Hearing of the Senate Banking, Housing and Urban Affairs Committee - Enforcement of the Bank Secrecy Act

Federal News Service

HEADLINE: HEARING OF THE SENATE BANKING, HOUSING, AND URBAN AFFAIRS COMMITTEE

SUBJECT: ENFORCEMENT OF THE BANK SECRECY ACT

CHAIRED BY: SENATOR RICHARD SHELBY (R-AL)

WITNESSES PANEL I: SUSAN S. BIES, GOVERNOR, FEDERAL RESERVE BOARD OF GOVERNORS, FEDERAL RESERVE SYSTEM;

JOHN D. HAWKE, JR., COMPTROLLER OF THE CURRENCY, DEPARTMENT OF TREASURY; DONALD E. POWELL, CHAIRMAN, FEDERAL DEPOSIT INSURANCE CORPORATION;

JAMES E. GILLERAN, DIRECTOR, OFFICE OF THRIFT SUPERVISION;

JOANN JOHNSON, MEMBER, BOARD OF DIRECTORS, NATIONAL CREDIT UNION ADMINISTRATION;

WILLIAM J. FOX, DIRECTOR, FINANCIAL CRIMES ENFORCEMENT NETWORK;

PANEL II:

DAVI M. D'AGOSTINO, DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENTS, GENERAL ACCOUNTING OFFICE; GASTON L. GIANNI, JR., INSPECTOR GENERAL, FEDERAL DEPOSIT INSURANCE CORPORATION

LOCATION: 538 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

BODY:
SEN. JACK REED (D-RI): Mr. Chairman, I simply want to associate myself with Senator Sarbanes' comments and remarks, and I look forward to hearing the testimony of the witnesses. Thank you.

BREAK IN TRANSCRIPT

SEN. REED: Thank you, Mr. Chairman.

Thank you for your testimony, ladies and gentlemen.

Mr. Hawke, why was criminal charges not brought in this matter with respect to Riggs? Is there a provision to allow criminal charges?

MR. HAWKE: Senator Reed, you're talking about Riggs. Riggs is a matter of ongoing investigation and I think I need to be rather circumspect in talking about what may be coming out of the ongoing discussions relating to Riggs.

SEN. REED: Fine. There's a general question you might also want to be circumspect. That is, the motivation behind these violations, which are rampant over many years. It would be one thing if it was just inattention. You know, lax record keeping. It would be something else if it was just designed to avoid regulations to induce business, and a third category obviously if there was some maligned motive of cooperating with people who are criminals or worse. And I don't know if you want to comment on that, but --

MR. HAWKE: Yes, I'd like to comment on that, Senator, because Riggs was not an unsophisticated country bank. They were a long established, significant bank in the nation's capital.

As I look back over the record and ponder the same kind of question that you've raised, it seems to me that there was an inherent tension between Riggs' business objective, which was essentially to monopolize the embassy banking business. They had 95 percent of the embassies in Washington, 50 percent of the embassies in London, and they put a very high degree of importance on that business. But there was a very high risk business move from a Bank Secrecy Act point of view. There was an inherent conflict, inherent tension between that business objective and the responsibility for robust compliance with the Bank Secrecy Act.

SEN. REED: Thank you.

Governor Bies, there's another related case and that's UBS Investment Bank of Switzerland with respect to the Extended Custodial Inventory Program. $100 million fine, I presume a civil fine?

MS. BIES: Yes. It was civil fine, yes, sir.

SEN. REED: Is there any contemplation of criminal charges, or --

MS. BIES: I think I, again, need to be circumspect around that right now while we continue to --

SEN. REED: Well, let me --

MS. BIES: -- get the full information.

SEN. REED: Let me pose the same question I posed to Mr. Hawke: what is your sense of the motivation, given there are a range of motives and some of them are-none of them are acceptable, but some are more serious and sinister than others?

MS. BIES: Again, I don't want to comment on the motives. The only thing I will comment is that when you have collusion to manage the information that comes to the Federal Reserve, there is some kind of intent and that also, the collusion, made it difficult for us to detect it. And as a result of this, we are looking-we've already changed procedures and then we are going in and going to test those procedures in the future to try to see if there's a way we could have detected this despite the collusion.

SEN. REED: Thank you, Governor Bies.

Mr. Gilleran, the GAO report-this is my understanding of it-suggests that in a survey of 986 thrifts from January 2000 to October 2002 they discovered BSA violations at 180, which seems to be almost 20 percent. That is-causes you concern, or --

MR. GILLERAN: Well, it certainly was. And we have responded to that report and we are appreciative of their comments in this area. We have adjusted our system accordingly. We've improved our information system and that period of time was prior to the PATRIOT Act and the focus, of course, now is much greater. But I think that that review was a good one for us and we are now presently being reviewed by the GAO also in another-in the same area. So outside reviews I think are helpful.

SEN. REED: Thank you. This is an obvious question and I'll just pose it to the panel. Is there any legislative authority that you need, in addition to the existing statutes, to better coordinate, better implement, better enforce? And I say that because I spend time on the Armed Services Committee also and we spend a lot of hours on the war on terror and threats to the nation. And this-you might have more a decisive role in frustrating attacks against American than many of our uniformed officers, if you can control the money.

Ms. Johnson?

MS. JOHNSON: Senator, there is one area that NCUA would have interest in. The Exam Parity Act of 1998 gave NCUA authority to perform examinations of third party vendors, and the act contained a sunset provision and that authority expired December 31 of 2001. The other regulators do have that indefinite examination authority over third party vendors, and that may be helpful.

SEN. REED: Thank you.

MR. HAWKE: Could I just add something --

SEN. REED: Mr. Hawke, please.

MR. HAWKE: -- to that, Senator Reed?

SEN. REED: Yes, sir.

MR. HAWKE: The legal requirements that we as regulators enforce are very far reaching and very demanding. They go essentially, though, to process; to the maintenance of control systems, to training, to the maintenance of compliance officers, to the filing of reports, currency transaction reports, filing of suspicious activity reports. I think those statutes provide a very strong framework for the regulators to assure, if they're carrying out their responsibilities properly, that the banks where the primary information is about transactions, that the banks are doing their job in identifying who their customers are, knowing what kinds of transactions are going through their accounts, and filing all the appropriate reports. It's the job of law enforcement to take the output of that process and to determine whether there are actual money laundering transactions or terrorist financing transactions that are going through the system. So I think that the statutory framework is strong and adequate. If we fulfill our responsibilities and the banks fulfill theirs in observing their requirements to have the right kind of controls, the right kind of systems and to do the right kind of reporting.

SEN. REED: Thank you.

Thank you, Mr. Chairman.

SEN. SHELBY: Thank you, Senator Reed.

MR. GILLERAN: Just to respond further to Senator Reed, on page 17 of my written statement I've made some recommendations for increased communications and better flow of information from law enforcement back to the institutions we regulate, because I think one of the problems here is the institutions don't know to what end a lot of the information that they are providing results in. And I think that would help them to better focus on their problem if they had more feedback. At the same time, I'd like to see-and I think my fellow regulators agree that we ought to have a working group set up at the Federal Financial Institution Council focusing on Bank Secrecy Act. And I'd like to have FinCEN be part of that. I think that's the appropriate forum under which we can all communicate. But I think enhanced communication of information is very important in this process.

SEN. REED: Thank you, Mr. Chairman.