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to some of its authorities which would further enhance its civil enforcement authority. These modifications include an expansion of the categories of individuals covered by OCC's cease and desist authority; adoption of less rigid standards for use of temporary cease and desist orders and removal actions; and changes to the Change in Bank Control Act (CBCA).
Also, OCC continues to support revisions to the Right to Financial Privacy Act (RFPA) and the Grand Jury Secrecy Rules which would permit a freer exchange of information between Federal law enforcement authorities and the bank supervisory agencies. Moreover, OCC supports legislative proposals that would restore the absolute immunity that has traditionally permitted a Federal employee to rigorously enforce the law without the fear of having to defend a frivolous, harassing lawsuit.
To what extent, if any, might the supervisory powers over depository institutions under existing law 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?
As the regulatory agency responsible for the safety and soundness of national banks, OCC's primary responsibility is to ensure that banks operate in a safe and sound manner consistent with all applicable laws. Our supervisory process is geared to make such determinations. Since OCC examiners are not criminal investigators, the supervisory process is not specifically designed to ferret out evidence of criminal activity. Of course, whenever examiners uncover such evidence during the course of their examination of a bank's affairs, they clearly understand their responsibility to document and make appropriate criminal referrals to the law enforcement community. The OCC and the other bank regulatory agencies are constantly working on ways to improve the criminal referral process. In this regard, we believe that we need to continue to develop methods of effectively utilizing our resources through, among other things, targeting and randomly selecting specific institutions for more intensive examination in the BSA area. OCC believes that the best and most effective method of deterring criminal activity in banking institutions is to vigorously prosecute such activity when discovered. To this end, OCC has a long history of making its examiners and attorneys available to work with the law enforcement community for the purpose of resolving criminal investigations. Where deemed useful, OCC has made its examiners available to serve as agents of the grand jury to more directly assist prosecuting officials.
II. Titles VI (Change in Bank Control Act)
What modifications, if any, do you feel are necessary to deny acquisitions of control to unqualified or dishonest individuals?
We have supported for years the need for the Change in Bank Control Act (CBCA). We believe it is an effective means to deny ownership of financial institutions by disreputable individuals. We believe, however, that the CBCA could be improved to make it a more effective tool. We are considering specific modifications to the CBCA, which we would be happy to discuss with the Subcommittee at any time and to share suggested legislative language with you once it has received formal clearance.
Should more specific standards regarding what constitutes sufficient integrity or criteria be used to determine what would not be in the best interest of the depositors or the
public. be included by statute or imposed by regulation? The OCC has not defined by regulation the specific level of integrity of any proposed acquiring person or provided specific criteria to determine when it would be in the public interest that a person be denied bank control. To specify the conduct or other grounds which might provide the basis for disapproving proposed changes in bank control might unnecessarily limit our mandate to enforce the CBCA,by restricting those grounds upon which disapproval of notices of change in control may be based. We are aware, however, of the Federal Home Loan Bank Board's (FHLBB) new regulation which defines the factors they will consider in assessing the integrity and competence of those applying for approval under the Change in Savings and Loans Control Act (CSLCA). We will review the Board's experience with this approach and evaluate whether a similar regulation would be effective under the CBCA for national banks. While the OCC presently requests information in the change of control application concerning the identity, source and amount of funds that will be used for the acquisition, we recently amended the application to require disclosure of the identities of any undisclosed parties in interest. This information directly relates to the "integrity" and "public interest" determinations, and it is hoped it will permit the OCC to determine all real parties in interest to the proposed transaction. In order for the OCC to obtain additional information on which to base its decisions in CBCA cases, we have under consideration a proposed rule that would require public notice of CBCA applications and would solicit public comments on the applicants. The rule would increase the universe from which information is gathered, enabling the OCC to benefit from the increased amount of information available in its deliberations.
Should the agency be given more time in which to disapprove
Changes to the CBCA which would permit the appropriate Federal banking agency to extend the period in which it may issue a disapproval or a conditional approval of a change in bank control are being considered by OCC. Such an extension in time could aid the OCC in administering the CBCA. It also could increase the benefits to be derived from the additional information the OCC expects to receive as a result of the proposed rule which would permit public comments on CBCA applications.
What is the standard used for the term "willful" under the
While OCC does not believe that the willfulness standard in the CBCA civil money penalty provision has created problems for the agency to date, we nevertheless believe that consideration should be given to eliminating this standard from the statute. This change would make the standard consistent with the civil money penalty standards presently contained in 12 USC SS 93(b), 504(a), and 1818(i), and would help us deal more effectively with violations of the CBCA. Deletion of the "willfullness" standard need not pose any threat that innocent investors would be punished for their conduct. The Federal Financial Institutions Examination Council's civil money penalty guidelines, which are used by all of the banking agencies in determining whether to assess civil money penalties, have proven to ensure fair and consistent treatment. They could be readily applied in considering whether to assess penalties for violations of the CBCA. Moreover, when considering whether to assess civil money penalties, OCC also uses additional criteria which include considerations relating to willfulness, personal benefit, and knowledge.
What problems, if any, is the agency incurring in obtaining
To date, the OCC has not experienced any major, recurring problems in obtaining information on foreign nationals wishing to acquire national banks. On occasion, however, problems have developed which are unique to these types of filings. The most pronounced problem has been in obtaining the information within the timeframes stated in the CBCA.
Quite often information is requested through our embassies or through foreign central banks. This process is a time-consuming one. Also, in cases involving foreign nationals, requests are made to a greater number of agencies, and since the agencies are not required to respond to us, often their responses are not timely. The information obtained from central bank and other third parties is often a major factor in the decision but, because it is not information requested of the acquirer, we do not believe the CBCA allows the agency sufficient authority to extend the timeframes in order to obtain the information. As stated previously, an expanded set of timeframes could help solve this problem. Another problem, which is encountered rarely but is very significant, is the inability to use information provided to us by other u. S. Government agencies, foreign regulators, or other parties because of limitations placed on the use of this information by these parties. On occasion, information reflecting negatively on an acquirer's character is obtained but is furnished under a requirement that it cannot be disclosed. Because the reasons for any disapproval must be given to the acquiring party, this information may be, in effect, useless. In addition, the occ may be unable to gain access to certain information due to current requirements of law. See, e.g., The Grand Jury Secrecy Rule 6(e), Fed. R. Crim. P. As we have noted repeatedly, we believe significant steps need to be taken to permit better sharing of information.
Title XI (Right to Financial Privacy Act)
As you know, the Right to Financial Privacy Act gives individuals notice of, and a right to challenge, federal government agency requests for their bank records. In 1978 this committee sought to strike a balance between a customer's right of privacy and the need of law enforcement agencies to obtain financial records pursuant to legitimate investigations. Today, our goals are not any different from what they were in 1978. However, some law enforcement officials have suggested that the 1978 Act is at times an impediment to legitimate law enforcement investigations. Indeed, the Administration's bill, H.R. 2785. would deny the customer's financial privacy protection under the Act under certain circumstances. The subcommittee would welcome your comments on the experiences you have had with Right to Financial Privacy concerns, and whether in your opinion amendments to the Right to Financial Privacy Act are warranted.
On numerous occasions, OCC has expressed its frustrations with the restrictions imposed by the Right to Financial Privacy Act (RFPA) on the free exchange of information between the bank regulatory agencies and Federal law enforcement officials. That frustration has not abated. The RFPA in particular has interfered with our criminal referral process preventing us from providing full information with our initial referrals
and, consequently, has affected the recipient agency's ability to determine effectively which referrals should be pursued. Under the RFPA, the OCC has been limited on the quantity of information that could be provided in a criminal referral absent a post-transfer notice to the customer(s) involved. Post-referral notifications always run the risk of premature disclosure of criminal investigations, raising the possibility of evidence disappearing, witnesses failing to come forward, and defenses being manufactured. Recognizing this, OCC has, as a matter of course, made referrals in such a manner as to avoid the necessity of such notice. It is difficult to determine what impact this approach has had on the prosecution of cases referred by OCC. Referrals with limited information, of necessity, cannot always adequately convey the depth or significance of a given criminal offense. Moreover, it is difficult for the Department of Justice to adequately assess the strengths and weaknesses of a potential bank fraud case unless it is able to evaluate these factors. À proper evaluation requires access to all of the facts which may bear on the significance of the criminal activity. Nevertheless, the restrictions imposed by the RFPA prevent this type of analysis from taking place at the time of the initial referral. It is only after a grand jury subpoena has been served and the documents are examined that an appropriate evaluation can be made. Likewise, in order for us to protect our examiners from inadvertently violating the RFPA when they meet with law enforcement officials to discuss cases, we have generally required a grand jury subpoena. One obvious problem presented by this approach is that it creates unnecessary barriers to providing information and in most cases requires several contacts and delays before all of the relevant facts are in the hands of the prosecutor. While OCC has attempted through oral contacts with the U.S. Attorneys' offices, to minimize any damage that could be done by these impediments, the initial lack of a full written explanation of the basis for the criminal referral, has, in OCC's judgment, unnecessarily impeded the law enforcement pr ess. It is very difficult to quantify the extent to which the RFPA has actually impeded an investigation or to what extent a lack of information influenced a decision to not pursue a case. We do know, however, that the limitations, either actual or perceived, have unreasonably hindered full cooperation among and between the banking agencies and the law enforcement community. The Justice/Financial Institutions Regulatory Working Group in the final Agreement of April 2, 1985, unanimously concluded that restraints like the RFPA should be modified if the Government is to coordinate effectively its efforts in its battle against all types of crime.