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Chairman ST GERMAIN. Mr. Passarelli, yesterday we had a very forthcoming witness who had been a money launderer, a smurf. He cooperated with the Government. As a result of his cooperation, many convictions were obtained.
He was telling us—is AmeriFirst not a savings and loan?
Chairman ST GERMAIN. Now, are you aware of the testimony yesterday, he thought AmeriFirst was a great institution for smurfers because you can buy a money order for up to $9,000 or $10,000 at that particular institution, among others.
Did you hear about that?
Chairman ST GERMAIN. Do you know, have examinations been conducted at AmeriFirst to determine their compliance with the Bank Secrecy Act and the CTR reporting?
Mr. PASSARELLI. I would assume that
Chairman ST GERMAIN. Well, can you give me better than an assumption?
Mr. PASSARELLI. Yes, sir.
Mr. PASSARELLI. Well, what I can do, I can get you the date of the last examination. I think I can give you that for the record, sir.
Chairman ST GERMAIN. Let me ask you this. Can you give us a rough idea of the average denomination of money orders in S&Ls?
Mr. PASSARELLI. I really couldn't say. I really wouldn't know what they would be?
Chairman ST GERMAIN. They're usually not too high; are they? Mr. PASSARELLI. That's correct, no.
Chairman ST GERMAIN. What would you say, ordinarily, a ballpark number.
Mr. PASSARELLI. I-
Chairman ST GERMAIN. Anybody? You have a few staffers here with you. Does anybody have an opinion?
Mr. PASSARELLI. I really couldn't say.
VOICE. Mr. Chairman, we don't have that information readily at hand. We'd be glad to provide it for the record.
Chairman ST GERMAIN. I would like to know what the average is for institutions in various sections of the country and whether or not there has been an increase in this average over the past 5 years.
Now we'll hear from Mr. James Dudine--
Chairman ST GERMAIN. Dudine. All right. Chief, Special Activities Section, Federal Deposit Insurance Corporation.
We'll place your entire statement in the record and you may pro ceed.
STATEMENT OF JAMES R. DUDINE, CHIEF, SPECIAL ACTIVITIES SECTION FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)
Mr. DUDINE. Mr. Chairman, I am pleased to be here this morning on behalf of the Federal Deposit Insurance Corporation to report on the FDIC's enforcement of the Bank Secrecy Act and to discuss 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 institutions.
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 our strategy to focus examination resources on problem banks and banks targeted specifically for having potential Bank Secrecy Act problems. 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 that we are finding are caused by inadvertent failures to follow bank procedures and represent incomplete or late CTR filings rather than actual failures to file CTR's.
Nevertheless, we're not satisfied with the level of compliance by the banks we supervise and we are continuing to improve our enforcement efforts.
Since this committee held hearings last April, the following steps have been taken.
First, the interagency examination procedures have been revised and are now 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 securities dealer departments. Examiners will be required to follow a stricter regimen, look closely at exemptions granted to customers, and to document their activities at various points during the examination.
We have completely revised our educational program for examiners who conduct Bank Secrecy Act compliance examinations. The new 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 information 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 under the Bank Secrecy Act.
We are making more and better use of external targeting of institutions for Bank Secrecy Act reviews. The Customs Service's analysis of currency flows and cash shipments of individual banks and bank-to-peer group relationships provides regulators with an intelligent way to select banks for examination. We strongly support the work being done in this area.
Because the safety and soundness of insured banks is of utmost importance to the FDIC, the resources we can allocate to Bank Secrecy Act compliance are limited. Thus, the method of selecting banks to be examined for Bank Secrecy Act regulations is very critical to our overall enforcement effort.
In addition to targeting banks based on information from the Treasury Department, IRS, and the Customs Service, the idea of examining a random sample of banks each year is being considered. FDIC usually conducts Bank Secrecy Act examinations in conjunction with its review for consumer compliance. We have recently begun reviewing Bank Secrecy Act regulations at safety and soundness examinations or conducting an independent examination as circumstances warrant. This approach adds flexibility to our program and permits us to respond quickly to potential problems. As we have stated in the past, bank supervision and examination procedures cannot assure day-to-day compliance with currency reporting requirements. Financial institutions must install internal controls
Chairman ST GERMAIN. Mr. Dudine, I've got to say I'm happy in one way and unhappy in another. But I'm happy that you no longer tie this exam in with the consumer compliance exam because I don't think you have many of those.
The happy part is that you no longer tie them together, but you do tie them together with the regular exam. The unhappy part is the paucity of consumer compliance examinations.
Mr. DUDINE. Yes, sir. I'm sure you recognize that our resources are very strained these days.
Chairman ST GERMAIN. Yes. The FDIC Chairmen are always calling for expanded powers for financial institutions so they can go into other areas that really are not closely related to banking, and that would make it even more difficult; wouldn't it? Yes. That question has its own answer because if you are over-burdened already, it doesn't make much sense to take on a bigger burden. That's a rhetorical question. You may proceed.
Mr. DUDINE. Thank you. During the past 15 months, we have given a lot of attention to improving our efforts to deal with the criminal conduct of bank insiders. We are very encouraged by the progress being made by the Bank Fraud Working Group. The group was formed in conjunction with the interagency agreement signed in April 1985 to improve cooperation between bank regulators and law enforcement agencies in responding to the criminal threat to insured financial institutions.
Similar progress in dealing with the criminal aspects of money laundering is possible under the current legal environment. However, the Government's response to the problem would be strengthened by making money laundering a Federal crime.
H.R. 2785 and other bills address this fundamental weakness and would permit prosecutors to attack organized criminals directly by making money laundering the crime rather than having to build their cases on failures to file currency transaction reports.
We support a Federal crime of money laundering and generally agree with the higher penalties and stiffer sentences contained in H.R. 2785. That bill also contains much needed amendments to the Right to Financial Privacy Act.
There is no question that the Right to Financial Privacy Act serves as a legal and psychological barrier to the flow of information from financial institutions and their regulators to Federal law enforcement agencies. Unimpeded information flows are essential to the successful investigation and prosecution of financial crimi
nals and money launderers. This dysfunctional impact appears to reach well beyond the legitimate privacy concerns that Congress intended to protect.
As we have pointed out before, the act, as interpreted by most interested parties, extends the customer-privacy protections to bank insiders who are often also customers of the bank. Insider abuse of federally insured financial institutions is unquestionably a major cause of bank failures and of losses to the FDIC's insurance fund. We believe that insiders, by virtue of their position in federally insured institutions, ought to be treated differently than a bank's "arms-length" customers.
The amendments to the Right to Financial Privacy Act contained in H.R. 2785 would correct this and other flaws, while preserving the privacy interests of law-abiding bank customers. Moreover, financial institutions would be freed from the restrictions and uncertainties now affecting their ability to make informative criminal referrals.
In conclusion, I am convinced that we are making progress in our efforts to deal with criminal conduct in the banking industry. The commitment by the Department of Justice evidenced in the signing of the interagency agreement and the efforts to date of the Bank Fraud Working Group are important examples of the type of progress that can be achieved by working together.
This working group approach should work equally well for the agencies charged with the responsibility to enforce the Bank Secrecy Act.
[The prepared statement of Mr. Dudine on behalf of the Federal Deposit Insurance Corporation [FDIC] can be found in the appendix.]
Chairman ST GERMAIN. Thank you, Mr. Dudine. Now we will hear from, not a stranger to our subcommittee, Robert B. Serino, who is Deputy Chief Counsel for Operations, with the Office of the Comptroller of the Currency.
We will put your entire statement in the record. You may proceed.
STATEMENT OF ROBERT B. SERINO, DEPUTY CHIEF COUNSEL (OPERATIONS), COMPTROLLER OF THE CURRENCY
Mr. SERINO. Thank you, Mr. Chairman.
Thank you for the opportunity to bring you up-to-date on the activities of the Office of the Comptroller of the Currency in the Bank Secrecy Act area, and to express our view on the legislative changes needed to facilitate our efforts and to assist the law enforcement community in its criminal enforcement efforts.
As supervisors of the national banking system, we share this subcommittee's concern that our Nation's financial institutions not be used wittingly or unwittingly to facilitate or conceal criminal activity. We recognize the importance of our role in assisting the law enforcement community and have worked to support their efforts. While we believe we have made substantial progress in the past year, we recognize that much more needs to be done. The progress report which we provided to you earlier this week in the attach
ment to this testimony addressed questions you asked in your March 27, 1986 letter. I will not repeat what we have written, but would like to highlight for you certain points.
First, we have improved our management control over the agency's Bank Secrecy Act program. We have, for instance, established in the Chief National Bank Examiner's office a central clearinghouse for BSA operations. Our Enforcement and Compliance Division in the law department has been coordinating activities and giving legal guidance. In each of our districts, we have established focal points for bank secrecy activities. Bank secrecy specialists are in each of the districts, as well as our district counsel and our district attorneys, who are charged with additional responsibilities. These changes have ensured a continuing focus on BSA issues, a reliable flow of information on BSA matters, and a sound operating structure for BSA compliance activities.
Second, we have intensified significantly our BSA training of our examiners. During the past year alone, over half of our examiners received training in BSA matters. This training was put together by our BSA specialists and attorneys and was presented at various district staff conferences. It was also presented in our white collar crime school that we give four times a year for our examiners, and was given to our associate national bank examiner school for advanced studies.
Likewise, in the training area, we give significant amounts of onthe-job training. Through this method, BSA training has been given to many of our examiners.
Third, not only have we sought to train our examiners, but we have also taken great steps to increase the awareness with the industry. Attached to the material we submitted earlier, Mr. Chairman, were several bulletins that we have forwarded to the banking industry. We do that as a matter of course and we think it's very helpful.
We likewise have provided speakers to participate in meetings before banking and law enforcement community groups to discuss Bank Secrecy Act and other enforcement issues. We continue to provide materials to the industry on bank secrecy matters.
Fourth, we are a very active participant in various inter-agency task forces and working groups and have continued to assist the enforcement community whenever possible. We were, for instance, in late 1984, instrumental in establishing a working group consisting of senior officials from our office, the Department of Justice Criminal Division, the FBI, and each of the major financial institution regulatory agencies. The group's purpose was to improve the Federal Government's effectiveness in fighting crime in the financial institutions.
In my opinion, the group made significant progress during 1985 and continues to operate effectively. Chief among its achievements were a variety of improvements in communications between and among the financial institution regulatory agencies and the law enforcement community.
A standard criminal referral form was designed and implemented by each of the supervisory agencies and is being used by each of the supervisory agencies and by the financial institutions.