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Question C.

Should the agency be given more time in which to disapprove an application for change of control (currently within 60 days, not to exceed 90 under certain circumstances)?

Changes to the CBCA which would permit the appropriate Federal banking agency to extend the period in which it may issue a disapproval or a conditional approval of a change in bank control are being considered by OCC. Such an extension in time could aid the OCC in administering the CBCA. It also could increase the benefits to be derived from the additional information the OCC expects to receive as a result of the proposed rule which would permit public comments on CBCA applications.

Question D.

What is the standard used for the term "willful" under the
Act? Does this definition create problems for the agency?
Is so. what are they?

While OCC does not believe that the willfulness standard in the CBCA civil money penalty provision has created problems for the agency to date, we nevertheless believe that consideration should be given to eliminating this standard from the statute. This change would make the standard consistent with the civil money penalty standards presently contained in 12 USC §§ 93(b), 504(a), and 1818(1), and would help us deal more effectively with violations of the CBCA.

Deletion of the "will fullness" standard need not pose any threat that innocent investors would be punished for their conduct. The Federal Financial Institutions Examination Council's civil money penalty guidelines, which are used by all of the banking agencies in determining whether to assess civil money penalties, have proven to ensure fair and consistent treatment. They could be readily applied in considering whether to assess penalties for violations of the CBCA. Moreover, when considering whether to assess civil money penalties, OCC also uses additional criteria which include considerations relating to willfulness, personal benefit, and knowledge.

Question E.

What problems, if any, is the agency incurring in obtaining sufficient relevant information on foreign nationals

seeking to acquire U.S. depository institutions?

To date, the OCC has not experienced any major, recurring problems in obtaining information on foreign nationals wishing to acquire national banks. On occasion, however, problems have developed which are unique to these types of filings. The most pronounced problem has been in obtaining the information within the timeframes stated in the CBCA.

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Quite often information is requested through our embassies or through foreign central banks. This process is a time-consuming one. Also, in cases involving foreign nationals, requests are made to a greater number of agencies, and since the agencies are not required to respond to us, often their responses are not timely. The information obtained from central bank and other third parties is often a major factor in the decision but, because it is not information requested of the acquirer, we do not believe the CBCA allows the agency sufficient authority to extend the timeframes in order to obtain the information. As stated previously, an expanded set of timeframes could help solve this problem.

Another problem, which is encountered rarely but is very significant, is the inability to use information provided to us by other U. S. Government agencies, foreign regulators, or other parties because of limitations placed on the use of this information by these parties. On occasion, information reflecting negatively on an acquirer's character is obtained but is furnished under a requirement that it cannot be disclosed. Because the reasons for any disapproval must be given to the acquiring party, this information may be, in effect, useless. In addition, the OCC may be unable to gain access to certain information due to current requirements of law. See, e.g., The Grand Jury Secrecy Rule 6(e), Fed. R. Crim. P. As we have noted repeatedly, we believe significant steps need to be taken to permit better sharing of information.

III. Title XI (Right to Financial Privacy Act)

Question A.

As you know, the Right to Financial Privacy Act gives individuals notice of, and a right to challenge. federal government agency requests for their bank records. In 1978 this committee sought to strike a balance between a customer's right of privacy and the need of law enforcement agencies to obtain financial records pursuant to legitimate investigations. Today, our goals are not any different from what they were in 1978. However, some law enforcement officials have suggested that the 1978 Act is at times an impediment to legitimate law enforcement investigations. Indeed, the Administration's bill, H.R. 2785, would deny the customer's financial privacy protection under the Act under certain circumstances. The subcommittee would welcome your comments on the experiences you have had with Right to Financial Privacy concerns, and whether in your opinion amendments to the Right to Financial Privacy Act are warranted.

On numerous occasions, OCC has expressed its frustrations with the restrictions imposed by the Right to Financial Privacy Act (RFPA) on the free exchange of information between the bank regulatory agencies and Federal law enforcement officials. That frustration has not abated. The RFPA in particular has interfered with our criminal referral process preventing us from providing full information with our initial referrals

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and, consequently, has affected the recipient agency's ability to determine effectively which referrals should be pursued.

Under the RFPA, the OCC has been limited on the quantity of information that could be provided in a criminal referral absent a post-transfer notice to the customer(s) involved. Post-referral notifications always run the risk of premature disclosure of criminal investigations, raising the possibility of evidence disappearing, witnesses failing to come forward, and defenses being manufactured. Recognizing this, OCC has, as a matter of course, made referrals in such a manner as to avoid the necessity of such notice.

It is difficult to determine what impact this approach has had on the prosecution of cases referred by OCC. Referrals with limited

information, of necessity, cannot always adequately convey the depth or significance of a given criminal offense. Moreover, it is difficult for the Department of Justice to adequately assess the strengths and weaknesses of a potential bank fraud case unless it is able to evaluate these factors. A proper evaluation requires access to all of the facts which may bear on the significance of the criminal activity. Nevertheless, the restrictions imposed by the RFPA prevent this type of analysis from taking place at the time of the initial referral.

It is only after a grand jury subpoena has been served and the documents are examined that an appropriate evaluation can be made. Likewise, in order for us to protect our examiners from inadvertently violating the RFPA when they meet with law enforcement officials to discuss cases, we have generally required a grand jury subpoena. One obvious problem presented by this approach is that it creates unnecessary barriers to providing information and in most cases requires several contacts and delays before all of the relevant facts are in the hands of the prosecutor.

While OCC has attempted through oral contacts with the U.S. Attorneys' offices, to minimize any damage that could be done by these impediments, the initial lack of a full written explanation of the basis for the criminal referral, has, in OCC's judgment, unnecessarily impeded the law enforcement process.

It is very difficult to quantify the extent to which the RFPA has actually impeded an investigation or to what extent a lack of information influenced a decision to not pursue a case. We do know, however, that the limitations, either actual or perceived, have unreasonably hindered full cooperation among and between the banking agencies and the law enforcement community. The Justice/Financial Institutions Regulatory Working Group in the final Agreement of April 2, 1985, unanimously concluded that restraints like the RFPA should be modified if the Government is to coordinate effectively its efforts in its battle against all types of crime.

8.

We have long maintained that these limitations could be significantly relaxed without any significant intrusion into privacy rights, with an amendment such as that contained in the Administration's bill,

H.R. 2785. The bill's provisions would not intrude on any right of privacy as they would only allow information already legally in the hands of the Government to be used by other agencies of the Government for law enforcement purposes. The purposes of the RFPA, to prevent the extra-legal use of bank records, would be preserved.

Money Laundering Bills

Several bills now before the House would create a new crime of money laundering. They prohibit a person from engaging in a financial transaction with criminally derived property, knowing that the property is criminally derived. We support fully these bills' intent to prevent anyone, whether inside or outside of a financial institution, from knowingly using the institution to launder funds. We agree particularly that the knowing standard should be maintained to ensure that individuals or institutions are not subject to severe criminal penalties for inadvertent violations. We similarly endorse the enhanced penalties and suggest that the size of any monetary penalty be based on various factors, including the culpability of the individual or institution and the financial solvency of the violator.

We believe that the provisions in the bills that would modify the RFPA and that would preempt state law are necessary to enable individuals or institutions to make referrals to the law enforcement community of suspicious activities without inadvertently exposing themselves to potential substantial liability for violations of the RFPA or other Federal or state privacy acts. Likewise, as explained in detail in our April 14, 1986 progress report to this Subcommittee in response to question 3 of the Chairman's letter of invitation of March 27, 1986, we believe that the limitations in the RFPA should not apply to Government sharing of information for law enforcement purposes once the information has been obtained through lawful processes.

STATEMENT OF THE HONORABLE FRANCIS A. KEATING, II
ASSISTANT SECRETARY (ENFORCEMENT)

U.S. DEPARTMENT OF THE TREASURY
BEFORE THE

COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
UNITED STATES HOUSE OF REPRESENTATIVES

APRIL 17, 1986

Mr. Chairman and Members of the Committee:

I sincerely appreciate the opportunity to appear before you to discuss legislative responses to the problems of money laundering, especially legislative initiatives that will enhance Treasury's enforcement of the Bank Secrecy Act. This is my first opportunity to testify before Congress on this subject since I assumed the position of Assistant Secretary last December and to affirm to you my commitment to rigorous Bank Secrecy Act enforcement.

I am pleased to introduce Mr. Robert J. Stankey, the Acting Director of the Office of Financial Enforcement, who I know is a familiar figure to you, Mr. Chairman, and your staff. Mr. Stankey has been with Treasury since the inception of the Bank Secrecy Act. It is fair to say that he, more than any other person, has been responsible for the development of the Bank Secrecy Act into an effective law enforcement weapon and cornerstone in Treasury's financial law enforcement program.