Vol. 58 No. 172 Wednesday, September 8, 1993  p 47206 (Rule) 104/390
FEDERAL RESERVE SYSTEM

12 CFR Parts 208, 211, and 225

[Regulations H, K and Y; Docket No. R-0792]

Membership of State Banking Institutions in the Federal Reserve
System; International Banking Operations; Bank Holding Companies
and Change in Bank Control; Criminal Referral Report

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.


SUMMARY: An interagency task force has designed a uniform multi-
agency criminal referral form in order to facilitate compliance
with financial institutions' criminal activity reporting requirements,
to enhance law enforcement agencies' ability to investigate
and prosecute the matters reported in the criminal referrals,
and to develop and maintain a new interagency database. This
uniform criminal referral form will replace the various criminal
referral forms that are currently being used by Federal bank,
thrift and credit union regulatory agencies and by the banking
organizations they supervise. The purpose of the regulation
is to create a uniform criminal referral reporting requirement
for all domestic and foreign financial institutions operating
in the United States.

EFFECTIVE DATE: October 8, 1993.

FOR FURTHER INFORMATION CONTACT: Herbert A. Biern, Deputy Associate
Director, (202/452-2620), Richard A. Small, Special Counsel,
(202/452-5235), or Mark Leemon, Senior Attorney, (202/452-5206),
Division of Banking Supervision and Regulation, Board of Governors
of the Federal Reserve System. For the hearing impaired only,
Telecommunication Device for the Deaf, Dorothea Thompson, (202/452-
3544), Board of Governors of the Federal Reserve System, 20th
and C Streets, NW., Washington, DC 20551.

SUPPLEMENTARY INFORMATION:

Background

   The Federal financial institutions regulatory agencies are
the Office of the Comptroller of the Currency (OCC), the Board
of Governors of the Federal Reserve System (Board), the Federal
Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision
(OTS), and the National Credit Union Administration (NCUA).
These agencies are charged with safeguarding the safety and
soundness of financial institutions with operations in the United
States, including national banks, credit unions, savings associations,
state-chartered banks, bank and thrift holding companies and
their nonbank subsidiaries, Edge and Agreement corporations,
and all U.S. offices of foreign banks. Pursuant to their respective
enabling statutes, these agencies are responsible for ensuring
that financial institutions apprise federal law enforcement
authorities of any violation or suspected violation of a criminal
statute. Fraud, abusive insider transactions, check kiting schemes,
money laundering and other crimes can cause significant financial
losses, pose serious threats to a financial institution's continued
viability and, if unchecked, may undermine the public confidence
in the financial services industry. The law enforcement community
needs to receive timely information regarding criminal and suspected
criminal activity that is sufficiently detailed to determine
whether investigations and prosecutions are warranted.
   The Interagency Bank Fraud Working Group (Working Group)
was formed in 1984 to promote interagency cooperation toward
the goal of improving the federal government's response to white
collar crime in financial institutions. The Working Group now
consists of representatives from twelve Federal agencies, including
the Board, the other federal financial institutions regulators,
the Federal Bureau of Investigation, the U.S. Secret Service,
the Department of Justice and the U.S. Department of the Treasury.
A subcommittee of the Working Group studied the criminal referral
process and developed a new uniform criminal referral form (the
Form). The purpose of the Form is to standardize criminal referral
data and to facilitate its automation. Because the Form is machine
readable, it is anticipated that the resulting interagency criminal
referral database will be fully functional in a relatively short
period of time. The database will provide information, inter
alia to the OCC, Board, FDIC, OTS, NCUA, and U.S. Department
of the Treasury. In order to promote use of the Form, each of
the Federal financial institutions regulatory agencies has decided
to adopt similar regulations relating to the filing of criminal
referral reports in specific situations and the use of the same
Form in the making of such criminal referral reports. The new
regulations would replace requirements mandating the filing
of criminal referrals and designating separate agency forms
for such referrals.

Comments Received

   On January 8, 1993, a proposed regulation was published in
the Federal Register (58 FR 3235). Thirty-four comments were
received on the proposed regulation. Fourteen comments were
from holding companies, eighteen comments were from commercial
banks or Federal Reserve Banks, and two comments were from attorneys
representing financial institutions. Twenty-five of the comments
expressed general support for the regulation. Four of the comments
were critical of any reporting requirement whatsoever, a view
that we must reject in light of the responsibility of financial
institutions to assist law enforcement authorities in the performance
of their duties. Ten of the comments suggested raising the dollar
thresholds for required reporting. Five of the comments suggested
computer software be made available to simplify the reporting
requirement. One comment expresses concern for possible liability
to financial institutions that might arise under various privacy
laws.
   With respect to potential civil liability that might arise
in connection with the submission of a criminal referral, Congress
has enacted a statute that provides protection from civil liability
for the reporting of criminal acts to appropriate authorities.
Amendments to the Bank Secrecy Act made by the Housing and Community
Development Act of 1992 (31 U.S.C. 5314(g)(3)) provide that
financial institutions, and their directors, officers, employees
and agents, that disclose, in good faith, possible violations
of law in connection with the preparation of criminal referral
forms shall not be liable to any person under any law or regulation
of the United States or any constitution, law, or regulation
of any State or political subdivision thereof, for such disclosure
or for any failure to notify the person involved in the transaction
or any other person of such disclosure. This law also requires
that financial institutions, and their directors, officers,
employees and agents, refrain from communicating that a criminal
referral has been made and the information reported in a criminal
referral to any person involved in the suspicious transaction.{1}
        {1}  The new criminal referral form prominently provides
      a description of this new law on the front page of the
      form's instructions.
   Several commenters recommended that the dollar minimums on
reportable offenses be raised. Although these comments raise
a valid concern, particularly for financial institutions that
may file numerous criminal referrals, the appropriate law enforcement
authorities have advised the staff of the Board and the other
bank and thrift regulatory agencies that the present limits
are necessary for their law enforcement functions. Additionally,
with the advent of the new banking and law enforcement agency
databases, patterns of crime throughout the financial community
should become more easily detectable. Especially in the cases
of credit card fraud, money laundering, and check kiting, seemingly
minor individual reports often are analyzed to detect major
fraud schemes.
   Several commenters queried whether the requirement to notify
the boards of directors of financial institutions of the filing
of criminal referrals should be viewed as mandating a communication
to the board every time a criminal referral is filed or whether
the notification requirement could be satisfied by a periodic
or summary report. Consistent with current practice, the requirements
of the regulation will be satisfied by a summary or periodic
report to the board of directors, unless a criminal referral
relates to a material event that necessitates a more prompt
notification to the board of directors.
   Several commenters recommended that a computerized model
be developed to facilitate the task of completing the forms.
The use of a computer shell was contemplated from the inception
of the interagency database; and, as a result, a computer shell
will be made available contemporaneously with the distribution
of the new form, at no, or a very minimal, cost to financial
institutions. The computer shell will enable the completion
of the form using a personal computer and a laser printer. The
computer shell should reduce the costs and burdens associated
with the preparation of the Form.
   It is important to note that the regulation requires that
financial institutions use only the Form or the computer shell
that has been authorized by the Federal regulators. Use of another
form, a facsimile of the Form, or any computer software shell
of the Form other than the shell distributed by the regulators
is not permitted and could result in a determination that a
financial institution or an institution-affiliated party has
not complied with this regulation.

Regulatory Flexibility Act Analysis

   The Board certifies that this proposed regulation will not
have a significant financial impact on a substantial number
of small banks or other small entities.

Executive Order 12291

   The Board has determined that this proposed regulation is
not a ``major rule'' and therefore does not require a regulatory
impact analysis.

Paperwork Reduction Act

   In accordance with Section 3507 of the Paperwork Reduction
Act of 1980, the criminal referral report regulation was approved
under authority delegated to the Board by the Office of Management
and Budget. The Board has determined that the regulation does
not significantly increase the burden of the reporting institutions.
The estimated average burden associated with the collection
of information contained in a criminal referral report is approximately
.6 hour per respondent. The burden per respondent will vary
depending on the nature of the criminal activity being reported.
   Comments concerning the accuracy of this burden estimate
should be directed to the Herbert A. Biern, Deputy Associate
Director, Division of Banking Supervision and Regulation, Mail
Stop 175, Federal Reserve Board, 20th and C Streets, NW., Washington,
DC 20551.

List of Subjects


12 CFR Part 208

   Accounting, Agriculture, Banks, banking, Confidential business
information, Currency, Reporting and recordkeeping requirements,
Securities.

12 CFR Part 211

   Exports, Foreign banking, Holding companies, Investments,
Reporting and recordkeeping requirements.

12 CFR Part 225

   Administrative practice and procedure, Banks, banking, Holding
companies, Reporting and recordkeeping requirements, Securities.

   For the reasons set forth in the preamble, parts 208, 211,
and 225 of chapter II of title 12 of the Code of Federal Regulations
are amended as follows:

PART 208-MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL
RESERVE SYSTEM

   1. The authority citation for 12 CFR part 208 is revised
to read as follows:

   Authority: 12 U.S.C. 248(a) and (c), 321-328, 461, 481-486,
601, 611, 814, 1818, 1823(j) and 1831o.

   2. Section 208.20 is added to read as follows:


 208.20  Reports of crimes and suspected crimes.

   (a) Purpose. This section applies to known or suspected crimes
involving state member banks. This section ensures that law
enforcement agencies are notified by means of criminal referral
reports when unexplained losses or known or suspected criminal
acts are discovered. Based on these reports, the Federal government
will take appropriate measures and will maintain an interagency
database that is derived from these reports.
   (b) Institution-affiliated party. Institution-affiliated
party means any institution-affiliated party as that term is
defined in sections 3(u) and 8(b)(3) and (4) of the FDIA (12
U.S.C. 1813(u) and 1818(b)(3) and (4)).
   (c) Reports required. A state member bank shall file a criminal
referral report using a standardized form (Form),{13} in accordance
with instructions for the Form, in every situation where:
        {13}  Copies of the Form (FR 2230) are available from
      the Federal Reserve Banks. The Form may be prepared using
      a computer shell that is distributed by the Board.
   (1) The State member bank suspects one of its directors,
officers, employees, agents, or other institution-affiliated
parties of having committed or aided in the commission of a
crime;
   (2) There is an actual or potential loss to the state member
bank (before reimbursement or recovery) of more than $1,000
where the State member bank has a substantial basis for identifying
a possible suspect or group of suspects and the suspect(s) is
not an director, officer, employee, agent, or institution-affiliated
party of the State member bank;
   (3) There is an actual or potential loss to the state member
bank (before reimbursement or recovery) of $5,000 or more and
where the State member bank has no substantial basis for identifying
a possible suspect or group of suspects; or
   (4) The State member bank suspects that it is being used
as a conduit for criminal activity, such as money laundering
or structuring transactions to evade the Bank Secrecy Act reporting
requirements.
   (d) Time for reporting. (1) A state member bank shall file
the report required by paragraph (c) of this section no later
than 30 calendar days after the date of detection of the loss
or the known or suspected criminal violation or activity. If
no suspect has been identified within 30 calendar days after
the date of the detection of the loss or the known, attempted
or suspected criminal violation or activity, reporting may be
delayed an additional 30 calendar days or until a suspect has
been identified; but in no case shall reporting of known or
suspected crimes be delayed more than 60 calendar days after
the date of the detection of the loss or the known, attempted
or suspected criminal violation or activity. When a report requirement
is triggered by the identification of a suspect or group of
suspects, the reporting period commences with the identification
of each suspect or group of suspects.
   (2) When a State member bank detects a pattern of crimes
committed by an identifiable individual, the State member bank
shall file a report no later than 30 calendar days after the
aggregated amount of the crimes exceeds $1,000.
   (3) In situations involving violations requiring immediate
attention or where a reportable violation is ongoing, the State
member bank shall immediately notify by telephone the appropriate
law enforcement agency and the appropriate Federal Reserve Bank
in addition to filing a timely written report.
   (e) Reporting to state and local authorities. State member
banks are encouraged to file copies of the Form with State and
local authorities where appropriate.
   (f) Exceptions. A State member bank need not file the Form:
   (1) For those robberies and burglaries that are reported
to local law enforcement authorities; and
   (2) For lost, missing, counterfeit or stolen securities if
a report is filed pursuant to the reporting requirements of
17 CFR 240.17f-1.
   (g) Retention of records. A State member bank shall maintain
copies of any Form that it filed and the originals of all related
documents for a period of 10 years from the date of the report.
   (h) Notification to board of directors. The management of
a State member bank shall promptly notify its board of directors
of any report filed pursuant to this section.
   (i) Penalty. Failure to file a report in accordance with
the instructions on the Form and this regulation may subject
the State member bank, its directors, officers, employees, agents,
or other institution-affiliated parties to supervisory action.

PART 211-INTERNATIONAL BANKING OPERATIONS

   1. The authority citation for 12 CFR part 211 is revised
to read as follows:

   Authority: 12 U.S.C. 221 et seq., 1818, 1841 et seq., 3101
et seq., 3901 et seq., and Pub. L. 100-418, 102 Stat. 1384 (1988).

   2. Section 211.8 is added to read as follows:


 211.8  Reports of crimes and suspected crimes.

   An Edge corporation or any branch or subsidiary thereof or
an Agreement corporation or branch or any subsidiary thereof
shall file a criminal referral form in accordance with the provisions
of  208.20 of the Board's Regulation H, 12 CFR 208.20.

   3. Section 211.24 is amended by adding a new paragraph (f)
to read as follows:


 211.24  Approval of offices of foreign banks; procedures for
applications; standards for approval; representative office
activities and standards for approval; preservation of existing
authority.
*     *     *     *     *
   (f) Reports of crimes and suspected crimes. Except for a
federal branch or a federal agency or a state branch that is
insured by the Federal Deposit Insurance Corporation, a branch
or agency or a representative office of a foreign bank operating
in the United States shall file a criminal referral form in
accordance with the provisions of  208.20 of the Board's Regulation
H, 12 CFR 208.20.

PART 225-BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL

   1. The authority citation for 12 CFR part 225 is revised
to read as follows:

   Authority: 12 U.S.C. 1817(j)(13); 1818(b); 1844(b); 3106
and 3108; and Pub. L. 98-181, title IX.
   2. Section 225.4 is amended by adding a new paragraph (g)
to read as follows:


 225.4  Corporate practices.
*     *     *     *     *
   (g) Criminal referral report. A bank holding company or any
nonbank subsidiary thereof, or a foreign bank that is subject
to the BHC Act or any nonbank subsidiary of such foreign bank
operating in the United States, shall file a criminal referral
form in accordance with the provisions of  208.20 of the Board's
Regulation H, 12 CFR 208.20.

   Board of Governors of the Federal Reserve System, August
31, 1993.

William W. Wiles,
Secretary of the Board.

[FR Doc. 93-21658 Filed 9-7-93; 8:45 am]
BILLING CODE 6210-01-F



The Contents entry for this article reads as follows:

Membership of State banking institutions, international banking
    operations, and bank holding companies and change in bank control
    (Regulations H, K, and Y):
  Criminal activity reporting requirements; uniform multiagency
    criminal referral form, 47206