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Comptroller of the Currency
Administrator of National Banks

Washington, D. C. 20219

May 12, 1986

Dear Mr. Chairman:

I appreciated the opportunity to testify before your Subcommittee last month on the occ's efforts under the Bank Secrecy Act and to provide you with our thoughts on what legislative changes are needed to assist us in our efforts. letter of April 25, 1986, you asked that I respond for the record to five questions raised by the Subcommittee. My answers are set forth in an enclosure to this letter.

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Additionally, as I indicated in my testimony, I believe that the amendments to the Right to Financial Privacy Act proposed in the Administration's bill, H.R. 2785, are extremely important to our enforcement efforts. Agencies should be permitted to transfer freely to appropriate enforcement agencies any information lawfully in their possession, when the information is relevant to a matter within the receiving organization's enforcement jurisdiction. I would be pleased to provide additional information or to discuss any of these matters further at any time with you or your staff.

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763

Answers to Questions

submitted by the Subcommittee on Financial Institutions

Supervision, Regulation and Insurance
Committee on Banking, Finance and Urban Affairs
United States House of Representatives

to
Robert B. Serino
Deputy Chief Counsel (Operations)
Office of the Comptroller of the currency

May 12, 1986

764

Question 1

Both you and Mr. Woodard, of the Internal Revenue Service, in your testimony, express support for amending Title 31 of the Bank Secrecy Act via the Administration's Bill (8.R. 2785) to permit the issuance of a summons to a bank, or its employees, for a bank customer's records. This raises some questions about balancing the need for effective investigations of BSA non-compliance with a bank customer's right to privacy.

a)

b)

What criteria do you propose for use of the
Summons?
How do you intend to prevent this power from
abusing the privacy rights of the legitimate
customer?

In his testimony regarding the summons authority on April 17, 1986, Assistant Secretary Keating expressed the Treasury Department's view that this authority is essential both to investigate violations and to assess the appropriate level of civil penalties once a violation is discovered. This authority is especially needed for enforcement of the Bank Secrecy Act with respect to miscellaneous non-bank financial institutions.' The primary value of such summons authority would appear to be in the area of non-bank financial institutions. The Comptroller's Office already possesses broad authority to review the books and records of any national bank. In aid of that authority, the provisions of 12 U.S.C. $1820(c) which, in turn, incorporate the provisions of 12 U.S.C. $1818(n) clearly provide the Office with the authority to subpoena documents and information from national banks in connection with an examination or other types of investigations to determine compliance with applicable law and regulations'.

To the extent that a specific summons would be nevertheless necessary in an investigation of Bank Secrecy Act violations, Assistant Secretary Keating proposed that a 'summons would be issued only by the Secretary or with his approval by a supervisory level official of an organization to which the Secretary has delegated Bank Secrecy Act enforcement authority'. He stressed that under the law an agent or bank examiner in the field could not issue a summons on his or her own authority. Placing approval authority of any summons at a relatively high level of the agency should serve to provide the necessary safeguards against any potential for abuse. With respect to the criteria which should be utilized in determining whether issue a summons, I suggest that with the requirement for supe. -v level authorization the 'reason to believe' standard shoulu

icient to justify the issuance. - 2

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In other words, if the agency has reason to believe that violations of the Bank Secrecy Act have occurred or may be occurring, a summons could issue upon such a showing. As indicated above, the major impediment facing occ's compliance and enforcement efforts under the BSA has not been restrictions on information gathering, but rather has been the restrictions on information sharing under the RFPA. discussed in my testimony, these restrictions impede important communication and coordination within the law enforcement community. Once data as been lawfully obtained by a government agency, that agency should be free to share the information fully with other enforcement agencies, when the information is relevant to matters within the jurisdiction of the receiving agency. To ensure that requests for information are only related to legitimate law enforcement purposes, we would suggest that they be initiated and approved at relatively high levels of the requesting agency and that they be directed to a correspondingly high level at the agency from which the information is being sought. Such limits would serve to provide safeguards against the potential abuse that the RPPA was created to avoid.

The present procedures and limitations severely impede the effectiveness of the law enforcement agencies' efforts to enforce the laws. Notification of a transfer of information to a criminal enforcement agency has the undesired effect of putting the subject on notice of the criminal investigation. The alternative available -- applying each time for a court order permitting delayed notification -- is cumbersome and time-consuming in the context within which enforcement actions are developed. The situation is made particularly difficult because the Justice Department which is the agency which would normally request the delay, is unable to obtain at the outset the information necessary to make a case to support delay. As a result, agencies have limited their communications, and the enforcement process has suffered. Permitting agencies to transfer information already lawfully within their possession to other government agencies, without additional notice, when that information is relevant to a matter within the jurisdiction of the reviewing agency, would have little negative impact on the citizen's privacy rights and would contribute substantially to the government's ability to enforce the laws.

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Question 2

Concerning names and businesses which may inappropriately
appear on a financial institution's exempt list, presently
how does your agency ensure that appropriate entities are
on such lists? Assuming there is an unqualified name or
business on such a list, what types of enforcement action
would your agency pursue? At present, would civil or
criminal liability be possible against either the financial
institution or its exempted customer for inappropriately
appearing on such a list?

OCC's current examination procedures instruct examiners to review the bank's list of exempt customers to determine that:

Its contents conform to the requirements of
the regulation (103. 22(e)) and that the
exemptions appear reasonable.

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The bank has, in granting exemptions,

adhered to its established policy. Section 103.22 of the Bank Secrecy Act identifies the types of customers a bank may include on the exemption list and sets out in detail the information to be included for each customer. The bank has the principal responsibility to determine who is authorized to be placed on the exempt list. If in the course of reviewing the list, examiners have been unsure whether a listed customer is eligible for exemption, the examiners have sought the advice of an OCC BSA specialist or have required the bank to contact Treasury for a ruling. When violations have been noted, the banks have been requested to remove the customer from the list and begin filing Form 4789 on reportable transactions. In many cases, banks also have been required to search their records to identify reportable transactions which occurred between the time the customer was placed on the list and the date of delisting, and to file a Form 4789 for each unreported transaction. In addition, where exempt lists have been found to be incomplete, banks have been required to provide the omitted information. Common omissions from the lists have been account numbers, types of transactions which are exempt (e.g. deposits, withdrawals or both), and the amount of the exemption. On several occasions examiners have challenged the amount of an exemption established by a bank. The amount of an exemption must be commensurate with the customary conduct of the lawful, domestic business of the customer. When challenged, the bank

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