34838

Federal Register / Vol. 50. No. 16° / W'cdr.esday, August 28. 1985 / Proposed Rules

recommendations o! he Working Group to improve the reler:ol system for suspected bank fraud was the use of a uniform Criminal Relerral Form for use by a!! federally-insured hinancial institutions and the regulaton agencies. Purpose

This notice of proposed rulemaking is part of an effort by the OCC. in cooperation with the other federal financial ins:lution regulatory agencies and the Department o! Justice to enhance the effecuveness of methods of discoveris add prosecu!ing fraud and olter crime in financial instiutions. The goal of this sulc.making is to enhance the information quility of crimir.al relerrals. thereb, taking the rele:res more useful and to provide a standard furmat These changes will facilitate the assessment and investigasion of possible criminalratiers aid in the ije in fication of patiems of criminal misconduct and improve the OCC's ability to track the disposition of criminal relerrais Current Requirements

The OCC• 1 : 5223. which is proposed to be removed, requires that a national bank make an immediate written report to the OCC. to the United Sules Attorney. the Federal Bureau of Ir ves:iga:ion and to the bank's bonding company when known or suspected theiis, embezzlements check-kiting o; erations musappropriations or other defalcations or oiber criminal viola bons involving bank personnel or bank fundo occur. Reports of mysterious disappearances of bank funds of $1.000 or more are also required A bank is required to include the identities of persons suspecled and the reusons for suspicion in the report. No standard furma! is prescribed and the quality and amount of informeuon reported has varied widers. These diferences and shor.com.ngs bave hampered the agencies in theu lar er:forcement efforts OCC Proposal

Proposed § 21 11 requires that a national bank submit a Criminal Relere! Form upon the occurrence of discovery of any known or suspected thelt embezzlemeni, check-iting operation, misappropriation or other desalcation involving bank personnel or bark funds, and any other suspected criminal violation Mystenous disappearances or unexplained shortages of bank funds or other ussels of 57.000 or more need not be repor'ed il they are due to errors which have been discovered and corrected within seven business days The seven-day deadline

Ollows the bea sufficient time to

obtained from such reporu did not resolve most shortages thereby

justify the reporting burden oa banke. " eliminaung unnecessary reporting. · FR 49104 (October & 1991). A national

The Criminal Relenal Form has two bask continues to be under in
formelore short form (CC-4010-08) and obligation to report robberies.
a long form (CC-8010-09). It is estimated burglaries, ond larcenies to the
that the short forn will be used for oss

appropnale law enforcement
of the reports submilied.

authoritie.
The short form requires a bank to
report the basic facts of the suspected

How the Proposed Rule Differs from crime the approximale date and dollar

Current Procedure amount of loss, the type of crime

National banks already report (embezzlement check kiting, etc.) a suspected crimes pursuant to 7.5.225. brief summary of the violation, the

Proposed 121.11 requires the use of a identity of any person suspected and criminal referral form and provides e the location of the offices to which the uniform method for reporting. It to report is being sent. An expanded and estimated that the short form will take more detailed report (the long form") is less time to complete then preparing an required wben the amount exceeds

original letter in each care. While the $10.000, or for any loss involving a bank long form calls for more icformation insider (i.e., executive officer, director,

than formerly was required for insider or principal sharebolder).

crimes and for crimes involving amounts Failure to file reports required by the of $70.000 or more recent statistica proposed rule could form the basis for

gathered by the OCC indicate that only civil money penalties against the bank,

about 4% of the reported crimes its officers, and its directors

involved more than $10.000, and that Il a question exists as to whether to

very small proportion involved insider report an incident, the OCC

Further, a bank usoally needs to gather recommends that a report be submitted.

such information in order to make a For example, a customer's pattern of insurance claim. or in due course to ash deposits of just under $10.000 would not trigger the currency reporting

prepare for prosecution. requirements of 31 CFR Part 103. yet

This proposed rule eliminates the may indicate the existence of a money

requirement that a bank send a report to laundering operation. Additionally.

its bonding company. These reports are banks are free to report any potential

1 matter of the contractual agreement viola!jon. regardless of amount. etter lo

between the bank and the booding federal state or local authorities.

company whenever a violation of federal or state

This proposed rule allows banks up to law is suspected

seven days to investigate and resolve Banks are also encouraged to

mysterious disappearances and telephone the appropriate authorities in

unexplained shortages before they are situations which dictate an immediate

reported. Mysterious disappearances notification, such as when a witness or

and unexplained shortages are evidence is likely to disappear. Lo such

frequently caused by clerical errors cases, the relerral is to be documented

which are discovered and corrected. V by completion of the referral form. the bank's investigation reveals that The proposed rule provides for en

criminal activity was involved, then the exception to the reporung requirements

incident must be reported even tf It has for robberies, burglaries, and non

been corrected employee larcenies. This exception is The title of proposed 121.11 diffen provided because of an existing

from that of | 7.5225 (removal recordkeeping requirement in ( 21.5(c). proposed). The title "Defalcations by Under 21.5(0). natior.al bank is

Employees has been changed required to maintain a record of each "Reports of Suspected Crimes." The robbery, burglary, or non-employee former title was too limited since larceny committed or attempted at any activities which involve bank fundo. of its banking offices. The record may be such a check biting operations, are a copy of a police, insurance or similar embraced by the regulation whether report, or the bank's owT. record

perpetrated by outsiders or bank
Nothing contained in the proposed rule employees.
is ir.lended to alter or elic inaie the
recordkeeping requirements of 21.5(c).

Regulatory Flexdbllity Act
Prior to October 8. 1981. i 21.5 also Pursuant to section 6061b) of the
required, national bank to report each Regulatory Flexibility Act (Pub. LA
such instance to the OCC on Form CC- 354m. 5 U.S.C. 201) it is certified that this
9030-03 This reporting requirement was notice of proposed rulemaking. 11
eliminated because the limited benefits adopted as a final rule, will not have

Federal Rogistes / Vol. 80. No. 167 / Wednesday, August 22, 1985 / Proposed Rules

significant economic impact on a

(b) Report required. A Bational bank substantial number of small entities. shall file Criminal Referal Form CCExecutive Order 12211

2010-08 or CC-1010-0 in accordance

with the instructions on the form. Copias The OCC has determined that this are sent to the OCC District proposed rule is not a "major rule“ and Administrator for the bank's district, the. therefore does not require a regulatory nearest office of the FBL and the U.S. impect analysis.

Attorney for the bank's district. A report List of subjecte la 12 CFR Parte I and a

is required in can of:

(1) Any known or suspected theft, National banks. Criminal referrals,

embezzlement, check kiting operation Insider abuse, Theft, Embezzlement,

misapplication, or orber detalcation Check kiting. Defalcations.

involving bank personnel ar bank fando Authority and locuenca

in any amount.

(2) Any known or suspected criminal For the reasons set out in the preamble, Paris 7 and 21 of Chapter I of

violation of any section of the United Title 12 of the Code of Federal

Suates Code or applicable state statates Regulatiotus are proposed to be amended lavolving the aftalin of the bank u follows:

(3) Any mysterious disappearana u

unexplained shortage of bank fundo ar PART 1- AMENDED)

other wet of $1.000 or mon which to

not located by the bank withta seven 1. The authority citation for 12 CFR business days. Part 7 to rovised to read u follows:

(c) Exemptions. Robberien burglarioa. Anelty: 12 U.S.C 1 sung.

and nonemployme larcenies which an

explicitly covered by the recordkeeping 17.02s the newed)

requirements of 1.8(c) an aump! 2 Part 7 is amended by removing

from the reporting regralromate of this 17.5225.

rection.

(d) Notification to Board of Dirctors PART 11- AMENDED)

The chief executive or other appropriate 3. The authority station for 12 CFR

bank officer shall notify the board of Partais revined to read as follows:

director not later than at their next

meeting of the filing of any report Andy. 12 U.&C i alunpa, 1814 u bereunder. umended and 101-104

(e) Penalty. Falhure to Alle reporto may 4. The due of Part 21 to revised to read subject the bank, 1to officen and us follows:

director to civil money penalties. PANT 1 AUNIUM SECURITY

Dated: July 21, 10as. DEVICES AND PROCEDURES ANO

H. Joo fully REPORTS OF CRIMES AND

FDIC
Federal Deposit Insurance Corporation
Washington DC 20429

Division of Bank Supervision

April 14, 1986

Honorable Fernand J. St Germain
Chairman, Committee on Banking, Finance

and Urban Affairs
House of Representatives
Washington, D.C. 20515

Dear Mr. Chairman:

In your March 27, 1986 letter, you asked that we provide a written report updating your committee on FDIC's efforts to improve the enforcement of Bank Secrecy Act (BSA) regulations and other matters since January 1, 1985. Our report is attached. We have provided itemized responses to the questions presented in your letter and have included several exhibits and attachments. In April of last year, we reported that the publicity given the BSA in the wake of the Bank of Boston incident had heightened the awareness of the banking industry. Since then, a dozen or so other banks and banking companies have been heavily fined for failing to comply with the law, prompting the banking industry to respond with numerous educational programs designed to aid banks in complying with BSA regulations and to avoid the costly fines being handed out by the Treasury Department. The FDIC and the other bank regulators have responded in similar fashion. In 1985, FDIC's training program on BSA compliance was completely revised. The new program focuses more on the "big picture" to give examiners an understanding of, and appreciation for, the use of Currency Transaction Reports (CTRS) as investigative tools to combat money laundering and drug trafficking. The interagency examination procedures have just been revised and are awaiting Treasury's approval. While it is generally agreed that the examination procedures have, on balance, been effective in determining failures in the internal policies and procedures of financial institutions, recent history. i.e, the large-scale failures of some major banks to comply with the currency reporting requirements, suggested that certain modifications to the basic procedures needed to be made. The new procedures emphasize, among other things, international transactions, wire transfer operations and trust department activities. Examiners are instructed to more closely review exempt lists, interview bank employees concerning BSA procedures, and look for unusual currency flows. The new procedures also require examiners to keep better workpapers.

-2

We have included updated information on violations in Exhibit I. Overall the percentage of banks in violation of the currency reporting or exempt list requirements continues to increase. The impact of this trend, however, must be qualified by the effect of the FDIC's strategy--evident in the last three years--of directing its examination resources to banks exhibiting problems and lengthening the period between examinations of well-managed banks. Under this strategy, fewer banks have been examined each year, and because more of them have problems, we would expect the data to reflect a greater percentage of noncomplying banks. This fact is even more pronounced in 1985 as greater demands have been placed on our examining resources in the safety and soundness area. Despite this unfavorable trend, the FDIC's regional specialists generally point to overall improvement in compliance levels and consider trends in compliance to be encouraging. As we have pointed out in the past, our supervisory practices and examination procedures cannot assure day-to-day compliance with bank procedures and the currency reporting requirements. The banks themselves must install the appropriate controls and audit procedures to detect violations and prevent abuses. The banking industry has shown a willingness, particularly in the last fourteen months, to assume a greater responsibility for compliance with the BSA regulations. Even with a greater commitment from the banking industry, however, corrupt bank employees will continue to subvert internal controls and avoid detection by bank examiners. As outlined in the attachments, bank regulators are communicating and cooperating more effectively than ever with law enforcement officials to achieve the optimum government response to criminal activity and insider abuse.

Sincerely,

a. Dentredens for barn

Robert V. Shumway
Director

Attachments

Report to the Subcommittee on Financial Institutions

Bank Secrecy Act and Financial Institutions
Regulatory and Interest Rate Control Act of 1978,

Titles I, VI and XI

1. Question:

The number of institutions examined by your agency since January 1, 1985 and the number and type of violations of the BSA found at these institutions, and actions taken by your agency on these violations.

1. Answer:

The information in Exhibits I and II updates the data supplied in April 1985. Generally, the 1985 information continues the trend established in preceding years. That is, a greater percentage of banks that are examined for BSA compliance are cited for one or more currency reporting or exempt list violations. The number of banks receiving BSA reviews decreased again in 1985 reflecting the tremendous demand being placed on FDIC's resources in the safety and soundness area and FDIC's strategy to focus examination resources on problem banks. Thus, the decreasing numbers of BSA examinations represent a greater percentage of problem banks and banks targeted specifically for potential BSA problems. For these reasons, the trend reflected in this report might not be representative of all FDIC supervised banks. A poll of our regional compliance specialists again reveals that the great majority of the violations on which the statistics in Exhibit I are based represent inadvertent failures to follow bank procedures and incomplete or late filings rather than actual failures to file. 2. Question: Describe the training programs given to your examiners in BSA techniques and procedures. What improvements, if any, have been made since January 1, 1985?

2. Answer:

FDIC currently employs a three-pronged approach to BSA training. A formal program in Washington, Regional training updates and on-the-job training. Each examiner who is expected to be involved in a compliance examination is required to attend the FDIC's compliance school in Washington. This school includes a two-hour session on BSA compliance that was completely revised in 1985. The new session focuses on the rationale for, and the use of, CTR reports in combatting money laundering, drug trafficking and other criminal andeavors. Lesson plans and course material are included in Exhibit III. Training at the regional level was added in 1985 to reach a larger number of examiners and to keep them up to date. Examiners are also kept informed of changes in examination procedures and interpretations of the regulations through Regional Office Directives and are encouraged to attend and actively participate in BSA seminars and training programs sponsored by banking groups and other organizations.