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

### TEXT: ROBERT SERINO TESTIMONY ON ANTI-MONEY LAUNDERING EFFORTS

    (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)