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efforts in working with the law enforcement community and their

working with us.

Finally, as

we have said in the past, law enforcement agencies

and bank regulators alone can only provide a part of the


The industry's own commitment and efforts at

self-policing are essential because the banks' own internal

control processes are the most effective mechanisms for

ensuring compliance.

With the changes we have urged and with an active interagency working group and a committed industry, we are confident that

substantial additional progress in efforts to prevent the

nation's financial institutions from wittingly or unwittingly

being used to further criminal activities will be possible.

I would be pleased to respond to any questions you might have.







April 17, 1986

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Title I (Supervisory Authority Over Depository Institutions)

Question A.

Specifically, is there any merit to considering giving the regulators authority to impose civil monęy penalties upon financial institutions for their failure to report under BSA, or should the Treasury continue to have the authority to impose such penalties?

OCC believes that the Treasury Department should continue to maintain responsibility for civil money penalties against institutions or individuals who violate the Bank Secrecy Act (BSA). Treasury, which has oversight responsibility over the BSA, is in the best position to apply the civil money penalty authority consistently against all financial institutions whether state or Federal. In addition, the purpose of the BSA is to aid law enforcement. Where there are willful violations of the statute, we believe it most appropriate for them to be handled by the law enforcement community. In any case where there are violations the OCC already has available to it a broad-based authority to take independent action under its cease and desist authorities to address any supervisory concerns which might arise. In this regard,' the OCC has specifically directed that banks take corrective actions when necessary to address supervisory concerns raised by violations of the BSA. Where those violations rise to a level where they might be considered willful, the OCC has, as a matter of course, made referrals to the Treasury Department and the IRS for consideration of civil and/or criminal action. Since the beginning of 1985, OCC has made more than 75 such referrals. Recently, OCC provided the Treasury Department and the IRS/Financial Institutions Regulatory Working Group with a series of proposed changes to the guidelines for determining when and how such referrals should be made. OCC has suggested that Treasury and the group review the guidelines and the proposed procedures to improve them, with the objective of having consistent referral procedures. A combination of consistent guidelines and consistent application of the civil money penalty process coordinated by Treasury would appear to be the best approach to imposing civil money penalties in the BSA area.

Question B.

To what extent could these powers be improved upon to lend support in appropriate cases to criminal law enforcement investigations?

Each of the bank regulatory agencies currently enjoys broad enforcement authority. To a large extent, this authority has proven to be adequate in dealing with violations of laws, rules, and orders which do not amount to criminal violations. Nevertheless, OCC supports certain modifications - 3

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 action); and changes to the Change in Bank Control Act
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.
Question c.

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)

Question A.

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. Question B.

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.

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