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has been required to provide data to support the exemption limit. Depending upon the data provided, the bank may be required to remove the customer from the exempt list or to adjust the exclusion amount. Again, in some cases the bank has been required to back file Form 4789's.
Depending upon the severity of the problems noted, additional enforcement measures have been taken. For instance, provisions in our enforcement documents have dealt specifically with violations of the Bank Secrecy Act. Such provisions have included, in addition to the specific requirements to correct outstanding violations, a requirement to establish a system of internal controls to ensure compliance with the Bank Secrecy Act. Language currently being used by OCC to deal specifically with the exemption area includes a requirement for banks to develop written policies and procedures for complying with the exempt list requirements. In addition to identifying and requiring correction of violations and requiring the adoption of better internal controls, if the violations are serious enough, we also will make a referral to the Treasury Department for consideration of civil and/or criminal penalties. We are currently working with Treasury and the Bank Secrecy Act Working Group to finalize criteria for making such referrals. We also are working with the Bank Secrecy Act Working Group to give additional guidance to the banking industry on how to better comply with the regulations dealing with the exempt list.
Civil and criminal liability for violations of the Bank Secrecy Act hinge on whether the violations are considered to be 'willful'. We believe the term willful means 'action taken knowingly, consciously, intentionally or with reckless disregard.' In the criminal context, we believe that, in addition, there would have to be a knowing violation or a specific intent to violate the law. We are developing a Policies and Procedures Manual issuance to be used in determining when a referral is appropriate. A draft is currently undergoing review by the Treasury Department Working Group.
Should the term 'monetary instruments' in the Bank Secrecy Act and its regulations be amended to include postal money orders' in order to include them under the requirements of
the Act and its regulations? Money orders are already included by regulation within the definition of the term 'monetary instruments,' 31 CFR 103.11,
if they are in bearer or similar form. Thus, like bank checks and traveler's checks, money orders which have been made payable to the order of a named person and which have not been endorsed or which bear restrictive endorsements are not included within the meaning of the term. We understand that the real enforcement problem has arisen because of this bearer form restriction, particularly with respect to checks and orders made out to fictitious payees. The Administration's bill, H.R. 2785, addresses this problem by proposing to amend the statutory definition of 'monetary instruments' to include non-bearer material.
If your interest also is to ensure that postal money order purchases are covered by the reporting requirement, you also may wish to address whether the Postal Service should be included under the definition of the term 'financial institution.'
Your underlying question--whether postal money orders are posing a significant enforcement problem such that action should be taken to include them within the scope of the BSA--would be more appropriately addressed to the Treasury Department and the Postal Service. Our experience with postal money orders and any enforcement problems relating to them is extremely limited. The Treasury and the Postal Service would be in the best position to evaluate the extent to which postal money orders are being used in money laundering schemes and would be best able to advise you.
In your testimony, you noted that the Comptroller's office is considering requiring public notice of Change in Bank Control Act applications in order to solicit public comment on those applications. This suggests a continuing weakness on the part of our bank regulatory agencies to obtain information about individuals seeking control of our financial institutions. There is growing concern on the Subcommittee about certain individuals seeking control of financial institutions for dishonest purposes. While we encourage your best efforts and thoughts in this area, what has been the reaction thusfar to your proposal?
As we stated in our earlier submission to the Subcommittee, while we believe that the Change in Bank Control Act (CBCA) is an effective means to deny ownership of financial institutions to disreputable individuals, we believe the statute could be improved to make it a more effective tool. No matter how much information we are able to obtain, there will always be cases in which additional information would be useful. We do not believe that information gaps have seriously affected our CBCA
program. We are sensitive, however, to the possibility of such an event and are seeking to utilize all available sources to ensure that we have as much information as possible on which to base our decisions.
Our proposal to require public notice of CBCA applications is part of this continuing effort. Public announcement of such notices is consistent with the occ's practices relating to the chartering of new national banks and the merger of existing institutions, where public notice of charter and merger applications currently is required. It also is consistent with the recommendations contained in the Committee on Government Operations, Federal Response to Criminal Misconduct and Insider Abuse in the Nation's Financial Institutions, H.R. Rep. 98-1137, 98th Cong., 2d Sess., at 20. Moreover, the PDIC has recently adopted a nearly identical rule. 51 Fed. Reg. 10800 (March 31, 1986).
The proposal generated little reaction when it was published as
fact that a notice has been filed, the
be issued ?
person filing a notice be prejudiced by the
early disclosure of its existence? Six comments were received -- three in favor and three opposed. In support of the proposal, it was argued that if an acquisition were for a lawful purpose, and the acquirors intended to operate a national bank lawfully, no prejudice should occur due to the early disclosure of the information contemplated by the proposed rule. The rule would make the disclosure requirements of the CBCA comparable to those under the Bank Merger Act and the Bank Holding Company Act, and would be compatible with the requirements of the Williams Act Amendments to the Securities Exchange Act of 1934, concerning tender offers. Moreover, the disallowance of a CBCA notice based on information brought to the occ's attention by the public would be less costly than ordering that a consummated transaction be dissolved following belated discovery of the same information.
In opposition to the proposal one commenter noted simply that the previous occ disclosure policy had been adopted for valid reasons and should be retained. Information obtained by the public, noted another, would address the competence, experience or integrity of the proposed acquiror and the commenter was concerned that such information may amount to ad hominem attacks principally designed to prolong the regulatory process, permitting incumbent management to entrench itself. In addition, the commenter noted that publishing notices of changes in control may increase transaction costs associated with changes in control and may stop such transactions completely, at least for small banks. A third commenter felt the proposed procedure constituted an intrusion into normal business practices, and would erode public confidence by suggesting an impropriety in changes in control. That commenter thought that to announce contemplated changes in control would destroy the confidentiality in the process that presently exists. These comments are still under review in this Office. As yet, no action has been taken in adopting a final rule.
Has any thought been given to the use of the civil money penalty provisions of the Financial Institutions Regulatory and Interest Rate Control Act, with appropriate amendments, in connection with violations of the Bank Secrecy Act by financial institutions and their employees? Present delays caused by extended negotiations and record review to
determine willfulness' possibly could be minimized. We believe that authority for imposition of civil money penalties properly resides with the Department of Treasury. The approximately 5,000 national banks are only one part of the universe of institutions which fall under Treasury's oversight in the Bank Secrecy Act area. In order to ensure consistency of application against all financial institutions, whether state or federal, the Department of Treasury should continue to have sole authority in this area. Any effort to reduce delays caused by extended negotiations or record reviews to determine 'willfulness', should be dealt with within the present BSA enforcement context.
The Subcommittee appreciates your appearance at our hearings last Thursday. Your testimony is of great assistance in our review of the Bank Secrecy Act and other pertinent issues.
There are several questions which the Subcommittee would like to have you answer and which will be submitted for the record. They are as follows:
Both Mr. Serino, of the office of the Comptroller
abusing the privacy rights of the legitimate
concerning names and businesses which may