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)