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Assuming there is an ungualified 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? 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?
Has any thought been given to the use of the civil
Again, the Subcommittee is appreciative of your efforts in this area. Please submit your responses to the Subcommittee no later than May 7, 1986.
einand J. St Germain Chairman
This letter responds to your inquiry of April 25, 1986. our answers to your questions:
The following are
1. Question: Both Mr. Serino, of the Office of the Comptroller of the
Currency, and Mr. Woodard, of the Internal Revenue Service, in
b) How do you intend to prevent this power from abusing the
privacy rights of the legitimate customer?
Answer: The Bank Board also supports the Administration's bill (H.R. 2785). The provision referred to in the Subcommittee's question would give the Secretary of the Treasury authority to issue a
to a financial institution or its employees for a bank customer's records. The bill would limit this authority to the purpose of investigating violations of the Bank Secrecy Act (BSA).
The Board believes that this limitation is an appropriate criterion for the use of the summons. Providing that an inquiry serves the lawful purpose of investigating possible BSA violations, we believe that the interest of the public in securing compliance with the BSA outweighs the customer's right to the privacy of his records. In this regard, two points must be noted. First, review of customer records by law enforcement officials does not publicize otherwise confidential and legitimate customer records in any way; nor does it alter customer relationships with financial institutions. Thus, there is little potential for abuse of customers' rights to privacy. Second, the bill has built-in safeguards against abuse: it requires the Secretary of the Treasury to refer any enforcement request to the Attorney General, who, in turn, must obtain a court order. Thus, before enforcement could be ordered, two outside entities would examine the consistency of the Secretary's summonses with the requirements of the bill.
2. Question: 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 nane 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?
Answer: in all regularly scheduled examinations, we require a review of Bank Secrecy Act compliance. Our current procedures for that review contain the following instruction to examiners:
Obtain a copy of the institution's list of exempt customers. Through a review of this document, determine:
Whether its contents conform to the requirements of the regulations (name, address, business, nine-digit Federal taxpayer identification number, reason for exemption, etc.), and that the exemptions appear reasonable.
Whether the institution has, in granting exemptions, adhered to its established policy.
We are currently in the process of revising these examination procedures. The new procedures will contain the following instructions:
The examiner should obtain a copy of the institution's list of exempt customers and review the institution's correspondence with the Internal Revenue Service (IRS) or Department of the Treasury regarding exemptions. Through a review of these documents, the examiners should determine:
a. Whether the contents conform the requirements of the
regulations (name, address, business, nine-digit Federal taxpayer identification number, reason for exemption, etc.), and whether
the exemptions appear reasonable. b. Whether the institution has, in granting exemptions, adhered to
its established policy and has documentation to support the limits established. (Lists that appear inordinately long or that contain
of customers whose business size nature would not ordinarily merit exempt status should be discussed with management of the institution. If management cannot provide adequate explanation and/or supporting documentation, the matter should be reported.)
Whether a denial for a special request for exemption from the
If we find an unqualified name or business on an insured institution's exempt list, we would refer this matter to the Treasury in accordance with the guidelines it has established. See Exhibit 24 to the Report of the Federal Home Loan Bank Board to the Subcommittee (previously submitted).
At present, a willful violation of the Bank Secrecy Act requirements or any regulation thereunder, including requirements for exempt lists provided in 31 C.F.R. S 103.22, can be the subject of civil or criminal penalties under 12 U.S.C. SS 5321 and 5322. Notwithstanding the above, it appears that a customer who is improperly placed on the exempt list (even if the customer lied to the financial institution) may not be civilly or criminally liable. The customer would not have violated the provisions of 31 C.F.R. S 103.22, or any other provisions of the Bank Secrecy Act or the regulations thereunder because the statute and regulations impose a duty on financial institutions, not customers. The Bank Board would support legislation that would provide criminal penalties for customers who willfully acted to obtain a position on the exempt list, knowing that position was not permitted by regulations or statute.
3. question: Should the term monetary instruments" in the Bank Secrecy Act
and its regulations be amended to include postal noney orders'
4. Question: Has any thought been given to the use of the civil money penalty
provisions of the Financial Institutions Regulatory and Interest
Answer: The Bank Board has authority to assess civil money penalties in very limited situations. The assessment process is a lengthy one requiring a full Administrative Procedure Act hearing if the institution or individual does not consent to the payment of a proposed penalty. Based on our experience, this process appears unlikely to minimize delays occurring under the present system. Moreover, where other authorities Treasury, Justice, IRS -- already have primary responsibility for imposing penalties under the BSA, it does not appear necessary or desirable to duplicate this effort and authority within the financial institution regulatory agencies.
At the hearings before your Subcommittee, we were asked about the average size of money orders sold by the institutions we regulate. Since the Board does not maintain such information, we contacted five Federal Home Loan Banks, who in turn surveyed a sample of institutions. We found a wide range of policies, and have enclosed the results of the survey.
I hope that the information I have provided in this letter is helpful. Please do not hesitate to contact me again if I can be of further assistance.
Francis M. Passarelli