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Moreover, when an agency has information from the accounts of protected customers under the RFPA, the Act permits it to freely transfer such information to the Justice Department or other appropriate Federal law enfor cement authority without prior notice to or approval from the customer. What is required is notice to the affected customer, within ten days after the transfer, that such transfer of information has occurred. This has two clearly bad effects: a customer who is involved in the suspected crime may alter records, destroy evidence, or disappear in response to the notice, and the Innocent customer (such as a person who does not know that his savings accounts have been manipulated) is shocked by a nearly unintelligible notice (the exact language is mandated in the RFPA) that his records have been transferred to the Department of Justice.

The only alternative to this post-referral notice to customers is to make the referral in a very abbreviated fashion (without names or back-up documents) to avoid triggering the RFPA requirements. Justice must then issue a Grand Jury subpoena, which is exempt from the customer notice provisions of the RFPA, to obtain the detailed information it requires to properly investigate and prosecute. It is this circuitous and undesirable route that was adopted by the Attorney General's Bank Fraud Working Group with regard to Forms 366 because of the Justice Department's strong belief that customer notices were counterproductive to sound investigative and prosecutorial procedures. 'Noney Laundering Bills'




The Administration's bill (H.R. 2785) contains what we believe are the necessary provisions, i.e., it would make money laundering a crime if done with intent, knowingly, or with reckless disregard for the origin of the unlawful funds. Moreover, the amendment that this bill would make to the RFPA is clearly needed to allow the flow of information required to combat crime. The McCollum bill (H.R. 1367) is acceptable to

the Administration's bill. However, because it imposes a higher standard on bankers and others (who can be prosecuted if they "have knowledge or reason to know" that they are involved in the conduct of money laundering activity), we anticipate that this bill might meet with great opposition from the banking industry, just as the Bank Bribery Act (18 U.S.C. 215) has, for subjecting 'ignorant but innocent' bankers to prosecution. The McCollum bill contains an amendment to the RFPA that should adequately resolve the problems with that act which we discussed earlier.

Change in Savings and Loan Control Act

The Subcommittee has expressed interest in the Bank Board's recommendations concerning possible amendments to the Change in Control Act (Control Act), particularly with respect to the criteria used to review a notice filed under the Control Act and the time period for Bank Board review and processing of a notice. In addition, the Subcommittee has requested the Bank Board's advice regarding problems it has encountered in enforcing violations of the Control Act and in eliciting information probative of a foreign national acquiror's qualifications to control an insured institution.


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Acquisitions of "control" of insured institutions are governed either by the Control Act or by the Savings and Loan Holding Company Act (Holding Company Act). The Holding Company Act prohibits any company, Directly or indirectly or acting in concert with one or more other persons, through one or more subsidiaries, or one or more transactions, from acquiring control of an insured institution without the prior written approval of the Bank Board. The Control Act applies to acquisitions of control that are not subject to the Holding Company Act. It prohibits any "person," acting directly or indirectly or through or in concert with one or more persons, from acquiring control of an insured institution through a purchase, assignment, transfer, pledge or other disposition of voting stock of an insured institution unless the Bank Board has been given sixty days' prior notice pursuant to a complete Control Act Notice, and within that time period has not objected to the acquisition or extended up to another thirty days the period for objection.

Due primarily to the volume and complexity of the information submitted in Control act notices by prospective acquirors, it has been the Bank Board's experience that most, if not all, of the sixty-day statutory period is required for the Board to complete its careful review and analysis of the notices. In many cases, the Board must extend the time period for up to an additional thirty days, as permitted under the Control Act. In order to provide the Bank Board with sufficient time to review and process Control Act notices, the Board encourages the Subcommittee to consideran amendment to the Control Act to extend from sixty to ninety days the period for objection to an acquisition and to retain the current thirty-day provision for extension of the period for objection. The proposed amendment would be consistent with the Holding Company Act, which requires the Bank Board to render its decision on an acquisition within ninety days after submission of a complete application.

Both statutes employ expansive definitions of control. In the Control Act, the term connotes the power, directly or indirectly, to direct the management or policies of an insured institution. The Holding Company Act provides that the term includes control in any manner of the election of the majority of the directors of an insured institution. Control may also be found under the Holding Company Act if the Bank Board determines that a person, directly or indirectly, exercises a controlling influence over the management or policies of an insured institution. Finally, under either statute, control is conclusively determined to exist upon the acquisition of the power to vote more than 25 percent of the voting shares or securities of an insured Institution. Both statutes specifically authorize the Bank Board to issue rules and regulations to carry out their purposes and prevent evasions of them. However, the Board has introduced to the Senate Committee on Banking, Housing and Urban Affairs a proposal to amend the term 'control' under the Control Act to clarify the Board's authority to define by regulations that aspect of the term that connotes the power, directly or indirectly, to direct the nanagement or policies of an insured institution.


The substantive criteria set forth in the statute to be used in considering applications under the Holding Company Act are broad and general and focus on whether the financial and managerial resources and future prospects of the acquiring company and the institution to be acquired would cause the acquisition to be detrimental to the institution or to the insurance risk of the FSLIC. In certain acquisitions involving more than one insured institution or where the acquiring company is already a savings and loan holding company, certain anticompetitive factors also must be considered. The Holding Company Act specifically prohibits the Bank Board from approving acquisitions that would have monopolistic results. Nor may the Board approve a proposed acquisition that would substantially lessen competition unless the anticompetitive effects of the transaction are clearly outweighed by a greater service to the convenience and needs of the community. Beyond the foregoing standards, however, consideration of applications under the Holding Company Act involves a significant exercise of judgment and discretion by the Bank Board.

In contrast to the Holding Company Act's approval process, the Control Act review function performed by the Bank Board is expressed in the statute in terms of a disapproval or non-disapproval of notice filed pursuant to that Act. The Control Act provides that a proposed acquisition may be disapproved by the Bank Board on the following grounds:

1. It would result in a monopoly or be in furtherance of any combination

or conspiracy to monopolize the savings and loan business in any part

of the country: 2. In any section of the country it would substantially lessen

competition, tend to create a monopoly, or be in restraint of trade, and the anticompetitive effects are not clearly outweighed by any benefits in the public interest;

as or

3. The financial condition of any acquiring person is such

might jeopardize the financial stability of the institution

prejudice the interests of the depositors; 4. The competence, experience, or integrity of any acquiring person or

any of the proposed management personnel indicates that it would not be in the interests of the depositors or the public to permit such

person to control the institution; or 5. Any acquiring person neglects, fails, or refuses to furnish all the

information required.

Through its experience in administering the Holding Company Act and Control Act, the Bank Board has encountered a variety of situations which have proved to be indicative that a potential acquiror may not meet the statutory tests. In an effort to facilitate the review process, the Board's new Acquisition of control rules set forth certain 'presumptive disqualifiers" types of legal proceedings or events, which, based on the Board's experience, are indicative that an acquiror may lack the qualifications to acquire control of an insured institution. These "presumptive disqualifiers' put potential acquirors on notice of the grounds upon which an application or notice may be disapproved unless adequately refuted by the acquiror.


"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 riling 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. In 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.

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


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 gainst 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.

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