Statement
Of
Donald E. Powell Chairman
Federal Deposit Insurance Corporation
On
Regulatory Efforts to Ensure Compliance with the Bank Secrecy Act
Before the
Committee on Banking, Housing, and Urban Affairs U. S. Senate
9:30 AM - June 3, 2004
Room 534 Dirksen Senate Office Building
Mr. Chairman, Senator Sarbanes, and Members of the Committee, thank you for this
opportunity to discuss how the Federal Deposit Insurance Corporation, along with the
other bank regulatory agencies, addresses our responsibilities under the Bank Secrecy
Act (BSA) and related anti-money laundering and anti-terrorism laws.
My testimony begins with a brief history of the BSA and an overview of the work the
FDIC is doing under the law. I also will outline the current initiatives that the FDIC is
undertaking to foster a culture more focused on the effective supervision of banks for
compliance with BSA and related laws, and to provide assistance to law enforcement
agencies. Finally, I will discuss some broader ideas related to the way bank regulators,
law enforcement and the banking industry can work together to address money
laundering and terrorist financing.
Background and Evolution of BSA
The Bank Secrecy Act, which was enacted in 1970, authorizes the Secretary of the
Treasury (Treasury) to issue regulations requiring that financial institutions keep records
and file reports on certain financial transactions. Treasury’s authority includes specifying
filing and recordkeeping procedures and designating the businesses and types of
transactions subject to these procedures. As part of its overall responsibility and
authority to examine banks for safety and soundness, the FDIC is responsible for
examining state-chartered non-member financial institutions for compliance with the
BSA. This is consistent with Treasury’s delegation of its authority under the BSA to the
financial regulatory agencies for determining compliance with the Treasury’s Financial
Reporting and Recordkeeping regulations.
The original purpose of the BSA was to prevent banks from being used to conceal
money derived from criminal activity and tax evasion. A process of filing various reports,
including currency transaction reports (CTRs), was established and proved highly useful
in criminal, tax, and regulatory investigations and proceedings. Banks are required to
report cash transactions over $10,000 using the CTR. The information collected in the
CTR can provide a paper trail for investigations of financial crimes, including tax evasion
and money laundering, and has led to convictions and asset forfeiture actions.
Of
Donald E. Powell Chairman
Federal Deposit Insurance Corporation
On
Regulatory Efforts to Ensure Compliance with the Bank Secrecy Act
Before the
Committee on Banking, Housing, and Urban Affairs U. S. Senate
9:30 AM - June 3, 2004
Room 534 Dirksen Senate Office Building
Mr. Chairman, Senator Sarbanes, and Members of the Committee, thank you for this
opportunity to discuss how the Federal Deposit Insurance Corporation, along with the
other bank regulatory agencies, addresses our responsibilities under the Bank Secrecy
Act (BSA) and related anti-money laundering and anti-terrorism laws.
My testimony begins with a brief history of the BSA and an overview of the work the
FDIC is doing under the law. I also will outline the current initiatives that the FDIC is
undertaking to foster a culture more focused on the effective supervision of banks for
compliance with BSA and related laws, and to provide assistance to law enforcement
agencies. Finally, I will discuss some broader ideas related to the way bank regulators,
law enforcement and the banking industry can work together to address money
laundering and terrorist financing.
Background and Evolution of BSA
The Bank Secrecy Act, which was enacted in 1970, authorizes the Secretary of the
Treasury (Treasury) to issue regulations requiring that financial institutions keep records
and file reports on certain financial transactions. Treasury’s authority includes specifying
filing and recordkeeping procedures and designating the businesses and types of
transactions subject to these procedures. As part of its overall responsibility and
authority to examine banks for safety and soundness, the FDIC is responsible for
examining state-chartered non-member financial institutions for compliance with the
BSA. This is consistent with Treasury’s delegation of its authority under the BSA to the
financial regulatory agencies for determining compliance with the Treasury’s Financial
Reporting and Recordkeeping regulations.
The original purpose of the BSA was to prevent banks from being used to conceal
money derived from criminal activity and tax evasion. A process of filing various reports,
including currency transaction reports (CTRs), was established and proved highly useful
in criminal, tax, and regulatory investigations and proceedings. Banks are required to
report cash transactions over $10,000 using the CTR. The information collected in the
CTR can provide a paper trail for investigations of financial crimes, including tax evasion
and money laundering, and has led to convictions and asset forfeiture actions.
Although the BSA has been in effect for over 30 years, numerous revisions and
amendments have been made to enhance the notification and investigation of financial
crimes. The Money Laundering Control Act, which was enacted in 1986 to respond to
the increase in money laundering activity related to narcotics trafficking, was the first
major expansion of the BSA. The Money Laundering Control Act criminalized money
laundering and prohibited the structuring of transactions to avoid the filing of CTRs.
Additionally, at that time, banks reported suspicious transactions by marking the
“Suspicious” box on the CTR and also filing a Report of an Apparent Crime form
(“criminal referral”) with the bank’s primary regulator and law enforcement agencies.
Over the years, additional laws and amendments were passed to define how financial
institutions share information relating to apparent money laundering activities with law
enforcement. These laws included: the Annunzio-Wylie Money Laundering Suppression
Act of 1992, which replaced the criminal referral form with the suspicious activity report
(SAR) to be used for apparent money laundering activities; the Money Laundering
Suppression Act of 1994, which liberalized the rules for using CTR exemptions; and the
Money Laundering and Financial Crimes Strategy Act of 1998, which focused on
improving cooperation and coordination among regulators, law enforcement, and the
financial services industry.
The focus of the BSA was escalated further in the wake of the September 11, 2001,
terrorist attacks against the United States with passage of the Uniting and
Strengthening America by Providing Appropriate Tools to Restrict, Intercept, and
Obstruct Terrorism Act of 2001, otherwise known as the USA PATRIOT Act (PATRIOT
Act). Title III of the PATRIOT Act expands the BSA beyond its original purpose of
deterring and detecting money laundering to include terrorist financing in the United
States. One of the new provisions requires financial institutions to conduct due diligence
on customer accounts through a Customer Identification Program (CIP). The CIP
requires institutions to maintain records, including customer information and methods
used to verify customers' identities.
In 1990, the Financial Crimes Enforcement Network (FinCEN) was established in
Treasury to administer the BSA and provide a government-wide, multi-source
intelligence and analytical network. In October 2001, the PATRIOT Act elevated the
status of FinCEN within Treasury and emphasized its role in fighting terrorist financing.
In addition to administering the BSA, FinCEN is responsible for expanding the
regulatory framework to other industries (such as insurance, gaming, securities
brokers/dealers) vulnerable to money laundering, terrorist financing, and other crimes.
Evolution of 314(a) Requests
Shortly after the attacks on September 11th, the Federal Bureau of Investigation
provided a confidential listing (Control List) of suspected terrorists to the federal banking
agencies. The federal banking agencies provided the list to financial institutions to
check their records for any relationships or transactions with named suspects. Financial
institutions reported positive matches to the Federal Reserve Bank of New York which,
in turn, passed the information to the appropriate law enforcement agency. Based upon
amendments have been made to enhance the notification and investigation of financial
crimes. The Money Laundering Control Act, which was enacted in 1986 to respond to
the increase in money laundering activity related to narcotics trafficking, was the first
major expansion of the BSA. The Money Laundering Control Act criminalized money
laundering and prohibited the structuring of transactions to avoid the filing of CTRs.
Additionally, at that time, banks reported suspicious transactions by marking the
“Suspicious” box on the CTR and also filing a Report of an Apparent Crime form
(“criminal referral”) with the bank’s primary regulator and law enforcement agencies.
Over the years, additional laws and amendments were passed to define how financial
institutions share information relating to apparent money laundering activities with law
enforcement. These laws included: the Annunzio-Wylie Money Laundering Suppression
Act of 1992, which replaced the criminal referral form with the suspicious activity report
(SAR) to be used for apparent money laundering activities; the Money Laundering
Suppression Act of 1994, which liberalized the rules for using CTR exemptions; and the
Money Laundering and Financial Crimes Strategy Act of 1998, which focused on
improving cooperation and coordination among regulators, law enforcement, and the
financial services industry.
The focus of the BSA was escalated further in the wake of the September 11, 2001,
terrorist attacks against the United States with passage of the Uniting and
Strengthening America by Providing Appropriate Tools to Restrict, Intercept, and
Obstruct Terrorism Act of 2001, otherwise known as the USA PATRIOT Act (PATRIOT
Act). Title III of the PATRIOT Act expands the BSA beyond its original purpose of
deterring and detecting money laundering to include terrorist financing in the United
States. One of the new provisions requires financial institutions to conduct due diligence
on customer accounts through a Customer Identification Program (CIP). The CIP
requires institutions to maintain records, including customer information and methods
used to verify customers' identities.
In 1990, the Financial Crimes Enforcement Network (FinCEN) was established in
Treasury to administer the BSA and provide a government-wide, multi-source
intelligence and analytical network. In October 2001, the PATRIOT Act elevated the
status of FinCEN within Treasury and emphasized its role in fighting terrorist financing.
In addition to administering the BSA, FinCEN is responsible for expanding the
regulatory framework to other industries (such as insurance, gaming, securities
brokers/dealers) vulnerable to money laundering, terrorist financing, and other crimes.
Evolution of 314(a) Requests
Shortly after the attacks on September 11th, the Federal Bureau of Investigation
provided a confidential listing (Control List) of suspected terrorists to the federal banking
agencies. The federal banking agencies provided the list to financial institutions to
check their records for any relationships or transactions with named suspects. Financial
institutions reported positive matches to the Federal Reserve Bank of New York which,
in turn, passed the information to the appropriate law enforcement agency. Based upon