16 June 1998
Source:
http://www.usia.gov/current/news/topic/global/98061114.lgi.html?/products/washfile/newsitem.shtml
United States Information Service Washington File
11 June 1998
(OCC official pledges "vigilance" in supervising U.S. banks) (3760)
WASHINGTON -- "Money laundering is a serious international law
enforcement problem that may never be completely eradicated," says
Robert Serino, deputy chief counsel for the Office of the Comptroller
of the Currency (OCC). "However, we remain aggressive and vigilant in
our efforts to combat this problem in the banks that we supervise."
Testifying June 11 before the House Committee on Banking and Financial
Services, Serino declared that he and OCC colleagues "remain totally
committed to working with the law enforcement community to assist in
the investigation and prosecution of organizations and individuals who
violate the law and engage in money laundering."
Financial institutions are required to report transfers of funds in
compliance with the Bank Secrecy Act (BSA) and other anti-money
laundering statutes, he stated, and the OCC directs this process. "The
OCC has a statutory mandate to ensure that national banks operate
safely and soundly and comply with applicable laws," Serino said.
"Where deficiencies are noted, we take supervisory and enforcement
actions to ensure that the bank promptly corrects them."
He explained that the OCC, in its watchdog capacity, "conducts regular
examinations of national banks and branches and agencies of foreign
banks in the United States, covering all aspects of the institutions's
operations, including compliance with the BSA and review of anti-money
laundering efforts."
The OCC also regularly takes part in interagency working groups and
initiatives, he pointed out. "Combating money laundering depends on
the cooperation of law enforcement and regulatory agencies," Serino
added. "Through these interagency contacts, we often receive leads as
to possible money laundering in banks that we supervise."
He also described how OCC investigations can serve as a potent weapon
in the war against organized crime. "Once the OCC opens an
investigation, the OCC can use its administrative subpoena power to
compel the production of documents and testimony from individuals and
entities both inside and outside of the bank," he said. "These
investigations may result in both criminal convictions and significant
asset forfeitures."
Serino concluded his remarks by reiterating his agency's mission to
respond swiftly and forcefully to eradicate criminally-derived funds
from the American banking system.
"With our anti-money laundering initiatives, active interagency
working groups, increased international cooperation, and a committed
[banking] industry, the OCC intends to make substantial additional
progress in preventing the nation's financial institutions from
wittingly or unwittingly being used to launder money," he vowed.
Following is the text of his statement, as prepared for delivery:
(begin text)
TESTIMONY OF
ROBERT B. SERINO
DEPUTY CHIEF COUNSEL
COMPTROLLER OF THE CURRENCY
Before the
COMMITTEE ON BANKING AND FINANCIAL SERVICES
of the
U. S. HOUSE OF REPRESENTATIVES
June 11, 1998
The views expressed herein are those of the Office of the Comptroller
of the Currency and do not necessarily represent the views of the
President.
Mr. Chairman and members of the Committee, we appreciate the
opportunity to testify today about the Office of the Comptroller of
the Currency's (OCC's) anti-money laundering efforts. Money laundering
is a serious international law enforcement problem that may never be
completely eradicated. However, we remain aggressive and vigilant in
our efforts to combat this problem in the banks that we supervise. We
welcome the Committee's continuing interest in these matters, and
commend the Committee for focusing attention on money laundering and
the problems that it poses.
In your invitation letter, you requested that we address two areas in
our testimony today. First, you requested that we address the OCC's
anti-money laundering regulatory and enforcement efforts. Second, you
requested that we provide our views regarding the two pieces of
legislation that you, Mr. Chairman, and Congresswoman Velazquez have
proposed to strengthen the federal government's authority to detect
and prosecute money laundering offenses.
The OCC has a longstanding commitment to combating money laundering.
We have always shared the Committee's belief in the importance of
preventing the financial institutions we regulate from being used
wittingly or unwittingly to aid in money laundering. We remain totally
committed to working with the law enforcement community to assist in
the investigation and prosecution of organizations and individuals who
violate the law and engage in money laundering.
Acting Comptroller Julie Williams is committed to continuing our
anti-money laundering efforts. In June 1997, the OCC formed a task
force within the OCC, called the National Anti-Money Laundering Group
(NAMLG), to serve as the agency's focal point for Bank Secrecy Act
(BSA) and anti-money laundering supervision, and we have adopted a
number of new anti-money laundering initiatives which I will describe
to you shortly.
I. OCC's Anti-Money Laundering Activities
Background
Money laundering is the movement of criminally derived funds for the
purpose of concealing the true source, ownership, or use of the funds.
Until 1970, when the BSA was signed into law, there were few laws and
regulations aimed at combating money laundering. The BSA establishes
requirements for recordkeeping and reporting by private individuals,
banks, and other financial institutions. The BSA was created to help
identify the source, volume, and movement of currency and other
monetary instruments into or out of the United States or being
deposited in financial institutions. It enables law enforcement and
regulatory agencies to use that information in investigations of
criminal, tax, and regulatory violations.
In 1986, Congress strengthened the anti-money laundering laws by
passing the Money Laundering Control Act. Under this statute, it is a
criminal offense for a person or institution to knowingly assist in
the laundering of money, or to structure transactions to avoid
reporting.
Supervisory Efforts
The primary responsibility for compliance with the BSA and the money
laundering statutes rests with the nation's financial institutions
themselves -- they represent the front lines in the fight against
money laundering. The OCC has a statutory mandate to ensure that
national banks operate safely and soundly and comply with applicable
laws. Where deficiencies are noted, we take supervisory and
enforcement actions to ensure that the bank promptly corrects them.
The OCC conducts regular examinations of national banks and branches
and agencies of foreign banks in the United States, covering all
aspects of the institution's operations, including compliance with the
BSA and review of anti-money laundering efforts. The OCC monitors
compliance with the BSA and money laundering laws through its BSA
compliance and money laundering prevention examination procedures. In
September 1996, the OCC issued a new section of the Comptroller's
Handbook for National Bank Examiners (Handbook) on BSA compliance. The
Handbook contains procedures designed to assess BSA compliance as well
as identify money laundering in accordance with the mandate in section
404 of the Money Laundering Suppression Act of 1994, which requires
the federal banking agencies to develop enhanced examination
procedures to better identify money laundering. The procedures were
developed by the OCC, in cooperation with the other federal banking
agencies. The Handbook section also contains guidance in key areas
such as the development of an effective "know your customer" program.
Strong internal policies, systems, and controls are the best assurance
of compliance with the reporting and recordkeeping requirements of the
BSA and the money laundering laws. Consequently, the Handbook's
mandatory procedures focus our examination efforts on a national
bank's system of internal controls, audits, policies, and procedures
in the BSA and money laundering areas. Where examiners note control
weaknesses or when we receive a lead from a law enforcement or other
external source, the examiners are directed to test the bank's
policies, systems, and controls by utilizing supplemental procedures
and reviewing certain individual transactions.
Combating money laundering depends on the cooperation of law
enforcement and regulatory agencies. Therefore, the OCC participates
in a number of interagency working groups aimed at money laundering
enforcement, and meets on a regular basis with law enforcement
agencies to discuss money laundering issues and share information that
is relevant to money laundering schemes. Through these interagency
contacts, we often receive leads as to possible money laundering in
banks that we supervise. Using these leads, we can target compliance
efforts in areas where we are most likely to uncover problems. For
example, if the OCC receives information that a particular account is
being used to launder money, our examiners would then review
transactions in that account for suspicious funds movements.
In cases where the OCC suspects that serious violations of the BSA or
money laundering have occurred, the OCC conducts investigations. Once
the OCC opens an investigation, the OCC can use its administrative
subpoena power to compel the production of documents and testimony
from individuals and entities both inside and outside of the bank.
This information is not only used for our supervisory purposes, but,
when it is relevant to a potential criminal violation, it is shared
with the appropriate criminal law enforcement agencies. We also
provide the proper state and federal governmental authorities with
active assistance as well as documents, information, and expertise
that are relevant to their money laundering investigations. The OCC
has conducted several investigations into suspected money laundering
activities, and we continue to closely cooperate with federal criminal
law enforcement agencies. These investigations may result in both
criminal convictions and significant asset forfeitures.
All banks are required by regulation to report suspected crimes and
suspicious transactions that involve potential money laundering or
violate the BSA. In April 1996, the OCC, together with the other
federal financial institution regulatory agencies, and the Financial
Crimes Enforcement Network (FinCEN), unveiled a new suspicious
activity reporting system, suspicious activity report (SAR) form, and
database. The new system provides law enforcement and regulatory
agencies online access to the entire SAR database. Based upon the
information in the SARs, law enforcement agencies will initiate an
investigation and, if appropriate, take action against violators. By
using a universal SAR form, consolidating filings in a single
location, and permitting electronic filing, the new system greatly
improves the reporting process and makes it more useful to law
enforcement and to the regulatory agencies. As of September 1997,
banks and regulatory agencies had filed nearly 110,000 SARs.
Approximately 40% of these SARs were for suspected BSA/money
laundering violations.
The OCC uses the SAR database as a means of identifying potential
cases against bank insiders and employees for administrative
enforcement actions. For example, since 1996, through our review of
SARs and its predecessor, the criminal referral form, the OCC has
prohibited approximately 40 individuals from participating in the
banking industry. Two of those prohibitions were for structuring
currency transactions to avoid BSA reporting requirements.
National Anti-Money Laundering Group
As noted above, the OCC has formed a new internal task force on money
laundering called the NAMLG. During the past year, through the NAMLG,
the OCC has embarked on several important projects.
A major project of the NAMLG involves the targeting of banks that may
be vulnerable to money laundering for examinations using
expanded-scope procedures. We select banks for these examinations
based on law enforcement leads or criteria developed by the OCC. We
already have conducted a number of expanded-scope anti-money
laundering examinations based on law enforcement leads.
The NAMLG has developed guidance to assist our examination staff in
targeting institutions that might be vulnerable to attempts by
individuals or institutions to engage in money laundering activities.
The guidance requires our supervisory offices in the four most active
"High Intensity Drug Traffic Areas", designated by the Office of
National Drug Control Policy, to consider a series of factors in
developing a prioritized list of institutions that are considered most
susceptible to money laundering. Some of the factors are the extent of
funds transfers to or from entities in foreign countries that are
believed to be money laundering havens; the extent of account
relationships with individuals and entities located or otherwise
associated with the above-referenced countries; the strength of the
bank's "know your customer" policy and monitoring mechanisms; and
other factors which may make the bank susceptible to money laundering.
The NAMLG is also overseeing anti-money laundering examinations of the
overseas offices of several national banks. The purpose of these
examinations is to review and analyze measures taken by national banks
operating in foreign countries to minimize money laundering risks;
identify money laundering risks and devise responsive supervisory
strategies and examination procedures; and generate effective "best
practices" information that we will share with the industry. The OCC
recently completed some of those examinations. During the
examinations, we reviewed the banks' corporate and local anti-money
laundering policies and procedures; assessed the banks' quality
assurance and corporate audit functions; and met with host country
bankers associations and central banks. We will use the results of
these examinations as a basis for designing a supervisory approach for
subsequent examinations of overseas offices, which we will conduct
later this year or early next year.
The NAMLG is working with the other law enforcement agencies and the
other regulatory agencies to develop an interagency examiner training
curriculum that will include training on common money laundering
schemes. And we are continuing to review our examination procedures to
ensure that they are effective in identifying potential money
laundering activities.
Other responsibilities of the NAMLG include sharing information about
money laundering issues with the OCC's District offices; analyzing
money laundering trends and emerging issues; and promoting cooperation
and information sharing with national and local anti-money laundering
groups, the law enforcement community, bank regulatory agencies, and
the banking industry.
Several of our District offices have also formed similar local groups
that interact with the NAMLG. For example, our Southwestern District
Task Team was formed in February 1997. Its purpose is to implement a
more proactive approach to supervising bank compliance with the BSA
and the money laundering statutes by identifying and examining
high-risk banks, working with local law enforcement and regulatory
agencies, providing examiner training, developing and sharing "best
practices" examination procedures and methodologies with the NAMLG and
the other Districts, and developing and implementing other anti-money
laundering initiatives.
OCC Resources Committed to the BSA and Money Laundering
In our ongoing efforts to deploy our resources most effectively and
efficiently, the OCC has developed a special compliance cadre of
approximately 100 examiners. The members of this cadre specialize in
compliance issues and receive specific training and career development
in compliance, including the BSA and money laundering prevention.
In order to augment the agency's BSA and anti-money laundering
expertise, the OCC recently hired BSA Compliance Specialists to
provide support to examiners and to assist with the development of BSA
and money laundering policy. These new BSA Specialists have extensive
experience and background in the BSA and anti-money laundering areas.
We have also designated examiners with extensive backgrounds in fraud
and money laundering to serve as a full-time fraud specialist in each
of the OCC's six District offices. The "fraud squad" specialists'
responsibilities include providing assistance and support to examiners
on money laundering issues, and serving as the agency's liaison, along
with our District Counsel and the Enforcement & Compliance Division,
to the other regulatory and law enforcement agencies on matters
involving fraud and money laundering. In addition to the District
fraud specialists, the OCC has two full-time examiners in the Offshore
Banking and Fraud Unit in Washington, D.C., who are responsible for
tracking the activities of offshore shell banks and other types of
suspicious activities that may be designed to defraud legitimate banks
and the public. Over the past several years, this unit has issued
hundreds of industrywide alerts, including 15 specific alerts on
unauthorized banks operating over the Internet, some of which are
suspected of being money laundering vehicles.
The OCC provides formal BSA and anti-money laundering training to our
examining staff on an ongoing basis. This training includes the
FFIEC's White Collar Crime and Testifying Schools, as well as in-house
training programs. In addition to these schools, last year, we
provided BSA and anti-money laundering training at each of the six
OCC's District staff conferences, and as a major component of our
Compliance Cadre Conference.
Interagency Working Groups and Initiatives
The OCC believes that interagency coordination and cooperation are
critical to successfully addressing BSA and money laundering issues.
We actively participate in several interagency groups seeking to
curtail money laundering through financial institutions by surfacing
issues, sharing information, and making recommendations to improve
money laundering enforcement and awareness. These include the BSA
Advisory Committee, chaired by the U.S. Treasury Department, which is
composed of policy, legal, and operations representatives from the
major federal and state law enforcement and regulatory agencies
involved in the fight against money laundering, as well as industry
representatives; the Interagency Money Laundering Working Group,
co-chaired by the Department of Justice and FinCEN; and the National
Interagency Bank Fraud Working Group, of which we have been an active
member since its founding in 1984. We also work on an international
basis with the Financial Action Task Force, an inter-governmental body
whose purpose is the development and promotion of policies to combat
money laundering. In addition, we have participated in various State
and Treasury Department missions to assist foreign governments in
their anti-money laundering efforts. We expect that these
international efforts will continue.
For the past several months, the OCC has been working with the other
federal financial institution regulatory agencies, on a uniform,
interagency "know your customer" regulation. The regulation will
ensure that banks establish and maintain procedures to identify their
customers, and their customers' normal and expected transactions and
sources and uses of funds. These procedures are intended to facilitate
bank compliance with applicable statutes and regulations and with safe
and sound banking practices, and prevent banks from becoming vehicles
for, or victims of, illegal activities perpetrated by their customers.
For the past several months, an interagency work group has been
meeting on a regular basis to develop the proposed regulation. We
anticipate that a regulation will be proposed for public comment this
year.
Promoting Industry Awareness
As mentioned above, the primary responsibility for ensuring that banks
are in compliance with the law remains with the bank's management and
its directors. To aid them in meeting this responsibility, the OCC
devotes time to educating the banking industry about its
responsibilities under the BSA. In past years this has included active
participation in conferences and training sessions across the country.
We will continue to be active in this area.
The OCC provides guidance to national banks through: (1) periodic
bulletins that inform and remind banks of their responsibilities under
the law, applicable regulations, and administrative rulings dealing
with BSA reporting requirements and money laundering; (2) publication
and distribution of a guide in this area entitled Money Laundering: A
Banker's Guide to Avoiding Problems; (3) publication and distribution
of the new Handbook section; and (4) periodic alerts and advisories of
potential frauds or questionable activities, such as the alerts on
unauthorized Internet banks.
II. Proposed Legislation
You have asked us to comment on two bills that have been proposed to
combat money laundering -- the "Money Laundering Deterrence Act of
1998," and the "Money Laundering and Financial Crimes Strategy Act of
1998." Although the Administration has not yet put forward a position
on the bills' particular provisions, the OCC believes that both bills
could help detect and deter money laundering, and are deserving of
serious consideration.
The Money Laundering Deterrence Act of 1998
The Money Laundering Deterrence Act of 1998 extends to accountants the
statutory "safe harbor" from civil liability for banks and individuals
who report potential crimes, facilitates the flow of information among
law enforcement and regulatory agencies within the government, and
creates a new "safe harbor" from civil liability for banks and
individuals who share information in an employment reference about a
prospective employee's possible involvement in a violation of law or a
suspicious transaction. It also increases the penalties for certain
violations of law, and requires the filing of reports relating to
coins and currency received in nonfinancial trade or business.
The OCC is supportive of the goals of this proposal, especially the
expansion of the statutory "safe harbor" for banks and individuals
that report potential crimes and suspicious transactions, and the
creation of a new "safe harbor" for banks and individuals who share
information in an employment reference about a prospective employee's
possible involvement in a violation of law or a suspicious
transaction. Banks and their employees must feel free to report
suspicious transactions, and to share information in the employment
context about individuals involved in misconduct, without fear of
liability.
The Money Laundering and Financial Crimes Strategy Act of 1998
The Money Laundering and Financial Crimes Strategy Act of 1998 would
require the development of a national strategy for combating money
laundering and related financial crimes, require that the Secretary of
the Treasury designate certain areas as high-risk areas for money
laundering and related financial crimes, and establish a Financial
Crime-Free Communities Support Program (Program). This Program would
enable the Secretary of the Treasury to make grants to support state
and local law enforcement efforts in the development and
implementation of programs for the detection, prevention, and
suppression of money laundering and related financial crimes.
The OCC supports the undertaking of cooperative efforts involving
federal, state, and local government officials to combat financial
crimes. We also believe that designating an area as a "high-risk money
laundering and related financial crimes area" will help the OCC and
others target resources to those areas experiencing the most problems.
Finally, by awarding grants to law enforcement officials located in
areas designated as high-risk money laundering and related financial
crimes areas, the Program will help ensure that the grants are used in
areas that are most in need of assistance.
Conclusion
Money laundering is a serious problem. While it may be unrealistic to
expect that it will ever be completely eradicated from the banking
system, the OCC is committed to preventing national banks from being
used to launder the proceeds of the drug trade and other illegal
activities. We stand ready to work with Congress, the other financial
institution regulatory agencies, the law enforcement agencies, and the
banking industry to continue to develop and implement a coordinated
and comprehensive response to the threat posed to the nation's
financial system by money laundering.
With our anti-money laundering initiatives, active interagency working
groups, increased international cooperation, and a committed industry,
the OCC intends to make substantial additional progress in preventing
the nation's financial institutions from wittingly or unwittingly
being used to launder money.
(end text)