SUPERVISION
FEDERAL DEPOSIT INSURANCE CORPORATION

Room 2128, Rayburn House Office Building

April 17, 1986

9:30 a.m.

Mr. Chairman, I am pleased to be here this morning on behalf

of the Federal Deposit Insurance Corporation (FDIC) to report on the FDIC's enforcement of the Bank Secrecy Act and to discuss, from the FDIC's perspective, the steps we have taken and our thoughts on what still could be done to address the problems the criminal element poses to this country's financial institu

tions.

We have provided the Committee with a comprehensive report on our efforts to improve compliance with the Bank Secrecy Act. That report reveals we are finding more violations in the banks we examine. The trend in violations is up partly because of FDIC's strategy to focus examination resources on problem banks. In the past three years, problem banks and banks targeted specifically for potential Bank Secrecy Act problems made up a greater proportion of examinations. Such banks would be expected to

exhibit a higher incidence of violations than a cross-section of the banking population. The great majority of the violations on which the statistics in our report are based represent inadvertent failures to follow bank procedures and incomplete or late CTR filings rather than actual failures to file CTRS.

Nevertheless, we are not satisfied with the level of compliance by the banks we supervise and we are continually improving our enforcement efforts. Since this Committee held hearings last

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April, the following steps have been taken:

First, the interagency examination procedures have been revised
and are awaiting Treasury's approval. They have been improved
in the areas of international transactions and wire transfers
and now cover peripheral bank services such as trust departments
and dealer departments. Examiners will be required to follow

a stricter regimen, look closely at exemptions granted to customers,
and document their activities at various points during the examination.

The new

We have completely revised our educational program for examiners
who conduct Bank Secrecy Act compliance examinations.
program supplements our fundamental examiner training series
and on-the-job training. It is delivered at regular intervals
in Washington, and regional presentations have been added to
reach a larger number of examiners. The program includes infor-
mation on the latest money laundering methods and instruction
on recognizing possible money laundering schemes.

We are working more closely with Treasury and IRS to improve the flow of information and to assist each other in carrying out our responsibilities under the Bank Secrecy Act. The Working Group concept has proved to be successful in improving our response to bank fraud and insider crimes. We hope to make similar progress with this concept in the Bank Secrecy Act area.