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encounter transactions of uncertain legitimacy. Many are bound
by secrecy laws from transmitting any such information to other
assistance treaties that deal with the problem of enforcement. Means exist, however, for informal exchanges of information between supervisors, both in their regular activities and
through discussions such as the one described.
Question 2: On page 14 of your testimony, you state that "the Federal Reserve stands ready to assist the Justice Department by making quick referrals of suspected criminal activity to the appropriate authorities and by providing advice on international transactions."
Can you provide specific instances of when and how the Federal Reserve has assisted the Justice Department with such referrals and advice on international transactions? What input does the Fed provide to Justice and/or Treasury on the Fed's monitoring of suspected criminal activity?
Answer: A uniform criminal referral form was developed by the Justice Department /Regulatory Agency Bank Fraud Working Group for the use of each of the regulatory agencies. In August
1985, the Board distributed the form to the financial institu
tions subject to its jurisdiction (e.g., State member banks, bank holding companies, nonbank subsidiaries of bank holding companies, and Edge Act corporations). The new form is being used successfully, and already approximately 425 criminal referrals have been made using the form.
Senior staff in the Enforcement Section of the Division
of Banking Supervision and Regulation of the Board have been assigned to monitor criminal referral activity. The staff is
now responsible for reviewing every criminal referral form
submitted to the Federal Reserve System.
Computer systems have
been developed to track the referrals and cross check the referrals with the activities of the Enforcement Section of the
Division. In this manner, we are better coordinating the actions that must be taken in those instances where a suspected
criminal activity affects the safety or soundness of a financial
institution or an individual's conduct warrants both crininal
referral and removal or other formal supervisory action.
Board staff cooperated with the Department of Justice
in the development of procedures designed to ensure that criminal referrals involving "significant" activities that may affect the safety or soundness of a bank or holding company or otherwise involve large sums are submitted directly to the Fraud Section or the Department of Justice for appropriate high level attention by the Department, the U.S. Attorneys' Offices and the
To date, about 10 matters have been referred by the
Federal Reserve System to the Justice Department for action.
a very significant matter involving several banks and savings and loan associations and numerous individuals along with their related interests, which included some off-shore entities. Federal keserve System examiners prepared the referral and assisted in the presentation of the matter to the Justice Department and the
Since this matter is under active investigation by the FBI
and a U.S. Attorney's Office at this time, we cannot provide any
details of the referral.
Question 3 : The 1984 Interim Report of the President's Commission on Organized Crime chronicles in detail the important roles Panama and Hong Kong play as financial centers for drug-related money laundering activities originating in the United States.
What is the Federal Reserve doing to encourage those governments and financial communities to eradicate or reduce money laundering? What steps are planned to aid those countries in cracking down in such activities?
Answer: Hong Kong has had a long standing laissezfaire policy regarding financial institutions and individual financial transactions. This policy is beginning to change, partly as a result of some recent well publicized failures of comnercial banks and deposit taking companies. Increased super
visory attention is being given to commercial banks and deposit
taking companies activities.
More intense scrutiny over banking
transactions should make the environment less hospitable to
money laundering. The Federal Reserve will continue to advise the Hong Kong authorities when requested and if necessary. Hong
Kong authorities are, however, initiating their own efforts to
strengther supervision over banking transactions.
Panama, on the other hand, has very rigid deposit
secrecy laws which are intended to help promote its growing
It would be a long and difficult process to
convince the appropriate authorities that more rigid supervision
is both necessary and desirable.
Nevertheless, the Federal
keserve will continue to monitor the activities of U.S. banks
operating in Panana to ensure that proper internal controls and
audits are in place that reduce the probability that money laundering is inadvertently occurring through U.S. banks.
The Federal Reserve, while not prescribing a set agenda in this regard, continues to be willing to assist any country that seeks aid in instituting measures that are designed to
eradicate or reduce money laundering.