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Federal Register / Vol. 50. No. 16" / Wednesday. August 28, 1985 / Proposed Rules

recommendations of the Working Group to improve the referral system for suspected bank fraud was the use of a uniform Criminal Referral Form for use by all federally-insured financial institutions and the regulatory agencies. Purpose

This notice of proposed rulemaking is part of an effort by the OCC. in cooperation with the other federal financial institution regulatory agencies and the Department of Justice. to enhance the effecuveness of methods of discovering and prosecuting fraud and other crime in financial insututions. The gool of this rulemaking is to enhance the information quality of criminal referrals. thereby making the referrals more useful, and to provide a standard format These changes will facilitate the assessment and investigation of possible criminal matters aid in the identification of patterns of criminal misconduct, and improve the OCC's ability to track the disposition of criminal referrals.

Current Requirements


7.5225, which is

proposed to be removed, requires that a
national bank make an immediate
written report to the OCC, to the United
States Attorney. the Federal Bureau of
Investigation, and to the bank's bonding
company when known or suspected
thefts. embezzlements check-kiting
operations, misappropriations or other
defalcations or other criminal violations
involving bank personnel or bank funds
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 suspected and the reasons for
suspicion in the report. No standard
format is prescribed and the quality and
amount of informeuon reported has
varied widely. These differences and
shortcomings bave hampered the
agencies in their law enforcement

OCC Proposal

Proposed § 21 11 requires that a national bank submit a Criminal Referre! Form upon the occurrence or discovery of any known or suspected theft embezzlement, check-kiting operation. misappropriation or other defalcation involving bank personnel or bank funds, and any other suspected criminal violation. Mysterious disappearances or unexplained shortages of bank funds or other assets of $1.000 or more need not be reported if they are due to errors which have been discovered and corrected within seven business days The seven-day deadline

allows the bank sufficient time to
resolve most shortages thereby
eliminating unnecessary reporting.

The Criminal Referral Form has two
formats a short form (CC-8010-08) and
a long form (CC-8010-09). It is estimated
that the short form will be used for 95%
of the reports submitted.

The short form requires a bank to
report the basic facts of the suspected
crime the approximate date and dollar
amount of loss, the type of crime
(embezzlement, check kiting, etc.), a
brief summary of the violation, the
identity of any person suspected, and
the location of the offices to which the
report is being sent. An expanded and
more detailed report (the "long form") is
required when the amount exceeds
$10.000, or for any loss involving a bank
insider (i.e., executive officer, director,
or principal shareholder).

Failure to file reports required by the
proposed rule could form the basis for
civil money penalties against the bank,
its officers, and its directors.

If a question exists as to whether to
report an incident, the OCC
recommends that a report be submitted.
For example, a customer's pattern of
cash deposits of just under $10.000
would not trigger the currency reporting
requirements of 31 CFR Part 103, yet
may indicate the existence of a money-
laundering operation. Additionally.
banks are free to report any potential
violation. regardless of amount, either to
federal, state or local authorities.
whenever a violation of federal or state
law is suspected.

Banks are also encouraged to
telephone the appropriate authorities in
situations which dictate an immediate
notification, such as when a witness or
evidence is likely to disappear. In such
cases, the referral is to be documented
by completion of the referral form.

The proposed rule provides for an
exception to the reporting requirements
for robberies, burglaries, and non-
employee larcenies. This exception is
provided because of an existing
recordkeeping requirement in § 21.5(c).
Under 21.5(c), a national bank is
required to maintain a record of each
robbery, burglary, or non-employee
larceny committed or attempted at any
of its banking offices. The record may be
a copy of a police, insurance or similar
report or the bank's own record.
Nothing contained in the proposed rule
is intended to alter or eliminate the
recordkeeping requirements of § 21.5(c).

Prior to October 6, 1981. § 21.5 also
required a nationa! bank to report each
such instance to the OCC on Form CC-
9030-02. This reporting requirement was
eliminated because the limited benefits

obtained from such reports did not
justify the reporting burden on banks. 46
•FR 49104 [October 6, 1981]. A national
bank continues to be under an
obligation to report robberies.
burglaries, and larcenies to the
appropriate law enforcement

How the Proposed Rule Differs From
Current Procedure

National banks already report
suspected crimes pursuant to § 7.5225.
Proposed $21.11 requires the use of a
criminal referral form and provides a
uniform method for reporting. It is
estimated that the short form will take
less time to complete than preparing an
original letter in each case. While the
long form calls for more information
than formerly was required for insider
crimes and for crimes involving amounts
of $10.000 or more, recent statistics
gathered by the OCC indicate that only
about 4% of the reported crimes
involved more than $10.000, and that a
very small proportion involved insiders.
Further, a bank usually needs to gather
such information in order to make an
insurance claim, or in due course to
prepare for prosecution.

This proposed rule eliminates the requirement that a bank send a report to its bonding company. These reports are a matter of the contractual agreement between the bank and the bonding company.

This proposed rule allows banks up to seven days to investigate and resolve mysterious disappearances and unexplained shortages before they are reported. Mysterious disappearances and unexplained shortages are frequently caused by clerical errors which are discovered and corrected. If the bank's investigation reveals that criminal activity was involved, then the incident must be reported even if it has been corrected.

The title of proposed £21.11 differs from that of $7.5225 (removal proposed). The title "Defalcations by Employees" has been changed to "Reports of Suspected Crimes." The former title was too limited since activities which involve bank funds. such as check kiting operations, are embraced by the regulation whether perpetrated by outsiders or bank employees.

Regulatory Flexibility Act

Pursuant to section 605(b) of the Regulatory Flexibility Act (Pub. L. 90354m, 5 U.S.C. 801) it is certified that this notice of proposed rulemaking, if adopted as a final rule, will not have a

Federal Register / Vol. 50, No. 167 / Wednesday, August 28, 1985 / Proposed Rules

significant economic impact on a substantial number of small entities. Executive Order 12291

The OCC has determined that this proposed rule is not a "major rule" and therefore does not require a regulatory impact analysis.

List of Subjects in 12 CFR Parts 7 and 21

National banks, Criminal referrals, Insider abuse, Theft, Embezzlement, Check kiting. Defalcations.

Authority and Issuance

For the reasons set out in the preamble, Parts 7 and 21 of Chapter I of Title 12 of the Code of Federal

Regulations are proposed to be amended

as follows:


1. The authority citation for 12 CFR Part 7 is revised to read as follows:

Authority: 12 U.S.C. 1 et seq.

17.8225 [Removed)

2. Part 7 is amended by removing $7.5225.


3. The authority citation for 12 CFR Part 21 is revised to read as follows:

Authority: 12 U.S.C. 1 et seq., 83a, 1818, as amended, and 1001-1004.

(b) Report required. A national bank shall file Criminal Referral Form CC8010-08 or CC-8010-09 in accordance with the instructions on the form. Copies are sent to the OCC District Administrator for the bank's district, the. nearest office of the FBI, and the U.S. Attorney for the bank's district. A report is required in case of:

(1) Any known or suspected theft, embezzlement, check kiting operation. misapplication, or other defalcation involving bank personnal or bank funds in any amount.

(2) Any known or suspected criminal violation of any section of the United States Code or applicable state statutes involving the affairs of the bank.

(3) Any mysterious disappearance or unexplained abortage of bank funds or other assets of $1,000 or more which is not located by the bank within seven business days.

(c) Exemptions. Robberies, burglaries, and nonemployee larconies which are explicitly covered by the recordkeeping requirements of § 21.5(c) are exempt from the reporting requirements of this section.

(d) Notification to Board of Directors. The chief executive or other appropriate bank officer shall notify the board of directors not later than at their next meeting, of the filing of any report hereunder.

(e) Penalty. Failure to file reports may

4. The title of Part 21 is revised to read subject the bank, its officers and as follows:

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directors to civil money penalties.

Dated: July 23, 1985.

H. Joe Belby,

Acting Comptroller of the Currency.
(FR Doc. 85-20448 Filed 8-27-85; 8:45 am)
BILLING CODE 2010-09-21


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.


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.


a. Dentredens for barn

Robert V. Shumway


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.

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